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

In Progressive Express Ins. Co. v. Reed (Fla. App., 5 Dist., Dec. 28, 2007), a Florida appeals court considered whether an insurer with a genuine coverage dispute should be allowed to litigate coverage in a separate declaratory judgment action while the underlying tort action is still pending. The underlying claim arose from a motor vehicle accident that allegedly caused injuries to a passenger on the insured’s motorcycle. The insurer agreed to defend the tort action subject to a reservation of rights based on an exclusion for bodily injury to any person “occupying a covered vehicle … unless you have paid a premium for Guest Passenger Liability coverage.” The insurer then filed this action seeking a declaration that its policy did not provide coverage because the insured had not purchased the requisite coverage. The injured claimant intervened in the coverage action, and moved to abate it until the tort action was resolved. The motion was granted, and the insurer appealed. On appeal, the court held that the coverage action should have been allowed to proceed. Relying on Florida Supreme Court precedent, Higgins v. State Farm Fire & Cas. Co., 894 So.2d 5 (Fla.2004), the court concluded that “an insurance company may pursue a declaratory judgment action which requires a determination of the existence or nonexistence of a fact upon which depend its obligations as the insurer under a policy of insurance.” The court considered a number of factors from Higgins relevant to the timing of a coverage action, including: (1) whether the two actions are mutually exclusive; (2) whether proceeding to decision on the indemnity issue would promote settlement and avoid collusive actions between claimant and insured to create coverage; and (3) whether the insured had resources independent of insurance, so that it would be immaterial to the claimant whether the insured's conduct was covered or not covered by indemnity insurance. In this case, the court found the coverage action should be permitted to proceed because the actions were mutually exclusive and the contestability of the coverage issue would likely impact settlement of the tort action.

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As 2007 draws to a close, we take this opportunity to look back at some highlights of the year past and to peek over the horizon towards 2008...

Most Important Coverage Developments of 2007

--Fifth Circuit largely curtails first party coverage for Katrina claims.
--Courts finding coverage for construction defect breach of contract claims.
--Illinois Supreme Court rules in targeted tenders in Kajima
--Second Circuit adopts broad causation theory for 9/11 claims in Parks Realty
--Illinois and Massachusetts courts find CGL coverage for junk faxes
--Indiana Supreme Court refuses to require coverage for preventing pollution.

Most Worrisome Trends of 2007: 

1.   Legislative involvement in coverage issues.  More and more policyholders are going to the statehouse to get relief that they can't get in court.  Maryland (bad faith), Washington (bad faith) and New York (late notice-almost) are only the latest examples.

2.   News from the Big House:  Scruggs indicted for bribery...Hartford claims people charged with fixing silica settlements...Do you know the way to Corpus Christi?

3.   Excess Exposures:  More and more courts are finding ways to spike claims into excess layers, even where primary limits aren't exhausted.

Issues That Seem So 2006:  Clergy abuse, mold, Eliot Spitzer.

Watch Out for 2008:  Sub-prime mortgages, tainted toys, climate change, privacy claims.

Best '90s Moment of 2007:  Montana Supreme Court rules that first party insurers don't owe coverage for Y2K claims.   Ah, nostalgia.

Most Memorable Quote of 2007:  "We, uh, like I say, it ain’t but three people in the world that know anything about this … and two of them are sitting here and the other one … the other one, uh, being Scruggs … he and I, um, how shall I say, for over the last five or six years there, there are bodies buried that, that you know, that he and I know where … where are, and, and, my, my trust in his, mine in him and his in mine, in me, I am sure are the same.” 

Court Most Determined to Embarass Itself:  Washington Supreme Court.   The court reached a new low with Woo.  Plainly the toothsome dentist didn't have an auto policy or the court would have found coverage under that one too.

Court Most Determined to Disagree With Itself:  Washington Supreme Court.  Every third case prompted one or more dissenting opinions in 2007

Best Christmas Present:   Connecticut Supreme Court rules that Hartford may be able to aggregate Western McArthur asbestos settlement payments for reinsurance purposes.

The Wheels of Justice Grind Slowly in Texas:  Is there another court in the country with more old coverage cases waiting for action?  Trigger, duty to defend, late notice.  And did we mention UPL?

 On the Horizon: 

--California:  Supreme Court is now considering scope of the "genuine dispute" doctrine as a defense to bad faith claims (Delgado) and the application of concurrent causation to pollution liability claims (State v. Llloyds).

--New York:  The late notice wars continue, in and out of court.

--Pennsylvania:  Supreme Court will decide in Baumhammer's how many "occurrence" limits are shooting spree can trigger.

That's all for now.  See you in 2008.

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Thank goodness that Maine is a relatively small state, as its Law Court seems to have a boundless appetite for finding insurance coverage.

In the latest defeat for insurers, the court ruled in Ryder v. USAA General Indemnity Co., 2007 ME 146 (Me. December 6, 2007) that an auto insurer must pay an additional $50,000 "per person" UIM limit for the emotional distress that various family members suffered when the insured was struck and killed by another car as she got out of the insured vehicle.   The trial court had ruled that USAA owed only a single $50,000 limit, as the emotional distress claims were not a separate "bodily injury."  On appeal, however, the Law Court concluded that the USAA definition of "bodily injury" ("bodily harm, sickness, disease or death") was ambiguous.  The court held that the general rule that an adjective modified not only the noun next to it but all other nouns in the same sequence did not apply here, since there is no such thing as a "bodily death" (the justices plainly had no familiarity with flying on U.S.. Airways).   As a result, the court ruled that emotional distress is a "sickness" or "disease" and required the insurer to pay three additional limits for the by-standards claims.

The court's ruling highlights the significance of small variations in policy language.  The court made much of the fact that the USAA policy was different from the conventional ISO wordings (ie.  "bodily injury, sickness or disease, including death resulting at any time therefrom).  Also, USAA's position in this case was not aided by the fact that the tortfeasor's policy with Northern Progressive contained an unusual definition of "bodily injury" that explicitly made by-standers claims subject to the limit of coverage available for bodily injury claims.

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In a claim by injured worker against worker’s compensation claims administrator alleging tort of outrage, Alabama Supreme Court holds that claims adjuster’s files were not privileged work-product, and that communications between administrator an its counsel were also subject to disclosure. At issue in Ex Parte Meadowbrook Ins. Group, Inc. (Ala. Dec. 21, 2007) was claimant’s right to “(1) [the] adjuster's claims notes made after [claimant’s] worker's compensation case was filed … up to the filing of this case, and (2) correspondence and e-mails exchanged between [claims administrator] and [counsel hired to defend it] within that time period pertaining to the decision to terminate [claimant’s] worker's compensation benefits.” Court concluded that claims administrator failed to offer evidence indicating contents of claims file were prepared in anticipation of litigation or trial. Court reasoned that since administrator had an independent contractual duty to investigate claim, it could not rely on mere blanket objections, but was required to show when documents were created, why each document was prepared and how it was used. As for communications with counsel, though they were subject to attorney-client privilege, the privilege was deemed waived because administrator was relying on advice of counsel as a defense to the tort claim. Court held that where advice of counsel is asserted in defense to culpability for a decision, plaintiff is entitled to all relevant documents bearing on the decision.

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The Connecticut Supreme Court has breathed new life into Hartford's efforts to obtain reimbursement from its reinsurers for $1.15 billion that it paid to settle Western McArthur's asbestos claims.  In Hartford Acc. & Ind. Co. v. Ace-American Reinsurance Co., No. SC 17625 (Conn. December 25, 2007), the court declared that a Superior Court judge should not have granted summary judgment to Harford's reinsurers in light of apparent ambiguity with the respect to the terms of the subject treaties.  As a result, the case has been remanded to the trial court to consider extrinsic evidence of the parties' intent.

The ruling is somewhat surprising, as the same court had ruled six years ago in Metropolitan Life that the "cause" test requires that the number of "occurrences" in asbestos litigation be determined by reference to each individual claimant's injuries and not by reference to the insured's failure to warn.   In this case, however, the court distinguished Metropolitan as well as the similar reinsurance holding of the New York Court of Appeals in Travelers v. Lloyd's, finding that the "any one accident" common cause language in the Hartford treaties was "uniquely broad."  The court also appears to have been influenced by the extrinsic evidence presented by Hartford concerning the adoption of this language in the 1970s, wherein it asked for this "any one accident" language in lieu of an aggregate extension clause to permit it to aggregate losses occurring in more than one policy year.  Under the circumstances, the court found that Hartford's position that diverse injuries could be aggregated if they were of the same kind or "meaningfully related" was a "plausible" interpretation of the subject wordings.

Merry Christmas, Hartford!

 

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The Washington Court of Appeals has ruled that in a case where the plaintiff and the insured entered into a consent judgment wherein the insured admitted liability and agreed to a judgment of $275,000 with interest to accrue at 12% a year, which judgment was subsequently approved by a Superior Court at a reasonableness hearing, the 12% rate of interest was binding on Scottsdale instead of the ordinary rate of interest provided for under RCW 4.56.110(3) (that would have resulted in interest accruing at a rate of 7.18%). In Jackson v. Scottsdale Ins. Co., No. 59606-3-I (Wash. App. December 17, 2007), the court ruled that when parties to a tort suit settle their dispute in a manner that calls for a specified rate of interest, the resulting judgment is founded on a written contract rather than tortious conduct and is properly subject to the higher rate of interest provided for by RCW 4.56.110.

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The New Jersey Supreme Court has ruled that thousands of asbestos claims and other long-tail liabilities that have been incurred but not yet reported do not qualify for inclusion in the distribution of the estate of an insolvent insurer as N.J.S.A. 17:30C-8(a)(1) provides that “no contingent claim shall share in the distribution of the assets of an insurer” except as such claims have become “absolute against the insurer.” In In The Matter of Liquidation of Integrity Ins. Co., No. A-91-06 (N.J. December 13, 2007), the court rejected the Liquidator’s argument that IBNR claims become “absolute” once their value is susceptible of being estimated. Instead, the majority declared that “because the process by which the Liquidator proposes to estimate IBNR claims of necessity entails looking outside of each claim to other similar claims in respect of their very existence, nature and extent and cost, IBNR claims fail to satisfy that most basic element of requirements in order to be “absolute”: [that each] stand on its own and not by reference to any other claim.” Two dissenting justices argues that the majority’s analysis created an unreasonable “Hobson’s choice” for the Liquidator, as it must either pay out the limited assets of the Estate now and leave future claimants without relief or delays payments indefinitely while the Estate meanwhile “hemorrhages” administrative costs.

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The New Mexico Court of Appeals has affirmed a trial court’s declaration that Allstate’s use of the computerized claims handling program “Colossus” does not violate the state’s unfair practices act. In Truong v. Allstate Ins. Co., No. 26,329 (N.M. App. November 30, 2007) the court ruled that Allstate’s use of the program fell within the regulatory exemption to the UPA set forth in Section 57-12-7 as state market conduct examiners had examined Allstate’s use of Colossus and had previously approved it.

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In a case where the insured purchased a commercial package policy that included both CGL and Employers Practice Liability insurance coverage parts, the Appellate Court has ruled that once the cost of defending two defamation and retaliatory discharge claims exhausted the $100,000 EPL limit, the insured was not entitled to coverage under the CGL policy or the umbrella policy, as both policies contained EPL exclusions. In West Bend Mut. Ins. Co. v. Rosemont Exposition Services, Inc., No. 1-07-0644 (Ill. App. December 7, 2007), the court ruled that the defamatory statements were clearly work related so as to fall within the scope of the EPL exclusions.

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The Arkansas Supreme Court  ruled in McGrew v. Farm Bureau Mut. Ins. Co. of Arkansas, No. 07-421 (Ark. November 29, 2007) that a wrongful death action brought against a nurse who moonlighted as a babysitter was not subject to a “business pursuits” exclusion in her homeowner’s policy. While agreeing that babysitting, although not the insured’s principal vocation, was a “trade or business,” the court found ambiguity with respect to an exception to the exclusion for “activity that minors normally perform” as a reasonable person might determine that the policy covered minors, as well as adults, who were performing activities such as child care or babysitting. The case was therefore remanded for factual findings by a jury in accordance with Arkansas principles of policy interpretation to resolve the perceived ambiguity.

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In Lynn v. Westport Ins. Corp. (3rd Cir. (Pa.) Dec. 12, 2007), the court considered whether a tow truck operator, who was struck by the rear-view mirror of an on-coming vehicle while walking alongside his truck to assist his coworker in loading a disabled vehicle onto the coworker’s flatbed, was “occupying” the tow truck for purposes of qualifying for UM coverage. Applying the four-part test in Utica Mut. Ins. Co. v. Contrisciane, 473 A.2d 1005 (Pa.1984), the court held that the tow truck operator was “occupying” his vehicle, despite that he had determined the tow truck would be of no use, and that he was assisting his co-worker in loading the flatbed. The court found that the tow truck operator was only away from his tow truck and walking along the side of the road because of his duties as a tow truck driver, and that he was compelled by his duties as a tow truck driver to help his coworker load the disabled vehicle onto the flatbed truck before he could get back into his tow truck and leave the scene.

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In Bolan v. Auto-Owners Ins. Co., (Mich. App. Dec. 11, 2007), insureds made claim for coverage under a homeowner's policy when they discovered softening in the floor around their dishwasher caused by a dishwasher leak during the drain cycle. Plaintiffs acknowledged that the dishwasher had been leaking for some time before they noticed softening in the floor. The policy excluded loss resulting directly or indirectly from an “inherent vice, latent defect or mechanical breakdown”; however, damage caused by the escape of water from a domestic appliance was excepted from the exclusion. The policy also excluded loss resulting directly or indirectly from “constant or repeated seepage or leakage of water or steam from within a ... domestic appliance which occurs over a period of weeks, months or years.” Court held that while the insureds could recover for loss caused by water escaping from a domestic appliance under the exception to the exclusion, the claim was nevertheless excluded because of the duration of the leak.

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In Hermitage Ins. Co. v. Arm-ing, Inc., (NY App., 2nd Dept., Dec. 11, 2007), court held that insurer’s two-month delay in disclaiming coverage occasioned by its need to investigate to determine when its insureds received notice of the accident was reasonable under Ins. Law 3420(d); however, insureds raised issues of fact whether they notified the plaintiff of the claim as soon as practicable, as required by the relevant insurance contract sufficient to defeat summary judgment.

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Weber v. State Farm Mutual Automobile Ins. Co. (Or. Ct. App. Nov. 28, 2007)

The Teuberts were injured when the car they were traveling in was struck by a car driven by Ronningen. The car driven by Ronningen was insured by State Farm under a policy issued to Weber. Weber and Ronningen lived together and when Weber expressed a desire to purchase a car, she paid $1,000 towards the purchase of a car with Ronningen signing a note for the $20,000 balance. The note stated it was consideration for sale of the car to Ronningen, and the bill of sale identified Ronningen as the buyer. Ronningen completed and submitted an Oregon DMV application for the title and registration of the car, listing himself as the sole owner and took title to the car despite the understanding that the car would be Weber’s. After the purchase, Weber added the car to her State Farm policy and paid the insurance premiums. On the day of the accident, Ronningen asked Weber for permission to use the car. In the report filed with the DMV regarding the accident, Ronningen listed himself as the owner of the car.



The Teuberts sought damages from Ronningen for their injuries and Ronningen sought coverage under Weber’s State Farm policy. The policy stated State Farm would defend and indemnify “an insured.” Additionally, under the policy “insured” included any person driving with Weber’s consent. The Court of Appeals affirmed the trial court’s determination that Ronningen maintained some type of ownership interest in the car and thus was not a driver with Weber’s “consent” to use the car for the purposes of the policy. The court determined that a certificate of title to a vehicle, which Ronningen had to the car, was prima facie evidence of ownership and that the evidence did not support a finding that Ronningen had no ownership interest in the car. Accordingly, the grant of summary judgment to State Farm was affirmed.

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In Catholic Health Services of Long Island, Inc. v National Union Fire Ins. Co. of Pittsburgh, P.A. (NY App., 2nd Dept., Dec. 11, 2007), a New York appellate court has held that an insured health care provider is not entitled to coverage under its liability policy for legal fees it incurred in responding to investigative subpoenas issued upon a joint venture of which it was a member. Continue Reading...

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The Ninth Circuit has ruled that an insured’s claim for the difference between the appraised value of uncontaminated properties and the sale price of the properties in an contaminated state is not recoverable under a commercial general liability policy on the basis that the claim did not constitute “property damage” or “damages” that the “insured shall become legally obligated to pay” because of “property damage” under the terms of the subject policy and Washington State law.

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The Wisconsin Court of Appeals has ruled  that a trial court did not err in holding that a product manufacturer had failed to present evidence of the existence and material terms of a missing 1982 CGL policy.  Furthermore, the Court of Appeals ruled that even had such a policy existed, the undisputed evidence was that the trigger of coverage for such CGL policies was the occurrence of injuries during the policy period and that the policy would therefore not have applied since even though the belt sander in question was manufactured in 1982, it did not injure the underlying claimant until 2002.

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The First Circuit heard oral argument on Wednesday in the matter of Boston Gas v. Century Indemnity, a case that presents the first opportunity for this Circuit to weigh in on issues of allocation in long-tail coverage disputes.

 

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NYAT Operating Corp. v GAN National Ins. Co. (NY App., 1st Dept., Dec. 6, 2007)

In an action for defense and indemnity for claims that insured’s employee sexually assaulted claimant, court held that because insured’s liability was based on negligent hiring and retention of employee, not respondeat superior, sexual assault was covered “accident” within meaning of policy, and expected/intended harm exclusion did not apply. Court also held that late notice defense was waived by insurer’s failure to timely notify disclaim coverage. Dismissal of insured’s complaint for its default in opposing insurer’s CPLR 3126 motion did not estop claimant, as intervener, from asserting insured's coverage under policy.

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The National Conference of Insurance Legislators (NCOIL) is poised to adopt new model legislation governing the role of state guaranty funds in responding to the insolvency of property and casualty insurers. T

he proposed model legislation, which was approved by NCOIL’s property and casualty insurance committee on November 16, 2007, comes in response to complaints that most model acts, which were adopted pursuant to the 1970 National Association of Insurance Commissioners 1970 recommendation, are outdated and do not reflect the complexity and realities of today’s insurance marketplace. The NCOIL action comes at a time when the NAIC model, which was adopted in 1970 and last amended in 1996, is currently being reconsidered by an NAIC receivership and insolvency task force.

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The Illinois Supreme Court has ruled that targeted tenders do not trump the rule of horizontal exhaustion in construction defect cases.  As a result, additional named insureds must now  exhaust their own primary insurance before they can reach the excess layer of additional insured coverage. The court declared that “extending the targeted tender rule to require an excess insurer to pay before a primary policy would eviscerate the distinction between primary and excess insurance.” The court ruled, therefore, that despite Kajima’s targeted tender to St. Paul after the sub’s primary exhausted, Kajima was required to exhaust its own primary insurance before St. Paul paid.

In Kajima Construction Services, Inc. v. St. Paul Fire & Marine Ins. Co., No. 103588 (Ill. November 29, 2007), a general contractor and its own insurer (Tokio Marine) sued St. Paul to recover $1 million that Tokio had contributed to a $3 million personal injury settlement.  St. Paul, which had issued primary and umbrella coverage to a subcontractor that named Kajima as an additional insured, paid its $2 million primary limit but stated that its umbrella policy was excess of Kajima's own primary insurance and need therefore not contribute.

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