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Insurance Law Report: November 2014

November 25, 2014

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.


Mississippi Supreme Court Rejects Claim For Failure To Procure Insurance Claim Where Coverage Would Not Have Been Insurable

The Mississippi Supreme Court has held that an agent is not liable for failure to procure insurance where the insured’s intentional misconduct would have precluded coverage. Scruggs Farm & Supplies, LLC v. Bost, 2014 WL 5375946 (Miss. Oct. 23, 2014).

Farmers doing business with a seed supplier were required to enter licensing agreements limiting the use of genetically modified seeds to the growing season, which prevented farmers from reselling or supplying the seed to others. The restrictions also prohibited saving seeds to replant the following year. The insured, a farmer, was sued by the seed supplier for patent infringement when it violated the agreement by saving and replanting seeds the following year. A jury found that the insured had knowingly, intentionally and willfully planted the seeds in violation of patent rights and rendered a verdict against the insured. The insured then sued his insurer and his agent, alleging negligence for failure to advise that he needed patent infringement insurance. The trial court granted partial summary judgment in the insured’s favor holding that there was coverage and that while the insured may have intended to replant seeds, he did not intend to infringe the patent as he reasonably believed he could lawfully replant. On appeal, the Mississippi Supreme Court reversed, finding that, as a matter of public policy, one cannot purchase insurance for illegal acts.

The insured then pursued his claim against his agent. The insured alleged that the agent failed to use a degree of care of a reasonably prudent insurance salesman; had negligently misrepresented to the insured that the policy would provide coverage except as to quality of seed sold to third parties; and breached its contract with the insured. The agent had toured the farmer’s facilities and interviewed the employees and the insured at length. The insured alleged that he requested coverage to protect in the event that he was sued over almost anything, but did not expressly mention patent infringement or ask about such coverage. The agent moved for summary judgment, arguing that no policy would have covered the insured’s conduct. The trial court granted summary judgment, finding that, whether the insured’s actions were lawful or not, they were intentional and Mississippi law prohibits insurance for the conduct that resulted in the claims.

The Mississippi Supreme Court found that it is against public policy for an insurance contract to cover for intentional or willful misconduct. It found that evidence of intentional action was ample in the record, including the insured’s deposition testimony admitting that the replanting of the seeds was not an accident but a conscious decision and that he was aware of the license restrictions. Additionally, the trial court found intentional conduct, and the Supreme Court had previously held (in the litigation against the insurer) that the insured’s pattern of conduct was intentional. The Supreme Court upheld the grant of summary judgment finding that no coverage could have been available because the insured’s actions were intentional, illegal and, thus, uninsurable.
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Alabama Supreme Court Holds Insured May Not Invoke Appraisal Prior To Complying With Post-Loss Obligations

The Supreme Court of Alabama has held that insureds must comply with post-loss obligations to provide information and examinations under oath before there can arise a genuine dispute as to the amount of the loss which would allow them to invoke appraisal. Baldwin Mut. Ins. Co. v. Adair, 2014 WL 4851516 (Ala. Sept. 30, 2014).

An insurer received correspondence from an attorney representing dozens of policyholders purporting to invoke appraisal for prior losses. The insurer sought and obtained a preliminary injunction on the grounds that it was premature to begin appraisal before the insurer investigated the disputes. The insureds counterclaimed alleging fraud and breach of contract. Fourteen of the insureds provided information regarding their claims and again invoked appraisal. The trial court ordered the insurer to commence appraisal as to these insureds, finding that they satisfied their post-loss obligations. The insurer appealed.

The Alabama Supreme Court reversed and remanded. It held that the policy wording did not permit either party to invoke appraisal until there was a disagreement over the amount to pay. It concluded that no genuine disagreement could arise until there was information from which the insurer could determine whether it had a duty to pay the claim. Because the insureds’ compliance with their post-loss obligations to provide requested information and submit to an examination under oath was a condition precedent to the insurer’s duty to pay, the Supreme Court concluded that appraisal could not be invoked.
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Texas Supreme Court Will Consider Insured’s Burden To Prove A Covered Loss When Concurrent Causation Exists

The Texas Supreme Court has agreed to consider what burden is placed on an insured to prove the amount of a covered loss where there is concurrent causation in a case involving both wind and flood damage to property. Lexington Insurance Company v. Jaw the Pointe, LLC, 2013 WL 3968445 (Tex. App.—Houston [14th Dist.], Aug. 1, 2013). A jury rendered a verdict for compensatory damages and damages for “knowing” conduct where the insurance company paid only the portion of the claim it believed to be related to wind. The Court of Appeals reversed, noting that a government’s demolition order noted not only wind damage but also flood damage, the latter of which is not covered. The Court of Appeals applied the concurrent causation doctrine and determined that the insured could not demonstrate that the demolition was necessary as the result of a covered loss.
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Mississippi Supreme Court Enforces Health Care Professional Services Exclusion

The Mississippi Supreme Court upheld summary judgment in favor of an insurer, finding that claims against emergency responders arising out of alleged failure to render proper aid were all subject to a “healthcare professional services” exclusion as the plaintiffs’ causes of action would not have occurred but for the rendering of medical services. Gray v. Arch Specialty Ins. Co., 2014 WL 5376981 (Miss. Oct. 23, 2014).

Emergency responders were sued for wrongful death in failing to provide proper aid to motor vehicle accident victims, alleging negligent hiring and training and failure to implement appropriate triage protocol. A default judgment was entered, and the wrongful death beneficiaries brought a garnishment action against the emergency responders’ insurer.

The policy provided two types of coverage. The first was claims-made professional liability coverage that did not apply as there was no claim within the policy period. The second was general liability coverage of damages for bodily injury and property damage caused by an “occurrence,” but it excluded damages resulting from “the performance or failure to perform ‘health care professional services.’” “[H]ealth care professional services” included “medical … treatment,” which the wrongful death beneficiaries had alleged was improperly administered or not administered. The wrongful death beneficiaries argued that the exclusion did not apply for two reasons: (1) it applies only if the insured has formal accreditation, standards review, or an equivalent board involved in its hiring and training process, and part of the beneficiaries’ claim was that the insured did not; and (2) it does not preclude coverage for independent causes of action like negligent hiring, training and supervision. The Supreme Court held that no coverage existed because the injury would not have occurred “but for” the excluded service, so that the exclusion applied to all theories of liability.
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Texas Supreme Court Holds Discovery Request For Information Related To All Claims Handled By Same Adjuster Overly Broad

The Texas Supreme Court recently held that a trial court abused its discretion when it ordered an insurance company to produce information related to claims other than the plaintiff’s in a lawsuit regarding underpaid insurance claims. In re National Lloyds Insurance Company, Cause No. 13-0761 (Tex. 2014).

An insurer was ordered to produce files of other claims handled by the same independent adjusters in a suit brought by the plaintiff, who alleged the company underpaid her for storm damage on her home. The plaintiff requested claims filed with the company during a six-year span and specifically claims filed within the past year involving the two adjusters handling her claim. The trial court compelled the production of documents related to all claims but limited the request to the geographic area of plaintiff’s residence and the storm at issue in the suit. The Supreme Court found that limiting the request to a geographic region and time do not automatically deem the information discoverable and that the request was, in fact, overly broad.
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Alabama Supreme Court Finds Insurer’s Subrogation Claim Untimely

The Supreme Court of Alabama has held that an UM insurer’s subrogation claim against a tortfeasor was untimely when suit was filed days after settling with the insured, but more than two years after the accident in question. Pennsylvania Nat. Mut. Cas. Ins. Co. v. Bradford, 2014 WL 4798773 (Ala. Sept. 26, 2014).

Following an auto accident, an injured motorist sued the alleged tortfeasor and his own UM insurer. The UM insurer settled with the plaintiff and filed a cross-claim against the tortfeasor to assert its subrogation rights. The tortfeasor moved to dismiss on the basis that the cross-claim was filed after the two-year statute of limitations had elapsed. The trial court granted the motion to dismiss, and the UM insurer appealed.

The Supreme Court of Alabama affirmed, holding that the statute of limitations began to run on the date of the accident. The Supreme Court noted that insurance policies obligate the insured to protect insurers’ subrogation rights and that, in most instances, insurers may obtain reimbursement from the insured’s recovery against the tortfeasor. The concurring opinion noted that, because the insured’s claims against the tortfeasor remained pending, the UM insurer became the “beneficial owner” of the insured’s action. Both the majority opinion and the concurring opinion expressly noted that the insurer had not moved to be substituted as the real party in interest to the insured’s suit against the tortfeasor. The Supreme Court’s decision, therefore, strongly suggests that insurers’ subrogation rights must be enforced by assuming the insured’s cause of action, and not by asserting them in their own right, although the Court stopped short of so stating.
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Eleventh Circuit Certifies To Georgia Supreme Court Question Of How Insurer “Unreasonably Withholds” Its Consent To Settle A Liability Claim

The U.S. Eleventh Circuit Court of Appeals recently certified a question to the Georgia Supreme Court after finding that Georgia law did not clearly establish whether an excess insurer “unreasonably withheld” its consent to settle an underlying liability claim between its insured and the claimants after a Georgia court approved the settlement. Piedmont Office Realty Trust, Inc. v. XL Specialty Ins. Co., 769 F.2d 1291 (11th Cir. 2014).

The insured had a primary and an excess liability policy. The excess insurer agreed to contribute $1 million toward a settlement of a securities fraud complaint. However, without obtaining the excess insurer’s consent, the insured and the claimant settled the dispute for the full primary policy limit and the amount remaining under the excess policy limit. A court order confirmed the settlement. The insured sought settlement funds from the excess insurer, but the excess insurer asserted that it was not obligated to pay because it did not consent to the settlement. The insured sued the excess insurer for breach of contract and the excess insurer moved to dismiss. The district court dismissed the lawsuit and held that the insured’s unilateral agreement to, and voluntary payment of, the settlement precluded coverage because the policy provisions required the excess insurer’s consent to settle a securities fraud action. The insured appealed, arguing that the excess insurer “unreasonably withheld” its consent to the settlement in violation of the express terms of the excess policy.

Finding that Georgia law does not clearly establish whether the excess insurer “unreasonably withholds” its consent to a settlement that has been subsequently approved by the court, the Eleventh Circuit certified the question to the Georgia Supreme Court. The Eleventh Circuit reasoned that, while settled Georgia law establishes that an excess insurer may enforce a policy’s “consent-to-settle” provision when a settling insured fails to first obtain the excess insurer’s consent before settling an underlying liability claim, no Georgia court has addressed the effect of either a subsequent court order confirming the settlement or policy language providing that an excess insurer may not “unreasonably withhold” its consent to an underlying settlement.
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Sixth Circuit Holds Agent Has No Duty Under Kentucky Law To Advise Policyholder To Purchase Coverage

The U.S. Sixth Circuit Court of Appeals has held that an insurance agent had no obligation to advise a policyholder to procure pollution coverage absent a specific request for such advice. Hardy Oil Co., Inc. v. Nationwide Agribusiness Ins. Co., 2014 WL 4693816 (6th Cir. Sept. 22, 2014).

A petroleum distributor faced liabilities arising out of a diesel fuel leak. Its liability insurer denied coverage, and the insured sued not only the insurer, but also the insured’s agent on the basis that the agent was negligent in failing to advise regarding the need for pollution coverage. The agent moved for summary judgment on the grounds that coverage for such incidents was not available due to the age of the insured’s facilities and equipment. The insured offered evidence that multiple insurers would have offered such coverage. Summary judgment was granted in favor of the insurer.

The Sixth Circuit affirmed on different grounds. It held that, under Kentucky law, agents have no affirmative duty to advise a policyholder regarding the need for coverage unless there is (1) payment of additional consideration for such advice, (2) an extended course of dealing that would serve to put the agent on notice that its advice is being sought, or (3) a specific request for such advice. The Sixth Circuit held that the relationship involved was based not on the course of dealing and advice by the agent, but on the price of coverage. It also found that an “open-ended” request for insurance advice is insufficient under Kentucky law to give rise to any obligation on the part of the agent.
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Fifth Circuit Reverses Itself On Contractual Liability Exclusion

The U.S. Fifth Circuit Court of Appeals recently granted a motion for reconsideration and then withdrew and reversed its earlier opinion based upon answers to a certified question from the Texas Supreme Court in another case. The Fifth Circuit’s panel explained that it did not understand an arbitrator’s ruling in the underlying arbitration over construction defects as the basis for its reversal. Crownover v. Mid-Continent Casualty Co., 2014 WL 5473084 (5th Cir. Oct. 29, 2014).

The central issue was whether a provision in a construction contract between homeowners and their contractor which obligated the contractor to repair its faulty work was an “assumption of liability” that exceeded the contractor’s liability under general Texas law, thereby triggering a contractual liability exclusion in its insurance policy. The Fifth Circuit originally found that the contractual liability exclusion applied, and the exception to the exclusion for “when the insured would be liable absent the contract or agreement” did not, and granted summary judgment for the insurer.

The motion for reconsideration argued that the court could have still found that there was also a breach of an implied warranty of construction in a good and workmanlike manner, which would be a liability that the contractor would have had in the absence of the contract. The Fifth Circuit agreed that the arbitrator must have implicitly found that the contractor did not perform its work in a good and workmanlike manner. Based upon the Texas Supreme Court’s answer to a question that the Firth Circuit certified in Ewing Constr. Co., Inc. v. Amerisure Ins. Co., 420 S.W.3d 30 (Tex. 2014) that a contract into which a contractor enters whereby it agrees to perform its work in a good and workmanlike manner is not an “assumption of liability” for purposes of a contractual liability exclusion, it held that the liability was one the contractor would have had in the absence of a contract.
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North Carolina Appellate Court Finds Issue Of Whether Insured Mailed Policy Premium Must Be Decided By Jury

The North Carolina Court of Appeals recently held that whether an insured mailed a policy premium is an issue for the jury to decide. Country Cafaye, Inc. v. Travelers Cas. Ins. Co. of America, 2014 WL 4557533 (N.C. App. Sept. 16, 2014) (unpublished).

The insurer issued a policy to the insured for the insured’s restaurant. Although the insured purportedly signed a check for the premium and placed the check in the mail, the insurer never received it. After not receiving the premium, the insurer sent a notice of cancellation. Less than two weeks after the policy was cancelled, there was a fire at the restaurant. The insured submitted a claim to the insurer, and the insurer denied it. The insured sued, claiming that the insurer breached its contract by failing to pay the claim. The trial court granted summary judgment in favor of the insurer, and the insured appealed.

Reversing, the Court of Appeals noted that the insured had established prima facie that the premium was received by the insurer by presenting the check stub and affidavits from two witnesses averring that the premium had been sent. The court explained that under North Carolina law, evidence of non-receipt of a letter by the addressee is “some evidence” that the letter was not mailed, raising a question of fact for the trier of fact as to whether the check was ever received. Therefore, under these circumstances, where the insured claimed to have sent the policy premium but the insurer claimed never to have received it, the appellate court found that the trial court erred in granting summary judgment for the insurer and remanded the case for a jury to determine whether the premium had been paid.
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Federal Court In South Carolina Holds Misrepresentation Of Non-Insured Is Not Imputed To Insured

A federal court in South Carolina recently held that the acts of a man posing as a physician could not be imputed to his employer, a senior care facility, in an action by an insurer to rescind the senior care facility’s policy based on the fraudulent insurance application submitted by the “physician.” Evanston Ins. Co. v. Watts, et al., 2014 WL 4954689 (D. S.C. Oct. 2, 2014), as amended (Oct. 31, 2014).

The insurer provided professional liability insurance to a senior care facility. While the policy was in place, a man posing as a physician obtained employment with the insured and sought coverage under the professional liability policy by filling out an application representing that he was a licensed physician. As a result of this application, the insurer issued an endorsement adding the “physician” as an insured to the policy. After the employee’s true identity came to light, several patients filed suit against the employee and the insured for medical malpractice. The insurer then sought a declaration that the entire policy was void ab initio and that it had no duty to defend or indemnify the insured in the underlying lawsuits, based on the material misrepresentations of the “physician” in his application.

Granting the insured’s motion for summary judgment, the court held that the misrepresentation could not be imputed to the insured. The court explained that, in order to void a policy under South Carolina law, an insurer must show that the applicant not only made the misrepresentation, but also that the misrepresentation was known by the applicant at the time it was made. Here, the court found that there were actually two separate applications and the insured itself did not make any misrepresentations in its application. Moreover, the court found no evidence that the insured knew of the misrepresentations of the “physician” at the time of his application.
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Federal Court In Virginia Issues Diverging Opinions As to Whether Negligent Retention Claims Arising From Sexual/Physical Assaults Constitute An “Occurrence”

A federal district court in Virginia recently issued divergent opinions – a day apart from one another – as to whether claims of negligent hiring/retention arising from intentional sexual/physical assaults constitute an “occurrence” under Virginia law. Lark v. Western Heritage Ins. Co., 2014 WL 5563909 (W.D. Va. Oct. 31, 2014); Scottsdale Ins. Co. v. Doe, 2014 WL 5497701 (W.D. Va. Oct. 30, 2014).

In Lark, the plaintiffs were allegedly assaulted by the insured’s employees outside the insured’s restaurant and filed separate declaratory judgment actions against the insurer seeking declarations determining the extent of coverage available under the policy. The declaratory judgment actions were removed and consolidated, and the insurer moved for summary judgment that it had no duty to defend or indemnify the insured, or, alternatively, that any indemnity obligation was limited to the policy’s assault and battery sublimit.

Granting the insurer’s motion for summary judgment in part and denying the motion for summary judgment in part, the court held the alleged assaults of the plaintiffs were not “occurrences” under the terms of the insured’s policy, even where the plaintiffs had attempted to couch such allegations in terms of negligence. The court relied on AES Corp. v. Steadfast Ins. Co., 725 S.E.2d 532 (Va. 2012), where the Virginia Supreme Court noted that “allegations of negligence are not synonymous with allegations of an accident” and held that “the natural or probable consequence of [an] intentional act is not an accident under Virginia law.” The court concluded that the injuries were clearly the “natural or probable” consequences of the intentional acts alleged in their complaints, and therefore could not be converted into “accidents” notwithstanding allegations of negligent training, hiring and retention. However, the court found that coverage did exist under the policy’s assault and battery endorsement, which provided coverage separate and apart from the policy’s general liability coverage, holding that each plaintiff would be entitled to recover up to the assault and battery coverage “per event” sublimit.

Doe involved a slightly different set of facts: parents of a minor child sued a summer camp and a camp counselor for sexual assault by the counselor. The camp’s insurer sought a declaration that it had no duty to defend the camp or the counselor, and the parties cross-moved for summary judgment. The insurer invoked AES Corp. to argue that the alleged negligent retention and negligent failure to report were not “occurrences,” as the injuries suffered by the minor child were the “natural or probable” consequences of the intentional acts. However, the court rejected the argument, holding that the parents’ claims for negligent retention and negligent failure to report were separate and apart from the intentional battery claims that could constitute “occurrences” under Virginia law.

The court further held that the policy’s Errors and Omissions Coverage would be generally implicated by the negligence claims, holding the exclusion for “injury arising out of a dishonest, fraudulent, malicious or criminal act by any insured” did not apply. The insurer had argued that the insured’s failure to report the allegations of abuse constituted a violation of Virginia law requiring camps to report allegations of abuse; however, the court noted that this law did not come into effect until four years after the insured learned of the abuse.
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Florida Appellate Court Holds That “Duties After Loss” Provision Does Not Require Insureds To Provide Unsolicited Documents To An Insurer

A Florida appellate court recently held that the “Duties After Loss” provision of a policy does not obligate insureds to produce unsolicited documents to an insurer. Herrera v. Tower Hill Preferred Ins. Co., 2014 WL 5461969 (Fla. 2d DCA Oct. 29, 2014).

The insurer issued a homeowners’ policy to insureds who submitted a claim for sinkhole damage. The insurer retained an engineer who concluded that sinkhole activity did not cause damage and denied the claim. Thereafter and unbeknownst to the insurer, the insureds retained an engineer who performed additional testing and concluded that sinkhole activity did cause damage. Without providing the new engineering report to the insurer, the insureds sued the insurer alleging that the insurer breached the insurance policy by denying the claim. The insurer moved for summary judgment claiming that the insureds, by withholding the new engineering report until they filed suit, breached the “Duties After Loss” provision of the policy, which requires the insureds to cooperate during the claim investigation and provide the insurer with records and documents that the insurer requests. Without written explanation, the trial court granted summary judgment for the insurer. The insureds appealed.

The appellate court reversed and remanded. It found that the trial court stretched the “Duties After Loss” provision too far, as the provision only requires insureds to respond to requests and does not obligate insureds to produce unsolicited documents to the insurer.
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Florida Appellate Court Holds Attorneys' Fees Award Not Appropriate When Insured Withholds Sinkhole Report Prior To Filing Suit

A Florida appellate court recently held that an insured’s decision to file a lawsuit without first providing a sinkhole activity report to its insurer precluded recovery of attorneys’ fees when the insurer eventually accepted coverage after receiving the report in discovery. Omega Ins. Co. v. Johnson, 2014 WL 4375189 (Fla. 5th DCA Sept. 5, 2014).

An insured made a claim under his homeowners’ policy for sinkhole damage. As per Florida statutes, if an admitted insurance carrier engages a professional engineer or geologist to render a report regarding the cause of damage in a sinkhole loss claim, the report shall be presumed correct. The insurer commissioned a professional engineer and geology firm to conduct testing and issue a report relating to the insured’s sinkhole loss claim. The report concluded that sinkhole activity was not a cause of the damage to the insured’s property. Based on the report, the insurer denied the claim. The insured retained its own professional engineer, concluding that sinkhole activity was a cause of damage to the insured’s property. The insured, however, did not provide this report to the insurer, but instead filed a lawsuit against the insurer for breach of contract. During discovery, the insured revealed the report for the first time. After a neutral evaluation of the conflicting reports, the insurer accepted coverage and tendered policy benefits. The insured filed a motion for confession of judgment and attorneys’ fees. The trial court grated the motion, concluding that the insurer confessed judgment when it paid the claim, thus rendering it liable for attorneys’ fees under Florida law. The insurer appealed.

The appellate court reversed and remanded. The appellate court held that, while a wrongful or unreasonable denial of benefits that forces the insured to file a lawsuit may lead to an attorneys’ fees award under Florida law, the insurer did not unreasonably deny the claim by relying on its presumptively-correct expert report. The appellate court noted that the insured’s decision to file a lawsuit, rather than present its report to the insurer or even notify the insurer that it disagreed with the insurer’s report, precluded an award of attorneys’ fees.
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Federal Court In Louisiana Upholds Appraisal Award For Business Interruption and Discusses Extra-Contractual Claims

A federal district court in Louisiana granted summary judgment to an insurer upholding an appraisal panel and dismissing extra-contractual claims. Island Concepts, LLC v. Certain Underwriters at Lloyd’s, London, 2014 WL 5524379 (E.D. La. Oct. 31, 2014).

A restaurant sustained wind and flood losses. Consultants were retained, including forensic accountants, and the insurer tendered all sums due for business interruption within 30 days of receipt of each consultant report that required additional sums be tendered. The insured demanded appraisal, after the conclusion of which the insurer tendered additional sums awarded. The insured nevertheless sued the insurer.

The court granted summary judgment in favor of the insurer concluding that appraisal awards are enforceable and binding absent clear mistake or misapplication of the policy’s terms. It rejected the insured’s argument that the seasonality of the business was improperly considered, commenting that where reasonable minds could differ, the panel award should not be overturned and that the extent of the period of restoration was within the scope of the appraisal panel’s authority. The court rejected the insured’s argument that anticipated net losses do not impact the claim for continuing expenses. The policy involved defined business income as “Net Income (Net Profit or Loss before income taxes) … and … [c]ontinuing normal operating expenses incurred….” The court concluded the “and” means “plus” such that a net loss during the period of restoration reduced by the same amount the claim for continuing expenses, noting the purpose of business interruption insurance is to “protect the earnings which the insured would have enjoyed had no interruption or suspension occurred,” but “it is also designed to prevent the insured from being placed in a better position than if no loss or interruption of business had occurred.” [Citations omitted.] The court dismissed the extra-contractual claims for failure of proof.

Phelps Dunbar attorneys represented Underwriters. For further information regarding the ruling, please contact Ginger Dodd at ginger.dodd@phelps.com.
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Florida Appellate Court Holds Insured Waived Right To Appraisal

A Florida appellate court recently held that an insured waived his right to appraisal by acting inconsistently with his right to invoke appraisal. Fla. Ins. Guar. v. Rodriguez, 2014 WL 5285005 (Fla. 5th DCA Oct. 17, 2014).

An insured filed a breach of contract action against his insurer based on a disagreement with his insurer as to which repairs were necessary to correct damage to the insured’s home. The insurer had acknowledged that a covered loss had occurred and the parties participated in neutral evaluation before the lawsuit. There was no mention of appraisal in the insured’s original complaint or amended complaint. The insured served discovery requests with the original and amended complaints. After an unsuccessful mediation, the insured served a third set of discovery requests and deposed the neutral evaluator. Over two years after the lawsuit was filed, the insured moved to compel appraisal, which the trial court granted. The insurer appealed.

The appellate court reversed, holding that the facts demonstrated that the insured had acted inconsistently with, and thus waived, his right to appraisal. The court determined that a waiver of the right to seek appraisal occurs when the party seeking appraisal actively participates in a lawsuit or engages in conduct inconsistent with the right to appraisal. The court determined that the insured had waited three years before demanding appraisal, had filed several discovery requests, pursued other litigation activities, and never reserved his right to appraisal.
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Federal Court Holds Post-Loss Assignment Of Insurance Claim And Proceeds Valid Under Oklahoma Law Despite Written Consent Limitation On Assignment In Policy

A federal court in Oklahoma granted summary judgment sua sponte to an insured finding valid a post-loss assignment of the insured’s rights and duties, if any, under a Lender Placed and Foreclosed Policy of Insurance. ABAB, Inc. v. Starnet Ins. Co., 2014 WL 5448887 (W.D. Okla. Oct. 22, 2014).

The district court had previously found the insured, as the purchaser of a shopping mall that caught fire, had an insurable interest in the mall at the time of the loss. After the fire, the insured assigned any rights it may have, including any right to payment of insurance proceeds. The assignee sued the insurer to enforce its rights and duties pursuant to the assignment. The assignee and insurer raised no dispute as to the validity of the terms of the assignment of the insurance claim and proceeds. Instead, the parties disputed whether the terms of the policy precluded the assignment altogether. The policy provided under the “Transfer of Your Rights and Duties” section that “[y]our rights and duties under this policy may not be transferred without our written consent….” The court held that the policy precluded only pre-loss, not post-loss, assignments. The court found that under Oklahoma law, allowing an insured to assign the right to pre-loss coverage would force the insurer to protect an insured with whom it had not contracted, one who might present a greater level of risk than the insured. But, where the claim has already matured, the “subject” of the assignment is a recognized “chose in action” against the insurer. Therefore, the court found the assignment enforceable and valid under the terms of the policy.
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Texas Court Of Appeals Holds That “Fully Adversarial Trial” Is Conducted Where Insured Presented A Full Defense At A Bench Trial

An appellate court in Texas upheld a trial court opinion that judgment was rendered in a “fully adversarial trial” where there was a full defense of the underlying claims at a bench trial. Great Am. Ins. Co. v. Hamel, 2014 WL 4656618 (Tex. App.—El Paso, Sept. 19, 2014).

A builder that built a custom home was sued for negligence and other claims arising out of defective installation of synthetic stucco to a home. The builder tendered the defense and indemnity of the suit to its CGL insurer, which was denied. The suit against the builder was tried to a judge, resulting in a judgment against the insured, which assigned its claims against its insurer to the underlying plaintiffs. The underlying plaintiffs then sued the insurer as assignees alleging that the insurer was obligated to pay the judgment. The trial court found in favor of the plaintiffs, and the insurer appealed.

The insurer argued that it was not responsible for payment of the judgment because the judgment did not arise from a “fully adversarial trial” as required by the Texas Supreme Court in State Farm Fire and Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996) (which found such assignments generally against public policy absent a “fully adversarial trial”). The Court of Appeals found that the judgment did arise from a "fully adversarial trial" because the insured conducted a full defense of the underlying claim at a bench trial. Furthermore, in response to the argument that certain pre-trial stipulations were made between the parties, the court determined that the insurer did not demonstrate that the stipulations were used in the trial of the construction case to affect the outcome.
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Federal Court In Mississippi Holds Coverage Not Lapsed As To Loss Payee Despite Attempted Cancellation By Insurer And Non-Payment Of Premium By Insured

A federal court in Mississippi denied an insurer’s summary judgment motion seeking a determination that it properly denied coverage for a fire loss on the basis that the policy had been cancelled or was expired at the time of the loss. Courtney v. State Farm Fire and Cas. Co., 2014 WL 4914038 (N.D. Miss. Sept. 30, 2014).

The insureds owned real property and obtained a policy which was renewed for one year, after the expiration of which a fire loss occurred. The insured made a claim with its insurance agent. The agent then called the insurer’s main office and found that the policy had been cancelled. The insurer maintained that it had sent a letter five months before the policy’s expiration notifying that the policy would be cancelled because the property was no longer owned or occupied by the insured. It was undisputed the loss payee, a different individual than the insured, received the notice of cancellation, but it contended that the insured never received notice or the refund of the unearned premium sent with it. The insured sued the insurer.

The insurer moved for summary judgment on a lack of coverage due to the policy being cancelled or otherwise expired at the time of loss. It further argued that because the loss payee was a trustee of the insured’s minor child, he was liable for failure to take action and secure coverage after receiving his letter. The court looked to whether the policy, if not cancelled, would have automatically renewed, as part of its determination as to whether coverage existed at the time of loss. Both Mississippi statute, Miss. Code section 83-5-28, and the policy required the insurer to give proper notice of cancellation. However, under Mississippi law, an insurer does not have to prove actual receipt of notice by the insured. A certificate of mailing creates a rebuttable presumption that notice was received. The insurer did not produce a certificate of mailing in connection with its motion or proof that the refund check was ever cashed. Despite evidence that the loss payee called the insured and told her about the cancellation letter, notifying her of the cancellation and the basis for it, the court held that the insurer had at least to provide actual notice and notice in writing under the statute and policy. The court further found that the insurer failed to give proper notice of nonrenewal, such that coverage did not lapse as to the loss payee as under Mississippi law, the failure to pay a renewal premium may result in lapse of coverage for an insured, but not for a loss payee unless the loss payee is given proper notice.
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