Case Law Watch

Additional Insureds

Alpha Holdings Ltd. v. Travelers Indemnity
(California Court of Appeals, Second District, July 13, 2006)

Ruling: This case involved a declaratory judgment action on insurance coverage under a vendor’s endorsement purporting to provide protection against product liability litigation. The plaintiff was an assembler of inlet hoses and purchased the hose material from a bulk supplier. At some juncture, the supplier changed its hose from a rayon material to a polyester reinforced hose. These hoses were used on washing machines, which began failing. The supplier, pursuant to a purchase order, was to provide product liability insurance with a vendor’s endorsement. Homeowners’ policy insurers began paying claims and sought subrogation claims against the plaintiff, the supplier and the washing machine manufacturer. The insurers for the supplier denied coverage. This court concluded that the defendant/insurers failed to establish as a matter of law that there was no coverage and therefore no potential liability.

Agents and Brokers

National Liability & Fire Insurance Co. v. Fiore

California Ninth Circuit Court, June 29, 2006

Ruling: The insurer instituted this declaratory judgment action, contending that it had no duty to defend or indemnify its insured in an underlying action involving a vehicle accident. The court held that there was an issue of fact as to whether the broker/agent had actual or ostensible authority to bind coverage, and whether coverage was bound on the date of the accident.

Arbitration

Pilimai v. Farmers Insurance Exchange
(California, July 13, 2006)

Ruling: The Supreme Court, within the context of an uninsured motorist arbitration pursuant to Insurance Code §11580.2, considered: whether the cost shifting provisions of Code of Civil Procedure §998 applied to such arbitrations, and whether the award of such costs, together with the arbitration award, can exceed an insurer’s “maximum liability.” Provisions of IC §11580.2 does not preclude recovery of CCP §998 costs; prejudgment interest is not allowed under CC §3291 because the case is not an action for personal injury; and deposition and exhibit costs may be included.

Attorneys Fees

Safeco Insurance Co. of America v. Parks
(California Court of Appeals, Second District, July 5, 2006)

Ruling: The court had previously ruled that the insurer did not have a duty to defend and therefore, no duty to indemnify. The issue on the appeal was whether the insurer was entitled to costs and attorneys’ fees. The court reversed the order of the trial court that denied the insurer’s motion for attorneys’ fees and striking its memorandum of costs and remanded those matters to permit the trial court to exercise its discretion to determine the amount of fees and costs, if any, to which the insurer is entitled.

Bad Faith

Staff Pro Inc. v. National Union Fire Insurance Co. of Pittsburgh
(California Court of Appeals, Second District, July 5, 2006)

Ruling: The insured sued its insurer for breach of contract and breach of the implied covenant of good faith and fair dealing, alleging that the insurer wrongfully refused to provide a defense for the underlying action. At the time of the denial, the insurer had reviewed the underlying complaint, the tender letter from the insured’s counsel stating there was coverage, and papers from the insured’s Web site. The court affirmed the decision of the trial court that the underlying complaint “at most states a claim for unfair competition based on false advertising, a claim that is not included in the definition of ‘advertising injury’ in the policy.” Therefore, the no breach of claim and breach of the implied covenant of good faith and fair dealing were dismissed.

Completed Operations

Westside Condominium Partners LLC v. Certain Underwriters at Lloyd’s London
(California Court of Appeals, Second District, Aug. 14, 2006)

Ruling: The court affirmed the trial court’s declaratory judgment that the completed operations provision of the liability policy did not cover the condominium project. In analyzing a special endorsement that extended coverage, the court noted that because the “closing escrow” was a condition of coverage under the endorsement and because the first escrow had not closed before the policy lapsed no coverage vested. There was no coverage to forfeit.

Contribution and Subrogation

Safeco Insurance Co. of America v.

The Superior Court of Los Angeles, et al.
(California Court of Appeals, Second District, June 22, 2006)

Ruling: This is an action for equitable contribution by two settling insurers against a non-participating insurer. The court held that the settling insurers were entitled to equitable contribution because they met the burden of proof by making a prima facie showing of coverage under the non-participating insurer’s policy.

Directors and Officers Liability Coverage

Unified Western Grocers Inc. v. Specialty
(Hawaii Ninth Circuit Court, Aug. 14, 2006)

Ruling: At issue on this appeal was whether three related corporate entities and six officers and/or directors of those entities were entitled to coverage for an underlying litigation instituted by the bankruptcy trustee of a former subsidiary of the corporate entities. The court reversed the district court’s order that granted summary judgment holding that there were issues of fact as to whether the underlying complaint alleged only willful acts and sought only restitutionary relief, which are uninsurable under California law.

Duty to Defend

Benjamin v. Amica Mutual Insurance Co.
(Utah July 7, 2006)

Ruling: Two sexual assault plaintiffs asserted intentional tort claims against insured, such as assault and battery. They both alleged in the complaint an unintentional tort claim — negligent infliction of emotional distress. The insurer disclaimed coverage to the insured under homeowners policy on the ground that the claimed injuries were expected. The insured proceeded to trial against one of the plaintiffs and was found liable under the negligent infliction of emotional distress claim but not under the intentional tort claims. The insured settled with both plaintiffs and initiated a declaratory judgment action, seeking defense and indemnity in connection with the settlement. On appeal, the Supreme Court of Utah agreed with the insured that the insurer was required to defend him because the alternative claim of negligent infliction of emotional distress was sufficient to trigger the duty to defend under the policy. The court noted that if there are uncertainties about coverage, given that the crux of the plaintiffs’ complaints was based on sexual assault, the insurer has an obligation to defend at least until those uncertainties are resolved against coverage. The Court distinguished a prior Utah Court of Appeals case in which the court reasoned that the insurer had no duty to defend because the facts alleged in the complaint indicated that a cause of action based solely on intentional tort was intended by that plaintiff, on the ground that the complaint did not allege a separate and alternative theory of recovery.

Aurafin-Oroamerica LLC v. Federal Insurance Co.
(California, Ninth Ciruit Court, June 26, 2006)

Ruling: The court held that the viability of the underlying claim against an insured does not affect an insurance company’s duty to defend. Where the underlying action is a “sham,” the insurer may terminate its duty to defend only by demurring or obtaining summary judgment on its insured’s behalf. The court also held that the intellectual property exclusion was unclear and not “conspicuous, plain and clear.”

Exclusion—Pollution

Ortega Rock Quarry v. Gold Eagle
(California Court of Appeals, Fourth District, July 27, 2006)

The insurer failed to provide a defense and indemnity for an Environmental Protection Agency order concerning a quarry operator’s discharge of fill material into a creek. In considering whether there was coverage, the court noted that the fact that a term in an insurance policy is not defined does not make it ambiguous. The court granted the insurer’s motion for summary judgment holding that the EPA proceeding was not a “suit” covered by the policy. The court also considered the “total pollution exclusion” and held that the materials discharged into the creek were “pollutants” within the exclusion. The court concluded that the pollution exclusion was not ambiguous.

Fire and First-Party

NCF Financial Inc. v. Webforia Inc.
(Washington Court of Appeals, Division 1, Aug. 7, 206)

Ruling: The NCF submitted a claim under its four insurance policies for loss of equipment. The record established that NCF was not an insured under the policy, and was only an additional insured under one of the policies. One of the issues on this appeal was whether the insurer properly cancelled the policy. The court held that the insurer may not cancel with respect to one insured and not provide notice to a second insured. For the cancellation to be effective as to the second insured, notice must be given. In this case, however, the policy expired by its own terms and notice was not needed. The insurer was granted summary judgment.

Compiled by Kevin T. Merriman, newsletter editor for Goldberg Segalla (www.goldbergsegalla. com). Goldberg Segalla counsels and represents individuals and businesses in specialized areas of civil litigation, contractual and extra-contractual disputes and regulatory matters before state and federal agencies. E-mail: kmerriman@
goldbergsegalla.com. Copyright 2007 Goldberg Segalla LLP. All rights reserved.