Insurance Coverage Blog

Some have been asking that I put the Rigsby sisters' depositions all in one post for ease of access and research.  OK, here they are.

I've talked a lot about these depositions, and don't have the time right now to go over them in detail again. The only thing I will note for this post is to repeat that in Cori's latest deposition, she admits accessing the State Farm claims files using a list of the Scruggs plaintiffs, although she says she can't remember where she got it.  I wonder where it could have come from.  Hmmm. 

If I've left off any of their depositions, let me know.

January 14, 2008 -- Cori Rigsby (portions under seal)

(Kerri Rigsby's deposition from around the same date is under seal)

November 19, 2007 -- Cori Rigsby

November 20, 2007 -- Kerri Rigsby

May 1, 2007 -- Cori Rigsby, Part 1

May 1, 2007 -- Cori Rigsby, Part II

April 30, 2007 -- Kerri Rigsby

May 1, 2007 -- Kerri Rigsby

Posted By David Rossmiller In Duty to Indemnify
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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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There are probably three things from my first year of law school I could do without having to think about again.  One is the Rule Against Perpetuities.  The second is the Statute of Frauds.  The third is the parol evidence rule.  I'm pretty safe on the first one, and seldom have to worry about the second.  But the third lurks around insurance coverage law like some kind of heavy-breathing beast at the edge of the firelight.  It may not go by its rightful name, but questions dealing with the admissibility of extrinsic evidence to prove the meaning of terms in an insurance contract are in fact parol evidence rule questions. 

In contract law, the parol evidence rule states that extrinsic evidence, usually of prior negotiations, is not admissible in interpreting a fully integrated contract unless the language of the contract is ambiguous.  Everyone agrees on that. However, the meaning of the word "ambiguous" is subject to debate -- you could say the word ambiguous is itself ambiguous -- and has produced two main viewpoints. 

The traditional view, of Prof. Samuel Williston, is that an ambiguity must appear on the face of the document before extrinsic evidence is admitted.  This is sometimes called the "plain meaning" approach.  The competing point of view, associated with Prof. Arthur Corbin, is that it is not necessary for an ambiguity to appear on a document's face: instead, extrinsic evidence can be used to show the existence of an ambiguity.  One more thing: even under the Williston approach, extrinsic evidence is allowed to resolve ambiguity once it is found.  A stricter view of contract interpretation exists, referred to as the "four corners" approach, which says that only what is within the four corners of the document should be used -- no extrinsic evidence at all.  Insurance law, which Prof. Michelle Boardman has cogently referred to as "the odd but brilliant prodigy" of the contract law family, has significant differences from regular contract law when it comes to interpretation, particularly the use of the doctrine of contra proferentem. However, because I recently had to research and write a ton on this subject, I don't feel like going into it in great depth here.  Suffice it to say that many jurisdictions use some version of the Williston or Corbin approach for the initial stages of insurance contract interpretation, and many instead use the four corners approach, including Oregon.  (By the way, I'm going to single Prof. Boardman out for praise for writing one of the relatively few law review articles I can honestly say I have enjoyed reading:  Boilerplate Versus Contract -- Contra Proferentem: The Allure of Ambiguous Boilerplate, 104 Mich. L. Rev. 1105 (March 2006).  This article was not only informative, but entertainingly written). 

All of this is a long lead-in to a useful article in the GenRe Research publication Policy Wording Matters written by Randy Maniloff, who has a certain Forrest Gump ubiquitousness -- he's in nearly every publication there is. I wouldn't be surprised to open up my church bulletin at Mass and find an article by Maniloff in there.  The article is on coverage by admission -- examination of changes in policy wording, or perhaps the lack of change, to either show or decide ambiguity. Take a read on the article here -- it's on page 5. I was also impressed by the quality of the entire GenRe publication -- and as you know, I don't hand out praise for writing lightly, I struggle and suffer too much over writing to give anyone else a free pass. 

Posted By David Rossmiller In Duty to Indemnify
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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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Rapper Dwight Myers, who goes by the name Heavy D, is suing his liability insurance carrier, National Union Fire Insurance Co. of Pittsburgh, saying it has failed to pay him indemnity as ordered by a New York court two years ago.  Heavy D requested indemnity for his liability stemming from an event where he and fellow rapper Sean Combs, who has been known by various names including P. Diddy and Puff Daddy, coached opposing sides at a celebrity basketball game at New York's City College.  A huge crowd showed up, everyone could not fit in the building, and pushing and shoving led to a stampede in which nine people were crushed to death.

Heavy D is seeking $1.5 million from the insurer, including $791,000 in indemnity, $381,000 in interest and a hefty, or Heavy, $324,000 in attorney fees.  Is it just me, or does that sound like a lot of attorney fees for a dispute over the meaning of insurance contract terms that was decided in a bench trial?

Here's a link to the underlying case of National Union Fire Insurance v. Heavy D, which the New York court provided on a publicly available, easily accessible website, unlike federal courts that provide access to most of their stuff only through the ECF system.  (Scroll down to the fifth paragraph of the link).  The trial court rejected the insurer's defense that coverage was precluded by the policy's exclusion for "promoting activities to the extent of contracting with arenas, halls, theaters and other places for theatrical presentations, whereby the business [Heavy D] is holding harmless aforesaid facility." The court found that Heavy D was not the promoter of the event, Sean Combs was, and that the basketball game was not a theatrical presentation like a musical concert or tour.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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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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We've discussed an insurer's potential right to reimbursement of defense costs recently on this blog.  Here is a case that discusses an insurer's potential right to get back amounts paid in settlement of liability claims -- Travelers Property Casualty Co. of America v. Hillerich & Bradsby Co., Inc., 2006 WL 2524145 (W.D. Kentucky August 28, 2006). 

Travelers funded the defense of Hillerich & Bradsby, (which if you have ever played baseball or softball you may remember as the name on the trademark of your bat) in a lawsuit alleging claims ranging from anti-trust violations to interference with business relationships in the aluminum bat market.  Travelers agreed to pay the lawyers picked by H&B and also agreed to fund a settlement negotiated by H&B, while reserving the right to seek reimbursement of settlement amounts attributable to uncovered claims.  H&B denied that Travelers had the right to seek reimbursement, and Travelers brought a declaratory action to clarify the issue.

In the declaratory action, Travelers was seeking only reimbursement of uncovered settlement amounts, not reimbursement of legal fees.  The court decided insurers have the right to seek such reimbursement when: 1) they have expressly reserved the right to do so; 2) they have notified the insured of their intent to accept a proposed settlement offer; and 3) the insured either has control of the defense, or the insurer makes an express offer to allow the insured to assume the defense when the insurer and insured disagree over the proposed settlement.  This was the court's decision under general legal principles.  The court left until another day whether Travelers' insurance contract gave it the right to seek reimbursement.

Two asides about this case. 

First, the pdf of this case I linked to is one I obtained via the ECF/PACER electronic filing system for federal courts.  It did not cost anything, but it is not otherwise available on the website of the U.S. District Court for the Western District of Kentucky.  As you may be aware, a few years back Congress directed that federal courts provide electronic "access to the substance of all written opinions . . . in a text searchable format" in the e-Government Act of 2002.  As you can see from the website of the Western District of Kentucky, many courts interpret this to mean it's enough for them to provide opinions through ECF/PACER, not on the website itself, and not available to the common person.  Here is a link to the e-Government Act of 2002.  Read the preamble of the act and Section 205, about the duty of federal courts, and see if you think supplying cases through a data port inaccessible to most people complies with the spirit of Congress' directive.

Second, this case begins with a device I see a lot in both briefs and court opinions and really dislike: "This is an insurance coverage dispute."  I call this type of opening sentence the "modified Gettysburg Address," because I like to imagine how it would have sounded if Abe Lincoln had gotten up after three hours of speaking by Edward Everett, pulled that paper from his pocket, looked at the words he had written and rewritten on the train to Gettysburg, and started off in that high voice of his: "This is a speech about some dead people." 

I realize not every piece of writing is the Gettysburg Address, and I imagine those who use this device see it as a utilitarian information delivery system.  But let me point out that the essence of utilitarianism is functionality and efficiency, not standing hesitantly with one foot halfway forward like the folks at the county courthouse who seem terrified to walk through the metal detector.  Maybe taking the time to come up with a more meaningful and helpful topic sentence would help concentrate the writer to the task at hand, plus show regard for the time of the reader.  Just sayin'.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies , Reimbursement of Legal Fees
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When it comes to analyzing insurance coverage for contractor liability or construction defects, a lot of courts have as much trouble as someone trying to rub their stomach and pat their head at the same time.  So I was glad to see ACUITY v. Burd & Smith Construction, Inc. (N.D. August 24, 2006), which you can see for yourself by clicking this link.  As a NoDak-In-Exile (there is no such thing as a former NoDak, only those who wish they could go back and those who don't yet know that they wish they could go back), it does my heart good to see the North Dakota Supreme Court get it so right.

The case is about a messed-up roofing project on an apartment building that led to a lot of rain water getting in and damaging the building's interior as well as some personal property of the tenants.  A man named Mark Ehley apparently did the work, and there was some question whether Burd & Smith did any work at all and whether Ehley had been acting on behalf of the company.  Before all that was  resolved at trial, the building owner and Burd & Smith entered into a stipulated judgment for $412,000 and a covenant to enforce the judgment only against Burd & Smith's Commercial General Liability policy.

Now, you can see the insurer's arguments coming three miles away, like a dust cloud behind a pickup on a NoDak gravel road in August.  First, ACUITY argued that breach of contract claims aren't within a CGL's coverage because breaches of contract aren't accidents.  As the court pointed out, however, it isn't the label on a claim that determines coverage, it's what the policy says.  It is generally accepted that a CGL does not cover replacement of a contractor's defective work, except possibly if it must be torn out to repair other damage, but does cover damage to other property caused by the defective work, even if that other damage is called a breach of contract.  The court also dispensed with arguments about the "assumed contract" and "damage to property."  I'm not going to go into them at length, but the court had a nice, short analysis of each that makes for good reading.  The court found the policy covered the damages to the extent they were for damage to parts of the building other than the roof, but did not cover repair costs to the roof itself.  Sounds right to me.

(Thanks to a Friend of the Blog for tipping me off to this case).

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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Travelers Indemnity Co. v. Bloomington Steel & Supply, 2006 WL 2167293 (Minn. August 3, 2006) is a tough coverage fight that, from what I can discern in the opinion, was very well argued by the attorneys for both sides.  I thought the court's opinion made a leap in analysis that doesn't fully make sense to me.  However, I'm trying to give the court the benefit of the doubt because the opinion was written by Minnesota Supreme Court Justice Alan Page, who was a star player for the Minnesota Vikings in the 1970s, one of the greatest defensive tackles and kick-blockers in NFL history, and a guy I idolized and watched every Sunday as a kid, and who is perhaps second only to the incomparable Fran Tarkenton in the Viking hall of heroes.  Still, as a coverage lawyer I must remain as objective as possible.

In the case, the issue was whether Travelers should provide coverage for the employer's potential vicarious liability stemming from a manager's assault on a worker.  The manager, Reiners, told the worker to stop speaking Spanish.  Later in the day, the manager found him again speaking Spanish and whacked him with a piece of wood, fracturing his skull.  No surprise, the employee sued the company on the ground that it was vicariously liable for Reiners' conduct.  Travelers brought an action seeking a court declaration that no coverage existed because of the intentional acts exclusion.  The parties stipulated that Reiners had a history of violence, and Travelers argued Bloomington Steel should be charged with this knowledge, especially because he was the head of the company and its shareholder.  That is a powerful argument.

However, the court said the language of the Travelers policies showed that Reiners and the company must be considered separately: the exclusion applied to acts expected or intended from the standpoint of "the insured," not "any insured."  But the court, somewhat mysteriously, concluded merely that the "language of the Travelers' policies does not require that Reiners' intent be automatically imputed to Bloomington Steel." The word "automatically" kind of fuzzes things up.  Should it be imputed or not?

Apparently not, because the court then addressed the second Travelers argument: general corporate law principles charge a company with constructive knowledge of material facts its officers acquire in the course and scope of their employment.  This sounds like a winner, because are you going to tell me Bloomington Steel shouldn't be held to know that its main guy had a history of attacking people in a work setting? If they don't know, the corporate logo should be one of those See No Evil, Hear No Evil, Speak No Evil monkeys.  The trial court granted summary judgment to Travelers, and the Court of Appeals agreed, but the state Supreme Court reversed.  The Supreme Court first said that corporate law principles can't override the language of the insurance contract, but then backtracked and said maybe the company could be charged with knowledge of Reiners' violence; however, the record contained insufficient admissible evidence of that violence.  Excuse me?  I thought the parties agreed the history of violence was undisputed.  Isn't that admissible evidence?  The case was remanded, but for what?  For further evidence of the violence to be developed?  That would make about as much sense as rooting for the Green Bay Packers.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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I don't think I'm going to make too big a deal of Cottonseed v. Coulthard, 2006 WL 2165661 (Wis.App. August 3, 2006), but I was kind of annoyed the court fell back on the tired old cliche that a breach of contract can't constitute an "occurrence" in an insurance policy because an occurrence has to be an accident, while a breach of contract is an intentional act. 

What happened in the case is this: a cottonseed seller sold some product to a dairy farmer that had some mold, yeast and aflotoxin, and which made the cows' milk yield to decrease.  The farmer refused to pay, the seller sued for the unpaid balance, the farmer filed a counterclaim for breach of contract.  The seller filed a third-party complaint against an intermediate seller for indemnity as well as the intermediate seller's insurer.  The court got the right result, but without the right analysis.  The reason no coverage exists is not because a breach of contract happened but rather that something is an occurrence only if it causes bodily injury or damage to tangible property.   The farmer's counterclaim for bad seed does not appear to have alleged that any cows died or that any milk was contaminated, and so there was no occurrence. 

Posted By David Rossmiller In Duty to Indemnify , 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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A physician's liability policy that insured against damages "because of bodily injury" covered a claim for loss of consortium by a patient's wife due to an injury to the patient allegedly caused by the doctor's faulty care, the Connecticut Supreme Court ruled.  The case is Connecticut Insurance Guaranty Assoc. v. Fontaine, 278 Conn. 779, 900 A.2d 18 (July 4, 2006).

The Guaranty Association, which as you probably know is a state-created fund that steps into the liabilities of insolvent insurance companies, brought a declaratory action seeking a judgment of no coverage.  The court probably took more pages to analyze this than it needed, finding that the policy contained no clause restricting the damages to the person who suffered bodily injury.  The court could have said the policy language plainly covered the damages claimed by the patient's wife, but instead it found the language ambiguous, or susceptible to more than one reasonable interpretation.  Under that circumstance, the policy must be construed against the insurer and in favor of coverage, producing the same result.

The Guaranty Association also argued that the rule of deciding against the drafter did not apply to it because it didn't draft the policy, but merely inherited its liabilities.  This is a pretty weak argument.  How many insurance policies are out there in which the original underwriting company has since merged or been purchased?  Considering the Insurance Services Office or other trade organizations actually draft much insurance policy language, how far could this argument go?  The court didn't buy it either.  The court affirmed the trial court's judgment for Mrs. Fontaine, the patient's wife, on her cross-motion for summary judgment.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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First off, let me begin this post by acknowledging that some have made it known to me that there is such a thing as too much Katrina, too much hurricanes, too much Katrina coverage law, too much rising homeowners insurance rates.  I live by one principle: give the people what they want.  So to you folks, I dedicate this day on the blog.  This day will be known as Freedom from Katrina Day.  If I can make it through tomorrow without talking about Katrina, that day will be known as Freedom from Katrina Day: Reloaded.  After that, we'll see.  For those who are saddened and blindsided by these developments and need More Katrina, allow me to refer you to the other zillion posts I've done on the subject.  But before we move on, let me say one last thing: Katrina.  There.  I'm over it.

So let us return today to the roots of this blog, which is insurance coverage case law.   As you may know from reading my bio, I read or at least look at a fair number of new insurance coverage cases most every day.  Some of my reasons are as follows:  so I know what is going on, to broaden my horizons, and because I like coverage law.  Some stuff repels me, of course.  Anything badly written or where it is apparent the writer has no clue gets the skunk eye from me.  In addition, any case that is primarily about ERISA, I run from it like someone is trying to hand me a basket full of snakes. (No offense intended to Steve Rosenberg).  But I find maybe half the cases hold some interest for me, with a small number of those standing out as truly fine work that sheds some needed light on some aspect of coverage law.

In this elite category,  I place Dubrow v. Mike Check Builders, Inc., 2006 WL 1966966 (E.D. Wisc. July 11, 2006).   Almost all the time cases that discuss the so-called "business risk" exclusions in a Commercial General Liability policy, or that discuss construction defect coverage in general, wind up in a total mess.  Hats off to U.S. District Court Judge William Griesbach, who wrote an opinion that succinctly and precisely discusses these exclusions, what they mean, and when they apply.  Based on one reading, albeit a careful one, I find no fault in this case.  I particularly liked how the judge dispensed with the argument over the application of the economic loss doctrine, pointing out that is a remedies principle and not part of an insurance policy analysis.   I am going to keep this case handy for reference when I work on coverage matters with Eric Kekel, who has an amazing construction defect practice.  Since his office is two doors down and he knows where to find me, I need to have answers at my fingertips. 

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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I generally agree with the result, but I don't like the court's analysis in Amin Realty v. Travelers Property Casualty Co., 2006 WL 1720401 (E.D. N.Y. June 20, 2006).  The court found that a general contractor's liability was uncovered for defective concrete that had to be replaced because of shoddy work of a subcontractor, along with a number of steel beams and supports it had attached to.

The court's initial reasoning was on the right track: defective workmanship, whether by a general contractor or a subcontractor, is never covered by a Commercial General Liability policy.  The moral hazard problem is simply too great, and if you have any personal experience with contractors, you know what I'm talking about.  Defective work that causes damage to property other than itself, however, is another matter, as are tear-out damages.  Basically, I think it's not controversial that the  cost of pulling out the bad concrete and putting in new is uncovered.  One of the simplest justifications, which is not discussed in the case, is that a CGL usually does not cover property damage arising from ongoing operations, so no matter what you call the damages, they are not covered.  Other insurance is available for that, including an additional insured endorsement where the subcontractor insurers the general contractor for liabilities arising out of the sub's negligence for ongoing operations.  For that reason, I'd also say the cost of replacing the steel beams is not covered by the GC's insurance either.

Even though the court didn't say it the way I would like, I'd be OK with the case if the court hadn't muddled up the Business Risk exclusions.  The court relied heavily on an analysis I find to be less than optimal: that the entire building was the general contractor's "product," and fell under the "Your Product" exclusion.  Damages to any part of the building, such as water infiltration after operations are completed, therefore aren't covered by the GC's liability insurance, under the court's view.  I don't think a building is the GC's product or that the GC has any product at all, nor do I think the "Your Work" exclusion applies, partly because the GC doesn't do any "work" on a construction site and also because of the subcontractor exception to that exclusion, which the court failed to even discuss.  

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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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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Yesterday I posted about an appellate case in Florida, Discover Property & Casualty v. Beach Cars, that contained an analysis of policy ambiguity that not every court would agree with.  A case from Georgia shows yet another approach to ambiguity -- defining a term in a way that is contrary to the interpretation of the insurer and actually denies the existence of an ambiguity at all.

In Empire Fire & Marine Insurance Co. v. Daniels, 2006 WL 1479508 (Ga.App. May 31, 2006), Shana Carner drove a rental car belonging to her husband's business, Carver Services, Inc.  Tragically, she was involved in a single-car accident and killed, along with an adult passenger, Joey Allen Daniels.  Carver's daughter, Haley Mosley, and Joseph Patrick Daniels, both minors, were injured in the crash.  In the resulting lawsuit by the Daniels family, the issue was whether Shana Carver was an insured under the policy or a rentee that was uncovered.  As it turned out, she apparently intended to rent the car, but never paid a rental fee.  The trial court found that both the company's primary and excess policies covered Ms. Carver as an insured.  The issue on appeal was the excess policy only. 

The appeals court found the excess policy also provided coverage because it failed to define the word "rent," and the common dictionary definition of rent is that evidence of payment must exist.  That is an unusual methodology -- most courts follow a framework that can result in undefined words being labeled as ambiguous, and if two reasonable interpretations are offered, the insurer loses.  This court skipped a couple steps, but its result is one that many, but not all courts, would have arrived at anyway.  It will be interesting to see if the case is appealed to the Georgia Supreme Court.

Posted By David Rossmiller In Duty to Indemnify
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For this blog and for other reasons, I read a ton of insurance coverage cases.  On most days, I at least take a look at every coverage case in the country published the day before by Westlaw.  Out of all of those, my favorite type of cases to read are the ones about ambiguities in a policy, because it's like listening to a debate over who are the five greatest centers in the history of the NBA: you can have your own opinion, but you never know what different courts will say.

One such case is Discover Property & Casualty Insurance Co. v. Beach Cars of West Palm, Inc., 2006 WL 1476061 (Fla.App. 4 Dist. May 31, 2006).  The facts are pretty simple.  A business had a garage coverage policy, and sold a car during the policy.  After the policy period, the car was involved in an accident.  Now, as a matter of insurance coverage theory, everyone knows that in this situation what is relevant is when the accident occurred, not the precursor acts, right? Perhaps.  But the court found that the policy didn't say that -- it did not expressly limit itself to damages that occurred within the policy period.  Remember that, for an ambiguity to exist, all that needs to happen is that each side is able to offer a reasonable interpretation of the policy.  If there are two reasonable interpretations, the court decides against the drafter and the insurer loses.

I think the court's reasoning was pretty good.  The case is only a few pages long -- read it and see if you agree or disagree.  Here's a link to the case to make it easy.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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A promise to redeem resigning employees' stock prices at a certain level was an uncovered breach of contract, not a covered wrongful employment act, the U.S. District Court for the Eastern District of Wisconsin ruled.  The case is Krueger International v. Royal Indemnity Co., 2006 WL 1440852 (May 19, 2006).  

A jury in the underlying case found a company official promised four employees if they quit before December 31, their stock would be redeemed at the share price effective for September 30.  Instead, the company paid them the value as of December 31, which was a lot lower.  The jury found the official had authority to bind the company, and awarded damages of about $4 million.

In the coverage case, the company argued the officer's promise was covered under the plain terms of the policy's definition of "Employment Wrongful Act," which included breaches of employment contracts and employment-related misrepresentation.  The court disagreed, and found the type of breach of contract at issue in the underlying case is not related to employment.  The court said that ordinary breaches of contract are usually not covered by insurance, because it would encourage people to do the very thing covered by insurance.  I think the court's analysis was basically sound, but obviously, the policy plainly does cover some breaches of contract (it is in the definition above), so the court could have better explained the difference between employment-practices breaches and ordinary course of business breaches.

Posted By David Rossmiller In 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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Marc Mayerson has written an excellent analysis of late notice law in various jurisdictions, and makes a persuasive argument for the requirement that an insurer show prejudice to its interests due to an insured's late notice to defeat indemnity obligations. 

I agree with pretty much all of what Marc says, but my favorite part of his post is where he explains how the policyholder's arguments in Country Mut. Ins. Co. v. Livorsi Marine, (Ill. May 18, 2006), which I posted about here, would have been more convincing if they had analyzed the larger context of insurance coverage law and shown how the prejudice rule is in keeping with the parties' expectations.  One of my least favorite sights is a brief containing a coverage argument that is nothing more than an incantation of magic words, without any explanation of how the argument makes sense in the totality of the policy and in the realm of insurance law in general. Writers like this give the impression they are constantly grabbing your elbow to hurry you along before you realize how thin and threadbare the brief is.  What they don't realize, of course, is that the natural reaction to this sort of intellectual shoving is to resist the argument.  (I am making this observation not about the briefs in Livorsi, but about legal writing in general).

This is one of the many fascinating aspects of insurance coverage law: it is built upon so many layers and so much hidden history that the lawyer who is willing to act as an archeologist and do some digging can uncover intellectual treasure that truly enhances an argument.  It's funny how lawyers too often are willing to settle for sounding like mere paid shills who want to use the reader as a wastebasket for words, rather than thinking, reasonable human beings who have knowledge to share.  It is also strange how often lawyers forget that a brief is just a chance to communicate one-to-one with another human being, who happens to be a judge.  If we remembered these things, we'd take more care with our legal writing, and our writing would be a lot better and more effective.

Posted By David Rossmiller In 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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This story about an insurer's refusal to indemnify a settlement with golfer Tiger Woods caught my eye.  Note that the story doesn't say St. Paul is denying the settlement is covered, merely that the settlement was reached without the insurer's permission.  The Associated Press isn't noted for picking up on coverage nuances, however, so there undoubtedly is more to it.  

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French v. Assurance Company of America, 2006 WL 1099471 (April 27, 2006) is not an exceptional case in terms of its result, but its analysis of the "Your Work" exception to a Commercial General Liability policy is one of the best and clearest I've seen.

In the case, decided under Maryland law, a general contractor hired a subcontractor to side a house with EIFS -- Exterior Insulation and Finishing System.  For those who haven't encountered this, it is basically a styrene foam board covered with stuff that is supposed to look like stucco.  There are a huge number of cases involving water intrusion from applications of EIFS.  The French court found that the general contractor's CGL covered it for property damage to the home from water intrusion, but not the cost of repairing the defective EIFS itself.  This is the result most jurisdictions will reach, although the lack of coverage for repair often becomes somewhat academic because the defective work has to be torn off to do repairs underneath, and the replacement can thus become "covered" in that way -- as tear-off damage.

This case has an excellent analysis of why neither a general contractor's nor a subcontractor's defective work is covered under the general contractor's CGL, with an explanation that goes beyond the usual "performance bond" reasoning.  The case also has a good explanation of the way in which insurers expanded the coverage of a CGL to meet demands from contractors who wanted broader coverage.  Some people focus only on exclusions that have been added to CGLs and other policies in recent years, without realizing that, in the broad sense, insurers are selling more insurance to cover more risk than ever.  Risk is the ocean that insurers swim in, and the more of it, the more demand for their products.

Posted By David Rossmiller In Duty to Indemnify
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The Michigan Court of Appeals reversed a trial court and held that sales of fireworks, although seasonal, fell within the business-pursuit exclusion of a homeowners policy.  The case is Michigan Miller's Mutual Ins. Co. v. Awad, 2006 WL 1084351 (April 25, 2006). 

The case arose out of a fireworks injury.  Jason Awad, a college student, operated a fireworks stand from a tent for two weeks in 2004.  On July 4, Jason Jones, apparently a teenager, was pestering Awad for free fireworks.  Finally, Awad gave him some bottle rockets.  Strangely enough, after begging for free fireworks for some time, Jones then "threw a few dollars in Awad's car window."  Jones apparently was quite a piece of work, because he then set off one of the bottle rockets from inside a vehicle and shot it out the window.  Somehow, it managed to hit someone in the eye who was getting out of the other side of the vehicle.  She sued Jones and Awad.

Awad's homeowners insurance denied coverage under the business pursuits exclusion.  The trial court granted summary judgment against the insurer, saying two weeks of fireworks sales did not mean Awad was "customarily engaged" in the business.  In reversing the trial court and granting summary judgment to the insurer, the appeals court said the short duration of the fireworks business did not mean it wasn't a valid business.  Because of the seasonal nature of the business, the court said, two weeks was consistent with being customarily engaged in it.

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It's not easy for an insurer who issues an occurrence policy to win on a defense of prejudice to the insurer's interests, but that is what happened in Clarendon National Insurance Co. v. FFE Transportation Services, Inc., 2006 WL 997718 (5th Circuit April 17, 2006).

The insureds were a frozen food company and a related trucking company.  One of their vehicles was involved in an accident, resulting in several claims against the companies.  Most of the claims were settled for $219,000, but the remaining claim went to trial.  The companies rejected a $700,000 settlement offer, and were hit with a $1.1 million jury verdict.  Three months after the verdict, the companies gave its first notice to the insurer, Clarendon.  The apparent reason notice wasn't given before is that the insureds had a $1 million self-insured retention -- in effect, a deductible.  The insurer paid $220,000 in post-judgment negotiations to help settle the claim for $1 million, then sought reimbursement from the insureds.  The U.S. Fifth Circuit Court of Appeals, applying Texas law, found actual prejudice to the insurer and gave Clarendon its money back, because the case could have settled for $700,000 at no cost to the insurer.

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In most jurisdictions, it's a sure bet that a Commercial General Liability policy will be interpreted as not covering the cost to repair or replace defective construction work, whether the defective work was done by the general contractor or a subcontractor.  On the other hand, damage to property other than the work itself is usually covered.  The customary reasoning is that a CGL is not a performance bond.

In Florida, however, the 11th Circuit found an unsettled question of law on this issue in Pozzi Window Co. v. Auto-Owners Insurance, 2006 WL 1009341 (April 19, 2006).   Most of the cases cited by the 11th Circuit seemed to me to indicate that Florida is with the rest of the country on this issue.  However, a couple Florida Court of Appeals cases gave the court pause, and the 11th Circuit certified the question of coverage to the Florida Supreme Court.  For those who aren't lawyers, when federal circuit courts of appeals are deciding a case based on state law, they often consider issues that haven't been definitively established by state courts.  Sometimes these courts guess at the result, but because federal courts are courts of limited jurisdiction and need to defer to state courts on state law questions, they often ask for clarification by "certifying" a question to a state supreme court.  My guess on the answer?  That there is no coverage for replacement of defective work.

(Someone who knows Florida law better than I do may want to chime in).

Posted By David Rossmiller In Duty to Indemnify
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Here is a very strange story on multiple levels, about an unfortunate kid who was partially paralyzed when he dunked the ball in the closing minutes of a game and celebrating fans tackled him.  A considerable portion of the $3.5 million settlement comes from the homeowners' insurance of parents whose kids were involved in the melee.  I've blogged recently about how the intentional act of one insured, a child for example, does not preclude coverage for the vicarious liability of a parent.  So I can see the duty to defend arising there, but without knowing more about how the parents could have been responsible, it's hard to figure out the duty to indemnify on this one.

On another note, posts will be light today due to work demands (advice to prospective law students: being a lawyer may interfere with your blogging, don't say I didn't warn you). 

Posted By David Rossmiller In Duty to Indemnify
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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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The molestation of a girl at a home day care center was an excluded intentional act of an insured, the U.S. Ninth Circuit Court of Appeals ruled in Farmer v. Allstate Ins. Co., 2006 WL 620899 (March 14, 2006). The molester, who was convicted and sentenced to six years in prison, was apparently the husband of the woman who ran the day care center. The husband and wife were both listed as "insureds" under the terms of a homeowners' policy with a home day care center endorsement. The policy also contained an intentional acts exclusion that precluded coverage for damage or injury intentionally caused by an insured. In almost every jurisdiction, courts hold that all damages resulting from sexual abuse are intended by the criminal, even if he did not form a mental intent to cause the specific harm that resulted.

In this case, the victim's guardian sued the day care provider, and received an assignment of indemnity rights under the policy, the probable reason being that the day care owner was judgment proof. Therefore, the lawsuit decided by the Ninth Circuit was made directly by the victim's guardian, although the same coverage analysis applied, because the insurance company's contract was with the day care center owner, not the victim.

Posted By David Rossmiller In Duty to Indemnify
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A woman who shot and killed an apparent intruder in her home is not covered for defense or indemnity by her homeowners' policy, an Iowa appellate court ruled yesterday. She was sued for wrongful death and other claims by the dead man's estate. The case is AMCO Ins. Co. and Allied Property and Casualty Ins. Co. v. Estate of Dustin Wehde and Tracey Roberts. The case isn't out on Westlaw yet, but here is a link to the case via the court's website.

I posted about an Oregon case in which a claim of self-defense was at issue here. According to the facts offered by Roberts in the case, the mother of three was attacked in her home by two intruders. Her two sons were 11 and 3, and her daughter was 1. She put them all in a room together and confronted the two men.

Contemporaneous accounts I found on the web, which may or may not be reliable, indicated her husband was away on a business trip. I have not gotten my hands on the appellate briefing yet, so the motive of the attackers is unclear, but it appeared to be robbery. The case said Roberts was choked unconscious, and awoke on the floor, hearing the two intrud