Insurance Online: January 2016

Wednesday, 27 January 2016

Insurance Online : Anti-Concurrent Causation Clause Bars Coverage for Pool Damage

Relying upon the policy's anti-concurrent causation clause, the Illinois Court of Appeals affirmed the trial court's ruling that there was no coverage for a pool that popped out of the ground. Bozek v. Erie Ins. Group, 2015 Ill. App. LEXIS 940 (Ill. Ct. App. Dec. 17, 2015). Following a rainstorm, the insureds reported damage to the swimming pool to Erie. An investigation determined that the heavy rain saturated soils around the pool. This created a significant uplift hydrostatic pressure. The weight of the water in the pool typically prevented the uplift forces, but the pool had been emptied to clean debris making it susceptible to uplift. The pool had a pressure relief valve to prevent uplift, but it was not working properly. As a result, the pool was damaged to the point that it had to be replaced in its entirety. The heaving of the pool also damaged the concrete slab around the pool, which also had to be replaced. The policy from Erie had an anti-concurrent causation clause in the exclusion section of the policy. The policy provided, We do not pay for loss resulting directly or indirectly from any of the following, even if other events or happenings contributed concurrently, or in sequence, to the loss . . . . The policy excluded: (1) loss by weight of water to a deck, swimming pool, and foundation; (2) loss by mechanical breakdown; (3) loss by water damage, including water that exerted pressure on swimming pool or decks. The insureds filed suit. They conceded that hydrostatic pressure was an excluded cause. However, they argued that Erie did not establish that the failure of the pressure-relief valve was an excluded cause. They reasoned that the anti-concurrent causation clause dictated that, because the failure of the pressure-relief valve (a covered event) preceded the increase in the hydrostatic pressure (an excluded event) the loss was covered. To support their position, the insureds pointed to the anti-concurrent causation clause's use of the phrase, "in sequence." A reasonable definition of "in sequence" was "subsequent to." Because the covered cause (the failure of the pressure-relief valve) happened prior to the excluded cause (the hydrostatic pressure) the anti-concurrent causation clause did not apply. Erie argued that the use of the words "concurrently" and "in sequence" precluded coverage where two events occurred at the same time or one after the other. Where an excluded cause was a cause, there was no coverage. The trial court granted summary judgment to Erie and an appeal was filed. The appellate court faulted the insureds for focusing on the phrase "in sequence." Instead, the use of the words "concurrently" and "in sequence" avoided coverage where two events, one covered and one excluded, contributed to the loss at the same time or one after the other. When two perils converged at the some time, contemporaneously and operating in conjunction, there was a "concurrent" cause or event. The uplifting of the pool and damage to the concrete did not occur until the hydrostatic pressure acted upon the sides of the pool. The uplift of the pool resulted from the convergence of two causes, the hydrostatic pressure and the valve's failure to relieve that pressure. The two causes "contributed concurrently" to the loss. Therefore, the anti-concurrent causation clause precluded coverage.

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Monday, 25 January 2016

Insurance Online : Additional Insured Coverage Confirmed

The Texas Court of Appeals found that Exxon Mobil Corporation was an additional insured under the CGL policy for Exxon's service provider. Liberty Surplus Ins. Corp. v. Exxon Mobil Corporation, 2015 Tex. App. LEXIS 12757 (Tex. Ct. App. Dec. 17, 2015). Exxon contracted with Wyatt Field Service Company to perform "services" as set forth in various work orders from Exxon's affiliates. The contract also required Wyatt to maintain $5 million of commercial general liability insurance. The contract provided that the policies must cover Exxon and its affiliates "as additional insureds in connection with the performance of Services." In 2008, Wyatt was assigned to work on a flexicoker unit at Exxon's refinery. Wyatt was to reinstall dummy nozzles and chains. It completed this service in October 2008. Three years later, one of the dummy nozzles pulled free, and the escaping steam and coke burned three individuals who were working on the unit. After the accident, it was discovered that the safety chain had been installed in the wrong location so that it did not properly secure the dummy nozzle. The injured workers sued Exxon and Wyatt. Exxon demanded a defense and indemnity from Liberty Surplus, Wyatt's primary carrier, and from Commerce & Industry Insurance Company, Wyatt's excess umbrella insurer. Neither insurer defended or contributed to the settlement Exxon reached with the injured workers. Exxon filed a separate suit against the insurers. The trail court granted summary judgment in Exxon's favor. On appeal, the court noted that Endorsement 3 of the Liberty policy read: WHO IS AN INSURED is amended to include as an insured any person or organization with whom you have agreed to add as a additional insured by written contract but only with respect to liability arising out of your operations . . . . There was no dispute that Exxon was an additional insured in some circumstances. The court considered whether the endorsement incorporated any coverage restrictions in the underlying contract. The endorsement referred the reader to the written contract when identifying who was an insured, but not when limiting the circumstances under which such a person or organization was considered to be an insured. The court did not consider the underlying contract's coverage limitations unless the policy so directed. Therefore, Exxon was an additional insured with respect to liability arising out of Wyatt's operations. The insurers also argued that Exxon could not conclusively establish that the injured workers' claims fell within the scope of coverage until Wyatt was found to be liable. The court disagreed. Exxon's additional-insured coverage was neither dependent on a finding that Wyatt was negligent nor excluded if Exxon's negligence was found to be the sole proximate cause of the workers' injuries. Exxon was an additional insured "with respect to liability arising out of [Wyatt's] operations." This language did not require proximate cause or legal causation. To secure coverage, Exxon was not required to prove that Wyatt proximately caused the workers' damages. The jury's negligence findings in the underlying case did not create a genuine issue of material fact precluding summary judgment in Exxon's favor.

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Thursday, 21 January 2016

Insurance Online : What the Millennium Falcon Can Teach Us about Auto Insurance

Automobile enthusiasts are passionate about their cars. That’s no surprise. Many owners of luxury, foreign or collector cars tend to treat their vehicles more like a treasured member of the family than a mere possession, so finding the right auto insurance is of the utmost importance.

If galactic insurance in the Star Wars universe was a real thing, Han Solo would be searching far and wide to find the right protection for his beloved Millennium Falcon. Although referred to as “garbage” in The Force Awakens, this legendary ship would likely cost a pretty penny to insure. Originally owned by the quick-witted swindler Lando Calrissian and awarded to Han Solo in a lucky game of Sabaac, the Falcon was more than gently loved. There are many factors that affect an auto insurance premium, so let’s take a look at how each would weigh in during the process of getting an insurance quote for the Millennium Falcon.

Collision and claims history

A vehicle’s collision and claims history is one of the biggest factors that helps to determine an auto insurance premium, and the Millennium Falcon would have far from a clean record. Having appeared in countless journeys and more than eight battles—including the Galactic Civil War—the collision and comprehensive coverages and bodily injury and property damage liability on this ship would be astronomical.

Because being at fault in a wreck and filing lots of claims can raise the price of your coverage, some insurance providers offer accident forgiveness, which can go into effect if you remain collision-free for a specified period of time after being involved in a wreck. That being said, it’s doubtful that the Falcon would be eligible for said forgiveness, given Solo and Chewie’s tendencies to blow up every rival spacecraft.

Credit score

Although he became a hero and valued member of the Rebel Alliance, Han Solo was known for having an extremely colorful criminal history as a smuggler, once majorly indebted to a crime lord who put a bounty on his head. Some insurance providers could take one look at his credit score, see this negative history and possibly refuse to insure his treasured Falcon.

Why are credit scores often used to help determine insurance premiums? Some providers believe there is a correlation between credit scores and an insured’s likelihood of filing a claim – the higher the credit score, the less likely policyholders have been to file claims and vice versa. However, this practice is thought to be controversial and is banned in some U.S. states. In a galaxy far, far away, however, we’ll likely never know if Solo gets the insurance he needs.

Licensed drivers on the policy

The primary pilots of the Falcon were Han Solo and Chewbacca, yet other pilots, including Rey in The Force Awakens, shared driving privileges. It’s a best practice to list all licensed drivers that may get behind the wheel on your auto policy. This practice is to protect you and your family members in the event of a wreck and to cut down on out-of-pocket expenses.

It’s doubtful that Solo would actually follow through with this requirement, which means he’d likely be out of luck when trying to file a claim if one of the other pilots were controlling the ship when a collision occurred.

Type of vehicle

The Millennium Falcon—one of the largest starships in the galaxy— would likely fall into the classic and collector vehicle category. The cars that fall into this category are typically rare and of high value, meaning basic auto insurance may not adequately cover possible damage and replacement costs and specialized protections may be needed. Boasting a length of more than 114 feet and equipped with enough space to haul 100 metric tons of cargo, the Falcon’s massive size is one of the first indicators that may determine just how lofty its insurance premium could be. Despite having a shoddy appearance, the starship had been modified to incomprehensible—yet somewhat illegal—levels, with an alarming top speed of roughly 6,252 trillion miles per hour. That’s around 1,042 light years per hour, in case you’re wondering.

Speed and size aside, the ship’s impressive armament alone—two CEC AG-26 quad laser cannons, two Arakyd ST2 concussion missile tubes, one BasTech Ax-108 “Ground Buzzer” blaster cannon and tractor beam projectors—would make the ship quite the liability given the chances that it may explode if involved in a collision. Before a classic or collector car insurance quote can be given, a “guaranteed value” of the car must be agreed upon by both the owner and insurer. The more expensive the vehicle, the higher the insurance quote may be. If a policy is created, the vehicle could then be covered for possible replacement up to that amount without depreciation and may potentially need to be adjusted if the value were to appreciate throughout time.

Address and chance of theft

If your primary address is “a galaxy far, far away,” getting an insurance policy wouldn’t be easy. Since the chance of damage from asteroids, debris and inclement galactic weather is quite high, the premium would probably skyrocket due to hefty comprehensive coverage needs. However, since Han Solo is rather sly, he’d likely skip adding the comprehensive coverage, steal some spare parts and put the Wookie to work to help fix the ship instead of filing a claim. Most insurers also look at less safe neighborhoods to determine the likelihood of the vehicle being stolen or vandalized, which plays a role in determining how much insurance could cost. Factors such as claims for stolen vehicles or property, vandalism or fraudulent injury claims in a given area can directly affect the cost of the premium. Given the Falcon’s history of being stolen and recovered numerous times, it would likely only be insurable at a very high rate, if at all.

Looking for auto insurance? May the Force be with you.

All of these factors considered, it’s safe to assume that most insurance companies would run full-speed away from the prospect of insuring the “fastest hunk of junk in the galaxy.” Though Solo could probably smooth talk his way into getting a good quote like the “scoundrel” Princess Leia considered him to be. If you’re looking for affordable auto insurance, don’t follow in Solo’s footsteps. It’s important to shop around for coverage and to have a licensed agent walk you through your options so that you get exactly the protection you need at a price that fits your budget.

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Insurance Online : What the Millennium Falcon Can Teach Us about Auto Insurance

Collision and claims history

Credit score

Licensed drivers on the policy

Type of vehicle

Address and chance of theft

Looking for auto insurance? May the Force be with you.

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Wednesday, 20 January 2016

Insurance Online : Cyber Risk Insurance Coverage is Critical

Cyber Risk Insurance (also called Data Breach, Privacy and Network Security insurance coverage) continues to evolve as the insurers try to keep up with rapidly changing technology and the growth of cyber crime. For a variety of reasons, including this evolution, Cyber Risk Insurance policies are not all the same. KrebsonSecurity notes that an insured is suing its Cyber Risk insurer for failing to cover a cyber crime loss (see here). It appears that the policy in question is actually a Crime policy, not a Cyber Risk Insurance policy. But the situation is a good example of the challenges of obtaining proper Cyber Risk coverage. We are not surprised by the suit and expect more of these situations. Why: Exposures...

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Insurance Online : Efficient Proximate Cause Applies to Policy's Collapse Provisions

The court applied the efficient proximate cause doctrine to find coverage under a property policy for a building's collapse. Vardanyan v. Amco Ins. Co., 2015 Cal. App. LEXIS 1181 (Cal. Ct. App. Dec. 11, 2015). The insured submitted a claim to Amco for damage to the flooring of the house and for mold. Amco's adjustor reported that the house seemed to be settling, possibly due to a water leak. A structural engineer then inspected and found multiple potential leaks in the roof, gutters in disrepair, downspouts that deposited water at the base of the walls of the house, and evidence that a faucet had been spraying the wall in one area. Water damage was noticed in these areas. Further, the kitchen was water damaged and had past termite infestation. Amco denied coverage based upon multiple exclusions, including exclusions for damage caused by seepage and faulty or defective design. The insured sued, alleging that the house collapsed and that the policy provided coverage for collapse. The policy stated there was coverage for collapse of a building or any part of a building "caused only by one or more" of a list of perils, including hidden decay and hidden insect damage. The evidence at trial indicated there were multiple causes of the damage to the insured's house. The insured argued that there was coverage for collapse because hidden decay or hidden insect damage were the predominant causes of the collapse. The insured requested a standard jury instruction explaining that, when a loss is caused by a combination of covered and excluded risks, the loss is covered if the most important or predominant cause is a covered risk. Amco requested a jury instruction placing on the insured the burden of proving the collapse of the house was "caused only by one or more" of the perils listed in the collapse section of the policy. The court indicated it would give Amco's proposed instruction. The insured felt this was tantamount to directing a verdict in favor of Amco because there was no dispute that the damage to the house was caused by perils in addition to those listed in the collapse provisions. Amco then moved for a directed verdict, which the court granted. On appeal, the insured argued that the language "caused only be one or more of the following" in the collapse section of the policy meant that this was a complete list of the perils causing collapse that were covered under the policy. If any one or any combination of the listed perils caused the collapse, the loss was covered. If some unlisted peril contributed to the collapse, the efficient proximate cause doctrine required that the jury determine which cause was the predominant or most important. If the predominant cause was a peril listed in the collapse section, then the loss by collapse would be covered. Amco contended the use of the word "only" meant that a collapse was a covered loss only if no peril other than those listed contributed to the collapse. Amco argued the efficient proximate cause doctrine did not apply to such a provision. The court sided with the insured. Amco's construction would exclude coverage any time a peril not listed in the collapse section contributed to the loss, even minimally. A reasonable insured would not anticipate that a listed, covered peril, if combined with some completely unrelated, unspecified peril, would result in an exclusion of coverage. The insured's interpretation, on the other hand, was consistent with the efficient proximate cause doctrine. The insured also contended that Amco's proposed jury instruction was improper because it placed on the insured the burden of proving his loss fell within the provision of the collapse section, instead of requiring Amco to prove that the loss was excluded. The court agreed with the insured here as well. In an all-risk policy, such as the policy at issue, the insured did not have to prove that the peril proximately causing the loss was covered by the policy. This was because the policy covered all risks except for those risks specifically excluded. The insurer, since it was denying liability upon the policy, had to prove the policy's noncoverage of the insured's loss, i.e., that the insured's loss was proximately caused by a peril specifically excluded from coverage.

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Monday, 18 January 2016

Insurance Online : Depreciation of Labor in Calculating Actual Cash Value Against Public Policy

The insurer's depreciation of labor in the calculation of actual cash value was found to be against Arkansas public policy. Shelter Mut. Ins. Co. v. Goodner, 2015 Ark. LEXIS 460 (Ark. Dec. 10, 2015). Shelter Mutual's policy provided that it would pay the insured "the actual cash value of all the damaged parts of the covered property." "Actual cash value" was defined as "total restoration cost less depreciation." The policy explained, "When calculating depreciation, we will include the depreciation of the materials, the labor, and the tax attributable to each party which must be replaced to allow for replacement of the damaged part, whether or not that part is damaged." The Goodners property incurred a loss. Shelter Mutual estimated the total restoration cost to be $10,319.23. With a deduction for depreciation for $3,397.24, the estimated actual cash value came to $6,921.99. The deduction for depreciation included depreciation of both materials and labor. The Goodners filed suit for declaratory judgment. The trial court granted summary judgment in favor of the insureds. Following a prior case, Adams v. Cameron Mut. Ins. Co., 430 S.W. 3d 675 (Ark. 2013), the court found that depreciation of labor in calculating actual case value was against public policy in Arkansas. In Adams, the court held that the costs of labor may not be depreciated when determining the actual cash value of a covered loss under an indemnity policy that did not define the term "actual cash value." Shelter Mutual argued that a different result was justified here because its policy did define "actual cash value" and defined it to include depreciation of labor. In Adams, the court concluded that the concept of depreciating labor was illogical and inconsistent with the principle of indemnity. The holding applied here with equal weight.

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Wednesday, 13 January 2016

Insurance Online : Business Interruption Claim Granted in Part, Denied in Part

The court granted portions of the business interruption claim, while denying other portions. Phoenix Ins. Co. v. Infogroup, Inc., 2015 U.S. Dist. LEXIS 162810 (S. D. Iowa Nov. 30, 2015). Phoenix insured Infogroup's business buildings and personal business property, including data and data processing equipment. In late May 2011, warnings were issued of possible flooding from the Missouri River. On June 1, 2011, Infogroup moved and relocated its business operations and data centers away from the river and did not intend to return to the facilities. On July 19, 2011, Phoenix advanced $500,000 to Infogroup for anticipated claims under the policy. On August 22, 2011, heavy rain left surface water in the parking lot at Infogroup's facilities. Infogroup claimed that it suffered minor property damage during July and August, 2011, including damage to an uninterruptable power source and damage to a server. In May 2012, Infogroup submitted a claim for over $12 million. Phoenix responded that it would not reimburse for business income loss or costs to re-establish business because there was no direct physical loss or damage under the policy. Phoenix filed suit seeking a declaratory judgment that Infogroup was not entitled to coverage. The policy's Extra Expense Clause provided that the insurer, will pay for the actual loss of Business Income the insured sustains due to the necessary suspension of the insured's "operations" during the "period of restoration." The suspension must be caused by direct physical loss of or damage to property . . . The loss or damage must be caused by or result from a Covered Cause of Loss. The policy was unambiguous in requiring that an insured must suffer "direct physical loss or damage" to trigger the Extra Expense Clause. Here, Infogroup did not lose the facility in June 2011 because employees, equipment, and servers remained there until August 22, 2011, over two months after the threat of flooding caused Infogroup to initiate the moving process. Inforgoup's claimed loss of use due to the threat of flood. The threat, however, did not prevent Infogroup from using the facility for its intended purpose - storing data - until Infogroup could facilitate its methodical evacuation. The mere loss of use did not constitute physical loss or damage under the Extra Expense Clause. Further, Infogroup did not show that physical loss allegedly suffered after it had already decided to and began to relocate was the cause of its moving expenses. Any physical damage did not occur until mid-June, and therefore could not have caused Infogroup's decision to move its business prior to its occurrence. Therefore, Infogroup was not entitled to any recovery under the Extra Expense Clause. Infogroup also sought recovery under the Preservation of Property Clause: If it is necessary to move Covered Property from the described premises to preserve it from loss or damage by a Covered Cause of Loss, we will pay for: . . . Any direct physical loss or damage to this property . . . and the cost to remove the property. The parties agreed that Infogroup was entitled to reimbursement for some of the costs of removing its covered property from its facility on the river. But the parties disputed the extent of the reimbursement. Infogroup sought reimbursement for the cost to re-establish its business operations at a new location. It also sought coverage for the cost of new servers and other equipment as a "necessary cost to remove." Unlike the Extra Expense clause, which explicitly covered business income and operations, the Preservation of Property clause did not mention business operations, suspension of business, or relocation of the business. Therefore, Infogroup was not entitled to reimbursement for costs necessary to remove its property under the Preservation of Property clause. Infogroup also argued that the Protection of Property Clause covered mitigation expenses, including the cost to evacuate, build a berm, and build new facilities. The court found that genuine issues of material fact existed as to whether Infogroup suffered the physical harm it had alleged. If the trier of fact determined this claimed damage occurred, it would constitute "loss or damage" within the meaning of the policy and would trigger Infogroup's duty to "take all reasonable steps to protect the Covered Property from further damage."

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Monday, 11 January 2016

Insurance Online : Improperly Installed Flanges Are Impaired Property

Answering certified questions from the Fifth Circuit, the Texas Supreme Court found there was no coverage for flanges that leaked after installation. U. S. Metals, Inc. v. Liberty Mutual Group, Inc., 2015 Texas LEXIS 1081 (Dec. 4, 2015).

U. S. Metals sold Exxon 350 custom-made, stainless steel, weld-neck flanges for use in refineries. Testing after installation showed the flanges leaked and did not meet industry standards. Exxon decided to replace the flanges to avoid risk of fire and explosion. For each flange, this involved stripping the temperature coating and insulation, cutting the flange out of the pipe, removing the gaskets, grinding the pipe surfaces smooth for re-welding, replacing the flange and gaskets, welding the new flange to the pipes, and replacing the temperature coating and insulation. The replacement process delayed operation of the diesel units for several weeks.

Exxon sued U.S. Metal for over $6 million as the cost of replacing the flanges and $16 million as damages for lost use of the diesel units during the process. U.S. Metals settled with Exxon for $2.2 million and then sought indemnification from its liability insurer, Liberty Mutual.

Liberty Mutual contended there was no coverage under Exclusion M, the impaired property exclusion. Exclusion M barred coverage for damages to property, or for the loss of its use, if the property was not physically injured or if it was restored to use by replacement of the flanges. After suit was filed in federal court, the district court granted summary judgment to Liberty Mutual.

On appeal, the Fifth Circuit certified questions to the Texas Supreme Court. The questions boiled down to: (1) is property physically injured simply by the incorporation of a faulty component with no tangible manifestation of injury?; and (2) is property restored to use by replacing a faulty component when the property must be altered, damaged, and repaired in the process?

Looking at cases that had interpreted the impaired property exclusion, the court noted that physical injury, for purposes of the impaired property exclusion, resulted not from the installation, but from the leak. Leaks from the flanges never caused injury because Exxon replaced them to avoid any risk of injury.

The court decided that physical injury required tangible, manifest harm which did not not result merely upon the installation of a defective component in a product or system.

The units were physically injured, however, in the process of replacing the faulty flanges. Because the flanges were welded to pipes rather than being screwed on, the faulty flanges had to be cut out, the pipe edges resurfaced, and new flanges had to be welded in. The original welds, coating, insulation, and gaskets were destroyed in the process and had to be replaced. The fix necessitated injury to tangible property, and the injury was unquestionably physical.

Therefore, the repair costs and damages for the downtime were "property damages" covered by the policy unless Exclusion M applied. Exclusion M denied coverage of damages to impaired property - defined as property that could be "restored to use by the . . . replacement" of the faulty flanges.

Here, the diesel units were restored to use by replacing the flanges and were therefore impaired property to which Exclusion M applied. Thus, their loss of use was not covered by the policy. But the insulation and gaskets destroyed in the process were not restored to use; they were replaced. They were therefore not impaired property to which Exclusion M applied, and the cost of replacing them was therefore covered by the policy.

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Wednesday, 6 January 2016

Insurance Online : Tips for Preventing Email Piracy

As we have noted previously (see here and here), email piracy, also called Business Email Compromise (BEC), is a serious threat. Because the attacks are based on deception and human behavior, traditional technology protections are not likely to help. Cyber Risk Insurance policies can provide protection, but prevention is a critical component of any security plan. Here are a few tips from experts and sources of information for consideration: From the FBI (here, here and here): Be suspicious of requests for secrecy or pressure to take action quickly. Consider financial security procedures that include a two-step verification process Create intrusion detection system rules that flag e-mails with extensions that are similar to company e-mail but not exactly the same. For...

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Insurance Online : Insolvency of Primary Carrier Does Not Invoke Excess Coverage

The insured failed to present any argument for excess coverage after the insolvency of the primary carrier. Canal Ins. Co. v. Montello, Inc., 2015 U.S. App. LEXIS 20625 (10th Cir. Nov. 27, 2015). Montello distributed an oil drill containing asbestos between 1966 and 1985. Montello was sued by individuals claiming injuries due to exposure to the asbestos. Montello was insured by The Home Insurance Company from March 1975 to March 1984. In 2003, Home was declared insolvent. Home did not pay any claims for bodily injury on Montello's behalf. Montello's excess carrier, Canal Insurance Company, filed a declaratory judgment action against Montello. The district court agreed with Canal that it had no obligation to drop down and defend or indemnify Montello. The Tenth Circuit affirmed. Canal did not undertake to insure the solvency of Montello's primary insurer. The excess policy triggered Canal's obligation to indemnify when personal injury was caused by an occurrence. The insolvency of the underlying insurer was not an occurrence as defined in the policy. Further, Canal's liability was triggered when the underling insurer's limits were reduced by payment of loss. The underlying insurer's inability to pay was not payment of loss. Montello also argued Canal's umbrella policy provided coverage. For Canal's umbrella policy to apply, the underlying insurance had to be inapplicable to the occurrence. Home's policies provided coverage for asbestos-=related claims, making them applicable to the occurrence. Nor did the other insurance clause invoke excess coverage. The other insurance provision was not intended to expand an excess or umbrella insurer's liability. Therefore, the clause did not require Canal to assume the obligations of underlying insurers listed in the Schedule of Underlying Policies simply because those insurers were no longer able to fulfill their obligations. Finally, the district court correctly held that the excess insurer's duty to defend did not arise as a result of the primary insurer's inability to defend. The language of the defense endorsement was clear: the excess insurer had to provide defense coverage only when the extent of the underlying insurer's obliglations had been satisfied.

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Monday, 4 January 2016

Insurance Online : Coverage Found for Faulty Workmanship Damaging Other Property

The district court found that under Illinois law, the damage caused by the insured's faulty workmanship to portions of building beyond the scope of its own work was covered under a CGL policy. Westfield Ins. Co. v. Nat'l Decorating Serv., 2015 U.S. Dist. LEXS 159140 (N.D. Ill. Nov. 25, 2015). 200 North Jefferson, LLC was the owner and developer of a 24- story condominium building. 200 North Jefferson retained as the general contractor McHugh Construction Co. McHugh Construction retained National Decorating Service, Inc. as the subcontractor to perform all painting work on the project. The Condominium Association sued 200 North Jefferson, McHugh Construction, MCZ/Jameson Development Group, LLC, National Decorating for faulty workmanship. The alleged damages included:(1) cracking of the exterior concrete walls, interior walls and ceilings; (2) significant leakage through the exterior concrete walls, balconies, and windows; (3) defects to the common elements of the building; and (4) damage to the interior ceilings, floors, interior painting, drywall and furniture in the units. Westfield insured National Decorating, the named insured. 200 North Jefferson, McHugh Construction and MCZ/Jameson were additional insureds.The Additional Insured Endorsement included as an additional insured named entities, "but only with respect to liability arising out of your ongoing operations performed for [the named insured]." Westfield refused to defend and a coverage suit was filed. Cross motions for summary judgment were filed. There was no question that the costs to repair and replace National Decorating's faulty painting work was not covered. Instead, the dispute centered on whether the damage that National Decorating caused to parts of the building beyond the scope of work triggered a duty to defend. Looking to Illinois case law, the court determined that damage beyond the scope of named insured's work at a building was "property damage" resulting from an "occurrence." Therefore, summary judgment for National Decorating and the additional insureds was warranted. The damages claimed in the underlying complaint included the building's ceilings, drywall and floors, which were all beyond the scope of National Decorating's work and thus were covered damages.

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