Posted on January 17, 2012 by Dana Ferestien

Damage Caused By Water-Borne Debris Beyond Flood and Wave Exclusion in Homeowner's Policy

Washington law has long provided that "[a]n insured may not avoid an exclusion merely by affixing a specific label or characterization to the act or event causing the loss." Thomas V. Harris, Washington Insurance Law, § 6.10, fn. 179. That rule was recently put to the test before Seattle Federal District Court Judge Ricardo Martinez in Johnson v. Allstate Ins. Co., a coverage dispute over a waterfront home damaged during a winter storm. The home was knocked off its foundation by waves crashing against it, and the homeowners alleged that there were logs in the water that caused the damage. Allstate denied coverage, asserting that the loss was not covered because of policy exclusions for "water", "waves" and "weather conditions." The homeowners filed suit seeking coverage, claiming that "water-borne debris is a non-excluded peril."

In a January 10, 2012 order denying Allstate's motion to dismiss, Judge Martinez concluded that the policy's exclusions for "water", "waves" and "weather conditions" do not exclude coverage for logs propelled by waves. Judge Martinez declined to follow Kish v. Ins. Co. of N. Am., 125 Wn.2d 164 (1994), a case in which the Washington Supreme Court held that these exclusions eliminated coverage for similar damage because "flood" and "rain-induced flood" are not distinct perils. Judge Martinez reasoned that Allstate's policy was, at best, ambiguous because it made no mention of destructive material propelled by waves. He also found that an average insurance purchaser would distinguish between waves and destructive material propelled by waves and, to illustrate the point offered what seemed to be a far-fetched analogy to an instance in which waves carry an unexploded World War II mine.

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Posted on January 12, 2012 by Dana Ferestien

Covenant Judgment Scrutinized and Greatly Reduced

Construction defect plaintiffs in Washington continue to use covenant judgments in an effort to force large settlements with developers' insurers. If the developer's insurer is unwilling to fund a settlement, the plaintiff and defendant developer stipulate to entry of a monetary judgment and the plaintiff agrees that it may not enforce the judgment against any assets other than the insurer's liability insurance. In order for the stipulated judgment amount to serve as the presumptive measure of damages against the insurer, the plaintiff must first obtain a ruling from the trial court that the stipulated amount is reasonable. Washington law provides for trial courts to evaluate such stipulated judgments under a nine factor standard, but many insurers feel that, in practical terms, this standard often amounts to nothing more than a rubber stamp. But there seems to be a growing trend for trial judges to take a closer look at these stipulated judgments.

The latest example comes from United States District Judge John Coughenour in Aspen Grove Owners Assoc. v. Park Promenade Apartments, LLC. On January 9, 2012, Judge Coughenour ruled on the plaintiff condominium owners association's motion for a determination that its stipulated judgment settlement of $5.75 million is reasonable. Judge Coughenour analyzed the settlement from two perspectives -- first, he analyzed the estimated costs of repair submitted by the plaintiff association and the defendant developer; and second, he scrutinized the merits of the association's claims. In doing so, he reduced the plaintiff's total damages from $5.75 million to $4.27 million, and then applied a 55% discount to account for weaknesses in the plaintiff's liability theories. This reduced the approved damages to $1.92 million. But in recognition of the fact that the insurance policy involved only covered liability for breach of fiduciary duty for the developer's representatives who had served on the association's board of directors, Judge Coughenour allocated only $300,000 to the breach of fiduciary duty claim.

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Posted on January 9, 2012 by Dana Ferestien

Washington Federal District Court Rejects Technical Claims Handling Violations as Basis for Extra-Contractual Claims Against Liability Insurer

Washington's claims handling regulations include short deadlines for responding to an insured's tender of a claim for defense and indemnity: 10 working days to acknowledge a tender (WAC 284-30-360(1)), and 30 days to complete its investigation of a claim unless the investigation cannot reasonably be completed within that time (WAC 284-30-370). When insurers fail to meet these deadlines, Washington insureds often assert claims for violation of Washington's Insurance Fair Conduct and Consumer Protection Acts as well as for bad faith and/or negligence.

But should insurers face such claims where their only alleged wrongdoing is a short delay in responding to an insured? United District Court Judge Robert Bryan recently addressed this issue in Cardenas v. Navigators Insurance Co., (December 16, 2011), a case in which the liability insurer had agreed to defend its insured against a claim, had paid all pre- and post-tender defense costs, but had not accepted the defense within 30 days of tender. Granting the insurer's motion for summary judgment, Judge Bryan ruled that "[v]iolations . . . of the 10 and 30 day time periods for acknowledging a claim and completing an investigation are simple technical violations and standing alone, do not evidence any unreasonable conduct on the part of [an insurer] in promptly responding to the tender."

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Posted on December 22, 2011 by Dana Ferestien

Washington Supreme Court Affirms Class Certification and Post-Accident Diminution in Value Award to Automobile Insureds

On December 22, 2011, in Moeller v. Farmers Ins. Co, of Washington, a 5-3 majority of the Washington Supreme Court affirmed lower court rulings in favor of a plaintiff class of automobile insureds seeking breach of contract damages against their insurer for failure to compensate them for the diminished value of a postaccident, repaired car. The Supreme Court acknowledged that a majority of other jurisdictions have previously denied coverage for diminished value because an automobile policy's reference to "repair or replace" unambiguously encompasses only a concept of tangible, physical value. But the Court disagreed with this view, emphasizing that Washington law imposes "presumptions in favor of the insurance consumer that are inherent in the rules of construction regarding insurance contracts." The Court explained that, it "must read an insurance contract as an average person would read it" and that, from the point of view of the consumer, "the reasonable expectation is that, following repairs, the insured will be in the same position he or she enjoyed before the accident."
 

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Posted on September 16, 2011 by Dana Ferestien

Broker Malpractice Claim Does Not Require Expert Testimony Proving Reasonableness of Underlying Settlement

On September 12, 2011, United States District Judge Lonny Suko ruled in Colman Coil Manufacturing, Inc. v. Seabury & Smith, Inc., 2011 U.S. Dist. LEXIS 102238, that expert testimony regarding the reasonableness of an underlying products liability settlement is not a prerequisite to a broker malpractice claim. 

The insured manufacturer had been sued for damages caused by an ammonia link in their equipment.  Their liability insurer, Wausau, provided a reservation of rights defense, but filed a separate coverage action seeking a declaration that the policy's total pollution exclusion eliminated  coverage.  Based upon advice from both their personal coverage counsel and appointed defense counsel, the insured elected to settle the products liability lawsuit for $1.15 million, with the insured paying $450,000 of the settlement.  The insured then sued its broker, Seabury & Smith, alleging that their negligence had resulted in incomplete insurance. 

Seabury & Smith argued on summary judgment that the professional malpractice claim failed, as a matter of law, because the insured did not have any expert to establish the reasonableness of the underlying settlement.  Judge Suko rejected the argument, noting that there is no Washington authority imposing any expert testimony requirement.  Judge Suko distinguished this scenario from cases in which there has been a consent judgment to settle the underlying liability claim.  The Court concluded that it is for the finder of fact to weigh whether the insured acted reasonably in settling the underlying claim. 

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Posted on September 2, 2011 by Dana Ferestien

E&O Insurer Prevails on Recission Claim Based Upon Insurance Application Misrepresentations

On August 29, 2011, United States District Court Judge Benjamin Settle granted summary judgment in favor of Tudor Insurance Company in a declaratory judgment action filed against its insured Hellickson Real Estate (2011 U.S. Dist. LEXIS 96768).

Tudor filed the action after Hellickson tendered defense of a Department of Licensing disciplinary proceeding. The Department of Licensing had sent investigation notices to Hellickson before Hellickson had applied for the insurance policy, but Hellickson did not disclose those notices to Tudor in response to insurance application questions inquiring about "any act, error, omission or other circumstances, which might reasonably be expected to be the basis of claim or suit against you." 

The only evidence that Hellickson submitted in opposition to Tudor's motion was a declaration from the same person who had completed the insurance application. She testified that the Department of Licensing action was "a complete surprise to her and her husband" and that, when she filled out the application, she thought the Department of Licensing issues had been resolved. 

Judge Settle found that the insured's declaration was insufficient to raise any genuine issue of material fact and ruled that Tudor was entitled to rescind the insurance policy as a matter of law. In explaining his ruling, Judge Settle stated that the insured's testimony about her belief that the Department of Licensing issues had been resolved proved that the insured had knowledge of the undisclosed regulatory investigation and that this evidence reinforced, rather than rebutted, the presumption that the misrepresentation had been made with an intent to deceive. 

Judge Settle also dismissed the insured's counterclaims for bad faith and violations of the Consumer Protection Act and Washington's Unfair Claims Settlement Practices Regulation, WAC 284-30-300 to -450. Although Tudor acknowledged that it had committed at least one technical violation of the claims handling regulations, Judge Settle found that the insured was legally precluded from pursuing any relief on these extra-contractual claims because an insured's fraud is dispositive. 

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Posted on July 28, 2011 by Dana Ferestien

Washington Court Of Appeals Rules That Liability Insurer Defending Under Reservation of Rights Is Not Entitled To Reimbursement In The Absence Of Express Policy Language Expressly Reserving Such A Right

On July 25, 2011, the Court of Appeals addressed what had been an open question in Washington: when a liability insurer provides a reservation of rights defense, is it ever entitled to reimbursement of defense costs paid if a court later determines that there is no duty to defend?

The coverage dispute arose from claims that Immunex had artificially inflated the price of prescription drugs. After litigation had been pending for several years and Immunex had already incurred substantial defense fees and costs, Immunex tendered the claims to National Surety, its excess liability insurer, for defense and indemnity. National Surety denied coverage for the claims, but agreed under a reservation of rights to provide a defense with the right to reimbursement if a court later determined that there was no duty to defend.

The King County Superior Court determined that there was no coverage and, therefore, National Surety owed no duty to defend Immunex. But the trial court also ruled that National Surety was obligated to pay Immunex’s defense costs until the date that the court confirmed the claims were not covered, unless National Surety could establish actual prejudice resulting from Immunex’s late tender. Immunex appealed the finding of no coverage, and National Surety cross-appealed the trial court’s determination that its ruling applied prospectively only.

After agreeing that there was no coverage for the underlying claims, the Court of Appeals affirmed that National Surety remained obligated for defense costs incurred up until the trial court’s summary judgment rulings unless National Surety could prove actual prejudice resulting from Immunex’s late tender. Relying upon Washington cases noting the broader scope of a liability insurer’s duty to defend, the court reasoned that “payment of defense costs for claims that are potentially covered is part of the bargained-for exchange between the insurer and the insured” and the reservation of rights defense provides an insurer with “the benefit of insulating itself from a bad faith claim and possibly coverage by estoppel.”

Notably, the court indicated that its decision may have been different had National Surety’s policy included express language reserving to the insurer the right to reimbursement in the event that it defends a claim under a reservation of rights and then obtains a court determination of no coverage. Whether the Court of Appeals would actually enforce such a provision remains to be seen. But liability insurers now should give careful consideration as to whether to include a reimbursement provision in policies issued to Washington insureds.

In reaching this outcome, the Court of Appeals rejected several arguments advanced by National Surety. The court declined to draw any distinction between instances where an insurer defends under a reservation of rights because Washington law is unresolved as to the meaning of policy language as opposed to instances where a claim involves unresolved questions of fact for which there may or may not ultimately be coverage. The Court of Appeals also rejected reimbursement based upon theories of unilateral implied contract or unjust enrichment. And the court declined to reach a different outcome because National Surety had yet to reimburse Immunex for any of its defense costs, explaining that such a result would improperly reward insurers who withhold defense costs payments.

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Posted on November 24, 2010 by Dana Ferestien

Northwest Insurance Law Blog Wins Award

The Northwest Insurance Law Blog was recently named a Top Insurance In House Counsel Blog for 2010 by Court Reporter. The award recognizes blogs in the legal profession that provide valuable insight and relevant information within a specific branch of law.

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Posted on September 22, 2010 by Dana Ferestien

Seminar: Changes in International Insurance - How to Protect Your Company Overseas

It has been anticipated that the 21st century will mark the rise of the Asia Pacific region as the economic/geopolitical center of the world. The recent global financial recession, which has resulted in unmanageable public debt and slow recovery in the West, accelerated the economic rise of the East. With Asia leading the world out of this unprecedented crisis and emerging relatively unscathed, a new enthusiasm for deals has emerged especially in Australia, China, India, Indonesia, Singapore and South Korea.

These changes have brought about a new climate in international insurance. Underwriters of global insurance risks are more focused on insolvency issues impacting businesses in western countries and product liability, along with employment practice issues impacting the East. Of course, fraudulent business practices traverse the two worlds.

With the current global economic transition, US businesses along with their directors and officers could face new liabilities doing business abroad in the context of civil actions as well as regulatory and law enforcement proceedings. What legal pitfalls can US businesses face when operating within Asian Pacific jurisdictions? What regulatory issues must they be concerned with and what civil liabilities can they incur?

Jörg Ahrens is Head of Financial Lines Claims (common law) for Allianz Global Corporate & Specialty Insurance. He oversees Allianz’s large claim exposures in such jurisdictions as Australia, Canada and the UK, including the entire Asian market (Singapore, Hong Kong, Tokyo, India and China). He weathered some of the largest Professional Indemnity cases in the London market including Arthur Andersen and the TMT stock crash, as well as the US corporate bond crisis cases. He oversaw such noteworthy Directors and Officers Liability claims as Daimler Chrysler, Deutsche Telekom, WestLB and OneTel.

Mr. Ahrens is admitted to the bar in Germany and England (solicitor), in addition to holding 2 Master titles in competition law and economics. He has worked as a lawyer in Germany and the UK and as in-house counsel for the German television channel ZDF (Zweites Deutsches Fernsehen) as well as the Gerling Insurance Company. Mr. Ahrens is fluent in German, English, Russian and French.

Date: Monday, October 11th, 2010

Time: 8:00am - 9:30am

Where: Greater Seattle Chamber of Commerce, 1301 5th Avenue, Suite 2500, Seattle, WA, 98101

RSVP Required

________________________________________________________________________________

Registration The cost for this event is $12 for members of TDA and $15 for non-members. Refunds cannot be made after Wednesday, October 6. For more information or to register over the phone please contact Samantha Paxton at 206-389-7319 or samanthap@seattlechamber.com.

Register Online

 

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Posted on September 20, 2010 by Dana Ferestien

Oregon Supreme Court Reverses Summary Judgment To Revive Homeowner's Claim For Water Damage From Storm During Roof Repair.

On September 16, 2010, in Dewsnup v. Farmers Insurance (.pdf), the Oregon Supreme Court reversed a summary judgment ruling dismissing a homeowner's property insurance claim for water damage occurring after a storm blew tarping off the top of their home.

A contractor was replacing the insured's roof at the time of the storm. He had removed the wood shake roof and put down with staples a polyurethane plastic sheet. But the storm blew the sheet off the house and the contractor was unable to replace it before water came into the house and caused damage. Under the policy at issue, "for coverage to extend to water damage, the 'direct force of wind or hail' must first damage a building by causing an opening in a roof." Farmer's denied coverage because there was no permanent "roof" at the time of the loss, only a temporary cover.

Because the policy did not define the term "roof," the Oregon Supreme Court focused on the ordinary meaning of the term to evaluate Farmer's position. In doing so, it declined to adopt any temporal standard and instead adopted a functional standard under which "a roof should be sufficiently durable to meet its intended purpose: to cover and protect a building against weather-related risks that reasonably may be anticipated." The Court went on to find that the homeowner had raised genuine issues of material fact by presenting expert testimony that the tarping along with the other materials in place “would have been adequate to protect the home for one or two years if necessary.”

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