Source: http://traublieberman.blogspot.com/2011/09/
Timestamp: 2019-04-18 19:14:33+00:00

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In Maryland Casualty Co. v. Express Products, Inc., 2011 U.S. Dist. LEXIS 108048 (E.D. Pa. Sept. 22, 2011), the United States District Court for the Eastern District of Pennsylvania considered whether an insured was entitled to coverage under a series of general liability policies for an underlying “blast fax” suit.
After determining that Pennsylvania law governed the policies, the court turned to the coverage issues under the policies two coverages. In considering Coverage A, the court agreed that the underlying suit alleged property damage “through the use of paper and toner, and the loss of use of tangible property that is not physically injured, by tying up the fax.” The court nevertheless concluded that the underlying suit did not allege property damage arising out of an “occurrence” because the suit alleged that Express intentionally sent the faxes. While the underlying suit did allege that Express knew or should have known that it would cause property damage to the plaintiff class, such an allegation, in and of itself did not preclude a finding of intentional conduct since the suit also alleged that Express intentionally sent unsolicited facsimiles. The court also rejected the insured’s argument that the mere inclusion of the word negligence in the underlying suit triggered a defense obligation. Plaintiffs’ use of this word, explained the court, was to allege that even if Express’ conduct was negligent, its conduct was still in violation of the TCPA. This did not rise to the level of an actual allegation of negligent conduct. The court further held in passing that the policies’ expected and intended exclusions applied, since the complaint alleged that Express sent the facsimiles knowing that such would result in the use of plaintiffs’ fax, toner, paper and ink.
In its recent decision Roman Catholic Diocese of Brooklyn v. National Union Fire Ins. Co. of Pittsburgh, Pa., 2011 N.Y. App. Div. LEXIS 6432 (2d Dep’t. Sept. 20, 2011), a New York appellate level court had occasion to consider various coverage issues arising out of a sexual molestation claim; specifically, number of occurrences and allocation of loss.
The claimant in the underlying suit alleged that she had been molested for a period of seven years “at different times during the day and week, and at multiple locations.” While the insured had primary general liability coverage available for each of these years, each of the policies had a sizable self-insured retention. This prompted the insured to contend to the position that the underlying matter, which settled for $2 million, could be allocated solely to two of the triggered policy periods, based on a “joint and several” allocation theory. The trial court held against the insured, holding that the loss was properly allocated among all triggered policy years, and that the insured was responsible to pay the fully retention amount in each of those years.
On appeal, the court agreed with the lower court, noting that a “joint and several” theory of allocation had long since been rejected by New York courts (see e.g., Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 746 N.Y.S.2d 622 (N.Y. 2002)) and was “inconsistent with the unambiguous language of the … policies providing coverage for bodily injury that resulted from an occurrence ‘during the policy period.’” The court explained that it was not possible to isolate what extent of the underlying plaintiff’s injury happened during any single policy period, and as such, the appropriate method of allocation was on a pro rata basis across each of the policy periods. Central to the court’s decision in this regard was its finding that the molestation could not be considered a single occurrence, but rather multiple occurrences since “it cannot be said that there was a close temporal and spatial relationship between the acts of sexual abuse.” As such, the court concluded, each of the insured’s policies over the entire seven-year period was triggered and the insured was be responsible for satisfying a full self-insured retention in each of these periods.
In AES Corp. v. Steadfast Ins. Co., 2011 Va. LEXIS 185 (Va. Sept. 16, 2011), the Supreme Court for Virginia addressed the issue of whether an insured was entitled to coverage for an underlying climate change lawsuit.
The Steadfast litigation arose out of the climate change suit Native Village of Kivalina v. ExxonMobil Corp., et al., filed in the United States District Court for the Northern District of California. The Kivalina lawsuit was brought by the Native Village of Kivalina against various energy-industry defendants, and alleged that defendants’ various operations resulted in the emissions of carbon dioxide and other greenhouse gases into the atmosphere, which in turn contributed to global warming. Plaintiffs further claimed that climate change would result in rising ocean levels, which in the near future would cause their native village in Alaska to be completely submerged and rendered uninhabitable. Notably, the Village’s complaint alleged that the defendants intentionally emitted such greenhouse gases, and that defendants knew or should have known of the impacts that would result from such emissions. In fact, the complaint alleged that the defendants engaged in a conspiracy to mislead the public about the science and dangers of global warming.
The lower court had held that the AES Corporation (“AES”), one of the defendants in Kivalina’s lawsuit, was not entitled to a defense in connection with the Kivalina lawsuit as the complaint did not allege an occurrence, which under Virginia law is a term synonymous with accident. On appeal, the Virginia Supreme Court noted that while intentional acts generally are not considered occurrences under Virginia law, coverage can be available for intentional acts when the injury or damage resulting form such acts is not intentional. Under such circumstances, noted the court, the inquiry “is not whether the action undertaken by the insured was intended, but rather whether the resulting harm is alleged to have been a reasonably anticipated consequence of the insured’s intentional act.” The Village of Kivalina’s lawsuit alleged that all defendants, including AES, intentionally emitted greenhouse gases into the atmosphere. As such, explained the court, AES’ right to coverage hinged on whether the alleged harms resulting from the emissions was reasonably expected.
Kivalina asserts that the deleterious results of emitting carbon dioxide and greenhouse gases is something that AES knew or should have known about. Inherent in such an allegation is the assertion that the results were a consequence of AES’s intentional actions that a reasonable person would anticipate. … Even if AES were actually ignorant of the effect of its actions and/or did not intend for such damages to occur, Kivalina alleges its damages were the natural and probable consequence of AES’s intentional actions. Therefore, Kivalina does not allege that its property damage was the result of a fortuitous event or accident, and such loss is not covered under the relevant CGL policies.
The court’s decision, and in particular its reliance on plaintiff’s assertion that there is a clear scientific consensus on global warming is likely to be considered controversial in some quarters. It is unlikely that there will be further coverage litigation on this point, however, at least in the near future, in light of the United State Supreme Court’s April 2011 decision in American Electric Power Co. v. State of Connecticut, 131 S. Ct. 2527, (2011) holding that climate change suits such as Kivalina’s do not state a cause of action under federal law.
In its recent decision Bradford Oil Company, Inc. v. Stonington Ins. Co., 2011 Vt. LEXIS 102 (Vt. Sept. 11, 2011), the Supreme Court of Vermont had occasion to revisit the issue of whether a time-on-the-risk allocation methodology should apply to pollution condition that occurred over a period of several decades.
The site in Bradford Oil was a filing station that was the source of an underground petroleum leak believed to have commenced in the 1960s or 1970s and continued through the 1990s. The station was placed on the Vermont Hazardous Waste Sites List in 1997 when the petroleum contamination was first discovered. The insured undertook an investigation and clean up, the majority of which costs were paid through the Vermont Petroleum Cleanup Fund (“VPCF”). Bradford had four general liability policies through Stonington covering the period 1994 through 1997. While Stonington agreed that the policies provided coverage for the cleanup, a coverage dispute arose as to extent of coverage afforded under the policies.
In the ensuing coverage litigation, in which the State of Vermont was a party, Stonington argued that based on the decision in Towns v. Northern Security Ins. Co., 964 A.2d 1150 (Vt. 2008), the proper methodology for allocation in Vermont is time-on-the-risk. As such, Stonington contended that based on a simple time-on-the-risk allocation, it should only be responsible for 4/27, or 15% of total cleanup costs. The State, however, argued that a joint and several liability methodology should apply, leaving Stonington responsible for the all cleanup costs up to the limits of its policies. Specifically, the State contended that Towns should not apply to a situation where the insured’s liability, by statute, is joint and several. The State also claimed that Towns should not apply where the VPCF is a party to the litigation. The Vermont Supreme Court rejected both of the State’s arguments.
In its recent decision in Mitsui Sumitomo Ins. Co. of Am. v. Automatic Elevator Co., Inc., 2011 U.S. Dist. LEXIS 103165 (M.D.N.C. Sept. 13, 2011), the United States District Court for the Middle District of North Carolina had occasion to consider whether multiple injuries arising from the same act of negligence constituted a single occurrence, or multiple occurrences, for the purpose of a general liability policy.
The incident giving rise to the coverage dispute in Automatic Elevator involves particularly shocking and disturbing facts. Automatic Elevator had been an elevator contractor for the Duke University Health System. During the course of working on an elevator project, Automatic Elevator removed used hydraulic fluid from an elevator and stored it in a number of storage barrels made available by Duke. The barrels had previously contained surgical cleaning and lubricating fluids and were marked as such. The barrels were then stored at Duke’s facility and intended to be picked up at a later date for disposal. Before the barrels could be retrieved, however, a Duke employee mistook the barrels for unopened barrels of cleaning fluid and had the barrels returned to the original vendor as overstock. Sometime later, the vendor sold the barrels containing the hydraulic fluid back to Duke. Duke, believing that barrels contained surgical cleaning fluid rather than spent hydraulic fuel, allowed its surgical equipment to be washed in the fluid and used for surgeries. Duke subsequently identified over three thousand individuals who were operated on with contaminated surgical equipment. Duke was sued by one hundred fifty individuals and ultimately settled with one hundred twenty-seven individuals for an amount in excess of $6 million.
Automatic Elevator’s insurer, Mitsui Sumitomo, and Duke subsequently engaged in coverage litigation as to Duke’s rights to coverage as an additional insured. Among other things, the court was required to consider whether the underlying matter arose out of a single or multiple occurrences. This issue had relevance in light of the fact that the Automatic Elevator policy had limits of liability of $1 million per occurrence and $3 million in the aggregate. Mitsui argued that the underlying claims arose out of a single occurrence; specifically, Automatic Elevator’s negligence in failing to properly dispose of the used hydraulic fluid. Duke, on the other hand, argued that the underlying suits arose out of the one hundred twenty-seven separate occurrences, viz., each individual surgery involving contaminated surgical equipment.
In its recent decision in Century Indemnity Co. v. Liberty Mutual Ins. Co., 2011 U.S. Dist. LEXIS 100088 (D.R.I. Sept. 6, 2011), the United States District Court for the District of Rhode Island had occasion to consider whether an insurer’s settlement with its insured had the effect of barring an equitable contribution claim by a co-insurer.
Liberty Mutual and Century both insured Emhart, which was alleged to have contaminated a site in Rhode Island. Emhart filed a coverage action against Liberty and Century, seeking a declaration of coverage with respect to any claims, administrative proceedings and lawsuits arising from the release of hazardous materials at the site. Liberty Mutual opted to settle with Emhart, paying $250,000 for a full release of any coverage obligations under several policies it had issued to Emhart. Century, on the other hand, took the matter to trial and ultimately prevailed on the issue of whether it had a duty to indemnify. The jury, however, held that Century had a duty to defend Emhart with respect to the various underlying matters. As a result, Century became obligated to reimburse Emhart for over $6 million in defense costs.
Century subsequently brought suit against Liberty on a theory of equitable contribution. Liberty Mutual argued that it had no duty to defend Emhart and that even if it did, its settlement with Emhart satisfied its defense obligation such that Century did not have a valid claim for equitable contribution. After an initial finding that Liberty Mutual did have a duty to defend, the court considered what it described as “two difficult and important issues regarding risk allocation among insurers, particularly in large-scale environmental claims like this one,” namely, the effect of Liberty Mutual’s settlement with Emhart and how defense costs should be allocated between the two insurers.
With respect to the first issue, Liberty Mutual argued that allowing an equitable contribution claim despite the settlement would frustrate the important public policy of favoring early settlements. The court noted that courts and commentators to have considered the issue “roundly rejected Liberty Mutual’s proposed bright line rule that ‘one insurer’s settlement with the insured is [always] a bar to a separate action against that insurer by the other insurer or insurers for equitable contribution or indemnity.’” The court acknowledged, however, that there was no bright line rule to the contrary. Rather, the prevailing sentiment, explained the court, was to uphold equity and prevent unjust enrichment. Toward this end, the court found that Liberty Mutual’s settlement with Emhart did not advance any public policy goals pertaining to settlements since the terms of the settlement reflected a mutual understanding that no settlement would occur between Emhart and Century since Liberty Mutual’s settlement payment was so disproportionately small in comparison to the entirety of Emhart’s defense costs. Thus, concluded the court, “[f]ar from being a litigation killer, Liberty Mutual’s settlement essentially ensured that this litigation would not die.” Given this, and given the fact that Liberty Mutual had substantially larger policy limits at interest than Century, the court concluded that the equities favored allowing Century’s contribution claim.
The court next considered how Emhart’s defense costs should be allocated. Liberty Mutual argued that defense costs should be divided equally between it and Century as a result of their policies’ respective other insurance clauses. Century, on the other hand, argued in favor of a time on the risk allocation, which would result in Liberty Mutual being required to pay the majority of defense costs since Liberty Mutual insured Emhart for a period of eighty-six months whereas Century insured Emhart for only thirteen months. The court held that Liberty Mutual’s argument concerning other insurance clauses only applied to insurers covering the same risk, not to insurers that issued successive policies. Relying on case law from other jurisdictions, the court concluded that the most equitable means of allocations would be a time on the risk allocation that it explained “serves to align insurers’ defense costs expectations with the proportion of risk that they assume based on the duration of their policy.” As a result, the court held that in light of the number of years that Liberty Mutual insured Emhart, as comparison to the number of years that Century insured Emhart, Liberty was required to pay 86% of Emhart’s defense costs, or approximately $5.2 million of the defense costs, less the $250,000 it initially paid pursuant to its settlement agreement.
In its recent decision titled Essex Marina City Club, L.P. v. Continental Casualty Co., 2011 U.S. Dist. LEXIS 97382 (N.D. Cal. Aug. 30, 2011), the United States District Court for the Northern District of California addressed an insurer’s argument that California’s “genuine dispute rule” warranted dismissal of an insured’s bad faith claim.
The insured, Essex Marina, had sought a defense and indemnification under a professional liability policy issued by Continental for an underlying lawsuit. At issue in the Essex Marina’s lawsuit was Continental’s handling of the claim following the initial tender. The matter passed hands through five different claims adjusters and was the subject of numerous requests for information from Continental to Essex Marina, prompting the court to characterize Continental’s conduct as a game of “hot potato.” In all, it took Continental over two years before it finally denied coverage to Essex Marina during which time Essex Marina allegedly incurred hundreds of thousands of dollars in attorneys’ fees in the underlying litigation.

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