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Insurance Law Report: July 2014

August 04, 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 July issue. To view, click on the appropriate title and you will be brought to the full version of the article below.



The Louisiana Supreme Court held that a claims-made and reported requirement in a policy does not violate the rule in Louisiana that an insured’s action after an injury cannot abrogate a plaintiff’s right of direct action against an insurer which vests at the moment of injury.  Gorman v. City of Opelousas.  (La. July 1, 2014).

A prisoner in a city jail was allegedly beaten by inmates and died.  His mother filed suit against the city.  The city’s insurer was later named as a defendant under the Louisiana Direct Action Statute and it moved for summary judgment on the basis that the claim, although made during the policy period, was not timely reported to it as required by the policy.  The trial court granted the motion, but the court of appeal reversed holding that the failure of the insured to report the claim during the policy period cannot abrogate the direct action rights of the plaintiff.

The Louisiana Supreme Court reversed, holding that the plaintiff had no rights under the policy that vested at the time of injury as it pre-dated the policy inception and would not have been covered under a policy that had not been issued.  Thus, it held that she had no rights under the policy at the time of the injury and was therefore deprived of no such rights.  The Supreme Court concluded that to hold otherwise would convert a claims-made and reported policy to an occurrence policy, “resulting in the judicial modification of the bargained for exchange between the insurer and insured.”
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The Texas Supreme Court has accepted a certified question from the U.S. Fifth Circuit Court of Appeals whether an insurer has the duty to defend in response to notice letters from the EPA regarding potential environmental violations.  McGinnes Industrial Maintenance Corp. v. Phoenix Ins. Co. and Travelers Indemnity Co., 2014 WL 2599926 (5th Cir. Tex. June 11, 2014).

In the 1960s, the insured removed waste from a paper mill and released it into three ponds.  The insured’s CGL policies during this time provided that the insurer “shall have the right and duty to defend any suit … seeking damages on account of ... property damage.  The EPA advised the insured’s parent company that it might be a Potentially Responsible Party (“PRP”) under federal statute as it contributed to the contamination of the sites.  The EPA followed up with a Special Notice Letter, a request for a settlement offer, and a Unilateral Administrative Order.  The parent then tendered the defense to one of its insurers, which refused to defend because there was no “suit.”

Because only one district court in Texas had addressed this issue, the Fifth Circuit certified to the Texas Supreme Court the question whether the EPA’s notice letters to a PRP and/or unilateral administrative orders constitute a “suit” within the meaning of CGL policies, triggering the duty to defend.
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The Oklahoma Supreme Court has held that a news article was notice of a potential claim sufficient to create coverage under a claims-made policy and that an insurer’s subsequent cancellation of a claims-made policy violated state statute.  Chandler v. W. Valentine, MD, 2014 WL 2854703 (Okla. June 24, 2014).

A patient died during surgery.  That same month, the Oklahoma State Board of Medical Licensure and Supervision forwarded to the doctor’s insurer a letter and an article detailing license revocation on the basis of operating on a patient while under the influence.  The insurer canceled the policy.  The patient’s personal representative later filed suit against the doctor, who forwarded the petition and summons to his insurer, which denied coverage on the basis that the claim was not made until after the policy was cancelled and on the basis of an exclusion for acts performed while under the influence of intoxicating substances.  In bankruptcy proceedings, the doctor entered into a consent judgment with the personal representative, who then sought to garnish that judgment from the insurer.

Under Oklahoma law, coverage on a claims-made policy is triggered when the insured becomes aware of and notifies the insurer of claims against the insured or occurrences that may give rise to claims.  Section 3625 of the Oklahoma Code precludes an insurer from cancelling coverage:

No insurance contract insuring against loss or damage through legal liability for the bodily injury or death by accident of any individual, or for damage to the property of any person, shall be retroactively annulled by any agreement between the insurer and the insured after the occurrence of any such injury, death, or damage for which the insured may be liable, and any such attempted annulment shall be void.

The trial court found that the cancellation violated this provision and the Court of Appeals reversed. 

The Oklahoma Supreme Court held that Section 3625 applies to a claims-made policy and that it precluded the insurer from cancelling.  Its finding was based on the provision’s focus on protection of injured third parties and not on policy provisions.  The Supreme Court found sufficient evidence that the insurer and insured entered an agreement for cancellation of the policy, in direct contravention of the statute, such that the annulment was void.  It held that the evidence also indicated that the insurer had knowledge of events which would lead to a malpractice claim at the time coverage was cancelled.  The Supreme Court granted summary judgment in favor of the personal representative.
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The Louisiana Supreme Court has held that forum selection clauses in contracts are enforceable and do not necessarily violate public policy.  Shelter Mutual Property Insurance Co. v. Rimkus Consulting Group, Inc. (La. July 1, 2014).

A contract for engineering and expert witness services provided a Texas forum selection clause.  Litigation over a dispute under the contract was filed in Louisiana, and the engineering firm sought unsuccessfully to remove the litigation to Texas based on the clause.  The trial court and court of appeal refused to permit transfer based on an article in the Louisiana Code of Civil Procedure that states:  “an objection to the venue may not be waived prior to the initiation of the action.”

The Louisiana Supreme Court reversed in a 4-3 decision, concluding that the article does not apply to the circumstances before it and that the application of the article by the lower courts was an improper expansion of it.  The Supreme Court went on to say that forum selection clauses should be enforced unless the requesting party can show enforcement would be unreasonable and unjust and the subject of fraud or overreaching. 
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The Oklahoma Supreme Court remanded a case in which judgment was entered dismissing an insurer, finding that a homeowner’s policy had conflicting language in its “sewer or drain backup” exclusion and the accidental-discharge-coverage provision.  Porter v. Oklahoma Farm Bureau Mut. Ins. Co., 2014 WL 2726942 (Okla. June 17, 2014).

The insureds filed a claim with their property insurer, which was denied.  The insureds then sued their insurer, which became a class action suit.  The policy covered “[a]ccidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protection sprinkler system or domestic appliance,” excluding loss “on the residence premises caused by accidental discharge or overflow which occurs off the residential premises.” However, the “sewer or drain backup” exclusion provided “we do not cover loss resulting directly or indirectly from:  3.  Water damages meaning … b. water which backs up through sewers or drains ….”  The insureds argued that the policy provisions simultaneously include and exclude coverage for raw sewage damage and that the ambiguity should be reconciled by finding coverage.  The district court and Oklahoma Court of Appeals both found that no disputed fact existed and held in favor of the insurer.

The Oklahoma Supreme Court held this finding to be in error because the insurer maintained that the loss resulted from a severed sewer line off-premises while the insureds maintained that the loss resulted from sewage and wastewater overflow.  The Supreme Court held that the policy actually provided distinct coverage for real and personal property and thus did not create an ambiguity because appliances, such as an ice maker, bathtub or hot water tank, may overflow without the overflow originating in drains or sewers and applied only to personal property.  As the insureds claimed only real property damage, the Supreme Court remanded the matter for a determination as to the source of the insured’s damage, holding that coverage would exist under the general provisions of the policy if the plumbing system was the source but none would exist if the severed sewage line were the source.
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In response to the Mississippi Supreme Court’s ruling in Honeycutt v. Coleman, 120 So.3d 358 (Miss. 2013), finding that an insurance agent has a duty to explain uninsured motorist coverage to an insured in order to obtain a knowing and voluntary waiver of such coverage, the Mississippi Legislature passed Senate Bill 2733 amending Mississippi Code Annotated section 83-11-101 to add a section setting forth requirements for knowing and voluntary waiver.  Mississippi Insurance Department Bulletin 2014-4.

Section 83-11-101 of the Mississippi Code Annotated, effective July 1, 2014, provides, in pertinent part, the following required elements:

  1. An insurer shall inform the named insured or the applicant of the benefits of and reasons for electing to purchase UM coverage;
  2. This information and waiver shall be on a form approved by the Department;
  3. If the insured named in the policy chooses to reject UM coverage, the form shall be signed by or on behalf of the named insured, and such rejection is binding upon all persons insured by the automobile liability insurance policy;
  4. If said form is signed, it shall be presumed there was an informed, knowing rejection and waiver of UM coverage.

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The U.S. Eleventh Circuit Court of Appeals held that Georgia law requires an insurer only to inform the insured that the insurer is defending under a reservation of rights, and does not require an insurer to state specifically the basis for contesting coverage.  Wellons, Inc. v. Lexington Ins. Co., 2014 WL 1978412 (11th Cir. May 16, 2014).

The insurer provided CGL coverage and umbrella insurance to a supplier of energy products for construction projects.  The claimant, a building owner, sued the insured after products that the insured provided did not function properly.  The claimant filed suit.  The insurer initially agreed to defend and orally informed the insured that it was reserving its right to deny coverage.  Following discovery, the insurer denied the claim after concluding that the alleged defects did not cause property damage, as required for coverage under the policy.  The claimant obtained a judgment against the insured, and the insured filed a declaratory judgment action against the insurer, contending that the insurer was estopped from asserting non-coverage because it did not specify the basis on which it was contesting coverage in its reservation of rights.  The district court granted summary judgment for the insurer.  The insured appealed.

On appeal, the Eleventh Circuit affirmed after concluding that the insurer’s oral reservation of rights was adequate under Georgia law.  The Eleventh Circuit interpreted Georgia Supreme Court precedent as only requiring that an insurer “must” inform the insured that it is providing a defense under a reservation of rights, but only suggesting that the insurer “should” inform the insured of the specific basis for the insurer’s reservation of coverage.  The Eleventh Circuit held that summary judgment was appropriate because the insurer informed the insured  that it was proceeding  under a reservation of rights as required by Georgia law.
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A Texas Court of Appeals recently addressed unsettled Stowers issues of whether there is 1) a valid Stowers demand if only some beneficiaries agree to release all claims and 2) if there is not an offer to release all insureds.  Patterson v. Home State County Mutual Insurance Company, 2014 WL 1676931 (Tex. App. – Houston [1st Dist.] Apr. 24, 2014, no pet.).

The plaintiffs were a husband and two children who claimed to be beneficiaries in a wrongful death case.  The two children offered to release all claims in exchange for policy limits.  A second offer was made by the husband to release his claims in exchange for policy limits.  Later, a third offer was made by all plaintiffs that included a release of all of the beneficiaries’ claims, but not release all possible insureds.  The insurer rejected all offers and the trial resulted in awards in excess of policy limits.

A subsequent Stowers lawsuit was commenced.  The trial court held that the first two demands were not valid Stowers demands because a release of some but not all beneficiaries is not a full release of claims.  The appellate court affirmed, and further found that the plaintiffs’ third offer was not a valid Stowers demand because it did not offer to release all insureds.  The policy included a provision that the policy covered “[a]nyone else while using with your permission a covered auto you own, hire or borrow.”  Since the offer did not release the driver who was considered an insured under the policy, the appellate court determined that this was not an unconditional offer for a full release.
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The U.S. Fifth Circuit Court of Appeals affirmed a district court’s grant of summary judgment in favor of an insurer on a contractual liability exclusion, finding that it applied and that the exception to the exclusion for liability that would otherwise exist at common law does not apply.  Crownover v. Mid-Continent Casualty Co., 2014 WL 2921649 (5th Cir. June 27, 2014).

Homeowners brought claims for construction defects against their builder and eventually went to arbitration that concluded with a finding that the builder had breached its express warranty to make repairs.  The builder filed for bankruptcy protection, and the homeowners filed suit against the builder’s insurer to collect the award.  The parties filed cross-motions for summary judgment.  The insurer relied upon a standard contractual liability exclusion and argued that coverage was excluded because the claims were contractual and a duty to make repairs was not a duty the builder would have otherwise had in the absence of the contract. The homeowners 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.  The trial court granted the insurer’s motion.

The Fifth Circuit relied upon the Texas Supreme Court’s rulings in Gilbert Texas Construction, L.P. v. Underwriters at Lloyds London, 327 S.W.3d 118 (Tex. 2010), and most recently, Ewing Construction Co. v. Amerisure Insurance Co., 420 S.W.3d 30 (Tex. 2014) to hold that the district court was limited to the findings of the arbitration, which did not include a finding on an implied warranty of construction, and that Texas law provides that an express warranty precludes an implied warranty for the same activity in any event.

The contract included express warranties to make prompt repairs, which are greater than the duty it would have at common law, and the insurer argued that the exception for liability that could exist absent the contract did not apply.  The Fifth Circuit rejected the argument that the contractual liability exclusion was being interpreted so broadly as to make coverage in other parts of the contract (such as completed operations done by an subcontractor) illusory, emphasizing that the arbitration award made no findings on the quality of the initial construction, only the failure to make the repairs, and so that section was unaffected.
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The U.S. Eleventh Circuit Court of Appeals has affirmed a district court’s findings that CGL policies issued decades after property contamination do not cover an insured’s liability for environmental damage and that insurers were not in bad faith for their denial of coverage.  Alabama Gas Corp. v. Travelers Cas. And Sur. Co., 2014 WL 2599684 (11th Cir. June 11, 2014).

An insured utility company was a successor-in-interest to an entity that allegedly caused environmental damage years ago.  The insured received a Potentially Responsible Person (“PRP”) letter from the EPA.  It incurred costs to defend against the agency’s enforcement action and ultimately costs to respond to the contamination.  It brought suit against insurers who provided general liability coverage after the damage allegedly occurred.

The district court, finding that no Alabama decision had determined whether a PRP letter constitutes a “suit” under a general liability policy, certified the question to the Alabama Supreme Court which answered in the affirmative.  The district court then held that the insurers had no obligation to defend or indemnify because there was no dispute that the injury to the land occurred prior to the policies’ inception.  Applying an injury-in-fact trigger theory, the court ruled that construction and land work that dispersed pre-existing hazardous substances during the policy periods did not constitute an occurrence.  In a separate ruling, the district court held that the insurers were not in bad faith for denying coverage because they investigated the claim and reasonably took the position that a PRP letter was not a suit triggering the insurers’ defense obligations, despite the fact that the Alabama Supreme Court later took the opposite view.

The Eleventh Circuit, in a one page opinion without analysis, held that both earlier rulings were correct and affirmed the judgments.
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The U.S. Eleventh Circuit Court of Appeals recently held that a primary insurer’s failure to settle an underlying action did not constitute bad faith against the excess insurer.  Westchester Fire Ins. Co. v. Mid-Continent Cas. Co., 2014 WL 2766764 (11th Cir. June 19, 2014).

An excess insurer brought a bad faith action against the primary insurer, alleging that the primary insurer acted in bad faith by failing to settle an underlying action in which their insured was sued for products liability.  Despite several attempts, the primary insurer was not able to reach a settlement and the jury awarded damages in excess of primary limits.  After the jury verdict, the underlying plaintiff offered to settle for an amount in excess of primary limits, and the primary insurer declined without informing the excess insurer because the primary insurer believed the net award would not exceed the amount offered due to a setoff from a worker’s compensation lien.  However, the court chose not to permit a setoff and entered judgment for the jury award and costs.  In the bad faith action, the trial court found that the primary insurer’s pre-verdict actions did not constitute bad faith, but that the primary insurer’s failure to notify the excess insurer of the post-verdict settlement offer was bad faith.  The primary insurer appealed.

On appeal, the Eleventh Circuit reversed, finding that the trial court erred in holding that the primary insurer acted in bad faith without proof of causation.  The Eleventh Circuit held that the trial court did not find that the primary insurer’s failure to communicate the post-verdict settlement offer to the excess insurer damaged the excess insurer.  The Eleventh Circuit found there was no evidence or testimony to suggest that the excess insurer would have accepted the offer, and therefore, the primary insurer was not liable on the bad faith action because there was no proof of injury to the excess insurer.
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The U.S. Eleventh Circuit Court of Appeals held that an assignment from an insured to a claimant of its causes of action against a liability insurer does not create a direct action for federal diversity jurisdiction purposes.  Kong v. Allied Prof’l Ins. Co., 750 F.3d 1295 (11th Cir. May 9, 2014).

A claimant sued a massage therapy center after a masseuse allegedly broke the claimant’s ankle during a therapy session.  The insurer denied the claim.  The insured and the claimant agreed to a stipulated judgment in favor of the claimant, as a part of which the insured assigned to the claimant its claim against its insurer and the claimant agreed to take no action against the insured to collect on the judgment.  The claimant sued the insurer to collect on the judgment.  The insurer removed the action to federal court on the basis of diversity jurisdiction.  The claimant moved to remand, arguing that diversity jurisdiction did not exist because the lawsuit was a direct action between a claimant and a liability insurer, requiring the liability insurer to assume the insured’s Florida citizenship.  The district court denied the motion for remand.  The claimant appealed.

On appeal, the Eleventh Circuit held that the district court did not err in denying the motion to remand because the claimant’s action against the insurer was not a direct action under federal law.  However, the Eleventh Circuit concluded that courts have uniformly defined “direct action” to refer to cases where the claimant is entitled to bring suit against an insurer without first joining the insured or obtaining a judgment against the insured.  Florida law precludes direct actions between a claimant and an insurer and requires a claimant first to obtain a settlement or verdict against an insured as a condition precedent to maintaining a cause of action against an insurer.  Here, the claimant first agreed to a stipulated judgment with the insured before bringing the action against the insurer.  Therefore, the removal was appropriate because diversity jurisdiction existed between the claimant and the insurer, as they were completely diverse and the lawsuit was not a direct action under federal law.
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The U.S. Sixth Circuit Court of Appeals has held that an insurer had no obligation under Kentucky law to defend or indemnify a racetrack owner, concluding that the policy’s liquor liability exclusion applied because the insured was “in the business” of serving alcoholic beverages.  KSPED, LLC v. Virginia Sur. Co., Inc., 2014 WL 2459743 (6th Cir. June 2, 2014).

The insured was sued for alleged negligence in serving alcohol to a patron who later caused an auto accident, resulting in the death of a passenger.  Its CGL insurer denied coverage based on a policy’s liquor liability exclusion which applied to liability arising out of the sale of alcoholic beverages if the insured is “in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.”  The district court held that the exclusion did not apply because the insured leased property to others who operated concession stands which sold alcohol, and granted judgment in favor of the insured.  The insurer appealed.

The Sixth Circuit concluded that the exclusion applied.  It found that the insured retained control over its concessionaires and made profits from the sale of alcoholic beverages. It also reserved the right to refuse service of alcohol to any patron.  Thus, it concluded that the insured and its concessionaires were engaged in a joint enterprise of selling alcohol and that the exclusion was applicable.  The Sixth Circuit found it irrelevant whether the alcohol sales were the “primary” business activity of the insured, and reversed.
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A federal court in Texas held that insurers had no duty to defend an insured against a wrongful death suit based upon pollution exclusions in their policies, but denied summary judgment with respect to the duty to indemnify as a factual question existed regarding the decedent’s actual cause of death.  Acadia Ins. Co. v. Jacob and Martin, Ltd., et al., 2014 WL 2217399 (N.D. Tex. May 28, 2014).

The insured contracted to design and install a new sewer system.  While working on the project, a subcontractor opened a manhole, climbed inside and removed a plug connected to the sewer line.  When the plug was removed, the subcontractor was overwhelmed with methane gas, which caused his death.  The polices contained a pollution exclusion for bodily injuries resulting from a release of any gaseous contaminant, including fumes.  The insurers sought a declaration that they had no duty to defend or to indemnify the insured.

The insured did not dispute that methane is a “pollutant” as defined by the policies, but attempted to introduce extrinsic evidence demonstrating that the subcontractor may have died from a lack of oxygen, rather than methane inhalation.  The court would not consider extrinsic evidence because the cause of the subcontractor’s death went to the merits of the underlying litigation.  The court held that the policies and the underlying petition were sufficient to hold there was no duty to defend.  But the court found that there was a genuine issue of material fact as to the cause of death and whether it falls outside the pollution exclusion contained in the policies, and denied summary judgment as to the duty to indemnify.
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The Mississippi Court of Appeals upheld a grant of summary judgment against an insured in a claim that arose out of the destruction of her beachfront home following the unmooring of a barge during a hurricane, for which the insurer denied coverage on the basis of a loss caused by water or which would not have occurred in the absence of water.  Porter v. Grand Casino of Mississippi, Inc. – Biloxi, 2014 WL 1887378 (Miss. Ct. App. May 13, 2014).

The insured owned a home covered by an “all-risk” homeowner’s policy and was destroyed when a barge collided with it during a hurricane.  The policy excluded loss caused by wind or water damage and “loss [that] would not have occurred in the absence of [an] excluded event….”  The court found that the insurer met its burden to prove the exclusion applied because the damage from the barge could not have occurred without a storm surge.  The court disagreed with the insured’s assertion that the barge itself, if proven to be negligently moored, was the cause of the loss, finding that a “cause” is defined as “the producer of an effect,” with an effect requiring force, which the barge could not have generated itself.  Thus, the court found that the barge itself was not the “true cause,” but instead was a “concurrent cause.”  The court ruled that the concurrent cause, coupled with the excluded storm surge, “makes the barge also an excluded cause of loss” under the policy.
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A federal court in Virginia recently held that an insurer had no duty to defend its insured against claims brought under the Fair Credit Reporting Act (“FCRA”).  Liberty Mutual Fire Ins. Co. v. General Info . Services., Inc., 2014 WL 2114840 (E.D. Va. May 20, 2014).

Three individuals sued the insured, a background check service, alleging that it violated the FCRA by failing to establish reasonable procedures to assure that its background checks provided to prospective employers were accurate.  The individuals also brought class action claims under the FCRA, alleging that the insured failed to provide notices and disclosures required by the FCRA.  The service’s insurer sought a declaration that the policy did not cover any of the claims asserted and it had no duty to defend.  The insured filed a counterclaim, seeking a declaration that the insurer did have a duty to defend.

Following a bench trial, the court found that the insurer had no duty to defend.  As to the personal claims against the insured (for damages for “embarrassment, humiliation and other emotional and mental distress”), the court found that while such claims generally constitute “personal and advertising injury” within the meaning of the policy, because the conduct that was alleged to have caused those injuries occurred more than two years after the policy expired, there was no coverage.  As to the class action claims (for statutory damages, punitive damages, and attorneys’ fees pursuant to the FCRA), the court found that the counts did not allege “personal and advertising injury” as defined by the policy, and thus there was no coverage.
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A Texas Court of Appeals held that evidence that an insurer attempted to pay an estimate of damages despite the parties’ agreement to a higher estimate was legally sufficient for a jury to find that an insurer knowingly violated the Texas Insurance Code.  United National Insurance Company v. AMJ Investments, LLC, Cause No. 14-12-00941-CV (Tex. App.—Houston [14th Dist.] June 26, 2014).

The insured’s building, insured for $4 million at replacement cost value, was damaged.  After inspection of the loss, the insurer’s consultant created an estimate with which the public adjuster agreed.  However, the insurer’s adjuster created a separate estimate that was $300,000 lower than the agreed estimate.  The insurer then paid the insured the lower estimate.  Because the insurer attempted to pay an amount less than the parties’ agreed estimate, the court found that sufficient evidence existed to support the jury’s finding that the insurer knowingly failed to settle the claim in good faith once liability was reasonably clear.

The insurer tried to set aside the award on several grounds, including that the insured presented no evidence that the estimated cost of repairs were “reasonable and necessary” as set forth in the Texas Supreme Court’s decision of McGinty v. Hennen, 372 S.W.3d 625 (Tex. 2012).  The appellate court held that the jury was never asked whether the estimated cost of repairs were reasonable or necessary; that even so, all parties used the same software program to estimate damages and there was evidence that the parties agreed to rely upon the software’s pricing.  The appellate court seemed to gloss over the greatest distinction which was that the Supreme Court in McGinty construed remedial damages in a construction contract and not actual cash value damages in an insurance contract.  A dissent relied upon McGinty to find that estimates of repair costs alone do not constitute evidence that such repairs were reasonable and necessary, and so, evidence of the damage was insufficient.
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A Florida appellate court recently held that an insurer waived the right to enforce an ordinance and law provision that required an insured to complete repairs to its property within two years, as the insurer had acquiesced to the insured’s failure to strictly adhere to the policy provision.  Axis Surplus Ins. Co. v. Caribbean Beach Club Ass’n, Inc., 2014 WL 2900930 (Fla. 2d DCA June 27, 2014).

An insured sued its insurer after the insurer failed to reimburse the insured for the increased cost of construction to repair its building under an ordinance and law endorsement to the policy.  The endorsement stated that the insurer would pay for the increased cost of construction when the insured’s property was actually repaired and if the repairs were made within two years after the loss.  The insurer had denied payment to the insured for the increased cost of construction because the insured did not complete the repairs to its building within the required two-year period.  In its motion for summary judgment, the insured claimed that the insurer had waived its right to rely on the two-year provision because the insurer did not inform the insured that it would rely on it until nearly two years after the loss, and in all of the insurer’s prior communications with the insured, the insurer never raised the clause with the insured.  The trial court granted the insured’s motion for summary judgment, finding that the clause was a forfeiture provision that the insurer waived.  The insurer appealed.

The appellate court affirmed, finding that the two-year clause was a forfeiture provision that could be waived by actions of the insurer.  Because the clause was a forfeiture provision, the appellate court found that the insurer waived its ability to rely on the provision because the insurer had knowledge of the provision, but did not raise it with the insured until nearly two years after the loss.  The court held that the insurer had acquiesced to the insured’s failure to comply with the policy provision and, therefore, could not invoke its right to strictly enforce the forfeiture provision.
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 The North Carolina Court of Appeals recently held that a business auto liability policy covered an insured for a passenger’s injury and death allegedly resulting from the insured’s negligence in moving the passenger in a wheelchair into her home.  Integon Nat’l Ins. Co. v. Helping Hands Specialized Transport, Inc., 2014 WL 1797471 (N.C. App. May 6, 2014).

 The insured, a company providing handicapped accessible transportation services, was hired to transport an elderly patient from the hospital to her home.  While one of the insured’s employees was pulling the patient’s wheelchair into the home, the patient suffered a gash on her leg, which allegedly led to her death several days later.  The patient’s estate sued the insured, asserting that the patient’s death was the result of the insured’s negligence.  Its auto liability insurer sought a declaration that its policy provided no coverage.  The trial court ruled against the insurer, and the insurer appealed.

 Affirming, the North Carolina Court of Appeals noted that, under North Carolina law, a motor vehicle liability insurance policy will generally provide coverage if any injury is caused by an activity that it necessarily or ordinarily associated with the use of an insured vehicle.  The court was satisfied that there was a sufficient causal connection between the van’s use (transporting patients from the hospital to her home for palliative care) and the injury for the policy to provide coverage.
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