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Coverage Opinions
Effective Date: November 13, 2013
Vol. 2, Iss. 21
 
   
 
 
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Randy Spencer’s Open Mic:
The Most Interesting Insurance Man In The World

You’ve no doubt seen him in many commercials for Dos Equis beer. He’s gray-bearded and handsome, wears a smoking jacket, has a cigar between his fingers and is often seen with a beautiful woman on his arm. He is – The most interesting man in the world. Well, you may not know this (and I’m sure you don’t) but there is also a most interesting insurance man in the world.

Randy Spencer Appearing At Helium Comedy Club In Philly
Randy Spencer will be performing at Helium Comedy Club in Philadelphia on Saturday November 23 and Sunday December 8.

Coverage Opinions Has A “New Coke” Moment
Problem Solved: Responding To The Complaints About The New Format For Coverage Opinions

I received a ton of e-mails about the new format for Coverage Opinions. Much of it was positive. But there was plenty of negative too. I explain what led to the new format, some readers’ dissatisfaction and, most importantly, the solution to the problem. You can now print the entire issue of Coverage Opinions with just one click.

Coverage Opinions Contest: Return Of The Best Contest Ever: Insurance Personalized License Plates
Far and away the most popular contest I’ve ever done has been to find the best insurance related personalized license plate. Imagine being stopped at a red light and the car in front of you has a license plate that reads L8NOTIC or DTY2DFN. You would instantly know that the driver works in insurance coverage – but very few others would. The insurance related personalized license plate contest is back! See the winners from March 2012. I am sure that Coverage Opinions readers will come up with some great ones.

Coverage Opinions’s Haunted Houses Liability Article Picked Up By Several National Media
Last issue’s haunted houses liability article grabbed the attention of some media and law blogs. That article was the subject of stories by Law360, The Wall Street Journal law blog, The ABA Journal tort law blog, Lexis, some legal blogs, including LawHaHa, and even a newspaper in the Philippines mentioned it. Check these out here.

Every Coverage Question Answered And Putting Every Coverage Lawyer In America Out Of Business
Attendees at the 7th White and Williams Coverage College in early October came expecting to learn some things about insurance coverage. But little did they know that they would leave with the answer to every coverage question possibly imaginable. How can this be? Easy. The White and Williams “Is it covered?” Magic 8 Ball. My apologies to the entire coverage bar for putting them all out of business.

Declarations: The Coverage Opinions Interview With Chris Amrhein
of InsuranceIsFun.com
The Insurance Website That You’ve Gotta See To Believe

Just its name – InsuranceIsFun.com -- has got to be enough to make you want to check it out. And when you do you won’t be disappointed. How many insurance websites sell coffee mugs, clocks, boxer shorts, t-shirts and clothing for your dog (and lots more) that say such things as “Bind me baby,” “Adjusters live in denial,” “Forget my exclusions. Let’s talk about your limitations,” “Insurance is fun. No really, it is,” and “Will bind for chocolate.” (And a bunch more). But selling fun insurance items is just part of this great website.

Late-r Notice: Decisions To Come
K.C. Royals’s Mascot, Sluggerrr, Back In Court

Sluggerrr, the Kansas City Royals mascot, has been embroiled in litigation on account of injuring a fan’s eye, during a September 2009 game, when the furry lion threw, behind his back, a four ounce foil wrapped hotdog into the stands. Sluggerrr’s legal ordeal was discussed in March as part of the Coverage Opinions Baseball Issue. Sluggerrr’s litigation is still going on. The case was recently argued before the Supreme Court of Missouri. The Phillie Phanatic filed an amicus brief.

Holy Mau: A New Kind Of Chinese Drywall Claim
Chinese drywall -- Litigation over the smell of a rotten egg, er, rolls on. There has been lots of coverage litigation in the past few years over various issues associated with Chinese drywall. But last week’s decision from a Florida federal court involved one that I had never seen before.

For Professional Liability Policies: One Of The Most Important Questions
How to define the term “wrongful act” in a professional liability policy is a significant issue when it comes to drafting such policies. This was recently on display before the Sixth Circuit.

Significant Decision: Another Way To Limit Construction Site Exposure
(Without Using An Endorsement)

Insurers have been taking various steps – via endorsements -- to attempt to limit their exposure for bodily injury claims on construction sites. The Eleventh Circuit just demonstrated a method for insurers to achieve this – and it requires no changes to standard policy language.

Guest Commentary: The Duty to Defend – Part III
The (Insurance) Legacy of Jerry Buss
By Joseph M. Junfola, CPCU, RPLU+, SCLA

In the third, and final, installment of his Duty to Defend series, Joe Junfola looks at an insurer’s right to reimbursement of defense expenses from its insured if it is determined that there was no potential for coverage as to some of the causes of action in a lawsuit, commonly known as a “mixed” action.

 
 
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Vol. 2, Iss. 21
November 13, 2013

 

 

The Most Interesting Insurance Man
In The World



You’ve no doubt seen him in many commercials for Dos Equis beer. He’s gray-bearded and handsome, wears a smoking jacket, has a cigar between his fingers and is often seen with a beautiful woman on his arm. He is – The most interesting man in the world. A voice-over on the commercials then lists some of the things that he does to deserve this title of all titles: His snow globe gets 24 inches of fresh powder every year; His charm is so contagious that vaccines have been created for it; His blood smells like cologne; His organ donation card also lists his beard; His lives vicariously – through himself; When he drives a new car off the lot it increases in value; The police often question him just because they find him interesting; and so many more.

Then, at the end of the commercial, he appears on the screen, looks you straight in the eye and says with a suave Latin accent: “I don’t always drink beer, but when I do I prefer Dos Equis. Stay thirsty my friends.”

Well, you may not know this (and I’m sure you don’t) but there is also a most interesting insurance man in the world. He’s short and wears a bowtie and writes an insurance newsletter. Kidding. Kidding. Consider ten things that make the most interesting insurance man in the world worthy of such a grandiose title (and make that Dos Equis guy green with envy):

He disclaims coverage under the pollution exclusion and then goes to the site and cleans it up himself.

He goes to a bar to investigate a liquor liability claim and buys everyone a drink.

He shows up at a mediation and everyone offers him their limits.

He doesn’t consider notice to be late if it was only fashionably late.

He describes a defense obligation as a pleasure to defend.

His calling card alone is considered a proper reservation of rights in 42 states.

When he wins a coverage action he sends a fruit basket to his adversary.

His choice of law problem is between France and Monaco.

Allocation is never an issue because there is plenty of him to go around.

He thinks it would be tacky to seek reimbursement of defense costs.

I don’t always disclaim coverage, but when I do I prefer not to do so in bad faith. Keep it covered my friends.


That’s my time. I’m Randy Spencer.

Randy.Spencer@coverageopinions.info

 


Vol. 2, Iss. 21
November 13, 2013

 

 

Randy Spencer Appearing At
Helium Comedy Club In Philly


Randy Spencer will be performing at Helium Comedy Club in Philadelphia on the following dates:

Saturday November 23 at 3:30 P.M - Philadelphia Comedy Academy. PCA shows are always a lot of fun and this one is going to be great as there will be about 20 comics performing – from seasoned veterans to some who will be doing stand-up for their very first time.

Sunday December 8 at 7 P.M. - Annual Philadelphia Comedy Academy Best Comedian Contest! This is a great event and you can expect the show to be sold out! This is the night when there is a lot on the line and everyone brings their A game. And there is nothing better than watching stand-up comedy in a club that is packed to the rafters.

I hope you can make it out to one of the shows if you live nearby. More information available at Helium Comedy Club’s website.

 

 


Vol. 2, Iss. 21
November 13, 2013

 

Coverage Opinions
Has A “New Coke” Moment

Problem Solved: Responding To The Complaints About The New Format For Coverage Opinions


I received a ton of e-mails about the new format for Coverage Opinions. I’m happy to say that much of it was positive. But there was plenty of negative too. Please allow me to explain what led to the new format, some readers’ dissatisfaction and my solution to the problem.

For the past year I received e-mails from readers telling me that they did not like the fact that, to read Coverage Opinions, it was necessary to download a large file – usually 10-12MB. I received complaints that it took too long to download or, worse, could not be downloaded at all. [Computer systems can react differently when it comes to speed of downloading a file.] Thus, as much as I liked the appearance of the newsletter/download format, I decided to make the change to a format where each article is a separate link to a webpage. This allows each article to be instantly accessed with one click. This is the same format that many very well done commercial e-mail newsletters use – so I assumed that I was on the right track. There are other advantages to this format as well: much easier production and ability to forward or post a single article. I really thought this had solved the download problem – and it did.

However, from the e-mails that I received after the inaugural new format, I simply underestimated how many people really liked the download concept. [Where were you guys over the past year when others were telling me how much they disliked it!?] It enabled the entire newsletter to be continuously read on the screen or printed with just one click. I learned that easy printing was a very popular feature for people who wanted to read it on the train or, in another, more private place where things get read.

So, I went back to my web designer/production guru and we discussed a way to keep the separate links feature, as well as offering the ability to print the entire issue, with one click, but without requiring downloading.

Problem solved. There is now a link that enables the entire issue of Coverage Opinions to appear on your screen so it can be read and printed all at once. One drawback. The font may be small when it prints. This is a common problem caused by a printer reducing the size of a web page so it can all fit on the printed page. I hope to have this fixed.

I appreciate all of you that sent me comments about the new format – even the negative ones. I listened. The huge response told me that people are reading Coverage Opinions and like it enough to voice their opinions. Thank you.

 



Vol. 2, Iss. 21
November 13, 2013


Coverage Opinions Contest:
Return Of The Best Contest Ever: Insurance Personalized License Plates

When I wrote my Binding Authority newsletter I did a bunch of insurance-related contents. I’ve done a few on Coverage Opinions as well. Some are more popular than others. But far and away the most popular contest I’ve done has been to submit an insurance related personalized license plate. This is a personalized license plate that clearly tells other drivers that you work in the insurance world -- and especially coverage. And a really good one, and most likely to win, is where the license plate says something that would make no sense to anyone who is not in the insurance or coverage world -- but make complete sense to someone that is.

The best way to describe this is to look at the winners of the insurance personalized license plate contest that I did in Binding Authority back in March 2012. Only someone that knows coverage would get any of these. All other drivers will be left scratching their heads at the light.

So please submit your entries (as many as you want) for best insurance related personalized license plate. Maximum number of characters that can be used is 7 (letters and numbers only). Entries can be submitted up until the time I turn on my computer on November 24th.

The three best entries will each receive a $25 gift certificate for the great stuff available on InsuranceIsFun.com (coming directly out of my pocket). This will make sense when you read the Insurance Is Fun article elsewhere in this issue. But, of course, the real prize is bragging rights and the thrill of having the insurance paparazzi staked outside your home. No purchase necessary. Void where prohibited. I love saying that.

And if you really do have an insurance related personalized license plate please let me know. That must be featured in Coverage Opinions!

Here are the winners of the March 2012 insurance personalized license plate contest:

 


Vol. 2, Iss. 21
November 13, 2013

 

 

Coverage Opinions’s Haunted Houses Liability Article Picked Up By Several National Media


The last issue of Coverage Opinions, on Halloween-eve, included an article that looked at whether the visitor of a haunted house can sue for injuries sustained in the process of being scared. Based on the cases to have looked at the issue, the conclusion is No. You go to a haunted house expecting to (and paying to) be surprised, startled and scared by the exhibits. So, courts conclude, there is no complaining when you get what you asked for – even if you are a 10 year old girl that gets frightened when a character at a haunted house jumps out at her and she runs directly into a visqueen-covered cinder block wall.

Coming on the eve of Halloween, and involving a question that has perhaps never been given much thought, the haunted houses liability article grabbed the attention of some media and law blogs. That article was the subject of stories by Law360, The Wall Street Journal law blog, The ABA Journal tort law blog, Lexis, some legal blogs, including LawHaHa, and even a newspaper in the Philippines mentioned it.

It was very exciting to see Coverage Opinions, my sleepy little insurance newsletter, get some national exposure. A few of these articles are on the In the News page.

 


Vol. 2, Iss. 21
November 13, 2013

 

 

Every Coverage Question Answered And Putting Every Coverage Lawyer In America Out Of Business


Attendees at the 7th White and Williams Coverage College in early October came expecting to learn some things about insurance coverage. But little did they know that they would leave with the answer to every coverage question possibly imaginable. No matter what type of policy or complexity of the claim – the answer, provided in seconds, is right there at their fingertips. Voila. Talk about a great insurance coverage seminar!

How is this possible? Easy. The White and Williams “Is it covered?” Magic 8 Ball. Just state the facts of the claim, the type of policy, the relevant policy provisions and don’t forget to provide the jurisdiction. Then shake the Magic 8 Ball while simultaneously asking: Is it covered? The answer will then appear right before your eyes in the blue window. There are so many options: Positively; No doubt about it; Chances aren’t good; Unlikely; Absolutely; Consult me later; Ooh, that’s a tough one, not sure, you’d better buy Maniloff’s coverage book; and many more.

And here’s the best part of using the Magic 8 Ball. If you are sued for bad faith regarding your coverage determination – no problem. You will be completely protected by raising the Reliance on the Magic 8 Ball Defense!

My apologies to the entire coverage bar for putting them all out of business.

I have a few extra Magic 8 Balls in my office. If you are in the Philly office of W&W just give me a buzz and I’d be happy to give you one of these invaluable babies. If you have one from the Coverage College, please -- do not let me see it for sale on eBay.

 


Vol. 2, Iss. 21
November 13, 2013

 

Declarations: The Coverage Opinions Interview With Chris Amrhein
of InsuranceIsFun.com

The Insurance Website That You’ve Gotta See To Believe




Just its name – InsuranceIsFun.com -- has got to be enough to make you want to check it out. And when you do you won’t be disappointed. How many insurance websites sell coffee mugs, clocks, boxer shorts, t-shirts and clothing for your dog (and lots more) that say such things as “Bind me baby,” “Adjusters live in denial,” “Forget my exclusions. Let’s talk about your limitations,” “Insurance is fun. No really, it is,” and “Will bind for chocolate.” (And a bunch more). But selling fun insurance items is just part of this great website.

The obvious questions about a website like this – what’s its purpose, how did it get there and who’s behind it?

First the who. IIF is the brainchild of Chris Amrhein of Virginia. Chris is a 42 year veteran of the insurance industry. His background is in the independent agency business, having been a producer and agency owner/manager. But Chris is now, and has been for a long time, an insurance educator. He serves as a speaker, consultant, seminar leader and training developer. He is also a text book author, monthly columnist for American Agent and Broker Magazine and faculty member of the IIABA’s Virtual University.

Chris’s collaborator, co-founder of IIF, and co-chief fun officer, as he is known, is Peter van Aartrijk of The van Aartrijk Group LLC in Virginia. The van Aartrijk Group is a branding and marketing communications firm dedicated to supporting professionals in insurance, financial services and association management.

I spoke to Chris last week from California where he was on the road doing what he does. So what’s the story behind IIF, I blurted out after we had a minute of pleasantries. The idea for Insurance is Fun came about six or seven years ago as a place (club so to speak) where insurance professionals, who speak a language only known to themselves, can go and experience a lighter side of the business. The idea was for it to serve as an adjunct to its founders’ business interests. Incidentally, Insuranceisfun was Chris’s AOL e-mail address since its very earliest days.

The IIF website describes itself as a place where those with a fascination with forms, lust for policy language and kinship with coverage can come together and feel a part of something greater. No longer do you need to keep your love for insurance a secret. IIF is a way of life. Loving what you do and being proud of it. The site uses superb cartoon graphics and this immediately sets the tone for what’s about to come.

The IIF site offers educational insurance podcasts (such as lessons from the Grateful Dead to incorporate into your business), insurance jokes, claims quotes, insurance poetry and seminar offerings. While the content is somewhat focused on the insurance agency side of the business, there is plenty there for non-agents too.

Now, about all of those products with crazy insurance expressions. Wearing a t-shirt or apron that says “Bind me baby” or “Adjusters live in denial,” or having such expressions on a stuffed teddy bear, license plate frame, hat, pillow or clock, is simply part of the IIF experience, Chris explained. Bind me baby is the best selling slogan. Can’t make up your mind about which expression you like best? There is a t-shirt that has them all.

Of course I had to ask Chris about sales. While the site sells plenty of merchandise, he told me, it does not make a lot of money. But it is not designed to. Since the site does not accept advertising, the objective is simply for the money made from the store to cover the IIF site’s expenses. And it does that. The site uses Café Press to handle the production and distribution of the products. When you take the Café Press route, where they do all the work, it limits the amount of money to be made. Chris raved about Café Press and the level of quality and service that they provide. That’s what matters most to him.

Check out InsuranceIsFun.com and see the fun that you’ve been missing and how you can be the most popular gift-giver this holiday season.

 


Vol. 2, Iss. 21
November 13, 2013

 

 

Late-r Notice: Decisions To Come
K.C. Royals’s Mascot, Sluggerrr,
Back In Court



Thank you to all the readers who sent me the media story about Sluggerrr, the Kansas City Royals mascot who has been embroiled in litigation on account of injuring a fan’s eye, during a September 2009 game, when the furry lion threw, behind his back, a four ounce foil wrapped hotdog into the stands. This was done as part of Sluggerrr’s regular in game antics. The fan, John Coomer, subsequently needed two eye surgeries. I wrote about Sluggerrr’s legal ordeal in March as part of the Coverage Opinions Baseball Issue.

Brief background. Sluggerrr was successful at trial. A jury found the furry guy to be zero percent at fault and the fan, Mr. Coomer, one hundred percent at fault. However, in January, the Missouri Court of Appeals, in Coomer v. Kansas City Royals Baseball Corporation, reversed, holding that it was error for the trial court to charge the jury on primary implied assumption of the risk when it comes to a flying hotdog. The appeals court explained: “Everyone who participates in or attends a baseball game assumes the risk of being hit by a ball, because the risk of being hit by a baseball is a risk inherent to the game. However, the risk of being hit in the face by a hot dog is not a well-known incidental risk of attending a baseball game. Consequently, a plaintiff may not be said to have consented to, and voluntarily assumed, the risk merely by attending the game.”

[I checked out Sluggerrr’s website. He’s adorable. He doesn’t look like he would hurt a fly. Follow him on Twitter: @Sluggerrr.]

Until hearing from Coverage Opinions readers, and being sent a recent media story, I had no idea that the Sluggerrr litigation was still going on. The case is now before the Supreme Court of Missouri which held oral argument on September 11. The Phillie Phanatic filed an amicus brief supporting Sluggerrr. [You can hear the oral argument on the Missouri Supreme Court’s website. It’s interesting and entertaining.]

Here is the issue at the heart of Sluggerrr’s case. In general, fans seeking damages for injuries sustained by a foul ball have a very difficult time recovering from the stadium operator. The majority of courts that have confronted the question have adopted the so-called “Baseball Rule,” which limits the duty owed by baseball stadium operators to spectators injured by foul balls. The Baseball Rule generally provides that a baseball stadium operator is not liable for a foul ball injury as long as it screens the most dangerous part of the stadium and provides screened seats to as many spectators as may reasonably be expected to request them.

Sluggerrr’s case is getting a lot of attention, according to the recent media story, because it raises the question whether this “baseball rule,” or “no duty rule,” should also apply to injury caused by a mascot. Mascot antics have become an important part of sporting events. The question being asked is, if Coomer wins, will it cause teams to rethink some of their promotions or take additional measures to keep spectators safe? [I doubt it. I don’t think too many mascot antics are dangerous and what happened to Mr. Coomer was just a freak accident.] In any event, a lot of attention is on this case and I’m very curious to see what the Missouri high court does.

 


Vol. 2, Iss. 21
November 13, 2013


Holy Mau: A New Kind Of Chinese Drywall Claim

Chinese drywall -- litigation over the smell of a rotten egg, er, rolls on. There has been lots of coverage litigation over the past few years concerning various issues associated with Chinese drywall. But last week’s decision in Chartis Property & Casualty Company v. Jassy, No. 12-2087 (M.D. Fla. Nov. 4, 2013) involved one that I had never seen before. While the case may not be hugely significant, Chinese drywall issues are important to many, this one is unique and it may foretell others like it. So I decided to give it a few words here.

The case involved the availability of coverage, under the liability section of a homeowners policy, for a suit against insureds, the Jassys, alleging that they sold their home without disclosing to the buyers that it contained Chinese drywall. Upon moving in the buyers discovered the corrosive effect of the Chinese drywall and suffered damage to personal and real property.

The court easily disposed, as not covered, all but one cause of action: “[T]he breach of covenant of good faith and fair dealing, negligent misrepresentation and fraudulent misrepresentation claims all allege intentional acts by the Jassy’s and therefore fall squarely into the intentional act exclusions of all three policies.”

The negligence cause of action took a little more work. The Jassys and the home buyers argued that the negligence claim triggered a duty to defend because it supported the conclusion that an “occurrence” caused “property damage” and such cause of action did not fall within the intentional act exclusions. In support of this they pointed to the following allegations: “‘the Jassys owed a duty of due care to Kuhn and McDermott [buyers] in connection with their dealings with Kuhn and McDermott relating to the sale of the home,’ and that they breached that duty of care. They allege that the breach was the proximate cause of the property damage suffered by Kuhn and McDermott, including physical injury to, destruction, loss of use, replacement and repair of ‘personal property, furnishings, electronic appliances and other metal surfaces and household items.’”

The court tackled the negligence argument as follows. The negligence allegation against the Jassys could only be for their negligence in not discovering the Chinese drywall and disclosing that discovery to the buyers. However, under Florida law, the Jassys had no duty to discover the Chinese Drywall and only a duty to disclose in situations where “the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer.” In other words, the seller of a home is liable only for failing to disclose material defects of which he is aware. Therefore, the court concluded, “[s]ince the negligence allegation against the Jassys is based entirely on the Jassys failure to disclose the Chinese Drywall, and the Jassys could only be liable for omissions of material facts of which they were aware at the time of the sale, the claim falls under the intentional act exclusions.”

Claims against sellers of homes, brought by buyers, for the sellers’ failure to disclose a condition of the property, are common -- and there is no shortage of coverage law addressing them. In that sense, the Florida federal court’s decision in Jassy is far from groundbreaking. But it involves Chinese drywall and is the first I’ve seen of such type. [I couldn’t find others but admittedly I did not research it to the ends of the earth.] And also given the possibility that these types of claims will continue, as owners of Chinese drywall affected homes sell them, I thought it met the criteria for addressing in CO.

 


Vol. 2, Iss. 21
November 13, 2013


For Professional Liability Policies: One Of The Most Important Questions

I draft a lot of professional liability policies for clients. Before starting that process I have a list of ten or so fundamental questions that I discuss with them. These are questions that go to the heart of a professional liability policy. They are designed to get the client thinking about the many choices that must be made, and options available, when it comes to offering this type of coverage – regardless of the type of profession. In the end the drafting process is all about nuance and minutiae. But that drilling down can’t take place, or shouldn’t, until there has first been a full discussion of several fundamental policy issues.

In some types of professional liability policies, one of these overarching issues is how to define the term “wrongful act” (or a similar purpose term), as used in the insuring agreement, as one of the requirements to trigger coverage. Some professional liability policies define “wrongful act” as an “act, error or omission.” But others define it as a “negligent act, error or omission.” The difference here is quite obvious and it can have a significant impact in the claims context. This issue, and which route to take, is one that I discuss at length with clients that are embarking on a new professional liability policy.

The significance of how to define “wrongful act,” in a professional liability policy, was on display before the Sixth Circuit in Szura & Co. v. General Ins. Co., No. 12-2505 (6th Cir. Nov. 5, 2013). Szura involved the availability of coverage, for an insurance agency, under an Insurance Professionals Errors and Omissions Liability policy, for a claim brought by a competing agency. In general, an employee of one agency left and went to work for another agency and began selling insurance products to his former agency’s customers. You’ve heard this story before.

Szura, the defendant in the agency dispute, sought coverage under an E&O policy. Putting aside the issues that were before the District Court, the Sixth Circuit concluded that no defense was owed because the policy defined “wrongful act,” in relevant part, as “any actual or alleged negligent act, error or omission.” The court concluded that this definition was not satisfied because the allegations in the underlying complaint were that Szura intentionally interfered and improperly interfered with contracts and business relationships (as well as engaged in a civil conspiracy to do so). The court held: “The Coverage Provision extended only to claims that arose out of ‘wrongful acts, and only conduct that sounds in negligence is deemed a wrongful act as that term is used and defined in the Errors and Omissions Policy. None of the factual allegations in Mayfair’s complaint against Szura sounded in negligence, and it therefore follows that General Insurance had no duty to defend Szura against Mayfair’s claims.”

This sounds very basic, I know. But if the policy had defined “wrongful act” as an “act, error or omission,” without the negligence modifier, then, in all likelihood, the insurer would have been obligated to defend (putting aside whether coverage was owed for a claim brought by a competitor and not a customer). And, in many instances, professional liability policies do define “wrongful act” as just an “act, error or omission.” And when that happens I suspect it may not have always been the result of a conscious decision during the drafting process, but, rather, because the old form, being used as the model for the new form, defined it that way.

I recognize that, when a professional liability policy defines “wrongful act” as simply an “act, error or omission,” there is usually an exclusion that precludes coverage for intentional, fraudulent, criminal, malicious, etc. conduct. But such “state of mind” exclusions can be difficult to apply. Moreover, they often-times do not serve as the basis to disclaim a defense until there has been a judicial determination of such type of conduct. This can add a whole other layer of complexity.

A professional liability policy that defines “wrongful act” as a “negligent act, error or omission” is not the same as one that defines “wrongful act” as an “act, error or omission” and then uses an exclusion for certain intentional-based conduct. This, and at least nine others, are things to consider when putting pen to paper on a new professional liability policy.

 

 


Vol. 2, Iss. 21
November 13, 2013


Another Way To Limit Construction Site Exposure (Without Using An Endorsement)

Insurers have been taking various steps to attempt to limit their exposure for bodily injury claims on construction sites (not to mention for property damage). One way has been to amend the employer’s liability exclusion to preclude coverage for employees of “any insured” as opposed to “the insured.” In this way, coverage may not be owed to general contractors, that are additional insureds under policies issued to subcontractors, for injuries to employees of the subcontractor. Since the exclusion precludes coverage for employees of “any insured,” and the general contractor is an “insured” (an additional insured), no coverage is owed.

Another tack insurers have taken has been to add exclusions that preclude coverage for an employee of any contractor at the site, even if not an employee of a contractor hired by the insured.

The Eleventh Circuit just demonstrated another method for insurers to limit their exposure for bodily injury claims on construction sites – but this one requires no changes to standard policy language. In Amerisure Insurance Co. v. Orange and Blue Construction, Inc., No. 13-10313 (11th Cir. Nov. 4, 2013) the court held that the employer’s liability exclusion applied to preclude coverage for Epoch Properties, a general contractor, under a policy issued to a subcontractor, for an injury sustained by an employee of another subcontractor. The employee killed on the construction site was employed by a contractor that was three tiers removed from the GC.

Not surprisingly, Epoch, the general contractor, argued that the employer’s liability exclusion did not apply because it excluded coverage for bodily injury to an employee of “the insured” and the decedent, three tiers removed, was hardly an employee the insured – the GC.

But the court was not persuaded. The Eleventh Circuit held that “[a]lthough Mr. Tejeda may not have been one of Epoch’s employees in the traditional sense, Mr. Tejeda was a ‘statutory employee’ of Epoch for purposes of workers’ compensation law. . . . Because Mr. Tejeda was one of Epoch’s statutory employees and was injured during the course of his employment, Amerisure had no duty to defend or indemnify Epoch against his Estate.”

The Appeals Court explained its decision as follows: “Our interpretation of the CGL policy is consistent with the purpose of commercial general liability policies like this one. Unlike worker’s compensation insurance or employer’s liability insurance, which exist to provide employers with coverage for injuries that occur to employees during the scope of employment, the sole purpose of commercial general liability insurance is to provide coverage for injuries that occur to the public-at-large. . . . Because the terms of the CGL policy did not cover injuries to Epoch’s employees or the employees of Epoch’s subcontractors like Mr. Tejeda, Amerisure has no duty to indemnify or defend Epoch in this case.”

In general, a “statutory employee” is an employee of a subcontractor, who is deemed to be an employee of the general contractor, when he sustains bodily injury while acting within the scope of his employment. Even though a “statutory employee” is considered a employee of the general contractor for purposes of workers compensation, some courts have held that the employee is also considered an employee of the general contractor for purposes of the employer’s liability exclusion. There are at least cases in Texas, Tennessee and Idaho (relying on the trial court decision in Orange and Blue) that have so held.

While lots of insurers have been using endorsements, to attempt to limit their bodily injury exposure on construction sites, Orange and Blue demonstrates a possible way to do so using the standard policy that is probably already in the insurer’s hands.

 


Vol. 2, Iss. 21
November 13, 2013


Coverage Opinions Guest Commentary

The Duty to Defend – Part III
The (Insurance) Legacy of Jerry Buss

By Joseph M. Junfola, CPCU, RPLU+, SCLA


In Part I of this series, The Anomaly of the Duty to Indemnify without a Corresponding Duty to Defend, we explored the peculiarity of an insurer having a duty to indemnify its insured but not a corresponding duty to defend. Part II, Two’s Company and Sometimes Three’s a Crowd, addressed the insurer’s right to defend and the impact that a conflict of interest may have on that right.

In this third, and final, installment, we tackle the insurer’s right to reimbursement of defense expenses from its insured if it is determined that there was not a potential for coverage as to some of the causes of action in a lawsuit, commonly known as a “mixed” action.

The “Right” to Reimbursement

In February 2013, Dr. Jerry Buss, long-time owner of pro basketball’s Los Angeles Lakers and hall of famer, died at the age of 80. Aside from a legacy of world championships, he also left one for the insurance industry in the form of a California Supreme Court case decided in 1997, Buss v. Superior Court, 16 Cal. 4th 35 (Cal. 1997), probably the leading case supporting the right of an insurer to seek reimbursement for expenses incurred in the defense of causes of action that are not potentially covered under the policy.

It is common that the defense of an insured is conducted under a reservation of rights due to coverage issues. The reservations may include the right to seek reimbursement for defense expenses paid. Because the duty to defend is very broad, and because the insurer must defend the entire action, some jurisdictions provide for the right to reimbursement of defense expenses specific (solely) to causes of action that are not potentially covered in a mixed action.

The Buss case is probably the poster child for this right to reimbursement. In the underlying case against Buss and others, H&H Sports had contracted with Buss to provide advertising and other services. A dispute between the parties evolved into a lawsuit in which 27 causes of action were asserted, including count 23 for defamation. Buss’ insurer defended the entire lawsuit on the premise that only the defamation count was potentially covered.

The central issue was whether the insurer could recover the expenses incurred in a “mixed” action, namely, where some of the causes of action are not potentially covered while others are. The court held that the insurer can seek reimbursement for expenses paid solely to defend the causes of action that are not potentially covered, and the insurer has the burden, by a preponderance of evidence, of making the distinction.

But theory and practice are significantly different, and the burden on the insurer to make that distinction may not be an easy one: The Buss court held that an insurer is only entitled to recover those defense expenses which can be fairly and reasonably allocated solely to non-covered claims for which there never was any potential for coverage. And that’s not always easy to do.

Pennsylvania

Of course, while California is a bellwether state in many instances, not every jurisdiction always follows its lead. For example, in 2010, the Supreme Court of Pennsylvania ruled in Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 606 Pa. 584 (Pa. 2010) that the right of reimbursement should be included in the insurance policy if the insurer wishes to preserve this right, as opposed to creating a new contractual obligation by way of an unilateral reservation of rights letter within which the insurer attempts to preserve its right to reimbursement and where the insured accepts the defense. The Court also rejected the insurer’s argument that the insured was unjustly enriched for receiving the defense:

…Royal cannot employ a reservation of rights letter to reserve a right it does not have pursuant to the contract…the policy here did not provide for a right of reimbursement of defense costs for non-covered claims. A reservation of rights letter asserts defenses and exclusions that are already set forth in the policy…We are persuaded that permitting reimbursement by reservation of rights, absent an insurance policy provision authorizing the right in the first place, is tantamount to allowing the insurer to extract a unilateral amendment to the insurance contract…A reservation of rights letter “does not relieve the insurer of the costs incurred in defending its insured where the insurer was obligated, in the first instance, to provide such a defense”…Absent the creation of a new contract through the reservation of rights letters, there is no contractual basis upon which to order Insured to reimburse Royal for defense costs. Am. & Foreign Ins. Co. 614-615

***

Nor are we persuaded that there are any equitable bases upon which to grant a right to reimbursement…

Insured was not unjustly enriched…Royal had not only the duty to defend, but the right to defend under the insurance contract. This arrangement benefited both parties. The duty to defend benefited Insured to protect it from the cost of defense, while the right to defend allowed Royal to control the defense to protect itself against potential indemnity exposure. Am. & Foreign Ins. Co. 615-616

It would appear that, at least in Pennsylvania, an insurer’s right to recoupment of expenses incurred in the defense of a claim or cause of action that is not potentially covered must be provided for in the insurance policy, and cannot be preserved in a simple, unilateral reservation of rights letter extrinsic to the policy. Other states have adopted a similar rule. And some carriers have issued policies that expressly contain such right.

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Disclaimer

The information contained in this article is intended to be used for informational purposes only. Any views expressed do not necessarily represent the views of the Admiral Insurance Company, any of its affiliates, Randy Maniloff or Coverage Opinions. The information contained herein is not intended to constitute and should not be considered legal advice, nor should it be considered a substitute for obtaining legal advice.

About the Author

Joe Junfola has been in the insurance industry for over 35 years, the last 20 of which have been at Admiral Insurance Company in the position of Assistant Secretary, Claims. Joe specializes in long-term exposure, or continuous injury/damage, claims, in particular construction defect and product liability claims, and he also handles design professional liability claims.

Joe holds numerous industry professional designations. He created and conducts the webinar/workshop series, Cause and Effect: Managing the Construction Defect Claim.

Published articles include Allocation in Continuous Damage Claims, CPCU eJournal, February 2011; Apples and Oranges: Policy Provisions Related, But Distinct, Property Casualty 360°, November 7, 2011; Perspectives on the Mediation Process and Its Participants: How and Why People Mediate – The Claims Professional’s Perspective, FDCC Quarterly, Winter 2012.

Joe is a graduate of La Salle University in Philadelphia and resides in Washington Township, New Jersey. He is past-president of a small condominium association in Cape May, NJ. He is also a member of the CPCU Society and the Society of Claim Law Associates.