No Coverage for Home Damaged by Falling Boulders

Tred R. Eyerly | Insurance Law Hawaii

    The policy’s earth movement exclusion barred coverage for the home damaged by large boulders rolling down from the hillside above. Sullivan v. Nationwide Affinity Ins. Co. of Am., 2021 U.S. App. LEZXIS 628 (10th Cir Jan. 11, 2021). 

    Plaintiffs’ home sustained extensive damage when two or three large builders rolled down a steep hillside and struck the home. The insurer, Nationwide, hired an engineering firm that determined the boulders were not influenced by meteorological conditions such as torrential rain or high winds. The report noted that rockfall hazards existed primarily due to an undercut sandstone outcrop, and evidenced by numerous rocks from rockfall events that scattered Plaintiffs’ property. 

    Based on the report, Nationwide denied coverage under the earth movement exclusion. The exclusion provided Nationwide did “not insure for loss caused directly or indirectly by . . . Earth Movement” and regardless of “whether or not the loss event results in widespread damage or affects a substantial area.” The policy further defined “earth movement” to include “landslide . . . or any other earth movement including earth sinking, risking or shifting.”

    Plaintiffs sued and Nationwide moved for summary judgment. Plaintiffs submitted their own report which stated that a rockfall was not a landslide and the term “earth” meant soil and not rock. But the report also quoted sources suggesting that a rockfall was a type of landslide. The district court granted summary judgment to Nationwide. 

    There was no definitive Colorado law on whether damage caused by the rockfall was excluded under the earth movement provision. The court surveyed case law from other jurisdictions and concluded the Colorado Supreme Court would follow the cases which held that a rockfall was excluded. Further, dictionaries defined “landslide” to include the movement of rock alone. Therefore, a reasonably objective insured would read the earth movement exclusion as excluding coverage for the event here, either as a “landslide” or as “another earth movement including earth sinking, risking or shifting.” 

In Brief: Commercial General Liability Policies in USA

Mary Beth Forshaw | Simpson Thacher

Standard commercial general liability policies

Bodily injury

What constitutes bodily injury under a standard CGL policy?

CGL policies generally provide coverage for bodily injury or property damage sustained by third parties (rather than the policyholder) as a result of an occurrence.

Insurance coverage litigation frequently centres on whether the underlying claims against the policyholder allege bodily injury or property damage within the meaning of the applicable insurance policy, and whether the events giving rise to the injury or damage were caused by an occurrence.

The phrase ‘bodily injury’ in insurance contracts generally connotes a physical problem. However, a number of courts have ruled that the term also encompasses non-physical or emotional distress, either standing alone or accompanied by physical manifestations.

The question of whether bodily injury exists may also arise where an underlying complaint alleges non-traditional or quasi-physical harm, such as biological or cellular level injury or medical monitoring claims. Courts addressing these and other analogous bodily injury questions have arrived at mixed decisions. Bodily injury determinations are often case-specific, turning on the particular factual record presented.

Property damage

What constitutes property damage under a standard CGL policy?

Property damage typically requires injury to or loss of use of tangible property. Therefore, the mere risk of future damage is generally insufficient to constitute property damage. Similarly, it is generally held that the inclusion of a defective component in a product, standing alone, does not constitute property damage. Numerous other allegations of harm or potential harm to property have generally been deemed to fall outside the scope of covered property damage, including the following:

  • injury to intangible property (such as computer data);
  • injury to goodwill or reputation;
  • pure economic loss; and
  • diminished property value.

However, although economic loss is not equated with property damage, courts may use a policyholder’s economic loss as a measure of damages for property damage where physical damage is found to exist.

Occurrences

What constitutes an occurrence under a standard CGL policy?

Virtually all modern-day general liability insurance policies provide coverage for an occurrence that takes place during the policy period. The insurance term ‘occurrence’ is typically equated with or defined as an accident or an event that results in damage or injury that was unexpected and unintended by the policyholder.

Insurance litigation frequently involves several issues relating to the occurrence requirement:

  • whether intentional conduct that results in unexpected or unintended harm constitutes an occurrence;
  • whether negligent conduct that results in expected or intended harm constitutes an occurrence;
  • whether an event or series of events constitutes a single occurrence or multiple occurrences;
  • whether the occurrence falls within a given policy period (ie, what is the operative event that triggers a policy?); and
  • how insurance obligations should be divided among multiple insurers (or the policyholder) when an occurrence spans multiple policy periods (ie, allocation).

Although it is a widely accepted principle that insurance policies provide coverage only for fortuitous events, and cannot insure against intentional or wilful conduct, it is less clear whether (and under what circumstances) intentional conduct that results in unexpected and unforeseen damage can constitute a covered occurrence. This question has arisen in a multitude of factual contexts, including claims arising out of faulty workmanship, pollution and fax blasting in violation of federal statutes. In evaluating the occurrence issue, some courts focus on the initial conduct of the policyholder, while other courts look to whether the resulting harm was unexpected or unintended.

How is the number of covered occurrences determined?

The determination of whether damage or injury is caused by a single occurrence or by multiple occurrences has significant implications for available coverage. The number of occurrences may impact both the policyholder’s responsibility for deductible payments and the per occurrence policy limits that are available. Thus, it is a hotly contested issue in insurance litigation. Most courts utilise a cause-based analysis to determine the number of occurrences. Under the cause-oriented approach, if there is one proximate cause of the injury, there is one occurrence, regardless of the number of claims or incidents of harm.

In contrast, under an effects-oriented analysis, the focus is on the number of discrete injury-causing events.

A number of occurrences disputes arise in virtually all substantive areas of insurance litigation, including claims arising out of asbestos, environmental harm, natural disasters, and the manufacture or distribution of harmful products.

Coverage

What event or events trigger insurance coverage?

Litigation that centres on whether a given policy period has been implicated by an occurrence is generally referred to as a ‘trigger of coverage’ dispute. ‘Trigger’ describes what must happen within the policy period for an insurer’s coverage obligations to be implicated. In cases involving ongoing or continuous property damage or personal injury, the question of what triggers policy coverage may be complex. From a legal perspective, courts employ several different methods to resolve trigger disputes. For bodily injury claims, the operative trigger event has been held to be:

  • at the time of exposure to a harmful substance;
  • at the time the injury manifests itself;
  • at the time of actual ‘injury in fact’; or
  • a combination or inclusion of all of the above.

Property damage claims have also given rise to multiple trigger approaches, some of which focus on the initial event that set the property damage into motion, while others look to the time that physical damage became evident. From a factual perspective, parties are often required to submit voluminous evidence in support of their position as to when property damage or bodily injury actually occurred. Expert witnesses are often retained to address trigger issues.

How is insurance coverage allocated across multiple insurance policies?

When an occurrence triggers multiple policy periods, disputes frequently arise as to how indemnity costs should be allocated among various insurers. The emerging trend in courts in the United States is a pro rata approach, which apportions loss among triggered policies based on insurers’ proportionate responsibilities. In applying pro rata allocation, courts have considered:

  • the time that each insurer is on the risk;
  • the policy limits of each triggered policy;
  • the proportion of injuries during each policy; or
  • a combination of these and other factors.

Pro rata allocation also typically contemplates policyholder responsibility for periods of no coverage or insufficient coverage. The pro rata allocation approach stems from policy language that limits insurers’ obligations to damage ‘during the policy period’. Some jurisdictions that utilise a pro rata approach recognise an ‘unavailabilty’ exception. The unavailability exception provides that apportionment to the insured for uninsured periods is not warranted if insurance was unavailable in the marketplace during the relevant time frame. If this unavailability is established, losses during the uninsured periods are allocated among the insurers.

A minority of courts endorse a joint and several liability approach, under which a policyholder is entitled to select a single policy from multiple triggered policies from which to seek indemnification. This approach stems from common policy language requiring an insurer to pay ‘all sums’ that the policyholder becomes legally obligated to pay. Notably, even courts that endorse all sums allocation typically allow a targeted insurer to pursue contributions from other triggered insurers.

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18 December 2019

Fifth Circuit Holds Insurer Owes Duty to Defend Latent Condition Claim That Caused Fire Damage to Property Years After Construction Work

Jeremy S. Macklin | Traub Lieberman

Most general liability policies only provide coverage for “property damage” that occurs during the policy period. Thus, when analyzing coverage for a construction defect claim, it is important to ascertain the date on which damage occurred. Of course, the plaintiffs’ bar crafts pleadings to be purposefully vague as to the date (or period) of damage to property. A recent Fifth Circuit decision applying Texas law addresses this coverage issue in the context of allegations of a condition created by an insured during the policy period that caused damage after the policy expired.

In Gonzalez v. Mid-Continent Cas. Co., 969 F.3d 554 (5th Cir. 2020), Gilbert Gonzales (the insured) was a siding contractor. In 2013, the underlying plaintiff hired Gonzales to install new siding on his house. In 2016, the underlying plaintiff’s house was damaged in a fire. The underlying plaintiff sued Gilbert in Texas state court alleging that when Gonzalez installed the siding in 2013, he hammered nails through electrical wiring and created a dangerous condition that caused a fire three years later in 2016.

At the time Gilbert performed construction work, he was insured by Mid-Continent Casualty Company. Mid-Continent disclaimed coverage to Gonzales on the basis that the complaint unequivocally alleged that property was damaged in 2016 and there were no allegations that property damage occurred prior to 2016 or was continuing in nature.

The Fifth Circuit started its analysis by acknowledging Texas’ strict eight-corners rule for determining an insurer’s duty to defend. Relying on prior Texas and Fifth Circuit decisions (Don’s Building Supply, Inc. v. OneBeacon Insurance Co.Wilshire Insurance Co. v. RJT Construction, LLC, and VRV Development L.P. v. Mid-Continent Casualty Co.), the court narrowed its focus to “actual, physical damage alleged in the underlying litigation.” The court reasoned, “[i]f the only alleged damage occurred outside of the policy period, then there is no duty to defend. But if any of the alleged damage occurred during the policy period, then the duty to defend attaches.”

The court held that the underlying lawsuit “plainly alleges physical injury to property that occurred within the policy period.” The court identified three reasons for its holding: (1) the underlying complaint stated that the 2016 fire “relates back to [the] construction and/or installation of siding” in 2013, (2) the policy defined “property damage” to include “all resulting loss of use of that property,” so damage to the wire includes damage to the entire house, and (3) the underlying plaintiff’s claim of damages alleged that “the electrical wires were damaged in 2013.”

Judge Catharina Haynes dissented, explaining that she would hold that property damaged occurred after the policy period ended, when the fire broke out in 2016. Judge Haynes agreed that the court is bound by Don’s BuildingWilshire, and VRV Development, but she emphasized that those cases also hold that when an underlying plaintiff alleges actual, physical damage due to the insured’s negligent conduct, the alleged property damage does not relate back to the time of the negligent act when determining when the property damage occurred. Judge Haynes criticized the majority for focusing on the time of the negligent conduct.

The Gonzales decision highlights the importance of analyzing each allegation in an underlying pleading to determine when any physical injury may have occurred. The dissent also leaves the door open for a different panel of Fifth Circuit judges to distinguish or reverse Gonzales.

Fifth Circuit Holds Insurer Owes Duty to Defend Latent Condition Claim That Caused Fire Damage to Property Years After Construction Work

Jeremy Macklin | Traub Lieberman Straus & Shrewsberry

Most general liability policies only provide coverage for “property damage” that occurs during the policy period. Thus, when analyzing coverage for a construction defect claim, it is important to ascertain the date on which damage occurred. Of course, the plaintiffs’ bar crafts pleadings to be purposefully vague as to the date (or period) of damage to property. A recent Fifth Circuit decision applying Texas law addresses this coverage issue in the context of allegations of a condition created by an insured during the policy period that caused damage after the policy expired.

In Gonzalez v. Mid-Continent Cas. Co., 969 F.3d 554 (5th Cir. 2020), Gilbert Gonzales (the insured) was a siding contractor. In 2013, the underlying plaintiff hired Gonzales to install new siding on his house. In 2016, the underlying plaintiff’s house was damaged in a fire. The underlying plaintiff sued Gilbert in Texas state court alleging that when Gonzalez installed the siding in 2013, he hammered nails through electrical wiring and created a dangerous condition that caused a fire three years later in 2016.

At the time Gilbert performed construction work, he was insured by Mid-Continent Casualty Company. Mid-Continent disclaimed coverage to Gonzales on the basis that the complaint unequivocally alleged that property was damaged in 2016 and there were no allegations that property damage occurred prior to 2016 or was continuing in nature.

The Fifth Circuit started its analysis by acknowledging Texas’ strict eight-corners rule for determining an insurer’s duty to defend. Relying on prior Texas and Fifth Circuit decisions (Don’s Building Supply, Inc. v. OneBeacon Insurance Co.Wilshire Insurance Co. v. RJT Construction, LLC, and VRV Development L.P. v. Mid-Continent Casualty Co.), the court narrowed its focus to “actual, physical damage alleged in the underlying litigation.” The court reasoned, “[i]f the only alleged damage occurred outside of the policy period, then there is no duty to defend. But if any of the alleged damage occurred during the policy period, then the duty to defend attaches.”

The court held that the underlying lawsuit “plainly alleges physical injury to property that occurred within the policy period.” The court identified three reasons for its holding: (1) the underlying complaint stated that the 2016 fire “relates back to [the] construction and/or installation of siding” in 2013, (2) the policy defined “property damage” to include “all resulting loss of use of that property,” so damage to the wire includes damage to the entire house, and (3) the underlying plaintiff’s claim of damages alleged that “the electrical wires were damaged in 2013.”

Judge Catharina Haynes dissented, explaining that she would hold that property damaged occurred after the policy period ended, when the fire broke out in 2016. Judge Haynes agreed that the court is bound by Don’s BuildingWilshire, and VRV Development, but she emphasized that those cases also hold that when an underlying plaintiff alleges actual, physical damage due to the insured’s negligent conduct, the alleged property damage does not relate back to the time of the negligent act when determining when the property damage occurred. Judge Haynes criticized the majority for focusing on the time of the negligent conduct.

The Gonzales decision highlights the importance of analyzing each allegation in an underlying pleading to determine when any physical injury may have occurred. The dissent also leaves the door open for a different panel of Fifth Circuit judges to distinguish or reverse Gonzales.

Illinois Federal Court Determines if Damages Are Too Remote

Lian Skaf | The Subrogation Strategist

Foreseeability is a tort concept that tends to permeate several aspects of legal analysis, often causing confusion in litigants’ interpretation of, and courts’ application of, foreseeability to their cases. In Cincinnati Ins. Co. v. Progress Rail Services. Corp., 2020 U.S. Dist. LEXIS 73967 (C.D. Ill.), the United States District Court for the Central District of Illinois took on the task of analyzing a case dealing with foreseeability issues to determine if the defendant owed the plaintiff a duty and if the damages were so remote as to violate public policy. The court held that since the defendant’s actions contributed to the risk of harm to the plaintiff and the facts satisfied the four-prong duty test, the defendant owed the plaintiff’s subrogor a duty of reasonable care. It also held that the plaintiff’s damage claim did not open the defendant up to liability that would violate public policy.

In the case, an employee of defendant Progress Rail Services Corporation (Progress Rail) was operating a crane at Progress Rail’s Galesburg location on May 7, 2018. The employee struck an overhead power line while working, causing a power disruption to nearby businesses. The plaintiff’s subrogor, Midstate Manufacturing Company (Midstate), was one of the affected businesses, reporting that its Amada hydraulic punch was damaged. Midstate submitted a property damage claim to its carrier, Cincinnati Insurance Company (Cincinnati), who reimbursed it under its policy. Subsequent to its payment, Cincinnati filed suit against Progress Rail in Illinois state court. Progress Rail then removed the case to federal court and filed a motion to dismiss.

The court first considered the defendant’s argument that it owed Midstate no duty of care and, thus, the plaintiff failed to state a claim. The court initially determined whether the defendant’s actions contributed to the risk of harm to the plaintiff. If it did, then the court would weigh the four factors courts consider to determine of whether a duty runs from the defendant to the plaintiff: 1) reasonable foreseeability of the injury; 2) likelihood of the injury; 3) the burden of guarding against the injury; and 4) the consequences of bearing that burden.

Because the actions of Progress Rail’s employee caused damage to Midstate’s equipment, the court determined that the defendant’s actions contributed to the risk of harm to Midstate. Thus, the court moved on to weighing the four relevant factors.

The court found that the weight of the factors balanced in favor of the plaintiff. Looking at the foreseeability of the general character of the event or harm and not the precise manner of occurrence, the court found that the first factor favored the plaintiff. The court also held that the likelihood of injury was present since disrupting power could damage nearby properties. Finally, the court found in favor of the plaintiff for the final two prongs; stating that the burden of guarding against such injuries should have been inherent in the defendant’s work and there were no onerous consequences of imposing such a burden.

The court next analyzed the defendant’s position that the doctrine of remoteness should preclude the plaintiff’s claims. This public-policy-based doctrine is founded on the principle that, regardless of foreseeability, certain plaintiffs should not be able to recover from the defendant because their claimed harm is too remote. The doctrine is typically applied in cases where a third-party plaintiff has no property damage, but claims harm as a result of injury to another. Because the wide spectrum of plaintiffs that could make such claims would lead to “a crushing burden of litigation,” courts apply the doctrine to prevent an unreasonable burden on companies’ activities. Since the type of damage claimed in this matter would not lead to such a burden, the court disregarded this argument as well, dismissing the motion to dismiss in its entirety.

The analyses and holdings of this case are important for subrogation professionals to keep in mind when defendants attempt to make arguments based on either the extent of their duty or the doctrine of remoteness. The Cincinnati Ins. Co. case illustrates the limits of those defenses. This case shows that courts are unlikely to limit the scope of a defendant’s tort duty or restrict litigants’ rights based on public policy without strong justification. In a larger sense, the case is a good reminder that courts may be willing to impose strict limits to tort defenses and plaintiffs should push for those as much as possible.