CRITICAL ISSUES IN LIABILITY INSURANCE COVERAGE:
EMERGING THEORIES OF LIABILITY AND SURVEY OF RECENT DECISIONS
Susan M. Popik Chapman, Popik & White LLP San Francisco, CA spopik@chapop.com
CRITICAL ISSUES IN LIABILITY INSURANCE COVERAGE: EMERGING THEORIES OF LIABILITY AND SURVEY OF RECENT DECISIONS
I.
Emerging Theories of Liability A. B. C. D. E. Telephone Consumer Protection Act (blast faxes, telemarketing) Fair Credit Reporting Act Cell Phones (e.g., exposure to radio frequency radiation) Wage and Hour Laws (rest and meal breaks; overtime classification) Workplace Bullying (“desk rage”) (see Raess v. Doescher, 883 N.E.2d 790 (Ind. 2008) (affirming $325,000 jury verdict for assault and intentional infliction of emotional distress based on hostility and threats directed by one worker toward another in workplace) E-commerce and Cyber-risks (e.g., security breaches (see Cal. Civ. Code §1798.29); invasions of privacy; on-line defamation; intellectual property) Food Safety (contaminated milk powder, tainted pet food, E. coli-laced produce) Product Recalls Medical Monitoring Animal Law Issues (vicious breeds, endangered species, cloning, malicious injury to pet, standing) School Shootings Pharmaceuticals
F. G. H. I. J. K. L. II.
Survey of Recent Decisions A. Emerging Theories of Liability 1. Telephone Consumer Protection Act (TCPA) a. California: ACS Systems, Inc. v. St. Paul Fire and Marine Insurance Co., 147 Cal. App. 4th 137, 53 Cal. Rptr. 3d 786 (2007): no coverage for violations of TCPA or claim for invasion of privacy (unsolicited faxes) under “advertising injury” offense of
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“making known to any person or organization written or spoken material that violates an individual’s right of privacy” b. Florida: Penzer v. Transportation Insurance Co., 509 F. Supp. 2d 1278 (S.D. Fla. 2007): claims for violation of the TCPA based on unsolicited faxes do not constitute “advertising injury” because the “privacy” offense applies only when the content of the material violates the plaintiff’s right of privacy New Jersey: Terra Nova Ins. Co. v. Fray-Witzer, 449 Mass. 406, 869 N.E.2d 565 (2007) (predicting New Jersey law): (1) TCPA claims fall within “advertising injury” coverage for “[o]ral or written publication of material that violates a person’s right of privacy”; (2) TCPA is not a penal statute and exclusion for advertising injury arising out of willful violation of a penal statute is therefore inapplicable; (3) statutory damages under TCPA are not “punitive damages” and exclusion for exemplary or punitive damages is therefore inapplicable But see: St. Paul Fire and Marine Insurance Co. v. Brother International Corp., 2007 WL 2571960 (D.N.J. Aug. 31, 2007) (predicting New Jersey law): narrower “advertising injury” provision (“making known to any person or organization covered material that violates a person’s right of privacy”) covers insured against damages arising from violations of content-based privacy, not seclusion-based privacy, and does not cover blast fax claims d. Ohio: Schuetz v. State Farm Fire and Casualty Co., 147 Ohio Misc. 2d 22, 890 N.E.2d 374 (Ct. Com. Pl. 2007): “right of privacy” as used in advertising injury coverage for “[o]ral or written publication of material that violates a person’s right of privacy” could pertain to violation of both secrecy-based and seclusion-based privacy; because TCPA implicitly claim alleged violation of claimant’s privacy interest in seclusion, claim alleged conduct that potentially constituted an advertising injury Pennsylvania: Melrose Hotel Co. v. St Paul Fire and Marine Insurance Co., 432 F. Supp. 2d 488 (E.D. Pa. 2006) (predicting Pennsylvania law): “advertising injury” coverage (“making known to any person or organization covered material that violates a person’s right of privacy”) does not extend to violations of TCPA based on blast faxes
c.
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2.
Fair Credit Reporting Act (FCRA) a. Indiana: American Family Mutual Insurance Co. v. C.M.A. Mortgage, Inc., 2008 WL 906230 (S.D. Ind. March 31, 2008):
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claim for violation of FCRA based on insured’s unauthorized accessing of plaintiff’s credit information for use in commercial solicitation within scope of “advertising injury” coverage for “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy”; “[a] reasonable person who reads the advertising injury provisions of these policies would conclude that coverage exists for a claim arising out of the mailing of a solicitation letter that was triggered by a violation of the privacy protection rights established in FCRA” b. c. 3. Illinois: Pietras v. Sentry Insurance Co., 2007 WL 715759 (N.D. Ill. March 6, 2007) (same) Maryland: American Insurance Co. v. Fieldstone Mortgage Co., 2007 WL 3268460 (D. Md. Oct. 26, 2007) (same)
Cell Phones a. Texas: Zurich American Ins. Co. v. Nokia, Inc., ___ S.W.3d ___, 2008 WL 3991183 (Tex. Aug. 29, 2008): allegations of biological injury to human cells caused by radio frequency radiation from cellular telephones constitutes “bodily injury” as defined in CGL policy, and cell phone manufacturer’s liability insurer must therefore defend putative class action alleging such exposure Accord: ▪ Samsung Electronics America, Inc. v. Federal Insurance Co., ___ S.W.3d ___, 2008 WL 4000812 (Tex. Aug. 29, 2008) (same) Trinity Universal Insurance Co. v. Cellular One Group, ___ S.W.3d ___, 2008 WL 4000811 (Tex. Aug. 29, 2008) (same)
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b.
Louisiana: Motorola v. Associated Indemnity Corp., 878 So. 2d 824 (La. Ct. App. 1st Cir. 2004): class actions alleging harmful exposure to radio frequency radiation from cell phones and seeking restitution o buy cell phone headsets to protect against the radiation alleged “damages because of bodily injury”; “[t]he artful crafting of the . . . pleadings, presumably motivated to aid in maintaining class action status” did not change essential purpose, which was to obtain “damages.”
4.
Wage and Hour Laws a. Kansas: Payless Shoesource, Inc. v. Travelers Companies, Inc., ___ F.3d ___, 2008 WL 2995553 (D. Kan. Aug. 8, 2008): under 3
EPLI policy, claims based on violations of California Labor Code (governing meal and rest breaks) fall within exclusion for claims “for an actual or alleged violation of the Fair Labor Standards Act . . . or other similar provisions of any federal, state, or local statutory or common law . . . .” B. Policy Terms and Conditions 1. “Occurrence” a. California: State Farm Fire and Casualty Co. v. Superior Court, 64 Cal. App. 4th 317, 78 Cal. Rptr. 3d 828 (2008) (petition for review by California Supreme Court pending): insurer obligated to defend insured who intended to throw friend into swimming pool but who threw him into concrete step instead because injuries resulting from plaintiff’s unintended impact with step would be an “accident” within definition of “occurrence” California: London Market Insurers v. Superior Court, 146 Cal. App. 4th 648, 53 Cal. Rptr. 3d 154 (2007): (1) “occurrence” in CGL policies refers to each claimant’s injurious exposure to asbestos, rather than manufacture and distribution of asbestos products; (2) combined asbestos exposure is not single “occurrence” under policies’ aggregation provision Pennsylvania: Donegal Mutual Insurance Co. v. Baumhammers, 595 Pa. 147, 938 A.2d 286 (2007): under homeowners policy issued to parents whose son went on a shooting and killing spree, parents’ alleged negligent failure to take away son’s handgun and failure to warn authorities of son’s dangerous propensities, resulting in injuries to six individual victims, was a single “occurrence” for purposes of ascertaining limits of liability coverage
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“Suit” a. California: Ameron International Corp. v. Insurance Co. of the State of Pennsylvania (review granted by California Supreme Court, Aug. 15, 2007) (vacated Court of Appeal opinion at 60 Cal. Rptr. 3d 55 (2007)): where “suit” is undefined in policy, term is restricted to action filed in court of law and therefore does not extend to administrative proceeding; and amounts paid to settle proceeding are not “damages” because not “money ordered by a court”
3.
“Damages”
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a.
California: Aerojet-General Corp. v. Commercial Union Insurance Co., 155 Cal. App. 4th 132, 65 Cal. Rptr. 3d 803 (2007): insured’s voluntary settlement of third party’s claim does not constitute covered “damages,” even if made within the context of suit, because settlement monies are not “money ordered by a court”
4.
“Personal Injury” a. Louisiana: Johnson v. Orleans Parish School Board, 975 So. 2d 698, 2006-1223 (La. App. 4 Cir. 2008): class action by property owners against city and housing authority for damage for loss of property values and emotional distress based on negligence in constructing on site of former landfill involved “invasion of right of private occupancy” (i.e., interference with reasonable and comfortable use and enjoyment of property) and was therefore within scope of personal injury coverage New Hampshire: State Farm Insurance Co. v. Bruns, 156 N.H. 708, 942 A.2d 1275 (2008): claims for invasion of privacy and false imprisonment resulting from sexual assault are not within scope of “personal injury” coverage where these claims are “merely rebrandings of the claim for [uncovered] sexual assault”
b.
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“Advertising Injury” a. b. See Telephone Consumer Protection Act of 1991, § II.A.1 above See Fair Credit Reporting Act, § II.A.2 above
6.
“Pollution” a. Alaska: Whittier Properties, Inc. v. Alaska National Insurance Co., 185 P.3d 84 (Alaska 2008): gasoline that leaked from underground storage tank was a “pollutant” within the meaning of CGL policy’s absolute pollution exclusion Montana: Montana Petroleum Tank Release Compensation Board v. Crumley’s, Inc., 341 Mont. 33, 174 P.3d 948 (2008): diesel fuel that leaked from underground storage tank was “pollutant” within the meaning of absolute pollution exclusion
b.
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Trigger of Coverage a. Louisiana: Johnson v. Orleans Parish School Board, 975 So. 2d 698, 2006-1223 (La. App. 4 Cir. 2008): exposure to toxic chemicals from former landfill on which plaintiffs’ homes were constructed was trigger of “personal injury” coverage of housing authority’s CGL policy; judgment against housing authority must
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therefore be satisfied by insurers whose policies were in effect during period of exposure b. Missouri: Stark Liquidation Co. v. Florists’ Mutual Insurance Co., 243 S.W.3d 385 (Mo. App. 2007): loss of use of land resulting from defective crops subject to continuous trigger, beginning when crops sold and ending when claimant discovers defect (failure to produce) North Dakota: Grinnell Mutual Reinsurance Co. v. Thies, ___ N.W. 2d ___, 2008 WL 4068586 (N.D. Sept. 4, 2008): liability insurer for seller of home has no duty to defend seller against claims by buyer for misrepresentation and failure to disclose mold; trigger of coverage is when homeowner was injured by mold (i.e., after moving into home), not when mold “accumulated” or when seller failed to disclose existence of mold Texas: Don’s Building Supply, Inc. v. OneBeacon Insurance Co., ___ S.W.3d ___, 2008 WL 3991187 (Tex. Aug. 29, 2008): for purposes of triggering duty to defend under CGL policy, property damage occurs when property sustains actual physical damage, not when damage is or might have been discovered (rejecting lower courts’ adoption of manifestation trigger)
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Late Notice a. New York: Sorbara Construction Corp. v. AIU Insurance Co., 41 A.D.3d 245, 838 N.Y.S.2d 531 (2007): insured’s 5-1/2 year delay in notifying excess insurer of lawsuit relieved insurer of duty to defend or indemnify. [Note: cert granted, 10 N.Y.3d 706, 857 N.Y.S.2d 39 (2008); oral argument in New York Court of Appeals held on September 3, 2008] See also: Bill A11541 (eff. Jan. 2009) (barring insurers providing coverage for bodily injury or wrongful death from denying coverage based on late notice (if notice filed within two years of accident) unless “materially prejudiced” by late notice) b. Texas: PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630 (Tex. 2008): insured’s failure to comply with notice provision of occurrencebased CGL policy does not affect coverage unless insurer is prejudiced by delay See XL Specialty Insurance Co. v. Financial Industries Corp., 259 Fed. Appx. 675, 676, 2007 WL 4461190 (5th Cir. 2007): certified question from Fifth Circuit Court of Appeals to Texas Supreme Court: “Must an insurer show prejudice to deny payment on a claims-made policy, when the denial is based upon the insured’s 6
breach of the policy’s prompt-notice provision, but the notice is nevertheless given within the policy’s coverage period?” [Note: oral argument in Texas Supreme Court held on April 1, 2008] C. Attorney Fees 1. Fee Shifting a. Connecticut: ACMAT Corp. v. Greater New York Mutual Insurance Co., 282 Conn. 576, 923 A.2d 697 (2007): declining to adopt exception to “American rule” that would allow award of attorney fees to policyholder that prevailed against insurer in declaratory judgment action, despite absence of bad faith by insurer (abrogating intermediate appellate court decisions to the contrary) Massachusetts: Wilkinson v. Citation Ins. Co., 447 Mass. 663, 669, 856 N.E.2d 829 (2006): judicially-created exception to American rule for cases in which insured successfully establishes insurer’s duty to defend does not apply to duty to indemnify
b.
2.
Reimbursement/Recoupment a. Arkansas: Medical Liability Mutual Insurance Co. v. Alan Curtis Enterprises, Inc. ___ Ark. ___, ___ S.W.3d ___, 2008 WL 2205868 (Ark. June 26, 2008) (answering certified question): insurer that obtains declaration that it has no duty to defend or indemnify insured may not rely on reservation of rights to recoup defense expenses; under Arkansas law, attorney fees are not recoverable except where expressly provided by statute Indiana: Allianz Insurance Co. v. Guidant Corp., 884 N.E.2d 405 (Ind. App. 2008): once liability insurer obtains declaration that it has no duty to defend or indemnify, it may withdraw from case and seek reimbursement for defense expenses incurred to that point Minnesota: Westchester Fire Insurance Co. v. Wallerich, 527 F. Supp. 2d 896 (D. Minn. 2007) (predicting Minnesota law): insurer not entitled to recover attorney fees and costs incurred defending lawsuit for which there is no coverage, even when it reserves its right to do so, absent an express reimbursement provision in the policy Pennsylvania: American and Foreign Insurance Co. v. Jerry’s Sport Center, Inc., 948 A.2d 834 (Pa. Super. 2008): insurer who defends under reservation of rights and later obtains ruling that no coverage under CGL policy not entitled to reimbursement of defense expenses incurred prior to court’s determination of 7
b.
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noncoverage; “permitting reimbursement of defense costs expended by an insurer exercising its right to defend potentially covered claims prior to a court’s determination of no actual coverage or duty to indemnify would result in, essentially, retroactive erosion of the breadth of the duty to defend” e. Tennessee: Cincinnati Insurance Co. v. Grand Pointe, LLC, 501 F. Supp. 2d 1145 (E.D. Tenn. 2007): insurer may seek reimbursement of defense expenses and settlement funds paid on behalf of insured when it is subsequently determined the insurer owed no duty to defend or indemnify the insured, even though policy does not expressly provide for a right of reimbursement Texas: American International Specialty Lines Insurance Co. v. Res-Care Inc., 529 F.3d 649 (5th Cir. 2008) (predicting Texas law): under Texas law, when coverage is in dispute, insurer may fund settlement of action against insured and seek reimbursement so long as it obtains insured’s unequivocal consent both to the settlement and to the right of reimbursement; however, where nonwaiver agreement limited to insurer’s right to seek reimbursement of settlement payment attributable to noncovered claims, insurer not entitled to reimbursement unless settlement payment relates to noncovered claims See also Excess Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42 (Tex. 2008): insured who actively sought settlement offer and demanded that excess liability carrier accept offer did not thereby impliedly consent to reimburse insurer for payment of noncovered claim where policy was silent as to reimbursement right and there was no other agreement between insurer and insured
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