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Today’s Presentation:
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August 31, 2011
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35 year old, 60 + attorney law firm.
Represents insureds, self-insureds, and insurers.
California, Nevada, Arizona, Utah & Washington.
Website: www.Tharpe-howell.com
Disclaimers: This presentation focuses primarily on California law and
is for informational purposes only. Please do not rely on the content
for any particular case without consulting with an attorney. Please
feel free to contact us to discuss any specific matter.
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Timothy Lake: Insurance Coverage Partner
Michael Lee: Insurance Coverage Associate
Johnna Hansen: Insurance Coverage Litigation Partner
Robert Freedman: Insurance Coverage Litigation Partner
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1. Types of Liability Policies - Why Gaps Occur.
2. Insureds and Additional Insureds.
3. Defense Obligations.
4. Self Insured Retentions / Deductibles.
5. Indemnity Obligations.
6. Coverage Triggers.
7. Endorsements & Exclusions.
8. Claims Handling.
9. Insurer v. Insurer.
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1. CGL, Professional E&O, D&O, EPLI, Auto
Liability, Inland Marine, and Work Comp.
2. Wraps / OCIP’s.
3. Specialized Policies: Contractors Pollution,
Environmental, Demolition liability, Lead
Abatement, Mold Abatement, Asbestos
Abatement, & Roofing Liability.
4. Site Specific and Project Specific Policies.
5. Excess and Umbrella policies.
6. Occurrence Based, Claims Made, and Modified
Occurrence Policy Triggers.
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1. Endorsements v. Certificates. Certificates are proof of coverage, but do
not confer coverage. Always secure the actual endorsement when
securing coverage and when analyzing a claim.
2. Endorsement Language: Completed Operations (20 10 11 85) or Ongoing
Operations (20 10 11 93). Does the endorsement cover all matters
“Arising out of YOUR Work,” or just those claims that arise during the
project “Arising from your ongoing operations.” Beware of manuscript
endorsements using alternative language.
3. Contractual Requirements and Blanket AI Endorsements: Most
contracts require completed operations coverage pursuant to CG 20 10
11 85 or an equivalent. CG 20 10 11 93 is not an equivalent and can lead to
a failure to procure claim. Potential that failure to obtain the right
coverage from subcontractors may affect a developer’s policy and
coverage.
4. Rights and Obligations: Assuming an actual endorsement is secured
providing coverage, the insured’s rights and obligations are in full force
and effect under the insurance agreement. This includes notification by
the insurer of any changes to the underlying policy.
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- Broader than duty to indemnify
- Potential for coverage / Not actual
coverage
- Includes groundless, false or fraudulent
claims
- Must defend entire lawsuit
- Supplemental / Defense within limits
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- “4-corners” or “extrinsic” evidence
considerations
- Doubts must be resolved in favor of insured
- Extrinsic: (majority) Arizona, California, Illinois,
Nevada, Utah, Washington
- “4-corners”: Colorado, Florida, Oregon, Texas
- No obligation to independently investigate
claims
- Facts known or reasonably could be obtained
when defense demanded
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- Some claims covered, some not covered
- Must defend entire case
- Reservation of rights to deny coverage for
uncovered claims
- Insurer may seek reimbursement from insured for
defense of non-covered claims
- “Cumis Counsel” – “steer” case or offer token
defense
- Tripartite relationship – fiduciary duties to both
- Courts differ if ROR creates a per se conflict
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- Presley v. American States (Scope and timing
of defense of additional insured)
- Travelers v. Centex (Insurers rights related to
defense of additional insured)
- Buss v. Superior Court (Insurers right to
reimbursement of defense costs)
- Forecast v. Steadfast (Insured’s obligation to
pay SIR)
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1. CGL policies generally afford coverage for “suits,”
which are generally defined as a “court proceeding
initiated by the filing of a complaint”; “suits” include
quasi-judicial administrative agency board
proceedings. Ameron International Corp. v. Ins. Co. of
the State of Pennsylvania, 50 Cal. 4th 1370 (2011)
2. Liability policies often contain a deductible or self
insured retention (SIR) requiring the insured to bear a
portion of a loss covered by a policy. A deductible
generally only relates to the damages for which an
insured is indemnified, not defense costs. A SIR, on
the other hand, generally applies to defense costs and
settlement of any claim.
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3. A “per claim” SIR applies once to a single lawsuit
regardless of the number of homes or homeowners
involved where the term “claim” is undefined in the policy
and ambiguous. Clarendon America Ins. Co. v. North
American Capacity Ins. Co., 186 Cal. App. 4th 556 (2010).
4. A CGL policy may specifically require that the SIR be
satisfied by the named insured; in such cases, an
additional insured cannot satisfy the SIR. Forecast Homes,
Inc. v. Steadfast Ins. Co., 181 Cal. App. 4th 1466 (2010).
5. An insurer that refuses to participate in the defense of an
insured on the ground that the insured failed to satisfy the
SIR may be unable to contest liability or subsequent
judgment against the insured. See, e.g., Executive Risk
Indemnity, Inc. v. Jones, 171 Cal. App. 4th 319 (2009).
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1. Unlike the defense obligation, payment of
policy benefits to indemnify an insured
depends on a claim or lawsuit that is actually
covered, not just potentially or possibly
covered.
2. The most common indemnity exclusions are
for damage to the insured’s own work or
products for which there is no coverage.
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3. The coverage under a CGL policy is for
damage to the work of other contractors or
to the property of the homeowner or
property owner.
4. A CGL policy also provides coverage for an
insured’s liability for breach of a written
contract by which the insured agrees to
indemnify another for his tort liability to a
third party.
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5. The “trigger” event for coverage is an “occurrence” of
property damage that takes place during the policy
term, not the negligent or defective work by the
insured. General Ins. v. American Safety.
6. Where an insurer pays indemnity on behalf of an
insured on a claim the insurer contends was not
covered, the insurer can seek reimbursement from the
insured, assuming this right was reserved in a
Reservation of Rights letter to the insured when the
insured’s defense was taken up. American Modern v.
Fahmian; Blue Ridge v. Jacobson.
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7. Under the recent case of Ameron v. Ins. of
Pennsylvania, an administrative action by a
governmental body against an insured that
requires an insured to retain counsel and
potentially pay money damages qualifies as a
“suit” to trigger an indemnity obligation.
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1. Under a CGL policy, coverage is usually
triggered by an “occurrence” of property
damage or bodily injury that occurs during
the policy.
2. Due to the difficulty of determining when
property damage occurs due to alleged
defective construction, the case of Montrose
v. Sup. Ct. held that a “continuous injury”
trigger applies.
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3. Under such a theory, coverage is triggered
based on when the insured performed
defective work that led to the property
damage that is the subject of the claim or
suit.
4. The law presumes that the property damage
began when the defective work was
performed and continues until it is repaired.
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5. Under a “continuous injury” trigger of coverage,
all policies that are in effect when the defective
work was performed and the damage continues
owe a duty to indemnify the insured.
6. The main limitation is that the insured’s work
must have been performed and completed
during the policy period. Otherwise the
“completed operations” coverage does not
apply to these completed operations type of
claims where the damage is alleged to have
occurred after the insured completed its work.
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1. In response to the Montrose v. Sup. Ct.
“continuous injury” trigger of coverage rule,
many insurers have developed policy language
and/or endorsements to eliminate coverage for
such damage claims.
2. The cases of USF Ins. v. Clarendon America Ins.;
Pennsylvania General Ins. v. American Safety
Indem., have set out examples of such
endorsements that the Courts will uphold to
eliminate coverage for a “continuous injury”
trigger of coverage.
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3. An approved such provision is one that states
that “all property damage arising from an
occurrence shall be deemed to take place at the
time of the first such damage even though the
damage may be continuous, progressive or
evolving.”
4. Under such a policy provision, there is no
coverage for property damage that first
manifests or becomes known before the
inception of the policy.
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5. Other current policy provisions or
endorsements exclude coverage for work
that is completed prior to the policy period,
or work that is performed prior to the policy
period.
6. The goal of these provisions is to limit
coverage for property damage to damage
that actually occurs during the policy period.
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1. Every policy of insurance imposes on an insurer
a duty of good faith and fair dealing.
2. First Party Claims: Insurer has a duty to make a
thorough and prompt investigation of the
insured’s claim for benefits. Insurer must not
unreasonably delay or withhold benefits.
3. Third Party Claims: Insurer has a duty to make a
prompt investigation, provide a defense when
there is a potential for coverage, attempt to
effect a reasonable and timely settlement within
policy limits.
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1. California Code of Regulations section 2695.5(e)(1): Fifteen
(15) days after notice of claim, insurer is required to
acknowledge receipt to claimant and provide necessary
forms, instructions, assistance and specify information
claimant must provide for proof of claim.
2. California Code of Regulations section 2695.5(b)(1):
Fifteen (15) days after receipt of any communication from
claimant that reasonably suggests a response is expected,
a complete response -based on facts known must be
provided.
3. California Code of Regulations section 2695.7(b): No later
than forty (40) days after receiving proof of claim, insurer
is required to accept or deny the claim, in whole or in part.
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4. California Code of Regulations section 2695.7(c)(1): If
more time is required to accept or deny a claim,
insurer must provide written notice of the need for
additional time, specify additional information
required, and state reasons for the inability to make a
decision; written notice must be provided every thirty
(30) days until a determination is made or notice of
legal action.
5. Each claim under single policy should be handled
separately (i.e. additional insured should assigned to
own adjuster).
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1. A participating insurer may seek equitable contribution from a
non-participating coinsurer, i.e., an insurer sharing the same level
of liability on the same risk as to the same insurer, for both costs of
defense and settlement if it has paid more than its fair share.
Safeco Ins. Co. of America v. Superior Court, 140 Cal. App. 4th 874
(2006); Scottsdale Ins. Co. v. Century Surety Co., 182 Cal. App. 4th
1023, 1036 (2010).
2. Burden is on the participating insurer claiming coverage to show
that a coverage obligation arose or existed under the nonparticipating coinsurer’s policy; a showing of potential for
coverage under the non-participating insurer’s policy in order to
obtain coverage for the costs of defense, reflecting California law
that only a potential for coverage is required to establish an
insurer’s duty to defend.
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3. Where a duty to defend by the non-participating coinsurer
is shown, the non-participating coinsurer is presumptively
liable for the costs of defense and settlement; the
nonparticipating coinsurer waives the right to challenge
the reasonableness of the defense costs and settlement.
4. The non-participating coinsurer has the burden to show
the absence of actual coverage under its policy as a
defense.
5. Generally, when multiple policies share the same level of
risk or cover the same type of loss, but have different or
inconsistent “other insurance” clauses, California law
requires insurers to contribute on a pro rata basis.
Travelers Casualty and Surety Company v. Century Surety
Company, 118 Cal. App. 4th 1156 (2004).
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6. However, no universally accepted standard for
allocation has been adopted by California courts. See
Scottsdale Ins. Co. v . Century Surety Co., 182 Cal. App.
4th 1023, 1032 (2010), citing Centennial Ins. Co. v.
United States Fire Ins. Co., 88 Cal. App. 4th 105, 112-113
(2001) (various methods of allocating costs include the
following: (1) apportionment based on time on risk;
(2) apportionment based on the relative policy limits
of each policy; (3) apportionment based on both time
on risk and relative policy limits; (4) apportionment
based on the amount of premiums paid to each
carrier; (5) apportionment among each carrier in equal
shares).
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7. Additionally, a participating insurer may
pursue, in subrogation, a contractual
indemnity claim of its insured against the
tortfeasor for its breach of contract with the
insured. Interstate Fire and Cas. Ins. Co. v.
Cleveland Wrecking Co., 182 Cal. App. 4th 23
(2010)
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