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News & Developments
May 24, 2012
Tender of Policy Limits Not a Defense to Action to Enforce Hospital Lien
Southern General Insurance Co. v. Wellstar Health Systems, Inc., No. A11A2065, 2012 Ga. App. LEXIS 306 (Ga. Ct. App. Mar. 20, 2012), involved an insurer’s obligations under an automobile liability policy when faced with both a claim by an injured party and a hospital lien. After a bicyclist was injured in a collision with the insured’s car, Southern offered to settle the injured party’s claim for the applicable policy limits. In return, Southern requested that the injured party provide it with either assurances that Wellstar’s lien, which resulted from his medical expenses, would be satisfied or indemnification with respect to Wellstar’s lien. The injured party refused and demanded that Southern tender its policy limits within five days. After Southern did so, Wellstar filed suit against Southern, seeking the satisfaction of its lien, as well as attorney fees.
Southern claimed that Georgia’s bad-faith law was inconsistent with its statutes regarding hospital liens because an insurer could be forced to make payments in excess of its policy limits. The trial court disagreed, finding that Southern’s tender of its policy limits to the injured party was not a defense to Wellstar’s action to enforce its lien. The court of appeals affirmed.
Keywords: insurance, coverage, litigation, Georgia, automobile insurance policy, hospital lien, policy limits, bad faith, safe harbor from bad-faith liability
—Heather Smith Michael, Arnall Golden Gregory LLP, Atlanta, GA
Claims for Breach of Contract and Bad Faith are Properly Bifurcated
Saye v. Provident Life & Accident Insurance Company, 714 S.E.2d 614 (Ga. Ct. App. 2011)
So held the Court of Appeals of Georgia in Saye v. Provident Life & Accident Insurance Company, 714 S.E.2d 614 (Ga. Ct. App. 2011). In that case, the insured sued Provident for breach of contract and bad faith based on its failure to pay continuing benefits under a disability insurance policy. The insured’s entitlement to lifetime benefits depended on whether his condition was the result of sickness or an injury. Provident determined that the insured’s condition resulted from sickness, thus allowing it to terminate the insured’s benefits. Not surprisingly, the insured disagreed. The trial court bifurcated the insured’s two claims, with the expectation that trial would proceed on the bad-faith claim only if the insured prevailed with respect to his claim for breach of contract. The insured argued that this bifurcation was error.
Keywords: insurance, coverage, litigation, Georgia, breach of contract, bad faith, disability insurance, bifurcate, bifurcation
—Heather Smith Michael, Arnall Golden Gregory LLP, Atlanta, GA
Court Rules Coverage Exists for Mitigation Costs
The England and Wales High Court (Commercial Court) has handed down the long-awaited judgment in Standard Life Assurance Limited v. Ace European Group and Others. The widely publicized dispute concerned a claim for £100 million by Standard Life against its professional indemnity insurers. In ordering that Standard Life was entitled to recover the full amount of its claim, Justice Eder set out a number of important points of application to policyholders generally.
Standard Life’s claim related to a £2.2 billion pension fund—the Pension Sterling Fund. Following the collapse of Lehman Brothers and the onset of the credit crunch, certain assets in which the fund had been invested—asset-backed securities and floating rate notes—experienced losses with the result that the fund lost approximately five percent of its value, or a little more than £100 million. Standard Life chose to reverse the effect of the fall by injecting £100 million into it. Standard Life subsequently made a claim for £100 million less than its professional indemnity insurance policy on the basis that its actions averted potentially larger losses and therefore fell within the definition of “mitigation costs” under the policy. Insurers denied coverage and challenged Standard Life’s interpretation of the policy on a number of grounds.
Keywords: insurance, coverage, litigation, United Kingdom, England, Wales, professional indemnity policy, payment protection insurance, mitigation costs, financial crisis
—Richard Leedham, Addleshaw Goddard, London, England
CGL Policies Triggered by Allegations of Physical Damage to Adjacent Property
A standard commercial general liability (CGL) policy covers “damages because of . . . property damage.” Recently, in Mid-Continent Casualty Co. v. Academy Development, Inc., No. 11-20219, 2012 U.S. App. LEXIS 8056, --F.3d -- (5th Cir. Apr. 20, 2012), the Fifth Circuit Court of Appeals held that such policies are triggered by allegations of diminished value due to adjacent property damage, even where the underlying claimant has no ownership interest in the physically damaged property. The court also rejected the carrier’s contention that defense costs should be allocated over all triggered policies.
In Academy, several related entities built and developed a residential subdivision near several lakes. Purchasers of homes in the subdivision later sued the entities in Texas state court, alleging that, at the time the home sites were sold, the defendants knew the lake walls were failing. As a result of these failures, water was leaking from the lakes onto adjacent home sites, thus diminishing the value of the homeowners’ property. Each of the defendant entities was insured under five consecutive CGL policies issued by Mid-Continent. The policies varied in deductible amount and in whether the deductibles applied to defense costs. Specifically, the last three policies contained a higher deductible and also applied to defense costs.
Keywords: insurance, coverage, litigation, commercial general liability, CGL, Texas, “property damage,” diminution of value, allocation
—Leslie C. Thorne, Haynes Boone, LLP, Austin, Texas
Computer Data Is Not “Tangible Property” Under Federal Act
Policyholders and insurers have long debated whether computer data is “tangible property” within the meaning of standard form insurance policies. See generally B. Wells, et al., 4-29 New Appleman on Insurance Law § 29.02 (Library Ed. 2011). The Second Circuit’s decision on April 11, 2012 overturning the conviction of Sergey Aleynikov for theft of his employer’s “proprietary source code” will likely provide grist for that debate. Aleynikov holds that computer source code is not “tangible property” within the meaning of the federal, 18 U.S.C. § 2314 (NSPA).
A jury convicted Aleynikov of stealing a significant portion of the source code used by his employer, Goldman Sachs & Co., to operate its high frequency computerized trading system. Aleynikov, who was at the time employed by Goldman Sachs as a programmer, had accepted a job offer from a competing company to develop a similar high frequency trading system. On his last day at Goldman Sachs, Aleynikov encrypted and uploaded 500,000 lines of source code for the trading system to a server in Germany. That night, he downloaded the source code from the server to his home computer. Shortly thereafter, he was arrested and charged with violating the NSPA, “which makes it a crime to transport, transmit, or transfer in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud.” Slip op. at 6 (quotations and citations omitted). He was convicted after a jury trial, and he appealed his conviction.
Keywords: insurance, coverage, litigation, National Stolen Property Act, federal law, source code, computer data, cyber, e-commerce, data loss, tangible property, intangible property
—Rukesh A. Korde, Covington & Burling, LLP, Washington, DC
Court Holds Pollution Exclusion Ambiguous, Unenforceable
In State Auto Mutual Ins. Co. v. Flexdar, Inc., the Indiana Supreme Court held that the standard “pollution exclusion” typically appearing in commercial general liability (CGL) policies issued from approximately 1985 to 2005 is ambiguous and unenforceable as to most, if not all, types of environmental liabilities.
In Flexdar, the Indiana Department of Environmental Management (IDEM) demanded that Flexdar, an Indianapolis-based rubber-stamp and printing-plate manufacturer, clean up trichloroethylene (a chemical solvent commonly known as TCE) that was found in soil and groundwater at Flexdar’s manufacturing site. Flexdar sought insurance coverage from its liability insurer, State Auto, for the legal, investigative, and remediation costs of complying with IDEM’s demand. State Auto then sued Flexdar, seeking a court determination that the “pollution exclusions” in its policies from 1997 to 2002 absolved it of any obligation to provide coverage to Flexdar for IDEM’s demand. The State Auto policies contained not only the standard CGL “pollution exclusion,” but also an Indiana-specific endorsement stating that the exclusion “applies whether or not such irritant or contaminant has any function in your business, operations, premises, site or location.”
Keywords: insurance, coverage, litigation, Indiana, commercial general liability, CGL, pollution exclusion, pollutant
—John P. Fischer, Barnes & Thornburg LLP, Indianapolis, IN, and Charles M. Denton, Barnes & Thornburg LLP, Grand Rapids, MI.
Virginia Issues Two Decisions Addressing Pollution Exclusions
The U.S. District Court for the Eastern District of Virginia, Newport News Division (Judge Mark S. Davis presiding) issued two opinions––Nationwide Mutual Insurance Co. v. Overlook, LLC, 785 F.Supp. 2d 502 (E.D. Va. 2011), and Builders Mutual Insurance Co. v. Parallel Design & Development, LLC, 785 F.Supp. 2d 535 (E.D. Va. 2011)––on the same day, May 13, 2011, which both addressed whether the commercial general liability (CGL) total pollution exclusion barred coverage for damage/injury caused by Chinese drywall. Interestingly, the conclusions reached in each case differed.
The pollution exclusion at issue in the CGL policies considered by the Overlook court provided that coverage “does not apply to: 1) ‘Bodily injury’ or ‘property damage’ arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants:’ . . .” at for from described locations.
The pollution exclusion at issue in Parallel Design provided that the “insurance does not apply to (1) ‘Bodily injury’ or ‘property damage’ which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.”
Keywords: insurance, coverage, litigation, Virginia, commercial general liability, CGL, total pollution exclusion, pollutant, gases fumes or vapors exception, Chinese drywall
—John B. Mumford. Jr., Hancock, Daniel, Johnson & Nagle, P.C., Richmond, VA
Connecticut Changes Course on Late Notice
The Connecticut Supreme Court recently had an opportunity to revisit Connecticut’s long-standing law regarding late notice in Arrowood Indemnity Co. v. King. The case arose when 14-year-old Pendleton King, Jr. used his parents’ all-terrain vehicle to tow Conor McEntee on a skateboard on a dead-end street near King’s home. McEntee fell and suffered a severe head injury that resulted in hospitalization and a temporary coma. Following the incident, the Kings and the McEntees continued to meet in social settings, but the McEntees never indicated that they intended to bring an action related to the incident. More than a year after the incident, a letter from the McEntees’ attorney alerted the Kings that an action may be filed. The Kings promptly notified their homeowners carrier and the ultimate insurer filed a declaratory judgment action in the U.S. District Court for the District of Connecticut, claiming they did not have a duty to defend. The district court granted summary judgment to the insurer without reaching the issue of notice. The Kings appealed to the U.S. Court of Appeals for the Second Circuit, which certified three questions to the Connecticut Supreme Court, including the following:
Under Connecticut law, where a liability insurance policy requires an insured to give notice of a covered claim ‘as soon as practicable,’ do social interactions between the insured and the claimant making no reference to an accident claim justify a delay in giving notice of a potential claim to the insurer?
To establish that an insurer’s duties are discharged pursuant to the “notice” provision in a policy, Connecticut requires, “an unexcused, unreasonable delay in notification by the insured”, and “resulting material prejudice to the insurer.” Late notice is deemed unreasonable where “the situation would have suggested to a person of ordinary and reasonable prudence that liability may have been incurred.” The Connecticut Supreme Court quickly found that, given the severe head injuries suffered, liability was obvious to a person of ordinary and reasonable prudence. Therefore, regardless of the Kings’ subjective belief that an action may not be pursued due to their subsequent social interactions with the McEntees, the Kings’ late notice was objectively unreasonable.
Keywords: insurance, coverage, litigation, Connecticut, late notice, “as soon as practicable,” burden of proof, prejudice, social interaction between insured and claimant
—Christopher R. Perry, Robinson & Cole LLP, Hartford, Connecticut
February 23, 2012
Ninth Circuit Holds Insurers Can Challenge Bankruptcy Plan
The Ninth Circuit in In the Matter of Thorpe Insulation Co., 2012 U.S. App. LEXIS 1272 (9th Cir. Jan. 24, 2012), held that insurers have standing to challenge a debtor’s Chapter 11 plan because, although the plan claimed to be insurance-neutral, it could have a financial impact on the insurers. The court also rejected the debtor’s argument that the insurers’ challenge was moot because the plan had already been implemented. The court further held that the Bankruptcy Code expressly preempted anti-assignment provisions in the insurers’ policies.
Thorpe Insulation Co. distributed, installed, and repaired asbestos-containing products resulting in thousands of asbestos suits against the company. The Bankruptcy Court approved Thorpe’s section 524(g) Joint Plan of Reorganization. Non-settling insurers challenged the plan and opposed it on grounds it violated the anti-assignment clauses in their policies. The district court held the appellants lacked standing to challenge the plan because it was “insurance neutral” and the bankruptcy law preempted the appellants’ state-law contract rights.
The plan, which was funded with $600 million from settling insurers, created a trust that was to oversee how claims were paid as well as establishing claim value. The plan also assigned Thorpe’s insurance rights to the trust, allowing claimants to bring a claim against the trust directly. The plan further purported to be “insurance neutral” and preserved all “Asbestos Insurance Defenses” despite the fact it included several exceptions that prohibited the raising of certain defenses.
Keywords: insurance, coverage, litigation, Ninth Circuit, bankruptcy, 524(g), reorganization, anti-assignment, asbestos
—Aaron M. Muranaka and Peter D. Volz, Carroll, Burdick & McDonough LLP, San Francisco, CA
January 23, 2012
Court Interprets "Separation of Insureds," "Other Insurance"
Universal Insurance Company denied a defense to Burton, which was listed as an additional insured under a policy issued by Universal to a contractor that provided services to Burton. Though there was no dispute that the underlying claims would trigger coverage under the policy’s personal and advertising injury section, Universal claimed that a number of exclusions, including the “knowledge of falsity” exclusion, precluded coverage for Burton. In addition, Universal claimed that Burton’s own commercial general liability (CGL) policy, issued by First Specialty Insurance Company, provided primary coverage. The North Carolina Court of Appeals rejected both arguments and ordered Universal to defend Burton in the underlying action.
Keywords: litigation, insurance, coverage, North Carolina, duty to defend, separation of insureds, other insurance, additional insured
—Alan Parry, Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., Raleigh, North Carolina
January 11, 2012
Economic or Physical Loss Not Required for Emotional Distress Damages
Revisiting its bad-faith jurisprudence, the Hawaii Supreme Court recently determined that an insured need not prove economic or physical loss caused by the insurer’s bad faith to recover emotional distress damages. See Miller v. Hartford Life Ins. Co., 2011 Haw. LEXIS 284 (Haw. Dec. 28, 2011).
Hartford issued a long-term care policy to the insured, Penelope Spiller. After Spiller suffered a seizure in 2007 and was diagnosed with lung cancer that metastasized to her brain, Hartford determined she was eligible for long-term care benefits. A year later, however, Hartford terminated her benefits. Spiller was determined to no longer be “cognitively impaired” nor incapable of performing two activities of daily living, as required by the policy’s eligibility requirements.
Keywords: insurance, coverage, litigation, Hawaii, long-term care policy, health insurance, bad faith, emotional distress
—Tred R. Eyerly, Damon Key Leong Kupchak Hastert, Honolulu, Hawaii
December 21, 2011
Insurer's Right to Fee Arbitration Further Limited under California Law
The California Court of Appeal has further limited an insurer’s right to take advantage of the limitations of California Civil Code Section 2860(c) regarding arbitration of fee disputes. Janopaul + Block Companies, LLC v. Superior Court, 200 Cal. App. 4th 1239 (2011). Janopaul clarifies and expands the ruling in Intergulf Development LLC v. Superior Court, 183 Cal. App. 4th 16 (2010) and significantly limits the application of Compulink Mgmt. Ctr., Inc. v. St. Paul Fire and Marine Ins. Co., 169 Cal. App. 4th 289, 292 (2008), insofar as under what circumstances a fee dispute raised in a bad-faith action must be arbitrated under the California statute dealing with a policyholder’s right to select independent counsel where there is a conflict of interest resulting from the insurer’s reservation of rights.
In Janopaul, the policyholder retained independent counsel for defense of a claim. The claim was tendered to the insurer. More than two years thereafter, the insurer finally agreed to defend the policyholder under a reservation of rights and to provide independent counsel. The insurer stated in its reservation of rights letter that it was not obligated to reimburse the policyholder for any fees and costs that the policyholder incurred pursuing any affirmative claims in the underlying action, and that the insurer would pay for only costs and fees reasonable and necessary to the policyholder’s defense in the underlying action. The insurer further expressed its concern regarding the billing practices of the policyholder’s attorneys, including tasks that purportedly did not appear reasonable and/or necessary to the defense of the policyholder in the underlying action. The insurer petitioned to compel arbitration of the fees disputed under California Civil Code Section 2860(c). The policyholder moved to dismiss that petition arguing that, because the insurer waited more than two years to respond to the tender of defense and reserved its rights, the insurer had breached the insurance contract and engaged in bad faith. The policyholder contended that, as such, the insurer forfeited and/or was estopped to assert its alleged right to compel arbitration and set rates for independent counsel.
Keywords: insurance, coverage, litigation, California, independent counsel, Cumis, section 2860, fee arbitration
—Karen E. Jung, Gilbert, Kelly, Crowley & Jennett LLP, Los Angeles, CA
November 2, 2011
Earth Movement Exclusion Held Ambiguous By Nevada Supreme Court
The Supreme Court of Nevada held that the earth movement exclusion in a homeowner’s insurance policy was ambiguous and was to be construed against the insurer. Powell v. Liberty Mut. Fire Ins. Co., 252 P.3d 668 (Nev. 2011).
In July 2005, a water pipe in the insured’s house exploded, flooding the dirt sub-basement. An expert concluded that “after many years of relative foundation stability, [the house] is currently being affected by the expansion of supporting clay soils. [T]he expansion . . . has been severely aggravated by the intrusion of a significant amount of water a short time ago. . . .” 252 P.3d at 671.
The insured submitted a claim under her all risk homeowner’s policy that was issued by Liberty Mutual. The claim was denied on the grounds that the earth movement exclusion applied.
Keywords:
insurance, litigation, Nevada, first-party property, earth movement exclusion, settling clause, ambiguous
—John H. Podesta, Murchison & Cumming, LLP, San Francisco, CA
November 2, 2011
Eleventh Circuit Denies Coverage for FACTA Liability
The Eleventh Circuit Court of Appeals recently held that under Florida law, printing credit card receipts without truncating the account information in violation of the Fair and Accurate Credit Card Transaction Act (FACTA), 15 U.S.C. § 1681, does not constitute a publication of private information for purposes of commercial general liability (CGL) policies. In Creative Hospitality Ventures, Inc. v. U. S. Liab. Ins. Co., No. 11-11781, 2011 U.S. App. LEXIS 19990 (11th Cir. Sept. 30, 2011), a restaurant had given to its customers credit card receipts that had reproduced their full account information in violation of FACTA, a federal law that prohibits the printing of more than the last five digits of the credit card account number. When a class of consumers brought suit against the restaurant, the business sought legal representation from its insurer under its CGL policy. That policy provided coverage for amounts that the restaurant was legally obligated to pay because of “personal and advertising injury,” which was defined in relevant part as any publication that invaded the right to privacy. When the insurance company denied the application, the restaurant joined a prospective class of businesses that had already filed suit in federal court seeking coverage under similar CGL policies for FACTA violations. A federal magistrate judge found that FACTA created a right to privacy in one’s credit card information and that the printing of a receipt was a covered publication. The federal district court reversed and held that a receipt is not a publication; the Eleventh Circuit affirmed.
Keywords: insurance, litigation, Florida, CGL, personal and advertising injury, publication, Fair and Accurate Credit Card Transaction Act, FACTA
—Robert D. Chesler and Peter Slocum, Lowenstein Sandler, Roseland, NJ
November 2, 2011
Mutual Mistake as Basis for Reformation of Insurance Contract
The U. S. Court of Appeals for the Third Circuit recently concluded that an insurer was permitted to seek reformation of an aircraft fleet insurance policy on the ground of mutual mistake against its insured’s client, which was not a contracting party but was a named insured under the policy seeking coverage. Ill. Nat’l Ins. Co. v. Wyndham Worldwide Operations, Inc., 653 F.3d 225 (3d Cir. 2011) (New Jersey law).
The insurer brought this action against a third-party client of its insured, which was a named insured under the policy in question, seeking a declaratory judgment that coverage under an aircraft fleet insurance policy was not triggered by a crash involving a plane rented and flown by the client’s employee. The insurer and the insured negotiated the relevant policy and previous policies, directly and through their brokers. The policies all contained endorsements that provided coverage for the insured’s clients under limited circumstances.
Keywords: insurance, litigation, New Jersey, reformation, mutual mistake
—Aaron Gould, Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, P.C., Newark, NJ
October 26, 2011
EEOC Lawsuit Not a Claim under Employment Practices Liability Policy
The Middle District of Tennessee recently held that a lawsuit brought by the Equal Employment Opportunity Commission (EEOC) did not constitute a claim under the terms of the employment practices liability (EPL) policy before the court and, accordingly, the insurer had no duty to defend or indemnify its policyholder.
In Cracker Barrel Old Country Store, Inc. v. Cincinnati Ins. Co., No. 3:07-cv-00303 (M.D. Tenn. Sept. 21, 2011), 10 employees of the plaintiff policyholder filed charges of discrimination against it with the EEOC and the corresponding state agency. The policyholder notified its insurer, Cincinnati Insurance Company (Cincinnati) of the charges. Ultimately, based upon the charges filed, the EEOC brought suit against the policyholder for multiple alleged violations of Title VII of the Civil Rights Act of 1964 and Title I of the Civil Rights Act of 1991 (EEOC lawsuit). The parties eventually settled the case when the policyholder agreed to pay $2,000,000 into a settlement fund that would be allocated among the charging parties. The policyholder also incurred defense costs exceeding $700,000 before settlement was reached. The policyholder then brought suit against Cincinnati, seeking a declaration that Cincinnati had a duty to defend and indemnify it in connection with the EEOC lawsuit and seeking damages for breach of contract and bad faith. Both parties moved for summary judgment.
Keywords: insurance, litigation, Tennessee, EPLI, employment practices liability insurance, claim, EEOC, last antecedent rule
—Amanda M. Leffler, Brouse McDowell, Akron, OH
October 24, 2011
Tenth Circuit Holds Patent Infringement May Be Covered By CGL Insurance
In a victory for policyholders, the U. S. Court of Appeals for the Tenth Circuit held that under Colorado law, patent infringement claims may be covered under the Advertising Injury part of a Commercial General Liability insurance policy. See DISH Network Corporation v. Arch Specialty Ins. Co., No. 10-1445, 2011 U.S. App. LEXIS 20955 (10th Cir. Oct. 17, 2011). In DISH Network, the satellite television provider, DISH Network, sought a defense and indemnity from its insurers after being sued for patent infringement. The infringement claim arose in connection with DISH Network’s alleged use of patented technology in automated telephone systems that allow its customers to perform pay-per-view ordering and customer service functions over the telephone.
The Tenth Circuit held that the underlying allegations of patent infringement fell potentially within the Advertising Injury offense of “misappropriation of advertising ideas.” In reaching its holding, the court rejected the insurers’ contention that the phrase was unambiguous and could not encompass patent infringement claims.
Keywords: insurance coverage, litigation, Colorado, patent infringement, CGL, advertising injury
—Lee Epstein , Fried & Epstein LLP, Philadelphia, Pennsylvania.
The authors represented Federal Insurance Company in this case.
October 17, 2011
Coverage May Only be Triggered Upon Payment of All Underlying Limits of Insurance
On September 28, 2011, Federal Insurance Company (Federal), a division of Chubb & Son, prevailed against the former officers and directors of long-defunct Commodore International Limited in a declaratory judgment action pending before Judge Richard J. Sullivan in the Southern District of New York. Judge Sullivan agreed with Federal that it had no obligation under two excess directors and officers liability insurance policies to drop down in place of unavailable underlying insurance and advance defense costs to the former executives of Commodore, producer of the classic Commodore 64 personal computer. Most notably, however, Judge Sullivan also agreed that Federal’s excess policies, which sit at the second and fifth excess layers of Commodore’s insurance tower, cannot be triggered unless and until the limits of all insurance underlying its layers is in fact paid, even if the loss otherwise reaches the excess insurance layers.
Judge Sullivan––who was general counsel at Marsh, Inc. prior to becoming a federal judge and, thus, no stranger to insurance law––held that, consistent with the unambiguous language of the Federal excess policies, coverage could only be triggered upon payment of all underlying limits of insurance. This is a critical new precedent in New York law.
Keywords: insurance coverage, litigation, directors and officers, excess insurance, attachment point, exhaustion, drop down
—Joseph G. Finnerty III and Rachel V. Stevens, DLA Piper LLP, New York, NY
The authors represented Federal Insurance Company in this case.
September 29, 2011
Subcontractor Is Not Obligated to Provide Indemnity Unless Clearly Required by the Agreement
The Supreme Court of Nevada held that the indemnity clause at issue only covered the subcontractor’s negligence and not the negligence of the general contractor because the clause was not explicit as to whether the subcontractor was required to indemnify the general contractor, even if the subcontractor was not negligent, and the scope of the agreement included indemnity for the general contractor’s negligence.
In this construction defect case, the subcontractor was responsible for the rough and final grading of building lots. The subcontractor did not design or construct any of the allegedly defective retaining walls or side walls. The Nevada Supreme Court concluded that the subcontractor was required to indemnify the general contractor only for liability or damages that were attributable to the subcontractor’s negligence, because the indemnity clause did not expressly or explicitly state that the subcontractor would indemnify general contractor for general contractor’s negligence. In reversing the trial court, the Nevada Supreme Court held that the statement by the owner was not a judicial admission because it was not a clear, unequivocal statement of liability, and that it was not an evidentiary admission because it did not admit a fact adverse to the owner’s claims.
As the decision demonstrates, subcontractors have been exposed to substantial awards of attorney’s fees pursuant to indemnity contracts. This decision provides some relief to subcontractors and their insurers at the expense of general contractors and developers.
Keywords: insurance coverage, litigation, Nevada, subcontractor, indemnity, judicial admission, negligence
—John H. Podesta, Branson, Brinkop, Griffith & Strong, LLP, Redwood City, CA
September 28, 2011
Subcontractor Exception to Your-Work Exclusion Is Ambiguous
In Mosser Constr., Inc. v. The Travelers Indemnity Co., No. 09-4449, 2011 U.S. App. LEXIS 14455 (6th Cir. July 14, 2011), the insured general contractor brought an action against Travelers for failing to defend and indemnify it in connection with an underlying action involving improvements to a wastewater treatment facility. In the underlying action, the owner alleged that a new odor-control building being constructed by Mosser sustained property damage as a result of defective backfill used in the construction of the building.
Under the facts in the underlying action, the Sixth Circuit found that the supplier was a subcontractor and, accordingly, that the exception to the “your-work” exclusion applied, affording coverage for Mosser.
Keywords: insurance coverage, litigation, subcontractor, your work exclusion
—Jeffrey J. Vita and Ryan M. Suerth, Saxe Doernberger & Vita, P.C., Hamden, Connecticut
September 28, 2011
Right of Privacy Construed Broadly to Expand Coverage
The U.S. District Court for the District of Minnesota recently held that a violation of the Telephone Consumer Protection Act (TCPA) infringed on privacy interests so that it constituted “advertising injury” under a CGL policy. In Owners Ins. Co. v. European Auto Works, Inc., 2011 U.S. Dist. LEXIS 80379 (D. Minn., Aug. 30, 2011) the plaintiffs, Owners Insurance Co. and Auto-Owners Insurance Co., moved for summary judgment seeking a declaration that they had no duty to defend or indemnify their insured, European Auto Works, Inc.––dba Autopia––pursuant to the terms of primary CGL policy and follow-form umbrella CGL policy. Autopia filed a cross-motion for summary judgment.
The insurers argued that the underlying TCPA claim was not a privacy tort and, therefore, it was not covered by the CGL policies. In their view, secrecy was not violated because the faxes did not disclose information to a third party. The court disagreed with the insurer’s argument and accepted Autopia’s broad construction of privacy and publication. It held that the plain meaning of privacy applied and that the TCPA claims involved violations of the underlying plaintiff’s right to privacy because the plaintiffs alleged that the unsolicited faxes interfered with their right to be left alone.
This decision illustrates the current split on the interpretation of the advertising injury clause of CGL policies, as the Third, Fourth, and Seventh Circuits have reached opposite conclusions.It will be interesting to see how this issue plays out as it continues to be litigated and whether insurers might consider amending the definitions of publication or privacy in their CGL policies.
Keywords: insurance, litigation, Minnesota, TCPA, privacy, advertising injury
—Darren Dwyer, Cozen O’Connor, Philadelphia, Pennsylvania
September 27, 2011
Global Warming Complaint Does Not Allege An “Occurrence” Under CGL Policy
The Virginia Supreme Court recently issued an opinion holding that an insurer has no duty to defend or indemnify an insured against a complaint alleging global warming damages from greenhouse gas emissions because the complaint does not allege an "occurrence" as required for coverage under the relevant insurance policies. AES Corp. v. Steadfast Ins. Co., 2011 Va. LEXIS 185 (Va. Sept. 16, 2011).
In 2008, the native village of Kivalina and city of Kivalina in Alaska (Kivalina) sued AES and other companies for allegedly damaging Kivalina by causing global warming through emissions of greenhouse gases. Kivalina alleges in its lawsuit that AES intentionally released carbon dioxide as part of its business and that global warming and the damages claimed by Kivalina are a natural and probable consequence of such emissions. The commercial general liability policies Steadfast issued to AES require for coverage that any damage be caused by an occurrence, defined as “an accident, including continuous or repeated exposure to substantially the same general harmful condition.” The Virginia Supreme Court held that Kivalina does not allege that its damages were the result of a fortuitous event or an accident and that such loss therefore is not covered under the Steadfast policies.
Keywords: insurance coverage, litigation, Virginia, global warming, greenhouse gases, commercial general liability, occurrence, accident
—Max H. Stern and Jessica La Londe, Duane Morris LLP, San Francisco, California.
August 17, 2011
Sole Negligence Provision Does Not Bar Defense for Additional Insured
The Illinois Court of Appeals recently held that a general contractor was entitled to a defense as an additional insured despite a sole negligence provision in the additional insured endorsement when the underlying complaint did not allege the general contractor was solely negligent. A-1 Roofing Co. v. Navigators Ins. Co., 2011 Ill. App. LEXIS 656 (Ill. Ct. App. June 24, 2011).
A-1 was the general contractor for a roof resurfacing job at a high school. Jack Frost Iron Works Inc. was one of A-1’s subcontractors. An employee of Frost’s subcontractor Midwest Sheet Metal Inc. was killed at the job site when a boom-lift he was operating flipped over. The boom-lift had been leased by another Frost subcontractor, Bakes Steel Erectors, Inc. (BSE). The deceased’s estate filed suit against A-1, BSE and two other defendants. The underlying complaint alleged the decedent’s death occurred while BSE was performing its work on Frost’s behalf, in furtherance of work Frost was contractually obligated to perform for A-1.
Keywords: insurance, litigation, Illinois, Additional insured, Duty to defend, your work, sole negligence clause
—Tred R. Eyerly, Damon Key Leong Kupchak Hastert, Honolulu, Hawaii
Breach of Contract Needed for Bad-Faith Discovery
In Brethorst v. Allstate Prop. & Cas. Ins. Co., 798 N.W.2d 467 (Wis. 2011), the insured asserted a bad-faith claim against Allstate but did not assert a claim for breach of the insurance contract. Allstate requested that the trial court bifurcate the issues of coverage and bad faith and asked for discovery on the bad-faith claim to be stayed until the contract issues were resolved. The trial court denied Allstate’s request. The Supreme Court of Wisconsin held that breach of contract and first-party bad faith are separate claims, so a bad-faith claim may be asserted without a claim for breach of contract.
Keywords: insurance, litigation, bad faith, discovery, bifurcate, breach, Wisconsin
––Heather Smith Michael, Arnall Golden Gregory, LLP, Atlanta, Georgia
Jury Trials Allowed for Bad Faith
In a case of first impression, the Supreme Court of New Jersey held that bad-faith claimants have a right to a trial by jury in Wood v. New Jersey Mfr. Ins. Co., ___A.3d___, 2011 N.J. LEXIS 679 (N.J. June 14, 2011).
Under New Jersey law, there is no right to a trial by jury on equitable claims. The plaintiff argued that bad-faith claims were equitable in nature, involved complex issues relating to fiduciary relationships, and should be decided by the judge. The court determined, however, that insurance bad-faith claims are, at their core, simple breach-of-contract claims seeking monetary damages. Accordingly, they are legal actions to which the right to a trial by jury attaches.
Keywords: insurance, litigation, bad faith, trial, jury, judge, New Jersey
––Heather Smith Michael, Arnall Golden Gregory, LLP, Atlanta, Georgia
“Other Premises” Exclusion May Not Bar Coverage for Negligence
Settling a conflict among appellate courts in a 4–3 decision, the Supreme Court of Ohio held that an exclusion in a homeowner’s policy for claims “arising out of” premises owned by the insured other than the insured location does not exclude coverage for claims occurring on another property owned by the insured, so long as the claims are based on the insured’s negligence and that negligence is unrelated to the quality or condition of the premises. The exclusion only bars coverage if the claims are based on the quality or condition of the other property or on the insured’s ownership of the other property.
The complaint did not allege that the quality or condition of the premises caused or contributed to the injury, so the case was remanded to the trial court to determine whether the claims against the insureds are based on the alleged breach of a duty of care, in which case the Westfield policy would be obligated to defend, or on the fact that the insureds owned the property upon which the injury occurred, in which case the exclusion would apply and Westfield would not have a duty to defend.
Keywords: litigation, insurance, “arising out of,” exclusion, premises, homeowner’s policy
––Brandi Doniere, Thacker Martinsek LPA, Perrysburg, Ohio
June 30, 2011
Bad Faith—Jury Trial
Wood v. New Jersey Mfrs. Ins. Co., 2011 N.J. LEXIS 679 (N.J. June 14, 2011)
The New Jersey Supreme Court unanimously ruled that a policyholder has the right to a jury trial when bringing a claim of bad faith against its insurer for failure to settle within policy limits pursuant to Rova Farms Resort, Inc. v. Investors Ins. of Am., 65 N.J. 474, 323 A.2d 495 (N.J. 1974). Writing for the court, Justice Rivera-Soto stated that “a Rova Farms bad faith claim is and always has been a breach of contract claim, and it is beyond question that a breach of contract claim was at common law and remains today an action triable to a jury.”
However, the court noted that a claim of bad faith under Rova Farms will not automatically be tried by a jury; rather, a party’s failure to demand a jury trial will constitute a waiver of that right. Furthermore, the court acknowledged that despite a demand for a jury trial, the parties are not bound by the demand and are free to “consent to a trial by the court without a jury.”
—Neil V. Mody and Michael J. Creegan, Connell Foley LLP, Roseland, NJ
June 1, 2011
South Carolina Passes New Statute on “Occurrence”
On May 17, 2011, South Carolina became the third state to pass pro-policyholder legislation regarding what constitutes an “occurrence” under standard CGL policies. The other two states are Arkansas and Colorado. Ark. Code § 23-79-155; Colo. Rev. Stat. § 13-20-808. The South Carolina bill, which will be codified as S.C. Code Ann. § 38-61-70, was introduced earlier this year, only two weeks after the state supreme court issued its decision in Crossman Communities of North Carolina, Inc. v. Harleysville Mutual Insurance Co., No. 26909, 2011 S.C. LEXIS 15 (S.C. Jan. 7, 2011).
The Crossman decision represented a change in course for the court, which the year before had ruled that defective construction was an occurrence under standard CGL policies. In Crossman, the court ruled that damages resulting from faulty workmanship were the “natural and probable cause” of the faulty work and, as such, did not qualify as an occurrence.
In response to this judicial pronouncement, the state senate introduced a bill, which the governor signed on May 17, 2011, providing as follows:
Commercial general liability insurance policies shall contain or be deemed to contain a definition of occurrence that includes:
(1) an accident, including continuous or repeated exposure to substantially the same general harmful conditions; and
(2) property damage or bodily injury resulting from faulty workmanship, exclusive of the faulty workmanship itself.
(Emphasis added.) Although the statute has yet to be construed by the courts, policyholders can argue that the statute makes clear that any damages flowing from faulty workmanship constitutes a covered occurrence under standard CGL policies. The statute took effect immediately upon the governor’s signing, and insurers and policyholders alike should take it into account in evaluating coverage issues and disputes.
South Carolina isn’t the only state making moves on the issue of whether faulty workmanship constitutes an occurrence. On May 18, 2011, the Hawaii legislature approved House bill 924, which explicitly overturns Group Builders Inc. v. Admiral Insurance Co., 231 P.3d 67 (Haw. Ct. App. 2010) and mandates that insurance policies be interpreted so as to provide coverage for claims relating to defective construction. The bill will become final upon signing by the governor.
For full text of the statutes and bills discussed herein, click here [PDF].
—Tracy Alan Saxe, Saxe Doernberger & Vita, P.C., Hamden, Connecticut.
CGL Has Primary Obligation to Pay Defense Costs
Fieldston Prop. Owners Assn., Inc. v. Hermitage Ins. Co., Inc., 2011 N.Y. Lexis 254 (N.Y. Feb. 24, 2011).
In Fieldston Prop. Owners Assn., Inc. v. Hermitage Ins. Co., Inc., 2011 NY slip op. 1361, 2011 N.Y. Lexis 254 (N.Y. Feb. 24, 2011)[PDF], a policyholder sought coverage under separately issued commercial general liability (CGL) and directors and officers (D&O) policies with respect to two underlying actions. Each of the underlying lawsuits primarily involved D&O claims, but included a single “injurious falsehood” count that potentially implicated the CGL coverage. Thus, a dispute arose between the insurers as to which policy, CGL or D&O, imposed the primary obligation to pay defense costs for the underlying matters.
In particular, the CGL insurer argued that the D&O insurer had the primary defense obligation because most of the claims implicated the D&O policy, while the D&O insurer refused to pay any defense costs based on the “other insurance” provisions in the policies. Accordingly, the court examined the competing other insurance provisions to determine which insurer had the primary defense obligation. The CGL policy contained the following provision, sometimes referred to as a co-primary other insurance clause:
If other valid and collectible insurance is available to the insured for a loss we cover . . . our obligations are limited as following:
(a) Primary Insurance. This insurance is primary except when b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described [herein].
(b) Excess Insurance. This insurance is excess over [certain types of insurance not at issue here].
By contrast, the D&O policy contained this fundamentally different other insurance provision, sometimes referred to as an excess other insurance clause:
If any Loss arising from any claim made against the Insured(s) is insured under any valid policy(ies) . . . , then this policy shall cover such Loss . . . only to the extent that the amount of such Loss is in excess of the amount of such other insurance . . . unless such other insurance is written only as specific excess insurance over the limits provided in th[is] policy.
Thus, the GCL policy provided that it would share in any coverage obligation with other available insurance on a co-primary basis, while the D&O policy was written to apply as excess where the insured’s loss is otherwise covered. Based on these provisions and the possibility that the CGL policy covered at least one claim in each of the underlying suits, the court of appeals ruled that the CGL insurer was obligated to pay all defense costs for the underlying matters. Moreover, the court held that the CGL insurer had no right to recover equitable contribution from the D&O insurer because the D&O policy expressly provided that it applied on an excess basis where valid insurance is available to cover an underlying loss. Finally, the court recognized that while its holding may appear to be inequitable and that it may have held differently if the policies contained different other insurance language, it was obligated to interpret the policies as written and could “not judicially rewrite the language of the policies at issue here to reach a more equitable result.”
Keywords: New York, other insurance, CGL, D&O, primary, excess, fieldston, hermitage
––Neil V. Mody, Connell Foley LLP, Roseland, New Jersey
ALI's "Principles of Liability Insurance Law"
The American Law Institute (ALI) has embarked upon its first Principles of the Law of Liability Insurance. ALI’s “Principles” differ from the more familiar ALI “Restatements” in that they analyze what the law ought to be rather than set forth what it presently is. As recently approved by the ALI Council, the project will consist of three chapters: Principles of Contract Law in the Liability Insurance Context; Principles of Liability Insurance Coverage; and Principles of the Management of Insured Liabilities.
The reporter for the project is Professor Thomas Baker of the University of Pennsylvania, who will work with the assistance of several dozen academics, judges, and insurance law specialists. For a more information about the project, visit ALI’s Principles of the Law of Liability Insurance page or the complete listing of advisory group participants.
— Michael F. Aylward, Morrison Mahoney, LLP, Boston, Massachusetts
Hawaii Appellate Court Determines Construction Defects Are Not Occurrences
Ever since the Ninth Circuit made an Erie guess that Hawaii’s appellate courts would find construction defects do not constitute an occurrence under a CGL policy, see Burlington Ins. Co. v. Oceanic Design & Constr. Inc., 383 F.3d 940 (9th Cir. 2004), coverage practitioners, insurers, and insureds have waited for an answer. Recently, the circuit’s prediction proved accurate when the Hawaii Intermediate Court of Appeals (ICA) determined that construction defect claims are not occurrences. See Group Builders, Inc. v. Admiral Ins. Co., No. 29402, 2010 Haw. App. LEXIS 234 (Haw. Ct. App. May 19, 2010).
The case arose out of mold damage discovered at the Hilton Hawaiian Village’s Kalia Tower in Waikiki. Construction of the new Tower was completed in May 2001. In mid-2002, extensive mold growth was discovered, forcing closure of guest rooms on floors five through twenty-five. An investigation revealed numerous construction defects in the Tower, some of which contributed to or caused the mold growth.
Hilton filed suit in 2003 against numerous defendants, including the subcontractor responsible for insulation in the Tower, Group Builders (Group). Group was insured by Tradewind Insurance Company, Ltd. (Tradewind) from October 1999 to October 2000, and thereafter by Admiral Insurance Company (Admiral). When Group sought a defense for Hilton’s suit, Admiral refused. Hilton eventually settled with Group, Tradewind, and other insurers. Group then assigned to Tradewind its claim against Admiral, as well as the right to sue in Group’s name.
Tradewind sued Admiral for its refusal to defend or indemnify, but the circuit court concluded there was no evidence of property damage caused by an occurrence. Consequently, Admiral’s motion for summary judgment was granted.
On appeal, the ICA noted there was no dispute that the mold damage and resulting loss of use qualified as property damage. Instead, the dispute was whether Group’s alleged defective workmanship constituted an occurrence, defined by the policy as, “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
The ICA summarized at length the circuit’s decision in Burlington. The split of authority on the issue was also noted. The majority holds that claims of poor workmanship, standing alone, are not occurrences that trigger coverage under CGL policies. In contrast, under the minority position, the damage resulting from faulty workmanship is an accident and, therefore, a covered occurrence.
Adopting the majority rule, the ICA held that breach of contract claims based on allegations of shoddy performance were not covered under CGL policies. Further, tort-based claims, derivative of the breach of contract claims, also were also not covered.
Normally, one would expect this case to be on its way to the Hawaii Supreme Court. As an insurer, however, Tradewind may deem an appeal is against its long-term interest.
— Tred R. Eyerly, Damon Key Leong Kupchak Hastert
No Duty to Defend Successor Company under Predecessor Policies
In Ford, Bacon & Davis LLC v. The Travelers Insurance Co., et al., No. 08-2911, 2010 U.S. Dist. LEXIS 34212 (S.D. Tex. Apr. 7, 2010), a Texas federal district court, applying Texas law, granted summary judgment to a liability insurer. The court held that the insurer did not have a duty to defend an alleged successor company that sought coverage under its predecessor’s liability policies because the successor company failed to establish that it could be subject to potential liability for its predecessor’s liabilities.
Factual and Procedural Background
Ford, Bacon & Davis, LLC (Ford) acquired certain assets of Ford, Bacon & Davis, Inc. and its subsidiaries (FBD) pursuant to an asset purchase agreement. The asset transfer excluded any liability arising from FBD’s pre-sale production of asbestos. It also “explicitly excluded” the transfer of “‘all policies of insurance . . . or any rights thereunder. . . .’” Additionally, FBD agreed to defend and indemnify Ford for any claim brought against Ford arising out of matters that occurred prior to the asset transfer.
For several years after the transfer, if Ford was sued for FBD’s asbestos liabilities, FBD would inform the asbestos plaintiffs that FBD was the proper defendant. Ford would then be dismissed from the suit. In 2005, FBD apparently dissolved. With the dissolution of FBD, Ford was unable to convince plaintiffs to dismiss it from asbestos litigation or to obtain indemnity from FBD.
In 2007, Ford sought defense and indemnity from The Travelers Indemnity Company (Travelers), under the liability policies issued to FBD. Ford filed suit against Travelers seeking a declaration that Travelers owed it a defense against the asbestos products liability lawsuits.
Travelers moved for summary judgment, arguing that no coverage was owed because Ford is not a named insured and did not acquire FBD’s policies as part of the asset purchase agreement. Ford countered and argued that a defense is owed by “operation of law,” regardless of whether the rights under the insurance policies were actually assigned to Ford. Ford argued that coverage under the “operation of law” doctrine is triggered by an allegation that an unrelated entity is a corporate successor to the insured entity.
Complaint Allegation Rule Does Not Establish Insured
Ford first argued that it was entitled to a defense under the FBD policies because the plaintiffs’ complaints alleged that Ford was the corporate successor of the insured entity, FBD. The court held that Ford’s reliance on the complaint allegation rule (also referred to as the eight corners rule) was misplaced. The court explained that determining whether an entity is an insured is a preliminary question that must be answered before deciding whether the allegations of a complaint trigger a defense obligation.
Successor Not Entitled to Defense Under Predecessor’s Policies
Ford next argued that it was entitled to coverage under the “operation of law” doctrine. Under that doctrine, an entity that purchases most of the assets of a firm assumes the liability for the purchasers pre-sale liabilities and is entitled to coverage under the seller’s liability policies, irrespective of a provision to the contrary in the asset purchase agreement. See Northern Ins. Co. of N.Y. v. Allied Mut. Ins. Co., 955 F.2d 1353 (9th Cir. 1992). The doctrine rests on the assumption that “regardless of any transfer the insurer still covers only the risk it evaluated when it wrote the policy.” Id. at 1358. The court explained, however, that the doctrine breaks down when the original insured still exists because if both the predecessor and successor seek coverage, the insurer might be forced to cover both, which would unfairly increase the insurer’s risk.
The court noted that Travelers continued to defend FBD in asbestos litigation after the transfer of assets to Ford. The court also noted that “[t]hough [FBD’s] dissolution years subsequent to the Asset Purchase Agreement may nonetheless avoid this specific problem of double coverage going forward, this is mere happenstance. There is no principled basis upon which coverage, which did not extend to [Ford] under the ‘operation of law’ theory during [FBD’s] existence, should years later suddenly be conferred upon Ford by ‘operation of law’ solely by virtue of [FBD’s] unrelated subsequent dissolution.”
To determine if Ford was entitled to coverage under the FBD policies, the court stated that the first question that must be answered is whether the purchaser, Ford, could actually be held liable for underlying asbestos lawsuits. If the answer is in the affirmative, then the next question is whether Travelers duty to defend FBD under the FBD policies passed to Ford by “operation of law.”
The court explained that Texas law recognizes that a successor entity that purchases only the assets of another acquires liability for the seller’s pre-sale production liabilities only (1) when the successor expressly agrees to assume liability, or (2) when the acquisition results from a fraudulent conveyance. The court stated that it was uncontested that Ford did not expressly agree to assume the pre-sale asbestos liabilities of FBD, and there was no allegation that the asset purchase agreement was a fraudulent conveyance. Based on this, the court granted summary judgment to Travelers, and concluded that because there was “no evidence sufficient to raise even an issue of fact that [Ford] could be subject to potential liability for [FBD’s] presale asbestos liability, [Ford] does not qualify for a right to a defense from Travelers by ‘operation of law’ even if Texas law should recognize that theory of insurance coverage.”
— Ruth S. Kochenderfer Of Counsel Steptoe & Johnson, LLP
Trademark Infringement Suit Not Covered Under CGL Policy
In Premier Pet Prods., LLC v. Travelers Prop. Cas. Co. of Am., 2010 U.S. Dist. LEXIS 494 (E.D. Va. Jan. 5, 2010), the policyholder, Premier Pet, was sued for trademark infringement by a competitor who alleged that the policyholder manufactured and sold dog training collars bearing designations which infringed the competitor’s “Gentle Spray” trademark. The policyholder sought a defense against the suit under the advertising injury coverage of a commercial general liability policy issued to the policyholder. The issue presented was whether the trademark infringement complaint alleged “an offense committed in the course of advertising your goods, products or services” within the policy’s insuring agreement for advertising injury.
The policyholder argued that although the complaint did not mention any specific advertising activities, “the inherent nature of a trademark” eliminated the need for the complaint to allege any advertising activities—because the trademarks served as the prime instrument in the advertising and sale of the policyholder’s dog collars. In other words, according to the policyholder, a trademark infringement complaint always satisfies the “committed in the course of advertising” requirement of the policy.
The court rejected this reasoning, holding that in order to trigger the policy’s advertising injury coverage, the trademark infringement complaint must allege either an offense committed in the course of advertising or that harm from advertising resulted. Because the complaint did not mention any specific advertising activities or harm from such activities, but simply alleged the general use by the policyholder of the disputed mark, the court held the policy’s advertising injury coverage was not triggered and the insurer did not owe a duty to defend.
— John B. Mumford, Jr., Hancock, Daniel, Johnson & Nagle, P.C., Glen Allen, Virginia
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