Insurance Law Report: August 2020

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South Carolina Supreme Court Holds Insurers Not Entitled to Intervene in Construction Defect Action to Contest Coverage

The Supreme Court of South Carolina held that the insurers of contractors and subcontractors sued in a construction defect action could not intervene in order to obtain a verdict that would apportion liability and damages among the insurers without the need of a subsequent declaratory judgment action. Builders Mut. Ins. Co. v. Island Pointe, LLC, 2020 S.C. LEXIS 68 (May 13, 2020).

Following construction of a condominium complex, the property owners’ association discovered damage to the condominiums and sued a number of contractors and subcontractors involved in the construction and development. The defendants’ various insurers were not named as parties, but they moved to intervene at the end of the discovery period. They requested at trial a special verdict form or a general verdict form accompanied by interrogatories with the goal of having the jury allocate liability among the defendants and the insurers by proxy. The trial court denied the motion, and the insurers’ appeal was taken up directly by the Supreme Court.

The Supreme Court first concluded that the insurers did not have the right to intervene under South Carolina Rule of Civil Procedure 24 because they could not demonstrate that they were real parties in interest with interests that were “direct,” “immediate” and “significantly protectable,” instead of “remote or contingent.” The Court then determined that the insurers had also failed to demonstrate that they would not delay or prejudice the adjudication of the original parties’ rights, as required to permit permissive intervention, because special verdict forms or interrogatories would heighten the plaintiff’s burden of proof by requiring itemized damages while relieving the defendants and their insurers of their “collective burden” of proving covered and non-covered damages in a declaratory judgment action. The defendants’ rights would further be affected, the Court noted, because special verdict forms could motivate the insurer-appointed defense counsel to concede liability where certain damages would have a higher likelihood of coverage. The Court was not persuaded that a subsequent declaratory judgment action could not be based upon the evidence adduced at trial.

The Court then clarified two of its earlier decisions that the insurers raised as mandating intervention. The Court stated that its decision in Auto Owners Insurance Co. v. Newman, 385 S.C. 187, 684 S.E.2d 541 (2009) should not be read to foreclose an insurer from seeking a declaratory judgment action to resolve a coverage dispute. The Court further clarified its decision in Harleysville Group Insurance v. Heritage Communities, Inc., 420 S.C. 321, 803 S.E.2d 288 (2017) affirming an order that rejected an insurer’s attempt to allocate covered and non-covered damages and instead directed the insurer to pay an entire general verdict. The Court explained that the Harleysville decision was based solely on the insurer’s inadequate reservation of rights that constituted an implied waiver of the right to contest coverage.

Author:Jared Burtner

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Texas Supreme Court Reiterates Timely Payment of an Appraisal Award Does Not Preclude TPPCA Recovery

The Texas Supreme Court recently reversed two intermediate appeals court decisions in per curiam opinions. Two homeowners sought damages for their respective insurers’ delayed appraisal award payments for storm damage. They cited recent Texas Supreme Court precedent that an insurer’s payment of an appraisal award does not preclude an insured’s recovery under the Texas Prompt Payment of Claims Act (TPPCA). In Barbara Techs. Corp. v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019), the Court held “payment in accordance with an appraisal is neither an acknowledgment of liability nor a determination of liability under the policy for purposes of [TPPCA] damages.” In Ortiz v. State Farm Lloyds, 589 S.W.3d 127 (Tex. 2019), the Court likewise held that an insurer’s payment of an appraisal award does not bar an insured’s claims under the TPPCA as a matter of law.

In Marchbanks v. Liberty Ins. Corp., 63 Tex. Sup. J. 1431, 2020 Tex. LEXIS 566 (June 19, 2020), the insured property sustained hail and wind damage, but the insurer determined that there was no storm-related damage and denied coverage. The insured requested another inspection of his property fifteen months later, based on which the insurer noted covered damage below the policy’s deductible, but delayed almost three months in providing its coverage determination. The insured filed suit, and the insurer compelled appraisal, paid the appraisal award and then moved for summary judgment on all claims. The trial court granted the motion and the appeals court affirmed, holding that payment of the appraisal award entitled it to summary judgment on the TPPCA claim as a matter of law.

In Perry v. United Servs. Auto. Ass’n, 63 Tex. Sup. J. 1432, 2020 Tex. LEXIS 564 (June 19, 2020), insured property sustained damage from a storm. The insurer inspected the damage and paid the claim. The insured later sued the insurer, asserting contractual and extra-contractual claims and invoking appraisal. The insurer timely made an additional claim payment pursuant to the appraisal award and moved for summary judgment on the entirety of the insured’s claims. The trial court granted summary judgment and the court of appeals affirmed, reasoning that once the insurer paid the appraisal award, the injury suffered was neither independent nor distinct from the insured’s contractual claims, and the insured was therefore prohibited from pursuing statutory claims.

The Texas Supreme Court held that its prior decisions in Barbara Technologies and Ortiz mandated reversal and remanded both cases to the respective trial courts to consider the merits of the claims under the TPPCA.

Author:Ian R. Simrod

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Texas Supreme Court Grants Review on Appraisal Prompt Pay Exception

Notwithstanding the decisions in Perry and Marchbanks discussed in the preceding article, there is some indication that reasonable pre-appraisal property damage payments may foreclose Texas Prompt Payment of Claims Act (TPPCA) claims with the Texas Supreme Court granting review in Hinojos v. State Farm Lloyds, 2020 Tex. LEXIS 506 (Tex., June 5, 2020). The Court of Appeals had held that there was no TPPCA violation where the insurer made a reasonable pre-appraisal payment within the TPPCA 60-day period.

The court of appeals held that this decision squares with the 5th Circuit’s Erie guess in Mainali Corp. v. Covington Specialty Ins. Co., 872 F.3d 255 (5th Cir. 2017) which held that “[a] plaintiff may not seek chapter 542 damages for any delay in payment between an initial payment and the insurer's timely payment of an appraisal award” where the initial payment was reasonable. Because the appeals court decision in Hinojos predated Barbara Techs. and Ortiz, the question is whether the Texas Supreme Court will find that this exception survives those cases. To date, at least four federal district courts have found that it does. The Supreme Court’s decision could potentially limit the holdings in Barbara Techs. and Ortiz, which themselves overturned two decades of well-reasoned case law which had held that payment of an appraisal award negated all extra-contractual claims, including TPPCA claims. With three justices citing Mainali favorably in the Barbara Techs. dissent, it is possible that some of them may seek affirmation of the Court of Appeals decision.

Author: Chris Gabriel

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Tenth Circuit Rules Insured Entitled Under Oklahoma Law to Attorneys’ Fees on Judgment Despite Judgment Amount Being Less Than Insurer’s Settlement Offer

The 10th U. S. Circuit Court of Appeals awarded attorneys’ fees after receiving an answer to its certified question of law to the Oklahoma Supreme Court. It found that an insured was a “prevailing party” in its breach of contract claim against its property insurer despite having recovered a judgment which was substantially less than the insurer’s pre-trial settlement offer. Hamilton v. Northfield Ins. Co., 2020 U. S. App. LEXIS 17868 (10th Cir. June 8, 2020).

An insured submitted a property damage claim. The insurer denied the claim twice, and the insured filed suit, alleging breach of contract. Just before trial, the insurer offered to settle. The insured rejected the offer. The matter proceeded to trial, and the insured recovered a judgment for an amount substantially less than the insurer offered in settlement. The insured nevertheless sought attorneys’ fees, but the court denied recovery. The insured appealed.

At issue was Oklahoma Statute Section 3629(B), which provides that:

“It shall be the duty of the insurer, receiving a proof of loss, to submit a written offer of settlement or rejection of the claim to the insured within sixty (60) days of receipt of that proof of loss. Upon a judgment rendered to either party, costs and attorney fees shall be allowable to the prevailing party. For purposes of this section, the prevailing party is the insurer in those cases where judgment does not exceed written offer of settlement. In all other judgments the insured shall be the prevailing party. If the insured is the prevailing party, the court in rendering judgment shall add interest on the verdict at the rate of fifteen percent (15%) per year from the date the loss was payable pursuant to the provisions of the contract to the date of the verdict….”

The Oklahoma Supreme Court, in considering the certified question from the 10th Circuit, ruled that the insurer’s offer was a “litigation settlement offer” rather than a “claim settlement offer” since it was not made within the 60-day statutory period called for in Section 3629(B). Since the offer of settlement was not within the meaning of Section 3629(B) and since the insured obtained a judgment at trial, the Supreme Court concluded that it was a “prevailing party” entitled to attorneys’ fees and interest.

Author:Scott Ellzey

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Fifth Circuit Holds Under Mississippi Law That Labor Costs Cannot Be Depreciated From Actual Cash Value

The 5th U.S. Circuit Court of Appeals held under Mississippi law that labor costs cannot be depreciated under a homeowner’s policy in calculating Actual Cash Value (ACV). Mitchell v. State Farm Fire & Cas. Co., 954 F.3d 700 (5th Cir. 2020).

The insured home had been damaged in a windstorm, and the insurer sought to depreciate both materials and labor from the ACV payment. In subsequent litigation by the insured, the court denied the insurer’s motion to dismiss, and the insurer appealed.

The 5th Circuit affirmed that portion of the district court’s ruling regarding the question of depreciation. It acknowledged that the Mississippi Department of Insurance (DOI) had previously issued a bulletin that stated, “‘[t]here is no statutory law in Mississippi prohibiting the practice of labor depreciation in the adjustment of property loss claims,’ but that ‘[i]f such a practice is used, the insurer should clearly provide for the depreciation of labor in the insurance policy.’” The 5th Circuit found the DOI bulletin to be “nonbinding guidance” that did not establish that Mississippi law requires this practice. The 5th Circuit ruled that, where ACV is not defined in a policy, labor expenses cannot be depreciated under Mississippi law. To do so would frustrate the indemnity purpose of ACV coverage because, for example, the cost of labor to install a new garage would be the same as installing a garage with 10-year-old materials. The 5th Circuit also ruled, however, that the insurer was not liable in bad faith, finding that it had an arguable basis for withholding labor depreciation, and that this area of Mississippi law was “unsettled.”

Author:Scott Ellzey

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Fifth Circuit Holds Breach of Non-Mandatory Policy Condition Not Necessarily a Material Breach

The 5th U. S. Circuit Court of Appeals held that where a reporting requirement in a claims-made and reported professional liability policy is expressed in precatory, not mandatory, terms, it is not a material condition and the breach of which would not necessarily result in a material breach and forfeiture of coverage. Landmark Am. Ins. Co. v. Lonergan Law Firm, P.L.L.C., 2020 U.S. App. LEXIS 17658, at *1 (5th Cir. June 4, 2020).

A group of investors hired a lawyer to help close a real estate deal. After the deal turned out to be a scam, the investors sought to recoup their losses by suing the lawyer for attorney malpractice. While the suit was pending, the lawyer’s insurer sought a declaration that it did not have to defend, because the lawyer had not properly reported the claim during the policy period. The claim was reported as part of the lawyer’s renewal application. The insurer contended that this was a breach of the policy provision to “[p]lease send all claim information to: Attention: Claims Dept. [address],” because the renewal application was sent to its underwriting department and not to the claims department. The court granted summary judgment to the insurer, and the investors appealed as intervenor defendants.

The 5th Circuit reversed, and the insurer sought rehearing. The panel determined that the lawyer had properly reported the claim by providing the facts of the claim by the investors against her, which satisfied the court’s construction of “reporting.” The panel then looked to the “Notice of Claim” provision and distinguished this wording from other such wordings, because it is defined in precatory (“please”), not mandatory (“shall”), terms. Thus, the panel held that the direction of notice to the claims department cannot be considered a material condition, the breach of which automatically justified the insurer’s denial of coverage. The court declined to reach the issue of whether there was a breach or whether any such breach may have prejudiced the insurer.

Author:Ian R. Simrod

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Fifth Circuit Holds “All Movable Property” as Defined in a Forbearance Agreement Includes Right to Collect Insurance Proceeds

The 5th U.S. Circuit Court of Appeals affirmed a trial court’s grant of summary judgment to an insurer. The trial court held the insured gave up its right to bring an action under the policy when the insured conveyed its interest in the covered property with “all movable property,” which included insurance proceeds. CRU Shreveport, L.L.C. v. United Nat’l Ins. Co., 2020 U.S. App. LEXIS 20327, at *4 (5th Cir. June 29, 2020).

Water damage from a burst boiler led to the insured’s default on its hotel mortgage payments. It agreed, via a “giving in” payment, to transfer the hotel and associated movable property to the mortgagee if it defaulted under a forbearance agreement. Meanwhile, it sued its insurer, which had disputed coverage for part of the damage. Later, the mortgagee filed the forbearance agreement in the parish conveyance records, after which the insurer moved for summary judgment of no right of action, since the insured had conveyed its rights under the policy to the mortgagee. The motion was granted, and the insured appealed.

The insured argued on appeal that it was unclear from the agreement’s definition of “movable property” whether “all movable property” referenced in the agreement included the right to collect insurance proceeds under the policy. The 5th Circuit disagreed, because the right to recover proceeds under an insurance policy is movable property under Louisiana law, and the agreement conveyed associated movable property.

Author:Gabriel Crane

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Fifth Circuit Holds Under Louisiana Law That Breach of a Contractual Obligation to Do an Act Not an “Occurrence”

The 5th U.S. Circuit Court of Appeals affirmed a trial court’s order dismissing an insured’s claim on the basis that the claim against the insured allegedly arose out of the insured’s intentional and malicious behavior, which the court concluded did not constitute an “occurrence.” Gilchrist Constr. Co., L.L.C. v. Travelers Indem. Co., 2020 U.S. App. LEXIS 14850 (5th Cir. May 8, 2020).

The insured contracted with two landowners to store debris and materials on their property. The landowners sued the insured for breach of contract, alleging the insured intentionally and maliciously buried debris on their property. Judgment was entered in favor of the landowners, and the insured sued its insurers for breach of contract and sought a declaratory judgment with respect to their duties to defend and indemnify. The insurers filed motions to dismiss for failure to state a claim, because their policies covered property damage arising from an “occurrence,” defined as an accident, and the insured’s intentional and malicious conduct as alleged by the landowners in the underlying action did not constitute an accident. The trial court dismissed the suit, and the insured appealed.

On appeal, the insured argued that its alleged conduct did constitute an accident as defined by Louisiana case law, because the breach of the contract was unexpected from the landowners’ perspective. The 5th Circuit rejected the argument because the contractual obligation to leave the debris in a neat pile did not result in the breach of said obligation being unforeseeable or unexpected, i.e., accidental.

Author:Gabriel Crane

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Fifth Circuit Holds Extrinsic Evidence Not Admissible to Determine Duty to Defend Even Where Policy Lacked “Groundless” Suit Language

The 5th U.S. Circuit Court of Appeals reversed a federal trial court’s summary judgment in favor of an insurer that it had no duty to defend or indemnify its insured because the insurer could not rely upon extrinsic evidence to prove the application of an exclusion under its policy. State Farm Lloyds v. Janet Richards, et al., Case No. 18-01721 (5th Cir. July 20, 2020).

As noted in the May 2020 Insurance Law Report, the 5th Circuit certified to the Texas Supreme Court whether an insurer could rely on extrinsic evidence to apply an exclusion because its policy lacked language that the insurer would provide a defense even if the allegations were “groundless, false, or fraudulent.” The Texas Supreme Court declined to find that the absence of this policy language created an exception to the “eight-corners” rule that extrinsic evidence cannot be considered when determining the duty to defend.

The insurer also invoked a different exception, known as the GuideOne exception, which permits reliance on extrinsic evidence when it is initially impossible to discern whether coverage is potentially implicated and when the extrinsic evidence goes solely to a fundamental issue of coverage which does not overlap with the merits of or engage the truth or falsity of any facts alleged in the underlying case. The 5th Circuit found that the GuideOne exception did not apply because under the “eight-corners” rule, the pleadings alleged a negligence claim that was possibly covered by the policy, and the facts which the insurer wanted to rely upon overlapped with the merits of the case.

Author:Peri H. Alkas

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Fourth Circuit Holds False Claims Act Suit Triggers “Medical Incident” Coverage Under Professional Liability Policy

The 4th U.S. Circuit Court of Appeals recently held that an insurer has a duty to defend a False Claims Act suit under a professional liability policy on the basis that fraudulent Medicare billings constitute “damages resulting from a claim arising out of a medical incident” under the policy. Affinity Living Group LLC v. StarStone Specialty Insurance Co., 959 F.3d 634 (4th Cir. 2020).

A nursing home was sued for allegedly submitting Medicaid reimbursement claims for services that were never provided. It sought coverage under its professional liability policy, which provided coverage for “damages resulting from a claim arising out of a medical incident.” The policy defined the term “medical incident” as “an alleged or actual act, error or omission in the insured’s rendering or failure to render medical professional services.” The term “medical professional services” was defined as “the health care services or the treatment of a patient including,” inter alia, medical, dental and counseling services. Its insurer denied coverage on the basis that the claims were not for “damages resulting from a claim arising out of a medical incident” and sought declaratory relief. It moved for judgment on the pleadings, which the court granted, simultaneously denying the insured’s motion for partial summary judgment that the insurer had a duty to defend.

The court focused on whether the claim for false billing “arose out of” a “medical incident,” i.e., the rendering or failure to render professional services. The court acknowledged that North Carolina courts have broadly construed the phrase “arising out of” when it appears in coverage provisions, but it ultimately determined that the alleged fraudulent billing claims did not arise out of a “medical incident,” because the independent act of false or fraudulent billing is dissociated from the rendering or failure to render professional medical services. The insured appealed.

The 4th Circuit reversed, holding that the fraudulent billing claims did trigger coverage because the phrase “arising out of” must be construed broadly to require only some “causal connection” between the conduct defined in the policy and the injury for which coverage is sought. The court concluded that while billing is not itself a medical professional service, the billing does bear a causal relationship to the injury claimed.

Author:Jared Burtner

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Eleventh Circuit Upholds Decision Finding Multi-Auto Collision Constitutes Single Accident Under Georgia Law

The 11th U.S. Circuit Court of Appeals recently held that the “cause” theory applies to determine the number of accidents in a multi-auto collision under Georgia law when the policy definition of “accident” is merely inclusive. Grange Mut. Cas. Co. v. Slaughter, 958 F.3d 1050 (11th Cir. 2020).

While acting in the scope of employment for a trucking company, the driver of a dump truck owned by the trucking company collided with two vehicles in rapid succession. The drivers of both vehicles filed separate suits against the trucking company and its insurer, which filed a declaratory judgment action. Its policy defined the term “accident” to include “continuous or repeated exposure to the same conditions resulting in ‘bodily injury’ or ‘property damage.’” The insured and other defendants argued that multiple collisions could never constitute the exact “same conditions” and that the subject accident was actually multiple accidents. The insurer argued that the definition of “accident” contained in the policies conformed to the “cause” theory as described in State Auto Property and Casualty Co. v. Matty, 690 S.E. 2d 614 (Ga. 2010). The court held that there was a single accident.

The 11th Circuit affirmed. In State Auto, the Georgia Supreme Court adopted the “cause” theory to determine the number of accidents in liability cases “in the absence of a specific, contrary definition of ‘accident.’” The 11th Circuit held that the policy’s definition of “accident” was neither “specific” nor “contrary,” but instead merely stated what an accident includes, not what an accident is. It held that since the driver of the dump truck did not regain control of the truck after the initial collision, there was no intervening cause giving rise to a second accident.

Author: Michael DeMaio

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Florida Appellate Court Holds Anti-Concurrent Cause Provision in Exclusion Excludes Entire Loss When a Covered Cause Occurs Concurrently With an Excluded Cause

A Florida appellate court held that where water damaged property through walls and windows (an excluded cause) and also through a door (a covered cause), the all-risk policy’s anti-concurrent cause provision controls, and coverage for the entire loss is excluded. Security First Ins. Co. v. Czelusniak, 45 Fla. L. Weekly D 1151, 2020 Fla. App. LEXIS 6494 (Fla 3d DCA May 13, 2020).

An insured reported that water entered the interior of the insured property and caused damage and mold growth. The insurer denied coverage, and the insured filed suit. It was undisputed that water entered the property through walls, windows and doors. The policy explicitly excluded loss caused by water entering through walls or windows. However, water entering through doors was not excluded. The trial court granted the insured’s motion for directed verdict pursuant to the concurrent clause doctrine outlined in the case Sebo v. American Home Assurance Co., Inc., 208 So. 3d 694 (Fla. 2016) (when damage from an excluded cause occurs concurrently with a covered cause so that a fact-finder is unable to separate the two causes, the entire loss is covered).

The appellate court reversed, finding that the trial court erred in not considering the anti-concurrent cause wording in the exclusion. The policy excluded coverage for damage from water entering through walls or windows “regardless of any other cause or even contributing concurrently or in any sequence to the loss.” The court held that because that damage occurred concurrently with the damage from water through doors, coverage for the entire loss is excluded due to the anti-concurrent cause provision in the exclusion.

Author: Derek Lenzen

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Florida Appellate Court Holds Insurer Does Not Waive Its Right to Appraisal by Raising Appraisal in a Counterclaim

A Florida appellate court held that an insurer did not waive its right to compel appraisal by failing to raise appraisal as an affirmative defense when it asserted counterclaims seeking the insured’s compliance with the policy’s appraisal provision. People’s Trust Ins. Co. v. Vidal, 45 Fla. L. Weekly D 1149, 2020 Fla. App. LEXIS 6500 (Fla. 3d DCA May 13, 2020).

Following damage to its property, the insured sued its insurer over a dispute regarding the amount of the loss. Prior to receiving service of the lawsuit, the insurer demanded appraisal. Once the insurer was served with the suit, it filed an answer, affirmative defenses and counterclaims against the insured. The insurer did not raise the policy’s appraisal provision as an affirmative defense. However, two of the insurer’s counterclaims requested the insured’s participation in appraisal. The insurer also filed a motion to compel appraisal approximately seven months after its answer. The insured argued that the insurer waived its right to appraisal by failing to raise appraisal as an affirmative defense. The trial court denied the insurer’s motion to compel appraisal, holding that the insurer had waived its right to participate in appraisal “by actively litigating this case.”

The appellate court reversed, holding that the insurer raised the policy’s appraisal provision in its first responsive pleading as a counterclaim and therefore did not waive its right to seek appraisal by actively litigating the case.

Author: William Parks

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Florida Appellate Court Holds Earth-Movement Exclusion Excludes Coverage for Cracking Damage Caused by Off-Site Blasting Vibrations

A Florida appellate court held that coverage is excluded for cracks in walls and floors that occurred due to vibrations from off-site blasting operations by a policy’s earth-movement/settlement exclusion. Hernandez v. Citizens Prop. Ins. Corp., 45 Fla. L. Weekly D 1209, 2020 Fla. App. LEXIS 6831 (Fla. 3d DCA May 20, 2020).

The insured filed a claim for cracks in the walls and flooring of his house. The insured’s engineer concluded that the damage was the result of soil underneath the house shifting from vibrations caused by blasting explosions at a nearby rock quarry. The insurer denied coverage, asserting an earth-movement/settlement exclusion of the policy. The insured filed suit and argued that the exclusion did not apply. The insured noted that the policy lists nine causes of loss that are considered “earth movement,” and that the alleged cause of loss, blasting, is not included. The insurer moved for summary judgment, which the trial court granted, finding that the policy did not cover indirect damage to property as a result of earth movement that may have been triggered by off-site explosions.

The appellate court affirmed. The earth-movement exclusion of the policy excluded coverage for damage caused by earth movement “unless direct loss by explosion ensues.” The appellate court found that the earth movement at the property did not cause an explosion, but rather that the earth movement was caused by explosion. The appellate court noted that the exclusion contains anti-concurrent causation language that “loss caused directly or indirectly” by certain causes is excluded “regardless of any other cause or event contributing concurrently” to the loss. It held that the policy’s terms excluding “earth sinking, rising, or shifting,” “settling, cracking, or expansion of the foundation,” “whether caused by natural or manmade activities,” unambiguously precluded coverage under the policy.

Author: Derek Lenzen

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Florida Appellate Court Holds Insurers Not Entitled to Certiorari Relief From Order Requiring Insurer to Produce Photographs Within its Claim and Underwriting Files

A Florida appellate court held that an insurer is not entitled to certiorari relief from an order requiring it to produce photographs contained in its claim and underwriting files, because the photographs were not protected by the work product privilege. Avatar Prop. & Cas. Ins. Co. v. Simmons, 45 Fla. L. Weekly D 1429, 2020 Fla. App. LEXIS 8290 (Fla. 5th DCA June 12, 2020).

In a breach of contract action against his insurer, the insured requested:

• Any and all videos or photographs related to the insured’s claim
• The insurer’s complete underwriting file for the policy and any renewals

The insurer objected, arguing that the requested documents, specifically the photographs, were part of the claim file and therefore work product. The trial court ordered the insurer to produce the photographs in response to the first request and reports and photographs in response to the second request. The insurer filed a writ of certiorari, arguing that the trial court’s order departed from the essential requirements of law.

The appellate court denied the writ, holding that while a “claim file” is protected under the work product doctrine, not every document in such a file is work product. It reasoned that work product is “prepared by or on behalf of a party in anticipation of litigation.” The court held that even if the photographs at issue were placed in the claim file with other non-discoverable, claim-related documents, the photographs may be discoverable if the only objection is that they are part of an insurer’s claim file.

Author:William Parks

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Federal Court Holds Under North Carolina Law Coverage Barred by “Unsolicited Communications” Exclusion and Insurer Not Entitled to Defense Cost Reimbursement

Applying North Carolina law, a federal court held that an “Unsolicited Communications” Exclusion barred coverage for allegations of conduct that violated the Driver’s Policy Protection Act (DPPA), but that the insurer nevertheless was not entitled to recoup defense costs and fees after defending the insured under a reservation of rights. Van Laningham v. Allied Ins., 2020 U.S. Dist. LEXIS 111916 (M.D. N.C. June 24, 2020); see also Sentinel Ins. Co. v. Farrin, 2020 U.S. Dist. LEXIS 111919 (M.D. N.C. June 24, 2020), appeal filed (July 24, 2020) (holding the same on nearly identical facts on the same day).

Plaintiffs filed a putative class action against the insured—a law firm—alleging that it violated the DPPA by obtaining their names and addresses from accident reports and then using that information to market its services. The firm’s insurer defended under a reservation of rights, but the firm sought declaratory relief for defense and indemnity. The insurer subsequently moved for summary judgment, arguing that the underlying claims were outside of the scope of the policy.

In granting summary judgment, the court reasoned that, even if there were coverage for the underlying alleged injuries, the exclusion barred coverage for injuries arising out of violation of any law prohibiting dissemination of “unsolicited communication.” Because the DPPA makes it “unlawful for any person knowingly to ... disclose personal information[ ] from a motor vehicle record,” the court reasoned that the DPPA “restricts or prohibits the sending [or] transmitting” of unwanted communications. Even while granting summary judgment for the insurer on the issue of indemnity, however, the court noted that the insurer offered no North Carolina authority, and the court could find none, supporting the proposition that where there is no coverage, an insurer should be allowed to recoup costs already paid in defense of the insured. Accordingly, the court ordered that the insurer had no duty to indemnify or defend the insured, but could not recoup defense costs.

Author:Jared Burtner

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