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.

First Department Rules Insurer Must Defend Asbestos Claims (NY)

The First Department recently upheld a trial court decision requiring American Home Assurance Co. (“American Home”) to defend the Port Authority in several underlying asbestos claims in American Home Assur. Co. v Port Auth. of N.Y. & N.J.  In 1966, American Home issued a liability policy to the Port Authority relating to the construction World Trade Center complex, then known as the WTC Hudson Tubes Project.  The policy covered the Port Authority, as well as the site’s contractors and subcontractors, for liability that “arises out of … all operations … during the policy period in connection with the construction of the project.”  In 1975, American Home sent the Port Authority a notice of cancellation, effective February 1976.

Mirroring a nationwide trend, the Port Authority began experiencing a deluge of asbestos-related claims in the 1980s.  American Home defended the Port Authority and several contractors, in thousands of underlying asbestos cases, incurring more than $30 million worth in costs and settlements.  The present litigation began in 2012, when American Home filed a declaratory judgment action contending that the pending asbestos claims did not occur during the policy period. Specifically, they argued that for coverage to be triggered, a diagnosable disease needed to exist during the policy period, which was not the case in the underlying actions.

The trial judge ruled against American Home, holding that “during the policy period” modified the actual project operations, regardless of when the injuries began.  The judge further held that American Home could not rely on a $10 million per occurrence limit for “spray on fireproofing” because the alleged exposures occurred in a variety of ways.  Lastly, the court held that the defense costs were not subject to the policy limit, holding that the policy provided “litigation insurance” which survived the exhaustion of the policy limit.

On appeal, the First Department affirmed the majority of the trial court’s ruling.  The court held that the “plain language” of the policy “means that the policy covers injuries that result from operations that occurred during the policy period.”  Therefore, the policy provided coverage regardless of when the injury was diagnosed.  Further, the court held that the “spray on fireproofing” limit was not applicable because the claims did not arise from a single occurrence under the policy.  Notably, the court held the trial court erred in finding that the duty to defend survives exhaustion of the policy’s liability limit, as “[t]he policy explicitly provides that defense costs are subject to that limit.”  American Home could take solace in the First Department’s final ruling, as the defense costs for the pending asbestos claims could amount to further millions in costs.

Thanks to Doug Giombarrese for his contribution to this post.


The Olin Litigation Saga Comes to a Close (NY)

Judge Rakoff of the SDNY recently authored the (likely) final chapter of what the Court itself described as “this interminable litigation,” agreeing with Certain Underwriters at Lloyd’s position that the terms of an executed Settlement Agreement with Plaintiff Olin imposed a pro rata allocation upon all implicated London policies, as opposed to joint and several liability.

In Olin Corporation v Certain Underwriters at Lloyds London, Olin, a manufacturing company, operated at site in Morgan Hill, California for forty years, from 1956 to 1996.  The “interminable litigation” involved insurance coverage for the remediation of property damage caused by Olin’s operations.  Underwriters’ had issued excess insurance policies to Olin most of which included the following Condition C:

It is agreed that if any loss covered hereunder is also covered in whole or in part under any other excess Policy issued to the Assured prior to the inception date hereof the limit of liability heron…shall be reduced by any amounts due to the Assured on account of such loss under such prior insurance.

Olin had argued that this provision meant that each policy should be liable up to its limits for all of the property damage as long as some portion of that damage took place during the policy’s effective period.  The Second Circuit agreed with Underwriters, though, and held that an “allocation” approach applied, where each policy provided coverage for only that property damage that could be directly attributed to its policy period.  The parties next litigated how to determine when exactly the property damage occurred.  Again, the Courts sided with Underwriters, finding the damage occurs as long as contamination continues to spread, including by passive “migration of contamination into the soil and groundwater.”

With the method of allocation, and a means to determine the time period of property damage, judicially decided, Olin and Underwriters executed a Settlement Agreement, at issue in the instant litigation.  Specifically at issue, Paragraph D, which provided:

With respect to any future third-party Pollution Claim relating to property damage that is not the subject of a release in this Agreement, the following allocation methods shall be used, (i)….shall be allocated pro rata equally over the entire period of time that nay operations took place on any parts of the real property Olin owned, and (ii)…shall be allocated pro rata equally over the entire period of time that any waste was disposed of or arranged to be disposed of…

Over year following execution of the Settlement Agreement, Olin sought a judicial determination that the Settlement Agreement permitted it to hold insurers jointly and severally liable for property damage that took place after the end of the policy period, if that policy contained Condition C, above.

The SDNY concisely ruled against Olin, agreeing with Underwriters that the express terms of the Settlement Agreement unambiguously evince the parties’ agreement that property damage is to be allocated using a pro rata allocation, and that it unambiguously was meant to override the terms of Condition C in all the applicable policies.

Thanks to Vivian Turetsky for her contribution to this post.

Attorney-Client Privilege Potentially Under Siege (NY)

The Appellate Division, Fourth Department, recently issued a decision that will have severe ramifications on insurance carriers. In Rickard v. New York Cent. Mut. Fire Ins. Co., a supplementary UIM claim, the injured party served a notice to produce for New York Central Mutual’s entire claim file, including the portions of the file that were generated after the action was filed. New York Central Mutual, claiming that the material from after the action was filed is protected, moved for a protective order, or in the alternative, for an in-camera review of the materials. The trial court denied New York Central Mutual’s motion and granted Rickard’s cross-motion to compel the entire claim file. As a result of the trial court’s decision, New York Central Mutual appealed to the Appellate Division, Fourth Department.

The Fourth Department discussed how New York Central Mutual’s objection in response to Plaintiff’s notice to produce was overly broad, in that NYMC should have identified which specific document requests were “palpably improper” instead of asserting that all materials in the claim file generated after the commencement of this action were protected. In the end, the court held that New York Central Mutual failed to meet its burden to secure the protection they requested because of the breadth of the objection. The court said, deciding what parts of a claim file are protected is a fact-specific determination. They added that this will most likely result in an in-camera review.

This case goes against the prior holding of Lalka v. ACA Ins. Co., a 2015 Fourth Department case, where the court held that all documents in the claim file created after an action has commenced are protected from disclosure.

The concern going forward is that the courts will continue to chip away at the attorney-client privilege between insurance carriers and their attorneys. For now, when objecting to demands by citing attorney-client privilege, insurers and their attorneys would be well advised to note specific bases for their objections, rather than issue blunderbuss objections to all such demands.   Thanks to Marc Schauer for his contribution to this post.  Please email Brian Gibbons with any questions.

No Coverage for Damages from Carbon Monoxide (PA)

A judge in the United States District Court Eastern District of Pennsylvania ruled that an insurance company does not have to indemnify a landlord whose tenants sued over carbon monoxide poisoning,

In Foremost v. Nosam, Foremost sought declaratory judgment stating that it did not owe a duty to defend or indemnify, Nosam LLC in the state court action based on a pollution exemption in its policy.

This case arose from the state court action in which plaintiff and her two children sued their Landlord and the building owner (Nosam LLC) after suffering carbon monoxide poisoning, allegedly from a faulty furnace in Sylvestre’s apartment.

The malfunction in the furnace was allegedly caused by a neighboring chimney collapsing and falling into the plaintiff’s chimney. This allegedly caused a blockage in the heating unit at the plaintiff’s residence, causing the emission of carbon monoxide.

Foremost disclaimed citing the policy which read “We will not pay for bodily injury or property damage…[arising out of the actual, alleged or threatened discharge, dispersal, release, escape of, or the ingestion, inhalation of absorption of pollutants.”  The underlying plaintiffs later claimed that the emission was caused by an accidental fire when the heating system was converted to a gas system, which would trigger the exclusion to the policy exemption.

The Court ruled, “ Although the underlying plaintiffs contend that they did not know the heating system had been converted to gas, there is no suggestion they did not knowingly and intentionally start the December 9, 2015, fire by turning on the furnace…There is no suggestion that any flames, or any part of, this controlled fire extended outside the sealed unit where it was designed to burn…Further, although the chimney collapse may have contributed to the buildup of carbon monoxide inside the residence, the unexpected collapse did not cause the fire. The fire, regardless of whether it was ignited by gas or oil, did not happen by chance or unexpectedly and was therefore not accidental. Although the buildup of carbon monoxide was accidental, it was not released by an accidental fire and the underlying plaintiff’s attempt to conflate the two requires a strained interpretation of that term.”

The salient distinction the Court makes is based on the carbon monoxide emission (obviously) being accidental, whereas the fire was started intentionally.  Because the fire was started intentionally, Formost’s policy exclusion applied, and Foremost owed no duty to defend or indemnify.  Thanks to Jon Avolio for his contribution to this post.  Please email Brian Gibbons with any questions.

UIM Coverage Does not Apply to Rented Vehicles, According to Eastern District (PA)

In Achenbach v. Atlantic Specialty, the plaintiff was a passenger in a rental car being driven by her co-worker, when the vehicle she was traveling in was rear-ended by a truck driver.  The rental car was rented through the plaintiff’s employer, while the plaintiff and her co-worker were on a work trip in Wisconsin.  Plaintiff suffered injuries as a result of the accident, and the truck driver was uninsured.  As a result, the plaintiff sought uninsured motorist benefits through the car rental agreement, which offered coverage of up to $25,000.00.  Plaintiff settled with the rental car insurer for the policy limit.  As the plaintiff’s claimed damages exceeded that amount, she also sought secondary coverage through her employer’s insurance policy with Atlantic Specialty.  In attempts to recover from Atlantic Specialty, plaintiff’s counsel and Atlantic Specialty exchanged email communications about her eligibility from July 2013 to October 2015.  Plaintiff then demanded payment of the full amount of Atlantic Specialty’s policy as settlement for her outstanding claim, which was denied.  Atlantic Specialty claimed she was not eligible for uninsured motorist insurance under the policy.

Plaintiff then brought suit for breach of contract, bad faith and promissory estoppel.  Atlantic Specialty removed the matter to federal court and filed a motion to dismiss.  The Court, finding that Wisconsin law applied, dismissed plaintiff’s bad faith claim, as Wisconsin law did not support a viable claim for bad faith based on failing to investigate her claim and making misrepresentations during the claim adjustment process.

Plaintiff argued that defendant breached its contract with her employer by denying the claim.  Defendant responded that the policy did not provide coverage for uninsured motorist benefits to rented vehicles.  The Court found that the plain language of the policy limited uninsured motorist coverage to owned vehicles and excluded rental vehicles.  Plaintiff’s reliance on the alleged assurances from the defendant that the policy covered rental vehicles did not change the plain and unambiguous language of the policy.  This claim was dismissed as well.

Finally, plaintiff brought a promissory estoppel claim based on the representations made by the defendant’s employees as to the availability of uninsured motorist coverage during the claim adjustment process, and that she relied on those representations to her detriment.  The Court agreed that plaintiff plead sufficient facts to support this claim, as the emails between the parties supported the assertion that the defendant made an “express promise” that the uninsured motorist coverage was available to plaintiff, which was reasonable. Therefore, this claim was allowed to proceed.

This is a cautionary tale to avoid making any promises or representations to claimants during the adjustment process before making coverage decisions.

Thanks to Alexandra Perry for her contribution to this post.