December 20, 2013

Insured May Settle Claim Before Suit if Insurer Wrongfully Denies Coverage

Source:, December 18, 2013
By: Jill Berkeley, Neal, Gerber & Eisenberg LLP

In Selective Ins. Co. v. Cherrytree Cos., 2013 IL App (3) 120959, the Illinois Appellate Court for the Third District drove the final nail in the insurer’s “if there is no duty to defend, there is no duty to indemnify” coffin. Holding that an insured had the right to settle a claim for defective construction after the insurer wrongfully denied coverage, the court reaffirmed its previous ruling that Zurich Ins. Co. v. Carus Corp., 293 Ill. App. 3d 906 (1997) misstated and misconstrued the law when it held that “when there is no duty to defend, there will be no duty to indemnify.” The court explicitly ruled that a standard general liability policy does not require the filing of a “suit” before the insured is entitled to seek indemnification for damages it is legally obligated to pay to a third party.

Not only does the majority opinion bring a smile to my lips, but the dissent by Justice Schmidt articulates one of my other favorite rules that “whereas here, the insurer denies coverage, the insured is entitled to do what he or she can to cut his or her losses, and need not wait until suit is filed to once again make demand on the insurer.” Hooray, sanity reigns in the Third District.


October 16, 2013

United States: Is The Absolute Pollution Exclusion Absolute? It Depends On Which State Answers The Question

Source:, October 14, 2013
By: Robert S. Sanoff, Foley Hoag LLP

The battle over the scope of the absolute pollution exclusion in general liability policies continues to be fought in the context of defective drywall manufactured in China. An earlier blog entry discussed a Virginia court that had concluded that there was no coverage for defective drywall claims, rejecting decisions from a number of states that had ruled that the absolute pollution exclusion should be limited to industrial pollution claims, particularly Superfund claims.

In Probuild Holdings, Inc. v. Travelers Property Casualty Company of America, a Colorado court relying on Massachusetts and Florida law recently took the other side from the Virginia court. The Colorado court denied a summary judgment motion by an insurer in a defective drywall claim. Citing the Massachusetts case that suggested that the absolute pollution exclusion should be limited to industrial pollution claims, particularly Superfund claims, and not defective product claims involving residential properties, the court concluded that the meaning of the exclusion was at best ambiguous and ambiguity would typically be construed against the insurer. Although suggesting that the policyholder appeared at summary judgment to have the stronger position, the Colorado court left for trial the final resolution.

For the moment at least, the scope of the absolute pollution exclusion depends on which jurisdiction’s law applies.

To view Foley Hoag’s Law and the Environment Blog please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

September 20, 2013

No Coverage for Claim Expenses Where Insured Did Not Obtain Prior Written Consent of Insurer

Source:, September 18, 2013

The United States District Court for the District of New Jersey, applying New Jersey law, has held that a policy provision requiring written consent of the insurer in order for claims expenses incurred by the policyholder to be reimbursed is unambiguous. Paulus Sokolowski & Sartor, LLC v. Cont’l Cas. Co., No. 12-7172 (D.N.J. Aug. 30, 2013). Wiley Rein represented the insurer.

The insured, a design and engineering firm, was retained during the construction of a residential townhouse community. The developer of the community and the community’s condominium association later sued the firm for professional negligence, seeking damages for construction defects at the site. The firm sought coverage under its architects and engineers professional liability policy. The insurer provided a defense and ultimately settled the claims against the firm. The firm later sought reimbursement for claim expenses it incurred when its employees assisted the insurer and its engineering expert. The insurer denied the request for reimbursement on the grounds that the firm had not obtained written consent prior to incurring the expenses and that the firm had a duty to assist in the defense. The firm filed suit in New Jersey state court, which the insurer removed to federal court.

The court dismissed the firm’s breach of contract claims, determining that the policy provision requiring the insurer’s written consent prior to the policyholder incurring claim expenses was unambiguous, and that the firm’s complaint had conceded that there had been no explicit consent from the insurer. In reaching this conclusion, the court noted that interpretive principles calling for insurance policies to be interpreted against the insurer are less applicable where the policyholder is a large business with the resources to bargain for particular policy provisions, as was the case with the insured. The court additionally dismissed the firm’s claims for unjust enrichment and quantum meruit because the express written contract covered the issues in dispute.

The court also dismissed the firm’s claims for breach of the duty of good faith and fair dealing, breach of fiduciary duty, and bad faith. The court concluded that the firm had failed to allege facts demonstrating that the insurer had bad motive or intention and that the implied covenant of good faith and fair dealing could not override the express terms of a contract. The court further held that the insurer did not owe the firm a fiduciary duty in the context of reimbursing claim expenses.

The opinion is available here.


June 20, 2013

New insurance law designed to help with environmental insurance coverage

Source:, June 11, 2013
By: Carson Bowler, Schwabe Williamson & Wyatt

Governor Kitzhaber signed Senate Bill 814 into law yesterday (June 10), a significant piece of legislation affecting environmental insurance coverage. The Bill, sponsored by Senators Shields and Johnson, is designed to clear up certain questions causing friction between insurance companies and their policyholders.

In Oregon, some general liability insurance policies cover “property damage” from environmental contamination and pay for the cost to remediate contamination. Sometimes those policies are old or missing, leading to fights and litigation over coverage. The Oregon Environmental Cleanup Assistance Act, passed in 1999, helped some with “lost policy” disputes by requiring insurance companies to make a diligent and good faith effort to find missing policies and determine if coverage was available.

But even when old policies are found, insurers and insureds often still disagree on whether coverage is available or how to manage those claims that are covered. Senate Bill 814 amends the Oregon Environmental Cleanup Assistance Act in an attempt to standardize additional coverage questions under Oregon law, such as:

  • Allowing policies to be assigned to cover claims in certain cases;
  • Including as a covered cost any action taken to stop contamination from migrating;
  • Establishing a mediation program for certain disputes between insurers and insureds;
  • Requiring insurance companies to assign local environmental lawyers and experts to environmental cases; and
  • Prohibiting certain acts as “unfair claims practices,” such as slow investigation or payment of claims, or harassing policyholders. SB 814 also allows policyholders to collect fees and up to triple damages for some unfair claims practices.

Senate Bill 814 is a potential boon for policyholders facing disagreements with their insurance companies over environmental insurance coverage. The history and full text of Senate Bill 814 can be found here.…

June 4, 2013

United States: Counsel’s Role In Insurance Risk Management

Source:, May 29, 2013
By: Finley T. Harckham, Anderson Kill & Olick,P.C.

Originally published by The Metropolitan Corporate Counsel, Volume 21, No. 5, 2013

Insurance policies are complex contracts and pursuit of an insurance claim is often a high-stakes, conflict-ridden endeavor. Yet all too many companies entrust their assets and their very survival to insurance policies that are never seen by their attorneys, and pursue claims without the benefit of counsel’s evaluation of the company’s contractual rights. In-house counsel have an important role to play both when insurance is obtained and when claims are pursued.

Counsel Should Analyze Insurance Policies Before Coverage Is Bound

Before coverage is bound, counsel should analyze the contracts being offered with the company’s major liability and loss exposures in mind. Insurance policies for businesses are typically complex, lengthy contracts written in arcane language, with many exclusions that take away much of the coverage that is otherwise afforded. Many of the key provisions found in standard form policies have been interpreted by the courts and are best understood in light of that case law.

An attorney’s review of the company’s insurance policies is not as daunting a task as it might first appear, at least after going through the exercise once. Most policies consist largely of standard forms, many of which remain largely unchanged from year to year. The insurance broker can be asked to identify all changes in coverage. Moreover, excess policies often “follow form” to primary policies. So, reviewing higher-layer policies in a tower of insurance is typically far less involved than gaining an understanding of primary policies. However, care must be taken to ensure, if possible, that excess policies do not have less advantageous terms, and that if they do, any policies at higher levels do not follow form to them.…

June 4, 2013

Professional services exclusion precludes coverage for design defect claims

Source:, May 23, 2013
By: Wiley Rein LLP

Applying Nevada law, a federal district court held that an insurer has no duty to defend or indemnify claims alleging damage from design defects in houses constructed by the insureds due to the policy’s professional services exclusion. St. Paul Fire & Marine Ins. Co. v. Del Webb Communities, Inc., 2013 WL 1181904 (D. Nev. Mar. 19, 2013).

The insured construction companies were named as defendants in a class action lawsuit alleging damages as a result of structural seismic design defects in houses. The insureds tendered the lawsuit for defense and indemnity coverage under an excess policy issued by the insurer. The excess policy contained a professional services exclusion precluding coverage for damage “that results from the performance of or failure to perform architect, engineer, or surveyor professional services” including “the preparation or approval of any drawing and specification, map, opinion, report, or survey, or any change order, field order, or shop drawing; and any architectural, engineering, inspection, or supervisory activity.” The insurer accepted a defense subject to a reservation of rights, and filed a declaratory judgment action seeking a determination that no defense or indemnity obligation existed under the excess policy pursuant to the exclusion.

The court held that coverage was precluded by the plain terms of the professional services exclusion in the excess policy. According to the court, the only damages sought in the class action lawsuit were “damages relating to curing the design defect” that fell directly within the scope of the exclusion. In so holding, the court rejected the insureds’ contention that additional discovery was warranted to determine if a concurrent cause for the damages existed that would defeat application of the exclusion. The court noted that the insureds “cannot show that there was a concurrent cause which would defeat the Exclusion because the only allegation in the [underlying action] is that homes were built using the allegedly defective [designs] and are hazardous because they do not meet seismic codes.” As such, the court rejected the insureds’ request for further discovery and held that no coverage obligations existed for the class action lawsuit under the excess policy.

The opinion is available here.…

June 3, 2013

Casino site contamination prompts new lawsuit

Source: The Baltimore Sun, May 20, 2013
By: Timothy B. Wheeler

Two Baltimore residents contend city allowing Patapsco pollution

A pair of Baltimore residents filed suit Monday accusing the city of breaking the law by allowing toxic chemicals to leach into the Patapsco River from the South Baltimore site where a casino is now under construction.

The lawsuit is the second to raise environmental concerns about development of the Horseshoe casino on Russell Street. It contends that the city’s deal with CBAC Gaming, a coalition led by Caeser’s Entertainment, exposes city taxpayers to having to pay for cleaning up contamination from the site.

The suit was brought on behalf of Michael J. Finck, who lives across the Middle Branch less than a mile away from the casino site, and Mark E. Richardson, who lives farther away in Federal Hill. Their lawyer, G. Macy Nelson, said his clients are not members of any environmental organization, but care about the river.

“We don’t want money from the city, we want the site cleaned up,” said Nelson, a Towson attorney who often represents plaintiffs in environmental cases.

Finck and Richardson, joined by two others, also have warned the city formally that they intend to file another suit in federal court for allegedly allowing toxic chemicals to get into the Middle Branch via storm drains that empty into the river from the site, where a chemical factory and other industries once operated.

George Nilson, the city solicitor, said he had not seen the new lawsuit, but likened the flurry of litigation over the casino project to “a plague of locusts.”…

May 21, 2013

Claim Scenario – Client Selection and Project Selection

Facts: The insured provided architectural design services for a single floor high-end renovation condominium project ($7.5M renovation budget).  After the project was completed the insured was owed $65,000 in fees.  When architect requested the outstanding fees, the owner (a wealthy, high-profile figure) indicated that he was unhappy with a number of features of the condominium, which he deemed to be errors by the insured.  Architect’s contract called for arbitration and the architect filed a demand for arbitration to recover fees and attorneys fees. Owner counterclaimed for approximately $120,000 in alleged design defects and attorney fees.  Eventually the alleged damages against the insured increased to over $450,000.

Claims against the insured: The owner alleged that the architect breached its agreement by failing to deliver “superior architectural services” and “executing deeply flawed concepts that it knew or should have known were both fundamentally unworkable and directly contrary to owner’s express instructions.” Specifically, the owner alleged that the breach occurred by (a) failing to “supervise and monitor construction,” and (b) refusing to continue work and file appropriate “sign-offs” with the City for open permits due to non-payment of invoices. The owner’s defect lists was long, but included: improper door latches, the closet not being large enough for her hanging items, power-strip not being mounted correctly, location of light switches being incorrect, sagging bookshelves, cracks in the walls, shallow height of shelving.

Defenses: The majority of the claims involved construction issues, owner desired changes or just were not defects.

Coverage issues: The counterclaim sought recovery of payments made by the owner to the insured (“Damages” does not include “return or offset of fees”). The contract also contained a “prevailing party” provision. No coverage for Liability Assumed under Contract.

“Prevailing Party” Provision Issues: Absent a clear-cut victory by either side, the arbitrator would have wide discretion in deciding how to apply the fee-shifting provision. Generally, whichever side obtains most of what it seeks will be deemed the prevailing party.

Policy Limit: $3,000,000 per claim limit, $30,000 deductible.

Resolution: 10 days of arbitration started, followed by 1 day of mediation. Insured waived their fee claim in its entirety and paid the owner $25,000 to settle. Defenses costs $578,000.


March 29, 2013

Mediation in Savannah River Lawsuit Continues

Read here about the continuing mediation occurring in a Savannah River lawsuit.


January 14, 2013

Thai villagers win lead pollution court battle

Source: AFP World News, January 10, 2013
Posted on:

Ethnic minority villagers at the centre of a nine-year legal dispute over lead pollution from a mine in western Thailand won their fight for increased compensation on Thursday.

Thailand’s Supreme Administrative Court ordered the government to pay 3.9 million baht ($128,000) shared between 22 plaintiffs from a Karen community living near the Klity Creek in Kanchanaburi province.

It said the government’s Department of Pollution Control had failed to prepare a contingency plan in case of a leak, while efforts to tackle the problem only made it worse.

Both sides had appealed a lower court decision in 2008 to award a total of 783,226 baht in compensation to the plaintiffs for the contamination from a mine operated by Lead Concentrate Ltd. until its closure in 1998.

Village chief Yasae Nasuansuwan said his community — home to 400 people — had suffered from lead pollution since 1975.

“We have had health problems such as stomach ache while many women feel tense because they no longer use water from the creek for their daily activities,” he told AFP after the ruling.

“About six to seven people died when high levels of lead were found in the creek, but I don’t know if they all died from the lead because we didn’t go to see a doctor,” he said.

The court ordered the government regularly to test the contamination levels, but villagers expressed disappointment that it did not set a timetable to clean up the creek.

Activist Surapong Kongchantuk, director of the Karen Studies and Development Center, welcomed the ruling as “the beginning of standards in environmental cases” in the kingdom.