- A commercial general liability insurance policy does not cover property
damage to an insured’s own completed work under the plain language of a “your work”
exclusion, which applies to work included in the “products-completed operations hazard.” - A Miller-Shugart settlement agreement that does not allocate between claims
that are covered and not covered by the insurance policy is not per se unreasonable and
unenforceable against the insurer. - Determining the reasonableness of an unallocated Miller-Shugart settlement
agreement is a two-part inquiry that first examines the overall reasonableness of the
settlement and then determines how a reasonable person in the position of the insured
would have valued and allocated the covered and uncovered claims at the time of the
settlement.
Category: Coverage
The Long-Tail Liability Revolution: Creating The New World of Tort and Insurance Law by Kenneth S. Abraham, University of Virginia School of Law
Other Insurance and Allocation in Construction Defect Claims by Joseph M. Junfola, CPCU
Coverage Triggers for Construction Defect Claims by Joseph M. Junfola, CPCU
Montrose – The Gift that Keeps on Giving
501 EAST 51ST STREET, LONG-BEACH-10 LLC, Plaintiff and Appellant v. KOOKMIN BEST INSURANCE CO., LTD., et al., Defendants and Respondents. Filed 4/2/20; Certified for Publication 4/16/20 IN THE COURT OF APPEAL OF THE STATE OF CA SECOND APPELLATE DISTRICT Excerpts/Concepts by Junfola 4/17/20
KEY CONCEPTS
- Breach of covenant of good faith and fair dealing, aka bad faith
- Efficient proximate cause
- Genuine dispute doctrine
WHAT IS THIS CASE ABOUT?
- Defendants denied plaintiff’s claim for damages to its apartment complex caused by a ruptured underground water main.
- Experts hired by plaintiff and defendants provided conflicting reports on the cause of the damage.
- Plaintiff sued for bad faith, breach of contract, etc.
- Defendants argued: “genuine dispute doctrine” provided a complete defense to a finding of bad faith. Denial was based on expert opinions that the damage was caused by long-term settlement and earth movement, which was not a covered loss.
- Plaintiff appeals judgment following summary adjudication of plaintiff’s claim for breach of the covenant of good faith and fair dealing in favor of defendants.
- Ruling: there is no material dispute whether defendants denied the claim in good faith based on an expert report concluding the damage was not caused by the broken water main, and affirm the judgment.
Supreme Court of the State of New York Appellate Division: Second Judicial Department Northside Tower Realty, LLC, respondent, v Admiral Insurance Company, appellant, et al., defendant. 2/5/20 Excerpts/summary by Junfola 4/15/20
Admiral is obligated to defend and indemnify the plaintiff in Vachon v Northside Tower Realty, LLC.
Issues/Concepts: additional insured
- Northside sued, pursuant to a CGL policy issued by Admiral to nonparty Scorcia and Diana Associates, Inc.
- Northside demonstrated that it qualified for additional insured status under the policy Admiral issued to Scorcia.
- “‘When determining whether a third party is an additional insured a court must ascertain the intention of the parties to the policy, as determined from within the four corners of the policy itself’”
- The additional insured endorsement extended coverage to any person or organization Scorcia had agreed by written contract to name as an additional insured.
- A written contract between Northside and Scorcia provided that “[p]rior to the commencement of any of the Work, [Scorcia] shall purchase and maintain, at its own expense, the following insurances as will protect it and [Northside]” and lists CGL insurance as one of the types of insurance that Scorcia must procure and maintain.
- The natural and intended meaning of the phrase “as will protect it and [Northside]” is that Scorcia and Northside were both intended to enjoy the coverage specified in the contract.
- The intent and meaning of the phrase “as will protect it and [Northside]” becomes clear when juxtaposed with the language of another provision of the contract that references “Additional Insureds” under the policy. If Northside and Scorcia did not intend to confer additional insured status on Northside, the provision referencing “Additional Insureds” would be rendered meaningless or superfluous. A court should not read an agreement so as to render any term, phrase, or provision meaningless or superfluous.
IN THE COURT OF APPEALS OF MARYLAND PATRICK ROSSELLO v. ZURICH AMERICAN INSURANCE COMPANY (Maryland Casualty) Filed: April 3, 2020 EXCERPTS/SUMMARY BY JUNFOLA 4/9/20
Damages from a continuous bodily injury judgment must be allocated on a pro rata, time-on-the-risk basis across all insured and insurable periods triggered by the plaintiff’s injuries.
SUPREME COURT OF CALIFORNIA MONTROSE CHEMICAL CORPORATION OF CALIFORNIA, Petitioner, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; CANADIAN UNIVERSAL INSURANCE COMPANY, INC., et al., Real Parties in Interest. April 6, 2020 EXCERPTS/SUMMARY BY JUNFOLA 4 7 20
Reading the policy in light of principles of insurance law and the reasonable expectations of the parties, Montrose is entitled to access available coverage under any excess policy once it has exhausted directly underlying excess policies for the same policy period. A rule of vertical exhaustion is appropriate. The insured has access to any excess policy once it has exhausted other directly underlying excess policies with lower attachment points, but an insurer called upon to indemnify the insured’s loss may seek reimbursement from other insurers that issued policies covering relevant policy periods.
IT’S FUNDAMENTAL: THE DUTY TO DEFEND – The Anomaly of D.R. Horton-Tex., Ltd. v. Markel Inter’l Ins. Co.
It is well-established that the duty to defend is broader than the duty to indemnify. Often touted as being “axiomatic”, if there is a potential for coverage under the CGL policy, there is a duty to defend a suit. The duty to indemnify, on the other hand, is narrower because it depends on the insured proving that a loss is actually covered.
Is it possible to have a duty to indemnify but not a corresponding duty to defend? Is the duty to indemnify without a corresponding duty to defend an anomaly, or at least a bit illogical? Or is it perfectly logical in the context of an “eight-corners” state, like Texas?
The analysis of the duty to defend begins with an examination of the facts and the policy. It is necessary to determine, however, what facts an insurer must, or can, review when determining its defense obligation in a particular jurisdiction. Is the examination of the facts limited to those stated in the lawsuit or can information extrinsic to the lawsuit be consulted?
While it is universally accepted that the duty to defend is broader than the duty to indemnify, jurisdictions differ as to what information can be used to determine that duty. For instance, in an “eight-corners” state, the decision to defend must be based on a review of the policy and the lawsuit. Use of information outside of the complaint is generally not permitted. In other states, information extrinsic to the complaint must be considered. In some cases, this information can be used to defeat coverage as well as afford it. In other cases, the information can be used only to afford coverage.
So, while it appears that the defense duty is broad because only a potential for coverage need be established, an eight-corners state restricts the amount of information that can be examined. Does this restriction detract from the axiom that the duty to defend is broader than the duty to indemnify when only limited information can be used?
Common rationale for rejecting the eight-corners rule can be persuasive. First, the denial of a defense based on information restricted to the lawsuit would appear to be contrary to the broad duty to defend which is universally recognized; and, second, the decision to defend, or not, would be based on the pleadings which could be limited in its recitation of the facts and be subject to “the pleading strategies, whims, and vagaries of third party claimants to control the rights of parties to an insurance contract.”[1]
On March 21, 2013, a federal district court in Texas ruled that the duty to defend and duty to indemnify are distinct duties under Texas law and that one can exist without the other. Colony Ins. Co. v. Price, 2013 U.S. Dist. LEXIS 38952 (N.D. Tex. Mar. 21, 2013).
Citing the Supreme Court of Texas in D.R. Horton-Tex., Ltd. v. Markel Inter’l Ins. Co, 300 S.W.3d 740, 743, the Colony court stated that “although the duty to defend is ‘strictly circumscribed by the eight-corners doctrine, it is well settled that the facts actually established in the underlying suit control the duty to indemnify.’” Colony 13-14
Is the duty to defend truly broader than the duty to indemnify if determination of the duty to defend is “strictly circumscribed by the eight-corners doctrine?” To answer this question, it is helpful to distinguish the “potential v. actual” criterion for determining duties from any constraints on the information to which this criterion can be applied.
When the duty to defend must be determined from the lawsuit only and not from extrinsic information, it is possible that no duty to defend exists given the way the lawsuit is drafted. On the other hand, there may be a duty to indemnify because it can be determined based on information outside of the complaint.
In D.R. Horton-Texas, Ltd., the Court ruled that the defense and indemnity duties are independent of each other and that an indemnity duty can exist without a defense duty: “We hold that even if Markel has no duty to defend D.R. Horton, it may still have a duty to indemnify… That determination hinges on the facts established and the terms and conditions of the CGL policy.” D.R. Horton 744.
Hence, the anomaly…the duty to defend is broader than the duty to indemnify, but in an eight-corners jurisdiction, the information used to determine the duty to defend is limited. And while the duty to indemnify is narrower, the information used to determine that duty is broad. Since the duties exist independent of each other, it is possible to have a duty to indemnify without a duty to defend.
[1] Randy Maniloff and Jeffrey Stempel quoting from M. Mooney Corp. v. U.S. Fid. & Guar. Co., 618 A.2d 793, 797 (N.H. 1992), General Liability Insurance Coverage/Key Issues in Every State (New York, NY: Oxford University Press, Inc. 2011) 71.
