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Coverage Opinions
Effective Date: October 12, 2016
Vol. 5 - Issue 10
Click The Title Of The Article To Read It.

Declarations: The Coverage Opinions Interview With Amy Chua
The “Tiger Mom” Is The Kitten Law Professor
Amy Chua is widely known as the “Tiger Mom” -- a title she earned after her strict Chinese parenting methods were described in her New York Times bestseller – Battle Hymn of the Tiger Mother. The book was the subject of a Time magazine cover story and Chua was named one of Time’s “100 Most Influential People in the World.” Chua is also a professor at Yale Law School. She was kind enough to let me ask her if the Tiger Mom is the Tiger Law Professor?

Duty To Defend: Advanced, Challenging And Unique Issues
The Issues That Get Litigated Because They Don’t Have Easy Answers

Coverage Opinions Turns 4 Years Old!

Randy Spencer’s Open Mic
The Most Interesting Insurance Man In The World
Randy Spencer Will Be Appearing At Dangerfield’s In New York City

General Liability Insurance Coverage: Key Issues In Every State

New Column: My Hometown
Brenda Wallrichs: Practicing Insurance Coverage Law In Iowa

New Insurance Product: Coverage For Lawyers Losing Contingent Fee Cases

“Related Acts” Provisions: The Definitive Article
John Zulkey Of McCullough, Campbell & Lane Pens A Masterpiece

1945! Law Review Article: “The Function Of Insurance Lawyers”

A Pollution Exclusion First: Swamps Of Jersey Are Badlands For Insurers

Insurers Take Note (Again): Another Reason To Revisit The “Designated Premises Endorsement”

Plaintiff’s Attorney’s Fees: Covered As “Damages Because Of ‘Property Damage’”

Self-Described “Four Corners” State Looks To Extrinsic Evidence To Find Duty To Defend

OCIP! I’m Not Covered! (Case Involving The “You” And “Your” Issue)

Tapas: Small Dishes Of Insurance Coverage
· Pennsylvania High Court To Address State’s Definition Of Bad Faith
· West Virginia High Court: Constitutional Right To Jury Trial Does Not Trump Policy Language
· New York Federal Court Allows For Reimbursement Of Defense Costs
· Labels Beware: Court Rejects Continuous Trigger Because Policy Language Does Not Support It

Back Issues:


Vol. 5, Iss. 10
October 12, 2016

Duty To Defend: Advanced, Challenging And Unique Issues
The Issues That Get Litigated Because They Don’t Have Easy Answers


I am pleased to once again have the opportunity to work with The National Underwriter Company on an exciting webinar.

Please join me on November 16th at 1 PM EST for a Duty to Defend webinar that looks well-beyond the basic principles and examines the advanced, challenging and unique issues – the ones that cause disputes and get litigated because they don’t have easy answers.

For more information and to register click here:




Vol. 5, Iss. 10
October 12, 2016

I am excited to report that this issue marks the 4th Anniversary of Coverage Opinions. Four years of hardcore coverage, a look at the lighter side of the law, interviews with famous and unique lawyers and other stuff things that I can’t categorize. If there has ever been a labor of love in my career, this is it. And as in all such endeavors of this sort, on some days there is more of the former than the later. But despite some challenges, I could not be happier with how things have gone for CO over the past four years.

Of course, there could be no four-year anniversary to mark if it were not for you – the dear Coverage Opinions reader. I can’t thank CO readers enough for taking the time to do so, despite having such busy schedules and being inundated with other newsletters, and the like, competing for their time. I also appreciate all of the reader mail that I receive – mostly positive, but sometimes taking me to task for something I said or didn’t say -- and that’s fine too. Please accept my sincere appreciation for enabling me to send a Coverage Opinions four-year anniversary announcement.


Comments, questions, criticism, hate mail, how’s my driving, ideas for making CO better -- I’m all ears. Write to me at Maniloff@CoverageOpinions.Info



Vol. 5, Iss. 10
October 12, 2016


The Most Interesting Insurance Man
In The World



Randy Spencer is on vacation. This column originally appeared in the November 13, 2013 issue.

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

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

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

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

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

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

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

• He describes a defense obligation as a pleasure to defend.

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

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

• His choice of law problem is between France and Monaco.

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

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

I don’t always disclaim coverage, but when I do I prefer that it’s not in bad faith. Stay covered my friends.

-- The Most Interesting Insurance Man in the World.

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



Vol. 5, Iss. 10
October 12, 2016

See for yourself why so many find it useful to have, at their fingertips, a nearly 800-page book with just one single objective -- Providing the rule of law, clearly and in detail, in every state (and D.C.), on the liability coverage issues that matter most.






Vol. 5, Iss. 10
October 12, 2016

Brenda Wallrichs:
Practicing Insurance Coverage Law In Iowa

As we all know, insurance coverage law can vary widely (sometimes really widely) from state to state. Each state has its own key coverage decisions and things about practicing there that make it unique. When it comes to the larger states we usually know what many of these are. California has Cumis. New York has §3420(d). New Jersey has Burd. Arizona has Morris. But what about the less-populated states? They have their own DNA too. But it is not as well known.

Welcome to My Hometown – a new column in Coverage Opinions that asks a coverage lawyer, practicing in a lesser-populated state, to describe some of his or her state’s key coverage decisions and aspects of practicing there that may differ from other states.

I am grateful to Brenda Wallrichs, of Lederer Weston Craig PLC, in Cedar Rapids, Iowa, for her willingness to help me get My Hometown off the ground.


Welcome to Iowa, where I have practiced for the past twenty years. Iowa coverage law, by and large, is not very different from that of the majority of jurisdictions. However, there are a few notable exceptions. As is the case in most states, the duty to defend is broader than the duty to indemnify. Employers Mut. Cas. Co. v. Cedar Rapids Television Co., 552 N.W.2d 639, 641 (Iowa 1996). Typically, the duty to defend turns on whether the petition contains any allegations that arguably or potentially bring the action within the policy coverage. Id. However, unlike some jurisdictions, the determination of the duty to defend can extend beyond the “four corners” (or “eight corners” for you Texas readers) to take into account any other admissible and relevant facts in the record. First Newton Nat’l Bank v. General Cas. Co. of Wisconsin, 426 N.W.2d 618, 623 (Iowa 1988).

With respect to specific policy provisions, the Iowa Supreme Court recently considered the meaning of “occurrence” as used in liability insurance policies. National Sur. Corp. v. Westlake Inv., LLC, 880 N.W.2d 724 (Iowa 2016). The case is important for two reasons. First, Iowa joined those jurisdictions holding that defective construction by a subcontractor may be an occurrence under the general contractor’s policy. Second, the Court utilized the intentional acts exclusion to define what constitutes an “occurrence” and held that even intentional conduct may be an occurrence so long as the insured did not expect or intend both the act and the resulting harm. If the insured expected or intended both the act and resulting harm, then the conduct is not an occurrence (and, additionally, the intentional acts exclusion should apply). Amco Ins. Co. v. Haht, 490 N.W.2d 843, 845 (Iowa 1992). Using an exclusion to define the meaning of an insuring agreement term is a first for our court.

Iowa may differ from a number of states regarding its construction of the pollution exclusion. To date, pollution exclusions have been construed broadly, and Iowa courts have rejected the argument that these exclusions are ambiguous in the sense that it is unclear whether they apply only to traditional environmental pollution or were intended to extend beyond environmental pollution. Bituminous Cas. Corp. v. Sand Livestock Systems, Inc., 728 N.W.2d 216 (Iowa 2007). In Sand Livestock, the Iowa Supreme Court applied the exclusion almost literally, holding that it barred coverage for a death resulting from carbon monoxide poisoning because carbon monoxide was a gaseous irritant or contaminant, which was released from a propane power washer. I expect the pollution exclusion will be revisited soon as there are several cases pending in the state brought by property owners that neighbor CAFOs (for those of you from non-agricultural states, that’s “confined animal feeding operations”; think hundreds of cattle or hogs all crowded onto a relatively small plot of land and the concomitant and very pleasant odors, pests, etc. that traverse to the neighboring plaintiffs’ property). Whether the pollution exclusion bars coverage for these suits will no doubt be tested by either insurers asked to defend or policyholders seeking a defense.

Finally, no one likes to talk about bad faith, but Iowa has very good law from the industry standpoint. To establish bad faith, the policyholder must prove: 1) the absence of a reasonable basis for the failure to pay benefits/refusal to defend and indemnify; and 2) that the insurer knew or should have known its failure/refusal was without reasonable basis. So long as the claim is fairly debatable, whether on an issue of fact or of law, bad faith liability should not be imposed. Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005). Additionally, in most cases the bad faith claim must be brought at the same time as the breach of contract claim or risk being barred by the doctrine of claim preclusion. Villarreal v. United Fire & Cas. Co., 873 N.W.2d 714 (Iowa 2016).

Probably the most notable difference about practicing in Iowa, as opposed to most jurisdictions, is that the body of insurance coverage case law is not as well-developed. Given our population and business base, coverage litigation just doesn’t occur here nearly as much as in more populous states. Thus, it can be a challenge to advise insurers how a particular issue will be handled by our courts. Another difference is that Iowa is generally not at the forefront of emerging coverage issues. By the time an issue is raised to our courts, it has typically been vetted in other jurisdictions (which can be beneficial in the sense that some of the “hard” work has already been done). And, finally, one of the best things about practicing in Iowa is the people. We’re a fairly small legal community. Between the likelihood of running into each other again, and good old Midwest values, other attorneys and judges are generally congenial and a pleasure to work with. If you ever actually make a visit here, please look me up!

Brenda Wallrichs is a member of Lederer Weston Craig PLC in Cedar Rapids. She heads up the firm’s insurance coverage and appellate practices. Brenda is a Fellow in the American College of Coverage and Extracontractual Counsel and a member of the Federation of Defense and Corporate Counsel. She is also a member of the DRI Insurance Law Committee where she serves on the Steering Committee and as the online Community chair and the Social Media chair. She is active in the planning and marketing of the ILC’s biennial seminars, the Insurance Coverage and Claims Institute and the Insurance Coverage and Practice Symposium. Brenda serves on the Risk Management Advisory Committee for the City of Cedar Rapids, Iowa, recently completed her six-year appointment on the Sixth Judicial District of Iowa’s Judicial Nominating Commission and serves as President of the Parish Council at her church. In her free time, she cheers on her son at soccer and basketball games and her daughter at gymnastics meets.



Vol. 5, Iss. 10
October 12, 2016

New Insurance Product: Coverage For Lawyers Losing Contingent Fee Cases


The insurance industry has long-offered products to protect against unique and new risks. I’m talking about real risks – not those silly policies that the media loves to talk about, that provide insurance for things like Liberace’s hands, Tom Jones’s chest hair and Michael Flatley’s legs.

The legal press recently reported that some plaintiff’s attorneys have gotten together and formed a company that offers insurance to lawyers for their costs in the event that a contingency fee case ends in a defense verdict. I was intrigued so I checked it out. Add this new offering from Level Insurance to the list of insurance products designed to protect against a unique risk.

Level Insurance’s website isn’t shy about sharing information – although I couldn’t find a sample policy to consider possible coverage issues. Here are some of the salient features.

The company’s elevator speech that appears on its website goes like this: “Level Insurance is an insurance agency created by trial lawyers for plaintiffs and their attorneys. With the introduction of Litigation Cost Protection, Level Insurance provides a solution to the inequities that typically exist in litigation. As trial lawyers, the principals of Level Insurance understand first-hand the financial risks involved in litigation as well as the immeasurable value of having a security net to mitigate risks. Level Insurance’s Litigation Cost Protection program is managed by Socius Insurance Services and underwritten by Aspen Specialty Insurance Company.”

From the company’s FAQ page:

What’s being insured?: “If your case goes to trial and loses (zero-dollar recovery). The covered case must go to trial and lose. If the case settles, for example, or is disposed of on summary judgment, there is no coverage for any costs incurred.”

What costs are covered?: “Litigation Cost Protection covers costs spent in furtherance of litigation. These cost disbursements include, for example, expert witness fees, travel expenses, court reporter fees, trial exhibit costs and all other money that you invest into the lawsuit that is spent in furtherance of it. The policy does not use qualifiers like ‘reasonable costs’ (sic) you are reimbursed for whatever you spend, period.”

What’s Not Covered?: Attorney’s fees, general overhead and/or office expenses, an opposing party’s costs or attorneys’ fees as may be awarded by the Court, and the premium paid for this policy are not covered.

What are the Limits available?: Between $3,500 and $250,000.

What is the Premium (exclusive of taxes and fees)?: 7% of the coverage limit regardless of the type of case

What if there’s an appeal?: “Your Litigation Cost Protection policy follows the case through appeal, up to policy limits. Your claim is paid after the appellate process has concluded. So, for example, if your case goes to trial and loses, and no appeal is filed, you may submit your claim for payment after the window to file an appeal has expired. If, on the other hand, an appeal is filed, you may submit your claim for payment after the appellate process concludes.”

The FAQ page has lots more information.

My take -- Of course contingency fee lawyers take an expense risk when filing actions. But very few cases reach a jury. And, in many cases, getting a small jury award or small settlement is still a “loss” – but that’s not covered here; you need a zero verdict. And a lawyer’s other big risk of taking a contingency fee case – maybe even bigger than costs -- is the opportunity cost of his or her time. That’s not insured. So will contingency fee lawyers buy Litigation Cost Protection? I have no idea. Just because an insurance policy provides utility doesn’t mean that people will buy it. Look at life insurance. The utility of it is beyond question and it’s relatively inexpensive in many cases. But only about 60% of the public has it and nearly half of them may not have enough. [http://www.bankrate.com/finance/insurance/money-pulse-0715.aspx] All in all, as I see it, the jury is out on this one.


Vol. 5, Iss. 10
October 12, 2016

“Related Acts” Provisions: The Definitive Article
John Zulkey Of McCullough, Campbell & Lane Pens A Masterpiece


There are certain cases that I almost never address in Coverage Opinions. This list includes those involving “related acts” provisions. These are the provisions, contained in some liability policies (usually the “claims made” variety), that group together claims that have some similarity.

Cases involving “related acts” provisions can be monumentally important. They can determine that more than one claim shall be treated as a single claim, thereby impacting the limits of liability available for a loss. They can result in certain claims being deemed to have been first made when an earlier claim was made, thereby causing a claim to fail to satisfy a “claims made” policy’s “timing requirements.” Other potential impacts of “related acts” provisions also exist.

Yet, despite their importance, I rarely address “related acts” cases in CO. That’s because they have a significant uniqueness about them. Their facts often vary widely and outcomes are usually driven by the specific “related acts” provisions at issue. As a result, decisions can be difficult to square and use as predictors for future disputes. Coverage Opinions generally focuses on cases that have the ability to influence future disputes. So, given their fingerprint-like quality, cases involving “related acts” provisions are simply not good candidates for inclusion in CO.

Coverage attorney John Zulkey recognizes this aspect of “related acts” cases. But, unlike me, who uses it as a reason to flee from them, John runs in head first. He has just published the definitive article on “related acts” provisions: “Related Acts Provisions: Patterns Amidst the Chaos,” 50 Val. U. L. Rev. 633 (2016).

The article is a whopper – clocking in at 40 pages and over 23,000 words. If the font were a little larger, and the footnotes added into the text, it could be made into a short book.

The article’s title, Patterns Amidst the Chaos, describes it perfectly: “Courts and commentators both have remarked on the perceived lack of consistency between decisions on Related Acts Provisions. This Article’s purpose is to apprise the reader of trends that exist amongst similar fact patterns and to guide the reader to relevant case law that will aid in making the argument for or against relatedness.”

A good chuck of the article focuses on the promised patterns. It examines factors that determine relatedness, looking at such things as identity of claimants, identity of causes, pattern of activity, timing of the acts and identity of underlying results. Patterns are also demonstrated through an examination of several different types of claims and their relatedness, such as financial/business, legal malpractice, medical malpractice, accountants, insurance producers, employee dishonesty, design contractor, employment misconduct, sexual molestation and public entities.

I can’t even imagine the time that it took to put this together. The number of case citations and descriptions is breathtaking. John Zulkey deserves much credit for tackling such a challenging and complex issue and his article is a serious contribution to the study of related acts provisions.

“Related Acts Provisions: Patterns Amidst the Chaos,” 50 Val. U. L. Rev. 633 (2016) can be easily accessed at the McCullough, Campbell & Lane website – www.mcandl.com. [Click on Publications.]

John Zulkey is an attorney with McCullough, Campbell & Lane LLP in Chicago. He has experience in a wide range of coverage issues and a specialization in coverage for professional liability claims. John drafted the chapters for Illinois and Missouri in the Defense Research Institute’s 50-state survey of the law of professional liability coverage and is a former editor for The CGL Reporter. His work on Related Acts Provisions has been cited by state and federal courts and published in the Tort Trials & Insurance Practice Law Journal, the Valparaiso Law Review, the DRI’s For The Defense, and by the International Association of Claim Professionals. John is actively involved in the Chicago Bar Association, serving as an investigator on the Judicial Evaluation Committee and as Chair for the Civil Practice Committee. He is a 4-year veteran of the U.S. Army. He can be reached at jzulkey@mcandl.com.

Vol. 5, Iss. 10
October 12, 2016

1945! Law Review Article: “The Function Of Insurance Lawyers”
The Insurance Adventures of Elmer Sawyer


My chin dropped when I opened the link provided to me by the all-knowing Bill Wilson of The Independent Insurance Agents & Brokers of America. It wasn’t the title of the Indiana Law Journal article -- “The Function of Insurance Lawyers” -- that got me Although that certainly piqued my interest. It was the date. April 1945. Like 70 years ago 1945. Like when the price of a stamp was three cents and all people walked to school uphill – both ways. Add to this the author, Elmer Sawyer, a founding father of liability insurance, and I felt like I had just found a Van Gogh at a flea market.

If you have any interest in the history of insurance this is a must read. To be accurate, despite appearing in the Indiana Law Journal, it’s not actually a law review article, but, rather, the text of a speech that Sawyer gave to the Insurance Section of the Indiana Bar Association.

Naturally, in a piece like this, there are observations by Sawyer that are out of date as well as things that Sawyer could have just as easily said yesterday (“The insurance industry has an incredible ingenuity for making simple things complex.”).

If you are interested in things like this then you are better off reading the article (just 12 pages) than a brief summary from me. The article will show up if you Google it. Here are the first two paragraphs to whet your whistle for The Insurance Adventures of Elmer Sawyer:

"Casualty insurance and the Bar are uniquely related. No other branch of industry relies so fully upon the legal profession." Lawyers guide companies in their corporate affairs. Lawyers help shape the products the companies sell. Lawyers adjust and litigate losses. Lawyers largely determine legislation which defines powers and obligations of companies. Lawyers frequently administer insurance. Lawyers strongly influence public opinion of insurance. Perhaps most important of all, lawyers as social architects play a leading role in formulating principles of social adjustment and readjustment which determine the character of casualty insurance and the extent of the public need for it.

The reliance of the profession upon casualty insurance is no less extensive. Thousands of lawyers are employed in the business. Other thousands count companies among their clients. Many more thousands, representing the public, profit from the existence of insurance. Casualty insurance is probably the largest single source of income of the profession."

Vol. 5, Iss. 10
October 12, 2016

A Pollution Exclusion First: Swamps Of Jersey Are Badlands For Insurers


As we all know, when it comes to the absolute pollution exclusion, the hubbub is usually whether it is interpreted narrowly (limited to traditional environmental pollution, such as landfills and industrial pollution) or broadly (applicable to all hazardous substances, such as carpet fumes or carbon monoxide (and dozens more)). This is why you do not often see cases involving the applicability of the absolute pollution exclusion to traditional environmental pollution, since it should be precluded regardless of which interpretation applies.

For this reason, the New Jersey District Court’s decision in Castoro & Co. v. Hartford Accident & Indem. Co., No. 14-1305 (D.N.J. Sept. 29, 2016) is a must read. The court interpreted the pollution exclusion in a manner that I have never seen done before.

At issue was coverage for hazardous waste at a disposal site that had been used for decades for a variety of waste materials from construction sites. The New Jersey Department of Environmental Protect did testing and identified Castoro & Co. as the sole party responsible for contamination.

Coverage litigation ensued with lots of the issues that you usually see in these types of cases involving environmental contamination over a long period of time. The one that grabbed my attention was the absolute pollution exclusion.

This case should have been a lay-up for the insurer – even in New Jersey, where the pollution exclusion has been interpreted narrowly, i.e., limited to traditional environmental pollution. If the contamination here is not traditional environmental pollution, what is? So how come the court denied the insurer’s motion for summary judgment on the pollution exclusion?

The Castoro court observed that, under New Jersey’s seminal absolute pollution exclusion decision, Nav-It’s v. Selective (2005), the exclusion is limited to traditional environmental pollution. And the Nav-It’s court defined “traditional environmental pollution” as “environmental catastrophe related to intentional industrial pollution.” (emphasis added by Castoro court). The Castoro court went on to state: “Nav-Its explained that even when a pollution exclusion’s language does not require intent, New Jersey public policy requires intent to avoid unregulated and sweeping elimination of pollution-caused damage coverage.”

Looking to this intent requirement, the Castoro court held: “Due to this intent requirement, CGL policies that attempt to exclude all pollution damage actually ‘include[] coverage for continuous or repeated exposure to conditions, provided that the property damage—not the discharge—was ‘neither expected nor intended from the standpoint of the insured.’ Morton Int’l, Inc. v. Gen.
Accident Ins. Co. of Am., 629 A.2d 831, 847 (N.J. 1993); see also Nav-Its, 867 A.2d at 937 (applying the intent requirement in Morton, even though the absolute pollution exclusion in Morton was expressly limited to ‘sudden’ and ‘accidental’ injuries, unlike the pollution exclusion in Nav-Its). Here, Hartford fails to allege that Plaintiff intentionally polluted the Grovers Mill site. Moreover, Plaintiff contends that its polluting conduct was unintentional because the ‘materials seemed innocuous at the time.’”

Yes, you read that right – The court applied Morton International to the interpretation of the absolute pollution exclusion and held that the exclusion did not apply. I just don’t not see how Nav-It’s can be read to reach this conclusion. I have also never seen a court apply an intentional pollution requirement in a (absolute or total) pollution exclusion case.

Vol. 5, Iss. 10
October 12, 2016

Insurers Take Note (Again):
Another Reason To Revisit The “Designated Premises Endorsement”


I have never been one of those people who believes that, any time an insurer is told by a court that it must provide coverage, that it didn’t believe was owed, the insurer needs to amend its policy language. That is simply not feasible or sensible. There are umpteen reasons why an insurer may lose a case. And one loss on an issue, or even a few, may not be a reflection of the policy’s ability, in the grand scheme, to do its intended job. But that’s not to say there are never such times. Here is one. Insurers are losing too many cases, involving Limitations to Designated Premises endorsements, to not take action to ensure that the intent of the policy is achieved.

In my 2015 “Top 10” cases article I addressed the Hawaii Supreme Court’s decision in C. Brewer and Co., Ltd. v. Marine Indemnity Ins. Co., where the court gave a very (make that two verys) broad interpretation to a “Designated Premises Endorsement.” Consider this. A large portion of a dam in Hawaii collapsed, releasing over three million gallons of water. The insured was the seller of the dam and the purchaser alleged that the insured was aware of the dam’s questionable structural stability. The insured’s commercial general liability policy had a Designated Premises Endorsement that limited coverage to liability “arising out of the ownership, maintenance, and use of the [designated] premises.” And, most importantly, the dam site was not listed as a designated premises. Despite this, the court concluded that the “policy provides coverage for injury and damage arising out of [the insured’s] ‘use’ of its corporate headquarters to make negligent corporate decisions [the headquarters was a designated premise] even though the resulting damage happened at the unlisted Dam site.” I concluded that C. Brewer provided an important policy drafting lesson for insurers that sought to limit their CGL coverage to liability on designated premises.

Then, in Western Heritage Ins. Co. v. Cyril Hoover dba Okanogan Valley Transportation, No. 15-1154 (W.D. Wash. Mar. 30, 2016), the court reached a similar result, relying so heavily on C. Brewer that it should have just attached the opinion as an exhibit and incorporated it by reference. It would have been easier.

Now here we go again. Newman v. United Fire & Casualty Company, No. 14-35103 (9th Cir. Sept. 16, 2016) is a brief opinion and short on facts (but the dissent helps to fill in the gaps). Essentially, the substance of the entire opinion is contained in one paragraph:

“[W]e recognize that the endorsement in the commercial general liability policy titled ‘LIMITATION OF COVERAGE TO DESIGNATED PREMISES OR PROJECT’ . . . could be interpreted as limiting coverage to occurrences tied to National Contract Services’ (‘National Contract’) St. George, Utah, premises. Such an interpretation, however, would be inconsistent with the Policies’ definitions of the ‘coverage territory,’ which include, inter alia, all of the United States. Reading the Premises Endorsements in light of the Policies as a whole, we hold that the endorsements are reasonably susceptible to two different interpretations, and therefore are ambiguous. . . . Montana law construes ambiguous provisions against the insurer and in favor of extending coverage. We therefore reject United Fire’ argument that the Premises Endorsements limit coverage to incidents that occurred on the St. George premises. Because the Premises Endorsements purport to cover claims ‘arising out of . . . the use of the St. George premises, they are sufficiently capacious to include coverage for bodily injury in Montana that flows from or grows out of the use of the St. George premises.”

A dissenting judge weighed in (also briefly), noting that the majority relies on a “number of faulty premises [no pun intended by the judge, I guess] and conclusions.”

The dissenting judge made the following points: First, while the policy’s “coverage territory” includes all of the United States, the Premises Endorsement specifically states that it “modifies” the insurance provided.

Second, “because the Endorsement is a modification to the general form Policies, it must, in some way, differ from the initial grant of coverage provided for by the Policies; otherwise, it serves no function — it is completely meaningless surplusage. By conflating the term ‘premises’ with ‘business,’ the district court read the Premises Endorsement as covering any damages arising from National Contract’s business. This reading is effectively coextensive with the initial, limitless grant of coverage before that coverage was limited by the Premises Endorsement: damages caused by an occurrence anywhere in the United States, for which National Contract is responsible.”

Insurers: Take note.

Vol. 5, Iss. 10
October 12, 2016

Plaintiff’s Attorney’s Fees: Covered As “Damages Because Of ‘Property Damage’”


I have been talking about this a lot lately. A commercial general liability policy does not provide coverage for damages “for” “bodily injury” or “property damage” but, rather, damages “because of” “bodily injury” or “property damage.” There is a real difference. It seems like a day does not go by that I do not hear, or read, the mistaken use of “for” -- and not the correct “because of” -- when describing the nature of “bodily injury” or “property damage” coverage in a CGL policy. I’m counting myself here too. It’s an easy mistake to make and a hard habit to beak.

This distinction was clearly on display in Association of Apt. Owners of the Moorings v. Dongbu Ins. Co., No. 15-497 (D. Hawaii Aug. 18, 2016) where the court addressed the availability of CGL coverage for attorney’s fees awarded to a successful plaintiff in a construction defect-type suit.

The case goes like this. The Bradens filed a demand for arbitration against their homeowner’s association alleging that it failed to repair and maintain their lanai roof – a common element -- which caused water damage to the interior of their unit. The arbitrator found in favor of the Bradens and (1) awarded them $6,203.49, being the amount they had paid to repair their roof and interior damage; (2) required the association to contract with a licensed roofing contractor to perform all necessary and reasonable work on the roof; and (3) concluded that they were the prevailing parties and awarded them $85,644.30 in attorneys’ fees and $8,515.91 in costs.

Dongbu Insurance Co., the association’s insurer, agreed to reimburse the association $6,203.49 in special damages and $8,515.91 in costs, but would not pay the attorneys’ fees award, concluding that “the award of attorney’s fees is not covered under the relevant insurance policy because, simply put, attorney’s fees do not constitute ‘bodily injury,’ ‘property damage,’ or ‘personal and advertising injury’ as those terms are defined in the policy.”

The association was not convinced and filed a coverage action. The court described the issue like this. “The policy states that it ‘will pay those sums that the [association] becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.’ . . . The arbitrator found the Bradens suffered property damage due to leaks in their lanai roof. . . . Consequently, the sole question for this Court to decide is whether the arbitrator’s award of attorneys’ fees constituted ‘damages because of . . . [the Bradens’] ‘property damage.’”

The court, noting the absence of Hawaii law on the issue, looked to decisions nationally. Following this review it concluded that the attorney’s fees are covered and must be reimbursed to the association: “The terms ‘damages’ and ‘because of’ are not defined in the Policy. As noted by the APL Co. court, however, the ‘ordinary and popular definition’ of ‘damages’ is ‘any remunerative payment made to an aggrieved party, including restitutive and punitive measures.’ The Hawaii Supreme Court has not defined ‘because of,’ but it has defined the synonymous term ‘arising out of’ as ‘originating from,’ ‘having its origin in,’ ‘growing out of,’ or 'flowing from.’ Based on these definitions, the attorneys’ fees are covered by the Policy if they flowed from the Bradens’ property damage and constitute restitutive payment to the Bradens. This Court finds that the fees award is restitutive payment to the Bradens and flowed from their property damage; but for their property damage, they would not have pursued arbitration and been awarded fees.”

The court rejected the insurer’s argument that attorney’s fees do not constitute “property damage:” “The issue before the Court is not whether attorneys’ fees and costs can be characterized as ‘property damage,’ but whether they can be characterized as damages that [the insured] became legally obligated to pay because of property damage.” (emphasis in original).

As I said, it is easy to use “for” “bodily injury” or “property damage” and “because of” “bodily injury” or “property damage” interchangeably when discussing the nature of coverage in a CGL policy. But more precision is required.

Vol. 5, Iss. 10
October 12, 2016

Self-Described “Four Corners” State
Looks To Extrinsic Evidence To Find Duty To Defend


Somewhere around 33 states, give or take, expressly allow resort to extrinsic evidence to determine if an insurer is obligated to defend its insured. How that works can be easier said than done. In other words, the rules regarding what evidence an insurer can look out for this purpose, and its source, can be less than clear.

On the other hand, the states that limit consideration to the four corners of the complaint, to determine if an insurer is obligated to defend, should be more predictable. And, in general, that is true. But there can be outliers, which makes even “four corners” states difficult to predict. Put Liberty Ins. Corp. v. Korn, No. 15-332-LPS (D. Del. Sept. 27, 2016) is this category. The coverage issue arose out of the following unusual facts.

Richard and Madga Korn are ex-spouses. In an underlying complaint, it was alleged that “Ms. Korn took a portable hard drive from Mr. Korn’s home approximately one month after the divorce and provided it to the New Castle County Police Department, believing it contained child pornography. Thereafter, police obtained a search warrant and seized Mr. Korn’s personal computer, which contained in excess of 25 images of child pornography. Mr. Korn was arrested on January 14, 2013 and was charged with 25 felony counts of dealing in child pornography, carrying a potential prison sentence of 50 to 625 years. On July 14, 2014, following trial, he was acquitted.”

Mr. Korn sued his ex-wife alleging malicious prosecution, defamation, abuse of process, intentional infliction of emotional distress and negligent infliction of emotional distress. He claimed loss of reputation, lost wages and earning capacity, severe mental anguish and emotional distress, loss of relationships with his minor daughters, expenses (medical, psychiatric and psychological), shame, embarrassment, and personal humiliation.

Liberty, Ms. Korn’s homeowner’s insurer, filed an action seeking a declaration that it owed no duty to defend or indemnity Ms. Korn against her husband’s complaint.

The court concluded that the complaint alleged both intentional and negligent conduct. Thus, the “occurrence” requirement was satisfied for purposes of duty to defend. However, Liberty argued that, nonetheless, no defense was owed because the complaint did not allege that Mr. Korn sustained requisite “bodily injury,” defined as “bodily harm, sickness or disease, including required care.”

On one hand, it was a non-issue. Mr. Korn claimed he suffered heart palpitations and chest pain. Ms. Korn and the court both concluded that that was “bodily harm.” However, here’s the rub. These allegations about Mr. Korn’s bodily harm were not included in the complaint. They were contained in medical records. Liberty argued “for the four comers limitation and call[ed] Ms. Korn’s reference to the record [in the case] ‘a brazen attempt to circumvent the appropriate scope of review.’”

The court observed that the Delaware Supreme Court has adopted the four corners rule for purposes of determining an insurer’s duty to defend. However, the court added that “while the four-comers guideline encourages definition of the parties’ roles and responsibilities as early and efficiently as possible, it does not restrict a court from referring to the record when doing so would be useful to its analysis.” (emphasis added). The medical records, the court concluded, were useful to the analysis.

Thus, Delaware’s duty to defend standard is “four corners,” with resort to the record when it would be “useful to the analysis.” So much for “four corners” states offering predictability. This is just like the less than clear tests that exist in some “extrinsic evidence” states. Given the potentially harsh insurer consequences for breaching the duty to defend, it seems like insurers deserve a more predictable test.


Vol. 5, Iss. 10
October 12, 2016

OCIP! I’m Not Covered! (Case Involving The “You” And “Your” Issue)


TNT Equipment, Inc. v. Amerisure Mutual Ins. Co., No. 15-1461 (M.D. Fla. Sept. 21, 2016) involves the applicability of an OCIP exclusion in a commercial general liability policy. But the real story is that the decision addresses the “you” and “your” issue. In other words, whether the terms “you” and “your,” which are usually defined in a CGL policy to mean the Named Insured, will be given that strict meaning. If so, then an “additional insured,” or some other insured, who are not “yous” and “yours,” would not be subject to exclusions that are stated to apply to “you” or “your.”

TNT Equipment involves coverage for TNT for a suit filed against it for a construction site bodily injury. TNT leased a Mast Climber to a contractor on the project. TNT sought coverage, as an additional insured, under a CGL policy issued to a contractor, Stowell. The ins and outs of how that came to be are not important here.

The CGL insurer denied coverage to TNT on the basis that its policy contained an OCIP Exclusion, which provided as follows:

This insurance does not apply to “bodily injury” or “property damage” arising out of either your ongoing operations or operations included within the “products completed operations hazard” if such operations were at any time included within a “controlled insurance program” for a construction project in which you are or were involved. *** (emphasis added)

One of TNT’s arguments, against the applicability of the OCIP Exclusion, was that it only applied to the Named Insured. As TNT saw it, since the exclusion used the word “you,” which is a Named Insured, it did not apply to TNT, as a purported additional insured.

The court was not convinced. Not even close, stating: “TNT’s interpretation of the CGL Extension and OCIP Exclusion would have Amerisure cover claims arising from the operations of Stowell’s subcontractors and exclude claims arising from the operations of Stowell itself. TNT offers no legal authority or factual basis to disregard this apparent absurdity in determining the duty to defend.” In other words, the court saw it as an absurdity that an additional insured would get more coverage than a Named Insured.

What makes TNT Equipment interesting is that, while the court said that TNT is arguing for an absurd result, other courts have been willing to conclude that, when the terms “you” and “your” mean the Named Insured, an “additional insured,” or some other insured, is therefore not subject to exclusions that are stated to apply to “you” or “your.” Hence, an additional insured gets more coverage than the Named Insured.

Vol. 5, Iss. 10
October 12, 2016

Pennsylvania High Court To Address State’s Definition Of Bad Faith
In Rancosky v. Wash. Nat’l Ins. Co., No. 124 WAL 2016 (Pa. Aug. 30, 2016) , the Pennsylvania Supreme Court granted allocator to answer the following question: “Whether this Court should ratify the requirements of Terletsky v. Prudential Property & Casualty Insurance Co., 437 Pa. Super. 108, 649 A.2d 680 (Pa. Super. 1994), appeal denied, 540 Pa. 641, 659 A.2d 560 (1995), for establishing insurer bad faith under 42 Pa.C.S. § 8371, and assuming the answer to be in the affirmative, whether the Superior Court erred in holding that Terletsky factor of a ‘motive of self-interest or ill-will’ is merely a discretionary consideration rather than a mandatory prerequisite to proving bad faith?”

West Virginia High Court: Constitutional Right To Jury Trial Does Not Trump Policy Language
Richard Gravely disagreed with the decision of his auto insurer to settle a claim on his behalf. Gravely dismissed the attorney hired by his insurer and demanded a jury trial. The insurer settled nonetheless. Gravely filed suit against the insurer for violating his right to a jury trial under the West Virginia Constitution. Gravely lost and appealed to West Virginia’s highest court, which characterized Gravely as “unsatisfied with being relieved of liability.” Gravely lost again. The court, calling Gravely’s complaint baseless, noted that the insurance policy gave the insurer the right to investigate and settle any claim and does not require the insured to consent.

Held: “Petitioner contends that the right to a jury trial under the West Virginia Constitution ‘trumps’ the clear and unambiguous language of his policy. We disagree and find that the constitutional right to a jury trial is not implicated in this case. . . . [A] violation of a constitutional right generally occurs when there has been unlawful ‘state action’ by a ‘state actor.’ We find that petitioner’s complaint contains no allegation that respondent is a state actor or that its settlement of the claim against petitioner constitutes state action.”

New York Federal Court Allows For Reimbursement Of Defense Costs
This from a New York federal court following a no duty to defend determination: “In its January 30, 2014 letter, Maxum informed VLK that it ‘as a courtesy, will appoint defense counsel to defend VLK in the third-party action,’ but that it ‘reserves all of its rights to withdraw the defense upon a declaration of non-coverage and to recoup defense costs incurred in defending the third-party action despite there being no contractual obligation to do so.’ VLK never objected to the reservation. Accordingly, Maxum has established that it is entitled to recoup its defense costs from VLK in the amount of $12,289.12.”

Labels Beware: Court Rejects Continuous Trigger Because Policy Language Does Not Support It
Labels are sometimes used to describe policy language: trigger of coverage, hammer letter, four corners, innocent co-insured and many more. But as Columbia Casualty Co. v. Plantation Pipe Line, No. A16A0705 (Ga. App. Ct. August 31, 2016) demonstrates, labels are not controlling. Policy language is still king. The court rejected the applicability of the continuous trigger, to an environmental claim, because the policy language could not support it: “In this case, then, the Columbia policy expressly ‘applies to occurrences taking place during [the] policy period.’ Columbia could have drafted the substitution clause to provide that, if the underlying policy insures occurrences taking place during the policy period, then the Columbia policy applies to occurrences taking place during the policy period to the extent of injury taking place during the policy period.” (emphasis in original”)