Last week, a New York federal court ruled that an insurer’s “exceedingly broad duty to defend the insured” extended to the policyholder’s indemnification of its landlords in an underlying tort claim. ConMed Corporation (“ConMed”), a medical technology company, filed suit against Federal Insurance Company (“Federal”), a division of Chubb, alleging that Federal breached the terms of its insurance contract when it refused to defend ConMed’s landlords in a Georgia lawsuit.

The coverage dispute stemmed from ConMed employees’ claims that they were exposed to unsafe levels of ethylene oxide, a chemical used to sterilize ConMed’s equipment. Initially, the employees sued ConMed and its contractor that conducted the sterilization, but in April of 2021 the employees initiated a separate suit against ConMed’s landlords (“Landlord Action”). In the Landlord Action, plaintiff employees alleged negligence, aiding and abetting tortious conduct, fraud, wrongful death, and vicarious liability/respondeat superior claims, all stemming from their exposure to ethylene oxide. Pursuant to the lease agreement with ConMed, the landlords tendered the defense and indemnity of the Landlord Action to ConMed, which subsequently tendered the defense to Federal. Federal failed to accept defense of the Landlord Action, and ConMed filed suit.

ConMed’s insurance policy defines “insureds” as “[p]ersons or organizations from who you lease premises,” except to the extent “damages aris[e] out of their sole negligence.” The policy also provides for “damages that the insured becomes legally obligated to pay by reason of liability . . . assumed in an insured contract; for bodily injury or property damage caused by an occurrence to which this coverage applies.” Based on these provisions, ConMed argued that the landlords constituted an insured, or alternatively, that ConMed had assumed liability for their defense in an insured contract, specifically, the lease agreement. The lease agreement included a clause that required ConMed to indemnify the landlords “except in the event of, and to the extent of, Landlord’s negligence or willful misconduct.”

Federal argued that the landlords are not an additional insured, nor does the lease agreement constitute an insured policy. Federal pointed to the provision of the lease agreement excluding indemnification for the landlords’ own negligence, arguing that the Landlord Action sought to recover damages from the landlords’ negligence, not ConMed’s.

The court rejected Federal’s argument, finding that any negligence alleged against the landlords “arises out of, and is intertwined with” ConMed’s negligence regarding ethylene oxide sterilization. The judge further reasoned that the “extent to which the Landlord Defendants are being sued for their own ‘negligence or willful misconduct’ is derived from acts committed by [ConMed] that are explicitly identified as acts for which [ConMed] must indemnity the Landlord Defendants.” Moreover, citing the insurer’s “exceedingly broad duty to defend the insured,” the court found that Federal could not prove that there is no potential coverage for the Landlord Action. The court also found that the landlords are additional insureds and contractual indemnitees under the terms of ConMed’s policy with Federal.

Finally, the court also rejected Federal’s arguments that the policy’s contract exclusion and pollution exclusion precluded coverage. The pollution exclusion excludes bodily injury “arising out of ‘the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants.’” Citing precedent from the New York Court of Appeals, the court held that pollution exclusion did not apply because the damages were not “truly environmental in nature” and did not “result from pollution to the environment.”

The court’s decision underscores the importance not only of the scope and depth of the policyholder’s liability insurance, but also the need to properly structure contractual relationships, like lease agreements, to maximize potential coverage for indemnification obligations. Moreover, policyholders also may rely on this decision in support of arguments concerning the limited scope of the pollution exclusion. In any event, the court’s decision once again affirms the fundamental principle that insurers have a broad duty to defend their insureds in accordance with the terms of their policies.

An oft-seen version of the insuring agreement in Commercial General Liability (CGL) policies provides that the insurance company will pay for “any and all sums” the policyholder is “legally obligated to pay” for liabilities “imposed by law” or “assumed under contract.”  In an effort to disclaim coverage for liabilities arising out of or related to contract, insurers have argued that the prong for liabilities “imposed by law” refers to tort-based liabilities only, thus seeking to avoid liability with a relationship to contract.  This argument, however, defies the plain insuring language defining how the CGL policies are triggered.  This post explains why, under a proper reading of the insuring language, contract-based liabilities should qualify under the “imposed by law” prong of a CGL insuring agreement.

Continue Reading “Imposed by Law”: Coverage for Contract-Based Liabilities

Hunton Andrews Kurth LLP partner Syed Ahmad was quoted on July 20 in a Law360 article titled “R&W Insurance Claim Frequency Expected To Normalize.”  The article discussed the recent reduction in R&W claims and industry experts’ expectations that claim frequency will return to normal levels this year.  Mr. Ahmad commented on the challenges policyholders may face when disputing claims in court.  In particular, while there is plenty of case law regarding disputes between buyers and sellers over breaches of representations and warranties, there is very little precedent on how those disputes will play out between the insurer and the buyer.  In addition, Mr. Ahmad recommended that buyers planning to include an arbitration provision should specify required qualifications so that the right arbitrators are resolving the dispute. 

Partners, Larry Bracken, Lorie Masters, and Koorosh Talieh (KT), were each recognized as Super Lawyers, while associates Yaniel Abreu and Rachel Hudgins were selected as Rising Stars for Insurance Coverage in 2022. Super Lawyers, part of Thomson Reuters, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The patented selection process includes independent research, peer nominations and peer evaluations. Ultimately, no more than 5% of lawyers in a state are selected as Super Lawyers, and less than 2.5% are recognized as Rising Stars. Congratulations on this achievement!

Additional information on the selection process can be found here.

Massachusetts’ highest court ruled earlier this month that attorney’s fees awarded under the Commonwealth’s consumer protection statute are not covered damages under a general liability insurance policy. Consequently, the decision in Vermont Mutual Insurance Co. v. Poirier, Slip Op. SJC-13209 (July 6, 2022), means that companies sued for allegedly unfair or deceptive practices may be left to fund awards of attorneys’ fees under Chapter 93A, even where other aspects of their liability may be covered by insurance.

Continue Reading Massachusetts High Court Holds Chapter 93A Fee Award Not Covered Under General Liability Policy

Recently, an Illinois federal judge ruled that where government shutdown orders due to COVID-19 in different states impacted one insured, that insured suffered separate occurrences in each effected state. Dental Experts, LLC v. Massachusetts Bay Ins. Co., No. 20 C 5887, 2022 WL 2528104 (N.D. Ill. July 7, 2022).

Continue Reading COVID-19 Losses and Number of Occurrences

Hunton Andrews Kurth LLP recently wrote about the Eleventh Circuit decision in McNamara v. Gov’t Employees Ins. Co., 30 F.4th 1055 (11th Cir. 2022) (“McNamara”), where the court held that a consensual settlement (such as a consent judgment) serves as an excess judgment for the purposes of a bad faith claim.  In a follow up decision, the Eleventh Circuit extended its McNamara reasoning to a case involving an accepted proposal for settlement.  In Potter v. Progressive American Insurance Company, No. 21-11134 (11th Cir. 2022), Daniel Lee and Jolene Potter brought a third-party bad faith action against the insurer, Progressive.  The Potters were involved in an automobile accident with Progressive’s insured, under an automotive liability policy with bodily injury limits of $10,000 per person.  The Potters sued Progressive’s insured and ultimately served a proposal for settlement, pursuant to Fla. Stat. § 768.79, totaling $125,000.  The insured accepted the proposal, a final judgment was entered, and the Potters sued Progressive for bad faith.

Continue Reading Judgment (Still) Means Judgment: The Eleventh Circuit Extends McNamara to a Proposal for Settlement

Prior posts in this series have discussed insurance coverage issues that pertain directly to wildfire claims, but we have not yet addressed how one proceeds following a loss.  In this post in the Blog’s Wildfire Insurance Coverage Series, we discuss the preparation, submission and negotiation of the insurance claim.

Continue Reading Wildfire Insurance Coverage Series, Part 7: How to Successfully Prepare, Submit and Negotiate the Claim 

Partner, Andrea DeField, and counsel, Latosha Ellis, were each recently awarded “On the Rise – Top 40 Young Lawyers” honors by the American Bar Association’s Young Lawyers Division. The award honors 40 of the nation’s most promising lawyers under the age of 40 or who have been licensed for 10 years or less. Recipients demonstrate high achievement, innovation, vision, leadership, and service to the profession and their communities, including extensive knowledge in litigation or transactional work and commitment to pro bono, charitable, or professional volunteer work, all while making a lasting impact in their respective fields. More information may be found here.

The IRS recently filed a petition to enforce summonses issued to investigate tax liability stemming from a business’s involvement in a captive insurance transaction. While captives can have many advantages—ranging from increased control, reduced costs, and favorable tax benefits—the IRS petition underscores the importance of structuring and implementing captives in accordance with all applicable laws.

Continue Reading IRS Scrutinizes Legitimacy of Captive Insurance Arrangement