Pure Excess and Umbrella liability insurance are often confused for the same thing, and the terms routinely are used interchangeably. In fact, umbrella coverage is often just a type of excess insurance that provides coverage different than pure excess insurance. Usually, an umbrella policy may provide pure excess insurance under one coverage form and drop-down umbrella coverage under a separate coverage form. Under pure excess coverage, a defense obligation may be triggered only when the underlying insurance is exhausted by payment of settlements or judgments. By contrast, under umbrella coverage, a defense obligation under the latter may be triggered on a primary basis due to gaps in coverage.Continue Reading...
Diane’s October 18 post points up the distinction between insurance and indemnity contracts, and calls to mind another important point about these risk transfer mechanisms: to the extent that insurance and indemnity contracts operate independently of each other (a question apparently to be taken up by the Texas Supreme Court), they may not be co-extensive in the protections they provide as respects the duty to defend and indemnify losses, as follows:
- Defense: The duty to defend under an insurance policy is broader than the duty to indemnify; thus, additional insureds typically are entitled to a defense from the insurer if the pleadings merely allege that the loss arose out of the named insured’s work for the additional insured. In contrast, the duty to indemnify for costs of defense under an indemnity contract typically is only as broad as the duty to indemnify--it gives rise to a right of reimbursement for the costs of defense only if the indemnifying party is found to be at fault.
- Indemnity: The scope of indemnification afforded under an insurance policy typically also is broader than that afforded under an indemnity contract. Additional insured endorsements often afford coverage not only for an additional insured’s vicarious liability, but also for its partial (and sometimes sole) fault. Indemnity contracts typically are fault-based; recovery is limited to the indemnified party’s vicarious liability.
These differences derive from the unique undertakings in each agreement. Although insurance and indemnity contracts often refer to each other, typically they don’t purport to govern the other, as indeed the parties to each are different. It will be interesting to see how a different outcome in In Re Deepwater Horizon might implicate these rights.
“Additional insured” provisions are one of the most prevalent risk shifting techniques used in the insurance field today. Yet surprisingly, they remain one of the least understood for insurers, courts, and insureds. While debate in Oregon case law over the legal status of additional insured provisions has quieted down since the Oregon Supreme Court’s decision in Walsh Construction Co., v. Mutual of Enumclaw and the U.S. District Court’s decision in Hoffman Construction Co. of Oregon. v. Travelers Indemnity Ins. Co., dispute over the role of these provisions is alive and well. Continuing litigation and decisions in other jurisdictions illustrate why parties to insurance policies and other indemnification agreements should remain alert to additional insured provisions.
The New Jersey Supreme Court has ruled that a settlement that a non-defending insurer entered into with its policyholder did not preclude a defending insurer from bringing an equitable contribution to recover its costs of defense. In Potomac Ins. Co. of Illinois v. OneBeacon Ins. Co., A-2-12 (N.J. September 16, 2013), the court declared that allowing equitable contribution in long-tail cases was in keeping the rules for allocating indemnity that it had adopted in Owens-Illinois and Carter-Wallace and would creates a strong incentive for prompt and proactive involvement by all responsible carriers and promote the efficient use of resources of insurers, litigants and the court. The court ruled that the insured’s settlement had no impact on OneBeacon’s right to sue since OneBeacon was not a party to it and was bringing the claim on its own behalf.Continue Reading...
The fifth annual claims symposium of the Massachusetts Reinsurance Bar Association is set for October 3 at the downtown Harvard Club. The symposium, which is annually attended by about 100 reinsurance claims executives and outside counsel, has the theme of The Future Is Now: Reinsurance in the Age of Superstorms, Cyber Loss and Other Emerging Risks.
This year's key note speaker with the Hon. Nancy Gertner, who recently retired from the federal bench following years of service, including the authorship of the landmark Commercial Union v. Seven Provinces decision.
Additionally, this year's program will explore emerging risks such as Climate Change, Supply Side Risks, Nanotechnology, Cyber Liability and Terrorism. We have assembled a team of top-notch insurance executives, regulators, claims professionals, arbitrators and outside attorneys who will showcase, through a series of panels and an interactive workshop, the nature of these emerging risks, how these risks are being assessed when underwriting reinsurance contracts, and how experienced industry arbitrators approach disputes involving these emerging risks.
Registration is now open on www.mreba.org
There's a great event going on in Chicago next month that I'm not invited to. I'm ok with that because a bunch of friends are organizing it and I might stick out like a sore thumb.
The second annual Women in Insurance (WIN) Networking CLE Workshop, sponsored by the Insurance Coverage Litigation Committee of the Section of Litigation of the American Bar Association, will take place at the Chicago offices of Jenner & Block on October 15, 2013. It's an all day event that will feature panels of nationally known attorneys, insurers, brokers and risk managers talking about everything from cyber risk to Hurricane Sandy. The inaugural workshop held last year in
So if you are in Chicago that week for the DRI Annual Meeting or live or work there, get on over. It's a great networking opportunity and (probably) a hell of a good party afterwards (maybe I'll get invited to that one).
According to a recent Washington Supreme Court decision, first-party insurers do not have an absolute right to an examination under oath (“EUO”), and are required to show prejudice before denying a claim on the basis that the insured refused to submit to an EUO. Staples v. Allstate Ins. Co., 176 Wash. 2d 404, 406, 295 P.3d 201, 203 (2013). Interpreting a cooperation condition of a homeowner’s policy providing that the insured “must” submit to an EUO at the insurer’s request, the Supreme Court held an insurer cannot demand an EUO that is not “material to the investigation or handling of a claim.” Id. at 411-12, 414. The Court based its holding on “the quasi-fiduciary insurance relationship” between insured and insurer, observing that “it would surely violate an insurer’s good faith duty to demand an EUO from every single claimant simply to burden insureds and set up pretexts for denying claims.” Id. at 414. In doing so, the Supreme Court also expressly disapproved of Downie v. State Farm Fire & Casualty Co., 84 Wash. App. 577, 929 P.2d 484 (1997), in which Washington’s Court of Appeals concluded that an insurer has an absolute right to at least one EUO. Id.
How does one spend $400,000 in defense costs to defend a claim that was barred by the Illinois Workers’ Occupational Diseases Act ( "ODA")? Safety National may never know, even though it was held liable to pay those sums in excess of the insured’s SIR of $275,000 in TKK USA, Inc. v. Safety National Cas. Corp., No. 12-1988 (7th Cir. August 21, 2013). In that case, the widow of an employee who had died from exposure to asbestos fibers while working for TKK filed a wrongful death claim against TKK. TKK gave Safety National, an excess insurer whose policy covered losses resulting from liability imposed on TKK “by the Workers’ Compensation or Employers’ Liability Laws” of Illinois, timely notice of the lawsuit. TKK retained primary responsibility for defending, settling or paying claims up to $275,000 per occurrence. Safety National told TKK that the policy did not cover the lawsuit. TKK defended the lawsuit and settled with the claimant for $15,000. TKK sought the defense and settlement sums above its SIR from Safety National.
As the Seventh Circuit observed, the wrongful death claim was subject to a rock‐solid affirmative defense. The ODA bars common law claims by or on behalf of an employee against a covered employer “on account of damage, disability or death caused or contributed to by any disease contracted or sustained in the course of the employment.”Continue Reading...
Recently passed legislation, if signed by New York's governor, will regulate the use of insurance certificates in New York. A top legislative priority for the Independent Insurance Agents & Brokers of New York, Inc., the bill would, among other things, clarify that insurance certificates don't alter the scope of coverage provided by insurance policies, and would prohibit any person or entity from knowingly:
• Demanding an altered or modified certificate of insurance
• Requesting a certificate that contains terms, conditions, or other language that is not found in the policy
• Requiring a producer to issue an opinion letter or similar document that violates any of the bill’s prohibitions
• Requiring a certificate to warrant that the insurance policy complies with the requirements of a particular contract, and
• Requiring a certificate that inaccurately states the insurance coverages, purports to change the coverage, or to grant rights beyond those stated in the policy.
According to the IIABNY, the legislation is intended to curtail increasing demands on producers to use certificates to alter or amend the terms of coverage afforded by underlying policies and/or to make warranties that the policies provide complete coverage for contractual undertakings; producers who refuse such demands often face threats of losing their clients. Thanks to Tim Dodge, IIABNY’s director of research and media relations, and editor of the Ask Tim blog, for the heads-up on this bill’s passage.
The news these days is full of stories about cyber-attacks and hacking. Lost among the headlines is the deadly peril that law firms face as hackers target their often insecure computer systems as an easy means of stealing confidential client data and secrets.
DRI has scheduled a special webcast on June 17 from 2-3:30 Eastern featuring Aon's Doug Richmond and Shari Lewis of Gordon & Rees discussing how these attacks occur, what obligations lawyers have to protect client secrets, practical steps that law firms can (or must) take to safeguard against such risks and what kind of existing or novel insurance products are available to provide coverage against malpractice claims arising out of data theft and insecurity.
This program is a must for law firms worried about such claims, insurance claims professionals handling E&O exposures for law firms and lawyers defending E&O claims.
The price is $150 for DRI members, $180 for the rest of you. I convinced DRI to put on this webcast because I think that it fills a need. Hopefully, you'll see that need to and attend.
Mike Aylward: Chapter One of Tentative Draft No. 1 of the Principles of the Law of Liability Insurance says some very interesting things about how insurance contracts should be interpreted and, in particular, what role ambiguity should play in creating coverage.
Section 3 states that insurance terms are to be interpreted in accordance with their “plain meaning” and presumes that a reasonable policyholder would share that plain meaning unless the insured presents “highly persuasive evidence demonstrating that a reasonable person in this policyholder’s position would give the term a different meaning under the circumstances.”
That doesn’t sound like much of a change from mainstream law until you get to Comment (a) to Section 3, which states that “extrinsic evidence is admissible to show the meaning of a policy term that is unambiguous on its face, but the language of the term must be susceptible to the alternative interpretation and that evidence must be sufficiently persuasive to the court to overcome the presumption in favor of the plain meaning of the term.” In short, even clear language can be ambiguous based on highly persuasive extrinsic evidence as to its meaning.
Section 4 is even more interesting. Instead of the “tie goes to the insured” rule followed in most states, whereby an insured gets coverage as long as it can demonstrate an alternative reasonable meaning, Section 4 states that contra proferentem is an interpretive rule of last resort and that a judge should only use ambiguity as a means of finding coverage after “using all other permissible sources of meaning, including extrinsic evidence.” Consistent with this view, Comment (k) says that the same rules should apply to “sophisticated” and unsophisticated insureds. The reporters observe that, “[B]ecause contra proferentem is a doctrine of last resort. . .the doctrine should be applied irrespective of the sophistication of the parties.”
We asked our contributors whether these statements reflect the existing law in their jurisdictions and how they may impact the practice of insurance litigation in the future?Continue Reading...
Michael Aylward: So the American Law Institute has approved Sections 1 through 15 of Tentative Draft No. 1 of the Principles of the Law of Liability Insurance. Why should we or our clients care?
Chris Martin: The ALI Principles presented an exceptional opportunity to articulate legal standards to guide U.S. courts through the rapidly changing landscape of insurance policy forms in the 21st Century. However, this draft does little more than guarantee that policies will become longer and less understandable by laymen as well as more expensive due to new underwriting concerns and new legal exposures. Rather than focus where the courts (and practitioners) need the most help – new policy concepts and coverages that didn’t even exist until recently (such as challenging new concepts like self-insured retentions, fronting policies, and eroding policy limits, just to name a few) – Tentative Draft No. 1 would undo decades of legal precedent in many states, including Texas, regarding fundamental concepts of contractual interpretation.Continue Reading...