Insurance Litigation Review: 2001
April 2002
Insurance coverage disputes are a mirror to
casualty and liability losses throughout the world. In this article, Jill Berkeley
lists the more important insurance cases of last year.
by Jill
B. Berkeley
Schiff Hardin
LLP
Insurance coverage disputes are a mirror to casualty and liability losses
throughout the world. Where damage and injury occur from weather-driven calamities,
commercial transactions, automobile accidents, construction projects, or products
liability, insurance-related controversies are not far behind. In fact, we are
all well accustomed to dealing with the everyday accident, and have proven our
resiliency in the event of catastrophic disaster, as evidenced by September
11. Even large-scale environmental contamination from hazardous waste or toxic
torts from lead and asbestos seem commonplace to the coverage lawyer, policyholder,
and insurer. So much so that perhaps we become blasé, hardened, and impervious
to pain and suffering.
What is constantly shocking to me is the proliferation of society's problems
within the context of insurance coverage cases. This year is no different. Certainly
the insurance analysis keeps the impact of social issues several levels away.
One experiences the anguish and horror of victims from an intellectual distance.
The encounter is unmistakable, all the same.
The following are recent examples. Gun violence, discrimination, sexual assaults,
and other forms of physical abuse cry out in cases from many different perspectives,
including the victim, the perpetrator, the employer, and the professionals serving
them. More detailed summaries can be found in the Spring and Fall Editions 2001
of
CGL Reporter published by IRMI.
Construction Defect Litigation
Defective construction cases give rise to a multitude of coverage disputes.
See:
- Maryland Cas Co v Nationwide Mut Ins Co.,
81 Cal App 4th 1082, 97 Cal Rptr 2d 374 (Cal App 2000), involving equitable
contribution between primary and excess insurers over a defective construction
matter
- Pershing Park Villas Homeowners v United Pacific
Ins. Co., 219 F3d 895 (9th Cir 2000), dealing with bad faith issues
- Oak Crest Construction v Austin Mutual Ins.,
998 P2d 1254 (Or App 2000), looking at breach of contract versus tort concepts
- Signature Development Cos. v Royal Ins. Co.,
230 F3d 1215 (10th Cir 2000), examining the impact of other insurance on
the duty to defend
- Lindy Investments v Magnolia Creek, 209 F3d 802 (5th Cir 2000), applying the work product exclusion to a claim
for defective siding
- Cincinnati Ins. Co. v Mills, 2000 W Va LEXIS 146 (W Va 2000), determining whether damage to uncompleted
work is excluded
Bad Faith Litigation
The insurance relationship is also beset with some fundamental inequities.
Bad faith cases arise in a variety of contexts and create a myriad of problems
and issues:
- Pershing Park Villas Homeowners v United Pacific
Ins. Co., 219 F3d 895 (9th Cir 2000), deals with emotional distress
- Jadco Management Corp. v Federal Ins. Co.,
9 P3d 92 (Okla App 2000), deals with recovery by third-party beneficiaries
- Gray v North Carolina Ins. Fund, 529 SE2d 676 (NC 2000), and Sobley v Southern National
Gas Co., 210 F3d 561 (5th Cir 2000), involved first-party claims
- Pinto v Allstate Ins. Co., 221 F3d 394
(2nd Cir 2000), and Frankel v St. Paul Fire & Marine
Ins. Co., 759 A2d 869 (NJ App Div 2000), are classic failure to settle
third-party liability cases
- Commercial Union Ins. Co. v Seven Provinces
Ins. Co., 217 F3d 33 (1st Cir 2000), arises in the reinsurance relationship
- Old Republic Ins. Co. v FSR Brokerage, 95 Cal Rptr 2d 583 (Cal App 2000), questions if insurer can sue its insured
- Sta-Rite Industries Inc. v Zurich Re (UK) Ltd.,
178 F3d 883 (7th Cir 1999), an excess insurer that refused to settle a case
with a $23.5 million demand was not liable for bad faith when the jury ultimately
returned a verdict of $25
- Kransco v American Empire Surplus Lines, 2 P3d 1 (Cal 2000), an excess insurer that refused an offer of $750,000
was liable in bad faith for a judgment of $13.6 million
- Hoosier Insurance Company v Audiology Foundation
of America, 745 NE2d 300 (Ind
App 2001), an insurer that relied on a coverage defense for an advertising
injury liability claim that raised a question of first impression was not
liable in bad faith for denying the claim
- Robinson v State Farm, 2000 WL 1877745
(Idaho Dec 28, 2000), an automobile insurer whose limits were $25,000 that
denied a medical payments claim was not successful in relying on the "fairly
debatable" standard and was found liable for $100,000 in compensatory and
$9.5 million in punitive damages
Estoppel Litigation
On the estoppel front, Illinois continues to be the most active jurisdiction
(could this be because Illinois does not have an effective statutory or common
law bad faith remedy?). See the following cases.
- Guillen v Potomac Ins. Co., 751 NE2d
104 (Ill App 2001), the failure to meet its burden of mailing a "Change
in Coverage" endorsement estopped a liability insurer from relying on an
exclusion in its new policy form
- LaGrange Memorial Hospital v St Paul Insurance
Co., 740 NE2d 21 (Ill App 2000), an employer's liability insurer
was estopped to rely on a late notice defense for its refusal to defend
an additional insured in an action for indemnity
- Kimbrell v Union Standard Ins. Co., 207
F3d 535 (8th Cir 2000), but here estoppel was not applied to an insurer's
late notice defense
- Montgomery Ward & Co. v Home Insurance Co.,
753 NE2d 999 (1st Dist 2001), an excess insurer did not waive its late notice
defense, although it neither filed a declaratory judgment nor reserved its
rights.
- Westchester Fire Ins Co. v G. Heileman Brewing
Co., Inc., 747 NE2d 955 (Ill App 2001), estoppel was prevented by
the filing of a timely declaratory judgment.
Reimbursement Litigation
The issue of reimbursement was also addressed in two cases with opposite
results.
- Blue Ridge Insurance Co. v Jacobsen, 19 SW3d 178 (Mo App 2000), an insurer defending under a reservation
of rights was entitled to recover settlement payments over the objection
of its insured when it was later determined the claims were not covered.
- Texas Association of Counties County Government
Risk Management Pool v Matagorda County, ___ SW2d ___ (Tex 2000), an insurer was not entitled to recover a settlement
paid where the insured had not consented to the unilateral reservation of
rights.
Choice of Law Litigation
The procedural aspect of the insurance coverage practice has seen an enormous
amount of litigation. Choice of law must be everyone's favorite. It would seem
that there is no predicting the results of a choice of law analysis. The complexities
of corporate families, mergers and acquisitions in the brokerage and insurance
markets, and multiple locations for insured risk create a hodge-podge of results.
Choice of law issues arose in many cases this year, including the following.
- Fantis Foods, Inc. v North River Ins Co.,
753 A2d 176 (NJ App Div 2000), involving first party property policies covering
property in many states
- Household International Inc. v Liberty Mutual,
___ NE2d ___, 2001 WL 209813 (Ill App 1st Dist 2001), environmental contamination
under CGL policies
- Westchester Fire Ins Co v G. Heileman Brewing
Co., Inc., 747 NE2d 955 (Ill App 2001), price-fixing and unfair competition
claims under CGL policies
- Savage Arms, Inc. v Western Auto Supply Co.,
18 P3d 49 (Alaska 2001), products liability issues concerning successor
liability
Insurer versus Insurer Litigation
In the context of insurer versus insurer disputes, other insurance becomes
a weapon as much as a shield. Spreading the risk is a concept that defines insurance,
but also consumes many insurers as they look for other potential sources for
risk sharing.
- Schal Bovis, Inc. v Casualty Ins Co.,
732 NE2d 1179 (Ill App 2000), and Andrew L. Youngquist, Inc. v Cincinnati
Ins. Co., 625 NW2d 178 (Minn App 2001), examining application of "other
insurance" in the situation involving additional insureds
- Ohio Casualty v State Farm Fire & Cas Co.,
546 SE2d 421 (Va App 2001), between various lines of insurance, such as
builders risk and homeowners
- Country Mut. Ins. Co. v Teachers Ins. Co.,
746 NE2d 725 (Ill 2001), permissive users of autos creates disputes between
driver's and owner's insurance
- Farm Bureau Mut. Ins. Co. v Alamo Rent-A-Car,
Inc., 744 NE2d 300 (Ill App 2000), rental car companies asserting
rights against driver's insurance
- Air Liquide America Corp. v Continental Cas.
Co., 217 F3d 1272 (10th Cir 2000), self-insurance as "other insurance"
Insurers providing different layers of insurance also have disputes: equitable
contribution between primary and excess insurers over a defective construction
matter is examined in Maryland Cas. Co. v Nationwide
Mut. Ins Co.; 218 F3d 204 (2nd Cir 2000), leasing arrangements in the
trucking industry in Chester Carriers, Inc. v National
Union Fire Ins. Co., 767 A2d 555
(Pa Super 2001).
Personal Injury and Advertising Injury Liability Litigation
This coverage area has been examined in an increasingly broad array of causes
of action.
- COMSTAT Corp. v St Paul Fire & Marine Ins Co.,
246 F3d 1101 (8th Cir 2001), alleged anti-competitive conduct
- Travelers Ins. Co. v United Food & Commercial
Workers Internatl., 770 A2d 978 (DC App 2001), labor union versus
management disputes
- QSP, Inc v Aetna Cas. & Surety Co., 733
A2d 906 (Conn 2001), antitrust violations over school and youth group magazine
fund-raising market
- Hoosier Insurance Company v Audiology Foundation
of America, 745 NE2d 300 (Ind
App 2001), professional trade association disputes over credentialing
- United National Ins. Co. v SST Fitness Corp.,
182 F3d 447 (6th Cir 1999), patent infringement in the exercise and fitness
products industry in
- St Paul Fire & Marine Ins. Co. v Green Tree
Financial Corp., 249 F3d 389 (5th Cir 2001), the financial services
market for alleged consumer fraud violations
- New Castle County, Delaware v National Union
Fire Ins. Co., 243 F3d 744 (3rd Cir 2001), zoning restrictions in
commercial development
Directors and Officers Liability Litigation
Looking at D&O policies, I suspect that we will have increasing activity
in the coverage area, as the securities and mergers and acquisitions industry
becomes shakier. Those problems are already evident in American Medical International v National Union Fire
Ins. Co., 224 F3d 715 (9th Cir 2001), and Mortenson
v National Union Fire Ins. Co., 249 F3d 667 (7th Cir 2001). Other issues
include the following.
- Gershman v American Cas. Co., 251 F3d
1159 (8th Cir 2001), the familiar savings and loan association
- 116 Commonwealth Condominium Trust v Aetna Cas.
& Surety Co., 742 NE2d 76 (Mass 2001), condominium boards are not
immune from suit
- Coregis Ins. Co. v American Health Foundation,
Inc., 738 NE2d 509 (Ill App 2000), even nonprofits are targets
Conclusion
Social problems are not likely to disappear. Violence, crime, and inequality
are the daily news. These stories find their way into coverage disputes, much
like everyday household accidents. I only wish we could live without them.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
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