Monday, October 24, 2011

Appeals Court finds duty to defend where loss may have arisen out of use of excluded boat and use of a different boat that was excepted from exclusion

Jeffrey and Nicole Crispo (the Crispos) were aboard their power boat, the MSJC69, and were towing a lobster boat, the Laina Lou, owned by Steven Crispo. Steven and Dana Gagne were aboard the lobster boat. The MSJC69's propeller shaft became entangled on a mooring line. After cutting loose the Crispos were unable to restart the boat because the battery was dead. The Laina Lou dropped anchor and the two boats remained attached by the tow line. The Crispos were unable to use the running lights because of the dead battery.

Approximately ten minutes later a ferry operated by BHC collided with the two vessels.

Steven, Jeffrey, Nicole, and Gagne sued BHC for personal injuries and property damage. BHC asserted claims for indemnification and contribution against the Crispos, alleging that their negligence caused the accident.

The Crispos sought coverage for the counterclaims from Quincy Mutual, their homeowner's insurer, which filed a declaratory judgment action. The policy excluded coverage for losses arising out of use of boats, but the lobster boat fell into an exception to that exclusion.

In Quincy Mut. Fire ins. Co. v. Crispo, 80 Mass. App. Ct 484 (2011), the Massachusetts Appeals Court held that a duty to defend is triggered when a loss "arises out of" both a a use that is excluded from coverage and a use that is excepted from the exclusion.

The court noted that the underlying complaints did not distinguish between the use of the two vessels with respect to which caused the accident. Therefore, the allegations of the underlying complaints "raise the possibility that the claims against the Crispos arose from their use of the Laina Lou."

The court also noted that no anti-concurrent causation clause applies to the exclusion, although such a clause does apply to other parts of the policy. Under Massachusetts law, where an anti-concurrent cause provision is included with reference to exclusions in one part of the policy and omitted with reference to other parts of the policy, the absence of such a provision means that a loss caused by a risk excluded in the section without the provision will be covered if a covered risk also contributed to the loss.

Quincy Mutual argued that the phrase "arising out of" in the exclusion conveyed the same limitation on coverage as an anti-concurrent causation provision. While noting that "arising out of" denotes an intermediate level of causation, the court held that its use in an exclusion, without more, could not reasonably be understood as denying coverage for damages connected to the insured's simultaneous undertaking of an excluded risk and a risk specifically excepted from the exclusion, where both caused the injury.

Thursday, October 20, 2011

Coverage for construction defects

When a construction contractor brings a claim under its general liability policy for coverage of construction defects -- construction that was faulty and needs to be redone, but did not cause injuries to people or damage to other property -- Massachusetts courts generally analyze (and deny) the claim under up to six exclusions, often referred to as the "your work" or, more accurately, "builder's risk," exclusions. In many policies the exclusions have some holes in them, however, depending on when and where the damage occurred and whether the work was done by the insured contractor or by a subcontractor. When I work on such a case I often make a chart which I stare at until I am bleary-eyed.

This article in Insurance Journal notes a wide variation from state to state in how construction defects are analyzed:

On whether faulty workmanship is itself an occurrence, some states say yes, some states say no, some states are undecided, and some states say faulty workmanship is not an occurrence but the resulting damage is. “You also see differences in states in other issues as well."

It should be noted that there are Builder's Risk policies available that will cover contractors for construction defects. I have yet to come across a contractor that actually has such a policy, but that may be because those claims get resolved without the help of counsel.

Tuesday, October 18, 2011

Appeals Court holds motor vehicle exclusion excludes coverage for social host liability

Patrick Bernier and Julien Caron were insured under a homeowner's policy issued by MPIUA. They negligently served, supplied or permitted David DiFrancesco, a nonresident minor, to consume alcohol at the insured premises. While under the influence of that alochol, DiFrancesco negligently operated a motor vehicle, getting into an accident that injured Malcolm Berry.

Berry sued Bernier and Caron. MPIUA filed a declaratory judgment action, seeking a declaration that it had no duty to indemnify.

In Massachusetts Property Ins. Underwriting Ass'n v. Berry, 80 Mass. App. Ct. 598 (2011), MPIUA argued that the motor vehicle exclusion applied. The court agreed, on the ground that the motor vehicle exclusion categorically excluded coverage for personal injury arising out of the use of any motor vehicle.

The decision was based on changes in language in homeowner's policies. Under previous editions, coverage was excluded for losses arising only out of a vehicle owned by an insured. The change was apparently made in response to social host liability cases such as this one.

I don't like this change. In this situation -- a homeowner provides alcohol to a minor who drives away in his own car -- the homeowner's insurance is likely to have significantly higher coverage than the minor's vehicle. The homeowners were culpable in giving alcohol to a minor and letting him drive away. If their insurance isn't going to cover the loss, it should at least be because of a social host exclusion, not an automobile exclusion. That would be more straightforward and allow people to negotiate for the coverage they want.

Thursday, October 13, 2011

Insurance for data security breaches

WGA InsureBlog has an interesting article on insurance for data breaches. Although some of the statistics in the article strike me as overblown, the basic point seems about right:

Insurance protection for privacy-related breaches by employees and vendors can be addressed in various types of insurance policies, but not all will protect an insured from all acts of insiders. The variability of insurance coverage for “insider” breaches reflects the polyglot state of affairs in the cyberliability world. Coverage problems can arise from the nature of the particular insurance policy at issue (for example, an E&O policy versus a privacy policy) and from insurers’ inherent aversion to paying for intentional wrongdoing — an aversion that can miss important distinctions among the guilty and the innocent. Companies and their advisors need to be alert to the nuances in policy terms to make sure that insurance insult is not added to injury after a breach caused by an insider.

Tuesday, October 11, 2011

Appellate Division discusses burdens of proof on PIP claim that was paid late

Francisco and Gloria Delasnueces were in an accident while in a car insured by Plymouth Rock. They received treatment from Kantorosinski Chiropractic. Plymouth Rock initially paid some of the bills and denied some. It later made a "business decision" to pay all the bills.

In Kantorosinski Chiropractic, Inc. v. Plymouth Rock Assurance Corp., 2011 WL 4529392 (Mass. App. Div.), the Massachusetts Appellate Division held that summary judgment cannot be granted to a PIP insurer on a claim that it delayed payment merely because the insurer asserts that the reason for eventual payment was a business decision. (The remaining issue, once the PIP claim has been paid, is the award of attorney's fees.)

The court then took note of evidence offered by Plymouth Rock that the damage to the insured vehicle was minor and that after an independent medical examination the doctor concluded that there was no objective findings to support the need for further treatment. That evidence was sufficient to shift the burden to Kantorosinski to show that there is a genuine issue for trial.

Kantorosinski met that burden with evidence that at the time the IME doctor opined that there was no further need for treatment, the insureds were still experiencing pain, which improved with additional treatment. The court held that the evidence was sufficient to overcome Plymouth Rock's motion for summary judgment.

Tuesday, October 4, 2011

U.S. District Court interprets earth movement exclusion

Habit OPCO leased a building that was damaged by construction at an adjacent site owned by the Greater Boston Food Bank.

The building rested on concreted piles and on fill. On December 7, 2007 GBFB began construction of a new building on the adjacent property. It drove concrete piles to a depth of almost 190 feet. Within a couple of weeks Habit employees noticed damage to its building such as cracked door frames. By mid-February the building had floor heaves, its ceiling tiles were shifting, and walls were cracking.

Habit's insurer, Philadelphia Indemnity, hired an expert who opined that the damage was caused by vibrations from the pile driving on the GBFB property.

Philadelphia Indemnity denied the claim for structural damage, citing the policy's earth movement exclusion. Habit argued that the earth movement exclusion bars coverage only for damage from naturally occurring earth movements and not from man-made events.

In Mulhern v. Philadelphia Indem. Co., __ F. Supp. 2d __, 2011 WL 3563126 (D. Mass.), the United States District Court for the First Circuit noted that the exclusion includes loss from "improperly compacted soil," which is a man-made condition. The court held that Philadelphia Indemnity was entitled to judgment to the extent that Habit is precluded from arguing that the policy covers damages caused by defects in the fill.

Philadelphia Indemnity argued that the anti-concurrent causation clause in the earth movement exclusion precluded coverage under Habit's theory that shock waves generated by the pile driving caused the structural damage to the building. The court denied summary judgment on that issue because there was a disputed issue of fact as to whether improperly compacted soil was a cause of damage or whether vibrations emanating from the pile driving were the exclusive cause.

Finally, the court held there was no coverage under the collapse clause of the policy because the damage to the building was not "an abrupt falling down or caving in of a building or any part of a building with a result that the building cannot be occupied for its intended purpose, because the claim was the the roof split, leaving a gap of .75 inches, and then cracked.