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In a ruling preferring form over substance, a
In Home Depot U.S.A. v. Ohio Casualty Ins. Co., the retail store was sued for negligence and fraud after one of its window installation contractors installed a house’s windows backwards and upside down. Home Depot reported the claim and tendered its defense to its insurer. Assuming that it was entitled to coverage by its insurer, Home Depot failed to provide notice of this claim to the contractor’s insurer at this time.
Home Depot’s insurer denied the claim because it resulted from the contractor’s acts. Home Depot then reported the claim and tendered its defense to the contractor’s insurer, who denied coverage claiming that it was prejudiced as a result of the late notice. Home Depot had argued that the contractor’s insurer was on notice of the claim because it was defending the contractor in this lawsuit.
The court inexplicably held that Home Depot was a sophisticated corporate entity who should have familiarized itself with the policy, including the notice provision, that it required the contractor to obtain and name Home Depot as an additional insured. The court held that a potential insured should notify any and all potential insurers about a loss, even if they think they are covered by a different insured. Good advice. But left unsaid was how the court considered the insurer was in any way prejudiced by the late notice given that its insured had provided timely notice of the claim.
The lesson to be learned here, of course, is that a party should give notice in such circumstances to every carrier who might be on the risk. Also that courts sometimes put the windows in backwards, too.
Melissa Birnbaum
Criminal charges have been filed against two men who are accused of burning down the
As a result, the towns where “Twinkle Twinkle Little Star” and “Baa Baa Black Sheep” were penned are on high alert.
No word yet on whether Mary’s carrier had refused coverage on the grounds that either Mary or one of her lambs had conspired to have their residence set ablaze.
Jeffrey Resnick
There may be some relief for individuals and their families who suffered from exposure to asbestos. In Continental Casualty Co., et al. v. Employers Ins. Co. of Wausan, a New York trial court found that employees of Robert A. Keasbey Company, a small New York insulating company who has been out of business since 1995, were exposed to asbestos during the installation and removal processes. The employees’ injuries occurred before the completion of the work, not after, and thus the premises/operations coverage applies rather than the products/completed operations coverage.
This distinction is important because the premises/operations coverage does not have an aggregate limit, it only has a per occurrence limit. On the other hand, the products/completed operations coverage has an aggregate limit, which is exhausted.
Before determining that the company’s primary and excess insurers are on the hook, the Court also examined whether exposure to asbestos in general was considered one occurrence under the policy or whether each injured employee’s exposure was considered a separate occurrence. The Court determined correctly that each injured employee’s exposure was a separate occurrence because the exposure occurred at various work sites over many years. Injured employees and their families may now seek funds from the companies’ primary and excess insurers under the premises/operations coverage.
This decision has many other injured individuals and their families re-examining their facts and it will be interesting to see what effect it has on asbestos litigation. Finally some employees and their families will receive long overdue compensation for their illnesses.
Melissa Birnbaum
In Cinergy. v. Associated Elec. & Gas Ins. Services, Ltd, an insurer, AEGIS, sought a declaratory judgment that it was not liable for the defense costs of its insureds until it was determined that its insureds were entitled to coverage for the underlying claims. The underlying action in Cinergy concerned whether the insureds were entitled to coverage for an action brought under the federal Clean Air Act by the
The Indiana Supreme Court confirmed the appellate division’s decision that the insureds were not entitled to a defense in the underlying action even though the insureds’ policies stated that the policies imposed a duty on the insurer to directly pay for all amounts associated with its insureds’ defense of a lawsuit.
Even though prior
The Court avoids deciding whether insurers as a general rule should defend their insureds in environmental actions brought by the government even though concern for public health and environmentalism are in the forefront. The Court also declines to examine whether the public good is served by obligating the insurers to pay for costs to defend litigation, rather than the power companies, who are less able to absorb the costs of litigation than their insurers.
One important question that this decision leaves us with is whether these power companies will survive and be able to pay for a defense for these actions and upgrades to their facilities to meet environmental standards when insurers can avoid coverage by adding a phrase in the insurance contract which redefines the scope of coverage. If independent power companies are not able to survive and bought out by larger companies, what will happen to competition? Will our power companies follow the path of the oil companies and will the public eventually be the ones to pay for the defense and upgrade through our power bills?
Melissa Birnbaum
The Montana Supreme Court recently declared that exclusions in a commercial general liability policy did not apply to an additional insured. In Swank Enterprises, Inc., et al. v. All Purpose Services, Ltd, the court found coverage on behalf of a general contractor who was an additional insured under a subcontractor’s commercial general liability policy, even though the subcontractor was barred from coverage by the policy’s business risk exclusions.
The policy’s “severability of interests” clause provides each insured with separate coverage for any claims or suits as if different policies applied to the named insured and the additional insured. The business risk exclusions of the policy only applied to the named insured because these exclusions used the terms “you” and “your,” which the policy defined as the named insured without mention of the additional insured. The court noted that although the business risk exclusions for the applicable year only specifically referred to the named insured, the subsequent year’s policy changed and specifically applied the business risk exclusions to both the named and additional insureds. The court relied on the well-established rule that exclusions are narrowly and strictly construed against the insurer and found coverage for the additional insured.
This decision is important because it extends coverage to innocent third-parties who contracted for coverage and have claims and suits brought against them as a result of another party’s negligent or intentional acts or omissions. The court confirms that the responsibility for the defense and indemnity of an insured rests on its insurance company. In the end the parties received what they contracted for: the additional insured received the insurance coverage that it contracted for with the named insured for claims or suits brought as a result of the named insured’s acts or omissions and the insurance company was bound by its insurance contract, in which it had agreed to insure the additional insured.
The Massachusetts Supreme Court, relying on a 1988 Third Circuit decision, Keystone v. Home Insurance Company, has held that an excess insurer was not bound by the primary insurer’s decision to settle. The excess carrier had declined to provide coverage for a settlement due to exclusions in the policy even though the primary carrier had agreed to the settlement. The insured sued the excess liability insurer for declaration of coverage under a “follow form” excess liability insurance policy for settlement of the underlying class action.
The Massachusetts Supreme Court, in Allmerica Financial Corp. v. Certain Underwriters at Lloyd’s, affirmed the trial court’s ruling that excess insurers with “follow form” policies are entitled to make their own coverage and settlement decisions, regardless of decisions made by the primary carrier. In making its decision, the Court reasoned: “a basic point about excess insurance policies: they are separate and distinct contracts from the primary policy.” Thus, the court held, even where an excess policy “follows form,” excess insurers act independently of each other with respect to decisions about their policies, including coverage determinations and settlements.
The decision is the right one, of course, but it underscores the fact that any settlement discussion must include the excess carrier. Otherwise, the claimant may end up receiving only the primary's portion of the money due.
Leily Schoenhaus
A California Appellate court has issued an interesting opinion helpful to insureds involving the tender of claims under occurrence policies of insurance. A condominium association sued a developer in a construction defect lawsuit. The dispute arose in connection with a condominium project which, as early as 1990, showed evidence of defective construction. From August 1991 through June 1992, the developer was insured under a commercial general liability (“CGL”) policy issued by Standard Fire Insurance Company (“Standard”) which covered liability for property damage occurring “during the policy period.”
At the time of the incident, however, the Association had not yet been formed. That did not occur until August 1993, when the Association was formed to manage the common areas of the property. The developer tendered defense of the construction defect action to Standard, which agreed to defend under a reservation of rights. The Association argued that at least some of the property damage occurred during the policy period and the fact that the Association itself did not exist during the policy period, or own any of the damaged property during the policy period, did not mean that the property damage was not covered.
The trial court granted summary judgment in favor of the insurer but the Court of Appeal reversed and ruled that under an occurrence-based liability policy, the key issue is not when the third-party claimant was damaged, but rather, when the property now owned by the claimant was damaged. Because there was evidence that the condominium project itself suffered actual property damage while Standard’s policy was in effect, the court found that Standard had a duty to defend in the construction defect action. Standard Fire Ins. Co. v. Spectrum Community Ass., 141
Leily Schoenhaus
The United States Supreme Court has declined to hear an appeal by Katrina flood victims after the Court of Appeals for the Fifth Circuit ruled they had no coverage under their policies of insurance. The policyholders in Vanderbrook v. Unitrin Preferred Insurance Co. (In re Katrina Canal Breaches Litigation) sought recovery under their policies for damage arising from flooding caused by breaches or overtopping of levees during Hurricane Katrina. Though the policies all expressly excluded losses caused by flood, the plaintiffs creatively argued that the flood exclusions did not apply because the levee breaches releasing the water were caused by the negligent design, construction or maintenance. The friendly district court had found the term “flood” ambiguous because it was not clear whether it referred to natural events or those caused by negligent or intentional acts. While this argument at first blush might seem a sure loser, courts have commonly found that the earth movement exclusion applied only to natural causes and not to manmade events.
The Fifth Circuit, however, found that the flood exclusions were unambiguous and, whether or not the negligent design, construction or maintenance of the levees contributed to their failure after Hurricane Katrina, the water inundation of
The result is a sad end to the hopes of Katrina victims seeking indemnification under policies they thought provided coverage in the event of such a preventable disaster.
Leily Schoenhaus
The Illinois Appellate Court has rendered an important decision concerning coverage under the advertising injury provision in a commercial liability policy. In Valley Forge Ins. Co, v. Swiderski, the question was whether a claim alleging violation of the Telephone Consumer Protection Act (“TCPA”) on account of an insured sending unsolicited fax advertisements gives rise to coverage for written publication of material that violates a person’s right of privacy. Swiderski Electronics had sent fax advertisements to various individuals without obtaining prior consent. A putative class action was filed seeking damages for violation of the TCPA and conversion of fax machine toner and paper. Swiderski tendered the suit to its insurers. The insurers disclaimed coverage and sought a declaratory judgment that they had no duty to defend or indemnify. The parties filed cross-motions for summary judgment on the duty to defend and the trial court found that the insurers had a duty to defend under the policies’ advertising injury provision.
The decision, which was affirmed by the Illinois Supreme Court, held that coverage under personal and advertising injury is available for violations of the TCPA. Notably, the court in Swiderski declined to follow the Seventh Circuit’s decision in American States Insurance Company v. Capitol Associates of Jackson County, (the first federal appellate decision to address whether an advertising injury provision covered the sending of unsolicited fax advertisements) which held that coverage for TCPA claims was not covered under the advertising injury provision. In particular, the court noted that the TCPA protects a fax recipient’s privacy interest in seclusion, and the language of the advertising injury provision reflect that Swiderski and the insurers intended the policies to cover the type of injury to privacy that is the subject of the TCPA claim. The court’s holding effectively expanded advertising injury coverage from indemnifying against “invasion of privacy torts” to covering intrusion on seclusion type causes of action.
Leily Schoenhaus
Ace Insurance Company received a bit of its own medicine in a recent Superior Court Opinion. The court ruled that Ace had not given timely notice of a claim for bad faith to its insurer and that the insurer need not show prejudice in receiving the late notice.
Ace is appealing and, while we would normally be hesitant to root for an insurer before the high court, we will make an exception here where the plaintiff insurer is wearing the hat of the insured. There is no reason why late notice should relieve an insurer of its obligation to indemnify an insured in the absence of prejudice whether the underlying policy is occurrence based or claims made.
Jeffrey Resnick
