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FMG Law Blog Line

Archive for the ‘Insurance Coverage/Bad Faith’ Category

Is Georgia Game for Growing Bad Faith Liability?

Posted on: July 17th, 2018

By: Jessica Samford

As discussed in my last blog on bad faith, seeking bifurcation can be a proactive means to distinguish the issue of coverage from the issue of bad faith and appropriately manage the all too often unwieldy discovery process before it’s too late.  A recent case in Georgia is an interesting illustration of an insurer’s attempt to bifurcate issues after the discovery stage in a bad faith failure to settle claim in particular and is yet another cautionary example for insurers to carefully consider the increasing potential for extracontractual liability in Georgia.  Whiteside v. GEICO Indem. Co., 2018 U.S. Dist. LEXIS 87868, *3-*4 (M.D. Ga. May 25, 2018).

In that case, the trial court declined to bifurcate the issues of liability and proximate cause of damages at the trial stage as requested by Geico, which sought to have a jury determine whether or not Geico could be held liable for bad faith failure to settle before being presented with evidence of the default judgment entered against Geico’s insured of almost $3 million and causation of same.  Separation of liability and damages issues was not warranted according to the trial court because facts relating to Geico’s claim handling were relevant to both, and Geico’s concerns could be handled through proper jury instructions, special interrogatories, and the verdict form.  See also Whiteside v. GEICO Indem. Co., 2018 U.S. Dist. LEXIS 52761 (M.D. Ga. Mar. 29, 2018).  The trial court did, however, bifurcate the claim for punitive damages from the rest of the jury trial.

The result was a jury verdict of $2 million against Geico for failing to settle in response to a bicyclist’s demand for the $30,000 policy limit based on medical bills of almost $10,000 following a motor vehicle accident.  Previously, Geico had argued there was no coverage due to the insured’s failure to notify Geico of the subsequent lawsuit she was served.  Whiteside v. GEICO Indem. Co., 2017 U.S. Dist. LEXIS 203617, *6, 2017 WL 6347174 (M.D. Ga. Dec. 12, 2017).  Notwithstanding such a flagrant breach of the policy’s notice conditions, the trial court did not see coverage as being an issue since that coverage defense did not exist at the time Geico responded to the demand by offering to settle for about half the limits instead.

These unusual circumstances are certainly noteworthy, and extracontractual damages such as these are becoming less uncommon in Georgia bad faith cases.  FMG’s Insurance Coverage and Bad Faith BlogLine has already geared up to cover the Georgia Supreme Court’s upcoming rulings after granting cert on the scope of what triggers failure to settle liability in Georgia, not to mention the proposed changes to the Restatement of the Law of Liability Insurance and their impact.  Whatever is in the cards for extracontractual liability in Georgia, the risks presented by settlement demands should be evaluated in light of these current trends.

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

Is An Employee’s Intentional Act An Employer’s “Accident”?

Posted on: July 10th, 2018

By: Rebecca Smith and Zach Moura

It may just be, according to the California Supreme Court’s recent decision in Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., Inc. (June 4, 2018, No. S236765).  In Liberty v. Ledesma, the underlying lawsuit was brought by a minor who sought damages for molestation committed by an employee of a general contractor (“L&M”) while the employee was working on a long-term construction project at the minor’s school.  In response to this underlying suit and the tendering of the action by L&M to its carrier, Liberty Surplus Insurance Corporation and Liberty Insurance Underwriters (“Liberty”), Liberty filed a declaratory relief action seeking to adjudicate that they had no duty to provide coverage under a general liability policy.

The certified question presented to the Supreme Court by the 9th Circuit Court of Appeals was when a third party sues an employer for negligent hiring, retention and supervision of an employee who intentionally injured that third party, does the suit allege an “occurrence” under the employer’s general liability policy?  The Supreme Court responded that the answer turns on whether the injury can be considered “accidental” and concluded “it can.”

In reaching its decision, the Supreme Court acknowledged that the act of L&M in hiring the employee who later turned out to be the molester was intentional and that the employee’s molestation of the student was also intentional; however, held that because L&M did not “expect” its employee to molest a student, an accident transpired as required by the definition of “occurrence” in the Liberty policy.  The Court emphasized that the issue of whether an act constituted an accident for purpose of coverage MUST be viewed from the standpoint of the insured.  Explaining their decision, the Court stated that because the molester’s acts were unanticipated from L&M’s perspective, they were accidents in the context of providing insurance.  The allegedly negligent hiring, retention and supervision were independently tortious acts according to the Supreme Court, which form the basis of their claim against Liberty for defense and indemnification.  Further, the Court stated that the molester’s intentional conduct did not preclude potential coverage for L&M.

While the Supreme Court effectively wiped out a line of California Court of Appeal decisions which held that the unexpected consequences of an intentional act are not an accident, the Court pointed out that if the determination was justified in that if the insurer’s argument regarding the definition of occurrence and accident were accepted, it would leave employers without coverage for claims of negligent hiring, retention or supervision whenever the employee’s conduct is deliberate.  Such a result, the Court opined, would be inconsistent with California law, which recognizes the cause of action even when the employee acted intentionally.

It is expected that the opinion will lead to an increase in claims to insurers from employers facing negligent hiring claims.  It may also lead to an increase in litigation of coverage for liability claims based on intentional acts that result in allegedly unexpected injury, which would previously have been denied on the basis that the unexpected consequences of an intentional act are not an accident and therefore, not an occurrence under personal injury liability coverage.

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

Pass That Dutch: California Insurers Respond to Budding Cannabis Industry

Posted on: July 2nd, 2018

By: Kristin Ingulsrud

California Insurance Commissioner Dave Jones announced on June 4, 2018 his approval of the Cannabis Business Owners Policy (CannaBOP) in California.  The new CannaBOP program was designed for cannabis dispensaries, storage facilities, processors, manufacturers, distributors, and other related businesses.  The CannaBOP program includes property and liability coverage for qualifying businesses.

Other recent offerings by insurers to the California cannabis industry include the first commercial insurance from an admitted carrier in November 2017, the first surety bond program in February 2018, and the first coverage for commercial landlords and a product liability and product recall program in May.

In April, President Donald Trump seemingly called off Attorney General Jeff Sessions’s war on marijuana and promised to support legislation that would protect states that have legalized marijuana from a federal crackdown.  The unpredictability of the current administration in regards to federal enforcement is just one of the unique issues the legalized cannabis industry faces.

Commissioner Jones hosted a webinar in May, Weeding through the Unique Insurance needs of the Cannabis Industry with the National Association of Insurance Commissioners Center for Insurance Policy and Research.   “Cannabis businesses face various insurance gaps—which means cannabis customers, workers and business owners may not have access to insurance to help them recover if there are accidents, injuries, property damage, or any of the things commercial insurance typically covers,” said Jones.

Topics included the effects of conflicting state and federal law on insurance claims, policy exclusions and gaps in coverage.  The webinar also covered the future of the cannabis industry and new trends such as on-site consumption, cryptocurrency, and blockchain.

Commissioner Jones  held the nation’s first public hearing in October 2017 to identify insurance gaps faced by the cannabis industry as part of his ongoing initiative to encourage commercial insurers to offer tailored coverage.  Since that time, insurers in California continue to expand their offerings to the cannabis industry.

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

Cyberrisks to Contractors and Securing Proper Coverage

Posted on: June 29th, 2018

By: Barry Brownstein

Increasingly sophisticated hackers have targeted personal and business data held by companies like Target Corp., Sony Corp., Equifax Inc. and Yahoo Inc. during the past decade. The construction industry is just as susceptible to these risks as any other industry.  As construction projects increase in size and there is more sharing of data related to buildings and projects, and as more of that sharing becomes electronic, cyberrisks increase as well.

Contractors and their business partners hold personal information about their clients and employees, and they are increasingly using more electronic means to exchange data and survey construction projects. A significant threat for companies in the construction industry comes from the open and increasingly connected network between those in charge of a project and their various subcontractors and business partners, who need swift and seamless access to plans and other sensitive data to do their part of the work.

Many companies in the construction industry assume that since they have policies that cover losses stemming from physical and property damage, any infiltration into their systems that result in the loss of access to sensitive information is covered by such insurance.  However, most commercial general liability policies carve out cyberthreats from coverage.  While contractors can still make claims under more traditional policies and may find that some of their losses are covered, relying solely on these protections may be dangerous and result in uncovered losses.

Specialized cyberinsurance can fill in the gaps left by commercial general liability policies that do not account for losses caused by damage to virtual information systems, and ensure that any damages, injuries or delay caused by downstream contractors or business partners are covered as well. Once policies are in place, contractors need to revisit them regularly to account for changes in the cyberthreat landscape as they relate to the construction industry.

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

Insuring Against Rule 68 Offers of Settlement

Posted on: June 28th, 2018

By: Matt Grattan

One tool defense lawyers in Georgia frequently use to induce settlements is an offer of settlement under O.C.G.A. 9-11-68.   Rule 68 allows either party to a tort action to serve a written offer to settle the claim, so long as the offer is made within a certain time and satisfies several other elements under the statute.  If a Rule 68 offer is properly made by a defendant and rejected, that code section allows a defendant to recover its post-rejection attorney’s fees and expenses from a plaintiff in the event the plaintiff does not recover at least 75% of the offered amount at trial.

It is easy to see how the fee-shifting provision in Rule 68 can provide defense attorneys with leverage during settlement negotiations.  Simply put, it forces plaintiffs to put some skin in the game.  Because paying the defendant’s attorney’s fees and costs can significantly reduce or even eliminate a plaintiffs’ award at trial (and in turn a plaintiffs’ attorneys’ fees), plaintiffs may be more inclined to settle rather than face such risks at trial.

The fee-shifting benefit from Rule 68, however, could potentially be diminished by companies like LegalFeeGuard.   Established in Florida in 2012 to combat that state’s offer of settlement statute, LegalFeeGuard has recently started offering insurance policies in Georgia that cover attorney’s fees and costs under O.C.G.A. 9-11-68.  LegalFeeGuard offers no-deductible policies with limits as low as $10,000 and as high as $250,000.   Policies are triggered by a judgment in a bench trial or the return of a verdict in a jury trial, and are available to plaintiffs and defendants for a wide array of cases, including personal injury, breach of contract, and intentional torts.

What does the availability of fee-shifting insurance mean for defense lawyers and their clients?  LegalFeeGuard recently launched in Georgia (and the author is unaware of any other similar companies), so it is tough at this point to determine what kind of impact fee-shifting insurance will have on litigation in Georgia.  But this is certainly a development for lawyers to keep an eye on (particularly since LegalFeeGuard claims on its website to have sold over 1,000 policies in Florida) as such insurance may persuade more plaintiffs to roll the dice and take their case to trial knowing the downside risk of paying fees and costs is reduced, if not altogether eliminated.

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