FMG Insurance Coverage Annual Report A summary of the year’s important insurance coverage and extra-contractual cases within FMG’s footprint across the country. 2023
Part 2 of 3: Western Region States Overview
Gabriel Canto Associate Dallas, TX [email protected] Galina Jakobson Partner Seattle, WA | San Francisco, CA Las Vegas, NV [email protected] Megan Ritenour Partner Phoenix, AX | Albuquerque, NM [email protected] Presenters
www.fmglaw.com © Freeman Mathis & Gary Lorne Hiller Katie Morsman Prepared by: Colorado Page 5
www.fmglaw.com © Freeman Mathis & Gary Farmers Ins. Exch. v. Kretzer “When the language of an insurance contract is clear and unambiguous on its face, it must be upheld as written. We may neither rewrite an unambiguous policy nor force a strained construction in order to resolve it against the insurer. A contractual term is ambiguous ‘if it is susceptible on its face to more than one reasonable interpretation. Whether an insurance policy is ambiguous is a question of law.” “When an insurer seeks to restrict coverage, the limitation must be clearly expressed. If the limitation is ambiguous, then the contract must be construed in favor of coverage and against the limitation.” The Court of Appeals of Colorado held that a driver’s exclusion found in an endorsement applied to the entirety of the Policy, excluding the insured’s wife from coverage. 2023 COA 94, 2023 WL 6470575 (Colo. App. Oct. 5, 2023) Page 6
www.fmglaw.com © Freeman Mathis & Gary Prepared by: Texas Marty Schexnayder Gabriel Canto Lance Felicien Page 7
www.fmglaw.com © Freeman Mathis & Gary Geovera Specialty Ins. Co. v. Mukhar Applying the “eight-corners rule,” the United States District Court for the Southern District of Texas held that the homeowner’s insurer had no duty to defend where the petition alleged the dog attack occurred while the dog was roaming freely in the neighborhood and did not allege the attack occurred on the premises of the home. No. 3:22-CV-206, 2023 WL 6371030, (S.D. Tex. Sept. 25, 2023) The District Court for the Southern District of Texas held that an insurer had no duty to defend or indemnify the insured for claims involving an off-premises dog bite. Page 8
www.fmglaw.com © Freeman Mathis & Gary Gregory v. Chohan “Yield rational results: Texas’s attempt to rein in nuclear verdicts,” FMG BlogLine By: Gabriel Canto and Tim Soefje 670 S.W.3d 546 (Tex. 2023) Page 9 “Gregory is loaded with defense friendly buzz words: “Mental anguish and loss of companionship damages are neither punitive nor exemplary;” “Juries cannot simply pick a number and put it in the blank; ” and “We must insist that every aspect of our legal system—including the way we compensate grieving families for the wrongful death of a loved one—yields rational and non-arbitrary results based on evidence and reason, to the extent possible.”
www.fmglaw.com © Freeman Mathis & Gary Megan Ritenour Sean Harrison Nick Directo Prepared by: New Mexico Page 10
www.fmglaw.com © Freeman Mathis & Gary Murphy v. The Doctors Company Jury awards $52,000,000 in punitive damages for bad faith failure to defend and indemnity. Dist. Ct. of N.M., 2nd Judicial District, Bernalillo County, D-202-CV-2016-04582 Page 11 The Astronomical Rise In Jury Verdict Awards Dist. Ct. of N.M., 1st Judicial District, Santa Fe County, D-101-CV-2020-01092 Lopez v. State Farm Mutual Automobile Ins. Insurer hit with $36,000,000 damages verdict, including $20,000,000 in bad faith punitive damages, for failing to recognize policy limit increase.
www.fmglaw.com © Freeman Mathis & Gary Megan Ritenour Prepared by: Arizona Page 12
www.fmglaw.com © Freeman Mathis & Gary Kay Franklin v. CSAA General Insurance Company According to the Arizona Supreme Court, to effectively limit UM/UIM stacking in a multivehicle policy under Arizona statutory law, the limit must be stated expressly and plainly in the policy and the insured must receive notice either in the policy itself or in writing to the insured within 30 days after the insurer is notified of the accident of their right to select one policy or coverage. The Arizona Supreme Court issued a ruling holding that, pursuant to A.R.S. § 20-259.01, a single auto insurance policy that insures multiple vehicles provides different underinsured motorist (“UIM”) coverages for each vehicle. No. CV-22-0266-CQ, Supreme Court of the State of Arizona, filed July 28, 2023 Intrinsic in the Court’s ruling is their finding that a single policy covering multiple vehicles constitutes multiple coverages. According to the Court, interpreting § 20-259.01 and its legislative history to “support a broad interpretation of ‘coverages purchased’ that recognizes a separate UIM coverage ‘purchased’ for each vehicle in a multi-vehicle policy” conforms to the Act’s object to afford insurance coverage. The Arizona Supreme Court also ruled that an insured can have greater UIM coverage under a policy than its limits for bodily injury. Page 13
www.fmglaw.com © Freeman Mathis & Gary Jonathan Schwartz Patrick Eckler Prepared by: Illinois Page 14
www.fmglaw.com © Freeman Mathis & Gary Acuity v. MI Homes of Chicago, LLC The underlying lawsuit alleged construction defects and faulty workmanship in the construction of townhomes, causing physical injury (i.e. alteration in appearance, shape, color or other materials dimension) and moisture intrusion that was not intended or expected. The general contractor sought coverage as an additional insured under a subcontractor CGL policy for the work of subcontractors and the designer that ‘caused damage to other portion of the [t]ownhomes that was not the work of those subcontractors.’ In analyzing whether the allegations constituted an ‘occurrence’ causing ‘property damage’ to trigger a duty to defend, the Illinois Supreme Court noted the lack of continuity in Illinois case law on this issue and sought to ‘return to first principles and apply a disciplined legal framework from which [they could] arrive at the correct legal analysis and the correct result.’ In discussing whether the policy’s insuring agreement provides a potential for coverage, the Court discussed whether the underlying action alleged physical injury to tangible property and rejected the appellate case law that looked at the construction project as a whole, instead focusing on whether the subcontractor’s work caused damage to other parts of the construction project. The Illinois Supreme Court also, for the first time, defined an ‘accident’ in the context of construction defect coverage and held that negligent workmanship that caused damage to other parts of the construction project constituted an ‘occurrence.’ With this ruling, Illinois is no longer an anomaly and follows the majority rule throughout the country regarding what constitutes an allegation of ‘property damage’ caused by an ‘occurrence.’ In this pivotal case the Illinois Supreme Court rejected a two-decade long interpretation that defective construction could never be characterized as an “accident,” holding that an inadvertent construction defect qualified as an “occurrence” under a standard Commercial General Liability (CGL) policy. 2023 IL 129087 Page 15
www.fmglaw.com © Freeman Mathis & Gary Galina Jakobson Prepared by: Nevada Page 16
www.fmglaw.com © Freeman Mathis & Gary Bowling v. GEICO Suit based upon UIM $100,000 policy limits demand by insured, with past medical specials of over $110,000, wherein GEICO made a settlement offer of over $38,000 in October 2020, and an additional settlement offer of over $39,000 in June 2021. Plaintiff subsequently submitted past medical specials of over $131,000 and future medical expenses of over $2 million. GEICO acknowledged receipt of demand and the updated past and future medical specials and forwarded the same to its medical expert who performed plaintiff’s IME. GEICO did not raise its settlement offer. Plaintiff filed suit for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) breach of the Nevada Unfair Claims Practices Act. GEICO moved for partial dismissal of Plaintiff’s complaint relating to allegations of breach the implied covenant of good faith and fair dealing, and breach of the Nevada Unfair Claims Practices Act. Court granted GEICO’s motion: “Plaintiff's complaint demonstrates that defendant acted reasonably throughout the insurance dispute. Defendant acknowledged receipt of plaintiff's initial policy demand a mere three days after it was sent. Less than a month after receiving plaintiff's supplemental policy demand, defendant responsibly requested an EUO and for plaintiff to submit to a medical examination. Finally, defendant acknowledged receipt of plaintiff's second supplemental policy demand. Accordingly, defendant kept plaintiff apprised of any developments in the dispute.” “Disputes over valuation between medical experts are insufficient to give rise to a cognizable extra-contractual cause of action such as bad faith. In light of defendant's hiring of a medical expert to review and affirm the findings of its adjusters, the court cannot reasonably infer the subjective element of bad faith.” 2023 WL8354757 (2023) Disputes Regarding Valuation Do Not Give Rise To Bad Faith. Page 17
www.fmglaw.com © Freeman Mathis & Gary Nautilus Ins. Co. v. Access Medical, LLC Continuation of matter where insurer sought judicial determination that there was no coverage under a commercial general liability policy for allegations of interference with prospective economic advantage based on insured’s alleged interference with claimant’s business relationships with hospitals. The District Court found that there was no coverage under the Nautilus policy; the Ninth Circuit upheld the finding; further, the Ninth Circuit certified the question of whether Nautilus was entitled to the fees and costs it incurred in the defense of its insured during the pendency of the coverage determination. The Nevada Supreme Court held: Nautilus then moved to recover the fees and costs it incurred in defending Access Medical, as well as pre and post judgment interest, which the court granted. 2023 WL2663205 (2023) Insurer Entitled To Recover Reasonable Fees And Costs Incurred In Defense Of Uncovered Claim. Page 18 An insurer is entitled to reimbursement of costs already expended in defense of its insureds where a determination has been made that the insurer owed no duty to defend and the insurer expressly reserved its right to seek reimbursement in writing after defense has been tendered but where the insurance policy contains no reservation of rights.
www.fmglaw.com © Freeman Mathis & Gary Al Alikin Mike Gelfound Nick Directo Will Hadikusumo Betty Su Tyler Lindberg Prepared by: California Page 19
www.fmglaw.com © Freeman Mathis & Gary Bennett v. Ohio National Life Assurance Corp. Court of Appeal considered when the 4-year statute of limitations for breach of contract and the 2- year statute of limitations were triggered for an insured’s action against his disability carrier. Dispute at issue related to whether the insured was entitled to lifetime or time-limited monthly disability payments. The court stated that the main coverage issue related to when the insured became totally disabled and whether the disability was due to injury or sickness. The insured sustained an injury when he was thrown off of a horse, sustaining injuries which eventually resulted in chronic pain preventing the insured from working. In January 2014, the insurer approved the claim and made payments, subject to continued evaluation. However, in June 2015, the insurer determined that the insured’s condition was due to sickness, and not injury as required for lifetime benefits, and denied the insured’s claim for lifetime benefits. The Court of Appeal held that the insured was not damaged, as required for a claim for breach of contract, until the insurer stopped paying benefits in September 2018. As such, the statute of limitations was not triggered until such date. The California Court of Appeal held that the statutes of limitations for breach of contract and bad faith claims against a disability insurer accrued not when the insurer issued its denial letter but when the insurer ceased paying benefits since that is when all the required elements for breach of contract (including actual damages) were satisfied. 92 Cal.App.5th 723 (2023) Page 20
www.fmglaw.com © Freeman Mathis & Gary Rosenberg-Wohl v. State Farm Fire and Casualty Company Insured filed two suits against State Farm, both arising from a denial of a claim for the replacement of staircase in the insured’s home. State Farm reopened the claim about a year later, for further investigation at the request of the insured’s husband, and again denied the claim. The first suit claimed breach of the policy and breach of the implied covenant of good faith and fair dealing. This suit was dismissed with the court upholding the one-year limitation in the policy. In the second suit sought injunctive relief under California’s Unfair Competition Law, wherein the insured sought injunctive relief and attorney’s fees; State Farm successfully filed a demurrer. The Court of Appeal upheld the dismissal of the second suit, holding that the one-year statute of limitation applied as the suit for Unfair Competition Law actually presented a bad faith cause of action arising out of a contractual relationship. Further, the court held that State Farm did not waive the one-year limitation by re-opening the claim as there was no waiver in writing as required by the policy. The California Court of Appeal held that a one-year contractual limitation provision in a homeowner’s policy barred the insured’s purported UCL action—which was actually a bad faith action arising from the contract. The Court further held that the insurer did not waive the contractual limitation period by re-opening the claim after the limitation period had run. 93 Cal.App.5th 436 (2023) Page 21
www.fmglaw.com © Freeman Mathis & Gary Galina Jakobson Meredith Freidheim Prepared by: Washington Page 22
www.fmglaw.com © Freeman Mathis & Gary Hermanson Company, LLP v. Siriuspoint Specialty Ins. Corp. The insured incurred over $355,000 in costs in an attempt to resolve design and engineering issues on a project and avoid or mitigate professional negligence claims. A claim was nevertheless made, and the insured sought coverage under its professional liability policy under the Contractor’s Professional Redress provision. The insurer denied the claim on the basis that the costs were incurred prior to the tender of the claim. The insured argued that the insurer can only escape liability for an otherwise covered claim on the grounds that the insured breached a policy condition “if the insurer can prove that the breach caused actual and substantial prejudice.” The Western Washington District Court agreed with the insured, holding that the insurer was required to establish that it suffered actual and substantial prejudice when the insured failed to provide notice of its Redress Expenses incurred before the tender. The court noted that the insured made its claim within the time frame of the claims-made policy in support of its ruling. 2023 WL8701090 (2023) Western District Court Upholds That Insurer Must Establish Actual Prejudice to Deny Pre-Tender Fees and Costs Page 23
www.fmglaw.com © Freeman Mathis & Gary Third Coast Ins. Co. v. Cojon, LLC In its application for CGL policy, insured identified its operations as: (1) repair and remodel of commercial buildings, (2) repair/remodel additions to residential buildings or property and project management on residential building and commercial and residential remodels, and (3) custom brackets for decks, shelves, and framing. The policy included an endorsement that states that it provides coverage for operations expressly specified in the application for insurance on file with the company and described in the “Description of Operations/Classification” section of the declarations. The insured manufactured a fish skinning wheel for a customer; the customer’s employee was severely injured using the fish skinning wheel. The insurer denied coverage for the injury on the basis that the manufacture of the fish skinning wheel did not fall into the Description of Operations/Classification Description of Operations/Classification identified by the insured. The Western District Court found that the policy did not provide coverage for the skinning wheel; the Description of Operations/Classification was unambiguous, in that the reasonable interpretation of custom brackets for decks, shelves and framing did not include manufacturing of machinery that was unrelated to construction work, i.e., fish skinning wheel. 2023 WL6904953 Western District Court Upholds Description of Operations/Classification Endorsement in (2023) CGL Policy Page 24
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Gabriel Canto Associate Dallas, TX [email protected] Galina Jakobson Partner Seattle, WA | San Francisco, CA Las Vegas, NV [email protected] Megan Ritenour Partner Phoenix, AX | Albuquerque, NM [email protected] Presenters