Cameron International, a main defendant in the Deepwater Horizon cases, successfully sued Liberty Insurance to help cover its substantial settlement costs. After affirming on the merits, the Fifth Circuit certified this question to the Texas Supreme Court: “Whether, to maintain a cause of action under Chapter 541 of the Texas Insurance Code against an insurer that wrongfully withheld policy benefits, an insured must allege and prove an injury independent from the denied policy benefits?” Cameron International Corp. v. Liberty Ins. Underwriters, Inc., No. 14-31321 (Nov. 19, 2015).
The Pyes’ home, valued at $195,000 before Hurricane Ike, was destroyed by that storm. After they recovered under various insurance policies, the Fifth Circuit found that further recovery under a flood insurance policy would be an impermissible double recovery. Noting that federal common law applied in this area rather than Texas law, the Court nevertheless found that Texas’s emphasis on fair market value was persuasive, and set the $195,000 valuation as the cap on recovery. While reaching this result, the Court reminded that “the question of the proper measure of recovery under a policy, which is controlled by policy language when defined in the contract as it is here, as distinct from the question of how the bar on double recovery is applied.” Pye v. Fidelity Nat’l Prop. & Cas. Ins. Co., No. 14-40315 (Nov. 6, 2015).
After losing a state court lawsuit, Martin Resource Management settled with its primary insurer (Zurich) for less than policy limits. Axis, the excess carrier, won summary judgment with the argument that this settlement did not trigger coverage, and the Fifth Circuit affirmed. The Axis policy said: “The Insurance afforded under this Policy shall apply only after all applicable Underlying Insurance . . . has been exhausted by actual payment under such Underlying Insurance[.]” Martin Resource Management Corp. v. Axis Ins. Co., No. 14-40512 (Oct. 21, 2015) (applying Citigroup, Inc. v. Federal Ins. Co., 649 F.3d 367, 371-73 (5th Cir. 2011)).
McGowan successfully sued his employer, Tractor Supply Co., for over $8 million in damages after a severe workplace injury. In the meantime, TSC’s umbrella carrier sued TSC and another carrier for a declaration about coverage obligations. The district court dismissed for lack of standing, and pursuant to its discretion under the Declaratory Judgment Act. The Fifth Circuit reversed; its principal holdings were: (1) under Texas insurance law, this sort of suit is justiciable after a liability determination at trial, and does not require exhaustion of appellate remedies; (2) the issues and parties were different in the two actions; and (3) the declaratory judgment suit was filed after the state case and otherwise showed “no indication of procedural fencing.” Ironshore Specialty Ins. Co. v. Tractor Supply Co. 14-51164 (Aug. 25, 2015, unpublished)
In a dispute about insurance coverage for a False Claims Act case involving the repair of Coast Guard cutters, the relevant exclusion reached: “[t]he failure of your products to meet any
predetermined level of fitness or performance and/or guarantee of such fitness or level of performance and/or any consequential loss arising therefrom.” The insured argued that “predetermination” implied a bilateral agreement, while a “requirement” was unilateral and did not implicate the exclusion. The Fifth Circuit disagreed for several reasons: “But ‘predetermined’ means only ‘established, decided upon, or
decreed beforehand.’ It implies nothing about how a determination comes about, or who has the authority to determine. A single party can ‘determine’ something, and can do so in advance: there is nothing inherently bilateral about predetermination. And even if there were, the complaint lays out straightforwardly that [the insured] failed to meet a requirement that the parties together determined in advance. (citation omitted)” XL Specialty Ins. Co. v. Bollinger Shipyards, Inc., No. 14-31283 (Aug. 27, 2015).
A contractor who undertakes to build a house does not have insurance coverage, because of the “your work” exception, if soil movement causes an unacceptable foundation failure. This exception does not apply to a contractor with a specified and limited scope of work — for example, wall damage is not “your work” for a contractor hired only to repair a foundation. Feaster v. Mid-Continent Casualty Co., No. 15-20074 (Aug. 27, 2015, unpublished).
Plaintiff claimed that he was not given proper medications by a private corrections company while incarcerated. The ensuing coverage litigation turned on a “medical services” exclusion, which said in relevant part:
“a) medical, surgical, dental or nursing treatment to such person or the person inflicting the injury including the furnishing of food or beverages in connection therewith;
b) furnishing or dispensing of drugs or medical, dental or surgical supplies or appliances if the injury occurs after the Named Insured has relinquished possession thereof to others;”
The Fifth Circuit agreed with the insurer that (a) and (b) dealt with different, distinct, situations and had to be harmonized – noting that an “or” between two later subparts supported this reading. Accordingly, the exclusion in (a) could apply even if (b) was not triggered. LCS Corrections Services v. Lexington Ins. Co., No. 14-40494 (Sept. 4, 2015).
Employees of the Stanford Financial Group sought coverage for attorneys fees incurred in defending federal criminal charges. The district court held the policy ambiguous and found coverage under the contra proferentem doctrine. The insurer sought reversal based on the “sophisticated insured” exception to that doctrine under Texas law. (A previous panel certified the question whether this exception existed in Texas to the Texas Supreme Court, who declined to answer it by resolving that case on other grounds.) Concluding that if Texas were to recognize the exception, it would apply a “middle-ground approach,” the majority affirmed: “Absent any information about the content of the negotiations, how the contracts were prepared, or other indicators of relative bargaining power, [the insurer] did not present evidence that the insured did or could have influenced the terms of the exclusion.” A dissent would have sidestepped saying anything about the exception, preferring to affirm on the ground that the policy unambiguously provided coverage. Certain Underwriters at Lloyds v. Perraud, No. 14-10849 (Aug. 12, 2015, unpublished).
Cox Operating incurred significant expenses in cleaning up pollution and debris at its oil-and-gas facilities after Hurricane Katrina. Its insurer disputed coverage. After a lengthy trial, the district court awarded $9,465,103.22 in damages and $13,064,948.28 in penalty interest under the Texas Prompt Payment Act. The Fifth Circuit affirmed in Cox Operating LLC v. St. Paul Surplus Lines Ins. Co., No. 13-20529 (July 30, 2015).
After finding that the one-year reporting requirement in Cox’s policy was not an unwaivable limitation on coverage, the Court confronted a “disturbing inconsistency” about the Act. On the one hand, the penalty-interest provision applies generally “[i]f an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter.” On the other hand, of the Act’s variously deadlines, only one expressly ties its violation to the penalty provision. The Fifth Circuit found for the insured, finding “the construction urged by St. Paul . . . would seem to transform all but one of the Act’s deadlines from commands backed by the threat of penalty interest to suggestions backed by nothing at all.”
H&E Equipment sued Advanced Services after a fire at a plywood plant. Advanced brought a third-party claim against Georgia-Pacific for indemnity, who in turn sought coverage from Kinsale Insurance. Kinsale denied coverage on the ground that Advanced was also insured under the relevant policy, triggering this “insured v. insured” exclusion: “This insurance does not apply to claims or ‘suits’ for ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ brought by one insured against any other insured.” The Fifth Circuit reversed summary judgment for the insurer, reasoning: “Advanced did not, in turn, seek damages from Georgia-Pacific due to a property loss; it sought indemnity based on general tort principles for the property damage that occurred to another party. Advanced had no property damage, but it seeks protection from a potential duty to pay for someone else’s property damages.” Kinsale Ins. Co. v. Georgia-Pacific, LLC, No. 14-60770 (July 27, 2015) (distinguishing Fidelity & Deposit Co. of Maryland v. Conner, 973 F.2d 1236 (5th Cir. 1992).
Two test preparation services sued each other. The plaintiff sought coverage for a counterclaim under a policy that covered “injury arising out of . . . infringing upon another’s copyright, trade dress or slogan in your advertisement” (in other words, “trade dress” but not “trademark” claims). .” (emphasis added). Even under the generous standards for determining the duty to defend, the counterclaim’s allegations did not trigger coverage: “The central focus in this coverage dispute, however, is not on the confusion, but on what allegedly is causing the confusion. The alleged confusion in this case stems from the use of a similar service mark (“Testmasters”), and the false
representation that TES offers a similar service (live LSAT courses offered nationwide). None of the allegations possibly states a claim for confusingly similar trade dress.” Test Masters Educational Services, Inc. v. State Farm Lloyds, No. 14-20473 (June 29, 2015).
Building on In re Deepwater Horizon, ___ S.W.3d ___, 2015 WL 674744 (Tex. Feb. 13, 2015), in Ironshore Specialty Ins. Co. v. Aspen Underwriting, the Fifth Circuit addressed whether the following insurance policy provision limited the excess insurer’s obligations to a $5 million that the insured was obliged to provide under another contract: “The word ‘Insured,’ wherever used in this Policy, shall mean . . . any person or entity to whom [Insured] is obliged by a written ‘Insurance Contract’ entered into before any relevant ‘Occurrence’ and/or ‘Claim’ to provide insurance such as is afforded by this Policy.” The Court found that it did, even though the contract at issue in Deepwater Horizon had additional provisions that bore on this question. No. 13-51027 (June 10, 2015).
1. Whether an insurer can be liable for a bad-faith failure-to-settle claim when it never received a firm settlement offer. (The Fifth Circuit noted that a revised statute imposed “an affirmative duty . . . to make a reasonable effort to settle claims,” drawing into question prior case law in the area.) The Louisiana Supreme Court said: “Having determined that the plain language supports the existence of a cause of action in favor of the insured under [the revised statute], we answer this question affirmatively.”
2. Whether an insurer can be liable for “misrepresenting or failing to disclose facts that are not related to the insurance policy’s coverage” — namely, the status of a claim and related settlement negotiations. The answer: ” An insurer can be found liable under [the statute] for misrepresenting or failing to disclose facts that are not related to the insurance policy’s coverage; the statute prohibits the misrepresentation of ‘pertinent facts,’ without restriction to facts ‘relating to any coverages.'”
Accordingly, the Fifth Circuit remanded for further proceedings in Kelly v. State Farm, No. 12-31064 (May 29, 2015, unpublished).
Amerisure and Arch disputed whether Arch exhausted its policy limits. The Arch policy had an endorsement that said the coverage section “is amended as follows: The provision: ‘These payments will not reduce the limits of insurance. is deleted in its entirety and is replaced with the following provision: ‘These payments will reduce the limits of insurance.’”
Amerisure argued that the “expenses” referred to by the endorsement could not be read as including attorneys fees without contradicting another, more specific portions of the policy: ” Our right and duty to defend end[s] when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.”
The Fifth Circuit disagreed, reasoning: “This construction reads the endorsement out of the policy as, logically, there can never be an end to the duty to defend unless the insurer
pays the policy limits in indemnity payments.” Accordingly, Arch had an “eroding” policy with the insured, and its payments of attorneys fees had exhausted the policy limits. Amerisure Mutual Ins. Co. v. Arch Specialty Ins. Co., No. 14-20239 (April 21, 2015).
At issue in North Cypress Medical Center Operating Co. v. Cigna Healthcare was a basic aspect of the structure of a “preferred provider” insurance program. Under the many policies at issue, “in-network” providers receive more reimbursement than “out-of-network” ones, as an incentive to seek treatment in-network. With respect to the portion of the bill as to which patients had responsibility, certain providers provided “prompt pay” discounts. Insurers disputed whether they were then still responsible for the entire billed amount, or should have their responsibility reduced by a corresponding discount. The Fifth Circuit found that the patients, and thus the providers to whom they assigned their claims, had standing to litigate about this situation (reversing a district court ruling to the contrary). It also found that ERISA preempted state law claims about these issues, that limitations applied (without tolling) to compulsory counterclaims by insurers that sought affirmative relief rather than recoupment, and affirmed the dismissal of RICO claims by the provider. The litigation seems likely to continue, and to produce more issues about complicated and significant ERISA and procedural points. No. 12-20695 (March 10, 2015).
An insurer settled with its insured; the settlement “did not contain an admission of liability under the Policy and both parties dispute whether the Policy covered the four claims at issue.” Accordingly, the insured had no claim under the Texas Prompt Payment Act for an alleged breach of the settlement. Tremago, L.P. v. Euler-Hermes American Credit Indemnity Co., No. 13-41179 (Feb. 25, 2015, unpublished). The Court also found that a trio of statements such as “[Plainitff] has not alleged, let alone proffered any evidence of any act on [Defendant’s] part that fairly can be characterized as ‘so extreme’ that it would cause ‘injury independent of the policy claim’ was sufficient to place the plaintiff on notice that its extra-contractual claims were within the scope of the defendant’s summary judgment motion.
A design firm proved at trial that Hallmark Design Homes built hundreds of houses such as the one on the right, using its copyrighted plans without permission. Hallmark filed for bankruptcy; the remaining issue was whether the claim was “advertising injury” under Mid-Continent’s various liability policies. Mid-Continent Casualty Co. v. Kipp Flores Architects, LLC, No. 14-50649 (Feb. 26, 2015, unpublished).
The Fifth Circuit affirmed judgment for the insured. After reminding that additional evidence can be offered in a coverage dispute about matters addressed in a prior lawsuit, the Court held: “[I]t is undisputed that Hallmark’s primary means of marketing its construction business was through the use of the homes themselves, both through model homes and yard signs on the property of infringing homes it had built, all of which were marketed to the general public . . . .” Because the homes themselves were “advertisements,” Mid-Continent’s policies covered the prior judgment.
(This post’s title comes from an exchange between Falstaff and Mistress Ford in The Merry Wives of Windsor.)
In the case of In re Deepwater Horizon, the Texas Supreme Court has answered the certified questions raised in a significant insurance case about BP’s coverage related to the Deepwater Horizon disaster. (No. 130670, Tex. Feb. 13, 2015.) The issue is whether BP was an additional insured under policies obtained by Transocean, the operator of the ill-fated rig. Applying Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008), the Court held that “it is possible for a named insured to purchase a greater amount of coverage for an additional insured than an underlying service contract requires,” and that “the scope of indemnity and insurance clauses in service contracts is not necessarily congruent.” From that foundation, the court concluded: “The Drilling Contract required Transocean to name BP as an additional insured only for the liability Transocean assumed under the contract. Accordingly, Transocean had separate duties to indemnify and insure BP for certain risk, but the scope of that risk for either indemnity or insurance purposes extends only to above-surface pollution.”
Fernando Ramirez died after a beating by security guards at a nightclub. His estate sued the guards and the business that owned the club, as well as subsequent owners, alleging a scheme to hide assets. This lawsuit led to an insurance coverage dispute between the subsequent owners and the CGL carrier at the time of the incident. Colony Ins. Co. v. Price, No. 14-10317 (Feb. 12, 2015, unpublished). The specific allegations against the later owners in the underlying suit are far from clear, and appear to be obscured by broad use of the term “Defendants.” Nevertheless, the district court and Fifth Circuit agreed that these parties were not covered as “employees” under the policy: “Most obviously, the Price Defendants fail to explain how MTP and TOM, a partnership and a limited liability company, can be employees at all, let alone employees who falsely imprisoned Ramirez on October 1, 2008, particularly given that the Petition alleges that they were not formed until December 31 of the following year.”
In an earlier opinion, the Fifth Circuit reversed a summary judgment in favor of an insured, finding a fact issue as to whether late notice caused prejudice to the carrier. “Berkley I,” Berkley Regional Ins. Co. v. Philadelphia Indemnity Ins. Co., 690 F.3d 342 (5th Cir. 2012). After further proceedings, the district court granted summary judgment to the carrier and the Court affirmed. “Berkley II,” Berkley Regional Ins. Co. v. Philadelphia Indemnity Ins. Co., No. 13-51180 c/w No. 14-50099 (Jan. 27, 2015, unpublished). The key issue was whether notice to the broker sufficed to give notice the the carrier; the Court reasoned that even if the broker had a limited agency relationship with the carrier, notice of claims fell outside its scope: “Under the 2002 Agreement, Philadelphia expressly allowed [Agent] to act as an insurance broker and sell Philadelphia policies as Philadelphia’s representative, subject to Philadelphia’s approval. The 2002 Agreement is silent as to whether [Agent] had the ability to accept notice of claims on behalf of Philadelphia. Thus, [Agent] did not have express authority to accept notice of claims.” For the same reasons, an implied agency theory was also rejected.
The insurance coverage case of Mt. Hawley Ins. Co. v. Advance Products & Systems, Inc. illustrates the recurring differences of opinion between the Fifth Circuit and district courts about contract ambiguity. 14-30068 (Jan. 27, 2015, unpublished). When APS made a claim on its commercial property policy with Mt. Hawley, APS’s recovery was limited by a “coinsurance provision” that applies if it “has not insured the full value of its income.” The parties differed on whether “income” referred to projected or actual net income; the district court found ambiguity, and the Fifth Circuit reversed: “Although APS has a point—the language used in calculating the coinsurance penalty is imprecise—it does not render the contract ambiguous.” Based on the relationship between this provision and other parts of the policy, and the general purposes of coinsurance clauses, the Court reversed a summary judgment for the insured.
Lexington Relocation Services sued Gum Tree Property Management and other defendants, alleging that a former employee had been hired by them to perform “substantially the same marketing and sales tasks that she had previously performed, in violation of her employment agreement.” Nationwide Mutual Ins. Co. v. Gum Tree Property Management, No. 14-60302 (Jan. 14, 2015, unpublished). Gum Tree sought defense and indemnity under several CGL and umbrella policies; the district court ruled for the insurer and the Fifth Circuit affirmed. The Court held that the insured did not successfully invoke a “narrow exception” under Mississippi law that can base coverage on “true facts” learned by the insurer beyond what a pleading says, noting that the exception does not reach “simpl[e] denials of the allegations in the complaint” or other “mere assertions.” The Court then found that the pleading did not make allegations about disparagement, invasion of privacy, or advertising injury.
Class action suits alleged that First Community Bank mismanaged its customers’ bank accounts. The bank’s insurer admitted that there would be coverage under the professional liability policy, but for the “fee dispute exclusion” [excluding claims “based upon, arising out of or attributable to any dispute involving fees or charges for an Insured’s services”]. While the collection of excessive overdraft fees was a major part of the pleadings, “at least some” of their allegations dealt with “First Community’s providing misleading information on its account practices and customers’ account balances . . . that do not have a causal connection to a disagreement that necessarily includes fees.” Accordingly, under Texas’s “eight corners” rule, the Fifth Circuit affirmed judgment for the insured as to the duty to defend. First Community Bancshares v. St. Paul Mercury Ins. Co., No. 13-50657 (Nov. 14, 2014, unpublished).
Consistent with a 2014 line of cases that reversed summary judgments on credibility issues, the Fifth Circuit reversed a summary judgment for the insurer in a bad faith case in Santacruz v. Allstate Texas Lloyds, No. 13-10786 (Nov. 13, 2014, unpublished). The insured alleged inadequate investigation into her claim of covered wind damage to her home, and the Court found fact issues on two matters.
First, as to liability for bad faith, the Court noted: “The extent of Allstate’s inquiry into the claim consisted of its adjuster taking photographs of the damaged home. Significantly, Allstate did not attempt to talk to the contractor, who submitted an affidavit in this case describing what he observed concerning the roof and attributing the cause to wind damage. Nor is there any evidence showing that Allstate obtained weather reports or inquired with neighbors to see if they suffered similar damage, which would tend to show the damage was caused by wind rather than normal wear and tear.”
Second, as to damages, the Court said: “Santacruz claimed three types of damages: (1) the replacement of the roof, supported by an invoice from Pedraza providing that Santacruz paid him $3,900 to repair the roof; (2) a list of damaged personal and household items compiled by Santacruz and his family with an estimate of the value of all the belongings; and (3) repair work needed for the damaged interior of the home, supported by an estimate from a contractor listing the repairs to be done. Further, Pedraza submitted an affidavit testifying to the necessity of repairing the roof, and Santacruz submitted photographs showing the extensive damage to the home’s interior to support his claim that repairs were necessary.”
In a reversal on rehearing from the original panel opinion, based on answers to certified questions in another matter in the meantime, the Court held in Crownover v. Mid-Continent Casualty Co.: “In sum, [Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 124, 127 (Tex. 2010) and Ewing Constr. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 37 (Tex. 2014)], maintain that for a contractual-liability exclusion to apply, the insurer must prove that a contractually-assumed duty effected an expansion of liability beyond that supplied by general law. The arbitrator in this case determined that Arrow violated an express duty to repair work that did not conform to the requirements of its construction contract with the Crownovers. Mid-Continent has failed to proffer evidence creating a dispute of fact as to whether the arbitrator’s award was based on liability greater than that dictated by general law. Therefore, the contractual-liability exclusion from coverage does not apply.” No. 11-10166 (Oct. 29, 2014, on petition for rehearing).