Reinsurance Law Blog

Failure to accept checks tendered is not bad faith

Jody Nathan — Fri, 17 May 2013 09:23:00 -0600

In Berendes v. Geico Casualty Co., the 10^th Circuit (Utah) (unpublished) affirmed summary judgment in favor of the defendant insurance company on a bad faith claim. Plaintiff said the insurance company was in bad faith because there was no offer of policy limits within 30 days. Plaintiff sued the tortfeasor, got an excess judgment, and went after the insurance company. But the insurer HAD offered policy limits, which were rejected by plaintiff’s counsel as conditional, since the insurer asked for a waiver of subrogation from Plaintiffs insurer and requested information on the hospital lien. Rather, it was the plaintiff’s rejection of the settlement checks which caused undue delay; and those actions did not amount to bad faith by the insurer.

The assignability of tort claims was raised; and the court also found there was no duty of good faith to a third party claimant.

Equitable Contribution Due Between Primary and Excess Insurers Missouri

Jody Nathan — Fri, 03 May 2013 15:18:08 -0600

Appellant and respondent, both insurers, agreed to a joint defense but respondent refused to participate. Equitable contribution is due when one insurer pays part of another insurer's share on the same loss. It may be due between primary and excess coverage insurers. Remedy for unjust enrichment is subrogation. On appellant's equitable subrogation claim, respondent prevailed by summary judgment. But appellant's evidence of respondent's bad faith, and settlement on terms favorable to both appellant and respondent, raised genuine issues as to material facts. Amount of damages and percentage of fault are issues of fact. Genuine issues also remained as to respondent's duty to defend. Missouri Court of Appeals.
Missouri Public Entity Risk Management Fund vs. American Casualty Company of Reading, Pennsylvania ;

Wrongful Repo No Accident

Jody Nathan — Fri, 03 May 2013 14:22:17 -0600

In Allen v. Continental Western, the issue was whether the insurance company had a duty to defend a claim alleging a wrongful repossession by the insured. The insured had repossessed Whipple's van twice, apparently to get her to pay back a loan. In Missouri, an insurer's duty to defend is broader than that of the duty to indemnify."The duty to defend arises whenever there is a potential or possible liability to pay based on the facts at the outset of the case and is not dependent on the probable liability to pay based on the facts ascertained through trial." In determining an insurer's duty to defend a suit against its insured, the court compares the language of the insurance policy with the allegations asserted in the plaintiff's petition. But those facts which are known or ascertainable also control an insurer's duty to defend.

First, the court found the tort of conversion was not an “occurrence” (or accident) as required by the policy, because it was an intentional rather than an accidental act. Next, the court dismissed the idea that one could plead within coverage by claiming an intentional act was also negligent. The pleading reveals not a hint of negligent conduct.

Finally, the policy did not apply to "'[b]odily injury' or 'property damage' expected or intended from the standpoint of the insured." Since the insureds consciously acted to repossess Whipple’s van with both the intention, and expectation that Whipple would not be able to use it, there could be no coverage.

Note that Missouri has not adopted notice pleading, (like the federal rules) and does not permit inconsistent claims. A pleading that contains inconsistent theories within the same count is subject to dismissal. Thus, unlike many state courts, one cannot plead inconsistently in Missouri.

Omitted endorsement still applied to preclude coverage, 8th Cir

Jody Nathan — Wed, 01 May 2013 11:24:28 -0600

In Smith Flooring v. Pennsylvania Lumbermens, the insured had a policy with Pennsylvania Lumbermens (PennL) for 5 years. An endorsement excluding coverage for a building was omitted from the policies issued for the last two years. Of course, in the last year, the building collapsed; Smith Flooring made a claim and the insurer denied it. When Smith Flooring sued, PennL asked that the policy be reformed to exclude the collapsed building, that the insurance policy did not accurately set forth the agreement of the parties. When the jury found for Smith Flooring on all claims, the court decided that the reformation claim finding was advisory only. The trial court then substituted its judgment for the jury's and found for PennL. The Eighth Circuit affirmed.

While the trial court erred in finding that there were no issues common to the parties' legal and equitable claims, there was no need to reverse or retry the case. Smith Flooring had a Seventh Amendment right to a trial by jury on the common issue of what the terms of the intended contract were. The district court also erred in treating the jury's verdict as merely advisory under Federal Rule of Civil Procedure 39 insofar as this issue is concerned. But there was insufficient evidence to find in Smith Flooring's favor as all the evidence showed the "clear intent of the parties originally was to exclude the Pine Warehouse from coverage. The inadvertent omission of an exclusion endorsement created only the appearance of coverage; it did not provide proof of a request for coverage or of payment therefor. The provisions of the written policy sans endorsement did not reflect the agreement of the parties that there was no coverage for the Pine Warehouse in January 2009."

One wonders if the court would have found coverage if the omitted endorsement enlarged rather than limited coverage.

Washington says no to recoupment by insurer

Jody Nathan — Wed, 24 Apr 2013 12:51:01 -0600

As reported by the Washington Insurance Law Letter, the Supreme Court of Washington refused to permit an insurer to recoup defense costs where the insurer had defended its insured under a Allowing reimbursement is not consistent with Washington cases regarding the duty to defend, which have squarely placed the risk of the defense decision on the insurer’s shoulders. In other words, since insurers have the right to control the defense, the risk of choosing badly is put on the insurance company. . . i.e., with great power comes great responsibility.

National Surety v. Imunex

Vexatious refusal to pay shown, Missouri law

Jody Nathan — Wed, 17 Apr 2013 15:38:56 -0600

In Merseal v. Farm Bureau, the Merseals filed for bankruptcy and valued the property in their home at $600. Six months later, the house was destroyed in a fire, and the Merseals made a personal property claim for $150,000 dollars.

Farm Bureau denied the claim because the Merseals intentionally misrepresented the extent and amount of their personal property. Farm Bureau based its belief on the discrepancy between the value of the personal property stated in the Merseals’ bankruptcy filing and the insurance claim. The Merseals sued alleging breach of contract and vexatious refusal to pay. A jury found in favor of the Merseals, and the trial court entered judgment according to the jury's verdict. The Merseals were awarded $134,362 on the policy, $13,586 for vexatious refusal to pay, and $67,000 in attorney's fees. The appellate court affirmed.

Misrepresentations must be intentional to avoid the policy. The method of valuation for bankruptcy is different from the method for valuation for insurance claims. Further, it was claimed the mistakes were made in the bankruptcy filing, and not in the insurance claim. The vexatious refusal claim was also upheld. Farm Bureau placed the limits on the personal property after the bankruptcy claim without input from the Merseals; had the property valued after the fire by an independent company which valued the property at $131,929 actual cash value and $146,135 replacement cost; and failed to further investigate after getting a letter from the Merseals acknowledging errors on their bankruptcy statement, and explaining those errors.

Class Action Claim against State Farm improperly dismissed -- Arkansas

Jody Nathan — Tue, 02 Apr 2013 16:38:37 -0600

In Kersten v. State Farm, 2013 Ark. 124, Kersten was sued by State Farm for negligence as a result of a car accident involving a State Farm insured. Kersten filed a counterclaim against State Farm alleging that State Farm was unjustly enrich ed as a result of having engaged in the deceptive and unlawful business practice of causing collection-style letters to be mailed in an attempt to collect unadjudicated, potential subrogation claims as debts. The counterclaim was filed on her own behalf and on behalf of others similarly situated. The class certification was dismissed, but the Arkansas Supreme Court reversed.

“We conclude that these allegations, at this early stage of the pleading phase, sufficiently plead a course of State Farm’s conduct that is typical of both Kersten and the class. And we conclude that the circuit court therefore abused its discretion in adopting the flawed reasoning State Farm asserted in its motion as to the typicality requirement being subject to determination according to the injuries sustained by the alleged wrongful conduct.”

The Arkansas Supreme court reversed the trial court and remanded the matter; but did not grant class certification as requested by Kersten.

Car exhaust not excluded under pollution exclusion Missouri law

Jody Nathan — Fri, 29 Mar 2013 14:26:31 -0600

American National Property & Casualty Co vs. Wyatt:

When Joyce Bentley brought her granddaughter and friend to her house for the night, she forgot to turn her car off in the garage. All got sick from the fumes, and Bentley and the granddaughter died. The estate and her insurer, American National Property & Casualty, (ANPAC) were sued. The trial court granted summary judgment to ANPAC on its claim that the pollution exclusion applied to preclude coverage. The appellate court reversed, finding that the pollution exclusion was ambiguous, and that the reasonable expectations of an insured would be that such claims would be covered.

The exclusionary language relied upon by ANPAC in denying coverage states: Coverage E – Personal Liability and Coverage F – Medical Payments to Others do not apply to bodily injury or property damage: * * * n. arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants . . . Elsewhere, the policy defines "pollutants" as "any solid, liquid, gaseous, or thermal irritant or contaminant, including but not limited to smoke, vapors, soot, fumes, acids, alkalis, toxic chemical, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed." "Combining these various provisions, the Policy excludes coverage for any bodily injury resulting from the 'discharge, dispersal, seepage, migration, release or escape' of 'any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, [toxic] chemicals and waste." Apana v. TIG Ins. Co., 574 F.3d 679, 681 (9th Cir. 2009).
This is standard language used by the insurance industry and is frequently referred to as the "total pollution exclusion." Id. at 680.

The court discusses the history of the pollution exclusion clause: "Since the adoption of the absolute pollution exclusion, however, insurers have repeatedly sought to exclude coverage under this exclusion for injuries that have occurred outside the realm of what would be considered traditional environmental pollution." The court rejected the claim that the dictionary definition should apply: "Rather, a court properly refusing to make 'a fortress out of the dictionary' must attempt to put itself in the position of a layperson and understand how he or she might reasonably interpret the exclusionary language." "Without some limiting principle, the pollution exclusion clause would extend far beyond its intended scope, and lead to some absurd results."

In short, an interpretation that ignores the familiar connotations of the word "pollutant" and that would lead to absurd results is not the interpretation that an ordinary person of average understanding would adopt.

The court cited cases holding that carbon monoxide would not be excluded under a pollution exclusion clause and reasoned that carbon dioxide should be similarly treated. The exclusion was ambiguous and the reasonable expectations of the policy holders required that the claim be covered. Summary judgment to the insurance company was reversed, and summary judgment for the policy holder was entered.

Household exclusion partly void, Missouri law

Jody Nathan — Fri, 29 Mar 2013 14:17:34 -0600

A household exclusion was not ambiguous despite placement, indemnification provision, incorporation of statute by reference, lack of dollar amount in reference to statute's minimum requirements, or effect on family members. Statute requires insurance policy to provide minimum protections and household exclusion is void only as to that requirement; above that amount exclusion is effective. Exclusion is void only to the extent of the minimum.

Progressive Northern v. Talbert

“Household Exclusion Clause” in Missouri
While generally disfavored, [household exclusion] clauses are permissible ‘to exempt the insurer from being required to cover claims by those persons to whom the insured, on account of close family ties, would be apt to be partial in the case of injury; the exclusion serves to protect the insurer against collusive or cozy claims.’ Shahan, 988 S.W.2d at 539-40 (quoting “8 Couch on Insurance 3d 114:25-26”). Beginning with Halpin, 823 S.W.2d at 479, Missouri courts have repeatedly found household exclusion clauses are valid as to any coverage exceeding the amounts mandated by the mandatory auto insurance law.

The problem with household exclusions in any insurance policy, is that they operate to give one's family less coverage than any one else would receive. Thus, the people an insured would most want to protect are protected the least.

Negligent Misrepresentation against Agent Negated; Missouri Law

Jody Nathan — Fri, 08 Mar 2013 14:32:08 -0600

In ABC Seamless Siding & Windows, Inc. vs. Brian K. Ward, et al, Martin wanted to start a window and sidings business. He asked Brian Ward about insurance generally, and workers compensation insurance specifically. Martin claims that Ward told him if he only had two employees which were officers, he did not need workers comp insurance. This followed the information Martin received from his former employer, who also told him to be sure to get certificates of liability insurance from his subcontractors to verify that the subcontractors carried workers compensation insurance in the event of a work-related injury. Of course, Martin did not get workers comp insurance, and an employee of a subcontractor was hurt on the job. Martin had not gotten a certificate of coverage from the subcontractor, and coverage had lapsed at the time of the injury. Summary judgment to the insurance agent was affirmed.

The elements of claim for professional's negligent misrepresentation include: in the course of professional's business with specific persons in a specific transaction, professional gave information that was false for lack of due care, on which those persons reasonably relied to their detriment. Reliance depends on whether the information was a material factor in decision on the matter advised. Because plaintiff did its own investigation before making a decision on whether to buy workers' compensation insurance, plaintiff could not show reliance on insurance seller's advice.

Because ABC cannot, as a matter of law, demonstrate any reasonable reliance upon the statement attributed to Ward, and because reasonable reliance is a necessary showing for each of the claims ABC raised below, the trial court committed no error in granting summary judgment in favor of Ward. The trial court’s judgment is affirmed

Misrepresentation and Title Insurance (10th Cir., Colorado)

Jody Nathan — Wed, 27 Feb 2013 09:36:27 -0600

In Stewart Title v. Dude (nominated for a great case name of the day salute) Mr. Dude failed to disclose a $1.9M mortgage when trying to get another $500k mortgage on the property. The first mortgage had not been properly recorded, and did not show up in a title search. Later, the house was sold and the $1.9M that should have been paid to the bank was paid to Mr. Dude. When the bank threatened the new owner with foreclosure, Stewart Title stepped up and paid off the bank. Stewart Title then went after Mr. Dude to get its money back.

The jury found for Stewart Title and awarded actual and punitive damages. On appeal, Dude argued that the verdict should be overturned because any reliance on Dude's misrepresentation was not "justifiable":

The precise work performed by the adjectival epithet “justifiable” when it comes to the reliance element in fraud is more than a little elusive. Everyone agrees it operates to allocate the risk of loss to an actually deceived plaintiff in some circumstances. But that may be where the agreement ends. See W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 108, at 750 (5th ed. 1984). Some understand the law as requiring the plaintiff to ferret out the facts from even the vaguest intimations or else bear the risk of loss. Id. Others read it as imposing no duty to investigate at all and allocating the risk of loss only to the most foolish of plaintiffs. Id. Happily, to decide this case we don’t have to decide this debate. Mr. Dude presents two discrete theories of justifiable reliance and we can limit our discussion in this appeal to their terms without touching broader and more difficult questions.

First Mr. Dude said there was no justifiable reliance because Stewart Title knew I was lying. Second, Mr. Dude argued that Stewart Title had constructive notice of the lien.

This is a fraud dispute on appeal after a trial where the jury was properly instructed and Mr. Dude is left to argue only the insufficiency of the evidence to support its verdict. To prevail in these circumstances, Mr. Dude faces the daunting job of having to show that “the evidence points but one way [his way] and is susceptible to no reasonable inferences supporting the party opposing the motion; we must construe the evidence and inferences most favorably to the non-moving party.”

He failed to do so. There could be no constructive notice where the lien was not properly filed. Whether the bank’s failure to properly file its lien and whether Stewart Title had an obligation to pay the lien was not raised below.

Another clear opinion from Judge Gorsuch.

Patent attorney legal malpractice claim not a federal case

Jody Nathan — Wed, 20 Feb 2013 14:06:28 -0600

A suit alleging legal malpractice in the handling of a patent case did not "arise under any Act of Congress relating to patents," 28 U.S.C. § 1338(a), so that the federal courts had exclusive jurisdiction over it, the Supreme Court held today. Indeed, Chief Justice Roberts's opinion for the unanimous Court indicated that "state legal malpractice claims based on underlying patent matters will rarely, if ever, arise under federal patent law for purposes of § 1338(a)." Although the malpractice claim did require resolution of a patent-law question, that resolution was not—as precedent requires—"substantial" enough to require a federal forum. To be "substantial" for these purposes, a federal issue must be important to the federal system as a whole. In the case at bar, the patent-law question was "merely hypothetical": would the result in a particular infringement case have been different in the absence of attorney error? Nor was there any danger that allowing state courts to resolve these claims would undermine the uniform development of patent law.
Gunn v. Minton, S. Ct. No. 11-1118 (Feb. 20, 2013).

Expection of coverage not reasonable -- OK cs

Jody Nathan — Tue, 19 Feb 2013 18:22:42 -0600

In Jones v. Union Mutual, 2013 OK CIV APP 12, Jones had a "home property" policy with Union. When his house was broken into, the claim was denied because there was no theft coverage under the policy. Jones sued in small claims court and won, but the Court of Civil Appeals reversed. The policy covered burglary damage -- i.e., damage to the house caused by burglars, but did not cover the property actually stolen. Jones did not read his policy and claimed not to have received it. Jones' only recollection as to these policy distinctions was that, "He (agent) present me the prices and the coverage. I picked the one at the lowest cost. That's because we all poor and trying to get the best for the mostest (sic) with the leastest (sic) so I picked that policy."

The policy language for the covered peril provides:

9. Burglary Damage - This means damage to covered property caused by burglars. However, we do not pay for loss on the insured premises if the residence is vacant for more than 30 days in a row just before the loss. A residence being built is not vacant.

This language is only susceptible to one reasonable construction. Coverage is limited to actual damage done to just the "Coverage A - Residence" or the "Coverage B - Related Private Structures" sections as Union argues. We therefore reject Jones' argument that the first sentence covers damage in the form of theft loss to "Coverage C - Personal Property."

We hold this provision is unambiguous as a matter of law. Had Jones read the policy, we hold he could not reasonably expect the policy to provide coverage for personal property theft loss. The trial court's judgment is therefore reversed.

Lawyer held liable for bad faith litigation conduct in failing to turn over insurance information

Jody Nathan — Tue, 19 Feb 2013 17:46:17 -0600

In Anchondo v. Dunn, (10th Cir, NM, unpublished), the lawyer (Dunn), who represented the defendant ACA in a class action under the Fair Debt Collection Practices Act, was ordered to pay the plaintiffs' damages and fees as a sanction for failing to disclose the existence of a professional liability policy which could have covered the claim. The insurer denied the claim as untimely.

More specifically, the district court found that Mr. Dunn and Mr. Backal (Mr. Backal was ACA’s president, his bankruptcy precluded any finding against him) knew ACA had a professional liability policy sufficient to cover the amounts owed to plaintiff; that the pair acted in bad faith in failing to disclose (indeed, denying) the existence of this coverage despite appropriate requests during the discovery process; that the pair acted in bad faith in failing to file a timely claim on the policy; and that Mr. Dunn’s special relationship with ACA and his participation in the scheme made it appropriate to hold him jointly liable with Mr. Backal.

The district court cited a number of facts supporting its decision including its disbelief of Mr. Dunn’s and Mr. Backal’s explanations for their conduct. The court relied on the fact that ACA had professional liability coverage for suits arising from its wrongful acts; that Mr. Dunn and Mr. Backal knew this; and that during discovery Mr. Dunn failed to turn over documents reflecting insurance applicable to the suit; and that the pair allowed the period for filing a timely claim to lapse. All these facts, quite apart from and in addition to the court’s disbelief of Mr. Dunn’s and Mr. Backal’s testimony, contributed to its inference of bad faith.

The sanctions were affirmed and the matter remanded to determine attorneys fees on appeal.

Voluntary payment (settlement) precludes coverage -- no good deed goes unpunished 7th Cir

Jody Nathan — Thu, 07 Feb 2013 14:20:53 -0600

In West Bend Mutual Ins v. Arbor Homes, (the plumber forgot to connect the home's drainage system to the city's sewer. Arbor worked on fixing the problem with the homeowner. A settlement agreement was reached, and Arbor thought that Westbend was told about it and did not object. Westbend insured the plumber and Arbor was an additional insured.

The voluntary payments provision states:

No insured will, except at that insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.

The purpose of this provision means that West Bend must have the opportunity to protect itself and its insured by investigating any incident that may lead to a claim under the policy, and by participating in any resulting litigation or settlement discussions. Any insured that settles a claim without West Bend's knowledge or consent does so at the insured's own expense under the express language of this provision.

Yet neither Arbor nor plumber obtained West Bend's consent before settling. Instead, Arbor relied on Plumber to place West Bend on notice and then construed the insurer's subsequent silence as a lack of objection to the settlement. Arbor now can produce no evidence that West Bend consented to Plumber's settlement with Arbor or Arbor's settlement with the homeowner. West Bend has produced uncontroverted evidence that it knew nothing of the damage to the home until after Plumber and Arbor agreed on their respective liabilities to each other and to the Homeowner. And West Bend knew nothing of the terms of the settlement agreement until after Arbor's lawsuit against Plumber was underway. There is no evidence that West Bend “consented” to any settlement as required by the voluntary payments provision. Although Arbor behaved admirably in expeditiously resolving the matter for the homeowners, it failed to protect its own interests when it relied on Plumber to notify West Bend about the incident, and failed to obtain West Bend's consent for any settlement. Having no opportunity to participate in the investigation or settlement, West Bend is entitled to enforcement of the plain language of the contract: Arbor's settlements with Plumber and with the Homeowner without the consent of West Bend is at Arbor's own expense.

Breach of Cooperation Clause absolves insurer of liability (Missouri law)

Jody Nathan — Thu, 07 Feb 2013 13:42:52 -0600

In Heubel Materials Handling Co., Inc. v. Universal Underwriters Ins. Co., Heubel sold and serviced Raymond forklifts. When Heubel was sued for negligence in the servicing of a forklift, it told Raymond, but not Universal. Raymond controlled and paid for the defense of the action.

Six months later, Heubel told Universal about the lawsuit. Universal sent out a reservation of rights letter because of the late notice. Later, Universal withdrew the reservation of rights letter, and agreed to defend Heubel, but wanted Heubel to cooperate by pursing an indemnification claim against Raymond. Heubel responded by claiming that “Universal's requirement that Heubel pursue and enforce indemnity [against Raymond] creates a potential or actual conflict of interest between Universal and Heubel,” which would entitle Heubel to select its own counsel and control the defense of the underlying suit. Heubel also added claims for breach of the insurance contract.Universal then claimed that Heubel's lack of cooperation absolved Universal of any duty to provide coverage. On cross motions for summary judgment, the district court held that Heubel had breached the cooperation clause of the Universal policy; that the breach was not excused by a conflict of interest or reservation of rights; and that the lack of cooperation substantially prejudiced Universal, absolving it of the duty to defend or provide coverage for the underlying suit. Heubel appealed and the Eighth Circuit affirmed.

No reservation of rights

Universal did not reserve “the right to later disclaim coverage,” , rather Universal offered complete coverage but refused to concede its indemnification claim against Raymond. Because Universal did not reserve the right to disclaim coverage of any damages that might be awarded or legal fees that might be incurred in the underlying suit, its action does not qualify as a reservation of rights.

No conflict of interest

The sole conflict of interest asserted by Heubel is that Universal's enforcement of the cooperation clause in the Universal policy would force Heubel to breach the competing cooperation clause in the Raymond indemnification agreement, depriving Raymond of its competing right to control the defense. Thus, Heubel and Raymond take the position that the Universal policy provides primary coverage for the Harris suit and yet, at the same time, the Raymond indemnification program provides primary control of the defense to Raymond. This is antithetical to the traditional principle that conflicting right-to-control clauses should be resolved in favor of the insurer with primary coverage. See, e.g., Dodge v. Firemen's Fund Ins. Co., 362 S.W.2d 767, 769 (Mo.Ct.App.1962) (“It would be unjust to [the insurer] to declare it has the duty to defend and the obligation to pay the judgments, if obtained, and still to permit [another insurer] to participate in the control of the defense.”). If Heubel and Raymond wished to obtain outside primary products liability insurance coverage while preserving the right of Raymond to control the defense of such a suit, Heubel should have bargained for (and Raymond's indemnification program should have required) an insurance policy that did not give the insurer the right to control the defense.

Prejudice

Because nothing in the Universal policy or the Raymond indemnification program precluded a third-party indemnification claim by Universal against Raymond in the Harris suit, Universal suffered substantial prejudice from Heubel's refusal to allow Universal to control the defense. As a result, Universal was justified in denying coverage based on Heubel's breach of the cooperation clause.

Faulty workmanship exclusion, 8th Cir Mo

Jody Nathan — Thu, 07 Feb 2013 13:00:42 -0600

In BSI Constructors, Inc. v. Hartford Fire Ins. Co. BSI contracted to build a commercial building. The roof was completed, and was damaged during the remaining construction. As a result, a new roof had to be put on the building at a cost of $174,000. BSI made a claim against Hartford on its Builder's Risk Policy. Hartford declined to cover the cost of the new roof, citing the faulty workmanship exclusion, which states

2. We will not pay for "loss" caused by or resulting from any of the following:
. . . .
g. Defective, deficient or flawed workmanship or materials, or for expenses to redesign or revise flawed or defective plans or architectural designs.

But we will pay for "loss" to other Covered Property that results from such defective workmanship, materials or design provided such loss or damage is not otherwise excluded in this policy.

Summary judgment to Hartford was affirmed on appeal. BSI argued that the faulty workmanship exclusion excluded coverage only for defects in the quality of the project as constructed, rather than excluding coverage for accidental damage to the project during construction. But the Eighth Circuit concluded that the faulty workmanship exclusion encompasses both a flawed product and a flawed process and thus applied to exclude coverage in this case. There is a discussion of other case law on the issue.

Uninsured Motorist coverage and Bad faith -- failure to pay undisputed amount -- Okla law

Jody Nathan — Fri, 01 Feb 2013 12:31:33 -0600

In Tran v. Nationwide Mutual Ins. Co, (unpublished) Ms. Tran was injured in an accident with an uninsured motorist. She filed a claim with Nationwide. After Nationwide made several requests for medical bills, Ms. Tran's attorney submitted them with a demand for payment of policy limits. The bills totaled approximately $11,000. There followed several rounds of offers between Nationwide and Tran's attorney. At some point, the lawyer demanded payment of the undisputed amount of the damages, but Nationwide declined. Eventually, Tran sued Nationwide for breach of contract and bad faith. The parties filed summary judgment motion on the issues of bad faith and breach of contract. The trial court granted Nationwide's motion and denied Tran's motion and Tran appealed. The 10th Circuit affirmed.

Tran claimed that Nationwide was in bad faith for not tendering the undisputed amount of the claim until after suit was filed, and was in breach of contract for not paying her the non-economic (pain and suffering) damages to which she was entitled. Tran relied on the Quine case which was previously summarized here. There was no bad faith because there was a legitimate dispute as to the value of Ms. Tran's claim. There was no breach of contract because there was no evidence of Ms. Tran's non-economic damages presented to the trial court.

Insurer could limit defense to tort claims Okla law

Jody Nathan — Tue, 29 Jan 2013 16:00:06 -0600

In City of Choctaw v. Oklahoma Municipal Assurance Group, 2013 OK 6, the issue was whether a claim for inverse condemnation was covered by Oklahoma Municipal Assurance Group. The policy excluded coverage for claims of eminent domain (e.g., where the government files suit to take private property for public purposes); and for inverse condemnation (where the landowner files suit because he believes the government has taken his property for public purposes). Despite this, the trial court ruled in the City's favor. The Oklahoma Supreme Court reversed. The insurance company had given the city notice that the policy did not cover the claim for inverse condemnation, The majority on the court found no basis for estoppel, as the trial court found. The dissent noted that some facts would permit a finding of estoppel; and it remained a fact question. Despite this, the Supreme Court reversed the summary judgment in favor of the insured with directions to enter judgment for the insurer.

No UM coverage where vehicle was not being used for transportation OK law

Jody Nathan — Fri, 25 Jan 2013 12:38:22 -0600

In Bituminous Casualty v. Pollard, (unpublished), Pollard was injured while working on an oil well. Pollard was using a rig truck which had been put into place to be used as a derrick. Pollard was on the oil pump when he claimed the winch on the truck malfunctioned, causing injury. The insurance company sued Pollard, claiming he was not entitled to coverage. The trial court agreed and the Tenth Circuit affirmed.

The insurance company claimed that Pollard was not occupying the vehicle, and that the vehicle was not being used for its transportation nature, thus precluding coverage. The trial court found for the insurer on both issues, but the Tenth Circuit affirmed only on the grounds that the truck was not being used for transportation, thus, there was no coverage.

We conclude that the transportation-use requirement adopted by the Oklahoma Supreme Court in Sanders applies to a UM claim alleging an injury that arose out of the use of a motor vehicle, including when the injury also arose out of the ownership and/or maintenance of the vehicle, as Mr. Pollard alleged. And the requirement applies regardless of whether the insured is legally entitled to recover damages from the owner or the operator of the uninsured motor vehicle under § 3636(B). To be entitled to coverage under the UM Endorsement, Mr. Pollard was therefore required to show (1) that a use of the workover rig was connected to his injury and (2) that use was related to the transportation nature of the workover rig. See Sanders, 803 P.2d at 692.

* * * * *

The steps taken by Mr. Pollard and his crew to transform the workover rig from a motor vehicle into a fixed derrick severed any causal connection between the transportation nature of the workover rig and Mr. Pollard’s injury. Accordingly, his injury was not within the coverage mandated by § 3636, and he was not covered under the UM Endorsement.

In addition, summary judgment was proper as to Pollard's bad faith claim against Bituminous.