Second Circuit Holds Pollution Liability Policy Not Triggered

In its recent decision in Colonial Oil Indus. v. Indian Harbor Ins. Co., 2013 U.S. App. LEXIS 12946 (2d Cir. June 25, 2013), the United States Court of Appeals for the Second Circuit, applying New York law, had occasion to consider the scope of coverage afforded under a pollution liability insurance policy.

Indian Harbor insured Colonial Oil under a Pollution and Remediation Legal Liability Policy, insuring pollution conditions on, at, under or migrating from any covered location.  The policy defined “pollution condition” as “[t]he discharge, dispersal, release, seepage, migration, or escape of POLLUTANTS into or upon land, or structures thereupon, the atmosphere, or any watercourse or body of water.” 

At issue in the litigation was Colonial Oil’s right to coverage for having delivered PCB contaminated oil to a customer.  The oil was properly deposited into the customer’s storage tank, as intended.  The presence of PCB in the oil, however, required Colonial Oil to incur costs to decontaminate and clean its customer’s tank and other equipment.  Colonial Oil argued that it was entitled to coverage under its pollution liability for these cleanup costs.  Indian Harbor, denied coverage for these costs on the basis that the policy only insured against releases of pollutants into the environment and that the transfer of oil from a tanker truck to a customer’s tank, as intended, is not a covered discharge, dispersal, release, seepage, migration or escape of a pollutant.  The United States District Court for the Southern District of New York agreed and granted Indian Harbor’s motion to dismiss.

On appeal, the Second Circuit affirmed the lower court’s ruling, observing that under New York law as set forth in numerous decisions, primarily involving interpretation of the pollution exclusion, the terms used in the policy’s definition of “pollution condition” such as discharge, dispersal, etc. are considered terms of art under environmental law relating to disposal or containment of hazardous waste.   These cases, explained the court, make clear that:

… the "reasonable expectations of a businessperson" viewing the contested Policy language would be that it is intended to provide coverage for environmental harm resulting from the disposal or containment of hazardous waste. This case-which merely involves the unwitting introduction and transfer of polluted oil into containers otherwise meant to hold that oil-does not fall within those parameters.

As such, the court agreed that Colonial Oil’s transfer of adulterated oil into its customer’s tank did not create a pollution condition for which Indian Harbor’s policy was triggered.

Limitation Periods in Claims for Contribution and Indemnity

The Court of Appeal recently commented on limitation periods in claims for contribution and indemnify, clarifying that s. 18 of the Limitations Act imposes a two year limitation regardless if the claim is based in contract or tort.

In Canaccord Capital Corp. v. Roscoe, [2013] ONCA 378 (C.A.), the defendant was an investment advisor employed by the plaintiff, an investment dealer.  The employment agreement provided that the defendant would indemnify the company for any claim arising out of his acts or omissions in the course of his employment.  In 2008, two clients sued Canaccord and Roscoe for losses they sustained in an investment for which Roscoe was their advisor.  Canaccord filed a joint defence and did not crossclaim against Roscoe for indemnity.  The claim was settled in 2009 without Roscoe's involvement.  Canaccord issued a claim for indemnity in 2011, more than three years after the initial claim.  Roscoe brought a summary judgment motion on the basis that the limitation period had expired.  The motions judge held that that s. 18 of the Limitations Act does not apply to indemnity claims arising out of contract.  She held that the claim was not one for contribution and indemnity, but rather one of a breach of the employment contract.  She held the limitation began to run from the settlement date.

Roscoe appealed and the Court of Appeal allowed the appeal.  Section 18 refers to "wrongdoers", not just "tortfeasors" and so is broad enough to include claims arising out of contract.  The limitation began to run when Canaccord was served with the claim, and accordingly, the action was out of time.

Maine Federal Court Holds Assault and Battery Exclusion Applicable

In its recent decision in Iasbarrone v. First Financial Ins. Co., 2013 U.S. Dist. LEXIS 86605 (D. Maine June 20, 2013), the United States District Court for the District of Maine had occasion to consider the scope of an assault and battery exclusion, particularly in the context of a liability insurer’s duty to defend.

First Financial Insurance Company (“FFIC”) insured Samaritan, Inc., a food pantry, under a general liability policy.  Underlying plaintiff, Lisa Iasbarrone, alleged that she was turned away from Samaritan, and that when she attempted to reenter Samaritan’s premises, she was grabbed by her left wrist and pulled down, causing her to sustain injuries to her wrist.  Ms. Iasbarrone later filed suit against Samaritan, and the complaint specifically alleged that an agent of Samaritan “grabbed Plaintiff by the wrist and pulled down in an effort to prevent the Plaintiff from entering the property.”  Samaritan tendered its defense to FFIC, which denied coverage on the basis of an assault and battery exclusion barring coverage for bodily injury:

(2) Arising in whole or in part out of any "assault" or "battery" committed or attempted by any person. . . . [or] (4) Arising in whole or in part out of any actual or threatened verbal or physical confrontation or altercation committed . . . by any person . . . .

Ms. Iasbarrone later settled her suit against Samaritan for $98,000 and an assignment of rights against FFIC.  She later filed a direct action against FFIC to recover the settlement amount plus legal fees she claimed FFIC owed to Samaritan for having breached its duty to defend.

On motion for summary judgment, FFIC argued that the allegation that plaintiff’s injuries were caused by physical contact demonstrated that the claim fell entirely within the exclusion.  Ms. Iasbarrone, on the other hand, argued that notwithstanding the allegations in her own complaint, facts might be established at trial demonstrating that she was injured through other causes.  For instance, she claimed that “the trial evidence could have established that [the insured’s agent] did not grab her, but injured her as she pulled on a door to the premises while [the agent] inadvertently pushed on the door.” 

The court rejected Ms. Iasbarrone’s attempt to argue that facts could demonstrate causation other than what she alleged.   The court specifically concluded that by having alleged specific facts regarding the cause of her injury, she could not then rely on the possibility that evidence introduced at trial could prove an alternate, potentially covered, cause injury.  As the court explained:

The Plaintiff attempts to introduce the possibility that there was no physical contact between herself and Lavoie by inserting a door into the narrative. But this fundamentally changes the allegations of the complaint. In the complaint, the Plaintiff claims that Lavoie's negligence was the "unreasonable amount of force" he applied to her wrist. She does not claim that Lavoie injured her by pulling a door closed. Unlike a plaintiff who does not know how her injury was caused, the conduct that injured Iasbarrone--a wrist grab--was known to her, and it was part of the short and plain statement of her claim.

As such, and because the allegations of grabbing and pulling constituted an excluded act of battery, the court agreed that FFIC had no duty to defend or indemnify.

Why to insure life?

Most important for a man this his own life and health. For that in what that to secure itself a measure and near from an accident a man makes decision to insure itself or near. Insurance can be executed in case of illness, receipt of trauma or death.

All people are death, as it does not sound terrible. Many people it so much worries, and in order that to the near people though as that to keep going, they insure the life. In the cases of death, relatives get the certain sum of money.

Certainly, death it is an extreme case that can happen with insure. Many people insure the children in order that to accumulate money on their full age. On the achievement of child 18 summer age the accumulated money it is possible to take off and give to it adult to the child.

Loss of ability to work too one of types of insurance. If a man works at dangerous work, and the fact of traumatism is great, he insures itself against an accident, if such comes, a man gets some time indemnifications from an insurance company

Life-insurance can be divided by three kinds:
 1. story insurance, it is a type of bank deposit practically. A man pays the certain sum of insurance payment in a year. If on expiration of set time an accident insured did not come, a sum is paid insure exceeding primary on 3 or 5%.

2. risk insurance without accumulation, payment produced in case that an accident insured came. If for a year such case fixed it was not, money burned, and insure gets nothing. It one of the cheapest types of life-insurance.

3. kipp insurance, paid in any the cases, even if an accident insured did not come. Id est you assuredly will get the money back in any the cases.

Is insurance of credit a necessity or additional service of banks?

A man that though one time designed a credit certainly ran into additional life-insurance. Whether this insurance is needed to the borrower or it is additional earnings of banks and insurance companies only.

Two types of insurance differentiate at registration of credit : loss of workplace in the period of payment of credit and death of borrower. If the first kind has more or less adequate sense yet, then the second kind probably the superfluous knocking out of monetary resources for a borrower. At losses of workplace an insurance company will be able to recover not all sum of credit, and just 50 or 90% sums of credit.

In respect of mortgage insurance, then,in obedience to a legislation, will be to insure the object of the real estate in any the cases. This one of basic terms of all banks. Jars give a few insurance companies at choice, which one to give preference to decide it will be had. It is better to honour reviews about every insurance company, before to take your choice. And insurances at other types of credit a for example consumer or credit auto, takes place at discretion of citizen. In this case a rate on a credit and overpayment increase in times, that to result accordingly in a rise in prices of credit.

On the average on Russia an overpayment for the fact of presence of insurance makes about 10 %. Some bank employees do not ask citizens about that, whether they need in this insurance or no. And simply напросто independently inscribe insurance without the privity of borrower. Such actions are not legal. To avoid such misunderstanding turn the attention on a credit agreement, ask specialists concerning these types of insurance. Remember that imposing of additional insurance they do not have right, if it is a not mortgage.

Mortgage insurance

At the purchase of apartment in a mortgage, a bank obligates a borrower also to conclude a treaty of mortgage insurance with some insurance company. Formally, you are free to choose insurance organization coming from the preferences, but in practice, a bank is given at choice by a list from a few insurance companies with that to the bank more comfortable to cooperate.

For the conclusion of treaty of mortgage insurance, it is required to present documents the list of that is formed by a bank and insurance company. In addition, evaluation examination of the again acquired property is conducted without fail. On the special requirements of bank and insurance company medical examination of the state of health of borrower and third persons(guarantors) can be required.

Complex mortgage insurance, as a rule, consists of three insurance foods, namely:

it is Insurance of ability to work and life of borrower. Insurance indemnification is paid in cases to disability(both temporal and permanent), disability, death of borrower. In case of disability of 1-2 groups or death, an insurer undertakes responsibility on payment of mortgage loan
it is property Insurance from destruction and death. By accidents insured on this policy the damages of the real estate will be considered from a fire, flood, other negative natural factors.

Also insurance indemnification will be paid in case of actions of another persons entailing the complete, or partial damages of your accommodation.

- Taking into account prevalence of different knavish charts, there is yet and the title insurance sent to defence of property interests. Forfeiting of property confesses an accident insured right on an accommodation as a result of illegal actions of salesman or person building

Types of insurance

Social INSURANCE
 Presently there are many various types of services at the market of insurance. Such kind as social security exudes between them. It implies under itself forming of money funds for maintenance of the disabled persons not accepting, on  that to reason of participating in a labour process. Assists development of smoothing of standard of life of different task forces. Finances maintenance temporally of unemployed persons, and similarly their  and medical service.

Medical insurance
 Medical insurance protects in case of loss of health from any reason. It is related to indemnification of all charges of citizens, at the receipt of medicare and prophylaxis of health in ambulatory terms; by acquisition of different medications; providing of stomatological help at dental  and other, no less expense measures.

Property insurance.
There is a great number of types of property insurance, such as agricultural pluggings in itself animals and with/Х of culture. Transport property insurance(different loads, aerotechics, river and marine ships). Insurance of legal and physical foxes. Motor transport, state and non-state enterprises. Presently many insurance companies extend the spectrum of objects of insurance : monuments, insurance of domestic animals and apartments.

Insurance of risks
 Insurance of risks plugs in itself productive, building, financial and commercial . All of them have a limit scale of application, because related to the large risk for an insurer.

Personal insurance
Personal insurance on the stage below social and divided by two types of helping it: life-insurance and ensuring against accidents.

Foreign insurers can test complications at the Ukrainian market

At foreign insurance companies that will wish to work in Ukraine on the norms of Worldwide trade organization through the own representative offices. that there can be complications on acquisition of new corporate customers. such supposition was wired for sound by the deputy of director general СК " NGS" by Natalia Pridachuk.

As an expert marks, the main specific of market is covered in that except an accessible product and quality service, a company could offer to the clients and long experience in the conditions of the Ukrainian legislation, and also judicial system. Before foreign companies a choice will appear: either to get experience the forces and dumping or bay from the Ukrainian companies the best specialists in area of insurance, however in this case price politics will be deprived flexibility.

However, new possibilities, that can be opened for foreign partners, will use not so simply, as it can appear on the face of it. Yes, certainly, from one side foreign companies have all chances to introduce for the Ukrainian market new technologies on the sales of retail foods, fresh ideas, system of discounts or comfortable sales through the system the internet.

Nevertheless, an existent market already is broken enough on segments, corporate clients divide between present players, and physical persons practically all acquire obligatory policies only, thus it all operates unsystematic.

KASKO

KASKO It is published Expert in 17.06.2013 in 21: 32.

KASKO is a company on ensuring of cars and other transport against a some causing, stealing or driving away damage. KASKO does not plug in the spectrum insurance of property that is transported to responsibility before the third person.

An insurer is under an obligation for a certain pay at a coming and envisaged in an agreement event to do a compensation to the person an agreement consisted in behalf on that. To the insurance system KASKO actively the use of different kinds goes the deductibles envisaged by the rules of insurance. KASKO  differs from OSAGO that his tariffs are not set by the state, and in a presence every insurance company the program is present with it own.

Practically every insurance organization aspires to optimization of relation insurance bonuses to insurance payments, specially for this purpose permanent collection of statistics is done with accidents insured. Leaning against statistics an insurance coefficient on that the calculations of cost of insurance of KASKO are produced for every individual case is set. Mainly a preference gives oneself up to the people with age, to the drivers having large experience after a back and with cars intended for family, that is predispositioned to the quiet driving.

It is explained by that for the similar category of  the especially less(related to the damage) are considered and means it follows from this that a tariff on insurance will be most minimum.
 Calculation procedure of cost of policy of AVTOKASKO  is produced both in the office of some insurance organization and in the onlinemode through an automatic calculation.

Insurance of OSAGO

Every day hundreds of cars, filling motorways and roads, constantly expose to itself the risk. And a risk is responsibility. Obligatory public liability of proprietors of transport vehicles insurance, i.e. OSAGO, appeared in our country in 2003.

This type of insurance is regulated by the state and sent to the guarantees of compensation, in case of occurring of accidents insured, i.e. DTP, accidents etc.

Insurance on OSAGO is obligatory for all proprietors of some transport. Insurance tariffs Government expects and asserts. The size of insurance bonus that annually has to be paid to the autoproprietor depends on engine, experience of driver, age of driver, presence of DTP for the last years power. If your experience makes less than three years, or your age does not exceed 22, then at a calculation enhanceable coefficients are used.

Similarly a region a car is registered in that influences on the size of insurance bonus. An insurance bonus depends and from the amount of the trusted persons prescribed in an insurance policy. The amount of the applied coefficients can go down, if a car follows registration to the place, or it is registered abroad.

In any case a damage to the person limits on insurance of OSAGO. So, at a damnification to life and health of victim, a compensation can not exceed 160 thousand roubles. And at detrimenting to property will pay no more than 120 thousand roubles on one victim, and no more than 160 thousand roubles, if victims a few. In the cases of death of victim, 135 thousand roubles rely his relatives.

If a person, causing harm, was not insured, or it is unknown, then compensative payments are carried out by РСА. Also on her all duties lie down on a compensation in the cases of bankruptcy of insurers. Thus, the maximum sizes of amounts covered do not change.

5th Circuit Holds Late Notice Bars Coverage Under Buy-Back Pollution Coverage

In its recent decision in Starr Indemnity & Liability Co. v. SGS Petroleum Service Corp., 2013 U.S. App. LEXIS 12425 (5th Cir. 2013), the United States Court of Appeals for the Fifth Circuit, applying Texas law, had occasion to consider the effect of an insured’s failure to give notice of a pollution incident within the time specified in a supplementary pollution liability coverage endorsement.

Starr Indemnity issued an umbrella liability policy to SGS.  While the policy form originally contained an absolute pollution exclusion, the exclusion was deleted by endorsement and replaced by a limited pollution liability coverage “buy-back,” stating that the pollution exclusion would not apply to certain pollution events, assuming that certain conditions precedent were satisfied.  One such condition was that SGS was required to report the pollution incident to Starr, in writing, within thirty (30) days of it first becoming aware of the incident.  Following an accidental release of various chemicals, SGS sought coverage for cleanup costs from Starr.  SGS, however, failed to report the pollution incident to Starr within the thirty-day reporting period, but instead reported the release to Starr fifty-nine (59) days after it first learned of the release.  Starr sought a judicial declaration that it was not obligated to provide coverage to SGS for the incident as a result of SGS’ non-compliance with the reporting provision.

The lower court and the Fifth Circuit both agreed that the Fifth Circuit’s decision in Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653 (5th Cir. 1999) was determinative of the issue.  There, the Fifth Circuit, in considering a similar pollution liability buy-back, held that an insured’s eight-day delay in complying with the reporting provision was fatal to the insured’s right to coverage, regardless of whether the insurer was prejudiced by the delay. The Fifth Circuit concluded that because the policy language in the Starr policy was similar to the policy in Matador, its prior holding was determinative and as such, SGS’ failure to have reported the pollution incident within the time allotted barred its right to coverage, whether or not SGS’ delay resulted in prejudice to Starr.

SGS nevertheless argued that since the 1999 decision in Matador, the Texas Supreme Court heightened the notice-prejudice rule in its holdings in PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630 (Tex. 2008) and Prodigy Communications Corp. v. Agricultural Excess & Surplus Ins. Co., 288 S.W.3d 374 (Tex. 2009).  The Fifth Circuit rejected this contention, noting that the decisions in PAJ and Prodigy were premised on the fact that the notice provisions in the policies at issue were not an essential part of the “bargained for exchange.”  By contrast, the thirty-day notice provision in the pollution buy-back was “a specific endorsement, separately negotiated by the parties, and with a clear notice requirement.”  Thus, while the Fifth Circuit agreed that under ordinary circumstances, an insurer is required to demonstrate prejudice in order to disclaim coverage based on late notice, the court agreed that the notice provision in the buy-back was to be treated differently than the standard notice provisions.   As such, concluded the court, the holding in Matador was not disturbed by PAJ and Prodigy decisions, and Matador, therefore, was determinative of SGS’ right to coverage.

Threshold Motion Successful

The defendants in a recent jury trial succeeded on a threshold motion.  In Ryckman v. Pottinger, 2013 ONSC 2857 (S.C.J.), the plaintiff had been in two motor vehicle accidents 11 months apart.  The plaintiff entered into a Pierringer Agreement with the first defendant and proceeded to trial against the second defendant.   The jury assessed global damages at $175,000 and the defendant at trial was responsible for 10% of the figure.  General damages would have been $3,500.

In granting the threshold motion, Justice Parayeski noted that an accident by accident analysis is required; just because a plaintiff met threshold in one case does not mean she will in another. Justice Parayeski inferred from the jury awards that they did not accept the submissions of the plaintiff as to her damages. It appeared the jury did not find the plaintiff credible. There was an observable difference between the plaintiff's appearance at court versus on surveillance. Ultimately, the damages awarded were so small as to lead to the conclusion that the plaintiff did not meet the threshold.  The second accident caused no more than a minor exacerbation of the injuries she sustained in the first accident.

New York Court Allows Disgorgement Coverage Action to Proceed

In its recent decision in J.P. Morgan Securities, Inc. v. Vigilant Ins. Co., 2013 N.Y. LEXIS 1465 (NY June 11, 2013), New York’s Court of Appeals – New York’s highest court – had occasion to consider whether an insured can seek recovery against its insurers for amounts described as “disgorgement” by the Securities and Exchange Commission.

The J.P. Morgan decision relates to coverage under a professional liability insurance program for a payment made pursuant to a settlement with the SEC.  The insureds, various Bear Stearns entities, had been the subject of an SEC investigation in connection with its alleged practices of facilitating late trading and engaging in deceptive market timing for certain favored customers.  While Bear Stearns did not admit to liability, it ultimately settled with the SEC by agreeing to a payment in the amount of $160 million and a separate civil penalty payment in the amount of $90 million. The SEC order described the $160 million payment in an order as one for disgorgement. New York’s Appellate Division for the First Department held as a matter of public policy that both the disgorgement payment was uninsurable, and that as such (and because the $90 million penalty was not covered), the underlying declaratory judgment action brought by J.P. Morgan on behalf of Bear Stearns could not survive a motion to dismiss.

On appeal, the Court of Appeals agreed that New York has recognized that public policy will prohibit insurance coverage when the underlying damages result from the insured’s conduct intended to cause harm.  The Court of Appeals nevertheless held that at the pleadings stage, it could not be determined that Bear Stearns willfully violated federal securities laws, and in particular, the SEC order was not determinative of this issue.  As such, it was premature to conclude as a matter of law that Bear Stearns could not, as a matter of public policy, be indemnified for the payment to the SEC.  The insurers also argued that as a matter of public policy, a party cannot be insured for disgorgement of ill-gotten gains.  Bear Stearns agreed that as a matter of principle, such amounts are uninsurable, but contended that the majority of its payment to the SEC should not be characterized as a disgorgement, notwithstanding the SEC’s label to the contrary.  Rather, Bear Stearns contended that at least $140 million of its payment “represented the improper profits acquired by third party hedge fund customers, not revenue that Bear Stearns’ itself pocketed.”  The court found validity in this argument, noting:

Contrary to the Insurers' position, the SEC order does not establish that the $160 million disgorgement payment was predicated on moneys that Bear Stearns itself improperly earned as a result of its securities violations. Rather, the SEC order recites that Bear Stearns' misconduct enabled its "customers to generate hundreds of millions of dollars in profits." Hence, at this CPLR 3211 [New York’s civil procedure rule for motions to dismiss] stage, the documentary evidence does not decisively repudiate Bear Stearns' allegation that the SEC disgorgement payment amount was calculated in large measure on the profits of others.

The court further reasoned that the facts involved were notably different than in other New York cases where courts that insureds as a matter of law were not entitled to coverage for disgorgement of ill-gotten gains, such as the decisions in Millennium Partners, L.P. v Select Ins. Co., 889 N.Y.S.2d 575 (1^stDep’t 2009) and Vigilant Ins. Co. v. Credit Suisse First Boston Corp., 782 N.Y.S.2d 19 (1^st Dep’t 2004):

Bear Stearns alleges that it is not pursuing recoupment for the turnover of its own improperly acquired profits and, therefore, it would not be unjustly enriched by securing indemnity. The Insurers have not identified a single precedent, from New York or otherwise, in which coverage was prohibited where, as Bear Stearns claims, the disgorgement payment was (at least in large part) linked to gains that went to others. Consequently, at this early juncture, we conclude that the Insurers are not entitled to dismissal of Bear Stearns' insurance claims related to the SEC disgorgement payment.

As such, the Court of Appeals held that the declaratory judgment action should be reinstated, allowing Bear Stearns to pursue its insurance recovery action.  In doing so, the court noted that its decision was based solely on whether the allegations in the underlying complaint could survive a motion to dismiss.  As the court explained, “although we certainly do not condone the late trading and market timing activities described in the SEC order, the Insurers have not met their heavy burden of establishing, as a matter of law on their CPLR 3211 dismissal motions, that Bear Stearns is barred from pursuing insurance coverage under its policies.”

California Court Holds Insurer Precluded from Suing Defense Counsel

California’s First District Court of Appeal n J.R. Marketing, LLC v. Hartford Casualty Ins. Co. (1^st District, June 11, 2013), recently considered whether an insurance carrier had a right to directly sue the insured’s independent counsel for reimbursement for payment of fees and costs which were allegedly unreasonable or otherwise outside the scope of the insurer’s contractual defense obligations.

The court of appeal’s opinion was its third decision arising from a coverage action involving two liability insurance policies issued by Hartford Casualty Insurance Company to Noble Locks Enterprises, Inc. and J.R. Marketing, LLC.  Hartford had originally denied the tender of defense to it, was sued by various tendering parties, reconsidered the tender and agreed to provide a defense but then delayed in paying defense bills.  The trial court subsequently entered an “enforcement order” requiring Hartford to

… pay the insured cross-defendants’ outstanding invoices within 15 days and to pay “all future reasonable and necessary defense costs within 30 days of receipt.”  Acknowledging a right of reimbursement, the enforcement order provided, “[t]o the extent Hartford seeks to challenge fees and costs as unreasonable or unnecessary, it may do so by way of reimbursement after resolution of the Avganimmatter.  (Citation omitted.)

The court further held that Hartford was not entitled to any of the protections afforded insurers in California Civil Code section 2860 because it had breached and continued to breach its obligations to pay reasonable and necessary defense expenses and to provide “Cumis” counsel.  The enforcement order was affirmed in 2007 by the appellate court in an unpublished decision.  Hartford subsequently paid over $15 million to the insureds’ independent counsel for its fees and costs.

The present appeal was taken from a judgment of dismissal following the sustaining of demurrers, without leave to amend, to a cause of action for reimbursement against the law firm defending the insureds in the underlying actions (and which had prosecuted the coverage action), and against a non-insured also represented by that law firm.

Initially, the appellate court reiterated that Hartford did not have any rights under section 2860 because of its original breach of the duty to defend.  Included in those rights is the right to arbitrate fee disputes.  The court stated that allowing Hartford to sue the independent counsel for reimbursement would frustrate several of the underlying principles behind section 2860, including the insured’s right to control the defense when the insurer has breached its obligations to defend the insured:

As set forth above, it is clear California law bars an insurer, like Hartford, in breach of its duty to defend from thereafter imposing on its insured its own choice of defense counsel, fee arrangement or strategy.  This court now takes the law one slight step further by holding Hartford likewise barred from later maintaining a direct suit against independent counsel for reimbursement of fees and costs charged by such counsel for crafting and mounting the insureds’ defense where Hartford considers those fees unreasonable or unnecessary. 

It was stated that to hold otherwise would give a breaching carrier greater rights than an insurance carrier which had complied with its duty to defend an insured, by allowing the breaching carrier to have a court determine the fee dispute.  It was also noted that the court was not determining whether an insurer could sue independent counsel for fraudulent billing practices.  Instead the decision was that where a carrier has breached its duty to defend and a billing dispute subsequently arises with regard to the fees and costs incurred by independent counsel, the insurer’s sole remedy is a claim against the insured, not independent counsel.

The court also found that there were no grounds to reverse the dismissal of the reimbursement claim against the non-insured party also defended by the independent counsel in an underlying action, because Hartford had failed to allege facts supporting such a claim and had not supported its appeal by reference in its opening brief to legal authority and citations to the appellate record.

New York Court of Appeals Sets Forth New Rule for Breach of Duty to Defend

In its recent decision in  K2 Investment Group, LLP v. American Guarantee & Liability Ins. Co., 2013 N.Y. LEXIS 1461, 2013 NY Slip Op. 4270 (NY June 11, 2013), New York's Court of Appeals – New York’s highest court – announced a new rule regarding the consequences for breaching a duty to defend under New York law.

Prior to the decision in K2, New York courts at both the state and federal level consistently rejected the notion that by having breached a duty to defend, an insurer is estopped from relying on coverage defenses for the purpose of contesting an indemnity obligation.  See, e.g., Servidone Construction Corp. v. Security Ins. Co., 488 N.Y.S.2d 139 (NY 1985) (holding it is impermissible for a court to enlarge a policy’s coverage on the basis of an insurer’s breach of a duty to defend); Hotel des Artistes, Inc. v. Gen. Accident Ins. Co. of Am., 775 N.Y.S.2d 262 (1^stDep’t 2004); Robbins v. Michigan Millers Mut. Ins. Co., 633 N.Y.S.2d 975 (3d Dep’t 1997); Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608 (2d Cir. 2001). In fact, this rule was reaffirmed as recently as June 11, 2013 – the same day as the K2 decision – by the United States Court of Appeals for the Second Circuit in CGS Industries, Inc. v. Charter Oak Fire Ins. Co., 2013 U.S. App. LEXIS 11700 (2d Cir. June 11, 2013). 

The New York Court of Appeals’ June 11, 2013 decision in K2, however, departs from this long-established jurisprudence.  K2 involved loans made by two limited liability companies to a third company, Goldan.  The loans were to be secured by mortgages, but the mortgages were not properly recorded.  The two LLCs subsequently brought suit against Goldan and its two principals, one of whom, Jeffrey Daniels, was an attorney.  The suit asserted a claim of legal malpractice against Mr. Daniels for having failed to record the mortgages.  Mr. Daniels sought coverage from his errors and omissions carrier, American Guarantee, but American Guarantee disclaimed coverage on several grounds. Mr. Daniels subsequently defaulted in the underlying action, and plaintiffs took a judgment in excess of the policy limits of the American Guarantee policy.  The LLCs then asserted a direct action against American Guarantee for breach of contract and failure to settle within policy limits.

American Guarantee moved for summary judgment on the basis of its policy’s “business enterprise” exclusions. It argued that the claim against Mr. Daniels arose out of his capacity or status as a member or owner of Goldan, and that as such, the exclusions applied.  The trial court granted summary judgment in favor of the claimants, and on appeal, New York’s First Department held that the exclusions were “patently inapplicable,” at least for duty to defend purposes, since the essence of the underlying claim was that Mr. Daniels committed legal malpractice.  The Appellate Division, however, was divided as to whether the exclusions applied for the purposes of American Guarantee’s duty to indemnify. 

On appeal to the New York Court of Appeals, American Guarantee essentially conceded that it had breached its duty to defend Mr. Daniels, but argued that it could still rely on the exclusions to avoid a duty to indemnify.  The Court of Appeals disagreed, holding that by having breached its duty to defend Mr. Daniels, American Guarantee “lost its right” to rely on the exclusions for indemnity purposes.  Relying on its decision in Lang v. Hanover Ins. Co., 787 N.Y.S.2d 211 (NY 2004) – a case involving the insurer’s right to contest the insured’s liability for underlying loss after breaching a duty to defend – the court articulated its new rule:

… we now make clear that Lang, at least as it applies to such situations, means what it says: an insurance company that has disclaimed its duty to defend "may litigate only the validity of its disclaimer." If the disclaimer is found bad, the insurance company must indemnify its insured for the resulting judgment, even if policy exclusions would otherwise have negated the duty to indemnify. This rule will give insurers an incentive to defend the cases they are bound by law to defend, and thus to give insureds the full benefit of their bargain. It would be unfair to insureds, and would promote unnecessary and wasteful litigation, if an insurer, having wrongfully abandoned its insured's defense, could then require the insured to litigate the effect of policy exclusions on the duty to indemnify.  (Emphasis supplied.)

The K2 Court conceded that there may be exceptions to this new rule, such as where public policy precludes indemnification for an underlying loss.  Further, the ruling appears limited in its reach to consideration of whether exclusions can apply after a duty to defend has been breached.  Presumably, this rule will not apply where the underlying loss is covered in the first instance, i.e., not when the loss falls outside the scope of a policy’s insuring agreement. These and other questions, and the reach of K2, will undoubtedly be the subject of future controversy and litigation.

Leave Required for Refusals Motion After Set Down

Does a party need leave to continue a refusals motion after it has set the action down?

In Jetport v. Jones Brown, 2013 ONSC 2740 (S.C.J.), the parties brought motions seeking answers to questions refused on examination for discovery.  Although the motions were commenced in May 2012, they were not completed and were adjourned to November 2012.  They were still not completed and further dates in April 2013 then October 2013 were scheduled.  In February 2013, trial was scheduled for May 2015.  

One of the issues on the motion was whether the plaintiff required leave to bring the motion pursuant to r. 48.04(1) since it had set the action down for trial.  The plaintiff argued that it did not require leave based on rule 48.04(2), which provides that r. 48.04(1) does not relieve a party from any obligation imposed by r. 31.07 (failure to answer on discovery).

Master Graham held that the plaintiff required leave.  There is no obligation on a party to answer questions refused on discovery and therefore a motion to compel answers does not fall within s. 48.04(2) so a party that has set the matter down must seek leave to initiate or continue a motion to compel answers to refusals. 

It appears there are two differing lines of case law on this issue.  Counsel should be cautious about setting an action down if there are outstanding refusals they wish to pursue.

Seventh Circuit Holds Contractor Bodily Injury Exclusion Inapplicable

In its recent decision in Atlantic Casualty Ins. Co. v. Paszko Masonry, Inc., 2013 U.S. App. LEXIS 11561 (7^th Cir. June 7, 2013), the United States Court of Appeals for the Seventh Circuit had occasion to consider whether a company that had bid on, but not yet been awarded a construction project, could nevertheless be deemed a “contractor” for the purpose of an employee bodily injury exclusion.

The facts in Paszko related to the construction of an apartment building in Illinois on which Prince Contractors, Inc. was the general contractor.  While construction was in process, Prince bid out work relating to caulking of gaps and joints.  Raincoat Solutions bid on the project, and its bid was accepted, subject to approval of the caulking material and subject to Prince approving the competency of the caulking employee to be furnished by Raincoat.  In an effort to secure the bid, Raincoat sent its intended employee, Rybaltowski, to the construction site to demonstrate how he would perform the caulking.  Notably, Raincoat did not expect to be compensated for the work it performed in connection with the demonstration.  After the demonstration was completed, but before Mr. Rybaltowski could leave the site, he was injured when a beam fell on him.  Only a half hour after this incident, Raincoat and Prince signed a subcontract.  Mr. Rybaltowski later filed suit against Prince and the subcontractor that had been working on the beam, Paszko.

Paszko was insured under a general liability policy issued by Atlantic Casualty.  The policy contained an exclusion for “Injury to Employees, Contractors and Employees of Contractors,” which barred coverage for bodily injury “to any 'contractor' arising out of or in the course of the rendering or performing services of any kind or nature whatsoever by such 'contractor' for which any insured may become liable in any capacity.”  The policy stated that:

… ‘contractor’ shall include but is not limited to any independent contractor or subcontractor of any insured, any general contractor, any developer, any property owner, any independent contractor or subcontractor of any general contractor, any independent contractor or subcontractor of any developer, any independent contractor or subcontractor of any property owner, and any and all persons working for and or providing services and or materials of any kind for these persons or entities mentioned herein.  (Emphasis supplied.)

Thus, coverage for Paszko, and Prince as an additional insured under Paszko’s policy, turned on the question of whether Raincoat could be considered a “contractor” at the time of Mr. Rybaltowski’s injury.

The Seventh Circuit, in a decision authored by Judge Richard Posner, began its analysis by observing that the policy definition of contractor was “poorly drafted,” since it only set forth examples of contractors rather than clearly defining the term.  This definition raised a question as to when Raincoat qualified as a contractor simply by the nature of its business.  As Judge Posner explained:

The wording of the exclusion leaves uncertain whether Raincoat was a contractor simply because companies that engage in construction are called "contractors," or whether it did not become a "contractor" until it signed a contract with Prince or until it provided materials or services other than the demonstration of caulking, or whether the demonstration itself was a service provided by a contractor.

Judge Posner acknowledged that in one sense, Raincoat was “providing services” to Prince in connection with the demonstration, even if it had not yet signed the subcontract.  In this connection, Raincoat through Mr. Rybaltowski’s efforts, did caulk a few windows as part of the demonstration, and presumably this was of benefit to Prince.  The court nevertheless concluded that the exclusion could be interpreted differently, and in fact, more narrowly.  Specifically, Judge Posner reasoned that:

Also plausible, however, is the alternative interpretation that services are not provided until the contractor (with or without a signed contract, because a provider of services is a "contractor" within the meaning of the exclusion regardless of whether he has a contract) begins to do compensated work on the project.

Thus, finding several plausible definitions of “contractor,” the court concluded the term was ambiguous and therefore must be interpreted in the insured’s favor.  While the court agreed that it would be “a little odd” to treat a construction worker such as Mr. Rybaltowski as a “passerby” just because he was demonstrating a construction service rather than performing that service for compensation, this outcome was necessitated by the ambiguity in Atlantic’s definition of “contractor.” 

Further Defence Medical Ordered After New Evidence Produced

In Low v. Clarke, [2013] OJ. No. 1703 (S.C.J.), the defendant brought a motion seeking to compel the plaintiff to attend a further defence medical with a neurologist.

The plaintiff was examined by a neurologist, Dr. Upton.  Following the examination, the plaintiff served over 400 photographs of the plaintiff post accident.  According to Justice Glithero, the photographs appeared to show the plaintiff in various physical activities that were inconsistent with what she had previously reported to doctors.  The defendant filed a letter by Dr. Upton stating that a further examination would be important and useful to his opinion at trial.

Justice Glithero cited with approval a number of factors from Bonello v. Taylor, 2010 ONSC 5723:

1.  The request may be legitimate where there is evidence the plaintiff's condition has changed or deteriorated.  Justice Glithero added to this factor: where new evidence is disclosed and is material to the opinion and to any proper assessment of the extent and nature of injuries sustained.
2.  Trial fairness should be the guiding principle.
3.  Ordering further examinations may be just where they are necessary to enable the defendant to fairly investigate and call reasonable responding evidence at trial.

Justice Glithero allowed the motion and ordered a further examination.  Although these types of motion are largely fact specific, it is important to remember the guiding principle of fairness when deciding what evidence to present to the court.

Minnesota Supreme Court Applies Pollution Exclusion to Carbon Monoxide

In its recent decision in Midwest Family Mut. Ins. Co. v. Wolters, 2013 Minn. LEXIS 304 (Minn. May 31, 2013), the Minnesota Supreme Court had occasion to consider whether an absolute pollution exclusion applies to bodily injury resulting from an indoor release of carbon monoxide.

Wolters was a general contractor that had been hired to build a home with an in-floor radiant heating system.  It was later determined that Wolters purchased and installed the wrong type of boiler for the project.  Further, the boiler itself was negligently installed.  As a result, and because the home’s carbon monoxide detectors also were negligently installed, the homeowners suffered injury as a result of severe carbon monoxide poisoning.   The homeowners later filed suit against Wolters. 

Midwest Family Mutual insured Wolters under a general liability policy.  Midwest provided Wolters with  defense in the underlying suit, but subsequently brought a coverage action seeking a declaration of non-coverage based on its policy’s pollution exclusion, which states in pertinent part:

9.   We do not pay for bodily injury or property damage:

a.   arising wholly or partially out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants: . . .

4)   at or from any premises where you or any contractor or subcontractor, directly or indirectly under your control, are working or have completed work:

    a)     if the pollutant is on the premises in connection with such work, unless the bodily injury or property damages arise from the heat, smoke or fumes of a fire which becomes uncontrollable or breaks out from where it was intended to be; or

    b)     if the work in any way involves testing, monitoring, clean-up, containing, treating or removal of pollutants.

The Midwest policy defined “pollutants” as:

a.   any solid, liquid, gaseous, thermal, electrical emission (visible or invisible) or sound emission pollutant, irritant or contaminant; or

b.   waste, including materials to be recycled, reclaimed or reconditioned as well as disposed of.

Midwest moved for summary judgment on the basis of its exclusion, and the trial court held that it would be inappropriate as a matter of law to rule the exclusion was applicable since Wolters did not cause “environmental pollution.”  On appeal, however, the Minnesota Court of Appeals observed that Minnesota courts have employed a “non-technical, plain-meaning approach” to the interpretation and application pollution exclusion.  As such, and concluding that carbon monoxide is a pollutant, the court reversed the lower court’s ruling.

On appeal to the Minnesota Supreme Court, Wolters urged the court follow the “majority rule” of courts across the country, limiting application of the exclusion to traditional environmental pollution.  Specifically, the insured argued that the definition of “pollutants” is ambiguous as applied to matters of indoor air pollution.  The Minnesota Supreme Court rejected this assertion, concluding that under the “non-technical, plain meaning” approach to interpreting the exclusion, as required by its prior decision in Board of Regents of the University of Minn. v. Royal Ins. Co. of America, 517 N.W.2d 888 (Minn. 1994), an indoor release of carbon monoxide qualifies as a pollutant.  As the court explained:

While there may be substances that are difficult to establish as "pollutants" for purposes of the absolute pollution exclusion, carbon monoxide is not one of them. It is enough for purposes of the present dispute to conclude that carbon monoxide is a pollutant under the terms of the absolute pollution exclusion; there are serious concerns associated with the breadth of the exclusion that we leave for another day, and we do not attempt to define the complete scope of the term "pollutant" in the absolute pollution exclusion. Instead, we only conclude that, based on our holding in Board of Regents, carbon monoxide qualifies as a pollutant in this case.

The court further held that the fact that the release was indoors as opposed to outdoors did not require a different outcome since the exclusion did not contain language limiting its application to traditional environmental pollution.  In so concluding, the court rejected the insured’s argument that the “reasonable expectations” doctrine required a different result since the exclusion was plainly and conspicuously labeled as such.  Such a broad application of the exclusion, noted the court, would prevent inconsistency in determining what constitutes a pollutant and under what circumstances.