Claims And Issues

WILL INSURANCE COVER THE FLORIDA GATORS' GRADUATION CEREMONY?

A faculty 'marshal' was reportedly tasked with keeping the University of Florida graduation ceremony going last Saturday.  Some students danced as they received their diplomas, apparently not an unknown occurrence in 2018.

Some of the dancing students are Black.  One of them has applied for law school.  Whatever the graduation marshal's motivation, he grabbed the student and hustled him off the graduation stage.  There were other dancing students whom the marshal physically moved off the stage.  The testimony varies in terms of the media reporting; some say that all of the students who were physically removed were Black, some say White students and Asian students were treated the same way.  Read about the incident and see the photographs here and here.

We do not know the motivations, as I said, but this incident sparks several insurance coverage issues dependent on intention nonetheless.

An insurance policy's assault and battery exclusion may or may not bar all coverage for assault and battery in Florida.  So if the University of Florida's liability insurance policies have assault and battery exclusions, will those exclusions bar a duty to defend if any students sue the University for their injuries arising out of an alleged assault and battery?  It depends on what the allegations are, the Court held in  AIX Specialty Ins. Co. v. Sombreros, LLC, No. 8:17–cv–843–T–26TBM, 2018 WL 1635643, at *6 (M.D. Fla. April 5, 2018).

If there is no allegation of intent nor any policy requirement of intent, then the assault and battery exclusions may not bar any duty to defend just as the assault and battery exclusion in  did not bar a duty to defend in that Florida case either.

To say again, we do not know the marshal's motivation here.  But from an insurance coverage perspective, could there be coverage for a Section 1983 action based on deprivation of civil rights on the U.F. stage last Saturday, or on some other basis linked to racial discrimination?  The short answer is that Courts have recognized coverage is possible for Section 1983 and other actions based on discrimination.

But in Florida, there is no insurance coverage as a matter of public policy for intentional religious discrimination under a Florida Supreme Court ruling.  Ranger Ins. Co. v. Bal Harbour Club, Inc., 549 So.2d 1005 (Fla. 1989).

By extension, and depending on the evidence in any particular matter including the ceremony that played out in Gainesville, Florida last Saturday, there should be no insurance coverage for intentional racial discrimination in Florida either.

As always, the facts matter at least in Court.  Also, once again, motivation matters for insurance coverage questions.  See Lime Tree Village Community Club Ass'n, Inc. v. State Farm Gen. Ins. Co., 980 F.2d 1402 (11th Cir. 1993).  Parenthetically, my clients and I successfully argued in favor of insurance coverage under Florida law in the Lime Tree coverage case.

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JUDGMENT ON PLEADINGS FOR POLLUTION EXCLUSION INCLUDING NO DEFENSE DUTY.

RLI issued an umbrella liability insurance policy with a pollution exclusion.  In the eyes of a court, that exclusion barred all coverage including any duty to defend an underlying lawsuit filed against the policyholder, the City of Visalia, California, concerning an alleged pollution site.  The case is RLI Insurance Co. v. City of Visalia, No. 1:17-cv-01205-LJO-EPG, 2018 WL 1381808 (E.D. Cal. March 19, 2018), appeal docketed, No. 18-15668 (9th Cir. April 18, 2018).

In a statement with which those who regularly read decisions from the Eastern District of California are familiar, this opinion too begins with a description of the desperate continuing staffing needs of the Eastern District of California including a need for more District Judges to handle the caseload.  The statement contains a clear warning that there are so few District Judges in the Eastern District that, as in many other Federal Districts, setting criminal trials takes priority over setting trials in civil cases, and District Judges from other Districts may be asked to preside over some or many cases to clear the backlog.  This warning may or may not be getting attention from those with responsibility for public appropriations.

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IT IS THE POLICY NOT TO SEAL OR REDACT.

In this dec action revolving around insurance coverage issues, the plaintiff  insurance company suing for a declaration of no coverage under a homeowner's policy, stipulated with the defendants-policyholders to stay the proceedings and to seal the part of the insurance policy that the plaintiff itself attached to its complaint for a declaratory judgment. 

The Court giveth and the Court taketh away here.

The Court granted the stipulated motion to stay after setting a hearing because, even though the parties joined together to request a stay, their pleadings were insufficient to plead relief.

However, their joint motion to seal was denied.  The parties together failed in their attempt to show good cause for sealing the entire policy that is attached to the complaint.  The coverage issues in the case arise in large measure from that insurance contract.  That makes it a "dispositive" pleading, directly related to the claims in this case.

So, despite the stipulation to conceal the policy, and although the Court authorized the defendant insurance company to remove the exhibit from the record and to refile a new exhibit after removing personal identifying information from it, nonetheless on this record all the other forms and endorsements of the insurance policy will in short be public records when the policy is refiled in the Court file, unless and until good cause for sealing it is shown.  See Kemper Independence Ins. Co. v. Wells, No.: 1:17-cv-01612-AWI-SAB, 2018 WL 558791 (E.D. Cal. January 25, 2018).

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"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.

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"FAILURE TO DISCLOSE" EXCLUSION HELD BAR TO DUTY TO DEFEND.

 

In a recent decision, a so-called "Failure to Disclose" exclusion in a liability insurance policy read as follows:

    ¶19 The 2014 Policy contained a “Failure to Disclose” exclusion that barred coverage for “‘bodily injury’ or ‘property damage’ arising out of your failure, intentionally or unintentionally, to disclose information regarding the sale or transfer of real or personal property.” The Underlying Complaint made eight claims against Van Sickle.

Huckins v. United Serv's Auto. Ass'n, ___ Mont. ___, 396 P.3d 121, ¶ 19 at 125, 2017 MT 143 (2017).

The issue before the Court was the carrier's duty to defend under that particular homeowner's policy.  The Court compared the policy to the allegations in the underlining complaint against the insured.  That comparison precluded any duty to defend any of the claims alleged in the underlying case:

Each allegation in the Underlying Complaint is premised upon Van Sickle's alleged failure to provide information regarding the 2011 flood or general flood conditions in the area to Huckins. As such, the exclusion must apply and “there exists an unequivocal demonstration that the claim against an insured does not fall within the insurance policy's coverage.” [Citation omitted.]  Therefore, as to this policy, USAA had no duty to defend Van Sickle.

Huckins v. United Serv's Auto. Ass'n, ___ Mont. ___, 396 P.3d 121, ¶ 20 at 125-26, 2017 MT 143 (2017).

The Court accordingly held that, under that particular homeowner's policy, there was no duty to defend any of the claims alleged in the underlying case.

Comparing unambiguous exclusions to unambiguous allegations.  That is a sure way to decide whether or not there is a duty to defend.

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DUTY TO DEFEND NO EXPERT KILLING GROUND.

Expert testimony for one insurer that another insurer had a duty to defend, rather than the first insurer (the one that hired the expert to testify about it), was stricken as irrelevant in Zurich Am. Ins. Co. v. Amerisure Ins. Co., No. 9:16-CV-81393-MIDDLEBROOKS, 2017 WL 1372858 (S.D. Fla. "signed" Feb. 10, 2017).

Further, expert testimony is simply unnecessary on the duty to defend.  Retaining an expert to testify and lawyers to argue the point is probably a waste of money.  The question of whether there is a duty to defend is clearly reserved for the judge to decide, at least under Florida law.  "Testimony about the allegations in the condo association's complaint may be relevant, but it is not within the province of an expert witness to interpret those allegations. It is the responsibility of the Court, not a witness, to interpret and determine the significance of legal documents."   Zurich Am. Ins. Co. v. Amerisure Ins. Co., No. 9:16-CV-81393-MIDDLEBROOKS, 2017 WL 1372858, at *2  (S.D. Fla. "signed" Feb. 10, 2017).

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ALLOCATION EXPLAINED GENERALLY. ALLOCATION APPLIED UNDER MICHIGAN LAW.

In Continental Cas. Co. v. Indian Head Indus., Inc., ___ F. App'x ___, No. 15-2217, 2016 WL 7321362 (6th Cir. December 16, 2016) (emphasis added), a panel of the Sixth Circuit Court of Appeals concisely summarized the prevailing alternative rules on allocation of indemnity and defense expenses under multiple insurance policies:

E.  The Allocation of Indemnity Damages and Defense Costs

There are multiple approaches a court may take in assigning the allocation of damages and costs under an insurance policy. See Arco Indus. Corp. v. Am. Motorists Ins. Co., 232 Mich. App. 146, 160–61 (1998). At issue in this case are two of these possible approaches. The “all sums” or “joint and several liability” approach considers each insurer of any policy triggered to be liable for the insured’s entire loss, including costs falling outside the policy’s period. Id. at 160. Liable insurers may then seek contribution from other insurers whose policies have been triggered. Id. The “time-on-the-risk" or “pro rata” approach assigns liability among the insurers for the triggered policies based on the portion of the underlying injuries that may be associated with each policy so as to make the insurer liable only for the prorated share of injuries. Id. at 161.

The panel then went on to apply Michigan law and pro rata allocation among the insurance policies at issue.

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CYBER INSURANCE FOR PIGGLY WIGGLY FRANCHISEE? NOT IN THIS CASE.

In Camp's Grocery, Inc. v. State Farm Fire & Cas. Co., 2 No. 4:16-cv-0204-JEO, 2016 WL 6217161 (N.D. Ala. October 25, 2016), one Camp's sued its insurance carrier for cyber insurance coverage.   Camp's claimed coverage principally under its policy's Inland Marine coverage forms, including a claimed coverage for cyber insurance allegedly offered by the carrier on two forms:  an Inland Marine Computer Property form and an Inland Marine (Coverage) Conditions form.

Although seemingly not identified by the District Court, the policy at issue appears to be a standard CGL policy to which the two identified forms were added.   In any case, the District Court agreed with the carrier that the coverage forms from which Camp's argued for liability insurance coverage are instead first-party forms, not coverage forms for liability insurance coverage.  The District Court entered a summary judgment for the insurance company of no coverage for the alleged cyber breach in this case.

Camp's operates a grocery as a franchisee of Piggly Wiggly in Alabama.

The plaintiffs against Camp's in the underlying case were Credit Unions.  They sued for alleged damages resulting from an alleged cyber breach.  The Credit Unions alleged that Camp's is liable for damage on the basis that a data breach was caused by Camp's failure to provide adequate computer systems and employee training and/or to maintain adequate encryption and intrusion detection and prevention systems.

The Credit Unions alleged claims against Camp's under Alabama law for negligence, wantonness, misrepresentation, and breach of contract.  The Credit Unions also alleged a claim under federal law for violation of the Gramm-Leach-Bliley Act, 15 U.S.C. § 6801 et seq.

Camp's, in turn, filed the case we are concerned with here.  Camp's demanded a declaratory judgment of its insurance coverage.  Specifically, Camp's prayed for a declaration that State Farm must defend and indemnify Camp's in the underlying action.

It got a declaration concerning its insurance coverage, but not the one it was looking for.  Even with the two Inland Marine endorsements added to this apparent standard CGL insurance policy, there still is no CGL coverage for the alleged cyber breaches at issue in the eyes of the District Court in this case.  The coverage forms in question are first-party coverage forms, the District Court held.  As such, they do not and never can provide for a duty to defend or to indemnify like a liability insurance coverage.

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DUTY TO DEFEND UNDER MOST LIABILITY POLICIES DEPENDS ON CLAIMS ALLEGED …

... Liability insurance companies are generally against extrinsic evidence to decide the duty to defend in their insurance contracts, until some of them are in favor of extrinsic evidence to decide a lawsuit.

In Travelers Prop. Cas. Co. of Am. v. Federal Recovery Serv's, Inc., 156 F. Supp. 3d 1330 (D. Utah 2016), the Court had to determine whether there is a duty to defend under a cyberinsurance policy.  The law in Utah is that extrinsic evidence cannot be used to determine whether there is a duty to defend under a liability policy, unless the liability carrier wrote the insurance contract to allow or require extrinsic evidence to determine its duty to defend.  Most liability policies were not and are not written to permit extrinsic evidence to determine the duty to defend.

The Court in Federal Recovery Services was faced with claims alleged in the underlying case that the policyholder refused to return electronic data to its customer.  As in most cases in most Courts in the United States, the Court in that case determined the duty to defend by resort to the language of the insurance contract compared to the allegations of the claim against the insured.

The Court held that the carrier which issued a CyberFirst liability insurance policy did not have a duty to defend the claims alleged in the underlying case:

The duty to defend here is conditioned on “any claim or ‘suit’ seeking damages for loss to which the insurance provided ... applies.” … [T]he policy language indicates that the duty to defend is determined with reference to what a claim or suit seeks. Therefore, Travelers must defend a suit that alleges liability within the CyberFirst Policy. Thus, consideration of extrinsic evidence is irrelevant in determining Travelers’ duty to defend.

Travelers Prop. Cas. Co. of Am. v. Federal Recovery Serv's, Inc., 156 F. Supp. 3d 1330, 1336-37 (D. Utah 2016) (emphasis added).

Regardless of wishful thinking sometimes expressed by some people to the contrary after claims have been made, wishful thinking which often consists of opinions expressed in particular by some underwriting departments that are responsible for writing the language of liability insurance contracts as well as by some other non-judges, the question of whether a Court can even consider extrinsic evidence to determine a duty to defend may depend on the language in the insurance contract written by the liability carrier.

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DEFENDING PROFIT-MAKING "CAREER COLLEGE" MARKETERS.

A for-profit marketer of "career college" services ("career college" in this case including what once was called "technical college") and its subsidiary provider of "post-secondary" courses were sued for alleged wrongful advertising in marketing education services for allegedly little or no education, as the Court put it, "for alleged wrongful advertising in connection with services they performed (or did not perform) to students at career colleges."   Education Affiliates, Inc. v. Federal Ins. Co., No. -JFM-15-1624, 2016 WL 4059159, at *1 (D. Md. July 28, 2016).

Their D&O liability carrier refused to defend them against these claims.  Not surprisingly, a Court held that under the universal liability insurance policy provision that provides virtually everyone with a defense regardless of whether the claims to be defended are false or not, so these defendants also were entitled to a defense under their liability policy.   Education Affiliates, Inc. v. Federal Ins. Co., No. -JFM-15-1624, 2016 WL 4059159, at *2-*3 (D. Md. July 28, 2016).

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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.

FOURTH CIRCUIT AFFIRMS E.D. VIRGINIA: TRAVELERS MUST DEFEND ALLEGED CYBERBREACH.

Travelers issued a CGL or commercial general liability policy to Portal Healthcare Solutions in 2012 and renewed it in 2013.  Portal has been sued in a class action lawsuit pending in Virginia.  Travelers denied all coverage including a defense.

The Fourth Circuit succinctly described the underlying class action against Portal in these words:

The class-action complaint alleges that Portal and others engaged in conduct that resulted in the plaintiffs’ private medical records being on the internet for more than four months.

Travelers decided to test its duty to defend a cyberbreach under its CGL policies by filing suit in the Eastern District of Virginia for declaratory relief.  The Travelers clearly felt very sure of its disclaimer decision; it decided to file this dec action after leaving its insured without a defense.

The District Judge entered a summary judgment against Travelers and in favor of Travelers' insured, Portal.

On Monday of this week, the Fourth Circuit Court of Appeals affirmed the District Court's summary judgment, again wasting no words:

    Put succinctly, we agree with the Opinion that Travelers has a duty to defend Portal against the class-action complaint. Given the eight corners of the pertinent documents, Travelers’s efforts to parse alternative dictionary definitions do not absolve it of the duty to defend Portal.

Download Travelers Indemnity Co. of Am. v. Portal Healthcare Solutions, L.L.C., No. 14.1944 (4th Cir. April 11, 2016). 

Parenthetically, the Fourth Circuit opinion was issued as "non-precedential" in the Fourth Circuit.  However, the District Court decision has been published in F. Supp.  One will be formal precedent within the Fourth Circuit; both will be precedent everywhere else in all likelihood.

          Put succinctly, The Travelers could have done better than disclaim a duty to defend a class action in which the plaintiffs alleged that their medical records were posted on the internet for more than four months on account of what the defendant did or did not do.  It certainly could have done a lot better than compounding that disclaimer decision by filing a lawsuit against its insured to prove how right it was to disclaim all coverage for the claims of the people whose medical records ended up on the internet.

          Why did they ever think that this was a good case to disclaim all coverage including to disclaim a duty to defend?  This case is an outlier in that sense.  Most liability carriers would have provided a defense and issued a reservation of rights to deny coverage later, then they would have filed a dec action.  As it stands, the issue of CGL coverage for a cyberbreach is what people will take away from what is really a decision on the Virginia (and majority) view of the duty to defend.

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

COVERAGE ISSUES OVER LAWSUIT AGAINST DETROIT SCHOOLS AND EMERGENCY MANAGER.

Apparently tired of horrible continuing conditions in the Detroit Public Schools, and weary of the Emergency Manager's attempts to blame the conditions in the schools not on spending less money on students, but blaming the conditions on teachers instead, the Detroit teacher's union has reportedly at long last filed suit.  The purposes of the lawsuit, again reportedly, are to mandate the Detroit Public School District to spend the funds on students, and to force the removal of the Emergency Manager, Mr. Darnell Earley.  National Briefing / Midwest "Michigan:  Detroit Teachers Seek End to Control by Emergency Manager" (Associated Press Copyrighted Story published on The New York Times Online, dated January 28, 2016).

Mr. Earley previously served as the Emergency Manager of Flint, Michigan before he left to become the Emergency Manager of the Detroit Public Schools.  During Mr. Earley's tenure in Flint, the decision was made and implemented to save money by hooking up the City's water supply to polluted water from the Flint River without the necessary treatment to make it drinkable, it is alleged in at least one pending complaint.  Coincidentally, perhaps, it is alleged that that decision was also made by reducing spending on infrastructure that protects children.  

Now a complaint has been filed in Court that alleges that much the same decision was also made in the management of the Detroit Public Schools.  

So, assuming that Detroit P.S.D. has a Public Entities policy or the equivalent, would Mr. Earley the Emergency Manager qualify as an Additional Insured under that policy's own language?  Or do the taxpayers of the State of Michigan have to foot the bill regardless, first for defense and later possibly for indemnity of either the School District or Mr. Earley or both?

And what of coverage for the decisions to save money at the expense of children, or for the decisions to blame someone else, anyone else, for the consequences?

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"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

Convincing Anyone Yet? Coverage, Contraception, and the Court.

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.

MILLIONS FOR CLASS ACTION ATTORNEY'S FEES & EXPENSES. MORE WITH INTEREST.

In Select Comfort Corp. v. Arrowood Indem. Co., No. 13-cv-2975 (JNE/FLN), 2015 WL 4992351, *1 (D. Minn. August 20, 2015), a controversy arose after the maker of the Sleep Number bed was sued in a class action and its defense attorneys including local counsel "billed Select Comfort for a total of $1,033,780 in attorney's fees and costs".

Arrowood , Select Comfort's CGL carrier, together with two other insurers of Select Comfort, paid $557,252 to the lawyers.  However, in Select Comfort's eyes Arrowood was the reason that it hired its own independent class action defense counsel.  Select Comfort sensed a "conflict" on the part of the lawyers selected by Arrowood to defend Select Comfort in the class action.  Uncomfortable with all these arrangements, Select Comfort sued and recovered a jury verdict for among other things "the $407,000 difference from Arrowood."   Select Comfort Corp. v. Arrowood Indem. Co., No. 13-cv-2975 (JNE/FLN), 2015 WL 4992351, *2 (D. Minn. August 20, 2015).

Not comfortable yet, Select Comfort requested also that Arrowood be required to pay prejudgment interest and post-judgment interest on the $407,000 recovery, and an additional $849,208 in attorney's fees and costs that Select Comfort's attorneys apparently charged for suing Arrowood, plus prejudgment and post-judgment interest on that amount also.  Select Comfort Corp. v. Arrowood Indem. Co., No. 13-cv-2975 (JNE/FLN), 2015 WL 4992351, *3 (D. Minn. August 20, 2015).

The Federal District Court resolved these attorney's fees claims, first, by awarding prejudgment interest on the jury award of defense fees and costs, citing Minnesota law to the effect that prejudgment interest in such cases is imposed not so much to make the policyholder whole, as to 'encourage' settlement of such disputes.  The prejudgment interest on this award amounts to an additional $292,633.

The next thing the Federal District Court awarded was post-judgment interest on the $699,633 total of the $407,000 jury award plus the prejudgment interest ordered by the District Court for $292,633.  So, the District Court awarded interest on interest in this way.

Next, the Federal District Court awarded the $849,208 requested by Select Comfort for the attorney's fees and expenses it was charged for suing Arrowood.  The only thing that Select Comfort requested but did not get in this entire case was prejudgment interest on the award of fees and expenses it claimed for suing Arrowood to recover many of the other amounts, all listed above.

The bottom line of what the District Court awarded:  Select Comfort was awarded by the District Court the sum of $1,548,841 representing various kinds of attorneys' fees, defense expenses, some prejudgment interest, and some post-judgment interest.  Select Comfort Corp. v. Arrowood Indem. Co., No. 13-cv-2975 (JNE/FLN), 2015 WL 4992351, *10 (D. Minn. August 20, 2015).

Oops, that's not the complete bottom line, actually.  Select Comfort received $557,252 for its class action defense fees and costs before it litigated the awards ultimately made by the District Judge in this case.

The bottom line of these amounts?  So, venturing a guess based on arithmetic, Select Comfort received or will receive over $2Million for class action defense fees and expenses, and for successfully suing one of its CGL carriers over those class action fees and expenses.

The moral of the story?  When a policyholder has been sued in a class action, be very careful about supposed conflicts in legal representation, as Select Comfort claimed in this case, as well as being very careful about denying defense coverage outright, either of which may leave the policyholder free in many jurisdictions to hire its own independent class action defense counsel -- people who are familiar with very large numbers, indeed.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements), which present many Sections on Attorney's Fees issues, featuring in particular Sections 13:12, 13:13, and 13:14 in Volume 2.  All rights reserved.

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

Once the liability insurer admits that the policyholder faces an underlying “claim,” its duty to defend is activated if the claim is covered.¹

 

¹ In a Federal Court case in California, Millenium Labs, Inc. v. Allied World Assur. Co., No. 12cv2280-BAS (KSC), 2014 WL 6632765 (S.D. Cal. Filed November 21, 2014), a United States Magistrate Judge refused to permit the defendant to amend several responses to requests for admission to which it responded 10 months beforehand.  The liability insurance company in that case (which the Judge called “AWAC” in her opinion) had previously admitted on multiple occasions that when its policyholder was served with subpoenas by the U.S. Department of Justice, “the DOJ investigation was a ‘claim’”.  Here are the Court’s stated bases for its decision in this case, which are laid out here in numbered list form:

  

1. “Even before the complaint was filed, AWAC admitted the DOJ investigation was a ‘claim.’”  AWAC’s claim representative allegedly called the policyholder and said so.
2. Depositions of the claim rep and of the policyholder’s general counsel seemed to support this fact, “and AWAC does not deny it.”
3. “After hiring outside coverage counsel, AWAC admitted that the DOJ investigation was a ‘claim.’”  AWAC’s lawyer wrote a letter referring to one of the subpoenas as a potential “’Claim under the Policy.’”
4. At the beginning of discovery after the policyholder filed a lawsuit to obtain payment as quickly as possible of its defense costs, the policyholder served the requests for admission to which AWAC served its responses in question, admitting that the subpoenas and investigation by the DOJ were a “’claim.’”
5. Thereafter, AWAC opposed its policyholder’s motion for summary judgment, for example, by admitting that it was admitting “’only that the DOJ Investigation constitutes a Claim under the Policy.’”
6. AWAC also served requests for production on its plaintiff policyholder in that case.  In response, the policyholder “produced at least 1.1 million documents (and likely more)”.  Three months or more after the policyholder’s production, AWAC’s claim rep was deposed and referred to the DOJ subpoenas as a “’claim.’”
7. “For two years, AWAC repeatedly asserted that the DOJ investigation was a ‘claim.’  Now, for the first time, AWAC seeks to reverse its position, withdraw its admissions, and assert that the DOJ investigation was, in fact, not a ‘claim.’”

 “Accordingly, AWAC’s request to amend its RFA responses is DENIED.”

 

Reprinted with the permission of Thomson Reuters and the author from the manuscript of the author's 2015 Supplement chapters, and in particular Section 3:52, in “Litigation and Prevention of Insurer Bad Faith, 3d” ©2015 by Thomson Reuters.

Related articles

Recoupment and Reimbursement of Covered Claims Defended and Negotiated.

Recoupment and Reimbursement of Covered Claims Defended and Negotiated.

          In 2001, the California Supreme Court gave its definitive answer (definitive certainly in California)  to a certified question concerning recoupment or reimbusement of settlement and defense of covered claims.  First, the California Supreme Court gave a fact-specific answer to the question as follows:

Here, at the time it accepted defense of the insureds, the insurer reserved its right to dispute coverage for any settlement contribution made to the injured third party. However, when a reasonable settlement offer was subsequently tendered, the insureds refused to agree the insurer could settle if the insureds would be liable for reimbursing the insurer for any noncovered claims. They also refused to either assume their own defense, or agree the settlement offer was unreasonable, and hence could not be the basis for a later bad faith action based on the failure to settle. Under such circumstances, we conclude an insurer may be reimbursed for a reasonable settlement payment made over the objection of its insureds.^FN1

             The California Supreme Court considered the matter thoroughly in the case presented, and concluded its answer once again much in the same fact-specific way:

   As noted, the issue here is whether Blue Ridge may seek reimbursement for the settlement paid on the Jacobsens' behalf even in the absence of the Jacobsens' express agreement. We conclude it may. Here, the Jacobsens were on notice both by the policy language and by Blue Ridge's express reservation of rights when it assumed the defense that Blue Ridge might seek reimbursement from them for what were ultimately determined to be noncovered claims. Moreover, Blue Ridge notified the Jacobsens of its intention to accept what was ultimately determined to be a reasonable settlement offer, and offered the Jacobsens the opportunity to assume their own defense. Under such circumstances, Blue Ridge satisfied the prerequisites for seeking reimbursement for noncovered claims included in a reasonable settlement payment: (1) a timely and express reservation of rights; (2) an express notification to the insureds of the insurer's intent to accept a proposed settlement offer; and (3) an express offer to the insureds that they may assume their own defense when the insurer and insureds disagree whether to accept the proposed settlement.^FN2

 

^FN1 Blue Ridge Ins. Co. v. Jacobsen, 25 Cal. 4th 489, 492-93, 22 P.3d 313, 314, 106 Cal. Rptr. 2d 535, 536 (2001).

 

^FN2 Blue Ridge Ins. Co. v. Jacobsen, 25 Cal. 4th 489, 502, 22 P.3d 313, 320-21, 106 Cal. Rptr. 2d 535, 544 (2001).  [Emphasis added.]

 

Reprinted with the permission of Thomson Reuters and the author from the manuscript of the author's 2015 Supplement chapters in “Litigation and Prevention of Insurer Bad Faith, 3d” ©2015 by Thomson Reuters.

ILLINOIS E&O COURT HOLDS NOT RETURNING RETAINER NOT COVERED MALPRACTICE,

… HOLDING IS NOT PRECEDENT IN ILLINOIS, COURT SAYS.

 

               In an opinion released but not published, Illinois’ First District Court of Appeal has held that an advance retainer required by a law firm for costs and expenses was not covered malpractice under the firm’s E&O insurance policy:  Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, 2014 Ill. App. (1st) 133518-U, 2014 WL 7446203 (Ill. 1st DCA December 29, 2014)(stated “UNPUBLISHED OPINION”).

               Here is how the case was presented to the appellate court in Illinois.  “Inside directors” of a bank signed an “’advanced payment retainer agreement’” with the insured law firm.  The retainer agreement was stated to be “in connection with legal matters arising out of [the directors’] capacity as inside directors of the Bank.”  The agreement called for an advance retainer of $150,000.00 to be paid by the Bank to the law firm “for reasonable costs and expenses incurred in connection with the matters for which the [Bank’s inside directors] had retained Coleman Law”.   Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, ¶ 4, 2014 Ill. App. (1st) 133518-U, ¶ 4, 2014 WL 7446203, at *1 (Ill. 1st DCA December 29, 2014)(stated “UNPUBLISHED OPINION”).

               The bank in question went into receivership and the FDIC was appointed receiver.  The FDIC sent a demand letter for the return of the $150,000.00 paid by the bank to the law firm.  The law firm refused to return the retainer.  Ultimately, the FDIC filed suit to have the money returned, and the law firm ultimately tendered defense of the FDIC matter to its professional liability insurance carrier.

          In an action for declaratory relief as to whether there was coverage under the malpractice insurance policy, the Circuit Court in and for Cook County granted the carrier’s motion for summary judgment.  On appeal, the First District affirmed in the unpublished opinion in question.

          The trial court did not err in holding that there was no duty to defend here, said the appellate court.  Under Illinois law, as under the law of most jurisdictions, the Courts are required to compare the allegations of the underlying complaint against the insured, with the provisions of the insurance policy at issue.  Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, ¶ 24, 2014 Ill. App. (1st) 133518-U, ¶ 24, 2014 WL 7446203, at *5 (Ill. 1st DCA December 29, 2014)(stated “UNPUBLISHED OPINION”). Both the Illinois trial court and the Illinois appellate court did that in this case.  “Comparing the allegations of the FDIC complaint in the underlying action to the provisions of the insurance policy at hand, the factual allegations in the underlying complaint did not allege acts of negligence, but rather acts which could only be classified as intentional and, thus, excluded from policy coverage.”     Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, ¶ 36, 2014 Ill. App. (1st) 133518-U, ¶ 36, 2014 WL 7446203, at *9 (Ill. 1st DCA December 29, 2014).  [Emphasis added.]

          The underscored language immediately above, reveals what the Illinois appellate court did not come out and say, but that their duty-to-defend analysis followed the same path which many Courts follow in the duty-to-defend context even when they do not say that is what they are doing:  The Illinois appellate court compared the factual allegations, not simply the claims alleged in the underlying complaint, to the provisions of the insurance policy at hand in order to determine whether the policy provided a duty to defend.

To Be Continued ....  There are other issues presented by this decision which will be examined here.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved.  No claim to Original U.S. Government Works.

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THEY WERE AGAINST IT BEFORE THEY WERE FOR IT: Fladell, THE FIRST PART.

PROFESSIONAL LIABILITY COVERAGE FOR LENDER FORCE-PLACED INSURANCE KICKBACKS?

    The Court in the case of QBE Americas, Inc. v. ACE American Ins. Co., 44 Misc. 3d 1224(A), 2014 WL 4250089, 2014 N.Y. Slip Op. 51330(U)(N.Y. Sup. Ct., New York County August 27, 2014)(table, text in Westlaw), concisely described the nature of that lawsuit:

 

Background

    This is an insurance coverage action in which QBE seeks indemnification for its participation in alleged kickback schemes involving forced-placed insurance. QBE claims it is entitled to coverage in approximately 40 lawsuits and a state government investigation, though other lawsuits and investigations may be pending.

 

However, the Court carefully stated several times that the present, unofficially reported ruling ostensibly did not reach QBE's Professional Liability Insurance Coverage claims.  The only issue it was deciding at this time, said the Court, was "QBE's entitlement to defense costs from its primary carriers, AIG and Darwin, during the pendency of this action."

    The Court determined that AIG had no duty to advance defense costs under its policy, but Darwin does have such a duty at least with respect to "pending litigation for which Darwin has consented to advance defense costs," in the words of the Court in this case.   AIG's policy requires the exhaustion of a self-insured retention, and QBE provided no evidence that it exhausted its self-insured retention.  Darwin in contrast "has a duty to defend.  Hence, Darwin (under New York, California, and Georgia law [the jurisdictions potentially implicated in choice-of-laws governing interpretation of Darwin's policy]) is obligated to advance all of QBE's llitigation costs so long as each lawsuit presents the possibility that any of the QBE entities or any of the claims asserted might be covered."  [Emphasis in original.]

    The ideas that the duty to defend is determined by comparing the claims alleged against the insured with the terms of the policy, and that Courts will hold that there is a duty to defend so long as any of the alleged claims are potentially covered, are universal.  These tests are applied generally, but they do not ordinarily translate into a concomitant determination that the duty to defend includes a duty to advance defense costs particularly, as in this case, while the insured and the carrier contest all coverage.

    "An informed coverage determination simply cannot be made at this juncture."  This limitation on the Court's decision is clear and concise.  There may be a question though whether it disguises the coverage determination that the Court has apparently already made applying the Darwin Professional Liability insurance Policy to cover its insured's lender force-placed insurance kickbacks.

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  All righs reserved.  No claim to original U.S. or New York State Government works. 

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PRIVATIZING PRISONS FOR PROFIT? REPORTS ....

Who has the Coverage?

 

          Reports of despicable conditions in for-profit prisons contain opinions.  These reports also contain evidence of facts.  Photographs and eyewitnesses have recorded these conditions in a private prison in Mississippi recently:

• "Dirt, feces and, occasionally, blood are caked on the walls of cells."
• Prisoners with treatable medical conditions, like glaucoma, do  not receive medical treatment.  When these individuals are released, their condition has deteriorated to the point where the condition is untreatable.
• Guards, who are paid a small hourly wage, spend little time in the solitary-confinement block.  Prisoners in solitary confinement sometimes set fires to their bedding in order to get the guards' attention and, even then, the guards sometimes do not respond.

These eyewitness accounts and photographic evidence and more are reported for example by Erica Goode, "Seeing Squalor and Unconcern in Southern Jail," p. 1, col. 1 (New York Times Nat'l ed., Sunday, June 8, 2014).  The Mississippi prison in question is run by Management and Training Corporation from Utah.

           Management and Training Corporation made one comment for publication.  They blamed these problems on the corporation they replaced in 2012, one GEO Group.  Otherwise, they declined to comment, saying they would not comment because they have been sued.  This is unusual.  Even aside from the fact that due diligence probably revealed these conditions before Management and Training Corporation took over the running of this Mississippi prison, this is 2014.  It has now been two years since CEO Group was in charge, and this is still unusual.  Many large corporations stage large press campaigns to "push back" against lawsuits.

           Management and Training Corporation is entitled to a defense.  Questions abound about how they will defend themselves.  Which of their carriers will fund their defense?  What sort of insurance coverage will provide them indemnity if their defense fails?  Who will cover these people against such reports?  And what sort of exclusions could apply, intentional damages exclusions for example?  So much depends on what Management and Training Corporation has to say about its prison-keeping.  When they start talking we will know more.  Until then, questions continue to pile up.

 

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

Please Read The Disclaimer.

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WASHINGTON STATE LEADS THE DEFENSE: CONCEIVABLE COVERAGE MEANS DEFEND.

  Washington State leads the way in determining a duty to defend, and thus in determining whether denial of a defense was wrongful.    See, e.g., United Serv's Auto. Ass'n v. Speed, 317 P.3d 532, ¶ 15, at 538 (Wash. Ct. App. Div. 2 January 28, 2014) (where coverage is conceivable for the claim(s)s pled in the complaint against the insured, there is a duty to defend; actual coverage is required for the duty to settle or indemnify); Grange Ins. Ass'n v. Roberts, 177 Wash. App. 1021, 2013 WL 5806663 *4 (Wash. Ct. App. Div. 1 October 28, 2013)(same).

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  No claim to original U.S. Government works.

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"ADDITIONAL INSURED," Priorities of Coverage Issues: General's Carrier vs. Subcontractor's Carrier ...

GEORGIA ON MY MIND THREE TIMES: NATIONAL RULES WIN.

          In a recent decision, Georgia law as applied in that case matched national rules and decided the outcome.  First, an Insurer could not both deny a claim for defense and attempt to reserve the right to assert a different defense in the future.  Bank of Camilla v. St. Paul Mercury Insurance Co., 2013 WL 1333519 *5 (M.D. Ga. March 29, 2013).

           In that case, the Federal Court held that the Insurer did not deny a claim for defense.  It was instead a claim for advancement of defense costs which were not covered, and so there was no breach of contract when the Insurer did not advance those defense costs.

           Second, defense coverage depends only on the allegations of  the underlying liability complaint.  Bank of Camilla v. St. Paul Mercury Insurance Co., 2013 WL 1333519 *9 (M.D. Ga. March 29, 2013).

           In this case, the Federal Court held that the allegations of the ULC did not trigger defense coverage.

           Finally, since there is no Coverage in this case, the Federal Court concluded that not only the breach of contract claims should be dismissed, so should the claims for alleged Bad Faith be dismissed as well.  Bank of Camilla v. St. Paul Mercury Insurance Co., 2013 WL 1333519 *11 (M.D. Ga. March 29, 2013).

 

          Please Read The Disclaimer.

"OTHER INSURANCE" CASE: GENERAL MAXIMS SPECIFICALLY EXPLAINED IN ILLINOIS DCA.

            In order to decide a case of competing "other insurance" clauses, an Illinois District Court of Appeal needed to specifically define general maxims of "horizontal exhaustion" and "target tender of a defense".

            The principle of horizontal exhaustion requires an insured who has multiple primary and excess policies covering a common risk to exhaust all primary policy limits before invoking excess coverage.

 Vedder v. Continental Western Insurance Co., 2012 IL App (5th) 110,583, 2012 WL 5331563 *5 ¶ 21 (Ill. 5th DCA October 29, 2012).  [Emphasis added.]

            "Targeting" an Excess Carrier to be tendered a defense is simply not done in such a "horizontal exhaustion" jurisdiction:

Our courts have consistently held that an insured cannot target tender a defense to his excess insurer while primary coverage remains unexhausted.

 Vedder v. Continental Western Insurance Co., 2012 IL App (5th) 110,583, 2012 WL 5331563 *5 ¶ 21 (Ill. 5th DCA October 29, 2012).  [Emphasis added.]

            To rephrase Oliver Wendell Holmes, general maxims and phrases are more often an excuse for lack of accurate analysis, than an aid in interpreting an Insurance Policy, and the decision in this case proves it.  In the Vedder v. Continental Western Insurance Company decision, the Judges had to define general words and phrases before they could decide the case before them.

Please Read The Disclaimer. 

FLORIDA DUTY TO DEFEND INTENTIONAL TORT UNLESS "INTENTIONAL DAMAGES" EXCLUSION ....

.... AND CERTAINLY NOT WHEN THERE ISN'T EVEN  ONE IN THE POLICY.

             In Philadelphia Indemnity Insurance Co. v. Hamic, 2012 WL 5055558 (M.D. Fla. October 18, 2012), a Federal District Judge held that under Florida Insurance Law, there is a Duty to Defend a claimed Conspiracy to commit Malicious Prosecution.

            The Federal Court previously determined that there is a Duty to Defend a Malicious Prosecution Claim in the same underlying case.  An Attorney's Professional Liability Policy covering specified Errors and Omissions is at issue in the Federal case.   The Defendants in the underlying case, and also the Insureds on the Policy, are an attorney and his Law Firm.

            Philadelphia, the E & O Carrier, filed a Motion to Reconsider or to Amend the Summary Judgment of a Duty to Defend, specifically as to alleged civil conspiracy.  The Insurance Company argued that conspiracy is an intentional tort and is not covered by the Attorney's Professional Liability Policy at issue.

            The Professional Liability Policy at issue has no Exclusion for intentional torts, the Court observed.  Philadelphia Indemnity Insurance Co. v. Hamic, 2012 WL 5055558 *1 (M.D. Fla. October 18, 2012).

            Moreover, the Professional Liability Policy at issue covers Errors & Omissions some of which are intentional torts, "though not specifically malicious prosecution or conspiracies."  Philadelphia Indemnity Insurance Co. v. Hamic, 2012 WL 5055558 *1 (M.D. Fla. October 18, 2012).

            Even though conspiracy was claimed in the underlying case, conspiracy does not require an intent to cause the damages complained of, in order to allege it or to prove it.  Without an Exclusion of intent to cause the damages complained of, there is no doubt that there is a Duty to Defend such claims under settled Florida Insurance Law.   "The tort of civil conspiracy does not require a finding of specific intent to harm the plaintiff or to extract an intended result.  Essentially the intent to commit the tort does not also mandate an intent to do the harm that resulted, which was an arrest."  Philadelphia Indemnity Insurance Co. v. Hamic, 2012 WL 5055558 *2 (M.D. Fla. October 18, 2012), CITING LIME TREE VILLAGE COMMUNITY CLUB ASS'N v. STATE FARM GENERAL INSURANCE CO., 980 F.2d 1402, 1407 (11th Cir. 1993), in which the Author successfully represented a Florida Homeowner's Association when it and its elderly members were all denied a Defense under their Business Liability Coverage and under their Directors and Officers Liability Coverage, which was upheld on a Summary Judgment by a Federal District Judge, and which was unanimously reversed on appeal by the Eleventh Circuit in the decision relied on by other  Federal District Judges to determine a Duty to Defend, including in this October 18, 2012 decision.

Please Read The Disclaimer.     

STATUTE OF LIMITATIONS ON WRONGFUL REFUSAL TO DEFEND.

            Suppose that you are involved in a Construction case presenting Insurance Coverage issues.  The Policyholders, a General Contractor and various Subcontractors, have been sued.  The claims against them are based on damages from alleged construction defects including alleged improper construction of exterior walls, of the roof, of decks, and in the installation of siding and flashing at an apartment complex.

            Suppose further that the underlying lawsuits have been tendered to the appropriate Commercial General Liability carriers for defense, and that for various reasons, all but one of the CGL carriers either begin to defend and then stop at some point, or they outright deny the G.C. and the Subs a defense.  However, one of the nondefending CGL carriers participates in a global settlement of accumulated claims joined by the G.C. and the G.C.'s CGL carrier which defended.  The settlement totals $3.4 Million and the defending carrier sues the nondefending carriers for contribution or indemnity for the costs of the G.C.'s defense and settlement.

            That presents a potential issue of the Statute of Limitations for a breach of the Liability Insurance Contract based on an alleged wrongful refusal to defend.  Under the defending carrier's view -- the view of the one seeking contribution or indemnity for the defense expenses it incurred on behalf of the G.C. -- the breach of contract "was constantly accruing under the 'continuing wrong' doctrine -- that 'where a tort involves a continuing or repeated injury, the cause of action accrues at, and limitations begin to run from, the date of the last injury.'"  St. Paul Fire & Marine Ins. Co. v. North River Ins. Co., 2012 WL 4464380 *4 (D. Colo. September 27, 2012).

            However, the nondefending Liability carriers' view of the thing has the virtue of simplicity:  The defending carrier knew when they did not provide a defense.  Their alleged breaches ran from that date.  See St. Paul Fire & Marine Ins. Co. v. North River Ins. Co., 2012 WL 4464380 *4 (D. Colo. September 27, 2012).

            Under Colorado law for example, a contract which requires a series of performances over a period of time may allow discrete claims for discrete and separate breaches of contract.  Under Colorado law, then, the Plaintiff may assert a claim for all breaches of contract within the period of limitation.   The Colorado Statute of Limitation provides a three-year limitation on claims for breach of contract.  Accordingly, the defending Liability carrier was allowed to sue for contract breaches within the three-year period of limitation, subject to the Court's application of this limitation period to each of the nondefending Liability carriers.  St. Paul Fire & Marine Ins. Co. v. North River Ins. Co., 2012 WL 4464380 *5 (D. Colo. September 27, 2012)(further holding in addition with respect to one of the nondefending Liability carriers in particular, which disclaimed its duty to defend several times, "[e]ach disclaimer gives rise to a separate breach subject to a separate limitation period.").

            There is nothing like the tried and true first rule of deciding whether or not to provide a defense under a Liability Insurance Policy:  When in doubt, provide a defense under a Reservation of Rights.

Please Read The Disclaimer.

 

"ADDITIONAL INSURED," Priorities of Coverage Issues: General's Carrier vs. Subcontractor's Carrier ...

 ... Plus Bad Faith Issues Too.

           Insurance Coverage issues were exhaustively addressed by a Federal Court in Pennsylvania in Mega Construction Corp. v. Quincy Mutual Fire Insurance Co., 2012 WL 3994473 (E.D. Pa. September 12, 2012), Download Mega Construction v. Quincy Mut. Fire Ins. Co. (E.D. Pa. No. 09.01728, Memorandum Opinion Filed September 12, 2012) PUBLIC ACCESS.  The Insurance Coverage issues surrounded a General Contractor, its Subcontractor, the Subcontractor's CGL carrier, the G.C.'s CGL carrier, and an injured claimant.  The Court resolved those issues with the same result, it ruled, under both Pennsylvania and New Jersey law.

          The case also involved jury issues of Bad Faith under New Jersey law, the Court ruled.

          First, the significant Coverage issues included the Subcontractor's Carrier's "Additional Insured" endorsement extending Coverage to the General Contractor, and the priority of Coverages as between the General's Insurance carrier and the Sub's Insurance carrier.  As noted, the issues of Insurance Coverage were resolved under both Pennsylvania and New Jersey law in this case, with the same result.

 

The "Additional Insured" Insurance Coverage Issues.

            In accordance with Dobek's Subcontract, Dobek asked and Quincy added Mega to Dobek's G.L. as an "Additional Insured" by an endorsement with this standard language:

Who Is An Insured (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.

Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *1 (E.D. Pa. September 12, 2012).  [Boldfaced in the Policy; italics by the Court.]

          Under both Pennsylvania and New Jersey law, according to the Federal Court in this case, "additional insured endorsements with language similar to this one may cover liability arising out of the additional insured's own negligence."  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *6 (E.D. Pa. September 12, 2012).  Further, both States interpret "arising out of" language like that quoted above to mean "either 'but-for' causation or 'substantial nexus.'"  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *7 (E.D. Pa. September 12, 2012).  The Federal Court also found as a fact that Mr. Tavares's injury "plainly arose out of Dobek's 'ongoing operations.'"  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *9 (E.D. Pa. September 12, 2012).  Thus, there was no doubt in the mind of the Judge that for all these reasons, Quincy extended Coverage to Mega under the quoted "Additional Insured" endorsement in this case.  Quincy therefore owed Mega duties to defend and to indemnify Mega in the underlying case.  Since Quincy neither defended Mega nor attempted to settle on Mega's behalf when the underlying case settled, Quincy breached its duties to Mega, the Court held.

 

The Consequences of Quincy's Breach of its Duty to Defend Mega.

         As consequences of Quincy's breach of its duty to defend Mega, the Court held that (1) Harleysville (which intervened against Quincy) is entitled to be reimbursed in full by Quincy for the costs Harleysville incurred in defending Mega in the underlying case against Mega, and that (2) under New Jersey law, Harleysville is also entitled to recover its attorney's fees and costs in prosecuting "this declaratory judgment action" against Quincy.  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *9 (E.D. Pa. September 12, 2012).

 

The Competing "Other Insurance" Clauses.

            Both the G.L. Policies, the one issued by Harleysville to Mega the General, and the one issued by Quincy to Dobek the Sub, contained identical "Other Insurance" clauses   They would have cancelled each other out accordingly, except that the Harleysville clause was given effect to the extent that it provided that Harleysville's Policy would be excess over a Policy, like Quincy's, which extended "Additional Insured" Coverage to Harleysville's Named Insured.  Accordingly, Quincy provided Primary G.L. Coverage to Mega while Harleysville provided Excess G.L. Coverage to Mega here.  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *12-*13 (E.D. Pa. September 12, 2012).

 

Liability for the Underlying Settlement, and Proof.

            Harleysville also claimed reimbursement from Quincy of the "$1.1 million [paid by Harleysville] in settlement of  Mr. Tavares's claims against Mega."  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *11 (E.D. Pa. September 12, 2012).  Harleysville put on evidence sufficient to satisfy the laws of both Pennsylvania and New Jersey, that Harleysville's settlement with Tavares on behalf of Mega was reasonable and in Good Faith.  Without quoting all the evidence referenced in the Court's opinion, Harleysville put on evidence of:

• The injuries suffered by the claimant, which in this case were "catastrophic".
• The claimant's settlement demands.
• The experience and expertise of the Plaintiff's Attorney in the underlying case.
• The venue where the underlying case was going to be tried to a Jury.
• The legal rules governing liability in the underlying case.

Harleysville did not even attempt to put on any evidence at all of its defense costs, it appears, or to prove that its "settlement decisions" were reasonable, only that the amount of the settlement was reasonable and that Harleysville negotiated the settlement in Good Faith once Quincy denied all Coverage to Mega.

            Under the evidence of record in this case, Harleysville met its burden of proving that its settlement on behalf of Mega in the underlying case was both reasonable in amount, and negotiated in Good Faith.  This has the legal effect of rendering the Defendant Liability Insurance Company, here Quincy, liable up to its policy limits for the amount of the settlement in a case like this one.  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *11 (E.D. Pa. September 12, 2012)(applying both Pennsylvania and New Jersey law in this regard).

 

Last But Not Least, Mega's Bad Faith Claim Against Quincy Goes To A Jury.

            Finally, under both New Jersey and Pennsylvania law, Mega's Bad Faith claim against Quincy presented questions of fact which would be resolved by a Jury.  Mega Constr. Co. v. Quincy Mut. Fire Ins. Co., 2012 WL 3994473 *13 (E.D. Pa. September 12, 2012).

Conclusion.

            Faced with a cornucopia of exhausting factual and legal issues, the Court in this case exhaustively addressed each issue, often under the law of two States.  With respect to the duty to defend under Liability Insurance Policy, in any case, this decision once again shows that it is often if not always and everywhere a good practice to provide the Policyholder or other Insured with a defense under a Reservation of Rights while simultaneously pursuing a judicial resolution of important Coverage issues.

Please Read The Disclaimer.

ALLOCATION, INDEMNITY, DEFENSE INSURANCE COVERAGE ISSUES.

     Allocation is a concept with triple meanings in Insurance Coverage circles.  The term refers to an Insurance Company doing any one of three things:  Allocating expenses it incurred in defending noncovered claims under a liability Policy, for which it seeks reimbursement from its Insured; allocating indemnity payments it incurred in settling noncovered claims, and again for which it seeks reimbursement from its Insured; and third and finally, allocation of Coverage to a particular risk based on various factors such as time on the risk, etc., when the Carrier has issued Liability Policies over the course of several years.

     In Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 (Cal. 2d DCA August 3, 2012), Download Axis Surplus Insurance Co. v. Reinoso (Cal. 2d DCA No. B228332, Opinion Filed August 3, 2012) PUBLIC ACCESS, the first two kinds of allocation were involved.  Axis Surplus provided Edgar and Linda Reinoso with a defense and Axis also settled claims against the Reinosos, which Axis claimed were not covered and for which Axis sued the Reinosos for reimbursement.

     Before passing to Axis's reimbursement case, some factual background is in order.  Mr. and Mrs. Reinoso owned and managed rental properties in California.  Tenants at a particular apartment complex owned and managed by the Reinosos sued the Reinosos based on alleged diminished habitability; cockroach infestation; inoperable cooling systems; water leaks; inoperable heat systems; and mold.  The Tenants alleged not less than nine (9) causes of action against Mr. and Mrs. Reinoso.  Estimates provided to Axis of likely Damages outcomes ranged from $3.5 Million to $30 Million.  Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 *1 (Cal. 2d DCA August 3, 2012).

     The Reinosos tendered their defense in the Tenant Action to Axis Surplus, which had issued two Commercial General Liability Policies to the Reinosos.  Axis defended the Reinosos under a Reservation of Rights apparently including a right to claim reimbursement to get its money back for defending noncovered causes of action.  See Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 *2 (Cal. 2d DCA August 3, 2012).

     Axis incurred defense costs of approximately $257,500.00 for which it sued the Reinosos for reimbursement when the Tenant Action concluded.  See Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 *2 (Cal. 2d DCA August 3, 2012).  Parenthetically, Axis also sought reimbursement of its settlement payment, which will be the subject of the next post here.

     The Trial Court held, and the California Appellate Court affirmed the holding, that Axis could not legally recover its defense expenses for defending noncovered claims in the Tenant Action.  The Trial Court applied the Intentional Damages Exclusion ("excluding from coverage injuries that were 'expected or intended from the standpoint of the insured'") to Mrs. Reinoso, finding that she "knew" of the conditions at the apartments which were alleged in the Tenant Action.  As noted, the Appellate Court affirmed, holding that "[t]here is substantial evidence to support the trial court's rejection of [Mrs. Reinoso's] claim that she was ignorant of the conditions".  See Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 *4, *6 (Cal. 2d DCA August 3, 2012).  Since there was no potential for Coverage, the Trial Court held that Axis Surplus had not met its burden to obtain reimbursement for costs it incurred in the defense of claims that were not even potentially covered.  See Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 *4 (Cal. 2d DCA August 3, 2012).

Without directly discussing the effect on Axis Surplus's claim for reimbursement of defense expenses of holding that the intentional damages Exclusion applied to the record facts, the Appellate Court affirmed the Trial Court's denial of reimbursement of defense expenses to Axis Surplus in this case.

     Discussion of all three allocation issues continues in the next post on Insurance Claims and Issues Blog.

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Florida Chinese Drywall Damage Claims: Defend G.C., New York Law.

    In Great American Fidelity Ins. Co. v. JWR Construction Serv's, Inc., 2012 WL 1193848 (S.D. Fla. April 9, 2012), Download Great Am. Fid. Ins. Co. v. JWR Construction Serv's, Inc. (S.D. Fla. No. 10.61423, Order Filed April 9, 2012) PUBLIC ACCESS, a Florida Judge was confronted with the issue of whether there is a Duty to Defend underlying Chinese Drywall Damages claims under environmental liability insurance policies.  The Court in that case held that the Liability Insurer which issued the environmental liability insurance policies to the General Contractor at bar, owed a Duty to Defend Chinese Drywall Damages Claims in Florida under New York Law.

    The first of two Exclusions relied on by the carrier in this case, "the Faulty Workmanship / Own Work Exclusion," was held inapplicable first.  Id., 2012 WL 1193843 at *11-*15.  Great American relied apparently on the Florida rule governing the determination of a Duty to Defend, which is to compare the allegations in the underlying complaint against the Policyholder or other Insured, with the provisions of the Liability Policy.  However, this case as noted was determined by New York Law instead.  "New York law does not limit itself only to the four corners of the underlying complaint."  The carrier produced no evidence concerning key factual issues raised by the underlying complaint with respect to the Duty to Defend issue.  The Federal Court held that the carrier failed to meet its burden in moving for Summary Judgment and its motion was denied.  Id. at *15-*16.

    The carrier relied on one other Exclusion in its environmental liability insurance policies to defeat its Duty to Defend, its "Products Liability Exclusion".  The Federal Court held that this Exclusion did not apply in this posture, either.   Id. at *16-*20.

    And the Court did more in this decision.  The Court granted the Insureds' Motion for Summary Judgment and affirmatively declared that the carrier in this case owes a Duty to Defend the underlying claims including the claims alleged for Chinese Drywall Damages.  Id. at *20.

    Even more.  As  noted, the Court determined that Florida's choice-of-law rules require that New York Law be applied to Great American's Motion for Summary Judgment in this decision.  Nonetheless, the Federal Court in Florida had no trouble applying Florida's Statute on Attorney's Fees to be awarded to a Policyholder or other Insured which successfully contests Insurance Coverage:

In addition, the Court orders that Great American must immediately reimburse JWR for its defense costs thus far incurred in the underlying suits, establish a continual defense fund to provide for JWR's future defense costs, and pay attorney's fees for this action to JWR pursuant to Section 627.428, Florida Statutes. Furthermore, these proceedings shall be stayed until an underlying judgment or settlement has occurred.

Id. at *20.

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Defense Duty Breach No Waiver of "Policy Defenses" in Louisiana.

   It is a troubling question.  It has perplexed many Judges and lawyers as well as Policyholders and their Liability Insurance Companies.  The question is whether, when a Liability Insurance Company wrongfully denies its Duty to Defend in a given case, it has by that denial waived its right to raise defenses to its Coverage in order to limit its extracontractual liability for all or a part of the loss incurred by the Policyholder as a result.

   The Supreme Court of Louisiana recently added its answer to this question, firmly rejecting waiver under those circumstances:

   We granted a writ application in this insurance case primarily to determine whether the lower courts erred in holding that the insurer waived its right to enforce its policy defenses because it breached its duty to defend. After reviewing the record and the applicable law, we find that the lower courts erred in holding the insurer liable for 100% of the claims asserted by the insured. In spite of breaching its defense duty, the insurer was entitled to rely on its policy defenses in limiting its indemnity obligation. Therefore, we reverse the judgment of the court of appeal on that issue and render judgment against the insurer for the proper amount due under the insurance policies. All other issues are remanded to the trial court.

Download Arceneaux v. Amstar Corp. (La. Case No. 2010.C.2329, Opinion Filed July 1, 2011) PUBLIC ACCESS, also published as Arceneaux v. Amstar Corp., --- So.3d ----, 2011 WL 2591701 *1 (La. July 1, 2011)(authorized password required to access Westlaw).

   "Policy Defenses"  was used interchangably in this Opinion with "coverage defenses".  See Arcenaux v. Amstar Corp., 2011 WL 2591701 at *6.  The "general liability insurance company" in this case specifically "disclaimed liability" (denied liability for indemnity and withdrew from the defense) for two reasons:  (1) "employee exclusions," i.e., "exclusions for bodily injury to employees of the insured arising out of the course and scope of employment" which the Insurance Company, Continental, erroneously thought was contained in each and every one of eight [8] Insurance Policies it issued, and (2)  that the Bodily Injury alleged in the Underlying Liability Claims did not take place during one or more of the Continental Policy Periods.  Id. at *1.

For an interesting take by a Policyholder Attorney on the Duty to Defend generally under Louisiana Law, see Todd A. Rossi, Esquire, "Insured's Allegations May Trigger Insurer's Duty to Defend" posted 11.04.10 on Louisiana Law Blog.

    

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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 ......

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