Traub Lieberman Partners with Aspen Re to Publish White Paper on Impact of Climate Change on the (Re)insurance Market

Traub Lieberman Straus & Shrewsberry LLP Senior Counsel Adam D. Krauss has just published a new white paper in conjunction with Aspen Re on climate change and its impact on the (re)insurance market.

In the piece, titled “Climate Change and the (Re)insurance Implications,” Krauss takes a comprehensive look at the issues surrounding climate change, including the science, data, litigation, cost and examples of international and national action and insurance implications.

The costs of climate change are increasing and are substantial. 2017 was the costliest year on record for natural catastrophic events, with $344 billion in global economic loss, of which 97% was due to weather-related events. Insured loss estimates from natural catastrophes totaled $140 billion in 2017. While the loss estimates in 2018 improved somewhat to $80 billion, those losses still remained significantly higher than the long-term average.

This dramatic shift to higher losses has implications for the (re)insurance industry, especially those transacting commercial general liability, D&O and property business. Krauss has taken the time to closely examine those implications, while also taking a look at how alternative capital is playing a more prominent role in risk management

“The issue of Climate Change is increasingly permeating virtually every topic of discussion and we do not believe the concern is going to dissipate anytime soon,” said Krauss, a Senior Counsel in the firm’s New York office. “Our goal was to undertake a comprehensive examination of Climate Change, with particular focus on the downstream consequences to the insurance industry. Accordingly, we believe this paper is unique and we trust it will provide a valuable resource for all readers seeking to command an understanding of this important, active and evolving subject.”

The white paper notes that the need for this analysis has never been greater, since climate change is not only about the liability side of the balance sheet. (Re)insurers, as investors, need to appraise existing investment strategy including fossil fuel and renewable energy companies to help mitigate the projected impact of climate change.

“We look forward to continuing this critical dialogue,” added Krauss, “ and welcome the opportunity to assist the insurance industry in all matters of risk surrounding Climate Change.”

To learn more about “Climate Change and the (Re)insurance Implications,” download the full white paper today at:


About Traub Lieberman:

Traub Lieberman Straus & Shrewsberry LLP has achieved a national reputation for excellence in legal representation. Our philosophy is to provide quality legal representation in an expeditious and efficient manner. Our emphasis on client service, as well as our reputation in the legal community, has served our clients and the firm well. Traub Lieberman has been recognized by many, including Martindale-Hubbell, for outstanding legal ability and ethical standards.

Northern District of Illinois Holds Liability for Child Pornography Not Covered By Homeowners Policy

By Kyle Dickinson

The Northern District of Illinois held earlier this week that disgraced former Illinois state representative Keith Farnahan’s homeowner’s insurer is not required to cover Farnahan’s civil liability for child pornography.  The court reasoned that the injury suffered by the claimants was not caused by an “occurrence” and that a penal law exclusion also applied to preclude coverage. 

Farnahan served in the Illinois House of Representatives from 2009 until 2014. On December 5, 2014, Farnahan pled guilty to violating certain criminal child pornography statutes and admitted to possessing images and videos of child pornography.  Two of the children depicted in Farnahan’s collection subsequently filed a civil suit against Farnahan alleging invasion of privacy. Farnahan tendered the suit to his homeowner’s insurer, Citizens Insurance Company of Illinois (“Citizens”), who disclaimed.  Farnahan died in prison in June 2017, and a $2 million civil judgment was entered against his estate later that year.  The claimants then filed suit against Citizens in the Northern District of Illinois to recover the judgment.

Citizens moved to dismiss the claimants’ action, and the court granted the motion. In relevant part, the Citizens’ policy insuring agreement covered “personal injury” only if caused by an “occurrence,” or accident.  While it was undisputed that the claimants suffered “personal injury,” the Court held that the “personal injury” was not caused by an “occurrence” because Farnahan admitted in his criminal case that he “intentionally intruded upon the solitude and seclusion” of the plaintiffs and the injuries therefore were not accidental.  

Additionally, the policy excluded injury “caused by a violation of a penal law or ordinance committed by a violation of a penal law or ordinance committed by or with the knowledge or consent of an ‘insured.’”  The court held that the exclusion unambiguously applied because the claimants’ injuries were caused by a violation of criminal child pornography statutes.

A copy of the court’s opinion can be found at “Erin” and “Jane Doe” as next friend for Minor “Fiona,” v. Citizens Insurance Company of Illinois, 2019 WL 2346980 (N.D. Ill. June 4, 2019).

Brian Bassett and Phil Brandt Prevail On Appeal In Uninsured Motorist Coverage Dispute

On Friday, May 24, 2019, the Illinois Appellate Court, First District, affirmed a summary judgment ruling in favor of an insurance carrier that a police officer injured during a traffic stop was not “using” his police cruiser for liability coverage purposes, nor was he “occupying” the vehicle for uninsured motorist coverage. Traub Lieberman Straus & Shrewsbury Partner Brian Bassett represented the carrier in the circuit court and was assisted by associate Philip Brandt in the appellate court.

The plaintiff, a police officer for the City of Zion, filed a lawsuit against the carrier, which had issued a business auto policy to the municipality. During a traffic stop, the plaintiff parked his police cruiser behind another police cruiser at the scene in a manner to protect other officers already engaged in the traffic stop. The plaintiff exited his cruiser, passed the cruiser parked in front of him, and stood behind the stopped vehicle to serve as a cover officer. There, he noticed through the back window the suspect driver beginning to place the vehicle in gear. He ran toward the driver’s side of the stopped vehicle to pull the officer questioning the suspect driver out of the way. The driver struck the plaintiff as he drove off. When the Zion police apprehended the driver, they discovered the driver did not have insurance covering the vehicle. The plaintiff sought to recover under the carrier’s uninsured motorist provision, but was denied coverage because he was not “occupying” the police cruiser at the time he was injured as required to qualify as an insured under that provision.

The plaintiff argued, in part, that he qualified as a “user” of the police cruiser because he was “using” the police cruiser during the traffic stop to create a safety bubble or zone to shield him and others at the scene from both potential cars approaching from behind and also potential gunfire. The appellate court rejected this argument explaining that “use” of a motor vehicle for liability coverage purposes must be “rationally connected to the purpose of providing transportation or satisfying some other related need of the user.” The appellate court disagreed with plaintiff that using the cruiser as a shield was not a use connected to transportation or a related need.

The appellate court also rejected plaintiff’s argument that he was “occupying” the police cruiser during the traffic stop. The court explained that while it was questionable that the police officer had a “nexus” to the cruiser, he was not in “virtual contact” with the cruiser. In concluding there was no virtual contact, the appellate court considered that the plaintiff was 20-25 feet away from his cruiser at the time of his injuries and was out of the vehicle for approximately 30 seconds. As the plaintiff was unable to establish at least the “virtual contact” requirement to show he was “occupying” the police cruiser for uninsured motorist coverage purposes, the appellate court held that the circuit court properly granted summary judgment in favor of the carrier.

The decision is Arrington v. Certain Underwriters At Lloyds, London, Subscribing to Policy No.: BGA 300036-02, 2019 IL App (1st) 182345-U.

Traub Lieberman Attorneys Recognized in 2019 Edition of Who’s Who Legal

Traub Lieberman attorneys Richard K. Traub and Richard J. Bortnick have been recognized in Who’s Who Legal Insurance & Reinsurance: Lawyers.

Published by London-based Law Business Research Limited, Who’s Who Legal recognizes the premier legal practitioners in multiple areas of business law. Start in 1996, Who’s Who Legal has recognized over 24,000 private practice lawyers and 2,500 consulting experts from over 150 national jurisdictions across the globe. 

Traub is a founder and co-managing partner of Traub Lieberman who works in a wide array of fields, including construction, pharmaceutical, product manufacturing, technology, insurance and reinsurance. Bortnick is a Partner in the firm’s New Jersey office who counsels clients on cyber and technology risks, exposures and best practices, cyber breach response management and interaction with regulators. He also handles matters involving directors’ and officers’ liability, professional liability, insurance coverage, and commercial litigation matters.

To read more about this recognition, please click here.

About Traub Lieberman:

Traub Lieberman Straus & Shrewsberry LLP has achieved a national reputation for excellence in legal representation. Our philosophy is to provide quality legal representation in an expeditious and efficient manner. Our emphasis on client service, as well as our reputation in the legal community, has served our clients and the firm well. Traub Lieberman has been recognized by many, including Martindale-Hubbell, for outstanding legal ability and ethical standards.

Illinois Appellate Court Addresses Insurer-Insured Conflict of Interest Created By Allegations of Punitive Damages

By Jason M. Taylor

Recently, in Xtreme Protection Services., LLC v. Steadfast Ins. Co., 2019 IL App (1st) 181501 (May 3, 2019), the Illinois Appellate Court addressed whether and when allegations of punitive damages not covered by an insurance policy are sufficient to create a conflict of interest entitling an insured to independent counsel.  In the underlying complaint the plaintiff alleged that he suffered damages when the insured’s employee placed listening devices in plaintiff’s office, attached GPS devices to his vehicles, and sent threatening or harassing text messages.  The complaint sought “not less than” $120,000 in compensatory damages and $2.1 million in punitive damages against the insured.  The insured had a policy with Steadfast that excluded coverage for “intentional, criminal, fraudulent, malicious or dishonest” acts.  Steadfast, however, explicitly waived its right to deny coverage for compensatory damages based on these acts, but it reserved the right to deny coverage of any punitive damages.

Typically, an insurance carrier’s duty to defend also includes the right to defend.  Thus, with the duty to defend comes the insurer’s right to control the defense and protect its financial interest in the outcome of the litigation.  An exception exists, however, where the interests of the insurer and the insured are not aligned creating a conflict of interest.  Generally speaking, when an actual conflict of interest exists between the insurance carrier and its insured, the insured is entitled to select independent counsel of its own choosing, at the insurer’s expense.

In revisiting earlier Illinois case law, the Appellate Court began with the general rule in determining whether a conflict of interest exists: “we compare the allegations in the complaint to the policy and consider whether the insurer’s interests would be furthered by providing a less-than-vigorous defense to those allegations.” Similarly, the court noted that a conflict may exist when the facts to be resolved in the underlying case would allow the insurer-retained counsel to “lay the groundwork” for a subsequent denial of coverage.  Often, conflicts of interest can manifest where an insurance carrier has a duty to defend one claim, but reserves the right to deny coverage for remaining claims that are excluded under the policy.  The Xtreme Protection Court also recognized that a conflict can also exist if the underlying suit seeks punitive damages based on intentional or reckless conduct where the insurer’s policy explicitly denies coverage for such conduct.  In such cases, according to the court, “it is in the interest of the insured to be found negligent because the resulting damages would be covered by the policy, but it is in the insurer’s interest to have a finding that the insured acted intentionally or with malice.” Xtreme at ¶ 21 quoting Nandorf, Inc. v. CNA Ins. Cos., 134 Ill. App. 3d 134 (1st Dist. 1985).

The court cautioned that the Nandorf holding did not mean an insured is entitled to independent counsel whenever the underlying action seeks punitive damages. Rather, in the case before it where “punitive damages formed a substantial portion of the potential liability in the [underlying action] and CNA’s disclaimer of liability for punitive damages left Nandorf with the greater interest and risk in the litigation,” a conflict of interest was created entitling the insured to retain independent counsel paid for by the carrier.  Id. at ¶ 21.  The Xtreme Protection Court also relied upon Mobil Oil Corp. v. Maryland Casualty Co., 288 Ill. App. 3d 743 (1st Dist. 1997), which held that where the compensatory damages claims would likely exhaust the policy limits and there was the potential for a large punitive damages award not covered by the policy, a conflict existed because the insured had an interest to settle the case before trial whereas the insurer “would have lost nothing by letting the case go to the jury.”

Ultimately, to determine whether a conflict existed in the present case, the Xtreme Protection Court compared the allegations in underlying complaint to Steadfast’s policy and considered whether the insurer’s interests “would be furthered by providing a less-than-vigorous defense to those allegations.”  As was the case in Nandorf and Mobil Oil, the underlying complaint sought a substantially greater amount of punitive damages than compensatory damages, but the policy explicitly deniedcoverage for punitive damages, and the carrier did not waive its reservation of rights regarding punitive damages.  Based on the allegations and nature of underlying conduct, the Appellate Court found that an award of punitive damages was not inconceivable.  “Where punitive damages form a substantial portion of the potential liability in the underlying action and Steadfast disclaims liability for punitive damages, Xtreme is left with the greater interest and risk in the litigation. Therefore, a conflict of interest exists, entitling Xtreme to obtain independent counsel paid for by Steadfast.” Id. at ¶ 29.  Additionally, the Appellate Court reasoned that because the insurer denied coverage for punitive damages, it had little interest in defending against Plaintiff’s claims for punitive damages, further supporting the court’s analysis of a conflict.

The decision in Xtreme Protection is important in providing additional guidance to carriers as to whether and when allegations of punitive damages can create a conflict of interest entitling the insured to independent counsel.  First and foremost, the Appellate Court reaffirmed that a reservation of rights or denial of coverage based solely upon an award of punitive damages may create a conflict of interest between an insured and its insurer, although that should not always be the case.While the Appellate Court did not offer a specific formula for determining such a conflict, where uncovered punitive damages form a “substantial portion of the potential liability” in the underlying action, and the insured is left with the greater interest and risk in the litigation, a conflict of interest will exist.  Of course, like so much in coverage, where to draw that line is not so clear cut.

New Jersey Supreme Court Holds Appellate Division Decision Was Inconsistent With New Jersey’s No Fault Statutes and Rejects Plaintiff’s Attempt To Recover Medical Bills In Excess Of Their Applicable PIP Policy Limits

By Lyndsay Ganz

On March 26, 2019 the Supreme Court of New Jersey reversed the Appellate Division’s decision in Haines v. Taft, 450 N.J. Super. 295, (App. Div., 2017), wherein the Appellate Division concluded that plaintiffs were entitled to introduce evidence of outstanding medical bills in excess of their selected automobile PIP policy limits.

The underlying appeal was a consolidated action wherein both plaintiffs were seeking to recover medical expenses in excess of their personal injury protection (PIP) limits set forth in their respective automobile policies.  Both plaintiffs were insured under a standard automobile policy that provided $15,000 in PIP coverage instead of the default amount of $250,000. Pursuant to New Jersey’s Limitation on Lawsuit Threshold, neither plaintiff could sustain a claim for non-economic damages. Thus, their claims were proceeding solely for medical expenses in excess of their PIP coverage.

Pursuant to N.J.S.A. 39:6A-12, “evidence of the amounts collectible or paid under a standard automobile insurance policy and amounts collectible or paid for medical expense benefits under a basic automobile policy… is inadmissible in a civil action for recovery of damages for bodily injury.”  Relying on N.J.S.A. 39:6A-12 (Section 12), each defendant filed a pre-trial motion to preclude plaintiff from presenting evidence of medical expenses that exceeded their $15,000 PIP limits.  The Trial Court granted defendants’ motions and plaintiffs appealed. The Appellate Division concluded that the statutory language indicating “amounts collectible or paid under a standard automobile insurance policy” did not refer solely to the $250,000 maximum PIP coverage available but included the lesser amounts that were available including $15,000 PIP limits. Haines, at 302, 162 A.3d 296. Consequently, based on the plain language of N.J.S.A. 39:6A-12 (Section 12), the Appellate Division concluded that plaintiffs were allowed to introduce evidence of medical bills exceeding their $15,000 policy limits. Pursuant to the statute, Plaintiffs “were barred from admitting evidence of medical expenses up to and including their $15,000 PIP policy limit. The Appellate Division concluded, however, that evidence of their medical expenses between $15,000 and $250,000 was not barred by Section 12 and therefore was ‘admissible and recoverable against the tortfeasors.’”Id.

The Supreme Court granted defendants’ petitions for certification, 231 N.J. 179, 173 A.3d 598 (2017); 231 N.J. 155, 172 A.3d 1090 (2017), as well as amicus curiae status to the New Jersey Association for Justice (NJAJ); The Insurance Council of New Jersey (ICNJ), the Property Casualty Insurers Association of America (PCI), and the New Jersey Defense Association (NJDA).

Plaintiffs and their supporters argued that there is only one reading of the applicable statutes and there is no reason to go beyond the plain language of section 12. However, the Supreme Court disagreed with Plaintiffs’ contention and relied upon the legislative history and stated intent supporting New Jersey’s No-Fault laws.

In enacting the Automobile Insurance Cost Reduction Act (AICRA), the Supreme Court determined that our legislature sought to preserve the no fault system while reducing costs and premiums. AICRA allowed insurance options with decreased coverage for lower premiums, i.e. $15,000 in PIP coverage instead of the default amount of $250,000.

“Under the No-Fault Law, the ability to sue is the exception, not the rule. The Legislature has determined that the benefits of creating limited but automatic medical reimbursement for injured motor-vehicle-accident victims outweigh the ability of a minority of injured parties to recover larger amounts in tort.”Id., at *14.

While the Supreme Court reversed the Appellate Division, they also stated that if the Legislature intended to introduce fault-based suits into the no-fault medical reimbursement scheme, they should do so explicitly. Id. “Without greater clarity of statutory language, [the Supreme Court found] any other reading of AICRA results in too large of a shift from the historical priorities and purposes of the statute.”Id.

Notably, the Supreme Court indicated that this case involved plaintiffs that failed to satisfy the Limitation on Lawsuit Threshold. Thus, plaintiffs may argue that while impactful, Haines only instructs on the limited set of circumstances where a Plaintiff fails to satisfy the Limitation on Lawsuit Threshold.  Plaintiffs may also argue that Haines does not apply to plaintiffs involved in an accident with a commercial motor vehicle. The New Jersey Supreme Court has not yet specifically addressed the issue of whether a Plaintiff in an accident with a commercial vehicle or a plaintiff whom satisfies the Limitation on Lawsuit Threshold would be able to pursue medical bills in excess of their chosen PIP policy limit. However, it appears that the Supreme Court would extend Haines to those situations as well, reasoning that the Legislature has never indicated an intent to introduce fault based claims into the No Fault system.


Haines v. Taft, No. 079600, 2019 WL 1339479, (N.J. Mar. 26, 2019).

Illinois Court Addresses Coverage Owed For Subcontractor’s Defective Work

By Brian Bassett

In Acuity Ins. Co. v. 950 W. Huron Condo. Ass’n, 2019 IL App (1st) 180743, the Illinois Court of Appeals held that a claim against a subcontractor for damage caused to property outside the scope of its work satisfied the insuring agreement of a CGL policy.

The condominium association for the building located at 950 West Huron Street in Chicago, Illinois (“the Association”), sued its general contractor and construction manager Belgravia Group, Ltd., and Belgravia Construction Corporation (collectively “Belgravia”). The Association sought to recover for alleged defects from Belgravia’s unworkmanlike construction of the building that permitted water to permeate and cause damage.

In the Association’s complaint, it alleged that in June 2002, after the Association took possession of the building but prior to the completion of construction, Belgravia became aware of numerous conditions and defects, including extensive water infiltration of the building. After discussing the issues with Belgravia, the Association claimed that Belgravia retained contractors to provide cosmetic fixes. However, this did not address the problems and defects. The Association alleged that it spent a substantial amount of money to identify and correct the damage and that it would incur additional costs for future repairs.

Belgravia, in response, filed a third-party complaint containing multiple counts of breach of contract and negligence against all subcontractors that worked on the building, including the carpentry subcontractor Denk & Roche Builders, Inc. (“Denk & Roche”). Belgravia alleged that if it was found liable to the Association for any amount, then its liability was due to the defective work performed by Denk & Roche. Denk & Roche held consecutively issued commercial general liability insurance policies with two insurers, Cincinnati Insurance Company (“Cincinnati”) and Acuity Insurance Company (“Acuity”), during the relevant period.

Denk & Roche tendered its defense to both of its insurers. Cincinnati agreed to defend it and represented Denk & Roche in a settlement of the construction claims. However, Acuity denied that the allegations against Denk & Roche triggered its duty to defend under its CGL policy, and filed suit seeking a declaration to that effect – naming Denk & Roche, Belgravia, and the Association as defendants. Cincinnati intervened and filed a third-party counterclaim against Acuity, seeking declarations that Acuity owed Denk & Roche a defense, and that Acuity therefore owed Cincinnati equitable contribution.

The trial court granted summary judgment for Acuity and denied judgment for Cincinnati, finding that the allegations of the underlying complaints did not allege damages caused by an “occurrence,” and because Acuity did not owe a duty to defend, Cincinnati was not entitled to equitable contribution.

In reversing, the court repeatedly referenced the decision in Milwaukee Mut. Ins. Co. v. J.P. Larsen, Inc., 956 N.E.2d 524 (1st Dist. 2011).  In Larsen, the 1st District Court of Appeals held that damage to other materials not provided by the insured constituted both “property damage” and an “occurrence,” triggering coverage under a CGL policy.  In the instant case, Acuity emphasized that it is completely foreseeable that a construction defect would cause damage to other elements of the project and that such natural and ordinary consequences of defective construction cannot be treated as an “occurrence” under a CGL policy. However, as the court recognized in Larsen, even though there is no occurrence when a subcontractor’s defective workmanship necessitates removing and repairing work, damage to something other than the project itself does constitute an occurrence under a CGL policy.

The 1st District Court of Appeals, applying Larsenand several other Illinois cases, stated that when an underlying complaint alleges that a subcontractor’s negligence caused damage to occur to a part of a construction project outside of the subcontractor’s scope of work, this constitutes an occurrence under CGL policy language. The court further stated that the reasoning in Larsenis consistent with the well-settled precedent that when a complaint alleges an insured contractor’s faulty workmanship caused damage to other property, there is a duty to defend.  The did note, however, that a similar claim against a general contractor or developer of a project would have forced a different result, as the entire building is part of their project.

The court also rejected Acuity’s argument that Cincinnati could not pursue a claim in equitable contribution for reimbursement of defense costs.  Acuity argued that because the parties’ two policies were consecutive, as opposed to concurrent, the policies insured different risks and equitable contribution was unavailable.  The court found that the policies sufficiently covered the same risk from a duty to defend perspective to allow the equitable contribution claim.

Accordingly, the Appellate court reversed the summary judgment ruling for Acuity, holding that the claims against Denk & Roche were within, or potentially within, Acuity’s policy coverage that entitled the subcontractor to a defense from Acuity. As a result, Cincinnati was entitled to equitable contribution from Acuity for undertaking the subcontractor’s defense, with the exact amount being a question for the trial court to answer upon remand.

Illinois Federal Court Grants Summary Judgment To Insurer On Late Notice Defense Despite Finding A Genuine Issue Of Material Fact As To The Insured’s Sophistication

By Jeremy Macklin

The underlying plaintiff, Kyler Moje, played minor-league hockey for the Danville Dashers, a team in the now-defunct Federal Hockey League (“the League”).  During a game on or about February 10, 2012, a player from the opposing team allegedly struck Moje in the face with a hockey stick and thrust the blade of his skate under Moje’s helmet.

Moje filed a lawsuit against the League and the manufacturer of the helmet he was wearing.  On February 6, 2014, Moje served the Commissioner with the lawsuit. At the time the Commissioner was served, he “believed the policy would provide coverage” for the lawsuit but that it was not worth contacting National Casualty about the lawsuit because the claim did not involve “substantial losses.”  Instead of contacting National Casualty, the Commissioner hired a New York attorney (a solo practitioner) to defend the lawsuit.  The New York attorney prepared a general denial, but he never filed the pleading or an appearance. 

On May 14, 2014, the court entered a default against the League.  On June 11, 2014, the court held a hearing at which Moje proved up his damages, and the court entered a default judgment against the League in the amount of $800,000. The Commissioner did not learn about these events until October 9, 2014, at which time he notified National Casualty of the default judgment.  National Casualty reserved its rights to deny coverage, but retained an attorney to set aside the default, which was denied.  The Seventh Circuit upheld the district court’s denial.   

Moje then filed a declaratory judgment action against National Casualty Company, the insurer for the League and the League’s Commissioner, along with policy producer The David Agency Insurance, Inc. (the claims against The David Agency for failure to procure insurance are not addressed in this summary).  While Moje argued that the National Casualty Policy provides coverage for his injury, National Casualty asserted several policy provisions to dispute coverage.

National Casualty argued unreasonable notice as a bar to coverage and moved for summary judgment on that issue.  In its ruling, the district court examined the five factors set forth in West American Insurance Co. v. Yorkville National Bank, 939 N.E.2d 288 (Ill. 2010): (1) the specific language of the policy’s notice provision; (2) the insured’s sophistication in commerce and insurance matters; (3) the insured’s awareness of an event that may trigger insurance coverage; (4) the insured’s diligence in ascertaining whether policy coverage is available; and (5) prejudice to the insurer.

With respect to factor (1), the policy at issue required the insured to provide notice to National Casualty “as soon as practicable of an “occurrence” or an offense that may result in a claim, and also if a claim is made or lawsuit is brought against the insured.  The court held that “as soon as practicable” means within a reasonable time, and that the phrase “reasonable time” refers to the remaining Yorkville factors.  The policy also required the insured to “immediately” provide copies of demands, notices, or legal papers to National Casualty – the court emphasized that the intent of this provision is to ensure that the insurer will be able to timely investigate and defend claims against its insured. 

As respects factor (2), the insured’s sophistication, the court found an issue of fact based on the fact that the Commissioner had no insurance training, had not read the insurance policy, and was never told about the notice requirement sin the policy.  On the one hand, the court held that general liability insurance policies are on the “more complex end of the spectrum of sophistication.”  On the other hand, the court was required to resolve the factual issues regarding the Commissioner’s insurance knowledge in his favor. 

The court found factor (3), the insured’s awareness of an event that may trigger coverage, weighed strongly in favor of National Casualty.  The Commissioner believed that the policy would cover the suit at the time he was served with it, yet he made a strategic decision to hire the New York attorney believing that notifying National Casualty was “not worth it.”  For the same reasons, the court found that factor (4), the insured’s diligence in ascertaining whether policy coverage is available, weighed in favor of National Casualty. 

With respect to factor (5), prejudice to the insurer, Moje argued that National Casualty was given an opportunity to set aside the default judgment but blamed the lawyer hired by National Casualty for the court’s denial of the motion.  Moje argued that the retained attorney built a thin record for the motion to set aside the default judgment by failing to investigate the New York attorney’s reasons for his conduct and by failing to advise the court that the policy might not provide coverage.  The court rejected this argument, holding that Moje did not cite to any evidence supporting his contention that bringing either matter to the district court’s attention would have produced a different outcome.  According to the court, Moje’s focus on a hypothetical motion to set aside the default glosses over the reality that, had it received prompt notice of the summons and complaint, National Casualty would have had the opportunity to prevent the entry of a default in the first place.

The court reasoned that reasonableness of notice is a question of law on undisputed material facts.  After examining the five factors, the court held that the only genuine, material dispute concerned the Commissioner’s level of sophistication.  The court, nevertheless, held that the undisputed evidence makes clear that the Commissioner believed that coverage was available when he received the complaint and summons in February 2014, but he decided to hire the New York attorney for reasons that were his own. In doing so, the Commissioner, and the League, knowingly breached the policy’s notice requirements and deprived National Casualty of the benefit of its bargain.  The court, therefore, granted summary judgment in favor of National Casualty. 

Kyler Moje, Plaintiff, v. Fed. Hockey League, LLC, Nat’l Cas. Co., The David Agency Ins., Inc., & Don Kirnan, Defendants., No. 15-CV-8929, 2019 WL 1399966 (N.D. Ill. Mar. 28, 2019)






Ninth Circuit Finds Policy’s Definition of “Policy Period” Fatal to Insurer’s “Related Claims” Argument

By Jason M. Taylor

Professional liability policies often include some form of a “related claims” or “related acts” provision stating that if more than one claim results from a single wrongful act, or a series of related wrongful acts, such claims will be treated as a single claim and deemed first made during the policy period in which the earliest claim was made.  These provisions can have significant implications on the applicable policy and policy limits, retroactive date issues, and whether such claims were first made and reported during a particular policy period.  Recently, the Ninth Circuit issued a stern reminder of how the particular policy language can effect, and in this case thwart, the intended scope of the carrier’s “related claims” provision.

In Attorneys Ins. Mut. Risk Retention Grp., Inc. v. Liberty Surplus Ins. Corp., 2019 WL 643442 (9th Cir. Feb. 15, 2019), the Ninth Circuit construed a “related claims” provision included in two consecutive lawyers professional liability policies. During both the 2009–2010 and 2010–2011 insurance policy periods, attorney J. Wayne Allen (“Allen”) was insured through his employer by Liberty Surplus Insurance Corporation’s (“Liberty”) professional liability insurance.  Third parties filed suit against Allen during the 2009–2010 policy period in a probate case, and a second, related civil suit during the 2010–2011 policy period.  

The 2010–2011 Policy was a “claims-made and reported policy,” which required that any claim made during the 2010–2011 policy period against the insured be reported during the 2010–2011 policy period. One provision limited Liberty’s liability for multiple related claims and provided, in relevant part:

Claims alleging, based upon, arising out of or attributable to the same or related acts, errors or omissions shall be treated as a single Claim regardless of whether made against one or more than one Insured. All such Claims, whenever made, shall be considered first made during the Policy Period or any Extended Reporting Period in which the earliest Claim arising out of such acts, errors or omissions was first made, and all such Claims shall be subject to the same Limits of Liability.

The earlier probate suit was not reported to Liberty until the second policy period.  When the civil suit was reported to Liberty (within the 2010-2011 policy period in which the claim was made), Liberty declined coverage for Allen in the civil action. Liberty argued that the “related claims” provision in the 2010–2011 Policy limited coverage so that if multiple claims regarding the same set of facts are made against an insured in multiple policy periods, the claims are all considered initially made during the policy period in which the first claim is made.  Here, Liberty argued that by virtue of the “related claims” provision, both the probate case and related civil suit were deemed to have been first made during the 2009-2010 Policy period, when the original probate suit was first made.  Further, because claims must be reported during the policy period in which they are made, Liberty asserted that it had no obligation to defend Allen against the civil action because he failed to report the earlier, related probate claim during the 2009–2010 policy period.  

The District Court rejected Liberty’s argument, and the Ninth Circuit affirmed.  The court’s analysis involved interpretation of one of the 2010–2011 Policy’s defined terms, “Policy Period.” In particular, the 2010–2011 Policy defined “Policy Period” as “the period from the Inception Date of this Policy to the Policy Expiration Date as set forth in the Declarations or its earlier termination date, if any.” The “Declarations” identified the policy period as from July 31, 2010 until July 31, 2011. According to the court, the specific definition of “Policy Period” within the 2010-2011 Policy precluded Liberty’s interpretation of the “related claims” provision.

The District Court reasoned that “[a]dopting Liberty’s interpretation would require the court to give different meanings to the same term used in the same policy, which would run afoul of the rules of contract interpretation.” Rather, the court held that the definition of “Policy Period” necessitated that the “related claims” provision be read to mean any relevant claims will be “considered first made during the Policy Period,” i.e., during the period from July 31, 2010, until July 31, 2011.  In other words,the specific policy language in the 2010-2011 Policy only applied to “related claims” made within the 2010-2011 Policy period and that such claims will be deemed made when the earliest of claims was made during that policy period only, and not the prior policy period.  The Ninth Circuit held that Liberty’s chosen definition of “Policy Period” may create an ambiguity in the meaning of the multiple related claims provision as a whole, but it nevertheless sided against Liberty as any ambiguities in an insurance policy are resolved against the insurer.




Fifth Circuit Addresses When A Law Firm Should Reasonably Expect A Future Claim In Analyzing Policy Rescission

By Brian C. Bassett

In Imperium Ins. Co. v. Shelton & Assocs., 2019 WL 1096336 (5th Cir. March 6, 2019), the U.S. Court of Appeals for the Fifth Circuit addressed when a lawyer’s professional liability policy may be rescinded based on material misrepresentations in an application concerning potential claims against the firm. 

Shelton & Associates, P.A., (“Shelton”) was issued a professional liability insurance policy from Imperium Insurance Company (“Imperium”), on January 24, 2013. Shelton was designated as the “Named Insured” on the policy and the policy’s coverage period extended from February 1, 2013 until February 1, 2014.

The Shelton firm represented Paul Tyler (“Tyler”) and the Estate of Mamie Katherine Chism (“Chism”) in separate suits. In January of 2014, Chism’s estate sued Shelton, alleging that the firm failed to file a claim in multidistrict litigation over deaths attributed to the anti-inflammatory drug Vioxx before a submission deadline passed in 2009. In February 2014, just one month after the Chism action, Tyler’s bankruptcy estate filed a malpractice suit alleging that the firm mishandled a state court case in 2011 and 2012 that had resulted in a $2.9 million judgment against Tyler.

Imperium agreed to provide a defense to the firm subject to a reservation of rights. In May 2014, Imperium filed a declaratory judgment action to determine its responsibilities, if any, under the policy with respect to the two malpractice claims.  Imperium requested that the court allow it to rescind the policy on the basis that the Shelton firm made a material misrepresentation of fact in the insurance application. Specifically, Imperium asserted that Shelton made a material misrepresentation in response to Question 30(b) on the application, which asked “are any attorneys in your firm aware of any legal work or incidents that might reasonably be expected to lead to a claim or suit against them?” The Shelton attorneys responded “No” to this question.

Under Mississippi law, if an applicant for insurance is found to have made a misstatement of material fact in the application, the insurer that issued a policy based on the false application is entitled to void or rescind the policy. A misstatement is deemed material to the risk if knowledge of the true facts would have influenced a sensible insurer in determining whether to accept the risk. 

Imperium asserted that by Shelton’s failure to disclose the potential that a claim for malpractice might be asserted, as required in Question 30(b) of the application, the Shelton attorneys were clearly guilty of making a material misrepresentation. The Shelton attorneys stressed in response that they did not make a material misrepresentation on the insurance application because no one associated with the firm was aware that an underlying suit would be the basis of a malpractice claim.

However, the inquiry was not whether Shelton or the other members of his firm subjectively knew that a specific malpractice action was going to be filed, but whether they subjectively knew of any legal work or incidents that might reasonably be expected to lead to a claim or suit. The district court therefore held that the Shelton attorneys did, in fact, make a misrepresentation in the application for the insurance policy at issue by giving an incomplete or misleading answer to Question 30(b), and that misrepresentation was material, entitling Imperium to rescind the policy.  Additionally, the district court found that even if the policy were to remain in effect, both the Tyler and Chism actions would be excluded from coverage based on the Prior Knowledge Exclusion in the policy.

On petition for rehearing, the Fifth Circuit Court of Appeals confirmed that the district court correctly ruled in Imperium’s favor. The court held that the failure to disclose the Tyler matter was a misrepresentation in the application. “Every reasonable attorney aware of these facts would know that such facts ‘might reasonably be expected to lead to a claim or suit.’” Shelton should have been aware that Tyler may file a malpractice claim after the adverse judgment entered against him resulted from multiple missteps by Shelton, including the firm’s failure to respond to the opposing parties’ summary judgment motion. The Fifth Circuit stated that any reasonable attorney would know that a judgment of $2.9 million entered against his client based in substantial part on the attorney’s failure to respond to, or even show up at, a hearing for a dispositive motion would be reasonably likely to lead to a malpractice claim. 

The court also found that the misrepresentation was “material.” Materiality can be established by showing that, had the insurer known the truth, “the insurer would not have issued the policy at all or would have issued the policy only with a higher premium.” Imperium offered uncontroverted evidence that, if had known the truth, it would have issued the policy with an incident exclusion, would have issued the policy at a higher premium, or would have declined to write the risk at all.  Imperium was therefore justified in rescinding the policy.

The court then stated that because Imperium could rescind the law firm’s policy in its entirety based on the Tyler claim, no coverage was available for the Chism estate’s suit since the rescinded policy was the only policy that would have covered the Chism estate’s malpractice claim. Accordingly, the Fifth Circuit affirmed the district court’s decision permitting Imperium to rescind the policy.