October 2024 – Duane Morris Insurance Law

Facing claims that it “allowed a dangerous substance—mold” to grow in a resident’s apartment, an insured sought coverage under its “businessowners insurance” coverage. In denying a duty to defend the underlying wrongful death suit, the insurer relied on two exclusions: (1) the “Fungi or Bacteria Exclusion” and (2) the Pollution Exclusion. After analyzing the plain meaning of both exclusions, the U.S. District Court for the Northern District of Georgia agreed with the insurer, held that it owed no duty to defend the insured, and granted the insurer’s motion for judgment on the pleadings.

The court began by applying basic principles under Georgia law. It noted, “[i]f the terms of the insurance contract are plain and unambiguous, the Court must ‘simply [] apply [them] as written, regardless of whether doing so benefits the carrier or the insured.’” Reed v. Auto Owners Ins. Co., 284 Ga. 286, 287 (2008). “This rule holds even for policy exclusions, which ‘must be given effect’ when unambiguous, ‘even if ‘beneficial to the insurer and detrimental to the insured.’” Cont’l Cas. Co. v. Winder Lab’ys, LLC, 73 F.4th 934, 941 (11th Cir. 2023) (quoting Fid. Nat’l Title Ins. Co. of N.Y. v. OHIC Ins. Co., 275 Ga. App. 55, 57 (2005)).

The policy provided coverage for sums “that the insured becomes legally obligated to pay as damages because of ‘bodily injury’” to which the insurance applies. “Bodily injury” includes “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” In “any suit” seeking damages covered by the policy, the insurer has a “duty to defend the insured.” The court then turned to the relevant exclusions.

October 25, 2024October 25, 2024 by Daniel B. Heidtke

Texas Contractor’s Coverage Claims Foreclosed by Defective Workmanship Exclusion

By: Daniel B. Heidtke

In a recent case decided in the Southern District of Texas, the court entered summary judgment, holding that the insurer’s “construction [and] workmanship” exclusion excluded coverage as a matter of law. The claim, brought by a contractor against a subcontractor’s insurer, arose out of allegedly defective work related to pipe fabrication.

The contractor agreed to fabricate, construct, and install pipes for a construction project in Corpus Christi, Texas. The contractor then hired a subcontractor to fabricate piping for the project. “As a pipe fabricator, [the subcontractor] was responsible for creating or customizing pipes for the Project so that they fit its exact requirements.” “In connection with its work,” the subcontractor obtained a property insurance policy, which covered the workshop where it welded the components to fit the project’s needs.

The contractor eventually discovered that some of the subcontractor’s work was defective, and asserted that the subcontractor missed “delivery times and production standards for the [p]roject.” The contractor eventually pursued a claim under the subcontractor’s policy.

The insurer denied the claim, asserting: (1) the pipes were not “covered property”; (2) the damages to the pipes did not occur at a “covered location”; and (3) the damages to the pipes did not constitute “physical loss.” The insurer also relied on “Exclusion ‘f,’” which barred coverage “for loss resulting from the design, specification, construction, workmanship, installation, or maintenance of property[.]” In response, the contractor filed suit, alleging breach of contract (as subrogee to the subcontractor’s rights), and extracontractual claims for violations of Sections 541 and 542 of the Texas Insurance Code.

October 24, 2024October 24, 2024 by Gina M. Foran

Hawai‘i High Court Holds Insurer has no Duty to Defend Fossil Fuel Company Against Climate Change Suit, Upholding Pollution Exclusion

By: Gina Foran and Bill Baron

The Hawai‘i Supreme Court ruled on October 7 that AIG has no duty to defend Aloha Petroleum against climate change lawsuits, because the pollution exclusions in AIG’s policies barred coverage for the suits.

Certain cities and counties in Hawaiʻi sued major oil companies, including Aloha, for their role in emitting greenhouse gases (“GHGs”) that contribute to global warming. Plaintiffs alleged that Aloha was on notice that its products caused catastrophic climate change because the industry had been advised in the 1960s through various channels, including the American Petroleum Institute (“API”), an oil industry group, of the effect that burning fossil fuels would have on the climate. API commissioned studies that predicted the earth’s temperatures would significantly increase around 2000 and cause catastrophic effects by the mid-21st century. Aloha was aware, or should have been aware, of these studies. Plaintiffs alleged that Aloha “had actual knowledge that their products were defective and dangerous,” and “acted with conscious disregard for the probable dangerous consequences of their conduct’s and products’ foreseeable impact upon the rights of others.” The District Court in the coverage action thus concluded that the counties alleged reckless conduct.

The District Court certified two questions to the Hawaiʻi Supreme Court: (1) whether an “accident” includes an insured’s reckless conduct; and (2) whether GHGs are “pollutants” within the meaning of pollution exclusions. The Court held that an “accident” did include reckless conduct, but ultimately concluded that AIG had no duty to defend the insured because the pollution exclusions in the policies unambiguously barred coverage for “pollutants” which include GHGs.