Asbestos Suits Against Employers Present New Risk for Employer’s Liability Insurers

By on September 10, 2014
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Two asbestos hotbed jurisdictions, Pennsylvania and Illinois, have recently opened the door to long-tail occupational disease claims against employers in the tort system.  These decisions held that the exclusivity provisions of the applicable state workers’ compensation acts do not prohibit employees diagnosed with occupational diseases long after their retirement from suing their former employers in the tort system alongside the traditional panoply of asbestos defendants.  Employers and their employer’s liability insurers should be aware of this new risk and the issues it may present going forward.

In Pennsylvania – as in almost any other state – the Workers’ Compensation Act is and has been the exclusive means for an employee to recover from his or her employer for workplace-related injuries.  Certain enumerated “occupational diseases,” such as asbestosis, are included within the act’s ambit provided that they occur “within three hundred weeks after the last date of employment . . .” 77 P.S. § 411(2).  This 300-week provision had been interpreted as a statute of limitations and/or repose, closing the door on claimants’ recovery from employers when a latent disease manifests after 300 weeks.  Therefore, employees could not sue their employers in the tort system because of the workers’ compensation exclusivity provision, nor could they pursue workers’ compensation benefits because of the statute of repose.

say Images: Robert Biedermann/Shutterstock.com

Images: Robert Biedermann/Shutterstock.com

The Supreme Court of Pennsylvania abrogated this long-standing interpretation in Tooey v. AK Steel Corp., 81 A.3d 85 (Pa. 2013).  The court held that because the occupational disease claims manifesting outside the 300-week period are not covered by the act, the act’s exclusivity provision does not apply, and employees are free to sue their former employers in tort.  Similarly, in Illinois, the Workers’ Compensation Act and Workers’ Occupational Diseases Act contain exclusivity provisions that bar employees’ direct tort actions against employers for workplace injuries.  Under those statutes, an employee must file claims within three and 25 years, respectively.

In Folta v. Ferro Engineering, (Ill. App. Ct. 1st Dist. June 27, 2014), an Illinois intermediate appellate court held that the Foltas could maintain a tort claim against James Folta’s former employer because he first discovered his asbestos-related injury outside of the acts’ statutes of repose.  Unlike Pennsylvania, where a legislative amendment to the workers’ compensation statute appears to be the only “fix,” there remains a possibility that Folta is reversed on appeal or that the Illinois Supreme Court overrules Folta in another case.  The defendant in Folta filed a petition for leave to appeal, which remains pending.

While the traditional asbestos products and premises defendants seek coverage from their historical general liability insurers, commercial general liability policies are unlikely to provide coverage to employer defendants because of the policies’ employer’s liability exclusions.  Instead, employers may look to their workers’ compensation/employer’s liability policies.  Employer’s liability coverage exists “to ‘fill the gaps’ between workers’ compensation coverage and an employers’ general liability policy… to protect the insure[d] from tort liability for injuries to employees who do not come under the exclusive remedy provisions of workers’ compensation.”  See Erie Ins. Prop. & Cas. Co. v. Stage Show Pizza, JTS, Inc., 210 W. Va. 63, 68, 553 S.E.2d 257, 262 (2001).  Tooey and Folta have created a new “gap,” and that gap may widen into a chasm, as Philadelphia’s The Legal Intelligencer reported on June 3 that courts are “universally” accepting plaintiffs’ attempts to join employers in pending mesothelioma cases, and that virtually every new filing names employers as defendants.

Images: Robert Biedermann/Shutterstock.com

Images: Robert Biedermann/Shutterstock.com

Employer’s liability coverage is fundamentally different and much more limited than general liability coverage.  Because this coverage was offered to fill the narrow “gap” between general liability and workers’ compensation coverage, it was offered inexpensively.  As a result, employer’s liability coverage often includes high deductibles (or loss reimbursement provisions) and low aggregate limits.  Some employer’s liability coverage forms include time limitations, limiting coverage to claims filed against the employer within three or five years of the policy’s expiration date.  Further, most employer’s liability coverage contains specific trigger language, limiting coverage to those policies in effect only on the last date of the worker’s exposure to hazardous conditions at the workplace.  Therefore, the “continuous trigger” applicable to general liability policies is unlikely to apply to employer’s liability insurers.  Employers risk only being able to access a single policy year that is subject to a high deductible and low aggregate limit (with no excess coverage available).

It remains to be seen whether the decisions in Pennsylvania and Illinois represent an emerging risk that may spread to other jurisdictions, or if the legislatures of both states will react swiftly to amend their respective states’ laws.  For now, however, employers and their employer’s liability insurers should be prepared to address these potential newfound liabilities.

Filed under Allocation, Employer’s Liability, Trigger of Coverage

Ninth Circuit Holds That “Use” of Motor Vehicle Includes Unloading Injured Passenger

By and on August 18, 2014
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In California, motor vehicle policies confer insured status on any person while “using” a motor vehicle with the permission of the owner.  The Ninth U.S. Circuit Court of Appeals recently addressed whether unloading an injured passenger from a motor vehicle constituted “use” of that motor vehicle under California law.  In holding that unloading an injured passenger from a motor vehicle constituted “use,” the court reasoned that the subject policy incorporated California Insurance Code § 11580.06(g), which defines “use” to include “unloading” a motor vehicle.

In Encompass Insurance Co. v. Coast National Insurance Co., decided Aug. 13, 2014, Encompass sought contribution from Coast National Insurance Co. and Mid-Continent Insurance Co. in connection with a settlement it paid on behalf of its insured, Lisa Torti, arising from the personal injury claim of Alexandra Van Horn.  Van Horn was a passenger in a vehicle operated by Anthony Glen Watson.  Watson lost control of his vehicle and struck a light pole.  Torti was the passenger in a vehicle passing by when she stopped to render aid.  Fearing that the Watson vehicle would catch fire, Torti removed Van Horn.  Van Horn claimed that Torti caused her severe spinal injuries.

Encompass issued a package policy to Torti providing, among other things, motor vehicle and personal excess liability coverage.  Mid-Continent issued a motor vehicle policy to Torti and Coast issued a motor vehicle policy to Watson (the driver of the vehicle in which Van Horn was a passenger).  The Mid-Continent and Coast policies provided coverage for the “use” of the vehicle if such use was with the permission of the owner.  The court addressed the meaning of the term “use,” but did not evaluate the issue of “permission.”

The court recognized that the Mid-Continent and Coast policies incorporated the definition of “use” from California Insurance Code § 11580.06(g), which unambiguously equates “unloading” of a motor vehicle with the “use” of a motor vehicle.  Hence, the court held that “use” included Torti’s unloading of Van Horn from the Watson vehicle.

The court rejected the dissent’s arguments that unloading of a vehicle constitutes use only when it is part of the user’s act of availing himself or herself of the vehicle because there was an absence of case law adopting such a theory.  The court also stated that the dissent’s attempt to create a distinction between commercial and noncommercial vehicles was unavailing in light of the fact that the statutory definition of “motor vehicle” included “any vehicle designed for use principally upon the streets and highways and subject to the motor vehicle registration under the law of this state.”  Moreover, the court noted that there were at least two cases where California courts held that unloading noncommercial vehicles constituted use of those vehicles.

The court also rejected the defendants’ argument that unloading only constitutes use when it is integral to the function of the vehicle as a means of transport such that the person unloading the vehicle gains a benefit.  In the case upon which the defendants relied, Travelers Ins. Co. v. Northwestern Mut. Ins. Co. (1972) 104 Cal. Rptr. 283, the California Court of Appeal held that performing maintenance on a vehicle without more was not necessarily use of the motor vehicle.  The Ninth Circuit stated that Travelers did not limit the circumstances under which maintaining a vehicle constitutes use, and therefore imposed no limits on “unloading.”  Travelers also was decided 12 years prior to the enactment of § 11580.06(g) and to the extent that Travelers was inconsistent, the court was bound to follow the Insurance Code.

The court remanded the decision for further proceedings.  Notably, the court never determined whether Torti had Watson’s permission to use his motor vehicle.  With the issue of whether unloading constitutes use resolved, the ultimate coverage determination will likely turn on the issue of permission.

Filed under Auto, California Insurance Code

New York High Court Rejects Policyholder’s Effort to Expand Reach of Late Disclaimer Statute

By on July 25, 2014
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New York’s high court has prevented an extension of New York’s “late disclaimer” law that would have placed a new, strict time requirement on an insurer attempting to disclaim coverage.  By overruling an intermediate appellate decision, the Court of Appeals of New York preserved the current arrangement under New York law whereby an insurer will generally not lose the right to disclaim coverage based on the mere passage of time without facts supporting waiver or estoppel theories, except in the case of death and bodily injury claims.

The high court, in its June 10 ruling in KeySpan Gas East Corp. v. Munich Reins. Am. Inc., found that three insurers had not, by operation of New York’s late disclaimer statute, waived their right to disclaim coverage for environmental contamination where they had allegedly failed to issue their disclaimers “as soon as reasonably possible” after learning of the grounds for disclaimer.  The decision overturned an intermediate appellate court decision that had denied summary judgment to the three excess insurers on the basis that issues of fact remained as to whether such a waiver had occurred.

The three excess insurers were named as defendants in a declaratory judgment action brought by their insured, a property owner that had incurred losses in connection with the investigation and remediation of environmental damage at manufactured gas plant sites.  In defending the suit, the insurers raised late notice as a defense.  Following summary judgment proceedings, the intermediate appellate court decided that a jury should consider whether  the insurers waived their right to disclaim coverage by failing to meet their “obligation to issue a written notice of disclaimer on the ground of late notice as soon as reasonably possible after first learning of the accident or of grounds for disclaimer of liability.”

The Court of Appeals reversed the decision, finding that the appellate court had improperly applied New York Insurance Law§ 3420 (d) (2), New York’s late disclaimer statute, to an environmental damages claim.  While the appellate court had not cited the statute directly, the Court of Appeals noted that the appellate court had essentially applied the statute’s strict timeliness requirements.

The statute, however, which requires notice of a disclaimer “as soon as is reasonably possible,” only applies to death and bodily injury claims because, as the Court of Appeals explained, the statute was enacted to aid injured parties by encouraging the expeditious resolution of such claims.

In other contexts, including environmental remediation claims, the statute does not apply, and the mere passage of time will not deprive an insurer of its policy defenses without “the insurer’s manifested intention to release a right as in waiver, or on prejudice to the insured as in estoppel.”  Accordingly, the Court of Appeals reversed the decision and remanded the case for further proceedings.

Filed under Late Disclaimer Statute, Reservation of Rights

California Supreme Court Overrules Prior Appellate Decision on Coverage for Product Disparagement

By and on July 9, 2014

In Hartford Casualty Insurance Co. v. Swift Distribution, Inc., the California Supreme Court clarified the law on coverage for commercial disparagement, expressly overruling an earlier intermediate appellate decision that had significantly broadened coverage for the tort.  The Supreme Court held a claim of disparagement must contain a false or misleading statement that specifically refers to and clearly derogates a competitor’s product or business.

Hartford issued a CGL policy to a company doing business as Ultimate Support Systems.  Ultimate sold a product called the Ulti-Cart, a multi-use cart marketed for the loading and transport of musicians’ equipment.  A competitor who made a similar transport cart called the Multi-Cart sued Ultimate for patent and trademark infringement, false designation or origin, and damage to business, reputation and goodwill.

Hartford denied any duty to defend or indemnify Ultimate on the ground the claims were outside the personal and advertising injury insuring agreement.  Ultimate contended the allegations raised a claim for covered disparagement. An earlier appellate decision, Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc. (2012) INS BLOG_charlotte russe207 Cal.App.4th 969, had found a claim for covered disparagement potentially existed because an insured’s reduction in the price of a product could implicitly constitute disparagement of that product.  Hartford brought a declaratory relief action in which the trial court granted summary judgment for Hartford, which was affirmed by the Court of Appeal and Supreme Court.

The Supreme Court found Ultimate’s advertisements contained no disparagement of Multi-Cart’s products.  It held that, while the similarity between the Ulti-Cart and the Multi-Cart could cause consumer confusion and might support a claim of patent or trademark infringement, it did not, by itself, support a claim of disparagement because there was no express assertion or clear implication of the inferiority of the Multi-Cart.

The Supreme Court also held that phrases and words used in Ultimate’s advertising, such as “patent-pending,” “innovative,” “unique,” “superior” and “unparalleled,” did not support a claim for disparagement as these phrases and words were not specific enough and were more akin to “mere puffing,” which could not support tort liability.

Image courtesy of Flickr by Jeepers Media

Filed under Product Disparagement

Washington Court Holds Agency Action Must Be Adversarial or Coercive to Trigger Insurer’s Duty to Defend

By and on June 16, 2014

While Washington courts have long held that an insurer must indemnify an insured for cleanup costs under the Model Toxics Control Act (MTCA), even where the Washington State Department of Ecology (DOE) has made no threat of formal legal action, the Washington courts had not addressed the issue of what triggers an insurer’s duty to defend.

On June 2, the Washington Court of Appeals addressed the latter issue in Gull Industries, Inc. v. State Farm Fire and Cas. Co. and Transamerica Ins. Group, et al., 2014 Wash. App. LEXIS 1338, and held that an agency action must be adversarial or coercive to qualify as the functional equivalent of a “suit” when that term is undefined in the policy.

In Gull Industries, Gull undertook voluntary remediation of his gas station after finding contamination from an underground storage tank.  Gull notified the DOE, which acknowledged receipt of Gull’s notice of contamination.  The DOE letter also stated that DOE has not determined that Gull is a potential liable party; advised Gull to be aware of state requirements but did not advise of any consequences in failing to comply with such requirements; and noted that Gull may request assistance from the DOE.

Gull subsequently tendered its defense and indemnity to Transamerica Insurance Group (TIG) and State Farm, which both provided liability coverage for the gas station.  The policies provided a duty to defend “any suit against the insured,” but “suit” was undefined.  After TIG and State Farm denied the tender and Gull filed suit, the trial court granted summary judgment to TIG and State Farm on the duty to defend.

On appeal, the Court of Appeals adopted the analysis in Ryan v. Royal Ins. Co. of America, 916 F.2d 731 (1st Cir. 1990) to determine what triggers the duty to defend “any suit” when the owner of contaminated property faces strict liability under MTCA.  The Court of Appeals held that the term “suit” is ambiguous in this context and may include administrative enforcement acts that are the functional equivalent of a suit to trigger the duty to defend if the governmental agency communication involves an explicit or implicit threat of immediate and severe consequences by reason of the contamination.

In this case, the Court of Appeals held that the DOE letter to Gull did not present an express or implied threat of immediate and severe consequences by reason of the contamination.  As a result, Gull was not faced with the functional equivalent of a suit, and TIG and State Farm had no duty to defend.

In light of this case, it will be important for insurers to carefully examine agency communications to determine whether such communications would qualify as a functional equivalent of a suit to implicate the duty to defend.

Filed under Duty to Defend, Governmental Agency Actions

Washington Court Finds Stipulated Judgment Against Insured Is Minimum Measure of Damages in Failure to Settle Case

By , and on May 16, 2014

It is a general principle that insurers face liability beyond their policy limit when they fail to settle a claim against an insured that presents an exposure beyond the limit.  States approach the rule in different ways. As demonstrated recently in a Washington appellate decision, Miller v. SAFECO Ins. Co., 2014 Wash. App. LEXIS 1030 (April 28, 2014), insurers need to be very careful there because the ultimate judgment against the insured, even if reached by stipulation between the insured and underlying plaintiff, presents the minimum measure of damages for the nonsettling insurer.

Miller involved an automobile accident in which Patrick Kenny hit a cement truck while driving a vehicle owned by one of his passengers.  Safeco Insurance Co. wrote a $500,000 per person and accident primary and $1 million umbrella policies.  Despite severe injuries, Safeco did not settle with passenger Miller for policy limits.

Kenny settled with Miller, which included a covenant not to execute with an assignment of Kenny’s rights against Safeco.  Safeco later agreed $4.15 million was a reasonable judgment amount. Interestingly, Washington does not require the action be tried to establish its value despite a “no action” policy condition, contrary to many states.

Miller sued Safeco and the jury rendered a verdict for Miller of $13 million, of which $11.9 million was on the assignment.  The $11.9 million included the $4.15 million judgment and $7.75 million for other damages such as lost or diminished assets or property; lost control of the case or settlement; damage to credit; effects on insurability; and emotional distress or anxiety.  The judgment against Safeco ultimately totaled $21,837,286.73 after interest was added.

The Court of Appeals affirmed, essentially ruling against Safeco on every contested issue.  The court rejected Safeco’s argument the stipulated judgment was the only measure of damage.  It noted an insured’s damages may also include other damages such as the jury found here.

Another important lesson is that the Court of Appeals agreed Safeco’s reserve information was admissible because it indicates whether the insurer adjusted the claim in good faith.  There was evidence Safeco set its reserve at $1.5 million and repeatedly concluded that Kenny was exposed to liability in excess of policy limits.  Yet it did not offer that amount to settle.

The Court of Appeals remanded to recalculate the post-judgment interest and it is possible further proceedings could occur.  We will report further as they do.

Filed under Bad Faith

Caution: SIRs Will Be Strictly Construed

By and on April 10, 2014

The California Court of Appeal, Fourth Appellate District, parsed an insurer’s defense and indemnity obligations allegedly both subject to a self-insured retention (SIR).  The court held the SIR only precluded an indemnity obligation prior to SIR exhaustion and had no effect on the insurer’s duty to defend.

CON BLOG_home buildAmerican Safety Indemnity Co. v. Admiral Insurance Co. (2013) 220 Cal.App.4th 1, involved typical indemnity and additional insured obligations arising from a homeowners’ suit over bad grading. The homeowners sued the developer, grading subcontractor and certain developer-related entities.  The developer and the developer-related entities tendered their defense to their insurer, Admiral, and the developer pursued additional insured rights under the grader’s policy with American Safety Indemnity Co. (ASIC).

ASIC initially denied the developer’s tender but eventually paid its fees.  The construction defect action settled for $4.9 million and Admiral and ASIC contributed their respective $1 million policy limits to the settlement.

ASIC sued Admiral seeking to recover the cost of defending the developer and related entities.  Admiral contended the developer-related entities had not satisfied its policy’s SIR.  The trial court found Admiral’s duty to defend was independent of the SIR provision.

On Sept. 27, 2013, the appellate court upheld the trial court’s ruling and found that the SIR provision in Admiral’s policy specifically limited its duty to pay “damages” and did not mention its duty to defend.  The appellate court further held that a reasonable insured would expect to receive a defense under a primary policy unless the SIR coverage limitation was clear and conspicuous. The court supported its interpretation of the Admiral policy by comparing the SIR endorsement with the “other insurance” provision, which expressly limited Admiral’s duty to defend.

Click here for the opinion.

Image courtesy of Flickr by Great Valley Center

Filed under Self Insured Retentions

No Coverage for Data Breach Under Personal Injury Provision in General Liability Policy

By on March 10, 2014

In Recall Total Information Management, Inc. v. Federal Ins. Co., 147 Conn. App. 450 (2014), Connecticut’s Appellate Court held there is no coverage for a data breach under a general liability policy’s “personal injury” coverage in the absence of evidence that the files were accessed by third parties.  

Recall, a records storage company, contracted to store tapes containing electronic personal information, including names and Social Security numbers, of 500,000 past and current IBM employees.  Recall subcontracted with a transport company to ship the tapes by truck, and was named as an additional insured on the transport company’s primary and umbrella general liability policies.  While the tapes were in transit, they fell off the transport company’s truck and were taken by an unknown person.  The tapes were never recovered.

IBM incurred over $6 million in mitigation costs as a result of the data breach, including notification to affected persons and providing credit monitoring services. IBM demanded Recall reimburse these costs.  Recall notified its insurers, but they denied coverage and declined to participate in settlement negotiations.  Recall settled with IBM and then obtained assignments from the transport company under its policies.  Recall sued the insurers, but the insurers prevailed on summary judgment.  In January, the Appellate Court upheld the judgment of the trial court.

The Appellate Court first rejected Recall’s contention a defense was owed because the court found no “suit” had been brought.  The Appellate Court next addressed the substantive coverage question.  The policies covered damages for “personal injury,” which was defined to include “injury caused by an offense of electronic, oral, written or other publication of material that violates a person’s right to privacy.”  Recall argued the personal information stored on the tapes had been “published” to the thief or other unknown persons, subjecting Recall to potential claims and liability for the costs of notifying the owners of the lost data and providing them with credit monitoring services.

The Appellate Court found, however, that Recall had failed to cite any evidence the electronically stored information was published and that speculation about a publication was insufficient.  Neither the complaint nor affidavits Recall submitted contained facts suggesting the data had been accessed, which the Appellate Court found was a prerequisite for the “publication” requirement.

The Appellate Court was also unconvinced by Recall’s argument the triggering of data breach notification statutes presupposes an invasion of privacy.  The Appellate Court explained the statutes in question do not address or provide compensation for identity theft; they simply require notice to the owner of the personal information involved in a data breach so that the victims may protect themselves from potential harm.  “Merely triggering a notification statute,” reasoned the court, “is not a substitute for a personal injury.”

Given the prevalence of data breach cases, these insurance issues will continue to be litigated.

Filed under Data Breach

Insurer Not Obligated to Defend Underlying Action Seeking Only Injunctive Relief Even Though Amendment Added Damage Claim

By and on February 15, 2014

California has long recognized a liability insurer has no duty to defend lawsuits that seek nonmonetary relief such as injunctive relief actions.  The trickier aspect is what happens if a damage claim is later sought? Does that mean the insurer had a duty to defend from the outset because a damage claim could be stated? The California Court of Appeal, Fourth Appellate District, says no.

In San Miguel Community Association, et al. v. State Farm General Insurance Co. (2013) 220 Cal.App.4th 798, the underlying action against the insured initially sought only injunctive relief.  State Farm agreed to defend after the underlying plaintiffs amended their complaint to seek “damages.”  The insured argued State Farm had a duty to defend from the outset because the original complaint implied a claim for “damages.”  The trial court said no and the Court of Appeal affirmed adopting the simple test that, whether the underlying plaintiffs had sustained “damages” prior to the plaintiffs’ amendment was irrelevant because the earlier complaint did not seek recovery of “damages.”

The underlying lawsuit against the insured, San Miguel, involved a dispute over enforcement of parking restrictions in a condominium community.  The underlying plaintiffs began complaining at board meetings that San Miguel was not enforcing the restrictions.  They initially claimed distress, adverse effect on property values, and nominal out-of-pocket costs (such as for copying).  San Miguel demanded mediation.

The underlying plaintiffs subsequently filed suit against San Miguel for injunctive relief.  Neither the original nor the first amended complaint sought “damages” (although the plaintiffs requested punitive damages).  State Farm denied coverage with respect to both complaints.  The court allowed the plaintiffs to file a second amended complaint in which the underlying plaintiffs alleged – for the first time – that they sustained actual monetary “damages.”  State Farm initially denied coverage for the second amended complaint but, after speaking with the underlying plaintiffs’ counsel, agreed to provide San Miguel with a defense.

Coverage litigation followed.  San Miguel alleged State Farm breached the insurance contract and the covenant of good faith and fair dealing in declining to pay for the defense of the underlying claim prior to the second amended complaint.  San Miguel also contended that State Farm misrepresented its conversations with the underlying plaintiffs’ counsel in an effort to avoid coverage.  State Farm successfully moved for summary judgment, and San Miguel appealed.

On appeal, San Miguel did not dispute that State Farm’s policy required a claim for covered “damages” to trigger a duty to defend.  But, despite the lack of an explicit claim for “damages,” San Miguel argued the earlier allegations gave rise to the implication of “damages,” which triggered a defense obligation.  The Court of Appeal disagreed, noting that an insurer cannot deny a defense merely because the allegations against the insured are not phrased in the precise language of the policy.  However, this rule against strictly construing the underlying allegations does not mean the insurer must infer that other allegations exist where they are clearly not pleaded.

On Oct. 1, 2013, the Court of Appeal found the specific allegations in the earlier versions of the complaint were inconsistent with an implication that the underlying plaintiffs sought to recover money “damages.”  The court also rejected San Miguel’s argument that the request for punitive damages implied a claim for consequential “damages.”  Even assuming the punitive damages claim was flawed (due to the absence of a “damages” claim), the court observed that there would be no need for demurrers if courts and other parties were required to infer the existence of missing allegations.  The testimony of the underlying plaintiffs’ counsel also was consistent with State Farm’s view that San Miguel did not seek recovery of “damages” until its second amended complaint.

As to the allegation that State Farm fabricated a conversation with counsel for the underlying plaintiffs, the court found no evidence of misrepresentation or any reason State Farm would have reached a different conclusion about coverage had it handled the investigation differently.  Finally, the court rejected San Miguel’s bad-faith claim based on the contention that State Farm manufactured evidence.  Absent any right to recover additional benefits under the policy, San Miguel had no viable claim of bad faith.

Click here for the opinion.

Filed under Injunctive Relief Not Covered Damages

New Jersey Court Approves Direct Suits Among Carriers to Share Defense Costs

By and on December 15, 2013

The New Jersey Supreme Court recently ruled, in a case of first impression, that an insurer may bring a contribution claim against a co-insurer for defense costs that arise from continuous property damage litigation.

In Potomac Insurance Company of Illinois v. Pennsylvania Manufacturers Association Insurance Co., Potomac sought reimbursement from PMA for a portion of defense costs Potomac spent to defend a mutual insured in underlying construction defect litigation.  PMA had previously denied coverage and reached a settlement with the insured in a separate declaratory judgment action.  However, PMA did not contribute to the defense. PMA rejected Potomac’s subsequent request for reimbursement of PMA’s allocated share of defense costs (using Carter-Wallace allocation under New Jersey law), arguing that it obtained a full release from the insured as part of their settlement.

On Sept. 16, the New Jersey Supreme Court affirmed the trial court’s ruling that PMA could not unilaterally extinguish the rights of co-insureds to contribution claims for defense costs through a separate settlement with the insured.  The court also ruled for the first time that an insurer could seek contribution from a co-insurer for defense costs, and that the allocation principles for continuous trigger claims announced in Owens-Illinois and Carter-Wallace are equally applicable to defense costs.

Filed under Contribution Actions

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