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

A month after the Deepwater Horizon driling rig exploded, releasing vast volumes of oil into the Gulf of Mexico, the coverage wars have begun.

On May 21, the Phelps Dunbar law firm filed an action for declaratory relief in the federal district court in Housting, seeking a declaration that various Lloyd's syndicates do not owe additional insured coverage to British Petroleum under various excess policies issued to the rig's owner, Transocean.  In Certain Underwriters at Lloyd’s London vs. BP P.L.C., 4:10-cv-01823, U.S. District Court, Southern District of Texas (Houston), Lloyd's argues that its coverage obligations with respect to BP do not extend to sub-surface releases as an agreement entered into between Transocean and BP only extended coverage to pollution “originating above the surface of the land or water from spills, leaks or discharges” and therefore should not apply to subsurface contamination.

Stay tuned.

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The Supreme Court of Washington held in a case arising from an assault that a split of authority regarding an assault and battery exclusion meant the duty to defend existed, and the insurer acted in bad faith denying the duty to defend.   American Best Food, Inc. v. Alea London, LTD., 2010 Wash. LEXIS 250 (March 18, 2010).  

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Much has been written concerning the elements of estoppel and the necessity of an insurer effectively reserving its rights if it wishes to undertake its insured’s defense while still preserving coverage defenses. A ruling issued yesterday by the Georgia Supreme Court illustrates the peril that insurers face when they fail to do so.

In World Harvest Church, Inc. v. GuideOne Mut. Ins. Co., S10Q341 (Ga. May 3, 2010), the operators of an automobile title lending business donated over $1 million in funds to the World Harvest Church.  In turned out the funds were the product of a massive Ponzi scheme that quickly became the source of an SEC investigation.  A Receiver sought to recover these funds from  the Church and filed a civil enforcement action in Illinois asserting claims of fraudulent transfer and unjust enrichment. The Church tendered the defense of this case to its CGL carrier, GuideOne.  A sister company of GuideONe responded with a written reservation of rights letter and ultimately denied coverage on the basis that its policy did not cover the Illinois action.
 

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The Oregon Court of Appeals, in Certain Underwriters at Lloyd's London v. Massachusetts Bonding and Ins. Co., et al., found that a non-settling carrier may pursue a contribution action for defense costs against a carrier that settles with a joint insured.  The Court of Appeals ruled that London was entitled to pursue its contribution action against carriers that previously settled with Zidell based on the theory of equitable contribution.  London did not seek contribution for amounts paid toward indemnity.  The key holding is:

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In Alexander Mfg.v. Ill. Union Ins. Co., 2010 U.S. Dist. LEXIS 15514 (February 22, 2010), the plaintiff had brought a professional liability suit against Illinois Union’s insured. Illinois Union agreed to defend its insured pursuant to its applicable policy. When the underlying mediation failed, plaintiff settled around Illinois Union and directly with its insured for $1,300,000, in the form of a stipulated judgment and covenant not to execute, and obtained an assignment of the insured’s policy rights.

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