Friday, July 25, 2014

Appeals Court holds pollution exclusion in auto policy of oil delivery service applies to overfilled oil tank

United Energy Oil Company, an oil delivery service, delivered oil from a truck to an oil tank in  a building owned by National Equity Properties.  It overfilled the tank and caused oil to seep into the ground. 

The truck was covered by a business auto insurance policy issued by Hanover Insurance.  Hanover determined that damages over $5000 came within the policy's pollution exclusion. 

A declaratory judgment action over the meaning of the pollution exclusion followed.  It was undisputed in that action that heating oil is a pollutant within the meaning of the pollution exclusion.

The first policy clause at issue in Izdebski v. Hanover Ins. Group, Inc., 86 Mass App. Ct. 1102, 2014 WL 2973681 (unpublished) was one that made the pollution exclusion applicable to property damage arising out of the actual discharge, release, or escape of pollutants:
a.  That are, or that are contained in any property that is:
(1)  Being transported or towed by, handled, or handled for movement into, onto or from, the covered 'auto.'
The Massachusetts Appeals Court held that the clause excluded coverage because the spill happened as the polluting oil was being delivered by the pump from the tank to its intended destination.    The plaintiffs argued that the oil had reached its final destination before it seeped into the ground, or that the oil that seeped into the ground was already in the tank before United began to fill it.  The court held that those interpretations ignored the meaning of "arising out of" in the exclusion. 

The second policy clause at issue was an exception.  The exclusion was for  damage arising out of the actual discharge, release, or escape of pollutants once they have been finally delivered. The exception applied to accidents with respect to pollutants not in a covered auto if
(1)  The pollutants or any property in which the pollutants are contained are upset, overturned or damaged as a result of the maintenance or use of a covered auto; and
(2)  The discharge, dispersal, seepage, migration, release or escape of the pollutants is caused directly by such upset, overturn or damage.
The phrase "upset, overturned or damages" was not defined.  The court held that a fair reading of the exception is that it applies to an accidental oil spill only  if United's truck is upset, overturned or damaged.  That doesn't make a lot of sense to me, as the exception plainly says that it is the pollutants "or any property in which they are contained" that must be upset, overturned, or damaged.  If it was only the covered auto that could be upset, overturned or damaged, the policy would have said so.  On the other hand, it does not seem that an overflow or seepage of oil comes within the definition either. 

Tuesday, July 15, 2014

Why reserves matter

A reserve is the amount of funds that an insurance company sets aside as the probable payout on an unresolved claim.  Over at the AMAXX Workers Comp Resource Center, Michael Stack has posted an interesting article on the risks to an insurer from failing to set accurate reserves. 

Friday, July 11, 2014

US District Court holds uninsured motorist coverage proceeds go to relatives of decedent insured, not estate

Michael Furlong was driving a pick-up truck southbound onto the Sagamore Bridge.  He swerved across the center line to avoid hitting  a vehicle that was merging.  He crashed into a minivan driven by Amnon Bogomolski.  Both men died as a result of the accident. 

Furlong's auto policy included $100,000 in uninsured motorist coverage.  Commerce had tendered the limits of the policy to settle Furlong's wrongful death claim against the unknown driver of the vehicle that was merging. 

Bogomolski's estate filed a wrongful death suit against Furlong's estate, and moved for what it called an attachment or to reach and apply the proceeds of the uninsured motorist insurance policy.  (The court noted that a motion for attachment or to reach an apply was technically premature until there was a judgment.  It treated the action one for preliminary injunction to restrain Commerce or the administrator of Furlong's estate from disposing of the property pending the outcome of the action.) 

The issue before the United States District Court in Bogomolsky v. Furlong, 2014 WL 29452927 (D. Mass. 2014) was whether the proceeds of the Commerce uninsured motorist policy were the property of Furlong's estate or of his daughter as his closest relative.  If the former, then the plaintiff could reach and apply the proceeds; otherwise, it could not. 

The court noted that under the Massachusetts Wrongful Death statute, the money recovered in a wrongful death claim is not a general asset of the estate, but constitutes a statutory trust fund held by the administrator of the estate as trustee for distribution to the statutory beneficiaries.   (In other words, under the wrongful death statute close relatives of the decedent can recover damages even if they are not included in the decedent's will and even if the decedent's debts exceed his assets.) 

Similarly, proceeds from a claim for ininsured or underinsured motorist insurance operates flow to the presumptive takers (i.e., the close relatives listed in the wrongful death statute), not to the estate.

The court held that Furlong's daughter, not his estate, was entitled to the proceeds of the uninsured motorist policy.  Therefore Bogomolski's estate could not reach and apply those proceeds. 

Friday, May 16, 2014

U.S. District Court holds no bad faith sanctions in subrogation action where insured spoliated evidence

Fireman's Fund Insurance Company brought a products liability subrogation action against Bradford-White Corporation.  It alleged that a design defect in a water heater manufactured by Bradford White caused a leak that damaged the property of its insured, Bell Partners, Inc. 

After the leak was discovered, Fireman's requested that Bell retain the subject water heater.  However, Bell disposed of the water heater without contacting Fireman's and before Bradford-White had an opportunity to inspect or test it. 

Fireman's expert asserted that other water heaters in the same building were similar to the subject water heater.  Bradford-White contested that, arguing that they were manufactured earlier and kept in outside closets instead of inside closets. 

Bradford-White moved that the case against it be dismissed on the ground of spoliation of evidence, or, at the least, that the court preclude Fireman's from arguing at trial that any evidence or test results obtained from the other supposedly similar water heaters is relevant to the condition of the subject heater.

In Fireman's Fund Ins. Co. v. Bradford-White Corp., 2014 WL 1515266 (D. Mass.), the United States District Court for the District of Massachusetts held that Fireman's Fund did not act in bad faith.  It had asked Bell to retain the heaters and Bell did not contact it before removing the heater.  Fireman's failure to take additional steps to secure the heater was at most negligent.  The court held that the appropriate spoliation sanction is an instruction to the jury that it may draw a spoliation inference against Fireman's Fund. 

The court utilized a straightforward spoliation analysis.  I was surprised that it did not address an argument that an inference can be drawn against Fireman's Fund because as the subrogee of Bell it stands in Bell's shoes.  If Bell had brought its own claim against Bradford-White, would the court have analyzed the sanctions differently?  I don't know offhand if there are any Massachusetts decisions on the issue, but it is certainly where I would have started. 

Tuesday, May 6, 2014

Superior Court holds that contractual choice of law clause does not apply to case over validity of policy term

Catlin Specialty Insurance issued two consecutive claims-made Professional and Pollution Legal Liability Insurance policies to AMSC and its subsidiary Windtec.  The first policy had a policy period of April 1, 2010 to April 1, 2011.

On December 6, 2010, Ghodawat notified the insured that it was terminating a 2008 license agreement between the two due to technical problems with the wind turbine that was the subject of the agreement and that the insured  had supplied and installed.  Ghodawat leveled an accusation of gross negligence and stated that it would pursue a claim unless an amicable resolution was reached.  Settlement discussions followed in February 2011. 

In the meantime, the insured submitted an application for a second year of coverage with Catlin.  In the application it denied any claim, suit, notice or action had been brought or that it was aware of any other circumstances or incidents which may result in a claim being filed against it.  A new policy was issued without Catlin being informed of the Ghodawat allegations.

On May 12, 2011 Ghodawat commenced arbitration proceedings against the insured.  The insured requested coverage from Catlin. 

In Catlin Specialty Is. Co. v. Am. Superconductor Corp., 2014 WL 840693 (Mass. Super.), the Superior Court held that there was no coverage for the claim under either policy because the policy provided coverage only if a claim was both made and reported during the same policy period.  The claim was made in the first policy period and reported in the second policy period. 

The court noted that the purpose of the requirement that notice of a claim be given within the policy period is fairness in rate setting.  Therefore an inquiry into whether an insurer has been prejudiced with respect to the particular claim, relevant to an occurrence policy, is irrelevant to a claims-made policy. 

AMCS argued that under New York law coverage can be denied for breach of the notice provision only if there is prejudice.  The court did not reach that issue because it held that under Massachusetts conflict of law doctrine Massachusetts law applies to the coverage dispute. 

The court held that a choice of law clause in the policies, providing that the "policy shall be subject [to] interpretation under the law of the State of New York" did not apply because the disputed issue is not one of policy interpretation but the validity of  the policy clause requiring that claims be made and reported in the policy period. 

Tuesday, April 8, 2014

US District Court holds that suit between insurers should be transferred to district where accident occurred

Ohio Casualty Insurance Company, an excess insurer, sued Twin City Fire Insurance Company, a primary insurer, for breach of the duty of good faith and fair dealing for failing to settle a motor vehicle accident case within the policy limits.

The accident occurred in New York.  Ohio Casualty is an Ohio Corporation with its principal place of business in Boston.  Twin City is an Indiana corporation with its principal place of business in Hartford.

Twin City moved to transfer the case to the Eastern District of New  York.  In Ohio Casualty Ins. Co. v. Twin City Fire Ins., 2014 WL 495650 (D. Mass.), the court allowed the motion.  It noted the only connection of Massachusetts to the dispute is that Ohio Casualty's principal place of business is here, while a substantial amount of the relevant evidence is likely to be located in New York, where the underlying tort and jury trial occurred and where the underlying trial attorneys are located.