Insurance

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.

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 Hartford rescinded coverage on the basis that the misrepresentation increased its risk of loss under the crime insurance, and the district court agreed.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.

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.

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.