EMERGING ISSUES

May 2015 Monthly Review

“Thought” of the Month: “If you can’t explain it simply, you don’t understand it well enough.” Albert Einstein

GEORGIA – Pollution Exclusion Does Not Bar Coverage For Lead Claims, Panel Majority Says

Amy Smith v. Georgia Farm Bureau Mutual Insurance Co. No. A14A1824 and Bobby Chupp v. Georgia Farm Bureau Mutual Insurance Co., No. A14A1825, Ga. App., 1st Div.; 2015 Ga. App. LEXIS 247

NEVADA – Release of Carbon Monoxide Was The Only Cause Of Death, Federal Judge Determines

Century Surety Company v. Casino West, Inc., No. 07-636, D. Nev.; 2015 U.S. Dist. LEXIS 39482

MINNESOTA – Judge: 2 “Occurrences” For Coverage Under CGL Insurance Policies

National Union Fire Insurance Company of Pittsburgh, PA and American Home Assurance Co. v. Donaldson Company Inc. and Federal Insurance Co., No. 10-4948, D. Minn.; 2015 U.S. Dist. LEXIS 35499

NEW YORK – New York Federal Judge Enters Judgment In Favor Of Insurance For Environmental Costs

Olin Corp. v. Insurance Company of North America, et al., No. 84-1968, S.D. N.Y.

VERMONT – Vermont High Court Majority Says Policy’s Pollution Exclusion Is Not Ambiguous

Cincinnati Specialty Underwriters Insurance Co. v. Energy Wise Homes Inc., et al., No. 14-165, Vt. Sup.; 2015 Vt. LEXIS 33

NEVADA – Insurer Has Duty To Defend Construction Defects Case, Judge Says

Gemini Insurance Co. v. North American Capacity Insurance Co., No. 14-00121, D. Nev.; 2015 U.S. Dist. LEXIS 44234

ILLINOIS – Insurer Did Not Breach Duty To Defend Insured For Bodily Injury Claims, Panel Says

Sinclair Oil Corp. v. Allianz Underwriters Insurance Co. f/k/a Allianz Underwriters Inc., No. 5-14-0069, Ill. App. 5th Dist.; 2015 Ill. App. LEXIS 250

CALIFORNIA – Parties’ Motions To Compel Mostly Denied In Dispute Over Hazardous Waste Fire

Carolina Casualty Insurance Co. v. Oahu Air Conditioning Service Inc., et al., No. 2:13-cv-01378, E.D. Calif.; 2015 U.S. Dist. LEXIS 40786

ILLINOIS – Judge: Insurer Has No Duty to Defend, Indemnify Costs From Faulty Work

AMCO Insurance Co. v. Northern Heritage Builders LLC and American Family Insurance Co., No. 12-09071, N.D. Ill.; 2015 U.S. Dist. LEXIS 41341

NEW YORK – Federal Judge Orders Insurer To Pay Almost $9M In Attorney Fees

Danaher Corp. v. Travelers Indemnity Co., et al., No. 10-0121, S.D. N.Y.; 2015 U.S. Dist. LEXIS 48769

CALIFORNIA – Judgement Does Not Trigger Excess Insurer’s Duty to Defend, Judge Concludes

Nordby Construction Inc. v. American Safety Indemnity Co., et al., No. 14-04074, N.D. Calif.; 2015 U.S. Dist. LEXIS 49048

April 2015 Monthly Review

“Thought” of the Month: “There can’t be a crisis next week….My schedule is already full!” Henry Kissinger

OREGON CLEANUP STATUTE BENEFITS DEFENDING INSURER

In Century Indemnity Co. v. The Marine Group LLC, et al., No. 08-1375, D. Ore., Federal Magistrate rules that the defending insurer may rely upon OR. REV. STAT. [Oregon Revised Statutes] 465.480(7)(a) that once the defending insurer establishes the existence and amount of defense costs, the non-defending insurers must prove the requested costs are unreasonable or unnecessary. Practice Pointer – Given the difficulty in proving that incurred defense costs were unreasonable, the better course of action may be to participate in the defense as soon as possible allowing for control of the defense costs.

CALIFORNIA COURT UPHOLDS REQUIREMENT THAT INSURER DEFEND CROSS-CLAIMS

In Richard E. Haskins, et al. v. Employers Insurance of Wausau, et al., No 14-1671, N.D. Calif.; 2015 U.S. Dist. LEXIS 21480, a Federal Court Judge rules consistent with California law that the Insurer must defend a cross-claim. Insurer’s argument that a cross-claim is not a “suit” was rejected. Practice Pointer – Be careful when arguing Foster-Gardner…which was a very close decision that we won before the California Supreme Court. Here, the fact that the cross-claim was not itself a separate suit but a cross action in a current suit did not preclude the insurer from defending. Foster-Gardner does not require a separate suit for each affirmative action within a suit.

TEXAS FEDERAL JUDGE PRECLUDES COVERAGE UNDER THE POLLUTION EXCLUSION IN A CONSTRUCTION CASE

In Evanston Ins. Co. v. Lapolla Industries Inc., No. 13-3157, S.D. Texas; 2015 U.S. Dist. LEXIS 21381 a Federal Judge held that the insurer properly denied coverage under an APE for a 3rd-party fume claim arising out of spray insulation. The insured’s argument that there was no property damage under the policy thereby precluding application of the pollution exclusion was rejected by the Court.

NEW ORLEANS 5TH CIR. COURT OF APPEALS AFFIRMS NO BAD FAITH FOR DENIAL OF WHERE INSURED WAS DEFENDED BY OTHER INSURERS

In Anco Insulations Inc. v. AIG Premier Insurance Co., et al., No. 13-31313, 5th Cir.; 2015 U.S. App. LEXIS 2973, the 5th Cir. affirmed a ruling that the insured had no duty to defend cases that were being defended by other insurers, and therefore no bad faith, up until the time the defending insurers exhausted. Further, the Court held that the insurer was not obligated to defend or reimburse the defending insurer for pre-tender costs.

PENNSYLVANIA FEDERAL JUDGE FINDS INSURER’S ASBESTOS EXCLUSION IS AMBIGUOUS

In General Refractories Company v. First State Insurance Co., et al., No. 2:04-cv-3509, E.D. Pa., A Federal Judge finds the Asbestos Exclusion ambiguous holding that the insurer must not only prove that its interpretation is reasonable but that the insured’s interpretation is unreasonable. Faced with two “reasonable” interpretations, the Court held that the insured’s interpretation must prevail.

WISCONSIN / MISSOURI BOTH FIND THE TOTAL POLLUTION EXCLUSION UNAMBIGUOUS

In Advanced Waste Services, Inc. v. United Milwaukee Scrap LLC, No. 2014AP1169, Wis. App., Dist. I, The Wisconsin Court of Appeals precludes coverage for damages arising out of the transport and disposal of the insured’s contaminated waste water based upon the total pollution exclusion find the exclusion “Unambiguous.”

In Barbara Williams v. Employers Mutual Casualty Co., No. 13-2393, E.D. Mo., a Federal Judge precludes coverage for an $82 million judgment based upon the pollution exclusion.

NEW YORK FEDERAL JUDGE ORDER PRODUCTION OF DRAFT COVERAGE LETTERS

In Broadrock Gas Services LLC, et al. v. AIG Specialty Insurance Co., No. 14-3927, S.D. N.Y., the Court ruled that while communications concerning coverage and draft response letters drafted by the counsel were protected from disclosure, subsequent changes and drafts within the insurance company were not so protected and ordered produced. Practice Pointer – Keep your counsel involved in the edit process to protect attorney-client and attorney work product content.

NEW YORK FIND THAT FLORIDA LAW HAS CONSISTENTLY PRECLUDED COVERAGE FOR CHINESE DRYWALL CLAIMS

In Bayswater Development LLC, et al. v. Admiral Insurance Co., et al., No. 105001/10, N.Y. Sup., App. Div., 1st Dept., a New York Supreme Court of Appeals precludes coverage under Florida law for damages caused by defective Chinese drywall.

VIRGINIA 4TH CIR. HOLDS THAT NEGLIGENCE ACTS SUFFICIENT TO TRIGGER DEFENSE

In Liberty Mutual Fire Insurance Co. v. JM Smith Corp., et al., No. 13-2451, 4th Cir., the 4th Cir affirmed lower court’s ruling that negligence acts alleged in the complaint were sufficient to trigger a defense notwithstanding the pleading of intentional violations. Practice Pointer – Artful and/or in-artful pleadings in a complaint are often not held to be a basis for a coverage determination. Where allowed, defend subject to reimbursement of uncovered defense amounts.

WISCONSIN SUPREME COURT FINDS COVERAGE FOR AN EXPLOSION UNDER A POLLUTION POLICY

In Acuity, A Mutual Insurance Co. v. Chartis Specialty Insurance Co., No. 2013AP1303, Wis. Sup., the Wisconsin Supreme Court found a duty to defend and indemnify existed for damages caused by an explosion that resulted from the escape of natural gas. Specifically, in reversing the Appellate Court, the Supreme Court found the natural gas leak to be a “pollution condition” and the natural gas to be a “contaminant” under the policy. Practice Pointer – this ruling resulted in the context of an insurer contribution action and in my opinion may have made bad law. While a natural gas leak may be a “pollution condition” due to “contamination,” however, the intervening explosion and fire caused the damage rather than a typically contemplated pollution damage due to a “pollution condition.” This may be an instance where a case involving the destruction of homes and injury of people may have been better resolved out-of-court.

MAINE COURT FINDS CLAIMS HANDLING MANUAL, UNDERWRITING GUIDELINES AND REINSURANCE COMMUNICATIONS DISCOVERABLE

In, Irving Oil Limited v. ACE INA Insurance, No. 09-35, Maine Bus., Cumberland Co., a Maine Justice determining the phrase “underlying insurance” to be ambiguous in an MTBE claim, allows discovery of the insurer’s claims manuals, underwriting guidelines and reinsurer communications. Query… if any of those documents discuss the meaning of “underlying insurance” …. (i.e., are they even “responsive” documents?)

CALIFORNIA FEDERAL COURT UPHOLDS NO ASSIGNMENT CLAUSE

In Nordby Construction Inc. v. American Safety Indemnity Co., et al., No. 14-04074, N.D. Calif., a Federal Judge follows controlling California law upholding the validity of “No Assignment” clauses. This case was handled by our office and additional comment can be provided upon request.

March 2015 Monthly Review

“Thought” of the Month: Seen—Sign in store window: “Any faulty merchandise will be cheerfully replaced with merchandise of equal quality.”

TEXAS GETS IT RIGHT

In Re Deepwater Horizon, No. 13-0670, Texas Sup. The Texas Supreme Court finds BP Exploration and Production covered as an additional insured. In doing so, the Texas Supreme Court applies reason to the “8-Corners” Rule allowing the Court to consider the related underlying contract. Further, the Court upholds the idea that a party named as an additional insured in connection with performance of a contract is insured only to liability arising out of the insured contract. We believe this is an important decision because in “8-Corners” jurisdiction, insureds often argue that no other information may be considered. The counter to that argument is that the Court (and we believe the insurer) can consider “what” is being insured. Further, the insurer should not be hamstrung by “artful” and/or “over-inclusive” drafting.

TENNESSEE COMPLAINT SEEKS TO APPLY ABSOLUTE POLLUTION EXCLUSION

Great Lakes Reinsurance the MP & T Hotels, LLC, et al., Case No. 3-14-cv-2018. This is a case to watch and may fall under the adage, “be careful what you wish for . . .” In its Complaint, Great Lakes apparently seeks to exclude coverage for injury arising out of a hotel patron that was allegedly injured to noxious fumes in connection with pest extermination. While at first blush the verbiage in the exclusion “release or escape of soot of smoke, vapors, soot, fumes . . .” may seem to apply, many Courts have refused to apply the absolute pollution exclusion when those “fumes” are in connection with the spraying of pesticides finding that the vapors do not constitute a pollutant but are integral with pesticides. See MacKinnon v. Truck Ins. Exchange, 31 Cal. 4th 635.

RHODE ISLAND CASE TO WATCH

Seaton Insurance Company v. Yosemite Insurance Company, No. 15-cv-00040, D. R.I. In this case Seaton Insurance Company is suing Yosemite Insurance Company for failure to pay under a reinsurance agreement. As most everyone in the industry knows, reinsurance recoveries can be difficult. Our experience shows that the best “practice pointer” is to involve the reinsurance company as early as possible in the claims, billing, settlement and/or resolution process.

MICHIGAN LAW “INITIAL DISCHARGE” RULE NOT APPLY TO LANDFILLS

Decker Manufacturing Corp. v. The Travelers Indemnity Company, Case No. 1:13-cv-820. In finding coverage not precluded by the Sudden &Accidental Pollution Exclusion, the Federal Judge provides good explanation of Michigan law which holds that the “initial discharge” rule does not apply to landfills. Rather, in Michigan, the focus is on the discharge from the landfill (which, in our view , has nothing to do with the insured). We feel Michigan law on this subject appears to be result driven and has not been followed by many other jurisdictions.

NEW MEXICO FEDERAL COURT SAYS NO TO STACKING

Mid-Continent Casualty Company v. I & W, et al., No. CIV-11-0329. With no clear applicable law in New Mexica, the Federal Court, looking to other jurisdictions, found property damage occurring from 2000-2009 to be a single occurrence. Further, occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions” precludes stacking of occurrence limits.