Category Archives: Duty to Defend

Additional Insurance: When “Ongoing Operations” Coverage Extends To Damages After Completion

One of the areas of insurance coverage law that can make a legitimate claim to being the most challenging is the area of problems arising out of additional insured status. Additional insurance is frequently required in the construction industry by general contractors, and additional insurance arrangements are extremely common. This involves the GC requiring a subcontractor to add the GC to the subcontractor’s insurance policy as an insured to the extent the GC becomes liable for the negligence (sometimes it is stated as the subcontractor’s "fault," a broader concept than negligence, or sometimes simply "acts," "omissions," "conduct," "activities," "operations" or similar word). 

Stemming out of the explosion of construction defect litigation in the 1990s, "long tail" liability for construction defect damages became a frequently litigated reality, and insurers responded with a number of measures including exclusions for injuries in progress, multi-unit construction, losses for which pre-policy notice was provided and stacking of multiple policies. Part of this was designed to bring more certainty to indemnity issues under "occurrence" liability policies, but another part was designed to relieve insurers of the duty to defend in many instances — construction defect cases are often massive and expensive to defend, with defense costs exceeding indemnity exposure in a high percentage of cases. 

Insurers also sought to limit AI responsibilities by producing an endorsement form that specified that the coverage applies to "ongoing operations."  More about that in a minute. One of the great challenges of insurance coverage law is that this field is really just out of its infancy.  Widespread commercial liability insurance is a relatively new product — since about the early to mid-1960s — and has been evolving continuously. As a result, in many states, key questions have not even been addressed by the judiciary, or the decisions that do exist aren’t very helpful and are perhaps not the most sophisticated or insightful analysis that could be done. This is why I call insurance coverage The Great Workshop of the Common Law. It’s a work in progress — an "ongoing operation," if you will. 

Now, back to AI endorsements.  In 1993 and 1997 the Insurance Services Office produced additional insured endorsements that were supposed to limit exposure to damage that occurred during ongoing operations. The problem is that, many times, courts said the language of the endorsement didn’t actually say that: for example, ISO form CG 20 10 03 97 (which as the last four numbers of the form indicate was produced in March 1997) says AI coverage is in respect to "liability arising out of your [the subcontractor’s] ongoing operations performed for [the additional insured]." Some courts have said this language actually covers not just damages that occurred during ongoing operations, but damages that occurred after completion. Because the vast majority of construction defect liability stems from water intrusion and related damages that occur after completion of a project, these cases present a problem for insurers. 

I saw a recent Ninth Circuit case that highlights this language: Tri-Star Theme Builders, Inc. v. OneBeacon Insurance Co. The case was decided under Arizona law. This case appears to me to involve the 20 10 03 97 form, judging by the language the court analyzed. The Ninth Circuit found that the "arising out of ongoing operations" did not limit the GC’s coverage to just liability for damages that the subcontractor caused before completion, but also for damages that occurred after completion, as long as they happened during the policy period. "During the policy period" isn’t as much of a restriction as you might think, or the Ninth Circuit appeared to believe — in the absence of a continuing loss or other exclusion, damages that begin during a policy period are usually covered by a commercial general liability policy if they continue after the policy period.  

The Ninth Circuit said that damages that occur after completion necessarily must have arisen out of ongoing operations — if the subcontractor didn’t do any ongoing operations, there wouldn’t have been anything completed. The court said it wasn’t going to consider the drafter’s history, which I think is a legitimate call, and was going to hold the insurer to what it actually said. I think there is an argument for what the court said, but there is one aspect of its analysis I think is lacking.  The court examined exclusion (j)(6) in the body of the subcontractor’s policy, it appears, to show that if the endorsement didn’t provide coverage for completed ops damages, there was no coverage at all. Exclusion (j)(6) is the one that precludes coverage for "that particular part of any property that must be restored, repaired or replaced" because the insured’s work "was incorrectly performed on it." There is an exception in the exclusion for damages that occur after completion, meaning it applies only to ongoing operations. I take it the Ninth Circuit’s point is that, if the AI endorsement excludes completed operations and (j)(6) excludes ongoing operations, there is no coverage and that is ridiculous.

If that is what the court is saying, my reaction is this: (j)(6) might indeed limit the subcontractor’s coverage to completed operations only, but as to the additionally insured GC, there is potential coverage for ongoing operations as well as completed ops because the definition of "your work" in a commercial general liability policy has an exception that allows coverage for a GC when work was performed for it by a subcontractor.  In other words, the (j)(6) exclusion will be applied differently to a GC insured as an AI under the policy than to the named insured subcontractor. If this seems weird, don’t forget that there is a Separation of Insureds or Severability of Insureds clause in such policies that instructs you to analyze coverage separately as to each insured. 

Because of case law like this, ISO put out an AI form in 2004 that changes the coverage language and contains an express exclusion for damages that occur after completion. But even seven years after this AI form was produced by ISO, not every insurer uses it. Many still use old forms, or use manuscript forms of their own devising, or modify the ISO form. 

I could go on and on and on about AI insurance, but this is a good place to stop for today. There are something like 28 current ISO AI forms, and many, many old ISO forms, out there. Also, there are dozens if not hundreds of manuscript and adapted forms out there, so this issue is one we will keep seeing being constructed and deconstructed again and again upon our visits to The Great Workshop of the Common Law. 

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Filed under Duty to Defend, Duty to Indemnify, Liability Policies

Anti-concurrent cause, Ontario style

I saw an interesting case on anti-concurrent cause language in a liability policy on the blog for the Cavanagh Williams firm in OttawaHere’s a copy of the case, Appin v. Economical Ins. Co., in the Ontario Court of Appeals.  The decision was handed down in mid-February.

The court referred to it by another name — the concurrent exclusion clause — but it is worded more or less the same as the kind of anti-concurrent cause clauses we have discussed at length here, except for one thing: this provision is in the liability form of a Commercial General Liability policy, and is attached to a mold exclusion.

The purpose of the anti-concurrent cause language in the policy appears to be to reinforce the exclusion’s status as an "absolute" mold exclusion — no matter what combination of origins, causes, effects, happenings, events, or whatever word you come up with, the insurer does not intend to pay for any liability if the harm is caused in any way by mold.

To consider this clause in the proper context, let’s broaden our perspective for the moment.  Anti-concurrent cause language, as I’ve written about at length, is merely one way of addressing what I have called the Unbearable Lightness of Causation (with apologies to Kundera).  Causal relationships are among the most intellectually perplexing constructs of human thought, and theories of concurrent and sequential causation are likewise theoretically complex.   I’ve written about it in this article for New Appleman: Critical Issues from last year, and a second article on anti-concurrent causation and Fifth Circuit Katrina cases will come out in the same publication next month.  Anti-concurrent cause language posits an arbitrary analysis of causation — arbitrary in the sense that the areas of inquiry are limited so that, when certain factors are present, the result of the analysis each time will be the same: no coverage.

These clauses were developed to deal with adverse court precedent in first-party property policies, however, and I have expressed some skepticism about how well the language transfers to liability policies.  Consider this: property insurance causation has traditionally been viewed far differently from tort causation — the blurring of the distinction between the two, in fact, resulted in the development of the modern anti-concurrent cause clause. But tort causation is what liability insurance is all about, so whenever anti-concurrent cause language is inserted into the liability portion of a policy, sharp lawyers will look to attack it as incompatible with the underlying concept behind liability insurance — tort law can and does impose liability for concurrent causes of damage, so limitations on that theory of causation, some will say, are inherently ambiguous. 

OK, enough mumbo jumbo, right?  Let’s look at the case, and the language of the exclusion.  Now, I know what any normal person is thinking when they look below: "You expect me to read on past this point when the headline is ‘Fungi and Fungal Derivatives? See you later’."  Quite true, but those interested in reading a post on anti-concurrent cause language are by definition not normal people, and I have every confidence that those who have stuck with me this far won’t let a little fungus deter them from reading to the end.  I have put the anti-concurrent cause language in bold to make it easier to find among the fungi.

This insurance does not apply to:

(a) “bodily injury”, “property damage”, “personal injury”, or Medical Payments or any other costs, loss or expense incurred by others, arising directly or indirectly, from the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, presence of, spread of, reproduction, discharge or other growth of any “fungi” or “spores” however caused, including any costs or expenses incurred to prevent, respond to, test for, monitor, abate, mitigate, remove, cleanup, contain, remediate, treat, detoxify, neutralize, assess or otherwise deal with or dispose of “fungi” or “spores”; or

(b) any supervision, instructions, recommendations, warnings, or advice given or which should have been given in connection with (a) above; or

(c) any obligation to pay damages, share damages with or repay someone else who must pay damages because of such injury or damage referred to in (a) or (b) above.

This exclusion applies regardless of the cause of the loss or damage, other causes of the injury, damage, expense or costs or whether other causes acted concurrently or in any sequence to produce the injury, damage, expenses or costs.

Here, I am not sure the anti-concurrent cause language adds anything to what was already said: we do not cover any liabilities arising in any way from harm caused by mold.   The appellate court agreed with the trial court — both found the exclusion ambiguous and unenforceable. The reason the court did so, is that the insurer denied the duty to defend the insured against allegations that the claimant was harmed by exposure to mold (uncovered) and bacteria (covered). The court explained it this way:

We disagree with the insurer’s position. The language in clause 7(a) is both unclear and ambiguous in its effect. A plain reading of the provision does not support the insurer’s position. Indeed, the clause is worded in a fashion that would leave most people guessing as to its meaning. For example, on another possible interpretation, the clause could be taken to mean that wherever injury from mould is alleged in a claim, even if it is ultimately established that the injury arose solely from a covered peril, such as bacteria, the claim would exclude both the duty to defend and the duty to indemnify. This would effectively extend the exclusion to otherwise non-excluded perils. 

Now, to me, the key is not whether bacteria might ultimately be proven a cause of harm, therefore calling for indemnity.  The key for the duty to defend question is whether, under the allegations, mold and bacteria are concurrent or sequential causes of the harm claimed.  These are terms with highly specialized meanings in insurance.  Concurrent means independent causes that combine to produce a result that would not have occurred but for the existence of one of the causes.   Sequential can be ruled out — it refers to dependent causes, one cause causing the other.  It seems highly unlikely that the allegations were that the mold illness caused the bacterial illness or vice versa. 

So the question for anti-concurrent cause is this — can the allegations be read only one way, that is to say, that no illness at all would have occurred but for the combination of mold and bacteria?  It the allegations can be read to say that harm would have occurred because of bacteria alone, then we are talking about two separate single causes of two separate harms, not multiple causes of one harm.  If the allegations can be read that way, a powerful argument exists that anti-concurrent cause language is not relevant. 

As I mentioned, I’m not sure the anti-concurrent cause language added anything here.  The insurer admitted that if bacterial harm were proven, the insurer would have to pay for the liability.  From what I can see of the allegations from the court’s analysis, it is dubious whether a denial of the duty to defend can stand under such circumstances.  There may be things I don’t know about this case that were not in the opinion, but from what I see here the court’s call is well-reasoned.  I would have liked to see an analysis closer to the one I have explained above — then I could see if my assumptions about the case are correct.  If courts would use an analysis similar to the one I propose here, their jobs would be easier and their opinions clearer and more bulletproof. 




Filed under Duty to Defend, Duty to Indemnify, Liability Policies

Florida U.S. District Court: known loss provisions did not bar coverage despite insured’s prior knowledge of cause of damage

Who among us has not wondered to what extent courts will enforce the extensive "known loss" provisions found in most CGLs these days?  A judge in the U.S. District Court for Southern Florida recently denied summary judgment to an insurer that sought summary judgment on the duty to defend based on a number of policy provisions, including the pre-existing condition, or known loss, clause.  This provision bars coverage where the insured knew of damage, in part or whole, before the inception of the policy period.   As the skateboarder set says: Dude, Harsh!

In fact, the insured, a roofing contractor, was aware that the roof was leaking and causing interior damage before the policy period began.  But, the court reasoned, the lawsuit by the homeowners against the roofing contractor alleged the homeowners suffered "mold related injuries" — apparently not expressly excluded by the policy.  This, the judge said, was damage that the insured did not know about before the policy period began, and so, based on that allegation, the duty to defend existed.  The case is Transportation Insurance Co. v. the Regency Roofing Companies, Inc.. Click here to read the case. 

Hat tip to Law and Insurance, which keeps its eyes on coverage in the Lone Star State, and a few other places too.

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Filed under Duty to Defend, Liability Policies

More about Woo v. Fireman’s Fund

You remember a couple days ago I wrote about that weird case in Washington starring Dr. Woo, the pig-slaying dentist? You know, the more I think about this case the stranger it seems. Here we have this dentist who sticks fake boar tusks in the mouth of his anesthetized patient, who is also his employee, and takes pictures of her out cold with the pig teeth and her eyes preyed open.  Then he has the temerity to testify that this is part of his effort to improve office morale.  I’ve re-read the majority opinion and the dissent, and I have more to say. 

But first, a small digression to serve as an illustration.  This reminds me of my favorite dentist story: friend of mine, when he was in the Midwest back in the day — he was originally from suave, chic southwestern Minnesota but happened to be out in hicksville, somewhere in South Dakota — was going out with this woman who was the ex-wife of a dentist.  Small town, so not a lot of dentist options.  My friend goes in for some cavities, the dentist apparently holds a grudge over the new relationship, and he starts drilling in a way that causes some pain that is markedly out of the norm. So my friend bites him. That’s right, sunk his choppers into the dentist’s hand, took a chunk right out of him in the finest tradition of self-defense and self-help. No cops, no lawyers, just pain for pain.  I love this story and believe it deserves wide dissemination as a warning to any dentist who harbors thoughts of misbehavior: among your potential victims are a certain class of persons who, if you attack their teeth, will use those teeth to turn your flesh into a snack.  And come to think of it, in the culture in which I came from, I can picture not only this friend fighting back tooth and fang, but also literally dozens of other folks I grew up with.  So let this serve as a cautionary tale — not only is my friend Whitefang still out there, but lots more like him too.  And remember one more thing: no jury will convict them or hold them liable, particularly if they are among their own.     

Now, compare the facts of this story the facts relating to Woo, the pig-slayer.  Did the assault on my friend arise out of professional services? I say possibly yes, possibly no. The dentist was legitimately filling cavities, but apparently his jealousy got the better of him and he either carelessly or intentionally began to perform his services in a manner that caused undue pain. As I heard this story from both my friend and the ex-wife/girlfriend, this dentist was not a nice man, and it seems likely some element of intent was present, but given the complex workings of human motive, who is to say exactly where legitimate acts left off and illegitimate acts began? It seems possible to say that they truly were intertwined, although one could point out that the legitimate acts were not those that caused the pain.  If the dentist were in some state of anxiety or upset over the loss of his wife to another man, it is possible he simply botched the job — perhaps he was not very skillful to begin with and emotional distress caused him to lose what few motor skills he possessed.  Or perhaps some words passed between them during the procedure — "How is Susan? " (not her real name), "She’s much happier now that she’s away from a jerk like you" — and he simply lost it.  You can see where this would be a close call on a duty to defend question, but almost surely a plaintiff’s lawyer would word the complaint so that it was alleged that the pain arose out of negligent, incompetent work that was done by a guy in a state of such high anxiety that he should have known it wasn’t safe for him to fiddle around with the patient’s mouth.  The duty to indemnify is another matter that would depend on how the jury determined the facts.

As the dissent in Woo pointed out, the coverage issues boil down to two: were Dr. Woo’s acts an "accident" within the meaning of the policy, and did his acts arise out of his providing dental services? If what he did was not an accident — something that is neither expected nor intended by the insured — it is not covered.  Likewise, if what he did arose not out of dental services but something else, it is not covered. 

Let’s step back and think for a minute. Consider the following hypothetical illustrations of a range of acts, and see which you think arise out of professional services or business activities:

  • A dentist normally plays Mozart as background music in his office. However, one night the cleaning crew mistakenly throw out his Mozart CD’s, and his office manager puts on a Wagner CD.  This is not wise — Wagner makes him very agitated, especially "Ride of the Valkyries," and he goes nuts on his drilling and filling, doing very poor hack work and causing bodily injury.  
  • A dentist is bummed because his Porsche has a recurrent stalling issue and the mechanic keeps charging him an arm and a leg and not fixing the problem.  One day the mechanic comes in for some dental work.  The dentist decides to recoup some of his payouts by doing some work that is necessary, but much that is not. 
  • A dentist is working on an anesthetized patient when his ex-wife storms into the office and demands increased alimony and child support.  He becomes enraged, and attempts to swing the big light positioned over the patient into his ex-wife. Unfortunately, it misses her, swings around in a full circle and breaks the patient’s jaw. Whoops.
  • A dentist with a very highly developed sense of fashion is working on an anesthetized patient when he decides the man is a tacky dresser.  They are roughly the same build, so he takes some spare clothes he has in the office, undresses the guy and outfits him with a new regalia.
  • A dentist working on an anesthetized patient notices a "50 Cent" tattoo on the man’s neck.  Thinking the tattoo artist negligently failed to add the "s," and having some tattoo training, he adds it himself. In the later lawsuit, he learns 50 Cent is a hip-hop artist and that the tattoo was only a temporary inked-on transfer that the man was wearing for a week because he had lost a bet with a friend over who was the best-selling hip-hop artist.
  • A dentist insists that his staff refer to him as "Doctor." This is very important to him, as two of his brothers and a sister are medical doctors.  One assistant frequently fails to do so.  One day, while he is working on an anesthetized patient, she forgets for the 1000th and last time.  He pulls out a 9 mm Glock and shoots at her, but misses and kills the patient. 
  • A dentist is manufacturing explosives in his office for a planned terrorist attack. A dental salesman checking his stocks accidentally knocks over a couple jars of nitroglycerin, blowing up himself and a nearby anesthetized patient, but not the dentist, who is shielded from the blast by the patient’s body.
  • A dentist who is very fond of the Marx Brothers puts a Groucho wig, mustache, nose and glasses on all anesthetized patients, sticks a cigar in their mouths and photographs them for his private collection. 
  • Lastly, some details from the dissent in Woo: his employee, Tina Alberts, informed him that she cared for abandoned pot-bellied pigs and had even named one Walter.  Woo had made remarks such as "I am going to hunt Walter down and kill him," "I am going to barbecue him," and "I will find him and eat him." Woo went boar hunting and brought photos of a dead boar to show Alberts, as well as a picture of himself in front of a skinned pig hanging on a hook. Alberts had two baby teeth that had never been replaced by permanent teeth.  Woo said he would remove them and replace them with implants.  On the day of the procedure, he gave her general anesthesia.  "However, Woo had prepared a pair of artificial boar tusks without Ms. Alberts’ knowledge or consent.  While Ms. Alberts was anesthetized and sleeping, Woo removed the oxygen mask, inserted the boar tusks in her mouth, and took mocking photographs, some with her eyes pried open . . .  Woo had the pictures developed and prints made at a public photo shop.  A few days later, Ms. Alberts was given one wrapped package as a birthday present.  Upon opening the package, Ms. Alberts saw the pair of shared boar tusk ‘flippers’. Moments later, Dr. Woo’s assistants gave Ms. Alberts another envelope.  The envelope contained pictures of Ms. Alberts, while under anesthesia, with the boar tusks protruding from her mouth while her lips and eyes were pried open.  She was stunned.  Woo exhibited no remorse at the time, telling Ms. Alberts she ‘had a trophy to take home.’ Ms. Alberts suffered severe emotional distress as a result of the experience, left the office, and never returned." (Citations to the trial court record omitted).   

So what do you think? It seems to me the first example both stems from providing from dental services and constitutes an accident, but not the rest, unless we are going to say that anything that happens in a dentist office is dentistry, and unless we are going to say doing crazy stuff that is likely to result in injury is an accident merely because you didn’t think the consequences through.   

One more thing. The Woo majority stated that the correct perspective on whether Woo’s acts were intentional was as follows — did he intend his acts to result in emotional distress to Alberts? The dissent disagreed, and pointed out that the policy language defines an accident as "a fortuitous circumstance, event or happening that takes place and is neither expected nor intended from the standpoint of the insured." 

According to the dissent, all that should be examined is whether Woo intended the act, not the result.  I’m not sure I can agree with this.  Say you are in your yard playing catch with your daughter.  You are not the ball player you once were, and while attempting to demonstrate how to throw a curve ball the ball sails over the hedge and bashes your neighbor in the head. Or say you intended to throw it high to show her how to time her leap. Either way you intended the act, but not the result.  Should your homeowners insurer not defend you because of that?  What if you throw a birthday party for your neighbor, and give him a Cubs hat, not knowing that he has some weird phobia about the Cubs that causes him to have a seizure, fall down and injure himself? You intended to give him the hat, didn’t you? But how would you know the result would occur?  It would be better to look at Woo’s conduct this way — anyone must know that if you taunt someone about killing their pet, and if you monk around with anesthetized patients, and if you present folks with memorabilia that both reminds them you want to kill and eat their pets and makes them cognizant that you monked with them while they were in your care for a medical procedure, you are going to cause that person to be very, very upset.  Depending on who the victim is, they might be so upset that they bite you.  If you claim you couldn’t see this coming, there is no excuse for you.  The law should consider that a result is intended when the result is substantially certain to happen because of the act.

One last thing: if this case interests you, you should check out this post on Woo by Jason Barney, a guest blogger at Overlawyered.

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Washington Supreme Court: dentist’s ‘boar’-ish behavior is covered

In reading one of Ted Frank’s posts yesterday at Overlawyered, I was reminded that I have neglected to blog about a strange case from Washington, Woo v. Fireman’s Fund.  I have actually followed this case for a couple years — Washington is right across the Columbia River from Portland and I practice a fair amount in the state — and I know Washington coverage law well, so I’m overdue in writing about the case.

This decision, where the Washington Supreme Court found an insurer had a duty to defend a dentist accused of improper conduct, is, I regret to say, a mess. 

I don’t say that merely because the case involves a dentist, Dr. Woo, who taunted one of his employees, Tina Alberts, about her pet pig, Walter, with photos of skinned wild boars, saying that  "There is how Walter will look."

I don’t say that merely because the state Supreme Court leaves out some of the details of Dr. Woo’s boorish behavior to make the decision seem more palatable (additional facts are contained in the prior, reversed decision by the Court of Appeals, Division I).

I don’t say that merely because Dr. Woo, when Alberts was under general anesthesia for replacement of two teeth with implants, in conspiracy with his other staff inserted fake boar tusks in her mouth, pried her eyes open and took pictures.  He later decided not to show the pictures to Alberts, but his staff did a month later at a birthday celebration for Alberts, and they also showed her the actual fake boar tusks.  While Alberts was assisting Woo with a dental procedure immediately after, he suggested that Alberts could take the fake boar tusks home as a "trophy." (Happy Birthday!! I hope you like me talking about skinning and gutting your pet, being played for a fool by me and your colleagues and having fake pig teeth stuck in your mouth while you are unconscious, because that’s what you’re getting).  

I don’t say that merely because Dr. Woo justified his conduct by claiming it was part of his efforts to create a "friendly working environment" in the office — reasoning that is equally offensive to what he did to Alberts.    

I don’t say it merely because no one really likes a dentist anyway, especially one that talks about skinning your pets and who likes to stick weird stuff in your mouth while you are out cold and then take pictures.  After all, insurance isn’t just for nice people. 

I don’t even say it because I disagree with the result — I can possibly see a duty to defend under the general liability portion of Woo’s policy on the grounds that the intentional acts exclusion did not apply because Woo, while he intended the conduct, may not have intended the result — that Alberts broke down in tears when she saw the pictures, quit shortly afterward and sued Woo.  This, however, is highly arguable, because although whether a result is intended is measured from the standpoint of the insured, some sort of reasonable person standard must be applied or you will have doofuses claiming that they just didn’t know that acts like, I don’t know, skinning pets and placing your body in "humorous" positions while you are unconscious could possibly result in emotional distress.  I mean, come on, don’t we need stuff like that to keep the office environment friendly?     

I say it instead because the Supreme Court made a number of dubious assertions, and its reasoning is less than stellar and convincing throughout. Before I go on, let’s recap a few facts and talk a bit about Washington coverage law. 

After Alberts sued, Woo’s insurer, Fireman’s Fund, denied the duty to defend under three parts of his policy: professional liability, employment practices and general liability.  In Washington, if an insurer wrongly denies the duty to defend, it is estopped from denying indemnity.  It can also be liable for bad faith damages for a wrongful denial.  (In Oregon, neither of these things are true — there is no coverage by waiver or estoppel, and wrongful denial of the duty to defend calls only for contract damages, plus attorney fees in the coverage action, not tort damages).  Woo settled with Alberts for $250,000 — a good value for Woo considering what he did — then won this amount back in a coverage lawsuit against Fireman’s Fund, plus more than $750,000 in bad faith damages and attorney fees from a jury.  The Court of Appeals reversed, finding no duty to defend under any section of the policy, and the Supreme Court partially reversed the Court of Appeals, finding a duty to defend existed under the professional liability and general liability sections of the policy, and reinstated the jury award.  

Let me say one other thing before talking more about what I don’t like about this case.  I am not the type to criticize a case out of a partisan spirit.  I don’t engage in rah rah rah on behalf of either insurance companies or policyholders.  I try my best to look at insurance coverage as an intellectual endeavor, and in analysis on this blog, I am not speaking as an advocate for anyone’s position, I am only trying to hold a mirror up to nature.  

Here’s some of the things I don’t like about the case:

Dubious proposition No. 1: "Fireman’s is essentially arguing that an insurer may rely on its own interpretation of case law to determine that its policy does not cover the allegations in the complaint and, as a result, it has no duty to defend the insured." The court seems to be saying that insurers have a duty to defend wherever no case is directly on point against coverage, and that the insurer cannot base its decision on its own interpretation of case law.  Let’s consider just how bogus this statement is: in how many coverage cases is there a case directly on point? Be honest, how many times do you find a case that is the same on the law and the facts?  Maybe one time in 100? One time in 500?  Insurers and their coverage lawyers can’t interpret the law, or can’t interpret unsettled areas of law? Even considering that the insurer must give the insured every benefit of the doubt when evaluating the duty to defend, this is complete nonsense.

Dubious proposition No. 2: "The acts that comprised the practical joke were integrated into and inseparable from the overall procedure.  In sum, Alberts’ complaint alleges that Woo inserted a flipper, albeit oddly shaped, during a dental surgery procedure while he was operating an office for the practice of dentistry." The court said this on its way to finding that Woo was engaged in providing professional services under that portion of his policy.  Let’s look closely at this statement.  "Inserted a flipper, albeit oddly shaped." Consider that phrase for a moment.  Isn’t that sort of like pouring hot coffee down a guy’s shirt and saying you "provided for him to take a steaming bath, albeit in an unusual manner"?  Would the practical joke have been "integrated into and inseparable from the overall procedure" if, instead of fake pig teeth Dr. Woo made from his own molds, he had put in store-bought fake pig teeth? How about if he put in fake Dracula teeth? Fake mastodon tusks? How about if he used marker pens to color her teeth like a rainbow? How about if he filled her mouth with purple Jell-O, or a bouquet of red carnations, or two dozen Cuban cigars, or his tongue? Let’s consider how you would react if you heard a dentist did this to you, or to your wife, or to your mother, or to your daughter.  What would you do? I know what I’d do, I’d pick up a torch and a pitchfork and lead a mob to his office.   I doubt that, when we got there, we would be soothed by an explanation that such an assault was "integrated into and inseparable from the overall procedure."  Merely because you take advantage of an unconscious person to do something with their mouth does not make it dentistry.    

Dubious proposition No. 3: Regarding whether Woo should have expected or intended his acts to result in the injuries Alberts received, the court said this:

We conclude the Court of Appeals improperly analyzed the significant of the act at issue by focusing only on the facts that Woo inserted the boar tusk flippers for his own purposes and the injuries did not arise from the treatment Alberts requested. It ignored the fact that application of Blakeslee [a case that says intent to cause the resulting injury is always imputed to sexual abuse, the universal rule in insurance coverage] to other contexts could inappropriately narrow the duty to defend. It also failed to consider that sexual contact is never an appropriate component of dental treatment whereas other actions could conceivably fall within the broad definition [of dental services] in the insurance policy and [a Washington statute].

Does this make any sense to you? "Sexual contact is never an appropriate component of dental treatment whereas" knocking patients out cold and putting fake pig teeth in their mouth is? I can’t believe what I’m reading.  Say I’m your lawyer, and I’m handling, I don’t know, some matter involving the estate of your recently deceased father. Say I send you some trumped up letter as a "practical joke" about how the undertaker lost your Dad’s dentures, and I send you a Photoshopped picture of your father’s body with fake boar tusks, saying the undertaker has decided to use these instead of the dentures.  Say I request that you come to my office so we can discuss suing the undertaker, and when you get there, I, my colleagues and staff have you walk into a huge conference room filled with those wind-up chattering teeth, and after we have a big laugh at your expense, tell you it was all part of a fun-filled plan to foster closer relationships with clients.  Let’s see a show of hands. Appropriate component of legal services? Not? OK, that’s what I thought.

One could go on and on, but time and space are finite, so I leave you with the following: 

Here is a link to the Washington Supreme Court decision.

Here is a link to the Court of Appeals’ decision.

Here are links to a very good two-part series by Prof. Adam Scales on this case: Part I and Part II.  This paragraph in Part II of Prof. Scales’ article raised my eyebrows, however:

Fireman’s had obtained an attorney’s "opinion letter" advising that it had no duty to defend. Opinion letters are generally worthless, and this was no exception. The letter carefully noted the unsettled reach of the "sexual assault exception," but concluded there was no duty here. The Washington Supreme Court found that Fireman’s had thus given itself, rather than its policyholder, the benefit of the doubt.

Attorney coverage opinions are worthless? I guess he’s never read mine, they are pretty darn good and pretty valuable to the client. In fairness, he may be referring to the attempted use of coverage opinions to show the lack of bad faith by an insurer — this is called the "advice of counsel defense" and it holds that an insurer can’t act in bad faith when it is following its attorney’s advice on the interpretation of a legal question, even if the insurer was mistaken in its coverage determination. That would not seem to be his point, however, for two reasons. First, because the court noted that the coverage opinion Fireman’s Fund got said the law was equivocal, and the court did not analyze the opinion as a potential defense to bad faith, but instead as a further manifestation of the insurer’s giving itself, rather than the insured, the benefit of the doubt on  unsettled law. Second, advice of counsel, when it is used, is often used successfully as a defense to bad faith. 




Filed under Duty to Defend

Do Insurers Intentionally Introduce Ambiguities Into Policies?

Now this is an impressive post on ambiguities in insurance contracts, complete with footnotes, by Chris Robertson, a third-year law student at Harvard. I hesitate to link to it, for fear anyone will expect footnotes from me. If they are waiting for this, they will wait a long time.

The post is well-researched with sources ranging from Judge Richard Posner to Ralph Nader.  The gist of the post is that insurers perhaps intentionally make policy terms and conditions ambiguous as a strategy to deter and intimidate policyholders.  Chris acknowledges that courts decide ambiguities against the insurer, but says insurers may prefer to take their chances knowing that many people won’t sue and that sometimes courts will side with insurers.  Chris wrote this post in a scholarly vein, so I hope he won’t mind if I take issue with it. The post is in line with a lot of popular sentiment, so I want to address it. 

If this is a strategy by any insurance company in this world, let me give you some free advice: give it up, it won’t work.  Instead, don’t put any ambiguities in policies and use the same strategy of refusing to pay no matter what, and you will achieve better results.  Let’s look at the economic argument in the post this way.  Suppose the market is saturated with insurers whose business strategy manual has one page that contains one sentence: AT ALL TIMES, ACT IN BAD FAITH.  They take in premiums but don’t pay. Let’s also just say there are no state regulators who will prosecute them or revoke their licenses to sell insurance in the state.  If I come along and start an honest insurance company, or as honest as I can make it considering I may have to hire employees from companies that trained them to operate in bad faith, I will be able to charge higher prices and still dominate the market, because people know with me, they at least have a chance of getting a claim paid.  Whereas with the other companies, giving them money is like making a loan to your brother-in-law.  Neither I nor the bad companies have any incentive to make policies ambiguous — doing so only gives some judge a free shot at me, and for the other guys, why bother, since they aren’t going to pay no matter what the contract says. 

Not to mention that we know that almost all terms in widely used policies originated with the Insurance Services Office or some other trade group that debated endlessly about language to address specific concerns, in response to specific legal developments, and had a specific intention to broaden coverage to include certain things but not others, or to contract coverage to exclude certain things but not others.   These things are written about as well as they can be written.  Plain English doesn’t work.  The less that is said about a given thing, and the less technical the term, the more ambiguous you can make it out to be. 

In any event, a good, thought-provoking post.

UPDATE: Make sure you check out the comment below from Prof. Seth Chandler.  He gives you two weeks of course work on ambiguity condensed into a 60-second bite, and you don’t have to pay any law school tuition to get it.  

SECOND UPDATE: You’ll also want to read Martin Grace’s post on ambiguity at RiskProf, and check out Ted Frank’s post at PointofLaw.  


Filed under Duty to Defend, Duty to Indemnify, First Party Insurance, Liability Policies

Maniloff’s Top 10 Coverage Decisions Of 2006

It is hard to write excellent legal prose for a number of reasons, not the least of which is the surprising resistance one encounters to good writing from many people who treat legal writing as if it is not an art but merely an industrial process, like bleaching wood pulp. These people treat any attempt at originality, creativity or — heaven forbid — humor as if you had showed up at a job interview with a Harley tattoo on your forehead. In addition, writing anything good is just plain hard, often agonizing, work.  Strangely enough, really good writing does not bear the marks and bruises of all this laboring, but instead reads as if it flowed naturally from the author’s fingertips with little effort.  Good writing glides, turns, shoots and scores like The Great One in his prime.     

So here is an example of legal writing that is really good, by Randy Maniloff, of White and Williams in Philadelphia.  Here is a link to Randy’s upcoming article in Mealey’s Litigation Report: Insurance on the year’s 10 most significant insurance decisions.  When I praise the writing, don’t take that to mean I slight the substance, because good writing is substance.  I place this article in my highest category of legal writing — the Steve Buscemi class — named after the actor who always brings something fresh, surprising and original to a role, who puts maximum effort into each part without letting you see the effort, and who worked as a firefighter for four years before becoming a star, and then showed up for work at his old firehouse the day after 9/11, working 12-hour shifts at Ground Zero while disdaining publicity. 

I can’t quibble with Randy’s case selection — I’ve written about many of them myself — although for sentimental reasons, I found myself wishing at least one of the Hurricane Katrina coverage cases, which I have spent so much time analyzing and of which I have grown so fond, had made the list.  My favorite analysis in Randy’s piece is French v. Assurance Co. of America (4th Cir. 2006), particularly this excerpt that brings clarity to a construction defect issue that often seems murky:

However, the flaw in this argument is that the subcontractor exception to the your work exclusion is not called the subcontractor exception to the occurrence requirement. The French Court recognized this and concluded that, notwithstanding that the EIFS was defectively installed by a subcontractor, such defective application does not constitute an accident, and, therefore, is not an occurrence under the CGL policy. 

My favorite lede from the analysis of the cases is this one, from Standard Fire Ins. Co. v. Spectrum Community Assoc., 46 Cal.Rptr.3d 804 (Cal.App. 2006):

What’s the difference between a John Grisham novel and the continuous trigger? Answer: Nothing.  They are both legal fiction.

And here’s a great short summary of Brannon v. Continental Casualty Co.:

— Supreme Court of Alaska gave an insurer a chilly reception to its argument that the statute of limitations on an insured’s action for breach of the duty to defend began to run from the time of the disclaimer . . . .

Print the article out and read the whole thing.  At 23 pages, it will take a little time, but it’s worth it.


Filed under Bad Faith, Duty to Defend, Duty to Indemnify, Industry Developments, Liability Policies

Allegations That Killing Was Negligent Give Rise To Duty To Defend

I’m going to diverge once again from my normal rule of commenting only on brand-new coverage cases, because I stumbled upon this interesting blog post about a case in New York involving the duty to defend.  The post convinced me I needed to read the case, Automobile Ins. Co. of Hartford v. Cook, 7 N.Y.3d 131 (June 8, 2006), and I’m glad I did, because the analysis is pretty good and the case is about a tricky duty to defend issue that I’ve previously blogged about here and here and here.  

The facts of this case are fairly gruesome and Quentin Tarantino-like.  It involves two guys named Cook and Barber, who had some kind of falling out over business.  According to the court, "Barber, weighing about 360 pounds, was approximately three times Cook’s size and had previously attacked the smaller man, causing injury to his leg."  One morning, Barber and another man were discovered outside Cook’s home, "hurling objects at the house."  Later that day, Barber returned with his companion and two others.  Cook locked the door and got a .25 caliber handgun from his bedroom. I doubt I can improve upon the court’s description of what happened next, so here it is:

There was further testimony that the group burst into Cook’s home. The four individuals gathered in the kitchen where Barber began demanding money from Cook while pounding his fists on the kitchen table. Cook, alarmed, drew his gun and demanded that they leave his house. Barber apparently laughed at the small size of the pistol, at which point Cook withdrew to his bedroom for a larger weapon. He picked up a loaded, 12 gauge shotgun and stood in his living room at the far end of his pool table. Cook again ordered them to leave the house.

Although Barber started to head toward the door with his companions, he stopped at the opposite end of the pool table, turned to face Cook and told his companions to take anything of value, and that he would meet them outside because he had some business to attend to. When Barber menacingly started advancing toward Cook, Cook warned him that he would shoot if he came any closer. Cook aimed his gun toward the lowest part of Barber’s body that was not obscured by the pool table—his navel. When Barber was about one step away from the barrel of the gun, Cook fired a shot into Barber’s abdomen. Barber died later that day at a hospital.

(I take several lessons from this account, one of which is: do not laugh at the size of a man’s gun, lest he replace it with a much larger and more dangerous gun).

Cook was prosecuted but found innocent by a jury.  Barber’s estate later sued him, and his homeowners insurer brought a declaratory action seeking a judgment of no duty to defend or indemnify.  Not surprisingly and probably solely to try to draw in insurance coverage, the Barber estate’s complaint alleged that Cook negligently killed Barber, as an alternative to a claim for intentional killing.  One more salient fact. About his mental state before the killing, Cook testified as follows: "I knew the [shot from the] shotgun would injure Mr. Barber because I had to stop him, but I did not anticipate it killing him."

On summary judgment, the trial court found the insurer had a duty to defend.  The Appellate Division reversed, saying the policy’s exclusion for intentional acts precluded both defense and indemnity.  The state’s highest court, which is called the Court of Appeals, reinstated the trial court’s decision, saying the duty to defend must be considered only with regard to the allegations of the complaint.  Unless the allegations can result only in a verdict that the act was intentional, the Court of Appeals said, a duty to defend exists. Mind you, that is a completely different analysis from whether a duty to indemnify exists.  In states where extrinsic facts are not considered in a duty-to-defend analysis, the result of this case is the one you will see almost every time.

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Filed under Duty to Defend

This Sounds Like ‘Defective’ Analysis To Me

I’m having a hard time buying the court’s opinion in Stansley Group v. Fru-Con Construction Corp., 2006 WL 2711795 (N.D. Ohio September 21, 2006)(click here for a pdf of the case).   Stansley poured some apparently defective concrete in construction of two bridge pylons, although the concrete it poured for 11 other pylons met pressure standards of 10,000 pounds per square inch.  Stansley was sued by the general contractor, and the issue in the case was whether Stansley’s insurer owed a duty to defend and indemnify.

The court acknowledged that defective work does not constitute an "occurrence" under a Commercial General Liability policy, and that only damage to other work or property could constitute covered property damage.  Then the court went in a direction I did not anticipate.  Now, to finish out this discussion let’s remember that in the construction business wet concrete is called "mud."  It will be more fun and make us feel like construction insiders if, for the rest of this post, we call the concrete "mud."  Let’s also remember that many courts will find that if other property has to be destroyed to tear out defective work, the damage to the non-defective work is covered.

Strangely, to my way of thinking, the court said an issue of fact precluded summary judgment for the insurer.  It was unclear, the court said, if all the mud poured for the two pylons was bad mud, or if some good mud was mixed in with the bad.  If some good mud was in the pylons, the court said, destruction of the defective pylons resulted in damage to non-defective property.   I am not agreeing with this.  If I give you a beverage that is 98 percent coffee and 2 percent poison, I am not giving you a drink that is mostly good coffee and a little bad coffee, I am giving you poison.  If I pour some loads of good mud and some loads of bad mud in a pylon, I am not giving you partly a good product and partly a defective product, I am giving you one whole product that is no good.  To my mind, the whole pylon is uncovered defective work.

UPDATE: We’re not afraid of dissenting opinions at this blog.  Here is another point of view on Stansley, which focuses on different things about the case, but calls the analysis "great." 

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Filed under Duty to Defend, Duty to Indemnify, Liability Policies

Court: ‘Advertising Injury’ Includes Promotional Techniques

The U.S. District Court for the Western District of Kentucky (which, by the way, is among the federal courts that don’t provide copies of all opinions on a website readily accessible to the general public) has decided that promotional techniques can constitute "misappropriation of advertising ideas or style of doing business" under the "advertising injury" coverage of a Commercial General Liability policy.  Specifically, the court was talking about the serving of garlic butter, which one pizza chain claimed was its idea that another pizza chain, started by former employees, had ripped off, along with other ideas like toppings poking up through the cheese and the taste of the pizza sauce.  The case is Pizza Magia International, LLC v. Assurance Co. of America, 2006 WL 2241333 (W.D. Ky. August 3, 2006).  

In making its ruling, the court joined other courts that have criticized the Sixth Circuit’s Advance Watch case, 99 F.3d 795 (1996), which concluded that "misappropriation of advertising ideas or style of doing business" does not refer to a category or grouping of actionable conduct that includes trademark or trade dress infringement.   The majority of courts have found that trademark and trade dress infringement can indeed constitute advertising injuries under a CGL, depending on the language of the policy and the underlying facts, of course.

The district court also found sufficient nexus between the misappropriation and the injuries suffered.  Advance Watch had said that it was not the appearance of infringing images in a catalog that caused the injuries, but rather the appearance and shape of the product itself, a conclusion that has struck more than one person as a fairly brazen piece of sophistry.  The district court repudiated that line of thinking, but went pretty far the other way, saying that the act of selling is actually a "technique" that in itself constitutes advertising. 

Although the court granted summary judgment on this issue, it found material issues of fact on the loss-in-progress doctrine, and the case will proceed to resolve the question of whether the insured was aware of a threat of loss so immediate that it can be said the loss was in progress when the policy period began.


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Filed under Duty to Defend, Duty to Indemnify, Liability Policies