Body-to-Body Contact Not Required for Policy’s “Assault or Battery” Exclusion to Apply

By on December 1, 2013

The California Court of Appeal, Second Appellate District, recently held that an insurance policy’s “Assault or Battery” exclusion did not require direct “body-to-body” contact between individuals, and it unambiguously applied to preclude coverage for an underlying lawsuit in which a customer set fire to a nightclub dancer.

INS BLOG_nightclubBusby worked as a nightclub dancer with Oxnard Hospitality Enterprise, Inc.  She suffered bodily injury on Oxnard’s premises when a nightclub patron threw flammable liquid on her and set her on fire.  Busby sued Oxnard and others for negligent failure to provide adequate security and sued her assailant for battery.  Busby also asserted a cause of action for negligent infliction of emotional distress on behalf of her minor children. While the underlying action was pending, Mt. Vernon brought a declaratory relief action Oxnard seeking a declaration that it had no duty to indemnify Oxnard based on the “Assault or Battery” exclusion. The underlying action was resolved by stipulated judgment against Oxnard of $10 million. Oxnard assigned all of its rights against Mt. Vernon to Busby.  Mt. Vernon then moved for summary judgment in the declaratory judgment action.

In its Sept. 16 opinion in Mt. Vernon Fire Ins. Corp. v. Oxnard Hospitality, Enterprise, Inc., the appellate court first rejected Busby’s argument the “Assault or Battery” exclusion did not apply because Busby’s theory of recovery was negligence.  The court cited case law holding any claim based on assault and battery, irrespective of the legal theory asserted against the insured, triggered the exclusion. The court also found that the exclusion precluded coverage for Busby’s claims.  The exclusion’s definition of “battery” — “negligent or intentional wrongful physical contact with another without consent that results in physical or emotional injury” – clearly required physical contact with another but did not distinguish between directly striking an individual and striking an individual through an intermediary object. The court found that the exclusion unambiguously excluded coverage because the act of setting fire to another person constituted “physical contact.

Image courtesy of Flickr by Bruce Turner

Filed under Assault and Battery Exclusion

Recent Decision for Insurers on Independent Defense Counsel Generates Controversy

By and on November 15, 2013

In Federal Insurance Co., et al. v. MBL, Inc., the California Court of Appeal, Sixth Appellate District, held that a third-party defendant insured in an environmental contamination action was not entitled to independent counsel because it failed to establish the outcome of coverage issues could be controlled by insurer-retained defense counsel.

INS BLOG_drycleaningThe federal government sued the owners of a dry cleaning facility under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for the cost of remediating soil and groundwater contamination in the city of Modesto.  The defendants in the CERCLA action subsequently filed third-party actions seeking indemnity, contribution and declaratory relief against the insured. Its commercial general liability insurers agreed to defend MBL, a supplier of dry cleaning products, subject to various reservations including the “sudden and accidental” pollution exclusion and date of loss issues.  MBL demanded it be allowed to choose independent counsel citing alleged conflicts of interest arising from the insurers’ reservations per California Civil Code §2860, which codified San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358.  The trial and appellate courts held no conflict existed because the coverage outcomes were outside defense counsel’s control.

Policyholders and related groups attacked the Aug. 26, 2013, decision and asked the California Supreme Court to review or depublish it.  However, the Supreme Court denied all depublication and review requests.

Image courtesy of Flickr by Parker Knight

Filed under Independent Counsel

Contractors Dismayed by Decision Expanding Right to Repair Act

By and on October 30, 2013

The California Court of Appeal, Fourth Appellate District, held that California’s Right to Repair Act, Civil Code section 895, et seq., does not provide the exclusive remedy for homeowners when alleged construction defects have resulted in actual damage.

CON BLOG_contractorsThe Aug. 28 decision in Liberty Mutual Insurance Company v. Brookfield Crystal Cove, LLC involved a 2008 pipe failure in a sprinkler system at a newly constructed home.  While the builder (Brookfield) performed repairs and remediation at the property, the homeowner’s insurance company (Liberty Mutual) paid for the homeowner’s relocation expenses.  In 2011, Liberty Mutual filed a subrogation lawsuit against Brookfield to recover those expenses.

The Right to Repair Act had been expected to limit a contractor’s exposure for construction defects and procedural remedies. Liberty Mutual’s claim would have been time-barred under the Act. However, because its insured sustained consequential damages, Liberty Mutual had the right to pursue them outside the Act’s limitations. As the court noted, other remedies available to homeowners continue to exist.

Image courtesy of Flickr by Kansas City District U.S. Army Corps of Engineers

Filed under Right to Repair Act

Triable Issues Exist About Insured’s Right to Lost Rents Even Though No Actual Tenant Was on Premises at Time of Loss

By on October 19, 2013

The California Court of Appeal, Second Appellate District, recently reversed a trial court order granting summary INS BLOG_rentaljudgment to a commercial property insurer.  The trial court held the insurer properly denied its insured’s lost rents claim in connection with vandalism damage where there was not an existing tenant when the damage took place.  The Court of Appeal disagreed, holding in Ventura Kester, LLC v. Folksamerica Reinsurance Co. that the policy did not clearly require the insured to have a tenant in place as a condition of coverage for lost rents.  Whether the insured would have been able to rent the property, but for the vandalism, raised triable issues of fact.  Therefore, the court concluded summary judgment in favor of the insurer was improper.

Folksamerica Reinsurance issued a commercial building owner’s policy to Ventura Kester as owner of a property in Sherman Oaks.  The policy, in effect from September 2006 to September 2007, covered the structure and promised to pay the insured’s “net loss of rental income” due to damage to covered property.  A tenant was in place when the policy was issued, but it subsequently vacated the premises.  Ventura began discussions with potential tenants, including entering into a letter of intent with OfficeMax. But no agreement was in place at the time of the loss.

On Sept. 11, the court held an ambiguity existed in the policy as to whether an actual tenancy was required for coverage to exist.  The court also held triable issues existed about whether the insured had actually sustained damages from the vandalism.

Filed under Uncategorized

No Professional Liability Coverage for Law Firm Victimized by Check Scam

By on October 7, 2013

On June 28, the U.S. District Court for the District of New Hampshire issued a ruling denying coverage under a professional liability policy to an insured attorney and his law firm who were victimized by a Nigerian-style check scam. The court held that the claim fell under a policy exclusion for losses from “conversion, misappropriation or improper commingling by any person” of funds held or controlled by an insured.

INS BLOG_checkAttorneys Liability Protection Society, Inc. v. Whittington Law Associates, PLLC, the insureds, Whittington Law Associates and W.E. Whittington, were contacted by an imposter prospective client. The imposter asked the insureds to deposit a check for $195,790 into the insured attorney’s client trust account in Ledyard National Bank and then promptly wire the bulk of the funds to a bank account in Japan. Ledyard later discovered that the check deposited to the insured’s account was invalid, by which time the wire transfer to the Japanese bank account already had been processed and the funds withdrawn from the insured’s account.

Ledyard sued the insureds in New Hampshire state court to recover the funds, prompting the insureds to seek coverage from their professional liability insurer, Attorneys Liability Protection Society, Inc. The insurer responded by filing an action in the federal court seeking a declaration that no coverage was available for the claim. The insureds filed counterclaims for declaratory judgment and breach of contract.

The insurer moved for summary judgment, arguing that there was no coverage because the claim did not fall within the definition of “an act, error or omission in professional services that were or should have been rendered,” and that even if the claim fell within the insuring agreement, it was excluded as “conversion, misappropriation or improper commingling.” In response, the insureds cross-moved for summary judgment.

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Filed under Professional Liability

Auto Policy Not Considered As Providing Excess Coverage Over Another Auto Policy Where “Other Insurance” Clauses Conflict

By on September 18, 2013

A California appellate court recently held that absent inclusion of exclusionary language authorized by California’s underinsured motorist statute, an auto liability insurer could not rely on its “other insurance” clause to support the position its policy provided excess coverage.

INS BLOG_carAccording to the Aug. 12 opinion in Progressive Choice Insurance Co. v. California State Automobile Association Inter-Insurance Bureau, Benjamin White was injured in a traffic collision while riding as a passenger in a vehicle operated by Scott Tortora. The third party who caused the collision was underinsured. White was insured under two automobile insurance policies.

The first policy was issued by Progressive to Tortora and covered Tortora’s vehicle. The Progressive policy provided underinsured motorist (UIM) bodily injury coverage with limits of $100,000 per person. The second policy was issued by the California State Automobile Association (CSAA) to White as the named insured. The CSAA policy provided UIM bodily injury coverage with limits of $50,000 per person.

White settled with the at-fault driver’s auto insurer for the limit under that policy of $25,000. White then made a claim for UIM benefits under the Progressive and CSAA policies. CSAA denied coverage. Progressive paid the sum of $62,500 to White. Progressive then demanded that CSAA reimburse Progressive $20,833.33, the pro-rata share of the payment made to White. CSAA denied any obligation to reimburse Progressive.

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Filed under Auto, Other Insurance

Conduct That Violates Unfair Insurance Practices Act May Be Actionable Under Unfair Competition Law Despite Moradi-Shalal Restriction

By and on September 13, 2013

On Aug. 1, the California Supreme Court held that an insured may state a cause of action against an insurer under the Unfair Competition Law (UCL) for conduct that violates the Unfair Insurance Practices Act (UIPA) despite the bar against private actions under the UIPA itself.  The Supreme Court’s holding in Zhang v. Superior Court, Opinion No. S178542, resolved a split on the issue among the state’s intermediate appellate courts.

Yanting Zhang sued her insurer, California Capital Insurance Co., over coverage for and the handling of a fire loss claim.  Zhang alleged causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the UCL.  In the UCL claim, Zhang alleged California Capital had “engaged in unfair, deceptive, untrue, and/or misleading advertising” by promising to pay claims with no intention of paying the true value of the covered claims.  Zhang also alleged several bad-faith practices by California Capital including unreasonable delays causing deterioration of the insured property; withholding of policy benefits; refusal to consider cost estimates; misinforming her as to the right to an appraisal; and falsely telling Zhang’s mortgage holder that Zhang did not intend to repair the property, resulting in foreclosure proceedings.

The trial court sustained California Capital’s demurrer on the UCL cause of action finding it was an impermissible attempt to plead around the bar against private actions under the UIPA pursuant to Moradi-Shalal v. Fireman’s Fund Ins. Cos. (1988) 46 Cal. 3d 287.  The court of appeal had reversed finding the complaint sufficiently pled facts to support a UCL cause of action.  California Capital sought review from the Supreme Court, which affirmed.

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Filed under California Insurance Regulations

First Circuit Finds Mutual Rescission of Life Insurance Policy

By and on September 8, 2013

On June 28, the U.S. Court of Appeals for the First Circuit found that a mutual rescission of a life insurance policy had occurred where a company, which had been granted the policyholder’s power of attorney, cashed a premium refund check.

INS BLOG_insurancepolicyPaul L’Archevesque bought a life insurance policy from Pruco Life Insurance Co. and set up two trusts: one to take out a premium finance loan and another that ultimately would take control of the life insurance policy. Jay L’Archevesque was the sole trustee of one trust. Jay and Wilmington Trust Co. were co-trustees of the other. Together, Paul and Jay gave power of attorney to Coventry, a premium financing company, for purposes of the life insurance policy.

In obtaining the policy, Paul submitted a number of medical records to Pruco that indicated he suffered from dizziness and depression. However, the records did not include a letter that contained a doctor’s diagnosis that Paul likely had mild Alzheimer’s disease and was taking medication for it. Pruco issued a $15 million policy on Paul’s life.

Subsequently, Coventry contacted Pruco to inform it that Paul intended to sell his life insurance policy. Suspicious, Pruco requested Paul’s updated medical records, which revealed information regarding Paul’s mild Alzheimer’s disease.

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Filed under Life Insurance, Rescission

New Jersey Supreme Court Rewrites Carter-Wallace Allocation Rules in Cases Involving State Guaranty Association

By and on January 15, 2013

In a critical insurance decision, the New Jersey Supreme Court ruled on Sept. 24 that liability insurers covering a long-tail loss cannot seek contribution from the New Jersey Property-Liability Insurance Guaranty Association for the Carter-Wallace shares of insolvent insurers. More importantly, while perhaps not a true holding, the court rebuffed an argument that the insured would have to bear the burden of the insolvent insurer’s Carter-Wallace allocation to the extent the Guaranty Association was not required to pay.

INS BLOG_courthouseIn Farmers Mut. Fire Ins. Co. v. New Jersey Property-Liability Ins. Guar. Assoc., Farmers Mutual sued the Guaranty Association to recover a portion of environmental remediation costs that were allocable to Newark Insurance Company, which was declared insolvent in 2007.  The Guaranty Association argued that the New Jersey Property-Liability Insurance Guaranty Association Act (PLIGA Act) required exhaustion of all available solvent coverage before it had any payment obligation. The PLIGA Act’s exhaustion provision “requires the exhaustion of all insurance benefits from solvent insurers on the risk before [the Guaranty Association], standing in the shoes of an insolvent insurer, must pay statutory benefits.” (N.J.S.A. 17:30A-5).  The PLIGA Act was amended in 2004 to further define exhaustion: “[I]n any case in which continuous indivisible injury or property damage occurs over a period of years as a result of exposure to injurious conditions, exhaustion shall be deemed to have occurred only after a credit for the maximum limits under all other coverages, primary and excess, if applicable, issued in all other years has been applied[.]”  (N.J.S.A. 17:30A-5)

The New Jersey Supreme Court affirmed the Appellate Division’s ruling in favor of the Guaranty Association, holding that “when one of several insurance carriers on the risk is insolvent in a continuous-trigger case, then the limits of the policies issued by solvent insurers ‘in all other years’ must first be exhausted before the Guaranty Association is obligated to pay statutory benefits.”  Because the Farmers policies were not fully exhausted, it could not tap the Guaranty Association for Newark’s Carter-Wallace share of remediation costs.

The court also rejected an argument made by another insurer, appearing amicus curiae, that the insured should bear responsibility for insolvent insurers and then seek reimbursement from the Guaranty Association.  The court, noting that, in its view, the insurers’ interpretation “would turn the PLIGA Act on its head,” stated that the aim of the PLIGA Act “would be defeated by making the insured bear the loss for the carrier’s insolvency before the insured received any statutory benefits from the Guaranty Association.”

Image courtesy of Flickr by TexasGOPVote.com

Filed under Allocation, Insolvencies

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