Insurance Law Report focuses on developments in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.
Below are the articles for the July issue. To view, click on the appropriate title and you will be brought to the full version of the article below.
Texas Supreme Court Addresses “Fully Adversarial Trial” Requirement For Assignments Of Claims Against Insurers
The Texas Supreme Court has ruled that the “fully adversarial trial” requirement under which an assigned judgment against an insured is binding on its insurer only if the judgment is the product of an adversarial trial could apply to: (1) an insurer which had improperly denied a defense to its insured and (2) an underlying judgment in which the insured entered into agreements concerning the evidence but did not assign its rights until after the judgment was entered. Great American Insurance Company, et al. v. Glen Hamel, et al., 2017 WL 2623067 (Tex. June 16, 2017).
Homeowners sued a home builder after they discovered water intrusion damage in their house allegedly attributed to the builder’s defective work. The builder tendered the suit to its insurer which declined to defend. Before trial, the builder and the homeowners entered into an agreement under which the builder’s principal agreed to testify in exchange for a promise that the homeowners would not execute a judgment against him or try to pierce the corporate veil. The builder stipulated that it was responsible for the defects in the home. During a bench trial, the builder called no witnesses, although it did cross-examine the homeowners’ witnesses. The judge entered judgment against the builder, which then assigned to the homeowners its right to pursue claims against its insurer.
The insurer relied on a 1996 Texas Supreme Court case to argue that the homeowners could not recover on the assigned judgment based on collusion between them and their builder. The Texas Supreme Court held in that case that an insured’s assignment of claims against his insurer to an underlying plaintiff is invalid if: (1) it is made prior to an adjudication of the underlying plaintiff’s claim against the defendant in a fully adversarial trial; (2) the insurer offered a defense; and (3) either (a) the insurer accepted coverage, or (b) the insurer made a good faith effort to adjudicate coverage issues prior to the adjudication of plaintiff's claim. It further held that in no event, however, is a judgment rendered without a fully adversarial trial binding on a defendant’s insurer or admissible as damages in an action against the insurer by the plaintiff as defendant’s assignee. Both the trial court and appellate court distinguished the prior Supreme Court case on the basis that in Hamel the insurer had not defended the builder and there was no pre-trial assignment of rights. Both found that the judgment was the product of a fully adversarial trial.
The Texas Supreme Court reversed. It did not invalidate the assignment because it found that the insurer had wrongfully failed to defend its insured. However, it held that the underlying judgment was not binding on the insurer, and that the insurer was therefore able to attack the reasonableness of the judgment, because the underlying judgment was not the result of a fully adversarial trial. It held that the “controlling factor” is “whether, at the time of the underlying trial or settlement, the insured bore an actual risk of liability for the damages awarded or agreed upon, or had some other meaningful incentive to ensure that the judgment or settlement accurately reflects the plaintiff’s damages and thus the defendant-insured’s covered liability loss.” The Supreme Court held that the parties’ pre-trial agreement eliminated any meaningful incentive the builder had to contest the judgment because it removed any financial stake the builder had in the outcome.
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Texas Supreme Court Requires Strict Compliance With Default Notice Provision In Texas Premium Finance Act
The Texas Supreme Court has held that a premium finance company’s failure to strictly comply with a notice of intent to cancel provision in the Texas Premium Finance Act rendered invalid a notice of intent to cancel. BankDirect Cap. Fin. v. Plasma Fab., LLC, 519 S.W.3d 76 (Tex. 2017).
The insured financed premium payments for a policy through a premium finance agreement, which allowed the premium finance company to cancel the policy and to collect unearned premiums in the event of default by the insured after proper notice has been mailed as required under section 651.161 of the Texas Premium Finance Act. This section requires the mailing of notice of intent to cancel that states the time by which the default must be cured no earlier than the 10th day after the notice is mailed. The premium finance company sent a notice of intent to cancel the policy effective December 4. The notice was dated November 24, ten days before the cancellation date, but was not mailed until November 25, nine days before the cancellation date. The insured did not pay the past due premium by December 4, and the premium finance company sent a notice of cancellation that same day. After suffering a loss four days later, the insured attempted to reinstate the policy and to seek coverage. The insurer refused, citing the fact that the policy had been cancelled. The insured sued the insurer and premium finance company. The trial court granted summary judgment to the insurer and the premium finance company. The court of appeals affirmed the judgment in the insurer’s favor but reversed the judgment in favor of the premium finance company.
The sole issue on appeal was whether the premium finance company’s failure to strictly comply with the ten-day notice provision could be excused under the “substantial compliance” doctrine, which excuses a party’s failure to comply strictly with statutory requirements. The Texas Supreme Court held that it could not be excused, under the reasoning that, unlike other statutes, section 651.161 did not contain “substantial compliance” language. It also reasoned that deadlines such as those found in section 651.161 cannot be “substantially complied” with, and that the party either satisfies the deadline or it does not.
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North Carolina Court Of Appeals Details When Duty-To-Defend Substantial Right Exception To Prohibition Against Interlocutory Appeals Applies
The North Carolina Court of Appeals recently analyzed whether interlocutory orders are nonetheless ripe for review due to the “duty-to-defend substantial right exception” to North Carolina’s general prohibition against appellate review of interlocutory orders. Radiator Specialty Co. v. Arrowood Indem. Co., 800 S.E.2d 452 (N.C. Ct. App. 2017).
A manufacturer of products containing benzene and asbestos was sued in product liability cases. In a subsequent coverage action, the trial court entered orders concerning the rights and obligations of various insurers of the manufacturer. The manufacturer appealed certain of these orders concerning when certain umbrella policies are triggered, how costs are allocated among various policies, and when policies are deemed exhausted. An exception to the bar against interlocutory appeals allows an insured to seek interlocutory review of an order that grants partial summary judgment in favor of an insurer on the issue of whether the insurer is obligated to defend an underlying action. It was created because when an insurer denies coverage, an insured is faced with the unappetizing decision of settling as quickly as possible, filing a declaratory judgment action, or defending the suit without help from the insurer. That exception was at issue.
The North Carolina Court of Appeals held that the exception did not apply because the manufacturer could not identify with certainty the practical effect of applying any order by the trial court and the extent to which such order would actually impact its right to a defense if not immediately appealed. The court offered three rationales for its conclusion. First, the manufacturer’s claim for a defense was not rooted in a specific underlying action, but rather in a number of unspecified claims, such that harm could not be identified with particularity. Second, the manufacturer could not show how the trial court’s orders would force the manufacturer to settle quickly, bring a declaratory judgment action, or leave it unable to defend itself. Lastly, the manufacturer failed to demonstrate how the trial court’s orders affecting when umbrella policies were triggered, how costs were allocated among policies, and how their exhaustion was calculated, would meaningfully interfere with its right to a defense.
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Eleventh Circuit Affirms Ruling Holding Prior Acts Exclusion Unambiguous
The U.S. Eleventh Circuit Court of Appeals held that a prior acts exclusion unambiguously applied to claims arising out of wrongful acts committed prior to the policy period. Zucker for BankUnited Fin. Corp. v. U.S. Specialty Ins. Co., 856 F.3d 1343 (11th Cir. 2017).
The insured, a bank, was subject to a class action lawsuit based on its alleged violation of federal securities laws due to admittedly “risky lending practices.” During the pending of that lawsuit, the insured applied for a new directors and officers policy. The insurer, apprised of the insured’s financial condition, offered to provide coverage to the insured under one of two policies: (1) a policy including a prior acts exclusion; or (2) a policy without the prior acts exclusion for twice the premium. The insured chose the policy with the prior acts exclusion for the lower premium, and a policy was issued. The insured thereafter filed for bankruptcy protection, and unsecured creditors filed an adversary proceeding against the insured’s former executives based on fraudulent transfer of assets. The executives sought coverage under the directors and officers policy, and the insurer denied coverage based on the prior acts exclusion. The creditors settled their claims with the executives and sued the insurer for breach of contract and bad faith. The court found that the prior acts exclusion barred coverage for the fraudulent transfer claims. The creditors appealed.
The Eleventh Circuit affirmed, holding that the prior acts exclusion unambiguously applied to the fraudulent transfer claims since they arose out of wrongful acts committed prior to the policy period. The creditors argued that the exclusion did not apply because the fraudulent transfers occurred after the policy incepted. However, the Eleventh Circuit found that the fraudulent transfers “arose out of” the insured’s pre-policy misdeeds involving its lending practices. The Eleventh Circuit also rejected the creditors’ argument that coverage was illusory, reasoning that the policy clearly provided coverage for claims arising from wrongful conduct occurring only after the policy’s inception date.
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Eleventh Circuit Holds Professional Services Exclusion Bars Coverage In Ponzi Scheme-Related Litigation
The U.S. Eleventh Circuit Court of Appeals, applying Florida law, recently held that a professional services exclusion, which excluded coverage for any loss arising out of any insured’s performance of professional services, barred coverage for claims arising from an alleged Ponzi scheme. Stettin v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 2017 WL 2858768 (11th Cir. July 5, 2017).
The insured, a bank, and multiple of its executives were sued by a bankruptcy trustee to recover losses caused by a Ponzi scheme using the insured’s accounts. The insureds sought coverage under their primary and excess liability policies, and the insurers disclaimed coverage. The insureds settled the underlying claims and assigned their rights under the policies to the trustee. The trustee then sued the insurers for breach of contract and for bad faith. The insurers maintained their position of no coverage based on a professional services exclusion that stated, in relevant part, that the insurers “shall not be liable to make any payment for loss in connection with any claim made against any insured alleging, arising out of, based upon, or attributable to … any insured’s performance of or failure to perform professional services for others….” The trial court granted the insurers’ motion to dismiss on the basis that the exclusion barred coverage since some of the executives provided professional banking services to the company responsible for the Ponzi scheme. The trustee appealed.
The Eleventh Circuit affirmed, finding that the professional services exclusion applied to all claims. The trustee argued that the phrase “any insured” in the exclusion should be read severally so as to bar coverage only as to the claims against those insureds working directly with the company responsible for the Ponzi scheme, but the Eleventh Circuit found that the district court properly observed that the phrase “any insured” unambiguously expresses a contractual intent to apply to joint obligations.
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Fourth Circuit Holds Filing Of State Action Does Not Toll Federal Statute Of Limitations
The U.S. Fourth Circuit Court of Appeals has held that a state law bad faith law suit pled within a year of a claim denial does not toll the federal statute of limitations applicable to flood policies. Woodson v. Allstate Ins. Co., 855 F.3d 628, 630 (4th Cir. 2017).
The insureds made a claim under their flood policy, which the insurer denied. The insureds sued for breach of contract and bad faith handling of their claims in state court, which the insurer removed. The trial court found that the insurer had breached the terms of the policy and acted in bad faith in denying the claim. The insurer appealed.
The Fourth Circuit reversed. It first noted that federal law is clear that any challenge to a denial of coverage under a flood policy must be instituted in federal court within one year of the denial. The court noted that the insured’s case was removed to federal court more than a year after the insurer denied coverage, rendering the claim time-barred. The court attached no value to the fact that the claim was originally filed in state court within the one-year statute of limitations. The insured argued that because the insurer was a private “write-your-own” company providing flood insurance, federal law allows state law bad faith claims. The Fourth Circuit, however, concluded that regardless of the propriety of the insured’s argument, the insured’s argument was rooted in federal law, which requires that any claim on the policy or arising out of a write-your-own insurer’s handling of a claim under the policy must be filed within one year, something the insured failed to do.
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Eighth Circuit Affirms Finding Policy Limitations Period Void Under Arkansas Law
The U.S. Eighth Circuit Court of Appeals affirmed a jury award to an insured for its costs to rebuild a plant, finding that a limitations provision in the policy was void under Arkansas law. Simmons Foods, Inc. v. Indus. Risk Insurers, 2017 WL 2945420 (8th Cir. July 11, 2017).
Two property policies contained a provision requiring any action against the insurer to be brought within one year of the date of loss. Following damage to multiple insured properties, the insured made a claim for repair of all the properties. The parties resolved most of the claim, but disputed coverage for a facility in Oklahoma, which the insured contended needed to be rebuilt and not merely repaired. The insured rebuilt the facility over the insurer’s objection and thereafter demanded reimbursement, which the insurer denied. The insured field suit in Arkansas where the company is incorporated and the policies were issued. As suit was filed after the one-year time period had passed, the insurers moved to dismiss based on a time-limitation provision in the policies, which they argued was enforceable under Oklahoma law. The district court found Arkansas law applied and, pursuant to Arkansas Code §23-79-202, any policy provision shortening the limitations period for property insurance suits to less than the five-year period provided by Arkansas Code §16-56-111 is void. The court denied the insurer’s motion to dismiss.
The Eight Circuit affirmed the district court’s application of Arkansas law and its voiding of the one-year limitations provision as violative of Arkansas statute that prohibits the imposition of a limitations period for an insured to sue an insurer for breach of property claim shorter than five years.
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Texas Appellate Court Holds That Acceptance Of Appraisal Award Is Not Necessary To Bar Policyholder’s Recovery
A Texas appellate court held that an insurance carrier’s timely payment of an appraisal award barred a policyholder’s recovery for breach of contract and extra-contractual claims even where the policyholder refused to accept the award. National Security Fire & Casualty Company v. Hurst, 2017 WL 2258243 (Tex.App.—Hous. [14th Dist.] May 23, 2017).
The insured submitted a claim for wind damage. Payment was made and accepted, but no repairs were made. The insured sued the carrier asserting claims for breach of contract, bad faith, violations of Chapters 541 and 542 of the Texas Insurance Code, and violations of the Texas Deceptive Trade Practices Act. The insured invoked appraisal and an award was issued by a court-appointed umpire. The carrier then paid the award, less amounts previously paid, but instructed the insured to hold the money in trust until a release had been executed. The insured never cashed the appraisal check and continued to pursue litigation against the carrier. Ultimately, trial was held and the jury found in favor of the insured on all counts and a verdict was rendered for a greater amount.
On appeal, the carrier contended its payment of the appraisal award should have precluded recovery. The insured argued that, because he never accepted the appraisal award, he could not be estopped from pursuing his contractual and extra-contractual claims. The appellate court ruled in favor of the carrier, holding that because the insurer’s payment complied with the terms of the policy, there could be no breach. The court recognized that the carrier’s request for a release in exchange for payment of the award did not change the fact that the carrier still remitted the full payment required under the contract. The court further noted that because the claim was timely paid, the insured’s claims under Chapter 542 failed. Moreover, because the insured could not prove injury independent from loss of policy benefits, the insured’s remaining claims were likewise foreclosed. This decision reflects a continuing trend among Texas state courts to hold that an insurance carrier’s timely payment of an appraisal award can preclude both contractual and extra-contractual claims.
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Fifth Circuit Confirms Material Misrepresentation Carries No Intent Requirement Under Mississippi Law
The U.S. Fifth Circuit Court of Appeals affirmed a ruling under Mississippi law that whether a misrepresentation was intentional, negligent, or the result of a mistake or oversight is of no consequence in an action to void coverage. State Farm Fire & Casualty Co. v. Flowers, 854 F.3d 842 (5th Cir. 2017).
The insured purchased land and, unable to obtain financing for construction of a home, quitclaimed the property to a third party who would construct the house. Thereafter, the insured obtained a homeowner’s policy, and three months later a fire damaged the house and its contents. After realizing that the insured did not actually own the house, the insurer filed suit to declare that the policy was void ab initio because of material misrepresentations made by the insured in his application, and was granted summary judgment.
The court noted that, under Mississippi law, if positive statements of fact are made by an applicant for insurance, and the statements are material to the risk, they must be accurate. Further, it is not enough for an applicant to believe the statements to be accurate, but they must, in fact, be accurate or the policy will be voided. The insureds did not dispute any of the findings advanced by the insurer, among them that insured did not own the house when he applied for the policy and that that was material to the insurer’s decision to issue the policy. The insureds instead argued that there is no evidence that the insured willfully misrepresented anything. The court noted that whether the misrepresentation was intended or not made no difference, and given that the insured had admitted in his answer and in his response to a request for admission that he had told the insurer he was the owner of the property, the facts were judicially admitted.
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North Carolina Court Of Appeals Affirms Directed Verdict For Insurer Due To Insured’s Failure To Enter Policy Into Evidence
The North Carolina Court of Appeals recently held that an insured’s failure to enter the policy at issue into evidence justified a directed verdict in favor of the insurer. State Farm Mut. Auto. Ins. Co. v. Phillips, 799 S.E.2d 285 (Table), 2017 WL 2118705 (N.C. Ct. App. May 16, 2017).
The insurer filed a declaratory judgment action seeking a finding that an individual who was involved in a car accident did not qualify for underinsured motorist coverage under an automobile insurance policy. The trial court granted the insurer’s motion for directed verdict based upon the insured’s failure to enter the auto policy into evidence.
On appeal, the Court of Appeals affirmed based upon the well-established principle that an insured bears the burden of proving coverage under a policy. The court held that the insured’s reliance upon limited policy provisions cited in the insurer’s complaint was insufficient to establish coverage because the court was unable to consider other relevant definitions and terms in the policy potentially impacting coverage.
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Federal Court In South Carolina Reaffirms Applicability Of Professional Liability Exclusion In Standard CGL Policy
A federal court in South Carolina enforced a professional liability exclusion notwithstanding a claim of illusory coverage. State Farm Fire & Cas. Co. v. Morningstar Consultants, Inc., 2017 WL 2265919 (D. S.C. May 24, 2017).
An insurer disclaimed coverage under a CGL policy for damages arising out of the insured’s negligence in its rendering or failing to provide inspection services to building units of certain construction projects. The insured argued that the policies would be rendered meaningless if the professional liability exclusion applied. The court disagreed, concluding that (1) inspections were specifically listed as professional services for which coverage was not provided by the policy; (2) the parties intended to insure against ordinary, not professional liability (as evidenced by the low premium charged to the insured); and (3) nothing indicated that the insured’s sole business activity was inspection such that a professional liability exclusion precluding coverage for inspecting would eviscerate the coverage provided by the policy.
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Federal Court In Florida Finds Sudden Or Abrupt Collapse Of Soil Falls Within “Sinkhole Collapse” Exception To “Earth Sinking” Exclusion
A federal court in Florida recently denied an insurer’s motion for summary judgment, finding that sudden or abrupt collapse of soil, ground, and natural resources below the earth’s surface falls within a “sinkhole collapse” exception to an “earth sinking” exclusion. Timber Pines Plaza, LLC v. Kinsale Ins. Co., 2017 WL 1458310 (M.D. Fla. Apr. 21, 2017).
The insured made a claim under its property policy for damage as a result of a sinkhole. The policy excluded from coverage “loss or damage caused directly or indirectly by … earth sinking (other than sinkhole collapse)….” The term “sinkhole collapse” was defined as “the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or dolomite.” The insurer denied the claim, concluding that there was no evidence of sinkhole damage to the property. The insurer retained an engineer who conducted additional testing and concluded that “sinkhole conditions” were present. The insurer determined that the conditions did not meet the definition of “sinkhole collapse” under the policy and continued to deny the claim. The insured retained another engineer, who concluded that the “sinkhole conditions” were indicative of “sinkhole collapse” because “sinkhole activity” includes (or at least has the potential to include) the “sudden disruption of subsurface soil strata” and the “sudden collapse of soils.” The insured filed a breach of contract action against the insurer. The insurer moved for summary judgment, arguing that there had been no “sinkhole collapse” at the property as a matter of law.
The district court denied the insurer’s motion for summary judgment, finding that the record contained evidence of “sudden sinking or collapse of land” from which a reasonable jury could conclude the damages were caused by a “sinkhole collapse.” The district court found that the term “sudden” contemplates an abrupt or sudden rate of collapse, while the term “land” includes the soil, ground, and natural resources located below the earth’s surface. The district court noted that the primary issue was a legal one, namely whether evidence of a collapse of sub-surface soil was sufficient to create an issue for the jury, or rather, whether the insured must prove a collapse of the surface or “ground cover.”
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Federal Court In Florida Finds Renovations/Repairs/Refurbishments Do Not Fall Within “Dwelling Being Constructed” Exception To Vacancy Exclusion
A federal court in Florida recently granted an insurer’s motion for summary judgment, finding that renovations, repairs or refurbishments do not fall within the plain and ordinary meaning of the phrase “being constructed” for purposes of a “dwelling being constructed” exception to a vacancy exclusion. Jarvis v. Geovera Specialty Ins. Co., 2017 WL 2869706 (M.D. Fla. July 5, 2017).
The insured made a claim under his property insurance for damage as a result of an intentionally set fire. The insurer denied the claim, concluding that coverage was precluded by the policy’s exclusion for loss caused by vandalism and malicious mischief if the dwelling has been “vacant” or “unoccupied” for more than 30 consecutive days immediately before the loss. An exception to the exclusion states that “[a] dwelling being constructed is not considered ‘vacant’ or ‘unoccupied.’” The insured sued for breach of contract. The insurer moved for summary judgment, arguing that the undisputed facts established that the vacancy exclusion precluded coverage for the fire loss.
The district court granted the insurer’s motion finding that the vacancy exclusion applied as renovations, repairs or refurbishments do not qualify for the “dwelling being constructed” exception to the vacancy exclusion. The district court found the phrase “dwelling being constructed” to be unambiguous and contemplating bringing a dwelling into existence from the ground up and not including in its plain and ordinary sense renovations, repairs or refurbishments to an already-existing dwelling.
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Federal Court In Georgia Holds Additional Insured Endorsement Does Not Extend To All Liability Relating To Named Insured’s Premises
A federal court in Georgia held that an additional insured endorsement does not extend to a putative additional insured for all liability relating to the named insured’s premises. Employers Mut. Cas. Co. v. Shivam Trading, Inc., 2017 WL 2126911 (S.D. Ga. May 16, 2017) (appeal filed 11th Cir. June 14, 2017).
The underlying plaintiff slipped and fell at a convenience store owned by the named insured and operated by the putative additional insured. The named insured was found not liable, but the suit continued against the operator. The operator sought additional insured status under the named insured’s policy, and the insurer sought a declaration as to whether the additional insured endorsement applied. The endorsement provided additional insured status “but only with respect to liability … caused, in whole or in part, by your acts or omissions or the acts or omissions of those acting on your behalf in the performance of your ongoing operations or in connections with your premises owned by or rented to you.” The policy defined the terms “you” and “your” as referring only to the named insured shown on the policy’s declarations page. The underlying plaintiff argued that the policy terms “you” and “your” are ambiguous, and that the additional insured endorsement thus covered her claim against the additional insured. The underlying plaintiff and the insurer filed cross-motions for summary judgment. The district court found that the terms “you” and “your” unambiguously refer to the named insured alone and that the additional insured endorsement unambiguously does not extend coverage to all liability relating to the named insured’s premises.
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Federal Court In Oklahoma Confirms Insurers Of Interstate Motor Carriers Cannot Be Named As Defendants Prior To Judgment Being Entered Against Their Insured
A federal court in Oklahoma offered guidance regarding the application of title 47 sections 169(A) and 230.21 of the Oklahoma Code to plaintiff’s directly suing trucking insurers, stating that the causes of action granted by these statutes applied only to insurers of drivers operating with a license in Oklahoma. Simpson v. Litt, 2017 WL 2271484 (W.D. Okla. May, 23, 2017).
The personal representative of the estate of a woman killed in an accident with a truck sued the trucker’s insurer. The insurer moved to dismiss, arguing that the plaintiff could not name it as a defendant prior to obtaining a judgment against the trucker or his employer. The court laid out the general rule in Oklahoma that insurers of defendants cannot be sued directly by plaintiffs, but identified two exceptions to the rule predicated upon a motor carrier insurer having been statutorily required under the Oklahoma Code to file proof of liability insurance with the Oklahoma Corporation Commission (OCC). Section 169(A) applies to the transport of household goods with origins and destinations in Oklahoma while section 230.21 applies to motor carriers transporting anything else over the public highways of Oklahoma.
The court dismissed the claim under section 169(A) given an absence of allegations of transporting household goods or the trucker acting solely as an intrastate motor carrier. The court granted leave to amend the claim, but decided to preemptively explain its understanding of section 230.21 and its application to the facts. It noted the Oklahoma Court of Civil Appeals previously held Section 230.21 does not apply to interstate motor carriers. Fierro v. Lincoln Gen. Ins., 217 P.3d 158 (Okla. Civ. App. 2009) The court went further to explain that because these interstate carriers can operate under the Unified Carrier Registration System, they need not register their insurance information with the OCC, and the respective sections apply only to motor carriers required to register proof of insurance with the OCC.
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Federal Court In Alabama Finds No Coverage For Expected Injury
A federal court in Alabama granted summary judgment to an insurer finding no duty to defend or indemnify under a commercial environmental policy where the damages were not due to “contracting operations,” and were not “unexpected or unintended.” Heartland Catfish Co., Inc. v. Navigators Specialty Ins. Co., 2017 WL 2116587 (S.D. Ala. May 15, 2017) (appeal filed 11th Cir. June 19, 2017).
The insured, a business that purchased fat, oil and grease (“FOG”) and recycled it into fuel, was issued a commercial environmental policy offering multiple coverages, including coverage for environmental damage that was unexpected and unintended. As part of its business, the insured bought and picked up waste and cooking oil from restaurants, which was transported to the plant to be unloaded outside a facility leased from another. The process “was messy and FOG and fuel would leak or spill on the property.” The insured was aware of the issues with leaks and took measures to mitigate the spills. The company that leased the property to the insured incurred losses due to difficulty in cleaning the property and sued for breach of contract, negligence, trespass, and diminution of value caused by environmental damage, and obtained a default judgment against the insured. The insurer denied the insured’s claim for indemnity. The company that leased the property sought a declaration that the insurer owed coverage for the judgment. Cross-motions were filed on, among other issues, whether the pollution damage was expected or intended. The court found based on the insured’s attempt to mitigate spills and leaks that the damage was not unexpected or unintended.
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