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

The policy at issue contains a “Designated Work Exclusion” that bars coverage for “A. Condominiums, multi-unit homes, townhouses, or apartment buildings which contain 5 or more single family units. B. Any building or structure in excess of three (3) stories or any building or structure in excess of forty (40) feet in height.” The plaintiff contended that the undefined term “condominium” is ambiguous because the term is susceptible to more than one meaning, and when properly interpreted does not exclude coverage for plaintiff’s claims.

Employing Oregon’s rules to interpret the terms of an insurance contract, the court first determined whether the term has a plain meaning. Oregon courts may look to dictionary definitions to determine whether a term has a plain meaning. The plaintiff had provided a dictionary definition that “condominium” means either a building or complex containing a number of individually owned units, or the individual units. The court concluded that the dictionary definition established that “condominium” has more than one plausible meaning, and so the court examined the term in light of the context in which the term is used in the policy.

After examining the policy, the court rejected the plaintiff’s argument that the “Designated Work Exclusion” excludes only condominiums that “contain 5 or more single family units,” which the plaintiff argued demonstrates the insurer’s intent to exclude coverage of condominiums that are comparatively large buildings containing more than five single family units. The court also rejected plaintiff’s argument to apply the ejusdem generis principle of contract interpretation to the “Designated Work Exclusion.” In agreeing with the insurer, the court found that while the exclusion contains an enumeration of specific things (i.e., condominiums, multi-family homes, townhouses, and apartment buildings), that enumeration is followed by an even more specific description (i.e., “which contain 5 or more single family units.”). The court found that the application of the ejusdem generis doctrine does not establish either ambiguity in the “Designated Work Exclusion” nor indicate that the “Designated Work Exclusion” does not apply.

By applying Oregon’s rules to interpret the terms of an insurance contract, the district court concluded that both the plain meaning of “condominium” in the policy’s “Designated Work Exclusion,” and its meaning within the policy as a whole indicate that the “Designated Work Exclusion” applies to the project at issue, and the particular policy excludes coverage for the project.

In Guaranty Bank v. Chubb Corp., No. 07-3367 (7th Cir. July 17, 2008), the Midwest Guaranty Bank sued “Guaranty Bank” for alleged violation’s of Michigan’s unfair competition law and for infringing the plaintiff’s trademark by announcing its intent to enter the same geographic market with such a similar name. Guaranty Bank sought coverage from Chubb under a Great Northern CGL policy that covered injury “caused by an offense of infringing, in that particular part of your advertisement about your goods, products or services upon their registered collective mark, registered service mark or other registered trademarked name, slogan, symbol or title.” Since the plaintiff’s claim was for the infringement of an unregistered trademark and as Midwest Guaranty Bank was not claiming such an infringement, the Seventh Circuit ruled that Great Northern would not have had a duty to defend.

While this aspect of the court’s ruling might be subject to reconsideration in light of the Wisconsin Supreme Court recent Acuity opinion, the ruling may yet stand in light of the Seventh Circuit’s independent declaration that coverage was barred by the insured’s failure to provide timely notice to Chubb. In this case, Guaranty Bank did not give notice for over a year, during which time a preliminary injunction had entered against the insured.

The District Court had granted summary judgment to Great Northern based upon the Wisconsin statute that places the burden of disproving prejudice on a policyholder where notice is delayed by more than a year. The Seventh Circuit noted, moreover, that even if this burden shifting had not occurred, prejudice likely existed in this case owing to the momentum that the plaintiff’s claims had received as the result of the injunctive remedy as well as the inability of Great Northern to engage the case earlier and undertake a defense or otherwise attempt to resolve it. In dicta, the Seventh Circuit also noted that the “lenity” that the Wisconsin legislature and courts might exhibit to policyholders was for the benefit of individual insureds. The court observed that businesses and other sophisticated insureds would have well aware of the requirement of timely notice and should not be permitted to avoid the insurer taking control of the defense by “spending generously for counsel on the insurer’s dime even though the insurer might be able to defend the suit more cheaply.”

It should come as no surprise to those who follow the Seventh Circuit that the author of Guaranty Bank is Judge Posner.