Welcome to CICR’s annual review of insurance cases. Here, we spotlight five (actually, seven) decisions from the last year that you should know about, and five pending cases—all before state high courts—to keep an eye on. The choices were not always easy.
That is because 2018 saw a number of notable insurance coverage developments. Among them was the “Restatement of the Law – Liability Insurance,” a nearly five hundred-page document that the American Law Institute (ALI) adopted after eight years and twenty-nine drafts.
Already, much has been written about the ALI Restatement, including by us. There will be more to come. Going forward, we will continue to highlight significant examples where courts address its provisions.
But for now, as you will see in this issue, there is much more to talk about than just the ALI Restatement.
We hope that you enjoy this special feature. Thank you for your interest in our publication. As always, we welcome reader feedback.
Five Cases to KnowCentury Surety Company v. Andrew, et al., 2018 Nev. LEXIS 112 (Nev. Dec. 13, 2018)
Nevada Supreme Court adopts the minority view and concludes that, even in the absence of “bad faith,” an insurer’s liability for breach of the duty to defend is not automatically capped at policy limits plus the insured’s defense costs, and that the insurer may be liable for “any consequential damages caused by its breach” (potentially including an excess judgment that is “consequential to the insurer’s breach”). Explains that an insurer “refuses to defend at its own peril” and that its liability depends on the “unique facts of each case” and is for a jury to determine.
“[W]e are not saying that an entire judgment is automatically a consequence of an insurer’s breach of its duty to defend; rather, the insured is tasked with showing that the breach caused the excess judgment and ‘is obligated to take all reasonable means to protect himself and mitigate his damages.’”
Harvey v. GEICO General Insurance Company, 2018 Fla. LEXIS 1705 (Fla. Sept. 20, 2018)
A divided Florida Supreme Court concludes that a jury’s finding of “bad faith” for failure to settle was supported by the “totality of the circumstances,” even though the insurer tendered policy limits nine days after a fatal auto accident. Recognizes that negligence is not the standard and that a causal connection between the claimed damages and “bad faith” is required, but (1) qualifies that “[b]ecause the duty of good faith involves diligence and care in the investigation and evaluation of the claim against the insured, negligence is relevant to the question of good faith” and (2) rejects the suggestion that there can be no “bad faith” liability where the insured’s (in)actions result at least in part in an excess judgment since the focus is on the conduct of the insurer. Further analysis of Harvey by Adam Berardi is available here.
“By adopting a negligence standard in all but name, ignoring the controlling conduct of the insured and the third-party claimant, and relying on unsupported assumptions, the majority incentivizes a rush to the courthouse steps by third-party claimants whenever they see what they think is an opportunity to convert an insured’s inadequate policy limits into a limitless policy.” (Canady, CJ dissenting)
Keyspan Gas East Corporation v. Munich Reinsurance America, Inc., et al., 96 N.E.3d 209 (N.Y. 2018)
New York Court of Appeals rejects the policyholder’s proposed adoption of the so-called “unavailability of insurance exception” to pro rata time-on-the-risk allocation in the context of “long-tail” claims (whereby policyholders try to reallocate to insurers with “available” coverage the periods where insurance was “unavailable”). Adheres to the long-standing rule in New York that, under pro rata allocation, insurers are only responsible for the portion of the damage that occurred during their policy periods. Further analysis of Keyspan by Bob Walsh and Paul Briganti is available here.
“It follows from our holding in Consolidated Edison that the unavailability rule is inconsistent with the contract language that provides the foundation for the pro rata approach — namely, the ‘during the policy period’ limitation — and that to allocate risk to the insurer for years outside the policy period would be to ignore the very premise underlying pro rata allocation.”
California Supreme Court rules in the context of the duty to defend that claims against an employer-insured for negligent hiring, retention and supervision of an employee who intentionally injured a third-party (which in this case involved alleged molestation) can be considered “accidental” and therefore an “occurrence” under a commercial general liability policy. Explains that the term “accident” refers to an “unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause” and is “more comprehensive than the term ‘negligence’ and thus includes negligence.” According to the opinion, (1) coverage turns on whether the insured’s liability resulted under tort law from covered causes (i.e., the focus of the analysis is on the alleged negligence of the employer-insured); and (2) the molestation by the employee may be deemed an “unexpected consequence” of the insured’s allegedly negligent employment practices which were “independently tortious acts.”
“Absent an applicable exclusion, employers may legitimately expect coverage for such claims under comprehensive general liability insurance policies, just...
