Source: http://traublieberman.blogspot.com/2012/09/
Timestamp: 2019-04-18 18:56:27+00:00

Document:
In its recent decision in Conley v. First Nat'l Ins. Co. of America, 2012 U.S. App. LEXIS 20281 (9th Cir. Sept. 27, 2012), the United States Court of Appeals for the Ninth Circuit had occasion to consider whether under Montana law, a lawsuit alleging “anxiety” qualified as “bodily injury” for the purpose of triggering a duty to defend under a general liability policy.
The underlying matter giving rise to plaintiffs’ claim involved accounting and tax services provided by Silvertip Accounting, which was insured under a primary general liability policy issued by First National Insurance Company of America. Plaintiffs, Dale and Karen Conley, alleged that as a result of bad advice from Silvertip, they suffered severe tax penalties and disruption of their gifting and estate plan. The Conleys filed suit against Silvertip in Montana state court, alleging breach of fiduciary duty, fraud, negligence, false advertising and deceptive trade practices. First National denied coverage to Silvertip on the grounds that the Conleys’ lawsuit did not allege an “occurrence” or “bodily injury.” The Conleys subsequently entered into a consent judgment with Silvertip in the amount of $3.6 million as well as an assignment of rights under the First National policy. The Conleys later filed a declaratory judgment against First National in Montana federal court.
An injury to a person’s “health” can take many forms, and will not necessarily include physical harm. It is not the Defendants’ responsibility to affirmatively disprove a bodily injury where none has been alleged. An insurer is not required to seek out information that could give rise to a duty to defend.
Even if anxiety "typically includes such things as headaches, sleeplessness, muscle tension, [and] nausea," an insurer need not assume physical manifestations rising to the level of "bodily injury" whenever "anxiety" is alleged.
The Ninth Circuit also rejected the Conleys’ argument that their pre-suit letter at the very least triggered a duty for First National to investigate whether the Conleys had actually suffered “bodily injury.” In addition to agreeing with the lower courts statement of Montana law that insurers do not have an affirmative obligation to disprove bodily injury where none has been alleged, the court concluded that First National did, in fact, sufficiently investigate by reviewing the complaint and accompanying materials and by requesting additional information pertinent to its investigation.
In its recent decision in Tudor Ins. Co. v. Hellickson Real Estate, 2012 U.S. App. LEXIS 19904 (9th Cir. Sept. 21, 2012), the United States Court of Appeals for the Ninth Circuit, applying Washington law, examined whether an insurer was entitled to rescission of a professional liability policy based on the insured’s failure to have disclosed several pending administrative complaints in the policy application.
Tudor Insurance Company successfully obtained summary judgment on its claim for rescission of a professional liability policy it had issued to Hellickson Real Estate. Tudor demonstrated that at the time the policy was issued, Hellickson had been notified by state authorities of at least ten complaints filed against it with the Washington Department of Licensing. Hellickson, however, failed to disclose these complaints in its application. Tudor learned of these misrepresentations when during the policy period, Hellickson sought coverage for a disciplinary proceeding brought by the Department of Licensing. After learning of these prior complaints, Tudor advised that it was rescinding the policy and it also advised that it would not be providing Hellickson with a defense in connection with the disciplinary proceeding.
… the Hellicksons revealed nothing to Tudor about the existence of the DOL investigations, but instead disclosed only a listing agency fine that they averred had been "handled through appeal" and "reduced or dropped" with "no claims made." As the district court discerned, Tudor's failure to investigate that incident does not create a factual question about whether numerous and ongoing disciplinary investigations by the state licensing authority prompted by a slew of complaints against the Hellicksons for misrepresentation, negligence, incompetence, and malpractice were material to Tudor's risk.
This argument is untethered from Washington state case law, which establishes only that an insurer who refuses to defend a policyholder in bad faith may be estopped from disputing the scope of coverage provided by a valid contract. See Am. Best Food, Inc. v. Alea London, Ltd., 168 Wn.2d 398, 229 P.3d 693, 696 (Wash. 2010). The Washington courts have never held that such an insurer may be estopped from disputing the very legitimacy of the contract. To the contrary, the courts have consistently ruled that policyholders who render their contracts void by their own fraud may not pursue claims of bad faith against the insurer. See Ki Sin Kim, 223 P.3d at 1189 (citing, inter alia, Mutual of Enumclaw Ins. Co. v. Cox, 110 Wn.2d 643, 757 P.2d 499, 504 (Wash. 1988)).
DRI’s Professional Liability Seminar is scheduled for December 6-7, 2012 at the Sheraton Hotel in New York City. Click here for details. The seminar is dedicated to addressing the educational needs of attorneys and insurers who protect the interests of all types of professionals, from lawyers and accountants to insurance producers and those involved in the construction and design industry. Its seminar will include leading experts in the field who will provide important updates to ensure that you have the information you need.
In its recent decision in Executive Risk Indem., Inc. v Starwood Hotels & Resorts Worldwide, Inc., 2012 NY Slip Op 6183 (N.Y. 1st Dep’t Sept. 18, 2012), New York’s Appellate Division, First Department, had occasion to consider the application of a pending and prior exclusion in a professional liability policy.
The coverage dispute in the Executive Risk decision arose out of Starwood’s right to coverage for an underlying suit involving a contract between Starwood and another party for the construction and management of a luxury hotel. Starwood was sued for an amount in excess of $18 million for allegedly having caused delays and cost overruns on the project by failing to have fulfilled its responsibilities in implementing the hotel’s design. Notably, plaintiff wrote a demand letter to Starwood in October 2005 and later brought suit in July 2006. In August 2006, Starwood tendered its defense to its professional liability carrier, Executive Risk, which had issued successive claims made and reported professional liability policies to Starwood for the periods April 2005 to June 2006 and from June 2006 to June 2007. Starwood sought coverage under the 05-06 policy, or any other policy that may be applicable.
Executive Risk denied coverage under the 05-06 policy on the basis that the claim was not first made and reported under that policy. It also denied coverage under the 06-07 policy on the basis that plaintiff’s October 2005 claim letter and the subsequent lawsuit constituted a single claim, which necessarily was not first made during the 06-07 policy period. Executive Risk also denied coverage under the 06-07 policy based on the application of a “prior pending” exclusion. The lower court granted summary judgment in favor of Starwood, concluding that the claim was first made during the 06-07 policy period and that the exclusion was inapplicable.
The court agreed with Starwood that underlying plaintiff’s October 2005 letter did not implicated an identified “professional service” under the 05-06 policy, since that policy’s definition of “professional services” did not include design work. As a result, reasoned the court, the plaintiff’s October 2005 letter did not allege a “wrongful act,” and it therefore followed that the letter did not qualify as a “claim” as that term was specifically defined. The court further held, however, that the July 2006 lawsuit, which also related to Starwood’s design services, and was filed during the 06-07 policy, qualified as a claim first made and reported during that policy period, since the 06-07 policy’s definition of “professional services” included Starwood’s design work.
In its recent decision in Goodyear Tire & Rubber Co. v. Nat'l Union Fire Insurance Company of Pittsburgh, PA, 2012 FED App. 0337P (6th Cir. Sept. 18, 2012), the United States Court of Appeals for the Sixth Circuit, applying Ohio law, had occasion to consider whether an excess insurer’s coverage obligations were triggered when the primary policy’s limit of liability was not fully exhausted.
Goodyear sought coverage from its insurers for a series of underlying shareholder class actions, and an SEC investigation, arising out of a restatement of Goodyear’s earnings. While the suits ultimately were dismissed and the investigation terminated, Goodyear’s legal fees amounted to $30 million. National Union and Federal both disputed coverage for Goodyear’s legal fees, prompting Goodyear to file a declaratory judgment action against both insurers. After litigating this action for several years, Goodyear entered into a settlement and release with National Union for $10 million. Federal subsequently argued that as a result of this settlement, its own policy could not be triggered since National Union had not and never would pay “in legal currency the full amount of the Underlying Limit.” On motion for summary judgment, the United States District Court for the District of Michigan, applying Ohio law, held in Federal’s favor.
In its decision on appeal, the Sixth Circuit telegraphed its decision by characterizing Goodyear’s appeal as being “the latest in a series of recent cases in which one corporation asks us to disregard the plain terms of its insurance agreement with another corporation.” Goodyear, in fact, conceded that the exhaustion provision in Federal’s policy was clear and unambiguous. It nevertheless argued on appeal that the Federal policy should be triggered for two reasons despite the fact that National Union had not paid its full policy limits.
Underinsured-motorist coverage was mandated under Ohio law at the time of the accidents in Bogan and Fulmer, see Ohio R.C. § 3937.18(A)(2); and the court in Bogan held that the exhaustion provision there was contrary to "the intent of the General Assembly as expressed in" the statute mandating such coverage, 521 N.E.2d at 453. We do not have any such conflict with legislative intent here, which is reason enough not to apply Bogan or Fulmer. Nor do we have any concern about "hasten[ing] the payment to the injured party who obviously needs compensation soon after the injuries when the medical expenses begin to amass and when the anxiety level is probably quite high[,]" id. at 451—which is still more reason not to apply those cases. What we have, instead, is an insurance agreement into which sophisticated parties freely entered.
But this case does not concern a mere notice or cooperation requirement, which perhaps we could wave off absent any real harm to the insurer. Rather, the provision at issue here is where the rubber hits the road: the agreement's Insuring Clause, under whose terms Federal undisputedly did not agree to provide the coverage that Goodyear now seeks.
Thus, the Sixth Circuit affirmed the lower court’s ruling, concluding that Federal had no coverage obligation to Goodyear as a result of its less than policy limits settlement with National Union.
In its recent decision in Enterprising Solutions, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA (D. Ariz. Sept. 11, 2012), the United States District Court for the District of Arizona had occasion to consider whether an insured was entitled to coverage under a professional liability policy’s employee benefits liability coverage for its alleged failure to have properly calculated necessary contributions to fund a group medical and dental plan.
The insured, Enterprising Solutions, Inc. (“ESI”) was a professional employer organization, providing outsourced services such as payroll administration to employer-clients. ESI and its clients would enter into “co-employer agreements” whereby it would assume various employer-related responsibilities. Through these agreements, ESI became a co-employer of its clients’ employees. At issue in the Enterprising Solutions litigation was ESI’s administration of an employee health benefit program and an employee dental plan. Among other things, ESI assumed responsibility for determining the amount of contributions necessary to fund the plans. The contribution levels established for the 2008 and 2009 plans turned out to be insufficient to cover claims and expenses, causing ESI it to terminate the plans. As a result, ESI was the subject of numerous claims brought by plan participants.
provided any action which gives rise to a “Wrongful Act” was authorized by you.
Plaintiff's calculation of contribution levels involved the exercise of discretion and was not, therefore, merely administrative. In that respect, plaintiff's exercise of discretion in failing to properly calculate contributions is not included within the definition of "administration" and is beyond the scope of the policy.
[A] person is a fiduciary with respect to a plan to the extent (I) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets; (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of the plan.
The court concluded that ESI qualified as a fiduciary as it had “control and authority” over the health and dental plans. Specifically, the court found that ESI’s miscalculation of necessary contributions “was, indeed, the exercise of discretion relating to plan management and administration and was, consequently, subject to ERISA fiduciary standards.” As such, the court concluded that the policy’s ERISA and breach of fiduciary duties exclusions served as additional grounds for noncoverage.
In its recent decision in Intel Corp. v. American Guarantee & Liability Insurance Co., 2012 Del. LEXIS 480 (Del. Sept. 7, 2012), the Supreme Court of Delaware, in a case involving application of California law, had occasion to consider whether an insured’s out-of-pocket payment of defense costs count toward exhaustion of policy limits for the purpose of triggering an excess policy.
The Intel decision is yet the latest decision in a complicated coverage case that has proceeded in both Delaware state court and California federal court. The coverage litigation arises out of several class action antitrust lawsuits filed against Intel. In the relevant policy year, Intel had a primary general liability policy issued by Old Republic with limits of liability of $5 million, and an excess policy issued by XL Insurance Company with limits of liability of $50 million. Immediately excess to the XL policy was a follow form excess liability policy issued by American Guarantee & Liability Insurance Co. (“AGLI”). As a result of coverage litigation between XL and Intel, XL paid to Intel $27.5 million of its $50 million policy limits. Intel continued to pay defense costs out-of-pocket following this settlement. Intel claimed that AGLI’s policy was triggered as a result of its payment of sufficient defense costs. AGLI, however, contended that the XL policy could only be exhausted as a result of payments made by XL.
California law does not provide a definitive interpretation of the phrase “payment of judgments or settlements.” Although not dispositive of our holding, we note that California courts general have construed the phrase to exclude cases where the insured “credits” the underlying insurance carrier with the remaining policy limits. That is, courts have required the actual payment of the full underlying limits. The requirement of actual payment supports our plain meaning interpretation of “judgments or settlements” to exclude Intel’s direct payment of defense costs, and require actual payment by the insurer.
In reaching this holding, the Delaware Supreme Court relied on the California Court of Appeals decision in Qualcomm, Inc. v. Certain Underwriters At Lloyd’s London, 73 Cal.Rptr.3d 770 (Cal. Ct. App. 2008). The Qualcomm court held that an insured could not trigger its excess policy by paying the gap created when it settled with its primary insurer for less than full policy limits. The Delaware Supreme Court acknowledged that the exhaustion language in the policy in Qualcomm was slightly different than that contained in the AGLI policy, but it nevertheless found a general rule that “[p]lain policy language on exhaustion, such as that contained in Paragraph C [of the AGLI policy], will control despite competing public policy concerns.” Moreover, the court rejected Intel’s reliance on the Second Circuit decision in Zeig v. Massachusetts Bonding & Insurance Co., 23 F.2d 665 (2d Cir. 1928), which held that an insured can properly exhaust a policy by out-of-pocket payments. Zeig, noted the Delaware court, had been rejected by the Qualcomm court and courts in other jurisdictions as well.
In its recent decision in Wheeler's Moving & Storage v. Markel Ins. Co., 2012 U.S. Dist. LEXIS 125726 (S.D. Fla. Sept. 5, 2012), the United States District Court for the Southern District of Florida had occasion to consider under what circumstances an insured’s failure to comply with a policy’s notice provision results in a forfeiture of coverage.
Markel Insurance Company insured Wheeler’s Moving & Storage under a general liability policy that, among other things, required notice of occurrence or suit “as soon as practicable.” Wheeler’s was named as a defendant in a personal injury lawsuit, but failed to give notice of the suit to Markel until eighteen months after suit was filed, by which time discovery had already closed. At the time notice was received, a mediation was scheduled for one week later and the trial scheduled for two weeks later. Markel denied coverage on the basis of late notice, as well as on the basis of its policy’s auto exclusion. Subsequent to Markel’s denial of coverage, Wheeler’s defense counsel successfully withdrew from the case and Wheeler’s elected not to retain new counsel. The matter ultimately went to trial on damages alone and the underlying plaintiff was awarded $1.4 million.
In considering these factors, the court agreed that Wheeler’s failure to have provided notice to Markel of the underlying suit until eighteen months into the litigation -after discovery had closed and on the eve of trial - was late as a matter of law. Notice as soon as practicable, as required by the Markel policy, required that notice be given with reasonable dispatch and within a reasonable time in view of the facts and circumstances. As the court explained, “[n]o reasonable interpretation of the record evidence supports a finding that notice was timely.” As such, Markel was entitled to a presumption of prejudice.
Wheeler’s attempted to rebut this presumption by proffering two expert opinions concluding that Markel was not prejudiced and, in fact, that Markel had breached its policy obligations by not undertaking a thorough investigation into whether Wheeler’s late notice actually prejudiced its ability to defend the underlying case. The court rejected this assertion, explaining that because prejudice is presumed, Markel was not required to undertake an investigation into prejudice. The court also rejected the experts’ opinions concerning Markel’s ability to defend the underlying case, concluding that the opinions were based on speculation only and without any credible supporting evidence.
Wheeler’s also argued that Markel was not entitled to rely on the late notice defense since it also denied coverage on the basis of its policy’s auto exclusion. Wheeler’s specifically argued that “[w]here an insurer possesses enough information to permit it to deny the claim on other grounds, Florida courts have consistently held that an insurer waives the right to reject coverage on the basis that the insured failed to provide timely notice of the claim.” This argument relied on the decision in Keenan Hopkins Schmidt and Stowell Contractors, Inc. v. Continental Cas. Co., 653 F. Supp. 2d 1255, 1263 (M.D. Fla. 2009), in which a Florida federal district court held that the insured successfully rebutted a presumption of prejudice by demonstrating that the insurer was able to fully investigate and determine the application of a policy exclusion.
The facts in Keenan and in the instant case, however, are radically different. In Keenan, the insurer had ten months notice and was able to investigate the claim, whereas in this case, Markel effectively had no notice and no ability to conduct discovery. Wheeler's asserts that Markel had an opportunity to investigate potential coverage defenses prior to the entry of judgment and had sufficient information to deny coverage on other grounds other than the late notice defense. These assertions are rejected.
Thus, concluded the court, Wheeler’s failed to rebut the presumption of prejudice, thereby entitling Markel to judgment as a matter of law based on the insured’s failure to comply with its policy’s notice provision.
In its recent decision in Preferred Constr., Inc. v. Ill. Nat'l Ins. Co., 2012 U.S. App. LEXIS 18395 (2d Cir. Aug. 30, 2012), the United States Court of Appeals for the Second Circuit, applying New York law, had occasion to consider when an excess insurer’s duty to defend is triggered, particularly in the context of New York’s anti-subrogation rule.
Preferred Construction was a subcontractor on a construction project involving a cemetery owned by the Diocese of Rockville Center. One of Preferred Construction’s employees was injured while on the job, and brought suit against the cemetery, the Diocese, and the project’s general contractor. Each of these entities tendered their defense to Preferred Construction, which was insured under a primary general liability policy issued by Nova Casualty Company and an excess liability policy issued by Illinois National. Nova undertook a defense of each of these entities.
Each of these three parties subsequently asserted third-party claims for contribution and indemnification against Preferred Construction, but only for “any recovery that plaintiff may obtain in excess of the primary policy limits of [Preferred Construction].” Presumably, the third-party complaint was alleged in such a fashion so as to circumvent New York’s anti-subrogation rule, which prohibits one insured from suing another insured under the same policy for amounts within the policy limits. Nova tendered the third-party complaint directly to Illinois National, asserting that Illinois National had a duty to defend Preferred Construction because the third-party complaint sought amounts only in excess of the Nova policy, i.e., amounts that only could be paid under the Illinois National policy.
The fact that the third-party complaint seeks indemnification only for "any recovery that plaintiff may obtain in excess of the primary policy limits" does not change this result. Requiring Illinois National to defend in these circumstances would effectively permit any claim of excess damages to preemptively trigger the excess insurer's duty to defend—regardless of when (or whether) the limits of the primary policy are exhausted. Such a result would appear to eviscerate the general rule that the excess insurer "may elect to participate in an insured's defense to protect its interest, [but] . . . has no obligation to do so."
Whatever effect the anti-subrogation rule might have on Nova's duty to defend (an issue on which we express no opinion), it is clear enough for our purposes that the rule cannot operate to defeat the reasonable expectations of Preferred Construction and Illinois National. We find no authority permitting us to depart from New York's well-settled rule that an excess carrier has a right, not an obligation, to assist in the defense of its insured when the primary insurance has not yet been exhausted.

References: v. 
 v. 
 v. 
 v. 
 v. 
 § 3937
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.