Reinsurance Law Blog

Reinsurance Law Blog

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.

Montana adopts notice / prejudice rule

Posted in Contractual Liability, Duty to Defend, New Case, New Law

In Atlantic Casualty v. Greytak, the Ninth Circuit certified the following question:

Whether, in a case involving a claim of damages by a third party, an insurer who does not receive timely notice according to the terms of an insurance policy must demonstrate prejudice from the lack of notice to avoid defense and indemnification of the insured.

The Montana Supreme Court ruled that there must be prejudice from lack of timely notice to avoid defense and indemnification of the insured.  The Court stated:

The public policy of Montana is to narrowly and strictly construe insurance coverage exclusions in order to promote the “fundamental protective purpose” of insurance.. . .An insured’s technical or illusory failure to comply with obligations of a policy will not automatically terminate coverage, and an insurer who does not receive timely notice required by the terms of an insurance policy must demonstrate prejudice from that lack of notice in order to avoid the obligation to provide defense and indemnification of the insured.


Late notice, no prejudice, and ambiguous policy as to who is an insured, CGL policy 8th Circuit, Iowa law

Posted in Contractual Liability, Duty to Defend, New Case

In Michigan Millers Mutual Ins. v. Asoyia, Inc., Asoyia had a Commercial General Liability policy (CGL) with Michigan Millers. Asoyia produces soybean oil. One of Asoyia’s customers, Sunnyside Country Club, had a fire it attributed to Asoyia’s soybean oil, which spontaneously combusted while on rags at Sunnyside’s laundry. Michigan Millers claimed it had no duty to defend Asoyia because of late notice. There was also a question as to whether a former employee was an insured under the policy. A jury determined the late notice did not prejudice Michigan Millers, and the Eighth Circuit affirmed.

Shortly after the fire, Sunnyside’s insurer, United Fire, sent out a notice to others that a fire had occurred (a subrogation letter) and that United Fire might blame them for the loss. It also said that there would be a fire scene investigation on a specified date. Asoyia got a notice, but did nothing, and the repairs were completed.

Later, United Fire sued Asoyia alleging that the fire at the country club started due to spontaneous combustion of recently laundered kitchen rags, and that the rags had been used to clean a fryer that had contained Asoyia’s soybean oil. United Fire claimed Asoyia should have warned customers about the hazard of spontaneous combustion after laundering oil-soaked rags. When it was sued, Asoyia promptly sent notice to Michigan Millers.

At trial, Michigan Millers claimed it was prejudiced from late notice because United Fire’s investigation was inadequate. United Fire claimed its investigation (and that of the state fire marshal) was adequate and thus, there was no prejudice to Michigan Millers as a result of any late notice.

The court also found the policy ambiguous as to whether it covered as an insured a former employee, who was not working for Asoyia at the time of the fire. Michigan Millers argued that coverage is determined “[a]t the time of the . . . occurrence” and the employee had “severed his relationship with Asoyia by the time of the fire.” Michigan Millers claimed that “limiting coverage to those persons who . . . qualify [as employees] during the coverage period is the only logical way to construe the policy language. . .” The employee argued there was no temporal requirement in the policy, other than that the damage occur during the policy period. The Eighth Circuit agreed with the trial court’s conclusion that the policy was ambiguous, which required a finding of coverage.

Life insurance — note did not change beneficiary; 8th Circuit, Iowa

Posted in Contractual Liability, New Case

Hearing v. Holloway was a dispute regarding the beneficiary of a life insurance policy.  The deceased, Jon, was Hearing’s brother and Holloway’s father.  The policy was initially purchased to cover Jon’s child support obligations.  Jon’s sister was listed as the beneficiary because Jon did not want to give control over the proceeds to Jon’s ex wife.  When Jon died, however, he had no child support obligations and there was a note indicating that Jon wanted Holloway to have the proceeds. But Jon never told the insurer it wanted to change beneficiaries, so Hearing was still the beneficiary.

New Tennessee bad faith law does not preclude punitive damages

Posted in Insurance Bad Faith, New Case

In Carroll v. Nationwide Property & Cas. Co., No. 2:14–cv–02902–STA (W.D. Tenn. June 8, 2015; Defendant wanted Plaintiffs’ punitive damage claim dismissed since the statute which allowed bad faith claims said it was exclusive, except as to common law claims.  But the district court disagreed, noting that the statutory language precluded statutory treble damages, but not common law punitive damages.

Insurer may be required to replace all siding if only part is damaged — Missouri law

Posted in Contractual Liability, Insurance Bad Faith, New Case

In Alessi v. Mid-Century Ins. Co., hail damaged one side of Alessi’s house. The siding on the house was no longer available so Alessi wanted Mid-Century to replace the siding on the whole house, while Mid-Century wanted to replace only the damaged side. Summary judgment to the insurer, Mid-Century , was reversed and the case remanded for trial on breach of contract and vexatious refusal to pay.

The policy stated:

(1) Settlement under replacement cost will not be more than the smallest of the following:
(a) the replacement cost of that part of the building damaged for equivalent construction and use on the  same premises.
(b) the amount actually and necessarily spent to repair or replace the building intended for the same occupancy and use.

Mid-Century moved for summary judgment. In its motion, Mid-Century asserted it was entitled to judgment as a matter of law on both claims, because, first, the policy limited its obligation to replacing “that part of the building damaged for equivalent construction and use on the same premises,” and thus it was limited to paying the replacement cost for only the damaged portion of the siding. And second, the policy provided coverage only for direct physical loss, and only one side of the property had sustained direct physical loss. Alessi argued that equivalent siding was matching siding which required Mid-Century to replace all the siding.

The Missouri Court of Appeals held whether the siding was equivalent – i.e., nearly identical was a fact question beyond the scope of summary judgment. The Court noted it was likely that the value of the house would be reduced by obviously mismatched siding.

If MidCentury’s proposed replacement is not “equal in value,” then Mid-Century has not fulfilled its contractual obligations to provide a loss settlement of the replacement cost for equivalent construction and use, regardless of whether only the northern elevation was damaged. Conversely, it is possible that there is siding on the market that is in fact “nearly identical” to the existing siding on the other elevations of the property. Under this scenario, replacing the damaged siding on the northern elevation with nearly identical siding is an equivalent replacement, meeting Mid-Century’s contractual obligation.

Moreover, our ruling here does not conflict with the language of the policy providing coverage for “direct physical loss.” Where a risk specifically insured against sets other causes in motion in an unbroken sequence between the insured risk and the ultimate loss, the insured risk is regarded as the proximate, or direct, cause of the entire loss.

The Court concluded:

Under the facts before this Court following the trial court’s entry of summary judgment, we cannot answer the questions of whether the replacement siding is virtually identical or if a house with mismatched siding is equal in value to a house with matching siding. These are questions of fact for a jury to decide.

No bad faith where there was no reasonable opportunity to settle excess claims — Missouri law

Posted in Contractual Liability, Insurance Bad Faith, New Case

In Purscell v. Tico Insurance Co., Purscell sued his motor vehicle liability carrier, Infinity Assurance Insurance, contending the insurer acted in bad faith in handling claims brought against him by third parties (the Carrs and  Priesendorf — deceased) injured in a motor vehicle accident. Purscell alleged Infinity exposed him to excess judgments when it failed to settle the third party claims within his policy limits. The district court granted summary judgment to Infinity, concluding the insurer did not act in bad faith or breach any fiduciary duty it owed to Purscell. See Purscell v. TICO Insurance Co., 959 F. Supp. 2d 1195, 1204 (W.D. Mo. 2013). The Eighth Circuit affirmed.

The third party claims exceeded the policy limits of $25,000 per person, $50,000 per accident.  Two of the three injured parties offered to settle within policy limits, but Infinity was still investigating and the offer was withdrawn.  The third injured party’s estate also made a settlement offer for the per person policy limits.  The insured demanded the case settle within the policy limits.  Confronted with multiple claims in excess of policy limits, Infinity filed an interpleader.  After judgments were entered against Purscell well in excess of the policy limits, the policy proceeds were divided up in the interpleader action, and Purcell had a substantial excess judgment entered against him.

The trial court granted summary judgment on Purscell’s later filed bad faith claim against Infinity.  The district court first concluded Infinity did not act in bad faith when it failed to accept the Carrs’ early settlement offer (before the offer was withdrawn just two weeks later) for a number of reasons, including: (1) knowledge of a fatality arising from the accident and Purscell’s potential liability for a wrongful death claim independent of the Carrs’ claims for the policy limits; (2) Infinity’s need to complete its investigation of coverage issues involving Priesendorf’s intentional conduct; and (3) the lack of a specific deadline from the Carrs for when the offer would be withdrawn if not accepted.

Infinity’s focus on settling all three claims is not evidence of bad faith. The insurer’s attempt to reach a global settlement of competing claims, without ever denying the responsibility to pay the full policy limits, was not evidence that the insurer was placing its own interests over that of its insured. It was in the insured’s interest to have all three claims against him settled within the policy limits. When a global settlement could not be reached, Infinity appropriately filed an interpleader action.  There was no evidence that Infinity had a reasonable opportunity to settle Tim Carr’s claim.


Insureds’ fraud results in void policy and $4.1 Million Judgment in Insurer’s Favor — Missouri

Posted in Contractual Liability, Insurance Bad Faith, New Case

In Akers v. Auto-Owners (Mut.) Ins. Co, (2015 WL 3714595) the insurer paid its insureds over $3.5M after a house fire.  The insureds, (the Akers) claimed the insurer still owed them more money and sued them.  In discovery, the Insurer found that the Insureds had prepared fraudulent invoices to inflate their losses.  The Insurer then filed a counterclaim, seeking to have the policy declared void and return of all money paid to the Insureds, plus attorneys fees.

The court found that the Insureds had violated the policy’s “Concealment or Fraud” provision by misrepresenting material facts, engaging in fraudulent conduct, and making false statements. As a result, the entire policy was void and the Insurer was entitled to reimbursement of all sums it had paid under the policy, as well as its reasonable costs, expenses, and attorneys’ fees incurred in defending against the Insureds’ claims:

The Akers violated the Policy’s “Fraud and Concealment” provision in every way possible. They intentionally concealed, misrepresented material facts, and made false statements concerning the scope of the damage to their house, who was performing the repair work, who the general contractor was, the amount it actually cost to repair the damage, and who was actually receiving the payments for the repairs. Furthermore, they engaged in fraudulent conduct by creating fraudulent invoices designed to hide who was actually receiving the payments for the repair work.