Insurance Co. Not Liable For Theoretical Claims, Judge Says

Rick Archer | Law 360 | August 25, 2017

A Nevada federal judge Thursday found an insurance company had no duty to defend construction companies against theoretical future claims, saying the argument stretched the duty to defend “to the breaking point.”

U.S. District Judge Jennifer A. Dorsey issued a summary judgment rejecting three insurance companies’ attempt to force Ironshore Speciality Insurance Co. to join them in defending against a defective construction suit, saying their argument was based on the theoretical possibility of future liability.

“Although the duty to defend is broad, it is not limitless. A possibility that there could later be a potential for coverage is not the same as an existing potential for coverage — and the latter is needed to trigger the duty to defend,” she said.

Ironshore was sued by American Guarantee & Liability Insurance Co., Assurance Co. of America and Northern Insurance Co. of New York, all of which had written policies to a number of Nevada construction contractors who were sued for allegedly defective construction work.

Ironshore had also written policies for the companies but had refused to defend them, saying the allegedly defective work was done before the policy period and that coverage for prior work could only be triggered by “sudden and accidental” damages caused by the work, which were not being claimed in the suits.

The insurers, however, argued the suits did not expressly state that no accidental damage occurred, therefore making a future claim for accidental possible and triggering the duty to defend.

Judge Dorsey disagreed, saying the underlying suits both do not allege a sudden accident and make no suggestion any sudden accidents occurred.

“The plaintiffs’ argument would expand the duty to defend to the breaking point. Before the duty is triggered, there must be some allegation or evidence to create a current potential for coverage. And an allegation that is so vague that it could possibly encompass covered allegations in the future is not enough,” she said.

In a prior case involving construction defect claims the same parties the court found the exclusion did not apply and awarded the insurance plaintiffs more than $988,000 following an April bench trial.

Counsel for the insurance companies declined comment. Counsel for Ironshore did not immediately respond to requests for comment Friday.

The insurance companies are represented by William C. Reeves of Morales Fierro & Reeves.

Ironshore is represented by William C. Morison of Morison & Prough LLP.

The case is Assurance Co. of America et. al. v. Ironshore Specialty Insurance Co., case number 2:15-cv-00460 in the United States District Court for the District of Nevada.

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