Insurance & Reinsurance 2009 | A Year In Review 2009 proved to be an active year for courts facing issues that affect general liability insurers. Among other topics, there were many notable rulings on issues related to bad faith, what constitutes an occurrence and number of occurrences, the expected or intended and pollution exclusions, and what constitutes damages. Additionally, courts provided guidance on the duty to defend, allocation, the contractual liability and asbestos exclusions, and who qualifies as an insured. Below are summaries of a selection of the notable cases that analyzed these issues.

In This Issue Bad Faith................................................1 Duty to Defend........................................3 “Insureds”...............................................4 “Occurrence”.........................................5 Number of Occurrences..........................6 Allocation...........................................7 Pollution Exclusion..................................7 Asbestos Exclusion.................................9 “Expected or Intended” / ”Intentional Acts” Exclusion...............................................9 “Contractual Liability” Exclusion..............10 “Damages”............................................10

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Bad Faith AG Equip. Co. v. AIG Life Ins. Co., Inc., No. 07-CV-0556, 2009 U.S. Dist. LEXIS 4078 (N.D. Okla. Jan. 21, 2009) The court granted summary judgment for the insurer because it had a good faith basis not to pay an insured’s medical expenses where a legitimate dispute existed as to whether the individual who generated the medical expenses was actually an employee of the insured. Bjornestad v. Progressive N. Mut. Co., No. 08-4105, 2009 U.S. Dist. LEXIS 74473 (D.S.D. Aug. 20, 2009) The court held that any prejudice to the insurer from a trial of a breach of contract claim at the same time as a bad faith claim was insufficient to require a bifurcation of these claims. Brammer v. Allstate Ins. Co., No. 1:07-cv-05-WTL-TAB, 2009 U.S. Dist. LEXIS 75146 (S.D. Ind. Aug. 24, 2009) The insurer’s negligent failure to promptly investigate the grounds for a denial of coverage was insufficient to show the “dishonest purpose” necessary to support a bad faith claim. Brockmann v. Bd. of County Comm’rs, No. 07-4103-EFM, 2009 U.S. Dist. LEXIS 1899 (D. Kan. Jan. 12, 2009) An insurer did not act in bad faith in denying coverage where it took steps to ensure that it followed applicable state law by hiring outside counsel and looked beyond the pleadings when investigating the claims at issue.

INSURANCE & REINSURANCE Bryant v. The Prime Ins. Syndicate, Inc., No 1:07CV1126, 2009 U.S. Dist. LEXIS 36098 (S.D. Miss. April 13, 2009) A delay of approximately 1.5 years to pay for damage to the insured’s property after Hurricane Katrina was reasonable where the insured failed to provide proof of loss to the insurer and there was no evidence the insurer acted with gross and reckless disregard for the insured’s rights.

2009 | A Year In Review

Global Aero., Inc. v. Hartford Fire Ins. Co., No. 09-0580cv, 2009 U.S. App. LEXIS 25802 (2d Cir. Nov. 25, 2009) Where a primary insurer and excess insurer had an agreement regarding the payment of disability benefits to an insured, the court held that if a duty of good faith exists between the insurers, then the primary insurer did not breach its duty of good faith to the excess insurer by failing to notify the excess insurer that it had paid the insured cost-of-living adjustments.

Cher-D, Inc. v. Great Am. Alliance Ins. Co., No. 05-5936, 2009 U.S. Dist. LEXIS 30206 (E.D. Pa. April 7, 2009) An insurer’s motion for summary judgment on a bad faith claim was denied because the insurer’s ten month delay in taking action to respond to the damage caused by a fire on the insured’s premises was a sufficient ground to allow the bad faith claim to proceed to a jury.

Griffin Dewatering Corp. v. N. Ins. Co. of New York, 97 Cal. Rptr. 3d 568 (Cal. Ct. App. 2009) An insurer was not liable for bad faith tort damages where it acted reasonably in denying a claim arising from sewage overflow in light of unsettled case law regarding a pollution exclusion in the policy.

Crawford v. Allstate Ins. Co., No. 07-3758, 2009 U.S. Dist. LEXIS 79200 (E.D. Pa. Sept. 1, 2009) The court granted summary judgment to the insurer on an insured’s bad faith failure to settle claim because the insurer’s initial offer to settle for less than policy limits was not evidence of bad faith where the insurer had a reasonable basis for this offer.

Ground Improvement Techniques, Inc. v. Fed. Ins. Co., No. 07-cv-01714, 2009 U.S. Dist. LEXIS 24742 (D. Colo. Mar. 13, 2009) An insurer was entitled to attorneys’ fees for the defense of a bad faith claim that was dismissed under Fed. R. Civ. P. 12(b) because the court found that the entire course of proceedings was unwarranted.

Dickerson v. Am. Nat’l Prop. & Cas. Co., No. 3:07-cv-111, 2009 U.S. Dist. LEXIS 33145 (M.D. Ga. April 16, 2009) The court denied an insurer’s motion for summary judgment on a bad faith claim because, even without retaining an expert on insurance practices, the insured had submitted sufficient evidence to create a question of fact as to whether the insurer acted in bad faith.

Hauck Holdings Columbia SC, LLC v. Target Corp., No. C-1-08-682, 2009 U.S. Dist. LEXIS 47417 (S.D. Ohio May 26, 2009) Bifurcation of a claim for the bad faith denial of coverage was not warranted where the issues of whether there was coverage under the applicable policy and whether the insurer denied coverage in bad faith arose out of the same set of facts and were closely intertwined.

Dickerson v. Lexington Ins. Co., 556 F.3d 290 (5th Cir. 2009) The insurer’s delay of more than 1.5 years in paying the insured for damage to the insured’s home was arbitrary and capricious. In addition, the court held that La. Rev. Stat. Ann. § 22:1220 permits an insured to recover for mental anguish caused by the insurer’s bad faith.

Imperial Trading Co. v. Travelers Prop. Cas. Co. of Am., No. 06-4262, 2009 U.S. Dist. LEXIS 41372 (E.D. La. May 5, 2009) In discovery, communications between an insurer and its reinsurers regarding the insureds’ claims were relevant to the insureds’ claim for bad faith to the extent that the insurer explained its reasons for granting or denying portions of the insureds’ claims or otherwise described or explained its handling of the insureds’ claims.

Flintkote Co. v. Gen. Accident Assur. Co., No. C 04-01827, 2009 U.S. Dist. LEXIS 44066 (N.D. Cal. May 26, 2009) The court allowed discovery of reserves information pertaining to the underlying asbestos-related claims because it was relevant to the insured’s claims of bad faith, but denied the insured’s request to discover reinsurance documents as such information was not relevant to determining the “state of mind” or actual knowledge of the insurer.

Kearney v. Auto-Owners Ins. Co., No. 8:06-cv-00595T-24, 2009 U.S. Dist. LEXIS 97368 (M.D. Fla. Oct. 19, 2009) The court denied an insurer’s motion for summary judgment on a bad faith claim because although the insurer offered significant reasons to explain its fiveyear delay in paying the insured’s claim, including an assertion that it had no duty to pay the insured until it was established that the insured had exhausted its primary coverage, the explanations did not prove its good faith as a matter of law.

Gabina Moldanado v. The First Liberty Ins. Co., No. 0812816, 2009 U.S. App. LEXIS 18295 (11th Cir. Aug. 17, 2009) The court held that an insurer acted in good faith as a matter of law even though the case resulted in an excess judgment against the insured because the insurer agreed to tender policy limits, while the insured refused to submit an affidavit attesting to his assets.



INSURANCE & REINSURANCE Kim v. Allstate Ins. Co., 153 Wa. App. 339 (Wash. Ct. App. 2009) In light of material disputes of fact regarding an insured’s material misrepresentations to its insurer during the insurer’s investigation of the insured’s lost wage claim, the court reversed summary judgment for the insured on its bad faith claim.

2009 | A Year In Review

third-party, the applicable law is the bad faith standard for third-party claims, not the more stringent bad faith standard applying to first-party claims. Zurich Am. Ins. Co. v. Coeur Rochester, Inc., No. 3:08CV-109-ECR-VPC (D. Nev. Apr. 4, 2009) The bifurcation of bad faith related claims from coverage claims was not needed at trial where there is no indication in the record of inflammatory facts.

Kodrin v. State Farm Fire & Cas. Co., 314 Fed. Appx. 671 (5th Cir. 2009) The court vacated the jury’s award of bad faith damages because the insured provided no evidence that the insurer acted unreasonably in arguing that the damage to the insured’s home was caused by a flood, rather than wind.

Duty to Defend AstenJohnson, Inc. v. Columbia Cas. Co., 562 F.3d 213 (3d Cir. 2009) An excess insurer issued a policy that followed form to an underlying policy with a duty to defend, but contained a provision disclaiming the duty to defend. The court held that the excess insurer did not have to fund the defense for the insured, only reimburse it for defense expenses incurred with the insurer’s consent.

Marook v. State Farm Mut. Auto. Ins. Co., 259 F.R.D. 388 (N.D. Iowa 2009) In discovery, the insurer did not have to produce documents related to its denial of similar claims for the past 30 years because such a production would be unduly burdensome and unlikely to produce information relevant to the current claims.

Cmty. Credit Counseling Corp. v. Nat’l Union Fire Ins. Co., No. 08-2132, 2009 U.S. Dist. LEXIS 29069 (D.N.J. Mar. 30, 2009) An insurer had a duty to defend a claim challenging the insured’s non-profit status even though a finding that the insured falsely held itself out as a non-profit would invalidate coverage. The court held that the insurer’s remedy was to seek rescission of the policy.

Moses v. Halstead, No. 05-2488-KHV, 2009 U.S. Dist. LEXIS 95363 (D. Kan. Oct. 13, 2009) An insurer breached its duty to act in good faith when it did not discuss a settlement demand with its insured and failed to thoroughly investigate the facts pertinent to coverage. S.J. Amoroso Constr. Co. v. Exec. Risk Indem., Inc., No. C 06-2572, 2009 U.S. Dist. LEXIS 116080 (N.D. Cal. Dec. 11, 2009) An insured’s bad faith claim failed as a matter of law because the insured could not show that it incurred any damages as a result of the insurer’s refusal to defend it while another carrier paid all of its defense costs.

D.R. Horton-Texas, Ltd. v. Markel Int’l Ins. Co., No. 061018, 2009 Tex. LEXIS 1042 (Tex. Sept. 8, 2009) The court held that under Texas law, the duty to defend and duty to indemnify are “distinct and separate” in that an insurer may have a duty to defend even if a duty to indemnify never arises.

Smith v. Cont’l Cas. Co., No. 08-4140, 2009 U.S. App. LEXIS 22240 (3d Cir. Oct. 8, 2009) An insurer did not act in bad faith in denying coverage for negligence and breach of contract claims brought against an insured financial planner by his former clients. The insurer had a reasonable basis for the denial, and although the insurer possibly should have spoken with the insured before denying coverage, the court ruled that the failure to follow best practices did not constitute bad faith.

Emhart Indus., Inc. v. Century Indem. Co., 559 F.3d 57 (1st Cir. 2009) Under Rhode Island’s “pleadings test,” an insurer had a duty to defend the insured through the underlying trial based on allegations in the pleadings, even though discovery and trial revealed facts such that there was no duty to indemnify the insured. Hartford Accident & Indem. Ins. Co. v. The Capella Group, Inc., No. 4:09-CV-295-A, 2009 U.S. Dist. LEXIS 118669 (N.D. Tex. Dec. 21, 2009) An insurer’s duty to defend its insured was triggered by an underlying claim seeking restitutionary damages, as well as punitive damages and injunctive and declaratory relief, despite the fact that the damages might not eventually be indemnifiable under the policy.

Taylor v. Sentry Group of Companies, 331 Fed. Appx. 457 (9th Cir. 2009) The court held that an insurer’s duty of good faith only extends to an attempt to negotiate a settlement within policy limits and not to continue negotiating after a claimant rejects an offer to settle for available limits. Trout v. Nationwide Mut. Ins. Co., 316 Fed. Appx. 797 (10th Cir. 2009) Where an insured assigned its bad faith failure to settle claim resulting from an excess judgment against it to a



INSURANCE & REINSURANCE Storek v. Fid. & Guar. Ins. Underwriters, Inc., 320 Fed. Appx. 508 (9th Cir. 2009) (unpublished) The court held that under California law, the duty to defend arises whenever the allegations and extrinsic evidence create the potential for covered liability, but there is no duty to defend “hypothetical” claims based on speculation that the plaintiff could or will allege a covered claim.

2009 | A Year In Review

situations where the general contractor was vicariously liable for the acts or omissions of the subcontractor and here, vicarious liability was not alleged. Monticello Ins. Co. v. City of Miami Beach, Case No. 0620459-CIV-GOLD, 2009 U.S. Dist. LEXIS 19181 (S.D. Fla. Mar. 10, 2009) Under a policy where a city was an additional insured but only with respect to liability arising out of operations performed for the city by or on behalf of the named insured, the court held that the policy provided coverage only for the city’s direct negligence because there was ambiguity as to whether the endorsement was intended to provide coverage to the additional insured for its own negligence or only for vicarious liability.

Westchester Surplus Lines Ins. Co. v. Maverick Tube Corp., 590 F.3d 316 (5th Cir. 2009) The court held that under Missouri law, whether a duty to defend arises depends on the facts alleged, not the causes of action asserted by the claimants. Whittaker Corp. v. Am. Nuclear Insurers, No. 07-10515, 2009 U.S. Dist. LEXIS 112325 (D. Mass. Dec. 1, 2009) The court held that the insurer had a duty to defend an environmental claim even though off-site contamination was not alleged because there was a threat of harm to adjacent property and the potential that migration of contaminations had occurred.

Nautilus Ins. Co. v. 1452-4 N. Milwaukee Avenue, LLC, 562 F.3d 818 (7th Cir. 2009) A general liability insurer had no duty to defend a property owner against vicarious liability claims when all of the alleged property damage was caused by contractors, not insureds under the policy.

“Insureds”

State Farm Fire & Cas. Co. v. Nationwide Mut. Ins. Co., 596 F. Supp. 2d 940 (E.D. Va. 2009) A provision in an umbrella policy requiring an insured to maintain underlying insurance at minimum limits was a condition precedent to an insurer’s obligation to pay for loss exceeding the insured’s underlying policy limits and was enforceable against an additional insured.

Home Depot U.S.A., Inc. v. United States Fid. & Guar. Co., No. 08-2713 SC, 2009 U.S. Dist. LEXIS 31060 (N.D. Cal. Apr. 13, 2009) Plaintiff corporation did not have standing to sue defendant insurer for breach of contract and bad faith, as it presented no evidence of a commercial agreement that it was an additional insured under a general commercial liability policy, which contained an express integration clause.

Tri-Star Theme Builders, Inc. v. Hawkeye-Security Ins. Co., No. CV 07-1049-PHX-JAT, 2009 U.S. Dist. LEXIS 79129 (D. Ariz. Sept. 2, 2009) A subcontractor’s insurer had no duty to defend or indemnify a contractor under a policy with an additional insured endorsement that extended coverage only to ongoing operations while the subcontractor’s work was actually in progress because the damages alleged against the general contractor manifested after the subcontractor finished its work.

Kassis v. Ohio Cas. Ins. Co., 913 N.E.2d 933 (N.Y. 2009) An insurer was obligated to defend a landlord in an underlying action because, although the landlord was not named in the tenant’s policy, the tenant was obligated to insure the landlord under the lease and the policy extended coverage to persons the tenant was obligated to insure. Lubrizol Corp. v. Gray Ins. Co., No. 08-20289, 2009 U.S. App. LEXIS 2807 (5th Cir. Feb. 12, 2009) As a part of a contract for repair services, a subcontractor agreed to add a corporation as an additional insured on the subcontractor’s comprehensive general liability policy. In a personal injury suit filed by two subcontractor employees against the corporation, the court held that under Texas law, a direct statement that the corporation was an additional insured under the subcontractor’s insurance policy meant that the policy covered all claims against the corporation.

Turner Constr. Co. v. Kemper Ins. Co., No. 08-1006-cv, 2009 U.S. App. LEXIS 15673 (2d Cir. July 16, 2009) The liability of the plaintiff, who was hired to oversee a building project, was covered by policies issued to a subcontractor because plaintiff’s liability for a fire “arose out of” the work of the subcontractor (the fire was started by an employee of the subcontractor). United Nat’l Ins. Co. v. St. Paul Fire & Marine Ins. Co., 214 P.3d 1260 (Mont. 2009) Although a contractor could not delegate its duty to maintain worksite safety to the subcontractor, the subcontractor’s insurer was liable to indemnify the contractor because the contractor was named in its own right as an additional insured under the policy.

MacArthur v. O’Connor Corp., 635 F. Supp. 2d 112 (D.R.I. 2009) A general contractor was not within the terms of coverage as an additional insured because the policy’s additional insured endorsement restricted coverage to



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“Occurrence”

2009 | A Year In Review

“occurrence” because such acts were akin to a breach of the contractual agreement between the contractor and his customer and, therefore, were not accidental.

Amerisure Mut. Ins. Co. v. Hall Steel Co., No. 286677, 2009 Mich. App. LEXIS 2545 (Mich. Ct. App. Dec. 10, 2009) Where the insured supplied defective steel to a thirdparty, the court held that such an event constituted an “occurrence” because the action resulted in damage to another’s property.

Hathaway Dev. Co. v. Am. Empire Surplus Lines Ins. Co., 686 S.E.2d 855 (Ga. Ct. App. 2009) The court held that under Georgia law, although faulty workmanship performed under a contract does not constitute an “occurrence” under a policy, if the workmanship causes injury to third-party’s property, such injury does constitute an “occurrence.”

Auto Owners Ins. Co. v. Newman, 684 S.E.2d 541 (S.C. 2009) Although negligent services provided by a subcontractor in applying stucco to home did not constitute a covered “occurrence,” the resulting continuous moisture intrusion was an “occurrence” under the property damage coverage of a comprehensive general liability policy.

Ins. Corp. v. Shelborne Assocs., 905 N.E.2d 976 (Ill. App. Ct. 2009) The court held that blast faxing may constitute an “occurrence” if the sender believes the facsimiles are welcome because the damage would not be expected or intended and, thus, would be accidental.

Auto Owners Ins. Co. v. Rhodes, 682 S.E.2d 857 (S.C. Ct. App. 2009) An advertisement that fell and created property damage constituted an “occurrence” because the damage was not based on the insured’s faulty workmanship, but rather on damage to a third-party.

Michigan Millers Mut. Ins. Co. v. DG&G Co., 569 F.3d 807 (8th Cir. 2009) The court held that under Missouri law, in cases of progressive damage to property, the time of the “occurrence” is the time at which the initial property damage occurs; any additional damage just affects the amount of the covered loss.

CMK Dev. Corp. v. West Bend Mut. Ins. Co., 917 N.E.2d 1155 (Ill. App. Ct. 2009) Construction defects did not constitute an “occurrence” because the policy was not intended to cover the insured’s contractual liability when its completed work did not meet the standard that was bargained for.

National Union Fire Ins. Co. of Pittsburgh, Pa. v. Reichhold Inc., No. 1:06cv939, 2009 U.S. Dist. LEXIS 46305 (M.D.N.C. June 2, 2009) Breach of contract allegations against a manufacturer for defective resin were equivalent to faulty workmanship and, therefore, did not constitute a covered “occurrence.”

Delgado v. Interins. Exch. of Auto. Club of S. Cal., 211 P.3d 1083 (Cal. 2009) The court held that whether the alleged conduct constitutes an “accident” or an “occurrence” is determined from the perspective of the insured, not the injured party.

Nationwide Mut. Ins. Co. v. CPB Int’l, Inc., 562 F.3d 591 (3d Cir. 2009) A lawsuit alleging breach of contract and faulty workmanship arising out of the delivery of defective products to an insured’s customer or the use of them did not allege an “occurrence” under the policy.

Friel Luxury Home Constr., Inc. v. Probuilders Specialty Ins. Co. RRG, No. 09-cv-11036, 2009 U.S. Dist. LEXIS 121775 (D. Mass. Dec. 22, 2009) The court held that under Massachusetts law, faulty workmanship does not constitute an “occurrence” even where the complaint alleges negligent activity.

Scottsdale Ins. Co. v. Attorneys Process & Investigation Servs., Inc., No. 9-419/08-0944, 2009 Iowa App. LEXIS 1636 (Iowa Ct. App. Dec. 17, 2009) The court found that trespass and intentional destruction of property did not constitute an “occurrence” because such torts are intentional rather than accidental.

General Sec. Indem. Co. v. Mt. States Mut. Cas. Co., 205 P.3d 529 (Colo. Ct. App. 2009) The court held that under Colorado law, defective workmanship does not constitute an “occurrence” under a general liability policy absent consequential damages to a third-party.

Tri-Etch, Inc. v. Cincinnati Ins. Co., 909 N.E.2d 997 (Ind. 2009) The failure to set an alarm was an act of professional negligence and did not constitute an “occurrence” under a general liability policy.

Greystone Constr., Inc. v. Nat’l Fire & Marine Ins. Co., 649 F. Supp. 2d 1213 (D. Colo. 2009) The court held that a contractor’s acts that caused damage only to the product on which the contractor agreed to provide services did not constitute an



INSURANCE & REINSURANCE Trinity Homes LLC v. Ohio Cas. Ins. Co., No. 1:04-cv-1920, 2009 U.S. Dist. LEXIS 88697 (S.D. Ind. Sept. 25, 2009) A water intrusion claim did not constitute an “occurrence” because it resulted from faulty workmanship by the insured.

2009 | A Year In Review

spatial relationship between the incidents giving rise to injury or loss. Budway Enters. v. Fed. Ins. Co., No. 09-448, 2009 U.S. Dist. LEXIS 31584 (C.D. Cal. Apr. 14, 2009) Two shipments of aluminum stolen from the freight yard on the same night constituted only one occurrence under the “cause test” because the insured failed to show two separate causes of theft.

Walla Walla College v. Ohio Cas. Ins. Co., 204 P.3d 961 (Wash. Ct. App. 2009) The court held that under Washington law, in order to determine liability for remediation costs associated with property damage, the time of the “occurrence” is determined by the time that the injury begins.

Dutch Maid Logistics, Inc. v. Acuity, Nos. 91932 & 92002, 2009 Ohio App. LEXIS 1512 (Ohio Ct. App. Apr. 16, 2009) Where a truck driver was involved in a terrible accident with multiple instances of property damage and bodily injury, it all stemmed from the same “cause” and, thus, constituted one occurrence.

W.C. Stewart Constr., Inc. v. Cincinnati Ins. Co., Nos. 9-153 & 08-0824, 2009 Iowa App. LEXIS 273 (Iowa Ct. App. Apr. 8, 2009) Faulty workmanship by the insured requiring reconstruction of walls not built by the insured did not constitute an “occurrence” under a general liability policy.

E.I. du Pont de Nemours & Co. v. Stonewall Ins. Co., No. 99C-12-253, 2009 Del. Super. LEXIS 235 (Del. Super. Ct. Jan. 12, 2009) Property damage at multiple homes due to a defective product constituted only one occurrence under the “cause theory” because the occurrence – that the resin plastic material was unsuitable for use in the plumbing system through all of the homes – was the same.

Westchester Surplus Lines Ins. Co. v. Maverick Tube Corp., 590 F.3d 316 (5th Cir. 2009) The court held that under Missouri law, a breach of warranty claim constitutes an “occurrence” if the breach is predicated on negligent, unexpected behavior.

Number of Occurrences

Evanston Ins. Co. v. Ghillie Suits.Com, Inc., No. 08-2099, 2009 U.S. Dist. LEXIS 22256 (N.D. Cal. Mar. 18, 2009) Where two Marines were injured by defective ghillie suits that caught on fire, but one Marine was uninjured until he attempted to rescue his comrade, there were two separate occurrences because the latent defect was not the proximate cause of the injury for both Marines.

Addison Ins. Co. v. Fay, 905 N.E.2d 747 (Ill. 2009) Where the insured provided facts to demonstrate that a claim fell within the coverage of a policy, the insurer had the burden of proving that there was only a single occurrence. In this regard, the court held that where the alleged negligence is the result of ongoing omission rather than separate affirmative acts, if the cause and result are simultaneous or so closely linked in time and space as to be considered by the average person as one event, then injuries will be deemed to be the result of one occurrence.

Liberty Mut. Ins. Co. v. Pella Corp., 631 F. Supp. 2d 1125 (S.D. Iowa 2009) Where multiple defective windows led to property damage, and the “underlying cause” of the property damage was the design, manufacture, and sale of the same product with the same latent defect, there was only a single occurrence.

Allstate Prop. & Cas. Ins. Co. v. McBee, No. 08-0534, 2009 U.S. Dist. LEXIS 35158 (W.D. Mo. Apr. 27, 2009) A dog attack on two people constituted a single occurrence because the “continuous exposure to substantially the same harmful conditions” was the failure to prevent the dog’s escape, not the separate attacks.

Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Puget Plastics Corp., 649 F. Supp. 2d 613 (S.D. Tex. 2009) Texas uses the “cause test” for number of occurrences. Under this test, where there are multiple instances of damage stemming from the same manufacturing defect, there is only one occurrence.

Basler Turbo Conversions LLC v. HCC Ins. Co., 601 F. Supp. 2d 1082 (E.D. Wis. 2009) A series of thefts of airplane parts was deemed to be multiple occurrences because each theft was a separate, new and independent act.

Pennzoil-Quaker State Co. v. Am. Int’l Specialty Lines Ins. Co., 653 F. Supp. 2d 690 (S.D. Tex. 2009) The court held that because there were multiple chemicals and incidents of pollution, there was more than one occurrence under the policy.

Bausch & Lomb Inc. v. Lexington Ins. Co., No. 08-CV6260T, 2009 U.S. Dist. LEXIS 120304 (W.D.N.Y. Dec. 28, 2009) The court held that thousands of individuals’ use of contact lens solutions could not be grouped into a single occurrence because there was no close temporal and

Plastics Eng’g Co. v. Liberty Mut. Ins. Co., 759 N.W.2d 613 (Wis. 2009) Under the “cause theory” for determining the number of occurrences, each claimant’s repeated and continuous



INSURANCE & REINSURANCE exposure to asbestos constituted a separate occurrence where the injuries were sustained by multiple individuals at different times and at various locations.

Viking Pump, Inc. v. Century Indemn. Co., No. 1465VCS, 2009 Del. Ch. LEXIS 180 (Del. Ch. Ct. Oct. 14, 2009) Applying New York law, the language of the policies at issue mandated an “all sums” approach to allocation. The court noted that the policies’ “non-cumulation provision” and “prior insurance provision” would be rendered ineffective under a pro rata allocation method.

State Nat’l Ins. Co. v. Lamberti, No. 08-CV-60760, 2009 U.S. Dist. LEXIS 22707 (S.D. Fla. Mar. 20, 2009) Under Florida law, injuries caused by police on the same victim by assault, false arrest and malicious prosecution were held to be more than one occurrence under a public entity liability policy. The court was not asked to determine the specific number of occurrences.

Pollution Exclusion Am. W. Home Ins. Co. v. Utopia Acquisition L.P., No. 080419, 2009 U.S. Dist. LEXIS 23219 (W.D. Mo. Mar. 24, 2009) A pollution exclusion in a general liability policy applied to claims arising out of mold and other airborne contaminants found in apartments owned and operated by the insured because airborne contaminants were “pollutants” under the policy.

Allocation Boston Gas Co. v. Century Indem. Co., 910 N.E.2d 290 (Mass. 2009) The court held that under Massachusetts law, a pro rata by time allocation method applied between insurers of an environmental contamination claim. California v. Continental Ins. Co., No. E041425, 2009 Cal. App. LEXIS 98 (Cal. Ct. App. Jan. 5, 2009), petition for review granted, 203 P.3d 425 (Cal. Mar. 18, 2009) The court held that under California law, in a continuous loss case spanning multiple policy periods, the insured can stack multiple years of coverage to maximize coverage.

Atl. Cas. Ins. Co. v. Ramirez, 651 F. Supp. 2d 686 (N.D. Tex. 2009) The total pollution exclusions in general liability policies applied to claims based on the insureds’ transportation of solid waste, rather than clean fill material, because the underlying complaint characterized the alleged “pollutants” as “solid waste,” the dumping of which was deemed to be “traditional environmental pollution.”

Emhart Indus., Inc. v. Century Indem. Co., 559 F.3d 57 (1st Cir. 2009) Under Rhode Island law and the policy’s “all sums” language, all defense costs were allocated to the primary insurer.

Baughman v. United States Liab. Ins. Co., 662 F. Supp. 2d 386 (D.N.J. 2009) An absolute pollution exclusion in a general liability policy did not bar coverage for claims that the insured day care center owners negligently exposed claimants to mercury because such claims arose from indoor contamination, rather than “traditional environmental pollution.”

Fed. Ins. Co. v. Binney & Smith, Inc., 913 N.E.2d 43 (Ill. App. Ct. 2009) The court held that although the primary policies in an advertising injury case included “all sums” language, the settlement costs would be allocated using the pro rata time-on-the-risk method if the insured was unable to establish which portion of the damages could be attributed to injuries incurred during the policy period. Notably, the policies limited the definition of “advertising injury” to offenses “committed during the policy period in the course of the named insured’s advertising activities.”

Bosserman Aviation Equip., Inc. v. United States Liab. Ins. Co., 915 N.E.2d 687 (Ohio Ct. App. 2009) A pollution exclusion in a general liability policy did not exclude coverage for claims arising from injuries sustained by the insured’s employee due to prolonged exposure to aircraft fuel within the normal course of his job duties because such exposure was not analogous to “traditional environmental contamination.”

Franklin Mut. Ins. Co. v. Metro. Prop. & Cas. Ins. Co., 968 A.2d 1191 (N.J. Super. Ct., App. Div. 2009) In a case of long-term environmental contamination, each insurer’s pro rata share of cleanup costs was measured in relation to the amount of time that the insured owned the property, not the overall period of time during which the contamination had occurred. Plastics Eng’g Co. v. Liberty Mut. Ins. Co., 759 N.W.2d 613 (Wis. 2009) The court held that under Wisconsin law, once the policy was triggered, the insurer was responsible for “all sums” up to the policy limits for injuries spanning multiple, successive insurance policy periods.

2009 | A Year In Review

California v. Allstate Ins. Co., 201 P.3d 1147 (Cal. 2009) The court held that under California law, to establish coverage under a sudden and accidental exception to the pollution exclusion, the insured has the burden of proving that an “appreciable amount” of the environmental damage is caused by sudden and accidental events. Here, where the insured’s liability was



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2009 | A Year In Review

based on negligence in designing, constructing and maintaining a waste containment facility, the relevant discharge for purposes of the exception to the pollution exclusion was the escape of pollutants from the facility site into the larger environment, rather than the initial deposit of waste.

did not apply to claims arising from an insured’s use of a sanitizing agent containing pesticide in its duct cleaning business because pesticide was not a “pollutant” and the insurer knew or should have known that it was the insured’s normal business practice to use pesticides in its sanitizing agents.

Century Sur. Co. v. Dewey Bellows Operating Co., Ltd., No. 08-1901, 2009 U.S. Dist. LEXIS 78295 (S.D. Tex. Sept. 2, 2009) A pollution exclusion in a general liability policy precluded coverage for claims arising from the insured’s discharge of salt water, oil and other substances from its commercial salt water disposal operation and oil and gas operations onto real property of the claimants.

Jones v. Francis Drilling Fluids, Ltd., 642 F. Supp. 2d 643 (S.D. Tex. 2009) A total pollution exclusion did not apply to claims arising from the insured’s employee’s exposure to a toxic concentration of sodium hypochlorite solution vapors released into a tank that he was cleaning because this was not the type of “long-term environmental pollution” to which the total pollution exclusion applied.

Clean Harbors Envtl. Servs., Inc. v. Boston Basement Techs., Inc., 916 N.E.2d 406 (Mass. App. Ct. 2009) An exception to a pollution exclusion for property damage that the claimant would sustain in the absence of a statutory requirement to remediate pollution afforded coverage for certain costs necessary to clean up an oil spill because those were restoration costs that constituted an alternative to or reduction in damages for diminution of value.

Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Standard Fusee Corp., 917 N.E.2d 170 (Ind. Ct. App. 2009) The court held that identical pollution exclusions in general and umbrella liability policies did not apply to certain environmental liabilities arising from the use of perchlorate in the insured’s production of emergency signaling flares because denying coverage on the basis that perchlorate is a “pollutant” would render coverage for environmental liabilities illusory.

First Specialty Ins. Corp. v. GRS Mgmt. Assocs., Inc., No. 08-81356, 2009 U.S. Dist. LEXIS 72708 (S.D. Fla. Aug. 17, 2009) The pollution exclusions in general and umbrella liability policies barred coverage for claims of bodily injury resulting from exposure to “dangerous, hazardous, and unsafe sanitary conditions” in the insured homeowners’ association’s pool because the substance was a viral contaminant and a harmful microbe, which were “pollutants” under the policy.

Nautilus Ins. Co. v. Country Oaks Apartments Ltd., 566 F.3d 452 (5th Cir. 2009) An absolute pollution exclusion in a general liability policy applied to claims of bodily injury resulting from the emission of carbon monoxide from a furnace into an apartment. New Salida Ditch Co., Inc. v. United Fire & Cas. Ins. Co., No. 08-00391, 2009 U.S. Dist. LEXIS 118377 (D. Colo. Dec. 18, 2009) Addressing an issue of first impression in Colorado, the court held that a total pollution exclusion in a general liability policy was not ambiguous and excluded claims arising out of performing repairs to irrigation ditches that resulted in the discharge of fill material into the Arkansas River.

Griffith Oil Co., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA., No. 996 CA 08-02656, 2009 N.Y. App. Div. LEXIS 9554 (N.Y. App. Div. Dec. 30, 2009) An exception to a pollution exclusion for property damage arising from the products completed operations hazard for the sale, storage and/or transportation of fuels unambiguously provided coverage for a claim and a proceeding commenced by the EPA arising from a spur pipeline oil leak because the damage occurred away from the insured’s premises and was caused during the storage or transportation of fuel.

Pa. Indem. Ins. Co. v. Yachtsman’s Inn Condo Ass’n, Inc., 595 F. Supp. 2d 1319 (S.D. Fla. 2009) A total pollution exclusion in a general liability policy precluded coverage for claims based on an additional insured’s employee’s exposure to feces, raw sewage and battery acid that was overflowing onto the premises where the employee was cleaning the underground garage because the substances at issue fell within the definition of “pollutant.”

Hastings Mut. Ins. Co. v. Safety King Inc., Nos. 286392 & 286601, 2009 Mich. App. LEXIS 2448 (Mich. Ct. App. Nov. 24, 2009) Where the term “pollutant” in a pollution exclusion was defined as “any solid, liquid, gaseous or thermal substance that, because of its nature and under the particular circumstances, is not generally supposed to be where it is located and causes injurious or harmful effects to people, property, or the environment,” the exclusion

Universal Cas. Co. v. Triple Transp., Inc., No. 4:08cv01822, 2009 U.S. Dist. LEXIS 59358 (E.D. Ark. July 13, 2009) Pollution exclusions did not apply to claims based on the insured’s disposal of hazardous chemicals into a saltwater system, rather than the transport and disposal



INSURANCE & REINSURANCE of the saltwater, because the term “pollutants” did not unambiguously include the hazardous chemicals at issue.

2009 | A Year In Review

Rolyn Cos., Inc. v. R & J Sales of Tex., Inc., No. 08-61618, 2009 U.S. Dist. LEXIS 106881 (S.D. Fla. Nov. 16, 2009) Based on Florida law, and due to the broad interpretation of the clause “arising out of” in an asbestos exclusion in a general liability policy, coverage was barred for repairs done after a hurricane, which were required by the Florida Department of Environmental Protection due to the presence of asbestos.

WPC Indus. Contractors Ltd. v. Amerisure Mut. Ins. Co., No. 08-10101, 2009 U.S. Dist. LEXIS 86502 (S.D. Fla. Sept. 16, 2009) A pollution exclusion in a general liability policy did not apply to claims against an insured environmental construction management company arising out of raw sewage backing up into the home of the claimants because the claimants did not use their home for “disposing of or handling waste,” as required by the plain and clear language of the exclusion.

“Expected or Intended”/ “Intentional Acts” Exclusion Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543 (7th Cir. 2009) A complaint alleging a violation under the Telephone Consumer Protection Act concerning an unsolicited facsimile advertisement was found to be a claim for property damages, but was excluded by the policy’s “expected or intended” exclusion because the use of the recipient’s ink and paper was an expected and intended consequence of sending a facsimile.

Zurich Am. Ins. Co. v. R. L. Alia Co., No. 08-5284, 2009 U.S. Dist. LEXIS 28817 (W.D. Wash. Apr. 7, 2009) A pollution exclusion in a commercial liability policy barred coverage for claims arising out of the insured contractor’s acts of placing waste soil on the claimant’s property while installing a sewer line because both the claimant and the county that issued correction and cease and desist notices referred to the waste soil as a “pollutant.”

Clemons Timber, Inc. v. Am. Interstate Ins. Co., No. 08-983, 2009 Ark. App. LEXIS 170 (Ark. Ct. App. Apr. 1, 2009) The court held that under Arkansas law, an insured’s subjective beliefs do not alter the definitive assertions of intentional conduct in a complaint, thus triggering the “intentional acts” exclusion in a policy.

Asbestos Exclusion Asarco LLC v. Fireman’s Fund Ins. Co., No. 01-2680-D (105th Jud. Dist. Ct., Nueves County Tex. Mar. 11, 2009) A policy exclusion barring coverage of asbestosis claims did not bar coverage for all asbestos-related claims and only applied to those claims involving the specific disease asbestosis.

Farmers Alliance Mut. Ins. Co. v. Willingham, No. 08CV-0532-CVE-FHM, 2009 U.S. Dist. LEXIS 98482 (N.D. Okla. Oct. 20, 2009) The policy’s severability clause did not preclude the “expected and intended” exclusion from applying to both insureds where the bodily injury claim was expected and intended by one of the insureds, but not the other.

AstenJohnson, Inc. v. Columbia Cas. Co., 562 F.3d 213 (3d Cir. 2009) In determining the applicability of an asbestos exclusion, the court considered parol evidence that the trade usage of the term “exposure to asbestosis” in the exclusion, which was drafted in the early 1980’s, was meant by the parties to exclude all asbestos-related claims.

Ind. Farmers Mut. Ins. Co. v. N. Vernon Drop Forge, Inc., 917 N.E.2d 1258 (Ind. Ct. App. 2009) The “expected or intended” exclusion was found inapplicable where the court considered extrinsic evidence of an insured’s affidavit alleging unintentional conduct.

Liberty Mut. Ins. Co. v. Lone Star Indus. Inc., 967 A.2d 1 (Conn. 2009) A policy with an Asbestos Exclusion Endorsement that referred to “silicon” rather than (chemically distinct) “silica” was read broadly to exclude coverage for bodily injury arising out of exposure to silica and any other substance containing silicon.

Lucterhand v. Granite Microsystems, Inc., 564 F.3d 809 (7th Cir. 2009) The “expected or intended” exclusion applied where the complaint alleged intentional acts and injuries intentionally caused by an insured.

Pa. Nat’l Mut. Cas. Ins. Co. v. HVAC, Inc., No. 2:08-cv303, 2009 U.S. Dist. LEXIS 121022 (E.D. Tenn. Dec. 30, 2009) The asbestos exclusions in the general and umbrella liability policies barred coverage for claims of personal injury and bodily injury due to the insured’s negligent removal and remediation of mold and asbestos from a school.



INSURANCE & REINSURANCE Mid-Continent Cas. Co. v. Titan Constr. Corp., No. 05CV-1240MJP, 2009 U.S. Dist. LEXIS 47366 (W.D. Wash. June 5, 2009) The “expected or intended injury” exclusion did not apply where an insurer failed to show that the damage was actually “expected or intended” by the insured, viewed under a subjective standard. Mt. States Mut. Cas. Co. v. Hauser, 221 P.3d 56 (Colo. Ct. App. 2009) Sexual assault by a manager employee was found to be foreseeable such that coverage for a claim for negligent hiring and supervision by the insured employer was precluded by the policy’s “expected or intended” exclusion. Pekin Ins. Co. v. Wilson, 909 N.E.2d 379 (Ill. Ct. App. 2009) A self-defense exception to the “expected or intended” exclusion applied where the allegations in the complaint alleged intentional conduct on the part of the insured, but the counterclaim alleged that the insured was acting in self-defense. St. Paul Fire & Marine Ins. Co. v. Bro. Int’l Corp., 319 Fed. Appx. 121 (3d Cir. 2009) Property damage coverage was excluded for a class action lawsuit alleging liability for “blast faxing” because damages were intentional, not accidental. Union Pump Co. v. Centrifugal Tech., Inc., No. 05-0287, 2009 U.S. Dist. LEXIS 86352 (W.D. La. Sept. 18, 2009) The court held that under Louisiana law, allegations of conversion, deceptive and unfair trade practices, and misappropriation in the complaint precluded coverage based upon the policy’s “intentional acts” exclusion. Western World Ins. Co. v. Penn-Star Ins. Co., No. 07-CV604-JPG, 2009 U.S. Dist. LEXIS 47921 (S.D. Ill. June 8, 2009) The court held that under Illinois law, the focus of the inquiry is whether the injury is expected or intended by the insured, not whether the acts were performed intentionally. The court held that the “expected or intended” exclusion did not apply where the insured intended to demolish a wall, but it was possible under the facts pled in the complaint that he did not intend the demolition to cause damage.

“Contractual Liability” Exclusion Am. Family Mut. Ins. Co. v. Fisher Dev., Inc., 909 N.E.2d 274 (Ill. App. Ct. 2009) The court held that under Illinois law, an insured who assumes in a contract the duty to indemnify a thirdparty has not assumed “an obligation imposed by law.” Rather, such obligations are contractual, and do not fall

2009 | A Year In Review

under the exception to “contractual liability” exclusions in commercial general liability policies. Am. Legacy Found. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 640 F. Supp. 2d 524 (D. Del. 2009) A “contractual liability” exclusion applied to claims for breach of contract based on an insured airing advertisements pursuant to an agreement with various companies and states, even though independent defamation claims could have been asserted, because the purported defamation claims would not have existed but for the contractual claims against the insured. Arch Specialty Ins. Co. v. Go-Mart, Inc., No.2:08-0285, 2009 U.S. Dist. LEXIS 120490 (S.D.W.V. Dec. 28, 2009) Where the insured had entered a service contract with a third-party that provided for indemnification of the third-party, the insurer argued that the “contractual liability” exclusion in the policy precluded coverage of the insured’s indemnification of the third-party in a tort action. Looking to the policy’s language, the court ruled that to the extent the service contract anticipated coverage of the third-party’s independent negligent acts, it qualified as an “insured contract,” an exception to the exclusion under the policy. Century Sur. Co. v. Hardscape Constr. Specialties, Inc., 578 F.3d 262 (5th Cir. 2009) Where an insured contractor’s control over work caused property damage, the insured was liable under contract law and, thus, damages fell under the “contractual liability” exclusion of the policy and not the exception to the exclusion for torts caused by a third-party. Houseman Constr. Co. v. Cincinnati Cas. Co., No. 1:08cv-719, 2009 U.S. Dist. LEXIS 62026 (W.D. Mich. July 14, 2009) A policy’s exclusion of coverage for “assumption of liability in a contract” did not apply to liability for breach of contract for structural defects in the insured contractor’s work years after the work was completed.

“Damages” Baughman v. United States Liab. Ins. Co., 662 F. Supp. 2d 386 (D.N.J. 2009) An underlying lawsuit seeking both traditional monetary damages and medical monitoring constituted a claim seeking “damages” under the policy. Cinergy Corp. v. St. Paul Surplus Lines Ins. Co., 915 N.E.2d 524 (Ind. Ct. App. 2009) Remedies designed to prevent future environmental harm were not “damages” under a general liability policy and, thus, the costs associated with an insured’s surrender of its emissions allowances were not covered.

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INSURANCE & REINSURANCE Clackamas County v. Midwest Employers Cas. Co., No. 07-780, 2009 U.S. Dist. LEXIS 118195 (D. Or. Oct. 8, 2009) Under the employers’ liability provision of a policy issued to a municipal entity, one portion of a settlement of a claim brought pursuant to 42 U.S.C. § 1983 constituted “damages imposed upon the insured by the law of any state” because the municipal entity’s duty to indemnify its employee was pursuant to Oregon state law, not federal law. However, the portion of the settlement that was based on the county’s direct liability under 42 U.S.C. § 1983 did not constitute covered damages.

2009 | A Year In Review

Mid-Continent Cas. Co. v. Bay Rock Operating Co., No. SA-07-CA-274-OG, 2009 U.S. Dist. LEXIS 124156 (W.D. Tex. Sept. 30, 2009) Costs awarded to a plaintiff in an underlying lawsuit were covered under the policy as consequential damages that the insured was legally liable to pay. Mid-Continent Cas. Co. v. Clean Seas Co., Inc., No. 3:06-cv-518-J-32MCR, 2009 U.S. Dist. LEXIS 25589 (M.D. Fla. March 27, 2009) The court held that under Florida law, “property damage” is covered under the policy if a defective product, rather than its removal, causes the damage. Here, the cost to remove defective paint from the insured’s costumer’s boats and to repair the boats due to damage caused by the paint, rather than by its removal, were covered “property damage.”

Cooley v. State Farm Fire & Cas. Co., 656 F. Supp. 2d 924 (E.D. Ark. 2009) An underlying claim alleging fraud and breach of contract in conjunction with the sale of a home did not trigger coverage because any damages resulting from the insured’s alleged misrepresentations would be “economic losses” rather than “property damage.”

Nationwide Mut. Ins. Co. v. Garzone, No. 07-4767, 2009 U.S. Dist. LEXIS 85528 (E.D. Pa. Sept. 18, 2009) The court expressed an unwillingness to classify as “property damage” either damage to deceased bodies or harvesting of those bodies’ organs because deceased bodies are not “property,” and the act of harvesting organs does not constitute “damage.”

Homes by Deramo, Inc. v. Mid-Continent Cas. Co., No. 8:08-cv-2528-T-33MAP, 2009 U.S. Dist. LEXIS 83623 (M.D. Fla. Sept. 14, 2009) In a coverage dispute over a claim for a contractor’s workmanship in building a “defective” deck, but which did not cause damage to the home, the court indicated that the deck work subject to a claim was most likely “defective,” which does constitute “property damage” under Florida law, rather than “faulty,” which does not constitute “property damage” under Florida law.

St. Paul Fire & Marine Ins. Co. v. Sea Quest Int’l, Inc., No. 8:05-cv-962-T-TBM, 2009 U.S. Dist. LEXIS 117631 (M.D. Fla. Dec. 17, 2009) The court held that under Florida law, “faulty and incomplete construction” and costs for completing the balance of the construction project, even though the plaintiff in the underlying lawsuit also sought costs for removing and replacing the work, did not constitute covered “property damage.”

In re Home Ins. Co. in Liquidation, No. 2008-HICIL-35 (N.H. Super. April 13, 2009) Where an insuring agreement did not define the duty to indemnify as extending to expenses and did not include the term “ultimate net loss,” remediation costs did not constitute “damages.”

Trinity Homes LLC v. Ohio Cas. Ins. Co., No. 1:04-cv1920-SEB-DML, 2009 U.S. Dist. LEXIS 88697 (S.D. Ind. Sept. 25, 2009) Faulty workmanship that resulted in damage to a home, including damage to the structure itself or its fixtures, but not to personal property, did not constitute “property damage” under a general liability policy.

Ins. Co. of The State of Pa. v. Long Beach, Nos. 0756026 & 07-56397, 2009 U.S. App. LEXIS 15825 (9th Cir. July 17, 2009) Due to ambiguity in the policy’s definition of “damages,” the insurer was required to pay attorney’s fees included as part of the underlying settlement. Landers Auto Group No. One, Inc., v. Continental W. Ins. Co., No: 4:07CV00921, 2009 U.S. Dist. LEXIS 57413 (E.D. Ark. July 6, 2009) Allegations of wrongful repossession of a car did not trigger coverage because wrongful repossession constitutes a breach of contract, not “property damage,” and the policy explicitly excluded coverage for contractual damages.

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INSURANCE & REINSURANCE

2009 | A Year In Review

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