Claims and Bad Faith Law Blog

INSURANCE FOR FRACKING EARTHQUAKE DAMAGE?

Earthquakes have increased by 9 times in the past 5 years in Texas, while fracking has increased over the same period.  In particular, reinjection of salt water waste produced by fracking seems to be the culprit.  All this leads to questions of insurance availability – and insurance coverage  questions.

"Earthquake insurance is not something people generally purchase in West Texas, though there has been talk of it now, particularly in the larger cities of Odessa and Midland."  J. David Goodman, In Texas Oil Country, an Unfamiliar Threat: Earthquakes, NEW YORK TIMES, online Saturday, January 28, 2023, https://www.nytimes.com/2023/01/28/us/texas-earthquakes-fracking.html.

"Earth Movement" Exclusions and fracking coverage questions are discussed in § 7:9, Earth Movement, by Dennis J. Wall in Volume 1 of John K. DiMugno, Steven Plitt, and Dennis J. Wall, CATASTROPHE CLAIMS (Thomson Reuters Dec. 2022 Edition).

Please read the disclaimer.  ©2023 Dennis J. Wall.  All rights reserved.  

HEAD-SCRATCHING FROM OKLAHOMA EARTHQUAKE EXCLUSIONS.

New Dominion engaged in oil and gas operations in Oklahoma.  It obtained a Commercial General Liability Policy from National American Insurance Company (NAICO).

          New Dominion's operations allegedly caused seismic activity which resulted in New Dominion being sued for both bodily injury and property damage claims for injuries and damages allegedly occurring between 2012 and January 2016 when what came to be called "the Earthquake Suits"  were filed against New Dominion.  Nat'l Am. Ins. Co. v. New Dominion, LLC, ___ P.3d ___, Nos. 118490 & 1184962021 (Consolidated), 2021 WL 5459471, ¶14, at *3  (Okla. November 23, 2021).

          The Oklahoma Supreme Court affirmed a trial court's declaratory judgment, in part here pertinent, that a Subsidence and Earth Movement Exclusion in several years of policies (inception and renewal policies) that NAICO issued to New Dominion clearly and unambiguously excluded all claims in the underlying Earthquake Suits against New Dominion.    

          In several of the years in question, if not all of the years in question, the Subsidence and Earth Movement Exclusion clearly and unambiguously excluded property damage only.  The Court reviewed all three years of Subsidence and Earth Movement exclusionary language at issue.  Parenthetically, there was a fourth year in which NAICO issued a GL policy to New Dominion but the parties stipulated that the fourth policy excluded all coverage.  See NAICO, 2021 WL 5459471, ¶¶ 35-42,  at *7-*8.

          Nonetheless, as noted, the trial court declared in part that the Subsidence and Earth Movement Exclusions over the years barred the Earthquake Lawsuits, and the Oklahoma Supreme Court affirmed:

The trial court's finding that the Subsidence and Earth Movement Exclusions in all four policy periods clearly and unambiguously preclude coverage for the Earthquake Lawsuits is affirmed. 

NAICO, 2021 WL 5459471, ¶ 54, at *11.

          What a head-scratcher.  I have looked at this opinion three or four times now, and each time it seems to say that all coverage is excluded by an exclusion that only excludes property damage.  I am going to take another look, but this opinion is still a head-scratcher.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

THE CORONAVIRUS IS NOT A "POLLUTANT" EXCLUDED FROM INSURANCE COVERAGE.

 

(LexisNexis)

There was a brief but confusing statement in the opinion in Urogynecology Specialist of Fla. LLC v. Sentinel Ins. Co., No. 6:20-cv-1174, 2020 WL 5939172, at *4 (M.D. Fla. Sept. 24, 2020).  The particular holding stated there was that putting the virus exclusion in a pollution exclusion "'does not logically align'" with the other pollutants.

This made little sense in the public context of that opinion.  For one thing, the opinion in Urogynecology never referred to the pollution exclusion again and for another, the Court never expressly stated that the underwriters of that policy wrote a virus into a pollution exclusion.

However, as an article posted here on December 17, 2020 made clear, research on PACER into the policy involved showed that the underwriters of that policy placed the virus exclusion with the policy's pollution exclusion.  Whether that "'grouping of the virus exclusion with other pollutants'" was intended or inadvertent, that is one reason that the policy was made ambiguous and so was construed in favor of the insured which claimed covered losses as a result of COVID-19.  See THE PANDEMIC HAS REVEALED MANY THINGS.  VIRUS EXCLUSION INTERPRETATION DISPLAYED, Dec. 17, 2020.

Now a Court has followed Urogynecology in holding that COVID-19 does not belong in a pollution exclusion, at least if the carrier which issued the policy wants to deny insurance coverage under an all-risks policy.

However, that was the second issue confronting the Court in JGB Vegas Retail Lessee, LLC v. Starr Surplus Lines Ins. Co., No. A-20-816628-B, 2020 WL 7190023 (Nev. Dist. Ct., Clark County, Nov. 30, 2020 Trial Order).  The first issue was whether the policyholder-plaintiff, which operated a mall until the mall was shut down by government orders because of the coronavirus, alleged direct physical loss or damage to property from COVID-19.

The Court's answer in this case to this first question was as meaningful to coverage analysis as its answer to the second question, the one involving the exclusion of damage caused by a virus.  In answering the first question, whether the policyholder sufficiently alleged direct physical loss or damage to property from COVID-19, the Court accepted the plaintiff's allegations that the virus was physically present at the insured mall and that COVID-19's physical presence caused damage to the property. 

As the Court put it, "The Court finds that JGB's Complaint sufficiently alleges losses stemming from the direct physical loss and/or damage to property from COVID-19 to trigger Starr's obligations" under the policy.  JGB, 2020 WL 7190023, at * 2.

The Nevada State court's treatment of "direct physical loss or damage" in this case is likely to be followed by judges in other courts in other States across the country.  For this Court in this case, to say again, it is enough for a plaintiff claiming coverage under an all risks policy to trigger coverage, to allege "the physical presence and known facts about the coronavirus[.]"  "Presence of COVID-19" = "direct physical loss or damage in a case like this," to put the Court's analysis here into an equation likely to be applied in other cases.

Returning to the second question in this case, the one asking whether and how a "virus" is a "pollutant," it is important to read the policy, as in any case.  The underwriters who wrote the policy at issue in this case did not write a separate virus exclusion, as the underwriters who wrote the Urogynecology policy may have tried to do.

Rather, the underwriters who wrote the JGB policy expressly inserted the word, "virus," into a pre-existing policy definition of "POLLUTANT or CONTAMINANTS."  The JGB Court reproduced the policy language verbatim and in context, see JGB, 2020 WL 7190023, at *3.  Expressly writing a virus into a policy definition of pollutants and contaminants did not work either.

Working from the premise of policy interpretation that a carrier bears the burden of proving that one of the exclusions in its policy applies to the case at hand, the Court held that the carrier did not meet that burden in this case.  "Starr has not shown that it is unreasonable to interpret the Pollution and Contamination exclusion to apply only to instances of traditional and industrial pollution and contamination that is not at issue here, where JGB's losses are alleged to be the result of a naturally-occurring, communicable disease."  JGB, 2020 WL 7190023, at *3. 

The policyholder also alleged claims for violations of Nevada's Unfair Claims Practices Act and for breach of the covenant of good faith and fair dealing.  Nevada follows a notice pleading standard to determine motions to dismiss.  Once the Court determined that the policyholder sufficiently alleged a claim to insurance coverage in this case, the Court also denied the carrier's motion to dismiss the alleged claims for statutory and common law "insurer bad faith."  See JGB, 2020 WL 7190023, at *4.  This holding aligns with the majority of United States decisions on this issue, namely, that bad faith depends on coverage.

To say again, as was said here before:  The pandemic has revealed many things.  Who knew that interpreting insurance policies would be among the things revealed?

More of these revelations will be explored in a forthcoming ABA Tort Trial & Insurance Practice Law Journal (Spring 2021) article by Dennis J. Wall titled, "Remedies in Business Litigation:  Update on Business Income Losses in the Coronavirus Pandemic."

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

INTERPRETING THE VIRUS EXCLUSION: "THINKING OUTSIDE THE BOX."

 

(LexisNexis)  In Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., No. 2:20-cv-265, 2020 WL 7249624 (E.D. Va. December 9, 2020), a Federal District Court denied State Farm's motion to dismiss a Business Interruption claim based on COVID-19 despite a Virus Exclusion.

The plaintiff-policyholder is a spa.  It bought an all-risk commercial property insurance policy from State Farm.   It made claims under that policy for Business Interruption losses both for the time when it voluntarily closed its doors for business, and through the time that followed Executive Orders which required it to close.  State Farm denied the claims based in part on the policy's Virus Exclusion.

The spa sued for coverage and alleged bad-faith damages.  State Farm filed its motion to dismiss.  The District Court's analysis was simple and basic analysis of coverage under an all-risk insurance policy.

The policyholder making a claim under an all-risk policy first has to establish coverage.  Here, that meant establishing that the claimed losses were caused by "accidental direct physical loss" to the property.

The Federal Court found that Virginia Courts have applied a "spectrum of accepted interpretations" of "direct physical loss" in the case law, and the Federal Court applied the interpretation most favorable to coverage in this case since the carrier had the opportunity to limit and define the phrase in the policy, but did not.

 "Based on the case law, the Court finds that it is plausible that a fortuitous 'direct physical loss' could mean that the property is uninhabitable, inaccessible, or dangerous to use because of intangible, or non-structural, sources."  Elegant, 2020 WL 7249624, at *10.

Coverage having been established -- or more accurately in the context of this case, a plausible claim to coverage having been established -- the next step of the analysis is whether coverage under the all-risks policy is excluded.  That brings us, as it brought the Court, to the Virus Exclusion at issue here.

The burden is on the all-risks carrier to show the applicability of an Exclusion.  In this case, the all-risks carrier did not meet its burden.  This was so even in the face of a more or less standard Virus Exclusion which a vast majority of Courts across the country have interpreted to exclude Business Interruption claims arising from COVID-19.

But not in this case.  The Court in this case was not intimidated by reports of a majority view of Virus Exclusions. 

The Court's approach is a lesson in coverage interpretation and not just for interpretation of all-risks policies.  Here, the Court thought "outside the box," and counsel for policyholders and counsel for insurance companies alike would do well to take notice.

The facts alleged in the policyholder's complaint did not depend on a virus.  The policyholder did not allege either that COVID-19 was present at the spa or that COVID-19 was the direct cause of physical loss to Covered Property.  See Elegant, 2020 WL 7249624, at *13.  In basic and simple terms, the plaintiff's claim to coverage was based on alleged losses due to a threat risk, and not a virus.

Next, the Court turned its attention to the language in the all-risks policy at issue.  Interpretation of an insurance policy is a legal issue.  The Court held that, as a matter of law, the Virus Exclusion at bar "applies where a virus has spread throughout the property."  Elegant, 2020 WL 7249624, at *12.  Therefore the Virus Exclusion at bar does not apply to the facts alleged in this particular case.  To put it another way, the all-risks carrier failed to meet its burden to show that the Virus Exclusion applies to the spa's Business Interruption claims.  Elegant, 2020 WL 7249624, at *13.

Coverage was plausibly alleged, sufficiently enough to withstand the carrier's motion to dismiss based on its Virus Exclusion.  In accordance with the majority of jurisdictions in the United States, the Court also denied the carrier's motion to dismiss the policyholder's bad-faith claim, which the carrier had urged should be dismissed because there was no coverage.  However, as noted, the Court held to the contrary at this stage of the case.  Therefore, coverage having been plausibly alleged, the carrier's argument for dismissal of the bad-faith claim was politely but firmly rejected.  Elegant, 2020 WL 7249624, at *14.

To say again what was said here as recently as December 17, 2020, "The pandemic has revealed many things.  Who knew that interpreting insurance policies would be among the things revealed?"

More of these revelations will be explored in a forthcoming ABA Tort Trial & Insurance Practice Law Journal (Spring 2021) article by Dennis J. Wall, Remedies in Business Litigation:  Update on Business Income Losses in the Coronavirus Pandemic.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

THE PANDEMIC HAS REVEALED MANY THINGS. VIRUS EXCLUSION INTERPRETATION DISPLAYED.

(LexisNexis)

In Franklin EWC, Inc. v. Hartford Fin. Serv's Grp., Inc., No. 20-cv-04434-JSC, 2020 WL 7342687 (N.D. Cal. December 14, 2020) (Corley, USMJ), a U.S. Magistrate Judge found that Sentinel Insurance Company's attempt to add a "virus exclusion" to its Business Owner's policy was legitimate, that the language of the virus exclusion was unambiguous and so it should be applied in that case to exclude coverage for a Business Interruption claim.

None of the parties or their lawyers appear to have raised the issue of the insurance carrier's placement of the exclusion in that policy.  The record in the case is on display in PACER.  Volumes are revealed by reading the policy itself as in any case and in this case, by reading the policy on PACER.

By its own terms, the insurance policy at issue in that case added the purported virus exclusion "to Paragraph B.1. Exclusions of the Standard Property Coverage Form," in pertinent part.  Franklin EWC, Inc. v. Hartford Financial Services Group, Inc., Dkt. No. 10-1 at p. 127 (N.D. Cal. Case No. 20-cv-04434-JSC).

The carrier added the virus exclusion with its own chosen label of Exclusion "i".

However, there already was an Exclusion i in the policy, a Pollution Exclusion.  Franklin EWC, Inc. v. Hartford Financial Services Group, Inc., Dkt. No. 10-1 at pp. 47-48 (N.D. Cal. Case No. 20-cv-04434-JSC).

The Magistrate did not mention this, whether or not the parties and their lawyers ever mentioned it in this coverage case.

The identical policy language and policy arrangement were at issue in Urogynecology Specialist of Fla., LLC v. Sentinel Ins. Co., No. 6:20-cv-1174-Orl-22EJK, 2020 WL 5939172 (M.D. Fla. Sept. 24, 2020). 

There, among other things in her opinion in that case, the District Judge pointed out that it appears to be ambiguous, that it does not seem logical, to classify a virus as a pollutant.  By labelling the attempted Virus Exclusion as Exclusion i in an endorsement to the main policy, the carrier in that case was apparently writing an insurance policy that would exclude damage caused by the virus as damage caused by pollutants described in Exclusion i in the Coverage Form.  See Urogynecology Specialist of Fla., LLC v. Sentinel Insurance Co., 2020 WL 5939172, at *4.

The arrangement of the policy forms and specifically the identification of the new "virus exclusion" with the policy's Pollution Exclusion gives rise to ambiguity.  And it is axiomatic, as they say, that ambiguous insurance policies are construed against the insurance companies which drafted them in the first place.

Such was the case for several reasons in Urogynecology Specialist of Fla., LLC v. Sentinel Insurance Co.

More was the case in Urogynecology Specialist of Fla., LLC v. Sentinel Insurance Co., as well.  The Court carefully pointed out in that case, that its interpretation of insurance coverage for losses caused in a pandemic was itself taking place in a pandemic:

Importantly, none of the cases dealt with the unique circumstances of the effect COVID-19 has had on our society—a distinction this Court considers significant. Thus, without any binding case law on the issue of the effects of COVID-19 on insurance contracts virus exclusions, this Court finds that Plaintiff has stated a plausible claim at this juncture. Plaintiff alleged the existence of the insurance contract, losses which may be covered under the insurance contract, and Sentinel’s failure to pay for the losses. These allegations, when read in the light most favorable to Plaintiff, are facially plausible.

Urogynecology Specialist, 2020 WL 5939172, at *4.

The Magistrate in the Northern District of California did not mention the context of her policy interpretation, she just applied what she and apparently the lawyers in the case saw as the majority view, and that ended the matter for them.

The pandemic has revealed many things.  Who knew that interpreting insurance policies would be among the things revealed?

More of these revelations will be explored in a forthcoming ABA Tort Trial & Insurance Practice Law Journal (Spring 2021) article by Dennis J. Wall, Remedies in Business Litigation:  Update on Business Income Losses in the Coronavirus Pandemic.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

Business Interruption (BI) and COVID-19.

Like the people of the United States, not every virus exclusion looks alike.

        (Image courtesy New York Public Library Digital Collections)    

    Read your clients' policies before you decide whether and how to argue for or against insurance coverage for the pandemic.  See, e.g., Covid Coverage Litigation Tracker Blog News posted October 27, 2020,

"Not All Virus Exclusions Are Equal."

   

 

 

(Brennan Linsley /Associated Press)

    On a related note, read the cases to find the law, not just the headnotes.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

LIABILITY INSURER'S DUTY TO DEFEND COVID-19 CASE UNDER FLORIDA LAW.

NOT IN THIS FIRST-PARTY INSURANCE CASE OF NO COVERAGE FOR COVID-19 CLAIMS.

Under Florida law, "an insurer's duty to defend its insured against legal action depends solely on the facts alleged in the pleadings and on the legal claims alleged against the insurer [sic; should be "alleged against the  insured"]."   Mauricio Martinez, DMD, P.A. v. Allied Ins. Co. of Am., ___ F. Supp. 3d ___, No. 2:20-cv-00401-FtM-66NPM, 2020 WL 5240281, at *1 n.2 (M.D. Fla. Sept. 2, 2020).

This was actually a first-party insurance case.  However, apparently the policyholder's coverage argument occasioned a footnote in which the Court  reflected both on the propriety of defending litigation, and on the contractual duty to defend where such a duty exists.

As the Court noted in the body of its opinion, "[t]he scope of insurance coverage is defined by the language and terms of the insurance policy[.]"  Mauricio Martinez, DMD, P.A., 2020 WL 5240281, at *2.

Due to the carrier's virus exclusion in the first-party policy at issue in this case, there was no coverage for the COVID-19 claims of the policyholder.

The holdings in third-party or liability insurance cases and the judicial interpretation of insurance statutes concerning a liability insurer's duty to defend throughout the United States, are extensively discussed in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH §§ 3:51 - 3:64 (Thomson Reuters West 3d edition & 2020 Supps.).  Coverage and Policy Defenses to First-Party Insurance Coverage are addressed in id., Volume 2, throughout Chapter 11 and particularly in § 11:1.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

DEFECTIVE CONSTRUCTION EXCLUSION QUESTION OF LAW; APPEAL BAD FAITH WAIVED.

In Mock v. Allstate Ins. Co., 796 F. App'x 546 (10th Cir. 2020) (Colorado law), the Tenth Circuit Court of Appeals applied Colorado law in an opinion not reported in Fed Third:

{W]hether the undisputed flaw qualifies as faulty, inadequate, or defective design or construction is a legal issue. The statement of a legal conclusion is insufficient to create a material dispute of fact. [Citation omitted.]

    The undisputed facts show that the manufacturer’s design of the EIFS system [exterior insulation finish system] caused water infiltration and damage. We are not presented with any authority for the proposition that a flawed design does not qualify as “faulty, inadequate or defective” merely because the problem was unknown to drafters of past building codes. And as Allstate notes, Colorado courts use the synonyms “flaw” and “defect” interchangeably.

Mock, 796 F. App'x at 550.

    In the same case, the Tenth Circuit panel held that the bad faith claim actually advanced by the policyholder in that case did not legally exist because coverage was excluded in the first place, reaching the same result that the majority of courts have reached across the country.  Mock, 796 F. App'x at 550.  Moreover, the policyholders' unalleged, potential bad faith claim based on delayed payment was waived for appellate review.  More to the point, the record showed that the policyholder did not make a potential bad faith claim in the court below in this case based on alleged delay in payment, and so the appellate court could not review a bad faith claim that was never made.  Mock, 796 F. App'x at 550.

See generally Design/Construction Defect issues discussed by Dennis J. Wall in § 7:11 of CATASTROPHE CLAIMS:  INSURANCE COVERAGE FOR NATURAL AND MAN-MADE DISASTERS (Thomson Reuters West November 2019, 2020 Supplements forthcoming).

Please read the disclaimer. ©2020 Dennis J. Wall.  All rights reserved. 

COVERAGE FOR EL PASO AND DAYTON CARNAGE.

There may be coverage for the terrorism-produced carnage in El Paso and Dayton under a recent ruling in a bad faith and coverage case by a federal appeals court. In Universal Cable Prod's, LLC v. Atlantic Spec. Ins. Co., 929 F.3d 1143 (9th Cir. 2019), the federal appellate court held that covered terrorism under an insurance policy was not excluded by a "war actions" exclusion.  The appellate court remanded to the trial court for proceedings on the coverage claims and on the bad faith claims at bar.

More precisely as to the main coverage issue, the court held that an organization known for its violence was not a sovereign state the warlike actions of which would be excluded under an exclusion for "'warlike action by a military force' by a 'government, sovereign, or other authority.'” Instead the terrorist's actions were covered terrorism under the liability insurance policy at bar.

The appellate court applied California law to interpret the insurance policy at issue but relied on federal decisions from New York to reach this ruling. As California and New York go, so goes the coverage nation?

Please Read The Disclaimer. ©2019 Dennis J. Wall. All Rights Reserved.

HAMAS IS NOT AT WAR FOR INSURANCE, NINTH CIRCUIT SAYS.

“In late June and through July of 2014, Hamas fired rockets from Gaza into Israel. Because of these hostilities, the plaintiffs, Universal Cable Productions, LLC, and Northern Entertainment Productions, LLC (collectively “Universal”), moved the production of their television series Dig out of Jerusalem. Universal incurred significant expenses during this move and filed an insurance claim for coverage of those costs under a television production insurance policy (the “Policy”).” Universal Cable Prod’s, LLC v. Atlantic Spec. Ins. Co., No. 17-56672, 2019 WL 3049034, at *1 (9th Cir. July 12, 2019).

Atlantic Specialty Insurance Company is Universal’s carrier. It denied the claim on the basis of “war exclusions” in its policy. Atlantic Specialty Insurance acknowledged that the policy covered acts of terrorism, but argued that the actions of Hamas constituted acts of war and so the resulting losses embedded in Universal’s claim were excluded because the losses resulted from “war,” “warlike action by a military force,” or “insurrection, rebellion, [or] revolution.” Universal Cable Productions, 2019 WL 3049034, at *2.
Who says federal judges cannot make their own foreign policy? In this case, the Ninth Circuit disagreed with Atlantic Specialty. These were not acts of “war,” the federal judges said. For “war” exclusions in an insurance policy to bar coverage, they said, they had to apply a specialized meaning that applies to insurance policies under California law, which they said governed this case. “Under that specialized meaning, both “war” and “warlike action by a military force” require hostilities between either de jure or de facto sovereigns, and Hamas constitutes neither.” Universal Cable Productions, 2019 WL 3049034, at *2.
The appellate panel reversed the trial court’s grant of summary judgment to the carrier on the coverage claim. It also reversed the trial court’s grant of summary judgment on Universal’s bad faith claim because the trial court had applied the plain meaning of “war” to the carrier’s war exclusions in this case when, the appellate panel said, the trial court should have applied the specialized meaning of “war” instead.
Thus the Ninth Circuit made its own foreign policy. Who among us can see the farthest reach of federal judges’ powers.
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POLICY AND THE FACTS TAKE AWAY "ANTI-CONCURRENT CAUSE" EXCLUSION.

In Citizens Prop. Ins. Corp. v. Salkey, 260 So.3d 371 (Fla. 2d DCA 2018) [PAGE NUMBERS NOT PROVIDED BY WESTLAW AT THE TIME THAT THIS ARTICLE IS POSTED HERE], a homeowners insurance policy imposed an "anti-concurrent cause" exclusion, and then took the ACCC away in an endorsement for sinkhole coverage.  That made the issue of "concurrent cause" ripe for resolution by the jury in the underlying case, a Florida appeals court held:

    Citizens argues that its policy contains language sufficient to avoid application of the concurrent-cause doctrine in two places. First, Citizens argues that the earth movement exclusion contained in the policy explicitly contains anti-concurrent cause language:

1.  We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

....

b.  Earth Movement and Settlement, meaning:

....

(3) mine subsidence;

....

i.  Loss caused by “sinkhole.”

However, the sinkhole endorsement purchased by the Salkeys expressly provides as follows:

The GENERAL EXCLUSIONS – Earth Movement and Settlement exclusion 1.b. does not apply with respect to coverage provided by this endorsement.

....

The GENERAL EXCLUSIONS – Loss caused by Sinkhole exclusion 1.i. does not apply with respect to coverage provided by this endorsement.

    Accordingly, because the plain language of the sinkhole endorsement explicitly states that the anti-concurrent cause language found in section 1 of the policy does not apply to sinkhole claims, the anti-concurrent cause provision found in section 1 does not apply in the instant case so as to avoid application of the concurrent-cause doctrine.

The jury in that case found that there was at least one concurrent cause, and so it was proper to instruct the jury accordingly, the appellate court held:

    Therefore, applying [Florida law established by the Florida Supreme Court in Sebo v. American Home Assur. Co., 208 So. 3d 694 (Fla. 2016)] to the instant case, we conclude that the trial court properly instructed the jury on the concurrent-cause doctrine, requiring it to determine if at least one of the concurrent causes was covered under the insurance policy.

Nonetheless, because the jury instructions in that case were confusing, the appellate court reversed the trial court's judgment entered on the jury's verdict for the policyholder, and remanded for a new trial.

Please Read The Disclaimer.  ©2019 Dennis J. Wall.  All Rights Reserved.

BAD FAITH: REDACTING CLAIMS FILES, MAKE PRIVILEGE CLEAR OR DISCLOSE.

In Apex Mort. Corp. v. Great N. Ins. Co., No. 17 C 3376, 2018 WL 341661 (N.D. Ill. January 9, 2018) (Weisman, USMJ), a U.S. Magistrate Judge was confronted with numerous discovery requests in a bad faith case.

As anyone involved with any other bad faith case would have reason to expect in this case, one of the requests in this particular bad faith case asked for production of the insurance carrier's claims file.

This bad faith case was brought by a mortgagee, Apex.  Apex took control of a property after it foreclosed on it.  During the time that Apex controlled the property, a fire broke out.  Firefighters responded and two were killed.  Their estates sued the mortgagee.

The mortgagee in turn sued two of its liability carriers, Great Northern and Federal.  The carriers paid for Apex's defense, and Great Northern tendered its $1 Million policy limit to settle the underlying claims against Apex, but basically the two carriers otherwise declined to do any more than that because they both relied on their common "Foreclosure Exclusion" to deny coverage.  The "Foreclosure Exclusion" was the same in both of their liability insurance policies, and it was a standard foreclosure exclusion written in the following language:

“This insurance does not apply to any liability or loss, cost or expense arising out of property you acquire by foreclosure, repossession, deed in lieu of foreclosure or as mortgagee in possession.”

Apex Mort. Corp. v. Great N. Ins. Co., No. 17 C 3376, 2018 WL 341661, at *1 (N.D. Ill. January 9, 2018).

During discovery in its insurance bad faith case, Apex requested production of Federal's claims file "and documents relating to the coverage decision, this case, or ... underlying lawsuits."  Federal actually did not object.  Instead, Federal produced documents it claimed were responsive, but "with privileged information redacted."  The Court had previously determined that the privilege assertion was an assertion of attorney-client privilege, that the assertion of attorney-client privilege was governed by Pennsylvania law, and that the privilege had not been established on the record of this particular case.

In redacting documents that it produced, however, Federal neglected to mention whether they were necessarily all of the documents requested or even what particular "privilege" Federal was asserting in redacting these documents, saying only that the redactions resulted from some unspecified "privilege" in this regard.  That is how the Magistrate Judge saw it.

That being the case, and particularly since Federal did not bother to support its redactions with reasons why, the Magistrate Judge ordered these materials to be produced based upon the Court's previous rulings about the assertion of attorney-client privilege in this case:

Accordingly, the Court orders Federal to produce: (1) any non-privileged documents responsive to these requests that have not already been produced; and (2) any portions of the claims file Federal has designated as privileged that this opinion makes clear are not privileged.

Apex Mort. Corp. v. Great N. Ins. Co., No. 17 C 3376, 2018 WL 341661, at *6 (N.D. Ill. January 9, 2018) (Weisman, USMJ).

If a party to a federal lawsuit is going to conceal evidence, including during discovery, it must disclose its reasons for redaction or disclose the evidence.  Or suffer the consequences if that party completely ignores the Rules and the rulings.

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Insurance Claims And Issues: SETTLEMENT UNDER SEAL IN ARKANSAS.

NINTH CIRCUIT REVERSES COVERAGE UNDER BANK D&O FOR FIDUCIARY BREACHES.

In a 2-to-1 unsigned decision which was not released for publication nor for citation within the Ninth Circuit, a panel of the Ninth Circuit¹ reversed a District Court's declaratory judgment that a failed bank's D&O policy covered the bank's directors' and officers' alleged fiduciary breaches that allegedly caused the alleged bank to fail.  FDIC v. Bancinsure, Inc., ___ F. App'x ___, No. 14-56132, 2017 WL 83489 (9th Cir. January 10, 2017).  Chief Judge Rawlinson dissented.

In a fairly unique opinion, in which the two judges in the unsigned majority included one Judge from the Court of International Trade where apparently insurance issues are not often found, the appellate panel held, in dicta and in effect, that well, no, the D&O policy's "insured-to-insured" exclusion preempted Federal law and would bar the Federal Deposit Insurance Corporation from suing the banks' directors and officers for their alleged breaches of fiduciary duties even if the bank's board of directors had authorized a direct action.  Here, the bank's board of directors had not authorized a direct action against the alleged perpetrators, but even if that fact existed (which, again, it did not) it would not have made any difference, the two judges wrote, because the insured-to-insured exclusion would have barred the FDIC's lawsuit in this case.

Since the insured-to-insured exclusion is universally found in D&O policies, future cases may see this decision cited for its eye-opening dicta, even in cases filed in courts outside of the Ninth Circuit's boundaries.

In addition, the appellate panel deciding this insurance question offered their opinion on banking and finance law that, although this case did not present the fact of a shareholder resolution authorizing a derivative action to sue the alleged perpetrators, either, i.e., there was no shareholder resolution to sue the former directors and officers of the corporation, that even if there was such a corporate resolution that it would not have made any difference.

¹It may be of interest to readers that none of the three judges on this panel decided the recent case involving immigration and refugees.

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Enforcing Directors' Duties of Communication: Fiduciary Law Can Provide Means.

OHIO VOTES FOR GOOD FAITH!

            Grange Mutual, an Automobile Liability Insurance Company in Ohio, offered a $30,000.00 settlement to an injured claimant named Darlene Stephens.  Ms. Stephens rejected the offer, proceeded to Trial against the Policyholder, Leslie Daniel, and obtained a Judgment against him.  The Jury awarded compensatory damages in the amount of $31,478.50 and assessed $20,000.00 in Punitive Damages against the Policyholder, Mr. Daniel.

            Mr. Daniel assigned his rights against Grange to the injured claimant, Ms. Stephens.  Both Ms. Stephens and Mr. Daniel together sued Grange for Bad Faith in failing to settle the underlying case.  Stephens v. Grange Mut. Ins. Co., 2012 WL 5296019 *1, ¶¶ 2-3 , 2012-Ohio-4980 ¶¶ 2-3 (Ohio 2d DCA October 26, 2012).

            The Appellate Court observed that any assessment of Punitive Damages in this case was not insurable.  First, Punitive Damages are not insurable in Ohio as a matter of public policy.  Second, Mr. Daniel's Policy "excludes coverage for punitive or exemplary damages, and [third,] in their responses to Grange's request for admissions [in the Bad Faith case], Stephens and Daniel admit that Grange 'had no contractual obligation to pay punitive damages under the terms of the insurance policy issued to' Daniel."  Stephens v. Grange Mut. Ins. Co., 2012 WL 5296019 *6, ¶ 28 , 2012-Ohio-4980 ¶ 28 (Ohio 2d DCA October 26, 2012).

            The official opinion of the unanimous Court did not say so, but it appears that the panel unanimously concluded that since the Auto Liability Insurance Carrier had no Coverage for Punitive Damages in this Ohio case, therefore the Carrier had no duty to attempt to settle the Punitive Damages claim against its Policyholder in the underlying case.

            The Appellate Court construed the evidence most strongly in favor of Ms. Stephens and Mr. Daniel on their Bad Faith claim against Grange, and concluded "that there is no evidence that it acted in bad faith in negotiating Stephens' compensatory damages."  Grange's offer of $30,000.00 before Trial compared favorably to the Jury Verdict for compensatory damages of $31,478.50 in the eyes of the Appellate panel, "an amount only $1,478.50 more than Grange's final offer."  Stephens v. Grange Mut. Ins. Co., 2012 WL 5296019 *7, ¶ 29 , 2012-Ohio-4980 ¶ 29 (Ohio 2d DCA October 26, 2012).  Under these facts in the record in this appeal, the Appellate Court affirmed the Trial Court's entry of Summary Judgment in favor of Grange.  Under Ohio law, a Liability Insurance Company's Bad Faith in settlement takes place where there is a double negative, apparently; i.e., where the Insurance Company's  refusal to pay the claim is not  predicated on circumstances that provide a reasonable justification for not settling the claim.    Stephens v. Grange Mut. Ins. Co., 2012 WL 5296019 *6, ¶ 25 , 2012-Ohio-4980 ¶ 25 (Ohio 2d DCA October 26, 2012).

            The majority of the panel did not mention, however, that the Jury Verdict was well within Grange's Policy Limits even if compensatory damages were lumped together with the Punitive Damages assessment.  The Court stated at the outset, and as a fact in the record, that Grange's Policy Limits in this case were $100,000.00/$300,000.00.  Stephens v. Grange Mut. Ins. Co., 2012 WL 5296019 *1, ¶ 3 , 2012-Ohio-4980 ¶ 3 (Ohio 2d DCA October 26, 2012).  The majority of the Appellate Court did not mention the Policy Limits again.

            But a third Judge on the Appellate panel did mention the Policy Limits and the amounts of the Jury's Verdict.  This Judge would have decided the issue on the law, not just on the facts in this record.  "As a matter of law, if compensatory damage exposure, and eventual judgment, is well within policy limits, an insurer need not consider whether to make a greater settlement offer solely to shield the insured from a punitive damage judgment."  Stephens v. Grange Mut. Ins. Co., 2012 WL 5296019 *7, ¶ 33 , 2012-Ohio-4980 ¶ 33 (Ohio 2d DCA October 26, 2012)(Vukovich, Ohio 7th DCA J., concurring; sitting on assignment by the Ohio Chief Justice to participate in this 2d DCA decision).  [Emphasis added.]

            Whether as a matter of settled law, or of clear record facts, the Auto Liability Insurance Company in this Ohio case absolutely was held not liable for Bad Faith in Settlement.

Dennis Wall is a featured speaker at this year's National Forum on Bad Faith Litigation in Orlando, Florida on November 28 and 29, 2012.  I will be speaking both days.  On November 28, 2012 I will be on a panel which will address Innovative Litigation Strategies in Bad Faith Cases.  My presentation in particular will focus on Expert Witnesses in Insurance Cases.  On November 29, 2012, I will also be leading a Florida Workshop on Bad Faith, all at Disney World in Orlando, Florida.  I am told that if you mention my name should you choose to register for this Forum, discounts may be available from the ACI.  Tell the ACI at the time of registration that I told you to ask about discounts.  The ACI contact information is on the American Conference Institute's website at  www.americanconference.com/badfaith.

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MEDITATIONS.

            Recent newspaper reports have led to speculation about the influence of insurance of the conduct of Catholic Church leaders.  The focus of this article will be on the question of which kinds of Insurance Coverages might apply to the reported conduct of a sample case now (kind of) in the news.   A criminal conviction of a Catholic Bishop in a Kansas City Court on Thursday was reported in the  newspapers on Saturday.  The timing could not have been better if someone wanted to minimize the impact.

            According to the newspaper reports, a Catholic Bishop and a Catholic Diocese settled criminal charges against them in Kansas City.  The charges included an alleged misdemeanor for failing to report suspected child abuse.

            These charges were reportedly resolved against the bishop without a Jury Trial, at his request.  The bishop agreed with the prosecutor to a stipulated set of facts.  The charges against the Catholic Diocese were dropped.  Laurie Goodstein, "Defying Civil and Canon Laws, Church Failed to Stop a Priest" p. A1, col. 1 (New York Times Nat'l ed., Saturday, September 8, 2012).

            Before reaching out to more of the newspaper reporting, this case presents more than one noteworthy feature which deserves comment.  It seems unusual that a criminal defendant who for a long while has been scheduled for a date-certain Jury Trial of his case, consented to a Trial by a Judge immediately and with little notice.  I do not practice criminal law, but this strikes me as unusual conduct for a criminal defendant.

            In addition, it seems unusual that a criminal defendant in this case apparently did not 'plead' to the charges, but agreed that the facts were true.  This may not have the same evidentiary effect in pending civil lawsuits filed against the bishop and the Diocese after the alleged child abuse, but "stipulating to the facts" of a crime is certainly the functional equivalent of entering a guilty plea whether it is a usual or unusual procedure.

            The criminal charges against the Catholic Diocese have been dropped.  The bishop faced jail time but he will not have to serve any.  Many other misdemeanor defendants serve jail time.  Further, the bishop faced a monetary penalty but he will not have to pay any.  Again, many other misdemeanor defendants pay their fines.  Instead, the bishop was sentenced to serve two years on probation.  Reportedly, this was not among the possibilities usually available to defendants charged with such crimes in Kansas City.

            Now on to the newspaper reporting of the facts of this case.  They concern Robert W. Finn, currently and at all material times the Bishop of the Catholic Diocese of Kansas City-St. Joseph.  Bishop Finn was scheduled to defend a criminal Jury Trial which was set in the near future.  The charges against him included failing to report suspected child abuse.  A then-priest employed in Bishop Finn's Diocese, named Shawn Ratigan, allegedly exposed the genitals of small girls and then took photographs of them, among other things.

The photographs were found on Ratigan's laptop by a computer tech who tried to fix the computer in May or June, 2010.  Upset with what he found there, the tech told a deacon in his parish, who apparently told superiors.

            It appears that the prosecutor expected the evidence to reflect that Bishop Finn was also warned about Ratigan's behaviors, including by the principal of a parochial school located next to Ratigan's parish, and by another computer tech, this one employed by the Diocese who had also witnessed Ratigan's laptop photos.  "The next day, Dec. 17, 2010, Father Ratigan attempted suicide.  He left messages apologizing to his family for 'the harm caused to the children or you.'"  Laurie Goodstein, "Defying Civil and Canon Laws, Church Failed to Stop a Priest" p. A1, col. 1 (New York Times Nat'l ed., Saturday, September 8, 2012).

            The prosecution also apparently expected the evidence to show that Bishop Finn assigned Ratigan to a position where he allowed Ratigan to have contact with children.  The extent or type of the permitted contact may have been  disputed.  It is not disputed that the bishop did not tell anyone what he knew about Ratigan at that time. 

            In May, 2011 Ratigan was arrested.  He was charged with possession of child pornography.  He was convicted in August, 2012.  Ratigan still reportedly awaits sentencing.

            Bishop Finn changed his mind last week about a Jury Trial on his criminal charges.  As noted, he effectively entered a guilty plea to the misdemeanor of failing to report suspected child abuse.   The bishop's criminal Trial then reportedly took less than an hour and a half.  That includes the time it took for the bishop to say he was sorry.  Laurie Goodstein, "Defying Civil and Canon Laws, Church Failed to Stop a Priest" p. A1, col. 1 (New York Times Nat'l ed., Saturday, September 8, 2012).

            We are familiar with how lawyers think, you and I.  It seems likely that Robert Finn's defense lawyers evaluated the evidence and told their client that he, Bishop Finn, faced a high risk of being convicted.

            For the Diocese, which will undoubtedly be argued to be a unit of the Catholic Church and subject to the command and control of the Vatican, it is worth speculating what consequences a conviction would carry for its Insurance Coverage.

            I do not know for sure whether, under Missouri law, evidence of a felony or misdemeanor conviction would have been admissible in any later proceedings against the bishop or the Diocese.  However, as noted, there are reportedly civil lawsuits pending at this time against them, filed on behalf of the children and their families in question.  Insurance Coverage questions abound for all kinds of Insurance, including Director's and Officer's Insurance -- or the equivalent -- for the Diocese and for the bishop.  Was the bishop an "officer" or "director"?  Is the Vatican or the Diocese responsible for the bishop's conduct as a matter of legal liability in this matter?

            I was under the impression that bishops do not make decisions independently of the Vatican command.  If the Vatican, or the Catholic Diocese, would be held liable for the conduct of Bishop Finn, what other kinds of Insurance Coverage could be available to any of them?

            Employer Practices Liability Insurance may be implicated.  Was the Diocese the "employer" of Bishop Finn?  Does the fact that the Vatican adopted disclosure practices that the bishop did not reportedly obey, have an effect on EPLI Coverage, for the bishop or for the Diocese, or anyone else?

            A final possibility is Commercial or Comprehensive General Liability Insurance.  That would likely raise questions of the "intentional act" Exclusion (or perhaps more accurately called the "intentional damages" Exclusion).  In addition, was there an occurrence neither expected nor intended from the standpoint of the insured?  If so, how many "occurrences" were here?

            These and many other potential Insurance Coverage questions arise from this case.  This would be a good focus for a discussion of these issues.  Forward your thoughts to me by mail or EMail.  I myself do not necessarily have the answers in this one.  I look forward to hearing from you.

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Two Heads Shaking From Louisiana: One Court's, One Party's.

    In two decisions rendered in the last two days, two Louisiana Appellate Courts issued head-shaking judgments.  Neither case involved reported allegations of Insurer Bad Faith.  Insurance practitioners will appreciate knowing about both of these decisions in any case.

    In State of Louisiana Patricia Bourque v. Essex Insurance Co., 2012 WL 832748 (La. Ct. App. 3d Cir. March 14, 2012), Download State of La. Patricia Bourque (La. Ct. App. 3d Cir. Opinions Filed 03.14.12) PUBLIC ACCESS, a Louisiana Appellate Court was fractured in its differing views.  Two judges dissented, and a third wrote a special concurrence.  The case was the fourth appearance on appeal; there were three previous Jury Trials.  In the present appeal, the Jury found against the Plaintiff.

    The dispositive issue on this appeal was whether the Plaintiff suffered an  injury as a result of an accident in the first place.  The majority held that the following Interrogatory Verdict was ambiguous, did not manifest the Jury's intent, and all in all was a nullity not to be considered even though the Plaintiff did not object to it in the case at bar:

In the case before us, for both the first and second trials, the jury only answered the first interrogatory. It read:

    Do you find, by a preponderance of the evidence, that an accident occurred  on or about August 19, 2002, injuring the plaintiff, Patricia Bourque?

YES _______ NO _______

In both trials, the jury selected “NO.”

    The deciding majority of the appellate panel in this case held that this was fundamental error, so that the Plaintiff's failure to object did not preclude appellate review.  Having reviewed the quoted Interrogatory Verdict, the majority, as noted, held in effect that it was a nullity and that it furnished no assistance in divining the Jury's intent. 

    So the Appellate panel majority issued its own Judgment in this case.

    The panel majority reviewed the record from the three previous Jury Trials, to the extent that the record had been transmitted to the Court of Appeals.  The Appellate panel majority announced their Verdict, er, Judgment upon announcing that they completed their review of the record on appeal.  Their Judgment is for the Plaintiff, which they announced as follows:

Next, given that the record was complete, we conducted a de novo review to adjudicate this matter. We found that Patricia Bourque carried her burden to prove that an accident occurred on August 19, 2002, that Donald Lack improperly installed the kitchen light fixture, and that she suffered damages as a result of that improper installation. We rendered judgment that awarded Patricia Bourque $452,689.78 in medical expenses, $250,000.00 in lost wages and future medical expenses, and $500,000.00 in pain and suffering and loss of enjoyment of life. All costs of these proceedings are assessed to Lack Construction, Inc. and Essex Insurance Company.

JURY VERDICT VACATED AND JUDGMENT RENDERED.

    In another case decided in a second Louisiana Court of Appeals, Mason v. Bankers Insurance Group, 2012 WL 833364 (La. Ct. App. 5th Cir., March 13, 2012), Download Mason v. Bankers Ins. Grp. (La. Ct. App. 5th Cir. Opinion Filed 03.13.12) PUBLIC ACCESS, a Homeowner's Insurance Company defended a Coverage case brought on account of damages and expenses caused to and by ruptured plumbing.

    First, the Defendant contended that there was no Coverage under the Homeowner's Policy in the first place, because the Policy only covers damage to a structure attached to a dwelling and a covered attached structure does not include plumbing, it said.  The Appellate Court disagreed.  Id. at *2-.

    Returning to a position presenting greater lucidity, the Defendant also argued that an Exclusion should apply to preclude all Coverage under the Homeowner's Policy in that case.  The Louisiana Appellate Court held that there were factual issues to be tried concerning the application of that Exclusion, and reversed the Trial Court's entry of a Summary Judgment of no Coverage accordingly.  Id. at *3-*4.

    As noted, neither of these decisions involved reported allegations of Insurer Bad Faith.  They are posted here because you will certainly find them interesting and you will also likely find them useful in any case.

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AMBIGUITY AND FAILED EXCLUSIONS PREVENT RULING IN CALIFORNIA ...

... ON "NO DUTY TO DEFEND, THEREFORE NO BAD FAITH" ARGUMENTS BY INSURANCE COMPANY:  SUMMARY JUDGMENT DENIED.

    In McMillin Construction Services, L.P. v. Arch Specialty Insurance Co., 2012 WL 243321 (S.D. Cal. January 25, 2012), Download McMillin Constr. Servs, L.P. v. Arch Spec. Ins. Co. (S.D. Cal. Case No. 10cv2592, Order Denying Def's MPSJ Filed Jan. 25, 2012) PUBLIC ACCESS, two of the Insurance Company Defendants filed a Motion for Partial Summary Judgment.  They both argued two grounds for the Motion:  First, that they had no Duty to Defend under their Additional Insured Endorsement, and second, that Exclusions barred all Coverage including a Duty to Defend anyway.  Since they had no Duty to Defend, they argued, they could not in turn be guilty of Insurance Bad Faith as a matter of law.  See id. at *1 - *3.

   The Federal Court in this case held that the Additional Insured Endorsement relied on by both of the Insurance Companies joining in the Motion at bar was "ambiguous" about a Duty to Defend.  Their Motion for Partial Summary Judgment was denied on that first ground accordingly.  Id. at *3.

   The Federal Judge next turned to the Defendants' argument based on certain Exclusions (Exclusions j(5) and j(6) concerning in pertinent part "ongoing operations").  In this Court's eyes, these Defendants did not meet their Burden of Proof that the Exclusions apply in this particular case.  In pertinent part, potential Insurance Coverage for the Damages alleged in the underlying complaint against the Insured, if proven, would not have been excluded by these two Exclusions in any case.  "Defendants have not met that burden here, and thus they are not entitled to summary judgment based on the exclusions."  Id. at *3.

   When moving for Summary Judgment, it is often wise to consider how the Court will read the documents involved in the case -- here, the documents involved were the Additional Insured Endorsement and the underlying complaint -- compared to the Duty to Defend which, after all, is not always the ultimate exposure faced by a Liability Insurance Company in the ordinary case.  Even after such consideration is factored into the Insurance Coverage analysis in a given case, sometimes an appropriate motion to highlight one or more issues may be worth pursuing in that particular case, regardless of the results of such consideration.

 

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No Bad Faith Where Coverage Reasonably Disputed, BUT ...

  What did you say that Policyholders' "duty" was, again?

     In Northrop Grumman Corp. v. Factory Mutual Insurance Co., 2011 WL 4501945 (C.D. Cal. September 28, 2011), Download Northrop Grumman Corp. v. Factory Mut. Ins. Co. (C.D. Cal. Case No. CV05.08444, Order Granting Partial Summary Judgment Filed Sept. 28, 2011) PUBLIC ACCESS, a Federal Judge applied existing California law.  Then he invented new law out of thin air.

   The Insurance Company contested Insurance Coverage in that case.  The Policyholder's claim was for Hurricane Katrina damage.  Ultimately, the Insurance Company won on Coverage in an appeal to the Ninth Circuit Court of Appeals.  "[T]he Ninth Circuit reversed, holding that the Excess Policy's Flood Exclusion encompassed storm surge damage."  Id. at *1.

  One of the Policyholder's alleged claims in the present litigation against the Insurance Company was for Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing.  Under existing California law, the duty imposed on an Insurance Company -- specifically, the duty imposed on a First-Party Insurance Company providing "property insurance" Coverage for Business Interruption losses incurred by its own Policyholder, as in this case -- "is not to unreasonably withhold payments due under the policy....  Because there was a genuine dispute as to whether Northrop was entitled to flood-related time element damages, Factory Mutual's withholding of these claimed damages was neither unreasonable nor without proper cause."  Id. at *3.  [Emphasis in original.]

   This conclusion follows from existing California law, as noted.  However, in reaching this conclusion (which may have been totally correct under the circumstances of that case and which is not in question in this post), the Federal Judge constructed a "duty" upon a Policyholder that never existed before in California.

   Or anywhere else.

   That may be why the opinion did not contain any supporting citations of authority.  There aren't any.

   The Federal Court constructed a duty upon the Policyholder which negated the Good Faith, "genuine dispute" Coverage duty upon the Insurance Company in this case:

Where a contract is ambiguous, Northrop had the duty to seek clarification at the time of entering and agreeing to the policy.  Under the facts of this case, failure to seek clarification at the time of signing resulted in a surviving ambiguity and a concomitant forfeiture of the right to seek bad faith damages.

Id. at *3.

   To paraphrase this unique holding, what this Federal Court is saying is that a Policyholder had the duty to seek clarification at the time of entering and agreeing to the policy, presumably in the knowledge that years later Hurricane Katrina would make landfall and cause an ambiguity in the Business Interruption Coverage.  Since a Policyholder cannot make such a forecast, of course, it means that whenever Coverage provisions are ambiguous as applied to an actual claim, there is always "a concomitant forfeiture of the right to seek bad faith damages."

   That is one holding too far.

   It should have been enough that Factory Mutual had a legitimate, reasonable basis to contest Business Interruption Coverage in that case, without resort to fiction.  Citing no authority, this ruling in turn provides no authority for rulings in other cases in the same or other Courts. 

    The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida.  The author will be speaking.  Here is a link to the American Conference Institute Website Page which features this Conference including registration. If you or someone you know would like to attend, the ACI is offering a discount to the readers of this weblog.  If you would like to explore the ACI discount offer, contact:

Marc Gerstein
Delegate Coordinator
Office: 1-212-352-3220  x5432

[email protected]

 

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When Facts Destroyed Defense: No Title Insurance For Unpaid Liens.

   A recent decision illustrates the holdings reached by some Courts that where there is no Duty to Indemnify, there cannot be any Duty to Defend either.  The case of Home Federal Savings Bank v. Ticor Title Insurance Co., 2011 WL 4479080 (S.D. Ind. September 27, 2011) involved an unpaid Lien of 6 Million Dollars.  The Policyholder of a Title Insurance Company was the party which allegedly had a duty to pay the lien, which was perfected through the forum State's Mechanic's Lien Law.  Id. at *3. 

   Ordinarily, a Title Insurance Policy will exclude liabilities arising from Mechanic's Liens.  So did the Policy at issue in this case.  Id. at *2.  However, the Policyholder, Home Federal, protected its financing on the particular commercial construction project at issue in this case, by purchasing "a mechanic's lien endorsement," reprinted below for convenience.

   Home Federal brought the present lawsuit against Ticor Title on three alleged Claims, including an alleged breach of the Duty to Defend, an alleged breach of the Duty to Indemnify, and alleged Bad Faith.  The parties both filed Motions for Summary Judgment "specifically addressed to the duty to defend and the duty to indemnify."  Id. at *4.

The Federal Judge in this case first looked at the issue of whether there was a Duty to Indemnify under the undisputed facts.  The Court determined that there was none, and that ruling otherwise would provide Home Federal with a '$6 Million windfall,' in the Court's words, for not paying the lien in question.  See id. at *5 - *6.

   Then the Federal Judge addressed the question of whether a Duty to Defend existed.  Ordinarily, the existence of a Duty to Defend is determined by comparing the underlying allegations against the Insured, with the provisions of the Policy at issue.  Here, once the Federal Court determined the separate issue of no Duty to Indemnify based on the undisputed record facts, the Court determined in one sentence that Ticor Title therefore "necessarily had no duty to indemnify Home Federal either."   Id. at *6.

   Two rulings of consequence are inherent in this one holding.  First, it bears repeating that the Court's decision in this case is not unique.  There are many decisions in which Courts have determined that once there is no Duty to Indemnify, there is no Duty to Defend either.  In doing so, however, they seem to ignore the distinction between determining the existence of a Duty to Indemnify based upon the actual facts, versus the ordinarily separate question of determining the existence of a Duty to Defend based upon the underlying allegations compared with the Policy provisions at issue.  In this particular case, the Court's holdings seem to have been totally correct for the parties involved.  The result, however, is less interesting to an outsider than the way in which the Court got there.

   Second, the Federal Court in this case took a holding generated in standard-form Liability Insurance Policy Declaratory Judgment Actions, namely, in DJA's involving Commercial General Liability Insurance Policies with standard, widely used forms and endorsements, and without discussion applied that holding -- where there is no Duty to Indemnify, there cannot be a Duty to Defend -- to this case involving a Title Insurance Policy, which has its own unique Policy provisions and which may or may not be based on standard, widely used Forms and Endorsements.

   Here, before closing, is the Mechanic's Lien Endorsement under which Home Federal argued for Coverage from Ticor Title in this case:

 Anything contained in said policy to the contrary notwithstanding, the Company insures against loss or damage incurred by the insured by reason of the enforcement or attempted enforcement of any statutory lien for labor or material arising from construction contracted for and/or commenced on the land prior to, at, or subsequent to the effective date of said policy, and any extension of said date, as having priority over, or sharing on a parity with, the lien of the insured mortgage for that portion of the proceeds of the loan secured thereby advanced for the purpose of paying the costs of the acquisition of the land and the development of and the construction of improvements on the land, including by [sic] not limited to the cost of labor or materials incurred in connection therewith. At the time of each disbursement of the proceeds of the loan, the title must be searched by Royal Title Services, Inc., down to such time, for possible liens or objections intervening between the date hereof and the date of such disbursement.

This endorsement is made a part of the policy or commitment and is subject to all the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provision of the policy or commitment and prior endorsements, if any nor does it extend the effective date of the policy or commitment and prior endorsements or increase the face amount thereof.

 

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Does "Automobile Business" Exclusion Violate Public Policy in Your Jurisdiction?

It does in most jurisdictions, as the Louisiana Supreme Court joins the majority view on this question.

   In  Sensebe v. Canal Indemnity Co., 2011 WL 259929 (La. January 28, 2011)(authorized password required to access Westlaw), the Louisiana Supreme Court firmly placed Louisiana among the majority of Courts which have addressed the issue of whether an Exclusion under a motor vehicle Insurance Policy violates public policy, which "purports to exclude coverage for a driver who is engaged in the 'automobile business.'"  Id. at *1.

   The Court also listed jurisdictions following the majority and minority views on this question.  Id. at *7.

   The Louisiana Supreme Court's reasoning took "Bad Faith" into account, not Bad Faith during the processing of an Insurance Claim but Bad Faith at the inception of an Insurance Policy:

While it is true that an insurer may violate public policy by taking a position contrary to the interests of the insured after a claim has been made,^FN9 the public policy we must observe here lies at the origin of the insurance relationship, i.e., within the insurance policy itself. As we have noted above and in [previous case law], LSA-R.S 32:900(B)(2) requires that insurance policies provide coverage for permissive drivers.

FN9. See, e.g., LSA-R.S. 22:1973(B) (describing bad faith settlement practices).

Id. at *7 & n.9.  [Emphasis by the Supreme Court of Louisiana.]

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Many Questions About "AIG" Director's and Officer's Coverage for Goldman.

  The SEC's Lawsuit against Goldman Sachs and "fabulous fab," a/k/a Fabrice Tourre, is well known.  Perhaps lesser known are at least three (3) lawsuits pending in the New York State Supreme Court, filed against Goldman and/or its Board of Directors, by its Shareholders.  See Bob Van Voris, "AIG May be on the Hook in Lawsuits Against Goldman Sachs Board" (Bloomberg.com, Saturday, April 24, 2010).  The lawsuits are said to based on common allegations that Goldman's directors and officers lost value on Goldman's shares because they allegedly "failed to exercise oversight of the deals, exposing Goldman Sachs to billions of dollars in possible liability and damage to its reputation."  Id.  The other lawsuits in question also reportedly share common Claims for alleged Breach of Fiduciary Duties.  Id.

   Even if, as reported in the linked newspaper article, an unidentified AIG Company issued Goldman a Director's and Officer's Liability Policy, ordinarily such a Policy contains an Exclusion for alleged Breach of Fiduciary Duties.  Such a Policy also ordinarily contains an Exclusion for Fraudulent Acts and Willful Violations, an Exclusion which was applied to bar all Coverage for requested indemnification of Defense Fees and Costs under a D&O Policy in the case of Herley Industries, Inc. v. Federal Insurance Cos., Download Herley Industries, Inc. v. Federal Insurance Co., Inc. (E.D. Pa, Opinion filed 08.24.09) also published as 2009 WL 2596072 *11 (E.D. Pa. Opinion Issued August 21, 2009)(Westlaw subscription required to access Westlaw).  Moreover, one of these other reported lawsuits has been pending since at least last September, when the Plaintiffs, the Public Employees' Retirement System of Mississippi, filed an Amended Complaint in the U.S. District Court for the Southern District of New York.

   Whichever Insurance Company or Companies issued Director's and Officer's Liability Insurance Policies to Goldman Sachs must have issued a Reservation of Rights to address these other pending lawsuits before now.  That newer lawsuits have been filed does not mean a thing in that regard.  Further, the Policy or Policies are unchanged from case to case; they only change when the Insurance Company or Companies agreed to change them.  I am sending a copy of this post to the newspaper reporter who wrote the subject linked article, and to the lawyers representing the parties in one or more of these other cases, to request a copy of any Reservation of Rights and the D&O Policy or Policies.   Do not hold your breath for me to post further on this matter, unless you like the color blue.  I have sincere doubts that these questions will ever be answered.  It would be a pleasant surprise to receive answers, however.

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Katrina CatClaims Revisited: State Farm Settles, Is Sued Again.

    It appears that State Farm may have been sued again for Bad Faith as a result of Hurricane Katrina Catastrophe Claims -- indirectly, this time.

    There was once a settlement agreement, among many policyholders and State Farm, in Mississippi.  The proposed settlement agreement was subject to Federal Court approval.  The Federal Judge was confronted with more questions than answers when he was presented with the proposed settlement for his approval.  The Federal Judge refused to approve it, at least until the many questions were answered.

     State Farm then reportedly reached a settlement agreement of many of the same claims with the Mississippi Insurance Commissioner's Office.  This lengthy previous history was summarized in "Update to the Update:  New Settlement in Mississippi," posted on March 20, 2007 on "Insurance Claims And Issues".   

    It is now reported that the State of Mississippi, through the Mississippi Attorney General, filed a new Complaint on Monday, June 11, 2007 in Mississippi State Court.  The new Complaint contains allegations, it is reported, that State Farm breached the (first) settlement agreement and thus breached a contract.  The new Complaint contains demands for compensatory and punitive damages.  More will be posted as the Complaint becomes available.  As of the night of June 11, 2007, there was a momentary silence on the subject on the web sites of both the Mississippi Attorney General and the Mississippi Insurance Commissioner.

     Here is a link to State Farm's Press Release of June 11, 2007,which State Farm entitled "Mississippi Attorney General's Lawsuit Threatens to Disrupt Hurricane Katrina Settlement Process with MIssissippi Insurance Department". 

     Here is a link to the whole available story on "Insurance Claims And Issues".
   
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Partial Payment of Claims ... UPDATED!

     This post updates the post here on January 12, 2007 regarding:

Punitive Damages, Katrina and the Insurance Contract:  Lessons Revisited and a Tale Told in Pieces or in Parts.

   

     On January 31, 2007 Federal Judge L.T. Senter, Jr. entered an Order reducing the Punitive Damages Assessment in the Broussard case.  The Federal Judge reduced the Punitive Damages assessment in that case to 40% of what the Jury assessed, reducing the assessment from $2,500,000.00 to $1,000,000.00.  Here is a link to the Order:  Norman J. Broussard & Genevieve Broussard v. State Farm Fire & Cas. Co. (S.D. Miss. Case No. 1.06CV6, Order entered January 31, 2007) .  For another report on this same decision, go to the February 1, 2007 post on Insurance Claims And Issues.     

     The Federal Court's ruling on January 31, 2007 adds to the facts coming in about the bases for this lawsuit, about the Bad Faith allegations in it, and about the reasons behind the Jury's finding of entitlement to Punitive Damages under Mississippi law.

     The Homeowner's Policy involved in the Broussard case was "an 'all perils' policy in the case of the dwelling and a 'named peril' policy as to contents, i.e., windstorm."

     Second, the initial investigation by the Homeowner's Insurance Company showed clearly that the Policyholders' home "was reduced to a slab by Hurricane Katrina" and that the damage was caused more by flood than by wind, the Federal Judge wrote.

     The Insurance Company "did not obtain any expert opinion on this particular loss."

     Rather than obtaining any expert opinion, as the Federal Court noted, the Insurance Company instead established a procedure for homes reduced to nothing remaining except the slab, a procedure which it applied in the Broussard case.  The subject procedure was to use "the debris line" and declare that in the instance of only a slab remaining, all damage would be presumed to be caused by FLOOD which was NOT a covered loss, thereby leaving it to the Policyholders to bear the burden of proving damages caused by a covered loss such as WIND.

     Although not repeated at any length in the January 31, 2007 Order, the Federal Court had PREVIOUSLY RULED in that same case that the burden of proof was INSTEAD on the Insurance Company to prove at Trial in Court that all or part of the damages claimed by the Policyholders were EXCLUDED.

     The Homeowner's Insurance Company "relied on its flood exclusion to totally deny the claim."

     The Federal Judge held that there was clear and convincing evidence in the Broussard case supporting a finding by the Jury of entitlement to Punitive Damages.  There was in other words clear and convincing evidence, the Federal Judge wrote, "that Defendant acted in such a grossly negligent way as to evince willful, wanton, or reckless disregard for the rights of the Plaintiffs."

     That ruling affirmed the issue of Mr. and Mrs. Broussards' entitlement to Punitive Damages under the facts of this case.  As to the amount of Punitive Damages, to $1,000,000.00, the Mississippi Federal Court reduced them as noted, doing so both under Mississippi State law and under "due process considerations under the United States Constitution."

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Jury Pools in the Wake of Katrina in Mississippi.

    Bad Faith Cases receive careful attention.  Part of the focus in every Bad Faith Case is the potential Jury Pool, or the Venire.  They are the people deciding issues of fact and who they are is clearly important.

    Before Katrina struck Mississippi, most Mississippians were like most residents of the rest of the Gulf Coast.  Few people carried Flood Insurance.  However, the focus on Insurance Coverage for Katrina Damages Claims can divert attention from the fact that many people did not have Property Insurance Coverage or  Homeowner's Insurance  either.

     They are the people who make up the Venire for Mississippi Bad Faith Cases like the recent case reported in newspaper articles and in a post here on January 15, 2007.

    Briefly, the recent case in Mississippi involved First-Party Bad Faith Claims including Punitive Damages Claims.  A Federal Judge directed a verdict for the full Policy Limits available under a Homeowner's Policy.  The case went to the Jury on the question of Punitive Damages under Mississippi law, which is fully discussed in the January 15, 2007 post.  Without repeating all of that post here, in general terms Mississippi law allows the assessment of Punitive Damages for Bad Faith Breach of Contract and it can be Bad Faith not to pay any part of Damages which are covered.

    It is reported that the Homeowner's Insurance Company in that case never made an offer.

    The Jury assessed $2,500,000.00 in Punitive Damages.

     See the detailed discussion of the situation in which these potential Jury members live today, Peter Whoriskey, "As Aid Lags, Volunteers Shoulder Rebuilding on Gulf Coast/Local Gratitude Mixes With Frustration Over Government's Failures" (Washington Post, Sunday, January 28, 2007, p. A03), and the discussion generally of Venires available for Katrina Cases across the Gulf Coast, in Insurance Claims and Issues.

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Partial Payment of Claims ....

                Punitive Damages, Katrina and the Insurance Contract:                           Lessons Revisited and a Tale Told in Pieces or in Parts.   

    An Insurance Company has been assessed $2,500,000.00 in Punitive Damages by a Jury in Federal Court in Mississippi.  Here is the Punitive Damages Verdict that was filed on Thursday, January 11, 2007:  Download Broussard_v. State Farm Fire & Casualty Co. Verdict January 11, 2007 (S.D. Miss. Case No. 1.06.cv6).pdf.

    The Federal case involves Claims for Damages following Hurricane Katrina.  News outlets began broadcasting the report on the evening of the day this Punitive Damages Verdict was filed, and news outlets continued to report on this Verdict the next day, as expected.  An insightful article is published online at Bloomberg.com.  Here is a link to it:  Lawrence Viele Davidson & Erik Holm, "State Farm Must Pay Couple $2.7 Million for Katrina (Update4)" (www.bloomberg.com/apps/news, dateline Jan. 11, 2007 (Bloomberg)).  The Punitive Damages Verdict was also blogged.  See for example Insurance Claims and Issues Blog.  This post will suggest some missing information that may be needed in order to understand how this Verdict was rendered and to explain something of what it means.

    As was noted at the beginning,  the  Broussard case is one of many Hurricane Katrina-related lawsuits.  It involves Insurance Coverage Claims for Damages to a Home.  It clearly also involves a claim for Punitive Damages under Mississippi law since that Punitive Damages Claim went to a jury.  Although the Complaint does not appear to be accessible in the Federal Court's online docket as the case was removed to Federal Court from Mississippi State Court, piecing together various reports about this particular case with established Mississippi case law yields the following possible scenario.

    "At its core, Plaintiffs' cause of action is based on an alleged breach of contract.  The Complaint does not even contain separate counts."  Download Broussard_v. State Farm Fire & Casualty Co., Order on Motion for Partial Summary Judgment entered November 6, 2006 (S.D. Miss.  Case No. 1.06cv6).pdf.  The Federal Court's November 6, 2006 Order also provides the information that the Court itself did not have a lot of allegations and exhibits to go on.  Although the Complaint attached a specimen Homeowner's Policy, it was not the policy issued to Mr. and Mrs. Broussard.  "This attachment does not disclose the policy limits.  The Plaintiffs' residence apparently was reduced to a slab by the storm, although it takes a lot of reading to reach that conclusion.  The tension in the record is between the damages sustained by Plaintiffs and the manner in which their claim was handled by Defendant."  Id.

 In a later Order, the Federal Court repeated that "Plaintiffs' cause of action at its core is based on an alleged breach of contract."  The Federal Judge also acknowledged a very important Claim:  "Plaintiffs also assert that they are entitled to punitive damages and/or extra-contractual damages due to the Defendant's alleged bad faith conduct in handling and denying their claim."  Download Broussard_v. State Farm Fire & Casualty Order on Motions In Limine entered on December 28, 2006 (S.D. Miss. Case No. 1.06cv6).pdf.

    The Policyholders' Insurance Company never made an offer for any part of the  Claim.  A spokesperson for the Insurance Company is reported as stating that it was sued by the Policyholders after it had refused to pay anything on their Claim.  See the news report by Joseph B. Treaster, "State Farm Told to Pay Gulf Claim" (New York Times, Friday, January 12, 2007).

   However, according to the Federal Judge's Law Clerk and reported in the same article in The New York Times, Experts for the Insurance Company stated in unspecified documents filed in the Court File, that some damage to Mr. and Mrs. Broussard's home was caused by Wind, a Covered Peril.

    Further, before Trial of the Broussard case, the same Federal Judge ruled in other cases pending before him, that (1) presumably similar Flood or Water Exclusions will exclude Coverage for all damage caused by Flood or Water, in part here pertinent, but that (2) the Policy does not exclude all Coverage if part of the Damages are caused by Flood.  These rulings were certainly generally known, as previously noticed by a Federal Judge in the Eastern District of Louisiana, for example, and in a post on  December 5, 2006 here and in Insurance Claims and Issues Blog.

    Thereafter, the Insurance Company could defend against Punitive Damages only by (1) paying or perhaps at least making an offer to pay the clearly covered part of the Claim or (2) successfully arguing the total applicability of the Flood or Water Exclusion to exclude all damages.

    Mississippi standards for assessing Punitive Damages in First-Party Bad Faith cases have been pretty clear for a very long time.  Mississippi  requires more than proof of First-Party Bad Faith and certainly requires more than proof of carelessness, for example.  "Carelessness, however, does not rise to the level of bad faith required for plaintiff to prevail on her [Punitive Damages] claim."  Mixon v. Provident Life & Accident Insurance Co., 616 F. Supp. 139, 142 (S.D. Miss. 1985), aff'd mem., 783 F.2d 1061 (5th Cir. 1985).   Mississippi Punitive Damages law requires more than a finding that a credit life insurer, for example, in another First-Party Bad Faith case "lacked an arguable reasonable basis for denying the claim....  A further finding is required showing malice or gross negligence or disregard of the insured's rights."  Barber v. Balboa Life Insurance Co., 747 So. 2d 863, 868 (Miss. Ct. App. 1999).  These and similar rulings are further addressed at much greater length in, for example, Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (2nd Ed. 1994), published by West Publishing Company online and in print.

    Further, as early as 1979 the Mississippi Supreme  Court held that a  Punitive Damages instruction is properly given to a Jury, and a First-Party Insurance Company is properly assessed Punitive Damages, where the First-Party Insurance Company declines to pay all of its Policy Coverage where some of its Coverage applies.  See Travelers Indemnity Co. v. Wetherbee, 368 So. 2d 829, 833-35 (Miss. 1979) and the cases discussed by the Supreme Court of Mississippi in that decision.  These Mississippi rules of law were visited by the same Federal Judge assigned to the Broussard lawsuit, in an earlier case in which he also cited to Travelers Indemnity Co. v. Wetherbee (Miss. 1979), for example.

    The same Federal Judge who submitted a Punitive Damages Claim to a Jury in Broussard similarly submitted a Punitive Damages Claim to a Jury several months earlier in another First-Party Bad Faith case -- which also involved a similar Claim that "Hurricane Katrina completely destroyed Plaintiffs' home" and unresolved "issues related to claim handling", particularly handling the Claim after "a report in November, 2005, indicated that damage was due in part to something other than water."  In that earlier decision, the Homeowner's Insurance Company did tender payment "in August 2006" -- and the Policyholders' Punitive Damages Claim still went to a Jury:  Download Odom_v. Armed Forces Insurance Co. (S.D. Miss. Case No. 1.05cv669, Order entered on August 31, 2006 on Defendant's Motion for Partial Summary Judgment).pdf.

    The Policyholders' lawyers in the Odom case are also the Policyholders' lawyers in the Broussard case.

    Back to the Broussard case and January 11, 2007.  At Trial, there was reportedly evidence that, at the least, the Flood or Water Exclusion did not exclude all damages. 

    The Federal Trial Judge directed a verdict on Compensatory Damages, awarding Mr. and Mrs. Broussard $233,292 under their Insurance Policy, it is reported in both of the news articles linked above.  The Federal Judge also thereby directed a verdict on entitlement to Punitive Damages.  The Jury in that case then unanimously returned its Punitive Damages Verdict less than three hours later.

    Mississippi is not, of course, the only State that requires payment of clearly covered Claims in Good Faith under First-Party Insurance Policies.  Almost all do, and recent examples always seem to be at hand, such as in Florida.  See the post entitled,  "CatClaims, Coverage, Part Disclaimer With Part Payment .... And Florida Statutory Bad Faith" on November 17, 2006, for example, in Insurance Claims and Issues Blog.  The same lessons apply in one State as in another, and in one reported case as in another with the same result.  The law applied by the  Mississippi Federal Court in the  Broussard case is not new law, and neither is the result, it appears.

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.

Contamination Exclusion in First-Party Policy Held Ambiguous to 911 Damages.

    On December 21, 2006, the Federal Second Circuit Court of Appeals reversed Summary Judgment and remanded for the Federal Trial Court to take evidence on the intent of a First-Party Property Insurance provision.  Here is a link to the Second Circuit Web Site, where you can reach this case by clicking on "Decisions":  Parks Real Estate Purchasing Group, et al. v. St. Paul Fire & Marine Insurance Co., et al. (Second Circuit Case No. 05-5890, Opinion Filed December 21, 2006).  Here is a brief summary why.

    Parks Real Estate and the other Plaintiffs-Appellants in this case, filed their Complaint to recover under a First-Party Property Policy, in pertinent part, "for building damage caused by particulate matter emanating from the collapse of the World Trade Center Twin Towers".  (Slipsheet at 1.)  Their Proof of Loss notified the insurance company that the Plaintiffs "has sustained damage" to a Building, together with Business Interruption Loss, totaling some $18,400,000.00.  (Id. at 5.)

    The Plaintiff Policyholders owned an "insured Building [that] was located a few blocks from the World Trade Center."  (Id. at 4.)  On 911, the World Trade Center Twin Towers were both struck and collapsed in a terrorist attack, causing particulates from the pulverized buildings to spread across New York City, among other things.  "The particulate matter apparently penetrated the Building and settled in its mechanical and electrical systems."  (Id. at 3.)

    The subject Policy is "an 'all-risk' property insurance policy providing that [the insurance company] would '[p]rotect against risks of direct physical loss or damage except as indicated in the Exclusions", said the Second Circuit.  (Id. at 13.)  The defendant insurance company that issued the Policy filed a Motion for Summary Judgment against Coverage, arguing that the subject  Policy's "Contamination Exclusion" barred all Coverage claimed by the Plaintiffs.  This Policy's Contamination Exclusion provides that Coverage is barred for "loss or damage caused by or made worse by any kind of contamination of ... products or property covered by this insuring agreement.'"  (Id. at 5-6.)

    The Second Circuit now holds that this First-Party Property Insurance Contamination Exclusion is ambiguous, that Summary Judgment for the insurance company in this case is reversed, and, further, that all parties "should be allowed to introduce evidence" in the Federal Trial Court regarding the intent of this Contamination Exclusion.  (Id. at 18-19.)

    Parenthetically, the insurance company's Motion for Summary Judgment also presented arguments that the Policy's "Mechanical Breakdown" and "Wear and Tear" Exclusions applied.   (Id. at 6.)  The Federal District Court held however that these particular Exclusions did not apply (id. at 11), and they were not otherwise addressed by the Second Circuit.

    Best wishes to all for a Happy New Year!

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.
 

Where "regardless of cause" Means "REGARDLESS OF CAUSE" ....

        And an Undefined "Flood" in an Insurance Policy Does Not Mean
        Water Washout Allegedly Caused by Negligence  of Human
        Beings.

    A Federal Judge in Louisiana is faced with a special set of claims.  The Consolidated Case of all of these claims would be special by reason of the claims alone.  There is another reason the Consolidated Federal Case is special.  The Federal Judge just issued an 85-page Opinion ordering the Coverages of almost as many Insurance Companies.  Here is a link to this Order which is now "attached" to this post:  In re:  Katrina Canal Breaches Consolidated Litigation Pertains to Insurance (E.D. La. Case No. 05-4182 et al., Opinion Filed Mon., Nov. 27, 2006).

    Each of the Claimants in that Consolidated Insurance Coverage Case has sued her and his own Insurance Company for Insurance Coverage for Damages after Hurricane Katrina in the City of New Orleans.  However, the claims they allege are not alleged for Damages caused by the Hurricane .  The claims are for Damages allegedly caused by the alleged negligence of People, i.e., the members of the Board of Commissioners for the Orleans Levee District.   Parenthetically, the Federal Judge kept all the Insurance Coverage Claims for disposition in Federal Court, but remanded all Damages claims against the Orleans Levee District to Louisiana State Court.

    "This case began the stream of complaints that have been filed as a result of damages arising out of all levee breaches which occurred in the aftermath of Hurricane Katrina."  So begins the very recent Order on various motions by  the U.S. District Judge in In Re:  Katrina Canal Breaches Consolidated Litigation/Pertains to Insurance" (Eastern District of Louisiana).

    This is a summary of the 85-page Order of the Federal Court.  It is a summary of some of the significant Insurance Coverage Issues addressed by the Federal Judge. 

    1.  All of the Policies involved in this Consolidated Federal Case were Homeowners Policies and they all provided "all-risks" Coverage, said the Federal Court.  That means that, in the face of many Federal Rule 12(b) Motions to Dismiss in particular, said the Federal Judge, "under Louisiana law, unless there is a specific exclusion for the type of water damage that an insured has incurred, coverage is presumed under these policies.  The focus of a court's inquiry then is on the relevant exclusions to coverage."  (The Federal Judge, it should be pointed out, also confronted and resolved Motions for Judgment on the Pleadings and Motions for Summary Judgment, although most of the Motions were Rule 12(b) Motions to Dismiss.)  The quoted ruling is found on page 9.  The Homeowners Policies are quoted in pertinent part in the opinion.   "ISO Policies" are quoted by the Court on page 15; State Farm Policy language is published on page 16, and Hartford Policy language is found on pages 16-18.

    2.    The State Farm and Hartford Policies are held to Exclude Coverage for "flooding" regardless of cause, in this Federal Order under Louisiana law.   After consulting and analyzing numerous authorities, the Federal Judge ruled that a disaster caused by the alleged negligence of Human Beings regarding levee breaches and ensuing water damage is not an otherwise undefined "flood" in the first place.  Hurricane Katrina may have caused a "flood", but the Claimants in this case did not sue for alleged Katrina Damages -- they sued for Damages that resulted after Katrina was all or almost totally gone.

    The State Farm and Hartford Exclusions for damage by flooding "regardless of cause", however, are held to mean exactly what they express in the attached ruling which of course applies to all of these consolidated cases.  (Pages 50 and 73 regarding State Farm; Pages 53-54 regarding Hartford).  [Emphasis added.]

    3.    ISO Flood Exclusions, which the Federal Judge referred to as "Water Damage Exclusions," were held to be ambiguous in this particular Consolidated Coverage Case.  Under Louisiana law, an ambiguous Insurance Policy provision is strictly construed against the Insurance Company since, said the Federal Judge, the Policy provisions are prepared by the Insurance Company and in Louisiana an Insurance Policy is commonly referred to as an adhesion contract.  (Page 10.)  "ISO Policies" subject to this ruling and strict construction were issued by many Insurance Companies which are Defendants in this Consolidated Insurance Case.  (See, for example, the Federal Judge's rulings regarding all these types of Policies on pages 15, 39, 44-45, 58, 65-66, 68-69, 74, 74-75, and 77-78.)

    The Federal Judge in part analyzed case law from other Gulf Coast States in the course of reaching the ruling of ambiguity, such as case law from Alabama and from Florida, as well as from North Carolina, an Atlantic Coast State which has had some experience too with Hurricanes (page 13).  Of particular interest to Florida Attorneys, the Federal Judge's attached Opinion focuses at one point on a decision of the Supreme Court of Florida (pages 35-36).

    Further, those familiar with rulings previously issued by the Federal Court in the Southern District of Mississippi will find them analyzed in the attached Opinion, too.  The guts of those rulings were attached to "anti-concurrent cause" Exclusions, which did not yet apply in the Federal Consolidated Coverage Case in Louisiana, Order attached; the Federal Judge in the Eastern District of Louisiana distinguished those rulings because there were no allegations presented in the challenged complaints in Louisiana Federal Court that involved any more than one cause.  (Pages 49 and 71.)  The Federal Court noted in the attached Order that the actual evidence may reflect more than one cause, and the Court would in that case revisit the anti-concurrent cause Exclusions relied on by the Insurance Companies, at that time.  (See for example Pages 33, 69, and 78.)

    4.    The Federal Court in the attached Eastern District of Louisiana Consolidated Insurance Coverage case concluded its rulings by candidly holding that there is a substantial ground for differences of opinion as to the governing Insurance Law Questions, such that the Court ordered that an immediate appeal may be taken from these orders.  (Page 85.)

    A Notice of such Appeal is expected on or before Thursday, December 7, 2006.  Further known developments, if any, in this Consolidated Insurance Coverage Case will be posted here.

REMINDER: THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP. ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY IN AND FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE, THE JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.
   

MOLD COVERS HOMES, HELD: INSURANCE DOES NOT COVER MOLD

                    Who Rebuilds and Repairs Where No Insurance Exists.

[THIS POST WAS ORIGINALLY PLACED ONLINE ON OCTOBER 11, 2006.  A POSTSCRIPT HAS BEEN ADDED THIS 16th DAY OF DECEMBER, 2006.]

    It is a fact that mold covers homes.  It is held under a standard Exclusion that insurance does not cover mold in Fiess v. State Farm Lloyds, 2006 WL 2505995 (Tex. Case No. 04-1104 Opinion Filed Aug. 31, 2006, answering this Question Certified by the Federal Fifth Circuit Court of Appeals) (subscription required), public access provided by Texas Supreme Court.

   The Fiess case in Texas involved a standard Exclusion used throughout the United States for "ensuing loss".  In a homeowner's policy, including the one in Fiess, water damage is ordinarily listed as a covered peril.  An Exclusion for "ensuing loss" excludes all coverage, however, for damage that ensues from an otherwise covered peril.  The modern homeowner's policy adds "mold" to the list of excluded ensuing loss.

    In Fiess, the Supreme Court held that mold damage is an excluded ensuing loss even though water damage is otherwise covered.  As a Federal Court recently held:  "After Fiess, even if the water damage is otherwise covered, resulting mold contamination is not."  Download gordon_publicly_issued_opinion_and_order_9_27_06.pdf

    The legal holding is clear.  The factual result is, well, a little more moldy and unclear.  The practical, if not legal question that remains, is:  Who will repair and replace when no insurance exists?

Postscript added Saturday, December 16, 2006:
The practical, if not legal question, that ended this post in October, 2006 still remains.  However, in the Fiess case itself, the Federal Fifth Circuit Court of Appeals affirms the District Court holding "that the Fiesses' Homeowners Form B (HO-B) policy did not cover mold contamination."   (Slipsheet at 1, Fifth Circuit Opinion Filed December 12, 2006.)  The District Court's holding and judgment of No Coverage now conforms to the Texas Supreme Court's "holding that the ensuing-loss provision did not provide coverage for mold contamination."  (Id. at 2.)

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY IN AND FAMILIAR WITH THE PARTICULAR JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.