Insurance Online : "Occurrence" May Include Intentional Acts In Montana

    The Montana Supreme Court found that policy language defining "accidents may include intentional acts." Employers Mut. Cas. Co. v. Fisher Builders, Inc., 2016 Mont. LEXIS 269 (Mont. Sup. Ct. April 19, 2016).     Jerry and Karen Slack hired Fisher Builders to build a remodeled home located on the site of their home at Flathead Lake. The existing home was an aged vacation home. The County zoning regulations required the remodeled home to incorporate the existing structure. The permit issued to the Slacks required the existing deck to remain unchanged.     Fisher elevated the existing home structure on steel beams to pour a new foundation. Fisher began to dismantle the walls while the structure was resting on the beams, and found an infestation of carpenter ants. The ant-infested planks were cut out, apparently in order to salvage what usable materials he could from the remaining structure. The ant-infested boards were subsequently burned. Eventually, the deck collapsed.     The County visited the site and issued a cease and desist order. The construction permit was revoked because the existing structure had been destroyed. The Slacks appealed the revocation of their construction permit and eventually reached a settlement with the County that allowed them to construct a home, albeit a smaller one than had been previously approved.        The Slacks sued Fisher. Employers Mutual Casualty Company (EMC), Fisher's insurer, defended under a reservation of rights. EMC also filed a declaratory judgment action, alleging there was no coverage. Fisher assigned his claims under the EMC policy to the Slacks. The trial court granted EMC's motion for summary judgment, concluding that Fisher's conduct was intentional and did fit within the meaning of "occurrence" under the policy.     The Montana Supreme Court reversed. Whether the insured intended or expected the injury stemming from an intentional act was an objective inquiry. The policy language defining "accidents" could include intentional acts if the damages were not objectively intended or expected by the insured.     Further, there were issues of genuine material fact. The Slacks contested the trial court's determination that Fisher left parts of the home and deck unsupported, causing the deck to collapse, that Fisher "destroyed" the original structure by dismantling the walls, and that Fisher failed to retain a sufficient portion of the original structure in order to maintain the non-conforming use status. Therefore, further proceedings were necessary to resolve factual issues related to application of the coverage provisions of the policy.     

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Insurance Online : Supplier's Purchase Order Does Not Confer Additional Insured Status

   The district court ruled that there was no duty to defend the purported additional insured because a purchase order did not invoke additional insured status. Fed. Signal Corp. v. Tammcor Indus., 2016 U.S. Dist. LEXIS 47574 (N.D. Ill. April 7, 2016).     Federal Signal designed a speaker system that was installed on a Navy supply ship. Tammcor supplied Federal Signal with the metal housing for the speaker system. A speaker on the ship allegedly malfunctioned and sent debris into the eyes of a nearby person. The injured party sued Federal Signal. The parties ultimately settled.     Federal Signal then sought indemnification for defending and settling the lawsuit. It sued Tammcor and also named Tammcor's insurer, Peerless Indemnity Insurance, as a defendant. The lawsuit alleged that Federal Signal was an "additional insured" under Peerless' policy with Tammcor.     The Peerless policy stated that an additional insured was "any person or organization when [Tammcor] and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on [Tammcor's] policy." Federal Signal argued that the purchase order from Tammcor for the parts used in the speaker system was a sufficient contract. The purchase order stated: INDEMNIFICATION; [Tammcor] shall defend, indemnify, and hold harmless [Federal Signal] against all damages, clams or liabilities and expenses . .. . arising out of or resulting in any way from any defect in the goods or services purchased hereunder, or from any act or omissions of [Tammcor], its agents, employees or subcontractors.     Peerless moved for summary judgment to establish it had no duty to indemnify Federal Signal as an additional insured. Under the policy, Peerless agreed to confer additional insured status on a party only when Tammcor and that party "agreed in writing that such party be added as an additional insured." The purchase orders' terms stated that Tammcor, not Peerless, would indemnify Federal Signal for all relevant damages.     Federal Signal argued that the provision implied that Peerless would indemnify the company by default. But the provision was unambiguous: Tammcor alone was on the hook for Federal Signal's legal liability. The terms of the purchase order did not state that "Tammcor and its insurer(s) indemnify you for all liabilities." There was no evidence that Federal Signal believed that it was covered directly under an insurance policy held by Tammcor. Nor was there any evidence that Federal Signal ever inquired about its status as an additional insured prior to the accident. 

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Insurance Online : No Indemnity After Insured Settles Breach of Implied Warranty of Habitability Claims

   Applying Illinois law, the federal district court ruled that there was no coverage for the insured's settlement of claims based upon breach of the implied warranty of habitability. Allied Prop. & Cas. Ins. Co. v. Metro North Condo. Ass'n, 2016 U.S. Dist. LEXIS 43452 (E.D. Ill. March 31, 2016).    Metro North sued the developer of its condominium and a number of its contractors and subcontractors for defective construction that caused various problems, including water infiltration. One subcontractor, CSC, was to provide window and glazing services. After a rainstorm, water infiltrated the project due to CSC's work. Metro North claimed that CSC was liable for breach of the implied warranty of habitability.     CSC was insured under a CGL policy with Allied. Allied agreed to defend under a reservation of rights. Allied agreed to "pay those sums that the insured becomes legally obligated to pay as damages because of . . . 'property damage' . . . caused by an occurrence."     Metro North settled with CSC for $700,000. As part of the settlement CSC assigned its rights under the Allied policy to Metro North. Allied sued for a declaratory judgment that there was no coverage for the settlement amount.     Illinois courts have held that there is no occurrence when a subcontractor's defective workmanship necessitates removing and repairing work. When, however, the defective work results in damage to something other than the construction project itself, there may be an occurrence. The majority of the damages Metro North claimed related to damage caused by water infiltration to common elements of the condominium building and not the windows that CSC actually worked on.     The court noted that Metro North's settlement with CSC was covered if CSC settled the case in reasonable anticipation of liability for damages that fell within the policy's definition of "property damage" caused by an "occurrence." Allied argued that Illinois law did not permit the recovery of damages for breach of the implied warranty of habitability, and if the damages that were the basis for the settlement agreement were unrecoverable, the settlement was not entered in reasonable anticipation of liability.     The court agreed that damage caused by water infiltration into parts of the building on which CSC did not work was not recoverable based on CSC's breach of the implied warranty of habitability. There was no reasonable anticipation of liability or reasonable potential for the award of damages covered by the policy. Therefore, Allied was not required to pay the Metro North settlement.    Even if the damages Metro North sought were recoverable in a breach of the implied warranty of habitability action, the damages related to the common elements other than those on which CSC worked were not caused by an "occurrence." Under Illinois law, when a subcontractor who installed a window performed defective work, the natural and ordinary consequence was water infiltration that would damage the rest of the building. This would not be an accident or occurrence, and hence, there would be no coverage. For example, where the window installer's poor workmanship caused water infiltration which damaged an antique rug, the faulty workmanship would cause an accident; the presence of the rug in the particular location was not something the window installer could have foreseen. But he could foresee that, if his work was defective, the defects would result in damage to the structure in which he was installing windows.     Therefore, Allied's motion for summary judgment was granted, while Metro North's motion for summary judgment was denied. 

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Insurance Online : Cyber Risk Insurance & Email Piracy (BEC, Social Engineering Fraud)

As we have noted (here & here), Email Piracy, also called Business Email Compromise (BEC) and social engineering fraud, is a significant threat, and only a few Cyber Risk Insurance policies provide adequate protection from this type of attack.

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Insurance Online : Insurer Must Defend Data Breach Claims

     The Fourth Circuit affirmed the district court's holding that data breach claims were a covered publication. Travelers Indem. Co. of Am. v. Portal Healthcare Solutions, L.L.C., 2016 U.S. App. LEXIS 6554 (4th Cir. April 11, 2016).       A class-action complaint was filed against Portal Healthcare Solutions alleging that Portal allowed plaintiffs' private medical records to be posted on the internet and widely available for more than four months. Portal tendered the complaint to its insurer, Travelers.      Travelers sued Portal for a declaratory judgment that it had no duty to defend Portal. Travelers maintained that because the class-action complaint failed to allege a covered publication, there was no coverage. The district court granted summary judgment in favor of Portal. The district court concluded that the complaint potentially alleged a publication of private medical information by Portal that constituted conduct covered by the policy. Such conduct, if proven, would have given unreasonable publicity to, and disclosed information about, patients' private lives because the information was available to anyone with an internet connection.      The Fourth Circuit agreed that Travelers had a duty to defend against the class-action complaint. The reasoning of the district court was affirmed. 

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