CM Report of Recent Decisions (2002v2)
2002 Volume 2
A summary of significant recent developments in the law focusing on substantive issues of litigation and featuring analysis and commentary on special points of interest.
Articles in this report
The issue in Haddick v. Valor Insurance, 2001 WL 1475209 (Illinois Supreme Court) is at what point in time does a liability insurer’s duty to settle arise? In a brief note at the conclusion of a previous column (Volume 4, 2001), I expressed concern because the Haddick Court had condoned a practice of the plaintiffs’ bar, arrogant in my opinion, placing a time limit upon the plaintiff’s demand for a liability insurer’s payment of policy limits in settlement of the plaintiff’s claim. The Court held that the duty may arise at a point in time when the injury plaintiff has not yet filed a lawsuit. Further, it may be breached notwithstanding that the insurer offered to pay the limits in settlement prior to trial.
California Court of Appeals Interprets Anti-Subrogation Doctrine
In a case of first impression, the California Court of Appeals recently reviewed the anti-subrogation doctrine in Truck Ins. Exchange v. County of Los Angeles, 95 Cal. App. 4th 13, 115 Cal. Rptr. 2d 179 (2002)1, holding that, under certain circumstances, an insurer may enforce equitable subrogation rights against its own insured. While the facts of this case are quite unique and the court clearly relied on several key contractual provisions between the subrogee and the defendant, the court clarified the anti-subrogation doctrine which prohibits an insurer from bringing a subrogation action against its own insured.
Court Finds Ambiguity in Dishonesty Exclusion in Inland Marine All Risk Policy
In Transcap Associates, Inc. v. CIGNA Ins. Co., No. 99-C-5292 (N.D. Ill.), the court found an ambiguity in a dishonesty exclusion in an inland marine all risk policy and as a result awarded summary judgment to the insured for two million dollars.
Courts of Appeal Split Over Whether Attorney's Fees Recoverable in Marine Insurance Contract Disputes
The Eleventh Circuit Court of Appeals created a definitive split in the circuits by awarding attorney’s fees against an insurer in a marine insurance contract dispute. All Underwriters v. Weisberg, 222 F.3d 1309, 2000 AMC 2926 (11th Cir.).
Illinois and Wisconsin Expand Damages Recoverable in Bad Faith Actions
In the words of the Illinois Appellate Court, Fifth District “[i]n this case, an insurance company took its small stake in the outcome of a personal-injury claim, $20,000 worth of liability coverage purchased by one of its customers, and transformed it into a multimillion-dollar judgment against the carrier.” O’Neill v. Gallant Ins. Co., 2002 Ill. App. LEXIS 311 (5th Dist.).
The Wisconsin Supreme Court holds that contract damages, such as policy proceeds for lost use of property and lost business, are recoverable in a first-party bad faith tort action, and that such damages may be sought even where the insureds’ breach of contract claim is barred by the statute of limitations. Jones v. Secura Ins. Co., 638 N.W.2d 575 (Wis. 2002).
The Washington Supreme Court holds that contamination of the insured’s property of which the insured is aware prior to the purchase of CGL insurance, but which results in liability to a third party subsequent to the purchase, is not an “occurrence” triggering coverage and is barred by the known loss principle. Overton v. Consolidated Ins. Co., 38 P.3d 322 (Wash. 2002).
Insurer Not Liable in Tort for Alleged Failure to Remediate Mold Problem
The Oregon appellate court, following Georgetown Realty v. The Home Ins. Co., 831 P.2d 7 (Ore. App. 1992), affirmed that an insured may only maintain a tort claim against an insurer in connection with its contractual performance where the insured alleges that: (1) the insurer’s conduct violated a standard of care apart from the contractual obligation; and (2) the independent standard of care arose from a “special relationship” between the parties. Strader v. Grange Mut. Ins. Co., 39 P.3d 903 (Ore. App. 2002).
Michigan Court of Appeals Finds Insurer Owes No Duty to Defend of Indemnify Insured for a Barroom Brawl
In Auto Club Group Ins. Co. v. Burchell, et al., 642 N.W.2d 406 (Mich.Ct.App.), the Michigan Court of Appeals held that the trial court erred in finding that insurance coverage existed for injuries sustained during a barroom brawl. The appellate court determined that the insured’s actions fell within the policy’s intentional acts exclusion, and thus the insurer had no duty to defend or indemnify the insured.
New York Holds Insured Bears Burden of Proving "Accident" or "Occurrence" Caused Damage and Adopts Pro Rata Allocation Method for Continuous Harm
Disagreeing with the Second Circuit’s reading of New York law, New York’s Court of Appeals holds that the insured bears the burden of proving that damage for which it seeks indemnification resulted from an “accident” or “occurrence” so as to fall within the scope of policy coverage. New York’s highest court has also ruled, as a matter of first impression, that in cases involving multiple successive insurers and continuous harm, each policy is responsible for a pro rata portion rather than the entire loss. Consolidated Edison Co. of New York, Inc. v. Allstate Ins. Co., et al., 2002 WL 827174 (N.Y.).
Seventh Circuit Chief Judge Richard Posner has written an opinion (joined in unanimously by other panel members) which relieves a manufacturer’s insurer of liability to its distributor’s insurer under its vendor’s endorsement. Hartford Fire Ins. Co. v. St. Paul Surplus Lines Ins. Co., 280 F.3d 744 (7th Cir.).
Tennessee Supreme Court Rules Insurers May Be Held Vicariously Liable for Abuses of Retained Counsel
In Givens v. Mullikin, 2002 Tenn. LEXIS 153 (Tenn. 2002), the Tennessee Supreme Court recognized that an insurance company may be held vicariously liable “for the tortious acts or omissions of an attorney hired to defend an insured, if the acts or actions were directed, commanded, or knowingly authorized by the insurer” (emphasis supplied). Although the Court based its holding on agency principals, dicta within the Givens opinion suggests the true concern is one of conflicts of interest which arise when insurers exert influence over counsel that have been retained to defend policyholders. In subsequent jurisprudence, the Court has relied on the Givens holding and upheld a direct action against an insurer for interference with a business relationship. Trau-Med of America, Inc. v. Allstate Ins. Co., 71 S.W.3d 691 (Tenn. 2002).
Three Recent Mold Cases Indicate Courts Are Adhering to Established Principles of Law Despite the Public's Growing Concerns About Mold
Public concern over the effects of mold is growing across the country. Newspapers, magazines, and television news programs are focusing on hazards that stem from mold on an increasingly frequent basis. Recent case law, however, indicates that courts which have ruled on mold cases are following well-established principles of insurance law, rather than responding to the public concern with unprecedented decisions. The following three cases illustrate courts’ responses to mold claims in Texas, Minnesota, and Louisiana.
U.S. Supreme Court to Consider Illinois Supreme Court's Ruling That Federal Boat Safety Act Preempts State Law
In Sprietsma v. Mercury Marine, 757 N.E.2d 75 (Ill. 2001), the survivor of a passenger who fell from a motor boat and was struck by the motor’s propeller blades sued Mercury Marine, the engine’s designer, claiming that the motor should have been equipped with propeller guards. Mercury Marine argued that the Federal Boat Safety Act (“FBSA”), which does not require the use of propeller guards, and Coast Guard regulations should govern liability standards in cases falling within admiralty jurisdiction to the exclusion of state law. The Illinois Supreme Court agreed, ruling in favor of Mercury Marine. The United States Supreme Court has granted certiorari.
