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Legal Updates, Opinions and Relevant information on Insurance Coverage and Bad Faith Litigation

Carlock, Copeland & Stair, a civil litigation firm, has a reputation for forceful, creative and cost-effective advocacy on behalf of its clients. Formed in 1970 with five attorneys operating out of a downtown Atlanta office, we now have over 75 civil litigation attorneys handling legal matters across the Southeast from offices in Atlanta, GA, Charleston, SC and Chattanooga, TN.

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New Jersey Opinion Focuses on the “Nature and Scope” of Damage to Determine Trigger for Coverage

Recently, a New Jersey appeals court ruled that insurance coverage for construction defect liability claims extends until the nature and the scope of the property damage becomes apparent. Thus, a new grey area has been created for insurers to assess time on risk. The result of the opinion leads one to believe that insurer will more likely than not lose on summary judgment as to “trigger” because the court seemingly requires a rigorous and fact-intensive analysis of when the “last pull” of the trigger occurs.

The underlying matter involved a condominium building that was built between November 2005 and April 2008. As early as February 2008, homeowners noticed water damage in their windows, ceilings and other portions of the units. In May 2010 the unit owners hired an expert to perform a moisture survey of the development and he identified 111 spots of moisture damaged areas that need to be removed and replaced. The unit owners alleged the HVAC contractor was to blame for the moisture intrusion at the project.

Selective issued an “occurrence based” general liability policy that covered bodily injury and property damage taking place during the policy period of June 2009 through June 2012 for the HVAC contractor. Selective disclaimed coverage on the grounds the alleged property damage had occurred prior to the inception of its policy because the homeowners were aware of the problems in 2008. The trial court agreed with Selective and found that the continuous trigger applied to the claims against the HVAC contractor, but still held that Selective had no coverage obligations because the damage had in fact manifested before June 2009.

The HVAC contractor appealed and argued, “the end date for the continuous trigger doesn’t occur until an expert report or some other proof definitively establishes that the policyholder’s faulty work caused the alleged damage.” The court disagreed and stated that “an attribution analysis could be highly fact-dependent, and difficult to resolve when an insured makes a request for defense and indemnification after being named in a complaint.” In sum, HVAC contractor argued that the trigger began when the expert analysis was performed in 2010. Conversely, Selective argued that , based on the hearsay statements of the homeowners, the triggering event occurred in 2008. The appellate court found that information about the building defects was or reasonably could have been revealed at any time between the time of the unit owners’ complaints until the start of Selective’ s policy in June 2009 and the case should be reopened to allow for discovery to explore the critical factual issues outlined in the opinion regarding the discovery of the damage.

The ruling muddies the water as to triggering events and the parties have been ordered to complete more discovery to determine when the essential manifestation occurred in this instance. For insurers in this jurisdiction, this means they will need to pursue discovery as to the nature and scope of the damage to attempt demonstrate when the last trigger pull occurred if they are seeking to avoid providing coverage. Conversely, insureds will likely attempt to undercut this evidence as inadmissible or too vague to warrant a “trigger pull.” Those who represent insureds in this jurisdiction may find this case inconsistent with spirit of the New Jersey Supreme Court’s landmark 1994 ruling in Owens-Illinois Inc. v. United Insurance Co., which applied the continuous trigger in a dispute over coverage for asbestos-related bodily injury claims to maximize coverage.

This case is Air Master & Cooling Inc. v. Selective Insurance Co., case number A-5415-15T3, in the Superior Court of the State of New Jersey, Appellate Division. Our office intends to follow this case and will update with a blog post regarding significant decisions.

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Georgia Supreme Court Clarifies Rule on Intervening Acts and Causation

In Georgia, there is no requirement that an intervening act be wrongful or negligent to break the causal chain of a tortfeasor’s act or omission and a plaintiff’s injury.  Rather, the analysis is simply whether the concurrence of an intervening act was reasonably foreseeable by a defendant, or if the intervening act was triggered by the defendant’s conduct.

In Jordan v. Everson, Ben Everson’s mother drove him to the emergency room at Phoebe Sumter Medical Center in Americus, Georgia because he was hearing voices and hallucinating.  There, Dr. Brian Jordan diagnosed him with obsessive-compulsive disorder and discharged him.  Before leaving, ER personnel called and set up an appointment for May 1 at a mental health facility near the Medical Center.  However, the Eversons, originally from Durham, North Carolina, had a number of contacts at Duke University Hospital.  Mr. Everson began calling around to see if he could get his son in to see someone at Duke.  He ultimately made an appointment for Ben to see a psychiatrist at Duke on the afternoon of May 1st.  During the drive to North Carolina, Ben unbuckled his seatbelt, jumped out of the moving car, and ran down the highway.  He was hit and killed by a vehicle traveling on the interstate.

Dr. Jordan filed a motion for summary judgment, arguing that the intervening act of driving Ben to a hospital hours away, rather than taking him to the local facility, broke the causal chain.  The trial court denied the motion, and the Court of Appeals affirmed.  In affirming the trial court’s denial of Dr. Jordan’s motion, the Court of Appeals relied on the following line, taken from the opinion in Goldstein, Garber & Salama v. J.B., 300 Ga. 840 (2017), where the Georgia Supreme Court said, “that its negligence is not the proximate cause of the plaintiffs injuries, but that an act of a third-party intervened to cause those injuries, the rule is that an intervening and independent wrongful act of a third person producing the injury, and without which it would not have occurred, should be treated as the proximate cause, insulating and excluding the negligence of the defendant.”

Now, the Georgia Supreme Court took the opportunity to clarify that line.  The Court said that the “Court of Appeals read too much into that sentence.”  It distinguished Goldstein by explaining that it was addressing whether a sexual assault, “an indisputably wrongful act,” intervened to break the chain of causation.  “We did not consider whether an intervening act always must be wrongful….”

And in fact, an intervening act does not always have to be wrongful in order to insulate and exclude the negligence of a defendant.  So, when assessing and evaluating a possible defense based on the acts of third-parties, the analysis should include whether the defendant (1) knew or should have known whether the intervening act would occur, or (2) triggered, or caused, the act to occur.  If the answer to both questions is “no,” then a motion for summary judgment may be appropriate.  To carry the application of this rule further, when analyzing claims, professionals and attorneys should consider whether the acts of a third-party intervened in such a way that the third-party assumed some level of responsibility for the plaintiff’s ultimate injuries.  With Georgia’s broad comparative negligence rule, a defendant’s exposure could be significantly reduced, or eliminated altogether.

The Jordan v. Everson opinion is available at 2017 Ga. LEXIS 884, 2017 WL 4582408 (October 16, 2017).

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Takeaways from The CLM & Business Insurance 2017 Construction Conference

Laura Paton, Sarah (Wetmore) Butler, and Patrick Norris proudly represented Carlock, Copeland & Stair, LLP at the 2017 CLM & Business Insurance Construction Conference in San Diego this week.  Both Laura and Sarah were selected to speak as panelists.  Laura’s panel focused on properly reserving your rights to later disclaim coverage subsequent to the Heritage Communities decision and Sarah’s panel discussed tips on drafting an enforceable settlement agreement.  Here are a few takeaways from each presentation:

Reserving your Rights:

  • Be timely in sending out your ROR – the sooner the better!
  • DON’T use the “cut and paste” method inserting huge chunks of the policy    into a letter without substantive explanation
  • DO provide a thorough analysis of the reasoning for the reservation and discuss how the facts of the case apply to the policy provisions
  • DO include notice as to any special remedies you may later pursue like submitting special interrogatories or requesting a special verdict

Drafting your Release:

  • Get it SIGNED!  Under the South Carolina Rules of Civil Procedure, you need a signed writing to enforce settlement
  • DO consider indemnity issues, additional insured claims and potential assignments when drafting the release
  • Understand the difference between a full release, a mutual release, an issue release and a convening not to execute
  • Be wary of timing requirements and be careful in proof reading the settlement documents for proper inclusion of parties and claims
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The CLM’s 2017 Claims College, School of Transportation Takeaways

I had the pleasure of attending The CLM’s 2017 Claims College in Baltimore, MD in September 2017.  I was a student in the third level of CLM’s School of Transportation, which brings together Claims Professionals and Litigation Attorneys from all over the country to study and discuss current and emerging claims information.  Claims College was extremely beneficial, with programs presented by some of the industry’s most distinguished professionals.

Here are a few takeaways from 2017 Claims College, School of Transportation:

1. Recognition of trial strategies employed by claimant and plaintiff’s attorneys in bringing transportation claims early in claims examination will allow an insurer and/or trucking company to effectively defend against the claim throughout litigation.

2. Very early consideration of attempts to resolve transportation claims (before the claimant or claimant’s family retains legal representation) and early efforts to establish good will with the claimants, such as paying funeral costs is a good practice.

3. Response to lengthy and detailed preservation letters requires involvement of and communication between all company departments.

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2017 The CLM’s Claims College Recap

This was my third year teaching at The CLM’s Claims College in Baltimore, MD.  The Claims College first occurred in 2012 with some of the industry’s best professionals enlisted to create and teach courses.   Back then, there were courses in three schools; however, this has now expanded to a total of eight three-level specialty schools and three one-level schools.  Each level consists of pre-course reading materials, in-class instruction, group projects and an exam.

Students complete classes to earn their CCP (Certified Claims Professional) designation, ACP (Advanced Claims Professional) designation, and/or a Certificate in Mediation, Extra-Contractual Claims or Leadership depending on the classes they take.  Since its inception, hundreds of students have attended Claims College and earned the designations above.  This year, I was asked to serve as a faculty member for the School of Casualty and the School of Leadership.

As a member of the faculty for the School of Casualty, I was able to teach a Level 2 course titled “Case Resolution:  Development of a Negotiation Strategy.”  This course was designed to allow the students to take a disciplined approach to negotiation.  The course allowed the students to use the methods of principled negotiations and apply them to their own style.  The class is very interactive and the students were very creative in how they handled each scenario.

This was the School of Leadership’s inaugural year at Claims College. The CLM created it to “provide a comprehensive review of leadership theories and styles as well as practical information for leadership development.”  I was honored to be asked to help create and then teach “Leading Through Change and Adversity” with the goal of introducing skills leaders need to lead Claims Resolution professionals through change.  It was a pleasure to work with each of the students during class, and proctor the oral presentation and exam at the end of all the courses.

I really look forward to and enjoy being part of The CLM’s Claims College.  Each year, I have the opportunity to teach and work with amazing leaders in the industry.  I have met some amazing people in Baltimore, and I look forward to continuing to assist with the college in the future.

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Takeaways from 2017 CLM Claims College, School of Claims Mediation in Baltimore, MD

I had the pleasure of attending Claims Litigation and Management Alliance’s (CLM) 2017 Claims College in Baltimore, MD last week.  I was a student in CLM’s School of Claims Mediation at Claims College, which brought together Claims Professionals and Litigation Attorneys from all over the country to study and discuss current and emerging claims information together.  Claims College was extremely beneficial and was taught by some of the industry’s most distinguished professionals. Here are a few takeaways from 2017 Claims College, School of Claims Mediation Program:

1. Institutional clients continue to move towards seeking early resolution of claims through pre-suit mediation;

2. Effective resolution of claims requires not just careful attention to written and verbal communications, but also the less obvious nonverbal cues that are being communicated by the other side;

3. There’s still no substitute for sitting down with a client in person, even if email dominates the day in our technologically savvy world; and

4. When trying to settle a difficult claim, remember to think outside of the box.  While monetary incentives are usually a primary focus, often non-monetary contributions and opportunities, like vocational training for an injured claimant, can provide the final incentive for settlement.

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Does Your Business Policy Actually Protect You? If it has a “Professional Services” Exclusion, it might not

If you did not believe it before, you can believe it now—Ponzi-scheme cases make bad law.  On July 5, 2017, the Eleventh Circuit decided Furr v. National Union Fire Insurance Company of Pittsburgh (No. 15-14716), in which the court considered the impact of a “professional services” exclusion in a bank’s executive and organization liability insurance policy.*  The court held that there was no coverage for anyone because some of the claims asserted were related to the professional services that the bank rendered to the Ponzi scheme.  In denying coverage to everyone, the court reviewed this exclusion:

The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against any Insured alleging, arising out of, based upon, or attributable to the Organization’s or any Insured’s performance of or failure to perform professional services for others, or any act(s), error(s) or omission(s) relating thereto.

The court upheld coverage denial (1) because the policy did not contain a severability provision and (2) because the text of the exclusion prohibited payment if a claim is made against any insured who performed or failed to perform professional services.  To be clear: if anyone was a professional subject to a claim (or performing professional services), no one gets coverage, even non-professionals.

This has two important consequences: First, if a claim is made under a policy with similar contents, then claiming a legal, accounting, or medical error will jeopardize coverage for everyone.  Second, and perhaps more importantly, this particular policy evidently does not protect a bank from claims arising from banking services because those services are professional enough to be encompassed by the exclusion.

Exclusions like the professional services exclusion (and the personal injury exclusion) are designed to keep claims inside the appropriate policy and preclude doubling-up on coverage across multiple policies.  That is fair.  A D&O policy shouldn’t cover personal injury—that is the role of the general liability policy.  But excluding coverage based on a bank’s banking services seems to have left the bank’s executives without any coverage.  That is a harsh result.

I do not mean to sound shrill, but everyone should look at their policies and make sure that they actually have the coverage that they intend to have both from the perspective of whether the company’s services would be included in the “professional services” exclusion and to make sure that an errant claim touching on a professional’s work inside the business does not jeopardize coverage for everyone.

_____

* I have not actually seen the policy, but this “executive and organizational” policy sounds more like a Director & Officers (D&O) policy than an Errors and Omissions (E&O) policy.

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West Virginia Supreme Court Finds No Ambiguity in Policy’s Exclusionary Language

The West Virginia Supreme Court recently issued an opinion interpreting common exclusionary language in a policy’s earth movement exclusion, as well as an ensuing loss clause in the same policy.  The opinion was the result of a declaratory judgment action brought by the owners of a commercial property in St. Albans, West Virginia, after the property was damaged by a soil and rock slide.  After inspecting the damage, the owners’ insurer, Erie Insurance Property and Casualty Company (“Erie”), denied coverage pursuant to an exclusion in the policy for damages caused by earth movement.  The trial court entered judgment in favor of the owners, finding the exclusion was ambiguous and, therefore, the damages were covered under the policy.  The trial court further found that the policy’s ensuing loss clause was also ambiguous and provided coverage for the loss.

On appeal, the West Virginia Supreme Court reversed the trial court.  The supreme court held that exclusionary language in the policy, which contained the phrase “caused by an act of nature or is otherwise caused,” specifically precluded recovery for earth movement, whether naturally occurring or from manmade causes.  In doing so, the court noted that all other courts which had construed this language reached the same conclusion.  Further, the supreme court stated that the language in question was developed by the Insurance Services Office in 2013 specifically to address potential ambiguities in prior language utilized in insurance policies.  Therefore the court held that the exclusionary phrase “clearly and unambiguously excludes coverage for a landslide resulting from a natural event or otherwise.”

The court went on to address whether the ensuring loss provision in the exclusion, which agreed to provide coverage for “fire, explosion, sprinkler leakage, volcanic action, or building glass breakage . . . for the ‘loss’ or damage caused  by such perils,” was ambiguous and, therefore, provided coverage for the owners’ loss.  Although the trial court found coverage for the owners’ entire loss based on this provision, the supreme court held that the trial court’s “interpretation of the ensuing loss provision is unjustifiable, based upon the purpose and express language of the ensuing loss provision.”  Following the reasoning of courts in other jurisdictions, the West Virginia Supreme Court held that “an ensuing loss provision must not be applied to make an excluded loss reappear as a covered loss.”  Instead, the ensuing loss provision “simply carves out a narrow exception to the exclusion, limiting the scope of what is otherwise excluded under the policy.”  Thus, the ensuing loss provision could not provide coverage for losses unambiguously excluded by the policy.

Although this opinion deals specifically with a policy’s earth movement exclusion, the “or otherwise caused” language addressed in this opinion is language commonly used in other policy exclusions.  Similarly, the ensuing loss provision (also sometimes called a resulting loss provision) is a common feature in many insurance policies.  Thus, the principles utilized by the West Virginia Supreme Court in construing these policy provisions are likely to have applicability to a broader range of insurance policy provisions and exclusions.

The case is Erie Insurance Property and Casualty Company v. Chaber, No. 16-0490 (Jun. 1, 2017), in the Supreme Court of Appeals of West Virginia.  Please contact us if you would like a copy of the opinion or would like to discuss the case further.

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Supreme Court of New Jersey Holds Policy Sublimit Offers No Additional Coverage to Insured for Superstorm Sandy

In a recent opinion, the Supreme Court of New Jersey reversed a prior opinion by the state’s appellate division and reinstated a partial grant of summary judgment to Travelers Excess and Surplus Lines Company (“Travelers”) over damages to an apartment complex as a result of Hurricane Sandy in October 2012.  The policy in question included a $1,000,000 limit for flood loss, as well as a $500,000 sublimit for debris removal.  The owners of the apartment complex submitted a claim for the full $1,000,000 limit for flood damages, as well as an additional $207,961.28 for debris removal.  Travelers refused to pay more than the $1,000,000 flood limit, asserting that the debris removal costs were the result of flooding and, therefore, the owners’ total recovery was limited to the $1,000,000 flood coverage limit, regardless of the sublimit for debris removal.  The trial court agreed and granted partial summary judgment in favor of Travelers, holding that the debris removal sublimit could not be read to increase the flood coverage limit.  A panel of the state’s appellate division reversed the trial court, holding that the policy provided up to an additional $500,000 in coverage for debris removal.

The New Jersey Supreme Court, in a 5-2 decision, reversed the Appellate Division’s decision.  The court held that “[t]he terms of the Policy unambiguously place a $1,000,000 total on recovery for all flood occurrence losses.”  In reaching its decision, the Supreme Court noted that the flood endorsement included language that “[t]he most [Travelers] will pay for the total of all loss or damage caused by Flood” was the $1,000,000 limit.  According to the court’s majority, this language constituted “a hard cap on the amount recoverable for flood damage” and “categorically denies any flood damage coverage in excess of $1,000,000.”  The court went on to hold that “the Flood Endorsement controls the extent of flood coverage and is not modified by the rest of the Policy’s terms,” and noted that other portions of the policy supported its interpretation.  Therefore, the court found it unambiguous that the debris removal sublimit did not increase coverage under the flood endorsement in the policy.

Parts of South Carolina have recently experienced similar damages from several named storms, including October 2017’s Hurricane Matthew, and we have already seen issues arise regarding the interplay between policy coverages and sublimits as a result of damages sustained from these storms.  It is worth noting that the appellate division’s opinion found that the policy unambiguously included additional coverage for debris removal, while the Supreme Court’s opinion found that the policy unambiguously excluded additional coverage for debris removal.  While the decision of the Supreme Court of New Jersey appears to be in line with a number of opinions in other jurisdictions regarding flood policy sublimits, the differing results reached by New Jersey’s appellate courts regarding this policy language demonstrates not only the importance of well-written policy provisions, but also the importance of properly analyzing and interpreting various interrelated policy provisions when making coverage decisions.

The case is Oxford Realty Group Cedar v. Travelers Excess & Surplus Lines Co. (077617), A-85-15 (N.J. 2017), in the Supreme Court of New Jersey.  Please contact us if you would like a copy of the opinion or would like to discuss the case further.

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Multiple Claims Versus a Single Occurrence: Iowa Judge Rules in Favor of Pella Windows

A federal judge in Iowa has issued two rulings in the past two weeks interpreting an ongoing coverage dispute regarding underlying construction defect claims against a window manufacturer. The case arises out of a dispute between Pella Corporation and several subsidiaries (“Pella”) and its insurer, Liberty Mutual Insurance Company (“Liberty”).  The dispute arose out of a number of lawsuits against Pella by various plaintiffs for alleged water intrusion damages resulting from defectively designed, manufactured, or installed windows.[1]  Pella sought reimbursement of defense costs and settlements as a result of each of these claims.

On cross-motions for summary judgment, the District Court for the Southern District of Iowa was asked to determine under Iowa law whether to apply a pro rata apportionment of damages for each policy period or a joint and several “all sums” allocation of damages.  The court was also asked to determine whether each of many claims against Pella was a separate “occurrence” under the Liberty policies or whether each of the claims should be categorized as three or four total occurrences, based on the  type of alleged conduct/omissions on the part of Pella.

In its first order, issued March 22, 2017, the court held that Iowa law would apply a pro rata apportionment of damages under the various policies at issue.  In reaching this decision,  the court rejected Pella’s argument that the non-cumulation provisions of the policy required a finding of an “all sums” allocation.  Instead, the court held that the policy language limiting recovery to damages within the policy period unambiguously provided for a pro rata allocation method, and specifically rejected several findings to the contrary by courts in other jurisdictions.

The court issued a second order on March 31, 2017.  In this order, the court determined that each claim constituted a separate “occurrence” under the policies.  In reaching its conclusion, the court noted the majority rule that the determination of the number of occurrences is based on the underlying cause of the alleged property damage.   However, Pella and Liberty disagreed over the level of generality for applying this standard.  Pella argued that each specific claim had distinguishing facts related to the cause of the damages, while Liberty asserted that the underlying cause should be more generally understood to group together claims for defective installation, a fall through a window, and a couple broad categories of manufacturing or design defect claims.

After reviewing the facts of each of the claims and the language in the underlying policies, the court concluded that both parties made reasonable interpretations of the language in the policies in question.  However, because the policies were subject to multiple reasonable interpretations regarding this issue, the court was constrained to find that the policies were ambiguous as to the interpretation of what constituted an “occurrence.”  Therefore, the court found in favor of Pella, pursuant to Iowa law that an ambiguous policy provision must be construed in favor of the insured.

The case is Pella Corporation v. Liberty Mutual Insurance Company, No.  4:11-cv-00273, in the U.S. District Court for the Southern District of Iowa.  Please contact us if you would like a copy of the order or would like to discuss the case further.

[1] This case deals with a number of “sample claims” that were representative of the larger total number of claims.

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