If It Is a “Knowing and Willful” Violation of c. 93A, It Is Not Covered

Covering damages when there was intent.

That is not a surprising holding, but the decision by federal district court Judge Stearns in American Guarantee & Liability Ins. Co. v. Lamond is one of the few to address coverage when there has been an underlying judgment under c. 93A, Massachusetts’ consumer protection act. Going forward, insurers are likely to widely cite the case’s two key holdings. First, where a jury has found “knowing and/or willful” conduct, an “intentional acts” exclusion will bar coverage for actual (single) damages. Second, attorneys fees awarded to a plaintiff under c.93A is not covered where the policy excludes “penalties” and “punitive damages.” Continue reading

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No Tender? No Problem, Says Massachusetts Trial Court, in a Case That May Help Insurers Decide What to Do When They Are Notified of a Default Against a Policyholder

Insurers may prefer proper notice of suit, but they face tough choices when it is lacking.

Superior Court finds no prejudice from policyholder’s failure to give insurer notice of suit, and rejects argument that policyholder was required to tender the suit for a defense.  

Insurer avoids bad faith damages, but is held liable for excess default judgment.

Insurers who learn of a default against a policyholder face a challenge.  It is often difficult to assess the issue of late notice, and in particular the question whether the insurer has been prejudiced, before the claim against the insured has played itself out, and other coverage defenses may also require further investigation. In these circumstances, an insurer may want to seek to remove the default, either through counsel retained for the insured under a reservation of rights, or through a motion to intervene. This case is unusual in that the window of opportunity to defend or settle the case closed without any consideration of these options, because the clerk who filed the plaintiffs’ notices of the default did not understand their significance. Continue reading

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Declaratory Judgments: A Useful Work-Around for Insurers Unfairly Paying to Defend Insureds

It’s not always easy to find a way to ask for fair payment that works.

A recent Connecticut Supreme Court decision illustrates a useful work-around for insurers wrongly stuck with the full tab for defending an insured in pending litigation.

Two more direct methods may not work in such cases. First, because the usual rule is that only a person who signs a contract, or whom the contract is directly intended to benefit, can sue for breach of that contract, insurers can’t sue other insurers who don’t pick up their share of the defense costs for breach of contract. Second, equitable contribution claims can require disclosure of legal bills that could prejudice the defense of the underlying suit, and may thus be too risky.

Filing for a declaratory judgment, however, can bypass these problems. In the Connecticut case, the insurer won a determination that another insurance company should have defended the insured alongside it, as well as a percentage of defense costs. Continue reading

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If a Tree Falls in a Forest, Is It an Occurrence?

Not If You Cut More Trees Than Called For in Your Contract. That’s Faulty Workmanship, Not an Accident, Massachusetts Appeals Court Rules; Business Risk Exclusions Also Bar Coverage.

Tricky questions come up when the subcontractor was only supposed
to cut down one tree, but comes back like this.

In light of a recent Appeals Court case, parties disputing construction defects coverage in Massachusetts, where such disputes have typically focused on the business risk exclusions, now need to pay more attention to the more fundamental question whether there was a covered occurrence. Whether the damage was caused by an accident, or by faulty workmanship, is a factual determination for which the case law does not provide clear guidance. Continue reading

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Discovery Shootout at the Sirloin Saloon: Insurers Need to Show That They Investigated to Defend the Insured – Not to Evaluate Coverage – to Get Work Product Protection, at Least in the 2d Circuit

You’re gonna have to prove that was for defense.

Insurer’s Investigation in Anticipation of Dram Shop Action Is Not Protected Work Product Because Insured Did Not Meet Its Burden to Show That Independent Adjuster’s Report Would Not Have Been Prepared in Essentially Similar Form Irrespective of the Anticipated Litigation, Says Vermont District Court.

This unpublished Vermont federal District Court decision highlights a recent wrinkle in the application of the work product doctrine to documents generated during a liability insurer’s investigation.  The court reasoned that because evaluating of coverage is an ordinary part of an insurer’s business, the work product doctrine does not protect insurers’ investigations performed to evaluate coverage.  And the burden is on the insurer to prove that an investigation is not to evaluate coverage, but to defend the insured.  Even though there was no suggestion that the insurer investigated for any other purpose than the insured’s defense in this case, the court held that the insurer did not meet that burden. Continue reading

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The Insurer’s Right to Select Counsel – Even After it Reserves Rights

A 5th Circuit case highlights regional differences in handling Conflict of Interest and Choice of Counsel issues.

Although we tend to limit our coverage to New England decisions, every once in a while a decision comes down that could have significant implications for corporate insureds.  The 5th  Circuit decision Graper v. Mid-Continent Casualty Co., which holds that a reservation of rights does not automatically create a disqualifying conflict of interest such that the insured may reject the insurer’s choice of counsel, is one such case.

In Graper, the insureds were sued for copyright infringement that apparently implicated their advertising injury coverage.  The insurer reserved rights, including based upon alleged intentional conduct and that the injury may not have occurred during the policy period.  Because of the reservation, the insured rejected the insurer’s choice of counsel.  The insurer insisted upon its right to choice of counsel notwithstanding the reservation of rights, and the 5th Circuit agreed.

In this case, the court held that the insured can only successfully object to the insurer’s chosen counsel if the facts that the underlying case will decide are the same facts that determine coverage.  The court, surprisingly, concluded that the facts determinative of the case would not be dispositive of the coverage issue and thus there was no conflict of interest.

Under current Massachusetts practice, the result would like be different, but  . . .  Given that almost all business litigation cases are (i) very expensive to litigate; (ii) invoke a reservation of rights, this decision, if it signals a trend, could affect corporate insureds.

The case is Graper v. Mid-Continent Casualty Co., 2014 WL 2870553 (C.A. 5 (Tex.)).

Steve SchreckingerAbout Steve: I specialize in Insurance Law and Litigation at Anderson & Kreiger.  

I love to hear from readers. Please call me at (617) 621-6537, or email me at sschreckinger@andersonkreiger.com with any questions or comments. 

 

Image Credit: Bruna Ferrara

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BAD FAITH CASE GOES FROM BAD TO WORSE: Multiple Damage Awards in 93A Cases Based on Unfair Settlement Practices Should NOT Subtract the Underlying Tort Judgment

Massachusetts Superior Court Increases Earlier Punitive Damage Award and Adds $1.2 Million in Attorney Fees.

In the typical (non-insurance) Chapter 93A case, the facts that give rise to the underlying tort or breach of contract judgment are the same as the facts giving rise to the Chapter  93A claim for unfair business practices. Thus, judges subtract the tort judgment, deemed duplicative, from the Chapter 93A multiple damages award. But a trial judge has ruled that a different calculus applies when the Chapter 93A case is based on unfair settlement practices that violate Chapter 176D. Continue reading

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Three Strikes, You’re Out: General Liability Coverage and Privacy Claims

Retailer Whiffs on Personal and Advertising Injury Coverage for ZIP Code Claims

Businesses seeking insurance coverage for privacy violation claims keep striking out.

Policyholders don’t have a great batting average lately for coverage claims under general liability policies where the underlying suit alleges mishandling of private customer information. OneBeacon America Ins. Co. v. Urban Outfitters, Inc., United States District Court for the District of Pennsylvania Civil Action Number 13-5269 (May 15, 2014), is yet another decision illustrating why many businesses are looking at separate cyber liability and privacy  coverage for these risks (see my earlier post on this issue here).

The Urban Outfitters case vividly illustrates the difficulty facing policyholders seeking to access shrinking general liability privacy coverage for statutory privacy claims.  If you can get past the publication requirement, and the plaintiffs frame their allegations in a way that fits the jurisdiction’s case law regarding what types of privacy violations are covered, you are likely to be faced with an exclusion barring coverage for statutory violations. Continue reading

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Our Two Cents on Cyber Insurance Coverage Was Published in MASS LAWYERS WEEKLY

Mass Lawyers Weekly published our letter to the editor on insurance for data breaches, “‘Cyberinsurance’ warrants new, careful consideration.” Steve Schreckinger, Tamara Wolfson and Harvey Nosowitz wrote in response to MLW‘s in-depth coverage of recent cyber breach-related litigation, “Lawyers jockey for business as data breaches reach a head.”

Here is the letter:

On top of the tricky compliance issues related to data breaches (as raised in “Lawyers jockey for business as data breaches reach a head” May 12), businesses also need to be aware of a rapidly changing insurance landscape for data breach claims. As risks of data breach grow, insurers are shrinking coverage — fast.

Businesses need to assess their exposure and current coverage. They should know that commercial general liability policies provide much less coverage for these claims than they have historically, with new standard policies often wholly excluding data breach injuries.

The answer for most businesses will be to purchase, separately, cyber-liability insurance. Costs and coverage for cyberinsurance vary widely. It is still far from being standardized in the way that other business policies are.

A thoughtful decision on which policy best covers a business’s exposure is crucial. As recent court cases have shown, not finding the right solution could cost an enterprise dearly.

Read our earlier client alert for a more in-depth take on this subject here.

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“If You Snooze, You Lose:” Even Under Occurrence Policies

Dealing with a hazardous waste site might leave you pooped, but don’t snooze through putting your insurer on notice, or your occurrence policy will become useless.

As I explored in a recent post, late notice is generally fatal under “claims-made” policies. But, as hazardous waste cases continue to bubble to the surface, it is clear that late notice can also be fatal under occurrence-based policies.

Environmental practitioners need to be attuned to the possibility of insurance coverage, so they can identify policies and give notice as soon as possible. All too often if policies are not readily available (and sometimes even if they are) the insured’s lawyer’s focus is on dealing with the government, the clean-up and the other responsible parties, not the insurance. The result is that insurance companies are put on notice years after the insured is aware there is a hazardous waste problem. Continue reading

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