insurance coverage litigation.i

8/9/2019 Insurance Coverage Litigation.i

1/75

INSURANCE COVERAGE

LITIGATION

Little Rock

April 6

Crown Plaza Little Rock201 S. Shackleford, Little Rock AR 72211


2/75

INSURANCE COVERAGELITIGATION

COMMON KINDS OF INSURANCE

COVERAGE DISPUTES J. G. Gerry Schulze

Baker & Schulze

[email protected]

501 537-1000

501 537-1016


3/75

COMMON KINDS OF DISPUTES

Basic Principles Underlying All Insurance

Coverage Disputes

Insurance is a contract Insurance is a contract of adhesion

This just means take it or leave it.

Insurance is heavily regulated by the state

23-65-101. Unauthorized insurance transactionsprohibited.


4/75

Basic Principles

Read the statute and read the policy

The statute controls

If a statute requires a policy to contain a provision,the policy is deemed to contain the provision.

Whether its there or not.

Public policy may controlbut not often.

If the law is silent on the matter, the contractcontrols.


5/75

Hiram Tweedle Hypothetical

Okay, this isnt even close. I

tried to do a cartoon, but it

didnt work.


6/75

Hiram Tweedle Hypothetical

What kind of insurance might be involved

here?

Workers compensation This seems pretty elementary

Liability against Bananaberry

Homeowners?

Commercial General Liability? Directors and Officers Liability?


7/75

Possible exclusions

Homeowners

Business pursuits

Hes throwing business documents out the window

Criminal Act?


8/75

Exclusions

2. Exclusions

This insurance does not apply to:

c. Dishonest, malicious, fraudulent, criminal or

intentional acts, errors or omissions. However, this

exclusion does not apply to you if such acts, errors

or omissions were committed by your employee(other than a partner, director, executive officer, or

stockholder) without your direction or knowledge.


9/75

Exclusions

Paragraph B. EXCLUSIONS is amended by

the addition of the following:

This additional insurance does not apply tothe cost of defending:

1. Any dishonest, fraudulent, intentional, or

criminal act or omission committed by you or at

your direction;


10/75

Ordinary Sense

First, a policy is interpreted in its ordinary and

popular sense.

The context is not forgotten. When wordshave a special meaning in the context of

insurance, that special meaning will not be

ignored.

Example: loss


11/75

Elements of Insurance

Risk Distribution

Among a substantial number of members

Through an insurer engaged primarily in the

business of insurance


12/75

Risk Distribution

Risk: According to Blacks

The chance of injury, damage, or loss

The chance or degree of probability of loss tothe subject matter of an insurance policy

The amount that an insurer stands to lose

A person or thing that an insurer considers a

hazard The type of loss covered by a policy


13/75

Who will suffer the risk?

Without insurance, the unlucky person who

suffers the misfortune

A person who intentionally or negligentlyproximately causes the misfortune to occur to

others

Under certain statutory schemes, the party the

legislature decides should bear the loss

(Workers Compensation, e.g)


14/75

What risk can be transferred?

Obviously, the actual misfortune cannot be

transferred. If someone runs over me in the

parking lot and breaks my leg, I cant transfer

the broken leg to him

Economic loss, and economic compensation

for other losses is all we can transfer.


15/75

Insurance transfers risk

Insurer work on the basis of statistics

Actuaries calculate the risk of certain

eventualities over the population of theinsured

Insurers fix premium rates to cover losses,

administrative costs, and other costs

Bonuses for insurance executives, for example


16/75

Rate Filing

Insurers file

with the

Arkansas

Insurance

Commission


17/75

Factors in calculating risk

To figure out a premium the actuary has to

consider

What is the risk to be covered? How frequently will the risk occur?

How much will it cost to cover the risk?

What will it cost to administer the program?


18/75

The Insurer

Primarily in the business of insurance

Compare warranties on merchandise

An insurer is in the business of insuring againstrisk of loss

A manufacturer can guarantee that its widgets will

work. There is always a risk that the widgets

wont work. If that risk occurs, the insurer willreplace the widgets. But the manufacturer isnt

really an insurer


19/75

Underwriters

Underwriting in this context is just the act of

assuming a risk by insuring it

The insurer assumes liability to pay theproceeds on loss

Historically, there were mutual assessment

associations. Sometimes it was hard to collect

when members were assessed. Thats where

the underwriter came in.


20/75

Underwriting

Lloyds Coffee House in

London, 1600s, shippers

would pass around a slip of

paper with relevant facts.Interested person would write

on the slip the amount of

insurance, the rate, and his

initials. Hence: Underwriting.


21/75

Types of Insurance

In theory just about anything legal could be

insured

In practice most insurance actually writtencan be categorized as:

Life Insurance

Fire and Casualty Insurance

Marine and Inland Marine Insurance


22/75

Life Insurance

Pay on deatheasy enough

Who is involved:

Insurer Owner of the policywho can change

beneficiary

Owner often is, but is not always the subject of

the policy, the cestui que vie Beneficiary Who is paid in the event of loss


23/75

Fire and Casualty

Fire

Pretty simple concept

Except that by now this

insurance also can coverother losses such asweather (lightning, water,etc). There is alsoearthquake, riot, etc.insurance available.


24/75

Casualty

Liability

Theft/burglary

Accident

Health Property damage

Workers Compensation

Fidelity and surety bonds

Car insurance Boat / airplane insurance


25/75

Marine Insurance

Perils of the sea

Fairly comprehensive, covering all losses

except those excluded. Similar, Inland Marine Insurance, covers gaps

between seas and docks.


26/75

Yacht Insurance Policy

PERILS

Upon the Hull, Spars, Sails, Tackle, Apparel, Machinery, Boats, and otherFurniture of and in the Yacht hereby insured.

Touching the adventures and perils which we, the Assurers, are contentedto bear, and do take upon us, they are of the

seas, men-of-war, fire, enemies, pirates, rovers, assailing thieves, jettisons,letters of mart and countermart, reprisals,

takings at sea, arrests, restraints and detainments of all kings, princes andpeople, of what nation, condition or quality

soever, barratry of the Master and Mariners, and of all other like perils,losses and misfortunes, that have or shall

come to the hurt, detriment or damage of saidY

acht or any part thereof.


27/75

Floater policies

All risk insurance on personal property not

situated at a fixed location. Another kind of

inland marine insurance.


28/75

No fault Compensation

Workers Compensation

Automobile No Fault


29/75

Policy language: Liability Insurance

The company will pay on behalf of the

insured all sums which the insured shall

become legally obligated to pay as damages

because of ... the property damage to which

this insurance applies, caused by an

occurrence.


30/75

Occurrence

An accident, including continuous repeated

exposure to conditions, which results in

bodily injury or property damage, neither

expected nor intended from the standpoint of

insured.


31/75

Language of Insurance Policies

Legal Language is a dialect of English

Special meaning of words--jargon

Special constructions Subjunctive more common

Struggle for more precision in language

Use of magic words


32/75

Plain Language

The standardized insurance policies aresomewhat plainer than the old ones were

They are still necessarily confusing, because

their topics are confusing

Pay careful attention to the definitions.

Vizzini:HE DIDN'T FALL?INCONCEIVABLE.Inigo Montoya:You keep using that word. I donot think it means what you think it means.


33/75

Ambiguity

If there is an ambiguity, the contract is

construed in the light most favorable to the

insured.

In most cases, this is the application of the

contra proferentem rule.

The fact is that the language of most insurance

policies is drafted not only before the insured isidentified, but sometimes before even the insurer

is identified.


34/75

Ambiguity

The rule that a policy is construed in the light

most favorable to the insured doesnt apply

unless there is an ambiguity in the first place

An ambiguity occurs when the language is

capable of more than one meaning when read

in context.

A contract must be interpreted to give effect to allits provisions


35/75

What is ambiguity

Ambiguity

Lack of precision and clarity.

When a reasonable person can understand your

writing in more than one way.


36/75

Ambiguous words

Example: biweekly. Main Entry: 1biweekly Pronunciation Guide

Pronunciation: ( )b +Function: adjectiveEtymology: 1bi- + weekly1 : occurring or appearing every two weeks : having a 2-week interval between recurrences : FORTNIGHTLY --now usually used with this meaning in respect to

publication dates; compareSEMIWEEKLY2 : occurring or appearing twice aweek: SEMIWEEKLY -- used especially of

transportation schedules "biweekly." Webster's Third New International

Dictionary, Unabridged. Merriam-Webster, 2002.http://unabridged.merriam-webster.com (3 Mar. 2010).


37/75

Ambiguous punctuation

Its easier if we step away from insurance for a

moment. The witness identified defendant Jones, the butler,

defendant Smith, the cook, and defendant Brown, the

gardener.


38/75

You can fix that, of course.

Example of the use of semicolon to distinguish

separate elements

Correct:

The witness identified defendant Jones, the butler;

defendant Smith, the cook; and defendant Brown, the

gardener.

Incorrect:

The witness identified defendant Jones, the butler,

defendant Smith, the cook, and defendant Brown, the

gardener.


39/75

NOUN PLAGUE

The National Highway Traffic Safety

Administrations automobile seat belt interlock

rule. Garner, Dictionary of Modern Legal Usage, s.v. Noun

Plague.

baseball game ticket price increase proposal

Raymond P. Ward, For the Defense, Dec. 2005, at 74(DRI 2005).


40/75

Some contracts can be interpreted bya jury

Where interpretation of a contract depends on

other evidence, such as parol evidence, a jurymay be able to interpret a contract

That is unlikely to happen with insurance.


41/75

Insurance Policies are Interpreted by

the Court An insurance policy is to be interpreted by the

court as a matter of law. Smith v. Prudential

Prop. & Cas. Ins. Co., 340 Ark. 335, 10

S.W.3d 846(2000) overrulingFarm Bureau

Mut. Ins. Co. v. Whitten, 51 Ark. App. 124,

126-27, 911 S.W.2d 270, 271 (1995).

Whitten created some confusion because itsuggested that sometimes the interpretation of an

insurance contract could be left up to a jury


42/75

Distinguish ERISA

Employee benefit plans governed by the

Employee Retirement Income Security Act of

1974 are not governed by insurance law, but

by ERISA. All these rules of construction go

out the window.


43/75

Parties to an Insurance Policy

Insurance Company

Insured


44/75

Others involved

Claimant/Plaintiff (Third Party)

Insurance Agent or Broker

Lawyers


45/75

Structure of an Insurance Policy

DECLARATIONS PAGE

Usually stapled to the front

Blanks filled in for

Name of insured

Policy number

Limits of coverage

Policy period

Lists of which documents constitute the policy

Coverage provided

Name of agent

Logo and catchy slogan


46/75


Contract (Usually Preprinted)

Insuring Agreement

Definitions

Grant of Coverage

Exclusions

Conditions

Conditions precedent

Conditions Subsequent Covenants

Endorsements


47/75


Standardized Forms

The insuring agreements are almost alwaysstandardized forms.

The Insurance Services Office writes a lot ofthem, but there are other trade associations as well

Mutual Insurance Rating Bureau

Insurance Rating Bureau

National Bureau of Casualty Underwriters Confederated Gobbledygook and Boilerplate

Conglomerate


48/75

Significance

The Insured has the burden of proof on coverage

The Insurer has the burden of proof on exclusions

With a condition precedent, the insurer need not

prove prejudice. All the insurer must show is that

the condition precedent was not met.Fireman's

Fund Ins. Co. v. Care Mgmt., 2010 Ark. 110.

Decided after the written materials were written. March 4,

2010. See the footnote on p. 17. I guessed wrong. TheEighth Circuit guessed right. All I guessed wrong on was

the insurers strategy, though.


49/75

Typical exclusions

Intentional Act

Exclusions There are certain instances which we do not

intend to cover for liability. Under this policy, liability to

others and medical expenses do not apply to personalinjury or property damage:

1. Which is expected or intended by an insured.

CNA Ins. Co. v. McGinnis, 10 Ark. App. 234, 663 S.W.2d 182

(1994) rev'd CNA Ins. Co. v. McGinnis, 282 Ark. 90, 666 S.W.2d

689 (1984).

The test is whether a plain ordinary person would expect

and intend damage to result from the actions involved.


50/75

Typical Conditions

Notice

Inventory

Cooperation


51/75

Typical Endorsements

Additional coverage

Commercial policy, computer equipment, etc.


52/75

Significance

I dont think the Arkansas Courts have given

extraordinary weight to the simple location in

a policy of a particular provision.

Courts in other states have rejected the idea

that you can assign burdens of proof

reflexively just based on where in a policy a

particular provision is found. Appleman 3.07-[1].


53/75

Lines of Insurance

Homeowners

Casualty/Indemnity

Automobile Commercial

Life

Disability


54/75

FIRST PARTY COVERAGE

Identifying the insured

Declarations page

Definitions page

Insuring agreement

IV. DEFINITION OF INSURED

The unqualified word "INSURED" includes the named insured

and if the named insured is an individual, his spouse anddependent children residing in the household and also includes: *

* * *


55/75

Insured

. . . "insured" means a person or organization

described under "Persons Insured"; . . .

Persons Insured: The following are insureds under

Part 1: * * * (2) any other person using such

automobile with the permission of the named

insured, provided his actual operation or (if he is not

operating) his other actual use thereof is within thescope of such permission, and . . . .


56/75

Insured

In business policies, an insured may be

defined as including, "your employees, other

than your executive directors, but only for

acts within the course and scope of their

employment by you.

Tri-State Ins. Co. v. Sing, 41 Ark. App. 142, 850

S.W.2d 6 (1993).


57/75

Acts of an insured

An insurance policy which contains an

exclusion for acts of "an insured" can refuse

to pay an innocent insured if the acts of a

guilty "insured" void the policy.

Noland v. Farmers Insurance Company, 319 Ark.

449, 892 S.W.2d 271 (1995).


58/75

Separation of Insureds provision

Except with respect to the limits of insurance,

and any rights or duties specifically assigned

in this coverage part to the first Named

Insured, this insurance applies:

(a) As if each named Insured were the only named

Insured: and

(b) Separately to each Insured against whomclaim is made or suit is brought.

Silverball Amusement, Inc. v. Utah Home Fire

Insurance Co., 842 F.Supp. 1151 (W.D.Ark. 1994).


59/75

Cause of Loss

Definition of occurrence in policy.

"an accident, including continuous or repeated

exposure to substantially the same general and

harmful conditions, which results in bodily

injury or property damage neither expected

nor intended from the standpoint of the

insured."


60/75

Definition of Damage

Property damage in the policy is defined as:

(1) Physical injury to or destruction of tangible

property which occurs during the policy period,

including the loss of use thereof at any time resultingtherefrom, or

(2) Loss of use of tangible property which has not

been physically injured or destroyed provided such

loss of use is caused by an occurrence during thepolicy period.


61/75

First Party Coverage

Protects insureds or their heirs from losses

Health Insurance

Disability Insurance


62/75

Third Party Coverage

Liability Coverage

Automobile

Workers Compensation Property Insurance

Homeowners

Commercial

Professional Liability


63/75

Policies that provide both

As a practical matter, in most circumstances,

if an entity needs first party coverage, he, she,

or it needs third party coverage too.

Many policies have provisions that provide

both First Party and Third Party coverage


64/75

Homeowners Policies

First Party coverage on dwelling

Property damagephysical injury to, destruction of,or loss of use of tangible property. Fire, storm, etc.

Exclusions Earth movement

Collapse

Mold

War, nuclear hazard Flood

Business


65/75

Exclusion: Criminal Acts

We do not cover any bodily injury or property damage intended by, orwhich may reasonably be expected to result from the intentional orcriminal acts or omissions of, any insured person. This exclusion applieseven if:

(a) such insured person lacks the mental capacity to govern his or herconduct;

* * * * * *

(c) such bodily injury or property damage is sustained by a differentperson than intended or reasonably expected; . . .

This exclusion applies regardless of whether or not such insured person isactually charged with, or convicted of, a crime.

Allstate Insurance Company v. Burroughs, 914 F. Supp. 308 (W.D. Ark.,1996)


66/75

Exclusion: Business Pursuits

Business pursuits

This exclusion provides that the liability coveragedoes not apply "to bodily injury or property

damage arising out of business pursuits exceptactivities therein which are ordinarily incident tonon-business pursuits." U.S.Fire Insurance Co. v.Reynolds, 11 Ark. App. 141, 667 S.W.2d 664(1984).

As you can see, there is an exclusion, and anexception to the exclusion.


67/75

Commercial General Policies

Insured: Business, officers, directors, owners,

Perils: fire, lightning, explosions, theft, smoke

Exclusions, riot, volcanoes, collapse, etc.

Coverage for Bodily Injury claims

Personal Injury Term of art, intangible injuries

including false arrest, false detention, false

imprisonment, etc.

Advertising injury.


68/75

Exclusion: Automobile

Typical exclusion

Automobile:

This policy does not apply to bodily injury or property

damage arising out of the ownership, maintenanceoperation, use, loading or unloading of any motorvehicle owned or operated by, or rented or loaned toany insured; but this provision does not apply to bodilyinjury or property damage occurring on the residentpremises if the motor vehicle is not subject to motorvehicle registration because it is used exclusively onthe residence premises or kept in dead storage on theresidence premises.


69/75

Pollution exclusions

It is agreed that the exclusion relating to the actual, alleged orthreatened discharge, dispersal, release or escape of pollutantsis replaced by the following: (1) Bodily injury or property damage arising out of the actual, alleged

or threatened discharge, dispersal, release or escape of pollutants.

(2) Any loss, cost or expense arising out of any governmentaldirection or request that the named insured test for, monitor, clean up,remove contain, treat, detoxify or neutralize pollutants.

Subparagraph (1) above does not apply to bodily injury or propertydamage caused by heat, smoke or fumes from a hostile fire. As used inthis exclusion, a hostile fire means one which becomes uncontrollable,or breaks out from where it was intended to be.

Pollutants means any solid, liquid, gaseous thermal irritant orcontaminant, including smoke, vapor, soot, fumes, acids, alkalis,chemicals and waste.

Waste includes materials to be recycled, reconditioned or reclaimed.


70/75

Exclusion: GroomingThis insurance does not apply to bodily injury, property damage,

personal injury or advertising injury

arising out of:

1. The rendering of or failure to render any service, treatment, advice orinstruction related to: a. Any hair removal by electrolysis or any surgical procedure to remove or

replace hair;

b. Any application of permanent cosmetic makeup, tattoos or otherimplantation of pigments into skin pores;

c. Any invasive medical or surgical procedure to improve or alter theappearance of skin, including but not limited to injections, chemical peels,dermabrasion, laser surgery or cryosurgery;

d. Body piercing, other than piercing of ears;

e. Diet or physical fitness; however, this exclusion does not apply to theuse of physical fitness facilities if the user is not under the directsupervision of a personal trainer;

f. Chiropody; or

g. Tanning the skin; or

(From a hotel policy)From my legal malpractice policy.


71/75

Directors and Officers

Side A coverage covers losses directlyincurred by the directors and officers whichthe corporation is not required or allowed to

pay. Side B reimburses the corporation for losses

incurred by the directors and officers that thecorporation is allowed to pay.

Side C arose when corporations noticed thatthere was no coverage for their own out of

pocket losses, which could be substantial.


72/75

Errors and Omissions

Professional liability insurance for:

Doctors

Architects Engineers

Surveyors, accountants, lawyers, agents,

brokers, bankers, and the like


73/75

Occurrence versus Claims Made

An occurrence policy covers the insured for

any occurrence that happens while the policy

is in force

A claims made policy covers the insured for

any claim made while the policy is in force.


74/75

Construction Defect

D. Construction Defect(s) means any actual or allegeddefective, faulty, or delayed construction or any other matterconstituting a construction defect under applicable law,regardless of whether it results from:

(1)defective or incorrect architectural plans or other designs,

(2)defective or improper soil testing,

(3)defective, inadequate or insufficient protection fromsubsoil or earth movement or subsidence,

(4)construction, manufacture or assembly of any tangibleproperty,

(5)the failure to provide or pay for any construction-relatedgoods or services, or

(6)the supervision or management of any construction-relatedactivities.


75/75

Back to Bananaberry analysis

Is there a homeowners claim here?

Is he engaged in business or is he just cleaningout his house?

Is there a criminal acts exclusion? If neither exclusion is good, why should the

plaintiff bother suing the insurance company?

Bananaberrys got money. Let him collect from

his insurer.

Penalty and attorneys fees.

insurance coverage litigation.i

Documents