It was revealed that Brasi had posted photos of the Scott Baio bobble heads on his Facebook page.  Thus, as the court saw it, the information about Brasi’s purchases was not “nonpublic information,” as required to trigger the data breach exclusion.  The court rejected Wobbler’s argument that, despite the information about Brasi’s bobble head purchases being on Facebook, it was de facto non-public, as nobody would have had a reason to look for it.  In other words, Wobbler argued that it was not until the data breach and subsequent media stories, which gave rise to Clemenza’s web search, that the information about Brasi became public.  At the time of the breach its was essentially non-public.  But the court disagreed -- not willing to shake its head up and down.

 

Last week’s Wall Street Journal (the paper’s insurance reporter -- Leslie Scism) had a fascinating front page article about AIG celebrating its 100th anniversary.  However, the company’s former chief executive, Hank Greenberg, disputes the company’s math.

AIG makes the claim to being 100 years old by tracing its roots to 1919, when Cornelius Vander Starr began insurance businesses in Shanghai.  However, as Mr. Greenberg sees it, AIG dates back only to 1967.  That’s when, writes Scism, Mr. Greenberg says he “pulled together various operations that had grown from that original Shanghai company—to take public.”

“Mr. Greenberg says the insurance business he has been expanding since he left AIG—known as Starr Cos.—is the legitimate claimant to the 100th anniversary. Starr Cos., not AIG, is the one which connects to the Shanghai start, he says.”

Mr. Greenberg added: “You think I’m going to sit quietly by and let them take credit for being 100 years old?  They’re not, and I know the answer to that because I formed AIG.”

It’s a fascinating story and something that CO readers, the risketeers that we are, will enjoy.

[I had the privilege of interviewing Hank Greenberg (an email Q&A) several years back.  Shortly after it was published a package arrived in the mail.  Inside was his just published book with a very nice inscription.  As an insurance guy, I’ve always cherished it.]

 

 

 

[Tony Miscioscia a partner at White and Williams, LLP and Tim Carroll, an associate, prepared  this excellent article as a firm client alert.]

As two recent cases demonstrate, a coverage disclaimer in New York is only as good as its compliance with that state’s various rules for perfecting a disclaimer in connection with a bodily injury claim. Under New York Insurance Law § 3420(d)(2): “[i]f under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.”

The most common mistakes in failing to comply with Section 3420 include failing to issue the disclaimer within a reasonable time, failing to send a copy of the disclaimer to both the insured and the injured person (or other claimant) and failing to state all defenses to coverage that are available to the insurer at the time it issues the disclaimer. But, as two recent New York cases illustrate, there are also other pitfalls to keep in mind when contemplating a disclaimer.

In Dynatec Contracting, Inc. v. Burlington Insurance Company, 2019 N.Y. Misc. LEXIS 187 (N.Y. Sup. Ct. Jan. 7, 2019), for example, an insurer was estopped under Section 3420 from disclaiming coverage based on a policy exclusion because the disclaimer was not issued soon enough after receipt of the claim. There, a contractor sued a subcontractor and the subcontractor’s insurer for coverage as an additional insured under the subcontractor’s general liability policy, in connection with an underlying action seeking damages for bodily injuries sustained in a scaffolding accident. In April 2017—the dates are relevant—the contractor tendered its defense to the subcontractor’s insurer. Thirty days later, in May 2017, the contractor’s insurer disclaimed coverage on several grounds, including that the subcontract requiring that the contractor be named an additional insured on the subcontractor’s policy was not fully executed.

However, three months later, in August 2017, the subcontractor’s insurer sent a supplemental letter disclaiming coverage on the additional basis that an exclusion in the subcontractor’s policy excluded coverage. The contractor argued that the subcontractor’s insurer was estopped, under Section 3420(d)(2), from disclaiming coverage based on that exclusion because notice was not given “as soon as is reasonably possible.” The trial court agreed, concluding that “the basis alleged for the disclaimer was available on the face of the underlying amended complaint.” The court rejected the insurer’s argument that its delay in disclaiming coverage under the exclusion was “due to its desire to conduct further investigations,” since no further investigation was necessary. As a result of the insurer’s failure to comply with Section 3420, the Dynatec court held that the insurer was obligated to defend the contractor as an additional insured in the underlying action.

In County of Niagara v. Liberty Mutual Insurance Company, 2019 U.S. Dist. LEXIS 1898 (W.D.N.Y. Jan. 3, 2019), a coverage disclaimer was upheld because the insurer complied with Section 3420’s disclaimer rules. There, the owner of a window-installation project tendered its defense and indemnity to the general and excess liability insurer of the window-installation contractor, in connection with an underlying action by one of the contractor’s employees seeking damages for bodily injuries he sustained while working on the project. Within one week of receiving the project owner’s tender, the contractor’s insurer disclaimed coverage for the project owner on several grounds, including that certain exclusions in the contractor’s policy applied to the allegations in the worker’s complaint. Having agreed that coverage for the accident was subject to the policy exclusions, the New York federal court moved to “consider[ ] whether the Disclaimer Letter timely and sufficiently disclaimed coverage for the accident” under Section 3420(d).

The project owner in Niagara argued that the contractor’s insurer was estopped from disclaiming coverage because the insurer did not address a copy of the disclaimer to the project owner; it was addressed only to the named insured contractor with a “cc” to the project owner. But, “under relevant New York case law,” the court observed, “a disclaimer letter is effective as against an additional insured so long as the additional insured received a copy of it,” including where it receives “only a carbon copy” of the letter. The project owner also argued for estoppel because the insurer did not reference the project owner’s claim for additional insured coverage; it only referenced “generic” claims made in connection with the underlying action (including the named insured’s claim).

The court disagreed, concluding that “the Disclaimer Letter consistently and repeatedly states coverage is being denied for the ‘above captioned matter’ and the ‘incident,’” which satisfies Section 3420’s notice requirement. The project owner further argued for estoppel because the insurer did not include with the project owner’s copy of the disclaimer a hard copy of the relevant policy exclusions. But the court also rejected that argument, finding the insurer’s full quotation of the exclusion’s language in the disclaimer satisfied Section 3420’s notice requirement.

These two recent cases highlight the importance of complying with N.Y. Ins. Law § 3420’s coverage disclaimer rules—and the danger insurers face in failing to do so. An insurer can, and will, be estopped from disclaiming coverage under even the most cast-iron defense if the disclaimer is not both timely and sufficient under Section 3420.

 

Much has been written about the Washington Court of Appeals’s 2018 decision in Keodalah v. Allstate Insurance Co., which held that an insurance adjuster, employed by an insurer (and not simply the insurer itself), can be liable for bad faith as well as violation of the state’s Consumer Protection Act.

Keodalah is now before the Washington Supreme Court.  So its ultimate impact is to be determined.   

In late January, Washington Defense Trial Lawyers filed an amicus brief in the case with the Washington high court.  WDTL argues that Keodalah should be reversed – but not simply because the decision is incorrect.

Instead WDTL argues that Keodalah opens Pandora’s box.  Specifically, if insurance adjusters can be sued for bad faith, then outside counsel for insurers could be next.  The strength in WDTL’s argument is that it is not being Chicken Little.  To the contrary, WDTL points out in its brief that there have already been at least two cases where outside insurer counsel has been sued for bad faith -- alleging that they were engaged in the business of insurance.  [Both filed by the same law firm.]

In Scudder v. GEICO, filed on November 7, 2018 in the Superior Court of Washington, King County, the Scudders alleged that GEICO (and the insurer’s counsel) committed bad faith in the handling of a claim under an auto policy.  WDTL states that insurer counsel was retained to represent GEICO and perform an examination under oath.  In Sharp v. State Farm, filed on November 13, 2018 in the Superior Court of Washington, King County (and removed to federal court), Sharp likewise alleged that State Farm committed bad faith in its handling of a claim under an auto policy.  WDTL states that insurer counsel was retained to represent State Farm with respect to coverage issues.  The complaints do not allege what outside counsel may have done that alleged bad faith.

In addition to arguing that, as a matter of law, an insurer’s outside counsel should not be liable for bad faith or a violation of the CPA, WDTL also sets forth a litany of adverse consequences that could flow from permitting outside insurer counsel to be sued for such things.
     
It’s a slippery slope as WDTL points out.  In other words, if you give a mouse a cookie… 
 
[If you are interested in this issue further please send me a note and I’ll send you the WDTL brief.]

 

Northland Casualty Company v. Mulroy, No. 13-232 (D. Mont. Jan. 11, 2019) involves coverage for property damage caused by beetle infestation of logs used to build a log home.  With peculiar facts like that, an initial response may be that the decision is of little value beyond log homes.  But, in fact, the decision offers an interesting look at whether property damage comes within the products-completed operations hazard.  And, based on the court’s analysis, the decision can have applicability to all sorts of claims.

The court described the facts as follows:  “Joseph S. Mulroy hired Duane Keim’s company, Northwest Log Homes, LLC, to build a log home near Trego, Montana.  Among other responsibilities, Keim was to build and stain the log component of the home.  He also partially remodeled a guest home using logs. Keim purchased logs from a log broker, and he did not treat the logs for insects. Several years later, Mulroy noticed signs of an active wood-boring powderpost beetle infestation in both the main home and the remodeled guest home. The infestation caused substantial damage to both structures, and it remains ongoing.”

Mulroy sued Keim.  Keim sought coverage from Northland Casualty Company under a commercial general liability policy.  Northland provided a defense under a reservation of rights.  Mulroy and Keim -- without Northland’s consent -- settled the claim.  Keim admitted liability and assigned his rights, under the Northland policy, to Mulroy.  Following a damages hearing, the court awarded $208,824.58 in damages for remediation costs and $120,000 for loss of value.

At issue in the coverage action is whether Northland had a duty to indemnify Keim for the damages.  Northland argued that, for various reasons, it did not.  Of note here, Northland (acknowledging that the property damage and occurrence requirements were met) argued that coverage was precluded by exclusion j(6). 

Exclusion j.(6) precludes coverage for “property damage” to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.”  Exclusion j(6) does not exclude coverage if the “property damage” falls under the “products-completed operations hazard.”  In relevant part, the “products-completed operations hazard”: a. Includes all . . . “property damage” occurring away from premises you own or rent and arising out of “your product” or “your work” except: (1) Products that are still in your physical possession; or (2) Work that has not yet been completed or abandoned . . . .”

Step 1, the court concluded that exclusion j.(6) – without regard to an exception -- applied: “In the underlying action, Mulroy alleged—and the state court found—that Keim was negligent in failing to chemically treat the logs for insects. The use of the untreated logs constitutes Keim’s ‘work,’ which was ‘incorrectly performed,’ causing ‘property damage’ to Mulroy’s home and guest house. Thus, upon a first read, the ‘unambiguous language’ of the policy excludes coverage for remediation of at least a ‘particular part’ of Mulroy’s property unless the PCOH provision applies.”

However, a second step was required.  Did the “products-completed operations hazard” exception apply?  The court explained that it did: “The applicability of the PCOH provision depends on timing; if the damage occurred after Keim completed its work, then the PCOH provision is in play, and Northland cannot rely on exclusion j(6).  Northland argues that the provision does not apply because Mulroy’s property damage occurred when the logs were selected and placed, well before Keim finished the project.  Mulroy counters that the property damage did not occur until several years after the home was finished, when he noticed beetle holes throughout the logs. Mulroy argues that although the beetles were present in the logs at the time of construction, they were ‘dormant,’ and that the ‘emergence, spread, and active re-infestation occurred after Northwest’s work was completed.

Here, the PCOH provision encompasses Mulroy’s property damage, and exclusion j(6) is inapplicable.  Property damage does not occur until there is ‘physical injury to or loss of use of tangible property.’ (citation omitted)  A ‘physical injury’ is ‘a physical and material alteration resulting in a detriment.’ (citation omitted)  In this instance, although the beetles were dormant in the logs at the time the home was built, the integrity and appearance of the home did not suffer until the later infestation.  The use of untreated logs created the right conditions for the later property damage, but the damage did not occur at the time of construction.”

Ultimately the court concluded that no coverage was owed on account of the “your work” exclusion.  However, claims involving latent property damage are not unusual.  So, despite it involving beetles, Northland Casualty Company v. Mulroy provides guidance on the treatment of latent property damage vis-à-vis the applicability of the “products-completed operations hazard.”

 

For a long time policyholders in Pennsylvania have had a rough go at getting coverage for property damage caused by defective construction.  The principal hurdle has been Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006), where the state supreme court held that “the definition of ‘accident’ required to establish an ‘occurrence’ under the policies cannot be satisfied by claims based upon faulty workmanship.  Such claims simply do not present the degree of fortuity contemplated by the ordinary definition of ‘accident’ or its common judicial construction in this context.” 

Then, in the second of a one-two punch, the Pennsylvania Superior Court took Kvaerner a step further in Millers Capital Ins. Co. v. Gambone Bros. Dev. Co., Inc., 941 A.2d 706 (Pa. Super. Ct. 2007), holding that the natural and foreseeable acts of faulty workmanship also “cannot be considered sufficiently fortuitous to constitute an ‘occurrence’ or ‘accident’ for the purposes of an occurrence based CGL policy.”    

The combination of Kvaerner and Gambone have led to Pennsylvania decision after decision holding that no coverage was owed, usually to a contractor, for property damage caused by its defective construction. 

On January 30, the Eastern District of Pennsylvania held – at the judgment on the pleadings stage – that Kvaerner was not an impediment to an insured’s entitlement to a defense for claims for the defective construction of residences.

At issue in Nautilus Ins. Co. v. 200 Christian Street Partners, Nos. 18-1364, 18-1545 (E.D. Pa. Jan. 30, 2019), was coverage, for a defense, for 200 Christian Street Partners, for suits filed against it for its defective construction of two homes in Philadelphia.  Specifically, owners of homes alleged that 200 Christian Partners marketed itself as a seller of luxury homes, yet sold homes that were “riddled with construction defects.”

Nautilus undertook 200 Christian Partners’s defense under commercial general liability policies and the insurer filed actions, seeking declaratory judgments, that it was not obligated to defend the insured.   
 
The decision addresses a number of issues.  The crux is this: “Nautilus contends that all of the allegations in the Underlying Complaints stem from issues regarding Defendants’ faulty workmanship.  The parties agree [as did the court] that Pennsylvania law does not consider faulty workmanship to be an ‘occurrence’ that is covered under a Commercial General Liability (‘CGL’) policy.  However, Defendants and the Owners counter that Pennsylvania law does recognize product-related tort claims, such as product malfunctions, as ‘occurrences,’ and the Underlying Complaints allege such malfunctions.”

In essence, the insureds and owners were arguing that Indalex, Inc. v. National Union, 83 A.3d 418 (Pa. Super. Ct. 2013) applied.  In Indalex, in general, the Superior Court distinguished Kaverner [and Gambone] in the context of a “products” case.  Specifically, windows and doors were defectively designed or manufactured by the insured and resulted in water leakage that caused physical damage, such as mold and cracked walls, in addition to personal injury.  The court held that the issues were framed in terms of a bad product, which could be construed as an active malfunction, and not merely bad workmanship.  An active malfunction, the court concluded, is fortuitous enough to constitute an “occurrence.”        

However, in general, courts have consistently concluded that Indalex does not apply in cases involving faulty construction.  See Hagel v. Falcone, No. 614 EDA 2014, 2014 Pa. Super. Unpub. LEXIS 464 (Pa. Super. Ct. Dec. 23, 2014) (declining to distinguish Kvaerner and Gambone) (“[T]he most critical element in Indalex was that the appellant’s claims were product-liability/tort claims that were based on damages to persons or property, other than the insured’s product. Such claims are absent here, where workmanship is at issue, rather than an active malfunction or product liability, as such. Hence, Indalex cannot carry the day for Appellants.”); Northridge Vill., LP v. Travelers Indem. Co., No. 15-1947, 2017 U.S. Dist. LEXIS 140541 (E.D. Pa. Aug. 31, 2017) (noting that “Indalex did not announce a new majority rule, but instead carved out a discrete scenario where a claim based in products liability could constitute an ‘occurrence’” and that the claims at issue did not “amount to an ‘active malfunction’ in any product, nor do they state a product liability claim”); MMG Ins. Co. v. Floor Assocs., No. 15-4814, 2017 U.S. Dist. LEXIS 124883 (E.D. Pa. Aug. 8, 2017) (“Because this case is about shoddy workmanship, Floor Associate’s reliance on Indalex, Inc. v. National Union Fire Insurance Co., is misplaced.”).

Despite these decisions, declining to apply Indalex to a faulty workmanship case, the court in 200 Christian Partners did so: “Here, although the Owners primarily allege claims for faulty workmanship, they also explicitly bring a claim for negligence, stating broadly that Defendants should be liable for negligently constructing the homes in a manner that presented a danger to the Owners.  The Owners also make allegations specific to a product defect theory of negligence, such as that Defendants used faulty materials and that specific materials have caused problems. Moreover, the underlying complaint in Nautilus I alleges physical injury, such as respiratory issues, to in persons the home as a result of the issues with the home.”  [More specifically, the complaints alleged, multiple times, that “[t]he Home was not free from ... faulty materials” and detailed specific concerns with certain products, including the windows, which caused water damage and mushrooms inside the home.”]

The court concluded that the underlying complaints “could encompass product-related tort claims.”  Thus, the court could not “foreclose the possibility that Defendants used a third party’s product that actively malfunctioned in an ‘occurrence.’  Even though these allegations are far from specific or cohesive, we are required to resolve all doubts in favor of the insured.”

There is a world of difference between the product-related aspect of Indalex and that at issue here.  Indeed, several courts have declined to apply Indalex to a faulty workmanship case.  Nonetheless, the court held that Nautilus had a duty to defend until it became clear that there was no longer a possibility of a product related tort claim.

 

Gemini Insurance Co. v. 33 East Maintenance, Inc., 17-7393 (D.N.J. Jan. 22, 2019) is a fascinating decision.  The court held that a “Named Insured versus Name Insured” exclusion did not apply to a claim seeking damages for the death of a named insured’s employee.  I don’t often say here whether I believe a case was rightly or wrongly decided.  But this case was seriously wrongly decided. 

The case is a little complex and involves various suits and parties.  I’ll distill it here to the aspects that are relevant.

Brian Pancoast, an employee of Freehold Cartage, Inc. – that’s important -- died during the course of his employment.  He was working on a specialty roll-off tank/container when the hatch closed on him.  Dana Pancoast and Brian’s Estate filed a wrongful death and survivorship action against various Freehold parties.  Following various procedural comings and goings, the only remaining defendant was FCI Transport. 

The Estate and Dana Pancoast entered into a settlement/consent judgment with FCI Transport for $3,750,000.  FCI Transport assigned to the Estate and Dana Pancoast all of its rights against Gemini Insurance, under an excess liability policy.  [A primary policy tendered its limit of $1,000,000.]

Freehold Cartage, Inc. and FCI Transport were both Named Insureds under the Gemini Policy.  Thus, Gemini maintained that, based on the policy’s “Named Insured versus Name Insured” exclusion, it had no obligation to provide coverage for the settlement.  The exclusion provided as follows: “This Insurance does not apply to: Any liability, costs or expenses of any Named Insured or its ‘employee’ arising out of, caused or contributed to by any ‘bodily injury’ or ‘property damage’ claimed by any other Named Insured or its ‘employees.’”  (emphasis added).

As the court saw it, the exclusion did not apply because, even though Brian Pancoast was an employee of Freehold Cartage, Inc., a Named Insured, he was not the one claiming bodily injury.  Rather, it was Mr. Pancoast’s widow and the Estate that were claiming bodily injury.

Gemini argued that the exclusion “applies to the Estate and Dana Pancoast, even though they are not Named Insureds, because there is nothing in the Exclusion that looks to who has brought a claim or . . . even what theory of liability is pled.  Instead, it looks whose [sic] injuries the Named Insured is liable for.  As such, Gemini contends that because the bodily injury at issue was regarding Brian Pancoast, an employee of a Named Insured, Freehold Cartage, Inc., the Exclusion applies.”

Gemini also argued that “even if the Exclusion looks to who has brought the claim, the claims brought by the Estate and Dana Pancoast are the equivalent of a claim brought by Brian Pancoast because, under New Jersey Law, the Estate stands in the shoes of the decedent.  Further, under New Jersey law, the claim and damages asserted by Dana Pancoast do not exist independent of the Estate’s Wrongful Death claim for the bodily injuries and death of [Brian] Pancoast.”

The court did not accept these arguments: “This Exclusion is unambiguous and unequivocal, and undoubtably revolves around who is asserting the claim, not who it initially belonged to or what claim is being asserted. By its plain terms, the Exclusion is expressly limited to claims asserted by a Named Insured or its employees, not an estate or family member.”  (emphasis added).  The court added that “if Gemini wanted the Exclusion to bar coverage for claims by a Named Insured’s deceased employee’s estate or spouse, it should have drafted it accordingly. Gemini could have, for example, drafted the Exclusion to exclude coverage for liability claimed by or on behalf of a Named Insured or its employees, or claims made by estates or decedent’s widows.”  To this point, the court identified other provisions, in the Gemini policy, that purportedly would have supported the interpretation that Gemini sought.

Simply put, it belies common sense for coverage, under a general liability policy, to turn on whether a person, injured by an insured, lives or dies.  The claims brought by the widow and Estate are the equivalent of claims brought by Brian Pancoast.  The Estate stands in the shoes of Brian Pancoast.  The claims of the widow do not exist independent of the Estate’s Wrongful Death claim.  But, even more importantly, the court’s focus on the “claimed by” language in the exclusion does not support its decision.  The exclusion is clearly tied to whose injuries the Named Insured is liable for.  The court impermissibly reads “claimed by” as “who is making a claim.” 

 

 

Capitol Specialty Insurance Company v. Tayworksky LLC is your basic coverage action involving the applicability of an “Assault or Battery” exclusion, in a general liability policy, to a claim involving a injury sustained in a bar.  However, it comes with a pretty unique argument in an effort to avoid applicability of the exclusion. 

Melissa Tate was injured by a gun shot while at the Monkey Barrel Bar in Charleston, West Virginia.  She filed suit against the operators of the bar (Tayworski) alleging that they failed to keep the bar in a safe condition and that her injury was a result thereof.  Tayworsky held a commercial general liability policy issued by Capitol Specialty.  The insure filed an action seeking a determination that, on account of an “Assault or Battery” exclusion, it had no obligation to defend or indemnify Tayworsky for any claim asserted in Tate’s suit.

After concluding that the policy’s accident requirement had been satisfied, and there was no basis to preclude coverage on account of intentional acts, the court moved to the potential applicability of the “Assault or Battery” exclusion, which provides as follows:

This insurance does not apply to, nor shall we have a duty to defend, any claim or ‘suit’ seeking damages or expenses due to ‘bodily injury,’ . . . arising out of, resulting from, or in connection with any of the following acts or omissions regardless of their sequence or any concurring cause:

a. “Assault or Battery”, whether or not caused or committed by or at the instruction of, or at the direction of or arising out of the negligence of you, any insured, any person or legal entity, or any causes whatsoever;

b. The suppression or prevention of, or the failure to suppress or prevent ‘assault or battery’ by you, any insured, or any person or legal entity;

c. The failure by you, any insured, or any legal entity to provide an environment safe from ‘assault or battery’, including but not limited to the failure to provide adequate security, or the failure to warn of the dangers of the environment which could contribute to ‘assault or battery’ or failure to maintain the premises by you, any insured or any person or legal entity;

The policy defined “assault” as “any threatened harmful or offensive contact between two or more persons, whether or not caused or committed by or at the instruction of, or at the direction of, or arising out of the negligence of you, any insured, any legal entity, or any causes whatsoever, regardless of fault or intent”  The policy defined battery as “any actual harmful or offensive contact between two or more persons, whether or not caused or committed by or at the instructions of, or at the direction of, or arising out of the negligence of, you, any insured, any legal entity, or any causes whatsoever, regardless of fault or intent.” (emphasis added).

The insured argued that, as the harmful contact “was made between Ms. Tate and a bullet fired from a gun, no contact was made between two or more persons.”  As the court described it, the insured argues “that the exclusion requires not only harmful or offensive contact but also bodily or direct contact.”

The Court rejected the insured’s argument: “While West Virginia courts have not defined or given legal significance to the word ‘contact’ in the context of insurance policies, this Court is of the view that the exclusion applies to harmful or offensive contact—whether achieved through direct or indirect means—between two or more persons. . . . The policy defines an assault and battery in clear, simple terms. Under neither definition must contact between two persons be bodily or direct.  Rather, the policy exclusion is concerned with ‘harmful’ and ‘offensive’ contact—contact that is either ‘actual’ or ‘threatened.’  A narrow construction of the term ‘contact’ as Defendants propose would lead to unreasonable and absurd results. Indeed, an interpretation that presumes the policy is intended to provide special protection for injury resulting from a deadly weapon ‘regardless of fault or intent’ but not for injury caused by a physical altercation is illogical.  Thus, the Court will not rewrite or construe the policy contrary to its plain language and apparent object and intent.”

 

Decisions addressing the applicability of exclusions j.(5) and j.(6), given their often fact-intensive nature, are sometimes complex.  But not MTI, Inc. v. Employers Insurance Company, No-17-6206 (10th Cir. 2019).  It is simple and clearly explained.  And that’s why the decision could become a go-to one for courts confronting the double Js.  [I just made that term up.  Maybe it’ll stick.]

At the outset, the facts at issue are straightforward.  That helped to keep the decision simple.  Western Farmers Electrical Cooperative, which owns cooling towers in Oklahoma, hired MTI to replaced corroded anchor bolts in a tower.  MTI employees removed all 64 corroded anchor bolts.  However, because the adhesive applicator had not yet arrived, “MTI did not immediately install new anchor bolts. Further, MTI did not provide any temporary support to ensure the stability of the tower.  On the night of May 24, extremely high winds struck the tower, causing it to lean and several structural components to break. Due to the extent of the structural damage, removal and replacement of the tower was determined to be the only viable option. Although at least some internal operational equipment was not damaged, this equipment was deemed too dangerous to access and recover.”

Even the procedure is simple:  “WFEC demanded MTI pay the cost of removing and replacing the entire tower, which totaled over $1.4 million. MTI filed a claim for coverage with its insurer, Wausau, under the [CGL] Policy. After Wausau declined to provide coverage, MTI directly negotiated a settlement of $350,000 with WFEC. The balance of the tower replacement cost was borne by WFEC’s insurer.” MTI filed a coverage action seeking recoupment of its settlement amount from Wausau.

At issue before the court was the potential applicability of exclusions J(5) and J(6):

j. Damage To Property
“Property damage” to:
. . . .
(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations; or
(6) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.  (emphasis added)
    
As the court noted, the key to the scope of these exclusions is the meaning of the phrase “that particular part.”  The court observed that these exclusions have received inconsistent treatment from courts around the country.  It provided several examples on both sides.  But inconsistent treatment, the court pointed out, does not mean that the language is necessarily ambiguous.

The court identified two schools of thought nationally on the interpretation of “that particular part” - narrow and broad. 

Courts in the narrow camp have “determined the scope of coverage by looking to the ‘distinct component parts’ on which an insured conducts operations.  Courts in the broad camp have held that “that particular part” could “apply to those parts of the project directly impacted by the insured party’s work.” 

The court saw both ways as being reasonable -- but only one could apply:  “Because both readings are permissible, the exclusions are facially ambiguous.”  At that point, the outcome is easy to predict: “Because the exclusions are ambiguous, they must be strictly and narrowly construed in a manner favorable to the insured party. . . . In this case, interpreting ‘that particular part’ to refer to the distinct components upon which work is performed best comports with these rules of interpretation.”  [Even so, the court acknowledged that it’s a fact intensive and case-by case-issue: “In some instances, a larger unit will properly be considered “the particular part.”]  

Applying a narrow interpretation, the court held: “As applied to the facts of this case, we conclude the ‘particular part’ on which MTI was ‘performing operations’ and upon which work ‘was incorrectly performed’ should reasonably be understood as the anchor bolts.  Those bolts constitute ‘distinct component parts’ of the tower[.] . . .  MTI performed work incorrectly by removing them without promptly replacing them or bracing the structure.  We further conclude it is objectively reasonable that MTI would expect coverage for the cost of replacing the entire tower, including all of its operational elements, given the ambiguous language of exclusions j(5) and j(6).”