CaseWatch: Insurance – Decisions from The Insurance and Reinsurance Report – March 18, 2010

CaseWatch: Insurance – Decisions from The Insurance and Reinsurance Report – March 18, 2010

Focus Case:     Actions and Proceedings
By Sarah J. Delaney

Supreme Court of Pennsylvania to Hear Important Attorney-Client Privilege Case
Gillard v. AIG Insurance
2010 Pa. LEXIS 458 [lexis.com] (Penn. S. Ct. March 16, 2010)
The Supreme Court of Pennsylvania has agreed to hear a case of vital important to insurers and defense counsel, and their ability to defend claims against insureds. On March 16, 2010, the Supreme Court of Pennsylvania allowed the appeal of Gillard v. AIG Insurance, 947 A2d 836 (2008). In the trial court decision, 2007 Phila. Ct. Com. Pl. LEXIS 159, which was affirmed by the Superior Court without opinion, it was held that communications from defense counsel to the client's claims representatives were not privileged.

In a relatively short decision, the trial court held that Pennsylvania's attorney-client privilege statute, 42 Pa.C.S. 5928, applies only to communications from the client to counsel, noting "[t]he policy reasons for the protection of confidential communication flowing from the client to the attorney do not exist in reserve as legal counsel cannot provide a client with confidential information for the purposes of securing legal advice."

In accepting the appeal, the Supreme Court paraphrased the issues:

a.         Whether the attorney-client privilege applies to communications from the attorney to the client;

b.         Whether the Superior Court erred in holding the attorney-client privilege applies only to confidential communications from the client to the attorney, pursuant to Nationwide Mutual Insurance v. Fleming, 924 A2d 1259 (Pa. Super. 2007).

The Gillard case will be the Supreme Court's second recent foray into this important area.  In Nationwide Mutual Ins. Co. v. Fleming, 2010 Pa. LEXIS 40 (January 29, 2010), an evenly split court essentially affirmed a Superior Court decision holding that the privilege applies only to communications made by the client.  Only four judges were available to address the Fleming case, and the panel ended up evenly split. Justices Eakin and Baer voted to affirm, and Justices Saylor and Castille supported reversal.  Under the applicable Pennsylvania rule, in such a circumstance, the Superior Court's decision was deemed affirmed. A reading of the opinions accompanying the opinion, however, indicates that no one on the panel accepted the proposition that attorney-client privilege only applies one way.

In his opinion supporting the affirmance of the Superior Court's decision in Fleming, 924 A2d 1259 (Pa. Super. 2007), Justice Eakin determined that the insurer was required to turn over the documents because it had waived the privilege regarding that particular document, rather than a general rule about privilege. Essentially, Justice Eakin reasoned that because the insurer had voluntarily turned over documents addressing the same information, the privilege was waived.  He declined to address the issue of whether privilege was a one-way street. Justice Saylor, on the other hand, found both that no waiver existed, and also advocated that the attorney-client privilege was to be applied broadly due to the "unavoidable intertwining of each communication and responsive advice."  Notably, it appears that the "work product" privilege was not invoked in either case.

 

Additional Insured

Village of Brewster v. Virginia Surety Co., Inc.
2010 N.Y. App. Div. LEXIS 1409 [lexis.com / lexisONE] (N.Y.A.D. 3d. Dept., February 18, 2010)
Additional Insured Entitled to Defense Based on Allegations in Complaint
Insurer's argument that the incident did not arise out of the named insured's work was rejected where the allegations in the complaint brought the claim within the ambit of coverage.

 

 Auto Liability

Selective Ins. Co. of Am. v. Arrowood Indem. Co.
2010 Ohio 557 [lexis.com / lexisONE] (Oh. Ct. of App., February 19, 2010)
Co-Signing for Loan on Vehicle Does Not Constitute "Ownership"
For purposes of determining an insurer's obligation to provide liability coverage, the court addressed whether a policyholder "owned" an automobile for which she co-signed a loan for financing but on which her daughter was listed as the registered owner and was the sole driver. The court held that although the policyholder may have acquired an insurable interest in the vehicle by co-signing for the loan, the act of co-signing did not make her an owner of the vehicle.

Wright v. Wright
2010 N.J. Super. Unpub. LEXIS 328 [lexis.com] (N.J .App., February 22, 2010)
Equivocal Testimony of Witnesses Creates Issue of Fact Regarding Whether Policyholder Contributed to Injury by Intentionally Assaulting a Driver
A automobile policyholder sought pedestrian personal injury protection (PIP) benefits after being injured by a truck driven by an acquaintance.  The driver of the other vehicle claimed he was intentionally punched by the policyholder while occupying his vehicle and the policyholder was accidentally caught beneath his car as he backed up the vehicle.  Other witness statements were equivocal regarding whether the policyholder intentionally struck the driver before being injured.  The policy's PIP coverage excluded benefits to an insured whose conduct contributed to the injury by acting with specific intent to cause injury to others.  The appellate court held that the equivocal testimony of the witnesses created an issue of fact that precluded summary judgment.

 

Bad Faith

Shin Crest PTE, Ltd. v. AIU Ins. Co.
2010 U.S. App. LEXIS 3460 [lexis.com / lexisONE] (11th Cir.(Fla.), February 19, 2010)
Insurer Does Not Commit Bad Faith By Settling Claim on Behalf of Co-Insured
An insured alleged that the insurer breached its duty of good faith by settling the underlying personal injury claims for the policy limits on behalf of a co-insured, leaving it exposed to its own defense costs and possible judgment. Under Contreras v. U.S. Sec. Ins. Co., 927 So. 2d 16 (Fla. Dist. Ct. App. 2006), an insurer's duty of good faith to an insured is fulfilled when it attempts unsuccessfully, to obtain a release for the insured while settling the claim against a co-insured.  Conversely, an insurer that fails to settle on behalf of a co-insured because it cannot obtain a settlement for both insureds may be liable for bad faith as to the co-insured. The Court of Appeals held that the insurer simply followed the applicable Florida law in electing to settle on behalf of one insured to the detriment of the other as it was established that plaintiffs were unwilling to settle with the latter.

Colony Insurance Co. v. Jones
2010 U.S. Dist. LEXIS 13253 [lexis.com] (N.D.Okla., February 16, 2010)
Third-Party Claimant Cannot Pursue Bad Faith Claim Against Defendant's Insurer
In this action, third-party claimant filed a counterclaim against defendant insurer alleging bad faith breach of contract, reformation of contract, and garnishment.  The court granted defendant insurer's motion for summary judgment holding that under Oklahoma law, a third party claimant is not entitled to pursue a bad faith breach of contract claim against defendant's insurer; a judgment creditor is not entitled to pursue garnishment against an insurer on the basis of bad faith breach of the insurance contract; and the insurer is not required to pay in garnishment more than the limits of the policy.

 

Exclusions

Nationwide Mutual Fire Ins. Co. v. Jones
2010 U.S. Dist. LEXIS 15229 [lexis.com] (D.Ariz., February 22, 2010)
House Party for Employees Was Not A "Business Pursuit"
Two employees were injured while riding an ATV at a house party at a co-worker's house.  The court held that the recreational vehicle exception to the motor vehicle exclusion in the homeowner's policy did not apply because the ATV was driven on the public cul-de-sac.  Additionally, by hosting the party, the homeowner was not engaging in a continued or regular activity involving a business activity in her home, and the business pursuits exclusion did not apply.

State Farm Mut. Automobile Ins. Co. v. Prakash
2010 U.S. Dist. LEXIS 15263 [lexis.com] (N.D. Fla., February 22, 2010)
District Circuit Denied Summary Judgment To Insurer Due To Issues Of Fact Whether Injured Passengers Were Employees Under The Policy
An insurer sought a declaration that passengers in the accident vehicle were "employees" of the driver, thus acting as a bar to coverage under the business exclusion contained within the policy. The insurer relied on Florida Statute §440.10 to create a statutory employment situation with the driver as a statutory employer under the workers compensation statute.  The court held that the insurer failed to demonstrate the contractual basis to establish the policyholder's status as a contractor of the passengers' status as a statutory employee and thus failed to demonstrate the applicability of the doctrine under the circumstances.

Fortney & Weygandt, Inc. v. American Mfrs. Mut. Ins. Co.
595 F.3d 308 [lexis.com / lexisONE] (6th Cir.(Oh.), February 12, 2010)
Court Construes Business Risk Exclusion Narrowly
The policyholder, a construction company, contracted to build a restaurant. After construction of the restaurant was complete but before the restaurant opened, the soil shifted and damaged the restaurant's utility lines. It was determined that the damage resulted from an improperly-constructed foundation and that the only way to remedy the damage was to demolish the building and reconstruct it. In the ensuing coverage litigation, the court held that exclusion j(6), which bars coverage for damage to that particular part of any property that must be replaced because the policyholder's work was incorrectly performed on it, did not apply to replacing building parts on which the insured performed non-defective work.

Alea London Ltd. v. Woodlake Mgt.
2010 U.S. App. LEXIS 3023 [lexis.com / lexisONE] (3rd Cir. (Pa.), February 17, 2010)
Assault and Battery Exclusion Precludes Coverage for Shooting
The insurer of an apartment complex sought a declaration that it was not obligated to provide coverage for a suit against the complex resulting from a shooting of a resident.  The underlying complaint alleged that the apartment complex failed to provide or repair a working security lock, creating a dangerous condition and allowing the assailant to enter the apartment building.  The policy excluded coverage for claims "arising out of" an assault or battery.  Interpreting the term "arising out of" in terms of "but for" causation, the federal appellate court held that there was no allegation that the apartment complex's negligence directly caused the underlying plaintiff's injuries and the assault was a "but for" cause, thereby precluding coverage.

National Casualty Ins. Co. v. Orion Transport, Inc.
2010 U.S. Dist. LEXIS 15004 [lexis.com] (S.D.Tex., February 22, 2010)
Pollution Exclusion Inapplicable Where There Is No Allegation Of Transportation Or Release Or Escape Of Pollutants
A trailer exploded while maintenance was being performed. The insurer sought denial of coverage under the pollution exclusion. The court held that there were no allegations in the underlying complaint about transport or escape or release of pollutants and therefore, the exclusion did not apply.

 

Notice/Policy Conditions

Abdelhamid v. Fire Ins. Exchange
2010 Cal. App. LEXIS 314 [lexis.com / lexisONE] (Cal. App., February 22, 2010)
Summary Judgment for Insurer Affirmed for Policyholder's Non-Cooperation
The court affirmed summary judgment in favor of the insurer where it denied coverage for a fire loss because the policyholder: (1) failed to produce requested documentation; (2) failed to answer material questions when she was examined under oath; (3) failed to submit a completed proof of loss with necessary documentation; and (4) failed to cooperate in the processing of her claim.

Bumgarner v. Burlington Ins. Co.
2010 N.C. App. LEXIS 304 [lexis.com / lexisONE] (N.C. Ct. of App., February 16, 2010)
Release of Policyholder in Exchange for Assignment of Rights Under A Policy Extinguishes Insurer's "[Legal Obligation] To Pay"
Appellant-assignee and third party beneficiaries appealed from an order granting summary judgment to the insurer in a matter involving a felony assault in a bar altercation.  At the time of the incident, the bar establishment had a CGL policy with the insurer.  The policy excluded from coverage any bodily injury arising out of assault or battery, and as a result, the insurer denied coverage to the bar.  Thereafter, the bar owners entered into an assignment with plaintiffs, wherein plaintiffs agreed to dismiss their claim against the bar for $300,000 in exchange for any and all rights it had against the insurer for breach of contract.  The court held that when an insured is given such a release, the defendant insurer is not legally obligated to pay plaintiff for any damage based on breach of contract because the insurer's obligations under the policy were extinguished by the execution of the settlement agreement.

Short v. Progressive Northwestern Ins. Co.
2010 N.Y. App. Div. LEXIS 1335 [lexis.com / lexisONE] (N.Y.A.D.  4th Dept., February 11, 2010)
Issues of Fact Regarding Whether Notice was Timely
Insurer's motion for summary judgment based on the insured's failure to provide timely notice was denied.  Court found triable issues of facts regarding whether the time the notice was given was reasonable.

 

Occurrence/Trigger of Coverage

Architex Assoc., Inc. v. Scottsdale Ins. Co.
2010 Miss. LEXIS 71 [lexis.com / lexisONE] (Miss. Sup. Ct., February 11, 2010)
Intentional Hiring Of Subcontractor Does Not Negate Coverage Of Property Damage Caused By Subcontractor's Work
The insurer argued that there was no occurrence because construction errors are not accidents and the subcontractor at fault was intentionally hired. The general contractor argued that construction errors constitute the "occurrence" and since the errors committed by the subcontractors were accidental, coverage should be afforded under the policy.  While the alleged property damage may have been set in motion by the general contractor's intentional hiring of the subcontractors, the chain of events may not have followed a course consciously devised and controlled by the general contractor, without the unexpected intervention of any third person or extrinsic force.

Allstate Ins. Co. v. Liberty Surplus Ins. Corp.
2010 Wash. App. LEXIS 351 [lexis.com / lexisONE] (Wash. App., February 22, 2010)
Products-Completed Operations Policy Is Inapplicable
A customer was injured when a store employee offered to give him safe operations training for a ladder the customer sought to purchase.  Summary judgment was entered for the manufacturer's insurer because the injury did not arise out of a defect in the product, but from the negligent acts of the vendor.

 

Policy Construction

Merlyn Vandervort Investments, LLC v. Essex Ins. Co., Inc.
2010 Mo. App. LEXIS 143 [lexis.com / lexisONE] (Mo. Ct. App., February 11, 2010)
Endorsement Provided Additional Coverage for Fire Loss
A policy provided coverage for fire loss in the unendorsed standard policy form.  An endorsement to the policy contained additional limits and included a list of covered causes of loss, including fire as well as some causes not included in the unendorsed form.  The court held that the endorsement provided additional coverage and policy limits for fire damage.

Axis Surplus Ins. Co. v. Lebanon Hardboard, LLC
2010 U.S. App. LEXIS 2990 [lexis.com / lexisONE] (9th Cir. (Ore.), February 16, 2010)
A Partially Deconstructed Building Does Not Qualify as Business Personal Property
Partial summary judgment was affirmed in favor of the insurer because a partially deconstructed building still had a frame, four walls, part of a roof and other features that would lead a lay observer to deem it a "building" and not "business personal property" under the policy.

McLaughlin v. Midrox Ins. Co.
2010 N.Y. App. Div. LEXIS 1263 [lexis.com / lexisONE] (N.Y.A.D. 4th Dept., February 11, 2010)
Farmowner's Insurance Policy Covered Accident on Public Roadway
The court held the insurer had a duty to defend the insured under a farmowner's policy for an accident between a motorcycle and pickup truck on a public roadway.  "Insured premises" included premises used in connection with the insured location.

Progressive Cas. Ins. Co. v. Harco National Ins. Co.
2010 N.Y. App. Div. LEXIS 1166 [lexis.com / lexisONE] (N.Y.A.D.  4th Dept., February 11, 2010)
"No Liability" Clause Given Effect

The "no liability" clause in a garage policy which specifically provided that "other available insurance" included excess insurance was enforceable.

 

Reformation

Warren v. Liberty Mutual Fire Ins. Co.
2010 U.S. Dist. LEXIS 14746 [lexis.com] (D.Col., February 19, 2010)
Where Coverage Cap Is Not In The Original Policy, A Reformed Policy Will Not Be Subject To Aggregate Cap Absent Clear Evidence
Where an insurance policy is reformed by the court, the reformed policy will be subject to an aggregate cap if the original policy included an aggregate cap.  In this case, there is nothing in the original policy providing for an aggregate cap.  In deciding the meaning of ambiguous term, courts may not consider extrinsic expressions of intent by the parties.  Therefore, the insurer's extrinsic evidence regarding the aggregate cap cannot be used to determine whether a cap should be imposed.

 

Regulation

Arbella Mut. Ins. Co. v. Commissioner of Ins.
456 Mass. 66 [lexis.com / lexisONE] (Mass. Sup. Ct., February 16, 2010)
Court Upholds Promulgation of Rules Relating to High Risk Drivers by Massachusetts Commissioner of Insurance
Plaintiff insurance company and insurance trade association sought appellate review of lower court decision that upheld promulgation of various Massachusetts Automobile Insurance Plan ("MAIP") rules. The Massachusetts Supreme Court held that the rules facilitated the operation of the MAIP and that the two-year delay before a newly writing company was assigned any policies issued to high-risk drivers did not unlawfully exempt such companies from the MAIP. The court also found that plaintiffs failed to show how the allocation formula established by MAIP Rule 30.A unbalanced competition between insurance companies.

 

Subrogation

Interstate Fire and Cas. Ins. Co. v. Cleveland Wrecking Co.
182 Cal. App. 4th 23 [lexis.com / lexisONE] (Cal. App. February 22, 2010)
Dismissal of Subrogation Action Reversed
The policyholder's employee was injured on a construction site.  Dismissal of the insurer's subrogation complaint against the tortfeasor was reversed because the insurer's claim was based on contractual indemnification and not barred by the tortfeasor's good faith settlement of the underlying litigation. The tortfeasor's equities were not equal to or superior to those of the insurer as a matter of law.

 

Uninsured Motorist/Supplementary Uninsured Motorist

Gallaher v. Republic Franklin Ins. Co.
2010 N.Y. App. Div. LEXIS 1203 [lexis.com / lexisONE] (N.Y.A.D. 4th Dept., February 11, 2010)
Fireman Not Entitled to SUM Coverage Where He was Not Occupying Vehicle
A fireman who exited the fire truck and directing traffic was not "occupying" the truck at the time of the accident and, therefore not entitled to SUM coverage.

Johnson v. Metropolitan Property and Cas. Ins. Co.
2010 Wash. App. LEXIS 301 [lexis.com / lexisONE] (Wash. App., February 16, 2010)
Summary Judgment to Insurer Affirmed Because Claimant Was Not An Insured
Plaintiff sought coverage for an auto accident in a rental vehicle under his fiancée's policy.  Coverage was properly denied because plaintiff was not a named insured, is not married to the policyholder and was not driving a covered auto.  Plaintiff did not qualify as a named insured by virtue of being listed on the policy as a "household driver".

 

Legislation

Alabama Senate Bill 419
(Introduced Feb. 11, 2010; Last Action Feb. 17, 2010)
This bill relates to the verification of motor vehicle liability policy as evidence of financial responsibility through the online insurance verification system.

California Assembly Bill 615
(Introduced Feb. 25, 2009; Last Action Feb. 2, 2010) =
This bill amends existing law which requires an employer to provide a claim form and notice of potential eligibility for Workers' Compensation to an injured employee whose injury results in treatment beyond first aid.

California Assembly Bill 833
(Introduced Feb. 26, 2009; Last Action Feb. 2, 2010)
This bill revises a provision of existing law authorizing a rental company and renter to agree that the renter will be responsible for loss due to theft of the rental vehicle up to the fair market value.

California Assembly Bill 2002
(Introduced Feb. 17, 2010; Last Action Feb. 17, 2010)
This bill removes the 60% reserve requirement for specific liability insurers.

California Senate Bill 1228
(Introduced Feb. 18, 2010; Last Action Feb. 18, 2010)
This bill declares the intent of the Legislature to govern the use of liability insurance contracts in order to provide for equitable resolution of claims for fraud, willful injury and other violation of law.

Colorado House Bill 1227
(Introduced Feb. 2, 2010; Last Action Mar. 1, 2010)
This bill requires physicians, dentist and health care institutions to comply with minimum financial responsibility requirements for professional liability insurance coverage as a condition of active licensure.

Colorado House Bill 1231
(Introduced Feb. 2, 2010; Last Action Feb. 24, 2010)
This bill requires a contractor from another state to comply with the personal and insurance requirements placed on Colorado contractors.

Colorado House Bill 1234
(Introduced Feb. 2, 2010; Last Action Feb. 2, 2010)
This bill authorizes double benefits, attorney's fees and costs to a first party claimant whose claims for benefits under an insurance policy has been delayed or denied without a reasonable basis for the action; it establishes a presumption of unreasonableness when an insurer either denies or delays a claim without a reasonable basis for the action.

Connecticut House Bill 5141
(Introduced Feb. 9, 2010; Last Action Feb. 11, 2010)
This bill concerns the handling of property claims and repair or remediation work and requires that only public adjusters prepare or submit property claims on behalf of the insured.

Connecticut Senate Bill 252
(Introduced Feb. 22, 2010; Last Action Feb. 26, 2010)
This bill concerns medical malpractice data reporting.

Illinois House Bill 5046
(Introduced Jan. 22, 2010; Last Action Feb. 3, 2010)
This bill increases the minimum mandatory coverage amounts for liability insurance policies in the state.

Illinois Senate Bill 2018
(Introduced Jan. 28, 2010; Last Action Mar. 2, 2010)
This bill amends the Illinois Insurance Code and provides that insurers shall arbitrate and settle all disputed claims made for automobile physical damage in accordance with the terms adopted pursuant to the Nationwide Insurance Company Arbitration Agreement.

Maryland House Bill 492
(Introduced Feb. 1, 2010; Last Action Feb. 1, 2010)
This bill alters the minimum amount of specified medical, hospital and disability benefits that insurers are required to provide under motor vehicle liability insurance policies.

Minnesota House Bill 2669
(Introduced Feb. 4, 2010; Last Action Feb. 4, 2010)
This bill relates to civil law and restores state and local government tort liability limits to pre-2008 levels.

Rhode Island House Bill 7525
(Introduced Feb. 23, 2010; Last Action Feb. 23, 2010)
This bill will create a specified procedure applicable to medical liability claims requiring a preliminary hearing and determination before the Superior Court.

Rhode Island House Bill 7671
(Introduced Feb. 25, 2010; Last Action Feb. 25, 2010)
This bill will provide that governmental indemnification of its employees would not effect any obligation of the insurer.

Tennessee House Bill 3076
(Introduced Jan. 27, 2010; Last Action Feb. 1, 2010)
This bill requires liability insurance to be maintained on all motor vehicles operating in Tennessee.

Vermont House Bill 739
(Introduced Feb. 1, 2010; Last Action Feb. 2, 2010)
This bill requires the owner or operator of a snowmobile to possess proof of liability insurance.

Virginia House Bill 45
(Introduced Dec. 18, 2009; Last Action Feb. 11, 2010)
This bill relates to homeowners insurance and Chinese drywall.

Virginia House Bill 1354
(Introduced Jan. 22, 2010; Last Action Feb. 12, 2010)
This bill provides that a non-resident motor vehicle that is insured under a motor vehicle liability insurance policy issued in another state with coverage limits are less than those required for Virginia registered motor vehicles shall not be deemed to be an uninsured vehicle.

Virginia Senate Bill 298
(Introduced Jan. 13, 2010; Last Action Feb. 8, 2010)
This bill prohibits an insurance company from cancelling, refusing to renew or increasing rates on a policy on an owner occupied dwelling solely because the dwelling was built using defective drywall.

 

This edition of CaseWatch: Insurance was originally published in the The Insurance and Reinsurance Report blog.

CaseWatch: Insurance provides timely summaries of and access to insurance law decisions and legislation. It is distributed bi-weekly. For ease of reference, the cases are organized by topic. CaseWatch is the collaborative effort of Goldberg Segalla LLP's Global Insurance Services Practice Group, as is its blog The Insurance and Reinsurance Report. Goldberg Segalla's Global Insurance Service Group is comprised of over 25 attorneys throughout 10 offices in the firm's four states (New York, New Jersey, Connecticut, and Pennsylvania). The Global Insurance Services Group routinely handles matter of national and international importance for both domestic and foreign insurers, cedents and reinsurers. This includes: comprehensive audits, policy reviews, regulatory advice,  positioning dispute for resolution at the business level (either through interim funding or non-waiver agreements), negotiations among counsel, mediation or fully-involved arbitration or litigation.

   The editors, Daniel W. Gerber and Sarah J. Delaney appreciate your interest and welcome your feedback.

 

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