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Archive for the ‘Insurance Coverage and Extra-Contractual Liability’ Category

Third Circuit Rules Against the City of Williamsport in Lawsuit Filed Against Insurance Companies Based on Law Enforcement Policy Coverage

Posted on: June 14th, 2019

By: Michelle Yee

In 2015, there was major news coverage that a former Williamsport police officer pled guilty to involuntary manslaughter and several other charges. This case stems from a fatal automobile accident that occurred between James David Robinson and a Williamsport police officer. The officer was traveling at 101 mph with emergency lights and sirens activated on East Third Street, which has a 35-mph limit. The officer then passed three vehicles, including Robinson’s, and crashed into Robinson’s vehicle which burst into flames when it struck against a utility pole. Robinson’s mother sued the City and the police officer for the officer’s negligence and recklessness, which caused the fatal collision and death of Robinson. After the City unsuccessfully moved to dismiss the constitutional claims, this matter settled for $1,000,000.

The City filed a lawsuit against CNA Insurance and National Fire Insurance Company of Hartford, both of which has a $1 million limit, for refusing to provide more than $500,000 in total to cover for the settlement. This case, City of Williamsport v. CNA Insurance Companies and National Fire Insurance Company of Hartford, was recently heard before the United States District Court for the Middle District of Pennsylvania. The Defendants argued that their liability under the Automobile Policy is limited to $500,000 because the policy covers the “sums [the City] legally must pay as damages” and Pennsylvania law caps the state law tort liability against local agencies at $500,000. The Court rejected this argument and ruled that Defendants cannot dismiss this matter based on the City’s Automobile Policy because the state tort law does not place a liability cap for federal claims against the officer, which must be indemnified by the City. The court agreed with the City.

The City of Williamsport then argued that the Law Enforcement Policy’s coverage for civil rights violation should apply to this settlement. On the other hand, Defendants argued that the policy’s automobile exclusion precludes coverage. The Court held for the Defendants. It reasoned that the City sought to hold the office liable for his conduct while driving and the city is responsible for its supervision and training of its officers. Further, the court interpreted the language of the Law Enforcement Policy, as excluding coverage for damages arising out of the operation of any automobiles in the course of employment. Therefore, the Court dismissed the City’s claims to seek recovery under this policy because the damages were proximately caused by an automobile.

The Court finally dismissed the City’s insurance bad faith claim holding that the City did not allege that the Defendants “knew or recklessly disregarded the lack of reasonable basis when denying the City’s claims,” as required by law. However, the Court noted that this dismissal is without prejudice and the City may amend its Complaint to cure this deficiency.

For more information, please contact Michelle Yee at [email protected].

Hiring Summer Employees? Make Sure Your Business is Covered.

Posted on: June 3rd, 2019

By: Allison Hyatt

Summer is here and many businesses are looking to hire additional employees to cover the influx of business inspired by vacation season. One option is to use a temporary employment staffing agency to cover seasonal employee needs. Staffing agencies usually provide their own worker’s compensation and employment practices liability (EPL) insurance. However, what if an accident occurs and a seasonal employee hired through a staffing agency files a personal injury tort claim against both the business and the agency? Business owners may be surprised to find themselves in a situation where the exclusive remedy of their state’s workers compensation statute may not apply to the claim against the business. The surprise may turn to shock when the claim is further denied by the business’ commercial general liability (CGL) insurer, citing the common exclusion for bodily injury to an employee.

How can businesses avoid this coverage gap? It is important to examine the definition of an “employee” in the CGL policy’s employee exclusion, which may include “leased employees” and “temporary employees.” Depending on your jurisdiction, both leased employees and temporary employees can be deemed employees of just the outside staffing agency or both the staffing agency and the business.  In the dual employment situation, which is usually a factual determination, the business would be covered by its own worker’s compensation insurance. Businesses can increase their coverage by requesting an endorsement to their CGL policy eliminating temporary and leased workers from the employment exclusion, just in case they find themselves in the situation described above.

For more information, please contact Allison Hyatt at [email protected].

The Enforceable Unwritten Exclusions and their Business Risks

Posted on: May 31st, 2019

By: Rob Cutbirth

Claim experience on a local or national basis, or generalized soft or hard insurance market conditions, can affect an insurer’s decision on pricing and offered coverage terms. Premiums and underwriting guidelines may change to address market or loss experience concerns. Coverage benefits may be expanded or contracted to address competition or fiscal concerns. One often forgotten constant that continues to impact insurer/insured and insurer/broker relationships, however, are public policy coverage limitations imposed by statute or court-defined public policies.

“Implied” coverage exclusions are commonly triggered in D&O, E&O, and EPL claims, where covered forms of conduct can implicate “intentional” or “self-dealing” acts, or restitutionary, remedial or punitive damages, “excluded” as a matter of public policy not identified in a policy or its endorsements. Definitions of “loss” or “damage” may state no coverage exists for amounts deemed uninsurable under the law governing the application of the policy to a given claim, even experienced brokers and insureds are often unaware of such limitations, let alone how they impact an insurer’s right to assign counsel, manage the claim, and/or limit its settlement or judgment contributions. This can be particularly confusing given the fact insurers often address these issues differently, even when confronted with similar claims in the same jurisdiction.

As claims and coverage counsel, we often advise clients to take the following steps to avoid harm to important business relationships, and improve the efficient handling of claims:

  • Identify and raise with the insured and its broker any applicable public policy limitations at the earliest possible date, recognizing that educated brokers can be a positive resource (or at least an informational resource) for insureds who may be “surprised” about the existence of coverage limitations outside of the four corners of the policy. Because public policy limitations are almost never raised during the underwriting process, but they can override express policy terms in a given jurisdiction (i.e., California Insurance Code Section 533 overrides standard policy form language on indemnifiable conduct and damages), early and clear communications may be needed to avoid and argument of waiver or estoppel, where the insured maintains that it “relied” on the policy’s coverage provisions in its participation in the claim and its defense.
  • Raise relevant and applicable public policy limitations with recognizing that doing so does not necessarily create a right to “independent counsel.” In many jurisdictions, implied public policy limitations relate only to indemnifiable damages (not defense considerations) that do not implicate or create a right to separate counsel. These issues should be carefully evaluated and addressed, however, to ensure that conflict of interest issues are properly evaluated and addressed with the insured in order to avoid ongoing conflicts on representation that can impair efficient claim management.
  • In advance of mediations or settlement conferences, particularly given inconsistencies in how insurers are addressing public policy limitations in those pre-judgment settings, expectations on contributions and/or allocation of settlement amounts should be addressed in writing in advance of such proceedings with the insured in order to help avoid “surprises” and disputes that can derail productive settlement opportunities.  Insurers should also consider filing “coverage briefs” or having pre-conference separate discussions with a mediator/settlement conference judge to help ensure that they understand the factual and legal basis for any allocation or contribution demands that might be made or rejected by the parties.

The “unwritten” exclusions that can limit coverage rights present challenges to all concerned. They cannot be overlooked in terms of their financial and relational impact for both insurers and insureds, with the use of skilled claims and/or coverage professional important to successfully navigating their impact on challenging claims.

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

The Third Circuit Upholds District Court Ruling That Trucking Company Employees Not Entitled to 1 Million in UIM Benefits

Posted on: May 22nd, 2019

By: Erin Lamb

In Farmland Mutual Insurance v. Sechrist, the Third Circuit upheld a district court’s decision rejecting the claims of employees involved in a serious accident while driving a vehicle for Clouse Trucking that they were entitled to $1,000,000 in underinsured (UIM) benefits instead of the $35,000 paid to them by Farmland Mutual Insurance Co.

Farmland had determined that Clouse Trucking had selected to waive UIM coverage equal to the bodily injury liability coverage ($1,000,000), and selected UIM coverage of $35,000. The employees had argued that Clouse Trucking’s waiver was invalid and unenforceable as it was contrary to what is required by the Pennsylvania Motor Vehicle Financial Responsibility Law (PMVFL).

Farmland proceeded with a declaratory judgment action in the U.S. District Court for the Middle District of Pennsylvania, seeking determination of its obligations under that law, related to the UIM coverage. The district court granted summary judgment, adopting the argument that the policy application was a valid written request by Clouse Trucking for lower UIM coverage, as allowed under the (PMVFL). The employees appealed to the Third Circuit claiming the purported selection of the lowered UIM coverage was not a valid written request under the PMVFL. They argued that the requirements had not been met because the selection form contained a box that listed the UIM limit offered as $35,000 when it should have read $1,000,000.

Notably, in the application for the Farmland policy, the owner of Clouse Trucking checked a box that stated, “I want Underinsured Motor Coverage with limits lower than my bodily injury liability limits, as indicated below…” However, a sticky note obscured several of the boxes that were options for the amounts he could select. There was a handwritten note that stated near the selection, “35,000”. The Important Policyholder Notice, signed by Clouse, indicated that he understood that Farmland provided such coverage up to at least $100,000.

The Third Circuit found that, while the PMVFL required specific written waivers with statutorily-provided forms if an insured declined uninsured or UIM benefits entirely, that was not the case for simply selecting an amount less than the bodily liability coverage. In such a case, the election could take any form, so long as the request was signed by the insured, and contained a designation of the amount of coverage selected. Those requirements were met. The court found no significance in the fact that the Underinsured Motorist Coverage Limit Offered portion of the Selection form had stated that amount as $35,000 when it should have read $1,000,000.

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

Insured’s Flood Claims Deluged By Texas Federal Court

Posted on: May 22nd, 2019

By: William Gildea

The importance of clear and unambiguous language in insurance policies recently came to light in the United States District Court, Southern District of Texas. The Court recently granted Lexington Insurance Company (“Lexington”) summary judgment after an insured filed a lawsuit seeking coverage for losses to the insured’s properties caused by flooding from Hurricane Harvey in 2017. Lexington issued a Commercial Property Policy (the “Policy”) covering the insured’s commercial properties, including an apartment building, a commercial parking garage, and a retail building. The insured suffered $6,700,000.00 in flood damage from Hurricane Harvey and subsequently filed a timely claim under the Policy with Lexington.

The insurable value for the properties were $190,500,000.00 and $182,565.86 respectively.  Lexington notified the insured the Named Storm Deductible applied, and the deductible surpassed the claim for damages.

An exception to the general deductible under the Policy was for “any adjusted loss due to Flood.” The Flood Deductible contained a $1,000,000.00 per location deductible for locations within Special Flood Hazard Areas.  The Policy also contained a Windstorm Deductible ($100,00 per occurrence) that contained an exception titled “Named Storm Deductible” that provided:

5% of the total insurable values at the time of loss at each location involved in the loss or damage arising out of a Named Storm (a storm that has been declared by the National Weather Service to be a Hurricane, Typhoon, Tropical Cyclone, Tropical Storm or Tropical Depression), in Tier 1 Counties including Florida, regardless of the number of coverages, locations or perils involved (including but not limited to all Flood, wind, wind gusts, storm surges, tornados, cyclones, hail or rain) and subject to a minimum deductible of $250,000 any one occurrence.

The insured argued the Named Storm Deductible did not apply because the language was found in the Windstorm Deductible portion, and the insured did not suffer any wind damage.

The Court disagreed with the insured, analyzing that the Named Storm Deductible did not only apply to claims for wind damage. The Court looked to the clear and unambiguous language of the Named Storm Deductible, which applied “regardless of the number of coverages, locations or perils involved (including but not limited to all Flood, wind, wind gusts, storm surges, tornados, cyclones, hail or rain).”  The Court held the clear and unambiguous language of the Named Storm Deductible applied to any loss caused by a Named Storm, including a loss resulting from heavy rains “associated with a Named Storm.”  The Court concluded the insured’s damages were thus lower than the applicable deductible.

This decision shows that some courts will enforce clear and unambiguous policy provisions as they are written without regard to any perceived inequities in the resolution.  Drafters of policies should remain vigilant that terms are generally construed against the interests of insurers and in favor of coverage and the need to use precise language in coverage agreements.

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