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Coverage Opinions
Effective Date: September 23, 2020
Vol. 9 - Issue 6

Declarations: The Coverage Opinions Interview With Trey Gowdy
Prosecutor: "That's the job I want to be known for."
Trey Gowdy is of course well-known for his eight years in the U.S. House of Representatives. But he disliked the experience and wants to be known for his sixteen years as a prosecutor. I spoke to Gowdy about his time as an assistant U.S. attorney and state district attorney, as well as his recent #1 NYT bestseller about the art of persuasion. An hour on the phone with Gowdy and I didn't ask him a simple political question. He had no complaints.

Randy Spencer's Open Mic
This Coverage Dispute Is The Pits

Encore: Randy Spencer's Open Mic
Insurance For The Summer Road Trip

Introducing The "At-Home Version" Of Insurance Key Issues

This Could Be One Grouchy Insurance Company

Randy Spencer Is Keeping The King Safe

Court Finds Russian Interference In The CGL Policy's Insuring Agreement

This Line From A Coverage Decision Made Me Smile

Novak Djokovic Booted From U.S. Open: Was It For An "Accident?"

Dog Gets "One Free Bite" – For Coverage

Independent Counsel Or Not: Two Common Construction Defect RORs

Insurer Says USC-ya In Court: Policyholder Can't Compel Arbitration

Policyholder Head Exploding Decision
Insured Must Request Defense Or No Coverage – Even If Insurer Knows About Claim

Supreme Court Adopts A 12-Corners Test For Determining Insurer's Duty To Defend

A Fish Tale Leads To A Coverage Dispute In A State High Court
Lesson in Policy Drafting

Tapas: Small Dishes Of Insurance Coverage
• Challenge Of Allocation Of Defense Costs Between Covered And Uncovered Claims

• Physical Restraint And Physical Bodily Confinement Are Not "Bodily Injury"



Back Issues:
  Volume 5 - Issue 12 -December 7, 2016
  Volume 6 - Issue 2 -February 13, 2017
  Volume 8 - Issue 1 - January 3, 2019
  Volume 9 - Issue 1 -January 8, 2020
  Volume 9 - Issue 2 -February 26, 2020
  Volume 9 - Issue 3 -March 24, 2020
  Volume 9 - Issue 4 -May 31, 2020
  Volume 9 - Issue 5 -July 16, 2020


Vol. 9 - Issue 6
September 23, 2020


This Coverage Dispute Is The Pits






Randy Spencer is in a slump. The guy has let me down for the past several columns. They just haven't been very good. Hopefully he'll break out of it soon. If not, I'll have to consider looking for a replacement.

FYI – I'll remind you that you do not pay for this fine publication. So if you believe that, on account of this slump, you are getting your money's worth from CO, I'm not going to lose any sleep.

The end of summer has arrived. There will be many things to miss about it – especially in February. For me, near the top of the list, is summer fruit. My own grandmother could be granny smith herself, and I'd choose watermelon over any apple she offered me.

Peaches, plums, cantaloupe, corn on the cob. I will miss them all. I know. I know. Corn on the cob is not a fruit. But it is sold in the fruit department. So that makes it a quasi-fruit. And it is something that I'll miss about summer -- so I am including it here.

One of the kings of summer fruit is the cherry. Boy, how great are those red and white ones -- that cost like $12 a pound. They are called Rainier cherries. That's because only Prince Rainier can afford them.

Cherries were recently at the heart of a lawsuit and subsequent coverage dispute. In 2019, Fred Crossman filed a putative class action against four supermarkets in Rockingham County, New Hampshire. In Crossman, and all others similarly situated v. Franx Markets, et al., No 19-2397 (Rockingham Cty. Sup. Ct. Nov. 11, 2019), Crossman alleged that the supermarkets pricing of cherries was fraudulent, as the per-pound price did not specify that it included the inedible pit. Crossman alleged that one-third of the weight of a cherry is its pit. Thus, if cherries were priced as $3 per-pound, they were inflated by $1 per-pound. Crossman alleged that the supermarkets should have included an explanation, next to the per-pound price of cherries, stating that one-third of the weight is for a non-edible portion of the fruit. Crossman asserted all manner of state consumer protection laws, as well as counts for breach of contract and common law fraud against the supermarket defendants.

One of the defendants, Drum Markets, sought coverage for the Crossman action under its commercial general liability policy issued by Live Free or Die Property & Casualty Insurance Company. Live Free or Die disclaimed coverage on the basis that the suit did not seek damages because of "bodily injury," "property damage" or "personal and advertising injury." Rather, as Live Free or Die saw it, the Crossman action alleged only economic losses suffered by the plaintiffs – paying one-third of the price for a pound of cherries that was not for an edible product.

Drum retained its own counsel to defend the Crossman action and filed a coverage action. In Drum Markets v. Live Free or Die Property & Casualty Insurance Company, No 20-1732 (Rockingham Cty. Sup. Ct. Aug. 29, 2020), the court denied Live Free or Die's motion for summary judgment and granted Drum's. Thus, the court held that Live Free or Die owed a defense to Drum's.

The court concluded that the Crossman action did, in fact, seek damages because of "property damage." The complaint alleged that the Crossman plaintiffs suffered a "loss of use of tangible property that is not physically injured," which is one of the definitions of "property damage" in the Live Free or Die CGL policy.

Specifically, as the court put it: "The Crossman plaintiffs paid full price for entire cherries -- but lost the use of them, to the extent that they were not able to eat the portion that was the pit." The court declined to address Live Free or Die's argument that the "Your Product" exclusion applied, as the insurer did not include the exclusion in the disclaimer letter, thereby waiving it.

The court concluded by making the observation that the underlying Crossman suit was outlandish, but that was of no consequence for the insurer's defense obligation, which applies even to groundless, false and fraudulent suits. Nonetheless, the court observed that "the judiciary must act to stem the tide of this abuse."
That’s my time. I’m Randy Spencer. Contact Randy Spencer at




Vol. 9 - Issue6
September 23, 2020


Encore: Randy Spencer’s Open Mic

Insurance For The Summer Road Trip








Summer is here.  And for many that means a road trip.  Pack up the station wagon, put the ear-phone wearing, sulking kids in the back seat, and take off to see this great country.  And, of course, the best road trip is one that includes stops at roadside curiosities.  And the country is full of them – there’s the 55 foot Jolly Green Giant statue in Blue Earth, Minnesota and the 33 foot tall office chair in Anniston, Alabama.  And a million more.

Most roadside curiosities seem innocent and safe enough.  As far as I can tell from the pictures, the colossal Jolly Green Giant and massive office chair look pretty sturdy.

But, of course, as in all things in life, the unpredictable is always lurking around the corner.  Thus, the purveyors of these quirky attractions need to be insured for all possible mishaps.  If they are not convinced that this is necessary, consider all of these things that could go awry at some of America’s greatest roadside curiosities:

World’s largest ball of twine (Cawker City, Kansas):  The world’s largest kitten shows up and eats two visitors from South Dakota.   

World’s largest donut (Inglewood, California): A gale force wind causes the world’s largest sprinkle to come loose and injures a tourist from New Hampshire.     
World’s largest chicken wing (1,037 pounds) (Madeira Beach, Florida): The onset of coronary artery disease begins after looking at it for five minutes. 
Eight foot tall bronze statue of The Toilet Paper Hero of Hoover Dam (Boulder City, Nevada): Statue blows over and wipes out the nearby shopping center.   
World’s largest ketchup bottle (77 feet) (Collinsville, Illinois): Two smart-aleck teens from Seattle disturb wetlands when attempting to build the world’s largest French fry on the site.

World’s largest thermometer (134 feet) (Baker, California): It falls over causing massive mercury contamination of the town’s aquifer.

Plaque marking the spot in Madison, Wisconsin where, in June 1977, Elvis Presley exited his limo and performed karate moves to stop two youths from beating another youth: Visitors take videos for Facebook, recreating the King’s karate kicks, and pull hamstrings.  

World’s largest wooden nickel (San Antonio, Texas): While advertised as 13 feet, visitors arrive and discover that it is, in fact, the size of an ordinary wooden nickel.  Sued for misrepresentation, the Wooden Nickel Museum (really) asserts the Don’t-take-any-wooden-nickels defense.

World’s largest charcoal grill (90 feet) (Magnolia, Arkansas): Father of five, wearing a “Kiss the Chef” apron, impales himself with the world’s largest skewer, attempting to grill the world’s largest steak kabob.

World’s largest spinach can (Alma, Arkansas)  World’s largest e-coli outbreak after an overzealous tour group cracks the can, attempting to lug it to Chester, Illinois, for a photo op with the world’s largest Popeye statue (6 feet).

World’s largest clothes pin (45 feet) (Philadelphia, Pennsylvania): Taxi driver is injured in a crash after several pairs of tattered boxer shorts break free from the pin and land on his windshield, obstructing his view.  Area frat boys later claim that the dryer was broken in their dorm.

So have fun hitting the road and enjoying the monuments to the imagination and good fun of many people.  Send a copy of yourself, standing in front of any of these curiosities, holding this issue of Coverage Opinions, and I will send you a Coverage Opinions coffee mug (next up on the swag to-do list).  Believe me, I agree.  It’s definitely not worth going out the way for, but if you happen to be in the neighborhood….   


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



Vol. 9 - Issue 6
September 23, 2020


Introducing The “At-Home Version” Of Insurance Key Issues


The recent 50% off-sale of Insurance Key Issues was a huge success.  Lots of people took advantage of it – which I suspect was driven by the price and a desire to get a copy for the home-office, if your office office copy is no longer accessible.     

Given the big demand for an at-home version of Insurance Key Issues, I have decided to introduce a copy table edition!  It would be the first-ever coffee table book that actually gets read.  Come on – when was the last time you opened that huge Picasso book?  Or even touched it for that matter – except to move it to make room for snacks during last year’s Super Bowl.


Vol. 9 - Issue 6
September 23, 2020


This Could Be One Grouchy Insurance Company


Regular readers of CO know that I love interesting names of insurance companies.  In fact, it was the subject of the first-ever Randy Spencer’s Open Mic Column eight years ago.  There are so many good ones to marvel at and wonder why the company chose to call itself what it did. A couple of my favorites: Lightening Rod Mutual Insurance Company and Elephant Auto Insurance Company.

I just came across another insurance company that gets a place on my interesting names list.  Needless to say, the customer service representatives could be a little grouchy.


Vol. 9 - Issue 6
September 23, 2020


Randy Spencer Is Keeping The King Safe


I am happy to report that the life-size Elvis that lives in my office is staying safe these days.  And it is courtesy of a couture Randy Spencer mask.   So the King of Comedy is keeping the King of Rock and Roll healthy.  [OK, King of Comedy might be just a wee-bit hyperbolic.]

[N.B. This Elvis stand-up is from the scene in Viva Las Vegas where he signs the movie’s title track.  But the best scene in the movie is the duet with Ann Margret of “The Lady Loves Me.”  It is a clever and amusing song and pulled off with aplomb by the two.  Check it out.]



Vol. 9 - Issue 6
September 23, 2020


Court Finds Russian Interference In The Commercial General Liability Policy’s Insuring Agreement


This federal court’s observation from last week, that reading the CGL Policy’s insuring agreement resembles unpacking a Russian nesting doll, makes sense.  I never thought of it this way.

“The dispute turns on how the Court unpacks a matryoshka doll of insurance tort terminologies. Continental’s and USF&G’s policies state that they cover bodily injuries and property damage if they are caused by an ‘occurrence’ taking place in the ‘policy territory.’ The term ‘occurrence’ in both policies is defined as an ‘accident, including losses caused by continuous or repeated exposure to the same harmful conditions.’  Though the term ‘accident’ is at the heart of whether Defendants’ duty to defend or indemnify terminated, it is undefined in the policy. . . . Black’s Law Dictionary defines ‘accident’ as: ‘An unintended and unforeseen injurious occurrence; something that does not occur in the usual course of events or that could not be reasonably anticipated; any unwanted or harmful event occurring suddenly, as a collision, spill, fall or the like, irrespective of cause of blame.”  Ludlum v. Liberty Mut. Ins. Co., No. 17-1243 (W.D. Pa. Sept. 17, 2020).



Vol. 9 - Issue 6
September 23, 2020


This Line From A Coverage Decision Made Me Smile


I couldn’t help but smile when I saw this line in the court’s opinion in Landmark Am. Ins. Co. v. Shurwest LLC, No. 19-4743 (D. Ariz. July 23, 2020):  “Landmark further alleges that coverage is precluded by Exclusions A, B, D, F, G, I, K, L, M, O, P, S, W[.]”

But wait, the insurer also maintained that two more exclusions applied [which seemingly were not identified by letters]: “Owned or Other Affiliated Entity” exclusion and “Violation of Consumer Protection Laws” exclusion.

So that makes 15 exclusions allegedly applicable.  Needless to say, the insurer thought it had a pretty good case.

So did the insurer win, you are no doubt wondering?  How could it have lost?  But I don’t know.  The decision was tedious.  It is one of those where it’s actually hard to tell who won.  And I didn’t have the patience to try to figure it out.  But I was amused by that line.]



Vol. 9 - Issue 6
September 23, 2020


Novak Djokovic Booted From U.S. Open: Was It For An “Accident?”


You may have seen the strange way that Novak Djokovic exited tennis’ United States Open three Sundays ago.  The world’s best player was agitated after losing a game.  In response, without looking he hit a ball behind him -- striking a line judge in the throat.  She was not seriously injured. Nonetheless, Djokovic, the very heavy favorite to win the Grand Slam tournament, was sent packing from the Billie Jean King National Tennis Center in Flushing Meadows, New York.

Because it involved Djokovic, the story drew worldwide headlines.  This one from The New York Times on September6th: “Novak Djokovic Out of U.S. Open After Accidental Hit of Line Judge.”  Notably, The Times used the word “accidental” to describe Djokovic’s action.  Other news stories referred to the incident in terms of an accident.  But was it? The answer may lie in a 150-year-old judicial decision.  

Djokovic certainly thought it was an accident, applying the classic test: he didn’t mean it.  In arguing against being “defaulted” – tennis’s genteel term for being kicked-out – the Serbian star reportedly told the tournament referee: “Yes, I was angry, I hit the ball, I hit the line umpire, the facts are very clear, but it wasn’t my intent, I didn’t do it on purpose.” He later turned to Instagram to apologize and reiterate his state of mind, declaring, “I’m extremely sorry to have caused her such stress.  So unintended.  So wrong.” There is no doubt that Djokovic is sincere and tournament officials acknowledged as much.

So Djokovic said it was an accident because he didn’t do it on purpose. However, in an official statement, the tournament explained its decision, borrowing the relevant language from Article III, Section N of the Grand Slam rulebook: “[F]ollowing his actions of intentionally hitting a ball dangerously or recklessly within the court or hitting a ball with negligent disregard of the consequences, the U.S. Open tournament referee defaulted Novak Djokovic from the 2020 U.S. Open.” Dangerous. Reckless. Negligent disregard of consequences. That all sounds pretty menacing and not the stuff of an accident.

Essentially, how Djokovic and tournament officials characterized what happened presents one of the long-standing legal debates whether an injury was caused by an accident. On one hand, Djokovic did not cause any injury on purpose, so he says it was an accident. However, the counter-argument: he acted in such a foolhardy manner that the injury was one just waiting to happen. So he did not have the requisite blamelessness needed to claim the mantle of accidental conduct.    

This push and pull is one that judges sometimes confront when called upon to determine whether, for purposes of insurance coverage, an injury was caused by an “accident.” Specifically, the question is at the heart of whether coverage is owed under a general liability policy (as well as other types of liability policies). As an all-important gateway to coverage, the “accident-issue” comes up a lot. Indeed, it is the oldest and most litigated of all issues concerning liability policies.

As far as Djokovic is concerned, he paid the ultimate price for what was just an accident. While the issue did not arise as an insurance claim, of course, case law in this context is one place the law turns to address whether he is correct.

For sure, it is not an easy question. The challenge was well-described by Justice Michael Musmanno, of the Pennsylvania Supreme Court, nearly six decades ago in Brenneman v. St. Paul Fire & Marine Ins. Co., 192 A.2d 745, 747 (Pa. 1963): “What is an accident? Everyone knows what an accident is until the word comes up in court.  Then it becomes a mysterious phenomenon, and, in order to resolve the enigma, witnesses are summoned, experts testify, lawyers argue, treatises are consulted[.]”

Writing for Pennsylvania’s top court, Justice Musmanno went on to observe that, even after a jury of twelve “world-knowledgeable individuals” have determined whether an accident has taken place, an appellate court may be called on to make the final decision.  

Courts have little trouble concluding that intentionally caused injury is not an accident. After that, it can turn into the enigma that Musmanno described.  

Key to a court answering the question here is that Djokovic has been on tennis courts thousands of times with line judges present. He knows that they are there -- and exactly where. He knew that the judge was at her post since a break between games was not a reason for her to have left. And Djokovic knew that he was not standing particularly far from the judge.  The best tennis player in the world is familiar with the amount of space behind the baseline.       

Given all this, under one definition, as set out by Washington appeals courts, it may not have been an accidental injury when Djokovic hit the ball, without looking, and struck the line judge.

“[W]here the insured acts intentionally,” the court stated, “but claims that the result was unintended, the incident is not an accident if the insured knew or should have known facts from which a prudent person would have concluded that the harm was reasonably foreseeable.”  State Farm Fire & Cas. Co. v. Ham & Rye, LLC, 174 P.3d 1175, 1181 (Wash. Ct. App. 2007). In a subsequent decision, the Washington Court of Appeals cited the aforementioned definition and added that an outcome is “accidental only if both the means and the result were ‘unforeseen, involuntary, unexpected and unusual.’”  Grange Ins. Ass’n v. Roberts, 320 P.3d 77, 88 (Wash. Ct. App. 2013).

So perhaps Djokovic, with all his experience with line judges – a lot – knew or should have known that, by hitting the ball behind him, injury to her was reasonably foreseeable. Thus, the injury was not unforeseen, involuntary, unexpected and unusual, so, therefore, not an accident.

Experience with the instrumentality that caused an injury played a part in another Washington decision, this one from the Supreme Court, that addressed whether an injury was caused by an accident.  At issue in Safeco Ins. Co. v. Butler, 823 P.2d 499 (Wash. 1992) was coverage under the liability section of a homeowner’s policy for an insured who shot someone who had used firecrackers to blow up the insured’s mailbox. The victim was in a car.

The insured argued that he did not intend to shoot him, but, rather, acted in self-defense or for purpose of breaking off any confrontation. His argument was that the shot that hit the victim was an “unintentional ricochet.” But, even if so, the court concluded that it was not an accident because the insured had the knowledge that a ricochet was possible: “Both the Air Force and the Oakland Police Department trained Butler in the use of firearms. Butler belonged to a pistol range and practiced shooting approximately once a month.”

Admittedly, some courts believe that the use of a reasonably foreseeable test, to answer the accident-question, is simply too limiting. As these courts see it, the result must have been more likely to have occurred before an insured will lose coverage.

For example, the Eighth Circuit Court of Appeals in Carter Lake v. Aetna Cas. & Sur. Co., 604 F.2d 1052, 1058 (8th Cir. 1979) concluded that the way to answer the question is to look at “whether a result is ‘expected’ as a matter of probability.” However, the court rejected “the argument that a result is expected as that term is used in insurance policies simply because it was reasonably foreseeable. . . . An insured need not know to a virtual certainty that a result will follow its acts or omissions for the result to be expected. . . . Rather, each case must be determined by examination of the totality of the circumstances. . . . If the insured knew or should have known that there was a substantial probability that certain results would follow his acts or omissions then there has not been an occurrence or accident as defined in this type of policy when such results actually come to pass. The results cease to be expected and coverage is present as the probability  that the consequences will follow decreases and becomes less than a substantial probability.”

One court applied this probability approach a long time ago -- a very long time ago. In Schneider v. Provident Life Ins. Co., 24 Wis. 28 (1869), the Wisconsin Supreme Court addressed whether a man was killed by an accident when, while attempting to board a slow moving train at a station, he fell under it and was crushed. At issue was coverage under an accidental death policy. The insurer maintained that it was not an accident as the deceased was negligent and this led to his fate.

However, the Wisconsin high court concluded that his death was caused by an accident, which need not be the product of an unknown cause. It can also be an unusual result of a known cause. While the court used a probability analysis to reach its decision – it was far from a reasonably foreseeable standard.

[C]ases in which accidents occur are very rare in comparison with the number in which there is the same negligence without any accident. A man draws his loaded gun toward him by the muzzle--the servant fills the lighted lamp with kerosene--a hundred times without injury. The next time the gun is discharged, and the lamp explodes. The result was unusual, and therefore as unexpected as it had been in all the previous instances. So there are, undoubtedly, thousands of persons who get on and off from cars in motion without accident, where one is injured. And, therefore, when an injury occurs, it is an unusual result, and unexpected, and strictly an accident. Id. at 30.

No doubt Djokovic would find support in this decision -- issued when Andrew Johnson was in the White House. Even if, in the past, Djokovic had hit balls behind him, in anger, without looking, he had never hit the line judge. Or, even if he had never hit a ball in this manner, if he had it is very unlikely that he would have struck the judge.
So the tennis star’s argument would go, just as only one person out of thousands is injured while getting on or off a train in motion, any injury that he caused to the line judge was an unusual result. Translation – an accident.
Alternatively, given all his experience with line judges, Djokovic knew or should have known that, by hitting the ball behind him, injury to her was reasonably foreseeable. Translation - not an accident.

Justice Musmanno got it right: “Everyone knows what an accident is until the word comes up in court.”  



Vol. 9 - Issue 6
September 23, 2020


Dog Gets “One Free Bite” – For Coverage


It is one of the oldest of old adages – every dog gets “one free bite.”  Translation – it is only after a dog has bitten someone, that the owner knows that its pooch has dangerous propensities, to justify liability for damages for any future bites.

But in some states, the “one free bite” rule is no more, having been replaced by statutes that impose strict liability on dog owners for injuries that their canines cause -- even for their first bite.  I guess dogs needed stronger lobbyists in state capitals.  Jeez, what are they going to take away next from our beloved family pets?  Cats only have seven lives.

The “one free bite” rule, while a liability concept, recently made its way into a coverage case.  Not to mention being at the heart of the decision.  At issue in Nationwide Property & Casualty Ins. Co. v. Finn, No. N18C-11-052 (Super. Ct. Del. Aug. 6, 2020) was coverage for Holly and Francis Finn, under the liability section of a Nationwide homeowner’s policy, for injuries caused when their dog, Gypsi, bit their three year old next-door neighbor, Max.  The incident took place on June 5, 2019.

While the case is about coverage for Max’s injuries that took place in June, the dog bite that really mattered in the case took place three weeks earlier.  On May 19, the Finns adopted Gypsi from an SCPA.  On that day, Mrs. Finn took Gypsi to visit their next door neighbor so that Gypsi could get acquainted with the neighbor’s dog, Ernie.  While the dogs were playing, Gypsi attempted to mount Ernie from behind.  Ernie, unpleased with the situation, turned and bit Gypsi’s behind.  Gypsi responded by biting Ernie.  The incident was reported and investigated by the State of Delaware Animal Welfare Department.

After Max’s parents sued the Finns for the later bite to Max, the Finns demanded defense and indemnity from Nationwide, their homeowner’s insurer.  Nationwide denied coverage based on the following exclusion:

Coverage E — Personal Liability and Coverage F — Medical payments to others do not apply to bodily injury or property damage: (o) caused by any of the following animals owned by or in the care, custody, or control of an insured: (5) Any dog with a prior history of: a) Causing bodily injury to a person; or b) Attacking or biting another animal; Established through insurance claims records, or through the records of local public safety, law enforcement or other similar regulatory agency.

As Nationwide saw it, no coverage was owed for the bite to Max since Gypsi had “a history of . . . [a]ttacking or biting another animal,” specifically, Ernie, during their ill-fated meet and greet three weeks earlier.    
The Smiths, Max’s parents, saw the issue differently.  They argued that the term “history” requires more than one prior bite, not to mention that Gypsi’s bite of Ernie here was defensive,

But the court, constrained by the “clear and unambiguous” policy language, disagreed:  “While an argument can be made that Gypsi did not attack Ernie,” the court observed, “there is no doubt that Gypsi bit Ernie. While Gypsi’s bite may have been defensive, the policy exclusion only requires that Gypsi bit Ernie, regardless of the reason.”

The court, analyzing the word “a,” also rejected the argument that the term “a history” implies more than one prior event.

Lastly, the court concluded that the “bite exclusion” did not contravene public policy.  To the contrary, the exclusion was more generous than public policy.  Delaware has a statute that imposes strict liability on a dog owner for injury caused by a bite.  In other words, Delaware does not offer dogs one free bite.  But the court observed that the exclusion does: “The Finns’ insurance policy actually provides coverage for the first bite.  However, it does not provide coverage for a second one.”




Vol. 9 - Issue 6
September 23, 2020


Independent Counsel Or Not: Two Common Construction Defect RORs 


If you look at the issue on a nationwide basis, you’ll find that, in a majority of jurisdictions, IF an insured can prove that a reservation of rights creates a conflict of interest, the insured is entitled to choose its own counsel at the insurer’s expense.  [And then bring on the rate dispute, but that’s a separate issue.] 

But that’s a big “if.” Policyholders often see conflicts, created by the insurer’s retention of counsel, that courts do not.  Try as they might, Policyholders cannot always convince courts that an insurer’s retention of panel counsel creates a conspiracy that rivals a second shooter on the grassy knoll. 

This is not to say that conflicts are never created by an ROR, thereby giving rise to a policyholder’s right to independent counsel. But it is not always so easy to prove.  Two recent decisions demonstrate this point – both involving issues that often arise in construction defect litigation that is defended under a reservation rights.  In both cases the court rejected the policyholder’s claim that the insurer’s defense, provided under a reservation of rights, gave rise to the policyholder’s right to retain independent counsel. 

In general, the courts concluded that the reservation of rights did not give rise to independent counsel, as the coverage issues were tied to facts that are what they are.  In other words, as the insurer could not control what the facts will be in the litigation, the policyholder was not entitled to independent counsel.   

I am going to keep these write-ups brief.  There is simply no need to provide chapter and verse about the cases to make the relevant points.  Also, I am writing this on Sunday and 1 PM, and the start of football, is close at hand.  And, I’ll remind you that you do not pay for this fine publication.  So I’ll feel no guilt, while I’m overeating on nachos, if you do not believe that you are getting your money’s worth.  I’ll also be feeling no guilt because I’ll be eating baked tortilla chips.  So it’s OK, no matter how many I eat.  Yep, I keep telling myself that. 

In Sempra Energy v. Associated Electric & Gas Insurance Services, No. 19-3340 (C.D. Calif. July 20, 2020) the court addressed a policyholder’s claim, of entitlement to independent counsel, for a defense against suits seeking damages from a gas leak at a natural gas storage facility. 

I know I said that these cases involved issues that often arise in construction defect litigation that is defended under a reservation rights.  Sempra Energy is not a construction defect case.  But the ROR-issue, giving rise to a claim of entitlement to independent counsel, is one that arises with some regularity in construction defect cases.

The insurer in Sempra Energy reserved its rights on the basis that no personal injury or property damage occurred during its policy periods.  This is an ROR that is often asserted when an insurer is defending its insured in a construction defect case.

For two reasons, the court rejected the policyholder’s claim, that a ROR on this basis, gave rise to its entitlement to independent counsel.

First, the timing of personal injury or property damage was not material to the underlying litigation: “Here, Continental reserves rights unrelated to the Underlying Lawsuits. Continental reserves the rights to assert that no individual raises a claim for personal or property damages from an occurrence within the period of the Harbor Policies. However, this is immaterial to the Underlying Lawsuits, because the pleadings in the Underlying Lawsuits do not succeed or fail based on the time period of the claim.”

Second, the timing of personal injury or property damage was not something that the insurer could control: “Continental asserts no conflict exists because it has no control over the issue it reserves—timing of the occurrence. Continental cannot control the fact discovery of when the natural gas leaks began, the nature of the damages the underlying plaintiffs faced (e.g., personal or property), or when the underlying plaintiffs began facing the injuries. Hence, Continental is unable to shape the outcome of the issues it preserves.”

That the insurer could not control the facts, that give rise to whether coverage would be owed, is why the policyholder also did not succeed, in its claim for independent cousnel, in Builders Concrete Services v. Westfield National Insurance Co., No. 19-7792 (N.D. Ill. Sept. 14, 2020).

At issue was coverage for construction defects.  As is often the case, coverage may have been owed for damages caused by an insured’s work, but not for the cost to repair or replace the insured’s own faulty workmanship.  The court addressed whether this gave rise to the insured’s right to independent counsel.  As the insured saw it: “[The insurer’s] chosen counsel could emphasize the damage to Builders’s own (uninsured) work product and downplay the damage to the other (insured) parts of the building—resulting in Builders’s bearing a greater share than it should for any judgment Focus obtains on its counterclaims.”

But the court was not convinced, setting out the following rule: “Unless the insurer, through its chosen counsel, can manipulate or otherwise affect the course of the underlying suit in a way that would “completely and irreparably” eliminate coverage for a judgment, the insured is not entitled to independent counsel. Forge Indus. Staffing, 567 F.3d at 879. Put another way, if different results in the underlying litigation affect only the relative responsibility of the insurer and the insured for the judgment without eliminating coverage completely and irreparably, the insurer retains the right to control the defense.” (emphasis added).

The court concluded that this test for independent counsel – that there be mutually exclusive theories of recovery -- was not satisfied.  The insurer’s chosen counsel could only potentially affect the extent of coverage and not eliminate it entirely. 

The court explained: “The parties agree that at least some of the damages alleged in Focus’s counterclaims would fall within the Westfield policy’s coverage. Westfield correctly observes that the counterclaims allege damage to other parts of the project, separate from Builders’s own work, such as a steel beam which was allegedly damaged as a result of the defective concrete.  Builders likewise acknowledges that Westfield’s chosen counsel could seek only to diminish Westfield’s responsibility to indemnify Builders for a judgment on Focus’s counterclaims, not to eliminate it entirely.”

Sometimes a policyholder counsel needs to conclude that Oswald acted alone.



Vol. 9 - Issue 6
September 23, 2020


Insurer Says USC-ya In Court: Policyholder Can’t Compel Arbitration


At issue in Arch Specialty Insurance Company v. University of Southern California, No. 19-6964 (C.D. Calif. July 20, 2020) was USC’s effort to compel arbitration of a dispute, with Arch, over coverage for suits alleging that USC allowed a doctor to practice in the student health center despite being accused of sexual misconduct.  Arch alleged that USC, without telling Arch about the situation or that lawsuits by former patients had been filed, demanded that Arch reform certain policies to remove an Abuse or Molestation exclusion.

Arch filed a coverage action, seeking a declaration that the Abuse or Molestation exclusion was a term in the Arch policies or for rescission of the policies, on the basis of USC’s failure to disclose the allegations of abuse when the policies were applied for.     

USC, harkening back to the days of the Juice, moved from defense to offense and sought to compel arbitration.  Arch’s defensive line responded with big blocks.  Putting aside the specifics of various policy provisions, USC maintained that the Arch policies, excess of $100 million, followed form to an underlying primary policy that contained an arbitration clause.  So, therefore, the Arch policies were subject to the arbitration clause.  Arch challenged this on the basis that the arbitration clause, in the primary policy, was inconsistent with language in the Arch policy.  Hence, on account of such inconsistency, the arbitration clause was an exception to the Arch Policies’ follow-form clause.  Therefore, it was not part of the Arch policy.

The principal provision at issue in the Arch policies was the Service of Suit endorsement.  Pointing to certain language in the Service of Suit endorsement, which discussed a dispute between settled in court – including, notably “[a]ll matters arising under this Policy shall be determined in accordance with the law and practice of such Court” -- Arch maintained that it contemplated litigation.  Therefore, if arbitration were mandated, it would, in Arch’s counsel’s words “eviscerate important rights preserved by the service of suit provision, including the right to pursue claims in a court of law and select a forum.”

The court sided with Arch, concluding, among other reasons: “The BETA [primary policy] arbitration provision mandates arbitration of all disputes and waives the parties’ rights to court remedies.  In contrast, the Arch Service of Suit Endorsement’s ‘All matters arising under this Policy’ language appears to empower a court to deal with a whole world of disputes—not an arbitrator.  Because both clauses are written broadly and appear to each contemplate a different forum for ‘all disputes,’ the clauses are inconsistent and in conflict.” 

This is an important decision for follow-form excess insurers in certain situations.  The primary policy at issue -- the BETA Policy – was, in fact, a risk management pooling arrangement.  Its arbitration provision was unquestionably written to address disputes between BETA and its members. 

The court clearly saw that this provision was not intended to apply to Arch – nor could it feasibly do so.  As the court noted, the BETA arbitration provision, if Arch followed form to it, would require Arch to submit to an internal dispute resolution procedure exclusively for BETA members.  Under the procedures, Arch would not even have the right to select an arbitrator.  USC would have the right to select both.  

A contrary decision here would force excess insurers to attend a party where they were never on the guest list.   



Vol. 9 - Issue 6
September 23, 2020


Supreme Court Adopts A 12-Corners Test For Determining Insurer’s Duty To Defend    


The duty to defend is broad.  We all know that.  The standard is usually some version of: a duty to defend is owed if the complaint sets forth any possibility of coverage.  Then the question becomes whether, in making that determination, the insurer’s consideration is limited to the complaint or is expanded to include certain facts outside the complaint.

In insurance parlance, of course, when an insurer’s consideration is limited to the complaint, it is known as the “four corners” rule.  Or, as it is called in some states – the “eight corners” rule, which is exactly the same as the “four corners” rule, but is simply based on the duty to defend being limited to the four corners of the complaint and the four corners of the policy.

Earlier this month, the Connecticut Supreme Court adopted what I would call a “twelve corners” duty to defend rule.  Under this rule, the duty to defend is determined, in some cases, based on consideration of the four corners of the complaint, the four corners of the policy and the four corners of the law library.  [I am aware that Connecticut also allows for consideration of extrinsic evidence for purposes of determining duty to defend. But, for starters, it is “eight corners,” as you may never need to get to a consideration of extrinsic evidence.] 

At issue in Nash St. LLC v. Main Street America Assurance Company, No. SC20389 (Conn. Sept. 9, 2020) was the determination of an insurer’s duty to defend a construction defect action.  The underlying action involved an insured that was hired to lift a house so that concrete work could be done on the foundation.  You can see where this is going.  The house collapsed while it was being lifted.   

The lynchpin coverage issue was the potential applicability of the following CGL exclusions:

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

(j)(6): property damage to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work was incorrectly performed on it.”

A dispute arose -- one that is not unusual when it comes to the scope of exclusions (j)(5) and (j)(6).  How broad is the term “that particular part?”

[The exclusions at issue were actually (k)(5) and (k)(6).  But I will call them (j)(5) and (j)(6) since that’s what they are universally known as.  When they are used in court quotes I’ll keep them as (k)(5) and (k)(6).] 

The competing arguments were of the type usually seen in such disputes:

The insured argued “that ‘that particular part’ of the property on which New Beginnings and/or its subcontractor were working was ‘the sitegrading and foundation work underneath the house . . . [and that] New Beginnings [and/or its subcontractor were] not performing any renovation or other work on the house itself.’ Thus, the [insured] contended, it did not seek to recover for the damage to the work being done underneath the house—that work would be excluded under k (5) and (6). Rather, the [insured] sought to recover for the damage to the house, including renovation work that had allegedly been completed a year before the collapse.”  This is the narrow interpretation of exclusions (j)(5) and (j)(6).

The insurer argued “that ‘that particular part’ of the property on which the subcontractor was performing operations was the whole house because the whole house was being lifted. It further argued that the possibility that the house might collapse while being raised was a foreseeable risk in undertaking those operations. The [insurer] reasoned that all damage that occurs to a house under these circumstances is a ‘business risk’ that falls squarely within exclusions k (5) and (6).”  This is the broad interpretation of exclusions (j)(5) and (j)(6).

How to resolve this became a key issue for purposes of determining whether the insurer was obligated to defend.

The trial court concluded that exclusions (j)(5) and (j)(6) applied and no duty to defend was owed. 

The Connecticut Supreme Court reversed, based on a conclusion that there was “legal uncertainty” surrounding the interpretation of exclusions (j)(5) and (j)(6).

Specifically, there was no relevant Connecticut authority addressing how to interpret exclusions (j)(5) and (j)(6) – broadly or narrowly.  Yet, courts nationally have interpreted exclusions (j)(5) and (j)(6) broadly and narrowly and some concluding that the language is ambiguous.  The Nash court provided much discussion of cases, from all over the country, that showed these competing interpretations.  Based on this, the court stated that such “uncertainty as to how a court might interpret the policy gives rise to the duty to defend.”

The Nash court further explained its decision: “Faced with a lack of any Connecticut appellate authority on point and with numerous state supreme and federal appellate court cases that have adopted interpretations of exclusions k (5) and (6) that are consistent with Connecticut law and would favor the plaintiff, the defendant was presented with a legal uncertainty with regard to its duty to defend.  Because such an uncertainty works in favor of providing a defense to an insured, exclusions k (5) and (6) did not relieve the defendant of its duty to defend New Beginnings.”

Despite this conclusion, the Nash court was quick to point out – in a footnote – a limitation on its decision: “We do not suggest that the absence of a controlling decision is, in and of itself, sufficient to give rise to the duty to defend. There must also be sufficient reason to conclude that the court could construe the policy language in favor of coverage. As the Second Circuit explained, ‘[t]here are, of course, cases in which the policy is so clear that there is no uncertainty in fact or law, and hence no duty to defend. . . . Under some circumstances, the allegations contained in the complaint against the insured will by themselves eliminate all potential doubt and relieve the insurer of any duty to defend. [When], for example, a complaint alleges an intentional tort, and the insurance contract provides coverage only for harms caused by negligence, there would be no uncertainty as to the applicability of the policy exclusion, and hence, no duty to defend the particular [action] brought.”

Here’s my take-away on Nash.  When there is no controlling appellate case law in the jurisdiction over an issue relevant to duty to defend, and the court turns to case law nationally to see if there “legal uncertainty,” there is a reasonable chance that it will find it to exist.  Given the huge body of coverage case law nationally, and that courts in different states often interpret coverage issues based on competing schools of thought, the stage is set for a potential finding of “legal uncertainty.”  The Nash court did not address just how diverse the case law nationally needs to be for it to rise to the level of “legal uncertainty” to trigger a duty to defend.  This decision is likely going to add to disputes over an insurer’s duty to defend.         

So, in some cases, Connecticut now employs a “twelve corners” duty to defend rule.  Under this rule, the duty to defend is determined based on consideration of the four corners of the complaint, the four corners of the policy and the four corners of the law library.

[I avoided the opportunity here to plug Insurance Key Issues as a resource to help in addressing whether there is diverse case law nationally, on numerous issues, to determine if there is “legal uncertainty.”]



Vol. 9 - Issue 6
September 23, 2020


Lesson in Policy Drafting:
A Fish Tale Leads To A Coverage Dispute In A State High Court


In Dorchester Mutual Insurance Co. v. Krusell, No. SJC-12856 (Mass. Aug. 13, 2020), the Supreme Judicial Court of Massachusetts recently demonstrated what can happen when an insurer, in a coverage dispute that started with a fish tale, tries to make an exclusion bigger than it is really is.  The insurer lost the case.  I’m not ever sure that having Gronk as their lawyer would not have made a difference.  The decision offers a lesson in policy drafting.

While the decision is lengthy, the facts and coverage issues can be described briefly.   

Just after midnight on September 13, 2014, Timothy Krusell, a 23-year old college student and a companion were walking in Newport, Rhode Island.  They stopped to speak to 62-year old Robert Haufler and his companion.  The two companions were acquaintances. 

Krusell and Haufler had never met.  According to Krusell, the two began discussing a record-breaking sword fish that Haufler said he caught.  Haufler raised his cell phone to Krusell’s face to show him a photograph.  Krusell said that he instinctively pushed the device away, causing Haufler to lose his balance, fall onto a parked car and strike the pavement, sustaining serious injuries. 

Haufler’s account is that Krusell, from five to six feet away, overheard Haufler talking to the others about a record breaking sword fish that he had caught.  Krusell said “that’s not your fish,” then ran at Haulfer, body slamming him with both fists out, causing him to fly through the air.  

[This story reminds me of a cartoon that I saw years ago. // A guy walks into his bedroom and sees another man in bed with his wife.  The husband says to the guy – I hear you’re telling people that you have a 6-handicap.  There’s no way you do. //  I love that cartoon.  I so regret not saving it.]

Anyway, back to the case.  Haufler sued Krusell for his injuries.  Dorchester Mutual, which issued a homeowner’s policy to Krusell’s parents, undertook Krusell’s defense under a reservation of rights.  Dorchester filed a coverage action.  The Krusell’s settled the claim for $750,000 and sought coverage in the amount of $500,000.   

Putting aside various procedural machinations, the case made its way to Massachusetts’s top court.  At issue was the applicability of the following “Sexual Molestation, Corporal Punishment or Physical or Mental Abuse” exclusion in the Dorchester policy, which precluded coverage for: “[b]odily injury” or “property damage” arising out of sexual molestation, corporal punishment or physical or mental abuse.”

The parties saw the exclusion differently.  For Dorchester, “physical abuse” encompasses any form of physically harmful treatment.  Therefore, the exclusion applies since Krusell pushed Haufler into a parked car.

The court had no trouble concluding that “physical” is not ambiguous.  It means of or pertaining to the body.  This took all of one sentence in the opinion to address.

Then the court turned to the meaning of “abuse,” which took page after page after more pages to figure out.  I could write a lot about the court’s analysis of the meaning of this term, but its substance can be addressed briefly.  
As advanced by Dorchester, “abuse” is interpreted broadly to mean any form of physically harmful treatment.  Alternatively, the term contemplates conduct that is more circumscribed than any form of physically harmful treatment.  It involves a qualitative aspect to the treatment, beyond the fact that it causes harm.  It is a subset of physically harmful conduct characterized by an “abusive” quality, such as cruelty or a disposition to inflict pain or suffering on the part of the abuser.

After looking a several opinions nationally addressing the issue, the court concluded that the term had two meanings.
The court proceeded to the next step in the analysis – whether a reasonable insured, in the Krusells’ position, would construe the phrase “physical abuse” as encompassing the conduct at issue.  Having determined that he phrase has two meanings, you can guess what the court’s decision was on the reasonable expectations question.

Following lots to say on the question, the court summed up the answer as follows: “We conclude that a reasonable insured would interpret ‘physical abuse’ to apply only to a limited subset of physically harmful treatment, where the treatment is characterized by an ‘abusive’ quality such as a misuse of power or, perhaps, conduct so extreme as to indicate an abuser’s disposition towards inflicting pain and suffering. As the conduct at issue in this case involves no such hallmarks of abuse, a reasonable insured would interpret the term ‘physical abuse’ in the policy as not precluding coverage here. Accordingly, Dorchester Mutual cannot rely upon the exclusion to deny liability for indemnification, and the allowance of summary judgment in its favor was error.” 
As obvious lesson in policy drafting – and not just with this exclusion.

Vol. 9 - Issue6
September 23, 2020

Challenge Of Allocation Of Defense Costs Between Covered And Uncovered Claims 
Given that an insurer usually has a duty to defend all claims, as long as a defense is owed for one, the issue of allocation of defense costs, between covered and uncovered claims, generally does not arise too often – especially outside of California (which is unique on the issue).  Putting aside why it arose in Tapestry on Central Condo Assn’n v. Liberty Insurance Underwriters, Inc., No. 18-4857 (D. Ariz. Aug. 11, 2020), the court demonstrated the challenge of defense cost allocation, given that defense counsel’s tasks often overlap between covered and uncovered claims.  The court explained: “Defendant [insurer] itself admits those fees ‘possibly may relate’ to both the MBH and the Hodeaux Claims.  This raises two possibilities: (1) there is uncertainty as to whether certain fees went to the defense of the noncovered versus the covered Claim, or (2) there was overlap in the services provided for both the covered and uncovered Claims. If it’s uncertainty, the burden of proof dictates Plaintiff gets those fees because Defendant could not demonstrate by a preponderance of the evidence how the fees should be allocated. If it’s overlap, Plaintiff is also entitled to the fees. The parties contracted and Plaintiff paid premiums for the duty to defend. Reducing the amount expended in defending the covered Claim because it overlapped with steps taken in defending the noncovered Claim deprives Plaintiff of the full benefit of the defense for which it paid. In other words, Defendant bears the costs of overlapping services.”         

Physical Restraint And Physical Bodily Confinement Are Not “Bodily Injury”  
For those of you who follow whether certain injuries, that are not obvious “bodily injury,” still qualify as “bodily injury” under a commercial general liability policy – a favorite issue of mine -- State Farm v. Aberdeen Enterprises, No. 18-654 (N.D. Ok. Aug. 8, 2020) offers this: “Nowhere in their [second amended complaint] do the Underlying Plaintiffs allege bodily injury, sickness, disease, or death. Instead, the Underlying Plaintiffs allege ‘economic harm,’ ‘physical bodily confinement,’ and ‘physical restraint.’ One of the Underlying Plaintiffs, David Smith, alleges he ‘experienced stress and anxiety.’ Physical confinement and physical restraint do not constitute ‘bodily injury, sickness, or disease.’ [citations omitted.] Nor do stress and anxiety constitute ‘bodily injury.’”  As I see it, the decision is noteworthy in this area because certain of the conditions/damages, that the court determined were not “bodily injury,” include the term “physical” in them.  I can imagine some insurers, on account of that term, treading cautiously and concluding that physical bodily confinement and physical restraint are “bodily injury.”