Five Key 2024 Coverage Cases not Reported in the Leading Blogs

Welcome to my fourth annual survey of important decisions not reported in leading insurance blogs. These decisions may fly below the radar because they address procedural or interpretational issues which, while often the building blocks of a winning brief, aren’t click bait (though they should be).  Here are my top five for 2024:

1. Court rules insurer may have duty to defend even where the underlying complaint did not charge the Insured with any misconduct

In September, a federal trial court interpreting Pennsylvania law held that, notwithstanding the absence of negligence allegations against the Insured, the Insurer was required to defend.  Zurich Am. Ins. Co. v. Citizens Ins. Co. of Am., Civil Action 24-1879 (E.D. Pa. Sep 13, 2024).  An insurer (Citizens) disclaimed any duty to defend because the underlying complaint didn’t “directly attribute fault to [the] insured.”  However, the court opined this was because the Workers Compensation Act precluded the underlying claimant from suing the Insured.  The court inferred that in the absence of the Act the underlying claimant would have pled “… more detail concerning [the Insured’s] negligence …”  According to the court, these circumstances triggered a duty to defend: “Our awareness of the Act's impact on [the] underlying negligence claim does not violate Pennsylvania's four corners rule, [as] ‘[t]he four corners rule . . . does not permit an insurer to make its coverage decision with blinders on, disclaiming any knowledge of coverage-triggering facts.’”

2. Insurer waived right to invoke $2.5M deductible applicable to flood damage after

   having advised Insured that $100K deductible for “water damage” claims applied

In June a federal trial court in Georgia concluded that an insurer had waived its right to insist upon applying the deductible applicable under the policy. First Solar Elec. v. Zurich Am. Ins. Co., Civil Action 5:21-cv-408 (M.D. Ga. Jun 24, 2024). There, the policy assigned a $100,000 deductible for water damage claims but a deductible of $2,500,000 for flood damage claims.  But after visiting the Insured’s solar project to inspect the damage from the first two of five rain events that had damaged the facility, the Insurer’s claim examiner repeatedly assured the Insured that its claims “were going to be viewed as water damage claims” subject to a $100,000 deductible. He also made multiple notations in his claims file consistent with his representation that the Insured's claims were water damage claims and would be subject to a $100,000 deductible.  And most importantly in the court’s view, the Insurer issued, with no reservations or conditions, three advance payments to the Insurer, which applied a $100,000 deductible.   The Insurer did not request a non-waiver agreement from the Insurer prior to paying the advances nor issue a “reservation of rights” to clarify that the advance payments were subject to the right to later change its deductible position. It was only after the advance payments were issued and after its repeated assurances that the Insured's losses would be categorized as water damage claims that the Insurer invoked the flood damage deductible. Thus, the Court found that, even though the damage actually did represent “flood” damage, subject to the $2,500,000 deductible, the Insurer had by its conduct waived any right to apply that deductible.

3. Although, from Insured’s perspective, negligence by another contractor might have been an “accident,” insurer still had no duty to defend given that Insured wasn't potentially liable for this other party's negligence.

In November, a Kentucky state appellate court addressed a creative argument; namely, that an insurer must defend a claim for faulty workmanship that damaged the work product (a swimming pool) if that work was performed by a non-Insured.  T&S Custom Homes, LLC v. Ky. Farm Bureau Mut.  Ins. Co., 2023-CA-1470 (Ky. Ct. App. Nov 01, 2024).  The Insured made this argument to distinguish its case from precedent holding that an insured’s faulty workmanship damaging the product the Insured worked on does not give rise to an insurable "occurrence."  The court disagreed that a duty to defend had arisen, observing: “The policy only covers damages caused by [the Insured]. It does not cover damages by a third party. Under the policy, the insurer was obligated to pay damages the Insured becomes liable for under the terms of the policy and has a duty to defend against a suit regarding those damages.”  The insurer did not have to defend against a suit or pay for damages for which only another party could be liable. 

4. Commencement of coverage litigation does not “suspend” an insurer’s duty of good faith

In September, a federal trial court denied a motion to preclude expert opinion regarding post-coverage litigation delays in payment by the insurer.  Ganison v. State Farm Mut. Auto. Ins. Co., Civil Action 22-cv-02914 (D. Colo. Sep 09, 2024).  Finding for the Insured, the court observed that the initiation of a lawsuit does not “suspend” an Insurer's duty to make prompt payments under Colorado statute § 10-3-1115.  An Insured’s claim for unreasonably delayed payment is not limited to damages accruing before the insured files suit, according to the court.  Thus, the Insured’s expert’s opinion that the Insurer's "failings,” including its post-litigation conduct, “represented a continuing pattern of conduct warranting redress," was therefore admissible in the court's view.

5. Assault and Battery Exclusion did not render policy coverage “illusory”

In October, in a case before a federal trial court sitting in Florida, the Insured contended that the policy’s assault and battery exclusion was so broad that it essentially eliminated all coverage and therefore, pursuant to the “illusory coverage” doctrine, should not be enforced.  The court disagreed, explaining: “[W]here a limitation on coverage does not ‘completely swallow[ ] the insuring provision,' the policy is not illusory.” James River Ins. Co. v. R.I.C., 23-cv-22907 (S.D. Fla. Oct 03, 2024).  In this case, coverage was not illusory as the assault and battery endorsement “…nullifies nothing .. It applies only to claims connected with assault or battery, and it does not nullify all coverage of those claims but only reduces the amount of the coverage,” according to the court.

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