11th Circuit To Hear Dispute Over Notice Requirements After Dismissal Without Prejudice

Since 2008, litigation has been ongoing between G.M. Sign, Inc. and Brink’s Manufacturing Co. over allegations that Brink’s violated the Telephone Consumer Protection Act by sending out unsolicited faxes without any ability by the recipient to opt out of receiving the faxes.  The original 2008 lawsuit was dismissed without prejudice in 2009.

G.M. Sign immediately filed an identical suit in Illinois State Court, which settled for $22.54 million.  As part of the deal, G.M. Sign was assigned Brinks’ insurance rights under its policy with St. Paul Fire & Marine Insurance Co.  However, Brink’s did not tender the defense of the action brought in Illinois State Court and did not otherwise provide notice to St. Paul of the fact that the suit had been re-filed.

In 2014, G.M. Sign went after St. Paul in Georgia federal court.  St. Paul responded that it was not required to cover the claim brought in Georgia because, after the 2009 dismissal without prejudice, it did not receive notice of ongoing or re-filed litigation between the parties.  St. Paul maintained that Brink’s failure to provide notice deprived St. Paul of the ability to consider any settlement demand or otherwise resolve the 2009 action.

G.M. maintains that, since the second suit is identical to the first suit, and since St. Paul knew of the first suit, then notice was adequately provided.

Judge Eleanor Ross, serving the Northern Federal District of Georgia, ruled that a dismissal without prejudice “means the suit is over.”  Therefore, an insured must provide notice of a re-filed claim or other litigation, no matter how similar to the first lawsuit it may be.  Because no such notice was provided in this case, Judge Ross relieved St. Paul from having to provide coverage.

The case has made its way to the 11th Circuit Court of Appeals: G.M. Sign, Inc. v. St. Paul Fire & Marine Ins. Co., 1:14-cv-02977.

In Georgia, Coverage for Lead Paint Exposure Excluded as Pollutant Under CGL Policy

This month, the Georgia Supreme Court held that a CGL policy did not provide coverage for brain damage to a child as a result of exposure to lead paint in a rental home.

The suit arose out of a toddler suffering brain damage due to exposure to lead paint in a rental home. The home was insured by a CGL policy issued to the landlord, and the insurer filed a declaratory judgment action arguing that there was no coverage for the claim because bodily injuries due to exposure to pollutants were excluded. Summary judgment was granted to the insurer in the trial court, but the Court of Appeals reversed, holding that the policy did not specifically exclude lead paint as a pollutant. On certiorari, the Georgia Supreme Court reversed the Court of Appeals, agreeing with the trial court that the pollution exclusion barred coverage for the claim.

Specifically, the policy excluded coverage for “(1) ’bodily injury’ or ‘property damage’ arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ (a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured.” “Pollutant” was defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

Ruling for the insurer, the Supreme Court acknowledged that the question of whether lead paint was a pollutant was one of first impression in the State, but it held that prior cases excluding coverage for different pollutants (such as carbon monoxide) under policies with similarly broad language were controlling. In keeping with those cases, the Court held that “lead present in paint unambiguously qualifies as a pollutant” and “the plain language of the policy’s pollution exclusion thus excludes [the claim] from coverage.” Key in this ruling was the Court’s lengthy discussion of the history and purpose of pollution exclusions in CGL policies.

The case discussed herein is Georgia Farm Bureau Mut. Ins. Co. v. Smith, No. S15G1177 (Ga. March 21, 2016). Please contact us if you would like a copy of the case or have any questions.

First Circuit, Souter Grant Coverage despite Exclusion

Former Associate Justice of the Supreme Court David Souter returned to his First Circuit roots and participated in an August 2015 ruling declining to uphold a policy exclusion where the injured person was employed by a contractor with no written contractual relationship to the insured. The court’s rationale was the term “contractor” is ambiguous and the ambiguity should be construed against the insurer.

In July 2009, homeowners hired general contractor Benchmark Construction Services, Inc. to renovate their home in Massachusetts. The homeowners hired architect Thomas Huth to design the renovation plans. Huth hired Sara Egan d/b/a Painted Design to do some decorative painting to one of the interior walls of the home. Egan sent her employee, Meghan Bailey, to the perform the painting work. Benchmark did not have a written contractual relationship with Huth (architect), Egan (painter), or Bailey (painter’s employee). On March 5, 2010, while Bailey was applying decorative paint, she fell from a ladder that was standing on top scaffolding allegedly erected by Benchmark.

Bailey sued Benchmark in the Massachusetts Superior Court, alleging she was injured in the fall, Benchmark owed her a duty of care, and Benchmark negligently erected and maintained the ladder and scaffolding. Benchmark sought defense from its insurer, United States Liability Insurance Company (“USLIC”) but USLIC determined Bailey’s claims were not covered under Benchmark’s insurance policy. According to USLIC, an endorsement to the policy specifically excluded Bailey’s injuries from coverage. Therefore, USLIC has no duty to defend or indemnify Benchmark against those claims.

USLIC won on summary judgment, with the district court finding the endorsement to be “unambiguous.” Bailey’s claims were not entitled to indemnity because of a policy endorsement excluding coverage for employees of contractors and subcontractors injured while performing services. The district court said the term “contractor,” which was undefined in the policy, meant “anyone with a contract” and coverage for Bailey’s claims was excluded as her employer had contracted to do painting work.

The panel, including Souter, disagreed with the district court. Finding that “reasonably intelligent people” could differ regarding the meaning. “Anyone with a contract is surely a reasonable definition of the word ‘contractor,’ as the district court found, but so is a more narrow definition focused on the contractual relationship of the injured party and the insured.”

The court determined when disputed terms are “susceptible to multiple reasonable definitions, then the court will apply a reasonable definition that confers coverage, if one exists.” Ultimately concluding USLIC had a duty to defend and indemnify Benchmark in the underlying negligence suit.

The holding could be problematic to insurers because the court granted coverage to an injured party employed by any contractor or subcontractor on the project despite no contractual privity with the insured.

The case is U.S. Liab. Ins. Co. v. Benchmark Const. Servs., Inc., 797 F.3d 116 (1st Cir. 2015). Please contact us if you would like a copy of the case or have any questions.

A Florida Decision Expands Defense Obligations For Insurer

A dilemma often facing insurers is whether it must retain separate counsel when it has a duty to defend more than one insured under a single general liability policy.  In University of Miami v. Great American Assurance Co., 2013 WL 616156 (Fla. Dist. Ct. App. 3d), an intermediate appeals court in Florida held that a conflict existed in the legal defenses of the University of Miami (“UM”) and MagiCamp, a camp operator, under Great American’s general liability policy issued to MagiCamp, where UM was named as an additional insured. Consequently, Great American was required to appoint separate, independent counsel for the two defendants/insureds.  A strong dissent, however, raised concerns regarding the implications of the decision.

MagiCamp ran a summer swim camp for kids using the pool on the campus of UM.  As a condition for use of the pool, UM was named as an additional insured on the policy issued by Great American.  After a child was injured at the pool, the child’s parents sued both UM and MagiCamp.  Great American retained the services of one law firm to represent both UM and MagiCamp.  UM, however, advised Great American that a conflict of interest existed with one firm representing both defendants, and requested independent counsel.  Great American denied the request and UM retained its own counsel to protect its interests.

After the underlying case was settled, UM filed a declaratory judgment action against Great American seeking recovery for the attorney’s fees it incurred for the independent counsel retained in the underlying litigation.  The appellate court reversed summary judgment in favor of Great American.

The appellate court determined that “there exists a conflict in the co-defendants’ legal defenses, based on the allegation of the complaint, that each defendant is directly liable, and the allegations in the answer and affirmative defenses set forth by MagiCamp and UM.”

Further, the court found that the conflicting legal positions of MagiCamp and UM existed separate and apart from issues of coverage or excess policy limits.  The court reasoned, MagiCamp and UM would have had to imply blame on the other entity to the detriment of the other entity in its defense of the underlying action.  Accordingly, the court found that “this legal dilemma clearly created a conflict of interest between the legal defenses of the common insureds sufficient to qualify for indemnification for attorney’s fees and costs for independent counsel.”

The opinion also included a lengthy and strong dissent raising concerns of expanded coverage obligations, leading to additional litigation.  “The court today opens a new frontier in insurance litigation of benefit only to the legal profession” and further warned that “[t]he future of dual insured claims should not be hard to see.”  The dissent first argued that MagiCamp had no defense to the underlying lawsuit.  Moreover, it was contractually bound to indemnify and hold harmless UM.  Next, it argued that UM’s counsel admitted at oral argument that neither entity sought to prove liability of the other during the course of the underlying lawsuit such that there was no real conflict.  Third, the dissent argued that “a liability insurer’s contractual right to control the defense and indemnity features of its contract is indispensable to the protection of its financial interest in the litigation and thus the product itself.”  Finally, it was argued that the Florida Bar rules and the threat of malpractice would prevent an attorney from representing two entities where there was an inherent conflict of interest amongst them.

L. Elizabeth “Beth” Albright, Attorney
Atlanta Office, Insurance Coverage Practice Group


CGL Policy Does Not Provide Coverage for Environmental Cleanup in the Fourth Circuit

PollutionThe Fourth Circuit Court of Appeals recently held that a CGL policy does not cover an insured’s liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) for costs to remediate the presence of hazardous substances on the insured’s land.  Industrial Enterprises, Inc. v. Penn America Insurance Co (4th Cir. March 18, 2011).  This case involves a standard CGL policy issued by Penn America to Industrial Enterprises which indemnifies the insured for “all sums which the insured shall become legally obligated to pay as damages because of . . . property damage.”  When the EPA sent Industrial Enterprises a letter advising them that they might be asked to fund cleanup actions to correct a problem with hazardous substances on their site, Industrial Enterprises requested defense from Penn America.  Penn America denied coverage.