Court Holds That State Farm's "Good Neighbor" Slogan Is Just Opinion Or Puffery

You gotta do what you gotta do to try to win a coverage case. But in Broadway v. State Farm, No. 13-628 (M.D. Ala. Mar. 19, 2014) an insured pushed it too hard. The court was woefully unimpressed with the insured’s efforts, even going so far as to say: “If arguments had feelings, this one would be embarrassed to be here.”

Joe Broadway [man what a cool name] attempted to bring a fraud claim against State Farm on the basis that the company advertises itself to its customers and potential customers as a “Good Neighbor.” Broadway Joe asserted that State Farm’s advertising slogan, “Like a good neighbor, State Farm is there,” induced him to purchase an auto insurance policy through State Farm. He alleged that the Good Neighbor slogan was a representation that State Farm treats its customers with respect to their insurance claims on a fair, reasonable and good faith basis. This, he alleged, did not happen with respect to State Farm not paying the limit of his UIM benefit.

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Thanks to Randy Maniloff's coverage opinions

Patient exclusion under CGL precludes coverage for ward 8th Cir

In Volk v. Ace American Insurance Company, Johnson was developmentally disabled and required the use of an assistant.  While supervised by an assistant from North Country Home Care, Inc., he was blinded in his left eye by a BB gun given to him by the assistant. A claim was made against ACE , North Country's insurer.  The claim against the professional liability policy was denied as untimely.  The claim under the CGL policy was denied because of an exclusion for: “Any loss, cost or expense arising out of ‘bodily injury’ to your patients.”  Johnson claimed he wasn't a patient and the exclusion did not apply. 

The term “patient” is not defined in the policy. According to Johnson, “patient” means someone receiving licensed medical care. The assistant supervising Johnson was not licensed and (for purposes of summary judgment) did not provide medical care or medication.

The 8th Circuit agreed with the district court that the term "patient" was unambiguous.  Using a dictionary definition, a “patient” is “the recipient of any of various personal services.” Johnson claimed to be a client or customer, not a patient, but the term "patient" also includes customers and clients.  The court noted the use of the term patient was consistent in both the CGL and the professional liability policy.  Also, the Court rejected Johnson's attempt to use statutory definitions of "patient" to support his claim.  Summary judgment for ACE was affirmed.




The New York Court of Appeals Considers the Consequences of a Liability Insurer's Breach of the Duty to Defend

What are the consequences of a liability insurer’s breach of the duty to defend its insured against a potentially covered claim?  Recent decisions from the New York Court of Appeals highlight differing views nationwide on whether the breaching insurer is prevented subsequently from contesting its duty to indemnify the insured.

An insured’s right to legal representation and the general liability insurer’s parallel duty to defend suits, however groundless, false or fraudulent, together provide the insured with the important benefit of “litigation insurance.”  This opportunity to call upon the insurer’s substantial resources and expertise to defend against third-party claims is an oft-cited motive for the purchase of liability insurance.  The duty to defend is broad; if at least some of the claims asserted against the insured potentially are covered, the insurer must defend without regard for whether the insured ultimately is liable to the third-party claimant.  Given the importance of the insurer’s duty to defend to the liability insurance contract, what are the consequences if that duty is breached?

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Excluded Defective Construction Caused Covered Property Damage -- CGL policy, Missouri law

In The Village at Deer Creek Homeowners Association, Inc. vs. Mid-Continent Casualty Company, the issue of insurance coverage for construction defects is discussed.

Mid-Continent Casualty Company (“Mid-Continent”) insured GMB, who developed and built townhomes in The Village at Deer Creek.  When the houses started to leak, the Homeowners Association sued GMB in its capacity as the developer of the Subdivision and sought damages relating to the exterior of the townhomes. Before trial, the Association said it would accept the policy limits to settle the case.  When Mid-Continent declined, GMB terminated the defense under reservation provided by Mid-Continent. GMB reached an agreement with the Association and the homeowners that any recovery obtained would be collected solely from GMB’s insurance coverage. In exchange, GMB agreed not to offer evidence at trial or to cross examine witnesses. The Underlying Lawsuit proceeded to a trial to the court.

At trial, there was evidence of construction defects which caused the leaks.  Also, there was evidence that the cost to repair would exceed $7M.  The court entered judgment for the Association for $7.1M to fix the exterior of the buildings, and to the homeowners for damages to the interior of the buildings. Mid-Continent was then sued for equitable garnishment, to collect the judgment.  The homeowners settled.  The trial court found in favor of the Association on its garnishment claims.  Specifically, the trial court found  the Association met its burden of establishing coverage under the policies, and the insurer did not establish that an exclusion in the policies applied to defeat coverage.

Mid-Continent appealed, claiming the judgment in the Underlying Lawsuit in favor of the Association was not for “property damage,” but was for the cost to repair defective construction; the Association failed to sustain its burden to allocate the judgment in the Underlying Lawsuit between covered property damage and uncovered costs to repair defective construction; and the trial court erred in denying it leave to amend its answer to plead that the “your work” exclusion in its policies applied to exclude coverage. All claims were rejected by the appellate court. But the appellate court did amend the judgment against Mid-Continent to cover only the homes damaged during Mid-Continent’s policy period.

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Pollution exclusion applies to carbon monoxide claim 8th Cir Nebraska

In Church Mutual Insurance Co. v. Green, Mrs. Green was injured and her husband died from carbon monoxide while at the church parsonage.  Mr. Green was the parson, and there was apparently a leak in the heater.  When Green demanded policy limits from the insurance company, the insurance company filed a declaratory judgment action, claiming that the pollution exclusion precluded any coverage for Green's claims.  The trial court granted summary judgment to the insurance company, and the 8th Circuit affirmed.  The pollution exclusion was not ambiguous, and therefore applied to the claim. 

Green also claimed that the insurance company was estopped from denying coverage based on a late reservation of rights letter. Under Nebraska law, “the doctrine of estoppel [generally] may not be used to bring within the coverage of a policy risks not covered by its terms, or risks expressly excluded therefrom.” Exceptions to the rule require a showing of prejudice.  In this case, the insurance company hired a lawyer to investigate the incident.  The insurance company said it did not know if Green would make a claim against the Church, and if so, whether it would be under the liability policy or under the workers compensation policy.  But it didn't matter.  Green agreed she would not go after the Church's assets except the insurance policy, and got the Church's rights under that policy.  Thus, the Church suffered no prejudice from any delay in reserving its rights under the policy. 



Garnishment Actions removable, federal district court, Oklahoma

Garnishment actions are removable under § 1441(a).  Plaintiff obtained judgment against insured/defendant and sought to garnish insurer in state court. Thames v. Evanston Ins. Co., No. 13-CV-425-TCK-PJC, 2014 WL 991722, *1 (N.D. Okla. Mar. 13, 2014).  Insurer, who had no notice of underlying suit, answered garnishment by stating insurance coverage did not exist and insurer did not possess any money or property of insured to satisfy judgment. Id. Plaintiff filed an Application for Hearing to Determine Insurance Coverage (“Application for Hearing”) and insurer removed the action to the Northern District of Oklahoma. Id. Plaintiff sought remand based on (1) lack of diversity jurisdiction under 28 U.S.C. § 1332(a) and (2) insurer’s failure to file notice of removal within thirty days under 28 U.S.C. § 1446(b). Id.

Insurer argued 28 U.S.C. § 1441(a) did not bar removal of garnishment action to federal court. Id. at *2.  The court explained removal under                § 1441(a) was proper only if the garnishment was a distinct civil action, as opposed to an ancillary one. Id.  Because a garnishment action contemplated a new party and new liability, the court found it was a distinct civil action under both federal and Oklahoma law. Id. Thus, the action was removable if the requirements of diversity jurisdiction were met. Id. 

As to Plaintiff’s lack of diversity argument, the court found insurer was a citizen of Illinois for diversity purposes under 28 U.S.C. § 1332(c), that 28 U.S.C. § 1332(c)(1)’s “direct action” exception did not apply to defeat diversity, and that Plaintiff and insured/defendant were aligned on the same side and against insurer for the purpose of diversity jurisdiction. Id. at *2-3.

Finally, as to Plaintiff’s claim of untimeliness in removing the case, the court determined the thirty day deadline for removal did not begin until Plaintiff filed its Application for Hearing. Id. at *4.  The court explained under Okla. Stat. tit. 12, § 1177, when a judgment creditor takes issue with a garnishee’s answer and gives written notice of such, the matter is ripe “for trial as a civil action” and the thirty day clock will begin to run. Id. (quoting Okla. Stat. tit. 12, § 1177).  In this case, Plaintiff did not take issue with insured’s answer until he filed the Application for Hearing.  Thus, the thirty days under 28 U.S.C. § 1446(b) began to run from the date of that filing and the insured timely filed its removal. Id.  The court explained that allowing the removal clock to begin running when the garnishment affidavit was served would force the garnishee to remove the action before the judgment creditor had yet decided whether or not to take issue with the garnishee’s answer. Id.  If a judgment creditor did not take issue with the garnishee’s answer, the garnishee would be removing a case that would “cease to exist.” Id.


Notice / prejudice applied to salt mine's claim of water Kansas law

In B.S.C. Holding v. Lexington Insurance Company, the insured had a salt mine.  In January, 2008, water was discovered in the salt mine, which could cause dissolution of salt and structural damages.  It was determined the water came from an oil well.  Lexington (Insurer) was notified in July 2010 of the problem, and claimed the notice was too late.  The policy, like most policies, required prompt notice to the insurer of problems:

Notice of Loss. The Insured shall as soon as practicable report in writing to the Company or its agent every loss, damage or occurrence which may give rise to a claim under this policy and shall also file with the Company or its agent within ninety (90) days from date of discovery of such loss, damage or occurrence, a detailed sworn proof of loss.

By the time Lexington heard of the problem, its insured had already spent $2.5 million, and sought $7.5 million from Lexington.  The trial court granted Lexington's summary judgment on late notice, and the Tenth Circuit reversed.

Assuming that the insured waited too long to tell Lexington about the loss, Lexington still had to prove prejudice from the late notice.  Lexington claimed it lost the opportunity to independently investigate the water inflow;  it lost the opportunity to provide input on how to resolve the water
inflow problem; and it suffered underwriting prejudice as a result of the late notice.

Lexington did not show how its investigation was hampered by the delay. Lexington independently inspected the mine and did not identify the witnesses whose memories dimmed or explain how the stale memories hampered its investigation.  Similarly, Lexington did not present evidence to show how its participation in remediation would have affected those efforts.  Lexington claimed it could have cancelled the policy, or limited coverage, but again, no evidence was presented.

Thus, it was error to grant summary judgment to the insurer. 


Duty to defend, exception to exclusions, Tenth Cir, NM law

In Western Heritage Bank v. Federal Insurance Co., Western was sued by Hawkins for putting a lien on his property for the debts of a former tenant.  Hawkins claimed the bank's liens were fraudulently placed on the property, and the Bank refused to remove the lien.  Western wanted Federal to defend it against the claims, but Federal said there was an exclusion in the Director and Officers Liability (“DOL”) coverage and thus, no duty to defend.  Exclusion 4.j.  excluded coverage “for Loss on account of any Claim . . . based upon, arising from, or in consequence of the performing or failure to perform Professional Services or Lending Services.” The trial court said that the liens arose from a loan given to Hawkins' tenant, and thus arose out of lending services, and was excluded. The  Tenth Circuit ruled that there were two exceptions to the exclusion -- legal services and post control actions. 

Exceptions to exclusions cannot create coverage if there is no coverage under the policy in the first place. (“Exceptions to exclusions [in commercial general liability insurance policies] narrow the scope of the exclusion and, as a consequence, add back coverage. But it is the initial broad grant of coverage, not the exception to the exclusion, that ultimately creates (or does not create) the coverage sought.”)

Despite this, the Bank failed to present arguments or facts to show how the Hawkins claims fit within the exceptions and the summary judgment was affirmed.

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Leased property destroyed by fire, owner vs. insurance company, Missouri Law

In Blevins v. American Family, Busey Truck leased property from Plaintiffs.  When there was a fire, American Family denied coverage of Plaintiffs’ personal property under the policy. Plaintiffs got a judgment against Busey Truck for negligence in the loss of their property.  Then, Plaintiffs garnished American Family.  In addition, Plaintiffs sued the agent, claiming the agent didn't get the right insurance. 

Summary judgment in favor of the agent was affirmed, since the Plaintiffs did not ask the agent to get insurance on their property. Rather, it was claimed that the agent should have procured coverage for Busey Truck on their property.  The claim does not reveal a duty from the agent to Plaintiffs. In addition, the negligent misrepresentation claim against the agent fails, because the alleged misrepresentation occurred after the loss, and therefore there can be no reliance. 

Summary judgment in favor of the insurance company, American Family, was reversed.  American Family claimed that there was a $2,500 limit on Plaintiffs' property, and that $2,500 was paid to its insured, Busey Truck, citing to the policy and an affidavit.  But  the policy itself, without evidence of any of the underlying facts which would result in the applicability of the asserted limit of liability, does not clearly establish American Family’s right to judgment as a matter of law. Thus, American Family did not establish a right to judgment as a matter of law and summary judgment was reversed.

Coconut throwing exclusion

In Faith Brooks v. Zulu Social Aid and Pleasure Club, Inc., 110 So.3d 703 (La. Ct. App. 2013), the Louisiana Court of Appeal held that the trial court improperly granted summary judgment to an insurer based on a coconut throwing endorsement in an insurance policy issued to the Mardis Gras Zulu Krewe.  The endorsement excluded coverage for any coconuts thrown from the float.

See full discussion here