The Insurance and Reinsurance Report

Professional Liability Monthly - May Edition is Now Available

For a free copy of this month's edition of Professional Liability Month, click here.

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Cases for Professional Liability Monthly – May 2012 Edition

Cases provided courtesy of LexisNexis.

CERTAIN UNDERWRITERS AT LLOYDS, LONDON v. TRIDUANUM FINANCIAL, INC., et al

COLONIAL FREIGHT SYS. INC. v. ADAMS & REESE, LLP

GROSS v. RELL

HIRANI ENGINEERING AND LAND SURVEYING v. MEHAR INVESTMENT GROUP

JAMES RIVER INSURANCE COMPANY v. GARCIA

LOUIS F. JEFFERSON v. WAVENY CARE CENTER, INC. ET AL.

MASSEY v. FAIR ACRES GERIATRIC CENTER

MEDICAL PROTECTIVE COMPANY v. DUMA

MEYERS v. LIVINGSTON, ADLER, PULDA, MEIKLEJOHN & KELLY, P.C.

PIN v. KRAMER

REDDING v. ESTATE OF SUGARMAN,

RIVERDALE PEAKS HOMEOWNERS ASSOCIATION, LLOYD LAND AND EILEEN LAND v. AUTO-OWNERS INSURANCE COMPANY

TRICE, GEARY & MYERS, LLC v. CAMICO MUT. INS. CO.

U.S. BANK NATIONAL ASSOCIATION v. FEDERAL INSURANCE COMPANY

Environmental Coverage Quarterly Spring 2012 is Now Available

Goldberg Segalla’s Environmental Coverage Quarterly provides summaries of and access to the latest environmental coverage developments nationwide, and is published quarterly. Cases are organized by court and date. In addition, we provide the latest information regarding news in the environmental coverage industries. For a free copy, please click here.

If you have any questions or would like to receive the newsletter via email, please contact Paul Steck at psteck@goldbergsegalla.com or Joanna M. Roberto at jroberto@goldbergsegalla.com.

Cases for Spring 2012 Environmental Coverage Quarterly

Cases provided courtesy of LexisNexis.

Barney Greengrass, Inc. v. Lumbermens Mut. Cas. Co.

Bay Farms Corp. v. Great American Alliance Ins. Co.

Egan Marine Corp. v. Great American Ins. Co. of New York

Emergency Billing v. Allstate

Figuli v. State Farm

GreatAmer v. JWRConst

Hirschhorn v. Auto-Owners Ins. Co.

Looking Good Lawns v. SecuraInsCo

National Union Fire Ins. Co. of Pittsburgh v. Everest Reinsurance Co.

Penn. Nat. Mut. Cas. Ins. Co. v. Roberts

QBE Ins. Co. v. Estes Heating & Air Conditioning, Inc.

Racetrac Petroleum, Inc. v. Ace American Ins. Co.

Scottsdale Ins. Co. v. Pursley

Scottsdale v. Village of Crestwood

Sierra Recycling & Demolition, Inc. v. Chartis Specialty Lines Ins. Co.

State Automobile Mut. Ins. Co. v. Flexdar, Inc.

Sua Ins. Co. v. S&O Invest. LLC

Sunnyside Development Co. LLC v. Chartis Specialty Insurance Co.

Travco Ins. Co. v. Ward

Universal Image Productions, Inc. v. Federal Ins. Co.

No Early Exit for Ex-AIG Executives

People v. Greenberg (N.Y. App. Div. 1st Dep’t May 8, 2012)

On March 8, 2012 New York’s Appellate Division, First Department, denied summary judgment motions filed by two former executives of American International Group, Inc. (“AIG”), ex-CEO Maurice “Hank” Greenberg and ex-CFO Howard Smith, and New York’s Attorney General (“AG”), clearing the way for the now seven-year-old case to go to trial.

The case against the two former executives alleges violations of Executive Law § 63(12) and the Martin Act, General Business Law § 352 et seq.  The case alleges statutory violations against the former executives based upon their role in fraudulent transactions designed to portray an unduly positive picture of the insurer’s loss reserves and underwriting performance.  The insurer, formerly the largest insurance company in the world, entered into a settlement agreement with the AG.  The AG and both the former executives filed summary judgment motions.  In its motion, the AG argued that the executives knew of, and participated in, two unlawful reinsurance schemes.  For their part, the executives argued that the AG’s enforcement powers under the Martin Act and Executive Law are preempted by federal law.

The trial court denied summary judgment to the executives, finding that there was no evidence that Congress intended to preempt the claims, and granted partial summary judgment to the AG based on a finding that the executives had knowledge of, and participated in, one of two challenged transactions, and that this behavior constituted violations of the Executive Law § 63(12) and General Business Law § 352-c(1)(a) and (c).  

On appeal, the First Department found that the record evidence presented triable issues of fact as to whether the executives knew of, or participated in, the fraudulent aspects of both schemes given the nature and degree of their personal involvement in both of the challenged transactions. The appeals court ruled that summary resolution of the executives’ knowledge and participation in the two challenged schemes was not determinable as a matter of law.  Therefore, partial summary judgment in favor of the AG was inappropriate.

With regard to federal preemption issue, the appeals court agreed that there was no evidence that Congress intended to preempt the claims: “[N]othing in the language or legislative history of the cited legislation indicates Congress intended to preempt this civil enforcement action under the Martin Act and the Executive Law.”  In their motions, the executives had sought dismissal of the entire suit, arguing that the AG’s case was “expressly” barred by the Securities Litigation Uniform Standards Act of 1998.  They also claimed that the suit conflicted with Congress’s intent to create a uniform federal standard for securities litigation, pointing to the Private Securities Litigation Reform Act of 1995 and the National Securities Markets Improvement Act of 1996.  However, the First Department came to the opposite conclusion, writing: “In fact, the cited statutes, their legislative histories and the case law presuppose an important role for state attorneys general in investigating fraud and bringing civil actions to enjoin wrongful conduct, vindicate the rights of those injured thereby, deter future fraud and maintain the public trust.”

 On May 14, 2012 the executives sought permission on to appeal the Third Department decision to the Court of Appeals, New York’s highest court. 

For a copy of the decision click here

Matthew Cabral and Jeffrey Kingsley

10th Circuit “Haunts” Insurer Reversing Summary Judgment in Haunted House Suit

Western World Ins. Co. v. Markel American Ins. Co. 10th Cir. (Okla.) May 8, 2012

In what may be the most fun the Tenth Circuit has had authoring an Opinion on a coverage matter, an insurer was stripped of its victory and held responsible for its share of the defense costs of the underlying action. In a must-read Opinion fraught with puns, the Court decided that an escape clause added to a commercial liability policy by an endorsement was unclear and therefore the reasonable expectations of the insured governed.

The clause at issue stated:

This insurance shall not apply to any entity that is already an insured under any other insurance provided by any company or that would be an insured but for the exhaustion of its limits of insurance.

Under the Oklahoma doctrine of equitable contribution, where two insurers cover the same risk, the loss will be apportioned so that each insurer pays its fair share of a common obligation. The co-insurer argued that the policy’s “escape clause” allowed it to escape liability in this case. The Court found that the clause was not clear in that its broad language did not clarify what “this insurance” or “any entity” refer to.

The Court also cited to the policy provision titled “Other Insurance” finding that this provision stated that the insurance policy provides primary coverage and that if another insurance policy also provides primary coverage, the two carriers will share the cost of coverage. Reading the escape clause as the insurer urged would make the “Other Insurance” provision a dead letter.

The Court found that the provision was unclear and awarded the tie to the insured using the “reasonable expectations” test. The Court stated that “Applying the reasonable expectations doctrine to this case, we have no doubt a reasonable insured in Brewer Entertainment’s shoes would have expected coverage from Markel.” After making this statement the Court acknowledged that this action involved only two co-insurers, both sophisticated parties, but stated that Oklahoma law does not currently have an exception to the “reasonable expectations” test that would allow a different standard to be applied here.

The Court reversed the grant of summary judgment to the co-insurer finding that “there is no escape for either of them” and remanded the case to determine the share of the costs that are attributable to the co-insurer.

For a copy of the decision click here

Fallyn Reichert and Sarah Delaney

FLORIDA JURY AWARDS GLORIA ESTEFAN’S HOTEL CO. $ 6.7 MILLION FOR HURRICANE DAMAGE

Pin-Pon Corporation v. Landmark American Insurance Co. , case number 2009 0320 CA 03, consolidated with Pin-Pon Corporation v. Lexington Insurance Co., case number 31 2009 CA 01 2244, May 3, 2012 (Indian River County, FL)

Lexington Insurance Co. and Landmark American Insurance Co., were found by a Florida state jury to be liable to Gloria Estefan’s Pin-Pon Corp. in the amount of $6.7 million for failing to provide coverage for hurricane damage.

The insurers had made some payments, but the jury found that the insurers failed to provide the coverage that they owed for damage to the company’s Vero Beach hotel. Hurricane Frances hit the hotel in August 2004 and Hurricane Jeanne hit again in September 2004, causing extensive damage. The jury found that the insurer’s had failed to pay for building damages, code upgrade damages and costs while the hotel was unable to operate as repairs were being made.

Gloria Estefan’s hotel company had a primary policy with Lexington and an excess policy with Landmark at the time that the Hurricanes hit.  Both policies provided coverage for windstorm damage and business interruption coverage. The hotel company provided documentation of its losses but the insurers refused to pay the full amount. The insurers argued that the hotel company was renovating the hotel and much of the repairs and business interruption were due to the renovation and not the storm damage.

The jury found that the insurers were obligated to indemnify the hotel for the costs it incurred in having to restore the hotel before it could be renovated in the first place. Moreover, the jury found that the insurers had to indemnify the hotel for the damages it incurred in bringing the hotel up to code after the damage caused by the Hurricanes.

The hotel reopened in 2008, and the hotel company is going to seek prejudgment interest on the $6.7 million for the time between 2008 and this jury decision.

For a copy of the decision click here

Clay Waterman and Joanna Roberto

 

May Edition of Reinsurance Review is Now Available

For a free copy of this month's edition, click here.

To receive this publication for free each month, please contact Jeff Kingsley at jkingsley@goldbergsegalla.com.

Cases for Reinsurance Review - May 2012 Edition

Cases provided courtesy of LexisNexis.

Ace American v. Christiana

Arch Re v. Underwriters

McNeary v. JP Morgan

Olympus v. Aon Benfield

USFIC v. Warren

Policyholders Not Owed Defense Against Criminal Charges for Rhode Island Nightclub Fire

Derderian v. Essex Ins. Co. (R.I. Apr. 27, 2012)

The Supreme Court of Rhode Island recently held that two night club owners charged with involuntary manslaughter in connection with 100 deaths at the club were not entitled to a defense from the club’s liability insurer for the criminal proceedings against them.

In February 2003, 100 people died in a fire that occurred at the Station nightclub, which was co-owned by appellants Michael and Jeffrey Derderian. The fire engulfed the Station within a matter of minutes when polyurethane foam covering the ceiling and walls caught fire after a band performing at the nightclub ignited a pyrotechnic display. The foam that kindled the conflagration had been installed by the Derderians in June 2000, and was not flame-resistant, as required by the statute in effect at that time.

The Derderians were indicted on charges of criminal negligence as a result of the fire. They tendered their defense in the criminal proceeding to Essex Insurance Company under a general liability policy issued to the nightclub. Essex denied coverage, contending that the policy provided coverage for a “suit,” which was specifically defined as a “civil proceeding.” The Derderians argued that Rhode Island General Law §12-28-5 required Essex to provide a defense. The statute, referred to as the "Victim's Rights" statute, provides:

Upon his or her final conviction of a felony after a trial by jury, a civil judgment shall automatically be entered by the trial court against the defendant conclusively establishing his or her liability to the victim for any personal injury and/or loss of property that was sustained by the victim as a direct and proximate cause of the felonious conduct of which the defendant has been convicted. The court shall notify the victim at his or her last known address of the entry of the civil judgment in his or her favor and inform him or her that he or she must establish proof of damages in an appropriate judicial proceeding in order to recover for his or her injury or loss. This section shall not apply to crimes set forth in title 31 arising from the operation of a motor vehicle.

The Derderians contended that Essex’s defense obligation was triggered because the statute required an automatic civil judgment against them if convicted. Essex argued, in response, that the criminal proceedings were not “suits” within the meaning of the policy because they did not seek damages because of “bodily injury.” Essex also contended that, as a matter of course, general liability policies do not provide coverage for criminal proceedings, and that to interpret §12-28-5 as requiring a general liability policy to provide a defense for such matters would result in an undue windfall for insureds.

The lower court held that the criminal proceedings were not “suits” within the meaning of the policy. The Rhode Island Supreme Court affirmed, noting that the statute is merely a “procedural mechanism" that fixes civil liability, but that still requires a separate proceeding to establish damages. As a result, the court held that the statute was not meant to require an insurer to defend its insured in a criminal proceeding. As the court explained, “[u]nlike the alchemists of yore, we do not claim the ability to transmute base metal into gold; neither can we transmute a 200-count criminal indictment into a civil proceeding.”

For a copy of the decision, click here.

Jeffrey L. Kingsley and Carrie P. Appler