Insurance Law Report  focuses on developments in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.

Below are the articles for the March 2018 issue. To view, click on the titles below for full versions of the article.


North Carolina Supreme Court Clarifies Statute Of Limitations Requirements While Considering Subrogation

The North Carolina Supreme Court held that the statute of limitations on an insurer’s claim for breach of a subrogation clause of an insurance policy began to run when the insurer received notice of payment by a third party and the insureds’ denied the insurer subrogation rights to that recovery. North Carolina Farm Bureau Mut. Ins. Co. v. Hull, 809 S.E.2d 565 (N.C. 2018).

Insureds of the insurer were involved in an automobile collision, and the insurer tendered a settlement offer under its UIM coverage requiring the insureds to execute and return a settlement agreement before the insurer would tender the balance of its UIM limits. The settlement agreement included a provision memorializing the insurer’s subrogation rights against any recovery received from a third party, including any future recovery the insureds received from any tortfeasor. The insureds, however, returned the proposed settlement agreement having crossed out the clause addressing subrogation rights in any additional recovery. The insurer paid the amount tendered. Thereafter, the insureds entered into settlement discussions with the tortfeasor. Upon learning of this potential recovery, the insurer claimed subrogation rights against any recovery from the tortfeasor or his insurance companies, but the insureds refused to honor the subrogation clause of the policy. In the ensuing litigation by the insurer, the insureds moved to dismiss claiming that the statute of limitations began to run at the time they returned the settlement agreement after striking through the subrogation clause; the insurer claimed that the statute of limitations did not begin to run until the insured reached a settlement with the third party and refused to reimburse the insurer under the policy’s subrogation clause.

The North Carolina Supreme Court held that the statute of limitations began to run not when the insureds altered the proposed terms of the settlement agreement but when they settled with the third party and refused to honor the insurer’s subrogation rights under the policy.


Eleventh Circuit Finds Undefined Term “Primary Auto Policy” Ambiguous

The U.S. Eleventh Circuit Court of Appeals recently held that the undefined term “primary auto policy” is subject to more than one reasonable construction, and is thus ambiguous. Gov’t Emp. Ins. Co. v. Gordon, 2018 WL 833949 (11th Cir. Feb. 13, 2018).

The claimant sued the insured for damages resulting from an auto accident while the insured was driving a rental vehicle with insurance coverage provided through the rental agreement. The insured’s estate also sought coverage for the accident under the insured’s umbrella policy. The umbrella policy stated that the insured was an “insured” under the umbrella policy only if the motor vehicle was “insured by a primary auto policy.” The umbrella insurer brought a declaratory judgment action for a determination of its obligations under the policy, arguing that the rented vehicle was not insured by a “primary auto policy” because the insurance for the rented vehicle was not primary insurance as defined in the umbrella policy. The court, relying on the umbrella policy’s definition of “primary insurance” held that because the claimant could not show that the insurance for the rented vehicle provided coverage, the insured was not an “insured” under the umbrella policy at the time of the accident. The claimant appealed.

The Eleventh Circuit reversed and held that the term “primary auto policy” is subject to more than one reasonable construction and is thus ambiguous. The Eleventh Circuit found the term “primary auto policy” ambiguous because it is subject to more than one reasonable construction, and that the district court improperly relied solely upon the defined term “primary insurance” in the umbrella policy in determining the meaning of “primary auto policy.” In concluding that the term “primary auto policy” is something different than “primary insurance,” the Eleventh Circuit stated that it gave meaning and effect to all the terms of the contract as required by the rules of construction to resolve any ambiguity. The Eleventh Circuit remanded the case to the district court to re-evaluate the parties’ motions for summary judgment in light of the court’s opinion.


Fifth Circuit Enforces Forum Selection Clause As Not Violative of Louisiana Statute

The U.S. Fifth Circuit Court of Appeals upheld the dismissal of a Louisiana-based insured’s lawsuit seeking coverage, finding that a New York forum-selection clause in the policy is not violative of public policy or Louisiana statute. Al Copeland Investments, L.L.C. v. First Specialty Ins. Corp., 884 F.3d 540 (5th Cir. 2018).

The insured, a Louisiana-based restaurant operator, sought coverage under an insurance policy for damage sustained to one of its facilities. The insurer denied the claim, and the insured filed suit in federal court in Louisiana to recover damages and costs incurred as a result of the property damage. The insurer moved to dismiss arguing that the policy’s forum-selection clause required litigation in New York. The district court granted the insurer’s motion and the insured appealed.

On appeal, the insured argued that the clause violated Louisiana’s public policy against forum-selection clauses in insurance contracts derived from Louisiana Revised Statute §22:868, which provides that “[n]o insurance contract delivered or issued … in Louisiana … shall contain any condition, stipulation, or agreement … [d]epriving the courts of [Louisiana] of the jurisdiction of action against the insurer.” The Fifth Circuit disagreed, finding that the statute does not evince a public policy against forum-selection clauses in insurance contracts because venue and jurisdiction are separate and distinct and forum-selection clauses concern venue, not jurisdiction. It affirmed the district court’s enforcement of the provision and dismissal of the suit.


Florida Appellate Court Finds Valid Settlement Agreement Between Claimant And Insurer Despite Inclusion Of Hospital As Co-Payee On Settlement Draft

A Florida appellate court recently found that an insurers’ inclusion of a hospital with potential lien rights as a co-payee on a settlement draft did not amount to a counteroffer to claimant’s demand, and thus a valid settlement agreement had been reached. Marin v. Infinity Auto Ins. Co., 2018 WL 988335 (Fla. 3d DCA Feb. 21, 2018).

The claimant was injured in an automobile accident allegedly caused by the insured and received treatment at a local hospital. The claimant’s attorney demanded that the insurer tender its policy limits by delivering the settlement draft to his office by a certain date. The insurer timely sent a letter to the claimant’s attorney advising that it accepted the demand, enclosing a release and a $10,000 check made payable to the claimant, her attorney and the hospital. The insurer explained that the hospital was included as a payee on the check as it appeared to have a lien for medical services but offered to reissue the check if the lien was resolved. The claimant’s attorney treated the settlement check as a counteroffer because it included the hospital as a payee and rejected the settlement payment. The claimant then filed a negligence suit against the insured. The insurer intervened to enforce the settlement agreement. The trial court granted the insurer’s motion and dismissed the negligence action with prejudice subject to the terms of the settlement agreement. The claimant appealed.

The appellate court affirmed, finding that the insurer’s response to the claimant’s demand was an acceptance, not a counteroffer, thereby forming a valid settlement agreement. The appellate court explained that the demand contained only two essential terms to reach settlement, both of which the insurer met when it tendered a check for the full policy limits by the date specified in the demand. The appellate court noted that the demand did not state who should be included on the settlement check, only that a “settlement draft” be sent to the claimant’s attorney’s office by the specified date. The appellate court concluded that a valid agreement had been reached.


Florida Appellate Court Finds Concurrent Cause Doctrine Applies If Insurer Fails To Establish Either A Sole Or Efficient Proximate Cause Of Loss

A Florida appellate court recently held that if an insurer fails to establish a sole or efficient proximate cause of loss, and there are no applicable anti-concurrent cause provisions, then the concurrent cause doctrine applies. Jones v. Federated Nat’l Ins. Co., 235 So.3d 936 (Fla. 4th DCA 2018).

The insureds made a claim under their all-risks homeowners’ policy for hailstorm damage to their roof. The insurer denied the claim based on the policy exclusions for wear and tear; marring; deterioration; faulty, inadequate or defective design; neglect; existing damage; and weather conditions. The insureds sued for breach of contract. Before trial, the insureds sought to amend the proposed jury instructions to apply the concurrent cause doctrine and, thus, the insureds would not be required to prove that the hailstorm was the most substantial or responsible cause of the damage. The trial court disagreed, finding that the efficient proximate cause doctrine applied. The jury determined that the insureds did not satisfy their burden of proof to demonstrate that the hailstorm was the most substantial or responsible cause of the damage, and the court entered final judgment in favor of the insurer. The insureds appealed.

On appeal, the insureds argued that the trial court incorrectly applied the efficient proximate cause. The appellate court agreed, noting that the jury should have first determined whether an efficient proximate cause could be identified and, if the answer was in the negative, a follow-up instruction would have applied the concurrent cause doctrine, requiring the jury to decide if at least one of the concurrent causes was covered by the policy. The appellate court further concluded that once the insured established that the damage occurred during the policy period, the burden of proof then shifts to the insurer to establish that (a) there was a sole cause of loss; or (b) if there was more than one cause, there was an “efficient proximate cause” of the loss. The appellate court reversed and remanded for a new trial.


Louisiana Court Finds Coverage Owed for Economic Losses Stemming From Construction Defects

A Louisiana Court of Appeal reversed summary judgment for an insurer which had dismissed the insured’s claims for economic damages under a CGL policy where it found those losses resulted from “property damage” within the meaning of the policy and therefore triggered coverage. Gibbs Constr., L.L.C. v. Nat’l Rice Mill, L.L.C., 2018 WL 992527 (La. App. 4 Cir. Feb. 21, 2018).

The insured, a general contractor, was insured under a CGL and excess policy. The insured performed allegedly faulty renovations at an apartment complex which resulted in multiple instances of water intrusion and damages to the property’s interior. After completion of the project, the insured sued the apartment complex for failure to make payments pursuant to the construction contract, and the complex counter-sued the insured and its insurers seeking delay damages, liquidated damage, loss of income/business reputation and rent concessions due to the property damage arising out of the faulty construction. The insurers filed motions for partial summary judgment, in relevant part, on the basis that the economic losses were not “property damage” within the meaning of the policies and coverage was, therefore, not available for those claims. The trial court granted summary judgment for the insurers and the insured appealed.

The Court of Appeal reversed and remanded finding that because the claimant’s complaint included allegations of physical property damage to the apartment complex, coverage existed for the subsequent delay and loss of use damages. The court noted that although claims solely for economic losses generally are not covered by CGL policies because of policy exclusions, such claims are not precluded due to “any inherent limitation in the general grant of coverage for ‘property damage’ as required by the insuring agreement,” and, therefore, the economic damages were not automatically excluded. The case was remanded to consider whether an “impaired property” exclusion nonetheless barred coverage for the economic damages.


Florida Appellate Court Holds Exclusion For Constant Or Repeated Seepage Exclusion Is Not Unambiguously Clear

A Florida appellate court recently held that it is not unambiguously clear whether a policy provision excluding losses caused by constant or repeated seepage or leakage over a period of 14 or more days also excludes losses caused by constant or repeated leakage or seepage over a period of less than 14 days. Hicks v. Am. Integrity Ins. Co. of Fla., 2018 WL 1020272 (Fla. 5th DCA Feb. 23, 2018).

The insured submitted a claim under its all-risks homeowner’s policy for damage as a result of a supply line leak. The insurer retained an expert who determined that the leak had been ongoing for five weeks or more. The insurer denied the claim based on an exclusion that precluded coverage for damage caused by “[c]onstant or repeated seepage or leakage of water … over a period of fourteen (14) or more days.” The insured sued for breach of contract. The insurer moved for summary judgment, arguing that because the leak occurred over a period of more than 14 days, the provision excluded coverage for the loss. The insured filed a cross-motion for summary judgment, arguing damage occurring within the first 13 days were covered. The trial court granted summary judgment in the insurer’s favor. The insured appealed.

On appeal, the insured argued that the exclusion applied only to losses “caused by water damage occurring on day 14 and onward.” The appellate court held, in light of the general principle that policy provisions susceptible to more than one interpretation should be construed in favor of coverage and strictly against an insurer, that the constant or repeated seepage exclusion did not unambiguously exclude losses caused by leakage or seepage over a period of 13 days or less. The appellate court reversed and remanded the case to the trial court to enter partial summary judgment in the insured’s favor on the issue of coverage within the first 13 days of the leak.


Tennessee Appellate Court Cuts Award To Insured Finding Lower Sub-Limit Applied

A Tennessee appellate court reversed a judgment for an insured where it found that coverage for property damage due to a flood was limited to a sub-limit because it was located in a “high flood zone,” despite the fact that the location was not listed in the policy’s “High Flood Zone Locations” endorsement. Opry Mills Mall Ltd. P’ship v. Arch Ins. Co., 2018 WL 576194 (Tenn. Ct. App. Jan. 26, 2018).

The insured owned and operated commercial property which was severely damaged due to flooding which closed the property for multiple years. The property was insured under a global unscheduled insurance policy with a $200 million per occurrence limit, and a $50 million sub-limit for properties in “High Hazard Flood Zones,” defined as “all property at a ‘location’ that is partially or totally situated in an area which at the time of the loss … has been designated on a Flood Insurance Rate Map to be a Special Flood Hazard Area.” The insured sought coverage under the higher $200 million limit for the damage on the basis that the property was not listed as one of the locations in the policy’s “High Flood Zone Locations,” endorsement which included s16 properties. The insurer tendered payment of the $50 million sub-limit, but denied the higher limit on the basis that the property was located in a High Hazard Flood Zone. It then filed a complaint for declaratory judgment. The trial court found for the insured and entered a judgment for $200 million, which the insurer appealed.

The Tennessee appellate court reversed, finding that the lower $50 million sub-limit applied because the property “was in an area designated as a high hazard flood zone at the time of the loss,” pursuant to the policy’s limitations. It found that the court relied on language in the endorsement indicating the properties listed were included for purposes of deductibles only, and held that the fact that the property was not listed was not relevant to coverage when considering the limits which were controlling.


Federal Court In Mississippi Permits Insurer To Subrogate Against Contractor Notwithstanding Waiver Of Subrogation In Contract

A federal court in Mississippi allowed a property insurer’s subrogation claim against its insured’s subcontractor to proceed based on the Fifth Circuit’s approach to determining the scope of subrogation waivers in construction agreements. Liberty Mut. Fire Ins. Co. v. Fowlkes Plumbing, Inc., 2018 WL 842169 (N.D. Miss. Feb. 12, 2018).

A local school district contracted with several subcontractors to perform window replacement and restoration work on one of its buildings. While the work was ongoing, the entire building was consumed by fire. The contracts at issue contained a waiver of subrogation in favor of the contractors. The school district’s property insurer paid for the damage caused to the building, and then filed suit against the contractors. The contractors moved for summary judgment, arguing the waivers of subrogation foreclosed the insurer’s claims against the contractors.

The court had to determine whether the waivers of subrogation applied (1) only to policies obtained by the owner pursuant to the agreements or (2) only to the work as defined by the agreement. The court identified two lines of cases to determine an insurer’s subrogation rights. The first approach defines the scope of the waiver of subrogation provision by the type of property damage that was incurred. Under this approach, damage to “work” is covered by the waiver, and damage to non-work property is not. The second approach defines the scope of the subrogation waiver by the source of the insurance proceeds. Under this approach, if the proceeds were paid from the policy provided by the owner, then they are covered by the waiver.

The district court recognized that while a majority of courts follow the second (insurance source) approach, it found that the Fifth Circuit follows the first (damage type) approach. The district court determined there was no evidence the policy was purchased specifically to cover the work, or that it included any interests of the contractors or subcontractors and that the waiver of subrogation applied only to claims for damage to the work itself, but not to non-work property. It held the insurer could subrogate against the contractors for damage as to the non-work property.


Federal Court In North Carolina Holds Breach Of Indemnity Agreement Not Covered

A federal district court in North Carolina held that an insured’s failure to indemnify a third party does not constitute “property damage,” even if that third company was seeking indemnification for “property damage.” American Reliable Insurance Company v. Five Brothers Mortgage Company and Securing, Inc., 2018 WL 538747 (W.D. N.C. Jan. 23, 2018), appeal filed (4th Cir., Feb. 22, 2018).

An insurer filed a declaratory judgment seeking a determination that it had no duty to defend or indemnify an insured mortgage company with respect to a suit in which it was alleged that the insured breached an indemnity clause because the allegations did not allege a “personal injury” or “property damage,” as defined by the policy. The underlying complaint alleged that the insured breached an indemnity clause in a contract by failing to indemnify another party for a claim that it trespassed on another’s property. The third party sued the insured for failure to honor an indemnity agreement, and the insured sought coverage for the underlying lawsuit. In the coverage action, the insurer argued that the underlying lawsuit did not trigger the policy because the underlying lawsuit merely alleged breach of an indemnity agreement, which does not constitute “personal injury” or “property damage.” The insured argued that because its indemnity obligation related to property damage committed by the third company, its alleged failure to indemnify the third company for property damage constituted “property damage” and triggered the policy.

The court disagreed, and noted that the alleged damages in the underlying lawsuit arose out of the breach of contract and, therefore, were purely economic and did not constitute “personal injury” or “property damage.” Accordingly, the court held that the allegations in the underlying complaint did not trigger the policy, and thus the insurer had no duty to defend.


Federal Court In South Carolina Enforces High Bar For Bad-Faith Claims Against Insurer

A federal district court in South Carolina held that an insurer’s less than vigorous participation in mediation did not constitute bad faith. Agape Senior Primary Care, Inc. v. Evanston Ins. Co., 2018 WL 490386 (D. S.C. Jan. 19, 2018).

An insurer was held to have breached its contract by refusing to continue to defend an underlying lawsuit and in refusing to indemnify the insured for a settlement that the insured paid. The insured asserted bad-faith claims against the insurer based on the insurer’s refusal to defend and indemnify as well as the insurer’s participation in mediation.

Regarding the insured’s contention that the insurer’s refusal to defend and indemnify the insureds constituted bad faith, the court determined that coverage was a close call, and that because the call on coverage was so difficult for this court, it naturally follows that the insurer cannot be held to have acted in bad faith or unreasonably when it refused coverage.

As to the bad-faith mediation claim, the insured argued that the insurer’s participation in the mediation rendered the mediation “meaningless,” particularly since the attorney sent on behalf of the insurer was the lead attorney then suing the insured on the coverage issue. The court refused to, in its words:

[G]ive birth to a new cause of action for misconduct in mediation when the South Carolina courts have not recognized such a cause of action; when any other attorney sent by [the insurer] would have been equally objectionable; when the empirical facts (i.e., one case did settle) demonstrate that [the attorney’s] participation did not necessarily hinder a settlement; and when damages, if any from the bad faith claim, would be speculative in the extreme.


Federal Court In South Carolina Holds Insurer Lacks Standing To Assert Other Insurance Provision In Another Insurer’s Policy

A federal court in South Carolina recently held one insurer cannot compel another insurer to defend a common insured. FCCI Insurance Co. v. Island Pointe, LLC, 2018 WL 1033194 (D. S.C. Feb. 22, 2018).

An insurer sought a declaration from the court that its insured qualified as an additional insured under policies issued by another insurer to the insured’s subcontractors and that that insurer owed a defense to its insured. The subcontractors’ insurer filed a motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim. The court dismissed the declaratory judgment action holding that the duty to defend is “personal to each insurer” and, therefore, the failure of one insurer to defend a common insured does not injure any other insurer. Accordingly, the court concluded that one insurer cannot compel another insurer to defend a common insured under the other insurer’s policy.

The subcontractor’s insurer was represented by Robert M. Kennedy, Jr. of Phelps Dunbar’s Raleigh, NC office. Please contact him at for further information about the opinion.


Federal Judge In Texas Grants Summary Judgment For Insurer On Bad-Faith Claim After Payment Of Appraisal Award

A federal judge in Texas found that an insured had not proven a tort independent of a claim underpayment which would entitle it to a finding of bad faith against the insurer. Instead, the court found the claimants had only shown underpayment. Cano v. State Farm Lloyds Ins. Co., et al., 276 F. Supp.3d 620 (N.D. Tex. 2017).

This dispute arose from a property damage claim. When the insureds were not satisfied with the initial payment, the insurer invoked appraisal and then paid the balance of an appraisal award which was higher than the initial estimate. The insureds still sued for breach of contract, bad faith, and Insurance Code violations on the basis that the insurer failed to include in its estimate and payment all covered damages and for its specific denial of coverage for damages that, as the appraisal award later showed, were actually covered by their policy. The homeowners contended that proof of an independent injury is necessary to prove bad faith only when a denied claim is not covered under an insurance policy, which was not the case here, and relied upon the Texas Supreme Court’s holding in USAA Texas Lloyd’s Co. v. Menchaca, 2017 WL 1311752 (Tex. Apr. 7, 2017).

The court disagreed. The court concluded that the insureds misinterpreted the case law and found no evidence of independent injury and granted summary judgment.


Texas Jury Finds Insurer In Bad Faith Even After Payment Of Appraisal Award

A jury in Tarrant County state court set aside an appraisal award and found a homeowners’ insurer to be in breach of its insurance policy and in bad faith, even though the insurer promptly paid the net amount owing on the appraisal award. Norman and Toylaan Jones v. State Farm Lloyds Ins. Co., 2017 WL 5661174 (17th Judicial District, Tarrant County, Texas, Nov. 6, 2017) (Trial Court Order).

The homeowners’ insurer paid the undisputed amount of property damage from a storm in October of 2014. The policyholders were unsatisfied with the estimated amount of damages, and one of the parties invoked appraisal. Thereafter, an appraisal award was issued which was slightly more than the amount already accepted as damages. The insurer issued a supplemental payment for the net amount owing under the appraisal award which was less than $3,000. The insureds filed suit and claimed that the appraisal award was the result of collusion. In a 10 to 2 verdict, the jury found that the appraisal award should be set aside because (1) it was not an honest assessment of the damages, (2) the award was made without authority, or (3) the award was not in compliance with the requirements of the policy. The jury then proceeded to answer questions that the insurer was in breach of contract and in violation of the Texas Insurance Code including the codified equivalent of common law “bad faith.” The jury awarded actual damages and attorneys’ fees and found the violation to be “knowing,” allowing for the award of punitive damages. The jury also awarded attorneys’ fees through trial.