Top Developments – May 2022

ANTI-ASSIGNMENT CLAUSE

PCS Nitrogen, Inc. v. Continental Cas. Co., 2022 S.C. LEXIS 54 (S.C. Apr. 13, 2022)

South Carolina Supreme Court holds that, once “loss” takes place, an insured may assign its rights under a liability policy without the insurer’s consent. The court reasoned that, though the purpose of a “no assignment” clause in an insurance policy is to protect the insurer from increased risk, “a change in the insured’s identity” does not increase the risk once “loss” takes place. Agreeing with what it called “the majority of jurisdictions,” it stated that “loss” is synonymous with the “occurrence” giving rise to the insured’s liability, and to the extent the discharge of contaminants at the property in question constituted an “occurrence,” the “occurrence” happened before the insured had assigned its rights under the policies. The assignment, thus, was found to be valid, even though the insured’s liability had not been fixed by a judgment or settlement. The case was remanded to the trial court for further proceedings, including on whether the plaintiff had “engaged in post-loss conduct that would serve to void coverage under the policies . . . .”

Video of the argument is available here. Further discussion of the case by Paul A. Briganti is available here.


BAD FAITH

Dorfman v. Smith, 271 A.3d 53 (Conn. 2022)

Connecticut Supreme Court holds that the litigation privilege shields an auto insurer from claims for “bad faith” and violation of the Connecticut Unfair Trade Practices Act (CUTPA) based on its allegedly false statements in litigation. The court explained that the privilege, which provides immunity from suit absent conduct constituting vexatious litigation or abuse of process, has been expanded to apply to “an array of retaliatory civil actions” on the basis that the privilege protects communications made in the course of litigation and, therefore, “the nature of the theory [on which the challenge is based] is irrelevant.” It determined that the privilege barred the insured’s “bad faith” claim because it was premised on the insurer’s communication of allegedly false statements – including alleged assertion of a factually baseless defense in response to the insured’s complaint seeking underinsured motorist benefits and falsely responding to the insured’s discovery requests – rather than on alleged misconduct that could be akin to vexatious litigation. The court further concluded that, despite being “a more difficult issue,” the same reasoning applied to the insured’s CUTPA claim because, even assuming the insurer had engaged in a business practice of providing false discovery responses within the meaning of the CUTPA, that claim similarly challenged the insurer’s communications and not conduct tantamount to vexatious litigation.

In a partial dissent, one justice disagreed that the privilege barred the “bad faith” claim, reasoning that, unlike parties in cases outside the insurance context, an insurer “owes its insureds a direct contractual and statutory duty to not act abusively in litigation. According to the dissent, the “unique context” of the case was “miles away from that in which the litigation privilege was originally formulated and lies equally distant from the cases in which we have found the privilege applicable to date.”


INSURANCE ADJUSTERS

Skillett v. Allstate Fire & Cas. Ins. Co., 2022 Colo. LEXIS 198 (Colo. Mar. 14, 2022)

Colorado Supreme Court, in an en banc decision on certified question, holds that employee insurance adjusters are not personally liable under Colo. Rev. Stat. §§ 10-3-1115 and -1116* for unreasonably delaying or denying insurance benefits. The court’s rationale was that, although the statute applies to “person[s] engaged in the business of insurance” and defines “persons” to include “adjusters,” it states that the definitions are applicable “unless the context otherwise requires.” The court found that the context of Sections 10-3-1115 and 10-3-1116 “makes clear” that only insurers are subject to suit, and that reading the provisions to allow for adjuster liability would create a “statutory gap” because there would be “no guidance for evaluating an adjuster’s conduct.”

Video of the oral argument is available here.

* Section 10-3-1115(1)(a) provides: “A person engaged in the business of insurance shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party claimant.” Section 10-3-1116(1) states that a “first-party claimant . . . whose claim for payment of benefits has been unreasonably delayed or denied may bring an action in a district court to recover reasonable attorney fees and court costs and two times the covered benefit.”


POLLUTION EXCLUSION

Omega Protein, Inc. v. Evanston Ins. Co., 2022 Miss. LEXIS 90 (Miss. Mar. 31, 2022)

In a case of first impression, Mississippi Supreme Court holds that an absolute pollution exclusion (APE)* in an excess liability policy is inapplicable to worker injury and death claims that arose from an explosion at a fish processing plant. The explosion occurred when flammable gases from “stickwater” —  a liquid composed of water, fish oil and fish solids — were ignited by welding work on a storage tank. The court reasoned that, although a substance can be an “irritant” or “contaminant” within the meaning of the APE by its “very nature” regardless of “how it is contained,” “a substance is not necessarily an irritant or contaminant until it comes into contact with something and is actively irritating or contaminating it.” Concluding that the language of the exclusion was susceptible to more than one reasonable interpretation, the court construed it in favor of the putative insured.

Video of the argument is available here.

* The APE states the policy shall not apply to ultimate net loss “arising out of or contributed to in any way by the actual, alleged or threatened discharge, dispersal, release, migration, escape, or seepage of pollutants.” “Pollutants” is defined to include “any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.”


TEXAS ANTI-INDEMNITY ACT

Maxim Crane Works, L.P. v. Zurich Am. Ins. Co., 2022 Tex. LEXIS 214 (Mar. 4, 2022)

Texas Supreme Court, on certified question from the Fifth Circuit, holds that the term “employee” in the Texas Anti-Indemnity Act (TAIA) has an ordinary meaning, which is not affected by whether an injured party is deemed to be a “co-employee” with a subcontractor (indemnitor) for purposes of the Texas Workers’ Compensation Act (TWCA). Starting from the principle that undefined statutory terms “bear their common, ordinary meaning unless a more precise definition is apparent from the statutory context or the plain meaning yields an absurd result,” the court held that the injured party, who worked for the general contractor, was not an “employee” of the subcontractor “under the common, ordinary meaning of that term as defined in the dictionary,”* and that “no alternative definition of employee is ‘apparent from the context’ of either the TWCA or the TAIA.” Therefore, the subcontractor could not obtain additional insured coverage under the TAIA’s “employee exception,” which permits the indemnitor to indemnify against a claim for the bodily injury or death of its employee, agent or subcontractor.

* The court cited Black’s Law Dictionary, which defines “employee” as “[s]omeone who works in the service of another person (the employer) under an express or implied contract of hire, under which the employer has the right to control the details of work performance.”

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