Source: http://coverageopinions.info/Vol7Issue6/CurrentIssue-Download.html
Timestamp: 2019-04-19 00:26:53+00:00

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Chris Dodd spent 30 years in the United States Senate, influenced by his father’s role as the second-ranking prosecutor at the Nuremberg trial. His decision to quit the Senate came in Hollywood fashion. And not long after he began a seven-year stint as Chairman/CEO of the Motion Picture Association of America. Dodd is now back at a law firm for the first time in 40 years. I spent an hour with the Dodd-Frank Wall Street Reform Act’s namesake. It could have been called something else he told me.
What Is A “Function?” – A Company Picnic Or Three Employees Having A Beer At Work?
So far it does not seem that drones have taken over the planet as promised, despite that they supposedly have a million and one uses. My Amazon packages are still delivered to my porch by a two-legged person – with a raucous welcome from the four-legged residents inside.
Nonetheless, predictions about the wide-spread use of drones has led to chatter about the availability of insurance coverage for injury and damage caused by a wayward drone. But it has mostly been limited to talk as there has been a dearth of decisions addressing these actual coverage issues. But those looking for guidance in this area now have one place to look -- the Rhode Island Superior Court’s recent decision in FBEye, Inc. v. Gumshoe Risk Retention Group.
The court in FBEye addressed the availability of coverage, under a commercial general liability policy, for an invasion of privacy caused by a drone that had a video camera attached to it. The coverage decision had its roots in a dispute between neighbors.
Tracy Nelson and Benjamin Marks had been next-door neighbors in East Greenwich, Rhode Island for fifteen years. And that’s about how many words they’d spoken to each other during that time. Marks was very private and a twelve-foot fence surrounded his yard. It was well in violation of the town’s current zoning code but had been grandfathered-in from an earlier time. Nelson often imagined that one day Marks would commit a heinous crime and Nelson would be on television telling the reporter than Marks was a quiet guy who kept to himself.
Nelson had spent 25 years as an FBI agent in Providence. He retired in 2012. But he missed the action. So in 2014 he started FBEye, Inc., a private investigation company. His assignments included such things as looking for dirt on client’s spouses, background checks for people doing on-line dating and assisting attorneys with accident investigations and criminal defense.
In 2017, Nelson purchased a drone and attached a video camera to it. He imagined that it could be useful in certain surveillance situations. Nelson’s first use of the drone was in his backyard to get familiar with its operation. In the course of doing so, the drone flew over Marks’s yard and videotaped what was behind his massive fence. Nelson was gob smacked by what he saw – a clothes line with numerous adult size super hero costumes hanging from it. There was one for Captain America, Spiderman, Green Lantern, Aqua Man, Bat Man and Flash. Nelson couldn’t imagine how Marks fit into the tights.
Unbeknownst to Nelson, Marks’s yard was under surveillance itself. Marks became aware that Nelson’s drone had videotaped Marks’s yard. Marks went ballistic over Nelson’s actions as the long-time secret identity of six super heroes had now been revealed. Marks filed suit, seeking damages for invasion of privacy and demanding that the videotape be destroyed.
Nelson sought coverage for the suit from Gumshoe Risk Retention Group, an organization providing insurance for detective agencies. Gumshoe had issued a Private Eye General Liability policy to FBEye, Inc. Gumshoe provided a defense to Nelson. However, it was under a reservation of rights. The insurer maintained that, while the policy provided “personal and advertising injury” coverage for invasion of privacy, the necessary requirement of oral or written publication of material had not been satisfied. As Gumshoe RRG saw it, the videotape of Marks’s backyard had not been publicized to anyone.
With Gumshoe’s heels dug in, and Marks’s threats mounting, Nelson settled the Marks action for $17,000 and then filed suit against Gumshoe seeking recovery of the settlement payment. Nelson and Gumshoe agreed to stipulated facts and filed cross motions for summary judgment.
The court in FBEye, Inc. v. Gumshoe Risk Retention Group, No. 17-2234 (R.I. Sup. Ct., Kent Cty., June 28, 2018) held that the Gumshoe policy afforded coverage for Nelson’s payment to settle the Marks dispute.
The court was not convinced by Gumshoe’s “no publication” argument. As the court saw it, the video images had been published to Nelson. Here’s the crazy way how. Because the drone was doing, what would have been the job of a Gumshoe employee, the court treated the drone as a de facto employee of Gumshoe. Therefore, there had been a publication of the video imagines from the drone to Nelson.
The court was not unmindful that its reasoning was unique. However, for support, it turned to Judge Cardozo, who famously discussed the need for the law to evolve with the times: “Precedents drawn from the days of travel by stagecoach do not fit the conditions of travel to-day.” MacPherson v. Buick Motor Co., 217 N.Y. 382 (1916).
Some people are qualified to write op-eds for The Wall Street Journal on trade issues. Others tackle economic policy, politics or financial regulation. My op-ed, published in the June 27th Wall Street Journal, addressed the legal issues surrounding flying hotdogs caused by people in furry costumes. I know my limitations.
Here’s the backstory. Long-time readers of Coverage Opinions know that one of my all-time favorite cases is Coomer v. Kansas City Royals Baseball Club. The Kansas City Royals’s mascot, Sluggerr, an adorable furry lion, while standing on a dugout, tossed a hotdog – behind his back – into the stands. This was part of Sluggerrr’s between-innings hotdog launch. Unfortunately for Royals fan John Coomer, he chose the wrong moment to look at the scoreboard. The hotdog hit him in the eye. Coomer suffered a detached retina and needed eye surgeries. Litigation ensued.
In general terms, the issue at the heart of the case was this: Spectators at baseball games, seeking damages for injuries sustained by a foul ball, have a very difficult time recovering from the stadium operator. Courts, nearly across the board, have held that a baseball stadium operator is not liable for a foul ball injury as long as it screens the most dangerous part of the stadium and provides screened seats to as many spectators as may reasonably be expected to request them. Sluggerrr’s case raised the question whether this so-called “baseball rule” applies to an injury caused by a mascot.
With that test set out, the court’s task was to answer whether being injured by a Sluggerrr-tossed hot dog was an “inherent risk” – which means involving the constitution or essential character -- of watching a Royals game in person. The court concluded that it is not. So Coomer could get his day in court. In a 2015 trial, the jury concluded that Sluggerrr was not at fault and neither was Mr. Coomer for looking at the scoreboard at the wrong time.
When it was reported not long ago that my beloved Phillie Phanatic’s between-innings hotdog launch injured a fan, when a frankfurter hit her in the face, I immediately put pen to paper and shipped off an op-ed submission to The Wall Street Journal. With the Sluggerrr case on the books, the Phanatic situation raised important legal issues – just as much as trade, economic policy, politics and financial regulation and all those other issues that appear on the paper’s opinion page. The world needed to know about this.
Speaking of the Phillie Phanatic, he is clearly the smartest mascot in sports.
With Insurance Key Issues you’ll never start your research on a blank canvas.
The World Cup just ended. Congratulations to France. Much as I tried, I just couldn’t get excited about the World Cup without the United States participating.
In any event, in honor of the World Cup, I tackle here whether a spectator, injured by a soccer ball at a professional match, can recover for his or her injuries. Yes, such a case really exists, which is surprising since more people would watch the test pattern on the NFL Network than attend a soccer match.
Allred v. Capital Area Soccer League, No. COA07-647 (N.C. Ct. App. Dec. 16, 2008) addressed whether Teresa Allred could recover for injuries sustained while attending a professional women’s soccer match at State Capital Soccer Park in Cary, North Carolina. Allred was in the stands, behind one of the goals, when a ball sailed over the goal and struck her in the head. The incident took place during pre-game warm-ups, when many balls are hit toward the goal in a relatively short period of time. Allred sustained substantial head injuries.
The trial court granted the defendant’s motion to dismiss. That the case was dismissed, at the pleadings stage, had much to do with the decision of the North Carolina Court of Appeals.
Not surprisingly, with a dearth of case law addressing soccer ball spectator injuries, the court turned for guidance to the abundant case law involving spectators injured by baseballs. At the outset, the court noted that North Carolina cases have uniformly been decided against the spectator, either because the stadium operator was not negligent or the spectator assumed the risk of being hit by a baseball.
The opinion has a lot to say about the duty of a stadium operator to keep spectators safe, as well as a plaintiff’s assumption of the risk of being injured. With those lessons in mind, the court turned to the matter at hand and reversed the trial court’s decision granting the defendant’s motion to dismiss. However, the decision is a far cry from finding the defendant liable. The court was clearly focused on the appropriateness of a dismissal at such an early stage.
Addressing the defendant’s negligence, the court noted that it owed to plaintiff a duty of reasonable care and that defendant had breached this duty based on the allegations that it failed to warn of the risk of being struck by a soccer ball, provide a safe environment for spectators and install protective netting behind the goals.
Based on the court’s pronouncements, I get the sense that, despite the plaintiff wining this battle, she was going to have an uphill climb to recover. So what happened? There are no additional opinions in the case on Lexis. I reached out to the lawyer for Teresa Allred and he informed me that the case was the subject of a confidential settlement after the appeals court decision.
However, while the policy affords coverage for violation of a person’s right of privacy, there are certain express qualifications – the privacy invasion must be on account of oral or written publication of material.
Rams Head is an interesting decision. A patron of the Rams Head Tavern was using a single-occupancy women’s restroom when a portable camera fell onto the floor from underneath the sink, close to the toilet. The culprit was determined to be Kyle Muehlhauser, the tavern’s general manager, who pleaded guilty to conducting video surveillance with prurient intent.
Class actions were filed by woman who alleged a variety of causes action, including intrusion of seclusion, and maintained that, as a result of the conduct of Mr. Muehlhauser and Rams Head, they suffered severe humiliation, violation, anxiety, loss of dignity, emotional distress, and the like.
Rams Head, during the two-plus years of surreptitious recording, was insured under three CGL policies issued by Harleysville. Putting aside some issues not relevant here, before the Maryland appeals court was whether coverage was owed under the policies’ “personal and advertising injury” coverage part.
For various reasons, the court held that this aspect of the definition of “personal and advertising injury” was satisfied. First, the court had little trouble concluding that the woman were subjected to an invasion of the right of private occupancy of a room. Occupy, the court concluded, includes the temporary possession of a restroom. The phrase “right of private occupancy” includes the right of an individual who is occupying a single-occupancy restroom in a restaurant or tavern for its intended purpose to do so in private. And the court didn’t exactly go out on a limb in concluding that the video surveillance of such activities constitutes an “invasion” of that right.
The real battleground coverage issue was whether the invasion of the right of private occupancy was of a room, dwelling or premises that a person occupies. As Harleysville saw it, “invasion of the right of private occupancy of a room” does not appear alone in the policy. Thus, the phrase must be interpreted in its context and, here, it appears with two other phrases: “wrongful eviction from” and “wrongful entry into.” Each of these phrases, so Harleysville argued, requires the claimant to allege that they had a possessory interest in the property at issue.
There are other issues in the case and coverage was ultimately precluded based on a criminal act exclusion. But Rams Head is an interesting privacy decision – albeit involving a not-occurring-everyday set of facts.
In the world of insurance coverage, the word “claim” is one of the most frequently spoken. It is used by an injured party to describe its pursuit of relief against an insured-tortfeasor. The insured-tortfeasor then turns around and uses the term claim to describe its pursuit of coverage, from its insurer, for the claim being made against it by the injured party.
Lenox Homes hired Yarbrough Plastering to perform stucco and drywall work on several large residential developments in Bakersfield, California. Numerous homeowners sued Lenox for construction defects. It was the manner of these suits that gave way to a coverage dispute.
The downfall for ProBuilders was that the policies did not specify whether the operative “claim,” for purposes of the “per claim” deductible, was the homeowner’s claims against the general contractor (of which there were 636, grouped into three complaints) or the general contractor’s claim against the subcontractor, of which there were three, i.e., the cross-claims. Since the court held that both constructions were “reasonable and are supported by the policy language,” the interpretation favoring the insured controlled. Translation, the insured was responsible for only three deductibles – one for each cross-claim.
The court also rejected the insurer’s multi-deductible argument that Yarbrough would have been obligated to pay 636 deductibles if the homeowners had sued Yarbrough directly. But that was not relevant, as the court saw it: “Under California law, [t]he proper question is whether the provision or word is ambiguous in the context of this policy and the circumstances of this case.” (emphasis in original).
As a general rule, an individual seeking coverage, for liability on account of sexual misconduct, has an uphill battle -- and often-times a steep one at that. When the issue arises under a liability policy, often homeowner’s, challenges to coverage can be the lack of an occurrence (accident), exclusions for expected or intended injury or criminal acts and coverage prohibitions for reasons of public policy.
Claims for sexual misconduct can also arise under Professional Liability policies, such as those issued to medical professionals. Here too there can be high hurdles to coverage – although usually involving some different ones than under a liability policy. One issue that often arises, under a Professional Liability policy, is whether the alleged sexual misconduct was caused while the insured was performing a “professional service.” The question whether a loss was caused by an insured performing a “professional service,” whatever that may be, is a common one in many professional liability claims.
On the other hand, the issue could be less clear-cut than it seems, as it was the fact that the perpetrator was a physician that afforded him or her access to the patient-victim, not to mention with physical proximity perhaps being inherent part of the relationship. Therefore, arguments are sometimes made – on this basis and others tied to the nature of the physician-patient relationship -- that coverage is available to a physician, under a Professional Liability policy, for alleged sexual misconduct.
One such argument was made in Beattie. And despite the court’s strong pronouncement – “no construction of the policy language would support coverage for sexual conduct as a ‘professional service’” – it nonetheless described one manner in which coverage for sexual misconduct could be afforded.
Terrance McCoy had been Dolly Beattie’s internist since 1996. In October 2010, she informed him that she was suffering from depression. McCoy referred Beattie to a clinical therapist. In 2011, Beattie visited McCoy complaining of pain in her hands and body aches. McCoy examined Beattie’s back and shoulders. This led to a consensual romantic encounter. From there, Beattie and McCoy, both married, began, what the court described as a “tumultuous” sexual relationship.
The relationship soured. Beattie filed a complaint with the state medical board, which undertook an independent investigation. McCoy was forced to surrender his medical license in 2012 with no opportunity for reinstatement.
Beattie also filed suit against McCoy. She alleged that McCoy’s sexual behavior constituted medical malpractice. The trial court ruled in her favor and awarded over $850,000. Among other things, at issue before the Ohio appeals court – I’m eliminating some aspects not relevant -- was the availability of coverage under McCoy’s professional-liability policy. The question being whether McCoy injured Beattie “while performing a professional service?” The insurer defended McCoy under a “strict reservation of rights,” but declined any duty to indemnify him.
While Beattie/McCoy were handed the same result as many seeking coverage for injuries caused by sexual misconduct, the decision certainly leaves open the possibility of coverage, for a physician, if the sexual conduct was inextricably related to the medical or mental professional treatment that the patient received.
Sentry Select Insurance Company v. Ruiz, No. 16-376 (W.D. Tex. June 20, 2018) involves an obscure issue. You can probably count on one hand the number of coverage professionals who have ever encountered it. But it’s interesting. So it’s here.
At issue is coverage for an automobile accident. But this was no red light-green line at the corner of Elm and Main. The story goes like this. Rudolph Mazda, in El Paso, Texas, was keen on selling cars. The sales people arrived at 9 a.m. and the dealership provided lunch on its premises to keep them in place to sell. Sales people were expected to stay as late as needed – sometimes until 10 p.m.
One day in December 2013, Marcelo Flores, a manager of Rudolph Mazda, sent Christian Ruiz, a salesman, to the store to purchase beer. This was done during working hours. The beer was placed in the Rudolph Mazda refrigerator and consumed that night, after work, and on the dealership’s premises, by Ruiz, Flores and another manager, Lynn Crawford.
After consuming beer, Ruiz struck salesperson Irma Villegas with his vehicle while she was walking in the Rudolph Mazda parking lot. Villegas suffered various injuries and filed suit against Ruiz, Flores, Crawford and Rudolph Mazda, asserting a variety of causes of action.
At issue was the availability of coverage for Rudolph Mazda under a Sentry Insurance garage liability policy, which provided protection for bodily injury caused by an accident and resulting from garage operations involving the ownership, maintenance or use of any auto. The policy also contained a broadened coverage endorsement, where the insurer agreed to “pay all sums the insured legally must pay as damages because of ‘bodily injury’ . . . arising out of the giving or serving of alcoholic beverages at functions incidental to your garage business provided you are not engaged in the business of manufacturing, distributing, selling or serving of alcoholic beverages.” (emphasis added).
Sentry and Rudolph Mazda disputed whether the beer consumption, on the night in question, fell within the scope of the undefined term “function” as used in the liquor coverage endorsement. Rudolph Mazda argued that any social gathering can be a “function.” Sentry did not see the term so broadly, arguing that the provision “only applies to company functions such as company Christmas parties, company picnics, etc.” A gathering of a few employees, who stay after work to socialize, is not a function, so said Sentry.
It is a curious decision. The court noted that, to determine the meaning of an undefined term, it is appropriate, as a starting point, to examine the dictionary definition. And it did so, which revealed that several dictionaries defined “function” as an official or formal gathering. There is little that is official or formal about a few co-workers having a brewsky after work. Even if “an intent to exclude coverage must be expressed in clear and unambiguous language,” isn’t that what the insurer did by using a term that has a clearly defined meaning?
A July 5th article in The Wall Street Journal looked at numerous insurance aspects surrounding the World Cup. The court noted that Allianz lost a financial “bonanza” when it declined the opportunity to insure sales promotions or prizes that would be paid if defending champion Germany won the tournament. The German insurer passed as it believed that there was a high likelihood that its home team would repeat as winner. But Germany did a quick auf wiedersehen, getting knocked out in the group play. However, Allianz did score when it insured against a victory by Poland. Bold move. The article looks at a host of World Cup risks that are insured, such as cancellation, terrorism, cyber attacks, player injuries and transportation of tournament-themed merchandise.
“Plaintiffs do not contend that the forum selection clause is the product of fraud or overreaching, but instead argue that it should not be enforced because it would contravene California’s strong public policies expressed in California Insurance Code sections 678.1 and 11580, and because Australia is not an adequate or convenient forum. Liberty responds that enforcement of the clause does not contravene any public policy with respect to venue and that plaintiffs are free to litigate their claim in Australia. . . . The public policy expressed in this section [Section 11580] is that plaintiffs have an avenue for relief, but not specifically one in California. As Liberty notes, Australian law has a similar provision that provides plaintiffs with the same ability to bring such an action. See Rep. at 11 (citing Civil Liability (Third Party Claims Against Insurers) Act 2018 (NSW) (Aust.). . . . While I am sympathetic to plaintiffs’ desire to litigate in California, I am bound by the precedent requiring enforcement of the forum selection clause in this action.” Lewis v. Liberty Mut. Ins. Co., 18-01138 (N.D. Cal. May 29, 2018).
Look, I get it. It is a lawyer’s job to be a zealous advocate for his or her client. But sometimes lawyers make arguments that seem to take that too far. For a lawyer representing an insurer in a coverage case, that may apply to this argument: “At the hearing, American Family suggested that that if the term ‘loading’ can reasonably be understood to refer to both interpretations, American Family should get the benefit of both and exclude coverage for injuries that occur while someone is placing items in the boat and those which occur while placing the boat onto something else. But the law does not allow this ‘heads I win, tails you lose’ analysis. . . . American Family’s argument is not supported by Minnesota law, the term is ambiguous, and that ambiguity must be construed against the insurer.” Am. Family Mut. Ins. Co. v. Pilarski, No. 17-04463 (D. Minn. June 28, 2018).

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