Reinsurance Law Blog

Reinsurance Law Blog

Failure to defend, reserve rights, results in waiver and coverage, 7th Circuit, Illinois

Posted in New Case

“This case provides a warning for insurance companies who refuse to defend their insureds.”

So begins the opinion in National American Insurance v. Artisan and Truckers Casualty.  Artisan insured Barengolts, a tractor trailer driver, who rear ended the Bernals.  The Bernals sued, and alleged various inconsistent claims regarding any agency relationship between and among the defendants.  Artisan insured Barengolts, but denied coverage under its contingent liability endorsement.  The contingent liability endorsement or CLE, excluded coverage when “the insured auto is being operated, maintained or used for or on behalf of anyone else or any organization whether or not for compensation.” Because the truck had placards for Unlimited Carrier at the time of the accident, Artisan claimed the truck was being used on or behalf of Unlimited, and thus not covered.

National American (NAICO) insured Unlimited Carrier, and defended the case under a reservation of rights.  The Court states:

While Artisan was busy refusing to defend, Appellee National American Insurance Company (“NAICO”) was busy defending.

NAICO got the case settled, and also got Barengolts’ rights under the Artisan policy.  NAICO sued Artisan, claiming (1) Artisan had a duty to defend and indemnify its insureds in the Bernal case; (2) Artisan breached that duty; and (3) Artisan is now estopped from raising policy defenses to its duty to defend and indemnify. Counts 2 and 3 raised claims of equitable and contractual subrogation, respectively, and Count 4 sought equitable contribution.  Eventually, the trial court determined Artisan had a duty to defend the Bernal’s lawsuit, and it breached that duty; and Artisan was estopped from asserting any policy defenses.  The Seventh Circuit affirmed.

The duty to defend is broader than the duty to indemnify.  Thus, Artisan’s claim that Unlimited would be ultimately liable doesn’t matter.  Since Artisan failed to defend under a reservation of rights and did not file a declaratory judgment action, it was estopped from asserting its policy defenses.

Here, Artisan gambled and lost. It did not defend . . . under a reservation of rights. And it did not seek a declaratory judgment in the underlying action. Instead, it refused—on at least seven occasions—to defend. Because “[a]n insurer that believes an insured is not covered under a policy cannot simply refuse to defend the insured[,]” Mt. Hawley Ins. Co. v. Certain Underwriters at Lloyd’s, 19 N.E.3d 106, 111 (Ill. App. Ct. 2014) (quoting A-1 Roofing Co. v. Navigators Ins. Co., 958 N.E.2d 695, 700 (Ill. App. Ct. 2011)), the district court did not err in estopping Artisan from raising policy-coverage defenses. Accordingly, we hold that Artisan is estopped from asserting any coverage defenses under its policy. . . . And because it cannot assert such defenses, it must reimburse NAICO the amount authorized by the settlement agreement, including costs for NAICO’s efforts in defending and indemnifying [the insureds] in the Bernals’ lawsuit.

Demand for damages is a “claim” under claims made policy- Eighth Circuit, Minnesota

Posted in New Case

In Ritrama, Inc., v. HDI-Gerling, the district court found there was no coverage for a claim that arose before the purchase of the claims made policy.  A demand from a customer with a spreadsheet detailing damages claimed was a “claim” under a claims made policy.  The district court found that a “claim” (not a term defined in the policy) was an assertion by a third party that the insured may be liable to it for damages.  Thus, the customer spreadsheet was a claim which predated the policy.  Thus there was no coverage under the policy.

The court noted that insurance is not meant to cover known losses.  The term “claim” was not ambiguous, even though there were several dictionary definitions.  The insured treated the spreadsheet as a claim.  The summary judgment was affirmed.

Express v. Implied permission, 8th Circuit, Minnesota

Posted in New Case

Grinnell Mutual Reinsurance v. Schmidt, was a declaratory judgment action.  A child was killed while driving an ATV on the Schmidt property.  The Grinnell policy had a Select Recreational Vehicle Limited Liability Coverage endorsement.  The endorsement excluded coverage to an “insured” who was defined as “any person operating [an ATV] with ‘your’ express permission.”  Although the named insureds had seen the child driving the ATV around the farm that day, they had never given her “express permission” to drive it.  One of the named insureds had warned the children to slow down, but that was not express permission as required by the policy.  On cross motions for summary judgment, the district court concluded the facts were sufficient to show that Alyssa was operating the ATV with the tacit or implied permission of the Schmidts, but failed to show  Alyssa was operating the ATV with the Schmidts’ express permission.” Summary judgment for the insureds was affirmed by the 8th Circuit.

Even though the insureds saw the child driving the ATV that day and never objected, that was tacit permission, not express permission.

Grinnell drafted the policy language at issue here, and in so doing could have specified in the endorsement that “express or implied permission” would suffice. Grinnell also could have simply required that any kind of “permission,” without qualification, have been given – as it did in [another provision of the policy].

But Grinnell did not take either of those avenues. “Express” modifies “permission” in the endorsement, and it must therefore be given its plain and ordinary meaning.

The summary judgment in favor of coverage was affirmed.

Auto exclusion for loading and unloading applied when Stairmaster fell and injured homeowner — Tenth Circuit, Colorado

Posted in Contractual Liability, Duty to Defend, New Case

In Landmark American v. VO Remarketing, Tibbe purchased a Stairmaster and arranged for its delivery.  Two VO employees were maneuvering the Stairmaster up the stairs to the second-story when they lost control of the machine, causing it to tumble down the stairs. Ms. Tibbe was standing below on the stairway, and was crushed by the Stairmaster. Tibbe sued VO, and Landmark refused to defend VO based on its auto exclusion which precluded coverage for bodily injury or property damage “arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and ‘loading or unloading.’”

“Loading or unloading” means:
[T]he handling of property:
. . .
(c) While it is being moved from an aircraft, watercraft or “auto” to the place where it is finally delivered; but “loading or unloading” does not include the movement of property by means of a mechanical device, other than a hand truck, that is not attached to the aircraft, watercraft or “auto”.

Landmark determined that the Stairmaster had not reached its place of final delivery when the accident occurred and therefore the process of “unloading” was ongoing and thus, was not covered under both the plain language of the Policy and Colorado’s “complete operation” doctrine.  The courts agreed.  The dissent claimed that the terms “place” and “finally delivered” were ambiguous and and must be construed in favor of coverage; and since there was no causal relationship between the use of an auto and the injuries, the exclusion was inapplicable.

 

D&O policy doesn’t cover bank officers for FDIC claims under insured vs insured exclusion — 10th Circuit, Kansas

Posted in Duty to Defend, New Case

In BancInsure, Inc. v. FDIC, BankInsure issued a Directors and Officers liability policy (D&O policy) to Columbian Bank, which was put into receivership by the FDIC.  Various officers confirmed with BancInsure that it would cover FDIC claims so long as it (the insurer) got proper notice.  But when the directors got sued, BancInsure said there was no coverage.

Two exclusions were relevant – an “insured v. insured” exclusion and a “regulatory” exclusion. The insured v. insured exclusion excluded coverage for any Claim made against the Insured Persons by another Insured Person, the Company, or any successor, trustee, assignee or receiver of the Company.  The regulatory exclusion excluded coverage for actions brought by federal or state agencies. The regulatory exclusion didn’t apply because of a regulatory exclusion endorsement which effectively deleted the exclusion.

The FDIC sued the director defendants for negligence, gross negligence and breach of fiduciary duty.  On cross motions for summary judgment, the trial court found for BancInsure because the insured vs. insured exclusion precluded coverage.  Further, BancInsure wasn’t estopped from denying coverage because it said the claims would be covered in a previous action.

The regulatory endorsement did not make the insurance policy ambiguous; deletion of an exclusion does not provide an inference of coverage; since it says it doesn’t change, vary or waive other policy limitations; and the insured vs insured exclusion does not make the regulatory coverage illusory.

Statements of BancInsure regarding coverage weren’t considered because extrinsic evidence is only available when there is an ambiguity, not found here. And judicial estoppel did not apply, either.  The insurer was itself in receivership during the appeal — there is nothing in the opinion which indicates the made any difference.

CGL policy did not cover injuries at birthday party where endorsement not purchased– 10th Circuit, Oklahoma

Posted in Contractual Liability, Duty to Defend, New Case

In Nationwide v. Prater, Prater was severely injured at a birthday party. The birthday party was held at Kingdom Fitness and Fun, a gymnastics/cheerleading business. The application had requested information on birthday parties at the facility for Ancillary Activities and Birthday or Social Party coverage. No information was provided.

The district court, on cross-motions for summary judgment, granted Nationwide’s motion for summary judgment and denied the Praters’ motions for summary judgment because

the insurance policy in question provides that there is no coverage for birthday parties unless the insured has reported birthday parties as part of its operations, the insurer has approved coverage for birthday parties, and the applicable premium for birthday party coverage has been paid by the insured. Because the evidence in this case establishes that none of these things happened prior to Defendant Wayne Prater’s injuries, which occurred during a birthday party held at Defendant Kid’s Kingdom, the insurance policy in question does not cover the claim for Defendant Wayne Prater’s injuries.

The appellate court struck down various arguments for coverage and concluded:

The policy Kingdom purchased, construed as a whole, did not cover lawsuits arising out of injuries occurring at birthday parties because Kingdom did not report that it hosted such parties, obtain approval from Nationwide for such parties, or purchase coverage for such parties. We sympathize with the Praters because it is not their fault that Kingdom was underinsured for the events it was hosting. But the policy as a whole is unambiguous, and we must enforce contracts as written if the parties’ objective intent is clear.

Extra expense coverage is in addition to other coverages — 8th Circuit, Missouri

Posted in Contractual Liability, New Case

In Midwest Regional Allergy v. Cincinnati Insurance Co., the insured, Midwest, was a medical office which was damaged in a tornado. While it paid the other claims, Cincinnati Insurance denied payment under the Extra Expense provision for the costs to repair and relocate Midwest’s MRI machine and to replace the other specialty equipment necessary to resume the normal operations of the medical practice. Cincinnati Insurance claimed these expenses were losses covered under the Building or Business Personal Property provisions, for which Midwest Regional had already been paid the policy limits. On cross motions for partial summary judgment, the trial court ruled the claimed expenses were recoverable under the Extra Expense provision, and alternatively, the Policy was ambiguous and therefore should be read as providing coverage. The Eighth Circuit affirmed, finding coverage under the plain language of the definition of “extra expense.”

The policy defined extra expense as:

(2) Extra Expense means expense you incur:

(a) To avoid or minimize the “suspension” of business and to continue “operations”:

1) At the “premises”; or
2) At a replacement location or a temporary location, including:

a) Relocation expenses; and
b) Costs to equip and operate the replacement or temporary location;  . . .

The expenses to move the MRI machine, etc., were necessary to resume operations at the temporary location. It does not matter that the expenses might also be recoverable under other parts of the policy coverages. The Policy does not specifically exclude coverage under the Extra Expense provision if the expenses happen to fall under another coverage in the Policy. Rather, the Policy specifically states that Extra Expense coverage is not subject to the policy limits. The Court concludes:

Given the lack of a clear indication in the Policy to the contrary, an ordinary person in the position of the insured would understand the disputed provision to provide coverage for the expense at issue. The Court therefore finds the Policy, as written, covers the claimed expenses under the Extra Expense provision.

Per claim deductible precludes coverage for junk faxes 8th Circuit

Posted in Contractual Liability, Duty to Defend, New Law

In Western Heritage Insurance v. Asphalt Wizards, Asphalt Wizards was sued by Fun Services of Kansas City for sending junk faxes per the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227). Fun Services wanted statutory damages of $500 per fax and damages for conversion resulting from the use of its fax machine. Western Heritage is Asphalt Wizard’s insurer, and filed a declaratory judgment action against Asphalt and Fun Services for a determination it had no duty to pay any claim because, inter alia, of its $1,000 deductible per claim. Fun Services tried to counterclaim against Western Heritage, but it was dismissed for lack of standing. The finding that Western Heritage had no duty to pay the claims was also affirmed.

The Eighth Circuit, relied upon precedent in deciding a third party claimant has no standing to counterclaim against an insurance company, even though the insurance company has sued the third party claimant for a declaratory judgment. (Glover v. State Farm Fire & Cas. Co., 984 F.2d 259, 260 (8th Cir. 1993) (per curiam)). The Eighth Circuit noted this created an odd result where the insurer can sue the claimant, but the claimant cannot sue the insurer.

Further, while Western Heritage had a duty to defend Asphalt Wizards, there was no duty to indemnify. While the late reservation of rights by Western was ineffective, this did not waive Western’s ability to enforce the deductible endorsements in the policy. The deductible endorsements applied to add damages by one person or organization as a result of any one claim, and also applied towards investigation and legal expenses. The district court determined that the term “claim” unambiguously connotes that the $1,000 deductible amount applies separately to each fax. The district court reasoned that damages and legal expenses from one fax could not exceed $1,000 and since there was nothing in the record to dispute this finding, it was affirmed.

OK to cross examine expert regarding relationship to insurance industry — Alaska

Posted in New Case

In Ray v. Draeger, the Alaska Supreme Court found the trial court abused its discretion by not admitting evidence of an expert witness’ (doctor) substantial connection to the insurance industry. Evidence of a witness’s connection to the insurance industry is admissible to show bias if its probative value outweighs the danger of unfair prejudice.  There was an order in limine precluding mentioning of insurance at trial.  Although evidence of bias is relevant and probative, courts sometimes view evidence of liability insurance as prejudicial.  But where the expert’s relationship to the insurance industry is “substantial”, it is relevant and admissible.

The trial court’s substantial connection analysis should look primarily to “whether a witness has a sufficient degree of connection with [a] liability insurance carrier to justify allowing proof of this relationship as a means of attacking the credibility of the witness.” Where an expert witness has significant ties to the insurance industry as indicated by receiving a sizable portion of his or her income from insurance work, being hired by a firm that derives a large portion of its income from insurance companies, or facts that otherwise suggest an interest in the outcome of the litigation, the probative value of that substantial connection is likely to outweigh the danger of unfair prejudice, and is thus likely admissible to show bias under Rule 411 and Rule 403.

If jurors think the defendant is insured, this is unlikely to lead to prejudice since state law requires all drivers to be insured.

Physical Loss can include odors — NH

Posted in Contractual Liability, New Case

In Mellin v. Northern Security Insurance Company, Inc., the Mellins claimed a loss resulting from cat urine odor which came through pipes to their condominium.

Northern argued that, although “the words ‘direct’ and ‘physical loss’ are undefined,” “they are commonly understood to require tangible change to the property,” and that the alleged cat urine odor did not constitute a physical loss under the plain meaning of the policy because it “did not cause[] a tangible alteration to the appearance, color, or shape” of the unit. The New Hampshire Court used the ordinary meaning of “physical” since it was undefined; and found it meant “[o]f or pertaining to matter, or the world as perceived by the senses; material as [opposed] to mental or spiritual.” The Court concluded that “physical loss” need not be read to include only tangible changes to the property that can be seen or touched, but can also encompass changes that are perceived by the sense of smell. And, the court collects cases involving odors as a physical loss.

The Court declined to use the definition of property damage under the liability section of the policy. Then, the Court held the loss was not excluded by the pollution exclusion:

Pollution exclusion clauses are standard insurance provisions, that have “been heavily litigated in numerous . . . jurisdictions, resulting in conflicting outcomes.” Century Sur. Co., 329 P.3d at 617. Some courts interpret pollution exclusion clauses, as the plaintiffs here propose, to bar “coverage for only those injuries allegedly caused by traditional environmental pollution.” State Farm Fire & Casualty Co. v. Dantzler, 852 N.W.2d 918, 923 & n.23 (Neb. 2014) (citing cases). “Other courts interpret pollution exclusions as excluding coverage for all injuries allegedly caused by pollutants, because the exclusions are unambiguous as a matter of law.” Id. at 923 & n.24 (citing cases). As we concluded in Weaver, “[b]oth interpretations . . . are reasonable” and, therefore, “[b]ecause there are two reasonable interpretations of the policy language, we conclude that the pollution exclusion [clause] is ambiguous.” Weaver, 140 N.H. at 783.

Summary judgment for the insurer was reversed.

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