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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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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“Internal Corporate Screw-Ups” No Excuse; 4th Circuit Denies Coverage after Insured Gives Late Notice to Carrier

Following its recent decision to deny coverage based on an insured’s failure to timely notify its carrier (see post dated March 7, 2016), the Fourth Circuit again came to the rescue of St. Paul Mercury Insurance Company, affirming the district court’s decision that found an insured’s own “internal corporate screw-ups” could not justify the failure to timely notify the carrier of a pending lawsuit.

Plaintiff Amiel Cueto, a disbarred lawyer and convicted felon, filed suit against American Bank Holdings, Inc. (“ABHI”) and ten other defendants alleging they fraudulently failed to fund his $8 million sale of real property. ABHI failed to timely answer the complaint, and Cueto was able to obtain a default judgment in the amount of $7.3M in compensatory damages, $66.5M in punitive damages and $24.6M in attorneys fees ($98M total!).

ABHI eventually was able to get this default judgment overturned, but it took $1.8M in defense costs to do it. ABHI sought reimbursement of these costs from its insurer St. Paul Mercury Insurance, who denied coverage based upon ABHI’s failure to timely notify it of the lawsuit.

The lawsuit was served on ABHI on June 18, 2008, through its registered agent CT Corporation. CT Corp transmitted the suit papers to ABHI’s office, addressed to its CFO, in accordance with its standing instruction. As of that time, the CFO had left ABHI. Another officer of ABHI came across the suit papers and forwarded them to its local counsel in July 2008; but that lawyer claimed he never received the documents.

ABHI did not act on the lawsuit until February 2009, when Cueto attempted to collect on the default judgment. ABHI then notified St. Paul for the first time about the lawsuit. St. Paul formally denied coverage on April 15, 2009, based on a lack of timely notice.

Prior to notifying St. Paul, ABHI had already hired attorneys to attempt to unwind the default judgment. Ultimately, those attorneys were successful, but were paid $1.8M, which ABHI argued should be reimbursed under its policy with St. Paul.

The Fourth Circuit held that “the defining characteristic of the notice obligation is notice given ‘as soon as practicable.’” Under the facts of this case, considering more than six months had passed since proper service, no one could credibly argue the “as soon as practicable” obligation had been achieved.

Under Maryland law, even if notice is not provided as soon as practicable, the insurer must still establish that the lack of notice resulted in “actual prejudice.”

The Court indicated that ABHI’s late notice denied the insurer “the opportunity to participate in the selection of counsel, to speak with counsel, … to discuss credible defense strategies, … to consider[] the possibility of settlement negotiations prior to the default judgment and prior to the expenditure of $1.8M incurred by ABHI to vacate it.” In other words, St. Paul was denied the opportunity to properly defend the case in a timely fashion.

When late notice precludes an insurer from exercising meaningful contractual rights provided to it by its policy, this amounts to actual prejudice suffered by the insurer.

As a result, due to those internal corporate screw-ups, ABHI was left paying $1.8M in attorneys fees to overturn a judgment in a lawsuit it deemed “frivolous, if not fraudulent.”

This case is another hard lesson for insureds: failing to follow the terms of an insurance policy can be an expensive mistake.

The case is St. Paul Mercury Ins. Co. v. American Bank Holdings, Inc., No. 15-559 (4th Cir. April 14, 2016). If you would like a copy of this case or would like to discuss it further, please do not hesitate to contact us.

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Fourth Circuit Denies Coverage when Developer Failed to Timely Notify Insurer

The Fourth Circuit recently ruled against the Insured in a construction defect action as to coverage when the Insured failed to timely notify its insurance companies of a potential claim. The court ruled the Insured was not covered under its two insurance policies (St. Paul Mercury Insurance Co. and National Surety Corp.) because it delayed giving notice to the insurance companies, depriving them of the opportunity to pursue claims against the subcontractors involved in the project.

THF Clarksburg Development Two LLC (“THF”) entered into two agreements in 2002 with Lowe’s Home Centers, Inc. (“Lowe’s”) for over $4,000,000 to develop a large track of land in Clarksburg, West Virginia, including the preparation of a building pad area where a Lowe’s store could be built. THF subcontracted with CTL Engineering (“CTL”) to build the pad and provide geotechnical engineering certification that would support the construction of the Lowe’s store. CLT delivered the certified building pad to THF on April 9, 2002 and THF delivered it to Lowe’s on April 15, 2002.
Lowe’s built the store, but during the one-year inspection Lowe’s discovered a settlement problem that would likely cause worsening foundation failure and continued wall movement. Lowe’s notified THF of the issue on April 20, 2003. THF then notified CLT of the problem and hired them again to determine the cause of the settlement. CLT investigated and determined the problem was unrelated to the construction of the building pad and was likely caused by an external force. THF sent the findings to Lowe’s on March 20, 2005.

After eight months without a response from Lowe’s, THF sent another letter saying it presumed Lowe’s lack of response meant Lowe’s was in agreement with the findings in the report. After almost two years had passed, Lowe’s sent a letter to THF stating the delay in response was due to its own engineers investigating the issues. Lowe’s engineers ultimately determined the soil failures were a latent defect to which THF’s extended warranty applied and subsequently put THF on notice of the claims. On April 26, 2012, over nine years since becoming aware of the issue, Lowe’s filed suit.
In June 2012, THF notified its insurers St. Paul Mercury Insurance Co. and National Surety Corp. about the lawsuit and two years later, in 2014, the Insurers moved for a declaratory judgment seeking a determination by the court regarding of the existence of coverage. The Northern District of West Virginia determined THF was not entitled to coverage due to its delay in notifying the insurers of the potential claims.

The court determined the delay in notice prejudiced the insurers as a matter of law because West Virginia’s 10-year statute of repose would bar the insurers from asserting claims against the subcontractors. The court upheld the district court’s ruling in favor of St. Paul Mercury Insurance Co. and National Surety Corp. and against THF.

This case is a hard lesson of which developers, builders, design professionals, and contractors should take note. Whenever there is the existence of even a potential claim, the insurance carrier must be notified as soon as possible to avoid prejudice to the carrier. Even if the claims appear to be unrelated to a construction entity’s scope of work, allowing the Insurer to have the relevant information to determine liability could have a huge impact on the Insured as in the instant case. Finally, this case reinforces the ever-present need by attorneys and insurance carriers to determine relevant dates during construction and delivery to avoid issues related to statute of limitation and statute of repose in construction defect cases.

This case is St. Paul Mercury Ins. Co. v. THF Clarksburg Dev. Two, LLC, No. 15-1453, 2016 WL 715007 (4th Cir. Feb. 23, 2016). Please contact us if you would like a copy of the case or have any questions.

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Brokers Beware: California Court Confirms Assignability of Claims against Insurance Broker

In a recent decision the California Court of Appeal, Fifth District, held that a claim against an insurance broker is assignable, following similar decisions in other states and affirming what now appears to be the majority rule.

Amarjit Singh owned a two-story building in Sonora, California. His negligence caused a fire which spread through his building and to a neighboring commercial property and restaurant, causing extensive damages to all three buildings. The commercial property was insured by AMCO Insurance Company, which paid its insured for their losses and then filed a subrogation action against Singh. The neighboring restaurant owner sued Singh directly for losses suffered.

Singh tendered these claims, as well as his first party claims, to “his” insurance company, only to have those claims denied because there was no policy in effect at the time of the fire. Singh asserted that though he had recently received a notice of non-renewal from his insurer, he had communicated with his broker, All Solutions Insurance Agency, and believed he was insured at the time of the fire.

Singh stipulated to judgments in excess of $550,000 for the damages allegedly suffered by his neighbor and AMCO, and then assigned them the rights to a claim against his insurance broker for failing to obtain proper insurance. The restaurant Owner and AMCO then brought suit against the broker, alleging negligent failure to obtain an insurance policy and breach of contract.
The broker filed for summary judgment and won, in part because the lower court determined that in this scenario, Singh could not assign his cause of action against the broker. But the appellate court reversed, refusing to treat assignments of causes of action against an insurance broker like legal malpractice claims (which are not assignable). The Court held that the relationship between a lawyer-client and a broker-client are not similar because communications with a broker are not confidential and the standardized nature of insurance policies means that the product delivered is not highly unique or personal. As such, the legal validity of the assignment was upheld and the broker’s motion for summary judgment denied.

Under the right scenario, this outcome gives a defendant party with limited resources and no insurance coverage a way out of what could otherwise be a life-altering legal judgment. Confessing a judgment and assigning rights to a corollary claim may be the only way to avoid payment of money out of pocket. This leaves the door open to an exaggerated confession and may force brokers to defend inflated damages claims.

The case is AMCO Insurance Company v. All Solutions Insurance, Court of Appeal, Fifth District, California. Please contact us if you would like a copy of the case or have any questions.

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Judge finds Advisory Jury was Ill-Advised, rules Heinz’s Insurer can Rescind $25M Policy.

In a dispute between H.J. Heinz Company and its insurer, Starr Surplus Lines Insurance, over coverage for an estimated $30M in business interruption costs, a Pennsylvania judge rejected a crucial finding by an advisory jury that the insurer waived its right to rescind the $25M policy. The ruling cleared the way for Starr to rescind the policy based on Heinz’s failure to disclose prior contamination incidents in the policy application, which both the advisory jury and judge agreed were material misrepresentations.

The dispute stemmed from an Accidental Contamination and Government Recall (ACI) insurance policy that Starr issued to Heinz in July 2014. The policy provided $25M in coverage after a $5M Self Insured Retention (SIR). One month after the policy was issued, Heinz made a claim for business interruption costs following the discovery of lead in the company’s baby cereal by Chinese authorities. Starr’s investigation uncovered several prior contamination incidents that were not disclosed on the application. After Starr pressed Heinz to answer why it had not disclosed the prior incidents, the company filed a declaratory judgment action. Starr responded with a counterclaim for rescission. Heinz asserted waiver as an affirmative defense, contending that Starr knew about the prior incidents, but sold the policy anyway. In the first phase of the lawsuit, Starr’s counterclaim was submitted to an advisory jury in December. The jury agreed with Starr that Heinz made material misrepresentations in the application, but sided with Heinz on the issue of waiver.

On February 1, U.S. District Court Judge Arthur J. Schwab issued an opinion accepting the jury’s finding that Heinz’s application contained material misrepresentations, but rejecting its finding that Starr waived its right to rescind the policy. Heinz’s primary waiver argument was that Starr should have been aware of its misrepresentations at the time the policy was issued based on information outside of the policy application, including information from a prior application for a different insurance policy and a newspaper article in the underwriting file that discussed the undisclosed incidents. Judge Schwab found that these outside materials, “without more, would not trigger a reasonably prudent insurer to follow-up further.” Starr’s underwriters, the judge wrote, “acted professionally and prudently, and they should not have been expected to look at an application for a different type of insurance submitted at some other time, or to independently verify the entries on Heinz’s loss history, or to determine whether, at some point in history, Heinz disclosed something about one of the listed losses that might have prompted further inquiry, in order to properly assess the risk.”

Although the action was commenced in Pennsylvania federal court, Judge Schwab previously ruled that the claims were governed by New York substantive law. The ruling is a win for insurers facing challenges to underwriting practices based on materials outside of the application. For policyholders, the case is a reminder that all relevant information should be disclosed in a policy application.

The case is captioned H.J. Heinz Co. v. Starr Surplus Lines Insurance Co., Case No 2:15-cv-00631-AJS, in the U.S. District Court for the Western District of Pennsylvania. Please contact us if you would like a copy of the case or have any questions.

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First Circuit, Souter Grant Coverage despite Exclusion

Former Associate Justice of the Supreme Court David Souter returned to his First Circuit roots and participated in an August 2015 ruling declining to uphold a policy exclusion where the injured person was employed by a contractor with no written contractual relationship to the insured. The court’s rationale was the term “contractor” is ambiguous and the ambiguity should be construed against the insurer.

In July 2009, homeowners hired general contractor Benchmark Construction Services, Inc. to renovate their home in Massachusetts. The homeowners hired architect Thomas Huth to design the renovation plans. Huth hired Sara Egan d/b/a Painted Design to do some decorative painting to one of the interior walls of the home. Egan sent her employee, Meghan Bailey, to the perform the painting work. Benchmark did not have a written contractual relationship with Huth (architect), Egan (painter), or Bailey (painter’s employee). On March 5, 2010, while Bailey was applying decorative paint, she fell from a ladder that was standing on top scaffolding allegedly erected by Benchmark.

Bailey sued Benchmark in the Massachusetts Superior Court, alleging she was injured in the fall, Benchmark owed her a duty of care, and Benchmark negligently erected and maintained the ladder and scaffolding. Benchmark sought defense from its insurer, United States Liability Insurance Company (“USLIC”) but USLIC determined Bailey’s claims were not covered under Benchmark’s insurance policy. According to USLIC, an endorsement to the policy specifically excluded Bailey’s injuries from coverage. Therefore, USLIC has no duty to defend or indemnify Benchmark against those claims.

USLIC won on summary judgment, with the district court finding the endorsement to be “unambiguous.” Bailey’s claims were not entitled to indemnity because of a policy endorsement excluding coverage for employees of contractors and subcontractors injured while performing services. The district court said the term “contractor,” which was undefined in the policy, meant “anyone with a contract” and coverage for Bailey’s claims was excluded as her employer had contracted to do painting work.

The panel, including Souter, disagreed with the district court. Finding that “reasonably intelligent people” could differ regarding the meaning. “Anyone with a contract is surely a reasonable definition of the word ‘contractor,’ as the district court found, but so is a more narrow definition focused on the contractual relationship of the injured party and the insured.”

The court determined when disputed terms are “susceptible to multiple reasonable definitions, then the court will apply a reasonable definition that confers coverage, if one exists.” Ultimately concluding USLIC had a duty to defend and indemnify Benchmark in the underlying negligence suit.

The holding could be problematic to insurers because the court granted coverage to an injured party employed by any contractor or subcontractor on the project despite no contractual privity with the insured.

The case is U.S. Liab. Ins. Co. v. Benchmark Const. Servs., Inc., 797 F.3d 116 (1st Cir. 2015). Please contact us if you would like a copy of the case or have any questions.

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Party Claims Coverage as Additional insured based on Oral Agreement with Primary Insured … and just may get it!

Will an oral agreement by your insured be enough to create coverage for a third party? The Seventh Circuit Court of Appeals says yes – in the right circumstances.

Vita Food Products, Inc. is claiming status as an “additional insured” under a policy issued by Cincinnati Insurance Company to Painters USA, Inc.

The policy language allowed Painters to add an “additional insured” to the policy by its own agreement (oral or written) so long as that agreement preceded the “occurrence” and that “a certificate of insurance showing that person or organization as an additional insured has been issued.”

Vita hired Painters to provide painting services on its premises; Vita alleges that prior to work commencing, Painters agreed orally to add Vita as an additional insured on the Cincinnati policy. Cincinnati had not yet issued the certificate of insurance naming Vita as an additional insured when one of Painter’s employees was injured in an accident on Vita’s premises. Cincinnati issued the certificate of insurance a day after the accident.

The policy did not require permission from Cincinnati to create the additional insured status, so long as the two insureds had a relationship that makes the addition of a second insured consistent with the nature and aims of the policy, as when the original insured is providing products or services to the additional insured—as was the case here. The policy only required that a certificate ultimately be issued, which it was.

The certificate of insurance states that it is “issued as a matter of information only,” “confers no rights upon the certificate holder” and “does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies.” The Court held that this language indicates that issuance of the certificate could not be a precondition to coverage, because it is just information and does not alter the policy.

The Court indicated that reference in the policy to the certificate of insurance was ambiguous; issuance of the certificate could be regarded as a prerequisite to coverage or it could be intended merely to memorialize the agreement by its insured.
Stating that an oral agreement is a valid contract, the Court held that if Vita can prove that there was an oral agreement with Painters prior to the accident, it is entitled to coverage under the Cincinnati policy.

This case reinforces the rights of additional insureds and reiterates a court’s willingness to interpret insurance contracts against the drafter and in favor of coverage if an ambiguity can be found.

The case is Cincinnati Insurance Co. v. Vita Food Products, Inc., No. 15-1405, United States Court of Appeals, Seventh Circuit. Please contact us if you would like a copy of the case or have any questions.

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Christmas Comes Early to Crum & Forster in East Bridge Lofts Action – $2 Million Coverage Ruling Reversed

After ruling against Crum & Forster in November 2015 and ordering the insurer to pay $2 million of a $55 million judgment to its insured, South Carolina District Court Judge Richard Gergel reversed his ruling, in an order on the insurer’s motion to reconsider.

In November, Judge Gergel considered competing summary judgment arguments relating to the insurer’s denial of coverage to its insured, Creekstone Builders, Inc., in an underlying construction defect action, which resulted in a $55 million verdict against Creekstone. Crum & Forster denied coverage based on an exclusion in Creekstone’s CGL policies for work performed in South Carolina – an exclusion about which Crum & Forster insisted Creekstone was repeatedly warned before entering the contracts.
While the Judge refused to grant summary judgment on whether Crum & Forster acted in bad faith in denying coverage based on the exclusion, the Judge did rule that Crum & Forster could not enforce the exclusion for Creekstone’s South Carolina operations. Judge Gergel reasoned that enforcing the exclusion for South Carolina operations against a company that was licensed only to do business in South Carolina, created illusory coverage and an ambiguity in the policies, which must be resolved in favor of the insured. Ultimately the Judge concluded that a jury must decide who should pay the $55 million judgment; however, Crum & Forster must pay the $2 million in coverage limits under the policies issued to Creekstone.

But last week, the Judge reconsidered his November ruling, and reversed his earlier decision on whether Crum & Forster can be held legally responsible for the $55 million state court verdict in part or in whole.

In reversing his decision and finding that the SOE in the policies at issue preclude coverage for Creekstone’s South Carolina operations, the Judge considered extrinsic evidence regarding the parties’ intention to exclude South Carolina operations from coverage, which was not considered prior to the November ruling against Crum & Forster. Based on his extensive review of the extrinsic evidence presented that Creekstone had knowledge of the SOE in the policies, the Judge held that “no reasonable jury could find that the parties intended the policies at issue to cover Creekstone SC’s South Carolina operations.”

Concluding that, as a matter of law, the coverage provided under the policies was not illusory and that the SOE in the policies at issue precluded coverage for Creekstone’s South Carolina operations, Judge Gergel granted summary judgment in favor of Crum & Forster as to Plaintiffs’ declaratory judgment claim, Plaintiffs’ breach of contract claims, Plaintiffs’ reformation claim, Plaintiffs’ bad faith denial of coverage claim, and Plaintiffs’ bad faith failure to settle claim.

This ruling comes as good news for those who seek to rely on extrinsic evidence to resolve a coverage dispute. While South Carolina, historically speaking, has been a state slow to embrace the “reasonable expectations” doctrine of interpreting insurance policies, rulings such as this one and similar state court decisions suggest that our Courts may be moving in that direction, at least when the policy at issue contains ambiguities that cannot be resolved by looking at the policy alone. See Bell v Progressive Direct Ins. Co., 407 S.C. 565, 757 S.E.2d 399 (2014), reh’g denied (May 7, 2014) (applying a modified version of the reasonable expectation doctrine in interpreting insurance contracts and explaining the Court “will look to the reasonable expectations of the insured at the time when he entered into the contract if the terms thereof are ambiguous or conflicting, or if the policy contains a hidden trap or pitfall, or if the fine print takes away that which has been given by the large print.”).

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Insurer Owes Builder Partial Coverage for $55 Million Judgment.

An insurer who denied coverage in a case which resulted in a $55 million judgment found itself on the losing end of an order in the coverage action related to that judgment. Last week South Carolina District Court Judge Richard Gergel found against Crum & Forster, ordering it to pay $2 million of a $55 million judgment to its insured, Creekstone Builders, Inc., a Texas entity. Judge Gergel also ruled that a jury will be allowed to decide whether Creekstone’s insurer is liable for bad faith. Creekstone SC I, LLC a South Carolina company, performed a renovation to the East Bridge Lofts between 2004 and 2006. Between June 2006 and August 2010 Crum & Forster issued CGL policies to Creekstone Builders and Creekstone SC. However the policies included an exclusion for work in South Carolina.

In the underlying action, East Bridge Lofts POA filed suit against Creekstone SC in Charleston County Circuit Court. When the case went to trial the jury found developers East Bridge Lofts LLC and the Creekstone entities guilty of negligence, breach of warranty, breach of fiduciary duty, unfair trade practices and reckless negligence claims. According to federal filings, Creekstone’s carrier, Crum & Forster, did not participate in the underlying suit other than to attend mediation where it is alleged that they failed to make a meaningful offer. Following the $55 million judgment East Bridge and both Creekstone entities brought an action in federal court for bad faith and breach of contract against Crum & Forster. A subsequent pleading added a claim for reformation of the policies. Monday’s ruling reflects the Court’s answer to cross motions for summary judgment.

In the coverage action Crum & Forster argued that Creekstone was repeatedly warned of the exclusion for work in South Carolina and that Creekstone could have done work in other states which would have been covered under the policy. Further, Crum & Forster argued that Creekstone SC was dormant when the policies were issued. Judge Gergel found that excluding coverage for work in South Carolina while insuring a South Carolina corporation which was licensed only to do business in South Carolina created an ambiguity which must be resolved in favor if the insured, thereby ordering Crum & Forster to pay its $2 million in policy limits. But the case is not over. The Judge also ruled that the outstanding Bad Faith claims are issues of fact for the jury. Thus, whether Crum & Forster will ultimately be held responsible for the entire $55 million remains to be seen.

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