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  Mid-Continent Casualty Co. v. Kipp Flores Architects, LLC, No. 14-50649 (Feb. 26, 2015, unpublished).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).

River Oaks, an apartment management business originally based entirely in Louisiana, expanded into Mississippi in 2011.  It had a workers comp policy with Bridgefield Insurance, which provided “Other States” coverage for Mississippi if River Oaks notified Bridgefield of activity there.  After an employee’s injury in Mississippi, Bridgefield denied coverage for failure to comply with this notice requirement.  Bridgefield Casualty Ins. Co. v. River Oaks Management, Inc., No. 13-31077 (Oct. 27, 2014, unpublished).

Bridgefiled won the coverage dispute in district court, and the Fifth Circuit agreed that: (1) the provision was not ambiguous; (2) the provision was a condition precedent to coverage, so Bridgefield did not have to show prejudice from the lack of notice; and (3) for similar reasons, the provision did not implicate the Louisiana “anti-technical” statutes.

But, the Court found a material fact issue and reversed — agreeing with the district court that there was a factual dispute about whether an audit by Bridgefield put it on notice of the Mississippi activity (and accepted payments after that time), the Court disagreed with the district court’s conclusion that the dispute was not material: “An insurer may waive a provision that falls short of granting it the right to cancel the entire policy, such as the exclusion-of-coverage provision at issue here.”

Holden, an employee of Buck Kreihs Company (“BKS”), was injured while removing a gangway that connected BKS’s dock to a barge owned by U.S. United Ocean Services (“United”).  Holden and United settled their litigation, and United’s liability insurer won summary judgment in United’s suit for insurance coverage.  The Fifth Circuit affirmed in Holden v. U.S. United Ocean Services, L.L.C., No. 12-30251 (Sept. 15, 2014, unpublished).  The policy — actually issed to BKS, but with United as an additional insured — had a “watercraft” exclusion.  The exclusion would otherwise apply to the barge, except for an exemption for a contract under which “the ‘Named Insured’ assumes the tort liability of another party for ‘bodily injury’ or ‘property damage’ to a third party or organization.”  The majority found that United was not a named insured, and that the exemption was best read to reach claims by an injured claimant against BKS — not claims by an additional insured for its own liability to the claimant.  A dissent argued that this reading did not give effect to the precise terms used in the policy.

Pioneer suffered an oil well blowout and paid millions to restore order.  It sued for reimbursement under its umbrella policy and the Fifth Circuit affirmed judgment for the insurer, based largely on the broad language of the relevant exclusions.  Pioneer Exploration LLC v. Steadfast Ins. Co., No. 13-30802 (Sept. 22, 2014).  Pioneer argued that the “owned, rented or occupied” exclusion did not apply to a mineral lease.  The Court disagreed, noting that the mineral lease gave Pioneer some control over surface land, and that the broad language of the exclusion reached activity associated with oil production (citing Aspen Ins. UK, Ltd. v. Dune Energy, Inc., No. 10-30335 (5th Cir. Nov. 8, 2010, unpublished)).  Further, noting that Louisiana law allowed debate as to whether an “owned property” exclusion reached remediation costs incurred to minimize liability to third parties, the Court found that this exclusion “specifically excludes containment costs” (reviewing Norfolk Southern Corp. v. California Union Ins., 859 So. 2d 167 (La. App. 2003)).”  Finally, as to another exclusion, the Court found that the insured could not meaningfully allocate expense “between controlling costs and plugging costs.”

The Fifth Circuit returned to the tension between excess and primary carriers in RSUI Indemnity Co. v. American States Ins. Co., a bad faith case under Louisiana law.  After a review of the cases on the issue, the Court held “that under the circumstances of this case, where an excess carrier alleges that a primary insurer in bad faith breached its duty to defend a common insured properly and caused exposure of the insured to an increase in the settlement value of the case above the primary policy limit, which the excess insurer must then satisfy on the insured’s behalf, the excess insurer has a subrogated cause of action against the primary insurer for any payment above what it otherwise would have been required to pay.”  No. 14-30033 (Sept. 25, 2014).

ExxonMobil sued US Metals, alleging over $6 million in damages from defects in a set of 350 “weld neck flanges.”  US Metals sought CGL coverage from Liberty.  U.S. Metals, Inc. v. Liberty Mutual Group, Inc., No. 1320433 (Sept. 19, 2014, unpublished). Liberty denied US Metals’s request, based on the “your product” and “impaired” property exclusions in the policy, which turned on the terms “physical injury” and “replacement” in those exclusions.   The Fifth Circuit noted a lack of Texas authority as to whether those terms are ambiguous in this context, and no clear answer in other opinions that have addressed them. Accordingly, the Court certified two questions to the Texas Supreme Court: (1) whether those terms, as used in these exclusions, are ambiguous; and (2) if so, whether the insured’s interpretation is reasonable.  The Court observed that the interpretation of these terms “will have far-reaching implications” and “affect a large number of litigants.”  That Court accepted the certification request today.

The Baptists bought a home insurance policy from Nationwide in 2006.  In 2008, they lost their home to foreclosure.  They remained in the house, however, until December 2011 — before a court-ordered eviction date of January 13, 2012, but after fire did serious damage to the house in December.  They made a claim on the Nationwide policy, which discovered that they no longer owned the house as part of its post-loss investigation. Nationwide Mut. Ins. Co. v. Baptist, No. 13-60726 (Aug. 7, 2014).  While Nationwide won a summary judgment about coverage on the ground that the Baptists no longer had an insurable interest by the time of the fire, the Fifth Circuit affirmed because the Baptists’ “renewals of their policy constituted their affirmations to Nationwide of their initial application for insurance, material portions of which were no longer true.”  Those misstatements allowed Nationwide to rescind the policy under Mississippi law.

The issue does not come up every day, but it can be critical when it surfaces.  “A civil action in any State court arising under the workmen’s compensation laws of such State may not be removed to any district court of the United States.”  28 U.S.C. § 1445(c).  The defendant argued for removal based on common-law bad faith claims — an argument that once worked — but amendments to Texas law meant that “claims of bad faith no longer arise outside of the workers’ compensation laws.”  Trahan v. Liberty Mutual Ins. Co., No. 13-20717 (June 10, 2014, unpublished) (citing Tex. Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430 (Tex. 2012)).  Accordingly, the case returned to state court.

A vessel sank while in the harbor for repairs.  Afterwards, the insurer sued its insured (the harbor operator) and the vessel owner, to dispute coverage.  National Liab. & Fire Ins. Co. v. R&R Marine, Inc., No. 10-20767 (June 30, 2014).  The insurer argued that the vessel owner had no standing under Texas law when it made a claim against the insurer, as there was no final judgment establishing the insured’s liability at that time.  The plaintiff countered that it was “forced” to assert its claim as a compulsory counterclaim under the Federal Rules.  The Fifth Circuit concluded that — although Texas state law barred the timing of the vessel owner’s counterclaim, it arose out of the same occurrence as and had a logical relationship to the coverage dispute.  Accordingly, the counterclaim was compulsory.  Treating it as such also “permitted the district court to efficiently address all disputes arising from the litigation” and was consistent with the Rules’ goal of only “alter[ing] the mode of enforcing state-created rights.”

A 1404(a) dispute was affirmed in Empire Indemity Ins. Co. v. N-S Corp., where “almost all non-party witnesses and all sources of proof needed to determine whether damages were covered by Empire’s policy are in, or around, Texas, and subject to the district court’s compulsory subpoena power.”  No. 13-40426 (June 12, 2014, unpublished).  On the merits, an aggrieved car wash operator sued its parts supplier and won a verdict for over $3 million.  Several months later, the parts supplier and its primary carrier settled with the plaintiff, all parties mutually released all claims against each other, and the parts supplier assigned its claims against its excess carrier to the plaintiff.  The excess carrier won summary judgment and the Fifth Circuit affirmed: “Following a release, the releasor cannot sue the releasee’s insurer ‘because the release precludes the prerequisite determination of [releasee’s liablity.'”  (quoting Angus Chem. Co. v. IMC Fertilizer, Inc., 939 S.W.2d 138 (Tex. 1997)).

“It would . . . be an unreasonable interpretation of the policies to say that they provide for valuation as of the date of . . . discovery since no loss occurs at that point.  The most appropriate date to use in calculating [plaintiff’s] losses is that date of the foreclosure sales, as that is when [plaintiff] incurred covered losses.”  First American Bank v. First American Transportation Title Ins. Co., No. 13-30888 (July 16, 2014)

The coverage dispute in Wiszia Co. v. General Star Indemnity Co. involved a lawsuit in which “Jefferson Parish essentially asserted Wisznia improperly designed a building and did not adequately coordinate with the builders during its construction.” No. 13-31125 (July 16, 2014).  Reviewing the allegations under Louisiana’s eight-corners rule, and summarizing the extensive Louisiana jurisprudence on the topic, the Fifth Circuit found that the claim fell within the policy’s professional services exclusion.   Under those authorities, mere use of the word “‘negligence’ is insufficient to obligate a professional liability insurer to defend the insured,” and “the factual allegations in the Jefferson Parish petition here do not give rise to an ordinary claim for negligence—such as an unreasonably dangerous work site.”

1.  No conflict-of-interest.  In Graper v. Mid-Continent Casualty Co., No. 13-20099 (June 24, 2014), the Fifth Circuit revisited the potential conflict-of-interest issues relating to counsel selected by an insurance carrier, previously addressed in Downhole Navigator LLC v. Nautilus Insurance, 686 F.2d 325 (5th Cir. 2012).  Reminding that a problematic conflict would only arise if “the facts to be adjudicated in the underlying lawsuit are the same facts upon which coverage depends,” the Court found no disqualifying conflict in either: (a) the facts of when a claim accrued for limitations purposes, as opposed to when it occurred under the policy, or (b) the facts about an alleged willful copyright infringement occurs, as opposed to a “knowing” act for coverage purposes.  

2.  No exhaustion.  The excess carriers in Indemnity Ins. Co. of N. Am. v. W&T Offshore, Inc. contended that they had no coverage obligation when the underlying policies had been exhausted.  No. 13-20512 (June 23, 2014).  Distinguishing Westchester Fire Ins. Co. v. Stewart & Stevenson Services., Inc., 31 S.W.3d 654 (Tex. App.–Houston [1st Dist.] 2000, pet. denied), the Court disagreed, finding that the policy “merely outlines what will happen if the underlying insurance is entirely exhausted by claims covered under the policy; it says nothing about what will happen if the Retained Limit is exhausted by non-covered claims.” A deftly-written footnote 5 explains how the excess carriers’ argument relies on the logical fallacy of “affirming the consequent.”

The plaintiffs in Crownover v. Mid-Continent Casualty Co. won an arbitration claim based on the “breach of the express warranty to repair” in their contract with an HVAC installation company.  No. 11-10166 (June 27, 2014).  The Fifth Circuit, applying Gilbert Texas Construction LP v. Underwriters of Lloyd’s London, 327 S.W.3d 118 (Tex. 2010) and the recent response to a certification request in Ewing Construction Co. v. Amierisure Ins. Co., 420 S.W.3d 30 (Tex. 2014), concluded that CGL coverage was not available: “Whereas contractually agreeing to repair damage resulting from a failure to exercise reasonable care in performing the work or agreeing to perform work in a good and workmanlike manner would mirror a contractor’s duty under general law . . . contractually agreeing to repair damage resulting from a failure to comply with the requirements of the contract would not.”  Law360 has a good article about the development of this important insurance coverage issue over the last several months.

In Tetra Technologies, Inc v. Continental Ins. Co., the district court ruled on several key issues in an insurance coverage dispute, declined to certify the rulings for immediate appeal under 28 U.S.C. § 1292(b) because it found no substantial ground for difference of opinion, and entered judgment on those matters pursuant to Fed. R. Civ. P. 54(b).  No. 13-30516 (June 10, 2014).  The Fifth Circuit found that judgment improper, and thus dismissed on jurisdictional grounds for lack of a final and appealable order. Rather than sounding the “death knell” of claims as required by Rule 54, the Court concluded that the rulings would allow “Tetra and Maritech to prevail completely nor not at all on their indemnification claim against Continental, depending on the resolution of certain ‘factual issues.'”  “Thus, what we are presented with here is a request by the district court for us to sign off mid-litigation on legal questions it considers non-contentions.  Since the inception of the federal judiciary, however, our role has been to review final decisions of trial courts, not to tinker with ongoing cases through piecemeal appeals . . . “

A company received “PRP” (Potentially Responsible Party) letters from the EPA, followed by a “Unilateral Administrative Order” requiring the company to do remedial work.  Its CGL insurer denied coverage, contending that these administrative communications under CERCLA were not a “suit” that triggered the duty to defend.  McGinnes Industrial Maintenance Corp. v. Phoenix Ins. Co., No. 13-20360 (June 11, 2014, unpublished).  The insured argued that the word “suit” was ambiguous and thus led to coverage; the insurer argued that a broad reading of “suit” was inconsistent with the word “claim” in the policy and the word “petition” in the usual phrasing of the Texas “eight corners” rule.  Finding the issue important and that “the parties each make reasonable arguments” about it, the Fifth Circuit certified this question to the Texas Supreme Court: “Whether the EPA’s PRP letters and/or unilateral administrative order, issued pursuant to CERCLA, constitute a ‘suit’ within the meaning of the CGL policies, triggering the duty to defend.”  That Court has now answered yes and the case has been remanded for further proceedings.

The Twombly line of cases emphasizes the importance of detail in pleading.  In the insurance context, however, too much detail can defeat coverage.  In State Farm v. Moseley, the Fifth Circuit affirmed a summary judgment for an automobile insurer as to the duty to indemnify, concluding that a “volunteer driver” for a healthcare provider fell within the policy’s “for a charge” exclusion.  The driver received compensation that, while focused on reimbursement for expenses, could yield profit depending on the route taken and the number of passengers.  As to the duty to defend, however, the Court reversed, finding that the following pleading did not unambiguously trigger the exclusion, as it did not allege that “(1) [Plaintiff] gave [Defendant] any payment for transporting her; (2) [Defendant] was operating a taxi service; or (3) the specific amount of compensation [Defendant] received for transporting [Plaintiff]”:

“11.  Upon information and belief, Defendant Elizabeth W. Mosley, owned, operated, and controlled, or in the alternative, was doing business as Mosley’s Transportation. Upon information and belief, the Defendant, Elizabeth W. [Mosley], owned, operated, and controlled, or in the alter- native, was doing business as LogistiCare of MS. Further, upon infor- mation and belief, the Defendant, Elizabeth W. Mosley . . . is in the business of transporting patients to and from their medical treatment facilities.

12. The Defendant, LogistiCare Solutions, LLC, in the regular course of business, operates and maintains a non-emergency medical transportation services business . . . .

13. That on or about March 19, 2010, the Deceased, Pearlie Graham, was being transported by the Defendant, Elizabeth W. Mosley, and riding as a guest passenger in a vehicle being driven and operated by the Defendant, Elizabeth W. Mosley, Individually and d/b/a Mosley’s Transportation and/or d/b/a LogistiCare of MS, or in the alternative, [] was acting in furtherance of and within the course and scope of her employment with Defendant, LogistiCare Solutions, LLC . . . . “

1.  The Fifth Circuit vacated its panel opinion in Sawyer v. duPont to certify two questions to the Texas Supreme Court — paraphrased slightly, they were (1) whether an at-will employee can sue for fraud for loss of employment, and (2) whether a 60-day “cancellation-upon-notice” collective bargaining agreement would change a “no” answer to (1).  The Texas Supreme Court has now answered those questions: “no” as to the basic question about a fraud claim arising from at-will employment, and “in the situation presented, no” to the second question about the effect of the CBA.  “The Employees argue that it would contravene public policy to allow an employer to benefit from its duplicity, but public policy is not better served by allowing contracting parties to circumvent their agreement.”  No. 12-0626 (Tex. April 25, 2014).  (The Fifth Circuit formally adopted that reasoning and affirmed on June 11, 2014).

2.  Similarly, the Court vacated its panel opinion in Ewing Construction v. Amerisure Insurance Corp. to certify the question whether a CGL policy’s “Contractual Liability Exclusion” would reach a contract in which a contractor commits to work in a “good and workmanlike manner.”  The Texas Supreme Court answered “no”: “[A] general contractor who agrees to perform its construction work in a good and workmanlike manner, without more, does not enlarge its duty to exercise ordinary care in fulfilling its contract, thus it does not ‘assume liability’ for damages arising out its defective work so as to trigger the Contractual Liability Exclusion.”  No. 12-0661 (Tex. Jan. 17, 2014).  The opinion has been called a “significant reassurance” to policyholders in the construction business.

Rowland Trucking’s insurance policy required that it maintain a fence around the entirety of its property.  The fence had gaps on the south and west side.  Thieves entered on the east side and stole $350,000 in videogame consoles.  The Fifth Circuit affirmed judgment for the insured under the Texas Anti-Technicality Statute, which provides: “Unless the breach or violation contributed to cause the destruction of the property, a breach or violation by the insured of a warranty, condition, or provision of a fire insurance policy or contract of insurance on personal property, or of an application for the policy or contract: (1) does not render the policy or contract void; and (2) is not a defense to a suit for loss.”  W.W. Rowland Trucking Co. v. Max America Insurance, No. 13-20341 (Feb. 24, 2014, unpublished).  The Court sidestepped an argument that the statute did not reach liability policies, finding that the policy here was a property policy notwithstanding its occasional use of the word “liability.”

Plaintiff Jongh sued “State Farm Lloyds” and Johnson, a local insurance adjuster, relating to the handling of her property insurance claim for storm damage.  Jongh v. State Farm Lloyds, No. 13-20174 (Feb. 20, 2014, unpublished).  State Farm answered and removed, arguing that (1) Johnson was improperly joined to destroy diversity; (2) Jongh had improperly named Lloyds, a separate entity; and (3) State Farm and Jongh were diverse.  The trial court ruled for the defendants after a 1-day bench trial.   The Fifth Circuit agreed with Plaintiff — who appears to have raised subject matter jurisdiction for the first time on appeal — that “State Farm never became a party in this action. Jongh did not  name State Farm as a defendant in her original petition; although it asserted in its answer and notice of removal that Jongh incorrectly named Lloyds as a defendant, State Farm did not move to intervene or otherwise request that the district court substitute it as the proper party in interest.”  The Court noted that Plaintiff, the “master of her complaint,” consistently asserted that her claim was against Lloyds and not State Farm.  The judgment was vacated and the case remanded.

In Star-Tex Resources, LLC v. Granite State Ins. Co., the parties disputed whether an “auto exclusion” barred coverage in a personal injury case.  553 F. App’x 366 (5th Cir. 2014).  The Fifth Circuit concluded that it was not possible to determine coverage form the plaintiff’s pleading: “The complaint contains only one, brief sentence describing the facts of the accident. Importantly, it contains no description of how Esquivel caused the collision.”  Therefore, it was appropriate to consider extrinsic evidence (beyond the “eight corners” of the pleading and policy) that the insured was driving a car at the time of the accident, as it was relevant to coverage and by itself did not go to liability, citing Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (2004).

The Fifth Circuit found that a subcontractor’s CGL carrier had no duty to defend a construction defect claim against the general contractor.  Carl E. Woodward LLC v. Acceptance Indemnity Ins. Co., No. 12-60561 (Feb. 11, 2014). The pleading alleged that the general contractor, through its subcontractor, “built the foundation piers in non-conformity with plans and specifications.” An accompanying engineer’s report provided detail about related drainage problems.  The Court concluded that the policy language meant that “claims for liability can be brought after ongoing operations are complete, but the underlying liability cannot be due to the ‘completed operations.'”  A contrary holding, reasoned the Court, “effectively converts a CGL policy into a performance bond.”   Here, “[e]ven accepting the district court’s factual finding that damage had occurred during ongoing operations, the only ‘damage’ supported by allegation is the construction that was not in conformity with plans and specifications,” and “[l]iability for such damages arising out of completed operations . . . .”  Law360 has recently published an analysis of this opinion.  An opinion denying rehearing elaborates on the role of the engineering report.

The Fifth Circuit released a revised opinion in James v. State Farm, which continues to affirm in part and reverse in part a summary judgment for the defendant in an insurance bad-faith case based on delays in handling the claim.  The majority tightens its description of the requirements for punitive damages under Mississippi law, the dissent heightens its criticism of the majority’s reasoning as to the applicable standard and analytical framework.

Mississippi law allows a “bad faith” claim relating to handling of workers’ compensation; Alabama law does not.  Williams, a Mississippi resident, was injured in Mississippi while working for an Alabama resident contract.  Williams v. Liberty Mutual, No. 11-60818 (Jan. 28, 2014).  The Fifth Circuit reversed the choice-of-law question, finding that section 145 of the Restatement (governing tort claims) applied rather than other provisions for contract claims.  Under that framework, Mississippi would give particular weight to the place of injury, and thus apply Mississippi law. The opinion highlights the importance of the threshold issue of properly characterizing a claim before beginning the actual choice-of-law analysis.

In 2012, the Fifth Circuit held that for purposes of the duty to defend, a mishap while loading a patient into an ambulance was “use” of an auto.  Litigation continued, and the district court concluded that for purposes of the duty to indemnify (where the inquiry is not limited to the “eight corners”), the injury did not arise from auto use.  National Casualty Co. v. Western World Ins., 12-50652 (Jan. 15, 2014, unpubl.)  The Fifth Circuit reaffirmed its earlier conclusion that it did, and also remanded for further review of a potentially applicable exclusion about auto use: “If the EMTs in fact failed to properly secure Rigsby to the gurney before they began to move her toward the ambulance, and if Rigsby’s injury resulted from this failure, Western World’s auto exclusion is inapplicable.” The facts of this case illustrate some awkwardness in common form insurance provisions in this area.

Boyett v. Redland Ins. Co. examined whether a forklift is a “motor vehicle” within the meaning of Louisiana’s uninsured motorist statute, and concluded that it is one.  No. 12-31273 (Jan. 27, 2014).  Its Erie analysis illustrates a feature of Louisiana’s civil law system that bedevils outsiders.  On the one hand, a court “must look first to Louisiana’s Constitution, its codes, and statutes, because the ‘primary basis of law for a civilian is legislation, and not (as in the common law) a great body of tradition in the form of prior decisions of the courts.’ Unlike in common law systems, ‘[s]tare decisis is foreign to the Civil Law, including Louisiana.'”  On the other hand, “[W]hile a single decision is not binding on [Louisiana’s] courts, when a series of decisions form a constant stream of uniform and homogenous rulings having the same reasoning, jurisprudence constante applies and operates with considerable persuasive authority.”

In Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., the title insurance company mistakenly left key provisions out of a policy due to a software problem, while the insured’s surveyor erroneously measured the extent of a “flowage easement” held on the development property by Lake Lewisville.  No. 12-40692 (Jan. 14, 2014).  The Fifth Circuit held: (1) reformation was justified, because the insured had reason to know of the title company’s unilateral mistake; (2) both sides had reasonable interpretations of (a) the scope of coverage for survey error, (b) the ‘flowage easement exception,’ (c) and the ‘created, suffered, assumed, or agreed to’ exception, so coverage appeared likely. Summary judgment for the insurer was reversed and the case remanded for further proceedings.  A sanctions award against the insured’s counsel under 28 U.S.C. § 1927 in connection with extracontractual claims was reversed for lack of bad faith by the attorneys.

BAL Metals stored roughly $500,000 of copper in a warehouse operated by Mundell Terminal Services.  Thieves stole the copper.  BAL Metals’ insurance carrier paid the claim and then sued the warehouse as BAL’s subrogee.  United Nat’l Ins. Co. v. Mundell Terminal Servs., Inc., No. 13-50052 (Jan. 23, 2014). The warehouse asked its carrier for defense and indemnity, coverage litigation ensued, and the district court granted summary judgment for the warehouse’s carrier.  It reasoned that because a bailor is presumed to insure a bailee’s interest as well as its own under Texas law, the policy was “other insurance” to BAL’s coverage.  The Court noted that the warehouse had a first-party property damage policy rather than liability coverage.  The Court also concluded that another coverage argument, about the characterization of the metal under the policy’s definition of “property,” had been waived because it was not presented with enough specificity to the district court.

New York Life v. Cannatella involved the interpleader of life insurance benefits.  The Fifth Circuit affirmed the award of $750 in attorneys fees to the insurance company who filed the action, agreeing that the company was “disinterested,” and identifying these factors about a fee award to a party in its position: “1) whether the case is simple or involved; 2) whether the stakeholder performed any unique services for the claimants or the court; 3) whether the stakeholder acted in good faith and with diligence; 4) whether the services rendered benefited the stakeholder; and 5) whether the claimants improperly protracted the proceedings.”  No. 12-30663 (Dec. 23, 2013, unpublished).

Seventy property owners sued St. Bernard Parish, alleging that it wrongfully demolished their properties in the wake of Hurricane Katrina (which flooded virtually every structure in that hard-hit area).  The Parish’s insurer disputed coverage.  Lexington Ins. Co. v. St. Bernard Parish Gov’t, No. 13-30300 (Dec. 6, 2013, unpublished).  Among other arguments, the insurer argued that there was no coverage because the policy had a $250,000 retention limit per occurrence, and each demolition (none of which involved more than that amount) should be viewed as a separate occurrence.  The district court and Fifth Circuit ruled for the Parish.  The Fifth Circuit noted that the limit applied “separately to each and every occurrence . . . or series of continuous, repeated, or related occurrences,” and that the phrase “related” has a broad meaning in the insurance context, covering logical or causal connections between acts or occurrences.   Here: “[T]he acts alleged in the underlying actions are related because they all resulted from St. Bernard’s ordinance condemning those properties that remained in disrepair following Hurricane Katrina. The fact that the properties in the underlying action were demolished at different times, in varying degrees, and at different locations, does not mean that these acts are not related.”

A REIT sued the City of College Station, alleging that its zoning decisions were unconstitutionally irrational and unfair.  The City’s CGL policy covered liability arising from “wrongful act[s]” of city officials, with an exclusion for liability arising from eminent domain or condemnation proceedings.  City of College Station v. Star Insurance, No. 12-20746 (Nov. 14, 2013).  The district court granted summary judgment for the insurer and the Fifth Circuit reversed: “As [the REIT’s] constitutional and tortious interference claims may produce liablity that does not ‘arise out of’ [its] inverse condemnation action, [the insurer] is liable for the City’s defense costs.”

A subcontractor’s policy excluded “property damage” to “your work.”  An endorsement added the general contractor as an additional insured “only with respect to liability for . . . ‘property damage’ . . . caused, in whole or in part, by . . . [y]our acts or omissions.”  “The policy defined “you” and “your” with reference to the subcontractor and the endorsement did not purport to modify that definition.  State Farm Auto Ins. v. Harrison County, No. 13-60001 (Sept. 16, 2013, unpublished).  The insurer argued that the additional insured could only “stand[] in shoes no larger than those worn by the primary policyholder.”  The Fifth Circuit did not disagree, but found that this specific endorsement created ambiguity when read along with the original policy, and thus affirmed the district court’s summary judgment in favor of coverage.

The insured estimated loss from a hailstorm at a shopping center at close to $1 million; the insurer estimated $17,000.  TMM Investments v. Ohio Casualty Insurance, No. 12-40635 (Sept. 17, 2013).  The insurer invoked its contractual right for an appraisal, which came in around $50,000.  The insured sued, alleging that the appraisal improperly excluded damages to the HVAC system and that the panel exceeded its authority by considering causation issues.  Applying State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009), the Fifth Circuit agreed on the HVAC issue, but did not see that as a reason to invalidate the entire award, and reasoned that the appraisers were within their authority when they “merely distinguished damage caused by pre-existing conditions from damage caused by the storm . . . .”

Two employees entered a series of unauthorized loan transactions on behalf of their employer and took the proceeds.  BJ Services v. Great American Insurance Co., No. 12-20527 (Sept. 6, 2013, unpublished).  The employer’s carrier denied coverage, arguing that the losses did not “directly” result from employee dishonesty, in part because the company never actually got the money.  The district court agreed but the Fifth Circuit reversed, noting that the employees had “apparent” authority to enter the transactions, even if they did not have “actual” authority, and thus created binding contracts on behalf of their employer that made the losses “direct” within the meaning of the policy.

On rehearing, the Fifth Circuit withdrew its original opinion and substituted a certification request to the Texas Supreme Court in Ranger Insurance v. Transocean Offshore Deepwater Drilling, Inc., No. 12-30230 (Aug. 29, 2013).  The request asks for guidance about Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256 S.W.3d 660 (Tex. 2008), and whether (1) it compels coverage for BP under the language of umbrella insurance policies if contractual “additional insured” and indemnity provisions are “separate and independent,” and (2) whether the contra proferentem doctrine would apply to the contract containing those provisions.  Thanks to Don Cruse’s SCOTX blog for picking this up, and that blog will be following the handling of the request in the state court.

Deep Marine Technology provided construction support vessels to BHP, an offshore drilling company.  A BHP contractor sued for injuries arising from an “offshore personnel basket transfer” between a Deep Marine vessel and a BHP platform.  There was no dispute that the parties’ Master Services Agreement required BHP to defend and indemnify Deep Marine from this claim.  The issue in Duval v. Northern Assurance Co. was whether BHP had to defend and indemnify Deep Marine’s insurers, who were joined to the litigation under Louisiana’s Direct Action Statute.  No. 12-31102 (July 5, 2013).  The Fifth Circuit noted that indemnity provisions are strictly construed and that: “The parties could have included the Contractor’s insurers within the definition of ‘Contractor Group,’ as parties in other cases have done . . . . ” (citation omitted).  Based on that conclusion, the Court rejected several theories about how the insurers could benefit from the indemnity provision, and affirmed summary judgment against them.

James v. State Farm involved the appeal of summary judgment for the insurer in a bad faith case brought under Mississippi law, in which State Farm “tendered the policy limit on its uninsured motor vehicle coverage to [Appellant] nearly thirty months after [she] was injured in a car accident.”  No. 11-60458 (June 21, 2013).  The majority opinion reversed in part, working through the delay and finding that State Farm lacked a justification for delay during certain portions of the thirty-month period.  The dissent took a different approach, stating: “The district court’s more holistic approach of evaluating whether State Farm’s actions throughout the course of its investigation rose to the level of an independent tort is more in line with precedent.”

On June 18, two separate panels — one addressing a chemical spill, the other a vessel crash into an oil well — reached the same conclusion in published opinions:  when an insured fails to give notice within the agreed-upon period, as required by a “negotiated buyback” endorsement to a policy, the insurer does not have to show prejudice to void coverage.   Settoon Towing LLC v. St. Paul Surplus Lines Ins. Co., No. 11-31030; Starr Indemnity & Liability Co. v. SGS Petroleum Service Corp., No. 12-20545.  The notice provision was seen as part of the basic bargain struck about coverage.  Both opinions — especially Starr, arising under Texas law — recognized the continuing viability of Matador Petroleum v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653 (5th Cir. 1989), in this situation, notwithstanding later Texas Supreme Court cases requiring prejudice in other contexts arising from the main body of a policy.  Settoon went on to address other issues under Louisiana insurance law, including whether the Civil Code concept of “impossibility,” which focuses on a failure to perform an obligation, applies to a failure to perform a condition precedent such as giving notice.

The EPA and its state equivalent sued the owner of the “Big Cajun II,” a coal power plant in Louisiana, seeking penalties, injunctive relief, and remediation of alleged environmental damage.  Louisiana Generating LLC v. Illinois Union Ins. Co., No. 12-30651 (May 15, 2013).  Applying New York law, the Fifth Circuit found that “Claims, remediation costs, and associated legal defense expenses . . . as a result of a pollution condition” potentially encompassed some of the relief sought by the EPA for past environmental problems.  The Court also found that an exclusion for “[p]ayment of criminal fines, criminal penalties, punitive, exemplary or injunctive relief” did not unambiguously exclude coverage for remediation required by an injunction order, reasoning that such a broad reading “would potentially swallow” the coverage for remediation costs.  Having found a duty to defend, the Court did not reach a question about whether New York law allowed indemnification for civil penalties imposed under the Clean Air Act.

The insurance policy said: “Whenever any Assured has information from which the Assured may reasonably conclude that an occurrence covered hereunder involves an event likely to involve this Policy, notice shall be sent to Underwriters as soon as practicable . . . ”  Ins. Co. of N. Am. v. Board of Commissioners of the Port of New Orleans, No. 12-30705 (May 1, 2013, unpublished). Clarifying an earlier opinion (and mandate) about this notice provision, the Fifth Circuit held: “[T]he duty of coverage is triggered for each underwriter who receives notice under the policy. . . We do not, however, hold the converse of this conclusion.  In other words, we do not hold that all underwriters under the policy must receive notice as a condition precedent to a duty of coverage being triggered for any individual underwriter under the policy.”

Materials Evaluation and Technology Corporation (“METCO”) had a CGL policy from Mid-Continent that it renewed annually beginning in 1997.  The 2002 policy covered liability arising from a third-party contractual relationship while the 2003 policy did not.  Two METCO employees were injured at a DuPont facility, DuPont settled their claim and sought indemnity from METCO pursuant to their contract, and Mid-Continent denied coverage based on the 2003 policy.  Materials Evaluation & Tech Corp. v. Mid-Continent Casualty Co., No. 12-40186 (March 18, 2013, unpublished).  METCO appealed a summary judgment for the insurer, arguing that Texas law presumes that an insurance policy renews on the same terms as the original.  The Court reviewed METCO’s authority and found it was limited to those cases’ particular fact situations — generally involving a claim of misrepresentation or an issue of mutual mistake — and affirmed.

The Deepwater Horizon rig operated under a drilling contract between BP and Transocean.  The contract had indemnity provisions between BP and Transocean for pollution claims depending on whether the contamination originated above water.  The contract also required Transocean to maintain BP as an additional insured under Transocean’s liability coverage.  In Ranger Insurance v. Transocean Offshore, the parties agreed that BP was entitled to some coverage as an additional insured, but disputed whether that coverage reached pollution liability, since the spill originated below water in BP’s area of responsibility under the indemnity clauses.  No. 12-30230 (March 1, 2013).  The Fifth Circuit reasoned: (1) Texas law begins by examining the policy, which did not restrict pollution coverage when read in light of earlier cases involving similar clauses; (2) the terms of the drilling contract did not change that conclusion, as its indemnity provisions were sufficiently “discrete” from its additional insured provision.  The opinion reviews what the Court saw as a consistent line of Fifth Circuit and Texas authority about the interplay of indemnity and “additional insured” clauses.