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.


Posted in Uncategorized


See the adorable blonde holding the I-phone? 

That is my daughter Katie O’Brien

She is a writer, producer and actor on the TV Land series called “TEACHERS.”


PREMIER: JANUARY 13 ~ 9:30 p.m. 


Read what critics and writers have said:

“…long stretches of genuine hilarity…”   – We Got This Covered

“…it’s funny more often than expected.” – Pittsburgh Post Gazette

“It’s not only a hilarious and, at times, dark look at the world of being an elementary school teacher, it’s groundbreaking.”  – SplitSider

A Dozen Cool Things to See, Hear, Read and Download – Teachers is #5 Top Pick for the Week of January 11-8, 2016 – PEOPLE Magazine

“The women in this bubbly show have other things to worry about than young minds – dating for one.” – PEOPLE Magazine

One of “20 Shows To Keep On Your Radar Screen” – New York Times

Most Promising New Dramas and Comedies of the Year – Teachers is #5  – Fort Worth Telegram

The Most Anticipated Shows of 2016 – Teachers is  #4 – Variety

“…industry types who’ve sampled the show early have been raving with laughter.”  – Variety


What does this have to do with insurance?  Absolutely nothing.  I am just a very proud mama.  Katie is 27 and has two prime time TV shows in production where she is a writer and executive producer.  She currently has a pilot for NBC in production called “Young Widow.”

Why is she so successful at such a young age? Talent for sure; she is smart and she is a good writer.  But she also possesses that good ol’ Midwestern work ethic.  She follows through on a project.  She meets her deadlines.  She treats people kindly.  She is a thoughtful person with a positive outlook on life.   That, my Dear Readers, is the magic formula for success.

Teachers 3




Posted in Uncategorized

Let’s get wonky.  In an insurance kind of way.

Pig ship

Well, Dear Readers, we are going to both dig deep and go narrow today.  We will explore together a little known gap in additional insured coverage.  It is wonky and conceptual but I know you can handle it.  It’s called the additional insured employee exclusion.  Savor it, then bring it up for discussion at your next cocktail party.  Impress your friends and acquaintances.  Who wouldn’t want to know this stuff?

When an additional insured is added by endorsement, the policy will generally cover those losses which arise out of, or which are connected to, the named insured’s work.  Policy endorsements may differ; but for our purposes here we are talking about standard form coverage by endorsement.

Here is an example of how this coverage would arise:  O’Brien Construction Company hires a sub-contractor, Martin Subs, to perform work at a building site.  O’Brien requires Martin to add O’Brien as an additional insured by endorsement to its CGL policy.  Martin does.  O’Brien’s employee trips over a wrench left by Martin at the work site.  An O’Brien supervisor saw it laying there, but did not pick it up.  The employee sues both Martin and O’Brien.

Both then tender their claims to the insurance company for defense of the lawsuit and indemnity against judgment.  The insurer denies O’Brien’s claim, but accepts Martin’s.  Is the insurer correct?  Why?  Shouldn’t both have coverage since Martin’s work caused or contributed to cause the injury to O’Brien’s employee?

The insurer is correct.  There is a standard clause in a CGL main form that excludes employee claims.

e. Employer Liability.  Bodily Injury to:

(1)       An employee of the insured, arising out of and in the course of

(a)        Employment by the insured; or

(b)       Performing duties related to the conduct of the insured’s business . . .

Case law tells us that the use of the word “the” before the word “insured” means that defense costs and coverage for O’Brien – in a claim by his employee for injuries – which arose out of his employment are explicitly excluded – even if caused in whole or in part by Martin’s negligence.  Martin does have coverage for the claim, however, under the policy since the employee works for O’Brien.  To the contrary, O’Brien would have coverage for claims made by a Martin employee which may have arisen from his employment.  (Remember, there are other avenues for legal redress here.  We are only discussing insurance coverage for defense costs and indemnity).

This interpretation is the majority rule among those states which have considered the issue.  The exclusion serves the underlying intent of the CGL policy to overall exclude work comp type claims because there is a separate insurance product to cover those types of employee losses. See Costco Wholesale Corp. v. Liberty Mut. Ins. Co., 472 F. Supp. 2d 1183, 1203 (S.D. Cal. 2007) [“(E)mployer’s liability exclusions prevent private insurance from duplicating the effects of a legal regime that preexists the policy. i.e., the exclusion merely acknowledges background law. Interpreting a employer’s liability exclusion more broadly would transform the exclusion into a substantive limitation on coverage. Insurance policies contain severability clauses to make sure such a transformation does not take place.”) and Sacharko v. Ctr. Equities Ltd. P’ship, 2 Conn. App. 439, 444, 479 A.2d 1219, 1222 (1984) (“The primary objective of an employee’s exclusion clause is to avoid duplication of coverage with an employer’s workers’ compensation coverage.”).

To make matters more complex, employee liability coverage can be added back in by another endorsement covering contractual indemnity of an “insured contract.” This creates an exception to the policy exclusion for employee liability which is “assumed by the insured under an insured contract.” Insured contract is defined in the general policy form, and can sometimes include contracts which cover only tort liability assumed by another in a contract.

What is meant by the phrase “liability assumed by the insured under contract” in insurance policies has been the topic of litigation in other jurisdictions.  An Alaska case, Inc. v. Providence Washington Ins. Co., 648 P.2d 1008, 1011 (Alaska 1982)-provides the following explanation for the phrase:

Liability assumed by the insured under any contract” refers to liability incurred when one promises to indemnify or hold harmless another, and does not refer to the liability that results from breach of contract.

Id.  The phrase does not provide coverage for liability caused by a breach of contract; rather, the coverage arises from a specific contract to assume liability for another’s negligence. The phrase has been interpreted “to apply only to indemnification and hold-harmless agreements, whereby the insured agrees to ‘assume’ the tort liability of another.” Gibbs M. Smith, Inc. v. U.S.F. & G., 949 P.2d 337, 341 (Utah 1997).

If the Martin/O’Brien policy had a separate endorsement for contractual liability,  we would look to that contract in order to determine what tort liability Martin agreed to assume in O’Brien’s underlying contract. See, e.g., Martinez v. Colasanto, 906 N.Y.S.2d 781 (N.Y. 2009). If Martin only promised to indemnify O’Brien for its passive negligence, then O’Brien would be covered because this would be a tort liability that Martin expressly assumed.


Confused?  Don’t be.  Just remember these general rules:

Additional Insured Employee v. Additional Insured = No Coverage.

See, e.g., Atchison, Topeka and Santa Fe Ry. Co. v. St. Paul Surplus Lines Ins., 328 Ill. App. 3d 711, 767 N.E.2d 827 (Ill. App. 1 Dist. I Div. 2002) (claims by additional insured railroad’s employee against railroad is precluded from coverage);  Employers’ Liability Assurance Corporation v. Travelers Ins. Co., 411 F.2d 862, 865-66 (2d Cir. 1969) (the exclusion under the policy as to employees of the insured is confined to the employee of the insured who seeks protection under the policy); and General Aviation Supply Co. v. Ins. Co. of North America, 181 F. Supp. 380, 384 (E.D. Mo.), aff’d, 283 F.2d 590 (8th Cir.1960).

Named Insured Employee v. Additional Insured = Coverage.

See Sacharko v. Ctr. Equities Ltd. P’ship, 2 Conn. App. 439, 443, 479 A.2d 1219, 1222 (1984)(a suit by the named insured’s employee against an additional insured under the policy is protected from the employee exclusion clause).

This is true UNLESS there is a separate endorsement for contractual liability that overrides the policy terms for employee exclusion.  If so, then look to the separate endorsement and the underlying contract to determine whether the named insured agreed to assumed the tort liability of another and to what extent.



EPIC INSURANCE BATTLES PART II: Additional Insured coverage v. Contractual Liability Coverage

Posted in Uncategorized

LIght saber duel 1

 In honor of the release of the new Star Wars movie, let’s revisit another epic insurance battle: 

additional insureds v. contractual insureds.  

Who is stronger, more resilient, covered? 

Alas Dear Readers you know this is my favorite subject don’t you? Cant you tell? I talk about it all the time!  Star Wars?  NO!!  Additional insured coverage under a standard CGL policy.  Sigh……I do need to get a life.

But who isn’t drawn in by the under-dogged-ness of a true additional insured fighting for his right to be treated fairly and covered?  Who isn’t captivated by how one little word change in a policy endorsement can add nuance – and coverage – when none might have been intended?  Who doesn’t see metaphors between insurance and Star Wars?  Of course you do, my Dear Readers, so let’s compare the two again:


Indemnittee is NOT an insured

Includes completed ops (generally)

Includes sole fault of indemnitee

Not tied to Named Insured’s work

Defense costs not covered separately

Defense costs included in total limits


Indemnittee is an insured on policy

Excludes completed ops (generally)

May include sole fault of add’l insured

Tied to Named Insured’s work

Defense costs covered

Defense cost are in addition to total limits


Who wins the battle? It depends upon the type of loss.  It is always best to be an insured under a policy because the insurance company owes you a fiduciary duty to act in your interests.  You can enforce that duty by bringing a bad faith claim against the insurance company if it denies your claim without adequately investigating or protecting your interests.

As a contractual liability claimant, you are just any old third party.  You do not have privity to the insurance contract. Your claim arises out of the underlying contract between you and the named insured wherein you asked the named insured to indemnify you.  Thus, you must wait to enforce your claim until after liability and fault is determined on the underlying claim.


 Be both.  Draft your underlying contract to insist upon both indemnity from the vendor or contractor, and also to be named as an additional insured on the vendor or contractor’s insurance policy.  This “Belt & Suspenders” approach will go far in assuring you have some risk transference and protection from the costs of claims. 


Posted in Duty to Defend

In honor of the new Star Wars film let’s take a look at an epic type of battle in the insurance industry.

STAR WARSAn insurance carrier has two duties in the policy that are regularly enforced by courts.  One is the duty to defend. The other is the duty to indemnify.  Both assist the policy holder, but they are not created equal.

Duty to Defend. When a policyholder is sued or a claim is made against him, the policy will cover his defense costs and expenses if the incident is of the type that is covered by the contract terms.  This is called the duty to defend. An insurer’s duty to defend is separate and distinct from its duty to indemnify.     

The duty to defend is measured by the allegations of the lawsuit against the insured.  Cizek Homes, Inc. v. Columbia Nat’l Ins. Co., 22 Neb. App. 361, 367-68, 853 N.W.2d 28, 33 (2014), review denied (Jan. 14, 2015).  To determine the duty to defend, an insurer must investigate and discover the relevant facts, in addition to looking at the allegations of the complaint.  Id.

The duty to defend is broader than the duty to indemnify.  Sometimes the costs of defending a case will exceed the policy limits.   When that happens, the insurer must pay them all.  What if one claim is covered but the rest of the allegations in the lawsuit are not? The insurer still must pay for the complete defense.

What if the insurer is uncertain as to coverage? In that situation the insurer has the duty to step up and provide a defense regardless. An insurer bears a duty to defend whenever it ascertains facts which give rise to the potential of liability under the policy.  Id.  In fact an insurer may find itself defending a lawsuit – even though later it may not owe on the claim. Courts have found that the duty to defend a policyholder is so broad that as long as there is a potential for coverage under the policy, the insurer must defend the policyholder “even though it has independent knowledge of the facts not in the pleadings that establish that the claim is not covered.”  Travelers Indem. Co. of Ill. v. Insurance Co. of N. Am., 886 F. Supp. 1520 (S.D. Cal. 1995) (emphasis added).

The Duty to Indemnify.  The duty to indemnify is much narrower.  It, too, is based upon the insurance company’s promises in the policy. An insuranace company may either determine the policyholder’s liability (either by judgment or by settlement of the underlying claim) or reimburse the policyholder after he has paid a third party claim. Either way the obligation to indemnify is only triggered by express words in the policy. Whether an insurer has a duty to indemnify an insured depends upon whether the insured’s claimed occurrence falls within the terms of the insurer’s coverage as expressed in the policy. Federated Serv. Ins. Co. v. All. Const., LLC, 805 N.W.2d 468, 474-75 (2011).


So there you have it. The duty to defend is stronger, broader and more resilient. It favors the policyholder. In a battle of the duties in an insurance policy, it wins.







Posted in Policy Defenses




HUH??? Well, my Dear Readers, we do know that everything in insurance has to do with context – both factual and contractual.

What is the exact wording of the insurance agreement?  Because we know that under Nebraska law (and all other states) policy interpretation is a matter of contract law.  If the terms are not ambiguous, the courts will give the language its true meaning. If the terms are ambiguous, then the insured wins.  Also what are the underlying facts? Coverage is not looked at in a vacuum.  Nor are the insurance company’s defenses to the contract examined standing alone.  One of those defenses is the cooperation clause.

Under the cooperation clause, a policyholder has a duty to cooperate with the insurance company in investigating, defending and settling the claim.  Failure to cooperate can void coverage.  However the obligation to “cooperate” cannot be grounds for denial unless the insurer gives a plausible reason explaining exactly how the alleged failure to cooperate materially prejudiced its ability to tender a defense.  Mefferd v. Sieler & Co.,  676 N.W.2d 22, 26 (2004) (an insurer cannot assert a breach of a cooperation provision as a policy defense in the absence of a showing of prejudice or detriment to the insurer).

The crux of the issue is this:  did the policyholder fail to cooperate in such a way that the insurer was not “meaningfully able to protect its interests?”  Id. (discussing failure to provide notice and to provide cooperation).  The purpose of the cooperation clause is to prevent collusion between the injured and the insured and to facilitate the handling of claims by the insurer.  Iowa Mut. Ins. Co. of De Witt, Iowa v. Meckna,  144 N.W.2d 73, 80 (1966).

But if the insurer has reserved its right to  defend and indemnify under that same policy, it cannot argue later that the policyholder’s lack of cooperation is a defense to coverage.  “An insurer does not have the right without consent of the insured to retain control of the defense of an action indemnifiable under the apparent terms of an insurance policy and at the same time reserve the right to disclaim liability on the policy.”  Id. at 81.   Where an insurer sees fit to gamble on its insistence on a reservation of rights agreement, and to ignore the fact of an action against its insured, it is in no position to complain about the actions of its insured Id.


In order to avail itself of the non-cooperation clause defense to coverage, an insurance company must show (1) that it accepted coverage, (2) that the insured did not reasonably cooperate in investigation or defense of the claim, and (3) that the insurance company was unable to meaningfully protect its interests in the lawsuit as a result of the policyholder’s failure to cooperate.



Posted in Uncategorized


In Nebraska, an insurance company is not liable for defense costs as a matter of law where defense and settlement of the claim concluded before the policyholder notified the insurer.  

Well, Dear Readers, you must be thinking  “Duh!”  Of course an insurance company should not have to pay the claim if the policyholder defended and settled the suit on its own without notifying the insurer.  Why is this one of your “Big Fish” rulings, Anne Marie?

 This issue has not been so cut and dried in the general case law, with a split among jurisdictions.  The Nebraska Supreme Court had not yet spoken definitively as to whether defense costs were due to a policyholder when it had declined to meet a voluntary consent provision.  The case of Rent-a-Roofer v. Farm Bureau Prop. & Cas., 291 Neb. 786 (2015) was a case of first impression here.  So we must examine it, Dear Readers, as one of our “Big Fish” rulings in order to keep you abreast of all that is new in Nebraska insurance law.  Let’s dive in!

There, a third party sued Rent-a- Roofer for faulty roof installation.  Rent-a- Roofer tendered the first claim to its insurer, Farm Bureau.   Farm Bureau denied coverage.  Rent-a- Roofer defended the claim on its own and paid a settlement.  A third party sued Rent-a- Roofer a second time for another faulty roof installation.  Recalling the insurer’s initial denial of the same type of claim, Rent-a- Roofer hired its own counsel and defended the second suit.  Rent-a- Roofer settled that claim, too, after mediation.  Rent-a- Roofer then notified Farm Bureau about the second claim and demanded defense costs, indemnity and insurance coverage.

When Farm Bureau again denied the second claim, Rent-a- Roofer filed suit.  It argued that Farm Bureau owed coverage under the policy terms.  The trial court granted Farm Bureau’s motion for  summary judgment.  The lower court found that the “notice” provision of the policy barred coverage.  It also found that the “consent to settlement” provision also barred coverage too.  Rent-a- Roofer appealed.

The Nebraska Supreme Court found this was a case of first impression.  The Court had previously determined that a “failure to notify” provision in a policy is binding only if the insurer can show that it was actually prejudiced by the late notification.  However it had never determined whether a “failure to consent to settlement” provision also requires a showing of prejudice before an insurer can decline coverage.  Id., at 790.

Can this be determined as a matter of law?  Or does the insurer need to offer proof that it not only was prejudiced, but that the prejudice was material and definitive?  Rent-a- Roofer argued that summary judgment was premature.  A trial should be had.  Farm Bureau needed to prove material prejudice.

The Supreme Court reviewed the purpose behind the consent provision in a policy.  It is to allow the insurer to avoid liability and protect its interests by timely investigating the incident and participating in the defense and settlement of the claim.  Id., at 795. To achieve that purpose, the Court found that it was proper to maintain the prejudicial showing requirement when an insurer seeks to avoid its obligation to pay under the policy for a breach of the voluntary payments clause.  Id.

In this case, however, a conclusion can easily be reached.   Rent-a- Roofer not only defended without notice, but it also settled the second claim without notice.

“We conclude that prejudice may be shown as a matter of law where the insured’s settlement deprived the insurer of the opportunity to protect its interests in litigation or participate in the settlement discussions….. (A)t the time the insured entered into an enforceable settlement agreement, it was too late for Farm Bureau to act to protect its interests. There was nothing left for Farm Bureau to do but issue a check.  An insurer cannot fail for defending a suit that it has no knowledge of.  In this case, we conclude that this complete denial of Farm Bureau’s opportunity to engage in the defense, take part in settlement discussions, or consent to the settlement agreement was prejudicial as a matter of law…”

Id., at 796 (emphasis added).

Rent-a-Roofer argued that it justifiably moved ahead on the second suit without notice because Farm Bureau had denied a prior, identical type of claim.  But the Court rejected this excuse.  “Where the two claims against the insured are so different as to involve different parties, different complaints, and different occurrences, the insured must give notice to its insurer on both claims.  The insurer does not waive notice by denying coverage over a prior, wholly different claim. ”  Id., at 797.


If you want coverage, always put your insurance company on notice of a claim.  Never settle without its permission unless and until you get a determination on coverage by a declaratory judgment decision before paying the underlying claim.  I recommend asking.  The insurer can refuse, waive or not respond.  But at least you have fulfilled your “notice” and your “consent to settle” requirements in the policy. 


Posted in Business Pursuit Exclusion


Fill up your cup of coffee friends. 

We need to hunker down and get real here about the dark side of ride-sharing.

  • Would you get into a stranger’s car on a street corner and ask for a ride?
  • Would you want your stranger to have adequate insurance in case of an accident?
  • Would you want your stranger to pass a rigorous test confirming his driving skills?
  • Would you want your stranger to be randomly tested to make sure he is not impaired while driving?
  • Would you want your stranger to have a safe driving & accident history for the past ten years?

How many of my Dear Readers use the convenience of ride-sharing apps like Lyft and Uber?  There are several liability issues that should be kept in mind as you ponder their use instead of taxis.

First, did you know that ride-sharing drivers are not subject to the same licensing and regulation as taxi and livery drivers?  The drivers are not required to have state-regulated vehicles, background checks, or regular drug testing.  You are at the mercy of a stranger’s good will and the votes of prior drivers.  Enough said.

Second, it is probable that the ride-share driver has inadequate insurance.  And worse, he also may not know it.  You may have to pay out of your own pocket for medical expenses or losses due to an accident in a ride-sharing car.

Uber and Lyft aren’t legal in Nebraska, said Mark Breiner, director of the motor transportation department for the Nebraska Public Service Commission.  Uber, Lyft, and Sidecar would rather have you think of them as technology companies.  As Uber wrote recently in a legal filing with the CPUC:

Uber operates no vehicles, and does not hold itself out or advertise itself as a transportation service provider. In fact and law, Uber does not provide transportation services of any kind and does not own, lease or charter any vehicles for the transportation of passengers. On the contrary, Uber is a technology company that licenses the Uber cksApp to transportation service providers. The transportation service providers pay a fee to Uber to use its software technology; the passenger of the transportation service provider pays the transportation service provider for transportation services received.

Uber intentionally, then, has left much of the insurance burden on the drivers, who are using their own auto insurance.   What these drivers may not know, however, is that their personal auto policy probably will not cover them for losses if they are driving through a “ride-sharing” app.  Notice I did not say “for” a ride-sharing app, since Uber has specifically denied this arrangement.

Most auto policies contain an exclusion for paid services.  This is commonly known as the “business pursuit exclusion.”  The underwriting purpose is to exclude losses that occur when you are using your car for business reasons.  The standard ISO personal auto policy form states that:

This coverage does not apply to:

* * * Bodily injury and property damage arising out of the ownership,

maintenance or use of a car when used to carry persons or

                   property for a charge.   (Emphasis added).

Case law has interpreted this provision as generally barring coverage for any loss that occurs when the driver collects a separate free or money for his services.  For example, an employee of a postal service was hired to deliver telephone books with his own automobile.  He was involved in an accident.  A court ruled that his own auto policy did not cover those losses because of the business pursuit exclusion.   See,  United States v. Milwaukee Guardian Ins. Co., 966 F.2d 1246 (8th Cir. 1992).

Case law has not yet answered this question definitively as to Uber or Lyft.  But I can tell you pretty confidently that a standard personal auto policy would not cover the ride-sharing driver or his passengers for any losses.  The business use exclusion in auto policies has been extensively litigated and the results are clear: if money is paid to the auto owner for the driving service there is no coverage.

Uber, Lyft and others claim they are working to close this gap.  Uber, for example, states that it has purchased an extra policy for up to $1 million dollars in coverage.  But this policy purports to be an excess policy.  It only kicks in to cover those claims over and above the claims paid by the driver’s insurance, which it considers to be primary.  If there is no primary coverage due to the business pursuits exclusion in the driver’s auto policy, the insurer’s excess policy may not be triggered at all.  The issue is winding its way through the courts in California.  But how long will you wait before you are confident that there may be coverage?  I wouldn’t bet on it.


The upshot is this:  those of us who love using these apps may be sacrificing insurance coverage if there is an accident in a ride-sharing car.  Unless and until these issues are solved by Uber, Lyft,  the insurance industry and the states, the risk is too great if an accident occurs.


Posted in Fire, Homeowner's policy

Big fish 5



This point was brought home by the 8th Circuit in the case of Metropolitan Prop. and Cas. Ins. v. Calvin, 802 F.3d 933 (2015).   There, Calvin’s house burnt down.  He collected insurance and rebuilt on the same land.  When the second house was finished, he sought coverage from his original insurer, State Farm.  The agent told Calvin that renewal from State Farm seemed unlikely due to the prior fire.  So Calvin sought coverage from Metropolitan.

Calvin’s agent filled out the Metropolitan form for insurance.  Calvin provided the answers verbally.  The agent asked if Calvin had any previous fires and Calvin answered “yes.”  However the agent mistakenly checked the box “no.”  Then….wait for it, wait for it….another fire occurred shortly after the policy was issued.

Metropolitan investigated and suspected arson.  Metropolitan also discovered Calvin’s misrepresentation on the policy where he denied any previous fire claims.   Metropolitan filed a declaratory judgment suit, alleging that Calvin’s misrepresentation voided the policy.  Metropolitan also argued that Calvin made other statements in the policy that also were not true, such as denying that he had been rejected by another insurer when State Farm had indeed refused to renew, and at least ten other material misrepresentations in his application form.

Calvin argued that he did not make the errors, the agent did.  Nonetheless, the district court found that the misrepresentations voided the policy – regardless of who made them. Calvin signed the application.  It contained a statement that said “I have read this document and the information in it is true.”  Under Arkansas law, which applied here, any person who signs a document is bound under the law to know its contents.   Id. at  937.  The district court granted summary judgment to Metropolitan, the insurer.  Calvin appealed.

Not so fast, the 8th Circuit said.  Even though a person is bound to know and understand those documents which they sign, there are some exceptions under Arkansas law.  One relates to insurance.  “(W)here an insured signs an application which was prepared by an insurance company’s agent, and a conflict in the evidence arises as to whether an error on an insurance application was caused by the fraud, negligence or mistake of the agent, a question of material fact is presented which precludes entry of summary judgment.”  Id. at 937.

This rule is not without its own controversy.  Three Arkansas judges dissented in the controlling opinion that was cited by the 8th Circuit.  They stated that “the effect of today’s opinion is that any applicant for insurance can now renege on any statement in his or her application by simply saying: ‘I was never asked that question’ or ‘I did not read that application.’  All an insured has to do is make either of those declarations, and the matter will automatically be sent to trial.”   Id. at 938 quoting Neill v. Nationwide Mutual Fire Inc. Co., 139 S.W.3d 484, 489 (2003).

In urging the 8th Circuit to ignore the Neill rule and to uphold the summary judgment for the insurance company, Metropolitan argued that Calvin made many errors on the application.  Another significant error was Calvin’s denial that his insurance application had been rejected by another insurer.  State Farm had denied him coverage, Metropolitan said.  But the Court found that this was not entirely true.  Instead, Calvin’s agent advised him against seeking coverage from State Farm – which is not the same as an express denial of insurance coverage.  Id. at 938.  In any event, Metropolitan argued, the cumulative effect of all of Calvin’s errors on his Metropolitan application makes them all collectively material, sufficient in size and scope to render the policy void.  Id. at 939.

The 8th Circuit agreed.  In part at least.  It said that this may be true; but if it is, then both parties have a right to present this evidence to the trial court for a full determination on the merits.  It is not acceptable to conclude, as a matter of law, that one who signs a document is absolutely bound by the contents.  There are nuances and exceptions to this rule, all of which must be ferreted out in the trial court below.  Id.


You still had better read everything you sign. Even if your insurance application is filled out by your agent.  Your agent’s error is not an absolute excuse.  But it could be.  Make every attempt to read what  you sign, especially if the contract states that you did.