Home Page The Publication The Editor Contact Information Insurance Key issues Book Subscribe
Coverage Opinions
Effective Date: May 7, 2014
Vol. 3, Iss. 8
Click The Title Of The Article To Read It.

Declarations: The Coverage Opinions Interview With Justice Don Willett Of The Supreme Court Of Texas
Supreme Court At Age 39; No. 1 Judge On Twitter; A Glimpse At The Future Of The Judiciary; Thrown In The Deep-End; Austin Funkiness; The Most Important Liability Insurance Coverage Judge In America

Texas Supreme Court Justice Don Willett has over 5,500 followers on Twitter. He says that he is probably the most avid judicial tweeter in America and some have labeled him the most interesting public official on Twitter. That he was age 39 when appointed to Texas’s top civil court may have something to do with his social media prowess. Justice Willett was kind enough to engage in a written Q&A with Coverage Opinions. Justice Willett’s use of social media provides a look into the future of the judiciary.

Justice Don Willett:
The Most Important Liability Insurance Coverage Judge In America

If there were a ranking of important liability insurance coverage judges in America, someone would have to hold the top spot. If such a list really did exist, I believe that Texas Supreme Court Justice Don Willett would be deserving of it.

Randy Spencer’s Open Mic
Diet-Coke And Insurance Law Forever Change Your Trip To The Supermarket

Last week, in a case being closely watched by consumer groups and retailers, the Supreme Court of New Hampshire held that a six-pack of Diet-Coke counted as six items for purposes of the Fifteen Items or Fewer check-out lane in the supermarket.

OMG: The Strangest Pollution Exclusion Case You Have Ever Seen
When considering all of the substances that have been the subject of pollution exclusion cases, I now know what stands at the top of the strangeness mountain.

I See Dead People Causing Coverage Disputes
Usually it is circumstances causing death that then result in a coverage dispute. But sometimes death itself causes the circumstances that result in a coverage dispute. Despite death’s reputation for finality, the dearly departed have a way of continuing to contribute to insurance coverage jurisprudence.

Insured Entitled To Independent Counsel Even When Being Defended WITHOUT A Reservation Of Rights (Court Rejects ALI Draft Principle)
At the heart of all cases involving an insured’s right to independent counsel is that the insured is being defended under a reservation of rights. A federal court recently concluded that an insured was entitled to independent counsel – despite the fact that it was being defended by its insurer without a reservation of rights.

The Next Coverage Battle Looming?: Eliminating Coverage Under A “Standard” CGL Policy For Construction Site Bodily Injury Claims
Over the past few years insurers have been taking various affirmative steps, such as adding endorsements, to attempt to limit their exposure for bodily injury claims on construction sites. The Eleventh Circuit just provided (for the second time in six months) the roadmap for insurers to accomplish this. But here’s the most important part of the decision – it requires no action to be taken by insurers other than applying the terms of a standard and non-modified CGL policy.

“What Is A ‘Commercial General Liability Insurance’ Policy?”
A federal court answers whether “commercial general liability insurance” mean a primary policy?

Tapas: Small Dishes Of Insurance Coverage News And Notes
Pennsylvania Supreme Court agrees to hear significant bad faith issue



Vol. 3, Iss.8
May 7, 2014

“Today’s forecast: Party sunny with ZERO % chance of legislating from the bench.” “Agree 100%. Must be mortifying to have ‘Washington’ in your name ==> ‘Harry Reid Calls On NFL To Rename Redskins.’ (cite to Politico story).” These are just two of over 10,000 tweets from @JusticeWillett, a.k.a. Don Willett, Justice of the Supreme Court of Texas.

Anyone can send a lot of tweets. But more than just being active on Twitter, Justice Willett has over 5,500 followers. That’s a serious number. Not everyone can do that. Justice Willett says that he is probably the most avid judicial tweeter in America. And some have labeled him the most interesting public official on Twitter (which he says is “a bar so low it’s subterranean”).

If you think that it’s unusual for a Supreme Court Justice to be on Twitter, here’s something else that separates Justice Willett from just about all other high court Justices – he was age 39 when appointed to Texas’s top civil court. A master of Twitter and joining the Texas Supreme Court before 40 do not seem coincidental.

While an actively tweeting Supreme Court Justice may raise eyebrows now, Justice Willett (who also has a website and Facebook page) is an example of things to come. His use of social media provides a look into the future of the judiciary.

Justice Willett was kind enough to engage in a written Q&A for Coverage Opinions. I asked him about joining the Supreme Court at such a young age, Twitter, how much he enjoys coverage cases, the best way to spend a day in Austin and a few other things.

Speaking of insurance coverage, in the article that follows I set out 1,600 words making the case that Justice Willett is the most important liability insurance coverage judge in America. That is obviously a non-scientific conclusion. However, I believe that the article is well-reasoned and methodical in explaining how I reached that conclusion. At the time that I asked Justice Willett if he would do a Q&A, nor at any time prior to receiving his responses, did I tell him that I planned to write this companion insurance article.

His Bio

Justice Willett earned a triple-major BBA from Baylor University in 1988 and his J.D., with honors, along with an A.M. in political science from Duke University in 1992. After law school he served as a clerk to Judge Jerre S. Williams of the Fifth Circuit. Then, from 1993 to 1996, he practiced employment/labor law in the Austin office of Haynes and Boone.

From 1996 to 2000, Justice Willett was Director of Research & Special Projects for then-Governor Bush, and later was Domestic Policy & Special Projects Adviser to the Bush-Cheney 2000 Presidential Campaign and Transition Team. Other pre-judicial positions included: Special Assistant to the President in the White House, providing legal counsel on religious liberty and other issues; Deputy Assistant Attorney General for Legal Policy at the U.S. Department of Justice, where he played a key role in the President’s judicial selection and nominations process; and Deputy Texas Attorney General, serving as chief legal adviser to Attorney General Greg Abbott on the complete array of major legal issues confronting Texas.

In August 2005, Justice Willett, then age 39, was appointed to the Supreme Court of Texas by Governor Rick Perry to fill the vacancy created when Justice Priscilla Owen joined the Fifth Circuit. He was elected to a full term in November 2006 and again won re-election in 2012. His current term expires on December 31, 2018.

Judicial Experience: From None To An LLM

Noticeably absent from Justice Willett’s pre-Supreme Court resume is any judicial experience. But he turns this into a positive, stating: “There’s actually a good bit of academic research hailing how career diversity on collegial, multi-member courts produces more refined opinions. We’re all a product of our professional backgrounds, and my service in different branches of government on the state and federal levels perhaps makes me more attentive to building block principles like separation of powers.”

Not only did Justice Willett come to the Supreme Court with no prior judicial experience, or staff for that matter (Justice Owen’s staff went with her to the Fifth Circuit), but he was immediately thrown into the deep-end. When he arrived the Court was deadlocked 4-4 on several cases and waiting on his desk was a memo from the Chief Justice asking for his tie-breaking vote.

While several years have passed since Justice Willett’s trial by fire, he recognizes that there is still more to learn, telling me that in mid-May he’ll begin the Judicial Studies LLM program at his alma mater, Duke Law School. “My wife laments that one day I’ll have more degrees than a thermometer.”

He says that he hopes to emerge from the LLM program “with a broadened, more sophisticated approach to judging.” “I want to be receptive to smarter ways to tackle my job. If there are ways I can elevate the quality of my work, understand my role better, and perform my duties better, I want to embrace them. But even if I approach cases in largely the same way, I want that approach to be the product of rigorous examination, not rote repetition. Again, I want to be an exceptional judge, one with a sterling reputation for disciplined and top-tier analysis. I trust the LLM program will up my game.”


Justice Willett says that he thinks he is “metabolically hardwired for the cloistered, contemplative, cerebral and ultra-nerdy life of Supreme Court judging.” That sure is a strange description for a (verified) Twitterer, with over 5,500 followers, probably the most avid judicial tweeter in America and who some have labeled the most interesting public official on Twitter.

After all, there is nothing cloistered about engaging in an activity that is designed to share your views with the entire world. And there is certainly nothing cerebral when those views must be expressed in 140 characters or fewer. But maybe that’s why Justice Willett enjoys Twitter so much and why he is so good at it. It may be the outlet that he needs, as an outgoing, people person, whose job is so solitary. Being a trial judge is a schmooze-fest. The same certainly cannot be said about sitting on an appellate bench.

Justice Willett came to Twitter in October 2009 and tweeted only sporadically until his 2012 reelection campaign ramped up. He says he tweets “mainly as a campaign communication tool. More and more people consume information online, especially political information. Bottom line: for someone who has to run for reelection in a state of 26 million people, it’s political malpractice not to engage via social media.” He also tells me that “people find it rare and refreshing for a Supreme Court Justice to step out from behind the bench and demystify things. Folks are surprised that stiff judges can be comedic, authentic and informative.”

But surely Supreme Court Justices aren’t allowed to tweet, you may be thinking. Justice Willett tells me that the Supreme Court has never told him no, not to mention that the ABA has declared it Kosher, stating as follows in Formal Opinion 462 (February 21, 2013): “Judicious use of ESM [electronic social media] can benefit judges in both their personal and professional lives. As their use of this technology increases, judges can take advantage of its utility and potential as a valuable tool for public outreach. When used with proper care, judges’ use of ESM does not necessarily compromise their duties under the Model Code any more than use of traditional and less public forms of social connection such as U.S. Mail, telephone, email or texting.”

But just because Twitter is permissible doesn’t mean that it doesn’t require care and attention. Justice Willett has some self-imposed rules for his Twitter use. “One cardinal rule: I don’t throw partisan sharp elbows or discuss issues that could appear before the Court. While I post links to U.S. legal news, I never give my $0.02 on disputed legal issues or pending cases. I strive to keep things witty, informative and interesting.” He says about Twitter: “Succinctness is the enemy of nuance. It’s tough to be precise in 140 characters, so conveying tone/nuance is tough. I just self-censor and try to be careful.”

Justice Willett’s tweets cover many bases. Some popular topics include, in no particular order, family observations, Texas pride, patriotism, religion, U.S. Supreme Court decisions, Texas Supreme Court events, his love for Blue Bell Ice Cream, sports, television, movies, holidays, politics, law school, news of the day and inane and obscure observations (often accompanied with photos) where his humor and wit really shines. Some tweets in the inane and obscure observations category are laugh out loud funny. If you are on Twitter you will not regret hitting the follow button for @JusticeWillett. If you are not on Twitter, this is a reason to get on board.


Justice Willett’s Record And The Preconceived Notion Of The Supreme Court Of Texas

In his comments announcing Justice Willett’s appointment, Texas Governor Perry called him a bright scholar and a strict constructionist who understands that the role of a judge is to interpret and apply the law and not create it from the bench. Here’s how things have gone since that day.

“Since 2005, I’ve forged a record of principled, evenhanded judging—a record hailed for its clarity, independence, and scholarship.  From the day I joined the Court, I’ve been its most independent voice, writing more concurring and dissenting opinions than probably any other Justice. My judicial strike zone is consistent from case to case, no matter the parties.”  

“While the Court is sometimes described as pro-business, that’s largely because we’re interpreting laws passed by a right-leaning, business-friendly Legislature.” “I have not flinched to apply the law to rule against companies owned by my biggest campaign supporters (Perry Homes v. Cull); to strike down as unconstitutional tort-reform laws I believed robbed plaintiffs of their constitutionally protected rights (Robinson v. Crown Cork & Seal); to protect a citizen’s right to present their claims to a jury (Del Lago Partners v. Smith); to uphold a family’s right for insurance coverage in a personal-injury suit (Tanner v. Nationwide). There are plenty more. I’ve written decisions that favor plaintiffs and decisions that favor defendants.”

“The judiciary’s legitimacy flows from its unbiased reliance on principle, its ability to deliver reasoned and dispassionate decisions. A court squanders that legitimacy when it stiff arms the law to reach wished-for policy outcomes. A judge, even a Texas judge who must run on a partisan ballot, must view the judiciary as insulated from popular will. Truth be told, the only meaningful check on a court’s power is really its own ethic of self-restraint.”

He doesn’t take well to a certain criticism directed to the Texas Supreme Court. “Critics of my Court believe that because we’re all Republican, we succumb to groupthink and march in ideological lockstep. That’s flatly, emphatically, laughably untrue—empirically, too. I co-presented a CLE a few years ago that looked at every case decided since the day I joined the Court. Roughly half the decisions were unanimous. No surprise there. As you know—even at SCOTUS, with their broad philosophical spectrum, many (if not most) cases are decided 9-0. What surprised people was that of the half of our decisions that were not unanimous, the most common vote split was 5-4. We had more 5-4 decisions than 6-3; more 5-4 than 7-2; more 5-4 than 8-1. Things get mighty feisty and spirited around our conference table, and Justices aren’t remotely bashful about expressing sharp disagreement. And unlike at SCOTUS, where Justice Kennedy is the ‘decider’ in most of their 5-4 decisions, my Court has no classic, predictable swing Justice. The data for SCOTX, as opposed to SCOTUS, showed enormous variety in voting patterns and no discernible alignment trends.”

Writing Style

Justice Willett writes in a conversational style and uses humor at times. This makes his opinions enjoyable to read. I asked him if there are any judges whose writing styles he has tried to emulate. He tells me that he hasn’t tried to emulate anyone, but aims to write readable, scholarly, jargon-free opinions that non-lawyers can understand. “I’m fluent in legalese but don’t want dense, ponderous prose clogging my work. I seek to marry down-to-earth writing with strong legal analysis—sprinkled with well-placed verve and amiable wit here and there. Like anyone, I enjoy Justice Scalia’s pyrotechnics, but I also really admire Justice Kagan’s conversational style.”

“I’ve received exceedingly high marks for my judicial writing, from lawyers on both sides of the docket and from across the political spectrum. I’m gratified that lawyers believe I possess a distinctive—and needed—voice on the Court, and apparently some CLE programs have focused entire presentations on my writings and how they impact the Court’s work.”

Here is one of my favorite passages from a Willett opinion: Dissenting in In re Reece, 341 S.W.3d 360, 378 (Tex. 2011), which, very generally, addressed whether a dispute belonged in the Supreme Court or Court of Criminal Appeals:

“Intrepidity at the Alamo; entering the United States as the Republic of Texas; fifty-eight Texas-born recipients of the Medal of Honor; Bob Wills and George Strait; Nolan Ryan and Babe Didrikson Zaharias; five Super Bowl titles (sadly none this millennium); Dr Pepper and the ‘little creamery’ in Brenham; deep-fried anything at the State Fair; a spirit of daring and rugged independence—the sources of Lone Star pride are innumerable.

Unfortunately, the juris-imprudent design of the Texas judiciary does not make the list. Today’s case is a byproduct of that recondite web, sparking a game of jurisdictional hot potato between us and our constitutional twin, the Court of Criminal Appeals. Truth be told—and this particular truth has been told repeatedly—the State’s entire Rube Goldberg-designed judicial ‘system’ is beyond piecemeal repair; it should be scrapped and rebuilt top-to-bottom.”

Insurance Coverage

Of course I had to ask Justice Willett about insurance coverage.

I asked him if he is aware that the Supreme Court of Texas is so influential on courts all over the country when it comes to its decisions on liability insurance issues? He diplomatically demurred on addressing coverage specifically and took a more macro approach to the question. “The Court fortunately has a well-earned reputation for scholarly legal analysis. Certainly, the Lone Star State, given our size and economic dynamism, has no shortage of business litigation, and the Court is mindful—and grateful—that our work exerts significant influence throughout the nation.”

Now I ask Justice Willett the make-or-break insurance coverage question: Does he have a spring in his step when he is walking to the courtroom on a day when there will be oral argument in a liability insurance case. “Hmm. I mean, ‘YES, of course I do!,’” he replies. “Liability insurance cases are consequential, with wide ripple effects that impact everyone, and it’s always gratifying to lend clarity in such an important area of the law.”

On Austin

Follow Justice Willett on Twitter and you quickly realize that his love for Texas is, well, Texas-size. He also takes pride in having lived, until recently, in Austin’s “way-cool” 78704 zip code – “the epicenter of way-left Austin funkiness.” Bumper stickers read: ’04—Not Just a Zip Code, a Way Of Life.

I asked Justice Willett what I should do if I had only one day to spend in Austin. He tells me to visit the Texas State History Museum, devour some choice BBQ at Franklin’s or Salt Lick, lounge at Barton Springs pool, enjoy some live music at Austin City Limits and some ice cream at Amy’s.

Looking Ahead

Justice Willet hopes for a long career as a jurist.

“Once upon a time, the Texas Supreme Court was a career capstone, a culmination, with people building long, distinguished legal careers before serving on the Court. More recently, the Court has become less a capstone than a stepping stone, a mid-career detour and catapult into other elected office, lucrative private practice or the federal bench. I’m more of an old-school throwback and would love to remain on the Court for decades to come (as long as I can keep getting re-elected and keep my family’s head above water financially). So quite simply, I want to build a long judicial record of excellence, of exceptional reasoning and analysis. I want to amass a record of distinction, meaning I must bring to my work as much incisiveness and intellectual discipline as I can muster.”

But if that doesn’t work out he tells me that serving as a university leader or law school dean would enable him to achieve the magic combination of doing what he loves and believing that it matters.

The Future Of The Judiciary

While an actively tweeting Supreme Court Justice may raise eyebrows now, Justice Willett is an example of things to come. Over time Supreme Court Justices are going to come to the bench having more and more social media experience. And as social media takes over, even more than it has, as the most popular form of communication, it seems inevitable that Supreme Court Justices, especially elected ones, are going to have no choice but to turn to this form of communication to interact with voters. Indeed, Justice Willett called it “political malpractice,” for someone who has to run for reelection, in a state of 26 million people, not to engage via social media. Surely this applies to those in smaller states as well. Justice Willett’s use of social media provides a look into the future of the judiciary.

One of the most famous quotes in music history comes from then-music critic John Landau who in 1974 said: “I saw rock and roll’s future and its name is Bruce Springsteen.” That quote kept coming to mind as I prepared this profile.


Vol. 3, Iss. 8
May 7, 2014

Justice Don Willett:
The Most Important Liability Insurance Coverage Judge In America

In any ranking of anything, be it left-handed second basemen or Seinfeld episodes, someone or something always has to be number one. So if there were a ranking of important liability insurance coverage judges in America, someone would have to hold the top spot. If such a list really did exist, I believe that Texas Supreme Court Justice Don Willett would be deserving of it.

Obviously, this is an incredibly subjective and unscientific conclusion on my part. And when I say my part I really mean my part. I reached this conclusion without asking anyone else for their opinion, there was no committee convened and nor was any vote taken. But I did give the subject serious thought, undertook a lot of research and used some objective considerations. So, for these reasons, I believe that my conclusion – while entirely unscientific -- at least has more validity than Country Living magazine’s conclusion that Big Butz Original is the best tasting barbecue sauce in America.

Here’s how I reached this conclusion.

First, the judge has to come from the state system. The most important insurance coverage judge in America could not be from the federal system since insurance coverage is entirely within the province of state law. When it comes to a coverage case, federal judges are only tasked with following or predicting state law. And, of course, such a judge must sit on his or her state’s highest court. So the most important insurance coverage judge in America is quickly and easily narrowed down to a state Supreme Court Justice. [True, some state high courts do not call their judges “Justice.” To keep it simple I’m overlooking, but am not unmindful of, this distinction.]

OK. That was the easy part. Now it gets trickier. On which state supreme court does the most important liability insurance coverage judge in America sit? To make this decision I considered a few things: states by population; how frequently a supreme court hears liability coverage cases; and whether a supreme court influences other courts nationally. This last one is clearly a non-provable conclusion and more along the lines of I know an influential court when I see one. However, it is something about which I have a good “gut sense” -- based on looking at thousands of liability coverage cases a year. This I do between my practice and for purposes of writing “General Liability Insurance Coverage: Key Issues in Every State” and Coverage Opinions.

Based on these three criteria I narrowed down the list to the following supreme courts: California and Texas. With all due respect to every other supreme court justice in America, these two states simply have too great of a percentage of the total U.S. population: California (12%) and Texas (8%) (2010 census). As such, their decisions potentially affect the most number of people. I also considered that Texas’s population is growing at a much faster clip than California’s. What’s more, the California and Texas Supreme Courts also fared very well in the other two categories. Both courts hear a good deal of liability coverage cases and both issue decisions that influence other courts nationally.

The next step was to choose between the California Supreme Court and the Texas Supreme Court. I did a lot of thinking here and looked at many factors. In the end I chose Texas for a few reasons. The Texas Supreme Court hears more liability coverage cases than California’s top court. This makes sense since the Texas Supreme Court is not bogged down with criminal cases. This is because Texas in fact has two top courts – one for civil cases (the Supreme Court) and a separate one for criminal cases (The Court of Criminal Appeals). In addition, the Fifth Circuit punts liability coverage cases to Austin now and then. This adds to the number of such cases that get before the Texas Supreme Court. [Why does Texas have two top courts when just about every other state has one? Because everything is bigger in Texas.]

But even if the difference between Texas and California, in number of liability coverage cases heard, is not significant, the Texas Supreme Court has issued many more decisions than its California counterpart when it comes to coverage for construction defect – the number one liability coverage issue for the past decade-plus and showing no signs of slowing down. Indeed, the California Supreme Court has not addressed the fundamental issue in construction defect -- whether faulty workmanship constitutes an “occurrence” (unless you count a brief 1959 decision with minimal analysis). Nor has the California Supreme Court addressed “trigger of coverage” for purposes of construction defect (Montrose is used in this area -- but it is not a CD case). The Texas Supreme Court has addressed both of these issues in detail.

I am aware that the California Supreme Court’s decisions in Buss and Montrose are granddaddies of liability coverage. If there were an insurance coverage Mt. Rushmore these two opinions would be chiseled in granite (and it would hopefully be located in a more convenient place than South Dakota). But two decisions, from seventeen and nineteen years ago respectively, and even a few others, were not enough to get California over the finish line. Also consider that trigger of coverage for latent injuries is well-settled nationally. So while Montrose is perhaps the most important liability coverage case ever, it is riding off into the sunset on trigger. Not to mention that Montrose’s influence on “known loss” is all but gone on account of the so-called Montrose Endorsement designed to circumvent the case’s holding.

As an example in the Texas Supreme Court-influence category, last year one of the biggest liability insurance coverage stories was that three state supreme courts (West Virginia; North Dakota; and Georgia) overruled prior decisions (which weren’t that old either) to now hold that an insured’s faulty workmanship can amount to an “occurrence” under a commercial general liability policy. All three of these high courts cited to the Texas Supreme Court’s 2007 decision in Lamar Homes, Inc. v. Mid-Continent Casualty as support for their ruling. [Admittedly, Justice Willett was in the dissent in Lamar Homes, but that does not take away from the influence of the court itself.]

So the final step in determining the most important liability insurance coverage judge in America was to choose between the nine Justices who sit on the Supreme Court of Texas. Justice Willett is fourth in seniority (joining the court in 2005). However, the two Justices directly ahead of him have been on the court for nearly the same amount of time as him. So, as a practical matter, Justice Willett is in a three-way tie for second place in the seniority category. The most seniority title belongs to Chief Justice Hecht, joining the court in 1988. The five remaining Justices have been on the court for between four and eight years fewer than the group of three tied for second place. The seniority of these four Justices sufficiently separated them from the other five to take these five out of the running.

Now the task came down to choosing among these four most senior Justices on the court: Chief Justice Hecht and Justices Willett, Green and Johnson. I asked the obvious question. Does one of them have a winning record in coverage cases that is significantly different than the other three? If so, this Justice would presumably be the most important. To check this I looked at (I think) every liability insurance coverage decision handed down by the Texas Supreme Court that involved all four Justices (excluding per curium). In other words, I looked at all cases involving disputes under general and professional liability policies since the time that Justice Willett, the least senior of this group, joined the court. I excluded auto coverage decisions, except for a couple where the same issue could arise under a general liability policy. All together I looked at 20 decisions that fit into this category.

These four Justices were on the winning side as follows (ignoring, for this exercise, opinions that concurred in only certain parts of a majority opinion): Chief Justice Hecht: 15 decisions; Justice Green: 18; Justice Johnson: 17; and Justice Willett: 17. My conclusion here is that the differences in these Justices’ voting records, in the who-gets-it-right category, is statistically insignificant. The only real difference in their voting records is that Chief Justice Hecht has voted in umpteen more coverage cases, given his many more years on the court than his three other colleagues.

Based on his extensive experience I could have easily given the title of most important liability insurance coverage judge in America to Chief Justice Hecht – and declared the other three tied for second place. However, I couldn’t get away from Justice Willett’s youth in my analysis. He was born in 1966. Chief Justice Hecht, Justice Green and Justice Johnson were born in 1949, 1952 and 1944 respectively. [The youngest of the other five Justices (Justice Jeff Brown) was born in 1970. However, he has been on the court for just seven months.]

Being so young, not to mention with nine years as a Justice already under his belt, and an expressed desire to remain on the court for the long-term, provided the voters agree, Justice Willett has the ability to influence more Texas Supreme Court liability insurance coverage decisions in the future than any other Justice. And this is not based solely on potential longevity, but also for being the Court’s most separate writer (but not without serious consideration before putting pen to paper on a concurring or dissenting opinion). And with the Texas Supreme Court’s decisions frequently serving as guidance for other courts around the country, Justice Willett’s influence could stretch beyond the Lone Star State for many years to come.

There you have it – the rationale for my completely unscientific conclusion that Texas Supreme Court Justice Don Willett gets the nod for the most important liability insurance coverage judge in America. [As a aside, I just ordered a bottle of Big Butz Original Barbecue Sauce. For real. I did. And you can too at http://bigbutzbbqsauce.net.]

Here are a few of Justice Willett’s liability insurance coverage decisions. As you’ll see, the decisions rule in favor of both insurers and policyholders. Don’t judge a judge by his cover-age.

• National Union v. Crocker, 246 S.W.3d 603 (Tex. 2008) (Willett, J.) (“Insurers owe no duty to provide an unsought, uninvited, unrequested, unsolicited defense. [W]e decline to impose an extra-contractual duty on liability insurers that would force them to keep track of potential litigants who may or may not be additional insureds, may or may not be entitled to coverage, and may or may not expect a defense to a claim. Accordingly, because insurers need not provide coverage to additional insureds who never seek it, National Union had no duty either to inform Morris of available coverage or to voluntarily undertake a defense for him, and its actual knowledge did not establish lack of prejudice as a matter of law.”)

• Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20 (Tex. 2008) (Willett, J. -- I wonder why he was chosen to write this opinion) (rejecting a manifestation trigger and adopting an actual injury or injury-in-fact trigger for purposes of construction defect claims)

• Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650 (Tex. 2009) (Willett, J.) (following Don’s Bldg. Supply on trigger and addressing duty to defend: “In deciding the duty to defend, the court should not consider extrinsic evidence from either the insurer or the insured that contradicts the allegations of the underlying petition. The duty to defend depends on the language of the policy setting out the contractual agreement between insurer and insured.”)

• Tanner v. Nationwide, 289 S.W.3d 828 (Tex. 2009) (Willett, J.) (holding that an intentional-acts or intentional-injury exclusion under an automobile policy required intentional damage and not just intentional conduct) (“We understand the appeal of a broader exclusion that would withhold coverage for, as Nationwide’s predecessor policy put it, ‘willful acts which can be reasonably expected to result in damage or injury.’ But Nationwide replaced that test with the more restrictive version that controls today’s case. We must construe the policy as written, not as we might have written it nor as Nationwide once wrote it.”)

• Lamar Homes, Inc. v. Mid-Continent Casualty, 242 S.W.3d 1 (Tex 2007) (holding that faulty workmanship can constitute an “occurrence”) (Brister, J. dissent) (Willett, J. joining) (“The Court’s conclusion . . . turns the construction industry on its head. Instead of builders standing behind their subcontractors’ work and making necessary repairs, the Court shifts that duty to insurance companies. Every crack, stain, dent, leak, scratch, and short-circuit arising from a subcontractor’s work (which will be most of them) must be repaired by the builder’s insurer, who may have to pay the builder to repair its own home. Why should builders avoid unqualified subcontractors if their insurers (and other policyholders) will pay the consequences? No one really believes this is what the parties intended—that for a $12,005 annual premium the insurer agreed to repair all damage to every home Lamar Homes had ever sold (at the rate of almost $3 million annually). As that is precisely what the Court holds today, I respectfully dissent.”)



Vol. 3, Iss. 8
May 7, 2014


Randy Spencer’s Open Mic:
Diet-Coke And Insurance Law Forever Change Your Trip To The Supermarket

Last week, in a case being closely watched by consumer groups and retailers, the Supreme Court of New Hampshire held that a six-pack of Diet-Coke counted as six items for purposes of the Fifteen Items or Fewer check-out lane in the supermarket. The New Hampshire high court noted that the issue before it had nothing whatsoever to do with insurance law. Nonetheless, the court looked for guidance to the massive body of case law nationally, addressing the “number of occurrences” issue that frequently arises under general liability policies.

After examining decisions that have addressed the two principal “number of occurrences” tests – “cause” and “effect” -- and closely weighing the two methods, the court concluded that the effect test was most consistent with the objectives of the Express Lane. Continuing to take guidance from these coverage cases, the court analogized its decision to those where a court holds that injury or damage was caused by “multiple occurrences.”

Turning to the six pack of Diet-Coke, and viewing the issue through a multiple occurrences lens, New Hampshire’s highest court observed that, because cans of Diet-Coke were available for purchase separately in the store, it was appropriate to treat each can as a separate item. Otherwise, the court concluded, a consumer who purchases six individual cans of Diet-Coke – which would clearly qualify as six items -- would be treated differently than one who purchases six cans that just happen to be held together with a plastic carrier. To further explain its decision, the court stated that a dozen eggs would qualify as one item. While there are twelve eggs in a carton, eggs are not sold individually. Therefore, it is appropriate to treat the carton as just one item.

The New Hampshire Supreme Court was not unmindful that its decision would result in fewer shoppers being able to take advantage of the Express Lane. However, the court responded that this was entirely consistent with the purpose of such lane – allowing some consumers, that meet defined criteria, to complete their purchase and exit the store quickly. Adopting a rule that results in too many consumers having access to the Express Lane would frustrate its very purpose. For this reason it was appropriate to broadly construe the definition of “item” when that term is used in the Fifteen Items or Fewer check-out lane.

In a footnote, the court acknowledged that its new rule may be challenging to apply in the context of fruit. For example, if cherries are for sale individually, then cherry purchasers would effectively be prevented from ever using the Express Lane. However, noting the importance of judicial restraint, the court concluded that it would not address shopping scenarios that were not before it.

The high court remanded the case to the trial court to enter a judgment for plaintiff that he was rightly entitled to give the defendant a dirty look for having, by his count, eighteen items on the belt in the Express Lane.

That’s my time. I’m Randy Spencer.

Contact Randy Spencer at Randy.Spencer@coverageopinions.info


Vol. 3, Iss. 8
May 7, 2014

OMG: The Strangest Pollution Exclusion Case You Have Ever Seen

[While Coverage Opinions likes to kid around, the following summary involves a real case. You can look it up. 2014 WL 1711579]

I have been a student of the pollution exclusion for many years. I can’t even begin to imagine how many pollution exclusion cases I have read. I recently mentioned in Coverage Opinions [Vol. 3, Iss. 2 (January 29, 2014)] that one of the reasons why the pollution exclusion is such an interesting issue, and the subject of so much commentary, is that the substances under consideration are so varied and sometimes quirky. Over the past three decades or so it seems that courts have addressed whether just about anything and everything is a “pollutant” for purposes of the exclusion. Claudia Catalano’s A.L.R. article – which is more accurately described as a phonebook – on the pollution exclusion – “What Constitutes ‘Pollutant,’ ‘Contaminant,’ ‘Irritant,’ or ‘Waste’ Within Meaning of Absolute or Total Pollution Exclusion in Liability Insurance Policy” – contains an index of substances that have been presented to courts for their answer to this question. The index lists in the range of 260 entries -- and include every letter of the alphabet except J. Many of the substances under consideration seem somewhat strange in the context of a discussion of the pollution exclusion (which is, of course, a fundamental debate in so many of the cases). Pollution exclusion cases have addressed such things as the smell of curry, the smell of a deli, bat guano, noise and light and trespassers.

When considering all of the substances that have been the subject of pollution exclusion cases, I now know what stands at the top of the strangeness mountain. The answer lies in Chestnut Associates, Inc. v. Assurance Company of America, No. 13-1755 (M.D. Fla. Apr. 29, 2014). Here we go.

The Jansens filed suit in Florida state court against Chestnut Associates for damages allegedly caused when Chestnut’s pool service technician came to their house to service the swimming pool. I’ll let the court take over the factual recitation from here. “Jansen alleges that ‘the pool service technician removed all of his clothes and entered the pool naked. The technician then ‘sexually pleasured himself in the pool’ and ‘brought this sexual behavior to conclusion by casting ejaculate into [Jansen’s] pool.’ Jansen alleges that Chestnut's ‘pool service technician intended and knew or should have known that emotional distress would likely result of [Jansen] as a result of this subject behavior. Jansen seeks damages for emotional distress, mental anguish, embarrassment, humiliation, loss of dignity and diminution of the value of his house. The only cause of action alleged in the underlying complaint is for intentional infliction of emotional distress.”

Assurance Company of America issued a general liability policy to Chestnut Associates. Coverage litigation arose. [Chestnut maintained that there was no coverage dispute because the underlying complaint was not being prosecuted. Nonetheless, because the underlying case was still listed as open on the court records, the court went ahead and addressed the pending motions.]

The court addressed several issues, including the insurer’s argument that the Pollution Exclusion (“bodily injury” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants”) applied because the Jansens alleged that damages were caused by the contamination of their swimming pool by a “pollutant,” the pool service technician’s ejaculate.

While the Chestnut Associates court’s discussion of the issue was not in-depth, it noted that courts have held that, under Florida law, natural bodily substances can be “pollutants” where they satisfy the definition in an insurance policy. This seemed to be all that the court needed to conclude that “[t]he damages the Jansens allege in the underlying complaint arise out of the release of a ‘pollutant’ in the Jansens’ swimming pool.”

It may be that the Chestnut Associates court’s discussion of the pollution exclusion was not in-depth because it concluded that, for other reasons too, no coverage was owed. For example, the court held that there was no allegation of “property damage” in the underlying complaint as the only damages alleged were economic losses from the alleged diminution of the value of the property; the alleged intentional acts are not an “occurrence,” despite the absence of allegations “that anyone was at home at the time of the alleged incident, that the pool service technician intended to be or that he was being watched while he engaged in the purported conduct, or that the pool service technician knew that security cameras were recording his alleged conduct”; and the pool service technician was not an insured under the policy as he was not performing acts within the scope of his employment.

The pollution exclusion has certainly grown-up from its initial versions in the 1970s that were designed to address the harms associated with environmental pollution.


Vol. 3, Iss. 8
May 7, 2014

I See Dead People Causing Coverage Disputes

Look, it’s not pleasant, but when you are involved in liability claims you will be forced to confront scenarios involving death. It’s simply the nature of the beast. Liability insurance claims are, by their nature, all about when things go wrong. And when things go wrong – really wrong – sometimes there are fatal consequences.

In the typical claim scenario, something happened that caused a fatality. The issue then becomes whether the circumstances that caused the death are covered under the terms of the general liability policy. Was the death caused by an “occurrence?” Was it arising out of the use of an “auto?” Is the decedent an employee of the insured? And the list of possible coverage issues goes on and on.

But this isn’t the only way that death and coverage disputes can collide. Instead of circumstances causing death, which then result in a coverage dispute, sometimes it is death itself that causes the circumstances that then result in a coverage dispute. This shouldn’t be the case. After all, no matter how accident prone someone was in life, how much trouble can they cause after they’ve stop moving? Well, a lot it seems. Despite death’s reputation for finality, the dearly departed have a way of continuing to contribute to insurance coverage jurisprudence.

I found myself thinking about this recently as I was reading Bibeka Shresta’s article in Law360 about two recent decisions that fit within this category. Bibeka reported on the Florida Appeals Court’s April 23rd decision in Rodrigo v. State Farm, which addressed the availability of coverage, under a property policy, for damage to Judy Rodrigo’s condominium when her neighbor’s decomposing body went undiscovered. The court rejected Rodrigo’s argument that coverage was owed because her claim for damage to personal property was caused by a covered “explosion.” This argument was based on a doctor’s testimony that the internal contents of the decomposing body “explosively expanded and leaked.” [Presumably, coverage would be owed under a liability policy issued to the deceased neighbor. Unless it can be argued that decomposition upon death is not fortuitous, and, hence, not an accident/occurrence. Gee, that’s an interesting question actually.]

Bibeka also reported on the Third Circuit’s April 14th decision in Certain Underwriters at Lloyd’s v. Creagh, where the federal appeals court held that the “microorganism exclusion” precluded coverage for $180,000 in damage to an apartment caused by the decomposing body of a tenant (who I suppose is unlikely to recover his or her security deposit). The court concluded that this exclusion (as well as the seepage/pollution exclusion) applied because the fluids that leaked from the body contained bacteria.

Bibeka reported on two decisions where death is what caused the circumstances that then resulted in a coverage dispute. Consider these many other cases in this category:

Rock v. Travelers (Cal. 1916) (addressing coverage for pallbearer that died of heart dilation from the strain of carrying a casket)

Bohreer v. Erie Ins. Group (E.D. Va. 2007) (addressing coverage for a crematorium for delivering ashes of an individual that were those of someone’s pet)

Devillier v. First National Funeral Homes (La. Ct. App. 1964) (addressing coverage arising out of a funeral home dropping a casket during a funeral)

Levine v. State Farm (Ohio Ct. App. 2005) (bad faith suit against auto insurer for declining certain funeral expenses as not “reasonable and necessary”) (no word if the insurer also said that the funeral took too long or prior approval was needed for more than one person to grieve)

Reed v. Netherlands Ins. Co. (E.D. Mich. 2012) (addressing coverage for cemetery for misplacing remains)

State Farm v. Condon (Ohio Ct. App. 2005) (addressing coverage for manipulating and photographing dead bodies in a morgue)

Ripp v. Maryland Casualty Co. (La. Ct. App. 1969) (addressing coverage for a back injury sustained by a mortician on account of carrying a corpse down a stairway) (mortician’s last name was Ripp – I’m not making that up)

Employers Insurance of Wausau v. Martinez (Ky. 2001) (addressing coverage for a cemetery for interring bodies in already occupied graves – 80,000 bodies buried in a cemetery designed to hold 15,000)

State Farm v. Neises (Ct. App. Minn. 1999) (addressing coverage for an individual that broke into a crypt and removed a body)

Scottsdale Indem. Co. v. Lexington Ins. Co. (C.D. Cal. 2012) (addressing which of two insurers was liable for a collision that was allegedly caused by the negligence of a security guard hired to handle traffic for a funeral) (a coverage lawyer’s dream – you cause a coverage dispute on the way to your funeral)

Pasha v. Rosemount Memorial Park (N.J. Sup. Ct. App. Div. 2001) (addressing coverage for cemetery for lowering casket into grave containing three feet of water)

Nationwide v. Garzone (E.D. Pa. 2009) (addressing coverage for crematorium for harvesting organs and selling them)

LeJeune v. Allstate (La. 1978) (addressing coverage for employer of hearse driver for death of (another) passenger in a hearse killed in an intersectional collision during a funeral)


Vol. 3, Iss. 8
May 7, 2014

Insured Entitled To Independent Counsel Even When Being Defended WITHOUT A Reservation Of Rights (Court Rejects ALI Draft Principle)

When it comes to an insured’s right to retain independent counsel, when being defended by its insurer under a reservation of rights, there are some general rules of the road. In a few states a defense provided under a reservation of rights automatically entitles the insured to independent counsel at the insurer’s expense. In a few others a reservation of rights defense never entitles the insured to independent counsel. And in most states that have considered the issue – it depends.

More specifically in the it-depends category, as one federal court put it: “If there is a reasonable possibility that the manner in which the insured is defended could affect the outcome of the insurer’s coverage dispute, then the conflict may be sufficient to require the insurer to pay for counsel of the insured’s choice. Evaluating that risk requires close attention to the details of the underlying litigation. The court must then make a reasonable judgment about whether there is a significant risk that the attorney selected by the insurance company will have the representation of the insureds significantly impaired by the attorney’s relationship with the insurer.” Armstrong Cleaners, Inc. v. Erie Ins. Exch., 364 F. Supp. 2d 797 (S.D. Ind. 2005).

Here are some examples, courtesy of the Supreme Court of Alaska, where there is a significant risk that the representation of insureds by an attorney, selected by the insurance company, may be significantly impaired by the attorney’s relationship with the insurer: “First, if the insurer knows that it can later assert non-coverage, or if it thinks that the loss which it is defending will not be covered under the policy, it may only go through the motions of defending: it may offer only a token defense … . [I]t may not be motivated to achieve the lowest possible settlement or in other ways treat the interests of the insured as its own. Second, if there are several theories of recovery, at least one of which is not covered under the policy, the insurer might conduct the defense in such a manner as to make the likelihood of a plaintiff’s verdict greater under the uninsured theory. Third, the insurer might gain access to confidential or privileged information in the process of the defense which it might later use to its advantage in litigation concerning coverage.” CHI of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d 1113, 1116 (Alaska 1993).

In general, based on these standards, many courts do just as the Southern District of Indiana said in Armstrong Cleaners – they pay close attention to the details of the underlying litigation and then make a reasonable judgment whether there is a significant risk that the representation of the insured will be significantly impaired by the attorney’s relationship with the insurer. If so, the insured is entitled to independent counsel at the insurer’s expense.

As this general overview reveals, while there are various ways in which courts respond to an insured’s right to independent counsel, all of these scenarios share one thing in common–the potential for independent counsel never arises in the first place unless the insured is being defended under a reservation of rights.

This is what makes the Illinois federal court’s recent decision in Perma-Pipe, Inc. v. Liberty Surplus Insurance Co., No. 13-2898 (N.D. Ill. Apr. 21, 2014) so potentially significant. Here the court concluded that the insured was entitled to independent counsel – despite the fact that it was being defended by its insurer WITHOUT a reservation of rights.

Then case went like this. The University of California told Perma–Pipe that pipes it had manufactured had suffered a “catastrophic failure” and the University would seek to hold Perma–Pipe liable for the resulting damage. Liberty had issued a general liability policy to Perma-Pipe with a per occurrence limit of $1 million and an aggregate limit of $2 million. On the basis that a Liberty reservation of rights issued to Perma-Pipe created a conflict of interest, Perma–Pipe selected independent counsel to defend it. Perma–Pipe was then named as a defendant in two lawsuits arising out of the pipe failure. In one, the University sought more than $35 million from Perma-Pipe. In another, a subrogated insurance carrier sought more than $5 million.

Liberty then sent Perma–Pipe a letter stating that Liberty was immediately withdrawing all bases on which it previously reserved its right to disclaim coverage and it would provide coverage up to the policy limits. As a result of Liberty’s withdrawal of all of its reservation of rights, it retained choice for Perma-Pipe and stated that it would no longer pay for counsel that Perma-Pipe had retained.

This seems like an appropriate right for Liberty to have exercised. However, Perma-Pipe responded as follows: “Although Liberty ... has waived any reservation of rights, under controlling Illinois law, a serious conflict still exists due to the real possibility of a judgment or settlement in excess of the Liberty policy limits, mandating that Perma–Pipe be allowed to continue to retain independent counsel at Liberty’s expense. Due to this conflict, Perma–Pipe requests that Liberty deactivate its retention of ... Archer Norris, and reappoint Laurie & Brennan as independent counsel.” (emphasis in orginal).

The court first looked at a choice of law issue and concluded that Illinois law applied and not California (explanation at the end why that was a disputed issue).

The Illinois federal court held that, despite Liberty’s withdrawal of its reservation of rights, Perma-Pipe was still entitled to be defended with counsel of its choice. The court noted that the “usual conflict of interest involves the insurance company’s denying coverage ..., but the principle is the same when the conflict arises from the relation of the policy limit to the insured’s potential liability.” The court further explained: “In other words, because an insurer’s exposure is capped by the policy limit, it may decide to try claims exceeding the limit, hoping that the resulting liability, if any, will be less, despite the risk that its insured could be found liable for an amount far greater than the limit. . . . [A] conflict exists when there is a nontrivial probability of an excess judgment in the underlying suit.” (citations and internal quotes omitted).

The court concluded that, because Perma–Pipe was being sued for more than $40 million, and the Liberty policy limit was $1 million per occurrence, there was a “nontrivial probability” that there would be an excess judgment in the underlying suit. Thus, despite Liberty’s withdrawal of its reservation of rights, Perma-Pipe was still entitled to be defended with counsel of its choice.

The court was not persuaded that a different outcome was dictated by the fact that Perma-Pipe had excess insurance (seemingly from different insurers). “Excess insurance applies only after primary coverage has been exhausted, its existence does not vitiate the conflict between the primary and the insured that arises from the likelihood of an excess judgment.”

Perma-Pipe’s significance is easy to appreciate. Insureds are routinely sued, especially in bodily injury cases, and there is an initial demand for more money than everyone, plaintiff included, knows that the case is worth. This amount will often exceed the typical limits of a primary policy. Further, many times such bodily injury cases do not involve coverage issues that create a reservation of rights scenario. Applying Perma-Pipe would entitle insureds to independent counsel in this not infrequent scenario. This would significantly increase the frequency in which insurers are obligated to provide independent counsel.

The Perma-Pipe court’s decision was a rejection of the majority rule on this issue. Further, it is worth noting that California’s Cumis statute (Cal. Civ. Code § 2860) and draft ALI Principle of the Law of Liability Insurance §18 also specifically reject the Perma-Pipe conclusion. California’s Cumis statute states: “No conflict of interest shall be deemed to exist . . . solely because an insured is sued for an amount in excess of the insurance policy limits.” Section 18 of the draft ALI Principles states that because an insured is sued for an amount in excess of its policy limits “does not, in itself, oblige the insurer to provide an independent defense.”


Vol. 3, Iss. 8
May 7, 2014

The Next Coverage Battle Looming?:
Eliminating Coverage Under A “Standard”
CGL Policy For Construction Site Bodily Injury Claims

Over the past few years insurers have been taking various affirmative steps, such as adding endorsements, to attempt to limit their exposure for bodily injury claims on construction sites (not to mention for property damage).  The Eleventh Circuit just provided (for the second time in six months) the roadmap for insurers to accomplish this.  But here’s the most important part of the Eleventh Circuit’s decision – it requires no action to be taken by insurers other than applying the terms of a standard CGL policy.  In other words, even insurers that have taken no affirmative steps, to attempt to limit their exposure for construction site bodily injury claims, still very likely have the tools at hand to do so.
One way that insurers have affirmatively attempted to limit their exposure for construction site BI claims has been to amend their CGL policy’s “employer’s liability” exclusion to preclude coverage for bodily injury to employees of “any insured” -- as opposed to the standard language, which applies to preclude coverage for employees of “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.  This is a very common claim when there is a construction site injury.  Since the amended exclusion precludes coverage for bodily injury to employees of “any insured,” no coverage is owed to the general contractor, even though the injured party is not an employee of the GC.  In other words, it does not matter that the insured seeking coverage is not the employer of the injured party.  
Another tack insurers have taken has been to add exclusions that preclude coverage for an employee of any contractor at the site – period -- regardless of the employee’s relationship, or not, to a party seeking coverage. 
[A different issue, and perhaps one that is also in play, is whether there is any potential liability for the subcontractor (and, hence, the subcontractor’s insurer) based on contractual indemnity owed to an up-tier contractor that is subjected to liability for a subcontractor’s employee’s injury.]
Last year the Eleventh Circuit demonstrated another method for insurers to limit their exposure for bodily injury claims on construction sites.  However, its significance, unlike these other methods just described, is that it requires no changes to standard policy language.  So those insurers that have made no changes to standard policy language, to attempt to limit their exposure for construction site BI claims, are not precluded from attempting to do so.
In Amerisure Insurance Co. v. Orange and Blue Construction, Inc., 545 F. App’x 851 (11th Cir. 2013), the Eleventh Circuit held that the employer’s liability exclusion applied to preclude coverage for Epoch Properties, a general contractor-additional insured, 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 general contractor.
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 of the GC-insured.  In other words, at issue was a typical (non-amended) employer’s liability exclusion that was tied to an employee of “the insured,” i.e. an employee of “the insured seeking coverage.”   
But the court was not persuaded that the employer’s liability exclusion was so limited.  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.”
To put all of this another way, a typical (non-amended) employer’s liability exclusion, that was tied to an employee of “the insured,” was treated as if it were an amended exclusion that applied to an employee of “any insured.”
Now turn to another recent case before the Eleventh Circuit addressing this issue – Jennifer Stephens, as Personal Representative of the Estate of Charles Becker v. Mid-Continent Ins. Co., No. 13-10170 (11th Cir. Apr. 24, 2014).  Just as in Orange and Blue, the court held that no coverage was owed to a general contractor because the underlying plaintiff decedent, an employee of its subcontractor, was also considered a statutory employee of the general contractor.  Thus, coverage was precluded for the general contractor because the decedent was an “employee of ‘the insured.’”  Moreover, here, unlike in Orange and Blue, the general contractor was seeking coverage under its own policy and not as an additional insured under its subcontractor’s policy.      
Here’s what happened in Stephens.  Charles Becker was working on a construction job in Little Torch Key, Florida.  He was helping to install a modular home on the property of Jeffrey and Connie Kirkland.  Becker began climbing down a ladder when it detached from the house and he fell to the ground.  Becker died on the way to the hospital.
To save time I’ll quote liberally from the court’s opinion.  “The representative of Becker’s estate, Jennifer Stephens, subsequently brought a wrongful death suit in Florida state court against the following parties: Becker’s direct employer, Team Fritz; the Kirklands; and Anchorage Homes LLC, another contractor working on the modular home construction project.  At the time of the accident, Anchorage held a commercial general liability insurance policy with Mid–Continent Casualty Company. . . . The policy contained several exclusions from coverage, including an exclusion of damages relating to injuries to any of Anchorage's employees.”
“Anchorage filed a claim with Mid–Continent, seeking legal defense and indemnification.  On April 20, 2009, Mid–Continent notified Anchorage that its insurance policy excluded coverage for damages arising from Becker’s death, and that Mid–Continent therefore would not defend or indemnify Anchorage.  Mid–Continent explained that its investigation had revealed that Anchorage, as construction contractor for the Kirkland project, had employed Team Fritz as a subcontractor.  According to Mid–Continent, Team Fritz’s employees therefore were the ‘statutory employees’ of Anchorage under Florida law.  Any liability for injury to Becker therefore was excluded from coverage under the policy's employee exclusion clause.”
“After receiving this letter, Anchorage proceeded in the state court proceedings with its own counsel.  On August 27, 2010, Stephens and Anchorage signed a mediated settlement agreement and executed a so-called Coblentz agreement, which resolved Stephens’ claims against Anchorage.  Under this agreement, Anchorage stipulated to the entry of a judgment in favor of Stephens in the amount of $4,350,000, and Anchorage assigned to Stephens its rights with respect to its claims against Mid–Continent.  In turn, Stephens agreed not to collect the amount of the judgment from Anchorage.”
“Stephens, as assignee of Anchorage, brought suit against Mid–Continent in the U.S. District Court for the Southern District of Florida, asserting that Mid–Continent had wrongfully refused to defend and indemnify Anchorage in the state court proceedings, and seeking as relief the judgment amount of $4,350,000. . . .  The district court [held] that . . .  Becker was exempted from Anchorage’s insurance policy with Mid–Continent under the policy’s employee exclusion clause.”
The Eleventh Circuit affirmed.  It explained that, “[u]nder Florida law, a contractor who sublets part of its work to a subcontractor develops a statutory employment relationship with the employees of that subcontractor.  As the district court correctly noted, the concept of a ‘statutory employee’ derives from Florida’s Workers’ Compensation Law: (b) In case a contractor sublets any part or parts of his or her contract work to a subcontractor or subcontractors, all of the employees of such contractor and subcontractor or subcontractors engaged on such contract work shall be deemed to be employed in one and the same business or establishment, and the contractor shall be liable for, and shall secure, the payment of compensation to all such employees, except to employees of a subcontractor who has secured such payment.”  Fla. Stat. § 440.10(1).

The Eleventh Circuit looked at the relationship between Anchorage and Team Fritz and concluded that Team Fritz was Achorage’s subcontractor.  Among other reasons, the court noted that “there was undisputed evidence that Anchorage was paid pursuant to the Owner/Contractor Agreement [with the homeowners], and that Anchorage issued payments to Fritz for the installation work.”  Having concluded that Anchorage was the statutory employer of Becker, Team Fritz’s employee, Anchorage – based on an exclusion in its policy for bodily injury to an employee of the insured -- was not entitled to coverage under its general liability insurance policy for the damages arising from Becker’s death.

In general, a “statutory employee” is an employee of a subcontractor, who is also deemed to be an employee of the general contractor (i.e., a statutory employee), when he sustains bodily injury while acting within the scope of his employment.  Even though a “statutory employee” is considered an employee of the general contractor for purposes of certain aspects of workers compensation, a few other courts, like the Eleventh Circuit, have held that the employee of the subcontractor is also considered an employee of the general contractor – a statutory employee -- 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 (additional insured scenario) and now Stephens (non-additional insured scenario) demonstrate a possible way to do so using the standard CGL policy language that is probably already in most insurers’ hands.  Therein lies the significance of these two decisions. 
Give the huge exposure that can come from construction site injuries, will more insurers, based on these decisions, look to their “standard” employee exclusion (excluding coverage for bodily injury to an employee of “the insured”), to disclaim coverage to general contractors, on the basis that they are in fact the employer – the statutory employer -- of an underlying plaintiff that is an employee of the GC’s subcontractor?  If so, look for a significant battle to ensue over this issue. 


Vol. 3, Iss. 8
May 7, 2014

Federal Court Answers The Question
“What Is A ‘Commercial General Liability Insurance’ Policy?”

The issue before the Southern District of Texas in Pac-Van, Inc. v. CHS, Inc., No. 12-341 (S.D. Tex. Mar. 31, 2014) -- just what is a commercial general liability insurance policy anyway -- isn’t likely to arise too often. Since this may be a rare chance to see this issue, and with the opinion including a good quote, I selected it for discussion.

The facts at issue are simple. Pac–Van Inc. is a company that leases and sells portable buildings for nonresidential use. It leased a work trailer to CHS, Inc. One of CHS’s businesses is the importation and shipment of fertilizers to consumers. The leased Pac–Van trailer was used as a temporary office building at CHS’s Galveston location. One of CHS’s employees fell through a soft spot on the floor of the trailer and injured himself. The employee sued Pac–Van for his injuries.

Pac–Van and its insurer gave CHS notice of the lawsuit and demanded that CHS defend Pac–Van pursuant to the parties’ Master Services Agreement. CHS and its insurer refused. It is worth setting out the Agreement’s insurance requirement verbatim: “INSURANCE: [CHS], at its own expense, shall insure for risks of loss or damage. [CHS] must carry commercial general liability insurance insuring both [Pac–Van] and [CHS] against loss. The general liability insurance amounts must not be less than $1,000,000 bodily injury per person, $1,000,000 bodily injury per occurrence, $1,000,000 property damage per occurrence, and [Pac–Van] must be named as an additional insured.”

CHS purchased a policy from Liberty Mutual that named Pac–Van as an additional insured and had a per-occurrence limit of $1 million. That’s what the Agreement called for – a $1,000,000 limit. So no problem, right? No, not right. The Liberty policy CHS purchased contained a $2 million self-insured retention. As the court put it: “Pac–Van was required to cover the first $2 million relating to any occurrence, and then Liberty would be on the hook for any liability in the $2–3 million dollar range.” CHS declined Pac–Van’s tender to provide a defense. Pac–Van settled the lawsuit for $172,500.00 and then filed a breach of contract claim against CHS.

The issue before the court was whether CHS complied with the Master Services Agreement’s insurance requirement – namely, a “commercial general liability insurance” policy with a $1,000,000 occurrence limit -- when it purchased a policy that contained a $1,000,000 limit -- but subject to a $2,000,000 SIR?

The Pac-Van court put the question this way: Does “commercial general liability insurance” mean a primary policy?

CHS argued that “it complied with the Agreement because the Agreement did not explicitly require CHS to purchase a primary policy. In other words, absent contractual language stating that CHS must provide ‘primary commercial general liability insurance,’ CHS takes the position that it could have purchased a policy providing $1 million of coverage at any layer.”

The court examined a few cases presented to it, concluded that they were informative but not dispositive, and decided that the question turned on basic principles of contract interpretation. Looking at some Texas federal and state cases, the Pac-Van court observed that they commonly used the term “commercial liability policy” when referring to a primary policy and contrasted it with an “excess policy.”

The court concluded that, based on these judicial decisions, a “commercial general liability” policy is one providing primary coverage. Further, the court held that such conclusion “is consistent with the following basic test of ordinary meaning: if a business called an insurance broker and said ‘find me a general commercial liability policy,’ wouldn’t the broker look for policies providing primary coverage? The Court believes the answer is ‘yes,’ and therefore concludes that the general understanding of the unmodified term ‘commercial general liability insurance’ means primary coverage; the designation of ‘excess’ or ‘umbrella’ is expected to accompany a policy that provides coverage at higher layers.”

The court was further guided by CHS’s counsel’s concession at oral argument that CHS’s position “would have allowed it to obtain a policy that did not provide coverage until $5 million, $10 million, or even $50 million worth of liability was incurred. Courts are to construe contracts bearing in mind the particular business activity sought to be served and will avoid, when possible and proper a construction which is unreasonable, inequitable, and oppressive.”

Thus, the Pac-Van court held that CHS breached its contractual obligation when it purchased an excess policy that would not kick in until after Pac–Van had expended $2 million in its own defense. “[I]n contrast with the policy CHS actually purchased, CHS was obligated to purchase a primary commercial general liability policy that provided insurance up the first million dollars of liability.

Vol. 3, Iss. 8
May 7, 2014

Pennsylvania Supreme Court Agrees To Hear Significant Bad Faith Issue

On April 24, the Pennsylvania Supreme Court accepted the following certified question from the Third Circuit: “Under Pennsylvania law, can an insured tortfeasor assign his or her bad faith claim against an insurer, under 42 Pa.C.S. § 8371, to an injured third party?” Allstate Property & Casualty Insurance Company v. Wolfe, No. 23 MM 2014 (Pa. Apr. 24, 2014). The details of the case, leading up to the certified question, are at Allstate v. Wolfe, No. 12-4450 (3rd Cir. Feb. 20, 2014).