The Insurance and Reinsurance Report

Insurer Bears Burden of Segregating Covered from Non-covered Hurricane Katrina Losses

Imperial Trading Co. v. Travelers Prop. Cas.  Co. (E.D. LA 2009)

A distributor of video poker and gaming machines filed an action for coverage under an “all risks” or “open peril” policy for inventory and business property destroyed when a warehouse was initially damaged by Hurricane Katrina and then inundated from flood waters when the levee failed.  The distributor sought a ruling that, once an insured has proven loss, the insurer bears the burden of showing that the loss falls into a policy exclusion and the further burden of segregating between covered and excluded losses. The insurer contended that while it must prove that a loss falls into an exclusion, the insured bears the burden of segregating between covered and non-covered losses. 

Relying primarily upon the federal Court of Appeals for the Fifth Circuit’s ruling in Dickerson v. Lexington Insurance Co. (556 F.3d 290 [5^th Cir. 2009]), the court held that once an insured shows that a claim is covered by a policy, the burden shifts to the insurer to prove how much of the damage was caused by a non-covered cause and thus excluded from coverage under the policy.  The court noted that in Dickerson, “[t]he court could not have been clearer in its holding.  It said twice in the same paragraph that when the ‘proper apportionment’ of covered and excluded losses was at issue, the insurer had to prove that ‘the damage at issue is excluded.’  The insurer, therefore, must show ‘how much of the damage’ was caused by an excluded peril.” 

For a copy of the decision click here

By Bryan D. Richmond

http://www.goldbergsegalla.com/attorneys/Richmond.html

Taco Bell franchisees win coverage for E.coli related losses

Quick Service Management, Inc. v Underwriters of Lloyds

(New Jersey - June 12, 2009)

 

The New Jersey Superior court held that an unexplained exclusion in a trade name restoration policy that replaced a food borne illness policy does not bar Coverage for Taco Bell E. Coli outbreaks. The court considered whether an “Aggregate Supplier Incident Sublimit” of $0 contained in a Trade Name Restoration (TNR) policy precluded coverage to franchisees of Taco Bell Restaurants for a 2006 outbreak of E. Coli traced to lettuce.  The Sublimit in the policy read:

 

 

“maximum liability for all losses affecting all Covered Locations insured hereunder resulting from all Incidents emanating from the operations of any product supplier of the Insured shall not exceed the Aggregate Supplier Incident Sublimit”

 

The record demonstrated that Taco Bell Franchisees purchased Food Borne Illness (FBI) insurance from 1999 through 2002 from Lloyds.  In 2003, FBI coverage was discontinued by Lloyds.  Beginning at that time, the franchisees instead bought TNR coverage from Lloyds.  TNR coverage was in effect at the time of the E. Coli outbreak.  The FBI coverage did not contain the “Aggregate Supplier Incident Sublimit” relied upon by the insurer to deny coverage under the TNR policy.

 

The court found that the insurer failed to inform Taco Bell about the Sublimit in the TNR policy and did not advise that  the Sublimit would preclude coverage preciously provided under the FBI insurance.  Holding that the Sublimit did not apply to coverage for the outbreak, the court noted that the plaintiff’s had an expectation that coverage would be provided and  "This expectation is eminently reasonable.  TNR insurance may differ  from  FBI insurance, but  there  is no evidence that the Franchisees were told that earlier coverage was being reduced...Plaintiffs reasonably believed that the Policy was tantamount to a ‘renewal’ of those issued earlier which would ‘mirror...the terms of the coverage...afforded in the past.”

 

For a copy of the court's decision, click here

 

By Bryan D. Richmond and Daniel W. Gerber

http://www.goldbergsegalla.com/attorneys/Richmond.html

http://www.goldbergsegalla.com/attorneys/Gerber.html