Experience

The Eighth Circuit agreed with the district court that an employer's commercial auto insurance policy provided only excess coverage, at most, to an employee while driving his own auto, even if the employee is involved in an accident while in the course and scope of employment.

 

The employee's personal auto insurer argued that the employee was a named insured under the employer's auto insurance policy, and the employer's auto insurer was responsible as a primary insurer. At issue was the interpretation of two provisions in the employer's auto policy: (1) a controlled-entities endorsement providing who was a named insured, and (2) an employees-as-insured endorsement.

 

 

The controlled-entities endorsement provided that the employer and listed subsidiaries were named insureds, as well as "any other divisions, subsidiaries and persons and organizations under the control of the named insured." The employee's personal auto insurer argued the employee was a named insured because he was a "person."

 

 

The Eighth Circuit concluded that the employee was not a named insured, and affirmed summary judgment in favor of the employer's auto insurer, Sentry Insurance. The court noted that the controlled-entities endorsement had to be read in light of the more specific employees-as-insured endorsement, which made employees only "insureds," not named insureds. The employees-as-insured endorsement would be meaningless if employees were named insureds under the controlled-entities endorsement. And it would be unreasonable for the employer's auto policy to provide primary coverage where the policy specifically provided only excess coverage to employees, at most, under certain conditions.

 

 

Meagher & Geer represented the employer's auto insurer, Sentry Insurance. To read the opinion, click here.

The Seventh Circuit held that Scottsdale Indemnity Co. and National Casualty Co. have no duty to defend or indemnify the Village of Crestwood, Illinois, regarding claims that it supplied its residents with polluted water for more than twenty years, even though the Village was not the original polluter of the water. The decision is important in delineating the scope of the pollution exclusion, a contentious issue with significant implications for insurers and insureds. Some jurisdictions apply the broad, plain language of the pollution exclusion; others narrow the exclusion so that it has effect only in those situations involving “traditional environmental pollution.” The Seventh Circuit held that even in a jurisdiction such as Illinois, which requires the narrower “traditional environmental pollution” interpretation, the exclusion is not so narrow as to bar coverage only for the original polluter or to claims where environmental clean-up costs could have been or were incurred.

The insurance-coverage dispute arose out of allegations that the Village delivered tap water contaminated with perchloroethylene, vinyl chloride, and dicloroethylene to Village water consumers. Hundreds of the Village’s current and former residents sued the Village in over two dozen lawsuits, alleging they were exposed to contaminated drinking water from 1986-2007. The claimants allege that the contaminated water caused cancer, other serious illnesses, and death.

Scottsdale Indemnity Co. and National Casualty Co. insured the Village under twenty-two liability policies with more than $50 million in coverage limits. They declined to defend and denied coverage based on the pollution exclusion in the policies.
At issue was the scope of the absolute pollution exclusion. Under American States Insurance Co. v. Koloms, 687 N.E.2d 72 (Ill. 1997), courts applying Illinois law do not look solely to the exclusion’s plain language. Rather, Koloms instructs that the exclusion applies only to injuries arising out of “traditional environmental pollution.”

Judge Posner, writing for the Seventh Circuit, rejected the Village’s argument that the pollution exclusion should not apply because it was not the original polluter: “The defendants point out that they didn’t originate the contamination. That is irrelevant. The exclusion is of liability for harms resulting from the ‘dispersal,’ ‘migration,’ or ‘release’ of contaminants, not their creations or just their first distribution.” Though not the original polluter, the Village distributed the chemicals from the water well and “caused” the contamination of its water supply. Further, the court concluded that the exclusion’s wording makes clear that the pollution exclusion is not limited merely to situations where environmental clean-up costs were or could be incurred.

The Seventh Circuit also rejected the Village’s argument that the exclusion should not apply when the insured’s “core business activity” involves distributing the contaminated product. Separating high-risk from low-risk insureds would not be feasible. Moreover, the court rejected the Village’s argument that the lawsuit was not about pollution at all because the Village’s water supply was allegedly below the maximum contaminant level allowed by environmental regulations. The court concluded that contaminant levels are unimportant: “All that counts is that the suits are premised on a claim that the perc caused injuries for which the plaintiffs are seeking damages, and that claim triggers the pollution exclusion.”

The rationale for the decision is based on extensive consideration of the intersection of the economics underlying the exclusion, the nature and pricing of insurance, and the exclusion’s history and wording. Judges Richard A. Posner, Diane P. Wood and David F. Hamilton sat on the panel for the Seventh Circuit.

In this action, Bradley M. Jones and Anthony J. Alt represented Scottsdale Indemnity Company.

To read the opinion, click here.

The case involved the death of Mark Czapski, who was employed by Motor Werks as a car salesman. Mr. Czapski was killed when Christopher Maher, an individual test driving a Motor Werks BMW auto that was for sale, was involved in an automobile accident. Ms. Czapski was a passenger in the vehicle during the test drive. Mr. Maher was sued by the Czapski estate and sought coverage under the National Casualty policy claiming to be an insured under the policy.

National Casualty’s policy included an exclusion that stated customers are not insureds under the policy. The issue before the court was whether Mr. Maher was a customer and, consequently, not an insured under the policy. Maher and the plaintiff argued that “customer” was not defined within the policy and, therefore, was ambiguous and that customer should include someone who makes a purchase. Reversing the trial court’s finding of an ambiguity, the court held that a test driver of the vehicle is a customer within the common and ordinary meaning of the word, and that National Casualty did not owe a duty to indemnify Mr. Maher because he did not qualify as an insured.

Kurt Zitzer represented National Casualty before the trial court, and Tom Crouch and Kurt represented National Casualty on appeal.

A Minnesota federal judge granted summary judgment in favor of Hartford Casualty Insurance Company (represented by Meagher & Geer), against a technology company seeking defense and indemnification for copyright infringement claims under the Hartford liability policy's "personal and advertising injury" coverage.

Although the original and amended underlying complaints against the insured alleged that the insured infringed the plaintiff's computer code, U.S. District Judge Donovan W. Frank ruled there were no allegations that the insured infringed that code in its "advertisement." Judge Frank also concluded that coverage did not apply because the plaintiff's injuries were caused only by the insured's alleged theft and sale of the copyrighted code, and not from the presence of isolated portions of the code present on the insured's website.

Judge Frank also ruled that even if the plaintiff's allegations had otherwise fallen within the Hartford policy's insuring grant, coverage would be excluded by the Hartford policy's "breach of contract" exclusion. Although the complaints did not state any claims labeled "breach of contract," the court concluded that all of the plaintiff's claims were plainly based on the insured's officers' alleged breach of confidentiality provisions contained in a prior technology consulting contract between the officers and the plaintiff. He dismissed the coverage claims against Hartford with prejudice.

Meagher & Geer represented Hartford Fire Insurance Company (Hartford) in this complex insurance coverage litigation regarding a dispute over commercial crime insurance that Hartford issued to Pioneer Industries. After Pioneer's chief financial officer died, Pioneer discovered that he had embezzled more that $500,000 from the company during the eleven years prior to his death. While investigating the claim, Hartford discovered that the same CFO had made numerous misrepresentations on several applications for crime coverage during the time that Hartford insured Pioneer. Hartford rescinded coverage on the basis that the misrepresentation increased its risk of loss under the crime insurance, and the district court agreed. On appeal the Eighth Circuit affirmed the application and scope of the Minnesota statute as argued by Hartford, and affirmed that Hartford could rescind coverage as a result of misrepresentations without having to demonstrate "but for" causation.

Meagher & Geer represented the children of the decedent. The surviving spouse offered a will for probate under which he benefitted to the exclusion of the decedent’s children. The court concluded after a court trial that the decedent died intestate. The purported will was denied probate both because the decedent lacked testamentary intent and because it was procured through the undue influence of the surviving spouse. The trial court held so even though the attorney, who drafted the will and was present and witnessed at the time of the signing, testified that there was no influence and that decedent retained the requisite capacity.

The Arizona Court of Appeals held that Morris agreements do not extend to agreements that included one insurance company “setting up” other carriers who are allegedly not participating in a mutual insured’s defense or indemnity. Leflet was a construction defect case. The putative insured, Hancock Communities, was defended by its own carrier, and sought additional insured coverage from several other carriers. A dispute arose over defense and indemnity allocations between Hancock’s own primary carrier, and the additional insurers, referred to in the agreement as the “Non-Participating Insurers.” To resolve the case, Hancock’s carrier paid a fraction of its policy limit, and entered into an $8.4 million Morris agreement along with its insured and the claimant.

While the court reaffirmed the rule that a carrier must first have notice of a Morris agreement to be bound by its terms, the court clarified that notice means actual and meaningful notice, and not just constructive notice that the parties are contemplating a Morris agreement. Further, notice of the Morris agreement must include terms sufficient to cause the agreement, if entered into, to be binding and enforceable.

More important, however, was the court’s holding that a Morris agreement which benefits one carrier against another is not a Morris agreement at all. The policy behind Morris was to remove the insured from the potentially crushing exposure of personal liability, and transfer the risk of coverage and collection of the judgment upon the claimant. As the court noted “an insurer that reserves its rights may not employ Morris to reduce its liability below policy limits, and an insured that facilitates such an effort breaches its duty to cooperate with its other insurers.”

Kurt M. Zitzer and John C. Hendricks represented the client at the trial court and were successful in winning summary judgment. Thomas H. Crouch successfully represented the client on appeal, and argued the case on behalf of all the insurance carriers.

The District Court of Arizona held that under either California or Arizona law, a carrier that reserves the right to seek reimbursement of defense and indemnity payments may recover those payments from its insured if it is adjudicated that the policy of insurance ultimately did not cover the claim.

In Phillips, the carrier provided the insured law firm with errors and omissions coverage. A suit was filed against the insured, and the carrier agreed to defend the insured subject to a reservation of rights that included issues of whether the claim had first been made against the insured during the policy period, whether the insured had prior knowledge of the existence of the claim before the carrier issued the policy, and whether the insured failed to disclose a potential claim to the carrier when the application for insurance was made. The carrier subsequently settled the suit against the law firm, under reservation of rights, and with the consent to the insured. The insurer client moved for judgment on the pleadings, requesting that the court determine whether the carrier has a right of reimbursement from the insured if the policy ultimately did not cover the claim. The court found that because the carrier had reserved its rights to include the right to seek reimbursement, and because the insured had consented to the settlement with the prior knowledge that the carrier had reserved its rights, the carrier was entitled to be reimbursed from the insured for the defense and indemnity paid to settle an uncovered claim. In so holding, the court noted that public policy favors such a result:

"If an insurer waived its coverage position simply by settling a claim for the insured, the insurer would be forced either to refuse to settle and face a bad faith claim, or to settle the lawsuit and lose its coverage defenses. [citation omitted] The 'resulting Catch-22 would force insurers to indemnify non-covered claims,' violating 'basic notions of fairness.' Permitting an insurer to make a reservation of rights not only protects against unjust enrichment of the insured, but also 'advances significant public policy considerations."

Kurt M. Zitzer represented Navigators Insurance Company as counsel along with co-counsel from the firm of Wiley Rein.

The Third Circuit Court of Appeals upheld the Animal Exclusion despite a negligent owner claim.  Tank the pit bull attacked the claimant, who then secured a default judgment of over $1,000,000 against Scottsdale Insurance Company's insured.  Following judgment, the claimant sought to obtain the benefits of the insured's liability coverage, under a homeowner's policy issued by Scottsdale.  The claimant also sought damages in excess of policy limits, arguing that Scottsdale had refused to defend and indemnify its insured in bad faith.  The policy contained an Animal Exclusion endorsement, barring insurance coverage for "'bodily injury' . . . caused by any animal."  The claimant argued that the exclusion did not apply because the judgment obtained in the underlying liability action was predicated on the dog owner's negligence in permitting the dog attack, and not based on Tank's attack on the claimant.  Meagher & Geer distinguished a line of New Jersey case law applying the doctrine of concurrent causation, where an insured can recover where there are both covered and excluded causes of loss.  Meagher & Geer argued that the doctrine did not apply because the dog owner's negligence was not a concurrent cause, but was instead inextricably intertwined with Tank's attack, and thus the exclusion operated to bar coverage.  The Third Circuit Court of Appeals agreed, concluding that Scottsdale had no duty to defend or indemnify the insured and had not acted in bad faith.

The insured brought this action alleging that Grinnell failed to properly pay his damage claim and then, as required by the statute, sought to amend the complaint to add a claim pursuant to Minnesota’s relatively new bad faith statute, Minn. Stat. 604.18. The motion to amend was made pursuant to the insured’s affidavit alleging that a Grinnell adjuster told him that if he insisted on having his deck replaced, Grinnell would not replace his wood roofs. Grinnell denied this allegation, but the court allowed the amendment. After discovery, Grinnell brought a motion for partial summary judgment on the statutory claim only, alleging that the insured’s deposition testimony did not support a bad-faith claim. The insured argued that the court’s right to grant summary judgment is restricted by the statute’s procedures setting out when a court may award taxable costs for bad faith. The court rejected that argument, adopting Meagher & Geer’s position that the statute does not control when a court may dismiss a claim pursuant to Rule 56. The court granted Grinnell summary judgment on the statutory claim, determining that the insured’s later-occurring deposition testimony contradicted his earlier affidavit and that there was, thus, nothing in the record that suggested that Grinnell’s refusal to replace the insured’s roofs lacked a reasonable basis.