Insurance Law Report focuses on developments in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.
Below are the articles for the January issue. To view, click on the appropriate title and you will be brought to the full version of the article below.
1. South Carolina Supreme Court Upholds Statute Requiring Builders' General Liability Policies To Cover Faulty Workmanship
2. Alabama Supreme Court Holds EPA Investigation Constitutes "Suit" Triggering Duty To Defend
3. Oklahoma Supreme Court Reinstates Jury Verdict And Finding That Misrepresentation Was Not Intentional
4. Eleventh Circuit Holds Under Florida And Massachusetts Law That Pollution Exclusion In CGL Policies Excludes Coverage For Defective Chinese Drywall
5. Fifth Circuit Finds That Deficiencies In Insurer’s Reservation Of Rights And Delay In Asserting Coverage Position Did Not Waive Coverage Position Under Louisiana Law
6. Eighth Circuit Affirms Ruling Allowing Stacking Of Liability And UIM Limits Under Arkansas Law
7. Sixth Circuit Holds Insured Has No Obligation Under Tennessee Law To Continue Coverage Negotiations With Insurer After Denial Of Coverage
8. Fourth Circuit Holds Under Virginia Law That Insurer Has Duty To Defend Alleged Negligent Handling Of Funds Claim Despite Handling Of Funds Exclusion
9. Fourth Circuit Holds Developer Entitled To Additional Insured Coverage For “Your Work” Pursuant To Construction Agreement
10. Three Federal Courts Reach Different Results On Abstention Doctrine In Declaratory Judgment Actions
11. Federal Court In North Carolina Dismisses Claims For Bad Faith And Unfair And Deceptive Trade Practices For Claims Arising Outside Of North Carolina
12. South Carolina Court Of Appeals Holds Coverage For Claim For Erroneous Provision Of Materials To Zoning Board Excluded By Faulty Workmanship Exclusion
13. Federal Court In Alabama Rejects Architect’s Additional Insured Claim Under Contractor’s CGL Policy
14. Federal Court In Texas Finds No Duty To Defend Suit For Negligent Handling Of Medical Records
15. Federal Court In Kentucky Finds Policy Void Due To Misrepresentation Regardless Of Policyholder Intent
16. Federal Court In Oklahoma Finds "Substantially Certain To Injure" Claim Falls Within "Intentional Act" Exclusion
17. Federal Court In Texas Finds Insurer Does Not Owe Duty To Defend Or Indemnify Party Alleged To Be Liable Under Theories Of Alter Ego, Joint Venture And Joint Enterprise
SOUTH CAROLINA SUPREME COURT UPHOLDS STATUTE REQUIRING BUILDERS' GENERAL LIABILITY POLICIES TO COVER FAULTY WORKMANSHIP
The South Carolina Supreme Court recently upheld a state law requiring builders’ general liability policies to cover damages from faulty workmanship, but ruled that the statute cannot be applied retroactively to policies executed before the law’s May 17, 2011 effective date. Harleysville Mut. Ins. Co. v. State, 2012 WL 5870799 (S.C. Nov. 21, 2012).
The South Carolina Supreme Court noted that because it had reversed itself on the issue in a subsequent decision, the legislature had not retroactively overruled the Court’s interpretation of a statute, and therefore held there was no violation of the separation of powers doctrine. The Supreme Court held that the legislature had a “rational basis” for enacting the legislation, noting that the insurance industry was already highly regulated, but that insurance coverage for construction liability itself lacked “clarity” and was the subject of “significant litigation, particularly with respect to whether construction defects constitute ‘occurrence.’” Accordingly, it found no equal protection violation. Finally, while noting that it was generally within the legislature’s power to define the term “occurrence,” the Supreme Court held it would violate the contract clauses of both the federal and state constitutions to apply this definition retroactively as it would substantially impair pre‑existing contracts by materially changing their terms. It thus held that the legislation applied only prospectively to contracts executed on or after the act’s effective date of May 17, 2011.
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ALABAMA SUPREME COURT HOLDS EPA INVESTIGATION CONSTITUTES "SUIT" TRIGGERING DUTY TO DEFEND
Responding to a certified question from a federal district court in Alabama, the Alabama Supreme Court held that a U.S. Environmental Protection Agency (“USEPA”) investigation of a “potentially responsible party” (“PRP”) constitutes a “suit” under general liability insurance policies. Travelers Casualty and Surety Co. v. Alabama Gas Corp., 2012 WL 6720790 (Ala. Dec. 28, 2012).
A jury found a life insurer obligated to pay benefits to an insured’s beneficiary even though the jury was presented with evidence that the insured made misrepresentations and omissions in his insurance application. The lower appellate court reversed the trial court’s verdict. On writ of certiorari to the Oklahoma Supreme Court, the Supreme Court reinstated the jury verdict. Benson v. Leaders Life Ins. Co., 2012 WL 6585123 (Okla. Dec. 18, 2012).
ELEVENTH CIRCUIT HOLDS UNDER FLORIDA AND MASSACHUSETTS LAW THAT POLLUTION EXCLUSION IN CGL POLICIES EXCLUDES COVERAGE FOR DEFECTIVE CHINESE DRYWALL
The U.S. Eleventh Circuit Court of Appeals recently held under either Florida or Massachusetts law that coverage for damages caused by defective Chinese drywall is excluded under CGL policies’ pollution exclusions. Granite State Ins. Co. v. American Building Materials, Inc., 2013 WL 28430 (11th Cir. Jan. 3. 2013).
The U.S. Fifth Circuit Court of Appeals has held that neither a less than perfect reservation of rights nor a delayed assertion of an affirmative defense based on an exclusion waived an insurer’s reliance on the exclusion under Louisiana law. Sosebee v. Steadfast Insurance Company, 701 F.3d 1012 (5th Cir. 2012).
EIGHTH CIRCUIT AFFIRMS RULING ALLOWING STACKING OF LIABILITY AND UIM LIMITS UNDER ARKANSAS LAW
The U.S. Eighth Circuit Court of Appeals has upheld a district court’s ruling under Arkansas law allowing stacking of liability and UIM limits in a single commercial auto policy. Argonaut Great Cent. Ins. Co. v. Casey, 701 F.3d 829 (8th Cir. 2012).
SIXTH CIRCUIT HOLDS INSURED HAS NO OBLIGATION UNDER TENNESSEE LAW TO CONTINUE COVERAGE NEGOTIATIONS WITH INSURER AFTER DENIAL OF COVERAGE
The U.S. Sixth Circuit Court of Appeals has held that an insured does not have an obligation under Tennessee law to continue coverage negotiations with its insurer once an insurer denies coverage. Forrest Construction, Inc. v. The Cincinnati Insurance Company, 2013 WL 135372 (6th Cir. Jan. 11, 2013).
FOURTH CIRCUIT HOLDS UNDER VIRGINIA LAW THAT INSURER HAS DUTY TO DEFEND ALLEGED NEGLIGENT HANDLING OF FUNDS CLAIM DESPITE HANDLING OF FUNDS EXCLUSION
The U.S. Court of Appeals for the Fourth Circuit has held that an insurer has a duty to defend a lawsuit arising out of the alleged negligent handling of funds, notwithstanding an exclusion for “Handling of Funds.” First Tennessee Bank Nat’l Ass’n v. St. Paul Fire and Marine Ins. Co., 2012 WL 6634911 (4th Cir. Dec. 21, 2012).
FOURTH CIRCUIT HOLDS DEVELOPER ENTITLED TO ADDITIONAL INSURED COVERAGE FOR "YOUR WORK" PURSUANT TO CONSTRUCTION AGREEMENT
The U.S. Court of Appeals for the Fourth Circuit reversed a lower court and held that a developer was entitled to additional insured status for work performed by a contractor pursuant to the construction agreement between the developer and its general contractor. Standard Pacific of the Carolinas, LLC v. Amerisure Ins. Co., 2012 WL 6604614 (4th Cir. Dec. 19, 2012).
A federal court in North Carolina recently dismissed claims against an insurer for bad faith, unfair and deceptive trade practices and punitive damages arising out of a dispute over the insurer’s obligation to defend and indemnify the insured against a series of international employment disputes. Martinez v. Nat’l Union Fire Ins. Co., 2012 WL 5993754 (E.D. N.C. Nov. 30, 2012).
SOUTH CAROLINA COURT OF APPEALS HOLDS COVERAGE FOR CLAIM FOR ERRONEOUS PROVISION OF MATERIALS TO ZONING BOARD EXCLUDED BY FAULTY WORKMANSHIP EXCLUSION
The South Carolina Court of Appeals recently held that an insurer had no duty to defend or indemnify a homeowner’s claim against a contractor who provided erroneous information to a local zoning board, resulting in the homeowner having to tear down part of a barn that the contractor built. Walde v. Ass’n Ins. Co., 2012 WL 6177947 (S.C. App. Dec. 12, 2012).
FEDERAL COURT IN ALABAMA REJECTS ARCHITECT’S ADDITIONAL INSURED CLAIM UNDER CONTRACTOR’S CGL POLICY
A federal court in Alabama held that a contractor was entitled to coverage for damage arising out of construction defects notwithstanding late notice, but rejected an architect’s claim for coverage as an additional insured under the same policy. Penn. National Mut. Cas. Ins. Co. v. Cochrane Roofing & Metal Co., Inc., 2012 WL 6043078 (N.D. Ala. Dec. 3, 2012).
FEDERAL COURT IN TEXAS FINDS NO DUTY TO DEFEND SUIT FOR NEGLIGENT HANDLING OF MEDICAL RECORDS
A federal court granted judgment on the pleadings for an insurer finding no duty to defend under a CGL policy for negligent handling of records. Armstrong Moving & Storage, Inc. v. Am. Cas. Co. of Reading, Pennsylvania, Civil Action No. A‑12‑CA‑609‑SS (W.D. Tex. Dec. 18, 2012).
FEDERAL COURT IN KENTUCKY FINDS POLICY VOID DUE TO MISREPRESENTATION REGARDLESS OF POLICYHOLDER INTENT
A federal court in Kentucky has held that an insurer properly rescinded coverage due to a misrepresentation regarding the policyholder’s criminal history regardless of evidence that the misrepresentation was accidental. Nationwide Mut. Fire Ins. Co. v. Nelson, 2012 WL 6562029 (E.D. Ky. Dec. 14, 2012).
FEDERAL COURT IN OKLAHOMA FINDS "SUBSTANTIALLY CERTAIN TO INJURE" CLAIM FALLS WITHIN "INTENTIONAL ACT" EXCLUSION
A federal district court in Oklahoma found claims based on alleged actions which were substantially certain to injure could not be an “accident” under employers’ liability insurance. Pennsylvania Mfrs. Ass’n Ins. Co. v. Lechner, 2012 WL 5830547 (N.D. Okla. Nov. 16, 2012).
FEDERAL COURT IN TEXAS FINDS INSURER DOES NOT OWE DUTY TO DEFEND OR INDEMNIFY PARTY ALLEGED TO BE LIABLE UNDER THEORIES OF ALTER EGO, JOINT VENTURE AND JOINT ENTERPRISE
A federal court in Texas recently determined an insurer did not have a duty to defend or indemnify a party alleged to be liable under theories of alter ego, joint venture and joint enterprise because of, inter alia, a contractual liability exclusion. See, Gemini Ins. Co. v. Austin Diversified Products, Inc., Case No. 03:09‑cv‑02131 (N.D. Tex. Dec. 14, 2012).
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