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

In FountainCourt Homeowners’ Assn. v. American Family Mutual Ins. Co., 2009 U.S. Dist. LEXIS 107403, filed on November 16, 2009, District Court Judge Ann Aiken, employed Oregon law to examine the application of a “multi-unit residential building” exclusion in a commercial general liability policy. In FountainCourt, the plaintiffs were two owners’ associations representing condominium and townhome unit owners at FountainCourt, a development containing both condominiums and townhomes. American Family insured the siding contractor involved in the construction of FountainCourt, and the general contractor was an additional named insured under the siding contractor’s American Family polices. After plaintiffs sued the general and siding contractors for construction defects at FountainCourt, the general contractor tendered the defense and indemnity of the plaintiffs’ claims to American Family. American Family denied the tender, relying in large part on the policies’ exclusion for multi-unit new residential construction. The plaintiffs then filed a breach of contract action against American Family alleging bad faith.

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I spoke on a Boston Bar Association panel last week that was exploring the implications of Boston Gas v. Century Indemnity, the case in which our Supreme Judicial Court ruled last July that long-tail losses must be allocated on a pure “time on the risk” basis without consideration to whether insurance was “unavailable” for certain periods of time. It’s been several months since the case was handed down and, in the interim, a few truths are becoming apparent.

Our panel discussion also touched on the challenge that Boston Gas may present to insurers whose policies were in effect years prior to the discovery of contamination. In such circumstances, should an insurer stand on the traditional defense that the policyholder has failed to present evidence that contamination was actually occurring during its policy period or is it more efficacious to concede the trigger issue but gain the benefit of paying a small fractional share based on Boston Gas?

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A recent opinion of the U.S. Court of Appeals for the Third Circuit has emphasized the general rule that an insurer’s failure to follow its own internal procedures does not necessarily equate to bad faith.

In Smith v. Continental Cas. Co., No. 08-4140 (3rd Cir. October 8, 2009), Continental Casualty’s insureds were sued for marketing various securities in what later proved to be a Ponzi scheme. The insured tendered its claim to its professional liability insurer, Continental Casualty, which denied coverage. The insured thereafter entered into a settlement with the plaintiffs for $150,000 and an assignment of their rights against their insurer. The plaintiffs thereafter sued Continental Casualty for breach of contract and bad faith.
 

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One of the more nagging problems in bad faith litigation is failure to settle cases in which more than one insurance company is involved. In such circumstances, where the insurer does not have full control as to whether the case can settle or not, may a liability insurer be liable for bad faith where the failure of the settlement owes to the intransigence of an excess insurer or other parties.  It was with some relief, therefore, that we received a ruling from the Georgia Supreme Court earlier this decade that created a "safe harbor" for primary insurers that had done everything in their power to effect a settlement within the overall limits.  Last month, however, the Georgia Supreme Court took a disturbingly narrow view of its earlier ruling in Brightman and declared that any sort of condition imposed by the insurer in offering its limits vitiates this protection.
 

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Although Massachusetts courts have generally given effect to absolute pollution exclusions, recent case law has developed an interesting distinction between claims for “clean up costs” and damages attributable to more traditional forms of property damage, such as diminution in the value of the plaintiff’s property due to the presence of pollutants. A new opinion of the Appeals Court has suggested that this distinction is broad enough that it may swallow the exclusion itself.

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A federal district court has ruled in Genzyme Corp. v. Federal Ins. Co., No. 08CV10988 (D. Mass. September 28, 2009) that a shareholder class action in which the plaintiffs alleged that Genzyme’s directors and officers had schemed to depress the market value of a subsidiary so that it could fold it into the corporation in a manner favorable to other shareholders failed to trigger coverage under a Directors & Officers policy.

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