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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.”



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