Wyoming Refinery Bad Faith Claim Against Swiss Insurer To Continue

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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

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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

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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

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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)

NY: No Coverage For Negligent Handling of Electronic Data

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NEW YORK, Feb. 18 – A New York  intermediate appellate court ruled on Feb. 18 that claims against an insured for the alleged negligent handling of the electronic data of customers were  not covered.

In RVST Holdings v. Main Street America Assurance Co., the  liability policy in question provided for defense and indemnity to RVST for liability arising out of direct physical loss to tangible property.  The policy, however, excluded losses relating to electronic data.  The intermediate appellate court, giving the language in question its plain meaning, ruled that the insurer did not have a duty to defend or indemnify  RVST from claims relating to RVST’s alleged negligent handling of electronic data.

RVST Holdings, Inc. v. Main Street America Assurance Co.,(N.Y. App. 3rd Dept., Feb. 18, 2016)

Unfair Trade Claims Not Covered By Liability Insurance, Pa. Appeals Court Rules

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PITTSBURGH, Feb. 25 – The Pennsylvania Superior Court has ruled that Westfield Insurance is not obligated to defend or indemnify an insured from civil claims of unfair trade practices.

Westfield’s insured, PeopleKeys,  sued a former employee for misappropriation of trade secrets in federal court in Ohio, and the employee filed a counterclaim against PeopleKeys, alleging unfair business competition.  The counterclaim alleged that PeopleKeys’ suit was baseless, and done for the purposes of unfair competition with the former employee.  The counterclaim against PeopleKeys alleged PeopleKeys’ knew of the falsity of the allegations contained in the Ohio trade secrets litigation.  PeopleKeys submitted the counterclaim for defense and indemnity to its insurer, Westfield.

After Westfield denied coverage under the policy’s  Personal Advertising Injury Coverage Endorsement, PeopleKeys filed a breach of contract and bad faith suit against Westfield in Pennsylvania state court.  Westfield filed a motion for judgment on the pleadings, on grounds that the policy’s Personal Advertising Injury Endorsement did not apply to the Ohio counterclaim, and even if it did, the endorsement contained exclusions for 1.)  claims alleging knowing violation of the rights of another, or 2.)  claims for publication of material the insured knew to be false.  The trial court granted the motion and dismissed the claims against Westfield.

The Pa. Superior Court affirmed the trial court’s grant of Westfield’s motion for judgment on the pleadings, holding that Westfield had no duty to defend nor indemnify PeopleKeys in the Ohio litigation because the intentional conduct and knowing falsity exclusions to the Personal Advertising Injury Endorsement applied.  The Court, analyzing the counterclaim against Westfield under Ohio law, found that the allegations against Westfield plainly referred to intentional misconduct on the part of PeopleKeys, thereby barring coverage.

PeopleKeys, Inc. v. Westfield Insurance Company (Pa. Super., Feb. 25, 2016)

Cyber Insurance: Judge Holds Insurer’s “Privacy Pledge” Could Be Part of Policy In Data Breach Class Action

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CHICAGO, Feb. 23 – A Federal Judge in Illinois has allowed a proposed data breach  class action case against an insurer to proceed, ruling the insurer’s “Privacy Pledge” could be a part of the insuring agreement.

Dolmage and other employees of Dillard’s Stores purchased coverage from Combined Insurance through her employer between 2011 and 2012.  During the course of the application process, Dolmage and other employees were required to provide personal information to Combined.  During the process Combined furnished applicant’s with a “Privacy Pledge,” which indicated that personal information obtained in the application process, such as social security numbers, would be safeguarded and protected.   The Pledge further stated that Combined would provide information to affiliated companies to assist with the insurance placement process.

Combined engaged Enrolltek to assist with processing and placement of the coverage, and provided Enrollteck with a database of applicants’ information, which Enrolltek copied to an unsecure external hard drive and later maintained on an unsecured website.  Dolmage and other employees discovered through Google searches that their personal information from this process was readily available online at the unsecure website operated by Enrolltek.

Dolmage and other class action plaintiffs filed a ten – count complaint in federal court alleging, among other things, breach of contract and breach of fiduciary duty.  Following a Rule 12(b)(6) motion filed by Combined, the class action plaintiffs filed an amended complaint alleging only a breach of contract claim, and Combined filed a motion to dismiss, alleging that the complaint failed to state a plausible cause of action against it relating to the “Privacy Pledge” serving as the basis for a breach claim.

Judge Ruben Castillo denied Combined’s dismissal motion, and ruled that the Privacy Pledge, as the Plaintiffs alleged, was part of the insuring agreement between Combined and the Dillard’s employees, despite an integration clause in the policy, presumably preventing the policy from being supplemented.  Castillo ruled that at other parts of the policy,  Combined did incorporate by reference other extraneous documents, such as applications, riders, and endorsements.   The Court also relied on case law and Black’s Law Dictionary to point out that the terms “rider” and “endorsement” were broad, covering many possible amendments to the insuring agreement.

The Court, accepting all of the averments of the amended complaint as true, and giving the Plaintiffs the benefit of all reasonable inferences,  also dismissed Combined’s arguments that the amended complaint 1.) failed to allege that the Plaintiff’s relied on the pledge,  2.) failed to allege the Privacy Policy was part of the insuring agreement because it was provided to Plaintiffs after coverage was placed, 3.) failed to allege the Privacy Policy was supported by adequate consideration; and 4.) failed to allege how Combined breached the policy.  As to the latter claim, Judge Castillo observed that it was reasonable to infer that Combined’s failure to require Enrolltek to adhere to Combined’s data security policies and procedures could constitute a breach of the Privacy Policy.

Dolmage v. Combined Insurance Co. of America (N.D. Ill, February 23, 2016)

Third Circuit Rules Subcontractor’s Insurer Must Defend, Indemnify Construction Project Owner

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PHILADLEPHIA, Feb. 17 – The U.S. Third Circuit Court of Appeals has ruled that the insurer of a subcontractor who employed an injured worker must defend the project owner  in the personal injury litigation brought by worker, regardless of the subcontractor’s immunity under Pennsylvania workmens’ compensation law.

In Ramara v. Westfield, the Court provided a succinct statement of the facts:

Appellee, Ramara, Inc. (“Ramara”), the garage owner, engaged Sentry Builders Corporation (“Sentry”) as a general contractor to perform work at its parking garage, and, in turn, Sentry engaged a subcontractor, Fortress Steel Services, Inc. (“Fortress”), to  install concrete and steel components as part of the work. As  required by its subcontracting agreement with Sentry, Fortress obtained a general liability insurance policy (“the Policy”) from Westfield Insurance Group (“Westfield”) naming Ramara as an additional insured under the Policy. While Fortress was working on the project in April 2012, one of its employees on the job, Anthony Axe, was injured in an accident. As a result of his injury, Axe filed a tort action against Ramara and Sentry but he did not include Fortress as a defendant as it was immune from actions at law by its employees for injuries suffered on the job if they were entitled to compensation for their injuries under the Pennsylvania Workers’ Compensation Act (“Act”).   Ramara tendered its defense in Axe’s action to Westfield. But Westfield declined to defend Ramara as it claimed that Axe’s complaint against Ramara did not include allegations imposing that obligation on it under its Policy with its applicable endorsements.

The policy secured by Fortress naming Ramara as an additional defendant contained an Additional Insured Endorsement, under which Ramara was entitled to defense and indemnity if the underlying personal injury action alleged that the plaintiff’s injuries were in whole or in part caused by Fortress, the named insured.    Westfield claimed that since the complaint, which did not name Fortress as a defendant, contained no express averments of wrongdoing against Fortress, Ramara was not entitled to defense and indemnification.

Judge Morton Ira Greenberg undertook an examination of the underlying personal injury complaint, and concluded there were sufficient allegations implicating Fortress’ role in causing the accident, its legal immunity notwithstanding:

Taken together and construed liberally in favor of Ramara for purposes of this insurance coverage case, these allegations partially base Ramara’s liability on its failure to supervise the work of its contractors or subcontractors who used equipment improperly and disregarded a site specific fall protection plan, all while performing their work in violation of the industry’s standard of care. Fortress, though engaged by Sentry, was one of Ramara’s subcontractors, and Axe’s employment by Fortress was the sole reason that Axe was at the job site and was injured. Clearly, Axe made factual allegations that potentially would support a conclusion that Axe’s injuries were “caused, in whole or in part” by Fortress’s acts or omissions.

Of course, we need not and, indeed, cannot decide whether Axe will succeed on these claims at trial. Ramara only must show that the Axe complaint, when liberally construed in favor of Ramara, includes allegations to support a conclusion that Fortress was potentially negligent and that its negligence was a proximate cause of Axe’s injuries. We conclude that it does. Accordingly, Ramara comes within the Additional Insured Endorsement of the Policy with respect to the Axe case. Therefore, Ramara is entitled to a defense in the Axe case even under Westfield’s narrow interpretation of the Additional Insured Endorsement limiting coverage to situations in which an insured’s contractor’s actions proximately caused a plaintiff’s injuries.

(emphasis added).

The Court ruled that the workmen’s compensation immunity which Fortress enjoyed was not dispositive of whether the factual allegations of the complaint made out a case that but for Fortress’ acts or omissions, the injury would not have occurred, thereby entitling Ramara to defense and indemnity under the Westfield policy insuring Fortress.  The Court affirmed the District Court judgment holding Westfield liable for the defense and indemnity of Ramara in the underlying personal injury litigation.

Ramara v Westfield Ins. Co., (Third Cir., Feb. 17, 2016)

Sub-Surface Water Loss Mostly Excluded By Policy, Texas Judge Rules

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HOUSTON, Feb. 16 – A district judge in the Southern District of Texas has dismissed breach of coverage and bad faith claims against Praetorian Insurance Company, ruling that several of the policy’s coverage exclusions defeat the insured’s claims for property damage arising from a water related loss.

In Praetorian v. Arabia Shrine, a building owned by the Shrine suffered a subs-surface water loss which seeped into the building causing more than $1.8 million worth of damage to the foundation and building on March 14, 2014.   While the policy provided for coverage of for the loss of fire suppression equipment, and Praetorian paid nearly $64,000.00, it disclaimed nearly $2 million in other claims made by the Shrine.

The Policy contained an exclusion for damage to foundational elements, as well as an exclusion for damage to sub-surface piping.  The policy was also endorsed with a “Water Exclusion” disclaiming coverage for damage caused the escape or seepage of subsurface water into the building.

Judge Keith Ellison found that Praetorian met its burden of showing that the exclusions precluded the vast majority of coverage for the underground water loss.    The judge also found that since Praetorian had a reasonable basis to deny coverage, claims for breach of the Texas Insurance Code, and for the breach of Praetorian’s duty of good faith and fair dealing should also be dismissed by way of summary judgment as well.

Praetorian Ins. Co. v. Arabia Shrine Center Houston (S.D. Texas Feb. 16, 2016)

9th Circuit: Insured’s Contract, Bad Faith Claims Get The Gate

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SAN FRANCISCO, Feb. 11 – The U.S. Court of Appeals for the Ninth Circuit has affirmed a district court’s dismissal of breach of contract and bad faith claims against Allstate, arising out of Allstate’s refusal to defend or indemnify its insured from a claim that the insureds committed trespass by destroying property.

In Zimmerman v. Allstate, Allstate’s insureds were sued by a homeowner’s association for trespassing upon and destroying a residential community gate.  The destruction was pre-meditated, according to the district court record.  After the insureds submitted the claim for defense and indemnity, Allstate denied the claim, and the insureds filed suit.  The district court entered summary judgment for Allstate, finding that the underlying complaint did not seek damages for an accidental occurrence, but rather for trespass, an intentional tort.

In affirming, the Ninth Circuit Court of Appeals found that the premeditated act of destruction of property committed by the insureds was neither “unexpected” nor “unintended,”  and therefore not an occurrence as defined in the policy.  The Court also affirmed dismissal of claims of breach of the duty of good faith and fair dealing.

Zimmerman v. Allstate, (9th Cir. Feb. 11, 2016)

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