New York Court of Appeals rules that a construction project manager was not entitled to coverage as an additional insured (AI) under a GC’s general liability policy even though the GC had agreed to procure such coverage in its contract with the project owner. Concludes that the policy endorsement conferring AI status on “any person or organization with whom you have agreed to add as an additional insured by written contract. . .” is “facially clear” and unambiguously requires a direct written contract (i.e., privity) between the named insured and a proposed AI, which did not exist here, for coverage to be extended. The phrase “with whom,” when given its ordinary meaning, “can only mean that the written contract must be ‘with’ the additional insured,” the court said. Finding no ambiguity, rejects the construction manager’s proffered extrinsic evidence (including a sample insurance certificate) to show it reasonably expected coverage and notes that while the manager may have a claim against the GC for failing to obtain coverage, that breach does not provide a basis for the court to “rewrite” the insurance policy.
California federal court determines that under either California or New York law an “all sums” allocation applies to claims for coverage under a primary policy providing “Completed Operations and Products Liability Insurance” for an underlying mesothelioma wrongful death case settlement. Finds no conflict of law on allocation: “[Matter of Viking Pump, Inc., 27 N.Y.3d 244 (2016)] emphasizes that Consolidated Edison [Co. v. Allstate Ins. Co., 98 N.Y.2d 208 (2002)] should not be read as New York ‘adopt[ing] a strict rule mandating either pro rata or all sums allocation because insurance contracts, like other agreements, should ‘be enforced as written.’’” Focuses on the policy’s definition of “bodily injury,” which includes “death at any time resulting therefrom,” in determining the method of allocating the settlement payment. According to the court, that definition “contemplates and promises indemnification for damages that arise outside of the policy period,” is “precisely the type of language that the court in Viking Pump found inconsistent with [pro rata],” and “mandates [an] ‘all sums’ allocation.”
Fourth Circuit concludes that any asbestos-related bodily injury claim against defunct insulation company policyholder Walter E. Campbell Co. based on an injury occurring during operations that were completed prior to policy inception falls within completed operations coverage and is subject to aggregate limits. Rejects the policyholder’s contrary argument (i.e., that the coverage only applies if a claimant’s initial injurious exposure occurred after operations were completed) as an “attempt to re-litigate” the holding in In re Wallace & Gale Co., 385 F.3d 820 (4th Cir. 2004) that, under Maryland law, the completed operations coverage at issue encompasses “any bodily injury claim in which the claimant was injured by asbestos exposure attributable to an operation that the insured completed prior to the start of the policy period.” Separately finds that a 3-year statute of limitations barred most of the policyholder’s claims that the insurers breached their policy obligations by “improperly allocat[ing] settled operations claims as settled completed operations claims,” resulting in premature exhaustion of aggregate limits, and began to run at the latest when the insurers advised that their limits had exhausted.
Note: A petition for rehearing en banc filed by the policyholder was denied on April 23, 2018.
Pennsylvania appeals court vacates a $21 million statutory “bad faith” award (under 42 Pa.C.S.A. §8371) and directs entry of judgment for the insurer in a long-running dispute with its insureds over claims under an auto policy for collision damage to a vehicle. Explains that “bad faith” claims are “fact specific and depend on the conduct of the insurer vis à vis the insured,” that to prevail a party claiming “bad faith” must meet a “high burden,” and that the question before the trial court was whether the insureds “proved, by clear and convincing evidence, that [the insurer] acted in bad faith in this case.” Concludes that the record does not support many of the trial court’s critical factual findings to establish “bad faith” either before or during litigation and notes in part that to the extent the trial court based its finding on discovery violations it committed clear error. “The trial court engaged in a limited and highly selective analysis of the facts and drew the most malignant possible inferences from the facts it chose to consider.” Expresses concern that the trial court “fail[ed] to limit [its] analysis to the facts of this case and applicable law,” e.g., through critical commentary on alleged insurance industry practices. “A judge sitting as a fact finder in a bad faith case should confine his or her analysis to the facts of the case at bar without any consideration of the perceived ills of the insurance industry in general,” the court said.
Note: An application for reargument was filed by the insured on April 18, 2018.
New Jersey appeals court rules that an insurer that “disclaim[ed] any obligation to indemnify” but advised its apparently defunct insured that it was “willing to provide. . . a courtesy defense” was not automatically estopped (i.e., as a matter of law) under Merchants Indem. Corp. v. Eggleston, 179 A.2d 505 (N.J. 1962) from denying coverage on the grounds that it failed to clearly request the insured’s consent to its control of the defense. Rejects argument that Eggleston requires that insurers use “magic words” when communicating with insureds and reverses summary judgment obtained against the insurer by third-party claimants (including a subrogating insurer) asserting estoppel. The insurer’s “expression of a ‘willingness’ to provide ‘a courtesy defense’ at least generates doubt whether [the insured’s] failure to decline that ostensible favor justifies a finding that [the insured] acquiesced in [the insurer’s] control of the defense of the underlying action,” the court explained. Also rules that the estoppel doctrine is inapplicable absent a showing of prejudice or detrimental reliance by the insured: “Eggleston in no way suggests that estoppel immediately attaches when an insurer, while reserving its rights or declining coverage, assumes control of the defense without first obtaining the insured’s consent.” Finds factual uncertainties in the case (e.g., no clear evidence that the insured detrimentally changed its position) preclude application of estoppel on summary judgment even if the insured’s consent was not obtained or assumed through silence.
Note: The case was remanded in part as respects the standing of the claimants to raise the estoppel argument.
Washington State appeals court holds that an individual employee insurance adjuster can be liable for “bad faith” and Consumer Protection Act (CPA) violations. Calling these issues that “present unresolved legal questions on which courts have divided,” finds that (1) “RCW 48.01.030 imposes a duty of good faith on ‘all persons’ involved in insurance, including the insurer and its representatives”; and (2) a CPA claim does not require the existence of a contractual relationship between the parties.** Rejects argument that the adjuster was acting within the scope of employment and therefore cannot be personally liable for “bad faith”: “Nothing in the statute limits the duty of good faith to corporate insurance adjusters or relieves individual insurance adjusters from this duty. The duty of good faith applies equally to individuals and corporations acting as insurance adjusters.”
** RCW 48.01.030 (Public interest) provides: “The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters. Upon the insurer, the insured, their providers, and their representatives rests the duty of preserving inviolate the integrity of insurance.”
New York federal court reaffirms prior dismissal of claims by policyholder New York State Electric & Gas Corp. (NYSEG) for coverage under excess liability policies for alleged environmental pollution at numerous former manufactured gas plant (MGP) sites. Notes that under New York law even brief delays in providing notice are routinely held unreasonable and that in this case NYSEG engaged in a “robust program of investigation years before” notifying the insurers and “attempted to deal with the pollution on its own and then present the insurer with a bill, years later.” Finds that no reasonable juror could consider NYSEG’s notice timely: The record evidence demonstrates that NYSEG was “aware of potential contamination at MGP sites in the 1970s, developed a program in the 1980s for investigating the sites and negotiating with regulators that involved setting aside considerable sums for which NYSEG now seeks reimbursement, and only gave notice to the insurers in the 1990s, well after NYSEG had developed an approach for attempting to deal with any potential liability at the sites.” “While [NYSEG] contends that its actions represented a laudatory attempt to take action when faced with pollution, the question here is when a duty to provide notice attached, not whether [NYSEG] acted as a good corporate citizen. That duty attached years before [NYSEG] provided notice in 1991, and [its] notice was untimely,” the court said.
Note: This summary is based on the court’s March 31, 2017 decision granting summary judgment to the insurers and its March 27, 2018 decision denying NYSEG’s motion for reconsideration. NYSEG filed a notice of appeal to the Second Circuit on April 9, 2018. White and Williams represents Century Indemnity Company in the case.
NUMBER OF OCCURRENCES
Nevada federal court addresses number of “occurrences” in the context of construction defect claims involving corrosion damage to the framing system for pools and spas at a hotel generally caused by selection of incorrect materials combined with an overly humid environment. Applies Nevada’s “causal approach,” whereby injuries stemming from the same proximate cause (i.e., “any cause which in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury complained of and without which the result would not have occurred”) are considered one “occurrence.” Denies insurer cross-motions for summary judgment arguing for (1) a single “occurrence” based on the “negligent failure to follow design plans and thereby use proper materials” as “too broad” (i.e., “[s]uch an interpretation in the context of a complex construction project would make almost all construction defects a single occurrence” based on a failure to follow design, to exercise due care, etc.); and (2) multiple “occurrences” due to multiple defects as “too narrow” (“merely showing numerous acts of negligence is not enough to show multiple occurrences”). Notes that negligence and proximate cause are usually fact issues and emphasizes the lack of expert opinion as to whether the various defects at issue “together are the single proximate cause of the humid environment leading to the rusting, or whether there are multiple independent causes.”