Church vs. Church – Court Uses Dictionary to Define “Decay”

Jason Cleri | Property Insurance Coverage Law Blog | March 8, 2019

Easthampton Congregational Church submitted an insurance claim to Church Mutual Insurance Company when their roof suddenly collapsed. Church Mutual denied coverage for faulty construction after they sent their engineer, Joseph Malo, out to inspect the property. Mr. Malo noted, and the insured agreed, there was “progressive failure of the fasteners used to attach the layers of the ceiling to the ceiling joists due to the weight of the ceiling” which eventually caused the collapse.

Easthampton asked Church Mutual to reconsider their position stating that the roof was entirely effective in that it had lasted for approximately sixty years and that the loss was covered under the collapse provision which stated:

2. We will pay for direct physical loss or damage to Covered Property, caused by collapse of a [covered property]…if the collapse is caused by one or more of the following:

b. Decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse;

f. Use of defective material or methods in construction, remodeling, or renovation if the collapse occurs during the course of the construction, remodeling, or renovation. However, if the collapse occurs after construction, remodeling, or renovation is complete and is caused in part by a cause of loss listed [in the previous sections]; we will pay for the loss or damage even if use of defective material or methods, in construction, remodeling, or renovation, contributes to the collapse.

The insurer, in its denial also rejected the insured’s allegation that hidden decay contributed to the collapse.

The trial court held that “the most reasonable reading of the word ‘decay’ as it is used in the Policy is that it refers to the broader concept of the word.” That is, a “gradual decline in strength” or “progressive decline” as opposed to a narrower definition that entails organic rotting.

The appellate court, while not necessarily agreeing with the trial court’s reasoning, affirmed their decision to grant summary judgment in favor of the insured because it was clear that an ambiguity existed as to the definition of the word decay.1

Notably, the First Circuit was not too fond of the insurer’s argument that the chosen definition of decay would encompass all collapses, because “it is difficult to imagine any collapse, of any structure, being cause by something other than ‘decay.’” The court noted:

But, even if the insurance company did not intend to provide coverage for collapses like the one in question, that is a self-inflicted problem. The insurance company, which wrote the policy, could simply have defined “decay” narrowly or limited the coverage period.

I leave you with a quote from English philosopher, Thomas Hobbes:

“[i]magination, therefore, is nothing but decaying sense. . . .”
1 Easthampton Congregational Church v. Church Mutual Ins. Co., No. 18-1881, 2019 WL 851191 (1st Cir. Feb. 22, 2019).

Wisconsin Follows “Cause Theory” in Determining Number of Occurrences

Andrew W. Miller | Brouse McDowell | March 1, 2019

In Secura Insurance v. Lyme St. Croix Forest Company, LLC, No. 2016AP299 (Oct. 30, 2018), the Wisconsin Supreme Court determined the number of occurrences arising from a large forest fire that took place in May of 2013. The fire in question allegedly began in a piece of logging equipment and quickly spread to an adjacent grass pile and eventually the surrounding forest. In total, the fire consumed 7,442 acres over three days, damaging the real and personal property of many individuals and businesses.

Ray Duerr Logging, Inc., the owner of the piece of equipment that ignited and caused the fire, sought coverage for damage to third-party property under a commercial liability policy issued by Secura. That policy contained a general aggregate limit of $2,000,000, but a sub-limit of $500,000 per occurrence “due to fire, arising from logging operations…” The policyholder took the position that the fire constituted several occurrences; specifically each time the fire spread to a new property represented a new occurrence. Secura, in turn, argued that the entire fire constituted a single occurrence.

In finding that the fire was a single occurrence, the court noted that Wisconsin followed the “cause theory” as opposed to the “effect theory” when determining whether an event is a single occurrence or multiple occurrences. Under the cause theory, “‘where a single, uninterrupted cause results in all of the injuries and damage, there is but on accident or occurrence.’”1 Alternatively, “the effect theory suggests that the wording ‘each accident’ ‘must be construed from the point of view of the person whose property was injured.’”2

The policyholder’s position – that each time the fire spread to a new property represented a new occurrence – fit with the effect theory of causation, as from the standpoint of each property owner, the damage to their own property was a new, separate accident. However, the court could not square this view with the cause theory. Here, the cause of the fire in question all traced back to the fire in the logging equipment. Further, the court noted that while the fire spread over a large area, it was all within the same geographic area. And the fire was continuous – there was no temporal break over the three days that the fire spread. In sum, there was no way that the fire could be considered anything other than a single cause, meaning that coverage under Secura’s policy was limited to a single, $500,000 occurrence limit.

This case highlights the importance of purchasing adequate occurrence limits. Here, while the policyholder purchased $2,000,000 in coverage, $1,500,000 of the limits was unavailable due to the triggering of the applicable per-occurrence limit in the policy.

Consequences of a Well-Pled Complaint

Deborah Trotter | Property Insurance Coverage Law Blog | February 1, 2019

The New York Supreme Court, Appellate Division, First Department “unanimously reversed, on the law, with costs, the motion denied and the claims reinstated,” the New York County Supreme Court trial judge’s order dated April 2, 2018, to the extent appealed from, which granted dismissal of Plaintiff D.K. Property, Inc.’s (“D.K.”) consequential damages (other than attorney’s fees) pled in its amended complaint.1 The dispute involves an “all-risk” commercial property policy issued by Defendant National Union Fire Ins. Co. of Pittsburgh, PA (“National Union”) and its denial of D.K.’s October 2014 claim for policy proceeds and benefits arising from damage to one of its buildings insured under the policy.

D.K. alleged in its complaint filed in February 2017 that National Union refused to pay or deny its claim, even after repeated inspections and documentation presented to support its claims, which it alleged amounted to a breach of contract and breach of the covenant of good faith and fair dealing. After being served the complaint, National Union filed a partial motion to dismiss D.K.’s demand for consequential damages for attorneys’ fees, costs, and expenses or disbursements alleging the complaint failed to contain allegations sufficient to support those claims. The trial court granted National Union’s partial motion to dismiss, without prejudice, to allow D.K. an opportunity to amend its complaint.

Plaintiff filed an amended complaint on July 14, 2017, containing greater detail in the allegations regarding National Union’s inadequate and unfair claim handling, unreasonable denial and requests, as well as the foreseeable attorneys’ fees, costs and expenses that National Union’s breach and conduct would reasonably require D.K. to incur to protect its rights. National Union again filed a partial motion to dismiss D.K.’s consequential damages demands alleged in its amended complaint.

Persuaded by a heightened pleading standard of specificity for consequential damages argued by National Union, the trial court dismissed the consequential damages demanded in D.K.’s count one of the amended complaint for breach of contract and count two for breach of the covenant of good faith and fair dealing, except for attorneys’ fees.2 See my colleague Jason Cieri’s post on April 11, 2018, concerning the trial court’s ruling.

D.K. appealed the trial judge’s ruling and argued that at the pleading stage, a claim for consequential damages, which do not flow directly from the breach does not require a detailed, factual description or explanation for why those damages are recoverable. The appellate court agreed with D.K. finding, “the motion court erred in dismissing the consequential damages claim, because plaintiff fulfilled the pleading requirement by specifying the types of consequential damages claimed and alleging that such damages were reasonably contemplated by the parties prior to contracting.3

The appellate court reasoned:

It is well settled law that on a motion to dismiss pursuant to pursuant to CPLR 3211(a)(7), the pleading is afforded a liberal construction, facts as alleged in the complaint are accepted as true, plaintiffs are afforded the benefit of every possible favorable inference, and the motion court must only determine whether the facts as alleged fit within any cognizable legal theory (see e.g. Leon v Martinez, 84 NY2d 83, 87–88 [1994]).

The complaint alleges that rather than pay the claim, defendant has made unreasonable and increasingly burdensome information demands throughout the three year period since the property damage occurred. Plaintiff contends that this was a tactic by defendant to make the claim so expensive to pursue that plaintiff would abandon it altogether. Plaintiff contends defendant’s investigatory process has taken so long and become so attenuated that the structural damage to the building has worsened. Among the consequential damages alleged are engineering costs, painting, repairs, monitoring equipment, and moisture abatement to address water intrusion, loss of rents, and other expenses attributable to mitigating further damage to the property.

Despite substantial documentation of the cause and extent of the damage to plaintiff’s building, not only by plaintiff’s engineer, but also an engineer that defendant hired, who inspected the building several times, defendant has persisted in demanding further, unnecessary monitoring, data collection, inspections, and reinspections. Although it has yet to pay the loss or deny the claim, defendant nonetheless sought to intervene as plaintiff’s subrogor under the policy when plaintiff sued the owner of the adjoining property. By doing so, defendant forced plaintiff to incur significant, unnecessary legal fees. A plaintiff may sue for consequential damages resulting from an insurer’s failure to provide coverage if such damages (“risks”) were foreseen or should have been foreseen when the contract was made (Bi-Economy Mkt, Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d 187, 192 [2008]). Although proof of such consequential damages will ultimately rest on what liability the insurer is found to have “assumed consciously,” or from the plaintiff’s point of view, have warranted the plaintiff to reasonably suppose the insurer assumed when the insurance contract was made, a determination of whether such damages were, in fact, forseeable should not be decided on a motion to dismiss and must await a fully developed record (see Panasia Estates, Inc. v Hudson Ins. Co., 10 NY3d 200, 203 [2008]; see also Bi-Economy at 192). In other words, the inquiry is not whether plaintiff will be able to establish its claim, but whether plaintiff has stated a claim.4

The appellate court found D.K.’s amended complaint met the pleading requirements with respect to consequential damages, in both the first cause of action for breach of contract and in the second cause of action for breach of the covenant of good faith and fair dealing in the context of an insurance contract.5 And contrary to National Union’s claim, the appellate court found “[t]here is no heightened pleading standard requiring plaintiff to explain or describe how and why the “specific” categories of consequential damages alleged were reasonable and foreseeable at the time of the contract. (Panasia Estates Inc. v. Hudson Ins. Co., 68 AD3d 530, 530 [1st Dept 2009], aff’d 10 NY3d 200 [2008], citing Bi-Economy 10 NY3d at 192).”

In closing, the appellate court offered its guidance on issues raised, though not currently before it:

  • “An insured’s obligation to ‘take all reasonable steps to protect the covered property from further damage by a covered cause of loss’ supports plaintiff’s allegation that some or all the alleged damages were foreseeable (Benjamin Shapiro Realty Co. v. Agricultural Ins. Co., 287 AD2d 389, 389-390 [1st Dept 2011]”; and
  • In addressing National Union’s motion to dismiss plaintiff’s second count for breach of the covenant of good faith and fair dealing as duplicative of count one breach of contract, “[a]s noted by the Court of Appeals in Bi-Economy, a claim for breach of contract and one for bad faith handling of an insurance claim are not necessarily duplicative (id. At 191).”

The New York Court of Appeals has removed the spike strip thrust in the road in front of New York policyholder plaintiffs and provided them with an excellent road map for properly pleading consequential damages in New York—a great victory for policyholders, indeed!
1 D.K. Property, Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa., Index 650733/17 (New York Supreme Court, Appellate Division, 1st Dept. Jan. 17, 2019).
2 D.K. Prop., Inc. v National Union Fire Ins. Co. of Pittsburgh, 59 Misc.3d 714, 74 N.Y.S.3d 469, 2018 N.Y. Slip Op. 28097 (Supreme Court, New York County April 03, 2018).
3 Id. (emphasis added).
4 Id. (emphasis added).
5 Id.

Inability to Confirm Coverage Supports Setting Aside Insured’s Default Judgment on Grounds of Extrinsic Mistake

Christopher Kendrick and Valerie A. Moore | Haight Brown & Bonesteel | December 17, 2018

In Mechling v. Asbestos Defendants (No. A150132, filed 12/11/18), a California appeals court affirmed the trial court’s grant of an insurer’s motion to set aside default judgments entered against its defunct insured pursuant to the trial court’s inherent, equitable power to set aside defaults on the ground of extrinsic mistake, thereby allowing the insurer to intervene and defend its own interests in the case.

In Mechling, Fireman’s Fund insured Associated Insulation of California, which was named as a defendant in asbestos litigation filed in 2009. Associated had ceased operating in 1974, but was somehow successfully served with the complaint and defaulted, leading to default judgments of several million dollars. Notice of the judgments was served on Associated but not Fireman’s Fund.

After entry of the default judgments, Fireman’s Fund located insurance policies it thought might cover Associated. Fireman’s Fund moved to set aside the defaults and default judgments on equitable grounds, arguing that the litigation presented a classic case of “extrinsic mistake” because service of the complaint on Associated did not provide notice to Fireman’s Fund, “resulting in a default judgment to a fault free party.” According to Fireman’s Fund, Associated was a suspended corporation and “could not and did not defend itself” and, as a result, Fireman’s Fund “never had the opportunity to participate in [the] lawsuit.”

Although the plaintiffs had given notice to Fireman’s Fund for two of the four lawsuits, they ignored the fact that Fireman’s Fund had responded by writing that it could not locate any policies covering Associated. Instead, the plaintiffs argued that Fireman’s Fund could not claim ignorance and seek equitable relief without any showing of extrinsic mistake or diligence.

The trial court granted Fireman’s Fund’s motion to set aside, and the appeals court agreed. The court said that a trial court has inherent power to vacate a default judgment on equitable grounds, including extrinsic mistake—which is when circumstances extrinsic to the litigation have unfairly cost a party a hearing on the merits. The court stated that:

“To qualify for equitable relief based on extrinsic mistake, the defendant must demonstrate: (1) a meritorious case; (2) a satisfactory excuse for not presenting a defense to the original action; and (3) diligence in seeking to set aside the default once the fraud or mistake had been discovered.” (Citing In re Marriage of Stevenot (1984) 154 Cal.App.3d 1051.)

The Mechling court said that a meritorious case does not require showing certainty of success, but only “facts indicating a sufficiently meritorious claim to entitle it to a fair adversary hearing.” And the court found that it was a reasonable inference from the facts that the plaintiffs’ damages award would have been impacted had Fireman’s Fund presented a defense and challenged plaintiffs’ proof of causation and damages.

The court rejected an argument that showing a meritorious case required attaching a proposed pleading in intervention or a declaration with “evidence” showing a meritorious defense. The court accepted Fireman’s Fund’s arguments as sufficient and stated that Fireman’s Fund would obviously file a responsive pleading if granted a set aside.

The Mechling court also found that Fireman’s Fund had articulated a satisfactory excuse for not presenting a defense to the lawsuits. It was not a named party and was not served with the complaints or other relevant pleadings. Although it had received notice, it had notified the plaintiffs that it had “searched all available records” and had “not located any reference or policies of insurance issued to Associated.” Fireman’s Fund had invited the plaintiffs to provide information showing Fireman’s Fund issued insurance policies to Associated, but they did not respond. The court found that Fireman’s Fund’s letter to the plaintiffs supported the conclusion that Fireman’s Fund had a satisfactory excuse for not defending the lawsuits: “It did not believe Associated was its insured.”

Thus, the court affirmed the order setting aside the default judgments, stating that: “In our view, this case presents exceptional circumstances warranting equitable relief. Fireman’s Fund was denied an opportunity to present its case in court because it was not served with any of the relevant pleadings, did not have notice of two of the lawsuits, and did not believe it had a duty to defend Associated. We conclude the trial court did not abuse its discretion by granting Fireman’s Fund’s motion for equitable relief.”

This document is intended to provide you with information about insurance law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

The Contingency Fee Multiplier (For Insurance Coverage Disputes)

David Adelstein | Florida Construction Legal Updates | August 25, 2018

The contingency fee multiplier: a potential incentive for taking a case on contingency, such as an insurance coverage dispute, where the insured sues his/her/its insurer on a contingency fee basis.


In a recent property insurance coverage dispute, Citizens Property Ins. Corp. v. Agosta, 43 Fla.L.Weekly, D1934b (Fla. 3d DCA 2018), the trial court awarded the insured’s counsel a contingency fee multiplier of two times the amount of reasonable attorney’s fees.  The insurer appealed. The Third District affirmed the contingency fee multiplier.


Of interest, on appeal—which is reviewed under an abuse of discretion standard of appellate review–the Third District analyzed the state of Florida law on contingency fee multipliers.


To begin with, Florida has adopted the lodestar approach for determining reasonable attorney’s fees based on the following factors to consider (known the Rowe factors based on the Florida Supreme Court case):


(1) The time and labor required, the novelty and difficulty of the question involved, and the skill requisite to perform the legal service properly.

(2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer.

(3) The fee customarily charged in the locality for similar legal services.

(4) The amount involved and the results obtained.

(5) The time limitations imposed by the client or by the circumstances.

(6) The nature and length of the professional relationship with the client.

(7) The experience, reputation, and ability of the lawyer or lawyers performing the services.

(8) Whether the fee is fixed or contingent.

Agosta citing Florida Patient’s Compensation Fund v. Rowe, 473 So.2d 1145 (Fla. 1985).


Based on the consideration of these factors, the trial court determines through an evidentiary hearing a reasonable hourly rate to multiply by a number of reasonable hours expended in the litigation.  This is referred to as the lodestar amount or lodestar figure.  However, the court may add to this lodestar amount by tacking on a contingency fee multiplier.  For example, assume the trial court found 100 reasonable hours were incurred at the reasonable hourly rate of $300.  This would result in an attorney’s fees award of $30,000.  But, with the contingency fee multiplier, the trial court can add to this.  A multiplier of 2 would result in an attorney’s fees award of $60,000, hence the incentive for moving for the multiplier.


In determining whether to add a contingency fee multiplier, the trial court must consider competent, substantial evidence in the record (offered at the evidentiary hearing) of these three factors:


(1) whether the relevant market requires a contingency fee multiplier to obtain competent counsel;

(2) whether the attorney was able to mitigate the risk of nonpayment in any way; and

(3) whether any of the factors set forth in Rowe are applicable [the factors mentioned above], especially, the amount involved, the results obtained, and the type of fee arrangement between the attorney and his client.


Agosta citing Standard Guarantee Ins. Co. v. Quanstrom, 555 So.2d 828 (Fla. 1990)



There has been a debate as to whether the contingency fee multiplier only applies in rare and exceptional circumstances.  The Florida Supreme Court (hopefully) put this issue to bed rejecting the argument that the contingency fee multiplier only applies in rare and exceptional circumstances.  Agosta citing Joyce v. Federated National Ins. Co., 228 So.3d 1122 (Fla. 2017).


Just as important, and perhaps the most important to me, the Florida Supreme Court held that a “fee multiplier ‘is properly analyzed through the same lens as the attorney when making the decision to take the case,’ as it ‘is intended to incentivize the attorney to take a potentially difficult or complex case.’”  Id. quoting Joyce, 228 So.3d at 1133. This is important because the complexity of a case is not determined at looking at a case in hindsight based on the actual outcome of the case, but looking at a case through the same lens as the attorney at the time the decision is made to handle the case.  Idciting Joyce.


The Florida Supreme Court also stated that the first contingency fee multiplier factor—the relevant market factor—is based on whether there are attorneys in the relevant market who have the skills to effectively handle the case and would have taken the case absent the availability of a contingency fee multiplier.  Id. citing Joyce.


Finally, the Florida Supreme Court stated that the third contingency fee multiplier factor that considers the results obtained is not based on the amount of recovery, even a recovery not exceptionally large—“the Florida Supreme Court held that the trial court correctly analyze the ‘outcome’ of that case when it found that ‘[a]lthough the amount involved [$23,500] was ‘not exceptionally large,’ it was material to the Joyces [plaintiffs].”  Id. quoting Joyce, 228 So.3d at 1125.


The contingency fee multiplier adds incentive to handle certain insurance coverage disputes on contingency.  If a multiplier is obtained, it definitely rewards the risk of taking a case on contingency (and certainly one of the reasons I explore such contingency fee options!).