The Insurance Key Issues bulk sale [75% off for 4 copies or more] has been a big success. Thank you to everyone who picked up multiple books.  The sale ends Wednesday, September 13.       

https://www.insurancekeyissues.com/

Drop me a note if you are interested and I can get it arranged.  

  

In case you missed it, I took a trip down Coverage Opinions memory lane and identified some of my favorite articles over the years. Some fun, some crazy, some interviews, Open Mic columns, and, of course, lots that have important things to say about insurance coverage.  It turned out that I had too much for a single issue.  So I plan to do Volume II.  In the meantime, I hope you’ll check out the Coverage Opinions Greatest Hits Issue (Vol. I).

I was saddened to learn that Bill Richardson died last week at age 75.  I had the privilege last year of interviewing the former New Mexico governor and U.S. Ambassador to the United Nations for the ABA Journal website.

Over the years, Richardson traveled the world to negotiate the release of numerous prisoners being wrongly held by despots.  I spoke to him about how he does it.  Surely lawyers could learn a thing or two about negotiation from him.

Richardson was forthcoming and generous with his time.  And a total class act.  When the time came for the interview, he was unexpectantly on an airplane.  He texted me.  Don’t worry, he assured me, I’ll make it happen.   

An ending too soon for a man who devoted his life to public service. 

You can check out the interview for the ABA Journal here

Not long ago, Nevada’s governor signed into law Nevada Rev. Stat. § 679A, which provides that, 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. In other words, “eroding” or “wasting” policies are not allowed.  [Which insurers are subject to the new law is an issue that is still the subject of discussion, as noted below.]

The new law has caused upheaval in the Silver State, with concerns that insurers will exit the market for policies that are usually “defense within limits” -- such as professional liability as a significant one -- or premiums will rise appreciably. 

There has been a lot of activity out of the Nevada Division of Insurance to deal with the law’s concerns and its implementation.  Putting aside some of the recent things, the latest development is that the state’s insurance division is considering the adoption of regulations pertaining to the law.  A public hearing is scheduled for September 12 to solicit comments from interested persons on the proposed regulations.

For those interested in this issue, the below link offers a trove of information, including the background of the law, concerns raised and proposed regulations.  There is also a link to attend the upcoming hearing via Webex.     

https://doi.nv.gov/uploadedFiles/doi.nv.gov/Content/News_and_Notices/20230808_REG_R029-23_HRG_Notice_ADA_V2.pdf

The Nevada Division of Insurance summarizes the purpose of the proposed regulations as follows: 1) defines what is a “policy of liability insurance,” 2) identifies the insurers to which AB 398 does not apply based on existing state and federal law, and 3) provides further guidance on how defense coverage is required to be made available.

For those who really want to get into the weeks, the terms of the proposed regulation are set out at the above link.  

As a life-long Philadelphian, how could I not smile when I saw the name of this case decided last week. 

Late last month, the Superior Court of Delaware held that pharmacy giant CVS was not entitled to general liability coverage for the massive number of lawsuits it is facing from municipalities seeking damages for the social services costs incurred to respond to the opioid crisis.  These are such things, among others, that local governments spent on medical services, addiction treatment and incarceration.

The decision was entirely not surprising.  In early 2022, the Delaware Supreme Court said the same thing to Rite-Aid about its opioid claims.  In general, in Rite-Aid, the First State’s top court held that the municipalities were not seeking coverage for damages “because of bodily injury.”  The court concluded that “damages for bodily injury are covered losses only when asserted by 1) the person injured, 2) a person recovering on behalf of the person injured, or 3) people or organizations that treated the person injured or deceased, who demonstrate the existence of and cause of the injuries.”

The Rite-Aid court further explained that “[t]here must be more than some linkage between the personal injury and damages to recover ‘because of' personal injury: namely, bodily injury to the plaintiff, and damages sought because of that specific bodily injury.’  The bodily injuries alleged in a given complaint must do more than ‘explain and support’ any economic loss the counties suffered. The individual physical injury must be ‘the basis of the claims,’ ‘independently proven, and shown to be caused by the insured.’”

The CVS decision is lengthy and addresses the specifics of numerous of the suits and applicable policy language.  But it can be summarized simply and briefly: CVS attempted to distinguish its situation from Rite-Aid.  The court examined Rite-Aid in detail, cited it countless times, and rejected the effort.

For more on the Rite-Aid case, which is to say more on the recent CVS decision, I included it as one of the top 10 coverage cases of 2022 in my annual insurance coverage hit parade.

In some situations, policyholders argue that an insurance policy is “illusory.”  This can happen when coverage is denied for a risk that is tied to a significant aspect of the insured’s operations.  Think of a gas station that is denied coverage based on the pollution exclusion.  Or a bar with a policy that contains an assault and battery exclusion.

As policyholders see it, in a situation such as this, the policy is “illusory.”  Sure, it says “insurance policy” on it, they admit, but an exclusion is so wide-reaching that it provides no insurance at all.  However, courts almost always reject this argument.  True, the policy precludes coverage for risks associated with the core operations of the insured’s business.  But courts will almost never conclude that a policy is “illusory” if there are still other situations where it provides coverage.  In other words, to be “illusory,” the exclusion must negate all or virtually all coverage.  

That’s what was at issue in Travelers Prop. Cas. Co. v. H.E. Sutton Forwarding Co., No. 21-719 (M.D. Fla. Aug. 24, 2023).  Antonio de Jesus Zepeda was picking up horses and equipment from a Boeing 727-200 – known as “Air Horse One” – at Blue Grass Airport (what else would it be called) in Lexington, Kentucky.  After picking up the load, the tractor trailer that Mr. Zepeda was operating collided with the aircraft’s wing.

The plane had been chartered by Tex Sutton [how cool would it be to have the nickname Tex?] and Mr. Zepeda filed suit for injuries sustained.  There were lots of parties involved in the shipment and at issue was coverage under a Travelers excess policy, issued to Clark Aviation, which included Tex Sutton as an insured.

Travelers denied coverage to Tex based on the Aircraft Liability Exclusion: “Damages arising out of the ownership, maintenance, use or entrustment to others of any aircraft owned or operated by or rented or loaned to any insured. Use includes operation and ‘loading or unloading.’ …”

Tex did not dispute that the Aircraft Liability Exclusion applied.  But therein lies the problem.  As Tex saw it, the exclusion was so broad that it rendered coverage illusory.  After all, his entire business “involves one thing — the use of an aircraft for the transportation of horses.”

But the court took the usual path when confronted with such an argument. While acknowledging that the “Aircraft Liability Exclusion negates a lot of coverage,” the court concluded that it did not “swallow up” every claim under the insuring agreement: “For example,” the court explained, “as Travelers notes, the Policy covers — and the Aircraft Liability Exclusion does not negate coverage — for bodily injuries such as slips and falls at Tex Sutton’s leased premises, or property damage due to Tex Sutton’s negligent maintenance of its leased premises.”  The court also noted that the exclusion would not eliminate “personal and advertising injury” coverage.

I imagine [no, I’m sure] that policyholders have a hard time accepting that their liability policy precludes coverage for problems so fundamental to their need for the policy.  In such cases, where the exclusion is that significant -- and especially if they don’t learn about it until the time of a claim -- it has to be looked at as a lack of appreciation or education, at the time of purchase, for the policy’s coverage.

The Texas federal court’s decision is Nationwide Mutual v. Choi is relatively mundane as coverage issues go.  It involves theft and allegedly intentional conduct.  But since the theft was of Bitcoin, I included it here.  If it had involved theft of tires or hammers or Twizzlers, I would not have included it here.  Ok, probably Twizzlers.

Steven Kowalki sued Hiu Lam Cookie Choi, Brandon Ng and others for theft of 1,400 Bitcoin through a malware attack.  At the time of the filing of the suit, the cryptocurrency was worth more than $80 million.  Yowza! 

Choi and Ng sought coverage under a homeowner’s and personal umbrella policy issued by Nationwide.  Nationwide filed an action seeking a declaration that it owed no duty to defend or indemnity them on the basis that, as you would expect, no “occurrence.” 

The court, in Nationwide Mut. Ins. Co. v. Choi, No. 22-01231 (S.D. Tex. July 25, 2023), agreed that no coverage was owed.  The policies cover negligent conduct, the court observed, and the underlying action alleged only intentional conduct. 

Choi and Ng argued that a defense was owed as paragraph 137 of the underlying complaint alleged that, in the alternative, they acted negligently.  However, the court refused to put any weight on this reference to negligence as it was belied by other allegations in the complaint:

“The primary allegation in the underlying complaint is that all of the named defendants—including Choi and Ng—participated in a scheme to steal Bitcoin from Kowalski and deposit the Bitcoin in their online cryptocurrency accounts.  Understood in proper context, Paragraph 137 simply addresses the possibility that these underlying defendants may contend that they were not the original thieves—even though the stolen Bitcoin was transferred to their accounts. The paragraph describes the elaborate correspondence with the original thief that would be required to make such transfers if this were true. It contains no description of accidental or negligent conduct. The intentional nature of the conduct described is quite clear, with the subject paragraph situated under the heading, ‘The Individual Defendants’ Obvious Efforts to Launder Plaintiff’s Stolen BTC.’  And more, it’s placed below the statement, ‘There is no plausible innocent explanation for the Individual Defendants' receipt of Stolen Bitcoin into their accounts.’”

[There may have also been the issue whether theft is “property damage,” as courts have addressed.  And even more so here, as Bitcoin seems unlikely to be tangible property.  In any event, that it not addressed in the opinion.  Twizzlers are definitely tangible property.]

The opening sentence of the court’s decision in Nationwide Gen Ins. Co. v. Hope, No. 21-930 (N.D. Ala. June 12, 2023): “David Hope ran a firearms business out of his garage.”  So, you can easily see where this coverage case is going.

Not exactly. The court continues: “Cecil Keith Chapman went to Hope’s house to pick up a firearm that Hope received from a third party for Chapman. When Chapman arrived at Hope’s house, Hope’s dog bit him and caused injuries.”

So it’s a firearms-turned-dog bite coverage case.  An embarrassment of riches.

While the specific facts here are unique, I included the case as the general coverage scenario is one with seeming applicability to other cases. 

Chapman sued Hope for his injuries.  Nationwide in turn sued Hope seeking a declaration that it owed no coverage to him for defense or indemnity under three policies – one covering his personal residence, one on another residence and a personal umbrella policy. 

Nationwide argued that no coverage was owed on the basis that all three policies excluded coverage for bodily injury arising out of or connection with a business conducted at the insured location.  The policies defined “business,” but the court did not focus on the specifics of the definition in reaching its decision.    

Chapman (presumably there was an assignment of policy rights) argued that the business exclusion did not apply because he did not pay Hope for brokering the forearm that he was at the house to pick up.  Chapman and Hope were friends and Chapman was a frequent customer.

The competing arguments were as follows:
 
“According to Nationwide, the dog bite had to arise out of Hope’s business because ‘but for’ the business, Chapman would not have been at Hope’s house when the dog bit him. Even though Chapman didn’t pay for the service this time, Nationwide points to evidence that Hope often waived the brokerage fee for acquaintances and regular customers. And Chapman had purchased silencers from Hope and used Hope’s brokerage services, so Nationwide argues Hope could have been anticipating future business with Chapman by waiving the fee. Plus, regardless of Chapman not paying Hope for the transfer, Hope still provided a service associated with his business as a firearms manufacturer and broker that led to the incident. Thus, Nationwide says the injuries arose out of and were connected to Hopes business.”

“Chapman disagrees. He claims there is no evidence Hope’s transfer of the firearm was causally related to any prior purchase Chapman made or to any potential future business transaction. Instead, Chapman points to his testimony and to the Hope’s testimony to establish that the transfer of the firearm arose out of the social relationship between the two, not Mr. Hope's business.”

The court sided with Nationwide:

“Chapman’s presence at the Hope’s house arose out of, and was connected to, David Hope's firearms business. Chapman would not have been at Hope’s house but for his need to pick up a gun that David Hope helped broker—a business service that Hope provided and paid taxes on. True, Chapman did not pay Hope for this brokerage service, but Chapman had paid Hope before, and Hope often waived the small brokerage fee for repeat customers. This is typical, good business practice. And because the incident was connected to Hope’s business, it is excluded from coverage.”

What is an accident/occurrence?  It is the ageless question in general liability coverage.  As I’ve pointed out many times, the issues discussed by courts today have not changed much since 1869 when the Wisconsin Supreme Court had the “accident” question before it in Schneider v. The Provident Life Insurance Company.  [Schneider is a life insurance case, but the court’s analysis is the same as in a liability policy scenario.] 

In September 2021, James Kandu and Kandu Construction hosted an illegal underage drinking party at their warehouse located in Skokie, Illinois.  There was a $10 entry fee and it was a BYOB.  Get ready for this:  They hired off-duty police officers to help maintain order.

Dilan Durakovic and Adrian Alic, both underage, attended.  The Kandus allegedly encouraged Alic to consume alcoholic beverages and become intoxication.  The party was shut down at 11:00 p.m. due to overcrowding and Dilan and Adrian were ordered to vacate the premises. The Kandus allegedly required Alic, visibly intoxicated, to drive away with Dilan as his passenger.  A short time later, Alic’s automobile slammed into a tree, killing Dilan.

The estate of Dilan Durakovic filed suit against the Kandus.  The Kandus were insured by Westfield, which filed an action seeking a declaration that it had no duty to defend or indemnify them.

The underlying complaint alleged six ways to Sunday that the Kandus’ conduct, giving rise to the tragedy, was negligent.  Consider just these few examples:

Permitted conditions to exist whereby Defendants assisted, encouraged, aided and abetted minors, including Adrian Alic, to consume alcoholic beverages; Permitted Adrian Alic to drive off of their premises while visibly intoxicated and after being encouraged to consume alcoholic beverages at The Party; Negligently selected off-duty Skokie, Illinois police officers who breached their duty of ordinary and reasonable care as it pertained to the minor invitees present at The Party on September 5, 2021; Failed to remove Adrian Alic from the Kandu Construction premises once it became apparent that he was intoxicated after consuming alcoholic beverages.

Clearly the complaint was drafted by someone who understood how a commercial general liability policy works.

Westfield argued that coverage for Dilan’s death was precluded based on the “expected or intended” exclusion.  Expected or intended is not the exact same issue as no “occurrence,” but courts often treat them interchangeably (as did the court here).

As Westfield saw it, “the Kandus provided the forum for Alic to become intoxicated and ordering him to vacate the premises in his automobile with his passenger, Durakovic, thus propelling him on the fatal trip ending in a collision with a tree.  According to Westfield, these actions and inactions of the Kandus would be expected to result in the accident and death of Durakovic and was therefore intentional.” 

But the court in Westfield Premier Ins. Co. v. Kandu Constr., Inc., No. 22-5354 (N.D. Ill. Aug. 17, 2023) disagreed. 

With no Illinois cases on point, the federal court described its job as one to anticipate how Illinois courts would rule.  For that, the court principally relied on a dissenting opinion from a decision of West Virginia’s highest court:

“It appears to the Court that, if faced with the facts of this case, Illinois courts would determine from the standpoint of the insured, that serving alcoholic beverages to minors to the point of intoxication, is, as the dissent argued in Corra, extremely ‘careless’ and the victims of his carelessness should not suffer the denial of insurance coverage. It was the opinion of the dissenting West Virginia judge that ‘the homeowner did not intentionally serve alcohol to children intending for them to drive off the side of the road and get killed.’”

This is the classic issue in an “accident” case.  The insured acted intentionally -- but did not intend to cause injury.  However, as the insurer sees it, the injury was substantially certain to occur (or some other similar sounding causation test depending on the state).  So the court is called upon to address the likelihood that the act would lead to the injury. 

This situation places a lot of discretion in the court’s hands, gives rise to all manner of arguments on both sides, there is a large body of case law to draw from and the causation standards can vary.  Translation – it is an issue that can be difficult to predict.

For more on this issue, go back to 1869.

Without getting into the blow-by-blow details, a fight broke out in the parking lot of a bar in Billings, Montana between Matthew Frank and Louis Delgado.  Frank, a police officer, had been in the bar drinking.  He allegedly exited the bar and did a “flying knee” into the driver’s side door of Delgado’s vehicle.  The situation dramatically escalated from there. 

[I have never heard of a “flying knee.”  But Google took care of that. 

Here's a You Tube video of UFC flying knee highlights.] 
  
Delgado sued Frank for injuries sustained.  In his answer, Frank asserted self-defense.     

Allstate, Frank’s insurer under a homeowner’s and personal umbrella policy denied coverage.  The opinion notes that Allstate defended Frank under a reservation of rights.  Allstate filed an action seeking a determination that it had no duty to defend or indemnify Frank. 
 
As Allstate saw it, as the underlying complaint alleged solely intentional conduct, there was no “occurrence,” so no coverage was owed.  Frank disagreed, maintaining that the duty to defend determination was not based solely on the allegations in the complaint.  Frank argued that the duty to defend determination must include other facts known to Allstate, including that Frank raised self-defense in his answer.

Following a lengthy legal analysis, the court in Allstate Vehicle v. Frank, No. 22-70 (D. Mont. Aug. 17, 2023) concluded that a defense was owed to Frank as he had asserted a colorable claim of self-defense.  Thus, the conduct alleged in Delgado’s action may have qualified as an “occurrence.” 

While I kept this summary brief, it makes the point of the role that an insurer’s claim of self-defense can have in a dispute over coverage for assault and battery.