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.
Arkansas Supreme Court Holds "Actual Cash Value" Adjustment Does Not Allow Depreciation For Labor Costs
Oklahoma Supreme Court Applies Oklahoma Statute Limiting Subrogation To Texas Wrongful Death Award of Oklahoma Employee
Mississippi Supreme Court Holds Insurer Bears Burden In All-Risk Homeowners' Policy To Prove That Coverage For Losses Are Excluded By Policy
Fifth Circuit Affirms Ruling That Subcontractor Does Not Have The Duty To Defend Or Indemnify General Contractor Pursuant To The Pleadings
Tenth Circuit Holds Equitable Right Of Subrogation Exists Between Excess Insurers But No Duty Of Good Faith Exists Absent Contractual Relationship
Florida Court Enforces Policy's Mandatory Foreign Forum Selection Clause
Sixth Circuit Finds Faulty Construction Is Not An Occurrence Under Kentucky Law
Federal Court In Oklahoma Holds No "Drop-Down" Coverage Under Excess And Umbrella Policies For Insured When Primary Insurer Becomes Insolvent
Mississippi Appellate Court Holds "Ongoing Operations" Cannot Encompass Liability Arising After Work Is Completed
Arkansas Appellate Court Finds Judgment Creditor Of Insured Has No Direct Right Of Action Against Liability Insurer
Fifth Circuit Upholds Appraisal Award And Affirms Summary Judgment For Insurer
Kentucky Appellate Court Finds Employer Liability Exclusion Inapplicable To Claims Against Additional Insured
Federal Court In Florida Holds Criminal Adjudication May Establish Factual Basis For Liability Insurer's Motion For Summary Judgment Regarding Duty To Defend
Fourth Circuit Holds That Insured Was Nominal Party That Need Not Consent To Removal
Federal Court In North Carolina Holds Mortgagor Is Intended Third-Party Beneficiary To Policy Issued To Mortgagee
Federal District Court In South Carolina Holds Coverage For Claims Relating To Embezzled Funds Excluded
Florida Court Finds Consent Order Issued To Insurer Is Permissible Evidence To Prove Insured Did Not Make Misrepresentation On Application
ARKANSAS SUPREME COURT HOLDS "ACTUAL CASH VALUE" ADJUSTMENT DOES NOT ALLOW DEPRECIATION FOR LABOR COSTS
The Arkansas Supreme Court, answering a certified question from a federal court in Arkansas, has held that the undefined term "actual cash value" does not allow insurers to depreciate the costs of labor required to repair or replace covered damage. Adams v. Cameron Mut. Ins. Co., 2013 Ark. 475, 2013 WL 6118510 (Nov. 21, 2013).
An insured homeowner filed a claim after the insured property was damaged in a windstorm. The policy required the insurer to pay the "actual cash value" of the loss. Pursuant to this provision, the insurer depreciated both the material and labor components of the loss and paid the claim. Thereafter, the homeowner filed a class action lawsuit in federal court, alleging that payment of the "actual cash value" permitted depreciation of materials, but not labor. The federal district court certified the question to the Arkansas Supreme Court, which held that the undefined term "actual cash value" allowed depreciation for cost of materials, but not labor costs. The Supreme Court rejected the argument that labor is subject to depreciation because it is not subject to wear and tear and does not lose value over time.
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OKLAHOMA SUPREME COURT APPLIES OKLAHOMA STATUTE LIMITING SUBROGATION TO TEXAS WRONGFUL DEATH AWARD OF OKLAHOMA EMPLOYEE
The Supreme Court of Oklahoma granted certiorari to hold that an employer's insurer could not under Oklahoma law seek subrogation from an employee's widow who sought benefits for her husband's death in Texas and who brought a wrongful death case in Texas, finding that Oklahoma law prohibiting subrogation in death benefits cases applied because the husband employee contracted for employment in Oklahoma. Holley v. Ace American Ins. Co., 313 P.3d 917 (Okla. 2013).
The widow's husband, an employee of the insured employer, died at the Texas worksite of his Oklahoma employer. The employer's workers' compensation insurer paid death benefits after the widow filed for benefits in Texas. When the widow brought and succeeded on a wrongful death action in Texas, the insurer sought subrogation under Texas law. The widow then brought an action for declaratory judgment in Oklahoma, seeking application of Oklahoma's subrogation prohibition to benefits paid for the job-related death of an Oklahoma worker. The Court of Appeals had applied the Texas subrogation law ruling that the subrogation prohibition was a benefit for which the widow had to file a claim with the Oklahoma Workers' Compensation Court to preserve.
The Oklahoma Supreme Court reversed, holding that not every right under the Workers' Compensation Act is a benefit, but that the subrogation prohibition is a matter of public policy. It then found that the right of the employee to compensation arises from the contractual relationship between the employee and the employer on the date of injury and that the rights to death benefits become fixed upon the date of death so that it did not matter that the widow later sought benefits in Texas. Section 44(b) of the Workers' Compensation Act, relied upon by the Supreme Court, provides for two means by which dependents of a worker killed while working in another state may recover benefits, expressly contemplating both an action for benefits and compensation in Oklahoma or an action for benefits and compensation provided under any law of the state where the injury or death occurred. The Supreme Court held that Oklahoma's subrogation prohibition would apply, without commencement of a workers' compensation proceeding in Oklahoma, as to the workers' compensation insurer because the Oklahoma legislature indicated no intent that the death benefit obligation be dependent upon the amount of the death benefit, the forum in which death benefits are determined or the jurisdiction in which a widow or other dependent might seek compensation from third parties.
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MISSISSIPPI SUPREME COURT HOLDS INSURER BEARS BURDEN IN ALL-RISK HOMEOWNERS' POLICY TO PROVE THAT COVERAGE FOR LOSSES ARE EXCLUDED BY POLICY
The Mississippi Supreme Court held that, in the instance of an all-risk or open-peril homeowners' policy, after the insured proves direct, physical loss to property, the burden shifts to the insurer to prove that the cause of loss was subject to an exclusion and does not shift back to the insured to segregate covered from non-covered damages. Hoover v. United Services Auto Ass'n, 125 So.3d 636 (Miss. 2013).
The insureds suffered damage to their home and made a claim under an all-risk homeowners' policy. The insurer paid only part of the insureds' alleged damages on the basis that the remaining damage was due to excluded storm surge. The trial court granted a directed verdict in favor of the insurer as to the insureds' claims of emotional distress and mental anguish and as to claimed damages to the home which was subject to storm surge. The jury returned a verdict in favor of the insureds regarding roof damage. On appeal, the Supreme Court held that the trial court improperly applied the burden of proof at trial. It held that once the insureds proved a direct, physical loss, the burden to prove what part, if any, of the loss fell under exclusions was that of the insurer's. The Supreme Court reversed and remanded the case to trial court.
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FIFTH CIRCUIT AFFIRMS RULING THAT SUBCONTRACTOR DOES NOT HAVE THE DUTY TO DEFEND OR INDEMNIFY GENERAL CONTRACTOR PURSUANT TO THE PLEADINGS
The Fifth Circuit applied Texas' "eight-corner" doctrine and affirmed a district court's ruling that a subcontractor did not owe the general contractor a duty to defend or indemnify pursuant to a plaintiff's complaint that did not allege negligence against the subcontractor. Weeks Marine, Inc. v. Standard Concrete Products, Inc., 737 F.3d 365 (5th Cir. 2013).
The underlying case involved the slip and fall of an employee of a subcontractor when he fell from a crane while making repairs on a module contracted by his employer. The general contractor sought declaration that the subcontractor was contractually obliged to defend and indemnify it. The district court dismissed the action.
The Fifth Circuit affirmed. Under Texas law, the duty to defend is circumscribed by the "eight-corners" doctrine, so that a defense is determined solely by the language of the indemnity provision and the allegations in the third-party pleadings. The court agreed that the agreement between the parties required indemnification only with respect to claims related to the workmanship of the subcontractor. The employee's complaint attributed his accident to the construction process itself. Thus, the Fifth Circuit concluded, the accident did not originate from faulty workmanship of the subcontractor and a defense was not afforded per the parties' agreement. Further, the court held there was no duty to indemnify since "the same reasons that negate the duty to defend likewise negate any possibility that the [indemnitor] will ever have a duty to indemnify."
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TENTH CIRCUIT HOLDS EQUITABLE RIGHT OF SUBROGATION EXISTS BETWEEN EXCESS INSURERS BUT NO DUTY OF GOOD FAITH EXISTS ABSENT CONTRACTUAL RELATIONSHIP
The U.S. Court of Appeals for the Tenth Circuit ruled after considering the answer to a certified question by the Oklahoma Supreme Court that equitable subrogation is available to one excess insurer against another, but that no breach of duty of good faith could exist because there was no contractual relationship between the excess insurers. Steadfast Ins. Co. v. Agricultural Ins. Co., 2013 WL 6439671 (10th Cir. Dec. 10 2013) (unpublished opinion).
A first-level excess insurer brought an action against a second-level excess insurer to determine their respective rights and obligations, and the second-level insurer counterclaimed for equitable subrogation and breach of duty of good faith and fair dealing. Both insurers had a policy with an insured which had losses over a period of nine years. The first-level excess insurer entered into an agreement with the insured to submit the claims for all nine years under one policy year so that the second-level excess policy in that year would be triggered. The insured then released the first-level excess insurer. The district court found no right of equitable subrogation existed, but the Oklahoma Supreme Court, on certified question, found that the release by the insured did not affect the second-level insurer's right to equitable subrogation, which existed on the facts. The Tenth Circuit held accordingly, but further found that no duty of good faith and fair dealing could arise as between the insurers as they did not have a contractual relationship.
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FLORIDA COURT ENFORCES POLICY'S MANDATORY FOREIGN FORUM SELECTION CLAUSE
A Florida appellate court recently held that a mandatory foreign forum selection clause in an environmental policy was enforceable despite the insured's contention that enforcement of the clause would be unreasonable and unjust. III. Union Ins. Co. v. Co-Free, Inc., 2013 WL 5932244 (Fla. 1st DCA Nov. 6, 2013).
An insured filed a declaratory judgment action in Florida against its insurer after the insurer denied coverage for a claim made by the insured regarding a storage tank incident in Florida. The insurer filed a motion to dismiss based upon improper venue due to a forum selection clause in the policy, which stated that New York was the forum in which any disputes between the parties would be resolved. The insured conceded that the forum selection clause was mandatory, but argued that enforcement of the clause would be unreasonable and unjust. The trial court denied the insurer's motion to dismiss, and the insurer appealed.
The appellate court reversed, finding that the enforcement of the forum selection clause would not be unreasonable or unjust. The court concluded that in order for the clause to be unenforceable, the insured must demonstrate that the clause would cause more than just a mere inconvenience or additional expense. While the trial court found that the parties' bargaining power was unequal, the appellate court found that the insured did not adequately prove that it was in a "take it or leave it" proposition or that it had tried to negotiate the terms of the forum selection. Furthermore, the appellate court found that the insured was aware that its insurer was a surplus lines carrier and that the policy contained the forum selection clause. Despite the fact that the claims was strongly connected to Florida, the appellate court held that that connection alone was insufficient to invalidate the forum selection clause.
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SIXTH CIRCUIT FINDS FAULTY CONSTRUCTION IS NOT AN OCCURRENCE UNDER KENTUCKY LAW
Reversing the decision of a federal district court in Kentucky, the U.S. Sixth Circuit Court of Appeals has held that claims against a subcontractor for faulty work in preparing a building pad did not allege an "occurrence." Liberty Mut. Fire Ins. Co. v. Kay & Kay Contracting, LLC, 2013 WL 6084276 (6th Cir. Nov. 19, 2013) (unpublished opinion).
The insured subcontractor was hired to perform site preparation work and construct a pad for a commercial building. After the building was completed, it experienced damage as a result of settling allegedly caused by the faulty site preparation work of the insured. The insured's CGL carrier denied coverage and filed a declaratory judgment action seeking a determination that there was no "occurrence." The parties filed cross-motions for summary judgment and the trial court held that there was an "occurrence." The insurer appealed.
The Sixth Circuit reversed, finding that the damage to the building was within the control of the insured, and not a fortuitous event which damaged other property. Because the site preparation work was needed to avoid the settling and resultant structural damage and the insured was hired to prevent this type of damage, the faulty work and resulting damage were not fortuitous and thus not an "occurrence" under the CGL policy.
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FEDERAL COURT IN OKLAHOMA HOLDS NO "DROP-DOWN" COVERAGE UNDER EXCESS AND UMBRELLA POLICIES FOR INSURED WHEN PRIMARY INSURER BECOMES INSOLVENT
A federal court in Oklahoma held that neither excess nor umbrella insurers had a duty to "drop down" in coverage where a primary insurer proved insolvent. Each insurer's policy provided coverage only for an "occurrence" for which no primary insurance coverage was available or for coverage only once primary insurance coverage was exhausted by an occurrence, and the the court concluded that the insolvency of a primary insurer did not constitute an occurrence under the definitions of the policies. Canal Ins. Co. v. Montello, Inc., 2013 WL 6732658 (N.D. Okla. Dec. 19, 2013).
The insured was a manufacturer facing liability in litigation over asbestos exposure from asbestos in its products. During the years at issue, the insured had CGL insurance with a primary insurer which became insolvent prior to full payment of its limits. The insured also maintained several excess and umbrella policies with various insurers and sought a declaratory judgment that those insurers had a duty to "drop down" in place of the insolvent primary insurer and to defend or indemnify the insured. On an Erie guess, the district court held on summary judgment motion, as a matter of first impression, that Oklahoma courts would find with the majority of courts that when a primary insurer becomes insolvent, an excess insurer is not required to assume the primary insurer's obligations.
The holding was also based on Oklahoma rulings that an excess insurer's obligations are not triggered until primary coverage has been exhausted. The court looked to the language of each excess and umbrella policy. It held that the excess policies did not contemplate payment until those policies listed in the Schedule of Underlying Policies were exhausted; and that the underlying policies were "deemed to be in force and written without special restrictive endorsements," such that regardless of actual status, the excess policies were to be enforced as if the primary insurance was in force. As to the umbrella policies, the court found an intent to trigger umbrella coverage in excess of a retained limit only in cases where the primary policy does not provide coverage. The court held that no duty to defend could exist where the claims were not ones for which the excess or umbrella policies provided coverage and there was an underlying insurer obligated to defend.
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MISSISSIPPI APPELLATE COURT HOLDS "ONGOING OPERATIONS" CANNOT ENCOMPASS LIABILITY ARISING AFTER WORK IS COMPLETED
The Mississippi Court of Appeals granted summary judgment in favor of an insurer on an additional insured's claim under a CGL policy, finding that the term "ongoing operations," though not defined in the policy, clearly did not include coverage for an additional insured's liability arising after the insured had completed its work. Noble v. Wellington Associates, Inc. 2013 WL 6067991 (Miss. App. Nov. 19, 2013).
A real estate development company hired the insured to provide fill dirt for a housing project. As part of the agreement, the real estate developer was added as an additional insured on the insured's CGL policy. After houses were built, one of them was bought and subsequently suffered cracks which were attributed to the fill dirt beneath the slab. The additional insured endorsement stated the real estate developer was "only an additional insured with respect to liability...caused in whole or in part by [the insured's] ongoing operations." The court found that Mississippi courts had not had occasion to construe the phrase "ongoing operations" as used in an additional insured endorsement and looked to other jurisdictions for guidance. The court held that for "ongoing operations" to have any meaning, it could not encompass liability arising after the insured's work was completed, and referred to action "actually in process" which did not include "completed operations." The court held that the additional insured endorsement was not triggered by damage arising only after the contractor completed operations.
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ARKANSAS APPELLATE COURT FINDS JUDGMENT CREDITOR OF INSURED HAS NO DIRECT RIGHT OF ACTION AGAINST LIABILITY INSURER
The Court of Appeals of Arkansas affirmed the dismissal of a suit by a judgment creditor of a bankrupt insured against the insured's liability insurer, ruling that the creditor had no standing as an incidental beneficiary to the insurance contract. Rentco, Inc. v. Farmers Ins. Co., Inc., 2013 Ark. App. 628, 2015 WL 5964781 (Nov. 6, 2013).
The insured rented equipment from a third party that was later damaged in an auto accident. The equipment owner sued the driver at fault and obtained a judgment against him, but could not collect on the judgment due to the insured's bankruptcy. The equipment owner then sued the insured's liability insurer directly. The trial court granted summary judgment in favor of the insurer, finding that the equipment owner was not an intended beneficiary of the policy and therefore had no standing to sue the insurer.
On appeal, the trial court's ruling was affirmed. The appellate court rejected the argument that public policy compelled a finding that a judgment creditor of an insured is an intended beneficiary of a liability policy. The court agreed with the insurer that the "public" is too large and ill-defined to be classified as an intended beneficiary.
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FIFTH CIRCUIT UPHOLDS APPRAISAL AWARD AND AFFIRMS SUMMARY JUDGMENT FOR INSURER
The U.S. Fifth Circuit Court of Appeals recently upheld an appraisal award and dismissed an insured's extra-contractual claim maintaining that the district court was entitled to disregard modifications in form as long as the award substantially complied with policy requirements. Michels v. Safeco Ins. Co. of Indiana, 2013 WL 5935067 (5th Cir. Nov. 6, 2013) (unpublished opinion).
The insured sued its insurer for an alleged inadequate payment after his home was damaged by fire. After receiving a demand, the insurer moved for appraisal under the policy. The umpire issued an award and the insurer timely paid the difference between its initial payment and the award. The insured moved to vacate the appraisal award on the ground that it was not properly itemized as required by the policy's appraisal clause. The district court granted summary judgment in favor of the insurer and dismissed all of the insured's remaining extra-contractual claims. The insured appealed.
On appeal, the Fifth Circuit affirmed the validity of the appraisal award and the dismissal of the insured's extra-contractual claim. Noting that both appraisers submitted itemized estimates, the Fifth Circuit rejected the insured's contention that the award was not in compliance with the policy. While the court acknowledged that the estimates did not strictly follow the policy's guidelines, it held that the adjusters' "small variances" in form did not negate compliance with the policy. Further, the Fifth Circuit found that the insured was estopped from arguing against a lump-sum appraisal award since his own appraiser had requested it.
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KENTUCKY APPELLATE COURT FINDS EMPLOYER LIABILITY EXCLUSION INAPPLICABLE TO CLAIMS AGAINST ADDITIONAL INSURED
The Court of Appeals of Kentucky has held that a severability of interests clause precluded application of an employer liability exclusion to claims asserted against an additional insured who did not employ the injured party. Horn v. Sesco, 2013 WL 6571797 (Ky. App. Dec. 13, 2013) (unpublished opinion).
A worker was injured after falling out of a truck owned by his employer but driven by a permissive user. The worker sued the driver, who sought coverage under an auto liability policy issued to the employer/truck owner. The insurer intervened seeking a declaration of no coverage. The trial court ruled that, as a permissive user of the auto, the driver was an "insured," but held that the policy excluded coverage for bodily injury to an employee of the insured. Because the injured worker was an employee of the named insured, the trial court ruled that the exclusion applied. The driver appealed.
On appeal, the court agreed that the driver was an insured, but rejected the trial court's conclusion that the employer liability exclusion applied. Reading the exclusion in conjunction with the policy's severability of interest clause, the court concluded that the employer liability exclusion applied only if the party seeking coverage was the employer of the injured worker. Because the driver was not the employer of the injured worker, the exclusion was held to be inapplicable and the trial court's judgment was reversed.
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FEDERAL COURT IN FLORIDA HOLDS CRIMINAL ADJUDICATION MAY ESTABLISH FACTUAL BASIS FOR LIABILITY INSURER'S MOTION FOR SUMMARY JUDGMENT REGARDING DUTY TO DEFEND
A federal court in Florida held that statements on the record at a criminal plea hearing and an adjudication of guilt could be used to establish the factual predicate necessary for a liability insurer's motion for summary judgment regarding its duty to defend and indemnify its insured. Certain Interested Underwriters at Lloyd's, London v. AXA Equitable Life Ins. Co., 2013 WL 5948107 (S.D. Fla. Nov. 7, 2013).
A life insurance broker had a professional errors and omissions policy that contained a criminal conduct exclusion. The companies whose policies the broker sold determined that the broker routinely falsified insurance applications. The companies sued the broker and rescinded the fraudulently-induced policies, and the State of Florida initiated criminal proceedings against the broker. The broker pled guilty to various fraud charges. Its E&O insurer sought a declaratory judgment that it did not have a duty to defend or indemnify the broker based on the criminal conduct exclusion, and moved for summary judgment.
The district court granted summary judgment, finding that the criminal conduct exclusion precluded the insurer's duty to defend and indemnify the broker. The insurer argued that the broker's entry of a plea, followed by an adjudication of guilt, conclusively established that the broker engaged in criminal fraud, which would preclude entitlement to defense and indemnity. The court rejected the argument that because the broker was not a lawyer, he could not understand what his criminal plea encompassed thus rendering its contents inadmissible hearsay. The district court found that no reasonable jury could find that the broker did not understand the contents of his plea and adjudication.
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FOURTH CIRCUIT HOLDS THAT INSURED WAS NOMINAL PARTY THAT NEED NOT CONSENT TO REMOVAL
The U.S. Fourth Circuit Court of Appeals recently held that an insured that was a nominal party was not required to consent to a removal in a coverage action among its insurers seeking to allocate a previously agreed settlement between the insurers. Hartford Fire Ins. Co. v. Harleysville Mutual Ins. Co., 736 F.3d 255 (4th Cir. Nov. 5, 2013).
After the insured contractor was sued for alleged construction defects on a condominium complex, its insurers settled the claims subject to an agreement among themselves that they resolve the allocation of the settlement through litigation. One of the insurers filed suit in South Carolina state court, naming the insured and the other insurers as defendants, seeking a declaration of each insurer's share of the settlement. One of the other insurers timely removed with the consent of the other insurers. The plaintiff insurer moved to remand based on the insured's failure to consent to removal. The district court denied the motion to remand, finding that the insured was a nominal party that need not consent to removal.
Affirming, the Fourth Circuit agreed that nominal parties need not consent to removal, and stated that the determination of whether a party is nominal or not is a straightforward inquiry into whether the non-removing party has an interest in the outcome of the case. The Fourth Circuit agreed that the insured did not have a sufficient stake in the litigation to rise above the status of a nominal party because all claims against the insured in the underlying action were settled and no party was seeking any monetary judgment or injunctive relief against it.
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FEDERAL COURT IN NORTH CAROLINA HOLDS MORTGAGOR IS INTENDED THIRD-PARTY BENEFICIARY TO POLICY ISSUED TO MORTGAGEE
A federal court in North Carolina recently held that mortgagors are intended third-party beneficiaries to lender force-placed policies such that they could bring claims for unfair and deceptive trade practices arising out of denials of first-party property claims. Mosely v. Balboa Ins. Co., 2013 WL 5938096 (W.D. N.C. Nov. 5, 2013).
Following a windstorm, the insurer paid the mortgagee pursuant to a lender placed policy. The mortgagee then released the insurance proceeds to the mortgagor to make the necessary repairs to the roof. Subsequently, the mortgagor reported to the insurer additional damage to the home. After the insurer denied the supplemental claim, the mortgagor sued the insurer. The insurer moved to dismiss the mortgagor's claim, arguing that the mortgagor lacked standing to sue because it was never in privity of contract with the lender placed policy.
Denying the insurer's motion to dismiss, the court held that the mortgagor was an intended third-party beneficiary to the force-placed policy such that it could sue to enforce contractual rights. The court reasoned that the loss payment provisions of the policy specifically provided that payment would be made to both the mortgagee and the mortgagor, such that the policy provided a "direct benefit" to them so that the mortgagor qualified as a third-party beneficiary under North Carolina law.
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FEDERAL DISTRICT COURT IN SOUTH CAROLINA HOLDS COVERAGE FOR CLAIMS RELATING TO EMBEZZLED FUNDS EXCLUDED
A federal court in South Carolina recently held that an insurer had no duty to indemnify its insured relating to the insured's employee's embezzlement of social security funds. Singletary v. Beazley Ins. Co., 2013 WL 6850147 (D. S.C. Dec. 30, 2013).
After the Social Security Administration ("SSA") found that employees of the insured had embezzled social security funds in their duties as representative payees and ordered the insured to repay the SSA, the insured requested that its management liability insurer pay the balance due to the SSA. The insurer denied coverage, and the insured sued alleging breach of the insurance policy and bad faith refusal to pay. The insurer removed the case to federal and moved for summary judgment. Granting the insurer's motion for summary judgment, the court held that the SSA's claim for repayment constituted funds which were owned under an express written contract between the parties. Since the policy explicitly excluded "damages representing amounts allegedly owed" under such a contract, the court held that coverage was excluded for the SSA's demand for payment.
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FLORIDA COURT FINDS CONSENT ORDER ISSUED TO INSURER IS PERMISSIBLE EVIDENCE TO PROVE INSURED DID NOT MAKE MISREPRESENTATION ON APPLICATION
A Florida appellate court recently held that a consent order from the Florida Department of Financial Services regarding an insurer's actions was permissible evidence by an insured to prove that the insured did not make a misrepresentation on his application for coverage. People's Trust Ins. Co. v. Roddy, No. 2013 WL 6081811 (Fla. 4th DCA Nov. 20, 2013).
An insurer denied a claim for damage to the insured's home on the basis that the insured materially misrepresented on his application that his home had a burglar alarm system in place when it did not. There was no written application because the insured applied for coverage by telephone. Following the denial, the insured sued the insurer, and testified at trial that he did not represent that his home had a burglar alarm. The insurer's representative testified that the burglar alarm discount was selected on the insured's application and that the insurer's normal procedure was to ask questions of the insured and check the appropriate boxes on the application based on the insured's responses. As rebuttal, the insured introduced evidence of a consent order issued to the insurer from the Department of Financial Services due to the insurer giving quotes based on every available discount even if the applicant did not claim to be eligible for such discounts. The jury found in favor of the insured, and the insurer appealed.
The appellate court affirmed, finding that the consent order was relevant evidence as to whether the insured had made a misrepresentation on his application. Because the insurer had introduced evidence of its usual business practice, the insured was entitled to present evidence of a contrary business practice. Thus, the appellate court held that the trial court correctly ruled that the evidence of the insurer's consent order was permissible and not unduly prejudicial.
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