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Coverage Opinions
Effective Date: September 13, 2017
Vol. 6 - Issue 7

Declarations: The Coverage Opinions Interview With Ben Brafman
The Lawyer Who Pulls Rabbits Out Of Hats
New York magazine named Ben Brafman “Best Criminal Lawyer in New York.” For 40-plus years the lawyer who often refers to himself as a short Jewish guy has been triumphing in cases that looked like Hail Marys. When the most powerful people in the city that never sleeps get in trouble they turn to Ben Brafman. I had the privilege of spending an hour with its king of the hill, top of the heap criminal defense attorney. He explained to me why he has one of the hardest jobs in America.

Randy Spencer’s Open Mic
The Drone Coverage Case That Flew Out Of Nowhere

Encore: Randy Spencer’s Open Mic
The Gym, George Jetson and Insurance Coverage

ALI Restatement: White And Williams Hosting Major Industry Event At Its Annual Coverage College

ALI Restatement Not Final: But This Court Not Waiting For The Plus-Sized Performer To Croon

How Cow! Look Who’s Reading Coverage Opinions

Liquor Liability: Seeing It With My Own Eyes

And The Winners Are…
Insurance Coverage Personalized License Plate Contest Winners Announced

Getting Closer: 4th Edition Of “Insurance Key Issues”
An Early Look At The Numbers

Big Big News From ISO: The Organization Files A Professional Liability Policy
Is A Standard Professional Liability Form Finally Here?

Hurricane Harvey: Some Early Thoughts On Coverage

Insurance Applications: Insurers Confront The Other Kind Of Ambiguity

Court Holds That Stolen Property Is “Property Damage” Under A CGL Policy

Raising Geese In Your Family Room: Insurer Can’t Duck Its Duty To Defend

Policyholder’s Achilles Heel: Professional Services Exclusion And The Foot Massage Gone Awry

Tapas: Small Dishes Of Insurance Coverage
· Pollution Exclusion: Washington: Insurers See Red, Policyholders See Delicious
· WSJ: Courtroom Surprise: Fewer Tort Lawsuits
· Court Says Insurer Could “Dump And Run”
· Risk Retention Group Not Subject To New York’s Timely Disclaimer Statute

Back Issues:
  Volume 5 - Issue 12 -December 7, 2016
  Volume 6 - Issue 2 -February 13, 2017



Vol. 6, Iss. 7
September 13, 2017


The Drone Coverage Case
That Flew Out Of Nowhere



There has been a lot of talk these days about drones. They supposedly have a million and one uses. This means that they have the potential for a million and one things to go wrong. As a result, another part of the drone story that has been getting a lot of chatter is insurers providing coverage for individuals and entities whose drones cause damage to people or property. It is not hard to imagine that the widespread use of drones will lead to such claims. A drone crashes onto a person or property. I can definitely see that. Cargo being delivered by a drone is damaged or destroyed or injures someone. Sure, that makes sense. The insurance industry has a long history of quickly responding to emerging technologies with risk transfer products. The availability of drone insurance is no exception.

But as is so often the case, no matter how hard you try to think of potential loss scenarios, especially for a new risk, along comes one that nobody, no way, no how, could have ever seen coming. That’s what happened last summer with a drone in a small town in Maine.

The Penobscot County Public Library, located in Bangor, has long had a tradition of providing delivery services. The county’s large elderly population had made it necessary for the library to bring books, DVDs and CDs to its borrowers. The library, run by Biblio, LLC, a private company following the state’s privatization push a few years back, had decided to try its hand at using a drone to make deliveries. Biblio’s decision was also made with self-interest. Lending was down. The county’s decision, whether to renew its service contract, was going to be made based on the library’s usership.

To get word out about its unique delivery service, Biblio took its shiny new drone and affixed a large banner to it stating: “Library Uses A Drone For Delivery.” Like a prop plane pulling an ad across the beach, Biblio’s drone crisscrosssed Penobscot County for a week announcing the library’s new service. However, many of the county’s residents were not familiar with the concept of using a drone to make deliveries. Some looked at the banner and thought that Skippy McDougal, the long-time and beloved delivery man for the library, was being called a drone.

After hearing about this from a dozen people, Skippy filed suit against Biblio for defamation. He alleged that, being called a drone, had caused emotional distress, as well as his imaginary girlfriend to break-up with him. Skippy also alleged that the incident led to the loss of his long-time weekend job delivering pizza for Mordechai’s Italian Bistro. As Mordechai Greenbaum put it, “I tell you, only a meshugenah would order a pizza if the delivery guy is a drone.”

Biblio sought coverage for Skippy’s the suit from its liability insurer, Maine’s oldest, Crustacean Insurance Company. The insurer acknowledged that the defamation claim qualified as a “personal and advertising injury” under its CGL policy, being, in relevant part, “written publication, in any manner, of material that slanders or libels a person.” The insurer also did not argue that the Employer’s Liability exclusion, added to Coverage Part B by endorsement, did not apply. Skippy was not injured in the course of employment.

However, Crustacean denied coverage based on the policy’s newly added drone exclusion, formally called the “Unmanned Aerial Vehicle” exclusion. Crustacean had recently introduced a stand-alone drone policy. To help sales of its nascent insurance offering, the company added a drone exclusion to its CGL policies. The Unmanned Aerial Vehicle exclusion applied to “injury and damage arising out of the ownership, maintenance, use or entrustment to others of any unmanned aerial vehicle owned or operated by or rented or loaned to any insured. Use includes operation and ‘loading or unloading.’”

Biblio, lacking insurance, settled Skippy’s suit for $22,000 and incurred $9,000 in defense costs to get there. Biblio then set out to claw back its money from Crustacean. Biblio filed a breach of contract action against Crustacean in Penobscot County Superior Court. Crustacean and Biblio both filed motions for summary judgment. The court granted Biblio’s motion and denied Crustacean’s.

In Biblio, LLC v. Crustacean Insurance Company, No. CV-2016-0037 (Me. Super. Ct. Aug. 16, 2017) the court explained that the UAV exclusion did not preclude coverage because it did not specify whether it was applicable to “personal and advertising injury.” The court stated: “By using the term ‘injury and damage’ in its exclusion, Crustacean has not made it unambiguous, as it must, that it is intending to exclude claims for ‘personal and advertising injury.’ A reasonable insured could conclude that the term ‘injury’ means only ‘bodily injury.’ Crustacean’s argument, that the term ‘injury’ is simply a device to conveniently state both “bodily injury” and “personal and advertising injury,” is belied by its own words. In several places throughout the policy Crustacean uses both ‘bodily injury’ and ‘personal and advertising injury’ together. In all those instances the insurer chose not to employ its so-called ‘device for convenience.’ Based on this state’s long-held view that exclusions in insurance policies must be construed narrowly, we are constrained to find that the UAV exclusion is ambiguous and does not preclude coverage for Biblio for its settlement of the McDougal action.” Id. at 6.

The court also found support for its decision in the brochure that Crustacean had prepared for its new stand-along drone policy: “Crustacean touts the need for a drone policy by pointing to a parade of horribles that can come from the operation of a drone, all of which it explains, in its advertising piece, are now excluded by its CGL policy. But nowhere on this laundry list of mishaps is the risk of defamation. This lends support for this court’s conclusion that defamation is not a drone-related risk that Crustacean was concerned with excluding from its general liability form.” Id. at 8.

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


Vol. 6, Iss. 7
September 13, 2017


Encore: Randy Spencer’s Open Mic
The Gym, George Jetson and Insurance Coverage



It’s that time of the year – the dreaded New Year’s Resolution. And when it comes to these pledges to fix all of our flaws, surveys show that none is more popular than to resolve to read more insurance coverage cases. OK, that’s probably (definitely) not true. Of course, we all know what the real number one New Year’s Resolution is – loss weight. This means that many of us will be trudging to the gym in January. Indeed, last week my gym was much more crowded than usual. I saw lots of unfamiliar folks bouncing up and down on elliptical machines. I have a love-hate relationship with the gym. I hate going and I love leaving.

A wonderfully entertaining coverage decision came down in late summer. It had all the odd-ball facts that make for a great Open Mic column. But since it involved a gym injury, I made the decision to put it on the shelf until the season of sit-ups and bicep curls. That day is now upon us.

Mt. Fitness v. Capitol Reef Property & Casualty Company, Utah District Court, 2nd Judicial District, No. 14-0136 involves coverage for a unique situation -- to say the least. The coverage case came about when Roger Jenkins was running on a treadmill at Mt. Fitness, a gym located in Ogden, Utah. The machine allegedly sped-up on its own. With no warning of this significant change in the belt speed, Jenkins, not surprisingly, was throw quickly off the back of the machine. He suffered a broken ankle, torn ACL and various other bumps and bruises.

At the time of the incident, Bill Miller, another Mt. Fitness member, was running on an adjacent treadmill. Miller immediately jumped off of his treadmill to assist the injured Jenkins. While doing so, Miller commented that Jenkins’s mishap resembled the famous scene in the opening of the Jetsons television show where George Jetson is walking his dog, Astro, on a treadmill. Astro sees a cat and gives chase. George, still holding onto Astro’s leash, goes flying ‘round and ‘round the treadmill. The scene ends with Jetson pleading for his wife: “Help, Help, Jane, Stop this crazy thing!”

Jenkins filed suit against Mt. Fitness and the manufacturer of the treadmill in Utah state court: Roger Jenkins v. Mt. Fitness, Utah District Court, 2nd Judicial District, No. 15-2436. Jenkins sought damages from Mt. Fitness for bodily injury and emotional injury. Jenkins alleged that Miller’s statement -- made while Jenkins was on the floor, withering in pain -- comparing Jenkins to George Jetson, in what Jenkins described as “the classic Jetson’s treadmill scene,” was defamatory and caused emotional injury and damage to Jenkins’s reputation.

Mt. Fitness sought coverage for the suit from its general liability insurer Capitol Reef Property & Casualty. Capitol Reef P&C undertook Mt. Fitness’s defense and acknowledged a duty to indemnify for any damages for “bodily injury,” but disclaimed coverage for any damages awarded for defamation. Capitol Reef maintained that no coverage was owed for defamation because the complaint in the Jenkins action did not allege “personal and advertising injury,” even on the basis of “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization….” Specifically, the insurer’s argument was that the “publication” requirement was not satisfied because the allegedly defamatory statement – comparing Jenkins to George Jetson – was not made by a Mt. Fitness employee. Rather, it was made by another Mt. Fitness member.

The Jenkins action was settled with Mt. Fitness for $95,000. The parties agreed that $45,000 was for the bodily injury aspect of the claim. That amount was paid by Capitol Reef P&C. The remaining $50,000, for the defamation claim, was paid by Mt. Fitness itself. Mt. Fitness then filed a coverage action against Capitol Reef seeking to recover the $50,000 that it paid.

The court held that Capitol Reef P&C was obligated to provide coverage to Mt. Fitness for the $50,000 that it paid to settle the defamation claim. The court’s conclusion was that it did not matter that the allegedly defamatory statement was not made by a Mt. Fitness employee. As the court saw it, the phrase “in any manner,” modifying the term “publication,” meant that it made no difference who did the oral or written publishing of material that slandered a person.

You see. I wasn’t kidding. Mt. Fitness v. Capitol Reef Property & Casualty Company is a fun one.

Now I want to see a coverage case involving injuries caused when a waitress, at a drive-in restaurant, hands a customer a plate of huge brontosaurus ribs, causing the car to tip over.

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


Vol. 6, Iss. 7
September 13, 2017

ALI Restatement: White And Williams Hosting Major Industry Event
At Its Annual Coverage College

As has been widely reported, the American Law Institute did not, as expected, vote on final approval of its “Restatement of the Law, Liability Insurance” at its annual meeting in May. Instead, in a surprise announcement, the ALI stated that another year of work would take place on the project. The plan now is to present a final draft to the ALI membership at the Institute’s next annual meeting in May 2018.

Despite this delay, the Institute’s membership still voted to approve all eleven of the new sections that were presented, as well as two revised sections. Further, this postponement of the final vote on the Restatement has not stopped at least eight courts from already citing it in opinions (see nearby article). Anyone who believes that there is no reason to become familiar with the Restatement, until it’s officially in the books, would be well-served to reconsider that.

So with the Restatement now squarely upon the liability insurance industry, the question on everyone’s mind is the same – how may it impact claims handling?

That question will be at the forefront of a panel discussion being held on Thursday, October 26th at the 11th annual White and Williams Coverage College in Philadelphia. White and Williams managing partner Patricia Santelle will moderate a discussion between two of the most important participants in the ALI’s Restatement of Liability Insurance – Professor Tom Baker, one of the Reporters for the Restatement and Laura Foggan, the American Insurance Institute’s Liaison for the Restatement.

Patti will guide Tom and Laura through a discussion of the “Life of a Claim,” as seen through the lens of the Restatement. The topics will include duty to defend, reservation of rights letters, settlement, declaratory judgment actions and bad faith.

This is a must-attend event for everyone whose work could be affected by the Restatement, which is to say every adjuster and lawyer – in-house and outside counsel -- who handles liability claims.

More information about the White and Williams Coverage College and the Restatement panel can be found here: www.coveragecollege.com


Vol. 6, Iss. 7
September 13, 2017

ALI Restatement Not Final:
But This Court Not Waiting For The Plus-Sized Performer To Croon

While the American Law Institute postponed the vote on final approval of its “Restatement of the Law, Liability Insurance” until May 2018, at least eight courts have not let the lack of a bow on it stop them from citing it. And in a few instances the Restatement was relevant in the court’s decision. Translation – there is good reason to become familiar with the Restatement, even if it’s not officially in the books.

A recent example of a court, not waiting till the plus-sized performer croons, is Mid-Continent Casualty Co. v. Petroleum Solutions, Inc., No. 09-422 (S.D. Tex. July 12, 2017). The case is protracted (2009 docket number) and complex. It’s one of those cases that only the parties understand.

For purposes here, the court addressed Mid-Continent’s argument, that it was entitled to a new trial, because the court improperly charged the jury on the meaning of the policy’s cooperation clause. Mid-Continent argued that the court’s instruction, that “PSI [the insured] complied with the cooperation clause if PSI’s conduct was reasonable and justified under all the circumstances that existed,” improperly defined “cooperate.” Mid-Continent had proposed the definition of “cooperate” as “to be helpful by doing what someone asks or tells you to do.”

The court rejected Mid-Continent’s argument. It did so based on the court’s conclusion that its definition of “cooperate” was tied to longstanding Texas law. However, in further support of its conclusion, the court also cited to Tentative Draft No. 1, § 29, Comment b, of the ALI’s Restatement of the Law, Liability Insurance. This section, titled “The Insured's Duty to Cooperate,” provides as follows: “b. Reasonable assistance. They duty to cooperate should take into account the position of the particular insured whose conduct is at issue, as well as the needs of the insurer. What is reasonable depends on, among other things, the knowledge and experience of the insured, the extent of the risks presented by the legal action, the complexity of the action, the ability of the insurer to obtain the information or other object of cooperation from sources other than the insured, the good-faith effort of the insured, and the extent to which cooperation is needed to reduce the insurer’s exposure.”

Most significantly, the court cited to the ALI Liability Insurance Restatement, despite noting that it had not yet been finalized. The court stated: “At the 2017 ALI Annual Meeting on May 23, 2017, ALI announced that rather than hold a final vote on the proposed draft of the Restatement of Law of Liability Insurance as scheduled, the draft’s Reporters agreed that another year of work was needed on the project generally. The proposed final draft is expected to be presented at the 2018 ALI Annual Meeting.”

As I said, there is good reason to become familiar with the Restatement, even if it’s not yet signed and sealed.

Status of the ALI Liability Insurance Restatement

As part of the work toward next year’s final vote on the ALI Liability Insurance Restatement, the ALI held a meeting on September 7th, at its offices in Philadelphia, with the project’s Reporters, Advisors and Members Consultative Group. [Disclosure – I am a member of the MCG and was in the room where it happened.]

Participants at the meeting discussed the current draft of the Restatement, including the revisions made by the Reporters following the May 2017 postponement of the final vote. The revisions, released in early August, were summarized by the Reporters – Professors Tom Baker (Penn Law) and Kyle Logue (Michigan Law) – in an accompanying memorandum: “As promised, we have gone through the entire draft, considering the comments and motions presented during the period leading up to and following the Annual Meeting. We have made a few changes to black letter, a larger number of changes to Comments, and many changes to Reporters’ Notes. In all cases, our intent has been to clarify and improve the statement of the rules, the explanation of the reasons for the rules, and the description of the legal authority upon which the rules are based.”

In other words, the postponement of the final vote resulted in very few changes to the actual rules themselves -- the so-called Black Letter (which makes up 22 pages). The changes made were to the Comments and Reporters’ Notes (about 400 pages). While admittedly important, they are the fine print.


Vol. 6, Iss. 7
September 13, 2017

How Cow! Look Who’s Reading Coverage Opinions



Vol. 6, Iss. 7
September 13, 2017

Liquor Liability: Seeing It With My Own Eyes

You know it’s going to be a good day when you haven’t even gotten to the office and an interesting insurance scenario presents itself. I could hardly believe my good fortune a couple of weeks back as I walked down 17th Street in Philadelphia, en route to my office in One Coverage Opinions Tower, and came upon the gem pictured below.

A delivery company, and the liquor store at the corner of 17th and John F. Kennedy Boulevard, offer pedestrians the chance to play limbo on their way to work. What a crazy coincidence it would be if someone hurt their head doing this – not serious, just an egg on their forehead – and it gave rise to an insurance claim, which gave rise to coverage litigation and which resulted in an opinion that was discussed in Coverage Opinions.

This is just another example of how a commercial general liability policy can still provide coverage for liquor liability.




Vol. 6, Iss. 7
September 13, 2017

And The Winners Are…
Insurance Coverage Personalized License Plate Contest Winners Announced

Well it wasn’t easy, given the huge number of entries, but the winners of the Coverage Opinions Insurance Coverage Personalized License Plate Contest, in no particular order, are:
Nina Kallen
The Lawyer’s Lawyer: Specializing in Brief Writing for Busy Attorneys
Roslindale, Massachusetts
Lori Cole Magerko
Senior Counsel
GuideOne Insurance
Des Moines, Iowa

These two license plates clearly tell other drivers that you work in the insurance world -- and especially coverage. The winning license plates were chosen because they best met this criteria: they make no sense to anyone who is not in the insurance or coverage world -- but complete sense to someone who is.

Congratulations to Nina and Lori. Each will receive a copy of the 4th edition of Insurance Key Issues as soon as it is released.

Some of the entries that were clever, but not chosen, had meanings that applied to both the insurance and non-insurance world. For example, ROR can be reservation of rights or the driver is someone whose initials are ROR. 4CORNRS is a great entry. But it also refers to the point where Colorado, Utah, Arizona and New Mexico all meet. Some entries that were solely relevant to coverage were too on the obscure side, such that even some people who work in insurance wouldn’t get them. For example, lots of insurance professionals would have no reasons to know was a TGT TNDR is. Some entries were coverage related, but also applicable to law in general, such as MOTN4SJ and S TOPPEL.

So if you didn’t win at least you can see that I gave the selection process a lot of though.

By the way, I’d be remiss if I didn’t give this one an honorable mentions for its cleverness:


This entry came from Jerry Oshinsky of Kasowitz Benson’s L.A. office. Jerry litigated the landmark case of Keene Corp. v. Insurance Company of North America (1981), where the District of Columbia Court of Appeals rejected pro-rata allocation, in the context of multiple triggered policies, and instead adopted “all sums.”

I hope everyone is enjoying their super cool Coverage Opinions pen. If it runs out of ink, don’t panic. Just let me know and I’ll send you another one.


Thank you to everyone who entered the Coverage Opinions Insurance Coverage Personalized License Plate Contest.

I’ll do another contest next year, after the 4th edition of Insurance Key Issues is released, so I can give them out as prizes.

Vol. 6, Iss. 7
September 13, 2017

Getting Closer: 4th Edition Of “Insurance Key Issues
An Early Look At The Numbers

Work is well underway on the 4th Edition of General Liability Insurance Coverage – Key Issues In Every State. Thank you for all of the e-mails asking when it will be out. Those really provide encouragement.

Given that there will be a three year gap between the 3rd and 4th editions, the number of cases addressed in the book, since 2014, is going to be huge.

The chapter on the Absolute Pollution Exclusion has 50 new cases. Duty to Defend – the critically important “4 corners vs. extrinsic evidence” issue -- is clocking in at over 70 new cases. And even the more obscure issue of “any” insured vs. “the” insured, and the impact of a “severability of insured” provision, has 35 new cases. And these numbers may still grow between now and final publication.

I’ll continue to provide updates on the publication date.



Vol. 6, Iss. 7
September 13, 2017

Big Big News From ISO: The Organization Files A Professional Liability Policy
Is A Standard Professional Liability Form Finally Here?

One of the hallmarks of commercial general liability insurance is that it is provided by insurers with relatively consistent terms. Whether insurers use ISO’s stalwart CG 00 01 form, or something similar, you can be pretty certain that the potential for coverage is based on “bodily injury” or “property damage,” that takes place during the policy period, and was caused by an “occurrence,” defined as an accident (you know the rest). You can also be confident when it comes to a CGL policy that the duty to defend will only attached to a “suit,” defense costs will be supplemental to limits, there will be relatively predictable exclusions, coverage is provided on a primary basis, subject to certain exceptions, and notice of a claim must be provided as soon as practicable.

Of course there are sometimes exceptions to all of these and each CGL policy likely has loads of endorsements that are much less predictable than the terms and conditions. But, despite all this, I’ll stick with my first line -- one of the hallmarks of commercial general liability insurance is that it is provided by insurers with relatively consistent terms.

While CGL policies have enjoyed this similarity in terms, the same cannot be said about professional liability policies. These policies are not subject to a stand form, ala CG 00 01. As a result, professional liability policies have always resembled a box of chocolates. And some of what you get inside can vary widely. Professional liability policies can differ in their all-important “claims made and reporting” terms, as well as key definitions, such as “claim,” “damages” and “wrongful act.” And exclusions in professional liability policies can resemble the largest of all Whitman’s Samplers.

Because of the consistency in CGL terms, it is often an apples to apples comparison when using case law as guidance to address coverage. However, the lack of consistency is professional liability terms can make resort to case law less effective and more challenging. The need to distinguish policy terms – between what’s in the cases and what’s before you -- is often in play.

But the table has now been set for professional liability policies to offer the same consistency in terms that CGL policies have long enjoyed. ISO has filed a Miscellaneous Professional Liability Policy, along with a boatload of endorsements, including some that are tailored to specific professional services, including life coaching, photography, salons, translators and travel agents.

Given the comfort that so many insurers have with using ISO’s CGL form, it is not unreasonable that there would also be wide-spread take-up by insurers of ISO’s professional liability form. If this happens, analyzing case law regarding professional liability policies would resemble the process that exists for CGL Policies. All of this is a long ways away from happening, as the ISO form would need to achieve wide-spread use, and then time would be required for case law to develop in bulk. But thanks to ISO’s filing, this possibility at least exists.

Some of the provisions in ISO’s Miscellaneous Professional Liability Policy will likely be difficult for insurers to accept. Likewise, insureds and brokers, who are in the know, may not be willing to purchase a policy that contains some of the ISO provisions. Here is a look at a few of the key provisions of ISO’s Miscellaneous Professional Liability Policy:

Reporting: The policy is “claims made and reported.” Thus, the claim must be first made during the policy period and reported to the insurer within the policy period, as soon as practicable, but in no event later than 60 days after the end of the policy period. The extra 60 days to report offers an edge to insureds. But the “as soon as practicable” requirement can benefit insurers, in the event of delayed notice that is still within the required term, assuming the provision is not interpreted to require prejudice. This is where a battle-ground is likely to lie.

However, despite this notice of “claim” provision, the policy also mandates that notice of circumstances, potentially involving a wrongful act, that could reasonably be expected to give rise to a claim, be given to the insurer as soon as practicable. If done, any subsequent related claim will be deemed to have been made at the time of the notice of the potential claim.

However, establishing “notice of circumstances” can be very fact-based and often requires getting into the insured’s head, i.e., whether the insured knew that a circumstance could reasonably be expected to give rise to a claim. By making “notice of circumstances” mandatory, and not optional, it seems that there is a high probability of notice disputes, especially since a formal “claim” does not usually come out of the blue, without the insured having had some sense of it. Did that sense trigger the insured’s notice of circumstances obligation? Courts will be kept busy.

Duty to Defend: The duty to defend applies to “claims” and not just suits. The definition of “claim” includes a demand for monetary or nonmonetary relief, including injunctive relief. Translation: the insurer has a duty to defend “demand letters” (as well as suits seeking nonmonetary relief). Hiring lawyers at the demand letter stage may be an obligation that some insurers are just not willing to take on.

Consent to Settle: The insurer will not enter into a settlement without the insured’s consent. While this is not uncommon in some types of professional liability policies, especially medical malpractice, it is unusual to see it in a policy that covers all professionals. If consent to settle is not provided, then a hammer clause – with an unusual aspect -- kicks in. The insurer is only liable for the amount it could have settled for, defense costs up to the date of the insured’s refusal, 50% of defense costs after the date of refusal to settle and 50% of damages in excess of the refused settlement.

Wrongful Act: The Policy’s definition of “wrongful act” is an actual or alleged act, error, misstatement, misleading statement, omission, neglect or breach of duty. By not limiting wrongful acts to “negligent acts,” the policy is more likely to apply to intentional conduct. This is especially so since the exclusion titled “Fraudulent, Criminal, Malicious, Dishonest or Intentional Acts” does not in fact include “intentional acts” in its text. This exclusion also does not apply to the duty to defend until there has been a final, non-appealable judgment or adjudication that establishes such conduct. All in all, based on these provisions, insurers will likely find themselves defending some bad conduct.

Choice of Counsel: The Policy gives the insurer the right to select counsel. [I believe that an insurer would have a difficult time enforcing this provision, in a state where case law would afford the insured the right to independent counsel.]

Defense Costs: The limit of liability is reduced by defense costs.

Coverage Enhancements: The policy includes sub-limits for defense of disciplinary and licensing proceedings and subpoena assistance.

Punitive Damages: The policy’s definition of “damages” excludes amounts that are uninsurable under applicable law.

Exclusions: Some of the Policy’s exclusions are: abuse or molestation; breach of contract; bodily injury (including emotional injury), property damage and the CGL personal injury offenses; insured versus insured; intellectual property; and disclosure of confidential information (data breach).

Other Insurance: The policy is written on an excess basis.

There is a lot more to ISO’s Miscellaneous Professional Liability Policy. But these are some of the highlights.

Given ISO’s strong reputation, my money is on the organization’s Professional Liability form to achieve wide-spread use. But because it’s a significant decision for insurers, it will likely take time for this to happen. It is inherent in any terms and conditions form that some provisions will benefit insurers more than insureds and vice-versa. It would not surprising to see some insurers adopt the ISO form and then use endorsements, both to limit their exposure and, for competitive reasons, expand it.

Analyzing case law, addressing professional liability policies, has always been challenging because of the apples to oranges situation created by the lack of consistency in policy terms. I applaud ISO for taking the first step in addressing this situation.

Vol. 6, Iss. 7
September 13, 2017

Hurricane Harvey: Some Early Thoughts On Coverage

The destruction caused by Hurricane Harvey is unimaginable. Like you, I stared at the television heartbroken for those affected and in awe of the neighbor-helping-neighbor response. We all have those impacted in our thoughts and prayers.

The road to recovery in Texas is going to be long and steep. The incredible grit and resolve of Texans will go a long way toward getting there. But, unfortunately, grit and resolve are not legal tender. Money, of course, will drive the recovery process. The government will provide substantial amounts through various channels. And the public will contribute generously through charitable giving.

But when it comes to money to respond to a natural disaster, insurance dollars are far and away the most desirable. They can be large amounts, paid quickly and directly to those in need, and with no repayment obligation. This can’t always be said about other sources of funds.

But the victims of Hurricane Harvey face serious challenges to securing insurance for damaged property. The problem is at least four-fold: (1) homeowner’s policies exclude damage caused by flood; (2) the media has reported that only a small percentage of the affected homes have stand-alone flood policies; (3) even those with flood policies may be underinsured (flood policies can have low limits); and (4) in 2015, the Texas Supreme Court issued a decision that will make it very difficult for policyholders to secure coverage for damage caused by a combination of wind and water (an issue more likely to arise in coastal areas). I wrote about this SCOTX decision in the May 20, 2015 issue of Coverage Opinions.

But despite the challenge, I believe that efforts will still be made to secure coverage, under homeowner’s policies, for damages caused by Harvey’s floodwaters. The reason is simple – there is just too much at stake not to. As we learned after Hurricane Katrina in 2005, those affected have no choice but to leave no stone unturned in their pursuit of coverage. Initial efforts to challenge the flood exclusion post-Katrina seemed foolhardy. Yet policyholders did, and they achieved an early victory. While later reversed on appeal, this success proved beneficial in shaping subsequent claims. Katrina insureds litigated the definition of the word “flood” and it took the Louisiana Supreme Court to resolve the question. Everything was on the table. It had to be.

As I said in a recent Wall Street Journal story: “The language of homeowners’ policies is going to get more twisted than Cirque du Soleil performers in an effort to find coverage.”

The flood exclusion in homeowner’s policies seems unassailable. But there is no shortage of plaintiff’s lawyers in Texas with the talent, means and experience to take a run at it.

Vol. 6, Iss. 7
September 13, 2017

Insurance Applications: Insurers Confront The Other Kind Of Ambiguity


At the heart of many coverage cases is whether a term in an insurance policy has more than one meaning. You know how it goes. Everyone knows what a word means – until it’s the difference between a claim being covered or not. Now the word has two meanings, three or maybe even six.

This exercise plays out in coverage litigation far and wide on account of the oft-cited principle (albeit sometimes with some variation) that if a term in an insurance policy has more than one reasonable meaning, it is ambiguous. And if it’s ambiguous a court will be bound to interpret it in the manner that favors the policyholder. Another way to say this is in Latin -- contra proferentem. But, no matter which language you choose, the outcome is the same – the policyholder is likely going to win.

But the ambiguity dance can also appear on another stage in coverage litigation. Consider an insurer claiming that a policyholder’s answer on its application for coverage was incorrect. On account of this alleged misrepresentation, a claim should not be covered or a policy rescinded.

In these situations, the policyholder’s answer to the question often goes under a microscope. But not always. Here too lawyers-cum-linguists can play the ambiguity card, arguing that the answer was accurate – it’s the question that has more than one meaning. In other words, when you read the question this way, there is no misrepresentation.

And just as policyholders sometimes secure coverage by arguing contra proferentem when there is a dispute over the meaning of a term in an insurance policy, policyholders also speak the language of the Romans when addressing the meaning of a term in an insurance application. And as the following cases demonstrate, when it comes to insurers’ ability to prevent alleged ambiguity in their application questions, the task can be more difficult than with their policy language.

This scenario was recently on display in Schultz v. Tilley, 2017 Mass. App. LEXIS 62 (Mass. Ct. App. May 18, 2017).

Christopher Tilley obtained a homeowner’s policy for his residence in Peabody, Massachusetts. With the assistance of a customer service representative at an insurance agency, Tilley completed an application for a policy with Vermont Mutual. Tilley responded “Yes” to the question, “Are there any animals or exotic pets kept on premises?” The application then stated “Note breed and bite history.” The employee of the agency noted, “American bull dog — no biting incidents.”

Edith Schultz was walking her two Yorkshire Terriers near Tilley’s home. Tilley’s dog, Bocephus, ran out and attacked and injured Schultz’s dogs. Schultz suffered a broken arm, a laceration to her face, and scrapes to her knees, elbows, and ankles. Tilley sought coverage from Vermont Mutual.

Vermont Mutual investigated and learned that Bocephus, on prior occasions, had bitten two other dogs prior to Tilley’s completion of the application. Bocephus bit a dog named Buddy who was walking near Tilley’s house. Bocephus also bit Bruno who was walking near Tilley’s house.

In a suit filed by Schultz, Vermont Mutual sought to void the policy on the basis that Tilley made a misrepresentation in his response to the “bite history” question on the application. The trial judge, after chewing on the issue, agreed, concluding that “biting history” is “unambiguous, with the general understanding of the word [biting] read to mean biting anything or anybody.”

On appeal, Schultz argued that there was no material misrepresentation because the “bite history” question on the application was ambiguous.

While most ambiguity determinations center around policy language, the court noted that it could also extend to policy applications: “[W]here a question on an application lends itself to more than one reasonable interpretation, an honest answer to one of those reasonable interpretations cannot be labeled a misrepresentation.”

So was there more than one reasonable interpretation of the “bite history” question and was Tilley’s answer to one of them honest? Yes and Yes the court concluded.

Tilley testified that he understood the question, as the agency employee asked it, to mean whether the animal has a history of biting humans. His negative response to that question was honest. The agency employee testified that her custom and practice was to inquire whether the animal was “aggressive” or had “had a biting incident” in responding to the question. An underwriting manager at Vermont Mutual testified that she interpreted the term to mean “bodily injury or property damage to someone else’s pet.” The judge “adopted a broad meaning advanced by none of the witnesses at the trial, namely that it should be read to mean a history of biting “anything or anybody.”

So four people weighed-in on the meaning of “bite history” and there were four different answers. With all these meanings being offered, the appeals court had no problem concluding that “bite history” was ambiguous: “Although we agree with the judge that a fair meaning of the language could be read to mean, literally, anything the animal has ever bitten, that view hardly seems reasonable in the context of insurance given the strong propensity of dogs to chew toys and other inanimate objects of little or no value. We understand the judge to have meant any living thing. However, we conclude that the language remains subject to multiple reasonable interpretations, as the trial testimony demonstrates. . . . [I]n our view, all of those interpretations are reasonable, in that they each would afford the insurer an assessment, at some level, of the risk associated with a given animal. . . . Because the language is ambiguous, we must afford the Tilleys, as the insureds, the benefit of the reasonable interpretation that is most favorable to them; namely, the one that limits the biting history to humans only. Because Christopher answered that question honestly, as it is undisputed that Bocephus had only bitten other dogs, Christopher’s response cannot be labeled a misrepresentation by Vermont Mutual.”

Graham v. Lloyd’s Underwriters at London, 964 So. 2d 269 (Fla. Dist. Ct. App. 2007)

In June 2014, Delores Graham applied for a homeowner’s policy for her Florida residence. The application included an entry that indicated her home was three miles from the “gulf.” Graham was issued a policy which included windstorm coverage. Subsequently, an inspector reported to the insurer that the home was “one and one-quarter miles from the gulf.”

On August 13, 2004, Hurricane Charley hit the gulf coast of Florida. Graham’s home sustained damage as a result of the intense winds. Three days after the storm, Graham’s insurer sent a change endorsement deleting wind damage coverage from her policy. Graham’s claim for wind damage was denied.

Litigation ensued. The insurer argued that Graham’s answer on her application, that she was three miles from the gulf, was a misrepresentation. The trial court granted the insurer’s motion for summary judgment.

But Graham would not let the insurer crack her. She appealed, arguing that she had no way of knowing the significance of the question of the application referring to “distance to the gulf” nor could she have reasonably known how to properly measure this distance. She believed that using her own experience, of walking or driving to the shore, was a reasonable means of calculating the distance. The insurer argued that the distance is properly measured “as the crow flies.”

The court found that the question, referring to “distance to the gulf,” was “ambiguous and susceptible to differing interpretations.” “It is undisputed,” the court noted, “that there is no direct route of travel from Ms. Graham’s home to the shoreline. We question whether the average person in Ms. Graham’s position should know that she must measure the distance to the shoreline ‘as the crow flies’ or even know how to accomplish such a measurement, as opposed to simply relying on her experience traveling the shortest route thereto or estimating that distance.” Because reasonable people could disagree as to the meaning of the distance question, summary judgment for the insurer had been inappropriate.

Unionamerica Ins. Co. v. Fort Miller Group, Inc., 590 F. Supp. 2d 1254 (N.D. Cal. 2008)

Fort Miller Group manufactured access platforms that allowed construction workers to reach high structures. It obtained a general liability policy from Unionamerica. The policy was renewed twice. Fort Miller was asked to disclose the largest value and average value of the products it manufactured. In all three applications, Fort Miller answered $100,000 and less than $1,000 respectively.

Unionamerica sought to rescind the policy, claiming that Fort Miller made a material misrepresentation in its application, by undervaluing the products it manufactured. As Unionamerica saw it, the value of the products was based on their selling price. And since Fort Miller set retail prices for some of its products in excess of $100,000, there was a misrepresentation.

Fort Miller, however, said not so fast. It argued that the term “manufacture” only relates to the creation of the product from raw materials. It made a distinction between the value of something that is “manufactured” and something that is “sold.”

The court concluded that, because the term “manufacture” was not defined within the application and based on Fort Miler’s “evidence that it interpreted ‘manufacture’ to mean creating a product from raw materials,” the company “honestly, even conservatively, answered the questions as it understood them.” The insurer’s motion for summary judgment, that it was entitled to rescission, was denied.

Ocean’s 11 Bar & Grill v. Indem. Ins. Corp. RRG, 2012 U.S. Dist. LEXIS 157585 (S.D. Fla. Nov. 2, 2012)

Ocean’s 11 Bar and Grill sought coverage under its general liability policy for injuries arising out of assault and battery. Its insurer, Indemnity Insurance Corporation, rescinded the policy based on several purported misrepresentations in the application, including the square footage of the premises.

Ocean’s 11 argued that the information supplied in its policy applications were not misrepresentations, but, rather, were the results of ambiguity in the language of the applications. As Ocean’s 11 saw it, “square footage” encompassed only publically accessible space. To the insurer, the term encompassed the entire area of the premises.
The court concluded that the question regarding square footage (as well as several others) was ambiguous and ruled in favor of the insured.


In each of these cases the court found a term on an insurance policy application to be subject to more than one meaning. Yet none of the terms are technical. To the contrary, “bite” and “history,” “distance,” “manufacture” and “square footage” are all run of the mill words used in everyday conversation. It is likely that, in none of these situations, the insurer ever imagined that litigation would someday arise over their meaning.

These cases demonstrate the challenge that insurers face when drafting questions on their applications. When drafting an insurance policy, insurers anticipate that efforts may be made to ascribe more than one meaning to certain terms. Their radar is turned on. Insurers can address this by defining terms in their policies, as well as using their knowledge, of the meaning of terms, that has been gained through past judicial decisions.

But it is not likely the same situation when it comes to drafting application questions. First, such questions may be drafted by underwriters, who may not be as experienced with, and sensitive to, the efforts made in litigation to find multiple meanings of terms – even those that look unambiguous. In addition, while an application can define terms used in its questions, and some do, it is unusual to see this or for more than a couple of terms to be defined. Terms in insurance policies can be drafted in conjunction with their context, which can make it easier to establish their meaning. Application questions do not likely offer a contextual setting. And the meaning of terms in applications do not offer nearly the same extent of historical guidance from judicial decisions that comes with insurance policies.

Insurers would be well-served to draft insurance applications with the same expectations that exist when drafting policies – at some point efforts may be made to ascribe more than one meaning to the questions.

Vol. 6, Iss. 7
September 13, 2017

Court Holds That Stolen Property Is “Property Damage” Under A CGL Policy

It’s an interesting issue but one that doesn’t arise too often. And when it does it is easy to see why insurers and policyholders do not agree on it (even more than the usual disagreements). Indeed, in Westfield Ins. Co. v. Eagle Electric, Inc., No. 16-1639 (M.D. Fla. July 28, 2017), the judge didn’t even agree with his own decision.

At issue in Eagle Electric was whether stolen property qualified as “property damage” under a commercial general liability policy.

Eagle Electric, and others, were contracted by Port Consolidated to construct a fuel storage and dispensing system in Tampa. Eagle Electric was to wire the system. The dispensing system’s pumps were wired incorrectly. This enabled users to steal diesel fuel as it could be pumped without being detected by the meter. Port Consolidated alleged negligence and breach of contract and sought monetary damages for the lost fuel and the costs to repair the defective work.

At issue was the potential for coverage under Westfield’s commercial general liability policy issued to Eagle. The parties agreed that the cost of replacing the wiring was not covered. So the focus turned to the stolen fuel. At issue: was it “property damage?” The policy, as most CGL policies do, defined “property damage” to include: “[p]hysical injury to tangible property, including all resulting loss of use of that property,” and “[l]oss of use of tangible property that is not physically injured.”

While Westfield argued that stolen property did not constitute property damage, the court dismissed the cases cited by the insurer because they were from other jurisdictions and non-binding. The cases that mattered – the ones from Florida -- did not support Westfield’s argument.

The court concluded that, based on Florida law, “[b]ecause the theft of property diminishes its market value to the person who lawfully possessed it, that theft must be considered property damage unless the insurance policy clearly expresses a contrary intent. Eagle Electric’s policy does not—it does not expressly exclude coverage for theft, nor does it define ‘property damage’ narrowly enough to exclude this coverage. Consequently, the Court must find that the lost fuel constitutes property damage.”

In making this pronouncement the court noted that it “[did] not necessarily agree” with the reasoning of the Florida cases, but its hands were tied and had to follow them. In particular, the court was constrained by U.S. Fidelity & Guaranty Co. v. Mayors Jewelers of Pompano, 384 So. 2d 256 (Fla. Dist. Ct. App. 1980). There a contractor improperly installed riot glass in the window of a jewelry store. This allowed a thief to break in and steal valuable jewelry. At issue was coverage under a general liability policy that defined “property damage” as “injury to or destruction of tangible property.” The Florida appeals court held that “property damage” includes damage due to “loss, disappearance, or theft.” “We are persuaded,” the Mayors Jewelers court explained, “that property is damaged to the extent that its market value is diminished. . . . When property is stolen, its market value to the one who lawfully possessed it is totally diminished. We therefore hold that theft of personal property is ‘property damage’ unless a contrary intent is clearly expressed.”

Vol. 6, Iss. 7
September 13, 2017

Raising Geese In Your Family Room: Insurer Can’t Duck Its Duty To Defend

You see a lot of unusual stuff in coverage cases. It’s the nature of the beast. If people always did the right thing, or if things always turned out as planned, there would be no coverage case.

But someone raising geese in their family room is strange, even by coverage case standards. The only thing I raise in my family room is the volume on the television if my wife asks me to get off the sofa and do something.

I’ll let the court describe the situation that gave rise to the suit, that gave rise to the coverage decision, in Metropolitan Property & Casualty Ins. Co. v. Sarris, No. 15-780 (N.D.N.Y. July 28, 2017). I couldn’t possibly do a better job:
“The Schillaci Complaint further alleged that George [Sarris] ‘began raising ducks and geese in the family room of the [Sarrises’] dwelling.’ [in Clifton Park, New York] He also ‘began to entice both native and domesticated ducks and geese onto his property by putting out feed for these fowl.’ As a result of George’s efforts, the number of waterfowl on the Sarrises’ property ‘increased exponentially,’ and this ‘escalat[ion]’ in the ‘fowl population’ "began to interfere increasingly with Schillaci and Newell’s quiet enjoyment of their property.’ Specifically, the large population of waterfowl on the Sarrises’ property ‘increased the noise which began at dawn or before . . . to the point [that] it disturbed both Schillaci and Newell’s sleep and the use of their property.’ Another unfortunate consequence of George’s ‘intentional actions’ in raising waterfowl on his property was an ‘increase[ in] the amount of guano from the birds which was naturally deposited on [Schillaci and Newell’s] house, lawn, cars and other possessions.’ Eventually, ‘the noxious odor and manure’ coming from the waterfowl prevented Schillaci and Newell from ‘us[ing] the exterior of their home or their yard during the warmer weather.’”

Anyway, Sarris is a lengthy decision and addresses many things, including a tedious 10 year late notice issue. The most interesting aspect of the opinion is whether there was an “occurrence” (accident) under Sarris’s homeowners policy, for purposes of coverage for the suit brought by his neighbor. That suit alleged private nuisance and trespass.

For purposes of the “occurrence” issue, it should be known that the neighbors tried to work things out but Sarris allegedly did nothing to abate the situation. Sarris sought a variance from the zoning board to raise waterfowl. A petition, signed by over fifty of Sarris’s neighbors, opposed the application for a variance. Sarris’s application for a variance was denied and he was given 60 days to remove the ducks and geese. Sarris refused and was fined for his noncompliance.

The competing “occurrence” (accident) arguments were exactly what you would expect: the insurer argued that the injuries alleged in the complaint were caused by the intentional and purposeful acts of the Sarrises, The Sarrises argued that the complaint triggered the insurer’s duty to defend because they “did not intend to cause the articulated damages of guano [and] excessive noise.”

The court’s accident analysis is lengthy. It set out various definitions of “accident” under New York law, including: (1) In deciding whether a loss is the result of an accident, it must be determined, from the point of view of the insured, whether the loss was unexpected, unusual and unforeseen; and (2) accidental results can flow from intentional acts. The damage in question may be unintended even though the original act or acts leading to the damage were intentional.

To make a long story short, following a detailed analysis, including a discussion of New York case law on the issue, the court held that the complaint alleged an accident, despite the intentional actions of Sarris:

“Here, the Schillaci Complaint alleged that George Sarris’s decision to raise waterfowl on his property harmed Schillaci and Newell by ‘increas[ing] the noise which began at dawn or before’ and ‘increas[ing] the amount of guano . . . which was . . . deposited on the Plaintiffs' [property].’ The complaint suggested that ‘the massive increase in fowl population [was] caused by Sarris’[s] intentional actions.’ And it emphasized that even though Schillaci and Newell had informed George of the problems allegedly caused by the waterfowl, he ‘did nothing to abate the continuing nuisance.’ But the Schillaci Complaint failed to provide any factual allegations suggesting that the Sarrises intended to injure Schillaci and Newell by ‘carpet[ing] their lawn, property and possessions [with guano]’ and subjecting them to the ‘acrimonious din [of the waterfowl].’ True, the complaint suggested that George acted intentionally in raising the waterfowl, but it is well established that ‘[t]he damage in question may be unintended even though the original act or acts leading to the damage were intentional.’ And a fair reading of the complaint is that the injuries to Schillaci and Newell ‘ar[ose] out of a chain of unintended though expected or foreseeable events that occurred after an intentional act.’”. (emphasis added).

The court rejected other arguments that insurers often make when arguing that injury or damage was not caused by an accident: “[O]ne might infer an intent to harm from the warnings Schillaci and Newell gave the Sarrises about the problems allegedly caused by the waterfowl. According to the Schillaci Complaint, George learned that his neighbors believed the waterfowl were making their lives miserable, yet he refused to do anything about it. The trouble is that courts have rejected the notion that an intent to cause injury can be gleaned from an insured’s decision to persist in potentially harmful conduct in the face of warnings about its negative consequences.”

The court seemed sympathetic to the neighbors’ plight. After all, they were subject to noise before dawn their lawn, property and possessions were “carpeted” with guano. But, despite this, as far as New York law was concerned, Sarris’ conduct was just “an unfortunate lack of manners.” Wow, that’s rough. To me, an unfortunate lack of manners is not removing your bag from the seat next to you on the train when someone wants to sit down. But I’m not a hardened New Yorker.

Vol. 6, Iss. 7
September 13, 2017

Policyholder’s Achilles Heel: Professional Services Exclusion
And The Foot Massage Gone Awry

The Pennsylvania Superior Court’s decision in Campayno v. Auto Owners Insurance, No. 1210 WDA 2016 (Pa. Super. Ct. Aug. 23, 2017) is a twofer – coverage for a foot massage gone awry and a take-away to boot. I would have included a coverage case about a foot massage gone wrong even if there were no good reason. The fact that there is one is an embarrassment of riches.

At issue in Campayno was the applicability of a “professional services” exclusion in a general liability policy. As a corollary, the case would also be relevant to whether the actions qualify as a “professional service” for purposes of triggering coverage under a professional liability policy.

William Hornick allegedly suffered severe burns after receiving a foot massage, in a “Footsie Bath,” at La Spa Ligonier, a business that offered traditional day spa services, including massages, facials and nail services. Hornick filed suit against La Spa. La Spa’s general liability insurer disclaimed coverage based on a professional services exclusion. La Spa filed an action against the insurer seeking a declaratory judgment concerning the insurer’s duty to defend and indemnify. The trial court ruled in favor of the insurer. [An insured-status issue was also in play, but that’s not addressed here.]

La Spa appealed to the Pennsylvania Superior Court which affirmed. The professional services exclusion at issue provided that no coverage was owed for “bodily Injury” “due to rendering or failure to render any professional service.” The exclusion was followed by a non-exhaustive list of examples of what constitutes a “professional service,” such as legal, accounting, medical and any cosmetic service or treatment.

The fact that the policy’s definition of “professional service” included any cosmetic service or treatment made for easy work for the court: “To meet its burden of proof to establish that the exclusion applied to professional services rendered by La Spa, Insurer provided evidence that La Spa primarily is in the business of offering cosmetological services. . . Cosmetic services are services performed by cosmetologists. Cosmetology is defined by statute to include ‘any or all work done for compensation by any person, which work is generally and usually performed by cosmologists[.]’(sic) In order to provide such services for compensation, La Spa Ligonier’s employees were required to hold a professional license provided by the State Board of Cosmetology.” The trial court concluded that the services provided to Mr. Hornick required special “skills and training” of a licensed cosmetologist and were a professional service. The Pennsylvania appeals court couldn’t disagree.

It also didn’t help La Spa’s cause that Mr. Hornick’s daughter, when she inquired about spa and massage services for her parents, informed the spa about the complications of her father’s diabetic neuropathy. The spa indicated that precautions would be taken and that La Spa staff would “develop a special spa and massage package of services for the [p]laintiffs, including a massage package that would stimulate circulation in [Mr. Hornick’s] feet.”

While the decision is fact driven, it does offer something that has the potential to be relevant to a future dispute. It comes from the spa’s use of a “Footsie Bath” [the manufacturer was named as a defendant] to give the massage. The court held that “[e]ven an injury caused by mechanical equipment used by licensed professionals in the course of rendering a professional service is an injury resulting from the rendering or failure to render a professional service.”

Given that it is not uncommon for those performing professional services to use equipment in the process, the court’s decision on this point is a take-away. So, if I’m using a Coverage Opinions pen while working, and it somehow explodes, any bodily injury would still arise out of a professional service. Good to know.

Vol. 6, Iss. 7
September 13, 2017

Pollution Exclusion: Washington: Insurers See Red, Policyholders See Delicious
On August 17th, the Washington Supreme Court denied the insurer’s motion for reconsideration in Xia v. ProBuilders Specialty Insurance Company. This is that unusual decision from April where the Washington high court held that, based on the “efficient proximate cause” rule, the pollution exclusion did not apply. The court determined that the efficient proximate cause of injuries was the negligent installation of a hot water heater. Because this was a covered occurrence, that set in motion a causal chain, that led to discharging toxic levels of carbon monoxide, being an excluded peril, the pollution exclusion was not applicable.

Despite some strong amicus support from insurer groups, the court let the decision stand. The biggest open question now (in addition to whether other states adopt Xia) is whether the other shoe drops – a Washington court applies the rule from Xia as a basis to preclude applicability of another type of exclusion.

Xia will always be a pollution exclusion case. But its real legacy may be that, while the Washington Supreme Court had never applied the “efficient proximate cause” rule to the facts at issue, the insured should have known that it might adopt the rule. Therefore, the insurer breached the duty to defend -- and did so in bad faith. Sometimes a case’s legacy turns out to be different from its headline.

WSJ: Courtroom Surprise: Fewer Tort Lawsuits
The front page of the July 25th Wall Street Journal had a very lengthy article with the above title. In general, according to the story, tort lawsuits are not being filed at the same pace as in the past. The article states that, in 1993, tort cases accounted for 16% of filings in state courts. In 2015 it was 4%. During this period, contract cases grew from 18% of the civil docket to 51%. In 1993, 10 in 1,000 Americas filed a tort lawsuit. In 2015 it was fewer than 2 in 1,000. The article is awash in more statistics, their sources, and reasons for the decline. The article’s message -- the public’s perception, that the nation is drowning is tort suits, is not supported by the numbers.

Court Says Insurer Could “Dump And Run”
It is generally agreed that an insurer, confronted with a loss that it believes will exceed its limits of liability, cannot simply tender its limits of liability to the insured or underlying plaintiff, declare its policy exhausted and then, viola, assert that it no longer has a duty to defend.

But the court in Mt. Hawley Ins. Co. v. Mesa Medical Group, No. 16-325 (E.D. Ky. July 19, 2017) permitted the insurer, in a medical malpractice case, to tender its limits to its insureds and cease providing a defense. Of course, it helped that the insurer’s Professional Liability policy contained an endorsement that afforded the insurer such right. The endorsement stated: “In consideration of the premium charged, [Plaintiff] hereby agrees to pay Claims Expenses in addition to the limits of liability as specified on the DECLARATIONS page.” The endorsement also stated that “[n]othing contained in this endorsement shall operate to prevent the Company from tendering its limits of liability hereunder as provided under the policy to which this endorsements is attached . . . and by such action eliminating its responsibility for future Claims Expenses.”

The insureds argued that permitting the insurer to take this action amounted to an impermissible so-called “dump and run.” They maintained that, on account of other provisions in the policy, the insurer could not do so. But the court was not convinced – not even close: “[The insureds] are correct that, if the Court agrees with [the insurer’s] reading of the contractual language, it could have the effect of significantly reducing the value of the policy’s liability limit, but that is acceptable if the language of the policy, as amended, provides for it. Whether agreeing to reduce the value of the policy’s liability limit is sensible or a bad idea or even something that the insured would have wanted with twenty-twenty hindsight is of no matter to this Court in the absence of coercion or the violation of a public policy that would render the agreement unenforceable. The parties agreed to it. Clearly, Plaintiff felt it was important to set a cap on its possible obligation under the Agreement and, presumably, bargained for that. . . . Mt. Hawley’s duty to pay any claim or judgment or to continue to defend in the lawsuit filed by Haley Clontz (currently pending in Pulaski Circuit Court) terminated at the time Mt. Hawley tendered its policy limit to [the insureds].”

Risk Retention Group Not Subject To New York’s Timely Disclaimer Statute
A recent addition to the unlikely-to-be-cited-too-often-in-the-future category of coverage decisions is Travelers Indemnity Co. v. Preferred Contractors Insurance Co., No. 153919 (N.Y. Sup. Ct. July 21, 2017), where the New York trial court held that, despite the fact that a disclaimer was not timely, under New York Insurance Law 3420(d)(2), it was of no consequence, as the non-compliant party was a foreign risk retention group, and not bound by the statute.