The Insurance and Reinsurance Report

Coverage Denied to Diocese for Sex Abuse Claim Based on Failure to Warn Parish of Priest’s History of Molestation

Cincinnati Ins. Co. v. Oblates of St. Francis de Sales, Inc.

(Ohio Ct. App. Sept. 17, 2010)

 

An appellate court in Ohio recently held that an insurer was not obligated to indemnify the Archdiocese of Oklahoma City in an underlying action against a priest for sexual molestation. The court held that the Church’s assigning the priest to a parish without warning that resulted in the parish allowing the priese unsupervised access to minors was substantially certain to result in additional incidents of sexual molestation and, therefore, did not constitute an “occurrence” within the meaning of the policy.

 

The underlying lawsuit arose from the priest’s sexual abuse of a minor whose family belonged to the priest’s parish. Prior to his assignment to that parish, the priest had been accused of and admitted to several incidents of sexually abusing minor boys. The priest underwent psychiatric counseling, a result of which it was determined that his sexual disorder was manageable, but not curable, and that he should not be in the presence of youth without another responsible adult there. Four years after the report was issued, the priest was assigned to a new parish that was given no warning about his sexual propensities. As a result, the parish placed no restrictions on the priest with respect to his dealings with parish youth.

 

After the priest and his Order were sued by the claimant, the Order tendered its defense and indemnity to its primary and excess insurers. The excess insurer denied coverage based on lack of an “occurrence.” The Order ultimately assigned its claim against its excess insurer to the Archdiocese of Oklahoma City, which had funded the settlement in the underlying action.

 

In the ensuring declaratory judgment action, the trial court granted summary judgment to the excess insurer. The appellate court affirmed the ruling, finding that the Order’s knowledge of the priest’s history and his need for supervision and ongoing treatment without warning to the parish was substantially certain to result in additional incidents of sexual molestation of boys. The court held that injury to the priest’s victim was expected from the Order’s perspective and, therefore, did not constitute “occurrences” within the meaning of the policy. The court acknowledged the Ohio Supreme Court’s decision in Doe v. Shaffer, 738 N.E.2d 1243 (2000), which held that allegations of negligent hiring related to sexual molestation could constitute a policy “occurrence” and, therefore, afford coverage. The court distinguished its case on the ground that in Shaffer, there was no evidence that the molester had any history of sexual abuse or that the respective employers knew of the molesters’ potential propensities toward sexual abuse.

 

For a copy of the case, click here

 

Carrie Appler and Sharon Angelino

 

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

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

Florida Court Of Appeals Denied Summary Judgment In Favor of Insurer And Remanded Breach Of Contract Claim Where Issues Of Fact Existed Whether Post-Suit Payment of Proceeds Constituted “Confession of Judgment” On Part Of The Insurer

Clifton v. United Casualty Ins. Co.

(Florida Court of Appeal, Second District, February 12, 2010)

 

The policyholder appealed final judgment entered in favor of the insurer in a breach of contract action arising out of damage suffered during Hurricane Charley. The primary issue involved whether an insurer’s post-suit payment of additional policy proceeds constitutes a “confession of judgment” and whether the filing of the suit acted as a “necessary catalyst” to resolve the dispute.

 

Specifically, in August 2004, the policyholder’s residence was damaged by Hurricane Charley.  The policyholder promptly filed a claim with the insurer for the damage, who thereafter adjusted the claim and paid for damages caused by the storm.  The policyholder advised the insurer that the payment was insufficient to pay for the necessary repairs to the home and thereafter, repeatedly disputed the amount of the loss with the insurer, subsequently filing suit three years later alleging breach of contract. 

 

After filing its answer, the insurer filed a motion seeking to invoke the appraisal clause of its policy.  The motion was granted and the appraisal process resulted in an award in favor of the policyholder.  Thereafter, the insurer filed a separate motion for summary judgment regarding attorney fees claiming that it had not wrongfully withheld any insurance benefits and that the policyholder could not prove any damages because it had now paid the policyholder all amounts due under the policy.  Despite the record showing that the insurer paid significant sums in settlement of the claims after suit was filed, the trial court granted summary judgment to the insurer.

 

The court of appeals held that there were genuine issues of fact which precluded judgment in favor of the insured in light of Florida precedent holding that when an insurer pays additional policy proceeds after suit is filed, “it has, in effect, declined to defend its position in the pending suit” and thus the payment of the claim is, indeed, the functional equivalent of a confession of judgment or a verdict in favor of the insured.  However, the court further noted that the confession of judgment rule is not absolute.  Rather it noted that the existence of a bona fide dispute and not the mere possibility of a dispute is a crucial condition precedent to such a holding.  Thus, the question of whether an insurer’s post-suit payment constitutes a confession of judgment is determined based on whether “the filing of the suit acted as a ‘necessary catalyst’ to resolve the dispute and force the insurer to satisfy its obligations under the insurance contract.”

 

After conducting a detailed analysis of Florida case law, the court concluded that where an insurer is aware of a dispute with its insured, it cannot simply ignore that dispute, wait until the insured files suit to demand appraisal, pay any subsequent award, and then maintain that the payment does not constitute a confession of judgment as a matter of law.  On the other hand, if an insurer is not on notice that the claim or payment is disputed, the insured generally will be unable to show that he or she was “forced” to file suit.

 

Based on the foregoing precedent and rules, the court of appeals held that summary judgment in favor of the insurer was improper, as there were disputed facts as to whether the insurer was aware of the disputed claim until suit was filed.   The court also rejected the insurer’s argument that its payment should not operate as a confession of judgment because it never expressly denied the insured claim, noting that when an insurer fails to respond in any fashion to the insured’s demands for further action, that failure has the legal effect of denying coverage.  Thus, the lower court decision was reversed and the matter remanded to determine whether the insured was “forced” to file suit. 

 

A copy of the decision is attached here.  Case is provided courtesy of Lexis.

 

Paul Steck and Dan Gerber

 

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

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

District Court Held That Insurer Had No Duty To Defend And Indemnify Under A Coblentz Agreement

Sinni v. Scottsdale Ins. Co.

(United States District Court, Middle District of Florida, December 18, 2009)

 

This action arises out of a slip-and-fall suit that culminated in a “Coblentz agreement” between the parties binding the insurer to the terms of the agreement (i.e., where an insurer has wrongfully refused to defend its insured and there is coverage under the policy, the insurer may be bound by the terms of a negotiated final consent judgment entered against its insured. Coblentz v. Am. Sur. Co. of N.Y., 416 F2d 1059 (5^th Cir. 1969).  Specifically, approximately on year after filing suit, plaintiff resolved all of her claims against the underlying defendants by entering into and “Assignment, Settlement Agreement and Covenant Not to Execute.”  Pursuant to the agreement, plaintiff agreed to the entry of a $300,000 judgment against the underlying defendants.  They further agreed, however, that plaintiff would not attempt to record or execute against the judgment.  Instead, the defendants assigned all rights in their commercial general liability policy to plaintiff so that she could enforce the judgment against defendant’s carrier.  Thereafter, plaintiff filed an “amended” complaint seeking to enforce the consent judgment against the insurer. 

 

The District Court noted that under Florida law, a party seeking to recover under a Coblentz agreement must prove (1) coverage; (2) a wrongful refusal to defend; and (3) that the settlement was objectively reasonable and made in good faith.  The court further noted that the mere entry of a consent judgment does not establish coverage and an insurer’s failure to defend does not estop the insurer form raising coverage issues in a subsequent suit to satisfy a judgment entered pursuant to a Coblentz agreement.  Thus, to properly bind the insurer under such an agreement, the facts alleged in the complaint must state a claim that falls within the coverage for the policy (i.e., duty to defend) and the allegations in the complaint or the stipulated facts in the consent judgment must actually come within the coverage of the policy. 

 

Here, the District Court held that based on the exceptional circumstances of the case, the insurer was relieved of any obligation to defend.  Specifically, the court concluded that it was obvious that the actual facts put the matter outside the scope of coverage where plaintiff filed suit even though she had already applied for and was receiving workers’ compensation benefits.  Thus, had plaintiff not concealed that fact from her complaint, her claim would clearly have been barred by the workers’ compensation immunity.  Also, after the insurer received notice and denied coverage, plaintiff recast her claims and mislead the court by alleging she was simply a “business invitee” and then kept the insurer in the dark for nine months after executing the Coblentz agreement while the insurer was still attempting to determine whether it had a duty to defend. 

 

For a free copy click here

 

Paul Steck and Joanna Roberto

 

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

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

Georgia Court of Appeals Affirms Summary Judgment on Coverage And Assesses Additional Penalties Against Insurer For Frivolous Appeal

Transportation Ins. Co. v. Piedmont Const. Grp., LLC.

(Georgia Court of Appeals, Fourth Division, November 13, 2009)

 

In a strongly worded opinion, the Court of Appeals affirmed the trial court decision and assessed frivolous appeal penalties where insurer denied not only coverage but a defense under liability policy issued to a general contractor based upon a “novel and radical interpretation of a single Georgia case.”  The court further noted that “this egregious conduct warrants not only affirmance but the imposition of penalties for frivolous appeal.  Only the fact that the trial court did not enter a judgment for a sum certain prevents the assessment of an additional ten percent penalty under OCGA §5-6-6,” where the court presumed that the appeal was taken up for purposes of delay only. 

 

Specifically the case concerned the issue of coverage under a CGL policy issued by Transportation to Piedmont Construction.  A fire extensively damaged a building where Piedmont was performing renovation work.  The policyholder sought coverage under the policy, however, the insurer denied both coverage and a defense based upon the business-risk exclusion in the policy and the policyholder filed a third party claim against it.  Thereafter the insurer appealed from the trial court’s grant of summary judgment in favor of Piedmont on the issue of coverage and the award of damages and attorney fees under OCGA 33-4-6.  In affirming the decision, the court of appeals noted the extensive 43-page decision analyzing the facts that ultimately rejected the insurer’s reliance on the business exclusion.  The court further noted that because the insurer ignored the substantial body of law on business-risk exclusions and appeared to have filed the appeal solely for the purposes of delay, the court assessed frivolous appeal penalties pursuant to Rule 15b. 

 

A copy of the decision is attached here

 

Paul Steck and Joanna Roberto

 

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

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

Port Authority Ordered to Reimburse Con Ed and Insurers $17.6M for September 11th Damage

In re September 11 Litigation Consolidated Edison Co. of N.Y., Inc. v. Port Auth. of N.Y. & N.J. (S.D.N.Y. July 27, 2009)

 A federal judge has ordered the Port Authority of New York and New Jersey to pay $17.6 million to Consolidated Edison and its insurers for property damage sustained during the September 11^th attacks on the World Trade Center. In 1968, Con Ed and the Port Authority entered into a lease and electrical supply agreement wherein the Port Authority granted Con Ed the right to occupy a parcel of land on which the Port Authority built an electrical power substation for Con Ed to operate. Ultimately, 7 World Trade Center was built above the substation. On September 11, 2001, 7 World Trade Center collapsed after a terrorist attack on the building. In June 2004, Con Ed erected a new substation and restored permanent electrical services to lower Manhattan.

 The 1968 lease contained a provision requiring the Port Authority to reimburse Con Ed “for any expense incurred by [Con Ed] in maintaining, repairing, replacing or rebuilding the Substation Building or … Substation Equipment where such expenses are incurred by the acts or omissions of the Port Authority….” Con Ed and its subrogated insurers filed an action against the Port Authority, alleging negligence and breach of the lease agreement. Granting Con Ed’s motion for summary judgment, the court ordered the Port Authority to reimburse Con Ed $17.6 million for the cost of rebuilding the substation. In so ruling, the court rejected the Port Authority’s argument that it should not have to turn over to Con Ed the insurance proceeds for the substation until the Port Authority’s insurers had paid out its entire claim under the blanket insurance policy. The court noted that the “Port Authority’s principal argument would exploit its decision to purchase a blanket insurance policy and enable the Port Authority to frustrate Con Edison’s right to the proceeds of coverage that its premiums had funded.”

For a copy of the decision, click here

By Carrie P. Appler and Michael T. Glascott

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

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

District Court Denies $17 Million in Defense Costs for Breach of Contract Claims by Tobacco Company

American Legacy Foundation v. National Union Fire Ins.

(D.C. Delaware, July 9, 2009)

The District Court of Delaware held that the plaintiff was not entitled to defense costs associated with a declaratory judgment action it commenced involving a Master Settlement Agreement (MSA) involving several tobacco companies.   Arguing the plaintiff was disseminating “false and misleading” information, one tobacco company threatened legal action against the plaintiff, including claiming that it breached the MSA “vilification” provision.  The plaintiff, in turn, commenced a declaratory judgment action and the tobacco company asserted several counterclaims, which were limited to the MSA breach.  The district court held the plaintiff adopted the MSA and, as a result, was open to suit for its breach.  Despite the fact the plaintiff ultimately prevailed in defending the counterclaims, the court held because the claims stemmed from contractual liability thereby absolving the insurer of a duty to reimburse defense costs.

 

For a copy of the decision click here

 

By Kimberly E. Whistler

 

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

Chinese Drywall Litigation Update: Developer Files Third-Party Complaint Seeking Insurance Coverage

On July 6, 2009, Dragas Management Corporation ("Dragas"), named in the lawsuit filed in Eastern District of Virginia allegedly as the developer of residential homes in a developmental complex which installed imported Chinese Drywall material, filed a Third-Party Complaint against Hanover Insurance Co. and Citizen Insurance Company of America seeking insurance coverage under the commercial general liability and umbrella insurance policies they issued to the subcontractor.

According to the Third-Party Complaint, Dragas alleges the agreements with the subcontractor "fall squarely within the conditions designating Dragas as an additional insured in the CGL Policies affording coverage to Dragas for damages from [subcontractor's] work related to the imported drywall.  The complaint alleges that approximately 74 homes in the development contain the imported Chinese Drywall. 

For a copy of the Complaint click here

By Jeffrey L. Kingsley and Daniel W. Gerber

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

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

Court Of Appeals Held Insurer Was Not Obligated To Defend Policyholder For Fraud Claims Under Its Professional Liability Policy As Claims Constituted Common Business Transactions

St. Paul Fire & Marine Ins. Co. v. ERA Oxford Real Estate Co. et. al.

(United States Court of Appeals, Eleventh Circuit, June 23, 2009)

 

The insurer appealed an order from the United States District Court for the Northern District of Alabama holding that a professional liability insurance policy issued by the insurer to a real estate company obligated the insurer to provide a legal defense for certain fraud, deceit, and antitrust claims pending in state court against the insured.    Specifically, the policy defined "real estate professional services" as those professional services performed, or failed to be performed, for others as duties in the capacity of a real estate agent or broker. Further, the term "real estate agent or broker" was defined to include a mortgage broker, real estate consultant or counselor, or real estate leasing agent. 

 

The policyholder was sued by the underlying plaintiffs over the insured's conduct in connection with attempted mergers between real estate businesses. At issue was whether, under Alabama law, the attempted mergers were part of the "professional services" provided by the real estate agents, thus putting the mergers within the coverage of the policy. The Court of Appeals held that the underlying complaint alleged losses which did not result from the provision of services unique to real estate agents, such as negotiating the sale of a property, but which arose from common business transactions that any professional might perform.

As such, the policy did not impose a duty to defend any party in connection with the underlying suit.

 

For a copy of the decision click here

 

By Paul C. Steck

 

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

New York Court Determines that Insurer Did Not Have A Duty to Defend Contractor's Affirmative Defense

P.J.P. Mechanical Corp., v. Commerce and Industry Ins. Co., 2009 NY Slip Op 04984 (App. Div. June 18, 2009)

The policyholder purchased a commercial general liability policy from the insured which covered work it was performing for the third-party general contractor.  A pipe burst in one of the houses that the policyholder worked on and the general contractor alleged it was due to the negligence of the policyholder.  No suit was instituted but the general contractor withheld the remaining contract balance owed to the policyholder as an offset for the property damage caused by the burst pipe.  The policyholder requested the insurer to assign counsel to help the policyholder recover the contract balance.  The insurer refused, alleging that it was not a claim as defined in the insurance policy and the policyholder obtained its own counsel and instituted an action against the general contractor to recover the disputed amount.  The general contractor pled as an affirmative defense its right to offset any recovery based on damages sustained as a result of the negligence of the policyholder or its subcontractor.  The insurer continued to deny the policyholder’s request for reimbursement of legal fees to recover the contract balance.

 

The policyholder then filed a declaratory judgment action against the insurer and the insurer moved for summary judgment claiming that the general contractor’s affirmative defense of negligence was not an occurrence as defined in the policy.  The Appellate Court held that there is nothing in the policy language that requires a policyholder to either prosecute affirmative claims or reimburse the policyholder for the fees paid its counsel for such affirmative claims.  The Appellate Court also held that an affirmative defense is substantially different from a counterclaim and although the insurer had a duty to defend the policyholder against a counterclaim, it did not have that same duty with regard to an affirmative defense.  By holding that the setoff does not control essentially eliminate the pleading distinctions between affirmative defenses and counterclaims.  Therefore, the insurer did not have a duty to defend the policyholder against the general contractor’s affirmative defense. 

 

For a copy of the decision, click here to Download P.J.P.v.Commerce

 

By Richard J. Cohen and Sarah X. Fang

 

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

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

 

 

 

Court finds that Insured Must Pay Self-Insured Retention for Each Work Related Injury

Supervalu Inc. v. Wexford Underwriting Managers, Inc.

(Cal.Ct.App. June 22, 2009)

The court affirmed summary judgment in favor of the insurers, upholding the insurers' interpretation of “occurrence” related to excess workers' compensation policies.  Plaintiff was required to pay a self-insured retention every time a worker sustained injury due to an accident or occupational disease, which is the occurrence triggering coverage.  The court held that “occurrence” refers to the cause of employee damage, rather than loss to the insured. 

 

For a copy of the decision click here

 

By Toni L. Frain 

 

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

Welcome to the Confusing World of Kidnap, Ransom and Extortion Insurance: An Overview

In light of recent world events, it comes as no surprise that the kidnap, ransom and extortion insurance policies are being discussed as a way to provide comfort to international businesspersons who travel in areas where kidnappings are common.  By way of background, kidnap, ransom and extortion provide compensation for ransom payments, loss of income, medical care and, possibly, interest derived from any bank loans needed for one’s release.

 

In considering the practical realities involved in these types of transactions, however, kidnap, ransom and extortion insurance policies often place the insured in several difficult situations.  An obvious issue for an insured is when or how to notify the insurance company that you are kidnapped.  In most situations, kidnappers typically refrain from notifying any government entities and, therefore, an insured is often precluded from notifying its carrier of the kidnapping.  As in some policies, if an insured does not notify its insurance company, the company could disclaim coverage.  Moreover, involvement by government officials only serves to complicated matters as the nearly universal position is that governments do not negotiate with kidnappers and terrorists.  The resulting question is -- how does an insured secure the benefit contained in these types of policies?  

 

There have been many articles in recent months analyzing this subject, including the recent Forbes Article by Joshua Gold and Brian Giehl.  To read their article, click http://tinyurl.com/kidnap-ransom

 

As international businesses continues to expand their marketshare in areas of the world that present the threat of kidnapping, it is clear that there will be more discussions on this issue in the coming months. 

 

By Daniel W. Gerber and Jeffrey L. Kingsley

 

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

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

District Court Holds Insurance Carrier Must Defend Workplace Shooting Notwithstanding Employer’s Liability Exclusion

Admiral Ins. Co. v. G4S Youth Service  (United States District Court, Eastern District of Virginia, June 9, 2009)

The insurer brought a declaratory judgment action seeking a determination of its obligation to defend and indemnify the policyholder in an underlying matter arising from the shooting death of one of its employees that occurred on the work premises, but prior to the employee beginning her work shift.  Specifically, the issue was whether the employee’s death on the policyholder’s premises “arises out of” and was “in the course of” her employment with the policyholder, thereby excluding the incident from coverage under the policy’s Employer’s Liability Exclusion.  The insurer asserted that the exclusion barred coverage for the claims because, due to the manner in which the complaint was drafted, the underlying case can only succeed if plaintiff’s injury “arose out of” her employment, a fact that would exclude coverage under the exclusion. 

Conversely, the policyholder argued that the exclusion’s language casts the killing outside of the exclusion and that the premises liability allegations in the underlying complaint were not based on the employer-employee relationship, and therefore fell within the policy coverage.   After employing the “eight corners rule” (i.e., analyzing the complaint and the policy), the district court  noted that the Employer’s Liability provision did not exclude coverage as the bodily injury suffered by plaintiff occurred as a result of a personal dispute and not as a result of plaintiff’s employment.  The court further noted that while the exclusion did not apply, the insurer’s duty to defend only arises if the claims in the underlying case are covered by the policy.  Under this aspect of the analysis the court held that the policyholder sufficiently plead a premises liability claim, and that it did not arise out of the plaintiff’s employment.  Thus, since at least one claim in the underlying case was based on a duty not arising out of the employment relationship, the insurer owed a duty to defend the matter.

For a copy of the decision, click here

by Paul Steck

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

Second Circuit Says Two Year Statute of Limitation Language in Policy Enforceable

O&E Growers, Inc. v. Selective Ins. Co. of America

U.S. Ct. of App. (2^nd Circuit, June 1, 2009)

  

Insurance policy’s two year statute of limitation period barred claim brought six years after the loss, not from the date of jury verdict.

 

Click here for decision

 

By Sharon Angelino

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

Seventh Circuit Rules Policyholder not Entitled to Coverage for Counsel Chosen Without Insurer Approval

National Cas. Co. v. Forge Industrial Staffing Inc.

(7^th Cir. [ Ill.] June 3, 2009)

A policyholder declined to accept insurer-appointed counsel to defend it against claims before the Equal Opportunity Employment Commission because it was fearful that the insurer would control the defense in such a way that would preclude coverage.  The court held that the underlying claims were not mutually exclusive, one of which would be covered and one of which would not be covered.  As such, appointment of conflict counsel was not required under Illinois law.

To download decision click here

By Bryan D. Richmond

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

CGL Does Not Cover Abu Ghraig Torture Claims

CACI International Inc. v. St. Paul Fire and Marine Ins. Co.

(11^th Cir. ( Va.), May 14, 2009)

The policies at issue limited coverage to the United States and Canada, the policyholder argued that claims regarding negligent hiring happened in the United States.  The 11^th Circuit held that the underlying complaints cannot be read to allege that the events happened within the coverage territory based on established principals of insurance law where the place of the injury, in this case Iraq, determines the location of the loss for coverage purposes.

 

Download CACI Decision

 

By Richard J. Cohen

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