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Coverage Opinions
Effective Date: March 2, 2016
Vol. 5, Iss. 5

Declarations: The Coverage Opinions Interview With Bert Fields – The Most Prominent Entertainment Lawyer Of All-Time
Bert Fields turns 87 this month. But the legendary entertainment lawyer doesn’t know it. Not long ago he won one of the most high-profile cases in the country. Fields talks to Coverage Opinions about a lifetime representing the elites of Hollywood. But he passed up a career as an insurance lawyer to do it.

CGL Policy Road Trip: 66 Advanced Stops Along The Way
Take a tour of the CGL policy -- focusing on advanced issues, nuances, unique takes on issues, unusual issues and key case law.

Randy Spencer’s Open Mic
Scalia, O’Connor and Rotten Eggs

Contest: Win A Copy Of General Liability Insurance Coverage -- Key Issues In Every State

My Two Brushes With Justice Scalia (Including The Coverage Opinions Interview That Almost Was)

The Four Questions: Why Is This Coverage Lawyer Different From All Other Coverage Lawyers?
Chuck Browning of Plunkett Cooney, P.C.

Bridge Of Spies: Making It Real

Pearls Of Wisdom For A New Coverage Lawyer
Coverage lawyers from across the country provide their most important piece of advice for a newbie

A Don’t Miss: Craig Stanovich’s Superb Article On Umbrella Issues

Is A Former Insurer-side Lawyer Disqualified From Now Representing Policyholders?

Allocation Of Defense Costs Between Covered And Uncovered… Defendants (Case Law “Rather Sparse”)

Up In Smoke: Court Finds No Coverage Owed For Certain Damaged Marijuana Plants

New York’s Highest Court Addresses Unique Allocation Issue

Late Notice: A Tale Of Two Cites: Supreme Court Adds A Third

Tapas: Small Dishes Of Insurance Coverage News And Notes
· Pollution Exclusion Precludes Coverage For Carbon Monoxide Poisoning
· Insurer’s ROR Did Not Entitle Insured To Independent Counsel

Back Issues:

Vol. 5, Iss. 3
March 2, 2016


Scalia, O’Connor and Rotten Eggs


This “Open Mic” column appeared in the January 16, 2013 issue of Coverage Opinions. With so much focus these days on the Supreme Court, and since the column mentions Justice Scalia, and since there are a lot of new subscribers since early 2013, and since I’m struggling to come up with an idea for an original column, and since you’re not paying to read this anyway, I am re-publishing it here (with a few additions).


I’ve never considered the coverage issues associated with Chinese drywall to be significant in scope. But I took great interest in the Eleventh Circuit’s recent decision in Granite State Insurance Company v. American Building Materials, 504 Fed. Appx. 815 (11th Cir. 2013), holding that the pollution exclusion precluded coverage for damages associated with defective Chinese drywall. My interest in the case stemmed not from the coverage issues, but, instead, one of the three judges on the panel – retired United States Supreme Court Justice Sandra Day O’Connor, sitting by designation. Justice O’Connor has not been unwilling to lend her services to Circuit Courts of Appeal since her retirement from the nation’s top court. And she’s even confronted some coverage issues in this designated hitter role.

But now here was Justice O’Connor, having at times been called one of the most powerful women in the world, and having provided crucial votes in cases addressing some of the most important issues of our time – campaign finance, abortion, school vouchers, Bush v. Gore, affirmative action, freedom of association, and on and on and on, being called upon to address whether drywall that emits the smell of rotten eggs qualifies as a solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.

What must she have been thinking? I can think of a few things:

(1) Next time I’ll read the fine print before agreeing to sit by designation on the Court of Appeals.

(2) This is why we never let insurance coverage cases get to the Supreme Court.

(3) Yes, the drywall smells, but that’s not why I’m turning up my nose at this case.

(4) Wait, I have an idea. I’ll just declare Chinese drywall to be unconstitutional and go home.

(5) The more I think about it, the Bill of Rights aren’t the first ten amendments to the Constitution – they’re really endorsements.

(6) There’s an exclusion for pollution? How can that be? Doesn’t that violate freedom of leach?

(7) Would you look at this insurance policy. And I thought the Tax Code was hard to understand.

(8) Granite State Insurance? I know that company. That’s the one with the cute little green lizard.

(9) What’s a pollutant? Wait, didn’t Justice Stewart know it when he saw it.

(10) Hmm, I might have been wrong to blame Scalia for leaving an egg salad sandwich in the refrigerator for too long. Maybe the Supreme Court has Chinese drywall.


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





Vol. 5, Iss. 3
March 2, 2016

My Two Brushes With Justice Scalia
(Including The Coverage Opinions Interview That Almost Was)


Needless to say, the sudden death of Justice Antonin Scalia was a 9.2 on the Richter scale for the Supreme Court as well as the Presidential election. The tributes to the former Justice, and prognostications of how his death with impact the court’s current cases, and ones in the future, have been abundant.

I had two letter writing exchanges in my legal career with Justice Scalia. The first was very satisfying and the second ended in disappointment.

On the positive side, in 1992 I was finishing up a clerkship for the late Judge Murray Goldman of the Philadelphia Court of Common Pleas. I wanted to get Judge Goldman a gift to say thank you for the wonderful experience. The Judge liked autographs, so I sent a letter to each member of the U.S. Supreme Court, asking them to kindly sign a “First Day of Issue” commemorative envelope for a stamp that had a law theme. These are popular with autograph collectors. My plan was to put them all in a large frame. I did not explain to the Supreme Court Justices the reason for my request. Eight sent back signed envelopes. One did not. Instead I received a letter from Justice Scalia’s chambers saying that it was his policy not to sign autographs.

I wrote back to Justice Scalia, this time on Judge Goldman’s letterhead, and this time explaining my purpose. I asked him for reconsideration so that I would not have an incomplete set for the Judge. His reply – in perfect Scaliaism -- is nearby. I may be the only lawyer to have been granted reconsideration by Justice Scalia.

My second brush with Justice Scalia came in the Summer of 2013 when I contacted him, requesting to do a written Q&A about his book, Making Your Case, for Coverage Opinions. His response is also nearby. While Justice Scalia technically never said that he would do it, it seemed likely from his letter that he was on board with it. Needless to say, I only sent him back a few questions and they were fairly simple and innocuous. I didn’t exactly ask him how he planned to vote in certain cases. In any event, despite sending Justice Scalia the questions as requested, and contacting his chambers several times to follow-up, answers were never forthcoming. Obviously he was a busy guy and it just fell off his radar. It was disappointing, but, alas, sometimes the train goes off the track when it comes to interviewing very busy people.
Vol. 5, Iss. 3
March 2, 2016

Chuck Browning of Plunkett Cooney, P.C.

I’m always looking to add new things to Coverage Opinions to keep it fresh. Welcome to the inaugural column of The Four Questions: Why Is This Coverage Lawyer Different From All Other Coverage Lawyers?

In each issue I’ll feature a coverage lawyer and ask him or her, well, four questions. I’ll be looking to focus on things about the lawyer or their practice or their jurisdiction that makes them unique. But, admittedly, since this is the first installment of The Four Questions, it remains to be seen how it will evolve. Like lots of new ideas in CO, it’s a work in progress.

Chuck Browning of Michigan’s Plunkett Cooney, P.C. has graciously agreed to be The Four Questions test subject.

Chuck Browning serves as co-chair of Plunkett Cooney’s Insurance Coverage Practice Group. He is a resident in the firm’s Bloomfield Hills, Michigan office. Michigan may be famous for cars, but Chuck’s career has been all about airplanes. In his 35 year career Chuck has handled coverage cases all over the United States. Indeed, he has been admitted pro hac vice in at least 34 states. Chuck has represented P&C insurers in just about every type of claim, including bad faith, class actions, construction defects, mass torts, environmental, defective products, asbestos, mold, contaminated foods, general liability (primary and excess), employer’s liability, errors and omissions, property, directors and officers and professional liability. Chuck is very active in DRI, including serving as Program Chair for DRI’s 2015 Insurance Coverage Practice Symposium in New York and Program Chair for DRI’s 2011 Insurance Coverage and Claims Institute in Chicago.

I attended the DRI’s Insurance Coverage and Practice Symposium in New York in December. It was a fantastic conference. You served as Program Chair. With 750 attendees that was no doubt a massive undertaking. What were some of the challenges to put together a conference of that magnitude and your most memorable experiences from it?

For DRI conferences, the buck always stops with the Program Chair. As a result, for a conference that large, from January 2015 through the end of the conference in early December, I dealt with some aspect of ICP almost every business day. No exaggeration. Juggling that with my responsibilities to clients and the firm was a keep-me-up-at-night challenge. But that immense challenge also gives rise to my most memorable experience from being Program Chair – the invaluable and tireless work by so many DRI Insurance Law Committee members who made the conference such a success. This is not triteness. It is truly remarkable to see the Insurance Law Committee machine at work, with countless people pitching in to help, and doing so in an outstanding manner. You really need to see it first hand to believe it.

Every jurisdiction has something that makes it unique when it comes to coverage issues. What does Michigan have in this category?

My coverage practice often takes me to jurisdictions outside of Michigan, but Michigan has always been my home and it has some unique aspects to its insurance coverage jurisprudence. Most notably, Michigan’s rules of insurance contract construction ensure a level playing field as between the carrier and the policyholder. The rule of reasonable expectations, in any form, is not recognized as a valid approach to contract interpretation. Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776 (Mich. 2003). Michigan courts also do not recognize insurance policies as contracts of adhesion. Rory v. Continental Ins. Co., 703 N.W. 2d 23 (Mich. 2005). When faced with an ambiguity, Michigan courts apply contra proferentem only as a last resort and only if the trier of fact (not the court) is unable to determine the intent of the parties through an examination of relevant extrinsic evidence. Klapp v. United Ins. Group Agency, Inc., 663 N.W 2d 447 (Mich. 2003). Also, Michigan recognizes a cause of action for bad faith only in the context of a carrier’s failure to settle within policy limits, and with respect to that cause of action, limits the damages to the amount that could be collectible by the claimant from the insured. Frankenmuth Mutual Ins. Co., v. Keeley, 461 N.W.2d 666 (Mich. 1990).

You’ve been involved in some of the most important coverage battles in the country over a 35-year career. What are some that stand out as the most memorable?

I was extremely fortunate to be a coverage lawyer when the US EPA and similar state environmental agencies began aggressively pursuing Corporate America for its historical waste generation and disposal practices. Mega coverage litigations involving huge and unanticipated exposures exploded overnight across the country. Every major industrial company was pursuing coverage litigation for these exposures and coverage cases with 50 or more carriers as parties and involving hundreds of waste sites were routine. Having experienced a streak of early success in this area, I was retained as one of a handful of regional outside coverage counsel for The Aetna Casualty and Surety Company, the major insurer of Corporate America, such that I was involved in many of these mega cases. It was a heady time -- the issues were all cutting edge and trends were critical. The weekly Mealey’s Insurance publication (hard copy only) was our Bible, as we attempted to gain every advantage and to stay abreast of developments across the country. Our client Aetna presented the drafter of the sudden and accidental pollution exclusion and the co-drafter of the 1966 CGL form for mega-depositions, all noticed at the same time in more than 60 cases. We rented a ballroom in Hartford for that purpose. Each lawyer was assigned a number for purposes of objection or witness examination; and there were hundreds present. These depositions lasted more than two weeks.

While this was my foundation for major coverage litigation, my most memorable coverage battles in terms of complexity and exposure were the silicone implant coverage cases (Dow Corning, 3M, Baxter and Bristol Meyers Squibb). The science has now largely demonstrated no connection between silicone and auto immune disease. But these coverage cases were filed in the midst of a whirlwind of concern by the FDA and others about the health effects from silicone implants on hundreds of thousands of people. Every coverage issue was litigated – truly scorched earth.

The tire/roll-over coverage matters were also a challenge and interesting. More recently, the Waste Management asbestos coverage litigation, with competing actions in five different states, stands out for its complexity and its unusual nature. For example, while the case was actually pending in Texas, the court and the parties held a legendary six hour oral argument on summary judgment motions in a wine cave in Napa, California. That case was settled, but only after 90 plus days of mediation.

Most recently, the coverage case involving contaminated steroids from New England Compounding Company and the coverage litigation from the Indiana State Fair stage collapse also jump out as interesting and different.

Imagine you are addressing a roomful of third-year law students. Make the pitch why they should pursue a career as an insurance coverage lawyer.

Easy question to answer. Coverage law is not commodity work. Each matter is taken on its own merits, requiring a separate analysis under the insurance contracts, facts and applicable law. To this day, I have never seen two coverage matters exactly the same. What could be better than that for a young lawyer as she/he establishes the foundation for a professional career?


Vol. 5, Iss. 3
March 2, 2016

Bridge Of Spies: Making It Real

Well, Bridge of Spies did not win the Oscar for Best Picture (although Mark Rylance won for Best Supporting Actor for his incredible portrayal of spy Rudolph Abel). Nonetheless, it is an incredible film. And for people involved with insurance coverage it is incredible and surreal. It is now out on video. If you have not seen the film you can’t imagine what you are missing.

For those of you living in a spider cave, in Bridge of Spies Tom Hanks plays an insurance coverage lawyer who defends an accused Soviet spy in the late 1950s. After his client is found guilty, Hanks’s character goes cloak and dagger and attempts to arrange for him to be swapped for the return of an American spy pilot being held by the Soviets. It’s a true story. It has to be. Nobody could possibly make that up.

The coverage lawyer in question is James Donovan. In 1950 Donovan joined with Thomas Watters, Jr., a former deputy insurance commissioner of Iowa (played by Alan Alda in the film), to form the law firm Watters & Donovan in New York and Washington.

I had the thrill and privilege of interviewing all thee of James Donovan’s living children for the October 28, 2015 issue of Coverage Opinions. After speaking with Donovan’s children, and reading Strangers on a Bridge, Donovan’s first-hand account of the spy trial and prisoner exchange, I wanted to learn more about him.

Following Donovan’s death in 1970, the Watters & Donovan firm went through various successions and, in 2002, became Donovan Parry McDermott & Radzik. The firm’s Dan McDermott, renowned maritime and maritime insurance lawyer, is now with Marshall Dennehey in New York.

I visited Dan in his office late last year and he was kind enough to share with me some stories about James Donovan and the trial. Dan never met Donovan but is a student of the man and very knowledgeable about him. And in the it-doesn’t-get-any-cooler-than-this category, Dan showed me the original sign for the Watters & Donovan law firm. I appreciate Dan’s hospitality and for the opportunity to touch a real part of James Donovan’s life.


Vol. 5, Iss. 3
March 2, 2016

Pearls Of Wisdom For A New Coverage Lawyer


A few weeks ago on the DRI Insurance Coverage Message Board there was a thread – wisely started by Patrick Omilian of Goldberg Segalla -- where participants provided one piece of advice – a Pearl of Wisdom – to a new coverage lawyer. It made for very interesting reading. Not to mention that you don’t need to be a new coverage lawyer to benefit from others’ experiences.

This gave me an idea -- the idea to steal Patrick’s idea (Thank you, Patrick). I reached out to DRI folks, and others, to get their Pearls of Wisdom for a new (or old) coverage lawyer. There is a lot of great advice here for all who do coverage work. Thank you to all who participated.


Truly, the best piece of advice for new coverage lawyers is to READ the POLICY. After that, once you have a feel for the coverage analysis process, my advice is: Listen to your gut. If something just doesn’t make sense, or seems unusual, that’s your clue to investigate further. Maybe there are facts you don’t have. Perhaps you have missed an endorsement or misread (or misinterpreted) the policy language. Don’t stop the analysis until you have assuaged that nagging feeling in your gut that something is not quite right.
Alissa Christopher
Cozen O’Connor

Don’t give your opinion on coverage until you’ve written your opinion, or at least do your best to qualify it as an initial impression. I don’t know how many times I discovered other coverage issues, or even completely reversed my initial coverage impression, after going through the process of researching and writing the opinion letter.
Jennifer Eubanks
Senior Staff Attorney
Canal Insurance Co.
Greenville, SC

(1) Be ready to answer a question different from the one you were asked: do not confuse coverage questions with contractual risk transfer or insurance procurement language with Certificates of Insurance. Accordingly, make certain that you properly have the underlying facts, secure the appropriate and necessary documents (policies, trade contracts, etc.) and frame the questions that really need to be answered. (2) Develop a formulaic approach to coverage analysis and coverage position letters to assure consistence in approach and format, with a checklist that assures a complete review of the actual policy in place at the time.
Dan D. Kohane
Hurwitz & Fine, P.C.

[I couldn’t agree more with Jennifer Eubanks of Canal Ins. Co.] Do not reach a final conclusion on a coverage issue until you have written an analysis. Time and again I review claims documents and policies and reach a conclusion on a coverage issue. But then, as I begin to write the analysis for the client, I change my mind. The deliberative and methodical process of writing an analysis sometimes causes you to see things that could not be appreciated from simply a review of the documents.
Randy Maniloff
White and Williams, LLP

The advice I wish I had been given, instead of learning it the hard way, is: “Don’t start with exclusions.” Most of the coverage assignments I’ve gotten were in a phone call or email asking whether some exclusion applied. Young coverage lawyers are often led astray by this initial contact. Old coverage lawyers know to first analyze whether the facts bring the case within the insuring agreement.
Barry Miller
Mazanec Raskin & Ryder

My first assignment as a newly-minted coverage attorney was to research coverage for construction defects litigation in Nevada. This was 1980. Then, as now, there is a dearth of decisional law in Nevada. I could not find a single case dealing with construction defects, or even interpreting a liability policy (other than auto policies). So I came up with a “genius” idea. Reasoning that an insurance policy was a contract, I decided to look at contract law in Nevada. Little did I know that all the contract cases in Nevada involved gambling joints and/or brothels. Red-faced, I reported my findings to my boss. He laughed uproariously, then suggested I look at California law. There I found my answer, and we successfully argued that the Nevada courts often adopt California law. Lesson 1: Not all contracts are the same. Lesson 2: Insurance policies tend to use the same language, so that the cases of other states can be applicable authority if on point.
Julia Molander
Cozen O’Connor
San Francisco

Take a position and own it. Too often I’ve seen associates offer a thorough analysis of what might happen without offering their opinion and recommendation as between multiple options. Our clients seek our counsel and want to know what we recommend, not merely a range of possibilities. Don’t be wishy-washy or non-comital. Present a thorough analysis, stake out your position and own it.
Patrick Omilian
Goldberg Segalla, LLP

Always make sure your copy of the policy is complete. Once you’ve done that, read the policy cover to cover and don’t skip over anything. There are no shortcuts.
Jonathan L. Schwartz
Goldberg Segalla, LLP

If something seems like it should be covered and you determine it’s not under the policy you have, think if it should be covered under a different type of policy. I teach that for normal risks, the different types of policies intermesh to provide a broad scope of coverage for persons and businesses. If normal activity is excluded under one, it’s probably covered by another policy, and if you can figure that out, your denial seems more appropriate and therefore more easily defensible.

The CGL may be the basic form, but it is meant to intermesh with auto, professional liability, employment practices, workers compensation, and cyber coverages to provide proper risk management for a business. For example, most auto claims are excluded from the CGL form because the industry wants the insured to buy an auto policy to intermesh with the CGL. However, if you determine the auto related matter is not covered under the CGL and it would also not be covered by the standard business auto policy, then you should re-examine your analysis because somewhere along the way, there is a good chance something is not being analyzed correctly. Obviously, there are types of claims and conduct that are never covered, but this holds true most of the time. Also, when a normal risk is arguably not covered under any form, there is a higher likelihood of a finding of ambiguity, or a finding that the applicable language was not clear and conspicuous.
Neil Selman
Selman Breitman
Los Angeles

Always look beneath the surface, especially when assessing statements by the opposition. For example, “liability insurance coverage tort claims, not contract claims” is a generally correct but oversimplified and potentially misleading aphorism. More precisely, liability coverage covers bodily injury or property damage caused by an occurrence, regardless of whether an otherwise qualifying occurrence is framed as a tort action or a contract action. As another example, a statement that “More than X courts have held that the Y clause is unambiguous” or that “More than A courts have ruled that the B clause is ambiguous” may not reflect an immutable tendency of courts but instead describe context-specific precedent that is not applicable to your case.
Jeffrey W. Stempel
Doris S. & Theodore B. Lee Professor of Law
William S. Boyd School of Law
University of Nevada Las Vegas

The standard CGL policy is said to fit together like pieces in a jigsaw puzzle. In addition to reading the entire contract and all endorsements before reaching any coverage conclusions, figure out what the standard policies contain that your policy does not. For example, in the ISO forms, the “to which this insurance applies” language in the insuring agreement is tied to the “[t]his insurance does not apply to” lead-in language of the exclusions. Figure out what has been omitted from the policy you are reviewing and analyze what impacts that may have on the coverage provided by the policy under review.
Jonathan M. Stern
Schnader Harrison Segal & Lewis LLP
Washington, DC

I don’t recall my first coverage opinion, but I do recall one of my most meaningful early opinions. I was contacted by a major insurer who was facing garnishment in a proceeding supplemental because the insurer had not defended under an ROR, and the large church they insured had been defaulted for $2 million in a sexual molestation case. The insurer confidently told me that it was not concerned because it had an ironclad sexual molestation exclusion. I received the certified policy, and indeed, the policy had an unambiguous and broad sexual acts exclusion.

Being a brash young lawyer I sent the policy to the opposing counsel and politely informed him that his client was out of luck. He then pointed out to me that the policy had been in force for many years and that it appeared that the exclusion was added two years earlier on renewal. However, no one had called the exclusion to the attention of the church, and they did not know it was there. (You older practitioners will recall when sexual molestation exclusions were introduced and uniformly added to school and church and similar institutional insured policies.)
It was then that I learned the rule that if an insurer materially reduces the coverage of a policy on renewal they must notify the insured in a clear and conspicuous manner. If they fail to do so, then the change to the policy may be ineffective.

I mention this experience because I continue to this day to encounter cases in which an insurer wants to rely on a policy provision, and they fail to check to see if the provision has been in the policy since inception or whether it was added on renewal. About once out of a dozen times I will find that the language was added on renewal and that the company lacks proof that the change was communicated in a clear and conspicuous manner. It is a pitfall for the unwary that can be avoided if you know to look for it.
John Trimble
Lewis Wagner LLP



Vol. 5, Iss. 3
March 2, 2016

A Don’t Miss: Craig Stanovich’s Superb Article On Umbrella Issues


In the last issue of Coverage Opinions I discussed Westchester Surplus Lines Inc. Co. v. Keller Transport, Inc., a Montana Supreme Court decision in which the court held that the undefined term “general aggregate,” in an umbrella policy, was ambiguous. Therefore, the general aggregate applied to each type of coverage provided in the primary policy. Hence, it applied twice, since the claim involved both CGL and auto policies, resulting in an insurer being saddled with an additional $4 million coverage obligation.

In the wow, what a coincidence category, it turns out that Craig Stanovich, of Austin & Stanovich Risk Managers LLC (a risk management and insurance advisory consulting firm), published an article in January, with IRMI, in which he discussed – in detail, and at length – the issue of aggregate limits under umbrella policies. Craig’s article looks at several possible ways in which umbrella policies address the aggregate limit issue.

As I’d expect from my years of reading Craig’s work, his article is superb, not to mention that aggregate limits is just one of several umbrella policy issues that he tackles. The article provides a comprehensive, and high-level, discussion of many aspects of umbrella policies.

Craig’s overarching thesis is this – Because umbrella policy proposals often come at the last minute, it is an “eleventh-hour transaction [that] often results in the buyer paying little or no attention to the actual coverage being purchased.” As Craig sees it, “[t]here is a certain irony to giving short shrift to a liability policy that is only important when damages from a liability claim may be in the range of tens of millions of dollars. In other words, it is not advisable to review your umbrella policy or policies for the first time only after being faced with a complaint that alleges liability for damages in the millions of dollars.”

I highly recommend that you check out Craig Stanovich’s excellent piece. You can find it at irmi.com.


Vol. 5, Iss. 3
March 2, 2016

Is A Former Insurer-side Lawyer Disqualified From Now Representing Policyholders?


It is not unusual for a lawyer, who has represented insurers, to make a jump to the other side and now represent policyholders against insurers. But when this happens it is also not unusual to wonder if conflict issues could hamstring the lawyer in his or her new position. This was the issue in In re National Lloyds Insurance Company, No. 13-15-521 (Tex. Ct. App. Feb. 10, 2016).

The facts are not complicated. Lauren Chapman was an associate at the law firm of Andrews Kurth from September 2008 to February 2015, when she left the firm and joined the Mostyn Law Firm. Since 2012, Andrews Kurth has been involved in the defense of first party bad faith suits filed against National Lloyds Insurance Company. Right after joining the Mostyn firm, Ms. Chapman began appearing on behalf of plaintiffs in hailstorm cases filed against National Lloyds.

National Lloyds was none too pleased with this and filed a motion to disqualify Ms. Chapman, and the Mostyn firm, based on Chapman’s prior employment with Andrews Kurth.

The trial court denied National Lloyds’s motion to disqualify. A Petition for Writ of Mandamus was filed with the appeals court. Without getting bogged down in the specifics of Texas Disciplinary Rule of Professional Conduct 1.09, addressing former client conflicts, the appeals court concluded that disqualification was not warranted.

As National Lloyd’s saw it, the disqualification was mandated by certain irrebuttable presumptions in the law, which gave rise to the following step-by-step arguments: “(1) Andrews Kurth represented National Lloyds; (2) there is an irrebuttable presumption that Andrews Kurth obtained confidential information during the representation; (3) Andrews Kurth’s knowledge of National Lloyds’s confidential information was imputed to Chapman as an associate at that firm, thereby disqualifying her from representing [hail storm plaintiffs]; and (4) Chapman’s imputed knowledge of National Lloyds’ confidential information was imputed to the Mostyn Law Firm when Chapman joined that firm, thereby disqualifying it from representing [hail storm plaintiffs].”

However, the Texas appeals court did not adopt such a rigid approach. Instead, looking to a Fifth Circuit case for guidance, the court stated that the appropriate rule was as follows: “[A] departing lawyer must have actually acquired confidential information about the former firm’s client or personally represented the former client to remain under imputed disqualification.”

On that basis, the Texas appeals court examined the specific circumstances surrounding Ms. Chapman’s work at Andrews Kurth. The key to the court’s decision was that the parties stipulated that “Chapman ‘did not work on any matter’ regarding National Lloyds and that she ‘did not personally represent National Lloyds Insurance Company, and did not personally receive any confidential information of National Lloyds Insurance Company.’”

Having had no involvement with National Lloyd’s, while working at Andrews Kurth, the court held that Ms. Chapman did not have a conflict in representing the hail storm plaintiffs when she joined the Mostyn firm.


Vol. 5, Iss. 3
March 2, 2016

New York’s Highest Court Addresses Unique Allocation Issue


The bulk of the New York Court of Appeals’s decision in Selective Insurance Co. v. County of Rensselaer (N.Y. Feb. 11, 2016) addresses the number of deductibles that the County of Rensselaer was obligated to pay, following a settlement of a class action involving unlawful strip searches in its jail. Various policies had deductibles of $10,000 or $15,000 for all covered damages “sustained by one person or organization as the result of any one ‘occurrence.’” The settlement involved a payment of $1,000 to each of approximately 800 plaintiffs, a $5,000 payment to the named plaintiff and $442,000 in attorney’s fees for the class.

The “number of deductibles” issue was resolved by the court without breaking a sweat. It was dictated by the policy language: “The policy defines ‘occurrence’ as ‘an event, including continuous or repeated exposure to substantially the same general harmful conditions, which results in ... ‘personal injury’ ... by any person or organization and arising out of the insured’s law enforcement duties’ (emphasis added). Thus, the language of the insurance policies makes clear that it covers personal injuries to an individual person as a result of a harmful condition. The definition does not permit the grouping of multiple individuals who were harmed by the same condition, unless that group is an organization, which is clearly not the case here. The harm each experienced was as an individual, and each of the strip searches constitutes a single occurrence.”

Thus, none of the payments ($1,000 each), to any of the plaintiffs, exceeded the deductible.

The more interesting issue is the court’s treatment of the attorney’s fees vis-à-vis the deductible. Selective, seizing on the court’s decision that the injuries constituted multiple occurrences, argued that the attorney’s fees should be allocated ratably among the deductibles. By doing so, about $550 would be allocated to each of the deductibles. Translation, still none of the deductibles are met for a single plaintiff.

The court disagreed: “Equally reasonable is the County’s assertion that given that there was one defense team for all class members, the fee should be attributed only to the named plaintiff, Bruce. It is undisputed that the policies are silent as to how attorney’s fees would be allocated in class actions and therefore ambiguous on this point. Where the language of the policy at issue is ambiguous, and both parties’ interpretation of the language is reasonable, the policy language should be interpreted in favor of the insured.”

So, while the County struck out concerning the $800,000 or so settlement, it was covered for almost all of the $442,000 of the attorney's fees.

It’s an interesting decision, although I’m not sure how often this scenario – involving several aligned stars -- will repeat itself.


Vol. 5, Iss. 3
March 2, 2016

Up In Smoke: Court Finds No Coverage Owed For Certain Damaged Marijuana Plants


Discussion of insurance coverage, concerning the legal use of marijuana – medical and recreational – has been growing. With the number of legal states getting higher, it is a budding area of coverage law.

A few insurers have begun to issue property and casualty policies specifically designed to insure various aspects of the marijuana supply chain. In The Green Earth Wellness Center v. Atain Specialty Ins. Co., No. 13-3452 (D. Colo. Feb. 17, 2016), the court addressed coverage for damage to marijuana plants under an old fashioned commercial property policy. It is a very interesting decision.

The facts are simple and described by the court like this: “Green Earth operates a retail medical marijuana business and an adjacent growing facility in Colorado Springs, Colorado. In April 2012, Green Earth sought commercial insurance for its business from Atain. Atain issued Green Earth a Commercial Property and General Liability Insurance Policy that became effective June 29, 2012. A few days earlier, on June 23, 2012, a wildfire started in Waldo Canyon outside of Colorado Springs. Over the course of several days, the fire advanced towards the city. The fire did not directly affect Green Earth’s business, but Green Earth contends that smoke and ash from the fire overwhelmed it’s ventilation system, eventually intruding into the growing operation and causing damage to Green Earth’s marijuana plants. In November 2012, Green Earth made a claim under the Policy for the smoke and ash damage.”

Green Earth sought coverage for damage to its growing operation -- $200,000 worth of “‘mother plants and ‘clones.’ For the uninitiated, the court described these as follows: “mother plants” are plants of each individual strain of marijuana that Green Earth offers. Mother plants are not cultivated to produce useable marijuana on their own; rather, they are maintained by the grower solely for the purpose of producing a constant and reliable supply of genetically-identical ‘clones.’ A clone is a portion of the mother plant that is cut off and planted in a growing medium until it produces its own root, becoming a viable marijuana plant in its own right. The clones then grow to maturity.”

The court addressed several issues. I’ll address three interesting ones here:

The insurer argued that the policy’s exclusion for “growing crops” applied. Green Earth challenged this on the basis that “crops,” “by definition, must grow in outdoor soil, and that plants raised indoors in containers – such as its mother plants and clones –– do not fit that definition.” The court was not convinced, seeing “nothing in the plain meaning of the word ‘crop’ that would seem to differentiate between ‘crops’ growing naturally in the solid earth and ‘crops’ of plants growing in pots or otherwise in artificial conditions such as an indoor greenhouse.”

It also didn’t help Green Earth’s cause that the quote issued to Green Earth stated: “Coverage does not extent to growing or standing plants” and that Colorado law permits the consideration of extrinsic evidence for the purpose of ascertaining whether an ambiguity exists in the Policy. However, despite this seemingly easy solution, the court still spilled a lot of ink explaining why the plants were “crops.”

The insurer also argued that the “contraband” exclusion applied since the possession of marijuana for distribution purposes constitutes a federal crime. However, the court didn’t see it this way: “Attain offers no evidence that the application of existing federal public policy statements would be expected to result in criminal enforcement against Green Earth for possession or distribution of medical marijuana, nor does Atain assert that Green Earth’s operations were somehow in violation of Colorado law. In short, the Policy’s ‘Contraband’ exclusion is rendered ambiguous by the difference between the federal government’s de jure and de facto public policies regarding state-regulated medical marijuana.”

It also didn’t help the insurer’s cause that it issued the policy to Green Earth knowing that it was operating a medical marijuana business and knowing – or should have known – “that federal law nominally prohibited such a business.”

Lastly, the court rejected the insurer’s argument that public policy precluded it from providing coverage. The court was guided by the lack of any clear and consistent federal public policy concerning marijuana and on the basis that the insurer issued the policy “of its own will, knowingly and intelligently” and, thus, it was “obligated to comply with its terms or pay damages for having breached it.”

Thus, following this lengthy opinion, a need existed for a trial concerning coverage for approximately $40,000 for damage to harvested marijuana buds and flowers damaged in the Waldo Canyon fire.


Vol. 5, Iss. 3
March 2, 2016

Allocation Of Defense Costs Between Covered And Uncovered…
Defendants (Case Law “Rather Sparse”)


It is black letter, in just about all states, that an insurer has a duty to defend the entire complaint filed against its insured, so long as just one claim (of many) is potentially covered. For this reason, the issue of how to allocate an insured’s defense costs, between potentially covered, and not covered, claims, has little reason to arise. This is not to say that it doesn’t (see California) – but, for the most part, it has little reason to. [A close cousin of the issue is whether an insurer that it defending its insured is obligated to pay for the insured’s legal fees associated with its pursuit of a counterclaim.]

But now consider an insurer that is defending an insured, and the insured’s counsel is also defending other defendants, that are not insureds. While there is a rule that an insurer has a duty to defend all claims, so long as it has a duty to defend one of them, there is no rule that an insurer has a duty to defend all defendants, so long as it has a duty to defend one of them. In this later situation, an insurer would like to be relieved of its duty to pay defense costs incurred on account of the non-insured defendants.

This was the issue before the federal court in High Point Design, LLC v. LM Insurance Corporation, No. 14-7878 (S.D.N.Y. Feb. 3, 2016). The underlying litigation, that gave rise to the defense costs issue, involved infringement of a slipper patent (really, that’s what it says, a slipper patent). It is not necessary to unravel the specifics of the underlying litigation to make the points here. Consider this – a court determined that Liberty Mutual had a duty, under liability policies, to defend its insured, High Point Design, in the patent litigation. Two law firms defended High Point Design, as well as other defendants – called the “Retail Defendants.”

At issue before the Gotham federal court was the amount of defense costs that Liberty owed to its insured, High Point, considering that the law firms also represented the Retail Defendants, which were not Liberty insureds.

The parties agreed on one point, that “any ‘additional expenses’ which were incurred in the Underlying Action solely in defense of the Retail Defendants fall outside of the insurance coverage High Point purchased from Liberty and are not recoverable.” However, they did not agree on another: “[W]hether defense expenses in the Underlying Action that redounded to the benefit of both High Point and the three Retail Defendants are entirely recoverable (High Point’s position) or should be divided pro rata between the four benefiting parties (Liberty’s position).”

The court set out to resolve the issue, noting that “[c]ase law on the proper apportionment of defense costs among insured and non-insured defendants is scattered and ‘rather sparse.’”

Since the parties agreed that Liberty had no obligation to pay any costs that were incurred solely in defense of the Retail Defendants, the real issue was how to determine which defense costs were incurred for what.

The court placed this burden on Liberty, stating that “the law is clear that the party seeking to allocate expenses bears the burden of proving what amount of allocation is appropriate once the insured has made a prima facie showing that certain amounts were spent in its defense.”

As for how to achieve such allocation, the court explained that “the amount that should be allocated to the non-covered parties, and thus not recouped from the insurer, are any ‘additional expenses’ which would not have occurred but for the inclusion of the non-covered defendants. Which expenses were in fact “additional” is …’a substantial fact issue.’”

While the court gave Liberty the right to allocate defense costs, between covered and non-covered defendants, trying to determine which client benefits from certain defense efforts may not be easy to do. Litigation is not always a neat and tidy process where you can determine that certain defense efforts satisfied a specific purpose. Thus, there are likely to be challenges for an insurer attempting to establish that certain defense costs would not have been incurred “but for” the inclusion of the non-covered defendants. Not to say it can’t be done. But it is easy to see why Liberty advocated for a simple pro-rata approach.


Vol. 5, Iss. 3
March 2, 2016

Late Notice: A Tale Of Two Cites: Supreme Court Adds A Third


In many states, late notice law can be characterized as a tale of two cites: One involving “occurrence” policies, which require an insurer to prove that it was prejudiced, by an insured’s failure to provide notice of a claim as soon as practicable (or something along those lines), to be able to disclaim coverage. This can be a high burden for the insurer to meet. The other cite involves “claims made” policies, which do not require an insurer to prove that it was prejudiced, by an insured’s failure to satisfy the reporting requirement – such as, a claim must be made and reported during the policy period -- to be able to disclaim coverage. This is an easy burden. Just look at the calendar.

There may be no better example of this dichotomy of rules than New Jersey. There, an insurer seeking to disclaim coverage, under an “occurrence” policy, based on an insured’s failure to provide notice of a claim as soon as practicable, has a high burden: proof of a likelihood of appreciable prejudice from such untimely notice. Conversely, an insurer in the Garden State, seeking to disclaim coverage, under a “claims made” policy, based on the insured’s failure to satisfy the reporting requirement, has it easy: simply prove that the reporting requirement was not satisfied and there is no additional need for the insurer to prove that it was prejudiced by such failure.

These two general rules have been staked out nationally for a long time. But what happens when an insurance policy’s notice obligation contains both requirements – a claim must be reported to the insurer as soon as practicable (“occurrence” policy requirement) and within the policy period (“claims made” policy requirement)?

This was the issue before the New Jersey Supreme Court in Templo Fuente De Vida Corp. v. National Union Fire Insurance Company (N.J. Feb. 11, 2016). An insured provided notice of a suit to its insurer six months after it had been served. Even if that were sufficient to satisfy the requirement, that the claim be made and reported during the policy period, it was conceded that such notice of the claim to the insurer was not “as soon as practicable.” But, as far as the insured was concerned, that should not have been fatal to coverage because, under New Jersey law, the insurer needs to prove that it was prejudiced by the insured’s failure to provide notice “as soon as practicable.”

The crux of the case is that, under New Jersey law, it is in fact clear that, for an insurer to disclaim coverage, under an “occurrence” policy, based on the insured’s failure to provide notice “as soon as practicable,” there must be proof of a likelihood of appreciable prejudice to the insurer. Thus, the issue was whether this rule applied when the “as soon as practicable” notice requirement was not satisfied -- but it was within the context of a “claims made” policy, where the “claims made and reporting” timing requirements have been satisfied.

The court applied the no prejudice rule, i.e., treating the policy as “claims made,” despite containing the “as soon as practicable” notice language that is akin to “occurrence” polices. The basis for the court’s decision was its characterization of the sophistication of insured parties. The insured was a 14 or so employee company, that engaged in complex financial transactions concerning financing, and the policy at issue was D&O.

To this point, the court explained: “We have historically approached ‘claims made’ and ‘occurrence’ policies differently due in large part to the differences between the policyholders themselves. For example, in Cooper, where the ‘occurrence’ policy at issue was a contract of adhesion entered into by parties with unequal bargaining powers, we required the insurer to show prejudice before denying coverage to prevent an unfair result. ... Indeed, in the vast majority of ‘occurrence’ policies, the policy holders are ‘unsophisticated consumer[s] unaware of all of the policy’s requirements.’ As a result, ‘courts have taken special consideration of the fact that the policy holders were consumers unlikely to be conversant with all the fine print of their policies’ and ‘found that strict adherence to the terms of the notice provisions would result too harshly against [such insureds.]’” (citations omitted).

In contrast, the court observed, “[t]hose equitable concerns based on the nature of the parties do not control in our analysis of the ‘as soon as practicable’ notice requirement of the Directors and Officers ‘claims made’ policy here, where the policyholders ‘are particularly knowledgeable insureds, purchasing their insurance requirements through sophisticated brokers[.]’ In this arena, insurers are ‘dealing with a more sophisticated clientele, [who] are much better able to deal with the insurers on an equal footing [.]”

Importantly, for policyholders, the court made the point that, “[i]n this instance we need not make a sweeping statement about the strictness of enforcing the ‘as soon as practicable’ notice requirement in ‘claims made’ policies generally. We need only enforce the plain and unambiguous terms of a negotiated Directors and Officers insurance contract entered into between sophisticated business entities. Its notice conditions contain mutual rights and obligations and a clear and unambiguous requirement that the insured report a claim to the insurer ‘as soon as practicable,’ pursuant to section 7, thereby preserving the insurer’s rights, under section 8, to associate and influence how the litigation proceeds from its inception.” Thus, the court seems to have left the door open to policyholders to attempt to distinguish Templo Fuente De Vida Corp. v. National Union.

Vol. 5, Iss. 2
February 10, 2016

Pollution Exclusion Precludes Coverage For Carbon Monoxide Poisoning
In Shaw v. Liberty Mutual Ins. Co., No. 15-686 (M.D. Fla. Feb. 12, 2016), a Florida federal court, applying Texas law, held that a Pollution Exclusion precluded coverage for serious injuries caused by carbon monoxide poisoning at a hotel in Daytona Beach. The injured hotel guest settled with the hotel owners for nearly $7 million. The owners’ primary liability policy paid its $1 million limit. The hotel owners then assigned their rights, under their Liberty Mutual umbrella policy, to the underlying plaintiff, in exchange for a covenant not to execute.

The underlying plaintiffs made more arguments than I have ever seen in an attempt to avoid the application of the pollution exclusion. The court rejected all of them. In general, once the court concluded that, under Texas law, the pollution exclusion is unambiguous, i.e., it is not limited to traditional environmental pollution, the case was over. The many other arguments raised by the plaintiffs were serious hail Marys, including this one: “The [underlying plaintiffs] allege that Liberty Mutual had actual or constructive knowledge of the daily existence of carbon monoxide in the ambient air at the Hotel, and of the failed Hotel systems. They claim that despite this knowledge, Liberty Mutual continued to issue the Policy and has therefore, waived its right to contest coverage.”

Insurer’s ROR Did Not Entitle Insured To Independent Counsel
In DHR International, Inc. v. Travelers Casualty & Surety Company, No. 15C4880 (N.D. Ill. Feb. 12, 2016), the court held that an insurer’s issuance of a reservation of rights letter did not entitle the insured to independent counsel. The court was guided by the absence of mutually exclusive theories of liability being asserted by the plaintiff: “[U]nder Travelers’s reservation of rights letter … there was no risk of mutually exclusive theories of liability because DHR [the insured] could be held liable for the discrimination and wrongful termination claims that Travelers reserved the right to disclaim liability for and also held liable for other claims asserted by [Plaintiff] for which Travelers did not reserve the right to disclaim liability; hence, the theories of liability for the covered and uncovered claims were not mutually exclusive. In short, looking at [Plaintiff’s] complaint and the reservation of rights letter even in the light most favorable to DHR, it is implausible that DHR’s liability for claims that Travelers reserved its rights for would preclude a finding that it liable for claims that are covered by the Policy or vice versa.”