Washington Bad Faith Law At A Glance – Third Edition

September 12th, 2017

Washington state can be a difficult jurisdiction for insurers. To help insurers avoid or mitigate their extra-contractual exposure, Sedgwick’s Bob Meyers published the Third Edition of Washington Bad Faith Law At A Glance, arguably the seminal and most comprehensive resource on Washington insurance bad faith law. In his paper, Bob Meyers cites notable Washington authorities relating to common law bad faith, the Consumer Protection Act and the Insurance Fair Conduct Act. For insurers’ ease of reference, he also includes excerpts from notable Washington insurance statutes and regulations.

In the Third Edition, Bob Meyers addresses several recent developments about which any insurer with exposure in Washington should be aware, including the Washington Supreme Court’s conclusion that a regulatory violation is not independently actionable under the Insurance Fair Conduct Act; the Ninth Circuit Court of Appeals’ conclusion that an insured under a liability insurance policy is not a “first party claimant” with a right of action under the Insurance Fair Conduct Act; a Washington Court of Appeals’ reaffirmation that an insurer generally has the right to select defense counsel; a federal judge’s reaffirmation that estoppel cannot be used to create insurance coverage that never existed; and a Washington Court of Appeals’ conclusion that an insured may assert a bad faith claim against an insurer’s claim adjuster. He also discusses recently filed Washington cases that address an insured’s burden of proving bad faith, the presumption of harm, coverage by estoppel, privilege and work product issues and damage issues.

To view the white paper, click here.

CFPB Issues New Arbitration Rule – Are the Flood Gates Opening for Consumer Class Actions against Financial Institutions?

July 14th, 2017

On July 10, 2017, the Consumer Financial Protection Bureau (CFPB) issued a rule (full text here), which prohibits many financial institutions from including mandatory arbitration provisions that limit their customers’ ability to join class action litigation. The rule, which may become effective as early as 2018 and only applies to new accounts opened after the effective date, appears to apply to a broad range of financial institutions, including banks, credit card and consumer financing companies, debt management and collections operations, auto leasing companies, and other entities that provide fund transfers and money exchanges (i.e., check cashing services). However, there may be opposition in Congress, as well as by the current administration, to the rule’s ultimate implementation.

The rule further requires impacted financial institutions using arbitration clauses in consumer disputes to submit records relating to arbitration and court proceedings to the CFPB. The CFPB intends to review the collected information to monitor the proceedings to determine whether additional consumer protections are warranted, or if further CFPB action is required.

The enactment of the rule stemmed from the Dodd-Frank Act and instructions from Congress in 2010, which led the CFPB to conduct a study of pre-dispute arbitration agreements between consumers and financial institutions. The study found that in addition to many consumers opting to forgo a formal dispute process with financial service providers, many contracts for consumer financial products and services included mandatory arbitration clauses, which blocked the customers’ ability to join related class action proceedings. The CFPB concluded that class actions provide a more effective means for consumers to challenge potentially problematic and abusive practices by financial service providers than arbitration clauses. Additionally, the agency determined that the arbitration clauses effectively blocked similarly situated consumers from collectively pursuing common disputes in court. The CFPB also found that the use of the arbitration clauses insulated financial institutions from significant consumer-related awards and judgments, which failed to discourage harmful practices from continuing.

If the rule becomes effective, it is likely to impact a wide-array of both small and large financial institutions. By forcibly removing the ability of the financial institutions to arbitrate customer claims, it is foreseeable that the frequency and severity of consumer-oriented class actions faced by these financial institutions will sharply increase. Such an increase in consumer-oriented litigation against effected financial institutions may have a significant impact on those entities’ respective FI, E&O and D&O insurers, who may see an influx of larger claims stemming from class action litigation, instead of smaller and less costly individual arbitrations.

No Coverage for Multi-Million Dollar False Claims Act Settlement Due to Insured’s Failure to Provide Sufficient Details in Notice to Insurers

July 13th, 2017

By: Kimberly Forrester

On June 23, 2017, Judge Lipman ruled in First Horizon National Corp., et al. v. Houston Casualty Co., United States District Court for the Western District of Tennessee Case No. 2:15-cv-2235 that First Tennessee Bank’s (Bank) primary insurer, Houston Casualty Company, and seven excess insurers did not have to pay their combined $75 million limits for the Bank’s $212.5 million settlement of claims alleging the Bank violated the False Claims Act. Specifically, the Western District of Tennessee Court (Court) held that the Bank had not provided sufficient notice to the insurers of the circumstances leading up to the deal. In affirming the primary and excess insurers’ denial of coverage for the Bank’s settlement, the Court reasoned that although the claim first arose during the relevant policy period, the Bank failed to provide sufficient details and adequate notice of the claim as required under the primary policy’s notice of circumstances (NOC) provision.

The Bank’s coverage was in effect from August 2013 through July 2014. Although the underlying Department of Justice (DOJ) investigation began in 2012, the DOJ did not share with the Bank its view that the Bank was in violation of the False Claims Act until a May 2013 meeting. Then, in April 2014, the DOJ offered to settle its claims against the Bank for a $610 million payment. The following month, in May 2014, the Bank sent a NOC to its insurers, stating:

“Since second quarter 2012 FHN has been cooperating with the U.S. Department of Justice (DOJ) and the Office of the Inspector General for the Department of Housing and Urban Development (HUD) in a civil investigation regarding compliance with requirements relating to certain Federal Housing Administration (FHA)-insured loans. During second quarter 2013, DOJ and HUD provided FHN with preliminary findings of the investigation, which focused on a small sample of loans and remained incomplete. FHN prepared its own analysis of the sample and has provided certain information to DOJ and HUD. Discussions between the parties are continuing as to various matters, including certain factual information. The investigation could lead to a demand or claim under the federal False Claims Act and the federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which allow treble and other special damages substantially in excess of actual losses. Currently FHN is not able to predict the eventual outcome of this matter. FHN has established no liability for this matter and is not able to estimate a range of reasonably possible loss due to significant uncertainties regarding: the potential remedies, including any amount of enhanced damages that might be available or awarded…”

Significantly absent from the Bank’s notice to the insurers was any reference to the DOJ’s $610 million settlement demand.  The following year, in June 2015, the Bank agreed to settle the DOJ’s claims for $212.5 million. The insurers denied coverage for the Bank’s settlement on the grounds that the Bank had not provided timely or adequate notice as required under the primary policy. The Bank then sued its insurers in an effort to obtain the collective $75 million limits from the policies.

Agreeing with the insurers, the Court concluded that the April 2014 settlement offer was a Claim for which the Bank failed to give appropriate notice under the primary policy. The Court reasoned that by not mentioning the DOJ’s $610 million settlement demand, the Bank’s notice did not include sufficient information to alert the insurers of the significance of the claim and failed to comply with the primary policy’s NOC provision requiring “full particulars as to dates, persons and entities involved, potential claimants, and the consequences which have resulted or may result therefrom.” In reaching the holding, Judge Lipman stated “[t]he general, boiler-plate type language contained in the NOC was not sufficient notice of this Claim…To permit Plaintiffs to rely on the NOC submitted in May 2014 as notice of the April 2014 Claim defeats the purpose behind a claims-made policy, wherein the purpose of the notice requirement is to inform the insurer of its exposure to coverage.” The Court further opined that the Bank’s statements in the NOC were “not reflective of the state of affairs at the time” and dismissed all of the Bank’s bad faith claims against the insurers, finding that there was a reasonable dispute among the parties about the timing and coverage for the underlying claim.

This case serves as an important reminder that insureds must provide specific details about claims and potential claims as soon as they become aware of them and not to omit vital information relative to exposure. It also highlights some of the coverage issues that can arise from False Claims Act Litigation. Sedgwick attorneys Kimberly Forrester (SF) and Matthew Ferguson (NY) previously addressed some of these coverage issues, including claims made and reported defenses, that can arise with False Claims Act litigation in their article titled “False Claims Act Litigation and Implications for D&O and Professional Liability Insurers”, which can be found here. As the exposure and frequency of these claims continue to rise for these suits, there is likely to be further court analysis of coverage implications under various provisions of corporate policies.

SEC Disgorgement Constitutes a Penalty – How Far Will the Argument Go?

June 28th, 2017

By: Carol Gerner

On June 5, 2017, Justice Sotomayor delivered the unanimous opinion in Kokesh v. SEC, 2017 U.S. LEXIS 3557 (June 5, 2017), holding that disgorgement collected by the Securities and Exchange Commission (SEC) constitutes a “penalty” under 28 U.S.C. §2462,[1] and thus subject to a five-year statute of limitations. In a relatively short, but thorough opinion, the Court overturned a Tenth Circuit decision finding that disgorgement was not properly characterized as a penalty within the federal statute and therefore not subject to the limitation period.

In the underlying case, the SEC sought civil monetary penalties, disgorgement, and an injunction barring Charles Kokesh, the owner of two investment-adviser firms, from violating securities laws in the future. After a 5-day trial, a jury found that Kokesh’s actions violated various securities laws. As to civil penalties, the district court determined that the 5-year limitations period precluded any penalties for misappropriation of funds prior to October 27, 2004 (i.e., prior to the date the Commission filed the complaint), but ordered a civil penalty of $2.3 million for the amounts Kokesh received during the limitations period. Regarding the Commission’s request for a $34.9 million disgorgement judgement ($29.9 million of which resulted from violations outside the limitations period) the court agreed with the Commission that because disgorgement was not a “penalty ” within the meaning of §2462, no limitation period applied. The court thereafter entered a disgorgement judgment in the amount of $34.9 million. On appeal, the Tenth Circuit affirmed, agreeing with the district court that disgorgement was not a penalty or a forfeiture, and therefore, the statute of limitations did not apply to the SEC’s disgorgement claims.

Thereafter, the Supreme Court granted certiorari to resolve disagreement among the Circuits regarding whether disgorgement claims in SEC proceedings were subject to the 5-year limitations period.  Applying legal principles governing the interpretation and meaning of a “penalty,” the court articulated three reasons why it concluded that SEC disgorgement constituted a penalty within the meaning of §2462. First, SEC disgorgement is imposed by the courts as a consequence for violating “public laws.” Second, SEC disgorgement is imposed for punitive purposes. Third, in many cases SEC disgorgement is not compensatory. Thus, the Court reasoned that SEC disgorgement “bears all the hallmarks of a penalty: It is imposed as a consequence of violating a public law and it is intended to deter, not to compensate.”

Since the Kokesh decision arose out of an SEC enforcement action, its impact will likely be seen in how the SEC chooses its targets for future enforcement actions. It remains to be seen, however, whether similar arguments that disgorgement is a penalty will be raised in other contexts. For example, the issue is often raised in insurance coverage disputes between insurers and insureds, as claims seeking disgorgement are generally not covered. Whether courts will be receptive to similar arguments in other contexts is an area insurers and their counsel should continue to monitor.

[1] 28 U.S.C. §2462, applies to “any action, suit or proceeding for the enforcement of any civil fine, penalty or forfeiture, pecuniary of otherwise.”

New York Court of Appeals Clarifies Scope of Additional Insured Coverage, Resolves Appellate Division Split?

June 8th, 2017

In New York, differing views have been offered by the Appellate Divisions in the First and Second Departments regarding the scope of additional insured coverage when the named insured did not cause the accident. This split appears to be resolved by the New York Court of Appeals in its new decision in Burlington Ins. Co. v. NYC Transit Auth., No. 57, 2017 N.Y. LEXIS 1404 (N.Y. 2017), where the court held that additional insured coverage is only available if the named insured’s conduct is the proximate cause of the underlying injuries. In its decision, the Court of Appeals made clear that “there is no coverage because, by its terms, the policy endorsement is limited to those injuries proximately caused by [the named insured].” Given the Court of Appeals’ focus on policy language, this decision has the potential to impact a wide range of additional insured coverage disputes.

In brief, Breaking Solutions, Inc. purchased commercial general liability insurance from Burlington, which included an endorsement listing the NYC Transit Authority, MTA and the City as additional insureds. The additional insured endorsement at issue provides, in relevant part, that the NYC Transit Authority, MTA and the City are additional insureds:

only with respect to liability for ‘bodily injury’, ‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part, by:

  1. Your acts or omissions; or
  2. The acts or omissions of those acting on your behalf.

The plaintiff in the underlying litigation, a NYC Transit Authority employee, allegedly sustained injuries in a fall at a construction site while he was trying to avoid an explosion that occurred after a Breaking Solutions machine touched a live, underground electrical cable. Discovery in the underlying litigation revealed that the NYC Transit Authority was at fault. As a result, Burlington denied coverage to the NYC Transit Authority and MTA on the ground that neither entity qualified as an additional insured within the meaning of the policy, because the NYC Transit Authority was solely responsible for the accident that caused the underlying injuries.

In the subsequent coverage litigation, Burlington argued that the policy did not afford coverage in such circumstances (i.e., where the additional insured was the sole proximate cause of the underlying injuries). Reversing the Appellate Division, the Court of Appeals determined that “where an insurance policy is restricted to liability for any bodily injury ‘caused, in whole or in part’ by the ‘acts or omissions’ of the named insured, the coverage applies to injury proximately caused by the named insured.”

This decision should provide some relief and clarification for insurers that include additional insured endorsements on their liability policies, as the Court of Appeals now has established the extent of a named insured’s role in the accident for additional insured coverage to be triggered. However, insurers should be mindful of the analysis offered by the dissent, which explained that a stricter application of the policy wording should have been used to resolve the coverage question.

Insurers’ Antitrust Exemption in Crosshairs Again as Part of Potential Health Care Overhaul

April 6th, 2017

By: James Baffa

Just when you thought the health insurance legal and regulatory landscape couldn’t get any more interesting, along comes the Competitive Health Insurance Reform Act of 2017 (the Act). The Act removes a longstanding antitrust exemption and places health insurers back under federal antitrust scrutiny. The House recently passed the Act overwhelmingly (416 – 7), and the Senate’s Judiciary Committee is now weighing it.

The Act amends the 1945 McCarran-Ferguson Act, which provides that federal antitrust laws, such as the Sherman Act and Clayton Act, do not apply to the “business of insurance.” McCarran-Ferguson allows states to regulate insurance, as state regulation of insurance was commonplace for much of American history. In 1944, however, the Supreme Court decided United States v. South-Eastern Underwriters Association, 322 U.S. 533 (1944), in which it determined that insurance was “commerce among the states,” making it subject to the Sherman Act. In response, Congress passed the McCarran-Ferguson Act, which was designed to legislatively repeal South-Eastern Underwriters and restore state prominence in insurance regulation.

Despite the history of state regulation of insurance, and the prompt nature of the McCarran-Ferguson Act’s passage after the Supreme Court’s decision in South-Eastern Underwriters, the insurance exemption from federal antitrust laws has been widely criticized.  Democrats have long supported a full repeal of McCarran-Ferguson with respect to all insurance, including health insurance. For instance, in the aftermath of Hurricane Katrina, perceived abuses by insurers led to calls by lawmakers to repeal the antitrust exemption. More recently, in 2010, a similar bill to repeal the exemption specific to health insurers stalled in the Senate after passing easily in the House.

The much-publicized focus on health insurance in recent years has again caused a reconsideration of the insurance antitrust exemption. The proposed Competitive Health Insurance Reform Act would prohibit price fixing, bid rigging and market allocation, which – according to the Act’s proponents – would unlock greater competition in the health insurance marketplace. This time, there is reason to believe that attempts to repeal the antitrust exemption may be different than prior unsuccessful attempts. While Democrats have long favored repeal, Republicans are also now behind the effort. The GOP sees repeal as part of the broader health insurance overhaul and hopes the potential increases in competition will lead to lower prices, increased choice and greater innovation in the health insurance industry. The White House also supports the Act, as Trump Administration advisers have stated they would recommend signing the Act into law if presented in its current form.

Keep your eye on this issue, as it may slip through the cracks in the news due to the flurry of activity related to health insurance and the Trump Administration, generally. If passed, health insurers would require additional compliance focus, as antitrust issues involving price fixing, bid rigging and market allocation have been outside health insurers’ wheelhouse for some time.

Florida High Court Clarifies When an Insured Is Entitled to Attorneys’ Fees When an Insurer Initially Denies a Sinkhole Claim

April 3rd, 2017

In Johnson v. Omega Insurance Co., 200 So. 3d 1207 (Fla. 2016), the Florida Supreme Court held that an insured was entitled to an award of attorneys’ fees under section 627.428, Florida Statutes and the confession of judgment doctrine based on an insurer’s post-suit tender of policy benefits for a sinkhole claim after the insurer initially denied the claim. To view the Court’s slip opinion click here; to view the Court’s docket click here.

Omega Insurance Co. issued to Kathy Johnson a homeowner’s policy that included coverage for sinkhole damage. When Johnson noticed structural damage to her home, she filed an insurance claim with Omega, asserting that the damage was caused by sinkhole activity on her property. Omega investigated the claim pursuant to chapter 627 by retaining a professional engineering and geology firm to conduct testing. The firm’s report concluded that, while the property was damaged, there was no sinkhole activity on the property. Based on the report, which is presumed correct by statute, Omega denied Johnson’s claim. In turn, Johnson, at her expense, retained a civil engineering firm to evaluate the cause of the damage to her home. Johnson’s firm found that sinkhole activity did cause the structural damage.

Johnson then filed suit against Omega for failing to pay her sinkhole benefits. Upon motion by Omega, the trial court stayed the litigation to allow a neutral evaluation to take place. The neutral evaluation agreed with the report issued by Johnson’s firm. Upon receipt of the report, Omega paid the policy benefits. Johnson then moved for an award of attorneys’ fees under § 627.428 which provides that “[u]pon the rendition of a judgment or decree…against an insurer and in favor of any named…insured …under a policy or contract executed by the insurer, the trial court…shall” award the insured its reasonable attorneys’ fees. Based upon the confession of judgment doctrine, which equates an insurer’s tender of policy benefits or a settlement agreement with a “judgment” under § 627.428, the trial court granted the motion.

Omega appealed to the Fifth District which reversed, finding that Omega’s initial denial was not wrongful or unreasonable. The district court equated “wrongful” with an insurer’s bad faith denial of a claim. The Court’s conclusion was buttressed by several facts: (1) Omega complied with its statutory obligations under chapter 627 by retaining an engineer to identify the cause of loss and issue a report; (2) The report, which is presumed correct by statute, found that sinkhole activity was not the cause of the damage; (3) Before filing suit, Johnson failed to present her countervailing report to Omega, failed to at least notify Omega that she disagreed with its report or failed to further attempt to discuss her claim with Omega.

The Florida Supreme Court quashed the Fifth District’s decision, finding that it misapplied both the statutory presumption of correctness found in the sinkhole statutes and § 627.428. The Court addressed two main issues: (1) whether the statutory presumption of correctness for an insurer’s internal report during the investigation process in the sinkhole statutes extends to later proceedings; and (2) whether an insured’s recovery of attorneys’ fees under § 627.428 requires an insurer’s bad faith in denying a valid claim, or simply an incorrect denial of benefits.

The Court—based on prior precedent—concluded that the statutory presumption of correctness in the sinkhole statutes only applies to the sinkhole “initial claims process” and not to litigation instituted by an insured to recover policy benefits. Johnson therefore did not have the burden of separately rebutting that initial presumption to recover attorneys’ fees under § 627.428.

The Court also concluded that “in the context of section 627.428, a denial of benefits simply means an incorrect denial.” An insured does not need to prove that the insurer engaged in bad faith or malicious conduct in denying a claim. Instead, if there is dispute between the insurer and the insured over policy benefits and there is a judgment in favor of the insured or the insurer pays without a judgment, then the insured is entitled to fees under § 627.428.

In its opinion, the Court rejected the insurer’s reliance on State Farm Florida Insurance Co. v. Colella, 95 So. 3d 891 (Fla. 2d DCA 2012), because it found the case to be distinguishable. The Court’s discussion of the case, however, demonstrates that in determining whether an insured is entitled to fees under § 627.428 the insured’s conduct may also be considered. In Colella, the Second District found that there was no breach of contract by an insurer—and hence no entitlement to fees under § 627.428—when the insured litigated “in bad faith to profit from a technicality” and engaged in “manipulation and foul play.”

The upshot of this decision is that once an insurer denies benefits and the insured files suit to dispute the denial, the insurer cannot then abandon its position “without repercussion.” In other words, an insurer cannot “backtrack after the legal action has been filed” by paying the claim to avoid an insured’s fee entitlement under § 627.428. In short, insurers should be absolutely positive of their denial of benefits before informing the insured. If an insured files suit and the denial is proven “incorrect,” then an insured is entitled to fees. Most importantly, it is irrelevant to the insured’s fee entitlement whether the insured fails to challenge the insurer’s denial before filing suit.

A Shock to the System: Significant Changes to the Discount Rate Applicable to Personal Injury Damages Awards in England and Wales

March 8th, 2017

By: Alex Potts and Caitlin Conyers, Bermuda

In the United Kingdom, when victims of life-changing personal injuries accept lump sum compensation payments, the actual amount they are awarded by English Courts is adjusted according to the interest that they can expect to earn by investing the award. In finalising the compensation amount, English Courts apply a calculation called the Discount Rate – with the rate percentage linked legally to returns on the lowest risk investments, typically Index Linked Gilts.

On 27 February 2017, the Lord Chancellor and Minister of Justice announced significant changes to the Discount Rate applicable under the “Ogden Tables” to the calculation of the compensation payments and lump sum damages awards in England and Wales. The announcement was not welcomed by the UK insurance industry, as many UK insurers will face the prospect of significantly increased personal injury damages liabilities.  However, legal representatives for injured claimants have long been advocating for Discount Rate reform in England and Wales, against the background of a number of consultation exercises.

The decision by the Lord Chancellor to lower the Discount Rate from 2.5% to minus 0.75% was made in accordance with the UK’s Damages Act 1996, which makes clear that claimants must be treated as risk averse investors, reflecting the fact that they are financially dependent on this lump sum, often for long periods or for the duration of their life.  Compensation awards using the discount rate should, so far as possible, put the claimant in the same financial position that they would have been in had they not been injured, including loss of future earnings and future care costs.  The new Discount Rate of minus 0.75% comes into effect in England and Wales on 20 March 2017, following amendments to the current legislation.

The Discount Rate previously had been set in 2001, and remained unchanged for 16 years.  The Lord Chancellor’s recent change to the Discount Rate will see compensation payments rise in England and Wales, and, as such, it is likely to have a significant impact on the insurance industry, and a knock-on effect on public services with large personal injury liabilities (particularly the National Health Service).

In the Lord Chancellor’s announcement to the London Stock Exchange on 27 February 2017, the UK Government made four key pledges:

  • the UK Government has committed to ensuring that the NHS Litigation Authority has appropriate funding to cover changes to hospitals’ clinical negligence costs;
  • the Department of Health will work closely with general practitioners (GPs) and Medical Defence Organisations to ensure that appropriate funding is available to meet additional costs to GPs, recognising the crucial role they play in the delivery of NHS;
  • the UK Government will launch a consultation in the coming weeks to consider whether there is a better or fairer framework for claimants and defendants, with the government bringing forward any necessary legislation at an early stage. The consultation will consider options for reform – including whether the rate should in future be set by an independent body; whether more frequent reviews would improve predictability and certainty for all parties; and whether the methodology is appropriate for the future;
  • the UK Government’s Chancellor of the Exchequer, Philip Hammond, will meet representatives of the insurance industry to assess the impact of the rate adjustment.

It should be noted that in certain other common law jurisdictions such as Bermuda, the Courts already had moved in recent years towards a Discount Rate consistent with the minus 0.75% now applicable in England and Wales, on a case by case basis (see, e.g., Simon v Helmot [2012] UKPC 5; Argus Insurance v Talbot [2014] Bda LR 114; Warren v Harvey [2015] Bda LR 59; and Colonial Insurance v Thomson [2017] Bda LR 41).

New York Court Finds Multiple Occurrences in Coverage Dispute Involving Abuse Claims

March 7th, 2017

In Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. The Roman Catholic Diocese of Brooklyn, No. 653575/2014, 2017 WL 748834 (N.Y. Sup. Ct., N.Y. Cty. February 27, 2017), a New York trial court held that the Diocese must pay multiple self-insured retentions per year — one per occurrence — in a coverage dispute involving claims that foster care agencies affiliated with the Diocese negligently placed ten children with an abusive foster mother over a twenty-two year period.

The trial court tracked the reasoning of the Court of Appeals in a separate coverage dispute concerning claims of sexual abuse by a priest, Roman Catholic Diocese of Brooklyn v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 21 N.Y.3d 139 (2013). In Diocese of Brooklyn, the Court of Appeals made clear that the “unfortunate event” test should be applied to determine whether separate incidents are characterized as one occurrence, absent policy language demonstrating an intent to aggregate the incidents into a single occurrence. The Court of Appeals dismissed the argument that the acts of abuse should be deemed a single occurrence because they amounted to “continuous or repeated exposure to substantially the same general harmful conditions.” Applying the “unfortunate event” test, the Court of Appeals held that numerous incidents of molestation by the same priest against one plaintiff constituted multiple occurrences, in part because the acts of abuse took place in several locations over a six year period and were not precipitated by the same causal continuum.

Analyzing identical policy language, a New York trial court determined that the definition of occurrence did not reflect an intention to aggregate multiple incidents of abuse into a single occurrence. As the claims lacked the temporal and spatial commonalities required to constitute a single occurrence under the “unfortunate event” test, the trial court held that “the incidents of abuse suffered by each of the claimants constituted multiple occurrences and there was at least one ‘occurrence’ per claimant per policy period because the injuries suffered by each claimant were unique to that claimant in a given policy year and caused by separate incidents.” Consequently, the trial court ruled that the defense and settlement payments advanced by the Diocese’s insurers under a reservation of rights before this issue was resolved, must be allocated on a pro rata basis over the entire twenty-two year period, and the Diocese was obligated to pay a separate self-insured retention for each occurrence — that is, each instance of abuse to each victim during this time period.

Washington Bad Faith Law At A Glance

September 13th, 2016

By: Bob Meyers, Sedgwick Seattle

Washington state can be a difficult jurisdiction for insurers. To help insurers avoid or mitigate their extra-contractual exposure, Sedgwick LLP’s Bob Meyers published the Second Edition of Washington Bad Faith Law At A Glance, arguably the seminal and most comprehensive resource on Washington insurance bad faith law. In his paper, Mr. Meyers cites notable Washington authorities relating to common law bad faith, the Consumer Protection Act, and the Insurance Fair Conduct Act. For insurers’ ease of reference, he also includes excerpts from notable Washington insurance statutes and regulations. In the Second Edition, Mr. Meyers includes four new sections that respectively address whether an insurer must split the file when it is defending an insured subject to a reservation of rights, and the discoverability of loss reserves, reinsurance information, and information about other claims. He also discusses recently filed Washington cases that address who owes a duty of good faith, who may pursue bad faith claims, and whether emotional distress damages are recoverable.

To view this white paper, click here.

Sedgwick Attorneys
Sedgwick’s insurance attorneys regularly present to clients and other industry professionals on a wide range of topics. For a complete list of our attorneys, click here.
Our Firm
The most complex and high-stakes legal challenges facing the insurance industry demand the highest level of expertise and commitment, delivered by a coordinated team across all areas of insurance law. We deliver a personal, partner-led service to achieve the resolution of international and domestic liability and insurance business issues that are sensitive to the relationship between insurers, insureds and brokers, read more.

Search
Subscribe
Subscribe via RSS Feed
Receive email updates: