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Posts Tagged ‘insurers’

In the Land of Insurance Coverage, Specificity is King

Posted on: December 13th, 2018

GA Court of Appeals Finds Insurer Must Cover Millions in Damages Because of Policy Ambiguities

By: Brandon Howard

Whenever a court suspects an insurance policy is “ambiguous,” anxiety strikes the minds of both coverage counsel and insurers alike. For coverage counsel, combating an alleged ambiguous provision of a policy typically occurs on the back-end, after an incident has occurred and the claimant or plaintiff has already made underlying allegations of liability. As a result, coverage counsel can only advise clients or litigate matters within the framework of any given insurance policy’s established language. Yet, as policy issuers, insurers are uniquely positioned to monitor trends in litigation, on the front-end, in an effort to anticipate and revise policy language which may appear ambiguous in light of unique or uncommon facts. By proactively taking on vague policy provisions, a prudent insurer may avoid unanticipated exposure and a public battle over any alleged ambiguities during litigation.

Recently, in Nat’l Union Fire Ins. Co. v. Scapa Dryer Fabrics, Inc., 2018 Ga. App. LEXIS 634 (Ga. Ct. App. Oct. 26, 2018), the Georgia Court of Appeals demonstrated how a pair of ambiguous policy provisions can expose an insurer to millions of dollars in unanticipated liability. In that case, over a period of five years, the primary insurer, National Union, issued commercial general liability policies to an entity selling asbestos-containing dryer felts (Scapa). Three of the policies had $1 million occurrence/aggregate limits, while the last two policies purported to cap the insured’s liability limits for any one occurrence at $7.2 million. Citing the policies’ non-cumulation and limit erosion provisions, National Union argued that its duty to indemnify Scapa was discharged when the Scapa’s liability reached $7.2 million. Scapa, however, argued that both the non-cumulation and limit erosion provisions were ambiguous, thus allowing it to “stack” the limits of each of the primary policies, for a total coverage limit of $17.4 million.

On appeal, the Georgia Court of Appeals held that Scapa was allowed to stack the coverage limits of the five National Union policies because the policies’ non-cumulation clauses were ambiguous. The policies provided that if “[Scapa] has been provided with more than one policy by [National Union] covering the same loss/losses, the limit of liability stated in the schedule of this endorsement is the total limit of [National Union’s] liability for all damages which are payable under such policies. Any loss incurred under this policy shall serve to reduce and shall therefore be deducted from the total limit of [National Union’s] liability.” Confronted with this language, the Court concluded that the non-cumulation provision is ambiguous because “[it] does not indicate whether the limit applies to [each discriminate] policy period only or to the aggregate period under the original and renewed policies.” Construing the policy in favor of the insured, the Court held that the non-cumulation provision did not apply in the aggregate and, therefore, Scapa could stack its policy limits to gain an additional $10.2 million in coverage beyond what National Union contended was due.

On the issue of policy limit erosion, the Court also sided with Scapa. National Union had argued that, under its policies, the liability limits were eroded by the costs expended to defend Scapa against liability. For support, Scapa pointed to the policy, which provides that the limits of liability are reduced by “all expenses incurred by [National Union], . . . in any claim, suit[,] or other action defended by [National Union].” The Court noted, however, that National Union’s limits “[are] eroded only by the total sums that National Union ‘become[s] obligated to pay due to’ any bodily injury or . . . property damage.” The erosion provision, according to the Court, “is ambiguous as to whether such expenses include defense costs National Union is obligated to pay solely as part of its contractual duty to defend (as opposed to those sums it is legally obligated to pay by reason of the liability imposed upon Scapa by law for damages).” Again, construing the policy in favor of the insured, the Court held that National Union’s limits were not eroded by the costs incurred defending Scapa.

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

Closings Gone Bad

Posted on: October 25th, 2018

By: Dana Maine

Nathan Hardwick IV was convicted by a Northern District of Georgia federal jury on October 12, 2018 of embezzling $26 million from the accounts of his former firm, Morris Hardwick Schneider.  $20 million of this amount was from the firm’s escrow accounts.  The good news for clients of the firm is that firm’s insurer, Fidelity National Finance, stepped in to cover most of the escrow shortfall.  All parties to real estate closings were watching this trial and trying to understand how this scheme could have gone on for as long as it did and involve this amount of money. There are lots of lessons to be learned, and policies to be implemented.  Doubtless, attorneys for escrow agents and their insurers are scurrying to draft these new policies and put them in place.  Hardwick’s sentencing is set for December 19.  He will remain in custody until sentencing.

If you have any questions or would like more information, please contact Dana Maine 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].

The Restatement of The Law of Liability Insurance Is Coming~ Ready Or Not!

Posted on: May 21st, 2018

By: Gretchen Carner

On May 22, 2018, at the annual meeting of the American Law Institute (ALI ) in Washington, D.C., its members are set to vote on final approval of the Restatement of the Law of Liability Insurance (RLLI). The American Law Institute’s RLLI aims, as former Director Lance Liebman said, to seek “the efficient and fair rules that should govern the insurer/insured relationship.” The RLLI has taken eight years to write and has been the subject of much lively debate.

Many of the issues discussed in the Restatement have been hotly contested by insurers.  The RLLI, for the most part, states the majority rule on the vast majority of issues covered. Sometimes, however, the Restatement sets forth what the ALI considers to be the “better rule,” which is a practical approach taking into consideration the law and incentives underlying insurance and claims-handling.

It is anticipated that courts considering coverage issues of first impression, or where the law is not clear, may now turn to the RLLI for guidance.  Because Restatements are developed by learned individuals in their area of expertise at the ALI, and are only approved after a long and painstaking process, it would be reasonable for a court to look at what the RLLI has to say about an unsettled issue. If the Final Draft of the Restatement is approved this month, some of the following hot topics should be high on an insurer’s radar.

Policy InterpretationSection 3 adopts a presumption in favor of the plain meaning rule for interpretation of “standard-form” policy terms, stating: “an insurance-policy term is interpreted according to its plain meaning, if any, unless extrinsic evidence shows that a reasonable person in the policyholder’s position would give the term a different meaning. That different meaning must be more reasonable than the plain meaning in light of the extrinsic evidence, and it must be a meaning to which the language of the term is reasonably susceptible.”

The “extrinsic evidence exception” in Section 3(2) is a modification of the majority rule that extrinsic evidence is only relevant after the term is found ambiguous (i.e., has another reasonable interpretation).  Under Section 3, consideration of extrinsic evidence is relevant to determine whether there is another more reasonable interpretation of the term.

Insurers’ Duty to DefendSection 13 defines the applicable duty to defend standard as the traditional “potential for coverage” standard included in the “four corner/eight corners” rule adopted in most jurisdictions. Once the duty to defend applies, “[t]he insurer must defend until its duty to defend is terminated under § 18 by declaratory judgment or otherwise,” unless facts as to which there is no genuine dispute establish that:

(a) The defendant in the action is not an insured under the insurance policy pursuant to which the duty to defend is asserted;

(b) The vehicle involved in the accident is not a covered vehicle under the automobile liability policy pursuant to which the duty to defend is asserted and the defendant is not otherwise entitled to a defense;

(c) The claim was reported late under a claims-made-and-reported policy such that the insurer’s performance is excluded under the rule stated in § 36(s); or

(d) There is no duty to defend because the insurance policy has been properly cancelled.

The comments to this Section explain that the reasons behind it are based on public-policy concerns with allowing insurers to consider “an all-the-facts-and-circumstances approach” that extends well beyond the exceptions stated in Section 13 or elimination of the common rule that the insurer must pursue a declaratory-judgment action before rejecting its duty to defend. The comments also warn insurers against trying to include a contractual provision terminating the duty to defend in situations other than those listed in this Section unless it also contains a mechanism protecting the insured’s right to a defense.

Insurer’s Right to RecoupmentSection 25 (2) provides that an insurer defending under a reservation of rights is not relieved of the duty to make reasonable settlement decisions.  If the insurer decides to settle uncovered claims to cap its potential liability down the road, it cannot recoup any portion of the settlement payment unless that is allowed under the terms of the insurance contract.  The comments under this Section make clear that the no-recoupment rule is a default rule, which means that a contrary term in the insurance contract would prevail.

It will be interesting to see how this Section is applied in California where recoupment of uncovered settlement payments is allowed if the insurer complies with the strict requirements set forth in Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal.4th 489, 502, and not any specific policy language.  Blue Ridge satisfied the prerequisites for seeking reimbursement for noncovered claims included in a reasonable settlement payment by asserting: (1) a timely and express reservation of rights; (2) an express notification to the insureds of the insurer’s intent to accept a proposed settlement offer; and (3) an express offer to the insureds that they may assume their own defense when  the insurer and insureds disagree whether to accept the proposed settlement.

The take-away here is that when there is no in-state law on an issue, a court’s resort to the RLLI, in conjunction with other sources, seems likely.  On the other hand, when there is precedent available, it seems unlikely that a court would opt to adopt the RLLI rule if it conflicts with well settled law. Time will tell what the impact and role of the RLLI will be on the cases in jurisdictions where the law is sparse on the topic or ripe for change.

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