Marc Mayerson is right. The law that applies to a coverage dispute does make a difference, sometimes all the difference. National Railroad Passenger Service v. Lexington Insurance Company (D.D.C. August 25, 2006) is a good example. District Court Judge Ellen Huvelle granted summary judgment to Amtrak’s excess carriers based on Amtrak’s failure to notify the carriers promptly of a claim that eventually resulted in a Missouri jury verdict of more than $20 million. Click here for a link to the case.
As Judge Huvelle points out, in a majority of jurisdictions, late notice of claim generally doesn’t relieve the insurer of coverage obligations unless the insurer can show actual prejudice resulting from the delay. District of Columbia precedent, however, requires strict compliance with notice provisions that are a condition of coverage. The court found no reason to distinguish between primary and excess policies when applying this rule.
I’ve read a lot about the Katrina coverage cases, but this take from a blogger in Florida is a new one to me. The gist of the argument is that by not forcing insurers to pay for uncovered damage, courts and legislators are putting lives at risk. Here’s a slice:
Faced with a need to produce specific proof because insurance companies these days can be counted on to treat their customers like the enemy, a lot of people in Florida and Mississippi are likely to stay put in their homes and videotape the storm damage as it happens, rather than figure out afterwards how to find and pay for an expert witness.
I know the animus against insurance companies can run pretty high sometimes, but I’m not sure if documenting a future coverage fight is going to be foremost in the minds of most folks when a flood is coming.
Yes, it is a wide world out there with divergent tastes and interests. This post on a Yahoo forum about a guy who got to thinking about his insurance after he barely saved his comic book collection from a washing machine flood intrigued me and made me wonder why I’ve never seen a case involving a dispute over comic book coverage. When I see one, you’ll be the first to know.
Randy Maniloff, who not only knows what he’s talking about, but also writes about coverage in a clear, catchy journalistic style, once again has penned an excellent article on Katrina coverage. Click here for a link.
Randy dissects the recent Leonard v. Nationwide decision as well as the parties’ trial briefing with a keen eye and comes up with some valuable insights, especially about the anti-concurrent cause language found in homeowners policies at issue in Katrina coverage litigation. A key conclusion of Randy’s article:
Nationwide, and other insurers, have maintained that when damage is caused by a combination of wind and water, there is no need for [an allocation of damage between wind and water] since all of the damage is excluded from coverage. Herein lies the win for homeowners in Mississippi, just not Paul and Julie Leonard.
He also has a valuable analysis of the little noticed Guice v. State Farm opinion by Judge Senter that had a lot to say anti-concurrent causation. I can’t say enough about how impressive this analysis is: analyzing coverage decisions is not an easy task (heck, it’s not even easy to read most court decisions, much less decipher what is really going on), but being about to write about them in an understandable, entertaining style is a rare thing indeed.
Too often in legal writing, the writer’s style is so off-putting and dull that you need a tall glass of water just to choke down the substance. The art of persuasion in writing calls for the writer to do the heavy lifting and organizing so that the written word takes the reader by the hand and guides him along to a conclusion that, when it arrives, seems pre-ordained. This is a persuasive article.
UPDATE: Originally I had mistyped the quoted material from the article as saying "not just" the Leonards, rather than "just not." Good thing that’s the only mistake I’ve made so far this year.
When it comes to analyzing insurance coverage for contractor liability or construction defects, a lot of courts have as much trouble as someone trying to rub their stomach and pat their head at the same time. So I was glad to see ACUITY v. Burd & Smith Construction, Inc. (N.D. August 24, 2006), which you can see for yourself by clicking this link. As a NoDak-In-Exile (there is no such thing as a former NoDak, only those who wish they could go back and those who don’t yet know that they wish they could go back), it does my heart good to see the North Dakota Supreme Court get it so right.
The case is about a messed-up roofing project on an apartment building that led to a lot of rain water getting in and damaging the building’s interior as well as some personal property of the tenants. A man named Mark Ehley apparently did the work, and there was some question whether Burd & Smith did any work at all and whether Ehley had been acting on behalf of the company. Before all that was resolved at trial, the building owner and Burd & Smith entered into a stipulated judgment for $412,000 and a covenant to enforce the judgment only against Burd & Smith’s Commercial General Liability policy.
Now, you can see the insurer’s arguments coming three miles away, like a dust cloud behind a pickup on a NoDak gravel road in August. First, ACUITY argued that breach of contract claims aren’t within a CGL’s coverage because breaches of contract aren’t accidents. As the court pointed out, however, it isn’t the label on a claim that determines coverage, it’s what the policy says. It is generally accepted that a CGL does not cover replacement of a contractor’s defective work, except possibly if it must be torn out to repair other damage, but does cover damage to other property caused by the defective work, even if that other damage is called a breach of contract. The court also dispensed with arguments about the "assumed contract" and "damage to property." I’m not going to go into them at length, but the court had a nice, short analysis of each that makes for good reading. The court found the policy covered the damages to the extent they were for damage to parts of the building other than the roof, but did not cover repair costs to the roof itself. Sounds right to me.
(Thanks to a Friend of the Blog for tipping me off to this case).
This story from the Washington Post is a good read, although I think it goes a little overboard in accepting at face value the claims of two sisters who once worked for State Farm in adjusting Katrina claims and are now consultants to plaintiff lawyer Dickie Scruggs.
The key to the sisters’ charges is that State Farm ordered engineer’s reports and set up a different claims handling procedure for Katrina claims. That, in and of itself, doesn’t strike me as unusual: Katrina damage was so massive, it seems obvious some new procedures were called for. State Farm’s interpretation of the anti-concurrent causation clause in its policies, however, played into this perception. As I wrote here, U.S. District Court Judge Senter, who is overseeing all Katrina lawsuits in Mississippi, rejected State Farm’s interpretation in the Tuepker case, which would have nullified coverage for wind damage if even some flood damage had also occurred. There were other, better coverage positions to take. It is worth noting that in the recent Leonard case decided by Senter, Nationwide chose a more moderate coverage position, although it is true the facts and issues of the case were somewhat different from Tuepker.
Judging simply from a public relations standpoint, Scruggs has done a pretty good job of finding the weaknesses in his opponents’ positions and creating a marketable storyline with them. I’m not sure insurers have yet figured out an effective public response.
Stan Koch & Sons Trucking, Inc. v. Great West Casualty Co., 2006 WL 2331181 (D. Minn. August 10, 2006) is a real page-turner, or more accurately, as close as a court’s opinion in a coverage case ever gets to being a page-turner. The case was unusual in that the insured, a trucking company, wound up arguing there was no coverage because it didn’t like the fact that its insurer settled a case for $750,000, which forced the insured to pay the $500,000 Self-Insured Retention in the policy. The court agreed with the insurer, based on the language of the policy that the insured’s consent is not required.
The case involved a tragic death in a traffic accident, numerous complicated relationships between corporations, and a rare insight in caselaw to how a coverage attorney’s thinking about the case changed over time (and fortunately, he acknowledged his change of opinion and told his client about it, instead of doggedly sticking to a course of action that was now discredited in his own mind). The details are too complicated to go into here, but one of the things that really ticked off the insured was that the insurer initially thought both that there was no coverage and that the verdict would be favorable in the underlying wrongful death case. Then after the insurer changed its mind on coverage and the jury came back with a $2.7 million verdict, the insurer rushed out to settle another related case for $750,000, putting the insured on the hook for most of the money.
I have one quibble with this case. In Footnote 9, the court uses the "makes much" phraseology that appears to exist nowhere but in legal writing and which I find totally repugnant. Here is the key part of the sentence: "Koch makes much of the fact that the decision by Great West to accept coverage was a ‘strategic’ one . . . ." Can we all please stop writing "makes much"? It’s not a term of art, a lot of substitute phrases exist, it’s ugly, and it has a particularly grating tone about it, kind of smart alecky, kind of schoolmarmish, kind of hostile in a dandified, shirt-ruffle way. How about this instead? "Koch criticizes Great West’s belated decision to accept coverage," or "Koch suggests that Great West underwent a deathbed coverage conversion, and that this should be held against it."
Maybe this press release makes more sense to you than it does to me. Although it is touting the beginnings of ‘green’ insurance products, it seems kind of stingy with the evidence that these exist in any significant number. As far as giving credits or reduced rates to insure Green buildings, is that actuarially based? If I build my house out of salvaged Diet Coke cans, is there a risk-based reason my homeowners insurance premium should be less than my neighbor’s?
You know it’s not your day when you get whacked by a store mannequin. Not only are you injured, but other people think it’s funny, as this story in the L.A. Times shows. I wasn’t aware of the slew of lawsuits spawned by people being flattened by dummies, but it could bring new meaning to the phrase "Shop Till You Drop."
We’ve been talking a lot here lately about potential agent liability to policyholders in Katrina cases. United of Omaha Life Insurance Co. v. Honea (8th Cir. August 17, 2006) is about a different kind of agent liability — to the insurer. (Click here to see a pdf of the case. Hat tip: Steve Brostoff). In the case, the Eighth Circuit affirmed the district court’s grant of summary judgment to the agent in a lawsuit filed by the insurer. However, certain things about this case make it not necessarily representative of agent liability to insurance companies across the country.
The agent, Honea, helped Rauch, the principal of a construction company, obtain a life insurance policy that he then assigned to another company for which he was building a nursing home, as collateral in lieu of a performance bond. United of Omaha had previously rejected Rauch’s life insurance application once because it named the other company as the beneficiary: the insurer did not want to issue life insurance that appeared destined for a term of less than five years. The agent, Honea, then changed the application to say Rauch’s estate was the beneficiary. Under the terms of the policy, there was nothing wrong with assigning it once it was issued. The insurer also mailed premium notices for two years to the assignee company and only noticed its underwriting guidelines had been violated when Rauch died.
The Eighth Circuit rejected the insurer’s claims, saying Arkansas law provides that an agent represents the insured, not the insurer, so Honea was under no obligation to point out that the second application was really the same as the first. Arkansas law was also unfriendly on the insurer’s claim that the agent negligently misrepresented facts to the insurer, because Arkansas does not recognize the tort of negligent misrepresentation. Another big problem was that the insurer apparently failed to submit evidence of why it rejected the first application or that Honea was aware of these reasons or of the underwriting guidelines.
I don’t necessarily accept this case as representative of the law in this area, because other states have laws and court precedent that make the agent representative of both the insured and the insurer, but at different stages in a transaction. However, this is a good case to keep tucked away when the issue of agent liability to an insurer comes up again.