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Phoenix Insurance Law Blog

Actual Cash Value Does Not Permit Depreciation of Labor Costs in Mississippi

The Federal District Court in Mississippi held in Titan Exterior, Inc. v. Certain Underwriters at Lloyd, London, 2018 WL 1057139, _____ F.Supp.3d _____ (No. Dist. Miss. February 26, 2018) that the concept of ACV did not allow for depreciation of labor costs. In this case, the insurer calculated an ACV payment by utilizing the replacement cost value less depreciation methodology. The insurer first determined the cost to replace the damaged property and then subtracted depreciation to determine its actual cash value. The policy did not define "actual cash value" or "depreciation." The insurer argued that the plain meaning of the term "value" included labor depreciation in as much as the concept of value meant the value of the entire property, including both materials and labor when calculating depreciation. The court rejected this argument, finding that the policy was ambiguous because some states had approved labor depreciation while other states rejected labor depreciation. Finding both positions reasonable, the court held that ACV, when defined as "replacement cost value less depreciation," and when "depreciation" was not further defined in the policy, an ambiguity existed which had to be construed in favor of the insured. 

Florida Requires UIM Coverage Limits to Mirror the Policy's Liability Coverage

In Amica Mutual Insurance Co. v. Willis, 235 So.3d 1041 (Fl. App. 2d Dist. 2018) the Florida Court of Appeals held that the scope of UIM coverage must mirror the policy's liability coverage. In so finding, the Court of Appeals struck down a golf cart exclusion in the automobile policy's UIM section because there was no reciprocal exclusion in the policy's liability coverage.

Oregon Court Finds That Insurer Bad Faith Is Not Elder Abuse

The Oregon Supreme Court, answering a certified question by the 9th Circuit Court of Appeals, held that bad faith delay or denial of payment of an insurance claim did not state a claim under Oregon's Financial Elder Abuse Statute. In Bates v. Bankers Life and Casualty Co., 362 Or. 337, 408 P.3d 1081 (Or. 2018), the Oregon Supreme Court held that an insurance company's alleged bad faith did not simultaneously constitute a violation of Oregon's elder abuse statute. In this case, the plaintiffs were senior citizens who had purchased long-term healthcare insurance policies issued by Bankers Life. The seniors sued Bankers, alleging that Bankers had developed onerous procedures to delay and deny insurance claims that were submitted by seniors. The seniors brought an elder abuse claim against Bankers under ORS §124.110. However, the Federal District Court dismissed the claim, finding that the Elder Abuse Statute only applied in "bailment or trust scenarios expressly referenced in the statutory language." The dismissal was appealed to the 9th Circuit Court of Appeals. In turn, the 9th Circuit certified a question to the Oregon Supreme Court on the issue.

Breach of Contract Exclusion Trumps Advertising and Personal Injury Coverage According to a California Court

In James River Insurance Co. v. Medolac Laboratories, 290 F.Supp.3d 956 (C.D. Cal. 2018) the court held that a CGL policy's breach of contract exclusion precluded personal and advertising injury coverage in a situation where the insured promised not to commit any personal and advertising injury offenses after being terminated from her prior relationship with the claimant.

Refining Florida's Bad Faith Law

In order to bring a bad faith claim in Florida, the following three elements need to be established: (1) the insurer's liability for coverage needs to be determined; (2) the extent of the insured's damages needs to be determined; and (3) it must be established that the insured placed the insurance company on notice. See Florida Statute §624.155(a). This statute provides a civil remedy in cases where the insurance company fails to settle its policyholder's claim in good faith or where the insurer commits any one of the several unfair claims handling practices identified in Florida Statute §626.9541(1)(I).

An Insurance Company's Refusal To Authorize Settlement While Defending Under Ror May Breach The Insurer's Duty To Defend And Settle Under Illinois Law According To Illinois Court Of Appeals

In this case, the insurance company authorized the retention of independent counsel chosen by the insured due to the insurer's reservation of rights. As the case was being defended, independent counsel advised the insurer that the demand made by the claimant for settlement was reasonable in light of the likelihood that an excess judgment would be entered. Notwithstanding this advice from independent counsel, the insurer threatened to withdraw coverage if the insured continued to negotiate a settlement with the claimant. The court in Rogers Cartage Co. v. Travelers Indemnity Co., _____ N.E.3d _____ 2018 Ill. App. (5th) 160098 (Ill. App. 5th Dist. April 5, 2018) held that under those case facts, the insurance company was estopped from asserting its coverage defenses.

Virginia Federal District Court Considers "All Sums" Allocation Under New York Law

In Hopeman Brothers v. Continental Casualty Co., 307 F.Supp.3d 433 (E.D.Va. 2018) the Virginia Federal District Court, in an asbestos case, determined that New York's substantive law applied to the allocation issue before the court. The problem for the Virginia Federal District Court was that New York had not adopted a pro rata or all sums allocation rule applicable in all cases. Reviewing the judicial landscape of New York law, the Virginia court noted that the New York court in Matter of Viking Pump, 27 N.Y.3d 244, 52 N.E.3d 1144 (2016) had applied an all sums allocation. However, the Viking Pump court did so based upon the specific language in the policies at issue which contained non-cumulation and prior insurance provisions which were designed to prevent stacking of the limits of multiple triggered policies. Reviewing these provisions, the court determined that the policy anti-stacking provision had contemplated that multiple successive insurance policies could indemnify the insured for the same loss or occurrence and therefore were inconsistent with a pro rata allocation. The Virginia court also noted, however, that when insurance policies under New York law did not contain non-cumulation or prior insurance clauses, the New York court's decision in Consolidated Edison Co. of New York v. Allstate Insurance Co., Con Edison, 98 N.Y.2d 2018, 746 N.Y.S.2d 622, 774 N.E.2d 687 (2002), controlled. In Consolidated Edison, the New York Court of Appeals had adopted a "pro rata" approach to allocation was being consistent with the policy's requirement that injury or damage occurred during the policy period.

The Seventh Circuit Applies Innocent Co-insured Doctrine In Displacing The Insurance Policy's Intentional Act Exclusion

In Streit v. Metropolitan Casualty Insurance Co., 863 F.3d 770 (7th Cir. 2017), the U.S. Seventh Circuit Court of Appeals held that the insurance company could not rely on the policy's intentional act exclusion to bar innocent co-insureds from receiving coverage for an arson loss because the exclusion conflicted with the terms of Illinois' standard fire insurance policy. In this case, the insured's son intentionally set fire to the insured home. Because the son was related to the insureds and lived in the home, the insurer denied coverage under the policy's intentional acts exclusion. Under Illinois law, if there was a conflict between an insurance policy and the standard fire insurance policy, the standard fire insurance policy controlled. Under the Illinois standard fire insurance policy, an insurer was permitted to disclaim coverage for intentional acts only if the damage occurred by means "within the control or knowledge of the insured." In this case, the insurance company policy permitted the insurance company to disclaim coverage so long as there was any intentional loss caused by any party, including innocent co-insurance. This provision conflicted with the Illinois standard fire insurance policy. Therefore, the Court struck down the policy's intentional act exclusion, finding coverage for the innocent co-insureds. 

Seventh Circuit Court Of Appeals Rejects "integrated Systems" Doctrine In Determining Coverage For A Third-party Property Damage Claim In The Context Of Construction Defect Litigation

In Haley v. Kolbe Kolbe Millwork Co., 866 F.3d 824 (7th Cir. 2017) reh'g denied (Sept. 7, 2017) the Seventh Circuit Court of Appeals, applying Wisconsin law, found that a home has components. This case involved a putative class action against the insureds' defective windows that had been installed in residential properties. The District Court applied the "integrated systems" doctrine in finding coverage. The "integrated systems" doctrine extends the "economic loss" rule to cases where a defective product is integrated into a larger product and then the larger product fails to perform as expected due to the defective component. The Seventh Circuit Court of Appeals held that the District Court had misapplied this doctrine. The Court found that the "integrated system" was not considered third-party property damage, but was merely a defective product for which no tort recovery was allowed. The insurance companies argued that the homes were "integrated systems" and the windows that had been installed by the insured were merely components that rendered the entire system (each home) defective. The Court noted that the defective windows had allegedly caused damage to sheetrock, framing, and other components that the insured did not supply and therefore qualified as third-party property damage.

Federal District Court Predicts That The Iowa Supreme Court Will Apply Pro-rata Allocation To Construction Defect Claims

In Pella Corp. v. Liberty Mut. Ins. Co., 244 F.Supp.3d 931 (S.D. Iowa 2017) the District Court held that a CGL policy's non-cumulation clause did not require an "all sums" allocation approach where the insured could recover its entire indemnity obligation from a single insurer, up to the policy limits. However, the Court also held that while pro-rata allocation applied to indemnity costs, an "all sums" allocation applied to defense costs. The policy did not impose a duty to defend, but only an obligation to reimburse defense costs as an allocated loss adjustment expense. The Court noted that while the duty to defend and the duty to reimburse were similar, general principles applicable to the duty to defend, as well as the policy language, allowed the Court to allocate indemnity and defense differently. The duty to defend was broader than the duty to indemnify. The policy did not limit coverage of defense costs to those incurred during the policy period, nor did the policy suggest any allocation method for defense costs. Therefore, the Court concluded that an all sums allocation of defense costs was reasonable.

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