Posted in Uncategorized

My Dear Readers, you must all be wondering whether subrogation can arise in all insurance cases – and if so, how?  Those of you who are addicted to the drama of insurance coverage, you know the answers.  Don’t be shy.  But for the rest of us, a basic primer might be in order.  It’s the new year, so let’s refresh.

  1.     Contractual Subrogation

The parties agree that one has a right to step into the shoes of the other in certain circumstances.

Examples where this may occur:    


Posted in Claim Notice, Policy Defenses

bite me



In the new case of Century Surety Co. v. Jim Hipner LLC, et al, No. 15-2120 (8th Cir. Nov. 23, 2016) the insurer denied a policyholder’s claim due to late notice.  The 8th Circuit panel chastised the insurer for its denial, stating that the insurance company was trying to have it both ways.

What does this mean?  Well, Dear Readers, let’s dive in and break it down.  This is an important rule in insurance coverage law for all of us to know.

Jim Hipner LLC is a trucking company.  It purchased a $2 million dollar umbrella policy from Century.  One of Hipner’s drivers caused a multi car accident in North Dakota.  According to the police reports, the parties had minor injuries.  Hipner immediately notified his primary insurer, Great West, but failed to notify the umbrella carrier, Century.  Great West began an investigation the day of the accident.  One of the accident victims later became a quadriplegic, suffering significant injuries.

Century discovered the accident four months after it occurred.  The claim notice was accidental.  It occurred when Hipner tried to renew its Century policy and disclosed the prior accident on the application form.  After its discovery of the occurrence Century chose not to investigate the claim, relying instead upon Great West’s work.  Century later found fault with the initial investigation.  Century believed that it was not thorough enough for its rigid standards.

Century received a demand for settlement that was within its policy limits.  The claim for losses was significant due to the life care plan for the quadriplegic victim of the accident.  Century denied the claim and filed a declaratory judgment action in federal court.  Century argued that Hipner’s late (and inadvertent) notice barred any recovery under the umbrella policy.  The federal district court granted Hipner summary judgment and Century appealed.

Remember, Dear Readers, our first rule in insurance coverage law?  Go to the policy language to determine coverage.  If the language is unambiguous as written, and it bars the present claim, then judgment shall be granted to the insurer.   

So what did the Century policy say?  An insured must provide notice of a claim “as soon as practicable.”   The 8th Circuit determined (on a de novo review) that this phrase was unambiguous.  It means “within a reasonable time.”  Hipner thought he had satisfied his obligation under the policy by providing notice to the primary insurer only at the time of the accident.  The Court rejected that explanation.  Notice was indeed late.

Are we done now with this lesson Ms. O’Brien?  No, Dear Readers you are not.

Late notice under a policy is not an automatic bar to coverage.  This is the majority rule.  Instead, an insurer must prove that it was “prejudiced by the delay in receiving notice of the accident.” This Century could not do.

Century was unable to show “how the four month delay in receiving notice actually prevented it from taking any meaningful investigatory steps that it would have done had there been no delay.”  Id., slip op. at 9 (emphasis added).

If Century believed that something was missing after receiving the investigative materials (from Great West), it could have launched its own investigation or followed up with Great West’s investigation, but it chose not to. 


Rather Century laid low here, doubling down on its late notice language.  While doing so, Century made no attempt to ascertain what information it needed in order to make a determination of coverage.  It had the chance before the claim was stale – yet it rested on the policy language alone to bar coverage.  For that reason, the Circuit found, “Century suffered no prejudice.”  Id. at 10.  Century posed its own obstacles – not the policyholder.   Quoting the district court, the 8th Circuit stated:

Century Surety cannot postpone its independent investigation based on its reliance on Great West’s investigation and then later submit Great West’s investigation was incompetent and that too much time elapsed for Century Surety to perform and investigation.  Century Surety cannot have it both ways.

Coverage affirmed.  Score?   Insurer:  0   Policyholder: 1

Bottom Line

An insurance company cannot use the late notice clause in its policy to bar a claim unless:

  • its hands are clean, and
  • it actually suffered a measurable prejudice due to the lateness of the claim.

There is no gotcha clause in insurance policies in the 8th Circuit.  Although the “prejudice” rule is not written in the policy language, it is presumed.  This is also the majority rule.



Posted in Fire, Fraud, Uncategorized




A new ruling from the 8th Circuit affirms what we all know to be true:  people who exaggerate their insurance claim losses should never be rewarded.

But why is this new case interesting to us, Dear Readers?  Because the 8th Circuit refused to sever the claims that were untruthful from those that were truthful and rejected them all.

Final score?  

Insurance Carrier: 1   Policyholder: -0-

The new case of Neidenbach v. Amica Mutual Ins. Co., No. 16-1400, 2016 WL 6775961, slip op. (8th Cir. Nov. 16, 2016) is worth addressing for its strict construction of the policy terms.  There, the policyholders suffered a $375,000 fire loss to their main residence.  They filed a claim against their insurer, Amica.  They also claimed a personal property loss in excess of $300,000.  This second claim included losses for household furnishings, clothing, equipment and what not.

For those of us who are homeowners that claim for loss of contents does seem like a bit much, right?

Amica denied both claims.  The problem for the Neidenbachs was that they had filed for bankruptcy a year before the fire.  Under oath and penalty of perjury the Neidenbach’s told the bankruptcy court that they owned only $7000 worth of personal property in total.  Whoops!

The Amica policy had an anti-fraud provision – which is typical in homeowner’s polices.  Amica would not provide coverage to insureds…

under this policy if, before or after a loss, an insured has intentionally concealed or misrepresented any material fact or circumstance … or made false statements relating to this insurance.

(Emphasis added).   The Neidenbachs did not dispute that they did not accumulate over $255,000 worth of property after they filed for bankruptcy.   Thus, they tacitly admitted something was fishy between the two valuations made just one year apart.

The trial court found, as a matter of law, that “no reasonable jury would be able to reconcile the difference between the value of the personal property the Neidenbachs reported as lost in the fire and the value of the personal property they reported in their bankruptcy petition a year earlier.”   Id., slip op. at 3.

The 8th Circuit affirmed.  It determined as a matter of law that the insurance policy was void.

Let’s think about that ruling for a minute.  If the whole policy was void, what about the legitimate claim for the fire loss of the main residence?  In equity (or by contract) that loss should still be covered.  The Neidenbachs made no material misrepresentation on the value of that loss.  Right?  Right?

BTW:  for some subversive legal humor read the whole opinion.  The Neidenbachs offer numerous prevarications to justify the gross discrepancy between the two valuations.  They are trying desperately to find an issue of fact for the jury to decide in order to avoid summary judgement.   This part is not so much funny, but frustrating.  No wonder the public has somewhat lost faith in lawyers for manipulating the truth to suit our client’s needs.

What is funny, though, is how the Circuit judges respectfully treat each silly justification offered by the Neidenbachs with an opposing and reasoned legal analysis –  as if the Neidenbach’s senseless arguments to explain the discrepancy are worthy of any intellectual consideration whatsoever.  What a waste of cerebral energy!  Going tit for tat with the Neidenbachs, the Court dissects in detail why each of their arguments fail – even though the Court rules at the outset of the opinion that the mere size of the discrepancy makes the Neidenbach’s claim untruthful as a matter of law.  The opinion gently avoids calling the policyholders outright liars when the only proof in the case shows unequivocally that they are just that.

Anyway back to the serious legal question at hand: is the residence loss, which the Neidenbachs did not misrepresent, covered under the policy?

Again the 8th Circuit said no.  The Circuit found that the contract explicitly denied all coverage “under this policy…” in the anti-fraud clause.  This means what it says.  The whole policy is void in its entirety because of the Neidenbach’s misrepresentations.  The claim for the residence is not separate.  If a policyholder…

…breaches an insurance policy by committing a misrepresentation as to one class of coverage, such misrepresentation may void the entire policy, even if the policy would otherwise be severable.

Id., slip op. at 9.   The 8th Circuit found that the anti-fraud clause was unambiguous.  It referred to all claims made under the entire policy, not just the personal property coverage.  Id.


Liars lose.  As they should.

However I am going to give you some food for further thought Dear Readers.  Was it fair for the insurance company to collect premiums and then deny coverage for the legitimate loss to the residence?  You should remember from previous blog posts that sometimes a court in equity will review an insurance contract and find that, if one party is to lose in court, it should be the insurer who was paid a premium to cover legitimate losses.  This is the minority rule of law in other jurisdictions.  But apparently not in Missouri, where the claim arose, or the 8th Circuit, who affirmed the case.

What do you think about this ruling?  I will tell you this:  the dissent was uncomfortable with denying coverage on the residence loss.  I look forward to your thoughts Dear Readers.  I look forward to your thoughts…


Posted in Flood, Property and casualty, Railroad endorsement

tunnellLast time we visited on October 8, we were gripped by the fascinating 2nd Circuit holding in National Railroad Passenger Corp. (AMTRAK) v. Aspen Specialty Ins. Co., et al, No. 15-2358-cv, ___Fed. Appx.___ (2nd Circuit September 7, 2016).   Let’s keep the story going.  What happened next?

As we left our Amtrak heroes and heroines, they were trying desperately to bypass the $125 million flood sub-limit sinkholes which were found on a paper trail in the all risk policies.  The Railroad needed that coverage to repair the fury and damage created by that witch, Super Storm Sandy.  Her powers were such that she flooded the underground rail tunnels beneath the East and Hudson Rivers, leaving detritus, corrosion and destruction in her wake.  Along with a whole lotta watta.  H2O that is.

The 2nd Circuit rejected Amtrak’s creative claim that the $125 million flood sub-limit in a number of policies did not apply to ensuing losses.  Instead, Amtrak argued, those ensuing losses should be covered up to $675 million because the “flood” sub-limit did not apply.  The All Great and Powerful 2nd Circuit denied those claims.  Try again, it said.

Our plucky protagonist Amtrak did.  Amtrak pointed out that there was a DICC (Demolition and Increased Cost of Coverage) clause in the primary policy which should apply here.  Most commercial property policies include an Ordinance or Law Exclusion. This clause takes away coverage for loss, damage or additional expenses caused directly or indirectly by the enforcement of any ordinance or law, or requiring demolition of any property.  Amtrak purchased back this coverage in the DICC clause for coverage up to $125 million.

The insurers counter attacked.  They argued that the demolition clause would not apply to any tunnel replacement required by FRA or ADA regulations, nor would it cover any equipment indirectly damaged by the flood.   The trial court agreed.  It granted judgment summarily to the insurers.

On appeal, the 2nd Circuit vacated this ruling.  The Circuit found that such holding was premature. Amtrak had not submitted its repair plans to the FRA as of yet.  The DICC clause did not have a time limit.  Id., slip op at 3.  Thus, if the FRA did require Amtrak in the future to replace the undamaged portions of its tunnels and equipment as a tangential response to the flood and in order to meet an ordinance or law, then the DICC clause could still cover these losses even at this late date.  Id.


If you are keeping a coverage score: Amtrak was down two, but now is up one.

Amtrak had one last arrow in its coverage quiver.  Amtrak argued that the DICC clause for $125 million could be stacked on top of the flood sub-limit of $125 million.  This meant that the separate DICC clause would add another layer of money, providing potentially up to $250 million worth of coverage for the Sandy damage and repair.  The insurers counter-attacked by arguing that the clause was capped at $125 million, and that it could not be stacked.  Both clauses were related to the flood, they said; thus the flood sub-limit of $125 million, and only the flood sub-limit, applied.  Amtrak got it once and done.

The 2nd Circuit punted on this issue.  It found that the parties had not fully briefed it.  The Court then remanded the issue to the district court to determine whether the two types of coverage could be stacked.  The Court also noted that this issue might be somewhat precious to the excess insurers since it is their money that would kick in beyond the $125 million primary layer.

For us count-keepers on the skirmishes:  Amtrak down two, up one, and a tie. Our heroes and heroines have to trudge back to the trial court to see if they can obtain coverage beyond the $125 flood sub-limit.


I wish I could be more legally profound here.  But the truth is that flood coverage is usually capped at a sum certain which is less than the total policy limits, and its coverage is usually limited by scope too.   Insurers may be in the business of insuring all risks, which includes catastrophic losses like earthquakes and floods, but it simply cannot provide huge limits in this respect.  Insurers, as part of their business models, need to be able to (relatively) predict their losses. This is how they set premiums.  Catastrophic losses caused by Mother Nature are inherently unpredictable.  To balance these competing interests insurers will cap this coverage to a sum that is manageable on payout.  Or policyholders can pay more for additional coverage by endorsement.  But we rarely do.

Who thinks that we are going to suffer a 500 year flood loss?  Not I said the Wizard.  Not I.


Posted in Flood, Property and casualty, Railroad endorsement


After Super Storm Sandy flooded Amtrak’s tunnels under the East River, the passenger railroad sought to obtain coverage under a number of all risk policies in effect at the time.  It wasn’t just the obvious water damage to Amtrak’s property.  Amtrak also suffered from chloride (salt) erosion of its cement and steel after the waters were siphoned off.  This corrosion would necessitate replacing track infrastructure at great cost – even equipment that was not directly affected by the flood.  Did the primary and excess policies cover both types of damages?

The 2nd Circuit Court of Appeals finally gave Amtrak an answer a few weeks ago – some four years after Sandy made landfall.  See National Railroad Passenger Corp. (AMTRAK) v. Aspen Specialty Ins. Co., et al, No. 15-2358-cv, ___ Fed. Appx. ___ (2nd Circuit, September 7, 2016).

The opinion was only a few pages.  This alone was an amazing achievement considering that the scope of the decision covered over a dozen different insurers, their policies, and four separate areas of coverage on each contract.  Increase the throttle setting on your brain, Dear Readers.  We are powering up now.   Let’s analyze together the Circuit’s holding to find out how it got there – without getting derailed by policy tedium and wording.

A number of the Amtrak policies had different definitions of what “flood” loss means.  This was key, because Dear Readers as you know, the specific policy language controls coverage.  Several definitions included “storm surge,” and several covered “waters on dry land.”  In the end, the 2nd Circuit didn’t care.  It summarily dismissed any distinction from one policy to the next by stating that the common and unambiguous understanding of what “flood” means in each policy is essentially the same: “the inundation of sea water from Sandy’s storm surge.”   Done and done.

One would think Amtrak would be pleased by this ruling finding coverage under all the polices in one fell swoop.  But the policies contained a sub-limit for flood damages, capping coverage at $125 million.  If Amtrak could convince the 2nd Circuit that more than just a flood occurred, for instance wind driven water, then coverage would be broader and the limits much, much higher.  Alas, the Court wasn’t buying it.  The 2nd Circuit said that a storm surge is wind driven water onto dry land – making it a flood.  The appellate court gave Amtrak coverage then, up to $125 million, but beyond that:  rejection!!

Moving on, the 2nd Circuit reviewed the trial court’s holdings on each policy to determine whether coverage was broader than just the immediate water remediation.  Did the policies cover the extensive track infrastructure damage and subsequent chloride erosion that occurred after the flood waters were removed?  Also did the policies cover the additional expenses associated with repairing the track damage, such as costs for equipment that was not directly inundated by water?  These types of damages are called an “ensuing loss.”  Ensuing losses were not subject to the sub-limit of $125 million.  Amtrak wanted coverage for those losses up to $675 million.  A noted difference worth fighting for.


The 2nd Circuit said that “courts should not allow coverage for an ensuing loss directly related to the original risk excluded.”  Id., slip op. at 3.  The Court then rejected Amtrak’s claim that its track damages from chloride residue should be considered a separate covered peril under the ensuing loss clause in the policies.  “The corrosion of Amtrak’s metal equipment cannot meaningfully be separated from water damage that is plainly subject to the flood sub-limit, nor can it be attributed to a distinct ‘covered peril.’”  Id.   Those losses were covered, but capped by the flood sub-limit at $125 million.  Amtrak: down two.   Or up to $125 million, but not $765 million.

Tomorrow, more discussion of the other policy clauses.   Stay tuned……….

Take Away Rule

Clever policy interpretation may get you everywhere on coverage!  But not in the 2nd Circuit.  “Flood” is unambiguous. It means storm water surge – even if driven by wind.   Corrosion from flood waters is not an ensuing peril.  Thus, no coverage beyond the smaller flood sub-limit.

But wait!!  There’s More!!  Stay tuned to the next blog to find out whether Amtrak could avail itself of the $675 million coverage limits in some other way…..


Posted in Property and casualty





Okay. What in tarnation do you mean by that Anne Marie?  (For my Dear East & West Coast Readers, “Tar-Nation” is a distinctly Midwestern place where idiots not only live, but thrive.)

Here is what I mean: Damages arising out of completed work performed by the insured and its subcontractors is generally not considered to be property damage unless something is actually, physically harmed, not just altered or improved.  This is so, even if there is financial harm from the change to the property.  Let’s break it down into digestible bites.  You will understand.  If residents of Tarnation can figure it out, you can too.

The recent case of of Drake-Williams Steel, Inc. v. Continental Casualty Co., et al., 294 Neb. 386, ___ N.W.@d.___(Neb. S. Ct., August 5, 2016) sets out this rule.  There, steel fabricator Drake-Williams sold improperly fabricated rebar to a general contractor.  The contractor built the defective rebar into the new Pinnacle Bank Arena in Lincoln, Nebraska.

Now pay attention.  You should care about this part.  Recent concerts at that Arena have included REO Speedwagon, Pink, Maroon 5, Lil’ Wayne, Kenny Chesney, Keith Urban, Stevie Nicks, Red Hot Chili Peppers, and need I say more? The last thing we want when standing there with beer in hand, temporary teeth grills and washable tattoos in place while rapping to Lil’ Wayne, is for a load bearing wall to come crashing down on us.  Talk about a mood killer.

Fortunately, someone also took note of this potential for catastrophe.  The contractor caught the defect, but it had already installed most of the rebar.  It removed what it could.  The contractor also modified the rest where it could not take it out.  This included placing a concrete reinforcing band around certain pile caps which contained the defective rebar to increase its strength to meet the design specifications.  Like you could care about this part; but reinforced pile caps on the ends of certain columns are good in concert halls.  Trust me.

Drake-Williams paid for its mistakes with the rebar.   It then turned in a claim for this loss to its insurers, Continental et al., for coverage.  If you were sidelined in this article by fantasies of falling concrete during rock and rap concerts, here is what I just said:  the manufacturer of the defective rebar submitted the loss to its own insurer.  The insurers denied coverage.  A lawsuit ensued.

This is what happened next.  The trial court looked at the words of the CGL policy to determine whether the clear language in fact insured against the very risk involved in the loss.  The trial court concluded that there was no “occurrence” as that term is defined in the policy.  It also concluded that the “impaired property” exclusion applied.  The Nebraska Supreme Court affirmed on other grounds.  It disagreed with the trial court’s analysis, but concluded that there was no coverage because there was no “property damage.”

We are only concerned with the Supremes.  The High Priests and Priestesses held as a general rule that CGL policies are intended to cover a policyholder’s tort liability for physical injury or property damages, not economic losses due to business risks.  Id., 294 Neb. at 396.  The concrete and rebar were part of the whole integrated pile cap system.  The Court found that there was no physical injury to the rebar, or to the pile caps in which the rebar was cemented.  And because the defective rebar was discovered before the arena was further built, “there was no damage to other parts of the system.”  Id., at 398.

Also the pile caps with the defective rebar were modified by adding to them, not damaging or destroying them, the Court held.  Therefore there was no physical damage that was actually caused by the defective rebar.  Id.  If the problem of the defective rebar could have been corrected by demolishing and replacing the pile caps, then there would have been damage and coverage.   But by adding a concrete reinforcing band around certain pile caps, neither the policyholder Drake-Williams nor the contractor, caused property damage as defined in policy.  End result:  No coverage.


Hmmmm.  I am not sure what to say.  This is an interesting way to look at a common insurance rule, which generally denies coverage for economic losses caused by the insured’s own work product. For example, an insured cannot collect on a CGL policy for damages it incurs when it manufactures defective widgets – unless and until there is some third party liability.  However, the Nebraska Supreme Court made it clear in its holding that it was not announcing a hard and fast rule that all damages arising out of completed work performed by an insured is never “property damage’ covered by a CGL policy.  Id. at 397.

But what it is saying, and we Dear Readers should take note of this, is that if a policyholder’s defective work did not create “damage” to other property, and the defective product can be remedied by adding something – as opposed to taking something away – then there is no coverage. This might be a slightly different rule.  Let’s stay tuned to see if it is more refined in the future.

RAILROAD INSURANCE – Derailment Covered!

Posted in Additional insured coverage, Property and casualty, Railroad indemnity

Like Peanut butter and Chocolate!

Like Strawberries & Cream!

Like Rum and Cokes at midnight on a hot summer night in the late 70’s when cute boys with collar length hair who smelled faintly of Brut were driving muscle cars with one hand, taking a long drag on a Salem with the other, and searching for their favorite Eagles or Head East song on the A.M. radio station while I was happy in the passenger seat wearing cut off jeans, MIA clogs, a sly smile, and adjusting my IQ accordingly –  long before anyone had to care about mandatory helmet laws, child care tax deductions, dust mite allergies, colonoscopies or the failure of mortgage backed securities….sigh… (#too.much.information?) 



railroad insurance

Yes, Dear Readers, railroads and insurance can be a stimulating set of things when paired together.  Trust me.  It could equal money.

This case arises out of a derailment that occurred when a coal train jumped the track during a backward shove under a coal load-out chute.  In Norfolk Southern Ry Co. v. National Union Fire Ins., 999 F. Supp. 906 (U.S. Dist. S.D. W. Va. 2014), the railroad sued its insurer for damages (and subrogation) as an additional insured under a policy that National Union provided to the coal load-out facility.

The insurer, National, filed for summary judgment.  It argued that Norfolk Southern was not an additional insured under its policy; and even if it was, it would not be covered because the accident did not arise out of “your” work.

Rabid fans of this column know what to do next.  We go to the policy language first and foremost. In it, the policy covers additional insureds who have “obligated you by written contract to provide insurance that is afforded by this policy, but only with respect to liability arising out of ‘Your Work,’ ‘Your Product’ and to property owned or used by you.”

The court found succinctly that the Lease Agreement between Norfolk Southern and the coal load-out operator required it to provide insurance for the Railroad as an additional insured.  Thus, one of the conditional terms of coverage for an additional insured were met.  Norfolk passed the first test, set out in red above.

The second test, set out in blue, is different.  Norfolk would only be covered if the loss or liability arose out of “Your Work.”  My avid, rabid, insurance fans know what this means.  Anytime the words You or Your are capitalized in a policy it refers to the Named Insured, and not the additional insured.  Here, the insurer is tying its loss coverage to the work of the policy holder, and not the work of the additional insured – Norfolk Southern.

Whether there is coverage on this condition is both fact and law driven.  It is fact driven in that the court will need to look at the possible known causes of the derailment, and it is law driven in that case law tells us what “arising out of” really means.

Let’s dig into the case law first, as this will give us a road map for analyzing the facts.  West Virginia law applies.  In a case of first impression the court determined that “arising out of” as used in a CGL insurance policy means “incidental to” or “flowing from.”  But it also means in West Virginia that the loss must be “foreseeably identifiable” with the named insured’s work.  So now we have a third test – one that the court inferred within the policy language.  I would highlight it for you in the policy language set out above, but the words are nowhere to be found.

The court then concluded that the derailment did relate to the policyholder’s load-out operations. “At the time of the derailment, Norfolk Southern was repositioning the train at (the policyholder’s) request for (the policyholder) to unload the coal.  Therefore it is clear that the derailment arose out of Cobra’s work, or at the very least, arose out of operations performed on Cobra’s behalf.”  Id., at 914.

Why am I bringing this to your attention Dear Readers?  Well, any well-rounded insurance hound (that’s us folks) should be generally aware of how different courts interpret the exact same policy language in different jurisdictions.  Here, the West Virginia court added a condition for coverage that is not set forth in the contract:  that the loss be “foreseeably identifiable.”   If this claim were brought in another jurisdiction, the additional insured would not have to prove this element.  “Arising out of” is proof enough.  Knowledge like this is valuable.  It can dictate where a lawsuit should be filed in order for one party to obtain or deny coverage.


In West Virginia, unlike most all other states, an additional insured must prove that the loss “arose out of” or was “connected to” the work of the Named Insured, and it must also prove that the loss was foreseeable and identifiable.  This is not required for coverage in other jurisdictions.  

Knowing this information will assist a party in deciding where to file a declaratory judgment action on the policy.  The burden of proof is greater on an additional insured in West Virginia.    


Posted in Claim Notice, Excess and umbrella policies

The question for today, Dear Readers, is whether a primary carrier has a duty to notify an excess carrier of a loss that could potentially be covered by the excess carrier’s policy.


Of course you know, from our multiple and engaging discussions before, that the terms of the policy are what control the duties, obligations and  actions of the insurers and the insured.  So we should go straight to the insurance policy to answer today’s question, right?  Yes, partly.  It never is cut and dried though is it?  Like moral relativity, we have legal relativity too.  So let’s dig in.

The policy holder has a duty in all insurance contracts to notify the insurer – regardless of what layer it has – of a potential loss.  But what if the policyholder drops the ball and fails to provide this notice?  Or is bankrupt and no longer in operation?  Or has closed shop completely and doesn’t even exist anymore?

An excess policy does not typically have the same requirement for notice as a primary policy.  This is because an excess policy usually does not have a direct obligation to defend an insured – a duty which falls to the primary insurer.  This “notice duty,” as set out in an excess policy, requires a policyholder to give notice of a claim “when the loss is reasonably likely to involve the excess policy.”  There are many versions of this obligation, but all are essentially the same in that notice is not mandatory and it is only necessary if the excess policy limits may be affected.

But does this obligation expressly bind the primary insurance company?  No it does not.  Any duty of a primary insurer to provide notice to the excess insurer arises only out of a general duty of good faith and fair dealing that courts have read into the relationship between the two insurers when acting as a court of equity.

And as usual with evolving law, several courts have grappled with this issue with differing results.  For example in the seminal case Am. Centennial Ins. Co. v. Warner-Lambert Co., 293 N.J. Super. 567, 576, 681 A.2d 1241, 1246 (Ch. Div. 1995), the court there looked to an industry document which was signed by both the primary and excess insurer.  That document, “The Guiding Principles for Primary and Excess Insurance Companies,” specifically states that the primary must inform the excess of a claim in certain circumstances.

If at any time, it should reasonably appear that the insured may be exposed beyond the primary limit, the primary insurer shall give prompt written notice to the excess insurer, when known, stating the results of investigation and negotiation, and giving any other information deemed relevant to a determination of the total exposure, and inviting the excess insurer to participate in a common effort to dispose of the claim.

The Warner-Lambert court used these principles to create a new industry standard for notification: a primary insurer must notify the excess when settling a claim –  if the excess may also be responsible for coverage.  It then found that the primary breached this duty when it failed to provide such notice.

Other courts have not gone so far.  For example in Lemuel v. Admiral Ins. Co., 414 F. Supp. 2d 1037, 1057 (M.D. Ala. 2006), aff’d sub nom. Lemuel v. Lifestar Response of Alabama, Inc., No. 06-11155, 2007 WL 57097 (11th Cir. Jan. 9, 2007) the court declined to follow Warner-Lambert.  The Lemuel court looked to the terms of both the primary and excess policies.  The policy language in that case did not shift the responsibility for notice from the policyholder to the primary carrier.  That court focused on the actual policy language only.  It declined to hold, in equity, that the burden of notice should be extended to the primary carrier as a matter of fairness.

How would our Midwest courts handle this duty?  Most all do recognize an inherent duty of good faith and fair dealing between the primary and the excess insurer.  And most all are inclined to look to equity to determine the extent of this good faith obligation.  But none have gone so far – yet – to affirmatively place the burden of notice on a primary insurer.  Stay tuned!!!


A policyholder always must provide notice to his insurers.  This duty is a condition precedent to coverage in all insurance contracts.

However if a primary carrier has knowledge of a possibility of excess coverage, and knowledge that the claim loss could dip into the excess carrier’s limits, it should notify the excess carrier as a matter of precaution.  This is a part of the recognized duty of good faith and fair dealing between the carriers.

If the primary carrier is a signatory to the Guidelines, it absolutely must notify any excess carrier.  These Guidelines have created an industry standard to which the primary carrier, by being a signatory, has agreed.  Failure to follow through, then, may well be considered to be a breach of the industry duty, and in turn would create a liability where none may have affirmatively existed before.

What do you think, Dear Readers?  Is this a fair obligation to place on a primary carrier?  Send me your feedback!



Posted in Additional insured coverage

Big Fish 6

Add this case to your Big Fish Basket!   

A Wisconsin federal court recently ruled in Fleet & Farm of Green Bay, Inc. v. United Fire & Cas. Co., No. 13-C-1013, 2015 WL 2453110, at *3-5 (E.D. Wis. May 22, 2015) that an additional insured does have coverage for a loss that occurs when connected to – in any tenuous way – the named insured’s business.  This state now joins the majority who have found for additional insureds on the named insured’s policy if the loss arose out of or was connected to the named insured’s work.

As usual, let’s dig in!

A woman claimed she was seriously injured at the Mills’ Fleet and Farm store in Baxter, Minnesota when an employee caused a pallet of paving stones to fall on her leg.   The woman, Schaefer, filed suit.  Her complaint did not mention or find fault with Country Stone, who had manufactured and delivered the pallet of stone to the Fleet and Farm store.

United Fire insured Country Stone.  Fleet and Farm was named as an additional insured on the Country Stone policy.  Fleet and Farm demanded a defense and indemnity for Schaefer’s claim.  United denied the tender.  The insurer argued that the woman’s lawsuit did not implicate the named insured, County Stone, in any way.  “We have not been presented with any evidence of any negligence on our insured that in any way contributed to this harm.”  Id. slip op. at 1.  Thus, the insurer stated, it had no duty to defend Fleet in the woman’s action.

We all know what happened next.  Fleet sued United for coverage. 

United then moved for summary judgment on the policy.  The court and the parties focused solely on the additional insured endorsement:

United’s policy made Mills an additional insured as to any liability for bodily injury “arising out of” Country Stone’s products. When large paver stones fall on someone’s leg, the bodily injury “arises out of” those stones. Accordingly, it does not matter that the complaint fails to allege negligence on Country Stone’s part (although that came later). It is enough that Country Stone’s product caused the injury. The mere fact that the complaint does not allege negligence on the original insured’s part does not mean the vendor is not an additional insured under the policy or that there is no duty to defend.

Id. slip op. at 3.  The court found that there was coverage because the incident was broadly connected to Country Stone.  Nothing more is required by the endorsement.  The court also rejected United’s argument that the duty to defend is triggered by the complaint.  The court answered that argument with a flat rejection:

United’s argument rests on its assumption that its only insured was Country Stone.  It is true that the original complaint did not mention any negligence on the part of Country Stone. But it didn’t need to because Country Stone was not the only insured under its policy of insurance with United. …By stark contrast, the “additional insured” provision in this case contains no limitation on coverage that would require any allegation whatsoever about the named insured’s conduct. Instead, it simply provides coverage for claims “arising out of” Country Stone’s product sold in the normal course of the vendor’s business.

Id. slip op. at 4-5.

The court also noted a number of other jurisdictions that have adopted this broad interpretation of an additional insured endorsement.   The list is growing my friends, day by day.