Occurrence-based liability policies insure against the risk that the policyholder will be held liable for injury during the policy period. When injury occurs over more than one policy period, however, questions sometimes arise as to whether the insurance policy in each year applies and if they all apply how much does each policy pay.
Some insurers recognize the possibility that when they issue insurance policies across time they are at risk from their insured’s collecting under successive policies for essentially one tort. To protect themselves from paying multiple limits, some insurers use a non-cumulation of liability clause. The New York Court of Appeal recently addressed the impact of a non-cumulation clause, holding that it confined the insured’s recovery to a single year’s loss limit.
Corporate directors and officers litigation today often involves claims asserted under the federal securities laws as well as under federal employee-benefits law (ERISA). The plaintiffs in these suits are conceptually different: securities-law plaintiffs are people who (and entities that) purchased or sold the company’s securities; ERISA plaintiffs are participants in employee-benefit plans that held or permitted the investment in company securities. Increasingly, ERISA cases are tagging along to securities cases: the directors and officers (who often are plan fiduciaries) are alleged to have failed to disclose certain facts about the company’s operations or finances to the market generally (for securities claims) or to participants in company-sponsored employee-benefit plans (for ERISA claims).
The United States Court of Appeals for the First Circuit recently had the opportunity to address coverage for a tagalong ERISA claim that was made four years after a securities-law class action was filed. In a very troubling opinion, the court ruled that no coverage was available for the ERISA class action because the gravamen of the complaint echoed the allegations in the earlier securities class action. The basis of the court’s ruling was not that the policyholder had failed to disclose the early securities-law class action, but rather that a generic prior-and-pending litigation exclusion barred coverage. Federal Ins. Co. v. Raytheon Co. (1st Cir. Oct. 21, 2005)
The most recent Supreme Court decision on the constitutionality of punitive damages was a third-party insurance bad-faith case. State Farm Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003). In that case, the Supreme Court gave strong indications that in insurance cases the maximum punitive damages that may be constitutionally awarded is predicated on a one-to-one ratio between the punitive damages and the compensatory damages, i.e., they must be (nearly) equal to one another. However, on remand from the US Supreme Court the Utah Supreme Court held that, considering the facts involving State Farm and the Campbells, the insurer’s conduct and the injury involved merited punitive damages that were nine times the compensatory-damages award. 2004 UT 34.
Recently, the Oregon Court of Appeals had the opportunity to address the question of the appropriate ratio between punitive and compensatory damages in an insurance bad-faith case, finding that a three-to-one ratio was appropriate. Goddard v. Farmers Ins. Co., (Ore. Ct. App. Oct. 12, 2005). And the court made clear that this ratio approached the asymptotic limit.
Asbestos liabilities have caused a number of companies to seek the protection of the bankruptcy laws to manage the present and future stream of tort claims and to facilitate insurance recovery. A special provision of the bankruptcy code was added in 1994 to facilitate the resolution of asbestos claims in bankruptcy, 11 USC 524(g).
A more recent wrinkle in the asbestos-driven bankruptcies has been use of “pre-packaging” or “pre-pack” wherein before the bankruptcy filing the debtor and its principal creditors negotiate the resolution and then go to bankruptcy court to obtain judicial imprimatur. For several reasons, the insurers have begun to pull out all stops in fighting against asbestos bankruptcies, most recently attacking counsel for the policyholder, where that insurance counsel was too involved in pre- and post-bankruptcy matters.
Many of us who have been practicing for quite some while in the insurance-coverage area at times marvel at the return or continuation of the coverage “wars” of the 1980s. We still confront the same issues in cases that were the focus twenty years ago, though sometimes courts confront new twists in otherwise well-trodden paths.
The Kentucky Supreme Court recently had the opportunity to address a number of the key environmental coverage issues in an insurance dispute commenced in 1987. In an opinion challenged by a lengthy dissent, the Kentucky high court addressed (among others): (i) whether response costs represent covered “damages” on account of property damage indemnifiable by CGL policies; (ii) whether administrative enforcement proceedings were “suits” to which the duty to defend applied; and (iii) how the (equivalent of an) owned-property exclusion applies. It also addressed whether the insured knew of the risk of injury such that coverage should be denied. And the court addressed whether the insurers’ payment of damages for breach of the duty to defend was subject to policy limits, which would have been the case had the insurers performed initially. This last issue, especially as resolved by the Kentucky high court, is not typical fodder in environmental-coverage cases.
An artist-photographer named Thomas Condon set up shop in the Cincinnati morgue. His photographing corpses without the permission of the next of kin led to various civil and criminal proceedings against him. It naturally has led to an insurance case, too.
A common criticism of courts dealing with insurance issues is that they forget they are dealing with a contract. Where courts don’t like the economic incentives that (they fear) they might create by affording coverage, they sometimes make up coverage-limiting postulates that are nowhere expressed in the policy.
This is what happened in the South Carolina Supreme Court recently, which confronted a question common in the construction context – namely, is a contractor’s faulty construction a covered occurrence. L-J Inc. v. Bituminous Fire and Marine Ins. Co. (S.C. Sept. 26, 2005). If that kind of event can never be an “occurrence,” then insurance companies never have an obligation to pay for the defense of claim alleging resulting injury and damage or to fund the cost of any settlement or, if the case gets tried, any judgment.