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 May issue. To view, click on the appropriate title and you will be brought to the full version of the article below.
Supreme Court Of Virginia Refuses To Parse Similar “Other Insurance” Clauses
The Virginia Supreme Court declined to give priority to what is called a “super-escape” other insurance clause over a more generic “excess” other insurance clause. Nationwide Mut. Fire Ins. Co. v. Erie Ins. Exch., 798 S.E.2d 170 (Va. 2017).
The Virginia Supreme Court analyzed two competing other insurance clauses. One stated that “if ‘other insurance’ applies to claims covered by this policy, the insurance under this policy is excess and we will not make any payments until the ‘other insurance’ has been exhausted by payment of claims.” The term “other insurance” was defined as “any type of self-insurance or other mechanism by which an ‘insured’ arranges for funding of legal labilities.” The other clause stated that “its insurance is excess over, and shall not contribute with any of the other insurance, whether primary, excess, contingent or any other basis.”
The Court declined to parse the competing clauses to determine which clause is more specific. It concluded that while the second clause contained what it called “super-escape phraseology” more specific than the terminology in the first clause, the first clause did refer to “any of the other insurance” or “any type of self-insurance.” Thus, the Court focused on the use of “any” in reference to other types of insurance. The Court found the two other insurance clauses to be mutually repugnant and apportioned coverage between the two policies on a pro rata basis.
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Supreme Court Of Texas Rejects Substantial Compliance Argument By Premium Finance Company
The Supreme Court of Texas adopted a strict interpretation of the Texas Insurance Code and held a premium finance company that failed to provide an insured the statutorily-required ten-day notice before requesting cancellation of an insurance policy was not entitled to summary judgment for a fire loss that occurred days after the policy was cancelled. BankDirect Capital Finance, LLC v. Plasma Fab, LLC, 2017 WL 1968024 (Tex. May 12, 2017).
The insured obtained a CGL policy and financed the policy through a premium finance company. The premium finance agreement gave the company authority to cancel the policy if the insured defaulted on its monthly premium payments. The premium finance company gave the insured nine-days’ notice of cancellation. Under the Texas Insurance Code, a premium finance company is required to provide the insured ten-days’ notice of intent to cancel the policy in order to allow an insured the opportunity to cure any deficiency.
After the policy was cancelled, a loss occurred and the insurer denied the claim due to the cancellation. In the insured’s subsequent suit against the premium finance company, the trial court granted summary judgment in favor of the company, which the insured appealed. Ultimately, the Supreme Court rejected the premium finance company’s argument that it had “substantially complied” with the ten-day notice requirement under the Premium Finance Act. The Court recognized that while the premium finance company’s approach was rational, it “[found] no home in the statute.”
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Supreme Court Of Mississippi Confirms “Each Person” Policy Limits
The Supreme Court of Mississippi affirmed previous holdings that “each person” policy limits are based on the number of persons who suffer bodily injury in an accident, not the number of insureds making claims. Rylee v. Progressive Gulf Ins. Co., 2017 WL 949545 (Miss. Mar. 9, 2017).
An insured motorcyclist was injured when a car collided with his motorcycle. The other driver’s insurer tendered the per-person policy limit for the motorcyclist’s injuries, and his primary insurer claimed it was entitled to a set-off and refused to tender uninsured motorist limits. The motorcyclist’s wife sued her husband’s uninsured motorist insurers and the driver of the other vehicle alleging loss of consortium. The motorcyclist filed a separate suit against the same defendants. The cases were consolidated and the two uninsured motorist carriers moved for summary judgment, arguing the “each person” policy limits precluded coverage because the motorcyclist was the only person injured in the accident and he had already received policy limits from the other driver’s insurer. The court granted summary judgment.
On appeal, the motorcyclist’s wife argued that her loss of consortium claim was not included in the “each person” policy limit and she was therefore entitled to coverage under her husband’s uninsured motorist policies. The policies similarly defined the “each person” limit of liability to include the total of all claims made for bodily injury to an insured person and all claims of others derived from such bodily injury, including, but not limited to, emotional injury or mental anguish resulting from the bodily injury of another or from witnessing the bodily injury to another, loss of society, loss of companionship, loss of service, loss of consortium, and wrongful death. The Supreme Court referred to its previous holdings that held that more than one person must have sustained bodily injury during the accident to recover more than the “each person” limit. Because the policies stated that the wife’s loss of consortium claim fell under the policy limits for damages resulting from the husband-rider’s bodily injury, and her husband had already received full policy limits for his bodily injuries, the Supreme Court affirmed the circuit court’s granting of summary judgment to the insurers.
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Georgia Appellate Court Holds Binder Expired Based On Insured’s Failure To Pay Premium
A Georgia appellate court recently held that temporary coverage provided by a binder expired after the insured failed timely to pay the premium owed. Popham v. Landmark Am. Ins. Co., 340 Ga. App. 603, 798 S.E.2d 257 (2017).
Upon approval of an application for insurance, the insurer issued a binder providing temporary coverage to the insured. The terms of the binder indicated that failure to submit the premium payment by a certain date would nullify and void coverage. The insurer issued a policy effective on the date of receipt of the premium, but did not receive the premium payment until ten days after the due date. During the ten-day period between when the premium was due and when it was actually paid, one of the insured’s workers was injured on a job site working for the insured. The injured worker sued the insured, who sought coverage under the policy issued by the insurer. The insurer denied coverage, stating no policy was in effect on the date of the incident. The insured sued the insurer for negligence, breach of contract, and failure to pay an insurance claim in bad faith. The insurer moved for summary judgment, which was granted by the trial court. The insured appealed, arguing there was a triable issue of fact as to whether the policy was formed and breached.
The appellate court affirmed, finding there was no policy in effect on the date of the incident. The appellate court noted that the binder clearly stated that coverage was temporary and would be deemed null and void if payment was not received by a certain date.
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Fifth Circuit Rules That Defense Costs Reduce Limits Of Liability Under Eroding Limits Policy In Mississippi
The U.S. Fifth Circuit Court of Appeals held defense costs incurred in an insurer’s defense under a reservation of rights erodes policy limits notwithstanding the Mississippi Supreme Court ruling in Moeller v. American Guaranty & Liability Ins. Co., 707 So.2d 1063 (Miss. 1996). Federal Ins. Co. v. Singing River Health Sys., 850 F.3d 187 (5th Cir. 2017).
Several suits were filed against the insured hospital alleging that its employees’ pension and retirement plan had been underfunded. The hospital tendered its defense to its insurer, which defended under a reservation of rights, noting that defense costs deplete the policy limits. The insurer then filed a declaratory judgment action to address certain exclusions. The insured counterclaimed alleging waiver, estoppel, civil conspiracy, breach of contract, tortious interference with contract, breach of fiduciary duty, breach of the duty of good faith and fair dealing, bad faith, interference with contract and business relations, and conversion. Both parties moved for summary judgment. The district court granted the insured’s motion, entering judgment that defense costs should not be deducted from policy limits. The district court also granted the insurer’s motion that its obligations are limited to the policy’s sub-limit for fiduciary liability coverage and denying coverage under a certain exclusion. Both parties appealed.
The Fifth Circuit addressed the insured’s argument that the Supreme Court of Mississippi’s decision in Moeller required the insurer to pay defense costs regardless of policy limits, and held that Moeller merely requires the insurer to pay for the insured’s separate counsel where a conflict exists. The Fifth Circuit next analyzed the Supreme Court of Mississippi’s decision in Southern Healthcare Services, Inc. v. Lloyd’s of London, 110 So.2d 735 (Miss. 2013) where it held Moeller does not establish an absolute right to reimbursement of all defense costs and stated “where the policy specifies that defense costs are included in the deductible, the insurer is not responsible for defense costs until the deductible has been paid.” The Fifth Circuit reversed and held that the insurer’s duty to pay defense costs is subject to the policy terms which state that defense costs erode policy limits.
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Eleventh Circuit Holds Insured Is Entitled To Attorneys’ Fees Based On Settlement Of Underlying Tort Claim And Voluntary Dismissal Of Related Declaratory Judgment Action
The U.S. Eleventh Circuit Court of Appeals, applying Florida law, recently held that an insured was entitled to attorneys’ fees and costs pursuant to section 627.428, Florida Statutes, because the insurer settled the underlying tort claim and voluntarily dismissed its declaratory judgment action, which constituted a confession of judgment. W & J Group Enter., Inc. v. Houston Specialty Ins. Co., 2017 WL 1279045 (11th Cir. Apr. 6, 2017).
The insured sought coverage under its liability policy for a claim against it. While the insurer had a pending declaratory judgment action against its insured seeking a ruling of no duty to defend or indemnify and rescission of the policy, the insurer and insured reached a settlement with the underlying plaintiff that included payments made by both the insurer and the insured. After the settlement, the insurer voluntarily dismissed its declaratory judgment action. The insured then moved for attorneys’ fees pursuant to section 627.428, which provides that an insured is entitled to its fees when judgment is entered in favor of the insured. The insurer argued that the insured’s contribution to the settlement took it outside the scope of section 627.428. The court agreed and denied the insured’s motion for entitlement to attorneys’ fees. The insured appealed.
The Eleventh Circuit reversed, finding that the insurer’s settlement of the underlying tort claim and voluntary dismissal of the declaratory judgment action constituted a confession of judgment. The Eleventh Circuit noted that the insurer could have avoided these circumstances by negotiating a global settlement that included attorneys’ fees. Thus, the insured was entitled to attorneys’ fees pursuant to section 627.428.
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Eleventh Circuit Affirms Ruling That Insurer Did Not Waive Pre-Tender Defense Costs Position
The U.S. Eleventh Circuit Court of Appeals held that an insurer’s position that it does not owe pre-tender defense costs does not constitute a coverage defense requiring the insurer to comply with notification requirements under Florida’s Claims Administration Statute. EmbroidMe.com, Inc. v. Travelers Prop. Cas. Co. of Am., 845 F.3d 1099 (11th Cir. Jan. 9, 2017).
The underlying plaintiff sued the insured for copyright infringement. Prior to notifying the insurer, the insured defended the lawsuit for eight months. Upon notification of the underlying lawsuit, the insurer agreed to defend but advised the insured 39 days after notification that it refused to reimburse the insured for its pre-tender defense costs. The insured sued the insurer for breach of contract in refusing to reimburse its defense costs. The insured argued that it was entitled to reimbursement because Florida’s Claims Administration Statute requires insurers who seek to deny coverage based on a coverage defense to notify the insured of its reliance on the coverage defense within 30 days of becoming aware of its existence, and the insured was advised of the insurer’s position 39 days after notification. The court rejected the insured’s argument and found the insurer’s refusal to reimburse the defense costs did not constitute a coverage defense, and that the statutory time limit did not apply. The insured appealed.
The Eleventh Circuit affirmed, holding that the insurer’s position to not pay pre-tender defense costs does not constitute a coverage defense requiring an insurer to comply with statutory notification requirements. The Eleventh Circuit noted the policy language clearly alerted even the most unsophisticated insured that the insurer would not reimburse it for attorneys’ fees without obtaining the insurer’s permission. Further, the Eleventh Circuit found that the policy language was an exclusion to coverage, not a forfeiture of coverage. The Eleventh Circuit also noted that the insurer was prejudiced by the insured incurring defense costs without notifying the insurer, in part because the insured agreed to a higher fee rate for defense counsel.
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Eleventh Circuit Finds No Duty For Insurer To Indemnify Insured For Settlement Amounts Where Insured Fails To Prove Amount Paid To Settle Claims Covered Under CGL Policy
The U.S. Eleventh Circuit Court of Appeals upheld summary judgment in favor of an insurer where it found the insurer’s denial of coverage was proper due to the insured’s failure to allocate settlement amounts between covered claims and non-covered claims. Highland Holdings, Inc. v. Mid-Continent Casualty Company, 2017 WL 1628953 (11th Cir. May 2, 2017).
The insured, a home design and development group, had a liability policy covering damages the insured became obligated to pay due to personal and advertising injury that included “injury arising out of the infringing upon another’s copyright, trade dress or slogan in your advertisement.” An advertisement was defined as “a notice that is broadcast or published to the general public … about your goods, products or services for the purpose of attracting customers….” The insured infringed on copyrights for a home design-schematic created and owned by another home development group. Over a six-year period, the insured built and sold multiple homes based on the copyrighted schematics, and the other group sued. The insured tendered its claim to the insurer which defended the claim until the insured rejected the defense and settled with the development group. The insured sought indemnity, and the insurer denied coverage based on the insured’s failure to allocate its damages among covered claims and non-covered claims. The insured sued the insurer for breach of contract for failure to indemnify and the insurer counterclaimed for declaratory judgment that indemnification was not owed.
The district court granted summary judgment for the insurer, finding it owed no duty to indemnify the insured for the settlement amount because the settlement agreement resolved “all claims” against the insured, not just those for “advertising injury.” The district court rejected the insured’s argument that the infringement of the schematic plan by the insured was an advertisement as defined by the policy, precluding coverage for claims arising solely out of the copyright infringement. On appeal, the Eleventh Circuit affirmed, finding that the schematic plan itself was not an “advertisement” and that the insured failed to show that an “advertising injury” was caused by using the infringing models to market the insured’s business.
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Federal Court In South Carolina Holds Hazing Claims Alleged An “Occurrence”
A federal court in South Carolina recently held that negligence claims arising from a hazing incident alleged an “occurrence” triggering the duty to defend. Allstate Ins. Co. v. Ingraham, 2017 WL 976301 (D. S.C. Mar. 14, 2017).
The court considered a declaratory judgment action brought to determine whether a homeowners’ insurer had a duty to defend the son of its insureds in connection with an underlying lawsuit asserting allegations of hazing by members of a college swim team. The insurer argued that coverage was not triggered because the underlying complaint alleged intentional acts not qualifying as an “occurrence” under the policy.
The court disagreed, finding that the allegations of intentional actions did not necessarily defeat coverage. The court noted that the “occurrence” requirement is met under South Carolina law if either the act itself or the resulting injury is accidental. Thus, because the underlying complaint did not allege that the insured’s son intended the specific injury sustained by the claimant, the duty to defend was triggered. The court was also influenced by the trial court’s denial of a motion to dismiss the negligence claims in the underlying lawsuit, finding that the underlying complaint contained sufficient facts to state a cause of action for negligence.
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Federal Court In North Carolina Finds Token Settlement Offers Do Not Constitute Unfair And Deceptive Trade Practices
A federal court in North Carolina found that an insurer did not engage in unfair and deceptive trade practices when it only made token settlement offers prior to mediation. Elliott v. Am. States Ins. Co., 2017 WL 1089962 (M.D. N.C. Mar. 22, 2017), appeal filed (4th Cir. Apr. 4, 2017).
The plaintiff was injured in a car accident. The driver of the other automobile was at fault, but his insurance was insufficient to cover the plaintiff’s medical costs. The plaintiff had underinsured motorist coverage through her insurer. The plaintiff attempted to settle with her insurer, which only made unsubstantial token offers. The plaintiff was ultimately awarded substantially more than the insurer’s settlement offer.
The court found that the insurer did not engage in unfair and deceptive trade practices because it had no obligation to settle. It noted that the insurer’s obligation to compensate the plaintiff did not arise until the plaintiff was legally entitled to recover against the tortfeasor, which did not occur until an award was made. The court also noted that determining the value of an insured’s claim is not an exact science and that the plaintiff had failed to allege a deceptive act and dismissed her claims for unfair and deceptive trade practices.
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Federal Court In Tennessee Voids Commercial General Liability Policy For Misrepresentation
A federal court in Tennessee found a policy void due to the insured’s misrepresentation in the policy application. Mount Vernon Fire Ins. Co. v. Liem Constr., Inc., 2017 WL 1489082 (M.D. Tenn. Apr. 26, 2017).
The insured submitted an application for insurance that asked whether the insured had ever been identified by a different name and what classifications of work the insured performed. The insured indicated that the corporation had no other name (although the corporation was previously identified under a different name) and that the construction work was related only to carpentry and painting and did not include roofing work (even though the insured did roofing work). Subsequently, the insured subcontracted to perform certain improvements, including roof repairs, to residential apartments. The roofing work was defective and resulted in property damage to the apartment buildings. The property owner sued the insured, and the insured tendered the claim to its insurer. In ensuing coverage litigation, the insurer moved for summary judgment that it had no duty to defend or indemnify based on the insured’s misrepresentations regarding its prior name and classifications of work, arguing that both misrepresentations unfairly increased the insurer’s risk of loss and should result in the voiding of the policy.
The court granted summary judgment for the insurer, finding that the insured’s misrepresentation that it did not do roofing repairs was sufficient to void the policy. The court noted that under Tennessee law, a misrepresentation is held to increase the risk of loss if the misrepresented information naturally and reasonably influenced the judgment of the insurer in making the contract. The court dismissed the insurer’s argument that the insured’s misrepresentation as to prior names deprived it of information related to previous losses which may have affected its decision to make a fair appraisal of the risk, finding the mere potential to discover hypothetical information was not sufficient to void the policy. However, it found that the misrepresentation that the insured never performed roofing work misrepresented a fact plainly relevant to the possibility of roofing-related liability.
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Federal Court In Alabama Finds Discriminatory Acts Not Covered
A federal court in Alabama granted summary judgment to an insurer finding no duty to defend or indemnify under either a CGL or an umbrella policy where the policies excluded coverage for intentional, discriminatory acts. Auto-Owners Ins. Co. v. McMillan Trucking Inc., 2017 WL 992181 (N.D. Ala. Mar. 15, 2017).
The insured, a trucking company, operated at a wood chip mill and was charged with assigning wood chip loads to truckers. The insured was sued by two contract truckers who alleged that the insured’s employee assigning loads “devised a plan to require African American truckers” to pay a cash kickback for certain loads, and that the insured’s other employees helped to implement the plan. The complaint alleged that the kickbacks aided the insured’s business, and caused the plaintiffs to suffer loss of business, income, and property, and mental anguish, hardship and emotional distress. The insured tendered its defense under its CGL and umbrella policies. The insurer accepted the defense subject to a reservation of rights and sued for a declaratory judgment that it owed no defense or indemnity. The insured had a CGL policy providing coverage for bodily injury caused by an “occurrence,” defined in the policy as “an accident, or repeated exposure to the same harmful conditions.” The umbrella policy provided coverage for injury to which that insurance applied caused by an “incident,” defined as “either an occurrence or offense, whichever is the basis of coverage,” but contained an exclusion that barred coverage for personal injuries “caused by or at the direction of any insured with the knowledge that the act would violate the rights of another or would inflict personal injury.”
On summary judgment motion, the court found that although the underlying lawsuit alleged claims for bodily injury, the claims did not arise from an “occurrence” as defined under the CGL policy, noting that the undefined term “accident” has been defined by the Alabama Supreme Court as an unintended and unforeseen injurious occurrence, which has made clear that the “crux” of the occurrence inquiry should be whether the conduct was intentional. The court found that the underlying complaint alleged only intentional conduct. Similarly, the district court found no coverage under the umbrella policy based on the exclusion that barred coverage for personal injury caused by or at the direction of any insured with the knowledge the act would result in harm.
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Texas Case Puts At Issue Meaning Of “Well” In Energy Policy
A Harris County, Texas jury awarded damages to a policyholder against its insurer on a claim for damage to an offshore drilling rig. Prime Natural Resources, Inc. v. Certain Underwriters at Lloyd’s London, Harris County District Court, Case No. 2015-51137 (May 12, 2017).
The insured’s offshore drilling rig consisted of a well and an adjacent well platform. The policyholder submitted a claim under its energy package policy and the insurer accepted coverage for physical damage to the rig platform and for debris removal. The insurer also paid for pipeline damage and debris removal, as well as well-redrill operations. The parties disputed whether the policy’s well-related damages/expenses coverage required reimbursement of what the insured spent to repair the wellhead and piping above the wellbore. The insurer claimed these damages did not constitute damages to the “well,” and that the insured was seeking to characterize platform-related damage (for which policy limits had been exhausted under the physical damage coverage) as well-related damage to recover under a separate policy limit. The insured argued that the wellhead (and the piping supporting the wellhead) constituted part of the “well” and, thus, fell within the portion of the well-related damages/expenses coverage. The trial court denied the insurer’s summary judgment on this issue and the case proceeded to trial.
This matter is all but certain to be appealed, which will be the second appeal. In March of 2015, the First District Court of Appeals affirmed the trial court’s order granting summary judgment in favor of the insurer, holding that the insurer’s payments under the physical damage and well-redrill operations coverages were appropriate. The opinion the court, in dicta, adopted a somewhat restricted meaning of the term “well,” which seems to contradict the position taken by the insured. Ultimately, the eventual appellate decision on this issue could have a significant impact upon similar energy policies as the distinction between well damage versus well equipment damage could, as seen in this case, result in vastly different policy limits for a loss.
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