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Legal Updates, Opinions and Relevant information on Insurance Coverage and Bad Faith Litigation

Carlock, Copeland & Stair, a civil litigation firm, has a reputation for forceful, creative and cost-effective advocacy on behalf of its clients. Formed in 1970 with five attorneys operating out of a downtown Atlanta office, we now have over 75 civil litigation attorneys handling legal matters across the Southeast from offices in Atlanta, GA, Charleston, SC and Chattanooga, TN.

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Excess Insurer U.S. Fire Insurance Co. Urges Fifth Circuit to Affirm District Court Finding that Faulty Work Award is Not Covered Under Excess Policy

U.S. Fire Insurance Co. (“U.S. Fire”) is requesting that the Fifth Circuit Court of Appeals  affirm a district court’s ruling that an $8 million arbitration award for repairs necessitated by faulty construction is not covered under its excess liability policy.  U.S. Fire Insurance Co. (“U.S. Fire”) is requesting that the Fifth Circuit Court of Appeals  affirm a district court’s ruling that an $8 million arbitration award for repairs necessitated by faulty construction is not covered under its excess liability policy.

The insurance coverage dispute arises out of the alleged deficient construction of a courthouse in Zapata County, Texas, by Satterfield & Pontikes Construction, Inc. (“S&P”).  Arbitration of the underlying claims resulted in an $8 million judgment against S&P, allocated as follows: $6,072,000.00 in compensatory damages; $1,500,000 in attorneys’ fees; $430,458 in pre-judgment interest; and $29,909.74 in arbitration fees.  S&P sought contractual indemnity from each of its subcontractors and ultimately obtained $4,492,500 in settlements with their subcontractors.

S&P then sought coverage from its primary commercial general liability insurer, American Guarantee & Liability insurance Company (“AGLIC”), and its umbrella liability insurer, U.S. Fire, for the remaining balance of the judgment.  U.S. Fire refused to pay any portion of the remaining judgment on the ground that applying non-covered amounts under the excess policy to the subcontractor settlements was improper.  U.S. Fire’s excess policy contained a “Fungi and Bacteria Exclusion,” and the excess insurer took the position that after subtracting the attorney’s fees, arbitration fees, prejudgment interest, and portions of the award attributed to mold remediation, there remained $3,240,000 of potentially covered claims – less than the subcontractor settlements plus the underlying coverage limits.

S&P, AGLIC, and Amerisure then sued U.S. Fire in the United States District Court for the Southern District of Texas.  In its June 1, 2017 order granting U.S. Fire’s motion for summary judgment, the district court held that no loss reaches the excess layer of insurance.  The district court reasoned that the subcontractor settlements were structured as “undifferentiated general releases” and failed to allocate the settlement money between covered and non-covered damages under the excess policy.  The court concluded that “allocating the settlement money it received only to uncovered harms” and then pursuing reimbursement from the excess carrier was an attempt to “manufacture a covered loss.”  In so holding, the court noted that Texas courts “generally put the burden on the insured to identify the portion of a liability or loss that was produced by a covered condition.”

On November 6,  2017, S&P and Amerisure appealed to the Fifth Circuit Court of Appeals.  They argue that there is no basis in the U.S. Fire policy to apply its terms, conditions and exclusions to reduce the amount of the subcontractor settlements, as those settlements were made pursuant to indemnification obligations arising out of S&P’s subcontracts and were not the product of insurance coverage for S&P.  Additionally, S&P contends that it was not required to allocate between covered and non-covered damages in the subcontractor settlements.   In its reply brief filed on January 5, 2018, U.S. Fire urged the Fifth Circuit to affirm summary judgment.

The appeal remains pending.  However, this dispute is an important reminder to contractors and insurers alike to 1) carefully consider the terms of a settlement agreement and 2) determine whether the jurisdiction in which any dispute of the agreement’s terms would be litigated requires identification of the portion of a liability or loss that was produced by a covered condition.  Does anyone else think that this sounds a good bit like the recent D.R. Horton v. Builder First Source decision in South Carolina? D.R. Horton, Inc. v. Builders FirstSource – Se. Grp., LLC, No. 5529, 2018 S.C. App. LEXIS 2, at *13 (Ct. App. Jan. 10, 2018).

The case is Satterfield & Pontikes Construction, Inc. and Amerisure Mutual Ins. Co. v. U.S. Fire Ins. Co., Case Number 17-20513, in the United States Court of Appeals for the Fifth Circuit.  We will follow the case and update this blog post after the Fifth Circuit’s decision.

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Summary Judgment Affirmed (AGAIN!) in Long Grove Case!

For those of you that have been following along, in Long Grove, the original apartment Developer (and its affiliated general contractor and architect) prevailed against the POA in the Developer’s attempt to disclaim liability to downstream purchasers as part of the sale of an apartment complex to a Condo Converter Developer.  The original Developer had bargained for and received warranty disclaimers on behalf of itself and all “affiliates” when it sold the apartment complex to the Condo Converter Developer.  The disclaimers were incorporated into the master deed, thereby putting downstream purchasers on notice.  The circuit court granted summary judgment in favor of the Developer (and its affiliates), finding 1) the Developer did not put the condos into the stream of commerce because they were not intended to be converted at the time of design; 2) because the disclaimers of warranties were incorporated into the master deed, subsequent buyers were effectively put on notice; and 3) the Developer effectively and permissibly transferred its liability to the Condo Converter Developer, such that the POA’s recourse was against the Condo Converter Developer rather than the original Developer.

The Court of Appeals affirmed in a two-paragraph, per curiam opinion:  Long Grove at Seaside Farms, LLC v. Long Grove Prop. Owners’ Ass’n, No. 2015-UP-377, 2015 S.C. App. Unpub. LEXIS 457 (S.C. Ct. App. July 29, 2015).  The Supreme Court heard the appeal several months ago, but has now decided it should never have accepted the case and dismissed the writ as “improvidently granted.”  Thus, the case is effectively ended as to the original Developer and its affiliates.

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Tennessee Supreme Court Holds That Full and Undiscounted Medical Bills may be Submitted as Proof of Reasonable Medical Expenses

The Tennessee Supreme Court has issued its long-awaited decision in the Dedmon v. Steelman case. This case has direct and significant consequences to personal injury litigation in Tennessee. In short, defendants may not argue that the amount actually received by a medical provider is the reasonable amount of a plaintiff’s medical bills.  Plaintiffs may submit undiscounted medical bills in full as proof of reasonable expenses.

The Tennessee Supreme Court granted an appeal in Dedmon to address whether its ruling in West v. Shelby County Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014) applies in personal injury cases. In West, the court held that a hospital’s reasonable charges under Tennessee’s hospital lien statute are the amount the hospital accepts from the patient’s private insurer, not the full amount of the medical bills sent to the patient.

The Supreme Court released its decision on November 17, 2017.  The court held that the collateral source rule applies to personal injury claims in which the collateral benefit at issue is private insurance. Consequently, plaintiffs may submit evidence of the injured party’s full, undiscounted medical bills as proof of reasonable expenses. Furthermore, defendants are precluded from submitting evidence of discounted rates accepted by medical providers from an insurer in order to rebut the plaintiff’s proof that the full, undiscounted charges are reasonable.

The court reasoned that to allow defendants to submit discounted rates would conflict with the collateral source rule. However, defendants remain free to submit any other competent evidence to rebut a plaintiff’s proof on the reasonableness of medical expenses, so long as that evidence does not conflict with the collateral source rule.

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New Jersey Opinion Focuses on the “Nature and Scope” of Damage to Determine Trigger for Coverage

Recently, a New Jersey appeals court ruled that insurance coverage for construction defect liability claims extends until the nature and the scope of the property damage becomes apparent. Thus, a new grey area has been created for insurers to assess time on risk. The result of the opinion leads one to believe that insurer will more likely than not lose on summary judgment as to “trigger” because the court seemingly requires a rigorous and fact-intensive analysis of when the “last pull” of the trigger occurs.

The underlying matter involved a condominium building that was built between November 2005 and April 2008. As early as February 2008, homeowners noticed water damage in their windows, ceilings and other portions of the units. In May 2010 the unit owners hired an expert to perform a moisture survey of the development and he identified 111 spots of moisture damaged areas that need to be removed and replaced. The unit owners alleged the HVAC contractor was to blame for the moisture intrusion at the project.

Selective issued an “occurrence based” general liability policy that covered bodily injury and property damage taking place during the policy period of June 2009 through June 2012 for the HVAC contractor. Selective disclaimed coverage on the grounds the alleged property damage had occurred prior to the inception of its policy because the homeowners were aware of the problems in 2008. The trial court agreed with Selective and found that the continuous trigger applied to the claims against the HVAC contractor, but still held that Selective had no coverage obligations because the damage had in fact manifested before June 2009.

The HVAC contractor appealed and argued, “the end date for the continuous trigger doesn’t occur until an expert report or some other proof definitively establishes that the policyholder’s faulty work caused the alleged damage.” The court disagreed and stated that “an attribution analysis could be highly fact-dependent, and difficult to resolve when an insured makes a request for defense and indemnification after being named in a complaint.” In sum, HVAC contractor argued that the trigger began when the expert analysis was performed in 2010. Conversely, Selective argued that , based on the hearsay statements of the homeowners, the triggering event occurred in 2008. The appellate court found that information about the building defects was or reasonably could have been revealed at any time between the time of the unit owners’ complaints until the start of Selective’ s policy in June 2009 and the case should be reopened to allow for discovery to explore the critical factual issues outlined in the opinion regarding the discovery of the damage.

The ruling muddies the water as to triggering events and the parties have been ordered to complete more discovery to determine when the essential manifestation occurred in this instance. For insurers in this jurisdiction, this means they will need to pursue discovery as to the nature and scope of the damage to attempt demonstrate when the last trigger pull occurred if they are seeking to avoid providing coverage. Conversely, insureds will likely attempt to undercut this evidence as inadmissible or too vague to warrant a “trigger pull.” Those who represent insureds in this jurisdiction may find this case inconsistent with spirit of the New Jersey Supreme Court’s landmark 1994 ruling in Owens-Illinois Inc. v. United Insurance Co., which applied the continuous trigger in a dispute over coverage for asbestos-related bodily injury claims to maximize coverage.

This case is Air Master & Cooling Inc. v. Selective Insurance Co., case number A-5415-15T3, in the Superior Court of the State of New Jersey, Appellate Division. Our office intends to follow this case and will update with a blog post regarding significant decisions.

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Georgia Supreme Court Clarifies Rule on Intervening Acts and Causation

In Georgia, there is no requirement that an intervening act be wrongful or negligent to break the causal chain of a tortfeasor’s act or omission and a plaintiff’s injury.  Rather, the analysis is simply whether the concurrence of an intervening act was reasonably foreseeable by a defendant, or if the intervening act was triggered by the defendant’s conduct.

In Jordan v. Everson, Ben Everson’s mother drove him to the emergency room at Phoebe Sumter Medical Center in Americus, Georgia because he was hearing voices and hallucinating.  There, Dr. Brian Jordan diagnosed him with obsessive-compulsive disorder and discharged him.  Before leaving, ER personnel called and set up an appointment for May 1 at a mental health facility near the Medical Center.  However, the Eversons, originally from Durham, North Carolina, had a number of contacts at Duke University Hospital.  Mr. Everson began calling around to see if he could get his son in to see someone at Duke.  He ultimately made an appointment for Ben to see a psychiatrist at Duke on the afternoon of May 1st.  During the drive to North Carolina, Ben unbuckled his seatbelt, jumped out of the moving car, and ran down the highway.  He was hit and killed by a vehicle traveling on the interstate.

Dr. Jordan filed a motion for summary judgment, arguing that the intervening act of driving Ben to a hospital hours away, rather than taking him to the local facility, broke the causal chain.  The trial court denied the motion, and the Court of Appeals affirmed.  In affirming the trial court’s denial of Dr. Jordan’s motion, the Court of Appeals relied on the following line, taken from the opinion in Goldstein, Garber & Salama v. J.B., 300 Ga. 840 (2017), where the Georgia Supreme Court said, “that its negligence is not the proximate cause of the plaintiffs injuries, but that an act of a third-party intervened to cause those injuries, the rule is that an intervening and independent wrongful act of a third person producing the injury, and without which it would not have occurred, should be treated as the proximate cause, insulating and excluding the negligence of the defendant.”

Now, the Georgia Supreme Court took the opportunity to clarify that line.  The Court said that the “Court of Appeals read too much into that sentence.”  It distinguished Goldstein by explaining that it was addressing whether a sexual assault, “an indisputably wrongful act,” intervened to break the chain of causation.  “We did not consider whether an intervening act always must be wrongful….”

And in fact, an intervening act does not always have to be wrongful in order to insulate and exclude the negligence of a defendant.  So, when assessing and evaluating a possible defense based on the acts of third-parties, the analysis should include whether the defendant (1) knew or should have known whether the intervening act would occur, or (2) triggered, or caused, the act to occur.  If the answer to both questions is “no,” then a motion for summary judgment may be appropriate.  To carry the application of this rule further, when analyzing claims, professionals and attorneys should consider whether the acts of a third-party intervened in such a way that the third-party assumed some level of responsibility for the plaintiff’s ultimate injuries.  With Georgia’s broad comparative negligence rule, a defendant’s exposure could be significantly reduced, or eliminated altogether.

The Jordan v. Everson opinion is available at 2017 Ga. LEXIS 884, 2017 WL 4582408 (October 16, 2017).

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Takeaways from The CLM & Business Insurance 2017 Construction Conference

Laura Paton, Sarah (Wetmore) Butler, and Patrick Norris proudly represented Carlock, Copeland & Stair, LLP at the 2017 CLM & Business Insurance Construction Conference in San Diego this week.  Both Laura and Sarah were selected to speak as panelists.  Laura’s panel focused on properly reserving your rights to later disclaim coverage subsequent to the Heritage Communities decision and Sarah’s panel discussed tips on drafting an enforceable settlement agreement.  Here are a few takeaways from each presentation:

Reserving your Rights:

  • Be timely in sending out your ROR – the sooner the better!
  • DON’T use the “cut and paste” method inserting huge chunks of the policy    into a letter without substantive explanation
  • DO provide a thorough analysis of the reasoning for the reservation and discuss how the facts of the case apply to the policy provisions
  • DO include notice as to any special remedies you may later pursue like submitting special interrogatories or requesting a special verdict

Drafting your Release:

  • Get it SIGNED!  Under the South Carolina Rules of Civil Procedure, you need a signed writing to enforce settlement
  • DO consider indemnity issues, additional insured claims and potential assignments when drafting the release
  • Understand the difference between a full release, a mutual release, an issue release and a convening not to execute
  • Be wary of timing requirements and be careful in proof reading the settlement documents for proper inclusion of parties and claims
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The CLM’s 2017 Claims College, School of Transportation Takeaways

I had the pleasure of attending The CLM’s 2017 Claims College in Baltimore, MD in September 2017.  I was a student in the third level of CLM’s School of Transportation, which brings together Claims Professionals and Litigation Attorneys from all over the country to study and discuss current and emerging claims information.  Claims College was extremely beneficial, with programs presented by some of the industry’s most distinguished professionals.

Here are a few takeaways from 2017 Claims College, School of Transportation:

1. Recognition of trial strategies employed by claimant and plaintiff’s attorneys in bringing transportation claims early in claims examination will allow an insurer and/or trucking company to effectively defend against the claim throughout litigation.

2. Very early consideration of attempts to resolve transportation claims (before the claimant or claimant’s family retains legal representation) and early efforts to establish good will with the claimants, such as paying funeral costs is a good practice.

3. Response to lengthy and detailed preservation letters requires involvement of and communication between all company departments.

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2017 The CLM’s Claims College Recap

This was my third year teaching at The CLM’s Claims College in Baltimore, MD.  The Claims College first occurred in 2012 with some of the industry’s best professionals enlisted to create and teach courses.   Back then, there were courses in three schools; however, this has now expanded to a total of eight three-level specialty schools and three one-level schools.  Each level consists of pre-course reading materials, in-class instruction, group projects and an exam.

Students complete classes to earn their CCP (Certified Claims Professional) designation, ACP (Advanced Claims Professional) designation, and/or a Certificate in Mediation, Extra-Contractual Claims or Leadership depending on the classes they take.  Since its inception, hundreds of students have attended Claims College and earned the designations above.  This year, I was asked to serve as a faculty member for the School of Casualty and the School of Leadership.

As a member of the faculty for the School of Casualty, I was able to teach a Level 2 course titled “Case Resolution:  Development of a Negotiation Strategy.”  This course was designed to allow the students to take a disciplined approach to negotiation.  The course allowed the students to use the methods of principled negotiations and apply them to their own style.  The class is very interactive and the students were very creative in how they handled each scenario.

This was the School of Leadership’s inaugural year at Claims College. The CLM created it to “provide a comprehensive review of leadership theories and styles as well as practical information for leadership development.”  I was honored to be asked to help create and then teach “Leading Through Change and Adversity” with the goal of introducing skills leaders need to lead Claims Resolution professionals through change.  It was a pleasure to work with each of the students during class, and proctor the oral presentation and exam at the end of all the courses.

I really look forward to and enjoy being part of The CLM’s Claims College.  Each year, I have the opportunity to teach and work with amazing leaders in the industry.  I have met some amazing people in Baltimore, and I look forward to continuing to assist with the college in the future.

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Takeaways from 2017 CLM Claims College, School of Claims Mediation in Baltimore, MD

I had the pleasure of attending Claims Litigation and Management Alliance’s (CLM) 2017 Claims College in Baltimore, MD last week.  I was a student in CLM’s School of Claims Mediation at Claims College, which brought together Claims Professionals and Litigation Attorneys from all over the country to study and discuss current and emerging claims information together.  Claims College was extremely beneficial and was taught by some of the industry’s most distinguished professionals. Here are a few takeaways from 2017 Claims College, School of Claims Mediation Program:

1. Institutional clients continue to move towards seeking early resolution of claims through pre-suit mediation;

2. Effective resolution of claims requires not just careful attention to written and verbal communications, but also the less obvious nonverbal cues that are being communicated by the other side;

3. There’s still no substitute for sitting down with a client in person, even if email dominates the day in our technologically savvy world; and

4. When trying to settle a difficult claim, remember to think outside of the box.  While monetary incentives are usually a primary focus, often non-monetary contributions and opportunities, like vocational training for an injured claimant, can provide the final incentive for settlement.

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Does Your Business Policy Actually Protect You? If it has a “Professional Services” Exclusion, it might not

If you did not believe it before, you can believe it now—Ponzi-scheme cases make bad law.  On July 5, 2017, the Eleventh Circuit decided Furr v. National Union Fire Insurance Company of Pittsburgh (No. 15-14716), in which the court considered the impact of a “professional services” exclusion in a bank’s executive and organization liability insurance policy.*  The court held that there was no coverage for anyone because some of the claims asserted were related to the professional services that the bank rendered to the Ponzi scheme.  In denying coverage to everyone, the court reviewed this exclusion:

The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against any Insured alleging, arising out of, based upon, or attributable to the Organization’s or any Insured’s performance of or failure to perform professional services for others, or any act(s), error(s) or omission(s) relating thereto.

The court upheld coverage denial (1) because the policy did not contain a severability provision and (2) because the text of the exclusion prohibited payment if a claim is made against any insured who performed or failed to perform professional services.  To be clear: if anyone was a professional subject to a claim (or performing professional services), no one gets coverage, even non-professionals.

This has two important consequences: First, if a claim is made under a policy with similar contents, then claiming a legal, accounting, or medical error will jeopardize coverage for everyone.  Second, and perhaps more importantly, this particular policy evidently does not protect a bank from claims arising from banking services because those services are professional enough to be encompassed by the exclusion.

Exclusions like the professional services exclusion (and the personal injury exclusion) are designed to keep claims inside the appropriate policy and preclude doubling-up on coverage across multiple policies.  That is fair.  A D&O policy shouldn’t cover personal injury—that is the role of the general liability policy.  But excluding coverage based on a bank’s banking services seems to have left the bank’s executives without any coverage.  That is a harsh result.

I do not mean to sound shrill, but everyone should look at their policies and make sure that they actually have the coverage that they intend to have both from the perspective of whether the company’s services would be included in the “professional services” exclusion and to make sure that an errant claim touching on a professional’s work inside the business does not jeopardize coverage for everyone.

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* I have not actually seen the policy, but this “executive and organizational” policy sounds more like a Director & Officers (D&O) policy than an Errors and Omissions (E&O) policy.

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