Insurance Law

In Forrest Construction, Inc. v. The Cincinnati Insurance Co., No. 11-6262, 2013 U.S. App. LEXIS 722 (6th Cir.), the United States Court of Appeals for the Sixth Circuit held that an insurer breached its policy with an insured contractor when it declined to defend the contractor from a counterclaim for defective workmanship asserted by the contractor’s former customer. The case arose out of the contractor’s construction of a house for the customer. The contractor filed suit against the customer, following a dispute over the amount owed for the house. The customer counterclaimed, alleging there were defects in the workmanship of the house. In particular, the customer alleged there was a substantial amount of cracking in the foundation, which caused “a potentially deadly collapse of the residence.” Though the customer did not specifically allege that any particular subcontractors were responsible for the defective workmanship, the counterclaim broadly alleged that the contractor “recklessly performed, or caused to be performed” the defective work.

For the past decade, policyholders and liability insurers have waged war across the country on the issue of whether and when CGL policies cover faulty workmanship claims.  While courts had traditionally declared that contract-based claims fall outside the traditional scope of liability insurance, during the past decade a growing number of states have recognized coverage for construction claims, especially where the owner’s damages go beyond the insured’s own work or product.  Furthermore, in states such as Colorado and South Carolina, state legislatures have responded to pro-insurer rulings by imposing statutory requirements for coverage in such cases.

Most legal malpractice policies contain a prohibition against admitting liability. This prohibition creates an inherent tension between a lawyer who believes his or her professional ethics requires him or her to disclose a professional omission and the loss of insurance coverage for that omission which would otherwise be available to make the client whole for any resulting losses from the omission. This tension was observed by the Illinois Appellate Court in Illinois State Bar Ass’n Mut. Ins. Co. v. Frank M. Greenfield & Associates, 2012 IL App. (1st) 110337, 366 Ill.Dec. 761, 980 N.E.2d 1120 (Ill. App. 1st Dist. 2012). In the Greenfield case, the lawyer made a mistake in drafting a client’s will that ultimately affected the distribution of funds from a trust established by the client. When the error was recognized, the attorney sent a letter to all of the trust beneficiaries reporting the mistake which, in turn, resulted in several of the beneficiaries receiving less money than they otherwise would have received had the client’s wishes been properly implemented.

Usually it is clear from the outset whether the plan at issue is governed by ERISA. But in some situations – for instance, where the plan is completely voluntary and the employee pays the premiums – there may be a dispute over whether the plan is exempt from ERISA under the "safe harbor exemption." Importantly, the safe harbor exemption cannot apply if the employer endorses the plan.

This article explores the type of information courts find persuasive when deciding endorsement. In other words, this article discusses what information you should have ready before moving for ERISA preemption.

Many types of personal lines insurance policies provide coverage for individuals other than the named insured. Most often, additional insured coverage will be provided under automobile and homeowner's policies for "relatives" of the named insured, or "members" or "residents" of the named insured's household.

Many of us in the insurance and legal communities have confronted the most common scenarios of whether one qualifies as a "resident" of a household, including students away at college and family members enlisted in the military. Most of us are generally familiar with the factors employed by the courts in determining whether a person is a resident or member of the named insured's household. These factors focus on the intent of the putative additional insured and his or her family members.

Over the last several years, it has become clear that America is in the grips of an obesity epidemic. Ubiquitous fast-food chains stand on every street corner and American consumers, starving to make the most out of their pay, often turn to low-priced and unhealthy meals for daily nourishment. Unfortunately, this has led to an increase in "morbid obesity", as well as an increase in obesity-related diseases, such as diabetes and heart disease, amongst Americans. Not surprisingly, employers are now struggling with their treatment of obese employees.

On construction projects, it is common for the general contractor to require a subcontractor to have the general contractor named as an additional insured on the subcontractor's insurance policies and also to require that the subcontractor indemnify the general contractor for liabilities arising out of the subcontractor's work. Often the subcontractor and the general contractor will have both primary and excess insurance policies. Therefore, when a worker is injured on the job and sues the general contractor, four policies are potentially available: the general contractor's primary and excess policies and the subcontractor's primary and excess policies upon which it is an additional insured. The question then arises as to the order in which the policies must respond. When this occurs, courts are forced to engage in a complicated analysis taking into account both insurance and contract principles. Courts are split on whether the subcontract should supersede the insurance policy language or vice versa.

In the October 28, 1980, Presidential Debate between Jimmy Carter and Ronald Reagan, soon-to-be-elected-President Reagan, in his closing remarks, posed the following questions to the nation: "Are you better off now than you were four years ago? Do you feel that our security is as safe, that we're as strong as we were four years ago?" Since then, that overarching theme of whether we are better off now than we were just a short time ago is one that pollsters and campaign strategists frequently key on to shape and/or predict the outcome of a political election. This theme is one that Americans will have to wrestle with come this November. This question, however, is also quite poignant with respect to data privacy: do we feel that our personally identifiable information ("PII"), such as our financial records, credit card numbers, social security numbers, medical information, etc., is safe and secure today, or at least as safe and secure as it was a few years ago (or even a few months ago)? Because with the near daily reports of electronic data being stolen, leaked, or just left unprotected, consumers are becoming more and more concerned about their lives being wrecked by identity theft. Given that level of anxiety, and upon the realization that their PII may have been compromised by a data breach, consumers, often in the form of class actions, have been turning to courts for redress. And naturally, the defendants turn to their insurers.

The California legislature recently passed A.B. 1747 into law, establishing new requirements affecting the way life insurance companies notify policy owners of a potential policy lapse for nonpayment of premiums. Most life insurance policies contain a provision requiring the insurer to provide notice to the policy owner that necessary premium payments have not been received and that the policy will lapse if premiums are not received within a specified period of time (usually 31 days). The new California legislation, effective January 1, 2013, and to be codified in section 10113.71-72 and 10173.2 of the California Insurance Code, establishes a statutory minimum 60-day grace period before an insurance company can terminate a policy for nonpayment of premiums and provides that notices of pending lapse and termination are not effective unless mailed to the policy owner at least 30 days prior to the effective date of termination. The bill also requires that life insurers permit policy owners to designate at least one other person to receive such lapse notices and mandates that life insurers annually notify policy owners of the right to make or change such designations. The bill provides that such notices not mailed to designees and known assignees are ineffective.

Almost all claims-made insurance policies contain related or interrelated acts provisions. These provisions may only govern the policy's limits of liability and the self insured or deductible amounts. They may also provide that claims made during one policy period "relate back" to when an earlier related claim was first made. Additionally, related acts language sometimes appears in a policy exclusion. For example, "prior acts" and "pending and prior litigation" exclusions may preclude coverage for claims that are related to claims that were first made before the policy period.

Matt Fisher, a NYC-based stand-up comedian, generated one of the most publicized and controversial insurance claims on August 13, 2012, when he wrote a blog post titled, “My Sister Paid Progressive Insurance to Defend Her Killer in Court.” Within a few hours, links to the story were posted on the Twitter accounts of actor, Wil Wheaton (over 2,000,000 followers) and comedian Patton Oswalt (over 800,000 followers). By the next day, a whirlwind of Internet commentary (almost all of it critical of Progressive) followed as the story was reported on by Internet news sites, Gawker and The Huffington Post, and eventually reported on by media sources like the New York Times and the Wall Street Journal.

Recently, a plaintiff in Michigan testified that just prior to an auto accident occurring, she was stopped at a stop sign, had her foot on the brake, and her seatbelt on. However, the “black box” in her vehicle revealed the true story.

According to the data downloaded from her Event Data Recorder (EDR), the plaintiff was traveling at a speed of 61 miles per hour five seconds before impact, and 42 miles per hour in a 25 mile per hour zone at the time of impact; she never applied her brakes; never stopped at the stop sign; and was not wearing a seatbelt.

Subcontractors face many risks in complying with indemnity and insurance requirements that they find in construction contracts. This article identifies some of them.

Risks Arising from Type I Indemnity Clause

Many owners and general contractors require the subcontractor to enter a contract with a "Type 1" indemnity clause. By such a clause the subcontractor assumes liability for the owner's and general contractor's own active negligence. This clause applies whether or not the subcontractor did anything wrong but merely requires that a claim arise out of or has even a slight connection to the subcontractor's work. While many states have outlawed Type 1 indemnity clauses, others permit them. California's approach has been to chip away at these clauses. Most recently, for instance, California in 2011 passed the commercial construction indemnity reform bill, SB 474 that goes into effect January 1, 2013.

A subcontractor’s obligation under a contract to indemnify a general contractor for the general contractor’s own negligence may appear illogical. The general contractor makes a mistake, and the subcontractor or its insurer pays for it. Nonetheless, this scenario is commonplace in construction contracts throughout the country. So common, that many states, including Minnesota, have adopted statutes regulating these types of agreements. 

This article will analyze the complexities of these indemnification agreements and their intermingled relationship with accompanying insurance provisions. The article will focus on current Minnesota law and provide an overview of the Minnesota courts’ interpretations of these provisions to help offer guidance for future transactions.

The Eighth Circuit recently affirmed a district court's decision in favor of an insurer on an insured's bad faith claim. Liberty Mutual Ins. Co. v. Pella Corp., Nos. 10-1933, 10-2065, 2011 WL 3611485 (8th Cir. Aug. 18, 2011). The court held that, under Iowa law, an insurer is not liable for bad faith as long as it has at least one reasonable basis for denying coverage. Highlighting the importance of coverage analysis and clear communications with an insured when denying a claim, the court ruled that the insurer did not act in bad faith because the insurer actually relied on the reasonable basis in denying coverage, rather than advocating after the fact that a reasonable basis existed.

It is an axiomatic principal of law that the assignee of a contract "steps into the shoes of the assignor." However assignees in many first party property insurance claims are attempting to step into a better pair of shoes than those provided by the assignor. In Florida, there has been an increasing trend by third party contractors to take an assignment of insurance benefits from the insured at the time the vendor performs services at the insured's property.

First party property insurance policies, such as all-risk homeowners' policies, place the burden on an insured to prove that he or she sustained direct physical loss to covered property in order for coverage to be triggered. However, the question remains – what exactly does "direct physical loss" mean? Does it only cover damage that can be seen by the naked eye, or does it also coverage damage that a person cannot perceive? That is the question. 

The Southern District of Mississippi recently released the opinion of Lafayette Insurance Company v. Edward Peerboom, et al., Case No. 3:10cv336-TSL-FKB, 2011 WL 2194037 (S.D. Miss., June 6, 2011), which passes on the "that particular part" requirement of ISO Exclusion j(5) and (6), and in so doing, provides coverage practitioners a good case study of what does and does not constitute "that particular part" under this oft discussed exclusion under the ISO CGL form.

Misrepresentation claims are a common feature of commercial litigation as well as more mundane suits, such as those brought by property owners who sue the former owner for concealing mold or pollution problems at the time of sale. Last month, for instance, a domestic supplier of Chinese drywall sued German-based Knauf Gypsum A.G. seeking $100 million in damages that Banner claims to have suffered as the result material misrepresentations by Knauf concerning the fitness and safety of its drywall products.   Will Knauf's insurer pick up the defense of this suit?

One of the most common provisions found in both commercial and consumer insurance policies is colloquially referred to as the "Cooperation Clause." This clause takes on several different forms. One common version reads as follows: 

The Insured agrees to provide the Insurer with all information, assistance and cooperation that the Insurer may reasonably request, and further agrees that it will do nothing which in any way increases the Insurer's exposure under this Policy or in any way prejudices the Insurer's potential or actual rights of recovery. 

The Cooperation Clause is highly relevant to both the coverage the insurer is required to provide and the rights between the insurer, the insured and defense counsel. 

In this age of instant communication – messaging, social networking, etc. - conditions are ripe for abuse. These types of media can easily be used to invade privacy rights, engage in unsolicited advertising, and other such unwelcome communications. It is for this reason that Congress enacted the Telephone Consumer Protection Act ("TCPA"), largely to curb the runaway use of fax machines for improper purposes. The TCPA was enacted by Congress to protect the public from unsolicited faxes or so-called "blast faxes" or "junk faxes." (see 47 U.S.C. § 227 et seq.). The Act makes it illegal "to use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement." In other words, a person may not send unsolicited advertisements by facsimile to telephone subscribers. "Unsolicited advertisement" is defined as "any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person's prior express invitation or permission."

Six years having passed since Hurricane Katrina struck the northern Gulf Coast with unprecedented fury, the abundant litigation arising therefrom has begun to settle in the state and federal appellate courts. The cases on the cutting edge of this litigation, which occurred in Mississippi and Louisiana, will continue to provide ammunition for insurers and insureds wherever and whenever the next major hurricane strikes.     

Most, especially those here on the Gulf Coast, will recall that 2004 and 2005 were years noteworthy for the abundance of land-falling major hurricanes. Nearly 81 billion dollars in insured losses were caused by hurricanes which struck the United States during 2004 and 2005.   The economic impact of these storms were magnified by the migration of approximately 33 million people to the nation's coastal counties over the preceding quarter of a century. With the height of another hurricane season now looming, a short primer on insurance issues resulting from the 2004-2005 hurricane seasons is due.

I.          Introduction  

Subrogation has become a routine aspect of the practice of law and attorneys are apt to encounter a variety of subrogation issues. This article will not attempt to identify every potential scenario in which subrogation may be implicated. Instead, this article will provide an overview of basic subrogation principles, an introduction to the "anti-subrogation" rule and its application, and identify the exceptions that have emerged to the "anti-subrogation" rule. An understanding of the "anti-subrogation" rule and the ability to identify those situations in which it may properly be raised as a defense to subrogation claims has the potential to be a powerful tool in representing clients.

Insurance coverage scholarship discussing cyber-liability and cyber-coverage has recently exploded, with authors catastrophizing the lawsuits arising out of social media and Web 2.0 (social networking sites and online platforms including Facebook, MySpace, and Twitter) and prophesying that insurers are somehow ill-equipped to respond to these claims.  Granted, we are seeing an increase in cybertort claims, likely due to the proliferation and tremendous growth of social networking sites and Web 2.0 media.  Cybertort claims may include a defamation claim based on insulting words posted on a Facebook page, a “bodily injury” claim against an online dating service, a disparagement claim based upon rumors and grievances aired by a consumer against a restaurant or automotive repair shop on Yelp.com, sexual harassment/hostile work environment claims arising out of inappropriate emails, products liability claims as a result of drug purchases over the Internet, and critical comments about one’s law firm on Abovethelaw.com.

Personal auto liability policies generally contain an exclusion that provides:  

"We do not furnish Liability Coverage for you or any family member for bodily injury to you or any family member."  

Presently, courts treat family exclusion clauses in one of three ways.  They are either: (1) Entirely valid; (2) Entirely invalid; or (3) Invalid up to the statutory minimum limits of compulsory coverages.  

While not intended as a compendium of state law, the following article surveys representative jurisdictions and the rationale employed in adopting their respective positions.

The State of Nevada has finally fallen in line with the rest of the United States and adopted the majority rule in its interpretation of late notice provisions in insurance contracts in its recent Supreme Court decision, Las Vegas Metropolitan Police Department v. Coregis Insurance Company.  127 Nev. Adv. Op. No. 47 (Aug. 4, 2011).  Prior to this change, Nevada courts did not require a showing of prejudice to an insurer when an insurer denied coverage to an insured based on violation of a late notice provision in the policy.  However, though this may look like a “new approach” for Nevada courts, the Nevada Supreme Court’s opinion suggests that the state implicitly adopted the majority rule back in 1980 and again “sub silentio” in the Court’s 1986 opinion in Las Vegas Star Taxi v. St. Paul Insurance, 714 P.2d 562 (Nev. 1986).  If the court did, in fact, adopt the majority rule as early as 1980 or 1986, insurance companies that have based previous denials of coverage solely on the basis of untimely notice may be adversely impacted by this current Nevada Supreme Court decision.
 

Insurers across the country are required to report to state insurance fraud investigators and prosecutors when they have sufficient information that cause them to suspect that an insurance fraud is being attempted. The statutes do not require that there is proof beyond a reasonable doubt or even beyond a preponderance of the evidence, they only require suspicion.

Numerous jurisdictions have adopted the "eight corners rule," (sometimes also called the four corners rule) to determine whether a liability insurer has a duty to defend an insured. Under this rule, the insurer's duty to defend is determined by comparing the four corners of the complaint with the four corners of the insurance policy. In following this principle, courts have been faced with various circumstances where it would be unfair to strictly apply the rule. This article examines the bounds of the rule, and specifically, whether it applies when the insurer's coverage defense is based upon issues that are unique to claims-made policies. As explained below, the underlying complaint will seldom allege facts that are relevant to such claims-made issues. Therefore, courts often have and should recognize an exception to the eight corners rule in these circumstances and permit an insurer to rely upon extrinsic evidence to establish that there is no duty to defend.

A recent and recurring theme in my insurance coverage practice has been the application of Classification Limitations in Commercial General Liability (“CGL”) insurance policies.  A classification limitation is essentially an exclusion, which restricts coverage available under a CGL policy to specific operations of an insured, while excluding coverage for activities outside those operations.

Risk transfer and spreading—the cardinal virtues of insurance in law school public policy discussions—have long supported the notion that a liability insurer that wrongfully rejects a reasonable demand that is within its policy limit should be held responsible for a resulting excess-of-limit judgment entered against its insured. As the familiar argument goes, because the carrier controls the defense, the insured is less able to bear the excess-of-limit loss, and the choice not to settle was (we will assume) the insurer’s, so must be the burden of that choice if it was truly wrongful, not merely “wrong” with benefit of 20/20 hindsight.

The Fifth Amendment to the U.S. Constitution protects an individual from being forced to testify in a manner that might incriminate him or her and subject the witness to prosecution. It is a defense, not a weapon that can be used against a defendant in a civil suit. Since civil litigation is entered into voluntarily by the plaintiff testimony in a civil suit brought by a plaintiff is not a compulsion to self-incrimination because the plaintiff can protect his or her privilege by dismissing the suit.