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Insurance Law Report: November 2012

November 27, 2012

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

7.  Federal Court In Florida Looks Beyond Underlying Complaint To Find Pollution Exclusion Buy Back Was Not Triggered
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VIRGINIA SUPREME COURT HOLDS COVERAGE FOR CHINESE DRYWALL CLAIMS EXCLUDED BY POLLUTION EXCLUSION

Answering a question certified by the U.S. Fourth Circuit Court of Appeals, the Virginia Supreme Court recently held that sulfuric gas emitted from faulty Chinese drywall could be considered a “pollutant” and therefore that coverage for resulting damage could be excluded under a policy’s pollution exclusion. Travco Ins. Co v. Ward, 2012 WL 5358705 (Va. Nov. 1, 2012).
The insured sought coverage from his homeowners' insurer for damages allegedly caused by drywall manufactured in China that was installed during the construction of his home. The insured alleged that the drywall emitted sulfide gases and toxic chemicals that created noxious odors in the home and caused health issues and property damage. His insurer denied the claim and brought a declaratory judgment action in federal court, seeking a declaration that the policy’s pollution exclusion, latent defect exclusion, faulty or defective materials exclusion and rust or corrosion exclusion applied. The court granted the insurer’s motion for summary judgment and the insured appealed to the Fourth Circuit, which certified questions to the Virginia Supreme Court whether each of the four exclusions cited by the insurer were unambiguous, reasonable and applicable. 
The Virginia Supreme Court answered that all four exclusions were unambiguous and reasonable, and applied to the Chinese drywall claims. With regard to the pollution exclusion in particular, while noting that the release of sulfuric gas from drywall is not “traditional environmental pollution,” the Supreme Court noted that it does not construe pollution exclusions so narrowly and agreed that the sulfuric gases were a “pollutant” as used in the exclusion. 
Answering a certified question from a federal district court, the Kentucky Supreme Court has held that a liability claim under a builder’s risk policy is assignable notwithstanding a policy against the assignment of claims without the insurer’s consent. Wehr Constructors, Inc. v. Assurance Company of America, 2012 WL 5285774 (Ky. Oct. 25, 2012).
The insured obtained a builder’s risk policy to provide for a planned addition to its facilities. The policy provided “your rights and duties under this policy may not be transferred without Assurance’s written consent….” During the course of construction, flooring installed by a contractor was damaged. The insured claimed a loss, but the insurer denied the claim. The contractor sued to recover monies due and, as a part of the settlement of that suit, the insured assigned its rights under its policy to the contractor. The contractor sued the insured’s insurer, and the insurer moved for summary judgment based on the anti-assignment clause.
Examining the body of jurisprudence from other states, the Kentucky Supreme Court adopted the majority rule that a claim under a policy may be assigned after a loss occurs and liability under the policy attaches. The Supreme Court acknowledged that the provision is unambiguous and prohibits assignment of the insured’s claim without the insurer’s consent, but held that it was unenforceable as against public policy and contrary to Kentucky’s longstanding rules pertaining to restraints on alienability of choses in action.
The Mississippi Supreme Court has held as a matter of first impression that an excess insurer may bring an equitable subrogation malpractice claim against a law firm that a primary insurer hired to defend the insured despite finding that no attorney-client relationship existed between the insurer and the firm. Great American E & S Ins. Co. v. Quintairos, Prieto, Wood & Boyer, P.A., 2012 WL 4945958 (Miss. Oct. 18, 2012).
A lawsuit was brought against a nursing home for alleged negligent care. The nursing home’s primary insurer retained counsel to defend the suit. Because the attorneys retained by the primary insurer failed timely to designate expert witnesses, the settlement value of the case increased significantly, and the parties eventually settled for an amount well beyond the primary limits. The excess insurer paid the settlement amount above its policy’s attachment point and sued the law firm both directly and under a theory of equitable subrogation. The trial court dismissed the suit, finding no attorney-client relationship between the law firm and the excess insurer, thus concluding that the law firm owed the excess insurer no legal duty. The Mississippi Court of Appeals found an attorney-client relationship existed on the basis of shared status reports by the firm to the excess insurer and reversed. The Mississippi Supreme Court accepted the excess insurer’s writ of certiorari.
The Supreme Court held that excess insurers may, to the extent of their losses, pursue a claim against defense counsel hired by a primary insurer under equitable subrogation. However, the Supreme Court refused to allow a direct legal malpractice or other negligence claim. The Supreme Court ruled the excess insurer’s receipt of the law firm’s status reports was insufficient to establish an attorney-client relationship and to hold otherwise would require the Court to “ignore the realities of real-world litigation.” The matter was remanded to the trial court for trial on the equitable subrogation claim.
The Louisiana Supreme Court has held that a settlement agreement is not a valid "proof of loss" on which to base statutory penalties for an insurer’s untimely payment of a claim. Katie Realty, LTD. v. Louisiana Citizens Property Insurance Corp., 2012 WL 4901067 (La. Oct. 16, 2012).
An insured filed suit against its property insurer for a property loss and the parties successfully mediated the claim. The settlement agreement called for payment within 30 days. When the insurer failed to pay the settlement funds, the insured filed a motion to enforce the settlement and to assess statutory penalties for untimely payment under La. R.S. § 22:1892. La. R.S. § 22:1892(A)(1) requires that the insurer “pay the amount of any claim due any insured within thirty days after receipt of satisfactory proof of loss….” If an insured fails to make timely payment “when such failure is found to be arbitrary and capricious, or without probable cause…,” then the insurer shall be subject “to a penalty, in addition to the amount of the loss, of fifty percent damages on the amount found to be due from the insurer to the insured…as well as reasonable attorney fees and costs.” La. R.S. § 22:1892 (B)(1). Both the trial court and the appellate court found that the settlement agreement was a “proof of loss” under the statute such that fifty percent penalties plus attorneys’ fees were warranted due to the insured’s “callous indifference to the insured” in delaying payment. 
The Louisiana Supreme Court accepted the insurer’s writ application to address whether a written settlement agreement compromising a contested claim constitutes a “proof of loss” sufficient to trigger penalties under La. R.S. § 22:1892. The Supreme Court answered in the negative, holding that a written settlement agreement cannot establish proof of the amount due on claim itself as the settlement is merely a compromise that resolves the parties’ dispute over the claim. However, the Supreme Court did find that penalties were warranted under La. R.S. § 22:1973(B)(2), which requires that an insurer “pay a settlement within thirty days after an agreement is reduced to writing.” When an insurer knowingly fails timely to pay a settlement, the insured may be awarded penalties in an amount not to exceed two times the damages sustained or $5,000, whichever is greater. La. R.S. § 22:1973(C). Because the insured did not prove damages caused by the late payment, the Supreme Court awarded the insured the minimum statutory penalty of $5,000.
In the context of a disciplinary proceeding, the Louisiana Supreme Court took the opportunity to send notice to the bar regarding a lawyer’s duties of professional conduct when retained by an insurer to represent an insured. In re Donald S. Zuber, 2012 WL 4901089 (La. Oct. 16, 2012). 
The Louisiana Supreme Court declared in the context of the tripartite relationship between lawyer, insurer and insured that a lawyer representing an insured at the direction of an insurer is required to make appropriate disclosure sufficient to apprise the insured of the limited nature of the representation including the insurer’s right to control the defense in accordance with the terms of the insurance contract. An ABA Ethics Opinion cited by the Supreme Court suggests that the disclosure can be in the form of a short letter at the outset of the representation stating that the lawyer intends to proceed at the direction of the insurer and that the insurer has the right to control the defense and settlement under the terms of the policy. The Supreme Court further stated that once this disclosure is made and the insured accepts the defense, the lawyer may proceed with the representation at the direction of the insurer, including settling the claim within policy limits at the insurer’s sole direction; however, the lawyer should make efforts to keep the insured reasonably apprised of all developments in the case including settlement negotiations. When the case involves a “consent to settle” clause and the lawyer knows that the insured objects to a settlement, the Supreme Court noted that the lawyer may not settle the claim at the direction of the insurer without first giving the insured the opportunity to reject the defense offered by the insurer and to assume responsibility for his own defense at his own expense. 
The Mississippi Supreme Court has upheld summary judgment in favor of an insurer that denied coverage to a contractor based on an “earth movement” exclusion despite claims of negligence. Hankins v. Maryland Cas. Company/Zurich American Ins. Co., 2012 WL 4711437 (Miss. Oct. 4, 2012)
An insured home builder constructed a home for an owner on top of soil generally required to be blanketed with compacted fill material because of the soil’s swell or heave potential.   During construction, the owner was assured by the home builder that the soil was nothing to be concerned about. However, the home builder inadequately compacted the soil prior to construction, eventually leading to damage to the house by soil movement. The owner sued the home builder and obtained a judgment, and attempted to garnish the policy issued by the home builder’s CGL insurer. The insurer failed to answer and a judgment was entered against it for the amount of the judgment against the home builder. The insurer moved to set aside the default judgment and to enter summary judgment in its favor on the basis that coverage was excluded by an “earth movement” exclusion for damage related to “shrinking, expansion … or any other movement of land, earth or mud.” The owner asserted that the exclusion did not apply since the “proximate cause” of the loss was the home builder’s negligence in not properly preparing the site rather than earth movement.   The trial court granted both motions, and the owner appealed to the Mississippi Supreme Court.
The Supreme Court affirmed, finding no dispute that the property damage was a result of earth movement and, acknowledging the evidence of movement caused by negligence, concluded that limiting the application of the earth movement exclusion as the insured argued would be “nonsensical.” A dissent argued the exclusion was ambiguous and should be construed against the insurer because all examples of earth movement in the policy itself were naturally-occurring rather than man-made events.
A federal court in Florida looked beyond the allegations in an underlying complaint to find that an exception, or “buy back,” to a pollution exclusion did not apply to suit for bodily injuries from carbon monoxide exposure. Composite Structures, Inc. v. Continental Ins. Co., 2012 WL 4867990 (M.D. Fla. Oct. 12, 2012).
A yacht manufacturer was sued by two seamen after they allegedly suffered injuries from exposure to carbon monoxide fumes while working aboard a yacht and sought a declaration that its CGL insurer had a duty to defend and indemnify. The parties cross-moved for summary judgment. The insurer claimed that the allegations in the underlying complaint fell within the policy’s pollution exclusion and that the buy back did not apply because undisputed facts outside the complaint established the following circumstances that did not permit the application of the buy back: the manufacturer learned of the emissions and the seamen’s exposure more than 72 hours after it commenced and failed to report the incident to the insurer within 30 days. The manufacturer did not dispute these facts, but alleged that the insurer had a duty to defend because the underlying complaint was silent as to such facts.
The district court granted the insurer’s motion for summary judgment and denied the manufacturer’s motion. Although the court recognized the general rule that the duty to defend is based solely on the underlying complaint, it held that the case fell squarely within the exception to the rule where the underlying pleading would not be expected to disclose the facts necessary to determine the duty to defend. The court reasoned that neither of the underlying causes of action required a plaintiff to allege the specific date on which he informed the manufacturer of his injuries or the specific date on which the manufacturer notified the insurer. Accordingly, the court, taking into account the extrinsic evidence, found that the manufacturer failed to meet the requirements of the exception to the pollution exclusion and that the exclusion applied. 
A Texas Court of Appeals recently held that no evidence established that an insurance agent was negligent for placing insurance with a non-admitted carrier and for failing to warn an insured that a non-admitted carrier’s finances were “unstable.” Guidry v. Environmental Procedures, Inc., 2012 WL 4017984 (Tex. App. – Houston [14th Dist.] Sept. 13, 2012).
Two insureds were sued for allegedly infringing a competitor’s patents. The insureds settled the suit and sued their liability insurer for breach of contract, seeking costs spent defending and settling the claims. The insurer disputed the claims but ultimately settled the coverage dispute. However, the insureds believed that they were unable to settle the coverage dispute for as high an amount as they otherwise could have due to the insurer’s financial instability. The insureds sued their insurance agent, alleging that he improperly placed insurance with a non-admitted carrier and failed to disclose the financial instability of the insurer before placing the insurance. A jury concluded that the agent improperly placed the insurance with a non-admitted carrier and that he had a duty to warn the insureds of the insurer’s financial instability, and assessed compensatory and punitive damages against the agent. The insurer appealed the judgment.
The Court of Appeals reversed. It concluded that in order to recover, the insureds would have had to have offered evidence that a financially stable admitted carrier would have paid more to settle the coverage dispute, and concluded that no such evidence existed in the record. It further concluded that there was no evidence that the insurer’s financial condition caused it to settle for less than the insureds believed they could have received from another insurer. The court concluded that any evidence that another insurer may have paid more would be speculation and would not support a finding that the agent was negligent in placing insurance with the insureds’ carrier.
A federal court in Oklahoma dismissed a putative insured’s claim for coverage under a policy that evidently existed but could not be located where the insurer used no less than four policy forms during the relevant time. Canal Ins. Co. v. Montello, 2012 WL 4891699 (N.D. Okla. Oct. 15, 2012)
An insured was sued after it was discovered that a product it distributed contained asbestos and sought a coverage determination as to a number of its policies. One insurer moved for summary judgment on the basis that no policy was established. Also before the court was a motion to strike the distributor’s expert witness who would testify regarding lost policies.
The expert in the reconstruction of missing policies asserted that despite lack of an actual policy, the existence, terms and conditions of the missing policy could be established through secondary evidence consisting of documents in the possession of the distributor’s broker that indicated the distributor had secured umbrella policies, along with evidence of policy limits for the policies immediately preceding and following the missing policy. However, the expert could not conclude from the evidence which policy form was used, and there were no less than four umbrella forms used by the insurer at the time. The court found that the expert’s opinion was, at best, speculative and could not survive Daubert scrutiny. The court noted that Oklahoma law is that a party seeking to enforce an insurance contract bears the burden of proving the existence of coverage. The court held that the distributor could not show anything but speculation as to the actual policy terms, and even though the distributor had evidence the policies did exist, it had no evidence of the terms. 
A federal court in Texas recently held that coverage for claims that a municipality had deprived a property owner of the use, benefit and enjoyment of land is excluded under an inverse condemnation exclusion. City of College Station, Tex. v. Star Insurance Company, 2012 WL 4867568 (S.D. Tex. Oct. 12, 2012).
A developer purchased a parcel of land with the intent to develop it into a shopping center and requested that the City rezone the property for commercial use. The City initially denied the request, but subsequently approved it subject to, according to the developer, unprecedented conditions that “severely restricted . . . access” to the property. The developer sued the City, alleging that the zoning restrictions deprived it of the use, benefit and enjoyment of the land. The City notified its insurer of the suit, but defended and settled the claims itself. The City then sought reimbursement of its defense costs and that part of the settlement amount exceeding a self-insured retention. The insurer denied coverage on the basis of an inverse condemnation exclusion for liability “actually or allegedly arising out of or caused or contributed to by or in any way connected with the principle of eminent domain, condemnation proceeding, inverse condemnation, dedication by adverse use or adverse possession, by whatever name called.”
The court concluded that because the claims against the City arose out of its refusal to rezone the property as requested, the claim constituted an inverse condemnation claim for which coverage was excluded. The court also noted that even though the developer had asserted a number of other causes of action, it concluded that because none of those causes of action could exist independently of the claim that the City failed properly to rezone the property, and that the exclusion excluded coverage for those claims as well.
A federal district court in Texas recently held that a joint enterprise exclusion excluded coverage for a breach of contract dispute between two law firms that had an agreement regarding client referrals over the failure to pay referral fees. Shore Chan Bragalone Depumpo LLP v. Greenwich Insurance Co., 2012 WL 5250568 (N.D. Tex. Oct. 24, 2012).
Two law firms entered into a referral agreement under which the referring firm would receive a percentage of fees generated by the referred business. Following the settlement of various lawsuits, the referring firm sued the other firm seeking payment of the agreed referral fees. The suit was tendered to the second firm’s professional liability insurer for defense and indemnity, and the insurer denied coverage based on an exclusion that the insurance does not apply to “any claim made by or against any business enterprise not named [ in the insurance policy that] arises out of [the firm’s] acts, errors, or omissions in [its] capacity as an officer, director, partner, or employee of such enterprise.” The court concluded that the law firms were “partners” under the referral agreement and that the claim arose out of the insured firm’s acts in its capacity as a partner of the referring firm. Because the referring firm was not named in the policy. The court declared that the exclusion applied and that the insurer owed no duty to defend or indemnify.
A federal district court in North Carolina recently held that an insurer had no duty to defend individual members of a limited liability company in a breach of contract action. Firemen’s Ins. Co. of Washington, D.C. v. Glen-Tree Investments, LLC, 2012 WL 4191383 (E.D. N.C. Sept. 19, 2012)
A limited liability company failed to pay an architectural firm that had developed plans for a project. The architectural firm sued the limited liability company and its individual members, seeking damages for breach of contract, breach of the covenant of good faith and fair dealing and unfair and deceptive trade practices. After agreeing to defend the insured and its members subject to a reservation of rights, the insurer sought a declaration that the policies afforded no coverage and that it had no duty to defend. The limited liability company failed to answer the insurer’s complaint, and a default was entered against it. The individual members did answer the complaint, generally asserting that the insurer was barred for refusing to defend due to waiver and estoppel.   
Granting judgment in favor of the insurer, the court held that refusal to pay for design services and misrepresentations during the design process and inducing the architectural firm to continue to perform could not constitute an “occurrence” or “accident” under North Carolina law. Moreover, the court noted that the policy provided coverage for “property damage,” and that the architectural firm alleged only economic losses, which North Carolina courts have held do not constitute “property damage” as a matter of law. The court also rejected the individual members’ waiver and estoppel argument, noting that (1) the members were aware that the insurer specifically reserved the right to deny coverage and (2) under North Carolina law, an insured cannot use waiver or estoppel to broaden a policy’s coverage against risks not included in the policy’s coverage terms. 
A federal district court in North Carolina recently held that an insurer had no duty to defend a lawsuit alleging that its insured knowingly misappropriated trade secrets. Pennsylvania Nat. Mut. Cas. Ins. Co. v. Sharpe Images, Inc., 2012 WL 3962747 (W.D. N.C. Sept. 11, 2012)
The insured was sued by a competitor for unlawfully gaining entry to proprietary areas of the competitor’s website and knowingly misappropriating the competitor’s trade secrets for its own benefit. After its insurer denied coverage, the insured settled the underlying action and sought a judicial declaration that the policy covered the settlement. Granting the insurer’s motion for summary judgment, the court held that the alleged intentional conduct by the insured in wrongfully appropriating the competitor’s trade secrets could not constitute an “occurrence,” as such an intentional act could not constitute an “occurrence” or “accident” under North Carolina law. The court further held that, even assuming coverage, the complaint clearly alleged intentional conduct falling within the policy’s intentional acts exclusion. 
A federal district court in South Carolina recently held that an insurer had no duty to defend or indemnify for a lawsuit alleging that its insured collected illegal administrative fees under an auto dealers’ errors and omissions liability endorsement. Graphic Arts Mut. Ins. Co. v. Caldwell Chevrolet, Inc., 2012 WL 3962752 (D. S.C. Sept. 11, 2012)
An auto dealer was sued for collecting illegal administrative fees from its customers during the closing process of auto sales as part of an alleged conspiracy to deceive car buyers. The insurer defended the insured subject to a reservation of rights, but sought a declaratory judgment that it owed no duty to defend. Entering summary judgment in favor of the insurer, the court found that no coverage was owed because the underlying suit did not allege claims for bodily injury, property damage or advertising injury. The court further held that no coverage was owed under the policy’s auto dealers’ errors and omissions liability endorsement because the underlying complaint did not allege that the insured failed to comply with any federal, state or local truth-in-lending statute or any statute that regulates disclosures. Further, the court noted that even if there were such an allegation, the endorsement excluded “dishonest, fraudulent, criminal or intentional” acts committed by the insured, and that the underlying complaint specifically alleged intentional conduct.
A federal district court in South Carolina recently held that an insurer properly denied coverage for a lawsuit against its insured for selling a large number of automobiles to a vulnerable adult. MCE Automotive, Inc. v. National Casualty Co., 2012 WL 4479163 (D. S.C. Sept. 28, 2012)
The insured was sued for allegedly selling a large number of cars to a vulnerable senior citizen. After the insurer disclaimed coverage, the insured sued for bad faith and breach of contract. Granting the insurer’s motion for summary judgment, the court held that there was no coverage under the policy because all the causes of action in the underlying complaint involved intentional conduct and that any bodily injury or property damage could not have been caused by an “accident.” Similarly, the court held that any potential coverage under the policy’s errors and omissions endorsement and customer complaint endorsement were excluded because the allegations in the underlying complaint constituted “intentional,” “criminal” and “dishonest” acts by the insured, which were excluded under the respective endorsements. The court granted summary judgment to the insurer as to the bad faith claim as well. 
A federal district court in Florida held that when multiple acts of malpractice are all logically and casually connected to one common fact, the loss is subject to a per claim limit under a professional liability policy. Camico Mut. Ins. Co. v. Rogozinski, et. al., 2012 WL 4052090 (M.D. Fla. Sept. 13, 2012).
The insured, an accounting firm, performed a number of services over a number of years for each of three partners of a complicated family business involving several licensing agreements. The partners alleged that the insured committed professional negligence and breached its fiduciary duty to each of them. The insurer agreed that there was coverage under the terms of the professional liability policy based on the negligent acts committed by the insured, but a dispute arose regarding whether there were multiple claims which entitled the insured to the benefit of the policy’s aggregate limit, as opposed to the policy’s lower per claim limit. The insured filed a declaratory judgment action and the parties filed cross-motions for summary judgment.
The court held that because the profits of the business were split evenly by all of the partners and the business was treated as a unit by the insured, there was a sufficient number of common facts, circumstances, situations, transactions and events  from which to conclude that all of the harm caused over the years was the result of the insured’s single failure to properly classify a certain type of income earned by the claimants as capital gains. The court found that there was a sufficient factual nexus to limit the amount payable under the policy to the per claim limit. 

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FEDERAL COURT IN GEORGIA RULES THAT INSURED’S DELAY OF OVER TWO AND A HALF YEARS BEFORE PROVIDING NOTICE WAS UNJUSTIFIED AND PRECLUDES COVERAGE

A federal court in Georgia recently held that an insured’s unjustified delay of over two and a half years did not constitute notice “as soon as practicable” and there was no coverage under the CGL policy. Westfield Ins. Co. v. Dabbs-Williams Gen. Contractors, LLC, 2012 WL 4468539 (S.D. Ga. Sept. 27, 2012).

After the construction of a condominium complex, the insured sued the developer for breach of contract. The developer counterclaimed for negligent and defective construction and for breach of the implied duty to perform in a fit and workmanlike manner. The insured chose not to notify its CGL insurer because it concluded that there was no coverage for the counterclaims. More than two and a half years later, the developer expanded its counterclaim by including allegations of negligence and faulty construction to other parts of the building. The insured then notified its insurer of the suit. The insurer provided a defense under a reservation of rights, but filed a declaratory judgment action to determine coverage.  

Applying Georgia law, the district court granted summary judgment in the insurer’s favor, finding the insured’s justification for the delay in notifying the insurer that the amendment did not change the nature of the counterclaim but merely enlarged its scope was unreasonable as a matter of law. The court further explained that the insured’s subjective, optimistic belief that the initial counterclaim was very limited was also objectively unreasonable under the circumstances. Recognizing that other courts have repeatedly held that much shorter delays have precluded coverage, the court held the insured’s delay of over two and a half years was not “as soon as practicable,” and the insurer was not obliged to respond.

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A federal court in Florida held that the installation services provided by a deliveryman qualified him as an “employee” under a “course of employment” exclusion in a general contractor’s CGL policy. Nautilus Ins. Co. v. Design Builder Interamerican, Inc., 2012 WL 4025614 (S.D. Fla. Sept. 12, 2012).
A general contracting company and its officers and employee were sued after the company’s deliveryman was injured while assisting with the installation of a steel pipe at a construction site. The contractor’s CGL insurer sought a declaration that it did not have an obligation to defend and indemnify. The parties cross-moved for summary judgment. The insurer argued that the policy excluded coverage for the deliveryman’s injuries because he was an “employee” of the contractor who was performing duties related to the conduct of the contractor’s business at the time of his injuries. The contractor and its officers and employee alleged that there was an issue of material fact as to whether the deliveryman was a “statutory employee,” who would qualify as an “employee” under the policy, or a materialman, to whom they contended exclusion would not apply. The contractor and its officers and employee alleged that in the event that the court found the deliveryman to be an “employee,” that the policy’s Separation of Insureds provision precluded application of the exclusion to suits brought by an employee against co-employees. 
The district court granted summary judgment in favor of the insurer. The court held that that the installation services provided by the deliveryman qualified him as an “employee” under the "course of employment" exclusion performing duties related to the conduct of the contractor’s business. Even with the full benefit of the Separation of Insureds provision, the court held that the exclusion applied equally to the contractor’s officers and employee. The court explained that the exclusion, which stated that an insured many be liable “as an employer, or in any other capacity,” encompassed claims against an insured employee even when that employee is not the employer of the injured party. Accordingly, the court held that the insurer did not have a duty to indemnify or a continuing duty to defend the contractor and its officers and employee in the underlying suit.
A federal court in Texas recently dismissed claims asserted by one insurer against another under Texas Insurance Code section 542.003, which requires that insurers attempt in good faith to effect a prompt, fair and reasonable settlement of a claim where liability has become clear because that code article provides no private cause of action. Great American Assur. Co. v. Wills, 2012 WL 3962037 (W.D. Tex. Sept. 10, 2012).
Co-insurers of a mutual insured had an opportunity to settle claims against the insured, but one refused to tender its pro-rata share of the settlement demand because it deemed the demand excessive. The other insurer’s policy limit was insufficient to satisfy the demand, and the case did not settle. A judgment was entered that forced both insurers to exhaust their policy limits. The first insurer then sought from the other insurer the amount it had to pay in excess of the amount it would have paid as its pro-rata share of the settlement demand, claiming the other insurer violated section 542.003 of the Texas Insurance Code because it failed to attempt in good faith to effect a prompt, fair, and equitable settlement of a claim submitted in which liability had become reasonably clear. The court dismissed the suit finding that there was no private cause of action under section 542.003, which makes no reference to private causes of action but rather grants regulatory authority to the Texas Department of Insurance. The court also held that even if section 542.003 permitted a private cause of action, there likely was no standing as a third party to the other insurer’s contract with the insured without a contractual or legal relationship, which the suing insurer did not have.