Insurance Coverage Update October 2013

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NEW JERSEY                                  
Exhaustion - Allocation/Insolvency
New Jersey Supreme Court Rules Policies Issued by Insolvent Insurers Subject to 2004 PLIGA Amendment Are Only Implicated After Solvent Policies Exhaust
 
Farmers Mut. Fire Ins. Co. v. N.J. Property-Liability Ins. Guar. Ass'n As Adm'r of Claims Against Newark Ins. Co., 2013 N.J. LEXIS 902 (2013)
 
The New Jersey Supreme Court ruled that under a 2004 amendment to PLIGA, policies issued by insolvent carriers and backstopped by the Insurance Guaranty Association are not triggered in continuous trigger setting until prior exhaustion of all solvent policies.
 
In particular, the Court ruled that: (1) the 2004 amendment was a legislative response to previous Appellate Division case that found Guaranty Association was required to pay in insolvent insurer's stead even if all solvent policies had not yet exhausted; and (2) departure from the general long-tail allocation methodology set forth in Owens-Illinois did not violate Contracts Clause.
 
Coverage Trial - Right to Jury
No Right to Jury Trial in Action Brought under Insurance Fraud Prevention Act
 
Allstate N.J. Ins. Co. v. Lajara, 2013 N.J. Super. LEXIS 147 (App. Div. Oct. 9, 2013)
 
The Insurance Fraud Prevention Act does not include a statutory right to a trial by jury.  The New Jersey Constitution does not guarantee a right to trial by jury for private actions under the Act.
 
Plaintiff insurers brought a fraud claim under the Act against various defendants, including individual physicians and chiropractors, medical and chiropractic practices, and unlicensed individuals. The insurers alleged that the defendants participated in a scheme to coax insurers into paying unwarranted PIP benefits. Among the defendants' alleged tactics were paying kickbacks to attorneys who referred clients, paying persons to intentionally cause accidents in order to generate fraudulent bills, and billing for various services performed by unlicensed persons.  The insurers sought a declaration that they were not obligated to pay PIP benefits to defendants, disgorgement of sums already paid and damages allowed under the Act. 
 
Defense Costs - Contribution
Insurer May Bring Direct Action Against Fellow Insurer for Recovery of Defense Cost Payments
 
Potomac Ins. Co. v. Pennsylvania Manufacturers' Ass'n Ins. Co., 73 A.3d 465 (September 16, 2013)
 
The court ruled that an insurer may bring a lawsuit against another insurer to recover for overpayment of single policyholder's defense costs in the context of a continuous trigger coverage dispute. The presence of a settlement and release between the defendant insurer and policyholder does not undermine plaintiff insurer's ability to pursue direct action. The Supreme Court's ruling depended on a close analysis of Owens-Illinois and Carter-Wallace, affirming their place as foundational precedent in the wake of the Farmers Mutual decision. 
 
 
NEW YORK
Auto and Transportation Exclusions
Eastern District Court Finds Insurer is Not Obligated to Defend Insured in Multiple Suits Stemming from an Automobile Accident
 
Tudor Ins. Co. v. Golovunin, 2013 U.S. Dist. LEXIS 140186 (E.D.N.Y. Sept. 27, 2013)
 
The insurer was successful in its declaratory judgment action against its insured on the basis that it had no duty to defend or indemnify its insured pursuant to the auto exclusion, transportation exclusion and a premises limitation provision. 
 
The insured - - a day camp - -was named as a defendant in four separate lawsuits stemming from a car crash that occurred while driving to an off-site location.  The insurer brought the present suit seeking a declaration that it does not have a defense and/or indemnity obligation in connection with the accident based on the auto and transportation exclusions and the limitation of coverage to the camp premises. 
  
Notice - Claims Made and Reported
Southern District Finds the Insured's Delay in Providing Notice Of Pollution Liability Claims Was Unreasonable as a Matter of Law 
 
Indian Harbor Ins. Co. v. City of San Diego, 2013 U.S. Dist. LEXIS 137873 (S.D.N.Y. Sept. 25, 2013)
 
Court finds that a New York choice of law provision in claims made and reported policy applied to dispute between insurer and the City of San Diego; and under New York law, delay in providing notice "as soon as practicable" was unreasonable as a matter of law.
 
The insurer, which issued  a claims made and reported policy to the City of San Diego (the "insured"), brought the present action seeking a declaration that it did not owe a duty to indemnify the insured for three separate lawsuits involving pollution liability.  The subject suit was brought in the Southern District of New York pursuant to two clauses: (1) a Jurisdiction and Venue clause providing that all disputes would be resolved within the State of New York and (2) Choice of Law provision requiring application of New York law. 
 
Additional Insured - Priority of Coverage Between Additional Insurers
Court Determines that Additional Insured Coverage Under Two Subcontractors' Policies Would be Co-Primary
 
Travelers Prop. Cas. Co. of Am. v Selective Ins. Co. of N.Y., 2013 N.Y. Misc. LEXIS 4155 (N.Y. Sup. Ct. Sept. 11, 2013)        
 
After reviewing the subcontracts and insurance policies, the court finds that the owner of premises is entitled to additional insured coverage pending a finding of fact that the work arose out of either subcontractor's work for the owner. 
 
The liability insurer for an electrical subcontractor sought conditional summary judgment declaring that, should a trier of fact in the underlying action render a factual determination that the electrical subcontractor employee's accident "arose out" of the work of the demolition contractor, then the liability insurer for the demolition subcontractor must provide the owner with coverage on a primary and non-contributory basis.