Liquor Liability Exclusion In CGL Policy Unambiguous, Federal Judge Finds

liquorliability

PHILADELPHIA, Nov. 20 – A federal district judge has ruled that a liquor liability exclusion in a CGL policy is unambiguous, and relieved an insurer from the duty to defend or indemnify its insured in underlying liquor liability litigation.

In Transportation Ins. Co. V. Healthland Hosp. Group, No. 15-4525, 2017 U.S. Dist. LEXIS 191951 (E.D.Pa. 2017), the U.S. District Court for the Eastern District of Pa. ruled that Transportation and CNA Insurance companies had no duty to defend or indemnity Healthland Hospitality, a group that operated bar service for the Woodbury Country Club.    Healthland was sued in state court after an over-served patron killed another motorist in a motor vehicle accident.

The exclusion in the CGL policy excluded defense or indemnity to Healthland for losses arising from:

“Bodily injury” or “property damage” for which any insured may be held liable by reason of:

(1) Causing or contributing to the intoxication of any person;

(2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or

(3) Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.

This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.

CNA denied coverage to Healthland, citing the exclusion.

Healthland argued in opposition, however,  that the exclusion’s  “in the business of” language was ambiguous.  The Court disagreed after the parties filed cross-motions for summary judgment:

“Here, reading the relevant “in the business of” language in the context of the entire policy and the exclusion, it is clear that the provision is intended to distinguish an insured who occasionally serves alcohol from an insured who is involved with the service of alcohol with such regularity that the insured represents a significantly greater insurance risk. Indeed, numerous courts, including the Pennsylvania Superior Court, have reviewed identical or nearly identical liquor liability provisions and found them to not be ambiguous.”

Since the Court found the exclusion unambiguous, it found the underlying state court liquor liability litigation to be squarely within the exclusion, and held that CNA did not have a duty to defend or indemnify Healthland in those cases.  The Court granted the insurers’ motions for summary judgment, and denied Healthland’s cross-motion for summary judgment on coverage.

Transportation Ins. Co. V. Healthland Hosp. Group, No. 15-4525, 2017 U.S. Dist. LEXIS 191951 (E.D.Pa. 2017)

 

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Liberty Mutual Wins Bad Faith Claim In Flood Loss Dispute

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PHILADELPHIA, Nov. 15 – A Pennsylvania federal judge on Nov. 15 dismissed a bad faith claim against Liberty Mutual, finding that a dispute over the amount Liberty Mutual should pay over a flood loss was not sufficient to create a legitimate bad faith cause of action.

In Steven Barnwell, et al. v. Liberty Mutual Insurance Co, No. 16-4739, E.D. Pa.,  2017 U.S. Dist. LEXIS 188427 (Beetlestone, J.), the Barnwells sued Liberty Mutual after a dispute arose over payment for an August 3, 2015 flood loss under the Barnewells’ homeowners policy with the insurer.  The home was under renovation at the time of the loss.

While the insurer made partial payment of the claim, the insureds sought further reimbursement and ultimately filed suit against Liberty Mutual in the U.S. District Court for the Eastern District of Pa.  In the proceeding, Liberty Mutual sought partial summary judgment on the bad faith claims.

U.S. District Judge Wendy Beetlestone granted Liberty Mutual’s motion, observing that a mere dispute over the nature and extent of damage did not constitute bad faith on the part of the insurer:

“Plaintiffs’ do not point to any competent record evidence to subvert the restoration company’s determination that only one marble tile needed to be reinstalled. Plaintiff Barnwell himself testified at the arbitration hearing that only four to six of the tiles were ruined. Even so, neither Plaintiff contacted Liberty to tell it that there was more damage to the floor tiles than the restoration company had identified and that the cost of repair would, accordingly, be higher. Instead, they replaced the entire floor and asked Liberty to pay for it. Under the circumstances, it was not unreasonable for Liberty to deny benefits under the policy.”

Judge Beetlestone also held as a matter of law that Liberty’s positions on food loss and living expense reimbursement of the insureds were not so unreasonable as to create a genuine issue of fact regarding bad faith.

Finally, the Court ruled that Liberty’s withholding of depreciation allowance did not constitute bad faith either:

“By the terms of the policy, Liberty is not obligated to pay depreciation until repair or replacement is complete. Plaintiff has not pointed to record evidence that the repairs are complete or that it has notified Liberty that the repairs are complete. Absent such evidence, it was not unreasonable for Liberty to withhold payment to Plaintiffs for any deductions for depreciation.”

Steven Barnwell, et al. v. Liberty Mutual Insurance Co, No. 16-4739, E.D. Pa.,  2017 U.S. Dist. LEXIS 188427

 

A Roadmap For CGL Insurers To Disclaim Defense and Indemnity For Underlying Opioid Litigation

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In a post last  week, we discussed an appeals court opinion from California, Traveler’s Prop. Cas. Co. of Am. v. Actavis, Inc., 2017 Cal. App. LEXIS 976, which ruled that Travelers Insurance had no duty to defend or indemnify pharmaceutical company insured who was sued by various state and local government units for deceptive practices leading to the overuse and abuse of opioids.  The opinion is a signpost on a road to what is likely to come a multiplicity of opioid suits against the drug-makers by governmental health organizations now overwhelmed with the problems arising out of opioid addition and abuse.

Insurers should be ready, therefore, to stake out clear lines demarcating the limits of the CGL coverage they wrote and priced, which  did not contemplate opioid suits.  Here is a very brief review of key points for successfully disclaiming duties to defend and indemnify insurers never contemplated:

What Does Your Policy Say?

CGL policies routinely cover “occurrences” which are traditionally seen to be accidental, unintended, and unexpected.  As discussed below, the current trend in opioid litigation is the allegation of intentional, deliberate conduct on the part of pharmaceutical companies.

In addition,  CGL policies routinely come with “Products and Completed Work” and / or “Completed Operations / Your Product” exclusions.  In the California case discussed earlier this week, and in most Pharma CGL’s, there is also a “Products-Completed Operations Hazard – Medical and Biotechnology” exclusion, which was seen by the Court as directly on point in Actavis.  The definition of an “occurrence” under the policy, and exclusions like these are the first steps to defining coverage, and these provisions have routinely been held by courts across the U.S. to be clear and unambiguous.

What Is Your Insured Being Sued For?

The emerging trend in opioid litigation against the manufacturers is the allegation by state and local governmental health units that the manufacturers deliberately misrepresented the benefits and downplayed the risks of opioids to self-grow demand for the drugs, and to diminish concern in the medical community for the risks and downside of opioid products, namely addiction.    The allegations sound in intentional conduct and intentionally deceptive trade and marketing practices, and are not the  types of allegations of accident or negligence which CGL polices are intended to cover, i.e., they are generally not “occurrences” as defined in the CGL policy.

The Actavis Court went to great pains to examine the underlying complaints against the drug makers, and in the end it found that the conduct complained of was neither accidental nor fortuitous such that it would be insurable under the CGL, but rather calculated and intentional.

Avoid The “Duty to Defend” Trap

While in the Actavis case the court recognized the distinction between an insurer’s duty to defend and duty to indemnity, it also  pointed out that where there is no possibility of coverage, not even the broad duty to defend was triggered.  The Court found that all of the conduct alleged was deliberate and not accidental, and that, according to the underlying complaints, none of the damages caused by the drug makers were unexpected or unforeseen.   It held, therefore, that not even the duty to defend was triggered.

There is case law in almost every jurisdiction holding that the duty to defend is not so broad and infinite as to require an insurer to defend its insured if there is no possible way the underlying wrongful conduct comes within the terms and conditions of the policy.   Insurers should take advantage of this to avoid incurring defense costs in these kinds of opioid cases where it is almost certain to never have a duty to indemnify.

The Best Defense…..

The costs of defending opioid litigation is, and will continue to be substantial.  Therefore, in the right cases, an insurer may be wise to invest in an early, interventional, declaratory judgment suit to free itself from any question of its duty to either defend, or indemnify insureds in the type of litigation seen in the Actavis case.  So too, early, well -reasoned denial letters, and, where appropriate, reservations of rights letters, will help protect the insurer from covering a risk it may never have contemplated, and certainly never priced into the policy it sold.

As discussed above, opioid litigation of the type seen in Actavis is likely to multiply.  Insurers should take pains to make sure that the CGL policies they issued, which  cover only accidental occurrences arising out of negligence, are not converted into product liability insurance for injuries and damages caused by opioids.

 

 

Travelers Does Not Owe Pharmaceutical Company Defense, Indemnity, In Opioid Suits

drugs

RIVERSIDE, Nov. 6 – An intermediate appeals court in California has ruled that Travelers and St. Paul Insurance companies owe no duty to defend or indemnify Watson Pharmaceutical in governmental suits against the pharmaceutical company over the deceptive marketing of opioids.

In Travelers Prop. Cas. Co. of Am. v. Actavis, Inc., et al, No. G053749, 2017 Cal. App. Lexis 976 (Nov. 6, 2017)(Fybel, J.), The Court of Appeals of California held that under CGL policies issued by Travelers and Saint Paul, the exclusion from coverage of any liability arising out of manufactured products or “completed operations” relieved the insurers of the duty to defend or indemnify.   In the Court’s opinion, Associate Justice Richard Fybel described the nature of the underlying litigation against Watson and the other Parma defendants:

“The California Complaint and the Chicago Complaint are based on allegations that Watson and the other defendants engaged in a fraudulent scheme to promote the use of opioids for long-term pain in order to increase corporate profits. Both complaints allege that Watson had by the 1990’s developed the ability to cheaply produce opioid painkillers, but the market for them was small. Defendants knew that opioids were an effective treatment for short-term postsurgical pain, trauma-related pain, and end-of-life care and knew that, except as a last resort, “opioids were too addictive and too debilitating for long-term use for chronic non-cancer pain.” Defendants knew the effectiveness of opioids decreases with prolonged use, requiring increases in dosages and “markedly increasing the risk of significant side effects and addiction.”

While acknowledging an insurer’s duty to defend was separate and broader than its duty to indemnify, the Court found no potential for coverage in the underlying suits because the conduct complained in the underlying suits was not accidental or fortuitous:

“The injuries alleged [in the underlying suits] are: (1) a nation ‘awash in opioids’;  (2) a nationwide “opioid-induced [*24]  ‘public health epidemic'”; (3) a resurgence in heroin use; and (4) increased public health care costs imposed by long-term opioid use, abuse, and addiction, such as hospitalizations for opioid overdoses, drug treatment for individuals addicted to opioids and intensive care for infants born addicted to opioids.

None of those injuries was additional, unexpected, independent, or unforeseen. The complaints allege Watson knew that opioids were unsuited to treatment of chronic long-term, nonacute pain and knew that opioids were highly addictive and subject to abuse, yet engaged in a scheme of deception in order to increase sales of their opioid products. It is not unexpected or unforeseen that a massive marketing campaign to promote the use of opioids for purposes for which they are not suited would lead to a nation “awash in opioids.” It is not unexpected or unforeseen that this marketing campaign would lead to increased opioid addiction and overdoses. Watson allegedly knew that opioids were highly addictive and prone to overdose, but trivialized or obscured those risks.”

The Court also found that the underlying complaints set forth no claims against the pharmaceutical companies potentially sounding in negligence, and that the Products and Completed Operations Exclusions were clear and  unambiguous, such that they relieved the insurers from the duty to defend or indemnify the companies.

Travelers Prop. Cas. Co. of Am. v. Actavis, Inc., et al, No. G053749, 2017 Cal. App. Lexis 976 (Nov. 6, 2017)(Fybel, J.),

Dickie, McCamey & Chilcote’s Insurance Law Practice Group Named One of the Nation’s Best for 2018

U.S. News Best Law Firms

Dickie, McCamey & Chilcote, P.C. received six national practice area rankings in the 2018 “Best Law Firms” list published by U.S. News & World Report and Best Lawyers®, which included the firm’s Insurance Law Practice Group.   The  firm’s inclusion in these rankings reflects the high level of respect a firm has earned from leading lawyers and clients in the same communities and practice areas for its ability, professionalism, and integrity.

The U.S. News – Best Lawyers “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of evaluations from clients, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process. Clients and peers evaluated firms based on the following criteria:  responsiveness, understanding of a business and its needs, cost-effectiveness, integrity, and civility, as well as whether they would refer a matter to the firm and/or consider the firm a worthy competitor.

About Best Lawyers®
Best Lawyers is the oldest and most respected peer-review publication in the legal profession. A listing in Best Lawyers is widely regarded by both clients and legal professionals as a significant honor, conferred on a lawyer by his or her peers. Our lists of outstanding attorneys are compiled by conducting exhaustive peer-review surveys in which tens of thousands of leading lawyers confidentially evaluate their professional peers. Lawyers are not permitted to pay any fee to participate in or be included on our lists.

About Dickie, McCamey & Chilcote, P.C.
Dickie, McCamey & Chilcote, P.C. is a nationally-recognized law firm providing comprehensive legal expertise in a multitude of practice areas. Headquartered in Pittsburgh, Pennsylvania, and founded more than 100 years ago, the firm serves industry-leading clients across the country from offices throughout the mid-Atlantic region in Pennsylvania, Delaware, New Jersey, New York, North Carolina, Ohio, South Carolina, West Virginia, the Southwestern region of California, and the Rocky Mountain region of Colorado.

CJ Haddick is the Director In Charge of the firm’s Harrisburg, Pa., office, and he heads Harrisburg’s Insurance Law Practice Group.  Reach him at chaddick@dmclaw.com or 717-731-4800. 

The Best Defense: Insurer Voids Policy Ab Initio For Fraud, Alleges Reverse Bad Faith Following Claim

insurance-fraud

PHILADELPHIA, Sept. 27 – A state court judge in Philadelphia has upheld a jury finding that a commercial property insurance policy was void ab initio based on the fraud of the insured in the application, requiring the insured to disgorge claims payments, and the insurer to refund premium dollars paid by the insured for the policy.

In Smith v. United States Liability Insurance Co .,  the  insured filed a  vandalism claim with USLIC which wrote a  commercial policy on the property.  USLIC paid  more than  $150,000.00 on the claim , but a public adjuster hired by the  insured disputed that amount, claiming the total damage was  $444,325.71.

During the claims investigation the insured sat for several  examinations under oath.   The insured ultimately sued USLIC for failure to pay the full claim.  USLIC filed an answer and counterclaim seeking, among other things, (1) declaratory relief  (2) a finding that the insured violated the Pennsylvania Insurance Fraud Statute, and committed  common law fraud; (3) a finding that the insured breached the insuring agreement and (4) committed reverse bad faith.

Following jury trial, the jury returned a verdict in favor of the insurer on all claims and counterclaims.  The Court, per Judge Ann Butchart, denied post trial motions, and entered judgment on the verdict, declaring the policy void,  and requiring the insured to pay the insurer $285,094.40 ($157,725.09 in previous claim payments under the policy and $127,369.31 for claim related expenses incurred by the insurer).  The Court further ordered USLIC to return $48,467.55 in premiums to the insured.

Judge Butchart wrote in part that the insured had lied in the insurance application about the frequency of prior claims, withholding this information from the insurer:

“where the execution of a contract of insurance has been induced by fraudulent misrepresentations of the insured, the insurer may secure its cancellation . . . the jury, as the fact finder, determined by a standard of clear and convincing evidence that the Policy was procured by fraud with the intent to deceive . . . and the Court properly declared the Policy void ab initio. . . the jury was presented with sufficient evidence to determine, under the clear and convincing standard, that [the insured] committed fraud with intent to deceive when he submitted his application for insurance.”

 

Smith v. United States Liability Insurance Co., Philadelphia Court of Common Pleas, June Term 2016 No. 2354, 2017 Phila. Ct. Com. Pl. LEXIS 292 (C.C.P. Phila. Sept. 27, 2017) (Butchart, J.)

Flat – Rate, Quick – Turnaround Insurance Coverage Opinions: An Idea Whose Time Has Come

efficiency

Once upon a time an insurance executive who asked me to prepare a coverage opinion and a draft declaratory judgment complaint sheepishly asked me, “Can I get this in two to three weeks?”  I don’t get this question anymore.

Why?  Because in most cases the quickest line between an insurance executive and the coverage opinion he or she needs is a direct request to oftentimes-overworked in-house lawyers.  Seen as the lesser of two evils, the in- house route is perceived as slightly less costly in terms of both time and money.

A frequently expressed theme at www.badfaithadvisor.com  is that the market for outside legal services is changing in ways not even considered a few short years ago.  Insurers, to the extent there is budget or allowance for outside legal services at all, want the outputs faster and cheaper than ever before.  Legal problems are not only legal problems any longer — they are business problems.  And part of the business problem is obtaining  what is purchased from law firms quicker, and at lower cost.

Changing products and services must meet the changing conditions, or outside law firms will lose their usefulness.  Enter into the marketplace the fixed-cost, fixed delivery date insurance coverage opinion.   It is proving to be extremely popular with clients,  who find it to be an even  cheaper and better alternative than to having the work done in-house.

Innovation is not necessarily invention:  it is simply aligning supply with changing demand, and the fixed-fee coverage opinion does this with its pricing model, and with a guaranteed delivery date of usually as little as three to five business days.  Depending on the complexity and the coverage issue, and the volume of materials to be reviewed,  a client is proposed a single price for a complete coverage opinion and a guaranteed delivery date.  Priority 24 and 48 hour options are also available, also at a quoted, fixed fee.

Under the arrangement, the client is given dual cost control:  control over the financial cost of obtaining and opinion, and perhaps as importantly, control over the cost of time it takes to obtain it.  The life force of Perceived Value is breathed back into a transaction which, at a routine hourly rate arrangement, was and is flagging in the marketplace.

If you don’t have access to outside law firms who can deliver insurance coverage, case evaluation,  or other legal opinions to you in a matter of days for a quoted price, you will improve your efficiencies, and solve both business and legal problems, as soon as you do.

For more information on taking advantage of fixed fee, guaranteed-on-time coverage, case analysis, and legal opinions, contact me at chaddick@dmclaw.com or 717-731-4800.