A Potential (and Rare) Loss for a New England Patriot

New England Patriots defensive end, Deatrich Wise, Jr., filed suit against Lloyd’s of London for breach of his policy, which was designed to protect him from any loss of value in his capacity as an up-and-coming professional football player. Wise is claiming he is owed $600,000 after missing time due to injuries sustained on the field.

Lloyd’s contends that Wise Jr. never missed any full games, therefore, he is not eligible for coverage.  The basis for Wise’s claim is that due to the games he missed in his final season of college, as a result of hand and shoulder injuries, he signed a $3 million dollar contract with Patriots — substantially less then he would have made if he had not been injured in his final season in college.

Wise claims Lloyd’s is obligated to make up the difference between the $3 million and the $3.6 million trigger line in the policy.

Lloyd’s moved for summary judgment claiming that Wise misinterpreted the policy to account for how many plays he missed in his final college season. Lloyd’s claims that the amount of plays Wise Jr. missed is of no moment as the policy is only triggered by missed games and Wise Jr. did not miss a single game in his final season in college.  Wise Jr’s attorney stated that Wise missed 312 defensive plays during the season, a sum he asserted amounts to “5.2 games.”

Lloyd’s policy requires that the insured “be unable to participate for at least 28 days and in three regular and/or postseason games” to be eligible for coverage. Therefore, Lloyd’s claims that Wise Jr. did not satisfy the requirements under the policy, therefore Lloyd’s did not breach the contract.

The suit alleges that Wise Jr’s pre-season accolades projected him to be a first round draft pick and due to the injuries he dropped out of the first round to fourth round and lost a significant amount of money.  We suspect Wise Jr. has an uphill battle to survive a motion to dismiss.   Perhaps he can take solace in his championship ring for SB LIII.   Thanks to Jon Avolio for his contribution to this post.  Please email Brian Gibbons with any questions.


Eastern District of Pennsylvania Grants Casualty Insurer’s Motion for Summary Judgment, Finding No Duty to Indemnify (PA)

In Myers v. GEICO Casualty Insurance Co.., the Eastern District of Pennsylvania Court granted Summary Judgment in favor of a casualty insurance company, holding that it acted properly because the driver of the vehicle was not an insured under its policy.  In brief, Chapman and Bond had attended an event together and after entering the event venue, Chapman asked for the keys to Bond’s vehicle because she needed to retrieve something. Upon arriving to the vehicle, Chapman noticed a parking spot closer to the event venue and proceeded to move Bond’s car to the closer spot without obtaining permission from Bond. While moving the vehicle, Chapman was involved in a collision with Myers. Jasmine Tucker, Bond’s girlfriend, was the named insured on the GEICO Policy, while Bond was listed as an additional driver. Chapman was not named under the Policy in any capacity. Myers sued Chapman, Tucker and Bond alleging negligence. GEICO did not defend Chapman, determining that she was not covered under the Policy because she operated the vehicle without permission.

In determining whether Chapman was an insured under the policy, the Court looked to the terms of the Policy. The Policy stated the insurer would “pay damages which an insured becomes legally obligated to pay” because of injury or damages from the use or ownership of an “owned auto.” Under the policy, an “insured” included “any . . . person using the auto with your permission.” The omnibus clause of an automobile insurance policy designated an insured as “any person using the insured vehicle with the permission of the owner, the permission necessary to elevate the user to the status of an additional insured may be express or implied.”  The court determined that implied permission could be established through a relationship or conduct surrounding the incident that demonstrated both parties acquiesced.  In finding that Chapman was not an insured under the policy, the Court considered the lack of express consent and the fact that Chapman had never driven Bond’s car previously. The Court rejected Chapman’s argument that Bond’s conduct of giving Chapman the keys amounted to consent.

This opinion demonstrates that it is possible for individuals not named on an automobile insurance policy to be deemed “insured” if there is consent to operate the vehicle, whether express or implied. However, in order to establish implied consent, the court will look to all the factors surrounding the incident to determine the presence of mutual acquiescence.

Thanks to Rachel Thompson for her contribution to this post.  Please email Colleen E.  Hayes with any questions.

An Insured’s Misrepresentations In Warranty Resulted In Disclaimer (NY)

In Patriarch Partners, LLC v. Axis Insurance Company, the Second Circuit declined to alter its prior decision involving the interpretation of a policy warranty and its impact on coverage.  In so doing, the court implicitly incorporated the terms of the insured’s warranty, into the policy, to find there was no coverage for a multimillion dollar government investigation.

In 2011, Patriarch Partners, LLC, a private equity investment firm, obtained an excess directors and officers policy through Axis Insurance Company which provided $5 million in excess insurance.  Patriarch had $20 million in primary coverage.  Axis was concerned about potential new liabilities, thus, it required Patriarch to execute a warranty statement that would eliminate liability in the event Patriarch had prior knowledge of a claim.  Patriarch presented a warranty signed by its sole officer stating it was not aware of any “facts or circumstances that would reasonably be expected to result in a Claim.”  Unbeknownst to Axis (but not to Patriarch), the Securities and Exchange Commission had been investigating Patriarch as early as 2009.  In 2012, after the Axis policy took effect, the SEC served a subpoena on Patriarch.  Patriarch subsequently sought coverage for the costs related to the SEC’s investigation.

In the ensuing coverage action, the Second Circuit relied on the terms of the warranty and found that no coverage existed because Patriarch had been aware of facts and circumstances that could reasonably be expected to result in a claim.  The Second Circuit rejected Patriarch’s argument that it would have to have specific knowledge that the “claim” would reach the $20 million threshold, thus, triggering the Axis excess policy, in order for Axis to disclaim coverage on this basis. The court further rejected Patriarch’s argument that the relevant facts and circumstances had to be subjectively known by Patriarch’s founder, who signed the document, citing general principals of agency.  Interestingly, the court’s holding relied mostly on the warranty itself, even though the warranty was not directly incorporated into Axis’s policy.

Ultimately, this opinion highlights the importance of full disclosure in an insurance application or warranty in order for coverage to attach.

Thanks to Doug Giombarresse for his contribution to this post.  Please email Colleen E.  Hayes with any questions.

Second Circuit Rejects Ambiguity Argument Regarding Policy’s Action Over Exclusion (NY)

An additional insured attempted to argue the “separation of insureds” clause rendered the Action Over Exclusion, an iteration of an employer’s liability exclusion, inapplicable, as it was not the employer of the claimant.  The Second Circuit disagreed based on the plain language of the exclusion.

In Endurance American Specialty Insurance Co. v. Century Surety Co., Hayden Building Maintenance Corp. was the general contractor on a construction project at which the plaintiff, who was an employee of Pinnacle Constr. and Renovation Corp., was injured.  Hayden sought coverage as an additional insured under the CGL insurance policy issued to Pinnacle by Century Surety Co.  Century denied coverage based on the policy’s Action Over Exclusion, which provided that there was no coverage for “bodily injury” to an “employee” of the named insured arising out of and in the course of employment by the named insured, or performing duties related to the conduct of the named insured’s business.  Hayden challenged the disclaimer, arguing the exclusion did not apply because Hayden did not employ the plaintiff and the policy’s terms must be applied separately to each insured seeking coverage as per the policy’s Separation of Insureds provision.

Although the district court agreed with Hayden, the Second Circuit reversed and held the Action Over Exclusion unambiguously barred coverage.  In particular, the appellate court held the exclusion barred coverage for bodily injury claims brought by an employee of “the named insured,” as opposed to “the insured.”  The Court further observed the Action Over Exclusion specifically replaced the Employer’s Liability Exclusion, which used the term “the insured.”  The Second Circuit ultimately reversed “because to do otherwise would render the unambiguous language…a nullity.”

Insurance policies are arguably the most hyper-scrutinized class of contracts.  As a result, in evaluating coverage, it is critical to evaluate even the most minute distinction in policy terms.  Here, an endorsement altered an exclusion by redefining the pertinent class of insured by changing “the insured” to “the named insured.”

Thanks to Christopher Soverow for his contribution to this post.  Please contact Colleen E.  Hayes with any questions.

Insurer Burned by Duty to Defend Following Gasoline Fire (PA)

The Pennsylvania Superior Court recently reversed a trial court’s granting of summary judgment in favor of an insurer in a declaratory judgment action and ruled that coverage was owed to an insured following a fire at a vehicle dismantling facility in Harrisburg.  In Tuscarora Wayne Ins. Co. v. Hebron, Inc., 2018 PA Super 270; No. 1591 MDA 2017, the court ruled in favor of the insured, Hebron, following Hebron’s appeal of summary judgment.

The underlying declaratory judgment action involved Hebron, a named insured on a commercial liability policy issued by TWIC.  Hebron dismantles and strips vehicles of their parts at a facility in Harrisburg, PA.  In May 2014, a fire broke out at Hebron’s facility when an employee was attempting to add fuel to a company truck that hauled broken down vehicles to Hebron’s plant, causing damage to Hebron’s facility.  The TWIC policy included an endorsement that excluded coverage for designated ongoing operations, including “vehicle dismantling.”  “Vehicle dismantling” was not defined in the policy.  TWIC filed a DJ action seeking a determination that coverage.  TWIC moved for summary judgment based on the exclusion, which Hebron opposed and also filed its own motion for summary judgment contenting that the plain language of the exclusion did not relieve TWIC of its coverage obligation.  The trial court granted TWIC’s motion for summary judgment and declared that defense and indemnity were not owed based on the “vehicle dismantling” exclusion because the refueling of a truck used to transport vehicles to Hebron’s facility to be dismantled was “incidental to the vehicle dismantling business.”  Hebron appealed and argued that the trial court committed errors of law in awarding summary judgment in favor of TWIC.

In its opinion regarding Hebron’s appeal, the court noted that, in Pennsylvania, courts will give effect to the plain language of a contract if the policy’s language is clear and unambiguous.  If, however, the language of the policy is ambiguous, the provisions must be construed in favor of the insured against the insurer and when an insurer bases a denial of coverage on a policy exclusion, the insurer bears the burden of establishing the exclusion’s application.  The Superior Court, viewing the facts in the light most favorable to Hebron (the non-moving party), also opined that the fire was not caused by the vehicle dismantling process itself, but rather it arose as a result of a faulty extension cord connected to a pump that sparked while Hebron’s own vehicle was being refueled.  Hebron was not actually dismantling a vehicle at the time of the fire and the dismantling process had already ended for the day, therefore the refueling of the truck was not “incidental to the vehicle dismantling business.”

Thus, the Superior Court concluded that the trial court had committed an error of law and reversed the granting of TWIC’s motion for summary judgment.  The Superior Court went even further and also concluded that, because fire did not occur in the course of the vehicle dismantling process, the exclusion did not apply, and Hebron was entitled to defense and indemnity under the policy.  The court then granted Hebron’s motion for summary judgment declaring that TWIC was required to defend and indemnify Hebron under the policy.

This case illustrates the importance of clearly and unambiguously defining operative terms in commercial liability policies in order to avoid potentially adverse interpretations of exclusion language.  Moreover, we suspect Hebron retained a solid cause and origin expert to make the cause of the fire clear to the Court, and prompt coverage.   Excellent foresight.  Thanks to Greg Herrold for his contribution to this post.  Please email Brian Gibbons with any questions.

Insurer Attempts to “Sack” Coverage of Trademark Suit based on “Financial Quarterback” Term (PA)

Erie Insurance Exchange filed a complaint Monday alleging that it has no duty to defend or indemnify a financial planning company facing claims in federal court for willfully infringing a rival’s marketing slogan trademarks. According to Erie, their policy explicitly precludes coverage for claims of infringement of copyright, patent, trademark or trade secret. Jalinski Advisory Group, Inc. has been marketing itself as “the financial quarterback” since 2009, and it formally registered “financial quarterback” as a trademark in April 2010.

However, Franklin Retirement, Erie’s insured, started to brand itself as “your financial quarterback,” which Jalinski alleges is indirect violation of the trademarks. Erie agreed to represent Franklin under a reservation of its rights; however, Erie ultimately denied coverage.  Now, Erie seeks a Pennsylvania state judge to free it from providing coverage.

With regard to trademark litigation, it’s all about the litigation fees, since defense of trademark infringement is very fact-specific, time-consuming, and expensive.  (Dennis Wade’s “This and That” from January 4, 2019 also focused on trademark litigation, and the ensuing expense.)

Does use of the term “Your Financial Quarterback” constitute copyright infringement?   The only certainty is that the answer to the question will be expensive.   Thanks to Melisa Buchowiec for her contribution to this post.  Please email Brian Gibbons with any questions.

NY Investment Firm Entitled to Entity Defense Costs for Lawsuits and SEC Investigations (DE)

A Delaware Court held that New York Investment Firm AR Capital LLC and Phoenix-based Vereit Inc., were entitled to entity defense costs in connection with lawsuits and U.S. Securities and Exchange Commission investigations.

This litigation, AR Capital v XL,  stems from an agreement between AR Capital LLC and Phoenix-based Vereit, Inc., a real estate operating company, according to Wednesday’s ruling by the Delaware Superior Court in Wilmington.

In 2014, an audit committee began a investigating reporting irregularities, and an SEC investigation followed.  Subsequently, shareholders filed a lawsuit which resulted in a class-action and seven opt-out actions. In turn, AR Capital retained two law firms to defend its interest and approximately 14.5 million in defense costs were incurred.

Primary and Excess insurance coverage through XL insurance was purchased by Vereit and the term was from February 2014 through February 2015. Vereit’s primary insurer, provided $10 million in coverage and seven excess insurers provided another $70 million in coverage. AR capital was an additional insured under the policies.

XL insurance began providing coverage on behalf of 6 of AR Capital’s officers and directors, however, it denied coverage to the corporate entity.  AR Capital ended up filing suit against all the insurers and requested indemnification from Vereit.   AR Capital subsequently settled with XL and Beazley Insurance Co., which insured the first excess layer.

All the parties involved in the litigation came to an agreement that AR Capital may be entitled to partial coverage, however, there were disagreements  as to the entity coverage.

Finally, the court held AR was entitled to entity coverage based on policy language. AR Capital is to be paid for their claims up to the same amount Vereit has already been paid by the excess insurers. Thereafter, AR Capital and Vereit shall be paid defense costs as they are incurred and submitted (first in, first out.) said the ruling.  Some well-reasoned policy interpretation in the attached case.

Thanks to Jon Avolio for his contribution to this post.  Please email Brian Gibbons with any questions.

Insurer Off the Hook for Loss of Business Income Due to Clogged Toilet (NJ)

A New Jersey appellate court recently decided whether an insurer must provide additional coverage for damage caused to a restaurant by sewage backup in FOUZIA SALIH v. OHIO SECURITY INSURANCE.

After a dreadful toilet clog in a New Jersey restaurant, plaintiff sought coverage in excess of its policy’s $25,000 limit for heavy damage to the restaurant under a lost business income provision.  The clog destroyed the water heater, furnace, restaurant’s tiles, basement, first-floor bathroom, and kitchen, causing $162,933.63 in total damage.   The policy’s general provisions excluded coverage for water damage caused by backup or overflow but included a custom endorsement which provided a $25,000 sublimit for such events.

A public claims adjuster determined that the loss was caused by water discharge while the insurer determined that the cause of loss was raw sewage backup.  The insurer issued checks for $25,000 for the damage and plaintiff filed a lawsuit after finding that the damages far exceeded the endorsement limit.  In the lawsuit, plaintiff sought more coverage and alleged that the insurer breached its terms to provide benefits covered under the policy.

The insurer moved for summary judgment and plaintiff filed an opposition relying on the business income provision, which states that the insurer will cover the actual loss of income sustained due to damage.  The lower court ruled in favor of the insurer, finding that the custom endorsement put plaintiff on notice that the business income provision would not cover damages if the water damage coverage was only created as a result of the endorsement.  Finding that the policy terms were clear, unambiguous, and supported the insurer’s interpretation of the policy, the appellate court affirmed the lower court’s decision.

Thanks to Chelsea Rendelman for her contribution to this post.

State Farm Must Defend Cyberbully Accused of Instigating Suicide (PA)

While attending a Pennsylvania High School, Zach Trimbur repeatedly harassed his female classmate, both in person and online.  In a tragic turn, the classmate committed suicide. The classmate’s parents filed a suit in Pennsylvania state court, bringing claims of negligence and wrongful death and survival against Trimbur.

State Farm brought a declaratory judgment action after Trimbur’s parents asked State Farm to defend and indemnify him against the lawsuit by referring to their home insurance policy that provided personal liability coverage. State Farm’s policy covers the cost of defending against claims arising from “occurrences,” which Pennsylvania state law has defined as accidents.

However, on December 11, 2018, U.S. District Judge Mark Kearney sided with the insured and held that State Farm must pay for Trimbur’s defense. According to Judge Kearney, although Trimbur may have intended to hurt the girl, it is not conclusive that death by suicide was foreseeable from his cyberbullying. Judge Kearney further stated that “the true test of whether an accident occurred comes from when the situation is viewed from the perspective of the insured” and from Trimbur’s perspective, suicide was not foreseeable. Judge Kearney declined to answer whether State Farm must also indemnify Trimbur.  And with the duty to defend being broader than the duty to indemnify, indemnification is certainly on the table.  This question may remain unanswered until the close of discovery.  Thanks to Melisa Buchowiec for her contribution to this post.  Please email Brian Gibbons with any questions.

Workers’ Compensation Carriers can Subrogate against tortfeasor, even though Plaintiff Couldn’t (NJ)

On December 14, 2015, David Mercogliano, an NJ Transit employee, was driving a car owned by NJ Transit when he was struck by another motorist. As a result of the accident, Mr. Mercogliano only suffered minor injuries and therefore his injuries did not overcome the verbal threshold.  He was barred from suing the other driver. However, he was still able to receive workers’ compensation benefits through NJ Transit’s workers’ compensation carrier. They paid out a total of $33,625 as compensation for his medical bills and indemnity benefits.

In an effort to recoup the money that was paid out, the workers’ compensation carrier filed a subrogation action against the driver of the other vehicle. A Superior Court judge granted summary judgment against the workers’ compensation carrier, ruling that the Automobile Insurance Cost Reduction Act barred the subrogation claim. The workers’ compensation carrier appealed this decision and the Appellate Division overturned the lower court’s ruling.

Last week, the three-judge panel held that even though Mr. Mercogliano could not recover benefits from his own automobile insurance or sue the other driver for non-economic damages, the workers’ compensation carrier had the right to file a subrogation claim.

Their rationale was all about legislative intent. The court said that the Workers’ Compensation Act applies, not the Automobile Insurance Cost Reduction Act. And if the legislature wanted to bar these claims they would have included that language in the AICRA, which was drafted 87 years after the WCA, but they didn’t.

What does this ruling mean? Well, if it is determined that a plaintiff’s injuries do not meet the verbal threshold in NJ, that doesn’t mean the insurance carrier is in clear. Yes, the insurance carrier won’t need to pay out non-economic damages to the plaintiff, but if the plaintiff was in the scope of his employment at the time of the accident, the motor vehicle insurance carrier needs to be aware of a potential subrogation claim from his employer’s worker’s compensation carrier.

Thanks to Marc Schauer for his contribution to this post.  Please email Brian Gibbons with any questions.