insurance – 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 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.

March 6, 2023 by Duane Morris

Coverage Denied in NJ Environmental Suit Based on Policy’s Pending Litigation Exclusion

By: Sheila Raftery Wiggins

The New Jersey Appellate Division ruled that an insurer is not obligated to indemnify an insured for natural resources damages that it may pay in the underlying lawsuit brought by the New Jersey Department of Environmental Protection (“NJDEP”) because of the Policy’s Prior or Pending Litigation Exclusion. This exclusion applies because the NJDEP’s suit is based on the same environmental contamination alleged in a 1987 Administrative Consent Order between the NJDEP and the insured. Handy & Harman, et. al v. Beazley USA Services Inc. (Syndicates 623 and 2623 at Lloyd’s London), A-2068-20 (N.J. App. Div. March 2, 2023) (unpublished).

Lesson: An administrative consent order – required by an environmental statute in order for the property to be sold in the 1980’s – is sufficient to constitute a “claim,” as defined by the Policy’s Prior or Pending Litigation Exclusion.

Continue reading “Coverage Denied in NJ Environmental Suit Based on Policy’s Pending Litigation Exclusion”

February 27, 2023November 29, 2023 by Max H. Stern

California Court of Appeal Disposes of COVID-19 Coverage Dispute After Discovery Reveals Cause of Business Income Losses

By Max H. Stern and Holden Benon

Late last week, the California Court of Appeal issued another COVID-19 business interruption decision reminding us that creative arguments do not win the day for policyholders in California. The true facts are decisive.

In Best Rest Motel, Inc. v. Sequoia Ins. Co., No. D079927, 2023 WL 2198660 (Cal. Ct. App. Feb. 24, 2023), the court upheld a trial court’s ruling on summary judgment, reasoning the policyholder could not show that its loss of business income was caused by “direct physical loss of or damage to property,” within the meaning of its commercial multi-peril insurance policy.

The policyholder, San Diego-based Best Rest Motel, Inc. argued that the presence of virus-infected droplets caused physical loss or damage rendering its property incapable of safely providing lodging to guests. Readers familiar with these issues may recognize this as an attempt to plead facts that fall within the “hypothetical scenario” posited in dicta by the court in Inns-by-the-Sea.

Continue reading “California Court of Appeal Disposes of COVID-19 Coverage Dispute After Discovery Reveals Cause of Business Income Losses”

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.

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

November 19, 2021November 29, 2023 by Duane Morris

Yet Another Win for Insurers on COVID-19 Business Interruption Claims: The Inns by the Sea California Court of Appeal Decision

By Max H. Stern and Holden Benon

The first California state appellate decision on COVID-19 Business Interruption coverage is now in the books, and it’s one more victory for insurers. In The Inns by the Sea v. California Mutual Ins. Co., Case No. D079036 (Cal. Ct. App. 4th Dist., Div. 1, Nov. 15, 2021), the California Court of Appeal for the Fourth District found there was no coverage, notwithstanding the absence of a virus exclusion in the relevant policy. The court’s 36-page opinion provides a thorough and careful analysis of several important COVID-19-related business interruption issues, some highlights of which we summarize below.

Inns-by-the Sea operates lodges in the California coastal communities of Carmel and Half Moon Bay. In March of 2020, Inns closed its facilities in response to shutdown orders issued by Monterey and San Mateo counties. Then, Inns made a claim under its property insurance policy for its claimed loss of business income caused by the pandemic. (For more background on business interruption insurance, refer to one of our earlier blog posts on this topic.) Inns’ insurer denied coverage, and Inns filed suit in Monterey Superior Court.

Continue reading “Yet Another Win for Insurers on COVID-19 Business Interruption Claims: The Inns by the Sea California Court of Appeal Decision”

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.

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

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.”

Continue reading “Rejection of Reasonable Settlement in Third Party Insurance Claim Not Per Se Unreasonable”