The Law

Legal Spotlight

A look at the latest legal cases impacting the industry.
By: | August 3, 2016

$102 Million Excluded From Coverage

PNC Financial Services Group Inc. agreed in 2010 and 2012 to pay $102 million to settle six class-action lawsuits that claimed the bank manipulated transactions to increase revenues from overdraft charges.

Following the settlements, PNC sought indemnification from its insurers, Houston Casualty Co., which had issued a $25 million liability policy; and Axis Insurance Co., which issued a $25 million excess policy for claims that exceeded $50 million. PNC self-insured the first $25 million.

People at ATMBoth insurers denied coverage, saying the settlement was a refund of overdraft fees and was excluded as they were “fees, commissions or charges for Professional Services paid or payable to an insured.”

After PNC sued the insurers in 2013, the U.S. District Court for the Western District of Pennsylvania concluded that the Professional Services exclusion applied to the $102 million settlement payment, with the exception of about $30 million for attorneys’ fees, which were covered by the policies.

Houston and PNC settled their dispute in 2015.

On May 2, the U.S. 3rd Circuit Court of Appeals ruled that none of the $102 million was covered by the Axis policy. It noted that the settlement agreements explicitly provided that attorneys’ fees were to be paid from the settlement funds — meaning that PNC was not paying the attorneys, the class-action plaintiffs were.

Scorecard: The insurance company did not have to pay a $102 million claim to PNC.

Advertisement




Takeaway: The Professional Services clause unambiguously excluded third-party losses that constituted fees or charges for professional services.

Lack of Prior Consent Voids Claim

A fatal worksite accident in July 2007 delayed work on a construction project, leading general contractor Mortenson to file suit against Stresscon Corp., a subcontracting concrete company, for the interruption.

Stresscon sought indemnification from Travelers Property Casualty Co. of America.

On Dec. 31, 2008, Mortenson and Stresscon entered into a settlement agreement without consulting Travelers. Stresscon still had not informed Travelers of the settlement when it filed suit in March 2009 against the insurer and others for bad faith in unreasonably delaying or denying its claim.

A Colorado district court awarded Stresscon damages, and that judgment was upheld by an appellate court. Both courts ruled against Travelers’ argument that it had no duty of indemnification because the insurance policy stated that the insured could not assume any obligation or expense “without our consent,” known as the “no voluntary payments provision.”

The courts ruled the insured should have the opportunity to demonstrate that the insurance company was not prejudiced by the late notice. The Colorado Supreme Court disagreed.

On April 25, in a 4-3 opinion, it ruled the issue of whether the insurer was prejudiced by the late notice did not overrule the no-voluntary-payments clause, and it ordered the lower court to direct a verdict in favor of Travelers.

Scorecard: Travelers will not need to indemnify Stresscon for payments the contractor made without its consent.

Takeaway: The ruling may convince more insureds to litigate claims when they can’t convince their insurers to settle a claim.

Insurers Don’t Need to Pay $20 Million

In January and February 2009, King Supply Co. sent about 670,000 faxes to about 143,250 recipients advertising its services.

CE Design Ltd. and Paldo Sign and Display Co. were lead plaintiffs in a federal class-action lawsuit against King, alleging violations of the federal Telephone Consumer Protection Act (TCPA) and violations of the Illinois consumer fraud act.

printer and copying machineKing sought defense and indemnification from its insurers, National Fire Insurance Co., and Valley Forge Insurance Co., which had issued commercial general liability policies covering those timeframes, and Continental Casualty Co., which had issued an umbrella liability policy. All of the insurers were part of CNA Financial (CNA).

King and the plaintiffs eventually settled the lawsuit for $20.2 million. The agreement called for King to pay $200,000 and its insurers to pay the remaining balance of $20 million.

The insurers denied coverage, citing a policy exclusion for material distribution in “violation of statues.”

CE Design and Paldo filed suit in Lake County, Ill., seeking an order that the insurers had a duty to defend and indemnify King. That court dismissed the case, citing the exclusion. The 2nd District Appellate Court of Illinois upheld that decision on May 2.

Advertisement




The appeals court found the exclusions were properly approved by the Texas Department of Insurance, where the policies were issued. It also rejected a claim by CE Design and Paldo that the faxes were not in violation of the TCPA.

Scorecard: The insurance companies do not have to pay $20 million toward the settlement.

Takeaway: Because the insurers could show that regulators had approved of the “violation of statues” exclusion, they were allowed to deny the claim.

The late Anne Freedman is former managing editor of Risk & Insurance. Comments or questions about this article can be addressed to [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Matrix: Presented by Liberty Mutual Insurance

10 Critical Risks Shaping the Workers’ Comp Landscape Today

Emerging risks like workplace violence, disabling injuries and inexperienced workers are driving up workers' comp claims and costs.
By: | August 1, 2019




The R&I Editorial Team can be reached at [email protected]