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Coverage Opinions
Effective Date: August 26, 2015
Vol. 4, Iss. 8
 
   
 
 
 
   

Declarations: The Coverage Opinions Interview With Alberto Gonzales, Former United States Attorney General, Et Al.
A Career Of Diversity

Very few lawyers have held as many significant top positions as Alberto Gonzales. The former Attorney General was kind enough to speak with me about taking on so many challenges.

Randy Spencer’s Open Mic
Pain In The @%$#&: The “Butt Dial” That Went Very Wrong

My Wall Street Journal Op-Ed: Law Suit Over Foul Ball Injuries

Best Contest Entry: General Liability Insurance Coverage –
Key Issues in Every State

Key Issues – Biggest Discount Ever

Coming Soon: 9th Annual White and Williams Coverage College
See Why Hundreds Travel From Across The Country For This FREE Event


Congratulations Alan Page: Football Legend -- and Coverage Opinions Interviewee and Lesson Teacher -- Hangs Up His Robe After 22 Years

Babcock & Wilcox v. American Nuclear Insurers: Why Insurers Are The Real Winners In Pennsylvania High Court’s Adoption Of Arizona’s Morris Rule
Justice Stanley Feldman (Ret.) Of The Arizona Supreme Court -- Author of Morris -- Provides Comment

Appeals Court Swats Policyholders: Pollution Exclusion Applies To Flies

Appeals Court Pushes Back On Insurer’s Effort To Limit Construction Site Bodily Injury Claims

What Could Have Been: Court Holds That Policy With Eroding Limits Does Not Violate Public Policy

Supreme Court Allows Discussion Of Insurance In Personal Injury Trial

Appeals Court Allows Insurer To Handle Identical Claims Differently

Business Pursuits Exclusion: Always Something Interesting

More On Adjuster Personal Liability For Flawed Claims Handling

Tapas: Small Dishes Of Insurance Coverage News And Notes
· The Great Barry Manilow Coincidence
· Pollution Liability: Insurance Policy And Public Policy
· Insurance Coverage And Anger Management

 

 

 

 

 

 


 
 
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Vol. 4, Iss. 8
August 26, 2015

 

Pain In The @%$#&:

The “Butt Dial” That Went Very Wrong


Sometimes the cases I discuss in the Open Mic column are not real. They are judicial opinions that I describe that are complete fabrication. Made up stories that I pass off as true. Kinda like when I tell people that I once beat LeBron James in one-on-one.

Most of you know that these cases are made up as they are too outlandish to possibly be true. And some of you learn that they are not true when you send me an e-mail asking for a copy of the opinion and I reply that I can’t – because it doesn’t exist. When that happens folks are always good sports and we have fun with it and yuk it up.

But as the adage goes – sometimes truth is stranger than fiction. The Sixth Circuit’s recent decision in Huff v. Spaw is one of those times. It is a real case. I promise. You can look it up – 2015 WL 4430466 or the Sixth Circuit website.

The case is not complex but does involves a few parties -- and who they are, and what they do, is at its heart. Keep that in mind as you read this factual summary.

James Huff was Chairman of the Kenton County, Kentucky, Airport Board. In 2013 he traveled to Italy with his wife, Bertha Huff, and Airport Board Vice Chairman Larry Savage. They went to attend a business conference. Carol Spaw worked at the airport as, among other things, Senior Executive Assistant to the airport’s CEO, Candace McGraw.

After a conference meeting, James Huff and Savage went on an outdoor balcony in their hotel to speak about airport personnel matters, including the possibility of replacing Candace McGraw as CEO. While on the balcony, Huff, using his iPhone, tried to call Spaw’s personal cellphone to ask her to make dinner reservations.

[Let’s just stop right there. Huff called his assistant in Kentucky, to ask her to make dinner reservations for him in Italy. Are you kidding me?]

Anyway, back to the story. Huff was unsuccessful in placing the call. He put his iPhone in his suit’s breast pocket. I’ll borrow from the court’s factual summary to make this easier. “Soon thereafter, while James Huff spoke with Savage about [airport] personnel matters, the iPhone in James’s suit pocket placed a pocket-dial call to Spaw’s office phone. Spaw answered and could hear James Huff and Savage talking, but she could not understand what they were saying. She said ‘hello’ several times but got no response. Spaw asked her colleague, Nancy Hill, to help decipher what James Huff and Savage were saying. Spaw then put the phone on speaker mode to enhance the volume and said ‘hello’ several more times. Within ninety seconds, Spaw and Hill determined that Huff and Savage were discussing McGraw’s employment situation and that the call was not intended for them. Spaw began to take handwritten notes of the conversation and instructed Hill to do the same. Spaw claims that she believed that she heard James Huff and Savage engaged in a discussion to discriminate unlawfully against McGraw and felt that it was her responsibility to record the conversation and report it through appropriate channels. The pocket-dial call lasted approximately 91 minutes, during which Spaw listened continuously.”

[This is something right out of a movie.]

Continuing on, but leaving out a few details: “Spaw stayed on the line and asked Hill to obtain an iPhone from the [airport] IT Department with which she could record the call. … Approximately 75 minutes into the call, James Huff returned to his hotel room where his wife, Bertha Huff, awaited him. In addition to speaking about personal family matters, James and Bertha Huff discussed the contents of James’s earlier conversation with Savage. Spaw used an iPhone obtained from the [airport] IT Department to record the final four minutes and 21 seconds of the conversation between the Huffs. At one point, James Huff noticed that his personal iPhone had an open call with Spaw’s office phone. He mistakenly believed that it had been open for only one minute and twenty-nine seconds, when in reality it had been one hour and twenty-nine minutes. He testified that he immediately terminated the call.”

There’s more.

“After the call ended, Spaw converted handwritten notes that she and Hill made into a typewritten summary. She also transferred the iPhone recording to a thumb drive, which she gave to a third-party company to enhance the audio quality. She eventually shared the typewritten summary and the enhanced audio recording with other members of the Airport Board.”

Bertha and James Huff didn’t take this sitting down. They filed a complaint alleging that Spaw, among other things, intentionally intercepted their oral communications in violation of various statutes. The district court granted summary judgment to Spaw, holding that the statutes did not protect the Huffs’ “conversations because any expectation that their conversations would not be intercepted was not reasonable under the circumstances.” The case proceeded to the Sixth Circuit.

Here’s the legal test that was before the court: “Title III [of the statute] defines an oral communication for its purposes as ‘any oral communication uttered by a person exhibiting an expectation that such communication is not subject to interception under circumstances justifying such expectation.’ The language makes clear that Congress did not enact Title III to protect every face-to-face conversation from interception. We have held that a person engages in protected oral communication only if he exhibited ‘an expectation of privacy that is both subjectively and objectively reasonable.’”

So that was the issue before the court: Did James Huff have a reasonable expectation of privacy? The court held that he did not. “At his deposition, James Huff admitted that he was aware of the risk of making inadvertent pocket-dial calls and had previously made such calls on his cellphone. A number of simple and well-known measures can prevent pocket-dials from occurring. These include locking the phone, setting up a passcode, and using one of many downloadable applications that prevent pocket-dials calls, see, e.g., Will Verduzco, “Prevent Unwanted Butt Dialing with Smart Pocket Guard,” xdadevelopers, Apr. 15, 2014. … James Huff did not employ any of these (sic) James Huff failed to exhibit an expectation of privacy.”

“James Huff lacked a reasonable expectation of privacy in his statements only to the extent that a third-party gained access to those statements through a pocket-dial call that he placed. In sum, a person who knowingly operates a device that is capable of inadvertently exposing his conversations to third-party listeners and fails to take simple precautions to prevent such exposure does not have a reasonable expectation of privacy with respect to statements that are exposed to an outsider by the inadvertent operation of that device.”

The court reached a different outcome with respect to James’s wife, Bertha. But an explanation of that is beyond the scope here.

I think James Huff got a bum rap. But there is definitely a lesson to learn from this tail
.

 



That’s my time. I’m Randy Spencer. Contact Randy Spencer at


Randy.Spencer@coverageopinions.info

 

 

 


Vol. 4, Iss. 8
August 26, 2015

My Wall Street Journal Op-Ed: Law Suit Over Foul Ball Injuries

 

Regular readers of Coverage Opinions know that I am quite fond of judicial decisions involving professional sports. But not just any sports decisions. After all, most sports law decisions, despite their seeming promise, are deadly dull. They often involve such things as contracts, labor, licensing or intellectual property. A dry decision is still a dry decision – even if it involves a professional sports franchise or athlete.

But there is one type of sports law case that often bucks this trend – those involving fan interests. Consider cases involving fans who feel that they have been treated unfairly concerning their season tickets or the Jets fan who sued the Patriots over its surreptitious taping of the Jets practicing (“Spy Gate”) or the recent class actions brought by purchasers of the Manny Pacquiao—Floyd Mayweather fight who believe that, because Manny allegedly did not disclose a shoulder injury, the result was a boring fight, and not worthy of the high pay per view price tag. You see -- we’re all fans ourselves. So we can appreciate firsthand the issue in these cases and what the plaintiff is feeling. We can’t say that about cases involving collective bargaining issues.

One of the most popular cases in the fan interest category are those involving spectators injured by foul falls at baseball games. They are legion and date back a century. In general, the legal system has almost always denied compensation to spectators injured by foul balls. Courts have usually applied some derivation of what has become known as the “Baseball Rule”: The risk of being hit by a foul ball is well-known to spectators. As long as the stadium operator provides a reasonable number of seats protected by netting, a spectator who purchases one outside of this area assumes the risk of being injured.

Last month suit was filed in a California federal court that took a different tack: An Oakland A’s season ticket holder – not hit by a foul fall -- sued Major League Baseball, and its Commissioner, Rob Manfred, seeking to compel them to expand the area in stadiums that are within the zone of protective netting.

I was thrilled to publish an Op-Ed in the July 24th issue of The Wall Street Journal discussing the case and why the suit should fail. I hope you’ll check it out here:

http://www.coverageopinions.info/WallStreetJournalJuly2015.pdf

 

 


Vol. 4, Iss. 8
August 26, 2015

Coming Soon: 9th Annual White and Williams Coverage College

See Why Hundreds Travel From Across The Country For This FREE Event

 

Sharpen your pencils. The 9th Annual White and Williams Coverage College (FREE for most) is quickly approaching - October 8th at the Pennsylvania Convention Center in Philadelphia. Registration is brisk and we are well on our way to a capacity crowd of students from insurance and related companies from all across the country. Last year there were 600 registered students from nearly 20 states and 150 companies. Coverage College is the social event of the claims season! If you are planning to attend, the time to register is now.

Students can choose from a variety of multi-discipline Masters Classes taught by experienced White and Williams lawyers. This year’s curriculum also includes a mock trial that will showcase the application of insurance coverage law and current litigation trends.

The College also includes breakfast, lunch, two breaks and a cocktail reception, allowing students to interact and engage with the faculty, fellow students and sponsors throughout the day. You won’t leave hungry. I can promise that. For those in the insurance industry – other than non-sponsor vendors – the Coverage College is free.

Come see why the White and Williams Coverage College draws so many insurance professionals from across the country. Click here http://www.coveragecollege.com for more information.


 

 


Vol. 4, Iss. 8
August 26, 2015

Congratulations Alan Page: Football Legend -- and Coverage Opinions Interviewee
and Lesson Teacher -- Hangs Up His Robe After 22 Years

 

 

When it comes to lawyers who have done unique things – the combination that I look for in Coverage Opinions interviewees – Alan Page is hard to top. The Professional Football Hall of Fame Minnesota Vikings defensive tackle, and 34th greatest to play the game according to The Sporting News, hung up his cleats in 1981 and then spent 22 years as a Justice on the Minnesota Supreme Court. That’s not a combination you see every day. Earlier this month the handsome, bowtie wearing Justice Page put his robe on a hanger and retired from the Court. He was obligated to do so under the court’s mandatory age 70 rule.

 

 

I had the privilege of interviewing Justice Page for the September 18, 2013 issue of Coverage Opinions. I asked him about his time on the field and the bench, the Page Education Foundation and wonderful children’s book -- Alan and the Perfectly Pointy Impossibly Perpendicular Pinky -- that involves his, well, perpendicular pinky. Lots of former professional football players have life-long injuries from the gridiron, but surely none as odd as Justice Page’s. I never get tired of looking at it.

The interview of Justice Page was unique as it was my first via telephone. Previously I had been conducting them in the form of written Q&A. I offered this format to Justice Page but he preferred the phone. To be sure, I was as nervous as a turkey in November. I had never spoken to a Pro Football Hall of Famer before – not to mention a Supreme Court Justice. But it went great and, most importantly, I learned a very valuable lesson – interview people by phone and you get significantly more, and more interesting, information with which to tell your story. Needless to say, the subject gets into stories, and goes off on tangents, that would have never happened in a written format. Since the Justice Page experience I have done almost exclusively telephone interviews.

What comes next for Justice Page? A recent article in Minneapolis’s Star Tribune pointed to more time to exercise, spend with his four grandchildren and visit his Minnesota cabin, as well as plans to take a sausage-making class (to complement a maple syrup enterprise). Justice Page plans to write more children’s books and take a more active role in running his education foundation. Teaching young children how to write may also be on his horizon (something he discussed with me).

By the way, as far as I can tell, one of the last two opinions that Justice Page authored was Sleiter v. American Family Mutual Insurance Company (August 5, 2015) – involving UIM coverage. I just knew that that Coverage Opinions interview turned him into a big fan of insurance.

Congratulations Justice Page on your retirement and thank you for the opportunity to interview you for Coverage Opinions and the serendipitous lesson to come out of it.

 
 
 
 
 


Vol. 4, Iss. 8
August 26, 2015

Babcock & Wilcox v. American Nuclear Insurers: Why Insurers Are The Real Winners In Pennsylvania High Court’s Adoption Of Arizona’s Morris Rule

Justice Stanley Feldman (Ret.) Of The Arizona Supreme Court -- Author of Morris -- Provides Comment

 

[Disclosure: I, along with two colleagues, filed an amicus brief with the Pennsylvania Supreme Court, in Babcock & Wilcox Company v. American Nuclear Insurers, on behalf of an insurance industry trade association, in support of ANI’s position.]

Barring something very unusual, it is a simple matter to figure out which party was the winner after reading a judicial opinion. On its face, that certainly applies to the Pennsylvania Supreme Court’s recent decision in The Babcock & Wilcox Company v. American Nuclear Insurers, 2 WAP 2014 (July 21, 2015), where the court reinstated a multi-million dollar jury verdict in favor of B&W, concerning coverage for injuries and damages allegedly caused by emissions from its nuclear facilities.

But despite how easy it seems to identify the winner and loser in B&W, every so often judicial opinions can resemble a fun house mirror. This is one of those times. Yes ANI suffered a significant loss. But when the fat lady sings on B&W, it will go down as a case that provided significant benefits for insurers as a whole. B&W is a very complex and protracted case -- spanning two decades. Mercifully I can explain why I believe that insurers were the winners without any need to discuss its specifics.

My opinion concerning the score in B&W stands in contrast to that of a recent Commentary in Law360 that saw it differently. That Commentary concluded that “[t]he Pennsylvania Supreme Court fashioned a new and dramatic rule favoring policyholders and harming insurers and it did so while openly disregarding clear policy language.”

The Supreme Court in B&W succinctly, and conveniently, described the issue in the opening paragraph: “We granted review to consider an issue of first impression regarding whether an insured forfeits insurance coverage by settling a tort claim without the consent of its insurer [for $80 million], when the insurer defends the insured subject to a reservation of rights [to the tune of $40 million], asserting that the claims may not be covered by the policy.”

The court, just as succinctly and conveniently, provided the answer in the last paragraph: “In this case, after an extensive trial where the jury was presented with voluminous evidence relating to the strength of the underlying action and the settlement offer, the jury determined that the settlement was ‘fair and reasonable from the perspective of a reasonably prudent person in the same position of [Insureds] and in light of the totality of the circumstances,’ a standard which we adopt herein as the proper standard to apply in a reservation of rights case where an insured settles following the insurers' refusal to consent to settlement. We conclude that the Superior Court erred by requiring an insured to demonstrate bad faith when the insured accepts a settlement offer in a reservation of rights case.”

The reason why B&W can be explained, without needing to discuss the case itself, is because the test that the Supreme Court adopted, for the handling of insurer-provided defenses under a reservation of rights, applies in ALL cases – even if they bear no resemblance to B&W. That is also at the heart of why the case is so significant – it has across the board applicability. Many coverage cases are important – but have the ability to be influential only in the context of certain limited factual or policy scenarios. B&W, however, will be a cloud that hangs over every case being defended under a reservation of rights—regardless of the nature of the facts and coverage issues. To put it another way, B&W isn’t some pollution exclusion case that, while fascinating, has no relevance until the next time someone claims that their apartment smells like pastrami on account of the deli next door.

The story of B&W is that the Pennsylvania high court adopted a variation of the Arizona Supreme Court’s decision in United States Auto Ass’n. v. Morris, 741 P.2d 246 (Ariz. 1987). This nearly 30 year old decision was written by Justice Stanley Feldman (Ret.). The word Morris appears in the B&W opinion 41 times. You know what they say about imitation. So I reached out to Justice Feldman to ask him about the Pennsylvania Supreme Court’s flattery. His Honor -- now with the Arizona law firm of Haralson, Miller, Pitt, Feldman & McAnally -- was kind enough to provide with me his thoughts. I’ll get to those in a bit. [I also had the privilege of interviewing Justice Feldman in the July 16, 2014 issue of Coverage Opinions.]

The Pennsylvania Supreme Court described the Morris decision in terms of the insured’s characterization: “As noted, we granted review to consider as an issue of first impression whether an insured forfeits the right to insurance coverage when it settles a lawsuit without the insurer’s consent, where the insurer has defended the suit subject to a reservation of rights. Insureds advocate adopting the Morris fair and reasonable standard. They contend that when an insurer defends subject to a reservation of rights, an insured must be able to protect itself from the potential of an adverse and uninsured decision in the underlying tort case, if the insurer is ultimately deemed correct in concluding that the policy does not cover the claim. Further, Insureds claim that the insurer in a reservation of rights scenario is ‘in the attractive position of being able to avoid exposure either because the insured prevails at trial or because the insurer’s coverage defense is successfully asserted[.]’ Insureds contend that the Morris fair and reasonable standard provides protection for the insured by allowing the insured to accept settlement, while still preserving the insurer’s rights to contest coverage, challenge the fairness and reasonableness of the settlement including whether it resulted from fraud or collusion, and maintain control over other aspects of the defense including the choice of counsel and the defense strategy prior to settlement.”

While Justice Feldman of course could not disclose any of the Arizona high court’s discussion that led to the Morris decision, he did share with me his own thinking behind it: “[T]hink of the serious plight of an insured who has purchased indemnity along with the right to a defense and been told that the most important part of the purchase may not be performed. True, the insured can let the insurer manage the tort defense and wait for the end of the case to find out whether he will be indemnified. But the worse the result, the more likely the coverage issue will be litigated.”

But Justice Feldman was not unaware that it is a two-way street and insurers also have interests with entitlement to protection. To Justice Feldman the answer to this push and pull was a balancing of interests: “To me, Morris seems like the fairest answer to both insurer and insured. The insured is free to try to come to a reasonable settlement of the claim. The insurer will not be liable for the Morris settlement if the court finds it was unreasonable, collusive, or fraudulent, and will not be prejudiced in its attempt to show that coverage did not exist and that the reservation of rights was therefore proper.”

Besides this practical rationale for his crafting of the rules in Morris, Justice Feldman also described a more legalistic basis: “In all fairness, why should an insurer that erroneously refuses to acknowledge its duty to indemnify be entitled to control the defense and possible settlement of the case? [W]hy shouldn’t the failure to acknowledge the obligation to indemnify be considered an anticipatory breach prohibiting the insurer from later attempting to avoid the coverage that had existed by claiming that the Morris agreement was a violation of the cooperation clause? I am aware of the criticism in some of the treatises that the Morris doctrine violates the contractual agreement between the parties. But the anticipatory breach point refutes that position. Anyhow, there is not policy language that gives the insurer the simultaneous right to refuse to acknowledge the duty to indemnify while at the same time retaining the right to control the defense. Also Babcock & Wilcox is a very unusual case; in the vast majority of cases the reservation of rights letter places the insured in the position which is both dangerous and untenable. The insured has lost control of the defense and at the same time is not assured of indemnification. And in the great majority of cases is probably unaware of the danger this presents.”

A look at how the Pennsylvania Supreme Court’s adoption of Morris may play out makes it easy to see the benefits that B&W affords to insurers.

Consider an insurer defending its insured, under a reservation of rights, and trial is approaching (or maybe not). The plaintiff makes a settlement demand. Even if there is no legitimate risk of an excess verdict, the insured would still like to see the case settled, since the reservation of rights exposes it to the potential for uncovered damages. This scenario plays out – and without any difference on account of the facts and coverage issues -- just about every minute of every day in the liability claims context.

While the insured is pressing the insurer to settle, the insurer may not desire to do so. After all, the insurer, in the business of making these very decisions, may believe that the settlement demand is too high–based on its liability and/or damages evaluation. In this situation, under B&W, the insured can now settle the case – without concern that doing so will be a violation of the policy’s prohibition against voluntary payments. [Since the insured may not be financially able to settle the case, assignments of policy rights to plaintiffs may become an issue here. But that is a subject beyond the scope of this Commentary.]

Of course, some may say that the insured has just settled a case for more than it’s worth -- and is now turning to its insurer to pay up. But B&W offers insurers certain protections against this consequence. First, the insurer can challenge the fairness and reasonableness of the settlement including whether it resulted from fraud or collusion. So an insured that agrees to an overly rich settlement – even if it’s covered – takes the risk of exposure for uncovered damages.

Second, the insurer can also contest its obligation to provide coverage for the settlement. Not to mention that, under Pennsylvania law, it is unlikely that the insurer will be liable for its insured’s declaratory judgment fees, even if the insured prevails on coverage. So an insured that settles a case for too much, or even the right amount for that matter, faces the risk of not being able to recover for the settlement, as well as exposure for DJ fees that it very likely also will not be able to recover.

Third, despite the fact that the insurer defended under a reservation of rights, it may not in fact be interested in pursuing the coverage defenses. In this case, an insurer confronted with what it views as an overpriced settlement demand is protected: it can simply withdraw the reservation of rights and continue to litigate the case.

Lastly, as the B&W court noted, on account of the protection afforded to insureds under Morris, they will have a much more difficult time arguing that, by being provided with a defense under a reservation of rights, they are entitled to retain independent counsel at the insurer’s expense. This is a significant benefit for insurers -- as they are constantly confronted with demands for independent counsel by their insureds.

Once B&W starts to play out in Pennsylvania, insureds will find themselves confronted with the old adage: be careful what you wish for.

 

 

 


Vol. 4, Iss. 8
August 26, 2015

Appeals Court Swats Policyholders: Pollution Exclusion Applies To Flies



It has become difficult these days to find a pollution exclusion case that warrants discussion. In general, while each case is different, they also often have many similarities. Does the exclusion apply narrowly and only to traditional environmental pollution? Or does it apply more broadly to all hazardous substances? This is one of the tired issues in these cases.

As a result I’ve generally resorted to discussing cases that address whether the pollution exclusion applies to seemingly peculiar substances, such as fireworks, ejaculate, deli odors, curry odor, swine waste odors and bat guano. These are the kinds of unique cases that make the pollution exclusion a fan favorite. These seemingly unusual pollution exclusion cases are sure to continue to leach from courthouses. Here is the latest entry is this pollution exclusion category: flies and insects.

In Brouse v. Nationwide Agribusiness Insurance Company, No. A14-1729 (Minn. Ct. App. July 27, 2015) the court addressed the applicability of the pollution exclusion in the following context.

The Dairy Dozen–Thief River Falls, LLP purchased Excel Dairy, a dairy operation. Excel’s neighbors filed a lawsuit against Dairy Dozen alleging that “invasive, offensive, and noxious odors” were interfering with the enjoyment of their properties. In a second amended complaint it was alleged by the neighbors that “[o]ffensive and noxious odors, particulate matter, flies and other insects emanating from the Excel Dairy facilities impaired [their] ability to use and enjoy their property and caused substantial damage to [their] quality of life.”

Putting aside some interesting, but not important here, procedural events, at issue was the applicability of coverage under Dairy Dozen’s insurance policies. The trial court granted summary judgment for the insurers on the basis that the absolute-pollution exclusions – fairly typical ones - precluded coverage. The Court of Appeals of Minnesota affirmed.

The appeals court started out by setting forth Minnesota’s rules concerning the interpretation of what it noted to be absolute pollution exclusions: “Although the majority of jurisdictions limit these exclusions to situations involving traditional environmental pollution, Minnesota follows the minority of jurisdictions in applying the exclusions literally and finding the terms clear, unambiguous, and not limited to traditional environmental pollution. Minnesota applies a non-technical, plain-meaning approach to interpreting pollution exclusions.’” (citations and internal quotes omitted).

First the court examined the argument that the absolute-pollution exclusions were ambiguous because they “did not specifically mention odors, smells, flies, insects, or rodents and the definition of ‘pollutants’ ‘is so broad as to be nearly meaningless.’” The court disagreed, noting that “Minnesota does not require pollution exclusions to use specific words, as appellants suggest.”

Examining whether the pollution exclusion applied to “offensive and noxious odors,” that damaged the “use and quiet enjoyment of [the neighbors] lives, homes and properties,” the court concluded that it did. It reached this decision based on the plain-meaning definition of “fume” [contained in the definition of the pollution], which is “vapor, gas, or smoke, especially if irritating, harmful, or strong’ or ‘a strong or acrid odor.”

And now, getting to the most important aspect of the decision, the court held that “[t]he absolute-pollution exclusions also encompass appellants’ claims regarding flies and other insects. Under the exclusions, ‘pollutants’ encompasses ‘any solid, liquid, gaseous or thermal irritant or contaminant,’ not just contaminants dispersed through the air. ‘Contaminant’ means ‘one that contaminates’ and ‘contaminate’ means ‘to make impure or unclean by contact or mixture.’ The American Heritage Dictionary of the English Language 406 (3d ed.1992). Flies and other insects meet the plain-meaning definition of ‘contaminant’ because they impaired appellants’ use and enjoyment of their properties by making them ‘impure or unclean.’”


 
 


Vol. 4, Iss. 8
August 26, 2015

Appeals Court Pushes Back On Insurer’s Effort To Limit
Construction Site Bodily Injury Claims

 

Insurers have long been writing endorsements to reduce their exposure for property damage caused by construction defects. These efforts have been taking place with First Manifestation, Loss in Progress and similarly named endorsements.

Of course, insurers also face enormous exposure for bodily injury on construction sites. Recently, they have been attempting to reduce this exposure as well. The effort, growing in frequency by my anecdotal estimate, has come about in the form of endorsements that preclude coverage for bodily injury sustained by an employee of a contractor or subcontractor. However, under some of these endorsements, the injured party need not have been working for a subcontractor that was retained by the insured. Rather, the exclusion applies if the injured party was employed by any contractor or subcontractor on the project. Since the people most likely to be injured on a construction site, especially one closed to the public, are employees of a contractor – some contractor, any contractor, even one with nothing to do with the insured -- it is easy to see the breadth of such an exclusion.

For the most part, insurers have been winning the cases where such exclusions have been at issue. In some cases, the breadth of the exclusion has not gone unnoticed by the insureds and courts. Nonetheless, courts have rejected the insureds’ argument that, what the exclusion must have meant, is that it applied only to independent contractors and subcontractors of the insured and not just any independent contractor or subcontractor on the project. However, courts have been willing to uphold such exclusions because the claims before them fall within the policy language.

But not all courts have been so generous to insurers. Put the First Circuit in that category after its decision in United States Liability Insurance Company v. Benchmark Insurance Services, No. 14-1832 (1st Cir. Aug. 12, 2015).

Homeowners hired general contractor Benchmark to renovate their Newton, Massachusetts home. The homeowners hired architect Thomas Huth. Huth hired Sara Egan to apply decorative painting to one of the interior walls. Meghan Bailey, an employee of Egan, did the job. While Bailey was applying the decorative paint, she fell from a ladder that was positioned on top of scaffolding.

Bailey sued Benchmark. Benchmark sought coverage from its insurer, USLIC, under a commercial general liability policy. USLIC determined that the following endorsement – “stripped of language not relevant” -- precluded coverage:

“Bodily injury” to any ... “employee” ... of any contractor ... arising out of ... rendering services of any kind ... for which any insured may become liable in any capacity[.]

The district court found for USLIC because the exclusion excludes injuries to contractors’ employees who are injured while performing services. “Although the insurance policy does not provide a definition of ‘contractor,’ the court held that ‘contractor’ unambiguously means ‘anyone with a contract.’ Since Bailey’s boss, Egan, had contracted to do the decorative painting, Bailey was a contractor’s employee and her claims are subject to the exclusion.”

But here’s the rub. Benchmark had no contractual relationship with Huth, Egan or Bailey and Bailey's work was not performed under a contract with any of Benchmark’s contractors or subcontractors.

The First Circuit reversed the District Court. The appeals court had a couple of reasons for doing so. But the one that is most likely to have applicability to other cases is this: ambiguity in the word “contractor” – a word not defined in the policy.

The District Court held that “contractor” unambiguously means “anyone with a contract.” Since Egan had a contract to apply decorative paint to the interior wall, Egan was a contractor. And Bailey, as Egan’s employee, was therefore a contractor’s employee, bringing her claims within the scope of the exclusion.

Benchmark’s argument was that “contractor” means someone with a contract with the insured, i.e., someone Benchmark hires but who is not Benchmark’s “employee.” The First Circuit held: “We are persuaded that reasonably intelligent people may differ about the meaning of the word ‘contractor,’ and hence the word is ambiguous. ‘Anyone with a contract’ is surely a reasonable definition of the word ‘contractor,’ as the district court found, but so is a more narrow definition focused on the contractual relationship of the injured party and the insured.”

Faced with this ambiguity, the court turned to the reasonable expectations of the insured and concluded that it supported the definition Benchmark advanced. “As Benchmark argues, defining ‘contractor’ as ‘anyone with a contract’ ‘makes a dice roll of every bodily injury claim, based on whether the injured party happened to be working under any contract no matter how attenuated to the insured’s work.’”

The court also found support for its decision in the purpose of commercial general liability insurance: “[T]his type of policy provides coverage for liability arising out of torts to third parties, as distinguishable from injuries that befall the insured’s own employees. Since the word ‘contractor’ is being used in a provision we have described as an employer’s liability exclusion, it makes sense to define ‘contractor’ as someone with a contract with the insured. A reasonable insured would expect the contractual relationship between the insured and the injured party to govern the applicability of an employer’s liability exclusion to a given injury.”

The appeals court reversed the District Court because “Bailey’s boss, Egan, was not retained by Benchmark, and so Bailey is not a contractor’s employee within the meaning of the exclusion.”

Benchmark does not mean that insurers are never going to win cases based on exclusions that apply if an injured party was employed by any contractor or subcontractor on the project – even ones with no relationship to the insured. But the thoroughness of the opinion, and coming from a respected court, is likely to give more courts pause before applying such exclusions – no matter how clearly they may apply on their face.

 

 

 


Vol. 4, Iss. 8
August 26, 2015

What Could Have Been:
Court Holds That Policy With Eroding Limits Does Not Violate Public Policy

 

Westport Insurance Company v. Mylonas, No. 14-5760 (E.D. Pa. July 15, 2015) is one of those cases involving a very interesting issue -- but that will likely go by the wayside with nary a peep ever to heard from it. But if the decision had gone the other way it would have had some real consequences.

Westport issued a legal malpractice policy to the Law Offices of Peter George Mylonas, P.C. Westport defended Peter Mylonas and the firm in a state court action filed by Anastasios Papadopoulos. Papadopoulos received a judgment in his favor in the amount of $525,000 and Westport’s defense of the Mylonas Defendants under the policy continues on.

The policy has a limit of liability of $500,000 per claim and $1,000,000 in the aggregate. The policy has “eroding limits,” meaning that the limits of liability are diminished by the payment of defense costs. Westport filed an action seeking a declaration that its liability under the policy is limited to $500,000 on the basis that the underlying action constitutes only one “claim.” But that’s not what this summary is about.

Papadopoulos seeks a declaration that “eroding insurance policies for legal professionals are against public policy and void as a matter of law, and, in the alternative, that such policies are void to the extent they reduce available coverage below $100,000 per year per claim and $300,000 per year on aggregate.”

His argument is based on Rule 1.4(c) of the Pennsylvania Rules of Professional Conduct that states that “A lawyer in private practice shall inform a new client in writing if the lawyer does not have professional liability insurance of at least $100,000 per occurrence and $300,000 in the aggregate per year, subject to commercially reasonable deductibles, retention or co-insurance, and shall inform existing clients in writing at any time the lawyer’s professional liability insurance drops below either of those amounts or the lawyer’s professional liability insurance is terminated.”

Papadopoulos conceded that the Rules of Professional Conduct are “silent regarding eroding policies.” However, he argued that Rule 1.4(c) makes it “clear that the [Pennsylvania] Supreme Court intended to prohibit insurance companies from reducing the required amounts of coverage.” “Papadopoulos further contends that an ‘eroding policy offends traditional notions of fairness’ because ‘[a]ttorneys purchase liability insurance to protect their clients.’ An eroding policy ‘subverts that intent by using liability coverage to pay the insurance company’s litigation expenses and attorney’s fees, rather than protecting the attorney by making the injured party whole against their losses.’”

Looking at what it takes under Pennsylvania law, for a court to declare a contract void on the basis of public policy, the Mylonas court – following a very lengthy analysis -- rejected Papadopoulos’s argument:

“In the present case, Papadopoulos points to no ‘plain indication’ through long governmental practice, statutory enactments, or obvious ethical and moral standards that it is against the ‘dominant public policy’ of Pennsylvania for lawyers to carry professional liability insurance policies with eroding limits. Despite this absence, Papadopoulos bases his position on Rule 1.4(c) of the Pennsylvania Rules of Professional Conduct quoted above. However, the type of insurance policy Papadopoulos seeks to have the Court declare void as against the ‘dominant public policy’ of Pennsylvania does not violate this Rule.Rule 1.4(c) is placed in a section of the Rules entitled ‘Communication,’ and only requires an attorney to ‘inform a new client in writing’ if the lawyer does not have professional liability insurance of at least $100,000 per occurrence and $300,000 in the aggregate per year. The Rule does not prohibit a lawyer from carrying professional liability insurance in less than these amounts, and it is silent on eroding insurance policies. Accordingly, a lawyer does not violate Rule 1.4(c) by merely carrying an eroding policy, even if the coverage amount has eroded below $100,000 per occurrence and $300,000 in the aggregate. Moreover, a violation of a Rule of Professional Conduct by itself does not subject an attorney to legal liability.”

While the court rejected the public policy argument, concerning the enforceability of an eroding limits policy, it is hard to say that it was not a clever one. And not out of the realm of reasonableness that a different court may adopt it.

If the court had found in favor of Papadopoulos then the decision would offer something to talk about. But since it didn’t, the case is likely to enter the black hole of judicial opinions, unless the issue is raised in another case. But, again, Papadopoulos gets credit for cleverness.

 

 

 


Vol. 4, Iss. 8
August 26, 2015

Supreme Court Allows Discussion Of Insurance In Personal Injury Trial

 

You know the rule of evidence. Mentioning the availability of insurance, during a personal injury trial, is a big N-O. The rule is designed to prevent prejudice in the verdict, which might result if the jury is aware that an insurance company, and not the defendant, will be responsible for paying the verdict. But the Alaska Supreme Court allowed evidence of insurance in Ray v. Draeger, No. S-15347 (Alaska July 17, 2015).

In July 2009 Kimber Ray rear-ended an automobile in which Megan Draeger was a passenger. Draeger filed suit against Ray. Ray admitted liability so the trial focused on the extent of Draeger’s injuries and other damages related to the accident. Ray’s insurer, GEICO, paid for her defense.

“Ray filed a motion in limine based on Alaska Evidence Rule 411 seeking to preclude reference at trial to the fact that Ray was covered by liability insurance with respect to Draeger’s claims. Draeger partially opposed the motion, arguing that she wished to cross-examine Dr. John Ballard, an orthopedic surgeon hired by Ray’s counsel to give expert testimony at trial, regarding potential bias. In particular, Draeger sought to examine Dr. Ballard about the fact that a substantial portion of his work as a medical expert is derived from referrals from insurance companies and that he had been hired many times by GEICO in particular.”

Putting aside what happened in the courts below, the Supreme Court, sounding like a law student’s evidence outline, summarized the issue and relevant tests as follows: “Alaska Evidence Rule 411 provides that ‘[e]vidence that a person was or was not insured against liability is not admissible’ to prove ‘whether the person acted negligently or otherwise wrongfully.’ But the rule allows courts to admit this evidence when offered for another purpose, such as to show ‘bias or prejudice of a witness.’ When Rule 411 does not bar evidence, it may still be excluded under Alaska Evidence Rule 403. Rule 403 provides that relevant evidence ‘may be excluded if its probative value is outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury,’ among other factors. Alaska Evidence Rules 411 and 403 thus work in conjunction: If the trial court decides that evidence of liability insurance can be admitted despite Rule 411, the court must then perform a Rule 403 balancing analysis to determine whether the evidence’s probative value outweighs the danger of unfair prejudice. ‘Under Evidence Rule 403, the trial court bears primary responsibility for determining admissibility of evidence.’ As we have held previously, trial courts generally ‘have broad discretion in applying [the Evidence Rule 403] balancing test.’”

The court spent a lot of time explaining all of this balancing of interests and a simple summary is as follows: “The trial court’s substantial connection analysis should look primarily to ‘whether a witness has a sufficient degree of connection with [a] liability insurance carrier to justify allowing proof of this relationship as a means of attacking the credibility of the witness.’ Where an expert witness has significant ties to the insurance industry as indicated by receiving a sizable portion of his or her income from insurance work, being hired by a firm that derives a large portion of its income from insurance companies, or facts that otherwise suggest an interest in the outcome of the litigation, the probative value of that substantial connection is likely to outweigh the danger of unfair prejudice, and is thus likely admissible to show bias under Rule 411 and Rule 403.”

Here the court concluded that Dr. Ballard has a substantial connection with the insurance industry, such that it was improper (although ultimately held to be harmless error) for the lower court to exclude all reference to insurance as more prejudicial than probative. The court observed that Dr. Ballard received between $300,000 to $350,000 a year for his insurance reviews – “a large percentage of his total yearly income of up to $800,000, which includes his private orthopedic practice. Dr. Ballard was also hired for the case by a company that does 98% of its work for insurance companies or defense attorneys. “The financial entanglements of both Dr. Ballard and the consultancy through which he was hired create a substantial connection to the insurance industry.”

 

 

 


Vol. 4, Iss. 8
August 26, 2015

Appeals Court Allows Insurer To Handle Identical Claims Differently

 

I’m sure many of us have had this situation. An insurer makes a coverage determination in a claim. We’ll call it claim one and determination A. Then, in claim two, involving indistinguishable facts as claim one, the insurer reaches determination B. But surely this can’t be allowed, someone will say, adding that they can’t reach inconsistent decisions. The insurer is estopped from reaching determination B, someone else will chime in.

But is this really so? I have never done an exhaustive study of this issue. I suspect that the answer varies from case to case and there is no black letter rule that applies nationally across the board. But I could be wrong. If anyone has insight into this issue I’d love to hear from you.

[I am, however, an expert on whether I can change my mind, without consequence, when dealing with my wife.]

But putting all that aside, the Eleventh Circuit Court of Appeals, in W.L. Petrey Wholesale Co. v. Great American Insurance Co., No. 15-10629 (11th Cir. Aug. 6, 2015), recently had no trouble concluding that an insurer that reached coverage determination A in claim one was entitled to say B in claim two. Here’s the dish on Petrey.

Petrey was in business of selling wholesale goods and supplies to convenience stores. After terminating one of its drivers Petrey discovered an inventory shortage of 82,510 bottles of 5–Hour Energy products, worth $111,415.35. [Now we know what the retail mark-up is on that stuff.] Petrey filed a claim with Great American under a Crime Protection Policy. Great American denied the claim based on an “inventory shortages exclusion”: “We will not pay for ... [l]oss, or that part of any loss, the proof of which as to its existence or amount is dependent upon: (a) An inventory computation; or (b) A profit and loss computation.”

Petrey filed an action for breach of contract and bad faith. Great American filed for summary judgment based on the inventory shortages exclusion. The District Court granted GA’s motion. Petrey appealed.

To tell the full story, the inventory shortages exclusion precludes “employee theft claims that are dependent upon proof of loss by an inventory calculation or profit and loss calculation. Such exclusions are intended to protect insurers from errors that may be inherent in a business’s self-created inventory records (for example, as a result of negligence or improper bookkeeping).” To overcome the exclusion the insured must provide independent evidence of theft. Petrey could not do so.

Petrey argued that Great America could not apply the “inventory shortages exclusion” because Petrey had filed a prior claim, involving an essentially identical theft, the same Crime Prevention Policy, and with the same inventory shortage exclusion. Yet, in that situation, Petrey notes, Great American paid the claim in full without contest.

But the court was not persuaded that Great American’s decision to pay claim A, without regard to the applicability of the inventory shortage exclusion, now precluded it from applying such exclusion to claim B. The court explained: “Alabama law forbids courts from using extrinsic evidence (such as the parties’ course of dealing) to interpret an unambiguous contractual provision. Petrey does not argue that the inventory shortage exclusion is ambiguous, and we think the provision is clear on its face. We therefore may not consider the extrinsic evidence relating to the [prior] claim when interpreting the exclusion.”

 

 

 


Vol. 4, Iss. 8
August 26, 2015

Business Pursuits Exclusion: Always Something Interesting

 

Cases involving the potential applicability of a Business Pursuits exclusion, in a homeowners policy, can be interesting. Some people operate a variety of unusual home-based businesses. Suit is filed against the homeowner. He or she seeks coverage under a homeowner’s policy. And the question arises whether the injury or damage was caused by an excluded business pursuit.

There was nothing surprising about the outcome of Hanover American Insurance Company v. White, No. 14-726 (W.D. Okla. Aug. 3, 2015). I include it here just because it’s a good example of how “business pursuit” exclusion cases are often resolved – even if this one did not involve activities specifically on the home front.

Mark White’s primary business was an aviation related rental and repair company. He was also the vice-president and co-owner, with his father, of C & J Trucks, an oilfield service company. There are two barns on the C & J property, which consists of approximately 150 fenced acres. C & J stores equipment on the premises and Mr. White kept a bull there, along with approximately 50 head of cattle. Mr. White bought the bull to breed cows so he would have calves to raise. Calves suitable for team roping (done with friends about once a month) were kept and the others were sold. A C & J employee was responsible for caring for the cattle, for feeding and worming them, along with giving them their shots and mineral supplements. The employee obtained supplies for the cattle from a feed store and charged them to C & J’s account.

The bull escaped from the property onto Virgil Bricker’s property. It attacked Mr. Bricker and he died as a result of the injuries. Insurance policies issued by Hanover American and Massachusetts Bay to Mr. White – homeowners and dwelling, respectively, covering other properties -- included identical exclusions for bodily injury “[a]rising out of or in connection with a ‘business’ engaged in by an ‘insured.’” Both policies defined the term “business” to “include[ ] trade, profession or occupation.”

The insurers contended they had “no duty to defend or indemnify the Whites with respect to the incident involving Mr. Bricker because the Whites’ cattle operation fell within each policy’s business exclusion. The Whites deny they were engaged in a business. They claim Mr. White pursued team calf roping as a hobby, so the business exclusions in the policies do not apply.”

The court had little trouble concluding that no coverage was owed to the Whites on account of the business pursuit exclusions. Based on prior decisions, the test to be applied, in construing the phrase “arising out of business pursuits,” is that there is a profit motive, not actual profit. And that’s what the court found:

“Here, the evidence established that profit was a part of what motivated the White’s cattle operation. Mr. White testified that, while his sales of cattle were not sufficient to generate a profit for him ordinarily, there have been years when the cattle operation made a profit. Further, the Whites treated the cattle operation as a business for tax purposes, which strongly suggests a profit motive. They included Schedule F’s with both their 2011 and 2012 tax returns. Schedule F, titled “Profit or Loss From Farming,” is used to report farm income and expenses. While the Whites did not make a profit from their cattle operation in either 2011 or 2012, the tax treatment they chose was designed to permit them to derive a tax benefit from those losses. Mr. White testified the loss would have reduced his and his wife’s gross and taxable income. The offset or potential offset of those losses against other business income—potentially making their other business interests or activities more profitable—suggests a profit motive.”

The court found Mr. White to be generally credible and straightforward in his belief that his cattle activities were a hobby. “However, in light of the evidence establishing that profit was at least a significant part of the motivation for the activity and the manner in which it was conducted, the activity was not purely a hobby.”

 

 

 


Vol. 4, Iss. 8
August 26, 2015

More On Adjuster Personal Liability For Flawed Claims Handling

 

(Co-written with Tina Zheng -- summer associate at White and Williams and second year student at Cornell Law School)

Try as we might, none of us are immune from making a mistake on the job. It matters not our effort nor how much experience we have. It is just, well, life. Mistakes vary in their severity. And that is likely tied to their consequences – both for the employee and employer. But one consequence for a mistake at work, that probably causes no worry for most, is to be found personally liable. In other words, to be sued for it.

Of course, there has long been an exception for doctors, lawyers, architects and a host of other professionals. Is it now time to add insurance adjusters to the list of those who could find themselves in the crosshairs of a plaintiff’s attorney for getting it wrong at the office? A review of case law over the past few years suggests that adjusters may sometimes need to lawyer up.

In some ways this is not at all surprising. Special rules have long applied to the relationship between insurance companies and their customers versus other businesses. Insurance contracts sometimes have unique ways to be interpreted, a fiduciary duty may be owed to the customer and statues may govern the relationship. That insurance company employees may be personally liable for a mishap on the job is another entry in the category of what can make insurance a different animal.

Here are a few recent examples where courts were willing to find an insurance adjuster potentially personally liable for handling of a claim. As these cases demonstrate, their rationales vary.

One recent decision, and worthy of special alarm, is Linron Properties v. Wausau Underwriters Insurance Co., No. 15-293 (N.D. Tex. June 16, 2015). Here a Texas federal court held that an adjuster could be personally liable for her wrongful conduct in handling a claim involving repairs from a storm. The court held that the adjuster’s actions – retaining an engineer and contractor who were known for arriving at findings that favored insurance companies, refusing to identify damage to the structure that was covered under the policy, and failing to respond to the insured’s inquiries regarding the status of the claim and payment -- were sufficient to support a claim against her, in her individual capacity, for violating the Texas Insurance Code.

The reason why Linron merits additional attention is that, before reaching its decision, the Texas federal court noted that some courts had recently begun to question the appropriateness of holding an adjuster individually liable for unfair settlement practices. These courts have gone in this direction because an adjuster “does not have settlement authority on behalf of [the insurance company]” and his or her “sole role is to assess the damage.” However, the Linron court was not prepared to join them. The court explained: “[W]hile the courts’ reasoning in these cases has some logical appeal, a closer examination of the precise language of [the Texas Insurance Code] and the role played by insurance adjusters in the claims handling process belies their conclusions.”

Even more recently the Eastern District of Pennsylvania handed down Kennedy v. Allstate, No. 15-2221 (E.D. Pa. July 8, 2015) where the court held that insureds stated a colorable claim for negligence against adjusters. The insureds argued that adjusters affirmatively misrepresented and concealed material facts from them to delay the resolution of their claims. The court held that “there is at least a possibility that . . . an insurance adjuster owes a duty of care to an insured that would be breached by failing to reasonably investigate an insured’s claims and making misrepresentations.” The court also held that claims against insurance adjusters, under the Uniform Trade Practices and Consumer Protection Law, are colorable under Pennsylvania law.

In New Jerusalem Rebirth & Restoration Ministries, Inc. v. Meyer, No. 1:11cv312 (W.D.N.C. July 6, 2012), a fire damaged the insured’s business. A policy provided for extra expense coverage to minimize the suspension of the insured business and to allow the continuation of business activities. The insured claimed that the adjuster rejected the suggested premises to use as a temporary location for the business and directed the insured to other premises that were either unavailable or unsuitable. The Western District Court of North Carolina held that, because North Carolina courts have not addressed whether insurance adjusters may be held individually liable for unfair and deceptive trade practices, “there is at least some possibility that plaintiff may recover.”

In Pohto v. Allstate Insurance Company, No. 6:10-02654 (D.S.C. July 7, 2011), the insured, injured in a motorcycle accident, claimed that the adjuster acted in bad faith and/or negligently handled his claim. The District Court of South Carolina held that the insured could possibly establish a cause of action against the adjuster, for bad faith and/or negligence, because, under South Carolina law, a company’s employees may be held individually liable for torts committed within the scope of their employment.

In McCarter v. Progressive Gulf Insurance Company, No. 11-2646 (E.D. La. Dec. 7, 2011), plaintiff was seriously injured in a car accident, resulting in cognitive impairments so severe that his neuropsychologist recommended that he “should not be put in any position of decision-making or judgment . . . due to the reduced executive function he is experiencing.” To handle plaintiff’s claims, the insurer assigned an adjuster, who had plaintiff sign a settlement. Plaintiff claimed that the adjuster fraudulently procured the release with the knowledge that plaintiff had impaired reasoning skills. The Eastern District of Louisiana held that an adjuster may be held individually liable to the insured, depending on the “relative education of the parties, the diligence of the claimant in seeking the facts, the actual or apparent authority of the adjuster, the content of his promises to the claimants, misrepresentation or fraud.”

However, it is not all doom and gloom for adjusters. Earlier this year the Eastern District of Virginia refused to hold an adjuster liable for breach of the implied covenant of good faith and fair dealing. In Evans v. GEICO Gen. Ins. Co., No. 3:14-CV-659 (E.D. Va. Jan. 9, 2015) the Court reasoned that because there was no contractual relationship between the insured and adjuster, the insured failed to state a cause of action. Furthermore, as an agent of the insurer, the adjuster cannot be held liable for any contract between the insured and insurer because the insurer is the disclosed principal.

Similarly, in Youngs v. Security Mutual Insurance Company, 3 Misc. 3d 244 (N.Y. Sup. Ct. 2004) the Supreme Court of Seneca County, New York did not hold an adjuster liable for gross negligence because the adjuster owed no independent duty to the insured. The only duty stemmed from an employment contract between the insurer and the adjuster—there was no contractual relationship between the insured and the adjuster.

As these cases, and others, demonstrate, the rationales used by courts, both to conclude that adjusters may be personally liable for their claims handling or not, vary widely.

Not all courts are willing to find an insurance adjuster potentially personally liable for their handling of a claim. And the adjusters’ conduct may need to be more than a simple error to justify personal liability. Nonetheless, there are certainly enough recent decisions, going against adjusters, to merit concern by them and their employers.

 

 

 
 
Vol. 4, Iss. 8
August 26, 2015
 
 

The Great Barry Manilow Coincidence
The Open Mic column in the last issue of CO – July 15th -- was titled “Barry Manilow And Cyber Coverage: Court Writes The Songs For Policyholders.” It addressed an Oregon case concerning cyber/data breach coverage under a CGL policy. A music server was hacked and the identity of all of its users, and the contents of their music libraries, became public on the internet. As a result, it became known that one of its users – a self-proclaimed “tough guy” – had several albums from Barry Manilow, Neil Diamond, Abba and the Carpenters in his library. He filed suit for invasion of privacy and then coverage litigation grew out of that.

Well wouldn’t you know it, on July 15th, the same day that I published “Barry Manilow And Cyber Coverage: Court Writes The Songs For Policyholders,” a New York appeals court issued a decision in Copacabana Realty, LLC v. Fireman’s Fund Insurance Co. I kid you not. Not the day before. Not the day after. The exact same day. What the heck are the odds of that? A gazillion to one I bet. Wow. Even Now I still can’t believe it.

Pollution Liability: Insurance Policy And Public Policy
A New York federal court, addressing an issue of first impression, held in SI Venture Holdings, LLC v. Catlin Specialty Ins., No. 14-2261 (S.D.N.Y. July 10, 2015), that a Pollution Clean Up policy, that requires an insured to seek approval from its insurer, before expending funds for environmental clean-up, is not void as against public policy.

The court explained: “To be sure, if the agreement here did not contain a clause prohibiting Catlin from unreasonably withholding its consent—if Catlin had carte blanche, under the terms of the agreement, to refuse all reasonable requests—a different outcome might well be warranted. In the abstract, SI’s concerns about insurers ‘imped[ing]’ environmental clean-up are certainly valid. In practice, however, there is little reason to think SI’s concerns will materialize. As it stands, Catlin is prohibited—by the very same provision that SI seeks to have invalided—from unreasonably refusing to reimburse an insured party for clean-up costs. As written, the Consent Provision strikes a sensible balance between competing interests. If and when the New York courts consider the question, they may conclude that policy considerations require disrupting this balance. In the absence of further guidance, however, I decline to draw that conclusion here.”

Insurance Coverage And Anger Management
A Wisconsin appeals court held in Szerbowski v. Trinka, No. 2014AP2493 (Wis. Ct. App. July 21, 2015) that no coverage was owed under a homeowner’s policy because bodily injury was not caused by an “occurrence.” The entire case can be described this way: “Puerling’s act of entrusting a handgun to a volatile felon with a known history of drinking problems and a tendency to become belligerent when intoxicated created the means or cause of harm. Szerbowski testified at her deposition that Trinka ‘pretty much’ ‘drank every day.’ Trinka testified that on the day of the shooting, ‘my blood alcohol was, I think, .143, Steve’s was .200, Connie's was .095....’ Trinka’s anger management issues were also uncontroverted, and the record reveals a strained, aggravated relationship between Trinka and Steven. Trinka testified the two were ‘no stranger[s] to arguments prior to this incident,’ and that they were like ‘oil and water’ from ‘day one when I first met him.’ Under these circumstances, giving a handgun to Trinka put in place the conditions for a tragic accident, and bodily injury was hardly unforeseeable. The circuit court correctly determined that Puerling’s act of entrusting the gun to Trinka did not qualify as an accidental occurrence under State Auto’s policy.”