Can Your Insurance Company Change Its Position Regarding Coverage For Your Claim?

Lawrence Moon | Property Insurance Coverage Law Blog | February 17, 2018

Answer: It depends, on several factors, such as:

  1. The applicable state law,
  2. the insurance company’s prior position, or positions (e.g., did it accept or deny coverage?),
  3. how it expressed that position, or positions (e.g., did it accept coverage under a reservation of rights, or did it deny coverage based on a specific ground and reserve its right to assert other grounds for denying coverage?),
  4. whether the policyholder detrimentally relied on the company’s prior coverage position,
  5. whether the policyholder has been prejudiced by the insurance company’s change in its coverage position or the stated basis for its position, and
  6. whether a lawsuit has been filed.

In short, this is an area of insurance law that lacks uniformity across the country. In T-Mobile USA, Inc. v. Selective Insurance Company of America, the Ninth Circuit Court of Appeals may decide the limits of a liability insurance company’s right to change its coverage position, or more specifically, the bases for its coverage position, under Washington law.1 The Court of Appeals may also decide whether, under Washington law, the content of a Certificate of Insurance prepared by an insurance company’s authorized broker is binding on the company, even if the content of the certificate varies from the terms of the underlying policy. That is another area of law that varies somewhat across the country.

In the underlying case,2 the facts of which are relatively complex, T-Mobile USA (“T-Mobile”) was named in a lawsuit in New York. That lawsuit arose out of damage allegedly caused by a cell phone tower owned or constructed by one of T-Mobile’s subsidiaries (which also included T-Mobile as part of its name). T-Mobile attempted to tender the defense of that lawsuit to Selective Insurance Company (“Selective”) under a policy that Selective had issued to one of the subsidiary’s contractors. According to T-Mobile, Selective initially denied coverage for T-Mobile based on an exclusion in the policy, but T-Mobile did not learn of Selective’s initial basis for denying coverage until more than two years after T-Mobile had sent its tender letter to Selective. Six months after T-Mobile learned of the basis for Selective’s initial denial of coverage, Selective denied coverage for a different reason, namely, there was no coverage for T-Mobile under the policy and T-Mobile’s tender of the claim was deficient because it did not identify its subsidiary as tendering the claim.3

Because Selective’s policy was subject to Washington law, T-Mobile filed a lawsuit in Washington seeking an order that Selective was contractually obligated to defend and indemnify T-Mobile in the New York case. T-Mobile contended that Selective’s authorized broker provided T-Mobile an insurance certificate that identified T-Mobile as an additional insured under Selective’s policy. According to T-Mobile, the terms of the certificate should be binding on Selective. T-Mobile also argued that, under Washington law, Selective should be estopped, or barred, from asserting that its tender of the claim was deficient because had Selective promptly raised that issue when T-Mobile initially sent its tender letter, T-Mobile could have corrected its tender by naming its subsidiary.4

According to T-Mobile, Selective’s denial of coverage based on the exclusion in the policy lacks merit, and because Selective should be barred from raising its defective tender defense, there is no basis for Selective to refuse to provide coverage for T-Mobile under the policy.5
In ruling on the parties’ cross-motions for summary judgment, the District Court noted that “[u]nder Washington law, an insurer may not change the basis for avoiding liability after litigation has begun,”6 and “[a]n insurer is charged with the knowledge which it would have obtained had it pursued a reasonably diligent inquiry.”7 However, the District Court ruled that the estoppel doctrine can only be invoked if there is coverage under the policy; it could not be used to create coverage when none would otherwise exist.8

The District Court also found that, under Washington law, the certificate of insurance was not binding on Selective and as a result, T-Mobile was not an insured party under the policy. Consequently, T-Mobile could not invoke the estoppel doctrine to prevent Selective from raising its coverage defense based on the fact that T-Mobile was not an insured party under the policy.

T-Mobile has appealed those rulings to the Ninth Circuit Court of Appeals. I’ll be watching this case and will keep you updated.
1 T-Mobile USA, Inc. v. Selective Ins. Co. of America, No. 17-35932 (9th Cir.).
2 T-Mobile USA, Inc. v. Selective Ins. Co.of America, No. 15-1739, 2017 WL 2774070 (W.D. Wash. June 27, 2017).
3 Id. at **1-4.
4 Id. at *4.
5 Id. at **7-15.
6 Id. at *8 (citing Karpenski v. Am. Gen. Life Cos., LLC, 999 F.Supp.2d 1235, 1245 (W.D. Wash. 2014)).
7 Id. (citing Bosko v. Pitts & Still, Inc., 454 P.2d 229, 234 (Wash. 1969)).
8 Id. at **8-15.

Insurance Fraud – It’s a Widespread Industry Problem

Emily Marlowe | Property Insurance Coverage Law Blog | February 20, 2018

Fraud is generally defined as an act done with the intent to deceive or misrepresent others in order to attain or secure some unlawful gain or deprive a victim of a legal right. Different courts, states, and bodies of law throughout our country have their own unique causes of action based in fraud, or where fraud is the primary allegation.

Fraud (on behalf of insurance companies) is more common than people realize. As recently as last week, California’s Insurance Commissioner started an investigation into Aetna Insurance Company1 after Aetna’s former medical director admitted under oath that the Insurance Company would deny insurance coverage without ever actually looking at a patient’s medical records. This was Aetna’s custom and practice, as admitted by its former medical director.

This type of fraud is not exclusive to Aetna or medical insurance – this is common in property and disaster insurance as well.

In the aftermath of Hurricane Sandy (2012), we saw this all too frequently. In fact, this issue was so problematic that the New York Attorney General indicted several NFIP flood insurance company engineers and engineering companies for fraudulently altering engineering reports. The flood insurance companies used the fraudulently altered reports to support their denial of property owners’ proper claims for covered flood damages. For example, the insurance company engineer reports originally blamed the flood water for causing severe structural damage to the homes, but the reports were changed to say there was no structural damage, or the flood water did not cause the damage. The changed reports were used by the insurance companies to significantly reduce the claim payout, or outright deny the claim.

This issue is so common and pervasive that insurance industry insiders have blown the whistle on their former insurance company employers. Back in 2006, the Rigsby sisters, who were both former claims adjusters for State Farm, blew the whistle on their former employer and insurance industry titan State Farm. The Rigsby sisters said that after a thorough investigation of property owners Hurricane Katrina claims they frequently would reach the conclusion that the property damage was caused by wind (which would be covered by the property owner’s insurance policy with State Farm), but State Farm would change the conclusion and say that the damage was flood-related, and therefore not covered under the policy. State Farm would entirely disregard the conclusions reached by their licensed adjusters, and fraudulently change the conclusion to avoid payment on the claim. The jury determined that State Farm owed over $4 million in damages related to this fraud.

Insurance Company fraud is not as uncommon as people may think. If you believe that you are a victim of this type of insurance company fraud, you should contact an experienced insurance attorney.
1 February 12, 2018, California Department of Insurance Press Release, available at (last accesses February 19, 2018).

The Importance of Promptly Providing Notice of Loss

Jonathan Bukowski | Property Insurance Coverage Law Blog | February 10, 2018

Most property insurance policies require that the insured must provide “prompt” notice of a loss as soon as possible after a covered loss. While many states throughout the country have adopted the Notice-Prejudice Rule which prevents an insurer from denying a claim unless it can demonstrate actual prejudice resulting from the delayed notice of loss, the District Court of Colorado recently issued an opinion rejecting this majority rule in first-party insurance contracts and instead applying the Traditional Notice Rule:

Failure to notify the insurer within a reasonable time constitutes a breach of that contract requiring a justifiable excuse or extenuating circumstances explaining the delay. Unless the delay is so explained, the insurer cannot be held liable under the insurance contract to defend the insured and pay any judgments recovered against him.1

Located in Aurora, Colorado, the Cherry Grove East community suffered property damage caused by hail storms in September 2014 and May 2015. Cherry Grove reported damages resulting from the September 2014 storm in June 2016, twenty-one months after its occurrence. Similarly, damages resulting from the May 2015 storm were reported in July 2016, fourteen months after its occurrence. When Cherry Grove attempted to compel appraisal, the carrier moved to dismiss the case due to Cherry Grove’s failure to promptly notify the carrier of its hail loss.

In analyzing Colorado cases applying both the Notice-Prejudice Rule and the Traditional Notice Rule, the court determined that the Notice-Prejudice Rule cases were third party liability cases in which the Colorado Supreme Court was particularly focused on public policy interest in protecting innocent tort victims. Absent public policy concern, the court determined there was no reason justifying judicial modification of an insured’s contractual obligation to provide prompt notice of a loss to an insurer and that the Tradition Notice Rule would apply in determining whether Cherry Grove provided prompt notice as required under the policy.

While the court acknowledged that ordinarily what constitutes a reasonable time for giving notice as provided in insurance policies would be a question for the jury, the court ultimately held that it was indisputable that Cherry Grove failed to notify the carrier within a reasonable time. While Cherry Grove attempted to justify its delay in reporting the claim by explaining that it was governed by volunteers, many of whom were unsophisticated regarding insurance, claims and legal matters, the court held that Cherry Grove had presented no facts that would establish justifiable excuse of extenuating circumstances for the untimely reporting of the claim.

This recent decision demonstrates the importance of not only quickly identifying and documenting damage after a storm, but also providing notice to the carrier as soon as possible to avoid the consequences of untimely notice.
1 Cherry Grove East II Condo. Assoc. v. Philadelphia Indem. Ins. Co., No.1:16-cv-02687 (Colo. D. Dec. 27, 2017), quoting Certified Indem. Co. v. Thun, 439 P.2d 28, 30 (Colo. 1968).

California Department of Insurance Provides Notice that Mudslides are Covered Losses

Denise Sze | Property Insurance Coverage Law Blog | February 7, 2018

Southern Californians impacted by the mudslides that followed the devastating wildfires in Ventura and Santa Barbara may see some light at the end of the tunnel with the big question of whether insurers will cover their mudslide loss. Over the last few week Californians have lost their homes when the rains brought homes down from the mountainsides ravaged by fire. With the vegetation gone, the hills and mountains simply could not hold during the heavy rains and mud flowed downhill at 20 miles per hour at what witnesses can only call a “wall of mud” that consumed homes and lives within its path. For many, this meant losing all worldly possessions when their houses slid down the hillside and were buried in mud. Even the ability to rebuild in the area is a question for many.

After these devastating losses, homeowners found themselves where many insurers indicated that the mudslide/mudflow was not a covered loss and reservation of rights letters were sent to the insureds. Many homeowner policies were written as if to exclude mudslides as a result of fire and then subsequent rains. Only a few insurers stepped up to the plate to say the loss was covered and began paying the claims and their insureds were immediately issued additional living expenses so they could begin recovery. The legal and insurance community in California, well aware of Howell v. State Farm Fire & Casualty Company,1 have been waiting on insurers to step up and cover the mudslides excluded from their policies because the policies as written with the exclusions were contrary to California case law.

In Howell, the property owner made a claim for landslide damage to her property following heavy rains. The insurer denied the claim because the policy excluded coverage for earth movement and water damage. The property owner presented expert testimony that the landslide occurred due to a fire, which was covered under the policy and which destroyed vegetation on the slope the summer before the landslide. The California Court of Appeal concluded that an insurer providing coverage under a property insurance policy may not contractually exclude coverage when an insured peril (such as fire) is the efficient proximate cause of a loss, regardless of other contributing causes.2 The appellate court found that because fire was the efficient proximate cause of the mudslide, the policy exclusion for damage caused by mudslide was not enforceable.3

On January 29, 2018, the California Department of Insurance issued a statement and an opinionthat the recent Thomas fire was the efficient proximate cause of the California mudslides and therefore the mudslide losses in Santa Barbara County are covered regardless of exclusions.

Under the Department of Insurance’s analysis, it is implied that insurance policies written to exclude these mudflow/mudslide losses to homes within the Thomas Fire vicinity are contrary to California Insurance Code Section 530 and Julian v. Hartford Underwriters Insurance Company,4where the efficient proximate cause doctrine is the “preferred method of resolving first party insurance disputes involving losses caused by multiple risks or perils, at least one of which is covered by insurance and one is not.” The insurance claims process for those victims of the Thomas Fire and subsequent mudslides will find that rebuilding is a long way off but the Department of Insurance’s notice gives insurers a great deal to think about and whether their policies and the written exclusions are proper.
1 Howell v. State Farm Fire & Casualty Co., 218 Cal.App.3d 1446 (1990).
2 Id. at 1448.
3 Id. at 1452.
4 Julian v. Hartford Underwriters Ins. Co., 35 Cal.4th 747, 753 (2005).

“Additional Insured” Counseled to Read the Policy

Robert M. Frey | Butler Snow | January 30, 2018

An Illinois General Contractor learned a hard lesson the other day; the case is Vivify Constr., LLC v. Nautilus Ins. Co., 2017 IL App (1st) 170192.

The General Contractor, Vivify Construction, subcontracted part of the job to Victoria. Naturally wishing to protect itself from claims arising from Victoria’s work, Vivify required Victoria to maintain liability insurance, and to include Vivify “as an additional insured for claims caused in whole or in part by Victoria’s negligent acts or omissions. . . .” Id.  (brackets omitted).

Victoria did indeed include Vivify as an Additional Insured.  Unfortunately for Vivify, however, Victoria’s policy contained an exclusion for claims by employees of “any insured’s contractors, subcontractors, or independent contractors. . . .”  The trial court found, and the appellate court agreed, that this language unambiguously applied:  Vivify was an “insured”; Victoria was a Vivify “contractor”; and the injured worker was an “employee” of Victoria.  (The Court seemed to pass over the equally-fatal exclusion for claims by “employees . . . of any insured. . . .”).  The court distinguished cases reaching a different result based on the separation-of-insureds clause: “none of those cases involved policies containing the broad exclusionary language at issue here.”

As a parting shot to Vivify the Court closed with this observation (emphasis supplied):

We observe that while Vivify contends it is unlikely that Victoria will be able to pay Vivify’s legal expenses and any judgment against it, Vivify could have protected itself by reading the policy to ensure that it satisfied the subcontract. We cannot rewrite an insurance policy to suit Vivify’s needs.

Which leads us back to what we said some while ago:  “demand a copy of the Policy (not merely a COI); and read the Policy when you get it.”