Daniel B. Heidtke – Duane Morris Insurance Law

November 20, 2024November 20, 2024 by Daniel B. Heidtke

Cases We’re Watching: Certified Question to Nevada Supreme Court—Excess Carrier’s Equitable Subrogation Claim

Earlier this Fall, the Ninth Circuit certified the following question to the Nevada Supreme Court:

Under Nevada law, can an excess insurer state a claim for equitable subrogation against a primary insurer where the underlying lawsuit settled within the combined policy limits of the insurers?

The Nevada Supreme Court has since accepted the certified question and ordered briefing, which is currently underway.

The case at issue involves an equitable subrogation claim brought by an excess insurer against a primary insurer. The excess insurer filed suit against the primary insurer after the excess insurer paid $4 million of a $5 million settlement to resolve underlying litigation arising out of a murder at a Las Vegas apartment complex. The underlying litigation—alleging negligence and wrongful death against the insured owner of the apartment complex—was filed in 2019.

November 7, 2024November 7, 2024 by Daniel B. Heidtke

Cases We’re Watching: Fifth Circuit Appeal of Summary Judgment on Stowers Demand

By: Daniel B. Heidtke

Finding that the Stowers doctrine was not “activated,” the United States District Court for the Southern District of Texas entered summary judgment in favor of an insurer on its declaratory relief claim. After an underlying judgment was entered against its insured, the insurer sought declaratory relief establishing that it owed only its remaining policy limits for an excess verdict. The trial court agreed with the insurer, entered summary judgment, and the matter is now on appeal to the United States Court of Appeals for the Fifth Circuit.

The coverage dispute arose out of an underlying personal injury suit filed in Texas state court. In the underlying suit, the claimants sued the insured for injuries sustained while at the insured’s business. The claimants’ counsel sent a written settlement offer to the insured, requesting “payment of all policy limits of any and all insurance contract,” which was subsequently rejected. The claimants eventually prevailed at trial against the insured, obtaining a verdict totaling $3.2 million. The insurer tendered its remaining limits, but the claimants asserted that the insurer was obligated to pay the entire judgment because the claimants’ pre-trial settlement demand was a proper Stowers demand.

The trial court provided background on the so-called Stowers doctrine and demands:

“Under G.A. Stowers Furniture Co. v. American Indem. Co., 02 S.W.2d 544 (Tex. Comm’n. App. 1929, holding approved), Texas law imposes a ‘basic tort duty,’ known as the Stowers doctrine, under which insurers, ‘when faced with a settlement offer within policy limits, must accept the offer … when an ordinarily prudent insurer would do so in light of the reasonably apparent likelihood and degree of that insured’s potential exposure to a valid judgment in the suit in excess of policy limits.’” Law Office of Rogelio Solis PLLC v. Curtis, 83 F.4th 409, 411 n.1 (5th Cir. 2023) (quoting Travelers Indem. Co. v. Citgo Petroleum Corp., 166 F.3d 761, 761 (5th. Cir. 1999)). “When . . . the insurer’s negligent failure to settle results in an excess judgment against the insured, the insurer is liable under the Stowers doctrine for the entire amount of the judgment, including the part exceeding the insured’s policy limits.” G.A. Stowers Furniture Co., 15 S.W.2d at 548.

October 30, 2024October 30, 2024 by Daniel B. Heidtke

Fungi and Pollution Exclusions Foreclose Duty to Defend Wrongful Death Suit

By: Daniel B. Heidtke

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.

February 21, 2023 by Daniel B. Heidtke

Mistakes Do Not Prove Malice: Federal Court in Dallas Enters Summary Judgment on Policyholder’s Bad Faith Claim

By: Daniel B. Heidtke

Alleging an insurer was “dilatory, deficient, and pre-textual” in its handling of a claim is not enough to state a claim for bad faith, explained the Northern District of Texas, as it entered summary judgment against a policyholder’s breach of the duty of good faith and fair dealing claim earlier this month. After recognizing that the record lacked “expert testimony, proof of standard industry practices, [] legal authority” or evidence that demonstrated duplicity, the court held that the policyholder failed to meet his burden. After all, the court explained, “mistakes do not prove malice” nor “does delay ensure duplicity”.

In Craig Collins v. State Farm Lloyds, Civil Action No. 3:21-cv-0982 (N.D. Tex. Feb. 3, 2023), Collins filed a claim on his homeowner’s insurance policy after a tornado damaged his home. Collins’s insurer sent an adjuster to his home, who “took photographs, inspected the property, and filed a report.” The adjuster recommended a total replacement cost, which Collins’s insurer paid. The insurer continued to adjust and investigate his claim, performing a second inspection of Collins’s roof and, after paying an additional sum, sent a third adjuster to inspect Collins’s home. The third adjuster recommended that the insurer pay an additional sum, which the insurer did, and hired an engineering firm to further inspect the property. After concluding its inspection, the engineering firm concluded that no further damages were due to the tornado, but were due to “foundation movement and age-related deterioration.” Evidently unhappy with the outcome and perhaps equally unhappy with the process, Collins filed suit alleging breach of contract, violation of the Texas Prompt Payment of Claims Act, violations of the Texas Deceptive Trade Practices Act, and breach of the common-law duty of good faith and fair dealing.

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February 16, 2023 by Daniel B. Heidtke

ACCs and EPC: Ninth Circuit Certifies Question of Whether Policy Provision Can Circumvent Efficient Proximate Cause Doctrine

By: Daniel B. Heidtke

Earlier this month, the United States Court of Appeals for the Ninth Circuit certified the following questions to the Montana Supreme Court: “Whether an anti-concurrent cause (‘ACC’) clause in an insurance policy applies to defeat insurance coverage despite Montana’s recognition of the efficient proximate cause (‘EPC’) doctrine” and, if so, whether the relevant language in the policy at issue was an ACC clause that effectively circumvented the EPC doctrine.

In Ward v. Safeco Insurance Co. of America, Case No. 21-35757, the Court first analyzed Montana’s EPC doctrine, which provides: “where covered and noncovered perils contribute to a loss, the peril that set in motion the chain of events leading to the loss or the predominating cause is deemed the efficient proximate cause or legal cause of loss.”

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December 27, 2022 by Daniel B. Heidtke

Clock is Ticking: New Law Restricts Time-Limited Policy Limit Settlement Demands

By: Dominica Anderson and Daniel B. Heidtke

Certain time-limited settlement demands delivered on or after January 1, 2023 will be subject to additional restrictions as California Code of Civil Procedure (“CCP”) Sections 999-999.5 take effect in the New Year. In the past, policyholder counsel have issued policy-limit demand letters, with little detail, and little time to respond; threats and concerns over acting in “bad faith” abound. In enacting CCP § 999-999.5, the California Legislature set about to establish restrictions and, importantly, clearer guidelines—for both policyholders and insurers.

Pursuant to CCP § 999(b)(2), a “time-limited demand” is defined as:

“an offer prior to the filing of the complaint or demand for arbitration to settle any cause of action or a claim for personal injury, property damage, bodily injury, or wrongful death made by or on behalf of a claimant to a tortfeasor with a liability insurance policy for purposes of settling the claim against the tortfeasor within the insurer’s limit of liability insurance, which by its terms must be accepted within a specified period of time.”

Thus, the new statutory requirements apply only to pre-litigation settlement demands and further only to limited causes of action and claims under automobile, homeowner, motor vehicle, or commercial premises liability insurance policies for property damage, personal or bodily injury and wrongful death claims. (CCP § 999.5(a).)

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February 17, 2022February 17, 2022 by Daniel B. Heidtke

Texas Law Allows Courts to Look Beyond Eight-Corners Analysis, Consider Extrinsic Evidence, in Certain Circumstances

By: Daniel B. Heidtke

In a significant ruling issued less than one week ago, the Supreme Court of Texas adopted a modified form of the “Northfield exception” to the “eight-corners rule” previously set out by the U.S. Court of Appeals for the Fifth Circuit in Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004).

The court in Monroe Guaranty Ins. Co. v. BITCO General Ins. Co., Case No. 21-0232, explained that the practice of looking at extrinsic evidence outside of the four corners of the complaint and four corners of the insurance policy is permissible, in certain circumstances. As explained by the court, those circumstances require that the extrinsic evidence “(1) goes solely to the issue of coverage and does not overlap with the merits of liability; (2) does not contradict facts alleged in the pleading; and (3) conclusively establishes the coverage fact to be proved.”

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March 17, 2021 by Daniel B. Heidtke

Insurers in Nevada Are Entitled to Reimbursement of Defense Costs Paid to Defend Non-Covered Claims

By: Dominica C. Anderson and Daniel B. Heidtke

In a 4-3 decision filed on March 11, the Nevada Supreme Court responded to a certified question from the United States Court of Appeals for the Ninth Circuit. In Nautilus Insurance Company v. Access Medical, LLC; Robert Clark Wood, II; and Flournoy Management LLC, 137 Nev. Adv. Op. 10 (Nev. 2021), the court held that an insurer that reserves its right to seek reimbursement of defense costs paid to defend an insured may recover those defense costs from the insured upon a showing that the claim was not covered. The court held, “when a court finally determines that the insurer had no contractual duty to defend, the insurer may ordinarily recover in restitution if it has clearly reserved the right to do so in writing.”

The coverage dispute arose out of underlying litigation between former business partners that worked together selling medical devices. “After the partnership soured,” one of the former business partners alleged in a lawsuit that his former business partners (the insureds, in the coverage dispute) intentionally interfered with his new business, including by allegedly telling a prospective client that he was “banned” from selling medical devices. The former business partner-insureds tendered the intentional interference claim to their insurance carrier.

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March 17, 2021 by Daniel B. Heidtke

Rejection of Reasonable Settlement in Third Party Insurance Claim Not Per Se Unreasonable

In an opinion filed on March 8, the California Court of Appeal, Second District, reversed a jury verdict against an insurer because the jury failed to make an explicit finding that the insurer acted unreasonably in some respect. In Alexander Pinto v. Farmers Ins. Exch., Case No. B295742, the court held that a bad faith claim requires a finding that the insurer acted unreasonably in some respect. Because the jury made no such finding (because the verdict form lacked any question asking the jury to make such a finding), the court vacated the verdict in favor of the insured and remanded the case for further proceedings.

The coverage dispute arose out of a single-car traffic accident. The victim offered to settle his claim against the vehicle owner in exchange for payment of the vehicle owner’s insurance policy limits. The offer lapsed before the insurer accepted it. The victim then obtained a judgment in excess of the vehicle owner’s insurance policy limits. The vehicle owner then assigned her claims against the insurer to the victim. The victim then sued the insurer alleging that the insurer should be held liable for its alleged bad faith failure to settle. The victim prevailed at trial against the insurer.

At issue in the appeal was the lack of an express finding by the jury that the insurer had acted unreasonably (again, the lack of an express finding was because the jury had not been asked this question on the verdict form). The court explained, “[t]he issue is whether, in the context of a third party insurance claim, failing to accept a reasonable settlement offer constitutes bad faith per se. We conclude it does not.”

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