Insurance Online : Dispute on Policy's Aggregate Limits Decided in Insureds' Favor

    The Montana Supreme Court held that ambiguous language in the excess policy regarding aggregates provided an additional $4 million in CGL coverage.  Westchester Surplus Lines Ins. Co. v. Keller Transport, Inc., 2016 Mont. LEXIS 9 (Mont. Jan. 12, 2016).        The insureds' tanker truck overturned and spilled 6,380 gallons of gasoline. The gasoline flowed beneath several homeowners' properties. The insureds held a Commercial Transportation Policy issued by Carolina Casualty Insurance Co. (CCIC). The policy had two coverages: (1) commercial automobile with coverage of $1 million per accident; and (2) commercial general liability, with $1 million in coverage for each occurrence, as well as a $2 million "General Aggregate." The CGL policy stated that its "General Aggregate" limit was the most that would be paid under the CGL coverage regardless of the number of insureds or persons making claims.    Westchester issued an excess liability to insureds. Stated limits were $4 million for each "occurrence" as well as a $4 million "General Aggregate." The term "General Aggregate" was not defined.    The homeowners sued the insureds alleging negligence for causing the accident and in the manner in which the clean-up efforts had been implemented.     CCIC paid for related clean-up expenses and litigation costs under the Auto portion of the policy. CCIC notified the insureds that its duty to defend would end once the Auto coverage had been exhausted. When such limits were exhausted, CCIC referred the matter to Weschester. Westchester undertook the defense pursuant to a reservation of rights, noting that it had no duty to defend under its policy, but that it would defend until its limits were exhausted.    When Westchester had paid $4 million in clean-up expenses and litigation costs, it referred the defense back to CCIC. CCIC defended, but filed a declaratory judgment suit against Westchester, seeking a declaration of CCIC's and Westchester's responsibilities. The Homeowners then made a claim that the CCIC policy provided an additional $1 million pursuant to the CGL coverage, and that the Weschester policy likewise provided an additional $4 million in excess limits under the CGL coverage.    In the tort action, the Homeowners secured confessions of judgment against the insureds for $13 million in damages. The insureds assigned their rights under the polices to the Homeowners.    In the declaratory judgment action, the parties moved for partial summary judgment. The court found that an additional $1 million in limits under the CGL coverage were implicated by the Homeowners' claims. Further, an additional $4 million was available under Westchester's excess policy because the phrase "general aggregate" limit was undefined and ambiguous. The phrase could be read as establishing a "general aggregate" limit for excess payments for each coverage in the underlying policy, rather than only establishing a "general aggregate" limit for the entire policy.    On appeal, Westchester argued the term "general aggregate" meant the maximum that applied to all coverages under the entire policy. The Homeowners noted that the term was undefined in the policy. Given the structure of the excess and underlying policies, the maximum must apply individually to each of the underlying coverages, or at least create an ambiguity that made it so. The court agreed with the Homeowners.    Schedule A of Westchester's policy referred to the underlying insurance. It first described the Auto liability policy with a $1 million limit for each occurrence. It then described the CGL policy with a $2 million "General Aggregate" and a $2 million "Products/Completed Operations Aggregate." Therefore, Schedule A listed two aggregates under the CGL portion of the policy. Further, under the Limits of Insurance section, the policy stated there was a $4 million "General Aggregate," and a $4 million "Products/Completed Operations Aggregate."    Given the language of the Westchester policy, the $4 million "General Aggregate" and the $4 million "Products/Completed Operations Aggregate" were applicable only to the CGL coverage because this was the only coverage for which those terms were used in the underlying insurance stated in Schedule A. The "$4,000,000 Each Occurrence" stated in the excess policy's Limits of Insurance provision would likewise appear to correspond to the Auto coverage's "$1,000,000 Each Occurrence" stated in Schedule A. Under this logical reading, the insureds would expect to have $4 million in excess insurance per occurrence under the Auto coverage, with no aggregate, and $4 million in excess insurance, with a $4 million aggregate, under the CGL coverage, or a total of $8 million in excess limits for the two coverages.    Therefore the court upheld the trial court's holding that the Westchester provided an additional $4 million in CGL coverage. 

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Insurance Online : No Additional Insured Status for Building Owner

   Because the contract between the parties failed to state that the insured was obligated to name the building owner as an additional insured, the owner was not an additional insured. Am. Empire Surplus Lines Ins. Co. v. Endurance Am. Specialty Ins. Co., 2016 N.Y. Misc. LEXIS 53 (N.Y. App. Div. Jan. 7, 2016).    Dayton Towers Corporation contracted with Skyline Restoration, Inc. as general contractor to perform work at Dayton's building. Skyline contracted with All Day Restoration Inc. to perform restoration work on the exterior facades. An employee of All Day slipped and fell due to ice and snow on the roof and sued Dayton for personal injuries.     All Day was insured by Endurance. American Empire insured Skyline. After the injured employee's suit was filed, American Empire tendered the defense and indemnification of Dayton as an additional insured under the Endurance policy to All Day and Endurance. Endurance rejected the tender and American Empire filed suit for declaratory judgment. American Empire and Endurance both moved for summary judgment. American Empire argued that Endurance was obligated to defend and indemnify Dayton as an additional insured on a primary basis, and the American Empire's obligations, if any, were excess.    The court determined that Dayton was not an additional insured under the Endurance policy. By endorsement, the Endurance policy provided that additional insured coverage would be provided to entities as "required by written contract." Nowhere in the All Day subcontract with Skyline was it expressly or explicitly stated that All Day would provide additional insured coverage for Dayton.     American Empire relied upon the All Day Subcontract, which provided that "the General Conditions governing this Subcontract shall be the edition of AIA Document A201, General Conditions of the Contract of Construction."  AIA Document A201 stated, 'The Contractor Shall cause the commercial liability coverage required by the Contract Documents to include . . . the Owner. . ." American Empire argued that this language provided Dayton, as the owner of the building, with additional insured status because the language was incorporated into the All Day Subcontract.    The court rejected this argument because AIA Document A210 was not a "written contract" requiring Dayton to be named as an insured. Therefore, American Empire's motion for summary judgment was denied. Endurance's motion for summary judgment declaring it had no duty to defend or indemnify Dayton as an additional insured was granted.

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Insurance Online : Bad Faith Action Barred After Judgment Rendered Breach of Contract Claim

   The Iowa Supreme Court found that a separate action against the insurer for bad faith, filed after judgment was entered against the insurer on breach of contract, was barred by claim preclusion. Villarreal v. United Fire & Cas. Co., 2016 Iowa LEXIS 1 (Jan. 8, 2016).     The insureds' restaurant was severely damaged by a fire on March 8, 2007. The insureds held a commercial property policy with United Fire with coverage limits of $386,400 for building replacement and $374,000 for personal property replacement. The insureds purchased the building and land a year and a half before the fire for $150,000, and the current property tax assessment was $153,000. At an examination under oath, the insureds testified that improvements of $83,500 had been made to the building after purchase. No documentation was presented for the majority of the improvements, however.    In June, the insureds presented a lengthy inventory of personal property lost in the fire. The total claimed value of the inventory was $490,000. Also in June 2007, the insureds' attorney started writing letters to United Fire demanding immediate payment and threatening to sue. In August, one such letter threatened a suit for bad faith on the part of United Fire.      By November, United Fire had paid $24,000 for the insureds' personal property losses and $108,310 for the building. The building payment went entirely to the mortgagee, so the insureds had received nothing for the loss of the building.    The insureds filed a breach of contract suit against Untied Fire on March 7, 2008. Three years later, in March 2011, the jury returned a verdict for the insureds in the amount of $176,690 for the additional unpaid value of the building and $60,212 for the additional personal property.     On June 20, 2011, three months after judgment was entered on the breach of contract action and more than four years after the fire, the insureds filed a new action in bad faith. The trial court granted United Fire's motion for summary judgment, finding that the bad faith action was barred by claim preclusion. Both the breach of contract and bad faith claims arose from the March 8, 2007 fire loss and United Fire's refusal to pay the claim. The court of appeals reversed.    The Iowa Supreme Court noted that a great majority of jurisdictions held that a breach of contract verdict in favor of the insured and against the insurer precluded a subsequent action for first-party bad faith, at least where the bad faith claim was based on events that predated the filing of the breach of contract lawsuit. The court joined these other jurisdictions, determining that a final judgment in the breach of contract case would bar bringing a subsequent, separate bad faith lawsuit. The potential prejudice from introducing evidence relevant only to the insurer's bad faith could be resolved by bifurcating the trial into a breach of contract phase and a bad faith phase.     A different result would be likely where the bad faith claim was based on conduct that occurred after the breach of contract case was filed. But here, the insureds had a basis for alleging bad faith in March 2008, when they filed their original suit, as well as ample time thereafter to amend that suit to add a bad faith claim.

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Insurance Online : ABA Insurance Coverage Litigation Committee Seminar In Early March

   Once again, the Insurance Coverage Litigation Committee of the ABA will hold its annual seminar in Tucson, Arizona from March 3-5, 2016. The agenda is here.    Each year, the conference offers informative, cutting-edge sessions on a variety of insurance-related topics. Participants from across the country include both policy holder and carrier lawyers, judges, risk managers, in-house counsel, and insurance professionals.     The topic for my panel will be "Is There Any End to the Duty to Defend? Coverage, Claims and Bad Faith Issues."    Anyone who is interested or works on coverage issues would find attending this seminar useful.    

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Insurance Online : No Coverage Under Exclusions For Wind and Water Damage

   The Mississippi Supreme Court affirmed the granting of summary judgment to the insurer that there was no coverage under the all risk policy for loss caused by wind and water. Porter v. Grand Casino of Miss., Inc., 2016 Miss. LEXIS 3 (Miss. Jan. 7, 2016).     Cherri Porter's home was destroyed during Hurricane Katrina. The destruction occurred when the barge operated by Grand Casino of Mississippi came loose from its moorings and collided with her home.     Ms. Porter submitted a claim to her insurer, State Farm. The policy excluded loss caused by wind or water damage. Also excluded was "loss that would not have occurred in the absence of an excluded event." Because any loss caused by the barge would not have occurred in the absence of an excluded event - i.e., the flood of storm surge that broke the barge from its moorings - State Farm denied coverage.    Porter sued State Farm for bad faith denial of her claim. In discovery, she admitted there was no other explanation for the barge's movement other than the forces of wind and water. Because the policy excluded loss caused by water, the trial court granted summary judgment to State Farm.     The Mississippi Supreme Court affirmed. State Farm excluded both loss caused by wind damage and loss caused by water damage. The policy unambiguously stated that any loss that would not have occurred absent water damage was not covered. The barge, by itself, would not have collided with Porter's home. The barge did not act independently to cause loss, but instead operated in conjunction with the storm surge to cause the damage. 

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