Source: http://traublieberman.blogspot.com/2012/12/
Timestamp: 2019-04-18 18:18:08+00:00

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In its recent decision in OneBeacon Insurance Company v. T. Wade Welch & Associates, et al., 2012 U.S. Dist. LEXIS 178587 (S.D. Tex. Dec. 18, 2012), the United States District Court for the Southern District of Texas had occasion to consider the application of a prior knowledge exclusion in a professional liability policy.
The T. Wade Welch & Associates firm and various attorneys in the firm (the “Welch Defendants”) were named as respondents in an arbitration brought by a former client, the DISH Network. The Welch Defendants had been representing DISH in a lawsuit preceding the issuance of the first OneBeacon policy. DISH’s arbitration petition alleged, among other things, that in 2005, the Welch Defendants failed to respond to discovery, and withheld this error and also withheld other subsequent, but related, events from its client. This misconduct eventually led to a sanctions motion being made against DISH in February 2007, which the Welch Defendants did not disclose to their client until July 2007, when the sanctions motion against DISH was granted.
… these cases do not involved relating independent wrongful acts back to the initial wrongful act so that all wrongful acts fall within a prior knowledge exclusion. Rather, they all deal with whether alleged wrongful acts are related for limits of liability purposes. Thus, they are not on point.
Each wrongful act, in a series of related wrongful acts, will be deemed to have occurred on the date of the first such wrongful act. A series of related wrongful acts includes wrongful acts which are logically or causally connected by common facts, circumstances, situations, events, transactions or decisions and which may involve the same person or organization or class of persons or organizations.
The court concluded that this language was not relevant in considering the application of the prior knowledge exclusion since “the language linking related wrongful acts is in a completely different section of the policies than the exclusions.” The court agreed that OneBeacon’s argument was reasonable, and “perhaps even more reasonable” than the contrary view espoused by the Welch Defendants, which was that the “Multiple Insureds, Claims or Claimants” provision must be read independently of policy exclusions. The court nevertheless agreed that the Welch Defendants argument was “not itself unreasonable,” and as such, there were two reasonable interpretations of the policy, which required the court to construe the policy against OneBeacon. Thus, the court concluded that OneBeacon could not rely on the prior knowledge exclusion to disclaim a duty to defend the wrongful acts that allegedly occurred after the December 20, 2006 inception of the first OneBeacon policy.
In its recent decision in Zodiac Group v. Axis Surplus Ins. Co., 2012 U.S. Dist. LEXIS 176622 (S.D. Fla. Dec. 13, 2012), the United States District Court for the Southern District of Florida had occasion to consider whether an insured was entitled to coverage under a claims made and reported professional liability policy for a newly filed lawsuit related to a earlier suit filed prior to the policy’s date of inception.
The underlying dispute arose out of a contract between Zodiak and Linda Georgian, whereby Ms. Georgian was hired to endorse Zodiak’s telephone psychic services. In April 2008, Ms. Georgian brought suit in state court against Zodiak for allegedly continuing to use her name and likeness in their advertising after the endorsement contract terminated. The suit was dismissed for lack of prosecution in November 2009, but later refiled in federal court in January 2010, albeit with slightly different causes of action.
Zodiak contended that although the earlier state court was first made prior to the inception date of either policy, the lawsuit later filed in federal court should be considered a claim first made and reported during the 09-10 policy period, and thus covered under that policy. AXIS countered that the federal court lawsuit involved the same allegations as the previously filed state court lawsuit, and that it light of this relationship should be considered a claim first made prior to the 09-10 policy’s inception date.
Nor is it true that Zodiac had no knowledge, prior to the policy's inception date, "of a circumstance that could reasonably be expected to lead to the Claim." … That is plainly false because Zodiac in fact disclosed on its application for insurance the underlying dispute with Georgian that later materialized into the federal lawsuit. In response to the question about pending or prior claims, Zodiac wrote that a "[f]ormer contract celebrity claimed unauthorized use of her name after their relationship ended," and that the suit involved "[a]llegations of invasion of privacy & injunctive relief." … Although Zodiac responded "no" to the question about whether it knew of any facts or circumstances that might reasonably result in a future claim being made, that obviously does not lessen its knowledge about the April 2008 state court lawsuit and the circumstances and facts underlying it.
In its recent decision in Aquarius Well Drilling, Inc. v. American States Insurance Co., 2012 U.S. Dist. LEXIS 172770 (E.D. Cal. Dec. 4, 2012), the United States District Court for the Eastern District of California had occasion to consider whether an insured’s professional negligence constituted an occurrence for the purpose of triggering coverage under a general liability policy.
Thus, the court concluded, the insured’s degree of knowledge concerning its negligence, and the content of its report, were irrelevant. Instead, because the insured intentionally tested the wells and provided information to its client in its professional capacity, such could not be considered an accident for the purpose of a general liability policy.
In its recent decision in Westfield Ins. Co. v. Robinson Outdoors, 2012 U.S. App. LEXIS 24642 (8th Cir. Nov. 30, 2012), the United States Court of Appeals for the Eighth Circuit, applying Minnesota law, had occasion to consider a “failure of goods” exclusion in the context of the advertising injury coverage part under a general liability policy.
The insured, Robinson Outdoors, manufactured and sold hunting-related products that it claimed would mask the human scent. Consumers brought several class actions against Robinson, claiming that the products did not work as advertised. Robinson’s general liability insurer, Westfield, denied coverage on the basis of its policy’s exclusion applicable to liability “arising out of the failure of goods, products or services to conform with any statement of quality or performance made in [Robinson's] 'advertisement.” Westfield was granted summary judgment by the United States District Court for the District of Minnesota, resulting in the appeal to the Eighth Circuit.
These allegations in the underlying lawsuits highlighted by Robinson merely provide a background to Robinson's misleading marketing tactics, not an individual or separate basis for a claim. The underlying lawsuits allege that Robinson misled consumers into buying hunting clothing that did not perform as it was advertised. The thrust of the consumers' claims was that Robinson sold hunting clothing that was advertised to eliminate human odor, but did not.
In its recent decision in PPI Tech. Servs., L.P. v. Liberty Mut. Ins. Co., 2012 U.S. App. LEXIS 24571 (5thCir. Nov. 29, 2012), the United States Court of Appeals for the Fifth Circuit, applying Texas law, had occasion to consider what damages qualify as “property damage” for the purpose of a general liability policy.
Liberty disclaimed coverage to PPI on the basis that the underlying arbitrations did not allege “property damage” resulting from an “occurrence.” Liberty argued that notwithstanding the reference to “property damage”in one of the arbitration petitions, the petition contained no specific allegations of physical injury to tangible property or actual loss of use. PPI argued, on the other hand, that the mere reference to “property damage” was sufficient to trigger a duty to defend.
The court rejected PPI’s contention, stating that it did “not consider mere use of the phrase ‘property damage’ and parroted Policy language as sufficient factual allegation.” Rather, explained the court, a claimant must identify actual property damage rather than simply allege that an insured’s activities resulted in physical injury to tangible property or loss of use thereof. “Hallow” and “cursory” allegations of “property damage” do not rise to the level of an allegation of actual property damage. The court therefore looked to the remaining allegations in the petitions, which it concluded were devoid of any allegations falling within the definition of “property damage,” such as “destruction from penetration or scorching from a blowout or fire,” or even constructive eviction caused to the owner of the lease on which the insured wrongly drilled. As such, and because the underlying petitions did not otherwise allege “loss of use,” the court agreed that there was no allegation of property damage that triggered Liberty’s duty to defend.
In its recent decision in Alco Iron & Metal Co. v. American International Specialty Lines Ins. Co., 2012 U.S. Dist. LEXIS 166692 (N.D. Cal. Nov. 21, 2012), the United States District Court for the Northern District of California had occasion to consider whether an insured’s intentional acts that result in unintentional harms can be considered an “occurrence” for the purpose of a general liability policy.
In the ensuing coverage litigation, Alco argued that its otherwise intentional actions should be considered accidental in light of Sparetime’s misrepresentations.In particular, Alco argued that Sparetime’s false representations constituted an “independent and unforeseen happening”that guided Alco’s conduct.Thus, Alco claimed that its actions in entering the property and taking the rail spurs were not intentional, but instead the result of its negligent reliance on Sparetime’s representations.As such, and because it did not intend to cause harm to Caicos, Alco claimed that its conduct satisfied the policy definition of “occurrence.”The court disagreed, citing to a long line of California decisions, such as Fire Ins. Exchange v. Superior Court (Bourguignon), 181 Cal. App. 4th 388 (Cal. App. 2010), standing for the proposition that an insured’s subjective intent not to cause harm is not a relevant coverage consideration.As the court noted, an insured’s lack of“intent to harm” cannot transform an otherwise volitional act into an accident.
Here, the allegations in the underlying complaint were that Alco entered the property, removed the rail spurs, and then sold them as scrap metal.Although it did not intend to harm Caicos and acted under the belief that it was authorized to take these actions, Alco has not offered any material dispute of fact that it was intended to carry out each of these acts in the manner in which they were done and that it accomplished its objective, in taking the metal away and selling it.
In addition to concluding that Alco was not entitled to coverage under the Chartis policy’s property damage coverage, the court also concluded that the underlying complaint did not trigger the policy’s personal injury coverage based on the offense of “wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor.”Alco argued that “person” in this definition could refer to natural persons and businesses alike.Citing to California state appellate decisions as well as cases from California’s federal courts, the Alco court concluded that in the context of the Chartis policy, “person” could only refer to a natural person and did not include business entities.

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