Duty to defend under Contractual Liability Clause Wyoming Tenth Circuit

In Mid-Continent Casualty Company v. True Oil, Mid-Continent brought a declaratory judgment action to determine if it had a duty to defend and indemnify True Oil in a lawsuit brought by Van Norman. Van Norman was an employee of Pennant, Mid-Continent’s insured. Pennant agreed to indemnify True Oil for claims resulting from either Pennant or True Oil’s negligence. Initially, it was determined there was no duty to indemnify True Oil for its own negligence based on a Wyoming statute. But then, Van Norman amended his claims, and said that True Oil was vicariously liable. True Oil ended up settling the Van Norman claims just before trial. Pennant stipulated to the reasonableness of the settlement. It was later determined that Pennant was 100% at fault for the accident, but before the settlement, a summary judgment motion by True Oil had been denied. The trial court found there was a duty to defend and indemnify True Oil under the contractual liability clause, and the Tenth Circuit affirmed.

The Tenth Circuit dismissed the argument that rulings made before the vicarious liability claims were asserted precluded a finding of coverage. But res judicata does not “preclude litigation of a claim or cause of action that had not been asserted. . .” Indemnity for vicarious liability was not precluded under Wyoming law.

The settlement payment was for indemnification, not breach of contract as Mid-Continent claimed. True Oil was potentially liable when it settled, so it was not a volunteer, as claimed. Finally, Mid-Continent was liable for all attorneys fees, not just the fees incurred after the vicarious liability allegations were added. “Pennant was well aware of True Oil’s vicarious liability risk . . . and agreed . . . to indemnify True Oil for any damages resulting therefrom.” Pennant assumed liability in the contract for the attorneys fees True Oil paid to defend itself against claims for which, as it turned out, Pennant was 100%
responsible. True Oil’s 2001-2005 attorney fees are covered by the contract which triggered Mid-Continent’s coverage for “damages” that it agreed to cover in its CGL policy. Summary judgment for True Oil was affirmed.

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Missouri Supreme Court strikes down state cap on punitive damages

In Lewellen v. Franklin, the Missouri Supreme Court (en banc) struck down the state's caps on punitive damages.  Because the statutory cap on punitive damages curtails the jury determination of punitive damages as it existed at the time the state’s constitution was adopted in 1820, it unconstitutionally infringes on the right to a jury trial. The trial court erred, therefore, in applying the statutory cap to reduce the punitive damages the jury awarded to the customer for her fraudulent misrepresentation claim against the dealership’s owner.

Dog Bite arose out of use of vehicle, covered by UM (New Mexico)

In State Farm v. Bell, Sophia Bell was bitten by LeBarre's dog Jeb, while Jeb was in the car.  A claim was made for Uninsured/Underinsured Motorist benefits.  State Farm asserts that the vehicle was the mere situs of the injury, therefore the event does not fall within the insurance policy. The Bells contend the injury arose out of the use of the vehicle; therefore, they are entitled to coverage. Plaintiff does not otherwise dispute coverage, i.e. State Farm agrees that Ms. LaBarre is underinsured within the meaning the policy. An expert testified that Jeb's behavior (biting) was linked to the car; and the car was not merely the site of the injury, but was a cause of the injury. Based on this testimony – and other factors, such as the bite being facilitated by the height of the vehicle – the court concluded that the vehicle was a contributing factor to the injury and not just the mere situs: “Finally, and most importantly, the testimony of Dr. Nichols and Ms. LaBarre herself demonstrate that the bite occurred because of the unique setting of the car. Contrary to Plaintiff’s assertion, the fact that Jeb was specifically territorial over the vehicle is relevant; it transforms the vehicle from the mere situs of the injury into a contributing factor to the bite. Jeb felt threatened because he was in a confined space, the vehicle. Further, being in a confined space not only made him feel threatened but also made him territorial over the vehicle. Therefore, it was something about the characteristics of the vehicle itself that facilitated the bite, making the vehicle an active accessory to the bite. This was more than simply transporting Jeb in the vehicle.”


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Missouri ok's bad faith claim where there was no coverage

Usually, when there is no coverage, there can be no bad faith for not paying the claim.  But in Advantage Buildings & Exteriors, Inc., v. Mid-Continent Casualty Company, Missouri's Court of Appeals found that Mid-Continent could be liable for failing to pay the claim because it failed to provide its insured with a timely reservation of rights letter.

Advantage was sued in 2008 for construction defects.  Mid-Continent told Advantage it was investigating coverage, reserving its rights under the policy  and would let Advantage know of its determination.  A few weeks later, Mid-Continent told Advantage it was accepting the defense of the case under a reservation of rights.  Despite being told that its insured would likely be found liable and face millions in claims, Mid-Continent determined the most that was insured was about $50,000 -- but did not tell its insured this. Mid-Continent failed to respond to settlement demands, and then, 2 years later and a few days before trial, told the insured why the majority of the claims were not covered.  Advantage made a deal with the plaintiff.  In a declaratory judgment action, it was determined that Mid-Continent's coverage position was correct -- most of the claims were not covered.  But the bad faith claim went to trial, and Mid-Continent was hit for $3M in actual damages and $2M in punitive damages. 

Mid-Continent said there could be no bad faith because it defended the case and told Advantage it was reserving its rights and doing a coverage analysis.  But this was not a "proper" reservation of rights.  A "proper" reservation of rights must be both clear and timely, and the insured must fully understand the insurer's position. "Defending an action with knowledge of non-coverage under a policy of liability insurance without a proper and effective reservation of rights in place will preclude the insurer from later denying liability due to non-coverage." There is a duty of good faith to settle claims against an insured. 

The elements to prove such a claim of bad faith failure to settle are:
(1) the liability insurer has assumed control over negotiation, settlement, and legal proceedings brought against the insured; (2) the insured has demanded that the insurer settle the claim brought against the insured; (3) the insurer refuses to settle the claim within the liability limits of the policy; and (4) in so refusing, the insurer acts in bad faith, rather than negligently.

The judgment was reversed because of bad jury instructions, and the matter remanded for a new trial on actual and punitive damages.

Excess coverage, subrogation, exhaustion of limits 10th Cir Colorado

In Scottsdale Insurance v. National Union Fire, the issue was exhaustion of limits.  Both Scottsdale and National Union were excess insurers for Northwest, but their coverage extended to different years.  During those years, Northwest had various primary insurers.  When Northwest was sued for construction flaws in an apartment complex, the case was settled for $8.5M. The various insurers allocated payments under the settlement, but National Union paid nothing.  When Scottsdale sued National Union for subrogation and/or equitable contribution, it lost on summary judgment.  Scottsdale did not present evidence showing the primary limits were exhausted.  The court noted Scottsdale needed to show how the primary insurers allocated the payments made under the settlement, and failed to do so. 

In addition, the court noted that it did not matter if the policies required vertical exhaustion or horizontal exhaustion -- neither was shown.  The case is not published. 

Bobtail coverage, Minnesota law, 8th Cir

Occidental Fire & Casualty Co.  v.  Adam Soczynski

Hipp was hauling some personal equipment with his semi-tractor trailer, when he went over the center line and killed Amy.  Hipp had two policies, one through Great West, which applied when Hipp was hauling for ATS.  The other policy was through Occidental Fire & Casualty, which applied when Hipp had no load  or was not being paid to haul.  This policy was called a bobtail policy.  

Because of the danger of excess exposure, Great West paid its policy limits, regardless of coverage issues.  Occidental did not.  Summary judgment was granted against it, and affirmed by the 8th Circuit.

Occidental claimed the district court erred when it concluded the bobtail policy provided coverage at the time of the accident. In this case, the coverage dispute turned on a phrase in an exclusion which states this "insurance does not apply at any time that [Hipp] is operating, maintaining, or using a covered auto for or on the behalf of any other person or organization." Under Minnesota law, Occidental had the burden to establish the applicability of any exclusions in the bobtail policy. Travelers Indem. Co. v. Bloomington Steel & Supply Co., 718 N.W.2d 888, 894 (Minn. 2006). Policy exclusions are "construed narrowly and strictly against the insurer." Id. It was undisputed that Hipp was not hauling a commercial load for ATS at the time of the accident.  The 8th Circuit also affirmed a finding that the limits were $1 million listed in the policy, rather than the $500,000 listed on the declarations page.  Occidental admitted its policy was ambiguous.

"Member of Household"; minor; auto policy Oklahoma law

In Shelter Mutual Insurance Co. v. American Hallmark Insurance Co., 2014 OK CIV APP 66, Faulkner, a minor, caused an accident while driving a car insured by Shelter. Shelter paid the damages and sought pro rata contribution from another insurer, Liberty.  Shelter claimed that Faulkner was a member of Liberty's insured's (Boyd's) household at the time of the accident.  But Faulkner was not living at the same house as Boyd (his great grandmother) when the accident occurred -- but Faulkner's mother was living with Boyd.  The Liberty policy stated it would provide liability coverage for "non-owned auto[s]" for any "family member." "Family member" was defined as "a person related to [the named insured] by blood, marriage or adoption who is a resident of [the named insured's] household. This includes a ward or foster child."

Just because Faulkner's mother had custody of him, did not mean that Faulkner was residing in the household.  The undisputed evidence showed that at the time of the accident, Faulkner was NOT residing in the Boyd household.  Whether a minor could have more than one residence was not decided.  Summary judgment for Liberty was affirmed. 

Coverage denied in zip code case

There are only a handful of decisions addressing whether a commercial general liability (CGL) policy provides coverage for lawsuits brought against retailers allegedly collecting their customers’ ZIP code information. Thus, when a decision is issued in this area, particularly a decision denying coverage, it is noteworthy.

National Law review has an article on a recent case.

ERISA, supplemental life coverage, dismissal reversed, 8th Cir. Missouri

In Silva v. Metropolitan Life Insurance Co., Abel, Silva's son, applied for a life insurance policy from work, and had money withheld from his paycheck for the policy.  When Abel died, the claim was denied because it was claimed he failed to offer proof of insurability.  There was no evidence of any health problems which would have precluded coverage of Abel. Summary judgment was granted to Defendants. Silva v. Metropolitan Life Ins. Co., 912 F. Supp. 2d 781, 787 (E.D. Mo. 2012).

The 8th Circuit found factual issues which required reversal of summary judgment.  It also found that Silva's claim against the employer could go forward under an equitable theory of surcharge.  Silva could claim waiver and equitable estoppel against the insurer on remand.




Builders Risk policy covered claim for pumps 10th Cir

In Glacier v. Travelers, Glacier contacted to build a new waste water pumping facility. Its pumps and wells were damaged and Travelers denied the claim. Glacier filed suit claiming the Travelers’ Builders Risk policy covered the claim. The trial court found coverage and a jury awarded Glacier $9,000. Travelers’ summary judgment was granted as to Glacier’s bad faith claim. Everybody appealed and the Tenth Circuit affirmed.

First, the Tenth Circuit found that the original wells/pumps “were temporary structures constituting covered property”. Second the Tenth Circuit found the heavy rains could constitute an “occurrence” under the policy. Travelers also claimed the pumps failed for lack of maintenance- a non covered loss. Since the evidence showed the pumps required repairs, the Court rejected this claim.

Finally, Travelers claim that the soils report caused the damage was not supported by evidence. The relevant policy clause covered costs necessary to redo the work already done. The ordinary and accepted sense of the policy terms limited coverage to connection to work previously done. The policy did not cover the expense of a new design and the costs to implement that design.  As to the bad faith claim, Glacier argued the claim was not timely processed, noting that it, not Travelers initiated some of the claim processing communications.  Glacier cited no authority that the insurance company must request information before the insured provides it or risk a finding of bad faith, and the Tenth Circuit refused to adopt such a rule.