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

2003: The Year of the Sheep
Top New Claim Threat:            SARS
Athletic Achievement:              Lance Armstrong
Furthest Fall from Grace:         Martha Stewart
Coolest New Gadget:               DVD Camcorders
Hottest Coverage Issue:           Sue and Labor Clauses
 
The Five Most Important Insurance Coverage Rulings of 2003
Hameid v. National Fire Insurance of Hartford, 1 Cal. Rptr. 3d 401 (2003).
In this case, the California Supreme Court reversed a ruling of the Court of Appeal that had declared that allegations that the insured solicited customers by advertising in the Pennysaver, sending mailers and telephoning former clients constituted “advertising” for purposes of Coverage B. Rather, the Supreme Court declared that “advertising” required widespread solicitations by the insured to the public at large and therefore did not provide coverage for one on one solicitations to prospective customers.
Comment: Although HameidI’s interpretation of “advertising” is now embodied in the definition of “advertising” in Coverage B of the CGL, this opinion set the tone in a manner that California courts have since followed in restricting the scope of Coverage B in numerous cases.
 
Henkel Corporation v. Hartford Acc. & Ind. Co., 62 P.3d 69 (Cal. 2003) 
The California Supreme Court ruled that a successor entity cannot claim coverage under policies issued to a predecessor insured absent evidence that the successor entity to a carrier’s original insured was being sued as the result of a merger, a continuation of the seller or as the result of an fraudulent asset transfer or unless the insurer gives its express assent to an assignment of rights. The court ruled that because Henkel had not acquire the liabilities of the named insured by operation of law but assumed those liabilities by contact, any purported assignment was invalid as it had not been assented to by the insurer. The court focused on the fact that as of the date of these transactions, the underlying claims had not been reduced to a sum of money due, nor had the insurer’s breached any contractual obligations such that such rights of action could be assigned. Whereas Henkel argued that an assignment under these circumstances had not increased the risk of losses to be imposed on the insurers, the Supreme Court disagreed, noting that such assignments did impose an additional burden since they created a “ubiquitous potential for disputes over the existence and scope of the assignment.” Likewise, the California Supreme Court has since ruled that an assignment of rights under an insurance policy will only be upheld if (1) at the time of the assignment the benefit has been reduced to a claim for money due or to become due, or (2) at the time of the assignment, the insurer has already breached a duty to the insured and the assignment is of a cause of action to recover damages for that breach. 
Comment: Before this opinion, most courts had ruled that just as successor entities were sued for the torts of predecessor companies, they were entitled to obtain the benefits of their predecessor’s insurance policies “by operation of law.” Henkel has largely eviscerated the “operation of law” argument and has gained significant traction in jurisdictions as widespread as Hawaii, Indiana and Ohio.
 
In Re Silicone Implant Insurance Coverage Litigation, 667 N.W.2d 405 (Minn. 2003)
Although silicone *** implants were a significant source of liability claims at the start of the decade, insureds faced the puzzling existential puzzle of arguing for an “injury in fact” trigger for a product that they claimed did not cause injuries. In this case, the Minnesota Supreme Court held that it was sufficient that the insureds had paid millions to settle these claims, whether there was proof of actual injury or not. Further, the court held that even though the bodily injuries allegedly attributable to silicone *** implants persist for months or years after the date of initial implantation, the losses attributable to implant claims need not be allocated over the total period of injury. In overturning the broad “time on the risk” approach that the Court of Appeals had applied, the Supreme Court declared that, unlike its rulings in past pollution cases such as Domtar and Northern States Power, allocation was not required here because the injuries while progressive in nature, were attributable to a specific identifiable event. 
Comment: As with Johnson Controls, 3M illustrates the peril of litigating with a huge local corporation on its home turf. More importantly, 3M called into question the extent to which the Supreme Court was committed to allocation and whether it might adopt a different trigger of coverage for losses attribute to distinct events. In so holding, the court avoided addressing the more difficult allocation issues that had been struggled with by the trial court and the Court of Appeals, namely whether injuries occurring after 1985, when 3M was insured under “claims made” policies should be subject to allocation in he same manner as if conventional “occurrence”-based GL policies had been in effect.
 
Johnson Controls, Inc. v. Employers Insurance of Wausau, 665 N.W.2d 257 (Wis. 2003)
Apparently embarrassed about being one of only two state Supreme Courts (Maine, being the other) still holding to the view that CGL policies were not meant to cover Superfund claims, the Wisconsin Supreme Court did an about face in July 2003 and ruled that it had made a mistake in adopting a “narrow and technical” interpretation of the words “suit” and “damages” in its 1994 opinion in City of Edgerton. Instead, the court declared that “an insured’s costs of restoring and remediating damaged property, where the costs are based on restoration efforts by a third party (including the government) or incurred directly by the insured, are covered damages under CGL policies, provided that other policy exclusions do not apply.”
Comment: With Johnson Controls, the Wisconsin Supreme Court thrust itself firmly into the policyholder camp on environmental issues. Wisconsin is now unique among the major states in ruling for policyholders on all of the key issues impacting pollution claims, including “damages,” suit”, “sudden and accidental,” and “allocation.” Did we mention that Johnson Controls is the largest private employer in Wisconsin?
 
State Farm Mutual Automobile Insurance Company v. Campbell, 123 S. Ct. 1513 (U.S. 2003) 
Expanding on its earlier opinion in BMW v. Gore, the U.S. Supreme Court overturned a bad faith case from Utah in which the state Supreme Court reinstated a $145 million bad faith award, declaring that (1) out of state evidence should not have been taken into account in calculating punitive damages; (2) that a punitive damage award that was seventy times greater than the plaintiff’s actual damages violated the Due Process Clause to the Fourteenth Amendment of the U.S. Constitution and (3) that courts considering challenges to these awards must employ a de novo standard of review.
Comment: The impact of Campbell cannot be overstated.. Overnight, it eliminated double and triple-digit punitive damage awards. Although the opinion’s premise that most awards should not exceed a 1:1 ratio remains largely unfulfilled, the opinion gave insurers numerous new tools to limit the evidence that juries could consider, particularly with respect to injuries occurring in other states or impacting parties not a party to the dispute.
 
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