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Insurance Law

Lockheed Martin v. United States: The Effect of Indirect Recovery Under CERCLA

CERCLA Section 114(b) prohibits the double recovery of environmental response and cleanup costs by a Potentially Responsible Party (“PRP”).[1]  Yet, PRPs that pay cleanup costs and are reimbursed for such costs – for instance with insurance proceeds – may also attempt to recover from a Co-PRP under CERCLA.

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An Update on Discovery of Insurance Claim Files

The production of insurance claim files pursuant to requests for production of documents is a subject which is of keen interest to defense counsel.  Defense counsel typically assert that said insurance claims files are not subject to disclosure by virtue of the doctrines of attorney-client privilege and work product.  There have been a number of recent decisions regarding this important issue.  The purpose of this article is to discuss these doctrines and to provide instructive takeaway points for responding to discovery requests for disclosure of insurance claim files.

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Caution – Coverage Counsel’s File May Be Discoverable in Bad Faith Cases

In a bad faith lawsuit, the insurance company’s claims file is one of the first items requested in discovery by most plaintiffs’ attorneys.  On top of that, in spite of any objections raised by defense attorneys, most courts will require an insurer to produce the relevant and non-privileged portion of their file.  Documents that are frequently tuned over include those which underlie the insurer’s claims investigation and that support their denial of coverage. 

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What Is the Correct Standard of Liability Under the ADA? Did a federal district court err in rejecting the but-for standard for ADA discrimination claims?

In Siring v. Oregon State Bd. of Higher Educ., an Oregon federal district court held that the but-for standard of causation applicable to discrimination claims under the Age Discrimination in Employment Act of 1967 (ADEA), as well as to retaliation claims under Title VII of the Civil Rights Act of 1964 (Title VII), is not applicable to discrimination claims under the Americans with Disabilities Act of 1990 (ADA), as amended by the ADA Amendments Act of 2008 (ADAAA). Instead, the court concluded, “the causation standard for ADA discrimination claims is ‘motivating factor.’” 

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Insurers Not Obligated to Defend in ZIP Code Coverage Suits

Insurers are increasingly faced with privacy and data-breach related claims. One of the most common issues involves retailers’ collections of customer ZIP codes allegedly in violation of statutory or common law privacy laws. When an insured retailer is sued, must its insurer provide a defense under the “personal and advertising injury” policy section?  Given the frequency with which such claims are being made, how to respond to these claims is an important issue for insurers.

A Pennsylvania federal court recently analyzed whether OneBeacon America Insurance Company (OneBeacon) and The Hanover Insurance Group (Hanover) were obligated to defend retailers Urban Outfitters, Inc. and its subsidiary Anthropologie, Inc. (collectively Urban Outfitters) in three putative class action lawsuits challenging Urban Outfitters’ collection of customer ZIP codes. OneBeacon America Ins. Co. v. Urban Outfitters, Inc., et al., case number 2:13-cv-05269 (E.D. Penn., May 15, 2014). Applying Pennsylvania law, the court held that neither insurer had a duty to defend Urban Outfitters in any of the three class action lawsuits.

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Insurance Brokers Must Toe the Line

In a majority of jurisdictions in the United States, an insurance broker only owes a duty to his or her client to obtain the requested insurance coverage within a reasonable time or inform the client of the inability to do so.  (Murphy v. Kuhn 660 N.Y.S.2d 371, 373 (NY 1997); Fitzpatrick v. Hayes (1997) 57 Cal.App.4th 916, 927).  Generally, the insurance broker does not owe the client a duty to advise, guide, or direct such client to obtain additional insurance coverage not specifically requested by the client.  However, the line between the duty to procure and the duty to advise is becoming more and more blurry.  Courts are facing more claims than ever to determine whether the insurance broker’s actions warrant holding him or her to higher duty to the client. 

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Discovery Stick Up – Give Me Your Money or Your File: New York’s Trend Toward Expanding Discovery Exchange in First Party Disputes by Steven E. Peiper

For decades, the attorney-client privilege has traditionally been sacrosanct in New York, as well as anywhere else in the country.  To that end, it had been clearly established under New York law that an attorney-client privilege exists where “a communication is made within the context of the relationship for the purpose of obtaining legal advice,” and the communication is intended to be, and is actually kept, confidential.  Abu Dhabi Commercial Bank v. Morgan Stanley, No. 08 Civ. 7508(SAS), 2011 US Dist. LEXIS 116850 (S.D.N.Y. Oct. 3, 2011).

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Reverse Bad Faith: An Alternative to Even the Playing Field?

Every contract contains an implied duty of good faith and fair dealing which requires every party to the contract to act in good faith in the performance and enforcement of the contract.[1] While this rule on its face should apply to every party to every contract, it has not traditionally been applied in such an evenhanded and fair manner with respect to insurance contracts. Generally, the burden of good faith and fair dealing has been one-sided and falls almost exclusively on the shoulders of insurance carriers.[2]  This is evidenced in the widespread availability of a common law, and in some places statutory, cause of action for an insurer’s breach of the duty of good faith and fair dealing, while such a cause of action is largely unavailable to insurers wishing to combat an insured’s violation of the same duty.

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Litigating Coverage for Personal and Advertising Injury in the Twenty-First Century

Ever since insurance for “personal and advertising injury” was first offered in the 1970s, insurers and insureds have been litigating the scope of this coverage.  The landscape is constantly shifting, now more than ever. Our electronic era raises numerous questions about whether coverage exists for torts committed in cyberspace. Just last year, the Insurance Services Office (ISO) issued a new commercial general liability (CGL) form which significantly changes the coverage that most insurers are willing to offer for “personal and advertising injury,” also known as “Coverage B.”

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Navigating the Ethical Minefield of “Burning Limits” Insurance Policies They are known as “burning limits,” “defense within limits” (DWL), “wasting,” “spend-down,” “self-consuming,” “self-liquidating,” or even “cannibalizing" insurance policies. Whatever the name, the costs of defending an insured against a suit are included within the limits of the policy, leaving less money available to pay a judgment or settlement. Such policies exist in stark contrast to more commonplace liability policies, under which defense costs are in addition to the limits of liability and not subject to those limits. While there has been much commentary on the ethical issues implicit in the “tripartite relationship” among the insurer, defense counsel, and the policyholder where defense costs are in addition to the limits of liability, much less attention has been paid to the ethical issues presented by defense under a burning limits policy, which are, if anything, even more poignant. This article is an attempt to redress that imbalance. 

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Paying for Rescission

In order to rescind an insurance policy, the insurance company must establish the presence of three elements: (1) that the insured made a misrepresentation, omission, or concealment; (2) that the misrepresentation, omission, or concealment was material to the risks; and (3) that the insurer relied on the misrepresentation in issuing the policy. See, Steven Plitt and Jordan R. Plitt, Practical Tools for Handling Insurance Cases, § 1:33 (Thomson Reuters 2011). Typically, an insurance company seeking rescission of the insurance policy must return to the insured all premiums within a reasonable time period. See, e.g., Gonzalez v. Eagle Ins. Co., 948 So.2d 1 (Fla. Dist. Ct. App. 3rd Dist. 2006) (stating that where an insurer seeks to rescind a voidable policy, it must both give notice of rescission and return or tender all premiums paid within a reasonable time after discovery of the grounds for avoiding the policy). The issue of timing of return of the premium recently came before the Indiana Supreme Court in Dodd v. American Family Mut. Ins. Co., 983 N.E.2d 568 (2013). In Dodd, the insurer did not return the insured’s premium in a timely manner. Nevertheless, the Indiana Supreme Court affirmed the policy rescission based upon an exception to the tender of premium obligation.

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Avoiding the Pitfalls of Writing a Reservation of Rights in an Unfamiliar State

Writing a reservation of rights letter is among the most important tasks an insurer and its coverage counsel perform. The reasons are simple—the insurer risks waiving coverage defenses if it does not correctly or timely assert them, and a vigilant policyholders' bar is waiting to pounce on the slightest misstep to secure coverage beyond that provided by the policy and, in some cases, try to establish a bad faith claim against the insurer.

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The Varying Approaches Concerning When Independent Counsel Is Required for an Insured

On Thursday afternoon, October 17, at the DRI Annual Meeting in Chicago, the DRI Young Lawyer Committee is offering a presentation on issues involving the tripartite relationship. Confirming the potential complexity of the tripartite relationship, the Mississippi Supreme Court has previously noted that the ethical dilemma imposed upon the insurance carrier-employed defense counsel in the relationship between the insurer, client-insured, and insurance-company-paid defense attorney is one that “would tax Socrates.” Hartford Accident & Indemnity Co. v. Foster, 528 So.2d 255, 273 (Miss. 1988). Case law addressing the conflicting interests that can emerge from the tripartite relationship confirms that it is an area that must be approached with caution and a firm understanding of a lawyer’s responsibilities and duties to his or her client. A primary issue that arises within this relationship is when independent counsel must be retained on behalf of the insured. This is an issue that continues to evolve and in many jurisdictions, there is a lack of clear, bright-line rules.

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Is the Risk of Relapse into Substance Abuse Enough to Constitute a Current Disability for Doctors?

Can the risk of relapse into substance dependency by a doctor (anesthesiologist) be significant enough to constitute a current disability under a long term disability plan? This question was answered by the First Circuit Court of Appeals in Colby v. Union Sec. Ins. Co. & Management Co. for Merrimack Anesthesia Associates Long Term Disability Plan, 705 F.3d 58 (1st Cir. 2013).

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European Product Safety Regime: Long Awaited Reform Now Within Touching Distance

On February 13, 2013, the European Commission ("the Commission") proposed new rules to improve the safety of products circulating in the European Union ("the Union") and to improve market surveillance.

The 2008 adoption of a New Legislative Framework on the marketing of products and other measures has meant that the product safety regime has been in need of an overhaul, in order to ensure better integration of the legislative tools in the area of consumer product safety.

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Developing and Maintaining a Winning Attorney-Client Relationship for the Defense of a Bad Faith Case

The vast majority of bad faith claims do not involve malicious, reckless, willful, intentional, or even negligent claims handling practices. However, that is what is typically alleged and allegations of such conduct tend to create distress, defensiveness, and even distrust on the part of the lawyers and claims professionals involved in both the underlying actions and the bad faith claim itself. In our presentation at DRI's Insurance Bad Faith and Extra-Contractual Liability Seminar in June, Anne Kevlin and I discussed the team effort necessary for the successful resolution of bad faith lawsuits. However, in this article, Anne details the fundamental elements of the attorney-client relationship that are required to ensure a sound working relationship between the claim professional directing the defense of a bad faith claim and outside counsel. 

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Is Zeig Dead? Revisiting Exhaustion in Commodore (2d Cir., June 4, 2013) In the increasingly complex world of large-scale claims, an issue that frequently arises is how an insurance program must be properly exhausted. What happens if, for example, the policyholder elects to enter into a settlement with some insurers for less than the available limits of insurance or if some of the insurers have become insolvent? In such circumstances, do higher layer carriers have to “drop down” to fill in the gaps or is it sufficient if the policyholder bears any such gaps? Are there circumstances in which, in effect, the gap cannot be filled because the policies required actual exhausting through payments that are never going to take place? Is there any recourse for the policyholder when faced with an unexpected gap in its coverage? At least until June 4, 2013, insurers and policyholders in New York thought that they knew the rules of the game in such situations, based upon the venerable decision of Justice Augustus Hand in the case of Zeig v. Massachusetts Bonding & Insurance Co., 23 F.2d 665 (2d Cir. 1928). But with the decision of the Second Circuit in a case arising out of the bankruptcy of the Commodore Computer Company, what once was certain has become entirely unclear. Ali v. Federal Ins. Co., __ F.3d ___, 2013 WL 2396046 (2d Cir., June 4, 2013)(hereafter, “Commodore”).

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Auto No-Fault Fraud Reaching Unprecedented Levels

Oklahoma Insurance Commissioner John Doak recently purchased a Chevrolet Tahoe. According to the Tulsa World, the message on the back window, in bright white lettering, reads: "This car was paid for by fraud funds not at taxpayer expense."

The anti-fraud unit also purchased high-tech shotguns, bulletproof vests and seven police-package vehicles to combat criminal insurance fraud.

Welcome to the wild, Wild West of auto no-fault insurance fraud.

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The D&O Landscape After Sandusky

The recent ruling by the United States District Court for the Middle District of Pennsylvania in Federal Ins. Co. v. Sandusky elicited mixed emotions. In light of the horrific allegations in the underlying action, many observers were undoubtedly pleased that the man accused of such heinous acts would not be provided a defense and was not entitled to indemnification by the insurance carrier that issued coverage to the not-for-profit The Second Mile, Inc. But looking at the decision from a purely coverage point of view, others wondered whether this decision could ominously portend difficulties for insureds that procured Directors and Officers coverage ("D&O"). In other words, could this decision be used to deny those that are rightly entitled to D&O coverage?

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Sixth Circuit Holds That Insurer Is Required to Defend Contractor in Claim by Customer, as

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.

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Courts Limit Coverage For Construction Claims

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.

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The Inherent Tension Between Professional Ethics Regarding Mistakes and Insurance Policy Liability Admission Clauses

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.

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Managing Risk: Lessons Learned About Liability Waivers for Minors Signed by Their Parents Releases and liability waivers, also known as exculpatory agreements, are commonly executed when people choose to engage in recreational activities, such as skiing. Although exculpatory agreements are generally enforceable, they are disfavored, and are unavailable for certain types of claims (such as gross negligence, recklessness, willful and wanton conduct, and, in some states, strict liability). Although the law varies from state to state, releases are generally enforceable where there is no obvious disparity in bargaining power between the parties; the parties’ intent is expressed in clear and unambiguous language; the circumstances and nature of the service involved demonstrate that the agreement was fairly entered into; and the agreement does not violate public policy. Agreements that violate public policy generally involve businesses that are engaged in performing a public service of great importance or practical necessity. The law regarding the enforceability of a release signed by a parent on behalf of a minor child, however, is less clear.  view more
Winning The Big Endorsement: How to “ERISAfy” an Employee-Paid Plan

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.

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The New Normal: Non-Traditional Living Arrangements And The Question Of “Residence” For Insurance Coverage

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.

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Exclusions in Property Insurance Policies In the wake of destructive storms across the country, it is worth reviewing exclusions in property insurance policies. Such policies typically are of two types: all-risk policies and named-peril policies. Under a named-peril property policy, coverage is provided only for the specific risks enumerated in the policy and all other risks are excluded. An all-risk property policy, on the other hand, provides coverage for all risks unless the specific risk is excluded. The following analyzes several of the exclusions generally found in these policies. view more
New Challenges for Employers – Obesity and the Workplace

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.

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Priority of Indemnity Payments: States Split on Whether the Subcontractor’s Primary or Excess Policy Precedes the General Contractor’s Excess Policy

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.

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Fuzzy Math Meets the Fiscal Cliff: Revising Allocation in Olin (2d Cir., Dec. 19, 2012) If there was one thing in the world of coverage litigation that you knew you could count on, it was that the courts of New York (whether state or federal) would adhere to a straightforward rule of “pro rata by time on the risk” allocation in determining an insurer’s obligation to indemnify a policyholder for costs arising from long-tail claims for bodily injury or property damage involving pollution, pharmaceutical products, or asbestos. That assumption of a rational rule changed radically in December when the Second Circuit Court of Appeals issued its decision in Olin Corp. v. American Home Assurance Co., ___ F.3d ___, 2012 WL 6602909 (2d Cir. Dec. 19, 2012). The Olin decision turns what should have been a pretty simple allocation and exhaustion issue into a convoluted mess that would appear to undercut some of the basic rules of allocation while saying that the court was not really doing so. Whether this decision resulted from anxiety over the impending fiscal cliff, the prospect that the Mayans were correct and so its opinion would not have any continuing impact, or frustration over the imminent demise of Twinkies, the consequences of the decision can only be considered to be a prime example of fuzzy math: an insurer whose policy attached excess of $30 million of underlying limits was held responsible for paying indemnity on a pollution claim where the amount of damages properly allocable to its coverage under the court’s prior decisions (including in earlier phases of the same case) was only $3 million. view more
If a Tree Falls in a Forest and No One Is Around to Hear It, Does It Make a Sound?: Whether Allowing Unauthorized Access to or a Failure to Protect Personally Identifiable Information Constitutes “Personal and Advertising Injury”?

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.

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New California Lapse Rules Present Opportunity for Life Insurers and Attorneys to Examine Best Practices

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.

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How Many Degrees of Separation? Determining the Degree of “Relatedness” Required for Multiple Claims to be Deemed “Related” Under Related or Interrelated Acts Provisions in Claims-Made Policies

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.

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Was the Internet’s Anger at the Progressive Insurance/Fisher Claim Misdirected?

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.

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“May the Odds Be Ever in Your Favor”—Equitable Contribution Disputes One of the hottest topics in the world of insurance litigation is how a non-settling insurer can and should approach the issue of obtaining a “credit” for the settlements reached between the policyholder and other insurers sued for coverage in connection with mass tort, asbestos, environmental and other high-stakes litigation. In such claims it is, of course, quite common for a policyholder to bring suit against a large number of primary and excess carriers whose policies span several decades. Not surprisingly, in the course of such litigation many carriers will fall by the wayside, electing to settle with the policyholder for amounts that are typically maintained as confidential, but are assumed to be less than the full policy limits (Otherwise, why would they bother to settle?). For the carrier that elects to proceed to trial and beyond, this can create a scenario under which the carrier faces the potential for being tagged with what it considers an inequitable share of the potential liability. In the event that it does lose, what should it do? What options are open in terms of seeking to recoup some portion of the judgment from the carriers that entered into good faith settlements with the policyholder, but have not been released from claims by other insurers that they paid less than their “fair share”? view more
The Hammer Clause: The Little Known But Extraordinarily Important Part of Your Professional Liability Policy Given that the majority of the readers of this fine newsletter are professionals working tirelessly in their respective fields, it may make sense to take a breather and once again dust off your professional liability policy to examine the small but important details contained in it. This article will start with the premises that your policy provides for an adequate dollar amount coverage in the unfortunate event you or your firm winds up on the wrong side of the "v." It also presumes that your deductible or Self-Insured Retention (SIR) is within the dollar range such that you or your firm can comfortably defend the claim before your policy limits begin to cover the claim.  view more
The Black Box Does Not Lie in PIP and Third-Party Auto Accident Cases

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.

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Certain Insurance Coverage Gaps Pose Risks for Subcontractors

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.

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Notice of Claim Provisions Under Claims-Made Policies Typically, Director & Officer policies ("D&O polices") contain notice of claim provisions that require notice for actual claims made against the insured during the period of coverage, and for facts and circumstances that are likely to give rise to claims or result in loss covered by the policy. These notice requirements allow the insurer to close its books on a policy at its expiration by limiting coverage to claims actually made during the policy, or potential claims of which the insurer has been made aware resulting in a level of actuarial certainty and lower premiums. See Resolution Trust Corp. v. Ayo, 31 F.3d 285 (5th Cir. 1994); Burns v. Int'l Ins. Co., 709 F. Supp. 187 (N.D. Cal. 1989) aff'd 929 F.2d 1422 (9th Cir. 1991). The notice requirements also provide additional protection for the insured since coverage could be extended to a suit brought long after the policy has expired, as long as the insured had provided notice to the insurer of the potential claim. FDIC v. St. Paul Fire & Marine Ins. Co., 993 F.2d 155 (8th Cir. 1993). view more
Litigation – The Unintended Consequence of Even if you are not from Ohio, there is a reasonable chance you are aware of an Ohio Supreme Court decision extending UM/UIM coverage to employees in non-employment related accidents. See Scott-Pontzer v. Liberty Mut. Fire Ins. Co., 85 Ohio St. 3d 660 (1999). The Scott-Pontzer decision was described in various jurisdictions as "anomalous," "a mystery," "preposterous," and "beguiling," resulting in "a mess" for the insurance industry. See Westfield Ins. Co. v. Galatis, 100 Ohio St. 3d 216 (2003) overruling Scott-Pontzer, supra. Prior to Galatis, however, new legislation was enacted in an effort to limit Scott-Pontzer's impact. Since 2001, there have been over 800 reported cases regarding various aspects of the statute, including nearly 400 decisions citing Scott-Pontzer. view more
<i>Sackett v. The Environmental Protective Agency</i>: Pre-Enforcement Review of an EPA Compliance Order – What If the EPA Got it Wrong? The U.S. Environmental Protection Agency reportedly issues approximately 3,000 administrative compliance orders a year to businesses and individuals in which it demands that alleged violations of environmental laws cease on the threat of potential large daily fines and penalties.  Insurance companies are certainly aware of the implication of such an order and, depending on the applicable policy language for the individual or business that receives such a compliance order, the possibility of large and long term costs required to remedy the alleged violation. view more
Complications with Indemnification Clauses in Construction Contracts: A New Minnesota Development

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.

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Eighth Circuit Holds That the Existence of a Reasonable Basis Alone Is Not Enough to Avoid Bad Faith Liability, the Insurer Must Actually Rely on at Least One Reasonable Basis for Denial of Coverage

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.

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Insurers Are Generally Within Their Discretion to Settle With Claimants on a A defendant may face potential liability by multiple claimants stemming from either a single lawsuit involving multiple plaintiffs or more than one lawsuit brought by different plaintiffs.  Under either circumstance, a settlement payment by the defendant's insurance carrier to one or more of the plaintiffs reduces and may exhaust the policy funds available to satisfy judgments or settlements that may be obtained by the remaining plaintiffs.  Nevertheless, most courts recognize the general right of the insurer to settle claims on a "first come, first served" basis, even if settling with one or more plaintiffs may be to the detriment of the remaining plaintiffs.   view more
Late to the Party: The Scope of an Insurer’s Right to Intervene A perplexing and significant problem that insurers frequently encounter concerns the question of when, how and in what circumstances the company should seek to inject itself directly into ongoing litigation between its policyholder and a claimant. Will the insurer’s assertion of a right to intervene under applicable procedural rules or statutes inure to the benefit of its policyholder or simply make its insured even more of a “target”? In situations where the insured has permitted a claim to proceed to default or even to final judgment without the involvement of (and perhaps even without any form of notice to) the insurer, should the company simply undertake the defense of the policyholder or insert itself into the case in a more direct way? Will doing so protect the interests of both the policyholder and the insurance company or will the insurance company be viewed as an interloper? If the insurance company does avail itself of a right to intervene, will there be any material difference in the scope of the issues that it will be able to litigate, as compared with the issues that can be tried by the insured? Equally, should the insurance company be “bound” by the consequences of any actions or failures to act by the insured? In other words, is the insurance company simply stepping into the shoes of the insured (which can often be a quite uncomfortable fit) or does the company have independent rights to protect itself when the policyholder has bollixed up the case? How can a company maximize its gain from intervening while reducing its exposure?

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The Assignee Wants a New Pair of Shoes

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.

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Tangible vs. Intangible Damage: What Does First-Party Property Insurance Cover?

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. 

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Lafayette v. Peerboom: A Case Study in What Constitutes “That Particular Part” Under Exclusion J (5) and (6)

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.

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Will Misrepresentation Claims Be Covered by CGL Policies?

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?

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The Practical Impact of an Insurance Policy’s “Cooperation Clause” on an Insured and Its Insurance Carrier

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. 

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Insurance Coverage for TCPA Claims: Have We Seen the End?

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."

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Looking Forward, Looking Back: A Short Treatment of Insurance Issues Arising from the 2005 Hurricane Season

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.

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The “Anti-Subrogation” Rule: Overview, Application, and Exceptions

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.

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Cybertort Coverage and the Law of the Horse

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.

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The Disparate Treatment Afforded to a Personal Auto Policy’s “Family Member Exclusion” Among Jurisdictions

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.

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The Second Circuit Decides That a Governmental Subpoena for Documents Is a “Securities Claim” Under a D&O Policy An issue that continues to arise in the context of D&O Policies is whether a governmental subpoena issued to the insured constitutes a “Claim.”  Recently, the Second Circuit in MBIA, Inc. v. Federal Insurance Co. (2011 U.S. App. LEXIS 13402, Jul. 1, 2011) decided that expenses paid by the insureds in connection with investigations by the Securities Exchange Commission (“SEC”) and New York Attorney General (“NYAG”) fell within the policy definition of “securities claims.”   view more
Are You Citigroup, Inc. v. Federal Insurance Company, (5th Cir. August 5, 2011) " /> Issues concerning excess insurance are now at the forefront of twenty-first century coverage litigation. While the role of excess insurance was generally reserved for the truly “once in a lifetime” type of loss for a major corporation, the prevalence of class actions, mass tort (e.g., asbestos and pharmaceutical products), environmental claims and other large-scale litigation has greatly increased the potential significance of even high layer excess insurance policies as policyholders respond to these ever-evolving claims situations. Further, as older primary CGL policies have become exhausted in responding to these types of claims, policyholders are increasingly looking to their excess insurers as a means of reducing their exposure to the onslaught of litigation. Not surprisingly, particularly in light of the relatively small premiums that were paid for this coverage and the amounts at stake, excess insurers are more willing now than in the past to contest these claims. These modern era coverage disputes have spawned a number of complex issues as to how a multi-layer insurance program is to function in responding to these new claim situations. view more
Nevada Supreme Court Adopts Majority Rule Requiring Prejudice Before Denying Untimely-Noticed Claims

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.

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The Additional (Un)Insured: Do Certificates of Insurance Protect You in New York?

Almost every construction contract contains a similar clause requiring the contractor to name the owner as an additional insured on its insurance policy.  As a condition of performing work on the Project, the contractor is generally required to present a certificate of insurance (COI) to show that the required insurance is obtained.


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Using Prior Claims and Lawsuits in Aggravation of Injury Cases The scenario is familiar.  Your client is involved in a low to moderate impact rear-end trucking accident.  Your client’s tractor has no damage but the plaintiff’s trunk is smashed in.  Nevertheless, there are no serious injuries reported at the scene.  Your client and his company fill out the appropriate paperwork and put the accident behind them.  Years later, the accident reappears as a lawsuit.  The lawsuit relates significant medical bills, lost income, permanent impairment and pain and suffering to the accident.  The demand somehow reaches seven figures. view more
Current State of the Eight Corners Rule in Texas There is no disputing that insurance is big business. It is also a unique business in that, come boom or bust, people purchase insurance. In the twenty-first century, insurance can be purchased to cover just about anything. For instance, it is reported Bruce Springsteen's voice is insured for roughly six million dollars. This is not solely an American phenomenon; British food critic Egon Ronay allegedly had his taste buds covered for four hundred thousand dollars and cricket player Merv Hughes purportedly purchased insurance in an even greater amount for his signature moustache.  view more
Insurers Must Report Suspected Fraud

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.

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How Many Corners Does the Eight Corners Rule Have When Claims-Made

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.

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Is Health Care Reform Bad for Brokers’ Health? Mark Twain warned, "Be careful about reading health books. You may die of a misprint." But where health insurance reform is concerned, brokers, benefit program administrators, and others who assist clients with health insurance plans would do well to become familiar with the so-called "Obamacare" health insurance reforms, more officially known as the Patient Protection and Affordable Care Act (the "Act" or "PPACA"). While the political debate about the future of the Act continues during the run-up to a presidential election year, health plan sponsors and their advisers must make real-time decisions, some of which may have unforeseen outcomes in the years ahead. view more
Defending the Rising Tide of Uninsured Motorist Claims Chances are, if there is a five-car pileup on the road, one of those drivers will not possess insurance. In an eye-opening study, the Insurance Research Council predicted that 16 percent of all drivers would not have insurance by the end of 2010. Thus, it is no coincidence that insurance companies are currently witnessing a flood of uninsured motorist claims.  view more
The Never-Ending Pot of Coverage? The presentation of claims under early comprehensive general liability (CGL) policies have always been the bane of each carrier's existence – and no more so than in the arena of environmental exposures and long-tail injury claims.   As typical coverage fights, such as the pollution exclusion and “accident” insuring agreements are becoming more predictable, the focus is beginning to shift to a new provision or the lack thereof.  Specifically, the typical CGL policy being underwritten today includes a general aggregate limit, following the post-1986 form adopted by nearly all carriers in one form or another.  However, major uncertainties are beginning to play out in the courts as insureds and insurers alike attempt to interpret the terms of so-called "ancient" policies issued prior to 1966 that may not have included an explicit general aggregate limit on their declarations page.   view more
Not Losing Sleep Over Exhaustion: Understanding When Excess Insurance Is Triggered It is axiomatic that excess insurers do not assume liability under an excess policy until a predetermined amount of underlying coverage has been exhausted. Notwithstanding this simple statement, defining "exhaustion" has proven to be a chronic challenge. Much of that challenge is caused by the myriad ways excess policies define exhaustion. Some definitions of exhaustion are broad and generic, such as agreements to pay ultimate net loss only "after all primary and other underlying insurance has been exhausted." view more
Classification Limitations in Liability Insurance Policies: An Exclusion tied to the Insured’s Operations

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.

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Revisiting the Premise of Limitless Liability

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.

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A Civil Plaintiff May Not Assert the Fifth Amendment

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.

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Piercing the Veil of Reinsurance: Captive Insurers as a Barrier to Privity Between Reinsurers and Policyholders Courts nationwide apply the longstanding rule that a reinsurance contract is only between the reinsurer and the reinsured (the insurer of the policyholder) and that there is no privity of contract between the reinsurer and the policyholder.  As a general rule, the policyholder, who did not participate in the formation of the reinsurance contract and has no contact with the reinsurer, has no contractual rights vis a vis the reinsurer.  However, there exist three recognized exceptions allowing a policyholder to take direct action against the reinsurer:  (1) where the reinsured is insolvent; (2) where there is an express provision (also known as a cut-through clause) in the reinsurance contract allowing direct action by the policyholder against the reinsurer; and (3) where a cut-through clause is implied as a result of the conduct of the reinsurer. view more
Understanding The Need For A White Waiver In California, a reference to a “White Waiver” refers to the California Supreme Court decision in White v. Western Title Insurance Co., 40 Cal. 3d 870 (1985).  A White Waiver tends to come up any time an insurer is attempting to negotiate the resolution of a coverage dispute, and does not want its settlement offers to be deemed to be a concession of coverage, or evidence of bad faith in a subsequent lawsuit.  As discussed below, the California Supreme Court inWhite affirmed the introduction of some of the carrier’s settlement offers into evidence on the issue of bad faith.    view more

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