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Insurance Law Report: September 2013

September 24, 2013

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

  1. Texas Supreme Court Reinstates Verdict In Builder's Favor For Coverage Of Voluntary Remediation Program
  2. Texas Supreme Court Accepts Certification From Fifth Circuit On Additional Insured Scope Question
  3. Oklahoma Supreme Court Holds Second-Level Excess Insurer Has Right To Equitable Subrogation Against First-Level Excess Insurer Despite Release By Insured
  4. South Carolina Supreme Court Holds Insurer's Contribution Claim Against Co-Tortfeasor Not Preserved
  5. Louisiana Supreme Court Holds Direct Action Trial Against Insurer May Proceed Without Insured
  6. Georgia Supreme Court Holds "Occurrence" Does Not Require Damage To Property Other Than Insured's Under CGL Policy
  7. South Carolina Supreme Court Holds Coverage For Damage Caused By Improper Cleaning of Insured's Work Excluded Under CGL Policy
  8. Florida Supreme Court Holds Actual Repair Not A Condition Precedent To Payment For General Contractor's Overhead And Profit In Replacement Cost Policy
  9. Tennessee Appeals Court Holds "Temporary Worker" Requires That Worker Be Furnished To Insured By A Third Party
  10. Court Of Appeals Of Kentucky Upholds Statute Prohibiting Arbitration Provisions In Insurance Contracts
  11. Fourth Circuit Holds No Coverage For Deceptive Auto Sales
  12. Fourth Circuit Holds No Duty To Defend Claims For Collection Of Illegal Fees Under Auto Dealers' Errors And Omissions Liability Coverage
  13. Texas Appeals Court Finds Conflicting Endorsements Result In Coverage
  14. Texas Appeals Court Affirms Ruling That Insured Does Not Have A Right To Separate Counsel Due To A Potential Conflict Of Interest Between Multiple Defendants
  15. Federal Court In Kentucky Rules Insured's Failure To Comply With Pollution Buy-Back Requirements Does Not Bar Coverage Unless Insurer Sustains Prejudice
  16. Federal Court In Alabama Applies Injury In Fact Trigger And Holds Claim For Contamination Not Covered Under CGL Policies Issued After Contamination Occurred
  17. Federal Court In South Carolina Holds Roofer Not Entitled To Coverage For Work Performed At Prior Company
  18. North Carolina Court Of Appeals Hold Whether Insurer Has Duty To Defend In Underlying Action Does Not Affect Substantial Right if Underlying Action Has Already Concluded
  19. Federal Court In Virginia Holds Insurer Has Duty To Defend Insured Against Claims Arising From Importation Of Allegedly Counterfeit Blood Glucose Tests
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The Texas Supreme court held that money spent in voluntary payments to remediate defective building siding is covered under an umbrella policy because the insurer did not show that it was prejudiced by the insured's failure to obtain permission for its settlements with homeowners.  Lennar Corp. v. Markel Am. Ins. Co., 2013 WL 4492800 (Tex. August 23, 2013). 
 
The insured learned that defectively installed siding was causing water damage to homes and implemented a remediation program where it contacted homeowners and voluntarily replaced the siding. It placed its liability carriers on notice of the program, but its umbrella insurer declined to participate or consent to the settlements. In reversing the appellate court, the Texas Supreme Court deferred to the jury’s finding that the insurer was not prejudiced by the insured’s failure to obtain consent to settle and rejected the argument that prejudice arose because the insured assumed liabilities to homeowners who may never have made claims. Because the jury found the insurer sustained no prejudice, the settlements thus established the “ultimate net loss” for which the insured was “legally liable” to pay.  An actual adjudication of liability to the homeowners was therefore not required, according to the Court.
 
The Supreme Court also held that costs of removing the siding in order to search for water damage were covered as costs incurred “because of” property damage because the insured sought coverage only for the homes where water damage was actually found (and correctly believed to have existed), and the Court noted that it was “not confronted with a situation in which the existence of damage was doubtful.” The Supreme Court also relieved the insured of proving which damages occurred during the policy period. As it was undisputed that water damage occurred during the policy’s period, the “total amount” of loss was covered as continuous exposure to the same harmful conditions. The Court affirmed prior dicta in American Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994) that when a loss triggers multiple policies covering different periods, the insured may recover the total damages under one policy tower, leaving the insurers to allocate the indemnity among themselves according to their subrogation rights, notwithstanding the Court’s 2007 holding in Mid-Continent Insurance Co. v. Liberty Mutual Co., 236 S.W.3d 765 (Tex. 2007) that absent a showing of a loss by the insured there is no subrogation right.
The Texas Supreme Court has accepted certification from the U.S. Fifth Circuit Court of Appeals on two issues relating to BP’s additional insured status under Transocean’s policies for liabilities arising out of the Gulf Oil Spill. The Fifth Circuit withdrew its March ruling that BP is an additional insured because the policies alone (which do not limit coverage for additional insureds) dictate the scope of BP’s additional insured status. The drilling contract, which the Fifth Circuit would not consider based on the Texas Supreme Court’s opinion in Evanston Insurance Co. v. ATOFINA Petrochemicals, 256 S.W.3d 660 (Tex. 2008), required BP to be named an additional insured only in certain respects, but the policies themselves do not expressly limit the scope of BP’s additional insured status contemplated in the drilling contract. In re Deepwater Horizon, No. 2013 WL 4606533 (5th Cir. August 29, 2013).
 
The Fifth Circuit asked the Texas Supreme Court to determine whether the extent of BP's coverage is determined by the insurance policies’ language alone. The second question is whether there should be an exception, when the insured is sophisticated, to the normal rule that ambiguities in an insurance policy are construed against the insurer. Briefing by the parties is due next month.

Phelps Dunbar attorneys represent some of the insurers. For more information about the case, please contact Richard Dicharry at richard.dicharry@phelps.com.
On a certified question from the U.S. Tenth Circuit Court of Appeals, the Oklahoma Supreme Court found that a second-level excess insurer was permitted to invoke equitable subrogation to assert a claim against a first-level excess insurer, despite its having been released by the insured, where the first-level excess insurer and insured agreed that all losses applied to one year of coverage thus reaching the second-level excess insurer’s attachment point. Steadfast Ins. Co. v. Agricultural Ins. Co., 304 P.3d 747 (Okla. 2013).

The first-level insurer, after providing coverage for claims against its insured, sued the second-level excess liability insurer to determine rights and obligations under various excess liability policies. The second-level excess liability insurer counterclaimed for declaratory relief on the basis of equitable subrogation, alleging that its liability arose only because of an agreement between the insured and first-level excess insurer to include all losses (including those outside the policy period) under the first-level excess policy and which resulted in the triggering of the second-level excess policy. The Oklahoma Supreme Court held that, although equitable subrogation is a right derived from the insured such that its release of the first-level excess insurer might affect that right, it does not depend on a contract but arises by implication in equity to prevent an injustice and is based on the relationship of the parties. Thus, the first-level excess insurer’s agreement with the insured which would impact the second-level excess insurer’s coverage had to be considered and equity recognized subrogation because “[a]n excess insurer has a reasonable economic expectation that it will not be responsible on its policy until the insurance at the level lower to the excess insurer has been exhausted in accordance with the express provisions and obligations of the insurance contract.” 
 
The South Carolina Supreme Court recently held that an insurer could not seek contribution against its insured’s co-tortfeasor where the insurer failed to include potential claims against the co-tortfeasor in the settlement of the claims against its own insured. Progressive Max Insurance Company v. Floating Caps, Inc., 747 S.E.2d 178 (S.C. 2013)

After a drunk driver struck a pedestrian, the drunk driver’s insurer settled the pedestrian’s action against the drunk driver, including agreeing to a covenant not to execute so that the pedestrian could pursue UIM coverage. The covenant not to sue specifically provided that it did not extinguish the liability of any persons or entities other than the drunk driver. The insurer then sought contribution against the bar where the drunk driver had been drinking before the accident. The trial court found that the contribution claim was not preserved, and the insurer appealed.

Affirming, the South Carolina Supreme Court noted that a tortfeasor who enters into a settlement with a claimant is not entitled to contribution from another tortfeasor whose liability for the injury is not extinguished by the settlement. The Supreme Court found that the covenant not to execute did not extinguish the liability of the bar, but by the time the insurer attempted to enter into a second covenant and argue that the initial covenant should be reformed, the statute of limitations for the claim against the bar had run.
The Louisiana Supreme Court has held that because a plaintiff did not expressly renounce her right to proceed against a direct action insurer, her dismissal of the insured during trial had no effect on the plaintiff’s direct action right against the insurer. Soileau v. Smith True Value and Rental, et al., 2013 WL 3305265 (La. June 28, 2013).

A plaintiff injured while in the course and scope of her employment sued her employer, a hardware store from which her employer rented a tractor and the store’s insurer. On the third day of the trial, the plaintiff voluntarily dismissed the hardware store, with prejudice. Plaintiff’s counsel made it clear to the jury that any judgment rendered against the insured would be executed against its insurer only. The insurer moved for directed verdict based on its policy obligating Hartford to pay only “those sums that the insured becomes legally obligated to pay as damages.” It also filed an exception of no right of action arguing that the plaintiff no longer had a right of direct action. The trial court denied the motion for directed verdict and overruled the exception, and the jury rendered a verdict for the plaintiff against all defendants. The insurer appealed.
The court of appeal reversed and remanded, holding that the plaintiff extinguished her right of direct action when she voluntarily dismissed the insured with prejudice, and that a “high/low” settlement agreement did not preserve the plaintiff’s right. The plaintiff applied for a writ of certiorari from the Louisiana Supreme Court.

The Louisiana Supreme Court granted certiorari, and reversed and remanded the case for consideration of the remaining assignments of error raised on appeal. The Supreme Court interpreted the wording of La. R.S. §22:1269 and concluded that an insured must be named in a direct action lawsuit only when an action is “brought,” i.e., when the case is “commenced” or “initially filed,” and that a plaintiff can sue an insured and its insurer and then dismiss the insured at any time and proceed against the insurer alone.
The Georgia Supreme Court recently held that an insured’s faulty workmanship can result in an “occurrence” under a standard CGL policy even when the only property damage alleged is to the work performed by the insured. Taylor Morrison Servs. Inc. v. HDI-Gerling Am. Ins. Co., 746 S.E.2d 587 (Ga. 2013).

The insured was sued for negligent construction by homeowners who sought to represent a class of homeowners owning homes built by the insured. After initially defending the insured, the insurer sought a declaratory judgment that it had no obligation to defend or indemnify because there was no “occurrence.” The insurer argued that the only property damage alleged was to the work of the insured, i.e., the homes constructed by the insured. A federal court granted summary judgment to the insurer, finding that there was no “occurrence.” The insured appealed. On appeal, the U.S. Eleventh Circuit Court of Appeals certified to the Georgia Supreme Court the question of whether Georgia law requires damage to property other than the insured’s completed work for an “occurrence” to exist under a CGL policy.

The Georgia Supreme Court held that an “occurrence” does not require damage to the property or work of someone other than the insured. The Supreme Court reasoned that, because the definition of “occurrence” in the policy includes the term “accident,” an undefined term, under the rules of construction, the commonly accepted meaning of “accident” controls. After determining the commonly accepted meaning of “accident” to be “an unexpected happening without intention or design,” the Georgia Supreme Court concluded that an “occurrence” can exist simply where faulty workmanship causes unforeseen or unexpected damage to property.
 
The South Carolina Supreme Court recently held that an insurer had no duty to cover a claim for damage to a brick face installed on a home by the insured that was caused by improper cleaning by the insured’s subcontractor after the insured had completed installation. Bennett & Bennett Constr. Inc. v. Auto Owners Ins. Co., 2013 WL 3723214 (S.C. July 17, 2013)

The insured was hired to install brick exterior on a home. The insured’s subcontractor’s cleaning resulted in significant damage to the bricks. After the insured refused to replace the bricks, which could not otherwise be repaired, the general contractor sued for breach of contract and negligence. After securing a default judgment against the insured, the general contractor sued the contractor’s insurer, seeking a declaration that its policy covered the judgment. The trial court found coverage, and the insurer appealed.

Reversing, the South Carolina Supreme Court held that exclusion j.(5), which excludes coverage for damage to “that particular part of real property on which any contractors or subcontractors working directly or indirectly on the [insured's] behalf … are performing operations,” precluded coverage. The Supreme Court found that there was no question the damage occurred while the insured’s subcontractor was “performing operations,” and that exclusion j.(5) unambiguously excluded coverage. Moreover, the Supreme Court found that exclusion n., which excludes coverage for “damages … for the … repair, replacement, adjustment, removal or disposal of … “your work” … because of a known or suspected defect, deficiency, adequacy or dangerous condition in it,” also applied, finding that the aesthetic characteristics of the bricks were an important aspect of the contract and the bricks had to be replaced because of a deficiency in those aesthetic characteristics.
The Florida Supreme Court recently held that under Florida law, insurers must include overhead and profit in the replacement cost of a loss if the insured is reasonably likely to need a general contractor for repairs, even if the insured never actually performs the repairs. Trinidad v. Fla. Peninsula Ins. Co., 2013 WL 3333823 (Fla. July 3, 2013).

The insured’s home was damaged, but the insured did not repair or contract to repair the home. The insurer refused to pay for a general contractor’s overhead and profit under a replacement cost homeowner’s policy. The insured sued the insurer, alleging breach of contract. The trial court entered summary judgment for the insurer, and the insured appealed. The appellate court affirmed and certified a conflict.

The Florida Supreme Court reversed, finding that replacement cost insurance includes overhead and profit where an insured is reasonably likely to need a general contractor for repairs, regardless of whether the insured actually incurs those costs. The Florida Supreme Court held that the homeowners’ policy replacement cost coverage statute, Fla. Stat. § 627.7011, and the terms of the policy do not require an insured actually to repair damaged property as a condition precedent to an insurer’s duty to make payment, and held that an insurer is required to pay all reasonably occurring replacement costs incurred by the insured, including a general contractor’s overhead and profit, regardless of whether an insured actually repairs its damaged property.

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The Tennessee Court of Appeals has held that in order to qualify as a “temporary worker” one must have been furnished to an insured by a third party. Lafayette Insurance Co. v. Roberts, No. W2012-02038 (Tenn. App. July 31, 2013).

The insureds hired a worker to help in the recoating of a roof on a building they owned. The worker fell and sustained injury, and sued the insureds alleging he was their employee and not an independent contractor. The insureds tendered the suit to their CGL insurer, which sought a declaratory judgment that the worker was a “temporary worker,” triggering the employer liability exclusion, and obtained a summary judgment of no coverage on that basis.

The Tennessee Court of Appeals reversed, holding that the definition of the term “temporary worker” requires that such person be “furnished to you,” which the appellate court concluded required the furnishing by a third party, which would not include the direct hiring by an insured.
The Court of Appeals of Kentucky has held that a risk pool agreement among self-insured entities constitutes a contract of insurance subject to Kentucky’s statutory prohibition against arbitration provisions in insurance contracts. Scott v. Louisville Bedding Co., 2013 WL 3480312 (Ky. App. July 13, 2013).

A company provided health insurance to its employees which it self-insured. To minimize its risk, it entered into a trust agreement which, according to the court, was designed to accept and pool contributions from self-insured entities, invest the funds and either pay losses sustained by the contributors or purchase insurance on behalf of contributors. The insured sustained losses and made a claim for reimbursement under the trust agreement. The trust administrator denied the claim, and the insured sued the trust, the trust administrator and its principal, alleging fraud, breach of contract and misrepresentation. The principal of the trust sought to enforce an arbitration agreement contained in the agreement. The trial court held that he was not personally a signatory to the agreement and denied his attempt to enforce the provision. The principal appealed.

The appeals court held that the principal would be entitled to enforce the provision in his personal capacity because the insured alleged that he was the “alter ego” of the trust administrator and therefore sought to enforce the agreement against him personally. However, the appeals court ruled that the arbitration provision was unenforceable because the pool agreement constituted a “contract of insurance” under Kentucky law because it created an obligation for the trust to indemnify the insured for its risk, and the Kentucky Uniform Arbitration Act (“KUAA”) does not permit such a contract to provide for mandatory arbitration. The appeals court rejected argument that the Federal Arbitration Act and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. § 202, pre-empted Kentucky state law. It concluded that the KUAA regulated the business of insurance and therefore, under the McCarran-Ferguson Act, “reverse pre-empted” federal statutes mandating enforcement of the arbitration provision.
The U.S. Court of Appeals for the Fourth Circuit recently affirmed the decision of a South Carolina federal district court holding 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., 2013 WL 3828530 (4th Cir. July 25, 2013).

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. After the district court granted the insurer’s motion for summary judgment, the insured appealed. Affirming, the Fourth Circuit agreed 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 Fourth Circuit held that any potential coverage under the policy’s Errors and Omissions Endorsement and Customer Complaint Endorsement was excluded because the allegations in the underlying complaint constituted “intentional,” “criminal” and “dishonest” acts by the insured, coverage for which was excluded under the respective endorsements.
The U.S. Court of Appeals for the Fourth Circuit recently affirmed a decision from a federal district court in South Carolina holding that an insurer had no duty to defend or indemnify in a lawsuit alleging that its insured collected illegal administrative fees under an auto dealer’s errors and omissions liability endorsement. Graphic Arts Mut. Ins. Co. v. Caldwell Chevrolet, Inc., 2013 WL 3358834 (4th Cir. July 5, 2013).

An auto dealer was sued for collecting illegal administrative fees from its customers during the closing 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. A federal district court entered summary judgment in favor of the insurer, and the insured appealed. Affirming, the Fourth Circuit agreed that no coverage was owed because the underlying suit did not allege claims for bodily injury, property damage or advertising injury. The court further agreed that no coverage was owed under the policy’s auto dealer’s 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.
A Texas Court of Appeals held that a pollution exclusion and mold exclusion were in conflict with a Blowout Endorsement, which resulted in an insurer being obligated to defend its insured in a claim arising from a sinkhole that formed at the insured’s waste disposal well. Century Sur. Co. v. DeLoach, 2013 WL 4106702 (Tex. App.—Corpus Christi, August 1, 2013).

After a sinkhole formed at an insured’s waste disposal well, it was sued for damage caused by the sinkhole. Its insurer denied coverage based on a pollution exclusion and a mold exclusion in a CGL policy. Coverage litigation ensued, and the insured was granted summary judgment
In affirming, the appellate court held that coverage was expanded by a Blowout Endorsement that superseded the pollution and mold exclusions. The court stated it did not believe an occurrence could be covered by the Blowout Endorsement without triggering the pollution exclusion, and thus, the pollution exclusion would render the Blowout Endorsement meaningless. Similarly, the court determined that it would be unlikely that a blowout could occur in the absence of a release of toxic or hazardous property or other substances, and thus, the mold exclusion would render the Blowout Endorsement meaningless. Given these conflicts, the court determined the Blowout Endorsement superseded the exclusions and found coverage for the insured.
An appellate court in Texas recently held that a potential conflict of interest between multiple insured defendants was not enough to require an insurer to retain separate counsel pursuant to the insured’s preference. Marquis Acquisitions, Inc. v. Steadfast Insurance Co., 2013 WL 4083614 (Tex. App.—Dallas August 14, 2013).

The insured and several related entities with an interest in an apartment complex were sued after a fire killed three people. When the attorney retained by its insurer to defend all interests notified the insurer that potential conflicts may exist among the defendants, the insurer assigned a second attorney to defend some of the defendants, including the plaintiff and named insured. The insured sued for breach of contract and statutory bad faith claims, as well as for attorneys’ fees for failing to pay for independent counsel, and the insurer successfully moved for summary judgment.

The appellate court affirmed, concluding that no Texas law requires an insurance company independently to evaluate potential conflicts among multiple insureds. The court observed that once the insurer was on notice that a potential conflict existed, it immediately retained a second attorney to handle the defense of those implicated parties, including the insured. The court held that the insured could not recover attorneys’ fees damages, since attorneys’ fees are only recoverable “in addition to” the recovery of actual damages, not as independent damages themselves.
 
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A federal district court in Kentucky has held that a CGL insurer must defend its insured against pollution liability claims, notwithstanding the insured’s inability to comply with the requirements of a pollution buy-back endorsement because the insurer had not shown prejudice. SAAP Energy, Inc. v. Bell, 2013 WL 4505696 (W.D. Ky. August 22, 2013).

An oil company sold property to a third party which was later discovered to be contaminated. The buyer sued the oil company, asserting numerous claims, including violations of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). The oil company provided notice of the suit to its CGL insurer, which intervened seeking a declaration that it had no defense obligation. The policy contained a standard pollution exclusion, but by endorsement reinstated coverage for certain pollution liabilities, which contained six conditions precedent, two of which were addressed by the court’s opinion. One condition required that the incident “commence at a specific time and date during the policy period” and another required that the incident be discovered by the insured within 60 days of its commencement” and “reported to the insurer in writing within 10 days after” discovery by the insured. The oil company and the insurer filed cross-motions for summary judgment to resolve the insurer’s duty to defend.

The insured could not satisfy these conditions. However, the court considered the buy-back conditions to be notice provisions and held that, under Kentucky law, an insurer must demonstrate that it was substantially prejudiced as a result of the insured’s failure to provide timely notice. Because the insurer made no argument that it sustained prejudice, the court concluded that there was potential coverage under the endorsement. The insurer’s motion was denied and the oil company’s motion was granted.
A federal court in Alabama held that a CGL insurer has no duty to indemnify its insured against enforcement actions under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) under policies issued after the property at issue was contaminated. Alabama Gas Corp. v. Travelers Cas. and Surety Co., 2013 WL 3766531 (N.D. Ala. July 16, 2013).

A power company was the successor-in-interest to a company that in the 1800s and early-1900s allegedly polluted property through its operations. In 2008 the insured received a Potentially Responsible Person (“PRP”) letter from the U.S. EPA and tendered the claim to its insurer that provided coverage from 1947 to 1984. The insurer denied that a “suit” had been commenced, and the insured sued the insurer. The Alabama Supreme Court, answering a certified question, held that a PRP letter satisfies the policy’s suit requirement. See, January 2013 issue of Insurance Law Report, at p. 2. The insured entered into a consent order and paid for the remediation.

The federal court, however, on remand, determined that the insurer was not obligated to indemnify the insured for amounts paid to the EPA pursuant to the consent order. Applying the injury-in-fact trigger theory, the court concluded that the policies did not cover the liability because the contamination occurred prior to the issuance of the policies. It rejected the argument that subsequent redistribution of contamination or the subsequent use of property as a residential area gave rise to CERCLA liability and should be considered as triggering events. 
 
A federal court in South Carolina recently held that the individual owner of the insured roofing company was not entitled to coverage for claims against him in his individual capacity for work performed while he was at his prior company. Catlin Specialty Insurance Company v. McPherson, 2013 WL 3946225 (D. S.C. July 31, 2013).

The owner of the insured was sued for allegedly constructing a defective roof when he worked for another roofing company several years prior. His insurer agreed to defend subject to a reservation of rights, but sought a declaration that it had no duty to defend or indemnify because he did not qualify as an insured under the policy.

Granting the insurer’s motion for summary judgment, the court held that under the plain terms of the policy, the only named insured was the insured roofing company. Even as a member of the insured limited liability roofing company, the court found that the owner would qualify as an insured “only with respect to the conduct of the [insured’s] business.” The court held that because the owner was not carrying on the business of the roofing company at the time of the alleged deficient construction, he was not entitled to a defense or indemnity.
The North Carolina Court of Appeals recently refused to consider an interlocutory appeal from an insurer with respect to its duty to defend, finding the issue of whether an insurer has a duty to defend in an underlying action does not affect a substantial right (such that the court can consider an interlocutory appeal) if the underlying action has been concluded. Paradigm Consultants, LTD v. Builders Mutual Insurance Co., 745 S.E.2d 69 (N.C. App. 2013).

After the insurer denied coverage for its insured contractor with respect to the insured’s dispute with homeowners, the insured settled with the homeowners and sued its insurer, alleging breach of contract, bad faith and unfair and deceptive trade practices. After the trial court denied the insurer’s motion for summary judgment with respect to its duty to defend, the insurer brought an interlocutory appeal.

Dismissing the insurer’s appeal, the North Carolina Court of Appeals recognized that while it had previously held that an order of summary judgment on the issue of whether an insurer has a duty to defend affects a substantial right such that the insurer can immediately appeal when the underlying action is ongoing, there is no such substantial right affected when the underlying litigation has been concluded. Accordingly, with no substantial right at issue, the court found that the insurer had no right to an interlocutory appeal.
A federal court in Virginia recently held that an insurer has a duty to defend its insured against underlying claims arising from the importation of allegedly counterfeit blood glucose tests. Travelers Indemnity Company of Connecticut v. Sterling Wholesale, LLC, 2013 WL 3816736 (E.D. Va. July 19, 2013).

After the insured was sued in federal court in New York with regard to the alleged importation of alleged counterfeit blood glucose tests, its insurer sought a declaration that it had no duty to defend or indemnify because there was no “advertising injury” that would trigger coverage under the CGL insurance policy issued to the insured.

Granting the insured’s motion for summary judgment, the court held that the conduct alleged in the underlying complaint was "advertising injury" in that it alleged (1) “infringement of copyright, title or slogan”; (2) that the insured’s alleged conduct potentially constituted an offense committed in the course of advertising its goods and products; and (3) that the purported advertising activities of the insured potentially caused alleged harm to the underlying plaintiffs.