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

There's a recent opinion from the Ninth Circuit that doesn't seem to be getting the attention that it deserves.  For anyone handling, high tech or IP coverage claims, the court's July 15 opinion in Sony Computer Entertainment v. American Home is a must read.

The case involved efforts by Sony to get coverage under its CGL and media E&O policies for a class action suit brought by disgruntled purchasers of Sony's ubiquitous PlayStation 2 game.  The underlying plaintiffs alleged that CD and DVD video games skipped or froze while being played on the PlayStation or made " banging and clicking" noises.  Sony argued that allegations that it misrepresented the qualities of its product triggered its E&O coverage for the wrongful act of "negligent publication" or that the claims against it were for a "loss of use" triggering its CGL coverage.  The Ninth Circuit disagreed.

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Among the more anomalous aspects of Coverage B jurisprudence is the nearly complete absence of case law on the issue of the "trigger of coverage" for "personal and advertising injury" claims.  This dearth of case law is all the more astonishing when you consider the thousands (yes, it's true!) of reported "trigger" cases under Coverage A, especially in the latent injury context. 

It may be, therefore, that the First Circuit will be the first appellate court to consider whether continuing injuries arising out of offenses committed prior to the policy period are sufficient to trigger coverage.  In a case that our law firm won in the U.S. District Court, the insured's assignee has filed an appeal to the First Circuit, arguing that a "continuous trigger" should apply to Coverage B.

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Even as the Wisconsin Supreme Court has recently ruled that a trademark is a “title” whose infringement may trigger Coverage B to the CGL policy, the Seventh Circuit has followed a more conservative path that may bring it into direct conflict with the state court's recent rulings concerning the application of CGL policies to IP claims.

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"Badgered" by the courts?  New song, same "title"?  Trust Wisconsin to add a layer of confusion to an area of AI law that seemed to be settling down.

Since the deletion of the explicit exclusion for trademark infringement in the earlier Broad Form endorsements, insurers and the ISO have struggled to set the right  balance for covering some IP torts but not others.  Thus, current forms typically  limit coverage to disputes involving the infringement of a copyright, title or slgan.  While most courts had ruled that these are related terms and have limited the meaning of "title" to a non-copyrighted title to an artistic work  (e.  Diplomatic Triumphs of the Bush Administration), the Wisconsin Supreme Court has now mixed and matched dictionary definitions to contrive coverage for trademark infringement claims. 

 

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Over the past ten years, an emerging body of law has emerged concerning the efforts of State Guaranty Funds to avoid paying insolvent claims on the bais that self-insured programs are "insurance"  within the statutory exception to their obligations. 

Thus, the Iowa Supreme Court ruled in Iowa Contractors Worker’s Compensation Group v. Iowa Insurance Guaranty Association, 437 N.W.2d 909 (Iowa 1989) that a pooled self-insured worker’s compensation program was not “insurance” In a dispute with the Iowa Insurance Guaranty Association.  On the other hand, a group self-insurance fund was found to constitute “insurance” in Maryland Motor Truck Assoc. Worker’s Compensation Self-Ins. Group v. Property & Cas. Ins. Guaranty Corp., 871 A.2d 590 (Md. 2005) and South Carolina Property & Cas. Ins. Guaranty Assn. v. Carolina’s Roofing & Sheet Metal Contractors Self-Ins. Fund, 446 S.E.2d 422 (S.C. 1994).

Now the Sixth Circuit has added a new wrinkle to the debate, holding that although an individual self-insured plan is not "insurance" because there is no transfer of risk to third parties, the same is not true of a group plan.

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In a decision that does not differentiate between an act and the result of an act, the California Court of Appeal, Second District, ruled that because the insured did not throw the plaintiff far enough, there was an “accident.” In State Farm Fire & Cas. Co. v. Sup. Ct., __ Cal.App.5^th __ [08 CDOS 8156], the insured threw plaintiff into a pool, intending to get him wet. However, instead of landing in the pool, plaintiff landed on the pool’s cement step. The insured was arrested for the incident and pled no contest to a charge of misdemeanor battery.  The appellate court concluded this conduct involved an "accident."

The insured’s policy covered damages because of “bodily injury... caused by an occurrence.”  It defined “occurrence” to mean “an accident … which results in … bodily injury or … property damage.”  The policy also excluded from coverage “bodily injury … which is either expected or intended by the insured … or the result of willful and malicious acts of the insured.”  The insurer denied coverage on several grounds, including that the claim did not fall within the insuring agreement because the insured’s misconduct did not involve an “accident.” The insurer also raised the intentional acts exclusion.

The trial court (in the subsequent coverage litigation) concluded the insurer owed a defense, finding the insured did not intend to cause injury to plaintiff and, therefore, the injury was neither expected nor intended. The insurer filed a petition for writ of mandate, arguing the term “accident’ referred to the injury-producing act, and it was irrelevant whether or not the insured intended the injury that flowed from the act. The appellate court disagreed, noting the meaning of “accident” in insurance law was not settled and had been used to refer not only to the alleged conduct but also to unintended or unexpected consequences. The appellate court concluded an “accident” could occur “when either the cause is unintended or the effect is unanticipated.” Additionally, “… an ‘accident’ exists when any aspect in the causal series of events leading to the injury or damage was unintended by the insured and a matter of fortuity.” Accordingly the appellate court determined the claim involved a potentially covered occurrence and triggered a duty to defend under the insurance policy.

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Last Monday, a three-judge panel of the Fifth Circuit considered one of the implications of the Texas Supreme Court’s landmark decision last year in Lamar Homes, Inc. v. Mid-Continent Cas. Co., 22 S.W.3d 1 (Tex. 2007), in its decision in National Union Fire Ins. Co. of Pittsburgh, Pa. v. Puget Plastics Corp. --- F.3d ----, 2008 WL 2487054 (5th Cir. 2008).  In doing so, the Fifth Circuit considered a deceptively simple question: could an insured’s "knowing" violation of the Texas Deceptive Trade Practices Act still be an “occurrence” under a commercial umbrella policy?  In this case, the panel considered National Union’s claim it had no duty to indemnify its insured after the jury in the underlying tort case awarded the claimant $36 million against the insured after having found a “knowing” violation of the Texas Deceptive Trade Practices Act.  In the subsequent coverage case, National Union argued the insured’s actions, which the jury in the underlying suit found to be “knowing,” could not be an “occurrence” under the general liability policy because it could not constitute an “accident.”  Relying on Lamar Homes, the Fifth Circuit stated the “knowing” finding by the jury in the underlying lawsuit did not control the coverage issue because “knowing” in the context of the DTPA only meant “deliberate.”  And, as applied to the case at bar, the Fifth Circuit interpreted the Texas Supreme Court's recent holding Lamar Homes as holding that a “deliberate” act could still be an “occurrence” unless the injury was "highly probable" or the insured "intended or expected the harm that was suffered."  As such, the Fifth Circuit rejected National Union’s argument that a “knowing” violation of the DTPA could never constitute an “occurrence.”  The panel went on to instruct that the coverage lawsuit should include and seek to resolve issues that were not expressly adjudicated in the underlying lawsuit, such as whether the injury caused by the insured was "highly probable, expected or intended."

 

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The debate over liability insurance coverage for punitive damages has ebbed and flowed for many years, but over the last 4 weeks in Texas it has reached an unprecedented pitch.  In early June, the Fifth Circuit Court of Appeals issued its opinion in American International Specialty Lines Ins. Co. v. Res-Care, Inc.,--- F.3d ----, 2008 WL 2232089 (5th Cir. 2008), and the decision has subsequently received significant attention from the plaintiffs' bar for its potential impact on the availability of liability insurance coverage for punitive damages in Texas.  The debate was fueled by Res-Care because several weeks earlier the Texas Supreme Court ruled in a workers compensation coverage case that in the context of workers comp claims, punitive damages were covered under an EL/WC policy.   The policyholder and carrier "camps" have since engaged in a highly publicized war of words over the last month as to the true state of the law in Texas on this critical issue.   The debate wont be resolved anytime soon.

 

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