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

In Mamaroneck Avenue Corp. v. Hartford Fire Ins. Co. (N.Y.App., 2nd Dept., April 22, 2008), a New York Appellate court held that invasion of an organization’s leasehold interest is not covered under the “personal and advertising injury” provisions of a CGL policy. The underlying complaint alleged that the insured “embarked on a plan of harassment and coercion with the intention of causing [claimant] to terminate its leasehold,” which included allegations of “[t]respassing upon [claimant's] premises and interfering with [claimant’s] business by appearing, unannounced, accompanied by Fire Department personnel and the City Building Inspector . . . to solicit or elicit non-existent fire code violations.” The policy’s definition of “personal and advertising injury” included “wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor.” Noting that other "personal and advertising injury" offenses distinguish between "persons" and "organizations," the court held that wrongful eviction claims apply only to natural "persons."  The court relied on several cases from other jurisdictions to support of its holding, including Stonelight Tile v. California Ins. Guar. Assn., 150 Cal App 4th 19; Mirpad, LLC v. California Ins. Guar. Assn., 132 Cal App 4th 1058; and Supreme Laundry Servs. v. Hartford Cas. Ins. Co., 2007 US Dist LEXIS 18134 (ND Ill. 2007).

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In ExxonMobil Corp. v. Certain Underwriters at Lloyd’s, London (N.Y. App., 1st Dept., April 15, 2008), a New York appellate court applies New York’s “unfortunate event test” to find that an insured’s manufacture and sale of two defective products did not constitute a single occurrence for the purpose of determining applicable deductibles, where each installation of polybutylene resin into a municipal water system, and each introduction of a lubricant into an aircraft engine, created exposure to a condition that resulted in property damage to multiple claimants on different dates over many years. In so holding, the court relied on the Court of Appeals' recent  decision in Appalachian Ins. Co. v General Elec. Co., 8 NY3d 162 (2007), and its own holding in International Flavors & Fragrances, Inc. v Royal Ins. Co. of Am., 46 AD3d 224 (1st Dept.2007).

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On April 14, 2008, the Sixth Circuit applying Illinois law ruled that six umbrella insurers owed no duty under their advertising or personal injury coverages to defend or indemnify an insured accused of monopolizing the synthetic thyroid market. The gravamen of the complaints against the insured was that its wrongful monopoly of the synthetic thyroid market caused consumers and health insurers to have to pay higher prices for its product, Synthroid, and kept them from being able to buy lower-cost, equally effective alternatives. The complaints alleged the insured asserted monopoly control by suppressing a physician’s study critical of Synthroid, criticizing her methodology and results, concealing known facts about it and marketing it as a uniquely superior drug despite knowing it was not. The complaints sought economic damages for consumers and health insurers who overpaid for Synthroid. They did not seek damages on behalf of competing thyroid manufacturers and they did not allege defamation, libel, disparagement, or slander.

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The Ninth Circuit has struck down Nevada’s countersignature law which required out-of-state insurance agents to get a resident agent to sign off on business written in Nevada. The Nevada statute provided that no authorized insurer may make, write, place, or renew any insurance policy on persons, property, or risks in Nevada, “except through its duly appointed and licensed agents resident in [Nevada], any one of whom shall countersign the policy.” The statute further required that the resident agent be paid a 5% commission for all work written in Nevada. The Ninth Circuit found that the statute created “two classes of insurance agents in Nevada, one class of licensed resident agents that can finalize insurance contracts, and a second class of licensed nonresident agents that cannot.” The Ninth Circuit found that the Nevada law violated the Privileges and Immunities Clause of Article IV of the Constitution on the basis that “it discriminates against citizens of other States where there is no substantial reason for the discrimination beyond the mere fact that they are citizens of other States.”

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On April 7, 2008, Division I of the Washington Court of Appeals ruled in Great American Ins. Co., et al. v. Assurance Co. of America on a number of allocation, exhaustion and supplementary payment issues. The case concerned the apportionment of “financial obligations” arising out of the equitable reapportionment of financial obligations arising from the settlement of a large construction defect lawsuit against Polygon Northwest Company, a property development company. In that case, several insurers funded a settlement of the underlying action while an umbrella insurer for Polygon, Great American, did not participate in the settlement. Great American argued in this appeal that the trial court erred by finding it liable because its underlying insurer, United Capitol, was insolvent and made no payments towards the settlement. Great American further argued that even if its excess coverage was triggered, the trial court erred by ordering it to pay amounts exceeding the limits of its policy.

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In Nejati v. Royal Indemnity Co., 2008 WL 483496 (N.D. Tex., February 19, 2008), Royal was sued by Nejati to enforce a $1.4 million default judgment obtained against Royal’s insured under a commercial auto policy.  Nejati obtained a default judgment because the insured failed to forward suit papers to Royal and repeatedly refused to communicate with Royal about the lawsuit.  Royal received actual notice of the suit from Plaintiff's counsel but it did not file an answer on its insured’s behalf because the insured never made a claim, never asked for a defense, and refused to cooperate with his insurer's efforts to try to protect him.  Royal also never issued a reservation of rights or submitted a non-waiver agreement.  It did, however, engage in limited discussions with Nejati’s attorneys once it was notified of the suit including asking for an extension of the answer date to enable to it contact the insured and including trying to settle the lawsuit before a default judgment was entered. On February 19th, Federal District Court Judge Barbara M.G. Lynn from the Northern District of Texas ruled on cross motions for summary judgment filed by Nejati and Royal. 

The court denied summary judgment determining two fact issues existed: (1) whether Royal was prejudiced by its insured’s breach of the cooperation clause; and (2) whether Royal waived the cooperation clause as a condition precedent to coverage through its conduct.  Consistent with the actions of other Texas courts in recent months, this court implicitly rejected the concept of “prejudice as a matter of law” in finding the referenced fact issues despite the insured’s gross failure to cooperate or to even demand defense or indemnity benefits from his liability insurer.  While there is nothing uniquely significant about this decision, it does illustrate an unfortunate trend among Texas courts (both state and federal) in the last 12 months to refuse to recognize "prejudice per se" when an insured refuses to make a claim, refuses to cooperate, and allows a default judgment to be entered.   While these decisions seem superficially beneficial to policyholders, they are actually harmful to policyholders over the long run.  For example, the efforts of the insurer to try to repeatedly contact the insured, to ask for an extension of time to answer, and to ask opposing counsel how much he wanted to settle the case are obviously good things for the insured.  But, as this case illustrates, if such "good efforts" are going to actually increase the insurer's exposure by creating a fact issue as to its actual prejudice, then the obvious lesson is for insurers to not try to help their insureds and simply wait for actual notice from their insured and wait for a demand for a defense before lifting a finger.  That is a very, very dangerous precedent, but it is the unfortunate implication of the refusal of Texas courts' to recognize prejudice per se or prejudice as a matter of law following late notice.   

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In J & A Concrete Corp. v St. Paul Mercury Ins. Co. (N.Y. App., 1st Dept., Feb. 26, 2008), New York’s First Department holds that an action against a surety commenced more than one year after the contractor ceased work was time-barred. The labor and material bond limited the time to commence an action to one year following the date on which the contractor "ceased work." The court finds the term "ceased work" means "stopped performing labor,” and does not include the period in which the contractor may be called upon to finish its contract in the future.

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A New York appellate court strictly applies the provisions of N.Y. Ins. § 3420 (a) (2), which permits injured claimants to maintain direct actions against insurers only after a judgment remains unsatisfied for thirty days following notice of its entry to the insured and its insurer. In Guayara v. Hudson Ins. Co. (2nd Dept. Feb. 19, 2008), the court dismissed claimant’s action for failure to serve the judgment upon the insurer, a condition precedent to suit under the statute. Service upon the insured’s broker was deemed insufficient to satisfy the condition, even though the broker then forwarded the judgment to the insurer.

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Last Friday, the Texas Supreme Court answered “no” to the following certified questions from the Fifth Circuit: 

"Where an additional insured does not and cannot be presumed to know of coverage under an insurer's liability policy, does an insurer that has knowledge that a suit implicating policy coverage has been filed against its additional insured have a duty to inform the additional insured of the available coverage?"  and,

"Does proof of an insurer's actual knowledge of service of process in a suit against its additional insured, when such knowledge is obtained in sufficient time to provide a defense for the insured, establish as a matter of law the absence of prejudice to the insurer from the additional insured's failure to comply with the notice-of-suit provisions of the policy?"

In National Union fire Insurance Co. v. Crocker, 2008 WL 400398 (Tex. February 15, 2008), a nursing home resident sued the insured nursing home and its employee for injuries suffered when hit by a door swung open by the employee. The employee was terminated after the incident but before suit was filed. The insurer defended the nursing home but did not defend the employee even though the claims against him were covered and the insurer knew he had been served. The insurer attempted to contact the employee by phone and mail without success. During the suit, the employee spoke privately with plaintiff’s counsel at a deposition but refused to speak with the nursing home’s defense counsel. At trial, the jury returned a take nothing defense verdict against the nursing home but the court entered a $1,000,000 default judgment against the employee. The injured resident then sought to collect against the liability insurer because of its alleged coverage on the employee. 

The federal district court hearing the coverage case found the insurer breached its duty to defend the employee by failing to notify him of the available coverage. That court also found prejudice had to be shown to establish a coverage defense based on late notice and the insurer’s “actual awareness” of the suit against the employee precluded it’s ability to establish the required prejudice. On appeal, the Fifth Circuit certified the above questions to the Texas Supreme Court. In addressing the notice requirement in last Friday’s decision, the Texas Court observed that a “more basic purpose” of requiring an insured to forward suit papers to the insurer is to advise them that the insured has been served and the insurer is expected to file an answer on their behalf. An insurer’s knowledge that suit has been filed “does not satisfy this ‘more basic purpose’ or require the insurer to “gratuitously subject itself to liability.” The high court noted: “Simply put, there is not duty to provide a defense absent a request for coverage.”

Addressing the prejudice question, the court distinguished its recent decision in PAJ, Inc. v. Hanover Insurance Co. 2008 WL 109071 (Tex. 2008) (See Texas Insurance Law Newsbrief January 14, 2008), by observing in PAJ the notice was actually late in contrast to the present case where there was no notice from the additional insured at all. Because an insured may opt against seeking a defense from an insurer for a number of reasons, the Texas Supreme Court concluded that “insurers owe no duty to provide an unsought, uninvited, unrequested, unsolicited defense.” As such, the insurer had no duty to inform the employee of available coverage or to voluntarily undertake his defense. And, the high court concluded actual knowledge of the suit against him did not establish prejudice as a matter of law.

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Last Friday, the Texas Supreme Court withdrew its 2006 opinion in Evanston Ins. Co. v. Atofina Petrochemicals, Inc., 2006 WL 1195330 (Tex. May 5, 2006) (where the high court found the additional insured provisions of the liability policy were not broad enough to indemnify the third-party's own acts of negligence, but it failed to decide whether the scope of this coverage is limited in any way by the separate indemnity agreement between the third-party and the policy's named insured). Last Friday, the Texas Supreme Court reversed itself and closely examined the interplay between a contractual indemnity agreement and the scope of coverage afforded to additional insureds. In Evanston Ins. Co. v. Atofina Petrochemicals, Inc., 2008 WL 400394 (Tex. February 15, 2008), the court specifically addressed three specific issues: 1) “whether a commercial umbrella insurance policy that was purchased to secure the insured's indemnity obligation in a service contract with a third party also provides direct liability coverage for the third party;” 2) “whether the insurer is bound to pay the amount of an underlying settlement between the additional insured;” and  3) “whether article 21.55 (now Chapter 542) of the Texas Insurance Code, the “Prompt Payment of Claims” statute, authorized the imposition of penalties and attorney's fees for the insurer's failure to pay the claim timely.”

Addressing the first issue involving the breadth of additional insured coverage, the court focused on the policy language defining who is an insured, the provision discussing the named insured’s duty to indemnify the additional insured, and a separate provision defining an insured to include “A person or organization for whom you have agreed to provide insurance as is afforded by this policy; but that person or organization is an insured only with respect to operations performed by you or on your behalf, or facilities owned or used by you.” The court reasoned that each “who-is-an-insured” clause served to grant coverage independently and, therefore, it held the policy provided the broader scope of coverage and did not exclude liabilities arising out of the additional insured’s sole negligence.  

Addressing the second issue of “whether the insurer was bound to pay the amount of an underlying settlement between the additional insured,” the court revisited related decisions and held the insurer’s “denial of coverage barred it from challenging the reasonableness” of the settlement and the insurer was thus bound to pay the $5.75 million settlement. Addressing the third issue of whether article 21.55 of the Texas Insurance Code applied in this context, however, the court observed the claim in this case was a third-party claim involving the insured’s liability to another and not a first-party claim falling within the statute. Accordingly, the court held that the additional insured was not entitled to attorney fees or damages under article 21.55.

The high court’s treatment of the 21.55 penalty provision is interesting in light of the court’s ruling last month in Lamar Homes where it addressed the same statute in a liability claim involving the duty to defend.   Last Friday’s decision in Atofina Petrochemicals properly ruled the penalty provision does not apply to indemnity benefits under a liability policy.   It still leaves claims for previously tendered defense benefits subject to the 18% statutory penalty pursuant to last month’s decision in Lamar Homes, despite the obvious inconsistency between the two decisions.  A majority of the Texas Supreme Court apparently doesn’t have any problems with applying the 18% statutory penalty to defense benefits under a liability policy when coverage is later determined to exist, but it does have problems applying the same penalty provision to the same claim under the same policy as it relates to indemnity benefits. Friday’s decision in Atofina Petrochemicals is simply a good illustration of why the 21.55 holding in Lamar Homes last month was terribly wrong.  

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This past Friday, the Texas Supreme Court issued a important decision on the availability of liability insurance to cover punitive damage awards when it answered the following certified question presented by the Fifth Circuit: “Does Texas public policy prohibit a liability insurance provider from indemnifying an award for punitive damages imposed on its insured because of gross negligence?” In Fairfield Insurance Co. v. Stephens Martin Paving, L.P., 2008 WL 400397 (Tex. February 15, 2008), the Court in a limited holding found “Texas public policy does not prohibit coverage under the type of workers' compensation and employer's liability insurance policy at issue in this case.” In doing so, the Court provided an extensive and thought-provoking discussion of the law from other jurisdictions, Texas statutory and legislative considerations, Texas case law addressing the issue in other contexts and public policy issues including the “freedom of contract” and the underlying purpose of imposing punitive damages.

In this case, an employee died as a result of on the job injuries and the resulting lawsuit alleged the insured employer “failed to follow and enforce OSHA safety rules and regulations.” The policy at issue provided workers’ compensation and employers’ liability insurance that covered “all sums the insured [Stephens Martin Paving] legally must pay as damages because of bodily injury to [its] employees, provided the bodily injury is covered by this Employers Liability Insurance.”  But, it excluded coverage for damages arising from injuries caused by intentional acts and “punitive or exemplary damages because of bodily injury to an employee employed in violation of law.” However, an endorsement provided “[t]his exclusion does not apply unless the violation of law caused or contributed to the bodily injury.” Because the certified question only focused on the public policy considerations, the court did not address the potential coverage issues and presumed the policy covered the punitive damages sought.

In reaching its decision that coverage for punitive damages was not against Texas public policy, the court focused on the statutory workers’ compensation scheme and accompanying insurance regulations.  The court found because the Texas Workers Compensation Act allowed recovery of exemplary damages caused by the employer’s gross negligence and because the Texas Department of Insurance's execution of that scheme and approval of policy forms reveals an “intent to provide coverage for gross-negligence” while excluding intentional acts, the high court of Texas found the “Legislature’s expressed intent is that Texas public policy does not prohibit insurance coverage for claims of gross negligence in this context.”

The decision was one of the oldest cases on the Court's docket probably indicating the intense internal struggle over the important issues raised by this case.   While the holding is troubling to this author at multiple levels, the obvious and easy solution is for liability insurers to craft expansive punitive damage exclusions in their liability policies.  This decision only deals with the public policy implications of extending coverage to punitive damages when the policy is otherwise silent on such coverage. 

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New York Insurance Law § 3420(d) requires that insurers provide written notice of coverage denials “as soon as reasonably possible” for accident claims involving bodily injury and death. Courts hold that failure to comply with the statute results in a waiver of policy defenses, and that policyholders need not demonstrate prejudice to invoke the statute’s protection. In measuring reasonableness, however, courts have declined to establish fixed periods of time, concluding that reasonableness is determined based upon attending circumstances. Naturally, the absence of bright-line tests has led to uncertainty and considerable litigation. New York’s high court has addressed the issue several times, concluding in Hartford v. County of Nassau, 46 NY2d 1028 (1979), that absent excuse or explanation, a 60-day delay was unreasonable as a matter of law, and in First Fin. Ins. Co. v. Jetco Constr. Corp., 1 NY3d 64 (2003), that a 48-day delay violated the statute. Courts have rarely found that delays of as few as 30 days violate the statute; however, New York’s Second Department recently held in Sirius America Ins. Co. v. Vigo Construction Corp. (NY App, 2nd Dept. Feb. 5, 2008), that a disclaimer issued just 34 days after the insurer knew or should have known of the basis for denying coverage was ineffective as a matter of law.

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Recently, the Houston Fourteenth Court of Appeals held State Farm did not breach a contract with its insured after it denied coverage for a mold claim. In Justice v. State Farm Lloyds Ins. Co., 2008 WL 123857 (Tex. App.—Houston [14th Dist.] January 15, 2008), the insureds made a claim under their State Farm homeowner’s insurance policy after a tree fell on their home. State Farm paid the claim. Later, the insureds discovered mold in the walls of their home and reported the claim to State Farm. After issuing a reservation of rights letter, State Farm contracted with a third-party vendor to remediate the home for $137,000. Thereafter, the insureds filed suit for additional mold damage. Both sides filed a motion for summary judgment. 

State Farm argued the breach of contract claim was barred by the mold exclusion in the policy. The insureds allege the mold exclusion is trumped by a provision of the State Farm Adjuster’s Guide, purportedly stating if the original claim is covered, such as the damage from the wind blown tree, then any loss that proximately results is therefore covered. The insureds, however, failed to provide any legal authority for their position and, as a result, waived any basis for relief on that contention.

The appellate court also summarily dealt with the insureds’ other issues such as extra-contractual claims and negligence on the basis the insureds provided no basis to contradict the trial court’s ruling. Importantly, the court reiterated the principle that Texas does not recognize a claim for negligent claims handling. Lastly, to the extent the third-party contractor was hired by State Farm to identify mold damage that could be covered under the policy, the court ruled the insureds response does not articulate a duty owed to them by the contractor or how its failure to identify the mold could have caused them damage if it was not covered under the policy.

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In Lumbermens Mut. Cas. Co. v. The Commonwealth of Pennsylvania, 2008 NY Slip Op 50161(U) (Sup Ct. NY County, Jan. 24, 2008), New York County Supreme Court considered whether a forum selection clause served as adequate grounds to maintain a declaratory judgment action against the Commonwealth of Pennsylvania that was otherwise subject to that state’s sovereign immunity. The court concluded it was not, and dismissed the case for lack of subject matter jurisdiction.

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In York Specialty Food, Inc. v. Tower Ins. Co. of New York (NY App., 1st Dept., Jan. 31, 2008), a New York appellate court has held that an insured, who became aware of the claimant’s accident within three days, but did not notify its insurer of the accident until eight months later, breached the notice requirements of its liability policy. The court rejected the insured’s excuse for delay premised upon an alleged good-faith belief in non-liability because the insured never investigated the possibility of its liability for the accident. The court found that an investigation by the insured that included interviews of employees who witnessed the accident would have revealed that the claimant, after falling in front of the insured's premises, had been taken from the scene in an ambulance. Since no investigation was conducted, the insured could not claim a good-faith belief in non-liability. As continues to be the law in New York, the insured was not required to demonstrate prejudice to invoke the late notice defense.

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An insurer that undertakes the defense of its insured for a sufficiently lengthy period of time without reserving its rights to deny coverage waives coverage defenses. So held the 7th Circuit in Nutmeg Ins. Co. v. East Lake Management & Development Corp. (7th Cir. (Ill.) Jan. 22, 2008) (unreported). In this case, the insurer hired counsel to defend its insured, but did not issue a reservation of rights until two years later. The insurer continued to defend for another two years before issuing a coverage denial. The court concluded that, whether the delay was two or four years, it was too long under Illinois law. The court rejected arguments that the insured was required to demonstrate prejudice by the delay; while prejudice would be required to establish a claim of estoppel, the delay in this case constituted a waiver for which no showing of prejudice was required. The court also rejected arguments that the loss was uninsurable as a matter of state law, and that neither waiver nor estoppel could create coverage for uninsurable losses. Finding no Illinois cases, the court cited precedent in California and New Jersey for the proposition that the defense of uninsurability may be waived or forfeited, and predicted that Illinois courts would agree. Compare this holding with the rule in New York that an insurer cannot through waiver create coverage that a policy was not written to provide (see Schiff Assoc. v. Flack, 51 NY2d 692 (1980); Zappone v. Home Ins. Co., 55 NY2d 131 (1982); Central General Hosp. v. Chubb Group of Ins. Cos., 90 NY2d 195 (1997)). While coverage may be created by estoppel (which requires prejudice), waiver applies only to defenses based on policy exclusions and breach of policy conditions.

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The 7th Circuit has asked the Wisconsin Supreme Court to address the numbering of occurrences and allocation questions raised by long-tail losses. In Plastics Engineering Co. v. Liberty Mut. Ins. Co. (7th Cir. (Wis.) Jan. 22, 2008), the insured sought defense and indemnity for multiple asbestos claims spanning successive policy periods. The district court had concluded that each person's injury caused by exposure to asbestos-containing products constitutes a separate “occurrence”; that non-cumulation provisions in the policies limited each claimant's recovery to the maximum amount allowed in a single triggered policy for an occurrence; and, that defense and indemnity would be allocated on an “all sums” rather than pro rata basis. On appeal, the 7th Circuit found that Wisconsin law does not provide sufficient guidance as to how the Wisconsin Supreme Court would resolve these issues, and certified these questions to the Wisconsin Supreme Court:

1. Under Wisconsin law, what constitutes an “occurrence” in an insurance contract when exposure injuries are sustained by numerous individuals at varying geographical locations over many years?

2. Does Wisconsin Statute § 631.43(1) apply to successive insurance policies when an occurrence is ongoing and spans multiple insurance policies, thereby prohibiting efforts by consecutive insurers to reduce coverage to the maximum of a single policy period?

3. In Wisconsin, are insurers obligated to pay “all sums” related to the defense and/or indemnification of an injury that triggers one insurance policy; or alternatively, are insurers liable for a pro rata share of defense costs and/or damages depending on how much of the injury occurred during the triggered insurance policy period?

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The Washington Court of Appeals has affirmed a trial court’s grant of summary judgment to an insurer and a broker in a failure to procure action on the basis that the insured failed to demonstrate that he had a “special relationship” with the agent requiring the agent to make certain the insured had adequate insurance coverage.

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Even though Lumbermen’s reinsurers rebated over $2 million in premiums to LMC after its reinsurance recoveries consultant alerted it to the fact that a change in the manner in which Kember was booking reinsurance premiums was contrary to procedures recommended by the NAIC, the Seventh Circuit has ruled in Indiana Lumbemens Mut. Ins. Co. v. Reinsurance Results, Inc., No. 07-1283 (7th Cir. January 16, 2008) that the consultant was not entitled to one-third share of the rebated premiums as it was not the result of any “premium and/or claims identified during the course of the review and have not been processed in accordance with the reinsurance contract terms and conditions” as required under its contract. Rather, the Seventh Circuit held that the change had resulted from an adjustment in Lumbermen’s internal accounting procedures and not as the result of any mistake with respect to how the reinsurance claims had been processed. The court also rejected the consultant’s arguments that it should be entitled to some recovery on a theory of quantum meruit.

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The total pollution exclusion was held to apply to property damage resulting from the release of home heating oil in Nascimento v. Preferred Mut. Ins. Co., (1st Cir. (Mass.) Jan. 18, 2008). The claim arose from soil contamination to an adjacent property from an UST used by the insured to store home heating oil to heat his business. The insured was sued by subsequent property owners for costs incurred in remediating the property, and for property damages. The insured conceded that section (f)(2)(a) of the exclusion barred coverage for remediation damages; however, he argued that the underlying complaint also sought damages to the property apart from the cost of remediation to which the exclusion do  not apply. The court disagreed, holding that section (f)(1)(a) of the exclusion, which bars coverage for “ ‘property damage’ arising out of the actual ... discharge, dispersal, seepage, migration, release or escape of pollutants ... at or from any premises, site, or location ... which is or was at any time ... occupied by ... any insured,” also applied to the claim. Though the insured did not own the adjacent lot, he did "occupy" the UST within the meaning of (f)(1)(a). Relying on McGregor v. Allamerica Ins.Co., 449 Mass. 400 (2007), decided after the district court's opinion and while this appeal was pending, the court held that once the oil becomes a pollutant, the total pollution exclusion of the CGL policy is triggered and coverage for remediation and non-remediation claims is barred.

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In Metropolitan Heat & Power Co., Inc. v. AIG Claims Services, Inc. (NY App., 2nd Dept., Jan. 8, 2008), the court held that an independent contractor exclusion in a general contractor’s CGL policy barred coverage for injuries sustained by a subcontractor hired to install a boiler. The exclusion applied to damages "arising out of operations performed for any insured by independent contractors." The general was also denied coverage under the subcontractor’s policy because it was not explicitly listed as a named or additional insured on the policy. The certificate of insurance, issued for information only, conferred no rights upon the plaintiff as the certificate holder.

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In The Ins. Co. of New York v. Central Mut. Ins. Co. (NY App., 1st Dept., Jan. 15, 2008), the court held that issues of fact whether contract between general and subcontractor required subcontractor to name general and owner of construction site as additional insureds precluded summary judgment. The lower court had determined there was an issue of fact whether the subcontract imposed an obligation on the subcontractor to obtain insurance for the owner, and found no issue of fact with respect to its obligation to obtain insurance for the general contractor. On appeal, the court found the subcontract contained at least one page that was taken from the contract between the owner and general, and a plain reading of the contract between the general and subcontractor mirrored a contract between the general and another contractor, thus raising an issue of fact as to the intent of the parties concerning which entities should be included as additional insureds.

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In Acradyne, Inc. v. Travelers Cas. & Sur. Co. of America (9th Cir. (Or.) Jan. 10, 2008) (unreported), the court held that claims for continuation of pay, compensation reduction, and misrepresentation were covered under an employment practices liability policy, while claims for intentional misrepresentation and unjust enrichment were not. Though the policy excluded severance pay or penalties, the court concluded that damages owed under the employment contract did not qualify as severance pay; continued salary payments did not depend on termination from employment. The court also held that an exclusion from damages for “sums sought solely on the basis of a claim for unpaid services under an express or implied agreement” did not apply to allegations that claimant’s salary was reduced in violation of the agreement, finding the term “unpaid services” was ambiguous. Claims for negligent misrepresentation were likewise covered, though claims for intentional misrepresentation and unjust enrichment were not. The intentional misrepresentation claim was barred by an exclusion for wrongful employment practices known before policy inception. Unjust enrichment was not one of the enumerated practices included in the policy's definition of a “Wrongful Employment Practice.” Since only some of the claims were covered, the case was remanded for the purpose of allocating the settlement between the insurer and insured.

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In Simon Wrecking Co., Inc. v. AIU Ins. Co., (E.D.Pa. Jan. 10, 2008), a federal district court concludes that issues of fact regarding application of regulatory estoppel to the meaning of “sudden and accidental” in a pollution exclusion precludes summary judgment. The insured sought coverage for its alleged involvement in the Malvern TCE Superfund Site. At issue was the meaning of “sudden and accidental” in the pollution exclusion of standard CGL policies introduced in 1970.
The insurer claimed the phrase has a temporal meaning to require an abrupt event, while the insured claimed it is identical in meaning to the phrase “unexpected and unintended” and therefore does not require suddenness. On motions for summary judgment, the insured argued the language was ambiguous; was known in the insurance industry, prior to the filing of the 1970 pollution exclusion, to possess the same meaning as “unexpected and unintended;” and, was represented by the industry to the Pennsylvania Insurance Department to mean “unexpected and unintended,” and that regulatory estoppel therefore prevented the insurer from asserting a different meaning.
The court rejected the first two arguments, concluding that the policy language was not ambiguous, and that there was no issue of fact whether the phrase had a trade usage meaning of “unexpected and unintended.” The insured offered little evidence of this, and the insurer submitted affidavits of several industry officials who stated either that the term was unclear and had no trade usage, or that the term was commonly understood to require an abrupt event.
The court, however, concluded that issues of fact precluded summary judgment with respect to application of regulatory estoppel. The insured presented the affidavit of a Pennsylvania Insurance Department employee who stated the IRB represented to the department that the exclusion was merely a clarification and continued to cover pollution that was “unexpected and unintended,” and an explanation that accompanied the filing of the pollution exclusion which categorized the filing as a clarification of occurrence coverage rather than a major departure from it. The insurer submitted several affidavits of employees of the Pennsylvania Insurance Department who stated they were not misled by the filing of the pollution exclusion. The court reserved the matter for trial accordingly.

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In Progressive Express Ins. Co. v. Reed (Fla. App., 5 Dist., Dec. 28, 2007), a Florida appeals court considered whether an insurer with a genuine coverage dispute should be allowed to litigate coverage in a separate declaratory judgment action while the underlying tort action is still pending. The underlying claim arose from a motor vehicle accident that allegedly caused injuries to a passenger on the insured’s motorcycle. The insurer agreed to defend the tort action subject to a reservation of rights based on an exclusion for bodily injury to any person “occupying a covered vehicle … unless you have paid a premium for Guest Passenger Liability coverage.” The insurer then filed this action seeking a declaration that its policy did not provide coverage because the insured had not purchased the requisite coverage. The injured claimant intervened in the coverage action, and moved to abate it until the tort action was resolved. The motion was granted, and the insurer appealed. On appeal, the court held that the coverage action should have been allowed to proceed. Relying on Florida Supreme Court precedent, Higgins v. State Farm Fire & Cas. Co., 894 So.2d 5 (Fla.2004), the court concluded that “an insurance company may pursue a declaratory judgment action which requires a determination of the existence or nonexistence of a fact upon which depend its obligations as the insurer under a policy of insurance.” The court considered a number of factors from Higgins relevant to the timing of a coverage action, including: (1) whether the two actions are mutually exclusive; (2) whether proceeding to decision on the indemnity issue would promote settlement and avoid collusive actions between claimant and insured to create coverage; and (3) whether the insured had resources independent of insurance, so that it would be immaterial to the claimant whether the insured's conduct was covered or not covered by indemnity insurance. In this case, the court found the coverage action should be permitted to proceed because the actions were mutually exclusive and the contestability of the coverage issue would likely impact settlement of the tort action.

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In a claim by injured worker against worker’s compensation claims administrator alleging tort of outrage, Alabama Supreme Court holds that claims adjuster’s files were not privileged work-product, and that communications between administrator an its counsel were also subject to disclosure. At issue in Ex Parte Meadowbrook Ins. Group, Inc. (Ala. Dec. 21, 2007) was claimant’s right to “(1) [the] adjuster's claims notes made after [claimant’s] worker's compensation case was filed … up to the filing of this case, and (2) correspondence and e-mails exchanged between [claims administrator] and [counsel hired to defend it] within that time period pertaining to the decision to terminate [claimant’s] worker's compensation benefits.” Court concluded that claims administrator failed to offer evidence indicating contents of claims file were prepared in anticipation of litigation or trial. Court reasoned that since administrator had an independent contractual duty to investigate claim, it could not rely on mere blanket objections, but was required to show when documents were created, why each document was prepared and how it was used. As for communications with counsel, though they were subject to attorney-client privilege, the privilege was deemed waived because administrator was relying on advice of counsel as a defense to the tort claim. Court held that where advice of counsel is asserted in defense to culpability for a decision, plaintiff is entitled to all relevant documents bearing on the decision.

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The Washington Court of Appeals has ruled that in a case where the plaintiff and the insured entered into a consent judgment wherein the insured admitted liability and agreed to a judgment of $275,000 with interest to accrue at 12% a year, which judgment was subsequently approved by a Superior Court at a reasonableness hearing, the 12% rate of interest was binding on Scottsdale instead of the ordinary rate of interest provided for under RCW 4.56.110(3) (that would have resulted in interest accruing at a rate of 7.18%). In Jackson v. Scottsdale Ins. Co., No. 59606-3-I (Wash. App. December 17, 2007), the court ruled that when parties to a tort suit settle their dispute in a manner that calls for a specified rate of interest, the resulting judgment is founded on a written contract rather than tortious conduct and is properly subject to the higher rate of interest provided for by RCW 4.56.110.

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The New Jersey Supreme Court has ruled that thousands of asbestos claims and other long-tail liabilities that have been incurred but not yet reported do not qualify for inclusion in the distribution of the estate of an insolvent insurer as N.J.S.A. 17:30C-8(a)(1) provides that “no contingent claim shall share in the distribution of the assets of an insurer” except as such claims have become “absolute against the insurer.” In In The Matter of Liquidation of Integrity Ins. Co., No. A-91-06 (N.J. December 13, 2007), the court rejected the Liquidator’s argument that IBNR claims become “absolute” once their value is susceptible of being estimated. Instead, the majority declared that “because the process by which the Liquidator proposes to estimate IBNR claims of necessity entails looking outside of each claim to other similar claims in respect of their very existence, nature and extent and cost, IBNR claims fail to satisfy that most basic element of requirements in order to be “absolute”: [that each] stand on its own and not by reference to any other claim.” Two dissenting justices argues that the majority’s analysis created an unreasonable “Hobson’s choice” for the Liquidator, as it must either pay out the limited assets of the Estate now and leave future claimants without relief or delays payments indefinitely while the Estate meanwhile “hemorrhages” administrative costs.

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The New Mexico Court of Appeals has affirmed a trial court’s declaration that Allstate’s use of the computerized claims handling program “Colossus” does not violate the state’s unfair practices act. In Truong v. Allstate Ins. Co., No. 26,329 (N.M. App. November 30, 2007) the court ruled that Allstate’s use of the program fell within the regulatory exemption to the UPA set forth in Section 57-12-7 as state market conduct examiners had examined Allstate’s use of Colossus and had previously approved it.

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In a case where the insured purchased a commercial package policy that included both CGL and Employers Practice Liability insurance coverage parts, the Appellate Court has ruled that once the cost of defending two defamation and retaliatory discharge claims exhausted the $100,000 EPL limit, the insured was not entitled to coverage under the CGL policy or the umbrella policy, as both policies contained EPL exclusions. In West Bend Mut. Ins. Co. v. Rosemont Exposition Services, Inc., No. 1-07-0644 (Ill. App. December 7, 2007), the court ruled that the defamatory statements were clearly work related so as to fall within the scope of the EPL exclusions.

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The Arkansas Supreme Court  ruled in McGrew v. Farm Bureau Mut. Ins. Co. of Arkansas, No. 07-421 (Ark. November 29, 2007) that a wrongful death action brought against a nurse who moonlighted as a babysitter was not subject to a “business pursuits” exclusion in her homeowner’s policy. While agreeing that babysitting, although not the insured’s principal vocation, was a “trade or business,” the court found ambiguity with respect to an exception to the exclusion for “activity that minors normally perform” as a reasonable person might determine that the policy covered minors, as well as adults, who were performing activities such as child care or babysitting. The case was therefore remanded for factual findings by a jury in accordance with Arkansas principles of policy interpretation to resolve the perceived ambiguity.

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In Lynn v. Westport Ins. Corp. (3rd Cir. (Pa.) Dec. 12, 2007), the court considered whether a tow truck operator, who was struck by the rear-view mirror of an on-coming vehicle while walking alongside his truck to assist his coworker in loading a disabled vehicle onto the coworker’s flatbed, was “occupying” the tow truck for purposes of qualifying for UM coverage. Applying the four-part test in Utica Mut. Ins. Co. v. Contrisciane, 473 A.2d 1005 (Pa.1984), the court held that the tow truck operator was “occupying” his vehicle, despite that he had determined the tow truck would be of no use, and that he was assisting his co-worker in loading the flatbed. The court found that the tow truck operator was only away from his tow truck and walking along the side of the road because of his duties as a tow truck driver, and that he was compelled by his duties as a tow truck driver to help his coworker load the disabled vehicle onto the flatbed truck before he could get back into his tow truck and leave the scene.

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In Bolan v. Auto-Owners Ins. Co., (Mich. App. Dec. 11, 2007), insureds made claim for coverage under a homeowner's policy when they discovered softening in the floor around their dishwasher caused by a dishwasher leak during the drain cycle. Plaintiffs acknowledged that the dishwasher had been leaking for some time before they noticed softening in the floor. The policy excluded loss resulting directly or indirectly from an “inherent vice, latent defect or mechanical breakdown”; however, damage caused by the escape of water from a domestic appliance was excepted from the exclusion. The policy also excluded loss resulting directly or indirectly from “constant or repeated seepage or leakage of water or steam from within a ... domestic appliance which occurs over a period of weeks, months or years.” Court held that while the insureds could recover for loss caused by water escaping from a domestic appliance under the exception to the exclusion, the claim was nevertheless excluded because of the duration of the leak.

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In Hermitage Ins. Co. v. Arm-ing, Inc., (NY App., 2nd Dept., Dec. 11, 2007), court held that insurer’s two-month delay in disclaiming coverage occasioned by its need to investigate to determine when its insureds received notice of the accident was reasonable under Ins. Law 3420(d); however, insureds raised issues of fact whether they notified the plaintiff of the claim as soon as practicable, as required by the relevant insurance contract sufficient to defeat summary judgment.

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Weber v. State Farm Mutual Automobile Ins. Co. (Or. Ct. App. Nov. 28, 2007)

The Teuberts were injured when the car they were traveling in was struck by a car driven by Ronningen. The car driven by Ronningen was insured by State Farm under a policy issued to Weber. Weber and Ronningen lived together and when Weber expressed a desire to purchase a car, she paid $1,000 towards the purchase of a car with Ronningen signing a note for the $20,000 balance. The note stated it was consideration for sale of the car to Ronningen, and the bill of sale identified Ronningen as the buyer. Ronningen completed and submitted an Oregon DMV application for the title and registration of the car, listing himself as the sole owner and took title to the car despite the understanding that the car would be Weber’s. After the purchase, Weber added the car to her State Farm policy and paid the insurance premiums. On the day of the accident, Ronningen asked Weber for permission to use the car. In the report filed with the DMV regarding the accident, Ronningen listed himself as the owner of the car.

The Teuberts sought damages from Ronningen for their injuries and Ronningen sought coverage under Weber’s State Farm policy. The policy stated State Farm would defend and indemnify “an insured.” Additionally, under the policy “insured” included any person driving with Weber’s consent. The Court of Appeals affirmed the trial court’s determination that Ronningen maintained some type of ownership interest in the car and thus was not a driver with Weber’s “consent” to use the car for the purposes of the policy. The court determined that a certificate of title to a vehicle, which Ronningen had to the car, was prima facie evidence of ownership and that the evidence did not support a finding that Ronningen had no ownership interest in the car. Accordingly, the grant of summary judgment to State Farm was affirmed.

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The Wisconsin Court of Appeals has ruled  that a trial court did not err in holding that a product manufacturer had failed to present evidence of the existence and material terms of a missing 1982 CGL policy.  Furthermore, the Court of Appeals ruled that even had such a policy existed, the undisputed evidence was that the trigger of coverage for such CGL policies was the occurrence of injuries during the policy period and that the policy would therefore not have applied since even though the belt sander in question was manufactured in 1982, it did not injure the underlying claimant until 2002.

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NYAT Operating Corp. v GAN National Ins. Co. (NY App., 1st Dept., Dec. 6, 2007)

In an action for defense and indemnity for claims that insured’s employee sexually assaulted claimant, court held that because insured’s liability was based on negligent hiring and retention of employee, not respondeat superior, sexual assault was covered “accident” within meaning of policy, and expected/intended harm exclusion did not apply. Court also held that late notice defense was waived by insurer’s failure to timely notify disclaim coverage. Dismissal of insured’s complaint for its default in opposing insurer’s CPLR 3126 motion did not estop claimant, as intervener, from asserting insured's coverage under policy.

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Labate v. Liberty Mut. Ins. Co. (NY App., 2nd Dept., Nov. 29, 2007)
In a claim for coverage under a homeowner’s policy for damages sustained to insureds’ house when walls cracked and the concrete basement floor slab settled and cracked, the court held that an earth movement exclusion in the policy clearly and unambiguously applied to the property loss. The insurer's expert and the insureds' own engineers hired to remedy the conditions opined that the property damage was caused directly or indirectly by earth movement and settlement.

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This coverage case arose from an underlying case brought against the policyholder for violation of CERCLA for the policyholder’s alleged “contamination of two Superfund sites in eastern Arkansas.” The policyholder filed suit against the Pennsylvania Manufacturers' Association Insurance Company ("PMA") seeking coverage under several insurance policies allegedly issued from 1967 to 1978 and alleging that PMA acted in bad faith under Pennsylvania law for its failure to defend or indemnify it in the underlying suit. The policies from 1967 to 1972 were lost while the 1972 to 1978 policies existed and contained a pollution exclusion which contained an exception for “sudden and accidental” discharges.

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