Good faith and admiralty claims

New York Marine & General Ins. v. Continental Cement Company, was an action to determine coverage for a sunken barge where the insurer denied coverage on the ground the insured had failed to disclose the condition of the barge as required by the insured's duty to exercise the utmost good faith. The district court did not err in determining that the doctrine of utmost good faith is such a judicially established federal admiralty rule that it applied to this maritime insurance dispute rather than Missouri state law; defendant waived its appeal of the denial of its motion for judgment as a matter of law on the insurer's utmost good faith defense by failing to file a post-verdict motion under Rule 50(b) after the district court denied its Rule 50(a) motion; assuming defendant did not waive its challenge to the jury instruction on the defense of utmost good faith, the instruction adequately and fairly presented the issues, including the question of whether the undisclosed facts were material to calculation of the risk and the terms of the coverage.

Notice / prejudice rule - claims made policy 8th Cir

In George K. Baum & Company v. Twin City Fire Insurance Co.  there were choice of law issues.  But ultimately, the appellate court held that despite the fact the trial court should have used New York rather than Missouri law, the outcome was correct because the policy was ambiguous.  Baum had promptly notified Twin City of an IRS investigation, but failed to tell Twin City of two derivative lawsuits for nearly two years.  Twin City claimed the notice was too late, even though it was not prejudiced.  Under NY law, this would be enough to avoid the policy.  But Missouri required prejudice to avoid the policy. 

The parties presented two competing readings of the insurance policy’s notice requirement. According to Twin City, the policy requires Baum to provide prompt notice not only of the IRS investigation and the potential for related civil liability, but also of each lawsuit ultimately filed. Baum asserts the timely notice provision is simply inapplicable to liabilities, such as the derivatives litigation, arising from the same underlying conduct as an earlier, timely notified claim.

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Federal Flood Insurance -- failure to submit proof of loss form precludes coverage -- Federal law

In McCarty v. Southern Farm Bureau Casualty and in Stoner v. Southern Farm Bureau Casualty,  the issue was whether the failure of the insureds to file a proof of loss as required under the Federal Flood Insurance Program precluded coverage.  The 8th Circuit held it did.

In McCarty, the district court concluded strict compliance with the proof of loss requirement was not necessary, reasoning Farm Bureau waived the requirement by accepting  McCarty’s signature on the non-waiver agreement.  The Eighth Circuit reversed.  “When people seek benefits from a taxpayer-funded program, it is fair to require them to fill out the correct form.”

Similarly, in Stoner, Mrs. Stoner’s failure to complete and submit the proof of loss form precludes coverage as a matter of federal statutory, regulatory, and common law

Occurrence Clause explained -- Missouri law, 8th Cir

In Fellowship of Christian v. Ironshore Specialty Insurance, the issue was whether the drowning of two campers at or near the same time, in the same pool was one occurrence or two occurrences. The insured's alleged negligent conduct constituted one occurrence under the policy because the underlying lawsuit alleges that the drownings were caused by “exposure to substantially the same
general harmful conditions.”

The court discusses generally the different approaches to occurrence issues, and followed the "cause" approach approved by the Missouri Supreme Court.: “an insured’s single act is considered the accident from which all claims flow.”

Whether there is one occurrence or more than one occurrence can affect the number of deductibles and the total amount of insurance available. 

Storm surge = flooding in Superstorm Sandy case, N.Y. judge rules

Water claims are difficult under most insurance policies.  Flooding is usually excluded -- one must buy special flood insurance.  But claims resulting from rain are usually covered.  Hurricanes involve water damage from both rain and storm surges and it is difficult to separate the covered and uncovered damages. 

There has been some dispute as to coverage from Super Storm Sandy.  In New Sea Crest Healthcare Center et al. v. Lexington Insurance Co., No. 12-CV-6414, 2014 WL 2879839 (E.D.N.Y. June 24, 2014).; the court ruled that the insurance policies involved made “doubly clear” that storm surge is a form of flooding and thus not covered.  Read more about the decision.



Insured person under CGL policy did not include supervisor 8th Cir Mo

In United Fire & Casualty v.  Thompson, United Fire insured Rose Concrete under a comprehensive general liability policy.  Rockett worked for Rose as a supervisor.  Thompson was hurt when a dump truck he was in overturned.  Thompson alleged that Rockett acted negligently because he knew the dump truck had a defective hydraulic pump and yet continued to allow Thompson to operate the vehicle.

United Fire agreed to represent Rockett in the Missouri state court suit but reserved its rights because it believed Rockett did not qualify as an "insured" under the policy. Rockett eventually moved to Kentucky, ceased contact with Rose Concrete, and failed to respond to interrogatories or otherwise cooperate with litigation. The Missouri state court entered an $850,000 default judgment against Rockett and in favor of Thompson.

The trial court entered summary judgment in favor of United Fire, finding that Rockett was not an insured because Rose Concrete was "[a]n organization other than a partnership, joint venture or limited liability company," and because Rockett was not an executive officer or director within the meaning of the policy's terms. In addition, the district court found that the policy contained exclusions relating to employee coverage, so Rockett could not be covered as an employee either.

Rockett claimed he was director of operations, but United Fire said he was a manager.  Thompson claimed Rockett was a director because he directed people and projects. Thompson also claimed the term was ambiguous.

When analyzing the term "directors" within the context of the United Fire policy as a whole, the policy unambiguously insures only members of Rose Concrete's board of directors, rather than all employees who may "direct" some aspect of, or an activity at, the company. Therefore, the parties' debate over Rockett's job title and whether he "directed" Rose Concrete employees is immaterial because the parties agree that Rockett was never a member of Rose Concrete's board of directors.

Summary judgment to United Fire was affirmed.

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No duty to defend -- coverage under apartment complex policy did not include coverage for assault, battery and sexual abuse -- Arkansas law

In Kolbek v. Truck Ins. Exchange, 2014 Ark. 108,  the insurers brought a declaratory judgment against insured apartment owner and alleged sexual abuse victims, who were plaintiffs in underlying tort actions against insured apartment owner, claiming their policies did not cover any alleged misconduct by owner and employee in three underlying lawsuits arising from employee’s alleged sexual abuse of plaintiffs. Summary judgment for the insurance companies was affirmed. There was no coverage for claims brought before the inception of coverage; there was no duty to defend the employee in the underlying suit because the employee was not an insured; and the alleged abuse of plaintiffs at the hands of employee did not arise out of the ownership, maintenance, and use of the apartment owner’s premises, and thus, liability insurer had no duty to defend owner or its employee. 

More specifically, one claim arose before the policy was issued and was not covered; in another claim, the insured apartment complex was not a named defendant in the underlying action; yet the insured demanded that Tony Alamo be defended.  Since Tony Alamo was not acting as an officer or director for the apartment complex, and was not an employee performing duties related to the apartment complex when it was claimed he "intentionally and with malice" beat the plaintiffs in the underlying action, there was no coverage. The policy did not cover intentionally tortious acts. 

As to the third claim, where young women claimed to be abused, molested and married to Tony Alamo, the court found that the claims were not covered because they did not "arise out of" the ownership, maintenance or use of the apartment complex as required by the policy.  There was no causal connection between the occurrence and the insured property.  Even if there were some sort of causal connection, the policy excluded intentional conduct and sexual abuse as alleged.

Leaky pipe exclusion 10th Cir. -- Colorado

In Wagner v. American Family Mutual Insurance Company, Wagner found a leaking pipe under her home, which eroded the soil and caused her slab foundation to settle and crack, which damaged the walls and floors. Her insurer, American Family, agreed there was damage, but refused to pay, claiming there was no covered loss because the "policy excludes damage caused by continuous or repeated leakage." Wagner sued, claiming bad faith, but the trial court granted American Family's motion for summary judgment.  The Tenth Circuit affirmed.

The Tenth Circuit found the policy was not ambiguous. 

Ms. Wagner's primary argument is that an “inherent conflict” exists between the earth movement exclusion, which excludes coverage of her claim, and the “settling exclusion” found under LOSSES NOT COVERED, 6(e), which covers losses caused by water when settling causes “water or steam to escape from a plumbing ... system.” In support, she contends that (1) the exception to the settling exclusion provides a clear grant of coverage without referencing any other policy exclusions or limitations, and that her interpretation of coverage under this provision was confirmed by an American Family sales agent; and (2) American Family presented no evidence to rebut that the damage to her house comes under the exception to the settling exclusion due to either wear-and-tear, deterioration, defect, or a mechanical breakdown of the leaking pipe.

There was no ambiguity in the earth movement exclusion, and the damage claimed came within the exclusion.  Furthermore, there was no unreasonable delay and denial of the claim which would subject American Family to bad faith.  In Colorado “the tort of bad faith depends on the conduct of the insurer regardless of the ultimate resolution of the underlying compensation claim”  but the insurance company's actions were reasonable as a matter of law, precluding a bad faith claim. Summary judgment was affirmed.


Oil Endorsement excludes coverage under excess/umbrella policies, but not CGL primary policy

In Mid-Continent Cas. Co. v. Circle S Feed Store, Mid-Continent, the Insurer, filed a declaratory action claiming it had no duty to indemnify its insured.  The insured mining company used water to mine underground.  The mining caused the land above the mine to collapse, causing damage.  A judgment for the damage was entered against the insured.  The Tenth Circuit held the Oil Endorsement excluded coverage under the excess/umbrella policies issued to insured, but the endorsement only applied to the umbrella policies and not to the primary policies.

In reversing, the Tenth Circuit found the Oil Endorsement did not apply to the primary policies; the subsidence was a covered occurrence under the primary policies; and the damages awarded in state court reasonably covered the physical damage caused by the mining.

The Tenth Circuit agreed with the trial court that the Oil Endorsement was not ambiguous and  excluded coverage under the excess/umbrella policies for subsurface mining operations. However, the Court found because the excess/umbrella policies and primary policies “are distinct sets of policies, serve different purposes, and incorporate different forms and endorsements,” the primary policies did not automatically incorporate the umbrella policies’ endorsements, including the Oil Endorsement. That the excess/umbrella policies were separate and distinct from the primary policies was evidenced by each group having different policy numbers, separate premiums, and the failure of the primary policies to include the Oil Endorsement in their list of forms and endorsements. Thus, the trial court erred when it applied the Oil Endorsement to exclude coverage under the primary policies.


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OK to offset VA disability payments from payments due under private ERISA disability policy 10th Circuit Kansas

In Holbrooks v. Sun Life, Holbrooks had a Sun Life long term group disability policy which was governed by ERISA.  The amount paid under the Sun Life policy could be offset by "Other Income Benefits" which included benefits received pursuant to “Workers’ Compensation Law” or any “Compulsory Benefit Act or Law . . . or any other act or law of like intent.” Holbrooks also received a monthly disability benefit from the Veteran's Administration.  Sun Life reduced the amounts it paid by the amount received by Holbrooks from the VA.  Summary judgment was granted to Sun Life.  On appeal, Holbrooks claimed it was error to consider his VA disability benefits as “Other Income Benefits” because the Policy did not specifically list them as such. This argument was rejected because it was not supported by any legal authority. Holbrooks claim that the term “Compulsory Benefit Act or Law” is ambiguous and the ambiguity should be resolved in his favor to exclude the VA benefits as “Other Income Benefits was also rejected. Because the VA was required by law to pay Dr. Holbrooks’s disability benefits, Sun Life was entitled to offset those benefits under the terms of the Policy. Summary judgment was affirmed.