2014 Insurance Coverage and Bad Faith Seminar

Join us September 11, 2014 from 10 a.m. to 5:30 p.m. for a complimentary day of exploration into the complexities of Insurance Coverage and Bad Faith, and the beauty of the “Imaginary Worlds”, 28 fantastic living sculptures at the Atlanta Botanical Garden.


Five hours of credit, two tracks, and eight sessions in a beautiful location.

Topics include: Preparing for Bad Faith Depositions; Emerging Bad Faith Traps and Trends; Fraud; the Tripartite Relationship and the Duty to Defend; Cyber and Coverage;and a deep dive into homeowners’ policies,CGL, trucking, and auto/UM.

Register today as space is limited.
Registration includes lunch, admission to the gardens, and a private reception.


Court Holds Grocery Store’s CGL Policy Provides Coverage for Employee Who Was Shot in the Store

In a recent decision, Pennsylvania National Mutual Casualty Insurance Company v. Doscher’s Super Markets, issued on May 7, 2012, the Charleston Division of the South Carolina District Court held that Doscher’s CGL policy provided coverage for injuries related to the shooting of Doscher’s employee, Burton Thorne, Jr., who was shot by another Doscher’s employee in the break room.

In the underlying complaint, Thorne asserts a cause of action for negligence based on negligent hiring, training, retention, management, and supervision and alleges that Doscher’s failed to make the workplace safe.  Although Penn National initially argued that the shooting was not an occurrence and that the shooting was an intentional act (and thus not covered by the policy), Penn National eventually conceded these arguments and they were not discussed in the opinion.

The Court held that the Employer’s Liability Exclusion in the policy does not apply given the facts.  The Employer’s Liability Exclusion excludes coverage for bodily injury to an “employee of the insured arising out of and in the course of . . . employment by the insured.”  All parties agreed that Thorne alleges bodily injury, that he was an employee at the time of his injuries, and that the shooting occurred in the course of employment.  The only question was whether Thorne’s injuries arose out of his employment.  Noting that it is well settled in South Carolina that the term “arising out of” when used in an insurance policy exclusion should be construed to mean “caused by,” the Court held that Penn National did not show that Thorne’s injuries were caused by his employment.

Finally, the Court held that the Worker’s Compensation Exclusion does not apply, because Doscher’s “currently has no obligation under a worker’s compensation law.”  Although Thorne initially filed a worker’s compensation claim, he voluntarily dismissed it.  In addition, the state court in the underlying action denied Doscher’s summary judgment motion in which Doscher’s argued that Thorne’s claims were barred by the workers’ compensation exclusivity doctrine.

Therefore, the Court found there was coverage under the Penn America policy for Thorne’s injuries relating to the shooting that occurred in Doscher’s.

Court of Appeals Extends the Breadth of the Duty to Defend

In late January, 2011, the Georgia Court of Appeals entered its opinion in the case of Landmark American Insurance Company v. Kahn (2011).  This recent opinion supports the argument that insurers have a duty to defend based on plaintiff’s pleading in their complaint.  Kahn involved a case in which a bar employee shot Kahn in the back six times.  The bar’s general liability policy had an intentional/criminal act exclusion with an exception for an employee acting to protect person or property.

Despite the absence of any evidence the employee acted to protect person or property, the trial court held there was a duty to defend, and entered summary judgment for the insured.

In affirming the trial court, the Court of Appeals held the allegations contained in the complaint, liberally construed, could be covered under the policy.  The grant of summary judgment was on the duty to defend only.  It appears from the opinion the Court was critical of the insurer for not using the safe harbor for coverage.

An application for certiorari has been filed with the Georgia Supreme Court.  It is common for plaintiff’s attorney to draft complaints broadly in a way that may bring the claim within coverage.  If Kahn is upheld, insurers in Georgia have to think even harder about denying coverage outright.

What Happened at the Crossmann Communities Rehearing?

On May 23, 2011, the South Carolina Supreme Court heard oral arguments in the rehearing of its January 7, 2011 decision, Crossmann Communities.  Including the parties to the case, Harleysville Mutual Insurance Company and Crossmann Communities / Beazer Homes, the court permitted arguments from a number of groups who submitted amicus briefs advocating for the opinion to be reversed or modified.

Before the Supreme Court’s rehearing, the South Carolina legislature passed a bill, signed into law by Governor Nikki Haley on May 17, 2011, which provides a definition of occurrence that is fundamentally different from the definition in the Crossmann Communities decision.  In Crossmann Communities, the court held that water intrusion resulting from faulty workmanship does not qualify as an occurrence and required that an occurrence be fortuitous.  The Legislation  signed into law, on the other hand, provides that “property damage . . . resulting from faulty workmanship, exclusive of the faulty workmanship itself” qualifies as an occurrence.

Everyone was interested to see what impact, if any, the Legislation would have at the rehearing, and they didn’t have to wait long.  Very early in the rehearing, Chief Justice Toal announced that the Court would not permit any arguments based on the Legislation, with the implication being that the Court would not take the Legislation into consideration in reaching a decision.

Constitutional Challenge to the South Carolina Legislation Defining Occurrence

On May 23, 2011, Harleysville Mutual Insurance Company filed a Complaint in the South Carolina Supreme Court alleging that the Legislation defining occurrence which was recently signed into law by the Governor is unconstitutional.  The constitutional arguments raised by Harleysville include the following:

  1. Violation of Separation of Powers between the Judiciary and the Legislature
    • To the extent the statute is applied retroactively, it violates the separation of powers doctrine set forth in Article I, § 8 of the South Carolina Constitution.
    • Article I, § 8 “prohibits the legislature from overruling a decision by the Supreme Court.”
    • “The Statute was drafted to expressly overrule the holding and interpretation of occurrence set forth in the Crossmann opinion by the South Carolina Supreme Court and/or to control and dictate the result of the South Carolina Supreme Court’s rehearing decision in Crossmann.”
  2.  Violation of the Contracts Clause of the United States Constitution
    • Article I,  § 10 provides that “No . . . law impairing the obligation of contracts . . . shall be passed . . . .”
    • The “Statute purports to retroactively alter and impair CGL insurance contracts already in existence prior to the enactment of the bill.”
    • The definition of occurrence contained in the Statute “alters the reasonable expectations of the contracting parties and increases the insured risk under CGL policies.”

Does Coverage Depend Upon the Court as Opposed to the Policy Language?

As an insurer confronting coverage for faulty workmanship, federal court is preferred over the Georgia state courts, as there is a divergence in decisions determining coverage under a CGL policy arising from faulty construction.  The divergence involves interpretation and application of the terms “occurrence” and “accident,” as contained within a CGL policy.

The Supreme Court’s recent decision, American Empire Surplus Lines Insurance Co. v. Hathaway Development Co., Inc., clearly highlights the divergence.  While the Supreme Court, in American Empire,held that negligent construction can constitute an occurrence within a CGL policy, Justice Melton, citingOwners Ins. Co. v. James, authored a strong dissent.

Hathaway Development was a general contractor who sued its plumbing contractor Whisnant Contracting Company for negligent plumbing work at three job sites.  Hathaway sought recovery of its costs of repairs caused by Whisnant’s faulty workmanship, which included costs associated with water and weather damage to surrounding properties.  Whisnant failed to answer after its insurer, American Empire, denied coverage and Hathaway obtained a default judgment.  Hathaway then sought payment from American Empire.

South Carolina Governor Signs Bill Defining Occurrence Relating to Faulty Workmanship

On January 7, 2011, the South Carolina Supreme Court issued a decision, Crossmann Communities, which overruled previous cases and found that water intrusion resulting from faulty workmanship does not qualify as an occurrence.  In response to this decision, legislation was quickly introduced in both the House and Senate (H. 3449 and S. 431) in an attempt to overrule Crossmann Communities by clarifying the definition of “occurrence” (among other language).  On May 5, 2011, S. 431 passed in the House with certain amendments and on May 12, 2011, the Senate voted unanimously in favor of  S. 431.  On May 17, 2011, the Legislation was signed into law by Governor Nikki Haley.

The legislation specifically states provides that

Commercial general liability policies shall contain or be deemed to contain a definition of ‘occurrence’ that includes:

(1) an accident, including continuous or repeated exposure to substantially the same general harmful conditions; and

(2) property damage or bodily injury resulting from faulty workmanship, exclusive of faulty workmanship itself.

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.


South Carolina and Georgia Issue Two Diametrically Opposed Decisions re: Interpretation of Occurrence in CGL Policies

        South Carolina

On January 7, 2011, the South Carolina Supreme Court in the case of Crossmann Communities, overruled previous South Carolina Supreme Court decisions interpreting the definition of “occurrence” in CGL policies.  Prior to Crossmann Communities, the most recent South Carolina Supreme Court case addressing the definition of “occurrence” in CGL policies held that while the defective application of stucco did not constitute an occurrence, the continuous moisture intrusion resulting from the subcontractor’s defective application was an occurrence. (Auto Owners, Inc. v. Newman).


The Current Status of Crossmann Communities in South Carolina

The interpretation of “occurrence” in CGL policies has been a hotly contested issue in South Carolina and other states (see for example this article by James Duffy O’Connor titled What Every Court Should Know about Insurance Coverage for Defective Construction).  For years, the South Carolina courts have interpreted CGL policies to provide coverage for damage caused by faulty workmanship that causes damage to other building components.  The Crossmann Communities decision overruled previous cases and found that water intrusion resulting from faulty workmanship does not qualify as an occurrence.  The Crossmann Communities decision has been extremely controversial in South Carolina and a number of local and national groups have mobilized to attempt to overturn the Crossmann Communities decision by taking the following actions: