I really dislike cats.  It has got to be one of the worst musicals ever.  That it came from Lloyd Webber just serves as evidence that even the greatest are entitled to an off day now and then.  That it is one of the most successful Broadway and West End musicals ever just serves as evidence that P.T. Barnum was right.  Thankfully “Memory” was performed in Act I so I could leave before Act II.

As for cats and coverage, there are very few cases involving this combination – as in, almost none.  Dogs on the other hand – you can’t even count them all.  There are no doubt lots of reasons for this disparity owing to the many differences between the two. 

The last issue of Coverage Opinions looked at some coverage cases involving dogs.  In particular, claims involving show dogs that bite.  In the amazing coincidence category, just as that issue of CO was being put together, the California Court of Appeal issued an opinion addressing liability coverage for an incident involving cats.  And not just any opinion, but one with wacky facts that makes for very interesting reading.  You’ll see.  While Coverage Opinions is not bound by any sort of equal time requirements, like television networks, it only seemed fair to follow up last issue’s dog article with one involving cats.  
     
Abrahams v. Allstate Ins. Co., No. B244642 (Cal. Ct. App. Feb. 6, 2014) goes like this.  Leslie Abrahams and Hal Gosling, husband and wife, undertook to protect the feral cat population at California State University, Long Beach by maintaining feeding stations around the campus.  Scott Miller lived adjacent to CSULB and frequently walked, jogged and rode his bicycle through the campus with his dog and young children.  Allegedly, one day in 2005, Abrahams stopped Miller on campus and demanded that he not walk his dog.  Miller ignored the demand and four years later Abrahams confronted Miller and his son as they walked their dog on the campus.  She berated Miller, told him she represented CSULB and he was not welcome on the campus with his dog.  Abrahams threatened that “the campus cat club was going to ‘take care of him.’” 

Let me repeat that line here because I don’t tire of hearing it: The campus cat club is going to take care of you.   

Wait, it gets better.  The court put it this way.  “Over the next year, on multiple occasions, Abrahams and Gosling drove their car toward Miller and his sons in a threatening manner as they walked or biked with their dog on the CSULB campus.  Abrahams and Gosling repeatedly followed and stared down Miller and his sons and videotaped Miller and his family at their home and at CSULB.  Abrahams also charged up to Miller in a post office parking lot, berated Miller’s wife and son as they exited a local Sears store, and contacted Miller’s son’s daycare provider to report that Miller was emotionally unstable, a danger to the community, and a threat to the daycare provider’s cats.”  Someone was getting into the catnip.  

Miller sued the cat duo alleging causes of action for invasion of privacy, stalking, intentional infliction of emotional distress and assault.  The couple sought coverage from Allstate, their homeowner’s insurer.  Allstate disclaimed coverage and litigation ensued.  The trial court granted Allstate’s motion for summary judgment on the basis that Abrahams and Gosling’s alleged conduct was deliberate and no accident that triggered Allstate’s duty to defend.  The case went to the Court of Appeal, where the cat lovers coughed up a fur ball.

The couple argued that they did not intend to threaten, frighten or intimidate Miller.  They described their motivations as benign and that they lacked knowledge that Miller was emotionally hypersensitive.  They also asserted that others would have perceived their behavior to be innocuous.  However, the court held that their peaceable motivation did not transform their actions into accidental conduct: “[A]ppellants essentially argue their mistaken belief about Miller’s receptiveness to their deliberate behavior rendered their conduct accidental because they did not anticipate or intend its result.  They are incorrect.  Miller alleged appellants confronted, berated and threatened him on multiple occasions; drove their car toward him in a threatening manner several times; followed, stared at and videotaped him; and made a negative report about him to his son’s daycare provider.  Appellants might not have anticipated this conduct would injure Miller, but their miscalculation did not transform the conduct from deliberate to accidental.”

The campus cat club is going to take care of you.   

OK, I had a Member’s Only jacket.  [But I’ll deny I said that.]

There were a lot of cases of late that met the high standards for being included in Coverage Opinions.  It was too many for me to do a lengthy write-up of each.  So, instead, I am resorting to Tapas-style case write-ups.


Exclusion Not Applicable: Not “Conspicuously Placed” In The Policy
At issue in HDI Global Ins. Co. v. San Fernando Realty, No. 20-6468 (C.D. Calif. Dec. 28, 2020) was coverage, under a Real Estate Errors & Omissions Liability policy, for a deal gone bad.  In particular, the court focused on the potential applicability of a policy exclusion, contained in an endorsement, called the “Other Source Exclusion.”  What it says, and its relevance here, is not important for purposes of this discussion.

The court held that the exclusion could not be enforced – assuming that it was otherwise applicable, which, it turns out it was not – because it was not “conspicuously placed” in the policy, as required by California case law.  The court had much to say – none good -- about where the exclusion fit into the policy document.

In general, the court took issue with the exclusion on several bases.

“It appears only after many long and complicated pages, separated from the beginning of the Policy’s exclusions section by 11 pages.”

“There is no language on the endorsement that would alert a reader that the list contains limitations on coverage. . . . This silence stands in contrast to other sections of the Policy limiting coverage, which are introduced as ‘Exclusions’ and ‘Limit of Liability’ in explicit terms.”

“The heading, ‘Mortgage Brokering Amendatory Endorsement,’ suggests that its provisions are limited in scope to mortgage brokering services, which is only one of six Insured Services on the declarations page.”

But the court wasn’t done with its criticism: “While the Policy defines 11 terms, it does not define ‘mortgage brokering’ or ‘escrow agent services,’ and does not contain any other language that would clarify how the term ‘mortgage brokering’ is used in the heading of the endorsement containing the Other Source Exclusion.”

Other than that, how was the play Mrs. Lincoln?          

Federal Judge To Plaintiff: You Gotta Be Kidding! That’s Not Negligence. 
I love cases where plaintiffs try to plead into coverage: “Defendant negligently stabbed plaintiff 17 times.” Then: “Defendant should have known that stabbing plaintiff 17 times would cause injury.”  Sometimes plaintiffs can get away with it and trigger a defense, for the defendant-insured, for what is clearly an uncovered/intentional conduct claim.  But courts are usually wise to it and the judge says not on my watch – even if the duty to defend determination must be limited solely to the four corners of the complaint.

In State Farm v. Simone, No. 20-908 (W.D. Pa. Jan. 28, 2021) the judge made it clear what he thought of this plaintiff drafting tactic: No way, no how, is anybody pleading into coverage in my courtroom.

At issue in Simone was coverage for Charles Simone, under a State Farm homeowner’s policy, for injuries that he allegedly caused to Michael Wain, after Simone and Wain’s friend, as the court put it, “bumped into” each other at a crowded concert.  As is often the case in assault-type situations, State Farm argued that it had no obligation to provide coverage because the claims against Simone did not allege an occurrence/accident. 

Simone argued that the complaint filed against him did allege negligent conduct (in addition to intentional conduct).  Number 3 is as good as it gets when it comes to pleading into pleading.   

The complaint alleged that Simone breached the duty to act reasonably and avoid injuring Michael Wain by: (1) “[n]egligently striking [Michael Wain] and causing him to suffer personal injuries”; (2) “[f]ailing to observe [Michael Wain] and avoid striking him”; and (3) “[f]ailing to stop his arm before striking Michael Wain.”  The complaint also alleged that Simone was negligent in: “[p]ermitting himself to either (sic) become intoxicated which caused him to strike Michael Wain”; “[a]llowing his emotions to control his actions which caused him to strike Michael Wain”; and “[l]osing control of his emotions which caused him to strike Michael Wain.”

But the judge wasn’t buyin’ it, no matter what the complaint said: “There is no allegation in the Underlying Complaint, however, that Simone lacked control over his arm at the time he allegedly struck Michael Wain, nor are there allegations which would indicate that Simone, in allegedly punching Michael Wain with enough force to break seven bones in his face, did not intend the ‘natural and expected’ consequences of his actions.”

As Maxwell Smart would have said: “The oooold failing to stop your arm trick.”

Can You Hear Me Now?: In Re: Verizon Marches On
In late-2019, the Delaware Supreme Court decided In re: Verizon Insurance Coverage Appeals. In a unanimous decision, the high court of the first state held that the term “securities claims” was unambiguous and reached only laws and regulations typically understood to apply to the purchase and sale of securities (e.g., the 1934 Act; Rule 13A; and state equivalents) and applied only to laws, regulations or rules that had the primary purpose of regulating securities.  As a decision that defined a term that goes to the heart of a specific category of D&O coverage, I included it as a Top 10 case of 2019.

Verizon is back in Delaware – this time serving as the basis for Travelers’s win in Calamos Asset Management v. Travelers Casualty & Surety Co., No. 18-1510 (D. Del. Feb. 19, 2021).  At issue was coverage for Calamos, under a D&O policy, for two suits arising following a merger – one seeking appraisal of Calamos’ stock and the other alleging that Calamos’ officers and directors breached their fiduciary duties.

The court’s decision was all Verizon in putting the kibosh on the insured’s pursuit of coverage for the fiduciary claims, noting the “Delaware Supreme Court’s holding that fiduciary-based claims are not specific to any rule, regulation or law ‘regulating securities.’ This holding is relevant here — and indeed is fatal to Plaintiff's claims. As the Verizon court explained, the phrase ‘regulating securities’ imposes its own limitation. The court elaborated: ‘regulations, rules, or statutes that regulate securities are those specifically directed towards securities, such as the sale, or offer for sale, of securities.’ Fiduciary duty claims ‘are not specifically directed towards securities.’ They ‘do not depend on a security being involved.’ Instead, fiduciary duty claims ‘include a variety of claims when ‘one person reposes special trust in another’ or when ‘a special duty exists on the part of one person to protect the interests of another.’ Reading the phrase ‘regulating securities’ to cover fiduciary duty claims would be inconsistent with the plain meaning of the term.”

Also for reasons related to Verizon, the policyholder fared no better with its other claim. 

Who Doesn’t Love A Good “Use Of An Auto” Case
I love “use of an auto” cases – be they in the context of coverage under an auto policy or the auto exclusion in a general liability or homeowner’s policy.  The cases have a way of involving peculiar facts.  And there’s a reason for that.  After all, since automobiles are designed with a clear purpose in mind, getting to Point B, what’s a “use of an auto” shouldn’t be all that hard to figure out.  So, if “use of an auto” is being litigated, then, by definition, it’s probably because the claim involves something more than a person simply sitting behind the wheel and motoring down the road.

Atain Specialty Ins. Co. v. Davester, LLC, No. 19-11634 (D. Mass. Feb. 11, 2021) is an interesting “use of an auto” case.  Technically, it’s not a “use of an auto” case, as it involves different policy language.  But, in my book, it’s a “use of an auto” case for purposes of auto-related cases being interesting.     

I’ve never seen facts like this: “[O]n March 17, 2018, [Newman] Galati was a patron at Embargo, a restaurant, where he was ‘highly and visibly’ intoxicated. The complaint further alleges that when Galati sought to leave the restaurant, Embargo employees looked in his wallet for identification, determined his home address, called him a Town Taxi cab, and instructed the cab driver to take Galati home. Instead, according to the complaint, the cab driver let Galati exit the cab somewhere other than his home and left him lying in the street, and Aguiar then struck Galati with his car, causing Galati substantial injuries. The state court complaint alleges counts of negligence against Aguiar, Embargo, and Town Taxi.”

At issue was coverage for Embargo under a commercial general liability policy.  Specifically, the applicability of an exclusion for bodily injury arising out of or in connection with any auto.

Embargo, the insured-restaurant, argued that the claims had nothing to do with an auto, as it alleges that “Embargo should have called the police or for medical assistance, rather than assist [Galati] into a Town Taxi cab.”

The court concluded that the auto exclusion applied, but not because of the role of the taxi, but, rather, the car that hit Mr. Galati: “In the underlying complaint, the source of Galati’s bodily injuries is the car, and the damages Galati suffered are connected with the car. While Embargo’s relationship to Galati’s injury would be the same whether Galati was injured by falling in a ditch or by being hit by a car, it is the car’s relationship to Galati’s injuries that controls this dispute.” 
 

It’s Still Covered: Insured Settles Claim Without Insurer’s Consent
When an insured settles a claim without its insurer’s consent, the insurer will often be reluctant to provide coverage, on the basis that the insured made an impermissible voluntary payment.  But it’s not always that simple, as we see in TSL Transportation Solutions, Inc. v. Cruz, No. 17-2158 (D.P.R. Feb. 9, 2021).

The insured gave notice of a claim to its insurer, but then settled with the claimant while the claim was still pending. The nature of the claim is not important for purposes here.  What is important is that the claimant, Costco, was the insured’s biggest customer – making up 80% of its business.  Costco was placing tremendous pressure on the insured to resolve the matter.  The insured made the payment in an effort to save its business.

The insurer denied the claim on the basis that the insured breached the policy’s voluntary payments provision.  When this happens, the issue of coverage sometimes turns on whether the insurer must prove that it was prejudiced by the voluntary payment, and, if so, was it?

The Puerto Rico court noted that U.S. states are “unsurprisingly split” as to whether prejudice is required.  After taking a look at how some states handle the issue, the court concluded that, as far as Puerto Rico law was concerned, prejudice was required -- and the insurer could not prove that it had suffered any.

Key to the court’s decision was that the insured’s liability for the claim was clear and it involved liquidated damages.  In that situation, the court concluded that prejudice was not satisfied based on the insurer’s “metaphysical claims of interference with its investigation and its rights that amount to nothing more than tautological claims of prejudice. There is simply no evidence that MAPFRE has been materially prejudiced at all in its ability to investigate, defend or recoup the Loss from others.”

The court was also persuaded by the District of Massachusetts’s 1995 decision in New England Extrusion v. American Alliance Ins. Co.:  “‘[I]t would have been grossly unfair to [the insured] to require it to delay resolution of the claim and jeopardize its relationship with an important customer to satisfy a technicality in the policy with no risk of prejudice to the insurer.’ The Court recognizes, of course, that, had MAPFRE been able to demonstrate prejudice, the business reason for TSL’s payment would not save the day for TSL -- at least from a prejudice perspective. The apparent reason TSL chose to make reparations to its biggest client as to what it believed was an undisputed and indisputable loss was to preserve that relationship, and, by extension, its own business. These facts are not necessary to decide the issue, but merely illustrate the hard business realities that undergird ‘considerations of sound public policy’ that this Court rules would also be persuasive to the Puerto Rico Supreme Court.”
   

Insurer’s ROR Silent On A Limits Issue: Was It Waived?
In Stacy v. Bar Plan Mutual Ins. Co., No. ED108576 (Ct. App. Mo. Jan. 26, 2021), the court addressed whether an insurer waived the right to assert a coverage issue on account of having not included it in its reservation of rights letter.  The issue involved whether the coverage situation was a single claim versus multiple claims.

The court set out the general rule, which, ordinarily, may have doomed the insurer: “[A]n insurer must effectively inform the insured if the insurer believes it may not be required to extend the coverage provided under the policy. Defending an action with knowledge of noncoverage under a policy of liability insurance without a proper and effective reservation of rights in place will preclude the insurer from later denying liability due to non-coverage.” (emphasis in original).

But, here, the insurer caught a break.  The court concluded that the general rule did not apply to an issue concerning the extent of an insurer’s limit of liability: “In contrast, the limit of the insured’s liability under an insurance policy is generally not considered a defense to coverage. Missouri law recognizes a critical distinction between the assessment of what conduct is covered under the policy and the assessment of the financial limit of the insurer’s liability for conduct that is covered under the Policy. In other words, a question of what is covered is distinct from a question of how much is covered.  . . . It is well settled that an insurers communication to the insured of the limits of liability is not a statement denying coverage. Thus, an insurer’s failure to communicate the limits of liability neither constitutes a breach of the policy nor waives the applicable limits of liability.”   

    
Supreme Court Addresses When A D&O Insurer Can Withhold Consent Of A Settlement
In Apollo Education Group, Inc. v. National Union, No. 19-0229 (Ariz. Feb. 17, 2021) the Supreme Court of Arizona answered the following question from the 9th Circuit Court of Appeals:

“What is the standard for determining whether National Union unreasonably withheld consent to Apollo’s settlement with shareholders in breach of contract under a policy where the insurer has no duty to defend?”

The Arizona high court clarified the question by asking: “Should the federal district court assess the objective reasonableness of National Union’s decision to withhold consent from the perspective of an insurer or an insured?”

Held: “[U]nder a policy without a contractual duty to defend, the objective reasonableness of the insurer’s decision to withhold consent is assessed from the perspective of the insurer, not the insured. The insurer must independently assess and value the claim, giving fair consideration to the settlement offer, but need not approve a settlement simply because the insured believes it is reasonable.”

The court’s explanation, of what the insurer must do, to act reasonably, is lengthy.  I set it out here in full.  Of note, the court stated that considerations of coverage are in play, as well as adding this: “The insurer may, however, discount considerations that matter only or mainly to the insured—for example, the insured’s financial status, public image, and policy limits—in entering into settlement negotiations.” The Arizona Supreme Court’s full explanation (citations omitted):

“To act reasonably, the insurer is obligated to conduct a full investigation into the claim. The Court has described the insurer’s role as an almost adjudicatory responsibility. To carry out this responsibility, the insurer evaluates the claim, determines whether it falls within the coverage provided, assesses its monetary value, decides on its validity and passes on payment. The company may not refuse to pay the settlement simply because the settlement amount is at or near the policy limits. Rather, the insurer must fairly value the claim. The insurer may, however, discount considerations that matter only or mainly to the insured—for example, the insured’s financial status, public image, and policy limits—in entering into settlement negotiations. The insurer may also choose not to consent to the settlement if it exceeds the insurer’s reasonable determination of the value of the claim, including the merits of plaintiff’s theory of liability, defenses to the claim, and any comparative fault. In turn, the court should sustain the insurer’s determination if, under the totality of the circumstances, it protects the insured’s benefit of the bargain, so that the insurer is not refusing, without justification, to pay a valid claim.”

Owner of LLC Not An Insured Under Policy Issued To: His LLC
You own a company.  You expect to an insured under a liability policy issued to it.  Right?  So what happened in Whiting v. Kulhanek, No. 2019AP1568 (Ct. App. Wis. Feb. 2, 2021)?  The case is an important one.  I have seen insurers overlook this defense when addressing coverage for individual defendants – especially, as here, when the individual is the owner of the named insured.  

Wayne Kulhanek owned a building in Rhinelander, Wisconsin. He leased space in the building to NOW Equipment LLC, which sold and reconditioned restaurant equipment. Kulhanek was the sole member of NOW Equipment LLC.  Another portion of the building contained a garage, which Kulhanek leased to Kevin Mathison for a transmission repair business.  Mathison went to jail for a few months during the lease period.  At the time, he was several months behind on his rent.

While Mathison was locked up, Kulhanek went looking for another tenant for the garage space. In doing so, Kulhanek contacted a junk dealer who came and removed property from the garage.  The junk dealer did not pay for the property removed.  After Mathison was released from jail,  Kulhanek allowed him access to the garage to remove his property.  Mathison discovered that some of his personal property was missing, as well as automobile parts owned by a customer.  Mathison and the customer sued Kulhanek for negligent bailment and conversion.

Auto Owners issued a commercial general liability policy to NOW Equipment LLC.  As a limited liability company, insured status was also afforded to the LLC’s members, but only respect to the conduct of NOW Equipment LLC’s business.

The court concluded that, while Kulhanek was a member of NOW Equipment LLC, it was not an “insured” for purposes of the Mathison suit.  The court explained its decision:

“We conclude Kulhanek was not an insured under the unambiguous language of the policy. He was not named as an insured—rather, the policy clearly designated NOW Equipment LLC as the named insured. Kulhanek was a member of the LLC, but as a member, Kulhanek could receive coverage only while engaged in the conduct of the LLC. According to the unambiguous language of the insurance policy, Kulhanek could therefore only be an insured as a member of the LLC with respect to the conduct of NOW Equipment LLC’s business.

Under the policy, property management cannot reasonably be considered part of the conduct of NOW Equipment LLC. Kulhanek testified at his deposition that NOW Equipment LLC was in the business of refurbishing and selling restaurant equipment. The business description on the policy's declarations page listed the LLC’s business as ‘Refrigerator Refurb.’ Under either description, NOW Equipment LLC was not in the business of commercial property rental, and any actions Kulhanek took in his role as Mathison’s landlord were therefore not part of the conduct of NOW Equipment LLC's business.”

Indiana Supreme Court To Decide Bad Faith Failure To Settle Between Primary And Excess
At issue in Cincinnati Ins. Co. v. Selective Ins. Co., No. 18-956 (S.D. Ind. Feb. 25, 2021) is a dispute between Cincinnati, a primary insurer, and Selective, an excess insurer, where the two settled an auto claim involving serious injuries.      

Cincinnati alleged that Selective acted negligently and in bad faith in refusing to settle the case sooner. 

Normally the situation is the other way around -- The excess insurer argues that, on account of the manner in which the primary insurer handed the settlement, the excess insurer suffered damages.  The court’s opinion does not explain the nature of the dispute between the two insurers.The Indiana federal court, on the basis that the Indiana Supreme Court has never held whether there is a cause of action for negligent failure to settle, and for other reasons, certified the following questions to Indiana’s top court: (1) Does Indiana law recognize a cause of action against an insurance company for the negligent failure to settle a claim within policy limits?; and (2) Does Indiana law recognize the doctrine of equitable subrogation, thus permitting an excess insurance carrier to directly sue a primary carrier for the negligent and/or bad faith failure to settle a claim within policy limits?”