Home Page The Publication The Editor Contact Information Insurance Key issues Book Subscribe
 
Coverage Opinions
Effective Date: May 31, 2016
Vol. 5 - Issue 6
 
   
 
   
Or
 
Click The Title Of The Article To Read It.
 
 

Declarations: The Coverage Opinions Interview With Brendan V. Sullivan, Jr.
In 1987, nearly three-quarters of the United States watched on television as Brendan Sullivan represented Oliver North in the Iran-Contra hearings. Thirty years later the “Best Counsel Available” in Washington and D.C.’s “Toughest Lawyer” is still sitting next to clients in the government cross-hairs.

Randy Spencer’s Open Mic
Selfie Stick Injury: Insurer Writes Policy Covering Cell Phone Mishaps
Cross This Off One Comedian’s Bucket List

Congratulations Lauren Kelly: The Key To “Insurance Key Issues” 3d

Trump Puts “Most Important Liability Insurance Judge In America” On His List Of Potential Supreme Court Picks

The Four Questions: Why Is This Coverage Lawyer Different From All Other Coverage Lawyers?
David A. Gauntlett: Dean Of The “Coverage B” Bar

Starbucks Sued For Too Much Ice In Its Drinks

I’ve Never Seen This Before: Court Disallows Insured’s Personal Counsel: Could “Slant” Cases…Toward Coverage

Homer Simpson Moment: D’oh -- $30 Million -- What Could Have Been

U.S. Supreme Court – Yes SCOTUS – Asked To Hear A Bad Faith Failure To Settle Case

Judicial Disqualification: Crazy Facts In A Coverage Case

Common Law Marriage And Coverage (And Best Line Ever In A Coverage Case)

Must Read: What Drove This Appeals Court To Find Bad Faith Failure To Settle?

A Who’s Buried In Grant’s Tomb? Coverage Case

Unique “Claims Made” Case: Is A PowerPoint Presentation A “Claim?”

Tapas: Small Dishes Of Insurance Coverage
· Arkansas Supreme Court: Even Consequential Damages Do Not Make Faulty Workmanship An “Occurrence”
· Colorado Supreme Court: No Prejudice Needed For Voluntary Payment Disclaimer

 
 
Back Issues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 


Vol. 5, Iss. 6
May 31, 2016

Cross This Off One Comedian’s Bucket List

Meeting the legendary Jackie Mason backstage
at his Philly show in May.

 
Selfie Stick Injury: Insurer Writes Policy Covering Cell Phone Mishaps
 

Sometimes it seems as if there’s insurance for everything. Policies exist for a golfer making a hole-in-one, a wedding catastrophe and, so they say, Liberace’s hands were insured. When new bad things happen, or threaten, the insurance industry always seems to be right there with products designed to spread the risk. A few cases of Ebola not long ago -- boom, welcome Ebola insurance. Planes might fall out of the sky at midnight on January 1, 2000? Fear not. Here’s your Y2K policy. And as new technologies are developed, insurers respond with policies designed to protect against mishaps. Not long after drones began showing up under Christmas trees, drone insurance rained down. Pot is legal in some places. Many are doobie-ous that that can be done safely. The insurance industry rolled out marijuana policies.

So, on one hand, it comes as no surprise that an insurer is offering a policy designed to cover the risks of using a cell phone. But wait, cell phones have been around for a very long time you say. Nothing bad happens from using them. Who needs insurance? What’s the biggest risk of using a cell phone? Losing it? Dropping it?

Maybe that used to be the case – back in the day when cell phones had just one purpose. But as cell phones do more and more things, they are out of our possession for less and less time. Did you see that new app that makes really good guacamole? The more we use cell phones, the greater the risk of unintended consequences. Seeing an opportunity, enter CellRisk with its “Cellular Technology Legal Liability and First Party Policy.”

I got my hands on CellRisk’s policy form. It offers coverage for many types of risks associated with using a cell phone – a few of which I never even thought of. No doubt some of the coverages are likely available on existing policies, such as homeowners and health. But even if that’s the case, CellRisk touts in its promotional materials that its policy may offer higher limits than these others. Not to mention that, according to CellRisk, an insurer that issued a more traditional policy may balk at paying a claim with which it is unfamiliar.

Consider these coverage available from CellRisk under its Cellular Technology Legal Liability and First Party Policy:

Bodily Injury To Others Caused By a Selfie Stick. The insurer will defend and pay up to $250,000 for bodily injury to others caused by an insured’s use of a selfie stick. I guess those things can be dangerous. Think of it as “Put that thing down before you poke someone’s eye out” insurance.

Bodily Injury to the Insured While Taking a Selfie. It seems crazy, but the news is full of stories about people injured, even killed, while taking a selfie. The policy pays medical expenses up to $500,000, and a death benefit of $1,000,000 (less any medical expenses paid), if an insured is injured or killed while taking a picture of themselves (being injured or killed).

Humiliation. The insurer will pay $100,000 to an insured who, on account of inattention while staring at their cell phone, falls into a fountain or walks into a wall, and a video of it appears on the internet and goes viral. The policy contains a complex explanation of what it means to “go viral.” Rife for dispute I might add.

Bodily Injury to Others While Using a Cell Phone. The insurer will defend and pay up to $250,000 for bodily injury to others caused by an insured’s inattention while staring at their cell phone. No more worries about knocking over an elderly and infirm person while texting.

Quiet Car Injury. The insurer will pay up to $250,000 for injuries sustained by an insured, in an altercation, on account of the insured’s use of a cell phone on a train’s Quiet Car.


That’s my time. I’m Randy Spencer. Contact Randy Spencer at

Randy.Spencer@coverageopinions.info

 

 

 

 


Vol. 5, Iss. 6
May 31, 2016

Congratulations Lauren Kelly: The Key To “Insurance Key Issues” 3d

 

Jeff Stempel and I wrote the bulk of the 3rd edition of General Liability Insurance Coverage – Key Issues In Every State between the spring and fall of 2014. That summer I had the good-fortune to have help with my responsibilities.

Lauren Kelly, fresh off her first year at Villanova Law School, spent eight weeks as my Research Assistant. Day in and day out she did research to identify new coverage case law decided since the time of the second edition. Lauren also had the unenviable task of converting the gazillion Westlaw cites in the 2nd edition to Lexis form. [Lexis had acquired the electronic rights to the 3rd edition and part of the deal was that I’d make the citation changes.] Much about Lauren’s job was tedious – more than I could have handled. But she never complained (at least not to me) and did an amazing job.

Jeff and I were very pleased with how the 3rd edition of Insurance Key Issues turned out. Much credit for that goes to Lauren Kelly and her painstaking research and writing. Lauren’s days as a law student are now over. She graduated from Villanova on May 13. I can’t believe it. It seems like just yesterday that we were sitting in my office discussing new pollution exclusion decisions. Congratulations to Lauren on this wonderful accomplishment!

 

I’ve prepared Lauren well for the next phase in her legal career. After converting all of those Westlaw cites to Lexis, document review will seem exciting.

General Liability Insurance Coverage – Key Issues In Every State

See for yourself why so many find it useful to have, at their fingertips, a nearly 800-page book with just one single objective -- Providing the rule of law, clearly and in detail, in every state (and D.C.), on the liability coverage issues that matter most.

www.InsuranceKeyIssues.com

Get the 3rd edition here www.createspace.com/5242805 and use Discount Code NTP238LF for a 50% discount.

 

 


Vol. 5, Iss. 6
May 31, 2016

Trump Puts “Most Important Liability Insurance Judge In America”
On His List Of Potential Supreme Court Picks

 

 

As was widely-reported, on May 18 Donald Trump released a list of eleven judges who he would consider for the U.S. Supreme Court -- if presented with such task. The list included Justice Don Willett of the Supreme Court of Texas.

Justice Willett is well-known nationally as a grand master on Twitter. With over 49,000 followers he is easily the number one most popular tweeting judge. That’s a staggering number of followers for anyone, let alone a judge. Willett’s Twitter accomplishments include a formal recognition, by the Texas House of Representatives, as a “Tweeter Laureate,” for his “lively and engaging presence on Twitter.” [Willett is also a tremendously talented writer. I read his opinions even if they have nothing to do with insurance. And I usually read nothing that has nothing to do with insurance.]

Willett’s Twitter feed is one of only a handful that I never fail to read. There’s a reason why he has so many followers. His tweets are, well, just that good. I could try to explain why, but I’d do a bad job of it. To really appreciate Willett’s gift for this social media platform you need to go to @JusticeWillett and see for yourself. My personal favorites are the ones related to his enormous-Texas pride. Justice Willett has even tweeted a few things from Coverage Opinions, which is always very flattering.

 

I had the privilege of doing a Q&A with Justice Willett for the May 7, 2014 issue of Coverage Opinions. His Honor was very kind and generous with his responses. Check it out here http://coverageopinions.info/Vol3Issue8/Declarations.html. At that time Justice Willett was already widely-known for his Twitter presence – and had just 5,500 followers. [It’s simply amazing what happens when someone does a Q&A in Coverage Opinions. I just don’t get why people say that proximate cause is such a hard concept to grasp.]

Also in the May 7, 2014 issue of CO I did a separate story spilling 1,600 words why I believe that Justice Willett is the most important liability insurance judge in America. It was obviously a non-scientific conclusion, but I undertook a lot of analysis in reaching it. Check it out here. http://coverageopinions.info/Vol3Issue8/JusticeDonWillet.html

Of course, being the most important liability insurance judge in America is of no value on the U.S. Supreme Court. It’s like being the best figure skater in the Sahara. But imagine if it were. Would a candidate’s positon on the pollution exclusion be a litmus test for being confirmed?

 
 
 
Vol. 5, Iss. 6
31 May, 2016
 
 


David A. Gauntlett: Dean Of The “Coverage B” Bar

David Gauntlett, of Gauntlett & Associates in Irvine, California is the Dean of the “Coverage B” Bar. While no Blue Ribbon panel was convened to reach that conclusion, sometimes one isn’t needed. He just is. For over three decades, David has been litigating cases, for policyholders, involving coverage for intellectual property and various types of personal and advertising injuries. He has been lead counsel in such cases pending in over 30 states. When I see a Coverage B decision, the first thing I do is to check to see if David represented the policyholder. And so often he did. A Westlaw search: “personal or advertising w/5 injury and Gauntlett” returns an incredible 148 results. And some are precedent-setting.

The 1979 graduate of Boalt Hall School of Law, University of California at Berkeley, is a nationally recognized speaker and has been an adjunct professor at Boalt Hall, where he taught “Insurance Coverage for Intellectual Property, Antitrust and E Commerce.” David is also the author of numerous articles as well as the treatise “Insurance Coverage of Intellectual Property Assets.”

David was kind enough to answer four questions about his long time on the front lines of Coverage B. He touches on the history of coverage for intellectual property and various types of personal and advertising injuries, how he got started, some of his most significant cases and issues that he sees on the horizon.

1. The Obvious Question – What Led You in the Direction to Focus on Intellectual Property and Part B Coverage Cases?

It started with the 1976 ISO CGL policy, which included within its definition of the advertising injury offense “unfair competition” and “piracy.” That policy was drafted after the eight drafters took a Seaboard Surety policy, issued to advertising agencies, and added an exclusion for advertisers, broadcasters and publishers. Having accomplished that act, the eight drafters presumed that they had sufficiently limited its scope. None of the eight drafters were lawyers – none of them had any intellectual property litigation experience, or a sense of how those torts might interact with the policy they had drafted. It was sold for a 15 percent premium over cost.

Between 1986 and 2001, insurers made changes to policy language, substituting, adding or eliminating certain phrases relating to personal and advertising injury. As these changes were being made to Coverage B of the CGL policy over the years, I saw opportunities for coverage. A number of insurers, through a combination of redefinition and the inclusion of problematic phrases, sought to limit IP coverage. They have not, however, done so appropriately nor eviscerate the settled rule that a duty to defend one claim requires that the entire lawsuit be defended. Any significant reduction in coverage should be called to the insured’s attention. But that has not been true in this case. Such conduct runs afoul of state regulatory provisions such as that in New York Insurance Law section 3426(e).

For over a decade, few practicing had focused on the advertising coverage much less assessed its impact on intellectual property cases. Recall that until1984, when the Federal Circuit was created, there was very little high level litigation of IP torts by major law firms. Then, the Federal Circuit was created, and it became obvious that there was a value to patent litigation. Over time, IP firms grew from prosecution houses to litigation firms. Finally, they became absorbed into general practice firms, so the people with the expertise on the litigation end, which is where you need the expertise to think about the issue, became involved. Previously, IP firms had not focused on anything like the general business corporate situation, because they were boutique, specialty firms that did not have the expertise to deal with many other corporate issues. As for corporate counsel, they did not task personnel who dealt with IP litigation to investigate insurance, because it was not considered a big issue.

There has been a failure to combine the right practice elements. This is changing. Major law firms have coverage specialists; they also have antitrust and IP litigation groups, who now interact more. However, again, it remains interesting how disparate those elements are, and how few firms fuse those disciplines.

There isn’t a very large bar of policyholder attorneys who have the right background to litigate coverage issues for intellectual property cases, because you need to fuse those two disciplines. Most coverage attorneys have not litigated IP cases. IP attorneys may occasionally litigate a coverage case, but their coverage background tends to be isolated and, missing a few distinctions, they have often obtained disappointing results in litigation. Therefore, the results of policyholders have been uninspiring, given what the potential could have been, and still could be.

Certainly, the coverage results for patent claims has been disappointing; it is very difficult to procure under CGL policies. In trade secret misappropriation, there have been a couple of successful coverage cases, one from the Wisconsin Supreme Court, Fireman’s Fund Insurance Co. of Wisconsin v. Bradley Corp., 660 N.W.2d 666 (Wis. Sup. Ct. 2003), but often, it is because the court looks beyond the trade secret claim, and finds other elements of litigation that potentially implicate coverage.

The law in Wisconsin is the “four corners” rule, and the alleged taking of proprietary information was at issue. That was the core of the case, but one of the allegations also related to the taking of a design. The court said the allegations of the “taking of a design,” the misuse of the design, and the advertising based on the misuse of the design implicated coverage for “trade dress.” The court did not reach the issue of whether trade dress claims fell within the “misappropriation of style of doing business” coverage in the 1986 ISO form at issue, as there was separate coverage for trade dress as a form of trademark infringement coverage under the policy, which it found was broad enough to encompass trade dress.

This policy had a variant version of the 1986 ISO that included trademark infringement coverage – this happens on occasion. The court found there was a defense, and it did so by inferring that the misuse of the design would necessarily implicate a trade dress liability, even though trade dress, as a label for a count, had not been specifically pled. That is, by the way, how the law is supposed to work.

The Wisconsin Court of Appeal reversed, because it did not see that inference. Typically, whether a court finds a defense or not, is determined by how it views the inferences from the underlying allegations, as well as what law it applies. Obviously, if an insured has a better factual record from which to draw these inferences, by virtue of discovery that it propounded to the plaintiff, it has a better opportunity to argue the potentiality of coverage. Thus, it is always easier for the insured if the court considers facts beyond the pleadings.

2. What Are Your Most Satisfying Wins, in Terms of Difficulty of the Case, Dollars, Case Law Made and/or Whatever Other Criteria That You Use to Define Satisfying?

Aetna Cas. & Sur. Co. v. Watercloud Bed Co., Inc., No. SA CV 88-200 AHS, 1988 U.S. Dist. LEXIS 17572, 1988 WL 252578 (C.D. Cal. Nov. 17, 1988) (The first case nationally to find coverage for patent infringement lawsuit. The asserted claims could have involved advertising activity because the insured offered to sell infringing products triggering distinct liability for active inducement of patent infringement. The court found that there had not yet been an adjudication of willfulness so despite a prayer for such relief and or an award of treble damages a defense arose. Moreover, the insurer's motion for summary judgment on the duty to indemnify was not yet ripe.)

Union Ins. Co. v. Land & Sky, Inc., 247 Neb. 696, 529 N.W.2d 773 (Neb. 1995) (The first State Supreme Court to address coverage for patent infringement issues, concluded that the insured was entitled to a defense for claims of inducing patent infringement of a waterbed patent. Applying Nebraska law, it found that no public policy intruded to avoid coverage for claims of inducing patent infringement. It also found that piracy could encompass patent infringement and that a causal nexus could arise between claims of inducement and the insured’s advertising activities.)

Hewlett-Packard Co. v. CIGNA Property & Casualty Ins. Co., No. 99-20207 SW, 1999 U.S. Dist. LEXIS 20655 (N.D. Cal. Aug. 24, 1999) and Hewlett Packard Co. v. ACE Property & Casualty Co., No. C-99-20207 JW, 2003 WL 22126601 (N.D. Cal. March 4, 2003 and Hewlett Packard Co. v. ACE Property & Casualty Co., No. C-99-20207 JW, U.S.D.C. N.D. Cal. Nov. 23, 2003) motion for reconsideration denied. (Package inserts allegedly containing “fear, uncertainty and doubt” materials were advertisements. That the policy’s territory was broad enough to encompass claims filed in the U.S. so long as potential injury arose outside of the U.S. Extraterritorial advertisements of HP in the underlying action bore a causal relationship to false advertising claims against HP. False advertising as well as trade libel claims also fell within the policy’s coverage for the “advertising injury” offense of “unfair competition.” The court subsequently affirmed a special master award of over $50 million for defense fees and prejudgment interest to HP.)

Burgett, Inc. v. Am. Zurich Ins. Co., 830 F. Supp. 2d 953 (E.D. Cal. 2011) (Coverage for explicit disparagement was implicated by the false advertising claims in light of prior authority including E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F. Supp. 2d 1244, 1252-1253, N.D. Cal., 2008 [litigated by G&A]. Because Burgett represented to Samick [claimant] it was the only holder of the SOHMER trademark, potential coverage for implied disparagement arose. The trademark exclusion was of no moment because “while the underlying complaint does not explicitly state a claim of disparagement, the Court finds that the complaint could be amended to state a claim for the same.”)

TRAX, LLC v. Cont’l Cas. Co., No. 10-CV-6901, 2012 WL 3777042, 2012 U.S. Dist. LEXIS 123141 (N.D. Ill. Aug. 29, 2012) (After a three-day trial, Gauntlett & Associates obtained judgment against Continental Casualty Company, a CNA company, in the aggregate sum of $2,152,587.60 in principal and prejudgment interest - the entire amount sought - against an insurer that had refused to settle a copyright infringement/trade secrets infringement case against its insureds. Applying Virginia law, which the Court had earlier ruled was applicable and which, the Court asserted, required the insureds to allocate their settlement payment, the Court found the insureds' $1.95 million settlement amount was 100% allocable to the covered copyright claim, with 0% allocable to the non-covered trade secrets claim. The Court also found no portion of the settlement sum was allocable to dismissed insolvent co-defendants, or to the value of a software license recited in the settlement agreement.)

Michael Taylor Designs, Inc. v. Travelers Property Cas. Co. of America, 495 F. App’x 830 (9th Cir. 2012) (Ninth Circuit affirmed ruling concluding that implicit disparagement arises despite absence of express allegations denigrating another’s products in false advertising dispute).

General Star Indem. Co. v. Driven Sports, Inc., 2015 U.S. Dist. LEXIS 7966 (E.D.N.Y. Jan. 23, 2015) (Judge Joseph F. Bianco predicted that the New York court of appeals would follow the emerging trend represented by decisions in diverse state Supreme Court decisions in Illinois, Texas, Pennsylvania, Washington and other earlier decisions in refusing to allow recoupment of defense fees paid even if no potential for coverage ever arose.)

Mkt. Lofts Cmty. Ass’n v. Nat’l Union Fire Ins. Co., 2016 U.S. Dist. LEXIS 64014 (C.D. Cal. May 4, 2016) (Denying insurer’s motion for summary judgment based on findings that there was insufficient evidence to conclusively eliminate potential for coverage and a reasonable juror could find that the defendant failed to conduct an adequate investigation prior to denying coverage).

3. What Do See as Emerging Issues on the Intellectual Property and Part B Coverage Front (in addition to cyber)?


Lawyer/broker malpractice: Shaya B. Pac., LLC v. Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 A.D.3d 34 (N.Y. App. Div. 2006) (Legal malpractice arose where defense counsel failed to give notice to an excess insurer where it was evident that the demand for damages exceeded the commercial general liability policy limits. The defense counsel was insurer appointed counsel. The law firm retained by primary carrier to defendant’s insured in a pending action has an obligation to investigate whether the insured has excess coverage available. If so, it must file a timely notice of excess claim on the insured’s behalf. The appellate court reversed the trial court grant of a Motion to Dismiss.)

Patent plus: Concept Enters., Inc. v. Hartford Ins. Co. of the Midwest, 2001 U.S. Dist. LEXIS 6901 (C.D. Cal. May 22, 2001) (A duty to defend a trade dress infringement claim arose where it was asserted in conjunction with excluded claims causes of action for patent infringement, therefore implicating defense duties for the entire lawsuit. Hartford attempted to pay only 15% of the bills, based on its calculation of relative liability exposure for the covered trade dress re uncovered patent infringement claims. This approach was rejected by the court as inconsistent with the California Supreme Court’s Buss decision requiring an “immediate and complete defense” of all claims subject to right to reimbursement after performance. It concluded that any attempt to lessen the rate payable was unavailing under Civil Code § 2860 where less than all fees due were paid. The conduct constituted bad faith as a matter of law, entitling the insured to fees it incurred in its coverage dispute with Hartford.)

Trade secret plus: Jaco Envtl., Inc. v. Am. Int’l Specialty Lines Ins. Co., 2009 U.S. Dist. LEXIS 51785 (W.D. Wash. May 19, 2009) (JACO moved for partial summary judgment on the question of whether its insurer, American International Specialty Lines Insurance Company (“AISLIC”), breached its contractual duty to defend JACO in a lawsuit brought by one of JACO’s competitors for claims including unfair competition and false advertising.)

Trademark plus: Spaulding Decon, LLC v. Federated National Ins. Co. fka AVIC, Case No. 14-CA-011618 (Florida Circuit Court, Hillsborough County, July 10, 2015) (A Motion to Dismiss was denied where fact allegations for covered unfair competition alleged liability beyond the excluded trademark infringement.)

Class action suits in false advertising cases: Basic Research, LLC v. Admiral Ins. Co., 2013 UT 6 (Utah 2013): The Utah Supreme Court admitted that the ISO policy language could cover “misuse” of an advertising idea “including deceitful advertising,” “where the underlying injury is directly caused by the deceitful advertising, regardless of the product’s failure to perform.” But then the court said that “in the instant case the ‘use’ of the slogan is not the wrongdoing … Rather they claim damages due to the allegedly false nature of those slogans and the resulting inducement to by a defective product.”)

Insurance Coverage To Facilitate Coverage For Antitrust/False Advertising Cases: Am. Inst. of Intradermal Cosmetics v. Soc’y of Permanent Cosmetic Professionals, 2014 U.S. Dist. LEXIS 160395 (C.D. Cal. Nov. 14, 2014) (permitting filing of a Third Amended Complaint in an antitrust lawsuit. The new pleading asserted fact allegations of disparagement nested within Sherman Act claims in order to facilitate securing insurance coverage benefits for the ongoing settlement negotiations with the defendant’s insurers. Judge Feess found it noteworthy that it was only upon the receipt of the specific insurance policies “that Plaintiff could assess, with retained insurance coverage counsel, how to proceed with additional claims that would trigger coverage.”)

4. What Other Areas of Insurance Coverage Have You Focused on and Activities Have You Pursued to Keep Your Perspective on Coverage Issues Fresh?

Each year, our firm reinvigorates its insurance practice, focusing on new coverage opportunities as well as pushing the envelope in coverage areas where we have traditionally focused on “personal and advertising CGL coverage and other forms of coverage for intellectual property disputes.

For example, our focus includes:

• Class action antitrust litigation
• Class action false advertising lawsuits
• Wage and hour class action lawsuits looking to CGL policies, Omissions, Employment Practices Liability, Employee Benefits Liability and Directors and Officers policies

We also focus on business solutions that use insurance assets. Hence, the title of my treatise, “Insurance Coverage of Intellectual Property Assets,” 2d Ed., © 2015, Wolters Kluwer. These include:

• Helping companies structure appropriate insurance coverage for
- intellectual property claims
- antitrust and class action false advertising exposure
- Wrap policies for complex construction projects
- Trust insurance for high value estates
- Directors and Officers/Errors and Omissions insurance for medical technology and other high-risk perceived areas of practice

• Assisting companies with corporate due diligence related to deal-making and:
- Negotiating representations in warranty insurance in connection with deal-making
- Reviewing portfolios of insurance in connection with proposed M&A activity to unearth buried treasure, i.e., insurance coverage opportunities that the parties may have not surmised that can create value for whichever party in a particular transaction could benefit from the availability of defense/settlement/indemnity reimbursement

We undertake expert witness/consulting work for: “Legal malpractice lawsuits” for failure to provide timely notice to insurers and Errors and Omissions disputes regarding the scope of coverage in various forms of malpractice claims. We also represent Plaintiffs in securing coverage benefits in antitrust, intellectual property, employment, and other disputes

Finally, we have expanded the frontiers of insurance coverage availability by focusing on new areas of coverage, for cyber liability exposure, helping to identify appropriate coverages, taking advantage of existing coverage where cyberspace claims arise, and looking to new frontiers of coverage based on risks which have little footprint in liability coverage analysis, such as nanotechnology claims, virtual reality, and the interface between international and domestic insurance programs in a range of contexts.

As one underwriter at Lloyds referred to our firm’s practice, we are their “quality control department.” As a sage commentator observed, “we secure insurance coverage where everyone knows that it does not exist.”

 


Vol. 5, Iss. 6
May 31, 2016

Starbucks Sued For Too Much Ice In Its Drinks

 

I love Diet-Coke. I drink more of it than I should. And my wife is on my back about it. And she’d be even more so if told her the real amount that I drink. I much prefer the soda from a fountain than a bottle. And that’s because of the added enjoyment that comes from the ice. Sloshing it around in the cup. Sucking on it. Chewing it. It’s as much a part of the drink as the drink. But ice in a fountain drink can be a tricky thing. You want it – but not too much. Of course, when the fountain is self-serve, I am able to obtain my ideal ice to soda ratio. But when someone else is filling the cup -- all I can do is watch and hope for the best.

Starbucks recently landed in hot water over ice in its beverages. On April 27 the coffee giant was sued in Illinois federal court in a putative nationwide class action. Lead plaintiff Stacy Pincus says that Starbucks advertises its cold drinks by the ounce. However, on account of ice in its beverages, customers who order and pay for a drink receive “much less than advertised – often nearly half as many fluid ounces.”

[As an aside, speaking of Starbucks beverages, I have always marveled at the company’s genius. It’s an impressive feat to get your customers to call a size small drink a “tall.” I’m small. I don’t call myself tall.]

Ms. Pincus describes Starbucks’s scheme this way in her complaint:

22. Starbucks’ drinks are created according to a standard designed practice. For Cold Drinks, the standard practice is to fill the cup to the top black line with the Cold Drink liquid. [There is a picture in the complaint depicting an empty plastic Starbucks cup with three horizontal lines.] Large pieces of ice are then added to the top of the cup. For example, if a customer orders a Venti iced coffee or shaken iced tea Cold Drink, the Starbucks employee will pour iced coffee or tea into the cup up to the top black line, as represented by this picture: [Here there is a picture in the complaint depicting a plastic Starbucks cup half-filled with a dark liquid.]

23. After pouring the Cold Drink in the cup, the Starbucks employee will add large pieces of ice to the top of the cup. Starbucks employees fill Cold Drink cups with ice using pre-measured plastic scoopers, which escalate in size depending on the size of the drink. For example, a Starbucks employee uses a larger scooper to add ice to a Venti drink than they would to add ice to a Grande drink. [Different size ice scoopers? Really? That doesn’t seem necessary. I have to check for that.]

26. The top black line on the Starbucks Venti Cold Drink cup typically represents approximately 14 fluid ounces, as demonstrated below. Put another way, when a Starbucks employee fills a Venti Cold Drink cup to the top black line, they are only pouring about 14 fluid ounces of Cold Drink into the cup, not 24 fluid ounces. (emphasis in original). [In case you aren’t getting this, there is a picture in the complaint of a Pyrex measuring cup filled with fourteen ounces of a dark liquid.]


Ms. Pincus, on behalf of herself and every person in America who has purchased a cold drink at Starbucks between April 27, 2006 and today – man that’s a lot of people -- seeks damages (including punitive) from Starbucks for such things as breach of express warranty, breach of implied warranty of merchantability, negligent misrepresentation, fraud and violation of various consumer protection statutes.

Stacy Pincus is right and nobody can dispute it – you don’t get 24 ounces of beverage when ordering a 24 ounce cold drink at Starbucks. Ice is part of the deal. But every beverage buyer knows this going in. It’s an unwritten clause in the unwritten beverage contract. Starbucks isn’t trying to fool anyone. If you don’t like it, ask for your drink without ice.

The case is Stacy Pincus, individually and on behalf of all others similarly situated v. Starbucks Corporation, No. 16-4705, United States District Court for the Northern District of Illinois.


Vol. 5, Iss. 6
May 31, 2016

I’ve Never Seen This Before:
Court Disallows Insured’s Personal Counsel: Could “Slant” Cases…Toward Coverage

 

Courts have long been addressing whether an insured is entitled to independent counsel (i.e., not panel counsel), when its insurer is defending it under a reservation of rights. You know the drill. Insured says that the insurer must pay for independent counsel, since the complaint alleges both covered and uncovered claims, and if panel counsel is used he or she might “steer” the case toward a finding of liability for only the uncovered claims, since panel counsel wants to curry favor with the insurer, in hopes of receiving additional assignments. [I’m not sure how you actually “steer” a case in that way, especially without anyone noticing, but that’s neither here nor there.]

General Insurance Company of America v. Walter E. Campbell Co., No. 12-3307 (D. Md. May 12, 2016) offers the opposite version of this tale. Here the insured was not permitted to use personal counsel because he or she might steer the case -- toward covered claims. I’ve never seen this scenario before. That’s not to say the issue has never arisen. But, if it has, it’s eluded me.

Campbell involves coverage for asbestos bodily injuries. As is so often the case, it has been the subject of lengthy litigation and oodles of coverage issues. The one at hand came about because there was a settlement between Campbell and certain insurers. This resulted in two classes of insurers – Settled Insurers and Non-Settled Insurers.

On account of the settlement, Campbell was now required to participate in defense and indemnity to the same extent as Settled Insurers. But here’s the rub – only so-called “operations” claims were potentially covered under the Non-Settled Insurers policies. [The Non-Settled Insurers disclaimed coverage for “products and completed operations” claims.] At issue was how to handle the defense, between Campbell and the Non-Settled Insurers, of the “operations” claims.

The court concluded that, with Campbell having the largest share of the defense of the operations claims, it was appropriate for Campbell to take the lead in the defense – with certain qualifications.

Campbell unilaterally replaced its long-standing defense counsel, Flax and Spinelli, with the law firm of Morgan Lewis in over 570 pending asbestos suits. However, of note, Morgan Lewis was also representing Campbell in the coverage dispute. The Non-Settled Insurers viewed Morgan’s role, of both defense counsel and coverage counsel, as a clear conflict of interest. The Non-Settled Insurers advocated for the retention of Dehay & Elliston, a law firm with considerable experience defending asbestos cases in Baltimore where most of the cases are pending.

Now, back to those qualifications governing Campbell’s defense, here’s the money paragraph: “One of those qualifications is that [Campbell] cannot continue to retain conflicted counsel to defend these suits and, as long as it does so, Non-Settled Insurers shall have no defense or indemnity obligations with respect to those suits in which Morgan Lewis remains defense counsel. Given the long and protracted efforts of Morgan Lewis to pull cases into coverage under the Non-Settled Insurers’ policies, Morgan Lewis cannot also be placed into the position where it can slant the defense in a manner that could render the claims covered claims.” (emphasis added).

What’s good for the goose…


Vol. 5, Iss. 6
May 31, 2016

Homer Simpson Moment: D’oh -- $30 Million -- What Could Have Been

 

I can’t help but think that PNC Financial had a Homer Simpson “D’oh moment” at some point during the litigation in PNC Financial Services Group v. Houston Casualty Company, No. 15-1656 (3rd Cir. May 2, 2016). At issue before the Third Circuit was coverage for $102 million in settlements – Wow! -- of suits involving the manner in which PNC processed debit card and ATM transactions in order to maximize fees for overdrafts. Of particular interest here, the settlements included $30 million for plaintiff’s attorney’s fees. The court held that it was not covered. But could that outcome easily have been different?

Policies issued by two insurers provided coverage for “all Loss for which the Insured becomes legally obligated to pay on account of any Claim first made against the Insured.” “Loss” was defined as “Claims Expenses and Damages.” “Damages” was defined as “a judgment, award, surcharge or settlement ... and any award of pre- and post-judgment interest, attorneys’ fees and costs.”

However, the policies contained exceptions to the definition of “Damages,” including one for “fees, commissions or charges for Professional Services paid or payable to an Insured.” This was referred to as the Professional Services Charge Exception. For various reasons, not important here, the Third Circuit held that the Professional Services Charge Exception applied to preclude coverage for losses that constitute fees or charges. In reaching this conclusion, the federal appeals court affirmed the decision of the District Court.

However, the Third Circuit disagreed with one aspect of the District Court’s decision. The District Court had held that the approximately $30 million awarded to class counsel, as attorneys’ fees and costs, did not fall within the Professional Services Charge Exception. Rather, to the District Court, the amount awarded to class counsel for attorneys’ fees and costs fell within the definition of Damages, which included an “award of ... attorneys’ fees and costs.” Hence, this approximately $30 million represented PNC’s payment of class counsels’ attorneys’ fees and not a refund of fees or charges for Professional Services. Therefore, the District Court held that this amount did not fall within the Professional Services Charge Exception.

However, the appeals court did not see it this way: “PNC did not agree to pay a specific sum to settle the claims related to overdraft fees and additionally pay the attorneys’ fees ultimately awarded to class counsel. Instead, PNC and the class plaintiffs agreed that PNC would pay a lump sum to the class in order to settle their claims and that PNC would have no further obligation once it paid the lump sum. That some money from each common fund was subsequently paid to counsel upon order of the respective courts does not change the purpose of the funds—to resolve the class members’ claims for wrongly collected overdraft fees. Notably, the settlement agreements expressly provided that PNC’s obligation remained the same regardless of how much in attorneys’ fees, if any, the District Courts eventually awarded. Once the District Courts decided to award counsel fees, the parties agreed that the awarded fees and costs would be paid by ‘the plaintiff class as a whole rather than the defendant.’”

In other words, the Third Circuit explained: “[T]he approximately $30 million awarded to class counsel as attorneys’ fees and costs do not constitute an award of attorneys’ fee and costs that PNC was legally obligated to pay. Rather, PNC was legally obligated to pay $102 million to reimburse class members for charged overdraft fees, from which the class plaintiffs—not PNC—paid their attorneys approximately $30 million for their services. Accordingly, the entire $102 million in settlement payments constitutes a refund of fees or charges for Professional Services that class members paid to PNC and National City Bank, and as such, are excluded from coverage pursuant to the Professional Services Charge Exception.”

The implication of the Third Circuit’s decision seems to be that, if the $30 million in attorney’s fees had been structured differently in the settlement, i.e., characterized as a separate obligation of PNC, in addition to the amount that it was obligated to pay for reimbursement of overdraft fees, then such attorney’s fees may have been amounts that PNC was legally obligated to pay and outside the scope of the Professional Services Charge Exception. D’oh!

[If this had been the case, then the insurers may have argued that, if no coverage were owed for reimbursement of overdraft fees, then no coverage should be owed for plaintiff’s attorneys fees incurred to achieve a settlement of such uncovered overdraft fees. But that’s neither here nor there in light of the decision reached.]



Vol. 5, Iss. 6
May 31, 2016

U.S. Supreme Court – Yes SCOTUS – Asked To Hear A Bad Faith Failure To Settle Case

 

Chance of the United States Supreme Court accepting certiorari in a liability coverage case – 1,000,000:1. Chance of Randy Maniloff beating Steph Curry in a three-point shooting contest: 999,999:1.

Yes, the odds of the U.S. Supreme Court accepting cert. in a liability coverage case really are that long. So, needless to say, it was a real shocker when I saw that a policyholder in a bad faith failure to settle case asked the U.S. Supreme Court to review an adverse result from the Fifth Circuit. And, of course, it was not a surprise when the U.S. high court R.S.V.P.ed no. Of course not. My cousin Vinny could have beat back this cert. petition.

So just what was it that caused a policyholder to throw the longest Hail Mary in the history of insurance jurisprudence?

At issue in Hemphill v. State Farm, 805 F.3d 535 (5th Cir. 2015) was coverage for a catastrophic injury in an automobile accident. The driver of the not-at-fault vehicle – Rodney Taylor -- was rendered a paraplegic. The driver of the at-fault vehicle was Patrick Hemphill. State Farm insured Hemphill’s father’s automobile. The policy provided a $50,000 per person limit. Heather Taylor was also injured. [The situation started out poorly for Hemphill. He initially said that he was not the driver, but his girlfriend was, since he had a suspended license. He also initially denied running the stop sign, but then admitted that he did.]

Following several offers, State Farm ultimately came up to offering the Taylors $50,000 each. The Taylors declined and the case went to trial. A jury returned a verdict in Mr. Taylor’s favor for just under $3,000,000. State Farm paid the $50,000 policy limit to Mr. Taylor in partial satisfaction of the judgment.

Mr. Hemphill filed suit against State Farm in Mississippi District Court, alleging that the insurer breached its fiduciary duty which led to the excess verdict. The District Court found for State Farm and the matter went to the Fifth Circuit.

The Fifth Circuit made clear that “when a suit covered by a liability insurance policy is for a sum in excess of the policy limits, and an offer of settlement is made within the policy limits, the insurer has a fiduciary duty to look after the insured’s interest at least to the same extent as its own, and also to make a knowledgeable, honest, and intelligent evaluation of the claim commensurate with its ability to do so. If the carrier fails to do this, then it is liable to the insured for all damages occasioned thereby.”

Pivoting from this general rule, the Fifth Circuit described the issues before it this way: “Here, it is undisputed the Taylors did not make a settlement offer. Hemphill contends that notwithstanding the Taylors’ failure to make a settlement offer, State Farm breached the following two duties: (i) to timely offer to settle the claim because the claim amount greatly exceeded the policy limits, and (ii) to timely disclose the policy limits to the Taylors. We address, in turn, whether an insurer owes these two duties to its insured absent a settlement offer within the policy limits by a third-party claimant.”

Specifically, State Farm made a settlement offer to Mr. Taylor “five and a half months after State Farm received notice of Hemphill’s admission that he ran the stop sign, two months after State Farm received all of Mr. Taylor’s medical bills, and two days after Mr. Taylor filed the Underlying Lawsuit. Hemphill contends State Farm had a duty to make this settlement offer earlier because State Farm knew Mr. Taylor’s claim amount greatly exceeded the policy limits.”

The appeals court disposed of the “failure to make an offer” issue quickly. Hemphill pointed to a statement by the Mississippi Supreme Court in a 1983 opinion which said that “there is authority for the proposition that in dangerous cases it is the duty of the insurance carrier to initiate settlement offers on its own.” The Fifth Circuit, however, dismissed this as “just dictum,” and noted that no Mississippi court since it had discussed this dictum or cited to the non-binding cases that the 1983 case cited. Held: “Indeed, over the thirty-three years since Hartford [1983 case], no case from either the Mississippi Supreme Court or a Mississippi intermediate appellate court has suggested or even hinted that the Mississippi Supreme Court would hold that an insurer has a duty to make a settlement offer absent a settlement offer by the claimant.”

As for an insurer’s duty to disclose policy limits, the Court held that “there is no genuine dispute that State Farm verbally disclosed the policy limits to the Taylors before Mr. Taylor filed the Underlying Lawsuit. Having verbally disclosed the policy limits, State Farm did not have an additional duty to disclose the policy limits in writing via a certificate of coverage before Mr. Taylor filed the Underlying Lawsuit.”

The most interesting part of the case – to me at least – is that State Farm admitted that it did not advise Hemphill of his potential excess exposure and right to retain independent counsel. However, as the Fifth Circuit saw it, there was a causation problem for Hemphill, holding that there was no genuine dispute that, “before Mr. Taylor filed the Underlying Lawsuit, Hemphill was aware of his potential excess exposure and consulted an independent attorney for financial protection. Thus, Hemphill independently knew the information that he complains State Farm did not advise him about. For these reasons, the district court did not err in finding no genuine dispute that the excess judgment was not caused by State Farm's failure to advise Hemphill of his potential excess exposure and right to retain independent counsel.”

Mr. Hemphill Goes to Washington

Obviously this is a serious case – for Mr. Hemphill, facing a huge judgment and Mr. Taylor, facing a catastrophic injury and virtually no recompense from the driver who caused it. Under these circumstances, Hemphill, presumably, must have believed that, despite the very, very long odds, he had no choice but to file a Petition for a Writ of Certiorari to the U.S. Supreme Court.

It is beyond the scope here to write chapter and verse on the competing cert. petitions. Instead I’ll set out a portion of State Farm’s petition that discussed why the Supreme Court should decline to accept the matter for review. State Farm’s Petition stated:

“This case meets none of this Court’s criteria for granting certiorari. There is no conflict as to any question of federal law between the Circuit Courts, between the Fifth Circuit and a state high court, or between the Fifth Circuit and any decision of this Court. Nor has the Fifth Circuit departed from the usual practice and course of proceedings so as to justify the exercise of this Court’s supervisory power. As this Court had made clear, certification is not ‘obligatory’ even if available, and the decision whether to certify or abstain ‘rests in the sound discretion of the federal court.’ Lehman Bros. v. Schein, 416 U.S. 386, 391 (1974). Here, the Fifth Circuit acted well within the bounds of its discretion in declining to certify to the Mississippi Supreme Court the question suggested by Petitioner.

Moreover, this case does not present the federalism and other concerns that, under this Court’s jurisprudence, counsel the federal courts to defer to the state court on an issue of state law. The Fifth Circuit has not invalidated a state law on federal constitutional grounds and has not ventured into legal territory where it is an ‘outsider.’ Furthermore, Petitioner chose a federal forum for this diversity case and should not now be heard to complain that the federal courts should not have decided the issues of state law that his claims presented. Granting certiorari in this case will only result in delay and obstruction in the functioning of the federal courts in diversity cases.

Accordingly, the Fifth Circuit’s decision in this case presents no issue of federal law requiring resolution by this Court and satisfies none of this Court’s criteria for granting certiorari. See Sup. Ct. R. 10.”

This is no doubt the reason why unsuccessful litigants in coverage cases – policyholders and insurers – virtually never, ever seek SCOTUS review.

So what made Hemphill take his shot? Certainly not an argument that the case somehow, some way, had a federal or constitutional hook. The petition for review stated:

“Insurance companies demand documentation (written documentation) before they will pay out a single solitary penny in settlement of claims. Under the facts of this case, or in any serious claim, it is submitted that a third party claimant such as Taylor is not going to accept oral representations of an insurance agent over the phone, and the State Farm adjuster plainly knew this and acknowledged this. State Farm is a company that understood that it did not expect Taylor to settle his claim without delivery of the certificate of coverage.

The Fifth Circuit Court of Appeals decided this case on an issue not addressed under Mississippi law that neither party raised in the pleadings, at the summary judgment level or at the appellate level. Mississippi has a well-established protocol in place to answer such questions. The Fifth Circuit has utilized that procedure sparingly. But here, rather than certify that question to the Mississippi Supreme Court and receive a definitive answer, the Fifth Circuit made a sua sponte ‘Erie guess’ that deprived Patrick Hemphill of his right to have a jury decide his case. It is submitted that the industry standard is to provide that certificate of coverage when requested particularly so when the claimant had been so severely injured, and the coverage is inadequate to avoid financial disaster to an insured like Hemphill.”

 



Vol. 5, Iss. 6
May 31, 2016

Judicial Disqualification: Crazy Facts In A Coverage Case

 

The facts at issue in Draggin’ Y Cattle Company v. Addink, No. DA15-0354 (Mont. May 3, 2016) are really bizarre. And the chances of them being repeated are about one in -- never. But, even so, I couldn’t help myself and selected it for CO.

The story, with some steps omitted because not relevant here, goes like this. In January 2011, Peters filed a complaint against Junkermier, alleging multiple counts stemming from tax services Junkermier performed for Peters. Junkermier tendered his defense to New York Marine under a professional liability policy. New York Marine undertook Junkermier’s defense under a reservation of rights. In December 2013, following some litigation between Peters and Junkermier, concerning statute of limitations, a Judge Huss assumed jurisdiction of the case. In November 2014, Peters and Junkermier entered into a settlement agreement --10 million bucks -- and stipulation for entry of judgment without New York Marine’s participation. The District Court issued an order scheduling a hearing on the stipulated settlement’s reasonableness.

[If the hows and whys of a $10 million settlement, by a party being defended under a ROR, and without its insurer’s participation, was an issue, it was not discussed in the opinion.]

Getting back to our story… New York Marine filed a motion to intervene in the reasonableness hearing. It was granted. In March 2015, the trial court entered findings of fact, conclusions of law and an order finding that the stipulated settlement amount of $10,000,000 was reasonable. Junkermier was not liable for the stipulated settlement.

New York Marine then asserted -- for the first time -- that Judge Huss erred by not disclosing an apparent conflict of interest. “New York Marine claims that the alleged conflict stems from a complaint that a former court reporter filed against Judge Huss in February 2014. In October 2014—during the pendency of this case—Judge Huss individually entered into a stipulation and confession of judgment. The Office of the Court Administrator (OCA) had been paying for Judge Huss’s defense and Judge Huss allegedly entered into the stipulated settlement without the OCA’s participation or knowledge. On November 17, 2014—four days after Peters and Junkermier entered into their stipulated settlement—the OCA filed a complaint against Judge Huss in a Helena district court seeking a declaration that it had no duty to defend or indemnify him. In its complaint, the OCA specifically contested the stipulated settlement amount’s reasonableness. Judge Huss did not disclose the stipulated settlement or his dispute with the OCA to the parties in the case at issue. Judge Huss resigned effective January 1, 2016.”

OK, let’s review this -- New York Marine is fighting the reasonableness of a settlement entered into by an insured without consent. And the judge hearing that case, and who decided that New York Marine’s insured’s $10,000,000 non-consent settlement was reasonable, was, himself, at the same time, arguing that his own settlement, undertaken without his insurer’s consent, was reasonable. Do you know why this is all true? Because you couldn’t make it up.

New York Marine’s argument went like this: “Judge Huss’s potential conflict of interest raises reasonable questions regarding his impartiality. New York Marine contends that the ‘undeniable parallels between Judge Huss’ interests in the litigation he was (and still is) defending in his personal capacity and [Peters’s] interests in not permitting [New York Marine] to meaningfully challenge the stipulated settlement’ create ‘an apparent and significant conflict of interest.’ As such, New York Marine claims that Judge Huss was required, at a minimum, to disclose his apparent conflict of interest to the parties under the Montana Code of Judicial Conduct.”

After concluding that New York Marine had the right to raise the disqualification issue for the first time on appeal, the Montana Supreme Court turned to whether Judge Huss should have disclosed his own situation to the parties.

The court was not persuaded by Peters’s argument against disqualification – that it would be like requiring disqualification, from a car accident case, of every judge who had himself ever been involved a car accident. The court saw it differently: “A judge’s average personal experiences—including being involved in a car accident—undoubtedly shape the judge’s perspective. This does not mean, however, that such experiences necessarily preclude a judge from maintaining an ‘open mind in considering issues that may come before a judge.’ . . . As such, a judge’s average personal experiences do not generally lead to reasonable questions about the judge’s impartiality and subsequent disqualification under Rule 2.12.”

But this, the court concluded, was not an “average personal experience.” “Judge Huss presided over a hearing in which an insurer questioned the reasonableness of a stipulated settlement while the reasonableness of his own personal stipulated settlement was being questioned by his insurer. The timing and nature of the circumstances reasonably raise concerns regarding Judge Huss’s ability to maintain ‘an open mind in considering’ the reasonableness of the stipulated settlement at issue here.”

Thus, the Montana Supreme Court held that, under the circumstances, Judge Huss was required to disclose to the parties his participation in his personal stipulated settlement.

The odds of a judge hearing a case, concerning the reasonableness of a stipulated settlement without insurer consent, when the judge, at that very same time, was personally litigating that same issue are Powerball-like.

 



Vol. 5, Iss. 6
May 31, 2016

Common Law Marriage And Coverage (And Best Line Ever In A Coverage Case)

 

Chamberlain v. State Farm Mutual, No. 14-167 (W.D. Pa. May 12, 2016) is one of those cases with a very low chance of being relevant to anything that ever crosses your desk. But it’s a unique situation -- which makes it interesting and worthwhile to check out. In fact, I’ve never actually seen this issue before. Granted, I doubt if Chamberlain is the first time it has ever come up; but probably not often. I could have done some work to see how common it is, but I didn’t have the mojo.

Edward Kunsman was injured in a motor-vehicle accident while working near an active construction zone as a flagger. The insurer for the at-fault tortfeasor had a policy with a $50,000.00 bodily injury limit, which was paid to Mr. Kunsman. At the time of the accident, Vicki Jo Chamberlain maintained a policy of automobile insurance with State Farm with a $15,000.00 per person limit.

The policy included underinsured motorist benefits, which provided: “We will pay compensatory damages for bodily injury that an insured is legal entitled to recover from the owner or driver of an uninsured motor vehicle.” The policy defined “insured” to include “Resident Relatives,” defined as “a person, other than you, who resides primarily with the first person shown as the named insured on the declaration page who is [r]elated to that named insured or his or her spouse by blood, marriage, or adoption.”

So the issue was this: Was Mr. Kunsman an insured under Ms. Chamberlain’s policy, so as to be able to collect underinsured motorist benefits? More specifically, the question was tied to whether Mr. Kunsman was Ms. Chamberlain’s spouse. Seems like an easy issue – except that, if Mr. Kunsman and Ms. Chamberlain were married, it was on a common law basis.

The Pennsylvania federal court went through a lengthy discussion of what is required to establish a common law marriage and then examined numerous aspects of the Kunsman -- Chamberlain relationship to determine if it qualified. [Incidentally, the court noted that the Pennsylvania legislature abolished the doctrine of common law marriage as of January 1, 2005. But any common-law marriage otherwise lawful before that was still Kosher. Who knew?]

Given that, as I said, Chamberlain v. State Farm Mutual has a very low chance of being relevant to anything you do, I’ll keep the analysis to the high points.

At issue was summary judgment – did the plaintiffs produce sufficient evidence to support their claim that they had a common law marriage? These were some of the facts at issue:

“Ms. Chamberlain and Mr. Kunsman began dating in 1995 or 1996. In December 1996, Mr. Kunsman presented Ms. Chamberlain with a ring, which she accepted. Ms. Chamberlain and Mr. Kunsman did not participate in a marriage ceremony at any time after December 1996, and they did not exchange any vows with the specific purpose of establishing a present tense marital relationship after December 1996. Ms. Chamberlain and Mr. Kunsman have two children, born in 1998 and 2000. . . . Plaintiffs state that they jointly own a vehicle; they own their home together; they have an insurance policy on their home; and they obtained a mortgage in both of their names. Plaintiffs assert that they are known in their community as husband and wife.” State Farm’s positon, in response to all this, was that “[p]laintiffs did not express a present-tense intention to enter into a marriage contract in December 1996,” as required under law.

Putting aside lots of other factoids about the Kunsman -- Chamberlain relationship, that were relevant to whether a common law marriage existed, the court ultimately held that “[p]laintiffs have established sufficient evidence to create an issue of material fact as to whether they exchanged words in the present tense spoken with the purpose of establishing the relationship of husband and wife. [I]t is well settled that [t]he common law marriage contract does not require any specific form of words, and all that is essential is proof of an agreement to enter into the legal relationship of marriage at the present time.”

What a great line: As for Plaintiffs’ effort to establish a common-law marriage, by presenting clear and convincing evidence of the exchange of words in the present tense, spoken with the purpose of establishing the relationship of husband and wife, Ms. Chamberlain testified at her deposition that she believed that Mr. Kunsman stated, “Will you be my wife,” when he presented her with a diamond ring in 1996. Ms. Chamberlain testified that Mr. Kunsman’s mother asked her: “[Y]ou really want him to be your husband?”



Vol. 5, Iss. 6
May 31, 2016

Must Read: What Drove This Appeals Court To Find Bad Faith Failure To Settle?

 

In most ways, Bamford, Inc. v. Regent Insurance Co., No. 15-1968 (8th Cir. May 13, 2016) is a typical bad faith failure to settle case. There was a demand to settle within the insured’s limit. The insurer did not accept it. The case went to trial. There was an excess verdict. Litigation ensued over whether the insurer’s decision, to allow the case to go to trial, was in bad faith, under the applicable state standard. But despite its typicality, I chose Bamford for inclusion here for a reason -- the court showed its hand, as to what really set it off, in reaching its decision that the insurer’s failure to settle was in bad faith.

The facts giving rise to the claim are tragic. For convenience, I’ll let the court tell them: “In May 2009, Michael Packer, a Bamford employee, was involved in a two-vehicle collision with a vehicle driven by Bobby Davis. During the accident, a steel pipe stored on the roof of Packer’s vehicle became dislodged and ultimately penetrated Bobby’s left thigh, through his abdomen and pelvis, and out his right buttock, pinning him inside his vehicle. Bobby was trapped for between thirty and sixty minutes until paramedics arrived and were able to cut the pipe and extract him. He suffered a number of serious injuries and underwent extensive medical treatment to save his life and treat his injuries. Bobby’s brother, Geoffrey Davis, was a passenger in Bobby’s vehicle and suffered minor injuries. His claims against Bamford were settled and are not relevant to this appeal. Packer burned to death inside his vehicle.”

Bamford had a commercial automobile liability policy with Regent Insurance with a total policy limit of $6 million. While counsel for Bobby believed that the case was worth more than $6 million, he consistently offered to settle for the $6 million policy limit. While Regent’s internal valuations went up over time, Regent never agreed to settle. [The opinion is lengthy and sets out, in detail, the many, many demands and offers that went back and forth between Regent and the plaintiff’s counsel. I’ll skip over as much of this negotiation as possible.]

In addition to its belief that the case was not worth $6 million [“Nothing is worth more than $2 million in Nebraska,” per a Regent executive], Regent was also unwilling to meet the demand because of a belief that it may have had a defense to liability – Bamford’s driver, Packer, may have had a seizure, and lost consciousness, thereby causing the accident. Defense counsel believed that the loss of consciousness defense had a 25% chance of success (subsequently reduced to 10%).

Then something big happened. The court granted Bobby’s request to strike the loss-of-consciousness defense AND, went further, finding Bamford liable as a matter of law. As a result, the only issue at trial would be the amount of damages to which Bobby and his family were entitled.

The closest that the parties ever came to settlement was the day before trial. Plaintiffs demanded $3.9 million and Regent countered with $2.05 million. The case went to trial and the jury returned a verdict for $10.6 million. The case was settled for $8 million during the pendency of the appeal.

Bamford filed an action against Regent, alleging that Regent breached its fiduciary duty and acted in bad faith in refusing to settle the claim. Bamford requested damages in the amount it had contributed to the settlement as well as certain fees. Following a five-day trial, the jury returned a verdict for Bamford, awarding its requested damages of $2,037,754.33.

In affirming the decision, the Eight Circuit made many critical observations about Regent’s handling of the claim. Notably, the court stated:

“Here, the jury could have concluded that Regent—by relying on valuations received from mediators, counsel, and internal adjusters—reasonably embraced a low value for the Davises’ claims early in the case, but ultimately acted in bad faith in failing to reassess the value of the claims in light of case developments and advice from its own players that the low value was inaccurate. Regent’s failure to adjust its valuation following the district court’s grant of partial summary judgment strongly supports such a conclusion.

Again, the district court did not merely grant the Davises’ request to strike the loss-of-consciousness defense. The court went much further and found Bamford liable as a matter of law. For nearly two years, Nolan [defense counsel] and Robin [Regent adjuster] had counted on a tempering of damages when the jury heard the purportedly sympathetic facts that would be introduced to support this defense, such as Packer’s history of seizures and use of seizure medication. They had also believed that the loss-of-consciousness defense, which would have provided Bamford a complete bar to liability, had a slight chance of success. In the wake of the district court’s ruling, the jury would hear neither the purportedly sympathetic facts supporting a medical emergency nor other evidence that could moderate its view of Bamford’s culpability. Rather, the jury would be instructed that Bamford was negligent as a matter of law and liable for the Davises’ injuries. In response to this major development in the case, Nolan and Robin requested authority to make a $3 million settlement offer, both for strategic purposes and because, in Robin’s view, the offer would have led to a settlement in the $3 million range. Not only did Regent deny such authority, it failed to increase its reserve even one penny from the previously-set amount of $2.25 million. A reasonable jury could view Regent’s stark inaction—in the face of this seismic and unforseen development in the case, and contrary to advice from its counsel and primary adjuster—as a complete and total refusal to consider the fiduciary duty it owed Bamford.”

The take-away from this case is easy to see and worth remembering. This was not just a case of an insurer deciding – wrongly -- to take a case to trial. In other words, the excess verdict was not simply the result of the insurer getting its valuation and/or liability assessment wrong. If that were all it was, then the insurer may not have been found to be in bad faith (although it still could have been). Rather, what drove the court’s decision was that the insurer failed to reassess the settlement value of the case, in light of adverse case developments and advice from its own people.



Vol. 5, Iss. 6
May 31, 2016

A Who’s Buried In Grant’s Tomb? Coverage Case

 

Sometimes you read a coverage case and come away wondering what one of the parties was thinking to bring it. This goes for both policyholders and insurers. Although I think it applies to policyholders more. For a policyholder (or underlying plaintiff), the need to find coverage can be monumental. Likely more so than an insurer’s need to avoid paying one claim. Not to mention that, with ambiguities often being interpreted against the insurer, the policyholder has more reason to bring a case with no reasonable chance of success. I call these cases, with obvious outcomes -- “Whose buried in Grant’s tomb?” coverage cases.

U.S. Specialty Ins. Co. v. Sussex Airport, Inc., No. 14-5494 (D.N.J. May 9, 2016) is a Grant’s tomb case. Skydive Sussex, LLC leased a parachute jumping concession at Sussex Airport. The airport authorized a drop zone for parachuting activities on the southwest side of the airport runway. Reginald Wood purchased a tandem skydive from Skydive Sussex. During the skydive, Wood allegedly landed outside of the established drop zone and collided with a parked motor vehicle, causing significant bodily injuries. Wood filed suit for the injuries he allegedly sustained during his skydive.

US Specialty issued a commercial general liability policy to Sussex Airport. U.S. Specialty undertook Sussex Airport’s defense, but reserved its rights to (1) disclaim liability and coverage for the Underlying Action and (2) recoup the costs of defense in the Underlying Action, should the Policy not apply. The policy contained a Parachute Jumping exclusion stating as follows: “This insurance does not apply to ... [b]odily injury or property damage arising out of the conduct of or participation in, or preparation for, any parachuting activities.” U.S. Specialty filed coverage litigation.

Hello? It seems pretty obvious: Mr. Wood was injured in the course of a parachute jump and the policy excludes exactly that. Not surprisingly, the court had little trouble disposing of the insured’s arguments.

The insured argued that the Parachute Jumping exclusion should not apply because it did not directly operate the skydiving activities at the Sussex Airport. Rather, Skydive Sussex, LLC did. But the court rejected this: “In effect, Defendants’ interpretation would require the Court to rewrite the Exclusion such that it only applies where bodily injury occurred due to actions taken directly by the insured. Should Plaintiff have desired to restrict the Exclusion so that it only covered parties directly engaged’ in parachuting activities, however, it could have done so explicitly. A far more natural reading of the Exclusion, in context with the Policy, is that the Exclusion is not limited based on which party physically conducted the parachuting activities—it does not cover ‘[b]odily injury ... arising out of the conduct of or participation in, or preparation for, any parachuting activities.’” (emphasis in original).

Next the court turned to the insured’s argument that its potential liability may be unrelated to “the conduct of or participation in, or preparation for, any parachuting activities.” The court’s response was unambiguous: “This argument is also futile,” explaining that the underlying action “alleges that the skydiving flight commenced from Sussex Airport, that Defendants ‘did not conform to applicable skydiving standards of care,’ and that Defendants ‘established a drop zone that was not in conformance with industry standards.’ In fact, the Underlying Complaint only alleges causes of action related to the events surrounding Wood’s skydive, including duties Defendants allegedly had to Wood.”

Lastly, on the question of reimbursement of defense costs, the court held that it was permitted.



Vol. 5, Iss. 6
May 31, 2016

Unique “Claims Made” Case: Is A PowerPoint Presentation A “Claim?”

 

When it comes to cases addressing coverage under “claims made” policies, one issue dominates – timing. More specifically, at the heart of these cases is what is a “claim” and when was it first made against the insured? Because resolution of these questions is so often fact and policy language driven, prior case law may not answer the questions to all parties’ satisfaction. So litigation ensues. Decisions in this area have multiplied like tribbles.

Given how sui generis claims made “timing” cases can be [I always feel so smart when I use that term], I do not often address them in Coverage Opinions. When choosing cases for CO I’m generally looking for ones that provide an overarching lesson or that can be useful to a future case. Cases involving what is a claim, and when was it first made -- because they are so often fact and policy language driven -- are not always in this category.

Foundation Health Services, Inc. v. Zurich American Insurance Company, No. 15-59 (M.D. La. Apr. 20, 2016) is a claims made timing case that may provide an overarching lesson or be useful to a future case. But even if not, the facts are unique enough to warrant discussion.

At issue in Foundation Health was coverage for a False Claims Act claim asserted by the Department of Justice against Foundation Health Services. The DOJ alleged that the company had provided worthless services. The facts giving rise to the coverage dispute were described by the court as follows:

“In January 2012, the DOJ contacted [Foundation Health] and set a meeting for January 18, 2012, at the United States Attorney’s office in Baltimore, Maryland. An estimated 15–18 people attended, including several representatives of [Foundation Health], the Department of Health and Human Services, the Office of the Inspector General, the United States Attorneys’ Office, and the DOJ. During this meeting, the DOJ presented a PowerPoint presentation that identified numerous alleged deficiencies with the quality of patient care rendered by [Foundation Health], and cited issues with nurse training and staffing. No written materials were distributed at the January 18 Meeting. Although no written materials were distributed at the meeting, the DOJ emailed a redacted version of the PowerPoint slides to [Foundation Health] eight days later. Andrew Penn, a trial attorney with the DOJ who presented the PowerPoint at the January 18 Meeting, testified that the withheld slides were protected by the work product doctrine. The redacted version of the PowerPoint presentation did not assert the plaintiffs violated any laws or billed the government for worthless services. The redacted version also did not assert any demands of the plaintiffs—monetary or otherwise.”

On May 16, 2012, the DOJ sent a letter to Foundation Health that outlined damages sustained by Medicaid and Medicare for the worthless services provided at the Foundation Health facilities

Zurich issued two claims made policies to Foundation Health (one D&O and one not specified, but the type of policies is not important). To make it simple, I’ll call them policy one (June 1, 2011 to April 1, 2012) and policy two (May 1, 2012 to May 1, 2013).

Foundation Health provided notice of the DOJ’s May 16, 2012 letter to Zurich on May 24, 2012 – during the period of policy two.

Zurich acknowledged that the May 16th letter was a “claim” under the year two policy, but disclaimed coverage based on certain exclusions. Foundation Health next sought coverage under the year one policy. Zurich did not respond. Foundation Health, with Zurich’s consent, settled the DOJ matter for a monetary payment. Foundation Health then filed suit against Zurich for breach of contract for failing to defend and indemnify under the year one policy.

The court addressed whether a “claim” was first made against Foundation Health during the period of the year one policy. “Claim” was defined under the year one policy as follows: “1. a written demand for monetary damages, [or] ... 4. a formal administrative or regulatory proceeding commenced by the filing of a notice of charges, formal investigative order or similar document, against any Insured for a Wrongful Act.”

Zurich said no. Foundation Health disagreed, arguing that the PowerPoint presentation at the January 18, 2012 meeting satisfied both relevant definitions of “claim,” and, hence, a claim was made during the period of the year one policy.

The court couldn’t decide, concluding that there was a genuine issue of material fact whether the PowerPoint presentation constituted “a written demand for monetary damages,” i.e., a “claim.” As the court saw it, the facts were all over the place and summary judgment could not be granted for either party.

Foundation Health pointed to testimony, of several of its representatives who were present at the January 18, 2012 meeting, that the PowerPoint contained slides outlining the damages the DOJ sought from the company. However, Andrew Penn of the DOJ, who presented the PowerPoint, gave conflicting testimony as to the contents of the PowerPoint presentation and the purpose of the meeting. He described is as informing Foundation Health that “the claims against Foundation involved Foundation paying damages for violation of the False Claims Act,” and that “any resolution of this case would include a monetary settlement for worthless services.” However, as the court saw it, Penn also gave testimony favorable to Zurich, stating that “the government did not make a written demand for monetary damages at the January 18 Meeting and that the purpose of the meeting and the PowerPoint was merely to present the DOJ’s tentative findings with respect to its concerns regarding the quality of patient care.”

[As an aside, even if the court concludes that the January 18, 2012 PowerPoint presentation was a “claim” first made against Foundation Health during policy one, it wasn’t reported to Zurich until after the expiration of policy one. The opinion does not address why this would not be fatal to Foundation Health’s claim for coverage under policy one.]

 


 
Vol. 5, Iss. 6
May 31, 2016
 
 

Arkansas Supreme Court: Even Consequential Damages Do Not Make Faulty Workmanship An “Occurrence”
Columbia Insurance Group v. Cenark Project Management Services, No. 15-804 (Ark. Apr. 28, 2016): “The first certified question of law presented to us asks whether All’s defective workmanship resulting in property damage to the work or work product of a third party constitutes an ‘occurrence.’ In deliberating this issue, we have come to the conclusion that the certified question rests on the premise that the underlying claim asserted by the Home Owners involves defective workmanship on the part of All. It does not. Their claim is one for breach of contract. As a consequence, the basic coverage issue is controlled by our decision in Unigard Sec. Ins. Co. v. Murphy Oil USA, Inc., 331 Ark. 211, 962 S.W.2d 735 (1998).”

Colorado Supreme Court: No Prejudice Needed For Voluntary Payment Disclaimer
Travelers Property Casualty Company v. Stresscon, No. 13SC815 (Colo. Apr. 25, 2016): “[W]e decline to extend the notice-prejudice rule we applied to the notice provision of an occurrence-based liability policy in Friedland v. Travelers Indemnity Co., 105 P.3d 639 (Colo. 2005), to the no-voluntary-payments clause at issue in this case.”