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Vol. 8 - Issue 4
April 30, 2019

Over the course of nearly seven years writing and publishing Coverage Opinions I have tried various new things when it comes to presenting information.  Some worked out as I had hoped.  Some didn’t – leaving me to wonder: what in the heck was I thinking.

I’ve decided it’s time for a “try something new” moment: The “Tapas in the Spotlight” issue of Coverage Opinions.  Regular readers of CO know that every issue features a column: “Tapas: Small Dishes Of Insurance Coverage.”  It provides just a brief summary of a few cases.  These are cases where there is a point to be made – but not enough about the decision to justify a full-blown article with analysis. 

This issue of CO is going to written in all tapas style.  Here’s why.  I am insanely choosy about which cases are discussed in CO as full articles.  To be selected, the case has to make an important point or offer a lesson or involve an emerging or not-often-discussed issue or have a surprising outcome or go in a different direction on an issue or be just plain interesting.  So if a court finds that an insurer does not owe coverage to an insured, who shot and killed someone in cold blood, because the bodily injury was not caused by an “occurrence,” the case is unlikely to make it onto these pages.   

Normally I can find five or six cases per issue that meet the CO criteria.  However, this time around, there are many, many more available.  Too many.  Rather than choose just five or six, and leave so many worthwhile cases on the proverbial editing room floor -- as I wouldn’t have time to address them -- I decided to include them all, but do so in time-saving Tapas style.  And so was born the “Tapas in the Spotlight” issue of Coverage Opinions.    

I hit just the high points of the decision, made the important points and kept the analysis and commentary brief (or just skipped it).  Admittedly, I did so, in some instances, in a longer fashion that traditional Tapas write-ups – old habits; you know what they say -- but the concept was the same.   Anyone interested in leaning more about the case can simply read it. 

So that’s the story behind this “Tapas in the Spotlight” issue of Coverage Opinions

[In case you are wondering, I wrote the above article on Porch v. Preferred Contractors Ins. Co., RRG before coming up with the “Tapas in the Spotlight” idea.]. 


Insurer Offered Independent Counsel – And Breached The Duty To Defend

Starr Indemnity & Liability Co. v. Young, No. 14-239 (D. Nev. Mar. 31, 2019) involved a situation where an insurer undertook its insured’s defense for a claim alleging that, as an employee of a massage parlor, he performed inappropriate sexual acts while performing a message on a patron.  The insurer undertook the defense under a reservation of rights.  The coverage issues asserted were as you may expect – “expected or intended” exclusion, “abuse or molestation” exclusion and “assault and battery” exclusion.  The insurer retained counsel.  However, based on the policy provisions asserted in the reservation of rights, the insurer offered its insured independent counsel, to be paid for by the insured.

Despite this offer, the Nevada federal court held that the insurer breached its duty to defend “by not obtaining an explicit waiver from Young as to his right for independent counsel since Starr understood that an actual conflict of interest existed between itself and Young.  The Court finds that Nevada law requires that an insurer obtain an explicit waiver of the right to independent counsel from an insured before it can proceed with dual or concurrent representation in an action in which an actual conflict of interest between the insurer and insured exists or has arisen.”

The attorney retained by the insurer discussed with the insured his right to independent counsel.  However, as the court saw it, this was not enough: “[T]he insured at the time a conflict arises will be in the confusing position, for one unversed in the law, with trying to understand a.) what it actually means to have an actual conflict with the insurer, b.) how they may not have actually received advice from the shared attorney if such advice conflicted with the interests of the insurer, c.) what it means to have an attorney who is not representing the insurer in the context of settlement negotiations, discovery and trial, and d.) how an independent attorney’s fees and expenses will be paid by the insurer while the attorney’s loyalty is only to the insured. This complex yet quite substantive-possibly dispositive-set of considerations does not lend itself to written notice or explication from the very attorney who has the actual conflict.”

Further, the reservation of rights letter purporting to inform Young of his right to independent counsel did not fully explain important aspects of his right to independent counsel, including but not limited to a.) the nature of the conflict that arose between Starr and Young and b.) the fact that Young would have the right to ‘independent’ counsel who would have no duty to report to or protect the interests of Starr.”


Court Uses ALI Restatement To Insurer’s Advantage

In Marus v. Allied World Ins. Co., No. 18-253 (D. Me. Apr. 23, 2019), the Maine federal court addressed coverage for claims under a lawyer’s professional liability policy.  Putting aside how it got there, an argument was made that the insurer acted in bad faith by seeking recoupment of its defense costs.  The court was unconvinced. 

In reaching its conclusion, in favor of the insurer, the court found support in the ALI’s Restatement of the Law, Liability Insurance: “At oral argument the plaintiffs’ lawyer argued that the reservation-of-rights provision for recoupment of claims expenses in the Endicott lawsuit and Allied World’s attempt to enforce it are actionable bad faith under the Count II claim. I do not find any Maine case that so holds, and the Restatement of the Law, Liability Insurance § 21, cmt. a (2018) states: ‘When an insurer’s claim to recoupment is based on a contractual right to reimbursement—whether because of a provision of the insurance policy or a subsequent agreement with the insured—it presents no legal difficulty.’ Here, Allied World’s reservation-of-rights letter had a recoupment provision and the plaintiffs did not reject it.”


North Dakota Enacts Legislation: Gives Chilly Reception To The ALI Restatement

On March 20, North Dakota Governor Doug Burgum signed into law H.B. 1142 which provides as follows concerning the state's rejection of the ALI's Restatement of the Law, Liability Insurance:

"Rules of interpretation. In addition to the rules of interpretation under chapters 1-01 and 1-02, in interpreting this title, a person, including the courts of this state, shall apply the Constitution of the United States of America and the Constitution of North Dakota, this code, and the common law of this state. A person may not apply, give weight to, or afford recognition to, the American Law Institute's 'Restatement of the Law, Liability Insurance' as an authoritative reference regarding interpretation of North Dakota laws, rules, and principles of insurance law."


Yikes: Insurer Bitten By Failure To Put A Defined Term In Bold

This is my kind of case.  First, it involves coverage for a dog bite.  Right there I love it.  Then it involves an issue that the court says has “scare authority.”  This is a one-two punch for choosing a case for CO.

At issue in Auto Owners Ins. Co. v. Kammerer, No. 18-02143 (D. Minn. Apr. 26, 2019) was coverage for the Kammerers, after their dog bit J.M., who had been watching the Kammerers’ dogs while they were away.  The policy defined “insured” to include any person legally responsible for animals owned by the Kammerers.  It was agreed that J.M. was responsible for the dog that bit her. Thus, J.M. was an insured as that term was defined. 

The policy stated that defined terms appear in bold face type whenever used in the policy.  Here’s where the problem started for the insurer.  The insurer did not believe that personal liability coverage was owed based on the policy’s “intra-insured” exclusion, which precluded coverage for bodily injury to any insured. 

However, as used in the “intra-insured” exclusion, the term “insured” was not in bold face text.  The insured seized on this and argued that, as used in the exclusion, “insured” has a different meaning than the bold face type meaning. 

For several reasons, the court sided with the Kammerers - rejecting the insurer’s notion that this was simply an inadvertent typographical error: “Perhaps some policyholders would conclude that words assigned special meaning in the DEFINITIONS section but appearing in plain text reflect typographical mistakes by Auto-Owners.  Under this interpretation, a hypothetical policyholder might conclude that the word ‘insured’ in the policy’s intra-insured exclusion should be interpreted as if it appeared in bold text, and that would mean J.M.’s claim is not covered. That is not, however, the only reasonable interpretation of the phrase ‘[t]hese words appear in bold face type whenever used in this policy.’  The point of the two sentences preceding the DEFINITIONS is to alert policyholders to the fact that ‘words appear[ing] in bold face type,’ have special meaning.  With that qualifier, a policyholder might reasonably think that the two sentences and the DEFINITIONS section as a whole do not say anything about the meaning of words not in bold text.  Also, the word ‘used’ in the second sentence need not-and really should not-be understood to mean ‘appear.’  The words have different meanings.  Relevant to interpreting the policy, ‘use’ means ‘[t]o put into service or apply for a purpose; employ.’” (bold and all caps in original).

But the court was not done with its work.  It had to address what “insured” means when it is not the policy’s defined term?  The court concluded that “it is at least reasonable to understand the word insured appearing in plain text to mean just that: the named insured or policyholder.” 

The moral of the story here for insurers is obvious.


Insurer Can Withdraw From Insured’s Asbestos Defense After Learning In Discovery That BI Was After Its Policies Expired 

I’ll keep this really brief.  If you have this issue you’ll want to check out the case.

In Fireman’s Fund Ins. Co. v. Hyster-Yale Grp., Inc, No. 106937 (Ohio Ct. App. Apr. 25, 2019), the insured argued as follows: “[T]he duty is determined solely with reference to the policy language and the allegations of the injury set forth in the plaintiffs’ complaints.  Because the policies require Fireman’s Fund to defend even ‘groundless, false, and fraudulent’ claims, and the complaints allege liability against Hyster-Yale, the duty to defend is ‘absolute.’  Therefore, according to Hyster-Yale, the duty continues until the asbestos plaintiffs amend their complaints, or there are judicial determinations of the actual dates of asbestos exposure due to Hyster-Yale.”

The court rejected this, holding as follows: “[T]he trial court properly concluded that Ohio law permits Fireman’s Fund to withdraw its defense of Hyster-Yale in asbestos lawsuits in cases in which there is indisputable, reliable evidence that the date of an underlying asbestos injury clearly occurred outside of the effective ‘policy period.’”  [The court reached the same conclusion with respect to Oregon law.]

It is not uncommon for this issue to arise in the context of asbestos complaints, where there is sometimes, at the outset, little said about the plaintiff’s dates of alleged exposure to the insured’s asbestos containing products or operations.  Query, can the case be stretched to contexts outside of asbestos-trigger?  And what qualifies as “indisputable, reliable evidence” to take the claim outside of the duty to defend? 


Insurer’s “Easy Button” To Avoid All Coverage For Construction Defects

The extent of coverage litigation, for construction defects, has reached the point of nuts.  You begin to wonder if anything gets built in America without a law suit filed for construction defects, followed by claims for coverage and sometimes followed by litigation on the subject.  So much of the litigation revolves around what’s an “occurrence,” exclusions J(5) and J(6), the “you work” exclusion and its “subcontractor exception,” trigger, Montrose issues, what’s “property damage” and other random issues.       

Well, Mt. Hawley Ins. Co. found a Staples-like “Easy Button” way out of construction defect problems.  It added a Breach of  Contract exclusion to its general liability policy issued to a contractor.  When its insured, a general contractor for the construction of an apartment complex, was sued by the owner with whom it had contracted, for various construction defects, Mt. Hawley was relieved of all obligations – defense and indemnity. 

The court rejected the insured’s argument that the “your work” exclusion’s “subcontractor exception” trumped the Breach of Contract exclusion: “While Schaffer and other subcontractors on the EHP Project may be partially responsible for the property damage claimed in the Underlying Action, the Breach of Contract Exclusion still negates Mt. Hawley’s duty to defend. There is no evidence to suggest, as Huser argues, that the subcontractor exception contained within the ‘Your Work’ Exclusion preserves coverage. . . . The subcontractor exception contained within the ‘Your Work’ Exclusion expressly modifies only the ‘Your Work’ Exclusion, not the other exclusions contained in the Mt. Hawley Policies.  Just because the ‘Your Work’ Exclusion preserves coverage for damage caused by subcontractors does not mean that other policy exclusions must do the same.”

Most importantly, for the Breach of Contract exclusion to serve as a walk-away for CD claims, the court held that the exclusion applied to claims that were not labeled “breach of contract.”  In other words, the court held that the exclusion applied to negligence claims: “In the Underlying Action EHP sued both Schaffer and Huser alleging they were at fault for construction defects in the EHP Project. EHP’s Petition clearly states separate claims against Huser and Schaffer: EHP’s Petition contains a section labeled ‘Huser's Breach of Contract and Negligence’ and another, separate section labeled ‘Schaffer's Breach of Contract, Negligence, Violations of the DTPA and Fraudulent Misrepresentations.’  The Underlying Action alleges that ‘HUSER has breached its contract or, in the alternative, has negligently supervised and staffed the project in question all proximately causing damages or producing damages which have far exceeded the minimum jurisdictional limits of this Court.’  Huser's contract with EHP imposed upon Huser a duty to supervise and staff the EHP Project with adequate subcontractors.  EHP alleges that Huser’s failure to hire and supervise qualified contractors directly resulted in the ‘property damage’ claimed in the Underlying Action.  In other words, EHP alleges that Huser was a ‘but for’ cause of the property damage claimed.  The facts and allegations in the Underlying Action therefore make clear that the ‘property damage’ at issue ‘ar[ose] directly or indirectly’ from Huser’s alleged breach of its contract with EHP.”

Well that was easy.


No Bacon For Insured For Hog Odor Claim (Shhh.  Don’t Tell Your Neighbors -- Or Risk Losing Coverage)

I’ve read a lot of “what’s an accident/occurrence” cases.  I’m not sure I’ve ever seen one, with the factors here, on which the decision turned.

At issue in Geidel v. De Smet Farm Mutual Ins. Co., No. 28627 (S.D. Apr. 10, 2019) was liability coverage for an insured, the former owner of farmland, in connection with land he sold for use as a hog confinement facility.  Specifically, claims brought by neighbors of the facility, for nuisance and trespass, on account of hog smell that emanated from it. 

This is not the first claim of this type.  Nor is it the second.  Not even the third.  These claims often involve the potential applicability of the pollution exclusion.  But forgot exclusions.  In Geidel, the claim never got past the insuring agreement.  The court held that no coverage was owed on account of the failure to satisfy the policy’s “occurrence” requirement, defined as “an accident, including loss from continuous or repeated exposure to similar conditions, which results during the policy period, in bodily injury or property damage, neither expected nor intended from the standpoint of the insured.” 

In reaching this conclusion, the court rejected the insured’s argument that the relevant inquiry was whether the injury to the neighbors was expected or intended.  Instead the court held: “While the record demonstrates Geidel [insured] may not have expected to get sued by the Finks [neighbor] because of Cedar Creek’s operation of the hog confinement facility, the allegations and record establish Geidel knew his neighbors would see, hear, and smell the facility on the property sold by Geidel.  Moreover, even if Geidel did not expect the Finks to object to hog confinement facility because they had previously raised hogs and Karl and Alene lived in Minnesota (away from their South Dakota property), the Finks’ complaint sets forth that prior to construction, they informed Geidel and Cedar Creek of their concerns.  Therefore, the Finks’ claims do not allege an ‘occurrence’ as it is defined by the policy.”

The fact that the neighbors objected to the placement of the facility, and the insured knew this, was the driver here.  The court further observed: “[A]ccording to the Finks, Cedar Creek and Geidel knew or had reason to know the Finks would object to the facility ‘due to the close proximity of the barn to Plaintiffs’ residential properties.’ The Finks asserted that despite this knowledge, Geidel did not consult with the Finks in determining whether the location of the hog facility ‘would be objectionable.’ Geidel also did not respond when the Finks sent Geidel and Cedar Creek a letter expressing their concerns before the facility was built.”     


9th Circuit (Not A Typo): Insurer Being Wrong On Coverage Is Not Bad Faith

Some policyholder lawyers argue that the definition of bad faith is simple: the insurer’s disagreement with anything he or she says.  But, in fact, bad faith (first-party) is hard to prove, given how high the standard is.  And no amount of policyholder counsel hyperventilation to the contrary will change this.  Courts consistently hold that, even when an insurer is determined to have been incorrect on its coverage determination, and, thus, now has a previously disclaimed obligation under its policy, it is not liable for bad faith damages as well.

You know that’s a solid rule when the Ninth Circuit Court of Appeals so holds.  In Berns v. Sentry Select Ins. Co., No. 17-56264 (9th Cir. Mar. 29, 2019), the Court of Appeals held that Sentry Select Insurance Company got it wrong in its interpretation of the word “intentional” as used in the definition of “act” in its policy.  The policy provided coverage for an “act” of “wrongful termination” or “harassment” committed in the course of employment.  However, there was an exception of any “dishonest, malicious, fraudulent, criminal or intentional ‘act.’”

While the insurer was now obligated to pay its insured’s defense costs, the court, in a familiar sounding opinion, concluded that the insurer was not liable for bad faith damages.  The standard for proving bad faith was just too high:  “In order to constitute ‘bad faith,’ there must be more than just an insurer’s contractual breach or mistaken judgment. (citation omitted) Berns has shown merely that the insurance company incorrectly denied him policy benefits, not that it acted in bad faith.  Berns had to show that Sentry was guilty of more than a mere ‘honest mistake, bad judgment or negligence.’  Because Berns has not shown a ‘conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement,’ he has not shown bad faith.  Although an insurer’s denial must be reasonable under all the circumstances, here, Sentry did not act unreasonably in interpreting the term ‘intentional’ to mean ‘voluntary.’ California law was then mixed as to the definition of ‘intentional.’  Some California cases interpreted the term ‘intentional’ broadly.”


Educational Decision: Pollution Exclusion Not Judged By Its State’s School Of Though 

When it comes to the pollution exclusion, there are generally two schools of thought.  Some states apply the Pollution Exclusion broadly, to all hazardous substances, and not simply so-called “traditional environmental pollution.”  Others apply the Pollution Exclusion narrowly, limiting its application to traditional environmental pollution.

It is fair to say that, based on its case law, Georgia is in the camp that applies the Pollution Exclusion broadly, to all hazardous substances.  Despite this, the court in Evanston Insurance Co. v. Xytex Tissue Services, No. 117-140 (S.D. Ga. Mar. 27, 2019) held that the pollution exclusion did not preclude coverage for fatal injuries caused by the discharge of nitrogen in a warehouse. 

In general, exposure to nitrogen would clearly be precluded from coverage in a state that applies the Pollution Exclusion broadly.  But not so in Xytex Tissue Services – because the facts mattered.  

The court’s decision was based on the fact that air is not considered unclear or impure because it contains nitrogen.  What killed the individuals was not exposure to nitrogen, but, rather, that nitrogen displaced the oxygen in the air. 

The court explained its decision this way: “When read as a whole, the provision is susceptible to multiple meanings.  Plaintiff [insurer] reasons that because nitrogen displaces oxygen in the air, it is an ‘irritant’ to persons attempting to breathe the air and is a ‘contaminant’ to the breathable air; the resulting bodily injury arose from that pollution.  Defendant Xytex responds that the Underlying Lawsuit alleges that lack of oxygen caused the injury and there is no contamination or irritation of the body in the way carbon monoxide and lead contaminate and irritate the body or water run-off contaminates a lake.  Finally, the Court cannot ignore the mandate to construe ambiguities against the insurer and that insurance exclusions are to be strictly construed.” 

It is a very interesting decision and demonstrates that there can be more to a pollution exclusion decision than simply knowing in which camp a state is.


Employment Practices Exclusion And Post-Employment Defamation

It is not unusual for the termination of an employee to go badly, resulting in post-employment disputes between the employer and former-employee.  Sometimes this arises when the former employee goes to work for a competitor of the former employer.  This can give rise to defamation claims, between the parties, on account of bad mouthing.

When a defamation claim is brought by the former employee, against the former employer, the question often arises whether it is excluded by the employment-related practices exclusion in the employer’s general liability policy.  After all, the conduct took place after the employment relationship had ended.
This was the issue in Technical Security Integration, Inc. v. Philadelphia Indemnity Ins. Co., No. 14-1895 (D. Ore. March 18, 2019), which the court noted was a case of first impression under Washington law.  The employment-related practices exclusion provided, in pertinent part: “This insurance does not apply to: ‘personal and advertising injury’ to: (1) A person arising out of any: (c) Employment-related practices, policies, acts or omissions, such as . . . defamation. . . .”

Here, a defamation claim was brought by a former employee, against his former employer, for allegedly telling others that he had been terminated for a variety of bad conduct, some of which was criminal.  Of note, the former employee had gone to work for a competitor of his former employer.

Addressing whether an employment-related practices exclusion precluded coverage for a former employee’s defamation claim, the court held that the magistrate judge got it right when he “concluded that the survey of out-of-state law suggested that courts: (1) apply a context-based evaluation to determine whether an employment-related practices exclusion bars coverage of a former employee’s defamation claim; and (2) draw a distinction between employment-related defamation allegations and competition or business-related defamation allegations.”

Here, the court concluded that, even though the underlying plaintiff’s employment with the insured was the “but-for” cause of the defamation, the defamation was caused by his actions and statements as a competitor in the marketplace.  Thus, the court concluded that the employment-related practices exclusion did not apply. 

The exclusion stated that it applied “whether the injury-causing event . . . occurs before employment, during employment or after employment of that person.”  The court did not address this aspect of the exclusion.  Presumably, this simply means that the exclusion is not inapplicable simply because the injury-causing event – defamation -- occurred after employment.  But it still needs to satisfy the requirement of being employment-related defamation and not competition or business-related defamation.


Court’s Narrow Interpretation Of The Business Pursuits Exclusion

Insurers generally have success when it comes to excluding liability claims, under a homeowner’s policy, based on the “business pursuits” exclusion.  But that was not the case in Ill. Farmers Ins. Co. v. Modory, No. 1-18-0721 (Ill. Ct. App. Mar. 15, 2019), despite the fact that the insured’s alleged conduct, that gave rise to his liability, took place at his place of employment.

Putting aside all of the details, as to how this fellow-employee tiff reached this point, the insured, Gerald Modory, was sued for defamation, for allegedly doing the following, after Joan Nebel was allegedly terminated as a Sergeant, in Public Safety, at a college: “Following her termination, Mr. Modory posted copies of a flyer in the patrol, sergeant’s, and interview rooms advertising a one-day workshop for ‘Problem Employees and the Games They Play.’  Mr. Modory altered the flyer to include a photograph of Ms. Nebel next to the title.  According to the flyer, the workshop would help attendees ‘learn what games are actually being played and why problem employees are motivated to play these games,’ with a special emphasis on ‘addressing gossip and rumors.’  Ms. Nebel alleged that her photograph juxtaposed with the workshop’s title ‘intentionally created the impression that Ms. Nebel was herself a ‘problem employee’ who engaged in these actions.’”

At issue before the court was the potential applicability of the “business pursuits” exclusion contained in Mr. Modory’s homeowner’s policy, which provided as follows: personal injury that ‘arises from or during the course of business pursuits of an insured.’ An activity is a ‘business pursuit’ if it ‘is a continuous or regular activity done for the purpose of earning a profit.’”

The court concluded that the “business pursuits” exclusion did not preclude a duty to defend:

“To fall within the business pursuits exclusion, the injury-causing act must be within the scope of employment and be employment-related activity.  Thus, for Mr. Modory’s allegedly defamatory conduct to fall within the business pursuits exclusion, so as to preclude Farmers’ duty to defend, the allegations in the underlying complaint must show, free and clear from doubt, that such conduct was a continuous or regular employment-related activity he performed during the scope of his employment as a training officer in the Department of Public Safety at OCC. Farmers bears the burden of proof.

Review of the underlying complaint shows that it is not at all clear and free from doubt that Mr. Modory’s allegedly defamatory conduct fell within the business pursuits exclusion. The complaint alleged that Mr. Modory was a training officer in the Department of Public Safety at OCC, but it did not allege that his altering and posting of the flyer advertising a one-day workshop for problem employees, with Ms. Nebel’s photograph next to the title, was done at his employer’s request or direction, or that he altered or posted it during working hours.  There was no allegation that the altering and posting of such a flyer was the type of activity that Mr. Modory was regularly called on to perform pursuant to his employment or that it in any way fell within the scope of his employment. Rather, a reading of the entire complaint reveals that Mr. Modory’s altering and posting of the flyer, indicating that Ms. Nebel was a problem employee, was done due to his personal animosity toward her, as demonstrated by his calling her a derogatory name, hanging up on her, and stating that he did not like or respect her, and was not an employment-related activity that was performed in his capacity as a training officer or on behalf of OCC.” 


Insurers Ask Court To Define What The Term “Trigger” Means

The term “trigger of coverage” is a funny thing.  Not funny ha-ha, but funny interesting.  Despite being such a common term when discussing the availability of coverage -- or not -- under a liability policy, “trigger” appears nowhere in such policies.  [At least not in any standard form policies and I’ve never seen it used in any non-standard form.]  In King County v. Travelers Indemnity Co., No. 14-1957 (W.D. Wash. Mar. 26, 2019), the insurers (a lot of them; 3 ½ pages needed to list them) asked the court to define “trigger of coverage” in the context of an environmental coverage case. 

It’s a very short opinion – except for the list of lawyers -- but the issue was this.  All parties seem to agreed that “trigger” means the existence of property damage during the policy period.  But the insurers wanted a ruling that, simply because a policy is triggered, that does not mean it’s game-over.  In other words, coverage under a “triggered policy” must still be established.  The court complied with the insurers’ request: noting that “trigger is a necessary – but not sufficient – element of establishing entitlement to coverage under the polices at issue[.]”  Further, the court held that “the term ‘trigger of coverage’ means ‘what event must occur for potential coverage to commence under the terms of the insurance policy’ and ‘what must take place within the policy’s effective dates for the potential of coverage to be ‘triggered.’”


Tingly Fingers Are Not “Bodily Injury”

As general rules (and everything has exceptions), emotional injury does not qualify as “bodily injury” under a general liability policy that defines “bodily injury” as “bodily injury, sickness or disease.”   [I know.  I know.  Lavanant in New York.]  But, emotional injury, that results in physical manifestation, does qualify as “bodily injury” under this definition.  In those states that apply this rule, a follow-on question often arises: So just what is physical manifestation of emotional injury?  Courts have been confronted with a wide-range of offerings, including: feelings of paranoia, anxiety, dazed confusion, lack of safety, embarrassment, crying, shaking, sleep difficulties, weight loss, hair loss, fragile fingernails, headaches, stomach pains, muscle aches, dry throat, rise in body temperature and a knot in one’s stomach.
Thanks to Knutsen v. State Farm, No. 2-88 (D. Vt. Mar. 25, 2019), we can now add tingly fingers and trouble sleeping: “Even looking beyond the facts alleged in the Complaint, as the Knutsens urge this Court to do, there is only a small basis for supporting a claim of bodily injury: Cegalis testified at trial to tingly fingers and trouble sleeping. These slight, physical manifestations may offer insight into the severity or extent of Cegalis’ emotional harm, but they are thin facts upon which to rest a duty to defend.  Since these minor symptoms all stem from her emotional distress, which is explicitly excluded from the State Farm policy, State Farm is not obligated to indemnify or defend the Knutsens in the Cegalis lawsuit.”  [While the issue in Knutsen arises in a different context than whether emotional injury is “bodily injury, sickness or disease,” the impact is the same.]


Florida Supreme Court To Address Whether Insurer Can Bring Malpractice Claim Against Defense Counsel

In late January, the Court of Appeal of Florida held in Arch Ins. Co. v. Kubicki Draper LLP that an insurer lacked standing, to sue a law firm that it retained to represent an insured, for malpractice.  The insurer maintained that the law firm’s delayed filing of a defense resulted in a settlement, using the insurer’s funds, which would have been avoided, in whole or in part, if the law firm had raised the defense earlier.  The court concluded that the insurer had no standing to sue as it lacked privity with the law firm. 

The insurer filed a motion requesting the appeals court to certify the question to the Florida Supreme Court.  The appeals court granted the motion and sent the following “question of great public importance” to Florida’s top court: “Whether an insurer has standing to maintain a malpractice action against counsel hired to represent the insured where the insurer has a duty to defend.”  Arch Ins. Co. v. Kubicki Draper LLP, No. 4D17-2889 (Fla. Ct. App. Mar. 20, 2019). 




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