Insurance Coverage Blog

One of the areas of insurance coverage law that can make a legitimate claim to being the most challenging is the area of problems arising out of additional insured status. Additional insurance is frequently required in the construction industry by general contractors, and additional insurance arrangements are extremely common. This involves the GC requiring a subcontractor to add the GC to the subcontractor's insurance policy as an insured to the extent the GC becomes liable for the negligence (sometimes it is stated as the subcontractor's "fault," a broader concept than negligence, or sometimes simply "acts," "omissions," "conduct," "activities," "operations" or similar word). 

Stemming out of the explosion of construction defect litigation in the 1990s, "long tail" liability for construction defect damages became a frequently litigated reality, and insurers responded with a number of measures including exclusions for injuries in progress, multi-unit construction, losses for which pre-policy notice was provided and stacking of multiple policies. Part of this was designed to bring more certainty to indemnity issues under "occurrence" liability policies, but another part was designed to relieve insurers of the duty to defend in many instances -- construction defect cases are often massive and expensive to defend, with defense costs exceeding indemnity exposure in a high percentage of cases. 

Insurers also sought to limit AI responsibilities by producing an endorsement form that specified that the coverage applies to "ongoing operations."  More about that in a minute. One of the great challenges of insurance coverage law is that this field is really just out of its infancy.  Widespread commercial liability insurance is a relatively new product -- since about the early to mid-1960s -- and has been evolving continuously. As a result, in many states, key questions have not even been addressed by the judiciary, or the decisions that do exist aren't very helpful and are perhaps not the most sophisticated or insightful analysis that could be done. This is why I call insurance coverage The Great Workshop of the Common Law. It's a work in progress -- an "ongoing operation," if you will. 

Now, back to AI endorsements.  In 1993 and 1997 the Insurance Services Office produced additional insured endorsements that were supposed to limit exposure to damage that occurred during ongoing operations. The problem is that, many times, courts said the language of the endorsement didn't actually say that: for example, ISO form CG 20 10 03 97 (which as the last four numbers of the form indicate was produced in March 1997) says AI coverage is in respect to "liability arising out of your [the subcontractor's] ongoing operations performed for [the additional insured]." Some courts have said this language actually covers not just damages that occurred during ongoing operations, but damages that occurred after completion. Because the vast majority of construction defect liability stems from water intrusion and related damages that occur after completion of a project, these cases present a problem for insurers. 

I saw a recent Ninth Circuit case that highlights this language: Tri-Star Theme Builders, Inc. v. OneBeacon Insurance Co. The case was decided under Arizona law. This case appears to me to involve the 20 10 03 97 form, judging by the language the court analyzed. The Ninth Circuit found that the "arising out of ongoing operations" did not limit the GC's coverage to just liability for damages that the subcontractor caused before completion, but also for damages that occurred after completion, as long as they happened during the policy period. "During the policy period" isn't as much of a restriction as you might think, or the Ninth Circuit appeared to believe -- in the absence of a continuing loss or other exclusion, damages that begin during a policy period are usually covered by a commercial general liability policy if they continue after the policy period.  

The Ninth Circuit said that damages that occur after completion necessarily must have arisen out of ongoing operations -- if the subcontractor didn't do any ongoing operations, there wouldn't have been anything completed. The court said it wasn't going to consider the drafter's history, which I think is a legitimate call, and was going to hold the insurer to what it actually said. I think there is an argument for what the court said, but there is one aspect of its analysis I think is lacking.  The court examined exclusion (j)(6) in the body of the subcontractor's policy, it appears, to show that if the endorsement didn't provide coverage for completed ops damages, there was no coverage at all. Exclusion (j)(6) is the one that precludes coverage for "that particular part of any property that must be restored, repaired or replaced" because the insured's work "was incorrectly performed on it." There is an exception in the exclusion for damages that occur after completion, meaning it applies only to ongoing operations. I take it the Ninth Circuit's point is that, if the AI endorsement excludes completed operations and (j)(6) excludes ongoing operations, there is no coverage and that is ridiculous.

If that is what the court is saying, my reaction is this: (j)(6) might indeed limit the subcontractor's coverage to completed operations only, but as to the additionally insured GC, there is potential coverage for ongoing operations as well as completed ops because the definition of "your work" in a commercial general liability policy has an exception that allows coverage for a GC when work was performed for it by a subcontractor.  In other words, the (j)(6) exclusion will be applied differently to a GC insured as an AI under the policy than to the named insured subcontractor. If this seems weird, don't forget that there is a Separation of Insureds or Severability of Insureds clause in such policies that instructs you to analyze coverage separately as to each insured. 

Because of case law like this, ISO put out an AI form in 2004 that changes the coverage language and contains an express exclusion for damages that occur after completion. But even seven years after this AI form was produced by ISO, not every insurer uses it. Many still use old forms, or use manuscript forms of their own devising, or modify the ISO form. 

I could go on and on and on about AI insurance, but this is a good place to stop for today. There are something like 28 current ISO AI forms, and many, many old ISO forms, out there. Also, there are dozens if not hundreds of manuscript and adapted forms out there, so this issue is one we will keep seeing being constructed and deconstructed again and again upon our visits to The Great Workshop of the Common Law. 

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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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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This Bloomberg story is fascinating: Canada's Supreme Court overturned lower courts that had required insurers to pay for losses arising "directly or indirectly" from the use of an automobile in the following situations: 

• Todd Farmer and Anthony Raynor, high on drugs and alcohol, dropped a 30-pound boulder from an overpass onto a passing car.  The men were later convicted and sentenced to prison. Damages suffered by the driver were assessed at $996,850, plus interest. Farmer's auto insurance had a policy limit of $25,000.

  Farmer transported rocks to the overpass in the back of his truck, which the Canadian court of appeal said was enough to trigger the auto insurance coverage. 

• In a 1999 hunting case, Ontario resident Fred Wolfe arrived at a designated stand before sunrise and saw a flash of white in the headlights of his truck. Wolfe was outside his vehicle.  He fired his gun and shot Harold Herbison, a member of his hunting party, about 1000 feet from the vehicle. The court of appeal also said this was sufficient connection to the use of a vehicle to trigger coverage.

You know, when you think how much we use our cars, it doesn't take too much creativity to find a link, direct or indirect, between any injury and an automobile.  I once ripped the leg of my pants at a St. Louis Cardinals baseball game, which I would not have been at if my brother-in-law hadn't driven me there.  A link?  Oh yes.  The only question in my mind is whether the link is direct or indirect.   

Incidentally, here in the U.S., there are frequent disputes about when someone "occupies" a vehicle, a concept with a similar ability to expand or contract, depending on who is doing the judging.  If a person is not a first named insured on a policy, UIM coverage is often available only if the person occupies the vehicle. Some courts say that standing near a car after an accident is not occupying it. Some say that being crushed between two vehicles is occupying one of them.  Some say that a fall on ice near the rear of a vehicle you are unloading is not occupying the vehicle.  The scenarios go on and on.  I've never looked to see if there is one, but I presume that somewhere, someone got roped into writing a 600-page ALR entry on this very subject, compiling the seemingly endless variety of ways humans can be injured in proximity to cars.    

Posted By David Rossmiller In 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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I loved this story about the lottery winners in Oregon who said they were going to use the money to help people fight drug addiction.  Instead, according to the story, they allegedly "held four months of parties with public sex, fights and signs of drug dealing," prompting the city of Portland to file a complaint charging them with being a public nuisance. Here is another story on the matter, from the local newspaper.  (Warning -- you may encounter a registration process that is short and painless but nonetheless annoying). I notice that the lede of this version of the story does not say they were going to use the money to fight drug addiction, but rather that they "talked of helping young people with addictions to drugs and alcohol." Hmmmm. There are at least three ways of reading that phrase, only one of which means to help folks get rid of addictions.

This story intrigued me because it made me wonder what would happen if the residents of the house tender the lawsuit to their homeowners insurer.  I don't know if the lawsuit seeks more than injunctive relief, I'm guessing probably not, because a municipality is the plaintiff.  I also don't know if only the residents were sued or also the property, but I doubt that makes any difference in the analysis. Usually, and this has come up a lot in lawsuits against gun companies and gun stores, a suit that seeks only injunctive relief does not give rise to an insurer's duty to defend because injunctive relief is not "damages" as defined by the policy.  The duty to defend arises whenever any allegation in the complaint, whether true or not, could under any scenario be covered under the policy.  At the very beginning of a liability policy, it says the insurer is obligated to pay for covered damages.  However, "damages" in the legal sense almost always means money, and does not include other relief like injunctions.

I would also add that most liability policies predicate coverage not only on the existence of damages, but state that the damages must be on account of bodily injury or property damage, the latter of which is usually defined to mean physical injury to tangible property. Again, because of who the plaintiff is and the type of claim, I doubt either one is alleged.  So, with no damages, no bodily injury and no property damage, there's a pretty good possibility the insurer would give the skunk eye to a tender of defense. However, if anything is left of those lottery winnings -- and that may be a big if considering all the alleged goings-on in that house -- they should be able to afford their own lawyer to defend them and wage a coverage fight with the insurance company. 

Posted By David Rossmiller In Liability Policies
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Last week I posted about Harvard 3L Chris Robertson's post regarding ambiguity in insurance contracts.  I didn't buy his analysis that insurers intentionally make them vague as a form of consumer deception. When you're up against a rule, as insurers are, that ambiguities will be decided against you, what sense does it make to place them in your policies intentionally?  That's like me throwing a punch at Superman.  If I connect, all I do is break my hand.   

Now Chris has a Part II out, about which he was kind enough to e-mail me earlier this week, so I took a read.   Regrettably, I also fail to buy this post, but the thing I buy the least is the argument that ambiguities are present in insurance policies because insurers left them ambiguous when they couldn't get their harsher terms past state regulators, who have to approve the language of insurance contracts sold in the state.  In almost every coverage dispute I can think of, the ambiguity did not stem from any differences between the way the clause read in one state as opposed to another.

There simply are limits to human expression, especially when you have lawyers billing by the hour going over a policy trying to find ambiguity any way they can.  I do this myself.  When I represent policyholders and make an ambiguity argument, what I need to do is present an interpretation that is reasonable in the totality of the policy and contradicts the insurer's interpretation. To win, my interpretation doesn't have to be better or even as good.  It just has to be reasonable.  Then there is ambiguity, and it is decided against the drafter.  What I see being found ambiguous are terms that are standard terms. I'm open to other evidence, but I simply have not seen it.   

As far as things I don't buy about the post, in a very close second place is the concept that the tort of bad faith should be extended to drafting of policies, because insurers know consumers may think they are covered but they really are not.  This has some resemblance to the doctrine of reasonable expectations, which in the insurance coverage field has pretty much been bounced around like a Bobo doll.  Instead of this reasonable expectations standard, courts say policies have some objectively reasonable meaning whether you read them or not, or whether you understand them or not.  What, now bad faith is going to be extended to some undocumented, subjective belief people may have?  What if they haven't thought about it at all, does that mean the insurer acted in good faith, bad faith or in-between faith?

Posted By David Rossmiller In Bad Faith , Liability Policies
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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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Ted Harrison, Jr. v. Amy Harrison is an unusual, sad case.  Ted Harrison, Jr. is Teddy Harrison, 8, who was three when his parents' SUV was in a crash, and he was thrown clear of the vehicle and injured because his child safety restraint didn't hold.  After the accident, Minnesota state police found a coin was lodged in the buckle mechanism, and when it was latched by Teddy's father, it gave a false click, making one think the buckle was engaged when it was not.  Teddy's father apparently failed to notice the coin even though he frequently cleaned the car seat.  A product-liability lawsuit against the child safety seat manufacturer was settled.

This lawsuit, which was appealed from the Minnesota Court of Appeals and argued before the state Supreme Court last week, is a negligence action by Teddy against his parents, with their consent (his grandmother is acting as his guardian ad litem for this suit) for the liability coverage of their auto policy.  Teddy's parents are being defended by the actual target, Progressive Insurance.

The question argued to the high court was the implication of Minnesota's statute barring introduction of evidence of the use or failure to use seat belts.  The statute has an exception for “an action for damages arising out of an incident that involves a defectively designed, manufactured, installed, or operating . . . child passenger restraint system.”    The statute became law in 1963 to encourage car makers to install seat belts at a time when they were not in widespread use.  The exception was passed much later so that seat belt makers could not use the law as a shield in product liability cases.  It is agreed that if the statute is interpreted so that evidence of the negligence of the parents in failing to clean or properly fasten the seat belt is excluded, the lawsuit will not succeed.  If the evidence is introduced, it agreed that Teddy will win. The fight is over whether the exception was meant to apply only to product liability cases, or whether it is to be broadly construed.  One drawback to the argument for broadly construing the law: the word "operating" could be construed broadly as "use," which would contradict the main text of the statute, which, remember, bars evidence of the use of or failure to use seat belts.

The Court of Appeals earlier upheld a trial court that allowed the evidence, saying the word "installed" in the statute includes installation by parents, broadening the exception beyond product liability cases. Here is a link to the Minnesota Court of Appeals decision. 

Here's a good story in the St. Paul Pioneer Press about the case.  Here is another good story from the StarTribune, the other daily paper in the Twin Cities.  I also wanted to point out that the Minnesota Supreme Court has streaming video of oral arguments on this case, some of which I watched, and which you can see here.  A great idea by the court, although the production values could stand a little juicing.  My compliments to both sides, by the way, for fine arguments, and to the justices for good questions.

It appears the liability aspect of the case may have been settled, and that a high-low agreement is in effect depending on how the court rules. (Teddy can get no more than the agreed-upon high figure, and even if he loses, will receive no less than the low figure agreed upon). 

Posted By David Rossmiller In 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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Here is a recent article from National Underwriter magazine about insurance agent standard of care and liability, including a discussion of the recent Hurricane Katrina-related Leonard case in Mississippi and the less recent Harts v. Farmers Insurance case in Michigan.  I was among the people National Underwriter interviewed for the story and am quoted in it.

Posted By David Rossmiller In Liability Policies
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This case, Tronfeld v. Nationwide Mutual Insurance Co., (November 3, 2006), just about made me drop my red Yellowstone National Park mug of decaf with the white moose silhouette on it.   Insurance agents, insurance companies and insurance company employees should take note of this. 

In Tronfeld, a Nationwide adjuster, Schmitt, met with Spellman about an injury Spellman received in a car accident with a Nationwide insured.  The two discussed whether the claim could be settled without an attorney.  Here's the way the court describes what happened next:

During the meeting, they discussed the possible selection of an attorney to serve as counsel for Spellman in his claim against Nationwide.  In response to Spellman selecting Tronfeld as his counsel, Schmitt made these statements . . . .

(1) That Jay Tronfeld just takes peoples' money.

(2) That clients of Jay Tronfeld would receive more money [for their claims] if they had not hired Jay and had dealt with the adjuster [directly].

When I read these, it crossed my mind that these could be taken as statements of opinion and expressions of the speaker's disdain for personal injury attorneys and their involvement in low-dollar cases, not as specific representations about a particular attorney's qualifications, fitness or honesty.  Tronfeld, when he heard of these statements, took a less charitable view, and filed suit for the tort of defamation per se, alleging the statements impute "Tronfeld as unfit to perform the duties of his employment" and that he "lacks integrity and is dishonest in performing the duties of his employment."  Under Virginia law, a person maligned by defamation per se may recover compensatory damages for injury to reputation, and for humiliation and embarrassment, without demonstrating any financial loss.

Speech that does not contain a provably false factual connotation, or statements that cannot reasonably be interpreted as stating actual facts, are not defamatory.  The trial court found that the statements were opinion only and dismissed the case.  The state supreme court disagreed, however, and said the statements contain implications capable of being proven true or false.  Here's the court again:

The statement "[t]hat Jay Tronfeld just takes people's (sic) money" is capable of disproof by evidence, if adduced, that Tronfeld's clients received monetary or other relief as a result of his services.  It would not be a matter of opinion that Tronfeld takes a client's money without rendering a service of value in return if Tronfeld, for example, produced evidence of a settlement or judgment he obtained for that client.  (My emphasis).

Did I read that right? Someone can turn a statement of opinion into one of fact, and disprove a statement that an injured claimant would come out ahead without a lawyer's services, merely by showing that the lawyer once obtained a settlement or judgment? Or does he need to prove it by getting a judgment or settlement on behalf of this current client? Do we really want to go down the road of holding these kind of statements actionable?  What about what lawyers say about insurance companies: is that judged by the same standard?  Read the case and decide for yourself. (Remember, the court was only allowing the claim to go forward, not addressing the merits of whether the claim will succeed).

Hat tip: Steve Brostoff at Insurance Week.

Posted By David Rossmiller In Liability Policies
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After having failed to get New York's Scaffold Law amended by the Legislature, a business coalition has filed an equal protection lawsuit.  The Scaffold Law, which is a kind of Employer Liability Act that dates to 1885, makes a general contractor or owner strictly liable for construction site falls.  It is claimed the law adds $10,000 or more to the price of a new home because of higher insurance premiums paid by contractors.  This is probably true.  In 1980, the New York Legislature conditionally exempted owners of one- and two-family homes from the law, but not contractors building them.  Even if the law did not apply to construction of single-family homes at all, if a contractor did any multi-unit or commercial construction, his insurance premiums would reflect the added risk and constitute an increased cost of business that must be recovered from customers.

Here is a link to some history about the Scaffold Law, including a failed attempt to amend it earlier this decade to establish compliance with OSHA regulations as a defense.  Under that attempted revision of the law, it would have retained the essential characteristic of Employer Liability laws: vicarious liability of the general contractor or owner for the acts of its subcontractors, but would have reintroduced reasonableness of the employer's conduct as a standard of care on a limited basis, a doctrine that was driven out of the law in court ruling from the 1920s to the 1940s.  Although opponents of the amendments called them a rollback to 1897, the year the negligence standard was removed from the act and strict liability began, another way to look at it is that employers and owners would have remained insurers for workplace accidents, except when they can establish compliance with all workplace safety regulations.  If the object of the Scaffold Law is to protect a particularly vulnerable class of workers -- those who work at heights under poorly organized conditions, often for unstable or sloppy construction businesses -- requiring an employer to show that those concerns have been satisfied would constitute fulfillment of the law.  In addition, a true no-fault insurance coverage system -- Workers Comp -- exists to take care of workplace injuries. 

However, ultimately the Legislature did not see it that way, and I'm skeptical of attempts to get judges to change the will of the people's representatives, or that the law constitutes lack of equal protection or a violation of the Commerce Clause.  I guess we'll have to wait and see. 

Posted By David Rossmiller In 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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Ever since I got involved in a year-long case in which a key issue was whether a sizable insurance policy should be reformed, I can't get enough of reformation cases.   OneBeacon America Ins. Co. v. Travelers Indemnity Co. of Illinois, (1st Cir. October 6, 2006) is a good reformation case, although different from most, because in this case both the insurer and the insured agreed the policy did not reflect the intentions of the contracting parties.

A reformation claim hinges on establishing by clear and convincing evidence that the contract reflects a mutual mistake of the parties and that there was a prior agreement, to which the written instrument should be changed to reflect.  So when both parties to an agreement concur on these elements of the claim, almost always it is going to be lights out.  And so it was in this case.

OneBeacon sold a $1 million general liability policy to LAI, a company that leases cars and trucks to other businesses, to cover its vehicles.  Language in the policy said those who drove vehicles with LAI's permission were also insured by the policy.  However, quite a bit of evidence was presented that neither LAI nor OneBeacon intended that result: LAI required lessees to either apply for coverage under its policy and go through an underwriting process, or get their own insurance.  Capform, a construction outfit, leased some vehicles long-term and got insurance through Travelers. A Capform driver then hit a pedestrian, Travelers settled the case for $5 million and became aware of the OneBeacon policy, and demanded the $1 million limits. 

The court did a good job of analyzing the difference between a mistake as to the result of a contract, which would not justify reformation, and a mistake in the writing of a contract so that it fails to express the parties' intent, which would justify it.  In this instance, the court said the evidence convincingly showed mutual mistake and a prior meeting of the minds, and reversed the district court, granting summary judgment to OneBeacon on its reformation claim.  The court noted that reformation can be defeated by equitable considerations, such as detrimental reliance on the unreformed contract by an innocent third party.  However, the evidence was that Travelers did not learn of the unreformed policy until the settlement of the personal injury case, so there was no reliance.   An interesting, well-written case.  Hat tip to Appellate Law & Practice via Boston Erisa & Insurance Litigation Blog.

Posted By David Rossmiller In Liability Policies
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I suppose most of us have lived our entire lives without seeing Air Force One fly overhead, and likely that was also true for Sharon Bergstrom on July 13, 2004.  She was living in an assisted care facility in the Duluth-Superior area run by Charles Baker, apparently in his own house.  President Bush made a campaign stop that day in Duluth, and as Bergstrom stared up at the plane from the backyard of the Baker house, Baker's dog wrapped its leash around her legs and she tripped and fell. 

I have no idea how serious her injuries were -- considering she was in a place that provided 24 hour care, she was at least somewhat incapacitated, and an ordinary fall could turn out badly.  In any event, she sued Baker, seeking to collect under his homeowners policy.  That insurance fight is what Bergstrom v. Baker and Prudential Property & Casualty Insurance Co. (Wisc.App. October 3, 2006) is about.  Here is a pdf of the case.

If you've dealt much with homeowners policies, you know what the court said: no coverage because of the business pursuits exclusion.  Evidently Baker had no commercial insurance, and a homeowners policy won't provide it.  Bergstrom tried a creative argument: she was actually a "roommate or boarder," which would have been OK for coverage.  However, it turned out that two-thirds of the money she paid per month was not for room and board, but for assisted care.  That made her look like a patient, not a boarder, and the court granted summary judgment to the insurer.

Posted By David Rossmiller In Liability Policies
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I saw this story all over the news wires and blogs this morning and thought I'd pass it on.  Last week, a Florida jury awarded $116.7 in compensatory damages in a case where a stroke victim was allegedly misdiagnosed and sent home, leading to permanent brain damage.  This week, well, the reporter in this story in the Tampa Tribune put it best in a summary of plaintiff lawyer Steve Yerrid's appeal to the jury in the punitive damages phase:

At a hearing Tuesday, he begged them to send a message to doctors and insurance companies everywhere: "Don't ever put profits over patients' safety."

"Now's not the time for mercy," Yerrid said. "Now's not the time, as I said, for compassion. Now is the time for the sword."

The jury complied.

The three men and three women took about a half hour to award Allan Navarro $100.1 million in punitive damages.

 I'll leave it to others to debate whether this is craziness or the proudest moment of American civilization.   Here are some posts from Ted Frank at Overlawyered, Greedy Trial Lawyer, Kevin, M.D., Peter Lattman at the Wall Street Journal Law Blog and TortsProf Blog that will help you make up your mind, if you care to.  The more interesting question, for me, is how this threat by the plaintiff lawyer holds up:

 Family attorney Steve Yerrid said he'll pursue damages from the insurance company, which is now claiming in a lawsuit that it has no duty to defend Austin because the doctor breached his contract.

"We're coming after them next," vowed Yerrid, who was part of a team of lawyers that brought Florida's landmark suit against tobacco companies and has won numerous other multimillion dollar verdicts.

"For all those people who believe in tort reform, they better find a new day job," Yerrid said. "We're here to stay."

(This quote was from Kevin, M.D.'s site, but his link was bad and I haven't been able to find the story with this quote in it).  What the plaintiff's lawyer is talking about is apparently more than the policy limits of $1 million each for the doctor, Austin, and the physicians' group of which he was part.  I took a look at Florida's bad faith insurance statute when I wrote this post, but I'm certainly not an expert on bad faith law in Florida. 

However, before an insurer can have any liability, whether bad faith or not, generally it has to breach some duty to the insured.  Depending on the jurisdiction, in a circumstance like this, bad faith liability might arise from either a failure to settle within policy limits or breach of the duty to defend.  From the various accounts, it's not clear to me whether the insurer defended the case at any point or whether there was a reasonable chance to settle within policy limits. In the Birmingham News story (the first link in this post), the insurer sounds very confident it has a defense against liability and bad faith.  If I was the person who gave the insurer a coverage opinion to that effect, right about now I'd be taking a hard look at my conclusions, just to ease my mind and make sure I was right.

Posted By David Rossmiller In 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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You know the answer to the question above, and so does every court in this country.  And yet in a few cases we can still see a court fail to void a policy, even though the applications contained obvious falsehoods designed to produce a lower premium or qualify for insurance in the first place.  A small minority of courts occasionally find that, because the loss caused by the insured would have produced the same payment from the insurer regardless of whether the insured told the truth or not, the misrepresentation was not material.

Most states have statutes, however, that define a misrepresentation as material if it affects the risk, not if it affects the payment of indemnity.  Most courts interpret "risk" in its true sense, including the fact that the insurer would have charged higher premiums had it known the truth.  An illustration is Commercial Union Insurance Co. v. Dean Pesante, 2006 WL 2276951 (1st Cir. August 9, 2006).  A Rhode Island fisherman, Pesante, apparently falsely claimed on his policy application that his boat was used for lobstering, when it really was used for gill-net fishing, a more risky proposition.   While returning from gill-net fishing, he collided with another boat, some people on board were injured, and sued.  In the insurer's later declaratory action on coverage issues, the district court denied the insurer's summary judgment motion because Pesante was not engaged in gill-fishing at the time.  The court reasoned that his breach of warranty therefore was immaterial at the time of the loss.

The First Circuit reversed, granted summary judgment for the insurer and rescinded the policy.  The court pointed out that whether the breach of warranty caused the accident was not the issue.  Because the policy contained a misrepresentation material to the risk, it was voidable from the beginning, before the accident happened.  That's the result you'll see most of the time.

UPDATE:  Thanks to a reader for pointing out a typo in the last sentence of the second paragraph.  The sentence originally said the breach of warranty was material, not immaterial as it should be, which completely changes the meaning of the sentence.  Things like that are why you will almost always see a newspaper say someone was found "innocent," when the technically accurate term is "not guilty."  Too many papers have gotten sued when someone was in a hurry and forgot to put the "not" before "guilty."

Posted By David Rossmiller In 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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For a great discussion about the intentional acts exclusion in an auto policy by both the majority and the dissent, Thomas v. Benchmark Ins. Co., 140 P.3d 438 (Kan.App. August 18, 2006) is your huckleberry.  Here is a link to the case.

When I first started reading this case I noted the subject matter and the length -- 17 pages on my Westlaw printout -- and said to myself, "Come on, they could have finished this off in six."  The opinion is somewhat overfed, it could maybe use a little more peas and carrots and fewer potato chips, but it's a fascinating debate about the nature of what is and what is not an intentional act.

What happened that gave rise to the case was this: a woman and her two male companions got into a bar fight, and as they sped off, one of the men sprayed 10 bullets from his gun in the general direction of a crowd.  Thankfully, apparently no one was shot.  A police car pulled her over, but against the advice of her friends, she again sped away as the officer approached the car.  There is no doubt she was driving in a reckless and  wantonly careless manner.  Not long after, her car bottomed out at an intersection at perhaps 100 mph (but one witness said the speed may have been as low as 35 to 45 mph), she lost control, the car flipped and she and a passenger were killed.  The other passenger lived, and he and the dead man's estate sued on the driver's auto policy.

The court found there was no coverage because of the policy's intentional act exclusion.  Kansas follows a minority view of what is an intentional act: anything that is a natural and probable outcome of conduct.  The majority of states hold that an act is intentional only if both the act and some kind of injury were intended.  Another minority view is even more oriented against the exclusion -- it says an insured must have had a specific intent not only to do the act but to cause the particular type of injury suffered.   The court said the car accident was the natural outcome of fleeing the policy at speeds of 100 mph.

But the dissent makes some excellent points.  The police apparently were not right on the driver's tail and had lost sight of the car.  In that circumstance, was the accident really the natural outcome of fleeing the police?  Is an accident the natural outcome of speeding, even at 100 mph?  What about drivers who simultaneously talk in a very animated way on a cell phone and eat a popsicle while obliviously powering through intersections?  (I saw this happen recently).  If the driver crashes, is that covered negligence or the excluded natural consequence of driving like a moron?

Posted By David Rossmiller In 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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This is a matter I see come up in a lot of cases: whether an insurer's estimates of potential losses due to claims on its policies, or reserves, are subject to discovery by the other side.  (I've brought it up myself more than a time or two when representing policyholders).  Spirco Environmental, Inc. v. American International Specialty Lines Insurance Co., 2005 WL 2521618 (E.D. Mo. August 30, 2006) addressed this issue, and came down where one would expect: reserves generally are not discoverable where no bad faith claim was present. 

As the court explained:

[t]he failure of an insurer to offer a reasonable amount to settle a claim, on a claim of bad faith breach of duty, might be evidenced by the insurer's setting aside a substantially greater amount of reserve for the claim.

Courts have generally been more reluctant to order discovery of the insurer's reserves when the question is not the insurer's good or bad faith but a question of policy interpretation.  Sometimes discovery is permitted in a context other than bad faith, however.  In at least one case that I'm aware of, discovery of reserves was allowed in a lost policy case to establish what the limits of the policy might have been.

Insurers usually respond to discovery requests about their reserves by objecting that the information isn't relevant to an issue in the case because state law requires that reserves be set, so the reserves don't necessarily indicate any intent or subjectivity on the insurer's part.  Opposing counsel can counter that while the law dictates that reserves be set to cover losses, the law doesn't say what the possible losses are or set the level of reserves, the insurer does.  The insurer also usually claims work product privilege, which is sometimes denied on the basis that, because the setting of reserves is required by law, it is just a normal part of the business process and is not a litigation-related act.  In Spirco, which was not a bad faith case, the court found that the reserve information was just relevant enough to qualify as work product (as an indication of the insurer's belief about potential liability) but not relevant enough that the insured had shown an overriding need to have it.

On a side note, I wanted to provide a direct link to this case, but I didn't find the case on the website for the U.S. District Court for the Eastern District of Missouri.  The court does not seem to put memorandum decisions or unpublished cases on its site.  Why not? 

Posted By David Rossmiller In Liability Policies
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Marc Mayerson is right.  The law that applies to a coverage dispute does make a difference, sometimes all the difference.  National Railroad Passenger Service v. Lexington Insurance Company (D.D.C. August 25, 2006) is a good example.  District Court Judge Ellen Huvelle granted summary judgment to Amtrak's excess carriers based on Amtrak's failure to notify the carriers promptly of a claim that eventually resulted in a Missouri jury verdict of more than $20 million.  Click here for a link to the case.

As Judge Huvelle points out, in a majority of jurisdictions, late notice of claim generally doesn't relieve the insurer of coverage obligations unless the insurer can show actual prejudice resulting from the delay.  District of Columbia precedent, however, requires strict compliance with notice provisions that are a condition of coverage.  The court found no reason to distinguish between primary and excess policies when applying this rule.  

Posted By David Rossmiller In Liability Policies
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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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Stan Koch & Sons Trucking, Inc. v. Great West Casualty Co., 2006 WL 2331181  (D. Minn. August 10, 2006) is a real page-turner, or more accurately, as close as a court's opinion in a coverage case ever gets to being a page-turner.  The case was unusual in that the insured, a trucking company,  wound up arguing there was no coverage because it didn't like the fact that its insurer settled a case for $750,000, which forced the insured to pay the $500,000 Self-Insured Retention in the policy.  The court agreed with the insurer, based on the language of the policy that the insured's consent is not required. 

The case involved a tragic death in a traffic accident, numerous complicated relationships between corporations, and a rare insight in caselaw to how a coverage attorney's thinking about the case changed over time (and fortunately, he acknowledged his change of opinion and told his client about it, instead of doggedly sticking to a course of action that was now discredited in his own mind).  The details are too complicated to go into here, but one of the things that really ticked off the insured was that the insurer initially thought both that there was no coverage and that the verdict would be favorable in the underlying wrongful death case.  Then after the insurer changed its mind on coverage and the jury came back with a $2.7 million verdict, the insurer rushed out to settle another related case for $750,000, putting the insured on the hook for most of the money.  

I have one quibble with this case. In Footnote 9, the court uses the "makes much" phraseology that appears to exist nowhere but in legal writing and which I find totally repugnant.  Here is the key part of the sentence: "Koch makes much of the fact that the decision by Great West to accept coverage was a 'strategic' one . . . ." Can we all please stop writing "makes much"?  It's not a term of art, a lot of substitute phrases exist, it's ugly, and it has a particularly grating tone about it, kind of smart alecky, kind of schoolmarmish, kind of hostile in a dandified, shirt-ruffle way. How about this instead? "Koch criticizes Great West's belated decision to accept coverage," or "Koch suggests that Great West underwent a deathbed coverage conversion, and that this should be held against it." 

Posted By David Rossmiller In 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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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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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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Versaw v. American Family Insurance (Mo. App. August 3, 2006) is a remarkable piece of work.  The Missouri Court of Appeal, Southern District, had to bend over so far backwards to find ambiguity, the justices must be visiting a physical therapist to straighten out the kinks.  Here is a link to the case so you can see for yourself. Hat tip:  Show Me Blawgs.

The case is about the so-called "household exclusion" in an auto policy on a car owned by Judy and Larry Versaw.  One day Judy was driving and Larry was a passenger, and the car crossed over the center line, hit another vehicle, and tragically, Larry was killed.  His parents sued Judy and the driver of the other car for wrongful death.  The trial court made a number of strange rulings about coverage, most of which are not necessary to discuss because the Court of Appeals reversed the trial judge on every ruling but the one on the household exclusion.

See if you agree with the analysis of the appeals court in finding the exclusion ambiguous.  The wording of the exclusion was:

             "This [liability] coverage does not apply to:  . . . .   

"10. Bodily injury . . . to any person related to and residing in the same household with the operator."

Countless cases exist in which the meaning of "residing" has been debated, but that was not the problem here.  Instead, the trial court found the words "any person" to be ambiguous, because the words are not defined by the policy, but the policy does define the words "you" and "your" as meaning the policyholder and his/her spouse.  Therefore, the trial court said, because exclusion 10 did not use the words you or your, a reasonable person might think the exclusion did not apply to the policyholder and spouse.  Do you buy that? 

The appeals court apparently felt that explanation was somewhat embarrassing, because it added to it by pointing out the policy also defined "insured person," and that this phrase was also not used in exclusion 10.  Thus all the key phrases defined in the policy as signifying the policyholder and those insured by the policy were absent from exclusion 10.  This analysis makes no sense if one pauses to consider whether the words "any person" need a definition:  unlike "you," "your" and "insured person," they are not being used as terms of art and no special meaning attaches to them.  Instead, they simply refer to any person in the common, ordinary sense of the words.

Here is another interesting thing about this case: it flies in the face of a 1990 Missouri Supreme Court case on the same policy language, although the appeals court danced around this by saying the same issue was not presented and therefore the Supreme Court's statements were dicta.  Apparently the hope of the appeals court is that the composition of the Supreme Court has changed sufficiently that it will take a different view this time.

As a bonus, I offer a blog post from North Carolina on a related subject: the household exclusion in umbrella policies.  This post is a call to arms against this exclusion -- sort of the French National Anthem of insurance coverage ("To arms O citizens of France") -- and I can't say I particularly agree, but I did find this post to be well-written and interesting.

Posted By David Rossmiller In Liability Policies
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The U.S. Eighth Circuit Court of Appeals upheld a trial court's grant of summary judgment against Ohio Casualty Insurance Co., which had brought a legal malpractice claim against defense lawyers who estimated a potential verdict at $2.4 million.  The actual verdict, in a case involving allegations a nursing home caused a patient's death by negligent and reckless care, was $78 million, reduced to $26 million by the Arkansas Supreme Court.  Ohio Casualty was liable for about $10 million of the award.  The case is Great American Ins. Co. and Ohio Casualty Ins. Co. v. Dover Dixon Horne, PLLC.  Here is a link to the case (hat tip: Andrew Lavoott Bluestone).

The Eighth Circuit said an Arkansas statute forbids attorney malpractice claims when the plaintiff was not in privity with the lawyer, except when certain exceptions apply, such as when the plaintiff was a third-party beneficiary of a lawyer's services.  In the Eighth Circuit's analysis, Ohio Casualty was not a third-party administrator because it did not hire the attorneys, who had been retained by the nursing home's third-party administrator, and because the insurer relied on the advice of another attorney and did not have an attorney-client relationship with the lawyers it was suing.

The court also stepped on Ohio Casualty's equitable subrogation claim, saying that it was a legal malpractice claim by another name.  This seems like the right result under the Arkansas statute and the facts, including the key facts that the defense lawyers were hired by the third-party administrator and an excess carrier normally does not have an obligation for the defense until underlying insurance is exhausted.   

Posted By David Rossmiller In 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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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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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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The Washington Court of Appeals, Division One, shot down a defendant's assignment to his adversary of potential proceeds from malpractice claims against his insurer-appointed counsel in a liquor liability action.  The case is Kim v. O'Sullivan, 2006 WL 1669652 (June 19, 2006). 

The defendant, Kim, was unhappy with his lawyer, O'Sullivan, and claimed, among other things, that the attorney's bad advice and faulty evaluation of the case kept one of Kim's insurers from furnishing the money to settle the case cheaply and early.  Kim also said the lawyer had an unacceptable conflict in having both the insurer and insured as clients, as is common in most states.  Kim signed a consent judgment with the plaintiff in the underlying case and then tried to assign his legal malpractice claims.  However, the defendant faced a big obstacle: three years ago the  Washington Supreme Court held, in Kommavongsa v. Haskell, that assignments of legal malpractice claims to an adversary in the same litigation do not serve the public interest and are invalid. ( Kommavongsa allows an actual judgment on a legal malpractice claim to be assigned to an adversary, but not unrealized potential claims). So the defendant re-did the assignment. Instead of assigning his claims against his lawyer, he assigned only the proceeds of the lawsuit, which was brought in his name by his former adversary's lawyer. The former plaintiff, who received the proceeds through the assignment and was the real party in interest, was not a party to the malpractice lawsuit.

The Court of Appeals didn't buy it, and said the assignment of proceeds is the same as assignment of claims.  It also said there was no evidence of damage, because a stipulated judgment in this context doesn't constitute evidence of damage caused by an attorney, because the defendant doesn't really have to pay it.  The reasoning is contrast to the way Washington courts, and most other courts, see stipulated judgments when an insurer is the target: these judgments are usually found to be enforceable to the extent they are reasonable and coverage exists, and in some states, even if coverage doesn't exist but the insurer committed bad faith.  Not that I have a problem with any of this: I'm just sayin'.

Posted By David Rossmiller In 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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A good FOB (friend of the blog) sent me a great story last week from the Wall Street Journal about a civil case brought against Purdue Pharma L.P. over spiraling legal costs incurred by the drug company in defending nearly 1,400 lawsuits over Oxycontin, the company's prescription painkiller.  I've been saving it for the right day, which is now, because I'm traveling.

Here's the money graph: (as a former newspaper reporter, I know cool newspaper slang like saying "graph" for "paragraph")

 "Though squabbles over insurance aren't uncommon, this case went to extremes.  Steadfast, based in Schaumburg, Ill., alleges that privately held Purdue hired 40 law firms in 32 states to fight the OxyContin claims.  Purdue's legal team includes 322 partners, 849 associates and 1,023 paralegals, Steadfast says.  All told, they billed the company for more than 1.2 million hours of work, Steadfast alleges." 

The total bill: more than $400 million in defense costs.  The insured and the policyholder reportedly compromised at $200 million.  The WSJ site is subscription only, so I can't provide a link to the story, but here's the next best thing: a link to the WSJ legal blog.   

Here's some more stuff you should know: most newspaper reporters hate lawyers (really, who doesn't?), so stories like this one are very fun for reporters to write.  I wrote a number of stories attacking lawyers myself (reporters always refer to what they write as "stories," never "articles").  One of my favorites was a story where I made fun of a federal judge who wanted the General Services Administration to buy land worth a couple million bucks in downtown Phoenix for a new courthouse rather than accept a free site from the city about six blocks away.  His reason: the expensive site was closer to where all the lawyers were.  Now, of course, I've seen the light and I would never make fun of a judge, especially if he wants to locate the courthouse closer to my office. 

Posted By David Rossmiller In 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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As you may know, catastrophe or "CAT" bonds were developed after Hurricane Andrew in 1992 to spread some large reinsurance risks directly to investors and the broader market.  CAT bonds are securities offered to investors at junk yields (such as 11 percent or higher).  If a given catastrophe, such as a hurricane or terrorist attack, does not happen within the year, the bond pays off to investors.  If the event happens, investors lose all their money and the bond pays out to the reinsurer.

Specifically, the trigger is an insurance loss above a given amount because of a catastrophe.  It appears that the $190 million in Kamp Re CAT bonds will be the first CAT bonds to actually pay out, due to Hurricane Katrina and Rita losses, although this is not confirmed.   For those who just love economic jargon and math (and really, who doesn't?), here is a scholarly paper in which the authors predict that CAT bonds will increasingly take over large reinsurance risks because they address a problem in reinsurance markets: the larger the risk, the more risk averse insurers become.  This leads to higher premium levels at the upper end of reinsurance that are out of proportion to the actual risk, but instead are based on risk plus fear (my words, not the authors').  

Posted By David Rossmiller In Liability Policies
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Check out this statement by U.S. Sens. Mark Dayton and Trent Lott about introducing federal legislation to require a "plain English" statement of coverage in insurance policies.  (The original link to this story was bad.  The original story disappeared, so I replaced it with a link to Sen. Dayton's press release).  I hardly need to say anything to this audience about why policy language is written the way it is -- every clause is in response to case law or statute.  Actually, the idea is not to rewrite policies, but apparently to require a separate statement of what is not covered. 

Some observations. First, insurance policy language is not a federal concern.  Second, is this "plain English" statement part of the policy that supplements or possibly contradicts the language of the policy? If not, what good is it?  Third, most people probably still wouldn't read either the plain English statement or the policy.  Fourth, his idea is all wrong.  A policy tells you what is covered, then removes some things from coverage by exclusions.  Each type of insurance policy covers only a narrow, specific range of risk.  What is the sense in starting out with what is not covered as opposed to the relatively few things that are?  Very lame showboating is all this is.

Posted By David Rossmiller In First Party Insurance , Industry Developments , Liability Policies
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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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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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Here is an interesting and well-written analysis of a California case where homeowners face liability for the death of a tree trimmer they hired, because the applicable law considered them to be his employer. What I find almost as unusual as the story is the fact that the author is a professor and he writes so well.

When I was covering the crime beat for The Phoenix Gazette in years past, I heard of a lot of tree trimmer deaths.  The typical scenario was an ex-con either went to work for himself or a landscaping service, went up in a palm tree to trim it with a chain saw, and the heavy fronds collapsed on him, crushed him against the trunk and suffocated him.  I never heard of a lawsuit over these deaths, but that doesn't necessarily mean there weren't any.

Posted By David Rossmiller In Liability Policies
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For an excellent overview of how the economic loss doctrine works in the insured-broker context, read J.F. Meskill Enterprises, LLC v. Acuity, 2006 WL 903207 (N.D. Ohio April 7, 2006).   Meskill bought a $1 million Commercial General Liability policy from Acuity, a broker.  Meskill was then sued for trade dress infringement, but an Acuity representative said the policy didn't cover the claim, so neither Meskill nor the broker tendered it to the insurer.  Meskill eventually settled the lawsuit for $70,000 and paid $170,000 to defend itself, then brought claims for negligence and negligent misrepresentation against the broker, alleging the claim was covered and Acuity gave negligent advice about the tender. (Some trade dress claims have been found to be covered if they involve use of the infringing trade dress in advertisements).

The court said, in deciding a motion on the pleadings, that the economic loss doctrine barred the negligence claim.  The economic loss doctrine was developed primarily to reign in the scope of products liability, but in recent decades it has been expanding across the spectrum of tort theory.  Essentially, the economic loss doctrine is that recovery is not permitted in tort for losses in which no physical injury or damage to tangible property has occurred, unless there is a special relationship between the parties.  However, the court said, the economic loss doctrine has not been applied in Ohio to claims of negligent misrepresentation, which protects against a harm different from that of a straight negligence claim, and allowed the misrepresentation claim to stand.

UPDATE: Thanks to an alert reader for pointing out that I got the name of the broker and the insurer backwards in this post.  The broker is named Accordia and the insurer is Acuity.  Thanks goodness that is the only mistake I've made so far this year!  

Posted By David Rossmiller In Liability Policies
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Where I went to school in North Dakota, I was a lot more worried about being beaten up by the teachers than I was by fellow students.   I haven't really polled fellow NoDaks to see if this was the norm, or if my school comprised a statistically freakish pool of tough guys.  Things are different in this school in Wisconsin, where the principal was not the locus of violence, but instead apparently tried to shield a kid, who was nevertheless beaten severely by fellow students and sued the school for negligence. 

On the subject of school discipline, my friends and I were not huge fans of being whacked with paddles, kicked with cowboy boots or flogged with belts, but somehow it never crossed our minds to sue, or even to see it as wrong, to tell the truth.  Instead, we spent our energy figuring out how to give the appearance of conformity and avoid these unpleasantries, while still doing what a kid's got to do.  Funny how attitudes change.  If any of that happened to my kids today, I'd lead an uprising.

Posted By David Rossmiller In Liability Policies
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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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So ruled the U.S. Ninth Circuit Court of Appeals in National Casualty Co. v. Coastal Development Services Foundation, 2006 WL 700943 (March 20, 2006). The court was considering a Directors and Officers insurance policy, and the definition of damages was "a monetary judgment, award or settlement arising from a covered claim." The court, sitting in diversity jurisdiction and deciding under California law, said attorney fees constitute a monetary award.

Posted By David Rossmiller In Liability Policies
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A claims-made employment practices liability insurance policy did not cover an employment lawsuit when the employer's first notice of a claim was an administrative charge filed before the policy period, a Pennsylvania court ruled. The case is LA Weight Loss Centers, Inc. v. Lexington Insurance Co., 2006 WL 689109 (Pa.Comm.Pl. March 1, 2006). A "claims made" policy is unlike an "occurrence" policy in that the former covers claims only if they are first made within the policy period, while the latter covers damages that happen during the policy period, no matter when a claim is made.

The court said a charge filed with the federal Equal Employment Opportunity Commission constitutes the first notice of a Title VII lawsuit, because the later lawsuit filed within the policy period was defined by and covered the same allegations as the administrative claim.

Posted By David Rossmiller In Liability Policies
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Here's a January 2006 story on the subject from the New York Times I found by following a link in the Saturday online edition. For those who deal with such issues, the story is worth a look. Here's the story from Saturday.

Posted By David Rossmiller In Liability Policies
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The Supreme Court of New Jersey ruled 6-1, with a strong dissent, that an excess insurer -- a risk retention group -- was not able to refrain from indemnity on the ground that the underlying insurer failed to comply with a 120-day notice provision. The case is Gazis v. Miller, 2006 WL 686489 (March 20, 2006).

The court gave the usual analysis when a notice provision is considered in the context of an occurrence policy: there is no harm, and therefore the notice provision cannot be enforced, unless there was actual prejudice to the insurer's rights. Otherwise, courts hold, the insurer would be allowed to take a forfeiture and receive a windfall. The dissent, by Justice Rivera-Soto, said that the usual analysis does not apply in this case, because both sides of the bargain were sophisticated insurers who could negotiate on equal terms, and the notice provision should be enforced as written.

Posted By David Rossmiller In Liability Policies
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I notice that in this story, about a teacher whose reaching for pills in his pants was incorrectly interpreted as lewd behavior, the school's liability insurer was involved, although I doubt a civil claim alleging only malicious prosecution (a willful act) would have been covered.

UPDATE: Insurance Coverage Law Blog has a great group of readers. Thanks to Kevin Kotch, a lawyer in Philadelphia, who alerted me to a misleading statement I made in this post. I was relying on something I had read in Ledford v. Gutoski, 319 Or. 397 (1994), an Oregon case that found no duty to defend or indemnify against allegations of malicious prosecution. However, Ledford considered a homeowners' policy, not a Commercial General Liability (CGL). As Kevin points out, in a CGL, malicious prosecution is defined as a covered "personal or advertising injury" under Coverage B. Moreover, Kevin says, some insurers who have attempted to exclude intentional injury from their malicious prosecution coverage grants were rebuffed, with the courts finding ambiguity and coverage. For example, see Imperial Cas. and Indem. Co. v. State of Conn., 246 Conn. 313, 714 A.2d 1230, 1237 (Conn. 1998).

Kevin says that "some insurers still argue that malicious prosecution claims should not be covered if the injury was intentional. The practical effect is that many insurers will provide a defense for malicious prosecution claims but will make noises when it comes time to pay indemnity for the claim," arguing it is against public policy to provide insurance for intentional injury. Thanks to Kevin for the information.

Posted By David Rossmiller In Liability Policies
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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 intruders down the hall.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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The National Research Center for College and University Admissions (NRCCUA) was covered for "advertising injury" and "personal injury" under its State Farm liability policy for using information it gathered on high school students for commercial purposes that were not disclosed, the U.S. Eighth Circuit Court of Appeals has ruled. The case is State Farm Fire and Casualty Co. v. National Research Center for College and University Admissions, 2006 WL 590363 (March 13, 2006).

NRCCUA is an organization that gathers information from millions of high school students to provide to college admissions offices. The organization was investigated by the Federal Trade Commission beginning in 2001 for unauthorized commercial use of student survey information. Eventually, NRCCUA and the FTC entered into a consent decree ordering the organization to stop misrepresentations and make clear and conspicuous disclosures. NRCCUA's Commercial General Liability policy, the court said, covered the violations because they were "advertising injury" or "personal injury." For both terms, the policy includes the definition "oral or written publication of material that violates a person's right of privacy."

State Farm argued the FTC complaint, and a later lawsuit by 26 state attorneys general, were over misrepresentations, not invasions of privacy. The court disagreed, giving an ordinary plain reading to the term "right of privacy." The court also found that the word "damages" in the policy included equitable relief, and therefore said State Farm had a duty to defend NRCCUA in both the FTC and state actions. Most of the approximately $300,000 NRCCUA paid as a result of the lawsuit by the state attorneys general, however, was not covered as damages because it was in the nature of a fine or penalty.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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The Court of Appeals of Texas (Fort Worth) found an insurer had no duty to defend or indemnify a construction company for defective workmanship that caused no further property damage or bodily injury. The case is Grimes Construction, Inc. v. Great American Lloyd's Ins. Co., 2006 WL 563286 (March 9, 2006). This is a good opinion to read for the prevailing judicial view on coverage of construction defects.

Most courts now analyze defects that cause no damage beyond the defective work itself as not constituting an "occurrence" under a Commercial General Liability (CGL) policy. Remember, something is an occurrence in a CGL only if it is an accident that causes bodily injury or property damage that is unexpected and unintended from the standpoint of the insured during the policy period. The majority of courts, realizing that trying to wade through the "business risk" exclusions of a CGL is a frustrating and often fruitless endeavor, choose to look at the coverage grant itself instead.

Defects could fit under the rubric of "property damage," which is usually defined as "physical injury to tangible property," but coverage of defective workmanship is analyzed as violating the fortuity principle of a CGL. A practical policy reason for court decisions like Grimes is that many contractors are already priced out of the CGL market due to premium increases imposed to cover the greater risk of claims against contractors. If defective workmanship were covered, of course, most insurers would stop insuring contractors completely, and what insurance could be purchased would be impossibly expensive. Interestingly, the people who sued the contractor apparently tried their best to create coverage, alleging negligence in the construction. But the court said the gravamen of the allegations was poor workmanship no matter what the label on the claim.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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An insurer had no duty under a homeowners' policy to indemnify a man who pre-emptively struck another man, an Oregon federal judge ruled. The case is Allstate Ins. Co. v. Daniken, 2006 WL 516814 (D.Or. March 1, 2006). In the case, Daniken, the insured, admitted that he struck first against another man, Horton, but said he did so in self-defense. Daniken pleaded no contest to criminal charges of fourth-degree assault, and was later sued by Horton. The insurer, Allstate, brought a declaratory action to dispute defense and indemnity.

Judge Ann Aiken said that because Daniken pleaded no contest, his conviction did not definitively establish that his actions were criminal, only that he consented to the conviction. Therefore, Judge Aiken found that, because the complaint alleged negligent as well as intentional conduct, Allstate had a duty to defend. In Oregon, the duty to defend is determined solely with reference to the allegations of the complaint and the language of the policy, and extrinsic facts are not considered. However, the duty to indemnify depends on the facts. Judge Aiken found that Daniken's intentional acts of striking Horton precluded coverage under the exclusion for intentional acts.

A basic premise of Oregon law is that an intentional acts exclusion precludes coverage for "acts done with the subjective intent to cause harm." Abrams v. General Star Indemnity Co., 335 Or. 392, 395 (2003). In Abrams, the Oregon Supreme Court decided a question certified by the U.S. Ninth Circuit Court of Appeals (meaning the court was uncertain of Oregon law and asked the state supreme court to answer the question). The state court found that a duty to defend can exist even when the complaint alleges uncovered intentional conduct, when the claim could be proven through unintentional conduct. On the other hand, Oregon precedent is that, when the subjective intent to cause harm is an element of a tort, such as malicious prosecution, the claim cannot be proven through unintentional conduct and, if only intentional conduct is alleged, it is excluded by an intentional acts exclusion and there is no duty to defend. Abrams is not a duty to indemnify case, however, and Oregon appellate courts have not decided an indemnity case involving self-defense, including whether it qualifies as an "occurrence" in a policy and whether it is excluded by an intentional acts exclusion.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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Of all the insurance coverage questions I hear, the most frequent is one that is presented in Allstate Ins. Co. v. Cameron, 2006 WL 314337 (W.D.Wash. February 8, 2006). The issue is whether injury or property damage occurs at the time some event sets it in motion, or instead when the injury or damage becomes evident. In the case, a man and some friends were partying in 1998, when one of the friends allegedly smashed a beer mug into the head of another person named Glenston Anderson, who went into a coma for six years. Anderson died in 2004, and the most likely cause, according to the medical examiner, was the original blow to the head.

A lawsuit against the party's host and his mother alleged they were liable for the battery on Anderson. The complicating issue in the case was that there was no insurance at the time Anderson was hit on the head, but the mother did have homeowners' insurance from Allstate at the time Anderson died. She requested Allstate defend and indemnify her and her son. Allstate brought a declaratory action seeking a ruling of non-coverage.

Generally, an act or event itself is not the "occurrence" in a so-called occurrence policy. Homeowners' policies are occurrence policies, meaning coverage exists only if there is an occurrence, which the policies basically define as an accident that produces bodily injury or property damage within the policy period. Occurrence policies constitute the majority of insurance policies in existence today, and have a long history of use back to the first days of commercial insurance in Europe centuries ago. However, the tort system has changed a great deal in 300 years, and long-tail liability, which was previously unknown, is common today. This can present difficulties in determining when the occurrence happened in construction defect, environmental pollution and toxic torts, among others.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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I've spent more hours than I care to count analyzing and briefing the issue of when and whether a general contractor is covered by an "additional insured" endorsement in a subcontractor's liability policy. I will refrain from giving all the scintillating details here, but instead refer you for more information to this prior post.

An additional insured endorsement is something general contractors require of subcontractors. The sub must get his liability insurer to list the general as an insured for acts arising out of the subcontractor's operations. In perhaps the majority of cases, this endorsement is interpreted as extending coverage to the general even for the general contractor's own negligence, not merely the sub's negligent acts. In Markel International Ins. Co. v. Centex Homes, LLC, 2006 WL 278920 (D.N.J. February 2, 2006), the court considered a typical scenario involving these endorsements.

A worker for a subcontractor got in a car accident just outside the work site, injuring a woman riding in the other vehicle. Low hanging branches contributed to the accident. The general contractor claimed that its liabilities for failing to trim the trees were covered by the sub's policy, because "but for" the presence of the sub on the job site, its worker would not have been driving on the road, would not have encountered the branches, and would not have struck the other car. The court appeared ready to accept this analysis, "but for" one thing: the worker's accident wasn't really connected with the job site or the sub's operations. The court therefore denied coverage for the general.

Posted By David Rossmiller In Liability Policies
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Yes, I know I borrowed the above term from Article III Groupie, so there is no need to send a cease-and-desist letter. I won't do it again. Also, I wonder, does anyone outside of lawyers ever use the phrase "the above term." I hope not.

In any event, as regular readers of the blog Underneath Their Robes know, Bench Slapped is one of the many popular features of the blog, and gives often-sensational accounts of lawyers being dressed down by outraged judges. (Among the many readers of this gossip blog, which incidentally was written by a man pretending to be a woman, is Richard Posner, the eminent legal scholar and chief judge of the U.S. Seventh Circuit Court of Appeals. I'm not sure whether the author's "outing" in the pages of The New Yorker has added or detracted from the blog's allure, but it doesn't seem to receive quite the buzz it once did).

In Ohio Farmers Ins. Co. v. Hotler, 2006 WL 272779 (C.D.Ill. January 31, 2006), Michael McCluskey, chief judge of the district court, corrected plaintiff's counsel, who had filed a motion asking the court to reconsider its denial of summary judgment. "This Court's orders are not mere first drafts, subject to revision and reconsideration at a litigant's pleasure," the judge wrote.

Posted By David Rossmiller In Liability Policies
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The great Kent Syverud once wrote a landmark scholarly article in which he pointed out how the presence of insurance changes behavior. Its absence can have quite an effect, too, as one frustrated moviemaker is finding out.

Posted By David Rossmiller In Liability Policies
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Bob Carroll wonders if insurance is sometimes just a masquerade. The position of the insurance company in Bob's post, which apparently has filed a declaratory action seeking a determination of non-coverage, is the usual one by an insurer in bar fight cases. Here is a post I did about the result in a similar case recently where the insurer won the argument.

In Oregon, a line of coverage cases has established a "lesser-included tort" doctrine in cases where assaults, batteries and some other volitional acts are concerned. Under the doctrine, if the allegations of the complaint state uncovered conduct but could be used to prove a "lesser" tort like negligence that might give rise to coverage, a duty to defend exists. I won't vouch for the law in the other 49 states.

Posted By David Rossmiller In Duty to Defend , Liability Policies
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The ripple effects of the insolvency of Reliance Ins. Co. will continue to be felt for a long time. In one of the latest examples of the ill-effects of Reliance's failure, the New Jersey Supreme Court found that a business that had purchased a $1 million liability policy from Reliance is liable for most of a potential judgment against the business. The case is Johnson v. Braddy, 2006 WL 229903 (February 1, 2006).

The New Jersey Property-Liability Insurance Guaranty Association (PLIGA), like similar funds in other states, was set up to provide some level of insurance coverage when insurance companies become insolvent. However, typically the state funds provide coverage only up to a maximum of $300,000. In the case, an employee of the Braddy Trucking Co. hit a parked car, severely injuring a man, who sued the company. Braddy had ample insurance, including the $1 million primary policy from Reliance and an umbrella policy from National Union Ins. Co. up to $25 million. However, after the injured party sued Braddy, Reliance was declared insolvent. Braddy asked the court for a grant of summary judgment that, because it had been insured, it was not personally liable for amounts between the $300,000 PLIGA would provide and $1 million, where the excess carrier's responsibilities would start. The court said that, although it was unfortunate that a party with the foresight to obtain insurance was in Braddy's position, the company was potentially personally liable for up to $700,000 in damages. From the case, it was unclear the exact amount the injured party is seeking, but it is apparently well above $300,000.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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A judgment that required the investment bank Bear Stearns to disgorge $25 million in commissions is not covered under a professional liability policy, a New York trial court ruled. The case is Vigilant Ins. Co. v. Bear Stearns Companies, Inc., 2006 WL 118368 (N.Y. Cty. Sup. Ct. January 11, 2006). The purpose of disgorgement, the court said, is to deprive a defendant of ill-gotten gains. Public policy precludes insurance coverage of illegal conduct, the court explained.

Posted By David Rossmiller In Liability Policies
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The scope of insurance coverage for construction defect liability is still in flux in many areas, but most courts would agree with the Iowa Court of Appeals that a general contractor is not insured for the defective work of his subcontractors. In Continental Western Ins. Co. v. Jerry's Homes, Inc., 2006 WL 228917 (February 1, 2006) the key to the ruling was that damage in a new housing subdivision (buckled roads, sidewalks and driveways) was merely defective workmanship and did not cause other property damage. Almost any court, under similar circumstances, will hold there is no "property damage" as defined by a Commercial General Liability policy, and therefore no "occurrence," the precursor to coverage under a CGL. It is a long-standing observation that a CGL is not a performance bond for defective work, and covers only property damage and bodily injury arising out of work by the insured or someone operating on his behalf.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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The St. Louis Cardinals' brand new $400 million stadium, next door to their old stadium, also comes with a $14 million price tag to clean up environmental contamination under the site. One of the Cardinals' liability insurers is suing the team to rescind its $20 million pollution liability policy, claiming the Redbirds falsely said that no relevant environmental studies had been done on the property. Allegedly, studies had been done in 1995-96 showing historical use of the property for gas stations and other businesses that one would suspect caused pollution.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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In a case where the main issue was whether the insurer had a reasonable basis to deny coverage or acted in bad faith toward the insured, an expert could testify as to whether the company deviated from industry standards, but could not testify about his interpretation of the insurance policy, a court held recently. The case is Callatin Fuels, Inc. v. Westchester Fire Ins. Co., 2006 WL 149094 (W.D. Penn. January 18, 2006).

Westchester Fire Insurance sought to exclude the testimony of the expert, an insurance claims adjuster, in a Daubert hearing, which is held to ensure expert testimony is sufficiently grounded in scientifically valid theory and methodology. The court held that the expert could not testify about whether an insurer committed bad faith, but could give his opinion on whether Westchester had gone outside accepted industry norms in its claim investigation. The expert was, however, precluded from testifying as to his subjective interpretation of the policy's coverage.

Posted By David Rossmiller In Bad Faith , Liability Policies
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Sometimes I wish I had more time to find out what really happened in a case, like General Direct Marketing, Inc. v. Lexington Ins. Co., 2006 WL 148884 (M.D. Penn. January 19, 2006). In that case, a resort in North Myrtle Beach, South Carolina, was sued for race discrimination under 42 USC Section 1981, one of the post-Civil War statutes designed to bring civil rights to freed slaves. Section 1981 forbids discrimination in the making and enforcement of contracts.

The case originated in something called Black Bike Week, a motorcycle rally for African-Americans in nearby Atlantic Beach, and an apparent alternative to Harley Week, a primarily white biker rally held at a different time of year in the area. The NAACP sued the Shawnee Resort under federal and state statutes, alleging it raised prices during Black Bike Week, required black bikers to sign special guest contracts not required of white bikers, and so forth. The resort tendered the defense of the lawsuit to its general liability insurer, which denied the duty to defend, and the resort sued.

In a fairly sophisticated analysis, the court found the insurer had a duty to defend. First, although professional services are often not covered by a CGL, the resort had purchased a special professional services endorsement. The alleged failure to provide legally required professional hotel services to black bikers implicated the endorsement, the court said. Second, the policy's exclusion for intentional discrimination did not preclude coverage for allegations the resort was vicariously liable for the discrimination of its employees. Presumably, direct liability of the resort for its own alleged intentional discrimination would be excluded, however.

Posted By David Rossmiller In Duty to Defend , Liability Policies
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There are a number of ways to look at Baker Donelson Bearman & Caldwell, P.C. v. Muirhead, 2006 WL 177593 (Miss. January 26, 2006). First, it shows why forum shopping is alive and well, because this case would not have happened in a state with different bad faith laws, like Oregon. Second, it can be looked upon as a rags to riches story about a guy who beat someone up in a parking lot and wound up several years later with a judgment in his favor for $1.6 million. Third, it shows why insurance coverage is considered a specialty field best left to the experts. It is full of minefields, traps for the wary and unwary alike, abandoned wells and deadfalls.

The bizarre events of the case began with a hotel drinking party attended by numerous employees of a company, followed by a fight in the parking lot between one of the employees, Jack Muirhead, and a stranger. The stranger's leg was broken, and he sued Muirhead. Muirhead hired his own attorney, and for some reason did not tender the defense to his company's insurer. The insurer, however, became aware of the lawsuit after the plaintiff amended the complaint and added Muirhead's employer and the hotel as defendants.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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Damages caused by an insured who messed up a shipment of cleaning solution by adding the wrong chemical mix were covered as an "occurrence" in the insured's Commercial General Liability (CGL) policy, the Michigan Court of Appeals has held. An occurrence is defined in a CGL as an event that produces, within the coverage period, property damage or bodily injury that is unexpected and unintended from the standpoint of an insured.

In J. Collins, Inc. v. Cleaning Solutions, Inc. v. Citzens Ins. Co., Inc., WL 170428 (January 24, 2006), the appellate court affirmed the trial court and explained that intentional acts that cause intentional damage are different from intentional acts that cause unintentional damage. The analysis, the court said, is of subjective intent from the point of view of the insured. The court cited precedent in which pulling the trigger on a gun the insured thought was unloaded produced unintended damage, while starting a fire to cause smoke damage to inventory that led to a runaway fire produced excluded, intended damage.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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The U.S. Seventh Circuit has held that falsely claiming to sell authentic Indian arts and crafts did not implicate the "advertising injury" section of a Commercial General Liability (CGL) policy. In Native American Arts, Inc. v. Hartford Casualty Ins. Co., 2006 WL 172194 (January 25, 2006),the court ruled that a business' primary and excess insurers had no duty to defend it in a lawsuit brought under the Indian Arts and Crafts Act, 25 USC Section 305.

Advertising injury in a CGL is defined as oral or written publication in an advertisement that disparages a person's goods, products or services, violates a person's right of privacy, copies another's advertising idea or infringes a copyright or title of a work in an advertisement. The court found that falsely claiming goods are authentic products of a certain cultural heritage is not the same as copying the advertising idea of companies selling authentic products. In addition, the court said, coverage was expressly excluded in the policy for trademark and other claims concerning the "designation or origin or authenticity" of products.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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A lot of people who should know better hopelessly botch an analysis of choice of law. On the other hand, there is Zurich American Ins. Co. v. Goodwin, 2006 WL 177608 (Miss. January 26, 2006), where the court went methodically and thoroughly through a choice of law analysis. The court reversed a lower court that had applied Mississippi law to a coverage dispute because Mississippi is where a multiple-vehicle crash occurred. The lower court incorrectly applied a type of "minimum contacts" analysis appropriate for personal jurisdiction but not appropriate for choice of law.

The case arose out of an accident where an eighteen-wheeler collided with eight other vehicles, killing two people and causing numerous injuries and property damage. The trucking company was insured under a Zurich policy that provided liability insurance of $1 million per accident. Under Mississippi insurance law, each vehicle constituted a separate accident, meaning $8 million was available to compensate victims. Under the law of Iowa, where the trucking company was headquartered, all eight vehicles constituted one accident subject to the $1 million limit. The court held that, under Section 188 of the Restatement (Second) of Conflicts of Laws, Iowa was the state of real interest: the insurance contract was entered into and performed there.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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It may sound obvious that where conduct is excluded from coverage, it is still excluded when you rename the conduct with a different legal label. However, this isn't always so obvious when one reads the allegations of a complaint containing multiple counts. Often, the plaintiff's attorney throws in some sort of negligence claim in an attempt to create coverage. Sometimes the negligence claim is actually different from other excluded claims, but a lot of the time it is merely excluded conduct trying to get into an invitation-only ball by wearing a disguise.

In Rayborn v. State Farm Fire & Casualty Co., 2006 WL 162646 (W.D. Wash. January 20, 2006), U.S. District Court Judge Ronald Leighton decided, under Washington law, that the insurer had no duty to defend or indemnify in a professional malpractice lawsuit that also contained a claim of negligent hiring because the insured would not have been subject to a negligence claim save for the existence of malpractice, which was excluded from coverage.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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This story points out the incongruity between a second straight year of almost double-digit declines in premiums for Directors and Officers liability insurance, and increasing claim severity.

As some insurance scholars have pointed out, competition often drives premiums as much as risk. Also, some say insurer behavior possesses more "risk seeking" characteristics than is generally recognized, because risk creates additional demand for their primary products, liability policies.

Posted By David Rossmiller In Industry Developments , Liability Policies
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An insurer had no duty to defend a bar against a lawsuit based on an alleged fight between a patron and bouncers, a federal court in Illinois ruled. The case is Century Surety Co. v. John B., Inc., 2006 WL 140551 (N.D. Ill. January 17, 2006). Despite claims of negligence and negligent supervision in the underlying lawsuit, the court held that the gravamen of all the claims was assault, which was excluded from coverage by the bar's liability policy. The decision was more favorable to the insurer than many similar cases in Oregon, where allegations of negligence or vicarious liability, or the doctrine of "lesser-included tort," are often considered to create a duty to defend.

The word "gravamen," by the way, is highly favored in insurance coverage jargon, and means the material part of a grievance or complaint. It comes from a Latin root meaning "to burden," and is just plain fun to say. Try it sometime.

Posted By David Rossmiller In Duty to Defend , Liability Policies
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I worked for a daily newspaper for a number of years as a crime reporter, and in writing about crime, as with insurance coverage, it is good to remember something: at the root of it all is a story about human beings who suffered.

In Cornhusker Casualty Ins. Co. v. Kachman, 2006 WL 151932 (W.D. Wash. January 18, 2006), the insured, Rockeries, Inc., frequently failed to pay premiums when due, leading to a number of cancellation notices over the years. In 2004, Rockeries again failed to pay its installment premium on time, and the insurer mailed a notice that the policy would be cancelled unless paid by October 19. The mailing was done as required by Washington insurance statutes. Rockeries did not pay by October 19, however, and the company's vehicle insurance was cancelled.

Tragically, three days later, an accident occurred. The details are not in the case, but according to Maureen Falecki, an attorney for the insurer with the Seattle firm of Keller Rohrback , a trailer full of boulders being pulled uphill by a Rockeries truck disengaged and rolled backwards. The trailer crushed and pushed for several blocks a pickup being driven by Leanne Samples, a woman in her 30s. Samples was pronounced dead shortly afterward.

Posted By David Rossmiller In Liability Policies
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The other day I just happened to turn on the TV and the very first thing I saw was the famous scene from the movie Fried Green Tomatoes, where Kathy Bates is waiting for a parking spot and some young women zip in and grab it. After some back-and-forth in which they taunt her with their youth and speed, she rams their car, and says, "Face it girls, I'm older and I have more insurance."

Of course, when you're an insurance coverage lawyer, this kind of thing is very upsetting, because instead of enjoying the scene, what you do is whisper to yourself, "No. Intentional acts probably aren't covered." Then you imagine the next scene, where Kathy Bates, having already been convicted of assault, and broke from paying her lawyers, sits in a civil courtroom awaiting a certain verdict against her on claims of property damage and personal injury. But on the bright side, it inspired me to do a little research on the movie and I found this fascinating post about the recurrent nature of this scene in modern American folklore. A little more research turned up this great blog and its post about the scene. It's also well worth a click on the post on the same blog entitled "Three Pretend Cell Phone Conversations I'm Having So I Sound More Important Than I Really Am When I Walk Past You On The Street."

Posted By David Rossmiller In First Party Insurance , Liability Policies
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Countless reams of paper have been expended over the last few years in Oregon on the issue of indemnity agreements in construction contracts and "additional insured" endorsements. (Note that we choose to save paper by writing electronically instead). After a period of flux and uncertainty in the law, a consensus on the scope of these agreements and endorsements may be forming.

The latest decision on the issue is Hoffman Construction Co. of Oregon v. Travelers Indemnity Ins. Co., 2005 WL 3689487, by Judge Ann Aiken of the U.S. District Court for the District of Oregon. The case was decided late last year, but published by Westlaw only yesterday, after several Oregon lawyers called Thomson West and asked them to get the case from the Court and put it online. Judge Aiken granted summary judgment to Hoffman on the duty to defend.

Posted By David Rossmiller In Duty to Defend , Liability Policies
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A federal district court held that the Damage to Property exclusion, one of the so-called "business risk" exclusions in a Commercial General Liability policy, does not preclude coverage for damage to a site when the work done by an insured is "directed towards" or "as to" property other than the site itself.

In Ohio Casualty Ins. Co. v. Wholesale Mulch Products, Inc., 2006 WL 87604 (N.D. Ill. January 10, 2006), the court found damage was covered by the liability policy of a company that caused harm to barges while unloading road salt from them. The exclusion had the standard wording: there is no coverage for property damage to "that particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." The court said the exclusion does not mean "located on," but rather refers to property toward which work is directed, in this case the salt rather than the barges.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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It's hard to say whether more courts have found that the absolute pollution exclusion precludes coverage for any type of contamination, or whether the majority have ruled that it excludes only "traditional" pollution, as the Maryland Supreme Court did in Clendenin Brothers, Inc. v. United States Fire Insurance Co., 2006 WL 27432 (Maryland, January 6, 2006). You can be pretty sure, however, that in the next case that arises one of the briefs will cite seemingly several hundred cases pulled from American Law Reports (A.L.R.) on one side or the other.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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The Third Circuit brought back on procedural grounds a coverage case against St. Paul Travelers by its insured, which believes asbestos claims against it should constitute separate occurrences. Unsurprisingly, Travelers maintains the claims are all one occurrence and the limit for that occurrence is exhausted.

Posted By David Rossmiller In Duty to Indemnify , Industry Developments , Liability Policies
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Bulk Pack, Inc. v. Fidelity & Deposit Co. of Maryland, 2006 WL 94225 (5th Cir. January 16, 2006) is one of a growing list of cases in which courts have strictly applied the absolute pollution exclusion in liability policies to personal injuries.

The argument in the case was over whether workers' injuries from sludge were excluded by a policy clause denying coverage for bodily injuries caused by "pollutants." The definition of the word included "any solid ... contaminant ... including waste." The court held that the term unambiguously excluded coverage for the injuries.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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I was raised in North Dakota, and I have also spent a considerable amount of time in Minnesota, and this case about two Minnesota guys who passed the time driving around and setting grass fires for the heck of it reminds me of a lot of people I grew up with.

In Union Pacific Railroad Co. v. State Farm Fire and Casualty Co., 2006 WL 90083 (D.Minn. January 13, 2006), two brothers aged 24 and 20 had been setting grass fires for about nine years using gasoline, lighters and flares. Their venue was open ground in rural areas somewhat west of Minneapolis. In deposition testimony, one brother was asked "Why do you burn grass?" He replied: "Don't know, just do it." He did clarify things by saying they never actually intended to "burn anything down," including a Union Pacific wooden trestle that caught fire in 2000. The railroad sued the brothers, and took an assignment of insurance claims in lieu of seeking payment from the two. Union Pacific then sought to collect under the homeowners' policy of the brothers' parents.

The court held that coverage was precluded by the policy's exclusion for damage that is expected or intended by the insured. Union Pacific echoed the brothers' position that they did not intend to burn anything down. The court disagreed: "This is a case in which an individual with an extensive history of setting illegal fires, and a clear understanding of the dangers of the fires [one of the brothers had once been severely burned by one of the approximately 60 fires they set], intentionally chose a dry windy day to set a grass fire ten to sixty feet away from the wooden trestle."

Posted By David Rossmiller In Duty to Indemnify , Liability Policies , Settlements, Assignments and Reasonableness
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Unlike the court in a recent post on this blog, a New Jersey court nullified exclusions in an auto policy that left the driver uncovered and the victim without compensation.

In Proformance Ins. Co. v. Jones, 2005 WL 3489004 (N.J. December 22, 2005), a woman lent her pickup to a relative with express instructions not to use it in his moving business. Of course, he not only did, he allowed one of his workers to drive it. And of course the worker then fell asleep while driving, and hit a car and a pedestrian, and injured another worker riding in the pickup. The passenger and the pedestrian sued. The insurer denied coverage because of the "business use" exclusion in the policy.

Posted By David Rossmiller In Liability Policies
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Two recent cases add to the growing list of courts nationwide that have held that alleged false or deceptive statements are not covered by a homeowners' or commercial general liability policy. The cases are Jennings v. State Farm Lloyds, 2006 WL 66408 (Tex.App.-Austin, January 12, 2006) and Green v. State Farm Fire & Casualty Co., 2005 WL 3556720 (Utah App., December 30, 2005). In both cases, the misrepresentations failed to produce either bodily injury or property damage within the meaning of the policy, and therefore no "occurrence" as required for coverage.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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This case and similar developments in other jurisdictions have sent shudders through insureds. It bears watching to see what the Texas court will decide and which way the wind is blowing in other states.

Posted By David Rossmiller In Duty to Indemnify , Liability Policies
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To some, insurance coverage is an opaque, impenetrable soup of jargon and abstract argument that never produces a clear "right" answer. But every now and then, a case comes along that is an easy call. Such is Ison v. Southern Farm Bureau Casualty Co., 2006 WL 73818 (Ark. App. January 11, 2006).

In the case, a 15-year-old boy learned his girlfriend was pregnant, took an overdose of his medicine for attention-deficit disorder, his stepmother's antidepressants, and some nonprescription medicine; took the keys to his father's pickup; slashed the tires to the family's other vehicle; stole his father's truck and drove it to another family member's house, where he stole some guns; led police on a high-speed chase; and finally crossed the median into the opposing lane of traffic, hitting and killing two people. The estate of one of the victims sued the boy's mother, who was divorced from the boy's father and living in a separate household. Her auto insurers brought a declaratory action seeking a ruling they had no obligation to defend or indemnify the mother, and she presented some unique coverage arguments.

Posted By David Rossmiller In Duty to Defend , Duty to Indemnify , Liability Policies
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In a case similar to State Farm v. Mendoza, which I posted about a few days ago, the Eighth Circuit has held that a primary insurer exhausts its policy under certain circumstances when it settles its liabilities in a case for less than its policy limits.

In Reliance v. Chitwood, WL 44085 (January 10, 2006), the primary insurer, Continental Western, settled its liabilities regarding its insured's truck accident for $600,000, less than its $750,000 policy limits. The settlement agreement called for the plaintiff to collect on a judgment only from Reliance's $1 million excess policy, but to collect only to the degree the judgment exceeded $750,000. Reliance then settled the remainder of the case for $250,000 and sought non-contractual indemnity from Continental Western for amounts it paid below $750,000. The court found that Continental Western fulfilled its obligation to protect Reliance from liability for amounts below $750,000, which was what Reliance had bargained for as excess insurer. It was Reliance's choice to settle and pay the amount between $600,000 and $750,000.

Posted By David Rossmiller In Contribution and Indemnity between Insurers , Liability Policies
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