STAYING AHEAD OF THE CURVE IN NEW YORK: CARLSON AND §3420

New York Insurance Law §3420 contains a variety of provisions that govern New York liability insurance, but the statute on its face appears to apply only to policies “issued or delivered” in New York. On November 20, 2017, in Carlson v. Am. Int ’ l Grp., Inc. , New York’s highest court expanded the scope of §3420 when it held the phrase “issued or delivered” in New York refers not only to policies issued to New York insureds or delivered in New York, but also to policies issued to insureds that have a substantial business presence and create risks in New York, regardless of whether the policy was sent from a non-New York insurer or to a non-New York insured. 89 N.E.3d 490 (N.Y. 2017).

When a judgment creditor sued various insurers under §3420, one insurer argued §3420 did not apply, because it was a New Jersey insurer that issued the policy to an insured headquartered in Washington. Over the dissent of three judges, the Court of Appeals held that §3420 applied, even though the policy was not technically “issued or delivered” in New York. The court reasoned that the insured maintained a substantial business presence and created risks in New York, because it was in the business of delivering packages in New York.

This expansive reach of §3420 is especially significant because §3420 mandates that insurers disclaim coverage “as soon as reasonably possible” (interpreted to mean within 30 days) and send copies of disclaimer letters to the injured person or any other claimant. Section 3420 imposes a harsh penalty for non-compliance: the forfeiture of an insurer’s right to rely upon exclusions and breach of conditions to coverage. Now, insurers throughout the country and world must ensure that when placed on notice of a New York bodily injury or wrongful death claim, they act quickly to determine if the insured has a business presence in New York and the policy covers New York risks, no matter where the policy was physically “issued or delivered,” in order to avoid running afoul of §3420 requirements.



COURTS CLARIFY CONTOURS OF INDEPENDENT COUNSEL REQUIREMENT

 

Like the South Carolina Supreme Court’s decision in Harleysville Group Ins. v. Heritage Communities, Inc. , 803 S.E.2d 288 (S.C. 2017), courts nationwide have grappled with whether open-ended or general reservation of rights letters (ROR) create a conflict of interest that entitles the insured to independent counsel. Policyholders are increasingly taking the position that a reservation of rights creates a conflict of interest that allows the insured to control its own defense.  

 

An Illinois appellate court recently held that an “open ended” ROR that generally reserved rights on “any additional defenses which further investigation will reveal” did not create a conflict of interest. Bean Products, Inc. v. Scottsdale Ins. Co. , 2018 IL App (1 ^st ) 170421-U. The court recognized that a conflict of interest must be “clear,” and that the mere possibility of a future conflict does not entitle the insured to independent counsel. The court further explained insurers are permitted to reserve rights to disclaim coverage based on new facts.

 

Similarly, a California federal district court recently held that a general ROR does not create a conflict of interest unless the insured can show that retained counsel will assert factual or legal theories detrimental to the insured’s defense. See Tokio Marine Specialty Ins. Co. v. City of Laguna Beach, No.: 8:17-cv-00277-JLS-JCG, 2017 WL 6512226 (C.D. Cal. Dec. 18, 2017). The fact that defense counsel could conceivably take a position that would prejudice the insured’s defense does not give rise to a conflict. Id.   

 

While Bean Products and Tokio Marine are favorable decisions for insurers, potential conflicts of interest should be evaluated on a case-by-case basis under applicable law to determine whether independent counsel is required or warranted.



FLORIDA SUPREME COURT FINDS

STATUTORY CONSTRUCTION

DEFECT CLAIM MAY BE A "SUIT"

 

The Florida Supreme Court recently held that a CGL insurer’s obligation to defend its insured with respect to statutorily-mandated pre-suit construction defect claim notices is triggered only if the insurer consents to the insured’s participation in the voluntary statutory process. Altman, a general contractor, oversaw construction of the Sapphire Condominium tower in Broward County, Florida. When alleged construction defects manifested, Sapphire followed Florida’s mandatory pre-suit notification procedure (“Chapter 558”) by serving Altman with notices of claim concerning more than 800 alleged defects. Altman tendered the notices to its CGL insurer, Crum & Forster (“C&F”), requesting a defense. C&F denied any obligation to defend Altman. C&F contended that Chapter 558 notices do not constitute a “suit” that C&F is potentially obligated to defend. Altman eventually resolved Sapphire’s claims under Chapter 558, avoiding a lawsuit by Sapphire. Altman then sued C&F, seeking a declaration that C&F should have defended. A Florida federal district court granted summary judgment to C&F, agreeing that Chapter 558 was not a “suit” that triggered C&F’s defense obligations. On appeal, the Eleventh Circuit certified the issue to the Florida Supreme Court, which agreed to decide whether a Chapter 558 notice is a “suit” that an insurer can be obligated to defend. The Florida Supreme Court’s answer? A Chapter 558 notice constitutes a “suit” that potentially triggers a duty to defend only if the insurer consents to the insured’s “participation” in the alternative claims resolution process available under Chapter 558. 

The C&F policy contained a standard definition of “suit” as a civil proceeding alleging damages because of, among others, “property damage” to which the policy applies, “including: (a) an arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with [the insurer’s] consent; or (b) any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with [the insurer’s] consent.” The court observed that, from the builder’s perspective, the process available under Chapter 558 is purely voluntary; while the builder can offer a remedy to the construction defects or a monetary settlement – or both – the builder can also choose to deny the claims outright or even refuse to respond altogether. According to the Florida Supreme court, therefore, nothing about Chapter 558 amounts to a “civil proceeding,” such that Chapter 558 notices in no way constitute a “suit” that an insurer must necessarily defend.

While concluding that Chapter 558 is not a civil proceeding and does not require an insurer to defend, however, the court found that the definition of “suit” is broadened by subpart (b) of the definition, in which “suit” is defined to include an alternative dispute resolution proceeding in which the claimant seeks potentially-covered damages. The court determined that Chapter 558 provides precisely the kind of proceeding that is contemplated by subpart (b). The court therefore concluded that, to the extent an insurer consents to its insured’s participation in the Chapter 558 process, that process becomes a “suit” that triggers the insurer’s obligation to defend. Of course, the defense obligation is dependent upon whether the allegations involve covered “property damage.” Consistent with the court’s holding, the action was recently remanded back to the federal district court for a determination as to whether C&F consented to Altman’s participation in the Chapter 558 process initiated by Sapphire.

CREATING FAVORABLE LAW

FOR THE INSURANCE INDUSTRY:

Defining the Scope of Damages

Because of "Bodily Injury"

Our firm recently secured a favorable summary judgment ruling in Southern Illinois Asphalt Co., Inc. v. Turubchuk , No. 17-CV- 405-SMY-DGW, 2018 WL 514386 (S.D. Ill. Jan. 23, 2018), where the Southern District of Illinois found no duty to defend or indemnify an underlying lawsuit which sought damages based on the insured’s alleged failure to disclose the existence of insurance policies in connection with an underlying auto accident. In August 2005, several individuals were injured in an auto accident allegedly arising out of improper road paving work performed by contractors Southern Illinois Asphalt and E.T. Simonds Construction Company. When injured claimants sued the contractors, the contractors disclosed the identity of a $1 million liability policy covering the project, but concealed the existence of a tower of coverage issued to Southern Illinois Asphalt. The case settled for $1 million. 

Several years later, the underlying plaintiffs learned of Southern Illinois Asphalt’s individual tower of coverage and filed another suit against Southern Illinois Asphalt, alleging it improperly concealed its insurance tower to effectuate a lower settlement. Southern Illinois Asphalt tendered the suit to its insurers, and coverage litigation ensued. Applying Illinois law, the court found Southern Illinois Asphalt’s liability insurers owed no obligation to defend or indemnify the suit, reasoning that the complaint did not allege damages because of “bodily injury.” While the complaint generally referenced the plaintiffs’ bodily injuries sustained in the underlying auto accident, the court explained that plaintiffs’ bodily injury claims had been dismissed, and that plaintiffs’ concealment claim did not allege damages because of “bodily injury."

This decision reinforces that there are reasonable limitations on damages because of “bodily injury,” and that insurers should not be called upon to defend a suit simply because it has some attenuated connection to an underlying “bodily injury.”



TAKING THE STAGE

Daniel I. Graham, Jr. and Monica T. Sullivan to speak at DRI Insurance Coverage and Claims Institute

Partners Daniel I. Graham, Jr. and Monica T. Sullivan will speak at the Defense Research Institute ’ s annual Insurance Coverage and Claims Institute being held March 21-23, 2018, at the Swissôtel in Chicago, Illinois. 

 

As the event’s Program Chair, Dan has put together an event offering dedicated programming to educate in-house and claims professionals on the legal trends impacting them today. The seminar will feature a variety of topics and provide insurance professionals and practitioners practical tips for navigating the coverage investigation and posturing an insurance dispute for early resolution.

 

Among the event’s featured speakers, Monica will present “A Rose by Any Other Name: What Are ‘Damages,’ and When Are They Covered.” Monica’s presentation will provide an overview of the processes courts employ in evaluating whether certain types of relief constitute damages that implicate an insurer’s indemnity obligations under an insurance policy. 

 

To learn more about DRI ’ s 2018 Insurance Coverage and Claims Institute, please  click here .

The 2018 edition of Illinois Super Lawyers honors six attorneys from Nicolaides, including three Super Lawyers ( Richard H. Nicolaides, Jr. , Matthew J. Fink , and Robert S. Marshall ) in the fields of insurance coverage and general litigation, and three Rising Stars ( Jodi S. Green , Cody S. Moon , and Mark J. Sobczak ) in the fields of insurance coverage, general litigation, and appellate law, respectively.

GETTING INVOLVED 

 

Attorneys and staff are eager to participate in the firm’s semi-annual community service event on Monday, March 26, 2018, at the Ronald McDonald House at Northwestern University’s Lurie Children’s Hospital. As part of the hospital’s “Meals from the Heart” program, we will prepare dinner for families of children receiving treatment at the hospital. We plan to cook chicken fried rice and stir fry! 

Patricia A. Daza-Luu , an associate in our Los Angeles office, recently co-chaired the inaugural event “Playing the Long Game” for the Women in Law Empowerment Forum's Southern California Young Lawyers Committee.

 

On March 1, Trish co-chaired the Women Lawyers Association of Los Angeles’s 23 ^rd Annual Litigators Forum: Knowing Your Worth, where she introduced the evening’s keynote speaker, California State Senator Hannah-Beth Jackson, author of the Fair Pay Act.

OUR DEEP BENCH CONTINUES TO EXPAND

In February, Christopher J. Nadeau joined our firm’s Chicago office as Special Counsel. Chris’ practice focuses on litigation involving various types of casualty claims, including trucking, construction, premises, and medical liability. He also has significant experience working with both traditional and captive insurance programs. Chris represents and advises insurance companies in complex claim disputes, declaratory judgment actions, and bad-faith actions. His work encompasses general liability, excess liability and various professional liability coverages. Chris is licensed in Illinois and Indiana and has served as lead counsel in Michigan on several transportation-related claims. Chris received his J.D. from DePaul University College of Law.

We are pleased to announce that Thomas W. Arvanitis (Chicago), Seth J. Manfredi (San Francisco), Ethan H. Seibert (San Francisco), and Mark J. Sobczak (Chicago) have joined the firm ’ s partnership. “ All four are exceptional in the manner in which they represent our clients and do so every day in a manner consistent with the Firm ’ s values of professionalism and collegiality, ” said managing partner Richard H. Nicolaides, Jr.

We launched a new clerkship program this year. For the next few months, Alida Pecanin and Karen Villagomez will be working with our attorneys out of the Chicago office. Both in their third years of law school, Alida is attending Chicago-Kent College of Law and Karen is attending Northwestern University Pritzker School of Law.

Associates Patrick R. Emerson and Matthew G. Novaria are co-chairs of the Chicago Bar Association Young Lawyers Section Insurance Coverage Committee for the 2017-2018 period.

SPOTLIGHT ON:

Partner Bianca Loftus

As a partner at Nicolaides Fink Thorpe Michaelides and Sullivan, Bianca Loftus counsels insurers on a wide variety of complex coverage issues arising under all types of insurance policies, but her focus is on first-party property insurance policies. Representing insurers on claims arising under policies providing all-risk, inland marine, and time element coverages, Bianca is an insurer’s “go to” attorney after a disaster. She has assisted many clients with challenges presented by CAT claims, claims resulting from 9/11, Superstorm Sandy, California wildfires, and hurricanes Katrina, Irma and Harvey. With more than 20 years of experience as a coverage attorney, Bianca represents insurers in all phases of the claim process, from first notice through resolution, and enjoys working closely with her clients and their experts to resolve complicated causation and valuation issues presented by property losses.

 

Outside of the office, Bianca’s time is consumed in a whirlwind of sporting events (basketball, baseball and track) for her two youngest children, who fortunately did not inherit her athletic (in)ability. Her oldest child attends Indiana University. She also enjoys reading things other than insurance policies and cooking, especially Italian food.