Since our last newsletter, the Louisiana courts have not produced many reported coverage opinions of note. But this newsletter features three decisions outside Louisiana. There is a South Carolina federal court decision finding with a nightclub shooting a duty to defend even with a broadly?worded assault and battery exclusion. There is a Connecticut federal court opinion addressing coverage for a day?care business under a homeowners’ policy, instead of having to get small business insurance.
And finally—the big one—there is an Arizona federal court decision that found that the insurer waived coverage defenses because the defense attorney retained by the insurer provided non-privileged, though not public, information from the insured that pertained to the insurer’s coverage defenses.
And we have a Louisiana UM waiver case and two Louisiana non-coverage cases on whether a settlement offer interrupts the three-year abandonment period, and whether comparative fault applies in redhibition and other contract cases.
And for those who missed it, there was the article titled “Practicing Insurance Coverage Law in Louisiana” in the April 12, 2017 issue of the national coverage newsletter Coverage Opinions published by Randy Maniloff. As a quick review of Louisiana coverage law, the article (despite some serious editing by Randy) is excellent. But it should be noted that I wrote the article. For those wanting to check out the article and Randy’s truly excellent newsletter, go to www.coverageopinions.info/Subscribe.html.
What Defense Counsel Can Tell the Insurer
In Cosgrove v. National Fire & Marine Ins. Co., 2017 WL 1318009 (D. Ariz. 4/10/2017), plaintiff sued her house-remodeling contractor WTM. WTM had a CGL policy with National Union Fire. The policy required named-insured WTM in written contracts with subcontractors to include indemnity and insurance-procurement clauses (which are now contrary to Louisiana statutory law). The policy contained a subcontractor exclusion that excluded coverage to the named insured if it failed to include the required clauses in its contracts with the subcontractors whose defective work caused damage. In this case, there were no written contracts between WTM and its subcontractors, and the subcontractors had no contractual duties to indemnify or obtain insurance for WTM.
WTM was defended under a reservation of rights by counsel selected by the insurer. Based on review of WTM’s records, defense counsel advised the insurer that the work on plaintiff’s house had been done by subcontractors, and that there were no written contracts with the subcontractors. And WTM later in the proceedings filed a third-party action against the subcontractors. However, based on the information that the subcontractors had actively done the work and that the named insured had no written contracts containing indemnity and insurance clauses with the subcontractors, National Union Fire contested coverage because of the policy’s subcontractor exclusion and refused to settle the case.
WTM later stipulated to a judgment amount, which the trial court found reasonable, and assigned to plaintiff its rights against the insurer. The issue in this case was whether the insurer waived its coverage defense because it relied on the information reported by defense counsel that the subcontractors had done the work and did not have written contracts with indemnity and insurance clauses. The insurer and defense counsel argued that the information provided was not confidential and was available to anyone reviewing the contractor’s file.
The federal district court found that, under Arizona law, the disclosure of information by defense counsel hired by the insurer, even if not privileged, resulted in a waiver of the insurer’s subcontractor exclusion defense. Although WTM, after the information was reported, filed a third?party action against the subcontractors, the court noted that the action was filed after the attorney’s communication had already occurred. The court stated that “there is no requirement that the information in question be independently confidential.” And the court added:
Precluding defendant from asserting a coverage defense based on the Subcontractors Exclusion may seem like a harsh result. But, if defendant had done its own investigation of WTM’s claims, rather than relying on the information disclosed by the attorney retained to represent WTM, defendant would not be precluded from using this information to deny coverage. Because defendant learned the subcontractor information from Mr. Righi and then used that information to the detriment of WTM before the information was ever made public, defendant is estopped from relying on this information to deny coverage.
UM – Waiver Form Challenged
The UM insurer, Affirmative Insurance Company, moved for summary judgment that its named insured had waived UM coverage. In support of its motion, Affirmative filed the waiver form with the insured’s electronic signature, the insurance policy, and an affidavit from an Affirmative employee attesting to the authenticity of the waiver form and policy.
However, in opposition, the insured filed an affidavit that the waiver form was fraudulently completed and that she never wanted to waive UM coverage. The trial court granted the Affirmative motion for summary judgment. However, the Louisiana Fourth Circuit Court of Appeal correctly reversed the judgment in favor of Affirmative, finding that the insured’s affidavit obviously created a genuine issue of material fact as to whether the insured waived coverage. Orellana v. Doe, 2016-0537 (4/5/17).
Duty to Defend—Assault and Battery Exclusion
Green sued Round Two, a nightclub business, and its owners. While visiting the club as a patron, Green was shot as a result of a dispute among patrons that escalated into gunfire. However, Green’s lawsuit against Round Two and its owners simply alleged that Green was injured by the discharge of a firearm on the club premises.
The nightclub’s liability insurer, Lloyd’s, filed an action for declaratory judgment that under its policy neither a defense nor indemnity was owed because of the policy’s expansive assault?and?battery exclusion. The exclusion read:
This insurance does not apply to any claim and/or cause of action arising from:
1. An assault and/or battery regardless of culpability or intent; or
2. A physical altercation; or
3. Any act or failure to act to prevent or suppress such assault and/or battery or physical altercation.
The above applies whether caused by the insured, an employee, a patron, or any other person, and whether or not the acts occurred at the premises owned leased, rented or occupied by the insured.This exclusion also applies to any claim and/or cause of action seeking:
4. Damages arising out of allegations of negligent hiring, placement, training or supervision, or to any act, error, or omission relating to such assault and/or battery or physical altercation.
5. Damages arising out of failure to provide proper security or safe premises to any person subject to any assault and/or battery or physical altercation.
We are under no duty to defend an insured in any “suit” alleging such damages arising out of any assault and/or battery or physical altercation of any nature whatsoever.However, despite the exclusion’s expansive scope, the court denied the motion for summary judgment filed by Lloyd’s, finding that the insured owed a defense to its club and owner. The court noted that the pleading did not allege intentional conduct, and that under the pleading allegations there was a “possibility” that the claimant’s injury did not arise from an assault or a battery. Certain Underwriters at Lloyd’s London v. Butler, 1:16-CV-00975, 2017 WL 570024 (D.S.C. 2/13/07).
Homeowners’ Exclusion – Business Exclusion
In a Connecticut case, the insured was operating a day-care at his house. When a parent of a child at the day-care went to the house to pick up his child, the insured’s dog bit the parent. As a result, the parent sued the insured.The insured had a homeowners’ insurance policy with a business exclusion. The exclusion read that the policy did not apply to bodily injury “arising out or in connection with a ‘business’ engaged by an ‘insured.'” The policy contained an endorsement addressing coverage for a home day-care business The endorsement read in pertinent part:Coverage E—Personal Liability . . . [does] not apply to “bodily injury” . . . arising out of or in connection with a “business” engaged by an “insured.” This exclusion applies but is not limited to an act or omission, a service or duty rendered, promised, owed or implied to be provided because of the nature of the “business.”Additionally, the policy contained an endorsement that specifically addressed coverage for a home day-care business. The endorsement read in pertinent part:If an “insured” regularly provides home day care services to a person or persons other than “insureds” and receives monetary or other compensation for such services, that enterprise is a “business.” Mutual exchange of home day-care services, however, is not considered compensation. The rendering of home day care services by an “insured” to a relative of an “insured” is not considered a “business.” Therefore, with respect to a home day care enterprise which is considered to be a “business,” this policy:
1. Does not provide Section II—Liability Coverages because a “business” of an “insured” is excluded under exclusion 1.b. of Section II-Exclusions[.]
Clearly, the insured’s home day-care was a business under the policy. The issue was whether the parent injury arose out of the business of the day-care. Finding that the business exclusion applied, the court stated that the “arising out of” wording created “an expansive standard of causation between the incident giving rise to a claim for coverage and the insured’s business pursuits.” As a result, the court found that “arising out of” does not require a direct proximate causal connection but instead merely requires some causal relation or connection.”The court noted that operating a home day-care means that numerous people on a regular basis will be on the insured’s premises, increasing the risk that an injury on the premises will occur. Vermont Mutual Insurance Company v. Hebert, 3:16-CV-00034, 2017 WL 1091268 (D. Conn. 3/20/17).
Under Article 561 in the La. Code of Civil Procedure, a lawsuit can be dismissed when the parties fail to take a step in its prosecution or defense for three years. The step taken, if not formal discovery, should appear in the court’s record.In Allen v. Humphrey, 51,331 (4/5/17), the defendants moved to dismiss the intervention based on abandonment. But the intervenor argued that during the three-year period, the defendants acknowledged their obligation, interrupting the time period, by making this written settlement overture:I thought I would write once again to try to bring this matter across your desks. We would like to try to settle this case for the policy limit but [I] never received any instructions with respect to the resolution of the workers’ compensation claim. Please let me know if any progress has been made in that regard. Further, please let me know if there is anything we can do to push this matter forward.Finding that the letter was not an unconditional tender and thus not an acknowledgment, the Louisiana Second Court of Appeal finds that the case was abandoned.
Comparative Fault – Contracts
In a drilling-operations case involving many facts and issues, the Louisiana Third Circuit Court of Appeal finds that La. Civil Code Article 2323, which adopts a system of pure comparative fault for Louisiana, applies only to tort actions, not redhibition and other contract actions. The case notes that the Louisiana First and Second Circuits have held that Article 2323 does apply to redhibition actions, which are actions by the buyer of a defective product against the seller and manufacturer, but the Louisiana Fourth Circuit and two Louisiana federal district courts have reached a contrary result. The Third Circuit quoted at great length a fairly recent federal court ruling on the issue in Hanover Ins. Co. v. Plaquemines Parish Gov’t, 2015WL4167745 (E.D. La. 7/19/15), a case in which this writer was involved.
Note that the Louisiana Supreme Court has not ruled on this issue. A real possibility exists that the Supreme Court could grant writs in this case and decide the issue of whether Article 2323 applies to redhibition and contract actions; in these cases, the defense of failure to mitigate damages does apply. Justiss Oil Company v. Oil Country Tubular Corp., 15-1148.