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Coverage Opinions
Effective Date: January 11, 2017
Vol. 6 - Issue 1

Declarations: The Coverage Opinions Interview With Former United States Senate Majority Leader Trent Lott
Trent Lott practiced law for less than a year. But in his three and a half decades in Congress the historic Whip practiced the art of persuasion -- and in ways that lawyers can only dream. The former Senate Majority Leader turned lobbyist talked to me about persuasion, government gridlock and what lies ahead in the new administration. And does he have to take off his shoes at the Trent Lott International Airport?

Randy Spencer’s Open Mic
Insurance Coverage New Year’s Resolutions

Encore: Randy Spencer’s Open Mic
Is There Coverage?: Child Gets His Tongue Stuck On A Frozen Pole

DOL’s Year-End Mic Drop: Final Rule Amending ERISA Disability Claim Procedure Regulations Released
Guest Author: Elizabeth A. Venditta, White and Williams LLP

Q&A With Laura Foggan:
On Leaving Wiley Rein After 28 Years, The ALI Restatement And How Coverage Law Has Changed

9th Annual “Coverage For Dummies” -- The Dummies Hall Of Fame
Seeking Coverage For The Frailty And Imperfection Of The Human Brain

Make An Ace, Bring A Case: Court Says No Coverage Owed For Hole-In-One Prize

Crystal Ball: Looking Ahead To The Top 10 Coverage Cases Of 2017

General Liability Insurance Coverage: Key Issues In Every State

[Significant] Choice Of Law: Is The Answer Different For A Bad Faith Claim?

[Must Read] Expanding The Continuous Trigger (Yes, That Can That Be Done)

Straight-Up Interpretation: Defining “Furnishing Alcohol” Within Liquor Liability Exclusion

New Liquor Liability Exclusion: Did ISO Go Far Enough? [Underwriters Take Note]

Court Finds It Strange That A Bar’s Policy Excludes Assault and Battery

What Is A Claim? Lots Of Cases On This. Here’s One Worth Reading.

Court Interprets One Section Of Insurer’s Policy By Looking At Its Other Section

Ramblin’ Arguments For Coverage: Allman Brothers-Related Claim

Tapas: Small Dishes Of Insurance Coverage
· Contamination Exclusion Precludes Coverage For E.coli-Tainted Beef
· Can An Insured Drink Itself Into Coverage?

Back Issues:
  Volume 5 - Issue 12 -December 7, 2016


Vol. 6, Iss. 6
January 11, 2017


Insurance Coverage New Year’s Resolutions



Well, it’s that time of the year – New Year’s Resolution season. All over the country people are resolving to get in shape, stop smoking and cut down on their emoji usage.

Surely there are also ways for those in the coverage world to make this the year for getting better at something, fixing something or doing something different in their approach to handling claims. Who among us can’t make one of these a resolution for 2017:

• While it’s true that anything can happen in a case, I resolve to stop citing the Nuclear Exclusion in all of my reservation of rights letters.

• I resolve to decide whether the words insured, insurer, plaintiff and defendant should be capitalized in my reservation of rights letters and then be consistent.

• I resolve to fix the auto-correct on my computer so that when I type CNA it doesn’t change to CAN. [Who am I kidding? I’ve been talking about doing this for years.]

• I resolve to eat fewer snacks at mediations.

• I resolve to stop reading Insurance Key Issues while driving. It can wait.


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



Vol. 6, Iss. 1
January 11, 2017

Encore: Randy Spencer’s Open Mic

Is There Coverage?: Child Gets His Tongue Stuck On A Frozen Pole



[This Randy Spencer’s Open Mic column appeared in the January 14, 2015 issue of Coverage Opinions. It has a tie to A Christmas Story. Since Turner Broadcasting has a tradition of showing that film for 24 consecutive hours on Christmas, surely I can re-publish this column here.]

A Christmas Story is more than just a movie. Nine-year-old Ralphie Parker’s dream of receiving a Red Ryder Carbine Action 200-shot Range Model air rifle for Christmas, has become part of American pop culture. The movie is most famous for the scene where Flick, in response to a Triple Dog Dare, places his tongue on the school yard flag pole believing that, despite the frigid temperature, it will not stick. We all know that it did. Then the bell sounded, signifying the end of recess, and Flick was left all alone stuck to the pole.

The news is full of stories about kids, wondering if that could really happen, who gave it a try. And some of them learned the hard way that A Christmas Story isn’t all fiction. Doing this, especially the pulling off part, can cause serious injury.

It not at all surprising that one youngster, who was inspired by Flick, filed suit on account of injuries sustained when his tongue became stuck to the tetherball pole in his friend’s backyard? Equally not surprising, the suit gave rise to coverage litigation. I’ve been waiting all year for the “Open Mic” column near Christmas to tell this story.

Six year-old Mitchell Turner slept over his friend Tim Morgan’s house in Burnsville, Minnesota during Christmas break in 2012. The two watched A Christmas Story before going to bed. The next morning they were in Tim’s back yard, the temperature was in the single digits, and Tim dared Mitchell to stick his tongue on the tetherball pole. You can see where this is going. Mitchell did so and it became stuck. He panicked, instinct took over, and he pulled his tongue off, losing a piece of it in the process. The injuries, and long term consequences, are serious.

Mitchell’s mother, as guardian for her son, filed suit against Tim’s parents for failure to supervise the boys in the backyard. She also named the tetherball pole manufacturer for products liability – defective product and failure to warn. The complaint in Gloria Turner, as Guardian for Mitchell Turner v. Barbara and Michael Morgan, et al., District Court of Minnesota, Dakota County, No. 13-7543, alleged that, because Tim’s parents knew that the boys had watched A Christmas Story, it was reckless to let them go outside the next morning, unsupervised, in an area that included a tetherball pole.

The commercial general liability insurer for the pole manufacturer undertook its defense in the underlying Turner suit. The homeowner’s insurer for the Morgan’s, 10,000 Lakes Property Casualty, disclaimed coverage based on no occurrence. The Morgan’s retained their own counsel.

The defendants filed summary judgment on the basis of assumption of the risk. It was not disputed that Mitchell had watched A Christmas Story the night before the incident and saw the scene where Flick got his tongue stuck to the pole. The court granted the motion based on Toetschinger v. Ihnot, 250 N.W.2d 204 (Minn. 1977), where the Minnesota Supreme Court held that, in appropriate cases, children under seven years of age can be held contributorily negligent. Here the court concluded that it applied to Mitchell as a matter of law.

While the case was now over, and no appeal was filed, the Morgans incurred $12,000 in defense costs. They filed suit against 10,000 Lakes P&C, seeking payment of their defense costs and damages for the insurer’s bad faith denial of coverage. At issue in Morgan v. 10,000 Lakes P&C, District Court of Minnesota, Dakota County, No. 13-9862, was whether Mitchell’s injury was caused by an occurrence when the Morgans failed to supervise the boys, knowing that they had watched A Christmas Story the night before and their backyard had a tetherball pole.

The 10,000 Lakes court described the issue as “unique to say the least.” The court undertook an examination of Minnesota law concerning the “occurrence” issue and set out a laundry list of decisions that have confronted whether certain injury-causing conduct was an accident. Following this lengthy examination, the 10,000 Lakes court held that the injury sustained by Mitchell was not caused by an accident.

The court explained its conclusion as follows: “Minnesota courts have long held that, for purposes of a liability insurance policy, an ‘accident’ is an ‘unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.’ Simply stated, the Morgans had to appreciate that six year old boys, with insatiable curiosity, a limitless spirit of adventure and A Christmas Story still fresh in their minds from just twelve hours earlier, would see the tetherball pole and be drawn toward it like moths to a porch light. Despite this, the Morgans did nothing to prevent the inevitable. From the Morgans’ perspective, Mitchell’s loss of his tongue was not an unexpected, unforeseen, or undesigned happening. The Morgans’s conduct speaks for itself.”

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


Vol. 6, Iss. 1
January 11, 2017


DOL’s Year-End Mic Drop: Final Rule Amending ERISA Disability Claim Procedure Regulations Released

Ammo For Claimants; A Blow To Administrators And Plans

Guest Author:
Elizabeth A. Venditta, White and Williams LLP

The long-awaited release by the Department of Labor (“DOL”) of a Final Rule impacting disability claim procedure regulations under the Employee Retirement Income Security Act of 1974 (“ERISA”) was published in the Federal Register on December 19, 2016. Touted by the DOL as promoting fairness and accuracy in the claims review process and a start to improving the current standards, the final rule will undoubtedly be viewed with consternation by ERISA disability plan sponsors, employer groups, administrators and insurers, given the sweeping array of additional requirements in the processing of disability claims and appeals. The final rule is effective thirty (30) days after the publication in the Federal Register, i.e., as of January 18, 2017, and the claims procedure changes are generally applicable to disability benefit claims submitted on or after January 1, 2018. Specific note, however, should be made of changes temporarily applicable for disability benefits filed under a plan from January 18, 2017 through December 31, 2017, which have been quoted in subsection 8, below.


ERISA § 503, (29 U.S.C. § 1133), requires employee benefit plans to provide benefit claim denials in writing, setting forth the specific reasons for the denial in a manner understandable to the claimant, and affording a reasonable opportunity for a full and fair process for review of the claim. The DOL regulations at 29 C.F.R. § 2560.503-1 have, since January 1, 2002, set forth the minimum requirements for disability benefit claim procedures under ERISA. Over a year ago, however, the DOL published proposed regulations which it said were designed to provide additional procedural protections and consumer safeguards for claims for disability benefits, and which were intended to apply many of the more stringent Affordable Care Act (“ACA”) health plan rules to disability claims. A public comment period was provided through mid-January 2016, during which the Department received 145 public comments from a variety of interested parties. After a year of cogitation by the DOL, and somewhat nervous apprehension within the disability industry, the final rule, just published, amends 29 C.F.R. § 2560.503-1 for disability benefit claims. It requires plans, plan fiduciaries and insurance providers to comply with additional procedural requirements when dealing with disability benefit claimants, largely adopting the proposed rulemaking, but with some additional changes.


1. Avoiding Conflicts of Interest – Employment Decisions

Plans providing disability benefits must ensure that all claims and appeals for disability benefits are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decisions. They cannot be operating under a conflict of interest. Towards safeguarding the independence and impartiality of such persons, the final rule now adds the requirement that decisions made as to the hiring, compensation, termination, promotion or similar matters with respect to any such individual, must not be made based upon the likelihood that the individual would support a denial of disability benefits. In other words, persons so involved, such as claims adjudicators, medical experts or vocational experts, cannot be hired, promoted, terminated or compensated based upon their likelihood of supporting a denial. A plan cannot contract with an expert, for instance, based upon the expert’s reputation for outcomes of one type or another, rather than upon the expert’s professional qualifications.

This new rule appears to include requiring a plan utilizing a third-party service provider to take steps to ensure that that provider also complies with the regulation which the Department suggests can be done, for example, by ongoing monitoring or through the terms of the plan’s service contract.

Query how this requirement can be monitored or enforced and whether it will spawn additional discovery of claims fiduciaries and experts. In the Department’s stated view, this new rule does not change the scope of “relevant documents” subject to the disclosure requirements of 29 C.F.R. § 2560.503-1(g)(1)(vii)(C) and (h)(2)(iii), as amended, nor does it prescribe limits on the extent to which information about consulting experts would be discoverable as part of a conflict of interest evaluation of the claims administrator or insurer.

2. Denial Letters–-Expanded Disclosure Requirements–-Right to Claim File and Internal Protocols, but No Treating Physician Rule

As a stated method of reinforcing the need for plan fiduciaries to administer claims procedures in a way that is transparent and encourages dialogue between the claimant and the plan regarding adverse benefit determinations, benefit denial notices must now contain a more complete discussion as to why the claim was denied and the standards utilized in making the decision. The new rule requires that the adverse benefit determination include a discussion as to the basis for disagreeing with the claimant’s treating physician, health care professional or vocational professional. This includes, for example, the basis for disagreeing with a disability determination made by the Social Security Administration if one is presented by the claimant in support of the claim and, as to that determination, boiler plate text about possible differences in applicable definitions, presumptions or evidence would not be sufficient. A more detailed justification would be required.

The discussion in the denial letter must also include an explanation of the basis for not following the views of medical or vocational experts whose advice was obtained on behalf of the plan, whether or not that advice was relied upon in making the adverse benefit determination, so as to avoid intentional “expert shopping.”

The ERISA standard that no deference need be given to the opinions of the claimant’s treating physician, however, remains. The Department noted that a treating physician rule is not necessary to guard against arbitrary decision-making by plan administrators [and would, also be contrary to Supreme Court authority].

The final rule also expressly sets forth the continuing requirement of providing an explanation of
the scientific or clinical judgment if based on medical necessity, experimental treatment or similar exclusion.

Further, “internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making the adverse determination” must be affirmatively provided with the adverse benefit determination, or a statement made that such do not exist. A plan may not conceal such information from a claimant under an assertion that the information is proprietary or confidential business information.

Moreover, the initial adverse benefit determination, not just appeal denials, must include a statement that the claimant is entitled to receive, upon request, the entire claim file and other relevant documents.

3. Claimant’s Right to Review and Respond to New Information Before the Final Decision on Appeal

The new final rule prohibits the denial of benefits on appeal based on new or additional evidence or rationales that were not included when the disability benefits were denied at the initial claims stage, unless the claimant is automatically given notice and a fair opportunity to respond. Plans must now provide appealing claimants, free of charge, any new or additional evidence or rationale that was considered, relied upon, or generated by the plan, insurer or other person making the benefit determination, or made at their direction, during the pendency of an appeal. Such evidence and/or rationale must be provided as soon as possible, sufficiently in advance of, and before, an adverse benefit determination on review is required to be provided under the current timeframes, to give the claimant a reasonable opportunity to address the evidence or rationale prior to that date. These protections now carried into the disability claims arena, are direct imports from the Affordable Care Act Claims and Appeals Final Rules.

The Department did not agree with commenters who argued that this new regulation would set up an unnecessary cycle of review and re-review leading to delay and increased costs. The DOL noted that that has not been the case in the group health claims context under the ACA. The supposed “endless loop” is necessarily limited, it suggests, by claimants’ ability to generate new or additional evidence requiring further review by the plan and the belief that the process resolves itself when the plan decides it has enough evidence to properly decide the claim and does not generate new or additional evidence or rationales to support its decision.

The Department did not change the current timeframes reflecting the maximum period by which plans must make their determinations in the final rule, but indicated that it is open to considering comments on whether sub-regulatory guidance regarding the current provisions on extensions and tolling would be helpful in the context of the new review and response rights.

4. Deemed Exhaustion of Claims and Appeals Processes

The final rule provides that if a plan fails to strictly adhere to all the requirements in the claims procedure regulation, (i.e., all the claims processing rules), the claimant is deemed to have exhausted his or her administrative remedies on the basis that the plan failed to provide a reasonable claims procedure and can proceed with litigation. A deemed denial of the initial claim or of the review on appeal would apply unless the violation was (1) de minimus or a minor error, (2) non-prejudicial, (3) attributable to good cause or matters beyond the plan’s control, (4) made in the context of an ongoing good-faith exchange of information, and (5) not reflective of a pattern or practice of non-compliance (again mirroring the existing standards under the ACA applicable to group health claims). This new rule is clearly stricter than a mere “substantial compliance” requirement. [Query, again, the impact this new rule could have on discovery in ERISA cases and anticipated increased ERISA litigation.]

The claimant may request a written explanation of the violation from the plan and the plan must provide such explanation within ten (10) days, including a specific description of its bases, if any, for asserting that the violation should not result in a deemed exhaustion.

If the disability claimant is deemed to have exhausted the administrative remedies under the plan, the claim or appeal is deemed denied on review without the exercise of discretion by a fiduciary. The claimant may immediately pursue his or her claim in court. Should a court’s decision reject the claimant’s request for review, the final rule also provides that the plan must treat the claim as re-filed on appeal upon the plan’s receipt of the court’s decision.

Increased litigation, as noted above, can likely be anticipated as a result of these changes.

5. Coverage Rescissions as Adverse Benefit Determinations

The final rule amends the definition of an adverse benefit determination to include for those plans that provide disability benefits, rescissions of disability benefit coverage that have a retroactive effect. In other words, rescissions of coverage due to alleged misrepresentations of fact as a result, for example, of errors in the application for coverage, must be treated as adverse benefit determinations, thereby triggering the plan’s appeals procedures. An exception to this new rule, however, is rescissions for non-payment of premiums.

6. Culturally and Linguistically Appropriate Notices

Plans are required to provide notices to claimants in a culturally and linguistically appropriate manner under the final rule, adopting the standards already applicable to group health plans under the ACA. Specifically, if a disability claimant’s address is in a county where ten (10) percent or more of the population is literate only in the same non-English language (as determined in guidance based on American Community Survey data published by the United States Census Bureau), benefit denial letters must include a prominent statement in the relevant non-English language about the availability of language services. The plan is also required to provide a verbal customer assistance process (such as a telephone hotline) in the non-English language and provide written notices in the non-English language upon request.

7. Notice of Any Applicable Contractual Limitations Period and Its Expiration Date

Commenting that the currently required statement of the claimant’s right to bring a civil action following an adverse benefit determination on review under § 502(a) of ERISA, 29 U.S.C. § 1132(a), would be incomplete and potentially misleading if it failed to include limitations or restrictions in the plan documents on the right to bring a civil action, the final rule includes a new requirement that the notice of an adverse benefit determination on review must include a description of any applicable contractual limitations period and its expiration date.

The Department noted that it did not believe this new requirement, imposing what it calls “a minimal additional burden,” will result in confusion, foreclose legitimate argument about the application of the limitations period in individual cases, nor should be viewed as requiring the plan to provide legal advice. It has further commented that a contractual limitations period that does not allow a reasonable period after the conclusion of an appeal in which to bring a lawsuit is unenforceable.

Moreover, though this final rule provision is technically applicable only to disability benefit claims, the Department has expressed its belief that notices of adverse benefit determinations for other benefit types would also be required to include some disclosure about any applicable contractual limitations period.

8. Temporarily Applicable Disability Claim Amendments—January 18, 2017

While the amendments discussed above are generally applicable to disability benefit claims submitted on or after January 1, 2018, the following rule applies to disability claims filed beginning on January 18, 2017, covering both initial claim determinations and determinations following appeal:

(p) Applicability dates and temporarily applicable provisions…

* * *

(4) …

(i) In the case of a notification of benefit determination and a notification of benefit determination on review by a plan providing disability benefits, the notification shall set forth, in a manner calculated to be understood by the claimant –

(A) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such a rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of such rule, guideline, protocol or other criterion will be provided free of charge to the claimant upon request; and

(B) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.

(ii) The claims procedures of a plan providing disability benefits will not, with respect to claims for such benefits, be deemed to provide a claimant with a reasonable opportunity for a full and fair review of a claim and adverse benefit determination unless the claims procedures comply with the requirements of [current] paragraphs (h)(2)(ii) through (iv) and (h)(3)(i) through (v) of this section.

29 C.F.R. § 2560.503-1(p)(4)(i).


Plans providing disability benefits, their insurers, claims fiduciaries and administrators, generally

have one year from now to put in place the amended claims procedures as set forth in the Final Rule. Plan language will need to be reviewed and updated, including that in plan documents, summary plan descriptions and other relevant instruments. While promoted by the DOL as strengthening consumer protections for claimants requesting disability benefits from ERISA employee benefit plans—its stated goal—the amendments in many respects mark a significant sea change in the processing of disability claims, that will conceivably spawn additional ERISA discovery and disability benefits litigation. This eventuality seems directly contrary to the manifest intent of Congress in enacting ERISA, which was to provide methods to resolve disputes over benefits “inexpensively and expeditiously.”

Elizabeth A. Venditta is a Partner at White and Williams LLP and Chair of the Life, Health, Disability and ERISA Group, concentrating her practice on the vigorous defense of life, accident, health and disability claims, including the representation and counseling of insurers, employers, plans and administrators in the full range of ERISA benefits matters and concerns. For more information on the DOL’s recently published Final Rule or any ERISA-related matter, Liz can be reached at 215.864.6392; vendittae@whiteandwilliams.com

This article should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are otherwise urged to consult a lawyer regarding your own situation with any specific legal question or concern.



Vol. 6, Iss. 1
January 11, 2017


Q&A With Laura Foggan:

On Leaving Wiley Rein After 28 Years,
The ALI Restatement And How Coverage Law Has Changed

I’ll always remember where I was when I heard that Laura Foggan left Wiley Rein after 28 years. The renowned coverage lawyer joined the Washington, D.C. office of Crowell & Moring in late December. Twenty-eight years at one firm is a long time. That’s even longer than Law & Order reruns have been on television.

Laura is, of course, a dean of the coverage bar. In addition to representing individual clients, she is the unofficial lawyer for the insurance industry – on account of her significant work representing trade associations in a variety of aspects of the business of insurance as well as significant coverage cases. She has been involved in over 200 appeals nationwide.

Changing law firms is a fact of life for most lawyers. They have certainly become more transient over the years. But it is still relatively uncommon to see someone do so after nearly three decades. It took me ten years to learn how to transfer a call to someone else’s line. Just the thought of having to learn another phone system…

So I reached out to Laura to discuss her recent move. And, while I had her, I took the opportunity to ask her a few other things about the world of insurance coverage. I wish her all the best at Crowell.

I have to start with the obvious. What made you leave Wiley Rein after so many years?

Crowell & Moring has a distinguished group of lawyers, many of whom I have known and respected for years. The move presented a unique opportunity that I couldn’t resist. There are some great synergies between my work and the work of some of my new colleagues here – for instance, Paul Kalish serves as counsel for the Coalition of Litigation Justice, a group formed by insurers to address abuses and inequities in the current mass tort litigation environment. The Coalition files amicus briefs (including briefs in the United States Supreme Court and the Supreme Courts of various states), promotes judicial education through legal scholarship and educational conferences and works with counsel in key jurisdictions to promote changes in the way in which courts handle mass tort litigation. As you know, I am counsel to the Complex Insurance Claims Litigation Association, which is an insurer group that often appears as amicus curiae in complex coverage cases that may set new precedents in insurance law.

Do you see your practice differing at Crowell?

Crowell & Moring has a longstanding reputation in the insurance area and for handling complex commercial litigation. It provides an impressive platform that will permit me to continue and expand my work representing insurers across the country and even globally, given its offices in places such as New York, California and London. It also carries deep capabilities in related practice areas that I will be able to call upon and leverage for clients in the insurance space. I am excited about opportunities to team with lawyers from the firm’s other practice groups to counsel and assist clients in areas such as blockchain technology, drones, and other emerging issues.

Can you describe what it felt like to walk into a different office on that first morning?

Very exciting! Even though I have many years of experience in the legal workplace, moving to a new firm and new office has been interesting and exciting – I’ve been meeting new colleagues and sharing ideas on how to better serve our clients. Since my move took place around the New Year, it also offered a nice chance to put all those New Year’s resolutions into place and instill new, hopefully improved routines.

You have been very active in the drafting of the ALI Restatement of the Law: Liability Insurance, serving in the role of Liaison for the American Insurance Association. The projecting is nearing its completion. What are some of the most significant ways in which the Restatement could alter how claims are generally handled?

The ALI Restatement of the Law: Liability Insurance has been a controversial project and has been met with substantial insurer concern. Although a number of changes have been made in the Restatement drafts as the project has progressed, insurers are disappointed that significant issues still remain. For example, there are places where the draft Restatement departs from longstanding, core insurance rules. One notable instance is that the current draft Restatement approach would alter the plain meaning rule for interpreting insurance contracts by permitting consideration of extrinsic evidence without a finding of ambiguity in contract terms. Another example is that the draft Restatement would permit consideration of extrinsic material to establish a duty to defend, instead of strictly adhering to the four-corners or eight-corners rule. If adopted, these rules would almost certainly result in increased litigation costs, putting a greater burden on the courts and the public, as well as increasing transaction costs.

Also, the reporters have imposed extra-contractual exposures on insurers without bad faith, which is one of the most controversial aspects of the draft Restatement. This comes from the reporters’ use of a plain “reasonableness” test -- instead of the traditional bad faith standard -- to impose extra-contractual liability on insurers. For instance, the reporters propose the automatic loss of all indemnity coverage defenses if an insurer’s decision not to defend is deemed unreasonable, and extra-limits exposure if an insurer’s determination not to settle is deemed unreasonable. The better view is that negligent failure to defend results in contract damages, and negligent failure to settle results in responsibility to indemnify up to the policy limits, but that bad faith must be shown for extra-limits or other extra-contractual penalties to be imposed on the insurer. The Restatement proposals blur the bright line between negligence and bad faith – and increased exposures outside the policy limit and the coverage terms would be imposed based on a plain “reasonableness” test. That is a big change that clearly means there will be increased costs and stresses on the insurance system. There is reason for great concern because the Restatement proposals are made without any empirical evidence – and thus without knowledge -- of what the effect will be on the insurance system and, ultimately, society.

What are some ways that the practice of insurance coverage law has changed over your career?

Over the course of my career, I’d like to think there has been a greater recognition of the importance of insurance and the insurance industry to society and the economy. Insurers are not simply deep-pocket guarantors who can be called upon to pay for every loss, regardless of contract terms. Maybe one benefit of the insurance liability crisis of the late 1980’s and early 1990’s was greater awareness of the importance of insurance to the overall economy, and the adverse societal effect of expanding insurer liability without regard to policy limits and terms.

There is such a critical, beneficial role that insurers can and do play in relation to increasing risks and emerging problems such as the potential impact of technological advances, environmental changes, and even concerns about terrorism-related losses. However, it is still a challenge on a case-by-case basis to ensure that a targeted insurer is not viewed simply as a means for compensation of what may be an uninsured loss. In fact, a lot of the work I do in preparing amicus curiae briefs for insurer trade groups is necessary to guard against a tendency to view an individual insurer as a deep pocket -- and instead ensure that the implications of rulings for the insurance system as a whole are recognized.

See the Crowell & Moring website for Laura’s full bio.





Vol. 6, Iss. 1
January 11, 2017

Make An Ace, Bring A Case: Court Says No Coverage Owed For Hole-In-One Prize

The next time I hear someone prattling on about the significance of Marbury v. Madison on the legal system I am going to interrupt and say, “Excuse me, have you ever read a case about a dispute over a hole-in-one prize? . . . Yeah, I didn’t think so.”

It is not unusual for a golf tournament, such as a charity or corporate event, to offer a large prize, say $25,000, a trip or a new car, to the first person to make a hole-in-one on a designated par 3. While the sponsor running the event wants to use the hole-in-one contest to generate excitement, and entice more players to participate, it also probably doesn’t want to have to (and, no doubt in plenty of cases, can’t afford to) give away the green.

The sponsor has two choices. It can take its chances that nobody will make a hole-in-one (and secretly place hexes on the players as they approach the hole) or, for a nominal sum compared to the value of the prize, purchase an insurance policy for the risk of someone actually making a hole-in-one. If someone does, the prize is paid by the insurance company.

The concept of a hole in one is simple. But, like many simple things, add money, and watch what happens. So it is no surprise that the promise of a hole-in-one prize has resulted in disputes. And, in several instances, judicial intervention has been required to put the matter to rest (plus, for every case with a judicial opinion, no doubt there are other hole-in-one disputes that didn’t get that far). The June 5, 2013 issue of Coverage Opinions took a look at some cases involving disputes over hole-in-one prizes. They are fascinating and entertaining. It is one of my all-time favorite articles in CO.

Most hole-in-one prize disputes center around whether the ace was properly witnessed or the manner in which it was achieved, such as, from the right distance or on the correct hole or on the right day of the week, etc. Do you win the prize if you get a hole-in-one on a mulligan? Wow! Good question. That should be on the bar exam. See Wright v. Spinks (Ind. Ct. App. 2000) for the answer.

Even though many hole-in-one prizes are the subject of insurance, many of the prize dispute cases are not about the insurance. But then along comes Talbot 2002 Underwriting Capital Ltd. v. Old White Charities, Inc., No. 15-12542 (S.D.W.Va. Jan. 6, 2017), involving a hole-in-one contest -- at a professional golf tournament, no less -- and a coverage dispute. It is an insurance coverage embarrassment of riches.

The Greenbrier Resort hosted the Greenbrier Classic and Pro-Am in July 2015. Greenbrier promised to pay fans, seated in the 18th hole grandstands, $100 if a player hit a hole-in-one at the 18th hole and $500 for a second hole-in-one [and $1,000 for a third, but that’s not relevant]. To insure these possible payouts, Old White Charities, Inc., a non-profit affiliated with Greenbrier, purchased insurance from certain insurers that would pay it $150,000 for the first hole-in-one, $750,000 for the second hole-in-one [and $1,400,000 for the third, but not relevant, hole-in-one].

Two golfers hit holes-in-one at the 18th. Greenbrier paid fans, seated in the 18th hole grandstands, “roughly $200,000.”

[The court didn’t say it, but I went the extra mile for you, dear reader, and found out that the golfers were George McNeil (first) and Justin Thomas (second). There are pictures on the internet of fans being handed their cash by Greenbrier owner Jim Justice (who, incidentally, will be sworn in as Governor of West Virginia a week from now) and the story made ESPN. Incidentally, Danny Lee won the tournament in a playoff. That also wasn’t included in the opinion, but CO knows no bounds when it comes to the level of service that it provides to its readers – despite them paying nothing, zip, nada, not even postage and handling, for this publication.]

The insurers refused to make payment to Greenbrier for its hole-in-one payouts. The dispute centered around the fact that both holes-in-one were hit from 137 yards. However, the application for the policy required that the insured hole be a minimum of 150 yards. The insured stated on the application that the hole in question would play an average of 175 yards. The policy contained a provision requiring that the 18th hole be at least 170 yards from the tee.

Based on all this, the court concluded that no coverage was owed. The opinion is kinda lengthy, and some of it not very exciting, and the case was decided as this issue was being put to bed. So I’ll just set out, verbatim, the main reasons for the court’s decision:

“[T]he provisions of the insurance policy contract were clear and unambiguous. It is undisputed that Bankers filled out an application for an insurance policy with the Plaintiffs at the request and guidance of Old White. Gene Hayes, an employee of Bankers who completed the application on behalf of Old White and then forwarded the application to Old White to be executed, testified that he knew the application contained a minimum yardage requirement of 150 yards concerning the covered hole, and stated on the application that the hole in question would play an approximate average of 175 yards. The application for insurance completed and executed by Old White clearly contained this provision, and it is undisputed that Old White knew about this warranty in the application. Further, the policy binder sent to both Bankers and Old White contained a warranty maintaining that the designated hole covered by the insurance policy must be at least 170 yards from the tee. Additionally, Robin Lang, who was Vice President of HCC at the time the policy was bound, testified by sworn affidavit that the distance of the hole was a specific factor for underwriters in contemplating whether to write hole-in-one insurance. Ms. Lang testified that, had the minimum yardage requirement in the policy been less than 170 yards, the premium would have been higher; and, had HCC or the Plaintiffs known that the hole would only play 137 yards, the policy would not have been issued at all. These undisputed facts clearly indicate that the terms of the insurance contract between the Plaintiffs and Old White were unambiguous.”

The court also rejected Greenbrier’s attempt to use reasonable expectations to overcome its sticky problem that 137<150: “Whether a reasonable expectation of coverage exists depends on the facts alleged in the pleadings, and under West Virginia law, traditionally required a showing of ambiguity in the language of the contract. However, the rule has been extended to cover situations where statements or actions by an agent created a misconception regarding the coverage provided by the policy. . . . The Court finds that Old White has not presented any evidence whatsoever that the Plaintiffs or their agents included ambiguities in their negotiations or failed to effectively communicate the policy restrictions. Employees from both Bankers and Old White testified to knowing about the 150-yard minimum placed in the application executed by Old White, and Old White has presented no evidence to the contrary. Old White has provided no evidence of any ambiguities, acts or statements by the Plaintiffs’ agents that would have created a misconception.”


Vol. 6, Iss. 1
January 11, 2017

Crystal Ball: Looking Ahead To The Top 10 Coverage Cases Of 2017

I know. It’s the first week of January. So why in the world am I talking about the Top 10 Coverage Cases of 2017? I don’t know. I guess because Coverage Opinions is a one man band so there’s nobody here to tell me I can’t.

It is always difficult to predict what lies ahead in the new year for significant coverage decisions. Most significant decisions come from appellate courts. And, except for the relatively few cases pending before state supreme courts, where word usually gets out, it is not easy to keep track of which cases are working through the appellate process.

There are likely to be two decisions, from state high courts in 2017, that will be strong candidates for the list of ten most significant coverage cases of the year – although for one it will likely depend on who wins. I’ll be keeping an eye out for these decisions:

Mount Vernon Fire Insurance Co. v. VisionAid, Inc., 825 F.3d 67 (1st Cir. 2016)

In March 2015 a Massachusetts federal court addressed the knotty issue of an insurer, defending an insured, and the insured believes that it has a counterclaim against the plaintiff. Defense counsel files the counterclaim or the insured hires separate counsel, to work with the insurer-appointed counsel, to file the counterclaim. However, the insurer does not wish to pay the legal fees associated with the counterclaim. After all, the counterclaim is not a suit filed against the insured. And a claim filed against the insured is what the duty to defend is all about. It often gets worked out. Sometimes the insured agrees to pay for the prosecution of the counterclaim. Sometimes the insurer pays it because it ultimately benefits the defense of the insured, i.e., a good offense is part of the defense. But it does not always get worked out. That’s what happened in Visionaid and the parties marched off to court.

The Massachusetts court, following a lengthy analysis, held that Mt. Vernon was not obligated to fund VisionAid’s counterclaim. What makes the VisionAid opinion useful was that the court addressed, one by one, so many of the very arguments that are often raised by insureds when seeking to have a counterclaim funded as part of a defense being provided to it by an insurer. These include the broad duty to defend obligates the insurer to fund the counterclaim; the counterclaim is an aid to the defense of the insured; the counterclaim creates a conflict for the insurer’s retained counsel; and requiring separate counsel to pursue the counterclaim would make the defense unwieldy.

VisionAid is the most detailed opinion I’ve ever seen that addresses whether an insurer is obligated to fund an insured’s counterclaim. For that reason, it was a candidate for inclusion in the 2015 “10 Most Significant Coverage Decisions of the Year” article. But, alas, it was appealed to the First Circuit. So this took it out of consideration for the 2015 “Top 10.”

Then, the First Circuit – with retired Supreme Court Justice Souter on the panel, sitting by designation – pulled a judicial go-ask-your-mother and certified the issue to the Massachusetts Supreme Judicial Court. Come on. You gotta be kidding me. [Justice Souter – How hard can this be compared to the stuff that you saw on the Supreme Court?] So that took VisionAid out of consideration for the 2016 “Top 10.”

The First Circuit certified the following questions to the Massachusetts SJC (and conveniently did so in a way that outlined the arguments of the parties):

(1) Whether, and under what circumstances, an insurer (through its appointed panel counsel) may owe a duty to its insured—whether under the insurance contract or the Massachusetts “in for one, in for all” rule—to prosecute the insured’s counterclaim(s) for damages, where the insurance contract provides that the insurer has a “duty to defend any Claim,” i.e., “any proceeding initiated against [the insured]”?

(2) Whether, and under what circumstances, an insurer (through its appointed panel counsel) may owe a duty to its insured to fund the prosecution of the insured’s counterclaim(s) for damages, where the insurance contract requires the insurer to cover “Defense Costs,” or the “reasonable and necessary legal fees and expenses incurred by [the insurer], or by any attorney designated by [the insurer] to defend [the insured], resulting from the investigation, adjustment, defense, and appeal of a Claim”?

(3) Assuming the existence of a duty to prosecute the insured’s counterclaim(s), in the event it is determined that an insurer has an interest in devaluing or otherwise impairing such counterclaim(s), does a conflict of interest arise that entitles the insured to control and/or appoint independent counsel to control the entire proceeding, including both the defense of any covered claims and the prosecution of the subject counterclaim(s)?

Oral argument before the Massachusetts SJC was held on December 5.

Surely 2017 will be the year for Visionaide.

Liberty Surplus Ins. Corp. v. Ledesma & Meyer Constr. Co., 834 F.3d 998 (9th Cir. 2016)

The Ninth Circuit asked the California Supreme Court to answer this question: “Whether there is an ‘occurrence’ under an employer’s commercial general liability policy when an injured third party brings claims against the employer for the negligent hiring, retention, and supervision of the employee who intentionally injured the third party?”

The Ninth Circuit explained its reason for seeking guidance as follows: “We seek the California Supreme Court’s determination as to the proper interpretation of liability insurance policies that provide coverage for injuries sustained as a result of an ‘occurrence,’ which is defined as ‘an accident, including continuous or repeated exposure to substantially the same general harmful conditions.’ The answer to the certified question will not only determine the outcome of L&M’s appeal of the district court’s order granting Liberty’s motion for summary judgment, but also resolve an unsettled matter of insurance law in California. The certified question is of considerable importance to employers, insurers, and third parties injured by the willful acts of employees. Moreover, we note that the resolution of this question will extend beyond the employment context, affecting many insured entities and persons, and the third parties that are injured by the willful acts of those individuals supervised by the insured. Given the ubiquity of insurance policies that cover ‘occurrences’ in California, this certified question presents an issue of significant precedential and public policy importance.”

The California Supreme Court agreed to answer the question and the insured’s opening brief was filed before the high court in mid-December.

In my experience, insurers generally accept that negligent hiring (i.e., failure to prevent-type claims) is an “occurrence,” even if the bad conduct committed by the employee was not. I would expect some insurers to revisit that if the venerable California Supreme Court concluded otherwise. If so, Ledesma & Meyer would seemingly be a strong candidate to be a top 10 coverage case of 2017. If not, probably not.


Vol. 6, Iss. 1
January 11, 2017

General Liability Insurance Coverage: Key Issues In Every State

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







Vol. 6, Iss. 1
January 11, 2017

[Significant] Choice Of Law: Is The Answer Different For A Bad Faith Claim?

You could write a book doing a choice of law analysis on the simplest claim. And some have. Take a policy issued in state A, accident and suit in State B, and it’s off to the races to figure out which state’s law would be applied, by courts in state A and state B – each using their own choice of law rule -- if a coverage action were someday brought in either state. Before you know it you’ve written a four page, eye-glazing, metaphysical analysis, addressing the relative weight of six different contacts to the dispute.

Of course, there is a strong likelihood that, when all is said and done, the answer could have been had in two seconds – the law applicable to the coverage dispute will be the state of the insured’s address on the policy’s Dec Page. After all, if a state applies lex loci conractus for determining choice of law – the state where the contract was made – the law applicable will very likely be the insured’s address on the policy’s Dec Page. If a state applies the Restatement’s “Substantial Relationship” test for determining choice of law, the law applicable will also very likely be the insured’s address on the policy’s Dec Page – especially if the insured has multi-state operations. Under the Restatement’s “Substantial Relationship” test, the state where the policy was issued is given out-sized significance.

But is there an exception to this analysis when determining choice of law for purposes of a bad faith claim? That was essentially the issue before the Oklahoma Supreme Court in Martin v. Gray, No. 114660 (Okla. Nov. 8, 2016). The court held that, because bad faith is an independent tort, a tort-based choice of law analysis controlled.

Kourtni S. Martin suffered serious injuries in an automobile accident in Oklahoma City. At the time she had UM coverage with Goodville Mutual. The policy was purchased by her parents while they lived in Kansas and Kourtni was a listed/rated driver on the policy. Before the collision, her parents notified their Kansas agent that Kourtni was moving to Oklahoma and that her vehicle would be garaged in Oklahoma. After the collision, the claim was reported to the agent in Kansas who then transmitted the claim to the insurer which was located principally in Pennsylvania. The claim was adjusted out of Pennsylvania.

At some point, Kourtni filed a bad faith claim against Goodville Mutual in Oklahoma. Goodville filed a motion to dismiss on the basis that Kansas law does not recognize a bad faith claim as a matter of law. The trial court granted Goodville’s motion, holding that Kansas law applied, and dismissed the bad-faith claim.

At issue before the Oklahoma Supreme Court: Which state’s law applied to the bad faith claim – Kansas or Oklahoma?

The trial court had determined that Kansas law applied based on the application of certain Oklahoma statutes. How the statutes operated to get there is not relevant here. What is relevant is that they pointed to the state where the policy was issued – Kansas -- as the law to be applied.

However, the Oklahoma Supreme Court undertook a different analysis and reached a different conclusion: “This Court holds that a claimed violation of an insurer’s implied-in-law duty of good faith and fair dealing presents an independent tort pursuant to Christian v. American Home Assurance Company and McCorkle v. Great Atlantic Insurance Company, requiring application of the law of the state with the most significant relationship to the alleged violation. Therefore, the trial court erred when it held that Kansas law applied automatically to Insured’s breach of contract and tort claim based on the duty of good faith and fair dealing.” (emphasis in original).

So, as the Supreme Court saw it, the basis for determining choice of law, for this independent tort claim of bad faith, was the “most significant relationship” test: “the rights and liabilities of parties with respect to a particular issue in tort shall be determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties. The factors to be taken into account and to be evaluated according to their relative importance with respect to a particular issue, shall include: (1) the place where the injury occurred, (2) the place where the conduct causing the injury occurred, (3) the domicile, residence, nationality, place of incorporation and place of business of the parties, and (4) the place where the relationship, if any, between the parties occurred.”

Applying this test to the matter at hand, the court concluded that we’re not in Kansas anymore: “The actions by Insurer related to the bad-faith claim appear to have occurred primarily in Oklahoma and Pennsylvania: (1) any injury from the alleged bad faith occurred in Oklahoma where Insured is located; (2) the alleged conduct causing injury from bad faith occurred in Oklahoma or Pennsylvania, where the claim was handled; (3) the domicile of Insurer and Insured are Pennsylvania and Oklahoma, respectively, and (4) the place where the relationship between the parties occurred has yet to be determined.”

As a general rule, when it comes to choice of law, for purposes of a coverage dispute, the address on the Dec page will always be the most important factor. But for states that treat bad faith as an independent tort, the rationale of Martin v. Gray, which uses a tort-based analysis for choice of law, cannot be overlooked in the calculus.

Vol. 6, Iss. 1
January 11, 2017

[Must Read] Expanding The Continuous Trigger (Yes, That Can That Be Done)

Trigger of coverage has been poked, prodded, debated and litigated for decades. For the most part, the disputes center around injury and damage with latency periods. In other words, injury or damage was taking place -- but before anyone knew it. Asbestos is the classic example. A person’s body may be adversely affected by their exposure to asbestos before they are eventually diagnosed with a disease. Thus, for purposes of triggering a liability policy, the debate has been whether injury or damage is considered to have been taking place during this so-called latency period – which can often be many years.

As challenging as this scenario can be, another trigger scenario is usually taken for granted – what I call a “boom event” -- where there is no dispute when the injury or damage took place. For example, when a boiler blows up or someone slips on a banana peel or there’s a car accident, it is usually not difficult to figure out when “bodily injury” took place. When it comes to boom events, the principle behind the continuous trigger has no place. Or could it? While the court didn’t describe it in those terms, that’s the issue that arose in Tidwell Enterprises, Inc. v. Financial Pacific Ins. Co., No. C078665 (Cal. Ct. App. Nov. 29, 2016) (published).

Tidwell is a long and detailed opinion but with remarkably easy facts. A fire destroyed a house. The homeowner’s insurer paid for the damages and then brought a subrogation claim against Tidwell Enterprises, the contractor who installed the fireplace several years earlier, claiming negligence. The contractor sought a defense from its liability insurer. However, the liability insurer’s policies were off the risk for twenty months before the fire. As far as the contractor’s liability insurer, Financial Pacific Insurance Company, saw it, it was easy to disclaim coverage. Its policies, like just about all liability policies, required that there be property damage during the policy period. So when a fire takes place twenty months after your last policy expires, how can there be property damage during the policy period?

Since a fire is a boom event, with no debate over when it happened, this seems like an easy case. But since the issue went to the California Court of Appeal, you know there must be more to it.

Making clear that its decision was based on a duty to defend standard – “Facts known to the insurer and extrinsic to the third party complaint can generate a duty to defend, even though the face of the complaint does not reflect a potential for liability under the policy” – the court concluded that there could have been property damage during Financial Pacific’s pre-fire policy periods.

The court based its conclusion on the following possibility: “[B]ased on the allegations and the known facts, there was reason to believe Tidwell might have negligently installed a custom top on the chimney in the Fox house that restricted the flow of air in the chimney, which in turn might have resulted in excessive heat in the chimney every time a fire was burned in the fireplace from the time the house was built, which in turn (through the process of pyrolysis) might have altered the chemical composition of the wood framing the chimney chase, thereby reducing the temperature at which it would ignite, until eventually, on November 11, 2011, the wood framing the chimney chase did ignite, which in turn resulted in the fire that damaged Fox’s house, for which State Farm was obligated to indemnify Fox as Fox’s insurer. If that is what happened, then Financial Pacific would potentially be liable under its policies to pay any sums Tidwell became legally obligated to pay State Farm as damages because the repeated exposure of the wood framing the chimney chase to the excessive heat in the chimney, for which Tidwell was responsible, may have caused physical injury to the wood (by altering its chemical composition and reducing its ignition point) during one or more policy periods, and that physical injury would have caused Tidwell's legal obligation to pay damages for the fire that resulted (at least in part) from the damaged wood.”

Again, the court was quick to point out that this may not be what actually happened, but what might have happened. Therefore, there was a potential for liability under the policies and Financial Pacific had a duty to defend.

The court rejected the insurer’s argument that none of this mattered since “coverage is determined by the damage for which the third party sues the insured (in Financial Pacific’s words, ‘the damage at issue’) and whether that damage occurred during a policy period, and here State Farm did not sue Tidwell for the damage to the wood framing the chimney chase prior to the November 2011 fire but for the damage to the house resulting from the November 2011 fire.”

Tidwell raises the following question: Has the court determined, at least for duty to defend purposes, that a liability policy can be triggered if only the cause of the damage occurred during the policy period?

Policyholders will no doubt say yes based on the following money paragraph in the decision:

“This distinction between ‘the causative event—an accident or ‘continuous and repeated exposure to conditions’—and the resulting ‘bodily injury or property damage’ is entirely unremarkable and does not refute the reasoning set forth above. Here, an initial causative event constituting an ‘occurrence’— namely, the repeated exposure of the wood framing the chimney chase to excessive heat in the chimney—may have resulted in property damage over a period of years—namely, the physical degradation of that wood—which in turn may have led ultimately to the fire in November 2011. It is true that the initial occurrence was, by itself, ‘insufficient to create a potential for covered damage,’ but there is nothing in the relevant policy language, or in the case on which Financial Pacific relies [editor’s note, Montrose] to support the conclusion that the physical injury to the wood that resulted from this initial causal event could not itself have served as a further causal event in the chain of causation between Tidwell’s negligence in installing the custom chimney top and the ultimate fire in November 2011 for which State Farm sought to recover damages from Tidwell. Thus, contrary to Financial Pacific’s assertion, a ‘cause of damage’ may be sufficient ‘to create a potential for covered damage’ if that ‘cause of damage’ constituted physical injury to tangible property that occurred during a policy period, resulted from an ‘occurrence,’ and ultimately led to the insured’s legal obligation to pay damages.”

How wide can Tidwell be applied – especially when the duty to defend standard is as broad as here? That’s the big question. Obviously it will depend on the nature of the damage and its cause. I can see the arguments now – fine-point, scientific-like, comparisons between the cause of the fire in Tidwell and the cause of this and that kind of property damage at issue. Did Tidwell open the door to more efforts being made that “boom events” do not trigger only the policy on the risk at the time of the boom?

And who will make such arguments? Insureds of course – whether they need more limits or had no coverage on the risk at the time of the boom. But insurers may also do so. There is no shortage of evidence (see: litigation over first manifestation, and similar endorsements, in construction defect claims) that when an insurer is the only one triggered, it may now embrace the continuous trigger and argue that other insurers are also liable.

Vol. 6, Iss. 1
January 11, 2017

Straight-Up Interpretation:
Defining “Furnishing Alcohol” Within Liquor Liability Exclusion

In Harleysville Preferred Ins. Co. v. Exec. Banquet & Conf. Ctr., No. N15C-07-068 FWW (Del. Super. Nov. 21, 2016) the court held that a Liquor Liability exclusion, contained in a commercial general liability policy, precluded coverage to a conference center – even though it was hands-off in many ways when it came to serving liquor – after a patron was served alcohol, left and was struck and killed by a motor vehicle when attempting to cross a street.

The court explained that the conference center, despite another entity having everything to do with pouring the drinks, still furnished alcohol within the terms of the Liquor Liability exclusion. The opinion is brief. The heart of it is this:

“[T]he Exclusion shall be construed according to its ordinary and usual meaning because the word ‘furnish’ is unambiguous in this context. According to Webster’s Concise Dictionary, the word ‘furnish’ means ‘to supply; provide,’ and ‘to supply’ something means ‘to make it available.’ Despite Defendants’ arguments to the contrary, an ordinary reading of these definitions makes clear that furnishing something is not limited to one physically handing something to another. Instead, one can furnish something to another by providing the means for that person to obtain it.

While it is true that Defendants neither physically pour the alcoholic beverages nor hold the liquor license, Defendants are directly responsible for making alcohol available at events. Defendants are in the business of catering social events at the Center, and they advertise their business online. Interested customers, who see the advertisements, contact Defendants to book an event. While booking an event, customers tell Defendants which bar service, if any, that they want, and Defendants provide that service accordingly. Customers do not discuss anything about bar services with Local No. 74, which provides the bartenders. As these facts illustrate, an important part of Defendants’ business is contracting with interested customers about which bar services will be offered at events. Therefore, the Court finds that Defendants are in the business of furnishing alcohol because a part of their business is to arrange for alcohol to be served at events.”

The court here made this look easy for the insurer. And it was the right decision. Besides those definitions of “furnish,” the Liquor Liability exclusion states that it applies only if the insured is “in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.” Thus, the exclusion contemplates applicability to not just those that actually pour drinks (such as those that are “selling” or “serving”). But it is also not impossible to imagine a court concluding that the conference center didn’t touch the liquor, so to speak, and going in the other direction.

Vol. 6, Iss. 1
January 11, 2017

New Liquor Liability Exclusion: Did ISO Go Far Enough? [Underwriters Take Note]

ISO amended the Liquor Liability Exclusion in its 2013 workhorse commercial general liability form CG 00 01. But did the Jersey City Boys miss something with the effort. A recent Indiana federal court decision suggests maybe so.

In one significant way, ISO’s 2013 amendment expanded the Liquor Liability Exclusion from, essentially, an insured’s furnishing of alcohol to state that it also applies to an insured’s negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others. Essentially, the point here is to expand the exclusion to include claims that the insured “failed to prevent” bodily injury.

But if ISO’s intent is for a CGL policy to have nothing whatsoever to do with liquor liability claims – and, instead, put them on its liquor liability policy – then Property Owners Ins. Co. v. Virk Boyz Liquor Stores, No. 15-87 (N.D. Ind. Nov. 9, 2016) (and the concept addressed in Skolnik v. Allied Property and Casualty Ins. Co. (App. Ct. Ill. 2015)) (see Top 10 Coverage Cases of 2016; December 7, 2016 CO) suggests that the expanded exclusion may not be last call for CGL insurers.

Virk Boyz involves coverage, under a commercial general liability policy, for damages arising out of a bar fight that occurred at Stein Tavern. Terry Woods, a patron, who admitted that he drank to intoxication, was seriously injured in an altercation. He was allegedly struck several times with a pool cue across his upper back and neck, punched in the face with a closed fist and body-slammed to the floor by a bartender. Woods filed suit against the bar owner. Property-Owners agreed to defend the bar, under a reservation of rights, and filed an action seeking a declaration of no duty to defend or indemnify.

Woods’s claims were as follows: Count I – the bartender failed to protect him and negligently failed to intervene to stop the assault; Count II -- negligently hiring the bartender; Count III - negligent failure to train the bartender; and Count IV - dram-shop.

The bar’s CGL policy contained a pre-2013 Liquor Liability Exclusion:

“Bodily injury” or “property damage” for which any insured may be held liable for reason of: (1) Causing or contributing to the intoxication of any person; (2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or (3) Any statute, ordinance, or regulation relating to the sale, gift, distribution or use of alcoholic beverages.

First, it is easy to see why the court rejected the argument that the Liquor Liability exclusion applied to all of the claims. The claims included ones that were in the nature of “failure to prevent,” and the Liquor Liability exclusion at issue, being pre-2013, did not contain the added language that it applies to an insured’s negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others. The court stated: “Count I alleges Stein Tavern was negligent for its failure to intervene or stop the assault, or call the police when Woods was assaulted. Count II alleges Stein Tavern breached its duty to Woods by hiring Russell when it should have known he was incompetent and unfit for employment as a bartender/bouncer. And Count III alleges that Stein Tavern was negligent in failing to train Russell to prevent the assault. These claims are not ‘inextricably intertwined’ with the negligent provision of alcohol. In fact, they have nothing to do with the sale of alcohol at all.”

However, even if the Liquor Liability exclusion contained the added language that it applies to an insured’s negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others, would that have precluded coverage for all of the claims?

Count I alleged that Stein Tavern was negligent for its failure to intervene or stop the assault, or call the police when Woods was assaulted. The court seemed to characterize this as separate from the bar’s failure to train its employees. The court stated: “bar fights are a common occurrence, and sometimes they occur for reasons utterly unrelated to the sale of alcohol. Suppose Woods was hitting on another patron’s girlfriend which caused the fight (and his subsequent injuries). Or suppose he made a wise crack about another patron's bad breath. The ensuing bar fight and his resulting injuries would have nothing to do with the sale of alcohol. In such a situation, the bar owner could be liable for a failure to train its employees or failure to protect or intervene, and it would have nothing whatsoever to do with the sale of alcohol.” (emphasis added).

It is not difficult to imagine a court, especially in the context of a broad duty to defend standard, characterizing an insured’s failure to protect or intervene, or seek medical assistance, as being outside the scope of an exclusion for an insured’s negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others.

Such a conclusion would be consistent with the decision in Skolnik v. Allied Property and Casualty Ins. Co. (App. Ct. Ill. 2015). In Skolnik, the court held that, at least for duty to defend purposes, an exclusion for bodily injury arising out of the use of controlled substances did not apply, despite an autopsy report that cause of death was “methadone intoxication.” The court noted that it was alleged that the insured and his parents negligently, carelessly, and improperly failed to request emergency medical assistance for [the victim] within a reasonable period of time after knowing she was physically incapacitated or unconscious or both.” The court concluded: “[D]espite the autopsy notation regarding cause of death [methadone intoxication], a genuine issue of material fact exists as to whether Johnson’s death was caused solely by her methadone ingestion. The four corners of the complaint contain details that, if true, describe a lengthy and protracted period of time during which Skolnik could have sought assistance.”

As I stated in the December 7, 2016 issue of Coverage Opinions when discussing Skolnick: “There are a host of exclusions that preclude coverage for injury arising out of some specified 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 failed to summon help for the victim. And such failure was also a cause of the plaintiff’s injuries.” I have seen some specified conduct exclusions that also include failure to provide aid along with the list of various failure to prevent-type conduct.

Property Owners Ins. Co. v. Virk Boyz Liquor Stores – with its allegation that the bar was negligent for its failure to intervene or stop the assault, or call the police when the patron was assaulted -- may have been another example of this, even with ISO’s 2013 Liquor Liability Exclusion.

In any event, if CGL insurers want no part of liquor liability claims – and I think that’s the case -- then they should consider the tonic of taking ISO’s 2013 expanded Liquor Liability Exclusion further.

Vol. 6, Iss. 1
January 11, 2017

Court Finds It Strange That A Bar’s Policy Excludes Assault and Battery

Many bar fight coverage cases, under commercial general liability policies, go something like this. A patron gets the stuffing beat out of him by a bouncer or another patron. He or she (probably he) files suit against the bar. The bar seeks coverage under its general liability policy. The insurer says that no coverage is owed based on no “occurrence” and/or an “Assault and Battery” exclusion.

Everyone knows that the A&B exclusion is very broad – precluding coverage for assault and battery six ways from Sunday – including bodily injury caused by assault and battery, arising out of assault and battery, assault and battery in any way shape, shape or form, as well as various ways in which the bar failed to prevent the assault and battery. Everyone knows that the patron was injured by assault and battery. But it’s never that simple in the coverage case. Instead, the Assault and Battery exclusion, and the complaint, will be subjected to an autopsy to determine if there is any way possible, at least for purposes of a broad duty to defend standard, that something in the complaint falls outside of the A&B exclusion.

And while all this is going on, the bar owner is likely asking himself – how come my liability insurance policy doesn’t cover bar fights? Isn’t that, like, uh, the biggest risk that I face owning a bar?

This was the situation in Fall v. First Mercury Ins. Co., No. 16-1286 (D. Ariz. Dec. 2, 2016). Ibrahima Fall definitely chose the wrong woman to chat up just before 2 a.m. in a nightclub. She was the bouncer’s girlfriend. Before Fall could even respond he was violently attacked by the boyfriend and other security officers in the club and dumped on the sidewalk.

Fall was seriously injured and required surgery. He filed suit against the bar. The bar tendered the claim to its CGL insurer, First Mercury, which disclaimed coverage based on, among other things, an Assault and Battery exclusion. Fall and the bar reached a settlement for $250,000, along with an assignment of the bar’s insurance rights and an agreement not to execute on the bar.

Fall filed suit against First Mercury. At issue was the general liability policy’s Assault and Battery exclusion, which is so lengthy that you can’t hold your breath longer than it takes to read it. [That’s often a sign that an exclusion is pretty long]. The A&B exclusion provided as follows:

“Notwithstanding anything to the contrary contained within the policy or any endorsement attached thereto, it is agreed that this insurance shall not apply to any claim, demand or suit alleging damages arising out of an actual or alleged assault and battery, nor shall there be any duty or obligation under this insurance to defend any such claim, demand or suit. Assault and battery shall not be deemed to be an occurrence whether or not committed by or at your direction. This exclusion also applies to any claim, demand or suit seeking damages arising out of an actual or alleged assault and battery which claim, demand, or suit advocates any theory of liability, whether sounding in tort or in contract, including but not limited to contractual assumption of liability, negligent hiring, negligent training, or negligent supervision.”

Fall asserted lots of policy language-based arguments why the A&B exclusion, despite its breadth, did not apply. The court rejected them all. But then, just when it looked bleak for Fall, the court handed him a lifeline. Essentially, the court found it curious that the bar’s general liability policy contained an exclusion for assault and battery. The court explained:

“Despite these conclusions, Plaintiff's [Fall’s] final argument persuades the Court that summary judgment cannot be entered on this issue. Plaintiff asserts that Gin-Cor [the bar] had a reasonable expectation that it would be covered for a physical altercation between a patron and its bouncers who were trying to protect other patrons. Under the ‘reasonable expectations’ doctrine, Arizona courts will not enforce boilerplate provisions of an insurance contract when the insurer has reason to believe that the insured would not have agreed to those terms. Courts can consider the parties’ prior negotiations, the circumstances of the transaction, whether the term is ‘bizarre or oppressive,’ whether the term eviscerates the non-standard terms explicitly agreed to, and whether the term eliminates the dominant purpose of the transaction. The reasonable expectations doctrine requires more than the insured’s ‘fervent hope’ that coverage exists, and therefore only applies in certain limited circumstances. Those circumstances include when an insured does not receive full and adequate notice of a particular provision and the provision is unusual, unexpected, or emasculates apparent coverage.”

In providing this “reasonable expectations” fifth down to Fall, the court focused on whether the bar had notice of the A&B exclusion – although it did not address that the bar seemingly had notice of it because it was contained in the policy. In addition, is an Assault & Battery exclusion, when it was very likely contained in the general liability policy by way of endorsement, so-called “boilerplate.”

Putting all this aside, the court explained why summary judgment was not appropriate:

“This case presents a material issue of fact as to whether Gin-Cor had a reasonable expectation that it would be covered for the underlying event. Gin-Cor’s manager, Les Corieri, states in an affidavit that he has owned and operated ‘approximately forty to fifty’ nightclubs in his career. Corieri avers that ‘I have always insisted that the liability insurance for nightclubs I own cover claims and related circumstances like those alleged in [the underlying action].’ He states that Gin-Cor had no prior notice of the assault and battery exclusion, and, had it been notified, it ‘would have insisted on obtaining this coverage from [First Mercury] or from another carrier.’ Corieri adds that ‘[i]t has been my experience that . . . situations involving unruly and/or disorderly guests and patrons involved in physical altercations [] are a known risk of operating a nightclub, and therefore I would have required the liability insurer covering my nightclubs to provide coverage for these types of claims.’ This affidavit creates a question of fact as to whether Gin-Cor had notice of the assault and battery exclusion, an exclusion that, in this case, eliminated coverage that Corieri avows he expected to have. If it is true that Gin-Cor did not have notice of the exclusion, then First Mercury may have had reason to know that Gin-Cor did not agree to the exclusion. This evidence is sufficient to create an issue of fact that precludes summary judgment.”

Looking at the decision through a national lens, I think it is an anomaly and does not reflect proper application of the reasonable expectations doctrine. But, nonetheless, the reasoning could preclude some bars -- at least initially -- from being dumped on the sidewalk when seeking coverage for an altercation claim in the face of an A&B exclusion.


Vol. 6, Iss. 1
January 11, 2017

What Is A Claim? Lots Of Cases On This. Here’s One Worth Reading.

There is a great quote from a 1963 Supreme Court of Pennsylvania case that asks the question – what is an accident?

The court’s answer in Brenneman v. St. Paul F. & M. Ins. Co.:

“Everyone knows what an accident is until the word comes up in court. Then it becomes a mysterious phenomenon, and, in order to resolve the enigma, witnesses are summoned, experts testify, lawyers argue, treatises are consulted and even when a conclave of twelve world-knowledgeable individuals agree as to whether a certain set of facts made out an accident, the question may not yet be settled and it must be reheard in an appellate court.”

You could say the same about the question what is a claim? Everyone knows what a “claim” is until the word comes up in court. Then all bets are off. And it comes up in court a lot. In coverage cases, it often arises in the context of whether a “claim” has been made for purposes of triggering a “claims made” policy. These decisions are often fact and policy-language driven. For this reason, I do not usually address them in CO. They are usually too unique to be able to impart any sort of general lesson or guidance for future cases.

Reuter v. Lancet Indem. Risk Retention Group, No. 16-80581 (S.D. Fla. Dec. 15, 2016) is fact and policy-language driven. But, nonetheless, I included it here because it demonstrates the importance for insurers of having a very clear definition of “claim.” Not to mention that, even with its definition of “claim,” the insurer still had no easy road. The insurer won – but it took a court willing to drill-down into the policy to do so.

At issue in Reuter was coverage, for a physician, under a claims made medical professional liability policy. Specifically, was a “claim” first made against the Insured during the May 1, 2013 to May 1, 2014 policy period?

Of significance, the policy defined “claim” as follows:

(1) a written notice received by an Insured, and forwarded to us, from a person or entity, or on behalf of such person or entity by another party legally empowered to act on their behalf, alleging that such person or entity has been damaged by an Insured and demanding monetary damages or notifying the Insured of an intention to hold an Insured responsible for an Occurrence; or

(2) the filing of a civil lawsuit or arbitration proceeding seeking monetary damages.

Notifying us of an Occurrence that may result in a Claim as required under “Section 6- Notice Provisions” does not constitute a Claim first made hereunder unless it incorporates Items 1 or 2 above.

Here’s what happened during the May 1, 2013 to May 1, 2014 policy period:

First, “[i]n a letter dated August 20, 2013, and addressed to Plaintiff [the insured physician], the Florida Department of Health notified Plaintiff that it was investigating a complaint (the ‘Report’) the DOH had received regarding Plaintiff’s possible violations of the Medical Practices Act in connection with medical treatment Plaintiff rendered to patient V. G. The DOH Letter stated in relevant part, ‘We are currently investigating the enclosed document received by the Department of Health. This investigation was initiated after it was determined that you may have violated the Medical Practices Act.’ The DOH Letter outlined procedures governing the investigation.”

Then, “[i]n a letter dated December 9, 2013, and addressed to Plaintiff [the insured physician], the attorney representing patient V.G. requested that Plaintiff provide, pursuant to section 627.4137 of the Florida Statutes, a statement setting forth certain specified ‘information with regard to each policy of insurance.’”

There is no doubt that certain things were sent to, and about, the physician, during the May 1, 2013 to May 1, 2014 policy period, that smelled like a claim. A claim was definitely in the air. Surely there was a good chance that one was coming down the pike. But, were these things enough to satisfy the policy’s specific definition of “claim?”

Lancet, the insurer that issued the claims made medical professional liability policy, maintained that these various notices were not a “claim,” as defined under its policy. Rather, if a “claim” were made, it was not until after the May 1, 2014 expiration of its policy.

The insured-physician filed suit against Lancet, alleging that the insurance letter and/or the Report filed by the patient, with the DOH, constituted a “claim,” within the meaning of the Lancet Policy.

The court concluded otherwise, holding that, of the three possibilities, none was a defined “claim” made during the Lancet policy period:

First, the Florida Department of Health notified the physician that it was investigating a report that the DOH had received regarding his possible violations of the Medical Practices Act in connection with medical treatment rendered to patient V. G. However, while the DOH Letter was received by the physician-insured, as required by the definition of "claim,” the DOH Letter was not received “from a person. . . or on behalf of such person by another party legally empowered to act on their behalf,” i.e. the patient V. G.

Second, while the underlying report, filed with the DOH, was received from the patient – solving the problem above -- the report was received by the DOH and not the physician. Not to mention, as the court noted, “even if the Report had been received by [the physician], the Report did not ‘demand[] monetary damages’ or ‘notify[] the Insured of an intention to hold an Insured responsible for an Occurrence.’ Rather, the Report was filed to initiate a disciplinary investigation.”

Third, the court concluded that the letter requesting insurance information from the physician, pursuant to Florida statute, was not a “claim” within the policy’s definition: “[N]othing in the Insurance Letter alleges that the former patient ‘has been damaged by’ Plaintiff, demands monetary damages, or purports to notify the insured of an intention to hold the insured responsible.”

The court’s decision here is correct – no matter how you slice it, the definition of “claim” was not satisfied. And the insurer, to its credit, was willing to go to mat on it. But I can imagine some courts, looking at the totality of the situation here, and the information that had been provided to the physician – especially the request for insurance letter, since, why else would it be sent -- and concluding that if it walks like a claim, quacks like a claim and looks like a claim, well, you know…

Vol. 6, Iss. 1
January 11, 2017

Court Interprets One Section Of Insurer’s Policy By Looking At Its Other Section

Courts in coverage cases are often quick to point out that, when interpreting an insurance policy, all of the provisions must be given effect and terms should not be treated as surplusage. It is hard to imagine that message coming through any louder and clearer than in Interstate Fire & Cas. Co. v. Dimensions Assurance Ltd., No. 15-1801 (4th Cir. Dec. 6, 2016).

At issue in Dimensions was whether a nurse, employed by a staffing agency and assigned to work at a hospital, qualified as an “employee” of the hospital, to be an insured under the hospital’s policy.

A former patient brought a medical malpractice action against Laurel Regional Hospital and several of its doctors and nurses, including a nurse Cryer, who had been placed at the hospital by staffing agent Favorite Healthcare Staffing. Dimensions Assurance, the insurer for the hospital, claimed that Cryer she was not an employee of the Hospital – so not an insured -- and, thus, refused to defend her. Interstate Fire, which had issued a professional liability policy to the staffing agency, for its medical professionals, undertook Cryer’s defense and settled the case against her for $2.5 million and incurred nearly $500,000 in defense costs.

Interstate filed an action for contribution against Dimensions. Interstate alleged that, under the terms of the hospital’s Dimensions policy, Cryer qualified as an employee of the hospital and, thus, was a “protected person” (an insured) entitled to coverage under the policy. And as Interstate saw it, the coverage provided by the Dimensions policy was primary and the coverage provided by the Interstate policy was “excess,” in cases where there was other valid insurance. Thus, Interstate alleged that Dimensions was responsible for the entire amount it paid to defend and settle the claims against Cryer.

Nurse Cryer’s claim came under the Professional Liability section of the Dimensions policy, which defined “protected person” (an insured) to include: “[The Hospital’s] present and former employees, students and authorized volunteer workers are protected persons while working or when they did work for you within the scope of their duties. Unless added by amendment to this Agreement, interns, externs, residents, or dental, osteopathic or medical doctors are not named protected persons for professional injury, even if they are your employees, students or authorized volunteer workers.”

Interstate maintained that Nurse Cryer was a “protected person” (an insured), under the Dimensions policy, because she was an employee of the hospital. In support of its argument, Interstate looked to the General Liability section of the Dimensions policy, which excluded agency-provided practitioners from its definition of “employee.”

So Interstate’s argument went, “the fact that the general-liability definition excludes Agency provided practitioners while the professional-liability definition does not exclude them demonstrates that the Policy provides coverage for Nurse Cryer. The presence of this language in the general-liability section shows that Dimensions knew the Hospital was staffed by direct-hire and Agency-provided practitioners and that the word ‘employee’ as used in the Policy includes direct-hire employees and Agency-provided practitioners. After all, if ‘employee’ did not include Agency-provided practitioners, then there would have been no need to specifically exclude them from the general-liability definition of ‘protected person.’”

The court, needing to give effect to all of the provisions in the Dimensions policy, agreed with Interstate: “Dimensions’ decision to use different language in different sections of the Policy when addressing the coverage available to ‘employees’ must be understood as an intentional decision. Under Maryland law, we must respect this decision and apply the Policy in a way that gives effect to the full ‘Worker Protection’ clause in the general-liability section and to the full ‘Worker Protection’ clause in the professional liability section. The only way to do that is, as Interstate argues, to conclude that the term ‘employee’ as used in the Policy includes Agency-provided Hospital workers as well as direct-hire Hospital workers. Accordingly, because the professional-liability section of the Policy extends ‘protected person’ status to Hospital workers without excluding Agency-provided workers, we conclude that Nurse Cryer is a protected person under the professional-liability section of the Policy.”

However, Dimensions, seemingly aware of the risk that one coverage portion of its policy could be used to interpret another, had drafted a pre-emptive strike. It’s policy provided that each “agreement” (the three sections of the policy separately addressing coverage for general liability, hospital professional liability, and group physicians’ professional liability) must “be read and interpreted separately and independently of the other and no terms, conditions or exceptions from one agreement shall be construed to apply to any other agreement or provide a basis for interpretation of any other agreement.”

But the court never addressed the possible impact of this provision, concluding that, even examining the professional liability section in isolation, Cryer was an employee of the hospital – based on the manner in which employee status is established under Maryland law.

The take-away from Dimensions – and especially the lesson for policy drafters -- is a simple one.

Vol. 6, Iss. 1
January 11, 2017

Ramblin’ Arguments For Coverage: Allman Brothers-Related Claim

The coverage issues in Film Allman v. New York Marine & Gen. Ins. Co., No. 14-7069 (C.D. Calif. Dec. 8, 2016) are not at all unique or groundbreaking. But the facts are interesting (albeit tragic) and the case has a connection to the Allman Brothers. So here it is. If it had been the Hallman Brothers I would have tossed it back and casted out for a better catch.

A coverage dispute arose out of the following. Randall Miller and Jody Savin established a production company, Film Allman, to create a biopoic about the formation of The Allman Brothers and their explosion onto the music scene. An accident occurred while Film Allman employees were filming a scene on a train trestle bridge and tracks in Wayne County, Georgia. A train operated by CSX Transportation came through while the crew was still on the tracks, resulting in the death of an assistant camera technician. Location manager Charles Baxter communicated with CSX prior to the accident regarding permission to film on the train tracks. On the morning of the accident CSX sent Baxter an email denying permission. After the accident, Miller, Savin and others were indicted for criminal trespass.

Film Allman became the subject of several civil suits. New York Marine insured Film Allman under a Motion Picture/Television Producers Portfolio Policy. New York Marine argued that no coverage was owed because the policy contained a criminal act exclusion and Film Allman employees committed a criminal act.

The court didn’t break a sweat concluding that the criminal act exclusion applied. Film Allman’s arguments to the contrary were anemic -- on their best day.

On the applicability of the criminal act exclusion, the court stated: “Film Allman’s employees received notice from CSX prior to entry that such entry was forbidden. Film Allman’s film crew knew that CSX owned the tracks. . . . And, Film Allman’s employees received denials every time they solicited permission from CSX to use the tracks, including on the morning of the accident. Moreover, Baxter acknowledged forwarding the e-mail to Miller, Savin, Sedrish, Schwartz, and others within minutes of his having received it. Film Allman’s arguments that it was not denied permission to film on the tracks prior to the accident are conclusory and unsupported. The evidence shows that Film Allman employees knew that they had been denied permission to film on the tracks prior to the accident on February 20, 2014.”

For whatever it’s worth, Film Allman sought to avoid the criminal act exclusion by arguing that it was subject to a “saving clause” [“But if any of these [exclusions] results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.”] The court was not convinced, determining that, based on the manner in which the policy was structured, the “saving clause” applied to the pollution exclusion.

The court also rejected Film Allman’s argument tied to California’s “efficient proximate cause” rule, namely, that insurance is provided when an “efficient” cause of a loss is a risk covered under the policy, even if excluded risks may have also contributed to the loss. The court explained: “Film Allman misstates the law. For this ‘efficient proximate cause’ rule to apply, there must be two separate and distinct risks, one covered and one excluded by the policy, either one of which could have occurred independently of the other and caused the damage at issue. That is not the case here. The train did not run off its tracks, nor were the film crew pushed onto the tracks by some force beyond their control. Without the crew’s unauthorized presence on the tracks, the accident would not have occurred. Any argument to the contrary regarding causation is illogical.”

Vol. 6, Iss. 1
January 11, 2017

Contamination Exclusion Precludes Coverage For E.coli-Tainted Beef
Despite the fact that the policy exclusion did not define the term “contamination,” the court in Meyer Natural Foods, LLC v. Liberty Mut. Fire Ins. Co., No. 15-3116 (D. Neb. Nov. 22, 2016) held that “the term ‘contamination’ is not ambiguous as it appears in the ‘contamination exclusion’ of the policy, and as it is applied to the facts alleged. Indeed, the word ‘contaminate’ means ‘to render unfit for use by the introduction of unwholesome or undesirable elements.’ Webster’s Third New International Dictionary 491 (1993). The presence of E. coli in the beef clearly rendered the food unfit for consumption, and it therefore meets the plain and ordinary meaning of the word—a conclusion that any reasonable person would reach on the facts presented.” [But the court noted that the term “contaminate,” when appearing in a pollution exclusion, can be ambiguous.”]

Can An Insured Drink Itself Into Coverage?
Close readers of CO know that I have addressed this issue in the past – can an insured, seeking coverage for an assault of some type, overcome an exclusion for intentional conduct by arguing that he or she was too intoxicated to have intended the injury inflicted? Several Pennsylvania courts over the past few years have suggested that, in the right case, it can be done. In other words, an insured can drink himself into coverage. Add Nationwide v. Zatyko, No. 16-1010 (E.D. Pa. Dec. 20, 2016) to the list of Pennsylvania decisions that have indicated that this door remains open for the right insured to stagger through.