‘Wrongful Acts’ Includes Both Negligent and Intentional Acts

Ysabelle Reyes | Wiley Rein

The United States District Court for the Northern District of Illinois, applying Illinois law, has held that an insurer had a duty to defend an insured condominium association and its board members against an underlying lawsuit because the association’s board members allegedly committed “Wrongful Acts” under the directors and officers coverage part of a business liability policy. Cambridge Mut. Fire Ins. Co. v. Bell & Arthur Condo. Ass’n, et al., 2022 WL 13827758 (N.D. Ill. Oct. 21, 2022). In doing so, the court interpreted “Wrongful Acts” to include both negligent and intentional acts. The court also held that the policy’s conduct exclusion did not preclude coverage because the underlying lawsuit did not allege any intent to mislead or defraud on the part of the insureds.

Owners of an insured association’s condominiums brought a lawsuit in state court for multiple torts, accusing the association and its board members of mismanagement. Among other things, the association and board members allegedly violated the municipal code, caused property damage and bodily injury, failed to allow a records inspection, and breached their fiduciary duty by adopting rules and regulations through procedures that violated Illinois law. After receiving notice of the underlying lawsuit, the association’s business liability insurer sought a declaratory judgment that it owed no duty to defend under the directors and officers coverage of its policy.

The court held that the duty to defend applied to both the board members and the association. The duty to defend provision in the directors and officers coverage section stated that the insurer has “the right and duty to defend the insured against any ‘suit’[.]” “Suit,” in turn, was defined as a “civil proceeding in which damages because of ‘Wrongful Acts’ to which this insurance applies are alleged.” The court held that the insurer’s duty to defend extended to claims against the association arising from the board members’ “Wrongful Acts.” Because “insured” was not defined in the directors and officers coverage section, the court looked to the business liability coverage form, which defined “insured” to mean the association and its board members. The court further held that, even if the insurer only had a duty to indemnify the board members for their “Wrongful Acts,” the insurer had to defend both the board members and the association from suits premised upon those acts.

The court held that the insurer had a duty to defend because the complaint alleged “Wrongful Acts” by the association’s board members. The policy defined “Wrongful Acts” to mean “any negligent act, any error, omission or breach of duty of directors or officers of the ‘Named Insured’ while acting in their capacity as such.” In doing so, the court determined that two of the underlying claims satisfied the policy definition of “Wrongful Acts” – a count asserting the board members’ failure to allow a records inspection and a count for breach of fiduciary duty.

The court rejected the insurer’s argument that the policy excluded any intentional conduct as well as “dishonest, fraudulent, criminal, or malicious acts.” First, the court opined that intentional acts could be construed as errors, omissions, or breaches of duty within the policy definition of “Wrongful Acts.” The court noted that the phrase “any negligent act, any error, omission or breach of duty” was ambiguous as it was “either missing a conjunction before the second ‘any’ or the second ‘any’ was surplusage,” such that if “negligent” was meant to modify the other terms in the definition, the second “any” would have no meaning. The court resolved the ambiguity in favor of the insured, noting that the policy language showed that the insurer knew how to exclude and could have excluded intentional conduct from coverage. Second, the court determined that, even if the policy covered only negligent errors, omissions, or breaches, the underlying conduct was plausibly negligent or careless because there was no indication that the association and the board members intended to mislead or defraud the underlying plaintiffs, noting that “failure to follow rigidly certain procedures and laws in [adopting rules] also potentially encompasses negligent conduct.” Further, the court noted that the complaint “allege[d], in the alternative, that the defendants failed to follow the rules and caused injury even ‘[a]ssuming there was no misrepresentation.’”

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Insured’s Failure to Challenge Trial Court’s Application of Exclusion Makes Appeal Futile

Tred R. Eyerly | Insurance Law Hawaii

    The Texas Court of Appeals affirmed the trial court’s granting of summary judgment to the insurer because the appeal failed to challenge the exclusion under which the insurer found no coverage. Sosa v. Auto Club Indemn. Co., 2022 Tex. App. LEXIS 6520 (Tex. Ct. App. Aug. 30, 2022).

    Sosa’s house was damaged during Hurricane Harry on August 26, 2017. Sosa filed a claim with Auto Club. She reported that two feet of floodwater had entered her home, her roof was missing shingles and was leaking, and she had sustained interior damage. An adjuster estimated the cost to prepare the roof damage was $1,191.96, less that her deductible. Auto Club determined that any remaining damage was caused by flood water, which was expressly excluded from coverage. 

    On November 11, 2020, Sosa filed suit against Auto Club for breach of the policy. Among other things, she argued the adjuster spent minimal time at her home inspecting and was inexperienced. In its answer, Auto Club asserted Sosa’s claim was time-barred by the statute of limitations. Sosa then filed an amended complaint and changed the date of the loss from August 26, 2017, to June 28, 2019. 

    Auto Club filed a motion for summary judgment, primarily arguing the suit was time-barred by both the statute of limitations and the two-year limitations period in the policy. The trial court granted summary judgment to Auto Club.

    On appeal, Sosa primarily agued hat her loss occurred in June 2019, not during Hurricane Harvey in 2017. Therefore, the lawsuit filed in November 2017 was not time-barred. She did not challenge the summary judgment order on the ground that her claimed damages were covered under the policy. Her appellate brief did not mention flood or surface water.  

    Sosa did not ague that the trial court erred by granting summary judgment on the ground that her policy excluded coverage for her damages because they resulted from flood or surface water. This ground independently supported summary judgment in Auto Club’s favor because Auto Club was not liable for damages expressly excluded under Sosa’s homeowner’s policy. Therefore, any other error about which Sosa complained on appeal was harmless in light of the unchallenged ground. 

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Insurance Limits, Inflation, and Skyrocketing Replacement Costs

Hannah Albion, Richard Morehouse and Jon Pinney | Kohrman Jackson & Krantz

Unexpected inflation and increasing replacement costs could combine to present an unpleasant surprise to your expectations for property insurance coverage in a time of need. Many tend to think of real estate properties as stable fixed assets, well-positioned against many risks. However, for improved properties covered by replacement cost policies, one important question to ask and find out answers to is whether your property has adequate insurance limits in an environment of increasing construction costs.


Construction costs for single family residential homes recently experienced significant increases nationally. The national median per square foot pricing for single family detached homes in 2021 increased 21% according to the National Association of Home Builders (NAHB) in its review of recent Survey of Construction Data. According to the NAHB:

“Median sale and contract prices per square foot of floor area went up across all US regions, undoubtedly, reflecting skyrocketing building materials prices and fast rising labor costs that pummeled home building in 2021.”

This data suggests that there may be a sizeable gap between market values or purchase prices, even for homes constructed in the last two years and replacement cost values used for insurance purposes.


Commercial construction costs have also increased significantly, but to a lesser extent. Turner Construction Company’s Third Quarter 2022 Building Cost Index reports an 8.62% increase in non-residential construction costs from the third quarter of 2021. Construction industry inflation is not in an asset manager’s rear view mirror. Construction cost increases may moderate in the near term, but the data suggests that inflationary pressures are not dissipating any time soon. Labor and supply chain issues are still present. According to Dodge Data & Analytics, the number of nonresidential projects in planning stages is up 28% from October 2021 in spite of the Federal Reserve’s 2022 campaign of interest rate hikes.


Replacement cost analysis for insurance is particularly critical in a time of decreasing property values as the potential for significant gaps between commercial property market values and replacement cost values emerges. Notwithstanding the significant construction cost inflation being experienced today, commercial property values have decreased by 13% year to date in 2022, according to Green Street Advisors Commercial Property Price Index. Despite national trends, the answer to the question of market value can change significantly from market to market, neighborhood to neighborhood and property to property based on many varying factors. Nevertheless, the disconnect between insurance coverage limits and property valuations is a huge issue, according to Oswald Companies Vice President Bryan Williams. In the current environment, commercial builders’ risk underwriters are focusing more intently on coverage specifications and insuring contingencies, as well as hard costs for new construction. Also, escalation clauses ranging from 5% to 10% are being incorporated into policies.


In working with insurers to determine the best coverage at the most competitive terms, information is critical. Working with a checklist appropriate to a property’s particular circumstances can be beneficial for both the insured and the insurer. The following is an underwriting information needs checklist for commercial builders risk coverage courtesy of Oswald Companies:

  • An application – New Construction or Renovation/Rehabilitation (sometimes both)
  • Construction budget(s)
  • Construction timeline, featuring milestone dates for each building/fire division (ideally in the form of a Gantt chart)
  • Project Geotech Report (new construction)
  • Engineering report on the condition of existing buildings/structures (if applicable – If insurance on an existing building is desired, or if structural work is to be performed on an existing building)
  • Renderings of completed buildings/structures
  • Plot plan featuring distances between buildings, with the occasional need to show equipment/material lay down areas
  • Protective Safeguards anticipated (fencing, lighting, electronic surveillance, watchmen service, hot works permit system, water damage mitigation plan, etc.)
  • Lenders’ insurance requirements, if any, if known
  • Pro-forma income statement for loss of income or rents – Ideally, for the period of time it would take to clear the site and rebuild from scratch following a late term occurrence – APPLIES TO PROJECT OWNERS ONLY.
  • Documentation for estimated project “soft costs,” which refers to additional expenses that may be incurred if the project’s completion is delayed due to a covered cause of loss and most commonly encompasses the following:
    • Accounting fees
    • Advertising and promotional expenses
    • Engineering and/or architectural fees
    • Extended general conditions expense
    • Insurance premiums
    • Interest upon money borrowed to finance contract work
    • Legal fees
    • Loan fees and costs
    • Permits and municipal fees
    • Project administration expenses
    • Real estate taxes
    • Security costs

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Hawaii Appellate Court Finds Agent May Be Liable for Failing to Submit Claim

Tred R. Eyerly | Insurance Law Hawaii

    After the agent informed the insured there was no coverage and submitting a claim would be a useless effort, the Hawaii Intermediate Court of Appeal reversed the trial court’s dismissal of the insured’s suit against the agent. Pflueger, Inc. v. AIG Holdings, Inc., 2022 Haw. App. LEXIS 279 (Haw. Ct. App. Sept. 2, 2022).

    In May 2008, Pflueger notified its agent, Noguchi & Associates, Inc., that it had received federal grand jury subpoenas. Noguchi informed Pflueger that the subpoenas did not qualify as a “claim” under two policies issued by National Union. Consequently, Noguchi did not forward a claim or the subpoenas to National Union and did not seek clarification as to whether the grand jury subpoenas were covered under the policies. Pflueger relied upon Noguchi’s representations and took no further action until its attorney submitted a demand letter tendering Pflueger’s defense to Nation Union nine months later, in February 2009. 

    National Union found the claim untimely. Further, the materials submitted to National Union did not constitute a claim. The policies required the materials submitted to be an indictment, information or similar document to be a claim. 

    Pflueger filed suit against National Union and Noguchi. Pflueger alleged Noguichi was negligent and had made negligent misrepresentations. Pflueger eventually settled with National Union. 

    Prior to trial, the court granted Pflueger’s motion for partial summary judgment, finding that the grand jury subpoenas constituted a “claim” as that term was defined in National Union’s policy. The jury then returned a special verdict in favor of Pflueger. Noguchi appealed, and the Intermediate Court of Appeal (ICA) vacated the judgment, holding that the circuit court erred in excluding deposition testimony that was essential to Noguchi’s defense. 

    On remand, Noguchi moved for summary judgment on the issue of causation, arguing there was no evidence of proximate cause against Noguchi. The circuit court agreed, finding Pflueger had put forth no evidence to establish that Noguchi’s conduct was a contributing or substantial factor in National Union’s decision to deny coverage. Pflueger appealed.

    The ICA held that the causation issued as framed by Noguchi (i.e., whether National Union would have denied coverage even if Noguchi had timely tendered the grand jury subpoena matter) involved a genuine issue of material fact. The issue of causation was generally left to the fact finder. Whether Noguchi’s actions and inactions were legal causes of Pflueger’s losses in light of National Union’s denial of the claim were issues for the fact finder and could not be decided as a matter of law. The circuit court erred in granting Noguchi’s motion for summary judgment. 

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Eleventh Circuit Finds Claims-Made Policy’s “Correlating Claims” Provision Substantially Similar to “Related Claims” Provisions

Roben West | PropertyCasualtyFocus

In Datamaxx Applied Technologies Inc. v. Brown & Brown Inc., the Eleventh Circuit Court of Appeals affirmed the district court’s grant of summary judgment to the insurer, finding no merit in the insured’s argument that the analysis for construing a “correlating claims” provision differed substantially from the analysis in construing a “related claims” provision. In doing so, the Eleventh Circuit found that the insurer owed no duty to indemnify the insured for a claim that correlated with an earlier claim reported to a previous insurer and outside of the insurer’s policy period.

The underlying claim concerned a development and license agreement between the insured and a software provider to jointly develop, market, and sell an enhanced version of the insured’s already existing product using a code invented by the software provider. The agreement provided for the enhanced product to be marketed under a new, shared name. But when the insured cut out the software provider altogether by incorporating and using the code for an enhanced product under its own name — and not the agreed-upon shared name — the software provider filed suit. The insured tendered the claim to its insurer at the time, and the parties settled, releasing the then-insurer from any future related claims.

A few years later and unbeknownst to the software provider, the insured tried again, this time developing and marketing a different product that essentially mirrored the functionality of the initially infringing product while incorporating the software provider’s code without involving the software provider, leading the software provider to file another suit. When the insured tendered the claim this time, it had a new insurer. The insurer denied coverage on the grounds that the new suit correlated with the previously settled claim, which was brought prior to its policy period.

The claims-made policy stated that “all claims that correlate with an act will be deemed to have been made at the time the first of such claims is deemed to have been made” and that coverage does not apply to loss “in connection with any claim that correlates with an act, if such act also correlates with any claim deemed to have been made before the” policy period. Neither party argued that the word “correlate” was ambiguous. Instead, the insured argued that the policy language was exclusionary and improperly conflated with a typical related claims provision. The Eleventh Circuit found that the language was not exclusionary and was instead a prerequisite to coverage. And while the Eleventh Circuit acknowledged that the policy language was not the exact same as a related claims provision, as “correlates” is narrower than “relates,” the analysis remained the same in that the terms must still be interpreted according to their plain language. As such, because the dictionary provides that correlation only required a showing that acts and claims “tend to vary, be associated, or occur together in a way not expected on the basis of chance alone,” the court found that the claims correlate to each other. The insurer therefore had no duty to indemnify the insured because the claim correlated with a claim first made prior to the insurer’s policy period.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.