“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


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

Washington Federal Court Confirms That EPA General Notice Letters Trigger the Duty to Defend

The United States District Court for the Western District of Washington recently held that several insurers breached their insurance contracts when they refused to defend their insureds against letters from the EPA and the Washington State Department of Ecology identifying them as potentially liable parties at a Washington Superfund site. King Cty. v. Travelers Indem. Co., No. 2:14-cv-01957-BJR, Order Granting in Part and Denying in Part King County’s Motion for Summary Judgment and Denying Travelers’ Motion for Summary Judgment (W.D. Wash. Feb. 10, 2017) (“Order”). While some Washington court of appeals and federal court decisions under Washington law have approached this holding, this is the first clear decision on this point under Washington law. Continue Reading

Washington Supreme Court Narrows Scope of the Insurance Fair Conduct Act

In a decision issued last week, the Washington Supreme Court narrowed the possible relief available to policyholders who are harmed by insurer misconduct, holding that a claim cannot be brought under the Insurance Fair Conduct Act based on claims handling, unless there has been an actual denial of coverage.

In 2007, Washington enacted the Insurance Fair Conduct Act (the “IFCA”) which gives insureds a statutory “bad faith” cause of action against insurers who unreasonably deny coverage. On its face, the IFCA broadly addresses unfair insurer practices. Since enactment, however, Washington courts have been split as to the scope of the law. Policyholders and insurers have hotly contested whether unfair claims-handling practices and regulatory violations are actionable under the IFCA, or whether the law requires an unreasonable denial of coverage. In its recent decision, Perez-Crisantos v. State Farm Fire & Casualty Co., the Washington Supreme Court answered the question in favor of insurers, holding that the IFCA creates a private cause of action only when an unreasonable denial of coverage has occurred.

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