ALLOCATION
District Court finds that umbrella and excess coverage should be included in Owens-Illinois/Carter-Wallaceallocation regardless of the likelihood those policies will be implicated by underlying asbestos claims. Policyholder’s insurance purchasing decisions, rather than the probability that higher-level coverage would be reached, is said to more appropriately reflect risk transfer and retention considerations articulated by New Jersey courts.
Missouri Court of Appeals inter alia upholds application of “all sums” allocation and vertical exhaustion in asbestos “bodily injury” claim coverage dispute between Nooter and several excess insurers. Relies on its 2013 decision in Doe Run v. Lloyds (400 S.W.3d 463) that “found the ‘all sums’ language was not limited by the ‘during the policy’ language.” On exhaustion, the court finds that while the parties’ respective interpretations are reasonable, policies containing other insurance provisions are ambiguous as to whether they address concurrent or successive coverage. Also issues some favorable limiting rulings relating to defense under excess policies.
BAD FAITH
New Missouri legislation addresses “bad faith” set-ups through time-limited settlement demands and Section 537.065 agreements not to execute. Among other things, the legislation, which took effect August 28, 2017, establishes requirements for these demands to be admissible in an action seeking extra-contractual damages, including that the demand be in writing and remain open for not less than 90 days from receipt by an insurer (requirements do not apply to demands within 90 days of a jury trial). Insurers also now have 30 days from notice of a Section 537.065 agreement by an insured to intervene in the underlying lawsuit as of right.
Pennsylvania Supreme Court adopts two-part test from Terletsky v. Prudential, 649 A.2d 680 (Pa. Super. 1994) for proving a statutory “bad faith” claim under 42 Pa. C.S.A. § 8371, which requires that a plaintiff present “clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis.” Rules that proof of an insurer’s “subjective motive of self-interest or ill-will,” while potentially probative of the second prong of the test, is not a requirement to prevail under § 8371. Evidence of an insurer’s “knowledge or reckless disregard for its lack of a reasonable basis” for denying a claim alone, according to the court, is sufficient even in cases seeking punitive damages. John Anooshian and Sean Mahoney recently covered the Rancosky decision in an article available here.
DUTY TO DEFEND – AFFIRMATIVE CLAIMS
Mount Vernon Fire Insurance Company v. VisionAid, Inc., 477 Mass. 343 (Mass. 2017)
Massachusetts Supreme Judicial Court rules that the contractual duty to defend does not require insurers to prosecute an insured’s affirmative counterclaim under policy language at issue or common-law “in for one, in for all” doctrine. The “essence of what it means to defend,” the court said, is to “work to defeat a claim that could create liability against the individual being defended.” Here, the insurer agreed to “‘defend’ Visionaid in any claim ‘first made against [it] during the Policy Period,’ and no more.” Since it is coextensive with the duty to defend in Massachusetts, the duty to pay defense costs likewise does not require an insurer to fund an insured’s affirmative claims.
EXHAUSTION
Second District rejects policyholder’s blanket “elective stacking” approach to vertically exhaust excess policies in environmental coverage action: The California Supreme Court in “[State of California v. Continental Ins. Co.,281 P.3d 1000 (2012)] did not, as Montrose asserts, announce a general principle that insureds covered by multiple policies are entitled to ‘select which policy(ies) to access for indemnification in the manner they deem most efficient and advantageous.’’’ Finds that the sequence in which coverage may be accessed must be evaluated on a policy-by-policy basis in light of potentially relevant provisions including “other insurance” clauses.
POLLUTION EXCLUSION
Fifth Circuit concludes that asbestos is a “pollutant and an irritant” and that pollution exclusion applies to alleged bodily injury claims at issue involving exposure to asbestos-containing products. Denies certification to Texas Supreme Court and remands for determination on applicability of “sudden and accidental” exception.
Zhaoyun Xia, et al. v. ProBuilders Specialty Insurance Company, et al., 393 P.3d 748 (Wash. 2017)
Washington Supreme Court refuses to reconsider pro-policyholder ruling in closely watched case that absolute pollution exclusion did not preclude liability coverage for injury claim from exposure to carbon monoxide fumes where the “efficient proximate cause” of loss (here, a negligently-installed water heater) was a covered occurrence. Finds insurer wrongfully declined to defend in “bad faith” even though (1) the court recognized that the insurer had “correctly identified the existence of an excluded polluting occurrence under the unambiguous language of its policy” and that it is “clear that the [pollution] exclusion covers the release of carbon monoxide in this case”; (2) the efficient proximate cause rule had not been applied in the third-party context before; and (3) there was a lower court ruling in favor of the insurer. The dissent (Justice Madsen) focused in part on the seemingly unjust imposition of “bad faith” liability under the circumstances: “[I]t is unfair for us to say that [the insurer] was trying to circumvent a rule that we have never before applied to this type of case. We cannot fairly hold insurers to a standard that requires them to anticipate whether and how the law might change to determine their duties to defend.”
RESERVATION OF RIGHTS
Harleysville Group Insurance v. Heritage Communities, Inc., et al., 803 S.E.2d 288 (S.C. 2017)
South Carolina Supreme Court files substituted opinion in important construction defect coverage case addressing method of reserving rights and punitive damages. Recognizes that “generally a third party will have no basis to assert any perceived inadequacies” in an insurer’s reservation of rights, but that it was not an error under the “specific circumstances” and “unique facts” of this case to permit condo owners association claimants with final judgments to stand in the shoes of the defunct insured. The court explains that reservation of rights must be specific and unambiguous and that, among other things, “generic denials of coverage coupled with furnishing the insured with a copy of all or most of the policy provisions (through a cut-and-paste method)” are insufficient to reserve the right to contest coverage (i.e., the insured “must be provided sufficient information to understand the reasons the insurer believes the policy may not provide coverage”). Separately and without creating a categorical or bright-line rule, finds that where there was no record evidence that the conduct at issue occurred outside the relevant policy periods, punitive damages which were not excluded were not subject to Crossmann-type time on the risk allocation.
STATUTE OF LIMITATIONS
For the second time, Maryland appeals court rejects claims by asbestos plaintiffs against insulation company’s liability insurers as time-barred. Finds that plaintiffs were on inquiry notice of their alleged misrepresentation claims regarding the availability of additional “non-products” coverage under an old insurance settlement as early as 1997 with the publication of the Maryland Court of Special Appeals decision in Commercial Union v. Porter Hayden (698 A.2d 1167) addressing installation theory of liability.