Insurance Broker’s Fiduciary Duty a “Fact-Specific” Question of Law for the Court

One particularly thorny area of the law with respect to insurance providers and brokers is the scope and breadth of any attendant fiduciary duties owed to an insured.

In Ring v Meeker Sharkey Associates LLC, the New Jersey Superior Court Appellate Division recently upheld the trial court’s decision that the Plaintiffs’ homeowners’ insurance brokers did not owe a duty to advise the insureds of vulnerability in their coverage and a need for excess flood insurance.

Ring is another case developing New Jersey’s insurance law following Hurricane Sandy.  The Plaintiffs owned two beachfront homes along the Jersey Shore.  For more than a decade, they secured both homeowners and flood insurance for the homes through Defendant Meeker Sharkey.   In 2008, Plaintiffs moved their insurance accounts to Willis of New Jersey.  In 2010, Plaintiffs’ moved their homeowners’ coverage back to Meeker Sharkey, but continued to secure flood insurance through Willis.

In 2012, Hurricane Sandy ravaged Plaintiffs’ properties, causing catastrophic – and largely uncovered – losses to both.  The crux of the ensuing litigation was Plaintiffs argument that as part of their transfer of homeowners’ insurance back to Meeker Sharkey in 2010, the firm undertook a review of Plaintiffs’ insurance coverage generally, and therefore owed a duty to alert Plaintiffs to their gap in flood insurance coverage, as well as a duty to affirmatively advise them to obtain excess floor insurance.

The Ring Court decision underscores and reiterates than in New Jersey, the determination of whether a duty exists is a question of law to be determined by the courts, while also noting that there is no bright-line rule and that the inquiry is intensely fact-specific.  Here, the Court found that the homeowners’ insurance broker did not have a duty to provide advice about flood insurance where the Plaintiffs engaged a separate entity, Willis, to secure its flood insurance.  The fact that Meeker Sharkey knew or should have known of the gap in coverage did not create a duty to Plaintiffs under these circumstances.

Ultimately, the Ring court was not called to determine whether Willis had breached the duty it owed.  The question of whether or not that duty was breached is one of fact, for a jury.

Thanks to Vivian Turetsky for her contribution to this post.

No Commercial General Liability Coverage For Breach of Contract

In a recent New York appellate decision, the court considered whether an insurer must provide coverage to a purported additional insured for a claim involving breach of contract.  In J.W. Mays, Inc. v. Liberty Mut. Ins. Co., the Appellate Division, upheld the lower court’s dismissal in favor of the insurer.  J.W. Mays, Inc., the owner of a mall, hired Liberty Mutual’s insured, D. Owens Electric, Inc. for several construction projects, including work on the mall’s roof. Owens, the general contractor, subcontracted the roofing work to another party, which Mays alleged performed defective work.  Mays terminated the work and allegedly failed to follow the terms of payment under the contracts.  Owens filed an underlying lawsuit against Mays for breach of contract and unjust enrichment, and to foreclose on mechanic’s liens.  Mays then commenced the instant coverage action seeking a declaration that Liberty and Owens’ umbrella insurance carrier were obligated to defend it in the underlying action filed by Owens, as Owens had named Mays as an additional insured on its insurance policies pursuant to the terms of the construction contracts.

The Appellate Division held that, in keeping with the general rule, commercial general liability policies do not provide coverage for breach of contract.  Rather, they provide coverage for bodily injury, property damage, or personal and advertising injury.  That general rule was applicable to the instant action where coverage for additional insureds under the Liberty policy, as well as the umbrella policy, was only triggered with respect to liability from bodily injury, property damage, or personal and advertising injury caused in whole or in part by the acts or omissions of the purported additional insured or those acting on its behalf.  The court explained that to hold otherwise would essentially turn an insurance carrier into a surety for the performance of its insured’s work.  Here, Owens’ complaint against Mays sounded in breach of contract, and there were no claims for bodily injury, property damage, or personal and advertising injury.  Accordingly, the Second Department held that the insurer was not obligated to defend or indemnify Mays in Owens’ action.

This case serves as a reminder that the basic rules of insurance coverage under commercial general liability policies are as applicable as ever, and insurers should always verify the nature of the claims for which insurance coverage is sought.

Thanks to Rebecca Rose for her contribution to this post.

 

 

 

 

Pennsylvania Court Upholds Unlisted Resident Driver Exclusion As Valid Basis To Disclaim Coverage

The Pennsylvania Superior Court recently upheld a policy’s Unlisted Resident Driver Exclusion.  Specifically, in Safe Auto v. Rene Oriental-Guillermo, the underlying plaintiff was involved in a motor vehicle accident.  Following the accident, the underlying plaintiff sued, among others, the driver of the other car, Dixon, as well as the owner of the other car, Dixon’s boyfriend, Oriental-Guillermo.  Safe Auto insured Oriental-Guillermo.  The Safe Auto policy had an Unlisted Resident Driver Exclusion, which specifically excluded from coverage those individuals who lived with the policyholder, but were not related to the policyholder and whom the policyholder did not specifically list on the policy.  Based on this exclusion, Safe Auto denied coverage, as Dixon was living with Oriental-Guillermo, but was neither related to him nor specifically listed on the policy.

On appeal, the Pennsylvania Superior Court concluded that the Unlisted Resident Driver Exclusion was unambiguous.  The Court also concluded that the Unlisted Resident Driver Exclusion did not violate Pennsylvania Motor Vehicle Financial Responsibility Law (“MVFRL”) nor was it void against public policy.  As such, the Superior Court ultimately concluded the Unlisted Resident Driver Exclusion provided a valid basis to deny coverage.

Often times drivers will attempt to seek coverage under a policy based on a public policy argument that an insurance company must insure every individual who uses an insured’s vehicle unless the insured specifically asked the insurance company not to provide coverage for that driver.  This can lead to unintentional coverage being provided under policies.  However, as this case illustrates, with the inclusion of the Unlisted Resident Driver Exclusion (or a similarly worded exclusion), an insurer can limit the scope of coverage provided under its policies, and limit the potential drivers who may seek coverage under a policy.

Thanks to Colleen Hayes for her contribution to this post.

 

 

Discovery Rule Applies to Notice Provisions of the NJ Tort Claims Act.

As a prerequisite to proceeding with a tort claim against a public entity, a plaintiff must file a notice of claim with the public entity within ninety days of the accrual of the cause of action.  Under “extraordinary circumstances” accompanied by a showing that the public entity had not been substantially prejudiced, a plaintiff may file a late notice of claim within one year of the accrual of the claim.  Failure to file in accordance with these statutory provisions bars a plaintiff from bringing a tort claim against the public entity.

The New Jersey Supreme Court in Elazar v. Macrietta Cleaners, Inc. held that the common law discovery rule applies to determine the date on which a claim against a public entity begins to accrue.  Plaintiffs owned an electronics repair store adjacent to a dry cleaning store.  Township owned property behind the dry cleaning store.  In the late 1980s, plaintiffs noticed a chemical odor emanating from the dry cleaning store, and began having medical problems in the early 1990s.  In 1998, the dry cleaning store arranged for the removal of underground storage tanks.  In 2010, the dry cleaning store retained an environmental consultant who sampled air quality.  In 2011, plaintiffs received two letters from the consultant, which advised that soil located on the dry cleaning store and the Townships’ properties was going to be excavated due to evidence of soil contamination emanating from the underground storage tanks.  In January 2012, plaintiffs were advised by their doctors that their medical conditions were connected to the air contaminant reported by the consultant.  In March, 2012 plaintiffs retained an attorney who filed an OPRA request with the New Jersey Department of Environmental Protection that resulted in the production of documents in July 2012 indicating that the leaking underground storage tanks had been on Township property.  In September 2012, plaintiffs filed suit against the dry cleaning store, and a notice of claim against the Township.  One year later, plaintiffs amended their complaint to join the Township.

The Township moved for summary judgment, arguing that plaintiffs should have been aware in 2011 (i.e. when they received the letters from the environmental consultant), that they had a potential claim against the Township.  Accordingly, the Township argued that plaintiffs’ claims were barred since they failed to file a notice of claim within 90 days of receipt of those letters.  In opposition, the plaintiffs argued that their claim was timely because it was filed within ninety days of July 2012, the date on which they received documents from the NJDEP that revealed the tanks were located on Township property.  The Supreme Court agreed with the plaintiffs, and  held that the common law discovery rule applied to the notice of claim procedure in the Tort Claims Act.  The standard was whether plaintiffs knew or should have known of sufficient facts to support their claim against the Township.

In the context of multi-defendant cases, it is possible for a plaintiff to be reasonably unaware that a third party may also be responsible when it is clear that another party is responsible.  Therefore, the accrual clock does not begin ticking against the third party until the plaintiff has evidence that reveals the other party’s responsibility.

Thanks to Michael Noblett for his contribution to this post.

 

 

 

A Trailer, by Any Other Name is not a Warehouse

Word to the wise: if you want coverage for inventory stored in a warehouse, use an actual warehouse.

In LaptopPlaza Inc. v. Starr Indemnity & Liability Co., the insured, LaptopPlaza Inc., sought coverage for the alleged theft of $711,000 worth of laptops housed in a trailer located on their premises.  Starr Indemnity issued a policy that provided coverage by endorsement for “goods and merchandise…while temporarily detained in warehouses.”  Because the goods were stored in a trailer that was stationary on their property, LaptopPlaza argued the trailer met the definition of a warehouse as per Black’s Law Dictionary and Merriam-Webster’s Collegiate Dictionary.

The Second Circuit, however, rejected this argument. Instead, the Court focused on the ordinary usage of the terms, noting a trailer “is not a building” and “is designed for the transportation, and not the storage, of merchandise.”  Further, the Court observed the trailer should not be considered a warehouse since it “abutted a warehouse but was not permanently attached to it….”

In the end, when interpreting undefined terms in a policy, courts will not reinvent the English language, and will reject strained interpretations of ordinary words. Thus, a trailer, which is designed for transportation, is not transformed into a warehouse simply because it is parked.

Thanks to Chris Soverow for his contribution to this post.

No Unreasonable Delay Where Insurer Conducted Reasonable Investigation

Insurer’s and their coverage counsel are well-aware that N.Y. § 3420 requires insurers to deny coverage or disclaim liability in any matter involving bodily injury or death must “as soon as is reasonably possible.”  The lack of precision in the statute creates pressure for an insurer conducting an investigation, and some degree of vulnerability as any insured may challenge a disclaimer as untimely.

To that point, a recent decision from the SDNY, Netherlands Ins. Co. v. United Specialty Ins. Co., is a positive development in a line of New York cases finding that as long as there is no evidence of dilatory tactics, forty, fifty and even sixty days are a reasonable length of time for conducting an investigation into a claim and providing a response to tender.

Netherlands concerned additional insured coverage following a construction site accident.  The underlying action, brought in New York Supreme, Bronx County, concerned injury to a subcontractor – later determined to be an employee of USI’s named insured – when the elevated platform he was working on collapsed.  Netherlands Insurance provided a CGL policy to the general vontractor at the site and together as plaintiffs in the SDNY action they sought a declaration that USI owed defense and indemnity to the general contractor premised upon an allegation of untimely disclaimer.

The Netherlands Court granted summary judgment in favor of USI, holding that it had disclaimed coverage within a reasonable time pursuant to § 3420, and that it had not waived its right to disclaim on the basis of an endorsement it had not referenced in its initial disclaimer.  The Court noted the timeline: Netherlands Insurance tendered to USI’s insured via a letter dated September 3, 2013, but postmarked October 29, 2013.   USI received the tender from their insured on November 26, 2013.  On December 27, 2013 USI denied coverage based on an Employee and Workers Compensation Exclusion.  The Court held that this time was more than reasonable, particularly given that the underlying complaint contained no allegations that the injured party was an employee of USI’s named insured, and therefore denial based upon the Employee Exclusion necessitated investigation.

Following its denial of coverage, USI raised as an affirmative defense an additional endorsement it had not previously relied on, the Specifically Covered Operations Endorsement.  Plaintiffs argued that reliance on that endorsement had been waived, but the Court disagreed, holding succinctly that “where the issue is the existence or nonexistence of coverage (e.g., the insuring clause and exclusions), the doctrine of waiver is simply inapplicable” because the endorsement “defines the scope of coverage in the first instance.”

Thus, while Netherlands does not provide a bright-line rule for an insurer’s response time, it does provide additional comfort in a reasonable, common-sense approach to review of an insurer’s timeline for investigation and provision of its substantive response.

Thanks to Vivian Turetsky for her contribution to this post.

Even In Victory, The Rules Of Professional Conduct Still Apply

Following a favorable judgment in a bad faith case, plaintiff’s counsel in Clemens v. New York Central Mutual Fire Ins. Co., sought $1.12 million in fees, costs and interest.

While Pennsylvania’s bad faith statute does permit an award of attorneys’ fees when an insurer has acted in bad faith, U.S. District Judge Malachy E. Mannion of the Middle District of Pennsylvania denied counsel’s request and referred the case to the Disciplinary Board of the Supreme Court of Pennsylvania.

The plaintiff’s attorneys sought $48,050 for their work on the UIM claim, $827,515 for working on the bad-faith claim and $27,090 for preparing the fee petition, for a total of $902,655 in fees for a case that had been litigated for nearly nine years. Judge Mannion began his memorandum opinion with a cautionary reminder that “attorneys are quasi-officers of the court and they are expected to be careful and scrupulously honest in their representations to the court . . . they must exercise care, judgment, and ethical sensitivity in the delicate task of billing time and excluding hours that are vague, redundant, excessive or unnecessary.”  Judge Mannion then spent the next 100-pages going through plaintiff’s counsel’s request line-by-line, slashing fees he deemed vague, duplicative and excessive.

Even in victory, lawyers are expected to adhere to the rules of professional conduct. As a self-policing profession, the enforcement of such rules can be lax, but this federal case is a strong reminder that unscrupulous conduct has no place in the court room.

Thanks to Hillary Ladov for her contribution to this post.

Tendering Policy Limits Could Constitute Settlement Agreement

A Pennsylvania Court found a settlement existed once policy limits were tendered to a plaintiff.

In Wise v. Hyundai Motor Company, plaintiffs’ daughter died in an automobile accident.  Plaintiffs sued Hyudai Motors (and others). USAA insured the defendants. After commencing the lawsuit in 2010, plaintiffs sent a letter to defense counsel demanding full insurance policy limits.  In response to this demand, in 2012, defense counsel responded with a letter “offering” the policy limits.  After the offer letter was issued, defense counsel was only minimally involved in the litigation, since the products liability action against the car manufacturer had taken precedence.  Four years later, once the plaintiffs and the manufacturer settled, plaintiffs informed defendants they would be now be asserting a bad faith claim against their insurer, USAA, for failing to properly defend defendants in the action.

Defendants countered that plaintiffs’ new claim must fail since the parties entered into a settlement back in 2012, when defendants tendered the policy limits to plaintiffs.

In determining whether plaintiffs and defendants agreed to settle the claim in 2012, the court first looked to the plaintiffs’ 2010 letter.  The court noted that although the letter did not use the word “settlement,” the letter was clearly intended to act as a settlement offer, because plaintiffs had demanded policy limits from defendants.  The court then looked to defendants’ 2012 letter, which, it determined, clearly tendered the policy limits to plaintiffs, despite using the phrase “offering.”  Thus, the court reasoned there had been a meeting of minds, and a settlement had been reached based on the two letters.

Thus, this case illustrates the importance of making sure any offer or demand to opposing counsel expressly states what is being demanded, offered or accepted, to avoid unnecessary motion practice to clarify whether the parties actually intended to settle a matter.

Thanks to Colleen Hayes for her contribution to this post.

 

Unlicensed Use of Product Trademarks is not Personal and Advertising Injury

The Fifth Circuit recently ruled that the duty to defend “personal and advertising injury” did not extend to the unlicensed use of a product and trademarks.

In Laney Chiropractic v. Nationwide, Laney sued its insurer for a declaration of coverage after Nationwide refused to defend Laney against allegations of federal trademark infringement, false advertising, deceptive business practice, breach of contract and unfair competition arising out of Laney’s use of soft tissue massage techniques.  Nationwide had determined that the lawsuit lacked an advertising, trade dress or slogan claim and refused to cover the defense.

The Fifth Circuit reached its conclusion by reasoning that “[w]hen an insured is accused of using another’s product, they are generally not using another’s ‘advertising idea … because without more, taking and then advertising another’s product is different from taking another’s ‘advertising idea’. The court also did not accept that the false-advertising allegation that Laney’s website mimicked underlying plaintiff’s style of doing business constituted a trade dress claim. The court said trade dress protection is not designed for “patent-like rights” in innovative product designs, and “protects the distinctive look of the product, not the functional product itself.”

As creative an insured can be in seeking coverage, the underlying claim governs an insurer’s duty to defend.

Thanks to Hillary Ladov for her contribution to this post.

Multiple Causes of Action Does Not Equal Multiple Claims

Though a claimant might allege multiple causes of action, where those causes arise out of the same incident it generally will be considered one claim.

In Westport Ins. Corp. v. Peter G. Mylonas, the underlying plaintiff sued Mylonas for professional malpractice.  The plaintiff alleged he retained Mylonas to form his corporation and provide related advice, but that Mylonas negligently transferred stock without shareholder consent, causing the plaintiff to lose his entire business.  The complaint contained causes of action sounding in negligence, breach of fiduciary duties, and breach of contract.

Westport Insurance Company issued a professional liability insurance policy and provided Mylonas’ defense in the underlying action.  The policy limited coverage to $500,000 per claim, and to $1,000,000 in the aggregate.  Defense costs counted towards the limits.  Westport initiated the coverage action to confirm that the underlying suit constituted a single claim.  Westport incurred defense costs of $420,000, and the verdict reached against Mylonas was $525,000.

The Court of Appeals found that where “claim” is defined as “a demand made upon any insured for loss…including, but not limited to, service of suit” and that “two or more “claims arising out of a single wrongful act …shall be a single claim,” there was no ambiguity but that the single lawsuit constituted a single claim, thus limiting Westport’s coverage obligations to $500,000.  The Court was clear that no amount of artful pleading to include multiple causes of action could create additional ‘claims,’ and also warned insureds that there would be no advantage to filing multiple suits in an effort to skirt the articulated rule because where the suits are “related” they still constitute a single claim.

This ruling is significant because it provides clarity with respect to an oft-litigated issue, and it provides a practical warning against those that would attempt to shoehorn multiple claims in search of higher coverage limits out of a single wrongful action or loss.

Thanks to Vivian Turetsky for her contribution to this post.