DEFENSE COST REIMBURSEMENT
Cont’l Cas. Co. v. Winder Labs., LLC, 73 F.4th 934 (11th Cir. 2023)
Eleventh Circuit predicts that, under Georgia law, insurers found to have no duty to defend underlying suits could not recoup defense costs from their insureds pursuant to a reservation of rights (ROR) where the GL policies at issue did not provide for reimbursement. The court concluded that the reimbursement provision in the insurers’ ROR letters was not supported by new consideration (since the policies already required the insurers to defend certain suits) and thus did not create a new contract. While the insurers offered the insureds the option to select their own defense counsel, according to the panel, the insurers “did not give up anything to reach the new arrangement” as the policies did not expressly give the insurers the right to select counsel. It also disagreed that the insurers were entitled to reimbursement under an unjust enrichment theory, finding there was “nothing ‘unjust’ about requiring the insurers to fulfill their contractual obligations” and no “windfall” would result.
DEFENSE VS. INDEMNITY
Fifth Circuit holds, under Texas law, that a form of pollution exclusion* in the CGL policies at issue precludes a duty to defend since the underlying suit against the insured junkyard and vehicle wash facility for damage in the form of “cloudy water” and harm to flora and fauna due to leaking “hazardous fluids and materials” did not allege facts outside the exclusion (i.e., harm solely by non-pollutants), but that summary judgment on indemnity was premature. While the underlying complaint referred to substances such as water, soil and sediment (in addition to, e.g., gas, oil and antifreeze), according to the opinion, the insured could only “get around” the exclusion — which precludes coverage for damage that “would not have occurred in whole or part but for” pollutants — by identifying “allegations of harm by non-pollutants alone.” The panel rejected as “out of bounds” the insured’s argument that non-pollutant substances “could” be the source of at least some damage: Under the duty to defend analysis, a court may not “imagine factual scenarios which might trigger coverage.” Rather, the pleadings, not “hypothetical facts,” control. Calling the assumption that the duty to indemnify cannot exist where there is no defense obligation “faulty,” however, it remanded for factfinding on whether the “cloudy water” was solely due to non-pollutants. It is here, the panel said, the insured’s theories on the factual cause of the claimed damage, though not pertinent to the defense analysis, “come to hold water.”
* The exclusion precludes coverage for “‘bodily injury’ or ‘property damage’ which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.” “Pollutants” is defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”
POLICY LIMITS SETTLEMENT OFFERS
Pierce v. Banks, 890 S.E.2d 402 (Ga. Ct. App. 2023)
Georgia appeals court finds an auto insurer’s pre-suit settlement of a personal injury claim pursuant to O.C.G.A. §9-11-67.1* was not binding where the insurer allegedly failed to comply with various hyper-technical requirements of the claimant’s demand including by issuing payment before the actual due-date. The claimant had argued unsuccessfully to the trial court there was no binding settlement since (1) counsel for the insurer only indicated she was authorized to accept the offer, not that she was actually accepting it; (2) the insurer failed to make payment 15 days after their written acceptance as per the offer (the check accompanied acceptance); and (3) the check recited it was “void after 180 days” and failed to properly name the payee in that it was missing a necessary comma. On appeal, the panel explained this was a “unilateral contract” and that acceptance of the offer had to be “identical” without “variance of any sort.” It acknowledged absurd statutory interpretations are not allowed and (in concurrence) the admonition against “gamesmanship” and “cageyness for its own sake”; nevertheless, it concluded the acceptance did not mirror the claimant’s demand and, thus, no settlement agreement was formed.
A cert petition (filed on July 18, 2023) is pending in the Georgia Supreme Court. Amicus briefing by the U.S. Chamber of Commerce in support of the petition urges the court to grant certiorari and recognize a materiality exception to the mirror-image rule where an attorney makes a settlement offer to a defendant’s insurer in bad faith. It states in part the interests of insurers and Georgia businesses are
“threatened by the Court of Appeals’ decisions here and in other recent cases involving failed settlement attempts by insurers where the conditions of the plaintiff’s settlement offer are so elaborate, yet often trivial, that they almost never will be matched with perfect precision. Indeed, with this decision, there is now a trend of case law that actually reward settlement offers crafted by lawyers in bad faith even though such conduct is strictly prohibited by the Georgia Rules of Professional Conduct.”
* The 2013 version of O.C.G.A. § 9-11-67.1, in effect when the settlement demand was made, identified the material terms of a pre-suit offer to settle a tort claim for personal or bodily injury arising from use of a motor vehicle as the time for acceptance (not less than 30 days from receipt), payment amount, parties to be released, type of release, and claims to be released.
Cases to Watch
Estate of Wheeler v. Garrison Prop. & Cas. Ins. Co., No. S-18849 (Ak.) (Pollution Exclusion)
Alaska Supreme Court to decide, on certified question from the Ninth Circuit, if a “total” pollution exclusion* in a homeowners insurance policy applies to a death claim involving carbon monoxide exposure from a residential water heater. The Ninth Circuit explained if the exclusion applies only to active industrial polluters (not clear how that could be the case in this context) or traditional environmental pollution, then there would be coverage in this case; otherwise, if the plain language unambiguously encompasses residential carbon monoxide exhaust, coverage might be precluded unless that result “contravenes the [insured’s] reasonable expectations.” Existing law (Whittier Props., Inc. v. Alaska Nat’l Ins. Co., 185 P.3d 84 (Ak. 2008), which held a pollution exclusion unambiguously barred coverage for property damage from a UST gasoline leak, the court said, did not permit it to predict how the Alaska Supreme Court would resolve the issue in this context. It therefore certified the following question:
“Does a total pollution exclusion in a homeowners’ insurance policy exclude coverage of claims arising from carbon monoxide exposure?”
* The policy’s pollution exclusion bars coverage for “bodily injury” and “property damage” “[a]rising out of the actual, alleged, or threatened discharge, dispersal, release, escape, seepage or migration of ‘pollutants’ however caused and whenever occurring.” “Pollutant” is defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”
St. Paul Fire & Marine Ins. Co. v. Bodell Constr. Co., No. SCCQ-22-0000658 (Haw.) (Defense Cost Reimbursement)
Hawaii Supreme Court to decide, on certified question, whether commercial liability insurers that have no duty to defend are entitled to equitable reimbursement of their defense payments from an insured. Noting limited Hawaii authority and mixed decisions elsewhere (Buss v. Superior Court, 939 P.2d 766 (Cal. 1997) and Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d 526 (Pa. 2010)), the federal district court there certified the following questions:
“1. Under Hawaii law, may an insurer seek equitable reimbursement from an insured for defense fees and costs when the applicable insurance policy contains no express provision for such reimbursement, but the insurer agrees to defend the insured subject to a reservation of rights, including reimbursement of defense fees and costs?
- If an insurer may seek equitable reimbursement of defense fees and costs under Hawaii law, (A) for what specific fees and costs may the insurer obtain reimbursement, (B) which party carries the burden of proof, and (C) what is the burden of proof?”
Audio of the Supreme Court argument on July 6, 2023 is available here.
Aloha Petro., Ltd. v. Nat’l Union Fire Ins. Co. of Pittsburgh, No. SCCQ-23-0000515 (Haw.) (Occurrence; Pollution Exclusion; Climate Change)
Hawaii Supreme Court asked to decide, on certified question, whether climate change lawsuits accusing plaintiff and other fossil fuel industry members of reckless conduct allege an “occurrence” (accident) and, if so, whether greenhouse gas emissions qualify as a release or escape of “pollutants” under pollution exclusions in CGL policies. In the underlying suits, government entities allege industry disregarded known risks that their fossil fuel products would combust and produce greenhouse gases, thereby causing climate change and harm to them. In addition to alleging “more culpable mental states,” the underlying complaints assert the defendants “recklessly” caused flood waters, extreme precipitation, saltwater, and other materials to enter government property. The insurer argues that, because recklessness traditionally requires a risk of foreseeable harm, reckless conduct cannot be an “accident” (and thus not an “occurrence”) under Hawaii law, which defines that term to “require injuries that are neither the ‘expected [n]or reasonably foreseeable result of the insured’s own intentional acts or omissions’” (quoting AIG Haw. Ins. Co. v. Est. of Caraang, 851 P.2d 321, 329 (Haw. 1993)). In addition to finding “no clear controlling” Hawaii precedent on whether reckless conduct amounts to an “accident,” the federal district court concluded that state law is inconclusive as to whether greenhouse gases are “pollutants” (i.e., “gaseous” “irritant[s] or contaminant[s]”) within the meaning of the policies’ pollution exclusions. It certified the following questions:
“1. For an insurance policy defining a covered ‘occurrence’ in part as an ‘accident,’ can an ‘accident’ include recklessness?
- For an ‘occurrence’ insurance policy excluding coverage of ‘pollution’ damages, are greenhouse gases ‘pollutants,’ i.e., ‘gaseous’ ‘irritant[s] or contaminant[s], including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste’?”
The plaintiff’s partial summary judgment motion brief is available here.