The facts of this case center around fire damage to the garage of an auto repair business. The policyholder was an auto transmission and exhaust emission specialist in California who purchased a Businessowners Policy from Amco Insurance Company. The policy covered certain types of accidents and property damage that could have occurred at Plaintiff’s auto garage.  Specifically, the policy provided that the insurance carrier would reimburse the policyholder for all business income loss that resulted from the forced suspension of business operations after an accident. Additionally, the policy stated that the insurance carrier had an obligation to reimburse the policyholder for extra expenses that were incurred by the policyholder if he/she repaired or replaced the property.

After a fire damaged the garage, the insurance carrier and the policyholder went back and forth about the amount of business income loss. To determine the loss, each party hired their own CPA. However, the CPAs came out with a huge discrepancy in valuation of the claims. The insurance carrier’s evaluation was less than 1/10 of the value completed by the policyholder’s adjuster.

Subsequently, the auto garage sued the insurance carrier for bad faith and breach of contract. The insurance carrier responded with a motion for summary judgment. The insurance carrier argued that the policyholder could not claim that the carrier acted in bad faith just because it relied on a CPA’s estimate. However, the court found that the discrepancy between the parties’ estimates was in part due to the insurance company’s perception that the policyholder had not submitted the correct documents. Because the difference between the amounts of lost business expenses was so wide, the court denied the insurance carriers motion for summary judgment.

In February 2008, a frozen water pipe burst in the policyholder’s home. After the policyholder tendered the claim to his insurance provider, the carrier offered the policyholder two options to remedy the damage. The policyholder could either hire his own contractor to repair the home, or the insurance carrier would hire its own contractor and oversee the work itself. The policyholder decided to go with his own independent contractor.  In addition, he also hired a public adjuster to assist with the claims process. The policyholder signed a contract with his public adjuster whereby the policyholder gave the adjuster power of attorney and the power to withdraw funds from the policyholder’s accounts.

In making these choices, the policyholder assumed that the insurance carrier would act as the overseer on all of the repair process. This assumption was incorrect, and subsequently after numerous problems with gas and electrical connections in his home, the policyholder became upset with all of the parties involved in the repair process.  The policyholder brought suit against all of the parties, including the insurance carrier. Specifically, the policyholder alleged that the insurance carrier breached its contract by issuing payments without his permission to the independent contractor and the public adjuster.

Nevertheless, the court found that the policyholder was unable to show that the insurance carrier breached its contract with the policyholder.  Instead, the court found that the policyholder had lawfully granted power of attorney to the public adjuster.  Because there was no provision in the contract that granted the policyholder any right with respect to how checks were issued, the insurance carrier had not breached its contract.

Policyholders need to remember that a public adjuster is working on your behalf. Because they are compensated based on commission (typically) their interests are aligned with the policyholders to maximize recovery under an insurance policy.

The dispute arose after a property owner attempted to eject a tenant on his rented property in Gilroy,California for breach of a co-tenancy agreement.  In the process of ejecting the tenant, the tenant destroyed more than $30,000 in vegetable crops by tearing out power blocks that operated the water supply to the crops.  The tenant filed a cross complaint against the property owner for defamation and abuse of process.  In response, the property owner asked his insurance carrier, Fire Insurance Exchange, to represent him against the tenant. The insurance carrier denied coverage.

Generally, insurance policies contain a duty-to-defend provision which obligates the insurance carrier to provide policyholders a defense to claims made under against a policyholder.  In this case, the Fire Insurance Exchange property insurance policy provided that the insurance carrier would “pay those damages which an insured becomes legally obligated to pay” because of “property damage resulting from an [accident].”  The appellate court defined accident to mean “an unexpected, unforeseen, or undersigned happening or consequence from either a known or unknown cause.”

In this instance, the policyholder could not prove to the court that the damage to his crops was the result of an accident. Instead, the court found that the conduct by the tenant was intentional and malicious. Additionally, the court found that there were no facts in the record that indicated that the crop damage was unexpected. Thus, the only remedy for the policyholder was a tort suit against the tenant and the insurance carrier was under no obligation to defend the policyholder.

Policyholders should be careful to read their policy thoroughly prior to asking their carrier to defend them as a court may narrowly construe what is covered by an insurance carrier’s duty to defend.

This dispute arose out of a tragic drowning of a 12-year-old girl during an inner tubing accident. The parents of the dead girl obtained an uncontested judgment against Ralph Lindstrom who was supervising their daughter at the time of the accident. Mr. Lindstrom was covered under a Personal Umbrella Liability Policy which provided for coverage for the policyholder’s use of automobiles and watercraft.  Nevertheless, the insurance carrier repeatedly denied coverage for this incident.

The parents of the child sued the insurance carrier for breach of contract and bad faith. The district court held that because the term “watercraft” was ambiguous, Mr. Lindstrom did not have any reasonable expectation of being covered under the policy.  It is possible that this holding violates the cannon of insurance interpretation that states that ambiguities should be interpreted in favor of the policyholder. Nevertheless, the insurance carrier was shielded from liability arising from the death due to the use of an inflatable inner tube and the parents appealed this decision.

A Ninth Circuit panel affirmed the district court’s ruling and held that inner tubes cannot be considered a boat within the meaning of ‘watercraft’ in the insurance carrier’s policy because inner tubes are not propelled by oars or power and are not seaworthy. Additionally, an inner tube is not designed to transport persons or property but rather merely floats on a river.

Although this panel’s decision is not favorable to policyholders, it is important to note that the decision does not hold case precedent as it has not been published in an official reporter.

The facts of the case concern the death of four individuals at a Casino West Motel inNevada. The individuals died from carbon monoxide poisoning after fumes from the motel’s pool heater permeated into the deceased’s room.  The hotel had a general commercial liability policy with Century which obligated the carrier to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” This meant that while Century had a duty to defend Casino West from any suit that arose from covered areas of the policy, the insurance carrier did not have a duty to defend in cases where the injury resulted from an excluded area of coverage. Century argued that it denied the motel’s claim in good faith because the plaintiff’s injury resulted from “pollution,” a commonly excluded peril.

Casino West challenged the denial of coverage on the theory that the provision addressing bodily injury and pollution were ambiguous and should therefore be interpreted in favor of coverage. Casino West argued that althoughNevadahas not expressly ruled on the issue, the wide variance in court decisions nationwide indicates that the exclusion is ambiguous.  The Ninth Circuit found that the case turned on the question of ambiguity. If the exclusion was in fact ambiguous, then Casino West’s claims would be covered. However, if the exclusion was unambiguous, Century had no duty to defend.

Rather than decide the issue, the Ninth Circuit requested the Nevada Supreme Court to provide guidance on the issue as a matter ofNevadaStatelaw. Depending on what the Nevada Supreme Court holds, this decision may be important forNevadapolicyholders who acquire CGL liability insurance in the future.

In 1922, a Nebraska court defined riots and civil commotions as occasional temporary outbreaks of unlawful violence that do not rise to the levels of organized rebellion against the government. Kirshenbaum v. Massachusetts Bonding & Ins. Co., 107Neb. 368 (1922). Usually, the excluded conduct will involve three or more people who assemble together. More specifically, to constitute a “riot” within the meaning of exclusions in an insurance policy, more than one person must have participated in the commotion. Civil commotion is defined as a domestic disturbance with numerous people that is a more prolonged disturbance than a riot but does not amount to the level of insurrection or war.

Not all damage to property by a group of people acting in concert will be considered a “riot”. For example, courts have determined that acts of vandalism committed by several people will not necessarily be considered a ‘riot’ for the purpose of an insurance policy. If the vandalism is conducted by a group away from the public and with the purpose to be undiscovered, then the exclusion will not apply.  Additionally, when the floors, and ceiling of a residence were damaged in the nighttime without disturbing the residents and not in defiance of authority, a Illinois court found that this was not the result of a “riot” within the riot clause in an insurance policy. Walter v. N. Ins. Co. of New York, 370 Ill. 283 (1938). Other examples of damage that will not fall privy to the riot exclusion were trespassing incidents that caused damage to a property. The court found that because there was no evidence of public terror in the surrounding neighbors, this activity did not constitute a riot. Blackledge v. Omega Ins. Co., 740 So.2d 295, 299 (Miss.1999).

In the event that a riot or civil commotion occurs outside of your business (and you are worried about damage that may have occured), you should gather as much information as possible about the incident and work with local police to ensure that your buildings have been protected. Riots can result in expensive and extensive damage to property. For example, the Rodney King riots cost over $1 billion dollars to repair damage to buildings. The costs for such a repair today would be astronomical. Therefore, policyholders should be sure to accurately document any damage that occurs to their property as a result of a group activity.

The dispute arose after a New Year’s party in 2001 at an apartment complex in San Diego, California.  The policyholder, Dewitt, was the offsite property manager of the complex.  Dewitt promoted a New Year’s party for the complex and provided alcohol for the attendees.  Subsequently, a 15-year-old teenager who attended the party drove his friend home while under the influence of alcohol. The driver got into a car accident and the passenger suffered permanent injuries. The passenger then sued the driver of the car, the owner of the apartment complex, and the property manager for damages.

The property owner of the apartment complex was covered under a business owner policy from Monterey Insurance Company for $1 million in liability coverage for personal injury claims. Monterey declined to cover the property manager because he was neither an employee nor a real estate manager within the meaning of the liability policy.

During the initial lawsuit against the apartment complex and its employees, the insurance company defended the owner of the apartment complex and settled with the passenger over the owner’s liability. However, because the insurance carrier refused to cover Dewitt, the plaintiff won a verdict against Dewitt for $4.7 million through a default judgment. Following the default judgment, the plaintiff attempted to settle with Monterey Insurance Company over Dewitt’s liability for $1 million.  Monterey declined this offer and instead asked the court to set aside the default. The court denied Monterey’s motion and subsequently, many years later, the insurance carrier paid the plaintiff $3.5 million to settle the claim.

After the settlement, Dewitt sued Monterey Insurance Company for breach of contract, emotional distress, and damages to his credit for the insurance carrier’s failure to initially defend Dewitt against the injured plaintiff and the carrier’s refusal to accept a reasonable settlement offer.  At trial, Dewitt wanted the court to instruct the jury on a bad faith claim the insurance companies refusal to accept a reasonable settlement demand. However, the court declined his request because Dewitt never presented evidence on the insurance carrier’s duty to defend. The jury found in favor of the insurance company.

Dewitt appealed the decision, claiming that the trial court erred on its failure to instruct the jury on the elements of bad faith.  The Court of Appeal upheld the jury’s verdict and held that the trial court did not err when the judge refused to instruct the jury about Dewitt’s bad faith claim.  Additionally, the Court of Appeal held that insurance carriers do not waive the right to contest the coverage of a policyholder if they move on their own behalf to set aside a default judgment.

This case arose from a dispute between the Gold Coast Inn and Westport Insurance after a severe wind storm damaged the Gold Coast in 2009. Per the provisions in Gold Coast’s insurance policy with Westport, in order for a loss to be covered, Westport was required to evaluate the cost of repairing the damaged property and present the repair plans to the State Building Department for approval. The dispute arose after the State Building Department rejected plans submitted by Westport’s architect.  When the architect attempted to appeal the Department’s decision, Gold Coast protested.  Gold Coast claimed that the architect did not have standing in front of State Building Department and could not appeal his plans without their approval. Upon learning that Gold Coast was not cooperating with the architect, Westport warned the policyholder on four separate occasions that if Gold Coast continued to obstruct the filing of an appeal with the State Building Department, it would breach the Cooperation Clause in its policy and therefore void its claim.

The dispute over whether the architect could appeal to the State Building Department without the consent of Gold Coast reached a stalemate between the two parties. Because Westport was unable to accurately determine the cost of rebuilding the hotel’s property, the insurance carrier claimed they were unable to move forward with the claim. Subsequently, on November 22, 2010, Gold Coast filed a cause of action in state court for a declaratory judgment against Westport. Gold Coast asked the court to declare that the refusal to cooperate with Westport’s architect did not constitute a breach of the Cooperation Clause.  Next, Westport removed the case to federal court and filed a Motion for Summary Judgment against Gold Coast.

At trial in federal district court, Judge Spatt held that the question of whether Gold Coast’s refusal to agree with Westport’s architect constituted a breach of the insurance policy’s Cooperation Clause was ambiguous. The court explained that “the purpose of a cooperation clause in an insurance contract is to protect the insurer’s interest and to prevent the collusion between the insured and the injured party.” The court first attempted to resolve the issue by ascertaining the reasonable expectations of the policyholder when they entered into the contract. This inquiry did not provide a satisfactory answer on the question of ambiguity, so the court turned to case precedent. However, the court could not find any case law directly on point to the specific issue of an architect’s appeal to the State Building Department. Instead, the court held that the ambiguity of the policy’s Cooperation Clause was a question of fact to be resolved by the Jury. The court denied Westport’s motion for summary judgment.