Embed Size (px)
Citation preview
Chicago | Indianapolis | Madison | Milwaukee | Naples | Phoenix | Tampa | Tucson | Washington, D.C.
2015 Wisconsin Insurance Law Update
February 10, 2016Joint meeting of the Wisconsin Chapter of RIMS, the Risk Management Society TM and Greater Milwaukee CPCU Chapter
Jeff DavisPatrick NolanBrandon GutschowAlex Shortridge
• Notice Requirements for Claims Made Insurance
• The Duty to Defend
– When Breach Occurs / Choice of Counsel / Defense Handling / Four Corners Rule
– Using Exclusions to Analyze the Duty to Defend
• Application of Policy Exclusions
• Triggers of Coverage Relating to Property Damage
• Bad Faith Claims
• Post-Coverage Recovery Issues
Overview of Key Insurance Decisions
4
• Anderson v. Aul, 2015 WI 19, 361 Wis. 2d 63, 862 N.W.2d 304
Notice Requirements for Claims Made Insurance
5
• Wisconsin Statute §632.26 requires that for “every liability policy” an insured losses coverage only where the insurer is “prejudiced” by late notice.
• Circuit Court granted an attorney’s malpractice carrier a declaration of no coverage under a “claim-made-and-reported” where the attorney did not provide notice until eleven months after the policy expired, despite finding no prejudice; Court of Appeals reversed under Wis. Stat.§632.26.
• The Wisconsin Supreme Court held in favor of carrier that the plain language of Wis. Stat. §632.26 (requiring insurers to be prejudiced by late notice before denying claims) does not apply to reporting requirements in “claims-made-and-reported” policies.
• Found that because the reporting requirement was in the coverage grant, the statute would create coverage where none existed.
Anderson v. Aul, 2015 WI 19, 361 Wis. 2d 63, 862 N.W.2d 304
6
• Key take-away points for policyholders:
– Always read and understand whether you have a claims-made-and-reported liability policy;
– Be vigilant about what constitutes a “claim” under the policy—a claim can be broader than suit papers and as simple as a letter demanding some relief or payment, or even a government subpoena or investigation;
– When faced with an arguable claim or circumstances that could turn into a claim, err on the side of caution and report the claim or circumstances to the insurer.
Anderson continued…
7
• When Breach Occurs / Choice of Counsel / Defense Handling / Four Corners Rule– Haley v. Kolbe & Kolbe Millwork Co., Inc., No. 14-cv-99-
bbc, 2015 WL 6669395 (W.D. Wis. Nov. 2, 2015)
• Using Exclusions to Analyze the Duty to Defend– David M. Marks v. Houston Casualty Co., 2015 WI App 44, 363 Wis.2d
505, 866 N.W.2d 393
– Water Well Solutions Service Group Inc. v. Consolidated Insurance Company, 2015 WI App 78, 365 Wis.2d 223, 871 N.W.2d 276
The Duty to Defend
8
• Window manufacturing company sued in class-action lawsuit for allegedly defective windows; insurers agreed to pay only a portion of rates charged by company’s chosen counsel
• Company sued for breach of the duty to defend and bad faith based on insurer not immediately agreeing to pay defense costs and attempting to appoint defense counsel that were not truly independent
Haley v. Kolbe & Kolbe Millwork Co., Inc., No. 14-cv-99-bbc, 2015 WL 6669395 (W.D. Wis. Nov. 2, 2015)
9
• On when an insurer breaches its duty to defend…
– An insurer need not immediately agree to defend a lawsuit; may take time to investigate its duty to defend
– If, after investigation, insurer owes and pays defense costs from point of tender, no breach
– An insurer’s “sharp” practices: e.g., failing to respond to tenders of defense; appointing defense counsel with potential conflicts; threatening to have appointed defense counsel appear; treating rejection of counsel as rejection of coverage, do not necessarily qualify as bad faith or a breach of the duty to defend (as long as insurer pays defense bills).
• On when an insured may be entitled to its own defense counsel…
– If insurer delays in agreeing to defend after insurer hires own counsel, insurer may be estopped from appointing new defense counsel (here insured’s hired counsel defended for 4 months before insurer tried to appoint new counsel)
Haley continued…
10
• On the four corners rule…
– Insurers attempted to avoid a duty to defend because court filings in underlying lawsuit suggested plaintiffs were not seeking damages associated with “other” property – the only covered claim.
– Nothing in the court filings showed that plaintiffs were unequivocally disclaiming a recovery for damages to “other” property
– Held that allegations of damages to other property in complaint brought claims within defense coverage
– Refused to consider filings or extend Estate of Sustache v. American Family Mutual Ins. Co., 311 Wis.2d 548, 751 N.W.2d 845, 2008 WI 87
Haley continued…
11
• Insurer unilaterally refused to defend multiple actions asserting insured breached fiduciary duties as officer and director of various companies, based upon an express policy exclusion
• In action for breach of duty to defend, insured argued that coverage determination should be based solely on the policy’s coverage grant without reference to exclusions
• Insured seized on particular language in Court of Appeals cases in Grube, Kenefick, and Radke suggesting that only coverage grant be applied; this position contradicted Professional Office Buildings
• Court rejected argument that a separate duty to defend analysis applies when carrier unilaterally denies a duty to defend, holding that exclusions should be used to determine the duty to defend
David M. Marks v. Houston Casualty Co., 2015 WI App 44, 363 Wis.2d 505, 866 N.W.2d 393
12
• Insured plumbing contractor negligently replaced submersible pump in a municipal water system that failed
• Insurer unilateral denied duty to defend based on the “your work” and “your product” exclusions
• Again, the Court of Appeals found that the entire policy must be examined and applied in determining the duty to defend
• No allegations suggested exceptions to the your work or your product exclusion in the complaint.
Water Well Solutions Service Group Inc. v. Consolidated Insurance Company, 2015 WI App 78, 365 Wis.2d 223, 871 N.W.2d 276
13
• Insured attempted to circumvent the long-established Four Corners Rule
• Introduced an affidavit that suggested:
– The “your product” exclusion did not apply because there was damage to “other property”
– The “your work” exclusion did not apply because work was done by a subcontractor, for which there is an exception that restores coverage
• Dissent suggested that the Wisconsin Supreme Court should address the Four Corners Rule again due to possible conflicts in various cases discussing the duty to defend (Grieb, Doyle, Sustache)
Water Well Solutions Service Group Inc. v. Consolidated Insurance Company, 2015 WI App 78, 365 Wis.2d 223, 871 N.W.2d 276
14
• State Farm Fire & Casualty Company v. Easy PC Solutions, LLC, No. 2014AP2657, 2015 WL 8215533 (Wis. Ct. App. Dec. 9, 2015) (slip copy) (recommended for publication)
• Advanced Waste Services Inc. v. United Milwaukee Scrap, LLC, 2015 WI App 35, 361 Wis.2d 723, 863 N.W.2d 634
• Acuity v. Chartis Specialty Ins. Co., 2015 WI 28, 361 Wis.2d 396, 861 N.W.2d 533
• Connors v. Zurich American Ins. Co., 2015 WI App 89, 365 Wis. 2d 528, 872 N.W.2d 109
• Ramos v. Charter Oak Fire Ins. Co., 2015 WL 5972555, 2015 WI App 90, 365 Wis. 2d 607, 871 N.W.2d 866 (Oct. 15, 2015)
Application of Policy Exclusions
15
• Blast fax case where CGL policy included Telephone Consumer Protection Act (TCPA) exclusion
• Court found that exclusion barred even though insured was sued for conversion and may have sent blast faxes during other policy periods
• Reminder to carefully review policy language and negotiate adequate coverage
State Farm Fire & Casualty Company v. Easy PC Solutions, LLC
16
• Policyholder was metal scrapper that sent wastewater to recycling company
• Wastewater contained PCBs that were dispersed through recycling facility
• Policyholder urged Court to adopt additional requirement that pollution exclusion can only apply if policyholder intentionally discharges known pollutant
• Court of Appeals declined and held that a pollution exclusion can bar coverage even if the policyholder does not intentionally disperse pollutant
Advanced Waste Services Inc. v. United Milwaukee Scrap, LLC
17
• Insured contractor’s employees damaged a natural gas pipe, causing a leak and eventually an explosion and fire that injured several people and damaged several structures
• Contractor’s CGL insurer acknowledged coverage, but pollution liability insurer did not, arguing that (1) the “contaminating nature” of the pollutant must cause the injury/damage; and (2) pollution and CGL coverage cannot overlap
• Wisconsin Supreme Court held that pollution policy applied
– Policy requires only that pollutant cause bodily injury or property damage, not that “contaminating nature” cause the injury/damage
– Based on a broad reading of coverage grant and a narrow reading of exclusions, policies can provide overlapping coverage
Acuity v. Chartis Specialty Ins. Co.
18
• Bacteria formed in cooling towers of foundry--allegedly causing plaintiffs to contract pneumonia
• Foundry’s insurer denied coverage based on pollution exclusion
• Policy contained endorsement redefining “pollutant” and listing examples, all of which were industrial products or byproducts
• Court of Appeals found coverage because endorsement rendered definition ambiguous by arguably limiting it to industrial products and byproducts (which the bacteria was not)
Connors v. Zurich American Ins. Co. andRamos v. Charter Oak Fire Ins. Co.
19
• Advance Cable Co. LLC v. Cincinnati Ins. Co., 788 F.3d 743 (7th Cir. 2015)
• Smith v. Anderson, 2015 WL 9283969 (Wis. Ct. App. Dec. 22, 2015)
Triggers of Coverage Relating to Property Damage
20
• Insured tendered claim for cosmetic hail damage to metal roof
• Insurer denied coverage because damage did not result in material structural harm or impair roof panels’ life expectancy, arguing that “physical loss” meant “material or structural harm”
• District Court found coverage for cosmetic damage
• Seventh Circuit affirmed holding that “physical” means “affecting the physical (not intangible) characteristics” of the covered property” and that “loss” is not limited to losses of function or diminution in value
Advance Cable Co. LLC v. Cincinnati Ins. Co., 788 F.3d 743 (7th Cir. 2015)
21
• Home seller was sued by buyer for misrepresenting the condition of the home
• Seller sought indemnification and contribution from a contractor he had hired to fix defects at issue
• Contractor tendered claim to insurer who sought declaration of no coverage
• Wisconsin Court of Appeals found no coverage
– There was no “property damage caused by an occurrence”; misrepresentation does not cause property damage
– Neither buyer’s complaint nor third-party complaint alleged that negligence or faulty workmanship caused property damage
Smith v. Anderson, 2015 WL 9283969 (Wis. Ct. App. Dec. 22, 2015)
22
• Estate of Meistad v. Progressive Universal Ins. Co., 2015 WL 3403457, 2015 WI App 52, 364 Wis. 2d 408, 866 N.W.2d 405
– Unpublished decision (persuasive value only)
– Bad faith in settlement negotiations
Bad Faith Claims
23
• Plaintiff was injured by uninsured driver and made a claim under his uninsured motorist policy
• Insurer settled claim and insured released insurer but later learned injuries were misdiagnosed / more severe and then sought additional coverage which insurer denied
• Adjuster discouraged plaintiff to retain attorney / told him he would be “taken care of”
• The Wisconsin Court of Appeals held that an insured can sue for bad faith, even where claim was settled, where insurer failed to conduct a reasonable investigation and obtained a release through bad faith conduct.
Estate of Meistad v. Progressive Universal Ins. Co., 2015 WL 3403457, 2015 WI App 52, 364 Wis. 2d 408, 866 N.W.2d 405
24
• Issues:
– Were the requirements of WI Supreme Court case of Brethorst satisfied? – i.e., was there an actual denial of benefits under the policy. (Insurer: since a payment was made, that was sufficient to avoid bad faith).
– Is a signed release an “objective basis” to avoid bad faith claim?
– Was there a factual basis for a jury to find bad faith?
• Inducement by the adjuster that he did not need attorney / would take care of plaintiff
• Reserve amounts greater than settlement
• Adjuster notes that the claim was worth more than eventual settlement
Estate of Meistad v. Progressive Universal Ins. Co., 2015 WL 3403457, 2015 WI App 52, 364 Wis. 2d 408, 866 N.W.2d 405
25
• Dilger v. Metropolitan Property and Casualty Ins. Co., 2015 WI App 54, 364 Wis. 2d 410, 868 N.W.2d 117 (Wis. Ct. App. June 3, 2015)
• Gronik v. Balthasar, Nos. 10-cv-0954, 11-cv-0697, 2015 WL 4647938 (E.D. Wis. Aug. 6, 2015)
• Fleet and Farm of Green Bay, Inc. v. United Fire and Casualty Co., No. 13-C-1013, 2015 WL 5839056 (E.D. Wis. Oct. 7, 2015)
Post-Coverage Recovery Issues
26
• Wisconsin Statute§628.46 requires insurers to pay claims within 30 days of written notice, or incur interest at 12%
• Claimant police officer was struck by insured driver who fled scene thinking she had hit a deer
• Insured later turned herself in and pled guilty to hit and run and was sentence to four months of jail
• The Court of Appeals found that interest did not accrue until the insured was sentenced
– Insurer had reasonable proof of non-responsibility until sentencing
Dilger v. Metropolitan Property and Casualty Ins. Co., 2015 WI App 54, 364 Wis. 2d 410, 868 N.W.2d 117 (Wis. Ct. App. June 3, 2015)
27
• Insured homeowner settled a claim for damages and then sought to recover the same damages from its insurer
• Insurer counterclaimed that it was entitled to an offset for the settlement amount to avoid double recovery by the homeowners
• Eastern District denied the setoff
– A setoff is a reduction in a debt plaintiffs owe defendants and the plaintiff homeowners did not owe insurers a pre-existing debt
– Setoffs are equitable and equitable remedies are unavailable in contract actions
– A setoff would be against public policy because the insured paid a premium for the benefit of coverage and should receive the benefit regardless of whether he is able to obtain payment from another source
Gronik v. Balthasar, Nos. 10-cv-0954, 11-cv-0697, 2015 WL 4647938 (E.D. Wis. Aug. 6, 2015)
28
• Insurers were found to wrongfully deny coverage for an accident in a Fleet and Farm store and were liable for defense costs
• Fleet and Farm provided redacted defense costs invoices
• Insurer moved for un-redacted copies claiming it could not tell whether fees were reasonably and necessarily incurred
• The Eastern District denied the motion holding that the insurer had given up the right to “take a fine-toothed comb over its legal bills”
Fleet and Farm of Green Bay, Inc. v. United Fire and Casualty Co., No. 13-C-1013, 2015 WL 5839056 (E.D. Wis. Oct. 7, 2015)
29
• Fluor Corp v. Superior Court, 354 P.3d 302 (Cal. 2015)
• In re Deepwater Horizon, 470 S.W.3d 452 (Tex. 2015)
• New Products
– Reps and Warranties
– Cyber!
Beyond Wisconsin—and a Look Ahead
30
• Overruled Henkel Corp v. Hartford Accident and Indemnity Co.’s holding that anti-assignment provisions prohibit sellers from assigning purchasers right to coverage for legacy liabilities
• Held that a seller in an asset sale transaction may assign to the purchaser the right to coverage for pre-existing but undiscovered liabilities without running afoul of the anti-assignment provisions
Fluor Corp v. Superior Court, 354 P.3d 302 (Cal. 2015)
31
• Evaluated additional insured provisions in light of Deepwater Horizon oil spill
• Found that BP who had contracted with insured was not entitled to damages for subsurface pollution per the drilling contract which limited the insureds liability to surface pollution: “an insurance policy may incorporate an external limit on additional-insurance coverage.”
In re Deepwater Horizon, 470 S.W.3d 452 (Tex. 2015)
32
• … but not much new law
• Reps and warranties
– Becoming more and more important in mergers and acquisitions
• Cyber coverage is exploding
– Some businesses need it more than others
– No uniformity in coverage
New Products
33
• Jeff Davis(414) 277- [email protected]
• Patrick Nolan(414) [email protected]
• Brandon Gutschow(414) [email protected]
• Alex Shortridge(414) [email protected]
Questions?
