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Coverage Opinions
Effective Date: February 12, 2014
Vol. 3, Iss. 3
 
   
 
 

Coverage Opinions: New Home Page
The Coverage Opinions home page needed a face lift. It was originally created when Coverage Opinions was launched in October 2012. Much has changed about the newsletter since that time. The home page needed a refresh -- in Coverage Opinions style -- to reflect those changes.

Coverage Opinions Caption Contest Results
As expected, the Coverage Opinions Caption Contest brought out some fun responses. I suspect that many in the insurance industry share this guy’s sentiment when they look at their desks.

Randy Spencer’s Open Mic: Valentine’s Day And Insurance Coverage
Boys it’s Valentine’s Day later this week. Fear not. You can never go wrong by singing an insurance coverage love song to your significant other.

It’s Westminster Dog Show Week: Show Dogs That Bite
The First Dog Bite Case - 1820

Like so many dog lovers, I will be glued to the television this week watching the 138th annual Westminster Kennel Club Dog Show. Dogs sometimes bite people. But what about show dogs? That question is answered here. Just because show dogs probably get made fun of at the dog park, and have their lunch money stolen, some have a toughness behind their cucumber facemask.

Declarations: The Coverage Opinions Interview With Bill Cooper
One Of Punxsutawney Phil’s Handlers On Risk And Insurance For The World’s Most Famous Groundhog And His Holiday

February 2nd was Groundhog Day. The care of a groundhog, especially Punxsutawney Phil, the world’s most famous groundhog, is not without risks. The paparazzi can be brutal. Bill Cooper, one of Phil’s handlers (one of those guys that you see, surrounding Phil, wearing a top hat and tuxedo) discusses what it takes to address the risks..

Insurer Misplaces DJ Complaint: Supreme Court Upholds Default Judgment
National Case Of First Impression

An insurer was served with a DJ complaint at the address stated in the policy for doing so. It misplaced the complaint and a default judgment was entered. A court (supreme court in fact) addressed this situation for the first time ever and upheld the default judgment.

No “K2” Mountain To Climb
Circuit Court Of Appeals Does Not Penalize Insurer For Breaching
The Duty To Defend

Many courts lately have been harshly penalizing insurers for breaching the duty to defend. K2 and others as well. The Eleventh Circuit went the other way. It did not saddle the insurer with any consequences – other than the most basic -- for breaching the duty to defend

Lips-ky Sealed: Pennsylvania Supreme Court’s Quiet Decision
Court Addresses Whether Emotional Injury Is “Bodily Injury”–
But How Would You Know?

Pennsylvania now has much needed Supreme Court authority on the question whether emotional injury qualifies as a sufficient injury for purposes of triggering “bodily injury” coverage. But the case flew well under the radar compared to the attention that other Supreme Court coverage cases attract.

Supreme Court To Insurers: SIR You Listening?
Examine Your Self-Insured Retention Provisions

Insurers that issue policies with a self-insured retention understandably have a lot invested in the language of their SIR provisions – especially to the extent that they address how to determine whether the retention has been satisfied. The Florida Supreme Court provided insurers with food for thought for considering whether their self-insured retention provisions – even if they think they are clear – are clear enough.

 
 


Vol. 3, Iss. 3
February 12, 2014


Coverage Opinions: New Home Page

The Coverage Opinions home page needed a face lift. It was originally created when Coverage Opinions was launched in October 2012. Much has changed about the newsletter since that time. The home page needed a refresh to reflect those changes.

I also thought that a picture was needed to capture the spirit of the newsletter. Coverage Opinions has various aspects. But, at its core, it is about judges writing opinions that make law concerning matters of insurance coverage. So I reached out to Ron Leishman for assistance. Ron is the Canadian born artist whose entertaining cartoon figures – often with giant noses and elongated heads -- appear in every issue of Coverage Opinions. [Ron was the co-creator of Canadian comic book superhero Captain Canuck.]

Ron did a great job of creating an image, in his trademark style, that sums up what Coverage Opinions is all about. Please check out the new Coverage Opinions home page here:

www.CoverageOpinions.info

 


 

Vol. 3, Iss.3
February 12, 2014

Coverage Opinions Caption Contest Results

 

 

As expected, the Coverage Opinions Caption Contest brought out some fun responses. The winner was a tie -- two entries the same. Unfortunately, since I only have two autographed photos of Progressive’s Flo to give away as prizes [kindly donated by Flo actress Stephanie Courtney’s management company], there is only one winning thought bubble to reveal here. I suspect that many in the insurance industry share this guy’s sentiment when they look at their desks. Congratulations to the winners:

Leandra R. Ryan
Vice President - Claims
Colony Specialty
Alpharetta, GA

Denny Enoch

 


Vol. 3, Iss. 3
February 12, 2014

 

Randy Spencer’s Open Mic:
Valentine’s Day And Insurance Coverage



Boys it’s Valentine’s Day later this week. And nothing good can come of that. Even if your significant other tells you that the holiday is just a silly invention of the greeting card industry, and you do not have to do anything special to celebrate, don’t buy it. Trust me. Yes, the greeting card industry has put the bait out. And you, my friend, had better take it. Then, after you are showered with praise and appreciation for your thoughtfulness in what you did to mark the occasion, don’t buy it. You will find out three months from now – in the midst of an argument that has nothing whatsoever to do with Valentine’s Day – that the holiday wasn’t so fake after all and whatever you did to mark it was wrong. All wrong.

The February 13, 2013 issue of Coverage Opinions marked Valentine’s Day with a special love song. Paul Simon briefly attended Brooklyn Law School. Imagine if he had finished and then went the insurance coverage route. It would have only been a matter of time before someone with those songwriting skills, who spent his days cranking out disclaimer and reservation of rights letters, would have come up with the beautiful tune: 50 Ways To Leave No Cover.

In case you missed it last year, here it is:

http://www.coverageopinions.info/RandyVol2Issue4.html

 



 


Vol. 3, Iss. 3
February 12, 2014

 

 

It’s Westminster Dog Show Week:
Show Dogs That Bite
The First Dog Bite Case - 1820



Dog is man’s best friend
But when it bites a lawsuit will be penned
This can mean a lot to spend
So the dog will ask its insurer to defend
And also pay for the victim to mend
But what if Fido did expect or intend?

Like so many of us, I love dogs. I own two. And like so many dog lovers, I will be glued to the television on Monday and Tuesday nights of this week watching the 138th annual Westminster Kennel Club Dog Show live from Madison Square Garden. And Petunia and Barney will be right there next to me on the sofa. You can be sure that some wagering will be going on. So there will be screaming and barking at the TV in an effort to influence the judges’ decisions. I attended Westminster a few years ago. If you love dogs it is well worth the trip. What could be better than a day spent walking amongst 3,000 champion dogs of every breed. You just aren’t going to see too many Dandie Dinmont Terriers or Norwegian Buhunds at the dog park. Westminster provides a rare opportunity to see so many unique breeds up close and personal.

But as much as dogs are one of life’s greatest pleasures, it can’t be ignored that they are not without some danger. Dogs sometimes bite people. Putting aside who’s at fault -- there could be a hundred reasons why a dog bites someone – bites are an inherent risk of being around dogs. There are millions of dogs in this country. So while bites are rare and most dogs never hurt anyone, the sheer number of dogs necessarily leads to a lot of bites. And in this country that translates into a lot of litigation involving damages sought for injuries that dog bites cause.

Based on my research, the earliest reported decision, involving litigation for injury caused by a dog bite, is Hall v. Hall, 3 Conn. 308 (1820). The issue before the court nearly 200 years ago was procedural -- addressing the court’s appointment of referees to hear the dispute. As for the substantive aspect of the case, the plaintiff had been bitten by the defendant’s dog and was awarded $175 for injuries sustained.

Connecticut should take credit for this source of pride on its license plates. North Carolina’s plates announce “First in Flight.” Connecticut’s could boast “First in Bite.”

In addition to the significant amount of litigation involving damages for injuries caused by dog bites, there is also a lot of litigation over the availability of insurance coverage for such incidents. Funny how that works. Not to mention that there is a smorgasbord of ways in which insurers offer coverage for dog bites under homeowner’s policies.

Coverage Opinions couldn’t let Westminster go by this week without giving some nod to it. Something had to be done with dogs and cases involving liability or coverage issues. But with so many dog bite cases – liability and coverage -- arising in so many different ways, it was an overwhelming task to find a specific focus to chew on.

I settled on this. Since the article is being written to acknowledge the happening of the nation’s most famous dog show, it made sense to examine litigation involving show dogs that have taken a bite out of someone. On one hand, show dogs surely have great temperament. After all, they are used to being around a lot of people and other dogs, not to mention being poked and prodded as their handlers and the judges do. And dogs that use hair dryers and have their nails manicured can’t be that tough.

But, after a while, these pooches may start to lose their patience with all that priming and strangers petting their heads – not to mention speaking to them in baby talk. And when they reach the end of their leash they may decide to make their displeasure known to whomever the unlucky person is that happens to be in the wrong place at the wrong time.

With 3,000 dogs crammed into Madison Square Garden (it’s very crowded) – and in a “benched show” set-up, where the public can interact with the dogs – surely there is some risk for attendees, or others associated with the show, to be bitten. I reached out to the venerable Westminster Kennel Club to see how they handle this liability exposure. I inquired whether Westminster maintains liability insurance for any injuries caused by a competitor? Does the Kennel Club require proof of liability insurance from each owner as part of the entrance process? Have there been any instances of dog bites in the past? If so, how frequent is it? [Obligations on dog owners to indemnify Westminster, and name it as an additional insured, could also be considerations here – but I wanted to keep it simple and focus on the basics.]

In any event, it didn’t matter if I kept my questions simple or not, as I did not receive a response from the Westminster folks. Perhaps they were too busy. Perhaps insurance newsletters aren’t top dog for their attention. Perhaps they prefer to focus on more positive aspects of the show. Probably a combination of all three.

It turns out that, just because show dogs probably get made fun of at the dog park, and have their lunch money stolen, some have a toughness behind their cucumber facemask. Consider the following reported decisions involving show dogs that have not been worthy of any blue ribbons.

Splain v. Eastern Dog Club, 28 N.E.2d 450 (Mass. 1940) -- Plaintiff, attending a dog show to show his dog, was bitten by a competitor. (“Doubtless the defendant [dog club] should have foreseen and guarded against any probable harmful consequences of the presence of many dogs at the show of dogs [sic] being confined to benches or stalls for considerable periods and of exhibitors passing through aisles with dogs. But we think that, even in the circumstances of a dog show, it could not rightly have been found that the injury to the plaintiff in its general nature was a probable consequence of the failure of the defendant to take precautions, by providing attendants or otherwise, to prevent a dog on exhibition from remaining in the aisle for a period of five or ten minutes, when held by the person in charge of it by a chain or leash, or to guard against such dog--having no dangerous propensities known, or that should have been known--biting an exhibitor passing through the aisle with another dog.”).

Adkins v. Fireman’s Fund Ins. Co., 313 So. 2d 328 (La. Ct. App. 1975) - Serious injuries were sustained by a three year old who was bitten by a Weimaraner at a dog show. (“While it is true that the rules for the dog show were very loose and there was apparently no control to keep a vicious dog from being entered in the dog competition, we see no way that even if very strict rules had been adopted by the Fair that the dog in question would have been excluded from the show. Although he is a big dog, he appears to have been gentle and well trained.”).

Mieloch v. Country Mutual Ins. Co., 628 N.W.2d 439 (Wis. Ct. App. 2001) -- Kodak, an Akita, bit its professional trainer, causing injuries. (“[W]e conclude that because the [dog trainers] were already aware of the Meyer incident [Kodak snapping at another dog trainer four months earlier] prior to taking control of Kodak, the [owner] had no duty to warn them of that event. Further, we conclude that Kodak’s propensities towards other dogs are not material to Kodak’s propensities towards dog handlers, that the behavior of other dogs in linear kinship to Kodak cannot be imputed to Kodak [Kodak’s father and grandmother had bitten people], and that these contentions are not material to a duty to warn on the part of the [owner].”).

Burke v. Migday, 2001 WL 950915 (Mass. Super. Ct. Aug. 20, 2001) – A professional dog handler was bit in the face by Carlton, a Bullmastiff, after she opened his cage to say goodbye to him after a dog show. (The dog handler’s case against the dog owners for damages involved jurisdiction and choice of law issues.).

Wolf v. Bakert, 808 N.Y.S.2d 921 (Sup. Ct. 2005) – A twelve year old boy required fourteen stitches to the face after being bitten by Kirby, a Chow, at a dog show. (Trial needed to determine the facts that led to the incident. Dog owners alleged that Kirby was accustomed to being handled as he had participated in more than 240 shows. Owners alleged that Kirby was on a leash and lying down when the boy jumped on him.).

Tatman v. Space Coast Kennel Club, 27 So. 3d 108 (Fla. Ct. App. 2009) - A dog owner, in attendance at a dog show, was injured when bit by a competitor, Eli, an Akita, who was on a leash and being held by a professional dog trainer. (The court held that the exculpatory clause on the entrance form for the injured person’s dog did not apply to preclude her claim.).

In general, dog bite cases, like dogs, come in every shape and size. Their outcomes vary from state to state and they are fact dependent. The same can be said for those cases that involve show dogs. There are no bright lines. A lot of dog bite cases are brought. It is up to courts to decide which are more bark than, well, you know.


 


 

Vol. 3, Iss.3
February 12, 2014

 

 


February 2nd was not a good day for Denver Broncos’s bettors. Nor was it one for those beaten down by this brutal winter and hoping for an early Spring. On early Super Bowl Sunday morning word came out of Western Pennsylvania that Punxsutawney Phil, the world’s most famous weather predicting groundhog (yes, there are others), emerged from his burrow and saw his shadow. Translation - six more weeks of winter. This was not a surprise. Punxsutawney Phil has been making this annual prediction since 1887. Phil’s other possible prediction, an early spring, has now been made only 14% of the time (based on data for 118 years).

Of course, Phil’s weather forecast was more than just a weather forecast. It was given on Gobbler’s Knob, in Punxsutawney, Pennsylvania (65 miles from Pittsburgh), in front of an expected 20,000 screaming and adoring fans amidst a festival atmosphere. And Phil was not unmindful of the big football game that was scheduled for later in the day. His prediction came in the form of this verse:

A Super Bowl winner I will not predict,
But my weather forecast, you cannot contradict,
That’s not a football lying beside me
It’s my shadow you see
So, six more weeks of winter it shall be!

While Phil is his own man when it comes to predicting the weather, he does rely on others for his care and feeding. That task falls to the Inner Circle of the Punxsutawney Groundhog Club (est. 1887). The Inner Circle are those guys that you see, surrounding Phil, wearing top hats and tuxedos. They are a group of local dignitaries who, in addition to taking care of Phil, plan the events to ensure that the annual tradition of Groundhog’s Day continues.

The Punxsutawney Groundhog Club’s website is well worth the visit. You can learn about Phil, the history of Groundhog’s Day, the Club, its Inner Circle, events surrounding the holiday, visiting Punxsutawney and so much more.

The care of a groundhog, and throwing a party with 20,000 people, is not without its risks (especially when there is a bonfire involved and the people in attendance are referred to as “revelers” -- so you know what that probably means). Not to mention that Punxsutawney Phil is a bona fide celebrity. No doubt he has moments when the paparazzi have gotten the best of him or he has grown tired of people asking him for a weather forecast (and thinking that they are the first one to have thought of that). What’s more, as a celebrity, he probably thinks that the rules don’t apply to him and he can engage in whatever bad behavior he wants without consequence. He is probably the Justin Bieber of groundhogs.

And in our litigious society it is possible to imagine Phil being sued for consequential damages arising out of a wrong prediction. I can see Phil predicting an early Spring, he gets it wrong and is then sued by someone who planned an outdoor wedding in reliance on his forecast.

If you don’t think that there are risks associated with weather predicting groundhogs and its related holiday, consider that New York City Mayor Bill De Blasio celebrated Groundhog’s Day this year with Long Island Chuck. As the Mayor held Chuck, the groundhog squirmed out of his hands and plopped right to the ground (reportedly uninjured). And don’t forget that five years ago Chuck bit New York Mayor Michael Bloomberg.

To see how the Punxsutawney Groundhog Club handles the risks associated with Phil and its annual celebration I reached out to the Club and was provided with answers to my questions by past President Bill Cooper and now Wind Warden of the Inner Circle. Here is our email exchange:

How much life insurance does Phil have?
Phil is 128+ years old and shows no signs of aging and just like his human brothers just has not bothered with obtaining life insurance.

Does the Club maintain insurance in case Phil, perhaps in a bad mood, takes a little nip out of one of his admirers?
Oh yes! The Inner Circle is well covered if Phil would show a little bad behavior. We are very careful to avoid those opportunities.

Has Phil ever decided to see what one of his admirers tastes like?
Admirers no, but I cannot say the same about his Inner Circle members, we have the scars to prove it!

Has Phil ever brought legal action against any weather predicting groundhog imposters?
Everyone, or in this case every groundhog, is entitled to their opinion. We will let the people decide who they want to follow.

Is there homeowner’s insurance on Phil’s burrow?
No such coverage, however his zoo is fully insured.

How does the Club address insurance and risk issues for Gobbler’s Knob on the big day?
One of our Inner Circle members is an attorney and one owns an insurance agency. They make sure we our fully covered with the necessary liability insurance.

My thanks to Bill Cooper for taking the time to educate Coverage Opinions readers on groundhog risk management.

 
 
 


Vol. 3, Iss. 3
February 12, 2014


Insurer Misplaces DJ Complaint:
Supreme Court Upholds Default Judgment (National Case Of First Impression)


Some coverage cases involve really unique issues. The South Carolina Supreme Court’s opinion in White Oak Manor, Inc. v. Lexington Ins. Co., No. 27351 (S.C. Jan. 15, 2014) is one of them. I believe that it is the first case nationally to ever address a certain issue. [I did not research this to the ends of the earth but I’m fairly sure that it is.]

So, on one hand, White Oak Manor’s uniqueness makes it worthy of note. On the other hand, if the issue is so unique, then a reasonable alternative response to the decision may be that it’s really not very important. My take when confronted with these competing schools of thought is that the former prevails. If nothing else, if you find yourself on the elevator, with a colleague that you have nothing to say to, you can now pipe up with – Hey, did you see that really unique decision from the South Carolina Supreme Court?

White Oak Manor arose like this. White Oak Manor, Inc. owned and operated a nursing home. A resident filed a lawsuit against the nursing home after sustaining injuries from the improper replacement of a feeding tube. White Oak ultimately settled the lawsuit, without the involvement of its insurer, Lexington, and then filed a declaratory judgment action against Lexington to determine coverage for the malpractice claim.

The Lexington policy contained a service-of-suit clause which provided: “It is further agreed that service of process in such suit may be made upon Counsel, Legal Department, Lexington Insurance Company, 200 State Street, Boston, Massachusetts 02109 or his or her representative, and that in any suit instituted against us upon this Policy, we will abide by the final decision of such court or of any appellate court in the event of any appeal.”

Following this policy provision, White Oak served Lexington by mailing the summons and complaint by certified mail, return receipt requested, to the address specified. According to the return receipt, service was accepted on May 20, 2005 and signed for by a Thomas W. Dinam. Lexington failed to respond within thirty days and a default judgment was entered. White Oak then amended its complaint, alleging that Lexington was in default and moved for damages. It again served the amended summons and complaint on Lexington by mail.

Lexington filed an answer and a motion to set aside the default judgment. Among other reasons for setting aside the default, Lexington argued that service on an insurance company could only be effectuated pursuant to a South Carolina statute, which requires that service of process be through the Director of the Department of Insurance and any contrary contractual provisions were invalid.

Lexington also argued that, “even if White Oak legally served it pursuant to the contract, service was nevertheless ineffective because White Oak did not substantially comply with the contractual provisions. In particular, Lexington noted that although it had documentation that it received the summons and complaint, it had no record of an employee named Thomas W. Dinam, and he was neither counsel nor counsel's ‘representative.’ Furthermore, Lexington argued good cause existed to set aside the default.”

The trial court held that Lexington and White Oak contractually agreed to another means of service and, therefore, service through the Director was not required. The court of appeals reversed, holding the service of suit clause did not absolve White Oak of the responsibility to comply with the statutory requirement that it deliver two copies of its summons and complaint to the Director of the Department of Insurance in order to serve process on Lexington.

The issue went to the South Carolina Supreme Court, which held: “We therefore cannot agree it was the intent of the legislature to circumvent the long-standing rule that service can be consented to by the parties or waived entirely. Service of process is intended to provide notice and obtain personal jurisdiction, and Lexington designated in its policy a method for an insured to accomplish both those goals. We hold Lexington is bound by its own policy’s terms. We reject the notion that the statute is intended to allow an insurance company to prescribe a method of service in its policy and then declare its own provision invalid under [the statute]. We have previously interpreted insurance service statutes as ‘designed by the legislature to provide a simple and easy method of obtaining jurisdiction over a foreign insurance company.’ Thus, their purpose is to provide an insured with a method to obtain service of process on insurance companies; it is not to serve as a shield for insurance companies, protecting them from their own policy terms.” (emphasis in original).

The Supreme Court also rejected the argument that service was ineffective because the word “counsel” was not used in the address, as specified in the policy’s service of suit provision: “We find the circuit court did not abuse its discretion in holding White Oak substantially complied with the service-of-suit clause. The communication was directed to the legal department, and the mere omission of the word ‘Counsel’ in the address did not render service ineffective.”

Lastly, Lexington argued that “it replied promptly after discovering the default, it presented evidence of a meritorious defense, and White Oak would suffer no prejudice if the relief was granted.” However, the Supreme Court refused to set aside the default judgment for good cause: “The circuit court acted within its discretion in concluding that losing a complaint was not a satisfactory explanation for failing to timely respond.”

 


Vol. 3, Iss. 3
February 12, 2014


No “K2” Mountain To Climb:
Circuit Court Of Appeals Does Not Penalize Insurer For Breaching The Duty To Defend


Lately I’ve seen a trend in courts harshly penalizing insurers for breaching the duty to defend – and in situations where the breach was not in bad faith. Of course there is going to be some consequence for insurers that are found to have breached their duty to defend. I’m talking here about consequences that go above and beyond what you usually see in such scenarios.

For example, in 2013, the Missouri Supreme Court held in Columbia Casualty Company v. Hiar Holdings, LLC that, if an insurer breaches its duty to defend, its obligation to indemnify the insured includes the portion of the insured’s settlement amount that exceeds the policy’s limits of liability. Last year, in K2 Investment Group, LLC v. American Guar. & Liab. Ins. Co., New York’s top court held that an insurer, that wrongfully failed to defend its insured, lost the right to rely upon policy exclusions for purposes of determining its indemnity obligations. [Re-argument granted.]

The Pennsylvania Superior Court’s 2013 decision in Babcock & Wilcox Company v. American Nuclear Insurers did not involve a breach of the duty to defend (the insurer was defending). However, the court changed the equation concerning an insurer’s duty to defend. The court held that an “insured may decline the insurer’s tender of a qualified defense [read as, defense under an ROR] and furnish its own defense, either pro se or through independent counsel retained at the insured’s expense. In this event, the insured retains full control of its defense, including the option of settling the underlying claim under terms it believes best. Should the insured select this path, and should coverage be found, the insured may recover from the insurer the insured’s defense costs and the costs of settlement, to the extent that these costs are deemed fair, reasonable, and non-collusive.” [Appeal granted, but not on this issue.]

And just last week the Fourth Circuit held in Graham v. National Union that an insured can present evidence of aggravation and inconvenience suffered in connection with seeking damages for a breach of its insurer’s duty to defend.

One day after Graham was decided the Eleventh Circuit also addressed what happens when an insurer breaches the duty to defend. Here the court did not saddle the insurer with any consequences – other than the most basic -- for breaching the duty to defend.

Nationwide Mutual Ins. Co. v. Sharif, No. 13-11151 (11th Cir. Feb. 4, 2014) (Alabama law) involved a duty to defend issue under the following tragic circumstances. Moshen Musa, age sixteen, worked at Bashir Abdosale Mohammed’s grocery store. Musa and Tawfiq Ahmed Sharif were standing in the cash-register area of the store near closing time. Mohammed stored a pistol under the cash register for protection. Musa and Sharif each handled the pistol, mistakenly believing it to be unloaded. While Musa was handling the pistol it discharged and killed Sharif.

Sharif’s estate sued Musa and Mohammed in state court. Nationwide declined to defend them because it believed that the employment exclusion applied. Sharif asserted two alternative sets of claims, the first assuming that Tawfiq was not an employee of Bashir’s and the second assuming that he was. Prior to trial, Musa and Mohammed moved to dismiss the second set of claims due to a lack of evidence that the decedent was an employee of Bashir’s. The court granted the motion. The court conducted a bench trial and ultimately entered a joint-and-several judgment against Musa and Mohammed in the amount of $950,000. Now in federal court, after Nationwide filed a coverage action, Sharif sought to recover this judgment from Nationwide.

The district court ordered a bifurcated trial to first decide whether Nationwide was liable under the policy. If so, the question would be whether Nationwide handled Bashir’s claim in bad faith. The jury found that Nationwide breached the policies by failing to defend Musa and Mohammed in the state liability action. However, the jury also found that the employment exclusion eliminated any duty to indemnify. The jury awarded Musa and Mohammed $9,000 in compensatory damages -- the cost of their defense in the liability action. Musa and Mohammed filed a motion for judgment as a matter of law, arguing that it was inappropriate for Nationwide to attempt to prove that Sharif was an employee of Bashir’s in light of the state court’s contrary finding. The district court denied the motion and found collateral estoppel inapplicable because “the privity element had not been established.” A determination was also made that Nationwide’s breach of the duty to defend was not in bad faith.

The case proceeded to the Eleventh Circuit, which addressed the privity issue: “Nationwide was not a party to the state-court action, which involved only [Musa and Mohammed[ on one side and Sharif, as administrator of the decedent’s estate, on the other. [Musa and Mohammed] must therefore show that they and Nationwide were in privity. The test for determining if two parties are in privity focuses on identity of interest. Nationwide’s interests were not identical to [Musa and Mohammed] on the issue of the decedent’s employment status because a finding that the decedent was employed by Bashir’s would trigger the employment exclusion and eliminate Nationwide’s duty to indemnify. In this way, Nationwide’s and [Musa and Mohammed’s] interests were opposed rather than identical. Thus, [Musa and Mohammed] cannot show they were in privity with Nationwide with respect to the coverage action, and collateral estoppel is not appropriate.” (citations and internal quotes omitted).

Musa and Mohammed also cited numerous authorities for the proposition that Nationwide, having refused to fulfill its duty to defend them in the liability action, should now be bound by the findings rendered in that proceeding in a subsequent action for coverage. However, the Eleventh Circuit noted that the Supreme Court of Alabama has rejected such a rule. The appeals court stated: “The cases [Musa and Mohammed] cite concern an insurer’s attempt to prove in a coverage action that the insured was not liable in the first place after having failed to assert this argument on the insured’s behalf in the underlying liability action. . . . In the instant case, Nationwide did not attempt to prove [Musa and Mohammed] were not liable for the decedent’s death. Rather, Nationwide sought to prove that the policies do not cover such liability because of the applicability of the employment exclusion. Accordingly, [Musa and Mohammed’s] argument is without merit.

In summary, Nationwide breached the duty to defend (but not in bad faith). It was obligated to pay the $9,000 that its insureds incurred to defend themselves. Nationwide was then not precluded from raising a coverage defense for purposes of the determination of its indemnity obligation – even when the fact issue concerning the coverage defense had been decided the other way in the liability action. Needless to say, courts vary in how they respond to insurers’ breaches of the duty to defend.

 


Vol. 3, Iss. 3
February 12, 2014


Lips-ky Sealed: Pennsylvania Supreme Court’s Quiet Decision
Court Addresses Whether Emotional Injury Is “Bodily Injury” –
But How Would You Know?


The Pennsylvania Supreme Court does not hear very many cases involving liability coverage issues. So when it agrees to take one it is usually a big deal in Keystone State coverage circles. The appeal is closely watched, the decision eagerly anticipated and when it finally comes discussion of it follows. But Lipsky v. State Farm, a recent decision from Pennsylvania’s top court, did not get this kind of treatment. While the case did not go unnoticed, it certainly flew under the radar compared to the attention that other Supreme Court coverage cases attract. This is especially unfortunate when you consider that the issue was an important one – whether emotional injury qualifies as “bodily injury.” More about this below.

It is not hard to figure out why Lipsky played out this way. First, the Pennsylvania Superior Court’s (intermediate appellate court) decision in Lipsky was non-precedential and unpublished – as in, not even available on Westlaw unpublished (which is often-times not the case for many states’ unpublished opinions). Right there Lipsky never attracted the kind of attention that even Superior Court coverage decisions get. So when the Supreme Court agreed to hear the case it also didn’t come with much fanfare. Then, creating the perfect storm for keeping Lipsky out of the spotlight, the Supreme Court announced that the Justices eligible to vote were equally divided. As a result, by operation of law, the Superior Court’s decision was affirmed and there was no Supreme Court opinion issued. Once again Lipsky will be MIA on Westlaw.

At issue in Lipsky was the all important question whether emotional injury qualifies as a sufficient injury for purposes of triggering “bodily injury” coverage. While the issue arose in the context of an automobile policy, the decision is applicable to general liability policies. [When it comes to this issue, courts nationally treat automobile and liability policies interchangeably.]

Pennsylvania was sorely in need of a high court decision on this issue. The existing Pennsylvania cases were a hodgepodge of federal and state decisions. While many courts nationally hold that emotional injury, when accompanied by physical manifestation, qualifies as “bodily injury,” there was some case law stating that Pennsylvania was not willing to go so far. If not, Pennsylvania would have probably offered the narrowest view of coverage nationally on this issue. Many state supreme courts have addressed this issue. An authoritative voice on the question was overdue in Pennsylvania.

The Pennsylvania Superior Court in Lipsky addressed coverage, under a tortfeasor’s automobile policy, for “bystander” emotional distress sustained by the Lipskys upon witnessing a family member being struck and killed by an automobile. The tortfeasor was insured under a State Farm automobile policy. The Lipskys filed a complaint seeking a declaration that the emotional distress of each Lipsky plaintiff constituted an original “bodily injury” under the State Farm policy, qualifying for the $100,000 “each person” limit -- subject to the aggregate limit of $300,000 for “each accident.” This is a common scenario in which this issue arises.

The State Farm policy defined “bodily injury” as follows: “bodily injury to a person and sickness, disease, or death which results from it.” State Farm argued that “the clarity of this common sense definition is apparent when read against other defining sources such as Black’s Law Dictionary, which defines bodily injury as ‘physical damage to a person’s body,’ and several Pennsylvania cases distinguishing between emotional and physical injuries in the process of interpreting similar policies to exclude emotional distress from the ‘bodily injury’ definition.”

The Pennsylvania Superior Court disagreed: “Here, the Lipskys’ underlying complaints plead no list of specific physical manifestations of their emotional distress. They do, however, allege ‘physical complaints’ in their complaint for declaratory judgment and, in their original civil complaint, indicate under the [negligent infliction of emotional distress] cause of action that they ‘continue to suffer emotional distress and mental anguish all to their great detriment and loss’ in their original civil complaint. It is incomprehensible under these circumstances that one could suffer great detriment and loss from having witnessed the sudden and unexpected death of a minor child or brother at the hands of a drunk driver absent immediately debilitating, physical manifestations recognized in the common law.” The Superior Court held: “[T]he Lipskys’ claims of ‘physical complaints’ and ‘great detriment and loss’ from their mental and emotional anguish bring their [negligent infliction of emotional distress] claims within the ambit of the ‘bodily injury to a person’ definition for ‘bodily injury’ in the State Farm policy.”

This was no easy case for the Superior Court as there were also concurring and dissenting opinions. In other words, there were three judges and three opinions issued. I was hopeful that the Supreme Court’s opinion in Lipsky would have clarified some of this back and forth between the three opinions. But, as noted above, since the Supreme Court Justices eligible to vote were equally divided, the Superior Court’s decision was affirmed by operation of law and there was no Supreme Court opinion issued.

So without much fanfare, Pennsylvania now has much needed Supreme Court authority on the question whether emotional injury qualifies as a sufficient injury for purposes of triggering “bodily injury” coverage. Pennsylvania has now joined the majority of courts nationally that hold that emotional injury, when accompanied by physical manifestation, qualifies as “bodily injury.”

 


Vol. 3, Iss. 3
February 12, 2014


Supreme Court To Insurers: SIR You Listening?
Examine Your Self-Insured Retention Provisions


It is natural for insurers to look at coverage decisions and consider whether they call for any changes to their own policies. But, as a practical matter, only some decisions (or trends of decisions) can serve as a catalyst for amendments to policy language.

Insurers that issue policies with a self-insured retention understandably have a lot invested in the language of their SIR provisions – especially to the extent that they address how to determine whether the retention has been satisfied. The Florida Supreme Court’s decision in Intervest Construction of Jax, Inc. v. General Fidelity Ins. Co., No. SC11-2320 (Fla. Feb. 6, 2014) addresses this issue. Given the importance of such a provision, and the court’s analysis, Intervest may be one of those decisions that is important enough for insurers to review with an eye toward their own policies.

Cases involving SIRs can be complex. But Intervest involves a commonly seen and easy to understand fact pattern. That’s another reason why the decision is important. I’ve always had a sense that complex decisions, involving unique and hard to follow facts and complex issues, are less likely to be considered by other courts looking for guidance.

Intervest arose under these familiar circumstances. Katherine Ferrin, the owner of a residence constructed by ICI Homes, fell while using attic stairs installed by Custom Cutting. The contract between Custom Cutting and ICI contained an indemnification provision requiring Custom Cutting to indemnify ICI for any damages resulting from Custom Cutting’s negligence. Ferrin filed suit against ICI but did not file suit against Custom Cutting. ICI sought indemnification from Custom Cutting under the terms of the subcontract.

Custom Cutting maintained a commercial general liability policy with North Pointe Insurance. ICI was insured by General Fidelity under a policy that was subject to a $1 million self–insured retention. The SIR endorsement stated that General Fidelity would provide coverage only after the insured had exhausted a $1 million SIR.

ICI, Custom Cutting, North Pointe, General Fidelity and Ferrin participated in a mediation. The parties agreed to a $1.6 million settlement. North Pointe agreed to pay ICI $1 million to settle ICI’s indemnification claim against Custom Cutting. ICI paid the $1 million to Ferrin. Left at issue was whether ICI or ICI’s insurer, General Fidelity, was responsible for paying Ferrin the remaining $600,000. Putting aside lots of steps, the case made its way to the Supreme Court of Florida, on questions certified by the Eleventh Circuit. This is a not uncommon procedure by the Eleventh Circuit in coverage cases. It is the “Go ask your mother” of judicial decision making.

The crux of the issue was this. As ICI saw it, General Fidelity was obligated to pay the remaining $600,000 because Custom Cutting/North Pointe’s contribution of $1 million to settle ICI’s indemnification claim, which was then passed on to Ferrin, satisfied the SIR obligation in the policy. General Fidelity saw it differently. It argued that North Pointe’s $1 million payment, to settle the indemnity claim, did not reduce the SIR because the payment originated from Custom Cutting, not ICI. Therefore, as far as General Fidelity was concerned, the terms of the policy required ICI to pay the additional $600,000 to settle Ferrin’s claim.

The decision is somewhat lengthy and provides more detail than can be addressed here. But here’s the upshot. The SIR provision in the General Fidelity policy stated such things as the following: “We have no duty to defend or indemnify unless and until the amount of the ‘Retained Limit’ is exhausted by payment of settlements, judgments, or “Claims Expense” by you.” “The ‘Retained Limit’ will only be reduced by payments made by the insured.” “The payment of the ‘Retained limits’ by the insured is a condition precedent for our obligation to pay any sums either in defense or indemnity and we shall not pay any such sums until and unless the insured has satisfied its “Retained limits.’”

The court looked at several California decisions for guidance. It compared the language of the SIR contained in the General Fidelity policy with the SIR provisions in those cases. In one California case, the SIR provision expressly stated that, regardless of other insurance, the insured would continue to be responsible for the full SIR before the limits of the policy applied. In another of the California cases, the SIR endorsement required the named insured to “make actual payment” of the SIR amount and expressly provided that “[p]ayments by others, including but not limited to additional insureds or insurers, do not serve to satisfy the self-insured retention.” And in still another, the “other insurance” provision required the insured to pay all amounts within the retained amount “from its own account.”

As the Florida Supreme Court saw it in Intervest, there was no similar language or provision contained in the General Fidelity policy: “The language of the instant [General Fidelity] policy states that the retained limit must be paid by the insured, but does not specify where those funds must originate. Requiring payment to be made from the insured’s ‘own account’ is not necessarily the same as requiring that it be paid ‘by you.’” Accordingly, the Florida high court held that the General Fidelity policy allowed the insured to apply indemnification payments received from a third party toward satisfaction of its $1 million self-insured retention.

Insurers that issue policies with a self-insured retention have a lot of interest in how such policies proscribe the manner for their exhaustion. The moral of Intervest is clear. When making that determination, fine point distinctions in policy language can dramatically alter the outcome of this all-important issue. Intervest provides insurers with food for thought for considering whether their self-insured retention provisions – even if they think they are clear – are clear enough.