Insurance policies that include the cost of defending a particular claim or action within the policy’s limit of liability, often referred to as “burning,” “eroding,” or “defense within” limits policies, are common in the management liability insurance market. As we previously reported, a 2015 United States District Court for the Southern District of Mississippi decision cast a cloud of doubt over liability insurers issuing defense within limits policies in Mississippi ... Keep Reading »
Tenth Circuit Drills Down Into Roots Of Moral Hazard, Comes Up Dry
Moral hazard (one of this blog’s preoccupations) usually comes up in disputes over the scope of coverage under an insurance policy. (See, for example, here, here and here.) But state legislatures often address it, too—for example, by imposing limits on agreements to indemnify a party against the consequences of its own negligence. This week, in Lexington Ins. Co. v. Precision Drilling Co., No. 15-8036 (10th Cir. July 26, 2016), the U.S. Court of Appeals for the Tenth ... Keep Reading »
Alabama Puts The Mystery Back Into All-Risk Coverage
“There is, one knows not what sweet mystery about this sea …” -- Moby-Dick Insuring property against loss creates an unavoidable moral hazard: policyholders often have an incentive to cause or allow their property to disappear. Early efforts to limit insurers’ exposure to that risk—such as requiring the insured to prove the cause of a loss by “direct and affirmative evidence”—proved unsustainable. Eventually, the problem gave rise to express exclusions for losses ... Keep Reading »
There’s A Problem With Your Reservation: Citing Reservation of Rights, Mississippi Court Nullifies “Defense Within Limits” Provision
When liability insurers have reasonable questions about coverage, courts traditionally encourage them to defend their insureds, subject to a reservation of rights. E.g., Drawdy v. Direct Gen. Ins. Co., 586 S.E.2d 228 (Ga. 2003) (“[b]y acting in this manner, the insurer eliminates any detriment to the insured …”). But the decision to reserve can have serious, negative consequences for the insurer. In some states, a reservation is deemed to create a conflict between ... Keep Reading »
A DJ is a Sometime Thing: In Declaratory Judgment Actions Over Coverage, the Sixth Circuit Gives Trial Courts a Wide Berth
The Declaratory Judgment Act, 28 U.S.C. § 2201, gives federal district courts "unique and substantial discretion" over whether to hear suits seeking a declaration of rights. Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). To guide the exercise of that discretion, Courts of Appeals have created lists of relevant considerations—most of which were borrowed from Moore's Federal Practice. See Reifer v. Westport Ins. Co., 751 F.3d 129, 145 n.20 (3d Cir. 2014) ... Keep Reading »
Drive, He Said: When “Yes” Means “Don’t Shoot!”
Bad things can happen to innocent people, and sometimes the people responsible for them are judgment-proof. When that happens—and when the perpetrator also has potential coverage under an automobile or homeowners policy—victims sometimes view the circumstances of their injury more generously; they describe them with words like "careless" and "negligent" in place of harsh, judgmental terms, such as "intentional" or "criminal." Something of this sort seems to have been ... Keep Reading »
California Supreme Court Halts Creeping Expansion of Advertising Injury
Commercial general liability policies typically provide coverage for claims based on “personal and advertising injury.” Increasingly, enterprising insureds have invoked this coverage in connection with a variety of legal theories arising out of the alleged use of advertising to engage in otherwise unfair business or competitive practices. Two years ago, for example, in Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc., 207 Cal.App.4th 969 ... Keep Reading »
Federal Judges in Brooklyn are Making it Easier to Pursue Fraud Claims Against No-Fault Medical Providers
I was bawn in Williamsboig," he says. "An’ I can tell you t’ings about dis town you neveh hoid of." - Thomas Wolfe The Eastern District of New York, which includes the New York City Boroughs of Brooklyn and Queens, has been home to some of the most colorful no-fault insurance scams in living memory. In March, a Queens attorney entered a guilty plea in what the Government describes as “the largest single no-fault automobile insurance fraud scheme ever charged”—an ... Keep Reading »
It’s All About the Pleadings: Florida Court Expands Insurers’ Obligation to Provide Separate Counsel for Insured Co-Defendants
The duty of a liability insurer to provide a defense for its insured is controlled by the contents of the pleading against that insured: the duty can arise on the basis of allegations that establish grounds for coverage, even if the insurer knows those allegations to be false. If, in those circumstances, the insurer reserves its right to dispute coverage (and especially if, in doing so, it relies on a theory that would prejudice the insured’s position in the underlying ... Keep Reading »
As Gunfire Thins the Ranks of the Employed, Employee Exclusions Hold the Line Against Coverage
As this blog has previously reported, accidents with guns are not likely to become less common any time soon. With home- and business-owners striving to find increasingly original ways to get shot, they will put increasing strain on the traditional language of the coverage exclusions in insurance policies. In Gear Automotive v. Acceptance Indemnity Insurance Company, No. 12-2446 (8th Cir. Mar. 18, 2013), the U.S. Court of Appeals for the Eighth Circuit recently ... Keep Reading »