CaseWatch: Insurance – Decisions from The Insurance and Reinsurance Report – March 26, 2010

Focus Case:     Policy Conditions
By Sarah J. Delaney

Arkansas Reaffirms Its Status as a No-Prejudice State
Fireman's Fund Insurance Company v. Care Management, Inc.

2010 Ark. 110 [lexis.com / lexisONE] (March 4, 2010)
The Supreme Court of Arkansas re-affirmed its status as a "no-prejudice" state when notice is a condition precedent to coverage.  The United States District Court for the Eastern District of Arkansas certified the question to the state's highest court because the Eighth Circuit recently noted "the state of Arkansas law on the subject leaves room for doubt."

The Supreme Court acknowledged the "modern trend" to require prejudice, but held fast to the no-prejudice rule where notice is a condition precedent to coverage.  The policy at issue in the Fireman's Fund case contained standard the notice obligations and "legal action against us" clause (which provides that no suit may be brought unless all of the policy terms have been complied with).  Distinguishing such language from the 1912 case of Hope Spoke Co. v. Maryland Casualty Co., 102 Ark. 1, where notice was required but the policy did not provide that failure to comply with the notice requirement forfeited coverage, the Supreme Court held that insurers are not required to demonstrate prejudice where notice is a condition precedent to recovery.

 

Actions and Proceedings

Oregon Mutual Ins. Co. v. Brady
2010 U.S. Dist. LEXIS 18553 [lexis.com] (D.Id., March 2, 2010)
Policy Provision Shortening Statute of Limitations Void
The policy required either a suit to be filed against defendant, an agreement as to the amount due under the policy, or commencement of arbitration within two years of the accident.  The court voided this provision because Idaho has not enacted laws requiring conditions precedent or allowing parties to contract differently from the 5-year statute of limitations for contract actions.

Stonington Ins. Co. v. Williams
2010 Ind. App. LEXIS 339 [lexis.com / lexisONE] (Ind. App., March 5, 2010))
Indiana Law Applies to Action for Coverage to Truck Driver Injured in Indiana Under Policy Issued by a Texas Insurer to a Wisconsin Moving Company
Indiana company sought coverage for an injury sustained in a two vehicle accident with an uninsured motorist in Indiana. The policy was issued by a Texas insurance company to a Wisconsin moving company through a Colorado broker and a California insurance services company.  The court held that Indiana had the most contacts with the underlying insurance contract

 

Agent/Broker Liability

Hernandez v. Magat
2010 Cal. App. Unpub. LEXIS 1481 [lexis.com] (Cal. App., March 2, 2010)
Alternate Pleading Stated Cause of Action Against Agent
Plaintiff's action against an insurance agent based on the agent's actions in failing to properly process plaintiffs' premium payments, misrepresenting facts to plaintiffs, and issuing a later policy to cover his earlier mistakes stated a claim for breach of an agreement to obtain insurance and breach of the covenant of good faith and fair dealing. The complaint also alleged that the policy was in full force and effect and that the insurer improperly denied coverage.  The agent moved to dismiss based upon the claim that general allegations of "breach of contract" did not apply to him since he was not a party to the insurance contract, and that because plaintiffs allege the policy existed, it failed to state a claim for failure to procure.  The court held that pleading in the alternative was permissible, and the complaint sufficiently plead a cause of action against the agent.

 

Auto Liability

Safe Auto Ins. Co. v. Berlin
2010 PA Super 31 [lexis.com / lexisONE] (Penn. App., March 5, 2010)
No Coverage Under Auto Policy for Costs of Emergency Rescue of Policyholder
A volunteer fire department sought third party benefits from the automobile insurer of a driver it rescued after a single car automobile accident to reimburse it for the cost of the emergency rescue.  The policy provided coverage for, among other things, "property damage", defined as "physical damage to, destruction of, or loss of use of tangible property."  The court held that the policy's definition of "property damage" unambiguously did not encompass the cost of an emergency rescue and the volunteer fire department was not entitled to benefits.

 

Bad Faith

Randall v. Government Employees Ins. Co.
2010 U.S. Dist. LEXIS 20376 [lexis.com] (W.D.Ok., March 5, 2010)
Refusal Of Demand For Arbitration Is Not Evidence Of Bad Faith
In order to establish a bad faith claim, a policyholder must present evidence from which a reasonable jury could conclude that the insurer did not have a reasonable good faith belief for withholding payment of the policyholder's claim. The mere allegation that an insurer breached its duty of good faith and fair dealing does not automatically entitle the issue to be submitted to a jury for determination.  The refusal to arbitrate is not evidence of bad faith, especially in light of the fact that the insurer offered alternative settlement options.

 

Duty to Defend

Chicago Title Ins. Co. v. Northland Ins. Co.
2010 Fla. App. LEXIS 2544 [lexis.com / lexisONE] (Fla. Ct. of App., March 3, 2010)
Insurer Did Not Waive Defense by Refusing to Defend
An insurer refused to defend its policyholder in an underlying action involving an attorney's misappropriation of funds in a real estate transaction in which the policyholder was the title agent.  The court held that the insurer did not waive it right to deny coverage after refusing to defend in the underlying litigation, noting that under Florida law courts look to the complaint and policy to determine whether there is coverage and this holds true notwithstanding an insurer's refusal to defend that leads to the insured entering into a consent judgment.  The court further held that the insurer was not contractually obligated to provide coverage to the policyholder because the damages resulted from the misappropriation of funds which was clearly excluded from coverage.

Canal Ins. Co. v. P.S. Transport, Inc.
2010 U.S. Dist. LEXIS 19235 [lexis.com] (N.D.Miss., March 4, 2010))
Factual Assertions Not Actual Facts Determine Duty To Defend
In determining whether or not a duty to defend exists, the court must look to the factual allegations of the complaint, rather than the actual facts.  In this case, the factual allegations in the complaint are such that there is no coverage under the policy and therefore, the insurer had no duty to defend.

 

Environmental

Aggio v. Estate of Aggio
2010 U.S. App. LEXIS 4126 [lexis.com / lexisONE] (9th Cir.(Cal.), February 26, 2010)
Cleanup Costs Were Not Covered
Plaintiffs sought cleanup costs from the estate's insurer for polluted property that they inherited.  The "owned property" exclusion precluded coverage for these costs because plaintiffs failed to demonstrate imminent harm to third-party property at the time of their cleanup efforts.

 

Exclusions

George's Inc. v. Allianz Global Risks US Ins. Co.
2010 U.S. App. LEXIS 5108 [lexis.com / lexisONE] (8th Cir.(Ark.), March 9, 2010)
Business Expenses and Personal Property Exclusions Applied
Power outages lead to the premature deaths of chickens at a poultry processing center.  The court held the claims for lost production and the animal exclusion both applied to preclude coverage for those portions of the claim.

PNS Jewelry, Inc. v. Penn-America Ins. Co.
2010 U.S. Dist. LEXIS 15263 [lexis.com] (Cal. App., March 1, 2010)
"Voluntary Parting" Exclusion Barred Recovery
Plaintiff sought recovery for property that its employee unwittingly delivered to an individual posing as an employee of an armored car company contracted to transport the property out of state. The policy's "voluntary parting" exclusion was enforceable because it was conspicuous, plain and clear.

 

Fraud

Pennsylvania Nat. Mutual Cas. Ins. Co. v. Edmonds
2010 U.S. Dist. LEXIS 19121 [lexis.com] (S.D.Ala., March 3, 2010)
District Court Awards Punitive Damages To Insurer In Default Fraud Case
This action involved the misappropriation of hundreds of thousands of dollars by an employee of the policyholder.  The insurer paid the claim and received an assignment from the company to pursue the losses.  Employee-defendant never appeared and the insurer filed a motion for default judgment against the employee for approximately $570,000, including $150,000 in punitive damages. Despite the court's acknowledgment of the insurer's meticulous evidentiary submission as to the total damages causes by the misappropriation, it only awarded a portion of the damages due to a discrepancy between the complaint and the damages sought.  Specifically, the court noted that a default judgment is confined to the specific factual allegations delineated in the Complaint; it does not grant a blank check to recover from the defaulting defendant any losses it ever suffered from whatever source.  Rather, it is strictly confined to the fraudulent acts set forth in the pleadings.  The court did, however, grant punitive damages.

 

Life, Health, Disability and ERISA

Crouch v. Siemens Short Term Disability Plan et al.
2010 U.S. Dist. LEXIS 19637 [lexis.com] (S.D.Va., March 4, 2010)
Court Denied Award Of Attorney Fees Where Neither Party Prevailed In Remand Hearing
Plaintiff filed suit alleging that defendants violated Section 502(a)(1)(B) of the Employee Retirement Income Security Act by denying his claim for disability benefits and the court remanded the case to the plan administrator. He sought attorney fees, arguing the court's remand to the plan administrator rendered him the prevailing party in the action. The court noted under Fourth Circuit precedent that only a prevailing party is entitled to consideration for attorneys' fees in an ERISA action and that an administrative remand for reconsideration did not render the plaintiff the "prevailing party."

Darvell v. Life Ins. Co. of North America
2010 U.S. App. LEXIS 5109 [lexis.com / lexisONE] (8th Cir.(Minn.), March 10, 2010))
Administrator's Interpretation of "Regular Occupation" found Reasonable
Under an abuse of discretion standard, the court held that the administrator's interpretation of the policy language "material duties of his...regular occupation" was reasonable in that the phrase could refer to the participant's general occupation, rather than specific position.

HealthEast Bethesda Hosp. v. United Commercial Travelers of Am.
2010 U.S. App. LEXIS 5132 [lexis.com / lexisONE] (8th Cir.(Minn.), March 9, 2010)
Settlement Under Medicare Supplement Policy Enforced
IInsurer attempted to rescind policy and refused to pay a settlement, after the policyholder died, based on alleged misrepresentations of his medical history on the application.  The court held the contract was not voidable because the insurer bore the risk of any mistake.

Sterio v. HM Life
2010 U.S. App. LEXIS 4615 [lexis.com / lexisONE] (9th Cir.(Cal.), March 4, 2010)
Plan Abused its Discretion in Denying Long-Term Disability Benefits
The medical evidence supported plaintiff's claim for long-term disability benefits.  Defendant failed to distinguish the Social Security Administration's disability determination, failed to conduct an in-person medical examination, failed to adequately investigate the claim, and violated ERISA's procedures by tacking on a new reason for denying benefits in its final decision.

 

Notice/Policy Conditions

Essex Ins. Co. v. W.G.S., L.L.C.
2010 U.S. Dist. LEXIS 18600 [lexis.com] (D.Ariz., March 2, 2010)
Settlement Without Insurer's Consent Voided Coverage
The court held that the policyholder breached the policy's cooperation clause by entering into a settlement with the injured party without the insurer's consent.  That breach was not excused because the insurer did not breach its duty to equally consider the policyholder's settlement interests.

Reyes v. Hartford Fire Ins.
2010 U.S. Dist. LEXIS 16871 [lexis.com] (E.D.La., February 24, 2010)
Proof of Loss Is Condition Precedent
Policyholders allege that insurer failed to properly compensate them for their property damage caused by Hurricane Katrina. The court held that the policyholders' failure to submit a proof of loss is fatal to their action because a proof of loss is a condition precedent to bringing litigation and a policyholder does not have the power to waive the mandatory proof of loss requirement.  The Fifth Circuit also rejected arguments that requiring a proof of loss violates constitution rights to equal protection and due process.

 

Policy Construction

Source Logistics, Inc. v. Certain Underwriters at Lloyd's of London
2010 Ark. App. 239 [lexis.com / lexisONE] (Ark. App. Div. 4, March 10, 2010)
Language in Policy Ambiguous, but was Considered Harmless
In an appeal regarding jury instructions for language in a cargo-insurance policy and unattended-truck/trailer endorsement, the court held that the trial court's error in finding the term "under constant surveillance" unambiguous was harmless, where the insured failed to satisfy the second prong requiring the vehicle be "securely locked with keys removed.

 

Professional Liability

Appel et. al. v. Lexington Ins. Co.
2010 Fla. App. LEXIS 2517 [lexis.com / lexisONE] (Fla. Ct. of App., February 26, 2010)
Florida Court Of Appeals Affirms Dismissal Of Complaint Against Insurer For Denial Of Professional Liability Claim, Despite Default By Insurer
The insurer refused to defend the directors in the lawsuit based on an exclusion in the policy and a declaratory judgment action was commenced.  The insurer failed to answer and a default was entered against it.  The court held that appellants were not entitled to the entry of a judgment on the default against the insurer if the complaint failed to state a cause of action.  Specifically, the court held that the default operates as an admission by the insurer of the allegation in the complaint, but not as an admission of facts not properly pled or conclusions of law; further noting, the defense of failure to state a cause of action may be raised by motion, even after a default.

Byrd & Associates PLLC v. Evanston Ins. Co.
2010 U.S. App. LEXIS 4041 [lexis.com / lexisONE] (5th Cir.(Miss.), February 26, 2010)
Definition of "Act" in Policy Does Not Require a Finding of Negligence
This action involves policyholder's declaratory judgment action against insurer for failing to represent and indemnify them in a legal malpractice suit.  Policyholder tendered their claim to the insurer but was denied defense and indemnification because of the prior acts exclusion.  Policyholders argue that an act under the policy cannot happen until an attorney is actually found negligent by a court or jury.  However, the court rejected the policyholder's contention and instead held that the plain meaning of the term as defined in the policy does not require a finding of negligence.

 

Subrogation

Federal Ins. Co. v. Commerce Ins. Co.
597 F.3d 68 [lexis.com / lexisONE] (1st Cir.(Mass.), March 3, 2010)
Implied Coinsured Doctrine Bars Recovery
A property insurer of a residential retirement community, as subrogee of the retirement community, sued the estate of a resident that negligently caused a fire that resulted in $75,000 in damage to the facility. Under Massachusetts law, a tenant is an implied coinsured when a landlord fails to make explicit in its lease that the tenant needs to obtain its own insurance to cover the landlord's property in case of a negligently-started fire. The First Circuit held that the insurer failed to prove that the "Responsibility for Damages" provision in the tenant's lease overcame the presumption that the landlord's insurance was held for the mutual benefit of both parties. As a result, the court dismissed the insurer's claim.

 

Uninsured/Underinsured

Bagnal v. Foremost Ins. Group
2010 U.S. Dist. LEXIS 18567 [lexis.com] (D.S.C., March 2, 2010)
Court Denies Reformation Of Motorcycle Policy To Include UIM Coverage
Appellant claimed that insurer failed to make a meaningful offer of underinsured motorist (UIM) coverage to the insured and sought reformation of the policy to include UIM coverage in the amount of the liability coverage limits. After conducting a detailed analysis of the Wannamaker requirements (see, State Farm Mut. Auto Ins. Co. v. Wannamaker, 291 S.C. 518 (S.C 1987)), the court held that plaintiff failed to raise any genuine issue of fact that (1) the insurer made a meaningful offer of UIM coverage to the insured; (2) whether there was an internal inconsistency in the policy such that the policy should be read to allow stacking of two motorcycle policy limits, and (3) whether the second motorcycle policy constituted excess liability coverage.

Beal v. Allstate Ins. Co.
2010 ME 20 [lexis.com / lexisONE] (Me., March 11, 2010)
UIM Coverage Awarded Despite High-Low Provision in Arbitration Agreement
The policyholder and tortfeasor were insured for underinsured motorist and auto liability coverage, respectively, through the same insurer. The policyholder and tortfeasor agreed to arbitrate the amount of the policyholder's injuries and entered into an arbitration agreement that contained a high-low provision that capped the policyholder's recovery at $100,000. The Supreme Court of Maine held that the language of the high-low provision did not encompass the insurer's separate responsibility to provide underinsured motorist coverage to the policyholder. The court held that the insurer could not avoid its responsibility just because it coincidentally insured the tortfeasor as well.

 

Workers' Compensation

City of Laguna Beach v. California Ins. Guarantee Assoc.
2010 Cal. App. LEXIS 286 [lexis.com / lexisONE] (Cal. App., March 3, 2010)
Self-Insured Employer Is Not Entitled to Reimbursement
Plaintiff cannot obtain reimbursement from defendant for workers' compensation liabilities.  Although the obligation constitutes a "covered claim", defendant need not reimburse a self-insured employer for benefits paid to an employee for cumulative injury if the employer's liability is based in part on a period of time when the employer was self-insured and chose not to buy excess insurance for the particular risk.

 

Legislation

California Assembly Bill 2128
(Introduced Feb. 18, 2010; Last Action Mar. 4, 2010)
This bill amends an existing law that requires a private patrol operator and plane security guard to carry a firearm to maintain an insurance policy that provides minimum limits.

California Senate Bill 1228
(Introduced Feb. 18, 2010; Last Action Mar. 4, 2010)
This bill declares the intent of the Legislature to govern the use of liability insurance contracts in order to provide for equitable resolution of claims for fraud or for injury and other violations of law.

Colorado House Bill 1727
(Introduced Feb. 2, 2010; Last Action Mar. 3, 2010)
This bill requires physicians, dentists and health care institutions to comply with minimum financial responsibility requirements for professional liability insurance coverage.

Idaho Senate Bill 1367
(Introduced Feb. 15, 2010; Last Action Mar. 9, 2010)
This bill relates to Motor Vehicle Service Contracts to provide provisions and requirements relating to service contract liability policies.

Massachusetts House Bill 44
(Introduced Jan. 7, 2009; Last Action Mar. 10, 2010)
This bill relates to amusement devices and requires liability insurance.

New Hampshire House Bill 1254
(Introduced Dec. 16, 2009; Last Action Mar. 3, 2010)
This bill requires an insurance carrier to disclose the limits of liability insurance policy to a person upon request New Jersey Senate Bill 1785
(Introduced Mar. 11, 2010; Last Action Mar. 11, 2010)
This bill limits liability of physicians to their medical malpractice insurance coverage.

Ohio House Bill 215
(Introduced Jan. 9, 2009; Last Action Mar. 9, 2010)
This bill provides that a professional employer organization is not liable for acts of a client employer or shared employee when they occur under the direction of the client employer.

South Carolina Senate Bill 168
(Introduced Dec. 10, 2008; Last Action Mar. 4, 2010)
This bill relates to medical malpractice insurance and provides that licensed health care providers who renders medical services voluntarily provides notice to the patient is not liable for any civil damages for any act or omission.

Virginia House Bill 1106
(Introduced Jan. 13, 2010; Last Action Mar. 10, 2010)
This bill allows the plaintiff's attorney in a wrongful death action to request a disclosure of liability limits of an insurance policy prior to filing such an action.

 

This edition of CaseWatch: Insurance was originally published in the The Insurance and Reinsurance Report blog.

CaseWatch: Insurance provides timely summaries of and access to insurance law decisions and legislation. It is distributed bi-weekly. For ease of reference, the cases are organized by topic. CaseWatch is the collaborative effort of Goldberg Segalla LLP's Global Insurance Services Practice Group, as is its blog The Insurance and Reinsurance Report. Goldberg Segalla's Global Insurance Service Group is comprised of over 25 attorneys throughout 10 offices in the firm's four states (New York, New Jersey, Connecticut, and Pennsylvania). The Global Insurance Services Group routinely handles matter of national and international importance for both domestic and foreign insurers, cedents and reinsurers. This includes: comprehensive audits, policy reviews, regulatory advice,  positioning dispute for resolution at the business level (either through interim funding or non-waiver agreements), negotiations among counsel, mediation or fully-involved arbitration or litigation.

   The editors, Daniel W. Gerber and Sarah J. Delaney appreciate your interest and welcome your feedback.

 

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