CaseWatch: Insurance – Decisions from The Insurance and Reinsurance Report – June 3, 2010

CaseWatch: Insurance – Decisions from The Insurance and Reinsurance Report – June 3, 2010

Additional Insureds

James McHugh Constr. Co. v. Zurich Am. Ins. Co.
2010 Ill. App. LEXIS 318 [lexis.com / lexisONE] (Ill. Ct. of App.,  April 13, 2010)
Employee Exclusion Applies to Additional Insured

A general contractor sought additional insured coverage from its subcontractors' insurer after it was sued in two third-party actions for contribution. The insurer denied coverage on the ground that the employee exclusion applied because the plaintiffs in the first-party actions were employed by the general contractor at the time of their accidents. The court held that the employee exclusion barred coverage for the claim, thereby rejecting the general contractor's claim that the exclusion's application to "the insured" applied only to the named insured, not any insured under the policy.

 

Bad Faith

Fincher v. Prudential Property and Casualty Insurance Company
2010 U.S. App. LEXIS 8134 [lexis.com / lexisONE] (10th Cir. (Co.), April 20, 2010)
An Insurer May Challenge Claims Which are Fairly Debatable
The policyholder brought a claim for breach of a duty of good faith and fair dealing and willful and wanton breach of contract based on the insurer's failure to pay additional benefits.  The court noted that to succeed on a claim for bad faith breach of an insurance contract, a policyholder must prove that the insurer's conduct is unreasonable and that the insurer either knew that its conduct was unreasonable or recklessly disregarded the fact that its conduct was unreasonable.  The court noted that an insurer may challenge claims which are fairly debatable and will be found to have acted in bad faith only if it has intentionally denied or failed to process or pay a claim without a reasonable basis.

Gallina v. Commerce and Industry Insurance
2010 U.S. App. LEXIS 8286 [lexis.com / lexisONE] (11th Cir. (Fla.), April 20, 2010)
An Insured Under Standard Liability Policy Must Suffer Damages Before Pursuing a Bad Faith Claim Against its Insurer.
The policyholder's breach of the cooperation clause foreclosed its bad faith claim.  Also, the policyholder could not maintain a bad faith claim because it has not sustained any damages since the policyholder did not suffer a verdict exposing it to damages in excess of the policy limits nor had it been damaged in any way.

 

Duty to Defend

Acuity v. Krumpelman Builders, Inc.
2010 U.S. Dist. LEXIS 34777 [lexis.com] (D.Ky., April 8, 2010)
Faulty Construction is Not An "Occurrence"
A claim for faulty workmanship, standing alone, is not an occurrence under a CGL policy.  The plain meaning of accident involves the doctrine of fortuity, including both intent and control.  Even if a builder does not intend to build a sub-par house, it has control over the construction of the home and therefore the faulty construction of the home cannot be a truly accidental event.

London v. PA Child Care, LLC
2010 U.S. Dist. LEXIS 36674 [lexis.com] (M.D.Pa., April 14, 2010)
No Duty To Defend Where Underlying Complaint Does Not Allege Any Factual Assertions Of Negligence Or Accidents
Whether the underlying injury results from an accident must be determined from the perspective of the policyholder and not from the viewpoint of the person who committed the injurious act.  Thus, when the injury or damage is directly attributable to the intentional act of a third party as well as the negligence of the insured, it is an occurrence or accident that will require the insurer to defend its policyholder. Reckless, malicious, or purposeful conspiratorial activities, however, are not negligent and cannot be considered accidental.

 

Environmental - Actions and Proceedings

Maestranzi Brothers, Inc. v. American Employers' Ins. Co. et. al.
26 Mass. L. Rep. 578 [lexis.com / lexisONE] (Mass., April 9, 2010)
Application of Boston Gas Damages Apportionment Method Leads To 80% Jury Verdict Ruling for Plaintiff Insured In Environmental Coverage Dispute
In determining the proper apportionment of damages, the court applied the approach outlined in the Supreme Judicial Court's recent decision of Boston Gas Company v. Century Indemnity Company, 454 Mass. 337, 910 N.E.2d 290 (2009), which described the general method of apportioning damages between insurers and insureds in complex disputes where the timing and extent of environmental damage are difficult to determine.  Specifically, the court concluded that the fairest assessment of damages would be to pro-rate the damages by determining the insurers' "time on the risk" divided by the years during the "triggered period." (i.e., determining the triggered policies that had time on the risk and divide that by the total number of years of triggered coverage).

 

Fraud

Adams v. USAA Cas. Ins. Co.
2010 Mo. App. LEXIS 496 [lexis.com / lexisONE] (Mo. Ct. of App., April 20, 2010)
Court Allows Conspiracy To Commit Fraud Claim To Proceed After Carrier's Increase of Policy Limits to Minimum Financial Responsibly Bars UM Claim
Plaintiff involved in accident in Missouri with an out-of-state vehicle with policy limits less than Missouri requirement.  The insurer of the out-of-state vehicle, USAA, advised it would "liberalize" its policy limits to meet minimum financial responsibly under the Missouri law.  This barred plaintiff's UM claim under her own policy.  Plaintiff alleged conspiracy and fraud between USAA and plaintiff's carrier, Shelter, in that the insurers conspired to prevent plaintiff from recovering a greater amount.  Court held the conspiracy to commit fraud was a viable claim and denied motion to dismiss on the pleadings.

Minn. Lawyers Mut. Ins. Co. v. Mazullo
2010 U.S. Dist. LEXIS 39046 [lexis.com] (E.D.Pa., April 20, 2010)
Term "Professional Services" Ruled Ambiguous, However, Insurer Prevailed As Exclusion Bars Claim For Fraudulent Acts
The policyholder sought coverage under his professional liability policy for claims against him arising from a real estate investment project.  The policyholder asserted the claim resulted from professional services.  The insurer contended claim arose from fraudulent act.  Court found term "professional services" was ambiguous, however, it dismissed the case as exclusion bars claims for dishonest or fraudulent acts.

State Farm Fire and Casualty Co. v. Billingsley
2010 U.S. Dist. LEXIS 37112 [lexis.com] (S.D.Ala., April 14, 2010)
Contradictory Statements In Bankruptcy Submission And Proof Of Loss Does Not Void Policy As A Matter Of Law
Insurer sought summary judgment to void homeowners policy due to policyholder's "concealment or fraud" of material fact in a damage claim. The court found the standards for sworn Bankruptcy Submission and sworn Statement of Proof of Loss were different and resolution of conflicting submissions was for a fact finder.

 

General Liability Policy Exclusions/Conditions

Harleysville Mut. Ins. CO. v. Buzz Off Insect Shield, L.L.C.
364 N.C. 1 [lexis.com / lexisONE] (N.C. , April 15, 2010)
Coverage Precluded Under CGL Policy for Claims of False Advertising by the Policyholder About Its Own Products
The competitor of a producer of insect repellents and insect-repellent clothing filed suit alleging that it was injured by its adversaries' false advertising of the attributes of their own products.  The insect-repellent clothing producer sought coverage for the claim under its commercial general liability policy.  The insurer disclaimed on the basis of the policy's "Quality or Performance of Goods - Failure to Conform to Statements" exclusion which precluded coverage for "advertising injury arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your advertisement."  The court held that while the policy appears to provide coverage for false statements made in advertisements about another's products, the exclusion unambiguously precludes coverage for false statements made about the policyholder's own products.

 

Occurrence/Trigger of Coverage

Legacy Partners, Inc. v. Clarendon Amer. Ins. Co.
2010 U.S. Dist. LEXIS 36966 [lexis.com] (S.D.Cal., April 14, 2010)
Complaint Alleges an "Accident"
Plaintiff's intentional act of performing repair work on the retaining wall could have involved unintended consequences if plaintiff's employees accidentally caused damage while in the course of performing the intended repair.

 

Policy Construction

Consumers Ins. USA, Inc. v. Davis
2010 U.S. Dist. LEXIS 35674 [lexis.com] (W.D.Mo., April 12, 2010)
Policyholder's Negligence In Allowing Employee to Operate A Vehicle Without Medical Clearance is "Garage Operation"
Claims of negligence for failure to monitor an employee or require medical clearance before allowing him to operate motor vehicles for the policyholder business are separate and independent from claims that arise from the company's use, ownership or maintenance of covered autos.  The claims arise from allegedly negligent managerial decisions which fall within "operations necessary or incidental to garage business".

National Union Fire Ins. Co. of Pittsburgh, Pa. v. Lambert
2010 U.S. Dist. LEXIS 38500 [lexis.com] (S.D.W.V., April 19, 2010)
Inmate Qualifies as a Volunteer Worker
A correctional facility employee was injured when a mixer fell off a cart that was pushed by an inmate who worked in the kitchen and crushed her foot.  The employee commenced an action against the correctional facility and the inmate.  The court determined that the state's insurer covered the inmate as a "volunteer worker" and it was obligated to provide the inmate with a defense.

 

Professional Liability

Beckley Mechanical Incorporated v. Erie Insurance Property & Casualty Company
2010 U.S. App. LEXIS 7598 [lexis.com / lexisONE] (4th Cir.(W.V.), April 13, 2010)
Embezzlement Committed Over a Period of Time Constitutes One Occurrence
The plaintiff appealed the lower court's granting of the insurer's summary judgment motion which dismissed the action.  The plaintiff was seeking a declaratory judgment against its insurer for more money under its insurance policy which had a provision for employee dishonesty.  The insurance contract agreed to reimburse the plaintiff $10,000.00 for each "occurrence" of dishonest act committed by their employees.  In affirming the lower courts granting of the motion and dismissal of the action, the Court noted that even though the offending employee had embezzled approximately 293 checks, her actions constituted "one occurrence" under the policy and nothing more.

Ohio Casualty Insurance Company v. Transcontinental Insurance Company
2010 U.S. App. LEXIS 7613 [lexis.com / lexisONE] (2d Cir.(N.Y.), April 14, 2010)
Antisubrogation Doctrine Bars Complaint
An excess insurer brought suit against a primary insurer to recover monies paid in underlying settlement. Both insured the same party. The excess insurer paid $6.1 million and the primary insurer paid $1 million. The excess insurer asserted that the primary insurer should reimburse it for the amounts that it paid pursuant to its exclusion for work related claims.  In affirming the lower courts decision, the court held that the antisubrogation doctrine barred this suit between insurers of a common insured.

Orange Construction Corporation v. Travelers Casualty and Surety Company of America
2010 U.S. Dist. LEXIS 37119 [lexis.com] (S.D.W.V., April 14, 2010)
Third Party Claimant Cannot Claim Bad Faith
A third-party claimant brought suit against an insurer for breach of contract, bad faith and unfair trade practices.  The action arose out of an agreement between the insurer's surety and the claimant for the performance of construction work.  The claimant alleged non-payment of its fees and included claims for bad faith and unfair settlement.  In dismissing the bad faith claims the court noted that because the claimant was suing an insurer for "harms committed by its insured" the action was a third party action. Accordingly, the court reasoned the cause of action for bad faith and unfair settlement were barred as they must be first party actions.

 

Uninsured/Underinsured

Rando v. Gov't Employees Ins. Co.
2010 Fla. LEXIS 475 [lexis.com / lexisONE] (Fla., April 8, 2010)
Anti-Stacking Provision Voided As Unenforceable Under Florida Law
The Supreme Court of Florida, on a certified question from the 11th Circuit Court of Appeals, held that under Florida law, the "uninsured" motorist anti-stacking provision contained in the policyholder's Delaware motor vehicle insurance policy -- which was executed, issued and delivered in Florida to the named policyholders residing in Florida and, thus, subject to Florida law -- is unenforceable where the insurer failed to satisfy the state's statutory informed consent requirement.

Zurich Am. Ins. Co. v. Tolbert
2010 S.C. LEXIS 112 [lexis.com / lexisONE] (S.C., April 12, 2010)
Supreme Court of South Carolina Addresses "Temporary Substitute" Endorsement
The insured owned a Honda Accord and leased a BMW through his employer. He rejected UIM coverage on the Honda, but the BMW had UIM coverage. The policyholder was involved in a motor vehicle accident while driving the Honda on a personal errand with his wife. After they settled their tort suit against the at-fault driver, they sought to recover UIM benefits under the BMW policy. The insurer denied coverage, asserting there was no coverage under the policy's "Drive Other Car" endorsement. The policyholder alleged that the Honda was a "temporary substitute" for the BMW, which needed service, so coverage was available under the "temporary substitute auto" provision of the UIM coverage, regardless of the "Drive Other Car" endorsement. The court held that because the policyholder and his wife presented a scintilla of evidence through his affidavit (i.e., that he intended to resume driving the BMW once it was back in service) sufficient to preclude summary judgment.

 

Legislation

California Assembly Bill 2699
(Introduced Feb. 19, 2010; Last Action Apr. 14, 2010)
This bill provides an exemption from licensure requirements for a health care practitioner licensed in another state who provides services on a voluntary basis without charge to the recipient or a 3rd party on behalf of the recipient.

Colorado House Bill 1234
(Introduced Feb. 2, 2010; Last Action Apr. 5, 2010)
This bill authorizes double benefits, attorney fees, and costs to a first-party claimant whose claims for benefits under an insurance policy have been delayed or denied without a reasonable basis for that action.

Colorado House Bill 1394
(Introduced Apr. 1, 2010; Last Action Apr. 7, 2010)
Concerns professional liability insurance policies issued to construction professionals.

Florida Senate Bill 1108
(Introduced Jan. 7, 2010:  Last Action Apr. 14, 2010)
This bill relates to court pleadings/sanctions; prohibits a monetary sanction against a represented party for a claim that is presented as a good faith argument but that is found to not be supported by the application of then-existing law to material facts.

Idaho Senate Bill 1357
(Introduced Feb. 15, 2010; Last Action Apr. 13, 2010)
This bill establishes certain requirements for motor vehicle service contract liability policies regarding insurer's financial statements and a company's affiliation with a vehicle manufacturer.

Massachusetts Senate Bill 1852
(Introduced Jan. 19, 2009; Last Action Apr. 5, 2010)
This bill relates to legal actions commenced in bad faith.

Oklahoma Senate Bill 1369
(Introduced Jan. 6, 2010; Last Action Apr. 12, 2010)
This bill amends a provision requiring any entity that issues building permits to obtain a certificate of insurance stating that a contractor has general liability insurance.

Oklahoma Senate Bill 2043
(Introduced Jan. 14, 2010; Last Action Apr. 14, 2010)
This bill amends the Life and Health Guaranty Association Act; makes changes regarding covered claims, coverage of structured settlement annuities, reinsurance contracts, nonresident coverage, coverage of extra- contractual claims and misrepresentation of policy benefits, limitations on coverage of health insurance and disability benefits, etc.

Rhode Island House Bill 7671
(Introduced Feb. 25, 2010; Last Action Apr. 6, 2010)
This bill would provide that governmental indemnification of its employees would not affect any obligations of the insurer.

Tennessee Senate Bill 2063
(Introduced Jan. 26, 2010; Last Action Apr. 12, 2010)
This bill relates to the Tennessee Life and Health Insurance Guaranty Association; makes changes concerning the limit on the association's liability for certain benefits, coverage of structured settlement annuities, preemption of coverage for certain policies, including those providing Medicare benefits, the association's authority to intervene in certain legal proceedings, and the authority to succeed to the rights of an insolvent insurer under a reinsurance contract to which the insurer was a party.

Utah Senate Bill 121
(Introduced Feb. 1, 2010; Last Action Apr. 7, 2010)
This bill allows a personal representative to be appointed for the purpose of representing a deceased person in any proceeding to establish liability when the deceased person was protected by liability insurance.

Virginia House Bill 93
(Introduced Jan. 4, 2010; Last Action Apr. 11, 2010)
This bill permits a liability insurer to be relieved of the costs of defending the owner or operator in a claim involving property damage or bodily injury, including death, if the liability insurer makes an irrevocable written offer to pay the limits of its policy and notifies any insurer providing underinsured motorist coverage with respect to the claim.

 

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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