How to raise a fact issue about home damage

Ayoub v. Chubb Lloyds Ins. Co. of Texas confronted a “scattershot and somewhat redundant” endorsement to a homeowner’s policy, “unlike any policy language addresValuesed in Texas case law that we have seen.”  The endorsement dealt with personal property. The district court granted summary judgment for the insured, concluding that the “actual cash value” described in the endorsement could not be proved with the insured’s affidavit about replacement cost.  The Fifth Circuit disagreed and reversed, noting that the Texas Supreme Court has acknowledged that “personal effects have ‘no market value in the ordinary meaning of that term,'” meaning that “[t]he trier of facts may consider original cost and cost of replacement,” among other evidence.  No. 14-51301 (Jan. 28, 2016, unpublished).

“Any similar law” = ambiguity

A highly technical dispute about the applicable law for an offshore salvage operation produced an insurance holding of general applicability in Tetra Technologies, Inc v. Continental Ins. Co., No. 15-30446 (Feb. 24, 2016).  The policy exclusion applied to “[a]ny obligation of the insured under a workers compensation, United States Longshoreman’s and Harbor Workers’ Compensation Act, Jones Act, Death on the High Seas Act, General Maritime Law, Federal Employers’ Liability Act, disability benefits or unemployment compensation law or any similar law . . . ”  The Fifth Circuit concluded that the “any similar law,” while referring generally to employers’ liability (since all the laws specifically named deal with that issue), was still ambiguous and meant that the exclusion would be construed against the insurer.

No Prompt Pay Act liability for Blue Cross

361089_630x354Health Care Service Corporation (known in Texas as Blue Cross and Blue Shield of Texas), serves as the administrator of various insurance plans.  It had a dispute with Methodist Hospitals of Dallas about its potential liability under the Texas Prompt Pay Act, which sets penalties for insurance claims that are not processed within the deadlines set out by the Act.  The Fifth Circuit agreed with the district court that the Act did not apply when Blue Cross “did not provide benefits through its administrator and preferred provider agremeents, but instead merely distributes claim payments from plans to providers[.]”  The Court also found federal preemption of claims under the Act related to claims under the Federal Employees Health Benefits Program.  Health Care Service Corp. v. Methodist Hospitals of Dallas, No. 15-10154 (Feb. 10, 2016).

Enough parties at the party

bookNational Casualty sued its insured in federal court for a declaratory judgment that there was no coverage.  The insured sued National Casualty and the insured’s insurance brokers in state court for misleading it about coverage.  The district court found that those additional parties were indispensable for the federal action (and would destroy diversity if joined), and abstained under Colorado River from proceeding further.  Reminding “that it is not necessary for all joint tortfeasors to be named as defendants in a single lawsuit,” the Fifth Circuit reversed as to the joinder analysis, and also as to abstention, noting in particular that “the federal action has proceeded to summary judgment . . . [and] the state court action has involved little more than an original petition, answers, and a stay of proceedings.”  National Casualty Co. v. Gonzalez, No. 15-10478 (Feb. 4, 2016, unpublished).

Substantial compliance, not enough.

Construction Funding filed a timely, sworn, proof of loss that “itemized the claim into general categories” such as “building structures” and “personal property.”  Unfortunately, the relevant policy (incorporating a background federal law), required a “complete” inventory with attached documents.  In this context “substantial compliance . . . is not enough,” and Construction Funding had no coverage for its loss.  Construction Funding, LLC v. Fidelity Nat’l Indem. Ins. Co., No. 15-30040 (Jan. 8, 2016, unpublished).

Cannot escape the pollution exclusion

mold_cartoonPlaintiffs sued about insulation installed in their home by the defendants, alleging that they “failed to seal off completely areas in which vapors could be transported from the areas under renovation and construction to the existing area[] of the house[,] in which the Commarotos, their three minor children, and their houseguest, Schlegel, were living and sleeping during the construction process.” The district court found that these allegations unambigously fell within the pollution exclusion of the relevant insurance policy and the Fifth Circuit affirmed.  The Court declined to consider “deposition testimony by two of the plaintiffs stating that they physically touched and examined the spray foam insulation.”  While an exception to the “eight corners rule” could allow consideration of such evidence if “it is initially impossible to discern whether coverage is potentially implicated” (among other matters), the clarity of this pleading precluded its application here.  Evanston Ins. Co. v. Lapolla Indus, Inc., No. 15-20213 (Dec. 23, 2015, unpublished) (applying Star-Tex Resources, LLC v. Granite State Ins. Co., 553 F. App’x 366 (5th Cir. 2014)).

Preemption Exemption

error street signGreenwich Insurance Company made a number of errors in its internal accounting about crop insurance premiums.  When those mistakes ultimately led to a substantial assessment against it by a state authority, Greenwich argued that the state standards were preempted by regulations associated with the Federal Crop Insurance Act.  The Fifth Circuit agreed with the district court that they were not, as the true source of Greenwich’s problems was not the state rules but its own “acts of unjustifiable incompetence”:  “The FCIC did not intend to hamstring . . . the operations of state programs . . . simply to protect inattentive insurers from their own mistakes.”  Greenwich Ins. Co. v. Mississippi Windstorm Underwrting Ass’n, No. 15-60405 (Dec. 15, 2015).

Attorneys fee recovery for insurance coverage claims?

scotxbuildingCameron 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).

Double, double, toil and trouble . . .

floodThe 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).

Settlement zaps excess coverage

coverage pictureAfter 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)).

Permissible declaratory judgment action re: coverage

Fencing_girlMcGowan 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)

How to predetermine

calvins-doctrine-of-predestinationIn 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).

Foundation’s Edge

foundationpictureA 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).

“Or”

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).

The “sophisticated insured” hot potato, tossed in the air again . . .

hotpotatoEmployees 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 TexasBarToday_TopTen_Badge_Smallapply 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).

Get to the insured on time . . .

churchontimeCox 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.”

“Insured v. Insured” exclusion inapplicable

insurancepolicyH&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 TexasBarToday_TopTen_Badge_Smallinsured.”  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).

No trade dress infringement, no advertising injury coverage

test-clip-art-cpa-school-testTwo 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).

Contract Caps Coverage

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).

Two Louisiana insurance issues certified — UPDATED

Withdrawing an earlier panel opinion, the Fifth Circuit certified two insurance questions to the Louisiana Supreme Court in 2014, which have now been answered:

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).

Expenses, Erosion, and Exhaustion.

archAmerisure 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).

8000 insurance policies, about as many legal issues

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).

No liability for claim = no Prompt Payment Act liability

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.

Like a fair house built on another man’s ground . . .

samplehallmarkA 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.)

SCOTX answers certified questions, denies BP coverage.

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.”