Archive for the ‘Policy Drafting/Advice’ Category

It’s All in the Delivery – Proper Renewal Saves Millions

Friday, February 14th, 2014

By Carol Gerner, Sedgwick Chicago

In Windmill Nursing Pavilion Ltd. v. Cincinnati Ins. Co., (No. 1-12-2431), the Illinois Court of Appeals concluded that under Ohio law, Cincinnati Insurance Company (“Cincinnati”) provided sufficient notice to its insured, Unitherm, Inc. (“Unitherm”), of renewal terms that added an exclusion for alleged violations of the Telephone Consumer Protection Act of 1991 (“TCPA”). Accordingly, the court affirmed the trial court’s decision granting partial summary judgment in favor of Cincinnati on the validity of the TCPA exclusion. As a result, Cincinnati did not have to pay $4 million out of a $7 million consent judgment.

Windmill Nursing Pavilion, Ltd. (“Windmill”) filed a class action complaint alleging that Unitherm violated the TCPA by sending unsolicited fax advertisements to it in November 2005 and in late April 2006. At the time Unitherm sent the faxes, it carried commercial general liability and umbrella liability coverage through Cincinnati. The original policy expired before the April 2006 faxes were sent. The renewal policy contained a modification that excluded coverage for “bodily injury,” “property damage,” or “personal and advertising injury” arising out of “any act or omission” that violated the TCPA.

Windmill, Unitherm, and Cincinnati entered into a settlement agreement resolving the class action. The parties agreed to a $7 million consent judgment against Unitherm, which was collectible from Cincinnati under the insurance policies. Cincinnati agreed to provide an initial settlement fund of $3 million, which represented the combined general aggregate and umbrella limits under the original policy. The settlement agreement also provided that Cincinnati’s obligation to pay any further portion of the judgment balance would depend on the outcome of two “carved-out” issues. One of those issues was whether Cincinnati’s notice of reduction in coverage to Unitherm regarding the TCPA exclusion (added to the renewal policy) was sufficient.

The appellate court agreed with the trial court’s ruling that Ohio law applied in the case, and Cincinnati’s notice of a coverage exclusion complied with that state’s insurance law, defeating Windmill’s request to have Cincinnati pay the remaining $4 million of the settlement.

The decision is instructive on several levels. First, when issues of coverage are involved at the time of settlement of the underlying litigation, a settlement may be negotiated which reserves the right to address certain “carved-out” issues as was done in this case. In Windmill, the court found that the release did not preclude the parties from litigating the “carved-out” issues. Second, insurers should be mindful of any differences in statutory requirements for “renewal” as compared to “nonrenewal” situations. In this case, the court held that the notice provided with the renewal policy complied with Ohio law: it was on a separate page, attached to the policy, and was clearly worded regarding the change in coverage. In addition, because the underlying and umbrella policies were “bound together and share[d] the same policy number, the notice was sufficient for both.”

Windmill serves as a reminder that, when limiting coverage on renewal, an insurer should confirm which state’s law will apply to policy interpretation and ensure that it is complying with those specific statutory renewal requirements. As the decision demonstrates, doing the right thing can result in significant savings.

Florida High Court Precludes Use of Extrinsic Evidence to Construe Ambiguous Policy Language

Tuesday, July 23rd, 2013

In what may be described as a controversial 4-3 decision, the Florida Supreme Court in Washington National Insurance Corp. v. Ruderman, No. SC12-323, 2013 WL 3333059 (Fla. July 3, 2013), held that ambiguous language in an insurance policy “must be construed against the insurer and in favor of coverage without resort to consideration of extrinsic evidence.” (Emphasis added). Although the first part of the court’s holding, which is embodied in the Latin phrase contra proferentem, was nothing new, the second part of its holding—excluding the use of extrinsic evidence—appears to be a significant departure from well-established Florida jurisprudence. The court limited its analysis on this issue to a 34-year old decision, Excelsior Ins. Co. v. Pomona Park Bar & Pkg. Store, 369 So. 2d 938 (Fla. 1979), and found that the court never “expressly” held that “extrinsic evidence must be considered in determining if an ambiguity exists.”

The Dissent

The dissent, authored by Chief Justice Polston, disagreed that the policy was ambiguous and charges that the “majority improperly rewrites the parties’ contract to provide coverage for which the parties did not bargain and the insureds did not pay.” Even if the policy was ambiguous, the dissent contends that the majority “improper recedes from [its own] precedent” because “it is well-settled Florida law that parties may attempt to resolve an ambiguity through available extrinsic evidence before applying the last-resort principle of construction against the drafter.” To support its position, the dissent cites to decisions from the Florida Supreme Court (one dating back over 100 years) and the district courts. The sheer volume of authority referenced by the dissent with selected quotations appears to render the majority’s analysis facially incomplete.


The court’s decision will probably have a tremendous impact on coverage disputes in the State of Florida. The holding effectively precludes insurers from introducing any evidence to oppose a claim that a policy provision is ambiguous. Consequently, insurers will have to focus their legal energy on convincing the court that the policy is clear and unambiguous. On the other hand, given that ambiguity is an extremely subjective determination (as evidenced by this decision), if an insurer offers what the trial court believes to be a reasonable (and favorable) construction of the policy, the courts will have to side with the insured.

Although it remains to be seen, the decision also could obviate the need for experts and streamline cases. The decision also leaves unanswered whether the holding applies in a dispute between two insurers, and whether the sophisticated insured defense—an exception to the doctrine of contra proferentem—is viable. Similarly, while insurers can try to insulate themselves from the effect of the decision by allowing insureds to actively negotiate insurance policies, this would only be realistic for large, sophisticated commercial policyholders. Finally, litigants may try to use the decision in run-of-the-mill contract disputes where the contract was drafted by one party without negotiation or input by the other party.


S.B. 112 – Proposed Property Insurance Reform Bill in Texas

Monday, February 11th, 2013

By Lisa M. Henderson, Sedgwick Dallas

A Texas State Senator has introduced legislation that would require residential property insurance carriers to include on the declarations page a dollar amount and explanation for every deductible.  The Senator, Eddie Lucio Jr., believes the bill is necessary to eliminate the confusion caused by deductibles that are listed as percentages, as opposed to a certain dollar amount.  Mr. Lucio believes that policyholders often assume that the deductible is a percentage of their loss when, in fact, the deductible is a percentage of the insured value of the residence.  The bill would require that declarations pages: (1) list and explain each type of deductible under the residential insurance policy; and (2) list the exact dollar amount of each deductible under the residential property insurance policy.  The bill was approved by the Business & Commerce Committee on February 6, 2013.  If enacted, the bill will apply to all residential property insurance policies issued in Texas on or after January 1, 2014. 

We will continue to track S.B. 112 and post any developments.

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