Pollution Exclusion, ADA, Business Interruption, and More
Insurance Law Update
In MacKinnon v. Truck Ins. Exchange, 3 Cal.Rptr.3d 228, 73 P.3d 1205 (2003), the California Supreme Court held that an interpretation limiting the absolute pollution exclusion to environmental pollution was reasonable. The court concluded that the exclusion did not plainly and clearly exclude a landlord’s allegedly negligent use of pesticides in spraying an apartment for yellowjackets.
Americans with Disabilities Act
The California Court of Appeal has held that claims for violations of the Americans with Disabilities Act do not arise from an “occurrence” and, hence, do not give rise to a duty to defend under a CGL policy. Modern Development Co. v. Navigators Ins. Co., 2003 WL 22026545 (Cal.App. 2003).
Business Interruption — World Trade Center
In Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 2003 WL 21998977 (S.D.N.Y., Aug. 20, 2003), a drugstore destroyed during the September 11, 2001 attack on the World Trade Center brought an action against its insurer seeking “business interruption” coverage. The district court held that, based on the plain language of the policy, the period of business interruption extended to the hypothetical or constructive date when the damaged store itself could have been repaired or rebuilt, not the time it would take to rebuild the entire complex that will replace the World Trade Center (as the insured argued), nor the brief time it took for the drugstore chain to resume operations at its other locations (as the insurer argued).
Contractual Limitations Period
In Mitchell v. State Farm Fire & Cas. Co., 2003 Ill. App. LEXIS 1029 (4th Dist., August 8, 2003), the Appellate Court of Illinois held that an insurer may be estopped from asserting the policy’s one-year “no action” clause when the insurer’s conduct in managing a homeowner’s claim may have lulled the policyholder into inaction. The Illinois Insurance Code automatically tolls such contractual limitation periods from the time the proof of loss is filed until the claim is denied in whole or in part. The court held that the insurer’s first supposed denial of the claim was invalid because it was issued before the proof of loss had even been filed. The insurer’s later correspondence, in response to the insured’s proof of loss, did not cause the limitations period to resume because it incorrectly indicated that the limitations period had already expired. The court held that the policyholder is entitled to prove its equitable estoppel claim by showing that the insurer’s letter, stating that it was amenable to reconsidering its decision if the policyholder provided further documentation in support of its proof of loss, was equivocal in whether or not the claim had been finally denied. A local agent’s alleged statement to the insured that the insurer would be interested in settling the loss might also support the estoppel claim. Thus, ambiguity in the insurer’s own statements concerning the proper procedural status of the claim may prevent an insurer from enforcing the one-year “no action” clause.
In Spratley v. State Farm Mut. Auto. Ins. Co., 2003 WL 21994704 (Utah Sup. Ct., Aug. 22, 2003), Spratley and Pearce represented State Farm and its insureds for many years. As such, they owed lawyers’ duties of confidentiality to those former clients. Nevertheless, the Utah Supreme Court held that they may disclose State Farm’s client confidences as reasonably necessary to make a claim against State Farm. Former in-house counsel must be free to employ legal counsel in cases against their former employers, and an order of disqualification would prevent Spratley and Pearce from receiving effective legal counsel because any attorney they hired who received enough information to prosecute the suit would similarly be disqualified.
In Miller v. Superior Shipyard and Fabrication, Inc., No. 2003 WL 21976653 (Ct. App. La. Aug 20, 2003), Superior Shipyard and Fabrications, Inc., its commercial general liability insurer, Lexington Insurance Company, other insurers, and T.T.C Illinois, Inc. were sued in a pedestrian-vehicular accident. T.T.C. had contracted with Superior to provide payroll and other functions. The contract between T.T.C. and Superior required Superior to provide CGL insurance and name T.T.C. as an additional named insured under the policy. The Louisiana appellate court held that Superior was an “additional-insured” under the Lexington policy. The endorsement provided that, if required by contract, a person, firm or organization is included as an additional insured, but only with respect to operations performed by the named insured or to acts or omissions of the named insured in connection with the named insured’s operations. Here, plaintiff alleged that T.T.C. was vicariously liable for Superior’s negligence.
Voluntary Payments/Late Notice
In Low v. Golden Eagle Ins. Co., 2 Cal.Rptr.3d 761 (2003), the California Court of Appeal discussed the “no voluntary payments” provision in CGL policies, stating that California law enforces no voluntary payments provisions in the absence of economic necessity, insurer breach, or other extraordinary circumstances. These provisions are designed to ensure that responsible insurers who promptly accept a defense tendered by their insureds thereby gain control over the defense and settlement of the claim. Insureds cannot unilaterally settle a claim before the establishment of the claim against them and the insurer’s refusal to defend in a lawsuit to establish liability. Unlike a notice provision or a cooperation clause, the no voluntary payments provision is enforced without a showing of prejudice.
In New Era of Networks v. Great Northern Ins. Co, et al, Civil Action No. H-01-1841 (S.D.Tex. Aug. 1, 2003), the district court held that an insurer need not show prejudice when asserting a late notice defense in response to a claim for trademark infringement under “advertising injury” coverage. Noting that Texas precedent requires a showing of prejudice in pursuing a late notice defense only in “bodily injury” and “property damage” cases, the court ruled that no such requirement applies to claims of “advertising injury.”
In Elliot v. Fortis Benefits Ins. Co., 337 F.3d 1138 (9th Cir. 2003), a former paralegal suffering from cancer brought both ERISA and state law claims under which she sought non-ERISA compensatory and punitive damages. The long-term disability policy contained an exclusion for certain preexisting conditions. However, in denying her claim, the insurer wrote her a letter adding conditions to coverage which were not contained within the insurance policy itself. The question presented was one of preemption.
29 U.S.C. §1144(a) expressly preempts any and all state laws insofar as they may now or hereafter relate to any employee benefit plan in favor of federal regulation under ERISA. However, §1144(b)(2)(A) saves from preemption any law of any state which regulates insurance, banking or securities. Applying the preemption test recently set out in Kentucky Association of Health Plans, Inc. v. Miller, 123 S.Ct. 1471 (2003), the Ninth Circuit asked whether the Montana state law in question is specifically directed towards entities engaged in insurance and whether it substantially affects the risk pooling arrangement between the insurer and the insured. The court found preemption under the law in question.
In American Motorists Ins. Co. v. Morris Goldman Real Estate Corp., 2003 WL 21878801 (S.D.N.Y., Aug. 8, 2003), the district court held that an insurer was permitted to bring a subrogation action against its insured’s landlord alleging gross negligence in the landlord’s maintenance of water pipes that froze and ruptured, causing damage to the insured’s retail clothing business, despite the fact that the lease for the property contained a waiver of subrogation clause. The public policy of New York is that a party may not insulate itself from damages for gross negligence.
Insurer's Liability for Settlements When Defense and Indemnity Denied
In Fireman’s Fund Ins. Co. v. Imbesi, 361 N.J. Super. 539, 826 A.2d 735 (App.Div. 2003), the New Jersey Appellate Division affirmed a lower court ruling that an insurer which wrongfully declined defense and indemnity was not liable for a settlement entered by its insured, despite the general rule that an insurer which wrongfully denies coverage is liable for the amount of a settlement entered by the insured so long as the settlement is both reasonable in amount and entered in good faith. The general rule did not apply when the record reflected that the settlement entered was collusive, because (1) at all times the parties to it were primarily interested in disposing of the case and suing their insurers, and (2) there was no evidentiary basis to support the reasonableness of the settlement.
Punitive Damages — Texas
The issue of the insurability of punitive damages in Texas was addressed for the second time this summer in Fairfield Ins. Co. v. Stephens Martin Paving, L.P., 2003 WL 22005877 (N.D.Tex. August 25, 2003). The court noted that the workers’ compensation policy in issue expressly states that “[w]e will pay all sums you legally must pay as damages because of bodily injury to your employees…,” and that such language has been held to be sufficiently broad enough to include punitive damages.