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Coverage Opinions
Effective Date: June 22, 2016
Vol. 5 - Issue 7

Declarations: The Coverage Opinions Interview With John Q. Public
What He Knows About Insurance

Randy Spencer’s Open Mic
Michael Jackson And Insurance Coverage
[My all-time favorite article]

HUGE NEWS Re: “Insurance Key Issues” Book

Muhammad Ali And Coverage Opinions: One Degree Of Separation (Really)

The Four Questions:
Why Is This Coverage Lawyer Different From All Other Coverage Lawyers?

Doug Widin, Reed Smith, LLP – Representing Policyholders After 20 Years On The Other Side

Summer Is Here: But Do Not Barbecue A Squirrel

Insurance Is The Greatest Moment In U.S. Open History

Three Sheets To The Win: Can An Insured “Drink Himself Into Coverage?”

The Duty To Defend And Its Challenges

Rule No. 1: A CGL Policy Does NOT Provide Coverage For “Bodily Injury” Or “Property Damage”

Federal Court: So Just What Is “Traditional Environmental Pollution?”

“Personal And Advertising Injury:” Appeals Court Demonstrates The Challenge Of Applying Exclusions

Love And Marriage And Insurance: Wife Sues Husband; Husband Gets Coverage

Tapas: Small Dishes Of Insurance Coverage
· Interesting Issue: Supreme Court Addresses Impact Of Victim’s Insurance Recovery On A Criminal Restitution Obligation

Back Issues:


Vol. 5, Iss. 7
June 22, 2016


Michael Jackson And Insurance Coverage
[My all-time favorite article]




[Randy Spencer is on vacation. This week is the 7th anniversary of the death of Michael Jackson. This article is repeated from the March 19, 2014 issue of Coverage Opinions.]

Not many people know this, but in the early 1980s Michael Jackson had grown tired of a lifetime in the music industry and was looking for a new challenge. His was a career into which he had been born. And because of that he had always wanted to chart his own course. A fire had long been burning in Michael’s belly to get into the insurance claims business. By 1982 it was an inferno that he could no longer control. The time had come for him to pursue his dream. Michael broke the news to Quincy Jones that the recording sessions for Thriller were off. Jones, who had just had a homeowner’s claim denied, and was in a foul mood toward insurance companies, convinced Michael that the insurance industry was no place for someone so sensitive.

So with a heavy heart Michael went into the studio and recorded Thriller. And as everyone knows, it went on to become the number one selling album of all time. But despite Thriller providing Michael with unimaginable wealth and fame, he was never able to stop thinking about the career in claims that never was. All agree that Michael was a tortured soul. And there has been much speculation why. This is it.

As Michael lay awake at night during that post-Thriller period, thinking about concurrent causation and the pollution exclusion, it was inevitable that “Beat It,” his new and wildly successful song, would come on the bedside clock radio. And as he listened to himself telling a wanna-be tough guy to avoid a fight he can’t win, a different set of lyrics ran through his head. But he kept them bottled-up inside. It was only after his untimely and tragic death, when his Neverland Ranch was being cleaned out, that a folded up piece of loose leaf paper was discovered deep in the back of a desk drawer. On it were scribbled the lyrics of “Beat It” that Michael had long dreamed to sing:

We told you don’t you ever make a claim around here
Don’t wanna see your loss, you better not mess up our fiscal year
There’s disclaimer in our eyes and our letter’s very clear
So beat it, just beat it

You better file somewhere else, better do what you can
You ain’t gonna see no money, in your lifespan
You wanna push back, but we’re the size of Hoover Dam
We tell you beat it, but you seem to have no attention span

Just beat it, beat it, don’t get on our balance sheet-it
Our bank account will not be depleted
Showin’ how funky and strong is our fight
It doesn’t matter if we’re not exactly right
We still won’t pay for your dog bite
Just beat it, beat it
Our money’s so well secreted

We’re out to get you, better get another quote while you can
Don’t wanna be uninsured, for your mini van
You wanna stay covered, and not end up as broke as Ed McMahon
So beat it, just beat it

We’re here to show you that we’re really not scared
If you get water in your basement that ain’t no time to be unprepared
And if we finally pay your claim you’ll have an uninsured share
So beat it, we need to stay a billionaire

Just beat it, beat it
We will not be defeated
We’ll keep you off our balance sheet-it
Don’t make us have to repeat it
Just beat it, beat it, beat it, beat it

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







Vol. 5, Iss. 7
June 22, 2016

HUGE NEWS Re: Insurance Key Issues

The title of General Liability Insurance Coverage – Key Issues In Every State is being changed. The new title will soon be Hamilton – An American Insurance Coverage Book. And, in conjunction with this name change, the price of the book will be $1,500 per copy.

Get a copy of Hamilton. It will enable you to know what the courts are against and what they’re for.



Thank You For Making
Insurance Key Issues #1

Even after 16 months, General Liability Insurance Coverage – Key Issues In Every State is the #1 selling liability insurance book on Amazon. Thank you loyal readers for making this happen! And an extra special thanks to those buying the book in bulk – even by the dozen!

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 of Insurance Key Issues here www.createspace.com/5242805 and use
Discount Code NTP238LF for a 50% discount.

[Ironically, Amazon doesn’t discount it. Go here and get it for half price.]



Vol. 5, Iss. 7
June 22, 2016

Muhammad Ali And Insurance Coverage


The outpouring of tributes to Muhammad Ali, after his death earlier this month, were overwhelming. Stories about Ali in the ring, out of the ring and his influence on sports and society, were everywhere. But this wasn’t surprising. This was the death of someone known the world over as the Greatest and at times the most famous person on the planet. But despite all the ink spilled in remembrances to The People’s Champion, none that I saw mentioned his cameo in an insurance coverage decision. This is why you read Coverage Opinions – to learn the things that Time magazine leaves out.

In Rack N Cue Billiards, Inc. v. Burlington Insurance Company, No. G046058 (Cal. Ct. App. Jan. 30, 2013), the court addressed coverage for a pool hall, in Stanton, California, for claims by a patron injured when two other patrons got into a fight. Specifically, one of the combatants shoved another into a third person, causing him to crash into a plate glass window, which shattered and resulted in injury.

Among other coverage issues arising out of the ensuing personal injury litigation, the pool hall argued that its insurer’s assault and battery exclusion did not apply because the fight was a consensual boxing match. The court wasn’t buying it: “Rack and cue offers no cases holding the assault and battery exclusion inapplicable to mutual combat. And we disagree with its assertion that a reasonable policy holder would equate brawling patrons with boxing legends Muhammad Ali and Joe Frasier (sic). A bar fight in Stanton is not exactly the Thrilla in Manila.”

[Editor’s note: It’s Joe Frazier, with a z. Frasier, with an s, is Dr. Frasier Crane, Kelsey Grammer’s fictional character in Cheers and Frasier.]



Muhammad Ali And Coverage Opinions:
One Degree Of Separation (Really)

In February 1978, Leon Spinks shocked the world by beating Muhammad Ali in a 15 round split decision. [Six months later Ali won the rematch in a 15 round unanimous decision.]

As the nearby picture shows, Leon Spinks is a loyal reader of Coverage Opinions. Spinks beat Ali, but he can’t beat Coverage Opinions for his insurance coverage news.

Leon Spinks had his hands on both Muhammad Ali and Coverage Opinions. Translation – There is just one degree of separation between the Greatest and Coverage Opinions.




Vol. 5, Iss. 7
June 22, 2016

Doug Widin, Reed Smith, LLP –
Representing Policyholders After 20 Years On The Other Side

Doug Widin spent two decades representing insurers in coverage disputes. Then, in 2005, in a New York minute, everything changed. He joined Reed Smith’s Philadelphia office, doing the same type of work, but now representing policyholders. You don’t often see a lawyer in our field make such a sharp pivot – especially after that many years. Doug was kind enough to tell his unique story in The Four Questions column.

Doug has 30 years of experience in commercial litigation, with a concentration in insurance coverage litigation and counseling. He has handled matters for clients’ class actions, securities, real estate and contract disputes. His insurance litigation and counseling spans all aspects of property insurance, including cause and origin, valuation, business interruption, contingent business interruption and codependency, valuable papers and records, and sue and labor claims, under the full spectrum of standardized and manuscript policies. He has also represented clients extensively with regard to liability policies, including commercial general liability policies, professional error and omissions policies, directors and officers insurance, and numerous specialty liability insurance coverages.

What made you switch from representing insurers for so many years to the policyholder side?

The spate of coverage litigation following the Y2K debacle wound up with very few policyholder victories. I was representing carriers then and won several cases where policyholders missed the pressure points and arguments that could have at least achieved a good settlement. Commercial litigators took these cases thinking they were just ordinary contract cases. By the time they started to catch on, the cases were over. That’s when I decided there was room for a knowledgeable P&C coverage lawyer representing carriers to switch sides and avoid the increasing push toward commoditization of carrier side work. Of course the market has gotten pretty crowded on the policyholder side since then, but it’s been and remains a good ride.

Can you compare and contrast working on the two sides of the aisle?

The two sides are naturally very similar in terms of the subject matter. The policyholder side more frequently involves taking the initiative and pushing to keep the claim moving. The policyholder side also involves much more client education and expectation management, since these clients often have no previous experience with denied or litigated claims. Ironically, it seems that insurers and their lawyers are the ones who take claims much more personally and are more ready to ascribe bad motives to their counterparts when they could easily be tarred with the same brush. They forget the best advertisement for an insurer is a professionally handled and perhaps even well-paid claim.

What are some things that insurers do in handling claims that (1) are irksome to policyholders and (2) open themselves up to exposure for bad faith?

Few things are more irritating and drive policyholders more crazy than starting off the claim receiving a Bible-thick reservation of rights letter that does nothing more than spew lengthy excerpts of policy language, much of which has no discernible relationship to the claim at hand, and ends with “for these and other as yet to be conjured reasons Insurer reserves its rights to deny your claim.” These letters never actually contain any reasoning, but are just exercises in rump covering that signal the claim will be a long, arduous process. When the coverage door gets slammed in its face, the policyholder at least wants and deserves to be told the real reasons why. Also, don’t invent post hoc underwriting reasons why the claim isn’t covered. No one ever thought about this claim beforehand. There will be nothing to support it, so it will only make the insurer look bad later. Finally, if you make a mistake, admit it. Honest mistakes, almost universally, are not grist for a bad faith claim, but mistakes that are recognized, yet continued and compounded, are wonderful fodder for bad faith claims. When an insurer makes a mistake, it should admit it and own it. Then, pay the claim and live to fight another day.

Does your prior life representing property and casualty insurers in coverage claims affect how you approach claims for policyholders?

I think representing property and casualty insurers for a substantial period of time gave me insight into and appreciation for the frames of reference of insurers, claim representatives, and their lawyers that I don’t see evidenced by many policyholder lawyers. It helps me avoid unnecessarily tweaking the other side’s nose or inadvertently escalating an issue. This benefits my clients, because the road to resolution is less cluttered with distractions and I can help the other side package an acceptable resolution. It’s easier to get your adversary to swallow a pill that isn’t bitter. Many times a quicker resolution that is not a 100 percent victory or vindication is still much more useful to the client than a fully litigated win, at substantial cost, two years in the future.


Vol. 5, Iss. 7
June 22, 2016

Summer Is Here: But Do Not Barbecue A Squirrel


I love receiving reader mail. It comes in various categories. One is from readers who saw a case or story and pass it along thinking it may be of interest to me. Reader tips are a huge help in finding stories -- I certainly can’t find everything on my own -- and I so appreciate those who take the time to send them. [If you see something, say something. I really appreciate it.]

My thanks to eagle-eyed reader Andy Portinga, of Miller Johnson, Grand Rapids, Michigan, for sending in a gem. Not to mention that his cover note included these magical words: “A quick Lexis search of ‘squirrel’ and ‘barbeque’ suggests that this is an issue of first impression.” [Andy approved using his name here, despite the risk – I warned him -- that after an appearance in CO, the paparazzi will now be hounding him.]

In Travelers Indemnity Company, as subrogee of DGR Clearview, LLC v. Pellow, No. 325934 (Mich. Ct. App. May 24, 2016), defendant, Barbara Pellow, and her boyfriend (probably ex-boyfriend now), signed a lease with Clearview Apartment Homes. Pellow’s boyfriend used a torch on the apartment’s wooden deck to burn the fur off of a squirrel. He left the torch on the deck and entered the apartment. A fire started near where he had left the torch. His attempts to extinguish it were unsuccessful. The fire resulted in substantial damage to the entire apartment complex. Travelers, Clearview’s insurer, paid in excess of $2,000,000 to repair damage. Pellow was sleeping during the “fur-burning escapade.” However, Travelers sued Pellow for the cost of the repairs at issue.

After this, the case turns less interesting, focusing on whether Travelers’s claims against Ms. Pellow are precluded by a Michigan statute, that abolished joint and several liability, when she agreed in the lease to be jointly and severally liable for damages. Since there were no more details about the squirrel, there’s nothing left of interest to say about the case.

Alas, this isn’t a coverage case, so it won’t make my 9th annual “Coverage for Dummies” this year. But, this being a subro matter, insurance was still involved in a case involving the frailty and imperfection of the human brain (and, even more so, since I can’t imagine Travelers bringing the case unless Pellow had a homeowner’s policy containing a liability section).

[You gotta be nuts to use a blow torch on a squirrel.]

Thanks again Andy.

Vol. 5, Iss. 7
June 22, 2016

Insurance Is The Greatest Moment In U.S. Open History



The U.S. Open took place this past weekend near Pittsburgh and the trophy went to Dustin Johnson. There have been so many memorable moments in the history of this major golf tournament. There’s Tiger winning by 15 strokes in 2000. Payne Stewart beating Phil Mickelson on the last hole in 1999 -- and then Payne tragically dying four months later when his private plane depressurized in flight. In 1960 Arnold Palmer came from seven back on the last day to win. And on and on.

But the greatest U.S. Open moment of them all came in 2013, at Merion, outside Philadelphia, when the spectacular U.S. Open championship trophy (it has no name) had the opportunity to pose with an issue of Coverage Opinions. Justin Rose was the winner that year. He took one look at the prize and exclaimed: “Hey, what’s that trophy doing in the way?”




Vol. 5, Iss. 7
June 22, 2016

The Duty To Defend And Its Challenges


Insurers are wise to proceed cautiously before disclaiming coverage for a duty to defend. The hurdle for policyholders to clear, to establish a duty to defend, is low. The test is generally that a defense is owed if the allegations in the complaint demonstrate a potential for coverage. This can result in a defense being owed based on a single sentence, or even just a few words, in a lengthy complaint. And if the relevant state law requires the insurer to consider facts outside the complaint, for establishing a defense (but not eliminating a defense), then an even wider door is open to let in a duty to defend.

What’s more, not only is the insured’s burden for establishing a defense low, the consequences for an insurer, for wrongly disclaiming a defense, can be high. While the insurer will be obligated to pay for the defense that it should have provided (likely at higher rates than it could have obtained), it may also owe attorney’s fees, other damages and even waive coverage defenses that would have otherwise applied to preclude a duty to indemnify.

With all this, in cases where insurers believe that they owe no duty to defend, but, on account of the low standard, they could be found to be wrong, they are well-served to defend their insured under a reservation of rights and seek a judicial determination of their obligations.

This seems to be what happened in Fire Insurance Exchange v. Weitzel, No. DA15-0574 (Mont. May 17, 2016). I agree with the Montana Supreme Court that no defense was owed – but I also would not have recommended to a client to flat out disclaim a defense. Not to mention that I believe that FIE could just have easily lost this case – and probably would have before other courts.

The coverage issues arose out of an underlying action brought by the Estate of Ronny Groff against Jake Weitzel (female). The Estate alleged that “Weitzel was hired by Ronny’s children to provide in-home care services to Ronny and his ailing wife beginning in 2010 and that Weitzel provided these services to Ronny until Ronny’s death in July 2013. The Estate alleged that shortly after Ronny’s wife passed away in January 2011, Weitzel ‘began to wrongfully exert such degree of control over Ronny in his feeble state that she was able to exploit, manipulate and coerce Ronny to her financial gain.’ The complaint alleged purely economic loss as a result of Weitzel's conduct, including stealing personal property, unlawfully transferring vehicle titles, and taking personal trips using Ronny’s funds.”

The complaint set forth 113 paragraphs of alleged facts and nineteen separate causes of action. Of note, the complaint did not assert a cause of action for false imprisonment nor specifically allege bodily injury to Ronny.

Weitzel sought coverage under her Fire Insurance Exchange homeowner’s policy, covering claims for personal injury, bodily injury, and property damage. FIE undertook Weitzel’s defense, under a reservation of rights, and filed an action seeking a determination that it owed no coverage for defense or indemnity. Both sides filed Motions for Summary Judgment.

The trial court held that “while the underlying complaint did not expressly contain a cause of action or seek damages for false imprisonment, the allegations could be construed to potentially state a claim for false imprisonment.”

The Montana Supreme Court got the case. FIE continued to maintain that the 113 paragraphs of alleged facts, and nineteen separate causes of action, did not expressly contain a cause of action or seek damages for false imprisonment, nor expressly allege an essential element of false imprisonment, being that Weitzel restrained Ronny against his will.

Weitzel sought to overcome this by arguing that the “underlying complaint could be construed to give rise to a reasonable inference of false imprisonment. Specifically, Weitzel notes that included within the 113 paragraphs of factual background are allegations that: (1) Ronny’s physician diagnosed him with dementia; (2) Weitzel changed the locks on Ronny’s house at least two times; (3) Ronny was intimidated by Weitzel; and (4) Weitzel taped a note on the inside of the front door of Ronny’s house stating, “Keep door locked. Don’t open for anyone!!”

But the Montana high court was simply not persuaded. The court just could not see a claim of false imprisonment – even by reasonable inference: “There is no allegation within the complaint that can be reasonably construed as alleging Weitzel restrained Ronny from leaving his home against his will. The closest the complaint comes to making such an allegation is the note attached to Ronny’s door stating, ‘Keep door locked. Don’t open for anyone!!’ This allegation, however, requires several assumptions be made to reach a conclusion that Weitzel unlawfully restrained Ronny from leaving his home.”

The court used a similar analysis to conclude that the complaint did not allege “bodily injury.” Weitzel argued that the complaint could be construed to allege “bodily injury” because it alleged violations of the Montana Elder and Persons with Developmental Disabilities Abuse Prevention Act and that Ronny is now deceased. The court’s response: “Here again, Weitzel’s argument is based entirely on speculation without a basis in the facts actually pled in the complaint. . . . The complaint does not allege Ronny died as a result of Weitzel’s actions. Nor does the complaint allege that the elder abuse alleged . . . constituted physical abuse or that Weitzel ever actually physically abused Ronny. Rather, the allegations contained in the underlying complaint focus entirely on economic loss, and any extrapolation of a claim of physical abuse is unreasonable.”

In hindsight, after an insurer wins, it is easy to say that it should have. But given how low the threshold is for establishing a duty to defend, it is not unreasonable to think that other courts would have been able to find, based on some of the allegations here, reasonable inferences that the complaint alleged false imprisonment and/or bodily injury.


Vol. 5, Iss. 7
June 22, 2016

Rule No. 1:
A CGL Policy Does NOT Provide Coverage For “Bodily Injury” Or “Property Damage”


It is as common a refrain as you’ll hear in a conversation about a commercial general liability policy – “A CGL policy provides coverage for damages for ‘bodily injury’ or ‘property damage.’” But does it really? After all, that’s not what ISO’s workhorse insuring agreement says. It states: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’….”

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

This distinction was clearly on display in Auto-Owners Ins. Co. v. Southeastern CAR Wash Systems, No. 15-212 (E.D. Tenn. May 26, 2016). At issue was coverage under the following circumstances: “Miller operates a car-wash distribution and installation business in Eastern Tennessee. Miller held a commercial general liability insurance policy issued by Auto-Owners. In 2012, Miller contracted with Evans to install and maintain an ‘IQ Soft Touch Automatic’ car-wash unit, manufactured by D&S Car Wash Equipment Company, at the Island Oasis service station in Cleveland, Tennessee. After installation, the car wash began to malfunction, causing damage both to the unit and to one or more cars that went through the car wash. Although Miller attempted to repair the car wash, it was ultimately unable to do so. As a result of the problems, Evans incurred substantial losses, including damage to the car-wash unit, lost income during the periods the car wash was inoperable, reputational harms, and payments made in compensation for damage to customers’ cars.”

Evans sued Miller. Miller sought a defense from Auto-Owners under a commercial general liability policy. Auto-Owners agreed to provide a defense, under a reservation of rights, and filed an action seeking a determination that it was not obligated to defend or indemnify Miller.

The court addressed numerous issues. Of relevance here is whether the insuring agreement was satisfied for purposes of the claims for loss profits, due to the loss of use of the car wash, and payments to car wash customers for damages to their vehicles.

Auto-Owners argued that loss profits, due to the loss of use of the car wash, constitute “pure economic loss,” which does not fall within the scope of “physical injury to tangible property.” The court was not persuaded, holding that “Auto-Owners’s proffered interpretation would essentially read the ‘all resulting loss of use’ clause out of the definition of ‘property damage.’ The Court finds it difficult to conceive of loss-of-use damages as anything other than economic losses.” (emphasis in original). [The court was mindful that coverage could still be precluded by a policy exclusion.]

Next the court addressed the “because of” issue. It arose in the context of the claims for monies paid by Evans to customers because of damage to their cars.

The court noted that damage to the cars constitutes “physical injury to tangible property.” Auto-Owners saw it differently: “Auto-Owners argues these payments are not ‘property damage,’ but represent purely economic losses Evans voluntarily incurred by paying unknown third-parties for damage to their vehicles. Auto-Owners points out that Evans has not alleged that any of her tangible property was physically injured by the car wash, only that she lost intangible property (money) by reason of compensating others for physical injuries to their tangible property. Because none of these third parties have made claims against Miller, and because Evans’s claim is not one for physical injury to her tangible property, Auto-Owners contends these payments are not covered under the insuring agreement.”

The court, focusing on the “because of property damage” aspect of the insuring agreement, rejected Auto-Owners’s argument: “Auto-Owners is correct that these payments represent economic, rather than tangible, losses, but it does not follow that a claim for these payments is not covered by the Policy. The insuring agreement states that Auto-Owners will defend Miller against suits seeking damages because of ... ‘property damage.’ ‘Because of’ is not defined in the Policy, so it must be given its ordinary meaning. Webster’s Dictionary defines ‘because of’ to mean ‘by reason of’ or ‘on account of.’ These definitions communicate the idea of a causal relationship; that something follows as a consequence of something else. It is not a stretch to conclude that payments made by a business to cover damage to its customers’ vehicles are made ‘on account of’ the damage, or that these payments follow as a consequence of that damage.” (emphasis in original). The court also cited to numerous decisions nationally holding that the phrase “because of ... property damage” extends coverage for consequential damages arising in the wake of physical damage.

In the end, the court held that the “your product” and “your work” exclusions applied to preclude coverage for the damaged car wash. However, that was not enough to extricate Auto-Owners from a duty to defend, because neither of these exclusions applied to the claims for loss profits, due to the loss of use of the car wash, or payments to car wash customers for damages to their vehicles.


Vol. 5, Iss. 7
June 22, 2016

Federal Court: So Just What Is “Traditional Environmental Pollution?”


You know the issue. Everyone does. Pollution exclusion decisions, especially the initial ones in a state, involve a debate over which ideological camp the court should join. One camp limits the exclusion to “traditional environmental pollution” and the other applies the exclusion as written -- to include a vast array of hazardous substances.

If a court determines to apply the pollution exclusion as written, it will frequently conclude that it bars coverage, given the broad definition of the term “pollutant,” often defined as any “solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.” This is likely so even if the substance at issue has a useful purpose in the course of business or around the house. On the other hand, if a court concludes, fundamentally, that the pollution exclusion should be interpreted narrowly, and limited solely to “traditional environmental pollution,” it will likely conclude that the exclusion does not bar coverage for this wide array of hazardous substances.

It is not unusual for a court to expend significant effort to resolve this fundamental ideological debate at the center of the pollution exclusion. And, when it’s finished, while not everyone will agree with the result, the opinion probably cannot be criticized for lack of reasoning. Not to mention, it may even point to a case or two from other states that reached the same conclusion when presented with similar or even identical facts.

But while courts usually do a thorough job of interpreting the pollution exclusion, many that determine to limit its applicability to “traditional environmental pollution” skimp on just what that term means. A popular mantra is that, because the pollution exclusion was purportedly adopted by the insurance industry in response to the passage of environmental laws, traditional environmental pollution is “industrial pollution” or the conditions that motivated these laws, especially CERCLA or Superfund, enacted in 1980.

The California Supreme Court, despite issuing a unanimous opinion in Mackinnon v. Truck Insurance Exchange, 73 P.3d 1205 (Cal. 2003), that the absolute pollution exclusion is limited to traditional environmental pollution, recognized this precise problem when it stated: “To be sure, terms such as ‘commonly thought of as pollution,’ or ‘environmental pollution,’ are not paragons of precision, and further clarification may be required.” MacKinnon at 1218. See also Connecticut Specialty Insurance Company v. Loop Paper Recycling, Inc., 824 N.E. 2d 1125, 1138 (Ill. Ct. App. 2005) (“[W]e are not satisfied, nor is it helpful, to have a ‘We-know-it-when-we-see-it’ standard for what constitutes traditional environmental pollution.”).

In Cincinnati Insurance Co. v. Roy’s Plumbing Inc., No. 13-1000 (W.D.N.Y. June 10, 2016), a New York federal court took on this issue. The court addressed coverage for Roy’s Plumbing, a company in the business of plumbing, heating and cooling, for claims for bodily injury and property damage, sustained by three families living in the vicinity of Love Canal.

Specifically, the families alleged that Roy’s negligently performed inspections and construction work at homes near the Love Canal site...in connection with “a multiyear program of sewer refurbishment in the Love Canal area, which includes sewer replacement, root and debris removal, trenching, pipelining, manhole rehabilitation, leaky joint grouting, cross connection identification and removal, and sewer line upgrading. Specifically, Defendant or [its] agents, employees, representatives or contractors—working on Colvin Boulevard within 250 feet of the northern boundary of the Love Canal containment area—recklessly, negligently, and/or carelessly disturbed, exposed, and discharged a substantial amount of contaminated sediment. These alleged actions resulted in the discharge of myriad hazardous chemicals onto and into the property and homes of the [Underlying Plaintiffs], causing exposure to highly dangerous chlorinated organic compounds, halogenated hydrocarbons, and certain ‘signature’ Love Canal contaminants, including but not limited to non-aqueous phase liquids (‘NAPL’), a toxic chemical ‘stew.’” The families alleged that Roy’s knew, or should have known, of the possibility of the presence of dangerous chemicals within the sewers and/or otherwise in proximity to its work, but failed to exercise due care to prevent the possibility of the escape of such chemicals and failed to adequately warn area residents.

Cincinnati Insurance Company disclaimed coverage to Roy’s Plumbing, on the basis of its pollution exclusion, and filed an action seeking a declaration that its policies provided no coverage.

The text of the pollution exclusion at issue contained nothing out of the ordinary and the New York federal court set out to analyze its applicability under controlling New York law, which is governed by the 2003 Court of Appeals decision in Belt Painting. Under New York law, the pollution exclusion is limited to cases where the damage is “truly environmental in nature.”

The court held that the pollution exclusion precluded a defense obligation, despite noting that “[d]efendant, who is in the plumbing, heating, and cooling business, does not necessarily fit the mold of a traditional industrial polluter, and the actions that led to Defendant’s inclusion in the Underlying Litigation were part of Defendant’s ordinary business of repairing sewer systems.” Nevertheless, the court concluded that the allegations in the underlying complaint fell “squarely within the context of environmental pollution,” as “the injuries alleged include the severe health issues and property devaluation that arise from exposure to toxic chemicals.”

The fact that the court held that the toxic chemicals at issue here were environmental pollutants is not surprising. The better take-away from the case is the court’s finding that the pollution exclusion applied, even though the insured, in the plumbing, heating, and cooling business, did “not necessarily fit the mold of a traditional industrial polluter.” This could be a factor raised by an insured, in arguing that a pollution exclusion should not apply to it, despite the substances at issue being environmental pollutants.


Vol. 5, Iss. 7
June 22, 2016

“Personal And Advertising Injury:”
Appeals Court Demonstrates The Challenge Of Applying Exclusions


For insurers, it can be tempting to rely on certain exclusions to disclaim coverage for a defense of a “personal and advertising injury” claim. Some of the offenses that qualify as “personal and advertising injury” are, just that, personal. This is especially true for invasion of privacy, libel and slander. Needless to say, a person who believes that they have suffered such an affront, to the point of filing suit seeking redress, is likely to have very strong words to describe the person who wronged them. The complaint is likely to be filled with allegations that the defendant’s actions, in libeling or slandering the plaintiff, or invading his or her privacy, were intentional, malicious, outrageous and/or knowingly wrong. In other words, when people accuse others of defaming them, they do not usually say that it was an accident or innocent mistake.

An insurer, examining the allegations of such a strongly-worded complaint filed against an insured -- filled with allegations of intentional conduct -- may view it as falling squarely within the terms of the policy exclusion for “‘personal and advertising injury’ caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury.’” As such, an insurer may consider disclaiming coverage, including for a defense.

But despite the seemingly strong argument, that the “knowing violation” exclusion serves as a basis to preclude a defense for a claim filled with allegations of intentional conduct, insurers should proceed with caution before doing so. This is the lesson of National Union v. E. Mishan & Sons, No. 15-2248 (2nd Cir. June 1, 2016).

In E. Mishan & Sons, the court addressed coverage for E. Mishan, doing business as Emson, Inc., for claims that Emson deceptively trapped customers into recurring credit card charges. Two underlying class actions alleged that Emson acted as a purveyor of data, facilitating “data passes,” and transferring private customer information for profit. The plaintiffs asserted such counts as violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, fraud by omission, breach of contract and unjust enrichment.

Emson’s insurers filed an action seeking a declaratory judgment that they were not required to defend Emson in the underlying lawsuits. The District Court granted summary judgment to the insurers, concluding that “‘all of the allegations’ against Emson in the underlying lawsuits fall into the coverage exclusion for ‘personal and advertising injury’ caused by knowing violations of another’s rights. In so concluding, the District Court noted that ‘it is readily apparent that Emson’s alleged conduct was intentional and knowing,’ as the underlying complaints ‘allege that Emson intentionally passed along the consumers’ private information as part of a scheme to defraud those consumers.”

Emson appealed. And despite the District Court’s seemingly solid decision, based on application of the policy language, the Second Circuit saw it Emerson’s way. The appeals court noted that “[i]n determining whether an insurer is obliged to defend a lawsuit against the insured, we examine the allegations in the complaint filed in that lawsuit.” However, the court added that the duty to defend exists only “until it is determined with certainty that the policy does not provide coverage.” (emphasis in original).

The court held that it could not conclude, with certainty, that the policy did not provide coverage, “because the conduct triggering the knowing violation policy exclusion is not an element of each cause of action. Therefore, Emson could be liable to plaintiffs even absent evidence that it knowingly violated its customers’ right to privacy.” (emphasis added). More specifically, the court explained that the claims against Emson, for breach of contract and unjust enrichment, do not require a showing of knowledge or intent. Therefore, “Emson could be held liable in the underlying lawsuits without a finding that [it] ‘cause[d]’ or ‘direct[ed]’ the injury ‘with the knowledge that the act would violate the rights of another and would inflict ‘personal advertising injury’ as required by the knowing violation exclusion.”

The lesson of E. Mishan is that, even if the duty to defend is determined by an examination of the allegations in the complaint, some courts may also look at the elements required to prove the cause(s) of action. For these courts, if intentional or knowing conduct – or some other element of the exclusion -- is not required, then it has not been established with certainty that the policy does not provide coverage. Therefore, a duty to defend is owed.

For another example, along the lines here, see Axiom Ins. Managers, LLC v. Capitol Specialty Ins. Corp., 876 F.Supp.2d 1005 (N.D. Ill. 2012) (“Even though the Texas Suit alleges intentional and knowing conduct, the exclusions do not negate the duty to defend since plaintiffs could have been held liable for defamation without proof of intent and knowledge.”) (addressing exclusion for “‘personal and advertising injury’ arising out of oral or written publication, in any manner, of material, if done by or at the direction of the insured with knowledge of its falsity”).


Vol. 5, Iss. 7
June 22, 2016

Love And Marriage And Insurance: Wife Sues Husband; Husband Gets Coverage


I have no doubt that my wife would love to sue me for certain things that I do around the house. Putting the milk back in the refrigerator, with less than an ounce left, is a capital offense. Leaving dishes in the sink – or putting them in the dishwasher -- but not stacked properly (I can’t win). Leaving a wet shower towel on the bed should subject me to liability. Eating ice cream out of the carton – oh man, don’t even go there.

A wife’s suit against her husband -- and then the husband’s claim for coverage – was at issue in Pennsylvania National Mutual Ins. Co. v. Lewis, No. 15-1575 (4th Cir. May 27, 2016). The case is very brief, but interesting.

Jo Lewis filed a federal maritime tort action against her husband, Roger Lewis, and his solely owned company, Excel Mechanical, for injury sustained in a boating accident involving a boat owned and operated by Roger. Jo Lewis asserted that, in attempting to ground the boat on a sandbar, Roger caused a collision that trapped her lower leg between the boat and the sandbar, resulting in serious permanent injuries. Jo alleged that, at the time of the accident “there were two other passengers on the boat whom [Mr.] Lewis was entertaining as business prospects of Excel.” Thus, Jo argued that Roger “was engaged in the conduct of Excel’s business,” and, therefore, “[i]n light of the purported business purpose of the trip,” Excel is vicariously liable for Roger’s actions and Jo is entitled to actual and punitive damages. (Yes, punitive damages!).

Six months after the accident Roger sought coverage from Penn National, Excel’s insurer. He argued that, at the time of the accident, a potential customer was on board. Therefore, the trip was a business-related activity, covered by his company’s general liability policy. Penn National felt that the story was contrived to fit within the policy’s coverage.

Penn National filed an action seeking a declaration that it owed no duty to defend or indemnify Roger or Excel against Jo’s suit. Penn National’s argument was that “the boat trip was not business-related and that Mr. Lewis was only claiming it was to obtain coverage. Penn National pointed to the fact that no one, besides Mr. Lewis, testified that they had thought the trip was business-related, that Mr. Lewis had filled the boat’s gas tank that day but not expensed the cost to Excel, and that he had not submitted his Penn National claim until six months after the accident.”

Jo countered that “he routinely entertained potential customers on his boat to cultivate business relationships. He conceded that he had not bought gas that day but contended that he did expense to Excel the gas he had bought a week prior in anticipation of the outing. Mr. Lewis also explained that he did not file his claim for coverage under the Penn National Policy immediately because his life was ‘in turmoil’ while he helped his wife recover from her injuries, and because he only discovered he had watercraft coverage when reviewing his policy months later in connection with an unrelated event.”

Penn National also tried to make hay with the fact that the Lewises contacted State Farm ten days after the accident and received $5,000 for medical payments and a State Farm agent stated in a deposition that, “had State Farm been aware the accident was business-related, the Lewises would not have qualified for the payouts they received, but State Farm’s claim file did not contain any indication that whether the trip was business-related had ever come up.” The District Court saw this as irrelevant.

The District Court held that Roger was credible, the Penn National policy was unambiguous, and that “at the time of the Trip and resulting Accident, Mr. Lewis was operating the Boat in the course of his employment and with respect to the conduct of Excel’s business and his duties as the manager of Excel, as required for coverage under the Policy.” The District Court held that “[t]he fact that the trip included or may have included elements of familial entertainment and friendly fellowship does not deprive the Trip of its business purpose.” The Fourth Circuit affirmed.

If “elements of familial entertainment and friendly fellowship” do not deprive an activity of a business purpose, then other insurers may find themselves in situations feeling the same way Penn National did here.

Vol. 5, Iss. 7
June 22, 2016

Interesting Issue: Supreme Court Addresses Impact Of Victim’s Insurance Recovery On A Criminal Restitution Obligation

The Montana Supreme Court held in State of Montana v. Dovey, No. DA15—0496 (Mont. May 17, 2016) that an individual, who pled guilty to felony theft against his former employer, and was ordered to pay $26,500 in restitution, was not entitled to have his restitution obligation reduced by the amount that his employer recovered from its insurer ($26,200). In other words, the convicted employee sought to pay $300 in restitution, being the amount of his employer’s actual loss. He argued that Montana’s restitution statutes “only allow a victim to recover what he or she otherwise would be able to recover in a civil action” and that his employer “should not recover from both [him] and its insurer, because such recovery would result in a windfall of redundant payments.” The court “opt[ed] to stay on this side of the looking-glass” and declined to adopt the employee’s argument, which was, essentially, that he was “more deserving of the windfall from his victim’s insurance policy than … his victim.”