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 July issue. To view, click on the appropriate title and you will be brought to the full version of the article below.
The Virginia Supreme Court recently held that a claim against a health care provider for breach of contract requiring it to pay into a state-run fund for birth injuries broadly “arose from” the provision of “professional services” and was covered by the insured’s professional liability policy. Doctors Co. v. Women's Healthcare Associates, Inc., 740 S.E.2d 523 (Va. April 18, 2013).
The claimants entered into a contract with the insured health care provider for labor and child delivery services. The contract required the insured to make payments into a state-run birth injury fund on the claimants’ behalf, which would compensate the claimants in the event their child suffered a compensable injury during delivery. The insured did not make the payments into the birth injury fund. The claimants’ child suffered a compensable injury during delivery, but was not eligible for payments from the birth injury fund due to the insured’s non-payment. The claimants sued the insured for breach of contract. The insurer sought declaratory relief that the breach of contract action was not covered under a professional liability policy as it did not arise from the provision of professional services. The trial court found in favor of the insured, and the insurer appealed to the Virginia Supreme Court.
Affirming, the Virginia Supreme Court rejected the insurer’s argument that the alleged breach of contract did not “arise from” the provision of “professional services.” The Supreme Court found that the alleged breach – the non-participation in the birth injury fund – could not have occurred without the professional medical services that were provided (the delivery of the child), so that the alleged breach did generally “arise from” the provision of “professional services.” The court also found that the insured’s failure to notify the claimants that it had not made the requisite payments (a violation of state statute) did not implicate the policy’s statutory violation exclusion (which required the claim to “arise out of” a “violation of any statute”), as the Supreme Court found it was the insured’s failure to make payments on behalf of the insured, not its failure to notify the insured that it had failed to do so, from which the insured’s alleged liability arose.
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An appellate court in Texas recently held that an insurer can seek reimbursement of payments made only when that right is included in the policy or there is a clear and unequivocal contractual agreement reached to that effect. Warren E&P, Inc. v. Gotham Ins. Co., 368 S.W.3d 633 (Tex. App. — El Paso 2012, pet. filed). On April 19, the Texas Supreme Court granted the insurer’s petition for review of the issue of whether an insurer has a right to recover from uninsured third parties’ policy benefits it paid under a mistake of fact when the insured represents that it suffered a loss it did not actually incur.
The insureds had a control of well policy and entered into a joint operating agreement for a well with two entities that did not have well control insurance. The well blew out and caught fire, destroying the rig, third-party contractors’ equipment and neighboring crops and fences. The insureds informed the insurer’s adjuster that they owned 100 percent of the working interest in the well and were operating it at the time of the blowout. The same information was contained in sworn proofs of loss. Based on those and other representations, the insurer paid the insureds’ claim. The insurer investigated and found that its payment benefitted entities that did not have coverage under its policy. It stopped payment on the unpaid claims and sought equitable restitution of the benefits paid. The insureds counterclaimed for breach of contract, bad faith and violations of the Texas Insurance Code. The trial court held the insurer was entitled to restitution plus interest because the evidence conclusively established that it paid the insureds’ claim under the mistaken belief that the claim was covered by the policy, which unjustly enriched the insureds’ partners by discharging them from the debts owed under the joint operating agreement.
On appeal, the Eighth Court of Appeals reversed, relying on the Texas Supreme Court’s prior holding that an insurer is prohibited from being granted an equitable right of reimbursement that did not exist in the policy. Excess Underwriters at Lloyd's, London v. Frank's Casing Crew & Rental Tools, Inc., 246 S.W.3d 42 (Tex. 2008). The court concluded that the insurer could have included a clause in the policy that would have provided for a credit against loss payments to its insureds that benefitted third parties not responsible for the loss, but did not do so. The policy did not provide such a right.
A federal appeals court has held that a CGL insurer has no duty to defend an insured in an arbitration based on allegations in a prior lawsuit, even though it acknowledged the possibility of coverage. American Safety Indemnity Co. v. T.H. Taylor, Inc., 2013 WL 978804 (11th Cir. March 14, 2013).
A general contractor was hired to build a home. After over a year of construction, unpaid subcontractors and material suppliers sued the general contractor and the property owners. The owners cross-claimed against the general contractor alleging fraud and intentional misrepresentation of facts in order to secure payment for unperformed work. The court ruled that the dispute was subject to arbitration, and the owners filed an arbitration complaint that did not expressly identify a legal cause of action and omitted allegations of intentional misconduct. The general contractor tendered its defense to the insurer, but the insurer declined coverage and filed a declaratory judgment action. The trial court ruled that the arbitration was based on intentional misconduct of the insured and granted summary judgment to the insurer, finding that it had no duty to defend. The insured appealed.
The Eleventh Circuit went beyond the pleadings of the arbitration proceeding to find that the substance of that dispute pertained to intentional acts alleged in the lawsuit and justified it on the basis that the arbitration "constituted a continuation of the same dispute between the same parties arising out of the same facts" and rejected the insured's argument that the ambiguity of the arbitration complaint should be construed in its favor. The court also held, however, that the arbitration could ultimately "evolve" and be decided in a way that triggers coverage under the policy. Nevertheless, it affirmed the trial court's grant of summary judgment in favor of the insurer.
FOURTH CIRCUIT HOLDS INSURER ENTITLED TO RECOUP DEFENSE COSTS FOR NON-COVERED CLAIMS
The U.S. Fourth Circuit Court of Appeals recently held that claims against the chairman of a financial corporation for bank, wire and securities fraud were excluded under his directors and officers policy, and that his insurer was entitled to recoup defense costs previously advanced. Farkas v. National Union Fire Insurance Co. of Pittsburgh, PA, 2013 WL 1459248 (4th Cir. April 11, 2013).
After the chairman of a financial corporation was indicted on multiple counts of bank, wire and securities fraud, the financial corporation’s directors and officers insurer advanced nearly $1,000,000 in defense costs. After a jury convicted on all counts, the insurer informed the chairman that as a result of the policy’s conduct exclusions, which excluded coverage for (among other things) criminal acts, it would no longer fund his defense and reserved the right to recoup advanced funds. The chairman then sought declaratory relief requiring the insurer to continue advancing defense costs through at least the conclusion of his criminal appeal. The insurer answered and counterclaimed, seeking recoupment of defense costs. The trial court found that the evidence presented during the two-week criminal trial was “overwhelming” and that the jury verdict triggered the policy’s conduct exclusions and determined that because the chairman’s conduct was never actually covered under the policy, he was never entitled to the monies advanced to him and the policy gave the insurer the right to recoup those funds. It granted summary judgment in favor of the insurer. The chairman appealed, but after the case was calendared for oral argument, the Fourth Circuit entered an order withdrawing it from the calendar, and (after reviewing the briefs, records and applicable law) affirmed the decision of the trial court without reason.
FIFTH CIRCUIT HOLDS INSURED HAD SUFFICIENT NOTICE OF ENDORSEMENT IN RENEWAL POLICY THAT CHANGED AND PRECLUDED COVERAGE
The Fifth Circuit recently held that an insurer did not breach its duty to defend because the triggered policy included an endorsement excluding coverage that the prior policy did not have and that the insured could not avoid its application on the basis of claimed ignorance of it. Materials Evaluation and Technology Corp. v. Mid-Continent Cas. Co., 2013 WL 1693697 (5th Cir. March 18, 2013).
Two of the insured’s employees sustained injuries while working on its behalf for a client. The employees filed suit against the client, which settled and demanded the insured reimburse it for legal costs and litigation expenses. The insured’s insurer denied defense and indemnity, and the insured sued its insurer. The insured had CGL insurance for a two-year period. The first policy contained an employer’s liability exclusion that did not exclude coverage for an employee’s injuries if liability arose from a third-party contractual relationship. The second policy included an endorsement that excluded coverage for an employee’s injuries arising from a third-party contractual relationship. The court concluded that since the injuries occurred during the term of the second policy, it was triggered and, as it contained the endorsement excluding coverage, the insurer did not owe a duty to defend.
On appeal, the insured contended that Texas law presumes that a policy renewal is made on the same terms of the original policy unless there is evidence of a contrary agreement and that the endorsement in the second policy was therefore not enforceable. The insured further contended that the insurer did not provide “actual notice” that the endorsement was in the policy. The Fifth Circuit noted that the insured received sufficient notice of the endorsement when it received the proposed policy prior to its inception and the policy declaration page and the endorsement page explicitly notified the insured that the endorsement had changed the terms of the policy. The Fifth Circuit affirmed, holding that the endorsement was valid and enforceable and that the insurer did not owe a duty to defend.
ELEVENTH CIRCUIT FINDS COVERAGE FOR LEGIONNAIRES’ DISEASE
The U.S. Eleventh Circuit Court of Appeals has found that an insurer has a duty to defend and indemnify in an wrongful death action on behalf of an individual who contracted Legionnaires’ disease while a hotel guest because the bacteria that caused the disease was not a “pollutant” under the policy’s pollution exclusion and the bacteria or fungi exclusion did not apply. Westport Ins. Corp. v. VN Hotel Group, LLC, 2013 WL 1196957 (11th Cir. March 22, 2013).
A hotel guest contracted Legionnaires’ disease at a hotel through water in an outdoor shower or spa he used during his stay, as a result of which he died. The guest’s estate sued the insureds, whose liability insurer sought a declaration that it owed no coverage. The insurer filed a motion for summary judgment relying on the policy’s pollution and bacteria/fungi exclusions. The district court denied the motion and entered summary judgment in favor of the insureds. The insurer appealed.
The Eleventh Circuit affirmed, concluding that if the Legionella bacteria were found to be a “pollutant” (and the claim subject to the pollution exclusion), the exclusion for bacteria/fungi would have no meaning. In addressing the bacteria/fungi exclusion, the Eleventh Circuit reasoned that the exclusion did not apply because the Legionella bacteria did not occur on or within a building or structure (as required by the terms of the exclusion), but instead in an outdoor shower or spa.
GEORGIA APPELLATE COURT HOLDS APPORTIONMENT STATUTE DOES NOT ABOLISH RIGHT OF CONTRIBUTION BETWEEN JOINT TORTFEASORS WHO HAVE SETTLED
A Georgia appellate court has held that an apportionment statute does not abolish the right of contribution between settling joint tortfeasors because there had been no apportionment of damages by a trier of fact. Zurich American Ins. Co. v. Heard, 740 S.E.2d 429 (Ga. App. 2013), reconsideration denied (2013).
Several entities, including a general contractor, architect and engineering firm, were engaged to supervise the development of various aspects of a hotel. After construction, the owners discovered the presence of mildew and signs of moisture trapped in the building. The general contractor and owners settled at arbitration. Subsequently, the general contractor’s insurers sued the architect, engineer and engineering firm engaged to assist in the development of the hotel. The insurers asserted several causes of action, including contribution/indemnity based upon the defendants’ joint tortfeasor status with the general contractor. The trial court granted summary judgment to the defendants finding that the enactment of the apportionment statute by the Georgia legislature in 2005, OCGA §51-22-33, abolished the right of a joint tortfeasor to seek contribution from another tortfeasor regardless of whether liability was through settlement or verdict.
The appellate court reversed, concluding that when there has been no apportionment by a trier of fact as required by the statute, but rather an apportionment determined by settlement, there remains a right of contribution among joint tortfeasors.
GEORGIA APPELLATE COURT HOLDS BROKER OWES NO DUTY TO ADDITIONAL INSURED TO GIVE NOTICE TO INSURER
A Georgia appellate court has held an insurance broker had no duty to notify an excess carrier of a lawsuit against an additional insured designated in the policy. Garner and Glover Co. v. Barrett, 738 S.E.2d 721 (Ga. App. 2013), reconsideration denied (2013).
The broker obtained a CGL policy and excess policy for its client, both of which listed an additional insured. The additional insured notified the broker that it had been served with a complaint which sought damages that would exceed the CGL limits, and requested defense and indemnity. The broker notified the CGL insurer, but not the excess insurer. Several years later, at the direction of the CGL insurer, the broker notified the excess insurer, who denied the claim, in part, based on late notice. The claimants, as assignees of the additional insured, filed suit against the broker and excess insurer. The broker filed a motion for summary judgment, but the trial court denied the motion based upon its conclusion that there was an issue of fact as to whether the broker should have given notice to the excess insurer.
The appellate court reversed, finding that the broker did not owe such a duty to the additional insured. The appellate court reasoned that the broker did not act as an agent of the additional insured, and concluded that nothing in the record reflected that the broker voluntarily undertook a duty to notify the excess carrier on behalf of the additional insured.
GEORGIA APPELLATE COURT HOLDS AUTO POLICY’S DELIVERY EXCLUSION APPLIES
A Georgia appellate court has held that a driver’s personal automobile insurer is not required to provide coverage or a defense in a personal injury action against the driver while engaged in commercial delivery activity based on an exclusion which bars coverage for delivery of persons or property for “a fee or compensation.” Progressive Premier Ins. Co. of Illinois v. Newell, 739 S.E.2d 756 (Ga. App. 2013).
The insured was driving his personal vehicle when he collided with the claimants’ vehicle. At the time of the accident, he was delivering pizza for his employer, for which he was paid a higher hourly wage and a delivery fee. After the claimants sued the driver, his insurer sought a declaration that it had no duty to provide coverage or a defense based on the delivery exclusion. The trial court concluded that the exclusion was ambiguous, and thus found for the insured.
The appellate court reversed, finding that the delivery exclusion was unambiguous under the facts. The court reasoned that because the insured was paid a different hourly wage and received an additional payment per delivery, the exclusion of coverage for the vehicle while being used to carry property for a compensation or fee applied. The court noted that if the insured were not paid at a higher rate, then the exclusion may not have been applicable.
FEDERAL COURT IN SOUTH CAROLINA HOLDS INSURER HAS NO RIGHT OF CONTRIBUTION FOR DEFENSE COSTS FROM CO-INSURER
A federal court in South Carolina recently held that an insurer had no right of contribution for defense costs against a co-insurer that covered the same insured on an identical risk. Assurance Co of America v. Penn-America Ins. Co., 2013 WL 1282141 (D. S.C. March 27, 2013).
After a series of construction defect lawsuits against the insured involving progressive property damage over a number of years, the insured tendered its defense to its insurers. One of the insurers agreed to defend subject to a reservation of rights, but another insurer denied coverage. The defending insurer sued the other insurer for contribution for defense expenses. The court noted that under South Carolina law, the duty to defend is personal to each insurer, and that where two companies insure an identical risk and both policies provide a defense, neither insurer, absent a contractual relationship, can require contribution from the other for defense expenses where one denies liability and refuses to defend. The court rejected the defending insurer’s argument that this rule encourages insurers to deny a defense in an effort to shift the cost of that defense onto another carrier, noting that nothing under South Carolina law required insurers jointly to retain counsel, and multiple insurers could simply choose to hire separate defense counsel, thereby providing no savings to defending insurers by a joint defense.
FEDERAL COURT IN ALABAMA RULES REFORMATION NOT APPROPRIATE TO CORRECT LACK OF INSURABLE INTEREST
A federal court in Alabama has found that reformation is not appropriate to correct a unilateral mistake in identifying the property owners and that an insured's lack of ownership of property precluded an insurable interest in property. Nationwide Mut. Fire Ins. Co. v. Guster Law Firm, LLC, 2013 WL 1346593 (N.D. Ala. March 28, 2013).
A fire destroyed commercial property that was being converted into an office building. After a claim was presented, the insurer found numerous inaccuracies in the application for coverage, including an error in identifying the property owner. The insurer sought a declaration that no coverage was available under its policies.
The court found that the named insured did not own the property at issue. The named insured and the building owner were both companies owned by the same individual, but the court held that reformation of the policies was inappropriate because there had been no mutual mistake in identifying the named insured. Instead, the incorrect listing of the named insured was a unilateral mistake for which reformation was inappropriate. The court held that the named insured had no insurable interest as a non-owner because it suffered no pecuniary loss as a result of the fire. The court therefore granted summary judgment to the insurer.
LOUISIANA APPEALS COURT REVERSES SUMMARY JUDGMENT IN FAVOR OF POLLUTION LIABILITY INSURER
A Louisiana appellate court has reversed a trial court’s grant of summary judgment in favor of a pollution liability insurer, finding that the insured’s settlement of environmental liabilities may be covered. Bollinger Shipyards Lockport, LLC v. American International Specialty Lines Ins. Co., 2013 WL 1458864 (La. App. 1 Cir. April 10, 2013).
The insured and several affiliated companies and subsidiaries were subject to environmental enforcement actions instituted by the Louisiana Department of Environmental Quality for violations of air quality and wastewater discharge permits. To settle its potential liability, the insured agreed to make “donations” to environmental organizations and educational institutions, to upgrade facilities for the purpose of reducing pollution risks and to hire additional environmental coordinators to ensure compliance with regulations. It sought coverage for its settlement under its pollution liability policy.
The insurer denied coverage, and the insured filed suit for breach of contract and bad faith. The parties filed cross-motions for partial summary judgment and the trial court granted partial summary judgment in favor of the insurer. The trial court certified the partial summary judgment as final and the insured appealed.
The appeals court first held that the ruling was improperly certified as final. Nevertheless, it exercised its discretion to undertake supervisory review of the ruling for the sake of judicial economy. The appeals court held that the coverage for damage to natural resources was broad enough to encompass the enforcement actions alleging air and water quality violations and that the insured’s settlement of these liabilities was a loss covered by the policy. It rejected the argument that the nature of the obligations imposed by the settlement, such as facility upgrades, were determinative of coverage, instead finding that the nature of the claim being settled is the only pertinent factor. Since the claims against the insured were for covered damage to natural resources, the settlement of those claims was a covered loss regardless of what specific costs or expenditures were required by the settlement. The case was remanded for further proceedings because the record was unclear whether the affiliated and subsidiary companies that were parties to the settlement constituted insureds under the policy.
The insurer is represented by Phelps Dunbar attorneys. For more information regarding this opinion, please contact Mark Dodart in the firm’s New Orleans office at email@example.com.
ARKANSAS APPEALS COURT FINDS INSURER BREACHED SETTLEMENT AND VIOLATED STATUTORY LAW BY INCLUDING PLAINTIFF'S INSURERE AS PAYEE ON SETTLEMENT CHECK
An Arkansas appeals court had held that a liability insurer breached a settlement agreement and violated state law by including a potential lien holder as a payee on a settlement check issued to an injured plaintiff. Lopez v. United Auto. Ins. Co., 2013 WL 1682214 (April 17, 2013).
Following an auto accident, an injured party received medical pay benefits from her own insurer. The insurer submitted a letter to the tortfeasor’s liability insurer advising of a subrogation lien. The injured party and the tortfeasor’s insurer reached a settlement agreement that required the victim to indemnify the insurer against liens. The agreement did not specify how the payment was to be issued. A check was issued and made payable to various parties, including the injured party’s own insurer, which previously advised that it had a subrogation lien. The injured party objected to the inclusion of her insurer as a payee on the settlement check and filed suit against the tortfeasor’s liability insurer for breach of the settlement agreement. The trial court granted summary judgment in favor of the liability insurer.
The appeals court reversed, finding that the inclusion of the victim’s own insurer as a payee violated the settlement agreement. It held that the parties to the agreement contemplated the existence of liens, and that the injured party agreed to indemnify the insurer against lienholder claims. The agreement contained no other language about the insurer’s right to protect itself against liens. Thus, the court held that insurer breached the agreement by including the purported lienholder as a payee on the check, and that, pursuant to Arkansas statute, the insurer was not permitted to condition its payment on the issuance of a settlement check which included the injured party’s own insurer as a payee.
A federal court in Arkansas has ruled that a law enforcement exclusion bars coverage of all claims against the insured arising out of alleged police misconduct. Harleysville Worchester Ins. Co. v. Diamondhead Property Owners Ass’n, Inc., 2013 WL 1500709 (W.D. Ark. April 11, 2013).
An insured property owners association and a police officer employed by the association were sued following an incident in which the officer engaged in a “shoot-out.” The insured and the officer sought coverage under the association’s liability policy. The insurer denied the claim and filed a declaratory judgment action seeking reformation of the policy and a declaration of no coverage. In a January 2013 ruling reported in the March 2013 issue of the Insurance Law Report, the court held that the policy was erroneously issued without a law enforcement exclusion and reformed the policy to include the missing exclusion. The insurer then moved for summary judgment based on the exclusion.
The court held that the law enforcement exclusion precluded coverage of all claims against the insured association and the individual officer. It found that the officer’s only responsibilities and conduct were encompassed within the exclusion and that there could be no coverage for claims arising out of his actions. It also held that there was no coverage for the alleged negligence of the association in failing properly to hire, train and supervise its police force. Summary judgment was granted in favor of the insurer.
FEDERAL COURT IN TEXAS HOLDS ADMINISTRATIVE ACTION INITIATED BY A FEDERAL AGENCY NOT A “SUIT” REQUIRING INSURER TO DEFEND
A federal court in Texas recently held that a federal agency’s order to pay for an environmental study does not constitute a “suit” triggering the insurer’s duty to defend. McGinnes Industrial Maint. Corp. v. The Phoenix Ins. Co., No. 4:11-cv-04000, (S.D. Tex. April 18, 2013).
The insured stored waste sludge at a site the U.S. Environmental Protection Agency (“EPA”) deemed to be contaminated, and the EPA determined that the insured was the responsible party for that contamination. The EPA ordered the insured to pay for studies on the land under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), and it complied under alleged threats of excess penalties. The insured then sought from its insurers defense and indemnity for the EPA’s action.
The insurers refused to defend on the basis that the policies’ duty to defend was limited to “suits,” and took the position that the EPA action was not a suit in a court of law. The insured contended that out-of-court proceedings under CERCLA were the functional equivalent of a lawsuit, and that since the term “suit” was undefined in the policy, it should include administrative actions. The court disagreed and held that the term “suit” could not be construed liberally to encompass government enforcement actions outside a court of law. The court noted that when the policies were first written (1965), both parties understood the term “suit” to mean disputes heard before a neutral magistrate who would decide causation, liability and damages by referencing formal standards, in contrast to the agency's direct enforcement actions which did not exist yet.
FEDERAL COURT IN VIRGINIA HOLDS FAILURE TO PROCURE CLAIM MAY BE ASSIGNED TO INSURER
A federal court in Virginia recently held that an insured may assign its claim for failure to procure to an insurer because such a claim is not so “personal” so as to be unassignable. Cincinnati Ins. Co. v. Ruch, 2013 WL 1683669 (E.D. Va. April 17, 2013).
The insured’s mortgagor was required by its deed of trust to maintain property insurance. The mortgagor allegedly instructed its agent to procure such insurance, but the agent failed to do so prior to a fire destroying the property. The insurer paid its insured, the mortgagee, for its losses and became subrogated to the extent of its payment. The insurer then sued the mortgagor for failing to maintain property insurance in accordance with the deed of trust. The insurer eventually settled with the mortgagor, agreeing to an assignment of the mortgagor’s right to bring an action for failure to procure against its insurance agent. As assignee, the insurer then sued the agent for failure to procure.
The agent moved to dismiss the insurer’s claim, arguing that the assignment of the failure to procure claim was invalid because it is a “personal” action under Virginia law that cannot be assigned. The court noted that under Virginia law, claims involving contract or property damage are generally assignable, while claims involving personal injury are not. However, the court was satisfied that the failure to procure claim sounded in property damage (destruction of property) and breach of contract (breach of the alleged oral agreement between the mortgagor and insurance agent) and that the claim could be assigned.
A federal district court in Tennessee has upheld its prior ruling that coverage for a contamination claim is excluded by a pollution exclusion. Interstate Packaging Company v. Century Indemnity Company, et al., 2013 WL 1335120 (M.D. Tenn. March 29, 2013).
The insured was sued for damages resulting from its allegedly improper disposal of hazardous waste materials at a landfill. The insured’s CGL insurers denied a defense and indemnity for the claim based on the pollution exclusion and the insured filed suit against its insurers based on that denial. One of the CGL insurers filed a motion for summary judgment that it owed no defense based on the “four corners” rule applied by Tennessee courts and that it owed no indemnity based on the rule that where there is no duty to defend, there can be no duty to indemnify. The court granted the motion, and the insured filed a motion for reconsideration.
The court affirmed its ruling that Tennessee is a “four corners” state and found that, based on the “four corners” of the underlying complaint, the insurer had no duty to defend. It held there was no “clear error” in having concluded that there was no duty to indemnify because there was no duty to defend. The court characterized what it called the “blanket rule” “logically flawed and arguably inconsistent with Tennessee case law,” but concluded that because two federal district courts in Tennessee have applied it and because there is no plainly countervailing Tennessee authority, applying the “blanket rule” was not a clear error of law.
The insurer is represented by Phelps Dunbar attorneys. For further information on this opinion or the case, please contact Bart Hall at firstname.lastname@example.org.
A federal court in Oklahoma dismissed an insured’s suit for bad faith and breach of contract against her professional liability insurer due to lack of allegation of a violation of a professional duty. Hanover American Ins. Co. v. Saul, 2013 WL 812353 (W.D. Okla. March 5, 2013).
A chiropractor sued her professional liability insurer for coverage after a patient sued her for sexual abuse by her husband who happened to be visiting the office. The professional liability policy covered negligent treatment or an accident arising from an incident and those instances arising from services within the scope of practice of a chiropractor. The court found that the failure by the chiropractor to warn her patient about her husband and allowing him to have access to the building where the chiropractic practice was located may have been a violation of some duty, but it was not a violation of a professional duty so as to be covered under the policy. The sexual abuse by the chiropractor’s husband was further found not to fall within coverage provided in the event of a civil action where the insured was alleged to have committed acts of sexual misconduct in the course of providing professional services to a client.
A federal court granted summary judgment in favor of an insurer, finding that waste water pollution which was the subject of underlying litigation fell within the policy’s pollution exclusion and that an exception to the exclusion for a “pollution event,” defined to include the accidental discharge of a pollutant which begins and ends during the policy period, did not apply. Colony Ins. Co. v. Bear Productions, Inc., 2013 WL 1286191 (E.D. Okla. March 26, 2013).
The insured was sued in a class action for bodily injuries and environmental damages resulting from disposal of saltwater and other waste materials from oil and gas well drilling. The insured had a general liability policy which included a pollution exclusion for “bodily injury and property damage arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for any insured.” There was a limited exception for accidental discharge that begins and ends during the policy period. In coverage litigation between the insured and its insurer, the court found the policy unambiguously excluded coverage for pollution and refused to find that the claims fell within the exception to the exclusion because it was limited to pollution that begins and ends in the policy period and the underlying lawsuit alleged that the pollution began several years prior to the beginning of the policy period. The court found there was no duty to defend or indemnify the insured.
FEDERAL COURT IN KENTUCKY FINDS NO COVERAGE UNDER CGL POLICY FOR FAULTY WORKMANSHIP CLAIMS, BUT ACKNOWLEDGES DUTY TO DEFEND BASED ON ALLEGATIONS OF CONSEQUENTIAL DAMAGES
A federal court in Kentucky has held that a CGL policy does not cover allegations of faulty work against an insured contractor, but found that the insurer must defend based on allegations that the faulty work caused damage to personal property. Netherlands Ins. Co. v. Jeffries Construction, Inc., 2013 WL 1151974 (W.D. Ky. March 19, 2013).
The insured general contractor constructed a house and commercial dog kennel. The owners sued the insured after noticing numerous defects in the foundation. The insurer sought a declaration that it owed no coverage for the claims asserted, and the parties filed cross-motions for summary judgment. The court held that the faulty work of the insured did not constitute an "occurrence" under the terms of the policy as construed under Kentucky law. It rejected the insured's arguments that, because the work was performed by subcontractors, he was entitled to coverage. It also held that the allegations of overbilling, misrepresentation and demands for punitive damages are not covered. The court noted, however, that the owners also alleged consequential damage to their personal property. The insurer conceded that these claims triggered coverage, and the court held that the insurer was obligated to defend the insured as long as these claims remained in the underlying litigation.
A federal court in South Carolina recently held an insurer that issued a commercial garage policy was obligated to pay the limit for only a single “accident” for an underlying lawsuit where the insureds faced allegations of negligent entrustment and negligent driving. The court also held, however, that the insurer was required to continue to defend the insureds in the underlying lawsuit after tendering policy limits. Diamond State Ins. Co. v. Estate of McNeal, 2013 WL 934182 (D. S.C. March 11, 2013).
Following a fatal single car accident, the estate of the deceased passenger sued the estate of the driver for negligence and the driver’s father, the named insured, for negligent entrustment. The insurer, which had issued a commercial garage policy with separate limits for “covered auto” and “other than covered auto” coverages, defended but filed a declaratory judgment action seeking a declaration that coverage was limited to a single “accident” and that, after tendering that limit, it had no further duty to defend. The estate argued that the negligent entrustment and negligent driving constituted separate events and/or proximate causes for the deceased’s death, and that both the “covered auto” and “other than covered auto” coverages were triggered. The court disagreed, holding that although such claims may have been independent proximate causes, the only “bodily injury” was a single accident such that coverage was available under either the “covered auto” or “other than covered auto” coverages, but not both. The court held, however, that even if the insurer tendered policy limits, it would be obligated to continue to defend the insured, as South Carolina law does not relieve an insurer of the duty to defend by its tender of policy limits.
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