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Coverage Opinions
Effective Date: August 20, 2014
Vol. 3, Iss. 12

Declarations: The Coverage Opinions Interview With Jay Bilas – Duke Basketball Star And Coach, Lawyer, ESPN Broadcaster, Author
Defining Toughness; From Viral Article To Book; Getting Your Head Blown Up; Going One-On-One With The Fourth Circuit; Paying Student Athletes; On-Hold Music
Jay Bilas is the most knowledgeable person in America on the subject of college basketball. The Duke basketball star went on to become an assistant to the team’s legendary Coach K. Bilas then traded the ball for a microphone – spending the past 20 years as a college basketball broadcaster on ESPN. But Bilas isn’t all roundball. He has another noteworthy title on his resume – lawyer.

Randy Spencer’s Open Mic
The Chicago Vomit Clean-up Fee And Other Cities’ Warnings To Visitors
[New Coverage Opinions Contest!]

Not Penny-Wise For The Insurance Industry
This bone-headed move by an insurance company unfairly reflects poorly of the entire insurance industry.

Not Every Man’s Best Friend: A Dog Bites (Mail)Man Story
Guest Author Lauren Kelly, Villanova School of Law 2L, J.D. Candidate 2016, takes a look at legal issues surrounding the cat and mouse game that has long-existed between mailmen and dogs.

A-L-I Opener: More On Chapter 3 Of The ALI Principles
When it comes to liability insurance, the availability of coverage is tied to the concept of fortuity. However, the ALI Principles seem intent on altering this cornerstone of a liability policy. Here’s a look at another draft provision that supports coverage for (very) intentional acts.

Opinion-aided: Courts Granting Policyholders Access To Outside Coverage Counsel’s Opinion Letters
There have been several decisions of late, from courts across the country, allowing policyholders to obtain the coverage opinions prepared for insurers by their outside counsel.

The Philosophical “Products Hazard” Case
This recent decision, addressing whether property damage comes within the “products-completed operations hazard,” has a certain chicken and egg feel to it. It is definitely one of the more interesting “products-completed operations hazard” cases.

15 Minutes (Fifteen Seconds, Really) Could Have Saved The Gecko More Than 15% On Car Insurance
A very un-Gecko like action by Geico causes the insurer to lose an important right under a policy. [Auto claim – but worth reading even if you do not do auto coverage work.]

Supreme Court Awards The Kitchen Sink For Insurer’s Breach Of The Duty To Defend
A Supreme Court slapped an insurer with consequences for breaching the duty to defend that are as harsh as any you’ll see.

PMA v. Aetna: Straight From The Horse’s Mouth: PMA’s Lawyer Still At It Nearly 60 Years Later
The Pennsylvania Supreme Court recently agreed to address PMA v. Aetna, a controversial decision that has been on the books for nearly 60 years. Meet the lawyer who handled the case six decades ago.

Tapas: Small Dishes Of Insurance Coverage News And Notes
Ewing’s Undoing’s Ungluing: Appeals Court Follows Ewing And Holds That Contractual Liability Exclusion Precludes Coverage For Construction Defect Claim





Vol. 3, Iss. 12
August 20, 2014



Jay Bilas is the most knowledgeable person in America on the subject of college basketball. The Duke basketball star went on to become an assistant to the team’s legendary Coach K. Bilas then traded the ball for a microphone – spending the past 20 years as a college basketball broadcaster on ESPN. Last month the website The Hoops Doctor listed the ten most influential people in the college ranks. The list included eight household name coaches, the President of the NCAA and Bilas. This from Hoops Doctor: “Bilas sometimes comes off as the smartest guy in the room, that’s because he is.” But Bilas isn’t all roundball. He has another noteworthy title on his resume – lawyer with Moore & Van Allen in Charlotte.

Such a combination can mean only one thing. Surely Bilas is banned from entering the firm’s NCAA Tournament bracket pool. Anything else would be unspeakable unfairness. And even if Bilas is allowed to enter, he would be wise not to. Can you image the embarrassment of losing to Ethel in Accounting.

This is my first question for Bilas after I thank him for taking the time to speak with me for Coverage Opinions. No, he’s not banned from the office pool he tells me. But he never enters because he’s always out of town at the time of the Tournament. In fact, Bilas’s bracket is published. He laughs that it is not uncommon for people to send him checks after the Tournament, accompanied by a note, explaining that they won their pool thanks to his help and want to cut him in on the winnings. Of course he tosses these checks out.

I’m on the phone with Jay Bilas to discuss his New York Times bestselling book Toughness, what it’s like to be a lawyer and celebrity sports broadcaster and a few other things jotted down on my legal pad. The 6’8” Bilas and 5’4” me actually have a lot in common. He’s a lawyer. I’m a lawyer. He played basketball. I have a Nerf hoop in my office. Two peas in a pod.

Jay Bilas: Career Statistics

Jay Bilas started for Coach Mike Krzyzewski at Duke from 1982 to 1986. He finished third among Duke’s all-time career field goal percentage leaders (56%). During his senior year the team won 37 games but lost to Louisville -- by three points -- in the NCAA Tournament championship game. Bilas was drafted by the Dallas Mavericks and played pro ball in Europe for a couple of years before returning to Duke to attend its law school from 1989 to 1992. While at Duke Law he served as an assistant coach to Krzyzewski. As a Duke coach he won the NCAA Championship (twice, in fact) that eluded him as a player.

Bilas serves as both a game and studio analyst for ESPN. He also co-hosts ESPN’s popular road show, College GameDay, is a regular contributor to Sports Center, ESPN.com, ESPN The Magazine and ESPN radio. He provides commentary on coverage of the NBA Draft and NCAA Final Four. Bilas has twice been nominated for an Emmy for Best Studio Analyst and in 2010 was named Best Game Analyst by Sports Illustrated. Bilas’s popularity is on display on Twitter, where he has a staggering 724,000 followers. Curiously Bilas follows only one Twitter account – Princess Lacey. [Google Princess Lacey and Michigan State. It’s worth it.]

Besides his knowledge, Bilas brings a je ne sais quoi to the microphone. The confident, deep-voice and good-looking Bilas, with a custom suit (as I rightly suspected) hanging on his athlete frame, and touch of a hanky peeking out of his jacket pocket, is as cool as the other side of the pillow. [Credit to Bill Lyon, former sports-writer extraordinaire for The Philadelphia Inquirer, for that great phrase.] In one ESPN short, Bilas is referred to by another broadcaster as the swag-master and asked since when he’s had his swag. The 50-year old Bilas responds, matter-of-factly, 1963.

Bilas is a member of the Screen Actors Guild. He has appeared in various commercials, including a very clever one for Dove Men+Care, where he helps his son tie a bow-tie to get ready for “the big dance.” And one for ESPN, where he can’t figure out why he’s being treated so poorly in a dining hall, is brilliant. [I won’t spoil the ending.] Bilas had a feature role in the 1989 Columbia Pictures movie “I Come in Peace” starring that classically-trained actor Dolpf Lundgren. Bilas played an alien cop chasing an alien drug dealer. His character dies after his head blows up in the back of a car. [I learned that part from reading a Bilas interview. I did not see the movie. I do a lot of preparation for my interviews. But I have a limit.]

Toughness: The Article That Goes Viral

Last year Bilas published Toughness: Developing True Strength On and Off the Court. To understand the book requires knowing the back story. In January 2009 Bilas wrote a short blog post for ESPN.com called “How does one define toughness in basketball?” He did so by describing nearly two dozen things that happen on the court, such as getting on the floor for a loose ball, blocking out on free throw situations every time, going after rebounds with both hands and talking on defense and letting your teammates know that you are there in case they get beat. A couple of weeks later Bilas wrote a longer follow-up article on the subject.

The article went viral. In his book Bilas described the response this way:

“The response to my article on toughness was overwhelming and humbling. Hundreds of coaches, players, parents, teachers and administrators from all of the world, from the NBA to the military to the elementary school level, called and wrote me to tell me that they had posted the article in their locker room, handed it out to their teams, studied it in class or gone over it in detail with their players, teams, families or co-workers.

A young high school coach in California wrote to tell me his staff had just read the article and it was enlarged, put on a poster board and hung in their locker room. Every player had a small copy in his locker, and as far as the coach was concerned, the article will be the team’s bible going forward.

Kentucky coach John Calipari, then coaching at Memphis, told me he required each of his players to post the article above their beds. Countless other college basketball coaches, from young, up-and-coming coaches to Hall of Famers told me that they had used the article with their teams and had posted it in their locker rooms.”

On a more personal level, Bilas’s son’s team lost a game, badly, to a coach who told Bilas that he had based his entire program on the article. After the game one of the boys from the opposing team approached Bilas, held out some worn papers and asked him to autograph them. It was the toughness article.

Toughness: From Article To Book

Many articles, like cat videos, go viral and then disappear just as quickly. But that didn’t happen with Bilas’s toughness article. To be sure, his article is about toughness in basketball. Full stop. Bilas’s wife, Wendy, however, saw the concept having relevance beyond the hardwood. She suggested that Bilas expand the article into a book. Bilas’s self-deprecating description, to the idea that he could, somehow, possibly write a book, was not feigned.

But it happened. Bilas’s broadcast agent steered him to a literary agent which led to a trip to New York. There, over the course of one day, Bilas listened as five publishers made pitches for the rights to his as yet unwritten book. He essentially had a publishing deal upon arriving back home. Toughness hit the shelves in March 2013. It made the New York Times Bestseller’s List. Of the 134 reviews on Amazon, 100 are five stars out of five and 23 are four stars.

A 250-odd page book, whose purpose is to define one word, might seem a strange concept. But not to Coverage Opinions readers for sure. We’ve all seen courts conclude that an insurer could have prevented its policy from being ambiguous by simply providing a 250 page definition of a term. [And some policyholders would argue that that still wasn’t enough.]

What is Toughness?

In his article that served as a pre-cursor to his book, Bilas defined toughness, on the basketball court, like this: “Toughness isn’t just about being physical. It is far more than that. It is mental and physical discipline under pressure, to do the right thing every time.”

The sub-title of Toughness is “Developing true strength on and off the court.” It’s the “off the court” part that no doubt played an important role in Bilas getting the book deal. So how does Bilas make the conversion from teaching toughness on the court to all other aspects of life? Mainly with basketball stories. But not all. He also draws upon lessons learned from his very supportive parents while growing up in California. Toughness, which Bilas maintains is a learned skill, is defined in chapters that focus on individual aspects of it, such as trust, preparation, courage, persistence, commitment, and so on.

But even though Bilas looks to basketball, to teach toughness off the basketball court, it works. Very well in fact. That’s because Bilas’s lessons on toughness are taught through stories – his own experiences and interactions with teammates, other athletes and hugely successful coaches. We all see great motivational sayings on signs and think to ourselves – Wow, that’s brilliant. I am now going to live the rest of my life based on that. And then five minutes after passing the mall kiosk we have forgotten what the saying was.

But by using memorable stories to teach toughness, Bilas’s efforts don’t suffer this same fate. Good stories are easy to remember. This means that the lessons they offer are also easy to retain. To give just one example. Bilas discusses former NFL player and coach Herm Edwards and that his toughness flowed from the preparation that he put into his physical fitness. Edwards took confidence from his preparation and knowing that it would enable him to play at the same speed on the first play as the last. [Edwards will forever be known and loved by Philadelphia Eagles’s fans for The Miracle at the Meadowlands.]

From the Edwards story Bilas observes this: “Edwards is right. How many players start practice with the intention or goal of simply “getting through” practice? Instead of “getting through” a workout, players need to “get from” a workout – to get the most from it, and the most from themselves. No player ever got better by just getting through something. True toughness is competing through the end of a practice or workout after having prepared yourself mentally to compete. That is a key mind-set of the toughest players."

This story stuck with me. The first thing I think about when arriving at the gym is what time I should leave. But now I’ve stopped wearing a watch while working out and cover the digital readout on the treadmill so I have no idea how long I’ve been on it. I’m now trying to "get from" a workout and not simply through it.

Defining Toughness For A Lawyer

When a lawyer writes an entire book defining toughness there is one question that of course must be asked: What is toughness for a lawyer? Bilas doesn’t need any time to think about his answer. It is having the willingness to prepare he told me. Bilas recounts in Toughness that he once heard legendary Indiana coach Bob Knight say that everyone has a will to win but not everyone has a will to prepare to win.

Bilas told me that even if he wasn’t always the smartest lawyer in the room, he had no doubt that he was the most prepared. He takes great pride in having twice been told by judges that he was as prepared for court as any lawyer that they had ever seen.

These days Bilas holds a Counsel title at his firm and no longer does any actual practicing. When he did he focused on commercial litigation and some securities and intellectual property work. No insurance work – but he tells me how much he disliked construction defect cases. Bilas says that he didn’t love being a lawyer. Yes, he enjoyed it. No, he didn’t dread it. But, he says: “I love basketball!”

The NCAA And Paying Student Athletes

Lately the NCAA is all over the news for the legal battles that it is facing on many fronts. The days of the NCAA governing by fiat may not be long for this world. At least not the same way as it has. The NCAA is facing legal challenges concerning at least such things as athletes’ rights to compensation for use of their likeness, the rights of athletes to engage in collective bargaining, help for athletes that have suffered concussions and limiting athletic scholarships to amounts below the full cost of attendance.

I ask Bilas what he makes of all this legal brouhaha. His conclusion is that the NCAA won’t make changes unless it is forced to do so. He figures that the NCAA knows that it won’t lose every case but won’t win every one either. In another interview on the subject Bilas stated that he’d prefer not to see the NCAA forced to make changes, but, rather, do so “because it’s the right thing.” “But the truth is they’re unwilling to do the right thing.”

What about the granddaddy of all NCAA student athlete issues -- paying athletes for their services beyond simply a scholarship. Bilas is a vocal, and recognized, advocate in support of student athlete compensation. His full views on the subject, covered extensively in web-accessible articles, are well-beyond the scope here. In general he advocates for a free market system – which he notes seems to work fine for everyone else.

Bilas scoffs at schools’ claims that they can’t afford to pay student athletes when they can pay coaches millions of dollars and build multi-million dollar facilities. Bilas doesn’t offer a time-table on student athlete compensation, but he tells me this: “No way this is going to stay the same.”

Going One-On-One With The Fourth Circuit

I asked Bilas about life as a celebrity. Even before his broadcasting career he had notoriety – having been a star player at Duke and serving as an assistant coach while attending Duke Law School. And as a lawyer, especially in North Carolina, surely people associated him with his basketball achievements. But Bilas pretty much dismisses this, telling me that, both as a law student and lawyer, he didn’t notice it too much. But since life as a broadcaster, especially ESPN, he gets noticed a lot. You can feel it when people are looking at you he says. But he has no problem with this. Bilas expressed a genuine joy at speaking with those who approach him and the opportunity that it creates to meet a lot of nice people.

But Bilas did share one story with me where his notoriety intersected with his law practice. There is a custom in the Fourth Circuit for the judges to come down from the bench after oral argument and greet the lawyers. After an argument one judge approached Bilas and said: “It’s a lot different than a basketball court.” The judge then told Bilas that he had attended the University of Maryland – a Duke rival. “Is that why you peppered me with questions?,” Bilas asked himself.

Looking Ahead

Given Bilas’s knowledge of the game, skills as a talent evaluator and law degree, he seems to have the ideal resume for an NBA general manager. I asked him if that is in his crystal ball. He says that he’s thought about it, and there have been some inquiries, but the timing has not been right. He also tells me that, from his work on the NBA draft, he has a true appreciation for just how hard that job is.

Bilas does, maybe, offer one hint about his future. He misses the “result” aspect of sports. As a broadcaster, he explains, he has “no skin in the game.” Who wins is not important he tells me. What’s important to a broadcaster is a compelling and close game.

On-Hold Music

My favorite part of the NCAA Tournament is the last act – the network’s emotional highlights film of the past two weeks with the song One Shining Moment serving as the audio backdrop. I get goose bumps just thinking about it. I know. It’s sappy. But toughness means not being afraid to show your soft side. I ask Bilas if the on-hold music on his office phone is One Shining Moment. He laughs. He liked the idea, but pointed out, and rightly so I’m sure, that he’d “probably get sued” if he did that.


Vol. 3, Iss. 12
August 20, 2014


The Chicago Vomit Clean-up Fee And Other Cities’ Warnings To Visitors

[New Coverage Opinions Contest!]

I was in Chicago last week – work trip and I also had the good fortune of doing a set at the legendary Second City. What a thrill!

While coming into the city from O’Hare I took a look at the fare schedule posted in the back of the cab. Base fare $3.25. Ok. That sounds about right. Airport departure tax. Not sure why you have to pay to leave a place, but I’m not going to make a fuss. A dollar for each additional passenger. That makes sense. Vomit Clean-up Fee -- $50.00. Whoa! Never seen that before. I guess that’s proof that Chicago is one hard-partying town.


On reflection – after texting a picture to everyone and saying hey, check this out -- Chicago’s vomit clean-up fee is sensible risk management. You probably can’t prevent a heave-risk from getting into the cab. So the next best thing is to address it post-lost -- with a clean-up fee. I asked the cab driver about the fee. He said that he’s had to charge it twice in the past three years. I started to ask some follow-up questions but it was clear that he wasn’t too keen on discussing it.

As a visitor to Chicago I was happy to be told in advance that tossing cookies in the back of a cab is frowned upon. This enabled me to act accordingly. Now there there would be no surprises when I saw the extra fifty on my credit card statement. [Query – what’s the rule on whether you can expense that?] Other cities would be well-served to provide warnings or other useful information to their arriving visitors. We live in a world of warnings. So what’s one more. If someone takes the time to tell me that putting my finger into an electric socket is a bad idea, why shouldn’t I be informed on my way into Vegas that the Eiffel Tower on the Strip is not the real one.

Here are some other warnings or back of the cab notices that other cities should provide to their arriving visitors:

Denver: Brownies may actually make you hungrier.

Buffalo: Don’t worry. Toronto is only two hours away.

Los Angeles: Not responsible for the loss of your soul.

Phoenix: That whole dry heat thing doesn’t matter when it’s 108.

New York: The Ray’s you are in may not really be the original one.

San Antonio: The Alamo is overrated – but not as much as the River Walk.

New Orleans: Base fare includes vomit clean-up fee.

That’s my time. I’m Randy Spencer. Randy.Spencer@coverageopinions.info

Coverage Opinions Contest: Send me a warning or cab notice that a city would be well-served to provide to its arriving visitors (it’s ok to use a city that I mentioned). Send as many as you’d like. The best ones will get an awesome (can’t buy this baby in any store) GEICO Gecko PEZ dispenser. OK, so it’s not a big prize – but the real prize is bragging rights.


Vol. 3, Iss. 12
August 20, 2014

Not Penny-Wise For The Insurance Industry

Every once in a while you see a story in the news about some guy, who is ticked-off at a traffic ticket or some other municipal fine, and shows up to pay it with all pennies. These stories have become common enough that I wonder why they are even stories anymore.

So when I saw the headline “Insurer Pays Off Lawsuit With Thousands In Coins” my first reaction was ho hum. Gee, some guy is annoyed with his insurance company about something and made payment with coins. But then I read the headline again, this time more closely, and saw that it wasn’t the usual story. It was an insurance company, not some guy, that was the one doing the paying with coins. Huh? An insurance company did this?

According to an August 6 Associated Press story, Adriana Insurance Services, a Rancho Cucamonga, California-based company, settled a 2012 suit with 76 year-old Andres Carrasco of Los Angeles, by dropping off buckets full of thousands of quarters, nickels, dimes and pennies – perhaps totaling $20,000. The story does not provide any details about the suit and Adriana’s attorney had not immediately returned a call seeking comment. Mr. Carrasco’s attorney said that he refused to accept the delivery because he couldn’t verify the amount in the buckets. Cash was paid the next day when he was in court.

Obviously there was some bad blood here. The story also reported that Mr. Carrasco alleged that, during an argument over why the company had cancelled his auto insurance, an agent assaulted him by physically removing him from the office.

As you would expect, the AP story was reported on tons of websites. If you look at the comments sections on some of the sites you’ll see, not surprisingly, that public reaction was quite negative -- toward both Adriana Insurance Services and the insurance industry in general.

Regardless of how contentious the dispute between Adriana and Carrasco may have been, nothing, and I mean nothing, justified this bone-headed move by Adriana. These types of incidents are just one-offs, and not reflective of the entire insurance industry, but nonetheless have the effect of painting with a broad brush and tarnishing all insurers.

Yo, Adriana, what were you thinking?



Vol. 3, Iss. 12
August 20, 2014


Not Every Man’s Best Friend:
A Dog Bites (Mail)Man Story

Lauren Kelly
Villanova School of Law 2L
J.D. Candidate 2016

“Of my six dog bites in those 10 years the most memorable was of a miniature French poodle,” Herb, a postal worker, recounts on the online news forum PostalMag.com. The site allows postal workers to submit stories of dog bites they experienced when delivering mail. While the love-hate relationship between dogs and mailmen is a story that has long-existed in lore, it was no doubt very real to Herb, as he sat bleeding after being bit, a second time, by a miniature French poodle. But he was able to find a solution to deal with the dogs on his route and enjoyed his remaining sixteen years bite-free. His answer: “Seems all the dogs on my route liked Herbie the mailman’s dog biscuits.”

Stories like Herb’s demonstrate the less-than-friendly relationship that can sometimes exist between dogs and mailmen. It’s not just letter carriers, however, finding that a dog’s bark isn’t really always worse than its bite. In general, dog bites do not discriminate, as clearly reflected by a report issued by the Insurance Information Institute earlier this summer. Dog bites accounted for over $483 million paid in 2013 for homeowner’s liability claims. That’s one-third of all dollars paid!

But letter carriers have it particularly rough. Nearly 5,600 of them were attacked by dogs in 2013. The United States Postal Service has tried to bring awareness to the issue of dog attacks on postal carriers by releasing its annual “Top Dog Attack City Rankings” during National Dog Bite Prevention Week each May. The list contains the 30 cities with the most dog attacks on letter carriers. This past year, Houston took the top spot, followed by Los Angeles and Cleveland. That’s a lot of suffering to get you the latest J. Crew catalog.

Even with a decline in injury rates over the last decade, USPS reports that employees are still injured at a rate disproportionate to all federal employees. According to an Insurance Journal article, referencing a Congressional Research Service report, USPS employees made up 22 percent of the federal workforce, yet accounted for 39 percent of injuries, illnesses, and fatalities in 2012. Dog bites were the most frequent injury reported for mail routes conducted by foot. The article goes on to note that, in 2010, under the Federal Employees’ Compensation Act program, administered by the Office of Workers’ Compensation Program, a staggering 43 percent of beneficiaries were USPS employees.

But it’s not just mailmen feeling the bite of these incidents. According to the Rapid City Journal, in the fall of 2013, door-to-door mail delivery was suspended for sixteen residents in a South Dakota neighborhood after a letter carrier was attacked by one of the resident’s dogs. Mail needed to be picked up at the local post office until USPS was able to establish a central delivery unit on the block.

In many instances, owners are found liable for the injuries their dogs caused to postal workers. For example, in Thirlwall v. Galanter (Civil Court, City of N.Y., 1970), a postal worker was bitten after he thrust his mailbag at a dog. He was fearful of the dog and used his bag as a defensive shield. This ultimately caused the dog to bite him. Even though the dog had not bitten before, its actions had made a previous mail carrier so apprehensive about the dog’s propensity to bite, that he refused to deliver mail to the house. The post office had sent a letter to the homeowners citing the dog’s menacing behavior as the reason mail delivery was being temporarily withheld. The New York court found the owners liable, as they should have foreseen that such an incident was likely if a postal worker came into contact with their dog.

As for the age old adage that every dog gets one free bite, many owners are finding that a dog’s first bite is anything but free. Some states impose a strict liability standard in dog bite cases involving a postal worker who did not provoke the dog. An Indiana statute specifically imposes strict liability on pet owners when a postal worker is bitten in an unprovoked attack.

For example, in Cook v. Whitsell-Sherman (Indiana 2011), a letter carrier was bitten by a 100-pound rottweiler after it broke lose from an eight-year-old girl holding its leash. The Supreme Court of Indiana, looking to the strict liability standard, found the owner liable for the postal worker’s injuries even though the dog was in a friend’s care when the attack took place.

Despite the fact that dog bite incidents make up a significant portion of insurance claim payouts, there is also the possibility that a homeowner’s policy will not provide coverage. In Villa v. Pacific Specialty Insurance Company (Cal. Court of Appeal 2010), a mail carrier was attacked and injured by a pit bull terrier when delivering mail. The court found that the homeowner’s insurance policy did not provide coverage because the exclusion for liability caused by an animal applied.

Some homeowners will also find that their insurance will not cover so-called “blacklisted breeds.” A 2002 New York Times story noted that insurers have been denying coverage for certain breeds since the mid-1990s. Some examples of dogs that made the list are pit bulls, rottweilers, dobermans, huskies and wolf-hybrids. Each insurer, however, is able to come up with its own criteria and “blacklist.”

A Psychology Today article from this year, examining the canine-human relationship, noted that at least two states, Michigan and Pennsylvania -- obviously with lots of dog lovers in their legislatures -- have passed laws that prohibit insurers from discriminating based on breed. The article went on to note that several states have pending legislation that would prohibit similar insurance breed discrimination. These laws would force insurers to deny coverage only based on a specific dog and its actions, not just its breed.

This coverage gap has spurred the creation of a new breed of insurance coverage. The Federation of Insured Dog Owners (FIDO) seeks to provide pet owners with coverage for as little as $75 annually per dog. On the company’s website, it states that the dog’s behavior, not its breed, is what is examined to determine coverage. The company seeks to promote responsible pet ownership and provide coverage for a wider variety of dogs.

Despite companies like FIDO, and some states seeking to uphold coverage, dog bite incidents are sure to remain one of the major forces driving homeowner’s insurance policy claims. Likewise, no matter how much e-mail takes over, and even if USPS cuts Saturday delivery, the on-going cat and mouse game between mailman and dog will continue – unless Herbie can make a lot of biscuits. Dogs have long been cited as man’s best friend. But for the mailman, maybe not so much. As USPS’s 2014 bulletin for National Dog Bite Prevention Week puts it, “Don’t Be Fooled: Man’s best friend…can have bad days too.


Vol. 3, Iss. 12
August 20, 2014

A-L-I Opener: More On Chapter 3 Of The ALI Principles

In the last issue of Coverage Opinions I took a brief look at what’s up next for the American Law Institute’s “Principles of the Law of Liability Insurance” Project: Chapter 3. In particular I discussed the Principles’s proposed definition of “accident.” It is defined in §36 as, unless stated otherwise in a liability policy, and when used in an insuring clause: “an action or event that causes a result that the insured does not subjectively expect or intend.”

As I have previously written about, courts have long-been struggling with the meaning of the term “accident.” It is usually not defined in a liability policy. However, the ALI Principles depart from most liability policies and define “accident.” But, to do so as “an action or event that causes a result that the insured does not subjectively expect or intend” is likely to result in coverage for undeserving situations.

Courts have often been confronted with claims by insureds who did the most outrageously intentional acts, and then maintained that coverage was owed because, incredulously, they did not expect or intend the injury that resulted. So it was an “accident,” they assert. However, many courts have also long seen through these assertions of subjective intent as being implausible. Indeed, some judges even use language to suggest that they are snickering inside at the argument that someone could have engaged in such an outrageous act and then asserted: yeah, but I didn’t mean to cause that injury. Courts usually solve this problem by concluding that, despite the insured’s assertion otherwise, when an injury is substantially certain to occur (or some similar language), it was not caused by an “accident.” It couldn’t have been. In other words, common sense prevails.

But to specifically define “accident,” using a subjective test, is to take away courts’ power of common sense. It opens the door to coverage for an injury that, despite the substantial certainty that it was going to occur, may nonetheless be determined to have been caused by an “accident,” as that term is defined. While courts may find an insured’s self-serving assertion, that an injury was not subjectively expected or intended, to be ludicrous, they may nonetheless be constrained, if following the ALI Principle’s definition of “accident,” to rule in the face of incredulousness. After all, with policy language being the test for determining coverage, courts may be compelled to conclude that it trumps the common sense test, that would otherwise be at their disposal to define “accident,” had it not been defined as it was in a policy.

Here is another brief look at a draft Chapter 3 Principle: §37(1): “A liability insurance policy may cover defense costs incurred in connection with any claim, including but not limited to a criminal prosecution, an action seeking fines, penalties, or punitive damages, and a claim alleging expected or intended harm, fraud, criminal acts, or other acts involving aggravated fault.”

Does this really mean that a liability policy may cover defense costs for a criminal prosecution? I would have a better idea of the intent of §37(1) with the benefit of the Comments or Reporters’ Notes. [And in fairness I have not had such benefit.] But on its face here’s what I think §37(1) is getting at.

To be sure, §37(1) is not a pronouncement that a liability policy now, all of a sudden, presto, covers all of these sorts of intentional, even criminal, actions. Rather, my interpretation of § 37(1) is that a liability policy is not precluded from covering this list of intentional acts. In other words, if, under the terms of a liability policy, criminal acts are not covered, then they are still not covered, regardless of what § 37(1) may say. Also, §37(1) is specific that it only applies to defense costs. [The permissibility of indemnity for these types of intentional acts is addressed in §37(4).]

Liability insurers unquestionably do not set out to cover the types of intentional-based acts listed in §37(1). And insurers generally do a good job of making this point in their policies and convincing courts of it. Sometimes courts don’t even get to the policy language to conclude that coverage is not owed. Rather, they take a broader approach and hold that coverage for such conduct is precluded because it would violate public policy to hold otherwise.

But, admittedly, the victims of these sorts of intentional-based acts can often be sympathetic. A court that would like to see compensation awarded, and where insurer dollars are the only way to make that happen, may view §37(1) as a permission slip to do so. Section 37(1) may provide a court with a reason to avoid a decision that public policy precludes coverage. Courts prefer to stay away from deciding issues based on public policy anyway. And if a court is confronted with a close call on whether the policy language triggers a duty to defend for an intentional act, §37(1) may tip the scales in that direction. After all, the ALI says that the court is not precluded from such a finding. While §37(1) applies, on its face, to defense costs, the consequences for breaching the duty to defend are often times not so limited. Not to mention that, once a defense is triggered, the dynamics of the case can shift.

The draft definition of “accident” in §36 is clearly intended to make it easier for insureds to secure coverage for intentional conduct. Section 37(1) – not ruling out the availability of coverage for defense costs for very intentional conduct (even criminal) -- is in the same category. And there are still more draft provisions in Chapter 3 along these lines.

When it comes to liability insurance, a rule as black as coal is that the availability of coverage is tied to the concept of fortuity. That concept is at the very core of a liability policy. The entire bargain between the insurance company and its insured is based on this principle. However, the ALI Principles seem intent on altering this cornerstone of a liability policy. This isn’t just the Principles’s adoption of some particular coverage rule on which courts are split anyway. That’s important too. But the adoption of rules, that open the door to insureds securing coverage for intentional conduct, goes very far beyond that. Even state legislators, who would no doubt score points with constituents by widening insurance policies in this way, haven’t done so.

Does such a tectonic shift really qualify as “coherent doctrinal statements based largely on current state law, but also grounded in economic efficiency and in fairness to both insureds and insurers?” That is what the Principles are described to be in the April 5, 2013 Forward by the Director of the ALI.


Vol. 3, Iss. 12
August 20, 2014

Opinion-aided: Courts Granting Policyholders Access To Outside Coverage Counsel’s Opinion Letters

There have been several decisions of late, from courts across the country, addressing whether a policyholder, in coverage litigation, is entitled to discover the coverage opinions (lower case) prepared for an insurer by its outside coverage counsel. Of course not, you say. An insurer’s coverage opinion letter goes to the heart of the relationship between an insurer and its outside counsel. A policyholder surely can’t get that in discovery. But, in several cases, courts have been allowing policyholders – either actually or potentially -- to obtain the coverage opinions prepared for insurers by their outside counsel.

I have not done a count of the number of these cases that I’ve come across recently. But it is not an insignificant number. Earlier this month the Eastern District of Pennsylvania added Henriquez-Disla v. Allstate Property & Casualty Company, No. 13-284 (E.D. Pa. Aug. 7, 2014) to the list.

At issue in Henriquez-Disla was a discovery dispute in a bad faith case. The policyholder sought discovery from Allstate of unredacted log entries. Specifically at issue were redacted log entries concerning Allstate’s communications with its counsel, Curtin and Heefner. Allstate considered the redacted information to be privileged and protected from discovery.

In an earlier opinion in the case, the court followed a 1986 Minnesota federal court decision which held that the attorney-client privilege drew a distinction between legal work performed by attorneys, which was covered by the attorney-client privilege, and claims investigation performed by attorneys, which was not.

Allstate argued “that it never hired Curtin and Heefner for anything other than legal services. Counsel has attached an affidavit from Holly Kelly, a claims adjuster assigned to Plaintiffs’ claims, in which Ms. Kelly states that Allstate retained Curtin and Heefner ‘to render legal services including the taking of Plaintiffs’ Examinations Under Oath to ultimately render legal/coverage opinions,’ and also states that ‘[a]t no time, did Defendant retain Curtin & Heefner LLP as a ‘Claims Investigator’ or to perform any non-legal claim related functions.’”

The court was not convinced. It described its earlier opinion as follows: “However, the log entries belie the affidavit. Without disclosing their contents, review of the redacted log entries reveals that they contain direction to conduct routine investigation, whether to be done by counsel or by a claims representative[.]” “As explained in my earlier opinion, such activities (investigating subrogation possibilities, determining the cause of the fire, gathering background information on the claimants, and arranging for EUO’s) are ordinary business functions in claims investigation. The fact that they were performed by an attorney at the behest of a claims adjuster does not change the character of the activity—basic claims investigation.”

Now, on reconsideration, the court was persuaded that it may have been too stringent in deciding that certain communications between Allstate and its counsel simply involved basis claims investigation. This time around the court was guided by a 1996 opinion from Judge Wettick, of the Allegheny (Pa.) Court of Common Pleas, that “extoll[ed] the benefits of insurance companies hiring counsel in the decision making process and cautions that open and honest exchanges between company and counsel are less likely if such communications are discoverable.”

Turning to Judge Wettick’s reasoning, the court vacated its earlier opinion and held that certain log entries should remain redacted. The court explained its decision as follows: “Guided by Judge Wettick’s reasoning encouraging open and honest exchanges between counsel and the insurance company, I have again reviewed the log entries that I previously ordered unredacted and will grant Defendant’s motion for reconsideration with respect to eight of them. I believe an argument can be made that Allstate and counsel were participating in the type of information exchange Judge Wettick discussed with respect to these eight entries. Each entry pertains to an actual or contemplated communication with counsel and can be read to touch on strategy or thought process, rather than solely directing an item of basic claims investigation.” [Of note, the court certified the issue for interlocutory appeal to the Third Circuit.]

While the Henriquez-Disla court held that certain log entries were protected from discovery by the attorney-client privilege, the point of the case is why that was so: Because the log entries (at least arguably) involved legal advice and not, per se, because they involved communications between an insurer and its counsel.

Incidentally, the inaugural issue of Coverage Opinions (October 17, 2012) addressed this issue in the context of Barton Malow Co. v. Certain Underwriters at Lloyd’s of London, No. 10–10681 (E.D. Mich. Oct. 3, 2012). There the court set out the following test for determining if communications by attorneys, in the insurance claims process, are subject to attorney-client privilege: “The communication itself must be primarily or predominantly of a legal character. The payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding which of the two indicated actions to pursue are made in the regular course of its business. Merely because such an investigation was undertaken by attorneys will not cloak the reports and communications with privilege because the reports, although prepared by attorneys, are prepared as part of the regular business of the insurance company.”

The take-away from these decisions seems to be that insurers that employ outside coverage counsel should insist that counsel provide legal analysis to support its opinions or recommendations. Likewise, counsel, when communicating to its insurer-clients, should be mindful that it must provide legal advice, and not simply be serving as an aide to the insurer in the process of deciding which of the two indicated actions to pursue. However, as the judge in Henriquez-Disla made clear in her decision to grant reconsideration – noting that certain communications with counsel “c[ould] be read to touch on strategy or thought process” – the line between these two functions may not always be bright



Vol. 3, Iss. 12
August 20, 2014

The Philosophical “Products Hazard” Case


There is just something about the Third Circuit’s decision in Allegheny Design Management, Inc. v. Travelers Indemnity Company, No. 13-4263 (3rd Cir. July 11, 2014), addressing whether property damage comes within the “products-completed operations hazard,” that has a certain chicken and egg feel to it. It is easy to see the coverage issue as a philosophical debate, with not implausible arguments on both sides. [Although the parties certainly did not see it that way.] If nothing else the case is definitely one of the more interesting ones to address whether certain property damage comes within the “products-completed operations hazard.”

The facts are simple. ADM was the general contractor on the construction of a Finish Line retail store inside a mall in Las Vegas. ADM hired Elite Glass and Mirrors to install all glass required for the project and Gold Star Cleaning Company to do the final cleaning of the glass within the store.

On October 23, 2011, Gold Star began cleaning the newly installed glass. Damage to the glass was discovered before Gold Star finished cleaning it. Either Gold Star or Elite caused the damage. On October 26th the Finish Line store opened for business. ADM submitted a claim to Travelers, under its Commercial General Liability policy, for the damage to the glass. Travelers denied coverage. ADM filed suit against Travelers. The federal District Court granted Travelers’s motion for summary judgment. The case went to the Third Circuit.

The court decided not to address whether the “property damage” was caused by an “occurrence” and instead turned to exclusion j.(6): “That particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” However, the exclusion does not apply to “‘property damage’ included in the ‘products-completed operations hazard.’”

Thus, ADM argued that the exclusion did not apply, because the damage to the glass came within the “products-completed operations hazard,” since the glass had been put to its intended use by Finish Line. “Once the glass was installed in the storefront, it urges, it was put to its intended use because Finish Line had begun stocking, inventorying and moving into the store.”

The Third Circuit disagreed: “The District Court found, and we agree, that the damage to the glass occurred before the glass was put to its intended use. The purpose of the glass was clearly to serve as a window through which potential customers could survey items for sale. Accordingly, ADM’s work (the glass) was only put to its intended use by Finish Line when the store opened for business—two days after the damage was first noticed. The glass was not put to its intended use before the store was open to the public. For this reason, the damage did not constitute a products-completed operations hazard.”

It’s an interesting decision. Sure, the glass windows serve the purpose of enabling potential customers to survey items for sale inside. And nothing was for sale before the store opened for business. But the glass also served a security function. Would the stocking of inventory have begun if the glass windows had not been installed? I tend to doubt it.

Curiously, the court noted that, even if the “property damage” came within the “products-completed operations hazard,” coverage would have been precluded under exclusion j.(5): “Neither party disputes that the damage to the glass was caused by the operations of one of ADM’s two subcontractors. This squarely falls under Exclusion 5, which bars from coverage property damage to the part of real property ‘on which ....subcontractors working ....on your behalf are performing operations, if the ‘property damage’ arises out of those operations.’” Perhaps the court declined going this route as it preferred the more interesting and philosophical one.


Vol. 3, Iss. 12
August 20, 2014

15 Minutes (Fifteen Seconds, Really) Could Have Saved The Gecko More Than 15% On Car Insurance


Coverage Opinions hardly ever addresses automobile or subrogation cases. Here I address both. But wait, stay with me. This is an interesting one. It also speaks to an overarching issue concerning how insurers treat policyholders in a certain claim setting.

The issue before the Indiana Court of Appeals in Geico Insurance Co. v. Graham, No. 49A02-1310 (Ind. Ct. App. August 8, 2014) is a simple one. The court described the background very succinctly right at the outset:

“Insured motorists are called upon every day to pay their deductibles in order for their carriers to cover the necessary repairs to their motor vehicles after accidents. Many carriers refuse to include those deductibles in the subrogated claims they make against the other motorists involved in accidents with their insureds. Because they are left on their own, insured motorists often later sue the other motorist(s) involved in those accidents in a small claims court to recover the deductible amounts they paid. And, almost as often, these insured motorists are successful in the small claims action for their deductibles. But here, Geico Insurance Company's insured, Ralph Heitkamp, lost his claim for his deductible in the Small Claims Division of the St. Joseph Superior Court.”

As a result of Geico’s insured losing his small claims court action, to recover his deductible from Graham, the other driver, a trial court held that Geico was now precluded, in its own action, from pursuing a subrogation claim against Graham. The trial court held that the prior small claims judgment in favor of Graham acted as res judicata to bar Geico’s subrogation claim against Graham. Geico appealed.

The Indiana Court of Appeals affirmed. I’ll put aside all of the reasoning and just state the court’s conclusion: “Under the facts and circumstances before us in this case, we conclude that Geico was in privity with Heitkamp for purposes of the res judicata effects of the St. Joseph County small claim action. Geico’s Marion Superior Court claim against Graham was derivative of Heitkamp’s St. Joseph County small claim against Graham. Heitkamp lost in the small claims action against Graham, and neither he, nor Geico as his subrogee, could relitigate the same claim in Marion County. Accordingly, the trial court did not err in granting Graham’s motion to set aside the judgment on the grounds that Geico’s current claim against her is barred by the claim preclusion branch of the doctrine of res judicata.”

The most interesting part of the court’s decision is its commentary on what caused Geico to lose its right of subrogation and how that could have been prevented: “The concerns of insureds to recover their auto policy deductibles are a matter of everyday business for insurance companies like Geico. The better practice would be for carriers like Geico to expressly include their insured’s claims for deductibles in subrogation and share any recovery obtained pro rata. In the alternative, carriers should clearly inform their insureds of the insureds’ responsibilities not to proceed in a legal forum to recover their deductibles incurred in covered claims without the clear permission of the carrier, permission that would include the opportunity for joinder of the carrier for its subrogated interests. After such clear notice, insureds like Heitkamp would sue separately for their deductible at the peril of being held responsible for any damages incurred by their carriers flowing from breach of the underlying contract of insurance.”

For Geico to not include an insured’s claim, for recovery of its deductible, within its own subrogation claim for recovery of damages paid, seems very un-Gecko like. I would have expected the Gecko to take a more collegial approach: “Sure, mate. We’d be happy to include your claim for your deductible within our subrogation claim.” Presumably it would have taken fifteen seconds to add the insured’s name to the caption on the subrogation complaint. And making the effort to recover the deductible would generate goodwill with the customer. But, for whatever reason, and there may have been valid ones, Geico did not do so here. And the court noted that this practice is prevalent among many insurers. I do not know why this is the case. I just don’t handle these types of claims. [Admittedly, Geico may have lost its subrogation case for the same reason why its insured lost its small claims court case seeking recovery of the deductible.]

Query whether this decision will cause any insurers to revisit a practice of not including their insured’s deductible claims within their own subrogation claims made against allegedly at-fault drivers.


Vol. 3, Iss. 12
August 20, 2014

Supreme Court Awards The Kitchen Sink For Insurer’s Breach Of The Duty To Defend


If an insurer is determined to have breached the duty to defend, consequences will attach. It may be that the insurer must pay for the defense costs that it otherwise owed. Or the consequences may be much harsher – the insurer may lose the right to assert otherwise applicable defenses to indemnity, as well as owing, besides the defense costs, a host of other costs, including attorney’s fees. The consequences for an insurer’s breach of the duty to defend vary widely by state.

Not long ago the Supreme Court of Montana demonstrated just how harsh the consequences for breach of the duty to defend can be. In Tidyman’s Management Services, Inc. v. Davis, No. DA 13-0228 (Mont. Aug. 1, 2014) the Montana high court concluded that National Union breached its duty to defend directors, Davis and Maxwell, under a corporate liability insurance policy, for claims alleging breach of corporate duties arising out of a merger.

[The case is lengthy and complex. The point of this article is not to address the specifics of the underlying facts. Rather, it is to demonstrate how the court dealt with the consequences for an insurer’s breach of the duty to defend. Thus I address just enough of the facts to provide context.]

National Union originally defended Davis and Maxwell, but then determined that, following a change in circumstances, a defense would no longer be provided. In response, Davis’s counsel, “filed a ‘stipulation resulting from insurer’s refusal to provide coverage’ with the court, recognizing his client’s inability to pay for a defense and need to protect himself. The stipulation provides that Davis is an insured under the Policy; that 29 million dollars in damages is sought for Davis’s alleged breach of fiduciary duties as an officer and/or director; that NUFI has wrongfully denied a defense to Davis and Davis lacks the funds to defend himself; that Davis assigns all rights, claims and causes of action against NUFI to the plaintiffs; and that the plaintiffs will not seek to execute judgment against Davis’s personal assets.”

The Montana trial court approved the stipulations for entry of judgment. “Notably, the District Court concluded that Montana case law did not impose any duty upon the court to consider the reasonableness of the amount of the stipulated agreement, and that NUFI’s collusion argument was speculative.”

On appeal to the Montana Supreme Court the court made the following determinations:

National Union breached its duty to defend. The court was particularly troubled by this: “Finally, the insurer’s recognition that the Policy was potentially implicated was cemented when, after the first stipulated settlement had been filed, it receded from its coverage position and agreed to defend under a reservation of rights. These facts show that NUFI saw that the Policy was implicated, but refused to provide a defense and thereby breached its duty to defend.”

Here’s the real sting in the decision. Consider these consequences for the insurer’s breach of the duty to defend: “Montana case law clearly provides that where the insurer refuses to defend a claim and does so unjustifiably, that insurer becomes liable for defense costs and judgments. Moreover, ‘[an insurer] cannot escape liability by declaring in advance of trial that the claim for damages is not one covered by the policy.’ Rather, an insurer who breaches the duty to defend is liable for the full amount of the judgment, including amounts in excess of policy limits.” (citations omitted).

In other words, the consequences for the insurer’s breach of the duty to defend is the loss of coverage defenses and liability for amounts in excess of the policy limit.

But surely $29 million may not have been a reasonable settlement amount? After all, it was simply the result of an agreement between parties in a dispute -- with no risk for personal liability. While the trial court concluded that, under Montana law, it had no duty to consider the reasonableness of the amount of the stipulated agreement, the Montana Supreme Court put its foot down there. The court held that, based on issues that National Union had raised, a remand to the trial court was appropriate for a hearing on the reasonableness of the settlement. The burden is to be on National Union to prove that the stipulated judgment was unreasonable.

National Union also argued that the parties “had no incentive to minimize the settlement amount, and, consequently, the settlement was per se unreasonable because it was improperly collusive.” The Montana Supreme Court did not agree, holding as follows: “Neither Montana authority, nor the facts to which NUFI directs our attention, persuade us that the District Court improperly disposed of NUFI’s collusion argument. Montana precedent does not require a court to consider whether a stipulated settlement is collusive where the insurer has breached the duty to defend.” The court suggested that, perhaps in a different case a collusion inquiry might be permissible, but this was not it.

Lastly, I direct your attention to a highly thoughtful (and scathing) dissent.

To recap, following Tidyman’s, an insurer that breaches a duty to defend under Montana law is looking at the following: waiver of any coverage defenses; liability for the amount of a stipulated judgment -- even the portion in excess of policy limits; probably the right to prove that the stipulated judgment was unreasonable – but probably not the right to prove that it was the result of collusion.


Vol. 3, Iss. 12
August 20, 2014

PMA v. Aetna: Straight From The Horse’s Mouth:
PMA’s Lawyer Still At It Nearly 60 Years Later


As mentioned in the July 23rd issue of Coverage Opinions, the Pennsylvania Supreme Court’s 1967 decision in PMA v. Aetna has long-been a controversial one. The decision holds that the Employer’s Liability exclusion (even when it says employee of “the” insured and not “any” insured; and there is a separation of insureds clause) precludes coverage for all insureds, even if the injured plaintiff is not an employee of the insured seeking coverage.

Because it is a Pennsylvania Supreme Court decision, Keystone State courts have been required to follow it, notwithstanding rumblings that they would have ruled differently if writing on a clean slate. Despite all of the debate surrounding PMA v. Aetna, this near-60 year old decision has never been revisited by the Pennsylvania Supreme Court. Until now.

On June 20, the Pennsylvania Supreme Court agreed to hear an appeal in Mutual Benefit Ins. Co. v. Politopoulos, where the Superior Court, constrained to follow the PMA decision, dealt with its displeasure with it by distinguishing it. In general, the court did so based on what it saw as a difference in the separation of interests clause.

PMA was long-ago represented in its case with Aetna by an attorney named Joe Foster, including arguing it before the Pennsylvania high court. Joe Foster worked for a law firm named White and Williams. Nearly 60 years later, Joe Foster still works for a law firm named White and Williams. I see Joe in the office on a regular basis and we often talk about PMA. [Joe likes to give people nicknames. He calls me Manny.]

Joe takes pride in having been involved – and on the winning side – in one of Pennsylvania’s most important coverage cases. He also takes pride in how long PMA has stood the test of time. As for the “PMA issue” headed to the Supreme Court for the first time since LBJ was in the White House and gas was $0.33 a gallon, Joe told me this: “PMA was correctly decided and I hope that the Pennsylvania Supreme Court recognizes that.”


Vol. 3, Iss. 12
August 20, 2014

Ewing’s Undoing’s Ungluing: Appeals Court Follows Ewing And Holds That Contractual Liability Exclusion Precludes Coverage For Construction Defect Claim

In January, the Supreme Court of Texas, in easily one of the most important coverage cases of 2014, held in Ewing Construction Co. v. Amerisure Insurance Co. that the “contractual liability” exclusion, contained in a CGL policy, did not preclude coverage for a construction defect claim involving not out of the ordinary facts. The Texas Supreme Court’s decision came following the case’s earlier time spent in the 5th Circuit.

The day Ewing was decided it seemed like case closed on the issue. Not so fast. As I mentioned in the last issue of Coverage Opinions, Mid-Continent Casualty Company convinced the 5th Circuit in Crownover v. Mid-Continent, No. 11-10166 (5th Cir. June 27, 2014) that, despite Ewing, the contractual liability exclusion still precluded coverage for a garden variety construction defect claim. Lee Shidlofsky and Doug Skelley, who represented Ewing Construction, had much to say about Crownover in a blog post. [The Crownovers filed a Petition for Rehearing with the Fifth Circuit. Not surprisingly, trade associations for Texas builders have chimed-in with amicus briefs in support of rehearing – including one filed by Shidlofsky and Skelley.]

Now, in Travelers Prop. Cas. Co. of Am. v. Peaker Services, Inc., No. 315070 (Mich. Ct. App. July 22, 2014), a Michigan appeals court, following Ewing, held that a contractual liability exclusion did not apply: “In the context of a CGL policy, ‘assumption of liability’ means assuming the legal obligations or responsibilities of another. In this case, defendant did not assume the legal obligations or responsibilities of another when it contracted with the university to provide goods and services of a particular quality and to return the university’s property to ‘as was’ condition in the event the university’s property was damaged during completion of the contract. Therefore, the contractually-assumed liability exclusion in the CGL policy did not preclude coverage in this case and the trial court reached the correct result, albeit for different reasons.”

I’m not saying much about Peaker Services here because you can get that from another Shidlofsky and Skelley blog post.