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

In Mancuso v. American Family Muutal Insurance Company, (D. Or. January 16, 2009), 2009 U.S. Dist. LEXIS 3361, the court found that an insured had not presented facts sufficient to show outrageous conduct on the part of the insurer in denying an insurance claim for goods destroyed by a fire. In May 2005, a fire destroyed Mr. Mancuso’s shared 10’ x 20’ storage unit.  When initially asked about the value of the contents, Mr. Mancuso replied it was somewhere between $25,000 and $50,000.  Six months after the fire Mancuso had not actually filed a claim so the insurer closed its file.  Approximately one year after the fire, Mancuso submitted a claim form that was 500 pages long and claimed a loss of more than $750,000. The claim was referred to the insurer’s fraud unit for investigation. Investigators interviewed Mr. Mancuso and his ex-wife.  The insurer denied the claim in total based on its conclusion that every item on the claim form was false.  The insurer also offered to settle the claim, but Mancuso did not respond to an offer. Mancuso brought claims for breach of contract, attorney fees, Outrageous Conduct, Intentional Infliction of Emotional Distress (“IIED”), and defamation. The decision involves the insurer’s partial summary judgment motion against the claims for Outrageous Conduct, IIED and defamation.

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In Fabozzi v. Lexington Insurance Company, 2009 U.S. Dist. LEXIS 1109, at ** 1-2 (2009), the Court upheld a limitations of suit clause while rejecting the insureds’ arguments that the limitation period “did not begin to run until all conditions precedent to recovery under the policy were satisfied,” and that the insurer should be estopped from asserting the limitations period because the insurer had repeatedly assured them that the claim would be paid.
 

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In a case that amply illustrates the problems that may arise from permitting parallel actions to go forward in two different states, the Illinois Appellate Court has ruled in Allianz Ins. Co. v. Guidant Corp., No. 2-07-0814 (Ill. App. December 29, 2008) that a trial court did not err in refusing to hold that a duty to defend ruling of an indiana court did not collaterally estop a pharmaceutical manufacturer’s liability insurers from contesting coverage in an Illinois proceeding particularly as the Indiana trial court decision was reversed in early 2008 by the Indiana Court of Appeals.

The Appellate Court also affirmed the Illinois trial court’s determination that subsequent product liability claims brought against Guidant could not be aggregated with certain earlier claims based on the policies’ batch clause as the later claims did not arise out of the same claimed product defect. The court rejected the insured’s claim that losses could be aggregated so long as they involved a particular product with any type of defect regardless of whether the claims at issue involve a common product defect. The court held that the batch clause would not have applied in any event as the “Dear Doctor” letters issued by Guidant during the initial policy period did not satisfy the requirement of an “advisory memorandum” for purposes of the batch clause.

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The fate of dozens of major Massachusetts environmental and other long-tail insurance coverage disputes now hangs in the balance as the Supreme Judicial Court takes up the issue of whether insurers are only responsible for an allocated share of these multi-year losses.

On January 8, the SJC heard oral argument in the matter of Boston Gas Co. v. Century Indemnity. At trial, a federal district court jury in Boston had found that Century Indemnity was required to indemnify Boston Gas for $6.2 million in clean up costs under its 1966-69 policy despite the fact that the pollution had occurred on a continuous basis since the opening of the site in 1908. Following certification by the U.S. Court of Appeals for the First Circuit, the case was taken up by the Supreme Judicial Court on the issue of allocation.

The Boston Gas case has attracted considerable amicus attention, not least because this is the first time that the SJC has addressed allocation issues, having expressly declined to rule on the issue in several earlier pollution and asbestos cases.

While there is considerable risk in predicting the outcome of an appeal based on the questions asked by the justices during oral argument, it must be observed that the overall tone of the argument seemed to favor the insurer’s arguments for pro rata allocation. In particular, the SJC appears to be viewing these issues on a clean slate and is giving little weight to the two intermediate appellate rulings (Rubenstein and Chicago Bridge) that policyholders have relied on over the past decade in persuading trial courts to impose coverage on a “joint and several” or “all sums” basis.

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The Stringfellow litigation has brought practitioners law on continuous trigger (see, Montrose Chem. Corp. v. Admiral Ins. Co. [1995] 10 Cal.4^th 645), and now on “all sums,” stacking, and number of occurrences (State of Calif. v. Continental Ins. Co. (2009) __ Cal.App.4^th __, discussed further below). In 2009, there may also be ruling on the pollution-coverage-related issues of the relevant release at a landfill, and the insured’s burden of proof on what caused the pollution) (State of California v. Underwriters at Lloyd's London). On Jan. 8^th, the California Supreme Court heard oral argument on the pollution coverage issues. A decision should be out later in the year.

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In reviewing California appellate decisions issued in 2008, my vote for the most significant decisions are on the issue of what constitutes an “accident” (State Farm) because it is a departure from prior law on the issue, and the issue of whether an excess insurer must pay when the primary settled for less than policy limits (Qualcomm) because it is on a subject for which there was a dearth of law.

Accident

Prior to 2008, California courts consistently held an insured's intentional or deliberate act is not an accident for purposes of the “occurrence” definition of a general liability policy, regardless of whether the insured intended to cause the resulting harm. See, e.g., Merced Mutual Insurance Company v. Mendez (1989) 213 Cal.App.3d 41 (sexual battery); Collin v. American Empire Ins. Co. (1994) 21 Cal.App.4^th 787 (conversion); Ray v. Valley Forge Ins. Co. (2000) 77 Cal.App.4^th 1039 (professional advice). California courts distinguished between the act and the resulting harm.

That analysis was called into question by State Farm Fire and Casualty Company v. Superior Court (2008) 164 Cal.App.4^th 317 (review denied). In State Farm, during an argument, the insured intentionally threw the plaintiff into a swimming pool. The plaintiff sustained injuries when he landed on the pool's concrete step rather than in the water. State Farm declined to defend the ensuing lawsuit because the insured acted intentionally and not accidentally, regardless of whether the insured intended to harm the plaintiff or not.

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