Can’t Stack This: 8th Circuit Enforces Anti-Stacking Provisions to Prevent Recovery Under Two Policies for a Single Injury
By: Stevi A. Siber-Sanderowitz, Associate in the New York Office
In Gohagan v. Cincinnati Ins. Co., No. 14-3454, 2016 WL 66944 (8th Cir. Jan. 6, 2016), the U.S. Court of Appeals for the 8th Circuit affirmed a Missouri federal court’s ruling that the anti-stacking provisions in a commercial general liability and business owner’s policy prevented recovery for the same injury under both policies.
The coverage dispute arose out of an accident that occurred when the insured, Thomas Campbell was removing a tree from a residential development property, resulting in bodily injury to John Gohagan. Cincinnati Insurance Company (Cincinnati) issued a general liability policy and a business owner’s policy to Campbell, which were each subject to a $1 million per-occurrence limit and a $2 million general aggregate limit. Both policies contained anti-stacking provisions that stated "the aggregate maximum limit of insurance" under all policies "shall not exceed the highest available limit of insurance" under any one policy.
The parties settled the underlying personal injury claims, which included Cincinnati’s payment of the $1 million per-occurrence limit under the commercial general liability policy. Gohagan subsequently sued Cincinnati in the U.S. District Court for the Western District of Missouri, seeking recovery of another $1 million under the business owner’s policy. In granting Cincinnati’s motion for summary judgment, the District Court held that the anti-stacking provisions prohibited recovery under both policies for the same injury, and therefore limited the maximum coverage for any one occurrence to the $1 million per-occurrence limit.
On appeal, Gohagan argued that the anti-stacking stacking provisions were ambiguous as to whether the total recovery is $1 million under one policy or $2 million under both. The appellate court disagreed, finding the provisions unambiguously prevented recovery for one incident under multiple Cincinnati policies. In that regard, the court rejected Gohagan’s argument that the meaning of "aggregate maximum limit of insurance" was ambiguous. By emphasizing only part of the anti-stacking provisions, Gohagan ignored the requirement that the aggregate maximum limit of insurance under both policies combined may not exceed the per-occurrence limit under either policy. The court determined that when read as a whole, the anti-stacking provisions capped the payout under both policies combined for a single "occurrence" (in this case, the tree-falling accident resulting in Gohagan’s injury) to the limits of one policy (i.e., $1 million).
The 8th Circuit also rejected Gohagan’s argument that the policy’s "other insurance" clause setting forth a method for distributing responsibility among multiple policies also applied to other insurance policies issued by Cincinnati. Specifically, the court found Gohagan’s reading of the "other insurance clause" mistakenly relied on reading the individual provision in isolation from the rest of the policy, an approach that would leave the anti-stacking provisions meaningless. In that regard, the court agreed with the District Court’s determination that the "other insurance" clause applies when a policy issued by another insurer covers the same injury as a policy issued by Cincinnati, not when Cincinnati issues both policies.
Where an insured has multiple liability policies from a single insurer that cover the same loss, it may attempt to stack policy limits to increase its recovery under the policies. As a result, insurers often include anti-stacking provisions to limit recovery to the highest limit of any one policy. The 8th Circuit’s decision in Gohagan is important because it enforces anti-stacking policy language intended to restrict the insurer’s exposure to a single policy limit where it issued multiple policies to the insured.
Far Beyond What Watson and Crick Imagined: Court Finds Improper Disclosure of a Person’s DNA Information Online Was Not Excluded by TCPA Exclusion
By: Kathleen Williams and Joanna Crosby, Partners in the New Jersey Office
On January 6, 2016, the United States District Court for the Southern District of Texas held in Evanston Insurance Co. v. Gene by Gene Ltd., No. 14-cv-01842 (S.D. Tex. Jan. 6, 2016), that an exclusion for unlawful distribution of information only applied to "spam" claims and did not bar coverage for claims that a DNA analysis company wrongfully published personal information online.
Gene by Gene, Ltd. owns and operates familytreedna.com, which permits its users to analyze their genetic information to learn about their ancestry and connect with other users. In May 2014, Michael Cole, for himself and on behalf of others, sued Gene by Gene in the U.S. District Court in Anchorage, Alaska. In the suit, Cole alleged that Gene by Gene violated Alaska’s Genetic Privacy Act, which prohibits the disclosure of a person’s DNA analysis without written and informed consent, by improperly publishing his DNA test results on its website (the Underlying Lawsuit).
Evanston Insurance Company (Evanston) insured Gene by Gene under various professional liability and excess liability insurance policies. Gene by Gene sought a defense and indemnity from Evanston for the Underlying Lawsuit. Citing an exclusion in its policy entitled "Electronic Data and Distribution of Material in Violation of Statutes" (the Exclusion), Evanston declined coverage. In July 2014, Evanston filed a declaratory judgment action seeking a declaration that it was not obligated to defend or indemnify Gene by Gene. In turn, Gene by Gene filed a countersuit alleging breach of contract and seeking a declaration that it was entitled to coverage and defense in the Underlying Lawsuit.
Gene by Gene argued that the Underlying Lawsuit falls under its Advertising Injury and Personal Injury Coverage because the injury arises out of the written publication of material that violates a person’s privacy rights. Evanston maintained that the claim was excluded because it was brought pursuant to a statute that falls under Section C of the Exclusion, which precludes coverage for "any statute, law, rule, ordinance, or regulation that prohibits or limits the sending, transmitting, communication or distribution of information or other material." Gene by Gene argued that the construction of Section C of the Exclusion is too broad and is unreasonable when considered in the context of the Exclusion as a whole and the entire policy.
The court concluded that the claim in the Underlying Lawsuit falls within the definition of Personal Injury because it includes the publication of material – the DNA analysis – that allegedly violates a person’s right to privacy. Turning to the Exclusion, the court noted that it precludes coverage for a claim based on or arising out of any violation of: (1) the Telephone Consumer Protection Act of 1991 (TCPA); (2) the CAN-SPAM Act of 2003; and (3) "any other statute, law, rule, ordinance, or regulation that prohibits or limits the sending, transmitting, communication or distribution of information or other material." Gene by Gene argued that Section C of the Exclusion must be read in conjunction with the other sections of the Exclusion that apply to the TCPA and the CAN-SPAM acts, both of which pertain to claims under statutes regulating unsolicited emails, telephone calls or faxes.
The District Court agreed with Gene by Gene and concluded that Evanston’s interpretation of Section C was unreasonable in consideration of the remainder of the Exclusion and ruled that Evanston was obligated to provide coverage under its policies’ Advertising Injury and Personal Injury coverage. The court reasoned:
The Genetic Privacy Act does not concern unsolicited communication to consumers, but instead regulates the disclosure of a person’s DNA analysis. The facts…deal solely with Gene by Gene’s alleged improper disclosure of DNA test results...The facts alleged…do not address the type of unsolicited seclusion invasion contemplated by the Exclusion.
The District Court found that Evanston’s construction of the Exclusion was unreasonable because it would have rendered illusory the policies’ Advertising Injury coverage (which included claims arising out of the written publication of material that libels or slanders a person) and Personal Injury coverage (which included claims arising out of the written publication of material that violates a person’s right to privacy). The court noted that even if it found Evanston’s construction reasonable, the exclusion would be ambiguous and the court would still be required to apply the alternative reasonable construction favoring the insured.
Gene by Gene sends the message to insurers that they may not parse out sections of an exclusion to support a disclaimer of coverage, but rather must consider exclusions in their entirety and in the context of the policy as a whole. As newer industries are created that gather and create private information, underwriters are challenged to consider new risk exposures and claims handlers are challenged in the evaluation of whether coverage is afforded under any ISO or manuscript forms.
Illinois Appellate Court Rules Umbrella Policy is Excess to Self-Insurance That a Village Obtained Through a Municipal Risk-Pooling Association
By: Jim Murray, Partner in the Chicago Office
In Illinois Municipal League Risk Management Association v. State Farm Fire and Casualty Company, 2016 IL. App. (1st) 143336 (2016), the Illinois Appellate Court affirmed the trial court’s ruling that a village employee’s personal umbrella policy would only provide coverage in excess of the self-insurance that the village obtained through a municipal risk management risk pooling association. The court agreed that the term "self-insurance" contained in the umbrella policy’s other insurance clause included self-insurance obtained through government-funded risk pools.
State Farm Fire and Casualty Company (State Farm) issued a personal umbrella liability policy to Roel Valle. Valle was employed by the Village of Lynwood. Lynwood was self-insured through the Illinois Municipal League Risk Management Association (the Association). The Association’s contract with Lynwood provided coverage limits of $8 million. Valle was involved in a serious accident while driving a village-owned auto with the village’s permission. After Valle was sued, the Association assumed Valle’s defense but requested State Farm to participate in both the defense and settlement discussions. State Farm declined on the basis that its umbrella policy contained an "other insurance" clause that made the State Farm umbrella policy "excess over all other insurance and self-insurance."
The Association agreed to settle the suit against Valle by paying $5.8 million to the driver and passengers of the other car in exchange for a release of Valle and Lynwood. The Association then filed suit against State Farm as subrogee of Valle and Lynwood. The trial court granted summary judgment in favor of State Farm on the basis that the other insurance clause in its policy made it apply only in excess of the Association policy limits. On appeal, The Illinois Appellate Court affirmed.
First, the court noted that Illinois case law has long held that umbrella policies provide special coverage and are excess to primary policies except for the limited situation where the umbrella policy extends coverage to risks that are not covered by a primary policy. The court stated that if it treated the Association contract with Lynwood as a primary policy, the State Farm umbrella policy would only provide excess coverage. However, because Illinois law has held that a pool of self-insured municipalities is not an "insurer," for purposes of a municipality’s alleged waiver of municipal immunities, the Association’s contract with Lynwood could not qualify as "other insurance" as used in the State Farm policy.
Next, the court addressed the Association’s argument that its contract with Lynwood should not be considered as "self-insurance" because the term should be limited to privately-funded self-insurance risk pools not government funded pools. The appellate court rejected this argument on the basis that it found the State Farm umbrella policy unambiguous and that it applied "in excess over all other insurance and self-insurance" and the Association’s contract with Lynwood qualified as "self-insurance."
This case demonstrates that issues can arise as to whether certain risk pooling agreements will be treated as "insurance" or "self-insurance" and the particular state’s law on the issue may need to be consulted before making a coverage determination.
9th Circuit Affirms Insurer’s Denial of a Duty to Defend or Indemnify its Insured Against a Counterclaim Filed in the Insured’s Patent Infringement Suit
By: Ryan Luther, Associate in the Orange County Office
In Travelers Prop. Cas. Co. of Am. v. KFx Med. Corp., 2016 WL 145996 (9th Cir. January 8, 2016), the U.S. Court of Appeals for the 9th Circuit affirmed the District Court’s order granting partial summary judgment in favor of Travelers as to its duties to defend and indemnify its insured, KFx, against a counterclaim filed in an underlying action in response to claims for patent infringement.
In KFx, the parties did not dispute that the counterclaim filed against the insured, which sought only injunctive and declaratory relief, did not assert a claims for "damages" for which coverage was afforded under the liability policy issued by Travelers. Rather, the court addressed whether, under Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460, 466 (Cal. 2005), "the facts alleged, reasonably inferable, or otherwise known" to Travelers at the time of tender reasonably suggested that the counterclaim "might ‘fairly be amended’ to state a covered claim, thus giving rise to potential liability under the Policy and a corresponding duty to defend." Specifically, KFx argued that, based on the facts alleged, the counterclaim could be amended to assert claims for abuse of process or product disparagement.
The court concluded that the counterclaim did not allege facts sufficient to support claims for abuse or process or product disparagement, and that the possibility that the counterclaim could be amended to assert such facts was "too speculative to trigger a duty to defend or to indemnify." The court also confirmed that claims for prevailing party attorneys’ fees and "other and further relief at law or in equity," did not trigger a defense obligation absent facts that would otherwise support a claim for damages.
Finally, the 9th Circuit held that even if the counterclaim could be amended to state a claim for damages based on the facts alleged, the policy’s exclusion barring coverage for any claim "arising out of any actual or alleged infringement or violation of… intellectual property rights or laws" would eliminate any defense or indemnity obligation. Because they would be responsive to KFx’s own claims for patent infringement, the court concluded that claims for abuse or process or product disparagement would necessarily "arise out of" the alleged infringement of patents, falling squarely within the exclusion.
The 9th Circuit’s decision in KFx is consistent with established California law confirming that an insurer’s defense obligation cannot be triggered by a pleading that does not assert a claim for damages potentially covered under the policy, or by the insured’s speculation that the pleading might be amended to assert facts to support such a claim. It also confirms that an exclusion barring coverage for liability "arising out of" intellectual property claims is not limited to claims against the insured for infringement. Rather, the exclusion encompasses claims responsive to the insured’s own claims for infringement, including claims for abuse of process or product disparagement.
Insurer Dodges Bullet for Untimely Disclaimer in New York
By: Mark Vespole, Partner in the New Jersey Office
Once again, the labyrinth wrapped in a conundrum that is New York Insurance Law 3420 (d)(2) rears its ugly head, but at least the outcome was not so ugly. In Black Bull Contracting, LLC v. Indian Harbor Ins. Co., 135 A.D. 401 (2016), the First Department of the Appellate Division considered an insurer’s delay of 79 and 85 days to disclaim coverage after receiving notice of the underlying lawsuit.
A Black Bull Contracting (Black Bull) employee, Luis Mora, was injured while using a jackhammer to demolish the chimney in a building the insured was hired as a subcontractor to assist with renovations. Black Bull’s CGL policy included a "classification limitation" endorsement stating the insurance only applied to operations or classifications shown on the Declarations page or specifically added by endorsement. The codes on the Declarations page listed four classifications/operations intended to be covered under the policy: (1) interior carpentry; (2) wallboard installation; (3) "Contractors — subcontracted work — in connection with construction, reconstruction, repair or erection of buildings — Not Otherwise Classified; and (4) Contractors — subcontracted work — in connection with construction, reconstruction, repair or erection of buildings — Not Otherwise Classified — uninsured/underinsured." The listed classifications did not include demolition.
Mora sued the general contractor, who filed a third-party complaint against Black Bull, tendering its defense as a putative additional insured under the Black Bull’s policy, as per the subcontract. Indian Harbor issued two tardy disclaimers, grounded on the fact that demolition work was not within the four classifications of operations. Black Bull filed a declaratory judgment against Indian Harbor for coverage for both itself and the general contractor. In lieu of answer, Indian Harbor successfully moved to dismiss.
In upholding the dismissal, the Appellate Division first noted that if Indian Harbor had been "subject to the time this requirement of Insurance Law 3420(d)(2)" its disclaimers "would have been untimely as a matter of law." The court noted that "the basis of the disclaimers was apparent from the face of the notice of claim and accompanying correspondence" hence, the 79 and 85 days were unreasonable.
However, citing a decision by the Court of Appeals (Worcester Ins. Co.v. Bettenhauser, 95 N.Y. 2d 185, 188-189 (2000)) and by a federal District Court in New York (Max Specialty Ins. Co. v. WSG Invs., LLC, (No. 09-CV-05237) 2012 WL 3150577 (E.D.N.Y. August 2, 2012)), the court held the classification limitation endorsement was not an exclusion. When a disclaimer is based on the failure of a claim to come within the scope of the policy’s coverage set forth in the insuring agreement, Insurance Law 3420(d)(2) does not apply to bar coverage.
Black Bull argued that one of the classification codes pertaining to subcontracted work in connection with construction, reconstruction, repair or erection of buildings could be reasonably interpreted to extend to "liability arising from any work subcontracted to the named insured," as opposed to liability arising from work that the named insured subcontracts to other contractors. However, the court found this suggested interpretation strained and in conflict with the carpentry and wallboard installation operations in the classifications.
This case highlights several important principles regarding timeliness requirements. The statutory timeliness requirements for disclaimers only applies if the disclaimer is based on a policy exclusion. While the statute does not give a specific timeframe for issuing disclaimers, if the disclaimer is based on an exclusion, the application of which is evident from reading a loss notice or complaint, the disclaimer letter should be issued in 30 days or less from an insurer’s receipt of notice. That timeframe could be extended if the basis for the applicability of an exclusion is not self-evident from the complaint or notice, but requires investigation. If the basis for the disclaimer is not an exclusion, but an issue that addresses the applicability of coverage in the first instance, the nebulous statutory time limit does not apply. Unfortunately, the statute leaves out exactly how many days an insurer has to issue a disclaimer based on either an exclusion or other policy language.
This newsletter is for general information only and is not intended to provide and should not be relied upon for legal advice in any particular circumstance or fact situation. The reader is advised to consult with an attorney to address any particular circumstance or fact situation. The opinions expressed in this newsletter are those of the author and not necessarily those of Tressler LLP or its clients. This bulletin or some of its content may be considered advertising under the applicable rules of the Supreme Court of Illinois, the courts in New York and those in certain other states. For purposes of compliance with New York State Bar rules, our headquarters are Tressler LLP, 233 S Wacker Drive, 22nd Floor, Chicago, IL 60606, 312.627.4000. Prior results described herein do not guarantee a similar outcome. The information contained in this newsletter may or may not reflect the most current legal developments. The articles are not updated subsequent to their inclusion in the newsletter when published. | Copyright © 2016
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