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

During the 1990’s, I often delivered the opening talk at DRI’s annual conference on environmental coverage disputes. In the course of presenting charts showing the evolution of case law among the fifth states, it was always a comfort to point to Hawaii as one of the few remaining “white spaces” on the map.

While Hawaii remains blessedly free of most of the long-tail coverage controversies that continue to plague many other states, its Supreme Court has now been asked to tackle the vexing issue of whether absolute pollution exclusions apply to all injuries caused by pollutants or whether, as policyholders contend, they are limited to “traditional” environmental pollution.

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In a "perfect storm" of a claims made case, the First Circuit has sustained rulings by a Massachusetts court that three "claims policies" did not apply to a malpractice claim for three independent reasons. The opinion illustrates the growing impact of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) shaping Rule 12(b)(6) as a significant tool for dismissing baseless coverage claims early on in a case. The holding also reaffirms strong existing Massachusetts precedents governing how “claims made” policies apply.
 

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It is encouraging, after the incredible Woo case (duty to defend dentist who inserted fake boars tusks into his employee’s mouth for photographs while the employee was under anesthesia), to have the Washington Supreme Court unanimously find, albeit in the title insurance context, that there are cases in Washington where an insurance company can properly deny a duty to defend.

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Insurers should welcome the Oregon Court of Appeals’ recent decision in Dewsnup v. Farmers Ins. Co. of Oregon, A136394 (July 1, 2009), because it signals the Court’s reluctance to accept insureds’ arguments that ordinary words are ambiguous -- and must be construed in their favor -- if they are not defined by the policy. In the process of rejecting a water damage claim under a homeowners policy, the Dewsnup Court reiterated in favorable language Oregon law regarding the interpretation of insurance policies.

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In Woodworth v. Stonebridge Life Ins. Co., 2009 U.S. App. LEXIS 15068 (9th Cir. July 8, 2009), the Ninth Circuit affirmed the district court’s grant of summary judgment based on its interpretation of an exclusion for “Loss caused by or resulting from: . . . an injury while the Covered Person is acting as a pilot or crew member in an aircraft.” The dispute arose out of an airplane accident in which flight instructor Roger Woodworth lost his life. Plaintiff, the deceased’s wife, argued that the exclusion should not apply, since it was unknown whether her husband was actually controlling the aircraft at the time that it crashed. She asserted that, because the insurer bears the burden of showing that an exclusion applies, the exclusion would not apply unless Stonebridge proved that her husband was in control of the plane at the time of the crash.

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The insured had to comply with the notice provision in the “special” “expanded” coverage under a “pollution buy-back” endorsement to a policy, which policy otherwise excluded coverage for property damage or bodily injury caused by pollution. In Venoco, Inc. v. Gulf Underwriters Ins. Co. (2009) __ Cal.App.4th __ (2009 WL 1875640), California’s appellate court held there was no coverage for claims by students and administrators at Beverly Hills High School who claimed injuries from oil wells drilled at what became the site of their school.

Gulf Insurance Company’s policy excluded coverage for pollution. The policy was endorsed with pollution coverage if the claims stemmed from an accident and the claim was reported to Gulf within 60 day of discovery of the accident. (Provisions with similar timing requirements are also found in automobile liability policies and in other coverage add-ons.)

The insured did not report any accident nor did it report any such accident within the 60 day time requirement. The court found the policy provision to be conspicuous and reporting requirements like this one to be enforceable. The court further held there was no requirement that the insurer show prejudice due to late notice of the claim. The notice-prejudice rule, the court explained, pertained to late reporting of a claim otherwise covered by the policy. Here the timing requirement was one of the conditions for coverage, as was that there be an accident that caused the pollution.

Nonetheless, the insured argued there was a duty to defend because the policy provided the insurer would defend “groundless” claims. Not so, explained the court. “Groundless” claims must still be claims potentially covered by the policy, and this claim was not.

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