Living a life in 0.1 hour increments! Most law firm lawyers begrudgingly accept the necessity of meticulously counting their time, and most in-house lawyers are relieved when they no longer have to think about their days six minutes at a time. But as more in-house legal departments take on their company’s own defense, they are well advised to have time-keeping programs and procedures in place to recover the maximum amount from the insurance companies that have accepted a duty to defend or agreed to indemnify the company for defense costs.
It’s that time of the year when Americans gather together, enjoy a feast, and fall asleep in front of the TV. But before the tryptophan kicks in, we also like to give thanks for the good things that have happened in the past year. Corporate policyholders can share in the tradition, as this year has produced a number of court decisions that favored insureds and protected their coverage expectations. Here are a few of the cases we are most thankful for:
This case out of the South Carolina Supreme Court gave generously to policyholders in a number of ways this year (giving us the opportunity to post in this blog again and again and again). The case involved defective construction claims against a developer. The developer’s insurer, Harleysville, provided a defense under a vague reservation of rights letter. After the underlying plaintiffs were awarded verdicts against the developer, Harleysville sued to avoid covering the judgments. The court ruled against Harleysville on four issues:
- Harleysville’s vague, general reservation of rights letter did not effectively reserve its rights to contest coverage under the terms and exclusions in the policy;
- Where the underlying verdicts did not apportion the damages between covered and uncovered losses, the insurer bore the burden of proving amounts allocable to uncovered losses. Where the insurer failed to meet that burden, it had to cover the entire verdict;
- Punitive damages awarded in the verdicts were found to be covered under Harleysville’s policy; and
- The owners’ association, which was asserting the dissolved developer’s coverage rights in the case, had standing to challenge the insurer’s reservation of rights letter.
Harleysville is a case that just keeps on giving.
The duty to provide a defense, or reimburse defense costs, is one of the most important features of liability insurance. You could say it’s the stuffing, where indemnity is the turkey. The Delaware Superior Court emphasized that obligation in Verizon to the tune of $48 million in defense costs that the insurer had refused to pay. This decision was important because it rejected the insurer’s attempt to define the vague term “securities claim” narrowly to avoid its obligation to pay defense costs. More broadly, the court upheld the pro-policyholder interpretative doctrine of contra proferentem, rejecting the insurer’s argument that the doctrine should not apply where the insured is a large, sophisticated corporation. Applying the doctrine, the court held that unless it can be shown that the insured had a hand in drafting the policy language, ambiguous terms should be interpreted against the insurer. A more detailed analysis of the decision by this firm can be found here.
Thanksgiving dinner is always better with more guests. Additional Insured endorsements in policies extend the invitation to more parties that may require a seat at the table of insurance protection. This is especially important in the construction context, where developers and general contractors rely on numerous subcontractors’ insurance policies to protect them from liability arising from those subcontractors’ work. These two decisions rejected insurers’ attempts to narrow the application of additional insured endorsements.
In All State Interior, previously highlighted here, a New York County trial court interpreted an endorsement broadly, granting additional insured status to companies that didn’t technically contract with the subcontractor, and who weren’t named in the endorsement. The court, in essence, incorporated the terms of the contract between All State and the subcontractor into the endorsement to trigger additional insured coverage for the project owner, site lessor, and construction manager as All State’s “partners, directors, officers, employees, agents and representatives.”
In McMillin, the insurer’s policy granted additional insured status to McMillin, the general contractor of a project, for “liability arising out of [the subcontractor’s] ongoing operations,” and excluded additional insured status for the insured’s completed operations. The insurer denied defense coverage on the basis that the subcontractor had finished working on the project. The California Court of Appeal disagreed, stating that the endorsement’s phrase “arising out of” is broader than “during,” and so the liability did not have to arise while the insured was still working on the project.
When it’s time for dessert, allocating the available pie to make sure everyone gets what they deserve can be tricky. This year, Missouri joined the ranks of “all sums” states that maximize coverage for policyholders with long-tail claims stretching over several years. The “all sums” method of allocation allows an insured to allocate all of its damages from long-tail losses to a single year of coverage. This ruling by the Missouri Court of Appeals was based on the plain language of the policies, which promise to indemnify the insured for all sums the insured is legally obligated to pay for occurrences during the policy period. The court also ruled that all triggered primary policies across a period of years need not be exhausted before excess policies in the period selected by the policyholder can be triggered. The court ruled that only the primary policy in one year needs to be exhausted before that year’s excess policies are triggered. For a more thorough analysis of this case, click here.
Rather than brave the stampedes of Black Friday, one can get good deals on holiday gifts on Cyber Monday. But to protect against cyber thieves, make sure your insurance coverage will protect you. In this case, the U.S. District Court for the Southern District of New York interpreted the computer fraud provision of a crime policy to do just that. Policyholder Medidata was the victim of fraud when someone tricked its employees into wiring money overseas, using spoofed emails that looked like they came from the company’s president. Medidata’s insurer denied its claim, stating that the computer fraud clause of the crime coverage required actual hacking into and manipulation of Medidata’s computer system. But the court sided with Medidata, ruling that the spoofing of emails violated the integrity of the insured’s computer system enough to trigger coverage, and actual entry by hackers was not required by the policy language or by precedent.
We at Pillsbury hope you all had a very Happy Thanksgiving!
What happens when you have a claim arising from circumstances that unfolded over many policy years—like environmental property damage or asbestos bodily injury claims? Which policies are triggered? How much coverage does each policy provide? Unsurprisingly, insurers and policyholders disagree on the answers. And courts across the country have been grappling with the issue for decades.
Some courts apply the “all sums” approach, which allows a policyholder to recover in full—subject to policy limits—from any insurer whose policy has been “triggered.” Other courts apply the “pro rata” approach, under which each triggered insurer must pay only a portion of the loss allocated to its policy periods. This is a closely watched issue among the insurance bar as it can dramatically impact the amount of a recovery depending on the contours of the policyholder’s insurance program.
In two posts earlier this year—South Carolina May No Longer Hold Insurers’ Reservations and The Insurer’s Mixed-Coverage Burden—we told you about an important decision issued by the South Carolina Supreme Court in Harleysville Group Insurance v. Heritage Communities, Inc. Those posts were written shortly after the court issued its original opinion on January 11, 2017. But on July 26, 2017, the court issued a new opinion replacing the original. So what has changed? Not much … and that’s a good thing for policyholders.
The Flint, Mich., water crisis returned to the news recently as criminal charges were brought against additional government employees resulting from the crisis. Meanwhile, a federal court in Pennsylvania recently issued a ruling in an insurance case that, like Flint, related to alleged contamination in drinking water stemming from corroded pipes. The decision rejects two insurers’ attempts to avoid coverage and serves as a good reminder of some fundamental insurance law principles—the duty to defend is broad, ambiguous policy language usually is construed against the insurer, and policies should be interpreted in favor of their purpose to provide coverage. It is also a reminder that the pollution exclusion is not nearly as all-encompassing as insurers like to think it is.
We put lights on the front of trains so we can see them approaching in a tunnel. And we buy insurance for the accidents that occur despite such precautions. General contractors try to manage their project risks by taking precautions to avoid accidents, but they also require subcontractors to name them as “additional insureds” on their general liability or project-specific insurance should an accident happen. Suppose you’ve done that. An accident follows: Your subcontractor injures a person on the project site as a result of your own workers’ failure to warn. You’re covered, right? Better slow down.
A few weeks back, we told you how South Carolina May No Longer Hold Insurers’ Reservations. In that post we left you with a teaser: “There’s more to this case.”
In fact, Harleysville Group Insurance v. Heritage Communities, Inc. does more than just take insurers to task with regard to their vague reservations of rights. Reaffirming that, in a case involving both covered and excluded losses, the insurer bears the burden of proving which damages are excluded from coverage, Harleysville shows how easily an insurer can find itself in a bind when trying to prove “no coverage” at the same time and in the same proceedings that it is providing a defense for its insured.
Say you want to make a reservation for a nice dinner. Do you call the restaurant and simply say you plan to come sometime in the next two weeks? Of course not. If you want your reservation to do any good, you give the restaurant a date, time, and number of people. So why should insurers be able to issue reservations of rights where they quote half the policy and say they may deny coverage at some time, based on some unspecified provision? The South Carolina Supreme Court was presented with that question and decided that insurers need to provide greater specificity or risk losing their reservations completely.
Over the past four months, a trio of cases has introduced a policyholder-friendly breath of fresh air to Iowa insurance coverage law as Iowa state and federal courts have found that defective workmanship may constitute a covered occurrence under the plain language of CGL policies.
Since 1979, commercial general liability (CGL) insurers have relied on the New Jersey Supreme Court case of Weedo v. Stone-E-Brick, Inc. and its progeny to argue that a subcontractor’s defective work can never qualify as an “occurrence” under a standard form ISO CGL policy. This argument is contrary to both the language of standard CGL policies and the trend in recent case law, but courts in New Jersey and elsewhere have continued to cite Weedo for this proposition. With its new decision in Cypress Point Condominium Association, Inc. v. Adria Towers, LLC, the New Jersey Supreme Court has now finally relegated Weedo to its proper status as an historical footnote based on outdated policy language.
Cypress Point involved claims for rain water damage to a condo building. When the condo association began noticing the damage, it brought claims against the developer/general contractor and several subcontractors. The association alleged that the subcontractors’ defective work on the exterior of the building allowed water leaks that damaged steel supports, sheathing and sheetrock, and insulation. When the developer’s CGL insurers refused to cover the claims, the association sued the insurers, seeking a declaration that the association’s claims against the developer were covered.