Insurance Law Report: November 2019

November 01, 2019

Insurance Law Report focuses on developments in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.

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Louisiana Supreme Court Holds Limitation Period For First-Party Bad-Faith Claims Is 10 Years

The Louisiana Supreme Court held that an underlying plaintiff’s claim as an assignee of the insured’s bad-faith claim against its insurer is subject to the 10-year prescriptive period in Civil Code article 3499. Smith v. Citadel Insurance Co., No. 2019-CC-00052, (2019 La. LEXIS 2698, Oct. 22, 2019).

An underlying plaintiff obtained a judgment against a defendant, who assigned her rights to pursue a bad-faith action against her insurer. Suit was filed, and the insurer excepted based on the argument that the one-year prescriptive period had run. The exception was overruled, which was affirmed and the Louisiana Supreme Court agreed to review.

The Supreme Court considered the claim as one of the insured to which an insurer owes a duty of good faith, and which is an outgrowth of the contractual and fiduciary relationship between the insured and the insurer. It concluded that the duty of good faith and fair dealing “emanates” from the contract between the parties. Thus, the Supreme Court held that such claims are subject to the 10-year prescriptive period.

Author: Bart Hall

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Texas Supreme Again Asked If It Would Recognize Extrinsic Evidence Exception To “Eight-Corners” Rule

The U.S. Fifth Circuit Court of Appeals certified to the Texas Supreme Court the question of whether it may refer to extrinsic evidence in determining the duty to defend. State Farm Lloyd’s v. Richards, No. 18-10721, 2019 U.S.App. LEXIS 27221 (5th Cir. Sept. 9, 2019).

The Supreme Court has had several occasions over the years to find that an exception exists to the “eight-corners” rule, but, while acknowledging that Texas courts have applied such an exclusion, it has neither rejected nor accepted such an exception on each occasion. The Supreme Court has agreed to address the question. Richards v. State Farm, Lloyd’s Case No. 19-0802.

Briefing is under way, and oral argument will be held January 8, 2020.

Author: Margaret Wolf

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South Carolina Supreme Court Holds Insurer Providing No-Fault Injury Coverage Is Obligated To Pay Regardless Of Benefits Received From Another Source

South Carolina Supreme Court held that an insurer providing no-fault personal injury coverage is obligated to pay, even if the insured has received benefits from another source. Cothran v. State Farm Mut. Auto Ins. Co., 831 S.E.2d. 919 (S.C. Aug. 7, 2019).

The South Carolina Supreme Court considered whether an insured was entitled to personal injury protection (PIP) coverage under her automobile insurance policy after she was injured in a car accident and received workers’ compensation benefits. The auto insurer denied PIP coverage based on a policy provision in the auto policy providing that “[a]ny [PIP] Coverage provided by this policy applies as excess over any benefits recovered under any workers’ compensation law or any other similar law.” The insured sued the auto insurer alleging breach of contract and bad faith. The trial court granted summary judgment to the insured, holding that the provision violates S.C. §38-77-144, which provides, in pertinent part, that “[i]f an insurer sells no-fault insurance coverage which provides personal protection, medical payment coverage, or economic loss coverage, the coverage shall not be assigned or subrogated and is not subject to a setoff.” The Court of Appeals reversed, holding that the setoff prohibition only applies to a tortfeasor.

Reinstating summary judgment in favor of the insured, the South Carolina Supreme Court interpreted the term “setoff,” as used in S.C. §38-77-144, to include any reduction in the amount an insurer would otherwise be obligated to pay on a claim when the right to the reduction arises as a result of a payment from a third party, and held that the setoff prohibition applied to workers’ compensation benefits.

Author: Margaret Wolf

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South Carolina Supreme Court Holds Lack Of Notice Of Suit Permits Insurer To Deny Coverage Under Automobile Policy Excess Of Mandatory Minimum Limits

The South Carolina Supreme Court held that a violation of a notice of suit provision in an automobile policy can void the portion of coverage only above the minimum statutory limits. Neumayer v. Phila. Indem. Ins. Co., 831 S.E.2d 406 (July 24, 2019).

An insured struck a pedestrian while operating an insured vehicle. The insured was subsequently sued but failed to answer or provide notice of the lawsuit to its insurer for roughly 18 months, resulting in a default judgment being entered against the insured. The insured sued its auto insurer seeking a declaration that it was obligated to pay the default judgment. The trial court held that South Carolina law prevents an automobile insurer from relying on a breach of a notice of suit clause to reduce the amount of available coverage under an automobile policy.

On appeal, the South Carolina Supreme Court disagreed. It noted that South Carolina law regulating mandatory automobile insurance was designed to insure the availability of mandatory minimum limits. Thus, it held that while the breach of a notice provision could not reduce the available limits in an automobile policy below the statutory minimums, a breach of notice provision can be used to void coverage above the statutory limits, assuming substantial prejudice is met.

Author: Margaret Wolf

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Mississippi Supreme Court Vacates Order Appointing Special Master In Hurricane Katrina Insurance Claims

State of Mississippi sued several insurers alleging that the insurers mischaracterized claims resulting from Hurricane Katrina as flood, not wind, damage (meaning there was no coverage), resulting in the State having to pay under its Homeowner Assistance Program. trial judge in the first case approved a special master, and later sua sponte appointed a special master in the second and third suits, one of which (the Safeco suit) was not assigned to her. judge then reassigned the third case to her docket. insurers in the later suits filed an interlocutory appeal. Safeco Insurance Co. of Am. v. State ex rel. Jim Hood, No. 2017-IA-01554-SCT, 2019 Miss. LEXIS 296 (Miss. Aug. 22, 2019).

The Mississippi Supreme Court vacated the reassignment of the Safeco case due to “procedural irregularities” and “the totality of the circumstances.” It then vacated the order appointing a special master, finding that it required both parties to pay a special master (a Louisiana lawyer) without requiring the master to detail his bills and allowing either side to meet with him ex-parte and without requiring the master to disclose such meetings, which the Court held far exceeds the trial court’s discretionary authority under Mississippi Rule of Civil Procedure 53.

Author: Bart Hall

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Fourth Circuit Holds “Prior Publication” Exclusion Does Not Excuse Duty To Defend Under North Carolina Law

The U.S. Court of Appeals for the Fourth Circuit held that if allegations in an underlying lawsuit are that publications were made during the policy period that differ in substance from those published before the policy’s inception, the “prior publication” exclusion does not excuse an insurer’s duty to defend. Pa. Nat’l Mut. Ins. Co. v. Beach Mart, Inc., 932 F.3d 268 (4th Cir. 2019).

A party asserted a trademark infringement claim against the insured, and the insured tendered the claim to its insurer, which then sought a declaration that it did not have a duty to defend based on an exclusion precluding coverage for injuries “[a]rising out of oral or written publication of material whose first publication took place before the beginning of the period.” The court held that because the claim was supported by allegations contending that the insured’s “offensive conduct began outside the coverage period” and continued “overtime without any meaningful interruption,” the “prior publication” exclusion precluded coverage.

the Fourth Circuit held that, under North Carolina law, a “prior publication” exclusion “bars coverage of an insured’s continuous or repeated publication of substantially the same offending material previously published at a point of time before a policy incepts.” Accordingly, it held that it would not bar coverage for publications made during the policy period that differ in substance from those published before commencement of coverage.

Author: William Hartzell

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Fifth Circuit Holds Insurer Cannot Rely On A “Consent to Settle” Provision To Deny Claim By Unnamed Additional Insured Under Mississippi Law

The U.S. Fifth Circuit Court of Appeals held that an insurer must show that an unnamed additional insured knew or should have known of the insurance policy at issue and of the consent to settle provision in order to enforce such a provision. Netto v. Atl. Specialty Ins. Co., 929 F.3d 214, 217 (5th Cir. Jul. 2, 2019).

A passenger in an automobile owned by a county government was injured in an automobile accident while acting in the scope of his employment with the county. He was not a party to the policy between the county and its insurer but was an unnamed additional insured under its terms. The at-fault vehicle was allegedly uninsured. The passenger’s attorney sought unsuccessfully to contact the county’s insurer, but ultimately negotiated a settlement with the at-fault driver and the Mississippi Workers’ Compensation Trust, which was approved by the Mississippi Workers’ Compensation Commission. Months later, the passenger’s attorney learned the identity of the insurer and submitted a letter directly through the insurer’s website that informed that a settlement had been reached. The passenger and his wife then sued the insurer, which moved for summary judgment based on a violation of a “consent to settle” provision in the policy. The court denied the motion and the insurer appealed.

The Mississippi Supreme Court has never considered the enforceability of a “consent to settle” provision in an uninsured motorist policy against an unnamed additional insured. If the passenger were a named insured, the provision would have very clearly barred recovery. But the Supreme Court has distinguished named and unnamed insured status with respect to a variety of policy exclusions and on whom the burden of establishing is placed. As a result, the Fifth Circuit held that the district court properly ruled that the record lacked evidence indicating the passenger’s knowledge of the “consent to settle” provision, and as a result, affirmed the denial of summary judgment.

Author: Autumn Breeden

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North Carolina Court Of Appeals Holds Policy Cancellation Effective Only If Notice Is Actually Delivered To Insured

The North Carolina Court of Appeals held that a homeowners’ insurer had not “furnished” the insured with notice of cancellation of the policy when the insurer merely mailed the cancellation letter to the insured and could not establish receipt. Nhung Ha v. Nationwide Gen. Ins. Co., 829 S.E.2d 919 (N.C. Ct. App. 2019).

Gen. Stat. §58-41-15(c) permits an insurer to rescind a policy within 60 days of issuance if the insurer “furnish[es]” notice to the insured. An insurer sought to rescind a homeowners’ policy and mailed a cancellation letter to the insured. The insured’s home was subsequently destroyed. The insurer denied coverage, and the insured sued.

The insured argued that the cancellation was not effective because he never received the cancellation letter. The insurer argued that it “furnished” the cancellation letter because it mailed it, evidenced by a proof of mailing. The court disagreed and reasoned the use of the term “furnishing” in the statute, when interpreted as a whole, suggests that an insurer must do more than mail a cancellation letter, but must physically furnish the cancellation letter. Accordingly, the cancellation was deemed ineffective.

Author: Margaret Wolf

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South Carolina Court Holds That Release Agreement Does Not Discharge Insurance Company’s Agents

South Carolina Court of Appeals held that a release of an insurance company by a plaintiff did not release the company’s agents. Curry v. Carolina Ins. Grp. of SC, Inc., 832 W.E.2d 575 (S.C. Ct. App. 2019).

After an insurer denied coverage for an insured’s claim for building damage, the insured sued the insurer and alleged agents for negligence and gross negligence in the procurement of the policy. The alleged agents denied that they were agents of the insurer. The insurer offered to settle the claim in exchange for a release discharging the insurer, “its agents, servants, employers, successors[,] and assigns of and from any and all actions, causes of action, demands[,] and/or claims of whatsoever kind or nature prior to and including the date hereof.” All parties signed a stipulation of dismissal but stipulated that it did not affect the case against the agents.

The agents then moved for summary judgment, arguing (1) that the release amounted to a full compensation of claims and thus precluded additional damages and (2) that the release released the agents. Denying the motion, the court noted that even though the release stated that the amount paid by the insurer constituted full payment for all damages, losses, or injuries, no evidence was presented showing that the insured received full compensation of such injuries amounting to a satisfaction. court held that the release did not discharge the agents; rather, it merely provided a setoff against any damages awarded to the insured.

South Carolina Court of Appeals affirmed, noting that the parties did not intend the release to discharge the insurer’s agents and that the insured testified that the amount he received for the insurer did not cover all his damages.

Author: Margaret Wolf

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Louisiana Court Deems An Insurer May Contract Around the “Made-Whole” Doctrine

A Louisiana Court of Appeal affirmed a judgment ordering the plaintiff to reimburse the State of Louisiana medical benefits received under the State’s HMO plan because the plan included a provision which entitled the State to reimbursement of benefits paid in the event of a judgment, “even if [the Insured] is not made whole.” Bayham v. State, 2018-1708 ( La. App. 1 Cir. 8/29/19); 2019 La.App. LEXIS 1504.

The plaintiff sustained injuries in a car accident, resulting in medical expenses. The plaintiff had health coverage through the State’s HMO plan, and it paid to treat her injuries. She then filed suit for damages against the tortfeasor and obtained an award. The HMO plan entitled the State to reimbursement for benefits paid in the event an insured obtained a judgment against a third party to compensate for injuries regardless of whether the insured had been made whole by the judgment. The State sought reimbursement, and the plaintiff filed a declaratory judgment action to determine the State’s rights to reimbursement. The trial court awarded reimbursement, and the plaintiff appealed.

The First Circuit affirmed, acknowledging a Louisiana Commissioner of Insurance’s directive that makes it the public policy of Louisiana that an insurance policy’s subrogation and/or reimbursement provision cannot harm the insured, but concluding that the “made-whole” doctrine did not apply because the HMO plan at issue contained a contrary agreement. A dissenting opinion pointed out that the case law cited by the majority involved plans governed by ERISA, which resulted in the preemption of Louisiana law, including its public policy with respect to the “made-whole” doctrine, and stated that it should have applied because the purpose of the Commissioner’s directive was to prevent insurers from contracting around Louisiana’s public policy.

Author: Gabriel Crane

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Florida Appellate Court Holds That A Residency Requirement Provision Is Not Waived If Insurer Is Not Aware That The Insured Is No Longer A Resident

A Florida appellate court held that an insurer did not waive and was not estopped from relying upon a residency requirement in denying coverage where the insurer was not aware that insured was no longer a resident of the property until it conducted a post-loss investigation. Arguelles v. Citizens Prop. Ins. Corp., 44 Fla. L. Weekly D1726a (Fla. 3rd DCA July 3, 2019).

An insured had a policy covering a condominium that covered property within the “residence premises.” The policy defined “residence premises” as the “unit where you reside shown as the ‘Location of Residence Premises’ in the Declarations;” however, it did not define the term “reside.” The insured initially resided at the property and then rented it to tenants. During their tenancy, the tenants reported a water leak, and the insured reported the loss to the insurer. The insurer conducted a post-loss investigation and learned that the insured no longer resided at the property and denied coverage. The insured filed a petition for declaratory relief, and the trial court granted the insurer’s motion for summary judgment. The insureds appealed.

The appellate court affirmed, finding the policy wording clear and unambiguous. Although the policy did not define the term “reside,” the appellate court determined that the plain meaning of the term should be applied. The insured argued that the interpretation rendered the policy “illusory,” with which the appellate court disagreed because the residency limitation did not affect other coverages, including for personal liability. The insured further argued that the insurer had waived or was estopped from relying on the residency requirement because it had accepted premiums. The appellate court noted that the insurer was unaware that the insured no longer resided at the property and thus did not accept premiums with knowledge regarding the insured’s failure to comply with the residency requirement. The appellate court held that neither the doctrine of waiver nor estoppel barred the insurer from relying on the residency requirement.

Author: Kelly Hallisey

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Florida Appellate Court Holds Assignment Of Benefits Contract For Water Mitigation Claim Was Limited Only To The Scope Of The Work Performed

A Florida appellate court held that an insured who assigned “any and all” rights under a policy to a water mitigation company only assigned their rights relating to the water mitigation work performed. Sidiq v. Tower Hill Select Ins. Co., 276 So.3d 822 (Fla. 4th DCA 2019).

The insureds owned a dwelling that was damaged by a water leak, which allegedly caused interior water damage. The insureds retained a company to perform water mitigation services in exchange for payment under an assignment of benefits (the “AOB Contract”), which assigned “any and all” insurance rights and benefits to the water mitigation company. The insurer denied the claim, and the insureds sought a declaratory judgment determining their rights under the policy. Thereafter, the water mitigation company settled with the insurer and executed a release of all claims against the insurer. The insurer moved for summary judgment arguing that the insured did not have standing, as they had assigned all their rights and benefits to the water mitigation company and that the services rendered were in consideration of all of the insureds’ rights under the policy. The insureds argued that the AOB Contract was intended to assign only their rights in relation to the water mitigation services performed to the company, and that the contract limited the company’s rights to the services performed. The trial court granted the insurer’s motion, finding that consideration is a necessary element of an enforceable contract, that the consideration does not affect the scope, and that the assignment was for all the insureds’ rights in the claim. The insureds appealed.

The appellate court reversed. While the trial court had only focused on specific language of the AOB Contract, the appellate court focused on the language of the contract as a whole, and opined that it clearly limited the assignment of benefits to just the rights relating to the water mitigation services. Accordingly, it held that while the first sentence of the AOB Contract appeared to assign the company “any and all” rights under the insureds’ policy, when taken as a whole, the contract limited the rights to any rights that related directly to the water mitigation work performed to the insureds’ property.

Author: Kelly Hallisey

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Federal Court In Florida Holds Excess Policy Does Not Provide Coverage For Assault And Battery Claim Where CGL Policy Has Sublimit

A federal court in Florida held that a follow-form excess policy did not provide coverage for an assault or battery claim where the CGL policy contained a “sublimit of liability” for assault and battery claims. Starstone Nat’l Ins. Co. v. Polynesian Inn, LLC, No. 6:18-cv-1048-Orl-31EJK, 2019 U.S. Dist. LEXIS 144507 (M.D. Fla. Aug. 2019).

The insured operated a hotel at which two guests were attacked by an assailant, resulting in the death of one and injuries to the second. The hotel’s CGL policy contained an endorsement titled “Limited Assault Or Battery Liability Coverage,” which provided a “sublimit of liability” of $25,000 for claims resulting from an assault or battery. The excess policy was a follow-form policy except in respect to, among others, any “sublimit of liability” unless specifically endorsed onto the excess policy. The excess insurer filed a declaratory judgment action to determine coverage under the excess policy, and moved for summary judgment, that the $25,000 sublimit for assault claims was a “sublimit of liability,” and therefore its policy did not follow form to coverage for assault claims.

court found that the CGL policy’s $25,000 in coverage for bodily injury caused by an assault or battery offense was a sublimit as that term was used in the excess carrier’s policy. court analyzed the term “sublimit” and concluded that the term “sublimit of liability” means a limit on a subcategory of liability, which the court concluded the $25,000 sublimit for assault and battery was. court rejected the insured’s argument that the lower assault and battery limit was a standalone limit, not a sublimit, which would have required the excess insurer to cover for assault claims exceeding the $25,000 in coverage provided by the CGL policy.

Author: Kelly Hallisey

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