Featured Blog of the Month - National Insurance Law Forum: a Multi-Part Series Outlining the Decade’s Insurance Developments

Featured Blog of the Month - National Insurance Law Forum: a Multi-Part Series Outlining the Decade’s Insurance Developments

2002: The Year of the Horse
Top New Claim Threat:             Terrorism
Athletic Achievement:              New England Patriots          
Furthest Fall from Grace:          Salt Lake City Winter Olympics
Coolest New Gadget:                GPS
Hottest Coverage Issue:             Vanishing Premiums
 
The Five Biggest Rulings of 2002
Anthem Electronics, Inc. v. Pacific Employers Ins. Co., 302 F.3d 1049 (9th Cir. 2002)
The Ninth Circuit ruled that liability insurers had a duty to defend allegations that the insured's defective circuit boards had caused the plaintiffs' computer scanners to crash. In the court held that claims for breach of contract are an "occurrence" under California law and that the plaintiffs' claims alleged a "loss of use" of the scanners. Further, the Ninth Circuit ruled that the underlying suits left open the possibility that the defective circuit boards had caused "sudden and accidental physical injury to the insured's product or the insured's work after it had been put to its intended use" so as to fall within the exception to the "impaired property" exclusion. The court also took note of a consultant's investigative report which had concluded that "thermal stressing" had caused foil layers to separate, commenting that this suggested that the damage may have occurred "suddenly."
Comment: Despite earlier pro-insurer rulings such as Wisconsin Label, this Ninth Circuit opinion re-opened the door to forcing CGL insurers to pay for contract disputes involving defective electronic components at the same time as computers are assuming a ubiquitous position in our lives.
 
Consolidated Edison Co. of NY v. Allstate Ins. Co., 98 N.Y.2d 208, 774 N.E.2d 687 (2002)
In a landmark victory for insurers, the New York Court of Appeals declared that a trial court did not err in adopting a "time on the risk" approach to long-tail pollution cleanup claims. The Court of Appeals ruled that an "all sums" or joint and several approach that would have permitted the policyholder to allocate its entire loss to any single year of coverage was inconsistent with the provisions of such policies limiting coverage to property damage during each year, particularly in cases where the amount of damage in any given year is uncertain. The court declined to adopt a specific theory of pro-ration, however, noting that its ruling was not the "last word" with respect to questions such as whether allocation should be based on the total period of injury, the limits of available insurance coverage or the amount of injury in each year much less as to how allocation should apply to diverse factual circumstances, such as those involving self-insured period, periods when the insured failed to purchase insurance, or periods for which insurance was unavailable for such losses. In another significant ruling, the court concluded that policyholders have the burden of proving an "accident" or "occurrence" in order to trigger coverage, rejecting the insured's contention that such terms are "exclusionary" in effect.
Comment: In recent years, New York has rarely led the way. At the same time, however, opinions of the New York Court of Appeals have a way of consolidating trends that have emerged elsewhere.   This opinion largely stemmed the tide of “all sums” rulings in other states and paved the way for the evolution of “time on the risk” case law in the region as state supreme courts in Connecticut, Massachusetts, New Hampshire and Vermont followed suit.
 
Friedline v. Shelby Ins. Co., 774 N.E.2d 37 (Ind. 2002)
While affirming the Court of Appeals' ruling that personal injuries suffered by a building occupant who inhaled carpet glue fumes was outside the scope of an absolute pollution exclusion, the Indiana Supreme Court overturned the lower court's ruling that the assertion of the exclusion is per se bad faith in Indiana. The court ruled in that the Freidlines had failed to establish by clear and convincing evidence that Shelby Insurance lacked a reasonable basis for its coverage position, particularly as it had been adopted by several out-of-state courts.
Comment: Starting around 1996, when the Indiana Supreme Court eviscerated pollution exclusions in Kiger and Seymour, insurance jurisprudence in Indiana went into free fall. Things were so bad that, by 2002, an intermediate appellate court had ruled that an insurer had acted in bad faith by even contending that an absolute pollution exclusion might preclude coverage for indoor chemical exposures.   In this 2002 opinion, the state Supreme Court began to right the ship. While continuing to hold to a limited view of the exclusion, the court acknowledged the right of insurers to contest coverage where legitimate grounds existed for their positions. It was the first (but not the last) major defeat for George Plews, who until them seemed to own the keys to the courthouse.
 
King v. Dallas Fire Ins. Co., 85 S.W.3d 185 (Tex. 2002
The Texas Supreme Court ruled in this case that allegations that an employer was negligent in its hiring, training or supervision of an employee who attacked the plaintiff have been held to set forth a separate claim for an "occurrence" under Texas law. The court declared that the question of whether an "occurrence" exists must be determined independently from the viewpoint of the insured seeking coverage. Although the Fifth Circuit had previously ruled on several occasions that employers are not entitled to coverage in such circumstances inasmuch as their liability is "related to and interdependent" on the intentional acts of the employee who causes the plaintiff's damage, the Texas Supreme Court concluded that this was an erroneous reading of Texas law since, "whether one who contributes to an injury is negligent is an inquiry independent from whether another who directly causes the injury acted intentionally."
Comment: In King, the Texas Supreme Court rejected an earlier line of cases in which the Fifth Circuit had held that employers are not entitled to coverage in such circumstances inasmuch as their liability is “related to and interdependent” on the intentional acts of the employee who causes the plaintiff’s damage. The Texas Supreme Court declared in King that this was an erroneous reading of Texas law since, “whether one who contributes to an injury is negligent is an inquiry independent from whether another who directly causes the injury acted intentionally.”
 
Port of Seattle v. Lexington Ins. Co., 48 P.3d 334 (Wash. App. 2002)
In one of the first Y2K first party coverage rulings, the Washington Court of Appeals held that millions of dollars that the Port of Seattle had spent to prevent system failures that might otherwise have resulted from the inability of its computer software to distinguish the year 1900 from 2000 fell outside the scope of its 1997 and 1998 first party property policies. The Court of Appeals declared that the Y2K problem was an "inherent vice" and therefore excluded. Further, the court refused to find that the insurers had an independent obligation to pay based on "sue and labor" provisions in their policies inasmuch as the loss that the insured sought to prevent could not have occurred before 2000 and therefore would not have been insurable in any event under these 1997 and 1998 policies.
Comment: Despite the smaller than expected incidence of Y2K-related failures after 2000, first party insurers still received millions of dollars in claims for costs that insureds claimed to have spent to mitigate against the risk of such losses occurring. As one of the first Y2K opinions, Port of Seattle set a tone that ultimately sealed the fate of such claims.
NEXT UP:  2003
 
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