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.
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.
Texas is not a place known for surrendering. (Remember the Alamo!). But like their compatriots in other states, Texas policyholders sometimes see the advantage of surrendering their liability insurance policy rights to their litigation adversaries in order to retreat from the dispute. Whether they may have to stand and fight first is a question that the Texas Supreme Court may finally answer in Great American Ins. Co. v. Hamel. In that case, the Texas Supreme Court has agreed to review whether an insurer may be responsible for a judgment entered against its insured that is the result of a non-adversarial trial. This will be an important decision that will have significant repercussions for insureds and insurers alike.
We’ve come a long way since the days of Timothy Leary—both in terms of marijuana legalization, and in the diversity of business insurance products that have reached the market to insure marijuana-related risks. As of this blog post, more than 20 states have legalized marijuana for medical use, including eight states that have also legalized it recreationally. At the federal level, however, marijuana continues to be a Schedule I controlled substance, making it illegal for any purpose. Whether and to what extent the federal prohibition will be enforced by the Trump administration is not yet known. As the legal marijuana industry continues to grow apace, industry participants would do well to consider the insurance products available to them and potential pitfalls for the unwary.
Pennsylvania policyholders need to keep their eyes on the details when it comes to defending faulty workmanship claims. What you see—or think you see—is not always what you get. In Bealer v Nationwide Mutual Insurance Company, the U.S. District Court for the Eastern District of Pennsylvania held on November 16, 2016 that an insurance company did not have a duty to defend its policyholder after determining that the claims asserted in the underlying litigation were for faulty workmanship and did not constitute an “occurrence.” But other Pennsylvania decisions provide opportunities to find coverage for policyholders who might be in similar situations.
William Tierney entered into a contract with Robert Bealer for the purchase of a lot and construction of a residence. About six months after Tierney moved in, a rainstorm flooded the basement of his home—after which he noticed cracks on several foundation walls, and then brought suit against Bealer.
The failure to include and/or accurately describe property locations is among the most common points of tension we see in litigation over wide-area catastrophe loss issues (earthquakes, floods, hurricanes) between the insured and its property insurance carriers. However, many first-party property policies offer devices to ensure that the policyholder is properly protected. When coverage for a location becomes disputed, the policyholder can put pressure on the carrier by resorting to “gap-filler” endorsements that are widely available, if underutilized.
The insurance company may have prospectively protected itself the day your policy went into effect by adding an “occurrence limit of liability” endorsement. This clever insurance carrier device, which has become common in the last decade, is intended to limit the carrier’s exposure at each particular location, placing the onus on the insured to put every “location” on a master list with correctly reported values for each category of exposure (e.g., business interruption, property damage, contents exposure, etc.).
Insurance is not only a risk transfer tool, but also a valuable asset. Certain coverages, however, are not purchased or pursued by multinational companies transacting business in the United States because there are nuanced differences between international and U.S. insurance programs and law. These companies, often with global offices, will be best served by having counsel experienced in such nuances conduct a diagnostic review of their insurance policies. Not only may potential coverage gaps be identified, but a company will be better able to plan ahead and negotiate more favorable coverage terms before a loss arises.
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.
When an insurer pays a claim by its insured, it acquires a legal right to pursue a so-called “subrogation” claim against another party who may be responsible for the damage. But public policy dictates that an insurer, claiming subrogation for amounts paid to an insured under one policy, is barred from suing another on the same construction project whom it has also insured, even if under a separate insurance policy. Although this antisubrogation doctrine was first recognized some 25 years ago, it’s not often invoked. But this implied waiver of subrogation both prevents the insurer from passing the incidence of loss to its own insured, and protects against the potential for conflict of interest that may compromise the insurer’s incentive to properly defend its insureds. In other words, it prevents the insurer from “pass[ing] the incidence of loss, at least in part, from itself to its own insured and thus avoid[ing] the coverage which the insured purchased.”
Ever since the U.S. Court of Appeals for the Second Circuit decided Zeig v. Mass. Bonding & Insurance Co. in 1928, it has been well-settled that a policyholder can compromise a disputed claim with its insurer for less than the full limits of the policy without putting its rights to excess coverage at risk. In a seminal opinion by Judge Augustus Hand, the Zeig court said, “We can see no reason for a construction so burdensome to the insured,” to require collection of the full amount of primary polices in order to exhaust them. The Zeig court emphasized that a compromise payment by the primary insurer discharges the limits of the primary coverage, while the excess insurer is unharmed, since it must pay only the amount exceeding the attachment point of its policy.