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 September issue. To view, click on the appropriate title and you will be brought to the full version of the article below.
Louisiana Supreme Court Endorses Pro Rata, Time on Risk Method to Allocate Defense Obligation for Long Latency Exposure Claims
The Louisiana Supreme Court held recently that defense costs in long latency exposure cases should be shared among the insurers and insured on a pro rata, time on risk basis. Daniel Arceneaux, et al. v. Amstar Corp., et al., 2015-0588 (La. Sept. 7, 2016).
Plaintiffs alleged injuries from noise exposure at a plant for a multi-year period. An insurer issued liability policies to the insured for only 26 months of this period and offered to pay a portion of the defense costs incurred by the insured. The insured sought a complete defense against the claims. The Supreme Court recognized that, for purposes of indemnity, Louisiana prorates an insured’s liability among carriers on the risk during periods of a plaintiff’s exposure to injurious conditions and that insurers are not obligated to indemnify the insured for damages allocated to uninsured years.
The Supreme Court chose to apply the pro rata allocation it applied for indemnity to defense as well, and rejected joint and several allocation that would divide defense costs equally among insurers by head and would not allocate costs to the insured even if there were gaps in its coverage. The pro rata allocation method obligates an insurer to pay a share of the defense cost only for the years in which it provided coverage as a percentage of the total number of years triggered. The court’s calculation does not take into account varying limits of liability between policy years to proportion the amount owed by each insured; rather, it simply divides the years the insured covered the claim by the years during which a plaintiff was exposed. This method leaves an insured exposed for defense costs for policy periods in which there is no insurance.
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Texas Supreme Court to Review Award of Extra-Contractual Damages in the Absence of a Breach of Contract
The Texas Supreme Court will review a jury verdict awarding damages for violations of the Texas Insurance Code for inadequate investigation despite a finding of no breach of contract. USAA Texas Lloyd’s Co. v. Menchaca, 2014 WL 3804602 (Tex.App. — Corpus Christi, Jul. 31, 2014), review granted (Sept. 2, 2016).
The insured made a property damage claim for wind damage, and the insurer assigned an independent adjuster who concluded that much of the claimed damage was not from wind. Even after a reinspection, the accepted amount was less than the deductible and the insurer did not pay the claim. The insured sued its insurer and, after a jury trial, the trial found that the insurer did not breach the contract but that it did violate the Texas Insurance Code for unfair claims settlement practices in conducting an inadequate investigation for which the jury awarded damages. The insurer appealed.
The insurer argued that the award for extra-contractual damages should be set aside in the absence of a finding of breach of contract. The appellate court disagreed and affirmed. It reasoned that the lack of a breach of contract finding was not because of the absence of coverage and that a finding of inadequate investigation under the Insurance Code is not dependent on there being a covered claim.
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Mississippi Supreme Court Holds Insurer’s Acceptance of Late Premium Payment did not Create Retroactive Coverage
The Mississippi Supreme Court held that an employer’s late premium payment did not constitute a counter-offer for retroactive coverage and thus did not preclude a lapse in coverage, for which reason the insurer did not have to comply with statutory notice of cancellation provisions. AmFed National Insurance Co. v. NTC Transportation, Inc., 196 So.3d 947 (Miss. Aug. 11, 2016).
After an insurer denied coverage based on coverage having lapsed, the insured sued the insurer seeking declaratory judgment and asserting a breach of contract claim, arguing that it had submitted a counteroffer for backdated coverage when it sent in a late premium payment and that the insurer failed to follow statutory guidelines for cancellation. The policy was renewable each year provided that the insured tendered the premium on or before the due date. The insurer sent a renewal notice to the employer stating that the premium was due and that “payment must be received by the due date shown above to insure no lapse in coverage.” The insured paid the premium two weeks after the deadline. The insurer issued a policy effective at a later date so that there was a gap in coverage. An injured worker thereafter made a claim for injuries sustained during the period of the lapsed coverage. The insurer denied coverage.
The Mississippi Supreme Court held that the insured’s late premium payment did not constitute a counter-offer for backdated coverage because nothing on the payment stub indicated that the employer was submitting a counter-offer for backdated coverage or was requesting retroactive coverage. It further found the notice requirements in Mississippi Code §71-3-77 did not apply because the insurer did not evince an intent not to renew coverage, and the policy expired by its own terms for the insured’s failure timely to pay the premium.
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Kentucky Supreme Court Rejects Pro Rata Allocation for UM “Other Insurance” Provisions
The Kentucky Supreme Court reversed and remanded a case in which the court of appeals allocated full liability for uninsured motorist (“UM”) benefits to one of two auto policies where each policy contained mutually repugnant “other insurance” clauses. Countryway Ins. Co. v. United Fin. Cas. Ins. Co., 2016 WL 4488306 (Ky. Aug. 25, 2016).
A passenger injured while riding on a tractor sought a declaratory judgment as to whether her personal coverage or the UM coverage by the tractor’s insurer would apply. Both policies contained “other insurance” clauses stating that the policy was excess over any other valid policy providing coverage. The trial court deemed the clauses to be mutually repugnant and required the insurers to share damages pro rata. The UM insurer for the tractor appealed, arguing that an earlier Kentucky Supreme Court case that addressed competing “other insurance” clauses in auto liability policies departed from the approach of most courts by eschewing a pro rata approach in favor of a “brightline” rule fixing primary coverage on the vehicle’s insurer. The court of appeals reversed but found the passenger’s personal insurance was primary, distinguishing UM indemnity coverage from liability coverage considered in the earlier case.
The Supreme Court reversed, holding that it would not support a pro rata approach for mutually repugnant “other insurance” clauses in the context of UM coverage, but would allocate full liability to the primary insurer, which the Court held to be the vehicle’s, not a passenger’s, insurer. The Supreme Court held that the court of appeals had misinterpreted an earlier Supreme Court decision and that UM “other insurance” provisions should be disregarded in favor of a “brightline” rule which places full liability on a vehicle’s insurer.
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Eleventh Circuit Certifies to Florida Supreme Court Question of Meaning of “Suit” in Florida Statute to Determine Duty to Defend
The U.S. Eleventh Circuit Court of Appeals recently certified to the Florida Supreme Court whether Florida Chapter 558’s “notice of repair” process (requiring property owners to serve a pre-suit notice on a contractor with whom they have a dispute) qualifies as a “suit” within the meaning of a CGL policy. Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 2016 WL 4087782 (11th Cir. Aug. 2, 2016).
Chapter 558 requires a claimant to notify a contractor of an alleged defect prior to suit. The contractor was given notice of a defect under Chapter 558 and demanded defense from its insurer, whose policy required it to defend the insured against any “suit” defined as “a civil proceeding,” including arbitration or alternative dispute resolution proceedings. The insurer denied defense because the Chapter 558 notice was not a “suit.” The district court granted summary judgment to the insurer and the insured appealed.
The Eleventh Circuit examined the legislature’s intent and the policy wording but noted that no Florida state court had addressed the issue and sought further guidance from, and certified the question to, the Florida Supreme Court.
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Eleventh Circuit Finds Medicare Advantage Organization Entitled to Double Damages Under the Medicare Secondary Payer Act
The U.S. Eleventh Circuit Court of Appeals recently held that the Medicare Secondary Payer Act permits a Medicare Advantage Organization to pursue a private cause of action for double damages against a tortfeasor’s liability insurer. Humana Med. Plan, Inc. v. Western Heritage Ins. Co., 2016 WL 4169120 (11th Cir. Aug. 8, 2016).
The Medicare Advantage Organization (“MAO”) paid medical bills incurred by its enrollee injured at an insured apartment complex. The enrollee sued the insured for the injury. The MAO asserted a lien against the enrollee’s recovery. Thereafter, the enrollee settled with the insured and its liability insurer, and the MAO sued the enrollee and her attorney asserting its lien. The insured’s insurer attempted to make the MAO a payee on the settlement check, but after the enrollee refused, the insurer and enrollee stipulated that the lien amount would be held in trust by the enrollee’s attorney. After failing to secure reimbursement from the enrollee, the MAO sued the insurer for reimbursement and sought double damages under the Medicare Secondary Payer Act. It moved for summary judgment, which the court granted, finding that the MAO could maintain a private cause of action against the insurer and was entitled to double damages. The insurer appealed.
The Eleventh Circuit affirmed, finding that the Act provides the MAO with a private cause of action against an insurer that paid benefits through settlement of an underlying claim. Based on the insurer’s attempts to include the MAO on the settlement check and stipulation for the funds to be held in trust for reimbursement, the Eleventh Circuit found that the insurer had constructive knowledge of the MAO’s lien at the time the settlement was reached between the enrollee, insured and insurer. Therefore, given that the insurer failed to reimburse the MAO within 60 days of the settlement, it held the insurer liable for double damages.
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Louisiana Appellate Court Confirms Child Molestation is Presumed Intentional
The Louisiana First Court of Appeal affirmed that coverage for child molestation is, as a matter of law, excluded by a liability policy’s “expected or intended injury” exclusion. My Phuong Tran v. Huy The Dao, 2016 WL 4245376 (La. App. 1 Cir. Aug. 10, 2016).
A partial owner of a restaurant gave his 16-year-old employee a ride home and sexually molested the teen. The teen’s parents sued the owner, the restaurant and the restaurant’s liability insurer. In response to the insurer’s summary judgment motion asserting the policy’s “expected or intended injury” exclusion, the plaintiffs argued that there was a genuine issue of material fact as to the co-owner’s intent to sexually molest the teen. The plaintiffs cited a Louisiana Supreme Court case which involved a battery of a non-sexual nature where the Court used a subjective-intent analysis to determine whether or not the exclusion applied. Breland v. Schilling, 550 So.2d 609, 610 (La. 1989), rehearing denied (Nov. 22, 1989). The appellate court distinguished the facts of that case in favor of another case similar to the sexual assault before it. Based on that prior holding, the court affirmed that child molestation “can only occur as a result of a deliberate act by the perpetrator” and that injury from such a deliberate act is always intended. Thus, the court concluded, coverage for damages as a result of the intentional injury is always excluded by the “expected or intended injury” exclusion.
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Federal Court in Florida Finds No Waiver of Right to Appraisal When First Substantive Action is to Challenge Right to a Judicial Remedy
A federal court in Florida found that an insurer did not waive its right to appraisal when the first substantive action taken by the insurer was to challenge the insured’s right to a judicial remedy rather than attacking the case on the merits. J&E Investments, LLC, a Corporation v. Scottsdale Ins. Co., Case No. 0:16-cv-61688-WPD (S.D. Fla. Aug. 18, 2016).
The insured made a claim under its commercial property policy for water damage to the insured building as a result of an air conditioning leak. The insurer accepted coverage and paid the undisputed amount of loss, but the insured sued the insurer for breach of contract, alleging that the insurer failed to fully compensate the insured. After removing the lawsuit, the insurer immediately demanded appraisal of the amount of loss and filed a motion to compel appraisal and to stay and or abate the lawsuit pending appraisal. The insured opposed, arguing that the insurer waived its right to appraisal.
The magistrate judge recommended that the insurer’s motion to compel appraisal and to stay and/or abate the lawsuit pending appraisal be granted, finding that the insurer had not filed an answer or otherwise participated in a substantive way in the case and, thus, did not act inconsistently with its right to demand appraisal. It held that where an insurer’s first substantive action is to challenge an insured’s right to a judicial remedy (as opposed to attacking the case on the merits), an insurer has not waived its right to compel appraisal. The district court entered an order adopting the magistrate judge’s recommendations.
Phelps Dunbar represented the insurer in this case. For additional information regarding this decision, please contact Catriana Messina at firstname.lastname@example.org.
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Federal Court in Georgia Holds Insurer’s Right to Rescind Policy Unaffected by Policy’s “Innocent Insured” Provision
A federal court in Georgia recently held that an insurer had the right to rescind a policy based on a material misrepresentation in an insurance application despite a policy’s “innocent insured” provision. Proassurance Cas. Co. v. Smith, 2016 WL 4223666 (S.D. Ga. Aug. 9, 2016).
Former clients of a law firm sued the firm and its principals after a settlement without the clients’ knowledge and the misappropriation of the proceeds by one of the firm’s principals. The firm and its principals sought coverage under the firm’s professional liability policy. The principal who was alleged to have misappropriated the funds signed the application for insurance after the settlement and misappropriation and stated he was not aware of any circumstances, acts or omissions that could result in a professional liability claim. When the claim was made, the insurer sought rescission of the policy based on the misrepresentation in the application. The insured and uninvolved principal argued that their lack of knowledge regarding the conduct fell under the policy’s “innocent insured” provision, which stated, in part, that “if a claim is made involving the dishonest, criminal, malicious or fraudulent act, error, or omission of an Insured, this policy will apply to any Insured who did not participate in … such acts, errors or omissions….” The insured moved for summary judgment that the insurer was not entitled to rescission.
The district court granted summary judgment in favor of the insurer, finding that the insurer was entitled to rescind the policy because the misrepresentation in the application was material and objectively false. It noted that the “innocent insured” provision was inapplicable because there essentially never was a contract for insurance given the insurer’s right to rescission.
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Federal Court in Texas Holds Cooperation Clause Applies When Insured Unreasonably Declines Settlement Offer
A federal court in Texas held that the duty to cooperate applies to an insured’s rejection of a settlement offer but that there was a fact question as to whether that duty was breached. Mid-Continent Casualty Co. v. Petroleum Solutions, Inc., et al., 2016 WL 4061147 (Jul. 29, 2016), motion to amend filed (Aug. 9, 2016).
The insured was sued by a former customer for whom the insured installed an underground fuel tank. The customer discovered that fuel had leaked into the soil and notified the insured, who then notified its insurer. The insurer denied coverage because the fuel leak was caused by a faulty flex connector made by the manufacturer of the component parts and not the insured. The customer sued the insured for breach of express and implied warranties. The insured, in turn, sued the manufacturer under TCPRC §82.002(a) for statutory indemnity by a manufacturer to an innocent seller, which counterclaimed against the insured for indemnity for fees incurred in defense of the insured’s action and in prosecution of its claim against the insured for indemnity. The manufacturer offered to dismiss its counterclaim, but only if the insured would dismiss its claim with prejudice. The insurer wanted to accept, but the insured refused because it wanted to be able to pursue indemnity from the manufacturer in light of the insurer’s position of non-coverage. The insured dismissed its claim against the manufacturer, but not with prejudice, and the manufacturer pursued its counterclaim.
The jury found against the insured for the customer’s claim and also awarded attorneys’ fees, costs and expenses to the manufacturer. The insurer denied coverage for the manufacturer’s counterclaim taking the position that the insured’s rejection of the offer mutually to dismiss the claims was a breach of the cooperation clause.
In the ensuing litigation, the insured argued that it would be an unprecedented expansion of the duty to cooperate to include a litigation decision by an insured regarding an affirmative claim against a third-party, especially since, in light of the insurer’s position of non-coverage, it was being asked to forego its only means of reimbursement. The court concluded that the duty to cooperate did apply because the cooperation clause includes the settlement of a “claim” or “suit,” and “suit” encompasses any right of action by an insured including an affirmative claim. The court held that the cooperation clause is violated where the insured’s conduct is not “reasonable and justified under the circumstances,” but concluded that neither party had carried its burden to show the absence of a genuine issue of material fact regarding the reasonableness of the insured’s rejection of the settlement offer.
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Federal Court in Virginia Clarifies Ensuing Loss Exception as it Applies to Faulty Workmanship Exclusion
A federal court in Virginia recently ruled that a distinct, covered peril is required to trigger the “ensuing loss” exception to a faulty workmanship exclusion. Taja Investments LLC v. Peerless Ins. Co., 2016 WL 3951406 (E.D. Va. July 21, 2016), appeal filed (4th Cir. July 26, 2016).
An insured contractor failed properly to support a structure with necessary underpinnings during excavation, and a wall collapsed. The contractor’s property insurer denied the claim, citing the policy’s faulty workmanship exclusion. The insured filed suit for breach of contract, claiming that an “ensuing loss” exception to the exclusion restored coverage.
The court granted summary judgment in favor of the insurer and clarified Virginia law on the exclusion. First, the court held that the exclusion applies only when the loss is attributable to “defects in the materials or process used by the insured or its agents” but not to defective actions or materials utilized by other parties. Moreover, an “ensuing loss” exception restores coverage only when the insured can identify an independent and covered cause of loss. In this case, although collapse was a covered cause of loss, the collapse was not independent of the faulty workmanship of the insured, and thus the insured could not claim the “ensuing loss exception,” which the court held does not create coverage where none exists.
An appeal to the U.S. Fourth Circuit Court of Appeals is pending.
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Florida Trial Court Holds Court has Discretion to Resolve Coverage Issues Prior to Ruling on Appraisal
A trial court in Florida recently held that where a request for appraisal raises issues of an insured’s compliance with post-loss obligations and prejudice to an insurer, the trial court may exercise its discretion to resolve coverage issues prior to entertaining a motion to compel appraisal. Hernandez. v. Tower Hill Preferred Ins. Co., 24 Fla. L. Weekly Supp. 219 (Fla. Cir. Ct. July 7, 2016).
The insureds brought a claim and the insurer adjusted the loss, acknowledged coverage and made two undisputed claim payments. Over three years later, the insureds requested that the insurer submit their claim to appraisal, but the insurer argued the insureds were not entitled to appraisal because of the insureds’ failure to provide “prompt notice,” to “keep an accurate record of repair expenses” and to provide the insurer with “records or documents” regarding their supplemental claim. At an evidentiary hearing on the insureds’ compliance with post-loss conditions, the trial court found that the insureds failed substantially to comply with certain post-loss cooperation obligations and denied the insureds’ motion to compel appraisal. The insureds moved to vacate or reconsider the order.
The trial court vacated its order but denied the insureds’ motion to compel appraisal, finding that the trial court has discretion either to (a) have coverage issues decided first; (b) permit appraisal first; or (c) proceed with both on a “dual track basis.” However, the court concluded that, in cases where a genuine issue of material fact exists on matters of coverage, the court can exercise its discretion to try the coverage issues before entertaining a motion to compel appraisal as there is no purpose in conducting an evidentiary hearing on a motion to compel appraisal before coverage is established.
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Federal Court in South Carolina Allows Attorneys’ Fees Under Improper Claims Practice Act
A federal court in South Carolina recently refused to dismiss an insured’s request for award of attorneys’ fees stemming from an alleged breach of the South Carolina Improper Claims Practice Act. Rush v. Zurich Am. Ins. Co., 2016 WL 3913704 (D. S.C. July 30, 2016).
The insured alleged that its insurer violated the Act by delaying processing of a claim. The insurer sought dismissal of the cause of action, citing to South Carolina Supreme Court precedent that the Act does not create a private cause of action, but rather provides only a right to administrative review from the Chief Insurance Commissioner. The court disagreed, noting that the plaintiff sought only statutory attorneys’ fees, not actual damages under the Act. It held that because the Act specifically authorizes awards of reasonable attorneys’ fees in certain circumstances, such as where a plaintiff “alleged a breach of contract claim in addition to a tort ‘bad faith’ claim,” the cause of action was valid.
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Federal Court in Louisiana Holds Aviation Policy Exclusion for Non-Pilot Operators does not Exclude Coverage for Physical Damage to Aircraft Under All-Risk Coverage
A federal court in Louisiana denied an insurer’s motion for summary judgment, holding that an exclusion restricting coverage to pilots was ambiguous as to its application to an all-risk coverage provision of the same policy. Bologna v. Marnell, 2016 WL 3877975 (E.D. La. July 18, 2016).
An aircraft lessee crashed an aircraft insured by its owner. The insurer denied coverage because the lessee did not meet the policy’s definition of “pilot” and the policy contained an exclusion that it did not apply if the aircraft is piloted by someone other than a “pilot.” The owner sued the insurer for breach of contract and breach of duty of good faith, arguing that the exclusion did not apply to the physical damage coverage section.
The exclusion stated that the policy “does not apply … [t]o any Insured while the aircraft is in flight … [i]f piloted by other than the pilot or pilots designated in the Declarations” [emphasis added]. The court noted that it was clear under the policy that an individual is not a pilot under the policy if he or she is neither the individual identified in the declarations nor a pilot certified as having a minimum of 300 total logged flying hours. The court noted, however, that the exclusion does not include wording that indicates similar consequences with respect to coverage for physical loss or damage. The court noted an ambiguity in that the “all-risk” policy, which covers the owners for theft, would cover the owners only if the plane was stolen by a “pilot.” The court also stated that because the exclusion did not specifically exclude coverage for physical loss to the aircraft while operated by one other than a “pilot,” principles relevant to “all-risk” coverage favor a finding of coverage.
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Federal Court in Oklahoma Finds Pollution Policy Constitutes “Underlying Insurance” Triggering Exception to Pollution Exclusion in Umbrella Policy
A federal court in Oklahoma denied an insurer’s motion for summary judgment where it found the insurer obligated to defend under an umbrella policy for claims arising from a flow line leak because an exhausted pollution policy constituted “underlying insurance,” triggering an exception to the umbrella policy’s pollution exclusion. BITCO General Insurance Corporation v. Marjo Operating Company, Inc., 2016 WL 3920467 (W.D. Okla. July 15, 2016), appeal filed (10th Cir. Aug. 17, 2016).
The insurer issued a pollution policy and an umbrella policy to its insured. After a saltwater flow line leak was discovered on the insured’s well, the insurer reimbursed the insured for cleanup costs, exhausting the pollution policy’s limit. A landowner whose property had been contaminated by the leak sued the insured, and the insurer agreed to defend under the pollution policy subject to a reservation of rights but sought a declaration that it had no further duty to defend or indemnify under the pollution policy since it had paid the policy limit and sought a declaration of whether the umbrella policy covered the landowner’s lawsuit.
Coverage under the umbrella policy included a pollution exclusion, which stated, in pertinent part: “[i]t is agreed that this policy does not apply to: (1) ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time….” However, the exclusion did not apply if insurance was provided by “underlying insurance,” which was defined to include “any other insurance available to the insured, except such insurance as may be purchased to apply specifically in excess of [the umbrella] policy.” [emphasis added]. The court held that the pollution policy constituted “any other insurance” under the definition of “underlying insurance” in the umbrella policy even though the pollution policy was not designated in the schedule of “underlying insurance.”
An appeal to the U.S. Tenth Court of Appeals is pending.
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Federal Court in Mississippi Finds No Coverage for Removed Component Parts Where Coverage is Based on Scheduled Equipment
A federal court in Mississippi granted summary judgment finding that no coverage exists (or that an exclusion otherwise applied) for loss of component parts of a scheduled piece of the insured’s equipment once removed from the equipment. Performance Drilling Company, LLC v. National Union Fire Insurance Company of Pittsburgh, PA, 2016 WL 4132088 (S.D. Miss. July 28, 2016).
The insured operated mobile, land-based drilling rigs and held an “all-risks” inland marine insurance policy for “oil and/or gas well drilling and/or workover equipment as per Schedule, the property of the Assured, or oil and/or gas well drilling and/or workover equipment for which the Assured may be legally or contractually liable.” The insured ordered and installed two new mud pumps for a scheduled rig without amending the schedule. The two replaced pumps, one of which was broken, were taken to the insured’s storage yard where they were later allegedly stolen by an employee who was apparently offered money to give scripted testimony about the loss. Two weeks later, the theft was reported to law enforcement, and the insured informed its insurer approximately one month later. The insurer advised that the pumps were not separately scheduled and coverage was otherwise subject to exclusions for: (1) property in “permanent storage”; (2) losses resulting from “want of due diligence by the Insured”; and (3) damage caused by “[i]nfidelity or any dishonest act on the part of the Assured or their employees.”
Mississippi courts had not considered whether component parts of scheduled property can be insured against loss after removal from the scheduled item. In its Erie guess, the court found that the policy showed no intent to insure component parts after they were removed from a scheduled item. The court noted that the policy did not refer to “each item and its components” and concluded that the plain construction was that the parties agreed to insure the scheduled items or rigs as units rather than individual components. The court also found that coverage of property for which an insured may be “legally or contractually liable” applies only where the insured is a custodian or bailor. Based on the information in the record indicating the mysterious circumstances under which the pumps disappeared, the court alternatively held that the “unexplained loss and/or mysterious disappearance” exclusion would apply.
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Federal Court in Georgia Holds Declaratory Judgment not Proper to Consider Rights to Proceeds of Hypothetical Settlement
A federal court in Georgia recently held that it would be improper to opine as to a declaratory judgment sought in relation to a hypothetical settlement. Fuller v. Mercury Ins. Co. of Ga., 2016 WL 4479491 (N.D. Ga. Aug. 24, 2016).
Following a fire, an insured made a claim with its homeowner’s insurer. The insured property was subject to a reverse mortgage, and the policy provided that losses would be paid to the insured and the mortgagee. After its investigation of the loss, the insurer denied coverage on the grounds that the insured intentionally set the fire and concealed material facts during the investigation. The insured sued the insurer for breach of contract and bad faith denial of coverage, and added the mortgagee to the litigation. The insured filed a cross-claim against the mortgagee for a declaration to limit the mortgagee’s right to recovery and moved for equitable relief against the mortgagee, arguing the mortgagee waived its right to recovery in the event the insured and the insurer reached a settlement. The district court denied the insured’s motion for equitable relief, finding that it would be improper for the court to render an advisory opinion as to a hypothetical settlement between the parties.
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Mississippi Court Holds Insured’s Failure to Read Policy Precluded Suit Against Insurers and Agent Seeking Broader Coverage
The Mississippi Court of Appeals upheld summary judgment in favor of insurers and an insurance agency on an insureds’ breach of contract, bad faith, fraud and negligence claims after an insured admitted that she had not read the policy that clearly indicated coverage was limited to one building, despite her request for insurance on two buildings. Bell v. Certain Underwriters at Lloyd’s London, 2016 WL 4442961 (Miss. Ct. App. Aug. 23, 2016).
The insured bought property on which two buildings were located — a metal building and a wood-framed barn — and sought insurance for the property. An agent prepared an application that the insured signed but which covered just the metal building. The agent then obtained coverage for the metal building. The wood-framed barn later collapsed, and the insured made a claim under the policy, which was denied. The agent requested reconsideration, indicating that the insured had asked for a policy covering both buildings and that the indication the insured building was 900 square feet was an error by the agent who should have indicated both buildings were 9,000 square feet. The insurer requested that the insured submit to an Examination Under Oath, and the insured filed suit alleging fraud, tortious breach of contract, bad faith and negligence.
The insured admitted under oath that she had never read the policy. The insurers and agency filed a motion for summary judgment, which the trial court granted. The Mississippi Court of Appeals affirmed because the plain language of the policy did not provide coverage for the wood-framed barn that did not have utilities, as it indicated coverage only for a metal building of 900 square feet with plumbing and electrical fixtures.
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