Insurance Law Report: March 2015

March 27, 2015

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 March issue. To view, click on the appropriate title and you will be brought to the full version of the article below.


Texas Supreme Court Answers Certified Questions Regarding Additional Insured Status

The Texas Supreme Court responded to certified questions from the U.S. Fifth Circuit Court of Appeals and held that the scope of additional insured status of one not named in a policy may be determined from the terms of an insured contract and not the policy alone if the terms of the policy direct the inquiry there. In re Deepwater Horizon, Cause No. 13-0670 (Tex. Feb. 13, 2015).

A drilling contract required a drilling contractor to name an oil company as an additional insured for liabilities the contractor assumed under the drilling contract, but the contractor's policies did not identify the company as an additional insured. There was a blanket additional insured endorsement in the policy, however. The company contended that since it was an additional insured and that there was nothing in the policy to limit that status, it had unlimited additional insured status. The contractor and its insurers contended that the drilling contract required the contractor to assume liability only for above-surface pollution and provided that the contractor was to name the company as an additional insured on its policies only for liabilities it assumed under the terms of the drilling contract, which did not include the sub-surface pollution for which coverage was sought.

The issue was whether Evanston Insurance Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008) compelled one to look no further than the policies in deciding additional insured status. The Supreme Court held that Texas law allows a separate contract to be incorporated into an insurance policy by reference indicating the parties’ intent, and that such agreement can limit the scope of additional insured status and found that the policies necessarily required examination of the drilling contract to determine the scope of additional insured status. The focus of that inquiry was on a provision in the drilling contract that required the contractor to name the company and its affiliates:

as additional insureds in each of Contractor’s policies, except Workers’ Compensation for liabilities assumed by Contractor under the terms of [the Drilling] Contract.

The Supreme Court concluded that the company’s focus on the absence of a comma after the word “Compensation” (that the company said resulted in unlimited additional insured status excepting only workers’ compensation liability) was an unreasonable reading because it would change the clear meaning and conflict with other provisions of the drilling contract. The Supreme Court held that the contractor’s reading that additional insured status was limited to only those liabilities it assumed under the drilling contract was reasonable and that there was no ambiguity. Thus, and because the drilling contractor did not assume liability for sub-surface pollution, the company was not entitled to coverage as an additional insured under the policies for sub-surface pollution.

The drilling contractor’s excess insurers were represented by Phelps Dunbar attorneys. Please contact Richard Dicharry at richard.dicharry@phelps.com or Bart Hall at bart.hall@phelps.com for further information regarding this opinion.
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Mississippi Supreme Court Grants Writ Of Certiorari On Concurrent Causation Issue

The Mississippi Supreme Court granted certiorari to review a grant of summary judgment in an insurer's favor in an insured's suit for bad faith denial and negligence against the insurer for having denied coverage on the basis of a loss caused by water or which would not have occurred in the absence of water. Porter v. Mullins, 154 so. 3d 33 (miss. Jan. 22, 2015).

The insured owned a home along the beachfront, which was covered by an "all-risk" homeowner's policy and which was destroyed when a barge collided with it during a hurricane. The policy excluded loss caused by wind or water damage and "loss [that] would not have occurred in the absence of [an] excluded event...." the court of appeals found that the insurer met its burden to prove the exclusion applied as the damage could not have occurred without "storm surge - essentially a massive wall of water pushed ashore by ... Winds." the court of appeals disagreed with the insured's assertion that the barge itself was the cause, citing that a "cause" is defined as "the producer of an effect," with an effect requiring force, which the barge could not have generated itself.
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Fifth Circuit Holds That Home For Sale Is “Advertisement” Under Advertising Injury Coverage

The U.S. Fifth Circuit Court of Appeals upheld a district court’s summary judgment under Texas law that a home for sale constitutes an “advertisement” for purposes of trademark infringement coverage. Mid-Continent Casualty Co. v. Kipp Flores Architects, LLC, 2015 WL 795822 (5th Cir. Feb. 26, 2015).

Pursuant to a licensing agreement, an architect permitted the insured, a home builder, to construct homes using one of eleven different designs. The insured was required to seek additional licenses if it wanted to build additional houses. The insured instead built hundreds of homes using the copyrighted designs without licensing them. The architect sued the insured and obtained a judgment for copyright infringement. The builder’s insurer filed a declaratory judgment action seeking a declaration that it had no duty to pay the judgment. The policies covered copyright infringement in an “advertisement.” The insurer argued that a house, even one offered for sale, is not an “advertisement” as defined in the policy as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters” or as defined by Texas law as a “marketing device designed to induce the public to patronize a particular establishment” and “a public notice drawing attention to the attributes of a business.” The trial court found against the insurer, and the insurer appealed.

The Fifth Circuit found that the architect had established that it was damaged due to copyright infringement committed in the insured’s “advertisement” because the insured’s “primary means of marketing its construction business was through the use of the homes themselves, both through model homes and yard signs on the property of infringing homes it had built, all of which were marketed to the general public.” Accordingly, it held that the insured’s “use” and marketing of the infringing homes satisfied both the policies’ and Texas law’s meaning of the term “advertisement.”
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Tenth Circuit Holds Humiliation Offense Under “Personal and Advertising Injury” Coverage Refers To Character And Reputation Torts

The U.S. Tenth Circuit Court of Appeals affirmed a district court’s grant of declaratory judgment in favor of two insurers, holding that a chiropractor’s claim for humiliation resulting from her husband’s rape of her patient in the office is not a “personal and advertising injury” offense. Hanover American Ins. Co. v. Balfour, 2015 WL 250607 (10th Cir. Jan. 21, 2015).

The insured was a chiropractor who tendered a claim for indemnity and defense to her businessowner’s insurer after being sued for her husband’s rape of one of her patients at her chiropractic clinic. The insurer brought a declaratory judgment under, in part, general liability coverage that insured against “personal and advertising injury,” including:

Discrimination or humiliation (unless insurance thereof is prohibited by law) that results in injury to the feelings or reputation of a natural person, but only if such discrimination or humiliation is:

(1) not done intentionally by or at the direction of: (a) the insured; or (b) any officer of the corporation, director, stockholder, partner or member of the insured; and (2) not directly or indirectly related to an “employee,” nor to the employment, prospective employment or termination of any person or persons by an insured.

The Tenth Circuit held that the “humiliation” for which coverage was sought does not include general humiliation. The Tenth Circuit concluded that each offense included in the “personal and advertising injury” provision is either a tort or some other specific cause of action, and that the tort of “humiliation” covers character and reputation torts which may have at their cores the humiliating conduct. The court held that it would be strained to read “humiliation” as a catch-all term that includes any and all conduct one might find humiliating.
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Eleventh Circuit Holds Financial Institution Bond Does Not Cover Loss Arising Out Of Wrongfully Issued Stock Certificate Used As Collateral

The U.S. Eleventh Circuit Court of Appeals has held that a bank's loss stemming from reliance on erroneously issued stock certificate as loan collateral is not covered by a financial institution bond because the certificate is not a counterfeit document. Bank of Brewton v. Travelers Companies, Inc., 777 f.3d 1339 (11th Cir. Feb. 9, 2015).

A bank loan was secured by the assignment of a certificate of 180 shares of stock the customer held in a company. Unbeknownst to the bank, the certificate had been obtained by the customer under false pretenses and was worthless. When the bank realized this, it asked that the customer replace it with other collateral. The customer did not replace the collateral and defaulted on the loan. The bank then made a claim for the loss under its financial institution bond.

The insurer investigated the loss for several years before being sued by the bank for breach of contract, alleging that its loss was based on a forged or counterfeit stock certificate. The insurer moved for summary judgment, arguing that the certificate, though worthless, was authentic, not a counterfeit. The trial court granted the motion and the bank appealed.

The Eleventh Circuit affirmed. It held that the certificate was not counterfeit because it was an authentic document issued by the company, numbered, dated and signed by the appropriate official. The bank's loss, according the appeals court, was due to the fact that the certificate was obtained under false pretenses and therefore worthless. That it was a worthless document when issued, however, did not make it a counterfeit document, according to the court. The Eleventh Circuit held that because the certificate was authentic, it was not a counterfeit and the loss was not covered by the bond.
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Eleventh Circuit Construes “Structural Damage” To Mean “Damage To The Structural Integrity Of A Building”

The U.S. Eleventh Circuit Court of Appeals recently held that, when undefined in a policy, the plain meaning of the term “structural damage” means “damage to the structural integrity of a building” as opposed to “any damage to the structure.” Hegel v. First Liberty Ins. Corp., 2015 WL 821146 (11th Cir. Feb. 27, 2015).

The insureds had a homeowners’ policy that insured against “Sinkhole Loss” as an exception to the policy’s exclusion for damage caused by earth movement. Under the policy, the term “Sinkhole Loss” means “structural damage to the building, including the foundation,” caused by sinkhole activity. The policy, however, did not define the term “structural damage.” The insureds submitted a claim for a suspected sinkhole loss, and it was undisputed that the insured property was impacted by sinkhole activity. However, a dispute existed as to whether the sinkhole caused “structural damage” as the adjuster observed “damage consisting of widespread, minor cracking to both the exterior and interior of the home.” The district court granted summary judgment for the insured. The insurer appealed.

The Eleventh Circuit reversed, finding that the plain meaning of the phrase “structural damage to the building” in an insurance contract means “damage to the structural integrity of a building” and not merely “any damage to the structure.” The case is remanded with instructions for the district court to decide if a genuine dispute of material fact exists regarding how much, if any, structural damage to the property is due to sinkhole activity.
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South Carolina Court Of Appeals Holds Excess Insurer Has No Obligation To Cover Excess Judgment

The South Carolina Court of Appeals recently held that an excess insurer had no obligation to cover an excess judgment. Crossmann Communities of North Carolina, Inc. v. Harleysville Mut. Ins. Co., 2015 WL 340772 (S.C. App. Jan. 28, 2015).

After settling multiple construction defect claims, two developers sued their insurers, seeking coverage for the settlements. Most of the insurers settled, but one primary carrier and one excess carrier pressed forward with litigation. In the landmark Crossmann decision (Crossmann Communities of North Carolina, Inc. v. Harleysville Mut. Ins. Co., 395 S.C. 40, 717 S.E.2d 589 (Aug. 2011)), the South Carolina Supreme Court held a primary insurer’s liability is limited to its pro rata share of the losses based upon “time on risk.” On remand, the trial court in Crossmann determined, inter alia, that the excess insurer’s policies were not triggered because the underlying CGL policies had not been exhausted. The trial court calculated the pro rata allocation on a daily loss (rather than a pro rata annual calculation, because certain carriers had coverage for less than a full year), and determined that the daily underlying coverage available from the primary insurers was greater than the total loss per day such that the excess insurer’s policy was not implicated. The insureds appealed.

On appeal, the insureds sought to apply payments made in courts outside of South Carolina to trigger excess coverage. The South Carolina Court of Appeals rejected this argument, noting that the parties had stipulated to the amount of damages at issue and that such a stipulation was binding. Further, the court noted that the settlements from the other jurisdictions had not been segregated between progressive property damage versus the costs of repairing defective work (the latter of which was not covered), such that it could not consider it. The court also found no error in the trial court calculating pro rata damage on a daily (rather than annual) basis, noting that the Supreme Court decision in Crossmann specifically gave courts the discretion to deviate from an annual time on risk calculation where appropriate.
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Florida Court Holds That “Vandalism” And “Malicious Mischief” Include “Arson” In All-Risk Policy

A Florida appellate court recently held that the terms “vandalism” and “malicious mischief” include “arson.” Botee v. S. Fid. Ins. Co., 2015 WL 477836 (Fla. 5th DCA Feb. 6, 2015).

An insured’s home was destroyed by an intentionally set fire. The insured filed a claim under her homeowner’s policy that provided all-risk coverage, subject to a vacancy exclusion which excluded coverage for losses caused by “vandalism and malicious mischief, theft or attempted theft” if the dwelling had been vacant or unoccupied for more than thirty consecutive days immediately before the loss. The insurer denied the claim on the basis that the intentionally set fire was an act of “vandalism and malicious mischief.” The insured filed a declaratory judgment action and filed a motion for summary judgment, arguing that although her property had been vacant for more than thirty days prior to the loss, the vacancy exclusion applied only to “vandalism and malicious mischief,” not to “fire.” The trial court denied the motion and entered summary judgment in favor of the insurer, holding that the vacancy exclusion in the policy was unambiguous and the term “vandalism and malicious mischief” encompasses arson within its plain and ordinary meaning. The insured appealed.

The appellate court affirmed, finding that the plain and ordinary meanings of “vandalism” and “malicious mischief” include “arson,” notwithstanding that neither are defined terms and most courts have held that the destruction of property by an intentionally set fire is encompassed within the terms “vandalism” and “malicious mischief.” The appellate court also rejected the insured’s argument that the court should consider that the named perils coverage for personal property under the policy distinguished between “fire or lightning” and “vandalism” or “malicious mischief.” The court found that since there was no personal property damage, it was necessary to read only the coverage provisions related to the dwelling and the general conditions and definitions applicable to the entire policy.
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Kentucky Appellate Court Affirms Multi-Million-Dollar Bad Faith And Punitive Damages Award For Policyholder’s Emotional Distress

The Court of Appeals of Kentucky affirmed an award of almost $3.5 million against an insurer for causing emotional distress to its policyholder in its handling of a liability claim. The Indiana Insurance Company v. Demetre, 2015 WL 393041 (Ky. App. Ct. Jan. 30, 2015).

An insured property owner received a demand from neighboring landowners who alleged injuries as a result of gasoline fumes emanating from the insured’s property. Suit was filed against the property owner and the insurer, and the insurer defended under a reservation of rights. The insurer also filed a cross-claim for declaratory judgment against its insured, asserting that there was no coverage for the claims and moved for summary judgment on coverage relying on a known loss argument. That motion was denied, and the insurer abandoned its coverage defenses and settled the plaintiffs’ claims. The insured then filed a cross-claim against the insurer, alleging that the insurer’s actions violated both the Consumer Protection Act and Kentucky Unfair Claims Settlement Practices Act and breached the insurer’s duties of good faith and fair dealing. The insured presented testimony of his emotional distress about the litigation and possible bankruptcy and that he was forced to hire his own defense attorney. The jury found that the insurer’s claim practices violated statutory law and breached its duties of good faith and fair dealing. It awarded $925,000 for emotional distress and $2.5 million in punitive damages. The insurer appealed.

The appellate court affirmed. It rejected the insurer’s argument that, by defending the insured under a reservation of rights and ultimately settling the claim, it could not have acted in bad faith. The court “decline[d] to adopt a blanket rule shielding an insurer from bad faith” in any case in which it defends its insured and ultimately pays the claim. The appellate court cited evidence that the insurer failed to investigate in order to assert coverage defenses, asserted control over the attorney appointed to defend the insured and refused to provide a competent defense to claims with little merit. This all supported the jury’s finding of liability. The court also affirmed the damages award, citing the insured’s evidence of stress and anxiety caused by the insurer’s conduct and noting that the ratio of compensatory damages to punitive damages was not unreasonably disproportionate.
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North Carolina Industrial Commission Has Exclusive Jurisdiction For Workers’ Compensation Bad Faith Claims

The North Carolina Court of Appeals recently reiterated prior holdings that the North Carolina industrial commission has exclusive jurisdiction to hear bad faith claims involving workers' compensation insurance. Bowden v. Young, 2105 WL 659740 (N.C. App. Feb. 17, 2015)

The claimant suffered injuries while performing his duties as a manager of a fast food restaurant. While his workers' compensation claim was pending, he brought a bad faith lawsuit against the workers' compensation carrier, claiming that the carrier engaged in intentionally wrongful conduct while handling his claim, including contacting his physicians without his permission and seeking medical advice from a biased expert. The carrier moved to dismiss claimant's lawsuit on the ground that the North Carolina Industrial Commission has exclusive jurisdiction over work-related injuries, including ancillary claims such as insurance disputes. The trial court denied the motion to dismiss, and the carrier appealed

Reversing, the North Carolina Court of Appeals noted that it previously held that claims for bad faith in the handling of a workers' compensation claim lie exclusively within the jurisdiction of the Industrial Commission. Because all of claimant's allegations were related to the handling of his workers' compensation claim, the appellate court found that the trial court should have dismissed the complaint in its entirety.
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Oklahoma Anti-Indemnification Statute Held To Preclude Obligation Of Insurer Under Construction Agreement Where Indemnity Arises Out Of Negligence Or Fault Of The Indemnitee

A federal court in Oklahoma granted an insurer’s motion to dismiss claims against it for breach of contract and bad faith on the grounds that an owner, which had contractually obligated its contractor to make it an additional insured, was not named as such in the policy and was subject to Oklahoma’s anti-indemnification statute. Tyson Foods, Inc. v. Routh Enterprises, Inc., 2015 WL 457945 (E.D. Okla. Feb. 3, 2015).

An owner of a construction project was sued by an employee of the contractor for injuries he sustained during the course of the project. The owner filed a third-party complaint against the contractor based on the contractor’s contractual obligation to provide indemnity. The owner was granted summary judgment. The owner then sued the contractor and its insurer, alleging that it was owed a defense as an additional insured and under the contractor’s indemnity obligation. The policy did not list the owner as an additional insured despite a certificate of insurance stating otherwise.

The court found that 15 O.S. §221, an anti-indemnification statute, precluded indemnity. The statute provides that “a construction agreement that requires an entity or that entity’s insurer to indemnify, insure, defend or hold harmless another entity against liability … which arises out of the negligence or fault of the indemnitee … is void as against public policy.” Some state’s anti-indemnification statutes allow for the reallocation of risk to an indemnitor’s insurer, so that even if the indemnification agreement is voided by statute, a separate promise to procure insurance designed to shift risk is enforceable. The court held that Oklahoma’s statute does not draw this distinction and that an exception does not apply because it does not use the words “insure” and “defend.” The court also rejected the argument that the insurer was estopped because it initially offered to defend and then revoked it after a dispute about separate counsel arose. The court held that waiver and estoppel are inapplicable to the creation of a contract. Finally, the court did not adopt the insurer’s argument that the owner’s claims should be dismissed because the owner was ultimately found immune from liability to the injured employee under workers’ compensation. The court held that an ultimate finding of immunity does not retrospectively negate a duty to defend, if one independently existed.
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Federal Court In Texas Holds “Your Work” Exclusion Bars Coverage For Construction Defects To Home

A federal court in Texas held that the “your work” exclusion is unambiguous and enforceable, barring a homeowner from collecting under a contractor’s policy a judgment against the contractor for completed work. Feaster v. Mid-Continent Casualty Co., No. 2015 WL 164041, (S.D. Tex. Jan. 13, 2015), appeal filed (5th Cir. Feb. 9, 2015).

The insured, a home developer, constructed a home purchased for homeowners, who began to encounter structural and cosmetic damages to their home, consisting of cracks and other defects formed in the sheet rock, brick mortar and woodwork, and sloping and deflections developed in the floors, after they took possession of it. The homeowners sued the insured alleging defective construction, for which its insurer denied coverage. The insured did not answer the homeowners’ lawsuit, and a default judgment was obtained against it. The insured assigned its claims against its insurer to the homeowners who then sued the insurer.

The insurer was granted summary judgment. The court, following Lamar Homes, Inc. v. Mid–Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007), held that the “your work” exclusion barred coverage for defective construction. It also held that the exclusion was neither unconscionable nor unenforceable under Texas law as the Texas Department of Insurance approved the standard form developed by the Insurance Services Office, Inc. containing the “your work” exclusion.
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Federal Judge In Texas Dismisses False Claims Act Suit

A federal court in Texas dismissed a lawsuit alleging that twenty-four insurers and independent claims adjusting companies violated the False Claims Act by conspiring to inflate government-subsidized flood insurance claims after Hurricane Katrina so that the amount of damages that private insurers had to pay for wind damage was less. U.S. ex rel. Kermith Sonnier v. Standard Fire Ins. Co., et al., 2015 WL 409823 (S.D. Tex. Jan. 29, 2015).

The plaintiff originally filed suit in 2009 in Louisiana, four years after Hurricane Katrina struck the Gulf Coast. That suit was dismissed in 2012, and the plaintiff filed suit in Texas, seeking civil penalties for each violation of 31 U.S.C. §3729. Fourteen defendants were voluntarily dismissed. The remaining defendants moved for dismissal on the grounds that the plaintiff could not satisfy three requirements of a False Claims Act, namely, that (1) he was an “original source” and that there had not been public disclosure; (2) that he was the first to file suit and not while any other suit was pending; and (3) that any claim presented to the government was even false. The court found that the plaintiff was not an “original source” because the allegations of fraud had been reported to the public through the media as well as Congressional hearings. The court dismissed the remaining claims on this basis and the other grounds for the dismissal motion were not reached.

Phelps Dunbar attorneys Peri Alkas (peri.alkas@phelps.com) in Houston and Brian Albritton (brian.albritton@phelps.com) and Scott Terry (scott.terry@phelps.com) in Tampa and represented certain defendants. Please contact them for further information about the decision.
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Federal Court In North Carolina Finds Unknown Injury Date Triggers Multiple Policies And Holds Insurers Must Share Equally In Defense And Indemnity

A federal court in North Carolina recently held that five insurers must share equally in the defense and indemnity of their mutual insureds with respect to three underlying construction defect lawsuits where the actual date of injury in each of the lawsuits was unknown. Harleysville Mut. Ins. Co. v. Hartford Cas. Ins. Co., 2015 WL 859586 (E.D. N.C. Feb. 27, 2015).

The insured was sued in three separate lawsuits regarding defective roofing work at three multi-family residential construction projects. Five separate insurers provided CGL insurance to the insured during and after construction was completed on each of the projects. After the underlying lawsuits settled, one of the insurers sought a declaration of the rights and obligations of each insurer with respect to the three underlying lawsuits. On cross-motions for summary judgment, four of the insurers argued that coverage should be triggered according to the date of completion of construction (such that the fifth insurer would bear the brunt of coverage), relying on multiple North Carolina Court of Appeals decisions in support of their position. The fifth insurer argued that coverage should be triggered according to the date of injury-in-fact and, since that actual date was unknown, that coverage should be afforded under each of the policies on a pro rata time on risk basis.

The court rejected the argument that the completion dates triggered coverage, finding that the intermediate appellate court decisions relied upon by the insurers could not be reconciled with an opinion from the North Carolina Supreme Court establishing an “injury-in-fact” trigger. The court explained that because it was it not clear when the damage began, it was reasonable to infer that the damage could have begun at any time from completion date to the date of the lawsuits such that coverage was triggered under all the policies. The court also held that each of the insurers had to share equally in both defense and indemnity, regardless of the number of years each insurer had coverage (or when the individual buildings were completed). The court declined to adopt a time-on-risk allocation, finding that the pro rata method could not be applied where there was uncertainty whether the damage occurred during one policy period or throughout all policy periods.
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Arkansas Appellate Court Enforces Assault And Battery Exclusion Endorsement

The Court of Appeals of Arkansas has held that an endorsement to a CGL policy containing an assault and battery exclusion barred coverage for claims arising out of a shooting. George v. Great Lakes Reinsurance (UK) PLC, 2015 Ark. App. 36 (Jan. 28, 2015).

Several people were injured at a shooting at a party. Two injured patrons sued the owner of the venue for negligence, and the owner sought coverage under its CGL policy. Its insurer defended under a reservation of rights and filed a declaratory judgment action. On cross-motions for summary judgment, the trial court found that the policy was not ambiguous and granted judgment in favor of the insurer. The insured appealed.

The appellate court affirmed, rejecting the insured’s argument that the endorsement was not a part of the policy because it was not listed on the first page of the policy. The appellate court found that the endorsement was, in fact, listed on the declarations page and that the endorsement itself was initialed by the insured. It also rejected the argument that the endorsement conflicted with the body of the policy, relying on the rule that an endorsement with specific language is controlling.
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Third-Party Beneficiary Employee To Workers’ Compensation Insurance Cannot Assert Insured’s Duty To Defend Claim As Non-Party To Insurance Contract

A federal court in Oklahoma granted summary judgment in favor of an insurer, finding that no duty of indemnity or defense existed and that a third-party beneficiary to the policy could not assert a claim for the breach of the duty to defend as a non-party to the insurance contract where the claim for indemnity was properly denied. Fry v. American Home Assur. Co., 2015 WL 519706 (E.D. Okla. Feb. 9, 2015), appeal filed (10th Cir. Mar. 4, 2015).

The surviving spouse of an injured employee sued an insurer after obtaining default judgment against the employer in which the insurer refused to defend and indemnify the employer. The spouse asserted that the insurer breached both the duty to defend and duty to indemnify. The court found that the duties existed if the underlying action involved claims falling within the scope of the policy. As workers in Oklahoma enjoy both a contractual and a statutory status as third-party beneficiaries of a workers’ compensation insurance agreement, the court held that the surviving spouse had standing as a third-party beneficiary to pursue a claim. However, the court held that the duty to defend runs to the insured and only the insured because to hold otherwise was too much of a departure from the concept of privity of contract. The court also held that indemnity did not exist because (1) the spouse’s complaint alleged intentional acts and (2) the insurer was not equitably estopped from denying coverage where allegations of false representations in the initial letter denying coverage were unsupported.
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