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Phoenix Insurance Law Blog

CALIFONIA COURT FINDS THAT SPECULATION UPON HOW AN EMPLOYEE WAS INJURED DID NOT GIVE RISE TO A POTEINTIAL FOR COVERAGE AS AN ADDITIONAL INSURED

The issue of whether a general contractor qualified as an additional insured under a sub contactor excess policy for a work related injury turned on whether there was evidence that the sub-contractor caused the claimants injuries according to the recent case of Advent Inc. v. National Union Fire Insurance Co. 6Cal AP 5th 443, 2016 WL7100489(6th Dist., December 6th 2016)

In Advent, the insurance company, National Union, issued both primary and excess liability insurance to Johnson Western Gunite, a subcontractor on the Aspen family village construction project in California. Topa Insurance Company (Topa) issued an excess policy to the project general contractor, Advent. A subcontractor employee, Jerry Kielty, was injured when he fell down an unguarded stairway shaft on the project sight. At the time of the fall, Kielty was retrieving a piece of plywood at the request of the sub-contractors' foreman. Kielty did not need to enter the building where the unguarded stairway shaft was in order to retrieve the plywood. No one knew why Kielty enter the building and Kielty could not remember, himself, how he was injured.

MAINE SUPREME COURT WAYS IN ON APROTIONING DAMAGES

The Maine Supreme Court in Harlor v. Amica Mutual Ins. Co., 2016 WL 6518589 (ME November 3, 2016) held that when an insurance company refuses to defend its insured on a mixed complaint containing allegations of both potentially covered and uncovered claims the insurer would be liable only for that portion of the settlement between its insured and the claimants representing payment for covered claims.

KENTUCKY COURT FINDS THAT OWNED-BUT-NOT-SCHEDULED POLICY EXCLUSION FROM UIM COVERAGE WAS ENFORCEABLE

Kentucky Supreme Court held in Philadelphia Indem. Ins. Co., Inc. v. Tryon, 502 S.W.3d 585 (Ky. 2016) that UIM exclusion pertaining to owned-but-not-scheduled automobiles were enforceable under Kentucky law provided that the policy expressly and plainly apprised the insured of the exclusion. According to the Supreme Court, Kentucky's public policy did not bar reasonable UIM exclusion provisions. Under Kentucky law, UM coverage was required by statute but UIM coverage was not. The Kentucky Supreme Court had previously ruled that a policy exclusion from the UIM definition of a vehicle available for the insured's regular use was enforceable and the fact that UIM benefits were non-mandatory by nature under Kentucky law, the Kentucky Supreme Court found that Philadelphia Indemnity's policy encompasses UIM exclusion provisions like the owned-but-not-scheduled exclusion.

THE CALIFORNIA COURT OF APPEALS FINDS THAT A 10:1 RATIO OF COMPENSATORY DAMAGES TO PUNITIVE DAMAGES IS APPROPRIATE IN AN INSURANCE BAD FAITH CASE AND THAT THE RATIO SHOULD BE NO HIGHER

In Nickerson v. Stonebridge Life Ins. Co., 5 Cal.App.5th 1, 209 Cal.Rptr.3d 690 (2nd Dist. 2016), the California Court of Appeals recently reduced a $19M punitive damages award in an insurance bad faith case to $475,000 applying a 10:1 ratio of compensatory damages to punitive damages.

CALIFORNIA COURT OF APPEALS HOLDS THAT AUTOMOBILE POLICY'S COLLISION COVERAGE DID NOT REQUIRE THE INSURANCE COMPANY TO PAY FOR THE CAR'S LOST MARKET VALUE

In Baldwin v. AAA Northern California, Nevada & Utah, 204 Cal.Rptr 3d 433 (1st Dist. 2016), the Court held that an automobile insurer had no obligation to pay the "pre-accident value" of the insured vehicle under the policy's collision coverage provision which gave the insurer the option to repair the vehicle and which expressly excluded diminution in value damages. The Court held that the insurer did not breach the policy's implied covenant of good faith and fair dealing by not compensating its insured for the diminished value of the vehicle.

THE IDAHO SUPREME COURT REFUSES TO ENFORCE UIM POLICY ANTI-STACKING PROVISIONS

The Idaho Supreme Court in Gearhart v. Mutual of Enumclaw Ins. Co., 160 Idaho 666, 378 P.3d 454 (Idaho 2016), found that a UIM anti-stacking provision was ambiguous and, therefore, unenforceable. In Gearhart, the Court considered a UIM policy's anti-stacking clause which stated that the maximum limit of liability under all of the policies that were issued was the highest applicable limit under any one policy. However, the Court found this clause to be ambiguous and, therefore, did not preclude a passenger from recovering the total cumulative UIM benefits under each policy issued to the insured's parents. The majority opinion concluded that the anti-stacking clause in question was ambiguous because it could be construed to "mean that one aggregates all of the applicable policy limits and then the total of the limits constitutes the highest limit of any one policy." The dissent characterized the majority's conclusion as "nonsensical." The dissent would have found the anti-stacking clause to be neither ambiguous nor complex.

THE ELEVENTH CIRCUIT COURT OF APPEALS CONSIDERS EXHAUSTION REQUIREMENT IN EXCESS UM LIABILITY POLICIES UNDER GEORGIA LAW. THE ELEVENTH CIRCUIT UPHELD THE POLICY EXHAUSTION REQUIREMENTS

Recently, the Eleventh Circuit Court of Appeals in Coker v. American Guar. & Liab. Ins. Co., 825 F.3d 1287 (11th Cir. 2016) (applying Georgia law) held that UM policy exhaustion requirements were enforceable under Georgia law. The Court found that Georgia's UM statute did not transform excess policies into primary policies.

IN THE STATE OF WASHINGTON INSUREDS DO NOT WAIVE ATTORNEY-CLIENT AND WORK-PRODUCT PRIVILEGES WHEN THEY SEEK THE COURT'S APPROVAL OF A COVENANT JUDGMENT SETTLEMENT WHICH ASSIGNS TO THE ADVERSE PARTY THE INSURED'S BAD FAITH CLAIM AGAINST THE INSURER

In Steel v. Philadelphia Indemnity Ins. Co., 195 Wash.App. 811, 381 P.3d 111 (Wash. App. 2016), the Washington Court of Appeals held that insurance companies do not waive attorney-client privilege or work product protection when their insured enters into a covenant judgment settlement that is subject to judicial determination as to reasonableness. In Steel, a day care center's employee was convicted of child rape and child molestation of two children at the day care center. At the time, the defendants were insured under a Philadelphia Indemnity policy providing $1M in coverage. Plaintiffs offered to settle their claims for $4M which was rejected by Philadelphia. Shortly before trial was scheduled to begin, the insureds entered into a $25M covenant judgment settlement with the plaintiffs, receiving a covenant not to execute in return, for an assignment of the insureds' bad faith claims against Philadelphia.

CALIFORNIA COURT OF APPEALS FINDS THAT AN EXCESS INSURER CAN SUE A PRIMARY INSURER FOR BAD FAITH FAILURE TO SETTLE UNDER AN EQUITABLE CONTRIBUTION THEORY TO RECOVER THE EXCESS INSURER'S CONTRIBUTION TO SETTLEMENT OF A CLAIM AGAINST THE INSURED

The California Court of Appeals recently held that an excess judgment was not a necessary element to an equitable subrogation claim brought by an excess insurer against a primary insurer when the primary insurer failed to settle the underlying case. In ACE American Ins. Co. v. Fireman's Fund, 2 Cal.App.5th 159, 206 Cal.Rptr.3d 176 (2d Dist. 2016), the Court held that the excess insurer could sue the underlying primary insurer for bad faith failure to settle under equitable contribution when the excess insurer contributed to a settlement of the claim against its insured. In this case, the Court held that the absence of a litigated judgment did not preclude the excess insurer from establishing the damages element of a claim for bad faith failure to settle under an equitable subrogation theory. The Court held that an excess insurer, when faced with a primary insurer's unreasonable refusal to pay a settlement demand within policy limits could contribute to the settlement on behalf of its insured and then sue the primary insurer to recover the amount of the settlement.

THE 10TH CIRCUIT COURT OF APPEALS FINDS THAT COLORADO'S "FAIRLY DEBATABLE" DEFENSE IS NOT ABSOLUTE

In The Home Loan Investment Co. v. St. Paul Mercury Ins. Co., 827 F.3d 1256 (10th Cir. 2016), the Tenth Circuit Court of Appeals held that a property insurance company's denial of a fairly debatable claim was not per se reasonable. The insurer, St. Paul Mercury Ins. Co., argued that because its coverage decision was "fairly debatable," it was, as a matter of law, not unreasonable. St. Paul argued that a claim's fair debatability was outcome determinative because, under Colorado law, an insurance company could not act unreasonably in denying a fairly debatable claim. In response, the insured argued that a claim's "fair debatability" was merely one factor in the overall analysis of whether the insurer acted reasonably in delaying or denying coverage. The Tenth Circuit rejected St. Paul's argument.

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