Words You’ll Only Hear In A Coverage Decision
“This case has been pending for nearly three decades.” Johnson Controls, Inc. v. Central National Ins. Co., No. 2014AP2050 (Wis. Ct. App. April 25, 2018).

Being Wrong Is Not Bad Faith
Given that some policyholder counsel are so fond of alleging that a wrongful coverage determination is bad faith, it never hurts to see another court make this observation: “In their summary judgment briefs, the parties agreed that the disposition of the bad-faith claims turned on whether plaintiff’s conduct in declining to defend WARF in the underlying litigation and subsequent refusal to pay on the policy was based on a ‘reasonable or plausible interpretation of the policy.’ (citation omitted). Here, plaintiff’s interpretation of the applicable exclusions was ultimately incorrect, but it was not unreasonable. For example, a letter mailed to WARF’s counsel on December 30, 2014, parsed the policy language and provided relevant case law in an effort to justify why plaintiff was not obligated to defend the underlying suit.” Scottsdale Ins. Co. v. Byrne, No. 16-11435 (D. Mass. May 2, 2018).

Court Changes Its Mind: Goes From Pro-Rata To All Sums Allocation
On November 15, 2016, the Eastern District of Missouri, in Zurich v. Ins. Co. of America, predicted that Missouri courts would apply pro-rata allocation to coverage for an asbestos bodily injury claim that triggered multiple policy years. Subsequently, the Missouri Court of Appeals held in Nooter Corp. v. Allianz Underwriters that “all sums” allocation applied to an asbestos bodily injury claim that triggered multiple policy years. The court in Zurich v. Ins. Co. of America, No. 14-1112 (E.D. Mo. May 8, 2018) responded to Nooter: “Missouri law requires an ‘all sums’ allocation method to hold targeted-insurer ZAIC liable for the entire asbestos exposure loss incurred by its insured A-B [Anheuser-Busch]. Justice requires that the interlocutory Order of November 2016 be vacated. Because Nooter holds that the targeted insurer is liable to its insured for the entire loss under an ‘all sums’ policy, ZAIC is liable to its insured A-B for the entire amount of the settlement and defense costs, and it may not avoid its obligations under the contract through equitable contribution from the insured.”

Wisconsin Supreme Court: Failure to Train/Supervise Not An “Occurrence”
A lot of ink has been spilled lately addressing Liberty Surplus Insurance Co. v. Ledesma and Meyer Construction Co. Inc., currently pending before the California Supreme Court. The court is poised to answer whether a construction company’s negligent hiring and supervision of an employee, who sexually assaulted a student at a middle school, where the company had been working, qualified as an accident (occurrence) for purposes of a CGL policy. The case was argued in early March and the decision is highly anticipated, especially since it may shed light on the larger question, under California law, of what’s an accident, and not simply the narrow negligent supervision question presented.

But while all eyes have been on Ledesma, the Supreme Court of Wisconsin quietly got the scoop. On May 11th the highest court in the Badger State held in Talley v. Mustafa, No. 2015AP2356 (Wis. May 11, 2106) that “[w]hen a negligent supervision claim rests solely on an employee’s intentional act of assault and battery without any separate basis for a negligence claim against the employer, no coverage exists.” In other words, if it’s not an accident when an employee strikes someone in the face, the employer’s failure to prevent the assault is also not an accident.

The facts at issue in Talley v. Mustafa are simple. Mustafa Mustafa owned a convenience store. Archie Talley entered the store to buy beer. Talley claims that Mustafa’s security guard punched him in the face twice. Talley was treated for a broken nose. Talley filed suit, including claims against Mustafa, that he failed to train and supervise his employees. On the issue of coverage for Mustafa, in the coverage action, the Wisconsin Supreme Court, with three justices dissenting, reversed the court of appeals and held that no coverage was owed: “This policy applies only to bodily injury caused by an ‘occurrence,’ which is defined as an accident. Intentionally punching someone in the face two times is not an accident under any definition. Accordingly, the negligent supervision claim against Mustafa can qualify as an occurrence only if facts exist showing that Mustafa’s own conduct accidentally caused Talley’s injuries. Because there are no facts in Talley's complaint (or in any extrinsic evidence) alleging any specific separate acts by Mustafa that caused Talley’s injuries, there is no occurrence triggering coverage for the negligent supervision claim. The only specific assertion Talley made in this regard is that Mustafa should have trained Scott not to hit people. We hold that when a negligent supervision claim is based entirely on an allegation that an employer should have trained an employee not to intentionally punch a customer in the face, no coverage exists.” I’m pretty sure policyholder lawyers do not agree with this decision. While Ledesma was cheer captain, Talley v. Mustafa was on the bleachers. It turns out that what insurers want has been here the whole time. [Sorry, Taylor.]

Kentucky Supreme Court: Even Consequential CD Damages Not An “Occurrence”
The number of decisions addressing whether faulty workmanship qualifies as an “occurrence,” under a CGL policy, is staggering. [There are 317 cases addressing this question in the Insurance Key Issues chapter.] But putting aside the disputed issue, whether faulty workmanship qualifies as an “occurrence,” it is widely held that, even if faulty workmanship does not qualify as an “occurrence,” consequential damages, caused by faulty workmanship, is an “occurrence.” [I know, Pa. aside.]

Not so said the Kentucky Supreme Court in Martin v. Acuity, No. 2016SC195 (Apr. 26, 2018). At issue was coverage for a contractor that was hired to dig the existing basement of a home deeper, pour new footers to stabilize the building and pour a new concrete floor. While doing so, the contractor failed to support the existing foundation adequately before digging around it. The old foundation began to crack and eventually the entire structure began to sag. Suit was brought against the contractor. Putting aside some steps and procedural issues, the question of coverage made its way to the Kentucky Supreme Court. In particular, the court had before it whether the structural damage to the home, caused by the contractor-insured’s work, was caused by an accident/occurrence.

Applying prior Kentucky supreme court precedent, the Martin court stated that “in determining whether an event constitutes an accident so as to afford the insured CGL policy coverage, courts must analyze this issue according to the doctrine of fortuity: 1) whether the insured intended the event to occur; and 2) whether the event was a “chance event” beyond the control of the insured. If the insured did not intend the event or result to occur, and the event or result that occurred was a chance event beyond the control of the insured, then CGL coverage covering accidents will apply to the benefit of the insured.”

In addressing fortuity, the court focused on an insured’s “control” of their work. The court held, despite the fact that the insured’s poor work was done in the basement, and it resulted in damage throughout the entire property, making it structurally unsound, the damage was not caused by an accident, as the insured had “full control” when conducting his work. The court adopted this test for an accident – one that seems will be difficult for contractors to satisfy in many cases, even when the damage is to work beyond that performed by the contractor: “For an event to be fortuitous, and therefore an accident, it must be ‘beyond the power of any human being to bring ...to pass, [or is] ...within the control of third persons...” I’m pretty sure policyholder lawyers do not agree with this decision.