by sohalang | Jan 4, 2013 | Blog News, Uncategorized
Clarendon America Insurance Company v. State Farm Fire and Casualty Company, Oregon District Court Cause No. 3:11-CV-01344-BR, Order on Cross-Motions for Summary Judgment (Dkt. No. 34), January 3, 2013
This coverage action arises out of an underlying construction defect case. Plaintiff Clarendon issued an insurance policy to its named insured, Curtom, who was a defendant in the construction defect case. Curtom also tendered a defense to State Farm under an Apartment Policy issued to a different entity. State Farm denied defense on the basis that Curtom did not qualify as an insured under the Apartment Policy (because the complaint did not allege that Curtom was a real estate manager or partner of the named insured — the two provisions of the Who Is An Insured Section at issue in the case). Clarendon sued State Farm for defense costs. On summary judgment, State Farm additionally argued that the owned property exclusion precluded coverage, whether or not Curtom qualified as an insured.
As to the “insured status” question, the district court narrowly construed the extrinsic evidence “exception” for insured status questions as laid out in Fred Shearer (237 Or App 468), and found, “[t]he court in Fred Shearer merely carved out an exception to the general rule announced in Ledford to apply only in the particular circumstances that occurred in Fred Shearer; i.e., the insurer specifically alleged it was impossible to determine Fred Shearer’s status from the face of the complaint, and the court agreed. Accordingly, the court concluded a limited exception to [the 8 corners rule in] Ledford is permissible in instances when courts are attempting to determine whether an organization or individual was an insured under a policy.” The court found that the rule in Fred Shearer, that an insurer can consider extrinsic evidence on the threshold issue of insured status, did not apply, when from the face of the Complaint and the policy, there is no question that the alleged insured does not qualify as an insured.
As to the “real estate manager” issue, the court found that because the term “real estate manager” was not defined in the policy, it must be given its plain meaning. The court stressed, “Although there is not any Oregon authority specifically on point, the Court notes courts in other jurisdictions have addressed this issue. For example, in Savoy v. Action Products Company the court held “a ‘real estate
manager’ is simply one who manages real estate for another. A manager is one who ‘conducts, directs or supervises something.’ He is a person who has the conduct or direction of a thing.” 324 So.2d 921, 923 (La. App. 1975). Similarly, in Insurance Company of North America v. Hilton Hotels the court adopted the reasoning of Savoy and “join[ed] several other courts in finding that the term ‘real estate manager’ is not ambiguous. Accordingly, the Court will consider the term in its usual and ordinary meaning.” 908 F. Supp. 809, 815 (D. Nev. 1995)(citations omitted).” The Court concluded, “the analysis in Savoy, Hilton Hotels, and City of Portland is helpful and, applying it here, concludes “real estate manager” has a plain meaning: One who conducts, directs or supervises another’s real estate as distinct from a construction manager who conducts, directs, or supervises another’s construction.”
The court thus concluded that allegations in the Complaint alleging that Curtom was the “construction manager” were insufficient to find that Curtom qualified as an insured as a real estate manager under the State Farm policy. The court also found persuasive that the third party complaint differentiated between the terms construction manager and real estate manager.
As to the owned property exclusion, the court rejected Clarendon’s invitation to apply the exclusion as if the alleged insured was the “you,” who owned the property, rather than the named insured as the “you,” as provided by the policy definitions. The court found that the term “you” was not ambiguous as to whether it applied to an entity that qualified as an insured, but was not a named insured (or additional insured). The court adopted the reasoning of Baumann (152 Or App 181) and rejected the reasoning in Triad (2007 WL 2713842 (D. Or. 2007)).
by sohalang | Nov 7, 2012 | Blog News, Uncategorized
On October 25, 2012, the Washington Supreme Court ruled that an insurer was not entitled to have the reasonableness of “covenant judgment” determined by a jury. Bird v. Best Plumbing Group, LLC, 86109-9, 2012 WL 5269734 (Wash. Oct. 25, 2012).
The insured was a plumbing company that was sued for severing a sewage line on the claimant’s property. When the claimant sued for damages, the insurer defended the insured without a reservation of rights. The claimant made a $2 million policy-limits demand. The demand was rejected. The insured then settled with the claimant for $3.75 million subject to a covenant not to execute against the insured and an assignment of rights to the claimant. The trial court found the $3.75 settlement amount reasonable after a four-day hearing, in part due to a treble-damages provision in Washington’s trespass statute that was never pled.
On appeal, the insurer contended that the reasonableness hearing violated its right to jury trial under Article I, Section 21 of the Washington State Constitution because the hearing set the presumptive damages for the claimant’s soon-to-follow bad faith lawsuit against the insurer. The Court of Appeals rejected the argument, reasoning that the reasonableness hearing was an equitable proceeding with no right to trial by jury. The Court of Appeals then affirmed the trial court’s finding of reasonableness. The insurer appealed to the Washington Supreme Court.
In a six to three opinion, the Washington Supreme Court affirmed the decisions of the trial court and Court of Appeals. The Washington Supreme Court:
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Approved the application of RCW 4.22.060 reasonableness hearings to settlements involving a covenant judgment (i.e. a settlement between an insured defendant and a plaintiff where the plaintiff agrees to seek recovery only from a specific asset—the proceeds of the defendant’s insurance policy and the rights owed by the insurer to the insured, but do not release the insured from liability);
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Held that determining the reasonableness of a covenant judgment under RCW 4.22.060 is an equitable proceeding to which no jury trial right is afforded;
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Held that the due process rights of the insurer were not violated where the insurer was afforded notice of the reasonableness hearing, allowed to intervene, and given the opportunity to participate in a lengthy and highly contested hearing on the issue of the reasonableness; and
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Held that the trial court did not abuse its discretion in holding the $3.5 million covenant judgment was reasonable.
The opinions expressed in in this blog are those of the author and do not necessarily reflect those of Soha & Lang, P.S. or its clients.
by sohalang | Oct 23, 2012 | Blog News, Uncategorized
Intransit Inc. v. Travelers Property and Casualty Company of America, District Court of Oregon Cause no. 1:11-cv-03146-CL, Order on Motion for Summary Judgment (Dkt. No. 37) (October 22, 2012)
This case involves whether an insurer’s Inland Marine liability policy covering loss of property during transit, covers theft by a fraudulent or imposter carrier. Finding the policy language ambiguous, the court construed it in favor of coverage and found for the insured.
In October 2010, Travelers sold plaintiff inland marine insurance, providing up to $300,000 in coverage for property being transported from one location to another. The policy covered loss of the “property of others … [f]or which [the insured] arranged transportation with a ‘carrier’ of the type described in the Declarations … ” The declarations defined “carrier” as any railroad company, motor transportation company, or air freight company. The policy also contained an exclusion that barred any coverage for losses resulting from “dishonest or criminal acts” by the insured’s employees, carriers, and others with “interest in, or entrusted with, the property.” The endorsement, however, provided limited coverage up to $50,000 for property losses resulting from dishonest acts by a carrier.
The insured hired a third-party carrier to transport a shipment of LCD monitors. An individual who represented himself as an employee of the transporter picked up the load of LCD monitors, but the load never made it to its destination. A subsequent criminal investigation found that an imposter had posed as a driver of the transporter and had stolen the cargo.
The insured filed a proof of loss with Travelers. Travelers took the position that the fraudulent or imposter carrier was still a “carrier” under the policy and paid the $50,000 limits for dishonest acts by a carrier. The insured disputed Traveler’s coverage determination, arguing that the policy fully covered theft by fraudulent or imposter carriers and that it should be awarded $300,000 under the general coverage grant.
The policy language at issue provides:
I. Coverage grant.
The policy in the coverage grant provides as follows:
COVERAGE
We cover “loss” to Covered Property from any of the Covered Causes of”Loss.”
1. Covered Property, as used in this Coverage Form, means property of others:
(a) For which you have arranged transportation with a “carrier” of the type
described in the Declarations; and
(b) That you have agreed to insure.
We cover such property while in the due course of transportation.
DEFINITIONS
1. “Carrier” means any
a. Railroad company;
b. Motor transportation company; or
c. Air freight company.
II. Exclusions.
The policy in the exclusion section provides as follows:
We will not pay for “loss” caused by or resulting from any of the following:
a. Delay, loss of use, loss of market, loss of income, interruption of business or
any other consequential loss.
b. Dishonest or criminal acts by any of the following whether or not acting alone
or in collusion with other persons or occurring during the hours of
employment:
(1) You, your employees or authorized representatives;
(2) The “carrier” or its employees or authorized representatives; or
(3) Anyone else with an interest in, or entrusted with, the property.
But this exclusion does not apply to coverage provided by the “carrier”
Dishonesty Additional Coverage.
III. Endorsement.
The endorsement in the exclusion section provides as follows:
“Carrier” Dishonesty
We will pay up to $50,000 in any one occurrence for loss of or damage to
Covered Property caused by or resulting from any fraudulent, dishonest, or
criminal act committed by a “carrier.” But this Additional Coverage does not
apply to any fraudulent, dishonest, or criminal act committed by you.
In their motions for summary judgment to the district court, the insured and Travelers offered competing interpretations of two terms in the insurance policy: “carrier” and “entrustment.” Travelers argued that the term “carrier” means “legitimate carrier,” and thus the coverage grant only covers property loss when the carrier transporting the load is legitimate. Travelers further contended that because its loss was the result of a transportation arrangement with a fraudulent or imposter carrier, the insured cannot recover anything under the policy’s general coverage grant. In response, the insured contended it “arranged transportation with a carrier” or at a minimum the meaning of “carrier” is ambiguous, and thus should be construed in plaintiffs favor to include “fraudulent or legitimate carrier” and cover plaintiffs loss up to $300,000.
Finding that the term “carrier” remained ambiguous after a Hoffman analysis, the court interpreted it against the drafter and in favor of the insured. Hoffman, 313 Or. 464 at 469. Accordingly, the court concluded, the “term “carrier” in the coverage grant is construed in favor of plaintiff to include fraudulent or imposter carriers, including the fraudulent or imposter representative of C&A.; Defendant could have easily clarified the coverage grant by defining “carrier” to only include “authorized,” “legitimate,” or “licensed” carriers.”
The court further found that the term “entrust” was ambiguous regarding whether an insured could actually “entrust” property to an imposter and thus found that exclusion (b)(3) did not apply to preclude coverage despite the fact that Travelers argued that the insured had entrusted its shipment to the imposter carrier. “The court’s finding that Exclusion (b)(3) is ambiguous and thus should be construed in favor of plaintiff is bolstered by the fact that defendant could have avoided ambiguity by drafting the policy to specifically exclude coverage for “theft by fraud, false pretense or trickery by imposters.””
by sohalang | Oct 15, 2012 | Blog News, Uncategorized
The Regence Group, et al. v. TIG Specialty Insurance Company, Oregon District Court Cause No. 3:07-cv-01337-HA, October 12, 2012 Opinion and Order on Summary Judgment (Dkt. No. 846)
Facts
Defendant TIG issued a Managed Care Organizational Liability Insurance Policy to Regence for the period of January 1, 2001 to January 1, 2002. The Policy provided coverage for managed care errors and omission liability, as well as insurance company errors and omissions. The Policy had professional liability limits of $50 million per claim/$ 50 million aggregate, and a self-insured retention applicable to indemnity of $250,000 per claim/$500,000 annually.
The Policy provided that TIG would pay sums Regence was obligated to pay as damages, including damages assumed under contract, arising out of” [ w ]rongful acts committed in the course of your business operations” and “[w]rongfu1 acts committed in the course of your providing insurance services.” The term “wrongful act” is defined under the Policy as “a negligent act, error, omission, misstatement or misleading statement, or breach of duty.” “Insurance services” is defined as “services of an insurance company rendered by or on behalf of the insured, including such services provided to others,” which includes “[c]laims handling and adjusting.”
“Business operations” is defined under the Policy as:
a. Review of healthcare services, including the cost of health care or necessity
of healthcare and utilization review/management, to evaluate the appropriate
use of medical care resources, including but not limited to:
• Cost of health care;
• Necessity of healthcare;
• Prospective review to authorize treatment or expenses;
• Concurrent review to evaluate continued patient care;
• Retrospective review to evaluate medical services already rendered; or
• Case management or disease management.
b. Claims handling.
c. Provider selection, contracting, retention, supervision, monitoring and
termination [and]
d. The following activities or services you provide, or contractually agree to
provide: …
• Development of practice guidelines and treatment protocols which affect
healthcare treatment decisions ….
The Policy also included several exclusions, including the capitation exclusion, which provided that the Policy did not apply to “Business Risks.” According to the Policy, “Business Risks” included claims arising out of “[c]apitation payments, including any withholds for risk or bonus agreements, or payments, fee-for-service payments or other salary payments owed to contracted or employed health care providers[.]”
In exchange for an additional premium, Regence specifically negotiated coverage for RICO claims and an endorsement was added to the policy to that deleted the RICO exclusion in the policy. Regence believed that it was covered for all types of RICO claims, but TIG limited coverage to only certain types of RICO claims. However, TIG never communicated to Regence that it was its position that the capitation exclusion would preclude coverage for RICO claims.
Regence was sued in 2001 in three class action lawsuits alleging RICO claims. TIG agreed to defend Regence in all three actions, reserving its right to assert the capitation exclusion. In all the actions, the plaintiffs alleged that Regence violated RICO by systematically denying, delaying and or diminishing the payments due to physicians so they the physicians were not paid in a timely manner.
Public Policy
First, TIG argued that Oregon public policy precluded coverage for RICO claims which are based on intentional conduct. The court found that there was a genuine issue of material fact that precluded summary judgment on this question. The court found that Regence’s choice to settle the class action cases was not an affirmation that it violated RICO, rather the decision to settle could have been made for business decisions. Moreover, the court found that there had been no showing or evidence developed that Regence ever specifically intended to cause injury by entering into the alleged conspiracy. If TIG were to convince a jury that Regence acted intentionally to cause harm, then public policy likely would preclude coverage for the RICO claims.
What Standard Applies When Determining whether an Insurer Has a Duty to Pay a Settlement?
Next, the Court was asked to determine whether TIG had a duty to indemnify Regence for the settlement amount. The court found that although the Oregon courts have not decided this issue, other courts have held that when an insured settles a claim before trial, the court in a coverage action should determine whether the settled claims fall within the coverage of the policy by looking at the facts inherent in the settlement and the allegations in the underlying complaint. See, e.g., Texas Farmers Ins. Co. v. Lexington Ins. Co., 380 F. App’x 604, 607 (9th Cir. 2010) (quoting In re Feature Realty Litig., 468 F. Supp. 2d 1287, 1295-96 (E.D. Wash. 2006)); Travelers Ins. Co. v. Waltham Indus. Labs.Corp., 883 F.2d 1092, 1099 (1st Cir. 1989) (stating that the duty to indemnity following a settlement is determined by the basis of the settlement); Am. Home As sur. Co. v. Dykema, Gossett, Spencer, Goodnow & Trigg, 811 F.2d 1077, 1083 (7th Cir. 1987) (“Because the case was settled before trial, [the underlying] allegations are accepted as true for purposes of determining insurance coverage.”).
Regence, however, argued that when an insured settles a potentially covered claim, Oregon courts use the duty to defend analysis to determine whether the settled claim falls within the coverage of the policy. See Am. Hardware Ins. Grp. v. West One Auto. Grp., Inc., 2 P.3d 413, 415 (Or. Ct. App. 2000) (“Because defendant settled [the underlying] claims, the duty to indemnify is determined by the same principles.”). The court stated, “Regence appears to have misunderstood the standard. No other court has followed the reasoning in American Hardware, and in fact, the case on which the court in American Hardware relies holds to the contrary. See id. (citing Nw. Pump & Equip. Co. v. Am. States Ins. Co., 925 P.2d 1241, 1243 (Or. Ct. App. 1996) (“The duty to defend is triggered by the bare allegations of a pleading. In contrast, the duty to indemnify is established by proof of actual facts demonstrating a right to coverage.”)).”
Capitation Exclusion
The court found that the TIG policy unambiguously provided that it would pay both defense and indemnity for RICO claims. Interestingly, the court resorted to extrinsic evidence surrounding the formation of the policy to determine what the unambiguous language of the policy provided. Resorting to extrinsic evidence, as well as judicial estoppel, the Court explained, “This court need not decide which authority’s reasoning is more persuasive because TIG represented to its reinsurers during arbitrations that the Policy provided coverage for the Thomas claims. As a result, the court deems TIG to have admitted that the capitation exclusion does not apply to the claims alleged in Thomas.”
Bad Faith/ Special Relationship
TIG argued that there was no special relationship between it and Regence because with regard to the duty to defend, the parties had entered into an agreement that “Regence maintained “the control of the defense of the litigation” in Thomas, and was authorized to “make the ultimate decisions relating to the strategy, including but not limited to, whether to settle; the terms and conditions of any settlement; the amount of any settlement …. ” However, the court also found that the parties agreed to discuss “all major strategic decisions” about the defense of Thomas, agreed to “work together to try to adopt mutually agreeable strategies,” and that Regence shared privileged documents with TIG.” The court found, under the facts of this case, that this was enough to give rise to a special relationship.
by sohalang | May 18, 2012 | Blog News, Uncategorized
On May 17, 2012, the Washington Supreme Court issued two decisions construing ensuing loss coverage under first party property policies. The first was Vision One, LLC, et al. v. Philadelphia Indem. Ins. Co., et al., 85350-9 (May 17, 2012). In Vision One, the Washington Supreme Court overturned a Court of Appeals decision favorable to the insurer and reinstated the judgment of the trial court, which had awarded the insured damages for an ensuing loss, but not for the cost to repair damage due to faulty workmanship and defective design.
The Supreme Court explained coverage under an ensuring loss provision as follows:
While coverage may be excluded when a certain peril causes a loss, a resulting or ensuing loss clause operates to carve out an exception to the policy exclusion. For example, a policy could exclude losses “caused directly or indirectly” by the peril of “defective construction,” but then an ensuing loss provision might narrow the blanket exclusion by providing that “any ensuing loss not excluded is covered.”
In this way, ensuing loss clauses limit the scope of what is otherwise excluded under the policy. Such clauses ensure “that if one of the specified uncovered events takes place, any ensuing loss which is otherwise covered by the policy will remain covered. The uncovered event itself, however, is never covered.”
The court provided the following example to illustrate how an ensuing loss clause works:
Suppose a contractor miswires a home’s electrical system, resulting in a fire and significant damage to the home. And suppose the homeowner’s policy excludes losses caused by faulty workmanship, but the exclusion contains an ensuing loss clause. In this situation, the ensuing loss clause would preserve coverage for damages caused by the fire. But it would not cover losses caused by the miswiring that the policy otherwise excludes. Nor would the ensuing loss clause provide coverage for the cost of correcting the faulty wiring.
The Washington Supreme Court explained that an ensuing loss clause may not cover losses that are otherwise excluded. However, the Supreme Court rejected the Court of Appeals’ analysis regarding whether collapse was an independent cause of loss.
[The Court of Appeals’] analysis fails to consider that collapse is a covered peril under the policy. Many events can be characterized as both a loss and a peril. Characterizing collapse as the loss, rather than the peril, rests on a semantic distinction without a difference and ignores the policy’s coverage for all risks, including those “[c]aused by collapse of the building.”
The Supreme Court held the efficient proximate cause rule only “applies only when two or more perils combine in sequence to cause a loss and a covered peril is the predominant or efficient cause of the loss.”
The efficient proximate cause rule operates as an interpretive tool to establish coverage when a covered peril “sets other causes into motion which, in an unbroken sequence, produce the result for which recovery is sought.”
(emphasis added). The court held that “[t]he opposite proposition, however, is not a rule of law.” “When an excluded peril sets in motion a causal chain that includes covered perils, the efficient proximate cause rule does not mandate exclusion of the loss.”
The court left open the possibility that an insurer may draft policy language to deny coverage when an excluded peril initiates an unbroken causal chain, but held that Philadelphia had not preserved that issue for appeal.
The second case, Sprague v. Safeco Ins. Co. of Am., No. 85794-6 (May 17, 2012), is the companion decision to Vision One. There, Safeco issued a “homeowner’s all risk insurance policy,” which excluded construction defects and rot. These exclusions were subject to ensuing loss provisions, which stated that “any ensuing loss not excluded or excepted in this policy is covered.” The policy in effect during the relevant period was not subject to a collapse exclusion.
Safeco’s expert determined that wood decay had resulted in substantial impairment of the insured’s home. The expert opined that inadequate flashing and inadequate ventilation of fin walls supporting two large decks caused the decay. The Washington Court of Appeals held that “the losses that are faulty construction and rot are not covered, but the ‘ensuing losses,’ those that result from such faulty construction or rot, are covered because such an ensuing loss is not excluded elsewhere in the policy.”
The Washington Supreme Court overturned the Court of Appeals and held that the rot and faulty workmanship exclusions applied to preclude all coverage because, unlike in Vision One, there was no ensuing loss.
As in Vision One, there is no coverage here for the fin walls because of the policy exclusions for rot and defective workmanship. If there had been losses other than to the fin walls—an injury to a person hurt by the collapse or property damaged by the deck failure—coverage would have existed under the ensuing loss provisions of the policy. Unlike Vision One, that was not the case here. The only loss was to the deck system itself. That loss resulted from rot caused by construction defects.
Accordingly, because the court found that both causes of loss were excluded, the ensuing loss provisions in the policy did not apply. The Sprague Court did not discuss the efficient proximate cause rule.
