Reinsurance Law Blog

Reinsurance Law Blog

Tenth Circuit rules pollution exclusion unambiguous (applying Utah law)

Posted in New Case

In Headwaters Resources v. Illinois Union Insurance Co., the insured used fly ash to construct a golf course in a residential area.  Neighbors complained the fly ash polluted the groundwater and the dust from the fly ash was an irritant.  Headwaters wanted a defense from these claims, but its insurance companies said the pollution exclusion applied and precluded coverage.  Summary judgment in favor of the insurance companies was affirmed on appeal.

The district court found that certain of the at-issue pollution exclusions unambiguously applied to bar coverage and that the remaining pollution exclusions, although possibly ambiguous, still applied because the complaints unquestionably alleged traditional environmental pollution. As a result, the complaints triggered the pollution exclusions in all of the policies, and the district court granted summary judgment in favor of the insurance companies.

The various policies that insured Headwaters contain similar but not identical exclusionary language. Broadly stated, the pollution exclusions are forms of the “total pollution exclusion” that “[t]he majority of courts have held [to be] ‘clear and unambiguous.’”  The district court found that the “the complaints in the . . . lawsuits alleged bodily injury and property damage arising out of the actual or threatened dispersal of pollutants from waste that was processed by Headwaters.”

In sum, the exclusions were not ambiguous, the exclusions applied to the fly ash, and summary judgment was proper.

Default Judgment damages speculative — unsupported by the record. Arkansas Law

Posted in New Case

In MCSA, LLC v. Thurmon,  2014 Ark. App. 540,  the Thurmons got a default judgment against MCSA (Medical Center) for more than $645,000 after Mrs. Thurmon fell on the premises.  This amount was more than 20 times the medical bills presented.  The only exhibit offered was proof of medical bills and related travel expenses. While the trial court found the Thurmons’ testimony to be credible and compelling, the appellate court noted that theirs was the only testimony, and . . . lacked any supporting computation, analysis, objective proof, or expert opinion. Although counsel suggested separate figures for pain and suffering, mental anguish, loss of consortium, and future medicals, there was no foundation for these figures and no proof other than the Thurmons’ simply agreeing to the amounts. Based on the record, the damages were “speculation and conjecture.”

Arbitration agreement in nursing home contract unenforceable against family Ok law

Posted in New Case

In Boler v. Security Health Care, the court affirmed the trial court’s denial of arbitration of a wrongful death claim. 

The issue is whether the trial court erred in denying the nursing home’s motion to compel arbitration. The trial judge held that the wrongful death claim belonging to Cleo Boler’s statutory beneficiaries pursuant to 12 O.S. 2011 § 1053 is not subject to an agreement to arbitrate contained in her nursing home’s admission contract. We agree with the trial court and hold that the personal representative and the next of kin are not bound by the arbitration agreement in the contract signed on Cleo Boler’s behalf. They did not sign the nursing home contract in their personal capacities and their claim is not wholly derivative of Cleo Boler’s claim.

The arbitration clause signed on behalf of Cleo purported to bind Cleo and her heirs, representatives, etc., to arbitrate all disputes. Consent to arbitrate is an essential component of an enforceable arbitration agreement. The personal representative and the heirs are not bound to an agreement that they did not sign. A decedent cannot bind the beneficiaries to arbitrate their wrongful death claim.Consent to arbitrate is an essential component of an enforceable arbitration agreement. The personal representative and the heirs are not bound to an agreement that they did not sign. A decedent cannot bind the beneficiaries to arbitrate their wrongful death claim.

Breach of fire protective safeguards endorsement negated by insurance company inspection. 4th Cir., NC, unpublished

Posted in New Case

In Colony Ins. v. Peterson, the insured got insurance for a vacant building. Under an endorsement, the insured was required to keep the utilities on in the building, and have working fire protection. The insurance company had the building inspected, and charged a $250 fee. When inspected, it was found there was no power on at the building. The policy was issued anyway, because the inspection report was not read until after the loss. Since the policy provided fire coverage, the failure to meet the policy endorsements increased the risk, but did not change the risk, thus allowing waiver and estoppel to apply. The jury found for the insured, and the Fourth Circuit affirmed.

A reasonable jury could determine that Colony was not misled because it knew the facts, and that Colony had the right and the duty to act but failed to do so. The court could not say that “the 27 days between the time Colony received the inspection report and the fire was insufficient, as a matter of law, for Colony to take action on the inspection as provided—especially in light of testimony that had the inspection been reviewed, immediate action would have occurred.” The trial court therefore properly submitted the waiver issue to the jury. And since there was evidence to support the verdict, it was upheld on appeal.

Duty to defend under Contractual Liability Clause Wyoming Tenth Circuit

Posted in Contractual Liability, New Case

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.

Missouri Supreme Court strikes down state cap on punitive damages

Posted in New Case

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)

Posted in New Case

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.”

Continue Reading

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

Posted in Insurance Bad Faith

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

Posted in New Case

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

Posted in New Case

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.