Will Your Next Insurance Coverage Dispute be Heard in Georgia’s Business Court?

Abby Vineyard | Barnes & Thornburg LLP | April 24, 2019

In 2020, Georgia corporate policyholders may have a new court to hear insurance coverage disputes. The Georgia General Assembly passed House Bill 239 on Day 40 of the legislative session, outlining how Georgia’s new statewide business court will operate.

The court will have jurisdiction over claims falling under Georgia’s Uniform Commercial Code, Business Corporation Code, Trade Secrets Act, Uniform Securities Act, and—of particular relevance to policyholders—over contract claims “between businesses arising out of business transactions or relationships” and more. The amount in controversy must exceed $500,000, but the court will also have the powers of a court of equity and thus be able to hear declaratory judgment actions.

There will be one division and one judge, appointed by the governor, who will have at least 15 years of experience as a complex business litigator or judge. The court may be located in Atlanta or Macon, both large metropolitan areas.

A plaintiff can initiate an action in business court, or a case can be transferred to the business court with all parties’ consent. If less than all parties consent, a party may move to transfer the case but must overcome the presumption of the case remaining in the original court. The filing fee is a hefty $3,000, which is paid by the plaintiff or allocated among the transferring parties.

However, the court has wide latitude in deciding which cases it wants to hear: the bill states that the court has the power to transfer any case filed in business court to the state or superior court and reject any petitions to transfer to the business court, even if such claims are within its jurisdiction. Additionally, a defendant may petition the court to move the case to the state or superior court, which compels the court to transfer the case unless the contract at issue specifically states that disputes must be litigated in business court.

So, what does this mean for policyholders? It depends.

In some ways, this is a positive development in that it provides for streamlined litigation without the common issue of an overcrowded docket. The court will not have to split time presiding over criminal, domestic, or other non-business-related civil matters. And the judge will be a seasoned business litigator or judge, offering an expertise and familiarity with nuanced contract issues that not all judges have.

However, there are a few drawbacks that might outweigh the benefits of filing suit in business court. Given the court’s considerable leeway over its docket, the policyholder has no guarantee that the case will remain in business court, and the unusually high filing fee makes this a bigger risk than normal. Without having seen this court in action, it is hard to imagine how many cases the single-judge court will agree to take on. A carrier’s ability to compel a transfer in the absence of a policy provision prohibiting such an action also makes for less stability. It will be interesting to see how many cases filed in business court actually remain in business court.

Assuming the governor signs the bill, the court will begin taking cases on August 1, 2020. Of course, it goes without saying that this development is of interest beyond policyholder v. carrier disputes. Any entity that has a business-related dispute arise in Georgia should at least consider the merits of litigating in business court instead of traditional court. Whether litigating in business court makes sense will be a case-by-case inquiry.

Is Equipment Installed As Part Of Building Renovations A “Product” Or “Construction”?

Joshua Lane | Ahlers Cressman & Sleight | March 20, 2019

A statute of repose terminates the right to file a claim after a specified time even if the injury has not yet occurred.[1] The construction statute of repose bars claims arising from construction, design, or engineering of any improvement upon real property that has not accrued within six years after substantial completion.[2] But what constitutes an “improvement upon real property” necessitating application of the six-year bar, and when does the bar NOT apply?

The Washington Court of Appeals recently addressed these questions in Puente v. Resources Conservation Co., Int’l.[3] There, the personal representative of the estate of Javier Puente sued several parties after Mr. Puente, an employee of a manufacturer, suffered fatal boric acid burns in 2012 while performing maintenance on a pump system installed at the manufacturer’s facility in 2002. The estate alleged claims of negligence and liability under the Washington Product Liability Act (WPLA).[4] The trial court granted summary judgment to defendants, concluding that the installed pump system constituted a statutory “improvement upon real property” and the six-year statute of repose applied. The estate appealed.

The Court of Appeals reversed, concluding that the faulty pump system equipment, while “integral” to the manufacturing process at issue, was not so integrated into the facility as to render it an integral part of the building structure. Indeed, the court held that the equipment was an “accoutrement … to the manufacturing process taking place within the” building.[5]

The Court looked to the Washington Supreme Court decision in Condit v. Lewis Refrigeration Co.[6] There, the Court concluded that the conveyer belt and refrigeration unit that caused the injury to the plaintiff was not an improvement upon real property but was engineered and designed as part of the “manufacturing process taking place within the improvement.”[7]

The Court of Appeals went on to contrast the decisions in Pinneo v. Stevens Pass, Inc.[8] and Yakima Fruit & Cold Storage Co. v. Central Heating & Plumbing Co.[9], where the improvement was found to be an integral part of the building structure and the statute of repose applied. In Pinneo, the operator of the Stevens Pass ski area retained a contractor to replace and install a ski lift.[10] In Yakima Fruit, the repair of a building refrigeration system required the removal of an entire floor of the building structure and could not be accomplished with either the system or the building remaining intact.[11]

The Court in Puente determined that the pump system at issue was more akin to the conveyer belt and refrigeration unit in the Condit case than the ski lift in Pinneo or building refrigeration system in Yakima Fruit because the pump system was not necessary to the function of the building and was not part of the building’s “construction” but “simply ‘house[d]’ within the … building.”[12] Accordingly, the Court concluded that the lawsuit was subject to product liability law and not the six-year statute of repose that would bar the claim under the construction law statute.

The determination of whether a mechanical system within a building constitutes an “improvement upon real property” and is therefore subject to the six-year statute of repose hinges on whether the system must be integrated into and become a part of the building itself.

Comment: The extent of equipment’s “integration” within a structure – much like the degree to which property is a fixture or merely chattel – is not merely a theoretical academic question but has serious liability implications for the equipment’s owner. In addition to keeping in mind the statute of repose, when considering actions and defenses arising out of the installation of equipment in construction projects that is not integral to building operations, counsel should carefully consider whether product liability or construction law applies. Varying applications will have significant effect on the law governing particular claims and defenses.

[1]Major League Baseball Stadium Pub. Facilities Dist. v. Huber, Hunt & Nichols-Kiewit Constr. Co., 176 Wn.2d 502, 511, 296 P.3d 821 (2013).

[2]RCW 4.16.300; RCW 4.16.310.

[3]5 Wn. App.2d 800, 428 P.3d 415 (2018).

[4]Chapter 7.72 RCW.

[5]5 Wn. App.2d 800 at 813 .

[6]101 Wn.2d 106, 676 P.2d 466 (1984).

[7]Id. at 112.

[8]14 Wn. App. 848, 545 P.2d 1207 (1976).

[9]81 Wn.2d 528, 503 P.2d 108 (1972).

[10]Pinneo, 14 Wn. App. at 849

[11]Yakima Fruit, 81 Wn.2d at 529-31.

[12]Puente, 5 Wn. App.2d 800 at 812.

Suit Limitation Provision Upheld

Tred R. Eyerly | Insurance Law Hawaii | February 25, 2019

    The policy’s one year suit limitation provision was upheld, depriving insureds of benefits under the policy. Oswald v. South Central Mut. Ins. Co., 2018 Minn. App. Unpub. LEXIS 1077 (Dec. 24, 2018). 

    The Oswalds’ hog barn burned down on June 21, 2016. Arson was a possible cause. 

    The Oswalds were insured under a combination policy issued by North Star Mutual Insurance Company and South Central Mutual Insurance Company. Central provided coverage for basic perils, broad perils, and limited perils, which included fire losses. The Central policy required property claims to be brought within one year after the loss. By endorsement, the North Star policy required suits be brought within two years after the loss. Presumably, the claims was denied, although the decision does not state this.

    During the investigation of the cause of the fire, the Oswalds attempted to serve a complaint on Central on June 1, 2017, alleging breach of contract, unjust enrichment, and breach of good faith and fair dealing. The Oswalds failed to properly serve Central and moved to dismiss their complaint without prejudice. The dismissal was granted. The Oswalds then filed an almost identical complaint on September 25, 2017, and properly served the complaint. Central file a motion to dismiss because the suit was filed past the one-year limitation contained in the policy. The motion was granted. 

    On appeal, the court found the one-year limitation was not inherently unreasonable. While investigating the cause of the fire, the Oswalds still managed to file a complaint before the one-year deadline. Had the Oswalds properly served Central, they would have commenced a suit regarding their current claims within the one-year limitations period. Nor was there any statute prohibiting the one-year limitation period. 

    The Oswalds also argued that the policy was ambiguous. The policy continuously referred to the two insurance companies as “we” or “us” instead of including a clear delineation between the two companies. But the policy also clarified that all its terms “applied to both companies listed on the declarations unless otherwise designated.” 

    The Oswalds contended that the policy did not provide a clear and unambiguous limitations period. However, the one-year limitation was clearly stated within the policy conditions. 

    Finally, the one-year limitation was not tolled due to either fraudulent concealment or equitable principles. The Oswalds failed to identify an affirmative statement which concealed a fact, defeating their argument for tolling the one-year limitation due to fraudulent concealment. Equitable tolling was inappropriate when there were no circumstances beyond the plaintiffs’ control that prevented service of a complaint within the limitations period. Here, the Oswalds attempted to commence a suite within the one-year limit, but failed for reasons within their control. Thus, equitable tolling was inappropriate. 

    Consequently, the lower court’s dismissal was affirmed. 

Construction Law Practice Tip: Determining the Scope of a Subrogation Waiver

Pierre Grosdidier | Haynes and Boone LLP | February 27, 2019

In Exxon Mobil Corp. v. Insurance Company of the State of Pennsylvania, the Texas Supreme Court opined once again on the issue of the extent to which an insurance provision incorporates the terms of an extrinsic contract.[1] The insurance provision in this case was a standard Texas Department of Insurance Form WC 42 03 04 A waiver of subrogation endorsement, but Exxon Mobil’s holding is valid for any insurance provision, including additional insured provisions, that incorporates terms of an extrinsic contract.

An employee of contractor Savage Refinery Services suffered an injury in an Exxon Mobil refinery (Figure). The employee received benefits from The Insurance Company of the State of Pennsylvania, Savage’s workers’ compensation carrier (“Carrier”) and sued Exxon Mobil in a third-party over action. The employee settled with Exxon Mobil and the latter sued the Carrier to secure a declaration that the Carrier had waived its subrogation rights in a Form WC 42 03 04 A endorsement to Savage’s workers’ compensation policy.[2] Absent a waiver, the Carrier’s subrogation rights grant it a “first money” right to any payment by a third-party (here, Exxon Mobil) to an employee who received benefits from the Carrier.[3] It is not unusual in a construction project that a workers’ compensation carrier waives its subrogation rights in exchange for a policy premium.[4] Personal injury lawsuits allegedly settle more easily and for less in the absence of subrogation rights.[5] And, from the carrier’s perspective, the increased premium buys one less dispute to litigate.

By its terms, the endorsement waived the Carrier’s subrogation rights relative to the party named in the endorsement’s Schedule (the “who”); “‘with respect to bodily injury arising out of the operations described in the Schedule,’” (the “what”); and where the named insured (here, Savage) was “required by a written contract to obtain th[e] waiver” (the “where”).[6] The Schedule did not expressly name Exxon Mobil. The incompleteness of the waiver meant that the Court also had to examine the terms of the parties’ Service Contract.

In their Service Contract, Exxon Mobil and Savage agreed to indemnify each other only for their own negligence, and Savage agreed to waive “‘all rights of subrogation and/or contribution against [Exxon Mobil] . . . to the extent liabilities are assumed by [Savage].’”[7] Therefore, Savage had no obligation to indemnify Exxon Mobil for claims that arose from Exxon Mobil’s tortious conduct. The key question was whether this limitation on Savage’s indemnity obligation conditioned its waiver of subrogation.

The Court held that the scope of the endorsement (like that of any insurance policy) was first determined from its four corners. If the endorsement or policy pointed to an extrinsic document, that document would be referred to only “‘to the extent required by the policy,’” that is, in this case, the endorsement.[8] 

Savage’s endorsement specified the “what” (bodily injury) and required a referral to the parties’ Service Contract to determine the “who” and the “where.” The Service Contract defined the “who” as Exxon Mobil, and the “where” as “‘operations [in Texas] where [Savage is] required by a written contract to obtain th[e] waiver from [the Carrier].’” The endorsement did not require any further inquiry and, therefore, imposed no qualifier on 2 whether Exxon Mobil or Savage was ultimately responsible for the injury. For this reason, the Court upheld the validity of the subrogation waiver as to the injured employee’s claim.[9] 

The Court contrasted the facts and its analysis in Exxon Mobil with those in, inter alia, Deepwater Horizon. [10] In that case, various BP entities, acting as operator, sought coverage as an additional insured under various insurance policies held by Transocean entities, the drilling contractor. As the Court explained, the insurance policies

at issue in Deepwater Horizon extended “insured” status to “[a]ny person or entity to whom the ‘Insured’ is obliged by oral or written ‘Insured Contract’ … to provide insurance such as afforded by [the] Policy.” The policies defined an “Insured Contract” as “any written or oral contract or agreement entered into by the ‘Insured’ … and pertaining to business under which the ‘Insured’ assumes the tort liability of another party to pay for ‘Bodily Injury’ [or] ‘Property Damage’ … to a ‘Third Party’ or organization.[11] 

The crucial difference between the two cases, therefore, was the location of the assumption of liability qualifier. In Exxon Mobil, the qualifier was in the Service Contract, and there was no need to reach it to circumscribe the scope of the subrogation waiver. The consequence was that the Exxon Mobil waiver was valid regardless of which party caused the employee’s injury. Conversely, in Deepwater Horizon, the qualifier was in the insurance policy and had to be factored into the scope of the additional insured provision. In that case, BP was an additional insured with respect to above-surface pollution, for which Transocean had assumed liability, but not with respect to below-surface pollution, for which the driller had not.[12] 

Insurance Coverage Litigation – Insurer And Policyholder Perspectives

Mark Miller | Miller Friel PLLC | June 19, 2018

Insurance Coverage litigation may be, by some, considered a last resort. That is, a process to enter into when all other avenues of settlement have failed. In certain situations, however, insurers file early declaratory judgment actions. In others, policyholders sue soon after receipt of a denial of coverage letter. There appear to be other considerations at play.

The stakes can be high for both insurers and policyholders, and the perspectives on litigation from both the insurer and policyholder perspectives are seldom discussed together. Here, two insurance coverage litigation adversaries candidly discuss what factors and considerations should go into insurance coverage litigation.

To understand better what goes into insurance coverage litigation cases, we put together a panel of two insurance trial experts in the field, Deborah L. Stein of Simpson Thatcher, (addressing the insurance company side of the equation), and Mark E. Miller of Miller Friel (addressing the policyholder side of the equation). The full course is available from PLI and the PowerPoint for the presentation is linked here. Insurance Coverage Litigation PLI

Six topics were covered:

  • Pre-Litigation – what goes on prior to filing suit;
  • Filing a Complaint – what drives the decision;
  • Motions to Dismiss – valuable to both sides;
  • Discovery – using it effectively;
  • Summary Judgement – a critical juncture;
  • Trial – best practices and perspectives.

At the risk of oversimplifying, here are some of the highlights on the competing policyholder / insurer perspectives on insurance coverage litigation:

1. Pre-Litigation – what goes on prior to filing suit

Compile information;
Correspond with policyholder;
Evaluate dispute, jurisdiction, timing of claim issues.
Full evaluation of the claim – law, facts;
Send well-drafted letters to insurers refuting denials;
Compliance with policy conditions, even if waived;
Develop strategy to maximize recovery.

2. Filing a Complaint – what drives the decision

Issue of first impression;
How clean are facts and law;
Duty to defend law;
Duty to indemnify law;
Coverage issues vs. valuation issues;
Key question – will filing suit maximize legal recovery. Look at:
a) Choice of law;
b) Law of jurisdiction
c) Risk of being sued first
d) Insurer reputation
e) Insurer conduct / bad faith
f) Reasons for denial (potentially legitimate vs. industry custom and practice;
g) Overall case strategy.

3. Motions to Dismiss – valuable to both sides

Case specific – be selective in filing;
Possible filings for:
a) Jurisdictional and standing issues;
b) Whether claimant is an insured;
c) Timing of injury (outside of period);
d) Undisputed law and facts;
e) Bad faith;
f) Statutory claims handling causes of action.
File if insurer filed suit in wrong jurisdiction;
Care taken so complaints cannot be dismissed.

4. Discovery – using it effectively

Build your defenses and themes from the discovery you produce and obtain, but don’t force a story;
Document Requests – think about types of documents you need; request further documents in depositions;
Interrogatories – Use strategically (identification of documents, witnesses, facts); untargeted interrogatories not helpful;
RFAs – look for discrete admissions; use for authentication;
Depositions – usually the most effective tool; prepare, prepare, prepare; remember that you are still discovering.
Focus Discovery on elements of proof at trial;
Offensive Discovery – use it to build the story of improper denial; don’t waste time taking 30(b)(6) depositions;
Defensive Discovery – this is where cases are lost; prepare witnesses properly, as insurance issues are too complex to understand without preparation; pay extra attention to those that know about insurance (risk managers and brokers);
Know the rules; be prepared;
Recognize that no document has ever spoken for itself;
Think about what documents you need authenticated, and what documents you don’t.

5. Summary Judgement – a critical juncture

Frame issues wisely;
Consider purpose: resolve dispute, avoid trial; knock out claims; obtain direction from court;
Evaluate facts and law;
Know undisputed facts necessary for motion;
Be true to record; don’t overreach.
Overall goal is to get to trial;
Consider proactive motions such as duty to defend motions;
Motions and responses need to be drafted so the Court comes to the conclusion that you are right;
Insurance jargon and insurance complexities are not your friend.

6. Trial – best practices and perspectives

“Your trial presentation wasn’t complicated enough,” said no one ever;
Keep it simple;
Know elements and evidence; consider burdens;
Prepare order of proof;
Remember the big picture;
Humanize witnesses; don’t be over-technical and don’t stretch;
Don’t overuse documents.
Trial preparation starts on day one, as everything that is done is for the purpose of trial;
Develop case theme based on discovery;
Simplify case to its essential elements and tell your story;
Be likable, interesting, and nice;
You are painting a picture. You decide what to put on the canvas. Opponent will try and mess up your beautiful painting. Don’t let this happen.

Although there is enough material on any one of these topics to fill an entire CLE course, this CLE is a good start for in house counsel faced with the task of managing either insurance coverage litigation or an insurance claim. Moreover, policyholders seldom get the insurance company counsel perspective, which is always valuable when assessing a claim. All that and more can be found in this course.

The most important information I got from presenting this course is:

  1. Claim denials can be reversed, but sending a nasty letter will not do the trick.
  2. Rather, well-crafted letters rebutting each and every error made in an insurer’s denial letter is the way to go. This requires mastery of the facts and law.
  3. Prepare for trial from the moment you become aware of the claim.
  4. Letters are drafted for the Court.
  5. There are ample opportunities to make mistakes, and policyholder self-inflicted wounds are the most common way that insurance coverage cases are lost.
  6. Develop your story, and refine that story through discovery.
  7. Push for trial. If an insurer wants to settle, they know who to call.
  8. When preparing for trial, think about painting a picture for the judge and jury. You decide what colors to use, and what to put into the record. Insurers will try and mess up your painting. Don’t let them.