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Five Key 2023 Coverage Decisions not Reported in the Leading Insurance Blogs

Updated: Dec 16, 2023

           This is my third 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 2023:

1.         Post-litigation evidence discoverable in bad faith case     


                In Herman v. Integrity Prop. & Cas. Ins. Co., 22-CV-200, 2023 WL 4249207 (E.D.

Wis. Jun 29, 2023), a federal district court overruled an insurer’s objection that “post-litigation information” was presumptively privileged. The court held the mere fact that information was developed after the date litigation commenced is not, in itself, a proper basis for withholding discovery.  That said, the insurer “retains all the rights and privileges to a vigorous defense, including the ability to rely on all privileges and protections with respect to [the insured’s] discovery demands. Therefore, it may well be that all discovery withheld on the basis that it is post-litigation information is properly withheld on other bases,” according to the court.  The court also observed that an insurer’s conduct "within the appropriate scope of litigation" will not support a claim of bad faith.

2.            Court cannot go beyond “eight corners” to find duty to defend party not named in complaint

                In Weyerhaeuser Co. v. Burlington Ins. Co., 74 F. 4th 275 (5th Cir. 2023), the insurer disputed whether an insured, an affiliate of Weyerhaeuser, Inc., was a party to the underlying litigation.  Weyerhauser claimed that court filings in the underlying litigation and the insurers' actual or constructive knowledge “left no doubt that [the Insured] was the true party in the underlying litigation,” contending there had been an alleged “misnomer” in the underlying complaint.  The Fifth Circuit observed the issue presented a novel issue under Louisiana law that required an "Erie guess,” and predicted that the Louisiana Supreme Court would not recognize an exception to the “eight-corners” rule here.  Notably, the CGL policies did not list the defendant in the underlying case as an additional insured and the three petitions in the underlying lawsuits did not mention the entity at all, as the allegations related only to the entity’s parent company.

3.            Insured breached cooperation clause by refusing to permit insurer to thoroughly search cell-phone data

                In Streeter v. USAA Gen. Indem. Co., 23-35086 (9th Cir. Dec 06, 2023), the Ninth Circuit considered property damage insurance claims which the Insureds submitted to USAA arising from two fires that occurred within a 24-hour period at their premises. Suspecting arson, USAA requested the Insureds’ cell-phone data for the period involving the fires. When the insureds turned their phones over for the data pull, they presented an authorization that set parameters on the data that USAA could access.

                After USAA discovered a discrepancy between Verizon cell phone records and the extracted data, USAA requested an expanded scope, including an examination of any and all indicators of factory resets, data hiding or similar manipulation.  The Insureds then authorized USAA to review communications and voicemail but did not authorize USAA to examine indicators of factory resets, data hidings, or the like. While the Insureds participated in interviews and provided some materials USAA requested, the Insureds refused to cooperate when USAA requested more information to determine whether the Insureds’ statements aligned with the evidence. The court observed that the undisputed record clearly reflected that the Insureds failed to substantially cooperate with USAA during its investigation. This resulted in prejudice to USAA, and thus was a material breach of the Policy’s cooperation clause, such that USAA had correctly denied coverage.

4.            Insured’s failure to install sprinklers was not an insurable “occurrence”

                In Owners Ins. Co. v. Greenhalgh Planning & Dev., 22-4008, 2023 WL 4994512 (10th Cir. Aug 04, 2023), the insurer had denied coverage for a claim against the insured seeking damages where a barn the Insured built was uninhabitable because the Insured omitted to install fire sprinklers (contrary to the building code).  While the Insured argued there was a possibility that it lacked a duty to install fire sprinklers and thus did not act negligently in failing to do so, the court held that the duty to defend “turns on whether, assuming the Insured did have such a duty, the loss of use of the barn as a habitable structure was an unnatural or unexpected consequence of [the insured’s] negligent failure to satisfy that duty."  As the insured effectively conceded this wasn't the case, no duty to defend arose.

5.            Insurer’s interpretation of provision rejected because it would render a coverage section in the policy “illusory”

                In Franklin v. CSAA Gen. Ins. Co., ___ P. 3d ___, CV-22-0266-CQ (Ariz. Jul 28, 2023), in a rare instance of a finding of “illusory coverage,” the Arizona Supreme Court held that the insurer’s interpretation of a subsection in the policy would nullify a section providing uninsured motorist (“UIM”) coverage. Under the insurer’s interpretation, UIM coverage was rendered ‘illusory” because, per one subsection, it only applies where damages exceed bodily injury or death limits in the policy, but, per another subsection the insurer invoked, UIM coverage may never exceed bodily injury or death liability limits. 

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