By Theresa A. Guertin
Saxe Doernberger & Vita, P.C.

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In honor of Shark Week, that annual television-event where we eagerly flip on the Discovery Channel to get our fix of these magnificent (and terrifying!) creatures, I was inspired to write about the “predatory” practices we’ve encountered recently in our construction insurance practice. The more sophisticated the business and risk management department is, the more likely they have a sophisticated insurer writing their coverage. Although peaceful coexistence is possible, that doesn’t mean that insurers won’t use every advantage available to them – compared to even large corporate insureds, insurance companies are the apex predators of the insurance industry.

In order to safeguard policyholders’ interests, most states have developed a body of law (some statutory, some based on judicial decisions) requiring insurers to act in good faith when dealing with their insureds. This is typically embodied as a requirement that the insurer act “fairly and reasonably” in processing, investigating, and handling claims. If the insurer does not meet this standard, insureds may be entitled to damages above and beyond that which they could otherwise recover for breach of contract.

Proving that an insurer acted in “bad faith,” however, can be like swimming against the riptide. Most states hold that bad faith requires more than just a difference of opinion between insured and insurer over the available coverage – the policyholder must show that the insurer acted “wantonly” or “maliciously,” or, in less stringent jurisdictions, that the insurer was “unreasonable.”/FN 1/

There are, of course, many different types of insurer behavior which exist in the murkier waters between “good faith” and “bad faith” of which policyholders should beware. The following list provides some examples of this questionable behavior.

– Aggressive use of case law. When new case law is published, carriers race to the smell of blood and attempt to implement the law in new, overly aggressive ways. We saw this after the New York Court of Appeals issued its decision in the Burlington/FN 2/ case in 2017. The true impact of the decision was fairly limited; the court found no coverage for an additional insured where it had been judged that the named insured was not at fault and the additional insured was solely at fault. That didn’t stop insurers from attempting to use Burlington to deny defense coverage to additional insureds. Policyholders should be sure they review insurer communications thoroughly and evaluate whether the insurer’s basis for disclaiming coverage is valid and appropriate.

– Changes to insurer personnel. For policyholders who have been with the same insurer for years, there may be a sense of security that claims will be investigated, defended, handled, or settled a certain way. While it is certainly beneficial for corporate insureds to develop partnerships with their insurers, risk managers should always be on the lookout for change which could spell disaster. Sometimes a personnel change – especially when it comes to “legacy” claims like asbestos matters – could signal a shift in the insurer’s treatment of those claims. Risk managers should insist on dedicated claims personnel whenever possible and hold regular stewardship meetings to maintain relationships and ensure that the insurer is aligned with their goals and strategy as much as possible.

– Shifting retroactive dates. Claims-made policies, such as professional, directors & officers, and pollution insurance, often contain retroactive dates which limit how far back in time the insurer’s obligation to pay attaches. Sometimes, at renewal, the carrier may bump up that date to the start of the policy period – a change that may go by undetected, but can result in a major coverage gap. Retroactive dates should almost always be as far in the past as possible, coinciding with the start of the insured’s business if feasible or, at least, as far back as potential losses may have occurred which would give rise to current liabilities.

– Refusal to disclose policies, claim numbers, and other non-privileged information. Upstream parties, such as owners and general contractors, have a right to see a copy of the policy on which they have been added as additional insureds. Insurers sometimes inappropriately refuse access to the policy, which hampers the additional insureds’ ability to pursue their rights. Similarly, other non-privileged information stored by the insurer should be accessible to the insured, including loss runs and other claims data. Redacting sensitive information (i.e., premiums) is acceptable, but complete withholding of policies on which you are insured is not.

– Delay by document request. Another common tactic employed by insurance companies is delaying their coverage analysis until substantial documentation has been submitted to the insurer. Although this may be understandable in the first-party context (i.e., providing back-up documentation to support the cost of repairs for a builder’s risk claim) it is rarely valid when the insured is seeking defense from a liability insurer. Voluminous document requests for contracts, communications, job-site reports, and the like sometimes serve as a hidden means for insurers to delay providing defense, which should be determined based on the complaint’s allegations.

Staying safe in shark-infested waters takes an educated and dedicated team of professionals. Risk managers should stay afloat by keeping up-to-date on current market and legal developments.

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1 Compare Martin v. Am. Equity Ins. Co., 185 F. Supp. 2d 162 (D. Conn. 2002) (requiring “wanton and malicious injury, evil motive and violence”) with King v. Atlanta Cas. Ins. Co., 631 S.E.2d 786 (Ga. App. 2006) (taking a reasonableness-based approach to bad faith claims).

2 Burlington Ins. Co. v. NYC Transit Auth., 29 N.Y.3d 313 (2017).

Every real estate and construction contract contains a list of insurance requirements identifying specific types and amounts of coverage for one or both parties, but too often these requirements are included in a form exhibit that is attached to contracts year after year, project after project, without careful review.

In a new website post, Lyndon Bittle of Carrington Coleman discusses  “traps for the unwary” lurking in construction contract insurance requirements, focusing on the ubiquitous commercial general liability policy.

Many of the traps pop up in connection with making one party an additional insured on the other party’s liability policies, Bittle writes. “One deceptively problematic provision is a requirement that the owner be ‘named an additional insured,’ without further details. That request conveys almost nothing.”

Read the article.

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A Brouse McDowell Insurance Blog post discusses the drafting of insurance requirements in a contract to ensure that, in the event of a loss arising out of the work performed, parties will have assets available for that loss.

“If you are the general contractor, or you are hiring subcontractors or vendors, there are several things you need to know,” writes Stacy RC Berliner.

Topics discussed include: specify the right policies and limits to be procured, get endorsed as an additional insured, make sure the other’s policy is primary and non-contributory, specify maximum deductibles and self-insured retentions, and verification.

Read the article.

Reprinted from Saxe Doernberger & Vita, P.C.

On April 4, 2019, the Appellate Division of the New Jersey Superior Court confirmed that the waiver of subrogation provision in a commonly used form construction contract, American Institute of Architects (AIA) form A201 — 2007 General Conditions of the Contract for Construction, precluded an insurer’s claims against a subcontractor.

In Ace American Ins. Co. v. American Medical Plumbing, Inc., the court considered Ace American Insurance Company’s (Ace) subrogation claim against a plumbing subcontractor who was allegedly responsible for a water main leak that caused approximately $1.2 million in damages to Ace’s insured, Equinox Development Corporation (Equinox).

In March 2012, Equinox entered into a contract with Grace Construction Management Company, LLC (Grace) to build the “core and shell” of a new health club. Equinox and Grace used AIA form A201 for their contract. Grace then hired American Medical Plumbing, Inc. (American) as a plumbing subcontractor for the project. In April 2013, the water main failed, flooding the health club.

Ace, Equinox’s first-party property insurer, paid Equinox for the damages and sued American to recover these damages. American sought summary judgment, arguing that the waiver of subrogation provision in the contract between Grace and Equinox precluded Ace’s claim.

The relevant contract provision states that:

“The Owner and Contractor waive all rights against … each other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other … for damages caused by fire or other causes of loss to the extent covered by property insurance obtained pursuant to this Section 11.3 or other property insurance applicable to the Work, except such rights as they have to proceeds of such insurance held by the Owner as fiduciary.”

The trial court granted summary judgment in favor of American, finding that the waiver of subrogation in the contract applied to Ace’s claim. Ace appealed.

On appeal, Ace argued that the waiver only applied to claims for damage to the construction work itself and did not apply after the competition of construction. In this case, the damage was to not to the construction work itself – i.e., the “core and shell” of the health club. Instead, the majority of the damage was to the health club’s internal construction and furnishings.Additionally, the water main failed after the completion of construction.

The appellate court affirmed the trial court’s ruling, finding that “Ace misconstrue[d] the basic structure of the contract’s waiver provision.” The court found that the waiver applied to all damages covered by the property insurance regardless of whether the damage occurred after the completion of construction or included damage to work besides the contractor’s work.

The court also rejected Ace’s argument that this broad application of the waiver was inconsistent with AIA form A201’s requirement that the contractor carry liability insurance. The court found that “the subrogation waiver takes precedence over the contractor’s insurance obligation.” The court found that the contractor’s liability insurance served other important functions such as providing an extra layer of coverage beyond the owner’s property insurance and providing protection against injured third parties.

The New Jersey appellate court’s ruling follows the majority position on the scope of the waiver of subrogation in the standard AIA contract. However, a minority of jurisdictions do not recognize a waiver.

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1. No. A-5395-16T4 (N.J. App. Div. April 4, 2019)

By Andres Avila
Saxe Doernberger & Vita, P.C.

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Tennessee’s Supreme Court recently held that an insurer may not withhold repair labor costs as depreciation when the policy definition of actual cash value is found to be ambiguous. Tennessee joins other states like California and Vermont that prohibit the depreciation of repair labor costs in property policies.

In Lammert v. Auto-Owners (Mut.) Ins. Co., No. M201702546SCR23CV, 2019 WL 1592687, the Lammerts and other insureds sought property damage coverage from Auto Owners Insurance for hail damage to a home and other structures they owned in Tennessee.

Auto-Owners Insurance agreed to settle the claims on an actual cash value basis (ACV), which is a method of establishing the value of insured property that must be replaced to determine the indemnity by the insurer. There are multiple methods to calculate ACV. Auto-Owners decided to use the ACV calculation method of deducting depreciation from the cost to repair or replace the damaged property. Depreciation is the decline in value of a property since it was new because of use, age or wear. The rationale behind this method is that an insured should not make a profit by recovering the cost of, for example, a new roof for a damaged roof that was ten years old, and thus depreciation is deducted from the indemnity.

Auto-Owners, however, decided to deduct both the materials and the repair and replace labor costs, as depreciation, when calculating the ACV. Neither of both policies under dispute specifically mentioned that repair labor costs could be depreciated in their ACV definitions. The parties thus disagreed on whether depreciation applies only to the materials or to both materials and repair labor.

One of the policies defined ACV as “the cost to replace damaged property with new property of similar quality and features reduced by the amount of depreciation applicable to the damaged property immediately prior to the loss;” while the other did not define ACV but stated that ACV included a deduction for depreciation.

The insureds argued that depreciation should be limited only to the cost of the replacement materials. In their view, the language “depreciation applicable to the damaged property” eliminates labor costs, which are intangible and cannot be depreciated because they do not age or wear out. The insureds also argued that the “prior to the loss” policy language eliminated labor costs because the costs at issue were post-loss repair costs. Auto-Owners contended that neither policy was ambiguous because depreciation of a property is calculated based on the total replacement cost, which includes both labor and materials.

Allowing Auto-Owners to depreciate the cost of labor would leave the insureds with an out of pocket loss inconsistent with the principle of indemnity of insurance to make insureds whole. However, allowing the deduction may in turn cause a windfall to the insureds, also defeating the purpose of indemnity. The Tennessee Supreme Court sided with the policyholders and solved the dilemma by citing to case law from, among others, Oklahoma, Arkansas, Nebraska and Minnesota, as well as regulations in Vermont, California and Mississippi.

The Court noted that Oklahoma uses the “broad evidence” rule to determine ACV. This method, also followed in New York, allows insurers to consider any and every fact and circumstance that logically tends to a correct estimate of the loss.

Accordingly, in Redcorn v. State Farm Fire & Cas. Co., 55 P.3d 1017, 1020 (Okla. 2002), the Oklahoma Supreme Court ruled that repair labor must be depreciated under the “broad evidence” method.

A decade later, the Arkansas Supreme Court was more persuaded by the dissenters than the majority in Redcorn and concluded that labor was not depreciable because labor does not lose value due to wear and tear over time in Adams v. Cameron Mutual Insurance Co., 2013 Ark. 475, 430 S.W.3d 675 (2013). However, in 2017 the Arkansas legislature abrogated Adams and enacted Arkansas Statute section 23-88-106, which specifically included the cost of labor in its definition of an expense depreciation.

The Tennessee Supreme Court further noted that Nebraska, which also uses the “broad evidence” rule, sided with the Oklahoma Supreme Court majority. It held that property is a combination of materials and labor and thus repair labor costs must also be depreciated from the replacement cost to determine ACV. Henn v. American Family Mutual Insurance Co., 295 Neb. 859, 894 N.W.2d 179 (2017). The court also considered a third approach from Minnesota, which also follows the “broad evidence” rule. In Wilcox v. State Farm Fire & Cas. Co., 874 N.W.2d 780, 785 (Minn. 2016), the Minnesota Supreme Court held that certain labor costs may be depreciable making it an issue of fact rather than law.

The Court then turned for guidance to case law from the federal circuit courts of appeals involving the law of Missouri, Kansas and Kentucky. The Tennessee Court found that Missouri and Kentucky lean towards allowing insurers to deduct repair labor costs as depreciation; while Kentucky, on the other hand, leans towards seeing depreciation as an ambiguous term and thus interpreted against insurers, preventing carriers from subtracting repair labor costs as depreciation.

The Tennessee Court then turned to insurance departments’ regulations of the point in California, Vermont and Mississippi. California (Cal. Code Regs. tit. 10, § 2695.9(f)(1) (2019)) and Vermont (Insurance Bulletin No. 184) prohibit the depreciation of repair and replacement labor. On the other hand, the Mississippi Insurance Department Bulletin 2017-8 declared the absence of a statutory prohibition to labor costs depreciation in that state but that insurers should clearly provide for it in the insurance policy if they intended to do so.

Tennessee acknowledges both the “broad evidence” rule and the replacement-cost-less-depreciation method to determine ACV. The Tennessee Supreme Court was persuaded that, since neither of the policies explicitly stated whether labor costs are depreciable when calculating ACV, there was an ambiguity that had to be interpreted against insurers and in favor of insureds.

This decision in Tennessee serves as a warning that, absent policy language stating otherwise, property insurers cannot depreciate repair labor costs when calculating the ACV of a property using the replacement cost less depreciation method in Tennessee.

By Kerianne E. Kane
Saxe Doernberger & Vita, P.C.

What do you do when your house falls out from underneath you? Over the last few years, homeowners in northeastern Connecticut have been suing their insurers for denying coverage for claims based on deteriorating foundations in their homes. The lawsuits, which have come to be known as the “crumbling concrete cases,” stem from the use of faulty concrete to pour foundations of approximately 35,000 homes built during the 1980s and 1990s. In order to save their homes, thousands of homeowners have been left with no other choice but to lift their homes off the crumbling foundations, tear out the defective concrete and replace it. The process typically costs between $150,000 to $350,000 per home, and homeowner’s insurers are refusing to cover the costs. As a result, dozens of lawsuits have been filed by Connecticut homeowners in both state and federal court.

Of those cases, three related lawsuits against Allstate Insurance Company were the first to make it to the federal appellate level.[1] The Second Circuit Court of Appeals was tasked with deciding one common issue: whether the “collapse” provision in the Allstate homeowner’s policy affords coverage for gradually deteriorating basement walls that remain standing.

The Allstate policies at issue were “all-risk” policies, meaning they covered “sudden and accidental direct physical losses” to residential properties. While “collapse” losses were generally excluded, the policies did provide coverage for a limited class of “sudden and accidental” collapses, including those caused by “hidden decay,” and/or “defective methods or materials used in construction, repair or renovations.” Covered collapses did not include instances of “settling, cracking, shrinking, bulging or expansion.”

Under Connecticut law, if an insurance policy’s terms are “clear and unambiguous,” then courts will give the terms their ordinary meaning. If the terms are ambiguous, however, courts will construe the language in favor of the insured. The homeowners argued that under Connecticut Supreme Court precedent, the term “collapse” is ambiguous, because it includes not only sudden catastrophe, but also the type of gradual deterioration occurring in the foundations of their homes.

The homeowners principally relied on the Connecticut Supreme Court’s decision in Beach v. Middlesex Mutual Assurance Co.[2] In Beach, the plaintiffs sought coverage from their homeowner’s insurer for a crack in the foundation of their home, caused by a “collapse” within the terms of the policy. The insurer denied that a collapse had occurred and argued that the crack was caused by “settlement of earth movement,” a type of loss excluded under the policy. The homeowners argued that because “collapse” was not defined in the policy, it was ambiguous because it could include both a catastrophic breakdown, as well as a gradual breakdown based on loss of structural strength. The Connecticut Supreme Court agreed, finding that the term “collapse,” left undefined, encompasses “substantial impairment of the structural integrity of a building.” As a result, the court construed the term in favor of the homeowners, noting that if the insurer intended for the definition of “collapse” to be limited to a sudden and complete catastrophe, it had the opportunity to expressly include such a limited definition in the policy.

The Second Circuit Court of Appeals was not persuaded, however, that Beach was controlling, and found that the policy at issue in Beach was easily distinguishable from the Allstate policies, which included qualifying terms to define covered collapses as “entire,” “sudden” and “accidental.” The Court of Appeals explained that by including these terms, it was expressly clear that Allstate intended for covered collapses to be limited to abrupt, unexpected collapses. As a result, the Court concluded that the damages sustained by the homeowners were not covered under the policies, because not only was the gradual erosion and cracking of the foundations not “sudden” or “accidental,” but “cracking” was expressly excluded from the definition of collapse.

These decisions are a perfect example of the significance of policy terms and definitions, which can vary greatly from one insurance carrier to the next, and the impact that they can have on potential claims. The likelihood of success for the countless crumbling concrete cases still pending in Connecticut courts will largely depend on the specific terms of each policy, and the manner in which terms like “collapse” are defined or otherwise qualified.

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1 The three cases are Valls v. Allstate Insurance Co., 919 F.3d 739 (2d Cir. 2019); Carlson v. Allstate Insurance Co., Case No. 17-3501, 2019 WL 1466935 (2d Cir. April 2, 2019); and Lees v. Allstate Insurance Co., Case No. 18-007, 2019 WL 1466939 (2nd Cir. April 2, 2019).
2 Beach v. Middlesex Mutual Assurance Co., 205 Conn. 246, 532 A.2d 1297 (1987).
3 Valls, supra, at 744 (quoting Beach v. Middlesex, 205 Conn. at 253).

A web post by Glen A. Murphy for Spilman Thomas & Battle addresses potential issues and concerns that may arise between general contractors, subcontractors and their insurers when claims by outside parties (also known as third-parties) may arise.

Murphy explains:

When a General engages a Sub to perform work on projects, the parties should always reduce their expectations and agreements to a written document in which both sides agree and acknowledge the terms. These documents may go by many names, but they are contracts that bind the parties to the terms. It is a common component of these agreements for the businesses or organizations to take on the liability of another entity, which they might normally not otherwise have. This form of agreement, where one party takes on or assumes the liability of another party by contract, is commonly called a “hold harmless” or an “indemnity” agreement.

Read the article.

A recent ruling provides an unfortunate example of what can happen when a contractor does not consider commercial general liability when making strategic decisions throughout the process of investigating and repairing construction defects, writes William Bennett in a web post for Saxe Doernberger & Vita.

The post continues:

The Southern District of California recently held that a series of demands for a general contractor to investigate and repair several construction defects at a U.S. Army facility did not constitute a “suit” within the meaning of the general contractor’s commercial general liability (“CGL”) policy.

In Harper Construction Co., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., the U.S. Government hired Harper Construction Company (“Harper”) to construct a U.S. Army training facility for the Patriot Missile System in Fort Sill, Oklahoma. No. 18-cv-00471-BAS-NLS (S.D. Cal. Mar. 28, 2019). During the project, Harper hired Harper Mechanical Contractors (“Harper Mechanical”), an independent company, as a subcontractor “to perform demolition, grading, and other work at the Project.”

After Harper completed the project, the government informed Harper of property damage at the project, “including, but not limited to, gypsum wallboard cracks and binding doors.” Harper attempted to repair the issues, but the problems continued. The issues were apparently the result of Harper Mechanical’s grading work. Subsequently, the government sent two letters requesting an investigation and asking Harper to “propose a plan to correct the issues.” As Harper undertook an investigation spanning multiple years, the government became increasingly frustrated with the delays. The government threatened to initiate “formal administrative recourse” and to demolish the project, forcing Harper to re-build from the ground up. It also sent Harper another letter requesting Harper submit a formal proposal to correct the issues.

Harper’s general liability carrier was National Union Fire Insurance Company of Pittsburgh, PA (“National Union”). Harper Mechanical was listed as an additional insured on Harper’s policy. Four years after the government’s first notification to Harper of the issues with the project, Harper’s broker submitted a claim to National Union. The broker noted that Harper was seeking additional insured coverage for Harper Mechanical under Harper’s own policy for investigation and repair costs resulting from Harper Mechanical’s work.

National Union issued a reservation of rights letter and sought more information from Harper. The parties corresponded for the next year and half, until National Union issued a denial letter indicating that there was not a “suit” against Harper seeking damages because of “property damage,” based on the policy’s definition of “suit.”

The policy contained the standard ISO CGL definition of “suit,” which is defined, in pertinent part, as “a civil proceeding in which damages because of … ‘property damage’ to which this insurance applies are alleged. ‘Suit’ includes: … b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.”

Harper sued National Union. National Union moved for summary judgment. In opposition, Harper argued that the government’s demand constituted a “suit” because the demand falls within the Contract Disputes Act (“CDA”), which includes administrative and court proceedings and qualifies as “any other alternative dispute resolution proceeding” under the policy definition. The CDA applies to “contracts made by an executive agency for, among other things, the procurement of construction … of real property.”

The court acknowledged that the CDA applied to the contract, given the Army’s status as an executive agency. However, the CDA does not automatically consider all disputes to constitute a “claim.” A dispute does not become a “claim” unless one of the contracting parties issues a “[w]ritten demand or written assertion … seeking … the payment of money in a sum certain,” at which point “each claim by the Federal Government against a contractor relating to a contract shall be the subject of a written decision by the contracting officer.” Without the claim being “submitted for a written decision by the contracting officer, which is the first step in the dispute resolution process under the CDA,” the court determined that there was “no evidence that Harper was faced with a “civil proceeding in which damages … are alleged” or “any other alternative dispute resolution proceeding,” as required by the policy’s definition of “suit.” The court also noted that there was no evidence that National Union had consented to any of the processes involved in the dispute, which is a further requirement of the definition of “suit.”

The court granted summary judgment for National Union based on the conclusion that the CDA demands did not constitute a “suit.” This case is an unfortunate example of what can happen when a contractor does not consider coverage when making strategic decisions throughout the process of investigating and repairing construction defects. The result could potentially have been favorable for Harper had it notified National Union early (and often) of the issues, involved coverage counsel to work with its defense and/or general counsel to strategize about how to cast the proceedings as a “suit” under the CDA, and followed the proper channels under the CDA to solidify its position that the parties were involved in ADR proceedings under existing California law.

Entering into a clearly drafted lease agreement at the outset of the relationship helps to set expectations, which minimizes the possibility of disputes over how the lease should be interpreted, writes Eric J. Remington for Ward and Smith.

The article lists some of the issues that can often result in disputes in commercial leases.

It also examines a recent opinion that addresses insurance and liability clauses and provides guidance on how courts should interpret insurance and liability provisions in commercial leases.

Read the article.

A Miami-based personal injury attorney, a prostate cancer survivor, sued his health-care insurance provider in April, accusing it of wrongfully denying him and potentially thousands of other men coverage for a lifesaving prostate cancer treatment.

Richard Cole has had a hard time finding a judge to hear his case, if only because they all keep recusing themselves, reports The Washington Post.

Then one judge, who also felt he had to recuse himself and who was a prostate cancer survivor himself, made it clear how he felt about the case. In his recusal order, U.S. District Judge Robert N. Scola Jr. wrote “To deny a patient this treatment, if it is available, is immoral and barbaric.”

Read the Post article.

The 5th U.S Circuit Court of Appeals has affirmed a 2016 jury verdict and 2017 trial court judgment that ultimately awarded $9.5 million to a Dallas-based health care company, according to a post on the website of Androvett Legal Media & Marketing.

In a majority opinion, the appellate court found that BlueCross BlueShield of Louisiana failed to properly reimburse Encompass Office Solutions for in-office medical procedures, and distributed a defamatory letter to physicians with false information regarding the company and its services. That letter threatened to terminate the network contracts of doctors who continued to work with Encompass.

Subsequent to the opinion in the case, the court has denied a motion for rehearing.

A trial team from Thompson & Knight LLP represented Encompass throughout the district court hearings and before the 5th Circuit.

“This case has a lengthy history spanning several years, and we’re pleased that finally Encompass will be properly compensated for the services it provided and the damages the company has incurred,” said Jennifer Rudenick Ecklund, a trial partner at Thompson & Knight who argued the case before the trial court and 5th Circuit. The judgment remains subject to the awarding of interest and legal fees to Encompass.

Other members of the Thompson & Knight trial team included William L. Banowsky, Andrew C. Cookingham, Greg W. Curry, Richard B. Phillips, Jr. and Reed Randel.

Encompass provides mobile ambulatory surgery services that allow doctors to safely perform surgeries in their offices. Encompass’s business is primarily focused on women’s health, allowing patients to have sensitive gynecological procedures done in the comfort and safety of the doctor’s offices while providing the necessary anesthesia care. This method reduces the infection risks associated with hospitals and ambulatory surgery centers, and provides both doctors and patients with a more efficient and cost-effective means of delivering medically necessary surgical care.

Ira Meislik of Meislik & Meislik, writing in the firm’s Ruminations real estate law blog, examines the use of subrogation clauses in real estate leases in relation to insurance policies.

He states that the term “waiver of subrogation” is a misnomer when it comes to a lease provision.

“It is the insurance policy where the carrier waives its subrogation right. It isn’t the lease that waives an insurance company’s subrogation right. What the lease needs to do is waive claims. Secondarily, but importantly, a lease needs to require each party to have insurance policies that aren’t invalidated by such a waiver of claims,” he explains.

Read the article.

Image by Nick Youngson and Image Creator

Reuters is reporting that New York State’s financial regulator has subpoenaed the insurance broker for President Donald Trump’s family business, citing a person familiar with the matter.

The subpoena came after former Trump lawyer Michael Cohen told Congress the president inflated the value of assets to insurers, according to Reuters reporter Suzanne Barlyn.

The source said the New York State Department of Financial Services issued the subpoena late Monday to Aon Plc, a global insurance broker and risk management firm that works for the Trump Organization. The subpoena seeks files about Aon’s dealing with Trump and Trump Organization since 2009, the person said.

Read the Reuters article.

The Supreme Court of Texas recently ruled in favor of the Texas Windstorm Insurance Association (TWIA) regarding attorney-client privilege in a decision that can benefit insurance companies involved in litigation, reports Androvett Legal Media & Marketing.

The justices determined that attorney-client privilege extended to communications between a TWIA employee and counsel when the employee was serving as an expert witness for the company. The case involved a dispute between the city of Dickinson and TWIA.

Dallas insurance litigator Meloney Perry of Perry Law P.C. says the ruling is significant to Texas because it aligns the state with the federal rules on expert disclosure and production. She notes it also may be of particular benefit to insurance companies.

“This ruling means that underwriters, auto damage personnel and claims handlers may serve as experts without exposing attorney-client communications, even though they are employed by an insurance company involved in litigation,” said Perry. “One side benefit is this could cut costs from having to hire an outside expert.”

Perry says an insurance carrier employee designated with expert knowledge or who signs an affidavit attesting to certain expertise will not have to produce communications with counsel when Texas law applies. However, certain work product documents may not be protected.

“Work product is still subject to being produced, so parties will need to make the determination on a document-by-document basis. If the witness is provided an investigative report which is work product that may not be protected, but the email between the witness and counsel will be.”

Perry adds that if a federal question is being litigated in federal court, the attorney-client privilege is a question of federal common law. In state court and diversity cases filed in federal court, the attorney-client privilege is controlled by that forum’s state law.

Although it is tempting to focus only on state laws when evaluating how a service contract is regulated, the federal Magnuson-Moss Warranty Act (MMWA) provides an important reminder that federal law may be equally as significant, point out Brian T. Casey and Jon L. Gillum of Locke Lord in an article for Warranty Week.

“Although service contracts mirror many of the features of traditional insurance products, most states expressly exclude them from the statutory definition of insurance, and the majority of states go one step further by establishing formal licensing and financial security requirements that govern the sale of service contracts to consumers by service contract provider or obligors,” they explain.

But such contracts also are potentially subject to the MMWA.

Read the article.

A bill filed in the Texas Senate would require home sellers to disclose if their property is in a flood-prone area or if it has already flooded, according to a post on the website of Androvett Legal Media & Marketing.

The legislation from Houston-area Sen. Joan Huffman is meant to prevent a repeat of some of the flooding damage from Hurricane Harvey, when many people learned too late that their homes were built in flood plains or in reservoir areas designed to catch floodwaters.

Dallas insurance attorney Stacy Thompson of Perry Law P.C. said she believes the measure, if adopted, could lead to better insurance coverage for consumers, but would also affect insurance companies.

“Knowledge is certainly power. However, the implications of this bill reach far beyond home ownership,” she said. “Undoubtedly disclosing this information would affect property values, increase insurance premiums and have a lasting effect on the housing market in the coastal counties of Texas. Moreover, the bill would allow insurance companies to gain a better understanding of the risk they are insuring and hopefully offer a better overall product to customers. That would result in better coverage and a better outcome when natural disasters inevitably strike.”

There may be certain circumstances based upon specific policy wording in a commercial general liability insurance policy in which there is coverage for an insured-employer for its vicarious liability arising out of the intentional and excluded conduct of its employees, writes Jeff Collins in an article for Jones, Skelton & Hochuli.

He discusses a case in which the words “the,” “an” and “any” have been assigned significant importance in the case law, and are also at issue in cases examining other liability exclusions.

In the case, a  court held that the phrase “any insured” in an exclusionary clause means something more than the phrase “an insured.”

Read the article.

If Pacific Gas and Electric Company is found liable for the devastating California fires now burning, the company’s customers could be on the hook to pay the bill, or even lead to a PG&E bankruptcy, according to The New York Times.

“Many fires in recent years have been caused by downed power lines serving California’s utilities. State officials have determined that electrical equipment owned by PG&E, including power lines and poles, was responsible for at least 17 of 21 major fires in Northern California last fall. In eight of those cases, they referred the findings to prosecutors over possible violations of state law,” write Times reporters Ivan Penn and Peter Eavis.

Some victims of the latest fires have sued PG&E, alleging negligence and health and safety code violations by the utility company.

Read the NY Times article.

The International Association of Defense Counsel (IADC), an invitation-only global legal organization for attorneys who represent corporate and insurance interests, has published its fourth quarter 2018 Defense Counsel Journal (DCJ) with articles on current trends in the practice of law.

The current DCJ issue’s articles explore asbestos tort reform on the state level, the growth of punitive damages in Anglo-Canadian contract law, and legal hurdles that manufacturers face when launching products in the United States.

In a release, the organization, said the DCJ is a quarterly forum for topical and scholarly writings on the law, including its development and reform, as well as on the practice of law in general. DCJ articles are written by members of the IADC, which is a 2,500-member, invitation-only, worldwide organization that serves its members and their clients, as well as the civil justice system and the legal profession.

The DCJ is available for free and without a subscription via the IADC’s website.

The current DCJ issue is the first to be overseen by new editor and former IADC board member Kenneth R. Meyer, a partner in the products liability practice group at McCarter & English, LLP, in Newark, N.J. The issue also is the first under the leadership of new IADC president Craig A. Thompson, a partner at Venable LLP.

Following are brief summaries of key articles included in the fourth quarter 2018 issue of the DCJ:

— “The More Things Change: Bankruptcy Trust Reform and the Status Quo in Asbestos Litigation” – The article debunks plaintiffs’ lawyers’ arguments that trust transparency reforms would delay litigation, deny compensation to the most sympathetic of plaintiffs, and divest plaintiffs of their traditional control over the trust and tort systems. The authors explain how trust transparency reforms have not delayed litigation and have, in fact, accelerated compensation from the asbestos trusts. The article also describes that, where reforms have been enacted, they have achieved their purpose of fostering communication within the two-tiered system of asbestos compensation so that juries can properly account for all of a plaintiff’s exposures to asbestos.

— “Moving Beyond Uberrima Fides? The General Duty of Honesty in Contractual Performance and Punitive Damage Awards in Anglo-Canadian Contract Law” – The article’s authors suggest that the characterization of punitive damages as “the bane of corporate defendants” has perhaps never been more true under Anglo-Canadian contract law. This article demonstrates that while punitive damages for pure breach of contract are undoubtedly exceptional remedies at common law, they are generally larger and more common than ever before, which marks an extraordinary development in Anglo-Canadian contract law considering that only 30 years ago punitive damages were barred for pure breach of contract.

— “Entering the U.S. Market: Legal Hurdles That Manufacturers Must Overcome” – Investigates the life cycle of a product’s development and marketing and provides insight into some of the most common legal hurdles – especially consumer protection lawsuits – faced by manufacturers entering the U.S. market.

Over the past 15 years, Key Risk Insurance Co. has made multiple trips to courts and before the North Carolina Industrial Commission to argue that Mario Seguro-Suarez has been faking his symptoms from an on-the-job injury and that his benefits should be cut off.

The Charlotte Observer reports documents show that the company disregarded years of medical opinions — including several from its own doctors — that Seguro-Suarez was indeed left disabled from his fall at a Southern Fiber factory. The 2003 head-first fall from 18 feet onto a concrete floor left him disabled.

After years of failing to cut off payments to Seguro-Suarez, the insurance company’s private detective “took what a detective would describe as misleading information to Lincolnton police to accuse Seguro-Suarez of insurance fraud. He was arrested, jailed and later indicted,” reporter Michael Gordon writes.

That attempt drew a withering rebuke from a judge, and now Seguro-Suarez is suing for malicious prosecution.

Read the Charlotte Observer article.