Home Page The Publication The Editor Contact Information Insurance Key issues Book Subscribe
 
Coverage Opinions
Effective Date: April 29, 2016
Vol. 5 - Issue 5
 
   
 
   
 
   
 

Declarations: The Coverage Opinions Interview With Rev. Robert Hagan (Father Rob) – Lawyer Turned Chaplain For Villanova’s Men’s Basketball Team
Best Waiting Room Ever; Lawyer and Priest: Not Really So Different; The Road To Law School; Does God Really Care Who Wins Sporting Events?; Cutting Down The Net
Robert Hagan was a criminal defense lawyer. Then he became a priest. Then he helped cut down the net after Villanova won the NCAA Men’s Basketball Tournament.

FREE Coverage Opinions Webinar: Coverage Trends And Emerging Issues
Takes 20 Seconds To Register

Randy Spencer’s Open Mic
Insurance Coverage Tribute To Prince

The Four Questions: Why Is This Coverage Lawyer Different From All Other Coverage Lawyers?
Heather Sanderson: Practising Coverage Law In Canada

The Other Tournament Winner: What Is The Most Interesting Liability Coverage Issue?

ISO Take Note: Another Court Gives “Designated Premises Endorsement” A Way Too Broad Interpretation

Withdrawing From An Insured’s Defense -- On The Eve Of Trial

Is There A Duty To Defend An Additional Insured That Doesn’t Ask For A Defense?

I’ll Show You Mine, But You Show Me Yours

Phew: Supreme Court Holds That Occurrence-Based CGL Policies Do Not Violate Public Policy

My New Favorite Issue: Impact Of “Failure to Summon Help” On Coverage

Reimbursement Of Defense Costs Trifecta (Including N.Y., N.J.)

Tapas: Small Dishes Of Insurance Coverage
· Supreme Court Addresses Coverage For Hacking
· Court Holds That Moth Balls Are A Pollutant
· Always A Good Reminder

 
 
Back Issues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Vol. 5, Iss. 5
April 29, 2016

 

Insurance Coverage Tribute To Prince

 

I have long marveled at how oddly named the CGL policy’s “Montrose Endorsement” is. First, it offers no clue – none – as to its meaning. Then, even after you know the purpose, it turns out, well, it’s not actually an endorsement.

The Montrose Endorsement was the insurance industry’s response to its dissatisfaction with the Supreme Court of California’s 1995 decision in Montrose Chemical Corp. v. Admiral Ins. Co. The California high court held that a liability insurance policy could cover property damage, that the insured knew existed at the time the policy was purchased, so long as the insured’s “liability” for such property damage was still contingent and not a certainty. In essence, as the insurance industry saw it, the California Supreme Court had allowed insurance for a known loss. This was anathema – permitting coverage for the proverbial house that burned down before the policy was purchased.

In 1999, ISO, in direct response to the case, introduced an endorsement that amended the CGL policy’s insuring agreement, adding that, prior to the policy period, no insured could know that “bodily injury” or “property damage” had occurred, in whole or in part. Given its genesis, this endorsement came to be known as the “Montrose Endorsement.”

Until the Montrose Endorsement, there had never been a “known loss” provision in a standard CGL policy. Sure “known loss” long existed -- even being donned a “doctrine” -- but it was a common law creation. You could never point to a policy provision and say – look, that’s the “known loss” exclusion or “known loss” condition or “known loss” provision or “known loss” anything. But the Montrose Endorsement changed all that. Known loss was now right there in the policy, for all to see, in black and white.

Then, this “known loss” language in the Montrose Endorsement was incorporated into ISO’s 2001 edition of its standard CGL form -- CG 00 01. Yet, even after the provisions were incorporated into the body of the policy, and an endorsement no more, they continued to be referred to as the “Montrose Endorsement.”

Since the term “Montrose Endorsement” is, on its face, devoid of any meaning, and since it hasn’t been an endorsement for fifteen years anyway, it’s time to put an end to the use of this strange term to refer to the CGL policy’s known loss provisions. And what better way to do so than in the form of a tribute to the life of Prince. Like many, I was a big fan of the music, cultural and style icon. Therefore, from this day forward, when referring to the provisions of the Montrose Endorsement, I will do so as: “The policy provisions formerly known as the Known Loss Doctrine.”


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


Randy.Spencer@coverageopinions.info

 

 

 
 
Vol. 5, Iss. 5
April 29, 2016
 
 


Heather Sanderson: Practising Coverage Law In Canada

For this installment of “The Four Questions,” a new column highlighting unique coverage lawyers, I reached out to Heather Sanderson, of Sanderson Law, Calgary, Alberta, Canada. That’s right. Canada. You know, like Dudley Do-Right. A lawyer practicing (or, practising, I should say) coverage law in Canada, with lots of involvement in U.S. coverage too, is right in the T4Q wheelhouse. Plus, now Coverage Opinions is officially an international publication. If a need should arise for coverage counsel in Canada, well, now you know.

About Heather Sanderson

Here’s how Heather described her background to me.

A native of Quebec, Heather came to Alberta in 1981 after undergraduate and law school at McGill University in Montreal. At that time, Alberta was the land of the so-called “blue-eyed shieks.” Four thousand people a month were landing in Calgary and Heather was one of them.

Alberta’s strong spirit of entrepreneurship helped Heather establish her practice. But without any ties of any kind to the province, it definitely wasn’t easy–particularly when the oil boom ended about eighteen months after she arrived.

Having landed in a defence insurance litigation firm, and being asked to research what seemed like every nitpicky detail of the CGL, without a textbook to look to for guidance, she decided to return to school and do a Masters in order to write Canada’s missing text book on the CGL policy. When Heather finished, Alberta’s economy seemed to be less filled with doom and gloom. She returned to practice in Calgary and saw to the publication of her thesis, which became a staple text in liability insurance courses across Canada.

It wasn’t long before Alberta adopted Heather or, maybe she adopted Alberta – a province she describes as “a little bit of heaven” – and she has remained there practicing defence insurance law for the last 35 years.

Heather has provided coverage advice to insurers on all types of commercial lines and personal lines policies but her preferred area is liability. In addition to her Masters’ Thesis, she substantially wrote and edited another text on the CGL, in addition to many articles.

Heather isn’t just an academic – she has litigated cases before all levels of Alberta’s Courts and before a full panel of the Supreme Court of Canada.

Heather’s years in the trenches has earned her a reputation for being one of Canada’s leading coverage counsel. In 2012, Canadian Defence Lawyers recognized her exceptional contributions by awarding her the Lee Samis Award for Excellence.

Heather is a member and director of the Canadian Defence Lawyers, an active member with the Insurance Committee of DRI and a member of FDCC. Sanderson Law regularly provides coverage advice on policies issued in all of Canada’s provinces and territories.

What are some of the principal differences between U.S. and Canadian Property-Casualty coverage law?

Let’s start with insurance regulation. Federal regulation is largely limited to solvency control. The provinces and territories manage the day-to-day business of insurance that is conducted within their borders.

In comparison to the United States, the Canadian auto insurance market is highly regulated by all provinces and territories. Personal and commercial vehicles usually carry $1 million of third party liability coverage (no fault jurisdictions advocate coverage for out-of-province travel in excess of basis plate coverage); some carry $500,000 even though in most provinces and territories the statutory minimum is $200,000. Most commercial vehicles carry far more than $1 million and some industries are legislated to carry more than $1 million.

Canadian non-auto P&C claims handling is largely unregulated. In fact, following the epic flooding of the Bow and Elbow Rivers that devastated the river valleys of southern Alberta in June 2013, resulting in the costliest insured disaster in Canadian history, the Alberta government did not intervene and legislate how the claims for this catastrophic event would be handled. This is in stark contrast to the response of the State of New York as to the management of claims from Hurricane Sandy.

Non-auto P&C policies in common law Canada are similar in many respects to those used in the United States – in some cases, they are identical – and, with the exception of Quebec, their content is largely unregulated. Canadian and American courts apply largely the same rules (with some very limited differences) to the interpretation of non-auto P&C policies.

A Canadian first-party insurer, that fairly investigates a situation and determines that there is an absence of coverage, will be required to pay the court costs of the policyholder’s successful action seeking to enforce coverage on a full indemnify basis. In the third-party case, an insurer has a greater exposure, as the insurer must pay the judgment, plus costs and pre-judgment interest against the insured in the underlying case and the full costs on an indemnity basis for the coverage lawsuit.

However, the insurer is at little risk of being held liable in bad faith. The Supreme Court effectively limited bad faith first-party claims to cases of very serious, egregious conduct and in the same case allowed a lower court award of $1 million, but noted that award to be extremely high. As to liability claims, there are only a handful of third-party cases finding bad faith liability in failure to settle cases.

The likely explanation for the differing “bad faith” culture is the fact that overall, limits are higher in Canada and damage claims are lower: In Canada, non-pecuniary general damages, for the most grievous injury, was set by the Supreme Court of Canada in 1978 at $100,000 (now worth about $360,000); the range for aggravated damages is between $10, 000 and $100,000 and the range for punitive damages–rarely awarded–is between $50,000 and $1 million. Another factor is that the Canadian version of UIM coverage does not stack; if the insured’s limits are equal to or less than the tortfeasor’s limits, then the insured has no claim against his or her own insurer. Finally, Canadian Courts seem to have set a higher standard as to what constitutes egregious conduct on the part of an insurer.

Are there any overarching differences between the U.S. and Canadian legal systems that have an impact on coverage disputes?

The overwhelming majority of civil disputes are heard by a judge alone, rendering liability and damage assessments somewhat more predictable. It is easier to assess both the obligation of a liability insurer to indemnify and whether there is a real risk of an over-limits judgment.

There is no constitutional right in Canada to a civil jury trial. In fact, they were abolished in Quebec several decades ago. A party wishing a jury trial must apply to the court for permission to have a trial by jury. It is almost inconceivable that a court would order a jury trial to determine a coverage case.

An inordinately low or high award is appealable and, if overturned on appeal, then the matter goes back to the trial judge for assessment. As Canada has a loser pays cost recovery system, the loser pays the court costs throughout. Consequently, proceeding with a civil jury is a very expensive option with difficult odds. There is public debate as to whether to abolish civil juries in common law Canada.

My observations are that the civil discovery process is far more controlled and streamlined in Canada than in the United States, which impacts coverage issues in myriad ways, starting with cost reduction. It is also my experience and observation that, with the exception of regions in Ontario, Canadian lawyers are collegial in their dealings with each other and there are comparatively fewer interlocutory applications prior to setting a case down on the trial list than there are in the United States. May it’s the court robes we wear.

Are there differences in the substantive law of the two countries that impacts coverage?

All Canadian provinces and territories have workers’ compensation legislation that eliminates workplace injury actions by all workers against all employers – not just a particular worker’s employer. This controls a significant area of potential civil liability which has an impact on the nature of coverage that any given business holds.

EPLI coverage applies differently in Canada due to significantly different employment requirements in Canada, including the fact that Canadian employees are not employed “at will.” In Canada, an employer must have cause to dismiss, failing which the employer is obligated to provide reasonable notice that the job is ending or provide compensation in lieu of notice.

The differing substantive law in the area of intellectual property rights has a real impact upon the interpretation of Coverage B of the CGL, which is arguably the most common coverage carrying international exposure.

The American ISO form covers the infringement of copyright, trade dress or slogan in the insured’s advertisement. Trade mark infringement is excluded – even if it occurs in an advertisement. The same form is used by the vast majority of Canadian P&C insurers.

There is no Canadian cause of action for infringement of “slogan” per se; a slogan is a form of trade mark. Further, Canadian law does not recognize actions for the infringement of “trade dress.” The closest Canadian causes of action to infringement of trade dress is infringement of “distinguishing guise,” which is a form of trade mark infringement and “industrial design,” which has elements of patent and copyright and refers to the visual features of a finished article. “Distinguishing guise” and the “industrial design” are registerable and infringement can be enforced. Accordingly, in Canada, an action for infringement of a trademark, in the form of infringement of “slogan” or “distinguishing guise” or for the infringement of an “industrial design” in an advertisement is potentially covered by Coverage B of the CGL, given that the policy covers the infringement of “trade dress” and “slogan” in the insured’s advertisement. Given these issues, it is an open question as to how a Canadian court would apply the Coverage B exclusion for trademark infringement.

What cross-border issues have you encountered in your practice?

Cross-border litigation is increasing -- Canadian courts can take jurisdiction over American policies issued to the directors and officers of Canadian subsidiaries of American companies, if the Canadian subsidiary is sued in Canada; Canadian courts will accept jurisdiction over actions instituted in Canada, by U.S. companies, to obtain the proceeds of Canadian policies to satisfy American judgments issued against Canadian defendants; American courts will require proof of Canadian law to interpret the policies of Canadian policyholders sued in the United States.

I have dealt with various cross-border issues throughout my practice. On behalf of a Canadian insurer, I monitored a California class action, against a multitude of defendants, including my client’s Canadian insured doing business in California. [I marveled at the amount of motion practice going on – the lawyers spent so much time on the freeways attending court, to spar over the ridiculous, I wondered how they had time to move the file.] Similarly, I have monitored many U.S. product claims for Canadian insurers, where the raw materials were manufactured in Canada, assembled off-shore and sold in the United States. On several occasions I have acted for American insurers who have claimed contribution from Canadian insurers of a common insured. I have also acted as an expert witness in American proceedings, as to Canadian law on a given topic, but none of the cases that I have been involved with in that vein have proceeded to trial.

 


Vol. 5, Iss. 5
April 29, 2016

The Other Tournament Winner: What Is The Most Interesting Liability Coverage Issue?

Still Flying Off The Shelf: Key Issues In Every State.

 

Thank you to all who submitted an entry in the Coverage Opinions “Most Interesting Liability Coverage Issue” Bracket Challenge. The response was overwhelming. While certain issues clearly dominated the voting, I was struck by the incredible breadth of issues that were chosen as the most interesting. I never imagined such a wide difference of opinions on this. Lots of double-digit seeds were chosen as the most interesting. Interesting is obviously in the eye of the beholder.

And the winner is – well, a three way tie:

• Additional Insureds (#4 seed)

• Expected or Intended (#4 Seed)

• Trigger of Coverage (#1 seed)

Thank you again for entering. As promised, free webinars, Geico Gecko PEZ dispensers and copies of General Liability Insurance Coverage -- Key Issues In Every State are being provided to random entrants.

General Liability Insurance Coverage -- Key Issues In Every State

Speaking of General Liability Insurance Coverage -- Key Issues In Every State, thank you to all who are keeping the 3rd edition flying off the shelf – even more than a year after its release.

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.

 
Get the 3rd edition here www.createspace.com/5242805 and use Discount Code NTP238LF for a 50% discount.


Vol. 5, Iss. 5
April 29, 2016

ISO Take Note:
Another Court Gives “Designated Premises Endorsement” A Way Too Broad Interpretation

 

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.

Well, well, well. Here’s a recent decision, not from Hawaii, that follows C. Brewer. In fact, the court in Western Heritage Ins. Co. v. Cyril Hoover dba Okanogan Valley Transportation, No. 15-1154 (W.D. Wash. Mar. 30, 2016) relied so heavily on the Hawaii Supreme Court’s decision in C. Brewer that it should have just attached it as an exhibit and incorporated it by reference. It would have been easier.

In Western Heritage, the Washington federal court addressed the availability of coverage, under a commercial general liability policy, in the following circumstances. Eric Malkuch was driving an automobile that he borrowed from his step father-in-law. Mr. Malkuch’s wife and Albert Slater were passengers in the vehicle. Mr. Malkuch was driving near Lakeview, Oregon when the vehicle was involved in a single-vehicle rollover accident. Mr. Slater alleged that he sustained serious and ongoing injuries, totaling more than $400,000 in medical costs to date. According to Mr. Slater, Cyril Hoover is liable for the accident because it occurred while Mr. Malkuch and Mr. Slater were on their way to Arizona, to pick up a tow truck, which Mr. Slater alleged was for the benefit of Mr. Hoover.

Mr. Hoover was insured under a CGL Policy issued by Western Heritage. [Yes, there were issues concerning the auto exclusion, but that’s not relevant here.] The policy contained a Limitations to Designated Premises Endorsement, which stated that the “insurance applies only to ‘bodily injury’, ‘property damage’, ‘personal and advertising injury’ and medical expenses arising out of: 1. The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises.” The premises shown in the Schedule were in Tonasket, Washington – 500 miles from the site of the accident.

Western Heritage argued that the losses from the accident, 500 miles away from the policy’s designated premises, did not fall within the scope of coverage. The court, however, concluded that the “Limitations to Designated Premises Endorsement” was ambiguous, and, therefore, did not exclude coverage.

In reaching this conclusion, the court quoted several pages from the Hawaii Supreme Court’s decision in C. Brewer. I’ve never seen a court quote verbatim, to such extent, from another court’s decision.

Not surprisingly, after reciting so much of the C. Brewer decision, which involved the same policy language, the court held that the same rationale applied. Just as in C. Brewer, where the insured used its corporate headquarters [which were a designated premises] to make negligent corporate decisions, the court in Western Heritage held that “the decision to purchase the tow truck is sufficiently connected to the premises such that it could fall within the scope of the policy.”

Also, just as in C. Brewer, the court was persuaded that the “personal and advertising injury” language supported an interpretation that it contemplated injury stemming from a decision made on the premises -- but occurring elsewhere. For example, a decision made at corporate headquarters would likely be the cause of advertising injury; however the resulting injury would not occur on the designated premises. Lastly, as did the C. Brewer court, the Western Heritage court observed that the coverage territory was defined as the United States of America, which further supported a broad interpretation of the policy.

I have never been one of those people who believes that, anytime 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 myriad 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 sometimes decisions come along, especially from a state high court (C. Brewer), involving an important policy provision, that is interpreted so far afield from its intent, and with reasoning that other courts may find easy to adopt – i.e., Western Heritage’s love affair with C. Brewer -- that insurers need to take a hard look at whether a change is in order. The concept that a CGL policy provides coverage, for injury and damage at a non-designated premises, because the injury and damage arose out of an idea that was hatched at the insured’s corporate headquarters, which is a designated premises, was surely not the intent of the Limitations to Designated Premises Endorsement.

The Hawaii Supreme Court’s decision in C. Brewer and Co., Ltd. v. Marine Indemnity Ins. Co., addressing the interpretation of a Designated Premises Endorsement, is in the return-to-the-drawing-board category. I said this in the 2015 Top 10 article and now Western Heritage makes this point even stronger.

 


Vol. 5, Iss. 5
April 29, 2016

Withdrawing From An Insured’s Defense -- On The Eve Of Trial

 

Insurers usually think long and hard before withdrawing from an insured’s defense. Sometimes the right to do so is seemingly clear – the only count, or two, that triggered the defense in the first place is dismissed by the court. Of course, even here, the insured may argue that it was the insurer’s appointed counsel that orchestrated this possibility. Other times the insurer’s right can be murkier – the information that now enables the insurer to conclude, that no defense is owed, was obtained in discovery or via some other external means. Can this information be used as support for the insurer’s decision to withdraw?

There are other considerations still. Even if the insurer believes that it is on solid footing to withdraw its defense, it may be less inclined to do so if trial is in the near future. There may be a concern that, even if the insurer had the right to withdraw, it will be seen as prejudicing the insured. Further, on account of this possibility, a court may later conclude that, well, maybe the insurer’s right to withdraw wasn’t so strong after all.

But what about an insurer that obtains a declaratory judgment that no defense is owed. Here the right to withdraw seems clear as a bell. The court has blessed the decision. Talk about a bullet proof vest. But what if this decision comes on the eve of trial? That was the issue in State Farm Fire and Casualty Co. v. Samia El-Moslimany, No. 15-124 (W.D. Wash. April 15, 2016).

State Farm undertook the defense of certain insureds in a defamation action filed against them. The insurer then filed an action, seeking a declaratory judgment, that it had no obligation to defend its insureds in the defamation action. The insureds argued that the court should not rule in State Farm’s favor because they would be prejudiced if State Farm’s defense were withdrawn on the eve of trial (scheduled for May 23, 2016).

Specifically, the insureds argued that “State Farm has provided defense counsel to them since early 2013, but waited until early 2015 to file its declaratory judgment action, and waited an additional year to file the motion currently under consideration. Defendants maintain that, if this Court finds no duty to defend, they will have only a few weeks to find new counsel and secure financing for that expense. Defendants state that it is bad faith for an insurer to pursue a declaratory judgment action while defending under a reservation of rights if the action ‘might prejudice its insured’s tort defense.’”

While the Washington federal court noted that the timing of its decision was “unfortunate,” it was not persuaded that there was bad faith on State Farm’s part. The court made several observations in coming to this conclusion:

• “Here, there is no indication State Farm has interfered in the underlying action of Sindi v. El-Moslimany, or done anything other than continue to provide for a defense in that matter. State Farm is entitled to pursue a declaratory judgment that it has no duty to defend and has established the absence of such duty in this case.”

• “The one-year delay between the filing of the declaratory judgment action and the motion for summary judgment resulted from State Farm’s repeated, unsuccessful attempts to effectuate service on defendant Sindi. State Farm reasonably waited until it succeeded in serving Sindi, and until it moved for a default judgment against her, to file its summary judgment motion.”

• “Nor does the delay between the initial provision of a defense and the filing of the declaratory judgment action reflect bad faith. An insurer is required to give the insured the benefit of the doubt, and must continue its defense until it can conclusively establish a claim is not covered by the insurance policy.”

• “Defendants have benefited from the fact that State Farm has paid all defense fees and costs to date.”

• “[D]efendants have submitted no evidence as to why they cannot retain their current counsel to continue defending them in Sindi v. El-Moslimany. Defendants suggest, but do not establish their defense counsel would withdraw on the eve of trial. That defendants will now be compelled to pay for their defense does not justify a denial of State Farm's motion.”

To be sure, State Farm Fire v. Samia El-Moslimany is an easier defense-withdraw situation than some others, because the insurer had the benefit of a judicial determination that no defense was owed. Nonetheless, some of the reasons provided by the court, for a finding of no bad faith, seem equally relevant to a situation where an insurer seeks to withdraw its defense, close to trial, based on the dismissal of the only potentially covered count(s) or the development of factual information that takes a case outside of the duty to defend.

 


Vol. 5, Iss. 5
April 29, 2016

Is There A Duty To Defend An Additional Insured That Doesn’t Ask For A Defense?

 

Sometimes an insurer is presented with a suit from its insured, and in the course of determining the insurer’s obligations, discovers that another defendant in the suit may be an additional insured under the insured’s policy, and entitled to a defense. For example, the insured’s policy may contain a blanket additional insured endorsement. And the insured, as part of its tender, or in response to an insurer request, may have provided a contract to the insurer, indicating that the insured was obligated to name another defendant in the suit as an additional insured. Translation, on account of the blanket additional insured endorsement, this other defendant may be an additional insured under the insured’s policy and entitled to a defense. But does the insurer have to consider a defense for this potential additional insured and advise it of its determination? After all, the potential additional insured has not sought a defense. In fact, the party likely has no idea that it may even be an additional insured under such policy.

The Connecticut federal court in Dominion Energy, Inc. v. Zurich American Ins. Co., No. 13-156 (D. Conn. Mar. 15, 2016) did not answer this specific question. However, the court identified one consequence for an insurer that did not address coverage for the potential additional insured.

The facts go like this. Dominion Energy owns and runs power generation facilities, including the Salem Harbor Generating Station in Salem, Massachusetts. Alstom Power, Inc. performs inspections of facilities, including the Salem Station. In April 2007, a Service Engineer for Alstom inspected Boiler Number 3 at the Salem Station. In November of the same year, a steam explosion of Boiler Number 3 caused the deaths of three individuals and injured two.

In 2005, Dominion and Alstom entered into an agreement providing that “Alstom would obtain and maintain general commercial liability insurance coverage as to certain inspections that it would perform for Dominion, and it would name Dominion as an additional insured under said insurance.”

Alstom’s corporate parent purchased a Zurich commercial general liability insurance policy covering the period from April 1, 2007 to April 1, 2008. While the Zurich policy did not explicitly name Dominion as an insured, it stated that entities, in addition to Alstom, were automatically insured, if Alstom had agreed to name them as an insured, with respect to services Alstom performed for them.

In December 2007, Zurich received a notice that a steam explosion had occurred at a Dominion power generation facility, that Dominion was a client of Alstom, and that the event potentially could involve the Zurich Policy. In May 2009, the decedents’ estates and others filed suit against Dominion and Alstom and others. Zurich received notice of the action in July 2009. In April 2011, while discovery in the explosion litigation was ongoing, Dominion requested that Zurich provide it with a defense in such litigation. Zurich did not agree to defend Dominion or reimburse it for any of its costs of defense in the action. Dominion filed suit against Zurich.

Putting aside some details, the issue before the court in Dominion Energy v. Zurich was Zurich’s obligation to pay for Dominion’s pre-tender defense costs. More specifically, Zurich received notice of the injury suit, naming Dominion as a defendant, in July 2009. However, it was not until April 2011 that Dominion “officially” tendered its defense to Zurich. At issue – was Zurich obligated to pay for the defense of Dominion (an additional insured) prior to the time that Dominion asked for a defense?

Zurich had no problem citing cases for the proposition that insurers do not have an obligation to pay for pre-tender defense costs. And the court had no problem distinguishing such cases: “In contrast to the insurers in [cases cited by Zurich], Zurich had actual notice of the Massachusetts Action shortly after it was filed.”

That Zurich had “actual notice of the Massachusetts Action shortly after it was filed” was the key to the court’s decision that Zurich was obligated to pay for the defense of Dominion, an additional insured, prior to the time that Dominion officially asked for a defense.

But, as I see it, that notice was curious. Dominion was only an additional insured, under the Zurich policy, on account of a Dominion--Alstom agreement providing that “Alstom would obtain and maintain general commercial liability insurance coverage as to certain inspections that it would perform for Dominion, and it would name Dominion as an additional insured under said insurance.”

While the Zurich policy did not explicitly name Dominion as an insured, it stated that entities, in addition to Alstom, were automatically insured, if Alstom had agreed to name them as an insured, with respect to services Alstom performed for them.

But how did Zurich know about the Dominion--Alstom agreement, whereby Alstom had agreed to name Dominion as an insured, with respect to services Alstom performed for them?

The court does not answer this, except to note that “Zurich received notice of the accident that gave rise to the Massachusetts action approximately one month after the accident occurred. That notice included information about Dominion, naming Dominion as ‘a client of Alstom,’ which is the company that held the Zurich Policy. Zurich also received notice of the Massachusetts Action shortly after that lawsuit was filed. Dominion was a named defendant in the Massachusetts Action. In sum, Zurich was promptly notified of both the accident that gave rise to the Massachusetts Action and the filing of the lawsuit itself, as well as Dominion's involvement in these matters.”

While Zurich may have known about “Dominion’s involvement in these matters,” and the Dominion—Alstom client relationship, that’s a far cry from Zurich knowing that Alstom had agreed to name Dominion as an insured, with respect to services Alstom performed for Dominion. In any event, the court concluded that Zurich was liable to Dominion for its pre-official tender defense costs.

In arriving at this decision, the court also noted that there was no evidence that Dominion’s failure to officially tender the defense to Zurich, prior to April 2011, resulted in prejudice to Zurich or that it was otherwise not able to protect its interests. Lastly, the court nipped in the bud any concerns that its decision “could motivate insured parties to assume, and spend lavishly on, their own defenses with the expectation that the insurer will ultimately pick up the tab.” This, the court observed, was “mitigated by the fact that Dominion will only be able to recover reasonable pre-tender defense costs.” (emphasis in original).

 


Vol. 5, Iss. 5
April 29, 2016

I’ll Show You Mine, But You Show Me Yours

 

I’ve never seen a case addressing this issue – but I doubt that Paton v. GEICO, No. SC14-282 (Fla. Mar. 24, 2016) is the first. After all, the scenario seems like it would come up now and then -- and it’s easy to understand why.

Kelly Paton was injured in a car accident due to the negligence of an underinsured driver. GEICO failed to pay the total amount claimed under an underinsured motorist policy. Paton filed an action against GEICO and a jury returned a verdict, in her favor, for $469,247. The trial court reduced it to $100,000, being the limit of the UM policy. Paton next added a claim of bad faith against GEICO and a jury awarded her $369,247, being the amount of the excess verdict in the UM trial.

Paton next moved for attorney’s fees and costs. The fees were highly contested and Paton sought discovery related to her opposition’s attorneys’ time records. Specifically, Paton served on opposing counsel a request to produce the following records: “1. Any and all time keeping slips and records regarding time spent defending GEICO in the bad faith action… 2. Any and all bills, invoices, and/or other correspondence for payment of attorney’s fees for defending GEICO in the bad faith action… 3. Any and all retainer agreements between you and/or your respective law firm for defending GEICO in the bad faith action…”

GEICO said no way -- on the basis that the information was privileged and irrelevant. The trial court overruled GEICO’s objection. The appeals court quashed the trial court’s order, concluding that “the records of opposing counsel are, at best, only marginally relevant to the determination of reasonable attorney’s fees” and Paton failed to make the necessary showing that
the billing records of opposing counsel were actually relevant and necessary “and their substantial equivalent could not be obtained elsewhere.”

The dispute made its way to the Supreme Court of Florida. The hanging chad court reviewed a handful of Florida cases addressing the issue and concluded that “the billing records of opposing counsel are relevant to the issue of reasonableness of time expended in a claim for attorney’s fees, and their discovery falls within the discretion of the trial court when the fees are contested. When a party files for attorney’s fees against an insurance company pursuant to sections 624.155 and 627.428, Florida Statutes, as occurred here, the billing records of the defendant insurance company are relevant. The hours expended by the attorneys for the insurance company will demonstrate the complexity of the case along with the time expended, and may belie a claim that the number of hours spent by the plaintiff was unreasonable, or that the plaintiff is not entitled to a full lodestar computation, including a multiplying factor.”

Further, the Florida Supreme Court concluded that “the entirety of the billing records are not privileged.” Thus, “where the trial court specifically states that any privileged information may be redacted, the plaintiff should not be required to make an additional special showing to obtain the remaining relevant, non-privileged information.”

 

 


Vol. 5, Iss. 5
April 29, 2016

Phew: Supreme Court: Occurrence-Based CGL Policies Do Not Violate Public Policy

 

Wow, what a monkey wrench that would have thrown into things if the Supreme Court of Rhode Island held that occurrence-based general liability policies violated public policy. Talk about an Emily Litella “never mind” moment. But the biggest court of the smallest state declined to make such decision.

The facts giving rise to the issue in Van Hoesen v. Lloyd’s of London, No. 2015–209 (R.I. Mar. 24, 2016) are quite simple. Mark Van Hoesen was seriously injured when he fell from a deck on July 23, 2012. Mr. Van Hoesen filed a complaint, alleging that a contractor, Brian Leonard, negligently constructed the deck. Lloyd’s issued a liability policy to Leonard from March 8, 2007 to August 29, 2007. The policy was on the risk during the time that Mr. Leonard was building the deck. The policy was not on the risk when Mr. Leonard fell.

Lloyd’s maintained that no coverage was owed on the basis that the policy only applied to bodily injury that occurred during the policy period and there was no question that Mr. Van Hoesen’s bodily injury did not occur during the policy period. The trial court had no trouble agreeing with this (nor should any court reading a standard CGL policy).

The injured Mr. Van Hoesen (and plaintiff in the coverage action) sought a second bite at the apple at the Rhode Island Supreme Court. Presumably seeing the challenge that the policy language presented, Mr. Van Hoesen took a different tack – public policy. Putting aside some successes on the punitive damages front, policyholders generally don’t fare too well when arguing that public policy considerations support an entitlement to coverage. But for Mr. Van Hoesen, his options were limited.

Mr. Van Hoesen argued that, “notwithstanding the plain language in the policy that would exclude any claim arising from Leonard’s negligence from coverage, the policy, if enforced as written, would contravene ‘both the letter and the spirit’ of G.L.1956 § 5–65–7(a), which requires that: ‘Throughout the period of registration, the contractor shall have in effect public liability and property damage insurance covering the work of that contractor which shall be subject to this chapter in not less than the following amount: five hundred thousand dollars ($500,000) combined single limit, bodily injury and property damage.’”

Essentially, the argument was that, because the policy covered only injuries that occurred while the policy was in force, it provided almost no coverage at all, and, certainly, none in the current case. Thus, it was argued that “[t]he statutorily mandated coverage is rendered a nullity.” The called this argument “creative,” but, nonetheless, unconvincing.

The Van Hoesen court was not willing to depart from the clear policy language, holding that “§ 5–65–7 requires only that contractors maintain certain insurance; it imposes no duty on the insurance company to provide coverage for bodily injuries that might happen outside the policy period. If this Court were to hold as plaintiffs ask, the result would be that insurers would have ongoing liability for injuries to third parties long after the contractual relationship with the insured has ended. The General Assembly has enacted no such scheme.”

The most interesting part of the decision is the court’s rejection of the argument that “to carry out the aims of § 5–65–7, the policy should cover their claims because the triggering event that caused Mr. Van Hoesen’s bodily injury was Leonard’s faulty workmanship, which occurred during the policy period.” But the policy language would simply not be overcome: “[W]e conclude from the terms of the contract, that for the plaintiffs’ claims to be covered, the ‘bodily injury’ must also have occurred during the policy period.”

What makes Van Hoesen an interesting decision is that it gets to the heart of what many homeowners may not appreciate when it comes to hiring a contractor to do work in their home. Any prudent homeowner is going to require that a contractor have a liability insurance policy before being allowed to do work in their home. Contractors know this and they tout themselves in their ads as being “insured.” And homeowners feel good when they get a copy of a Certificate of Insurance, from their soon-to-be bathroom remodeler, demonstrating an in-force CGL policy.

Lots can go wrong when a contractor is working in a home – bodily injuries, and property damage that may not be excluded by exclusions j(5) or j(6). But any potential insurance, for bodily injury and property damage that takes place after the work is completed – also worthwhile to have, as this case demonstrates -- requires that the contractor continue to have insurance in place. And it’s a safe bet that homeowners aren’t checking on this or requiring it from their contractors.

Making sure that a contractor has a liability insurance policy in place, before being allowed to do work in your home, is critical. But a contractor that touts, on the side of its truck, that it has insurance, may only be telling part of the story.

 


Vol. 5, Iss. 5
April 29, 2016

My New Favorite Issue: Impact Of “Failure to Summon Help” On Coverage

 

In the January 13, 2016 issue of Coverage Opinions I discussed Skolnik v. Allied Property and Casualty Ins. Co., No. 1-14-2438 (Ill. Ct. App. Dec. 22, 2015), a case that I believed provided a lesson that could be felt far and wide. Indeed, I would have given the case serious consideration as one of the ten most significant of the year had it been decided in time for my annual hit parade.

Skolnik involved coverage for damages arising out of death caused by methadone intoxication. The decedent was provided methadone by the insured and the insured failed to take action to assist the decedent when she was clearly suffering badly from its effects. The policies at issue contained an exclusion for bodily injury “arising out of the use” of controlled substances, with an exception for “the legitimate use of prescription drugs by a person following the orders of a licensed physician.”

The Illinois appeals court held that, despite the autopsy notation regarding cause of death [methadone intoxication], a genuine issue of material fact existed whether the death was caused solely by methadone ingestion. The complaint alleged that the insured and his parents “negligently, carelessly, and improperly failed to request emergency medical assistance for Johnson within a reasonable period of time after knowing she was physically incapacitated or unconscious or both; and knowing or discovering she ingested or unknowingly consumed methadone or other illegal substances in the Skolnik home.” The court used these allegations to conclude that, at least for purposes of the duty to defend, the controlled substances exclusion did not apply, since the death may not have been caused solely by methadone ingestion.

As I discussed in the January 13th issue, there are a host of exclusions that preclude coverage for injury arising out of some specified bad conduct on the part of an insured: assault and battery, furnishing alcohol, criminal acts, etc. These exclusions are often interpreted broadly on account of being expressed in “arising out of” language. Skolnik demonstrates that a plaintiff may be able to trigger a defense obligation, in a case that would otherwise be subject to a broad “specified conduct exclusion,” by simply alleging (provable or not) that, after the insured committed the excluded conduct, it then failed to summon help for the victim. And such failure was also a cause of the plaintiff’s injuries.

Not long after I discussed the “failure to summon help” issue in Skolnik, along came Oddsen v. Henry, No. 2015AP765 (Wis. Ct. App. Mar. 16, 2016), also involving the issue -- but finding a way to avoid it.

Jason Oddsen died from an overdose of a mixture of heroin, methadone, oxycodone and alprazolam. However, the circumstances that led up to his death were in dispute. One night in 2010, Oddsen went to the home of Christopher Cavanaugh to watch a basketball game with Kyle Walters, Brian Hoffman and Elizabeth Henry. Oddsen, a regular abuser of drugs, consumed a mixture of heroin, methadone, oxycodone and alprazolam. Oddsen began to show signs of having overdosed while staying at the home of Henry’s mother. The time period when Oddsen began to show signs of having overdosed, to when Henry sought emergency assistance, was critical to the determination of coverage under a State Farm condominium policy issued to Henry’s mother.

“[T]here are, as State Farm states in its brief, ‘two distinct versions of the events’ that led up to Oddsen’s death. Oddsen’s estate claims that at approximately 4:00 a.m., Henry noticed that Oddsen was having difficulty breathing, but that she did not contact the police until more than two hours later. Henry, however, claims that she did not notice anything wrong with Oddsen until 5:45 a.m., when he abruptly stopped snoring. She woke him, and he was groggy but responsive. Henry talked Oddsen into going to the hospital to ‘make sure that everything [was] ok,’ and, as he was putting on his shoes, he slumped over and was unresponsive. A few minutes later, Henry contacted 911.”

More specifically, in an action filed by Oddsen’s Estate, it was alleged that “starting at approximately 4:00 a.m., Henry noticed that Oddsen was having difficulty breathing. Instead of calling ‘authorities,’ she called a number of acquaintances, including Hoffman and Cavanaugh, using Oddsen’s phone. About one hour later, Henry again spoke with Hoffman who responded to her by trying to ride his bicycle to her residence. While in route, Hoffman was stopped by police and taken to a park-and-ride. Hoffman did not mention to police that there was an emergency at Henry’s residence. Using Oddsen’s car, Henry drove to the park-and-ride to pick up Hoffman, leaving Oddsen at her residence. When Henry and Hoffman returned back to her residence, they ‘negligently attempted to render aid to Oddsen.’ They then dragged him outside Henry’s residence and into the driveway. Hoffman and a neighbor contacted 911. Paramedics arrived, rendering emergency aid to Oddsen before taking him to the hospital where, at 7:28 a.m., he was pronounced dead. The Estate alleges claims against Henry based on her ‘negligent attempt to render aid.’”

The trial court, in an action concerning coverage for the Estate’s suit against Henry, under a State Farm condominium policy, held that no coverage was owed because Henry’s failure to obtain aid was not an accident/occurrence. The court explained: “[A]lthough it may have never been [Henry’s] intent to let Oddsen die, I do find there were certain intentional actions on the part of Henry which contributed to Oddsen’s death, and that includes not calling 911 sooner. A reasonable insured cannot expect that her insurance company would provide coverage while what [Henry] did here was to do nothing over a period of several hours as her friend, who had consumed a large amount of illegal drugs in her presence earlier in the evening, perished before her very eyes.”

The Wisconsin Court of Appeals reversed, concluding that summary judgment was not appropriate because there were two versions of events surrounding the impact that rendering aid may have played in Oddsen’s death: “State Farm largely relies on the allegations in the complaint. Starting at approximately 4:00 a.m., Henry noticed that Oddsen was having difficulty breathing. Instead of calling ‘authorities,’ she called Hoffman, who responded by riding his bicycle to her home. Henry, without Oddsen, picked up Hoffman and returned to her residence where she and Hoffman belatedly attempted to render aid to Oddsen. Henry’s version of the events, however, was quite different, testifying that while Oddsen was putting on his shoes in the doorway after having agreed to go with Henry to the hospital, he suddenly collapsed. She and Hoffman tried to get Oddsen into his car in order to drive him to the hospital, and then she called 911 ‘within that same couple minutes.’”

As the court saw it, “[t]he fact finder at trial may believe the allegations in the complaint, if supported by the evidence presented at trial; the fact finder may believe Henry’s testimony; or it may find that the facts lie somewhere between those two versions, given the testimony of others, such as Cavanaugh and Hoffman.”

What’s most significant about the Oddsen decision is that, even if the lesson from the Illinois Appeals Court in Skolnik is that “failure to render aid” can be a basis to navigate around a broad “specified conduct exclusion” -- such as assault and battery, furnishing alcohol, criminal acts, etc. -- the failure to render aid may not have been an “occurrence” in the first place. If not, the insured never gets the chance to try such navigation.

 


Vol. 5, Iss. 5
April 29, 2016

Reimbursement Of Defense Costs Trifecta (Including N.Y., N.J.)

 

I’ve been saying it for years: reimbursement of defense costs, like my mother-in-law's matzah balls, is overrated. First, many states – especially lately -- have rejected an insurer’s right to seek reimbursement of defense costs. Second, even in a state where the right exists, it usually has to be a situation where there was a finding of no duty to defend at all, from the get-go – not one where there was only no duty to defend certain counts or where there was a duty to defend but then a later finding of no duty to indemnify. [This is why the right has more bite in California, where Buss gives insurers more options on this issue.] And even if all of this is satisfied, to make it worthwhile the insured has to be financially able to repay the defense costs. Many are unlikely to be. So while reimbursement of defense costs is not without some applicability, the stars need to be aligned just right for it to have a practical impact for insurers. But despite all this, the subject gets a lot of attention from coverage commentators. Guilty as charged.

Very recently there have been at least three courts that have addressed an insurer’s right to seek reimbursement of defense costs. A quick look at the decisions – without any background discussion -- follows.

Century Surety Co. v. Franchise Contractors, LLC, No. No. 14-277 (S.D.N.Y. Mar. 10, 2016). Held: “Century asks for a declaration that it is entitled to recoup from Franchise the costs it has incurred in defending Franchise in the state court action. Century advised Franchise in its March 1, 2012 letter that it was providing a defense ‘under a full reservation of rights’ and explicitly reserved the right ‘to commence an action to recoup any legal fees incurred in the defense.’ Franchise’s failure to object at any earlier time precludes their doing so now. Therefore, we conclude Century is entitled to recoup from Franchise the costs Century has incurred in defending the state court action. See Maxum Indem., 2015 WL 8492756, at *6.”

[Of note, in January 2015, the Eastern District of New York, in General Star Indemnity Co. v. Driven Sports, Inc., No. 14-3579 (E.D.N.Y. Jan. 23, 2015), in the most detailed discussion of the issue under New York law, rejected the insurer’s claim for reimbursement of defense costs, which departed from some other New York cases on the issue. ]

Borden-Perlman Insurance Agency v. Utica Mut. Ins. Co. (N.J. Super. Ct. App. Div. Apr. 7, 2016). Held: “In New Jersey, we permit reimbursement of costs incurred in defending claims that are later determined not to be covered, if they can be apportioned. In cases involving covered and uncovered claims, the general rule is when the insurer has wrongfully refused to defend an action and is then required to reimburse the insured for its defense costs, its duty to reimburse is limited to allegations covered under the policy, provided that the defense costs can be apportioned between covered and non-covered claims. When the defense costs cannot be apportioned, the insurer must assume the cost of the defense for both covered and non-covered claims.”

Attorneys Liability Protection Society, Inc. v. Angaldson Fitzgerald, P.C., No. S-15683 (Alaska Mar. 25, 2016). Held: “Alaska law prohibits enforcement of a policy provision entitling an insurer to reimbursement of fees and costs incurred by the insurer defending claims under a reservation of rights, where (1) the insurer explicitly reserved the right to seek such reimbursement in its offer to tender a defense provided by independent counsel, (2) the insured accepted the defense subject to the reservation of rights, and (3) the claims are later determined to be excluded from coverage under the policy; and, Alaska law also prohibits enforcement of a policy provision entitling an insurer to reimbursement of fees and costs incurred by the insurer defending claims under a reservation of rights, where (1) the insurer explicitly reserved the right to seek such reimbursement in its offer to tender a defense provided by independent counsel, (2) the insured accepted the defense subject to the reservation of rights, and (3) it is later determined that the duty to defend never arose under the policy because there was no possibility of coverage.”

 

 
Vol. 5, Iss. 5
April 29, 2016
 
 

Supreme Court Addresses Coverage For Hacking
Thomas Todd and Sally Leonard were both members of the paddling committee of the New Hampshire Chapter of the Appalachian Mountain Club. They had a tiff about Todd’s participation in a paddling event. Sally voiced for opinion that he should not be allowed “due to his history of aggressive behavior toward females.” Todd responded by hacking Sally’s computer and breaking her car’s window. Sally filed a stalking action. Todd sought coverage from his homeowner’s insurer. The Supreme Court of New Hampshire, in Todd v. Vermont Mutual Ins. Co., No. 2015-0233 (N.H. Apr. 7, 2016), held that hacking a computer and shattering a car window were not accidents. Next the court turned to the possibility of personal injury coverage for “invasion of private occupancy.” Here too the court said no can do to coverage, concluding that “invasion of private occupancy” applies to claims involving an interest in real property – which hacking a computer is not.

Court Holds That Moth Balls Are A Pollutant
The seemingly odd substances that courts have found qualify as a “pollutant,” for purposes of a “pollution exclusion,” are legion. There are fireworks, ejaculate, deli odors, curry odor, swine waste odors, flies and insects, bat guano and no doubt others. Now add mothballs and mothball fumes to the list. Without any analysis, except to cite to a Texas Supreme Court case giving the pollution exclusion a broad interpretation, the court in United Fire & Cas. Co. v. Condeb, L.P., No. 14-150 (E.D. Tex. Feb. 22, 2016) held that the pollution exclusion precluded coverage for bodily injury caused by exposure to mothballs and its fumes.

Always A Good Reminder
It is easy to jump right to a potentially relevant exclusion when addressing coverage. But that is putting the cart ahead of the horse. There was a good reminder of this in Miller v. Mardak, No. 2015AP206 (Wis. Ct. App. Apr. 5, 2016): “In determining whether there is a duty to defend, the court first considers whether the insuring agreement makes an initial grant of coverage—i.e., whether the insurer has a duty to defend its insured—for the claims asserted. If the court determines that the policy was not intended to cover the claims asserted, the inquiry ends. . . . Only after concluding that coverage exists does the court examine the policy’s exclusions to determine whether they preclude coverage. In other words, when a court determines that there is no coverage in the policy for the allegations in the complaint, it is not necessary to interpret the policy’s exclusions.” (citations omitted).