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

In York Specialty Food, Inc. v. Tower Ins. Co. of New York (NY App., 1st Dept., Jan. 31, 2008), a New York appellate court has held that an insured, who became aware of the claimant’s accident within three days, but did not notify its insurer of the accident until eight months later, breached the notice requirements of its liability policy. The court rejected the insured’s excuse for delay premised upon an alleged good-faith belief in non-liability because the insured never investigated the possibility of its liability for the accident. The court found that an investigation by the insured that included interviews of employees who witnessed the accident would have revealed that the claimant, after falling in front of the insured's premises, had been taken from the scene in an ambulance. Since no investigation was conducted, the insured could not claim a good-faith belief in non-liability. As continues to be the law in New York, the insured was not required to demonstrate prejudice to invoke the late notice defense.

• Email This
• Print
• Comments
• Trackbacks

Despite the fact that Zurich filed its action for declaratory relief in New York before a New Jersey insured filed its own suit in New Jersey seeking a declaration of coverage for various claims arising out of contamination at a former paint manufacturig facility in New Jersey, the New Jersey Supreme Court ruled on Wednesday that the normal rule giving precedence to the "first filed" DJ shold be disregarded where the equities require it.   In Sensient Corp. v. Allstate Ins. Co., A-99-06 (N.J. January 29, 2008), the Supreme Court held that "New Jersey is the natural forum for resolving insurance coverage issues concerning hazardous waste infested property located within its borders."  The court also emphasized that it was important that a New Jersey court decided these issues since a New Jersey court would certainly not uphold any pollution exclusion that might limit the availability of funds to clean up this contamination.

The Sensient ruling is hardly surprising given the great weight that New Jersey courts have placed on New Jersey contacts in applying New Jersey law to coverage disputes.  In light of the New York Court of Appeals' recent opinion in Foster Wheeler applying New Jersey law to pollution claims involving a New York insured that had moved to New Jersey.  As long as the law of New Jersey and New Jersey differ on key issues such as pollution exclusions, these disputes over venue and choice of laws will continue.  

• Email This
• Print
• Comments
• Trackbacks

The Fifth Circuit has ruled in Nationwide Mutual Ins. Co. v. Lake Caroline, Inc., No. 06-61084 (5th Cir. January 23, 2008) that a Mississippi district court was correct in holding that the defendant’s CGL policy did not afford coverage for a “slander of title” claim by reason of the “expected or intended” conduct and the “knowledge of falsity” exclusions under Coverage B.

The Fifth Circuit ruled, however, that the district court erred in applying the “knowledge of falsity” exclusion in view of the fact that the allegation of malice in the underlying case did not require knowledge of falsity as a party can be deemed to have acted with malice under Mississippi law upon a showing of reckless disregard for the truth.

Further, the Fifth Circuit held that ht underlying claims failed to trigger Coverage A as, even if such claims satisfy the requirement of an “occurrence” (which the court doubted), there was no claim for property damage since the golf development had not been physically injured nor did pure economic losses satisfy the policy’s requirement that there be “loss of use” of tangible property.

• Email This
• Print
• Comments
• Trackbacks

The Fifth Circuit has ruled in Nationwide Mutual Ins. Co. v. Lake Caroline, Inc., No. 06-61084 (5th Cir. January 23, 2008) that a Mississippi district court was correct in holding that the defendant’s CGL policy did not afford coverage for a “slander of title” claim by reason of the “expected or intended” conduct and the “knowledge of falsity” exclusions under Coverage B.

The Fifth Circuit ruled, however, that the district court erred in applying the “knowledge of falsity” exclusion in view of the fact that the allegation of malice in the underlying case did not require knowledge of falsity as a party can be deemed to have acted with malice under Mississippi law upon a showing of reckless disregard for the truth.

Further, the Fifth Circuit held that ht underlying claims failed to trigger Coverage A as, even if such claims satisfy the requirement of an “occurrence” (which the court doubted), there was no claim for property damage since the golf development had not been physically injured nor did pure economic losses satisfy the policy’s requirement that there be “loss of use” of tangible property.

• Email This
• Print
• Comments
• Trackbacks

Controversy has often arisen in conflicts between primary liability insurance policies that contain “excess” other insurance wordings and “true” excess policies (i.e., umbrella or higher layer excess policies). In such cases, does one policy pay before the other or, as is often the case with conflicting “other insurance” terms, do both policies pay concurrently?

In the latest such case, the Fourth Circuit has held in a dispute between a school board’s umbrella liability insurer and the primary insurer of a high school principal concerning the priority of “excess” coverage for the cost of settling sexual abuse claims against school officials, the a “coincidental” excess policy (a primary policy with an “excess” other insurance clause) should pay before a “true” excess policy.

 

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

After the California Supreme Court's 2003 opinion in MacKinnon, rejecting the application of an absolute pollution exclusion to injuries to building occupants by pesticide sprayings and declaring that such exclusions are limited to "injuries commonly thought of as "pollution" (ie. environmental pollution),  one might well have assumed that it would be a rare day indeed before a California court gave effect to such exclusions in bodily injury cases.  In surprising turn of events, however, the Court of Appeal has since done that in several recent cases.

The latest ruling to give an expansive interpretation to MacKinnon's construct of "environmental pollution" is the Second District's opinion this week in American Casualty Co. of Reading, PA v. Miller.  At issue were personal injuries suffered by a workman who, in the course of performing maintenance work in a sewer line, was exposed to methylene chloride that had been flushed into the sewer by Stripper Herk, a furniture stripping business (why don't the insureds in my cases ever have cool names like that).  Stripper Herk ultimately enter into a plea agreement with the U.S. Attorney in which it confessed to have discharged chemicals in violation of its permit. 

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

Reversing a trial court’s grant of summary judgment for the plaintiff policyholder, the Oregon Court of Appeals found that a plaintiff’s injuries from being struck by a bicyclist as she crossed the street did not trigger PIP coverage under her auto insurance policy. In this case, the plaintiff had parked her car across the street from her residence and took several work related items from her back seat (although leaving her purse) and locked the car. She then crossed the street, descended a set of stairs to her home and opened the front door. Putting down the load she had taken from the car, she put a leash on her dog and walked with her dog across the street back to her car. She then unlocked the car doors and moved some of her personal times from the front seat to the hatchback of her car. She then closed and locked her car again and began to cross the street back to her house. When she was approximately three-quarters of the way across the road, she was struck by a cyclist riding down the hill and was injured. Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

On January 7, 2008, a Magistrate Judge in California issued a sanctions order imposing over $8.5 million in monetary sanctions on a company for discovery abuses in a case that company lost at trial, in what should be a cautionary tale for companies and their lawyers as they respond to discovery requests. (Qualcomm, Inc. v. Broadcom, Inc., U.S. Dist. Ct., So. Dist. Of Calif., Case No. 05civ958-B (BLM).)  Magistrate Judge Barbara Major sanctioned six of Qualcomm's outside counsel -- junior associates through partners. Although she did not impose monetary sanctions on counsel, she referred the sanctioned attorneys to the State Bar and ordered them and Qualcomm’s in-house attorneys to determine how the discovery breaches occurred and to develop a protocol to prevent similar failures in future cases.

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

An insurer that undertakes the defense of its insured for a sufficiently lengthy period of time without reserving its rights to deny coverage waives coverage defenses. So held the 7th Circuit in Nutmeg Ins. Co. v. East Lake Management & Development Corp. (7th Cir. (Ill.) Jan. 22, 2008) (unreported). In this case, the insurer hired counsel to defend its insured, but did not issue a reservation of rights until two years later. The insurer continued to defend for another two years before issuing a coverage denial. The court concluded that, whether the delay was two or four years, it was too long under Illinois law. The court rejected arguments that the insured was required to demonstrate prejudice by the delay; while prejudice would be required to establish a claim of estoppel, the delay in this case constituted a waiver for which no showing of prejudice was required. The court also rejected arguments that the loss was uninsurable as a matter of state law, and that neither waiver nor estoppel could create coverage for uninsurable losses. Finding no Illinois cases, the court cited precedent in California and New Jersey for the proposition that the defense of uninsurability may be waived or forfeited, and predicted that Illinois courts would agree. Compare this holding with the rule in New York that an insurer cannot through waiver create coverage that a policy was not written to provide (see Schiff Assoc. v. Flack, 51 NY2d 692 (1980); Zappone v. Home Ins. Co., 55 NY2d 131 (1982); Central General Hosp. v. Chubb Group of Ins. Cos., 90 NY2d 195 (1997)). While coverage may be created by estoppel (which requires prejudice), waiver applies only to defenses based on policy exclusions and breach of policy conditions.

• Email This
• Print
• Comments
• Trackbacks

Bad news for a primary insurance company and good news for the excess insurers comes from the trial court’s decision finding multiple occurrences on remand in the Kaiser Cement case (Truck Ins. Exchg. v. Kaiser Cement, et al., Los Angeles Superior Court, Case No. BC249550 [Order 1/24/08]).  The number of occurrence issue is of major importance to insurers and their insureds in asbestos, construction, sexual abuse, and other multiple-claimant coverage disputes.  

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

Although winter storms may bring another round of mold claims, California appellate courts again have upheld the right of insurers to exclude coverage for damage caused by mold. De Bruyn v. Superior Court (Fire Ins. Exchg.) (2007) 07 C.D.O.S. 5019. The efficient proximate doctrine, which in California (unlike many states) constrains insurers in how they communicate what they want to cover and not cover, did not prevent the insurer in this case from excluding mold, even where the insurer agreed to cover water damage from sudden and accidental discharge of water from plumbing and household appliances.

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

The Oregon Court of Appeals heard oral argument in ZRZ Realty Co. et al v. Beneficial Fire and Casualty Insurance, CA No. A121145, on January 10, 2008 concerning several issues including whether it is the insurer or the insured that has the burden of proving whether damage is unintended or unexpected under a policy of insurance. Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

The 7th Circuit has asked the Wisconsin Supreme Court to address the numbering of occurrences and allocation questions raised by long-tail losses. In Plastics Engineering Co. v. Liberty Mut. Ins. Co. (7th Cir. (Wis.) Jan. 22, 2008), the insured sought defense and indemnity for multiple asbestos claims spanning successive policy periods. The district court had concluded that each person's injury caused by exposure to asbestos-containing products constitutes a separate “occurrence”; that non-cumulation provisions in the policies limited each claimant's recovery to the maximum amount allowed in a single triggered policy for an occurrence; and, that defense and indemnity would be allocated on an “all sums” rather than pro rata basis. On appeal, the 7th Circuit found that Wisconsin law does not provide sufficient guidance as to how the Wisconsin Supreme Court would resolve these issues, and certified these questions to the Wisconsin Supreme Court:

1. Under Wisconsin law, what constitutes an “occurrence” in an insurance contract when exposure injuries are sustained by numerous individuals at varying geographical locations over many years?

2. Does Wisconsin Statute § 631.43(1) apply to successive insurance policies when an occurrence is ongoing and spans multiple insurance policies, thereby prohibiting efforts by consecutive insurers to reduce coverage to the maximum of a single policy period?

3. In Wisconsin, are insurers obligated to pay “all sums” related to the defense and/or indemnification of an injury that triggers one insurance policy; or alternatively, are insurers liable for a pro rata share of defense costs and/or damages depending on how much of the injury occurred during the triggered insurance policy period?

• Email This
• Print
• Comments
• Trackbacks

The Washington Court of Appeals has affirmed a trial court’s grant of summary judgment to an insurer and a broker in a failure to procure action on the basis that the insured failed to demonstrate that he had a “special relationship” with the agent requiring the agent to make certain the insured had adequate insurance coverage.




Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

Even though Lumbermen’s reinsurers rebated over $2 million in premiums to LMC after its reinsurance recoveries consultant alerted it to the fact that a change in the manner in which Kember was booking reinsurance premiums was contrary to procedures recommended by the NAIC, the Seventh Circuit has ruled in Indiana Lumbemens Mut. Ins. Co. v. Reinsurance Results, Inc., No. 07-1283 (7th Cir. January 16, 2008) that the consultant was not entitled to one-third share of the rebated premiums as it was not the result of any “premium and/or claims identified during the course of the review and have not been processed in accordance with the reinsurance contract terms and conditions” as required under its contract. Rather, the Seventh Circuit held that the change had resulted from an adjustment in Lumbermen’s internal accounting procedures and not as the result of any mistake with respect to how the reinsurance claims had been processed. The court also rejected the consultant’s arguments that it should be entitled to some recovery on a theory of quantum meruit.

• Email This
• Print
• Comments
• Trackbacks

In Scottsdale Ins. Co. v. Flowers (6th Cir. (Ky.) Jan. 16, 2008), the 6th Circuit considered whether a therapist was covered under a liability policy for damages arising from his sexual affair with a patient. The policy, issued to a mental health care facility, covered “those sums that the insured becomes legally obligated to pay as DAMAGES because of injury as a result of a WRONGFUL ACT.” The policy defined “wrongful act” as “an act, error, or omission in the furnishing of professional health care services,” and included as “insured” the facility’s “employees and volunteers, but only for acts within the scope of their employment by you.” At issue was whether the phrase “scope of employment” was ambiguous, and, if not, whether engaging in sexual activities with a patient is within a therapist's scope of employment.
Applying Kentucky law, the court concluded the phrase was not ambiguous. “Scope of employment,” the court reasoned, is a legal term of art. While an insured might legitimately contest its application to the particular facts of a case, this does not create an ambiguity.
Turning to the second issue, the court concluded that engaging in sexual activity with a patient is not within the scope of a therapist's employment. The court explained that the focus of the determination is on the employee’s motive. An employee acts within the scope of his employment when his “purpose, however misguided, is wholly or in part to further the master's business.” When the employee “acts from purely personal motives ... which [are] in no way connected with the employer's interests, he is considered in the ordinary case to have departed from his employment.”
The court relied on a case involving similar facts, Osbourne v. Payne, 31 S.W.3d 911 (Ky.2000), in which the Kentucky Supreme Court explained that “to be within the scope of its employment, the conduct must be of the same general nature as that authorized or incidental to the conduct authorized.” The insured attempted to distinguish this case because the complaint also alleged negligence, but the court rejected the argument, noting there was no evidence that the therapist had negligent sex with the claimant. Instead, the complaint alleged negligence because he engaged in sexual activity. “Engaging in sexual relations with a patient,” the court concluded, “is not motivated by a desire to serve the interests of the therapist's employer, but rather, is designed ‘to satisfy the employee's own sexual proclivities.’”
The court, however, left open the possibility that other allegations in the complaint might be covered by the policy. The complaint alleged that “Flowers ... had the obligation to treat and counsel Burke in a professional manner and he breached his professional and ethical duties to so treat her.” This language, the court concluded, encompassed the possibility that the therapist breached these duties by negligently treating her. The district court had not been asked to consider whether the counseling activities, as opposed to the affair, were within the scope of employment, and did not express an opinion on that question. The appeals court therefore declined to broaden the language of the district court's order.

• Email This
• Print
• Comments
• Trackbacks

The total pollution exclusion was held to apply to property damage resulting from the release of home heating oil in Nascimento v. Preferred Mut. Ins. Co., (1st Cir. (Mass.) Jan. 18, 2008). The claim arose from soil contamination to an adjacent property from an UST used by the insured to store home heating oil to heat his business. The insured was sued by subsequent property owners for costs incurred in remediating the property, and for property damages. The insured conceded that section (f)(2)(a) of the exclusion barred coverage for remediation damages; however, he argued that the underlying complaint also sought damages to the property apart from the cost of remediation to which the exclusion do  not apply. The court disagreed, holding that section (f)(1)(a) of the exclusion, which bars coverage for “ ‘property damage’ arising out of the actual ... discharge, dispersal, seepage, migration, release or escape of pollutants ... at or from any premises, site, or location ... which is or was at any time ... occupied by ... any insured,” also applied to the claim. Though the insured did not own the adjacent lot, he did "occupy" the UST within the meaning of (f)(1)(a). Relying on McGregor v. Allamerica Ins.Co., 449 Mass. 400 (2007), decided after the district court's opinion and while this appeal was pending, the court held that once the oil becomes a pollutant, the total pollution exclusion of the CGL policy is triggered and coverage for remediation and non-remediation claims is barred.

• Email This
• Print
• Comments
• Trackbacks

In Metropolitan Heat & Power Co., Inc. v. AIG Claims Services, Inc. (NY App., 2nd Dept., Jan. 8, 2008), the court held that an independent contractor exclusion in a general contractor’s CGL policy barred coverage for injuries sustained by a subcontractor hired to install a boiler. The exclusion applied to damages "arising out of operations performed for any insured by independent contractors." The general was also denied coverage under the subcontractor’s policy because it was not explicitly listed as a named or additional insured on the policy. The certificate of insurance, issued for information only, conferred no rights upon the plaintiff as the certificate holder.

• Email This
• Print
• Comments
• Trackbacks

In The Ins. Co. of New York v. Central Mut. Ins. Co. (NY App., 1st Dept., Jan. 15, 2008), the court held that issues of fact whether contract between general and subcontractor required subcontractor to name general and owner of construction site as additional insureds precluded summary judgment. The lower court had determined there was an issue of fact whether the subcontract imposed an obligation on the subcontractor to obtain insurance for the owner, and found no issue of fact with respect to its obligation to obtain insurance for the general contractor. On appeal, the court found the subcontract contained at least one page that was taken from the contract between the owner and general, and a plain reading of the contract between the general and subcontractor mirrored a contract between the general and another contractor, thus raising an issue of fact as to the intent of the parties concerning which entities should be included as additional insureds.

• Email This
• Print
• Comments
• Trackbacks

In Acradyne, Inc. v. Travelers Cas. & Sur. Co. of America (9th Cir. (Or.) Jan. 10, 2008) (unreported), the court held that claims for continuation of pay, compensation reduction, and misrepresentation were covered under an employment practices liability policy, while claims for intentional misrepresentation and unjust enrichment were not. Though the policy excluded severance pay or penalties, the court concluded that damages owed under the employment contract did not qualify as severance pay; continued salary payments did not depend on termination from employment. The court also held that an exclusion from damages for “sums sought solely on the basis of a claim for unpaid services under an express or implied agreement” did not apply to allegations that claimant’s salary was reduced in violation of the agreement, finding the term “unpaid services” was ambiguous. Claims for negligent misrepresentation were likewise covered, though claims for intentional misrepresentation and unjust enrichment were not. The intentional misrepresentation claim was barred by an exclusion for wrongful employment practices known before policy inception. Unjust enrichment was not one of the enumerated practices included in the policy's definition of a “Wrongful Employment Practice.” Since only some of the claims were covered, the case was remanded for the purpose of allocating the settlement between the insurer and insured.

• Email This
• Print
• Comments
• Trackbacks

In Simon Wrecking Co., Inc. v. AIU Ins. Co., (E.D.Pa. Jan. 10, 2008), a federal district court concludes that issues of fact regarding application of regulatory estoppel to the meaning of “sudden and accidental” in a pollution exclusion precludes summary judgment. The insured sought coverage for its alleged involvement in the Malvern TCE Superfund Site. At issue was the meaning of “sudden and accidental” in the pollution exclusion of standard CGL policies introduced in 1970.
The insurer claimed the phrase has a temporal meaning to require an abrupt event, while the insured claimed it is identical in meaning to the phrase “unexpected and unintended” and therefore does not require suddenness. On motions for summary judgment, the insured argued the language was ambiguous; was known in the insurance industry, prior to the filing of the 1970 pollution exclusion, to possess the same meaning as “unexpected and unintended;” and, was represented by the industry to the Pennsylvania Insurance Department to mean “unexpected and unintended,” and that regulatory estoppel therefore prevented the insurer from asserting a different meaning.
The court rejected the first two arguments, concluding that the policy language was not ambiguous, and that there was no issue of fact whether the phrase had a trade usage meaning of “unexpected and unintended.” The insured offered little evidence of this, and the insurer submitted affidavits of several industry officials who stated either that the term was unclear and had no trade usage, or that the term was commonly understood to require an abrupt event.
The court, however, concluded that issues of fact precluded summary judgment with respect to application of regulatory estoppel. The insured presented the affidavit of a Pennsylvania Insurance Department employee who stated the IRB represented to the department that the exclusion was merely a clarification and continued to cover pollution that was “unexpected and unintended,” and an explanation that accompanied the filing of the pollution exclusion which categorized the filing as a clarification of occurrence coverage rather than a major departure from it. The insurer submitted several affidavits of employees of the Pennsylvania Insurance Department who stated they were not misled by the filing of the pollution exclusion. The court reserved the matter for trial accordingly.

• Email This
• Print
• Comments
• Trackbacks

In a coverage dispute arising from a negligence claim brought by victims of a shooting spree, the Pennsylvania Supreme Court considered whether multiple shootings resulting in five deaths and one serious injury qualified as an “accident” under a homeowner’s policy, and whether the shootings constituted a single “occurrence.” In Donegal Mut. Ins. Co. v. Baumhammers (Pa. Dec. 27, 2007), the court held that negligence claims asserted against the perpetrator’s parents qualified as an accident, and that the multiple shooting arose from a single, not multiple occurrences. Continue Reading...

• Email This
• Print
• Comments
• Trackbacks