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Dear Friends:

In this latest newsletter issue, we report on several Louisiana coverage cases of interest.  But we also report on several cases outside Louisiana that we had not previously discussed and that made Randy Maniloff’s list in Coverage Opinions of the top 10 coverage opinions of 2020.  The two most interesting decisions involve courts finding a waiver of the attorney-client privilege where the insurer’s attorney prepared the declination letter signed by the adjuster, and where the claims adjuster when deposed essentially stated she was not a lawyer like the expert Knoxville divorce lawyers and could not address coverage questions.

On a different note, this is to advise all of our friends that you can try The Hogle Law Firm to resolve any issues quickly and in 2021 I anticipate dividing my time between Lafayette and the New Orleans area.  As a result, I will be able to do work in the New Orleans area more cost-effectively and welcome the chance to do more coverage work in that area.

If you have any questions, please feel free to call or email. And as always and especially in these difficult times, thank you for your continued patronage and support.

Richard J. Petre, Jr.

Attorney-Client Privilege‑‑Waived When Counsel Prepares Denial Letter

In Canyon Estates Condominium Association v. Atain Specialty Insurance Company, 2:18‑cv‑1761 (W.D. Wash. 1/22/20), the plaintiff was suing its property insurer for water damages.  The plaintiff insured sought to depose the insurer’s trial attorney who had prepared the insurer’s denial letter signed by the adjuster.  Under Washington state law, there is a presumption as between insureds and insurers that the attorney‑client privilege does not exist during the insurer’s claim-adjusting process.  However, insurers can overcome the presumption by showing that their attorney “was not engaged in the quasi-fiduciary tasks of investigating and evaluating the claim,” but instead was engaged in providing the insurer with legal advice on its own potential liability—that is, whether coverage existed.

Here, the insurer argued that its outside counsel did not participate in investigation of the claim or any claims-handling functions.  However, because the attorney drafted denial letters for the adjuster to sign, the Washington federal court found that the insurer’s attorney had engaged in a non-protected quasi‑fiduciary activity, and could be deposed regarding the drafting of any denial letters and his other activities during the claims-handling period.

Attorney-Client Privilege‑‑Waived When Deposed Adjuster Cannot Answer Coverage Questions

In Travelers Property Casualty Company of America v. IDO Renaissance, LLC, 2019‑00586 (Miss. 10/29/20), a UM insurer denied a small property-damage claim involving an unknown car hitting a flag pole.  Suing the insurer for bad faith, the insured sought production of emails between the claims adjuster and the insurer’s in-house attorney as well as the deposition of the in-house attorney.  The insurer denied the claim because of its determination that a flagpole is not a covered auto.  Before denying the claim, the adjuster sought legal advice from an in-house attorney for the insurer.  After suit was filed, the adjuster was deposed.  In this case, the insurer did not raise as an affirmative defense advice‑of‑counsel.  When asked in her deposition why the claim was denied, the adjuster testified essentially she could not answer coverage questions because she was not an attorney. 

Finding the adjuster lacked personal knowledge of the reasons that the insurer denied the claim, the Mississippi Supreme Court found the adjuster’s testimony implicitly waived the attorney‑client privilege.  In short, the court found that an insurer—even if it does not expressly raise an advice-of-counsel defense—cannot assert a defense that it acted reasonably when its investigation and knowledge of the law was largely provided by its lawyer, and then use the attorney‑client privilege to preclude the insured from finding out what it actually learned and knew.

The dissent in this case challenged the majority’s view that to preserve the attorney-client privilege, a claims handler when deposed must be able to explain her determination regarding the same legal issues for which she had sought legal advice from counsel.  Further, the dissent stated the relevant issue was simply whether the insurer had a legitimate basis for denying the claim.

Insurer Bad Faith—Notice Condition and Reasonable Basis to Contest Coverage

In Estate of Munsterman v. Unitrin & Home Insurance Company, 20-209 (11/18/20), an insured sued his property insurer for hail-storm damage.  The insured advised the insurer of the claim and filed suit more than one year after the storm. To avoid this situation both in present and in future, it is better to look out for the best property management here before making your investment on your dream property. In case a storm damages your roof, there’s a roofing company on Beachwood Court that can help you with excellent roofing services at an affordable price. The property policy contained a notice provision that for coverage the insured needed to give notice of the claim within 365 days of the loss.  However, La. R.S. 22:868 states that any insurance condition “limiting right of action against the insurer to a period of less than twenty-four months next after the inception of the loss when the claim is a first-party claim” is void.

Here, the insurer argued that the statutory 24-month period governed only the filing of suit, not the giving of notice.  The trial court disagreed, finding the statute applied to time periods for both suit and notice.  Affirming the trial court, the Louisiana Third Circuit Court of Appeal agreed that the notice provision was infirm.  

However, the appeals court found that though the insurer had denied payment based on a void policy condition, the insurer was not in bad faith for relying on the notice condition because previously there was no clear jurisprudence on the issue.

UM Liability –Insured—Scope of Duties as Director

Jourdan was a member of the board of directors of the Washington St. Tammany Electric Co-Operative.  After a board meeting, board members met for dinner at a restaurant.  Jourdan rode with another board member to the restaurant.  Walking from the restaurant parking lot across the street to the restaurant, Jourdan was hit by a car and died as a result of his injuries.  Jourdan’s surviving wife and adult children sued the co-op’s insurer Federated for UM coverage under an all-risk blanket policy.

In a prior ruling in this case, the Louisiana First Circuit Court of Appeal had determined that the plaintiffs were not entitled to contractual UM coverage because Jourdan walking across the street was not “occupying” an auto when the accident happened. Also, if got you in a truck accident, you can hire attorneys from here! However, plaintiffs then argued that they were entitled to UM coverage because at the time of the accident Jourdan was an insured under the policy’s liability provisions and as a result would be insured for UM coverage.  Under the Federated policy, the co-op’s directors were insureds for liability coverage “while acting within the scope of their duties as such.”

The trial court ruled in favor of Federated, finding that at the time of the accident Jourdan was not acting in the scope of his duties as a director because the board meeting had been concluded, the dinners were considered occasions of fellowship where attendance was not mandated, and there was no compensation for time spent at the dinners.  Affirming the trial court’s ruling, the First Circuit held there was no manifest error in the trial court’s finding that “Jourdan was not acting within the scope of his duties when the accident occurred.”  Jourdan v. Allamerica Financial Benefit Insurance Company, 2020-7768713 (12/30/20).

Subrogation—Co-Insured

On a hotel-construction project, water escaped from a water-supply line during testing by the HVAC subcontractor BMCC, and caused water damage.  The two builder’s risk insurers of general contractor TMG paid TMG $400,000 for the damage, and TMG assigned its rights to recover its $50,000 deductible payment to the insurers.  The insurers then sued subcontractor BMCC and its liability insurer to recover what they had paid to TMG and the TMG deductible.

The prime contract between the owner and general contractor TMG contained a mutual subrogation waiver stating in part:  “The owner and contractor waive all rights against [each] other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other for damages caused by “losses covered by property insurance.”  The insurers argued that the waiver in the prime contract did not apply because there the contractor agreed to waive subrogation against only the owner’s subcontractors, not the contractor’s own subcontractors.

Granting BMCC’s writ application contesting the trial court’s denial of the BMCC motion for summary judgment, the Louisiana Fifth Circuit Court of Appeal finds that the insurers have no subrogation rights against BMCC.

The First Circuit found that the prime contract obligation provision applied to all claims against all subcontractors.  And the court noted that the builder’s risk policies contained a subrogation section stating that the insurer had no rights of subrogation against

[a]ny other persons or entity, which the insured has waived its rights of subrogation against in writing before the time of loss.

Further, subcontractor BMCC was found to be an additional insured under the policies.  The court noted that Louisiana has a well-established anti-subrogation rule prohibiting an insurer from bringing an action against a co-insured of an insured subrogor.  Starr Surplus Lines v. Bernhard MCC, L.L.C., 2020-7051977 (12/2/20).

UM Waiver

Plaintiff executed a UM waiver form selecting economic-only UM coverage.  The plaintiff’s initials were placed next to the option for economic-only coverage.  However, immediately below that option were two columns separated by “OR” containing two further options:  One option was limits of $100,000 per person and $300,000 per accident, and the other option was $300,000 each accident/occurrence.  Neither of those two options was selected.  Because the form did not show the selection of one of the two options for limits, the Louisiana First Circuit Court of Appeal reversed summary judgment to the UM insurer, finding genuine issues of material fact as to whether the insured had selected economic-only UM coverage.  Bagala v. Tregre, 2020-0600 (12/30/20).

Use of Auto–Falling Wheelbarrow

In North Star Mutual Insurance Company v. Ackerman, 940 N.W. 2d 857 (N.D. 3/25/20), a wheelbarrow in Ackerman’s truck fell out of the truck and landed on an interstate highway, and a following motorist lost control of his vehicle trying to avoid the wheelbarrow and hit another car.  In the lawsuits against Ackerman, does Ackerman’s CGL insurer owe Ackerman a defense and coverage?

The CGL insurer argued that coverage did not exist because of the policy’s auto exclusion, which excluded:

“Bodily injury” or “property damage” arising out of the ownership, maintenance, use or entrustment to others of any aircraft, “auto” or watercraft owned or operated by or rented or loaned to any insured.  Use includes operation and “loading or unloading.”  “Loading or unloading” is the handling of property. You can find slip and fall lawyers for hire over here!

a.         After it is moved from the place where it is accepted for movement into or onto an aircraft, watercraft or “auto”;

b.         While it is in or on an aircraft, watercraft or “auto”; or

c.         While it is being moved from an aircraft, watercraft or “auto” to the place where it is finally delivered[.]

However, Ackerman argued that though the failure to properly secure the wheelbarrow on the truck was use of an auto, the failure to remove the wheelbarrow from the highway was a separate act not arising out of use of an auto.  The North Dakota Supreme Court agreed, and found a defense was owed and coverage existed under its concurrent-cause doctrine, which allows for coverage when at least one cause of an accident is a covered risk under a policy.

Duty to Defend – Law Not Determined

In Nash Street, LLC v. Main Street America Insurance Company, SC 20389 (Conn. 1/14/20), an insured contractor, New Beginnings, had been hired to renovate a house damaged by a hurricane.  The renovation work required that the house be lifted and temporarily placed on cribbing, and the contractor hired a subcontractor to lift the house.  When being lifted, the house shifted off the supporting cribbing and collapsed.  Alleging that the contractor and subcontractor negligently failed to ensure the cribbing was secure and that the collapse caused substantial damage to the house, the house owner sued New Beginnings, which sought defense and indemnity from its CGL insurer.  However, the CGL insurer denied a defense and indemnity based on the policy’s ongoing-operations exclusion (k)(5) and faulty work exclusion (k)(6).  The ongoing-operations exclusion precludes coverage for property damage to that “particular part of real property” on which any contractors or subcontractors “are performing operations if the ‘property damage’ arises out of those operations.”  The faulty work exclusion precludes coverage for property damage to that “particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.”

Here, after the CGL insurer denied a defense, the plaintiff obtained a default judgment against the insured contractor.

In cases involving these two property-damage exclusions, courts around the country have disagreed on the meaning of the term “[t]hat particular part of real property”—does it mean simply the specific part of property being worked on at the time of the accident or the entirety of the property on which work is being performed?

Finding that Connecticut law was unclear as to the scope of the exclusions, but that some courts outside Connecticut had narrowly interpreted the exclusions, the Connecticut Supreme Court held that because there was the possibility of coverage given the unsettled state of Connecticut law, the CGL insurer breached its duty to defend its insured.  Note that the court based its decision on the uncertainty of Connecticut law on those exclusions, and not on a determination that the exclusions in fact did not apply.

Attorneys’ Fees—Can Be Greater Than Actual Damages

In Grand Pointe Homeowners Association, Inc. v. Heymann, 20-36 (11/12/20), a homeowners’ association sued a resident to enforce restrictive covenant provisions.  The defendant was a longtime resident who had left her townhome in a derelict state.  At trial, under the covenant provisions, the district court awarded the association $21,655 in damages and $50,675 in attorneys’ fees using a lodestar approach.  Affirming the attorneys’ fee award, the Louisiana Third Circuit Court of Appeal found that the lodestar method, which involves multiplying the number of hours the prevailing party’s attorneys spent by a reasonable hourly rate, was the correct approach; and that it is not necessarily unreasonable for the attorneys’ fee award to be greater than the damages award.  Further, the Third Circuit awarded an additional $2,500 in attorneys’ fees to the plaintiff association for the work done by its attorneys on appeal.

Dear Friends:

This newsletter discusses several Louisiana cases of interest regarding insurance and personal‑injury claims, as well as three insurance-coverage cases outside Louisiana, which were recently highlighted by our friend Randy Maniloff in his latest issue of Coverage Opinions. There are also options to buy to let insurance these days.

If you have any questions, feel free to call or email.  And as always and especially in these difficult times, thanks for your continued patronage and support.

Richard J. Petre, Jr.

COVID Coverage Litigation Tracker

There are many civil case attorneys based in Crossville to render civil litigation ideas. For those interested in seeing how courts around the country are ruling in COVID-19 lawsuits, check out Penn Professor Tom Baker’s “Civil Coverage Litigation Tracker” at cclt.law.upenn.edu/judicial-rulings/.

Evidence – Need to Introduce Insurance Policy

After a car accident, Patin, a guest passenger in a car driven by Morris, sued the other driver, Goudeau; Goudeau’s liability insurer Allstate; and Morris’s UM insurer State Farm.  State Farm failed to timely answer the lawsuit, and Patin obtained a default judgment against State Farm.  At the hearing to confirm the default judgment, Patin testified that Morris after the accident had said she had $100,000 in UM coverage under her State Farm policy, but Patin did not introduce the State Farm policy into evidence.  Finding that introduction of the insurance policy was a necessary element of a prima facie case against State Farm, the Louisiana First Circuit Court of Appeal reversed the default judgment against State Farm.  Patin v. Goudeau, 663354 (10/27/20).

Evidence – Surveillance and Experts

In a truck-accident case, a Jeff Davis Parish jury awarded plaintiff $1,299,433 in damages.  The defendants’ appeal raised numerous evidentiary issues.  Affirming the judgment, the Louisiana Third Circuit Court of Appeal found the jury did not commit error in awarding the plaintiff $80,000 in past pain and suffering, $200,000 in future pain suffering, $60,000 in past loss of enjoyment of life, $150,000 in future loss of enjoyment of life, $148,720 in past loss of income and earning capacity, $371,800 in future loss of income and earning capacity, and $171,739 in future medical expenses.  (The amount in past medical expenses was $61,154, which had been reduced from $117,174 by the trial judge on a post-trial motion.)  The opinion does not clearly state what plaintiff’s injuries were, though the plaintiff did have a history of prior injuries, and plaintiff’s team of experts included orthopaedic surgeon Dr. David Muldowny, psychologist Dr. Michael Berard, vocational expert Jeff Peterson (who also prepared a life-care plan), and economic expert John Theriot.

However, in this case, there were three evidentiary challenges by defendants that the court rejected.  First, the court affirmed the trial court’s ruling to allow the investigating state trooper, who was not qualified as an accident-reconstruction expert, to testify on which drivers violated traffic law and the position of plaintiff’s vehicle at time of impact.  The court cited Code of Evidence Article 701, which allows witnesses to offer opinion testimony “rationally based on the perception of the witness.”  The state trooper was admittedly providing opinion based on driver and witness statements—that is, based on more than his scene-perceptions.  This ruling seems questionable.

Second, the Third Circuit affirmed the trial court’s refusal to allow surveillance video of the plaintiff.  The accident occurred on November 5, 2014; plaintiff had been deposed on September 28, 2016 and September 18, 2018; defendants supplemented their discovery responses on January 2, 2019 to advise that they had surveillance video; and the trial began on February 11, 2019.  The opinion does not clearly state when this surveillance was conducted, though presumably it was shortly before the January 2, 2019 disclosure.  Finding that the surveillance video was not disclosed to the plaintiff “within a reasonable time before trial,” and that as a result, the plaintiff did not have “ample time” to determine weaknesses in the videotape, the court affirmed the trial judge’s exclusion of the surveillance evidence.

Third, the Third Circuit affirmed the trial judge’s exclusion of physical therapist Paul Fontana, who had never examined the plaintiff, but was going to give testimony critical of how plaintiff’s functional-capacity evaluation was performed.  Finding that Fontana’s report did not clearly show what methodology Fontana was using to criticize the methodology of plaintiff’s expert, the court stated “it cannot be determined if [Fontana’s] methodology is reliable.”  Simpson v. UV Insurance Risk Retention Group, 19,625.

Evidence—Treating Physicians Classification

In responding to a pretrial order, plaintiff on a witness list classified some of his medical witnesses as “treating physicians” but others as “treating physicians and experts.”  At trial, the judge allowed those physicians listed only as “treating physicians” to testify only as to their diagnoses at the time of treatment.  The Louisiana Third Circuit Court of Appeal found that the trial judge erred in so limiting the testimony of plaintiff’s treating physicians, but that there was no reversible error because of the testimony given by the treating physicians labeled as experts.  Said v. Federated Rural Electric Insurance Exchange, 19-915.

CGL Exclusions—”Particular Part” (South Carolina)

In a South Carolina federal case, the insured subcontractor contracted to replace windows, sliding glass doors, and stucco cladding in a repair of condominium buildings.  After the subcontractor from Lifetime Exteriors : substantially completed its work, the project engineer, during water testing of the window units, discovered cuts in the membrane flashing around window openings, damaging the waterproof membrane and wall sheathing. 

The subcontractor in this website, has alleged the cuts had been made in the membrane during the stucco installation.  The subcontractor’s CGL insurer challenged coverage under work-product exclusions j.(5) and j.(6), which exclude coverage to that “particular part” of real property on which the insured is performing operations if the property damage that arises out of those operations; or that “particular part” of property that must be repaired because the insured’s work was incorrectly performed on the property.  The insurer argued that “exclusion j.(5) is “broad enough to include not only the specific work an insured is hired to do, but the area an insured damages while performing such work.”  However, the insured argued the exclusion should apply only “to the smallest unit of division available to the work in question”—here, the component parts of the stucco installed and nothing else.  Agreeing with the insurer, the court found no coverage under the policy and granted summary judgment to the insurer, stating:

If Southeastern did not cause the damage to the DenaGlass and Blueskin, then coverage under the Policy does not apply and CIC has no duty to indemnify.  If Southeastern caused the damage, then it happened while Southeastern was performing operations on “that particular part” of the Shipwatch property on which Southeastern was contractually engaged to install stucco.  It would strain credulity to divorce the DenaGlass and Blueskin from “that particular part” of the property on which Southeastern was performing work. It is advised to contact domestic violence attorneys for hire if you are in an unhealthy marriage relationship. Without the DenaGlass there would be no walls on which to install the stucco.  The door and window openings were not considered complete without the Blueskin lining being installed to ensure waterproofing.  In other words, the DenaGlass and Blueskin were integral to the exterior walls on which Southeastern was performing operations.  The component materials of the stucco are not “part of real property” until they are installed.  Thus, for purposes of exclusion j.(5) and under the instant facts, it would be unreasonable to say that the very materials Southeastern was installing were “real property on which” it was performing operations.  In contrast, the exterior walls of the condominium buildings—which were necessarily completed prior to installation of the stucco—were “part of [the] real property on which” Southeastern performed work. Cincinnati Insurance Company v. Charlotte Paint Company, Inc., 2020 WL 6049144 (D.S.C. 10/13/20).

Notice Requirement (Texas)

Liability insurance policies contain a notice condition requiring insureds to promptly send their insurer a copy of any lawsuit filed against them.  In a Texas case involving a car accident, the claimant’s attorney contacted shortly after the accident the liability insurer, which paid the claimant’s property damage; sent the insurer a copy of the lawsuit filed; and later, after no answer was filed, sent the insurer a copy of claimant’s motion for a default judgment.  Can the claimant collect on the default judgment if the insured never sent his insurer the lawsuit naming him as defendant?  In Lewis v. ACCC Insurance Company, 2020 WL 4461338, the Texas court said no because of the insured’s failure to provide the insurer with a copy of the lawsuit, and request defense and coverage.  Following other Texas cases, the court stated that the reason for the notice condition is to advise the insurer that the insured has been served with process and expects the insurer to provide a defense.

“Improper Erosion” of Underlying Policies (California)

Insured Northrop was sued by the Department of Labor (DOL) and the Northrop Savings Plan (Plan) for ERISA violations.  Northrop had a three-layered program of Employee Benefit Plan Fiduciary Liability Insurance:  National Union provided a $15,000,000 primary policy, Continental provided a $15,000,000 excess policy, and AXIS provided a $15,000,000 secondary excess policy. 

The insured settled the DOL lawsuit for roughly $23,000,000 with National Union paying its $15,000,000 limit and Continental paying roughly $8,000,000. The insured then settled the Plan lawsuit for roughly $16,700,000 with Continental paying the remainder of its limit, $7,000,000, and AXIS paying $9,700,000.  However, believing that the National Union and Continental policies did not cover the DOL lawsuit claims, AXIS filed a declaratory action lawsuit against Northrop, contending that “the collective payment of [the DOL settlement] by National Union and [Continental] was not for covered loss and therefore resulted in improper erosion of the limits of liability” of these policies, causing AXIS to “drop down” and unjustly enriching Northrup.

Reversing summary judgment to AXIS, the United States Ninth Circuit Court of Appeals held that an excess insurer cannot avoid or reduce its liability by contesting payments made by other insurers unless the payments were made in bad faith or unless the excess insurer’s policy contains specific wording that allows the excess insurer to challenge prior payments by another insurer.  As the court stated:

[A]n excess insurer remains free to contest claims submitted to it during the claims adjustment process, even when an underlying insurer has already determined that the same claim falls within the scope of coverage.  But, absent a specific contractual provision, it may not second-guess other insurers’ payments of earlier claims without first showing that those payments were motivated by fraud or bad faith.

The court added that insurers do not often pay out claims, much less policy limits, when they are not obligated to do so.  AXIS Reinsurance Company v. Northrop Grumman Corporation; 975 S.3d 840 (9th Cir. 9/14/20).

On July 13, Louisiana Governor John Bel Edwards signed House Bill 57 (“HB 57”), the Louisiana Civil Justice Reform Act of 2020, which changes Louisiana procedural and tort law in several respects.  These are the major changes:

Jury Trial—A jury trial is now available where any plaintiff’s cause of action exceeds $10,000.  Currently, for a jury trial, there must be a cause of action exceeding $50,000.

Disclosure of Insurance Coverage—In jury trials, the parties can no longer communicate to the jury that insurance coverage exists.  Louisiana has long been a direct-action state where liability insurers are normally sued and where plaintiffs have emphasized that an insurer is a party defendant.  The amendment to Louisiana Code of Evidence Article 411 does create exceptions when the jury will be resolving a factual dispute related to coverage, when an insured brings a first-party claim against his insurer, or when the plaintiff brings bad-faith claims against the insurer. You can go to McLeod Brock and try to solve this issue in an alternative manner.

Not Wearing a Seatbelt—Evidence of a plaintiff’s failure to wear a seatbelt can now be introduced to show the plaintiff’s comparative fault.  HB 57 repeals La. R.S. 32:295.1(E), which prohibited the admission of evidence of failing to wear a seatbelt or a finding of comparative fault on the part of the plaintiff because of such failure.

Collateral-Source Rule—Louisiana’s collateral-source rule has been greatly changed.  Under HB 57, when the plaintiff’s insurer or Medicare has paid plaintiff’s medical expenses for an amount less than what the health care provider charged, the plaintiff can recover only the amount actually paid plus 40 percent of the difference between what was charged and what was paid.  At a jury trial, only evidence of what was charged can be introduced.  After trial, the judge can then receive evidence of what was actually paid and award the plaintiff 40 percent of the difference between charges and payment “in consideration of the claimant’s cost of procurement,” though a defendant has the right to show that “recovery of the cost of procurement would make the award unreasonable.”  When Medicaid makes the payment or when payment is made under the Louisiana Workers’ Compensation Law payment schedules, the plaintiff can recover only what was paid.  In cases where medical causation is an issue, there will be a need for special jury interrogatories to determine what medical expenses were caused by the incident in litigation.

Note the Act becomes effective on January 1, 2021, and expressly does not apply to causes or actions arising or pending before January 1, 2021.

Dear Friends:

In this issue, we discuss cases involving an intentional-act exclusion found inadequate; a reservation of rights letter found inadequate; the construction contract anti‑indemnity statute; and of course UM waivers.

If you have any questions, feel free to call or email. And as always and especially in these difficult times, thanks for your continued patronage and support.

Richard J. Petre, Jr.

Intentional Act Exclusion

In a violent altercation involving neighbors, there were not surprisingly two different versions of events. The insured’s version was that, after the insured called for the police, he was beaten and kicked by three men; that when the men began to attack him again, he pulled out a “pocket-knife”; and that after being knocked to the ground and beaten again, he stabbed three times one of the assailants, who died. The decedent’s father sued for wrongful-death damages. Homeowner’s insurer, Louisiana Farm Bureau Mutual Insurance Company, contested both defense and coverage under the policy’s intentional-act exclusion. The exclusion stated the policy did not apply to damages:

Resulting from intentional acts or directions by you or any insured. The expected or unexpected results of those acts or directions are not covered.

The exclusion did not contain a self-defense exception.

Arguing that even under the insured’s version of events its intentional-act exclusion applied, Farm Bureau moved for summary judgment. The trial court granted the motion, dismissing Farm Bureau. On appeal, the Louisiana Third Circuit Court of Appeal reversed, finding there were genuine issues of material fact as to what the insured intended.

Written by Judge Cooks, the court’s opinion emphasized that a grand jury had refused to indict the insured (which was irrelevant to the motion before the court) and quoted with approval Inzinna v. Walcott, 868 So.2d 721 (La. App. 1 Cir. 2008), where the First Circuit stated that “the instinct of self-preservation is primordial” and that “[t]he subjective intent of the insured is the critical issue in determining whether an intentional acts exclusion applies.” The Third Circuit then concluded: “Likewise, a jury may conclude that George ‘acted spontaneously and instinctively to a sudden physical encounter, without time to form the requisite intent’ to stab Drey.”

The decision seems questionable. If the court believes that an intentional-act exclusion lacking a self-defense exception is contrary to Louisiana public policy, it should say so. However, whether an act was intentional is different from whether the person committing the act intended a specific result. And when someone stabs another person three times, even in self‑defense, the acts are clearly intentional—and it seems clear that the person with the knife intended at the very least to inflict some injury on the person he was stabbing. Indeed, in a concurring opinion, Judge Perret first noted that, under the policy exclusion, “it does not matter whether O’Neil intended to stab Drey Wise,” but then stated that “a determination of whether Mr. O’Neil, in brandishing his knife, was acting intentionally or was reacting to an affront ‘without time to form the requisite intent to commit a specific act’ is necessary in this case” and was a credibility determination that should be left to a jury. Wise v. O’Neil, 201610639 (La. App. 3 Cir.).

Reservation of Rights

In a qui tam lawsuit alleging that an insurance agency and its president fraudulently issued surety and performance bonds to companies that falsely claimed to be owned by disabled veterans, the professional-services insurer, Westport Insurance Corporation, provided a defense under a reservation of rights. The reservation letter stated in pertinent part:

Westport Insurance Corporation also reserves the right to file a declaratory relief action for the determination of its duty to defend and/or indemnify, including the right to request reimbursement for any defense costs or indemnity paid for uncovered costs.

Two years after reservation letters were sent, Westport sent a declination letter to the insureds, stating that after further review the policies did not provide coverage and that a defense would no longer be provided.

On a motion for summary judgment filed by the plaintiff insureds in their coverage lawsuit, the court found that Westport could not unilaterally withdraw its defense because its reservation letter did not reserve the unilateral right to withdraw a defense, only the right to seek a declaratory judgment that a defense was owed. However, in its ruling, the court gave Westport the opportunity to file a motion for leave to file a counterclaim seeking declaratory judgment. Osprey Consulting, Inc. v. Westport Insurance Corp., 5AG-19-03092 (D. Md. 6/10/20), 2020 WL 3073326.

Electronic UM-Waiver Form

Plaintiff applied for and signed her automobile insurance application electronically. After an accident, she sought UM coverage from her insurer, Liberty Personal Insurance Company. Liberty contended that plaintiff had rejected full UM coverage and selected economic-only UM coverage.

The electronic application included a selection paragraph, which allowed the applicant to select coverage for Bodily Injury, Property Damage, Medical Payments, Uninsured Motorist Economic Only, Uninsured Motorist Property Damage, Collision Deductible, Other Than Collision Deductible, Transportation Expense Coverage, and Towing & Labor. Following the selection provision was a paragraph stating that, under Louisiana law, the policy would be issued with full UMBI coverage with the same limits as those for liability coverage, though the applicant could select lower limits of UMBI coverage or Economic Only UMBI, or could reject UMBI coverage. 

Finally, there was a section instructing “Please indicate below the uninsured motorist coverage you wish on your policy,” with a chart reflecting the various types of UMBI coverage and amounts that could be selected. The application did not explain the difference between UMBI coverage and Economic Only UMBI coverage.

When deposed, plaintiff testified that she wanted and thought she was getting full UM coverage.

Affirming partial summary judgment on the validity of the UM Economic Only selection, the Louisiana Fifth Circuit Court of Appeal noted that the 2008 revision to the original UM form removed the option for insureds to select full UMBI coverage with the same limits on their liability coverage, stating:

           The princip[al] change in the 2008 revision involved removing the option for the consumer to select full UMBI coverage with the same limits as their liability coverage. The law says that such a selection is presumed, and therefore the consumer needs only make an affirmative selection if they wish to have a lower limit. In theory, this change makes the form more accurately reflect the language of the statute. However, Louisiana consumers now see a form that contains only options for how they may reduce or reject the coverage they have by default.

           This problem may become even more acute with the proliferation of electronic form submissions. In the growing trend of on-line commerce, where patrons make choices based on what an insurer has stated in its on-line presence, insurers should clearly define the choice given to potential customers, so that they can make an informed and knowing selection. Without an insurance agent present to answer questions, consumers must work even harder to ensure they are making an informed decision. Using a form that states all options, including UMBI coverage as a matter of law in the application submitted, could make the on-line platform more efficient and would result in a patron’s procurement of what was actually desired.

The court then contrasted Louisiana’s form with Florida’s UM form, stating that

[r]emoving the equal coverage option from the form is at best counter-intuitive and at worst deceptive. Public policy would be better served if the full UM coverage option was returned to the form.

The Fifth Circuit Court of Appeal reluctantly affirmed the partial summary judgment, adding though “we are constrained to follow Louisiana statutory and jurisprudential law, we consider it problematic.” Further, the court found that the use of e-signatures rather than e-initials on the application did not invalidate the selection. Jackson v. Liberty Personal Insurance Company, 20-13 (La. App. 5 Cir. 7/2/20).

UM-Waiver Form

A corporate insured executed UM waiver forms in 2011, 2012, 2013 and 2014. The 2011 waiver form was clearly valid. However, in the 2012, 2013 and 2014 forms, the insured’s representative failed to initial the blanks showing she had rejected UM coverage or selected UM coverage at lower limits. The insured’s employee was badly injured in an accident in 2014. 

Zurich, the employer’s automobile insurer, argued that there was no UM coverage because the 2012, 2013 and 2014 UM forms were invalid under Duncan v. U.S.A.A. Ins. Co., 950 So.2d 544 (La. 2006), the 2011 waiver form was valid, and a valid UM selection form remains in effect until there is a new valid selection form. However, the court held that Zurich provided full UM coverage at the time of the 2014 accident because the insured on the last selection form had to properly reject UM coverage for the policy not to provide UM coverage. Baack v. McIntosh, 19-657 (La. App. 3 Cir.).

Motor Carrier Transportation and Louisiana Construction Contract Anti-Indemnity Statute

In Salathe v. The Parish of Jefferson Through the Department of Sewerage, 19-303 (7/15/20), Jefferson Parish (“the Parish”) hired Fleming to do sewer-main work. Fleming signed a construction contract containing indemnity and additional-insured clauses running in favor of the Parish. During the job, Fleming’s employee Salathe was injured, Salathe sued the Parish for tort damages, and the Parish sought coverage as an additional insured from Fleming’s general commercial liability and excess insurers. The insurers argued that the insurance provision in the construction contract was invalid under Louisiana’s anti-indemnity statute for motor-carrier transportation contracts and construction contracts, La. R.S. 9:2780.1. The Parish argued that the anti-indemnity statute did not apply to contracts by public bodies because of a provision in the Louisiana Public Works Act, La. R.S. 38:2216(g), which prohibits indemnity by public entities in public contracts, except for insurance policies. The Louisiana Fifth Circuit Court of Appeal found that the anti-indemnity statute does apply to insurance provisions in public contracts, noting that the anti-indemnity statute was passed after the Public Works Act and states it applies “[n]otwithstanding any provision of law to the contrary and except as otherwise provided in this Section.” The Fifth Circuit noted the Louisiana First Circuit Court of Appeal had reached a different result on this issue in Jeff Mercer, L.L.C. v. State, Dept. of Transp. and Development, 174 So.3d 1180 (La. App. 1 Cir. 2015), writ denied 179 So.3d 618 (La. 2015).

By Lawrence L. Lewis

We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19 (commonly referred to as the Coronavirus). Along with these details on those paramount health concerns, you may be wondering about some of the recent tax changes meant to help everyone coping with the Coronavirus fallout. In addition to the summary of IRS actions and earlier-enacted federal tax legislation that I previously sent you, I now want to update you on the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress’s gigantic economic stimulus package that the President signed into law on March 27, 2020.

Recovery rebates for individuals. To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. This Site states that an additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit).

Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (singles or marrieds filing separately), $122,500 (head of household), and $150,000 (joint). There is no income floor or ‘‘phase-in’’—all recipients who are under the phaseout threshold will receive the same amounts. Tax filers must have provided, on the relevant tax returns or other documents (see below), Social Security Numbers (SSNs) for each family member for whom a rebate is claimed. Adoption taxpayer identification numbers will be accepted for adopted children and you can be guided by child support attorneys on this . SSNs are not required for spouses of active military members. The rebates are not available to nonresident aliens, to estates and trusts, or to individuals who themselves could be claimed as dependents. Hire lawyers in Cape Cod practicing estate planning attorneys to get help for estate planning.

According to Kendal Law Group PC in Bloomfield Hills, the rebates will be paid out in the form of checks or direct deposits. Most individuals won’t have to take any action to receive a rebate. IRS will compute the rebate based on a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.

Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate.

Waiver of 10% early distribution penalty. The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus (a qualified individual). Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread out. Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.

Waiver of required distribution rules. Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70 1/2 in 2019.

Charitable deduction liberalizations. The CARES Act makes four significant liberalizations to the rules governing charitable deductions: (1) Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction. (2) The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public charities in 2020 (qualifying contributions). Instead, an individual’s qualifying contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 activities is required. (3) Similarly, the limitation on charitable deductions for corporations that is generally 10% of (modified) taxable income doesn’t apply to qualifying contributions made in 2020. Instead, a corporation’s qualifying contributions, reduced by other contributions, can be as much as 25% of (modified) taxable income. No connection between the contributions and COVID-19 activities is required. (4) For contributions of food inventory made in 2020, the deduction limitation increases from 15% to 25% of taxable income for C corporations and, for other taxpayers, from 15% to 25% of the net aggregate income from all businesses from which the contributions were made.

Exclusion for employer payments of student loans. An employee currently may exclude $5,250 from income for benefits from an employer-sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.

Break for remote care services provided by high deductible health plans. For plan years beginning before 2021, the CARES Act allows high deductible health plans to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.

Break for nonprescription medical products. For amounts paid after December 31, 2019, the CARES Act allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care even if they aren’t paid under a prescription. And, amounts paid for menstrual care products are treated as amounts paid for medical care. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursement Arrangements.

Business only provisions

Employee retention credit for employers. Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax) for 50% of certain wages (below) paid to employees during the COVID-19 crisis.

The credit is available to employers carrying on business during 2020, including non-profits (but not government entities), whose operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also available to employers who have experienced a more than 50% reduction in quarterly receipts, measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of the receipts for the corresponding 2019 quarter.

For employers with more than 100 employees in 2019, attorney for businesses cases states that the eligible wages are wages of employees who aren’t providing services because of the business suspension or reduction in gross receipts described above.

For employers with 100 or fewer full-time employees in 2019, all employee wages are eligible, even if employees haven’t been prevented from providing services. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in eligible wages and compensation paid by the employer to an employee. Thus, the credit is a maximum $5,000 per employee.

Wages don’t include (1) Wages taken into account for purposes of the payroll credits provided by the earlier Families First Coronavirus Response Act for required paid sick leave or required paid family leave, (2) Wages taken into account for the employer income tax credit for paid family and medical leave (under Code Sec. 45S) or (3) Wages in a period in which an employer is allowed for an employee a work opportunity credit (under Code Sec. 51).

An employer can elect to not have the credit apply on a quarter-by-quarter basis.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who do not deposit applicable payroll taxes in reasonable anticipation of receiving the credit. The credit is not available to employers receiving Small Business Interruption Loans. The credit is provided for wages paid after March 12, 2020 through December 31, 2020.

Delayed payment of employer payroll taxes. Taxpayers (including self-employeds) will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security (OASDI) payroll tax and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer 6.2% Social Security (OASDI) rate). The relief isn’t available if the taxpayer has had debt forgiveness under the CARES Act for certain loans under the Small Business Act as modified by the CARES Act (see below). For self-employeds, the deferral applies to 50% of the Self-Employment Contributions Act tax liability (including any related estimated tax liability).

Net operating loss liberalizations. The 2017 Tax Cuts and Jobs Act (the 2017 Tax Law) limited NOLs arising after 2017 to 80% of taxable income and eliminated the ability to carry NOLs back to prior tax years. For NOLs arising in tax years beginning before 2021, the CARES Act allows taxpayers to carryback 100% of NOLs to the prior five tax years, effectively delaying for carrybacks the 80% taxable income limitation and carryback prohibition until 2021.

The Act also temporarily liberalizes the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the present 80% limit). For tax years beginning after 2021, taxpayers will be eligible for: (1) A 100% deduction of NOLs arising in tax years before 2018, and (2) A deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.

The provision also includes special rules for REITS, life insurance companies, and the Code Sec. 965 transition tax. There are also technical corrections to the 2017 Tax Law effective dates for NOL changes.

Deferral of noncorporate taxpayer loss limits. The CARES Act retroactively turns off the excess active business loss limitation rule of the TCJA in Code Sec. 461(l) by deferring its effective date to tax years beginning after December 31, 2020 (rather than December 31, 2017). (Under the rule, active net business losses in excess of $250,000 ($500,000 for joint filers) are disallowed by the 2017 Tax Law and were treated as NOL carryforwards in the following tax year.)

The CARES Act clarifies, in a technical amendment that is retroactive, that an excess loss is treated as part of any net operating loss for the year, but isn’t automatically carried forward to the next year. Another technical amendment clarifies that excess business losses do not include any deduction under Code Sec. 172 (NOL deduction) or Code Sec. 199A (qualified business income deduction).

Still another technical amendment clarifies that business deductions and income don’t include any deductions, gross income or gain attributable to performing services as an employee. And because capital losses of non-corporations cannot offset ordinary income under the NOL rules, capital loss deductions are not taken into account in computing the Code Sec. 461(l) loss and the amount of capital gain taken into account cannot exceed the lesser of capital gain net income from a trade or business or capital gain net income.

Acceleration of corporate AMT liability credit. The 2017 Tax Law repealed the corporate alternative minimum tax (AMT) and allowed corporations to claim outstanding AMT credits subject to certain limits for tax years before 2021, at which time any remaining AMT credit could be claimed as fully-refundable. The CARES Act allows corporations to claim 100% of AMT credits in 2019 as fully-refundable and further provides an election to accelerate the refund to 2018.

Relaxation of business interest deduction limit. The 2017 Tax Law generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income (ATI). The CARES Act generally allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of ATI for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation. For partnerships, the 30% of ATI limit remains in place for 2019 but is 50% for 2020. However, unless a partner elects otherwise, 50% of any business interest allocated to a partner in 2019 is deductible in 2020 and not subject to the 50% (formerly 30%) ATI limitation. The remaining 50% of excess business interest from 2019 allocated to the partner is subject to the ATI limitations. Partnerships, like other businesses, may elect to use 2019 partnership ATI in calculating their 2020 limitation.

Technical correction to restore faster write-offs for interior building improvements. The CARES Act makes a technical correction to the 2017 Tax Law that retroactively treats (1) A wide variety of interior, non-load-bearing building improvements (qualified improvement property (QIP)) as eligible for bonus deprecation (and hence a 100% write-off) or for treatment as 15-year MACRS property or (2) If required to be treated as alternative depreciation system property, as eligible for a write-off over 20 years.

The correction of the error in the 2017 Tax Law restores the eligibility of QIP for bonus depreciation, and in giving QIP 15-year MACRS status, restores 15-year MACRS write-offs for many leasehold, restaurant and retail improvements.

Accelerated payment of credits for required paid sick leave and family leave. The CARES Act authorizes IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family leave credits allowed by the Families First Coronavirus Response Act by, for example, not requiring deposits of payroll taxes in the amount of credits earned.

Pension funding delay. The CARES Act gives single employer pension plan companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, contributions due earlier will be due with interest. Also, a plan can treat its status for benefit restrictions as of December 31, 2019 as applying throughout 2020.

Certain SBA loan debt forgiveness isn’t taxable. Amounts of Small Business Administration Section 7(a)(36) guaranteed loans that are forgiven under the CARES Act aren’t taxable as discharge of indebtedness income if the forgiven amounts are used for one of several permitted purposes. The loans have to be made during the period beginning on February 15, 2020 and ending on June 30, 2020.

Suspension of certain alcohol excise taxes. The CARES Act suspends alcohol taxes on spirits withdrawn during 2020 from a bonded premises for use in or contained in hand sanitizer produced and distributed in a manner consistent with FDA guidance related to the outbreak of virus SARSCoV- 2 or COVID-19.

Suspension of certain aviation taxes. The CARES Act suspends excise taxes on air transportation of persons and of property and on the excise tax imposed on kerosene used in commercial aviation. The suspension runs from March 28, 2020 to December 31, 2020.

IRS information site. Ongoing information on the IRS and tax legislation response to COVID- 19 can be found at www.irs.gov/coronavirus.

I will be pleased to hear from you at any time with questions about the above information or any other matters, related to COVID-19 or not.

I wish all of you the very best in a difficult time.

By Richard J. Petre, Jr.

UM – Waiver – Policy Changes

In Williams v. Mosley, 2019 CA 0578 (La. App. 1 Cir. 1/9/20), the Louisiana First Circuit Court of Appeal affirmed summary judgment to a UM insurer, finding that the plaintiff’s UM waiver was valid.  The plaintiff made two arguments that the waiver form was invalid.  First, the plaintiff argued that his adding seven vehicles to his automobile policy over a period of months required execution of a new waiver.  However, the court correctly found that under the UM statute, La. R.S. 22:1295(1)(a)(i), changes to an existing policy do not create a new policy requiring a new UM waiver, except for changes in the limits of liability. 

Second, the plaintiff argued that he personally did not print his name or date the waiver form.  But the court correctly noted that, for a valid UM form, the insurer does not have to personally print his name on or date the waiver form.

Assault and Battery Exclusion

After the third bar fight of the night, bar patrons spilled outside, and a fight participant randomly fired shots into a crowd, killing two and wounding six others.  Plaintiffs sued the bar alleging that the bar had negligently failed to provide adequate security and failed to call the police.  The bar’s liability policy contained a standard assault and battery exclusion, which excluded bodily injury arising out of any assault or battery by any person.  First Financial, the bar’s insurer, moved for summary judgment based on the exclusion.  In Womack v. Mar Jay Productions, 2019 CA 0712 (La. App. 1 Cir. 2/21/20), the Louisiana First Circuit readily affirmed summary judgment to First Financial, rejecting arguments that the exclusion required physical contact between the gunman and victims, and that shooting in the crowd was gross negligence rather than an intentional tort.  It should be added that Louisiana courts routinely apply assault-and-battery exclusions in commercial liability policies. The smart cities security concerns is what one should have a look at and the kind of security that one brings there is the best kind to protect data.

Occurrence – Construction

Gibbs, the general contractor for an extensive renovation of a luxury apartment complex, hired Rush as the masonry-restoration subcontractor.  Rush began work in 2010.  In July 2011, September 2011, and August 2012, a severe storm, tropical storm, and hurricane respectively caused major water intrusion into the complex.  Gibbs sued the apartment complex owner, Rice Mills, for failing to make payments under the contract.  Rice Mills filed a reconventional demand against Gibbs, alleging negligent masonry; and filed a third-party action against subcontractor Rush, its CGL insurer Westchester, and its excess liability insurer Fireman’s Fund.  Westchester and Fireman’s Fund issued policies for the policy periods February 1, 2011 to February 1, 2012, and February 1, 2012 to February 1, 2013.

Fireman’s Fund moved for summary judgment that the tropical storm and hurricane events were two separate occurrences of property damage, triggering both Westchester policies.  Subcontractor Rice Mills argued there was only one occurrence—the repeated exposure to allegedly defective masonry work resulting in water intrusion.

Reversing the trial court’s summary judgment to Fireman’s Fund, the Louisiana Fourth Circuit Court of Appeal found that the masonry restoration was the occurrence and thus there was only one occurrence, triggering the first Westchester policy.  Gibbs Contractors, LLC v. National Rice Mill, LLC, 2019 CA 0665 (La. App. 4 Cir. 3/18/20).

Collision Insurance – Collateral Source

In a car accident, Geico insured both the tortfeasor and the plaintiff.  Geico, the tortfeasor’s liability insurer (Geico Liability), paid plaintiff’s property damage.  Does Geico, as plaintiff’s collision insurer (Geico Collision), have to pay the property damage as well?  The plaintiff argued yes, relying on the collateral source rule.  However, in Pelle v. Munoz, 2019-CA-0549 (La. App. 1 Cir. 2/19/20), the Louisiana First Circuit Court of Appeal said no, finding that once Geico Liability paid the property damage, “nothing [was] owed by Geico Collision as the obligation [under the Louisiana Civil Code] has been discharged.”  Further, the court stated that Geico Collision had a right to subrogation under its policy and that subrogation was an exception to the collateral-source rule.

UM – Waiver – Promulgated Act Controls Over Published Statute

What happens when the published version of a UM statutory amendment is different from the actual act amending the statute that was passed by the legislature? 

In a bizarre case, plaintiff was involved in a 2016 accident.  He was insured by State Farm.  On June 9, 1999, plaintiff signed a UM waiver form rejecting UM coverage. 

In 1999, amending the UM statute, the Louisiana Legislature passed Act 732, which stated that any UM waiver form “executed prior to the effective date of this Act shall be valid only until the policy renewal date,” which was statutory language from the statute’s prior amendment.  The Act’s effective date was August 15, 1999, two months after plaintiff signed his UM waiver.  However, when the Louisiana Law Institute published the amended UM statute, the statute read that any form “executed prior to September 6, 1998 shall be valid only until the policy renewal date.”

Reviewing the trial court’s summary judgment to State Farm, the Louisiana First Circuit Court of Appeal found that the Act as written controls over the statute’s published version because the Law Institute’s legal authority to change legislation did not extend to substantive changes.  Wilber v. Progressive Paloverde Insurance Company, 2019-CA-0814 (La. App. 1 Cir. 2/21/20).

UM – Lyft Driver

Plaintiff, while working for Lyft, was involved in a car accident.  Plaintiff was insured and a resident driver under a Progressive automobile policy issued to his wife.  The Progressive policy excluded bodily injury “sustained by any person while using or occupying a covered auto, a rental auto, or a temporary substitute auto while being used for ride-sharing activity.”  The policy contained an extensive definition of “ride-sharing activity.”  Plaintiff contended that the ride‑sharing exclusion was contrary to Louisiana public policy because it was not authorized by the Louisiana UM statute, La. R.S. 22:1295.  However, in 2015, the Louisiana Legislature passed the Transportation Network Company Motor Vehicle Responsibility Act.  That Act included La. R.S. 45:201.7, which allows insurers to exclude UM coverage in policies issued to an owner or operator of a personal vehicle when the driver is engaged in ride-sharing activity.  As a result, the Louisiana Fourth Circuit Court of Appeal readily affirmed summary judgment, applying the exclusion and dismissing Progressive.  Crowley v. GoAuto Insurance, 2019-CA-0643 (La. App. 4 Cir. 11/27/19).

Policy Annulment

In an asbestos case, liability insurer Liberty Mutual moved for summary judgment that an earlier settlement between Liberty Mutual and its insured resolving coverage disputes precluded coverage to injured third parties.  Reversing on a writ application the trial court’s summary judgment to the insurer, the Louisiana Fourth Circuit Court of Appeal found that application of the settlement agreement to injured claimants would constitute retroactive annulment of the policy, and was null and void under La. R.S. 22:1262.  The court distinguished Washington v. Savoie, 634 So.2d 1176 (La. 1994), which found that such a settlement agreement could be applied to other insurers seeking reimbursement for defense costs because the statute was not intended to protect other insurers.  Courville v. Lamorak Insurance Company, 2019-C-0902 (La. App. 4 Cir. 10/21/19).

Prescription—Insurer Bad-Faith Claims

In Smith v. Citadel Insurance Company, 2019-CC-00052 (La. 10/22/19), the Louisiana Supreme Court held that the prescriptive period for insurer bad-faith claims made by an insured under La. R.S. 22:1973 is 10 years, which is the prescriptive period for contract actions, rather than the one-year prescriptive period for tort actions.  The court stated that the insurer’s duty of good faith under the statute was based on the contractual and fiduciary relationship between insurer and insured.  In a footnote, the court expressly stated that it was not addressing the prescriptive period for statutory bad-faith claims made by third-party claimants.

Bad-Faith Damages

In Dudenhefer v. Louisiana Citizens Property Insurance Corporation, 2019-CA-0387 (La. 4 Cir. 9/25/19), the trial court found the property insurer was arbitrary and capricious in failing to pay hurricane-caused damages, awarding $99,020.50 in total damages, which included $52,812 in penalties under La. R.S. 22:1973(C) and $19,804.50 in attorneys’ fees.  The trial court determined the penalty under R.S. 22:1973 by awarding double the amount of coverage the insurer had failed to pay ($26,406).  However, R.S. 1973(C) only allows for a penalty of two times the damages actually caused by breach of the insurer duty, not two times the amount in coverage the insurer failed to pay.  Finding the statutory penalty amount was incorrectly determined, the Louisiana Fourth Circuit Court of Appeal awarded the plaintiffs $12,500 for mental anguish caused by the insurer’s failure to pay, and double that amount ($25,000) as the statutory penalty, and reduced attorneys’ fees to $15,976.50 because of the reduction of the total award.

Make-Whole Doctrine—Reimbursement of Medical Expenses

In Bayham v. State of Louisiana, through the Office of Group Benefits, 2018-CA-1708 (La. App. 1 Cir. 8/29/19), Bayham was injured in a car accident, filed suit, and settled with all defendants for $155,000.  All defendant insurers paid their limits (the med-pay insurer paid $5,000, the liability insurer paid $50,000, and the UM insurer paid $100,000).  Bayham had over $105,000 in medical expenses.  She had health coverage through the State of Louisiana’s Office of Group Benefits (OGB), which paid over $32,000 in medical expenses.  After the settlement, OGB sought recovery of what it had paid, but Bayham argued that her damages greatly exceeded the settlement amount and that OGB was not entitled to any reimbursement under the “make-whole” doctrine.  Under that doctrine, an insurer cannot enforce subrogation rights until the insured has been fully compensated for his injuries or “made whole.”  However, the OGB HMO plan contained a “Subrogation and Reimbursement” section, which provided that OGB had a right to first recovery “regardless of whether such recovery is designated as payment for, but not limited to, pain and suffering, medical expenses, or other specified damages, even if he is not made whole i.e., fully compensated for his injuries.”

In the majority opinion, the Louisiana First Circuit Court of Appeal found that because of the clear reimbursement language in the HMO plan, the court should not apply the make-whole doctrine and that Bayham owed OGB the amount in medical expenses paid.  It should be noted that there were concurring and dissenting opinions.  In his concurring opinion, Judge Whipple noted that he was not joining in the analysis in Judge Lanier’s majority opinion, and that he believed the OGB was entitled to reimbursement because there was no manifest error in the trial court’s finding that Bayham had in fact been made whole.  In his dissenting opinion, Judge Welch found that Bayham had not been fully compensated for her injuries, and that the make-whole doctrine, rooted in Civil Code Article 1826 and past jurisprudence, trumped the wording of the HMO plan and any regulations promulgated by the OGB.

Insured’s Duty to Cooperate—Examination Under Oath

In McCartney v. Shelter Mutual Insurance Company, 2017-CA-1398 (La. App. 1 Cir. 7/10/18), the insured house caught fire on June 24, 2016, and the insurer requested the insured to give an examination under oath in September 2016.  The insured never gave an exam and instead filed suit.  The insured claimed that he gave the insurer two recorded statements and extensive documentation, and that the exam request was made more than 60 days after the insured provided proof of loss.  The insurer moved for summary judgment, alleging the insured failed to cooperate under the policy by giving the requested sworn examination. 

Reversing the trial court’s summary judgment to the insurer, the Louisiana First Circuit Court of Appeal found that the insurer had failed to show the insured’s failure to cooperate was prejudicial, despite affidavits from adjusters and insurer supervisors on the need for the information sought in a sworn examination.  Also, the court noted that the insurer had waited until more than 60 days after the fire before asking for the sworn examination.

The opinion does contain language favorable to insurers about the insurer’s need to obtain relevant information concerning the claim while the information is fresh, and that failure to submit to an examination under oath or to provide information can be violation of the cooperation clause resulting in a material breach of the insurance contract.  However, the court also stressed that dismissal of a suit for breach of the cooperation clause is a draconian remedy.

By Richard J. Petre, Jr.

With the suspension of business activities because of the coronavirus and resultant governmental shut-down orders, small business owners are reviewing their insurance policies and seeking help from attorney for businesses cases to see whether they have business-interruption insurance for their losses. To those seeking such coverage, there are two major hurdles. First, the policies require that the suspension was caused by direct physical loss of or damage to insured premises. It should be noted that some creative claimants have already filed suit alleging that the presence of coronavirus-positive persons on their premises and the likely spread of the virus have caused some physical damage. But second, many policies contain a virus exclusion, which the insurance industry began using in 2006.

However, the New Jersey, Ohio, and Massachusetts state legislatures are now considering bills addressing the likely insurer defenses of no direct physical loss and the virus exclusion. The most far-reaching bill is Massachusetts bill SD 2888, which would apply to businesses that employ no more than 150 full-time employees. The Massachusetts bill states that no insurer can deny a claim for business-interruption or loss of use insurance on the grounds that COVID-19 is a virus or that there was no direct physical loss to the insured premises. The New Jersey and Ohio bills basically state that business-interruption policies should be interpreted to provide coverage during a declared state of emergency because of the coronavirus.

Written by Richard Petre

This newsletter highlights several interesting out-of-state decisions—an excess insurer seeking allocation between covered and non-covered claims, a telephone voice-mail reservation of rights, and the question of whether in Texas applying the “eight-corners” test depends on the policy’s wording. And we do have a Louisiana decision that discusses how the bad-faith penalty under La. R.S. 22:1973 is calculated.
Finally, one more plug for the fourth edition of our Louisiana Liability & Property Insurance Coverage Law: A Handbook for the Busy Practitioner, which is available for purchase through Claitor’s Publishing in Baton Rouge.

Damages – Bad Faith On a hurricane claim, the trial court found the Louisiana Citizens Property Insurance Corporation was arbitrary and capricious for failing to make payment because of a rain exclusion in a homeowners’ policy. The exclusion contained an exception for loss when “the direct force of wind or hail damages the building causing an opening in a roof or wall and the rain . . . enters through this opening.” The trial court awarded the plaintiff $26,406 in property damage ($40,414 minus a hurricane deductible of $14,008), $52,812 in penalties under La. R.S. 22:1973 (two times the $26,406 amount owed under the policy), and attorneys’ fees of $19,804 under La. R.S. 22:1892. For breach of an insurer duty under R.S. 22:1973, subsection (C) states that “the claimant may be awarded penalties assessed against the insurer in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater.”

The Louisiana Fourth Circuit Court of Appeal finds that the trial court incorrectly determined the penalty under R.S. 22:1973 by doubling the amount still owed under the policy. Under the 1973 statute, the amount that should be doubled is the amount in damages actually caused by breach of the insurer duty. As a result, the Fourth Circuit, after finding that the plaintiff was entitled to $12,500 in general damages caused by the insurer’s arbitrary failure to make payment, holds that the plaintiff was entitled to a penalty of twice that amount, or $25,000.

The court did not discuss the option of a 50 percent penalty under La. R.S. 22:1892, though a 50 percent penalty on the $26,406 amount arbitrarily not paid under the policy would have been $13,203, which was less than the $25,000 penalty awarded under R.S. 22:1973. Dedenhefer v. Louisiana Citizens Property Insurance Corporation, 13-0977 (9/25/19).

Damages – Loss of Enjoyment of Life In a case where the plaintiff had a lumbar fusion and a cervical fusion was recommended, where the jury awarded $1,149,509 in total damages, but where the plaintiff’s credibility was seriously challenged because of false denials of prior back and neck treatment, the Louisiana Second Circuit Court of Appeal finds the jury did not abuse its discretion in failing to award the plaintiff any amount for loss of enjoyment of life. Perry v. Starr Indemnity & Liability Company, 52,720 (9/25/19).

Insurer Subrogation – “Made Whole” Doctrine Plaintiff was involved in a car accident and had health coverage through the State of Louisiana Office of Group Benefits (“OGB”) under its HMO plan. OGB paid $32,252 in plaintiff’s medical expenses. Plaintiff received $155,000 in insurance proceeds because of the accident, but refused to reimburse the OGB the medical expenses paid because of the “Make Whole” doctrine. Under that doctrine, in the absence of a contrary agreement, an insurance company cannot enforce its subrogation rights until the insured has been fully compensated for her injuries or “made whole.”  The personal injury lawyers in Tampa can help with the legal aid that one needs.

But here, the subrogation section in the OGB HMO plan stated in pertinent part:

Under these subrogation and reimbursement rights, the Office of Group Benefits has a right to first recovery to the extent of any judgment, settlement, or any payment made to the covered Employee, his Dependents or other Covered Persons. These rights apply regardless of whether such recovery is designated as payment for, but not limited to, pain and suffering, medical benefits, or other specified damages, even if he is not made whole (i.e., fully compensated for his injuries). (Emphasis added.)

The Louisiana First Circuit Court of Appeal finds that, because of the subrogation provision in the HMO plan, the “Make Whole” doctrine did not apply. Though noting a 2003 directive by the Louisiana Commissioner of Insurance stating in effect that the “Make Whole” doctrine is Louisiana public policy, the First Circuit notes that “the Louisiana Supreme Court has recognized that health and accident insurers can readily protect themselves by stipulating reimbursement rights or conventional subrogation in their policy contracts.” Bayham v. State of Louisiana through the Office of Group Benefits, C628132 (8/29/19).

Allocation Between Covered and Non-Covered Claims In a Minnesota case, New Horizons, a childcare facility, was sued for physical and sexual assaults on a three-year-old by a nine-year-old at the facility. Travelers, the primary insurer, provided $3,000,000 in coverage and provided a defense to New Horizons. RSUI, the excess insurer, provided $8,000,000 in coverage, but the RSUI policy contained a sexual-abuse or molestation exclusion. At trial, the insured conceded liability, and the jury awarded plaintiff $6,032,585 in damages. However, the jury was not asked to find whether there was physical abuse or sexual abuse, or to allocate damages between physical abuse and sexual abuse. Approach the Yaffa Family Law Group to handle your cases who have the best lawyers to solve your problem.

After trial, Travelers paid its $3,000,000 policy limit; and New Horizons paid the remaining $3,224,888 in damages and demanded indemnity from RSUI. Contending that its policy’s sexual-abuse exclusion barred coverage, RSUI filed a declaratory judgment on coverage. The trial court granted summary judgment to New Horizons on coverage, finding RSUI could not prove any part of the unallocated award was caused by sexual assault and thus could not prove the sexual-assault exclusion applied.

Reversing the district court, the United States Eighth Circuit Court of Appeals finds excess insurer RSUI had the right to show that the damages in part were caused in part by a sexual assault and, if so, to then have the court make an allocation of damages between the covered physical assaults and the non-covered sexual assaults. RSUI Indemnity Company v. New Horizons Kids Quest, 17-3567 (8/12/19).

Reservation of Rights – Telephone? On March 22, plaintiff filed suit. On April 24, the attorney hired by the liability insurer, ACCC, filed an answer for the insured, and ACCC filed a declaratory-judgment action on whether it had a duty to defend the insured and whether its policy covered the insured. And on April 19—19 days before the answer was filed—ACCC left a voice-mail message on the insured’s voice-mail with reference to “a previous reservation of rights issued on the file.”

Opposing ACCC’s motion for summary judgment, the insured argued that ACCC was estopped from contesting coverage because, before assuming his defense, ACCC failed to unambiguously advise the insured that it was providing a defense under a reservation of rights. In this case, a Georgia appeals court agrees with the trial court’s denial of the insurer’s summary‑judgment motion, finding that there was a genuine issue of material fact as to whether the insurer had issued an effective reservation of rights (and whether the insurer had earlier notice of policy defenses later raised). ACCC Insurance Company of Georgia v. Walker, A19A0804 (9/5/19).

Duty to Defend – Texas – Extrinsic Evidence In a tragic accident in Texas, a child, while under the temporary care of his grandparents, was killed in an all-terrain vehicle accident. The child’s mother sued the grandparents for negligent supervision. The grandparents sought a defense from their homeowners’ insurer, State Farm Lloyds. The homeowners’ policy required the insurer to provide a defense “[i]f a claim is made or a suit is brought against an insured for damages because of bodily injury . . . to which this coverage applies, caused by an occurrence.”

State Farm contested coverage under two exclusions. First, there was a motor-vehicle exclusion, with the policy definition of “motor vehicle” expressly including all-terrain vehicles used “while off an insured location.” Second, there was an “insured exclusion,” excluding coverage for bodily injury to any insured, with the policy defining “insured” to include household residents under 21 in the care of a named insured. 
Under the traditional eight-corners test that looks only to the factual allegations in the pleading to determine whether a defense is owed, State Farm provided a defense under a reservation of rights, but then filed a motion for summary judgment that it never owed a defense to the grandparents because of extrinsic evidence showing that the accident occurred off an insured location and that the grandparents had responsibility for care of the child. 

Relying on the extrinsic evidence, a federal district court granted State Farm’s motion for summary judgment, ruling the insurer had no duty to defend and to indemnify the grandparents. Finding based on extrinsic evidence the eight-corners test here did not apply and the insurer had no duty to defend, the district court relied heavily on the absence of wording in the State Farm policy that the insurer would defend all actions, even if the suit allegations were groundless, false, or fraudulent.

On appeal, the United States Fifth Circuit Court of Appeals certified to the Texas Supreme Court the question of whether an insurer, with a policy with the duty-to-defend wording in the State Farm policy, has a duty to defend if extrinsic evidence shows there was no coverage.
Certainly, an insurer, after initially providing a defense under an effective reservation of rights, can always file a motion for summary judgment based on extrinsic evidence that the policy does not provide coverage and hence the insurer no longer owes a defense, even when a defense is initially owed under the eight-corners test. State Farm Lloyds v. Richards, 2019 WL 4267354 (9/9/19).

Written by Richard Petre

This issue highlights two recent Louisiana decisions on the business exclusion in homeowners’ insurance policies as well as a major federal court of appeals decision addressing insurance issues in molestation cases. But the big news is that Claitor’s Publishing Division has finally published the fourth edition of Louisiana Liability & Property Insurance Coverage Law:  A Handbook For the Busy Practitioner.  See below for more information on buying the book.  And thanks for your continued patronage and support. You might also want to look here if you’re looking for a cheap insurance quote, no matter what insurance you’re looking for you’re more than likely able to find the policy you’re after.

It’s Here – Louisiana Liability & Property Insurance Coverage Law:  A Handbook For the Busy Practitioner Claitor’s Publishing Division in Baton Rouge has just published the fourth edition of the Handbook.  It is now available for purchase.  The toll-free number for Claitor’s is 800-274-1403, and its website is www.claitors.com.  The list price is $75.  The stock number is 9781598048940. 

Homeowners’ Insurance – Business Exclusion  In Parker v. American Western Home Insurance Company, 18-392 (La. App. 3 Cir. 12/28/18), the plaintiff, visiting a mobile home leased by his sister, was allegedly injured in August 2016 when he fell through a defective kitchen floor.  The rental agreement was signed in January 2016, though the lessor and lessee had talked about a rent-to-own agreement.  And in the prior year, the lessor had rented the mobile home for a period of time to his daughter.The lessor’s homeowners’ insurer contested coverage under the policy’s business exclusion.  The policy stated that it did not cover bodily injury or property damage “arising out of or in connection with business conducted from an insured premises or engaged in by an insured person.”  The policy defined the term “business” as “any task, profession, occupation or service of an insured person,” and stated that “business” included “any part-time, temporary, or permanent activity engaged in for compensation.”  But the business exclusion contained an occasional-rental exception stating that the exclusion “does not apply to the rental or holding for rental of an insured premises:  (1) on an occasional basis if used only as a residence[.]” 

The trial court granted the insurer’s motion for summary judgment, finding the business exclusion applied.  But on appeal, the Third Circuit Court of Appeal reversed.  First, the court noted testimony from the lessor that the rental payments simply covered his bank note on the property, seemingly finding that the business exclusion required a business that produced monetary profit.  Second, relying heavily on and quoting from Lecompte v. Lafayette Ins. Co., 813 So.2d 432 (La. App. 1 Cir. 9/28/01), the court found a question of fact as to whether the lessor’s “two rentals of the property at issue established a pattern of rentals so uninterrupted, so unbroken, and so persistently repeated at short intervals as to constitute virtually an unbroken series.”

Lecompte and Parker are contrary to a number of decisions by out-of-state courts that more liberally apply the business exclusion and that more stringently apply the occasional-rental exception to the exclusion.

Homeowners’ Insurance – Business Exclusion In Washington v. Guillotte, 2018-0301(La. App. 1 Cir. 12/21/18), a cow escaped the insured’s property and was hit by a car.  The insured at one time kept as many as 25 cows, but never made a profit from the cattle and did so as a tax deduction.  Plaintiffs, injured occupants in the car, sued the insured and his homeowners’ insurer.  The insurer contested coverage based on the policy’s business exclusion.  However, the policy contained a provision providing coverage “to a person off the insured location, if the bodily injury. . . is caused by an animal owned by or in the care of an insured.”  The insurer filed a motion for summary judgment based on the business exclusion.  The insurer argued that here the evidence showed both continuity of activity and the expectation of monetary gain.  The trial court granted the insurer’s motion.  The trial court noted that for the insured to claim farm expenses as business tax deductions, he had to show some type of income.  

However, the Louisiana First Circuit Court of Appeal reversed, finding that business activity for tax purposes is not necessarily a business for purposes of the policy exclusion; and that issues of fact existed as to whether the insured intended to make a profit with keeping cattle, and whether his activity was continuous given testimony that in some years he had no cattle sales.

UM – Uninsured Vehicle In McGee v. Allstate Insurance Company, 52,299 (La. App. 2 Cir. 11/14/18), plaintiff was a passenger in a one-car accident that occurred when the car hit a tree.  Allstate, the insurer on the car, paid its liability policy limit for the negligence of the host driver.  However, even after the settlement, plaintiff pursued a UM claim against Allstate.  The trial court granted summary judgment to Allstate based on numerous Louisiana cases finding that the Louisiana UM statute contemplates two distinct vehicles:  the underinsured vehicle and the at-fault vehicle.  Readily affirming the trial court, the Louisiana Second Circuit Court of Appeal rejected plaintiff’s argument that, under a “liberal interpretation” of R.S. 22:1295(2)(b), the Louisiana UM statute does not require that the underinsured and at-fault vehicles be separate vehicles.  Further, the court rejected Allstate’s claim that plaintiff’s appeal was frivolous.

UM – Permissive User Micah worked for AES and was given a truck to use in his work.  He signed an AES policy statement that all vehicles were “primarily” for business use and that only duly authorized drivers could drive company vehicles.  However, Micah personally paid the auto insurance for the truck, though AES was the named insured.  Working on a water well at his house, Micah asked his father to drive the AES truck to Lowe’s to get parts needed for the water well.  When driving the truck, the father was involved in an accident and sued Commerce, the UM insurer for the truck.  But Commerce contested UM coverage, arguing that the father could not have had the express or implied permission of named insured AES because of the company policy that only authorized drivers could operate company vehicles.

Affirming summary judgment to the plaintiff, the Louisiana Third Circuit Court of Appeal found that the father was a permissive user because it was reasonably foreseeable that the first permitee, Micah, would allow someone else to drive the truck.  Boudreaux v. Commerce and Industry Ins. Co., 18-322.

D&O Insurance – Property Damage Exclusion A fire damaged a condominium unit and common elements of the condominium building.  The property insurer paid the condominium association for the property damage.  But the association spent all of the insurance proceeds on repair of the common elements and failed to repair the damaged unit.  As a result, the trust owning the condominium unit sued the association for the breach of duties under the Louisiana Condominium Act.

The association then sought defense and coverage from Travelers, which had issued a community association management liability policy.  The policy essentially covered the wrongful acts of the association’s directors and officers.  However, the policy contained a property-damage exclusion, which read as follows:

The Company will not be liable for Loss for any Claim based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any damage to, destruction of, deterioration of, loss of, or loss of use of any tangible property, including any Construction Defect, whether or not as a result of inadequate or insufficient protection from soil or ground water movement, soil subsidence, mold, toxic mold, spores, mildew, fungus, or wet or dry rot.

The trial court granted summary judgment to the insurer that the exclusion applied and that the insurer did not have a duty to defend.  In a well-written opinion, the Louisiana Fourth Circuit Court of Appeal affirmed, emphasizing the “arising out of” wording in the exclusion.  Forrest v. The Ville St. John Owners Association, Inc., 2018-0175(11/9/18).

“Occurrence” – Molestation In Hartford Roman Catholic Diocesan Corporation v. Interstate Fire & Casualty Company, 16-2999 (9/19/18), a child-molestation case, the United States Second Circuit Court of Appeals affirmed a district court’s ruling against the excess insurer for the Hartford Diocese and in favor of the diocese.  The diocese had settled with molestation claimants and sought indemnity from the excess insurer.  The court of appeals made these rulings:

First, the policy’s assault and battery exclusion did not exclude coverage to the diocese for a battery by a priest working in the diocese at the time.  The exclusion read:This coverage does not apply:(a)  To liability of any Assured for assault and battery committed by or at the direction of such Assured except liability for Personal Injury or Death resulting from any act alleged to be assault and battery for the purpose of preventing injury to persons or damage to property.

Rejecting the insurer’s argument that “such Assured” referred to “any” insured under the policy, the court found that the term “such insured” referred only to the insured who committed a battery, noting that the insured could have used again the term “any insured” rather than “such” insured, and disagreeing on this issue with a Ninth Circuit decision, Interstate Fire & Casualty Co. v. Roman Catholic Church of Phoenix, 761 F.3d 953 (9th Cir. 2014).

Second, the court found that the policy term “occurrence” covered the intentional acts.  The policy defined “occurrence” as follows:  “An accident or a happening or event or a continuance or repeated exposure to conditions which unexpectedly and unintentionally results in a personal injury, or damage to property during the policy period.”  The court found that a subjective test should be used to determine whether the diocese expected the resulting injuries to occur, and that here the diocese did not have such an intent.

Property Insurance – Actual Cash Value After their house was damaged as a result of Hurricane Isaac, plaintiffs made a property damage claim under a wind and hail policy issued by Louisiana Citizens Property Insurance Corporation.  The parties disagreed on the amount of loss, and plaintiffs invoked the policy’s appraisal clause.  In the appraisal process, the umpire determined the replacement cost value of the dwelling and other structures, but made no finding as to whether replacement cost value (RCV) or actual cash value (ACV) was owed under the policy.  Based on the umpire’s valuations, Citizens made payment based on the actual cost value, taking into consideration depreciation.

Plaintiffs sued Citizens for the difference between the RCV claimed and the ACV paid.  However, the policy’s declaration page expressly stated that the declarations were part of the policy and that “[v]aluations for purposes of determining loss will be at ACTUAL CASH VALUE.”  Further, the dwelling property form contained a “Loss Settlement” provision stating:  “Covered property losses are settled at actual cash value at the time of loss but not more than the amount required to repair or replace the damaged property.”  

The trial court found that the Citizens policy was ambiguous and that Citizens should have paid RCV.  Reversing the trial court, the Louisiana Fifth Circuit Court of Appeal found the Citizens policy was not ambiguous and required payment of only ACV.  Percorado v. Louisiana Citizens Insurance Corporation, 18-CA-161 (10/17/18).

Duty to Defend – Pre-Policy Damages In Pontchartrain Natural Gas System v. Texas Brine Company, 2018-0244(10/11/18), plaintiffs, owners and operators of natural-gas pipelines and storage facilities, sued Texas Brine Company for damages caused by a salt-dome sinkhole.  The plaintiffs alleged the sinkhole occurred in August 2012, and did not allege or seek any pre-sinkhole damages.  The liability insurers for Texas Brine Company filed a motion for summary judgment that their policies, covering policy periods before the sinkhole date, could not cover plaintiffs’ damages.  The policies were occurrence policies, which clearly stated they covered only damages that occurred during the policy period.
The trial court granted the insurers’ summary judgment on the plaintiffs’ claims.  However, the trial court denied the insurers’ motions for summary judgment that the pre?sinkhole insurers did not owe a defense to Texas Brine Company.

The Louisiana First Circuit Court of Appeal correctly reversed the denial of the insurer motions for summary judgment on its duty to defend Texas Brine Company.  The appeals court noted that once the trial court determined on summary judgment that the plaintiffs were not making claims for any damages that predated discovery of the sinkhole, insurers that covered only pre-sinkhole damages could not possibly owe coverage or a defense.

Insurance Agents – Duty to Procure InsuranceIn a case with many disputed facts, the trial court at trial found that the insurance agent for a retail clothing company negligently failed to procure property insurance that included wind and hail coverage.  The facts did show that, though the insured company promptly reported the claim to the agent, the agent waited 16 months before contacting the insurer and never advised the insured that the policy did not contain wind and hail coverage when the claim was reported.

In affirming the trial court’s judgment in favor of the insured, the Louisiana Fourth Circuit Court of Appeal reiterates that under Louisiana law an insured has to establish three factors to prove the insurance agent failed to procure insurance coverage:  (1) an agreement by the agent to procure insurance, (2) failure by the agent to use reasonable diligence to obtain insurance and to notify the client promptly of the absence of coverage, and (3) actions by the agent warranting belief by the client that it is insured for the desired coverage.  Upscale Fashions, Inc. v. Underwriters at Lloyds London, 2018-0015 (8/29/18).

Written by Richard Petre

In this newsletter, we begin with a non-coverage case, reporting on a major collateral‑source ruling by the Louisiana Supreme Court on whether personal-injury plaintiffs who received workers’ compensation can recover as medical expenses what the health care providers originally charged, including the amounts “written off,” or what workers’ compensation actually paid to the health care providers. It’s a big one. There is also a Louisiana Supreme Court decision on forum‑selection clauses in insurance policies. Plus, there are two major cases on whether the manifestation test or the exposure test should be used to determine when property damage under a CGL policy occurs. And of course, there are automobile-liability and UM cases to report on. Finally, as previously noted, our Louisiana Liability & Property Insurance Coverage Law: A Handbook for the Busy Practitioner is available for purchase for the amazingly modest price of $75 from Claitor’s Publishing in Baton Rouge; the numbers are 225-344-0476 and 800-274-1403, and the internet address is www.claitors.com. Those in Louisiana involved in litigating or adjusting insurance claims, in selling insurance products, or even in buying commercial liability and policies should consider buying a copy.

Collateral Source Rule – Workers’ Compensation Write-Off In Simmons v. Cornerstone Investments, LLC, 2018-0735 (5/8/19), the Louisiana Supreme Court ruled that plaintiffs cannot recover as a collateral source the amounts in medical expenses written off by health care providers after payment by workers’ compensation insurers. As a result, in cases where a workers’ compensation insurer paid medical expenses, plaintiffs in tort actions can recover in medical expenses only those amounts actually paid by the workers’ compensation insurer, not the amounts originally charged by the health care providers. The Court noted that, under La. R.S. 23:1034.2(D), fees in excess of the reimbursement schedule used by workers’ compensation insurers “shall not be recoverable against the employee, employer or workers’ compensation insurer.” You must also check for occupational disease that are covered for workers.

Further, the Court affirmed an evidentiary ruling by a lower court that the plaintiff could introduce evidence only of the lower amount actually paid, rather than the higher amount originally charged, a ruling that drew criticism in a concurring opinion by Justice Hughes and in a dissenting opinion by Justice Genovese.

Insurance – Compulsory-Venue Clause In Creekstone Juban I, LLC v. XL Insurance America, Inc. (5/8/19), a commercial insurance policy issued by XL Insurance contained a “Service of Suit and Choice of Law” clause that mandated that any suits over the policy be filed in New York state (it also mandated that New York state law would govern interpretation of the policy). Creekstone, an additional insured, sued XL Insurance in a Louisiana state court, and XL Insurance filed several exceptions based on the service of suit clause. Creekstone argued that suit in Louisiana was proper because the policy’s service of suit clause was contrary to La. R.S. 22:868 and Louisiana public policy. R.S. 22:868 states that no insurance policy issued in Louisiana shall contain any condition that deprives Louisiana courts of “jurisdiction of any action against the insurer” (or that requires interpretation of the policy under the law of another state). 

Reversing both the district court and court of appeal, the Louisiana Supreme Court ruled that the policy’s service of suit clause was a forum-selection clause that was not contrary to R.S. 22:868 or public policy, and that Creekstone’s suit had to be litigated in New York. The Court focused on the word “jurisdiction” in R.S. 22:868 and found that the policy clause involved venue, not jurisdiction. The Court also emphasized that this dispute was one between two large business entities, leaving open the question of whether the Court might reach a different result in suits by individual policyholders.

Justice Hughes wrote a scathing dissent, which Justice Genovese joined in. Justice Hughes began his dissent as follows:

It is ridiculous that a Louisiana business with Louisiana customers and employees that suffers millions of dollars in damages requiring millions of dollars of repairs by Louisiana carpenters, plumbers, and painters in Louisiana insured by an insurance policy delivered in Louisiana should be required to litigate against the insurer in New York when it has been the public policy of Louisiana since 1948 that such matters should be litigated in Louisiana and that “any condition” to the contrary contained in an insurance policy is prohibited. The disdain for Louisiana business and the Louisiana Legislature is remarkable.

In reversing the trial court and the court of appeal, the majority opinion is wrong for three separate reasons: failure to recognize public policy, false dichotomy between “big sophisticated” business and “single” Louisiana residents, and an unsupportable reformation of the contract to enable the desired result.

And Justice Hughes noted that the service of suit clause actually used the word “jurisdiction,” not the word “venue.”

An issue not discussed by the Court was whether R.S. 22:868 even applied because the XL policy was issued in Texas, not Louisiana.

Auto Insurance – Criminal-Act Exclusion In Charles v. Safeway Ins. Co. (18-780), a sheriff’s deputy attempted to pull over Bernard, driving his father’s car, for a broken taillight. Bernard, driving without a driver’s license but with marijuana, refused to stop, leading to a high-speed chase that ended when Bernard’s car hit the rear of plaintiff’s car. Safeway insured Bernard’s car and contested coverage on the basis of criminal-act exclusions, which stated the policy did not apply:

(b) to bodily injury or property damage intended by, or which may reasonably be expected to result from the intentional or criminal acts or omissions of, any insured person.
.       .     .
(n) to bodily injury or property damage arising out of the ownership, maintenance or use of any automobile while being operated or used in the preparation to commit a crime, commission of a crime and/or flight from a crime, other than a traffic violation, regardless of whether or not such insured person is actually charged with, or convicted of a crime.

Reversing the trial court’s rejection of the criminal-act exclusion, the Louisiana Third Circuit Court of Appeal found the exclusion applied regardless of whether a traffic violation motivated Bernard to flee from the police. This is one of the main reasons to hire criminal defense attorneys based in Festus area, who can best understand the client’s situation and seek them justice accordingly.

The court stated: 

We find that the reason Mr. Bernard committed the crime (i.e. flight from an officer) is irrelevant to the question of whether he committed a crime. The policy is clear that damages arising out of the use of an automobile is being used to commit a crime, other than a traffic violation, are excluded from coverage. (Emphasis not added.). This explains why you may still want to hire a lawyer when you commit a crime, however small it may be!

Further, Judge Perry wrote a concurring opinion in which he indicated the policy was voided from inception because of material misrepresentations on the policy application made by the policyholder.

UM – Uber Plaintiff, driving for Uber, was involved in an accident with an underinsured motorist and tried to collect UM from Uber’s automobile insurer. However, the named policyholder, an Uber subsidiary, had waived UM coverage. The Louisiana Fourth Circuit Court of Appeal found that, under La. R.S. 45:201 et seq. and La. R.S. 22:1295, a transportation network company like Uber can waive UM coverage. R.S. 45:201.6 states that a transportation network company shall include UM coverage to the extent required by R.S. 22:1295; however, R.S. 22:1295 allows the rejection of UM coverage by a named insured, and here a named insured rejected UM coverage. Jean v. James River Insurance Company (5/29/19).

When Damages Occur – Property Damage In a case of defective house-elevation, the Louisiana Fourth Circuit Court of Appeal readily found that the damages occurred when they first became manifest, not when the act causing damage may have occurred. In short, the court adopted the manifestation test, rather than the exposure test, to determine when coverage was triggered under the contractor’s CGL policy.

Also, the policy contained an endorsement which added pre-existing injury, loss or damage exclusions to the policy. The exclusion read in pertinent part:

The coverage under this policy does not apply to “bodily injury,” “property damage,” “personal damage,” “personal and advertising injury,” or any injury, loss or damage:

(A) which first occurred, began to occur, or is alleged to have occurred prior to, or is alleged to be in the process of occurring or occurring to any degree, as of the inception date of this policy; or
(B) which is caused or alleged to have been caused by incremental, continuous or progressive damage arising from an occurrence which first occurred, began to occur, or is alleged to have occurred prior to the inception date of this policy.
The court applied the pre-existing injury exclusion to find that the plaintiff’s mental anguish as well as property damage predated the policy period of a policy issued after the injury and property damages became manifest. Mann v. Tim Clark Construction (5/22/19).

When Damages Occur – Property Damage And in M&R Drywall, Inc. v. Mapp Construction, (4/29/19), a heavily fact‑specific, defective construction case involving numerous excess insurers, the Louisiana First Circuit Court of Appeal used the manifestation test to determine when property damage occurred, stating:

Neither the insurance policy at issue nor Louisiana law require an insured to know the extent and cause of damage before insurance coverage is triggered. Pertinently, under the policy, property damage is deemed “to have been known to have occurred” when the insured becomes aware by any means that property damage “has occurred or begun to occur.”

Excluded Driver – Collision Coverage In Thibeaux v. GoAuto Insurance Company, the Louisiana Third Circuit Court of Appeal applied an excluded-driver exclusion to preclude collision coverage, even though the excluded driver was operating the car without the named insured’s permission. Judge Cooks wrote a lengthy dissent, arguing that collision coverage applies to loss caused by theft or conversion of an auto, and that here the driver did not have authority to drive the car. You can contact expert attorneys who will help you understand the difference between burglary and theft to help you out from the situation.

UM – Waiver Three cheers to Judge Gremillion for this introductory passage: “Whole forests have been felled to publish the myriad cases discussing whether UM waivers are valid.” And a round of applause to the Louisiana Third Circuit Court of Appeal in rejecting several questionable challenges to a UM waiver. In Stowe v. Allstate Property and Casualty Insurance Company, the insured, wanting to waive UM coverage, placed a check mark, rather than her initials, in the space beside the clause indicating UM rejection. The form, which the insured had already signed and dated, was returned to her to place her initials in a space drawn by someone in the agent’s office next to the check-marked space.

Reversing the trial court and finding the waiver was valid, the court of appeal found that the insured can initial her selection after signing the form. Further, though noting that IOC Bulletin 08-02 states that waiver forms should not be altered or modified, the court stated that the agent’s minor alteration of the form had the effect of making the policyholder’s UM rejection clear and simply did not rise to the level of an alteration invalidating the waiver.

Insurance – Waiver of Defenses In Matt v. Safeway Ins. Co., the Louisiana Third Circuit Court of Appeal affirmed a trial court’s ruling that Safeway provided automobile liability insurance at the time of the accident. In this case, Safeway raised a number of defenses. Prefatorily, the court found that whether the named policyholder still had an insurable interest in the insured auto at the time of the accident was irrelevant because the insurable-interest requirement pertains to property insurance, not liability insurance. However, the court held that Safeway waived a material representation defense and other defenses by failing to refund premium changes when it learned of the policy‑application misrepresentations and by later renewing the policy. Note: Insurers will have little success trying to later void a policy because of material misrepresentations if they retained, and did not timely return to the policyholder, premium changes incurred after the date they learned of the misrepresentations, and certainly if they renewed the policy with knowledge of the misrepresentations.

Direct Action – Insurers Rogers v. Integrated Exploration and Production (2/20/19) involved a serious oilfield‑platform accident, which raised numerous insurance issues. Quickly, it should be noted that the court found that the Louisiana Oilfield Anti-Indemnity Act, with its limitations on indemnity and insurance obligations, did not apply, and that the additional-insured (AI) endorsement under its wording applied if the injury was caused in whole or in part by the named insured’s fault (the AI endorsement used the term “your acts or omissions”) or solely by the additional insured’s fault.

However, the Louisiana Fourth Circuit rejected the insurer’s argument that the additional insured could not bring a direct action against the insurer, stating that Louisiana law allows a claim under an insurance policy where the claimant is a named insured, an additional insured, or a third-party beneficiary of the contract, and here the additional insured was a third party beneficiary to the named insured’s policy.