Insured-Insurer Privilege Part II

As you likely know from my last blog, I am an advocate of a codified "Insured-Insurer Privilege." The need for such a privilege was also described in my last blog. Briefly, an insured who is seeking defense or indemnity from its insurer is contractually obligated to cooperate with his/her insurer in investigating and resolving the claim. That means providing meaningful information to the insurer so that the insurer can assess liability, damages, verdict potential and settlement value. The insurer needs timely information in order to set reserves and also to be prepared to participate in settlement opportunities. Continue Reading...

Is It Time for a Codified Insured-Insurer Privilege?


There is no common law "Insured-Insurer privilege" that protects communications between them, such as the privilege that exists for spousal communications or attorney client communications. Did you know that in some jurisdictions an insured who is being provided a defense by an insurer under a reservation of rights could risk the waiver of attorney client privilege or work product protection if its counsel provides the insurer with an analysis of liability, damages or verdict potential? How can that be?

Continue Reading...

CLIENT QUESTIONS REGARDING POLICY INTERPRETATIONS

One of the more common questions that clients ask coverage counsel is how a court will interpret a new policy provision. This is especially true of clients that make a point of using the latest endorsements which may not have been tested in a particular state's courts. The issue is complicated by the different policy interpretation approaches taken by different states, which make it difficult to apply out of state law even when the particular policy provision at issue is identical to one interpreted in a case from another jurisdiction. In states like Oregon and Washington, where case law interpreting newer policy language may be scarce, insurers can put themselves at increased risk if they rely too heavily on their own interpretation of the policy's "plain meaning" or their experience in other jurisdictions.

Continue Reading...

Liability Caused by Hackers Not Covered by CGL Policies

Summary judgment was granted in favor of insurers (including Zurich and Mitsui Sumitomo), against Sony in a case of first impression on the issue of insurance coverage for cyber liabilities under commercial general liability primary policies. The New York state court ruled that primary insurers are not obligated to defend Sony against lawsuits brought by thousands of customers whose personal information was stolen when Sony's networks were hacked. Zurich American Insurance Co. v. Sony Corporation of America, et al., Case No. 651982/2011, in the Supreme Court of the State of New York, New York County, Judge Jeffrey K. Oing presiding. Sony's lawsuit followed the April 2011 incident when hackers broke in to the Sony PlayStation Network and obtained personally identifying information of up to 77 million customers. Sony was sued in 65 class action lawsuits around the country alleging various causes of action, including invasion of privacy. The lawsuits were consolidated in Multi-District Litigation ("MDL") now pending in the Southern District of California. Zurich filed a declaratory judgment action in New York state court. Cross-motions for summary judgment on the duty to defend were filed by the parties. The central question was whether the claims in the MDL implicated the Personal and Advertising Injury coverage the offense of "oral or written publication, in any manner, of material that violates a person's right of privacy" (the "Privacy Offense"). It was undisputed that privacy violations were alleged, so "publication" was the critical issue. Sony argued that the dissemination of information to the hackers constituted publication because the phrase "in any manner" gave an expansive meaning to the term publication. The insurers argued that coverage for P/AI Injury requires that the offense be committed by the insured and, in this case, Sony had not published anything. At most, the publication was the result of the hackers' conduct. In fact, Sony had tried to protect the information and was sued for negligent data security. The court ruled with the insurers, finding no duty to defend because there was no possibility of coverage under the policies' Privacy Offense coverage. There are more and more instances of breaches of security leading to disbursement of private information that customers believe to be protected by businesses. On the insurance market are products designed to cover "cyber" risks including data breaches. The New York court's ruling is important in addressing businesses' attempts to fit new technology-related risks into "brick and mortar" policies that were never contemplated to cover these types of risks.

Busy Month for NY Court of Appeals

 

There’s been a good deal of activity in New York’s high court this February. Here’s the round-up:

  • K2 Investment Group, LLC v. American Guarantee & Liability Ins. Co.: In this much-anticipated decision, the Court of Appeals declined to overrule Servidone Const. Corp. v. Security Ins. Co. of Hartford, 64 NY2d 419 (1985), by holding that an insurer that breaches its duty to defend is not barred from later relying on policy exclusions as defenses to coverage. The court found no justification for overruling Servidone, in that there was no indication that “the Servidone rule has proved unworkable, or caused significant injustice or hardship, since it was adopted in 1985.” Invoking the rule of stare decisis, the court also reasoned that “insurers and insureds alike should ordinarily be entitled to assume that the decision will remain unchanged unless or until the Legislature decides otherwise.” Two justices dissented, concluding that “[a]n insurer should be subjected to some legal consequence for breaching its duty to defend an insured.” The dissent contends that such a rule would provide insurers with an incentive to defend their policyholders and would encourage declaratory judgment actions to resolve coverage disputes. The dissent also reasoned that “[b]ringing all of the interested parties—injured plaintiffs; insured defendants; and insurance carriers—together in a judicial forum further contributes to the efficient resolution of factual issues for the benefit of litigants without unduly burdening the ability of injured parties to obtain recovery for covered losses.”
Continue Reading...

Can only the named insured satisfy the SIR, or can it be satisfied by other insurance or by the payment of a contractual indemnitor?

In its simplest terms, a self insured retention (“SIR”)  is an agreed sum that the insured agrees to pay before the insurance policy is required to respond to the loss.    Can only the named insured satisfy the SIR, or can it be satisfied by other insurance, by the payment of a contractual indemnitor or by a co-defendant? The Florida Supreme Court recently weighed in on this issue in Intervest Construction of Jax, Inc. v. General Fidelity Ins. Co., No. SC11-2320 (Feb. 6, 2014). It found that the sums paid by a contractual indemnitor could be used to satisfy the insured's SIR so as to trigger the insurer's obligations. In addition, the Court held that the insured's right to be "made whole" under the "make whole doctrine" took precedence over the insurer's subrogation rights under the "transfer of rights" provision. 

Continue Reading...

Missouri Bar Against Negligence Claims Against Churches Bars Coverage For Clergy Abuse Suit

When is it unreasonable for an insurer to benefit from a policyholder’s legal strategy in defending the underlying claim that the insurer is contesting coverage for? That was the question posed to the U.S. Court of Appeals for the Eighth Circuit in its consideration of a recent Missouri sexual abuse case in Chicago Ins. Co. v. Archdiocese of St. LouisNo. 12-4012 (8th Cir. Jan. 29 2014).

 

 

 

Continue Reading...

Excess Insurance and Umbrella Coverage: When Is the Defense Duty Triggered?

          Pure Excess and Umbrella liability insurance are often confused for the same thing, and the terms routinely are used interchangeably.  In fact, umbrella coverage is often just a type of excess insurance that provides coverage different than pure excess insurance.  Usually, an umbrella policy may provide pure excess insurance under one coverage form and drop-down umbrella coverage under a separate coverage form.  Under pure excess coverage, a defense obligation may be triggered only when the underlying insurance is exhausted by payment of settlements or judgments.  By contrast, under umbrella coverage, a defense obligation under the latter may be triggered on a primary basis due to gaps in coverage.

Continue Reading...

More on Insurance and Indemnity Contracts

Diane’s October 18 post points up the distinction between insurance and indemnity contracts, and calls to mind another important point about these risk transfer mechanisms: to the extent that insurance and indemnity contracts operate independently of each other (a question apparently to be taken up by the Texas Supreme Court), they may not be co-extensive in the protections they provide as respects the duty to defend and indemnify losses, as follows:

  • Defense: The duty to defend under an insurance policy is broader than the duty to indemnify; thus, additional insureds typically are entitled to a defense from the insurer if the pleadings merely allege that the loss arose out of the named insured’s work for the additional insured. In contrast, the duty to indemnify for costs of defense under an indemnity contract typically is only as broad as the duty to indemnify--it gives rise to a right of reimbursement for the costs of defense only if the indemnifying party is found to be at fault.
  • Indemnity: The scope of indemnification afforded under an insurance policy typically also is broader than that afforded under an indemnity contract. Additional insured endorsements often afford coverage not only for an additional insured’s vicarious liability, but also for its partial (and sometimes sole) fault. Indemnity contracts typically are fault-based; recovery is limited to the indemnified party’s vicarious liability.

These differences derive from the unique undertakings in each agreement. Although insurance and indemnity contracts often refer to each other, typically they don’t purport to govern the other, as indeed the parties to each are different. It will be interesting to see how a different outcome in In Re Deepwater Horizon might implicate these rights.

Attack on Henkel Ruling on Coverage for Successor Companies

Henkel, issued by California's Supreme Court in 2003 provided a rule for determining whether there was an obligation to provide insurance coverage for liabilities of a company that the insurance company had not insured but that was in some way related to the policyholder. Henkel Corp. v. Hartford (2003) 29 Cal.4th 934. The decision was welcomed by the insurance industry as it faced long-tail claims for environmental liabilities and asbestos tendered by entities that morphed, merged, split, and reconstituted over the years. The rule established by California's highest court was that the anti-assignment clause included in most insurance policies that prevents an insured from assigning the policy to another entity without the insurers' consent is to be enforced. Where there was no "chose in action," there was nothing that could be assigned without that insurer's consent. The insurer should not be made to cover risks it did not factor into its risk evaluation and charge a premium for at the time it underwrote the insurance policy. Henkel is followed by courts across the country. Continue Reading...

Additional Insured Status And Contractual Indemnity Provisions: Are You Really Covered?

“Additional insured” provisions are one of the most prevalent risk shifting techniques used in the insurance field today. Yet surprisingly, they remain one of the least understood for insurers, courts, and insureds. While debate in Oregon case law over the legal status of additional insured provisions has quieted down since the Oregon Supreme Court’s decision in Walsh Construction Co., v. Mutual of Enumclaw and the U.S. District Court’s decision in Hoffman Construction Co. of Oregon. v. Travelers Indemnity Ins. Co., dispute over the role of these provisions is alive and well. Continuing litigation and decisions in other jurisdictions illustrate why parties to insurance policies and other indemnification agreements should remain alert to additional insured provisions.

 

Continue Reading...

New Jersey Supreme Court Recognizes Right of Equitable Contribution

The New Jersey Supreme Court has ruled that a settlement that a non-defending insurer entered into with its policyholder did not preclude a defending insurer from bringing an equitable contribution to recover its costs of defense. In Potomac Ins. Co. of Illinois v. OneBeacon Ins. Co., A-2-12 (N.J. September 16, 2013), the court declared that allowing equitable contribution in long-tail cases was in keeping the rules for allocating indemnity that it had adopted in Owens-Illinois and Carter-Wallace and would creates a strong incentive for prompt and proactive involvement by all responsible carriers and promote the efficient use of resources of insurers, litigants and the court. The court ruled that the insured’s settlement had no impact on OneBeacon’s right to sue since OneBeacon was not a party to it and was bringing the claim on its own behalf.

Continue Reading...

So Many Things Went Wrong, On So Many Levels...

 

How does one spend $400,000 in defense costs to defend a claim that was barred by the Illinois Workers’ Occupational Diseases Act ( "ODA")?    Safety National may never know, even though it was held liable to pay those sums in excess of the insured’s SIR of $275,000 in TKK USA, Inc. v. Safety National Cas. Corp., No. 12-1988 (7th Cir. August 21, 2013).   In that case,  the widow of an employee who had died from exposure to asbestos fibers while working for TKK filed a wrongful death claim against TKK. TKK gave Safety National, an excess insurer whose policy covered losses resulting from liability imposed on TKK “by the Workers’ Compensation or Employers’ Liability Laws” of Illinois, timely notice of the lawsuit. TKK retained primary responsibility for defending, settling or paying claims up to $275,000 per occurrence.    Safety National told TKK that the policy did not cover the lawsuit. TKK defended the lawsuit  and settled with the claimant for $15,000.   TKK sought the defense and settlement sums above its SIR from Safety National.

 

As the Seventh Circuit observed, the wrongful death claim was subject to a rockā€solid affirmative defense. The ODA bars common law claims by or on behalf of an employee against a covered employer “on account of damage, disability or death caused or contributed to by any disease contracted or sustained in the course of the employment.”

Continue Reading...

TCPA Damages are Remedial, Not Penal, According to Illinois Supreme Court

 

The Illinois Supreme Court issued a ruling today, in Standard Mutual Insurance Company v. Lay, 2013 IL 114617 (2013), finding that a TCPA statutory award is remedial in nature, and not penal. Therefore, it reversed the Appellate Court’s determination that the TCPA-prescribed damages of $500 per violation constitutes punitive damages which are not insurable as a matter of Illinois law and public policy. The Supreme Court declined to address the broader issue urged by the claimants in which they sought a declaration that punitive damages are insurable in Illinois. 

Continue Reading...

New York Court of Appeals Construes Coverage For Sexual Abuse

 In a wide-ranging new opinion, the New York Court of Appeals has considered whether (1) an insurer’s delay in issuing a coverage denial may estop it to dispute issues of allocation and (2) whether incidents of sexual abuse that occurred over a period of years should be treated as a “single” occurrence. The opinion has interesting implications for other long-tail claims, such as those involving toxic torts, asbestos and pollution.

Continue Reading...

Horizontal exhaustion bumps up against anti-stacking

Asbestos claims coverage litigation pits policyholders against insurers, and insurers against insurers, and raises novel issues and complex interaction between insurance concepts, policy language, and common sense.

In the latest from the ongoing saga of Kaiser Cement and Truck Insurance – Kaiser Cement & Gypsum Corp. v. Ins. Co. of the State of PA / Truck (Los Angeles County B222310), the court of appeal issued a ruling grappling with the situation when horizontal exhaustion bumps up against “anti-stacking” language.

 

This litigation has been before the appellate court several times. This case provided the ruling that all asbestos claims were not one occurrence. London Market Insurers v. Super. Ct. (2007) 146 Cal.App.4th 648.

Continue Reading...

Allocation in Massachusetts: New Clues from The SJC?

Clues to the attitude of courts come from funny places. Such is the case in Massachusetts where one of the major open issues has been the right of insurers to recoup defense costs paid for claims later determined not to be covered under their policies. 

Several years ago, the Supreme Judicial Court of Massachusetts ruled in Medical Malpractice Joint Underwriting Association v. Goldberg, 425 Mass. 46, 680 N.E.2d 1121 (1997) that an insurer’s unilateral assertion of a right to reimbursement for sums paid to settle a case did not give rise to any obligation on the part of the policyholder absent some express agreement on the part of the insured to do so or a policy provision compelling reimbursement. The court indicated, however, that an insurer could obtain reimbursement for a non-covered settlement, despite its policyholder’s opposition, if it first obtained court approval to proceed.

The holding in Goldberg was clearly influenced by the court’s perception that the insurer was acting to protect its own interests in settling the case and that it would be unfair under the circumstances to saddle the insured with a settlement that had been negotiated without its involvement or agreement. In the interim, of course, the whole issue of allocation and recoupment has exploded from coast to coast with courts adopting diverse takes on the issue of whether a right to recoupment for defense costs or indemnity should ever be implied and whether it is fair for policyholders to be unjustly enriched by having cases settled or defended that were, in fact, not covered by their insurance.

 

Continue Reading...

Are TCPA Penalties Uninsurable? How about Punitive Damages?

 

 

The Illinois Supreme Court will soon be addressing whether the statutory penalty of $500 per faxed advertisement allowed under the TCPA is in the nature of punitive damages and uninsurable. It is anticipated that the Supreme Court will  also address the insurability of punitive damages generally, an issue never squarely addressed by the Supreme Court.  The Supreme Court accepted the petition (No. 114617) to review Standard Mutual Ins. Co. v. Lay, 2012 WL 1377599 (4th Dist. Apr. 20, 2012), in which the Appellate Court found that the TCPA penalty is uninsurable, as a matter of public policy, because such awards are intended to punish and deter – a purpose that would be undermined if the policyholder could pass those penalties on to their insurer.  

Continue Reading...

The Case of the Vanishing Self-Insured Retention

In recent years, policyholders have increasingly structured their insurance programs so that the “working layer” of coverage—the layer in which cases are defended and most claims are resolved—is self-insured.   SIRs have obvious advantages for policyholders: greater control over risk management, reduced costs and tax deductibility being the three most obvious.  SIRs can be problematic for insurance companies, however, as where the insolvency of the insured prevents it from carrying out its duties under the “policy.”

The underwriting of "excess" policies subject to self-insured retentions also requires a detailed understanding of state laws and regulations as many states only allow self-insurance for if the insured is of a certain size, has adequate financial assets or otherwise meets stated criteria.   If those criteria are not met, the excess carrier may still have valid claims and arguments relative to the policyholder but may be vulnerable to direct claims or “reach and apply” actions by third party claimants.

In such circumstances, as CNA recently learned to its dismay in Peloquin v. Haven Health Center, No. 2011-130 (R.I. January 14, 2013), promises on paper may also prove illusory where underwriting fails to take into account the vagaries of state insurance regulation.   .

Continue Reading...

Can a False Advertising, Patent or Trademark Infringement Claim Be Viewed as a Claim for "Implied Disparagement" that Triggers a Duty To Defend?

Seeking to expand coverage or to avert an IP exclusion, some policyholders have recast claims for unfair competition, patent or trademark infringement as “implied disparagement” claims in order to trigger a duty to defend under the “personal and advertising injury” coverage.  They have met with mixed success.  For example, falsely advertising one's own product does not constitute disparagement of another's product, particularly where the competitor is neither mentioned by name or implication. 

Continue Reading...

South Carolina Supreme Court Upholds CD Statute But Only Prospectively

Insurance coverage practitioners in South Carolina may hardly be blamed if  suffer headaches from the vertiginous swings of the South Carolina Supreme Court with respect to the scope and availability of coverage for construction defect claims. 

In a series of rulings over the past several years, the state Supreme Court has “clarified” the law several times, with each opinion slightly more confusing than the last. Now the state Supreme Court has further “clarified” the law by rebutting efforts by state legislators to undo much of what it had ruled in the past and retroactively require CGL policy to insure faulty workmanship claims.

Continue Reading...

A TCPA Penalty can be Awarded (and Trebled!) Irrespective of Whether the Claimant ever Received the Unwanted Fax Advertisement.

 

Most wires have picked up the Georgia Supreme Court’s decision in  A FAST SIGN COMPANY, INC., d/b/a FASTSIGNS v. AMERICAN HOME SERVICES, INC., S11G1708 (Nov. 5, 2012), because it involved a $459 million dollar judgment against a fax blaster for sending 306,000 unsolicited fax advertisements.   That dollar amount may be staggering, but the bigger news is that such liability was imposed without the claimants ever establishing that they actually received a single unwanted fax advertisement.  Indeed the Georgia Supreme Court held that receipt of the fax is not a necessary element of proof. Rather, to establish a TCPA claim, the claimant need only show: (1) the defendant used a fax machine or similar device to send a fax to the plaintiff; (2) that the fax was unsolicited; and (3) that the fax contained an advertisement.   Moreover, if the sending of the fax is shown to be “willful and knowing,” the penalty of $500 per fax can be trebled –  even though the claimant may have never received the fax.

Continue Reading...

Massachusetts Court Rejects Higher Hourly Rate For National Counsel

A new federal district court opinion from Massachusetts may lend guidance to insurers in addressing the not uncommon issue of how to reimburse independent counsel in complex commercial litigation where the insured is represented both by local counsel and a large national law firm. In Vicor Corp. v. Vigilant Ins. Co., 7-10517 (D. Mass. September 28, 2012), Judge Stearns ruled additional $2 million for work performed by California counsel at a rate of $525 - $690 an hour. In Vicor Corp. v. Vigilant Ins. Co., 7-10517 (D. Mass. September 28, 2012), Judge Stearns ruled on remand from the First Circuit that Vicor had failed to sustain its burden of providing that the Paul Hasting rates were reasonable. 

 

Continue Reading...

My Week In the WayBack Machine

Those of us who grew up watching TV in the 1960 fondly recall the WayBack Machine, a device that Mr. Peabody (a bow tie wearing dog--alright, it WAS the 60s) used to travel back in time on the Rocky and Bullwinkle Show.  Until I read two new opinions this week from Indiana and New Mexico, however, I didn't realize that entire panels of judges could fit in the Wayback Machine.

During the 1990s, insurers and policyholders engaged in trench warfare through the country on the issue of whether CGL policies covered pollution claims.   As the industry industry adopted increasingly "absolute" pollution exclusions, policyholders focused their claims on earlier years with less restrictive exclusions and also sought to avoid the absolute exclusions on the grounds that they only applied to "property damage" and did not preclude insureds from seeking "personal injury" coverage (Coverage B).

The battle over whether "sudden and accidental"-type exclusions preclude coverage for gradually-occurring losses or just intentional discharges was largely fought to a draw with insurers prevailing in a slight majority of state supreme courts and most federal appellate courts.   By 2010, however, the issue had all but faded from view since there are relatively few new pollution claims being filed and even fewer involving pre-1985 wordings.

"Personal injury" pollution claims have also all but disappeared, both due to ISO's inclusion of an APE in Coverage B and the nearly unanimous view of state and federal appellate courts (Washington, as usual, was to the contrary) that environmental contamination does not cease to involve property damage by dressing it up as a "personal injury").

Imagine my surprise, therefore, when the New Mexico Supreme Court found coverage last week despite a "sudden" exclusion and the Indiana Court of Appeals tiptoed around its own Supreme Court's analysis of "personal injury" to find "wrongful invasion" coverage for pollution.

Continue Reading...

Will Connecticut Allow Consequential Damages In Duty to Defend Cases?

The New York Court of Appeals sent shock waves through the insurance communities a few years ago when it ruled that policyholders could recover consequential damages in first party cases.  Now another New York court is raising the spectre of consequential damages in a liability case, asking whether Connecticut would recognize the right of insureds to sue for reputational damage and a loss of earnings potential based upon an insurer's failure to defend.

In Ryan v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 10-4528 (2d Cir. August 27, 2012), the Second Circuit has sent certified questions to the Connecticut Supreme Court asking whether (1) consequential damages are recoverable for breach of the duty to defend and (2) if so, whether such damages include harm to reputation and loss of future earnings. 

Continue Reading...

Minnesota Expands The Notice Obligations of Defending Insurers

 

 

Mixed claims” are a pervasive source of conflict for insurers and policyholders. While most courts have ruled that insurers must defend the entire law suit, even where some of the claims are outside the scope of its coverage, the insurer’s duty to pay a resulting judgment or settlement is an entirely different matter. Indeed, most courts have ruled that if the settlement or judgment is not allocated, it is the insured’s burden to establish the amount of damages that fall within the insurer’s indemnity obligation.

A new opinion from the Minnesota Supreme Court appears to open the door for reversing this burden in cases where, given advance notice, the insured might have taken steps to obtain a clear allocation. While Remodeling Dimensions, Inc. v. Integrity Mut. Ins. Co., A10-1992 (Minn. August 22, 2012) was decided in the specific context of a construction defect claims involving mandatory AAA arbitration, I have little doubt that policyholders will argue that the principles enunciated in the decision may be extended in the future to special verdict forms in other types of commercial disputes.

Continue Reading...

Genuine Dispute Doctrine - Illinois' view

The genuine dispute doctrine is not known as such in Illinois, but Illinois courts have held that where coverage is fairly debatable, an insurer may not owe a duty to settle.   The issue generally arises in circumstances where an insurer properly provides a defense to its insured through independent counsel and pursuant to a  reservation of rights.  Assuming it has a bona fide coverage defense, the insurer  is not obligated to initiate negotiations to settle the case nor will it be liable for a bad faith failure to settle where it refuses to fund a settlement within policy limits.   See Stevenson v. State Farm, 257 Ill. App.3d 179, 628 N.E.2d 810 (1993).

Continue Reading...

Proactive Settlement - Illinois' View

In Illinois, an insurer generally does not have a duty to initiate settlement negotiations. Therefore, the duty does not typically arise until there is a demand for settlement within policy limits.  Haddick v. Valor Ins., 198 Ill. 2d 409, 763 N.E.2d 299, 305 (2001). However, the Supreme Court in Haddick noted that an exception exists when “the probability of an adverse finding on liability is great and the amount of probable damages would greatly exceed policy limits.”  Id. at n.1.  In that instance, the insurer has a duty to initiate settlement negotiations.  That exception was first recognized in Illinois in Adduci v. Vigilant Ins. Co., 98 Ill. App. 3d 472 (1981).  Courts addressing the exception note that it should be “sparingly used, and then only in the most glaring cases of an insured’s liability, since trial attorneys are not endowed with the gift of prophecy so as to be able to predict the precise outcome of personal injury litigation.”  Ranger Ins. Co. v. Home Indem. Co., 741 F. Supp. 716, 722 (N.D. Ill. 1990).

Continue Reading...

Adherence to policy language in California

To add to the post on the State of California (Stringfellow) decision from California's Supreme Court, the decision is consistent with California's highest court's adherence to and strict interpretation of policy language.  Public policy did not play a part in this, or most, coverage determinations.  On the "all sums" ruling, the court relied on the policies' insuring agreements which provided the insurer would: "pay 'all sums' the insured is obligated to pay for damages due to 'injury to or destruction of property. . . .'"

On the stacking issue, according to the court, there was no language in the policies addressing stacking of policy limits.  Anti-stacking language in the policy could lead to a different conclusion.  As the court noted:

"The most significant caveat to all-sums-with-stacking indemnity allocation is that it contemplates that an insurer may avoid stacking by specifically including an 'antistacking' provision in its policy. Of course, in the future, contracting parties can write into their policies whatever language they agree upon, including limitations on indemnity, equitable pro rata coverage allocation rules, and prohibitions on stacking."

California Supreme Court Allows Stacking of Limits and Affirms "All Sums" Allocation

 

On August 9, 2012, the California Supreme Court issued its long-awaited ruling in State of California v. Continental Insurance Company, et al., Case No. S170560  [PDF] [DOC]. In a unanimous decision, it affirmed the decision of the Court of Appeal, ruling that the State of California was allowed to recover up to the total limits of all triggered policies over multiple policy years and that it may stack limits across triggered policy periods.

Continue Reading...

New York Appellate Court Affirms Actual Exhaustion Requirements

 

Several weeks ago, DRI published an article in which I discussed recent case law trends in the wake of Qualcomm analyzing requirements in excess policies requiring that underlying insurers actually pay their limits in order for the excess insurers’ obligations to be triggered. One of the cases cited in that article was affirmed last week by the Appellate Division of the New York Supreme Court.

In J.P. Morgan Chase & Co. v. Indian Harbor Ins. Co., 2012 N.Y. slip op. 04702 (App. Div. June 12, 2012), the insured sought coverage for several large settlements pursuant to a tower of “claims made” professional liability policies.   After settling with several lower layer carriers, J.P. Morgan sued to compel coverage from its remaining insurers, who moved for summary judgment on the grounds that the insured had failed to satisfy their policy requirements that the underlying insurers have actually paid their limits.

In affirming the trial court’s ruling in favor of the insurers, the First Department gave effect to language in the excess policies that variously required that the underlying insurers “shall have paid the full amount of their respective liability” (Twin City) or that  "shall apply only after all applicable Underlying Insurance with respect to an Insurance Product has been exhausted by actual payment under such Underlying Insurance . . ." (Lumbermens) or “after the total amount of the Underlying Limit of Liability has been paid in legal currency by the insurers of the Underlying Insurance as covered loss thereunder” (St. Paul)

 The court ruled that the settlements that the underlying insurers had entered into not only did not involve any admission of coverage but were for less than the actual policy limits. The court followed the approach pioneered by the California Court of Appeal in Qualcomm and, more recently, the U.S. Court of Appeals for the Fifth Circuit in Citigroup, Inc. v. Federal Ins. Co., 649 F.3d 367 (5th Cir. 2011) in which courts had ruled that such clauses are a valid condition precedent to excess coverage and are not satisfied merely because the insured accepts responsibility for the gap between the full limit and the amount actually paid by the insurer. 

Further, the court refused to find ambiguity based upon a claimed conflict between this exhaustion requirement and the separate requirement in the excess policy requiring maintenance of underlying limits. The court distinguished the Second Circuit’s opinion in Zeig v. Massachusetts Bonding & Ins. Co., 23 F.2d 665 (2nd Cir. 1923), which has historically been the foundation of policyholder efforts to compel coverage in such cases, declaring that Zeig was clearly distinguishable as involving different policy provisions and, indeed, as recognizing that actual payment of limits might be required where the policies so clearly state. 

$500 Statutory Damages for TCPA Violation is a Penalty and Does not Fall Constitute Damages Payable under the CGL Policy

 

In Olsen v. Siddiqi, No. ED97455 (May 9, 2012), the insured agreed to settle a TCPA class action suit for $4,917,500 - recoverable solely from the insured’s CGL insurance policy. The  Missouri Court of Appeals held that the  CGL insurer had no duty to pay that settlement as the sums were not paid as damages because of property damage but were a statutory penalty that was not covered by the policy.  (There was one dissenting justice). The Court observed that the claimants elected to seek statutory damages in the underlying TCPA suit (of $500 per violation), as opposed to actual damages.  The Court noted that, under Missouri law, unless bargained for, the term “damages” does not include fines and penalties.  

Continue Reading...

"Stacking" Issue to be Heard by California Supreme Court

The California Supreme Court will hear arguments on May 30, 2012 on all sums, stacking, and number of occurrences in State of Calif. v. Continental Ins. Co. (2009) [170 Cal.App.4th 160]. 

This case presents the following issues:

 

(1) When continuous property damage occurs during the periods of several successive liability policies, is each insurer liable for all damage both during and outside its period up to the amount of the insurer's policy limits?

 

(2) If so, is the "stacking" of limits - i.e., obtaining the limits of successive policies - permitted?

Continue Reading...

$500 per fax TCPA Penalty is in the Nature of Punitive Damages and Uninsurable

 

The Illinois Appellate Court rocked the TCPA world on Friday when it issued its decision in Standard Mutual Insurance Company v. Lay, 2012 IL App (4th) 110527 (April 20, 2012). The Court determined that the $500 liquidated damages assessed against a real estate agency for each ad faxed to a recipient without its permission, in violation of the Telephone Consumer Protection Act (TCPA), is a penalty in the nature of punitive damages, not insurable as a matter of Illinois law and public policy.    The faxes in question had actually been disseminated by a fax broadcaster, Business 2 Business, which had represented to the insured that the faxes would only be sent to recipients who had consented to receive faxes of the nature contemplated by the insured. Unbeknownst to the insured, that was not the case. A class action suit was filed against the insured. The insurer agreed to defend under a reservation of rights. Because of a conflict of interest, the insured was given the option to select its own counsel. Ultimately, the insured agreed to settle with the class plaintiffs for over $1.7 million.

Continue Reading...

Ongoing Debate Over The Ongoing Operations Limitation On Additional Insured Coverage

In the context of “additional insured” coverage, the question of whether a tendering party qualifies as an insured is often complicated by restrictions in additional insured endorsements that limit who qualifies for “additional insured” status.  Of these restrictions, one of the most debated is the “ongoing operations” limitation, commonly stated as follows:  “Such person or organization is an additional insured only with respect to liability . . . caused, in whole or in part, by . . . your acts or omissions . . . in the performance of your ongoing operations for the additional insured.”

Continue Reading...

First Circuit Adopts Broad Illlinois View Of Insurer's Right To Access Privileged Defense Reports

A recurring issue in coverage litigation is the extent to which insurers are entitled to obtain the file of defense counsel in cases where the insurer has either denied coverage or is at least reserving rights with respect to whether certain claims are covered.

This is an issue of particular consequence in cases involving intellectual property, products liability claims and other cases where the insured settles for a large gross sum without any allocation between those amounts that are covered and other categories of damages that are not. Absent an express allocation that could be relied on in the underlying settlement (or one that is not completely self-serving) insurers have sought access to the reports and analyses of defense counsel in an effort to determine what portions of such settlements may be covered or excluded.

Continue Reading...

Does the Pollution Exclusion Apply to Emissions that are Released Pursuant to Permit?

 

In American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 489 (1997), the Illinois Supreme Court determined that the pollution exclusion only applies to  injuries caused by “traditional environmental pollution.”  If the emissions released by the insured are under a permit issued by the Illinois Protection Agency, are they still “pollutants”? Even if “pollutants,” can it be argued that such emissions are not “traditional environmental pollution?"  The outcome might depend on whether the action is pending in state or federal court.

Yesterday, the Seventh Circuit held the pollution exclusion precluded coverage for claims  against a municipality that had supplied contaminated water (containing perc) to its residents, notwithstanding the insured’s argument that the amount of perc in the water supply was below the maximum level permitted by environmental regulations. The Court in Scottsdale Indemnity Co. v. Village of Crestwood, Nos. 11-2385 et al. cons. (7th Cir. March 12, 2012), began its analysis with a lengthy discussion concerning the source and reason for the pollution exclusion, the rationale for its limitation to traditional environmental pollution, and the difficulty that insurers have in calculating losses stemming from pollution.

Continue Reading...

Update on Coverage for Copyright, Trade dress and Slogan Infringement Actions - 2011 Decisions

            Coverage B of the CGL policy provides coverage for “personal and advertising injury.” That term is usually defined to include “infringing upon another’s copyright, trade dress or slogan in your [the named insured’s] ‘advertisement.’” The term “advertisement” is generally defined as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.” Below are some of the 2011 cases that addressed those offenses.

Copyright infringement claims were at issue in  PetroNet LLC v. Hartford Cas. Ins. Co., Civil No. 10-3675 (DWF/JJK).2011 U.S. Dist. LEXIS 79893 (D. Minn. Jul. 21, 2011) (applying Minnesota law).  The insured had been hired by the claimant to construct a software interface between the claimant’s billing and accounting software. The insured then began offering for sale an internet-based system that was similar to the claimant’s billing software. The court held that the copyright infringement offense was not implicated because the infringement was not alleged to have taken place in the insured’s “advertisement.” The court also found that to the extent the insured’s advertisement on its website contained the claimant’s unique “numbering code convention,” such use was not the direct or proximate cause of the alleged injury and, thus, did not implicate the policy’s “advertising injury” coverage.

Continue Reading...

Update on Coverage for Trademark Infringement Claims: 2011 was a busy year!

        In the past year, numerous courts have addressed whether various intellectual property claims were covered under the commercial general liability (“CGL”) policy. There is no question that Coverage B, the “personal and advertising injury” liability coverage of the CGL policy, covers some intellectual property claims. For example, the enumerated offenses set forth in the definition of “personal and advertising injury” include infringement of another’s copyright, trade dress, or slogan in the named insured’s “advertisement,” and use of another’s advertising idea in the named insured’s “advertisement.” Various intellectual property claims might also implicate coverage under the libel, slander, disparagement and violation of privacy offenses.   I have set forth below a couple of recent decisions that address trademark infringement claims.  I promise to provide an ongoing discussion of some of the recent cases addressing coverage for other  intellectual property claims.

Continue Reading...

Where A "Known Loss" Defense Fails, A CGL Insurer May Be Estopped from Relying on its Defenses To Coverage.

After writing on the known loss issue presented by the Nipponkoa case (which was the subject of my Feb. 21, 2012 blog),  I was alerted to a January 15, 2011 decision rendered by US District Court Judge Lefkow in Zurich Specialties London Ltd. v. Village of Bellwood, et. al, No. 07 CV 2171, US. Dist. Ct., ND IL (Jan. 15, 2011). The Nipponkoa case addressed the known loss doctrine under a first party property policy. The Zurich Specialties case involved two third party liability policies, both of  which contained duty to defend provisions. The insurers denied any duty to defend, relying upon  the known loss doctrine.   The court, addressing Illinois law, found that the known loss doctrine did not preclude coverage under the earlier of the two policies because the insured did not have notice of a substantial probabability of a loss prior to the inception of that policy. That insurer was found to be estopped from relying of its policy defenses because it failed to defend or timely file a declaratory judgment action.   The court found a question of fact existed as to whether the later insurer intended to cover what it acknowledged was a known loss. 

Continue Reading...

Insurer Standing in Asbestos Bankruptcy Proceedings

We are into a new year and with it comes a glimmer of hope that insurers will be heard (at least to some extent) in asbestos bankruptcy proceedings. However, two new decisions from the Ninth Circuit are a mixed bag, on the one hand allowing insurers standing to be heard on a debtor’s reorganization plan, but holding that insurance policy anti-assignment clauses and pre-petition agreements to arbitrate are not enforceable when they “conflict” with the purposes of the bankruptcy code.

The Ninth Circuit in In Re Thorpe Insulation, (January 24, 2012) __ F.3d _ (12 C.D.O.S. 939), reversed a district court’s finding that non-settling insurers lacked standing to challenge the asbestos debtor’s reorganization plan under 11 U.S.C.§ 524(g).  The Ninth Circuit found the plan has a financial impact on the insurers despite the bankruptcy court’s decision the plan was “insurance neutral.”  The Ninth Circuit held the insurers’ appeal was not moot even though the plan was already in force and operational.  However, the Ninth Circuit held California law upholding an insurance policy’s anti-assignment clause is preempted by federal bankruptcy law.

In In Re Thorpe Insulation, (January 31, 2012) __ F.3d __ (2012 US App Lexis 1691), the Ninth Circuit held the insurer (Continental) could not enforce its pre-petition agreements with Thorpe to arbitrate disputes because the issues to be arbitrated were core issues, intertwined with other issues to be decided in the reorganization. Further, the bankruptcy court had discretion to deny the request for arbitration where in conflict with the purposes of the bankruptcy code.

Continue Reading...

It's A FACTA: Providing A Receipt to A Customer Is Not a "Publication" of Material.

 

In a recent unpublished opinion, the 11th Circuit Court of Appeals determined that a suit seeking damages for violation of FACTA (involving the issuance of a receipt to a customer that did not delete the last five digits of the credit card number) did not involve a “publication” of material and therefore did not trigger a defense obligation under the “personal and advertising injury” coverage.    In E. T. Limited, Inc. v. Essex Ins. Co.,1:08-cv-22302-WJZ (applying Florida law), view, the insured posited that FACTA violations fell within the offense:  “oral or written publication, in any manner, of material that violates a person’s right of privacy.”   The insured argued that the term “publication” was ambiguous and that the phrase “in any manner” broadened its meaning to include the provision of a receipt. The Court of Appeals disagreed.  

 

Continue Reading...

A Tangled Tale of Choice of Laws Cases

        I often receive phone calls from adjusters asking for coverage advice with respect to matters pending in Massachusetts that, in fact, have little to do with Massachusetts insurance coverage principles. While it’s hardly intuitive, the location of the accident giving rise to an insurance coverage dispute often makes little difference with respect to which state’s law should apply. This is because of the crucial role that state “choice of laws” rules play in such cases. Thus, the fact that an Ohio manufacturer has been sued for copyright infringement in Massachusetts rarely means that Massachusetts law will apply to the issue of whether liability insurance is available for the Massachusetts litigation.

       The problem with “choice of laws” is how different the rules are from state to state. The traditional rule was lex loci contractus, that is to say, the law of the place of contracting. Generally, this resulted in the selection of the law where the insured was headquartered and the policy issued, although some courts have since refined the doctrine to use out of state laws where the loss involves an insured facility in a state other than that where the insured is headquartered. See, e.g. Diamond International Corp. v. Allstate Ins. Co., 712 F.2d 1498, 1502 (1st Cir. 1983)(applying New Hampshire law to loss arising out of insured facility in New Hampshire even though the policy was issued in New York).   Other courts evolved a variation of this approach in the context of environmental claims during the past two decades and held that the “law of the site” should control, even if it was not an insured facility.

Continue Reading...

16 Separate Claims of Embezzlement Treated as a Single Related Claim

 

Not all courts read policies with a blind eye or with a goal of maximizing coverage. In Continental Casualty Company v. Howard Hoffman and Associates, 2011 IL App (1st) 100957 (August 15, 2011),sixteen different probate estates filed claims against a law firm for embezzling funds from their accounts. The amounts at issue far exceeded $300,000. The perpetrator of the embezzlement, a probate paralegal at the firm, pled guilty to 11 separate charges of theft and a judgment for restitution was entered in favor of each of the 11 different estates involved in the criminal charges. 

 

The insured’s professional liability policy had limits of liability of $100,000 per claim and $300,000 in the aggregate. The court found that the “per claim” limit of liability of $100,000 applied to all of the civil claims asserted against the firm, and not the aggregate limits, as all of the insured’s acts or omissions were connected to one overall scheme of the insured’s probate paralegal to divert funds fraudulently from the estates to herself. As such, the claims of all of the estates should be treated as a single, ”related claim” under the policy.

Continue Reading...

Where Does Bad Law Come From? An Abject Lesson

 

Where do bad opinions come from? We were taught in law school that “hard cases make bad law.” I’m not sure that’s true, but I have discovered in the past 30 years that a lot of really dumb appellate opinions result from cases where the insurer won at trial. Somehow less consideration is given to the unfortunate precedential value of an adverse ruling when an insurer is defending an appeal than contemplating taking one. In such circumstances, cases develops a momentum of their own that is resistant to rational disposition.

The latest unfortunate opinion in this category comes from Massachusetts where a small dispute concerning a neighbor’s air conditioner has generated a most unfortunate precedent adopting an expansive determination of what constitutes “loss of use” for purposes of finding general liability coverage for “property damage.” 

Continue Reading...

Whither Rhode Island?: "Manicestation" and Contribution Claims

Rhode Island has the distinction of being not only the smallest state in the union but also one of the few that still adhere to the principle of “manifestation” in resolving long-tail insurance coverage disputes. Both “manifestation” and “all sums” are similar in that the insured’s rights are initially limited to a single year of coverage. They differ dramatically, in that the “all sums” approach recognizes that bodily injury or property damage may have occurred over a period of years and allows the targeted insurer to seek contribution from insurers in other years where injury occurred (although generally not from the insured for uninsured or self-insured periods.) By contrast, the “manifestation” approach assumes that bodily injury or property damage has only occurred in the particular year where it was discovered or, as Rhode Island courts have ruled, when it was discoverable through the exercise of reasonable diligence. See CPC Int., Inc. v. Northbrook Excess & Surplus Ins. Co., 668 A.2d 647 (R.I. 1995) and Textron-Gastonia, Inc. v. Aetna Cas. & Sur. Co., 723 A.2d 1138 (R.I. 1999).

In light of this analysis, may a triggered insurer in Rhode Island ever seek contribution from other carriers? Such was the issue presented to the Rhode Island Supreme Court in its recent opinion in Employers Mut. Cas. of Wausau v. Arbella Protection Ins. Co., No. 2009-330 (R.I. July 12, 2011). At issue was the claim of a neighboring property owner that Viking Stone had allowed contaminated water from its rock quarry to spill onto his land over a period of years, killing trees and other vegetation and damaging the home’s foundation.


 

Continue Reading...

Attorney Fees Awarded in TCPA Class Action Suit are not "Damages" nor "Costs" Payable Under the Supplementary Payment Provision of a CGL Policy.

 

Are attorney’s fees awarded in a class action settlement “damages” covered by a general liability policy?   Are they covered as “costs” under the “Supplementary Payments” Provision of a CGL policy?  Not according to the Eleventh Circuit in Alea London Limited v. American Home Services, Inc., 638 F.3d 768 (11th Cir. 2011). In that case, the Court of Appeals held that attorney fees awardable in a TCPA class action suit are not “damages” because of “personal and advertising injury” nor do they constitute costs payable under the Supplementary Payments provision of a CGL policy. Indeed, at the outset, the Court recognized that the ordinary and legal meaning of "costs" under Georgia law does not include attorneys' fees.   

 

Continue Reading...

Insuring Misrepresentations? Not In Louisiana

Misrepresentation claims are a common feature of commercial litigation as well as more mundane suits, such as those brought by property owners who sue the former owner for concealing mold or pollution problems at the time of sale. Last month, for instance, a domestic supplier of Chinese drywall sued German-based Knauf Gypsum A.G. seeking $100 million in damages that Banner claims to have suffered as the result material misrepresentations by Knauf concerning the fitness and safety of its drywall products.

The focus of the case law addressing these coverage claims has generally been whether a misrepresentation, whether intentional or merely negligent, can ever be an “accident” given the tort’s intentional underpinnings. While the principal focus of these coverage disputes has been on whether the claims allege an “accident” or not, Preau v. St. Paul Fire & Marine Ins. Co., No. 10-30816 (5th Cir. June 23, 2011), a Louisiana case decided recently by the U.S. Court of Appeals for the Fifth Circuit, has highlighted a different means of resolving the problem for insurers that has heretofore received relatively little attention.
 

Continue Reading...

Allocation 201: Who Pays Insolvent Shares?

While more and more jurisdictions have rejected policyholder "all sums" claims in long-tail suits, there is still a striking lack of uniformity in the approach that these courts are taking to individual allocation issues.  In particular, there is a major division as to whether allocation applies to the entire period of injury or just those years for which insurance is "available."    This division reflects the thinking of some courts, led by the New Jersey Supreme Court's original Owens-Illinois opinion, that allocation is not necessarily a function of policy wordings but, rather, a public policy tool that should be applied to encourage policyholders to transfer risk by purchasing insurance and to punish them for failing to do so.

Five years ago, the Minnesota Supreme Court adopted the "unavailability" exception to pro rata allocatio in a construction defect case.  In Wooddale Builders, Inc. v. Maryland Cas. Co.,, 722 N.W.2d 283 (Minn. 2006), the Court declined to allocate loss to the years after 2002 because the insured had allegedly been unable to buy coverage for water intrusion losses after that date.

In light of Wooddale, questions remain with respect to what it means for insurance to be "unavailable."  In particular, is insurance "unavailable" because of an insurer's insolvency?

There are a legion of cases in which courts have held that insolvent insurance is "unavailable" to a policyholder.  However, these are all "other insurance" cases in the context of an excess carrier's claimed drop down duties.  Should the same logic apply to allocation?

In H.B. Fuller Co. v. U.S. Fire Ins. Co., No. 09-02827 (D. Minn. July 18, 2011), Judge Tunheim ruled yesterday that Wooddale does not apply to carrier insolvency.  The District Court ruled that the Supreme Court's discussion of "availability" was only meant to apply in the context of when insurance was generally unavailable in the marketplace.   Further, citing case law from other jurisdictions, Judge Tunheim declared that it made sense to place this burden on the insured, who was the party that had chosen to buy insurance from the company that later went insolvent, rather than other insurers, who had been strangers to the transaction.

 

When Is An Insured's Loss Not Damages?

It isn't often that insurers prevail on the same issue in California and New Jersey but such was the case last month with the intriguing issue of whether a policy's coverage for "damages" includes not only money paid to settle claims but cases in which the insurer provides non-cash services or otherwise relinquishes assets of value in lieu of paying money.

In Passaic Valley Sewerage Commissioners v. St. Paul Fire & Marine Ins. Co., A-97-09 (N.J. June 21, 2011), a wastewater utility agreed to settle claims brought against it by a waste hauler by agreeing to treat and dispose of sludge for a customer of the plaintiff for a period of five years.  The insured sought indemnification for this loss from Coregis under a policy that provided coverage for “loss,” which was defined, in pertinent part, as “money damages.” The policy  policy defined "money damages" as “monetary compensation for past harms” and expressly excluded indemnification for relief “in any form other than money damages. . . including equitable relief.”

Under the circumstances, the New Jersey Supreme Court ruled that the clear and unambiguous meaning of “money damages” could not be extended, as the insured argued, to the surrender of assets of value and required a cash payment. Rather, the Court ruled that the clear and ordinary meaning of “monetary” was “of or relating to money” and that the policy therefore required a cash payment by the insured and did not extend coverage, as the insured had argued, to any settlement involving the insured’s surrender of valuable consideration such as an agreement to provide services in the future. 

To related effect is the newly published opinion of the California Court of Appeal in Ultra Salon, Cosmetics & Fragrance, Inc. v. Travelers Property Casualty Company of America, No. B224586 (Cal. App. June 10, 2011).  The Second District sustained Travelers' demurrer  on the basis that the civil penalties available for the insured’s claimed violations of Proposition 65, the California Safe Drinking Water and Toxic Enforcement Act of 1986 for failing to give clear warnings about the dangers associated with its cosmetic products did not allow recovery of insured “damages.” The Court of Appeals observed that Prop 65 penalties “do not grow out of a claim for moneys due and owing for personal harm or property damages that have resulted from discharge of pollutants or other toxic chemicals…” The court declined to impose a duty to defend based upon speculation that the plaintiff might later sue for bodily injury.

These are helpful rulings for cases involving intellectual property disputes and other types of commercial litigation where as a condition of the settlement, the insurer is called upon to do more than write a check.

Insurers win big time in TCPA Suit: Business entities have no privacy interests; any property damage from a TCPA violation is expected.

 

Judge Lefkow  from the federal district court, Northern District of Illinois, held in Maxum Indemnity Co. v. Eclipse Manufacturing Co., No. 06 C 4946 (June 13, 2011) (Dkt. # 367), that business entities have no right of privacy.   Thus any TCPA claims asserted by business entities, as the class members, against a defendant will not implicate the “personal and advertising injury” coverage of the defendant’s CGL policy.   When a business entity receives an unwanted advertisement via fax, only its property interests (in the paper, ink and fax machine) are affected.    However, the sender of the faxes anticipates that the recipient’s paper and toner will be used.  Thus any property damage to the plaintiff class is expected.   Accordingly, coverage is also foreclosed under the property damage liability coverage. 

 

The implications of Judge Lefkow’s decision could be far reaching for those insurers whose policies do not contain TCPA exclusions.  Fax advertisements are often directed to business entities, rather than individuals.  If the plaintiff class members are not clearly identified as business entities, Judge Lefkow’s ruling will likely impact only the duty to indemnify not the duty to defend. Indeed Judge Lefkow allowed discovery to proceed on the issue of how many fax numbers on the leads list belonged to individuals not associated with a business entity so as to assess if any indemnity sums might be owed by the insurers.  

Horizontal Exhaustion: A Shallow Victory for the Excess Insurer Where the Underlying Limits Cannot Be Stacked

By 2004, more than 24,000 claimants had filed asbestos bodily injury suits against Kaiser Cement and Gypsum Corporation (“Kaiser”),  as a result of their exposure to Kaiser’s asbestos products. Kaiser exercised its right to select a single primary insurer to respond to the entire loss –the Truck CGL policy issued in 1974 with limits of $500,000 per occurrence. The claim of each asbestos bodily injury claimant was deemed to have been caused by a separate and distinct “occurrence”within the meaning of the Truck policies.  By October 2004, Truck’s indemnity payments for asbestos bodily injury claims exceeded $50 million and included at least 39 claims that resulted in payments in excess of $500,000. 

Kaiser looked to ISCOP, its excess insurer above the 1974 Truck policy, to respond to the indemnity payments in excess of $500,000.   ISCOP balked, claiming that under the principles of horizonal exhaustion, it should not have to respond until all underlying primary policies had been exhausted. Those policies included not only the 1974 Truck policy, but also the other primary policies issued by Truck between 1964-1983, the primary policies issued by Fireman’s Fund (for policy periods from at least 1947 to December 1964), Home Indemnity (for 1983-1985), and National Union (for 1985-1987).  The  California Court of Appeal in Kaiser Cement v. Insurance Co. of the State of Pa, B222310 (filed June 3, 2011) [PDF] [DOC]  agreed that horizontal exhaustion should apply with respect to ISCOP’s coverage obligations as under ISCOPS’s policy language, ICSOP is excess to allvalid and collectible primary insurance, not just the primary insurance in the selected 1974 policy year.    But that was only a fleeting victory for the excess insurer, as the Court also ruled that the underlying Truck CGL policies could not be stacked such that Kaiser could recover multiple policy limits for a single occurrence.    

Continue Reading...

Insured Lost Both Defense and Indemnity Coverage when It Refused to Allow the Insurer to Control its Defense

 

In Travelers Property v. Centex Homes, No. C 10-02757 CRB (N. D. Cal. April 1, 2011), Centex, a general contractor, was sued in certain construction defect litigation. Pursuant to a reservation of rights, Travelers agreed to defend Centex, an additional insured under its policy. Centex refused to allow counsel retained by Travelers to defend it or to associate in its defense. The court held that under the policies, Travelers had the “right and duty to defend” suits seeking damages to which the policies apply. Upon being provided a defense, Centex had no right to interfere with Travelers’ right to control the defense. 

 

The court agreed that for an insurer to be excused from its duty to defend and indemnify after an insured’s breach of the cooperation clause, the insurer must show that it suffered substantial prejudice from the insured’s breach. It recognized, however, that the California Supreme Court had held that prejudice may be presumed where it “naturally, inherently and necessarily exists.” It also noted Ninth Circuit authority holding that when an insured refuses an insurer’s choice of counsel, the insured not only violates the duty to cooperate, but also interferes with the insurer’s right to conduct a defense. This breach provides sufficient grounds to deny the insured’s claims for defense costs and indemnification. 

Continue Reading...

A Supreme Interpretation of Coverage B

It's not every day that you get a peek at how a U.S. Supreme Court justice would have ruled in an insurance coverage dispute.  And it's certainly not an everyday occurrence for an ex-SCOTUS justice to declare that your client "got it right" when he wrote a letter to the insured denying coverage.   So you'll forgive us if we have a little fun with Cynosure, Inc. v. St. Paul Fire & Marine Ins. Co.No. 10-1119 (1st Cir. May 12, 2011), a case in which we were local counsel where the First Circuit refused to find coverage for junk fax claims. 

Continue Reading...

The Next Big Thing: "Montrose" Clauses and CD Disputes

In the wake of the California Supreme Court's Montrose opinion, ISO promulgated various new clauses purporting to cut off coverage for continuing losses.  Thus, current CGL forms contain language in the insuring agreement precluding coverage for losses that are already known to the insured.  Additionally, some policies now endorsements excluding coverage for the continuation of property damage that first occurred prior to the policy.

Despite the significance of these "Montrose" clauses for construction defect litigation, there has been little or no case law construing their scope and effect until recently.

Shaun Baldwin posted last month concerning a new Indiana opinion that construed a “Montrose” clause in a CGL policy to extend an insurer’s coverage beyond the policy’s expiration. In Grange Mut. Cas. Co. v. West Bend Mut. Ins. Co., No. 29A02-1008-PL 965 (Ind. App. March 15, 2011), the Indiana Court of Appeals had ruled that the insurer whose policy was in effect when the insurer had installed the storm drain pipes must also covered damaged caused by later leakage due to language in its policy extending coverage to “any continuation, change or resumption of that property damage after the end of the policy period.”

Whereas Grange Mutual analyzed the effect of such provisions in extending coverage, a new Fifth Circuit opinion considered the extent to which “Montrose” clauses might serve as a tool for later insurers to bar coverage for known losses. In Maryland Cas. Co. v. Acceptance Indemnity Ins. Co., No. 10-50283 (5th Cir. April 25, 2011), the U.S. Court of Appeals for the Fifth Circuit ruled that a later CGL carrier could not raise “Montrose” wordings as a bar to claims for equitable subrogation brought by the insurer that was on the risk when water intrusion problems first commenced.

Continue Reading...

An Arkansas Insurer's In House Defense Counsel is Disqualified From Representing The Insured and Found To Be Engaged in the Unauthorized Practice of Law.

 

In Brown v. Kelton,  2011 Ark. 93 (Mar. 3, 2011),  the Supreme Court of Arkansas affirmed an order disqualifying a staff attorney employed by Farmers Insurance Exchange (“FIE”) from representing two defendants who were insured by an insurance company that was reinsured by FIE. The two defendants were sued following an automobile accident.   The defense attorney representing the defendants filed a motion for substitution of counsel, seeking to substitute in Stephen Brown, an attorney employed by FIE. Both defendants consented to the substitution.   The claimant's counsel filed a motion to disqualify Brown. The circuit court found that Brown’s representation of the two defendants would have constituted the unauthorized practice of law by FIE pursuant to Ark. Code Ann. § 16-22-211; that a conflict of interest existed for Brown because his undivided duty of loyalty and confidentiality would have been owed to the defendants, not to the insurance company that employed him; and that no effective waiver of the inherent conflict had or could have taken place. The Supreme Court affirmed. In doing so, it joined two other states in finding that an insurer’s use of in- house counsel to represent its insured constitutes the unauthorized practice of law. See, American Insurance Assn. v. Kentucky Bar Assn., 917 S.W.3d 568 (Ky. 1996) and Gardner v. North Carolina State Bar, 341 S.E.2d 517 (N.C. 1986).

Continue Reading...

The Case of The Vanishing Additional Insured

I've been involved lately in a case that frankly has me stumped.

Here's the problem:

1.  The policy contains an "Additional Insured Required By Written Contract" endorsement.

2.  Prior to the issuance of the policy was issued, the Named Insured had contracted with ACE Corporation that had various subsidiaries.

3.  After the policy was issued (but before the accident occurred), ACE Corporation sold the former subsidiary.

4.  Suit has now been filed against the former subsidiary, which is seeking as an additonal insured, claiming the loss arose out of the work performed on its behalf by the named insured.

Under these circumstances, has the subsidiary lost the right that it possessed as of the date the policy was issued?  In other words, where a party gains AI status through a blanket endorsement of this sort, do the rights vests for the entire policy period or can the claimant lose its coverage rights through events that, had they existed at the outset of coverage, would have eliminated any right to coverage.

This is one of those legal issues where the answer seems clear but I'm darned if I can find a case on one side or the other.  If you have case law or thoughts on the issue, please contact me at maylward@morrisonmahoney.com

Thanks all.

The Montrose Language Interpreted: How Many Policies Are Implicated By A Construction Defect That Later Causes a Flood?

The Court of Appeals of Indiana recently addressed the “Montrose“  language added to the CGL ISO form in 2001 in the context of a construction defect claim where a fractured storm drain caused significant flooding a year after the drain was damaged.  The insuring agreement requires that “bodily injury” or “property damage” be caused by an “occurrence” and that the “bodily injury” or “property damage” occur during the policy period. The Montrose language adds that the insurance applies only if, prior to the policy period, no insured knew that the “bodily injury” or “property damage” had occurred in whole or in part.   Significantly, it also states that any “bodily injury“ or “property damage” which occurs during the policy period and was not, prior to the policy period known to have occurred, includes a continuation, change or resumption of that “bodily injury” or “property damage”  after the end of the policy period.  

 In Grange Mutual Cas. Co. v. West Bend Mut. Ins. Co., No. 29D04-0706-PL-1112 (Ct. App. IN March 15, 2011), http://www.ai.org/judiciary/opinions/pdf/03151109ehf.pdf, Sullivan was the General Contractor for a school construction project. Its subcontractor, McCurdy, installed the storm drain pipes.   One of the storm pipes was fractured in 2005 while McCurdy was doing its installation work. More than a year later, the school experienced significant water damage due to flooding. It was later discovered that the flooding was due to the fractured storm drain. Sullivan’s insurer paid $146,403 for the water damage.   That insurer brought a subrogation claim against McCurdy and its two insurers:  West Bend and Grange.  West Bend had issued CGL coverage to McCurdy while the construction was ongoing , including the date in which the storm pipe was fractured.    Grange issued CGL coverage to McCurdy at the time of the flooding. Those two carriers jointly settled the subrogation claim and then litigated which insurer actually owed coverage for the loss.   Significantly, the loss that was paid included only damages from the flooding, not any damages for the cost of repairing the pipe.

Continue Reading...

Zip Code Ruling Spawns class action lawsuits - but do they trigger Coverage?

 

A rash of class action suits have been filed following a recent ruling by California Supreme Court in Pineda v. Williams-Sonoma Stores, Inc., S178241 (Cal. Sup. Ct. Feb. 10, 2011), which found that Williams-Sonoma violated the state’s credit card law by asking a customer to provide her  zip code when making a purchase with a credit card.   The customer sued the retailer, contending that it used her name and the zip code to determine her home address, which is now contained in the company’s data base.   The Supreme Court found a zip code is part of one’s address and, therefore, the request and recording of same violates “the Song-Beverly Credit Card Act of 1971 (“the Credit Card Act”),Cal. Civ. Code, Section 1747.08, subd. (a)(2).  Companies that violate the Act face fines of $250 for the first violation and as much as $1000 for each subsequent violation. 

Do “zip code” suits trigger coverage under the “personal and advertising injury” coverage? 

Continue Reading...

Primary CGL Insurer Precluded from Recouping Defense Costs of Uncovered Claims from Excess D&O Insurer

In Fieldston Property Owners Assn., Inc. v. Hermitage Ins. Co., 2011 NY Slip Op 01361 (Feb. 24, 2011), the New York Court of Appeals held that a CGL carrier was not entitled to reimbursement of defense costs from a D&O insurer that afforded concurrent coverage for the loss; the CGL carrier was primary insurance under the “other insurance” clauses of the respective policies notwithstanding that the CGL policy covered only one of several causes of action alleged in the underlying actions.

Continue Reading...

Excess Limit Follows Underlying Policy's Annualized Limit

In Union Carbide Corp. v. Affiliated FM Ins. Co., 2011 NY Slip Op 01317 (Feb. 22, 2011), New York’s Court of Appeals held that an excess insurer’s aggregate limit of liability should be annualized where the policy followed the form of an underlying policy that annualized limits. The court also held that issues of fact precluded summary judgment as to whether a two-month coverage extension triggered a new annual limit under the policy.

Continue Reading...

Wasting Coverage: The Fight Over "Defense Within Limits"

In recent years, insurers have increasingly adopted so-called “wasting limits” provisions within general liability policies. Such provisions, which cause the overall limits of coverage to be reduced by incurred defense costs, are particularly prevalent in add on coverages where insurers seek through endorsements to limit the scope of their obligations with respect to claim types, such as abuse, assault and battery, liquor liability and the like, that would otherwise be excluded altogether. The efficacy of such defense within limits (DWL) provisions has been called into question by a recent opinion of a federal district court in NIC Ins. Co. v. PJP Consulting, LLC, No. 09-0877 (E.D. Pa. October 22, 2010).

Continue Reading...

When Are Web Site Posts Enough To Trigger Coverage B?

When do statements on an insured’s web site constitute “libel” or disparagement so as to trigger Coverage B? That was the issue before the Wisconsin Court of Appeals in its recent opinion in Acuity v. Community Living Solutions, 2009 AP 2165 (Wis. App. December 28, 2010).

Community Living Solution was sued by a competitor (Hoffman) for deceptive advertising, unfair competition, unfair trade practices and tortious interference with business relationships. Community Living, which had been founded by several of Hoffman’s former employees, had posted information on the “staff experience” page of its web site listing a number of projects that its employees had worked on but failed to specify that those projects were completed while the employees had been working for Hoffman. In its lawsuit, Hoffman claimed that Community’s web site was “untrue, deceptive and/or misleading” and that Community employees had made “untrue, deceptive and misleading statements to Hoffman’s employees, clients and/or potential clients for the purpose of harming Hoffman by trying to adduce Hoffman clients or potential clients to terminate their contractual and business relationships with Hoffman in favor of a relationship with Community.”
 

Continue Reading...

Florida Courts Bars Post-Manifestation Coverage For Chinese Drywall

A federal district court in Miami ruled earlier today in Amerisure Ins. Co. v. Albanese Popkin, . No. 09-81213 (S.D. Fla. November 30, 2010) that the liability insurer of a property developer had no duty to provide coverage for Chinese Drywall claims that had manifested prior to the issuance of the policy.  Notwithstanding the fact that the insured argued that the presence of the drywall had caused continuing injuries to the homeownwer that had persisted during Amerisure's 2008-2009 policy, Judge Marra declared that the loss had manifested in 2006, when the homeowners first complained of odors and that the continuing nature of the injuries thereafter was "irrelevant."

Congrats to Don Elder of the Tressler firm for this win.

California Supreme Court distinguishes impact of Foster-Gardner "suit" ruling

In 1998, the California Supreme Court, consistent with contract interpretation rules, took a literal approach to what is meant by “suit” in liability insurance policies, ruling that when not otherwise defined, “suit” means a proceeding brought in a court of law by the filing of a complaint. Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857. The Supreme Court went on from there in subsequent decisions to hold that policies that pay when the insured is “legally obligated to pay damages” require money damages ordered by a court. Certain Underwriters at Lloyd’s v. Superior Court (“Powerine I”) 24 Cal.4th 945. California is in the minority in this approach.

Justice Joyce Kennard has long criticized these rulings, and in her comments in her concurring opinion to the latest on this topic from California’s highest court, notes that “the decision here is a step in the right direction.” However, this new case is not an erosion of the “suit” rule so much as a finer drawing of the "bright line" around the rule.

In Ameron International Corp. v. Ins. Co. of State of Pa., __ Cal.4th __ (2010) (2010 Cal.Lexis 11679), the California Supreme Court held that where the insurance policies did not define the term “suit,” there was a duty to defend and indemnify a contractor that settled a government claim in an administrative adjudicative proceeding before the United States Department of Interior Board of Contract Appeals (“IBCA”).  The California Supreme Court, on the narrow issue before it, found Foster-Gardner did not apply because there was a complaint requirement and trial-like features in the administrative adjudicatory proceeding.

Continue Reading...

Policyholder Entitled to Attorneys' Fees Incurred in Defending Coverage Action by Excess Insurer

In RLI Insurance Company v. Smiedala, 2010 NY Slip Op 06836 (Oct. 1, 2010) a New York appellate court recently applied a familiar rule in holding that a policyholder who prevails in a declaratory judgment action filed against it by its insurer is entitled to recover attorneys’ fees and costs incurred in defending that action. Citing well-established precedent, the court reasoned that “an insurer’s responsibility to defend [or to reimburse defense expenses] reaches the defense of any actions arising out of the occurrence … including those incurred in defending against an insurer seeking to avoid coverage for a particular claim.” In doing so, the court rejected the novel claim that attorneys’ fees incurred in defending the coverage action were not recoverable because the policy afforded excess insurance that had not yet been triggered in the underlying action. Although the insurer’s excess coverage, and, therefore, its duty to defend the underlying action, had not yet been triggered, the court reasoned that attorneys’ fees incurred in defending the coverage action were recoverable because the policyholder was cast in a defensive posture by the insurer’s efforts to free itself from its policy obligations.

Lie in the Bed You Made - Impact of Settlement Agreements

Two recent California decisions hold that the parties must lie in the beds they made – in one case preventing the policyholder from contesting a settlement , the other case preventing an insurer from seeking recovery from another allegedly responsible party.

In Village Northridge HOA v. State Farm Fire & Cas. Co., 10 C.D.O.S. 11321 (2010) (another decision following the Northridge earthquake in Southern California), the California Supreme Court held that the way to avoid a settlement is through rescission (which pursuant to statute does not require immediate tender back of the consideration received in settlement). Civil Code § 1693 provides that the party seeking rescission can agree to later restore the consideration as long as doing so does not substantially prejudice the other settled party. Restoration of the consideration can be a condition in the judgment.

However, in that case, the HOA proceeded on an alternative basis - "affirm and sue."  This theory, California’s highest court held, was not supported by California law because of the provisions in the settlement agreement. Thus, the HOA had to live with the settlement it made.

Continue Reading...

Pennsylvania Supreme Court Rejects Recoupment of Defense Costs

The Pennsylvania Supreme Court rarely agrees on anything.  Next to the Washington Supreme Court, the Pennsylvania Supreme Court features the largest number of divided decisions and nasty dissents of any court in the country.  It is with some surprise that we note the Supreme Court's unanimous opinion last week in American & Foreign Ins. Co. v. Jerry’s Sports Center, No. J-48-2009 (Pa. August 17, 2010) holding that an insurer cannot recoup costs that it has paid to defense a law suit that it has in the interim been held not to owe coverage for.   The Pennsylvania court's analysis stands in direct contrast to a Colorado opinion issued the day before by the U.S. Court of Appeals for the Tenth Circuit.

For the past ten years, courts around the country have grappled with the issue of whether an insurer that is later declared not to owe coverage may recoup defense costs that it paid in the interim under a reservation of rights. While many courts have rejected such claims outright, others have permitted recoupment, so long as the insurer advised the insured at the outset that it was asserting this right.

Continue Reading...

Eroding Away California's "Foster-Gardner" Rule?

Since Justice Kennard noted her criticism with the California Supreme Court’s literal approach to policy interpretation in her dissents in Foster-Gardner and Powerine, insurance coverage lawyers have been watching to see whether California’s highest court will limit the impact of those decisions. This line of cases stand for a number of propositions including that for a policy that only defends against suits, there is no duty to defend unless there is a civil action in a court of law that seeks money damages. Foster-Gardner, Inc. v. National Union Fire Ins. Co., 18 Cal.4th 857 (1998) (no duty to defend where there is no civil action prosecuted in a court). See also Certain Underwriters at Lloyd’s, London v. Superior Court (Powerine Oil Company, Inc.), 24 Cal.4th 945 (2001). This differs from most states’ “functional equivalent approach” which results in insurers having to defend against adversarial matters which are not lawsuits.

It will be interesting to see what (if anything) the California Supreme Court does with the recent Clarendon v. Starnet case, albeit that case involves a specific construction statute, which is dissimilar to the environmental context of the Foster-Gardner line of cases.

 

This inter-insurer dispute, Clarendon America Ins. Co.  v. Starnet Insurance Co., __ Cal.App.4th __ (2010) (2010 WL 2904995), involved the question of whether there was a duty to defend under a primary policy that defined “suit” as a “civil proceeding in which damages . . . are alleged.”  The definition also includes “any other alternative dispute resolution proceeding . . . to which the insured submits with our consent.”  At issue was a pre-suit requirement for construction claims, the “Calderon Act.” Under California’s Calderon Act (Calif. Civil Code § 1375, et seq.), homeowners associations are required to provide the builder, developer, or general contractor with notice of construction or design defects prior to instituting litigation. The association has to provide notice, list defects, and describe the results of the defects. This notice triggers a period, not to exceed 180 days, during which the parties “shall try to resolve the dispute . . .” 

Continue Reading...

Severability Clause Given No Effect on Exclusion Applicable to "Any Insured"

On June 23rd, Sara reported on a recent California Supreme Court decision which held that an intentional acts exclusion that applied to the conduct of “an insured” did not apply to negligent supervision claims against a co-insured, reasoning that the severability clause rendered the exclusion ambiguous.  A contrary result obtained in Howard & Norman Baker, Ltd. v American Safety Casualty Insurance Company, 2010 NY Slip Op 06077 (July 13, 2010), in which a New York appellate court gave no effect to the severability clause in the context of an employee exclusion that applied to “any insured.”   In this case, a landlord that qualified as an additional insured under its tenant’s policy sought coverage for claims asserted against it by the tenant’s employee.  The insurer denied coverage because the policy excluded coverage for “bodily injury to . . . [a]n employee of any insured arising from and in the course of . . . [e]mployment by any insured.”  Though short on explanation, the court found no ambiguity in the exclusion despite the severability clause, holding that the “plain meaning of the exclusion . . . was that the Policy did not provide coverage for damages arising out of bodily injury sustained by an employee of any insured in the course of his or her employment,” and that “reference to ‘any insured’ makes it unmistakably clear that the exclusion is not limited to injuries sustained by [tenant’s] employees.”

Policy's Severability Clause Renders Intentional Acts Exclusion That Applied to "An" Insured Ambiguous

The California Supreme Court had before it the following certified question from the Ninth Circuit:

Where a contract of liability insurance covering multiple insureds contains a severability clause, does an exclusion barring coverage for injuries arising out of the intentional acts of “an insured” bar coverage for claims that one insured negligently failed to prevent the intentional acts of another insured?

Prior to this decision, there was not clarity in California as to how the courts would rule on this issue and, as that court notes in its opinion, there is divergent positions on this issue around the country.

In Minkler v. Safeco Ins. Co., __ F.3d __ (9th Cir. 2010) (10 CDOS 7612), the court found, in the specific context before it, that the intentional acts exclusion was ambiguous in light of the policy’s severability-of-interests clause. This particular severability clause provided that: “This insurance applies separately to each insured. This condition will not increase our limit of liability for any one occurrence.” The court read the clause to pertain to all “insurance” and not just the policy’s limits.

Continue Reading...

Ethernet Sniffing: A New Privacy Tort?

Massachusetts, like several other states, has ruled that the unwanted receipt of junk fax communications from vendors triggers Coverage B as involving the "publication" of “material” that invades a person’s right of privacy. Now a new law suit filed in the federal district court in Boston presents the related question of whether the unauthorized collection of confidential information by a vendor similarly triggers “personal and advertising injury” coverage.

Galaxy Internet Services filed a putative class action in the U.S. District Court in Boston on May 25 claiming that Google, Inc. violated the privacy rights of Massachusetts citizens by using “ethernet sniffers” that collect WiFi data in the course of trawling the streets, developing local information for its Google Maps and Google Earth products. The plaintiff argues that this “payload data”—which included e-mail, video, audio components, documents and other personal and business information--was confidential in nature and that citizens have a reasonable expectation of privacy that was invaded by Google’s decision to decrypt and collect this material.
 

Continue Reading...

For Lack Of A Nail: The Perils of Inadequate RoRs

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.
 

Continue Reading...

False Marking Claims: The Newest Coverage B Controversy?

If your company has recently seen an uptick in coverage claims involving allegations that an insured’s advertising falsely claimed that its products were protected by patents, it’s no accident.

An article in the April 5, 2010 issue of The National Law Journal details the recent surge in suits against such familiar corporations as Brunswick, Clorox, Ace Hardware, Timex, Hallmark and Kimberly Clark in the wake of a December 2009 federal appellate ruling that vastly expanded the damages that plaintiffs could recover for “false marking” suits under the Federal Patent Act.

Continue Reading...

Tales of Foreign Intrigue

What do Thomas the Train and the Abu Graig prison have in common? Both have been the focus of major insurance coverage disputes concerning the extent of extra-territorial liability insurance coverage. In light of our increasingly interconnected international markets, U.S. businesses must consider not only their liability for claims involving imported products but also the need to ensure that appropriate insurance is available to cover these different risks.

Continue Reading...

Florida Court Reassess Insured's Right to Reject Insurer's Defense

Taking the brave step of deciding an insurance case on its own without certifying questions to the Florida Supreme Court, the Eleventh Circuit has ruled in Mid-Continent Cas. Co. v. American Pride Building Co., No. 09-11238 (11th Cir. March 29, 2010) that a Florida district court erred in granting summary judgment to a liability insurer in a copyright infringement case where the insurer was defending under a reservation of rights but ignores the view of defense counsel in assessing whether to settle. Without reaching the issue of whether American Pride had breached the duty to cooperate, the Eleventh Circuit found disputed issues of fact with respect to whether Mid-Continent had changed the terms pursuant to which its defense was being provided when it added a later condition that it be entitled to recoup its defense costs if coverage was held not to apply. If such facts were found to exist, the Eleventh Circuit ruled that Mid-Continent would have been entitled to withdraw its assent to the defense being provided and would therefore have been free to enter into a settlement of its own volition without breaching the duty to cooperate.

 

Continue Reading...

When Insurers Wear One Hat Too Many

As my friend and mentor Steve Paris used to say, where you stand often depends on where you sit.  Such has been the case in several recent rulings where insurers played dual roles in the same case.

 Back in 2008, a federal court in Seattle ruled in Mutual of Enumclaw v. Cornhusker Cas. Ins. Co., 2008 WL 4330313 (E.D. Wash. September 16, 2008) that statements that it made at the mediation of its insured's liability claims were not privileged in an ensuing DJ because the communication had occurred in the course of a mediation concerning the insured’s liability and had not concerned coverage issues.  More recently, the California Court of Appeal has ruled in Risely v. Interinsurance Exchange (Cal. App. March 26, 2010) that an insurer that defended under an auto policy but denied HO coverage for the same claim was subject to the same rules concerning a consent judgment claim under the HO policy as if it had denied coverage under both lines of coverage.

Now a court in Maine has addressed the puzzling issue of whether an automobile liability insurer that coincidentally finds itself on both sides of a UIM arbitration is  collaterally estopped to dispute the results of the arbitration, 

Continue Reading...

Failure to Defend Under Second Policy May Have Consequences

We report here on major developments in case law, but also on practical points – cautionary tales, reality checks, and reminders.

Last year, one such case involved the issue of whether an insurer had an obligation to search for policies issued to other parties in the lawsuit – in that situation, the insurer did have that obligation. Safeco Ins. Co v. Parks, 170 Cal.App.4th 992 (2009). Today’s case concerns an insurer’s duty to examine coverage under multiple policies issued to the same insured and the risk of denying coverage under one policy even though there is coverage (at least in part) and a full defense being provided by another policy issued by that insurer. Risely v. Interinsurance Exchg. Of the Auto. Club, 2010 Cal.App. Lexis 399 (2010). The situation presented also created an opportunity for the insured to enter into a stipulated judgment even while being defended by the insurer.

 

The Risely case arose out of a car accident. Risely was riding in a car driven by Turner (the insured) who was allegedly driving erratically. Risely tried to get Turner to take her home or drive better. Risely claims Turner kept her in the car against her will. An accident occurred. Risely claims to have been severely injured.

Continue Reading...

"Cumis" Counsel Continues to Create Challenges for Court Consideration

“Cumis” – California’s rule on the right to independent counsel (codified at Civil Code Section 2860) – continues to raise issues requiring courts to more clearly define, among other aspects:

  • under what circumstances does the right to independent counsel arise?
  • when is there is an actual “conflict” for defense counsel retained by the insurer?
  • can the right to independent counsel arise due to the insurer’s failure to defend immediately (rather than any conflict in that defense)?
  • what reporting is required from independent counsel?
  • when should an insurer retain defense counsel in addition to paying for the insured’s independent counsel?
  • what issues can be arbitrated under Section 2860 along with the dispute over “usual” rates?

In Intergulf Dev. v. Superior Ct., __ Cal.App.4th __ (2010), California’s appellate court for the Fourth Appellate District (San Diego County) held the parties had to first litigate issues of breach of contract and bad faith prior to arbitrating the issue of independent counsel’s rates. The insurer agreed to defend an Additional Insured under its policies in a lawsuit arising out of defects on a construction project. However, the insurer did not respond to the question of whether it would agree that the additional insured had a right to independent counsel. The insurer was sued for breach of contract and bad faith. In the course of that lawsuit, the insurer made payments toward defense costs but claimed independent counsel’s rates far in excess of the usual rates the insurer paid to defend similar actions. Five weeks before trial of the breach of contract/ bad faith case, the insurer filed a petition to compel arbitration. The trial court granted the petition, but the appellate court issued a writ of mandate vacating that order. The appellate court ruled that arbitration over the fees charged by independent counsel was premature. First, there had to be a determination of whether the insurer breached its contract in not defending “immediately” and “entirely.”  As that court explained, breach of those duties may “place the section 2860, subdivision (c) procedures out of [the insurer’s] reach.”

Second Circuit Uphold Insurer's Right To Appoint Counsel

In the ongoing struggle between policyholders and liability insurers concerning the scope of the independent counsel doctrine, an emerging battlefield has focused on whether disputes between the parties that are unrelated to insurance coverage issues allow policyholders to dispossess liability insurers of their right to control the insured’s defense and appoint defense counsel of the insured’s own choosing Notwithstanding the consequences of this issue, there has been little or no case law addressing this issue up to this point. Now, the Second Circuit has issued a significant new Katrina opinion that emphatically states an insured cannot reject a proposed defense firm merely because the insured believes that they are too small to handle a "bet the company" case.   The opinion also restates New York's interpretation of Cumis that a right to independent counsel should only arise where an insurer has reserved rights on a coverage issues that is of a sort that might influence appointed defense counsel to try the case in such a manner that could result in an uninsured verdict.

Continue Reading...

Virginia Supreme Court to Decide First Global Warming DJ

AES has asked the Virginia Supreme Court to overturn a lower court’s ruling that the Village of Kivalina global warning claims do not arise out of fortuitous “occurrence.” Judge Kendrick ruled from the bench in Steadfast Ins. Co. v. AES Corp., No. 2008-058 (Va. Cir. Ct. February 5, 2010) that the allegations of climate change were the foreseeable result of the insured’s routine discharge of millions of tons of carbon dioxide over the years. Despite having earlier found that disputed questions of fact precluded the entry of summary judgment for Steadfast, Judge Kendrick ruled with respect to a subsequent motion for summary judgment by AES that Steadfast had no duty to defend. The court did not reach Steadfast’s alternative argument concerning the pollution exclusion, although Judge Kendrick reportedly intimated during oral argument that he would not have considered carbon dioxide to be a pollutant (take that, U.S. Supreme Court!). The case was otherwise scheduled to go to trial on April 26, 2010.

Write Good, Pay Less

Just as truth is often said to be the first casualty of war, bad grammar is often the first victor in coverage battles. Such has recently been the fate of the quaint but venerable doctrine of the last antecedent, whereby clauses in a contract are interpreted in accordance with the words or phrases that immediately precede them rather than words that are more remote.

Two courts have considered this doctrine in reaching opposite conclusions with respect to whether standard CGL “personal and advertising injury” coverage for “publication of material that invades a person’s right of privacy” extends coverage to junk fax claims. The issue in these cases was whether it is the “publication” that is invasive or the “material.” Junk faxes, while annoying, rarely contain secret or confidential information such that their content could be said to invade a privacy interest. On the other hand, the legislative history of the TCPA suggests that Congress was concerned about protecting the seclusion interest of private citizens in banning such communications.

 

Continue Reading...

Nebraska Supreme Court Rules oN Pollution Coverage Issues

One of the perils of appellate advocacy is asking a court to take on too many complicated issues at once.  Inevitably, some issues don't get the attention they deserve or are dealt with as an after-thought.  Such is the case with an environmental coverage opinion that the Nebraska Supreme Court issued today in Dutton-Lainson Co. v. Continental Ins. Co., No. S-09-164 (Neb. February 5, 2010).

First the headlines:

--Insured's shipment of drums to various landfills all arose out of one "occurrence" (handling of solvents)

--Loss allocated on a "time on the risk" basis (months)

--Insured's agreement to accept liability before giving notice deemed to be prejudicial.

--PRP letter is a "suit"

--Insured's dumping of drums was an "accident." 

Continue Reading...

2006, 2007, 2008 - Looking Back Over The Decade

As we round out review of what happened over the past decade in the insurance coverage world, I agree with Mike’s inventory as it pertains to California.  (If you are interested in year by year summaries of California cases, please respond to this blog or send me an email as we collected those cases.)  I would add one notable case to the decade highlights. There is little appellate authority in the area of "number of occurrences" and thus this decision was very important.

In London Market Insurers v. Truck Insurance Exchange (2007) 146 Cal.App.4th 648, the California appellate court held that the policy language before it and common sense led to the conclusion that all of the asbestos claims were not one occurrence. This case had a significant impact on not only the primary insurers’ obligations in that particular case (because there were no aggregate limits in many of the primary policies), but on many pending asbestos coverage cases.

All decade long people pondered what would be the next asbestos, when it turns out that asbestos is the next asbestos. . .  Asbestos claims continue to cost companies and insurers millions, . . . make that billions of dollars, and the litigation is not only in the defense of the claims, but in the coverage litigation as insurers and insureds sort out who owes what to whom.

2003, 2004, 2005 - In Review

2003, 2004, 2005 – (Happy new year!)  It is difficult to keep up with that Mike Aylward – especially when he is in a reminiscing-kind of mood. But I have to add my two cents, in addition to Mike’s list, of important California decisions from these three years because of their long-lasting impact, mainly in the area of policy interpretation. Of these, 2005 was the watershed year when a number of decisions from California’s Supreme Court were based on strict and literal policy interpretation.

2003

  • First party property policy with coverage for actual collapse did not cover imminent collapse – the court could not rewrite the parties’ contract. Rosen v. State Farm Gen. Ins. Co. (2003) 30 Cal.4th 1070.
  • Intentional misconduct may be excluded from coverage, but still may require duty to defend (depending on policy language and whether exclusion based on Ins. Code § 533). Marie Y. v. General Star Indem. Co. (2003) 110 Cal.App.4th 928.

 

2004

  • One that does not fit with the others summarized here is a decision that the underlying indemnity agreement must be considered along with the insurance policy provisions when determining indemnity and contribution rights. Hartford Cas. v. Mt. Hawley Ins. Co. (2004) 123 Cal.App.4th 278.

2005

  • Whether there is an obligation to pay defense costs under umbrella policies when there is no duty under the underlying primary policies because there is no “suit” depends on the policy’s language - in particular the insuring agreement and definition of ultimate net loss. Powerine v. Superior Court (2005) 37 Cal.4th 377; County of San Diego v. ACE Property & Cas. Co. (2005) 37 Cal.4th 406.
  • The pollution exclusion still does exclude coverage, here silica dust, in the wake of MacKinnonGaramendi v. Golden Eagle Ins. Co. (2005) 127 Cal.App.4th 480.
  • Even with California’s efficient proximate cause law which decidely favors policy-holders, a weather conditions exclusion in a property policy precluded coverage. Julian v. Hartford Underwriters (2005) 35 Cal.4th 747.

2000, 2001, 2002 - Additional California Highlights

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.

New York Court Limits Insured's Malpractice Suit Against Anderson Kill Law Firm

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.
 

Continue Reading...

Thoughts On Allocation

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

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

Continue Reading...

Denial of Coverage For Ponzi Claim Not Bad Faith

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

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

 

Continue Reading...

Massachusetts Appeals Court Limits Scope of Pollution Exclusion

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

Continue Reading...

Massachusetts Courts Limits D&O Coverage

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

Continue Reading...

Federal Judge Nukes Insurer On Duty to Defend Standard

A new federal district court opinion in Massachusetts has taken a curious twist on conventional rules governing the duty to defend. Massachusetts, like most states, imposes a duty to defend where the underlying claims present a “potential” for coverage whether or not the actual facts in evidence at trial would sustain the allegations presented in the complaint. In Whittaker Corp. v. American Nuclear Insurers, however, U.S. District Court Judge Richard Stearns declared that a duty to defend may arise base upon the “potential for coverage” in a case where there was a dispute between the parties as to whether the policy contained an exclusion that would clearly have precluded any defense duty.
 

Continue Reading...

To Stay or Not to Stay

When an insurer contemplates the pros and cons of filing a declaratory relief action to determine a coverage issue, one important factor is whether the action is likely to be stayed until conclusion of the underlying dispute against the insured.  In California, coverage actions are stayed to avoid having facts that impact both coverage and the insured’s liability in the underlying action decided (or even the subject of discovery) in the coverage lawsuit if this would prejudice the insured’s defense of the underlying lawsuit. See Haskel, Inc. v. Sup. Ct. (1995) 33 Cal.App.4th 963, 980; Montrose Chem. Corp. v. Sup. Ct. (1993) 6 Cal.4th 287, 302.

In Great American v. Sup. Ct. (Angeles Chem. Co.) ___ Cal.App.4th __ (2009 WL 3234636), California’s appellate court  (Second District – Los Angeles/Crosky) reviewed the issue of overlapping facts.  However, after doing so (and finding the coverage action could proceed because it raised contract interpretation issues and not factual issues pertinent to the underlying lawsuit), the court still remanded the case to the trial court to “balance the possible prejudice to the parties by the grant or denial of the insured’s motion to stay.”  This may pose a nearly impossible situation for an insurer if no other insurer is defending the lawsuit.  However, CGIS Insurance Services, Inc. v. Sup. Ct. (2008) 168 Cal.App.4th 1493 (also written by Justice Crosky) should also be considered, in which the court found a stay inappropriate where the question presented was a strictly legal issue.
 

Continue Reading...

Accident Means Accidental Conduct Says The California Supreme Court

In reviewing whether there has been an “occurrence,” where occurrence is defined as an accident, California (unlike many jurisdictions) makes a distinction between whether the act was intended versus whether the resulting damage or injury was intended. The latest unanimous decision from the California Supreme Court reiterates that even if the consequence of the action is different from what was intended, or there was a mistake as to the reason for the conduct, where the conduct is intentional it cannot be recast as having been an accident for purposes of obtaining insurance coverage. Delgado v. Interinsurance Exchange of Automobile Club of Southern California (2009) __ Cal.4th __ (2009 WL 2356908).

Continue Reading...

Supplementary Payments - No Obligation to Cover Attorneys Fees for Non-Covered Claim

California courts have been busy on insurance coverage decisions – and I am having trouble keeping up! Be ready for several posts.

An excellent (and correct) decision was issued from California’s Appellate court as to when there is an obligation to pay attorneys fees awarded against an insured pursuant to the supplementary payments provision of a general liability policy. In State Farm General Ins. Co. v. Mintarshi (2009) 175 Cal.App.4th 274, the court held that it is only where the attorney fee award is based on a covered claim that there is a duty to pay the “costs awarded” against the insured. 

 

The supplementary payments provision provides that the insurer will pay “costs taxed against the insured” in “any suit we defend.”  Under California law, where there is a duty to defend any one claim, there is a duty to defend the entire case. Buss v. Sup. Ct. (1997) 16 Cal.4th 35, 48-49. That duty is implied in law. Id. The insurer can reserve its right to seek reimbursement for amounts it pays in connection with the non-covered claims. Id.at 50-53.

 

Until now, this unanswered question troubled insurers and caused some to consider deleting this aspect of supplementary coverage because attorneys fee awards (on non-covered claims) can far exceed the value of the covered claim. This question was narrowed a few years ago when California’s appellate court ruled there was no obligation to pay an attorneys fee award based on a non-covered claim that was uninsurable because of willful conduct excluded pursuant to Ins. Code Section 533. See Combs v. State Farm Fire & Cas. Co. (2006) 143 Cal.App.4th 1338, 1344-1346.

 

Thus, if at the end of the case the claimant is awarded attorneys fees against the insured, if that award is based upon a claim not covered by the policy, there was no contractual obligation to defend that claim, only an implied in law duty. As such, the court reasoned, there should not be any obligation to cover attorneys fees relating to an aspect of the lawsuit that there was no duty under the contract to defend. To the extent Prichard v. Liberty Mutual Ins. Co. (2000) 84 Cal.App.4th 890, 912,  suggested a different result, the court declined to follow Prichard.

Hawaii Supreme Court to Address Pollution Exclusion

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

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

Continue Reading...

First Circuit Rules For Insurers in "Claims Made" Perfect Storm

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

Continue Reading...

60 Day Notice Provision in Expanded Coverage was Enforceable; California's Notice-Prejudice Rule Did Not Apply

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

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

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

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

Blanket AI Endorsement Triggered by Language Requiring Insurance for "Mutual Benefit" of Parties

In Kassis v. The Ohio Casualty Company, 2009 NY Slip Op 05207 (June 25, 2009), the New York Court of Appeals considered whether a provision in a lease agreement requiring insurance for the “mutual benefit” of landlord and tenant was sufficient to trigger coverage under the terms of a blanket additional insured endorsement extending coverage to “any person or organization whom [the named insured is] required to name as an additional insured on this policy under a written contract or agreement.” The Court answered in the affirmative.

Continue Reading...

No Duty to Defend Affirmative Defenses

In P.J.P. Mechanical Corporation v. Commerce and Industry Insurance Company, 2009 N.Y. Slip Op. 04984 (June 18, 2009), New York’s Appellate Division, First Department, held that an insurer has no duty to defend its insured against an affirmative defense based on a claim of offset raised in the responsive pleadings. Imposing such a duty, held the court, was counter to long-established business practices and would lead to uncertainty.

Continue Reading...

Number of Occurrences - Devil's in the Details

A California federal trial court decision adds to the growing body of law of how much the facts (and how those facts are presented) determine the number of occurrences question. Evanston Ins. Co. v. Ghillie Suits.Com, Inc., 2009 U.S. Lexis 22256 (N.D.Cal. 2009).

Cases examining number of occurrences (for purposes of determining the number of limits available on (often) non-aggregated claims or how many deductibles an insured may have to pay) are decidedly fact-driven. See, for instance, recent case examples where the courts have concluded there is more than one occurrence: London Market Insurers v. Truck Ins. Exchange, 146 Cal.App.4th 648 (Ct. App. 2007) (“Kaiser Cement”) (in inter-insurer dispute, asbestos liabilities that arose out at many different locations from different products and situations creating exposure, were not all a single occurrence); Lennar Corp. v. Great American Ins. Co., 200 S.W.3d 651 (Tex. App. 2006) (in examining claims based on defective stucco, the court noted that “under the ‘cause’ analysis, the proper focus . . . is on the number of events that cause the injuries and give rise to the insured's liability, rather than the number of injurious effects”); Nicor, Inc. v. Associated Electric and Gas Ins. Services Ltd, 223 Ill. 2d 407, 413 (Ill. 2006) (mercury spills in 195 homes were separate occurrences because different acts of negligence and not common methodology, thus requiring insured to pay multiple self insured retentions).

In the Evanston case, during a U.S. Marine training session, two marines were badly burned after their “fireproof” clothing caught fire. The parties, in presenting the issue to the court, stipulated that when the first marine’s suit caught fire from a flash from a gun - that was a single occurrence. The question was whether the ignition of the second marine’s clothing was part of that same occurrence or a separate occurrence. The court painstakingly went through the details of the event (all of which happened in a matter of minutes) and the various theories as to whether there were different causes for the two fires even though close in time and space. In the end, what the court appeared to find most compelling was that the second marine was safe, and it is only that he decided to assist the first marine that caused the second marine’s clothing to ignite. Thus, the court found there were two occurrences (and two occurrence limits applied).

CGL Doesn't Cover Torture Claims Arising Out Of Abu Ghraig

The Fourth Circuit  ruled yesterday  that allegations that employees of an American security firm that abetted the torture of detainees at the Abu Ghraib prison in Iraq are outside the Coverage Territory of a CGL policy issued by St. Paul. In CACI, International, Inc. v. St. Paul Fire & Marine Ins. Co., No. 08-1885 (4th Cir. May 14, 2009), the court voted 2-1 to affirm the findings of a West Virginia District Court that the alleged abuses did not occur within the territory of the United States and its possessions. The court declined to find that allegations that conduct that did occur in the United States wherein the insured was allegedly negligent in hiring these employees triggered coverage. Apart from the fact that the Complaint did not expressly allege where these acts occurred, the court ruled that it is the place of injury, not of the insured’s negligent acts, that governs the application of the Coverage Territory clause.  Justice Shedd authored a brief dissent, arguing that the claims fell within the exception for insureds working outside the territory for a “short period.”

Kudos to Walter Andrews of Hunton & Williams!

Massachusetts Court Delays Issuance of Allocation Opinion

The Supreme Judicial Court of Massachusetts issued a brief order yesterday in Boston Gas v. Century Indemnity announcing that it is waiving an internal court guideline that requires issuance of rulings within 130 days of oral argument.  At issue in Boston Gas is whether the cost of cleaning up pollution from a former manufactured gas plant can be allocated to an excess insurer on an "all sums" basis or must be allocated to multiple years on some basis.  As the case was argued on January 8, the 130 day period was due to expire this week.

Whither Minnesota On Recouping Defense Costs?

The Eighth Circuit's recent opinion in Westchester Fire Ins. Co. v. Wallerich, No. 07-3624 (8th Cir. April 24, 2009) has added further confusion to the conflicting law in Minnesota as to whether liability insurers can sue their insurers to recoup defense costs if they are adjudged not to have owed a defense, Although Minnesota’s state appellate courts have yet to weigh in on this issue, it appeared up until now that federal courts were recognizing a right of recoupment. Now it’s unclear.

Continue Reading...

Insurer's Obligation To Search For Coverage - Expanding The Insurer's Duties

A recent case in California, takes an insurer’s duty to search for coverage a step farther than required to date and, while the insurer acted correctly on the coverage of which it was aware and acted promptly as it discovered additional coverage, that was not enough – it was found liable to the tune of $3.2 million (damages, interest, and attorneys fees).

Safeco Ins. Co. v. Parks (2009) 170 Cal.App.4th 992 (“Safeco II”), is a case every insurer should review.  The court’s decision flows from a rather bizarre set of facts, and a convoluted legal history, which will not be fully summarized here. The claimant was 16 year old Michelle Park’s boyfriend who was left by the side of the road in February 1999 to make his way home following his rude behavior towards his girlfriend. He was hit by a car which resulted in the need to amputate one of his legs.

Continue Reading...

Pigs Fly: Insurers Win on Pre-Tender Issue in Indiana

There was a time back in the 1980’s when Indiana was viewed as a relatively conservative jurisdiction as far as insurance law went. During this era, there was also a general view that the duty to defend did not arise until such time as a claim was presented to an insurance company to defend.  Since then, however, Indiana has become a notoriously difficult jurisdiction for insurers and courts around the country have warmed to the idea that insureds can recover “pre-tender” defense costs unless their delay in giving notice caused prejudice to the insurer.

Now, in an astonishing turn of events, the Indiana Supreme Court has turned the clock back and has adopted a sensible analysis of an insurance policy that clearly distinguishes between the prejudice rules that most jurisdictions have adopted in the context of an insured’s failure to give timely notice of an accident or suit, and the requirement of tender as being a pre-condition to the duty to defend in the first instance.

Continue Reading...

Horsing Around With Coverage

There is a quaint notion in northern New England that insurance policies exist to pay claims.  This is abundantly true in the State of Maine, where courts have been remarkably liberal over the years in finding coverage for liability claims. 

In the most recent case of this sort, the First Circuit ruled last week in Centennial Ins. Co. v. Patterson, 08-1521 (1st Cir. April 23, 2009) that a professional liability insurer had a duty to defend a veterinarian for allegedly giving false testimony at a public hearing involving the plaintiff.

Continue Reading...

Massachusetts Court Finds Coverage For Sick Building Claims

In a wide ranging opinion with significant negative implications for the ability of insurers to contest construction defect claims in Massachusetts, the First Circuit has ruled in Essex Ins. Co. v. BloomSouth Flooring Corp., No. 06-2750 (1st Cir. April 16, 2009), that a federal district court erred in granting summary judgment to a liability insurer for claims arising out of the discharge of fumes from defectively-installed carpet tile and related materials throughout the plaintiff’s building.
 

Continue Reading...

New Jersey Court Tackles Allocation Issues

Can it be that there are allocation issues that have yet to be addressed in New Jersey?  It seems so.

In Franklin Mut. Ins. Co. v. Metropolitan Property & Cas. Ins. Co., No. A-5265-07T2 (App. Div. April 17, 2009), the Appellate Division was asked to consider how the cost of cleaning up contamination from a leaking tank should be paid for where the pollution had begun a few prioir to the insured's purchase of the property in question.  In short, should each insurer’s share of the cost of clean up be measured by reference to its insured’s period of ownership or as a percentage of the overall period of time that pollution occurred?

Continue Reading...

Stringfellow -The Next Chapter - Significant Changes to California Pollution Coverage Law

Of great significance to environmental coverage involving landfills and “indivisible” damages from covered and non-covered releases of pollution, the California Supreme Court issued rulings in the latest chapter of the Stringfellow case. The court found for the State of California on several significant points, and remanded the case for trial on factual issues, since these ruling arose out of summary judgment. (See earlier blogs for reports on other decisions from this long-standing litigation.)

Three main legal issues were addressed in this latest decision:

Continue Reading...

IP Coverage Disputes Flare Anew


Disputes concerning the applicability of Coverage B to intellectual property disputes have flared anew in three recently filed suits.

On January 29, 2009, Intel sued American Guarantee & Liability Insurance (Zurich) in the federal district court in San Francisco seeking to impose coverage for claims by Advanced Micro Devices that Intel engaged in unfair marketing practices in the sale and distribution of computer microprocessor chips. Beginning in mid-2005, chip rival Advanced Micro Devices and consumers filed lawsuits against Intel, alleging that the chipmaker engaged in anticompetitive conduct and unfair business practices in the sale, promotion, and marketing of its microprocessors. Intel claims that it has exhausted a $5 million fronting policy and $11 million in coverage afforded by Old Republic and may now access the $50 million excess policy issued by American Guarantee. Intel claims that it is entitled to $50 million in defense costs. American Guarantee has filed an action of its own in Delaware Chancery Court

Seagate Technology has sued National Union seeking recovery of $6 million out of a total of $10 million spent defending patent infringement claims with Cornice, Inc. that the insurer refused to pay owing to disputes over hourly rates, the reasonableness of the sums and costs attributable to prosecuting claims that were not “defense” related. Seagate is represented by Orrick Herrington; National Union by Drinker Biddle.

MGA Entertainment has brought suit against its liability insurers in the federal district court in Riverside, California seeking a declaration that it is entitled to CGL coverage for trade disparagement dispute with Mattel involving its popular line of Bratz™ dolls. It has been reported that more than $63 million in legal fees is at issue. In April 2008, MGA filed three separate DJs against Crum & Forster; Hartford and Lexington. The cases have since been consolidated into a single proceeding
 

Illinois and Wisconsin Supreme Courts Find Multiple "Occurrences"


Casualty coverage litigation has been dominated by five issues this decade: allocation, recoupment, the scope of the absolute pollution exclusion, coverage for breach of contract claims and multiple “occurrences.” The last issue has been the most surprising as, until recently, parties were reluctant to take positions on an issue that might hurt them in future claims. Now the state supreme courts of Illinois and Wisconsin have joined the fray.

The Illinois Supreme Court’s opinion in Addison Ins. Co. v. Faye, No. 105752 (Ill. January 23, 2009) is the more surprising of the two, if only because the court focused on the burden of proof issue, an aspect of this dispute that has received surprisingly little attention from other courts. At the same time, given that the outcome of the case essentially turned on a “tie goes to the winner” analysis, one must wonder what attracted the court to the case in the first place.

 

Continue Reading...

Illinois Court Upholds Batch Clause Wordings

In a case that amply illustrates the problems that may arise from permitting parallel actions to go forward in two different states, the Illinois Appellate Court has ruled in Allianz Ins. Co. v. Guidant Corp., No. 2-07-0814 (Ill. App. December 29, 2008) that a trial court did not err in refusing to hold that a duty to defend ruling of an indiana court did not collaterally estop a pharmaceutical manufacturer’s liability insurers from contesting coverage in an Illinois proceeding particularly as the Indiana trial court decision was reversed in early 2008 by the Indiana Court of Appeals.

The Appellate Court also affirmed the Illinois trial court’s determination that subsequent product liability claims brought against Guidant could not be aggregated with certain earlier claims based on the policies’ batch clause as the later claims did not arise out of the same claimed product defect. The court rejected the insured’s claim that losses could be aggregated so long as they involved a particular product with any type of defect regardless of whether the claims at issue involve a common product defect. The court held that the batch clause would not have applied in any event as the “Dear Doctor” letters issued by Guidant during the initial policy period did not satisfy the requirement of an “advisory memorandum” for purposes of the batch clause.

Massachusetts Court Considers Fate of Allocation Disputes


The fate of dozens of major Massachusetts environmental and other long-tail insurance coverage disputes now hangs in the balance as the Supreme Judicial Court takes up the issue of whether insurers are only responsible for an allocated share of these multi-year losses.

On January 8, the SJC heard oral argument in the matter of Boston Gas Co. v. Century Indemnity. At trial, a federal district court jury in Boston had found that Century Indemnity was required to indemnify Boston Gas for $6.2 million in clean up costs under its 1966-69 policy despite the fact that the pollution had occurred on a continuous basis since the opening of the site in 1908. Following certification by the U.S. Court of Appeals for the First Circuit, the case was taken up by the Supreme Judicial Court on the issue of allocation.

The Boston Gas case has attracted considerable amicus attention, not least because this is the first time that the SJC has addressed allocation issues, having expressly declined to rule on the issue in several earlier pollution and asbestos cases.

While there is considerable risk in predicting the outcome of an appeal based on the questions asked by the justices during oral argument, it must be observed that the overall tone of the argument seemed to favor the insurer’s arguments for pro rata allocation. In particular, the SJC appears to be viewing these issues on a clean slate and is giving little weight to the two intermediate appellate rulings (Rubenstein and Chicago Bridge) that policyholders have relied on over the past decade in persuading trial courts to impose coverage on a “joint and several” or “all sums” basis.


 

Continue Reading...

Stringfellow: California Follows "All Sums," Allows Stacking, But Finds Only One Occurrence

The Stringfellow litigation has brought practitioners law on continuous trigger (see, Montrose Chem. Corp. v. Admiral Ins. Co. [1995] 10 Cal.4th 645), and now on “all sums,” stacking, and number of occurrences (State of Calif. v. Continental Ins. Co. (2009) __ Cal.App.4th __, discussed further below). In 2009, there may also be ruling on the pollution-coverage-related issues of the relevant release at a landfill, and the insured’s burden of proof on what caused the pollution) (State of California v. Underwriters at Lloyd's London). On Jan. 8th, the California Supreme Court heard oral argument on the pollution coverage issues. A decision should be out later in the year.

Continue Reading...

Significant California Decisions in 2008: What is an "Accident" and Whether an Excess Insurer Must Pay Where the Primary Settled for Less Than Policy Limits

In reviewing California appellate decisions issued in 2008, my vote for the most significant decisions are on the issue of what constitutes an “accident” (State Farm) because it is a departure from prior law on the issue, and the issue of whether an excess insurer must pay when the primary settled for less than policy limits (Qualcomm) because it is on a subject for which there was a dearth of law.

 

Accident

Prior to 2008, California courts consistently held an insured's intentional or deliberate act is not an accident for purposes of the “occurrence” definition of a general liability policy, regardless of whether the insured intended to cause the resulting harm. See, e.g., Merced Mutual Insurance Company v. Mendez (1989) 213 Cal.App.3d 41 (sexual battery); Collin v. American Empire Ins. Co. (1994) 21 Cal.App.4th 787 (conversion); Ray v. Valley Forge Ins. Co. (2000) 77 Cal.App.4th 1039 (professional advice). California courts distinguished between the act and the resulting harm.

That analysis was called into question by State Farm Fire and Casualty Company v. Superior Court (2008) 164 Cal.App.4th 317 (review denied). In State Farm, during an argument, the insured intentionally threw the plaintiff into a swimming pool. The plaintiff sustained injuries when he landed on the pool's concrete step rather than in the water. State Farm declined to defend the ensuing lawsuit because the insured acted intentionally and not accidentally, regardless of whether the insured intended to harm the plaintiff or not.

Continue Reading...

Coming Soon To An Appeals Court Near You...

So you haven't finished your holiday shopping yet?  No worries--here are three new matters that are due to be decided shortly in Massachusets, Pennsylvania and Texas that every insurance maven will want on their year end wish list!

1.  Boston Gas v. Century Indemnity, SJC 10246  (Mass.)

The Supreme Judicial Court will hear oral argument on January 8, 2009 on allocation issues certified to it from the First Circuit in Century Indemnity's appeal from this pollution clean up case, Boston Gas v. Century Indemnity Co., 529 F.3d 8 (1st Cir. 2008)    At issue is whether a federal district court erred in allowing a gas utility to allocate the entire cost of cleaning up a former MGP site to excess coverage issued in the 1960s.  Unlike several neighboring states (CT, NH, NY, VT), whose Supreme Courts have adopted pro rata approaches to long tail cases, Massachusetts has, to date, appeared to go its own way as lower courts have permitted "spking" whether on an "all sums" or joint and several theory. 

The Boston Gas appeal has drawn significant attention from amici despite the fact that tjhe SJC, contrary to its recent practice, made no formal request for amicus briefing.  

It will be interesting to see if the attitude of the court is affected by the fact that Judge Botsford, who authored the trial court in Rubenstein v. Royal Ind. adopting joint and several liability, is now sitting on the SJC.  Another interesting sidebar will be whether Ralph Gants plays a role.  Gants, who was nominated this week by Governor Patrick to take the seat of retiring Justice Greaney, must still be approved by the Governor's Council, which may or may not take place in the next 30 days.  Gants currrently sits in the state's business court where he has devoted significant time and attention to insurance issues, albeit with mixed results for carriers. 

 

Continue Reading...

Can't Have It Both Ways: ELI Coverage and Workers' Comp Exclusion

While not a new development, this case is a reminder that logic and common sense prevail in evaluating coverage, even in the face of tragedy. The California Court of Appeal for the Fourth Appellate District affirmed an order granting summary judgment in favor of an insurer in an action for breach of the duties to defend and indemnify under a policy’s Employer Liability Insurance (ELI) coverage, holding the underlying claim was within the scope of the workers’ compensation exclusion because it was covered by the workers’ compensation law and the insured did not assert any exceptions applied to the statute. Power Fabricating Inc. v. State Comp. Ins. Fund (2008) __ Cal.App.4th __ [08 CDOS 13719].

This claim arose out of a fatal electrocution in the course of employment. State Compensation Fund issued insurance to Power Fabricating Inc., which afforded coverage for workers’ compensation and ELI coverage. State Fund paid workers’ compensation benefits to the deceased employee’s widow. However, the widow also sued Power and a related entity, Power Temporary Systems, Inc. (“PTSI”). Power tendered the suit to State Fund which denied coverage.  Power then sued State Fund for breach of contract. The trial court granted summary judgment for State Fund.

On appeal, Power argued summary judgment was inappropriate because there was a disputed issue of fact as to whether Power, PTSI, or a joint venture of the two entities, was the deceased’s employer at the time of the accident. Power contended ELI coverage would apply if the deceased was an employee of the joint venture and was injured by Power’s negligent acts or Power’s employee but injured by acts of the joint venture for which Power was derivatively liable.  The court disagreed, holding that ELI coverage only applied to injury arising out of or in the course of employment by the insured. To the extent the joint venture, as an entity distinct from either Power or PTSI, employed the deceased, the ELI coverage would not apply in the first instance. The court held Power could not invoke coverage under the ELI provisions, which required employment by an insured, but then attempt to avoid application of the worker’s compensation exclusion on the theory a non-insured entity was actually the employer.

The court also rejected Power’s second argument, holding the workers’ compensation exclusion would apply to Power’s derivative liability for the joint venture. The complaint alleged only Power, not PTSI, was negligent, eliminating any risk of derivative liability. Even if that risk existed, Power’s derivative liability did not fall within any exception to the workers’ compensation law.

Seventh Circuit Limits Application of Duty to Settle

When is a policyholder not an insured?  That was the issue considered by the Seventh Circuit last week in Iowa Physicians’ Clinical Medical Foundation v. Physicians’ Ins. Co. of Wisconsin, No. 08-1297 (7th Cir. October 31, 2008), an Illinois case in which the court declared that an insurer’s obligation to act in good faith in responding to offers to settle within policy limits only extends to insured entities.

Continue Reading...

Minnesota Court Rejects Coverage For Spyware Claims

A recent opinion of the federal district court in Minneapolis has for the first time construed the extent of liability insurance coverage for “spyware” claims. At issue in Eyeblaster, Inc. v. Federal Ins. Co., No. 07-4379 (D. Minn. October 7, 2008), was the availability of general liability or professional liability insurance coverage for a lawsuit brought in federal court in Houston wherein the plaintiffs claimed that Eyeblaster, a worldwide business involved in the creation, delivery and management of online internet advertising, had fraudulently enticed him to visit its website so that Eyeblaster could surreptitiously download its spyware onto its computer allowing it to install tracking cookies, executable code, java script and jifs that changed his security settings, installed pop-up advertising, renamed files and redirected his computer and web browsing. The plaintiff contended that this spyware had also caused his computer to freeze up, causing him to lose data on a tax return on which he was working and that required him to hire a computer technician to repair the damage.
 

Continue Reading...

Maine Judge Rejects Insurer's Recoupment of Settlement Contribution

The dispute with respect to whether insurers may recoup costs of settlement has moved north to the State of Maine. In American National Fire Ins. Co. v. York County, No. 2:06-cv-200 (D. Me. October 20, 2008), a federal district court ruled that a liability insurer’s failure to expressly reserve the right to recoup settlement costs precluded its ability to subsequently recover those sums from its insured.  While leaving open the issue of whether recoupment is ever permitted, this opinion emphasizes the importance of insurers asserting these rights early and consistently if they ever hope to prevail on this question.

Continue Reading...

Stringfellow - A Continuing Coverage Saga

While it is often difficult these days to pay attention to any thing other than the upcoming elections and the roller-coaster economy, judges keep making decisions and lawyers keep lawyering.

On November 6, 2008, after the election results are in, the California appellate court, 4th district (appeal from Riverside County), will hear oral argument on one aspect of the ongoing litigation between the State of California and its insurers relating to the the Stringfellow site.  Part of the case is before the California Supreme Court (as we mention below). The appellate court hearing next week is on several issues including, importantly, “all sums” and “stacking.”

 

The Stringfellow litigation started as a pollution lawsuit in 1983, with the State of California being found in part responsible for the pollution in 1988. The coverage litigation started in 1993.

 

In an unusual move, in this latest phase of the case, the appellate court sent the parties an 88 page “tentative decision” in anticipation of the oral argument, thereby providing the parties with the court’s leanings so the parties could better prepare for each sides’ 30 minute arguments.

Continue Reading...

First Circuit Hears Oral Argument On Pollution Issues

The U.S. Court of Appeals heard oral argument last week in Emhart Ind. v. Century Ind. Co. a large and complicated insurance dispute that promises to say much about the future of environmental coverage jurisprudence in the Ocean State. 

The dispute in Emhart involves a chemical manufacturer’s efforts to compel coverage for Superfund claims arising out of a former manufacturing facility in Rhode Island. After settling with most of its primary carriers, Emhart belatedly discovered that Century Indemnity’s predecessor (INA) had issued a primary liability insurance policy to it in the late 1960s. Only at the close of trial did the U.S. District Court (Smith, J.) declare that Century Indemnity had a duty to defend. Despite the absence of any statement in the underlying Notice of Responsibility from the U.S. EPA or other “charging documents” to the effect that pollution had become manifest during the INA policy period or otherwise satisfied Rhode Island’s “discoverability” standard for trigger of coverage, the court ruled that silence was sufficient to give rise to a potential for coverage triggering the policy under a Montrose-type analysis of the duty to defend.

Tthe Court is considering cross-appeals from a 93 page opinion of a Rhode Island District Court as to (1) whether a primary liability insurer’s failure to defend exposes it to an indemnity exposure without limits (notwithstanding a jury’s finding that the insurer’s policy was not actually triggered) and (2) whether the Rhode Island District Court erred in finding a duty to defend notwithstanding the absence of any statement in the “charging documents” suggesting that property damage had been “discoverable” within the policy period pursuant to Rhode Island’s “manifestation” analysis.

Continue Reading...

CGL Insurance 2007 Edition--A Summary of Changes

Craig Stanovich of Austin & Stanovich Risk Managers LLC has posted a concise summary of revisions to the December 2007 edition of the Insurance Services Office, Inc. CGL policy form and endorsements that is worth a read.  While noting that recent revisions to the form and endorsements are not sweeping, Craig highlights clarifications to the Supplementary Payments provision and incorporation of exclusion q. , which was previously an exclusion endorsement for violation of communication laws such as the TCPA and the CAN-SPAM Act of 2003.  Craig also explains changes to several endorsements, including the Employment-Related Practices Exclusion Endorsement, and expanded coverage offerings for snow plow removal operations and the availability of a more restrictive Abuse and Molestation Exclusion for Specified Professional Services.  Craig's article, CGL Insurance 2007 Edition—A Summary of Changes , can be found as expert commentary on IRMI.com.

Washington Supreme Court Tackles Tender and Prejudice Issues

Washington just got a little stranger.  (No, not Washington, D.C.--the other one).  In a lengthy and fascinating opinion that the Washington Supreme Court released on September 4, a unanimous court (unusual in any of itself) has ruled that defending insurers can pursue a claim for subrogation but not equitable contribution against a carrier who was not identified until after the underlying construction defective claims were resolved.  As regards the claim for equitable contribution, the court ruled that the "selective tender" rule (insured chooses to tender to certain carriers but not others) trumped the "late tender" rule (delay in tender doesn't defeat coverage unless it causes prejudice). 

Does the Enumclaw opinion mean that Illnois is now no longer the only state that allows "targeted tenders"?   Frankly, it's not clear since it's not apparent that the insured in this case made a deliberate decision not to notify USF Insurance (or maybe they just confused USF with U.S. Fire!).  Even so, the broad language in the opinion made lead future litigants to press "targeted tender" claims in Washington State.

The real question is what difference it makes, since the court ruled that the settling insurers, who had obtained an assignment of the insured's rights, could still pursue a claim for subrogation.  Indeed, subrogation might be a preferred remedy since some courts have blocked claims for equitable contribution if the insurer asserting the claim was itself previously derelict in some respect such that it doesn't deserve to get equity.

The most interesting aspect of the claim is the court's treatment of the prejudice issue.  In most states, prejudice will be presumed as a matter of law if the insured's isn't notified of a claim until it has already settled.   In this case, however, the Supreme Court adopted a "flexible" or "nuanced" approach that will require USF to show exactly how its inability to participate in the insured's defense affected the outcome of the case or why its inability to conduct a timely investigation of the underlying claims impaired that investigation.  

Excluding Pollution: New Jersey and Florida Courts Conflict

Two recent opinions illustrate the on-going conflict with respect to whether pollution exclusions should apply to companies that do not cause pollution but nonetheless face pollution-related liabilities. At the heart of these cases is the question whether the literal wording of the policy should control or the insured’s expectation of coverage.

Continue Reading...

Vermont Supreme Supreme Weighs In on Allocation And Other Pollution Coverage Issues

Even as briefing has begun before the Massachusetts Supreme Judicial Court with respect to the issue of allocation, Vermont has joined the growing number of Northeastern states adopting a “time on the risk” approach in long-tail cases. In its first comprehensive assay into the murky world of environmental jurisprudence, the Vermont Supreme Court has ruled in Towns v. Northern Security Ins. Co., 2008 VT 98 (Vt. August 1, 2008), that (1) a continuous trigger is appropriate, not “manifestation;” (2) the own property exclusion does not apply to groundwater contamination; (3) even de minimis levels of environmental contamination constitute “property damage;” and (4) a waste hauler’s use of debris from his business to redevelop his personal home is not subject to the “business pursuits” exclusion in a homeowner’s policy.

Continue Reading...

When Non-existent Allegations Trigger Coverage, The Carrier Is In Trouble

The "Eight Corners Rule" has become so ridiculous in its application that now plaintiff lawyers actually have a huge financial disincentive to plead their claims against the insured defendant with any degree of factual specificity lest the true allegations become an impediment to collecting insurance money from the defendant's liability insurer.  Today in many states, the more ambiguous the petition, the better the coverage arguments.  A recent example of just how preposterous things are getting recently came from New Orleans when the Fifth Circuit decided Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 2008 WL 2955568 (5th Cir. August 4, 2008).  In this decision, the Fifth Circuit reversed summary judgment for the carrier and remanded the case finding a duty to defend in an arbitration action.  How they did so illustrates the unfortunate state of the "Eight Corners Rule" in many jurisdictions. 

Continue Reading...

The PlayStation Coverage Wars: Impaired Coverage?

There's a recent opinion from the Ninth Circuit that doesn't seem to be getting the attention that it deserves.  For anyone handling, high tech or IP coverage claims, the court's July 15 opinion in Sony Computer Entertainment v. American Home is a must read.

The case involved efforts by Sony to get coverage under its CGL and media E&O policies for a class action suit brought by disgruntled purchasers of Sony's ubiquitous PlayStation 2 game.  The underlying plaintiffs alleged that CD and DVD video games skipped or froze while being played on the PlayStation or made " banging and clicking" noises.  Sony argued that allegations that it misrepresented the qualities of its product triggered its E&O coverage for the wrongful act of "negligent publication" or that the claims against it were for a "loss of use" triggering its CGL coverage.  The Ninth Circuit disagreed.

Continue Reading...

Should There Be A Continuous Trigger for "Personal and Advertising Injury" Claims?

Among the more anomalous aspects of Coverage B jurisprudence is the nearly complete absence of case law on the issue of the "trigger of coverage" for "personal and advertising injury" claims.  This dearth of case law is all the more astonishing when you consider the thousands (yes, it's true!) of reported "trigger" cases under Coverage A, especially in the latent injury context. 

It may be, therefore, that the First Circuit will be the first appellate court to consider whether continuing injuries arising out of offenses committed prior to the policy period are sufficient to trigger coverage.  In a case that our law firm won in the U.S. District Court, the insured's assignee has filed an appeal to the First Circuit, arguing that a "continuous trigger" should apply to Coverage B.

Continue Reading...

On Wisconsin, Part II

Even as the Wisconsin Supreme Court has recently ruled that a trademark is a “title” whose infringement may trigger Coverage B to the CGL policy, the Seventh Circuit has followed a more conservative path that may bring it into direct conflict with the state court's recent rulings concerning the application of CGL policies to IP claims.

Continue Reading...

On Wisconson! Supreme Court Broadens AI Coverage

"Badgered" by the courts?  New song, same "title"?  Trust Wisconsin to add a layer of confusion to an area of AI law that seemed to be settling down.

Since the deletion of the explicit exclusion for trademark infringement in the earlier Broad Form endorsements, insurers and the ISO have struggled to set the right  balance for covering some IP torts but not others.  Thus, current forms typically  limit coverage to disputes involving the infringement of a copyright, title or slgan.  While most courts had ruled that these are related terms and have limited the meaning of "title" to a non-copyrighted title to an artistic work  (e.  Diplomatic Triumphs of the Bush Administration), the Wisconsin Supreme Court has now mixed and matched dictionary definitions to contrive coverage for trademark infringement claims. 

 

Continue Reading...

When Is Self-Insurance "Insurance?"

Over the past ten years, an emerging body of law has emerged concerning the efforts of State Guaranty Funds to avoid paying insolvent claims on the bais that self-insured programs are "insurance"  within the statutory exception to their obligations. 

Thus, the Iowa Supreme Court ruled in Iowa Contractors Worker’s Compensation Group v. Iowa Insurance Guaranty Association, 437 N.W.2d 909 (Iowa 1989) that a pooled self-insured worker’s compensation program was not “insurance” In a dispute with the Iowa Insurance Guaranty Association.  On the other hand, a group self-insurance fund was found to constitute “insurance” in Maryland Motor Truck Assoc. Worker’s Compensation Self-Ins. Group v. Property & Cas. Ins. Guaranty Corp., 871 A.2d 590 (Md. 2005) and South Carolina Property & Cas. Ins. Guaranty Assn. v. Carolina’s Roofing & Sheet Metal Contractors Self-Ins. Fund, 446 S.E.2d 422 (S.C. 1994).

Now the Sixth Circuit has added a new wrinkle to the debate, holding that although an individual self-insured plan is not "insurance" because there is no transfer of risk to third parties, the same is not true of a group plan.

Continue Reading...

When An Intentional Act Is An "Accident"

In a decision that does not differentiate between an act and the result of an act, the California Court of Appeal, Second District, ruled that because the insured did not throw the plaintiff far enough, there was an “accident.” In State Farm Fire & Cas. Co. v. Sup. Ct., __ Cal.App.5th __ [08 CDOS 8156], the insured threw plaintiff into a pool, intending to get him wet. However, instead of landing in the pool, plaintiff landed on the pool’s cement step. The insured was arrested for the incident and pled no contest to a charge of misdemeanor battery.  The appellate court concluded this conduct involved an "accident."

The insured’s policy covered damages because of “bodily injury... caused by an occurrence.”  It defined “occurrence” to mean “an accident … which results in … bodily injury or … property damage.”  The policy also excluded from coverage “bodily injury … which is either expected or intended by the insured … or the result of willful and malicious acts of the insured.”  The insurer denied coverage on several grounds, including that the claim did not fall within the insuring agreement because the insured’s misconduct did not involve an “accident.” The insurer also raised the intentional acts exclusion.

The trial court (in the subsequent coverage litigation) concluded the insurer owed a defense, finding the insured did not intend to cause injury to plaintiff and, therefore, the injury was neither expected nor intended. The insurer filed a petition for writ of mandate, arguing the term “accident’ referred to the injury-producing act, and it was irrelevant whether or not the insured intended the injury that flowed from the act. The appellate court disagreed, noting the meaning of “accident” in insurance law was not settled and had been used to refer not only to the alleged conduct but also to unintended or unexpected consequences. The appellate court concluded an “accident” could occur “when either the cause is unintended or the effect is unanticipated.” Additionally, “… an ‘accident’ exists when any aspect in the causal series of events leading to the injury or damage was unintended by the insured and a matter of fortuity.” Accordingly the appellate court determined the claim involved a potentially covered occurrence and triggered a duty to defend under the insurance policy.

When is "knowingly" bad conduct still an "occurrence"? Apparently, more frequent than you thought in Texas.

Last Monday, a three-judge panel of the Fifth Circuit considered one of the implications of the Texas Supreme Court’s landmark decision last year in Lamar Homes, Inc. v. Mid-Continent Cas. Co., 22 S.W.3d 1 (Tex. 2007), in its decision in National Union Fire Ins. Co. of Pittsburgh, Pa. v. Puget Plastics Corp. --- F.3d ----, 2008 WL 2487054 (5th Cir. 2008).  In doing so, the Fifth Circuit considered a deceptively simple question: could an insured’s "knowing" violation of the Texas Deceptive Trade Practices Act still be an “occurrence” under a commercial umbrella policy?  In this case, the panel considered National Union’s claim it had no duty to indemnify its insured after the jury in the underlying tort case awarded the claimant $36 million against the insured after having found a “knowing” violation of the Texas Deceptive Trade Practices Act.  In the subsequent coverage case, National Union argued the insured’s actions, which the jury in the underlying suit found to be “knowing,” could not be an “occurrence” under the general liability policy because it could not constitute an “accident.”  Relying on Lamar Homes, the Fifth Circuit stated the “knowing” finding by the jury in the underlying lawsuit did not control the coverage issue because “knowing” in the context of the DTPA only meant “deliberate.”  And, as applied to the case at bar, the Fifth Circuit interpreted the Texas Supreme Court's recent holding Lamar Homes as holding that a “deliberate” act could still be an “occurrence” unless the injury was "highly probable" or the insured "intended or expected the harm that was suffered."  As such, the Fifth Circuit rejected National Union’s argument that a “knowing” violation of the DTPA could never constitute an “occurrence.”  The panel went on to instruct that the coverage lawsuit should include and seek to resolve issues that were not expressly adjudicated in the underlying lawsuit, such as whether the injury caused by the insured was "highly probable, expected or intended."

 

Continue Reading...

Coverage for Punitive Damages: The Debate Rages

The debate over liability insurance coverage for punitive damages has ebbed and flowed for many years, but over the last 4 weeks in Texas it has reached an unprecedented pitch.  In early June, the Fifth Circuit Court of Appeals issued its opinion in American International Specialty Lines Ins. Co. v. Res-Care, Inc.,--- F.3d ----, 2008 WL 2232089 (5th Cir. 2008), and the decision has subsequently received significant attention from the plaintiffs' bar for its potential impact on the availability of liability insurance coverage for punitive damages in Texas.  The debate was fueled by Res-Care because several weeks earlier the Texas Supreme Court ruled in a workers compensation coverage case that in the context of workers comp claims, punitive damages were covered under an EL/WC policy.   The policyholder and carrier "camps" have since engaged in a highly publicized war of words over the last month as to the true state of the law in Texas on this critical issue.   The debate wont be resolved anytime soon.

 

Continue Reading...

First Circuit Asks Massachusetts SJC To Resolve Allocation Dispute

Last winter, I posted on an oral argument in the First Circuit that presented significant implications for the future of long tail coverage disputes in Massachusetts. Well, be careful what you ask for. In a momentous new opinion, the First Circuit declared that last week that intermediate state appellate opinions were not a clear indicator of what Massachusetts law is on “allocation” and has therefore certified the issue to the state’s Supreme Judicial Court. Continue Reading...

Florida Supreme Court Withdraws Opinion On CD Issues

Has there ever been a court that certifies more insurance issues to state courts than today’s Eleventh Circuit? (well, yes, there’s the Fifth Circuit too). Now a state court, after initially answering a question concerning insurance coverage for construction defect claims, has changed its mind and tossed the file back to the federal courts due to a lack of clarity with respect to a key factual question. Continue Reading...

Divided New Jersey Supreme Court Upholds Intentional Acts Exclusion

The availability of coverage for negligent supervision claims brought against the parents of troubled teenagers has been a persistent source of litigation and controversy under homeowner's policies.  As courts have increasingly found that independent theories of negligence against parents are an "occurrence" despite the intentional nature of their children's acts, homeowners' insurers have countered with new exclusions for intentional or criminal acts.  In true Clintonian fashion, the effect of such exclusions sometimes turns on whether the exclusion applies to the intentional or criminal acts or "an," "any" or "the insured.

Continue Reading...

Florida Supreme Court Punts on Construction Defect Case

Our readers will forigive a Massachusetts lawyer for questioning the counting skills of  the Florida Supreme Court.  In a recent opinion, however, the state Supreme Court has again discounted the value of precedent, throwing a certified issue Auto Owners Ins. Co. v. Pozzi Window Co., No. SCO6-779 (Fla. June 12, 2008)back to the U.S. Court of Appeals for the Eleventh Circuit due to a factual dispute that somehow eluded the Supreme Court in its original opinion last December.

Oon  December 20, 2007 opinion, , the Florida Supreme Court had ruled that claims brought against a contractor for water damage caused by the defective installation of windows were not covered since CGL policies do not cover the cost of repair and replacement of defective work.   The court contrasted its opinion with its December 20, 2008 opinion in JSUB , in which it held that  there would be coverage for CD losses.

On June 12, however, the Florida Supreme Court econsidered its earlier opinon and  ruled  thatt it was unable to answer the Eleventh Circuit’s certified question owing to the fact that the court had failed to clarify whether the water damage resulted from defective installation, for which there would not be coverage, or defects in the installed windows themselves. In keeping with its earlier opinion in JSUB, the Supreme Court noted that if the windows were not defective prior to their installation, coverage would exist for the cost of repair or replacement of the windows because there was physical injury to tangible property (the windows) caused by their defective installation by a subcontractor. However, a different result would follow if the windows were in a defective condition before being installed and the damage to the completed project was therefore caused by defective windows rather than faulty installation alone.

Petition for Review Denied in Qualcomm

The California Supreme Court denied review in Qualcomm, Inc. v. Certain Underwriters at Lloyds, London (2008) 161 Cal.App.4th 184 (reported earlier in this blog). In Qualcomm, the California appellate ruled that an insured which settles with its primary insurers for less than policy limits, cannot collect from an excess insurance policy that provided it did not attach until the underlying insurers under each underlying policy “have paid or have been held liable to pay the full amount of the Underlying Limit of Liability.” The Qualcomm case is certain to impact settlements between insureds and primary insurers where there is a risk of exposure excess of primary limits. The Supreme Court’s decision not to grant review is a further example of the literal approach of the California appellate courts in interpreting plain language in insurance contracts.

Extrinsic Evidence Must Be Considered To Determine If Ambiguity Exists In Contract

In Los Angeles Unified School District v. Great American Insurance Company (2008) __ Cal.App.4th __ (08 CDOS 6885), the Second District (Los Angeles) appellate court reiterated California law that in order to determine whether a contract is ambiguous, the court must consider on a provisional basis extrinsic evidence to determine if there is more than one reasonable interpretation of the contract. Although this case was in the context of a construction contract, these same rules apply to interpretation of insurance contracts.

Continue Reading...

No Contribution For Defense Of Additional Insured

The duty to defend, in the context of a contribution lawsuit between insurers, and the right to pursue appeal after an unfavorable summary adjudication ruling, were the subjects of a decision from California’s Court of Appeal, Second Appellate District (Los Angeles).

In Monticello Insurance Company v. Essex Insurance Company (2008) __ Cal.App.4th __ (2008 WL 1851316), the court of appeal affirmed the trial court’s ruling that Monticello failed to prove on motion for summary adjudication/judgment that Essex had a duty to contribute to the defense of a general contractor (“GC”) in a construction defect case.  Monticello was the direct insurer of the GC and Essex insured the GC as an additional insured under a policy issued to a drywall subcontractor. While the legal principles of equitable contribution may not be new, the case is an example of what evidence was found to be inadequate to substantiate the right to contribution. Both the trial and appellate courts (even though reviewing by different standards) found Monticello failed to show there was a potential that the drywaller’s work caused damage to other property.

Continue Reading...

Pennsylvania Bars Right To Recoup Defense Costs

Pennsylvania has become the latest state to weigh in on the controversial question of whether an insurer that is later held not to owe coverage for a case may recoup its defense costs in a subsequent coverage suit against its policyholder.

In the decade since the California Supreme Court recognized such a right, courts around the country have come to widely different conclusions about whether or when to allow recoupment.  Some have focused on the necessity of the insurer having expressly asserted such a right when it agreed to provide a defense.  If so, some courts have found that am implied contract was created and that the insured, having obtained the benefit of the insurer's defense, must also fulfill its duty to reimburse if coverage was held not to exist.  Other courts, notably the Supreme Courts of Illinois and Texas, have rejected any argument that the insurer can unilaterally impose such a duty or has an implied right pursuant to theories of quantum meruit.

Continue Reading...

A Roof Of A Different Color Is Not "Property Damage"

Q:  When is a claim for damage to property not "property damage"?

A.  When it doesn't involve physical injury to or loss of use of tangible property?

So says the Vermont Supreme Court in a recent coverage dispute arising out of a building contractor's failure to use cedar shingles of the right color and quality in the construction of the plaintiff's home.  The court ruled in Down Under Masonry, Inc. v. Peerless Insurance Company that the contractor's liability insurer had no duty to defend inasmuch as the use of white cedar shingles instead of red cedar shingles as contracted for (as all fans of shingles know, red cedar is much the superior product) had not caused any physical injury to the plaintiff's home or caused him to lose the use of it.  The court concluded that it would not "find coverage for aesthetic damage under a CGL policy that does not explicitly provide for it."

Illinois Insured Loses Evidence And Coverage Too

Spoliation issues have been a perennial concern to insurers. Not only do they present problems in cases that insurers are defending, whether due to the fact that the insured itself has lot a key bit of the plaintiff’s evidence or such evidence has gone missing after being forwarded to the insurer or its consultants for examination, such claims have recently become the subject of direct claims for coverage by policyholders. The recent opinion of the Illinois Appellate Court in United Fire & Casualty Co. v. Keeley & Sons, Inc., No. 5-06-0307 (Ill. App. May 2, 2005) has clearly explained, however, why general liability insurers should not afford coverage for such claims. Continue Reading...

New Mexico Supreme Court Holds Actual Notice from Any Source is Sufficient to Trigger Defense Obligation

In what can only be called a significant turn around, the New Mexico high court recently overruled twenty-four years of precedent when it announced that actual notice from any source to a liability insurer of a lawsuit against its insured could trigger the duty to defend, even when the insured failed to provide notice of the suit or ask for a defense.   In proving the old adage "bad facts make bad law," the New Mexico Supreme Court ruled notice of a liability claim against the insured could come from any source and the insured's failure to demand a defense didn't excuse the insurer from defending covered claims.   Continue Reading...

Coverage for Wrongful Eviction Extends to Persons, Not Organizations

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).

Product Liability Claim Constitutes Multiple Occurrences

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).

Course of Performance Evidence Can Be Admissible For Contract Interpretation Purposes

As a general matter, course of performance evidence is admissible to interpret insurance policies, explained California’s Appellate Court in Employers Reinsurance Company v. The Superior Court Of Los Angeles County (2008) __Cal.App.4th__ [08 C.D.O.S. 3935] (2nd District).  However, in the case before it, some of the course of performance evidence was not admissible because much of the performance was pursuant to settlement and claims handling agreements (which contained reservation of rights to dispute coverage), and not pursuant to the insurance policies. 

Continue Reading...

Music To Their Ears: Second Circuit Reinstates Insurers' Music DJ

In light of the widely different provisions of state law pertaining to insurance issues, the venue in which a coverage dispute is litigated can affect the outcome as much as the merits.  Even so, as with recent New Jersey rulings in cases such as Sensient Colors and Mine Safety Appliances,  insurer efforts to obtain favorable venues have recently been thwarted in cases where courts ruled that the insurers acted with unseemly haste to file in a forum that had little or no connection to the coverage dispute.  Now comes a new opinion of the Second Circuit, reinstating an insurer's forum selection and giving a strong boost to the "first filed" rule.

 

 

 

 

Continue Reading...

Excess Insurer Does Not Pay Until Primary Pays Or Held Liable To Pay Full Limits

Full primary insurance limits must be paid (or be held liable to pay) prior to excess coverage attaching where the excess policy requires that the underlying policy “have paid or have been held liable to pay the full amount” of underlying limits. Where the insured settled with its primary insurer for less than policy limits, the excess insurer had no obligation to pay, ruled California’s appellate court in Qualcomm v. Certain Underwriters at Lloyd’s, London, __ Cal.App.4th __ (2008) [2008 WL 763483] (4th District - San Diego). The appellate court found the language of the excess policy clear and unambiguous and required this result, regardless of public policy considerations.

Continue Reading...

Bear Stearns' Double Whammy

All in all, it hasn't been a good month for the folks at Bear Stearns.  First, a run on the bank results in a takeover by JP Morgan at $2 a share and the prospect of endless shareholder litigation.  Then, the New York Court of Appeals holds that it blew any chance at $50 million in excess E&O coverage for a 2002 settlement of conflict of interest claims.

 

Continue Reading...

Frustration Mounts in Texas as Primary Carriers Struggle with How to Deal with Recalcitrant Co-Primary Carriers

A Federal District Court Judge from the Southern District of Texas’ Galveston Division recently granted summary judgment against an insurer seeking to enforce identical pro rata sharing provisions contained in multiple primary insurance policies.  In doing so, the court highlighted the lack of options primary carriers now face in Texas when co-primary carriers don't contribute to defense or indemnity benefits to the common insured.  In Nautilus Ins. Co. v. Pacific Employers Ins. Co., No. G-04-619 (S.D. Tex.  February 25, 2008), several insurers were called on to defend and indemnify a seismic testing company which allegedly damaged over 200 buildings in Galveston County while conducting seismic testing.  All of the insurers except Pacific Employers contributed to the settlement and Nautilus Insurance then sought to recover the amounts it overpaid to fund the settlement from Pacific by way of subrogation and enforcement of the policies respective pro rata "other insurance" sharing provisions.  The suit among the co-primary carriers resulted in summary judgment motions being filed on the issue of whether a settling co-primary carrier in Texas can sue a recalcitrant co-primary carrier for not paying it's fair share of the defense costs or the settlement.  Relying on the Texas Supreme Court’s recent decision in Mid-Continent Insurance Co. v. Liberty Mutual Insurance Co., 236 S.W.3d 756 (Tex. 2007), the District Court held last week that because the insured had been fully indemnified, the settling insurer had no claim under Texas law against the non-settling insurer because “there is nothing to which Plaintiff can be subrogated.”  This harsh result is the inevitable consequence of the Texas Supreme Court's decision from February in Mid-Continent v. Liberty Mutual

Because of the proliferation of suits involving construction defects, intellectual property violations, toxic torts, premise liability and other significant torts, it is now extremely common for insured defendants to have two or more primary liability carriers whom they turn to for defense and indemnity benefits.  The unwillingness of the Texas Supreme Court to allow one carrier to sue another for reimbursement, contribution or subrogation puts Texas in an extreme minority on this issue and forces carriers in that state to become very creative when settling liability suits when one or more other primary carriers have not or will not contribute to defense or settlement costs.  Carriers in such a situation must consider formal assignments from insureds and other creative alternatives before allowing the underlying liability to be settled and dismissed.   Otherwise, they will find themselves in the same position as Nautilus having overpaid a claim they did not fully owe with no avenues for reimbursement against the carrier who refused to pay timely.  

Late Notice: Is Prejudice as a Matter of Law Dead in Texas?

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.   

Texas Supreme Court Distinguishes "No Notice" from "Late Notice" for Liability Insurers

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.

Texas Supreme Court Reverses Itself on Contractual Indemnity Coverage

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.  

Texas Supreme Court Holds Public Policy Does Not Prohibit Insurance Coverage for Punitive Damages

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. 

Fifth Circuit Limits Excess Insurers Exposure Following Policyholder's Partial Allocation of Primary Limits

Several days ago, the Fifth Circuit Court of Appeals evaluated a primary liability carrier’s tender of its policy limits to its insured for covered claims and whether such a tender triggered an excess insurer's liability coverage when the insured allocated the primary limits across several years of losses.  In Service Corp. Int’l v. Great Am. Ins. Co. of New York, 2008 WL 280900 (5th Cir. February 1, 2008), a funeral services company (SCI), with cemeteries throughout the United States, was sued by individual and class action plaintiffs for grave desecrations and improper burials at two specific cemeteries.  Some, but not all, of the events giving rise to the lawsuits occurred between the policy period in question.  SCI was covered by a $25 million primary liability insurance policy and a $50 million excess liability policy.

As the lawsuits were pending against SCI, the primary carrier determined that its covered claims would likely exceed its policy limit for the policy period. The carrier then tendered $25 million to SCI in exchange for an indemnity and hold harmless agreement.  The lawsuits settled for $100 million, but only $13.75 million was allocated by the insured to claims arising during the policy period of the excess carrier in this suit.  The rest were allocated to other years of losses.  

SCI requested coverage from an excess liability carrier, but coverage was denied.  The excess carrier argued because only $13.75 million was allocated to the policy period (and not the complete $25 million limit which had been tendered), the excess layer of coverage had not been triggered.  In response, SCI filed suit against the excess carrier.  The federal district court granted summary judgment in favor of the excess carrier.

On appeal, the Fifth Circuit noted the excess policy incorporated the primary policy’s definition of “loss,” which was “those sums actually paid in the settlement or satisfaction of a claim which the insured is legally obligated to pay as damages of injuries or offense.”  The Fifth Circuit then concluded the parties intended any loss to be measured by the sums used for payment of covered claims during the policy period, not simply by the aggregate sums paid by the insureds.  As such, the insured’s own allocation was used by the Court to determine the excess liability policy had never been triggered.

This is a potentially significant decision particularly for claims in those jurisdictions governed by the Fifth Circuit including Texas, Louisiana and Mississippi.  Because policyholder allocations are common in coverage cases arising out of toxic tort cases and other mass torts, this holding gives excess liability carriers more protections than other courts have extended in recent years.  It remains to be seen how the judicial pronouncements in this case will apply to other efforts to artificially allocate prior primary settlements by policyholders, but it is certainly a step in the right direction.

34-day Delay in Dislcaiming Coverage Violates N.Y. Ins. Law 3420(d)

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.

Texas Supreme Court Limits Reimbursement Rights

Last Friday, the Texas Supreme Court issued its opinion on rehearing in Excess Underwriters v. Frank’s Casing, __ S.W.3d __ (Tex. 2008).  The Court withdrew its three-year old opinion that initially created a firestorm in the Texas insurance industry (and also lead to great consternation with commercial insureds) regarding the rights of reimbursement that a liability carrier possesses under Texas law when it pays a potentially non-covered claim.  But, after keeping the industry waiting for more than two years for clarification since it granted the rehearing, last Friday a deeply divided Court reversed course by withdrawing and disregarding its earlier decision and refused to recognize an exception to the Texas rule that an insurer is only entitled to reimbursement for settling a claim against its insured if (1) the policy provides for it, or (2) the insured has given “clear and unequivocal consent to the settlement and the insurer’s right’s to reimbursement.”  After stating that liability insurers were better equipped to “carry the risk” associated with a coverage dispute, the majority suggested that insurers facing settlement demands on disputed claims have several options: refuse to settle and pursue a declaratory judgment action, leverage a declaratory judgment action to settle the third-party lawsuit, or rewrite the policy to include reimbursement rights.  The two dissenting opinions recognized the problems with the majority approach - the windfall to insureds for coverage that was not underwritten when the policy was issued, and the burden other insureds must carry in increased premium costs due to the insurers’ increased risks of settling uncovered claims.  The dissent by Justice Hecht correctly observed that liability carriers in Texas will now have little choice but to bring a DJ action every time a liability claim raises potential coverage issues.  

Friday’s decision in Frank’s Casing is one of the most significant decisions issued by the Texas Supreme Court in recent years. It raises a host of new issues for liability carriers facing potential coverage problems on both defense and indemnity claims.  A liability carrier’s ability to wait until the underlying tort case gets closer to trial before seeking to address and resolve the coverage issues seems to have been eliminated by last week’s decision.  The ironic aspect of the majority’s decision (which was clearly intended to help commercial insureds in Texas) is that Friday’s decision will hurt Texas insureds in the long run because they will be subject to more litigation rather than less.  Friday’s decision leaves Texas liability insurers with few options other than bringing DJ actions against their insureds every time an underlying tort suit raises coverage questions.

Sovereign Immunity Trumps Forum Selection Clause

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. Continue Reading...

Insured's Late Notice Vitiates Coverage

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.

New Jersey Supreme Court Refuses To Give Strict Application To "First Filed" Rule For Competing DJs

Despite the fact that Zurich filed its action for declaratory relief in New York before a New Jersey insured filed its own suit in New Jersey seeking a declaration of coverage for various claims arising out of contamination at a former paint manufacturig facility in New Jersey, the New Jersey Supreme Court ruled on Wednesday that the normal rule giving precedence to the "first filed" DJ shold be disregarded where the equities require it.   In Sensient Corp. v. Allstate Ins. Co., A-99-06 (N.J. January 29, 2008), the Supreme Court held that "New Jersey is the natural forum for resolving insurance coverage issues concerning hazardous waste infested property located within its borders."  The court also emphasized that it was important that a New Jersey court decided these issues since a New Jersey court would certainly not uphold any pollution exclusion that might limit the availability of funds to clean up this contamination.

The Sensient ruling is hardly surprising given the great weight that New Jersey courts have placed on New Jersey contacts in applying New Jersey law to coverage disputes.  In light of the New York Court of Appeals' recent opinion in Foster Wheeler applying New Jersey law to pollution claims involving a New York insured that had moved to New Jersey.  As long as the law of New Jersey and New Jersey differ on key issues such as pollution exclusions, these disputes over venue and choice of laws will continue.  

No CGL Coverage for Mississippi Dispute Over Golf Course Development

The Fifth Circuit has ruled in Nationwide Mutual Ins. Co. v. Lake Caroline, Inc., No. 06-61084 (5th Cir. January 23, 2008) that a Mississippi district court was correct in holding that the defendant’s CGL policy did not afford coverage for a “slander of title” claim by reason of the “expected or intended” conduct and the “knowledge of falsity” exclusions under Coverage B.

The Fifth Circuit ruled, however, that the district court erred in applying the “knowledge of falsity” exclusion in view of the fact that the allegation of malice in the underlying case did not require knowledge of falsity as a party can be deemed to have acted with malice under Mississippi law upon a showing of reckless disregard for the truth.

Further, the Fifth Circuit held that ht underlying claims failed to trigger Coverage A as, even if such claims satisfy the requirement of an “occurrence” (which the court doubted), there was no claim for property damage since the golf development had not been physically injured nor did pure economic losses satisfy the policy’s requirement that there be “loss of use” of tangible property.

No CGL Coverage for Mississippi Dispute Over Golf Course Development

The Fifth Circuit has ruled in Nationwide Mutual Ins. Co. v. Lake Caroline, Inc., No. 06-61084 (5th Cir. January 23, 2008) that a Mississippi district court was correct in holding that the defendant’s CGL policy did not afford coverage for a “slander of title” claim by reason of the “expected or intended” conduct and the “knowledge of falsity” exclusions under Coverage B.

The Fifth Circuit ruled, however, that the district court erred in applying the “knowledge of falsity” exclusion in view of the fact that the allegation of malice in the underlying case did not require knowledge of falsity as a party can be deemed to have acted with malice under Mississippi law upon a showing of reckless disregard for the truth.

Further, the Fifth Circuit held that ht underlying claims failed to trigger Coverage A as, even if such claims satisfy the requirement of an “occurrence” (which the court doubted), there was no claim for property damage since the golf development had not been physically injured nor did pure economic losses satisfy the policy’s requirement that there be “loss of use” of tangible property.

Fourth Circuit Upholds "True" Excess Policies In Dispute Over Priority of Coverages

Controversy has often arisen in conflicts between primary liability insurance policies that contain “excess” other insurance wordings and “true” excess policies (i.e., umbrella or higher layer excess policies). In such cases, does one policy pay before the other or, as is often the case with conflicting “other insurance” terms, do both policies pay concurrently?

In the latest such case, the Fourth Circuit has held in a dispute between a school board’s umbrella liability insurer and the primary insurer of a high school principal concerning the priority of “excess” coverage for the cost of settling sexual abuse claims against school officials, the a “coincidental” excess policy (a primary policy with an “excess” other insurance clause) should pay before a “true” excess policy.

 

Continue Reading...

California Court of Appeal Again Upholds Absolute Pollution Exclusion

After the California Supreme Court's 2003 opinion in MacKinnon, rejecting the application of an absolute pollution exclusion to injuries to building occupants by pesticide sprayings and declaring that such exclusions are limited to "injuries commonly thought of as "pollution" (ie. environmental pollution),  one might well have assumed that it would be a rare day indeed before a California court gave effect to such exclusions in bodily injury cases.  In surprising turn of events, however, the Court of Appeal has since done that in several recent cases.

The latest ruling to give an expansive interpretation to MacKinnon's construct of "environmental pollution" is the Second District's opinion this week in American Casualty Co. of Reading, PA v. Miller.  At issue were personal injuries suffered by a workman who, in the course of performing maintenance work in a sewer line, was exposed to methylene chloride that had been flushed into the sewer by Stripper Herk, a furniture stripping business (why don't the insureds in my cases ever have cool names like that).  Stripper Herk ultimately enter into a plea agreement with the U.S. Attorney in which it confessed to have discharged chemicals in violation of its permit. 

Continue Reading...

Waiver Creates Coverage for Uninsurable Losses

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.

Asbestos BI Claims All Separate Occurrences

Bad news for a primary insurance company and good news for the excess insurers comes from the trial court’s decision finding multiple occurrences on remand in the Kaiser Cement case (Truck Ins. Exchg. v. Kaiser Cement, et al., Los Angeles Superior Court, Case No. BC249550 [Order 1/24/08]).  The number of occurrence issue is of major importance to insurers and their insureds in asbestos, construction, sexual abuse, and other multiple-claimant coverage disputes.  

Continue Reading...

Allocation and Occurrence Questions Ceritified to Wisconsin Supreme Court

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?

Sex with Patient Not within Therapist's "Scope of Employment"

In Scottsdale Ins. Co. v. Flowers (6th Cir. (Ky.) Jan. 16, 2008), the 6th Circuit considered whether a therapist was covered under a liability policy for damages arising from his sexual affair with a patient. The policy, issued to a mental health care facility, covered “those sums that the insured becomes legally obligated to pay as DAMAGES because of injury as a result of a WRONGFUL ACT.” The policy defined “wrongful act” as “an act, error, or omission in the furnishing of professional health care services,” and included as “insured” the facility’s “employees and volunteers, but only for acts within the scope of their employment by you.” At issue was whether the phrase “scope of employment” was ambiguous, and, if not, whether engaging in sexual activities with a patient is within a therapist's scope of employment.
Applying Kentucky law, the court concluded the phrase was not ambiguous. “Scope of employment,” the court reasoned, is a legal term of art. While an insured might legitimately contest its application to the particular facts of a case, this does not create an ambiguity.
Turning to the second issue, the court concluded that engaging in sexual activity with a patient is not within the scope of a therapist's employment. The court explained that the focus of the determination is on the employee’s motive. An employee acts within the scope of his employment when his “purpose, however misguided, is wholly or in part to further the master's business.” When the employee “acts from purely personal motives ... which [are] in no way connected with the employer's interests, he is considered in the ordinary case to have departed from his employment.”
The court relied on a case involving similar facts, Osbourne v. Payne, 31 S.W.3d 911 (Ky.2000), in which the Kentucky Supreme Court explained that “to be within the scope of its employment, the conduct must be of the same general nature as that authorized or incidental to the conduct authorized.” The insured attempted to distinguish this case because the complaint also alleged negligence, but the court rejected the argument, noting there was no evidence that the therapist had negligent sex with the claimant. Instead, the complaint alleged negligence because he engaged in sexual activity. “Engaging in sexual relations with a patient,” the court concluded, “is not motivated by a desire to serve the interests of the therapist's employer, but rather, is designed ‘to satisfy the employee's own sexual proclivities.’”
The court, however, left open the possibility that other allegations in the complaint might be covered by the policy. The complaint alleged that “Flowers ... had the obligation to treat and counsel Burke in a professional manner and he breached his professional and ethical duties to so treat her.” This language, the court concluded, encompassed the possibility that the therapist breached these duties by negligently treating her. The district court had not been asked to consider whether the counseling activities, as opposed to the affair, were within the scope of employment, and did not express an opinion on that question. The appeals court therefore declined to broaden the language of the district court's order.

Total Pollution Exclusion Applies to Remediation and Non-remediation Damages

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.

Multiple Shootings Are Single Occurrence

In a coverage dispute arising from a negligence claim brought by victims of a shooting spree, the Pennsylvania Supreme Court considered whether multiple shootings resulting in five deaths and one serious injury qualified as an “accident” under a homeowner’s policy, and whether the shootings constituted a single “occurrence.” In Donegal Mut. Ins. Co. v. Baumhammers (Pa. Dec. 27, 2007), the court held that negligence claims asserted against the perpetrator’s parents qualified as an accident, and that the multiple shooting arose from a single, not multiple occurrences. Continue Reading...

Fees Incurred as Consequence of Joint Venture Agreement Not Covered; Joint Venture Not Named Insured

In Catholic Health Services of Long Island, Inc. v National Union Fire Ins. Co. of Pittsburgh, P.A. (NY App., 2nd Dept., Dec. 11, 2007), a New York appellate court has held that an insured health care provider is not entitled to coverage under its liability policy for legal fees it incurred in responding to investigative subpoenas issued upon a joint venture of which it was a member. Continue Reading...

Ninth Circuit Finds Insured's Claim for Diminution in the Sale Value of Contaminated Properties Not Covered under CGL Policy

The Ninth Circuit has ruled that an insured’s claim for the difference between the appraised value of uncontaminated properties and the sale price of the properties in an contaminated state is not recoverable under a commercial general liability policy on the basis that the claim did not constitute “property damage” or “damages” that the “insured shall become legally obligated to pay” because of “property damage” under the terms of the subject policy and Washington State law.

Continue Reading...

Illinois Supreme Court Limits Targeted Tenders To Excess

The Illinois Supreme Court has ruled that targeted tenders do not trump the rule of horizontal exhaustion in construction defect cases.  As a result, additional named insureds must now  exhaust their own primary insurance before they can reach the excess layer of additional insured coverage. The court declared that “extending the targeted tender rule to require an excess insurer to pay before a primary policy would eviscerate the distinction between primary and excess insurance.” The court ruled, therefore, that despite Kajima’s targeted tender to St. Paul after the sub’s primary exhausted, Kajima was required to exhaust its own primary insurance before St. Paul paid.

In Kajima Construction Services, Inc. v. St. Paul Fire & Marine Ins. Co., No. 103588 (Ill. November 29, 2007), a general contractor and its own insurer (Tokio Marine) sued St. Paul to recover $1 million that Tokio had contributed to a $3 million personal injury settlement.  St. Paul, which had issued primary and umbrella coverage to a subcontractor that named Kajima as an additional insured, paid its $2 million primary limit but stated that its umbrella policy was excess of Kajima's own primary insurance and need therefore not contribute.

Continue Reading...

California Court Affirms Insurer's Right To Rescission And Explains Burden Of Proof On Reimbursement Claim

A California appellate court provided further guidance to insurers on satisfactory grounds for rescission of an insurance policy and the burden on the insurer to obtain reimbursement of defense costs and settlement amounts paid on an insureds’ behalf. The court’s decision provides further delineation of the difficult burden imposed on insurers in obtaining reimbursement from an insured (even when the insured is able to pay).

In LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co., __ Cal.App.4th __ [2007 Cal.App. LEXIS 1853], the California Court of Appeal for the Fourth Appellate District (which includes Orange County) ruled that: (1) the failure to advise the insurance company that the insureds were involved in a joint venture was a material misrepresentation supporting rescission of the policy ab initio; and (2) the insurance company was entitled to reimbursement of all amounts paid to defend and settle the claim against its insureds; but (3) the insurer had the burden of showing by a preponderance of the evidence how much each of three insureds should reimburse and had failed to do this, so the case was remanded for this determination.

Continue Reading...

Sexual Molestation Exclusion Held to Preclude Coverage For Negligent Supervision Claims

Over the years, insurers and tort lawyers have engaged in a cold war over whether homeowner's policies should cover intentional or criminal acts.   In the face of threshold contentions that such offenses were not "accidents" or "occurrences," plaintiffs learned to plead their claims under theories of neglligent hiring or supervision in the hopes of creating coverage.  Enough courts have come to accept coverage for these "negligence" theories that insurers have added new exclusions specifically directed at certain types of offenses that give rise to them, notably assault and battery and sexual molestation.

In the latest skirmish over these new wordings, the Supreme Court of New Hampshire (which has been very busy lately on the coverage front) ruled last week in Philbrick v. Liberty Mutual Ins. Co. that a trial court erred in refusing to apply a homeowner's exclusion for "bodily injury...arising out of sexual molestation" to negligent supervision claims against the parents of a teenage baby-sitter who had molested the plaintiff's children.  The court rejected the plaintiffs' argument that it was the parents' negligence that cause their injuries, holding instead that all of these claims clearly arose out of excluded molestation since, but for the molestation, there would not have been any claim of negligent supervision against the parents.  Writing for the court, Justice Duggan declared that "where, as here, the language of the exclusion explicitly ties the exclusion to the nature of the injury, the analysis should be directed towards the injuries suffered rather than the causes of action in the complaint."

Continue Reading...

Ohio Court Finds Multiple "Occurrences" For Silica Claims

After much "gnashing of teeth," a panel of the Ohio Court of Appeals has affirmed a lower court's ruling that the aggregate limits contained in various missing three year policies issued back in the 1960s and 1970 by Aetna Property & Casualty (now ACE) are ambiguous and therefore apply on a "per year" basis.  The court also rejected ACE's argument that these claims were subject to the "deemer" clause in its policies so as to arose out of a single "occurrence."

Cincinnati Ins. Co. v. ACE INA Holdings involved a dispute between an excess insurer (Cincinatti) and the primary insurer (ACE) of Flexo Manufacturing, which faces silicosis liabilities around the country due to its manufacture of masks used in sand blasting operations.  Each of the ACE policies, insofar as could be determined given their incomplete nature, contained a $300,000 aggregate for bodily injury claims.  However, the policies (or whatever was left of them) did not contain an "annualization" clause or any other language declaring whether the aggregate applied on a "per policy" or "per year" basis. 

Continue Reading...

Additional Insured Coverage Limited to Vicarious Liability

On certified questions from the Eleventh Circuit, the Florida Supreme Court holds in Garcia v. Federal Ins. Co. (Oct. 25, 2007), that additional insured provisions in a homeowner’s policy extending coverage to “any other person or organization with respect to liability because of acts or omissions” of the named insured limits coverage to instances of vicarious liability, and does not extend to the additional insured’s own active negligence.

 

Continue Reading...

California Court's Confusing Conflicts Conclusion

As one grows older and sometimes wiser, it becomes apparent that the most important legal subjects are the ones that we largely ignored during law school. Such is clearly the case with Conflicts of Law.   Apart from allocation, few fields of insurance law have generated so many different analyses: lex loci contractus, “LeFlar factors,” “most significant contacts,” “governmental interest,” “grouping of contacts” and (the author’s personal favorite): renvoi (what can you say about a state like Maryland whose university mascot is a turtle?).

Now comes California to further muddy the waters. Until recently, it had seemed relatively settled that California followed a “governmental interest” approach wherein the law of conflicting jurisdictions would be evaluated in accordance with which state had the more substantive interest in the outcome of the dispute. However, a recent opinion of the California Court of Appeal has suggested an entirely different approach.

In Frontier Oil Corp. v. RLI Ins. Co., B189158, 2007 Cal. App. LEXIS 1298 (2d Dist. August 6, 2007) an oil company and its subsidiary were sued by students and residents near the Beverly Hills High School (an area whose riches apparently include not only Tori Spelling but also significant oil and gas deposits) for respiratory problems and other injuries from exposure to airborne contaminants discharged in the course of the defendants’ oil and gas production operations in the area.. The Superior Court granted summary judgment to RLI holding that, under Texas law, the claims were subject to an absolute pollution exclusion in its policies. 

 

Continue Reading...

New York Appellate Ruling Challenges Allocation Assumptions

Any insurer who complacently assumes that New York courts will follow a "time on the risk" approach in the wake of the Court of Appeals ruling a few years ago in Consolidated Edison would do well to consider the October 16 ruling of the First Department in State of New York Ins. Dept. v. Generali Ins. Co. 2007 NY Slip Op. 07767.

Continue Reading...

New Hampshire Supreme Court Adopts Pro Rata Allocation For Long Tail Claims

Score it Insurers 8-Policyholders 6 as casualty insurers won a round today in the on-going battle over whether insureds must allocate long-tail losses in accordance with the duration of the loss or can "spike" their claims to a single year of coverage to trigger higher layer policies and avoid those nasty orphan shares and gaps in coverage.

Continue Reading...

Confusion in Texas Over the "Timely" Handling of Liability Claims

On August 31, 2007, the Texas Supreme Court issued its long awaited decision in Lamar Homes v. Mid-Continent Casualty Company, 2007 WL 2459193. Although the bulk of the decision dealt with coverage under a liability policy for construction defect claims against an insured, another part of the decision has created significant alarm among some American insurers concerning the Court’s willingness to allow the Texas Prompt Payment of Claims statute to apply to defense and indemnity claims under a liability policy. The statute – previously found in Article 21.55 and now found in Article 542.051 of the Texas Insurance Code -- only applies to “first party claims” that “must be paid by the insurer directly to the insured or beneficiary.” Historically, Texas insurers have interpreted the penalty statute to only apply to claims under property, life, health, and other traditional “first party” coverages. In Lamar Homes, the Texas Supreme Court said that the Texas penalty statute also applied to defenses and indemnity claims under liability policies.

Continue Reading...

Texas Supreme Court Limits Claims Between Settling Co-Insurers

On October 12th, the Supreme Court of Texas issued a surprising decision of importance to liability carriers doing business in Texas regarding the reimbursement claims available to liability insurers against other insurers in Texas. 

Continue Reading...