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

In an action to rescind life insurance policies for fraud and misrepresentation, a New York appellate court recently held that although the action was timely filed within the statutory two-year incontestability period, the insurer was estopped from seeking rescission for having collected and retained nine premium payments after commencing suit.

In Security Mutual Life Insurance Company of New York v. Rodriguez, defendants purportedly purchased three life insurance policies worth $20 million from Security Mutual agents who, prior to the commencement of the action, had pled guilty to insurance law crimes in connection with the issuance of life insurance policies. 2009 WL 1444524 (1st Dep’t May 26, 2009). The action for rescission and fraud alleged that defendants, in conjunction with the agents, procured the policies by providing false and misleading financial and medical information. On a motion to dismiss the complaint, defendants argued the action was untimely and that the insurer had waived its right to rescind the policy and had failed to plead fraud with sufficient particularity.
 

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A California federal trial court decision adds to the growing body of law of how much the facts (and how those facts are presented) determine the number of occurrences question. Evanston Ins. Co. v. Ghillie Suits.Com, Inc., 2009 U.S. Lexis 22256 (N.D.Cal. 2009).

Cases examining number of occurrences (for purposes of determining the number of limits available on (often) non-aggregated claims or how many deductibles an insured may have to pay) are decidedly fact-driven. See, for instance, recent case examples where the courts have concluded there is more than one occurrence: London Market Insurers v. Truck Ins. Exchange, 146 Cal.App.4th 648 (Ct. App. 2007) (“Kaiser Cement”) (in inter-insurer dispute, asbestos liabilities that arose out at many different locations from different products and situations creating exposure, were not all a single occurrence); Lennar Corp. v. Great American Ins. Co., 200 S.W.3d 651 (Tex. App. 2006) (in examining claims based on defective stucco, the court noted that “under the ‘cause’ analysis, the proper focus . . . is on the number of events that cause the injuries and give rise to the insured's liability, rather than the number of injurious effects”); Nicor, Inc. v. Associated Electric and Gas Ins. Services Ltd, 223 Ill. 2d 407, 413 (Ill. 2006) (mercury spills in 195 homes were separate occurrences because different acts of negligence and not common methodology, thus requiring insured to pay multiple self insured retentions).

In the Evanston case, during a U.S. Marine training session, two marines were badly burned after their “fireproof” clothing caught fire. The parties, in presenting the issue to the court, stipulated that when the first marine’s suit caught fire from a flash from a gun - that was a single occurrence. The question was whether the ignition of the second marine’s clothing was part of that same occurrence or a separate occurrence. The court painstakingly went through the details of the event (all of which happened in a matter of minutes) and the various theories as to whether there were different causes for the two fires even though close in time and space. In the end, what the court appeared to find most compelling was that the second marine was safe, and it is only that he decided to assist the first marine that caused the second marine’s clothing to ignite. Thus, the court found there were two occurrences (and two occurrence limits applied).

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In Fairbanks v. Superior Court of Los Angeles County (Farmers New World Life Insurance Co.) 46 Cal.4th 56 [2009 WL 1035264] (2009), the California Supreme Court held life insurance is not a service subject to the protections of California’s Consumer Legal Remedies Act (“CLRA”). The decision provides life insurance companies with a solid defense against CLRA lawsuits alleging unfair or deceptive acts and practices in the marketing or sale of life insurance policies.

The CLRA (Calif. Civ. Code § 1750 et seq.) provides a nonexclusive statutory remedy for unfair methods of competition and unfair or deceptive acts undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer.  The Act provided a means to recover damages, punitive damages, and attorneys fees.

Absence of this remedy does not preclude other causes of action, namely under California’s Business & Professions Code Section 17200 for unfair competition (limited to injunctive relief and restitution), or a “bad faith” claim (if there has been a breach of contract).

In reaching its decision in Fairbanks, the California Court rejected decisions from other jurisdictions (namely Texas and Colorado), which held life insurance does come within the meaning of services under similar consumer protection statutes. The California Court determined that, unlike the broadly worded statutes in other states, the CLRA “contains a restrictive definition of ‘services’ that excludes life insurance.”

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The Fourth Circuit  ruled yesterday  that allegations that employees of an American security firm that abetted the torture of detainees at the Abu Ghraib prison in Iraq are outside the Coverage Territory of a CGL policy issued by St. Paul. In CACI, International, Inc. v. St. Paul Fire & Marine Ins. Co., No. 08-1885 (4th Cir. May 14, 2009), the court voted 2-1 to affirm the findings of a West Virginia District Court that the alleged abuses did not occur within the territory of the United States and its possessions. The court declined to find that allegations that conduct that did occur in the United States wherein the insured was allegedly negligent in hiring these employees triggered coverage. Apart from the fact that the Complaint did not expressly allege where these acts occurred, the court ruled that it is the place of injury, not of the insured’s negligent acts, that governs the application of the Coverage Territory clause.  Justice Shedd authored a brief dissent, arguing that the claims fell within the exception for insureds working outside the territory for a “short period.”

Kudos to Walter Andrews of Hunton & Williams!

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The Supreme Judicial Court of Massachusetts issued a brief order yesterday in Boston Gas v. Century Indemnity announcing that it is waiving an internal court guideline that requires issuance of rulings within 130 days of oral argument.  At issue in Boston Gas is whether the cost of cleaning up pollution from a former manufactured gas plant can be allocated to an excess insurer on an "all sums" basis or must be allocated to multiple years on some basis.  As the case was argued on January 8, the 130 day period was due to expire this week.

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In MW Builders, Inc. v. Safeco Ins. Co. of America, District Court Judge Haggerty held that an insurance company must bear the burden of establishing which portions of an arbitration award were reasonably allocable to covered claims where “circumstances of the underlying action should have compelled the insurer to seek an allocated verdict or advise the insured of the need for one.”

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The Eighth Circuit's recent opinion in Westchester Fire Ins. Co. v. Wallerich, No. 07-3624 (8th Cir. April 24, 2009) has added further confusion to the conflicting law in Minnesota as to whether liability insurers can sue their insurers to recoup defense costs if they are adjudged not to have owed a defense, Although Minnesota’s state appellate courts have yet to weigh in on this issue, it appeared up until now that federal courts were recognizing a right of recoupment. Now it’s unclear.

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In Green v. William Penn Life Ins. Co. of NY, the court reviewed New York’s presumption against suicide, clarifying that decisional law and New York’s Pattern Jury instruction merely articulate guides for finders of fact, not rules of law that compel dismissal of claims as a matter of law.

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A recent case in California, takes an insurer’s duty to search for coverage a step farther than required to date and, while the insurer acted correctly on the coverage of which it was aware and acted promptly as it discovered additional coverage, that was not enough – it was found liable to the tune of $3.2 million (damages, interest, and attorneys fees).

Safeco Ins. Co. v. Parks (2009) 170 Cal.App.4th 992 (“Safeco II”), is a case every insurer should review.  The court’s decision flows from a rather bizarre set of facts, and a convoluted legal history, which will not be fully summarized here. The claimant was 16 year old Michelle Park’s boyfriend who was left by the side of the road in February 1999 to make his way home following his rude behavior towards his girlfriend. He was hit by a car which resulted in the need to amputate one of his legs.

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In Bresee Homes, Inc. v. Farmers, the Oregon Court of Appeals ruled that the trial court properly granted summary judgment to Farmers based on an exclusion for damages within the products-completed operations hazard in the context of a construction defect claim involving water intrusion. The insured, a general contractor, constructed a residence in 1999. Claims were brought against the insured in 2005. Farmers denied coverage for the loss based on an endorsement excluding coverage for property damage included within the products-completed operations hazard. On summary judgment in the trial court, the insured failed to submit any evidence as to the timing of the property damage, arguing that a material issue of fact existed and the insurer had failed to prove otherwise. The insured further argued that the court should consider evidence, in determining whether the exclusion was ambiguous, that Farmers had paid on similar claims. Finally, Bresee argued that Farmers waived the ability to rely on the exclusion.

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In Hennessy v. Mutual of Enumclaw Ins. Co., A133592 (April 29, 2009), Oregon's Court of Appeals adopted a “none of the above” approach to first-party “collapse” claims. The majority of jurisdictions that have considered the undefined term “collapse” have found coverage to be triggered by one of the following three circumstances: (1) a finding of substantial impairment to structural integrity, (2) a finding of an imminent collapse, or (3) an actual collapse, being an actual falling down and/or reduction to rubble. In Hennessy, Oregon’s Court of Appeals held that the undefined term “collapse” “requires only that an object fall some distance.” Thus, in Hennessy, a collapse was found where a portion of a building’s stucco exterior had separated from the building wall but had not yet fallen to the ground.
 

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In recent years, the Seventh Circuit has emerged as a beacon of sanity in the morass of federal insurance jurisprudence (well, yes, there was Eljer butr everyone makes a mistake occasionally).  As among the judges on the court, Posner and Easterbrook are particularly interesting to read.  So it is with pleasure that we commend to your consideration a savage new opinion from Judge Easterbrook saving a policyholder who had the effrontery to challenge the scope of the "your work" exclusion in a recent Indiana case.

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There was a time back in the 1980’s when Indiana was viewed as a relatively conservative jurisdiction as far as insurance law went. During this era, there was also a general view that the duty to defend did not arise until such time as a claim was presented to an insurance company to defend.  Since then, however, Indiana has become a notoriously difficult jurisdiction for insurers and courts around the country have warmed to the idea that insureds can recover “pre-tender” defense costs unless their delay in giving notice caused prejudice to the insurer.

Now, in an astonishing turn of events, the Indiana Supreme Court has turned the clock back and has adopted a sensible analysis of an insurance policy that clearly distinguishes between the prejudice rules that most jurisdictions have adopted in the context of an insured’s failure to give timely notice of an accident or suit, and the requirement of tender as being a pre-condition to the duty to defend in the first instance.

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