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Insurance Law

Highlights of the Summer 2011 Issue of New Appleman on Insurance: Current Critical Issues in Insurance Law (shipping early September)

The Summer 2011 Issue of New Appleman on Insurance: Current Critical Issues in Insurance Law features three timely articles on the frontiers of insurance coverage disputes:

Douglas Richmond   Advice of Counsel and Insurance Bad Faith: Current Contours and Criticisms (by Douglas R. Richmond of Aon's Global Professions Practice) addresses an issue commonly faced by insurers. Insurers confronting claim-related and coverage-related problems often turn to outside counsel for advice and assistance.  An insurer sued for bad faith arising out of a claim or occurrence with respect to which the insurer consulted counsel must decide whether to assert its lawyer's advice as a defense.  This article observes that the advice of counsel defense essentially holds that when an insurer's actions conform to advice given to it by counsel, the insurer's actions are reasonable, and thus the essential element that an aggrieved insured must demonstrate in establishing bad faith is nullified.  In jurisdictions that recognize the defense, some reason that an insurer's reliance on the advice of counsel is an absolute defense to allegations of bad faith, while others treat advice of counsel as but one factor to be considered when evaluating the reasonableness of an insurer's conduct.  An insurer's reliance on the advice of counsel also may be a defense to punitive damages because it defeats-or at least mitigates-allegations of intentional or reckless misconduct or wrongdoing.

The article, however, points out that the advice of counsel defense carries a steep price.  An insurer that asserts advice of counsel as a defense waives its attorney-client privilege as to related communications and potentially exposes its counsel's work product to discovery.  Even worse from an insurer's perspective, some courts hold that an insurer defending a bad faith claim waives its attorney-client privilege if it makes factual representations which implicitly rely upon legal advice as justification for its actions.  In other words, in some jurisdictions an insurer may be deemed to have waived its attorney-client privilege even if it disavows advice of counsel as a defense.

J. Randolph Evans, J. Stephen Berry, and Letoyia Brooks   Insurance Coverage for Post-Repair Diminution in Value: Trends in Automobile and Real Property Claims (With Multi-State Chart of Pertinent Court Decisions) (by J. Randolph Evans, J. Stephen Berry and Letoyia Brooks of McKenna Long & Aldridge LLP) addresses one of the most contentious issues in recent property insurance litigation - coverage for "diminution in value" in addition to repair costs.   The article points out that until recently, this issue arose only in automobile claims.  Courts have split on whether an insured who has been involved in a motor vehicle accident is entitled to recover for the diminished market value of its vehicle in addition to the cost of repairs based on the terms and condition of the insured's automobile insurance liability policy. The article analyzes those decisions. The majority rule applies the plain language of the policy at issue (which, in the case of standard automobile policies, forecloses the additional coverage).

More importantly, there is a recent trend of policyholders seeking the coverage in real property claims as well.  Creative policyholders have cited cases ruling on automobile policies and attempted to apply them to real property.  At least one court has endorsed such an attempt, although under a commercial property policy with non-standard language. Policyholders are already arguing for the additional coverage under standard property policies, including one case that will soon be argued before the Eleventh Circuit.  The article concludes that if such attempts are successful, it could be a surprising disruption to the insurance industry, which has underwritten property risks without taking such coverage into account.

David Gauntlett   Insurance Coverage for Antitrust Lawsuits (by David A. Gauntlett) focuses on developing case law addressing fact scenarios that may give rise to potential insurance coverage for antitrust lawsuits.  The chapter observes that while there is no express coverage for antitrust violations in Commercial General Liability policies, neither are there typically antitrust exclusions.  This is contrasted with Cybernet/Multi-Media policies which, since their inception in 1995, have typically included such exclusions.

Since the inception of coverage for "personal injury/advertising injury" claims as part of Commercial General Liability coverage in 1976, policyholders have sought, with varying degrees of success, to secure the benefits of insurance coverage for antitrust lawsuits.  The focus of offense-based coverage is whether the facts alleged fall into the pertinent "category of wrongdoing," not the theory of liability asserted for the particular injury or damages sought.  The chapter demonstrates that many antitrust lawsuits, even if they do not include distinct claims for tortious interference or various other business torts, may implicate potential coverage.  While antitrust law focuses on injury to competition, fact allegations evidencing injury to competitors are often predicate acts for antitrust lawsuits, as well as a basis for the assertion of distinct - albeit as yet unpled - claims for relief whose fact allegations implicate potential coverage.

In light of the potential for coverage revealed by this chapter's careful review of case law, the author concludes that policyholders should vigorously analyze new lawsuits asserting antitrust claims, as well as facts developed thereafter, to determine if coverage may be available. In that regard, the chapter notes that the majority of jurisdictions permit reference to extrinsic evidence in analyzing possible coverage.

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