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

2003:  The Year of The Sheep

Top New Claim Threat:                    SARS

Athletic Achievement:                       Lance Armstrong

Furthest Fall from Grace:                Martha Stewart

Coolest New Gadget:                         DVD Camcorders

Hottest Coverage Issue                      Sue and Labor Clauses

The Five Most Important Insurance Coverage Rulings of 2003

 Hameid v. National Fire Insurance of Hartford, 1 Cal.3d 401 (2003).

In this case, the California Supreme Court reversed a ruling of the Court of Appeal that had declared that allegations that the insured solicited customers by advertising in the Pennysaver, sending mailers and telephoning former clients constituted “advertising” for purposes of Coverage B.  Rather, the Supreme Court declared that “advertising” required widespread solicitations by the insured to the public at large and therefore did not provide coverage for one on one solicitations to prospective customers.

Comment:  Although HameidI’s interpretation of “advertising” is now embodied in the definition of “advertising” in Coverage B of the CGL, this opinion set the tone in a manner that California courts have since followed in restricting the scope of Coverage B in numerous cases.

Henkel Corporation v. Hartford Acc. & Ind. Co.,  62 P.3d 69 (Cal. 2003). 

The California Supreme Court ruled that a successor entity cannot claim coverage under policies issued to a predecessor insured absent evidence that the successor entity to a carrier’s original insured was being sued as the result of a merger, a continuation of the seller or as the result of an fraudulent asset transfer or unless the insurer gives its express assent to an assignment of rights.  The court ruled that because Henkel had not acquire the liabilities of the named insured by operation of law but assumed those liabilities by contact, any purported assignment was invalid as it had not been assented to by the insurer. The court focused on the fact that as of the date of these transactions, the underlying claims had not been reduced to a sum of money due, nor had the insurer’s breached any contractual obligations such that such rights of action could be assigned.  Whereas Henkel argued that an assignment under these circumstances had not increased the risk of losses to be imposed on the insurers, the Supreme Court disagreed, noting that such assignments did impose an additional burden since they created a “ubiquitous potential for disputes over the existence and scope of the assignment.” Likewise, the California Supreme Court has since ruled that an assignment of rights under an insurance policy will only be upheld if (1) at the time of the assignment the benefit has been reduced to a claim for money due or to become due, or (2) at the time of the assignment, the insurer has already breached a duty to the insured and the assignment is of a cause of action to recover damages for that breach. 

Comment:  Before this opinion, most courts had ruled that just as successor entities were sued for the torts of predecessor companies, they were entitled to obtain the benefits of their predecessor’s insurance policies “by operation of law.”  Henkel has largely eviscerated the “operation of law” argument and has gained significant traction in jurisdictions as widespread as Hawaii, Indiana and Ohio.

In Re Silicone Implant Insurance Coverage Litigation, 667 N.W.2d 405 (Minn. 2003).

Although silicone breast implants were a significant source of liability claims at the start of the decade, insureds faced the puzzling existential puzzle of arguing for an “injury in fact” trigger for a product that they claimed did not cause injuries.  In this case, the Minnesota Supreme Court held that it was sufficient that the insureds had paid millions to settle these claims, whether there was proof of actual injury or not.  Further, the court held that even though the bodily injuries allegedly attributable to silicone breast implants persist for months or years after the date of initial implantation, the losses attributable to implant claims need not be allocated over the total period of injury.  In overturning the broad “time on the risk” approach that the Court of Appeals had applied, the Supreme Court declared that, unlike its rulings in past pollution cases such as Domtar and Northern States Power, allocation was not required here because the injuries while progressive in nature, were attributable to a specific identifiable event. 

Comment:  As with Johnson Controls, 3M illustrates the peril of litigating with a huge local corporation on its home turf.  More importantly, 3M called into question the extent to which the Supreme Court was committed to allocation and whether it might adopt a different trigger of coverage for losses attribute to distinct events.  In so holding, the court avoided addressing the more difficult allocation issues that had been struggled with by the trial court and the Court of Appeals, namely whether injuries occurring after 1985, when 3M was insured under “claims made” policies should be subject to allocation in he same manner as if conventional “occurrence”-based GL policies had been in effect.

Johnson Controls, Inc. v. Employers Insurance of Wausau, 665 N.W.2d 257 (Wis. 2003)

Apparently embarrassed about being one of only two state Supreme Courts (Maine, being the other) still holding to the view that CGL policies were not meant to cover Superfund claims, the Wisconsin Supreme Court did an about face in July 2003 and ruled that it had made a mistake in adopting a “narrow and technical” interpretation of the words “suit” and “damages” in its 1994 opinion in City of Edgerton.  Instead, the court declared that “an insured’s costs of restoring and remediating damaged property, where the costs are based on restoration efforts by a third party (including the government) or incurred directly by the insured, are covered damages under CGL policies, provided that other policy exclusions do not apply.”

Comment:  With Johnson Controls, the Wisconsin Supreme Court thrust itself firmly into the policyholder camp on environmental issues.  Wisconsin is now unique among the major states in ruling for policyholders on all of the key issues impacting pollution claims, including “damages,” suit”, “sudden and accidental,” and “allocation.”  Did we mention that Johnson Control is the largest private employer in Wisconsin?

State Farm Mutual Automobile Insurance Company v. Campbell, 123 S. Ct. 1513 (U.S. 2003).  

Expanding on its earlier opinion in BMW v. Gore, the U.S. Supreme Court overturned a bad faith case from Utah in which the state Supreme Court reinstated a $145 million bad faith award, declaring that (1)  out of state evidence should not have been taken into account in calculating punitive damages; (2) that a punitive damage award that was seventy times greater than the plaintiff’s actual damages violated the Due Process Clause to the Fourteenth Amendment of the U.S. Constitution and (3) that courts considering challenges to these awards must employ a de novo standard of review.

Comment:  The impact of Campbell cannot be overstated..  Overnight, it eliminated double and triple-digit punitive damage awards.  Although the opinion’s premise that most awards should not exceed a 1:1 ratio remains largely unfulfilled, the opinion gave insurers numerous new tools to limit the evidence that juries could consider, particularly with respect to injuries occurring in other states or impacting parties not a party to the dispute.

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2000, 2001, 2002 – Of the final decisions issued by the California courts during those years which had a significant impact on insurers over the course of this decade, in addition to what Mike Aylward notes, I would add the following:

2000

• No comparative bad faith. Kransco Int. v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390. There are still affirmative defenses, affirmative relief, and defenses insurers can pursue, and the insured’s conduct is relevant.
• Construction defects that do not cause damage to property fall within the economic loss rule. Aas v. Superior Court (2000) 24 Cal.4th 627. Not an insurance case, but the ruling is in line with insurance coverage requirements that there be physical injury to tangible property.
• An insurer’s reconsideration of whether there is coverage for a claim vitiates claims of bad faith. Shade Foods, Inc. v. Innovative Product Sales & Marketing (2000) 78 Cal.App.4th 847.
• Other insurance may satisfy self-insured or deductible requirements. Vons Cos., Inc. v. United States Fire Ins. Co. (2000) 78 Cal.App.4th 52. This depends, of course, on the policy language. But where the insurance policy does not require the insured to pay the SIR, other insurance applicable to the claim may be used by the insured to satisfy that requirement.
• Self-insurance is not insurance. Montgomery Ward & Co. v. Imperial Cas. & Indem. Co. (2000) 81 Cal.App.4th 356. It looks like insurance and acts like insurance and has insurance in its name, but it is not insurance.

2001

• Where there is a genuine issue in dispute – factual or legal – there cannot be bad faith liability imposed on an insurer for advancing its side of the dispute. Chateau Chamberay v. Associated Int. Ins. Co. (2001) 90 Cal.App.4th 335.
• Cumis counsel is not required where insurer agreed to defend all claims even though it denied coverage for some, distinct claims and refused to prosecute insured’s cross-claim. James 3 Corp. v. Truck Ins. Exchg. (2001) 91 Cal.App.4th 1093.
• Additional insured is entitled to same considerations as named insured, insured can select insurer to pursue, and award of attorney fees against the insured are covered by the policy’s “supplementary payments provision” even if the claim upon which they are based is not covered by the policy. Pressley Homes, Inc. v. American States Ins. Co. (2001) 90 Cal.App.4th 571. On the third point, there has been further clarification that attorneys fees awarded on claims that cannot be covered by insurance (i.e., the insured’s willful conduct) are not covered. Combs v. State Farm Fire & Cas. Co. (2006) 143 Cal.App.4th 1338. Further in State Farm General Ins. Co. v. Mintarsih (2009) 175 Cal.App.4th 274, the court held that there was no coverage for attorney fees awarded against the insured if based on a claim not potentially covered by the policy (there, a wage and hour claim).
• The insured must prove the amount of damage attributable to the covered portion of the loss in order to prove breach of contract. Golden Eagle Refinery Co. v. Assoc. Int. Ins. Co. (2001) 85 Cal.App.4th 1300. This decision was recently overruled in State of Calif. v. Allstate Ins. Co. (2009) 45 Cal.4th 1008, in which the court held the burden is on the insurer.

2002

• Insurance policy can be proven by secondary evidence, including oral testimony and standard forms, and other evidence. Dart Industries, Inc. v. Commercial Union Ins. Co. (2002) 28 Cal.4th 1059.
• Insured cannot settle around its insurer where the insurer is defending the insured. Hamilton v. Maryland Cas. Co. (2002) 27 Cal.4th 718.
• An affirmative defense that seeks damages in the form of a set-off is a claim for damages. Constructive Protective Services, Inc. v. TIG Specialty Ins. (2002) 29 Cal.4th 189.
• No duty to provide independent counsel even where counsel retained by insurer was staff counsel of insurer. Gafcon, Inc. v. Posnor & Assocs. (2002) 98 Cal.App.4th 1388.

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2002: The Year of the Horse

Top New Claim Threat:       Terrorism

Athletic Achievement:           New England Patriots          

Furthest Fall from Grace: Salt Lake City Winter Olympics

Coolest New Gadget:            GPS

Hottest Coverage Issue:        Vanishing Premiums

The Five Biggest Rulings of 2002

Anthem Electronics, Inc. v. Pacific Employers Ins. Co., 302 F.3d 149 (9^th Cir. 2002),

The Ninth Circuit ruled that liability insurers had a duty to defend allegations that the insured's defective circuit boards had caused the plaintiffs' computer scanners to crash. In the court held that claims for breach of contract are an "occurrence" under California law and that the plaintiffs' claims alleged a "loss of use" of the scanners. Further, the Ninth Circuit ruled that the underlying suits left open the possibility that the defective circuit boards had caused "sudden and accidental physical injury to the insured's product or the insured's work after it had been put to its intended use" so as to fall within the exception to the "impaired property" exclusion. The court also took note of a consultant's investigative report which had concluded that "thermal stressing" had caused foil layers to separate, commenting that this suggested that the damage may have occurred "suddenly."

Comment: Despite earlier pro-insurer rulings such as Wisconsin Label, this Ninth Circuit opinion re-opened the door to forcing CGL insurers to pay for contract disputes involving defective electronic components at the same time as computers are assuming a ubiquitous position in our lives.

Consolidated Edison Co. of NY  v. Allstate Ins. Co., 98 N.Y.2d 208, 774 N.E.2d 687 (2002)

In a landmark victory for insurers, the New York Court of Appeals declared that a trial court did not err in adopting a "time on the risk" approach to long-tail pollution cleanup claims. The Court of Appeals ruled that an "all sums" or joint and several approach that would have permitted the policyholder to allocate its entire loss to any single year of coverage was inconsistent with the provisions of such policies limiting coverage to property damage during each year, particularly in cases where the amount of damage in any given year is uncertain. The court declined to adopt a specific theory of pro-ration, however, noting that its ruling was not the "last word" with respect to questions such as whether allocation should be based on the total period of injury, the limits of available insurance coverage or the amount of injury in each year much less as to how allocation should apply to diverse factual circumstances, such as those involving self-insured period, periods when the insured failed to purchase insurance, or periods for which insurance was unavailable for such losses. In another significant ruling, the court concluded that policyholders have the burden of proving an "accident" or "occurrence" in order to trigger coverage, rejecting the insured's contention that such terms are "exclusionary" in effect.

Comment: In recent years, New York has rarely led the way. At the same time, however, opinions of the New York Court of Appeals have a way of consolidating trends that have emerged elsewhere.   This opinion largely stemmed the tide of “all sums” rulings in other states and paved the way for the evolution of “time on the risk” case law in the region as state supreme courts in Connecticut, Massachusetts, New Hampshire and Vermont followed suit.

Friedline v. Shelby Ins. Co., 774 N.E.2d 37 (Ind. 2002)

While affirming the Court of Appeals' ruling that personal injuries suffered by a building occupant who inhaled carpet glue fumes was outside the scope of an absolute pollution exclusion, the Indiana Supreme Court overturned the lower court's ruling that the assertion of the exclusion is per se bad faith in Indiana. The court ruled in that the Freidlines had failed to establish by clear and convincing evidence that Shelby Insurance lacked a reasonable basis for its coverage position, particularly as it had been adopted by several out-of-state courts.

Comment: Starting around 1996, when the Indiana Supreme Court eviscerated pollution exclusions in Kiger and Seymour, insurance jurisprudence in Indiana went into free fall. Things were so bad that, by 2002, an intermediate appellate court had ruled that an insurer had acted in bad faith by even contending that an absolute pollution exclusion might preclude coverage for indoor chemical exposures.   In this 2002 opinion, the state Supreme Court began to right the ship. While continuing to hold to a limited view of the exclusion, the court acknowledged the right of insurers to contest coverage where legitimate grounds existed for their positions. It was the first (but not the last) major defeat for George Plews, who until them seemed to own the keys to the courthouse.

King v. Dallas Fire Ins. Co., 85 S.W.3d 185 (Tex. 2002

The Texas Supreme Court ruled in this case that allegations that an employer was negligent in its hiring, training or supervision of an employee who attacked the plaintiff have been held to set forth a separate claim for an "occurrence" under Texas law. The court declared that the question of whether an "occurrence" exists must be determined independently from the viewpoint of the insured seeking coverage. Although the Fifth Circuit had previously ruled on several occasions that employers are not entitled to coverage in such circumstances inasmuch as their liability is "related to and interdependent" on the intentional acts of the employee who causes the plaintiff's damage, the Texas Supreme Court concluded that this was an erroneous reading of Texas law since, "whether one who contributes to an injury is negligent is an inquiry independent from whether another who directly causes the injury acted intentionally."

Comment: In King, the Texas Supreme Court rejected an earlier line of cases in which the Fifth Circuit had held that employers are not entitled to coverage in such circumstances inasmuch as their liability is “related to and interdependent” on the intentional acts of the employee who causes the plaintiff’s damage. The Texas Supreme Court declared in King that this was an erroneous reading of Texas law since, “whether one who contributes to an injury is negligent is an inquiry independent from whether another who directly causes the injury acted intentionally.”

Port of Seattle v. Lexington Ins. Co., 48 P.3d 884 (Wash. App. 2002)

In one of the first Y2K first party coverage rulings,  the Washington Court of Appeals held that millions of dollars that the Port of Seattle had spent to prevent system failures that might otherwise have resulted from the inability of its computer software to distinguish the year 1900 from 2000 fell outside the scope of its 1997 and 1998 first party property policies. The Court of Appeals declared that the Y2K problem was an "inherent vice" and therefore excluded. Further, the court refused to find that the insurers had an independent obligation to pay based on "sue and labor" provisions in their policies inasmuch as the loss that the insured sought to prevent could not have occurred before 2000 and therefore would not have been insurable in any event under these 1997 and 1998 policies.

Comment: Despite the smaller than expected incidence of Y2K-related failures after 2000, first party insurers still received millions of dollars in claims for costs that insureds claimed to have spent to mitigate against the risk of such losses occurring. As one of the first Y2K opinions, Port of Seattle set a tone that ultimately sealed the fate of such claims.

NEXT UP:  2003

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2001.    For those of us of a certain age it was, like 1984, a year in which remembered symmetries clashed with current realities.  For many, it was the year in which the new century finally began.  By the fall, it was clear to all that we had entered a new era.

2001: The Year of the Snake
Top New Claim Threat: Y2K
Furthest Fall from Grace: Enron
Athletic Achievement: Barry Bonds
Coolest New Gadget: Noise cancelling headphones
Hottest Coverage Issue: Attorney-Client Privilege

The Five Most Important Insurance Coverage Rulings of 2001

Blue Ridge Ins. Co. v. Jacobsen, 25 Cal.4th 489, 22 P.3d 313 (2001)

In the most important allocation/recoupment case to be decided since Buss, the California Supreme Court ruled that where an insurer has defended a lawsuit under a reservation of rights and settles the claim over the objections of its insured, it is entitled to full reimbursement for all reasonable settlement payments in the event that it is later determined that the claims were not covered under its policy. The insurer had only settled after first warning the policyholder that it would seek recoupment and after giving the insured the right to take over its own defense if it so chose. The court distinguished the Texas Supreme Court’s 2000 opinion in Matagorda, noting that insurers are not free in California to immediately pursue a DJ to resolve coverage issues where, as here, the coverage issue conflicts with the underlying tort suit. The court also emphasized the fact that the insured had been offered the right to take over its own defense.

 Comment: At the time, Jacobsen seemed like an entirely equitable and reasonable outcome to the dilemma that insurers face when insureds demand that they pay to settle cases that insurers do not believe are covered. Ironically, the case has since had the unforeseen outcome of placing insurers in the default position of having to fund settlements for insureds, even in cases where coverage likely does not exist.

Boone v. Vanliner Ins. Co., 744 N.E.2d 154 (Ohio 2001)

The Ohio Supreme Court ruled 4-3 that correspondence between an insurance company and its outside coverage counsel evaluating a policyholder’s claim for coverage is discoverable in a bad faith case, concluding that “claims file materials that show an insurer’s lack of good faith in denying coverage are unworthy of protection” much like the claim fraud exception to the attorney/client privilege. Three dissenting justices criticized the “unworthy of protection rationale” as being even broader than the claimed fraud exception, which only waives the attorney/client privilege in the event of proof whereas the majority’s analysis permits all such documents to be discovered in any case where bad faith is merely alleged.”

 Comment: Vanliner sent a shiver through the insurance industry. Apart from the Arizona Supreme Court’s Lee opinion, no other court had ruled that a mere allegation of bad faith was enough to vitiate the privilege. In the event, these concerns proved somewhat exaggerated. Since 2001, however, no other state court has taken this view. Even in Ohio, the state legislature approved a measure in 2007 ameliorates Vanliner by now requiring in camera review by a court before privileged communications needed be disclosed.

Certain Underwriters at Lloyd’s v. Superior Court, 24 Cal.4th 945, 16 P.3d 94 (2001)

The California Supreme Court on February 1, 2001 that general liability policies that insure sums that the insured is “legally obligated as damages” only extend coverage to sums that the insured is ordered to pay by a court judgment and, consistently with its ruling in Foster-Gardner, specifically do not encompass “expenses required by an administrative agency pursuant to an environmental statute.” The Supreme Court refused to find that the insuring agreement extended to damages that existed apart from any order by a court. Further, the court refused to read “damages” outside of the insuring agreement or to find that it was redundant with the language requiring the insurer to pay sums for which the policyholder was “legally obligated.”

Comment: Powerine was followed by similar Supreme Court rulings in 2005 that extended its holding to excess policies.  Together, these decisions have largely blunted the effect of the court’s earlier holding in Foster-Gardner that environmental claims are a “suit” and have since significantly reduced the number of environmental claims being litigated in California.

Paradigm Ins. Co. v. Langerman Law Offices, P.A., 24 P.3d 593 (Ariz. 2001)

In this case, the Arizona Supreme Court broke new ground, holding that a cause of action for malpractice existed, even if the insurer was not a client per se. Even if the insurer is not the lawyer’s client but merely an agent of the insured, it is entitled to the same protection as the insured enjoys with respect to the confidentiality of client communications. Further, the court declared that it was possible, absent a conflict of interest, for defense counsel to represent both insurer and insured “but in the unique situation in which the lawyer actually represents two clients, he must give primary allegiance to one (the insured) to whom the other (the insurer) owes a duty of providing not only protection, but of doing so fairly and in good faith.”

 Comment: Much of the “dual client” case law, a pivotal premise underlying the tripartite relationship, has been decided in the unlikely context of efforts by insurers to sue defense counsel for malpractice. In this case, the Arizona Supreme Court found a way to avoid finding an express client relationship but still acknowledging the right of insurers to sue for malpractice.
 

Sunbeam Corp. v. Liberty Mutual Ins. Co., 781 A.2d 1189 (Pa. 2001)

After nearly two decades of pro-insurer rulings from state and federal courts, the future of the pollution exclusion was cast into doubt by the Pennsylvania Supreme Court when it ruled in this case that the exclusion was ambiguous or that coverage was mandated on a Morton-style theory of regulatory estoppel. While stopping short of formally adopting regulatory estoppel, the Supreme Court remanded the question back to the trial court for further finding and further suggested that such evidence might be relevant to establish a “custom and usage” within the insurance industry that mandates an interpretation of “sudden and accidental” that is contrary to the understanding of the general public. Justices Saylor and Castille argued that the lower court’s ruling should have been affirmed as the plain and ordinary meaning of “sudden and accidental” precludes coverage in a case where contamination occurred gradually over an extended period of time.

Comment: Despite initial concerns that Sunbeam might transform Pennsylvania into “West Jersey,” Pennsylvania’s courts have been slow to embrace the “regulatory estoppel” ‘theory. On the other hand, Sunbeam has made it far more difficult for insurers to obtain summary judgment in old pollution cases in the Keystone state and have opened the door for policyholder to pick and choose 1970-86 years under J.H. France.
 

Next up 2002

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The Five Most Important Insurance Coverage Rulings of 2000:

Commercial Union Ins. Co. v. Seven Provinces Ins. Co., 217 F;.3 33 (1st Cir. 2000).

The First Circuit ruled that a reinsurer could be sued for unfair claims handling and bad faith based upon a pattern of evasive claims handling in which it had raised a series of constantly shifting defenses and objections in an effort to delay or avoid paying Commercial Union’s ceded environmental settlement. The First Circuit ruled that Seven Province’s bad faith tactics “were wholly alien to the usual course of dealings between an insurer and a reinsurer.”

Comment: In a decade in which an unprecedented increase in reinsurance disputes largely tore away the “gentleman’s agreement” veneer of relations between reinsurers and ceding companies, the First Circuit set the tone early on with this bad faith opinion.

In re Rules of Professional Conduct, 299 Mont. 321, 2 P.3d 806, 814 (2000).

Efforts by insurers to impose strict litigation guidelines on defense counsel met their Waterloo when the Montana Supreme Court declared that lawyers could not ethically disclose bills to third party auditors for fear that disclosure would waive the privileged content of such documents, since auditors are not part of the “magic circle.” The court also ruled that The rules of professional conduct are not superseded by the terms governing the duty to defend in an insurance policy, nor do they only apply in cases where a conflict of interest between insured and insurer is apparent from the outset. In particular, the court ruled that guidelines requiring the insurer’s prior approval threatened defense counsel’s ethical ability to exercise independent professional judgment on behalf of the insured client.

Comment: Following this opinion, insurers and defense counsel pulled back from a nascent civil war that threatened to tear apart the tripartite relationship. Insurers have since largely revised their guidelines and reached out to defense counsel to find ways to manage litigation in a more nuanced way. Even so, by the end of the decade, many individual practioners and law firms had given up insurance defense work for more lucrative pursuits.

Matagorda County v. Texas Association of Counties Risk Management Pool, 52 S.W.3d 128 (Tex. 2000).

Efforts by the industry to extend Buss beyond California met a 10 gallon pothole when the Texas Supreme Court ruled on December 21 that liability insurers do not have a contractual or implied right to obtain reimbursements for sums that they pay to settle claims on behalf of their insureds that are later found not to be covered. Two dissenting judges argued that the Texas Supreme Court should have followed the California Supreme Court’s lead in Buss in finding an implied obligation to reimburse where the insurer’s payment would otherwise confer a windfall on the policyholder.

Comment: Years later, the Texas Supreme Court would again rule in Frank’s Casing that insurers have no similar right of recoupment. To a large extent, the refusal of Texas courts to imply rights that California courts have recognized is a product of the fact that Texas courts are, in general, much more conservative in imposing such obligations on insurers in the first instance, particularly with respect to claims of bad faith.

Travelers Ins. Co. of Illinois v. Eljer Manufacturing, Inc., 757 N.E.2d 481 (Ill. 2000)

Whereas the Seventh Circuit had ruled in Eljer Manufacturing Co. v. Liberty Mutual Ins. Co., 972 F.2d 805 (7th Cir. 1992) that the presence of a defective component caused “property damage” even if it had not yet caused damage to the product as a whole, the Illinois Supreme Court took a different view in cases involving the same claims under excess policies, declaring that that the installation of a defective product does not result in physical injury to tangible property until it actually fails and causes third party property damage.

Comment: Eljer had consequences well beyond its facts, particularly in the context of asbestos building claims. It was also not the last time in which the Illinois’ two leading course took divergent views on insurance issues. Ironically, the next time that the courts took such conflicting views of the law, it was the Seventh Circuit that held for insurers in refusing to find “personal injury” coverage for junk fax claims, whereas the Illinois Supreme Court took the opposing view, finding CGL coverage for TCPA claims in Swiderski Electronics in 2006.

Wisconsin Label Corp. v. Northbrook P&C Ins. Co., 607 N.E.2d 276 (Wis. 2000)'

In a case that pre-figured many disputes that emerged later in the decade concerning problems involving defective computer software and electronic components, the Wisconsin Supreme Court held that lost profits suffered by a retailer due to the application of incorrect bar codes were not “physical injury to tangible property” or other claim for loss of use that might constitute “property damage.” The Wisconsin Supreme Court ruled in that economic loss suffered by the plaintiff due to the mislabeling of UPC codes on the insured’s product did not result in any physical injury that would constitute “property damage” under the policies. The also court concluded that diminution in value caused by incorporation of a defective product does not constitute “property damage” under post-1973 policies unless it is the result of “physical injury” or “loss of use” and is not a separate basis for claiming coverage.

Comment: In retrospect, Wisconsin Label would prove to be the high water mark of insurance jurisprudence in Wisconsin. In the years to come, the Wisconsin Supreme Court, which had up until then generally been viewed as a reasonable arbiter of insurance disputes, fell under the sway of justices who were willing to find coverage for claims under increasingly improbable circumstances.
 

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A Look Back:  The Decade That Was In Insurance

It was the decade with no name.  Ten years that turned the world upside down.

The decade began with concern over the millennial impact of a mathematical oddity but was ultimately dominated by two iconic events—one natural and one spawned by evil men—that spawned hundreds of insurance coverage law suits and changed our view of catastrophes.

An insurer that began the decade as one of the world’s largest ended the decade on the verge of financial catastrophe, forced to suffer the indignity of federal bail-out.

It was a decade in which new types of liability claims came and went like fashion trends (remember when obesity litigation was going to be “the next asbestos”?).

Some of our most cherished pre-conceptions vanished along with our 401K savings.

A decade that began with an electoral debacle ended with a revolution in our politics that created the promise of hope but has yet to achieve it.

A decade when insurance coverage precedents proved short-lived and where insurers struggled to stay ahead of burgeoning new areas of the law.

A decade that saw enough lawyers, insurance regulators and claims executives go to jail that “captives” took on a whole new meaning.

A decade in which personal communications devices went from obscurity to deafening ubiquity.

We saw changes that will forever changes how claims are presented and litigated:

--the plaintiff’s bar set aside their competitive instincts and demonstrated an unexpected ability to use the Internet and new technologies to quickly marshal and share information and tactics.

--the federal government went from a reluctant by-standard to a front-line player in the  insurance marketplace.

--national boundaries became increasingly irrelevant as more foreign companies purchased domestic insurers and more and more U.S. claims originated overseas.

So much has happened in the past ten years that much of what did happened is now obscured in the cross-currents of history.  Over the next few weeks, as the first decade of the Twenty-First Century comes to a close, we will voyage back through the past ten years, exploring the insurance highlights, low-lights and quirks of the years that were.

Next up:  2000---was it the end of the century or start of a new one?

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In Laird v. Allstate Ins. Co., 2009 Or. App. LEXIS 1810 (Nov. 18, 2009), the court interpreted the term “policyholder” in the context of an automobile policy. Plaintiff was injured in an automobile accident where the driver of the other vehicle was allegedly not authorized to use the vehicle. The unauthorized user was the friend of the boyfriend of the daughter of the named insureds. The insurer argued that only the parents were “policyholders” and therefore only they could authorize the use of the vehicle.

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In recent months, there have been press reports of client claims against the Anderson Kill firm by disgruntled clients whose representation was handled by a paralegal who passed himself as a lawyer on various insurance coverage cases as well as products liability actions. A new opinion of the First Department of the New York Supreme Court in Natural Organics, Inc. v. Anderson Kill and Olick, P.C., 2008 N.Y. slip op. 08472 (App. Div. November 17, 2009) considers aggrieved policyholders can sue the firm for malpractice in such circumstances.

The case in question involved a large insurance coverage matter that AKO had apparently told Natural Organics was worth at least $1.3 million. Several years later, the case settled for $750,000. Thereafter, Natural Organics learned that one of the lead attorneys involved in the case was, in fact, a paralegal who had never been to law school or passed the bar. Natural Organics sued AKO, seeking the difference between $1.3 million and the $750,000 settlement as well as all the legal fees billed in the interim arguing that it would have obtained a more favorable result had it been represented by lawyers.
 

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