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Archive for the ‘Insurance Coverage/Bad Faith’ Category

Court Ruling Highlights Importance of Precise Policy Language Usage

Posted on: April 11th, 2018

By: America Vidana

In Mt. Hawley Insurance Co. v. Tactic Security Enforcement, Inc., No. 6:16-cv-01425 (M.D. FL. 2018), U.S. District Judge Paul Byron of the Middle District of Florida recently denied an insurance company’s motion for summary judgment, in which it relied on an exclusion to deny coverage to its policyholder. The policyholder and restaurant establishment, Que Rico La Casa Del Mofongo, had two negligence lawsuits filed against it for allegedly failing to prevent violent incidences from occurring on its premises.

The insurer denied coverage per an exclusion included in the policy prohibiting “operations involving bars, taverns, lounges, gentlemen’s clubs and nightclubs.” The Court, however, found that the insurer failed to clearly define the terms cited in the exclusion. It noted that the policyholder’s establishment was interchangeably referred to as a “restaurant,” and at other times as a “lounge.” Consequently, because the terms “bars, “taverns,” “lounges,” and “gentlemen’s clubs” were undefined, it deemed the entire exclusion as imprecise and inapplicable—unilaterally denying the insurer’s summary judgment.

The Court’s decision in Mt. Hawley significantly reinforces the principle that precise policy language is required before an insurer can deny coverage based on an exclusion. It also highlights the importance for a policyholder to read the entire policy to ensure there are no broad exclusions that could potentially bar coverage.

If you have any questions or would like more information, please contact America Vidana at [email protected].

Devil Wine was not a “Peril Insured Against”

Posted on: April 3rd, 2018

By: Eric P. Benedict

A California Appellate Court recently ruled that a wine dealer’s fraud was not covered under a collector’s “Valuable Possessions” property insurance policy after the collector discovered that millions of dollars in “rare” wine bottles were sold to him under false pretenses.  Over several years, David Doyle purchased nearly $18 million in what he believed to be rare, vintage wine from Rudy Kurniawan. Instead, Kurniawan had been selling Doyle his own blend, disguising it as various rare vintages. In 2013, Kurniawan was convicted of fraud and sentenced to 10 years in prison. Doyle was left with a storage facility filled with nearly-worthless wine. Doyle then filed a claim with his insurance carrier under a “Valuable Possessions” policy with a blanket limit of $19 million. In pertinent part, the policy insured against “direct and accidental loss or damage to covered property caused by an ‘occurrence.’” After the carrier denied coverage because there was no covered “loss” under the policy, the collector filed suit against the carrier for breach of contract. Doyle argued that the policy provided coverage for all insurable risks, “whether anything physical happened to the wine or not.” In response, the carrier argued that no “loss or damage to covered property” occurred because the wine was in the exact same condition that it was when it was first insured.

In Doyle v. Fireman’s Fund Insurance Company, the Court of Appeal of California agreed with the carrier and the trial court concluding that Doyle’s claim was not covered by his “Valuable Possessions” property insurance policy because the wine did not sustain any physical loss or damage. After noting that valuable goods such as rare wine were otherwise covered under the policy, the Court explained that the fraud was not a “peril insured against” under the policy. In the Court’s words, “the wine collector is stuck with the devil wine without recompense. A Shakespearean tragedy, to be sure.”

The Court of Appeal of California explained that because property insurance is, by definition, insurance of property, the “threshold requirement for a recover under a contract of property insurance is that the insured property has sustained physical loss or damage.” The Court reasoned that in the property insurance context, the word “loss” does not include claims where the insured “merely suffers a detrimental economic impact.” According to the Court, under the terms of the policy, the carrier was not insuring Doyle’s financial health or his unrealized expectations about the “vintage” wine he had amassed. The Court went on to explain that when the Doyle purchased the wine, it was already counterfeit and it remained counterfeit from the day he insured it through the day he filed his claim. Thus, no loss had occurred.

The Court then clarified that while diminution in value may be a measure of loss in the property insurance context, it is not a covered peril in and of itself. This case highlights the important distinction between covered property and covered perils in the property insurance context. While Doyle sought to insure his property against some perils, such as theft, abnormal spoilage, or fire, he was not covered by his property insurance for Kurniawan’s fraud or Doyle’s own failed investment. While Doyle claimed that the absence of a fraud exclusion in the policy evidenced coverage, the Court noted that it did not need to analyze the absence of a fraud exclusion, because the collector failed to carry his initial burden of showing that the occurrence was within the basic scope of insurance coverage.

With sympathy for consequences of Kurniawan’s actions, the Court quoted Shakespeare’s Othello and reminded Doyle that “the robbed that smiles steals something from the thief.”

If you have any questions or would like more information, please contact Eric Benedict at [email protected]

 

Need a Lyft? Georgia Court of Appeals Decision Raises Coverage Questions for Ridesharing Services and Their Drivers

Posted on: February 19th, 2018

By: Connor M. Bateman

Most personal automobile insurance policies exclude coverage for damages that result from the ownership or operation of a vehicle used as a “public or livery conveyance.” Although typically undefined in the policy, this phrase has generally been understood to encompass vehicles that are “used indiscriminately in conveying the public, rather than being limited to certain persons and particular occasions or governed by special terms.”

The Georgia Court of Appeals recently weighed in on the scope of this exclusion in Haulers Insurance Co. v. Davenport.  In Davenport, the plaintiff sustained injuries in a car accident, sued the other driver, and served his uninsured motorist carrier (Haulers) with a copy of the complaint. At the time of the collision, the plaintiff was giving a ride to a female friend who would occasionally pay the plaintiff to drive her into town. There was no evidence, however, that the plaintiff ever offered paid rides to the general public. The Court of Appeals rejected Haulers’ argument that the policy’s public or livery exclusion barred coverage, reasoning that the exclusion was inapplicable absent evidence that the plaintiff “used his vehicle indiscriminately to transport members of the general public for hire, or regularly rented out his vehicle for hire.” The court recognized, however, that the exclusion would apply in cases where the driver “presents his services indiscriminately to the general public for hire.”

In light of the rising popularity of Transportation Network Companies (“TNCs”) such as Lyft and Uber, the coverage issues presented by this oft-forgotten exclusion should be carefully reexamined. TNC drivers, who use their personal vehicles to transport passengers, will often have no coverage under their personal policies due to the public or livery conveyance exclusion. This exclusion clearly applies to drivers actively transporting passengers and may even be triggered when the driver is simply using the ridesharing application to “troll” for potential customers. While some of these gaps have been addressed by commercial insurance policies provided by the TNCs, drivers may still be left without coverage in certain situations. For instance, although TNCs typically provide liability coverage for a driver who has the app turned on and is waiting to accept a ride, the TNC policies will not likely cover damages caused by someone or something else during that initial period. To account for this, the TNCs suggest that such damages may be covered by the at-fault driver’s policy or the TNC driver’s personal policy. However, the public or livery conveyance exclusion often extends to uninsured motorist, collision, and comprehensive coverage. And because courts have held that the public or livery conveyance exclusion applies when drivers “present their services” to the general public, the exclusion is arguably triggered even when the TNC driver is merely waiting for the application to connect to a customer.

Although the reach of this exclusion has yet to be fully examined in the context of ride-sharing services, these and other coverage issues will likely continue to arise. For additional information, please contact Connor Bateman at [email protected].

Cumis Counsel Limited: Insurer-Appointed Counsel Requires Actual Conflict of Interest

Posted on: February 9th, 2018

By: David G. Molinari

The California Third District Court of Appeals has ruled that the right to Cumis counsel, independent counsel paid by the insurer (San Diego Federal Credit Union v. Cumis Insurance Soc’y, 162 Cal. App. 3d 358 (1984)) requires an actual as opposed to a potential conflict.  In Centex Homes v. Saint Paul Fire & Marine Insurance Company, (Case C081266, January 22, 2018) the Court of Appeals concluded that Cumis counsel is not required absent a reasonable likelihood of an actual conflict when an additional insured carrier accepts a tender of a developer/general contractor’s defense subject to a reservation of rights and appoints defense counsel.

In Centex Homes the homeowners sued developer for construction defects.  Developer tendered the defense to the insurer of a subcontractor involved in the project as an additional insured.  The insurer provided an attorney to defend the developer under a reservation of rights against any claims not covered by the subcontractor’s policy.  Developer hired their own attorney who filed a cross-complaint against the subcontractors, including the subcontractor under whose policy the developer was being defended.  The developer argued that the case presented a “potential” conflict of interest that required the appointment of independent counsel under Cumis.

The Third District Court of Appeals ruled otherwise.  The court concluded to the extent Cumis suggests a potential conflict arises wherever the insurer reserved its right to deny coverage being sufficient to require the appointment of independent counsel, the plain language of California Civil Code Section 2860 limits the Cumis right.  Under Civil Code Section 2860 the conflict must be actual, not merely potential.  The insurer-appointed counsel in Centex Homes was in no position to control the outcome in the case which focused on causation.  On the issue of causation, the insurer and the developer had the same interests defending the underlying claim.

Further, the developer argued independent counsel was required because the insurer-appointed counsel had a conflict of interest under Rule 3-310 of the Rules of Professional Conduct: “Avoiding Representation of Adverse Interests.”  Again, the Court of Appeals determined otherwise.  The court concluded that while generally conceptualized, defense counsel represents the interests of both the insurer and the insured, they are not necessarily both clients in the matter as contemplated under the Rules of Professional Conduct for conflicts of interest.  As the Court of Appeal viewed Rule 3-310 (C), the rule was not intended to apply to the relationship between an insurer and a member of the bar when the insurer’s interest is as an indemnity provider and not a direct party to the action.  In Centex the court concluded there was no actual conflict of interest presented in the case.

Centex Homes may signal the limitation and narrowing of the right to independent counsel in construction litigation.

If you have any questions or would like more information, please contact David Molinari at [email protected].

Insurer Entitled To Prejudgment Attachment Against Insured Upon Establishing Probable Validity of Coverage and Recession Defenses

Posted on: January 29th, 2018

By: Rebecca J. Smith

A California Appellate Court recently ruled that an insurer was entitled to a prejudgment attachment on the property of its insured when the insurer provided what the court deemed to be ample evidence to support its argument that an exclusion in a policy barred coverage under the intentional non-compliance exclusion.

Allied World National Assurance Company (“Allied”) issued a primary environmental liability insurance policy for $2 Million and an umbrella policy for $5 Million to Santa Clara Waste Water (“SCWW”). Intentional non-compliance provisions were included which excluded coverage for damage resulting from the intentional disregard of or deliberate willful or dishonest non-compliance with laws or regulations.  In 2014, a huge explosion at the SCWW plant occurred and SCWW made a claim to Allied for payment to clean up the facility from the damages resulting from the chemical spill, explosion and subsequent fire.

Allied initially denied the claim; however, ultimately agreed to pay $2.5 million to cover the facility owner’s cleanup costs with the caveat that the plant owner would have to reimburse the insurer if a court later determined that the policy’s coverage did not apply.  SCWW then sued for the full amount, triggering Allied to file a cross-complaint.  Allied then sought a prejudgment attachment against SCWW for the $2.5 Million plus costs and interest to protect their ability to recover from SCWW should they prevail at trial.  The application for a right to attach order and writ of attachment was granted by the trial court.

Under the statute governing attachments, a party seeking a prejudgment attachment must demonstrate the probable validity of prevailing on its claim.  In affirming that decision, the Second District Court of Appeal recognized that where an insurer pays an amount not covered under the policy, it has a right that is implied at law under an unjust enrichment theory.  The court declared that Allied had established the probable validity under both their unjust enrichment and recession claim because substantial evidence supported the trial court’s finding that SCWW failed to report their Hazardous Materials Plan under the Health and Safety Code, concealed chemicals from inspectors and misrepresented and concealed a material fact – that being that they did not accept, process, transport or discharge hazardous waste.

Accordingly, upon return to the trial court, Allied may attach the property of SCWW pending ultimate determination of the action for the amount they paid, plus pre-judgment interest.

If you have any questions or would like more information, please contact Rebecca Smith at [email protected].