With the advent of summer, there have been fewer coverage decisions of note released over the last two months by Louisiana courts. Nonetheless, this issue of the newsletter covers Louisiana decisions on an automatic termination clause in a policy when the policyholder buys two policies covering the same risk, a crime exclusion, and a New Home Warranty Act case stressing the statutory requirement that the homeowner give written notice of defects to the builder before filing suit. And there are two really interesting out‑of‑state decisions dealing with the duty to settle and whether a conflict can exist for the insured’s coverage counsel to act as defense counsel.
Finally, a quick shout-out to our friends at the Louisiana Claims Association, especially Linda and John Alwood, who were kind enough to invite us to speak on insurer bad faith in Louisiana at the annual LCA convention in Natchez two weeks ago. Unfortunately, I had to leave the convention shortly after my presentation, missing an excellent lineup of programs. But I do look forward to spending more time at the convention next year.
UM – Waiver and Automatic Termination
Involved in a car accident, plaintiff claimed UM benefits from two insurers, Affirmative and National. For reasons not given, plaintiff had bought two automobile insurance policies that largely covered the same policy period. Both policies were in effect on the date of the accident.
Both insurers filed a motion for summary judgment that plaintiff had validly waived UM coverage. On their face, the two UM waiver forms were valid. However, plaintiff filed an affidavit denying that she had executed the waiver forms or otherwise denied coverage. The insurers did not produce evidence specifically rebutting plaintiff’s denials. The Louisiana First Circuit Court of Appeal finds that, however questionable the denial statements in plaintiff’s affidavit were, the affidavit created issues of fact precluding summary judgment to the insurers on the UM waiver issue.
However, the National policy had an “automatic termination” clause that read:
Automatic termination – If we offer to renew or continue and you or your representative do not accept, this policy will automatically terminate at the end of the current policy period. Failure to pay the required renewal or continuation premium when due shall mean that you have not accepted our offer. If you obtain other insurance on “your covered auto”, any similar insurance provided by this policy will terminate as to that auto on the effective date of the other insurance.
As a result of the termination clause, National argued that its policy, which became effective on November 4, 2012, automatically terminated when the plaintiff obtained a policy with Affirmative six weeks later. The court disagreed, finding that the National clause did not deal solely with termination of the policy upon purchase of another policy, but mainly concerned renewal or continuation of the policy. The court stated that “the inclusion of language on the policy’s termination resulting from an insured’s obtaining other insurance is essentially an afterthought,” and that the clause, if a termination provision, was not clearly positioned and should have appeared in the cancellation section of the policy. Further, the court quoted at length a California federal decision, Motors Ins. Corp. v. Bodie, 770 F.Supp. 547 (E.D. Cal. 1991), interpreting an identical termination provision, which emphasized that “[a]n exclusionary clause must be positioned in a place and printed in a form which would attract a reader’s attention.”
Additionally, the court found ambiguous the term “similar insurance” in the termination clause. Weddborn v. Doe, 2013‑11935 (La. App. 4 Cir. 5/4/16).
Automobile Insurance – “Crime” Exclusion
The police attempted to stop a car driven by Gardner, who had consumed several intoxicants and had cocaine in his possession. Trying to escape the police, Gardner hit six vehicles and forced others off the road. Safeway insured the car driven by Gardner. The Safeway policy contained an exclusion for “any automobile while being operated or used in the commission of a crime, other than a traffic violation.” Finding that the term “crime” referred to conduct punishable under Title 14 of the Louisiana Revised Statutes and that Gardner had violated La. R.S. 14:108.1, involving flight from an officer, the Louisiana Fifth Circuit Court of Appeal finds that the crime exclusion was not contrary to state public policy and excluded coverage under the Safeway policy. Safeway Ins. Co. v. Gardner, (4/27/16).
New Home Warranty Act
Builder Bordelon began construction of plaintiffs’ house on a cost-plus basis, but after construction began, Bordelon gave written notice to the plaintiffs that he could no longer oversee construction. The plaintiffs then completed the house using the original subcontractors and moved into the house in December 2006.
In early 2007, the plaintiffs noticed water retention on the front porch after a hard rain and contacted Bordelon. After an inspection, Bordelon stated that the pooled water was not a problem, but indicated that he did not want to be contacted further about any house construction issues.
After experiencing a number of house problems, the plaintiffs sued Bordelon for breach of contract in November 2011. Affirming summary judgment to Bordelon, the Louisiana First Circuit Court of Appeal finds:
(1) Plaintiffs did not have a claim for breach of contract against Bordelon. Under the Louisiana New Home Warranty Act (“NHWA”), Bordelon, despite leaving the project before construction, was a “builder,” and the NHWA provides homeowners with their exclusive remedies against builders for construction defects.
(2) Under La. R.S. 9:3144(B)(16) of the NHWA, plaintiffs failed to give Bordelon written notice of the house defects with a reasonable opportunity to correct the defects. As a result, the plaintiffs had no right of recovery against Bordelon. The court distinguished other cases allowing the homeowner’s suit under the NHWA to proceed despite the lack of written notice because in those cases the builder was at least given verbal notice of the defect.
(3) Bordelon’s failure to give the plaintiffs written notice of the NHWA requirements at time of closing did not vitiate the requirement that the plaintiffs give the builders written notice of the defects before filing suit. “The NHWA applies whether or not the builder gave the owner notice of the law that applies to any disputes which arise due to defects in the new construction.” Siragusa v. Bordelon, 2015-1372 (4/15/16).
Duty to Settle – Ignoring Adverse Pretrial Developments
Perhaps Nebraska isn’t so conservative after all.
In Bamford, Inc. v. Regent Insurance Company, 2016-2772585 (8th Cir. 5/13/16), a Bamford employee, Davis, caused a car accident, with a steel pipe on top of the employee’s car becoming dislodged and penetrating the plaintiff’s left thigh and right buttock, through his abdomen and pelvis. Regent provided Bamford with $6,000,000 in coverage. Regent hired at different times two attorneys to evaluate the case and mediated the case twice. On the eve of trial, plaintiff offered to settle the case for $3,900,000. Regent, which had the case reserved at $2,250,000, responded with an offer of $2,050,000. After trial began, plaintiff ended settlement negotiations. At trial, the jury awarded plaintiff $10,600.000. After trial, Bamford settled with plaintiff for $8,000,000 and sued its insurer Regent for breach of its duty to settle to recover the excess portion of the judgment.
Regent had been relying on a loss-of-consciousness defense, claiming that the accident occurred because Davis, who had a history of seizures, had suddenly lost consciousness. However, a week before trial, the trial judge granted summary judgment to plaintiff, finding that the loss-of-consciousness had no merit and that Bamford was liable for the accident. Though Regent had believed that the loss-of-consciousness defense had only a 10 percent chance of success, the insurer believed that the presenting of the defense with evidence of Davis’s medical history might lower the amount in damages the jury would award.
In the bad-faith case, the jury found Regent in bad faith for failing to settle. On appeal, the United States Eighth Circuit Court of Appeals affirms, finding there was sufficient evidence to support the jury’s verdict. The court of appeals stated:
Again, the district court did not merely grant the Davises’ request to strike the loss-of-consciousness defense. The court went much further and found Bamford liable as a matter of law. For nearly two years, Nolan and Robin had counted on a tempering of damages when the jury heard the purportedly sympathetic facts that would be introduced to support this defense, such as Packer’s history of seizures and use of seizure medication. They had also believed that the loss-of-consciousness defense, which would have provided Bamford a complete bar to liability, had a slight chance of success. In the wake of the district court’s ruling, the jury would hear neither the purportedly sympathetic facts supporting a medical emergency nor other evidence that could moderate its view of Bamford’s culpability. Rather, the jury would be instructed that Bamford was negligent as a matter of law and liable for the Davises’ injuries. In response to this major development in the case, Nolan and Robin requested authority to make a $3 million settlement offer, both for strategic purposes and because, in Robin’s view, the offer would have led to a settlement in the $3 million range. Not only did Regent deny such authority, it failed to increase its reserve even one penny from the previously-set amount of $2.25 million. A reasonable jury could view Regent’s stark inaction—in the face of this seismic and unforeseen development in the case, and contrary to advice from its counsel and primary adjuster—as a complete and total refusal to consider the fiduciary duty it owed Bamford.
Right to Independent Counsel
In a strange decision governed by Maryland law involving the insured’s substitution of defense counsel in over 570 asbestos suits, a Maryland federal district court with limited analysis finds that the insured’s coverage counsel cannot be substituted as defense counsel for the insured at the expense of the liability insurers. Finding that under Maryland law the insurer has both a duty and right to control the defense, the court finds that the insured’s attorney had a conflict of interest in both defending the insured and acting as the insurer’s coverage counsel. The court stated:
Given the long and protracted efforts of Morgan Lewis [the law firm representing the insured] to pull cases into coverage under the non-settled insurers’ policies, Morgan Lewis cannot also be placed into the position where it can slant the defense in a manner that could render the claims covered claims. General Insurance Company of America v. Walter Campbell Company, 2016-2756524 Md. 5/12/16).