In the 2019 edition of SDV’s Top Ten Insurance Cases, we probe wiretapping claims under an armed security services policy, delicately sniff out E&O coverage for a company using cow manure to create electricity, scour the earth for coverage for crumbling foundation claims, and inspect D&O policies for government investigation coverage. In addition, we preview some important and exciting decisions due in 2020. Without further ado, SDV raises the curtain on the most informative and influential insurance coverage decisions of 2019.1
1. ACE American Ins. Co. v. American Medical Plumbing, Inc., 206 A.3d 437 (N.J. Super. Ct. App. Div. 2019) April 4, 2019
Is waiver of subrogation language in a standard AIA201 contract sufficient to bar an insurer’s subrogation rights?
The New Jersey Supreme Court held that it was. Equinox Development obtained a comprehensive blanket all-risk policy with limits of $32 million per occurrence from ACE American Ins. Co. (“ACE”). The policy covered Equinox’s new project in Summit, New Jersey. Equinox hired Grace Construction as GC, who in turn subcontracted the plumbing scope of work to American Medical Plumbing, Inc. (“American”). After completion of the work under the subcontract, a water main failed and flooded the entire project. ACE paid the limits of the policy and subrogated against American to recover its losses. American argued that there was a waiver of subrogation in the AIA201 contract that barred the suit. ACE challenged the validity of the AIA provision, arguing that it applied only to claims before completion of construction and that it only applied to damage to the work itself and not to adjacent property. The court rejected both arguments, finding that the AIA provision effectively barred ACE’s subrogation claim. This decision provides guidance on a frequently used contract form for contractors across the country.
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2. Scott Fetzer Company v. Zurich American Insurance Company, 769 Fed.Appx. 322 (6th Cir. 2019) April 30, 2019
Do three separate allegations of sexual harassment, combined with a negligent supervision claim against an employer, constitute one occurrence or three separate occurrences under the employer’s CGL policy?
The 6th Circuit found the “accident” to be negligent supervision, and therefore, the three allegations constituted one occurrence. Scott Fetzer Company (“Fetzer”), a manufacturer of vacuum cleaners, was sued by three women alleging sexually inappropriate conduct of an independent vacuum dealer, John Fields. The women alleged various unsolicited sexual acts, including assault and battery by Fields and alleged negligent supervision as to Fetzer. Fetzer settled the claims and sought reimbursement from Zurich American Insurance Company (“Zurich”) under its two general liability policies. The policies provided coverage in the amount of $2 million per occurrence, the first $1 million of which was subject to a deductible. Zurich agreed to pay the amount exceeding the deductible for one of the claims but argued that it was not required to indemnify Fetzer for the other two settlements because the allegations constituted three separate “occurrences” and therefore required three separate deductibles. Fetzer argued, however, that there was only one occurrence and therefore only a single deductible applied. The Sixth Circuit agreed with Fetzer, holding that the policy was ambiguous and that the “accident” was Fetzer’s negligent supervision, not Fields’ independent actions towards the three women. Accordingly, the entire suit constituted one “occurrence” requiring Fetzer to pay only a single deductible.
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3. Xtreme Protection Services, LLC v. Steadfast Ins. Co., 2019 WL 1976482 (Ill. App. Ct. 2019) May 3, 2019
Does the possibility of a punitive damages award constitute a conflict of interest sufficient to entitle the insured to independent counsel?
The Illinois Appellate Court answered in the affirmative. Xtreme Protection Services, LLC (“Xtreme”), a security services company, was hit with a multi-count complaint for various causes of action including federal wiretapping, intrusion upon seclusion, trespass, and intentional infliction of emotional distress. Xtreme tendered the defense of the claim to its insurer, Steadfast Insurance Company (“Steadfast”), under its “armed security services” liability policy. Specifically, the policy provided coverage for compensatory