Robert J. Bates, Jr. was elected as a founding member of the American College of Coverage and Extracontractual Counsel ('ACCEC"). The ACCEC is composed of preeminent coverage and extracontractual counsel in the United States and Canada, representing the interests of both insurers and policyholders. The College is focused on the creative, ethical and efficient adjudication of insurance coverage and extra-contractual disputes, peer-provided scholarship, professional coordination and improvement of the relationship between and among our diverse members. The ACCEC held its Inaugural May Meeting in Chicago, Illinois.

Adam H. Fleischer conducted a mock reinsurance arbitration argument at the ARIAS Spring May conference in Palm Beach, Florida. Adam’s presentation addressed issues involving follow the fortunes and the duty of utmost good faith as these doctrine apply to the reinsurance of captive insurers. Attendees also received a detailed article Adam has authored on the topic.

A significant ruling on May 13, 2013 in a sexual molestation case may
benefit insurers’ “expected and intended” arguments far beyond the context of
molestation claims. An Illinois Appellate Court held that the expected and
intended exclusion can preclude a duty to defend even a negligent supervision
claim if the facts allege that the insured had reason to expect the predator’s
predilections. The court found that the terms “expected” and “intended” are not
synonyms, and that an insurer has no duty to defend “expected” injury even if
that injury was not “intended” by the insured.

Adam Fleischer and Jason Minkin highlight five recent professional liability decisions from the past month.  The topics addressed are: 1) whether “circumstances” that may lead to a claim constitute a claim; 2) whether a broker can be sued for its client’s purely financial loss; 3) whether a broker can be sued by an investor of one of its clients; 4) whether the insured can sue the broker directly for negligence; and 5) whether similar claims over two policy periods constitute the same or related claims.  The case summaries are presented below.

Koransky, Bouwer & Poracky, P.C. v. Bar Plan Mut. Ins. Co., 712 F.3d 336 (7th Cir. (Ind.) Apr. 2, 2013)

Forrest Construction, Inc. v. The Cincinnati Insurance Company, 703 F.3d 359 (6th Cir. Jan. 11, 2013) (applying Tennessee law)

On January 11, 2013, the U.S. Court of Appeals for the Sixth Circuit held that an insurer cannot rely on the “your work” exclusion if the underlying complaint against a general contractor potentially suggests that the allegedly faulty work was performed by a subcontractor. The court held that the allegation that a general contractor “caused” work to be performed in the construction of an allegedly defectively built home implied the existence of a subcontractor and, therefore, triggered the subcontractor exception. In a standard CGL policy, coverage is excluded for damage to the insured’s own work, except if the damaged work or the work out of which the damages arises was performed on the insured’s behalf by a subcontractor.

Big-D Const. Corp. v. Take it for Granite Too, 2:11-CV-00621-PMP, 2013 WL 222260 (D. Nev. Jan. 22, 2013)

On January 22, 2013, the U.S. District Court for the District of Nevada predicted that the Nevada Supreme Court would find that a CGL carrier can owe a duty to indemnify a contractor for damages caused by defective construction even if the contractor was never been sued and the duty to defend was never triggered. The court found that the term “legally obligated to pay as damages” contained in the standard CGL insuring agreement is ambiguous and could be construed to cover damages the insured is contractually required to pay.

Engineering & Const. Innovations, Inc. v. L.H. Bolduc Co., Inc., 825 N.W.2d 695 (Minn. 2013)

On January 23, 2013, the Minnesota Supreme Court adopted a narrow interpretation of a blanket additional insured provision in a liability policy issued to a construction sub-contractor. The Court found that an additional insured endorsement which limited coverage to injury or damage caused by the acts or omissions of the named insured only provided coverage for loss due to the vicarious liability of the additional insured.

ECI subcontracted with Bolduc to build a shoring system to be created by driving metal sheeting into the ground to act as walls for the underground pits necessary to construct a sewer pipeline. Under the subcontract, ECI was responsible for determining where to drive the metal sheeting into the ground and Bolduc was responsible for installation of the sheeting. The subcontract also required Bolduc to indemnify ECI as follows:

The U.S. Court of Appeals, Second Circuit, Finds That An Insured’s Defective Work Qualifies As An “Occurrence” Because The Policy Contains A Subcontractor Exception To The “Your Work” Exclusion

Scottsdale Ins. Co. v. R.I. Pools Inc., 11-3529-CV, 2013 WL 1150217 (2d Cir. Mar. 21, 2013)

On March 21, 2013, the U.S. Court of Appeals for the Second Circuit reversed the judgment of U.S. District Court for the District of Connecticut, finding that the district court failed to properly consider the impact of the subcontractor exception to the “your work” exclusion in a CGL policy.  The district court granted summary judgment to an insurer on the basis that the underlying construction defect lawsuits alleged only defects in the work itself and, therefore, did not allege an “occurrence” as defined in the policy.  The Second Circuit reversed, observing that the policy also contained an exception to the “your work” exclusion for work performed by subcontractors.  The court concluded that the existence of the subcontractor exclusion meant that the term “occurrence” must also include defects in the insured’s own work.

David M. Alt was an instructor at the Claims & Litigation Management Alliance conference, Fundamentals of Litigation Management, took place on April 18, 2013 in Peoria, Illinois.  To sign up to attend, please go to www.theclm.org.

Congratulations to Bob Bates, Arthur Brandt, Dan Graham and Michael Passman who have lent their expertise to the publication of the Illinois Institute of Legal Education’s recently released book Commercial and Professional Liability Insurance.

The particular chapters authored by our counsel are as follows:

• Pollution Exclusion: Robert J. Bates, Jr. and Arthur F. Brandt
• Introduction to Commercial Liability Coverages—Overview of the Forms:  Michael H. Passman

Please feel free to contact the authors with questions on their chapters or other insurance coverage issues.