Imagine Insurance Key Issues sold at Costco!  It’s only a dream, but now you can buy the book as if it were right next to the King Kong-size boxes of Cheez-Its.

The twin set of Key Issues books will be full-price on Amazon ($250.00) at least through the end of 2023. However, they are now available for $62.50 per set (75% off) for purchases of 4 or more. That includes shipping. That’s 4 for the price of 1. It’s a great opportunity to get a set for everyone in the office at the lowest price ever. And, for added super-convenience, they can be shipped to separate addresses (again, shipping included).
 
Drop me a note and I can take the steps to get this all sorted out.  [It is not available this way through Amazon.]
 
I know I sound like a carnival barker hawking books. But trust me, Insurance Key Issues, on its best day, isn’t much of a money-maker -- and certainly not at 75% off. As I have long-been saying, my singular objective for 10+ years has been for the book to be on as many of my peers’ desks as possible. So I’m thrilled that this price will make that easier. I know that the book, at full price, is not an easy purchase for many people.

I’m happy to see that folks have already taken advantage of this bulk price deal.
 
For more information on Key Issues: https://www.insurancekeyissues.com/

  

Last month’s arraignment of Donald Trump was handled by Judge Jonathan Goodman of the Southern District of Florida.  On countless occasions over the past decade, Judge Goodman has cited to rock n’ roll lyrics in his opinions -- Springsteen, Tom Petty, REM, The Kinks, Bob Dylan, Elvis, The Red Hot Chili Peppers, The Beatles and on and on…

Sometimes he offers them as a way of expressing guidance to the lawyers or parties. Other times he uses them to make observations about the case or law generally.  But they never take away from the seriousness of what he’s doing.

In this piece for the Pittsburgh Post-Gazette I looked at the judge who has cited Meatloaf in an opinion.  I hope you can check it out.

https://www.coverageopinions.info/RockLyrics.pdf

  

“Barbie,” a live-action film, was just released in theaters.  It is the story of Barbie and fellow Barbies who reside in Barbieland. Barbie suffers an existential crisis and travels to the real world to learn the truth about the universe.

On account of the doll’s massive success since its introduction in 1959, all manner of efforts have been made to trade on her popularity and goodwill. Not to mention attempts at parody too. Mattel, owner of the rights to Barbie, doesn’t sit idly by in the face of these threats. When Barbie is under attack, she will go to court!

In this piece for the ABA Journal website, I looked at the career of lawyer Barbie, who has been busy at Barbie’s courthouse.

I hope you can check it out.

https://www.abajournal.com/columns/article/meet-lawsuit-barbie-shes-been-busy-at-barbies-courthouse

  

A short time ago, a Broward County, Florida jury awarded $800,000 to an 8-year-old for second-degree burns suffered in 2019 when a “dangerously hot” Chicken McNugget fell from a Happy Meal onto her leg while in a car seat.

Unsurprisingly, some of the extensive media coverage of the verdict against McDonald’s recalled the 1994 case of Stella Liebeck, the 81-year-old grandmother awarded nearly $3 million for serious burns incurred when her McDonald’s coffee – resting between her knees while in the passenger seat of a parked car -- spilled. A judge reduced the award to $460,000 and the parties later settled.

Following the Liebeck case – which now lives in legal lore and was even the subject of a documentary -- some others with coffee mishaps at the Golden Arches tried to replicate the octogenarian’s success.

In this piece for the Pittsburgh Post-Gazette, I looked at how McDonald’s has fared in hot coffee cases since the Liebeck firestorm.

I hope you can check it out.

https://www.post-gazette.com/opinion/guest-columns/2023/07/25/olivia-caraballo-coffee-liebeck-mcnugget/stories/202307240011

  

With thanks to a Coverage Opinions reader who took me back to the good ol’ days of my annual “Coverage For Dummies” article -- a look at the really dumb stuff that people did that year -- and then turned around and sought coverage for the damage and injury caused. 

I’ll let the Mississippi Supreme Court describe what someone somehow thought was a good idea:

“The issue before this Court is whether the losses sustained by the Thompsons, when Partridge towed his personal vehicle bolted to the Murphy’s Welding forklift [owned by James Allen “Bubba” Murphy] backwards down the highway at night after his workday had ended relate to or arise out of the Murphy’s Welding business operations.”

Here’s the backstory.

Partridge was an employee at Murphy’s Welding and lived about 300 feet away.  His personal truck had a mechanical issue.  Partridge planned to use the welding shop’s truck and trailer to tow his personal truck from his house to the Murphy’s Welding shop, where he planned to repair his truck.

After that didn’t work, Partridge turned to the Murphy’s Welding forklift, using the forks of the forklift to lift the disabled rear of his truck and tow it backwards down the highway at night. You can see where this is going – a vehicle struck the forklift, the occupants were injured, they filed suit, coverage was sought under the Murphy’s Welding commercial general liability policy, a coverage dispute arose, litigation was filed, the issue made its way to the Mississippi high court and then…. an appearance in Coverage Opinions.  It is the insurance coverage circle of life.    

Held: “The losses sustained by the Thompsons do not arise out of or relate to the Murphy’s Welding business operations. Consequently, the commercial general liability policy issued by Penn-Star to Murphy’s Welding does not provide coverage for the Thompsons’ injuries.”

  

While followers of Coverage Opinions on Twitter are few and far between – it’s an exclusive club that see my occasional tweet – I proudly count Boy George among them!  I met him several years ago.  Long story.  I just saw Culture Club in concert and, of course, it brought back the memory of meeting George and the “Boy George follow” -- easily one of the greatest moments in CO history.  If he knew I was in the audience, he probably would have wanted me to stop by backstage to chat about insurance.  #karmacoverage

  

With thanks to a Coverage Opinions reader who steered this gem my way. 

Feast upon this opening sentence of the Ohio Court of Appeals decision in Mayor v. Wedding, No. 2003-P-011 (Ct. App. Ohio Dec. 5, 2003): “In this case we are called upon to determine whether a cow is an uninsured motor vehicle under appellant’s insurance policy.”

Mr. and Mrs. Mayor were traveling on the interstate and hit a cow owned by Thomas Wedding.  Several of Mr. Wedding’s cows had wandered onto the highway. Wedding had no liability insurance.  So the Mayors filed an action seeking to recover under their uninsured motorist policy.

The insurer mooo-ved for summary judgment that a cow is not an uninsured motor vehicle. It was granted.  The insureds appealed.  The appellate court herd the case and affirmed.

The policy’s definition of “land motor vehicle” offered many options.  But a cow was not among them so the court turned to the dictionary:

“There appears to be no dispute that there was a collision; the cow was not insured at the time of the collision; and that the cow caused the collision. The dispute in this case is whether the cow was a ‘land motor vehicle’ as defined in the policy. While a cow is designed for operation on land, we do not believe a cow is a ‘motor vehicle.’ The policy at issue does not separately define ‘motor vehicle;’ therefore we must look to the common, ordinary meaning of this term.

“The American Heritage Dictionary defines ‘motor vehicle’ as, ‘a self-propelled, wheeled conveyance that does not run on rails.’ A cow is self-propelled, does not run on rails, and could be used as a conveyance; however, there is no indication in the record that this particular cow had wheels. Therefore, it was not a motor vehicle and thus was not a ‘land motor vehicle’ as defined in the policy. The trial court properly found that appellants were not entitled to uninsured motorist coverage. . . . To hold otherwise would be a manifestly absurd result.”

Remarkably, not that the court needed any help, but it also had guidance in reaching its decision, citing a 1984 Ohio appeals court decision holding that a horse was not a motor vehicle for purposes of uninsured motorist coverage.

  

Effective October 1, 2023, insurers are prohibited from issuing or renewing liability policies, to Nevada residents, that reduce the limits of liability by the amount of defense costs and expenses paid.  To my knowledge – and other commentators have said this as well – this is the first such law in the country to disallow so-called eroding or wasting policies.

For the most part, this is not a significant issue for commercial general liability policies, which almost always provide defense costs supplemental to limits.  But for professional liability – E&O policies, which often provide that defense costs reduce the limit available to pay damages, this is quite a significant law.

To be specific, Nev. Rev. Stat. § 679A – newly created – provides as follows:

Notwithstanding any other provision of law, an insurer, including, without limitation, an insurer listed in NRS 679A.160, shall not issue or renew a policy of liability insurance that contains a provision that:

1. Reduces the limit of liability stated in the policy by the costs of defense, legal costs and fees and other expenses for claims; or

2. Otherwise limits the availability of coverage for the costs of defense, legal costs and fees and other expenses for claims.        

I looked and could not find any legislative history describing the rationale for this new law.  Obviously, it is a significant benefit for insureds -- and plaintiffs, suing insureds, who often watch as perhaps their only source of recovery dwindles with every dollar paid to defense counsel.  As a result, gone now will be the incentive for plaintiffs to consider earlier settlements to eliminate the impact of eroding policies on recoverable insurance proceeds.

As for that second provision, that an insurer shall not issue or renew a policy of liability insurance that contains a provision that "[o]therwise limits the availability of coverage for the costs of defense, legal costs and fees and other expenses for claims," I'm not sure what the statute is getting at. It's a vague provision and seems to offer room for various interpretations. No doubt it will be fleshed out by courts as policyholders no doubt give it a wide-reaching interpretation. 

So, yes, a significant benefit for insureds.  But it has to come at a cost.  Surely premiums for what had been eroding professional liability – E&O policies will increase – and probably noticeably.  How could they not?  And might some insurers no longer issue such policies in Nevada?  

UPDATED – August 7, 2023

In an effort to answer some of these questions about Nev. Rev. Stat. § 679A, I contacted Nevada Assemblywoman Elaine Marzola (D – Dist. 21, Clark County), chair of the Assembly’s Commerce and Labor Committee, which sponsored Assembly Bill 398 that led to the new law.  I’ll let you know if she responds.

Nevada Isn’t The First State After All

I noted above that, to my knowledge, and other commentators have said the same, Nev. Rev. Stat. § 679A is the first law in the country to disallow eroding or wasting policies.  It turns out that Nevada is at least the fourth such state.

I was contacted by Oklahoma’s go-to coverage lawyer John Lennon, of Pierce Couch Hendrickson Baysinger & Green in Oklahoma City, who informed me that a provision in Oklahoma’s Administrative Code has long precluded the issuance of policies with defense costs within the limit of liability.  Okla. Admin Code 365:15-1-15 provides as follows:

“No insurance policy or contract shall be made, issued or delivered by any insurer or by any agent or representative thereof, that includes defense expenses within the limit of liability. The Insurance Commissioner may waive this requirement based upon factors such as noncompetitive market or type of insurance coverage. If the Insurance Commissioner waives this requirement, the Declarations page of the policy shall include a conspicuous notice indicating that the contract contains defense expenses within the limit of liability and advising the policyholder to read its provisions.”

The Ok. code provision looks like it goes back to at least 2002 [but I did not dig deeper to confirm that. Regardless, it’s been on the books for a long time.]

Thank you John. I always appreciate it when Coverage Opinions readers reach out to add additional information about an article. 

My own Googling revealed that Louisiana [RS 22:1272] and New Mexico [N.M. Code R. § 13.11.2.8] also have provisions that prohibit defense costs from eroding limits, subject to various provisions and exceptions that are beyond the scope to discuss here.]  If any readers are aware of more states, please let me know.  

Nevada Division Of Insurance Issues Guidance On Nev. Rev. Stat. § 679A And The Governor Signs An “Emergency Regulation”

While I have not been able to locate any legislative history of Nev. Rev. Stat. § 679A to ascertain the reasoning for it, the Nevada Division of Insurance recently issued guidance on its implementation.  The DoI noted that it is aware of “concerns expressed by the insurance industry and many insureds” regarding the new law.

Indeed, on that point about concerns, in a July 20 letter, Nevada Insurance Commissioner Scott Kipper requested that Nevada Governor Joe Lombardo issue an “emergency regulation” to “provide some necessary assurances to insurers to try to minimize disruption to Nevada insurance consumers.” 

Commission Kipper’s letter to the governor stated: “The Division has grave concerns regarding carriers leaving the Nevada market altogether due to the impact of this new legislation. As carriers leave the state, there is a potential for a lack of adequate capacity remaining with the carriers that choose to continue selling liability insurance in this state. Additionally, this new legislation will most likely lead to significant increases in the costs of insuring businesses and, without clarification, the Division is projecting even higher costs for liability insurance.”

The “emergency resolution” is brief.  It addresses the types of liability policies that are subject to the law and provides this: “A policy of liability insurance that is required to be filed for approval with the Division must make defense coverage available at the defense coverage limit selected by the insured, if any.  Any defense coverage limit selected, including $0, must be included on the declaration page.  This provision does not apply to policies that do not limit defense costs coverage.”

More about the defense limit below.

Here are some highlights from the Nevada DoI’s Guidance on § 679A:

The Department of Insurance states that, while defense costs must now be outside the limits of liability, defense costs need not be unlimited (as typically is the case with automobile and general liability policies).  The guidance states that a policy can offer a separate limit of defense costs, including $0.

I’ve been thinking about how this may play out.  Say a Nevada architect obtains a $1,000,000 professional liability policy.  While defense costs do not erode the limit, they also do not have to be unlimited and can be subject to an amount offered by the insurer.  Suppose the architect, for reasons of affordability, chooses to purchase a policy that offers $250,000 in defense costs.  He or she is sued. It is an actively litigated case and the architect has some viable defenses.  And, before not too long, the defense limits are exhausted.  But the litigation still has a long way to go.  And, as I mentioned, the architect has some viable defenses. 

Except the architect cannot afford to defend itself.  And, at that point, as long as it is confident that its liability will not exceed $1,000,000, it has no incentive to.  So, while the insurer no longer has a defense obligation, it also has a $1,000,000 policy exposed.  Since it is going to require the insurer’s payment of defense costs to assert the architect’s defenses, are defense costs for the insurer really exhausted?

This is one of several challenging scenarios I can envision with exhaustion of defense costs but not limits.

More from the Nevada DoI’s guidance:

This one speaks volumes about the potential impact of § 679A: The Department is already providing guidance to insurers on the procedure for withdrawing coverage.  Curiously, the department notes that, because of the effective date of § 679A [October 1, 2023], it is not actually feasible for insurers to comply with the notice requirements for cancellation and non-renewal.  [At least not initially is how I read that.] 

Also on the subject of timing, the DoI states: “The Division of Insurance has no authority to modify the effective date for the requirements contained in AB 398. We understand the challenges this creates for the industry to provide modified contract language based upon the bill’s requirements. Division staff will prioritize reviewing new policy language impacted by this bill.”

This is significant.  Various changes to policy language – some obvious and some not so -- will be required for a policy to go from providing defense within limits to outside limits or having a set defense limit.     

Nev. Rev. Stat. § 679A does not prohibit insurers from issuing policies that include self-insured retentions or deductibles for both liability limits and/or defense costs.

The guidance addresses a few other things, including the handling of a shared limit for both first and third-party coverage and coverage issued on a “tower” basis.

I’ll keep on top of this and report anything new…

It can be hard enough to draft insurance policies that keep policyholders from trying to find more than one reasonable meaning in a term, i.e., establish coverage by ambiguity.  But the language contained in an automobile policy at issue in Nodak Insurance Company v. Farm Family Casualty Ins. Co., No. 20220114 (N.D. May 9, 2023) never even gave the insurer a chance.  The court called the term at issue “inherently vague.”  And that was kind to the insurer, compared to how another court saw it.     

Putting aside all of the details, at issue was whether a Farm Family automobile policy had been cancelled prior to an accident.

Farm Family issued an automobile policy to the Hamiltons, residents of Vermont, for the period from October 19, 2018 to April 19, 2019.  The policy covered a pick-up truck.  The liability limits were $250,000 per person and $500,000 aggregate.  The Hamilton’s son was involved in a serious accident on April 6, 2019.

The Hamiltons moved to Montana and purchased an automobile policy from Mountain West Farm Bureau Mutual for the period from December 2, 2018 to June 2, 2019.  The policy covered the same pick-up truck.  The liability limits were $100,000 per person and $300,000 aggregate.

So far, as you can see, the accident took place during both policy periods.  However, here’s the rub.  Farm Family argued that its policy terminated on December 2, 2018, the day that the Mountain West Farm Bureau policy went into effect.  Farm Family’s argument was based on the following provision in its policy:

10. CANCELLATION OR NONRENEWAL OF THIS POLICY

If other insurance is obtained by you on your insured car, similar insurance afforded under this policy for that car will cease on the effective date of the other insurance.

If different requirements for cancellation and nonrenewal or termination of policies are applicable because of the laws of your state, we will comply with those requirements. (bold added).

As Farm Family saw it, this policy language was clear and unambiguous.  Its policy “ceased” on December 2, 2018 because, on that date, its insureds obtained a “similar” policy of insurance through Mountain West.  Thus, Farm Family’s policy was not in effect at the time of the accident.  Farm Family claimed that the “termination by substitution” or “cancellation by substitution” doctrine is “well-grounded in insurance law and dispositive.”

The principal issue before the court was whether the Mountain West policy was “similar insurance” as the Farm Bureau policy.

The North Dakota Supreme Court concluded that it was not.  As the court saw it, while the policies may have been similar in “type,” as they were both automobile liability policies, they were not similar “in type and in amount.”  The Farm Family policy’s liability limits were $250,000 per person and $500,000 aggregate.  The Mountain West policy’s liability limits were $100,000 per person and $300,000 aggregate.
 
The court had little trouble finding many cases nationally where policies differing in amount of coverage were not considered “similar insurance” for purposes of an automatic termination clause.

“Under the undisputed facts of this case, this Court concludes, as a matter of law, the Farm Family policy and the Mountain West policy do not provide ‘similar insurance,’ i.e., insurance that is ‘strictly comparable’ or ‘alike in substance or essentials.’  An essential part of automobile liability insurance is the amount of coverage. A policy providing bodily injury liability coverage limits of $250,000 per person and $500,000 per accident and a policy providing bodily injury liability coverage limits of $100,000 per person and $300,000 per accident are not strictly comparable or substantively alike. We do not need to and do not decide today how much difference there must be in liability coverage for two policies to constitute similar insurance. We also do not need to and do not decide today how other differing aspects of insurance policies, such as deductibles and premiums, impact the consideration of whether two policies are similar.”

Indeed, even the dissent in Farm Family described “similar” as an “inherently vague term.”   

And that was kind.  In reaching its decision, the Farm Family court cited to Motors Ins. Corp. v. Bodie, a 1991 California federal court decision that said this about the word “similar” in this situation – “It is difficult to imagine being called upon to interpret a more imprecise term.  This inherent vagueness fully justifies the conclusion that the term ‘similar’ is ambiguous.”

The lesson here for policy drafters – for this scenario and, more importantly, all others – could not be clearer.

  

I don’t do much in Coverage Opinions with property policy coverage disputes.  But the New Hampshire Supreme Court’s decision in CC 145 Main v. Union Mutual Fire Insurance Company, No. 2021-037 (N.H. July 20, 2023) caught my interest.  I like decisions where the entire dispute centers around the meaning of a single word.  In addition, the decision demonstrates the interpretation of a policy term by the words around it.

CC 145 Main owned an apartment building.  The property sustained damage when a tenant poured cat litter down a toilet.  An interior pipe clogged, causing water to overflow from a shower and toilet.  Significant cleaning and repairs were required. 

CC 145 Main sought coverage from its property insurer, Union Mutual.  The insurer denied coverage, citing an exclusion for damage caused by “[w]ater that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment.”
     
CC 145 Main filed a coverage action.  The trial court concluded that the word “drain” was ambiguous and granted its motion for summary judgment.  Union Mutual headed to the New Hampshire Supreme Court.

On one hand, the court agreed with Union Mutual that, looking at dictionary definitions of “drain” – “a channel by which liquid is drained or gradually carried off; esp. an artificial conduit or channel for carrying off water, sewage, etc.” -- the shower drain and toilet are drains.

However, unfortunately for the insurer, the court didn’t stop there: “[C]ontext contained within the insurance policy limits the water exclusion’s applicability to water damage precipitated by off-premises circumstances or events. We agree that context could cause a reasonable insured to understand the exclusion in this way. (citation omitted).  As CC 145 Main correctly observes, the other subsections of the water exclusion contemplate only causes of damage — flooding from any body of water, mudslide or mudflow, and groundwater ‘flowing or seeping’ into the property — that, necessarily, originate outside the property and cause water to flow into it.”

To appreciate the court’s conclusion, that the water exclusion contemplated only causes of damage where water originated outside the property, and flowed into it, requires looking at the water exclusion in its totality:

1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.

g. Water

(1) Flood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind (including storm surge);

(2) Mudslide or mudflow;

(3) Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment;

(4) Water under the ground surface pressing on, or flowing or seeping through:

(a) Foundations, walls, floors or paved surfaces;

(b) Basements, whether paved or not; or

(c) Doors, windows or other openings; or

(5) Waterborne material carried or otherwise moved by any of the water referred to in Paragraph (1), (3) or (4), or material carried or otherwise moved by mudslide or mudflow.
  
What’s more, the court looked to the example provided in the policy of the exclusions applicability: “An example of a situation to which this exclusion applies is the situation where a dam, levee, seawall or other boundary or containment system fails in whole or in part, for any reason, to contain the water.”

Wouldn’t you know it.  This, the court stated, was a situation where water damage was caused by “events external to the property, and not water damage resulting from an internal pipe clogged by a tenant’s disposal of cat litter.”  

In the end, the problem for the insurer was not that its argument was wrong, but that, as the court saw it, there were two reasonable interpretations of “drain.”  Hence, it was ambiguous and construed against it.

As I always say, insurers need to prove what a word means.  Policyholders have a simpler task – establishing that a word has two reasonable meanings.

Courts in the past have addressed “number of occurrences” for purposes of determining the amount of coverage available, under a liability policy, for claims arising out a mass shooting tragedy. 

That’s what is at issue in Tony v. Evanston Ins. Co., No. 22-62076 (S.D. Fla. May 24, 2023).  In 2018, a horrific massacre took place at Marjory Stoneman Douglas High School in Florida (the Parkland shooting). 

Suits were filed by the Parkland shooting victims and their families against the Sheriff of Broward County and others alleging a host of negligence-based reasons why they failed to prevent the tragedy.  The Sheriff’s Department was insured under a public entity liability policy issued by Evanston Ins. Co.  The policy had a limit of liability of $2,500,000 each occurrence and $5,000,000 aggregate and a self-insured retention of $500,000 which states that it “applies separately to each and every ‘occurrence’ and offense covered under this Coverage Part.”

Evanston maintained that each victim of the Parkland shooting constitutes a separate occurrence.  Therefore, a self-insured retention of $500,000 must be separately met by the Sherriff’s Department for each victim.  The Sherriff’s Department argued that the Parkland shooting constitutes a single “occurrence.”  Therefore, notwithstanding the many victims, it must exhaust only a single self-insured retention of $500,000 before coverage is available.

The Sherriff’s Department filed a coverage action in state court.  Evanston removed it to federal court and filed a motion to dismiss.      

As you would expect, a key issue before the court in Tony v. Evanston Ins. Co. was application of the Florida Supreme Court’s 2003 decision in Koikos v. Travelers.  Koikos is the leading Florida decision on number of occurrences and frequently discussed by courts nationally addressing the issue.

The court in Tony v. Evanston concluded that Koikos dictated that only a single self-insured retention applied.  I teach Koikos in my insurance coverage class at Temple Law School and have read the decision many times and dissected it with students.  I believe that, under Koikos, a self-insured retention of $500,000 must be separately met by the Sherriff’s Department for each victim.
 
In Koikos, Florida’s top court held that injuries sustained by two individuals who were shot in a restaurant lobby constituted separate occurrences.  The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”  The court concluded that, notwithstanding that the insured restaurant owner was sued for negligent failure to provide security, “occurrence” is defined by the immediate injury-producing act and not by the underlying tortious omission.  However, despite this multiple occurrence holding, the court specifically emphasized that it was adopting the “cause” test, and not the “effect” test, and stated: “[I]n this case, the immediate causes of the injuries were the intervening intentional acts of the third-party—the intruder’s gunshots.”
 
To summarize, in Koikos, the insured restaurant owner was sued by shooting victims for negligent failure to provide security. In other words, failure to prevent the shooting.  Each shooting victim was found to be a separate occurrence as the cause of each victim’s injuries was the perpetrator’s separate gunshots.  It is difficult to see a difference between Koikos and the Parkland tragedy. 

The crux of the court’s decision in Tony v. Evanston was its belief that the Koikos court had found the term “occurrence” to be ambiguous and construed it liberally in favor of the insured and strictly against the insurer.  Hence, in Koikos, the multiple occurrences conclusion gave rise to multiple limits. 

So, as the Tony v. Evanston court saw it, since Koikos reached its decision based on the term “occurrence” being ambiguous [Evanston strenuously disagreed with this], then it was ambiguous here as well and should be construed liberally in favor of the insured and strictly against the insurer.  Hence, there was a single occurrence and only a single self-insured retention of $500,000 must be satisfied before coverage is available.

The decision has some more detail and discussion -- which is beyond the scope here -- but this is the crux of how it was decided.

I checked the docket and on July 20 the court denied the insurer’s motion for reconsideration or in the alternative certification of interlocutory appeal.

I am going to add Tony v. Evanston to my insurance coverage syllabus and include it in the Koikos discussion.  Plus the decision will offer the students a lesson beyond just “number of occurrences.”

  

Most late notice cases, under occurrence-based policies, involve a situation where the insured gave notice of a claim, but it was, as the insurer sees it, late. The court first decides if it was in fact late (probably deciding if notice was given “as soon as practicable” or something along those lines). If it was late, and it is often determined that it was, the next inquiry is whether the insurer was prejudiced by the late notice.  While insurers win some of these cases, courts also frequently conclude that the insurer was not prejudiced by the late notice.

In State Auto. Mutual Ins. Co. v. Lot’Sa Liquors Ltd., No. 21C2831 (N.D. Ill. May 31, 2023), the Illinois federal court addressed late notice’s cousin.  Can an insurer disclaim coverage because the insured did not give notice?    

At issue in Lot’Sa Liquors was the availability of coverage for Lotsa, a gas station, for a shooting that took place in its parking lot.  The shooting took place in March 2019.  Lotsa’s owner, Premsagar Mulkanoor, was notified of the shooting the next day.  A Lotsa employee had called the police.  No Lotsa employee investigated the incident and the police did not return to Lotsa after the night of the shooting.  The police did not contact Mulkanoor or interview any Lotsa employees.

Two years later, Adonis Hill, the victim of the shooting, sued Lotsa.  After Mulkanoor received the suit, it was reported to State Auto, which undertook Lotsa’s defense under a reservation of rights. 

State Auto filed an action seeking a determination that it owed no defense to Lotsa because it did not comply with the policy obligation to provide notice “as soon as practicable of an ‘occurrence’ … which may result in a claim.” 

[This is a standard commercial general liability notice provision in addition to the requirement that notice of a claim or “suit” must be provided as soon as practicable.]

State Auto maintained that both notice provisions needed to be satisfied -- and the requirement to give notice as soon as practicable of an “occurrence” which may result in a claim had not been.  Lotsa only gave notice when the suit was filed two years after the shooting.

To address the issue, the court stated: “When determining whether an insured has provided reasonable notice, the Court considers the following five factors: (1) the specific language of the notice provision; (2) the insured’s sophistication regarding insurance and commerce; (3) the insured’s awareness of the event that might trigger coverage; (4) the insured’s diligence in investigating potential coverage; and (5) prejudice to the insurer.”

The court went through each factor and concluded that they weighted against State Auto.  Lotsa’s delay in not providing notice of the shooting, until it received notice of the underlying suit, was reasonable. 

I won’t address every factor, but the crux of the court’s decision was that Lotsa scored high on factors two and three (and it also didn’t lose on the other factors).

Second Factor: “While courts generally assume that an insured is sophisticated enough to understand his automobile insurance policy, a commercial general liability policy—like the one at issue in this case—is more complex. . . . Here, despite owning gas stations for over twenty years, Mulkanoor, who obtained a high school education in India and did not attend college, does not appear to have had significant experience in managing such insurance policies. Mulkanoor testified that he purchased insurance as directed by his agent and had never previously filed a claim. And although Mulkanoor did not read the State Auto policy, he also testified that he would not have understood it had he read it. That said, even if he might not have understood it, Mulkanoor’s failure to even read the policy could reasonably be viewed unfavorably to him as burying his head in the proverbial sand.  But because the Court must view the facts in the light most favorable to Lotsa on summary judgment, this factor weighs in favor of finding Lotsa to be an unsophisticated insured.”

Third Factor: “[T]he insured’s awareness of the event that might trigger coverage, also favors Lotsa. As Mulkanoor testified, he did not understand that a lawsuit against Lotsa would likely follow a shooting that occurred in Lotsa’s parking lot, particularly where neither the police nor anyone on behalf of Hill followed up after the shooting, and no Lotsa employee had any involvement in the shooting. Under these circumstances, a reasonable person in Lotsa’s position would not have appreciated that a lawsuit against Lotsa may follow.”

  

It is not unusual for a consent judgment to take place after an insurer disclaims coverage and the defendant has no ability to defend the case or pay a settlement of judgement. But what about determining coverage for the consent judgment if the plaintiff, as part of the arrangement, does not take an assignment of the insured's policy rights and file a coverage action? 
 
That’s what was at issue in Babwari v. State Farm Fire, No. 21-895 (N.D. Ala. May 15, 2023).  Amanali Babwari worked at Pit Stop Grocery, a convenience store and gas station in Birmingham, Alabama.  Following a shift that ended at 11 P.M. he was held up at gun point as he got to his car in a corner of the parking lot underneath an inoperable security light on a telephone poll.  Babwari was shot nine times.  He lived but was seriously injured.

Babwari filed suit against the store owners, asserting claims of negligence and wantonness.  He alleged that they did not implement adequate security measures, such as hiring a second employee to work the night shift with him and fix the inoperable street-light under which he was parked [he was not allowed to park in one of the spots in front of the store].

State Farm initially defended the store owners under a reservation of rights but, for reasons not discussed in the opinion, withdrew the defense.  Unable to defend themselves, the store owners agreed to a consent judgment with plaintiff and the court entered a judgment in the amount of nearly $900,000. 

Plaintiff then brought an action, under an Alabama statute, to recover the proceeds under the store owners’ liability policy.  The court explained the operation of the statute: “[W]hen an injured party secures a final judgment against a defendant that is covered by an insurance policy, the injured party is entitled to have the proceeds of the policy applied to satisfy the judgment. Ala. Code. § 27-23-2. When an injured party brings a direct action against an insurer under § 27-23-2, he acquires a vested interest in the insured’s rights under the policy and may seek to compel the insurer to pay the judgment.  However, this right is dependent on the rights of the insured under the policy.  Thus, the injured party effectively steps into the shoes of the insured and is subject to any defenses that the insurer could raise against the insured.”

So, the issue before the court was whether the underlying claim was covered as the complaint asserted claims of both negligence and wantonness.  [As an aside, the court addressed the employer’s liability exclusion and concluded that it did not apply.]  Putting aside a few other issues, the court concluded that it was covered. 

First, the court addressed the rule to be followed.  The explanation is lengthy, but worthy of being set out in full (with many citations omitted):

“As the party seeking coverage, a plaintiff in a § 27-23-2 action bears the burden of proving that the damages awarded in the underlying action are covered by the insurance policy. When a plaintiff obtains a judgment against an insured defendant after pursuing both covered and non-covered claims, the insurance company is only obligated to indemnify for damages arising from covered claims.  Therefore, if a plaintiff obtains a judgment after pursuing alternate theories of liability, and under one of those theories there is no coverage under the policy, the § 27-23-2 plaintiff must show that the basis of the judgment was the covered theory.  When no jury verdict or final order in the underlying action identifies the specific claims for which damages were awarded, it is appropriate, under Alabama law, to look to the record . . . in the underlying action to identify the injuries for which the injured party sought damages.

“If, after examining the record in the underlying action, a court is unable to determine what portion of the damages, if any, were awarded for covered claims, then the plaintiff has not met his burden to establish coverage. However, an insurance company is not relieved of its duty to indemnify simply because a plaintiff asserts non-covered claims in the underlying action. Rather, when the facts in the underlying action are irreconcilable with a legal theory asserted in the complaint, the facts, not the mere assertion of the legal theory, determine an insurers duty to indemnify.”

The court concluded that, despite the cause of action asserted for wantonness, the facts did not support it.  While there was evidence of prior incidents of criminal activity at the store, the court concluded that it was “insufficient to establish that the Store Owners knew or should have known that Plaintiff’s injuries were a probability.” 

The court concluded that “the record evidence shows that there was only one other robbery at the Pit Stop prior to October 2016, and that single event did not result in any injuries.  And, though Plaintiff frequently called the police while working at the Pit Stop, none of those calls resulted in an arrest.  This simply is not enough to infer that the Store Owners knew or were substantially certain that their failure to fix a telephone pole light or hire a second employee for the night shift would likely result in a violent attack on Plaintiff.”