The Wisconsin Supreme Court held last week in Steadfast Ins. Co. v. Greenwich Ins. Co. that two insurers must contribute proportionally to the defense of an additional insured under their comprehensive liability policies.
The Texas Supreme Court has reversed a lower appellate court decision and found that insurers of Anadarko Petroleum Corp. cannot use their own policy wording to avoid coverage for more than $100 million of Anadarko’s defense costs stemming from the 2010 Deepwater Horizon disaster. Law360 interviewed Hunton’s Sergio F. Oehninger about the substantial impact the decision will have for policyholders in Texas and elsewhere. Oehninger explained how the decision corrects fundamental errors by the lower court in the construction of insurance policies and how it illustrates the proper way to construe words chosen by the insurer that operate to limit or preclude coverage. In the Anadarko matter, the London market policy contained a “joint venture” provision that capped joint venture liabilities at $37.5 million. The insures applied the cap after paying that amount to Anadarko. The Texas Supreme Court rejected the insurers’ argument and the decision of the court below, finding that the joint venture provision applies only to “liabilities” – that is, amounts Anadarko becomes legally obligated to pay to a third party. Defense costs, in contrast, are not amounts paid to a third party and, thus, are not “liabilities” within the context of the joint venture provision. The Court also drew on other policy provisions to support the distinction, including provisions that specifically refer separately to “liabilities” and “defense expenses.” “The Texas Supreme Court’s reversal of the appellate panel’s ruling serves as a clear pronouncement of both insurance policy construction rules and proper appellate review in Texas,” Oehninger said. “In this regard, the Supreme Court’s opinion serves to ‘right the ship’ and bring Texas case law back in line with precedent.”
Reversing a Texas Court of Appeals decision that allowed Anadarko’s Lloyd’s of London excess insurers to escape coverage for more than $100 million in defense costs incurred in connection with claims from the Deepwater Horizon well blowout, the Supreme Court of Texas held that the insurers’ obligations to pay defense costs under an “energy package” liability policy are not capped by a joint venture coverage limit for “liability” insured. Anadarko Petroleum Corp. et al. v. Houston Casualty Co. et al., No. 16-1013 (Tex. Jan. 25, 2019).
In Zurich American Insurance Co. v. Don Buchwald & Associates, Inc., 2018 N.Y. Slip. Op. 33325(U) (Sup. Ct. N.Y. County, Dec. 21, 2017), the Supreme Court of New York held that Zurich was obligated to defend a talent and literary agency against claims brought by Hulk Hogan alleging that the agency aided and abetted one of its agents—Tony Burton—in publishing racist and sexual footage of Hulk Hogan online. The decision also gives ammunition to policyholders seeking to recover their fees incurred while litigating against an insurer’s improper denial of coverage. The court found that the insureds had “been cast in a defensive posture” due to the insurer’s claims seeking a declaratory judgment, and that this justified a fee-shifting award.
Policyholders facing any type of products liability scored a win in a recent decision from the District Court for the Northern District of Illinois. The court found that an insurance company must defend its insured against claims arising out of a recall while simultaneously funding the insured’s affirmative claims for recovery.
A Georgia Court of Appeals judge recently ruled that Scapa Dryer Fabrics was entitled to $17.4 million worth of primary coverage from National Union Fire Insurance Company of Pittsburgh, PA for claims of injurious exposure to Scapa’s asbestos-containing dryer felts. Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Scapa Dryer Fabrics, Inc., No. A18A1173, 2018 WL 5306693, at *1 (Ga. Ct. App. Oct. 26, 2018). Scapa sought coverage under five National Union policies issued from 1983–1987. The 1983, 1984 and 1985 National Union policies had limits of $1 million per occurrence and $1 million in the aggregate. The liability limits for the 1986 and 1987 renewal policies were amended by endorsement to $7.2 million. Scapa sought to recover the full $17.4 million from all five policies. National Union argued that a “Non-Cumulative Limits of Liability Endorsement” in the 1986 and 1987 policies limited Scapa’s recovery to only $7.2 million. Scapa sued National Union and its sister company, New Hampshire Insurance Company (from which Scapa purchased excess liability coverage), in Georgia state court.
The Massachusetts Supreme Judicial Court recently construed the undefined term “advertising idea” in a case of first impression in the Commonwealth, holding that a footwear company’s insurers must provide a defense against an underlying claim alleging unfair use of a former Olympian’s name to promote a line of running shoes.
On Monday, a Nevada federal court held that U.S. Fire Insurance Co. (“U.S. Fire”) need not cover its insured, CP Food and Beverage, Inc. (“CP”), a strip club, under its commercial crime policy for a scheme perpetrated by its own employees that resulted in the theft of money from CP customers. A copy of the decision can be found here.
There was nothing ambiguous in former U.S. Supreme Court Justice David Souter’s ruling in AIG Property Cas. Co. v. Cosby, No. 17-1505 (1st Cir. June 7, 2018), where, sitting by designation, Justice Souter ruled that AIG Property and Casualty Co. (“AIG”) must defend Bill Cosby in suits brought by eight women alleging that Cosby defamed them after they accused him of sexual misconduct. Cosby held two insurance policies issued by AIG: a homeowner’s policy and a personal excess liability policy (the “umbrella policy””). Under each policy, AIG has a duty to “pay damages [Cosby] is legally obligated to pay [due to] personal injury or property damage caused by an occurrence covered by this policy anywhere in the world . . . .” Both policies define “personal injury” to include “[d]efamation” and require AIG to pay the cost of defending against suits seeking covered damages. Both policies also contain so-called “sexual misconduct” exclusions. The homeowner’s policy’s exclusion bars coverage for liability or defense costs “arising out of any actual, alleged[,] or threatened . . . [s]exual molestation, misconduct or harassment[,] . . . or . . . [s]exual, physical or mental abuse.” The umbrella policy contained similar wording. However, that policy also contained another “sexual misconduct” exclusion under the “Limited Charitable Board Directors and Trustees Liability” coverage part. That exclusion applied more broadly to claims for damages “[a]rising out of, or in any way involving, directly or indirectly, any alleged sexual misconduct” (emphasis added).
Two recent decisions addressing allocation of long-tail liabilities demonstrate that resolution of the issue under New York law depends upon the policy language at issue. Judge-made rules on “equity” and “fairness” do not control. As the New York Court of Appeals held on March 27, 2018, in Keyspan Gas East Corp. v. Munich Reinsurance America, Inc., 2018 WL 1472635 (2018), under New York law, “the method of allocation is covered for most by the particular language of the relevant insurance policy.” Both Keyspan and the April 2, 2018 decision in Hopeman Brothers, Inc. v. Continental Casualty Co., No. 16-cv-00187 (E.D. Va. Apr. 2, 2018), by the United States District Court for the Eastern District of Virginia, illustrate the importance of reviewing insurance policies – both before purchase, to ensure that they contain optimal language for coverage; and after claims arise, to ensure that the policyholder receives the benefit of insurance coverage under “legacy” and all other potentially applicable policies.