Insurance Law

The 10 Most Significant Liability Coverage Cases – Of All Time

I have spent fourteen years coming up with a list of the ten most significant liability coverage cases of that year. In all that time it never occurred to me, until now, to put together a list of the ten most significant coverage cases of all-time. These would be the cases, more than any others, that exerted huge influence over the national coverage landscape.

It goes without saying that such a list is incredibly subjective and subject to fair debate. In fact, the room for debate over an all-time list dwarfs that of any annual top ten list, where the pool of possible candidates is so much smaller. Case in point, six of the ten cases on my all time list do not appear on IRMI’s list of the “50 Insurance Cases Every Self-Respecting Attorney or Risk Professional Should Know.”

So, as with any top ten list, like best pizza in New York (New York Pizza Suprema, 8th Ave. between 30th and 31st; just a 9-iron from Penn Station), feel free to tell me I’m wrong and have no idea what I’m talking about.

Below is my list, in no particular order, of the ten most significant liability coverage cases of all time.

Marx v. Hartford Accident & Indemnity Co. (Neb. 1968), [enhanced version available to subscribers]: When it comes to coverage litigation under an errors and omissions or professional liability policy, an issue that dominates is the one that goes to the core – does the claim in fact arise out of conduct that is a professional service? The issue also arises in the context of general liability policies -- does the injury or damage arise out of conduct that is excluded by a professional services exclusion?

In Marx, the Supreme Court of Nebraska, in the context of determining coverage under a medical malpractice policy, was required to define the term “professional services.” The definition developed – in part: “something more than mere proficiency in the performance of a task and implies intellectual skill” -- went on to become the most widely used by courts throughout the country. By my last count, over 40 states, when addressing the definition of “professional services,” have looked to Marx and cited it with support -- and some of the ten others have simply never addressed the issue. This is a staggering amount of influence for one decision -- especially when you consider that insurance coverage is so frequently fractured among states.

Northwestern National Casualty Co. v. McNulty (5th Cir. 1962), [enhanced version available to subscribers], (applying Florida law) and Lazenby v. Universal Underwriters Insurance Co. (Tenn. 1964), [enhanced version available to subscribers]. McNulty and Lazenby are far and away the two most frequently cited decisions on the public policy debate concerning insurance coverage for punitive damages. More than any others, these two cases have shaped the issue nationally. Since they are peas and carrots decisions – when one is cited expect to see the other as well -- I count them here as just one.

In McNulty, the Fifth Circuit Court of Appeals held that public policy precluded a tortfeasor from securing insurance coverage for punitive damages that were awarded against him for bodily injury that he caused while driving drunk. In the eyes of the McNulty court, since punitive damages are awarded for punishment and deterrence, it would serve no useful purpose if the party responsible for the wrong could shift the burden to its insurance company. The other side of the coin is Lazenby, where the Supreme Court of Tennessee was not convinced by the McNulty rationale for disallowing insurance coverage for punitive damages. The Tennessee high court concluded that it was speculative that socially irresponsible drivers would be deterred from their wrongful conduct if coverage for punitive damages were not allowed. The Lazenby court put it this way: “This State, in regard to the proper operation of motor vehicles, has a great many detailed criminal sanctions, which apparently have not deterred this slaughter on our highways and streets.”

Montrose Chemical Corp. v. Admiral Ins. Co. (Cal. 1995) (For known loss; not trigger), [enhanced version available to subscribers]: Montrose led to the so-called “Montrose Endorsement,” the insurance industry’s response to its dissatisfaction with the Supreme Court of California’s decision that a party was permitted to purchase a liability insurance policy to cover property damage that the insured knew existed at the time of the purchase, so long as the insured’s “liability” for such property damage was still contingent and not a certainty. In 1999, ISO introduced an endorsement, which came to be known as the “Montrose Endorsement,” [followed by incorporation of this language into the October 2001 edition of its CGL form (CG 00 01)], that amended the policy’s insuring agreement by stating that, prior to the policy period, no insured knew that the “bodily injury” or “property damage” had occurred, in whole or in part. Until the Montrose Endorsement, there had never been a “known loss” provision in a standard CGL policy. The Montrose Endorsement has begun, and will continue, to shape and reshape “known loss,” which is at the heart of the granddaddy of liability concepts -- fortuity. [Montrose is also well-known for its continuous trigger aspects – but that’s not the reason for its qualification as one of the ten most significant liability coverage cases of all time.]

Kenyon v. Security Ins. Co. of Hartford (Sup. Ct. N.Y. 1993, [enhanced version available to subscribers]: No list of the ten most significant liability coverage cases of all-time could be complete without one addressing the pollution exclusion – one of the most litigated coverage issues over the past three decades or so. Numerous cases could be chosen to take the pollution exclusion spot on this list. I give the nod to Kenyon v. Security Ins. Co. of Hartford – notwithstanding that it is a New York trial court decision from Monroe County (that’s Rochester; I had to look it up). At the heart of the surfeit of litigation over the absolute/total pollution exclusion has been whether it applies broadly, to all hazardous substances, or narrowly, to solely so-called traditional environmental pollution.

Kenyon was the first case to use the term “traditional environmental pollution” when discussing the breadth of what is essentially the absolute/total pollution exclusion that was specifically drafted to eliminate the “sudden and accidental” component of the first significant pollution exclusion. The court held that the pollution exclusion did not preclude coverage for bodily injury sustained as a result of carbon monoxide poisoning from faulty design or installation of a furnace. While Kenyon does not have a huge number of citing references, it opened the door to the phrase “traditional environmental pollution,” which scores of courts have walked through when discussing the breadth of the pollution exclusion.

Keene Corp. v. Ins. Co. of N. Am. (D.C. Cir. 1981), [enhanced version available to subscribers]: Keene was the birth of the continuous trigger – which has cost the insurance industry untold, and unforeseen, billions of dollars for latent injury and damage claims, such as asbestos and hazardous waste. Keene and the continuous trigger also forever altered the general mindset of insurance coverage analysis. Attempts to treat all kinds of claims -- even for non-latent injury – as “continuous” is now de rigueur. Based on Keene, and all that came after it, policyholders now take an “All the world’s a continuous trigger” approach to coverage whenever possible. And there’s more, Keene also gave rise to the “all sums”/joint and several liability method of allocation when multiple policies are triggered for a continuous injury.

Zuckerman v. National Union Fire Ins. Co. (N.J. 1985), [enhanced version available to subscribers]: It is probably a safe bet that the number one litigated issue, under a “claims made” policy, is whether the notice provision – such as, the claim must be first made and reported during the same policy period -- has been satisfied. The reason why the issue is so frequently litigated is that it is almost universally held that, if the notice provision has not been satisfied, then, unlike, typically is the case with an “occurrence” policy, the insurer need not prove that it was prejudiced by the breach. So, if the insurer wins on notice, case closed – even if coverage would have otherwise been owed.

The New Jersey Supreme Court’s decision in Zuckerman is one of the first to hold that an insurer need not prove prejudice in order to disclaim coverage, under a claims made policy, based on the notice provision not being satisfied. The fact that Zuckerman reached its decision without citing to a single decision is certainly strong evidence that the court was writing on a clean slate.

The court’s rational was that “the event that invokes coverage under a ‘claims made’ policy is transmittal of notice of the claim to the insurance carrier. In exchange for limiting coverage only to claims made during the policy period, the carrier provides the insured with retroactive coverage for errors and omissions that took place prior to the policy period. Thus, an extension of the notice period in a ‘claims made’ policy constitutes an unbargained-for expansion of coverage, gratis, resulting in the insurance company’s exposure to a risk substantially broader than that expressly insured against in the policy. Obviously, such an expansion in the coverage provided by ‘claims made’ policies would significantly affect both the actuarial basis upon which premiums have been calculated and, consequently, the cost of ‘claims made’ insurance. So material a modification in the terms of this form of insurance widely used to provide professional liability coverage both in this State and throughout the country would be inequitable and unjustified.”

Zuckerman was the start of what went on to become the wide majority notice rule for claims made policies that “no prejudice” is required. And many courts that took that route did so based on the Zuckerman rationale.

G.A. Stowers Furniture Co. v. Am. Indem. Co. (Tex. Comm’n App. 1929), [enhanced version available to subscribers]: Stowers is the best known case to adopt the hugely important rule of bad faith failure to settle. In very general terms, if there is a settlement demand within policy limits, such that an ordinarily prudent insurer would accept it, and the insurer fails to do so, and the case proceeds to trial, the insurer is then liable for the entire amount of the judgment, including the amount exceeding the insured’s policy limits. The so-called “Stowers Doctrine” exists, in some way, shape or form, in just about every state in the country. Stowers is the brand name. But the many generics that have come after it can be just as potent.

San Diego Navy Fed. Credit Union v. Cumis Ins. Soc’y (Cal. Ct. App. 1984), [enhanced version available to subscribers]: The term “Cumis Counsel,” named for both the case, and the statute that came after, are automatically associated with California. Cumis Counsel is essentially defense counsel chosen by the insured, i.e. not “panel counsel,” and paid for by the insurer, when the insurer is defending an insured under a reservation of rights and the nature of the ROR creates a conflict between the parties. Whether the reservation of rights, in fact, creates a conflict, sufficient to warrant Cumis Counsel, is where the disputes often arise. But, despite Cumis being so closely tied to California, its rule, in some manner, is the majority one nationally. Cumis is the 900 pound gorilla that has exerted tremendous influence over the hugely important “independent counsel” issue.

Appalachian Ins. Co. v. Liberty Mut. Ins. Co. (3d Cir. 1982), [enhanced version available to subscribers]: A massive amount of coverage litigation has taken place over the issue of number of occurrences. And that’s not surprising. Whether injury or damage was caused by one occurrence, or more, can have a monumental impact on the extent of an insurer’s liability for a claim, an insured’s liability for any deductible or retention and the amount recoverable for underlying plaintiffs. Any list of the ten most significant liability coverage cases of all time must include one addressing number of occurrences. But there is no single number of occurrences decision that stands out above all as the most influential. Many decisions address the two competing theories – cause test, which usually has a way of resulting in a single occurrence and effect test, which can be expected to result in multiple occurrences. After much consideration I give the nod to the Third Circuit’s in Appalachian Ins. Co. v. Liberty Mutual.

The court in Appalachian held that, despite there being claims by several individuals, that Liberty Mutual engaged in sex discrimination in its claims department in hiring, promoting and compensating females, “the injuries for which Liberty was liable all resulted from a common source: Liberty’s discriminatory employment policies. Therefore, the single occurrence, for purposes of policy coverage, should be defined as Liberty’s adoption of its discriminatory employment policies in 1965.”

Appalachian has an enormous number of citing references nationally and has been at the heart of many cases to adopt the cause test, which is clearly the majority rule nationally. In addition, by addressing number of occurrences outside of the asbestos and automobile accident context, the case can’t be accused of being limited to those types of situations. [Not that number of occurrences decisions, involving asbestos and automobile accidents, have not been hugely influential nationally. They have.]

Weedo v. Stone–E–Brick, Inc. (N.J. 1979), [enhanced version available to subscribers]: The amount of coverage litigation addressing whether an insured’s faulty workmanship is an “occurrence” is staggering. Lots of courts hold that it is not. Although, in recent years, that has been going the other way. The most influential case nationally, in favor of “no occurrence,” is the New Jersey Supreme Court’s in Weedo. In Weedo, the court held that no coverage was owed to a contractor, for faulty workmanship, where the damages claimed were the cost of correcting the work itself.

The Weedo court reached its decision, in part, in reliance on Dean Roger Henderson’s seminal law review article – “Insurance Protection for Products Liability and Completed Operations What Every Lawyer Should Know,” 50 Neb. L. Rev. 415 (1971), which stated: “The risk intended to be insured is the possibility that the goods, products or work of the insured, once relinquished or completed, will cause bodily injury or damage to property other than to the product or completed work itself, and for which the insured may be found liable. The insured, as a source of goods or services, may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity. This may even extend to an obligation to completely replace or rebuild the deficient product or work. This liability, however, is not what the coverages in question are designed to protect against. The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained.” [I interviewed Dean Henderson for Coverage Opinions a while back -- interrupting his retirement to discuss a 40+ year old law review article.]

No decision more than Weedo has been more influential on courts’ concluding that an insured’s faulty workmanship is not an “occurrence.” Policyholders will tell you six ways from Sunday why courts that follow Weedo are, well, smokin’ Weedo. But its influence in the world of construction defect coverage cannot be overstated.

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

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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