Insurer May Be Vicariously Liable for Negligent Oil Spill Remediation Contractor


BROOKLYN, N.Y., March 2 — The Second Department of the New York Supreme Court Appellate Division has held that a negligence claim alleged against an insurer in a dispute regarding the remediation of oil contamination should have been permitted to proceed, reversing the trial court’s dismissal of the claim.

In  Richard Bennett, et al. v. State Farm Fire and Casualty Co., Plaintiff  Richard Bennett and his family sustained a home heating oil spill in 2011. Bennett’s house at the time was insured by State Fire Farm and Casualty Co.,  and the policy included a third party liability claim protection.   State Farm paid for remediation  overseen by the NY State Dept. of Environmental Conservation, which acted as the third party claimant because of the spill.

A dispute arose, and Bennett sued a number of parties involved in the remediation, including State Farm.   The trial court granted State Farm’s motion to dismiss claims against it, including a claim that H2M, a remediation contractor allegedly  supervised and directed by State Farm, acted negligently in the cleanup.

While the Appellate Division affirmed the trial court’s ruling as it pertained to fraud, breach of fiduciary duty, and punitive damages claims against State Farm, it ruled that a negligence claim against State Farm was viable:

“The complaint also alleges that State Farm supervised and directed the work of H2M, potentially giving rise to vicarious liability on the part of State Farm for negligence, if any, of that contractor…Under these circumstances, the complaint states a cause of action for negligence against State Farm.”

Editor’s Note:  Extracontractual avenues of liability on the part of insurers continues to evolve.  Insurers must take care to place the necessary protective layers between themselves and third party repair and remediation vendors.  If they do not, they risk negligence liability on vicarious liability theories.

Bennett v. State Farm et al, (N.Y. App. 2nd Div. March 2, 2016)

Bullet-Proof Insurance Coverage Opinions – Part II

Choices of a businessman

In Part I of this post we looked at the beginnings of a good coverage opinion – clear identification of the issues, and a comprehensive matrix of facts upon which the coverage opinion is based.  In Part II, we examine the remaining building blocks of a bullet-proof coverage opinion.

 Include The Policy Provisions At Issue

In order to launch into the meat of the coverage opinion, the applicable provisions of the policy should be included in the coverage opinion.  I prefer to actually “snapshot” .pdf cuts of the actual policy terms into the body of the opinion so that the reader sees not just the provision, but how it appears in the policy.  This is by no means mandatory, but verbatim inclusion of the policy provisions at issue is, however.

The opinion writer should take care to not only produce coverage terms, but applicable exclusions, and exceptions to the exclusions, so that all of the tools are in full view of the reader.

Analysis and Discussion of Applicable Law

There is nothing totally new under the sun, which means more likely than not the policy provision on which outside counsel is providing opinion has been interpreted in prior opinions.  These prior rulings provide the important, and in some cases binding, context in which the applicable policy terms will be viewed.

Any judicial guidance of the same or similar coverage issues  is useful, but the best guidance comes in the form of cases with similar factual backgrounds (yet another reason for a comprehensive discussion of the known facts near the top of the coverage opinion).   While the opinion writer needn’t necessarily provide an answer to the coverage question in this phase of the opinion,  good analysis of applicable law may start to orient and point the reader in the direction the opinion is going to read.  As we said, there is nothing really new under the sun.

While jurisdictional case law is obviously ideal, outside counsel should also include opinions from other jurisdictions which bear factual similarity to the coverage analysis  being undertaken.

Tying It Together: Legal Analysis and Opinion

With the groundwork laid, outside counsel can now gather all of the materials she has collected in the opinion, and provide a logical analysis of the coverage question presented to outside counsel by the client.  The conclusion of the opinion letter should be the culmination of the facts, the policy provisions implicated, and the applicable law.

This is not the time for surprise endings:  a good coverage opinion will logically flow to the conclusions drawn.  Conclusions which are incongruent with anything that has come before, whether it be the facts, the policy provisions, or the law, is a sign that something is amiss, either with the predicates to the conclusion, or the conclusion itself.  It is not the kind of disconnect a client is looking for, so during the draft phase, the inconsistencies must be reconciled for the opinion to be reliable.

Going The Extra Mile:  Providing for Contingencies

The best outside coverage lawyers anticipate the needs of their clients.  They also recognize, in cases where investigation is ongoing, that further developments might impact the opinion.  Such possibilities should be included in the coverage opinion, so that the client knows how the validity of the opinion could be impacted by newly developed facts.  It is also a good reminder to the legal department requesting the opinion that the process is a fluid one, and an updated opinion might be the best course after new, significant information is learned.

Insurance company legal departments want solid coverage opinions which will withstand scrutiny of not just themselves, but others should that become necessary down the road.  For that reason, a comprehensive statement of facts, of the applicable policy, and of the relevant law should be provided.  The analysis of coverage and conclusion should flow from these elements, and the client should be notified that there may be contingencies in an ongoing investigation which could impact the opinion, requiring supplementation.


Bullet-Proof Insurance Coverage Opinions, Part I


In this post, we begin a brief look at the building blocks of a bullet-proof legal opinion on an insurance coverage issue.  Legal departments should look for these elements and insist on them in written coverage opinions from outside counsel, and outside counsel should make sure to use these elements as touchstones, in order to provide the most reliable coverage opinion possible.

Identify and Clarify The Precise Coverage Issue(s) Examined

Clarity and precision are required up front — if they are not, the entire opinion will falter and fail to provide what the client is asking for.  This seems obvious, but I am continually surprised by how often I get the question (or at least of piece of it)  wrong during the first phone call from general counsel or a claims executive.  It should be mandatory for outside counsel to state verbally or in a preliminary note to the client what she believes the coverage issue to be.  Why?  Because it is the first and best chance the client will get to make sure it is going to get what it believes it is asking for.  And it is the first and best chance to clear the legal opinion of any  confusion, mistake, and misunderstanding.

Another reason for this exercise is to identify sub-issues, or follow-on coverage issues which may present themselves.  If the client wants an opinion on Exclusion A, might it also want opinion on Exclusion D, as well as the exceptions to exclusions A and D?  Should it want one?   Not only does this ensure that the client gets an opinion on what it wants, it ensures the client gets an opinion which serves the purposes behind it:  advice and protection.   A partial coverage opinion which ignores related issues is likely to be criticized as myopic or artificially crafted in favor of insurer.    A complete coverage opinion, on the other hand,  covering all related issues, is much less assailable down the road.

Once the issues are clarified and refined, they should be stated at or near the outset of the written coverage opinion.

Identify  and Lay Down the Factual Matrix of the Coverage Opinion

A good legal opinion contains a thorough recitation of all known, relevant  facts germane to the coverage determination.  The written opinion should also advise the insurer that if there are additional facts the legal department would like outside counsel to consider, those facts should be provided to counsel and a supplemental opinion offered.   While this serves to protect outside counsel in the proffering of an opinion, it also ensures again that the client gets precisely what it wants from outside counsel.  It provides the legal department seeking the opinion to make sure that all of the facts it wants considered  to be taken into account, and ensures that mistakes can be fixed before the coverage opinion is provided.

All key facts should be stated in the written coverage opinion.  This also implies that facts which are peripheral, irrelevant, and unnecessary to the coverage determination need not be continued.  Heft does not equal value, and no in-house general counsel is going to appreciate you providing a 20-page  coverage opinion when 8  would have done the job just as well.  The coverage  opinion will only be as good as the foundation of facts upon which it is based, and set down in the opinion itself.

In Part II of Bullet-Proof Coverage Opinions, we will take up the importance of inclusion of the applicable policy terms and conditions at issue, analysis and discussion of applicable legal precedent interpreting those provisions, thoughtful legal analysis, and providing for contingencies in the opinion.

Wyoming Refinery Bad Faith Claim Against Swiss Insurer To Continue


WYOMING, March 11 –  A Wyoming federal judge ruled that a unit of Sinclair Oil  Corp. can maintain a bad faith claim against insurer Infrassure Ltd.  under Wyoming law, although the judge has ruled that New York law controls the companies breach of contract claim.

U.S. District Judge Nancy D. Freudenthal denied motions to dismiss filed by Infrassure, of Switzerland, which sought dismissal of  Sinclair Wyoming Refining Co.’s bad faith and declaratory judgment claims.  Judge Freudenthal wrote:  “The court finds that Wyoming law would apply to Sinclair’s bad faith claim because the choice of law language in the [insurance program] is narrow and does not include issues arising related to the performance of the contract.”New York law would have been far more restrictive of the bad faith claim.

The coverage dispute arises out of a  September 2013 explosion at a Sinclair refinery in Sinclair, Wyoming.  Sinclair alleges it lost $150 million in property damage and lost income.  Under Sinclair’s insurance program, Infrassure owes 7.5% of the claim, or about $4.5 million. Infrassure hasn’t payed anything on the claim yet, according to Sinclair,

Judge Freudenthal did not agree with Infrassure that the bad faith claim was controlled by New York Law because it was “inexplicably intertwined” with Sinclair’s contractual claims. She ruled that the policy’s choice of law provision did not preclude Wyoming law from applying to the bad faith claim:

 “Even if language requiring ‘construction and interpretation’ of the contract under New York law applied, the application of New York law prohibiting an independent claim for bad faith would be contrary to a fundamental policy in Wyoming, which based on the allegations in the pleading has a materially greater interest than New York in the determination of this issue.”

The case is Sinclair Wyoming Refining Co. v. Infrassure Ltd., case number 2:15-cv-00194, in the U.S. District Court for the District of Wyoming.

Third Circuit: No Coverage Owed In IP Battle


PHILADELPHIA, March 10 – The U.S. Court of Appeals for the Third Circuit has affirmed judgment for insurer USLIC, holding it has no duty to defend or indemnify its insured in an battle over appropriation of computer software /  intellectual property.

In Hammond v. USLIC, the Plaintiff, Hammond, entered into a working relationship with TCA and LANTek to develop hazmat transportation compliance software.  After a dispute arose and the companies filed a declaratory judgment action against Hammond alleging misappropriation and infringement, Hammond tendered responsibility for his defense and indemnification to USLIC under Businessowners’, Technology and Professional Liability, and Malicious Prosecution endorsements to his USLIC policy.  USLIC denied coverage, relying in part on a policy exclusion disclaiming coverage for the alleged infringement of patent, copyright, and other intellectual property rights.  Hammond then filed breach of contract and bad faith claims against the insurer.

Judge Arthur Schwab of the U.S. District Court for the Western District of Pennsylvania granted USLIC’s motion for judgment on the pleadings after undertaking analysis of the civil action filed by TCA and LANTek against Hammond.   The Third Circuit affirmed, finding that while the policy did afford Hammond coverage for “personal advertising injury” claims and claims of “malicious prosecution,”  the request in the underlying suit for statutory attorneys fees arose out of patent and trademark issues, not claims of malicious prosecution.   The Court also held that the intellectual property infringement exclusion of the policy supported USLIC’s denial of coverage.

The Court affirmed dismissal of Hammond’s follow-on bad faith claim as well.

Hammond v. USLIC (3rd Cir., March 10, 2016)

Barge’s Destruction of Beachfront Home Not Covered By Homeowner’s Policy, Mississippi Supreme Court Rules


BILOXI, Jan. 5 – The Mississippi Supreme Court ruled that the destruction of a beachfront home by a barge which became loose from its moorings during Hurricane Katrina was not a covered loss under the applicable homeowner’s insurance policy.

In Porter v. Grand Casino et al, Chreryl Porter’s beachfront vacation home was completely destroyed by a barge owned by Grand Casino that had become loose from its moorings as a result of Hurricane Katrina.  She submitted a claim to her homeowner’s carrier, State Farm, which denied the claim, citing a policy provision excluding coverage for property damage arising out of flood, surface, and tidal water.

Porter filed breach of contract and bad faith claims against State Farm, arguing that the cause of the loss was Grand Casino’s barge, and not water.  She also filed claims against Grand Casino and her insurance agent, Max Mullins.  The trial court granted summary judgment for all defendants, and the Court of Appeals affirmed.

In affirming the judgment in favor of State Farm, the Mississippi Supreme Court in a 7-1 ruling held that the homeowner’s policy excluded from coverage any losses  which would not have occurred but for the movement of surface water.  The Court referred to policy language which stated, “we do not insure under any coverage for any loss which would not have occurred in the absence of … [w]ater damage,” and  ruled that where water caused the debris to collide with the property, such a loss was properly excluded.

Porter v. Grand Casino, et. al (Miss., Jan. 5, 2016)

Insured’s Failure To Cooperate In Corvette Theft Claim Dooms Bad Faith Case in Mississippi


ABERDEEN, Feb. 26 – An insured’s failure to cooperate in the investigation of the claimed theft of his Corvette entitled his insurer to judgment as a matter of law on coverage and bad faith claims, a Mississippi federal judge has ruled.

In Holt v. Victoria Fire & Casualty Company, Plaintiff Eddie Gray Holt claimed his 2008 Corvette was stolen from an Alabama parking lot where it was left overnight, and filed a theft claim with his insurer, Victoria.  Because video surveillance of the parking lot did not show the presence or the theft of the car, Victoria sought Holt’s Examination Under Oath, and requested in writing that he bring to the examination documentation, including documentation regarding his finances, income, and expenses.

At his examination, Holt refused to produce the requested documents, and refused to answer certain questions.  After Victoria denied his claim, he filed a breach of contract and bad faith suit, after which Victoria moved for summary judgment on grounds that Holt breached several contractual duties in the policy, most notably his contractual duty to cooperate in the investigation of any claim.

After reviewing not only the applicable policy language but Mississippi common law, U.S. District Judge Carlton Reeves ruled that Holt’s refusal to cooperate in the investigation voided the policy, and entered judgment for Victoria on breach of contract and bad faith claims.

Holt v. Victoria Fire & Casualty Co., (N.D. Miss., March 3, 2016)

Use Privilege Logs To Win Bad Faith Discovery Battles


There is no more critical or touchy stage of discovery in a bad faith case than the request for the claims file.  It will color the rest of the discovery course, including, most notably, depositions of claims personnel.  Inevitably the request for the file comes, seeking every bit of data, electronic and hard copy, which ever existed in the claims file.  The request contains no restrictions, and no reasonable bounds – the bane of insurance company counsel’s existence.  How to respond, yet again, without having to fight World War III?

A well-prepared privilege log provides insurance company counsel with an opportunity to frame and present argument on discovery motions before they are ever filed.  And yet this opportunity is overlooked — passed over for  rote, form privilege log entries like “Not Discoverable:  Attorney Client Privilege” and the like.  These bland entries will neither  satisfy plaintiff’s counsel, nor a judge.  So take a step back and look differently at the privilege log which accompanies your initial  claims file production.  Look at the opportunity as a chance to file a free discovery brief, and treat it as such.  Get the jump on making valid arguments to protect those portions of the claims file which need not be disclosed under the applicable jurisdiction’s discovery law.

First, a quick look at an example regarding the discovery of claims reserve information, and then a review of the basic elements of privilege log entries which will persuade judges and protect portions of the insurer’s claims file:

Bad Privilege Log Entry Example:  “Objection.  Claims Reserves Are Not Discoverable”

Much Better Privilege Log Entry Example:  “Reserve information is non-discoverable work product and/or is irrelevant and disclosure of information will not lead to admissible information. See, Safeguard Lighting Sys. , Inc. v. N.Am. Specialty Ins., 2004 WL 3037947 (E.D.Pa. 2004); Union Carbide Corp. v. The Travelers Indemnity Co., 61 F.R.D. 411 (W.D.Pa. 1973); Fidelity & Deposit Co. of Maryland v. McCulloch, 168 F.R.D. 516 (E.D.Pa. 1996); and Williams v. Nationwide Mut. Ins. Co., 750 A.2d 881 (Pa.Super. 2000). Reserving is an insurance accounting instrument largely designed for purpose of regulatory compliance, and not evidence of an insurer’s opinion as to either the actual value or settlement value of the claim.  See, id.”

The differences in the two privilege log entries is apparent, but it is not simply the size — don’t confuse length with persuasive substance.  The better privilege log entry contains the following elements:

  • specific reference to the discovery sought, identifying it with as much particularity as possible;
  • Comprehensive statement of case law and rule of procedure which supports insurance company counsel’s position that the discovery sought is protected from discovery.
  • Where possible, additional identification of important public policy principles which weigh in favor of protecting the discovery sought.  Common sense and logical arguments can also appear here.

In addition to providing a jump on the opposition should the dispute make its way to a judge, it demonstrates to the reviewing judge that the objections were not “knee-jerk” or form objections not worthy of the judge’s consideration.  It sets up the insurer’s counsel as credible and thoughtful in the mind of the Court , which will not hurt the insurer, of course.

Good insurance company counsel do not look at privilege logs as merely something to be thrown together as part of preparing discovery answers.  They look at logs instead  as an opportunity to advocate for the protection of discovery at a key point in the bad faith or coverage case.






Delaware: Bad Faith Limitations Period Starts Only Upon Excess Judgment


NEWARK, DE., March 4 – The Delaware Supreme Court has ruled that a third party  bad faith cause of action does not begin to run for statute of limitations purposes until the underlying excess judgment upon which the claim is based becomes final.  In Connelly v. State Farm Mut. Auto Ins. Co., the Court found that such an approach “conserves litigant and judicial resources,” and that the rule permitted an insured to plead requisite damages, “which she cannot do before there is a final excess judgment against her.”

In Connelly, State Farm’s insured, Brown, rear ended Connelly, who sued Brown.  In May 2011, Connelly offered to settle with Brown for $35,000 of Brown’s $100,000 per per son liability limit, which State Farm declined on Connelly’s behalf.  State Farm stipulated to Connelly’s negligence at trial and the jury awarded Connelly nearly $225,000.   That judgment became final on April 29, 2012.

After State Farm paid only half the judgment, Connelly sued State Farm as a judgment creditor on September 3, 2014 , claiming among other things bad faith.  The Delaware Superior Court dismissed the complaint, ruling that the claims were untimely, the applicable three year statute of limitations having begun to run from the date of State Farm’s alleged wrongful act of  declining the settlement in May of 2011.

The Supreme Court reversed, and in so doing conducted an extensive survey of the precedents in other states, as well as leading insurance treatises to arrive at the result.  It also point out that the ruling was consistent with the Delaware Corporate code and Chancery Court decisions  which provide that indemnity claims  to not accrue until there is a final judgment.

Connelly v. State Farm Mut. Auto Ins. Co., (Delaware March 4, 2016)

Alternative Fee Spotlight: Fixed Fee Coverage Opinions and Bad Faith Claims Audits


Within legal departments today, the most common barriers to obtaining knowledgeable outside counsel for non-litigated matters are cost and uncertainty.   Outside counsel is seen nowdays as an expense which must be scrutinized, limited and reduced.  But there are ways to enjoy the benefit of the independent, objective opinion of outside counsel without worrying that doing so is an unnecessary extravagance, or yet another trip down the black hole of a running meter.

The truth is that most non-litigated matters handled for insurance company legal departments don’t need to be handled  via hourly rate.  Costing such projects is easy and predictable.  And the legal marketplace no longer operates under a single, monolithic pricing model.  Good lawyers are available for reasonable, flexible, affordable fees.

Coverage opinions and claims file audits can be performed by experienced outside counsel via fixed fee, quoted arrangements.  A legal department can get the benefit of a coverage opinion or claims file review for a low, fixed sum, quoted after only a brief review of the scope of the matter.  This small investment in an outside opinion can save an insurer many multiples of the fixed fee cost in coverage or extra-contractual exposure later on.    There are even more savings available with volume discounts or “block” fee quoting for multiple non-litigated  matters.  The options are virtually endless.

Traditionally, the return on investment which a coverage opinion or claims file audit brought was not sufficiently predictable:  the hourly rate arrangement made the initial investment in an outside opinion unclear, and therefore made the benefit hard to measure.  Under a fixed-fee arrangement, six and seven figure exposures can be identified and prevented with small four figure investments.

For more information on providing your legal department the large investment return on fixed fee coverage opinions and claims file audits, reach me at or 717-731-4800.

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