Effects of health care legislation for insurers will be bad
For a sober analysis of the likely effects of the health care legislation, including the costs and mandates that will work to squeeze insurers, see this article.
One occurrence under cause theory for accident with three vehicles
In Auto-Owners Ins. Co. v. Munroe, (7th Cir., no. 09-3427, 7-22-10), the court held that a $1 million policy limit applied even though three insured vehicles caused the accident.
Munroe sufferred serious injury on November 6, 2006, when he tried to pass one truck, struck the rear of a second truck, then collided head on with a third truck. the three trucks, traveling in a convoy, were owned by Wayne Wilkens Trucking. Wilkins and the trucks were insured by Auto-Owners, which provided coverage of $1 million per occurrence and aggregate.
The Munroes sued, alleging negligence against each driver and Wilkens. They settled for policy limits (less a PD payment), with their claim that policy limits were more than $1 million left for a declaratory action. The district court granted Auto-Owners summary judgment in that action, finding that coverage was limited to $1 million per occurrence.
On appeal the Munroes argued that the policy provided $3 million in coverage (three occurrences or $1 million per vehicle). The court rejected the claim for $1 million per vehicle because the policy limited coverage to $1 million regardless of how many persons a claim was made against (severability clause) or the number of vehicles scheduled or involved in the accident (combined limit of liability provision).
Regarding the number of occurrences, the court, citing Nicor, Inc. v. Associated Elec. & Gas, 223 Ill.2d 407 (2006), noted that Illinois applies the cause theory, which presupposes multiple discrete events and asks whether the events had a common cause. In finding only one occurrence, the court distinguished Illinois Nat'l Ins. Co. v. Szczepkowicz, 542 N.E.2d 90 (1989), where the insured truck was struck by a vehicle, moved forward to free a lane, and was struck by a second vehicle five minutes later. Because the two collisions there were not the result of a "single force, nor an unbroken or uninterupted continuum that...caused multiple injuries," there were seperate causes and thus seperate applicable insurance limits.
Here, there was a "single force" and thus a single continuous occurrence. Even if there were seperate causes, then, because they occurred after the single force was set in motion, they were not intervening causes.
In Addison Insurance Co v. Fay, 232 Ill.2d 446 (2009), the court applied a "space and time" test to determine the number of occurrences, stating that it applied to omissions as opposed to affirmative acts of negligence. It seems that without stating as much the Munroe court applied the "space and time" test to "affirmative acts of negligence" as a "continuous occurrence" is simply one lacking separation in space or time.
Worst Supreme Court decision since Plessy v. Ferguson.
The Volokh Conspiracy has a good discussion of Kelo five years on. In that case, the U.S. Supreme Court, in a 5-4 decision, held that the government can condemn (take) private property for "economic development." In other words, whenever it feels like it.
Bad faith claim required to support discovery regarding similar claims.
The Insurance Claims and Bad Faith blog discusses a Florida district court case finding that evidence of how the insurer handled similar claims is discoverable only where bad faith is alleged. The case at issue, DeSoto Health & Rehab, LLC v. Philadelphia Indem. Ins. Co., alleged only breach of contract.
Washington State bad faith law is bad, really bad
The National Insurance Law Forum discusses a Washington supreme court case holding that an insurer that denied a defense under an assault and battery exclusion for post-assault negligence acted in bad faith by relying upon a split in authority to do so.
No coverage where underlying complaint specified an unscheduled location.
Lorenzo v. Capitol Indemnity Corp., (No. 1-09-1862, First Dist., May 21, 2010), is at first blush the flipside of Chandler v. Doherty, 299 Ill.App.3d 797 (1998). In Chandler (where I represented the carrier), the court found a duty to defend for a car accident even though the carrier had rejected coverage for the involved car (while covering the insured's other car) because the underlying complaint alleged only that the insured was operating a "motor vehicle." In effect, the court found a duty to defend because the complaint did not affirmatively preclude coverage.
In Lorenzo, the policy scheduled 15 of the insured's locations, but the tort complaint identified an unscheduled location as the site of the occurrence, food poisoning. The insured argued that the tort complaint's general allegations that the insured did "process, prepare, distribute, sell and/or otherwise place into the stream of commerce certain foods [including the offending food] for purchase by the consumer public" potentially implicated one or more of the scheduled locations as the policy covered injury arising out of the "ownership, maintenance, or use of the premises shown in the schedule, and operations necessary or incidental to those premises...."
However, the court affirmed a finding of no duty to defend because the complaint specified the location where the food poisoning occurred. In doing so, the court analogized to a hypothetical Chandler complaint that identified the car at issue, under which the court suggested there would have been no coverage.
That is correct but inapposite. Per Chandler, and considering the general allegations at issue in Lorenzo, the complaint there did not affirmatively preclude coverage. What the Lorenzo court actually held is that a complaint's specific allegations precluding coverage will trump general allegations that could otherwise have raised a potential for coverage.
Arbitrators may not award fees under 215 ILCS 5/155
In Amerisure Mutual Insurance Company v. Global Reinsurance Corporation of America, No. 08 CH 42242 (Ill. App. Ct. 1st Dist. Mar. 15, 2010), the court considered whether an arbitration panel exceeded its authority in awarding attorneys fees. Amerisure and Global had entered into an agreement in which Global agreed to reinsure Amerisure’s outstanding umbrella policies. In May 2006, Amerisure billed Global for a $1.5 million reinsurance claim. Global did not pay, and Amerisure demanded arbitration pursuant to the agreement. In its arbitration filings Amerisure sought attorneys fees pursuant to Section 155. On November 10, 2008, the arbitration panel awarded Amerisure the reinsurance amount plus attorneys fees. When Amerisure moved to confirm the award, Global filed an answer and counterapplication seeking to reject the award of attorneys fees. Global also filed a motion for summary judgment. The Circuit Court denied Global’s motion, finding that the arbitration panel did not exceed its authority and that no gross error of law appeared on the face of the award.
On appeal, the court noted “Rule 43(d)(2) of the AAA provides three bases upon which an arbitration panel may award attorneys fees: (1) ‘if all parties have requested such an award’; (2) if ‘it is authorized by law’; or (3) if it is authorized by ‘their arbitration agreement.’”
The only potential basis here was if Illinois law authorizes an award of attorneys fees. Under Illinois law, however, section 155 does not authorize arbitrators to award attorneys fees. Accordingly, the court vacated the fee award. The court did not address whether Section 155 can apply to reinsurance contracts generally “because, even assuming, arguendo, it does, the arbitrators did not have authority to award attorney fees pursuant to the statute.”
Experts cannot opine on coverage.
How many times have you heard an expert testify about coverage in a deposition or try to do so at trial? How many times has it been your expert?
Scottsdale Insurance Co. v. City of Waukegan, No. 07 C 1990, at *1 (N.D. Ill. Feb. 9, 2010), reminds us that this is improper. There the City of Waukegan filed sought coverage under various policies for a $9 million jury verdict from a 42 U.S.C. § 1983 action against a police officer. At issue were motions to strike Waukegan’s insurance expert’s report and to bar the expert’s testimony.
The court, citing Federal Rule of Evidence 702 and Daubert, noted that to be admissible expert testimony must come from one qualified as an expert due to knowledge, training, skill, experience or education; must use a methodology or underlying reasoning that is scientifically reliable; and must be relevant in that it assists the jury in understanding the evidence or in determining a fact in issue.
Relevance was at issue in Scottsdale. The court noted in general that while experts may provide opinions as to ultimate facts they may not testify "as to legal conclusions that will determine the outcome of the case." Because the interpretation of an insurance policy is a question of law, the expert's opinions were doomed.
More specifically, the court barred the following opinions because they would “usurp the Court’s role in interpreting the language contained in the PPL endorsement and the LEL . . .”:
- While the Interstate insuring agreement appears to cover only occurrences during the policy period, the insuring agreement is modified by the Police Professional Liability Form Endorsement (“PPL endorsement”).
- The PPL endorsement “follows form” over the American Safety Law Enforcement Liability coverage (“LEL”), which is not limited to occurrences during the policy Period.
The court barred the following opinions because they were conclusions regarding duties imposed by law:
- If American Safety had settled with Dominguez for its policy limits prior to or during trial, Interstate would have a duty to assume the defense of the City of Waukegan based on the policy definition of “loss.”
- Interstate did not fulfill its duties to Waukegan after receipt of notice of the Dominguez claim up to and after the trial. Although Interstate had not duty to defend until the underlying American Safety policy was exhausted, Interstate had a duty to interpret its own policy correctly and not attempt to mislead the City of Waukegan by failing to address the PPL endorsement in Terry Donahoe’s denial letter dated October 20, 2006.
The court barred the following opinions because they told the jury what result to reach:
- The arrest of Dominguez; the trial of Dominguez; the requirement that Dominguez register as a sex offender; Dominguez’s arrest and conviction for attempted failure to register as a sex offender; Dominguez’s arrest by the U.S Immigration and Naturalization Service; the alleged malicious prosecution and due process violations were each bodily injuries, personal injuries, occurrences or triggering events that would have engaged coverage under the Law Enforcement Liability (“LEL”) insurance policies in effect at the time of the events.
- The Coregis primary polices provide coverage to Waukegan and its police officers with respect to the Dominguez claim and the jury verdict resulting therefrom.
- The Coregis umbrella polices provide coverage to Waukegan and its police officers with respect to the Dominguez claim to the extent that “occurrences” qualifying for coverage on the corresponding Coregis underlying polices also qualified as covered “occurrences” on one or more umbrellas.
- Coregis did not fulfill its duties under its policies after receipt of notice of the Dominguez claim up to and after trial. Coregis denied coverage unjustifiably, may not have policy defenses with respect to their exposure regarding the Dominguez claim, violated Illinois law with respect to claim handling as a consequence, it is reasonable to conclude that Coregis acted in a vexatious and unreasonable manner in the way they addressed the Dominguez claim.
- Based on the reasons provided above and the import of the Employers Insurance of Wausau v. Ehlco Liquidating Trust, et al. case in Illinois, because of Coregis’ failure to deny coverage on a timely basis, it likely has no policy defenses because it is estopped for raising them.
The court struck eighteen more opinions because they constituted legal conclusions.
What use is an insurance expert if he can't testify as to coverage? Not much in my view, which is why I rarely use them. Scottsdale brings home the point, sometimes forgotten by courts in my experience, that experts simply cannot testify as to coverage; only the court can.
Court offers primer on coverage for construction defects
In CMK Dev. Corp. v. West Bend Mut. Ins. Co., No. 1-08-1155 (1st Dist., 10-30-09), the court applied the standard but at times unclear rule that a CGL policy does not cover defective workmanship but does provide coverage when the defective workmanship results in damage to the property of others. I say standard because countless opinions state the rule; I say unclear because it is often difficult to determine whether damage to "the property of others" is alleged.
In reversing judgment on the pleadings for the insured, the court helpfully offered lists of cases and facts where damage to the property of others was and was not alleged. In CMK, the insurer- developer built a home for a couple but failed to remedy 58 defects set forth in a punch list. In the developer's declaratory action against West Bend, the court assessed damages of $85,906.60, comprising the arbitration settlement with the couple and attorney fees.
The insured argued 1. that scratches to a toilet bowl and tub could have happened after closing, such that the "property" then belonged to "others"; 2. that the insured's defective work on a nearby home caused water runoff that damaged the home at issue such that the home at issue was "other property"; and 3. that the couple may have installed a damaged cork floor such that, again, damage to the property of others was alleged.
The appellate court rejected the first argument, finding no reason to distinguish between damage done the day after or the day before closing, citing Indiana Ins. Co. v. Hydra Corp., 245 Ill.App.3d 926 (1993), where the court held that post-construction cracks in a floor did not trigger coverage. The court quickly dismissed the insured's other arguments finding, as to argument 2, that both homes were the insured's work covered under the same policy, and that argument 3 was pure speculation.
More interesting is the court's dismissal of Country Mut. Ins. Co. v. Carr, 372 Ill.App.3d 335 (2007), because there the homeowners alleged negligence against the insured builder. Carr involved damage to a home's walls caused by improper backfilling by a subcontractor. The Carr court itself made this distinction in finding coverage. However, the labels a plaintiff uses in a complaint do not control, the allegations do. It is unlikely that the CMK court would have found coverage had the purchasers alleged that CMK caused the defects negligently in addition to breaching its contract. If Carr is correct, there will always be coverage for defective work so long as the plaintiff alleges negligence.
One could distinguish Carr on the basis that a subcontractor caused the damage and the policy's "your work" exclusion had an exception for a sub's work. This, however, begs the question. A court must find coverage, "property damage" caused by an "occurrence," before looking to an exclusion. If there is coverage, there must be allegations of damage to the property of another such that the exclusion would not matter. If there is no coverage, again, the exclusion is irrelevant, and coverage cannot be triggered by an exception to an exclusion.
In other words, the "your work" exclusion is worthless - if it would apply there was no coverage to begin with, and if there is coverage it cannot preclude coverage. Thus, Carr was wrongly decided.
Judge Arnold saves paper, fosters organization
In the October 23 issue of the Daily Law Bulletin, Stan Nardoni discusses Judge Nancy Arnold's standing order, two provisions of which affect declaratory actions involving insurance.
First, "[t}he insurer should file an additional copy of the relevant insurance policy that is Bates numbered. All motions should refer to the Bates numbered pages of the policy." This is a good idea because, as Nardoni notes, policies are rarely paginated in a way that allows for easy citation.
Second, "[p]arties are exhorted NOT to attach copies of the complaint, policy and underlying complaint to the motions they file, but to instead simply provide the items to chambers as courtesy copies." This is an excellent idea that will keep court files and appellate records more manageable.
It is to be hoped that other chancery judges adopt these common sense procedures.
