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Insurance Law Report: September 2014

October 01, 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 September issue. To view, click on the appropriate title and you will be brought to the full version of the article below.


Mississippi Supreme Court Holds Medical Malpractice Insurance Provided No Coverage for Claims Against Doctor Arising From Doctor’s Expert Witness Testimony

The Mississippi Supreme Court upheld a trial court’s grant of summary judgment in favor of an insurer, finding that the policy was not orally modified by any representations of the insurer, and that the plain language of the policy excluded coverage for claims of non-patients.  Hayne v. The Doctors Co., 2014 WL 4243766 (Miss. Aug. 28, 2014).

A physician, sued by an exonerated criminal for his expert testimony against the criminal, claimed coverage under his medical malpractice insurance.  The underlying plaintiff had sued for fraud, malicious prosecution and negligent misrepresentation for testimony regarding an autopsy on a murder victim.  Due in large part to that testimony, the underlying plaintiff had been in prison until DNA evidence exonerated him.  The insurer contended that no coverage existed as the plaintiff was not the insured’s patient as required under the policy.  Litigation ensued.

The insured argued that when the insurer issued its policy, it was aware of the type of medicine he practiced, i.e., forensic, anatomical and clinical pathology for the State of Mississippi in criminal proceedings, and that an oral agreement was made between the insured and insurer that any policy would cover such work.  But the term “claims” was defined as a suit alleging “injury, disability, sickness, disease, or death to a patient arising from [the insured’s] rendering or failing to render professional services.”  The policy further contained an exclusion for work the insured performed as a governmental employee.  On these bases, the insurer moved for summary judgment, which the court granted.  The insured appealed.

The Mississippi Supreme Court affirmed, holding that no coverage existed under the plain language of the policy.  It found that an alleged discrepancy between the policy offered by the insurer and a policy the insured produced in discovery had no bearing on its analysis inasmuch as the term “claims” was defined the same in each, though one definition used commas and the other semicolons.
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Fifth Circuit Certifies Questions To Texas Supreme Court Regarding Interpretation Of Common CGL Policy Exclusions

The U.S. Fifth Circuit Court of Appeals is looking to the Texas Supreme Court for guidance in interpreting the “your product” and “impaired property” exclusions contained in a typical CGL policy after finding no controlling Texas case law exists.  U.S. Metals, Inc. v. Liberty Mut. Group, Inc., No. 13-20433, 2014 WL 4652892 (5th Cir. Sept. 19, 2014), certified question accepted (Sept. 26, 2014).

The insured manufactured flanges intended for use in petroleum refineries.  After installation, the refinery operator discovered that all of the flanges which had been made by the insured’s subcontractor were manufactured improperly and failing, and replaced all of the flanges.  The manufacturer settled the refinery operator’s claim and asserted that the settlement was covered under its CGL and umbrella insurance policies.  However, its insurer denied coverage based on the “your product” and “impaired property” exclusions contained in the policies.

The manufacturer sued its insurer arguing that the policy exclusions did not apply.  Its insurer relied upon a Texas appellate case, Lennar Corp. v. Great Am. Ins. Co., 200 S.W.3d 651 (Tex.App.—Hous.[14th Dist.] 2006), which held that the mere incorporation of a defective product is not “property damage” to the defective product itself but which did not discuss whether damage to other integrated components would be considered “property damage.”  By contrast, the Fifth Circuit noted that the U.S. Seventh Circuit Court of Appeals has held that “physical injury” occurs to the other product at the moment of incorporation of the insured’s defective product.  In the end, the Fifth Circuit concluded that there is no controlling Texas Supreme Court case law and certified the following questions to the Texas Supreme Court:  1) whether the terms “physical injury” and “replacement” found in the common “your product” and “impaired property” exclusions are ambiguous; and 2) if not, what do these terms mean under Texas law?
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Florida Appellate Court Holds Bad Faith Action Is Ripe When Insurer’s Liability For Coverage And Damages Are Determined, Not When Insurer’s Breach Of Contract Is Established

A Florida court of appeals recently held that an insured’s bad faith action was ripe after its insurer paid an appraisal award because the insurer’s liability for coverage and the extent of damages had been determined, despite the fact that the insurer’s liability for breach of contract had not yet been determined.  Cammarata v. State Farm Fla. Ins. Co., 2014 WL 4327948 (Fla. 4th DCA Sept. 3, 2014).

The insureds filed a claim with their insurer for damages sustained to their home.  After its inspection, the insurer notified the insureds that its estimate for damages was below the policy deductible, and no payment was made.  The insureds invoked the policy’s appraisal provision, and the umpire ultimately determined that the insureds’ damages were higher than the insurer’s appraiser’s estimate and higher than the deductible.  The insurer paid the appraisal award, and the insureds initiated a bad faith action under section 624.155, Florida Statutes, alleging that the insurer failed to attempt in good faith to settle their claim.  The insurer moved for summary judgment, relying on Florida precedent, that because the insurer’s liability for breach of contract had not been determined, the bad faith action was not ripe.  The insureds, relying on different Florida precedent, argued that only an insurer’s liability for coverage and the extent of damages, and not liability for breach of contract, must be determined before a bad faith action becomes ripe.  The trial court granted the insurer’s motion for summary judgment, and the insureds appealed.

The appellate court reversed, finding that based on Florida Supreme Court precedent, only an insurer’s liability for coverage and the extent of damages, and not its liability for breach of contract, must be determined before a bad faith action becomes ripe.  The appellate court reasoned that if those two conditions are met, and an insured gives proper notice to its insurer under section 624.155, Florida Statutes, an insured can bring a bad faith action even if a settlement or an appraisal award is the method by which the existence of an insurer’s liability and the extent of an insured’s damages are determined.

The concurring opinion discusses the potential effect of the majority opinion and expresses concern that the opinion would allow an insured to sue an insurer for bad faith any time the insurer disputes an insured’s claim, but then pays the insured even a penny more than the insurer’s initial offer to settle, without the determination that the insurer breached the contract.  The concurring opinion suggests an alternative, by which an insured would be required to either establish an insurer’s liability for breach of contract as a condition precedent to bringing a bad faith action, or obtain a settlement amount which is at least a certain percentage above the insurer’s initial offer to settle.  However, the concurring opinion notes that this would have to be a requirement set forth by the Florida legislature through an amendment to section 624.155, Florida Statutes.
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Florida Appellate Court Holds Limitations Statute Does Not Apply Retroactively

A Florida appellate court recently held that a Florida statute enacted in 2011 regarding the statute of limitations for actions involving a breach of a property policy does not apply retroactively.  Donovan v. Fla. Peninsula Ins. Co., 2014 WL 3189914 (Fla. 4th DCA July 9, 2014).

An insured brought a breach of contract action in 2011 against its insurer after the insurer in 2010 rejected the insured’s request for an additional payment under the insured’s homeowner’s policy for damage in 2005.  The insurer moved to dismiss the suit, arguing that the action was brought five years after the 2005 loss and was time-barred by section 95.11, Florida Statutes, which provides a five year limitations period from the date of loss for breach of a property insurance contract.  The trial court granted the insurer’s motion to dismiss.  The insured appealed.

The appellate court reversed, finding that section 95.11, Florida Statutes, which became effective in May 2011 (after the insured’s cause of action accrued), did not apply retroactively because the legislature did not indicate that it was retroactive.  The appellate court acknowledged that the parties disagreed as to whether the limitations period began to run, i.e., when the cause of action accrued or the date of loss.  Prior to the effective date of the statute, the limitations period began from the date the action accrued, which was when coverage was alleged to have been erroneously denied.  The court held that the statute is now clear that the limitations period for an action for breach of a property policy begins to run on the date of loss.
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Texas Court of Appeals Holds Excess Insurer Obligated To Pay After Primary Insurers Settled For Less Than Full Limits Of Underlying Policies

An appellate court in Texas reversed summary judgment for an excess insurer, finding that the primary insurers did not have to exhaust policy limits before an excess insurer was obligated to pay for loss in excess of the primary insurers’ payments.  Plantation Pipe Line Co. v. Highlands Ins. Co., 2014 WL 4346160 (Tex. App.—Eastland Aug. 29, 2014).

The insurer had a leak in one of its underground oil pipelines requiring recovery of lost oil and environmental remediation.  The issue was thought to be resolved, but the insured was later directed to further remediate the site, resulting in further costs.  The insured had multiple layers of insurance, and a “Special Risk Policy” from an excess insurer.  The underlying insurers all denied the insured’s claims due to pollution exclusions contained in their policies, but later settled for less than the full limits of the policies.  The insured claimed the balance of the proceeds from the excess policy.

The excess insurer claimed it did not owe the insured because the full policy limits of the primary policies had not been exhausted.  The court of appeals, however, held that the actual language of the excess policy, in fact, did not require exhaustion of “full policy limits.”  Instead, it found that the policy stated that excess coverage attached when the underlying insurers have paid the full amount of their respective  “ultimate net loss.”  It concluded that the definition of “ultimate net loss” included obligations to pay the insured by reason of adjudication or settlement.
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Eighth Circuit Holds Arkansas Statute Requiring Coverage For Faulty Work Cannot Be Applied Retroactively

The U.S. Eighth Circuit Court of Appeals has held that an insurer properly denied coverage of claims arising out of a contractor’s alleged faulty work under a policy in force prior to the passage of Ark. Code. §23-79-155, which mandates that policies define “occurrence” to include “property damage or bodily injury resulting from faulty workmanship.”  J-McDaniel Const. Co., Inc. v. Mid-Continent Cas. Co., 761 F.3d 916 (8th Cir. 2014).

The insured contractor was sued for the alleged defective construction of a new home.  The contractor’s CGL insurer refused to defend or indemnify it for the claim.  The contractor settled the suit and filed an action for breach of contract, unconscionability and negligence.  The district court held that binding precedent of the Arkansas Supreme Court compelled a finding the faulty work is not an occurrence and dismissed the suit.  It also denied the contractor’s motion for leave to amend the suit to assert a claim of estoppel which was predicated on the argument that the insurer should not be permitted to deny coverage for the work of a subcontractor after calculating premiums in part based on the work of the subcontractors.  The court ruled that Arkansas law did not permit the expansion of coverage by estoppel.  The contractor appealed.

The Eight Circuit affirmed.  It rejected the contractor’s argument that Ark. Code. §23-79-155, which mandates that policies define “occurrence” to include “property damage or bodily injury resulting from faulty workmanship,” is retroactive and ruled that the law in effect at the time of the issuance of the policy was controlling.  It also agreed with the district court that leave to amend was properly denied.
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Eleventh Circuit Holds Under Georgia Law That Employer’s Liability Insurer Not Required To Indemnify Employee For Deadly Criminal Rampage Committed In Company Vehicle

The U.S. Eleventh Circuit Court of Appeals recently held that an insurer had no duty to indemnify an employee under his employer’s commercial automobile policy in a tort action when there was no evidence that the employee had the employer’s permission to commit homicide.  Travelers Prop. Cas. Co. of Am. v. Moore, 2014 WL 3953944 (11th Cir. Aug.14, 2014).

The insurer provided a commercial automobile policy to the insured, a lottery-machine service company.  The insured provided a company vehicle to an employee.  The insured did not allow employees to use company vehicles for personal use.  The policy provided insurance for those using a company vehicle with the insured’s permission.  The underlying claimants came to the employee’s house to repossess his personal vehicle.  The employee used the company vehicle to follow the claimants and accidently shot the claimants with a shotgun, killing one and wounding the other.  His employer’s insurer filed a declaratory judgment action to determine whether there was a duty to indemnify the employee under the insured’s commercial automobile policy against the lawsuit by the victims.  Finding that the insured regularly failed to enforce its personal use policy, the district court held the employee to be an insured under the policy.  The insurer appealed.

The Eleventh Circuit reversed and remanded.  It found that, even with the insured’s loose enforcement of its personal use policy, it was not reasonable to infer that any grant of permission to use the company vehicle encompassed permission for its use and aid in the commission of a felony.  Thus, it held the employee was not an insured under the policy and that the insurer was not required to defend and indemnify him.
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Fourth Circuit Affirms Holding That Coverage For Wrongful Death Limited By Sexual and Physical Abuse Endorsement

The U.S. Fourth Circuit Court of Appeals recently affirmed a lower court decision holding that coverage for claims against an adoption agency arising out of the death of a child at the hands of his adoptive parents is limited to the coverage provided by the policy’s sexual and/or physical abuse coverage form.  Scottsdale Ins. Co. v. Children’s Home Soc. of North Carolina, Inc., 2014 WL 4089347 (4th Cir. Aug. 20, 2014).

After a child placed by an adoption agency was tortured and killed by his adoptive parents, the deceased child’s estate sued the agency.  The agency’s liability insurer agreed to defend under a reservation of rights, but then filed a declaratory judgment action seeking a declaration that any coverage for the claims in the underlying lawsuit was limited to the coverage provided by the policy’s sexual and/or physical abuse coverage form, and otherwise excluded under any other coverage part by the policy’s sexual and/or physical abuse exclusion.  Both the agency and the deceased child’s estate asserted there was coverage beyond the policy’s sexual and/or physical abuse coverage, contending that the sexual and/or physical abuse exclusion was ambiguous (and therefore not applicable) and/or that the alleged mental abuse suffered by the deceased child fell outside the ambit of the sexual and/or physical abuse exclusion.

The court granted the insurer’s motion for summary judgment, holding that the sexual and/or physical abuse exclusion was not ambiguous and directly applicable to the claims asserted in the underlying lawsuit.  The court rejected the estate’s argument that the verbal and psychological abuse suffered by the deceased child in the weeks and months leading up to his death fell outside the ambit of the “sexual and/or physical” abuse, noting that the policy specifically defined “sexual and/or physical” abuse as including “mental abuse.”  The Fourth Circuit recently affirmed the district court’s decision in an unpublished per curiam opinion.

Phelps Dunbar attorneys represented the insurer in this case.  For more information regarding this opinion, please contact Kevin M. O’Brien at kevin.obrien@phelps.com and Robert M. Kennedy, Jr. at robert.kennedy@phelps.com in Phelps’ Raleigh, North Carolina office.
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Tenth Circuit Holds Collateral Protection Insurance Cannot Constitute Liability Insurance Under The Liability Risk Retention Act Of 1986

The U.S. Tenth Circuit Court of Appeals upheld a dismissal for failure to state a claim where an insured sued for declaratory relief that its collateral protection insurance (“CPI”) also constituted liability insurance under the Liability Risk Retention Act of 1986 (“LRRA”), 15 U.S.C. §§3901-3906.  Creditors Ins. Purchasing Group v. Doak, 2014 WL 3397673 (10th Cir. July 14, 2014).

The insured was a risk purchasing group of used car dealers and creditors, which sought to have the Oklahoma Commissioner of Insurance declare that the CPI also served to protect against third-party claims as liability insurance.  CPI protects used car dealers/creditors when their collateral, the car sold, is damaged or destroyed and can also include umbrella policies which cover a bank’s interest in the collateral.  The coverage is typically limited to damage to the collateral of the balance due on the applicable loan.  The Tenth Circuit held that CPI is not liability insurance under the LRRA based on statutory interpretation.  The LRRA §3901(a)(2)(A)(i) defines “liability,” in relevant part, as “legal liability for damages … because of injuries to other persons, damage to their property, or other damage or loss to such other persons resulting from or arising out of … any business … trade, product, services … premises, or operations.”  It found that CPI affords coverage where dealers/creditors make claims with their own insurance company for damages to the buyer/debtor’s property.  In sum, that CPI only insures the dealers/creditors for their losses.  The Tenth Circuit held that CPI does not require payment by the dealers/creditors to anyone, but protects them from their own losses, and further found that failure of the LRRA to expressly exclude CPI did not change its analysis.
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Fourth Circuit Affirms Decision Holding Insurer Had Waived Protective Safeguards Requirement

The U.S. Fourth Circuit Court of Appeals recently affirmed a lower court decision holding that an insurer waived the requirements of the policy’s protective safeguards endorsement when it had a copy of the inspection showing that the insured was not in compliance with the requirement four weeks before a fire and took no action.  Colony Ins. Co. v. Peterson, 2014 WL 4179962 (4th Cir. Aug. 25, 2014).

The insurer issued a policy that required the insured to maintain a sprinkler system as part of a fire protective safeguards endorsement.  Four weeks after receiving an inspection report showing that the insured did not have a functioning fire sprinkler system, there was a fire loss.  The insurer denied coverage based on the lack of a functioning sprinkler system and sought a declaration that the insured had breached the fire protective safeguards endorsement.  The insured counterclaimed for breach of contract.  The jury found in favor of the insured, determining that the insurer had waived the requirements of the protective safeguards endorsement.  The insurer appealed.

Affirming, the Fourth Circuit found that the requirements of the protective safeguards endorsement could be waived, as the risk of loss to the covered property due to fire was an “accepted risk” subject to forfeiture under North Carolina law.  Further, because an insurer is presumed to be cognizant of the data in the official files of the company, the Fourth Circuit was satisfied that the insurer had sufficient knowledge of the pertinent facts given that the inspection report had been in its file for four weeks before the fire occurred.
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Federal Court In Arkansas Finds Theft Of Proprietary Trade Secrets Not Covered Under CGL Policy

A federal district judge in Arkansas has held that a chemical company’s CGL policy does not provide coverage for claims arising out of its misappropriation of a former client’s proprietary formula for a blended lubricant.  Pinnacle Resources, Inc. v. Chartis Specialty Insurance Co., 2014 WL 3809104 (E.D. Ark. Aug. 1, 2014).

A manufacturer of lubricants entered into a contract to blend a lubricant for a client using the client’s proprietary formula.  After a short period of time, the client terminated the business relationship.  The insured continued to blend the lubricant using its former client’s formula and began to sell the lubricant directly to the former client’s customers.  The former client sued for the misappropriation of its formula, and the manufacturer tendered the claim to its CGL insurer.  The insurer denied the claim, and the manufacturer sought a declaratory judgment.  The parties filed cross-motions for summary judgment.

The court ruled that the policy did not afford coverage.  First, it held that the misappropriation did not constitute property damage because there was no allegation that the former client lost the use of its own formula.  Second, it held that there was no occurrence because the allegations were based entirely on intentional, not accidental, conduct in acquiring the formula.  Third, it held that, even if coverage were triggered, the claims were barred under the expected and intended injury exclusion because the insured caused a loss that it expected or intended to occur when it misappropriated the formula.
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Federal Court In South Carolina Rejects Insurer’s Suit Seeking To Compel Other Insurer To Join In Defense

A federal court in South Carolina recently held that an insurer could not state a claim for relief in seeking to compel another insurer to join in the mutual insured’s defense.  Auto-Owners Ins. Co. v. Travelers Cas. and Sur. Co. of America, 2014 WL 3687338 (D. S.C. July 22, 2014).

The insured’s CGL insurer sought an order requiring another liability insurer of the insured to join in the defense of the insured in an underlying lawsuit.  Granting the other insurer’s motion for summary judgment, the court recognized that under South Carolina law the duty to defend is personal to each insurer and that an insurer is not entitled to contribution from another insurer absent a specific contractual right.  The court held that because the commercial general liability insurer was not a party to the insurance contact between the insured and the other insurer being sued, its claim for declaratory judgment failed as a matter of law.
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Federal Court in Mississippi Holds Surety Is Limited To Relying On Position Upon Which Coverage Was Denied

A federal court in Mississippi ruled that a surety was limited to the defenses raised in a coverage denial, notwithstanding the fact that the surety subsequently raised additional defenses.  C & I Entertainment, LLC v. Fidelity and Deposit Co. of Maryland, 2014 WL 3640790 (N.D. Miss. July 22, 2014).

After a dispute arose over a project, the contractor, also principal on a bond with a surety for the project, filed a construction lien and suit against the owner.  Construction was alleged to have reached substantial completion, and the owner sued the contractor.  The surety investigated claims by the owner under a reservation of rights, and then denied the owner’s claim on the bond, asserting that all claims were barred under a two-year limitations period contained in the bond.  The surety then sent another letter setting forth the bond’s condition-precedent requirement that the owner agree to pay the balance of the contract price before the surety’s obligation could be triggered as another reason for denial.  The owner prevailed against the contractor, and the contractor paid the verdict.

The owner sued the surety for bad faith denial of the claim, and the surety moved for summary judgment, arguing: (1) the owner failed to meet conditions precedent to the surety’s obligations, including notice that it was considering declaring the contractor in default and paying the balance on the contract; and (2) the surety’s investigation was under a reservation of rights.  The court denied the surety’s motion for summary judgment, finding that issues of fact existed as to whether the conditions precedent to coverage had been met.

In doing so, the court noted that the original denial relied solely on the two-year limitations period contained in the bond within which to assert claims.  The owner had argued that Mississippi law does not recognize a contractual limitation period is shorter than the limitations period afforded by state statute, which, in Mississippi, is three years.  The court noted that, even though a surety may investigate a claim under a reservation of rights, a reservation of rights may also be waived by words or conduct.  Additionally, the court noted that the denial included “no reservation of rights language,” even though the surety subsequently sent a letter which asserted additional defenses to the claim under a reservation of rights.

The court also noted that sureties, like insurers, can be liable for bad faith in failing to pay claims, and that, in the defense of a lawsuit, an insurer may rely on any exclusion in a policy to show that no coverage existed, whether or not that exclusion was the stated basis for denial.  However, the court concluded that “once coverage is established, a court should evaluate whether there was an arguable basis for denial of coverage based solely on the reasons for denial.”
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Federal Court In Virginia Holds Insurer Has No Duty To Reimburse Insured For Defense Costs Or Settlement Related To Claims Preceding Policy Period

A federal court in Virginia recently held that a directors and officers liability insurer owed no coverage for a bank’s underlying lawsuit against an insured officer alleging that the officer engaged in a fraudulent conveyance to avoid paying debts to a bank after defaulting on loans.  Lessard v. Continental Casualty Co., 2014 WL 4162006 (E.D. Va. Aug. 19, 2014).

After his corporation defaulted on certain loans and confessed judgment in favor of the lender bank, an officer in the corporation allegedly schemed to transfer certain assets from the corporation to avoid the obligation.  The bank sued the officer, and he reported the claim to the corporation’s directors and officers liability insurer, who defended and contributed towards a settlement reached between the insured and the bank.  After the settlement, the insured reported the claim to his current insurer, seeking to recover defense costs and amounts paid in settlement.  The insurer denied coverage, and the insured sued.  The insurer removed the case and moved for summary judgment.

Granting the insurer’s motion for summary judgment, the court held that there was no coverage for the bank’s lawsuit because the claim against the officer was made prior to the policy period, as evidenced by the notice provided to the prior insurer and the settlement reached prior to the insured providing notice to the current insurer.  The court rejected the insured’s arguments that pre-lawsuit demands were separate claims from the lawsuit, as the policy specifically required that interrelated wrongful acts would be treated as a single claim.  The court further held that the insured’s claims were not a “loss” as defined by the policy and were excluded by the policy’s prior notice exclusion and otherwise were not covered due to the insured’s failure to give timely notice and failure to secure the insurer’s consent prior to engaging in settlement negotiations.
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Federal Court In Virginia Holds Insurer Has Duty To Defend Insured Against Suit Over Posting Of Medical Records

A federal court in Virginia recently held that in insurer had a duty to defend against class-action allegations that it posted confidential medical records on the internet.  Travelers Indem. Co. of America v. Portal Healthcare Solutions, LLC, 2014 WL 3887797 (E.D. Va. Aug. 7, 2014).

After a class action lawsuit was filed alleging that the insured posted confidential medical records online, its insurer sought a declaration that it had no duty to defend the insured in the class action lawsuit.  The insurer argued that the posting of medical information was not a “publication” and there was no “unreasonable publicity” or “disclosure” (as was generally required for coverage to arise) because there were no allegations in the underlying lawsuit that a third party actually viewed the information.

Granting the insured’s motion for summary judgment, the court held that the insurer did have a duty to defend, reasoning that “publication” occurs when information is placed before the public, not just when a member of the public reads the information before it.  Further, the court determined that there had been “publicity” and “disclosure” in that the records had been made available online, where any member of the public could view the same.
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Federal Court In Virginia Finds Hunt Club Policy Provides No Coverage For Suit Against Member Arising Out Of Hunting Accident

A federal court in Virginia recently held that a hunt club liability policy did not provide coverage for a suit against its member arising out of a hunting accident on hunt club property.  Marks v. Scottsdale Ins. Co., 2014 WL 3767116 (E.D. Va. July 30, 2014).

While hunting on club property, a member accidentally shot a driver on a public road passing by the club.  The driver sued the member, who sought coverage under the club policy, which generally extended coverage to members for club activities and activities performed on behalf of the club.  After the club took the position that the negligent shooting neither occurred during a club activity nor constituted an activity performed on behalf of the club, the driver sought a declaration that the club policy provided coverage for the member with respect to the injuries alleged to the passing motorist.

Granting the club’s insurer’s motion for summary judgment, the court found that the member’s actions on the day of the incident were voluntary and not during “hunt club activities,” as he was participating in a voluntary and recreational hunt.  Moreover, the court found that the member was not acting on behalf of the club, but rather was acting voluntarily and for his own benefit and not at the direction, request or benefit of the club, and therefore no coverage arose under the club policy.
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South Carolina Appellate Court Holds “Your Work” Exclusion Precludes Coverage For Cost Of Repairs

The South Carolina Court of Appeals recently held that a “your work” exclusion excluded coverage for cost of repairs related to the insured’s subcontractor’s use of defective sealant tape in construction.  Precision Walls, Inc. v. Liberty Mut. Fire Ins. Co., 2014 WL 3610895 (S.C. Ct. App. July 23, 2014).

After tape used by the insured subcontractor to seal insulation joints on a building project began to fail, a brick veneer exterior wall had to be torn down and the defective tape replaced.  After the contractor deducted the cost of tearing down the brick wall from the subcontractor’s contract, the subcontractor submitted a claim to its CGL insurer, which denied the claim pursuant to the policy’s standard “your work” exclusion.  The insured subcontractor then sought a declaration that the policy did provide coverage.  After the trial court held that there was no coverage, the insured appealed.

Affirming, the South Carolina Court of Appeals held that the policy’s “your work” exclusion, which excludes coverage for “any property that must be restored, repaired, or replaced because ‘your work’ was incorrectly performed on it,” barred coverage for the insured’s claim.  The court held that because the exclusion extended to material furnished in connection with such work, the defective tape fell within its ambit.
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Federal Court In Kentucky Finds Coverage For Alleged TCPA Violations Excluded Under CGL Policy

A federal court in Kentucky has held that coverage for claims arising out of an insured’s use of an advertising company to send text message advertisements to consumers was excluded under various CGL policies.  National Union Fire Ins. Co. of Pittsburgh, Pa. v. Papa John’s International, Inc. 2014 WL 2993825 (W.D. Ky. July 3, 2014).

The insured allegedly encouraged franchisees to use an advertising company that sent text messages to consumers.  The insured was then sued in a class action for alleged violations of various statutes including the Telephone Consumer Protection Act (TCPA).  Its insurers denied that the suit asserted claims for property damage, bodily injury or personal and advertising injury and also denied coverage under an exclusion for “Violation of Statutes in Connection With Sending, Transmitting, or Communicating any Material or Information.”  The insurers filed an action for declaratory judgment, and the parties filed cross-motions for summary judgment.

The court granted the insurers’ motion.  It ruled that coverage for “personal and advertising injury,” defined in part as “invasion of the right of privacy,” was triggered, rejecting the insurers’ argument that “right of privacy” is synonymous with the right of secrecy and adopting the majority position that it means the “right to seclusion.”  It held that the alleged TCPA violations constituted an invasion of the right to seclusion and therefore, a “personal and advertising injury.”  However, the court held that coverage was barred under the policies’ exclusion of claims arising out of … “any act that violates any statute ... that … applies to the sending, transmitting or communicating of any material or information, by any means whatsoever.”  It rejected the insured’s arguments that the exclusion rendered coverage illusory and violated the reasonable expectations of the policyholder.  The exclusion did not render coverage illusory because it does not entirely negate coverage of personal and advertising injury.  The insured’s reasonable expectations were deemed to be irrelevant because the exclusion was not ambiguous.
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