It’s that time of the year when Americans gather together, enjoy a feast, and fall asleep in front of the TV. But before the tryptophan kicks in, we also like to give thanks for the good things that have 
happened in the past year. Corporate policyholders can share in the tradition, as this year has produced a number of court decisions that favored insureds and protected their coverage expectations. Here are a few of the cases we are most thankful for:
Harleysville Group Insurance v. Heritage Communities, Inc.
This case out of the South Carolina Supreme Court gave generously to policyholders in a number of ways this year (giving us the opportunity to post in this blog again and again and again). The case involved defective construction claims against a developer. The developer’s insurer, Harleysville, provided a defense under a vague reservation of rights letter. After the underlying plaintiffs were awarded verdicts against the developer, Harleysville sued to avoid covering the judgments. The court ruled against Harleysville on four issues:
- Harleysville’s vague, general reservation of rights letter did not effectively reserve its rights to contest coverage under the terms and exclusions in the policy;
- Where the underlying verdicts did not apportion the damages between covered and uncovered losses, the insurer bore the burden of proving amounts allocable to uncovered losses. Where the insurer failed to meet that burden, it had to cover the entire verdict;
- Punitive damages awarded in the verdicts were found to be covered under Harleysville’s policy; and
- The owners’ association, which was asserting the dissolved developer’s coverage rights in the case, had standing to challenge the insurer’s reservation of rights letter.
Harleysville is a case that just keeps on giving.
Verizon Communications v. Illinois National Insurance Company
The duty to provide a defense, or reimburse defense costs, is one of the most important features of liability insurance. You could say it’s the stuffing, where indemnity is the turkey. The Delaware Superior Court emphasized that obligation in Verizon to the tune of $48 million in defense costs that the insurer had refused to pay. This decision was important because it rejected the insurer’s attempt to define the vague term “securities claim” narrowly to avoid its obligation to pay defense costs. More broadly, the court upheld the pro-policyholder interpretative doctrine of contra proferentem, rejecting the insurer’s argument that the doctrine should not apply where the insured is a large, sophisticated corporation. Applying the doctrine, the court held that unless it can be shown that the insured had a hand in drafting the policy language, ambiguous terms should be interpreted against the insurer. A more detailed analysis of the decision by this firm can be found here.
All State Interior Demolition Inc. v. Scottsdale Insurance Company and McMillin Management Services v. Financial Pacific Insurance Company
Thanksgiving dinner is always better with more guests. Additional Insured endorsements in policies extend the invitation to more parties that may require a seat at the table of insurance protection. This is especially important in the construction context, where developers and general contractors rely on numerous subcontractors’ insurance policies to protect them from liability arising from those subcontractors’ work. These two decisions rejected insurers’ attempts to narrow the application of additional insured endorsements.
In All State Interior, previously highlighted here, a New York County trial court interpreted an endorsement broadly, granting additional insured status to companies that didn’t technically contract with the subcontractor, and who weren’t named in the endorsement. The court, in essence, incorporated the terms of the contract between All State and the subcontractor into the endorsement to trigger additional insured coverage for the project owner, site lessor, and construction manager as All State’s “partners, directors, officers, employees, agents and representatives.”
In McMillin, the insurer’s policy granted additional insured status to McMillin, the general contractor of a project, for “liability arising out of [the subcontractor’s] ongoing operations,” and excluded additional insured status for the insured’s completed operations. The insurer denied defense coverage on the basis that the subcontractor had finished working on the project. The California Court of Appeal disagreed, stating that the endorsement’s phrase “arising out of” is broader than “during,” and so the liability did not have to arise while the insured was still working on the project.
Nooter Corporation v. Allianz Underwriters Insurance Company
When it’s time for dessert, allocating the available pie to make sure everyone gets what they deserve can be tricky. This year, Missouri joined the ranks of “all sums” states that maximize coverage for policyholders with long-tail claims stretching over several years. The “all sums” method of allocation allows an insured to allocate all of its damages from long-tail losses to a single year of coverage. This ruling by the Missouri Court of Appeals was based on the plain language of the policies, which promise to indemnify the insured for all sums the insured is legally obligated to pay for occurrences during the policy period. The court also ruled that all triggered primary policies across a period of years need not be exhausted before excess policies in the period selected by the policyholder can be triggered. The court ruled that only the primary policy in one year needs to be exhausted before that year’s excess policies are triggered. For a more thorough analysis of this case, click here.
Medidata Solutions, Inc. v. Federal Insurance Company
Rather than brave the stampedes of Black Friday, one can get good deals on holiday gifts on Cyber Monday. But to protect against cyber thieves, make sure your insurance coverage will protect you. In this case, the U.S. District Court for the Southern District of New York interpreted the computer fraud provision of a crime policy to do just that. Policyholder Medidata was the victim of fraud when someone tricked its employees into wiring money overseas, using spoofed emails that looked like they came from the company’s president. Medidata’s insurer denied its claim, stating that the computer fraud clause of the crime coverage required actual hacking into and manipulation of Medidata’s computer system. But the court sided with Medidata, ruling that the spoofing of emails violated the integrity of the insured’s computer system enough to trigger coverage, and actual entry by hackers was not required by the policy language or by precedent.
We at Pillsbury hope you all had a very Happy Thanksgiving!
to provide security unattainable through traditional contract law, and to reduce additional transaction costs that come with the traditional process. Will insurance policies become the laboratory to test their thesis?
In a previous 
Identifying the sublimits in a policy is usually straightforward since they typically appear in a list or chart in the policy’s declarations section. Sublimits generally fall into one of two types: (1) sublimits that apply to particular perils, like flood, Named Storm or earthquake; and (2) sublimits that apply to a type of damage or cost, like debris removal or preservation of property. There are many different perils and costs that a policy may sublimit, and sublimits appear in many types of policies (including, for example, sublimits for coverage for wage and hour claims under an employment liability policy). However, this blog will focus on property policy sublimits. Because many property policies include sublimits that apply to storm-related losses, they may particularly be an issue for companies damaged by hurricanes like 2017’s Harvey, Irma, Jose and Maria.
Reviewing insurance policies is one—but still only one—of those things. In the initial stages of dealing with these kinds of events, it is natural to focus on big-picture policy items like limits, deductibles, coverages and exclusions. Only in the second pass do companies usually focus more closely on the substantive wording of various provisions. In undertaking this second (or third or fourth) pass, it is important to zero in on the exact words of the policy to avoid overlooking details that may make all the difference as to whether coverage exists or not.
In the world of construction, whether you’re a lender, owner, contractor or subcontractor, your success hinges largely on risk management. While there’s no substitute for sound business and construction practices (such as proper preconstruction planning, proven construction means and methods, use of experienced personnel, and stringent safety programs), among the most important project risk allocation tools are the contracts governing the various parties’ rights and obligations. Within those contracts, risk is primarily allocated through indemnity and insurance requirement provisions. When preparing insurance requirements for construction-related contracts, it is crucial to ensure these pieces are well-fitted and comfortable, like a good piece of tailoring. This requires the indemnity and risk obligations associated with each project discipline to be clearly identified and addressed.
As summer comes to a close, road repair crews across the country are identifying the street repairs and potholes that must be filled before the cold weather approaches. Now is also a good time for policyholders to identify some of the “potholes” that may accompany their claims-made insurance policies and get them filled before it is too late.
California law has long held that an insurer may not use declaratory relief or other tactics to prejudice the defense of its policyholder in an underlying lawsuit. But in their zeal to avoid coverage, and despite California Supreme Court precedent, insurers sometimes employ tactics that actually increase their policyholder’s risk of liability in the underlying action, contrary to the very purpose of liability insurance. That was the case in the coverage action between football helmet manufacturer Riddell and its liability insurers, which is pending in California state court, where certain London Market Insurers tried to require the production of extensive discovery before that substantially identical production took place in the underlying product liability action.