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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Broker Beware

When analyzing coverage issues arising out of a hurricane, we in South Carolina often look to states affected by Hurricane Katrina and Superstorm Sandy.  The courts of the Gulf Coast and New York have provided, and continue to provide, an ever evolving body of law addressing coverage in the aftermath of a hurricane.

One ongoing battle in the Southern District of New York involves Alliant Insurance Services, Inc. (“Aliant”) and Cammeby’s Management Co. (“Cammeby’s”).  In that matter, a jury found that Alliant unilaterally lowered the flood coverage for Cammeby’s from $30 million to $10 million for the flood sublimit at the Industry City at Bush Terminal complex in Brooklyn.  Thus, Alliant was ordered to pay Cammeby’s the difference between the policy amounts – the $30 million Cammeby’s originally signed up for less the $10 million already paid out under the new lower limits policy — plus $6.3 million in prejudgment interest.  The most recent move in this case?  Alliant is requesting that the Court discard the jury verdict (which, it should be noted, was found after a 2-week retrial on the issue of New York law of ratification) because the Judge improperly limited that retrial to a ratification defense rather than requiring Cammeby’s to prove that broker negligence had directly caused a reduction in coverage.  The original holding in 2014 was overturned when Alliant successfully argued that the Judge provided an improper instruction to the jury as to ratification.  Alliant has argued, and continues to argue that two Cammeby’s employees knew of the change in policy and “clearly manifested” approval.  In New York, a policy change can arguably be ratified by not objecting to it.   While that may be the law of the land, based on the two verdicts thus far, it appears that New York juries do not buy it.   It is likely that a South Carolina jury would agree with New Yorkers on this issue.  Despite “knowledge” of a thing, South Carolinians would probably agree that it is a bit much to hold that a business has approved the unilateral reduction of coverage limits made sua sponte by a broker.

The case is Cammeby’s Management Company, LLC v. Affiliated FM Insurance Company, 1:13-cv-02814.  If you would like a copy of the recent orders in this case or have a question about the case, please do not hesitate to contact us.

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London Calling

No stranger to hurricanes, South Carolinians remember Hurricane Hugo which, in 1989, devastated the low country. An interesting side effect of that storm was the boom of rebuilding and the migration of contractors from various parts of the country who came to help in the rebuilding and remained thereafter. Given that hurricane season officially opened June 1, the recent opinion from the Southern District of New York is an interesting reminder that storms may come and storms may go, but the policies which cover storm damage can have unintended consequences requiring years of litigation.

At issue is an ongoing dispute between Infrassure Ltd. and First Mutual Transportation Association over $20 million in coverage for the 2012 Hurricane Sandy damage. First Mutual is appealing the lower court’s decision to deny their bid to compel arbitration in London. First Mutual argues that the contract includes a “London Arbitration Clause” provision which should govern resolution. Infrassure has argued that an endorsement to the agreement entitled, “London Arbitration and Governing Law (UK and Bermuda Insurers Only)” limits the “London Arbitration Clause”. First Mutual has rebutted this arguing that the endorsement falls under the definition of a “title” which, pursuant to the “Titles Clause”, is merely for convenience and not intended to limit or affect the provisions to which they relate. And so on and so forth.

How this issue would play out in South Carolina courts remains to be seen. However, South Carolina does have a few unique statutory features which could lead to some interesting arguments. First, the South Carolina Uniform Arbitration Act mandates, “Notice that a contract is subject to arbitration pursuant to this chapter shall be typed in underlined capital letters, or rubber-stamped prominently, on the first page of the contract…” Failure to abide by these notice provisions eviscerates the compelling party’s ability to force arbitration. But, the parties to a contract are free to agree that South Carolina state law or a specific set of arbitration rules and procedures will apply to an arbitration agreement. Munoz v. Green Tree Fin. Corp., 343 S.C. 531, 539, 542 S.E.2d 360, 363 (2001). However, to the extent South Carolina state law may invalidate the arbitration agreement, that state law is preempted if the arbitration agreement is valid under The Federal Arbitration Act (“FAA”). Soil Remediation Co. v. Nu-Way Envtl., Inc., 323 S.C. 454, 459, 476 S.E.2d 149, 152 (1996). The Federal Arbitration Act (“FAA”) applies in federal or state court to any arbitration agreement regarding a transaction that in fact involves interstate commerce, regardless of whether or not the parties contemplated an interstate transaction. Munoz, 343 S.C. at 538, 542 S.E.2d at 363. Thus, a well drafted choice of law clause might be read by a Judge to allow a party to enforce an arbitration provision wherein the Notice provisions under the South Carolina Uniform Arbitration Act were not followed. Suffice it to say that all South Carolinian coverage attorneys would agree that we would prefer not to have a hurricane hit our home state but that if such an event were to occur, there would be a lot to litigate.

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Declaratory Judgment Action Filed in Northern District of California Raises Issues as to “Additional Insured” Claims Nationwide

In an interesting Declaratory Judgment Action filed in the California, Travelers Insurance is arguing that Centex Homes does not have the right to independent counsel to fight a construction defects suit under their additional insured policy.  Alternatively, should Centex refuse defense counsel selected by Travelers, Travelers’ duty to defend is extinguished.

On October 28, 2015, counsel for Travelers filed their DJ action captioned:  Travelers Property Casualty Company of America v. Centex Homes et al  in the Northern District of California.  According to the Complaint, Travelers provided policies to Centex’s subcontractor Engeo, Inc.  When the homeowner’s association of the condos at issue sent Centex a Notice of Commencement of Legal Proceedings alleging construction defects, Centex tendered that underlying action to Travelers under the Enego policies as an additional insured.  Travelers apparently appointed defense counsel and agreed to defend Centex in the action however, Centex refused to accept Travelers’ s appointed counsel.  Travelers argues now that this refusal ended Travelers duty to defend Centex.  At the heart of the issue appears to be whether Travelers has a right to control the defense as outlined in the underlying policy with Enego and whether Centex has the right to appoint counsel of its own choosing.

Unlike California (which has codified an insured’s right to independent counsel), South Carolina courts have not accepted the Cumis doctrine.  However, this will be an interesting case to follow for those carriers litigating in our state who have accepted a general contractor’s defense under an additional insured endorsement.  Should the California courts look favorably on Travelers, that might bode well for a carrier’s ability to control the defense of the general contractor when that defense is being provided as an additional insured on a subcontractor’s policy.

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South Carolina flood damage may have long term effect on insurance coverage industry

Senator Lindsay Graham was recently quoted estimating that the damage as a result of recent flooding could amount to $1 billion. These damages will likely include automobile, housing, business, and personal property claims.  This will be in addition to crop loss claims which are estimated at over $300 million according to the Southeast Farm Press. The South Carolina Department of Insurance has established a link on its webpage specific to the flooding to direct consumers as to how to make claims for property and auto damage. For more information click here. Based on the scope of damage being reported, as well as the various types of insurance policies available which may or may not include flood coverage, we anticipate that we will see a significant uptick in coverage litigation over the next year as these claims are made.

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