CaseWatch: Insurance – Decisions from The Insurance and Reinsurance Report – September 27, 2010

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Actions and Proceedings

Bayle v. Allstate Insurance Co.

2010 U.S. App. LEXIS 16635 [lexis.com / lexisONE] (5th Cir.(La.), August 11, 2010)

Fifth Circuit Affirms Summary Judgment For Insurer In Hurricane Katrina Coverage Litigation

The appellate court held that as the movant for summary judgment, the insurer had the burden of proving the applicability of any exclusion from coverage, and once it had done so, the burden shifted to the policyholder to demonstrate the existence of uncompensated items of damage that were caused by wind, or of any deficiency in its quantum of the damages paid by the insurer. They failed to do so, and therefore, the district court's grant of Allstate's motion for summary judgment was affirmed.

Great American Insurance Company v. AFS/IBEX Financial Services Inc.

2010 U.S. App. LEXIS 15117 [lexis.com / lexisONE] (5th Cir.(Tex.), July 22, 2010)

Defense Costs May Be Recoverable

The insurer issued a crime protection policy to the policyholder.  After suffering a loss caused by the forgery of certain checks, the policyholder submitted the claim to the insurer which denied coverage and filed a declaratory judgment action. The court concluded that under Texas law attorneys' fees and litigation expenses may not be recovered unless provided for by statute or by contract between parties, but a plaintiff may recover attorneys' fees and other reasonable expenses which were incurred in litigation with a third party as damages when such damages are the natural and proximate consequence of the defendant's wrongful conduct, and the expenses represent consequential damages.

 

Additional Insureds

Pekin Ins. Co. v. Pulte Home Corp.

2010 Ill. App. LEXIS 896 [lexis.com / lexisONE] (Ill. Ct. of App., August 25, 2010)

Broadly-Worded Complaint Triggers Duty to Defend Additional Insured

The underlying plaintiff was injured in a worksite accident and sued the site developer and sewer subcontractor. The developer tendered its defense and indemnity to the sewer subcontractor's insurer, which denied additional insured coverage on the ground that the underlying complaint did not allege that the developer's liability arose "solely" from the subcontractor's negligence. The court held that the underlying complaint triggered the insurer's duty to defend because it did not preclude the possibility that the developer could be found liable solely as a result of the acts or omissions of the sewer subcontractor.

St. Luke's Hospital Of Duluth v. Minnesota Joint Underwriting Association

2010 Minn. App. Unpub. LEXIS 664 [lexis.com] (Minn., July 13, 2010)

Additional Insured Not Entitled to Separate Policy Limits

A policy included limits of liability of $1 million per occurrence subject to a $3 million aggregate. It included a named additional insured endorsement. The court stated that the plain language of the endorsement established that being an additional insured but that was not equivalent to being named on the declarations page.  The endorsement expressly limited additional insured coverage to liability arising out of the named insured's operations which was typical of an additional insured endorsement.  This status under the policy did not entitle the additional insured to its own liability limits.

 

Agents & Agency

Kumar v. Lords Ins. Agency, Inc.

2010 Cal. App. Unpub. LEXIS 5641 [lexis.com] (Cal. App., July 19, 2010)

Court Affirms Default Judgment Against Agent

The plaintiff owned and operated a gas station and mini-market. The defendant agent cashed plaintiff's premium check, but failed to purchase a policy for him. The plaintiff learned he had no coverage and sued. The defendant failed to respond to the complaint and a default judgment was entered. The court rejected defendant's appeal from the judgment, finding that the court did not abuse its discretion.

 

Bad Faith

Bayle v. Allstate Insurance Company
2010 U.S. App. LEXIS 16635 [lexis.com / lexisONE] (5th Cir.(La.), August 11, 2010)
Breach of Contract is a Condition Preceded to Recovery for the Duty of Good Faith
Hurricane Katrina caused considerable damage to the policyholder's property.  However, the policyholder was unable to identify or specify any structural damage that had gone uncompensated.  The insurer properly supported its motion for summary judgment by producing evidence to make out a prima facie case that the cause of the uncompensated damage was excluded from coverage. The policyholder failed to establish that the claim fell within the coverage.  The court ruled that a breach of contract is a condition preceded to recovery for the breach of the duty of good faith.  As such, the policyholder's claim for statutory penalties under Louisiana Revised Statutes §§22:1220 and 22:658 was denied.

Consolidated Companies, Inc. v. Lexington Insurance Company
2010 U.S. App. LEXIS 17146 [lexis.com / lexisONE] (5th Cir.(La.), August 17, 2010)
Statutory Damages May Be Awarded Under Both Louisiana Bad Faith Statutes
Statutory damages under §§22:1220(A) may be awarded concurrent and with the statutory penalties under §§22:658(B)(1).

Stevens v. Auto Club Family Insurance Company

2010 U.S. App. LEXIS 15832 [lexis.com / lexisONE] (5th Cir.(La.), July 30, 2010)

Court Upholds Jury Verdict of Bad Faith.
The policyholder brought suit against the insurer alleging the insurer breached its insurance contract and violated Louisiana's good faith law. The case was eventually tried to a jury and the jury accepted the policyholders's arguments and entered the verdict against the insurer.  The court concluded that the insurer was not entitled to a judgment notwithstanding the verdict on the bad faith issue. Although the question was close because of the quality and quantity of evidence of bad faith given the differential standard of review, the jury's verdict withstands challenge.

State Farm Mutual Automobile Insurance Company v. Fisher

2010 U.S. App. LEXIS 17681 [lexis.com / lexisONE] (10th Cir.(Co.), August 24, 2010)

Court Addresses Fairly Debatable Standard.
The insurer filed a declaratory judgment action against the defendant policyholder regarding the policyholder's claim for uninsured motorist benefits. The policyholder counterclaimed under a Colorado statute for unreasonable denial of payment. Summary judgment for the insurer was granted and affirmed on the basis that it was reasonable for an insurer to challenge claims that were fairly debatable and the parameters of UM coverage in Colorado were fairly debatable. The insurer's decision to file a declaratory judgment action was not unreasonable.

Lakeside Foods, Inc. v. Liberty Mutual Fire Insurance Co.

2010 Wisc. App. LEXIS 562 [lexis.com / lexisONE] (Wis. Ct. of App., July 21, 2010)

Parties Dispute Whether the Insurer Acted in Bad Faith
The policyholder appealed a motion for summary judgment with respect to the insurer's alleged bad faith for failing to provide an immediate and complete defense against a liability claim filed in California. The court, relying on a recent supreme court decision Roehl Transport, Inc. v. Liberty Mutual Insurance Company, 2010 WI 49 noted that the Wisconsin Supreme Court held the tort of bad faith is not "confined" to three fact patterns described in the existing case law.  Therefore, the court considered the possible merits of the policyholder's claim and determined that genuine issues of material fact existed as to whether the insurer fulfilled its duty of ordinary care and diligence in handling the policyholder's claim and whether it exercised honest and informed judgment in doing so.

 

Duty to Defend

Clarendon Am. Ins. Co. v. Starnet Ins. Co.

2010 Cal. App. LEXIS 1224 [lexis.com / lexisONE] (Cal. Ct. of App., July 27, 2010)

Calderon Proceeding Qualifies as "Suit" Under CGL policy
A homeowners association served a notice on a residential developer pursuant to the Calderon Act that set forth a list of alleged construction defects at its development community. The Calderon Act requires a common interest development association to give notice to a builder, developer, or a general contractor of construction or design defects before suing. Two insurers on whose policies the developer qualified as an additional insured on refused to defend the developer against the Calderon proceeding, alleging that it was not a "suit" within the meaning of their policies. In the ensuring coverage litigation, the court applied the "literal meaning" approach and found that the pre-litigation proceeding under the Calderon Act is a "civil proceeding" which triggers a duty to defend.

Seagate Technology LLC v. Nat'l Union Fire Ins. Co.

2010 U.S. Dist. LEXIS 73520 [lexis.com] (N.D.Cal., July 21, 2010)

Insurer Must Provide Defense For Entire Claim Or Be In Breach Of Duty To Defend
When an insurer has a duty to defend, it must defend entirely.  It cannot parse the claims, dividing those that are at least potentially covered from those that are not.  In a "mixed" action, in which some of the claims are at least potentially covered and the others are not, the insurer has a duty to defend the entire mixed action prophylactically, as an obligation imposed by law. Accepting only a share of the defense burden is equivalent to breach of the duty to defend. After the insurer has defended the action entirely, it may seek reimbursement for defense costs are not potentially covered by the policy.

Sully-Jones Contractors, Inc. v. American Safety Indem. Co.

2010 U.S. Dist. LEXIS 80108 [lexis.com] (S.D.Cal., August 9, 2010)

Duty to Defend Not Automatically Triggered by Mere Possibility of Coverage
A contractor hired to re-roof a building was sued after the roof leaked. The contractor sought coverage under its CGL policy but the insurer refused to defend. On cross-motions for summary judgment, the court held it could not conclude as a matter of law whether there was a duty to defend because there was a question as to whether damage pre-existed the policy. The court determined whether a duty to defend exists turns on when damages occurred and, because discovery on that issue had not yet commenced, the duty to defend could not be determined as a matter of law.

Medmarc Casualty Ins. Co. v. Avent America, Inc.

2010 U.S. App. LEXIS 14488 [lexis.com / lexisONE] (7th Cir. (Ill.), July 15, 2010)

No Duty to Defend Against Suit Seeking Purely Economic Damages
A manufacturer produced plastic baby bottles, training cups and other products which contained Bishenol-A (BPA). After learning of the risks of harm potentially caused by exposure to BPA, consumers who had purchased the products sued the manufacturer alleging the products were not as useful as they believed upon purchase, that the products were not longer useful, and seeking damages. The manufacturer's CGL insurer refused to defend, asserting the underlying complaints did not allege a "bodily injury". The Seventh Circuit agreed, concluding the underlying complaints did not allege or seek recovery for bodily injury, but instead sought economic damages based on the consumers' alleged failure to realize the benefit of the bargain in purchasing the products.

U.S. v. Clark

2010 U.S. Dist. LEXIS 85775 [lexis.com] (N.D.Ill., August 19, 2010)

Insurers Owed a Duty to Defend CERCLA Action
The court held that the insurers owed a duty to defend property owners in a CERCLA action where the allegations in the government's complaint alleged that the EPA found "leaking drums and containers" and that analysis revealed they were hazardous substances.  The court held that these allegations indicate the potential of environmental contamination through "releases" of "hazardous substances."

Ind. Door Co. v. The Builders Group

2010 Minn. App. Unpub. LEXIS 745 [lexis.com] (Minn. Ct. of App., July 27, 2010)

Insurer Has Duty To Defend Even If One Of The Allegations Is Only Viable Through A Development Of The Law
Even if a claim would fall within the scope of coverage only through a development in the law, the insurer still has the obligation to develop the facts and argue against adoption of the proposed doctrine.  To conclude otherwise would premise the duty to defend on the insurer's reasonable prediction of the decisions of the courts.  The duty to defend cannot be based on the state of the law at the time the defense is tendered, but instead must be based on whether the claim could come within coverage even if developments in the law are required.

Liberty Corporate Capital v. Briggs

2010 U.S. Dist. LEXIS 78971 [lexis.com] (S.D.Tex., August 5, 2010)

No Duty to Defend Policyholder in Drunk Driving Accident
An automobile accident resulted in a fatality. The offending driver and a fraternity were sued by the decedent's family. The complaint alleged the driver had consumed alcohol at the fraternity house immediately prior to the accident. The fraternity's CGL insurer moved for summary judgment on the duty to defend. The fraternity argued an endorsement for hired and non-owned vehicles used "in the course of the insured's business" covered the accident. The court found no evidence that the driver was using the vehicle in the course of the fraternity's business at the time of the accident. Thus, the insurer had no duty to defend the fraternity or the driver.

Mid-Continent Cas. Co. v. Bay Rock Operating Co.

2010 U.S. App. LEXIS 16121 [lexis.com / lexisONE] (Tex. 5th Cir., August 4, 2010)

Insurer Collaterally Estopped from Relitigating Underlying Issue Where Insurer Controlled Policyholder's Defense
Inasmuch as the insurer controlled the its policyholder's defense, it was in privity with its policyholder and is collaterally estopped from relitigating another insurer's right of subrogation.

Metropolitan Cas. Ins. Co. v. Birmingham

2010 U.S. Dist. LEXIS 82838 [lexis.com] (Wash., August 13, 2010)

No Duty to Defend Claims of Trespass Where Property Damage Not Alleged
The policyholder homeowner filed a quiet title action against a neighbor relating to a disputed property line. Neighbor counterclaimed for quiet title and alleged a trespass. The policyholder tendered the counterclaim to its homeowners' insurer for a defense. The court found no duty to defend because there was no alleged property damage, explaining that trespass may or may not cause property damage or personal injury. The counterclaim against the insured did not allege any property damage or personal injury. Therefore, the allegations of the counterclaim did not fall within the homeowners' policy coverage.

Lakeside Foods, Inc. v. Liberty Mutual Fire Ins. Co.

2010 Wisc. App. LEXIS 562 [lexis.com / lexisONE] (Wis. Ct. of App., July 21, 2010)

No Breach Of Duty To Defend By Failing To Respond Immediately To Tender
The policyholder claimed that the insurer breached its duty to defend by failing to provide an immediate response to its tender of coverage.  The parties agreed that the insurer waited nearly three months to provide a response, but the insurer claims that it had a right to conduct its own investigation. While waiting for acceptance of tender, the policyholder hired its own defense counsel and did not show any prejudice or damage as a result of the delay.  The court held that the timeliness of the insurer's response itself is not enough to establish a breach of a duty to defend.

 

Environmental

Hussey Copper, Ltd. v. Arrowood Indemnity Co.

2010 U.S. App. LEXIS 17698 [lexis.com / lexisONE] (3rd Cir.(Pa.), August 23, 2010)

Third Circuit Affirms Summary Judgment For Insurer Based On Unambiguous Pollution Exclusion
In affirming the district court, the court held that the suit for remediation of copper and lead fell squarely within the unambiguous language of the policy's pollution exclusion.   Specifically, the court concluded that the pollution exclusion clause was sweeping, excluding from coverage "any loss, cost or expense arising out of any request, demand or order that any insured or others ... in any way respond to or assess the effects of pollutants."

Teck Metals, Ltd. v. Certain Underwriters at Lloyd's, London et. al.

2010 U.S. Dist. LEXIS 80671 [lexis.com] (E.D.Wash., August 9, 2010)

District Court Denies Summary Judgment To Insurer Holding Environmental Response Costs Are "Damages" Under The Subject Policy
The parties in this environmental coverage action moved the district court to rule on respective motions for summary judgment regarding whether environmental response costs are "damages" under the policies of insurance. The court held as a matter of law that the response costs the policyholder incurred pursuant to its Settlement Agreement with the EPA fell within the meaning of "damages" contained in the policies.  The court also held that investigation RI/FS costs represent damages as opposed to expenses because the costs represent settlement of a claim in itself (i.e., CERCLA liability) and thus, are not expenses for settlement of a claim.

 

Exclusions

Colony Ins. Co. v. Suncoast Medical Clinic

2010 U.S. Dist. LEXIS 73063 [lexis.com] (M.D.Fla., July 20, 2010)

Administrative Functions That Are Intricate Part Of Medical Services Implicate Medical Services Exclusion

Because hiring staff, purchasing assistive technology and establishing and implementing policies and procedures governing diagnostic testing and communication among medical staff are an intricate part of the professional medical services the insured provided to the underlying claimant, the underlying allegations that the insured failed to have in place such policies and procedures, staff, and assistive technology triggers the policy exclusions barring coverage.  Administrative functions that are an intricate part of the provision of medical services implicate insurance policy provisions precluding coverage for bodily injury arising out of the rendering or failure to render medical services or treatment. 

General Star Indemnity Company v. Odeh

2010 U.S. Dist. LEXIS 74444 [lexis.com] (N.D.Ill., July 23, 2010)

Altered Medical Records Exclusion Deemed Ambiguous

A medical malpractice action alleged that the policyholder doctor failed to properly monitor decedent's cardiac condition and as a result of this negligence, caused or contributed to the decedent's death.  In the course of the underlying action, the doctor was deposed.  In a deposition, he stated that he made additions to the decedent's medical records. His policy included an exclusive for cases involving altered medical records. The court stated that this dispute hinged on the interpretation of the word "involving" as contained in the exclusion, and since the plaintiff did not claim his injuries were impacted by the alterations, the exclusion was ambiguous and inapplicable.

Engineering & Construction Innovations, Inc. v. Western National Mutual Ins. Co.

2010 Minn. App. Unpub. LEXIS 826 [lexis.com] (Minn. App., August 17, 2010)

Insurer Not Obligated to Cover Clean-Up Costs Caused by Negligence

A company contracted to install access structures to connect segments of sewer pipe previously installed by another contractor.  During the installation, the company accidently injected grout into the open end of one of the sewer pipes which resulted in extensive removal and cleanup costs, although the pipe itself was not damaged.  The company's CGL policy provided coverage for liability to third parties for property damage but excluded damage that part of property on which the company is "performing operations if the property damage arises out of those operations." In holding that the insurer was not obligated to provide coverage, the court held that the exclusion applies since the company was required to cut and remove sections of pipe and use grout in performing its operations.

Standard Waste Systems, Ltd. v. Mid-Continent Cas. Co.

2010 U.S. App. LEXIS 14609 [lexis.com / lexisONE] (5th Cir.(Tex.), July 16, 2010)

No Duty to Defendant Where All Potentially Covered Allegations Fall within Pollution Exclusion

Employees of a paper plant were injured by a toxic substance when they were unloading a truckload of paper to be recycled from a contaminated truck. The injured workers sued the company that originally loaded the paper, which tendered the suit to its CGL carrier. The carrier disclaimed, citing the pollution exclusion. The Fifth Circuit affirmed summary judgment in favor of the insurer, finding no duty to defend. The pollution exclusion precluded coverage for injuries where the company was the source of contamination. Applying the "eight corners rule", the court determined, based on the allegations of the workers' complaint, either the company would be liable because it was the source of the contaminant, or it would not be liable. As such, there was no coverage and no duty to defend.

Markel Ins. Co. v. S.T.C.G., Inc.

2010 U.S. Dist. LEXIS 85539 [lexis.com] (N.D.Tex., August 19, 2010)

Workers' Compensation Exclusion Applies to Employee's Claim

An employee of a gymnastics facility sued his employer seeking recovery under the Texas workers' compensation statute for personal injuries allegedly caused by the employer's negligence. The employer tendered the suit to its CGL insurer. In a coverage action, the court ruled in favor of the insurer, holding that because the employee sought recovery under a workers' compensation statute, the claim was barred by a policy exclusion which precluded damages for, "any obligation of the insured under a workers' compensation ... law or any similar law." In a rather lengthy discussion, the court explained that typically whether policy exclusions apply depends on facts, not legal theories of recovery. However, as the applicable exclusion was based on a legal theory and plaintiff sought recovery under the theory of worker's compensation, the court was bound to interpret the agreement between the parties and conclude that the exclusion barred coverage for the employee's lawsuit. The insurer owed no duty to defend or indemnify the employer.

Builders Mut. Ins. Co. v. Half Court Press, LLC

2010 U.S. Dist. LEXIS 78727 [lexis.com] (W.D.Va., August 3, 2010)

Insurer Is Not Entitled to Declaratory Judgment

The underlying plaintiff claimed that defendant damaged his private pond by failing to maintain sediment control measures during its property development projects and sought remediation.  The court found that while the allegations regarding sediment pollution were arguably excluded by the policy's Total Pollution Exclusion, the allegations in the complaint were not restricted to pollution damage.

 

 

Fraud

Elliott v. Liberty Mutual Fire Ins. Co.

2010 U.S. Dist. LEXIS 87949 [lexis.com] (E.D.Ky., August 19, 2010)

Misrepresentation Of Law Does Not Rise To The Level Of Fraud

The plaintiff was injured and brought claim against the alleged negligent party.  Settlement negotiations ensured, during which time the plaintiff filed suit but did not serve the complaint.  The claims adjuster allegedly advised, in error, that the statute of limitations would be tolled during negotiations. The plaintiff amended complaint to name adjuster and insurer alleging fraud. The court held that misrepresentation of law, without a trust or confidential relationship, is not actionable. Kentucky law does not recognize claims of fraud based upon the depravation of opportunity to bring timely suit, when plaintiff is aware of the potential action.  The complaint was dismissed.

Bond v. US Manufacturing Corp

2010 U.S. Dist. LEXIS 77342 [lexis.com] (S.D.Mich., July 30, 2010)

Employer Recovers Health Insurance Premiums Paid Due To Insurance Fraud

The plaintiff was an employee of the defendant. The plaintiff completed health insurance application forms which stated his marital status was married, although he was not. Over a period of years employer paid $25,087.68 in premiums for coverage for the alleged spouse.  The court held plaintiff made a fraudulent misrepresentation on the application. Summary judgment was granted to the defendant and the plaintiff was ordered to reimburse his employer.

DeMasi v Lexington Ins. Co.

2010 N.J. Super. Unpub. LEXIS 1762 [lexis.com] (NJ App. Div., July 23, 2010)

Insurer Prevails On Denial Of Coverage For Policyholder Who Failed To Provide Authorization To Investigate A Suspected Fraudulent Claim

The insurer suspected arson in a house fire and that plaintiff's claim was fraudulent.  It sought authorization to obtain financial records from plaintiff's accountant.  The plaintiff refused and the insurer denied claim.  The court held that the plaintiff's failure to provide authorization materially diluted the insurer's ability to promptly investigation the claim and caused it to "irretrievably lose" evidence of fraud. 

AXA Versicherung v. New Hampshire Ins. Co.

2010 U.S. App. LEXIS 17645 [lexis.com / lexisONE] (2nd Cir.(N.Y.), August 23, 2010)

Statute of Limitations for Fraud Triggered by "Storm Warnings"

 A reinsurer alleged fraudulent inducement, asserting the cedent misled it into believing the reinsurance facilities operated on a facultative obligatory basis, while the cedent treated them as purely facultative and off-loaded bad risks on reinsurers. The jury found fraud and awarded over $34 million in damages.  The 2nd Circuit, however, held there were sufficient "storm warnings" to place the reinsurer on notice of fraud long before suit was filed and, thus, the action was barred by statute of limitations. The court vacated the award and remained the matter to the trial court to enter judgment in favor of defendants.

O'Brien v Argo Partners, Inc

2010 U.S. Dist. LEXIS 88890 [lexis.com] (E.D.N.Y., August 23, 2010)

Allegations Of Fraud Do Not Serve To Reform An Agreement

The plaintiff had filed personal injury suit. The defendant was insured by an insurer in liquidation.  The plaintiff obtained a judgment of $900,000, and then, rather than wait, plaintiff entered into an agreement with the defendant.  The defendant paid the plaintiff $67,000 and plaintiff assigned it all of his "rights, title and interest" to a claim against the insurer in liquidation. Thereafter, the plaintiff learned that the defendant received the interest payments on the $900,000. The plaintiff alleged fraud in that it did not assign his rights to interest.  The court held that there was no fraud but only a better deal for the defendant than the plaintiff, and as such, it would not reform the agreement.

State Farm Mut. Ins. Co. v Broe Rehab Servs.

2010 Mich. App. LEXIS 1414 [lexis.com / lexisONE] (Mich. Ct. of App., July 22, 2010)

Insurer Investigation Of Doctor's Fraud Requires Notice To Insureds

An insurer undertook an investigation of a medical service provider's suspected fraudulent billing.  The provider had a history of fraudulent billing. The insurer filed a complaint seeking records of six patients who had made claims for benefits. The doctor refused to release the records as the patient/insureds had not authorized the release.  The court held that the insureds are "interested parties" and are entitled to be on notice of a request for the release of their medical records.

Cedell v Farmers Insurance Company of Washington

2010 Wash. App. LEXIS 1670 [lexis.com / lexisONE] (Wash. Ct. of App., August 20, 2010)

Plaintiff Must Show Fraud, Not Just Bad Faith, To Overcome Attorney-Client Privilege

The plaintiff policyholder sustained a fire to his house and filed a first party claim.  After one year, the insurer had not paid the claim. The plaintiff filed suit and sought the entire claim file including documents over which the insurer was asserting an attorney client privilege.  The trial court found there was sufficient evidence of bad faith and ordered the production of the entire claim file. The appellate court held the trial court abused its discretion.  The insurance company has a right to attorney client privilege in a first party case, absent a showing of fraud and proof of fraud is different than bad faith.

 

Occurrence/Trigger of Coverage

Desert Mountain Properties Limited Partnership v. Liberty Mut. Fire Ins. Co.

2010 Ariz. App. LEXIS 121 [lexis.com / lexisONE] (Az. App., August 3, 2010)

Coverage for Sums an Insured Becomes "Legally Obligated to Pay As Damages" May Be Triggered in Absence of a Civil Lawsuit

Plaintiff paid customers to whom it sold homes for damages caused by soil settlement and sought reimbursement from its insurer.  The court held that defendant's commercial general liability policies covered the expenses and defendant was obligated to indemnify plaintiff even though none of the homeowners had sued over the damage.

Schuylkill Stone Corp. v. State Automobile Mut. Ins. Co.

2010 U.S. Dist. LEXIS 84240 [lexis.com] (D.N.J. August 17, 2010)

Personal Injury and Property Damage Caused by Construction Defect Covered

Thirty-nine homeowners sued the developer of their homes for alleged property damage and personal injuries resulting from water infiltration in their homes. The developer filed a third party action against its subcontractors, seeking indemnification as joint tortfeasors. The court held that the underlying homeowners' allegations sounded in tort, for an alleged failure to comply with industry standards in the construction of their homes, which constituted an accident and thus an occurrence, especially considering the resulting personal injuries alleged by the homeowners.

 

Other Insurance/Allocation

Beckman v. Federated Mut. Ins. Co. of Neb.

2010 Neb. App. LEXIS 132 [lexis.com / lexisONE] (Neb. Ct. of App., August 10, 2010)

Policy Covering Temporary Substitute Vehicle Responds First

A dispute arose from an accident in which the driver was operating a temporary substitute vehicle provided by a car dealership. Because both the policy insuring the driver and the dealership's policy insuring the vehicle purported to transfer liability to the other insurance policy, the court concluded that the policies contained mutually repugnant language. The court therefore applied the rule that in such situations, the policy covering the vehicle  provides primary coverage while the policy covering the driver is excess.

In the Matter of State Farm Mut. Auto. Ins. Co. v. Thomas

2010 N.Y. App. Div. LEXIS 6346 [lexis.com / lexisONE] (N.Y.A.D. 2nd Dept., July 27, 2010)

Policy of Vehicle Involved in Accident Higher Priority than Policy of Accident Victim

A school bus passenger was injured when an uninsured motorist struck the school bus. The court compared the "other insurance" clauses of the passenger's and school bus company's policies and found that the "other insurance" clause of the school bus company's policy was inapplicable because it did not address a situation where the insured under another policy was injured while a passenger on the school bus. Thus, the court concluded that the school bus company's policy responded to the loss first.

DPC Industries, Inc. v. American Int'l Ins. Co.

2010 U.S. App. LEXIS 17687 [lexis.com / lexisONE] (5th Cir.(Tex.), August 24, 2010)

Firth Circuit Affirms Summary Judgment For Insurer Based On "Other Coverage" Exclusion

The insurer issued a combined Primary and Umbrella comprehensive general liability policy for bodily injury and property damage under Coverage A and for pollution coverage under Coverage D.  Because the limit under Coverage A was $10 million and the limit for pollution under Coverage D was $4 million, the policyholder sought to get as much coverage as possible under coverage A.  The policy also included an exclusion relating to other coverages. The court first concluded that the pollution coverage provided in Coverage D applied. The court further held that once the insurer accepts coverage under any other coverage available under the policy, no coverage is available under Coverage A, noting, that the provision plainly give the insurer the right to accept coverage under Coverage D to the exclusion of Coverage A.

RSR Corp. v. International Ins. Co.

2010 U.S. App. LEXIS 15268 [lexis.com / lexisONE] (5th Cir.(Tex.), July 26, 2010)

Policyholder's Recovery Barred Based on Prior Recovery Under Multiple CGL Policies

A policyholder's environmental insurer sued the policyholder and its subsidiaries, seeking a declaration that it had no obligation to the policyholder under four Environmental Impairment Liability policies for a loss. The policyholder also purchased multiple (at least 53) CGL policies from many other insurance companies covering multiple sites. Over a ten-year period, the policyholder entered into 36 separate settlement agreements with its CGL carriers from which it received an aggregate payment of $76 million. The plaintiff insurer claimed its environmental policies' "other insurance" clauses precluded coverage for the loss  because the policyholder had already been fully compensated through its settlements with the CGL insurers. The court found that the settling plaintiffs were in a better position than non-settling defendants to insure that the settlement award was allocated between actual and punitive damages.

Teck Metals, Ltd. v. Certain Underwriters at Lloyd's, London et. al.

2010 U.S. Dist. LEXIS 80659 [lexis.com] (Wash. E.D., August 9, 2010)

District Court Denies Summary Judgment To Insurer On Scope Of Coverage "All Sums" Approach Governs The Subject Policy

The policyholder moved the court to rule as a matter of law that once policies are proven to be triggered, the insurers are liable under each of the policies for all of the policyholder's losses, up to their full policy limits, without any allocation between the parties. The issue arose because the insurers issued serial, successive liability policies (umbrella and excess umbrella) for the period from August 29, 1972 to June 30, 1985, while the policyholder's operations date from 1908 to 1995, and its claimed losses have continued through the present day. Washington's Supreme Court ruling in American National Fire Insurance Company v. B & L Trucking And Construction Company, Inc., 134 Wn.2d 413, 429, 951 P.2d 250 (1998), provides that once the policy was triggered, the language required the insurer to pay all sums for which the insured became legally obligated, up to the policy limits. "Once coverage is triggered in one or more policy periods, those policies provide full coverage for all continuing damage, without any allocation between insurer and insured." Id.

 

Personal and Advertising Injury

Telecommunications Network Design And Paradise Distributing, Inc. v. The Brethren Mutual Ins. Co.

2010 Pa. Super. LEXIS 2623 [lexis.com / lexisONE] (Pa. Super. Ct., August 23, 2010)

"Privacy" Refers To Content And Not Methodology Of Delivery

Court held that although the term privacy is not defined and can imply several meanings, it is insufficient to create ambiguity.  The term privacy is confined to secrecy interests and refers to the content of the material disseminated. None of the personal advertising injury addresses the intrusive nature of the method used to convey the message. Since the complaint only alleges the method of delivery and not the content, the insurer has no duty to defend under the advertising injury clause of the policy.

 

Reinsurance

Eagle Star Insurance Company Limited v. Highland Insurance Company

2010 U.S. App. LEXIS 2098 [lexis.com / lexisONE] (S.D.Cal., July 22, 2010)

Dismissal of Action without prejudice warranted as no "Plain Legal Prejudice"

Eagle and Highland settled the underlying lawsuit.  Third-party Defendant Ace who provided reinsurance to Highland moved to dismiss the third-party action with prejudice in light of settlement.  Highland also moved to dismiss, but without prejudice.  Ace argued that because of underlying settlement Highland no longer had right to pursue claims asserted and thus case should be dismissed with prejudice.  Highland disputed this argument.  The Court dismissed case without prejudice and held that "uncertainty because a dispute remains unresolved" is not "plain legal prejudice" to mandate case be dismissed with prejudice.

Newmont U.S.A. Limited v. N.I. Limited

2010 U.S. App. LEXIS 17018 [lexis.com / lexisONE] (10th Cir.(Col.), August 11, 2010)

Arbitration Provision in Reinsurance Contract Survives Expiration of the Policy

The reinsurer argued that it was error for court to compel arbitration because of the Reinsurance Agreement's expiration. The Court of Appeals affirmed the lower court's decision, holding that the arbitration provision in the contract was not extinguished by the expiration of the policy.

 

Rescission

Axis Ins. Co. v. Innovation Ventures, LLC

2010 U.S. Dist. LEXIS 78559 [lexis.com] (E.D.Mich., August 4, 2010)

Summary Judgment Not Appropriate To Determine Whether Policy Can Be Rescinded Based On Misrepresentation Where Parties Dispute Facts Of Misrepresentation

The Michigan Supreme Court has held that a misrepresentation is a false statement of fact is material if communication of it would have had the effect of substantially increasing the changes of loss insured against so as to bring about a rejection of the risk or the charging of an increased premium.  The focus of inquiry under the statutory materiality test is whether a reasonable underwriter would have regarded the applicant's updated answers as sufficient grounds for rejecting the risk or charging an increased premium.  However, summary judgment is not appropriate whether the parties dispute the facts and whether or not they show a misrepresentation or that the misrepresentation was material.

 

Legislation

California Assembly Bill 2128

(Intro:  Feb. 18, 2010; Last Action Aug. 2, 2010)

Amends an existing law that requires a private patrol operator employing a security guard who carries a forearm to maintain an insurance policy that provides minimum limits. Requires all private patrol operators or applicants for licensure to file or have on file with the Bureau of Security and Investigative Services an insurance policy that provides minimum limits of insurance for any loss due to bodily injury or due to injury or destruction of property.

 

California Assembly Bill 2151

(Intro:  Feb. 18, 2010; Last Action Aug. 9, 2010)

Provides the insurer of specified public safety employees' motor vehicles in issuing or renewal a policy, shall not increase the premium based upon an accident while operating an authority emergency vehicle in the performance of their assigned duties at the request or direction of the employer. Provides such accident is not reportable to the insurer. Provides the insurer of the private vehicle shall not be required to provide a defense of indemnification for an accident in such emergency vehicle.

 

California Assembly Bill 2781

(Intro:  Mar. 3, 2010; Last Action:  Aug. 6, 2010)

Amends existing law that relates to the State Insurance Guarantee Association that was set up to provide coverage against losses arising from the failure of an insolvent property, casualty, or workers' compensation insurer to discharge its obligations under its insurance policies. Deletes an order of receivership as a qualification for being an insolvent insurer.

 

Massachusetts House Bill 960

(Intro:  Jan. 19, 2010; Last Action Aug. 2, 2010)

Relates to the standard fire insurance policy; provides that a commercial policy issued in compliance with this section may exclude coverage for loss by fire or other perils insured against if the fire or other perils insured against were caused directly or indirectly by terrorism.

 

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.