The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | June 1, 2017 • 4 min read

Insurer Must Pay $13.5 Million

On Feb. 7, 2010, a gas blow operation was being performed at the Kleen Energy Systems power plant in Middletown, Conn.

As part of the operation, a large amount of natural gas was vented into areas where welding and other work was being performed. An explosion killed six workers and injured 50 others.

The injured workers and the estates of the deceased obtained a $13.5 million judgment against subcontractor Bluewater Energy Systems Inc., and the workers subsequently filed suit, seeking indemnity from National Union Fire Insurance Co., which had issued Bluewater a commercial umbrella insurance policy.

National Union denied coverage, saying the power plant project was insured under a contractor controlled insurance “wrap-up” program, and that the umbrella policy excluded coverage for “any liability arising out of any project insured under a ‘wrap-up’ or any similar rating plan,” according to court documents.

The workers said the term “wrap-up” was “ambiguous,” and the U.S. District Court for the District of Connecticut agreed.

In an opinion dated April 6, the court ruled the insurance company “had a duty to explain its definition [of wrap-up] to the insured so that the insured could understand the significant coverage limitation.”

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“Although insurance experts and attorneys may debate the contours of a ‘wrap-up or similar rating plan,’ the Court cannot find a reasonable layperson … would have understood and expected – based on the language of the contract – that liability was excluded … ,” the court ruled.

Scorecard: The insurance company must pay $13.5 million on the claim.

Takeaway: Because of the ambiguity related to the wrap-up program, the law requires a ruling most favorable to the insured.

Completion of Work at Center of Dispute

On June 1, 2011, Tarhonda Palmer was struck by a train at a railroad crossing in Adel, Ga., causing extensive injuries including severe burns and traumatic brain injury.

In a lawsuit she filed against Norfolk Southern Corp. on March 14, 2012, she said her ability to see the approaching train was impaired by overgrown vegetation and other factors. She later amended the lawsuit to include NaturChem Inc., which was contracted to apply herbicide and monitor the crossing.

NaturChem alerted Liberty Surplus Insurance Corp. of the claim and sought coverage. The insurance company agreed to pay 50 percent of the defense costs, under a reservation of rights.

In September 2014, Liberty filed suit in the U.S. District Court for the Middle District of Georgia and sought a ruling that would eliminate its coverage obligations.

The insurer argued that NaturChem had completed its herbicide application at the crossing 90 days prior to the accident and that the policy’s “completed work exclusion” applied. The court disagreed and dismissed the case in June 2016.

On appeal to the U.S. 11th Circuit Court of Appeals, Liberty lost its argument again. The court said the policy provided coverage for bodily injury that occurred “out of acts or omissions at the ‘job location.’” Because the work included maintenance and monitoring of the crossing, the work was not concluded, it ruled.

“To conclude otherwise would require the Court to read language into the Policy that does not exist,” according to the opinion issued April 4.

Scorecard: The insurance company must defend and indemnify NaturChem.

Takeaway: The court ruled the insurer was “requesting relief from the consequences of the inartfully drafted, yet plain, terms of its insurance policy.”

Court: Insured Missed Notification Deadline

On July 10, 2014, VHT Inc. sent a letter to Zillow, an online real estate marketplace, demanding that it remove VHT images from its site. The photos were only to be used for sales or marketing, according to VHT, but Zillow was also using them in connection with Zillow Digs, a home improvement and design application.

Zillow requested further information from VHT, but never removed the images. On July 8, 2015, VHT filed suit, claiming copyright infringement and liability.

Two days after receiving notice of the lawsuit, Zillow notified National Union Fire Insurance Co. of Pittsburgh, which had issued it a claims-made Specialty Risk Protector policy, to cover claims related to online media content.

National Union initially agreed to provide a defense under a reservation of rights, but later denied coverage because the claim was outside of the policy period. It should have been notified when the original letter was received instead of when the lawsuit was filed, it said.

A jury eventually ruled that Zillow should pay $8.3 million to VHT.

On Sept. 15, 2016, National Union sought a court ruling that it had no duty to defend or indemnify Zillow, and on April 13, 2017, the U.S. District Court for the Western District of Washington agreed.

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The court disagreed with Zillow’s argument that the lawsuit notification was a “separate and distinct claim” from VHT’s original letter. It ruled the two claims involved the “same relevant acts,” and that the policy required notification within 45 days after the end of the policy, which was July 19, 2014.

Scorecard: The insurer does not have to defend or indemnify Zillow for the $8.3 million jury award.

Takeaway: The court found no meaningful difference between the original letter and the litigation for coverage purposes.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

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