Insurance Law Report focuses on developments in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.
South Carolina Supreme Court Holds Insurer Not Obligated To Defend Wife Of Alleged Sex Abuser
The South Carolina Supreme Court recently held that an insurer did not have to defend the wife of an accused sexual abuser against claims that she negligently allowed her husband to sexually abuse a young girl in their home. Allstate Vehicle & Prop. Ins. Co. v. Hunter, 2018 WL 6072638 (S.C. Nov. 21, 2018).
The mother of a minor girl alleged that her minor daughter had been sexually abused at the insured’s residence. The victim’s mother also asserted claims of negligence, defamation and breach of fiduciary duty against the accused’s wife. Both the accused and his wife were insureds under a homeowners’ policy, and their insurer initially agreed to defend both subject to a reservation of rights. It then filed a declaratory judgment action seeking a declaration that it had no coverage obligations with respect to the claims asserted.
Although the district court concluded that the homeowners’ policy “unambiguously denied coverage to one named insured where the other named insured has been barred from coverage,” the court certified to the South Carolina Supreme Court the question of whether the policy unambiguously barred coverage of the negligence and breach of fiduciary duty claims. The Supreme Court considered whether the “intentional or criminal acts exclusion and the joint obligations provision in its policy barred coverage for claims of negligent supervision and breach of fiduciary duty,” and concluded that the exclusion contained a joint obligations provision which “unambiguously denies coverage to [the accused’s wife] where [the accused] has been barred from coverage.”
Fourth Circuit Caps Coverage For Related Bridge Collapses
The U.S. Fourth Circuit Court of Appeals recently held that a policy limited coverage to a single policy limit with respect to claims arising from the collapse of two pedestrian bridges. Stewart Engineering Inc. v. Continental Casualty Co., et al., 2018 WL 5832805 (4th Cir. Nov. 7, 2018).
The Fourth Circuit considered whether claims arising out of the collapse of one bridge were related to the claims arising out of the collapse of another bridge and whether the claims against the engineer arising out of both were subject to a single policy limit. The insured was hired as the structural engineer to design two pedestrian bridges. The insured’s professional liability insurer defended and indemnified the insured for the claims arising out of the first collapse up to the single limit for related claims. However, a dispute arose between the insured and the insurer as to whether the insurer was obligated to continue to defend and indemnify the insured up to the larger policy limit for claims involving the second bridge collapse. The trial court held in favor of the insurer that the collapses were related and that only the lower limit was exposed.
The Fourth Circuit affirmed. The Fourth Circuit adopted the district court’s reasoning that “claims are related under the policy if they arise out of wrongful acts that are logically or casually connected by any common fact,” and “[t]he alleged wrongful acts out of which the … claims arose are logically connected by multiple facts,” including that the same design flaw caused the collapse of both bridges. The Fourth Circuit held that because the claims are related and because the insurer had already indemnified the insured up to the single limit for related claims, the insurer had no further obligation to defend or indemnify the insured against claims from the second bridge collapse.
Fifth Circuit Clarifies Number Of “Occurrences” Under Texas Law
The U.S. Fifth Circuit Court of Appeals overturned a district court’s ruling in favor of an excess insurer in a dispute with a primary insurer over the number of “occurrences” in a string of auto collisions caused by one driver. Evanston Ins. Co. v. Mid-Continent Cas. Co., 909 F.3d 143 (5th Cir. 2018).
Over the course of several minutes, the insured’s out of control truck struck a vehicle and shoved it into a toll plaza, then itself struck the toll plaza and later struck three more vehicles as it continued to move down the roadway. The primary insurer refused to pay more than its policy limit toward settlements of claims arising out of the last three collisions, contending that those collisions were part of a single “occurrence” involving all collisions and that its policy was thus subject to single “occurrence” limit. In the ensuing coverage litigation, the district court found that the last three impacts were collectively a separate “occurrence.”
The Fifth Circuit reversed. It found that the primary insurer’s policy definition for “occurrence” was virtually identical to the definition in most CGL policies, which is a variation of “all damage or injury arising out of continuous or repeated exposure to substantially the same general conditions.” The Fifth Circuit observed that Texas law applies the “cause” approach to determine the number of occurrences, where the focus is on the number of events which give rise to the liability and not the number of injurious effects. However, the insured’s actions which give rise to the events must also be from a “continuous and unbroken” proximate cause. The Fifth Circuit noted that this has sometimes been misunderstood to mean that an overarching cause can never constitute a single occurrence, but that Texas courts actually hold that the overarching cause should be ignored when an intervening cause, such as an intentional tort, breaks the chain of causation. The Fifth Circuit found that the truck driver’s failure to apply brakes at any point during the time span was “unbroken negligence” and was the single “proximate, uninterrupted, and continuing cause” of the last three collisions and, with the initial collision, constituted a single “occurrence.”
Georgia Appellate Court Finds Non-Cumulation Provision Ambiguous And Permits Stacking
A Georgia appellate court recently found that the limits of liability of five consecutive policies issued annually by an insurer to one insured could be stacked because the non-cumulation provision in the last two policies is ambiguous as to whether it applied only to those respective policy periods or applied to the aggregate period under the original and renewed policies. National Union Fire Ins. Co. of Pittsburgh, PA v. Scapa Dryer Fabrics, Inc., 819 S.E. 2d 920 (Ga. Ct. App. 2018).
The insured manufactured and sold asbestos-containing dryer felts, which were used in producing paper. The insured purchased five consecutive annual liability insurance policies from the same insurer, the first three of which provided limits of liability of $1 million per occurrence and $1 million in the aggregate whereas the last two renewal policies were each amended by endorsement to provide a total liability limit of $7.2 million for “Ultimate Net Loss” resulting from any one occurrence, as well as a non-cumulation provision that stated that if the insured “has been provided with more than one policy by [the insurer] covering the same loss/losses, the limit of liability stated in the schedule of this endorsement is the total limit of [the insurer’s] liability for all damages which are payable under such policies.” The insurer advised the insured that the limit of liability for all relevant asbestos claims were its $7.2 million policy limits and that the limit had been exhausted. The insured sued the insurer, seeking declaratory judgment and damages for breach of contract for the insurer’s denial of insurance claims. The parties filed cross-motions for summary judgment with respect to several issues, including the limit available for the claims. The trial court held that the non-cumulation provision in the insurer’s policies was ambiguous and that the insured could stack the limits of liability of all of the policies. The insurer appealed.
The appellate court affirmed. The appellate court disagreed with the insurer’s argument that the non-cumulation provisions present in the last two renewal policies amend all five policies and limit coverage to the $7.2 million policy limit specified in the final policy period, instead of the total $17.4 million coverage provided by all five policies. In finding the non-cumulation provision to be ambiguous (and thus must be construed in favor of the insured), the appellate court held that the non-cumulation provision did not indicate whether the limit only applies to the policy period of the policy in which it appeared or to the aggregate period under the original and renewed policies.
Florida Appellate Court Holds Insurer’s “Failure To Cooperate” Defense Requires Showing Of Insured’s Material Failure To Cooperate And Substantial Prejudice
A Florida appellate court recently held that in order to maintain a “failure to cooperate” defense, an insurer must show the insured’s material failure to cooperate which substantially prejudiced the insurer. Barthelemy v. Safeco Ins. Co. of Ill., 2018 WL 5291274 (Fla. 4th DCA Oct. 24, 2018).
The insured was involved in an automobile accident, and other drivers sued the insured and obtained a judgment against him. The insurer did not provide the insured with a defense or coverage for the resulting judgments as the insurer contended there had been a failure to cooperate by the insured since he failed to submit three times to an Examination Under Oath to allow the insurer to investigate the claim. The insured sued for declaratory relief for coverage. At trial, over the insured’s objection, the jury was instructed that, to prevail on the “failure to cooperate” defense, the insurer must establish that the insured did not comply with his post-loss obligations and that the insurer was actually prejudiced by the insured’s failure to comply with his post-loss obligations. The jury returned a verdict for the insurer and the trial court entered judgment in favor of the insurer. The insured filed a motion for a new trial and argued that the jury instruction must include language regarding “material failure to comply” and “substantial prejudice,” and that the jury instruction given was an incorrect statement of law. The motion was denied and an appeal followed.
The appellate court reversed and remanded for a new trial, finding that Bankers Insurance Company v. Macias, 475 So. 2d 1216 (Fla. 1985) remains the dispositive case regarding the requisite elements of a “failure to cooperate” defense under which an insurer must show a material failure to cooperate which substantially prejudiced the insurer. The appellate court found that, in issuing a “failure to cooperate” instruction that did not include “material failure” to comply and “substantial prejudice,” the trial court misstated the law and could have misled the jury into applying an incorrect standard.
Texas Appellate Court Rules Contradictory And Conclusory Expert Reports Are No Evidence Of Causation
On remand from the Texas Supreme Court, a Texas Court of Appeals affirmed summary judgment in favor of an insurer when no evidence existed that storm damage to the insured’s home was caused by or was solely attributable to a covered peril (as opposed to other storms or causes), and no evidence existed to segregate damages to the insureds’ home resulting from the alleged covered peril and from other uncovered perils. Seim v. Allstate Tex. Lloyds, 2018 WL 5832106 (Tex. App—Fort Worth, Nov. 8, 2018).
The insurer issued a homeowners’ policy to the insureds. Following the denial of their property damage claim, the insureds filed suit alleging the source of damage was an August 2013 storm. The insureds filed multiple amended pleadings changing their allegations on the source of the damage before ultimately returning to the allegation that the August 2013 storm was the cause. The insureds’ expert witness originally issued opinions and conclusions that accounted for the multiple storm allegations, but subsequently issued a supplemental report concluding that the August 2013 storm caused the property damage. The insurer moved for and obtained summary judgment, which the insureds appealed. The Supreme Court of Texas remanded the case to the Court of Appeals, noting that while the insurer waived certain objections to the insureds’ late-submitted summary judgment evidence, the appellate court could consider other grounds as a basis for affirming summary judgment.
The appellate court thus considered whether the insureds’ expert’s initial and supplemental reports constituted evidence of whether the damage to the insureds’ home was covered and whether the insureds had presented some evidence to segregate between covered and uncovered damages. The court examined the inconsistencies and contradictions in the insureds’ expert’s reports and determined the supplemental report offered no factual basis for the conclusions. Accordingly, it held that the insureds presented no evidence as to whether the damage resulted from a covered peril. The appellate court also noted that even if the expert’s report had constituted some evidence of causation, the insureds failed to segregate damages between covered and uncovered perils, which was fatal to their claim.
Federal Court in Texas Upholds Arbitration Clause in Commercial Property Policy
In a first-party property dispute, a federal court in Texas denied an insured’s remand motion and compelled arbitration based on an arbitration clause in a commercial property policy. Sylis Property Mgmt., LLC v. Underwriters at Lloyd’s, London, et al., Civil Action No. 5:18-CV6 -1052-DAE (W.D. Tex. Dec. 14, 2018).
The insured was the property manager for commercial property that purportedly sustained damage from wind and hail. The policy had an arbitration clause that fell within the purview of the Federal Arbitration Act (“FAA”) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”). After being sued, Underwriters removed, expressly reserving the right to arbitration, and then moved to compel arbitration. The insured argued that Underwriters could not compel arbitration because: (1) it never signed the insurance contract containing the clause; (2) the clause was really an appraisal, not arbitration, clause;
(3) the arbitration clause violates due process; the Convention does not apply, and therefore the court had no subject matter jurisdiction; and (4) Texas law does not allow arbitration of commercial property claims.
The court found that, regardless of the insured not signing the contract of insurance, there was evidence that the insured was aware of the contract and sought benefits under it, so direct-benefit estoppel prevented the insured from denying the existence of the contract. The court found that the clause was not simply an appraisal clause because it also allowed for the resolution of any dispute on the claim, not just a dispute as to the “actual cash value or the amount of loss” which is in a standard appraisal clause. Also, the court concluded, the Convention allows due process protection and the insured had not demonstrated that it would not receive a “fundamentally fair hearing” which is the standard in the Fifth Circuit. The court noted a prior Texas court had found that the McCarron-Ferguson Act does not allow a state to pre-empt the FAA or the Convention, and furthermore, that Texas law does not expressly prohibit the inclusion of arbitration clauses in commercial property policies. Thus, it found the provision was valid. The court concluded that there were no constraints that rendered the provision unenforceable, and that arbitration was appropriate.
Underwriters at Lloyd’s, London, were represented by Phelps Dunbar, LLP. For further information, please contact Paige Jones in the Dallas/Ft. Worth office at firstname.lastname@example.org
Federal Court In South Carolina Rejects Attempt By Insured To Defeat Diversity Jurisdiction By Naming Co-Defendant In Underlying Litigation As Defendant In Coverage Action
A federal court in South Carolina recently held that because an insured filed a coverage action seeking a defense for both itself and a co-defendant in an underlying litigation, it could not name the co-defendant as a defendant in the coverage action. Beaufort Rentals LLC v. Westchester Fire Ins. Co., 2018 WL 6248770 (D. S.C. Nov. 29, 2018).
A property owner sued a rental agency for failure to renew certain property insurance, which obligation fell within the scope of the rental agency’s duties. The defendants, who were all related to the relevant rental agency, tendered the claim to their insurer, seeking defense in the suit by the property owner. The rental agency’s insurer denied coverage. The rental agency then filed a coverage action naming the insurer and a former employee of the rental agency as defendants. The insurer sought to remove the action based upon diversity jurisdiction by arguing that the former employee was fraudulently joined for purposes of defeating diversity jurisdiction and the court agreed. The court noted that the rental agency and former employee both sought the same ultimate objective: they both wanted the insurer to provide a defense in the underlying lawsuit filed by the property owner. Given this objective, the court held that the former employee should be realigned as a plaintiff in the coverage action and permitted removal.
Federal Court In Louisiana Finds Additional Insured Status Not Limited To Vicarious Liability Claims
A federal court in Louisiana denied an insurer’s motion for summary judgment finding that it owed a defense to an additional insured against an underlying lawsuit brought by the named insured’s employee for personal injury allegedly due to the insured’s negligence. Moore v. Home Depot USA, Inc., 2018 WL 4976811 (M.D. La. Oct. 15, 2018).
The insured entered into a Master Service Agreement (“MSA”) with a retail company for work and services to be provided in future work orders. The MSA contained an indemnification provision and an insurance requirement obligating it to obtain insurance naming the retail company as an additional insured. The insured failed to do so, but its policy contained a broad additional insured endorsement which included as an additional insured any organization the insured was “required to add as an additional insured … under a written contract or agreement” but “only with respect to liability for ‘bodily injury’ or ‘property damage’ caused, in whole or in part, by ‘your work’ for the additional insured….” A worker working for the insured at one of the retail outlet stores was electrocuted while unloading an HVAC unit which hit a low hanging power line. The worker sued the retail and energy companies and the insured and its insurer, the latter of which filed a cross-claim against the retail company seeking a declaration that it did not owe defense and indemnity to it as an additional insured because the MSA was void under the Construction Anti-Indemnity Act and that it could not have liability caused by the fault of the insured. Cross-motions for summary judgment were filed on whether the insurer owed a defense to the retail company as an additional insured.
The court denied the insurer’s motion, finding that the anti-indemnity statute did not apply because the MSA predated its enactment and also rejected the insurer’s argument that additional insured status applied only to vicarious liability claims. The court focused on the wording in the blanket additional insured endorsement and determined that “[n]othing in the text of the [endorsement] limits coverage to … vicarious liability for [the insured’s] fault,” and concluded that the “caused, in whole or in part, by” wording is more properly read as extending coverage to the retail company for its alleged liability for injury “caused, in part,” by the insured’s work under the MSA. The court found that the insurer owed a duty to defend.
Federal Court In Florida Declines To Entertain Insurer’s Declaratory Judgment Action, Finding Same Fact Issues Will Be Decided In Pending Underlying Action
A federal court in Florida recently exercised its judicial discretion and dismissed an insurer’s declaratory judgment action based upon its finding that a still-pending underlying state court action would decide the central fact issues raised in the insurer’s declaratory judgment action. Amerisure Mut. Ins. Co. v. Yero, 2018 WL 4931816 (M.D. Fla. Oct. 11, 2018).
The insured’s subcontractor’s dump truck was involved in an motor-vehicle accident, resulting in the death of another individual. The deceased’s estate sued the driver, the subcontractor and the insured. The estate alleged that the driver negligently operated the dump truck that was owned by the subcontractor and that the subcontractor was vicariously liable for the driver’s negligence. The estate further alleged that the driver and subcontractor were agents of the insured pursuant to the contract entered into between the subcontractor and the insured for the transportation of materials in the dump truck. The estate alleged that the insured is vicariously liable for the driver and the subcontractor’s negligence and alleged a claim for negligent retention and supervision against the insured. The insurer is defending the insured in the underlying action without a reservation of rights and filed a declaratory judgment action in federal court, seeking a declaration that the driver and the subcontractor were independent contractors of the insured and thus do not qualify as insureds under the insurance policy. The estate filed a motion to dismiss the declaratory judgment action, arguing that the facts for which the insurer seeks a declaration are issues of fact to be decided by a jury in the ongoing underlying action and that it is improper for another court to decide them.
Exercising its discretion, the court declined to entertain the declaratory judgment action and dismissed the insurer’s complaint. The court found that in determining whether the driver and subcontractor were insureds under the policy, it would have to determine factual disputes as to the status of the driver and subcontractor in relation to the insured at the time of the accident, which also pertain to liability issues pending in the underlying state court action. Thus, the court held that the parties’ rights would be decided by the underlying action and that there was no need for the declaratory judgment action.
Federal Court In Alabama Finds Insurer’s Payment Of Claim Does Not Waive Coverage Defenses
A federal court in Alabama held that an insurer’s payments on a claim did not waive its right to assert a coverage defense based on the insured’s failure to comply with the policy’s proof of loss provision where the insurer repeatedly requested proof of loss despite also making payments. Philippou v. Am. Nat’l Prop. & Cas. Co., 2018 WL 6331691 (M.D. Ala. Dec. 4, 2018).
A homeowners’ policy covered a residence which sustained damage. The policy contained certain notice provisions in the event of loss, including a requirement that the insureds provide a signed, sworn proof of loss within 60 days after the insurer’s request as a condition precedent to coverage. Days after the claim was made to the insurer, it requested a sworn proof of loss, but the insureds never provided it despite repeated requests. Nevertheless, the insurer made payments to the insureds based on an agreed estimate of damages and also made payments for additional living expenses. However, after the insurer denied additional living expenses the insureds filed suit asserting claims for breach of contract and bad faith. The insurer moved for summary judgment on the ground that the insureds breached the express condition requiring sworn proof of loss as precedent to coverage. The insureds conceded that a proof of loss was never submitted, but opposed the motion arguing that the insurer waived the proof of loss condition by making the earlier payments.
The court granted the motion, finding the insurer’s repeated e-mails and attempts to obtain the sworn proof of loss demonstrated it had no intent to waive its right to assert the proof of loss provision, which conclusion was further supported by the insureds’ acknowledgement that such letters were received.
Federal Court In Texas Denies Motion To Remand And Dismisses Adjuster With Prejudice
A federal court in Texas denied a homeowner’s motion to remand and granted the insurer’s motion to dismiss after its election to defend the non-diverse adjuster under the new Texas Ins. Code section 542A.006. Yan Qing Jiang v. The Travelers Home and Marine Ins. Co., et al., 2018 WL 6201954 (W.D. Tex. Nov. 28, 2018).
A homeowner sued her insurer and the adjuster who handled her insurance claim for storm damage. The insurer removed the case contending that the non-diverse adjuster was improperly joined. The homeowner moved to remand, and the insurer moved for dismissal of the adjuster because it had previously sent written notice to the insured under Texas Ins. Code section 542A.006 that it accepted responsibility for whatever liability the adjuster had. Under the newly amended Insurance Code, if an insurer elects this responsibility, the court must dismiss those claims against the adjuster with prejudice. The court found that the insurer had made this election, so it dismissed the claims against the adjuster, and there was no longer a basis for remand.
North Carolina Trial Court Holds Actual Cash Value Includes Depreciation For Labor Costs
The North Carolina Business Court recently held that the phrase “depreciation,” when determining costs that are excluded from coverage under an actual cash value (“ACV”) policy, includes the depreciation of both material and labor costs. Accardi v. Hartford Underwriters Ins. Co., 2018 WL 5273971 (N.C. Sup. Ct. Oct. 22, 2018).
A home was damaged in a hail storm. The homeowner’s policy provided insurance for hail damage on an ACV basis. The homeowner’s insurer adjusted the loss and removed depreciation for both material costs and labor costs in issuing a final payment to the insured. The insured argued that ACV value is calculated by removing depreciation from present cost of repair or replacement of the property for wear and tear of materials, but not depreciation for the cost of labor to assemble and install those materials. The court disagreed, noting that ACV is not ambiguous because the only reasonable interpretation would be to include depreciation of both material and labor. The court based this conclusion on the fact that failing to depreciate labor costs would “give the insured substantial benefits of a replacement cost policy, without requiring the homeowner to make the actual repairs.”
(return to top)