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

While it is often difficult these days to pay attention to any thing other than the upcoming elections and the roller-coaster economy, judges keep making decisions and lawyers keep lawyering.

On November 6, 2008, after the election results are in, the California appellate court, 4^th district (appeal from Riverside County), will hear oral argument on one aspect of the ongoing litigation between the State of California and its insurers relating to the the Stringfellow site.  Part of the case is before the California Supreme Court (as we mention below). The appellate court hearing next week is on several issues including, importantly, “all sums” and “stacking.”

The Stringfellow litigation started as a pollution lawsuit in 1983, with the State of California being found in part responsible for the pollution in 1988. The coverage litigation started in 1993.

In an unusual move, in this latest phase of the case, the appellate court sent the parties an 88 page “tentative decision” in anticipation of the oral argument, thereby providing the parties with the court’s leanings so the parties could better prepare for each sides’ 30 minute arguments.

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The U.S. Court of Appeals heard oral argument last week in Emhart Ind. v. Century Ind. Co. a large and complicated insurance dispute that promises to say much about the future of environmental coverage jurisprudence in the Ocean State. 

The dispute in Emhart involves a chemical manufacturer’s efforts to compel coverage for Superfund claims arising out of a former manufacturing facility in Rhode Island. After settling with most of its primary carriers, Emhart belatedly discovered that Century Indemnity’s predecessor (INA) had issued a primary liability insurance policy to it in the late 1960s. Only at the close of trial did the U.S. District Court (Smith, J.) declare that Century Indemnity had a duty to defend. Despite the absence of any statement in the underlying Notice of Responsibility from the U.S. EPA or other “charging documents” to the effect that pollution had become manifest during the INA policy period or otherwise satisfied Rhode Island’s “discoverability” standard for trigger of coverage, the court ruled that silence was sufficient to give rise to a potential for coverage triggering the policy under a Montrose-type analysis of the duty to defend.

Tthe Court is considering cross-appeals from a 93 page opinion of a Rhode Island District Court as to (1) whether a primary liability insurer’s failure to defend exposes it to an indemnity exposure without limits (notwithstanding a jury’s finding that the insurer’s policy was not actually triggered) and (2) whether the Rhode Island District Court erred in finding a duty to defend notwithstanding the absence of any statement in the “charging documents” suggesting that property damage had been “discoverable” within the policy period pursuant to Rhode Island’s “manifestation” analysis.

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Geico Insurance Co. v. Hall, 2008 U.S. Dist. Lexis 77347 (S.D. Miss. Oct. 1, 2008) presents at least some evidence that in some states insurers are able to make mistakes and still prevail. When Geico filed its complaint, it included a copy of the insurance policy Geico claimed was the operative policy at issue. Under that policy, the limits were arguably as much as $200,000 for defendant’s claim against Geico’s insured. (Defendant also alleged that the insured’s copy of the policy was lost during Hurricane Katrina.) Later in the case, Geico discovered and presented what it claimed was the actual policy, with an endorsement that established available limits at $25,000.

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For insurance companies reminiscent of the surge in environmental pollution claims in the early 1980s and now wondering if they will be the ones “left holding the bag” with respect to the still unfolding mortgage crisis, the First Circuit’s recent decision in New Fed Mortgage Corporation v. National Union Fire Insurance Company of Pittsburgh, PA, 2008 U.S. App. LEXIS 20695 (1st Cir. Mass., September 30, 2008), should provide some reassurance.

During a four month period in early 2006, a commissioned mortgage broker for New Fed Mortgage arranged fifteen mortgages through the use of altered credit reports. The result was that the lender incurred greater risk than it had bargained for and, consequentially, faced a loss on resale of the loans. After the lender discovered discrepancies between credit reports submitted by New Fed and credit reports obtained independently, the lender demanded indemnification from New Fed. Following an internal investigation, New Fed concluded that one of its brokers had scanned legitimate credit reports into an outside computer system, altered those reports and then printed the fraudulent reports for submission to lenders. New Fed followed its investigation with a claim to its insurance company, National Union.

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In ZRZ Realty Co. v. Beneficial Fire, et al. (Or. Ct. App., Oct. 1, 2008), the Oregon Court of Appeals ruled on appeals brought by insureds, ZRZ Realty, Zidell Marine, and others (“Zidell”) and Lloyds of London (Lloyds”) regarding trial court rulings reached in 2002 and 2003.  The appeal concerned a wide range of issues including burden of proof, the definition of occurrence, availability of attorney fees, and allocation.  The Court’s primary holding was that since the insured had the burden of proving coverage, the insured had the burden of proving that the property damage was caused by an “unexpected and unintended” event when that language is used in the definition of occurrence. Oregon law had been clear that the burden was on the insured to prove coverage. Prior cases, however, seemed to not distinguish the unexpected and unintended requirement in the definition of occurrence with the exclusion for expected or intended injury.  The Court of Appeals clarified that the insured bears the burden of proving that the event was unexpected and unintended.  Since the trial court has placed the burden of proof on Lloyds, the Court remanded for a new trial.

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