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Effective Date: June 4, 2014
Vol. 3, Iss. 9
 
   
 
 
 
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Declarations: The Coverage Opinions Interview With Roy Black
His Legendary Career And Obsession; Fantastic Blog; Having A Crystal Ball; Searching For Sugar Man; Repping Justin Bieber

In an era when we are too quick to throw around the legend label, Roy Black truly deserves it as a trial lawyer. He tried a second-degree murder case on his second day practicing law. This was the beginning of four decades representing people who have everything to lose.

Randy Spencer’s Open Mic
Cheese Wheel: The Strangest Auto Insurer You’ve Ever Seen

[Also -- Check out Randy Spencer’s Open Mic featured by the ABA Journal]

Coverage Cases In The Right Judicial Hands
Certain coverage cases just belong in certain courts. Consider some coverage cases over the years that thankfully ended up in the right judicial hands.

Please Join Me June 19th At The CPCU Society Philadelphia Chapter’s Breakfast Meeting (You Need Not Be A CPCU Member)

Texas Supreme Court Justice Don Willett Responds To Coverage Opinions
In the last issue of Coverage Opinions I wrote over 2,000 words making the case that Texas Supreme Court Justice Don Willett is the most important liability insurance coverage judge in America. Justice Willett took to Twitter to respond.

The Mousetrap: The 180 Year Old Coverage Dispute
I have discovered the oldest continuously running insurance coverage dispute. It started in 1835 and the answer still remains elusive.

Punitive Damages: Insurable In 38 States
The Sometimes Oversimplified Issue

There may be as many as a dozen possible answers to the question whether punitive damages are insurable. And they are insurable in some way, shape or form in at least 38 states.

Chickens And Eggs: What Comes First: Underlying Case Or Coverage Case?
It is one of the most frequently occurring and important issues on the coverage landscape. An underlying action is going to be ready for trial before a declaratory judgment action will be resolved. So what happens when a pre-trial settlement demand, within policy limits, is presented to the insurer, for a claim that it does not believe is covered. For some reason, guidance on this important issues can sometimes be unclear, inconsistent or just plain elusive.

A Faulty Workmanship—“Occurrence” Case Worth Reading
Construction defect coverage cases have become so abundant that it has become difficult to find something unique about them – something that makes them worthwhile to take note. The New York Supreme Court, Appellate Division, just issued one that falls within the worthy of note category.

ALI Annual Meeting: Update On The “Principles Of The Law Of Liability Insurance”

Tapas: Small Dishes Of Insurance Coverage News And Notes
·DRI Brings Back Its Three-Part “Insurance 101” Webcast Series    
·Washington Federal Court: Case Of First Impression Concerning Bad Faith Failure To, Er, Seattle

 
 
 
 

 

Vol. 3, Iss. 9
June 4, 2014

Declarations: The Coverage Opinions Interview With Roy Black

His Legendary Career And Obsession; Fantastic Blog; Having A Crystal Ball; Searching For Sugar Man; Repping Justin Bieber

 
Roy Black speaks to potential jurors in the John Goodman DUI
manslaughter trial (2012)

Justin Bieber doesn’t seem to have any adult supervision in his life. And if he does it’s coming from Cheech and Chong. But not long ago he needed some serious advice – and in a big way. The stakes were high. It was no joking matter. He had a lot to lose. And fortunately for him a grown-up showed up just in time.

In January of this year Bieber was arrested in Miami Beach in the middle of the night for allegedly driving under the influence of marijuana, alcohol and prescription pills. According to numerous media reports, at the time he was allegedly going twice the speed limit, in a residential neighborhood and with an expired driver’s license. The charges also included non-violent resisting arrest. And while it’s not against the law to drive a yellow Lamborghini, Bieber was behind the wheel of one when all of this went down. Just another day at the office for the Biebs.

But somehow, someone in Bieber’s posse knew that when you get arrested in Florida, and have a lot to lose, the proverbial one phone call that you get must be to Roy Black. Black was in court just a few hours later getting Bieber sprung on bail.

In an era when we are too quick to throw around the legend label, Roy Black truly deserves it as a trial lawyer – having spent four decades representing people that have everything to lose. He was kind enough to give me 30 minutes of his valuable time to discuss his long and distinguished career and obsession with the study of trial practice. I also asked him about his fantastic blog, the movie that he’ll never forget and the crystal ball that seems to sit on his desk. Oh, and of course, no way, no how was I letting him off the phone without asking about Bieber.

Trial By Fire

In the introduction to Black’s Law, Black’s 1999 book in which he discusses his trial strategies in four serious cases, he recounts his first day as a lawyer. It was January 1971 and Black went to work for the Dade County Public Defender’s office. His boss handed him a thin file and said: “Your first trial is tomorrow. A woman charged with second-degree murder of her boyfriend.” He and another rookie lawyer fumbled though the case and somehow, “probably from pure luck,” won.

Black explained to me that these were the early days of the public defender system in Miami-Dade County. There were only ten attorneys for all of the indigents in a county of more than one million people. And, what’s more, the job was considered part-time. I expressed horror at such situation. But the system has now “changed dramatically” from those early days, Black assured me. Now hundreds of lawyers, with support services, do the job that Black and nine others once had.

Can you imagine handling a second-degree murder trial on your second day as a lawyer? These days some civil lawyers wait five years to get into court. And when the big day finally comes it involves an unopposed discovery motion.

But Black got exactly what he wanted when he stepped into that courtroom. He says in Black’s Law that he chose the public defender’s office, after graduating from the University of Miami Law School, because he didn’t want to spend his life “worrying whether clients may or may not have breached subsection C of paragraph 2” [i.e., my life] and he knew that virtually all civil cases settle.

The Next 43 Years

Black has been at it for 43 years since that day in 1971. Despite obviously being involved in innumerable cases, there is one that is guaranteed to make the first paragraph of his obituary (G-d forbid, as my mother would make me say here). In 1991 Black represented William Kennedy Smith (nephew of Kennedys John, Robert and Ted) for an alleged rape taking place in Palm Beach. The televised trial received non-stop and worldwide media attention. When you think of a televised trial, of a prominent person, for a serious crime, receiving worldwide media attention, the name Simpson probably comes to mind. But the rape trial of William Kennedy Smith, four years earlier, was in fact the first to meet all of these criteria. Smith was acquitted. And Roy Black became famous.

The bio from his firm website describes Black’s career like this. He is the senior partner of Black, Srebnick, Kornspan & Stumpf, P.A. in Miami. Mainly as a criminal defense attorney he has handled hundreds of cases in Florida and throughout the United States.  He also handles select civil lawsuits. Perhaps best known for his successful defense of William Kennedy Smith on rape charges in Palm Beach, Florida, Black also successfully defended Eller Media (now known as Clear Channel Outdoor) against manslaughter charges stemming from the bus-bench electrocution of a 12-year-old boy in Miami; Albertson’s, Inc., when the State of Florida charged the Fortune 500 company with manslaughter in the death of a shoplifter; and artist Peter Max in New York. Other noteworthy clients have included Rush Limbaugh, Kelsey Grammer, South Florida police officers Luis Alvarez and William Lozano and banker Fred De la Mata. Black successfully represented 3-time Indy 500 winner and Dancing with the Stars champion Helio Castroneves in a 6-week tax trial where he was charged with income tax evasion. Black has defended numerous other clients on charges ranging from murder to securities fraud, bank fraud, healthcare fraud, money laundering, internet sex crimes, mail and wire fraud and tax evasion.

Some of Black’s other high profile clients that I discovered include polo mogul John Goodman (DUI manslaughter trial), Marv Albert, Joe Francis (Girls Gone Wild founder) and Solange Knowles (Beyonce’s sister). And his firm’s website lists many more high-profile cases that I’m sure Black had his hand in one way or another.

Roy Black has made numerous television appearances, on several network and cable channels, discussing high profile cases. He has served as a legal analyst on The Today Show and Good Morning America. Black also played the “Managing Partner” of The Law Firm, a short-lived NBC reality-based TV show that was a legal version of The Apprentice.

Here’s what Black told Miami magazine in a 1998 profile: “The kind of cases I handle are the ones people can’t afford to lose.” “I represent people who want whatever can be done to be done. There are only a few lawyers who are willing to go as far as I do, strategically. My cases are World War III to me. I don’t take prisoners when I go to trial.”

Black obviously can’t take every new case that is offered to him. He no doubt must choose among many opportunities that come across his desk. I asked him how he decides which ones to take. He looks for ones that offer the opportunity to learn something new, he told me. Black used an insurance example – telling me about his recent involvement in a case concerning life insurance and he was fascinated with learning things he never knew about how that industry worked.

I asked Black if people work harder to beat him so they can say that they beat Roy Black. He didn’t rule it out but also explained that in his cases – mostly in federal court involving white collar and financial crimes, securities fraud and the like -- the government’s incentive to win is so great that they would be working that hard anyway. So he essentially downplayed the idea of there being any real Roy Black factor in his cases.

Any discussion of Roy Black must also include a few other well-known facts. He is married to Lea Black, a juror from the William Kennedy Smith trial and cast member on The Real Housewives of Miami. The Blacks have thrown an annual charity gala for the past 19 years that has raised $12 million for the benefit of at-risk youth. South Florida Opulence magazine called the Blacks’ gala “the city’s most prestigious, star-studded charity event.” This ain’t Iowa folks. That’s sayin’ a lot. This year’s gala takes place on October 25th.

Roy Black’s Blog And Obsession

Roy Black has a blog – also named Black’s Law like his book. You can find it at www.royblack.com/blog. He started the blog in March 2011 and in the first post set out its unique and modest goals: “I am taking this on for personal reasons.  I have no intent to change the world, or garner a large audience.  My purpose is purely self interest. I am writing this to teach myself.  No one else.  So this will be personal.  I find that putting my ideas on paper helps crystallize them.  It makes me think and work out ideas. . . . So what type of things will I write about?  I am not going to report on the local courts and legal proceedings. We already have wonderful blogs for this. . . . My project will involve all things related to actually trying cases.  The trial techniques, practices, psychology and everything impacting trials.”

Black has stayed true – very much so -- to the blog’s purpose. Consider this July 29, 2013 post. The George Zimmerman trial had just ended. The not guilty verdict was all over the news and every legal commentator was spouting off on the facts of the case, how they likely played into the verdict and the public’s response to it. But not Roy Black. Here’s what he had to say about it: “Think back on the just-completed Zimmerman trial, not for the backlash on the verdict, but rather for what we can learn from it to improve our advocacy.” That’s Black’s Law.

Review the posts on Black’s Law and your conclusion will be immediate: Roy Black is obsessed with trial practice – doing it, studying it and teaching it (something he has done for over 30 years at the University of Miami Law School). And he says that he still has more to learn. He told me that the day he stops getting better at it is the day he gives up. Otherwise “you are only going backwards.”

On the blog Black looks for an advocacy or trial practice aspect in everything. Lots of people have been talking about the Oscar Pistorius trial. Black doesn’t talk about the big picture. Instead he analyzes in exacting detail the prosecutor’s cross examination of Pistorius. Black analyzes Douglas MacArthur speeches and finds lessens in them for final argument. He watches a Presidential debate and compares it to a trial’s final argument. He writes often about the critical importance of the first minute of an opening or final argument. While Black’s Law covers a lot of ground when it comes to trial practice – technique and psychology – it’s greatest achievement is that the material is presented in such a manner that you do not need to be a trial lawyer to enjoy it or learn from it (except, perhaps, for the several page post on how to introduce a business record into evidence under rule 803(6)).

Despite its diversity of subjects, Black’s Law has one overarching there. Black says it over and over on the blog, he told it to me on our call and he even said it again in a post the day after our call: “I have said many times before that there is no gene, no innate talent, no instinct for trial practice. It is all skill that can be mastered.”

When I suggested to Black that maybe it was time to ease up on practicing law and take advantage of his celebrity, street cred, experience and good looks to focus on media work, he had no interest. Instead he sees the blog as his vehicle to achieve his goal of explaining to the public what’s going on during trials.

Searching For Sugar Man

While the Black’s Law blog is hard core advocacy and trial practice, it is also peppered with posts here and there that involve nothing of the sort. One involves a movie documentary called Searching For Sugar Man. Black described it like this: “There is something about this film; I can’t stop telling people to see it. It is unbelievable. One of a kind. Thrilling. It sends chills down your spine. Literally. What a story. If the facts were not so well documented, I would think this story was made up. It sounds too good to be true, but it is. And that is what makes it compulsive viewing.”

I had never heard of Searching For Sugar Man. But with a review like that I went to the video store that night and rented it (yes, there is somehow one of those still left in my neighborhood). Every word of Black’s review is accurate. Searching For Sugar Man is about a Bob Dylan-like singer, songwriter, guitarist named Rodriquez who in the late-1960s was playing some small bars in Detroit. He got a record deal and made two albums that went nowhere. He was dropped from the label and went on with his life of construction and assorted hard labor. But completely unbeknownst to him, his first album found its way to South Africa, where it became hugely popular with anti-apartheid youth for its anti-establishment message. So as incredible as this sounds, while Rodriquez was living in obscurity in Detroit, working as a laborer, he had no idea that he was a rock star in South Africa. [Such was life before the internet.]

Rodriguez was believed to be dead – having committed suicide on stage in one of a couple of different ways. A South African music journalist went in search of the answer to how Rodriguez died. However, he discovered that Rodriguez was in fact alive and well living in Detroit. He tracked him down and Rodriguez now learned for the first time that his popularity in South Africa was on par with Elvis and bigger than the Stones. I won’t tell you what happens from there.

I told Black that I watched Searching for Sugar Man based on his recommendation and we talked about Rodriquez’s story and the power of the film for a few minutes. Black told me that when the film finally came to Miami he rented out the theater for the premier and invited friends to view it. Just some more Roy Black passion. If you have not seen Searching for Sugar Man – do. It’s been over a week since I saw it and I still get chills thinking about it.

Roy Black’s Crystal Ball

Roy Black seems to have a knack for knowing about things before many of us. In an August 1, 2012 post on Black’s Law, he discussed the just under way Summer Olympics in London. Speaking about the indomitable spirit of athletes, Black mentioned that Oscar Pistorius would be running 400 meters with prosthetic legs. Few outside of South Africa knew the name Oscar Pistorius at that time. Black’s blog post raving about Searching for Sugar Man came on August 30, 2012. The movie won the Academy Award for Best Documentary in February 2013. Black represented Solange (Beyonce’s sister) in 2011 (a police officer allegedly pulled a knife on her). Sure Solange was famous in 2011, but nothing like now on account of her recent elevator ride with Jay-Z and Beyonce. I mentioned these things to Black and joked that he must have a crystal ball on his desk. He certainly has one when it comes to looking inside the head of jurors and witnesses.

Repping Justin Bieber

As my call with Roy Black was coming to an end it was time to ask the question that Black had to know was coming. “You gotta give me something about Bieber,” I said. “Can he get a fair trial?” Well of course there will be no trial he responded. The case will be resolved with a plea – and some discussions are now being had, Black said. But here’s the hard part, he explained. Any deal can’t include a probationary component. Bieber’s lifestyle is just not cut out for meeting the regimented requirements of probation, such as checking in with a probation officer. Black was not making excuses for Bieber or suggesting that the rules did not apply to him. Not at all. He was simply recognizing the uniqueness of his client and trying to do his best for him. He said that he needed to avoid a Lindsay Lohan situation. By that he meant probation that has too much risk for violation. Lohan has faced constant legal troubles over the years caused by a series of probation violations. I told Black that I would stay tuned to TMZ to see how it turns out. “They’ll know about it before me,” he said.

What’s Next?

My final question for Roy Black was the obvious one -- how much longer does he plan to go at it. His answer was immediate and unambiguous. “I have no intention of slowing down.” What else would I do he asked rhetorically. “They’re going to have to carry me out.”

 

 

 


Vol. 3, Iss. 9
June 4, 2014

 


Cheese Wheel: The Strangest Auto Insurer You’ve Ever Seen



Some insurance companies have interesting names. And taking notice of them is something that I’ve long done. In fact, the very first “Open Mic” column was about insurance company names. So when I recently came across the Wisconsin Supreme Court’s old decision in Pouwels v. Cheese Makers Mutual Insurance Company, 37 N.W.2d 869 (Wis. 1949) my first reaction was brie whiz that’s a goudumb name for an insurance company. Stilton stranger, the case was about an automobile policy issued by Cheese Makers Mutual.

Cheese Makers Mutual seems like a munsterrible place to asiago when you need automobile insurance. You would think they don’t know jack about cars – except maybe the wheels.

But I thought about it and then the babybel went off. Insuring cheese must have made them board – especially since they were probably all provalone doing it. Queso instead of being bleu they decided to manchego into cars.

I couldn’t find anything on the internet even remotely current about Cheese Makers Mutual. Apparently they couldn’t cut it.


That’s my time. I’m Randy Spencer.

Contact Randy Spencer at Randy.Spencer@coverageopinions.info

 


Vol. 3, Iss. 9
June 4, 2014


Coverage Cases In The Right Judicial Hands


A coverage decision was just handed down in Pacific Hide & Fur Depot v. Great American Insurance Company. After reading the case name I looked to see the court. District of Montana. Yeah, that makes sense I thought. I didn’t have any interest in the case, but I felt good knowing that a coverage case, with the name Pacific Hide & Fur Depot in the caption, is being handled by a court in Montana. All is right in the world.

It seems to me that certain coverage cases just belong in certain courts. A dispute whether a lobster bite was an “occurrence” should be left in the hands of a Maine Court. Product recall coverage for maple syrup that’s too sticky? Leave Vermont courts to handle that. And nobody but a Florida court has any business deciding any coverage issue whatsoever involving orange juice.

Consider these other coverage cases over the years that thankfully ended up in the right judicial hands:

Alligator Enterprises, Inc. v. Gen. Agent’s Ins. Co. (Fla. Ct. App. 2000)

Peach State Univ. Serv., Inc. v. American Ins. Co. (5th Cir. 1975) (Georgia law)

Scottsdale Ins. Co. v. Maui Land and Pineapple Co., Inc. (D. Hawaii 2007)

Magic Valley Potato Shippers v. Cont’l Ins. Co. (Idaho 1987)

Progressive Sec. Ins. Co. v. Bayou Aggregate Materials (La. Ct. App. 2009)

Viking Electric Supply, Inc. v. United Fire & Cas. Co. (Minn. Ct. App. 1996)

Millers Capital Ins. Co. v. Big Star Tobacco Warehouse of Wilson, NC (E.D.N.C. 2001)

Longhorn Pest Control v. State Farm Mut. Auto. Ins. Co. (Tex. Ct. App. 2011)

Grange Ins. Ass’n v. Sherry Apple, Parent/Guardian of Shelby Apple (Wash. Ct. App. 2004)

Berner Cheese Corp. v. ISBA Mut. Ins. Co. (Wis. 2008)

[With thanks to Lauren Kelly, 2L, Villanova Law School, for finding these cases. Lauren is spending the summer working with me as a Research Assistant in the preparation of the 3rd Edition of General Liability Insurance Coverage – Key Issues in Every State.]

 

 


Vol. 3, Iss. 9
June 4, 2014


Please Join Me June 19th At The CPCU Society Philadelphia Chapter’s Breakfast Meeting (You Need Not Be A CPCU Member)


I am honored to have been invited to be the guest speaker at the CPCU Society Philadelphia Chapter’s breakfast meeting on June 19. I will be doing a presentation on the American Law Institute’s “Principles of the Law of Liability Insurance” -- the most talked-about topic in liability coverage circles today.  The “Principles” are designed to set forth a single statement of what the law should be on numerous liability coverage issues – including many addressing the duty to defend and reservation of rights.  The “Principles” are going to be (and have already been) raised in the claims context.  Learn how the ALI “Principles” were developed and the ones that are most likely to be relevant to your claims.

You do not need to be a CPCU to attend (heck, I’m not). They’ll just charge you a few extra bucks for the non-member rate. I can’t promise you that they’ll have an omelet station but I can promise that you’ll learn a lot and I’ll make it fun.

All kidding aside, the Philly Chapter of the CPCU Society are wonderful folks and it really is an honor to be asked to speak at the meeting. I hope you’ll come out if you are in the area. Click here for more details.

 

 


Vol. 3, Iss. 9
June 4, 2014


Texas Supreme Court Justice Don Willett Responds To Coverage Opinions



In the last issue of Coverage Opinions I wrote over 2,000 words making the case that Texas Supreme Court Justice Don Willett is the most important liability insurance coverage judge in America. [On Twitter I said that Justice Willett is the most important insurance judge in USA -- Twitter’s 140 character limitation required me to shorten my conclusion.]

In a separate article about Justice Willett I noted that he has over 5,500 followers on Twitter (now 6,000), says he is probably the most avid judicial tweeter in America and some have labeled him the most interesting public official on Twitter. So it was hardly surprising that Justice Willett took to Twitter to respond to my conclusion that he is the most important liability insurance coverage judge in America. Nor was it surprising that he did so using his trademark wit.


 

 

Vol. 3, Iss. 9
June 4, 2014

The Mousetrap: The 180 Year Old Coverage Dispute

“Everyone knows what an accident is until the word comes up in court. Then it becomes a mysterious phenomenon, and, in order to resolve the enigma, witnesses are summoned, experts testify, lawyers argue, treatises are consulted and even when a conclave of twelve world-knowledgeable individuals agree as to whether a certain set of facts made out an accident, the question may not yet be settled and it must be reheard in an appellate court.” These sage words were penned by Justice Musmanno in the Pennsylvania Supreme Court’s decision in Brenneman v. St. Paul F. & M. Ins. Co.

That’s a very accurate description of many, many general liability insurance coverage cases today. Defining an “accident” is front and center in the deluge of coverage cases addressing whether faulty workmanship qualifies as an “occurrence.” And, more generally, this question is at the heart of cases being decided every other day, involving every imaginable, and unimaginable, scenario in which injury or damage has occurred and for which liability coverage is subsequently sought.

A review of these cases, and the lack of common ground that exists between the parties, reveals that Justice Musmanno’s observation in Brenneman was spot on – Yes, of course, everyone knows what an accident is -- until the word comes up in court.

Brenneman was decided in 1963. That sounds like a long time ago. But when it comes to defining an “accident,” a case from 1963 is just a youngster. There are cases asking this question that date back to the early 1800s. And these ancient cases frequently seek guidance from even more ancient cases, often times English ones with strange citations that very few lawyers practicing in this country understand. Suffice to say, the question whether something was caused by an “accident” has been keeping judges, including ones in wigs, busy for a very long time.

I have come to the conclusion that the question whether something was caused by an “accident” gets the nod as the oldest continuously running insurance coverage issue. It is the Mousetrap of insurance coverage. If there is an older one please tell me. The earliest American case that I could find, addressing whether an “accident,” for purposes of insurance coverage took place, is from 1835 (Howell v. Cincinnati Ins. Co., Ohio Supreme Court).

But it’s not just that there are a lot of really old cases addressing the “accident” question. The other very interesting fact is that some of these cases look remarkably similar to ones that were decided yesterday. In other words, not only have courts been grappling for 180 years with the coverage question whether injury or damage was caused by an “accident,” but they haven’t figured out the answer after all this time.

Consider the following case where a court addressed whether an injury was caused by an “accident,” but couldn’t call anyone to talk about it because the telephone had not yet been invented (1879).

In Schneider v. The Provident Life Insurance Company, 24 Wis. 28 (1869) the Supreme Court of Wisconsin addressed the availability of coverage under an accident policy. Bruno Schneider was insured against injury or death by accident. “He attempted to get on a train of cars while in slow motion, and fell under them and was killed. The policy contained a clause that the company should not be liable for any injury happening to the assured by reason of his ‘willfully and wantonly exposing himself to any unnecessary danger or peril.’ And, on the trial, the plaintiff was nonsuited, upon the ground that the death was within this exception.”

The Wisconsin Supreme Court reversed, holding that Schneider did not willfully and wantonly expose himself to any unnecessary danger or peril. The court held that his death was caused by an accident, defining the term as something that may result from an unknown cause. “But,” the court noted, “it is not essential that the cause should be unknown. It may be an unusual result of a known cause, and, therefore, unexpected to the party.” The court applied such definition to the situation before it: “[T]here are, undoubtedly, thousands of persons who get on and off from cars in motion without accident, where one (sic) is injured. And, therefore, when an injury occurs, it is an unusual result, and unexpected, and strictly an accident.” This analysis by the Wisconsin Supreme Court, of what qualifies as an “accident,” is still at the heart of the debate in numerous coverage cases today.

 

 

 


Vol. 3, Iss. 9
June 4, 2014


Punitive Damages: Insurable In 38 States
The Sometimes Oversimplified Issue


It is a question that is uttered by claims professionals and coverage counsel on a regular basis: Are punitive damages insurable in such and such state? In essence, what the questioner is often asking is whether the particular state’s public policy permits a tortfeasor to insure against punitive damages that he or she may be legally obligated to pay. The answer provided is often one word: yes or no. While one of those two answers may be the right one generally, the issue is oftentimes much more complex than can be adequately answered with a single word. In fact, when all of the variations of the issue are considered, there may be as many as a dozen possible answers to the question whether punitive damages insurable.

The Supreme Court of Texas recognized the wide variation that exists over the insurability of punitive damages: “The cases defy easy categorization, but it appears that: 19 states generally permit coverage of punitive damages; 8 states would permit coverage of punitive damages for grossly negligent conduct, but not for more serious conduct; 11 states would permit coverage of punitive damages for vicariously-assessed liability, but not directly-assessed liability; 7 states generally prohibit an insured from indemnifying himself against punitive damages; and the remainder have silent, unclear, or otherwise inapplicable law. States may fall into more than one category.” Fairfield Ins. Co. v. Stephens Martin Paving, L.P., 246 S.W.3d 653, 688 (Tex. 2008) (Hecht, J., concurring).

As the Texas high court demonstrated, the question of the insurability of punitive damages does not want for case law. The issue has been considered in every state, including, most of the time, by its highest court. Coverage for punitive damages has also been addressed in a few instances by state legislatures. The issue is a mature one and has well-defined battle lines. And as is often the case when an issue may turn on public policy considerations, judges are not shy about their feelings. Authors of opinions are frequently passionate in their views and dissenting opinions are not uncommon.

As Justice Hecht’s scorecard makes clear, providing a one word answer to the question of the insurability of punitive damages may not be telling the whole story.

Another conclusion revealed by Justice Hecht’s scorecard is that punitive damages, in some way, shape or form, are insurable in the great majority of states. By Justice Hecht’s count in 2008, 38 states permit coverage for punitive damages under some circumstances. Only seven states prohibit it. In my experience, punitive damages are often-times discussed the other way around – with assertions made that the great majority of states prohibit coverage, with the permissibility of coverage being the exception.

That there is sometimes more than meets the eye when it comes to coverage for punitive damages was recently on display in Auto-Owners Insurance Co. v. Lake Erie Land Company, No. 12-184 (N.D. Ind. May 6, 2014). At issue was coverage for punitive damages awarded by a jury in an unexplained underlying case. All we know is that a jury returned a verdict in favor of B&B LLC, and against Lake Erie Land, for $1.46 million in punitive damages. We are also told that the jury was instructed that it could award punitive damages if “B&B proved by clear and convincing evidence that LEL acted with willful and wanton misconduct, maliciously, fraudulently, oppressively, or with gross negligence.”

So the Northern District of Indiana was now confronted with the question whether LEL’s insurers were obligated to provide coverage for the punitive damage award. At the outset, the issue to be addressed was determining the theory under which the jury awarded punitive damages. In an attempt to establish a lack of coverage, the insurers sought to portray the award as demonstrating that LEL “exhibited willful and wanton misconduct, which justified punitive damages.” LEL saw it differently, arguing, in support of coverage, that the punitive damage award was because of its non-intentional conduct -- gross negligence. The court stated its belief that “both parties overstate the clarity with which the theory under which the jury awarded punitive damages can be determined. However, at the very least, it appears to the Court that the jury’s award could be consistent with the jury having found LEL to be grossly negligent.”

Equally lacking, the court noted, were decisions from any court addressing Indiana’s public policy on the insurability of punitive damages based on gross negligence, as distinguished from intentional conduct. Rather, at most, there are federal decisions that have “attempted to predict how the Indiana Supreme Court would interpret Indiana’s public policy with respect to the insurability of punitive damages,” as well as decisions from other states that distinguish, “as a matter of public policy, the insurability of punitive damages awarded on a theory of intentional action versus punitive damages awarded on a theory of gross negligence.”

The Lake Erie Land court concluded that, “[g]iven the lack of certainty in this area and the public importance of the question, the Court believes this question may be appropriate for certification to the Indiana Supreme Court.” Before doing so, however, the court ordered the parties to file briefs covering any supplemental authority “predicting how the Indiana Supreme Court would determine whether Indiana’s public policy prohibits the insurability of an award of punitive damages assessed directly against a corporation on a theory of gross negligence and (2) the parties’ position as to whether the question should be certified to the Indiana Supreme Court.”

Thus, whether punitive damages are insurable in Indiana may not be a yes or no question. Like so many other states, the issue may be more complex and less clear than it is sometimes portrayed.

 


Vol. 3, Iss. 9
June 4, 2014


Chickens And Eggs: What Comes First: Underlying Case Or Coverage Case?


It is one of the most frequently occurring and important issues on the coverage landscape. Yet, for some reason, guidance can sometimes be unclear, inconsistent or just plain elusive. Here is the scenario. An insurer is defending its insured in an underlying action under a reservation of rights. Uncertainty over its coverage obligation has led it to file a declaratory judgment action. The underlying action and declaratory judgment action are proceeding on separate paths. The underlying action is going to be ready for trial before the declaratory judgment action will be resolved. So, in all likelihood, a pre-trial settlement demand, within policy limits, will be presented to the defendant (and its insurer) before resolution of the declaratory judgment action.

Faced with this situation a few things may happen -- with unpleasant endings for the insurer. The insurer may reject the settlement demand. After all, why would the insurer agree to fund a settlement when it does not believe the claim is covered? And, in fact, it did just what courts often advise insurers to do when there is doubt about their coverage obligations – it defended its insured and filed a declaratory judgment action. If the insurer rejects the settlement demand the case will likely proceed to trial – because the insured does not have the funds to settle or will not agree to reimburse the insurer if there is ultimately a finding of no coverage. [The insured should not be able to settle with the plaintiff, and exchange a covenant not to execute for an assignment of policy rights, since the insurer is defending the insured.]

If the case proceeds to trial, and there is a verdict for the plaintiff, the insurer will now be called upon to pay it. But, again, why would the insurer agree to do so when it does not believe that the claim is covered? And if the verdict for the plaintiff exceeds the policy’s limit of liability, expect to see the plaintiff and insured arguing that the insurer is liable for the entire amount. After all, there was a settlement demand within policy limits that the insurer refused to accept. And if the insurer chooses to appeal it will give rise to bonding issues, such as whose duty it is to collateralize the bond and what impact the bond may have on the insurer’s ability to enforce its coverage defenses. And if the insurer does not wish to appeal, but does not know its coverage obligations, the plaintiff may begin the process to execute against the insured’s assets.

All in all, these are a lot of potential bad outcomes for an insurer that undertook its insured’s defense and then did what the system allows for -- calls for, even -- to resolve its doubts about its duty to indemnify. One way to prevent this situation would be for the insurer’s coverage obligations to be determined prior to any trial, or pre-trial settlement demand, in the underlying action. If so, the insurer would have a clear picture of its obligations, options and consequences when confronted with a pre-trial settlement demand or call to pay a verdict against its insured. There are no easy answers to this situation and it has complexities and other issues that are well-beyond this brief discussion. Nonetheless, there is something wrong with a situation where an insurer does all that is asked of it and still faces the risk of obligations beyond simply those that it bargained for when it sold the policy.

The District of Oregon recently addressed the timing of underlying litigation and a declaratory judgment action in Scottsdale Insurance Company v. Ortiz & Associates, Inc., No. 13-1791 (D. Oregon May 9, 2014). The specific situation before the court does not fall within any of the scenarios described above. However, the case involves an insurer seeking relief to prevent an unwanted outcome on account of underlying litigation proceeding ahead of a declaratory judgment action.

In very general terms, Scottsdale initiated an action seeking a declaration that it had no duty to defend, indemnify, or provide coverage under an excess policy for an underlying suit involving an individual that was allegedly struck and killed by a dump truck while he was working on a highway construction project. Scottsdale maintained that the auto liability exclusion in its excess policy precluded coverage for the accident. Scottsdale moved for summary judgment to establish that the excess policy provided no coverage.

The case has some unusual aspects that are not necessary for purposes of discussion here. The important point here is that Scottsdale sought a judicial determination of its coverage obligations, before the resolution of the underlying bodily injury action, because, as the court put it: “Scottsdale argues if its rights are not clarified in this action, it could be forced to fund a settlement of what it believes is an uncovered claim, or risk having to defend against future claims for failure to fund a settlement.” Therein lies the issue discussed above.

The court denied Scottsdale’s request, holding that “until the issue of liability is resolved in the underlying lawsuit, this Court will not entertain the declaratory judgment determination that Scottsdale seeks. Doing so would place [the insured] in a conflictive position that could undermine its position in the underlying lawsuit and would require fact-finding identical to that which will occur in the underlying lawsuit in Washington State court.”

Even if that’s all true (and I’m not saying it is), it is equally true that, as Scottsdale says, if its rights are not clarified before attempts are made to settle the underlying case, it could be forced to fund a settlement of an uncovered claim or risk having to defend against future claims for failure to fund a settlement. I take this last statement to include efforts to collect an excess verdict based on the argument that Scottsdale failed to settle a claim in the face of a demand within policy limits.

The DJ-underlying action timing issue is not a simple one. But, as I said, I am constantly bothered by the fact that insurers can do all that is asked of them, in the face of claim with coverage issues, and still face the risk of obligations beyond simply those that they bargained for when they sold the policy.

 


Vol. 3, Iss. 9
June 4, 2014


A Faulty Workmanship—“Occurrence” Case Worth Reading


The title of this article tells you how I feel about the continuous barrage of decisions addressing coverage for construction defects – in particular whether faulty workmanship constitutes an “occurrence” under a commercial general liability policy. I’m not saying that these cases are not important. Of course they are – both for the parties involved and the development of the body of law on such issue for that particular state. But such cases have become so abundant that it has become difficult to find something unique about them – something that makes them worthwhile to take note. At their core these cases generally apply the same legal issues to similar facts.

The New York Supreme Court, Appellate Division, just issued a decision involving coverage for construction defects. While the facts offer nothing out of the ordinary, the decision falls into the category of worthwhile.

At issue in National Union Fire Ins. Co. v. Turner Construction Company, No. 11927 (N.Y. App. Div. May 15, 2014) was coverage for Turner Construction and a subcontractor, under a National Union wrap-up policy, for damages caused when the exterior wall of an office building, under construction in Jersey City, fell from the eighth story.

On one hand, the decision reaches a decision, rightly or wrongly, that is based on the analysis that we are all used to seeing in a case such as this. In concluding that no coverage was owed, the court made such statements as the following:

“Under both New York and New Jersey law, construction defects such as those asserted in the underlying action—faulty design, fabrication or installation—do not constitute ‘occurrences’ under a commercial general liability insurance policy (citations omitted). The general rule is that a commercial general liability insurance policy does not afford coverage for breach of contract, breach of fiduciary duty, or breach of warranty, but rather for bodily injury and property damage (citations omitted).”

“There is no ‘occurrence’ under a commercial general liability policy where faulty construction only damages the insured's own work, and faulty workmanship by subcontractors hired by the insured does not constitute covered property damage caused by an ‘occurrence’ for purposes of coverage under commercial liability insurance policies issued to the general contractor, since the entire project is the general contractor’s work.” (citations omitted).

Even if Turner and its subcontractor agreed with these conclusions – and I’m sure they didn’t – they argued that an expanded definition of “occurrence” in the policy dictated a different outcome. In just about every construction defect coverage case the court is confronted with the following definition of “occurrence:” “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” However, the National Union wrap-up policy at issue defined “occurrence” as “an accident, event, or happening, including continuous or repeated exposure to substantially the same general harmful conditions.”

As you would expect, Turner and its subcontractor argued that the expansion of the definition of occurrence, to include “an accident, event, or happening,” gave rise to coverage for the claims against them, “or, at least, that the amended definition of ‘occurrence’ in the policy is ambiguous.”

The court disagreed and held “that the motion court was correct in concluding that the negotiated amendment of the definition of ‘occurrence’ in the subject commercial liability policies to include the words ‘event, or happening’ along with the word ‘accident’ did not expand the definition so as to encompass faulty workmanship.” Further, the court stated: “[T]he requirement of a fortuitous loss is a necessary element of insurance policies based on either an ‘accident’ or ‘occurrence’. As the motion court recognized, the addition of ‘event’ or ‘happening’ to the definition of ‘occurrence’ did not alter the legal requirement that the ‘occurrence’ triggering the coverage must be fortuitous. [T]he requirement of a fortuitous loss is a necessary element of insurance policies based on either an ‘accident’ or ‘occurrence.’” (citations omitted).

My sense is that policyholder lawyers are surprised by this decision – and perhaps have even stronger emotions than that in response to it. For once such example see Carl Salisbury’s post on the Kilpatrick Townsend “Global Insurance Recovery Blog.”

 


Vol. 3, Iss. 9
June 4, 2014


ALI Annual Meeting: Update On The “Principles Of The Law Of Liability Insurance”


The American Law Institute held its annual meeting in Washington, D.C. on May 19-21. One of the items on the agenda was a membership vote on approval of certain sections of the ALI’s “Principles of the Law of Liability Insurance.” If you are not familiar with the ALI’s Principles Project, you need to be. It is the most talked-about subject today in liability coverage circles. If you do not believe that the Principles Project has real-world importance, I respectfully disagree. Click here to get some background on the ALI’s Principles Project.

The Reporters on the Project (i.e., quarterbacks) are Professors Tom Baker of the University of Pennsylvania Law School and Kyle Logue of the University of Michigan Law School. I reached out to Professors Baker and Logue to see what took place at the ALI’s meeting concerning the Principles Project and what’s in store for the Project going forward.

They informed me that the ALI membership approved all of the remaining sections of Chapter 2 without amendment (in general, involving various issues concerning the duty to defend and reservations of rights), authorizing them to make a few editorial changes as discussed at the annual meeting.  They will be making those relatively small changes to the draft in the coming weeks, and the resulting revised version of Tentative Draft Number 2 will be publicly released later this summer.  That Revised Tentative Draft No. 2 will remain the operative, approved and citable version of Chapter 2 until it goes through a final round of revisions once the remaining chapters are complete. 

The Reporters anticipate working with their Advisers and the Members Consultative Group on Chapter 3 -- General Principles Regarding the Risks Insured (which includes allocation and contribution; exclusions; conditions; insuring clauses; and application of limits and deductibles) -- for the next year, with the goal of submitting a complete draft of Chapter 3 to the ALI Council for their approval in Fall 2015, and then to the membership in May 2016.  If all goes according to plan, Chapter 4 will be submitted to the Council and the Annual Meeting in 2017.  

I realize that if you are not familiar with the Principles and the process involved then all of this sounds like Swahili (except to those who speak Swahili). But if you are familiar with the Principles Project, or become familiar, which I hope you will, then the scheduled outlined by the Reporters has meaning to you or will.

Sorry for the inside baseball report. But for more information about the ALI’s Principles of the Law of Liability Insurance, click the above link or do an internet search.

 
 
Vol. 3, Iss. 9
June 4, 2014
 
 

DRI Brings Back Its Three-Part “Insurance 101” Webcast Series

Back by popular demand, DRI is again presenting an “Insurance 101” webcast series. DRI describes the programs as an excellent opportunity, particularly for newer claims professionals, attorneys, summer associates and law clerks, to be introduced to the most significant, core concepts of insurance coverage. Not to mention that the series serves as a terrific refresher for more experienced claims professionals and seasoned attorneys who want to know more about insurance coverage law and practice. The following webcasts will be presented in 90-minute segments by leading attorneys who represent the insurance industry.

July 9 -- “The Duty to Defend”
July 16 -- “What You Always Wanted to Know About Policies”
July 23 -- “Coverage and Bad Faith Litigation”

For more information about the topics to be covered, the speakers and to register online visit http://dri.org/Events/Webcasts

Washington Federal Court: Case Of First Impression Concerning Bad Faith Failure To, Er, Seattle

In Cox v. Continental Casualty Company, No. 13-2288 (W.D. Wash. May 16, 2014) the Washington District Court, very generally speaking, addressed an insurer’s liability for an excess verdict ($35,212,000. Wow.) arising out of a failure to settle. The court stated: “While an insured must plausibly allege that the insurer’s conduct was ‘unreasonable, frivolous, or unfounded,’ Washington courts have not yet given a clear answer to the question whether an insurer has an affirmative duty to initiate settlement negotiations in the absence of a within-limits offer by claimants. See 3 Appleman on Insurance § 23.02(6)(d)(iii) (describing a split of authority among the states on the question). The weight of the evidence, however, indicates Washington does not consider a within-limits offer a requirement.”