In Landry Architecture, LLC v. Valley Forge Ins. Co., No. 09-3974, 2009 U.S. Dist. LEXIS 99109 (E.D. La. Oct. 23, 2009), the insured's claims for business income losses resulting from Hurricane Katrina and breach of the implied covenant of good faith and fair dealing did not survive the insurer's motion to dismiss on statute of limitations grounds.
The insured purchased a property policy from Valley Forge in August 2002. The policy was renewed on an annual basis thereafter. In June 2002, Valley Forge issued a notice that Landry's policy would no longer cover business income loss resulting from windstorm or hail. The insured renewed its policy in August 2004 and again in August 2005. Therefore, the policy in effect during Hurricane Katrina was in place almost four years before the insured filed suit.
Valley Forge tendered $32,741 in February 2009, but denied claims for business income loss. The insured filed suit on May 29, 2009. Valley Forge moved to dismiss based on a two year statute of limitations for Katrina-related claims. The district court noted that Hurricane Katrina struck August 29, 2005, at which point the prescriptive period began to run. The insured's claims, filed four years later, were therefore barred on the face of the complaint.
The insured raised various theories to argue the statute of limitations was tolled. The court disagreed with each. First, Valley Forge's investigation, adjustment, and negotiation of the claim did not toll the prescription period under Louisiana law. Second, the tender of $32,741 did not interrupt or toll the prescriptive period. Third, the insured's bad faith count could not survive even though it was not based upon a claim for breach of an insurance contract. Under a Louisiana statute, a litigant had to first have a valid, substantive underlying claim upon which insurance coverage was based in order to pursue a bad faith claim.
Interestingly, this third claim would probably survive a motion to dismiss on similar grounds in a Hawai`i court. Under Hawai`i law, an insurer can breach the implied covenant of good faith and fair dealing even if benefits are not due and owing under the policy. See The Best Place, Inc. v. Penn Am. Ins. Co.,82 Hawai`i 120, 133, 920 P.2d 334, 347 (1995)(quoting Rawlings v. Apodaca, 726 P.2d 565, 573 (Ariz. 1986)("The implied covenant is breached, whether the carrier pays the claim or not, when its conduct damages the very security which the insured sought to gain by buying insurance"); Wailua Assoc. v. The AETNA Cas. & Sur. Co., 27 F. Supp. 2d 1211, 1220 (D. Haw. 1998)(bad faith delay in appraising and investigating claim).
A default judgment against the insured should not deprive the injured party from pursuing the coverage litigation according to the Ninth Circuit's decision in Westchester Fire Ins. Co. v. Northwest Airlines, Inc., No. 07-17383, 2009 U.S. App. LEXIS 23718 (9th Cir. Oct. 28, 2009).
The insured provided maintenance services for Northwest Airlines at the McCarran International Airport in Las Vegas. The insured's liability policy required prompt notice of any possible claim be given the insurer.
In February 2002, an aircraft owned by Northwest was damaged when it rolled down an embankment. An employee of the insured was in the cockpit at the time of the incident. The insured did not report the incident to Westchester. A few months later, Northwest wrote and notifiedthe insured of Northwest's claim and requesting that the insured forward the correspondence to Westchester. The insured still did not notify Westchester.
In November 2003, Northwest directly notified Westchester of the accident and the claim against the insured. This was Westchester's first notice of the claim. Westchester commenced efforts to contact the insured and remind it of obligations under the policy. When the insured was finally contacted, it promised to send to Westchester documents related to the claim, but the documents were never provided.
Northwest filed suit in Minnesota and secured an default judgment against the insured for $10.6 million. Westchester issued a denial of coverage letter to the insured based on failure to cooperate and failure to notify Westchester of the Minnesota lawsuit.
Westchester then filed an action for declaratory judgment that the insured had breached its duties under the policy and the insurer had no duty to defend or indemnify. Northwest was allowed to intervene. Westchester made repeated attempts to depose the insured, but the insured never attended the scheduled depositions. Westchester moved to strike the insured's answer or compel the deposition. The court granted the motion to compel, but denied the motion to strike. When the insured still failed to attend scheduled depositions, however, the court granted the motion to strike and entered a default judgment against the insured under Rule 37 (d) for failure to respond to discovery. Subsequently, an order entered judgment in favor of Westchester and against all defendants, including Northwest.
Northwest appealed. Northwest argued it was entitled to defend against Westchester's declaratory judgment action in its own right and that the district court should not have entered a default judgment against all defendants based on the insured's failure to appear for a deposition.
In an opinion by Judge Clifton (of Hawai`i), the Ninth Circuit agreed. A default entered against an insured should not prevent an injured third party from proceeding on its own behalf. Northwest was not responsible for the insured's failure to appear for the deposition.
Westchester argued that Northwest could not prevail because the insured failed to give proper notice of the claim as required under the policy. Although this argument might eventually prevail, the default and subsequent judgment did not result from a determination that the insured's failure to notify the insurer about a potential claim relieved the insurer from liability. Northwest was entitled to present arguments to establish coverage and have them adjudicated on the merits.
Whether an assignee is required to respond to the insurer's invocation of an Examination Under Oath ("EUO") clause was at issue in Shaw v. State Farm Fire and Casualty Co., 2009 Fla. App. LEXIS 15930 (Fla. Ct. App. Oct. 23, 2009).
After the insured was involved in an auto accident, he received medical care from appellants. The insured assigned of his No-Fault benefits and cause of action to recover those benefits to appellants, the insured's health care providers.
When appellants presented a claim to State Farm for services rendered to the insured, State Farm requested that appellants appear for an EUO pursuant to the terms of the policy. The policy required "any person or organization making claim or seeking payment. . . must, at our option, submit to an examination under oath . . . ." State Farm suspected the claim submitted by appellants was fraudulent. Appellants then filed an action for declaratory relief seeking a judgment that they were not required under the policy provision to attend the EUO. The trial court entered a final summary judgment concluding appellants failed and refused to comply with the EUO provisions, which was a condition precedent to making a claim for policy benefits.
The appellate court affirmed. Prior Florida cases which did not require the assignee to attend an EUO were distinguishable based on the policy language. In one case, the EUO provision required "a person who suffers a bodily injury and makes a claim under the policy shall answer questions under oath." See Marlin Diagnostics v. State Farm Mut. Auto. Ins. Co., 897 So.2d 469 (Fla. Ct. App. 2004). Unlike the EUO in this case, the specific provision in Marlin required only the person who suffered the bodily injury to attend the EUO. In response to Marlin, State Farm amended its policies to require that "any person or organization making claim or seeking payment" be examined. Therefore, once the assignment was made, State Farm could no longer require the insured to attend the EUO, but could require the assignees of the policy to do so.
The following question was certified to the Florida Supreme Court: Whether the EUO provision in State Farm's policies is a condition precedent that must be complied with when a medical care provider takes an assignment of no-fault benefits and cause of action from the insured without specifically agreeing to be bound by that condition?
The Delaware Court of Chancery recently issued a detailed, scholarly opinion addressing anti-assignment provisions and the proper allocation for asbestos-related claims. See Viking Pump, Inc. v. Century Indemn. Co., 2009 Del. Ch. LEXIS 180 (Del. Ct. Ch. Oct. 14, 2009). Significantly, in determining the anti-assignment clauses did not bar assignment of the policies, the court departed from the reasoning utilized by the the Hawai`i Supreme Court in Del Monte Fresh Produce (Hawaii), Inc. v. Firemans' Fund Ins. Co., 117 Haw. 357, 183 P.3d 734 (2007).
Prior to the mid-1980's, both Warren Pumps and Viking Pump were independent companies that had been acquired by Houdaille Industries, Inc. Houdaille divested itself of Warren Pumps in 1985 through an asset sale to New Warren. Subsequently, Houdaille sold Viking Pump to New Viking in 1987.
The new companies, New Warren and New Viking, were sued for asbestos exposure claims by plaintiffs who asserted that they were injured by Viking and Warren's use of asbestos while those businesses were operated by Houdaille. Houdaille had three layers of insurance coverage: primary liability policies; umbrella excess policies; and additional layers of excess coverage. Liberty Mutual provided the first two layers of insurance, while the Excess Policies were provided by twenty separate insurers who issued forty-five separate policies. The policies all provided "occurrence-based" coverage, protecting Houdaille from liability for any injury for which Houdaille was liable that occurred during the policy period. This phase of the litigation addressed coverage of the new companies under the Excess Policies.
Anti-Assignment Provisions
The court first considered whether Houdaille agreed to assign its rights under the Excess Policies to New Warren and New Viking. An amendment to the asset sale agreement to New Warren specifically gave the buyer Houdaille's insurance rights under the Excess Policies. After a detailed analysis of the Assignment and Assumption Agreement and the Stock Purchase Agreement with the New Viking, the court determined the insurance rights to the Excess Policies for pre-existing liabilities were assigned to New Viking.
The Excess Insurers argued the assignments to New Warren and New Viking were void because the Excess Insurers did not consent. The policies typically provided, "assignment of interest under this policy shall not bind the insurer until its consent is endorsed hereon." The Excess Insurers relied on the California Supreme Court's holding in Henkel Corp. v. Hartford Accident and Indemn. Co., 129 Cal. Rptr. 2d 828 (Cal. 2003), to argue the anti-assignment provisions barred assignment of rights under the policies. The Hawai`i Supreme Court followed Henkel in Del Monte v. Firemans' Fund. In Henkel and Del Monte, the courts found the anti-assignment clauses barred a transfer of insurance claims because even though the underlying tort had already occurred, the insured loss had not been reduced to a fixed amount at the time of the assignment.
Nevertheless, applying New York law, the Delaware court determined the anti-assignment clauses were unenforceable. New York law did not permit anti-assignment clauses to bar the transfer of "post-loss claims," or claims for losses that had already happened. Once the insured-against loss occurred, there was no issue of an insurer having to insure against an additional risk.
Allocation of Coverage
Turning to the allocation issue, the insurers promoted the "pro rata" approach, while the insureds urged the "all sums" concept. The "pro rata" formula meant any given insurer, having agreed to insure Houdaille for a fixed period of time, was only responsible for some "pro rata" share of the liability the insured owed to an asbestos plaintiff who suffered harm due to exposure through several policy periods. In contrast, under the "all sums" approach, a policy would be responsible for all liability that flowed from a covered occurrence up to policy limits.
The court noted that New York courts look to the intent of the parties to resolve competing interpretations of policy language. The all sums approach was the one embraced by the Houdaille Policies. Reading the policies in their entirety, they included either a "non-cumulation provision" or a "prior insurance provision." Under these clauses, recovery under one policy reduced an insured's recovery from policies in effect in other periods from the same occurrence (e.g., continuous asbestos exposure), and an insurer had to pay for injuries caused by that occurrence that continued into other periods. The non-cumulation and prior insurance provisions could not sensibly be applied within a pro rata allocation scheme. Instead, the effect of these clauses was to keep an insured from "stacking" coverage so as to exceed the limits of individual policies.
We previously reviewed Pilkington N.A. Inc. v. Travelers Cas. & Sur. Co., 2009 U.S. Dist. LEXIS 67291 (N.D. Ohio July 27, 2009) [here], where the court determined there was coverage for a successor corporation under the predecessor's CGL policy despite the policies' anti-assignment provision. In the recent sequel, the court denied the insurers' motion for reconsideration. Pilkington N.A. Inc. v. Travelers Cas. & Sur. Co., No. 3:01CV7617, 2009 U.S. Dist. LEXIS 94322 (N.D. Ohio July 27, 2009).
By way of background, the predecessor corporation transferred all of its assets and liabilities to the successor corporation through a Transfer and Assumption Agreement. The successor demanded coverage for environmental damage that occurred prior to 1986 when the predecessor held policies with the insurers. In July 2009, the court held that the Transfer and Assumption Agreement transferred all of the choses in action to the successor, including the CGL policies, irregardless of the anti-assignment provisions.
Nothing in the insurers' motion for reconsideration indicated the court had made a clear error of law, overlooked binding precedent, or needed to look at newly developed evidence. Therefore, the insurers were not entitled to reconsideration of the prior decision.
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Can an insured who settles with the insurer pursuant to a mediation program later reject the settlement and seek additional coverage? The Fifth Circuit denied such relief to the insured in Wiley v. State Farm Fire and Cas. Co., No. 09-60191 (5th Cir. Oct. 9, 2009).
The insured's home was reduced to a slab by Hurricane Katrina. State Farm rejected his claim based on the water damage exclusion and anti-concurrent cause provision in the policy. The parties, however, entered the Mississippi Department of Insurance Hurricane Katrina Mediation Program, and in 2006 signed a settlement agreement. After being told by State Farm that his entire claim would be denied because his home had been destroyed by storm surge, the insured released all known claims in exchange for $80,235.
In a 2007 letter, State Farm offered an additional $26,798 in exchange for another release after an agreement between State Farm and the Mississippi Department of Insurance was reached. The insured rejected the second offer and brought suit to recover additional sums under his homeowner's policy. The insured claimed he had learned that wind, and not solely storm surge, had caused part of the damage to his home. Nevertheless, the district court granted summary judgment to State Farm.
The Fifth Circuit affirmed. The 2006 Settlement unambiguously represented a "full, complete and total final payment" for all insured damages that were known to the insured at the time of the settlement. The 2007 offer was not an admission by State Farm that the original payment was incorrect, but preserved the status quo established by the 2006 settlement. Further, the 2007 letter and additional payment offer was issued pursuant to negotiations between State Farm and state regulators, and the insured was not a party to the negotiations.
The insured Condominium Association had primary and excess coverage. See El-Ad Residences at Miramar Condo. Assoc. v. Mt. Hawley Ins. Co., 2009 U.S. Dist. LEXIS 92216 (S.D. Fla. Sept. 24, 2009). Significant property damage was caused by Hurricane Wilma. The insured alleged that three years after the hurricane, the insurers failed to adjust or settle claims for damages.
The insured filed suit seeking a declaratory judgment to determine the enforceability of the policies and the scope of the damage. Claims for breach of contract and the breach of the implied warranty of good faith and fair dealing were also included. The insurers moved to dismiss. The excess insurers aruged exhaustion of the primary insurance was a condition precedent to their liability. The court disagreed because it was not apparent from the face of the complaint and attached policies that it was beyond doubt that the insured could prove no set of facts in support of this claim.
Further, the insured was entitled to declaratory relief to determine whether it had a valid and enforceable right to coverage and the total damages sustained from Hurricane Wilma. Finally, although Florida recognized a cause of action for breach of implied warranty of good faith and fair dealing, here the claim was duplicitous of the breach of contract claim. Both relied on the same facts, i.e., that defendants failed to promptly determine the value of the insured's loss. Therefore, the breach of implied warranty claims were dismissed without prejudice.
When plaintiff's husband was killed in a helicopter accident while being transported to work in the Gulf of Mexico, the insurer paid $40,000 under the "Other Accident" provision of the accident insurance policy instead of $150,000 under the "Common-Carrier Accidents" provision. See Smith v. American Family Life Assurance Co. of Columbus, No. 08-31032 (5th Cir. Sept. 28, 2009).
The policy defined "Common-Carrier Accidents" as those "involving a vehicle . . . to transport passengers for a fee. Common-carrier vehicles are limited to airplanes, trains, buses, trolleys and boats that operate on a regularly scheduled basis between predetermined points or cities. A taxi is not a common-carrier vehicle." "Other Accidents" were those "not classified as Common Carrier Accidents . . . ."
The helicopter was owned and operated by Rotorcraft Leasing Company, LLC. Rotocraft conducted the doomed flight under a contract that allowed the decedent's employer to request chartered helicopter transport for its workers to offshore platforms in the Gulf as needed. The insurer refused to classify the accident as a "Common-Carrier Accident" because the helicopter was not operated on a "regularly scheduled basis between predetermined points or cities."
Plaintiff sued. She prevailed on summary judgment after the district court found the definition of "Common-Carrier Accidents" ambiguous. Because a "taxi" was not a "common-carrier vehicle," the list of covered vehicles was non-exhaustive. Further, the policy excluded a taxi but failed to make any mention of a helicopter. The district court, however, never addressed the policy's requirement that a "common-carrier vehicle" operate on a regularly scheduled basis between predetermined points or cities.
The Fifth Circuit reversed. The policy's "regularly scheduled" requirement was not ambiguous and plaintiff failed to satisfy it. Nor was there any evidence that the helicopter flight had been regularly scheduled between predetermined points or cities. The National Transportation Safety Board determined the flight was operated under an "On-demand Air Taxi" certificate and described the flight as "non-scheduled."
In Kreger v. General Steel Corp, No. 07-575, 2009 U.S. Dist. LEXIS 88074 (E.D. La. Sept. 23, 2009), the federal district court in Louisiana was placed in a difficult position of predicting whether a Colorado Supreme Court would find a duty to defend a claim for emotional distress.
In the underlying suit, plaintiff sought damages from the insured for fraud, unfair and deceptive trade practices, conspiracy, negligence, negligent misrepresentation, fraud in the inducement, breach of contract and detrimental reliance. The complaint alleged no physical harm, but included a claim for damages for "severe mental anguish and emotional damages." The plaintiff claimed in his deposition that the stress of the dispute caused him to lose sleep for eight months. The insurer denied a defense, contending none of the allegations triggered coverage under the CGL policy.
The Louisiana court first had to decide whether Louisiana or Colorado law controlled. Relying on Louisiana choice of law rules, it was determined this dispute between a Colorado insurer and Colorado insured over a policy issued in Colorado was properly determined by Colorado law.
Making its best judgment on how the Colorado Supreme Court would rule on whether the insurer must defend a claim for emotional distress, the Louisiana court noted Colorado sets a high bar for insurance companies seeking to avoid their duty to defend. Accordingly, the alleged negligence claim constituted an occurrence under the policy for purposes of determining whether there was a duty to defend. The alleged loss of sleep causing the physical manifestation of emotional distress was enough to trigger a duty to defend.