Articles Posted in Insurance Litigation

General contractors typically have commercial general liability policies (“CGLs”). (CGL policies are not the same as performance bonds, which might also be in place for a particular construction job.)  In my experience, the key provisions of most CGL policies are identical or are substantially similar. In fact, one task of a consortium of insurance companies known as the Insurance Services Offices is to develop standardized CGL policy forms.

CGL policies are meant to cover damages for personal injuries and property damage caused by the general contractor or by its subcontractors. For example, if a worker drops a hammer on a passerby and causes personal injuries, a CGL policy will typically provide coverage. Similarly, if a wall collapses during construction and causes property damage to a third party, a CGL policy will typically provide coverage.

CGL policies do not provide coverage for the repair or replacement of defective work. For example, if a project owner sues a general contractor because the owner has had to incur the cost associated with repairing defective work of the contractor, a CGL policy will not provide coverage to the contractor. If, however, the defective work has caused damages other than the damages to repair or to replace the work, it is very likely that the contractor’s CGL policy might provide coverage to the contractor for those damages.

In 2007, the Supreme Court of Tennessee decided an important case involving defective construction work and a commercial general liability policy. Although the case involved a claim by the contractor that the insurance company which issued the CGL should have to provide a legal defense to it, the holdings in the case are still very much applicable to an insurance company’s obligation, not only to provide a defense, but also, to pay a claim.

Continue reading →

In a recent case decided by the Court of Appeals of Tennessee in which an insurance agency was sued for failure to procure an adequate commercial general liability insurance policy, the court reversed some of the trial court’s rulings on expert testimony, which resulted in the summary judgment in favor of the defendant insurance agency also being reversed. Since, in almost all cases against insurance agents and agencies, a plaintiff must have expert testimony to establish the standard of care and a breach of it by the agent or broker, the court’s analysis and rulings related to the qualifications and areas of testimony of the plaintiff’s insurance expert are very helpful.

Here are the basic facts related to the procedural history of the case:

• Merit Construction was sued for damages by JAG arising out of its work on a project
• Merit agreed to settle the suit for over three million dollars
• The insurance company which had insured Merit under a commercial general liability policy was placed in a receivership (meaning it could not pay claims of its insureds, like Merit)
• Merit assigned its rights against its insurance agent (“Agent”) which had procured the policy at issue to JAG
• JAG sued the Agent on the basis that it had been negligent with respect to obtaining coverage for Merit
• To make its case, JAG employed an expert in the insurance industry named Bahr
• The trial court made a ruling which excluded several of the opinions of Bahr which were necessary for JAG’s professional negligence claims against the Agent to survive
• Without the expert testimony which supported that the Agent had breached the applicable standard of care for insurance brokers and insurance agents and which the trial court excluded, JAG was unable to defend a motion for summary judgment which the trial court granted

Here are the basic facts related to the alleged negligence of the Agent:

• Merit asked the Agent to obtain a commercial general liability policy from a company with a rating from A.M. Best Company of at least “A”
• A.M. Best Company is widely recognized as providing reliable ratings as to the financial stability of insurance companies
• The Agent presented Merit with three policy options, one of which was from a company, Highlands Insurance, which had an A.M. Best Company rating of “B++”
• The Agent represented to Merit that the coverage through Highlands would be “A” rated if a “cut-through” endorsement was obtained to go with it
• A “cut-through” endorsement is essentially reinsurance
• Merit understood that, with the cut-through endorsement, Highland’s rating would be raised to “A”
• After Merit purchased the policy, Highland’s rating was downgraded to a “B” from “B++”
• The Agent did not inform Merit of the downgrade or offer to move its coverage to another company with a higher rating
• Highlands went into receivership

Bahr, the expert for JAG, offered three opinions which the trial court ruled he was not qualified to make, thereby effectively excluding them:

1. That the Agent breached the standard of care when it offered a less than “A” rated policy and informed Merit that the cut-through endorsement raised the rating to “A”
2. That the Agent breached the standard of care when it failed to explain thoroughly the cut-through endorsement, how it worked, and by not obtaining a signed letter from Merit that it understood the same
3. That the Agent breached the standard of care when it failed to notify Merit that Highland’s rating had fallen by two grades (from “B++” to “B”)

Continue reading →

Our firm undertook representation of a local interstate trucking company, Dark Horse Express, LLC (“Dark Horse”) in a cargo insurance claim case in which Lancer Insurance Company (“Lancer”) issued the cargo insurance coverage which was at issue. At the district court level, Lancer argued that it was entitled to summary judgment because Dark Horse’s customer, which owned the lost cargo, had never obtained a judgment against Dark Horse for the cargo loss at issue. Lancer won a summary judgment from the District Court. We appealed to the Court of Appeals for the Sixth Circuit which reversed the District Court.

Here is a summary of the basic facts:

• Dark Horse was hauling about $250,000 worth of steaks for its customer, PFG, from Dallas to Lebanon
• Dark Horse’s driver stopped just outside of Dallas after picking up the load
• While stopped, someone broke the seal of the truck and stole about $35,000 worth of the steaks
• PFG refused to take the remainder of the steaks because of the broken seal and possible contamination
• Under the contract between Dark Horse and PFG, which was titled “Transportation Agreement,” Dark Horse had agreed to be liable for the full value of the load in the event the seal of the truck was broken
• Dark Horse paid PFG for the value of the load, less the salvage that was obtained by PFG
• Dark Horse then made a claim under its cargo insurance coverage with Lancer for the amount it paid its customer, PFG, for the loss of the load
• Lancer refused to pay for various reasons, including that no court judgment had been entered against Dark Horse in favor of PFG for the loss of the load
• Dark Horse filed suit in Sumner County, Tennessee Circuit Court and Lancer removed the case to the United States District Court for the Middle District of Tennessee
• Lancer moved for summary judgment on several grounds

One of Lancer’s summary judgment arguments was that the insurance policy at issue contained a provision which, Lancer asserted, conditioned Lancer’s duty to pay on a judgment being entered against Dark Horse by a court. The specific provision upon which Lancer relied required Lancer to pay sums Dark Horse “legally must pay as a motor carrier for ‘loss’ to Cargo ….”

The District Court held that the language in question did require a judgment to be entered by a court of competent jurisdiction against Dark Horse and in favor of PFG before Lancer had any obligation to pay the claim. It based its decision, in substantial part, on a 1971 decision of the Supreme Court of Tennessee, but noted that there was contrary authority decided under at least one other state’s contract law.

Continue reading →

Under Tennessee law, if an insurance company denies a claim, it can be subject to a bad faith failure to pay penalty. The maximum amount of the penalty is 25% of the claim amount which the insurance company should have paid.  Moreover, the penalty does not apply unless the refusal of the insurance company to pay the claim was not in good faith, or, in other words, in bad faith.

In bad faith failure to pay cases, whether or not there was bad faith is a jury question so long as there is any evidence of bad faith. Even though it is the province of the jury to decide whether the insurance company has acted in bad faith, and, consequently, whether the insurance company should have to pay the bad faith penalty, it is not uncommon for the Court of Appeals of Tennessee to set aside a jury’s finding that an insurance company acted in bad faith.  Discussed below are three bad faith failure to pay cases where a judge’s or jury’s award of bad faith damages was upheld on appeal and one case where a jury’s finding of bad faith was reversed.

Palatine Ins. Co. v. E. K. Hardison Seed Co., (Tenn. Ct. App. 1957):  In this case, the court of appeals upheld the jury’s determination that the insurance company had acted in bad faith for failing to pay a claim for the theft of a truck.  The insurance company denied the claim on the grounds that the policy was not a fixed value policy, but an actual cash value policy which required an appraisal. Several months after the loss, and after the plaintiff had reported it, the plaintiff wrote the insurance company asking for payment. Several weeks after that, the insurance company wrote the plaintiff demanding an appraisal and stating that it could not accept the plaintiff’s proof of loss because of Plaintiff’s failure to provide minor details related to the claim and of which the insurance company should have been aware.  The court of appeals upheld the jury’s imposition of the bad faith penalty finding that the policy was a fixed value policy and because there “was substantial evidence” on which a jury could find bad faith.

Minton v. Tenn. Farmers Mut. Ins. Co., (Tenn. Ct. App. 1992): In this bad faith failure to pay case, the court of appeals upheld the trial court’s finding of bad faith where a diamond ring was lost in the mail when its owner, the plaintiff, mailed it to be repaired.  The insurance company denied the claim based on an exclusion in the policy for losses resulting from neglect of the insured.  The plaintiff admitted that she did not mail the ring by certified mail or purchase postal insurance.  The trial court found bad faith because the policy did not contain any prohibition against mailing the ring as the plaintiff had done.

Continue reading →

In a recent insurance policy case, Lance. v. Owner’s Insurance Company, the Court of Appeals of Tennessee set aside a jury’s award of punitive damages in the amount of $267,500 against Owner’s Insurance Company (a subsidiary of Auto-Owner’s Insurance Company).  The case involved the complete destruction of the Plaintiff business-owner’s building and inventory.

The Plaintiff owned a retail business which was operated out of a 14,000 square foot building in Polk County, Tennessee. The building and inventory within it were completely destroyed by fire in April of 2011.  The insurance company’s investigators, as well as the fire department and state officials, determined that the fire was intentionally set. The Plaintiff did not challenge that the fire was intentionally set, but denied any involvement with it.

After the fire, the Plaintiff submitted a claim to the insurance company. The insurance company requested additional information. The Plaintiff submitted the additional information requested by the insurance company along with a bad faith notice under Tennessee’s bad faith failure to pay statute.  (That statute allows an insured to recover damages beyond the insured’s actual out-of-pocket loss in an amount up to 25% of the insured’s actual loss).

Continue reading →