Home Page The Publication The Editor Contact Information Insurance Key issues Book Subscribe
Coverage Opinions
Effective Date: October 11, 2017
Vol. 6 - Issue 8

Declarations: The Coverage Opinions Interview With Rogers Stevens
In 1993 Rogers Stevens appeared on the cover of Rolling Stone as the guitarist for then mega-band Blind Melon. Their first album went quadruple-platinum and the band was nominated for two Grammys. These days Stevens is a fourth year associate in the Philadelphia office of Ballard Spahr. What a long strange trip it’s been. Sitting in a bar in a Philadelphia hotel, Rogers Stevens provided a travelogue.

Coverage Opinions Turns 5!
Thank You Dear Readers

Randy Spencer’s Open Mic
Insurance In Song: Peter Gabriel And The Doors Have Done It
Don’t Miss “Insurance Man” By Mental As Anything

Encore: Randy Spencer’s Open Mic
20 Song Titles That Are Really Coverage Issues In Disguise

Tom Petty: Insurance Coverage And Discovery Disputes
Meet The Hippest Federal Judge In America

ALI Restatement: White And Williams Hosting Major Industry Event At Its Annual Coverage College
Nearly 500 Registered, From 21 States And 120 Companies
The Time To Register Is Now! (Free For Those In The Industry)

Congratulations Nelson DeMille: New Book Debuts At #1 On NYT
DeMille Reviews Insurance Key Issues (Kid You Not)

Update: 4th Edition Of Insurance Key Issues
How The Chapters Are Chosen

My Hometown: Patrick Brennan, Crivello Carlson
Practicing Insurance Coverage Law In Wisconsin

Congratulations Michael Teitelbaum
Ontario Insurance Law & Commentary (2018 Edition) Released

MUST READ: Covered vs. Uncovered Claims
Federal Appeals Court Addresses Post-Settlement Allocation

A Construction Defect Coverage Case Worth Noting

Washington: Pollution Exclusion
Have The Reports Of Its Death Been Greatly Exaggerated?

Independent Counsel Required For Defense Even Without ROR

Is An Assault On The Flood Exclusion Coming?
The Impact Of ISO’s Post-Katrina Amendments

Tapas: Small Dishes Of Insurance Coverage
· Congratulations Justice Willett – Coverage Opinions Interviewee Nominated To Fifth Circuit
· WSJ: Size of The Cyber Insurance Market
· WSJ: Hurricane Claims And The Need For More Adjusters

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



Vol. 6, Iss. 8
October 11, 2017

Coverage Opinions Turns 5!

Thank You Dear Readers

I am excited to report that this issue marks the 5th Anniversary of Coverage Opinions. That’s the wood anniversary if you are thinking about a gift. [But don’t think you can cheap-out with something made of paper. Wood does not include paper, since paper is the first anniversary. #surplusage]

Five years of hardcore coverage, a look at the lighter side of the law, interviews with famous and unique lawyers and random other stuff that I can’t exactly categorize. If there has ever been a labor of love in my career, this is it. And as in all such endeavors of this sort, on some days there is more of the former than the later. But despite some challenges, I could not be happier with how things have gone for CO over the past five years.

Of course, there could be no five-year anniversary to mark if it were not for you – the dear Coverage Opinions reader. I can’t thank CO readers enough for taking the time to do so, despite having such busy schedules and being inundated with other newsletters, and the like, competing for their time. I also appreciate all of the reader mail that I receive – mostly positive, but sometimes taking me to task for something I said or didn’t say -- and that’s fine too. I am also lucky for the friendships that I have made with CO readers who reached out about something they saw. Please accept my sincere appreciation for enabling me to send a Coverage Opinions five-year anniversary announcement.

Comments, questions, criticism, hate mail, how’s my driving, ideas for making CO better -- I’m all ears. Please write to me at Maniloff@CoverageOpinions.Info



Vol. 6, Iss. 8
October 11, 2017


Insurance In Song:
Peter Gabriel And The Doors Have Done It

Don’t Miss “Insurance Man” By Mental As Anything



It is not unusual for a song to make a passing reference to insurance. Even some music legends have done it. Consider these:

Peter Gabriel: “Home Sweet Home” -- “When the insurance money came through, it seemed dirty, didn’t know what to do.”

Elvis Costello: “Party Party” -- “So shift yourself and shake your bod. You got bullet proof insurance from fire, flood and Act of God.”

The Doors: “Variety is the Spice of Life” -- You gotta try everything once
You better take out some insurance.”

But when it comes to songs where insurance plays a principal part – spoiler alert -- there are only a few. There’s “Insurance Fraud #2” by The Mountain Goats, which includes these lyrics:

Bag full of oily rags, fifty cent lighter
Dreams of retirement in Cancun burning ever brighter
There's a lot of ways to make money in this world
But I can't recommend insurance fraud.

And then there’s “Take Out Some Insurance” by J.J. Cale:

A man knocked upon my door said
“Don't you know you're gonna die some day
And I got a plan for you man, for when you pass away
We'll give to your mother, your kids and your wife
And all you have to give in return is your life”
Take out some insurance, insurance today
For tomorrow will come and take us away

But the runaway winner for songs that are all about insurance is unquestionably “Insurance Man,” by Mental as Anything, the Australian pop/rock band that was formed in Sydney in 1976. “Stairway to Heaven” has just been knocked off the top of my list of greatest rock songs of all time. Thank you to Mental as Anything for this wonderful refrain that mixes insurance with, no surprise, love. You can find “Insurance Man” on You Tube, both from the band’s 1979 “Get Wet” album and a live version.

“Insurance Man”

Please insurance man
I need a better plan
I want a brand new policy
Won’t you please please cover me
I’m young and I’m healthy now
Not very wealthy now
But love is thrilling me
That girl could be killing me

Please Insurance Man
Help me if you can
If another man caught her eye
I know I’d surely die
They call it jealousy
But it’s love to me
If she should go away
Dead in my grave I’d lay

Won’t you please give me a real good cover
The money will go to my father and mother
My life is gonna end before it starts
‘Cause I think I’m gonna die of a broken heart

Please Insurance Man
I need a better plan
I want a brand new policy
Won’t you please please cover me
I’m young and I’m healthy now
Not very wealthy now
But love is thrilling me
That girl could be killing me

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


Vol. 6, Iss. 8
October 11, 2017


Encore: Randy Spencer’s Open Mic

20 Song Titles That Are Really Coverage Issues In Disguise



To most Culture Club fans, the group’s chart-topping hit, “Do You Really Want To Hurt Me?,” is about Boy George’s relationship with band drummer Jon Moss. But insurance coverage folks know what this smash hit is really about -- “Do you really want to hurt me?” is the pivotal question that will determine whether the “expected or intended” exclusion applies to bar coverage under a CGL policy.

So that got me to thinking, what other song titles are really coverage issues in disguise? A lot, it turns out. Consider all of these coverage issues that you’ve been signing about over the years.

“Crumblin’ Down,” by John Mellencamp. Coverage Issue: Is faulty workmanship an occurrence?

“Pay It Back,” by Elvis Costello. Coverage Issue: Reimbursement of defense costs

“Stay (Just A Little Bit Longer),” by The Chantels. Coverage Issue: Extended Reporting Period

“Always Crashing The Same Car” by David Bowie. Coverage Issue: It’s time to non-renew this policy

“Same Mistakes,” by One Direction. Coverage Issue: Single occurrence

“Who Are You?,” by The Who. Coverage Issue: You are not an insured

“I Can’t Stop Hurting You,” by Rick Springfield. Coverage Issue: Continuous trigger

“Leave Me Alone,” by Michael Jackson. Coverage Issue: Insured’s right to independent counsel

“Rock ’n Roll Ain’t Noise Pollution,” by AC/DC. Coverage Issue: Pollution exclusion is limited
to traditional environmental pollution

When It’s All Over,” by Alicia Keys. Coverage Issue: Claim first made after the policy expired

“Stand By Me,” by Ben E. King. Coverage Issue: Is there a duty to defend?

“I Don’t Know,” by Ozzy Osbourne. Coverage Issue: Montrose Endorsement does not apply

“Help me, Rhonda,” by the Beach Boys. Coverage Issue: Insured named Rhonda has a duty to cooperate

“Daddy’s Gonna Pay For Your Crashed Car,” by U2. Coverage Issue: There’s been no tender of claim

“Feel No Pain,” by Sade. Coverage Issue: Insurer not prejudiced by late notice

“I Didn’t Mean To Hurt You,” by John Lennon. Coverage Issue: Intentional conduct can still be an accident

“Innocent Man,” by Billy Joel. Coverage Issue: Criminal act exclusion does not apply

“Severe Emotional Distress,” by Into Eternity. Emotional injury, without physical manifestation, is not “bodily injury.”

“I Won’t Pay Your Price,” by Motorhead. This mediation is over.

And some recording artists are themselves coverage issues in disguise. Cher is Allocation and INXS was formed by a bunch of guys from an umbrella unit.

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



Vol. 6, Iss. 8
October 11, 2017

Tom Petty: Insurance Coverage And Discovery Disputes

Meet The Hippest Federal Judge In America

Like so many I was heartbroken to learn of rock legend Tom Petty’s sudden death last week at age 66. I’ve been listening to a lot of his music since then. It’s been very enjoyable, but, at the same time, serving as a reminder of just how big of a loss it is.

I realized something else while listening to all these Tom Petty songs – three of his biggest hits were no doubt influenced by insurance. Memories of unsatisfactory experiences with insurance companies is no doubt what the music icon had in mind when he wrote these classics:

“Tom, your loss history is terrible. We are not renewing your policy.” Result -- “Don’t Come Around Here No More”

“I reviewed the new information you provided. I am maintaining my disclaimer of coverage. Result -- “I Won’t Back Down”

“We’ll defend you under a reservation of rights. But coverage for liability will depend on the facts determined at trial.” Result -- “The Waiting”

And, of course, Tom Petty knew a thing or two about coverage for construction defects: See American Family Mut. Ins. Co. v. American Girl, 673 N.W.2d 65 (Wis. 2004) (holding that damage to a warehouse constructed by an insured–general contractor, caused by a soil engineering subcontractor’s faulty site-preparation advice, qualified as an “occurrence” under a general liability policy).

We’ll never know if insurance influenced Tom Petty’s music, but Tom Petty’s music has, in fact, played a part in one Florida federal judge’s opinions. Southern District of Florida Judge Jonathan Goodman had Tom Petty in mind when writing opinions in two cases involving discovery issues:

Haaf v. Flagler Constr. Equip., LLC, 2011 U.S. Dist. LEXIS 52198 (S.D. Fla. May 16, 2011):

“Some discovery motions are brought to the Court too early. The discovery disputes at issue here fit into that category. As musically noted by well-known singer-songwriter Tom Petty, ‘the waiting is the hardest part.’ As outlined below, Plaintiff’s discovery issues were submitted prematurely and he will need to appreciate Mr. Petty’s observation before submitting the issues again.” ***

“Plaintiff's motion to compel is denied without prejudice. To come full circle by referring to the Tom Petty and the Heartbreakers lyrics, it might be hard for Plaintiff to wait for the discovery he seeks, but he needs to allow the issues to ripen before again seeking this Court's involvement in these specific discovery issues.”

Montoya v. PNC Bank, N.A., 2014 U.S. Dist. LEXIS 84279 (S.D. Fla. June 20, 2014)

“In their 1981 song ‘The Waiting,’ Tom Petty and the Heartbreakers lamented that ‘the waiting is the hardest part.’ Thirty-three years after the release of that song, Defendants want Plaintiffs to experience first-hand the meaning of those well-known lyrics by waiting for discovery until the Undersigned rules on Defendants’ not-yet-ripe motions to dismiss.”

Then Judge Goodman ended his opinion where he started: “By way of summary, and for the sake of musical consistency, the Undersigned will end this Order with lyrics from another Tom Petty song, albeit a solo effort without the Heartbreakers: As discussed above, the parties’ discovery timetable will now follow the chorus from ‘Time to Move on’: ‘It's time to move on, time to get going.’”

Given that our legal system, despite all its wonderful attributes, is frequently criticized for moving slowly, I’m surprised that “The Waiting” hasn’t been cited in more judicial opinions. You’d think the song would be cited so often it would have an official Blue Book format. But only Judge Goodman had the keen eye -- and ear -- to take this opportunity.

Judge Goodman also turned to Tom Petty to make a point in his recent opinion in Cohan v. Ocean Dawn, LLC, No. 15-10035 (S.D. Fla. Aug. 10, 2016):

“In a song released in 1989 on his first solo effort (without The Heartbreakers), Tom Petty gave the following musical status report about his philosophy on life: ‘Well, I won’t back down / No I won’t back down / You can stand me up to the gates of hell / But I won’t back down.’ As it turns out, these comments, along with other lyrics from the song, such as ‘No, I’ll stand my ground, won’t be turned around,’ accurately describe the parties’ positions in this litigation following the voluntary dismissal of Plaintiff’s Americans with Disabilities Act lawsuit.” ***

The Undersigned began this Report with a reference to lyrics from a Tom Petty song, so it makes sense to end the report with another Tom Petty lyric from another solo tune (again, without the famous Heartbreakers): ‘It’s time to move on / it’s time to get going.’”

Judge Goodman, it turns out, is no stranger to Coverage Opinions. In the February 18, 2015 issue of CO I wrote about his use of Bruce Springsteen’s “No Surrender” lyrics in an opinion involving insurance coverage.

As a fan of classic rock, and admirer of clever and readable judicial writing, I reached out to Judge Goodman – clearly the hippest federal judge in America – to get the story on his Tom Petty fandom.

His Honor was kind enough to share some thoughts by email. Judge Goodman told me that he has been a fan of both Tom Petty and his Heartbreakers since the 1970s. His love is for both the man and his music: “Although [Petty] achieved great commercial success (including a gig at the Super Bowl halftime show), he always seemed to me to be the same guy who started out in Gainesville, Florida with Mudcrutch. I listened to his ‘Buried Treasure’ show on satellite radio since its inception and I then also listened regularly to the Tom Petty channel on satellite radio when he launched that. He had a great wit and a wonderful sense of humor. He also struck me as a guy who a fan could hang out with, have a beer or two and shoot the breeze about music or any other subject. Basically, he was a good guy who happened to also be a masterful musician.”

Judge Goodman also told me that he plans to continue to quote Tom Petty lyrics in judicial opinions, as well as from songs written and performed by The Traveling Wilburys [Petty’s band with George Harrison, Jeff Lynne, Bob Dylan and Roy Orbison], which he calls “a true super group who I also love listening to on a regular basis.”

Thank you Judge Goodman for sharing these thoughts and looking forward to seeing some more Tom Petty tributes in your opinions. I’m waiting.

RIP Tom Petty. Thank you for all those sing-alongs in the car.


Vol. 6, Iss. 8
October 11, 2017

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

Nearly 500 Registered, From 21 States And 120 Companies

The Time To Register Is Now! (Free For Those In The Industry)

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 nine courts from already citing it in opinions. 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.

Indeed, that this is a must-attend event is borne out by the numbers. So far nearly 500 people are registered, from 21 states and 120 companies. Space is limited. If you are planning to attend, the time to register is now.

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

Vol. 6, Iss. 8
October 11, 2017

Congratulations Nelson DeMille: New Book Debuts At #1 On NYT

DeMille Reviews Insurance Key Issues (Kid You Not)

Congratulations Nelson DeMille! His latest book, The Cuban Affair, just debuted at #1 on The New York Times bestseller list. The Cuban Affair tells the story – as only DeMille can – of a covert mission to Cuba to retrieve $60 million that had been hidden there by a banker just before he fled Castro’s revolution. The book, with an average Amazon review of 4.2 out of 5 -- that’s very high as these things go -- is in the can’t put it down category.

As a long, long time Nelson DeMille fan, it was a great pleasure to interview him for Coverage Opinions a couple of years back. DeMille is not a lawyer, but there was an insurance angle. He wrote a short story called Death Benefits, where a life insurance policy plays a pivotal part. It is one of my favorite interviews. [Speaking of interviews, DeMille was just the subject of the Weekend Interview in The Wall Street Journal.]

During the phone interview DeMille shared with me – to my shock and delight -- that he was an adjuster for Liberty Mutual in the early 1970s, handling first-party homeowners and third-party claims, such as auto. In addition, his work included some insurance fraud investigating. That experience, he explained, gave him a desire to write a novel with insurance fraud as the background. But it never happened -- he couldn’t sell a publisher on the idea.

Well, as the old saying goes, once insurance gets in your blood, it’s there forever. [Actually, I just made that up. So it’s really a new saying, but maybe it’ll stick.] Nelson DeMille, the one-time insurance adjuster, was kind enough to review General Liability Insurance Coverage – Key Issues In Every State. He probably keeps the book on his desk as inspiration for his best-selling thrillers.


Vol. 6, Iss. 8
October 11, 2017

Update: 4th Edition Of Insurance Key Issues

How The Chapters Are Chosen

Work continues on the 4th edition of General Liability Insurance Coverage – Key Issues In Every State. I appreciate all the emails I receive from people making suggestions on chapters to add to the book. I have never received a suggestion that did not involve an important issue. However, not all coverage issues are appropriate for Key Issues. Some coverage issues simply do not fit the bill for a 50 state survey.

For example, some coverage issues have only been addressed by a small number of states. For such an issue, there would be too many blank spaces to make any 50 state survey meaningful. Of course, just about every issue has a few states that have never addressed the subject. But these issues still have enough national treatment to make a 50 state survey worthwhile.

Then there are those subjects that have been addressed by many states, but the decisions are significantly tied to policy language and not a legal principle. Thus, the reader’s comparison of the case descriptions in the book, to their matter at hand, would be ineffective. Additional insured and primary-excess relationship issues come to mind here, where the outcomes of cases are often dictated by the specific policy language at hand.

The ideal chapter for Key Issues involves an issue that has been addressed by most states and been resolved by the court examining various schools of thought and choosing which of the legal principles to adopt, e.g., pollution exclusion (applies broadly or to only traditional environmental pollution); late notice (prejudice or no prejudice); duty to defend (four corners or extrinsic evidence). Virtually every chapter in Key Issues is in this category.

But please keep those cards and letters with suggestions coming. They are much appreciated.


Vol. 6, Iss. 8
October 11, 2017

Patrick Brennan:
Practicing Insurance Coverage Law In Wisconsin

When I think of Wisconsin I am often reminded of the first week of law school in 1988 in Philadelphia. A bunch of us, getting to know each other, went to iconic Jim’s Steaks on South Street on a Friday night. I got a ride with a woman named Nancy from Wisconsin. Wisconsin, as in, she grew up on a farm, Wisconsin. Like, she milked cows and stuff like that. I’d never met anyone from Wisconsin – or who had milked a cow -- and she had never had a cheesesteak.

Anyway, it is impossible to get a parking spot on South Street on a weekend night. I told Nnacy we were crazy to even try and pointed to a lot and said let’s pull in there. But she insisted that we try. She milked cows. How hard can it be to get a parking spot?, she must have been thinking. Lo and behold, not only did Nancy find a spot, but it was directly in front of Jim’s. The only way we could have parked closer to Jim’s would be if she drove into the restaurant. Nancy just looked at me and smiled. Beginner’s luck, I groused. So Nancy is who I often think of when I hear Wisconsin.


But when I think of Wisconsin coverage law, it is Patrick Brennan, of Milwaukee’s Crivello Carlson, who comes to mind. Pat is one of its foremost practitioners. He is Wisconsin’s man to see for coverage. So it is no surprise that Pat put together such an excellent summary of Wisconsin’s treatment of numerous important coverage issues. But more than just what the courts said, Pat also provides his own commentary, which makes this such a useful “My Hometown” column. Thank you Pat for this excellent article. And I bet he’s great at finding parking spots.

Pat Brennan is a graduate of Marquette University Law School and a board member of Crivello Carlson, S.C. in Milwaukee. He is a past recipient of the Milwaukee Bar association Lawyer of the Year – Legal Scholar, past President of the Civil Trial Counsel of Wisconsin and former Chair of the State Bar Association Litigation Section. His practice involves commercial litigation including insurance coverage, products, environmental and construction liability. Currently he speaks and writes about trial, insurance and tort related topics, and continues his litigation practice throughout Wisconsin and Illinois where he is also licensed. Pat is a member of the Federation of Defense & Corporate Counsel.


Wisconsin was home of the progressive “Fighting Bob LaFollette,” and birthplace of the Republican Party. It was the first state to institute workers compensation, yet it always had a strong manufacturing base. We have small, mutual insurers and fine regional carriers, a large rural population, and a strong agribusiness economic base, so it is not surprising to find coverage cases “arising out of” claims involving those interests. However, with its large, urban centers in Milwaukee, Madison, and Green Bay and as home of several Fortune 500 companies, Wisconsin is a study in contrasts. The state is more than Laverne and Shirley, supper clubs, and brandy old fashioneds. It has also produced its fair share of both interesting and nuanced insurance coverage decisions applicable to its varied cultural, business and political background.

Direct Action

Wisconsin is unique because it is a direct-action state, which is anathema to many insurers but quite manageable in practice. Authorized by statute -- Wis. Stat. §632.24 and 803.04 -- this procedure allows a liability insurer to be named in the case. To those of us who practice here, we see nothing unusual about this. There’s a certain balance struck in that subrogated insurers must also be named. Thus, jurors will know that a Plaintiff’s medical expenses were paid and the defendant is covered by liability insurance. Defense attorneys still get favorable verdicts all the time even though juries are well aware of the existence of the liability insurer. Upon request, the jury may be advised that insurance should not affect any liability or damages determination. Wis. JI Civil 125.

Duty to Defend

In Wisconsin, the duty to defend is decided at the pleading stage by the “four corners” rule. Any insurer that refuses to defend does so at its peril: it may lose all policy defenses if its decision is ultimately the wrong one. See Fleet and Farm of Green Bay, Inc. v. United Fire and Casualty Co., (E.D. Wis. 10-7-15); Water Well Solutions Service Group, Inc. v. Consolidated Ins. Co., 2016 WI 54, 369 Wis.2d 607, 881 N.W. 2d 285.

Under the four corners rule, the complaint must be compared to the entire policy—including exclusions. Marks v. Houston Casualty, 2016 WI 53, 369 Wis.2d 547, 881 N.W. 2d 309. No surprise here, since practitioners have always addressed exclusions. Thankfully, Marks provides a roadmap of options available to an insurer when coverage is contested. Even if the complaint is ambiguous or incomplete and no defense has been provided by the carrier, extrinsic evidence cannot be considered as part of the duty to defend analysis. See Water Well Solutions Service Group, Inc. v. Consolidated Ins. Co., 2016 WI 54, 369 Wis.2d 607, 881 N.W. 2d 285.

The recent decision of Oddsen v. Henry, 2016 WI App 30, 368 Wis. 2d 318, 878 N.W.2d 720 held that once an insurer provides a defense under a reservation of rights, the court may go beyond the four corners rule to determine coverage. The Oddsen court determined that disputed issues of fact that affected the duty to indemnify may not necessarily be resolved on summary judgment. Consequently, coverage attorneys could stay in the case through trial to conform the verdict to their liking. See Oddsen, 2016 WI App 30.

Policyholders chafe at the four corners rule. Many seemingly reasonable attacks on the rule have been made but to no avail. See Water Well Sols. Serv. Grp., Inc. v. Consol. Ins. Co., 2016 WI 54, 369 Wis. 2d 607, 881 N.W.2d 285. Appeals court judge Paul Reilly said it best in his dissent in Water Well when he commented on the unfairness of an insured with probable coverage being deprived of it simply because of an adversary’s pleading. See Water Well Sols. Serv. Grp., Inc. v. Consol. Ins. Co, 2015 WI App 78, ¶¶ 19-24, 365 Wis. 2d 223, 871 N.W.2d 276, review granted, 2016 WI 2, 365 Wis. 2d 741, 872 N.W.2d 668, and aff'd, 2016 WI 54, 369 Wis. 2d 607, 881 N.W.2d 285

While the duty to defend is broad, the harsh effect of the rule is tempered by a respected counterpart: the motion to stay and bifurcate. In most, but not all situations, courts will grant an insurer’s request to put a hold on merits discovery in order to have the coverage issue resolved, usually on an expedited schedule. When coverage issues are intertwined with liability and damages, a judge will be inclined to craft a ruling that permits broader discovery to continue during the lull. Overall, it is a workable process that does a pretty good job of protecting all parties’ interests.

Construction and Products

The American Girl case set the pace for what constitutes an “occurrence” in faulty workmanship cases. See Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2, 268 Wis. 2d 16, 673 N.W.2d 65. Contract breaches can be an occurrence, which forces the application of exclusions that may be determinative of coverage and generates extensive motion practice in countless commercial and construction cases. Litigants with insurance interests hoped that a solution would result from Acuity v. Society Insurance, 2012 WI App 13, 339 Wis. 2d 217, 810 N.W.2d 812, a case that ended up before the Supreme Court. As coverage attorneys eagerly awaited guidance on the oft-contested “business risk” issue (and between two local companies to boot), the parties’ mid-appeal settlement left the competing factions to slug it out in one trial court venue after another on the issue of comparing the scope of the contract with the damages allegedly sustained. To date, the supreme court has not yet been asked—or given the opportunity—to have the final say. Nevertheless, the Gillen case helped by providing a limited reading of the “your work” exclusion. See Edward E. Gillen Co. v. Insurance Co. of Pennsylvania, 874 F. Supp.2d 755 (E.D. Wis. 2012). Similarly, Water Well plumbed the depths of the insured’s product exclusions, finding that a newly installed water well pump damaged only itself, and thus there was no coverage. See Water Well, 2016 WI 2.

A major win for carriers recently came from Wisconsin Pharmacal v. Nebraska Cultures, 2016 WI 14, 367 Wis. 2d 221, 876 N.W.2d 72 (2016), which held that there was no coverage for supplying the wrong ingredient that was blended into a probiotic tablet. Why? Because the “integrated product rule” would classify the component sale as one inseparable whole, and so the “impaired property” exclusion applied. Thus, Wisconsin coverage cases recently came to overlap with the economic loss doctrine in a pronounced and explicit way. The Wisconsin approach to “other property damage” and its relationship to the economic loss doctrine are two sides of the same coin. An insurer does not warrant an insured’s goods or services, and breaches of contract are not typically covered under a general liability policy. See Great Lakes Beverages, LLC v. Wochinski, 2017 WI App 13, 373 Wis.2d 649, 892 N.W.2d 333.

Supposedly, we are to accept the dicta that these two are unrelated; in fact, they are not. If a merits attorney attempts to prove that the economic loss doctrine applies in an effort to get one or more tort claims (like negligence and strict liability) dismissed, this may create a conflict because the policyholder-client could then be stripped of coverage for the claims. Real or apparent conflicts may be waived, or the insurer’s attorney could take on both the coverage and the economic loss doctrine argument because they share common attributes.

Pollution Exclusion

Only in a state where some counties have more cows than people would a court inevitably face the legal question: “Is manure a pollutant?” The answer depends on the situation. The Wisconsin Supreme Court recently recognized manure as “liquid gold” because of its value when applied as fertilizer to farm fields. But when that application fouls nearby water wells, it is indeed a pollutant subject to a policy’s exclusions. See Wilson Mut. Ins. Co. v. Falk, 2014 WI 136, 360 Wis. 2d 67, 857 N.W.2d 156.

The Badger State was also a path breaker in the seminal case that decided whether bat guano in an infested apartment is a pollutant (it was not). See Hirschorn v. Auto-Owners Ins. Co., 2012 WI 20, 338 Wis. 2d 761, 809 N.W.2d 529. In a rare split coverage decision, Acuity v. Chartis the Wisconsin Supreme Court recently held that both a general liability insurer and a pollution liability insurer had a duty to cover a loss resulting from a damaged natural gas pipe. See Acuity v. Chartis, 2015 WI 28, 361 Wis.2d 396, 861 N.W.2d 109.


Insurance agents and brokers have it pretty good in Wisconsin. Not many circumstances result in a finding of the “special duty” that must be proven for a successful E&O claim against an agent or broker. The statutory climate favors pushing liability, contribution, indemnity or reformation onto insurers. See Wis. Stats. §§ 631.08 -631.011 and Boehm v. Scheels All Sports, Inc., 202 F.Supp.3d 1030 (W.D. Wis. 2016). It is well established that a policy may be reformed because of a mutual mistake when the policy does not contain the provisions intended by the parties to be included. See Maxwell v. Hartford Union High School Dist., 2012 WI 58, ¶ 48, 341 Wis.2d 238, 814 N.W.2d 484. However, a frequently cited case holding that reformation may be allowed even when the mistake was unilateral is Artmar, Inc. v. United Fire & Cas. Co., 34 Wis. 2d 181, 148 N.W.2d 641 (1967). The decision has probably upended many motions for summary judgment that would otherwise be warranted under a “mutual mistake” regime.


The late notice policy defense has a prejudice element under Wis. Stat. §631.81. Case law has rendered this a weak defense in many cases, although courts’ leeway towards insureds is not limitless. See, e.g., Old Republic Ins. Co. v. Liberty Mutual, 138 F.Supp.3d 1013 (E.D. Wis. 2015) (20-month delay was unreasonable). Recently, the Wisconsin Supreme Court held that E&O policies are not subject to the notice-prejudice statutes, much to the chagrin of a sued attorney who tendered a malpractice claim to his insurer “too late.” See Anderson v. Aul, 2015 WI 19, 361 Wis. 2d 63, 862 N.W.2d 304.

Intentional Acts

Everyone knows that insurance policies do not cover intentional acts. Wisconsin law is strictest regarding matters of sexual assault, but it is also firm in other contexts. See, e.g., Jones v. Baecker, 2017 WI App 3, 373 Wis.2d 235, 891 N.W.2d 823 (intentional housing discrimination in renting) and Oddsen v. Henry, 2016 WI App 30, 368 Wis.2d 318, 878 N.W.2d 720 (intentional handling of drug overdose). Business coverage cases also often turn on the nature of the transaction being volitional in nature. The Everson Court denied coverage for misrepresentation, although a “wrongful act” under an E&O policy has been extended to include contract breach in rendering professional services. Compare Everson v. Lorenz, 2005 WI 51, 280 Wis.2d 1, 695 N.W.2d 298 and 1325 N. Van Buren, LLC v. T-3 Grp., Ltd., 2006 WI 94, 293 Wis. 2d 410, , 716 N.W. 2d 822.


One peculiarity of Wisconsin law is the strong reluctance of the courts to estop an insurer from, or find that it waived, coverage rights. See Shannon v. Shannon, 150 Wis.2d 434, 442 N.W.2d 25 (1989). In Maxwell, the supreme court did not even require a timely reservation of rights letter. See Maxwell v. Hartford Union High School Dist., 2012 WI 58, ¶ 48, 341 Wis.2d 238, 814 N.W.2d 484.

Wisconsin case law has occasionally found courts indulging in fictions that enhance coverage. See, e.g., Hip Hop Beverages Corp. v. Krier Foods, 2014 WL 280387 (E.D. Wis. 1-24-14). In Krier Foods, the court allowed coverage for a claim of defective or unusable product – faulty work that is usually excluded –due to the loss of use of the buyer’s warehouse needed for storing and repackaging the defective containers.


Wisconsin courts handle coverage matters in an overall appropriate manner. While there are anomalies, policies are generally interpreted in accordance with the intent of the parties. While many decisions are pro-insurer, policyholders in commercial cases can get valuable protection from a paid-for asset – the general liability policy.


Vol. 6, Iss. 8
October 11, 2017

Congratulations Michael Teitelbaum:
Ontario Insurance Law & Commentary (2018 Edition) Released

I am pleased to report that Lexis has just published the 2018 Edition of Ontario Insurance Law & Commentary by Michael Teitelbaum of Toronto’s Hughes Amys LLP.

Lexis describes the book as the “one-stop legal guide for non-automobile insurance law in Ontario,” featuring an overview of the principles and key issues in liability, property and life insurance, plus an annotated review of selected key provisions of the Insurance Act.

As someone who knows the challenges of writing an insurance law book, I always enjoy congratulating someone who has done that, as well as checking out how they approached the task.


Michael and his colleagues take an interesting, unique and effective tack to presenting the information in Ontario Insurance Law & Commentary. They strive to encapsulate, annotate and update Ontario’s (and, as readers will see, common law Canada’s) insurance law on an annual basis. Michael advises that the first section provides an overview of the law, and is updated every year with new jurisprudence (including many cases that have been released over the past year that are not included in the third “Recent Case Law” section). The second section consists of thumbnail summaries of case law that considers some of the key provisions of Ontario’s Insurance Act. And, the third section contains a detailed review of what have been identified as the key decisions over the past few years, including providing some perspective on them.

Michael tells me he and his associates add several cases to the third section every year, and part of the ongoing writing and editing process involves incorporating cases that, depending on the decision, are about four years old into the first section. The newly-added cases are briefly referenced and discussed in the first section, and then explored in more depth in the third section.

The book provides a perspective and analysis of issues that goes miles beyond simply a description of what the court said. Getting Michael’s views on the issues, along with detailed and nuanced legal support, provides guidance like none that I’ve ever seen.

It’s also interesting to see the similarities and differences between Ontario/Canadian law and U.S. insurance law. From time to time, Michael sprinkles in some U.S. law references in the Commentary’s footnotes noting their potential relevance to Canadian law. I was flattered to see some references to this newsletter when he does that.

I can’t imagine someone, who has anything to do with Ontario insurance law (or, indeed, insurance law in Canada for that matter, particularly the common law provinces, but also Quebec where I understand some of the common law decisions have some application), not having Ontario Insurance Law & Commentary at their fingertips. Congratulations Michael on the 2018 edition of this must-have book. More information, and how to order, is here.

And, anyone interested in keeping abreast of Canadian (and particularly Province of Ontario), insurance and tort law case law may wish to check out Michael’s Blawg on Hughes Amys LLP’s website, at http://www.hughesamys.com/blawg.

Vol. 6, Iss. 8
October 11, 2017

MUST READ: Covered vs. Uncovered Claims: Federal Appeals Court Addresses Post-Settlement Allocation

The issue of an insurer talking action, pre-trial, to have the trier of fact answer questions that may allow for an allocation, between covered and uncovered clams, is one that sometimes confronts courts. In other words, this is the situation of an insurer, seeking to have the judge or jury make factual determinations, so that a so-called “general verdict” does not result. If a general verdict does happen, the insured may argue that, since there is no way to tell which aspect of the verdict is for covered claims and which is for uncovered claims, the entirety of the verdict must be covered. Or, alternatively, the insured may argue that the insurer bears the burden (and, perhaps, a difficult one at that) to prove which part of the general verdict constitutes uncovered claims. Case law on this issue, while not abundant, goes in various directions.

An insurer taking pre-trial actions, to address covered and uncovered claims, is one type of allocation. The other, its close cousin, is allocation of a settlement between covered and uncovered claims. When you consider that the vast majority of lawsuits settle, this second type of allocation is, at least statistically speaking, more important. On the other hand, there are a host of factors, such as allocation of a settlement being more of a D&O issue, that makes it more than just statistics to determine which type of allocation is more likely to arise.

Allocation of a settlement, between covered and uncovered claims under E&O policies, was front and center not long ago in UnitedHealth Group v. Executive Risk Specialty Ins. Co., No. 15-1076 (8th Cir. Sept. 7, 2017), where the Eight Circuit addressed the issue in the context of an agreement to resolve certain lawsuits for $350 million. That’s a lot of money. According to Forbes, there are ten teams in the National Hockey League that aren’t worth that much money. And while UnitedHealth involved D&O claims, the court relied on cases addressing CGL policies in reaching its decision. So UnitedHealth’s applicability can be argued to extend beyond the world of E&O.

UnitedHealth is a complex case with a protracted history. That’s not surprising for a claim this size. There aren’t too many $350 million settlements that involve slips on wayward banana peels. The court, thankfully, does a good job of keeping it simple.

UnitedHealth settled two lawsuits for a single lump-sum payment of $350 million. In the so-called AMA suit, several group health plans insured or administered by UnitedHealth sued the company, alleging that it conspired with other insurers to reduce payment for out-of-network benefit claims. The plaintiffs brought claims under ERISA, RICO, the Sherman Act and state law. The district court dismissed most of the ERISA and RICO claims and the Sherman antitrust claims proceeded until the case settled. In lawsuit number two, the so-called Malchow suit, a group of plaintiffs sued Oxford Health, a UnitedHealth entity, alleging claims under ERISA and violations of a state regulation, arising from breaches of contract and claims regarding Oxford’s billings and payments. [There was a third suit at issue, but it is not necessary to discuss it here to make the points. KISS.]

Here’s the bottom line -- There was no potential coverage for the Malchow suit (ERISA) but the AMA suit (antitrust) was covered. However, UnitedHealth’s $350 million settlement did not allocate the settlement amount between the two suits. Litigation ensued between UnitedHealth and its excess insurers. After several years, and no doubt a volume of documents that would impress a Redwood, the case, involving Minnesota law, ended up in the Eighth Circuit on the allocation issue. The appeal was from the District Court’s grant of summary judgment that UnitedHealth failed to meet its burden to support an allocation between the potentially covered AMA claims and the non-covered Malchow claims.

After determining that neither policy language, nor case law, supported UnitedHealth’s argument that the entire settlement was covered, so long as any part of it was covered, the appeals court turned to the allocation issue, after having determined that UnitedHealth bore that burden.

So how is that to be done? The court put it in these simple terms: “To prove allocation, parties can present testimony from attorneys involved in the underlying lawsuits, evidence from those lawsuits, expert testimony evaluating the lawsuits, a review of the underlying transcripts, or other admissible evidence. To survive summary judgment, an insured need not prove allocation with precision, but it must present a non-speculative basis to allocate a settlement between covered and non-covered claims.”

Perhaps the best way to explain how to achieve allocation is by how not to do so – which is how the court described UnitedHealth’s efforts. I’ll borrow from the court’s opinion (headings are mine):

What Did UnitedHealth Know And When Did It Know It?

“UnitedHealth complains that the district court excluded evidence that would have supported an allocation of the settlement. The company argues that the district court erroneously excluded both Judge McKenna's rulings and expert testimony in the underlying lawsuits that occurred after the settlement agreement was signed on January 14, 2009. The allocation inquiry examines how a reasonable party in UnitedHealth's position would have valued the covered and non-covered claims. In evaluating the claims, we look to what the parties knew at the time of settlement.” (emphasis added). … “The process that occurred after the settlement on January 14, 2009—including Judge McKenna’s rulings and expert testimony and a report admitted at the settlement hearings—was inadmissible for purposes of allocating the $350 million settlement, because it did not address information that was available to the settling parties in January 2009. A reasonable settling party could not have relied on Judge McKenna’s post-January rulings to inform its allocation of the $350 million settlement in January. a reasonable person would have allocated the settlement at the time it was reached.”

Choosing The Right Expert

“Halverson is an expert on antitrust law, and the district court allowed him to testify about the value of the antitrust claims asserted in the AMA suit. But Halverson admitted that he is not an expert on ERISA, and he testified in his deposition that he did not analyze the Malchow lawsuit. Without analyzing the Malchow suit, Halverson could not provide an expert opinion about its value. And without knowing the value of the Malchow suit, Halverson could not testify as to the relative value of the AMA suit compared to the Malchow suit. Thus, the district court did not abuse its discretion in determining that Halverson was not qualified to testify about the settlement value of the ERISA claims or how the $350 million settlement should be allocated between the AMA and Malchow claims.” (emphasis in original).

The Complaint Is Not Proof of Value

“At oral argument, UnitedHealth suggested that because the Malchow complaint alleged only $160,000 in damages, a jury reasonably could calculate the value of Malchow as no more than $160,000 and allocate the rest of the $350 million settlement to the AMA suit. But UnitedHealth did not present this argument to the district court, and it is forfeited. The amount of damages cited in the complaint, moreover, does not by itself support a finding on how a reasonable party in UnitedHealth’s position would have valued the Malchow suit when it settled the cases. The Malchow suit was a putative class action; the damages enumerated were attributable only to the named individual plaintiffs. The exposure to the defendants in damages, costs of litigation, injury to reputation, and other categories could have been much greater.”

Providing Valuation Information

Lastly, while it is unclear to me what impact this may have had, the court noted that “UnitedHealth made strategic decisions to invoke attorney-client privilege and work-product protection to avoid presenting evidence from its own representatives about contemporaneous valuations of the settlement.”

Based on all this, the court concluded: “It is well settled that a jury may not base its damages award on speculation. The evidence presented by UnitedHealth fails to give a jury more than a speculative basis on which to allocate the $350 million settlement between the AMA and Malchow suits.”

Postscript: For an excellent article on the settlement-allocation issue see “Settlement of Covered and Non-Covered Claims: Assigning and Meeting the Burden of Proof of Allocation,” by Jacqueline Robinson (Dungee) and Bonnie Hoffman, of Philadelphia’s Hangley Aronchick Segal Pudlin & Schiller, which appeared in Issue 5 (2017) of DRI’s “Covered Events.” The authors – co-counsel for Executive Risk in UnitedHealth – address which party has the burden to prove how much of a settlement was or should be allocated to covered versus non-covered claims.

After citing cases on both sides, the authors conclude that, “[p]ractically speaking, the burden to allocate should fairly lie with the party with control over the settlement and access to the relevant information concerning any potential allocation.” (emphasis in original).

But, more than just an article that tells you how various courts treated the allocation issue, the authors also provide some sage advice for insures to prepare for the impending allocation issue: “One way to persuade the court that the burden should be placed on the insured is to develop a record — early and often. Upon learning of a settlement, when requesting liability and damages analyses, expert reports, mediation briefs and the like, ask for the insured’s allocation analysis too. Ask the insured whether and the extent to which it has allocated the settlement between covered and non-covered claims and/or between the various causes of action in the complaint To the extent the insured does not respond or otherwise refuses to provide this information, make a record. Continue asking and do so in writing.”

Essentially, the authors’ message is that insurers that are proactive in addressing allocation between covered and uncovered claims take away an insured’s ability to argue that the insurer should be penalized for, well, not being proactive in addressing allocation. Early and often – good advice from Ms. Robinson and Ms. Hoffman.

Vol. 6, Iss. 8
October 11, 2017

A Construction Defect Coverage Case Worth Noting

That title may give the impression that I don’t think most construction defect coverage cases are important. That’s not so. They are obviously very important to the parties involved. But so many do not add anything new to the overall body of law in the area. Many are repetitive – with the court simply taking its settled law, on whether faulty workmanship qualifies as an “occurrence,” and applying it to the next tale of a construction project gone bad. Indeed, I can’t even remember the last time I discussed a construction defect coverage case in CO, except for ones involving an unusual endorsement.

But the California Court of Appeals’s recent decision in Global Modular, Inc. v. Kadena Pacific, Inc., No. E063551 (Cal. Ct. App. Sept. 8, 2017) is not in this category. It involves companion exclusions j(5) and j(6) – frequently arising, but not always clear, provisions.

In addition, the Kadena Pacific court described the issue as one of first impression, and looked to case law nationally in reaching its decision. That, and being a published opinion from a California appeals court, gives the decision the potential to be turned to by courts all over looking for guidance on exclusions j(5) and j(6). For these reasons, I selected Kadena Pacific for an appearance in this issue of CO.

The coverage issues in Kadena Pacific arise out of a curiously planned construction project. I’ll let the court describe it: “The United States Department of Veterans Affairs hired Kadena Pacific, Inc., as the general contractor to oversee construction of its Western Blind Rehabilitation Center in Menlo Park. Kadena hired Global Modular, Inc., to build, deliver, and install the 53 modular units that would comprise the rehabilitation center. Because Kadena had hired a different subcontractor to install the roofing, Global agreed to deliver the units covered only by a roof deck substrate—a three-fourths of an inch base sheet of plywood.”

The decision to use a separate subcontractor to install the roofing didn’t work out so well, as the court explained: “Kadena had originally scheduled delivery of the units for the summer months, but delivery was delayed until October and November. This meant the roofless units were exposed to the elements during the rainy season, equipped with only a plywood substrate. Despite Global’s efforts to protect the units by covering them with plastic tarps, the interiors suffered water damage from October through January. In February, Kadena and Global mutually agreed to terminate their contract and Kadena oversaw the remediation of the water-damaged interiors and completion of the project.”

Some settlements took place between Kadena and Global, as well as a trial over the damages. Putting aside some rigmarole, to get to the point here, coverage litigation ensued between Global and its liability insurer, North American Capacity Insurance Company, over the cost to repair and replace the damage to the structures – drywall, insulation, framing -- caused by the intrusion of rain water.

The insurer did not dispute that the repair and replacement costs satisfied the policy’s insuring agreement: the wet interior components were property damage caused by an occurrence—rain. The issue on the table was the potential applicability of exclusions j(5) and j(6).

The trial court in the coverage action held that exclusions j(5) and j(6) were ambiguous and could reasonably be interpreted to exclude damage to only the particular component of Global’s work that was defective. And, here, none of the drywall, insulation, framing, or ducting Kadena repaired or replaced was defective. Thus, exclusions j(5) and j(6) did not apply.

The California Court of Appeal affirmed. To truly appreciate the decision you need to read it. But I’ll set out the key aspects here:

Exclusion j(5) applies to property damage to “[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations.”

The parties’ disagreed over the meaning of the phrase “are performing operations.” The insurer argued that the phrase refers to works in progress and therefore exclusion j(5) applies when the property damage occurs before construction is complete. That’s not an unusual insurer interpretation of exclusion j(5).

Kadena saw it differently, arguing that “the phrase is more narrow, referring only to the particular component Global was physically working on at the time of the property damage. Under that interpretation, so Kadena’s argument went, the exclusion did not apply to the water intrusion damages because the intrusion occurred during heavy rains when Global was not working on the units.

It’s an interesting argument and the court, finding guidance from the Fifth Circuit and Supreme Court of Missouri, bought what Kadena was selling: “We conclude the use of the active, present tense construction ‘are performing operations’ indicates the exclusion applies only to damage caused during physical construction activities. Had the policy drafters intended the exclusion to apply more broadly to damage to any of the insured’s work in progress, we would expect the provision to say something along the lines of, ‘property damage to that particular part of real property on which your operations are not yet complete’ or even ‘property damage to your work arising out of your operations.’ The drafters use this kind of broad language elsewhere in the policy, such as in exclusion l, which excludes ‘[p]roperty damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’ This provision precludes coverage for damage to any of the insured’s work once it has been completed or abandoned. We find it telling exclusion j(5) employs a much more narrow construction, restricting the excluded damage to only that particular part on which the insureds are performing operations.” (emphasis in original).

The court next turned to exclusion j(6), which applies to property damage to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” Putting aside a couple of other issues, the court, again guided by the same decisions from the Fifth Circuit and Missouri high court, applied a narrow interpretation: “the ‘particular part’ Global performed the incorrect work ‘on’ was the plywood substrate, not the interior parts of the units for which Kadena sought repair/replacement costs. Those parts—the drywall, insulation, framing, and ducting—were not defective and were not the subject of Global’s incorrect work, and as a result, their repair and replacement costs do not fall under exclusion j(6).”

The court noted that, “while no California case has interpreted the phrase ‘that particular part’ as it appears in exclusion j(6), the cases interpreting the phrase in other CGL policy provisions reject the idea that it extends to the insured’s project as a whole or to the entire area affected by the insured’s defective work.” The court held that, if exclusion j(6) “applies only to the particular component of the insured’s work that was incorrectly performed and not to the insured’s entire project,” it did not apply here. After all, “the only arguably defective components or parts of Global’s work are the plastic tarps, as they failed to keep the water out.”

I expect to see Kadena Pacific become a go-to case for policyholders nationally that are arguing for a narrow interpretation of exclusions j(5) and j(6).


Vol. 6, Iss. 8
October 11, 2017

Pollution Exclusion: Have The Reports Of Its Death Been Greatly Exaggerated?

Earlier this year the pollution exclusion in Washington was shaken to its core. [No pun intended. Well, actually, pun intended.] As I’ve reported, as well as others, in April, the Washington Supreme Court held in Xia v. ProBuilders Specialty Insurance Company that, despite carbon monoxide being a pollutant, the pollution exclusion did not apply to injuries caused by exposure to it. The court reached this conclusion based on the so-called “efficient proximate cause” rule. The court determined that the efficient proximate cause of the injuries was the negligent installation of a hot water heater. Because that 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. In August, despite some strong amicus support from insurer groups, the court denied the insurer’s motion for reconsideration.

No other court – not even Washington – had addressed the pollution exclusion in this manner. The decision caused a lot of dropped jaws. It is easy to imagine that Xia is the start of a reduction in the scope of the pollution exclusion in Washington. Yet, in the first post-Xia pollution exclusion decision – The Dolsen Companies v. Bedivere Ins. Co., No. 16-3141 (E.D. Wash. Sept. 11, 2017) -- the court distinguished it and held that the pollution exclusion applied.

To be sure, Dolsen is not a repudiation of Xia. The Washington federal court certainly didn’t have that ability. Nonetheless, Dolsen is not without some value to insurers, as it provides a roadmap for them to steer around the decision in certain circumstances.

Dolsen involved the potential availability of coverage under these circumstances. I’ll borrow the court’s explanation to save time to get to the moral of the story. “Plaintiffs, the Dolsen Companies, Cow Palace, and Three D Properties, operated (and still operate) a concentrated animal farm operation. As a byproduct of Plaintiffs’ operation, Plaintiffs had to process millions of gallons of liquid manure. Plaintiffs stored the manure in holding ponds and spread it on their crops as fertilizer. Unfortunately, the holding ponds leaked—allowing the seepage of over 1.6 million gallons of untreated manure into the groundwater annually. Further, the Plaintiffs put far too much manure on the land—a state investigator documented that manure applied to frozen fields was at least 12 inches deep. As a result, the manure soaked the soil and entered the ground water table, contaminating the local water.”

Certain environmental groups filed suit against Dolsen alleging that it over-applied manure and allowed the holding ponds to leak, causing significant environmental contamination of the soil and groundwater. The groups alleged violations of federal law -- Resource Conservation and Recovery Act, Emergency Planning and Community Right-to-Know Act and CERCLA.

Dolsen sought coverage from various insurers, all of which denied based on the absolute pollution exclusions contained in their policies. The litigation settled and Dolsen filed a declaratory judgment and breach of contract action seeking coverage for their (not specified) losses.

The court spent the first half of the decision analyzing why the manure was a pollutant, as well as acting as a pollutant, in contaminating the water. So, if the court had stopped there, it would have been game over – the pollution exclusion serving to preclude coverage for Dolsen’s losses. But the court didn’t say so long, farewell, auf wiedersehen, goodbye just yet. Instead it turned to Xia and analyzed whether the new Washington Supreme Court decision compelled a different result. It did not.

The court distinguished Xia on this basis: “The distinguishing feature between these two lines of cases is the relation between the initial act and the pollutant causing harm—viz., whether the initial peril was the polluting act (i.e., whether the incident involved pollutants in the first place) or whether the initial peril was some other act that incidentally led to a polluting harm. Although subtle, this framework is workable and leads to a clear result in this case: the initial act was intimately tied to the pollutant and thus the initial peril was the polluting act.” (emphasis added).

As the court saw it: “[T]he initial act giving rise to the peril was an excluded harm and there is no other covered occurrence that otherwise led to the harm. In the instant case, there are two sources of contamination: the over-application of manure directly to the land and the inadvertent seepage of the manure from the holding ponds.”

Dolsen tried to make the situation look like Xia, in what the court called a two-step pivot to coverage via the efficient cause rule. However, the court was not convinced that negligent construction of the holding ponds was enough to bring the case within Xia: “It was the inadequate storage of the manure that caused the seepage—and the negligent construction is necessarily intertwined with the storage. This very occurrence is explicitly excluded by the terms of the policy, which excludes from coverage the seepage of pollutants stored or processed as waste. There is no other occurrence beside the act intimately tied with the storing of manure—the polluting event.”

Thus, while the Dolsen court distinguished Xia, the decision is not, as I said, a repudiation of Xia. One gets the sense that Xia may have brought back coverage if the negligent construction of the holding pools, which was necessarily intertwined with the storage, had not been specifically excluded from coverage.

What’s more, the court threw out a hypothetical where Xia may have applied: “Had the manure been released due to an accident not related to the actual use/storage of the pollutant - e.g., accidentally driving a tractor into the barrier of the pond — the efficient cause rule may have applied. But this is not the case. The application and the storage of the manure was the triggering event, and the insurance policy specifically contemplates the exclusion of these occurrences.”

Xia is here to stay in Washington. But Dolsen provides insurers with some guidance on how it may be avoided.


Vol. 6, Iss. 8
October 11, 2017

Independent Counsel Required For Defense Even Without ROR

For the most part, I think most policyholder lawyers would agree that, when an insurer defends an insured without a reservation of rights, the policyholder is not entitled to independent counsel. They certainly would say it’s an uphill battle. Policyholders may argue that there are exceptions, such as insufficient limits based on the insured’s possible liability or an allegation of punitive damages. But even this argument is often rejected. Indeed, California’s Cumis statute states that “no conflict of interest shall be deemed to exist as to allegations of punitive damages or be deemed to exist solely because an insured is sued for an amount in excess of the insurance policy limits.”

But this wasn’t the case in Med-Plus, Inc. v. American Casualty Company of Reading, No. 16-2985 (E.D.N.Y. Aug. 4, 2017), where the court held that the possibility of an award of punitive damages entitled the insured to independent counsel, despite the defense being provided without a reservation of rights.

Here’s the story. Med-Plus, a medical supply company, and others, were sued by Abbott Labs, a seller of medical equipment for diabetes patients, for alleged conspiracy to import international diabetes equipment for sale in the United States. Med-Plus’s insurer, American Casualty, initially disclaimed coverage. But then a second amended complaint was filed and American Casualty determined that, based on a now re-worded trade dress claim, a defense was owed.

At first American Casualty agreed to provide a defense under a reservation of rights. The insurer agreed that Med-Plus could use its own counsel and the insurer would pay 5/13 of the defense costs – based on 5 of 13 causes of action potentially alleging a trade dress infringement claim. [The insurer addressed the claim under New Jersey law and believed that payment of defense costs for solely covered claims was appropriate.]

Med-Plus rejected the terms and rates for this arrangement. After some back and forth, American Casualty agreed to defend Med-Plus, for all claims, without a reservation of rights. The insurer also informed Med-Plus that the punitive damages, and claims in excess of the policy limits -- both excluded – did not create a conflict of interest. American Casualty instructed Med-Plus to transfer the defense to the attorney selected by the insurer. But Med-Plus maintained that, on account of the demand for punitive damages, it was still entitled to be defended by counsel of its choice.

Putting aside the ins and outs of a choice of law issue, the court applied New York law to its analysis and found in favor of Med-Plus: “[U]nder the law of both states (New York and New Jersey], the possibility of punitive damages creates a conflict of interest that entitles policyholders to independent counsel.”

In reaching this decision, the court had concerns that the lawyer retained by the insurer may not be able to adequately represent Med-Plus: “A conflict of interest can insidiously infect professional decision making in myriad ways over the course of a lawyer’s representation, which is why lawyers are generally instructed either to decline conflicted representation or to obtain written informed consent from each affected client. See, e.g., N.Y. R. Prof’1 Conduct r. 1.8 cmt.11 . . . Conflicts of interest are best addressed prophylactically so as to avoid a challenging retrospective analysis of whether an attorney’s conflict of interest had a material effect on the representation. Plaintiff has offered sufficient support for its claim that punitive damages are a legitimate possibility in the Underlying Action. (Pl. Reply in Further Supp. of Pl. Cross-Mot. at 5-6 (noting that punitive damages have previously been awarded in similar actions, and also that Abbott’s success in securing preliminary injunctive relief is a sign of likely success on the merits).) That possibility means that Plaintiff and Defendant do not have complete unity of interests.”

The court then seemed to add some possible complexity as to how its decision could play out, holding that: “[t]his entitlement comes with the caveat that Plaintiff does not have a blanket right to counsel of its choosing for all purposes in the Underlying Action. Rather, the right is limited to issues that present a probable conflict of interest with the insurer. For example, should it become clear that certain claims in the Underlying Action are eligible for punitive damages while others are not, Plaintiff's right to independent counsel would be limited to the punitive-damage-eligible claims. Similarly, if Abbott agreed not to seek punitive damages, Plaintiff would no longer have a right to independent counsel on that basis.” (emphasis in original).

I struggle to understand this decision. The court didn’t explain, with any specifics, why the attorney retained by the insurer had a conflict. As I see it, the insurer is defending Med-Plus without a reservation of rights. Thus, the insurer will hire counsel who will work hard to defend Med-Plus, since any liability will be the responsibility of the insurer – the party that the lawyer may supposedly be more loyal to than Med-Plus. In doing so, the lawyer, by necessity, is also working to prevent liability in excess of the policy limits and punitive damages. The insurer and the insured have a common interest – defeat the plaintiff’s liability or limit the damages.

This is not a situation where one claim is covered and one is not and the attorney retained by the insurer may so-called “steer” the case toward the uncovered claims – a ludicrous notion, but one that some courts do use to justify independent counsel in a reservation of rights-defense situation.

Vol. 6, Iss. 8
October 11, 2017

Is An Assault On The Flood Exclusion Coming?:
The Impact Of ISO’s Post-Katrina Amendments


The financial impact of Hurricanes Harvey and Irma – not to mention human -- will be monumental. Putting aside that you can’t find two loss estimates that are the same, the soothsayers’ numbers share thing in common – amounts in the many tens of billions of dollars.

When it comes to sources of money to restore Harvey and Irma’s destruction, insurance will be far and away the most sought-after. These payments can be large, made quickly and directly to those in need and with no repayment obligation. This cannot always be said about other sources of recovery funds, such as government and charities. The ability of obtain financial relief, under insurance policies, is clearly on the minds of many of those affected in Texas, Florida and other states.

Many of these hurricane claims will be complex. By their nature property policies can be complex – sometimes more so than liability policies – and the facts will matter a lot. But the facts at issue in hurricane claims can be subject to dispute – especially since there may have been no witnesses to the damage.

In the past couple of weeks there have been countless articles penned by lawyers discussing some of the coverage issues that may arise in Harvey and Irma claims. These have mainly involved commercial claim scenarios, with an emphasis on business interruption. But the claims that are going to get the most attention are those arising under homeowner’s policies. The number of such claims will dwarf all other types. In many cases businesses will be better able to absorb a denial of coverage than a homeowner. And homeowner’s claims have an emotional element that is lacking in commercial situations.

When it comes to homeowner’s policies, the flood exclusion (“water” or “water damage” exclusion to be technical) will take center stage. In general, homeowner’s policies provide coverage for wind damage but exclude flood damage. Therefore, in many claims, the question of what caused the damage – wind or water – will be pivotal. If it was wind only, then a homeowner can avoid the impact of the flood exclusion. If it is not clear, or if there is no dispute that damage was caused solely by flood, then the flood exclusion will be a hurdle to potential coverage.

In these cases, the flood exclusion will find itself on Dr. Quincy’s table and get the same dissection that it did following 2005’s Hurricane Katrina.

In Katrina claims, clear Mississippi law addressing the flood exclusion, and impact of the so-called “anti-concurrent causation” clause, was wanting. This lack of guidance was a cause of the extensive litigation over coverage. But, conveniently, the supreme courts of both Texas and Florida have recently provided guidance on wind versus water claims under property policies. See JAW The Pointe, LLC v. Lexington Ins. Co., 460 S.W.3d 597 (Tex. 2015) and Sebo v. American Home Assurance Co., 208 So. 3d 694 (Fla. 2016). These recent decisions may go a long way to help cut down on litigation to resolve disputes over Harvey and Irma claims.

ISO Amends Its Flood Exclusion

There will be plenty of similarities between Katrina claims and those arising from Harvey and Irma. But one issue will be unique. This time around, expect to see arguments made that Insurance Services Office’s 2011 amendments to the flood exclusion, contained in the organization’s homeowner’s policies, affects certain claims. This issue was addressed in a recent article by Bob Rutter, of Cleveland law firm Rutter & Russin, LLC, posted on the firm’s website. I’ll let Mr. Rutter explain the issue:

In May 2011, the Insurance Services Office (ISO) issued a new standard HO3 policy form. The HO3 is the most commonly used residential policy form in the United States. This edition of the HO3 expanded the water damage exclusion by explicitly exempting coverage for “storm surge.” Prior editions of the HO3, many of which are probably still in use, did not specifically exclude storm surge, so policyholders sometimes successfully argued that damage caused by storm surge was not excluded, and was therefore covered, under their version of the HO3 form. This argument is now bolstered by the new HO3 form. A policyholder can argue that if the prior HO3 form already clearly excluded storm surge, then why did ISO amend the form to list it separately. This may be enough to convince a court that since the old version of the HO3 form does not specifically exclude storm surge, it must not be excluded. Not being excluded equals being covered under “all-risk” property insurance policies.

Rutter and Russin are not the only ones to argue that ISO’s amendments to the flood exclusion could mean that, what’s now excluded was, by implication, intended to be covered under earlier policies. A white paper by California attorney Charles Miller – posted on the website for United Policyholders (an insurance consumer-advocacy group) -- posits that ISO’s addition of “storm surge” to the flood exclusion in 2011 gives rise to an argument that the earlier flood exclusion was ambiguous or the industry did not intend to exclude storm surge from earlier policies.

ISO, for its part, writing in its 2010 filing circular for its 2011 homeowner’s policy, described the impact of the flood exclusion amendments being as none: “There is no change in coverage relative to the intended design of the above referenced water exclusion endorsements.”

By way of background, ISO’s changes to its flood exclusion in fact date back to 2008, specifically acknowledged in a filing circular to have been on account of certain decisions in Katrina coverage cases. ISO discussed these cases and noted that appeals courts found the flood exclusions to be unambiguous. Nonetheless, ISO stated that it was amending the flood exclusion to “reinforce the scope of the provision.”

Specifically, in 2008, ISO introduced endorsements that amended its “water damage” exclusion, including changing its name to “water” exclusion. These amendments included such things as adding “storm surge” to the list of excluded types of water.

The now-named “water” exclusion was also amended to state that it applies regardless of whether excluded water “is caused by an act of nature or is otherwise caused.” In addition, the exclusion was amended to state that it “applies to, but is not limited to, escape, overflow or discharge, for any reason, of water or waterborne material from a dam, levee, seawall or any other boundary or containment system.” Among other things driving these changes were disputes in Katrina litigation whether “flood” included man-made flood, since so much damage was caused by the levee breaches is Louisiana.

This last amendment could be relevant in some Harvey claims, since water was released from overfilled reservoirs to prevent even further flooding. Putative class actions have already been filed by individuals and businesses who allege that the so-called controlled releases were the cause of the flooding that affected them.

In 2011, ISO’s 2008 flood exclusion endorsements were given a seat at the grown-up table and incorporated into the terms and conditions of its homeowner’s policies. So clearly the significance of this issue will be tied to the extent that homeowner’s policies, in effect today, contain a form issued prior to 2011. This is hard to know. In general, it is not unusual for insurers to issue policies that do not include the most current edition of a form.

In Mr. Miller’s paper, written in response to so-called Superstorm Sandy, he addresses the principal issue that will be at the heart of determining the impact, or not, of these ISO flood exclusion amendments on Harvey and Irma clams. Specifically, will courts adopt the argument that, by changing a policy exclusion, insurers must have meant that, whatever is now being excluded, had previously been covered?

Courts nationally have addressed this issue and cases go both ways. Mr. Miller acknowledges as much. He concludes that the “better-reasoned decisions” are those that allow a court to consider a subsequent policy provision when interpreting a prior version of it. However, Mr. Miller cites no reasons for his conclusion.

On one hand, the issue should be stopped before it even starts. If a court determines that the flood exclusion in a pre-2011 policy form is unambiguous – as several appeals courts did in Katrina cases -- then resort to extrinsic evidence, such as the changes made in the 2011 form, should be impermissible off the bat.

However, if the question needs to be answered, the decisions that have addressed it will be carefully scrutinized. Of these decisions, expect to see Pastor v. State Farm, 487 F.3d 1042 (7th Cir. 2007) get much attention. Not only is the Seventh Circuit influential, but the decision was written by its recently-retired scion, Judge Richard Posner. Posner’s opinions are respected. [As part of preparing for an interview that I did of Judge Posner in 2014, I calculated that in about 1,700 cases courts cited to a Posner opinion with the added notation “(Posner, J.)” to make the point of its author. And in about 1,000 cases, courts did the same, but by expressly stating that a case it was citing to was penned by Posner.]

At issue in Pastor was a provision in a State Farm automobile policy that provided that the insurer will “pay you $10 per day if you do not rent a car while your car is not usable.” If you do rent a car, then State Farm pays a portion of the rental charge. A State Farm insured sought to represent a class of all State Farm insureds who, during a certain period, received payments for damage to their cars but, despite not renting a car, did not receive payment pursuant to the $10 per day clause.

At issue in the class certification process was the manner in which State Farm defines a “day.” Pastor argued that a “day” meant any part of a day. Her own car had been out of use for about an hour while she had its windshield repaired. State Farm argued that a “day” means 24 hours. In support of her interpretation, Pastor argued that, because State Farm made explicit in a subsequent version of the clause that “day” means 24 hours, the insurer made a “confession” that her interpretation of the original clause was correct. State Farm, on the other hand, maintained that the change was simply a clarification.

Judge Posner saw no “confession” by State Farm’s change in its form. Moreover, he held that “to use at a trial a revision in a contract to argue the meaning of the original version would violate Rule 407 of the Federal Rules of Evidence, the subsequent repairs rule, by discouraging efforts to clarify contractual obligations, thus perpetuating any confusion caused by unclarified language in the contract. Rule 407 is not limited to ‘repair’ in the literal sense. (several citations omitted). It was applied to the meaning of an insurance clause in Hickman v. GEM Ins. Co., 299 F.3d 1208, 1213-14 and n. 9 (10th Cir. 2002). . . . Pastor wants to use the evidence that State Farm, to avert future liability to persons in the position of the plaintiff, changed the policy, to establish State Farm’s ‘culpable conduct.’ That is one of the grounds that evidence of subsequent corrective action may not be used to establish.” Id. at 1045.

Hickman v. GEM Ins. Co., the decision cited by Posner, involved claims that a medical benefits insurer wrongfully refused to fully pay certain hospital room and board charges. The Tenth Circuit declined to consider evidence of an insurer’s later handling of hospital room and board charges on the basis that it was inadmissible as a subsequent remedial measure under Rule 407 of the Federal Rules of Evidence.

More recently, in Reynolds v. University of Pennsylvania, 483 Fed. Appx. 726 (3rd Cir. 2012), the Third Circuit addressed a dispute over the characterization of a degree from the University of Pennsylvania. A student in Penn’s Executive Masters in Technology Program was denied the right to claim the status of a Wharton School alumni. At the time that the student enrolled, the EMTP website stated that he was entitled to do so. The trial court declined to admit evidence that Penn made changes to the website to state that EMTP graduates are “honorary” members of the Wharton alumni network. In affirming, the appeals court relied on both Hickman and Pastor to conclude that the website changes were inadmissible under Rule 407.

There are more cases than these on whether Rule 407 precludes evidence of a so-called subsequent remedial measure outside of the bodily injury arena. Admittedly this is not meant to be, nor could it be, an exhaustive analysis of the issue. Policyholder attorneys will, of course, see the landscape differently. Much more discussion and analysis of this issue can be expected as coverage litigation over Harvey and Irma claims is inevitable. There are just too many claims, too many different loss scenarios and too much at stake to prevent that. If the ISO-change argument, as it should be, is not stopped in its tracks, based on the pre-2011 flood exclusion being unambiguous, then the impact of the 2011 changes is an issue that is likely going to be addressed in certain flood claims. But ISO’s statement that it intended no change in coverage, and the purpose of FRE 407, precludes any consideration of the change.

Vol. 6, Iss. 8
October 11, 2017

Congratulations Justice Willett – Coverage Opinions Interviewee Nominated To Fifth Circuit
Congratulations To Justice Don Willett, of the Supreme Court of Texas, on his late-September nomination to the Fifth Circuit Court of Appeals by President Trump. Justice Willett, while a gifted opinion writer, is better known for his much shorter prose – as the leading judicial twitterer. He just surpassed a jaw-dropping 100,000 followers. Last year Justice Willett made President Trump’s list of candidates for nomination to SCOTUS. I had the privilege of interviewing Justice Willett for Coverage Opinions back in May 2014. At that time he had just 5,500 or so Twitter followers. It’s amazing what happens when you get interviewed by CO.

In conjunction with my interview of Justice Willett I set out 1,600 words making the case that he is the most important liability insurance coverage judge in America. That was obviously a non-scientific conclusion. However, I believe that the article was well-reasoned and methodical in explaining how I reached that conclusion.

The Fifth Circuit hands down a lot of liability coverage decisions – and they certify some to the Texas Supreme Court. Now Judge Willett can do that, as payback, to any former colleagues who took his yogurt from the Supreme Court’s lunch room refrigerator. We will soon get to see Justice Willett tackle coverage issues under Mississippi and Louisiana law, in addition to Texas. Congratulations to Justice Willett.

The Firth Circuit is based in New Orleans. NOLA has a lot of characters. It will soon have 140 more.

WSJ: Size of The Cyber Insurance Market
There has been so much written about the size and potential size of the cyber insurance market, with numbers all over the place, that I don’t know what to believe. But I trust The Wall Street Journal to get it right or choose the most reliable sources. So when the WSJ did a story on cyber insurance last month I felt confident in what I was reading. Here’s what the WSJ had to say about the size of the cyber insurance market: “The market for cyberinsurance has soared in the past several years. In June, Fitch Ratings said the industry grew by 35% in 2016, with total premiums of $1.35 billion. The ratings firm added that it ‘likely underestimates’ the industry’s size, because it is difficult to break out cyberinsurance coverage from multifaceted policies. Researchers from Allied Market Research predicted that demand for cyberinsurance will continue to boom in coming years, and forecast that the global market may reach $14 billion by 2022.”

WSJ: Hurricane Claims And The Need For More Adjusters
The Wall Street Journal had a fascinating article last month on the immense challenge that some insurers are facing to have enough adjusters to handle the massive number of claims created by the one-two punch of Hurricanes Harvey and Irma (now throw in Maria and Nate). The WSJ article details the ways that insurers are confronting the shortage and the significant income that some adjusters can make following a large scale claims event such as these hurricanes. I was pleased to have an opportunity to provide a quote for the story, here.