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Coverage Opinions
Effective Date: August 15, 2022
Vol. 11 - Issue 4

Declarations: The Coverage Opinions Interview With Bill Richardson
Surely lawyers and adjusters can learn a thing or two about negotiation from Bill Richardson. In efforts to win the release of Americans held hostage by despots, the former governor of New Mexico and U.S. ambassador to the United Nations has gone back and forth with a who's who of tyrants, including Saddam Hussein, Fidel Castro, Hugo Chávez and two generations of Kims in North Korea.  In a piece for the ABA Journal website, I interviewed Richardson and he shared some pages from his deal-making playbook.

Randy Spencer's Open Mic
Buss Celebrates Its 25th Anniversary
Lawyers Get On Board With Buss Articles

Encore: Randy Spencer's Open Mic
Office Holiday Party + Lamp Shade On The Head = Coverage Dispute

My Op-Ed In The Wall Street Journal On Hot Dogs And The Law (Really)

45th Anniversary Of The Death Of Elvis

The National Enquirer Of Insurance Coverage
Brand New Coverage Opinions Contest:
Shocking Insurance Coverage Headlines

Insurance And The National Bobble Head Hall Of Fame and Museum  

An Insurance Proposal I'd Love To See

Do Insurance Adjusters Need To Know And Research Case Law?
Guest Author: Stephen Johnson

Just Decided: New Jersey Supreme Court: Insurers Can Look To Extrinsic Evidence To Deny A Defense
No Need For Insurers Dancing In The Dark

Montana Supreme Court: Big Sky's The Limit For Policyholder

Just Decided: Washington High Court: Insurer's CGL Policy Violates Public Policy

Coverage Owed For "Tossing Hot Bacon Grease"

An Overlooked Coverage Issue: The Policy's Business Description  

Court Says DJ To Proceed Before Underlying Action
Everything's Legal In New Jersey

High Court Addresses Earth Movement Exclusion – In A CGL Policy!  [Huh?  I've Never Seen That.]

Tapas: Small Dishes Of Insurance Coverage
• Federal Appeals Court: 10 Day Stub Period = Extra $10 Million Limit
• Montana High Court Addresses Its Table of Contents Rule

Back Issues:
  Volume 5 - Issue 12 -December 7, 2016
  Volume 6 - Issue 2 -February 13, 2017
  Volume 8 - Issue 1 - January 3, 2019
  Volume 9 - Issue 1 -January 8, 2020
  Volume 9 - Issue 2 -February 26, 2020
  Volume 9 - Issue 3 -March 24, 2020
  Volume 9 - Issue 4 -May 31, 2020
  Volume 9 - Issue 5 -July 16, 2020
  Volume 9 - Issue 6 -September 23, 2020
  Volume 9 - Issue 7 -October 30, 2020
  Volume 9 - Issue 8 -December 7, 2020
  Volume 10 - Issue 1 -January 11, 2021
  Volume 10 - Issue 2 -March 8, 2021
  Volume 10 - Issue 3 -April 28, 2021
  Volume 10 - Issue 4 -June 17, 2021
  Volume 11 - Issue 1 -January 3,2022
  Volume 11 - Issue 2 -February 28,2022
  Volume 11 - Issue 3 -June 15,2022


Vol. 11 - Issue 4
August 15, 2022


Buss Celebrates Its 25th Anniversary

Lawyers Get On Board With Buss Articles








July 24th marked the 25th anniversary of the California Supreme Court’s landmark decision in Buss v. Superior Court of Los Angeles County (Transamerica Ins. Co.), 939 P.2d 766 (Cal. 1997).  This began in earnest the debate over reimbursement of defense costs.  In Buss, the court held that an insurer had a right to reimbursement of defense costs for claims that are not covered under the policy. The court concluded that the insurer’s right of reimbursement is one that is implied in law, to prevent unjust enrichment by the insured of defense costs for claims that were not covered by the policy, and, hence, for which the insured paid no premium.

Policyholders generally maintain that insurers may not defend, and then seek reimbursement of defense costs following a determination that there was no defense owed, as the policy does not include such right.  And, further, the policy cannot be modified by a reservation of the right to seek reimbursement.  Policyholders also view reimbursement of defense costs as a backdoor narrowing of the duty to defend.

Insurers generally say the opposite: since the insured accepted the defense, subject to the insurer’s reservation of the right to seek reimbursement, the right exists.  Insures also assert the Buss rationale of unjust enrichment.

In any event, the debate has raged and courts are pretty much split on the issue.  I have not looked lately at the exact scoreboard, but no side has a big margin of victory.

The arrival of Buss brought something else – articles about Buss.   It is a crowded field of articles by insurance commentators over the right way to address the reimbursement issue. 

One thing about these articles – some authors took the opportunity to take a bus ride in search of their titles.  As pun opportunities go, this is about as low-lying fruit as it gets.  Consider these articles that have addressed Buss and reimbursement of defense costs:

Insurer reimbursement: Get on the “Buss”
Gordon & Reese, March 2012

Don’t Miss The “Buss”
Gary W. Osborne and Dominic Nesbitt, Osborne & Nesbitt

Buss Stop: A Policy Language Based Analysis
Angela Elbert and Stanley Nardoni, Connecticut Insurance Law Journal, 2006-2007

Next Stop for Buss: California Appeals Court Addresses Coverage for Attorney’s Fees
Awarded for the Recovery of Uncovered Damages
Randy Maniloff, Binding Authority, 2009 [GUILTY!]

The Insurer’s Right to Seek Reimbursement: Will The Buss Stop in Oklahoma?
Melinda Kirk, Tulsa Law Review, 2000

Nevada Gets on the “Buss,” Adopts Insurer Right of Reimbursement for Uncovered Defense Costs
Andy Downs, Bullivant & Houser, 2021

Does Buss Stop Here? California’s Insurer Right to Recoup Rejected by Other State Courts
David O’Neill,, PolicyFind, 2015

Howard on Missing The “Buss”: Pennsylvania Supreme Court Refuses to Recognize Insurers' Right to Recover Defense Costs Expended With Respect to Non-Covered Claims
Ted Howard, Wiley Rein, 2010

For anyone considering writing an article on Buss, do not fret.  There are still plenty of good titles available.  Here are a few that I came up with.  Feel free to use one.  No need to give me credit.

Policyholder Counsel Says Buss Isn’t Fair
Wheels on the Buss Go Round and Round: Another Court Allows Reimbursement of Defense Costs

Hop Off the Buss Gus: Paul Simon Challenges Insurer’s Right to Reimbursement of Defense Costs

Court Throws Policyholder Under the Buss: Allows Reimbursement of Defense 

Hey Buss Driver, I’ll Keep The Change: Policyholder Fights Insurer’s Reimbursement Claim [For you Bruce fans out there.]

Court Gets On Board With Buss And Allows Reimbursement Of Defense Costs

No Magic Buss For Insurer: Court says No To Reimbursement

Double Decker Buss: Policyholders Lose Two Reimbursement Cases On The Same Day


That’s my time. I’m Randy Spencer.




Vol. 11 - Issue 4
August 15, 2022


Encore: Randy Spencer’s Open Mic

Office Holiday Party + Lamp Shade On The Head = Coverage Dispute








This Open Mic column originally appeared in the December 18, 2019 issue of Coverage Opinions


It is one of the oldest gags in the book.  Someone is at a party, has too much to drink and puts a lamp shade on their head.  But does anybody really do that?  Or is it just a joke people make about someone drinking too much?

Well, for sure it happened once.  And it didn’t end well for the gagster.  And, as often happens when people do foolish stuff, enter the lawyers.  Enter the insurance claim.  Enter the coverage dispute.  Enter the DJ action.  Enter Randy Spencer.     

The Nebraska district court in Mansion on the Hill Hotel, LLC v. Coast City Property & Casualty Company, No. 19-23687 (Neb. Dist. Ct. (Lancaster Cty.) Dec. 2, 2019) tells the tale.  It all started on December 10, 2017 at the annual holiday party, held by Highway Industries at the Mansion on the Hill Hotel in Lincoln, Nebraska.  Highway is in the business of making the cardboard tubes inside rolls of paper towels and toiler paper.  The company boasts that its tubes have been used in over one billion craft projects. 

At the party, Joe Roberts, Highway’s sales manager, overindulged on purple flip flops – a drink make up of pomegranate juice, pineapple juice, coconut rum and vodka.  The combination of pomegranate juice and pineapple juice makes for a lovely purple color.  Roberts was ridiculed all night for his choice of beverage.  Most people were drinking Tanqueray.  By the end of the party Roberts was hammered.

While leaving the hotel, to meet his Uber vehicle, Roberts stopped at a table in the lobby.  On it was a lamp with a cone-shaped shade.  Roberts joked to his colleagues that he wears a size 9 lamp shade and would see if it fit.  Roberts pulled the shade off and put it on his bald head.  Unfortunately for Roberts, the shade had a metal ring at the top.  On account of the 150 watt bulb just an inch away from it, Roberts suffered a perfectly circular second degree burn on the top of his head.  It resembled a halo.  Behind Roberts’s back his colleagues called him the idiot angel. 

Roberts sued Mansion of the Hill Hotel for negligence.  He alleged that the hotel failed to warn that the lamp shade contained a burning hot ring that would clearly cause a head burn to anyone who tried it on.  Roberts argued that the hotel, because of its heavy volume of holiday parties, knew that the lamp shade in the lobby was as attractive nuisance for intoxicated guests and also knew that the ring at the top was very hot.  Thus, Roberts maintained that the hotel had a duty to warn about the risks of putting on the shade.  Or the hotel should have only used lamps with permanently affixed shades.    

Mansion provided notice of the complaint to Coast City P&C and sought a defense under its commercial general liability policy.  Coast City retained John Brown to defend Mansion under a reservation of rights.  Coast City then filed an action seeking a determination that it had no obligation to provide coverage to Mansion for any damages awarded to Roberts on account of his injury. 

Coast City maintained that no coverage was owed for damages on account of the policy’s Holiday Party exclusion, which provided as follows: “This insurance does not provide coverage for any claim arising out of an organization holding a party between Thanksgiving and December 31.”

Coast City P&C was aware that the hotel hosted many company holiday parties and did not want to be exposed to lability for events associated with sometimes foolish behavior on account of overindulgence in alcohol.

Coast City and Mansion filed competing motions for summary judgment.  The court in Mansion on the Hill Hotel, LLC v. Coast City Property & Casualty Co. held that the Holiday Party exclusion served to preclude coverage for any damages awarded to Roberts on account of his injury.

The court concluded that the exclusion was not ambiguous: “The court agrees with Coast City that there is only one reasonable interpretation of the Holiday Party exclusion.  The court reject’s Mansion’s argument that, because the injury sustained by Roberts took place after the party was over, and outside of the party venue, it was not arising out of an organization holding a party.  If Roberts tripped and fell into the Gargoyle fountain in the lobby, the court would have a more difficult task.  But Roberts testified at his deposition that he would not have put the lamp shade on his head if not for his many fruity libations, being in the company of co-workers at a party and an alcohol-fueled atmosphere.  Roberts’s account, of why he used a lamp shade as a fedora, shined a bright light on why his injury arises out of an organization holding a party.  While it is not the court’s role to address whether the hotel should have taken action to prevent this Christmas story, it may want to use a leg lamp during the month of December.”


That’s my time. I’m Randy Spencer.



Vol. 11 - Issue 4

August 15, 2022


My Op-Ed In The Wall Street Journal On Hot Dogs And The Law (Really)


For the July 4th holiday, I had the fun of publishing an article in The Wall Street Journal on hot dogs and the law.

It’s remarkable how many reported decisions there are where a hot dog is the focus of the dispute.  My piece in the WSJ is just a small bite of wiener jurisprudence .  I hope you can check it out:






Vol. 11 - Issue 4

August 15, 2022


45th Anniversary Of The Death Of Elvis


August 16th marks the 45th anniversary of the death of Elvis Presley.  I’ve had the privilege of publishing many articles in The Wall Street Journal over the years.  By far, one of my favorites came on January 7, 2020 – a piece tied to what would have been Elvis’s 85th birthday.  It looked at some judicial decisions where the judge turned to the King for guidance.

The courthouse – Elvis has not left the building.

This seemed a good time to reprise it.  I hope you can check it out here:






Vol. 11 - Issue 4

August 15, 2022


The National Enquirer Of Insurance Coverage


I was in the supermarket not long ago and had a lot of items -- definitely too many for the self-serve check-out.  It would have been a nightmare: The machine stopping constantly, telling me to wait for the attendant, who then walks over, and has a look on his or her face that says – whatever caused the breakdown, was definitely my fault.

Then there would have been accusations that I was trying to steal something: “Please remove the unscanned item from the bag.”  I scanned it, you &*%#@ machine!  And watch it buddy, that’s defamatory!  And, I had several kinds of fruit in my cart.  Oh man, you know what happens where there’s no bar code?   Wait, are these the organic kind?  Do you push the yam button for a sweat potato?

So with self-serve not an option, I got in line in the old-fashioned aisle.  To occupy myself, I picked up The National Enquirer and read the various shocking headlines. 

And then it hit me -- A Coverage Opinions contest: Outlandish insurance coverage headlines that you would see on the cover of the Coverage Enquirer, an insurance coverage supermarket tabloid.

Here are a few that I came up with:

  • Court Excuses 14-Year Late Notice – Policyholder Included An Apology Note In Its Tender
  • Court Allows Psychic Premonitions As Extrinsic Evidence To Find A Duty To Defend
  • N.Y. Court: Not Bad Faith For Insurer To Use Magic 8 Ball To Make Coverage Determination
  • George Clooney To Play Maniloff in Insurance Key Issues Movie [wait, that’s not so outlandish]
  • Ancient Documents Discovered: Noah Argued Flood Exclusion Was Ambiguous  


Send me a shocking insurance coverage headline that you would see on the cover of an insurance coverage supermarket tabloid.  Send as many as you’d like.  It can be policyholder-centric, insurer-centric, lean toward no side, whatever you’d like.  There are no rules here.  This isn’t exactly the Publisher’s Clearinghouse.  If you have a question, don’t ask, do whatever you want.  Just keep it clean.  Like all first-time CO contests, this could be a huge success -- or a compete bust.

The prize for the best entry will be a copy of the 5th edition of Insurance Key Issues.  Or, if the winner prefers, an autographed copy of John Grisham’s next novel, which is due out in October.  This is assuming I can get my hands on one, which I should be able to.




Vol. 11 - Issue 4

August 15, 2022


Insurance And The National Bobble Head Hall Of Fame and Museum   


Earlier this summer, I found myself in Milwaukee.  Needless to say, a stop at The National Bobble Head Hall of Fame and Museum was on my to-do list.  Well, I can cross this one off the bucket list. 

[It was not a family affair, as my wife and daughter had no interest in joining me.  No way. No how.  It’s just as well.  It would have been distracting to hear “can we go now” twenty times.  Also, they would have had no patience when I extended my tour with a Q&A with the museum curator.]

The Bobble Head Hall of Fame features about 7,000 nodding heads, not to mention many thousands more in storage.  There is also a section that looks at the history of bobble heads.  You can’t imagine this sight. And I can’t even describe it.  It is a classic case of you’ve gotta see it to believe it.  It’s kinda like the Louvre – but way more impressive.

Imagine my surprise -- and sheer glee --when I got to the insurance mascot section of the Hall.  Yes!  There was such a thing!

Take a gander at these fabulous insurance wobblers that are on display at the National Bobble Head Hall of Fame and Museum.  If any CO readers have been there, drop me a note and we can swap stories.




Vol. 11 - Issue 4

August 15, 2022


An Insurance Proposal I’d Love To See





Vol. 11 - Issue 4

August 15, 2022


Do Insurance Adjusters Need To Know And Research Case Law?


In a May 5, 2022 dispatch of Coverage Opinions, I reported on the late-March decision in Security National Ins. Co. v. Construction Associates of Spokane, where a Washington federal judge, in addressing a coverage dispute, spoke of the importance of adjusters considering case law when making a coverage determination.

Long-time insurance coverage attorney turned expert witness, Stephen Johnson, provides his insight on this issue here.


Comment on Security National Ins. Co. v. Construction Associates of Spokane: Adjusters And Case Law

Stephen Johnson

In Security National Ins. Co. v. Construction Associates of Spokane, No. 20-167 (E.D. Wash. Mar. 24, 2022), the Washington federal judge stated that adjusters should have at least a baseline understanding of the relevant state’s law in carrying out their duties. So far, so good.

The decision went on to state insurers “must undertake what in practice are reasonably small steps to ensure adjustors are equipped to make reasonable coverage and defense determinations. Such steps could include teaching adjustors to run case searches or, more likely, supplying adjustors with subscriptions to relevant legal newsletters, a resource most attorneys rely on to keep apprised of legal developments.”

Some of these steps described are neither small nor reasonable.

Both sides of the litigation aisle and insurers would agree that adjusters should have awareness of certain key legal concepts and variances per state – e.g., pure versus modified comparative negligence, key landmark cases, etc.

However, when the Construction Associates court went on to suggest that adjusters should be taught to “run case searches” or otherwise perform legal research, if literally applied, then (in the style of my friend Randy): “Danger, Will Robinson!”

Adjusters cannot be expected to astutely sherardize cases, accurately differentiate between dicta and the holding within a reported decision or otherwise competently perform full legal research as is sometimes needed. Imagine an adjuster complaining to Human Resources – “My supervisor and I wanted to retain coverage counsel, but management said no … that I need to perform my own legal research. My job description says I am an adjuster, not an attorney! In fact, I am not an attorney.” Any readers know a good employment lawyer?

Washington state is known as a jurisdiction unfriendly to insurers sued for bad faith claims handling or practices.  Any insurer defending bad faith litigation with “bad facts” in that state – or in many other states – well could rue the day it decided to “teach” adjusters to act as attorneys and forego retaining learned coverage counsel – such decision being another bad fact. The likelihood of a sophisticated insurer going down that path should be minimal, as last resort voices of reason could include human resources or the general counsel’s office.

The optics would be horrible. Policyholder counsel would have a field day convincing the jury that the insurer “went cheap.” Instead of spending what was necessary to get it right, by bringing in a coverage attorney to provide crafted, lawyerly and reliable advice, the insurer opted to “coach up” an adjuster and hope for the best.

Sometimes “getting it right” means bringing in – and paying for – outside counsel steeped in applicable state law. This decision’s narrative would have been much better had that sense of practicality been added.

I am in my 40th year as an attorney, have been the top claims officer at large insurers and have known many other chief claims executives over the years.  Having adjusters exposed to newsletters, relevant continuing education content and the like all makes sense and is what the P&C industry does. I know of no insurers which would try to transform adjusters into attorneys as suggested by the Washington federal court in Construction Associates, nor should they.

Stephen Johnson is an industry veteran, having led insurers claims departments and applied industry standards for his adjusters for many years prior to becoming an expert witness.


[The opinions expressed in outside commentaries are solely those of the author.  Publication of a commentary is not an endorsement of the content and are simply provided as a service to readers.] 





Vol. 11 - Issue 4

August 15, 2022


Just Decided: New Jersey Supreme Court: Insurers Can Look To Extrinsic Evidence To Deny A Defense

No Need For Insurers Dancing In The Dark


As I was putting together this issue CO, the New Jersey Supreme Court decided Norman Int’l, Inc. v. Admiral Ins. Co.. No. 086155 (N.J. Aug. 11, 2022).  At issue was coverage for a work-site injury and the interpretation of a policy exclusion for operations or activities performed by an insured in certain counties in New York.  The case is significant in terms of addressing causation for purposes of the application of exclusions.  But the more wide-reaching issue has nothing to do with the scope of the exclusion.

The real story from Norman is the New Jersey high court’s pronouncement that an insurer, in certain circumstances, can use extrinsic evidence to deny a defense to its insured.  New Jersey duty to defend law has been a jungleland and in need of more supreme court guidance.

Colleen Lorito, an employee of a Home Depot store located in Nassau County, New York, was injured while operating a blind cutting machine provided to Home Depot by Richfield Window Coverings, headquartered in Santa Fe Springs, California.

Richfield sells window covering products to national retailers, including Home Depot.  Richfield also provides retailers with machines to cut the blinds to meet customer specifications.  Richfield’s representatives visit the retailers to maintain and repair the machines and replace the cutting blades.

Lorito filed an action in Nassau County against Richfield, which sought coverage from its liability insurer, Admiral.  The insurer denied a defense, citing a policy exclusion that provided, in part, as follows:

This insurance does not apply to “bodily injury”, “property damage” or “personal and advertising injury”, including costs or expenses, actually or allegedly arising out of, related to, caused by, contributed to by, or in any way connected with:

(1) Any operations  or activities performed by or on behalf of any insured in the Counties shown in the Schedule above; [These were several counties in New York state, including Nassau.]

Coverage litigation ensued.  The New Jersey Appellate Division concluded that the exclusion did not apply, as there was no “causal relationship” between Richfield’s activities involving the blind cutting machine and the causes of action raised in the complaint.   

Following a lengthy analysis, the New Jersey Supreme Court reversed, concluding that Richfield’s activities constituted a sufficient basis to trigger the policy’s Designated New York Counties Exclusion.  [Again, the court’s detailed analysis of causation, for purposes of the application of exclusions, is significant and will play a part in future decisions.]

But the real story in Norman is the court’s rejection of the manner in which the Appellate Division made its erroneous duty to defend decision.

The supreme court stated that the appeals court “set[] forth the general standard that a ‘complaint should be laid alongside the policy’ to determine a duty to defend.”  However, the high court stated: “Going forward, in similar situations, courts should indicate when an issue requires consideration of facts beyond the complaint.” 

This was one such case. However, the appellate division did not do so.  The supreme court concluded that the appellate division, in reversing the trial court, noted that the trial court considered “facts from discovery, including that Richfield employees visited the store to change the machine's blades, perform maintenance on the machine, and provide training resources to employees, each of which was not discussed in the complaint.”

Understanding what types of extrinsic evidence can be considered by an insurer, in determining its duty to defend, is tied to the glory days of Burd v. Sussex (N.J. 1970), which the court noted was not considered by the appellate division in its analysis.

Looking back to Burd, the supreme court in Norman stated:

“There are times, however, when comparing the causes of action in the complaint to the exclusionary clause will not provide an answer as to whether there is a potentially covered claim. That situation occurs ‘when coverage, i.e., the duty to pay, depends upon a factual issue which will not be resolved by the trial.’ Burd, 56 N.J. at 388. In such cases, ‘the duty to defend may depend upon the actual facts and not upon the allegations in the complaint.’ Ibid.”

The Norman court described the duty to defend rule as follows: “Stated differently, if coverage will not be an issue resolved during trial, it may not be sufficient to look only at the complaint because the duty to defend depends on facts not relevant to the causes of action in the complaint.”

For an example, the court set out one provided by the Burd court: “[I]f a policy covered a Ford but not a Chevrolet also owned by the insured, the carrier would not be obligated to defend a third party’s complaint against the insured which alleged the automobile involved was the Ford when in fact the car involved was the Chevrolet. The identity of the car, upon which coverage depends, would be irrelevant to the trial of the negligence action.”

Thus, as explained by the Norman court, if an extrinsic fact is relevant to determining coverage, but not for purposes of determining an issue in the underlying action, then it can be considered by an insurer in deciding if it is obligated to defend.
It could be said that the Norman court made no new law, but, rather, simply applied Burd.  I do not address that question here.  However, even if that’s the case, with Burd being fifty-years-old, Norman’s reaffirmance of the decision will surely give insurers more willingness to consider extrinsic evidence when determining if a defense is owed. 

Norman is going to play an important role in many cases where policyholders turn to their insurers and say: cover me.





Vol. 11 - Issue 4

August 15, 2022


Montana Supreme Court: Big Sky’s The Limit For Policyholder


This was a whopper out of Helena.   In Daniels v. Gallatin County, No. DA 21-0321 (Mont. July 12, 2022), the Montana Supreme Court addressed the appropriate limit of liability for a claim against a county: $750,000, the statutory cap of a municipality’s liability or $6.5 million, the combined limit of the primary and excess policies issued to the county.  The Montana high court ruled in favor of the much bigger numer. 

Sarah Daniels was seriously injured when a snowplow, operated by an employee of Gallatin County, collided with her vehicle.  The county admitted liability.  Atlantic Specialty paid $750,000 to Sarah’s conservator.  As far as the insurer was concerned, that was the extent of its liability, as Montana Code Section 2-9-108 states in relevant part as follows:

(1) The state, a county, municipality, taxing district, or any other political subdivision of the state is not liable in tort action for damages suffered as a result of an act or omission of an officer, agent, or employee of that entity in excess of $750,000 for each claim and $1.5 million for each occurrence.
. . .
(3) An insurer is not liable for excess damages unless the insurer specifically agrees by written endorsement to provide coverage to the governmental agency involved in amounts in excess of a limitation stated in this section, in which case the insurer may not claim the benefits of the limitation specifically waived.

But that wasn’t the end of it.  Sarah’s conservator filed suit against the county and the insurer.  In a bench trial, the court awarded Sarah $12.4 million in damages.  Atlantic Specialty insured the county under an auto policy with a $1.5 million limit and a $5 million excess policy.

Putting aside the lower court’s handling of the claim, the Montana high court was faced with determining the extent of the insurer’s remaining liability.  Its choices: nothing, as the insurer had already paid $750,000, being the maximum liability of a municipality, or $5,750,000, the remaining limit under the policies.

As far as Atlantic Specialty was concerned, since its policy was silent on the statutory cap, it did not waive it.  In other words, under the statute, “an insurer is not liable for excess damages unless the insurer specifically agrees by written endorsement to provide [such] coverage.”  And the policy is issue contained no separately attached document waiving the endorsement.

But the Montana high court was not convinced.  The question was not whether the statute was specifically referenced in the policy, but, rather, the insurer’s intent, based on the policy language.

The court examined various policy provisions to support its decision and discussed what an endorsement means.  The court gave particular weight to the following: “Second and as noted by the District Court, it is undisputed the Policy provides coverage for the auto in question and the occurrence itself. The scope of coverage provision defines the scope of the Policy’s coverage and has no language limiting the amount of coverage provided under the Policy. ASIC’s corporate representative conceded coverage provisions ‘typically are not drafted to incorporate specific statutory limitations’ and when ASIC has specifically limited coverage to a statutory cap in other states, ASIC has done so by amending the provision pertaining to the limits of liability, not the scope-of-coverage provision.”

But when all was said and done, the court’s decision came down to these observations: 

“ASIC agreed to sell this Policy with full knowledge of the laws in Montana that limit certain liabilities. See Mont. Auto Fin. Corp. v. British & Fed. Underwriters, 72 Mont. 69, 75, 232 P. 198, 200 (1924) (‘The policies are prepared by skilled lawyers retained by the insurance companies, who through years of study and practice have become expert upon insurance law, and are fully capable of drawing a contract which will restrict the scope of liability of the company with such clearness that the policy will be free from ambiguity, require no construction, but construe itself.’). Knowing this, ASIC did not exclude coverage over $750,000 for the type of injuries covered by § 2-9-108(1), MCA, but agreed ‘to provide the insurance as stated in this policy’ in excess of the statutory cap.”

To reiterate, the statute provided: “An insurer is not liable for excess damages unless the insurer specifically agrees by written endorsement to provide coverage to the governmental agency involved in amounts in excess of a limitation stated in this section.”  But the count found, with no such endorsement, that the insurer specifically agreed to provide coverage in excess of $750,000. 

A strong dissent made several points that demonstrates why the decision is so wrongly decided.

Nonetheless, an insurer that issues liability policies to municipalities in any state that are subject to statutory caps needs to take a close look at this decision, the applicable statute and its policy language.  Do any steps need to be taken to avoid this clearly unintended, significant additional exposure?





Vol. 11 - Issue 4

August 15, 2022


Just Decided: Washington High Court: Insurer’s CGL Policy Violates Public Policy


“Occurrence” policies and “claims made” policies have well-defined distinctions.  In general, under today’s commonly used forms, an “occurrence” policy is triggered for an “occurrence” that could have happened at any time – even ages ago – so long as the “bodily injury” or “property damage” occurred during the policy period.  A “claims made” policy is triggered for a wrongful act that occurs on or after the retroactive date and before the end of the policy period and a claim [likely defined] was first made against the insured and reported to the insurer during the same policy period.  

The policy at issue before the Washington Supreme Court, in Preferred Contractors Ins. Co. Risk Retention Grp., LLC v. Baker & Son Constr., Inc., No. 100466-4 (Wash. Aug. 11, 2022) was a combination of the two -- and then some -- and the court did not take kindly to it, declaring that it violated the state’s public policy.

In general, insurers that issue policies to contractors, in states with a mandatory minimum insurance requirement [and I do not know how many that is], would be well-served to review the decision and consider if any policy limitations, such as an amended/narrowing insuring agreement, or certain exclusions, run the risk of falling afoul of any such statutes.

The case is all about the insuring agreement, so I’ll set it out here verbatim:

This insurance applies to “bodily injury” and “property damage” only if:

(1) The “bodily injury” or “property damage” is caused by an “occurrence” that first takes place or begins during the “policy period”. An “occurrence” is deemed to first take place or begin on the date that the conduct, act or omission, process, condition(s) or circumstance(s) alleged to be the cause of the “bodily injury” or “property damage” first began, first existed, was first committed, or was first set in motion, even though the “occurrence” causing such “bodily injury” or “property damage” may be continuous or repeated exposure to substantially the same general harm;

(2) The “bodily injury” or “property damage” resulting from the “occurrence” first takes place, begins, appears and is first identified during the “policy period”. All “bodily injury” or “property damage” shall be deemed to first take place or begin on the date when the “bodily injury” or “property damage” is or is alleged to first become known to any person, in whole or in part, even though the location(s), nature and/or extent of such damage or injury may change and even though the damage or injury may be continuous, progressive, latent, cumulative, changing or evolving.”

Then, the policy added a “claims made” endorsement, which set out additional provisions that needed to be satisfied.  In general, the policy applied only to claims first made against the insured and reported during the policy period.

Basically, to trigger coverage, everything had to absolutely first take place during the policy period – the “occurrence” and “bodily injury” or “property damage” – and then the claim made and being reported. 

All things considered, that’s a very narrow needle for a claim to thread for an insured to get coverage.   

The Washington Supreme Court addressed the following certified question from the Washington District Court:

When a contractor’s liability insurance policy provides only coverage for “occurrences” and resulting “claims-made and reported” that take place within the same one-year policy period, and provide no prospective or retroactive coverage, do these requirements together violate Washington public policy and render either the “occurrence” or “claims-made and reported” provisions unenforceable?

The court went through a tutorial on “occurrence” and “claims made” policies and noted that “insurance policies are private contracts, and parties are ordinarily free to exercise their freedom of contract to limit the liability covered in the policy. . . . However, this court will refuse to enforce an insurance provision if it is contrary to public policy.”

What led the court to conclude that the policy at issue violated public policy was chapter 18.27 of the Washington Code, designed to ensure that contractors are financially responsible, primarily through insurance, for losses caused by their negligence. The Code requires contractors to have insurance or financial responsibility to cover $100,000 “for injury or damage including death to any one person” to obtain registration with the state.

The opinion is very lengthy and detailed. But, in general, the court held that the policy at issue violated public policy as the coverage was so narrow as to not provide what was required for contractors under the Washington Code.  The court explained:

“We are mindful that parties to insurance contracts generally should have the freedom to contract. But when the legislature orders contractors to bear financial responsibility for the injuries their negligence may cause and dictates insurance is the preferable method to comply with this mandate, we cannot enforce insurance provisions that render coverage so narrow it is illusory.  While RCW 18.27.050 does not require insurers to issue occurrence policies or provide retroactive coverage to contractors switching from an occurrence to a claims-made policy, insurers should not issue policies that essentially cause contractors to default on their statutorily mandated financial responsibility. The insurance policies PCIC issued to Baker fail to provide prospective or retroactive coverage and create limited one-year windows for claims to occur and be reported to qualify for coverage. Such restrictive coverage violates Washington’s public policy. Therefore, we answer the certified question in the affirmative.” 





Vol. 11 - Issue 4

August 15, 2022


Coverage Owed For “Tossing Hot Bacon Grease”


At issue in Vermont Mutual Ins. Co. v. Oquendo-Cabanas, No. 21-6050928 (Conn. Super. Ct. July 22, 2022) was coverage owed for an incident in which someone “toss[ed] hot bacon grease” on another.  Unfortunately, the court gives almost no facts of the incident.  There is a probably a really interesting back story here, but we don’t get to hear it. 

[If the underlying case were in federal court, I would have gotten the complaint from Pacer.  Easy.  But it’s in Connecticut state court – and I assume that that would have taken effort.  So we’ll just have to make do with what we have.  If you paid a subscription fee for this fine newsletter, I would have put in the work.]

In the underlying case, Noah Oquendo-Cabanas alleged that Trinity White negligently poured hot bacon grease on him and that Alison White failed to supervise and failed to warn.  That’s about all we know.

Somewhere along the way coverage litigation ensued.  Vermont Mutual and the Whites filed motions for summary judgment on the insurer’s duty to defend and indemnify.

The opinion jointly addresses the “occurrence” requirement and intentional act exclusion and concluded that neither bars coverage: “Here, the only evidence provided as to the subjective intent of Trinity White is that she tried to make Oquendo-Cabanas flinch and intended the grease to come out of the pan onto the floor. Therefore, the only evidence that the court can consider is that the act was intended but the resultant harm was not. As this constitutes an occurrence, thus an accident, Vermont Mutual's exclusion does not apply.”

The opinion is a little confusing.  The court acknowledged – without saying so specifically – that pleading into coverage should not be allowed.  There is a description in the opinion of a clear prohibition on the practice.  The court also stated that “harmful intent may be inferred at law in circumstances where the alleged behavior in the underlying action is so inherently harmful that the resulting damage is unarguably foreseeable.”

But, despite this, the court considered testimony of Trinity White in reaching its conclusion that the intentional act exclusion did not apply.  With that testimony on the table, the court concluded as follows: “Trinity stated that she shook the pan to ‘try to make him flinch.’  She subsequently testified that she ‘flung’ the pan. She didn’t know where Oquendo-Cabanas was when she flung the pan. She did not testify that she intended to pour hot grease on him as asserted in the complaint. However, she did testify that she intended the grease to come out of the pan onto the floor. While she intended to commit the act, she did not intend an injury. There is no factual basis to establish that she intended for an injury to occur or contemplated the consequences of her actions.”

The court saw this as an intent to act, but not intent to injure situation – the classic policyholder argument for coverage in circumstances of this sort.





Vol. 11 - Issue 4

August 15, 2022


An Overlooked Coverage Issue: The Policy’s Business Description


In my experience, there is not always focus on whether a liability claim arose from the insured’s engagement in the business described in the policy or premium classification.  In other words, it is sometimes taken for granted that the policy was intended to cover all of the insured’s business activities, whatever they may be.  So long as the party named in the complaint in the same party listed on the policy’s declarations page, there is nothing to see here. Move along.  And, for the most part, there is nothing to see here.

But, in some cases, this issue is looked at closely.  And insurers have had success in establishing that a claim, perhaps otherwise covered, is not, as the insured’s liability was on account of performing operations outside the scope of those permitted by the policy.

This issue was the focus of two decisions last month.

Before the court in First Mercury Ins. Co. v. ARMR Group, No. 21-98 (E.D. Ky. July 26, 2022) was general liability coverage for ARMR for harm caused by its application of an anti-microbial solution – shockwave -- while working as a subcontractor on a construction site.  The court held that, because ARMR’s Group’s application of the solution did not constitute “painting” -- the activity within the covered business description contained within the policy – no coverage was owed.  The court looked at various definitions of painting, which was not defined in the policy, and concluded that, no matter how you sliced it, “painting is not cleaning.” Therefore, no coverage was owed.  
RML Construction v. Gotham Ins. Co., No. A-3358-19 (N.J. Super. Ct. App. Div. July 8, 2022) provides another example.  The court held that no coverage was owed to an insured, under a policy that contained a classification for landscape gardening, when the insured was sued for wrongful death that occurred in the course of performing a contract to remove 2,000 trees damaged during Superstorm Sandy.  The court looked at the definition of landscape gardening, which was not defined in the policy, and concluded that, no matter how you sliced it, “[a] commonsense interpretation of landscape gardening does not include tree removal on a massive scale.”  





Vol. 11 - Issue 4

August 15, 2022


Court Says DJ To Proceed Before Underlying Action

Everything’s Legal In New Jersey


If you are involved in New Jersey coverage, then you know that the duty to defend has some unique aspects.  There’s Merchants v. Eggleston (N.J. 1962), which requires that an insured, if being defended under a reservation of rights, must consent to the lawyer retained by the insurer.  And there’s Burd v. Sussex (N.J. 1970), which allows, in some circumstances, an insurer to decline to defend and, instead, reimburse the insured for defense costs at the conclusion of the case.  And, what’s more, the reimbursement is only to the extent of covered claims.  [How Burd plays out in practice can vary.]

New Jersey’s unique treatment of the duty to defend was in play in Yurcisin v. Fleming, No. A-3750-20 (N.J. Super. Ct. App. Div. Mar. 21, 2022).  The opinion is much more wide-reaching than a typical case involving the duty to defend, but it was at the core of the decision.

At issue was coverage for Ryan Fleming, under a New Jersey Manufacturers homeowners policy, for assaulting Colin Yurcusin at a house party.  Fleming acknowledged at his plea hearing, for second degree assault, that Yurcusin was simply minding his own business when he purposely struck him six times in the face.  This admission was to be inadmissible in any civil proceeding.

NJM denied coverage to Fleming on the basis that his actions were intentional and the insurer filed a coverage action.  Fleming retained counsel to defend him in Yurcusin’s personal injury action.   

The procedural comings and goings are a little complicated.  Keeping it simple, the trial court held that a defense was owed as there was a genuine issue of material fact whether Yurcusin’s injuries were caused by Fleming’s negligent, reckless or intentional conduct.

The case went to the Appellate Division, where the court addressed what to do in a situation where the insured is sued on alternate theories of liability, such as, here, negligent and intentional torts.

The court turned to Burd for guidance and chirped in with this: “Our Supreme Court has explained that when there are covered and uncovered claims alleged in a complaint, the insurer has two options: (1) it can ‘assume the defense if the insured agreed, with a reservation of its right to dispute coverage’; or (2) it can ‘refuse to defend and dispute its obligations later, so as to ‘translate its obligation into one to reimburse the insured if it is later adjudged that the claim was one within the policy covenant to pay. ‘”

The court also noted that the Burd court “recognized that it might be appropriate to decide the coverage question, and thus the insurer’s duty to defend, before trial of the underlying claim.”

The court concluded that this was one such case: “The trial court directed that the declaratory judgment action shall be tried before the personal injury action. We discern no abuse of discretion by so ruling. Under these circumstances, the better course is for the declaratory judgment action to be decided on the merits before the personal injury action. Whether coverage exists for the occurrence is a legal issue to be decided by the court, not a jury.”

Having reached this decision, the court stayed the underlying personal injury case and concluded that no defense was owed since “the declaratory judgment action has not yet been tried and the issue of whether the incident was a covered occurrence remains undecided.”





Vol. 11 - Issue 4

August 15, 2022


High Court Addresses Earth Movement Exclusion – In A CGL Policy!  [Huh?  I’ve Never Seen That.]


It is routine to see an Earth Movement Exclusion is a property policy.  But I don’t recall ever seeing one in a commercial general liability policy.  I’ve certainly never had one in play in any construction defect claim. either my client or another insurer.

But that’s what the Montana Supreme Court’s decision in Loendorf v. Employers Mutual Casualty Company, No. DA21-449 (Mont. July 19, 2022) is all about.

The facts are straightforward and resemble those not uncommon in construction defect cases.  Helgeson Homes built several homes in Billings.  The court described what happened next: “After moving in, Homeowners noticed small cracks in the homes’ interior walls and foundation. Helgeson assured them the cracks were not indicative of a more serious problem, but the damage increased over the next several years. In 2017, Homeowners hired Krivonen Structural Consultants to inspect their properties. Krivonen found misaligned doors and windows, foundation movement issues, separation of exterior siding, and cracks in the foundation and drywall. Krivonen characterized the damage as functional-structural damage caused by settlement of the soil under and around the homes.”

The homeowners filed suit against Helgeson, alleging that the damage was caused by Helgeson’s failure to install deep foundation systems, such as foundation piers, in an area with known sandy soils with “collapse potential.” Helgeson has denied any negligence.

Helgeson sought coverage under a commercial general liability policy issued by Employers Mutual Casualty.  EMC undertook Helgeson’s defense and filed an action seeking a declaration that, on account of the Earth Movement Exclusion, no coverage was owed.

The Earth Movement Exclusion provided as follows:

“This insurance does not apply to “bodily injury,” “property damage,” “personal injury” and “advertising injury” . . . arising out of, caused by, resulting from, contributed to, aggravated by, or related to earthquake, landslide, mudflow, subsidence, settling, slipping, falling away, shrinking, expansion, caving in, shifting, eroding, rising, tilting or any other movement of land, earth or mud.”

The lower court held that the Earth Movement Exclusion did not apply, concluding that it was limited to “settling of the earth rather than earth movement as a result of the insured’s actions,” and further stated that the exclusion applies to “long-term earth movement that spanned years from expected earth movement, not movement caused by the insured.”

The Montana high court saw it differently, reasoning that, while “[h]omeowners are correct that the Exclusion does not attempt to differentiate between natural and human-caused earth movement, that does not render it ambiguous, but rather encompassing, by design.”

More interestingly, the court also found support for its decision in the interplay between the policy’s insuring agreement and the exclusion, one that was addressed by another state high court: “The Mississippi Supreme Court [Hankins v. Maryland Cas. (Miss. 2012)] concluded it would be ‘nonsensical’ to limit the earth movement exclusion’s applicability to ‘nature-caused’ or ‘natural force’ earth movement because the exclusion would serve no purpose in a third-party CGL policy that only covers ‘occurrence[s]’ that cause ‘property damage’ for which the insured is found liable.” 

The opinion does not address other issues concerning potential coverage for construction defects, such as “occurrence” and the “your work” exclusion.  But, presumably, these were not applicable if the case went to the supreme court on the Earth Movement Exclusion.   

Of course, earth movement is not an issue in every construction defect case – not even most.  But it comes up enough that insurers, looking to limit their seemingly ever-growing CD exposure, may want to consider adding this well-known property policy exclusion to their CGL.  




Vol.11 - Issue 4

August 15, 2022

Federal Appeals Court: 10 Day Stub Period = Extra $10 Million Limit
If you are involved in a “stub” period case, you will want to read the Second Circuit’s decision in First State Ins. Co. v. Columbia Cas. Co., No. 21-30 (2nd Cir. June 16, 2022).  The court addressed the limit of liability available for “stub” periods, i.e., an extension of a policy period – usually by a relatively short amount of time.  In each case, the court held that the stub period was subject to a new limit of liability. In one, a ten-day stub period led to an additional $10 million limit of liability.  In another, a 26 day “stub” period resulted in multi-millions in additional coverage.

Montana High Court Addresses Its Table of Contents Rule
I’ve always found it interesting that Montana has a law calling for the inclusion, in liability policies, of a table of contents and notice section of important provisions.  Ironically, the name of the law is a mouthful: Montana’s Property and Casualty Insurance Policy Language Simplification Act.  Anyway, the Montana Supreme Court, in High Country Paving v. United Fire & Cas. Co., No. OP 21-0487 (April 12, 2022), addressed what happens when the insurer fails to follow the PSA.  Answer -- not much: “Read as a whole, the PSA expressly limits policies subject to its requirements from increased risk.  The establishment of language and formatting standards to make insurance policies easier to read remains the PSA’s underlying purpose and guides the requirements set forth in § 33-15-337(2), MCA. However, this purpose, and the requirements enacted to effectuate it, operate in tandem with the limiting language of § 33-15-334(2), MCA, and cannot be construed so as ‘to increase the risk assumed’ under policies subject to the PSA. Thus, invalidating an unambiguous policy exclusion, as here, based on a technical violation of the PSA’s requirements cannot result in increased risk being assumed by the insurer without undermining one of the PSA’s express limitations. We decline to read the PSA in such a manner. Notwithstanding a technical violation of the PSA’s requirements, invalidating unambiguous policy exclusions may not result in an increase of the risk assumed.”