In-House Counsel: Take Care in Contracting for Additional Insured Coverage from Foreign Suppliers

Most businesses, and particularly retailers, require that their suppliers name the retailer as an “additional insured” on the supplier’s general liability policy. This means that if a customer is injured because of the supplier’s product, and the customer sues the retailer, the supplier’s insurance will have to pay to defend the retailer in the lawsuit. Demanding to be added as an “additional insured” is a standard part of contractual risk-transfer in retail, as in most businesses. But two recent rulings demonstrate that “additional insured” coverage may not be worth much – if the supplier’s insurer is outside of the U.S. Companies can try to avoid this problem by revising their contract language.

The first decision, Dick’s Sporting Goods v. PICC, involved a supplier of an inflatable yoga ball to Dick’s, a large sporting-goods retailer. One of the balls burst, injuring a customer, who sued Dick’s. Dick’s demanded that the supplier’s insurer, PICC, defend it, based on Dick’s status as an additional insured. PICC refused. Dick’s sued PICC in Pennsylvania federal court, but PICC moved to dismiss on the basis that the insurance contract required that any disputes be resolved in a court where PICC was located – China. The court agreed. Continue Reading

Lessons in Contracting for Additional Insured Status from New Oregon Case

The dispute in Security National Insurance Company v. Sunset Presbyterian Church, __ Or. App.__ arose out of construction claims involving a church, its general contractor, a subcontractor, and the subcontractor’s liability insurer. In an underlying lawsuit, the church brought claims against the general contractor (Andersen), who brought third-party claims against its subcontractors, including its masonry subcontractor (B&B). In settlement of the claims, Andersen assigned its rights against subcontractors to the church (Sunset).

In subsequent litigation between Sunset and B&B’s insurer (Security National), Security National sought a judgment declaring that it had had no duty to defend Andersen, thus defeating Sunset’s assigned claims. The Oregon Court of Appeals reversed the trial court, and held that Security National did have an obligation to defend. Continue Reading

“Contractors Special Conditions” Endorsement Sets Traps for Policyholders and Defense Counsel

An endorsement that has become common in general contractors’ insurance policies can function as a trap for both the policyholder and defense counsel. The “Contractors Special Conditions” endorsement requires that the policyholder must have written contracts with each subcontractor that it uses on a project, and that those agreements must meet certain requirements. If there is a loss involving those subcontractors, and if contract conditions were not met, the insurer may deny coverage. The problem, of course, is that if the policyholder does not read the policy before the loss, and didn’t get the right contracts in place, there may be no way to “cure” the problem. And defense counsel may be put in a bind as well when they are asked to report to the insurer.
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Miller Nash Graham & Dunn Represents United Policyholders on Pollution Exclusion in Ninth Circuit

We are honored to represent United Policyholders (a non-profit advocacy organization for policyholders) on an issue of great concern to many of our commercial clients, and in particular those in the construction industry: the scope of the so-called “absolute pollution exclusion.” Our amicus brief to the Ninth Circuit for UP on the issue was filed on November 2 and is available here.

As my colleague Frank Langfitt explained here, earlier this year a federal trial judge in Oregon, in the case Colony Insurance v. Victory Construction, interpreted the exclusion very broadly, holding that almost any substance could be a “pollutant.” In that case, a spa and pool contractor was sued because a pool heater allegedly allowed carbon monoxide to build up, causing bodily injury to a home’s occupants. The court held that the insurer had no duty to defend the contractor because carbon monoxide—a naturally occurring substance that was not being handled by the contractor—was a “pollutant.”

Victory Construction chose to appeal to the Ninth Circuit and United Policyholders asked us to represent it as amicus curiae, in order to present the concerns of policyholders generally that the pollution exclusion—as interpreted by insurers—is so broad that it could apply to almost any substance, contrary to the interpretation of ordinary purchasers of insurance and undermining the purposes of general liability coverage. In addition, we addressed the recent Xia decision (which we previously wrote about here), in which the Washington Supreme Court adopted an entirely different approach to this exclusion (and exclusions in general), partially to avoid the tremendously harsh results of the insurance industry’s view of the exclusion.

UP is on the front lines (literally) of the issues of greatest concern to policyholders—including conducting education and training sessions for victims of wildfires and hurricane damage—and it is a privilege to represent such a great organization.  This is the third amicus brief that we have done for UP in either the Oregon state courts or the Ninth Circuit.

Insurance Coverage Can Help Businesses Impacted by Wildfires or Hurricanes

Many Northwest businesses are being impacted by the wildfires close to home, and also by the hurricanes that have or will hit Texas, Florida and other Gulf states. Can commercial insurance help to mitigate losses from these natural disasters? In many cases, yes.

“All risk” property-insurance (fire) policies may provide coverage for property damage from wildfires, including damage to facilities, equipment, and sometimes stock and inventory. Wildfires and other natural disasters may also disrupt operations and force temporary closures. In that case, business income (also called “business interruption”) insurance, including civil authority coveragemay cover lost profits and related costs. And, if your company was not directly impacted, but was unable to procure parts or make shipments because of wildfire or hurricane, contingent business interruption coverage may apply.

The devil is often in the details with this kind of coverage. This post will outline some things that business owners and their advisers should look out for in common scenarios.

My company property was damaged by wildfire – what coverage might I have?  Continue Reading

Considering Cyber-Insurance After “WannaCry”? Here Are Things to Consider

Many businesses that previously resisted the urging of their insurance broker or (ahem) legal counsel to buy cyber-insurance are now re-thinking that strategy in the wake of the “WannaCry” ransom-ware attack that has been in the news.  The damage in the U.S. was apparently minimized by quick-thinking security specialists in the UK, but the attack reportedly caused considerable disruption in Europe – although the total amount of the ransom payments has (so far) been small.  The publicity, however, has all businesses asking good questions about where they stand.  When you talk to your broker to buy cyber coverage, or review your current insurance, keep a few things in mind. Continue Reading

Important Policyholder Win in the Oregon Court of Appeals: Contractors—This Is Good News

On May 10, 2017, the Oregon Court of Appeals made several significant holdings in the appeal of an insurance policy garnishment proceeding. The court of appeals held that a liability insurer’s exclusion for multi-unit new residential construction was ambiguous and, when construed against the insurer, did not apply to defeat coverage for construction-defect claims in a mixed-use development. The result was especially gratifying because the insurer had refused to defend its subcontractor insured, against which a default judgment had been entered. The court of appeals also held that attorney fees awarded to an indemnitee for defending a construction-defect claim were covered by a liability insurance policy, either as damages or as costs taxed against the insured. Finally, the court of appeals held that a party is entitled to a jury trial on factual issues in an insurance policy garnishment proceeding and that an Oregon statute allowing a bench trial is unconstitutional. Continue Reading

Reducing Uninsurable Risks Part 1: Reputation—A Guest Post

Note: In the following guest post, Rob Fleming of the Clark Nuber consulting firm provides some guidance on how to manage one of the many “uninsurable” risks: reputational harm. We appreciate Rob’s willingness to contribute a guest post to our blog! – Seth

Introduction

Companies face complex risks each and every day. Not all of these risks are mitigated by insurance products. Risk managers face an increasing universe of risks that are not really insurable. Natural disasters, loss of a key decision maker or cyber-attacks can be insured against—but how do companies minimize exposure for new regulations, new presidential executive orders, or changes in the political or economic landscape? And how can companies respond when these events are often happening at the same time?  Continue Reading

In Extraordinary Ruling, Washington Supreme Court Applies “Efficient Proximate Cause” Rule to Liability Coverage Dispute

On April 27, the Washington Supreme Court created a significant new wrinkle in how courts will approach liability insurance disputes involving policy exclusions. In Xia v. ProBuilders Specialty Insurance Co. RRG, the Court applied the “efficient proximate cause” rule to a third-party liability case for the first time, a move that may effectively render most policy exclusions unenforceable. The Court further held that the insurer’s failure to anticipate this new approach to evaluation of the coverage question in denying coverage constituted bad faith.

The facts of the case are not unusual. Xia purchased a new home built by contractor Issaquah Highlands. She fell ill shortly after moving in. When a Puget Sound Energy service technician was called to the home months later, he discovered that the exhaust vent for a hot water heater had been improperly installed, with the result that carbon monoxide was being pumped directly into Xia’s home. Continue Reading

BEWARE—The Pollution Exclusion Is Alive in Oregon

Contractors, builders, real estate managers, and others should be aware of a March 9, 2017, decision by an Oregon federal judge who found that carbon monoxide is included in the plain meaning of “pollutant” as defined in a liability insurance policy. As a result, an insured contractor had no coverage for its faulty work.

In Colony Ins. Co. v. Victory Constr. LLC, U.S. District Court, Oregon, Case No. 3:16-cv-00457-HZ, Colony Insurance sought a declaratory judgment that it had no duty to defend and indemnify Victory Construction in two state court personal-injury lawsuits. The defendant, Victory, installed a pool and was alleged to have been negligent in the installation and ventilation of a gas heater, resulting in the escape of carbon monoxide into a home, causing the residents to be sick. Victory was insured by Colony, which denied coverage for the residents’ ensuing claims. Colony’s Commercial General Liability Insurance Policy contained a Hazardous Materials Exclusion, i.e., a pollution exclusion. The policy defined “hazardous materials” as: “‘pollutants’, lead, asbestos, silica and materials containing them.” The definition of “pollutants” included “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” The court concluded that because carbon monoxide clearly fell within the definition of a pollutant, there was no coverage. Continue Reading

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