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2014: The Year In Review
Property and casualty insurance coverage is a world dominated by decisions made by courts. So 2014 was a unique year -- as its two most significant stories had nothing to do with the judiciary. The first was the decision by the American Law Institute to change its four-year old work-in-progress “Principles of the Law of Liability Insurance” to the “Restatement of the Law of Liability Insurance.” The significance of this can be better assessed during the early part of 2015 when the ALI reporters release the necessary revisions to change the Principles to a Restatement.
The second biggest story of the year was the explosion of the awareness of cyber liability coverage in the wake of several massive data breaches. Last year ended with the gigunda Target data breach--which resulted in a huge shot in the arm for insurers that had already been aggressively marketing the need for coverage to protect against a data breach. The free advertising for insurers continued in 2014 thanks to several other wide-scale data breaches, including Michael’s, Home Depot, JPMorgan Chase and my 8 year old daughter’s lemonade stand. While cyber liability coverage has achieved tremendous awareness, what about policy sales? That is a question with less clarity. I delved into that this year and some of the alleged sales numbers being bantered around are just plain silly.
Turning to the influence that courthouses had on property and casualty insurance coverage, there were lots of things to take note of in 2014.
There was the first decision in a data breach coverage case – coming from a New York trial court in Sony, involving a breach of personal information from its PlayStation network. It was the most cutting-edge thing to come from the company since the Betamax. The Sony decision was issued from the bench and presumably will not be the last word in the case. So despite all the discussion that the decision generated, it was not one of the year’s ten most significant.
The New York Court of Appeals’s decision in K2-II received just as much attention as Sony. But the New York high court’s decision in Son of K2, which generally held that an insurer that breaches the duty to defend does not waive it coverage defenses, restored New York law to where it had been. So, like Sony, despite all the hubbub that accompanied the decision, it was not one of the year’s ten most significant. While K2 was ultimately not a loss for insurers, generally speaking the consequences for an insurer’s breach of the duty to defend continues to be a growing issue nationally. This was no exception in 2014.
While there were (once again) too many construction defect coverage decisions, there were few of significance. It was a far cry from 2013, which saw several state supreme courts part ways from their own earlier decisions -- joining the camp that holds that damage to an insured’s own faulty workmanship can qualify as an “occurrence.”
As usual, there were a gazillion pollution exclusion decisions. But nothing seminal here – with the exception of a Florida federal court concluding that ejaculate in a swimming pool, deposited by the pool guy, is a pollutant.
There were a significant number of important decisions addressing drop down and self-insured retentions vis-à-vis the relationship between primary and excess insurers. One of them was selected for the ten most significant list.
There was a large number of noteworthy decisions concerning malpractice claims against insurance brokers. While not coverage cases per se, a broker’s professional liability policy, if the insured’s claim is denied and broker negligence is to blame, can be the insurance policy of last resort for the insured (or plaintiff).
This year saw another court hold that a “standard” CGL employee exclusion (excluding coverage for bodily injury to an employee of “the insured”) precluded coverage to a general contractor, for injury to an employee of its subcontractor, on the basis that the GC is in fact the employer – being the statutory employer--of the underlying plaintiff. Given the huge frequency and exposure involving construction site injuries this is a significant trend.
A state supreme court (Connecticut) addressed the Montrose Endorsement. I’m pretty sure it was the first supreme court to do so. But the decision was too short on facts to qualify as one of the year’s ten most significant. That’s too bad.
It seemed like insurers’ ability to keep coverage opinions and advice provided by their outside counsel away from the prying eyes of discovery was under attack this year. Numerous courts made it clear that certain type of work performed by outside coverage counsel may be discoverable by the policyholder in coverage litigation. That issue qualified for the annual ten most significant.
The nation saw a few cases of Ebola on its soil. There were individuals who contracted Ebola in Africa, after treating or helping Ebola patients there, and then came to the USA. The only people who contracted Ebola here were nurses that treated an individual who was also infected with Ebola in Africa. But none of this stopped some brokers and insurers from seeing a market for new Ebola-related insurance products – as if the victims caught Ebola at a Starbucks in Cedar Rapids. [I checked. There is a Starbucks in Cedar Rapids. Several in fact.] Speaking of Cedar Rapids, kudos to Brenda Wallrichs at Lederer, Weston, Craig for the great job that she did this year as the steward of the DRI Insurance Law Online Community (Daily Digest/message board).
While not a coverage case, the Missouri Supreme Court issued its long-awaited decision in Coomer v. Kansas City Royals, one of my all-time favorite cases, holding that the Royals’s mascot, Sluggerr, could be liable for a serious eye injury sustained by a fan who was hit by a four-ounce foil wrapped hotdog that the adorable furry lion had tossed, behind his back no less, into the stands.
Speaking of baseball, Kilpatrick, Townsend & Stockton continued to hit it out of the park (sports metaphor groan) with its Global Insurance Recovery Blog. The KT&S blog is an absolute must-read for anyone involved in liability coverage. I’ve been saying this for a while. If you are not reading it, you are missing a lot. You’ll find the blog on the firm’s website.
Lastly, and certainly not surprisingly, there were an abundance of cases involving people who did really dumb stuff and then sought coverage for the consequences. You’ll meet these folks in the next issue of Coverage Opinions, featuring the 7th Annual Coverage for Dummies.
Best wishes for a healthy and prosperous 2015 and may any resolutions that you make last at least until February.
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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