Coverage Pointers - Volume V, No. 17

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New York Court of Appeals

Employee’s Intentional Assault is Employer’s Accident; Massage Exclusion Inapplicable

At issue here was whether a liability insurer was obligated to defend and indemnify its insured, a beauty salon, in an action brought against it based on an alleged sexual assault by the insured’s employee. New York’s high court held that the questions whether the alleged sexual assault was an “accident” and therefore an “occurrence” within the meaning of the policy, and whether it was excluded from coverage as an act “expected or intended from the standpoint of the insured” were controlled by its earlier decision in Agoado Realty Corp. v United Intl. Ins. Co., 95 NY2d 141 (2000). In Agoado, the issue was whether an insurer was required to indemnify landlords against a claim by a tenant who had been murdered in the building by an unknown assailant. There the court held that although the murder was intended from the murderer’s point of view, it was nevertheless an “accident” within the meaning of the policy. “In deciding whether a loss is the result of an accident, it must be determined, from the point of view of the insured, whether the loss was unexpected, unusual and unforeseen.” Since the landlords in Agoado did not expect or intend the tenant’s murder, the court held that it was an “accident” from their point of view. For the same reason, the Agoado court held that the murder was not within the policy exclusion for conduct “expected or intended from the standpoint of” the landlords. The court observed that the only difference between this case and Agoado was that here the alleged perpetrator of the assault was the insured’s employee. Thus, the critical question was whether the employee’s expectation and intention in committing the assault should be attributed to his employer. Rejecting that the salon could be vicariously liable for the employee’s conduct under the doctrine of respondeat superior, the court concluded the same test should be applied to the question of whether the employee’s expectations or intentions should be attributed to his employer in determining the applicability of an insurance policy. Since the employee’s actions here were not his employer’s actions for purposes of the respondeat superior doctrine, they were “unexpected, unusual and unforeseen” from the salon’s point of view, and were not “expected or intended” by it.


The court also concluded that the claim did not fall within an exclusion for bodily injury arising out of a body massage. Although the alleged act for which the salon was sued occurred during a body massage, the court held that the policy did not exclude coverage for all alleged conduct during a body massage, only “injury … arising out of … body massage.” The court held that the words of the exclusion were most plausibly

read to refer to a bruise or similar injury inflicted on the customer by a massage itself, not to the emotional or physical injury resulting from a sexual assault by a masseur.


03/19/04          HUND v GRAMSE

New York State Supreme Court, Appellate Division, Fourth Department

A Horses is a Horse, Of Course, Of Course

Horse trainer not liable for injury sustained my experienced rider under doctrine of express assumption of risk. Moreover, liability carrier for horse owner’s property has not obligation to defend or indemnify horse border as a result of “business pursuits” exclusion.


03/19/04          INT'L BUS. MACHS. CORP. v LIBERTY MUT. INS. CO.,
Second Circuit

Trigger of Coverage in Exposure Cases

Defendant has a duty to defend plaintiff in negligence and strict liability tort claims brought by former employees who allegedly contracted cancer by working in plaintiff’s San Jose cleanroom. The trigger of liability coverage is the last date of each tort claimant’s exposure to the cause of injury.


03/02/04          OPINION LETTER No. 04-03-01

Office of General Counsel, New York State Insurance Department

Endorsements for Commercial Liability Insurance Policies

The Insurance Department considered whether an insurer could add an endorsement to a contractor’s commercial liability policy excluding liability coverage for “bodily injury or property damage arising out of any roofing operations which involve the replacement of any roof or the recovering of an existing roof.” The Department concluded that the Insurance Law and regulations do not provide any mandatory minimum language or coverage requirements for this type of endorsement. Pursuant to the Superintendent’s authority to review and approves policy form language under Insurance Law § 2307(b), the endorsement was approved on March 17, 1999, and, since the endorsement and policy form were intended to provide coverage to general contractors, it was not considered misleading or violative of public policy. The Department concluded, however, that if the endorsement had been extended to a contractor who is primarily engaged in roofing operations, coverage would have been illusory and therefore misleading. The Department also concluded that the insurer would be obligated to comply with the written notice requirements of Insurance Law § 3426 (e) (1) (B) before adding the endorsement upon renewal because the endorsement would be a reduction in coverage. Failure to do so would result in the renewal of such policies under the old policy terms, conditions and rates.


02/27/04          OPINION LETTER No. 04-02-27

Office of General Counsel, New York State Insurance Department

Certificates of Insurance Do Not Provide Coverages Not Contained in Underlying Policy; Producers of Inaccurate Certificates May be Disciplined by Department

The Insurance Department considered whether certificates of insurance that do not accurately reflect the actual coverages provided within the insurance policies may confer additional coverage. It opined that a certificate is merely a document used in business to summarize information about the insurance coverage. It is not a contract and is not intended to confer on a certificate holder new or additional rights beyond what the insurance policy provides. Thus, if any provision in the certificate was not contained in the policy and it imposes an obligation or liability not presently existing upon an insurer, such difference would alter, expand, or modify the rights between an insured and the insurer and would constitute a policy form that must be filed with the Superintendent pursuant to Insurance Law § 2307(b). A producer is in violation of the Insurance Law if it amends, expands, or alters the terms of the policy without authorization, and the Insurance Department may seek disciplinary measures against producers who act in this manner.


Across Borders


Visit the Hot Cases section of the Federation of Defense and Corporate Counsel website, recently ranked among the top five legal research websites in an article published in the January 2004 issue of Litigation News, a publication of the Litigation Section of the American Bar Association. Dan Kohane serves as the FDCC’s Website Editor.


03/30/04          CALIFORNIA INS. GUARANTEE ASSOC. v WORKER'S                                            COMPENSATION APPEALS BOARD
California Court of Appeal

CIGA Exclude State or Federal Claims from Definition of ‘Covered Claim’
CIGA is a legislative creation to protect the insured and the public in the event insurers become insolvent. Any state or federal government obligations are specifically excluded under ‘covered claims’. If the unemployment compensation disability lien claimed by the Employment Development Department is reimbursed, it will be made to the State’s Disability Fund generally and not to a specific employee. As a result, this is not a claim that CIGA is obligated to pay.

D. Bruce MacDougall and Rinku Deswal, Paterson, MacDougall LLP


Supreme Court of

Policy Limits Recovery for Claims of Employee Dishonesty

The Supreme Court of Georgia granted certiorari in this case to determine “whether the Court of Appeals correctly construed an insurance policy’s provisions governing the limit of insurance applicable to coverage for employee dishonesty.” Sherman & Hemstreet, Inc. (“Sherman”) was insured for a term of three years against “loss due to employee dishonesty” by Cincinnati Insurance Company (“Cincinnati”). A dispute arose after Sherman “discovered that due to ongoing embezzlement by a single employee, it had sustained losses in each of the three years covered by the original policy and during the first year of the renewed policy,” and as a result “[i]t submitted a claim to Cincinnati seeking to recover $160,670—$50,000 for each year of the original three-year policy and $10,670 for the first year of the renewed policy.” Cincinnati argued that the policy “limited recovery for loss due to employee dishonesty to $50,000” and paid Sherman only that amount on its claim. Sherman filed suit and “demanded the additional $110,670"; the trial court granted its motion for summary judgment. The Court of Appeals partly reversed the trial court when it found that “under the unambiguous terms of the original policy, Sherman’s coverage for employee dishonesty was limited to $50,000 for the entire three-year period.” It affirmed the trial court’s “ruling that Sherman could recover $10,670 under the renewed policy.” In affirming the Court of Appeals, the Supreme Court has ruled that because “Sherman stipulated before the trial court that the original policy was for a term of three years” it “is estopped from arguing on appeal that the policy was for anything other than a single term of three years.” Additionally, the Supreme Court “agree[d] with the Court of Appeals’ judgment permitting Sherman to recover $10,670 under the renewed policy.”

Bruce D. Celebreeze & Vanessa O'Brien, Sedgwick, Detert, Moran & Arnold LLP


03/26/04          CHUBB INS. CO. v DECHAMBRE
Illinois Appellate Court

Anti-subrogation Rule Did Not Violate Public Policy

Chubb alleged that it was entitled to proceed against the defendants because it made payments to or on behalf of its insured, Opus, pursuant to a policy of insurance (policy) issued by Chubb to Opus and therefore, owned the claims against the defendants. It was concluded that the defendants were additional insured under the terms of the policy. The policy provided that, like Opus, Prairie would not be covered under the policy if it had other insurance covering the loss, which Prairie admitted it had. Chubb settled with its insured, Opus. Chubb then initiated the present action against its other insured, Prairie, because Prairie had additional insurance coverage. As the goal of subrogation is to place the ultimate responsibility for the loss upon the one against whom in good conscience it ought to fall and Opus and Prairie were insured for the same risks under the same policy, the loss in this case fell on Chubb pursuant to its policy of insurance. As parties were free to restrict the insurance coverage by contract, applying the anti-subrogation rule did not require general contractors to provide insurance in every case to subcontractors and therefore did not violate public policy.

D. Bruce MacDougall and Scott Emerson Hamilton, Paterson, MacDougall LLP



Idaho Supreme Court

Duty to Defend not Triggered by Administrative Investigation

The investigation of Medicaid fraud, accompanied by the suspension of payments, does not constitute a claim against TVT as defined by the insurance policy issued by PIIC. The policy, an officers and director’s protection policy, contains three definitions of a claim pertaining to a lawsuit, an administrative action, and a claim of wrongdoing by an insured. The pertinent definition here relates to an administrative action and defines a claim as: “Any proceeding before an administrative agency once it has concluded its investigative phase (if applicable).” The district judge found that the investigation by the Department was still ongoing at the time TVT attempted to tender its defense to PIIC and as a result, there was no claim under the policy because the investigative phase had not yet concluded.

Gene Williams and Julie Carter, Mehaffy Weber


03/25/04          MEEKS-SNYDER v LIBERTY MUT. INS. CO.
Court of Appeals of
Ohio, Eighth District

No UM/UIM Coverage under Business Auto Policy Issued to Plaintiff’s Spouse’s Employer

Plaintiff was injured in a car accident. Plaintiff filed an action seeking a determination that she was entitled to coverage under three insurance policies issued to her husband’s employer. The common pleas court held that plaintiff was an insured for purposes of uninsured/underinsured motorist coverage under the business auto policy, but coverage was excluded by an “other owned auto” exclusion. The court also found that the umbrella policy only afforded excess coverage to the business auto and general liability policies, and because these policies did not provide coverage, neither did the umbrella policy. The court held that plaintiff was not an “insured” as defined in the policy, as she was neither a named insured nor a family member of a named insured, nor was she the occupant of a covered auto at the time of her injury.

Bruce D. Celebrezze & Vanessa O'Brien, Sedgwick, Detert, Moran & Arnold LLP


03/24/04          MOHNEY v FORNEY
Third Circuit

Deceit and Fraud Claim Alleged Against Life Carrier in Sales Practice Claim

In an appeal against summary judgment in favor of the Defendants, the Appellant’s allegations against the insurer were primarily based on the comparison and similarity of the promotional brochures of the life insurance policies to other investments, such as mutual funds, IRAs and CDs, as presented by its employee. In allowing the appeal in part, the U.S. Court of Appeals for the Third Circuit determined that a genuine issue of material fact exists as to whether the Appellant justifiably expected to purchase a savings plan, notwithstanding any contrary text in the insurance policies.

Bruce MacDougall and Michael Best, Paterson, MacDougall LLP


Florida Court of Appeal, 4th District

Florida Workers’ Compensation Guaranty Association Did Not have Duty to Defend Policyholder in Personal Injury Action.
The appellate court affirmed the trial court’s holding that the Florida Workers’ Compensation Guaranty Association’s (“FWCIGA”) duty to defend is limited to assuming the workers’ compensation obligations of insolvent insurance carriers, even where the insurance policy also includes coverage for tort claims. The court cited a Florida statute which provides that the purposes of FWCIGA were to “provide a mechanism for the payment of covered claims under Chapter 440 (which exclusively regulates workers’ compensation claims) and for the prompt payment of workers’ compensation claims incurred by insolvent insurers. Thus, FWCIGA had no duty to defend or indemnify the policyholder in a personal injury action filed against the policyholder.

Bruce D. Celebrezze & Vanessa O'Brien, Sedgwick, Detert, Moran & Arnold LLP


Eleventh Circuit (applying
Alabama law)

Attorney's Fees Cannot be Recovered from Insured in Suit to Determine Coverage

Trucking company from Alabama sought insurance policy and suffered an accident prior to written policy being extended. Sought coverage and the Florida District Court determined that coverage was in existence, but that policy precluded the application of attorney's fees in cases of coverage determination issues.

Bruce MacDougall and Michael Best, Paterson, MacDougall LLP


03/24/04          BENJAMIN MOORE & CO. v AETNA CAS. & SURETY CO.
New Jersey Supreme Court

In Long-Tail Environmental Exposure Case, Insured Must Satisfy Full Deductible for Each Triggered Policy Before it is Entitled to Indemnity

Benjamin Moore sought indemnity from two class actions alleging bodily injury and property damage from exposure to lead paint. Insurer had issued 5 comprehensive general liability policies covering 11 years with $1 million limits per occurrence and deductibles of $250,000 or $500,000 each. The court held that Benjamin Moore was required to satisfy the deductibles in the triggered CGL insurance policies.

Julie Carter and Gene Williams, Mehaffy Weber


Montana Supreme Court

Statute of Limitations on Bad Faith Claims against Insurer Begin to Run on Judgment Ordering Payment of Previously Denied Benefit

Statute of limitations for statutory and common law bad faith claims against an insurer begin to run when the Workers' Compensation Court enters a judgment ordering the insurer to pay for a previously denied benefit, even though the ultimate determinations of the extent and duration of the workers disability is left unresolved.

Julie Carter and Gene Williams, Mehaffy Weber


03/23/04          JACOBSON v FARMERS MUT. UNION INS. CO.
Montana Supreme Court

Term “Bodily Injury” in Insurance Policy Does Not Include Emotional and Psychological Injuries

Plaintiff went to aid of injured driver in another vehicle who was later determined to have committed suicide. Plaintiff sued Farmers for uninsured motorist benefits and medical benefits for his psychological counseling. Summary Judgment for Farmers was affirmed because the term "bodily injury", as defined in Farmers Union UM policy, is limited to physical injury to a person caused by an accident and does not include emotional and psychological injuries stemming therefrom.

Julie Carter and Gene Williams, Mehaffy Weber


South Carolina Supreme Court

Plain Meaning of Damages in Insurance Policy Includes Environmental Cleanup Costs

This is an insurance coverage case in which the appellant, an agricultural chemicals manufacturer, sought, among other things, indemnification from its various primary and excess insurers for environmental cleanup costs. The Court holds that the plain, ordinary meaning of “damages” includes environmental cleanup costs. The court also held that pollution releases were not “sudden and accidental,” and therefore the insured's claims were barred under the policies’ pollution exclusion.

Gene Williams and Julie Carter, Mehaffy Weber


5th Circuit (

No Extrinsic Evidence Allowed to Determine Duty to Defend

Declaratory judgment action brought by insurer seeking judgment that it had no duty to defend the insured, whose employee caused fatal injuries to a child the insured was hired to provide daycare services for. The insurer contended that it had not duty to defend because its policy contained an exclusion for criminal acts and physical abuse, but the only evidence that the insured’s employee acted criminally or physically abused the child was extrinsic evidence. Despite the complaint in the underlying suit against the insured being amended to remove all allegations of criminal conduct and leaving only allegations of negligence, the court held that the insurer had a duty to defend. Despite the artful pleadings by the plaintiffs in the underlying suit, there is no exception to the 8 corners rule and, thus, the insurer was not permitted to introduce extrinsic evidence that proved an exclusion applied.

Bruce D. Celebrezze and Hank Brier, Sedgwick, Detert, Moran & Arnold LLP


03/15/04          MARTINO v BARNETT
West Virginia Supreme Court of Appeals

Insurance Company Obligated to Release Non-public Personal Information in Response to Discovery

Answering a certified question of the Circuit Court of Harrison County, relating to whether or not Nationwide had to provide to the potential plaintiff its insured’s address, the West Virginia Supreme Court of Appeals held, “Through a judicial process exception, the Gramm-Leach-Bliley Act and the Privacy Rule of the West Virginia Insurance Commission allow the use of any judicial process expressly authorized by statute or court rule, whether by way of discovery or for any other purpose expressly authorized by law, to obtain information relevant to the proceeding to which the judicial process relates from an insurance company that would otherwise fall within the privacy protections under the Act or the Rule. However, trial courts have a right and a duty to fashion protective orders which limit access to necessary information only and uphold such principles of nondisclosure as attorney-client privilege and work product immunity.” In syllabus point 4, the Court held “An insurance company is obliged to release nonpublic personal information in response to discovery pursuant to the judicial process exception of the Privacy Rule and in compliance with court order pursuant to West Virginia Code § 33-11-4(12) (2002) (Repl. Vol. 2003), provided that the insurance company has had the opportunity to inform the court when the information is unnecessary or nondisclosure is warranted on other legal grounds.”

Jim Varner and Debra Herron, McNeer, Highland, McNunn and Varner, L.C.



Washington Court of Appeals

Infringement of Patents by Misappropriating Software for Use on a Website to Market Goods for Sale to the Public Constitutes Advertising Injury

Intouch holds patents for interactive music preview technology, and alleges that infringed upon those patents by using the technology to enable customers to preview music products available for sale on the website. The court held that Amazon’s CGL insurer, Atlantic Mutual, should have provided a defense because, although patent infringement itself is not an advertising injury, patent infringement may constitute an advertising injury where an entity uses an advertising technique that is itself patented. Patented music preview technology was an element of Amazon’s advertisement, and was thus covered under the advertising injury coverage.

Bruce D. Celebrezze and Erin Adrian, Sedgwick, Detert, Moran & Arnold LLP


03/15/04          NORTH RIVER INS. CO. v ACE REINS. CO.
Second Circuit Court of Appeals

Second Circuit Affirms that Reinsurer Must Follow Its Cedents' Allocation of Settlement

The Second Circuit affirmed a ruling that a reinsurer must follow the post-settlement allocation of an asbestos settlement even though the allocation did not reflect the cedents' risk analysis potential of the settlement. The cedents' analysis implicated all excess layers, but the settlement only reached up to the second excess layer. The court held that the reinsurer must follow the allocation as long at it was reasonable, made in good faith, and within the scope of the reinsurance contract.

Larry P. Schiffer, LeBoeuf, Lamb, Greene & MacRae, L.L.P.



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