Insurance Law

Don Ho-ly Cow: Designated Premises Endorsement: Insurers Need To Consider A Change [Top 10 Case Of The Year Candidate]

I have never been one of those people who believes that, anytime an insurer is told by a court that it must provide coverage, that it didn’t believe was owed, the insurer needs to amend its policy language. That is simply not feasible or sensible. There are myriad reasons why an insurer may lose a case. And one lose on an issue, or even a few, may not be a reflection of the policy’s ability, in the grand scheme, to do its intended job.

But sometimes a decision comes along, especially from a state high court, involving an important policy provision, that is interpreted so far afield from its intent, and with reasoning that other courts may find easy to adopt, that insurers need to take a hard look at whether a change is in order. The Hawaii Supreme Court’s decision in C. Brewer and Co., Ltd. v. Marine Indemnity Ins. Co., No. SCWC-28958 (Hawaii Mar. 27, 2015), [enhanced version available to lexis.com subscribers], addressing the interpretation of a Designated Premises Endorsement, in the return-to-the-drawing-board category. There is more to the decision than I’ll discuss here. But the following will make the point.

In March 2006, a large portion of the Kaloko Dam in Hawaii collapsed, releasing over three million gallons of water. It caused the loss of seven lives and extensive property damage. At the time of the dam breach, James Pflueger owned the dam. Pflueger filed suit seeking damages and indemnification from C. Brewer and Company, Ltd. According to the Pflueger complaint, C. Brewer sold him the dam, allegedly aware of the dam’s questionable structural stability. C. Brewer then filed a complaint, against seventeen insurance companies, seeking various rulings on coverage.

Particularly at issue here was coverage under a James River Insurance Company CGL policy, in effect at the time of the dam breach. Putting aside certain lower court rulings, the issue before the Supreme Court was the applicability of a Designated Premises Endorsement. Specifically, James River argued that the policy’s DPE limited coverage to liability “arising out of the ownership, maintenance, and use of the [designated] premises.” And, most importantly, the dam site was not listed as a designated premises.

It seems pretty clear, right? And I have no doubt that James River thought so too. But C. Brewer didn’t. And neither did the court. In fact, the court also saw the issue as a pretty clear one. The court agreed with C. Brewer that the “policy provides coverage for injury and damage arising out of its ‘use’ of its corporate headquarters to make negligent corporate decisions [the HQ was a designated premise] even though the resulting damage happened at the unlisted Dam site.” I know. It’s breathtaking.

The court’s decision was tied to its conclusion that “arising out of” is “ordinarily understood to mean ‘originating from,’ ‘having its origin in,’ ‘growing out of,’ or ‘flowing from.’ In the insurance context, this phrase is often interpreted to require a causal connection between the injuries alleged and the objects made subject to the phrase.”

The court also supported its decision in this way: “James River seeks to rewrite the term ‘arising out of’ to limit liability to injury and damage occurring on designated premises. Such a construction of the DPE would effectively convert the James River policy from a CGL policy to a premises liability policy that limits coverage to certain premises. James River’s argument contradicts the policy, which specifically states that it is a ‘commercial general liability’ policy.” (emphasis in original).

The court had more reasons for its decision. The policy’s inclusion of “personal and advertising injury” in the DPE means that “decisions made at C. Brewer’s corporate headquarters would likely be the cause of any advertising injury; however, the resulting injury would not occur on designated premises.” Lastly, “the James River policy’s broad coverage territory similarly encompasses the United States, Canada, Puerto Rico, and, under certain circumstances, other parts of the world.”

Even if there are aspects of the policy or facts at issue here that are unique – no two cases are ever exactly alike; and here the facts and policy language weren’t so unique – C. Brewer is a significant decision for insurers that seek to limit their CGL coverage to liability ON designated premises. That is certainly what James River thought it was selling to C. Brewer. The idea that its policy provided coverage, for injury and damage arising out of its insured’s “use” of its corporate headquarters (a designated premise) to make negligent corporate decisions that resulted in damage happening at a non-designated premise, was surely not the intent of the DPW. Not even close. Given that it is not difficult to see other courts finding this argument attractive, Aloha insurers if you use DPEs.

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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