Claims And Issues

DEATH AND COVERAGE IN FLORIDA: A CONTINUING STORY.

First installment, "They Called But No-One Came:  Liability Insurance Coverage Questions":  Monday, 09.18.17.  The second of three installments focused on liability insurance coverage questions regarding the Florida power company, "IS YOUR GENERATOR WORKING?" also at http://insuranceclaimsissues.typepad.com/insurance_claims_and_issu/2017/09/is-your-generator-working-the-first-installment-they-called-but-no-one-came-liability-insurance-coverage-questions-monda.html .  In this the final installment, we will address liability insurance coverage questions concerning the Florida nursing home.

Here is the story that continues to develop behind our insurance coverage questions.  I cautioned from the beginning of the first installment that this is a developing story,  that we do not know all the facts, and that much more remains to be reported as time goes on.

Those cautions have been borne out in the past week since I posted my first article in this series.  There are now eleven people who reportedly died after Hurricane Irma struck Florida and specifically struck a Florida nursing home.   The nursing home's air conditioning went out.  It got hot.  Very hot.

Eleven people have died from the heat.

A number of people and corporations played a role in this story.  Together we addressed liability insurance coverage questions regarding the Florida governor in the first installment, and in the second installment we addressed some liability insurance coverage questions surrounding the Florida power company.  In this last installment, together we will address liability insurance coverage questions involving the Florida nursing home.  To write again what I wrote at the outset:  What follows is from the reporting so far on what happened.   The reporting is not complete even now.  There are competing stories on lots of points.  As yet, only some things have been finalized, but they are enough to see the outlines of some important liability insurance coverage questions.

The focus of this series of articles is not on whether there may be any good claims of potential liability, but on whether there are claims to potential liability insurance coverage.

1. The Florida nursing home: Questions of Liability.

The Florida nursing home seems to be a target of opportunity for placing blame on what went wrong at the nursing home that resulted in eleven people dying when the nursing home's air conditioning failed during Hurricane Irma.  Yet it should never be overlooked that there are many actors in this play.

"Somewhere in between, the misery of a nursing home teetering toward tragedy was reported to every official channel, but no attempt was made to transfer the residents to a safer place, or even to the air-conditioned hospital practically next door."  Ellen Gabler, Sheri Fink & Vivian Yee, "At Florida Nursing Home, Many Calls for Help, But None That Made a Difference" (New York Times online, posted Saturday, September 23, 2017), also available at https://www.nytimes.com/2017/09/23/us/nursing-home-deaths.html?hpw&rref=us&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well.

After so many people died, the Florida governor insisted that his Florida Agency for Health Care Administration adopt emergency rules requiring nursing homes to have backup generators.  But that is not the way it was before Irma and before so many people died.

There were calls to require emergency backup generators at Florida nursing homes long before Hurricane Irma was a little breeze somewhere in the Atlantic Ocean.  The expense of operating a Florida nursing home caused these calls to go without any meaningful response.  To put it another way, money talked and people in power listened.

"Very few nursing homes had generators powerful enough to keep the air-conditioning running. In 2006, Florida lawmakers considered requiring nursing homes to maintain generators to ensure comfortable temperatures during disasters. But the industry raised concerns about the cost, according to The Miami Herald, and the bill died. Last week, after the Hollywood Hills deaths, Mr. Scott announced new rules requiring those generators."  Ellen Gabler, Sheri Fink & Vivian Yee, New York Times supra.

Certainly, the Florida nursing home is experiencing its share of allegations that it was either the sole cause or a contributing cause of these people's horrible deaths.  The current owners of the Florida nursing home have run a facility that received below-average ratings from Medicare even before Irma.  And they have experienced allegations related to Medicare and nursing homes before Irma, as well, including allegations of kickbacks.  See Ellen Gabler, Sheri Fink & Vivian Yee, New York Times supra (reporting that the current owners of the Florida nursing home "were among defendants who paid $15.4 million in 2006 to settle federal and state civil claims that they had paid kickbacks to doctors in exchange for patient admissions.").

No evidence of previous wrongdoing including kickbacks, even if admissible, would prove the allegations of wrongdoing now.  What evidence there is to prove the allegations now will depend in the end on what evidence is uncovered or introduced in the inevitable lawsuits that are the result of these tragic deaths.  See, e.g., "Report:  Before Deaths, Nursing Home Called Rick Scott's Emergency Number Three Times, To No Avail" (Tampa Bay Times staff, posted online on Friday, September 15, 2017), also available at http://www.tampabay.com/news/politics/stateroundup/report-nursing-home-called-rick-scotts-emergency-number-three-times-to-no/2337665.

("On Friday, a Miami law firm filed a complaint against the Hollywood facility ....); "'Red Flag' Calls Signaled Post-Irma Deaths at Nursing Home" (Associated Press copyrighted story published online in The New York Times on Saturday, September 16, 2017), also accessible at https://www.nytimes.com/aponline/2017/09/16/us/ap-us-hurricane-irma-nursing-home-deaths-.html (reporting that a family member of a surviving resident "hired an attorney after her 93-year-old mother became severely dehydrated on Wednesday.").

Our focus here remains on the liability insurance coverage questions arising from this tragedy.  In this final installment of a continuing series of articles, our particular focus here is on liability insurance coverage questions which confront the Florida nursing home.

2. Liability Insurance Coverage Questions and the Florida nursing home.

The liability insurance coverage questions surrounding the Florida nursing home in this circumstance are similar to the liability insurance coverage questions that surround the Florida power company which were previously asked here.

The questions that follow are not all the questions that can or will be raised concerning the Florida nursing home's liability insurance coverages.  Some of these questions may not apply.

"Occurrence":  Was there an accident neither expected nor intended from the standpoint of the insured, in this instance, neither expected nor intended from the standpoint of the Florida nursing home?  This is where the history of Medicare inspections and evaluations of the Florida nursing home may prove relevant.

In the context of Directors and Officers coverage if any for the operators of the Florida nursing home:  Is there any covered conduct at issue on the part of the Florida nursing home's directors and officers?  Alternatively or additionally, is any potentially "covered conduct" excluded because of the availability of liability insurance coverage, if any, under other liability insurance policies available to the directors and officers?

The number of occurrences, if any.  Was there one or were there 11 or more "occurrences," if any?  Was there one occurrence (if any) because, say, there was at least arguably one practice and procedure at the Florida nursing home which resulted in the damages that might be complained of here?  Or were there at least 11 occurrences (again, if any) because so far 11 people have died?  Or if there were any occurrences under the insurance policies at issue, were there more than 11, counting all the people who were injured but who have not died?

Time will tell, and it bears repeating:   Over time the answers to liability insurance coverage questions like these will likely be given by the Florida courts.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

"OCCURRENCE" GIVEN SAME INTERPRETATION UNDER HOMEOWNER'S POLICY AND CGL POLICIES.

In Westfield Ins. Co. v. Davis, 232 F. Supp. 3d 918 (S.D. W. Va. 2017), it was held under West Virginia law and the unambiguous liability section of a homeowner's insurance policy, that insureds' mistaken harvesting of trees on property of another person was not an accident, and so was not a covered occurrence.

This decision is in line with the great majority of decisions under comprehensive general liability (CGL) policies that an occurrence is an accident neither expected nor intended by the insured, which many CGL policies now expressly provide.  That is exactly the approach taken by the Davis court under the homeowner's insurance policy at issue in this case in West Virginia.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

VOUCHERS: ACCIDENTS NEITHER EXPECTED NOR INTENDED, OR KNOWN LOSSES?

Vouchers take the place of public schooling so that people can pay for charter schooling.

Vouchers are paid by taking money from public school taxes.  This seems to be the trade-off for the prospect that the children of parents holding vouchers will perform well academically if they do not have to attend public schools but can choose to attend charter schools instead.

However, years of studies show that "private school vouchers may harm students who receive them." The most recent study reporting the same dismal results came in June from a proponent of school choice.  See also here.

This calls into question the availability of insurance coverage for those who enable or even mandate such choices.  Many kinds of insurance policies contain the equivalent of the Commercial General Liability or CGL "occurrence" definition, which many States including Florida equate with the standard CGL Exclusion 1:

There is to put it simply no coverage for an occurrence which is not an accident neither expected nor intended from the standpoint of the insured.

In the case of school vouchers, the relatively poor academic performance of voucherized students seems to qualify as an event that should not be covered by insurance.  This has ramifications on several different fronts.

Hedge Funds and other Investors in Charter Schools, and Charter School Administrators.  These people certainly have, or should carry, Errors and Omissions (E&O) or Directors and Officers (D&O) coverage or the equivalent.   If they push vouchers knowing of their consequences at this time, there seems to be a real insurance coverage issue over whether their choices could even potentially be covered as accidents neither expected nor intended from their standpoint.

School Boards and School Board Members.  Boards and their Members carry or should carry something like School Officials Professional Liability Policies, whatever the policies might be called.  Putting aside questions of immunity, if any, there is still a very real question of whether School Boards and their Members can claim insurance coverage in the face of years of such poor test results that choosing vouchers for children may not be capable of an argument that such choices, again, are accidents neither expected nor intended from the standpoint of the insured.

"Known Loss Doctrine" proponents.  Some judges and many lawyers have argued that insurance coverage is or should be "excluded" whenever the policyholder knows that a loss has happened for which the policyholder is now claiming coverage.  There is rarely any such exclusion written in any insurance policy, but the argument is made often, usually by people who do not practice insurance coverage law.

Insurance is not available however unless there is a risk to be covered.  In this situation, there does not seem to be much risk of the outcome with vouchers.  Once vouchers are chosen, the outcome seems to follow.  This may present another situation for the so-called "known loss doctrine," not as a supposed "exclusion" but simply because insurance arguably does not exist to cover known losses.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

IS "NOTICE AND REPAIR" A CGL "SUIT?"

"In 2003, the Florida Legislature enacted Chapter 558 of the Florida Statutes, establishing a notice and repair process to resolve construction disputes between property owners and contractors, subcontractors, suppliers, or design professionals."  Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., ___ F.3d ___, No. 15-12816, 2016 WL 4087782, at *1 (11th Cir. August 2, 2016).  The law was enacted to provide a more expeditious procedure of resolving construction disputes.

However, in 13 years no Florida Court ever addressed the question of whether "notice and repair" under Chapter 558 is a covered "suit" under a Commercial General Liability ("CGL") policy.  The Eleventh Circuit accordingly certified the following dispositive question in this insurance coverage case to the Florida Supreme Court:

Is the notice and repair process set forth in Chapter 558 of the Florida Statutes a “suit” within the meaning of the CGL policies [at issue]?

Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., ___ F.3d ___, No. 15-12816, 2016 WL 4087782, at *7 (11th Cir. August 2, 2016).

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ADULT ENTERTAINMENT DISPLAYED ON INTERNET BUT NOT ADVERTISED: NO COVERAGE.

Perfect 10, Inc. is an adult entertainment company.  In its operative complaint in a federal court in California, Perfect 10 alleged copyright infringement by two internet purveyors, Giganews, Inc. and Livewire Services, Inc.  The operative facts alleged by Perfect 10 were that these defendants displayed its copyrighted adult materials even as they offered them for sale on the Internet.

St. Paul insured Giganews and Livewire under a commercial general liability policy.  After disclaiming all coverage for the claim in California, St. Paul filed its own action in a federal court in Texas requesting a declaration that it did not owe any coverage including no duty to defend.

The federal judge in Texas granted St. Paul's motion for summary judgment that it had no CGL coverage for Perfect 10's alleged copyright infringement claim.  The Court ruled that the CGL did not extend "advertising" coverage in large part because there was no "advertising" alleged.  St. Paul Fire & Marine Ins. Co. v. Giganews, Inc., No. A-15-CA-89-SS, 2016 WL 3457620, at *6-*8 (W.D. Tex. June 17, 2016).

Since St. Paul in this case owed no coverage, it owed no duty to defend and, in addition, the Texas federal court joined a host of other Courts in holding that where there is no coverage, there can be no bad faith.  In this case, moreover, the carrier did not commit any independent torts recognized in Texas even as it disclaimed all coverage.  St. Paul Fire & Marine Ins. Co. v. Giganews, Inc., No. A-15-CA-89-SS, 2016 WL 3457620, at *8 (W.D. Tex. June 17, 2016).

In addition to internet porn sales, this case highlights an interesting feature of declaratory relief actions in federal courts.  This case illustrates that a policyholder can be sued in California but may have to defend its claims to coverage, if any, not in California but somewhere else, in this case, Texas.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall.  All rights reserved.

FROM MIAMI TO NORTH FLORIDA, NO COVERED FRAUD "PROPERTY DAMAGE."

In James River Ins. Co. v. Arlington Pebble Creek, LLC, No. 1:13cv224-MW/GRJ, 2016 WL 3014606, at *1 (N.D. Fla. May 22, 2016), a federal judge granted a liability insurance company's motion for summary judgment, awarded it the costs of defending its policyholder under a reservation of rights in the underlying case, and denied the policyholder's motion for summary judgment declaring that there was no coverage for indemnity or defense, holding:

    After review, this Court finds that under the plain terms of the insurance policy James River is not obligated to defend or indemnify Arlington in the lawsuit against [sic; the underlying lawsuit was filed by] Campus Edge. It further finds that James River is entitled to recover the costs that it has already expended defending Arlington.

    James River's and Campus Edge's motions are therefore granted, and the Arlington Defendants' motions are denied.

Arlington is a condominium developer.  Campus Edge sued Arlington on account of allegedly undisclosed conditions which required repairs.  The basis of Arlington's liability was fraud:  Campus Edge sued Arlington alleging claims in several counts all based on alleged misrepresentation.

          The federal judge held with the virtually unanimous view that a commercial general liability insurance policy, like the one issued by James River, simply does not cover such claims because there simply is no covered "property damage."

          Further, there being no coverage for defense or for indemnity, the federal court awarded James River its costs of defending Arlington in the underlying case even though James River's policy was silent on the issue.  Applying Florida law, the federal court held:

    James River argues that it effectively reserved the right to seek reimbursement by so stating in its letter undertaking the defense. Arlington argues that James River could not reserve a right which did not exist under the insurance contract, and even if it did, Arlington rejected its right to reimbursement and is under no obligation to pay it.

    Under Florida law, James River wins.  It effectively reserved its right to seek reimbursement when it offered to defend Arlington, and Arlington accepted its defense, so it is entitled to reimbursement now that it has been determined that it was never under a duty to defend. 

James River Ins. Co. v. Arlington Pebble Creek, LLC, No. 1:13cv224-MW/GRJ, 2016 WL 3014606, at *11 (N.D. Fla. May 22, 2016).

James River was very fortunate in this case to have distinguished counsel to represent it, so distinguished that regardless of the fact that its counsel's law firm practices in Miami, Florida still James River received a favorable summary judgment in this case filed in Gainesville, Florida.  As one of my law professors at the University of Florida said several years ago, "This is not really North Florida here in Gainesville.  This is really South Georgia."

Congratulations to James River and its lawyer in this case for overcoming many odds to achieve their good result in this case.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of "Insurance Claims and Issues" (forthcoming Thomson Reuters 2016).  All rights reserved.

"INSURANCE CLAIMS AND ISSUES," THE BOOK: COMING IN 2016!

 

 Storm Clouds lined up over the Gulf of Mexico.  Photograph and text copyright 2015-2016 by Dennis J. Wall.

I am hard at work on an anthology of the best blogs from "Insurance Claims and Issues."  The anthology I submit to my publisher will keep all hyperlinks intact, including links to the Insurance Claims and Bad Faith Law blog.  When articles posted on Insurance Claims and Bad Faith Law blog are important to the anthology of "Insurance Claims and Issues," I am including them in the anthology too.

As each previously posted article is updated, the posted articles will remain just as available here as they always have been.  New articles will benefit from me being better informed and better equipped to discuss future insurance claims and issues.

I have contracted with Thomson Reuters (West Publishing Company to those fortunate to have the experience) to publish "Insurance Claims and Issues," the Book, in the late Spring or early Summer of 2016.  Best wishes to everyone for a joyous and Happy New Year!

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of "Insurance Claims and Issues" (forthcoming Thomson Reuters 2016).  All rights reserved.

Related articles

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CYBERINSURANCE:  MANY DATA-LESS RISKS TO UNDERWRITE & PREMIUMS TO CHARGE.

THE ALI RESTATEMENT PROJECT OF THE LAW OF LIABILITY INSURANCE.

Majority Holds No Negligence Cause of Action by Insured Against I.A.

Insurance Issues For the Ride-Selling, Room-Renting Economy.

There are an increasing number of reports raising questions about the extent of sellers' liability in the new ride-selling, room-renting economy.

Share these concerns?  In this climate, insurance issues are well worth a close examination given so many questions of liability in so many situations. A large top-tier law school is considering a symposium on the insurance issues shared by the potential liabilities of our new ride-selling, room-renting economy.  Let's leave it up to them to make their own announcement of who, when, and where.

Please Read The Disclaimer.  Copyright 2015 by Dennis J. Wall.  All rights reserved.

Related articles

What's in a Claim? A Defense, Possibly.

SECOND AMENDMENT RIGHT TO BEAR EXPLODING OIL ON RAILROAD CARS.

          The Second Amendment to the United States Constitution provides in part that the right of the people to bear arms shall not be infringed.

          Corporations are certainly "persons" according to five people in Washington, D.C. who judge such things on the Supreme Court.

          Exploding oil kills people and destroys property just like guns in the wrong hands.

          Therefore corporations have a right to own and use railroad cars bearing exploding oil.

          The Constitution aside, what are the "Commercial General Liability" insurance issues?  What are the liability insurance issues under any and all insurance policies that might be involved?

          Assume that railroad cars bearing exploding oil is going to be an accomplished fact.  Many reports over the past few years seem to provide evidence in support.

          If that is going to happen, can the price of exercising that right or privilege, whether under the Constitution or otherwise, be to pay for insurance coverage in amounts that will provide coverage for the injured people and damaged property they leave in their wake?

The National Transportation Safety Board held a two-day forum on April 22 and 23, 2014 on safety issues arising from rail transportation of the currently highly flammable, explosive version of crude oil.  Here are links to the NTSB video presentations on the web of that forum: here for the April 22, 2014 session, at ntsb.capitolconnection.org/042214/ntsb_archive_wmv.htm, and here for the session held on April 23, 2014, at ntsb.capitolconnection.org/042314/ntsb_archive_wmv.htm.

  

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

RUSSIANS DRILLING FOR OIL IN THE U.S. GULF OF MEXICO ...

... PURCHASING RIGHTS IN DEAL WITH EXXON:  THE INSURANCE IMPLICATIONS.

           Exxon has sold oil rights to Russia in the Gulf of Mexico.  Russia is using its oil rights to drill for oil in the Deepwater Horizon territory.  See Christopher Helman, "Will Exxon's 'Bromance' With the Kremlin Help Keep Putin in Check?" (www.forbes.com, posted online March 20, 2014).

          We will let others address questions concerning sanctions for conduct in the Crimea, and whether the Russians have immunity from suit even when yet another oil catastrophe occurs, should damage result to people and businesses in the United States from Russian oil drilling operations in the Gulf of Mexico.

          Will there be insurance for those damages should they occur?  Will there be any of the kinds of coverages discussed here and elsewhere after the last oil disaster in the Gulf of Mexico including:

• Business Interruption?
• Contingent Business Interruption?
• "Extra Expense"?
• Bodily Injury and Property Damage?

See generally Dennis J. Wall, "Claims Handling Practices Issues:  Releases of Claims:  Macondo--Deepwater Horizon and the BP Business Model," § 2:15 in John K. DiMugno, Steven Plitt and Dennis J. Wall, Catastrophe Claims:  Insurance Coverage For Natural and Man-Made Disasters" (West Publishing Co. 2014 Supplements in Process).

          And they said the Deepwater Horizon escapade was over with.

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

THERAPY NOT REQUIRED: WASHINGTON NAVY YARD INSURANCE QUESTIONS CONTINUE.

This article updates and continues after articles posted here on September 27, 2013 and September 30, 2013. 

          Negligent hiring.  Negligent supervision and retention.  Vicarious liability.  These and other legal issues are embedded as it were in the potential liability claims growing out of the Washington Navy Yard killings.  They affect the potential array of insurance coverage issues that may arise, including and depending on whose insurance policies are at issue and what kinds of insurance coverage if any they may provide. 

          The Washington Navy Yard mass murderer worked for a subcontractor of Hewlett Packard.  The murderer's mother told his bosses a month before the murders that the murderer was paranoid and "most likely needed therapy."  The subcontractor kept the paranoid man on the job.  The results became 12 dead people, 13 counting the murderer when he killed himself.

          Hewlett Packard terminated the subcontractor as a result of the subcontractor's advance knowledge of the murderer's mental problems and the subcontractor's apparent inaction notwithstanding this knowledge before the murders occurred.  HP essentially seems to contend that it should therefore be absolved from any legal liability for the murderer's murders at the Navy Yard.

          The subcontractor, for its part, reported that Hewlett Packard was "fully aware" of this man's mental problems.  See Serge F. Kovaleski, "Supervisors of Gunman Were Told of Issues / Report of Inquiry in Washington Case" p. A10, col. 6 (New York Times Nat'l ed., Saturday, October 5, 2013).

          The worm turns on the liability issues, as they say.

          The insurance coverage questions will not be far behind.

Please Read The Disclaimer.

INSURANCE COVERAGE, IF LIABILITY FOR ENABLING WASHINGTON NAVY YARD MURDERS?

            Newspaper reports point out that the Washington, D.C. Navy Yard mass murderer had glaring reasons in his background to deny him access to places like the Navy Yard.  "Federal contractors who conducted a background check on Aaron Alexis when he enlisted in the military knew that he falsely reported that he had never been arrested or charged with any firearms offenses but he nevertheless was granted a security clearance, Navy officials disclosed Monday."  Craig Whitlock, "Aaron Alexis Didn't Report Gun Arrest During Background Check, Received Clearance" (Washington Post Online Monday, September 23, 2013).    [Emphasis added.]  The background checkers knew more than that apparently.  They also allegedly knew, for example, that the mass murderer they were checking had been arrested a couple of times, and that on at least one police report the police wrote down that the killer told them that he heard voices before he got violent -- and the police sent a copy of the police report to the Navy to check it out.

          The background checker on the Navy Yard killer is a private contractor for the Office of Personnel Management.  Joe Davidson, "Does Profit Motive Affect Security Clearance Investigations?" (Washington Post Online Monday, September 23, 2013).  Parenthetically, the checker on the mass murderer's background is the same checker on the background of Mr. Ed Snowden who reportedly leaked NSA secrets to certain members of the public press.  Michael S. Schmidt, "Shooter Said Electronic Brain Attacks Drove Him to Violence, F.B.I. Says" p. A17, col. 1 (New York Times Nat'l ed., Thursday, September 26, 2013).  The background checkers on Mr. Snowden reportedly contacted his mom and his fiancée.  Those two are the only persons the checker checked with, allegedly.

          There is a clear possibility of claims against the contractor.  The claims will or may come in a multitude of ways.  There seem to be grounds for perhaps alleging intentional torts, or alleging negligence in that they knew or should have known the backgrounds, or some other bases of liability.

          When these claims are alleged, much will depend of course on how they are alleged, if at all, in the eyes of a Court.  Will Directors and Officers Coverage be implicated as to the directors and officers of the background checker of the mass murderer?  If he had not received clearance, he would not have been in the Navy Yard, his shotgun would not have been there either, and since he and his shotgun would not have been there, it can be argued, his finger could not have pulled the trigger and killed 12 people before he killed himself.

          Would there be CGL ("Commercial General Liability") Coverage or its equivalent under these reported circumstances, either for an "occurrence" resulting in "property damage" or "bodily injury," or for an "offense" resulting in "personal injury"?

          Would there be E&O Coverage or its equivalent, if any, for the Errors and Omissions of the background-checker-corporation?

          The insurance coverage questions will not be answered by the Courts until after the liability claims come, of course.  The application of Exclusions may prevent coverage under insurance policies altogether in cases like these.

Please Read The Disclaimer.

SOMETHING OLD, SOMETHING NEW: LIABILITY INSURER SUCCEEDS ON ONE, NOT TWO.

          Two issues stand out among several issues presented in the Insurance Coverage case of Forrest Construction, Inc. v. Cincinnati Insurance Co., 2013 WL 135372 (6th Cir. January 11, 2013)(case involved Tennessee substantive law).  The first standout issue was decided long ago under Tennessee law.  Where the Liability Insurance Company denied coverage under its CGL Policy but reserved rights "to make additional defenses at a later date, ... it was not estopped from making additional or different arguments after it was sued by [its contractor Insured] if it believes other grounds existed on which to deny coverage."  Forrest Construction, Inc. v. Cincinnati Insurance Co., 2013 WL 135372 *4 n.2 (6th Cir. January 11, 2013).

          The second issue that stands out is a new one.  In truth, it bears the marks of an issue sprung full blown from the Insurance Company's mind in this case without ever seeing a courtroom anywhere before.  The Liability Insurer in this case urged "a new rule" which would require Insureds in cases where Coverage was denied but the law supposedly changed thereafter, to "'request reevaluation of coverage after the applicable law changes.'"  Contrary to this Coverage contention, however, the Sixth Circuit panel left no doubt but that "the law in this regard is quite clear.  The insurer severs all the insured's responsibilities once it unequivocally denies coverage."  Forrest Construction, Inc. v. Cincinnati Insurance Co., 2013 WL 135372 *6 (6th Cir. January 11, 2013).  Moreover, "[i]t should not be incumbent upon the insured to continue negotiations with the insurer once the denial letter has issued."  Forrest Construction, Inc. v. Cincinnati Insurance Co., 2013 WL 135372 *6 (6th Cir. January 11, 2013).

          Something old, something new.  The CGL Carrier in this case prevailed in its position on a settled issue, but lost the novel issue it also advanced.  While winning one battle but losing another, the Carrier also lost the war in this case, so to speak:  The Appellate Court affirmed the Trial Court's grant of Summary Judgment to the Contractor-Policyholder.

Please Read The Disclaimer.

Also check out the outstanding Cavalcade of Risk at http://www.workerscompinsider.com/2013/01/cavalcade-of-ri-94.html, hosted by Julie Ferguson.

LEGISLATURES EXPAND CGL "OCCURRENCE" DEFINITION, FOR FUTURE CONTRACTS AND CASES.

          The South Carolina Legislature is a recent example of several State Legislatures which have intervened to alter the standard "Occurrence" Definition in Commercial (aka Comprehensive) General Liability Insurance Policies.  As reported by the South Carolina Supreme Court last November, the South Carolina Legislature mandated that an "Occurrence" for a CGL Policy shall include an additional Definition which is clearly intended to provide CGL Coverage for damage resulting from faulty workmanship:

            On January 26, 2011, the General Assembly introduced Senate Bill 431, which was subsequently passed as Act No. 26 of the South Carolina Acts and Joint Resolutions and ratified on May 17, 2011 upon the Governor's signature. Act No. 26 was codified as section 38–61–70 of the South Carolina Code and provides in relevant parts:

(B) Commercial general liability insurance policies shall contain or be deemed to contain a definition of “occurrence” that includes:

(1) an accident, including continuous or repeated exposure to substantially the same general harmful conditions; and
(2) property damage or bodily injury resulting from faulty                         workmanship, exclusive of the faulty workmanship itself.

Harleysville Mutual Insurance Co. v. State of South Carolina, 2012 WL 570799 *1-*2 (S.C. November 21, 2012).  The Supreme Court held that this South Carolina Statute could be applied prospectively, i.e., to future insurance contracts, but that the South Carolina Legislature's attempt to apply this provision retroactively ran afoul of the State Constitution's guarantee that existing contracts would not be impaired.  Harleysville Mutual Insurance Co. v. State of South Carolina, 2012 WL 570799 *6 (S.C. November 21, 2012).  Parenthetically, although the South Carolina Supreme Court also announced that retroactive application of this statute would also violate the United States Constitution, its analysis in support consisted of one "See also" citation to the U.S. Constitution.

          Hawaii has enacted a similar statutory addition to the CGL "Occurrence" Definition, but in Hawaii the statute is not made retroactive.  See Tred Eyerly, "Legislation Expanding 'Occurrence' to Cover Faulty Workmanship Cannot Be Applied Retroactively" posted December 19, 2012.

         Before concluding what now constitutes a CGL "Occurrence" in a given jurisdiction, it is important to know that State Statutes may affect the outcome.

Please Read The Disclaimer.

No Subrogation For Surety Against CGL For Defense, Expert Expenses.

    In the case of Hartford Accident & Indemnity Co. v. Crum & Forster Specialty Ins. Co., 2012 WL 2260915 (S.D. Fla. June 15, 2012), Download Hartford v. Crum and Forster (S.D. Fla. June 15, 2012) PUBLIC ACCESS, a Federal Judge decided that a Performance Bond Surety could not claim equitable subrogation for certain defense expenses against a General Contractor's Commercial General Liability Insurance Carrier.

    The bond contained no duty to defend.  Hartford, the Surety, sued Westchester, a CGL Carrier for a General Contractor for defense expenses.  Hartford retained Carlton Fields to defend the g.c. and Hartford also retained Expert Witnesses on behalf of the g.c. which was sued for Damages allegedly resulting from the construction of a condominium in South Florida.  Hartford alleged its right to recover $762,753.23 "in costs and fees incurred by the law firm" and bills submitted by two Expert Witnesses which totaled, respectively, $93,271.29 and $67,147.98.  Id. at *1.

    Hartford based its claims on equitable subrogation.  The Federal Court denied Hartford's claims, denied Hartford's Motion for Summary Judgment, and granted the CGL Carrier's, Westchester's, Motion for Summary Judgment.  Hartford failed in its claim to equitable subrogation, the Court ruled, for several reasons.  In part, Hartford could not claim equitable subrogation in this case because it made its payments as a volunteer.  Hartford had no duty to defend under the Performance Bond it issued.  Id. at *5.

    Please Read The Disclaimer.   

ALLOCATING COVERAGE WHEN DAMAGES PAYABLE BY INSURED ARE NOT ALLOCABLE.

... Is "Time on the Risk" a Defensible Way to Allocate Insurance Coverage?

 

"The principle underlying our decision is a straightforward one:  an insurance company cannot be held liable for periods of risk it never contracted to cover."

 

        In Pennsylvania National Mutual Casualty Insurance Co. v. Roberts, 668 F.3d 106 (4th Cir. 2012), Download Pennsylvania Natl Mut. Cas. Ins. Co. v. Roberts (4th Cir., Opinion Filed Feb. 3, 2012) PUBLIC ACCESS, the Court readily applied Maryland law to allocate Insurance Coverage.  Under Maryland law, "in lead paint or 'continuous trigger' cases such as this, Maryland courts determine an insurer's liability through a 'pro-rata allocation by "time on the risk."'"  Id. at 111.

        The Roberts case involved an infant who ingested lead and was poisoned by it.  She was born on January 17, 1991.  Twenty (20) months later, she was diagnosed with lead poisoning.  Id. at 109.  Using a cutoff of "August 1995" when the child apparently stopped "exhibit[ing] elevated blood levels," id., the District Court concluded that the period during which damages occurred was "55 full months," id. at 111, a finding accepted by the Federal Appellate Court in this case.

        The underlying liability case went to a jury verdict in Maryland State Court, which reduced the verdict amount to a Judgment of $850,000.00 "following an application of Maryland's noneconomic damages cap."  Id. at 110.

        "It is undisputed that [the Policyholder and another Tortfeasor Defendant] are jointly and severally liable for this amount."  Id.  [Emphasis added.]  The fact that the Damages award could not be allocated -- which is evident because there could not be joint and several liability, if the damages could be allocated -- seemed to be inconsequential to the Insurance Coverage allocation made by the Federal Appellate Court in this case.

        The Fourth Circuit panel's opinion, written by Judge J. Harvie Wilkinson, III, first applied Maryland law, which was directly on point of course, and held that "time on the risk" allocation of indemnity required allocation of Penn National's policy limits pro rated by time on the risk, of course.  Penn National's time on the risk was only 22 months, in an apparent finding of fact by the Appellate panel, and so Penn National was held liable by the Appellate Court to pay only 22/55 months' worth of the $850,000.00 Judgment here.  See id. at 113.

        But the opinion contained more words than that, in this case.

        The panel also ruled that even if Maryland law did not require this result, then the Federal panel's interpretation of contract law would also require this result.  Like most Policies in its class, the Penn National Bodily Injury/Property Policy -- which was never described as such, but looks from the opinion an awful lot like standard CGL or Commercial General Liability Policy or Landlord's Liability Policy language -- provided Coverage for Bodily Injury or Property Damage which "'occurs during the policy period.'"  Id. at 110, 112.

        The panel's opinion never once addressed the language of the insurance contract itself, namely that it provided  Coverage for damages occurring during the policy period and not simply Coverage for some abstract period of time unconnected with the determination of the Policyholder's liability to pay Damages.

        As a third reason for its decision, the Federal Appellate panel also wrote that a result other than 'pro rata allocation by time on the risk'  would be "disruptive for insurance markets as well."  Id. at 114.  There is so much that could be said in direct contradiction of this dictum.  That is enough to say about it here.

        The concluding observations of the panel in the Roberts case are quickly summarized:  Stuff happens.  See id. at 115 ("It is a dispiriting but inescapable fact that sometimes really bad things happen ....).  

        That concluded the panel's handling of the Roberts direct appeal.  Penn National Mutual Casualty Insurance Company cross-appealed, as well.  Penn National complained on appeal that although the District Judge was correct in applying Maryland's law of allocating Penn National's liability to pay the underlying Damages Judgment by pro rating Penn National's 'time on the risk,' still the District Court erred in the eyes of Penn National by allocating to it two (2) months too many on the risk.

        The Federal Appellate panel in this case agreed with Penn National on this point also.  Penn National's time on the risk was reduced by two (2) months on appeal.  Id. at 118-19.  As the opinion put it:  "Roberts' misfortune cannot be laid at Penn National's feet ....  To place the entire judgment on the insurer would be chaotic ...."  Id.

        If the little girl's lawyers argued that her life after lead poisoning was "chaotic," or if the Policyholder's lawyers argued that joint and several liability for the entire Damages was "chaotic," none of the Courts involved including this Federal Appellate panel appeared to be moved.

        Insurance Coverage under an Insurance Contract should never be determined by the extent of the damages which the claimant alleges in its claim against a Policyholder.  That is or should be true in all United States jurisdictions.  However, that is not nearly the same thing as deciding that a contract which provides Insurance Coverage for Damages, is somehow the same as a contract which provides Insurance Coverage based not on the Damages which occurred during the policy period, but based instead on the Insurance Company's 'time on the risk' regardless of what is written in the contract.

         

 

Please Read The Disclaimer.

     

When Facts Destroyed Title Insurance Defense For Unpaid Liens.

   A recent decision illustrates the holdings reached by some Courts that where there is no Duty to Indemnify, there cannot be any Duty to Defend either.  The case of Home Federal Savings Bank v. Ticor Title Insurance Co., 2011 WL 4479080 (S.D. Ind. September 27, 2011) involved an unpaid Lien of 6 Million Dollars.  The Policyholder of a Title Insurance Company was the party which allegedly had a duty to pay the lien, which was perfected through the forum State's Mechanic's Lien Law.  Id. at *3. 

   Ordinarily, a Title Insurance Policy will exclude liabilities arising from Mechanic's Liens.  So did the Policy at issue in this case.  Id. at *2.  However, the Policyholder, Home Federal, protected its financing on the particular commercial construction project at issue in this case, by purchasing "a mechanic's lien endorsement," reprinted below for convenience.

   Home Federal brought the present lawsuit against Ticor Title on three alleged Claims, including an alleged breach of the Duty to Defend, an alleged breach of the Duty to Indemnify, and alleged Bad Faith.  The parties both filed Motions for Summary Judgment "specifically addressed to the duty to defend and the duty to indemnify."  Id. at *4.

   The Federal Judge in this case first looked at the issue of whether there was a Duty to Indemnify under the undisputed facts.  The Court determined that there was none, and that ruling otherwise would provide Home Federal with a '$6 Million windfall,' in the Court's words, for not paying the lien in question.  See id. at *5 - *6.

   Then the Federal Judge addressed the question of whether a Duty to Defend existed.  Ordinarily, the existence of a Duty to Defend is determined by comparing the underlying allegations against the Insured, with the provisions of the Policy at issue.  Here, once the Federal Court determined the separate issue of no Duty to Indemnify based on the undisputed record facts, the Court determined in one sentence that Ticor Title therefore "necessarily had no duty to indemnify Home Federal either."   Id. at *6.

   Two rulings of consequence are inherent in this one holding.  First, it bears repeating that the Court's decision in this case is not unique.  There are many decisions in which Courts have determined that once there is no Duty to Indemnify, there is no Duty to Defend either.  In doing so, however, they seem to ignore the distinction between determining the existence of a Duty to Indemnify based upon the actual facts, versus the ordinarily separate question of determining the existence of a Duty to Defend based upon the underlying allegations compared with the Policy provisions at issue.  In this particular case, the Court's holdings seem to have been totally correct for the parties involved.  The result, however, is less interesting to an outsider than the way in which the Court got there.

   Second, the Federal Court in this case took a holding generated in standard-form Liability Insurance Policy Declaratory Judgment Actions, namely, in DJA's involving Commercial General Liability Insurance Policies with standard, widely used forms and endorsements, and without discussion applied that holding -- where there is no Duty to Indemnify, there cannot be a Duty to Defend -- to this case involving a Title Insurance Policy, which has its own unique Policy provisions and which may or may not be based on standard, widely used Forms and Endorsements.

   Here, before closing, is the Mechanic's Lien Endorsement under which Home Federal argued for Coverage from Ticor Title in this case:

 Anything contained in said policy to the contrary notwithstanding, the Company insures against loss or damage incurred by the insured by reason of the enforcement or attempted enforcement of any statutory lien for labor or material arising from construction contracted for and/or commenced on the land prior to, at, or subsequent to the effective date of said policy, and any extension of said date, as having priority over, or sharing on a parity with, the lien of the insured mortgage for that portion of the proceeds of the loan secured thereby advanced for the purpose of paying the costs of the acquisition of the land and the development of and the construction of improvements on the land, including by [sic] not limited to the cost of labor or materials incurred in connection therewith. At the time of each disbursement of the proceeds of the loan, the title must be searched by Royal Title Services, Inc., down to such time, for possible liens or objections intervening between the date hereof and the date of such disbursement.

This endorsement is made a part of the policy or commitment and is subject to all the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provision of the policy or commitment and prior endorsements, if any nor does it extend the effective date of the policy or commitment and prior endorsements or increase the face amount thereof.

 

Please Read The Disclaimer.

  

Deleting Macy's Self-Insured Retention Retroactively in New York.

   A Commercial Lease of real property in New York City contained a Self-Insured Retention that led to litigation between the landlord and the tenant.  The landlord is Weatherly 39th Street, LLC.  The tenant is Macy's.  The case is Federated Retail Holdings, Inc.  v. Weatherly 39th Street, LLC, 2011 WL 1438785 (N.Y. Sup. Ct., New York County, April 11, 2011)(authorized password required to access Westlaw).

   Although the Self-Insured Retention clause was at issue in this case, it is not to be found in the Court's opinion.  The case was about whether Macy's successfully deleted the Self-Insured Retention, sufficient to "cure" its alleged Default under its lease by retroactively eliminating the clause.

   Here is how Macy's landlord came to issue not one, but at least three Notices of Default accusing Macy's of being in default under its commercial lease and also providing Macy's with a way to "cure" its alleged default in this regard.

   "One provision of that lease required the tenant, Macy's, to acquire commercial general liability insurance for set amounts of coverage."  Id. at *1.  Macy's acquired both primary and umbrella CGL Coverage, but with Self-Insured Retention clauses on all its CGL Policies.  Macy's landlord was apparently unmoved by the possibility that Macy's could handle it.

   This caused Macy's landlord to issue the first Notice of Default.  "[A]ccording to Weatherly [Macy's landlord, this] violated the terms of the lease because it left the tenant [Macy's] personally liable for one million dollars of any potential claim."  Id.

   Macy's obtained "fronting" primary CGL Policies which removed the Self-Insured Retention.  It apparently did not think to obtain new umbrella CGL policies or endorsements, because the umbrellas were apparently left alone.  This caused the landlord to send a second Notice of Default.  In this new document, however, the landlord gave Macy's a way "out" of the alleged default:  It wrote to Macy's, as quoted by the Court in this case, that the default "'can be cured by your providing to Weatherly retroactive insurance coverage eliminating the self-insurance aspects and aggregates and naming Weatherly as a named insured.'"  Id. 

   Macy's then obtained endorsements from its different Insurance Companies deleting the Self-Insured Retention on all of Macy's CGL Policies.  Macy's primary CGL carrier was Liberty Mutual.  Macy's umbrella CGL carrier was AIG ("Chartis" or National Union).  The Self-Insured Retention was deleted, "retroactively, for all claims made during the period in which the policies were in effect."  Id. at *2.  In addition, Macy's "averred" in a way not specifically identified in this Opinion "that it is not aware of any such loss".  Id. at *3.

   The landlord's response was to notify Macy's, again, "that Macy's had failed to remove the self-insured retention default under the lease and, therefore, Weatherly elected to terminate the lease ...."  Id. at *2.  In response, Macy's filed suit and requested the Court to declare that Macy's affirmatively cured the alleged default and so lease termination was not available to its landlord here.  "Hence, the issue for resolution is whether a self-insured retention provision may be removed retroactively from an existing insurance policy by endorsement."  Id.

   There did not seem to be an issue about whether Macy's and its CGL Insurance Companies could remove the Self-Insured Retention.  The only questions were whether the Self-Insured Retention could be removed retroactively, and whether that was properly done in this case.

   The Court ruled, first, that Macy's CGL Policies were "occurrence" policies in fact and under New York law.  This ruling meant that they were capable of being amended retroactively to the date on which the Policy was originally issued.  It also declared that the Macy's Policies provided Coverage based on an occurrence during the policy period, regardless of when a liability claim might be made against Macy's on account of that occurrence.  A "retroactive date" is the effective date of any Policy, as applicable here.  This is to be distinguished from a "claims-made" policy in which the underlying claim against Macy's would have been made during the policy period arising out of otherwise covered "'incidents, acts or omissions'" taking place virtually at any time.  See id. at *4.

   That left the question whether the Self-Insured Retention on Macy's particular CGL policies in this case was properly deleted retroactively.  The Court in this case answered in the affirmative:

 [I]n the instant matter, Macy's always had insurance, and merely amended their existing policies to provide for greater insurance.

 * * *

   The endorsements acquired by Macy's in 2010 are amendments to their existing occurrence policies, not new occurrence policies, and, consequently, the effective date of coverage begins on the effective date of the policy.

 Id. at *5 - *6.

    Consequently, following these rulings, Macy's motion was granted.  The Court in this case declared that Macy's cured the alleged "Self-Insured Retention clause" default under its lease, and that Macy's landlord may not terminate Macy's lease on that ground.  Id. at *6.

 This case has a tortuous legal history including at least one prior appeal and the known loss "doctrine".

Please Read The Disclaimer. 

 

CGL Completed Operations Coverage Construed in California Construction Dispute.

   In Download Clarendon America Insurance Co. v. General Security Insurance Co. (Cal. 2d DCA Opinion 03.02.11, ordered officially published 03.30.11) PUBLIC ACCESS, also published as 2011 WL 711856 (Cal. 2d DCA, Div. 2, March 2, 2011)(authorized password required to access Westlaw), California's Second District Court of Appeal approved the Trial Court's resolution of a Construction Dispute by Summary Judgment.

   The Construction Dispute arose in a lawsuit against Hilmor Development ("Hilmor").  Hilmor purchased two consecutive Commercial General Liability Policies from two different Liability carriers, which is a common practice.  The first carrier on the CGL risk was Clarendon, which issued Hilmor a Policy for the period of July 1, 2000 to July 1, 2001, and the next was General Security, which issued Hilmor a Policy for the period of July 1, 2001 to July 1, 2002.

   Hilmor entered into a general contract on or about September 30, 1999 to build what the Court called a "custom single family home" in Beverly Hills, California.  The home was to have 14,000 square feet.   Slipsheet at 2; 2011 WL at *1.  On May 18, 2001, the homeowners fired Hilmor and threw it off the job.  Thereafter they sued Hilmor because, they alleged after the house was completed, that Hilmor was responsible for construction defects in it.

   Clarendon defended Hilmor in the underlying lawsuit.  It settled that lawsuit, paying its Policy Limit of $1,000,000.00.  Clarendon allegedly also paid other costs and expenses including the stated sum of "$473,463.29" in "defense fees" to one of two law firms mentioned in the opinion.  Slipsheet at 3-4; 2011 WL at *2.  Clarendon then sued General Security for declaratory relief, equitable contribution, and equitable indemnity.

   As noted, the Trial Court entered Summary Judgment, in General Security's favor.  The Trial Court was of the opinion that there was absolutely no Insurance Coverage under General Security's CGL Policy for Hilmor with respect to the underlying claim in suit, and the California Appellate Court agreed.

   Here, there simply was no "Products-Completed Operations" Coverage under General Security's CGL Policy.  Completed Operations Coverage requires that work on the project was completed or that the insured abandoned the work.  It "does not apply to work that has not yet been completed or abandoned....  Hilmor's work had not been completed, nor had it been abandoned.  Instead, Hilmor was terminated from the job before it completed its work."  Slipsheet at 7-8, 2011 WL 711856 at *4-*5.

   To put it bluntly:  "Because the insured was fired, it never completed its work."  Slipsheet at 14, 2011 WL 711856 at *8.  As a matter of law, therefore, there could not be any Completed Operations Coverage under the General Security CGL Policy in this case.

   Further, the General Security Policy contained a "Claim(s) in Progress Exclusion".  "Under the terms of this exclusion, the General Security policy does not apply to property damage which began or took place before July 1, 2001, the date that General Security's policy became effective. There was evidence that the continuing and progressive property damage of which the Revahs [i.e., the underlying Plaintiffs-homeowners] complained began prior to the inception of the General Security policy."  Slipsheet at 17, 2011 WL 711856 at *10.

   Accordingly, the California Appellate Court affirmed the Trial Court's grant of Summary Judgment to General Security against the claims of Clarendon in this peculiar case.

Please Read The Disclaimer.

Louisiana Court Chooses Florida Law: Total Pollution Exclusion Bars ....

... FEMA Trailers' Formaldehyde Damages From Katrina Aftermath. 

   In the case of In re FEMA Trailer Formaldehyde Products Liability Litigation, 2011 WL 381616 (E.D. La. January 25, 2011)(authorized password required to access Westlaw), the Court was confronted with a Question of Coverage for North American Catastrophe Services, Inc. under a Commercial General Liability Insurance Policy issued by Northfield Insurance Company.  NACS obtained the CGL from Northfield after NACS, a Florida corporation, entered into brokerage contracts under which it obtained trailers for temporary "FEMA" housing after Hurricane Katrina.  The trailers reeked of formaldehyde, in basic and simple terms.  The CGL contained a Total Pollution Exclusion, also arguably in basic and simple terms.

   Following an exhaustive discussion of choice-of-laws principles, the Federal Court chose Florida law, applied the Total Pollution Exclusion, and granted the CGL Carrier's Motion for Summary Judgment of No Coverage:

Based on Louisiana's choice of law provisions and prior jurisprudence, Florida law should be applied to the insurance contract at issue. Under Florida law, it seems clear that the total pollution exclusion unambiguously excludes coverage for these claims. See Deni Associates, 711 So.2d 1135, 1138 (Fla.1998) (finding the total pollution exclusion to be clear and unambiguous). Thus, because Plaintiffs alleged injuries were caused by formaldehyde fumes, the Northfield policy does not apply, based on the Total Pollution exclusion located therein. The exclusion should be enforced as written and coverage is precluded.

 Id. at *9.  Katrina's aftermath lingers.  Insurance Coverage, at least in this case, does not.

Please Read The Disclaimer.

 

Competing Deposition Notices of Rule 30(b)(6) Corporate Representatives.

   In Diamond State Insurance Co. v. His House, Inc., Download Diamond State Insurance Co. v. His House Inc. (S.D. Fla. Case No. 10.20039.CIV, Discovery Order, Filed Jan. 18, 2011) PUBLIC ACCESS also published as 2011 WL 146837 (S.D. Fla. January 18, 2011), a United States Magistrate Judge was confronted with competing Rule 30(b)(6) Notice of Deposition of Corporate Representatives. One Notice was served on behalf of a Policyholder-Defendant.  The other Notice was served on behalf of a Liability Insurance Company-Plaintiff which had already denied all coverage for defense and for indemnity of an underlying lawsuit filed against the Policyholder.

 The Nature of the Case:  A Declaratory Judgment Action With No Claim For Bad Faith Alleged.

    The case began when Diamond State filed suit for declaratory relief against His House and others.  His House was a nonprofit corporation engaged in the business of caring for foster care children placed with His House by the State of Florida.

   Having already denied all coverage to His House for defense or indemnity with respect to an underlying wrongful death suit, in this case Diamond State sought declarations that (1) a Professional Liability Policy and (2) a Commercial General Liability Policy which it issued to His House did not provide coverage for the wrongful death lawsuit against His House.  Id. at *1.

     In addition to requesting judicial declarations that the two Policies did not provide coverage under their clear language, Diamond State also alleged that His House's coverage if any under the Professional Liability Policy at issue was voided because His House allegedly "knew of the death of the infant prior to ... the application for the professional liability policy".  As to the CGL Policy, Diamond State also alleged that the "occurrence" that caused the child's death "occurred prior to the policy period and thus no coverage is available under that policy either".  Id. at *1.

   The wrongful death lawsuit or underlying case was filed against His House as the result of the death of an infant, "M.C.," after the child was placed in the care of His House's employee, Ms. Kristen Glaspy, a "foster care mother who was employed by His House".  Id. at *1.

 The Competing Rule 30(b)(6) Deposition Notices and Motions to Compel:  First, His House's Motion to Compel the Deposition of Diamond State's Corporate Representative.

    The Policyholder, His House, wanted to depose Diamond State Insurance Company's Corporate Representative on five (5) designated areas, four of them concerning interpretation of the "policies at issue in this case" in one respect or another, and the fifth area concerning the Insurance Company's handling and denial of His House's claim to coverage under the Diamond State Policies.  Id. at *3.

   Diamond State wanted to re-depose His House's Corporate Representative after His House's Rule 30(b)(6) Deposition had already been taken once in the Declaratory Judgment Action, and once in the underlying case.  In addition, Diamond State wanted to depose Ms. Glaspy, who again was an employee of His House, and who had already been deposed in the underlying case as well.  The Magistrate Judge resolved the issues surrounding a Rule 30(b)(6) Deposition of the Insurance Company first.

   Florida substantive law "governs the substantive portions of this declaratory action," she pointed out.  Under Florida law, "the construction of an insurance policy is a question of law to be determined by the court."  If the insurance policies were held to be unambiguous, they should be interpreted in accordance with their clear terms.  If the Court found the insurance contracts ambiguous, then the Court would be required to construe the wording most strictly against the Insurance Company.  Id. at *2.

   Florida substantive law therefore made interrogation about the Policies at issue "irrelevant to the resolution of this declaratory action."  Id. at *4.  If the Policy provisions at issue were unambiguous, there would be no need for testimony about them.  If the Court held the policy provisions ambiguous instead, then in this case, at least, "Defendants will automatically prevail in the instant declaratory action."  Id.  "Thus, under either scenario, the testimony of Diamond's corporate representative is irrelevant."  Id.

   As to the claim handling inquiry, it might be appropriate in a bad faith case, the Court suggested, see id. at *4-*5, but it was not relevant to this action for declaratory relief concerning the wording used in two insurance policies.  As to the allegations made by Diamond State to the effect that His House knew of the infant's death before applying for the Professional Liability Policy, the prospective testimony was again irrelevant.  In this case, His House did not dispute the date of the infant's death or the date of its Professional Liability Insurance application.  Under the circumstances of this peculiar case, the Court denied His House's Motion to Compel the deposition of Diamond's corporate representative.  Id. at *6.

The Online Docket of this case on Pacer, the Online Docket for Federal Courts, reflects that the District Judge granted the Plaintiff Liability Insurance Company's Motion for Summary Judgment on January 31, 2011 or within two weeks after the U.S. Magistrate Judge entered the Discovery Order which is the subject of this post.  Download Diamond State Insurance Co. v. His House Inc. (S.D. Fla. Case No. 10.20039.CIV, Order Granting Summary Judgment, Filed Jan. 31, 2011) PUBLIC ACCESS. To be continued ......

Please Read The Disclaimer.

No CGL Covered Costs or Fees for CERCLA Cleanup ...

... Fourth Circuit holds in Federal Case Under Maryland Law.

   In Industrial Enterprises, Inc. v. Penn America Insurance Co., 2011 WL 925451 (4th Cir. Opinion Filed Friday, March 18, 2011)(authorized password required to access Westlaw), the Fourth Circuit was confronted with an Insurance Coverage issue for Pollution.  The Insurance Coverage Question it faced was whether a standard Comprehensive General Liability Insurance Policy ("CGL") provided Coverage for response costs including defense attorney's fees concerning a CERCLA cleanup.

   In other words, did the standard CGL Policy at issue in this case provide Defense Coverage for costs incurred by the Policyholder-Insured in response to an apparent PRP or potentially responsible party letter sent to it by the Federal Environmental Protection Agency, to remediate the presence of hazardous substances on the Policyholder's land..

   The United States District Judge answered this question "yes" and, on summary judgment, awarded the Policyholder $465,774.50 in defense attorney's fees plus additional, other response costs.

   The Fourth Circuit reversed in this case arising under Maryland law, in a split 2-to-1 panel decision:

On appeal, we reverse. Based on the decision of Bausch & Lomb, Inc. v. Utica Mutual Insurance Co., 625 A.2d 1021 (Md.1993), where the Maryland Court of Appeals held that a similar CGL policy did not cover expenses incurred in response to the State's regulatory order to remove soil containing hazardous chemicals, we conclude that Industrial Enterprises' liability under CERCLA is not liability for “property damage,” but rather regulatory liability for response costs. Accordingly, we conclude that Penn America's CGL policy does not cover Industrial Enterprises' regulatory liability and, therefore, Penn America has no duty to provide Industrial Enterprises with a defense.

Id. at *1.  For those facing this and similar Insurance Coverage Questions, this case provides perhaps the most recent addition to a long list of decisions addressing this Question.

Please Read The Disclaimer.

Foreclosure Failures Raise Insurance Coverage Issues, To Be Determined.

   In an action filed by servicing companies or banks on behalf of securitized trusts ("foreclosers"), the highest Court in Massachusetts affirmed lower court decisions and held itself that the Plaintiffs were not entitled to a declaration of perfection.  The Plaintiffs requested a judicial declaration that their real estate titles were perfected.  Instead, the Courts unanimously held that the foreclosers failed to obey the Law which allows nonjudicial foreclosures.   Download U.S. Bank National Association v. Ibanez (Mass., Opinion Filed January 7, 2011) PUBLIC ACCESS SLIPSHEET OPINION STATED SUBJECT TO REVISION.  You can also try this link for the Public Access Official Opinion:  http://weblinks.westlaw.com/result/default.aspx?action=Search&cnt=DOS&db=MA=ORS, or do an internet search for "Massachusetts Supreme Judicial Court" and click on decisions or opinions.

   Other aspects of this decision are posted on Insurance Claims and Bad Faith Law Blog. 

   There is potential resulting from this decision for a number of Insurance Coverage Issues under Director's and Officer's Liability Insurance Coverage and under Commercial General Liability Insurance Coverages, to name two examples.

   Further, as the Concurring Justice noted in this case:

   What is more complicated, and not addressed in this opinion, because the issue was not before us, is the effect of the conduct of banks such as the plaintiffs here, on a bona fide third-party purchaser who may have relied on the foreclosure title of the bank and the confirmative assignment and affidavit of foreclosure recorded by the bank subsequent to that foreclosure but prior to the purchase by the third party, especially where the party whose property was foreclosed was in fact in violation of the mortgage covenants, had notice of the foreclosure, and took no action to contest it.

   This decision, which clearly has landmark potential, is also the subject of reporting by, for example, E. Scott Reckard, "Foreclosure Ruling Could Be Setback for Banks" (Los Angeles Times Online, Friday, January 7, 2011), and by Gretchen Morgenson, "Massachusetts Ruling on Foreclosures is a Warning to Banks" p. A1, col. 1  (New York Times Nat'l ed., Saturday, January 8, 2011).

Please Read The Disclaimer.

Association Boards and Homeowners', Unit Owners' Personal Liability Without Insurance?

   Statutes in California reportedly immunize Homeowners and Unit Owners who are members of their Homeowners' Association or Condominium Association, respectively, if certain conditions are met.  One of those conditions is the purchase and maintenance of appropriate Commercial or other General Liability Insurance Coverage, and Directors and Officers Coverage.  If the required Insurance Coverage is maintained, then Statutes in California reportedly provide that "the individual owners in an association" shall not be personally liable for Damages assessed against the Association and, further, that a "'volunteer' director," i.e., member of the Association Board, cannot be held personally liable either so long as certain required Insurance Coverage is maintained by the Association.  [See your jurisdiction's Statutes to determine if these things hold true in your jurisdiction as well.]

   Parenthetically, another requirement for board members to be immunized from personal liability is that their acts must have been committed in Good Faith.  Stephen Glassman and Donie Vanitzian, "Homeowners Association Insurance Protects Board and Titleholders From Liability/Without The General Insurance and Directors and Officers Coverage, Directors and Officers Can Be Held Liable and Would Be Negligent in Permitting Individual Titleholders to Be Liable as Well" (Los Angeles Times Online, Sunday, November 7, 2010).

   In fact, there is a view in California that as a result of these Statutes and the immunities they confer if followed, that failure to purchase the Insurance Coverage the Statutes require may be Negligence:

   Without the general association insurance and directors and officers coverage, the individual directors and officers may not only be held liable but also would be negligent in permitting individual titleholders to be held liable.

Id.

   According to the authors of the linked Q and A report from California, if any Insurance can be canceled it "is the coverage for the management company and its personnel.  A professional company should carry and pay for its own insurance.  If the management [company] cannot provide its own insurance coverage, it should not be providing services to your association."  Id.

   Note that standard Commercial General Liability or "CGL" Policies ordinarily include "Your Real Estate Manager" as an Additional Insured, for which there typically will  not be a separately stated Premium.

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Equitable Contribution Between CGL Insurers When Timing Insured's Negligence Unclear.

   California is one of the jurisdictions in the United States which recognizes a Claim for Equitable Contribution between insurers.  What is an Insurance Company in such a jurisdiction to plan on doing, when the Jury's Verdict in the Underlying Case finds Negligence against the common Policyholder or other Insured, but the timing of that Negligence, i.e., in which Policy Period it Occurred, is left unclear?

   In a case of Equitable Contribution between two Comprehensive General Liability Carriers, one California District Court of Appeal recently gave this answer:

We conclude that the jury's verdict against the insured did not clearly indicate whether the jury found negligence during the first policy period, the second policy period, or both. We thus address the following issue of first impression: Which insurer bears the burden of proving the existence (or nonexistence) of coverage in a case like the present one, where one insurer has participated in the defense and/or indemnity of an insured and the other has not? We hold that in an action for equitable contribution brought by an insurer who has defended and indemnified an insured against a coinsurer who has not defended or has not indemnified the insured, the participating insurer has met its burden of proof when it makes a prima facie showing of coverage under the nonparticipating insurer's policy-the same showing necessary to trigger the recalcitrant insurer's duty to defend. The burden of proof then shifts to the nonparticipating insurer to prove the absence of actual coverage. Here, because the first insurer failed to meet its burden of proving the absence of coverage, we reverse and remand to allow the trial court to allocate equitably defense and indemnity costs.

 

Arrowood Indemnity Co. v. Travelers Indemnity Co., Download Arrowood Indemnity Co. v. Travelers Indem. Co. (Cal. 2d DCA Case No. B219491, Opinion Filed October 6, 2010) PUBLIC ACCESS, also published as 2010 WL 3896619 *1 (Cal. 2d DCA October 6, 2010)(Westlaw subscription required to access Westlaw).

  

Case law on the Doctrine of Insurer Contribution is analyzed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 7.14 (Shepard's/McGraw-Hill Second Edition; West Publishing Co. 2010 Supplement).

 

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"Known Loss Doctrine" Applied to Liability Insurance ...

   ... by Federal Court in Florida.

   It is sometimes difficult to distinguish the so-called Known Loss "Doctrine" from Policy Limitations on Coverage Grants, such as limitations to Covered Loss or Damage "commencing ... During the policy period shown in the Declarations," as in the case of 3303-05 Marina Road, LLC v. West Bend Mutual Insurance Co., Download 3303-05 Marina Road, LLC v. West Bend Mut. Ins. Co. (Wis. Ct. App. Case No. 2009AP1629, Opinion Filed September 8, 2010) PUBLIC ACCESS also published as 2010 WL 3489391 ¶15 (Wis. Ct. App. September 8, 2010)(Westlaw subscription required to access Westlaw; page numbers not available at time of this publication).  As the Wisconsin Court described the "doctrine" in this First-Party Case, in which it appears to have been exclusively applied (until recently):  "'The known loss doctrine is a common law defense to insurance coverage according to which insurers are not obligated to cover losses that are already occurring when the coverage is written or [that] have already occurred."  Id. ¶21.

   A Federal Court in Florida may have recently extended the "Known Loss Doctrine" to Liability Insurance Coverage; the decision actually appears to have depended on language found in the Liability Insurance Policies at issue there.  In that case, a Homeowner sued the Contractor who constructed her home, "alleging that her residence contained numerous construction defects."  She recovered a Judgment against the Contractor totaling $1,297,998.36, and another Award for Costs in the amount of $167,147.71.  The Federal Judge was faced with five CGL or Commercial General Liability Policies issued to the Contractor, including two "initial" Policies and three "renewal" Policies from two different Liability Insurance Companies.  Arnett v. Mid-Continent Casualty Co., Download Arnett v. Mid-Continent Casualty Co. (M.D. Fla. Case No. 8.08CV2373, Order Filed July 16, 2010) PUBLIC ACCESS also published as 2010 WL 2821981 *2 (M.D. Fla. July 16, 2010)(Westlaw subscription required to access Westlaw; the Online Docket of this case on Pacer reflects that this Federal Declaratory Judgment Action has been temporarily Stayed by Order of Court until an appeal "of the underlying state court judgment" is exhausted.).

   Among other Insurance Coverage Claims, the two Insurance companies asserted in that Federal Declaratory Judgment Action that the underlying Damages Claims of the Homeowner against their Insured, the Contractor, "constituted known injuries".  "The insurers argue that [the Insured-Contractor] became aware of the damages during [the] initial policy, and therefore, [that] the damages constituted 'known losses' which are not covered under any subsequent policies."  Immediately after stating this contention, the Federal Court pointed to specific language in the Liability Insurance Policies which expressly addressed knowledge of "bodily injury" or "property damages" prior to the policy period and provided that "any continuation, change or resumption of such 'bodily injury' or 'property damage' during or after the policy period will be deemed to have been known prior to the policy period.'"  Arnett v. Mid-Continent Casualty Co., 2010 WL 2821981 at *3.

   The Federal Court held in that case that there was Coverage under the Liability Insurance Policies for some, but not all, of the Damages claimed by the Homeowner based upon whether or not "the known loss clause bars coverage," or not.  See id. at *4.

   The Federal Court's decision may bear on the resolution of some Catastrophe Claims which may or arguably were known to the Policyholders and other Insureds before the Policy Coverage began -- perhaps even before the Liability Insurance Policy Coverage began.

    Dennis Wall is Co-Author of the leading book on Insurance Coverage for Catastrophe Claims, "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company 2008; 2010 Supplement in process).  Mr. Wall will be a featured speaker on several panels which will address the BP Oil Spill Catastrophe.  On September 15, 2010, he will be a featured speaker on a panel addressing "BP Oil Spill Damages Claims:  The Coverage Predicates" at the September 15, 2010 Seminar of the Insurance Law Committee sponsored by the Orange County Bar Association in Orlando, Florida.   Mr. Wall will speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010 on "Dealing With Catastrophic Disasters:  How to Properly Investigate and Handle Overwhelming Claims".  The American Conference Institute is offering a discount to readers of this Blog:  Download ACI Advises Readers of the Insurance Claims and Issues and Insurance Claims and Bad Faith Law Blog are entitled to a discount.

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One Bankruptcy Judge to Decide BP Fiasco Insurance Coverage Issues?

    Recent newspaper reports reflect anxiety over an unlikely possibility:  that BP will file for Bankruptcy.  BP's exposure to many Damages Claims of many kinds may force it to seek reorganization under the U.S. Bankruptcy Code, it is reported.  See, for example, John Schwartz, "Weighing the Possibility of Bankruptcy for BP/Liability Claims Expected to be Enormous" p. A11, col. 5 (New York Times Nat'l ed., Saturday, July 10, 2010).

   If BP filed for Bankruptcy in the United States, then under the U.S. Bankruptcy Code and established practice, the many Insurance Coverage Issues arising out of the Drilling Explosion Fiasco may well be decided by one (Bankruptcy) Judge.

   However, why must BP file for protection from creditors and Claimants in the United States?   Perhaps it will seek that protection in the Courts and Laws of the United Kingdom.  It used to be called "British Petroleum" for a reason.

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Per-Occurrence Self-Insured Retention: Cause vs. Effect "Occurrence" Determinations.

   In Westchester Surplus Lines Insurance Co. v. Maverick Tube Corp., Download Westchester Surplus Lines Insurance Co v. Maverick Tube Corp (S.D. Tex. Case No. H.07.540, Mem and Order Filed June 28, 2010)(FREE ACCESS), also published as 2010 WL 26335623 (S.D. Tex. June 28, 2010)(Westlaw subscription required to access Westlaw), a Federal Judge in Texas applied Missouri -- and Texas -- rules of law to determine the number of "occurrences" for purposes of a Self-Insured Retention.

  Determining this issue "would reduce [the Policyholder's] recovery because of the per-occurrence self-insured retention".  Maverick, 2010 WL 2635623 at *1.  The Federal Court noted that the parties agreed that Missouri law governs that question in this case.  "The parties also agree that Texas law is consistent with Missouri law on this issue and serves as a useful supplement to the relatively few relevant Missouri cases."  Id. at *4.

   The Federal Court discussed the cause vs. effect split of authority in determining the number of "occurrences" under a Commercial (or Comprehensive) General Liability Policy in this country.  The Federal Court concluded that Missouri State Courts appear to follow "a 'cause' approach to determine the number of occurrences.  Under this approach, 'an insured's single act is considered the accident from which all claims flow.'"  Id. at *5.  "This approach contrasts to the 'effect' analysis used in some jurisdictions.  Under the 'effect' analysis, the focus is on the number of injuries resulting from the act, not on the number of acts by the insured."  Id. 

   Using a "cause" analysis, then, the Federal Court concluded in this case that "the property damage in the present case arose out of a single manufacturing defect and the manufacturer is the insured."  Id. at *6.  Therefore there was but one "occurrence" for purposes of the Insured's per-occurrence Self-Insured Retention.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:103, "Self-Insured Retentions:  When and What Duties, if Any, of Good Faith and Fair Dealing" (Shepard's/McGraw-Hill First Edition, West Publishing Co. Second Edition and 2010 Supplement).

   The Maverick Court also addressed, separately, the equally important Insurance Coverage issue of allocation or apportionment of Covered vs. Non-covered Losses in an Insured's own settlement of claims against it, for which it seeks Coverage and payment from its CGL Carrier.  That equally important issue will also be addressed in a separate post.

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Holding: CGL Subcontractor Exemption to Exclusion Could Be Covered "Occurrence".

   In the case of Architex Ass'n v. Scottsdale Ins. Co., Download Architex Ass'n v. Scottsdale Insurance Co. (Miss. Opinion Filed Feb. 11, 2010) also published as 27 So. 3d 1148, 1160-62 ¶¶ 28-33 (Miss. 2010)(subscription required to access Southern Reporter), the Supreme Court of Mississippi confronted the subcontractor exception to a general exclusion for a contractor's defective work, under CGL Form "© 1997".  The Supreme Court of Mississippi held that a subcontractor's defective work could in certain circumstances fall within the policy meaning of a covered "occurrence".

   The Court held in part:

The subject policy unambiguously extends coverage to Architex for unexpected or unintended "property damage" resulting from negligent acts or conduct of a subcontractor, if not excluded by other applicable terms and conditions of the policy not at issue in this appeal....  This Court concludes that under Scottsdale's CGL policy, the term "occurrence" cannot be construed in such a manner as to preclude coverage for unexpected or unintended "property damage" resulting from negligent acts or conduct of a subcontractor, unless otherwise excluded or the insured breaches its duties after loss.

Architex Ass'n v. Scottsdale Ins. Co., 27 So. 3d at 1162 ¶¶ 32-33 (Miss. 2010).

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Costs of Remediating Chinese Drywall: Who Pays UPDATE.

      **Author's Note:  If you have reached this blog through a list that carries advertising, your computer may or may not be put at risk either through the list or through the advertising.  I do not accept or authorize any commercial advertising of any kind on any list or post.  Placing commercial advertisements with or near any of my web log posts is prohibited.  Further, I do not recommend any products or services advertised with or near any of my posts or any list of my posts.**     

   At least one Member of Congress, from Florida, one of the States hit the hardest by Chinese Drywall Damages Claims, has  "called on insurers to honor claims by affected families."  Javier C. Hernandez, "U.S. Urges Homeowners to Remove Chinese Drywall" p. B3, col. 1 (New YorkTimes Nat'l ed., Saturday, April 3, 2010).  On  Friday, April 2, 2010, the Consumer Product Safety Commission and the Department of Housing and Urban Development issued a joint Press Release "on Repairing Homes With Problem Drywall," in which the two Federal organizations tried very hard to have it both ways.  Download 04.02.10.Press Release. HUD and CPSC Issue Guidance on Repairing Homes With Problem [Chinese] Drywall.

First, they announced that they were issuing guidance "in recognition that many homeowners want to begin remediating their homes and offers a next step to homeowners whose homes have been determined to have problem drywall."  Small wonder that many  homeowners want to begin remediating their homes, although they will be the ones to initially pay for the costs of remediation, "which builders estimate at more than $100,000 a home."  Javier C. Hernandez, New York Times, supra.

In the next breath of the same Press Release, HUD and the CPSC tell affected homeowners that they should remove the tainted drywall:

   Based on scientific study of the problem to date, HUD and CPSC recommend consumers remove all possible problem drywall from their homes, and replace electrical components and wiring, gas service piping, fire suppression sprinkler systems, smoke alarms and carbon monoxide alarms.  Taking these steps should help both the source of the problem drywall and corrosion-damaged components that might cause a safety problem to the home.

HUD and CPSC April 2, 2010 Press Release, at unnumbered fourth paragraph on page 1.  [Emphasis added.]  The "Interim Remediation Guidance" which was also issued jointly by the CPSC and HUD on April 2, 2010, "calls for the replacement of:

1.   all possible problem drywall;

2.   all fire safety alarm devices (including smoke alarms and carbon monoxide alarms);

3.   all electrical components and wiring (including outlets, switches and circuit breakers); and

4.   all gas service piping and fire suppression sprinkler systems."

HUD and CPSC, "Interim Remediation Guidance for Homes With Corrosion From Problem Drywall" April 2, 2010, at 1.  [Emphasis in this "staff document" in original.]  Download Interim Remediation Guidance for Homes With Corrosion From Problem [Chinese] Drywall.CPSC and HUD.04.02.10.

   It is clear that the costs of remediation of the drywall itself are not likely to be borne by liability insurance, since it is the -- generally -- excluded work of the general contractor, or of the subcontractor, which carries the liability insurance.  The costs of repair of items and materials damaged by the drywall may be a different story, however, as they are arguably the damages caused by that work or product -- costs of repair now recommended by the United States Government.

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