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.

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This unpublished Vermont federal District Court decision highlights a recent wrinkle in the application of the work product doctrine to documents generated during a liability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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The Bad Seed

Should insurers sow the seeds of extrinsic evidence to avoid the duty to defend?
Not if they don’t want to reap paying attorney’s fees and costs.

 

 

 

 

 

 

 

 

 

 

Insurers’ Argument Against Duty to Defend, Rooted in Extrinsic Evidence, Fails to Bear Fruit. District of Maine Rules That Insurers Must Defend Seed Grower Against Claim by Organic Farm.

Insurers and policyholders should take note of a recent federal district court case from Maine, which underscores that an insurer looking outside the complaint to negate its duty to defend may quickly find itself deep in the weeds.

In this seasonally-appropriate coverage case, two insurers contested their duty to defend an underlying case brought by an organic farm, alleging that the policyholder sold them contaminated seed. Full disclosure: seed from the policyholder is sprouting in my yard as I write. Continue reading

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Paying Attention to the Drafting of Insurance Provisions in Contracts Can Save Thousands in Litigation Costs

Cool drafting: Start additional insured coverage at dollar one.

A recent Texas decision makes clear that, when drafting contracts for clients, you cannot simply rely on the fact that your client has been added to a policy as an additional insured.

You need to make sure that the additional insured coverage starts at dollar one, without a deductible or self-insured retention applicable to your client. Continue reading

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No Harm, No Foul? Can an Insurer Avoid Multiple Damages for Bad Faith Under Chapter 93A by Paying Actual Damages After a Court Finds a Duty to Defend Breach?

Will insurers find an easy way to crush 93A bad faith claims against them?

Massachusetts Supreme Judicial Court will decide whether an insurer’s payment of all defense and clean-up costs with interest, after a summary judgment ruling declaring a breach of the duty to defend, eliminates a policyholder’s claim that the insurer’s failure to defend was an unfair trade practice.

On Monday, May 5, the Massachusetts Supreme Judicial Court stepped into the middle of a coverage and unfair trade practices case.  Halfway through the case, the trial court took the unusual step of reporting interlocutory rulings in the case to the Appeals Court, and the SJC took the even more unusual step of transferring the case from the Appeals Court on its own motion. 

My impression, based on the oral argument, is that the Court does not want to allow an insurer  to avoid potential multiple damages for bad faith by paying for defense and indemnification only after the policyholder has filed suit and obtained a declaration that it was owed a defense.  Rather, it appears the Court may conclude that the partial summary judgment and the subsequent payment are equivalent to a judgment for purposes of establishing “actual damages” subject to multiplication  under chapter 93A. Continue reading

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