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Coverage Opinions
Effective Date: January 31, 2018
Vol. 7 - Issue 1

Declarations: The Coverage Opinions Interview With Bob Woodruff
Trading The Anchor Of BigLaw For Co-Anchor Of ABC’s World News Tonight

Bob Woodruff spent four years practicing law before the desire to pursue a journalism career became too strong. He left BigLaw and took a 90% pay cut to start at the bottom of the broadcast journalism rung. He made it to the top – the anchor chair of ABC’s World News Tonight. Then he was nearly killed by an explosion while covering the war in Iraq. I visited Woodruff in his New York office, at ABC News headquarters, to talk about it all, especially his three decades old legal career. He didn’t think he’d have much to say about that. But I told him not so fast.

Randy Spencer’s Open Mic
A Cold One For Insured: “Fungi Exclusion” Precludes Coverage For Spilled Beer

Coming REALLY Soon: The 4th Edition Of “Insurance Key Issues”
New Addition Addresses Over 900 New Cases – Just Since 2014!
Check Out The New Cover

Look Who I Spotted Reading Coverage Opinions
And Why The Eagles Will Win Super Bowl LII

Coverage Opinions Super Bowl LII Ad

Spevacek-Maniloff NFC Championship Game Bet

Super Bowl LII Preview: The Best Of NFL Litigation

Damaged Pizza: Domino’s Carryout Insurance Program

Encore: “Coverage For Dummies” Hall of Fame
CO’s Annual Look, At Attempts To Secure Coverage For Doing Dumb Stuff, Takes A Break

Federal Court Lists 10 Requirements Of A Reservation of Rights Letter
Court’s Discussion Includes The All-Important “Fairly Inform” Requirement

Holy Smokestack: Another Court Considers Inapplicability Of CGL Pollution Exclusion Based On “Efficient Proximate Cause”

Court Simply And Clearly Explains Why ROR Does Not Justify Independent Counsel

Lawyers Dwell On Small Details: Court Defines “The” -- The Sometimes Overlooked Issue

Tapas: Small Dishes Of Insurance Coverage
• Court Holds “A Dog Has No Liability In Tort.” Really.
• Insured Cannot Drink Himself Into Coverage

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



Vol. 7, Iss. 1
January 31, 2018


A Cold One For Insured: “Fungi Exclusion” Precludes Coverage For Spilled Beer



Perfect timing. The Super Bowl is right around the corner and last month a court in Iowa addressed coverage for a claim involving beer. Speaking of which, I sure hope Budweiser has a Clydesdale commercial this year. I never get tired of seeing those magnificent animals.

At issue in Nelson v. Field of Dreams Mutual Ins. Co., No. 17-2365 (Iowa Dist. Ct. (Scott Cty.) January 12, 2018) was coverage for bodily injury sustained by a bar patron. Skip Nelson had been out with his friends at Is This Heaven? in Davenport, Iowa. As Nelson was headed to the men’s room he slipped on a spot on the floor where beer had spilled. He suffered a torn ACL. Making matters worse, Nelson’s attempt to break his fall resulted in a serious wrist injury. There was no dispute that Nelson had not been drinking. He was acting as a designated driver. He also testified that he considered himself a “darts stud.” Drinking interfered with his ability to play the game.

Nelson filed suit against Is This Heaven? for injury sustained on account of the bar’s failure to provide a safe premises for a business invitee. Heaven provided notice of Nelson’s suit to Field of Dreams Mutual, its general liability insurer. The insurer disclaimed coverage, citing the Fungi Exclusion in its policy issued to the bar. The insurer conceded that the Liquor Liability Exclusion did not apply as the “bodily injury” was not on account of Heaven causing or contributing to the intoxication of a person and nor did any of the other aspects of the Liquor Liability Exclusion apply.

Nelson and Heaven entered into a stipulated judgment for $125,000. As part of the arrangement, Heaven assigned its rights under its Field of Dreams policy to Nelson. Nelson agreed not to pursue collection of the judgment from Heaven.

Nelson filed an action against Field of Dreams Mutual, alleging that the insurer breached its obligation to provide coverage to Heaven for a defense and liability arising out of the lawsuit. Nelson sought payment from Field of Dreams of the $125,000 judgment and damages for its bad faith breach of the duty to defend.

Both sides filed motions for summary judgment. The court in Nelson v. Field of Dreams Mutual held that the insurer had no duty to defend Heaven on the basis that Nelson’s bodily injury was “caused directly or indirectly, in whole or in part, by any actual, alleged or threatened: … [e]xposure to; [e]xistence of; or [p]resence of, any ‘fungi’ or bacteria on or within a building or structure, including its contents, whether occurring suddenly or gradually.” The policy defined “fungi” as “any type or form of fungus, and includes, but is not limited to, any form or type of mold, mushroom or mildew and any mycotoxins, spores, scents or byproducts produced or released by fungi.”

As the court saw it, its decision was an easy one, dictated by two factors: its obligation to apply the policy language as stated and that beer is comprised of yeast, which is, the court noted, per Wikipedia: “eukaryotic, single-celled microorganisms classified as members of the fungus kingdom.”

Nelson conceded that the court’s obligation was to apply the policy language. But, he argued, that did not grant the court a license to ignore common sense. Nelsen also maintained that, in any event, the policy language did not support application of the Fungi exclusion, which contains an exception for “any ‘fungi’ or bacteria that are, are on, or are contained in, a good or product intended for human ingestion.”

However, the court was not convinced that the “human ingestion” exception applied, stating: “Of course, beer is a good or product intended for human ingestion. And if Mr. Nelson were injured, on account of drinking tainted beer, the Fungi exclusion would not apply. However, Mr. Nelson was injured when he came into contact with spilled beer. Beer on the floor is not intended for human ingestion." Id. at 6


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



Vol. 7, Iss. 1
January 31, 2018

Look Who I Spotted Reading Coverage Opinions

And Why The Eagles Will Win Super Bowl LII


The Eagles will win Super Bowl LII because of their crushing defense. It is so dominate that even Swoop, its loveable mascot, is focused on coverage. [No, Swoop does not read Coverage Opinions to learn about snowball insurance.]



The Eagles will win Super Bowl LII also because of their explosive offense. As you can see, Eagles QB, Nick Foles, learned from the best! I taught him everything I know about football – “Ok, go down to the fire hydrant and cut right and the (Nerf) ball will be there.” [FYI – Nick was a great sport when I asked him to write this silly thing when sighing the picture.]



Vol. 7, Iss. 1
January 31, 2018

Coverage Opinions Super Bowl LII Ad

Check out a frame from Coverage Opinions’s commercial set to appear during next week’s Super Bowl LII. Look for it during the first TV time-out in the second quarter. I know, you’re probably wondering how Coverage Opinions can afford a $5 million ad. Certainly not from your subscription fees. That’s for sure. But CO has tremendous income from foreign readers. I have been reluctant to discuss it as the cash has been kept in Luxembourg, the assets of a CO subsidiary shell company registered in Guernsey and owned by a Gibraltar trust. But with the new tax law giving favorable treatment to foreign cash repatriated to the U.S., I brought some home and CO can now afford to advertise during the big game.


Vol. 7, Iss. 1
January 31, 2018

Spevacek-Maniloff NFC Championship Game Bet

With the Eagles and Vikings poised to do battle for the right to play in Super Bowl LII it was obvious that my friend Chuck Spevacek and I were going to make one of those goofy bets that friends in rival cities do. Chuck is with Minneapolis’s Meagher & Geer and a very talented coverage lawyer. But don’t take my word for it. He was voted “Best Coverage Lawyer in Minnesota” by Best Lawyers.

So Chuck and I made one of those bets. You know the kind -- the loser wears the winner’s jersey for a day or the loser sends the winner the loser’s city’s most famous food. I would have sent Chuck soft pretzels and he would have sent me….Well, I’m not sure what he would have sent me.

In any event, with the Eagles beating the Vikings, Chuck will have to pay up: At the cocktail party at this year’s DRI Insurance Conference in NYC, Chuck will be singing the Eagles Fight Song. And he’ll need to do it with real gusto -- do it like he means it. A three judge arbitration panel will be convened, from party attendees, to be sure that Chuck does not just phone it in. I’ll pick an arbitrator, Chuck will select an arbitrator and the two will choose a neutral. If anyone is interested in sponsoring the event, so it appears in the conference brochure, let me know.

See you in New York in December. Chuck says stay home and buy the materials.




Vol. 7, Iss. 1
January 31, 2018

Super Bowl LII Preview: The Best Of NFL Litigation


Super Bowl LII is upon us. In fact, the pre-game show started yesterday. The Super Bowl has always been as much about the build-up and preparation for the game as the 3,600 ticks of the clock during which the winner is decided. There is lots to be done to get ready for kick-off. This is especially so for those having guests over to watch the big game. For party hosts, Super Bowl preparation is a world of decisions: Nacho chips -- go with scoops? How many pigs in a blanket will ten people eat? Solo cups or those crystal glasses that you registered for and never use? What to get for your healthy brother-in-law -- Baked Lays or crudité?

While most Super Bowl decisions involve food and drink, care should also be taken to ensure that the conversation stays football-focused in the event that the game is a dud. Lack of such preparation opens the door to your brother-in-law talking non-stop about cross fit.

Football is the national past-time. Litigation is a close second. So what better way to deal with any lull in the action than a discussion of the substantial number of lawsuits that surround the National Football League, its players and fans. There are hundreds of NFL-related judicial opinions. And that makes sense. The National Football League is a gargantuan business. And it has one of the highest of all profiles. In addition, the NFL is, understandably, very protective of its brand, image and intellectual property. The NFL would sue Mother Teresa if they caught her wearing a knock-off Saints jersey. I wouldn’t even chew gum outside the league’s Park Avenue office.

There are NFL-related cases involving such things as licensing, intellectual property, antitrust, use of players’ likenesses, collective bargaining, labor and draft issues, stadium issues, taxes, workers’ compensation, player eligibility, banned substances, broadcast issues, concussion-related issues and, wait, wasn’t there a little something about a football that was deflated?

But simply because the NFL is about tossing a ball around does not guarantee that all of the opinions surrounding its legal issues read like fun and games. Lots are still just dry decisions involving commercial litigation. That the case has something to do with football does not change that. And football does not offer what baseball does to create some interesting litigation – a ball that enters the stands at lightning speed.

But, as the following cases demonstrate, there are still plenty involving the league, its teams and fans that are unique, entertaining and eyebrow-raising -- some involving things you’d never even imagine. These cases are sure to generate plenty of discussion during the big game -- in case there are no Justin Timberlake fans in your house.

Brown v. National Football League (S.D.N.Y. 2002): Player’s suit for damages, from being struck in the eye by a referee’s penalty flag weighted with B.B. pellets, did not implicate the collective bargaining agreement between the players’ union and teams. [The procedure for filing a notice of appeal: throw a red challenge flag on the courthouse steps.]

Stoutenborough v. National Football League (6th Cir. 1995): Hearing impaired individuals failed to establish that the “blackout rule,” which prohibited live local broadcast of home football games that were not sold out, violated the Americans with Disabilities Act, because non-hearing impaired individuals could listen to the game on the radio.

Hackbart v. Cincinnati Bengals, Inc. (10th Cir. 1979): Holding that a professional football player intentionally struck by another player has the right to pursue a tort action. The court rejected the trial court’s decision that the only remedy a player has, for receiving an unlawful blow during a game, is retaliation.

Coniglio v. Highwood Services, Inc. (2nd Cir. 1974): Holding that it was not a violation of the Sherman Antitrust Act for a professional football team to require a person wishing to purchase season tickets to also purchase tickets to pre-season games. [Such practice may not be a violation of the Sherman Act, but it is a violation of morality.]

Jaguar Cars, Ltd. v. National Football League (S.D.N.Y. 1995): Addressing jurisdictional issues in a case by an automobile manufacturer, Jaguar, alleging that the Jacksonville Jaguars use of the name Jaguar was trademark infringement in violation of the Lanham Act.

Mayer v. Belichick (3rd Cir 2010): Holding that Jets season ticket holder could not maintain fraud and racketeering claims against the New England Patriots and head coach Bill Belichick for surreptitiously videotaping the Jets coaches and players on the field to steal their signals and coaching instructions. [Did the Pats really need such elaborate efforts to beat the Jets?]

Titlecraft v. National Football League (D. Minn. 2010): Holding that a trophy manufacturer’s fantasy football league trophy, looking similar to the Vince Lombardi Trophy, awarded to the winner of the Super Bowl, violated the league’s copyright.

Minnesota Police & Peace Officers Association v. National Football League (Minn. Ct. App. 2015): Holding that, for purposes of off duty peace officers carrying weapons, the Minnesota Citizens’ Personal Protection Act does not prevent the Vikings from complying with the NFL’s policy of prohibiting firearms within stadiums.

White v. National Football League (8th Cir. 2009): Holding that Michael Vick was not required to repay the Atlanta Falcons $16 million in bonuses for the remaining years of his contract that the quarterback was unable to perform after being indefinitely suspended by the NFL on account of pleading guilty to federal dog fighting charges.

Reed v. National Football League (C.D. Calif. 2015): Rejecting a claim for damages from an individual who alleged that the NFL stole his idea for a football version of the television program American Idol (“[A] contest-type reality television series where men compete against each other in football-related contests. Contestants would be graded by real NFL scouts who will follow the official Combine measuring process. The top performers will win a cash prize and an all-expense paid trip to visit with an NFL team and coaches, watch them practice, and sit on the side lines during a game.”).

Louie v. National Football League (S.D.N.Y. 2002): Rejecting fan’s claim that the NFL’s Super Bowl ticket lottery system violated the Americans with Disabilities Act because it disenfranchised disabled customers their right to obtain available accessible seats.

Bossier v. National Football League (E.D. La. 2003): Rejecting fraudulent joinder argument in a case brought by an individual who was injured while punting in the NFL Experience at Super Bowl XXXVI. When light rain created unfavorable conditions for punting, wood chips were spread over the kicking area.

Bouchat v. Bon-Ton Department Stores (and several hundred others) (4th Cir. 2007): An amateur artist faxed a sketch for a proposed Baltimore Ravens logo to the team. He said that if they used the logo he wanted a letter of recognition and autographed helmet. The Ravens adopted a logo that had a remarkable resemblance to the artist’s sketch. Years of litigation ensued. [So much for that helmet.]

Sims v. Jones (N.D. Tex. 2013): Court denied class certification to Super Bowl ticketholders who were denied or delayed access to the game or moved to lesser quality seats because temporary seats were not ready by game time.

Gallagher v. Cleveland Browns Football Company (Ohio 1996): Addressing claim by on-field video cameraman injured when a Houston Oilers receiver and Cleveland Browns defender collided while going for a ball that had overthrown the end zone.

Finkelman v. National Football League (3d Cir. 2017): Holding that a Giants fan had standing to maintain an action alleging that the NFL’s withholding of 99% of Super Bowl tickets from the general public, for Super Bowl XLVIII (in New Jersey), violated N.J.’s Ticket Law (part of the state’s Consumer Protection Act).

That litigation surrounding the NFL is extensive was noted by the Coniglio court nearly 40 forty years ago – incredibly, before every other case on this list was decided: “Whatever else might be said about professional football in the United States, it does seem to breed a hardy group of fans who do not fear litigation combat.”


Vol. 7, Iss. 1
January 31, 2018

Damaged Pizza: Domino’s Carryout Insurance Program

Domino’s has gotten into the insurance business. Really. The pizza giant is now offering Carryout Insurance. This means that the company will replace a carryout customer’s pizza that is damaged. I know. I’m sleeping better too.

Of course, you may know this already from the company’s television commercials touting its new program. In one, a man pulls into his driveway. And just as he exits his car a large tree falls and crushes it. Cut to a close-up of his panicked face as he realizes that the pizza inside his car may have been ruined. He retrieves the pizza. It is unscathed and he breathes a sigh of relief. But then, as he’s going into his house, he slips on his icy walkway. The pizza goes flying and lands on his lawn. In another spot, a Domino’s carryout customer places his pizza on the roof of his car while talking on his phone. You know this is coming -- he forgets it is there and pulls away. The pizza box takes a tumble and lands in the parking lot.

There are some terms and conditions that govern the Ann Arbor pizza behemoth’s replacement obligations. This is, after all, insurance. The fine print on the company’s website states: “Domino’s Carryout Insurance program is only available to carryout customers who return their damaged order, uneaten, in its original packaging (inclusive of an order label or receipt) to the store from which it was originally purchased within at least two hours of the time of purchase. Damaged orders will be replaced with identical products and no substitutions will be permitted. This is a limited time offer and store participation may vary.”

[Incidentally, I learned from the Domino’s website that you can register for pizza for your wedding gifts. I thought – Wow, how silly. Then I wondered the last time we used that Cuisinart.]

I reached out to the head flack for Domino’s and asked for some stories of customers who suffered an unfortunate pizza mishap and made a claim for a replacement. Also, I was curious about any claims that had been denied. The company did not reply to CO’s request for comment.

Domino’s Carryout Insurance sounds simple enough. But, of course, everything is simple…until you give it to a lawyer. The terms and conditions of Domino’s Carryout Insurance are fewer than a hundred words. In my hands they would have been seven pages, not counting endorsements for bread sticks. There are many scenarios that are not addressed in Domino’s terms and conditions. Here are some issues that could complicate Domino’s Carryout Insurance claims:

  • If a person drops a pizza in their kitchen, and makes a claim with Domino’s, as well as under the personal property section of their homeowner’s policy, which insurance provides primary coverage?

  • If a person slips on a neighbor’s icy sidewalk and drops their pizza, will Domino’s bring a subrogation claim against the neighbor’s homeowner’s insurer to recover the cost of the replacement?

  • If a damaged pizza is not returned within two hours of the time of purchase, is Domino’s required to prove that it was prejudiced by the notice provision? [Interesting question under Michigan’s varied “late notice” law.]

  • Consider a pizza that is dropped and six slices are damaged and two are not. If the customer eats the two undamaged slices, and seeks replacement of six, would a disclaimer by Domino’s, on the basis of the “not uneaten” exclusion, be impermissible on public policy grounds, as it penalizes the customer for mitigating its damages?

  • If someone takes a sharp turn in their car and the cheese slides off their pizza, but stays in the box, is the pizza considered “damaged?”

  • If someone eats one slice more than they should, is this slice considered “damaged,” based on a “loss of use” theory as it pertains to the others sharing the pie?

  • If a customer gets stuck at a railroad crossing for twenty minutes, and pizza rigor mortis sets in by the time he or she gets home, is the pizza considered damaged? [More generally, does “damage” require physical upset?]

  • During the drive home a customer’s three year old adds crayons as a pizza topping. Does the “no substitutions” rule mean that the replacement pizza must also have crayons on it?

  • Does Domino’s replace the entire pizza or hold back one slice as a deductible?

I could have written better terms and conditions for Domino’s Carryout Insurance. And you know what they say: Better terms and conditions. Better pizza.

Vol. 7, Iss. 1
January 31, 2018

Federal Court Lists 10 Requirements Of A Reservation of Rights Letter

Court’s Discussion Includes The All-Important “Fairly Inform” Requirement

The challenge to drafting an effective reservation of rights letter is that there is no set standard against which to measure your work. The insurance industry has not adopted a master reservation of rights letter. And no court or legislative body had decreed the requirements that will make a reservation of rights letter unassailable. So, without any benchmark, all the drafter can do is use his or her experience, and available judicial guidance, in an effort to hit all the necessary points of the letter. Or, to put it another way -- and, as a practical matter, a better way – avoid missing any necessary points.

Given this lack of judicial guidance, cases that address the requirements of a reservation of rights letter should be given careful attention. Nationwide Affinity Insurance Co. v. Laderout, No. 17-6012 (W.D. Mo. Dec. 7, 2017) is one. The court addressed the potential applicability of a business pursuits exclusion under a homeowner’s policy. The insurer undertook the insured’s defense under a reservation of rights. The insured, perhaps concerned that the business pursuits exclusion was going to doom any chance for coverage, also argued that Nationwide waived any coverage defenses because the letter sent by Nationwide, purporting to be a reservation of rights letter, did “not qualify as a reservation of rights letter under Missouri law because it did not clearly and unambiguously explain how the allegations in the initial Petition created coverage issues.”

But the court did not see it that way. It first set out ten things that a typical reservation of rights letter does most, if not all of: “(1) identifies the policy at issue; (2) quotes, or at least refers to, the relevant policy provisions and identifies any terms, conditions, or exclusions which may bar coverage; (3) refers to specific, relevant allegations in the complaint; (4) identifies which claims may not be covered; (5) explains in detail the basis for the insurer’s coverage position; (6) sets forth the proposed arrangement for providing a defense and, depending on the law of the jurisdiction, advises the insured of its right to independent defense counsel; (7) advises the insured of any actual or potential conflicts of interest between the insurer and the insured; (8) reserves the right to withdraw from the defense; (9) contains a general reservation of rights, including the right to assert other defenses the insurer may subsequently learn to exist during further investigation; and (10) uses the words ‘reservation of rights.’” (emphasis added) (citing New Appleman and Couch).

The Laderout court concluded that Nationwide’s letter did all of these things, noting that, in particular, it “clearly and unambiguously explains how the allegations in the underlying suit create coverage issues. It identifies the relevant Policy provisions, recounts the allegations in the underlying suit implicating these provisions, links these provisions to the allegations with sufficient detail, and then states a clear conclusion. It states: ‘[T]he policy excludes from coverage any damages which arise out of or in connection with a ‘business’ . . . [I]t appears that all of the damages either arise out of or in connection with Sprint Lumber, which is owned by Mr. Laderoute. Accordingly, this exclusion bars coverage for such damages.’ This was sufficient to make a valid reservation of rights of the ‘business pursuits’ exclusion.” (emphasis added).

The court’s conclusion that the insurer “linked” the policy provisions, to the allegations in the complaint, with sufficient detail, is the most important part of its discussion. This is where courts have been coming down hard on insurers, finding that their reservation of rights letters are ineffective, because this “linkage” was missing. Drafting a reservation of rights letter takes more than simply addressing the facts [in detail, hopefully] and citing policy provisions [and not numerous irrelevant ones, hopefully]. The important step is to then tie these two aspects together. If a policy provision is being cited in the reservation of rights letter, because it may preclude coverage, it should be accompanied by the allegations in the complaint that support this potential coverage defense. In other words, a reservation of rights letter must fairly inform the insured why coverage for some or all damages may not be owed.

I have addressed this issue umpteen times in past issues of Coverage Opinions, including, just last month, in my annual Top 10 coverage cases of the year article, in conjunction with a discussion of the South Carolina Supreme Court’s decision in Harleysville Group Insurance v. Heritage Communities, 803 S.E.2d 288 (S.C. 2017). This was the loudest, longest and clearest decision that I have seen holding that a reservation of rights letter – despite being many pages and citing loads of policy language -- can be ineffective because it failed to fairly inform the insured of the reasons why the insurer may not be obligated to provide coverage.

While Nationwide Affinity Insurance Co. v. Laderout is not loud or long, it is certainly clear that, in addition to other requirements, a reservation of rights letter must fairly inform the insured why, despite that it is being provided with a defense, the insurer may not have any obligation to provide coverage for some or all damages that are awarded. Citing the facts and policy language is not enough. They must then be “linked,” as the Laderout court noted. It seems clear that, without sufficient linkage between the allegations and policy language, the Laderout court would have found the reservation of rights letter to be ineffective.



Vol. 7, Iss. 1
January 31, 2018

Holy Smokestack: Another Court Considers Inapplicability Of CGL Pollution Exclusion Based On “Efficient Proximate Cause”

Last year the pollution exclusion in Washington was shaken to its core. As I’ve discussed, 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. The decision caused a lot of dropped jaws. In August, despite some strong amicus support from insurer groups, the Washington high court denied the insurer’s motion for reconsideration.

No other court – not even Washington – had interpreted the pollution exclusion based on the determination of “efficient proximate cause.” It is a concept well known to the interpretation of first-party policies -- but not third-party.

But now another court -- outside of Washington -- has considered whether “efficient proximate cause” is a basis to preclude applicability of the pollution exclusion. In Above It All Roofing & Construction v. Security National Ins. Co., No. 16-770 (N.D. Ok. Jan. 5, 2018), an Oklahoma federal court held that the pollution exclusion applied to a claim for damages caused by exposure to asbestos. However, in doing so, the court applied the “efficient proximate cause” rule. It was only the specific policy language at issue that prevented “efficient proximate cause” from otherwise serving as a basis to preclude the applicability of the pollution exclusion.

The pollution exclusion at issue in Above it All arose out of the following scenario. Townmaker, LLC owned a building in Pawhuska, Oklahoma. Townmaker contracted with Above It All Roofing to remove and replace the building’s roof system. At the time of the work, the first floor of the building was leased to Julie O’Keefe, who operated a business named The Cedar Chest. In general, O’Keefe alleged that, during the removal of the roof, silt, dirt, dust, and debris fell into the Cedar Chests store. Testing determined that the dust covering the store contained asbestos from the old roofing materials being torn out. Most of the items in the store were too contaminated to be salvaged.

O’Keefe filed suit against Above it All and Townmaker, alleging that she and The Cedar Chest suffered financial harm. The Cedar Chest was allegedly forced to close its business and O’Keefe allegedly suffered personal injury and emotional distress by breathing in and being repeatedly exposed to asbestos dust.

Above it All sought coverage for the O’Keefe suit from Security National. The insurer disclaimed coverage on several grounds, including the pollution exclusion, which precluded coverage for “‘bodily injury’ or ‘property damage’ which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.”

Security National argued that the pollution exclusion applied because all of the damages sought were wholly predicated upon the release or discharge of asbestos, being a “pollutant.” Above It All, on the other hand, argued that the damages were from Above It All’s negligent workmanship and not just the release of asbestos. In other words, Above It All argued that the damages were caused by two identifiable causes -- one potentially excluded (asbestos) and one not (negligent workmanship). Therefore coverage was owed.

The court made the following statement at the outset of its analysis: “Because the damages are alleged to have been the result of two causes, the court must consider the efficient proximate cause doctrine under Oklahoma law.” Of note, in making this statement, the court did so in a casual, matter of fact, as if everyone knows that, manner. However, for purposes of liability policies, it is not the case that, when damages are alleged to have been the result of two causes, the court must consider the efficient proximate cause doctrine. While that is often a principle in first party property policies, it has no place in the liability coverage context. And, sure enough, the cases that the Above It All court so casually cited, for the application of the efficient proximate cause doctrine, were either first party cases or based on first party property cases.

While the court concluded that the pollution exclusion still precluded coverage for O’Keefe’s suit, it did so not because the doctrine of efficient proximate cause did not apply. Rather, its decision was based on the fact that the policy “contracted around” the efficient proximate cause doctrine. In other words, the policy used language that expressly precluded coverage -- even if a loss arose from a combination of covered and excluded causes.

The court explained that “[t]he Security National policy’s pollution exclusion precludes coverage for ‘[b]odily injury’ or ‘property damage’ which would not have occurred in whole or part but for the . . . . escape of ‘pollutants' at any time.’”

As the court saw it, by using this language, the policy contracted around the efficient proximate cause doctrine: “The court concludes that the only fair and reasonable construction of the phrase ‘would not have occurred in whole or part’ is to preclude coverage in situations where the asserted damages were concurrently caused by ‘pollutants’ and ‘non-pollutants.’ The pollution exclusion’s requirement of ‘but for’ causation, rather than proximate cause, further indicates an intent to avoid application of the efficient proximate cause doctrine.”

Because the pollution exclusion was still in play, the court considered whether asbestos qualified as a “pollutant” and held that it did.

While the Above it All court held that the pollution exclusion precluded coverage, the real story of the decision is that, like Xia --although not cited – the court examined the pollution exclusion through the lens of the efficient proximate cause doctrine. It was only the policy language at issue – and not the fact that the efficient proximate cause doctrine has no place in liability policies -- that precluded its applicability.



Vol. 7, Iss. 1
January 31, 2018

Court Simply And Clearly Explains Why ROR Does Not Justify Independent Counsel

Sometimes insureds are quick to waive the independent counsel flag as soon as they hear that the defense being provided to them is pursuant to a reservation of rights (i.e., we don’t want panel counsel). Sure, sometimes a reservation of rights can entitle an insured to be defended by independent counsel -- and at the insurer’s expense. But lots of times the reservation of rights does not give rise to such scenario. Simply put, to trigger independent counsel, the reservation of rights must create a conflict of interest for panel counsel.

Tokio Marine Specialty Insurance Co. v. City of Laguna Beach, No. 17-277 (C.D. Cal. Dec. 18, 2017) provides a simple example, with a clear explanation, of a reservation of rights that did not create a conflict of interest to justify independent counsel. This is a departure from some cases on this issue, which can be quite lengthy and complex. The simplicity and clarity of City of Laguna Beach makes it a possibly attractive decision for courts confronting the issue.

In 2017, the owners of property located in Laguna Beach, California filed suit against the City of Laguna Beach for damages arising from a 2016 sewer backup. The complaint alleged that the City “created a dangerous condition of public property and acted with general negligence in managing its property by negligently failing to establish, operate, inspect, manage, maintain, repair, and clean its sewer lines causing a blockage to occur on the City-owned sewer line on Hillview Drive, Laguna Beach, California.”

Laguna Beach sought coverage from Tokio Marine under a commercial liability policy that provided environmental coverage insurance for “remediation expense resulting from contamination migrating from and beyond the boundaries of your insured location.” “Insured location” was a lengthy definition and it included “sanitary sewer trunk lines.”

The insurer undertook the City’s defense under a reservation of rights, including on the following basis: “[T]he claims ‘do not arise out of ‘contamination on, under or migrating from your insured location.’ Specifically, ‘[n]either the Residence where the contamination occurred, nor the lateral line to which the Residence was connected, constitutes ‘your insured location’ under the Policy.’ Moreover, there is no potential coverage if the damage arose from a clog in the sewer main line, ‘which does not constitute ‘your insured location’ because it is not a ‘sanitary sewer trunk line.’”

Despite the reservation of rights, Tokio Marine concluded that there was no conflict of interest that would require it to provide independent counsel to the City under Civil Code Section 2860. This is California’s so-called Cumis Statute, which provides that a conflict of interest arises, which creates a duty on the part of the insurer to provide independent counsel, “when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer.”

The court noted that California case law has explained that “[a] mere possibility of an unspecified conflict does not require independent counsel. Rather, the conflict must be significant, not merely theoretical, and actual, not merely potential. Moreover, a reservation of rights by an insurer does not necessarily constitute a conflict of interest requiring the insurer to provide independent counsel. Rather, such a conflict arises only when the basis for the reservation of rights is such as to cause assertion of factual or legal theories which undermine or are contrary to the positions to be asserted in the liability case.”

The court held, for several reasons, that the reservation of rights did not create a conflict to obligate the insurer to allow the insured to be defended by independent counsel:

“The City does not show how Tokio Marine’s reservation of rights as to the definition of the insured location would require appointed counsel to assert factual or legal theories which undermine or are contrary to the positions that the City wishes to assert in the Underlying Action. The focus of the Underlying Action is the City’s liability, i.e. whether a City-owned line was involved in causing the sewer backup. Thus, a reasonable defense would advocate that none of the City-owned sewer lines caused the backup, regardless of its type. Indeed, the parties agree that their interests are aligned relative to a defense that targets the property owners’ private lateral line.”

“For an actual conflict to materialize, Tokio Marine’s appointed counsel would have to advocate that a blockage in the main line, rather than a trunk line, was the causal factor leading to the backup. Such a position would necessarily concede the City’s liability. The City provides no evidence to support why appointed counsel would take such a position when a defense that denies the City’s liability would both align with the interests of the City and Tokio Marine and fulfill counsel’s fiduciary duties to both clients.”

“[I]t is not apparent that the facts on which coverage depends will be ruled on judicially in the underlying lawsuit. It is immaterial to the liability determination whether the blockage occurred in the main line or a trunk line; liability turns only on whether the homeowners’ lateral line was involved. In other words, while the Underlying Action may resolve whether any of the City’s lines is responsible for the backup, it is not likely to resolve which of the City’s lines was responsible. Thus, the City is not correct that the ‘outcome of [the] coverage issue can be controlled by the insurer’s retained counsel,’ because the coverage issue is not relevant to the liability issue.”

The City of Laguna Beach decision is a clear example of California’s principle that “[a] mere possibility of an unspecified conflict does not require independent counsel. Rather, the conflict must be significant, not merely theoretical, and actual, not merely potential.”



Vol. 7, Iss. 1
January 31, 2018

Lawyers Dwell On Small Details: Court Defines “The” -- The Sometimes Overlooked Issue

When it comes to coverage rules, it is as black as coal that the interpretation of an insurance policy starts with its language. Policy language is king. And there may be no better example of this than claims whose outcome depends on the distinction between “the” insured and “any” insured. It is not the least bit uncommon for claims to turn on whether certain policy language uses one or the other of these seemingly innocuous (really innocuous) terms. That millions of dollars can be dependent upon whether an insurance policy says “the” insured or “any” insured is the kind of thing that causes some people to dislike lawyers and insurance companies. But, remember, policy language is king.

A common example of this is an exclusion that applies to the “criminal act of any insured.” Consider a suit filed by the victim of an attack at the hands of a teenager neighbor living in his parents’ home. The teenager, as an “insured” under his parents’ homeowners policy, will likely seek coverage for the suit under the liability section of such policy. In many instances, the policy will contain an exclusion for, among other things, bodily injury which results from “the criminal acts of any [or an] insured.” And not surprisingly, if the teenage perpetrator–insured was convicted of a crime, the criminal act exclusion will usually preclude coverage for him.

It is likely that the plaintiff’s attorney in the underlying case is well aware that coverage for the perpetrator may be hard to come by because of the possible existence of a “criminal act” exclusion. For that reason, the plaintiff may allege that the teen’s parents bear responsibility for the victim’s injuries, by failing to prevent their son from causing them. What’s at work here is, in all likelihood, an effort by the plaintiff to secure insurance dollars by arguing that, because the parents did not themselves commit a criminal act, they are not bound by the policy exclusion.

While it is true that the parents themselves did not commit a criminal act, insurers frequently argue that coverage nonetheless remains unavailable to them. The insurer’s expected argument will be that the exclusion at issue applies to injury that results from the “criminal acts of any insured”—and “any insured” (the parents’ son) in fact committed a criminal act. In other words, in such a situation, expect insurers to maintain that the applicability of the criminal act exclusion is not limited solely to the insured that actually committed the criminal act. Rather, so the argument goes, it applies to all insureds, including so-called “innocent co-insureds.” Insurers frequently make this argument for good reason—because many courts accept it. Others do not, based on a conclusion that such interpretation would be inconsistent with the policy’s severability of interests clause, i.e., that, except for limits, each insured is treated as if a separate policy was issued to it.

But despite concluding that no coverage is owed to the innocent co-insured, courts sometimes point out that their decision would have been different if the exclusion at issue had applied to “criminal acts of the insured.” If so, the exclusion’s applicability would have been limited solely to the insured that committed the criminal act (the teenage son) and coverage for his parents would have remained available. Likewise, when an exclusion uses the phrase “the insured,” and, as a result, does not preclude coverage for an innocent co-insured, courts sometimes point out that the insurer could have used different policy language to achieve a different result.

In my experience, despite the frequency in which this issue arises, and many judicial opinions addressing it, some insurers overlook it. And then when it’s pointed out to them, some are incredulous that, despite supporting precedent, a court would uphold a disclaimer based on the difference between the words “any” and “the.”

Artisan & Truckers Cas. Co. v. A&K Rentals, LLC, No. 17-27 (S.D. Ill. Jan. 3, 2018) is an “any” insured versus “the” insured decision. These cases are routine and there is nothing groundbreaking about it. I overlook many of these types of decisions when selecting cases to address in Coverage Opinions. But I chose A&K Rentals for this issue of CO. First, it is always good to have a refresher on the topic, especially since, as I mentioned, some insurers overlook it. Second, that policy language is king is made just about as clear as possible when you consider that the court defined the term “the” in reaching its decision.

Richard Thessing worked for American Complete Access Hoist and Platform LLC. He drove a tractor-trailer to deliver a building hoist—a large device used for lifting very heavy loads—to a construction site. Workers used a crane truck to unload the hoist. However, the crane dropped part of the hoist onto Thessing, killing him. A wrongful death action was brought against several companies, including A&K Rental, which owned the tractor-trailer, the crane truck and the hoist. Another defendant was American Complete.

The opinion is a tad unclear but it seems that Artisan issued an auto policy to A&K and American Complete was an additional insured. The insurer sought to deny coverage to A&K based on the policy’s Employer Liability Exclusion, which precluded coverage for “bodily injury to . . . an employee of any insured arising out of or within the course of (i) that employee’s employment by any insured; or (ii) performing duties related to the conduct of any insured’s business . . . .” (emphasis added).

Artisan’s argument was simple -- Thessing was an employee of any insured—American Complete. Therefore, the Employer Liability Exclusion in the policy applied to preclude coverage for A&K, even though Thessing was not an employee of A&K. In other words, all that needed to happen, for the Employer Liability exclusion to preclude coverage for A&K, was that Thessing be an employee of “any insured.” And he was -- Thessing was an employee of American Complete, which was “any insured.”

But A&K did not see it this way at all. It made the classic counter-argument that the policy’s severability of interests clause precluded the insurer’s position: “[A&K points] to a severability clause in the Artisan Auto Policy which provides: ‘[e]xcept with respect to the Limit of Liability, the coverage afforded applies separately to each insured who is seeking coverage or against whom a claim or lawsuit is brought.’ A&K argues that the severability clause means that the policy covers A&K and American Complete as if they were separately insured—meaning that if Thessing was an employee of American Complete, then the exclusion would only preclude coverage from American Complete and not A&K.”

The court sided with the insurer, after turning to the dictionary for guidance, looking at the meaning of words that probably don’t get a lot of attention from dictionary users: “Merriam-Webster defines ‘the’ as ‘a function word to indicate that a following noun or noun equivalent is definite or has been previously specified by context or by circumstance.’ For example, ‘an employee of the insured’ indicates that the following noun—‘insured’—is a definite noun, specified by the context of the contract. So if A&K is the insured under the contract, and Thessing is not an employee of A&K, the employer’s liability exclusion would not apply to them because Thessing is not an employee of the insured. Unfortunately for A&K, the contract at issue excludes an injury to ‘an employee of any insured’—not ‘the insured.’ Merriam-Webster defines ‘any’ as ‘one or some indiscriminately of whatever kind.’ In that case, ‘an employee of any insured’ can be used to refer to one or some indiscriminate number of insureds in the contractual sphere outside of ‘the’ insured specifically at issue. . . . Even when you sever A&K away via the severability clause, Thessing is still an employee of ‘any insured’ of Artisan in this matter: American Complete.” (emphasis in original).

In reaching its decision the A&K court made the point that, under Illinois law, “the words of a policy should be accorded their plain and ordinary meaning.” In other words, policy language is king.

Vol. 7, Iss. 1
January 31, 2018

Court Holds “A Dog Has No Liability In Tort.” Really.
This from a recent South Carolina District Court addressing coverage for a dog bite claim: “In favor of coverage, Defendant argues, Lighthouse’s reliance on the Exclusion in seeking summary judgment is misguided because Defendant/Plaintiff J.N.’s injuries were not caused solely by Ms. Roger[s]’s dog but also by Ms. Roger[s]’s failure to maintain control over the dog. The Exclusion does not exclude coverage for losses caused by the negligence of Ms. Rogers. Instead, the Exclusion applies only to losses ‘caused by any dog[.]’ That argument is illogical. A dog has no liability in tort, so a dog bite exclusion from liability coverage necessarily refers to the conduct of the person responsible for the dog. Ms. Rogers had a duty to control her dog and for that reason, she is potentially liable for damages caused by her dog. Defendant argues as if a policy exclusion for dog bites simply means that the dog itself is not an insured party. That is not a reasonable interpretation of the exclusion.” Lighthouse Property Insurance Corp. v. Rogers, No. 17-1553 (D.S.C. Jan. 19, 2018).

Insured Cannot Drink Himself Into Coverage
When an insurer argues that no coverage is owed, because the insured intended to cause harm (i.e., no “occurrence” or “expected or intended” exclusion), insureds sometimes counter that they were intoxicated at the time that they caused injury. Thus, so their argument goes, they could not form the intent to injure someone. Therefore coverage should be afforded. While insureds have had some success raising this argument – as bold as it seems – it also has obvious challenges. This was pointed out by the court in Kogler v. State Farm General Insurance Company, No. 16-534 (N.D. Cal. Jan. 2, 2018). While noting that courts nationally go both ways on the question, the court held that “as our circuit has determined, California follows the principle that if an insured can form an intent to act, the intent to harm is irrebuttably presumed and evidence of a mental state is irrelevant. In that sense, other state decisions (citation omitted) are more consistent with the way California approaches questions of assaultive conduct and intent. While the Court shares the Hanover court’s concern [Mass. 1992] for victims and the desire to promote the ‘public interest that the victim be compensated,’ this cannot trump the policy language itself and the law in this jurisdiction. The Court is also mindful of the countervailing public policy that the decision to voluntarily intoxicate oneself -- with illegal drugs, no less -- should not be abetted or rewarded by the comfort that one’s ensuing savagery will be paid for by the insurance company. In addition, allowing voluntary intoxication to void an agreed-upon exclusion for intentional harm would unduly disrupt settled contract expectations.”