Third Circuit upholds the outright denial of a petition for more than $900,000 in attorney’s fees and costs by an insured as the prevailing party after he was awarded $100,000 in punitive damages under Pennsylvania’s “bad faith” statute (42 Pa. C.S.A. § 8371). Formally endorses the view that where a court has discretion under a fee-shifting statute to award attorney’s fees, that discretion includes the ability to deny a fee request altogether when the amount requested is “outrageously excessive” under the circumstances. “When a party submits a fee petition, it is not the ‘opening bid in the quest for an award.’ Rather, it is the duty of the requesting party to ‘make a good faith effort to exclude. . .hours that are excessive, redundant, or otherwise unnecessary, just as a lawyer in private practice ethically is obligated to exclude such hours from his fee submission.’” Details deficiencies in the fee petition at issue, including (1) failure to maintain contemporaneous time records (among other things, counsel attempted to recover over $27,000 in fees to reconstruct the records); (2) vague time entries that could not be evaluated for reasonableness (e.g., “Other,” “Communicate-other,”and “Attorney review”); and (3) a “staggering” 562 hours billed for “Trial prep” with no further description of the work performed (and where the trial consisted of four days of substantive testimony and involved five witnesses).
A divided Florida Supreme Court in a closely-watched case concludes that a jury’s finding of “bad faith” for failure to settle was supported by the “totality of the circumstances,” even though the insurer tendered policy limits nine days after a fatal auto accident. Warns that the requirements of its “bad faith” precedent in Boston Old Colony Ins. Co. v. Gutierrez, 386 So.2d 783 (Fla. 1980) are “not a mere checklist”: “An insurer is not absolved of liability simply because it advises its insured of settlement opportunities, the probable outcome of the litigation, and the possibility of an excess judgment. Rather, the critical inquiry in a bad faith [sic] is whether the insurer diligently, and with the same haste and precision as if it were in the insured’s shoes, worked on the insured’s behalf to avoid an excess judgment.” According to the court, through communications and other issues, the insurer “failed to fulfill its obligation. . .to ‘use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business.’” Recognizes that negligence is not the standard and that a causal connection between the claimed damages and “bad faith” is required, but (1) qualifies that “[b]ecause the duty of good faith involves diligence and care in the investigation and evaluation of the claim against the insured, negligence is relevant to the question of good faith” and (2) rejects the suggestion that there can be no “bad faith” liability where the insured’s (in)actions result at least in part in an excess judgment since the focus is on the conduct of the insurer.
A sharply-worded dissent criticizes the majority’s decision for “mudd[ying] the waters between negligence and bad faith and bolster[ing] ‘contrived bad faith claims.’” “By adopting a negligence standard in all but name, ignoring the controlling conduct of the insured and the third-party claimant, and relying on unsupported assumptions, the majority incentivizes a rush to the courthouse steps by third-party claimants whenever they see what they think is an opportunity to convert an insured’s inadequate policy limits into a limitless policy.”
Further discussion of Harvey v. GEICO is available here.
NUMBER OF OCCURRENCES
Wisconsin Supreme Court finds under the “cause theory”* that a forest fire that started in the insured’s logging equipment and burned thousands of acres over three days causing property damage to multiple claimants was a single “occurrence.”** Explains that the number of occurrences determination requires consideration of the “elements of time and geography” and that there is a single occurrence as long as the injuries stem from one proximate cause. “[A] single occurrence takes place if the cause and result were ‘so simultaneous or so closely linked in time and space as to be considered by the average person as one event. . . .’” Rejects the reasoning of the court below that there was a new “occurrence” each time the fire crossed another property line and caused damage. Rather, according to the court, an average person would view the cause and result here as a single event: “[T]he fire in this case burned continuously for three uninterrupted days. A three-day fire in a discrete area caused by a single precipitating event would reasonably be considered by the average person to be one event. Regardless of how many property lines the fire crossed, the damage closely follows the cause in both time and space.”
* Lyme St. Croix explains that, under the cause theory, “where a single, uninterrupted cause results in all of the injuries and damage, there is but one ‘accident’ or ‘occurrence.’”
** The CGL policy at issue defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Ohio Supreme Court rules that a liability insurer had no duty to defend or indemnify its GC-insured against property damage claims due to a subcontractor’s defective work. Applies Westfield Ins. Co. v. Custom Agri Sys., Inc., 979 N.E.2d 269 (Ohio 2012)* and holds that property damage caused by faulty work of a subcontractor is not fortuitous and does not meet the definition of an “occurrence” under a CGL policy.** Reiterates that “CGL policies are not intended to protect owners from ordinary ‘business risks’ that are normal, frequent or predictable consequences of doing business that the insured can manage.” Dismisses arguments that the policy’s products-completed operations (PCOH) and “your work” provisions reflect an intent to cover the damages at issue: “[U]nless there was an ‘occurrence,’ the PCOH and subcontractor language has no effect, despite the fact that [the GC-insured] had paid additional money for it.”
* Custom Agri held that claims by a contractor under its CGL policy for property damage caused by its own faulty workmanship do not involve an “occurrence” because faulty work is not fortuitous.
** The policy at issue defines “occurrence” as “[a]n accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
PROPERTY DAMAGE – LOSS OF USE
California appeals court holds that a claimant’s loss of the ability to use its property as a nightclub (its license was revoked due to the insured’s alleged negligence and could only operate as a banquet hall) constitutes “property damage” under the GL policy at issue.* Explains that the appropriate focus is on the “loss of use of tangible property that results from the loss of the entitlement” (i.e., the nightclub permit) and that the “reasonable expectations of the insured would be that ‘loss of use’ means the loss of any significant use of the premises, not the total loss of all uses.” Calling it the “correct principle,” states that “losses that are exclusively economic, without any accompanying physical damage or loss of use of tangible property, do not constitute property damage.” Distinguishes the claim at issue for loss of a particular use, which the court viewed as a loss of use of tangible property, and finds that the claimed diminution in value of the property, even though it was a claim for economic loss, was a proper measure of the resulting damages. “[T]he mere fact that [the claimant] was seeking to recover damages calculated on the basis of diminution in value falls short of showing that it was not seeking to hold [the insured] liable for a loss of use of tangible property,” the court said.
* The policy at issue defines “property damage” as (a) “[p]hysical injury to tangible property, including all resulting loss of use of that property,” or (b) “[l]oss of use of tangible property that is not physically injured.”
RESERVATION OF RIGHTS
Kansas Supreme Court addresses the requirements for reserving rights including what it termed a “longstanding rule” in the state that “an insurer who undertakes a defense without a reservation of rights is thereafter estopped from disclaiming coverage.” “‘[I]f a liability insurer, with knowledge of a ground of forfeiture or noncoverage under the policy, assumes and conducts the defense of an action brought against the insured, without disclaiming liability and giving notice of its reservation of rights, it is thereafter precluded in an action upon the policy from setting up such ground for forfeiture or noncoverage. The insurer’s conduct in this respect operates as an estoppel to later contest an action upon the policy. . .’” Recognizes that an adequate reservation will bar estoppel claims based on an insurer’s assumption of the defense and emphasizes the need to “fairly and timely” inform the insured of the insurer’s position. Concludes that fact issues regarding adequacy (e.g., timeliness) and estoppel (allegedly, that the insured detrimentally relied on the insurer’s assumption of the underlying defense under a claims-made policy without a timely reservation of rights) make summary judgment inappropriate.
STATUTE OF LIMITATIONS – NEGLIGENT PROCUREMENT
Illinois Supreme Court rules that claims by insureds against their homeowner’s insurer and its captive agent (which owed no fiduciary duty to the insureds in these circumstances) alleging negligent sale of a deficient insurance policy (here, for failing to replicate their prior coverage) were barred by the two-year statute of limitations for claims against insurance producers (735 ILCS 5/13-214.4). Holds that when insurance customers have the opportunity to read their insurance policy and can reasonably be expected to understand its terms, a cause of action for negligent failure to procure insurance accrues as soon as the customers receive the policy. Explains that the discovery rule typically will not delay the start of the limitations period in these cases since insurance customers are obligated to read their policies and can “learn of any defects.” “Expecting customers to read their policies and understand the terms incentivizes them to act in good faith to purchase the policy they actually want, rather than to delay raising an issue until after the insurer has already denied coverage.”