National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

Labate v. Liberty Mut. Ins. Co. (NY App., 2nd Dept., Nov. 29, 2007)
In a claim for coverage under a homeowner’s policy for damages sustained to insureds’ house when walls cracked and the concrete basement floor slab settled and cracked, the court held that an earth movement exclusion in the policy clearly and unambiguously applied to the property loss. The insurer's expert and the insureds' own engineers hired to remedy the conditions opined that the property damage was caused directly or indirectly by earth movement and settlement.

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A California appellate court provided further guidance to insurers on satisfactory grounds for rescission of an insurance policy and the burden on the insurer to obtain reimbursement of defense costs and settlement amounts paid on an insureds’ behalf. The court’s decision provides further delineation of the difficult burden imposed on insurers in obtaining reimbursement from an insured (even when the insured is able to pay).

In LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co., __ Cal.App.4^th __ [2007 Cal.App. LEXIS 1853], the California Court of Appeal for the Fourth Appellate District (which includes Orange County) ruled that: (1) the failure to advise the insurance company that the insureds were involved in a joint venture was a material misrepresentation supporting rescission of the policy ab initio; and (2) the insurance company was entitled to reimbursement of all amounts paid to defend and settle the claim against its insureds; but (3) the insurer had the burden of showing by a preponderance of the evidence how much each of three insureds should reimburse and had failed to do this, so the case was remanded for this determination.

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In White v. Continental Cas. Co. (NY Nov. 27, 2007), the New York Court of Appeals considered whether the definition of “total disability” in a disability income policy was ambiguous, and, if not, whether the insured had satisfied the definition to permit recovery under the policy. The court held it was not, and that the insured failed to establish his entitlement to benefits. Continue Reading...

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This coverage case arose from an underlying case brought against the policyholder for violation of CERCLA for the policyholder’s alleged “contamination of two Superfund sites in eastern Arkansas.” The policyholder filed suit against the Pennsylvania Manufacturers' Association Insurance Company ("PMA") seeking coverage under several insurance policies allegedly issued from 1967 to 1978 and alleging that PMA acted in bad faith under Pennsylvania law for its failure to defend or indemnify it in the underlying suit. The policies from 1967 to 1972 were lost while the 1972 to 1978 policies existed and contained a pollution exclusion which contained an exception for “sudden and accidental” discharges.

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In an action for coverage for damage sustained to vacant property resulting from freezing water pipes, the court held that the insured established he used reasonable care to maintain heat in his building at the time the plumbing system froze. In Gallo v. Midstate Mut. Ins. Co. (NY App., 4th Dept., Nov. 23, 2007), plaintiff submitted testimony of his property manager stating that he had restored electricity to the building before the loss by removing tabs in the electric meter. Plaintiff also submitted the testimony of the rental agent stating the electricity was on and the furnace blower was operating properly to heat the building at the time of loss. The utility company’s documents indicating it had no record of electrical service to the property were deemed insufficient to raise an issue of fact. Thus, the court conlcuded that summary judgment on the issue was properly granted in favor of the insured. The insurer’s contention—that the property manager’s acts in restoring electricity to the building could not constitute reasonable care because they constituted theft of services—was not considered by the court, as the argument was raised for the first time on appeal. The court also concluded that an exclusion for accidental discharge or overflow of liquids or steam from a plumbing system did not unambiguously apply in this case.

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In Hospital for Joint Diseases v Travelers Prop. Cas. Ins. Co. (NY Nov. 20, 2007), the New York Court of Appeals has held that an insurer’s failure to timely request verification of a patient’s assignment of first-party no-fault benefits to a hospital rendering services precludes the carrier from contesting the validity of the assignment. Continue Reading...

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In St. Nicholas Cathedral of the Russian Orthodox Church in North America v Travelers Prop. Cas. Ins. Co. (NY App., 1st Dept., Nov. 20, 2007) , court held that insurer properly disclaimed coverage where insured delayed seven months in providing notice of accident. Evidence established that insured was immediately aware of accident, which occurred in front of its property while contractor was performing work on its behalf; and, that a person was injured and removed by ambulance. Moreover, insured was familiar with policy’s notice provisions. Court also held that insurer need not demonstrate prejudice to invoke late notice defense.

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The Fifth Circuit has asked the Mississippi Supreme Court to answer whether a medical malpractice insurer whose “other insurance” clause made it excess to PHICO must nonetheless accept coverage in light of PHICO’s insolvency or whether the State Guaranty Fund bore responsibility.   Earlier this year, the supreme court ruled that the exhaustion requirements of Miss. Code Ann. §83-23-123 did not apply to coverage available to a co-defendant, holding in Mississippi nsurance Guaranty Association v. Cole, 954 So.2d 407 (Miss. 2007) that the MIGA’s obligations were not excused by sums paid by the insurer of a joint tortfeasor.

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Efficient proximate cause issues have been much in the news lately as insureds and insurers joust over wind-water and anti-concurrent causation clauses throughout the Fifth Circuit.  In an ew opinion, however, the Vermont Supreme Court has ruled that courts need not consider the efficient or predominant cause of a loss, much less ACC clauses, if the exclusion itself focuses on the nature of the loss, rather than its cause.

In Sperling v. Allstate Indemnity Co., 2007 VT 126 (Vt. November 9, 2007), a homeowner sought coverage for the cost of cleaning up oil that spilled out of a home heating tank in the insured’s basement after a suitcase fell on it breaking a valve through which oil passed on the way to the tank. Allstate denied coverage, citing an exclusion in the homeowner’s policy for loss to property caused by “vapors, fumes, acids, toxic chemicals, toxic gases, toxic liquids, toxic solids, waste materials or other irritants, contaminants or pollutants.”

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The Oregon Supreme Court recently modified a prior decision finding that its interpretation of “accepted coverage” was incorrect.  In this case, the insured had prevailed in a personal injury protection (PIP) dispute with his insurer and sought to recover his attorney fees under ORS 742.061.  This statute provides that a successful plaintiff is entitled to recover fees with the exception that no fees are required to be paid if the insurer has “accepted coverage” and “the only issue is the amount of benefits due the insured.”  In the court’s prior opinion, it held that neither of the conditions had been met for the exception to apply.  Progressive moved for reconsideration on the basis that the court erred in concluding that it had not “accepted coverage” as the court incorrectly found that the phrase was “not limited to a one-time decision . . . but rather is an ongoing series of decisions.”  Pointing to other provisions of the statute, Progressive argued that “acceptance of coverage” is a single event that must occur within six months from the date that proof of loss is filed with the insurer.  The court agreed with Progressive and modified its prior decision, stating that its prior interpretation of “accepted coverage” was incorrect.

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In a much anticipated decision, the New York Court of Appeals has resolved a conflict between NY Ins. Law §3420(f)(2), which does not expressly impose a “serious injury” requirement as a condition to recovery of un/underinsured motorist (SUM) benefits, and Insurance Department Regulation 35-D, which does. In Raffellini v. State Farm Mut. Auto. Ins. Co. (NY Nov. 15, 2007), the court held that the serious injury requirement of Regulation 35-D is enforceable, and that the exclusion in State Farm’s SUM endorsement was for that reason enforceable. Continue Reading...

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In Keefer v. Ferrell (W.Va. Nov. 8, 2007), plaintiff was operating a tractor for the purpose of loading it onto a nearby truck owned by the insured. He was approximately 25 feet from the truck, and was turning into the driveway where the truck and an attached trailer were located, when he was struck from behind by an uninsured driver.

Plaintiff sustained injuries, and sought UM benefits under the insured’s policy. The UM policy defined “insured” to include “[a]nyone else ‘occupying’ or using a covered ‘auto’ or temporary substitute for a covered ‘auto’.” The policy defined “occupying” as “in, upon, getting in, on, out or off.” The insurer denied coverage, arguing that plaintiff was not an “insured” under the policy because he was neither “occupying” nor “using” the truck while operating the tractor.

The court held that plaintiff was “occupying” the truck, since he was in the process of “getting on” it when he was struck. The court also concluded that plaintiff was “using” the vehicle. The court reasoned that, when an individual is separated from a vehicle at the time of an accident, whether that individual is “using” the vehicle depends on whether there is a causal connection between the that vehicle and the injury. The court noted several relevant factors:

?whether the individual was in reasonably close proximity to the insured vehicle at the time of the accident;

? whether the individual was vehicle oriented as opposed to highway or sidewalk oriented;

? whether the individual had relinquished control of the vehicle; and

? whether the individual was engaged in a transaction reasonably related to the use of the vehicle at the time of the accident.

The court concluded that plaintiff was “using the vehicle because his injuries were both “causally connected to the use of the” truck and were “foreseeably identifiable with the normal use of the” truck. The court found the tractor “was in reasonably close proximity to the insured vehicle at the time of the accident,” and was vehicle oriented in that plaintiff was turning into the driveway when struck. In addition, plaintiff was “engaged in a transaction reasonably related to the use of the vehicle,” i.e., he was driving the tractor so that it could be loaded onto the attached trailer. Since the plaintiff was “occupying” and “using” the insured vehicle, he qualified as an “insured” eligible for UM benefits under the policy.

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Western World Ins. Co. v. Wilkie, 5:06-cv-64 (E.D.N.C. November 1, 2007)

A federal district court has ruled that claims against a petting zoo arising out of outbreak of e. coli only triggered a single “occurrence” limit. Applying a “cause” test, Judge Howard ruled  that claims by numerous children who came into contact with fecal matter in the course of a week while visiting the petting zoo at the state fair all of the claims arose out of exposure to the same general harmful conditions (the presence of e. coli at the zoo).

 

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In an action to stay arbitration of uninsured motorist arbitration, a New York appellate court dismissed the proceeding against an insurer for lack of personal jurisdiction. In Matter of American Transit Ins. Co. v. Hoque (NY App., 1^st Dept., Nov. 8, 2007), the court concluded the insurer was not doing business in New York, since it was a Pennsylvania company not licensed to do business in New York; it maintained no offices in New York; had no bank accounts and had no agents operating out of or representatives soliciting business in New York; and, did not own or possess real property in New York. The court also found that the insurer was not transacting business in New York merely because the driver of the offending vehicle, which was registered in Pennsylvania, drove the vehicle in this state, as this was not “purposeful activity” on the part of the insurer.

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In The Beekman Regent Condominium Assoc.v. Greater New York Mut. Ins. Co. (NY App. 1^st Dept., Nov. 8, 2007), the court dismissed as untimely plaintiff’s action commenced after the policy’s two-year limitations period ran. The court rejected the insureds' arguments that they were unaware of the limitations clause due to the length of the policy, since “an insured has an obligation to read his or her policy and is presumed to have consented to its terms.” The court also concluded that the insurer was under no obligation to call plaintiffs’ attention to the clause, and that its participation in settlement negotiations “either before or after expiration of a limitations period contained in a policy is not, without more, sufficient to prove waiver or estoppel.”

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Although insurers have fared relatively well in recent years in contesting law suits alleging  bad faith, they have recently lost ground in state legislatures.  In addition to the new administrative regime for adjusting bad faith claims in Maryland and the Oregon referendum reported on earlier this week by Diane Polscer, legislation has now been proposed in Michigan that would permit policyholders to recover treble damages if an insurer unreasonably denied a claim to sue for damages (including costs).   Senate Bill 866, which was introduced on November 1 and referred to the Committee on Economic Development and Regulatory Reform, would require insureds to give 20 days notice before such claims could be made.

While the fate of SB 866 is unclear, a proposal of this sort would have a dramatic impact on Michigan law.  Michigan is among the few states that do not recognize claims for breach of an impllied covenant of good faith and fair dealing against insurers.   As a result, bad faith damages are, for the most part, limited to penalty interest.

SB 866 also highlights the growing trend of plaintiffs and policyholder to obtain remedies and rights through the legislative process that they've heretofore been unable to secure in court.

 

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The Seattle Times is reporting this morning that Referendum 67 was approved by voters by a margin of 57% to 43% in Tuesday’s election. As we have previously reported, the Referendum allows the unprecedented remedy of uncapped treble damages awarded at the discretion of the trial court for “unreasonable” denials of claims for coverage or payment of benefits, or violations of the Washington Administrative Code regulations concerning improper claims handling. The National Association of Mutual Insurance Companies issued a statement this morning indicating that passage of the Referendum will likely lead to increased rates for Washington consumers and that the organization will work with lawmakers to repeal the IFCA during the next legislative session.

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The Ninth Circuit has ruled that a California District Court erred in holding that investors suits against a fund manager were barred from coverage as being “related” to claims that other investors brought against the insured prior to the date that AISLIC’s “claims made” Investment Managers policy. In Financial Managers Advisors, LLC v. American International Specialty Lines Ins. Co., No. 06-55001 (9th Cir. November 5, 2007), the court held that the newer claims involved new claimants and different “wrongful acts.” As a result, even though the new claims involved allegations of fraud and misrepresentation involving the same investment vehicles as was at issue in the earlier case, the court ruled that it did not believe that “the term ‘related’ was intended to bar recovery where two investors are advised to invest in the same fund.”

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The Appellate Division of the New York Supreme Court has ruled in International Flavors and Fragrances, Inc. v. Royal Ins. Co. of America,  (App. Div. October 30, 2007) that claims by toxic tort claims presented by workers in a microwave packaging plant who suffered respiratory injuries as the result of exposure to a popcorn butter flavoring additive were separate “occurrences” and therefore required the insured to pay separate “occurrence” deductibles for each claim. In keeping with the Court of Appeals’ recent GE decision, the court ruled that these claims could not be grouped as a single “occurrence” since they involved exposures that occurred in different places over a period of many years.

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Over the years, insurers and tort lawyers have engaged in a cold war over whether homeowner's policies should cover intentional or criminal acts.   In the face of threshold contentions that such offenses were not "accidents" or "occurrences," plaintiffs learned to plead their claims under theories of neglligent hiring or supervision in the hopes of creating coverage.  Enough courts have come to accept coverage for these "negligence" theories that insurers have added new exclusions specifically directed at certain types of offenses that give rise to them, notably assault and battery and sexual molestation.

In the latest skirmish over these new wordings, the Supreme Court of New Hampshire (which has been very busy lately on the coverage front) ruled last week in Philbrick v. Liberty Mutual Ins. Co. that a trial court erred in refusing to apply a homeowner's exclusion for "bodily injury...arising out of sexual molestation" to negligent supervision claims against the parents of a teenage baby-sitter who had molested the plaintiff's children.  The court rejected the plaintiffs' argument that it was the parents' negligence that cause their injuries, holding instead that all of these claims clearly arose out of excluded molestation since, but for the molestation, there would not have been any claim of negligent supervision against the parents.  Writing for the court, Justice Duggan declared that "where, as here, the language of the exclusion explicitly ties the exclusion to the nature of the injury, the analysis should be directed towards the injuries suffered rather than the causes of action in the complaint."

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As we previously reported, Washington State voters will decide the fate of the Insurance Fair Conduct Act (IFCA) on Election Day when Referendum 67 appears on the ballot. If passed by voters, the IFCA will allow for un-capped treble damages awarded at the discretion of the trial court, mandatory awards of reasonable attorney’s fees, actual litigation costs and statutory costs for violations. The AP has reported that nearly $14.5 million has been spent by trial lawyers and insurance companies battling over Referendum 67, making it one of the most expensive ballot-measure contests in state history. Stay tuned for our updates on Referendum 67 as Election Day approaches.

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State Farm Fire & Casualty Co. v. Harbert, No. 24366-a-TUCKER, 2007 SD 107 (S.D. October 24, 2007)

The South Dakota Supreme Court held this week that State Farm has no duty to defend or indemnify a claim brought against its insured for wife stealing after an extra-marital affair between the insured and the underlying plaintiff’s now ex-wife. The court found that the claim, which was essentially an alienation of affections claim, is an intentional tort, falling within State Farm’s intentional tort exclusion in the subject personal liability umbrella policy. The court also found that insuring an alienation of affections cause of action for an insured was contrary to the public policy of South Dakota.

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