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Vol. 6, Iss. 5
May 17, 2017

Vacated: Cosgrove v. National Fire & Marine (CO, Special Issue May 1)
The May 1st Special Issue of Coverage Opinions discussed the April 10, 2017 decision, from an Arizona federal court, in Cosgrove v. National Fire & Marine Insurance Company. The court held that insurer-appointed defense counsel, in a reservation of rights-defended case, used the attorney-client relationship to learn that his client did not use subcontractors on a project. When defense counsel did so, he knew, or had reason to know, that his client’s policy contained a Subcontractors Exclusion and that the insurer may attempt to deny coverage based on the exclusion. Thus, the court held that the insurer was estopped from asserting the Subcontractor Exclusion as a coverage defense. The court reached this decision despite the existence, or not, of subcontractors being a pretty routine, and obvious, and not secret, fact in a construction dispute. My conclusion: “[I]t is easy to see the dramatic impact on attorney reporting and litigation management, in reservation of rights defended cases, that Cosgrove could have if it took hold.”

Note that on May 5th the opinion in Cosgrove was vacated and sealed.

Policyholder Counsel Gets A+ For Effort in School Coverage Case
Part of the business of being a lawyer is having to handle less than ideal cases. All lawyers get bad cases. Counsel must play the hand they are dealt – and their job is to make the most of a pair of twos. That’s how I would describe the situation that confronted the plaintiff’s counsel in its pursuit of coverage in State Farm v. Dawson, No. 16-6356 (10th Cir. May 3, 2017).

A teacher was seeking coverage under his homeowner’s policy for claims arising out of an inappropriate relationship with a student. The student withdrew from school and finished her high school education through on-line courses. Coverage was only triggered for damages because of bodily injury or property damage. The court concluded that the student did not sustain bodily injury.

But what about “property damage?” Huh? How? Despite the insured’s counsel getting an A+ (and even a gold star) for effort, the court had the same reaction: “Accepting [the insured’s] assertion that the student’s right to a public education was damaged because she had to finish high school on the internet, rather than in brick and mortar high school, we still agree with the district court that he cannot prevail on his claim against State Farm. An education cannot be felt, it lacks physical form, and one cannot take possession of the right to it. Accordingly, it is not tangible property. And the fact that students typically obtain their public education in a tangible physical setting, using tangible items such as textbooks, does not change that conclusion. The right to a public education is intangible.”

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