It is well-established that claim processing and wrongful denial of coverage disputes involving federal flood insurance policies belong in federal court because they present substantial questions of federal law. The U.S. District Court for the Western District of North Carolina recently applied this rule when it denied the insureds’ motion to remand a case to state court in Henderson v. Nationwide Mutual Fire Insurance Company, 3:16-CV-419, 2016 WL 5415290 (W.D.N.C. Sept. 27, 2016). The Henderson Court, however, left open the question of whether disputes solely arising out the “procurement” of federal flood insurance policies likewise involve substantial questions of federal law or are matters of state law that can properly be determined by state courts. This is an issue on…
Yearly Archives: 2016
Can Disputes Related To Procurement Of Federal Flood Insurance Policies Be Litigated In State Court?
Posted in Flood Insurance
Claim For Fraudulent Wire Transfer Under Commercial Crime Policy Found to be Covered, Although Denial Not In Bad Faith
Principle Solutions Group, LLC, an information technology company, lost $1.717 million when it became the victim of a fraud scheme for which it sought coverage under the terms of a commercial crime policy issued by Ironshore Indemnity, Inc. The policy provided coverage for “Computer and Funds Transfer Fraud,” “resulting directly from a fraudulent instruction directing a financial institution to debit your transfer account and transfer or, pay or deliver money or securities from that account.” At issue was the meaning of the word “directly,” as it pertained to the pending claim. The fraudulent scheme involved two imposters. One of the imposters, posing as a managing director of Principle, sent an email that appeared to have been sent from the corporate…
“Context Matters” – Tenth Circuit Holds Mudslide Not an Explosion Under Property Policy
On August 29, 2016, the U.S. Court of Appeals for the Tenth Circuit affirmed a Colorado district court ruling that the sudden obliteration of a building in a 2013 mudslide did not constitute an “explosion” under a commercial property policy. Accordingly, coverage for the loss was barred under the policy’s “Water Exclusion Endorsement,” which excluded coverage for, among other perils, “[m]udslide or mudflow.” Although the exclusion contained an exception for resulting losses caused by “fire explosion, or sprinkler leakage,” the Tenth Circuit held that the destruction of the building did not constitute an explosion as used in the exception to the exclusion. In construing the meaning of “explosion” as used in the water exclusion, the court emphasized that “context matters,”…
Forgery May Not Constitute “Theft” Under an Employee Dishonesty Coverage
Ruling in favor of the insurer on a motion for summary judgment, on July 29, 2016 the Fifth Circuit Court of Appeals held that under the terms of a commercial crime policy, proof of a forgery by the insured’s employee in extending $90 million of credit to a customer did not establish an unlawful taking as required by the policy terms. Tesoro Refining and Marketing Co, LLC v. National Union Fire Ins. Co. of Pittsburgh, PA, 2016 U.S. App. Lexis 13838 (5th Cir. 2016). Tesoro, a refiner and marketer of petroleum products sold fuel on credit to petroleum distributor Enmex. On several occasions the credit director for Tesoro, for unknown reasons, falsified and forged signatures on numerous letters of credit…
Summary Judgment May Be Appropriate When Insured Fails to Take Reasonable Measures to Prevent Property Damage
Many first party property insurance policies exclude claims for water damage that occurs when the insured premises is left vacant or unoccupied, unless the insured has used reasonable care to prevent such losses. In litigation challenging the denial of such claims, whether or not the insured’s actions in preventing property damage were reasonable is generally treated as a question of fact to be decided by a jury. However, when the facts are not disputed, and there are no credibility issues presented, a court may grant summary judgment on behalf of the insurer upholding the denial. Such a result recently occurred in a Pennsylvania case involving substantial losses as a result of water damage from burst pipes. Micalis Pazianas, M.D., et…
Workmanship and Earth Movement Exclusions Preclude Coverage for Collapse As a Matter of Law
A U.S. federal district court recently granted Peerless Insurance’s summary judgment motion, concluding that, as a matter of law, under Virginia law, a property policy insuring a building under renovation would not provide coverage for a collapsed basement wall due to a subcontractor’s lack of shoring,. Taja Investments LLC v. Peerless Ins. Co. a/k/a Liberty Mutual Ins. Co., Civ. No. 1:15-cv-01647, 2016 U.S. Dist. LEXIS 95760 (E. D. VA, July 21, 2016). The plaintiff insured, Taja Investments, was a construction company, which was excavating a 4-5 foot crawlspace under a building to create a space with a 9 foot depth in order to allow for additional living areas. The insured’s claim arose out of the collapse of one of the basement…
Is a Rock a Landslide? Montana Supreme Court Says Yes
In a recent decision, the Montana Supreme Court upheld application of an Earth Movement exclusion to bar coverage for damage to a home when a single large boulder rolled down a hill and smashed into it. In doing so, the court gave the words of the exclusion their plain and ordinary meaning, refusing to give them a strained interpretation in order to find an ambiguity. Russell Parker owned a vacation home near Sheridan, Montana. In March 2014, a large boulder fell from a hillside about 440 feet uphill from the cabin and smashed into the structure. Parker had insurance with Safeco and he submitted a claim. Safeco hired an engineer who traced the path of the boulder back to its…
More Common Sense: Coverage for Collapse Requires More Than an Engineer’s Finding of Substantial Impairment
In February this blog commented on Washington State’s newly-adopted definition of “collapse” in property insurance policies that contain no specific definition of the term. (Observer, February 8, 2016, Common Sense Prevails: State of Collapse Nonexistent Thirteen Years before Discovery of Decay) At issue was the building owner’s attempt to tap its property policy’s coverage for collapse when hidden decay, although severe, did not result in the building falling down. Under Washington’s new definition, the Ninth Circuit Court of Appeals found no collapse of a condominium building that remained in use and occupied seventeen years after the insurance policy expired and severe decay allegedly developed. Queen Anne Park Homeowner’s Ass’n v. State Farm, 633 F. Appx. 415 (9th Cir. 2016). On…
Wisconsin Supreme Court Narrowly Interprets the “Permanent Property Insurance” Condition in a Builder’s Risk Policy
In Fontana Builders, Inc. v. Assurance Company of America, Case No. 2014AP821, 2016 WL 3526408 (Wis. Jun. 29, 2016), the Wisconsin Supreme Court addressed whether the purchase of a homeowner’s policy by the occupiers and presumptive purchasers of a home that was still under construction terminated coverage under a builder’s risk policy issued to the builder and owner of the home. The builder’s risk policy contained a provision that the coverage will end “[w]hen permanent property insurance applies,” which the court referred to as the “permanent property insurance” condition. In a split decision, the court held that the homeowner’s policy did not “apply” so as to terminate coverage under the builder’s risk policy. The case arose out of a June…
The Second Circuit Requires Insureds To Be Truthful With Its Insurers
In a twist on the old adage, “bad facts make bad law”, the Second Circuit’s recent decision in Fireman’s Fund Insurance Company v. Great American Insurance Company of New York, Civil Action No. 14-1346-cv, 2016 WL 2943139 (2d Cir., May 20, 2016), clearly demonstrates that bad facts withheld by an insured from its insurers can make for a very bad result for insureds. This recent May 20, 2016, Second Circuit decision arose from a contribution action filed by Fireman’s Fund and the insured, Signal International, LLC, against the insured’s pollution carrier and excess property insurer, due to losses and environmental cleanup costs that resulted when the insured’s dry dock sank. Post-loss, and based on the $13.6 million value of the…
