Insurance Coverage Blog

I saw an interesting case on anti-concurrent cause language in a liability policy on the blog for the Cavanagh Williams firm in Ottawa.  Here's a copy of the case, Appin v. Economical Ins. Co., in the Ontario Court of Appeals.  The decision was handed down in mid-February.

The court referred to it by another name -- the concurrent exclusion clause -- but it is worded more or less the same as the kind of anti-concurrent cause clauses we have discussed at length here, except for one thing: this provision is in the liability form of a Commercial General Liability policy, and is attached to a mold exclusion.

The purpose of the anti-concurrent cause language in the policy appears to be to reinforce the exclusion's status as an "absolute" mold exclusion -- no matter what combination of origins, causes, effects, happenings, events, or whatever word you come up with, the insurer does not intend to pay for any liability if the harm is caused in any way by mold.

To consider this clause in the proper context, let's broaden our perspective for the moment.  Anti-concurrent cause language, as I've written about at length, is merely one way of addressing what I have called the Unbearable Lightness of Causation (with apologies to Kundera).  Causal relationships are among the most intellectually perplexing constructs of human thought, and theories of concurrent and sequential causation are likewise theoretically complex.   I've written about it in this article for New Appleman: Critical Issues from last year, and a second article on anti-concurrent causation and Fifth Circuit Katrina cases will come out in the same publication next month.  Anti-concurrent cause language posits an arbitrary analysis of causation -- arbitrary in the sense that the areas of inquiry are limited so that, when certain factors are present, the result of the analysis each time will be the same: no coverage.

These clauses were developed to deal with adverse court precedent in first-party property policies, however, and I have expressed some skepticism about how well the language transfers to liability policies.  Consider this: property insurance causation has traditionally been viewed far differently from tort causation -- the blurring of the distinction between the two, in fact, resulted in the development of the modern anti-concurrent cause clause. But tort causation is what liability insurance is all about, so whenever anti-concurrent cause language is inserted into the liability portion of a policy, sharp lawyers will look to attack it as incompatible with the underlying concept behind liability insurance -- tort law can and does impose liability for concurrent causes of damage, so limitations on that theory of causation, some will say, are inherently ambiguous. 

OK, enough mumbo jumbo, right?  Let's look at the case, and the language of the exclusion.  Now, I know what any normal person is thinking when they look below: "You expect me to read on past this point when the headline is 'Fungi and Fungal Derivatives? See you later'."  Quite true, but those interested in reading a post on anti-concurrent cause language are by definition not normal people, and I have every confidence that those who have stuck with me this far won't let a little fungus deter them from reading to the end.  I have put the anti-concurrent cause language in bold to make it easier to find among the fungi.

This insurance does not apply to:

7. FUNGI AND FUNGAL DERIVATIVES
(a) “bodily injury”, “property damage”, “personal injury”, or Medical Payments or any other costs, loss or expense incurred by others, arising directly or indirectly, from the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, presence of, spread of, reproduction, discharge or other growth of any “fungi” or “spores” however caused, including any costs or expenses incurred to prevent, respond to, test for, monitor, abate, mitigate, remove, cleanup, contain, remediate, treat, detoxify, neutralize, assess or otherwise deal with or dispose of “fungi” or “spores”; or

(b) any supervision, instructions, recommendations, warnings, or advice given or which should have been given in connection with (a) above; or

(c) any obligation to pay damages, share damages with or repay someone else who must pay damages because of such injury or damage referred to in (a) or (b) above.

This exclusion applies regardless of the cause of the loss or damage, other causes of the injury, damage, expense or costs or whether other causes acted concurrently or in any sequence to produce the injury, damage, expenses or costs.

Here, I am not sure the anti-concurrent cause language adds anything to what was already said: we do not cover any liabilities arising in any way from harm caused by mold.   The appellate court agreed with the trial court -- both found the exclusion ambiguous and unenforceable. The reason the court did so, is that the insurer denied the duty to defend the insured against allegations that the claimant was harmed by exposure to mold (uncovered) and bacteria (covered). The court explained it this way:

We disagree with the insurer’s position. The language in clause 7(a) is both unclear and ambiguous in its effect. A plain reading of the provision does not support the insurer’s position. Indeed, the clause is worded in a fashion that would leave most people guessing as to its meaning. For example, on another possible interpretation, the clause could be taken to mean that wherever injury from mould is alleged in a claim, even if it is ultimately established that the injury arose solely from a covered peril, such as bacteria, the claim would exclude both the duty to defend and the duty to indemnify. This would effectively extend the exclusion to otherwise non-excluded perils. 

Now, to me, the key is not whether bacteria might ultimately be proven a cause of harm, therefore calling for indemnity.  The key for the duty to defend question is whether, under the allegations, mold and bacteria are concurrent or sequential causes of the harm claimed.  These are terms with highly specialized meanings in insurance.  Concurrent means independent causes that combine to produce a result that would not have occurred but for the existence of one of the causes.   Sequential can be ruled out -- it refers to dependent causes, one cause causing the other.  It seems highly unlikely that the allegations were that the mold illness caused the bacterial illness or vice versa. 

So the question for anti-concurrent cause is this -- can the allegations be read only one way, that is to say, that no illness at all would have occurred but for the combination of mold and bacteria?  It the allegations can be read to say that harm would have occurred because of bacteria alone, then we are talking about two separate single causes of two separate harms, not multiple causes of one harm.  If the allegations can be read that way, a powerful argument exists that anti-concurrent cause language is not relevant. 

As I mentioned, I'm not sure the anti-concurrent cause language added anything here.  The insurer admitted that if bacterial harm were proven, the insurer would have to pay for the liability.  From what I can see of the allegations from the court's analysis, it is dubious whether a denial of the duty to defend can stand under such circumstances.  There may be things I don't know about this case that were not in the opinion, but from what I see here the court's call is well-reasoned.  I would have liked to see an analysis closer to the one I have explained above -- then I could see if my assumptions about the case are correct.  If courts would use an analysis similar to the one I propose here, their jobs would be easier and their opinions clearer and more bulletproof. 

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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Who among us has not wondered to what extent courts will enforce the extensive "known loss" provisions found in most CGLs these days?  A judge in the U.S. District Court for Southern Florida recently denied summary judgment to an insurer that sought summary judgment on the duty to defend based on a number of policy provisions, including the pre-existing condition, or known loss, clause.  This provision bars coverage where the insured knew of damage, in part or whole, before the inception of the policy period.   As the skateboarder set says: Dude, Harsh!

In fact, the insured, a roofing contractor, was aware that the roof was leaking and causing interior damage before the policy period began.  But, the court reasoned, the lawsuit by the homeowners against the roofing contractor alleged the homeowners suffered "mold related injuries" -- apparently not expressly excluded by the policy.  This, the judge said, was damage that the insured did not know about before the policy period began, and so, based on that allegation, the duty to defend existed.  The case is Transportation Insurance Co. v. the Regency Roofing Companies, Inc.. Click here to read the case. 

Hat tip to Law and Insurance, which keeps its eyes on coverage in the Lone Star State, and a few other places too.

Posted By David Rossmiller In Duty to Defend , Liability Policies
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You remember a couple days ago I wrote about that weird case in Washington starring Dr. Woo, the pig-slaying dentist? You know, the more I think about this case the stranger it seems. Here we have this dentist who sticks fake boar tusks in the mouth of his anesthetized patient, who is also his employee, and takes pictures of her out cold with the pig teeth and her eyes preyed open.  Then he has the temerity to testify that this is part of his effort to improve office morale.  I've re-read the majority opinion and the dissent, and I have more to say. 

But first, a small digression to serve as an illustration.  This reminds me of my favorite dentist story: friend of mine, when he was in the Midwest back in the day -- he was originally from suave, chic southwestern Minnesota but happened to be out in hicksville, somewhere in South Dakota -- was going out with this woman who was the ex-wife of a dentist.  Small town, so not a lot of dentist options.  My friend goes in for some cavities, the dentist apparently holds a grudge over the new relationship, and he starts drilling in a way that causes some pain that is markedly out of the norm. So my friend bites him. That's right, sunk his choppers into the dentist's hand, took a chunk right out of him in the finest tradition of self-defense and self-help. No cops, no lawyers, just pain for pain.  I love this story and believe it deserves wide dissemination as a warning to any dentist who harbors thoughts of misbehavior: among your potential victims are a certain class of persons who, if you attack their teeth, will use those teeth to turn your flesh into a snack.  And come to think of it, in the culture in which I came from, I can picture not only this friend fighting back tooth and fang, but also literally dozens of other folks I grew up with.  So let this serve as a cautionary tale -- not only is my friend Whitefang still out there, but lots more like him too.  And remember one more thing: no jury will convict them or hold them liable, particularly if they are among their own.     

Now, compare the facts of this story the facts relating to Woo, the pig-slayer.  Did the assault on my friend arise out of professional services? I say possibly yes, possibly no. The dentist was legitimately filling cavities, but apparently his jealousy got the better of him and he either carelessly or intentionally began to perform his services in a manner that caused undue pain. As I heard this story from both my friend and the ex-wife/girlfriend, this dentist was not a nice man, and it seems likely some element of intent was present, but given the complex workings of human motive, who is to say exactly where legitimate acts left off and illegitimate acts began? It seems possible to say that they truly were intertwined, although one could point out that the legitimate acts were not those that caused the pain.  If the dentist were in some state of anxiety or upset over the loss of his wife to another man, it is possible he simply botched the job -- perhaps he was not very skillful to begin with and emotional distress caused him to lose what few motor skills he possessed.  Or perhaps some words passed between them during the procedure -- "How is Susan? " (not her real name), "She's much happier now that she's away from a jerk like you" -- and he simply lost it.  You can see where this would be a close call on a duty to defend question, but almost surely a plaintiff's lawyer would word the complaint so that it was alleged that the pain arose out of negligent, incompetent work that was done by a guy in a state of such high anxiety that he should have known it wasn't safe for him to fiddle around with the patient's mouth.  The duty to indemnify is another matter that would depend on how the jury determined the facts.

As the dissent in Woo pointed out, the coverage issues boil down to two: were Dr. Woo's acts an "accident" within the meaning of the policy, and did his acts arise out of his providing dental services? If what he did was not an accident -- something that is neither expected nor intended by the insured -- it is not covered.  Likewise, if what he did arose not out of dental services but something else, it is not covered. 

Let's step back and think for a minute. Consider the following hypothetical illustrations of a range of acts, and see which you think arise out of professional services or business activities:

• A dentist normally plays Mozart as background music in his office. However, one night the cleaning crew mistakenly throw out his Mozart CD's, and his office manager puts on a Wagner CD.  This is not wise -- Wagner makes him very agitated, especially "Ride of the Valkyries," and he goes nuts on his drilling and filling, doing very poor hack work and causing bodily injury.  
• A dentist is bummed because his Porsche has a recurrent stalling issue and the mechanic keeps charging him an arm and a leg and not fixing the problem.  One day the mechanic comes in for some dental work.  The dentist decides to recoup some of his payouts by doing some work that is necessary, but much that is not. 
• A dentist is working on an anesthetized patient when his ex-wife storms into the office and demands increased alimony and child support.  He becomes enraged, and attempts to swing the big light positioned over the patient into his ex-wife. Unfortunately, it misses her, swings around in a full circle and breaks the patient's jaw. Whoops.
• A dentist with a very highly developed sense of fashion is working on an anesthetized patient when he decides the man is a tacky dresser.  They are roughly the same build, so he takes some spare clothes he has in the office, undresses the guy and outfits him with a new regalia.
• A dentist working on an anesthetized patient notices a "50 Cent" tattoo on the man's neck.  Thinking the tattoo artist negligently failed to add the "s," and having some tattoo training, he adds it himself. In the later lawsuit, he learns 50 Cent is a hip-hop artist and that the tattoo was only a temporary inked-on transfer that the man was wearing for a week because he had lost a bet with a friend over who was the best-selling hip-hop artist.
• A dentist insists that his staff refer to him as "Doctor." This is very important to him, as two of his brothers and a sister are medical doctors.  One assistant frequently fails to do so.  One day, while he is working on an anesthetized patient, she forgets for the 1000th and last time.  He pulls out a 9 mm Glock and shoots at her, but misses and kills the patient. 
• A dentist is manufacturing explosives in his office for a planned terrorist attack. A dental salesman checking his stocks accidentally knocks over a couple jars of nitroglycerin, blowing up himself and a nearby anesthetized patient, but not the dentist, who is shielded from the blast by the patient's body.
• A dentist who is very fond of the Marx Brothers puts a Groucho wig, mustache, nose and glasses on all anesthetized patients, sticks a cigar in their mouths and photographs them for his private collection. 
• Lastly, some details from the dissent in Woo: his employee, Tina Alberts, informed him that she cared for abandoned pot-bellied pigs and had even named one Walter.  Woo had made remarks such as "I am going to hunt Walter down and kill him," "I am going to barbecue him," and "I will find him and eat him." Woo went boar hunting and brought photos of a dead boar to show Alberts, as well as a picture of himself in front of a skinned pig hanging on a hook. Alberts had two baby teeth that had never been replaced by permanent teeth.  Woo said he would remove them and replace them with implants.  On the day of the procedure, he gave her general anesthesia.  "However, Woo had prepared a pair of artificial boar tusks without Ms. Alberts' knowledge or consent.  While Ms. Alberts was anesthetized and sleeping, Woo removed the oxygen mask, inserted the boar tusks in her mouth, and took mocking photographs, some with her eyes pried open . . .  Woo had the pictures developed and prints made at a public photo shop.  A few days later, Ms. Alberts was given one wrapped package as a birthday present.  Upon opening the package, Ms. Alberts saw the pair of shared boar tusk 'flippers'. Moments later, Dr. Woo's assistants gave Ms. Alberts another envelope.  The envelope contained pictures of Ms. Alberts, while under anesthesia, with the boar tusks protruding from her mouth while her lips and eyes were pried open.  She was stunned.  Woo exhibited no remorse at the time, telling Ms. Alberts she 'had a trophy to take home.' Ms. Alberts suffered severe emotional distress as a result of the experience, left the office, and never returned." (Citations to the trial court record omitted).   

So what do you think? It seems to me the first example both stems from providing from dental services and constitutes an accident, but not the rest, unless we are going to say that anything that happens in a dentist office is dentistry, and unless we are going to say doing crazy stuff that is likely to result in injury is an accident merely because you didn't think the consequences through.   

One more thing. The Woo majority stated that the correct perspective on whether Woo's acts were intentional was as follows -- did he intend his acts to result in emotional distress to Alberts? The dissent disagreed, and pointed out that the policy language defines an accident as "a fortuitous circumstance, event or happening that takes place and is neither expected nor intended from the standpoint of the insured." 

According to the dissent, all that should be examined is whether Woo intended the act, not the result.  I'm not sure I can agree with this.  Say you are in your yard playing catch with your daughter.  You are not the ball player you once were, and while attempting to demonstrate how to throw a curve ball the ball sails over the hedge and bashes your neighbor in the head. Or say you intended to throw it high to show her how to time her leap. Either way you intended the act, but not the result.  Should your homeowners insurer not defend you because of that?  What if you throw a birthday party for your neighbor, and give him a Cubs hat, not knowing that he has some weird phobia about the Cubs that causes him to have a seizure, fall down and injure himself? You intended to give him the hat, didn't you? But how would you know the result would occur?  It would be better to look at Woo's conduct this way -- anyone must know that if you taunt someone about killing their pet, and if you monk around with anesthetized patients, and if you present folks with memorabilia that both reminds them you want to kill and eat their pets and makes them cognizant that you monked with them while they were in your care for a medical procedure, you are going to cause that person to be very, very upset.  Depending on who the victim is, they might be so upset that they bite you.  If you claim you couldn't see this coming, there is no excuse for you.  The law should consider that a result is intended when the result is substantially certain to happen because of the act.

One last thing: if this case interests you, you should check out this post on Woo by Jason Barney, a guest blogger at Overlawyered.

Posted By David Rossmiller In Duty to Defend
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In reading one of Ted Frank's posts yesterday at Overlawyered, I was reminded that I have neglected to blog about a strange case from Washington, Woo v. Fireman's Fund.  I have actually followed this case for a couple years -- Washington is right across the Columbia River from Portland and I practice a fair amount in the state -- and I know Washington coverage law well, so I'm overdue in writing about the case.

This decision, where the Washington Supreme Court found an insurer had a duty to defend a dentist accused of improper conduct, is, I regret to say, a mess. 

I don't say that merely because the case involves a dentist, Dr. Woo, who taunted one of his employees, Tina Alberts, about her pet pig, Walter, with photos of skinned wild boars, saying that  "There is how Walter will look."

I don't say that merely because the state Supreme Court leaves out some of the details of Dr. Woo's boorish behavior to make the decision seem more palatable (additional facts are contained in the prior, reversed decision by the Court of Appeals, Division I).

I don't say that merely because Dr. Woo, when Alberts was under general anesthesia for replacement of two teeth with implants, in conspiracy with his other staff inserted fake boar tusks in her mouth, pried her eyes open and took pictures.  He later decided not to show the pictures to Alberts, but his staff did a month later at a birthday celebration for Alberts, and they also showed her the actual fake boar tusks.  While Alberts was assisting Woo with a dental procedure immediately after, he suggested that Alberts could take the fake boar tusks home as a "trophy." (Happy Birthday!! I hope you like me talking about skinning and gutting your pet, being played for a fool by me and your colleagues and having fake pig teeth stuck in your mouth while you are unconscious, because that's what you're getting).  

I don't say that merely because Dr. Woo justified his conduct by claiming it was part of his efforts to create a "friendly working environment" in the office -- reasoning that is equally offensive to what he did to Alberts.    

I don't say it merely because no one really likes a dentist anyway, especially one that talks about skinning your pets and who likes to stick weird stuff in your mouth while you are out cold and then take pictures.  After all, insurance isn't just for nice people. 

I don't even say it because I disagree with the result -- I can possibly see a duty to defend under the general liability portion of Woo's policy on the grounds that the intentional acts exclusion did not apply because Woo, while he intended the conduct, may not have intended the result -- that Alberts broke down in tears when she saw the pictures, quit shortly afterward and sued Woo.  This, however, is highly arguable, because although whether a result is intended is measured from the standpoint of the insured, some sort of reasonable person standard must be applied or you will have doofuses claiming that they just didn't know that acts like, I don't know, skinning pets and placing your body in "humorous" positions while you are unconscious could possibly result in emotional distress.  I mean, come on, don't we need stuff like that to keep the office environment friendly?     

I say it instead because the Supreme Court made a number of dubious assertions, and its reasoning is less than stellar and convincing throughout. Before I go on, let's recap a few facts and talk a bit about Washington coverage law. 

After Alberts sued, Woo's insurer, Fireman's Fund, denied the duty to defend under three parts of his policy: professional liability, employment practices and general liability.  In Washington, if an insurer wrongly denies the duty to defend, it is estopped from denying indemnity.  It can also be liable for bad faith damages for a wrongful denial.  (In Oregon, neither of these things are true -- there is no coverage by waiver or estoppel, and wrongful denial of the duty to defend calls only for contract damages, plus attorney fees in the coverage action, not tort damages).  Woo settled with Alberts for $250,000 -- a good value for Woo considering what he did -- then won this amount back in a coverage lawsuit against Fireman's Fund, plus more than $750,000 in bad faith damages and attorney fees from a jury.  The Court of Appeals reversed, finding no duty to defend under any section of the policy, and the Supreme Court partially reversed the Court of Appeals, finding a duty to defend existed under the professional liability and general liability sections of the policy, and reinstated the jury award.  

Let me say one other thing before talking more about what I don't like about this case.  I am not the type to criticize a case out of a partisan spirit.  I don't engage in rah rah rah on behalf of either insurance companies or policyholders.  I try my best to look at insurance coverage as an intellectual endeavor, and in analysis on this blog, I am not speaking as an advocate for anyone's position, I am only trying to hold a mirror up to nature.  

Here's some of the things I don't like about the case:

Dubious proposition No. 1: "Fireman's is essentially arguing that an insurer may rely on its own interpretation of case law to determine that its policy does not cover the allegations in the complaint and, as a result, it has no duty to defend the insured." The court seems to be saying that insurers have a duty to defend wherever no case is directly on point against coverage, and that the insurer cannot base its decision on its own interpretation of case law.  Let's consider just how bogus this statement is: in how many coverage cases is there a case directly on point? Be honest, how many times do you find a case that is the same on the law and the facts?  Maybe one time in 100? One time in 500?  Insurers and their coverage lawyers can't interpret the law, or can't interpret unsettled areas of law? Even considering that the insurer must give the insured every benefit of the doubt when evaluating the duty to defend, this is complete nonsense.

Dubious proposition No. 2: "The acts that comprised the practical joke were integrated into and inseparable from the overall procedure.  In sum, Alberts' complaint alleges that Woo inserted a flipper, albeit oddly shaped, during a dental surgery procedure while he was operating an office for the practice of dentistry." The court said this on its way to finding that Woo was engaged in providing professional services under that portion of his policy.  Let's look closely at this statement.  "Inserted a flipper, albeit oddly shaped." Consider that phrase for a moment.  Isn't that sort of like pouring hot coffee down a guy's shirt and saying you "provided for him to take a steaming bath, albeit in an unusual manner"?  Would the practical joke have been "integrated into and inseparable from the overall procedure" if, instead of fake pig teeth Dr. Woo made from his own molds, he had put in store-bought fake pig teeth? How about if he put in fake Dracula teeth? Fake mastodon tusks? How about if he used marker pens to color her teeth like a rainbow? How about if he filled her mouth with purple Jell-O, or a bouquet of red carnations, or two dozen Cuban cigars, or his tongue? Let's consider how you would react if you heard a dentist did this to you, or to your wife, or to your mother, or to your daughter.  What would you do? I know what I'd do, I'd pick up a torch and a pitchfork and lead a mob to his office.   I doubt that, when we got there, we would be soothed by an explanation that such an assault was "integrated into and inseparable from the overall procedure."  Merely because you take advantage of an unconscious person to do something with their mouth does not make it dentistry.    

Dubious proposition No. 3: Regarding whether Woo should have expected or intended his acts to result in the injuries Alberts received, the court said this:

We conclude the Court of Appeals improperly analyzed the significant of the act at issue by focusing only on the facts that Woo inserted the boar tusk flippers for his own purposes and the injuries did not arise from the treatment Alberts requested. It ignored the fact that application of Blakeslee [a case that says intent to cause the resulting injury is always imputed to sexual abuse, the universal rule in insurance coverage] to other contexts could inappropriately narrow the duty to defend. It also failed to consider that sexual contact is never an appropriate component of dental treatment whereas other actions could conceivably fall within the broad definition [of dental services] in the insurance policy and [a Washington statute].

Does this make any sense to you? "Sexual contact is never an appropriate component of dental treatment whereas" knocking patients out cold and putting fake pig teeth in their mouth is? I can't believe what I'm reading.  Say I'm your lawyer, and I'm handling, I don't know, some matter involving the estate of your recently deceased father. Say I send you some trumped up letter as a "practical joke" about how the undertaker lost your Dad's dentures, and I send you a Photoshopped picture of your father's body with fake boar tusks, saying the undertaker has decided to use these instead of the dentures.  Say I request that you come to my office so we can discuss suing the undertaker, and when you get there, I, my colleagues and staff have you walk into a huge conference room filled with those wind-up chattering teeth, and after we have a big laugh at your expense, tell you it was all part of a fun-filled plan to foster closer relationships with clients.  Let's see a show of hands. Appropriate component of legal services? Not? OK, that's what I thought.

One could go on and on, but time and space are finite, so I leave you with the following: 

Here is a link to the Washington Supreme Court decision.

Here is a link to the Court of Appeals' decision.

Here are links to a very good two-part series by Prof. Adam Scales on this case: Part I and Part II.  This paragraph in Part II of Prof. Scales' article raised my eyebrows, however:

Fireman's had obtained an attorney's "opinion letter" advising that it had no duty to defend. Opinion letters are generally worthless, and this was no exception. The letter carefully noted the unsettled reach of the "sexual assault exception," but concluded there was no duty here. The Washington Supreme Court found that Fireman's had thus given itself, rather than its policyholder, the benefit of the doubt.

Attorney coverage opinions are worthless? I guess he's never read mine, they are pretty darn good and pretty valuable to the client. In fairness, he may be referring to the attempted use of coverage opinions to show the lack of bad faith by an insurer -- this is called the "advice of counsel defense" and it holds that an insurer can't act in bad faith when it is following its attorney's advice on the interpretation of a legal question, even if the insurer was mistaken in its coverage determination. That would not seem to be his point, however, for two reasons. First, because the court noted that the coverage opinion Fireman's Fund got said the law was equivocal, and the court did not analyze the opinion as a potential defense to bad faith, but instead as a further manifestation of the insurer's giving itself, rather than the insured, the benefit of the doubt on  unsettled law. Second, advice of counsel, when it is used, is often used successfully as a defense to bad faith. 

Posted By David Rossmiller In Duty to Defend
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Now this is an impressive post on ambiguities in insurance contracts, complete with footnotes, by Chris Robertson, a third-year law student at Harvard. I hesitate to link to it, for fear anyone will expect footnotes from me. If they are waiting for this, they will wait a long time.

The post is well-researched with sources ranging from Judge Richard Posner to Ralph Nader.  The gist of the post is that insurers perhaps intentionally make policy terms and conditions ambiguous as a strategy to deter and intimidate policyholders.  Chris acknowledges that courts decide ambiguities against the insurer, but says insurers may prefer to take their chances knowing that many people won't sue and that sometimes courts will side with insurers.  Chris wrote this post in a scholarly vein, so I hope he won't mind if I take issue with it. The post is in line with a lot of popular sentiment, so I want to address it. 

If this is a strategy by any insurance company in this world, let me give you some free advice: give it up, it won't work.  Instead, don't put any ambiguities in policies and use the same strategy of refusing to pay no matter what, and you will achieve better results.  Let's look at the economic argument in the post this way.  Suppose the market is saturated with insurers whose business strategy manual has one page that contains one sentence: AT ALL TIMES, ACT IN BAD FAITH.  They take in premiums but don't pay. Let's also just say there are no state regulators who will prosecute them or revoke their licenses to sell insurance in the state.  If I come along and start an honest insurance company, or as honest as I can make it considering I may have to hire employees from companies that trained them to operate in bad faith, I will be able to charge higher prices and still dominate the market, because people know with me, they at least have a chance of getting a claim paid.  Whereas with the other companies, giving them money is like making a loan to your brother-in-law.  Neither I nor the bad companies have any incentive to make policies ambiguous -- doing so only gives some judge a free shot at me, and for the other guys, why bother, since they aren't going to pay no matter what the contract says. 

Not to mention that we know that almost all terms in widely used policies originated with the Insurance Services Office or some other trade group that debated endlessly about language to address specific concerns, in response to specific legal developments, and had a specific intention to broaden coverage to include certain things but not others, or to contract coverage to exclude certain things but not others.   These things are written about as well as they can be written.  Plain English doesn't work.  The less that is said about a given thing, and the less technical the term, the more ambiguous you can make it out to be. 

In any event, a good, thought-provoking post.

UPDATE: Make sure you check out the comment below from Prof. Seth Chandler.  He gives you two weeks of course work on ambiguity condensed into a 60-second bite, and you don't have to pay any law school tuition to get it.  

SECOND UPDATE: You'll also want to read Martin Grace's post on ambiguity at RiskProf, and check out Ted Frank's post at PointofLaw.  

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , First Party Insurance , Liability Policies
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It is hard to write excellent legal prose for a number of reasons, not the least of which is the surprising resistance one encounters to good writing from many people who treat legal writing as if it is not an art but merely an industrial process, like bleaching wood pulp. These people treat any attempt at originality, creativity or -- heaven forbid -- humor as if you had showed up at a job interview with a Harley tattoo on your forehead. In addition, writing anything good is just plain hard, often agonizing, work.  Strangely enough, really good writing does not bear the marks and bruises of all this laboring, but instead reads as if it flowed naturally from the author's fingertips with little effort.  Good writing glides, turns, shoots and scores like The Great One in his prime.     

So here is an example of legal writing that is really good, by Randy Maniloff, of White and Williams in Philadelphia.  Here is a link to Randy's upcoming article in Mealey's Litigation Report: Insurance on the year's 10 most significant insurance decisions.  When I praise the writing, don't take that to mean I slight the substance, because good writing is substance.  I place this article in my highest category of legal writing -- the Steve Buscemi class -- named after the actor who always brings something fresh, surprising and original to a role, who puts maximum effort into each part without letting you see the effort, and who worked as a firefighter for four years before becoming a star, and then showed up for work at his old firehouse the day after 9/11, working 12-hour shifts at Ground Zero while disdaining publicity. 

I can't quibble with Randy's case selection -- I've written about many of them myself -- although for sentimental reasons, I found myself wishing at least one of the Hurricane Katrina coverage cases, which I have spent so much time analyzing and of which I have grown so fond, had made the list.  My favorite analysis in Randy's piece is French v. Assurance Co. of America (4th Cir. 2006), particularly this excerpt that brings clarity to a construction defect issue that often seems murky:

However, the flaw in this argument is that the subcontractor exception to the your work exclusion is not called the subcontractor exception to the occurrence requirement. The French Court recognized this and concluded that, notwithstanding that the EIFS was defectively installed by a subcontractor, such defective application does not constitute an accident, and, therefore, is not an occurrence under the CGL policy. 

My favorite lede from the analysis of the cases is this one, from Standard Fire Ins. Co. v. Spectrum Community Assoc., 46 Cal.Rptr.3d 804 (Cal.App. 2006):

What's the difference between a John Grisham novel and the continuous trigger? Answer: Nothing.  They are both legal fiction.

And here's a great short summary of Brannon v. Continental Casualty Co.:

-- Supreme Court of Alaska gave an insurer a chilly reception to its argument that the statute of limitations on an insured's action for breach of the duty to defend began to run from the time of the disclaimer . . . .

Print the article out and read the whole thing.  At 23 pages, it will take a little time, but it's worth it.

Posted By David Rossmiller In Bad Faith , Duty to Defend , Duty to Indemnify , Industry Developments , Liability Policies
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I'm going to diverge once again from my normal rule of commenting only on brand-new coverage cases, because I stumbled upon this interesting blog post about a case in New York involving the duty to defend.  The post convinced me I needed to read the case, Automobile Ins. Co. of Hartford v. Cook, 7 N.Y.3d 131 (June 8, 2006), and I'm glad I did, because the analysis is pretty good and the case is about a tricky duty to defend issue that I've previously blogged about here and here and here.  

The facts of this case are fairly gruesome and Quentin Tarantino-like.  It involves two guys named Cook and Barber, who had some kind of falling out over business.  According to the court, "Barber, weighing about 360 pounds, was approximately three times Cook's size and had previously attacked the smaller man, causing injury to his leg."  One morning, Barber and another man were discovered outside Cook's home, "hurling objects at the house."  Later that day, Barber returned with his companion and two others.  Cook locked the door and got a .25 caliber handgun from his bedroom. I doubt I can improve upon the court's description of what happened next, so here it is:

There was further testimony that the group burst into Cook's home. The four individuals gathered in the kitchen where Barber began demanding money from Cook while pounding his fists on the kitchen table. Cook, alarmed, drew his gun and demanded that they leave his house. Barber apparently laughed at the small size of the pistol, at which point Cook withdrew to his bedroom for a larger weapon. He picked up a loaded, 12 gauge shotgun and stood in his living room at the far end of his pool table. Cook again ordered them to leave the house.

Although Barber started to head toward the door with his companions, he stopped at the opposite end of the pool table, turned to face Cook and told his companions to take anything of value, and that he would meet them outside because he had some business to attend to. When Barber menacingly started advancing toward Cook, Cook warned him that he would shoot if he came any closer. Cook aimed his gun toward the lowest part of Barber's body that was not obscured by the pool table—his navel. When Barber was about one step away from the barrel of the gun, Cook fired a shot into Barber's abdomen. Barber died later that day at a hospital.

(I take several lessons from this account, one of which is: do not laugh at the size of a man's gun, lest he replace it with a much larger and more dangerous gun).

Cook was prosecuted but found innocent by a jury.  Barber's estate later sued him, and his homeowners insurer brought a declaratory action seeking a judgment of no duty to defend or indemnify.  Not surprisingly and probably solely to try to draw in insurance coverage, the Barber estate's complaint alleged that Cook negligently killed Barber, as an alternative to a claim for intentional killing.  One more salient fact. About his mental state before the killing, Cook testified as follows: "I knew the [shot from the] shotgun would injure Mr. Barber because I had to stop him, but I did not anticipate it killing him."

On summary judgment, the trial court found the insurer had a duty to defend.  The Appellate Division reversed, saying the policy's exclusion for intentional acts precluded both defense and indemnity.  The state's highest court, which is called the Court of Appeals, reinstated the trial court's decision, saying the duty to defend must be considered only with regard to the allegations of the complaint.  Unless the allegations can result only in a verdict that the act was intentional, the Court of Appeals said, a duty to defend exists. Mind you, that is a completely different analysis from whether a duty to indemnify exists.  In states where extrinsic facts are not considered in a duty-to-defend analysis, the result of this case is the one you will see almost every time.

Posted By David Rossmiller In Duty to Defend
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I'm having a hard time buying the court's opinion in Stansley Group v. Fru-Con Construction Corp., 2006 WL 2711795 (N.D. Ohio September 21, 2006)(click here for a pdf of the case).   Stansley poured some apparently defective concrete in construction of two bridge pylons, although the concrete it poured for 11 other pylons met pressure standards of 10,000 pounds per square inch.  Stansley was sued by the general contractor, and the issue in the case was whether Stansley's insurer owed a duty to defend and indemnify.

The court acknowledged that defective work does not constitute an "occurrence" under a Commercial General Liability policy, and that only damage to other work or property could constitute covered property damage.  Then the court went in a direction I did not anticipate.  Now, to finish out this discussion let's remember that in the construction business wet concrete is called "mud."  It will be more fun and make us feel like construction insiders if, for the rest of this post, we call the concrete "mud."  Let's also remember that many courts will find that if other property has to be destroyed to tear out defective work, the damage to the non-defective work is covered.

Strangely, to my way of thinking, the court said an issue of fact precluded summary judgment for the insurer.  It was unclear, the court said, if all the mud poured for the two pylons was bad mud, or if some good mud was mixed in with the bad.  If some good mud was in the pylons, the court said, destruction of the defective pylons resulted in damage to non-defective property.   I am not agreeing with this.  If I give you a beverage that is 98 percent coffee and 2 percent poison, I am not giving you a drink that is mostly good coffee and a little bad coffee, I am giving you poison.  If I pour some loads of good mud and some loads of bad mud in a pylon, I am not giving you partly a good product and partly a defective product, I am giving you one whole product that is no good.  To my mind, the whole pylon is uncovered defective work.

UPDATE: We're not afraid of dissenting opinions at this blog.  Here is another point of view on Stansley, which focuses on different things about the case, but calls the analysis "great." 

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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The U.S. District Court for the Western District of Kentucky (which, by the way, is among the federal courts that don't provide copies of all opinions on a website readily accessible to the general public) has decided that promotional techniques can constitute "misappropriation of advertising ideas or style of doing business" under the "advertising injury" coverage of a Commercial General Liability policy.  Specifically, the court was talking about the serving of garlic butter, which one pizza chain claimed was its idea that another pizza chain, started by former employees, had ripped off, along with other ideas like toppings poking up through the cheese and the taste of the pizza sauce.  The case is Pizza Magia International, LLC v. Assurance Co. of America, 2006 WL 2241333 (W.D. Ky. August 3, 2006).  

In making its ruling, the court joined other courts that have criticized the Sixth Circuit's Advance Watch case, 99 F.3d 795 (1996), which concluded that "misappropriation of advertising ideas or style of doing business" does not refer to a category or grouping of actionable conduct that includes trademark or trade dress infringement.   The majority of courts have found that trademark and trade dress infringement can indeed constitute advertising injuries under a CGL, depending on the language of the policy and the underlying facts, of course.

The district court also found sufficient nexus between the misappropriation and the injuries suffered.  Advance Watch had said that it was not the appearance of infringing images in a catalog that caused the injuries, but rather the appearance and shape of the product itself, a conclusion that has struck more than one person as a fairly brazen piece of sophistry.  The district court repudiated that line of thinking, but went pretty far the other way, saying that the act of selling is actually a "technique" that in itself constitutes advertising. 

Although the court granted summary judgment on this issue, it found material issues of fact on the loss-in-progress doctrine, and the case will proceed to resolve the question of whether the insured was aware of a threat of loss so immediate that it can be said the loss was in progress when the policy period began.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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Legal writing too often is turgid and just flat out nap-time boring.  So I look forward to reading articles by attorney Randy Maniloff, because he writes clearly and simply, and isn't afraid to use a colorful turn of phrase.  This is an excellent article by Randy analyzing the state of the law on an insurer's ability to get reimbursement for defense costs for uncovered claims.  

As Randy points out, the pro-reimbursement and anti-reimbursement decisions are about evenly decided.   I find the anti-reimbursement decisions to be more consistent with keeping courts from analyzing the duty to defend in light of the duty to indemnify, a mistake that is not as infrequent as you might hope.  For an example, see this post from yesterday.   As Randy and I discussed by e-mail, insurers could decide the issue themselves with policy language creating a right to reimbursement for uncovered claims, or even with language eliminating the duty to defend entirely.  What keeps them from doing so?  Fear that folks wouldn't buy their policies and would turn to other insurers.

Posted By David Rossmiller In Duty to Defend , Liability Policies
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It's hard to figure out how the U.S. district court got it so wrong.  The Seventh Circuit reversed a district court's grant of summary judgment to an insurer on an environmental contamination claim.  The district court believed that, because no lawsuit had been filed, no duty to defend could arise, and because the duty to defend is broader than the duty to indemnify, the insurer could not be responsible for indemnity if it had no duty to defend.  The case is Keystone Consolidated Industries, Inc. v. Employers Insurance Co. of Wausau, 2006 WL 2166469 (7th Cir. August 3, 2006). 

Keystone owned several properties contaminated with industrial chemicals, and the U.S. Environmental Protection Agency ordered a clean-up.  Keystone sought indemnity for some $13 million in remediation costs.  All of the Wausau policies were, of course, before the advent of the absolute pollution exclusion in Commercial General Liability policies in 1985 and one would normally expect them to cover the costs.  Wausau nevertheless refused to pay, and the District Court ruled in the insurer's favor.  The lower court pointed out that the Wausau policies provided for a defense against a "suit," and said the EPA's action did not qualify. (Actually, merely because there was no lawsuit does not necessarily mean there was no duty to defend, because the word "suit" can and has been interpreted to include administrative action like that of the EPA).

Incredibly, the District Court then jumped to the conclusion that because there was no duty to defend, there could be no duty to indemnify.  As Justice Richard Cudahy of the Seventh Circuit pointed out, the language of an insurance policy determines both duties, and the duties are separate and can arise independently of each other.   The Wausau polices said they would pay all covered claims for which the insured became legally responsible for -- nothing was said about a "suit" being necessary for the duty to indemnify to be triggered.  Well, that's why they have appellate courts.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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An Illinois construction company that was denied coverage for construction-related damage came up with another way to seek coverage: claiming the insurer was responsible for the negligence of its agent and employee to provide the right coverage.  The case is Country Mutual Insurance Co. v. Carr, 2006 WL 1999220 (Ill. App. 4 Dist., July 14, 2006).

The insured, Carr Construction, was sued for allegedly putting improper backfill around the foundation of a home it constructed and operating heavy machinery near the foundation that then damaged the basement walls.  Carr's insurer, Country Mutual, filed a declaratory action seeking a judgment that it had no duty to defend under Carr's commercial general liability policy.  Carr then filed a counterclaim alleging Country Mutual was responsible for the negligence of its agent, Vogelzang, in failing to procure a policy that covered such damage.  This is a pretty good counterclaim, because it uses the insurer's denial of coverage against it.  However, the trial court dismissed the negligence counts of the counterclaim, saying the agent, Vogelzang, owed no duty of care to Carr and that the economic-loss doctrine barred recovery in tort.

The Court of Appeals reversed and allowed the negligence counts to proceed (a count of breach of contract in Carr's counterclaim had remained untouched by the trial court).  The appellate court found that an insurance agent falls under an Illinois statute creating a duty of ordinary care for insurance producers, and that the economic-loss doctrine is meant to bar tort claims only when claims sound only in contract and no extra-contractual duty applies.  In this instance, the court said, a duty arose outside of contract by statute, and even if the agent's performance was a breach of contract, tort claims are viable.  Hard to argue with the court's reasoning in this case, and I appreciated the clarity of the court's writing.

Posted By David Rossmiller In Duty to Defend , Liability Policies
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Colony Insurance Co. v. Barnes, 2006 WL 1995720 (11th Cir. July 18, 2006) is a case that could serve as a model of how a plaintiff can plead to avoid a policy's assault and battery exclusion.  In May 2004, one Faheem Brown, a patron of the Dreamland Inn in Greenwood, Florida, was killed when other patrons began firing guns in the parking lot.  It is not clear from the case exactly why they did this, whether out of malice or stupidity, but it appears Brown was struck by a stray bullet and was not an intended target.

His estate brought a wrongful death suit against the club, alleging that it failed to suppress patrons from recklessly shooting firearms, that it failed to provide an environment free from gun play, and that firearm use at the club was so frequent as to constitute an ultra-hazardous activity for which the club was strictly liable.   The club's insurer, Colony, filed a declaratory action, seeking to establish that the policy's assault and battery exclusion precluded a duty to defend.  However, the U.S. district court, and on appeal the 11th Circuit, found that assault and battery, which were not defined in the policy, require an intent to injure or to create a well-founded fear of imminent peril.  The complaint, the 11th Circuit said, contained no allegation of intent by the shooter, and therefore Colony owed a duty to defend the club.

It may occur to many of you, as it did to me, that bringing a dec action in circumstances like this, where the underlying tort action against the insured is ongoing, is tricky and hazardous.  An insurer can't force an insured to defend itself in a dec action with a position that will expose it to liability to the underlying plaintiff.  In this case, it would appear that the insured could defend the dec action merely by saying that the complaint alleged no criminal intent by the club or the shooter, without admitting any of the negligence or ultra-hazardous conduct in the complaint.  Still, the nightclub would have to assume for purposes of argument that the gun was fired on its premises, a fact that exposes it to potential liability.  Maybe there was no dispute about this and the club admitted as much in its answer to the wrongful death suit, I don't know.

This brings to mind something that separates the practice of insurance coverage law from some other kinds of legal practice.  I mention this because last night I was reading a blog written by a so-called trial lawyer that frankly made my jaw drop, because it purported to analyze case law but was so lacking in objectivity and fairness as to be disgusting.  (I'm not going to mention who this is because it was so evidently written in a bid for any kind of attention, negative or positive, that recognizing these efforts by name would merely reinforce the delusions at their root).  Coverage lawyers can have their own views on the world, but when they start wading chest deep in serious analysis of cases and insurance policy language, in my view they have to strive for maximum objectivity and suppress emotion and bias in favor of an intellectual sorting process similar to playing chess.  If they don't remain objective and allow bias to influence their thinking, it is too easy to make a mistake and then gain a new bias: defending your own previous substandard analysis. 

Posted By David Rossmiller In Duty to Defend , Liability Policies
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Insurance coverage law is not boring.  Frequently misunderstood, yes, but not boring.  Because if it was boring, it would not be a post on this cool blog about UFOs.   I'm not sure why the post features a case that is eight years old, except that it involves the duty to defend James Randi, the paranormal debunker also known as "the Amazing Randi."  However, I'm going to take this as an omen that insurance coverage may be the new "it" topic, much like UFOs were during the 1970s. 

The case is reprinted in its entirety on the blog and I read it pretty closely.  I'm not sure I agree with the court.  I'm not entirely sure I disagree either, but I didn't really like the court's writing and analysis, so I kind of want to disagree, but I can't.  It seems Randi was sued by Uri Geller, a man who claimed to do various paranormal stuff and did not appreciate Randi's attempted debunking.  The issue in the case was whether the insurance company owed a defense to Randi, who was sued along with a group, of which he was a director.  The policy said directors were insureds under the policy as long as they were acting within the course and scope of their duties as directors.

Geller sued Randi after he made anti-Geller statements in the International Herald Tribune, and alleged in the complaint that Randi was acting on behalf of the organization when he spoke out.  In a deposition, however, Randi denied this.  As it turns out, Missouri, whose law applied, is not an "eight-corners" state, and an insurer can consider extrinsic evidence in analyzing the duty to defend.  Nevertheless, the policy itself said an insured would be defended even if the lawsuit were false, groundless or fraudulent.  I think there is a very strong argument that, state law notwithstanding, the contract itself would not allow the insurer to consider extrinsic evidence.  The real issue, I think, is whether the inquiry into whether Randi's actions were within the course and scope is an "extrinsic evidence" issue at all, or merely an inquiry into the identity of the insured.  On one question the court appears right: someone can't create a duty for my neighbor's homeowners insurer to defend me by alleging I'm covered under the policy.  So Geller can't make Randi an insured by his allegations.  I'd be tempted to call this a question that is outside the extrinsic evidence framework, and say the insurer is allowed to inquire into the course and scope to determine if Randi is an insured at all. 

That is, unless Randi hired me.  Then I could come up with some great arguments for the other side of the issue.

Posted By David Rossmiller In Duty to Defend
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The Texas Supreme Court, in a well-written opinion following some really good briefing by the parties, rejected an insurer's resort to extrinsic evidence to determine the duty to defend.  The complaint had alleged sexual molestation by a youth pastor within the policy's coverage period, but employment records showed the perpetrator did not become an employee until after the coverage period ended.  The case is GuideOne Elite Insurance Co. v. Fielder Road Baptist Church, 2006 WL  1791689 (June 30, 2006).  Here is a link to the case.  Here is a link to the concurring opinon.

I have been thinking about this issue quite a bit because I recently wrote a piece for the Dunn Carney insurance newsletter about extrinsic evidence and the duty to defend.  Coincidentally, this case also mirrors a hypothetical coverage issue I posed in this post.  The Texas Supreme Court answered the question the way I suspected most courts would under the "eight-corners" rule: the fact of employment goes to the merits of the allegations as well as coverage, and therefore cannot be considered in evaluating the duty to defend, which in most states must be determined solely with reference to the allegations of the complaint and the terms of the policy.  The court therefore rejected the insurer's call for resort to "mixed" extrinsic evidence, and said evidence outside the complaint can be used only in the limited circumstances where it goes to coverage only and does not overlap with proof of the truth or falsity of any allegation.

The church's supplemental briefing in this case was a particularly nice piece of work, and pointed out that insurer's are free to write policies that would allow for resort to more extrinsic evidence or that would significantly narrow the duty to defend.  Individual insurers do not do so because it would reduce the demand for their products.  

Posted By David Rossmiller In Duty to Defend
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Stipulated judgments after an insurer's denial of the duty to defend were frowned upon by courts not all that long ago, and some jurisdictions still give them the skunk eye.  It used to be that most courts would say that, when an insurer refuses to defend, an insured's stipulated judgment with the underlying plaintiff was not binding on the insurer.  Courts were especially prone to look unfavorably on the usual arrangement: in addition to a stipulated judgment, the insured also obtains from the plaintiff a covenant not to enforce the judgment, except against the insurer through an assignment of the insured's policy rights.  Patrons Oxford Ins. Co. v. Harris, 2006 WL 1652525 (Maine June 16, 2006) highlights the modern trend that enforces the validity of stipulated judgments to the extent coverage exists and the amount of the judgment is reasonable.

The case explains that this was Maine's first crack at deciding this issue, and the court accepted the majority position on every point related to stipulated judgments.  The court said that an insurer who breaches the duty to defend and repudiates control of the litigation is not entitled to second-guess the insured's strategy for getting out of hot water.  It also, in a footnote, repudiated the view that a covenant not to execute means the stipulated judgment is fake because the insured has no real obligation.  Most courts now hold that a covenant not to execute is not a release of the insured's obligation to pay but rather merely a contract not to enforce.

Some years ago, a California coverage lawyer gave me his view on why the modern trend makes sense: when an insurer breaches the insurance contract, the policyholder is relieved from the duty of further performance.  To me, that's on the right track but perhaps a little simplistic, because it's obvious that an insurer's breach does not relieve the insured of all duties under the policy.  Instead, I think a better justification is that the primary feature and the essence of liability policies is not indemnity but defense.  The duty to defend is incredibly broader than the duty to indemnify, and the basic consumer expectation when purchasing a liability policy is a defense.  Therefore, when wrongly denying the basic assumption of the policy, an insurer in fairness cannot enforce the anti-assignment and no-settlement clauses of the policy that stem from the policy's basic assumption. 

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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Coach Bobby Knight has lost a case seeking coverage by Indiana Insurance and the University of Indiana stemming from a 1999 "bumping" of one of his assistant coaches.  The judge found the injury to the assistant was uncovered because it was "expected and intended" from Knight's standpoint.  Sounds right to me.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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Now, I know what I'm going to say is going to strike some of you as wrong, but hear me out.  In Essex Ins. Co. v. Brown, 2006 WL 1445786 (W.D. Mo. May 22, 2006), the court found no duty to defend or indemnify a security services company or its employees in a lawsuit filed after one of the employees fatally shot a man in Kansas City over a towing dispute.

Here are the facts: Michael and Wendy Eslick of Superior Protective Service, along with one John Speakman of another security company, were directing the towing of illegally parked vehicles from the parking lot of an apartment complex.  One of the vehicles belonged to a man named Russell Brown, who said his vehicle was not illegally parked.  A fight broke out, and Speakman began whipping Brown with a bullwhip.  (I have never before heard of a security guard or anyone else armed with a bullwhip this side of Indiana Jones).  Mr. Eslick then tasered Brown, and then shot him four or five times, mortally wounding him. 

The language of the intentional acts exclusion in Superior's policy bars coverage for injury that is "expected or intended from the standpoint of the insured."  That takes care of Mr. Eslick: it's hard to deny that injury is expected, if not intended, when you taser and shoot someone.  But what about Superior's potential vicarious liability for their acts?  Superior is also an insured, and so is Ms. Eslick.  Vicarious liability can be assessed whether the employer is at fault or not, and while an employee's acts can be imputed to an employer, the employee's motives should not.  Further, one employee's actions can't be imputed to a fellow employee.  Did Superior intend or expect the injury to Brown? Did Ms. Eslick?  I don't think so.  As for Speakman, I'm not even sure why the court included him in the coverage analysis, since it appears that he and his bullwhip worked for another outfit.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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Country Mutual Ins. Co. v. Livorsi  Marine, Inc. , 2006 WL 1348722 (Ill. May 18, 2006) makes no sense to me.  The Illinois Supreme Court affirmed a lower court's holding that an insurer is not required to prove prejudice as a condition of refusing coverage under an occurrence policy's late notice provision.  As a justification, the Supreme Court cited Illinois precedent, but totally whiffed on trying to come up with a better reason for such a rule.

Probably the least persuasive part of the opinion was the attempt to show the difference between Illinois' requirement of prejudice for an insured's breach of a policy's cooperation clause, and the lack of a prejudice rule for late notice.  In my opinion, there really isn't a reason for a prejudice rule in one instance but not the other.  It's mystifying.  Maybe some of you folks in Illinois and elsewhere can make better sense of this than I can.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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A policy with a limited pollution endorsement provided coverage for the hauling of contaminated dirt over a five-day period, even though the policy required "pollution incidents" to commence and end within 72 consecutive hours, ruled a U.S. District Court judge in the District of Oregon.  The case is Konell Construction and Demolition Corp. v. Valiant Insurance Co., (May 15, 2006).  Full disclosure: when I was with another firm several years ago I worked on this case on behalf of the insurer, which is a subsidiary of Zurich, and wrote some of the summary judgment briefing.

The decision, by Judge Michael Mosman, provides a textbook clear explanation of the concept of competing reasonable interpretations of a term in an insurance policy.  The insurer argued that the phrase "72 consecutive hours " barred coverage, because it was undisputed the contaminated dirt was dumped over a five-day period (although there was a break for the weekend).  The insured, however, argued that each truckload constituted a separate pollution incident, and each discrete incident of course took place within a 72-hour period.  Judge Mosman found both these interpretations to be objectively reasonable, even though, as he put it, "[i]in a popularity contest, Valiant's interpretation might win most of the time. But this court's task, under governing law, is not to choose the better of two interpretations."  In the event two reasonable interpretations exist, ambiguity results and the decision goes against the insurer who drafted the policy.  The court granted summary judgment for Konell.

Judge Mosman had earlier granted summary judgment to Valiant on other grounds -- that the notice requirement of the limited pollution endorsement was like that of a "claims made" policy, and coverage was precluded because Konell failed to report the incident within the required time.  The Ninth Circuit reversed, saying the insurer had to provide proof of prejudice to prevail on that argument.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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In a decision that benefits policyholders, the Oregon Court of Appeals said yesterday that Lamb-Weston allocation principles are merely used to decide responsibilities between insurers, and do not limit an insurer's responsibility to its insured up to the full policy limits. The case is Cascade Corporation v. Employers Reinsurance Corp.  Read the decision here.

In cases in Oregon and elsewhere in which damages span multiple policy periods and involved multiple insurers, some insurers have taken the position that Lamb-Weston gives them the right to limit both their indemnity and defense obligations to a pro rata share of the total available limits.  This decision repudiates that thinking.

Hat tip to my Dunn Carney colleague and fellow coverage litigator Brian Talcott for calling my attention to the case.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Industry Developments
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A big concern in designing tort and insurance systems is how to spread risk while placing the brunt of the costs on the person primarily responsible for the conduct. If systems can deliver results along these lines, they are thought to reduce "moral hazard" and function somewhat efficiently.  But having insurance can sometimes increase risk, like when a claim of perhaps dubious merit is made because the other party has insurance.  Even if the sued party has its own assets, the presence of insurance often invites the attitude that the party will not fight as hard and may settle because the insurer is really paying.

I don't know for sure, but Essex Ins. Co. v. Redd, 2006 WL 1307634 (W.D. Mo. May 8, 2006) bears some of the hallmarks of this kind of suit.  A woman went into a store to buy beer, and a security guard told her to move her car.  According to the woman, she didn't know the person was a security guard and didn't move her car.  She claimed that when she left the store, the guard followed her out and sexually assaulted her under the guise of searching her.  When the police came, they gave her a citation and the store refunded her money for the beer.  She sued, and the store's insurer brought a declaratory action seeking a judgment that the alleged conduct was excluded by the assault and battery exclusion in the store's Commercial General Liability policy.  You can guess the result -- the court granted summary judgment for the insurer because the alleged damages arose out of the alleged initial assault.  No word on what happened next.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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Analyzing duty to defend questions is often harder than many people think, and I see a quite a few instances in which people get tripped up by jumping ahead in the analysis without satisfying the initial steps.  Mid-America Pipeline Company, Inc. v. Mountain States Mutual Casualty Co., 2006 WL 1278748 (D. Utah May 8, 2006) provides a good example.  The case concerns a huge gas pipeline explosion near Moab, Utah, in which the town would have been destroyed by a pipeline rupture had not the gas cloud burst into flames before it could spread further.  The insurer for one of the pipeline contractors refused to provide a defense against claims the company caused delays in finishing the pipeline, on the grounds that no covered property damage was alleged in the complaint (Utah is one of the "eight-corner" states in which insurers must evaluate the duty to defend only in light of the policy and the allegations of the complaint).  The insured objected, saying it was obvious a fireball had occurred and caused damage.  However, as the court pointed out, the insurer's knowledge that there was an actual fireball and property damage was irrelevant to the duty to defend under Utah law. 

What is and what is not extrinsic evidence is often a tough question.  Extrinsic facts are those that are extrinsic to the complaint and go to its merits.  Facts that are related to the identity of the insured, however, or whether the policy is in effect at all, are not extrinsic in this sense.  For example, many insurers today are faced with claims from entities that are related to but are not the named insured.  Investigating which company is entitled to be considered as an insured at all is not making use of  extrinsic facts as that term is understood. 

However, here are two tougher questions for eight-corner jurisdictions.  1.  If a complaint plainly alleges a covered act within the policy period, but personnel documents show the alleged tortfeasor couldn't have committed the act because he had not yet begun working at the job, should the insurer accept the duty to defend, deny it, file a declaratory action or drop back 15 yards and punt? 2.  If deposition testimony during a case shows the insured knew of a construction defect before the policy period began, can the insurer withdraw from the defense because it is a known loss?        

Posted By David Rossmiller In Duty to Defend
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The logic of Certain Underwriters at Lloyd's v. Professional Underwriters Agency, Inc., 2006 WL 1195622 (Ill. App. 2 Dist. May 3, 2006) probably only holds true in those states, like Illinois, that impose estoppel on insurers who wrongly deny the duty to defend.  The Lloyd's syndicate sued to rescind a broker's errors and omissions policy based on alleged material misrepresentations by the insured.  Then the insured was sued for negligence and fraud by one of its clients.  The court held that the insurer did not have a duty to defend during the declaratory action it filed against the insured, just as it would have no duty to defend during the pendency of an action in which the insurer asserted a coverage defense.  The court said this rule provided no extra incentive for insurers to file declaratory actions instead of defending, because insurers would be trading the safety of controlling the action for the insecurity of allowing the insured to direct the underlying litigation.  In addition, the court said, if the insurer was found to owe a duty to defend, it would still owe reimbursement for defense fees.

Posted By David Rossmiller In Duty to Defend
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I've blogged about coverage for acts of self-defense here and here.  This post at one of those "ask the expert" sites presents another interesting question of coverage for self-defense.  No matter what, however, the guy who is getting sued can take satisfaction that he is capable of ending aggression with just two punches.  Sounds like he's been watching this movie. 

Posted By David Rossmiller In Duty to Defend
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The California Court of Appeals, Second District, held that the California Insurance Guarantee Association acted properly in denying the duty to defend because its duty is judged by a different standard than that of an insurer.  The case is Waite v. California Insurance Guarantee Association, 2006 WL 1102645 (April 27, 2006).

The insured, a Red Robin restaurant and its owners, had a Commercial General Liability policy through Reliance Insurance Co.  They were sued by a former employee for alleged sexual harassment committed by her supervisor.  The lawsuit included allegations of assault and battery resulting in bodily injury.  However, the CGL had an express exclusion for bodily inury arising out of and in the course of employment, and Reliance twice denied the duty to defend.  After the insured lost at trial to the plaintiff, it sued Reliance for breach of contract, saying the insurer wrongly denied the duty to defend because there was a potential for coverage under the policy.   Before the case got very far, Reliance was declared insolvent by Pennsylvania regulators .

Every state has a fund that, under certain circumstances, will fulfill limited obligations of insolvent insurers.  In California, it is the California Insurance Guarantee Association (CIGA).  The insured argued that Reliance's denial was incorrect, but the court said that issue was irrelevant, because the scope of CIGA's duty is judged by the statute that created it, not traditional insurance law.  Therefore, CIGA was allowed to consider all the evidence available at the time the claim was presented to it.  The totality of the information clearly indicated there was no coverage under the policy, the court said.

Posted By David Rossmiller In Duty to Defend
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Coverage for the vicarious liability of one insured for another insured's intentional acts is a fairly common issue in homeowners' policies.  The question also comes up with Commercial General Liability and other policies, for example, in cases of alleged sexual abuse.  The court in Illinois Farmers Insurance Co. v. Kure, 2006 WL 864368 (Ill. App. Dist. 3 April 3, 2006) reached the usual result.  

In the case, Matthew Kure allegedly used a vehicle his parents provided for him to travel to the home of another young man, Kyle Signorelli.   When he got there, Matthew allegedly picked a fight and threw Kyle to the ground with a "pile driver" move, or head first with the weight of his body on his neck.  As a result Kyle is paralyzed from the neck down, and Kyle and his parents sued Matthew and his parents.  The insurer brought a declaratory relief action seeking a judgment of no coverage, and the parties filed cross-summary judgment motions.  The trial court said the insurance company had no duty to defend Matthew, but did have a duty to defend the parents.

The appellate court agreed.  Because the parents' potential liability was vicarious only -- they allegedly were negligent in failing to control their son and providing him with a car -- the harm to Kyle was unintended and unexpected from their standpoint, and therefore was an "occurrence" under their homeowners' policy.  A key to the analysis was that the policy contained a severability clause, which most policies do, meaning that the liability of each insured must be evaluated separately.  Even though Matthew's actions were uncovered as acts that caused intentional harm, coverage for his parents could not be precluded because the nature of the harm they allegedly caused was different. 

Posted By David Rossmiller In Duty to Defend , Liability Policies
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Two lawyers who allegedly manipulated and controlled a client's company, using other clients' money they stole, were not covered under their professional liability policy, the U.S. District Court for the District of Arkansas ruled.  The case is Continental Casualty Co. v. Moser, 2006 WL 827319 (March 29, 2006).

The court found the lawyers' insurer had no duty to defend or indemnify them for a lawsuit by Bob Bomar, a former client who owned 49 percent of a company called Scanning Technologies.  The other 51 percent allegedly was owned by dummy corporations set up with a purported president and director who actually knew nothing of her supposed jobs.  In fact, according to Bomar's lawsuit, his attorneys were actually taking money from other clients' trust funds and investing the cash in Scanning Technologies.  He filed suit after his attorneys allegedly blocked the sale of the company by scaring off prospective buyers with demands of money.  The alleged motive for disrupting the sale was to keep Scanning Technologies under their control so they could continue to launder clients' money.

Even though the lawsuit alleged negligence, as well as fraud, the court said the gravamen of the complaint was willful conduct, and the label "negligence" alone could not create coverage.  The actions were therefore excluded under the intentional acts exclusion.  The court also said the lawyers' conduct was uncovered because of exclusions for those who act as a company's directors and for those who control a company's finances.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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Class actions over the supposed health risk of mobile phones created a duty to defend under Commercial General Liability policies, the U.S. District Court for the Northern District of Texas ruled. The case is Ericsson, Inc. v. St. Paul Fire and Marine Insurance Co., 2006 WL 770424 (March 27, 2006). St. Paul failed to defend the class actions, claiming they alleged only increased future risks, and that this did not constitute covered "bodily injury" under the CGL policies. The complaints spoke of "adverse health effects," "biological injury," "health risk" and "biological effects" due to "cellular dysfunction."

St. Paul also argued there were no allegations of damages. The court, applying Texas law, disagreed. Texas is one of the states that employs the "eight-corner rule," meaning the court, when evaluating the duty to defend, should look only to the allegations of the complaint and the language of the policy. The court, after considering cell phone cases in other jurisdictions, including Illinois, Maine and the Ninth Circuit, said that allegations of effects on human cells are sufficient to constitute "bodily injury" under a CGL, barring any definition to the contrary. The court also said there were no requirements in the policy that the alleged injuries be diagnosed or have manifested themselves.

Finally, the court considered St. Paul's argument regarding the term "damages" in the policies. This was a tricky question, because not only were the health problems apparently undiagnosed, the relief sought was that the class would be furnished with free mobile phone headsets, so they wouldn't have to hold the phones so close. However, the court said, the relief sought by the complaints "includes but is not limited" to the headsets. The court found the word "damages" in the policy ambiguous, and not clearly excluding the awarding of headsets as covered damages, and so construed the term against the insurer.

Posted By David Rossmiller In Duty to Defend
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