The Insurance and Reinsurance Report

Multiple Claims from Same Product Defect Constitute Multiple Occurences for Purpose of Excess Trigger

Bausch & Lomb, Inc. v. Lexington Insurance Company

(W.D.N.Y December 28. 2009)

Bausch & Lomb brought an action against defendant Lexington Insurance Company seeking a declaration that Lexington was obligated to provide insurance coverage to Bausch & Lomb with respect to claims made against it by consumers for alleged injuries arising out of the use of Bausch & Lomb contact lens solutions. Bausch & Lomb claimed that it purchased umbrella liability insurance policies from Lexington for yearly periods from January 1, 2004 through January 1, 2007, and that during this time, thousands of claims were made against the company for alleged injuries arising from consumers’ use of certain ReNu brand contact lens solutions. Bausch & Lomb maintained that it sought liability coverage from Lexington for these claims pursuant to the Lexington policies, as well as coverage for defense costs associated with these claims, but that Lexington denied coverage for all but a portion of the claims.

 

According to the policyholder, Lexington denied coverage because it deemed each alleged injury sustained by users of the solutions as separate “occurrences” under the terms of the policy, and as a result, agreed to provide coverage only when specified limits of liability have been met for each occurrence. Bausch and Lomb contends that Lexington improperly characterized the injuries as arising from multiple occurrences, and in doing so, ignored the portions of the Lexington Policies which specifically provide for grouping of claims. According to the policyholder, the grouping provisions of the Lexington policies required Lexington to treat the several injuries allegedly suffered by consumers as arising from a single occurrence.

 

Lexington maintained that its policies should be construed so as to provide that each alleged injury sustained by users of contact lens solutions be treated as a separate occurrence. According to Lexington, pursuant to such an interpretation, it would only be obligated to provide insurance coverage once certain liability thresholds (as stated in the policies) have been met in each individual case. Lexington further contended that because those thresholds had not been reached, and were not likely to be reached, it was not obligated to provide a defense for every claim, and was not obligated to insure liability losses that do not reach the policy thresholds.

 

The court found that the claims constitute separate occurrences under the terms of the Lexington policies, and as a result, Lexington was not obligated to insure B & L for losses arising from those claims, or defense costs arising from those claims, absent a showing that B & L has met the liability limits set forth in the policies. Relying upon the unambiguous definition of occurrence, the court reasoned that it is the exposure by consumers to the product that constitutes the “accident.”

 

For a copy of the decision click  here

 

By Daniel W. Gerber and Jeffrey L. Kingsley

 

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

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

 

 

 

 

Second Circuit Court Finds That Excess Carrier’s Participation in Settlement May Make Declaratory Judgment Moot

Lumbermens Mut. Cas. Co.v. RGIS Inventory Specialists, LLC

(2^nd Cir., December 11, 2009)

 

After a district court granted summary judgment against an excess insurer regarding whether it received timely notice of an underlying personal injury claim, the excess carrier appealed to the Second Circuit.  While the appeal was pending, the excess insurer contributed $4.0 million towards settlement of the underlying personal injury claims.  As a result, the named insured and underlying claimants argued the appeal was moot in that the insurer could not recoup the settlement funds it contributed regardless if the court below’s decision was reversed.  The excess insurer, on the other hand, argued that circumstances of the settlement allowed it to recoup the money if it prevailed on the substantive question on the appeal.  Recognizing that the issue of mootness did not arise until after the appeal, the Second Circuit dismissed the appeal, vacated the district court’s decision granting summary judgment against the excess carrier and remanded that the district court consider whether the declaratory action is now moot.

 

A finding by the court below that the excess insurer’s contribution towards settlement, despite a pending appeal in the Circuit Court, could potentially impact parties’ efforts to resolve underlying actions, while continuing to pursue their rights in a declaratory judgment action.  The Insurance and Reinsurance Report will continue to monitor this case as it develops. 

 

A copy of the Second Circuit’s decision can be found here

 

Kim Whistler and Dan Gerber

 

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

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

New Causes of Action Asserted Against Excess Insurance Carrier for Underlying Asbestos Claims

LSG Technologies, Inc. v. US Fire Ins. Co.

(E.D.Texas, November 25, 2009)

 

 

Over two years after initially filing a complaint in the Eastern District of Texas, plaintiff, LGS Technologies Inc., amended its complaint against an excess insurance carrier seeking a declaration of coverage with respect to several underlying asbestos and mixed dust cases.   Plaintiff argues that one or more of its primary policies have been exhausted, triggering the commercial excess policies issued by U.S. Fire Insurance Co.  Specifically, plaintiff references seven policies, with collectively over $30 million in policy limits.  U.S. Fire denies any obligation to contribute to the defense or indemnity of the underlying claims.  In addition to the declaratory relief, plaintiff has asserted claims including breach of contract, violations of the Texas Insurance Code and the DTPA, with such “knowing” violations entitling it to an award three times the actual damages, as well as attorney’s fees.

 

In its Answer, U.S. Fire admits that it issued policies to the plaintiff, but claims the insured failed to meet its burden that the primary policies had been exhausted.  In the alternative, the insurer contends the insured falsely represented the existence of certain primary policies, either eliminating its obligation to participate in the defense or indemnity costs or require plaintiff to undertake the obligations it relied upon in said primary policy.  The insurer also asserts certain exclusions in several of its policies, including the products hazard and pollution exclusions, bar coverage for certain claims. The Insurance and Reinsurance Report will continue to monitor this case as it develops. 

 

A copy of the plaintiff’s amended complaint and defendant’s answer can be found here and here

 

Kim Whistler and Joseph Oliva

 

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

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

EXECUTIVE RISK INDEMNITY FILES SUIT AGAINST RSUI INDEMNITY SEEKING CONTRIBUTION

Executive Risk Indemnity v. RSUI Indemnity

(W.D. Okla, October 15, 2009)

 

Executive Risk commenced this lawsuit alleging that RSUI is required to contribute to losses attributable to the respective carrier’s mutual insureds. In its complaint, Executive Risk does not dispute its coverage obligations in response to the underlying action; instead, it contends the same obligations extended to RSUI as well under an equitable contribution cause of action. Executive contends that coverage for the loss should be determined according to each policies respective limits. In this case, Executive contends that RSUI is responsible for its 5/7 share of the underlying loss. We will continue to monitor this case as it becomes available. 

 

For a copy of this complaint, click here

 

Sharon Angelino and Brian Biggie

 

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

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

New York's Highest Court Denies Law Firm Excess Coverage for Client Fraud

Executive Risk Indem. v. Pepper Hamilton LLP

(N.Y. Oct. 20, 2009)

New York’s highest court held that Philadelphia-based Pepper Hamilton LLP is not entitled to excess insurance coverage for litigation arising from its client’s securities fraud. The coverage litigation stemmed from fraud perpetrated by Pepper Hamilton’s client, a company that serviced the vocational portion of the student loan market. The client repackaged loans acquired from other lenders into certificates, which it sold to investors. Pepper Hamilton prepared memoranda used by the client in connection with the sale of certificates totaling more than $465 million. In March 2002, Pepper Hamilton learned that its client was involved in securities fraud.

In July 2002, for purposes of procuring insurance coverage, Pepper Hamilton’s general counsel circulated a memorandum inquiring whether any attorney was aware of any facts or circumstances that might be the basis of a legal malpractice claim. The Pepper Hamilton attorney handling the fraudulent client’s file informed general counsel of litigation pending against the client and stated that he was uncertain whether Pepper Hamilton would be joined in that litigation. Pepper Hamilton failed to disclose that information on its insurance applications.

Pepper Hamilton was ultimately sued for professional malpractice in connection with the securities fraud. Upon being notified of the lawsuit, Pepper Hamilton’s excess insurers denied coverage. Specifically, the excess insurers argued that the prior knowledge exclusion contained in Pepper Hamilton’s primary policy and expressly incorporated into the excess policies barred coverage. The Court of Appeals agreed, relying on proof that Pepper Hamilton was aware of its client’s securities fraud months before its excess policies incepted. The court stated that the attorney’s belief that he and Pepper Hamilton could be subject to a lawsuit, although subjective, was also reasonable. As a result, the court ruled that two of the excess insurers, Executive Risk Indemnity Inc. and Twin City Fire Insurance Co., are not obligated to indemnity Pepper Hamilton.

For a copy of the decision, click here

 

Carrie Appler and Richard Cohen

 

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

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

Alabama Supreme Court Affirms Primary/Excess Ruling Of Competing Insurance Clauses

Colony Ins. Co. v. Georgia Pacific, LLC. et. al. (Supreme Court of Alabama, July 31, 2009)

Insurer appealed from a summary judgment in favor of defendant insurer (Lumbermens) and it insured (Georgia-Pacific), in a declaratory judgment action seeking a declaration that Lumbermens was required to defend and indemnify Georgia-Pacific in an underlying lawsuit arising out of the death of a subcontractor’s employee who was killed while working on the roof of the Georgia-Pacific facility. Colony claimed that the coverage provided under both the Colony policy and the Lumbermens policy was excess coverage and therefore Lumbermens was required to defend and indemnify Georgia-Pacific in proportion with each insurer’s share of the total limits of applicable coverage.

Specifically, Colony argued that because both policies contain excess-insurance clauses, liability for defending the underlying case should be pro-rated between the two insurers based on the long-standing rule that, where two insurance policies covering the same risk contain excess-insurance clauses, the clauses are mutually repugnant and the loss should be apportioned between the two insurers on a prorata basis. Based on a detailed analysis of each policies’ "other insurance" clauses, the court held that the Colony policy refers only to first-party coverage whereas the excess insurance clause in the Lumbermens policy contains additional language creating a category for third-party liability coverage for which there is no comparable provision in the Colony policy. Thus, the court held that because the excess insurance clause in each policy contained a different classification of risk, the clauses cannot be mutually repugnant, and therefore, the Colony policy provided the primary coverage.

For a copy of the decision click here

By Paul C. Steck and Joanna M. Roberto

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

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

District Court Determined That Product Defects Attributed to Manufacturer Were Not “Occurrences” Under Excess Policies

National Union Fire Insurance Co. of Pittsburgh PA.v. Gerling America Ins. Co.et. al.

(United States District Court, Middle District of North Carolina, June 2, 2009)

This declaratory judgment action involved a declaration of the insurance obligation of various insurers in connection with underlying lawsuits alleging defects in impact-resistant window resins that the policyholder produced for various window and door manufacturers.  Specifically, National Union filed this action seeking a determination that it did not owe coverage under its umbrella policies on the basis that the manufacturer’s defective resins do not constitute an “occurrence” within the meaning of the applicable policies. In a lengthy analysis, the court held that the insured’s reliance on ABT Building Products Corp. v. National Union Fire Insurance Co. of Pittsburgh, Pa., 472 F3d 99 (4^th Cir 2006) is misplaced and distinguishable as the claims in the subject suit did not allege damages to property separate from the windows in which the resin was placed, nor were the claims based in negligence.  Rather, here there was an intentional deviation from the express contract specifications in product design and manufacture whereas the ABT court specifically recognized ABT’s acts of negligence.  The court further highlighted that here the underlying claims arose out of contract; the damage alleged is damage to the windows on which the defective resin was applied; and there was no external force causing the claimed damage - rather the damage was solely the manufacturer’s failure to meet contractual specifications.  Thus, the court held that the policyholder’s breach of contract did not constitute an “occurrence” within the meaning of the policy. 

 

For full decision click here

 

By Daniel W. Gerber and Paul. C. Steck

 

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

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

High Court Reasons that Global Umbrella Policy Does Not Drop Down

Flexsys America LP v XL Insurance Company Ltd

[2009] EWHC 1115 (Comm) (20 May 2009)

The policyholder maintained that it exhausted its $1M limits under a primary policy issued by XL in Ohio. It then claimed tan XL global policy, with limits of $25M and subject to U.K. law, should apply to cover remaining expenses and claims. The court found that the "drop down" of excess policy was subject to a determination of whether the primary policy would apply to the particular claim. The excess insurer was not precluded from asserting that the claims should not be covered under the primary policy. The court was persuaded that the claims against the policyholder were not covered and therefore determined that the global policy should not drop down.

Download Flexsys America Decision

Posted by Sharon Angelino and Joanna Roberto

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

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

Rectification of insurance policies

Dunlop Haywards (DHL) Ltd (2)  Erinaceous Commercial Property Services Ltd -v- Erinaceous Insurance Services Ltd and (1) Lockton Companies International Ltd (2) MSI Corporate Capital Ltd & Others, [2009] EWCA Civ 354.8 (April  28, 2009)

The Court of Appeal considered the factual matters which may be taken into account by the courts in claims for rectification of insurance policies. The claimant insured alleged failure by the broker to arrange effective excess insurance coverage for the insured. An application was made by the defendant broker for joinder of the excess insurer to bind it to the outcome. The High Court decided that the case against the excess insurer was not strong enough to join it the litigation. The defendants appealed.

The Court of Appeal overturned the decision. It held that the defendants had a good arguable case for the rectification of the excess policy, on the basis of the contents of the quotation sheet and endorsement initialled by the underwriters. The Court also found that the possibility existed that the excess insurer's interpretation of the excess policy lacked commercial sense.

This case is important because the Court of Appeal held the view that he litigation required the participation of the excess carrier to ensure an effective outcome. 

Download Dunlop Haywards and Erinaceous Insurance Services

By Daniel W. Gerber and Sharon Angelino

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

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