In its recent decision in Johnson v. Federal Rural Electric Ins. Ex., 2016 U.S. Dist. LEXIS 173037 (D. Mont. Dec. 14, 2016), the United States District Court for the District of Montana had occasion to consider a D&O insurer’s defense obligations under a duty to advance policy. Federated insured Global Net, Inc. under a directors, officers and management liability policy. One of Global’s officers, Scott Johnson, was sued in connection with a business-related dispute which among other things included a claim for conversion. Federal agreed to provide a defense under a reservation of rights and reimbursed defense costs as they were incurred. When the underlying plaintiff was granted summary judgment against Johnson on the conversion claim amounting to some $14,000, Federal denied coverage for this loss and also asserted that per the terms of its policy, it was not obligated to reimburse defense costs until after the end of the underlying suit at which time it would be determined whether any damages sought in the case qualified for coverage. In an ensuing coverage litigation, Federated argued that its policy was not a duty to defend policy, but instead a duty to reimburse policy, and that as such, it was not required to reimburse its insured for defense costs as they were incurred. Notably, the Federated policy expressly stated that Federated “does not under the terms of this policy, assume any duty to defend” and that “costs, charges and expenses of defense payable by the Company are a part of, and not in addition to, the Limit of Liability.” In considering this issue, the court noted that there was no Montana guidance on insurance policies containing a duty to indemnify defense costs. The court agreed that general duty to defend case law was inapplicable, and therefore looked to Ninth Circuit case law for guidance on the issue. From this case law, the court concluded that the Federated policy imposed a duty to advance defense costs associated with all potentially covered claims. While Federated contended that its duty to pay defense costs could wait until the conclusion of the underlying suit, the court disagreed, concluding that Federated was obligated to pay defense costs as they were incurred. As the court explained, “Federated is obligated to pay defense costs at the time they are incurred because that is when Johnson is legally obligated to pay them.” The court agreed that the policy exclusion applicable to ill-gotten gains precluded coverage for the underlying conversion claim. It nevertheless concluded that the exclusion did not plainly apply to several of the other claims asserted in underlying suit that had not been resolved on motion for summary judgment. The court concluded, therefore, that Federated had an ongoing to to advance defense costs associated with the remaining claims in the underlying suit pending resolution as to whether or not those claims were excluded from coverage under the Federated policy. Add to Flipboard Magazine.
In John Robert Sebo, etc. v. American Home Assurance Company, Inc., Supreme Court case number SC14-897, the Florida Supreme Court reversed a Second District Court opinion which found the efficient proximate cause doctrine applicable to cases involving multiple perils and a first-party insurance policy. In 2005, Mr. Sebo purchased a four-year-old home in Naples, Florida. He subsequently purchased a “manuscript” homeowner’s insurance policy (not a standard form, but rather created specifically for the Sebo residence) through American Home Assurance Company (“AHAC”). This policy insured against “all risks” and provided $8,000,000.00 in coverage. Soon after purchasing the property, water began to intrude during rainstorms. After months of leaks – including storm damage from Hurricane Wilma – Sebo finally reported the water intrusion to AHAC on December 30, 2005. After investigating the claim, AHAC denied coverage for most of the damage (AHAC did tender its $50,000.00 mold limit). The majority of the claim was denied because, according to AHAC, the damage was caused by improper construction. Mr. Sebo later filed suit against multiple defendants, including the sellers of the property, the architect who designed the residence, the construction company that built the residence, and AHAC. After Mr. Sebo settled out with the other defendants, trial proceeded against only AHAC. The jury ultimately found in favor of Sebo. AHAC appealed the judgment, and the Second District reversed and remanded for a new trial. According to the Second District, when multiple perils – some covered, some excluded – combine to create one loss, causation should be examined under the efficient proximate cause theory, not the concurrent cause doctrine. On secondary appeal, the Florida Supreme Court reversed, concluding that “when independent perils converge and no single cause can be considered the sole or proximate cause, it is appropriate to apply the concurring cause doctrine.” The Court examined the two disparate theories, favoring the conclusion previously reached by the Third District in Wallach v. Rosenberg (“[w]here weather perils combine with human negligence to cause a loss, it seems logical and reasonable to find the loss covered by an all-risk policy even if one of the causes is excluded from coverage.”). According to the court, if AHAC wished to avoid the application of the concurrent cause doctrine, it could have done so within the policy, as it had done in other sections. Thus, since there was no dispute that the rainwater and hurricane winds combined with the defective construction to cause the damage to the Sebo property, and the policy did not preclude the application of the concurrent cause doctrine, the loss was covered. Add to Flipboard Magazine.
In Nazario v 222 Broadway, LLC, 2016 N.Y. LEXIS 3534 (N.Y. Nov. 21, 2016), plaintiff was performing electrical work as part of a retrofitting or renovation, and was reaching up while standing on the third or fourth rung of a six-foot A-frame wooden ladder, when he received an electric shock from an exposed wire and fell to the floor, holding the ladder, which remained in an open, locked position when it landed. According to the Appellate Division, First Department, plaintiff established prima facie that the ladder from which he fell did not provide adequate protection pursuant to Labor Law § 240(1). See Nazario v 222 Broadway, LLC, 135 A.D.3d 506, 507 (1st Dep’t 2016). However, on November 21, 2016, the Court of Appeals disagreed and found that plaintiff was not entitled to summary judgment on his Labor Law §240(1) claim, remitting the case back to the Appellate Division and stating that questions of fact existed as to whether the ladder plaintiff was using failed to provide proper protection, and whether plaintiff should have been provided with additional safety devices. This appears to be a departure from prior case law such as Vukovich v 1345 Fee, LLC, 61 A.D.3d 533 (1st Dept 2009) (summary judgment granted on Labor Law § 240(1) where plaintiff fell from an unsecured ladder after receiving electric shock while working as a pipe fitter), and suggests that the First Department will now require plaintiffs to show that the safety device provided was either defective or that the plaintiff required additional safety devices to conduct the work they were performing at the time of the incident. Add to Flipboard Magazine.
In its recent decision in J & C Moodie Properties, LLC v. Deck, 2016 MT 301 (Mont. Nov. 22, 2016), the Supreme Court of Montana had occasion to consider what constitutes a breach of an insurer’s duty to defend in a co-insurance situation, and what the ramifications are of breaching the duty to defend. The J & C Moodie decision involved an insured – Haynie Construction – covered under successively issued general liability policies: one by Farm Bureau and a subsequent policy issued by Scottsdale Insurance Company. Haynie was hired to perform construction work that commenced while the Farm Bureau policy was in effect and that was completed while the Scottsdale policy was in effect. Hayniewas later sued for alleged construction defects. While Farm Bureau agreed to provide a defense under a reservation of rights, Scottsdale denied coverage on the basis of an exclusion in its policy applicable to operations performed prior to its policy’s inception date. Haynie later entered into a joint stipulation with the underlying plaintiff whereby the two agreed to a settlement of $5.65 million and an assignment of the insured’s rights against Scottsdale. In the ensuing coverage litigation, Scottsdale conceded that the basis for its denial of coverage had been improper. It nevertheless contended that it did not breach its duty to defend because its coverage obligation was excess over the coverage afforded Haynie under the Farm Bureau policy. Scottsdale also argued that even if it did breach its duty to defend, it was entitled to discovery into the reasonableness of the underlying settlement. Scottsdale lost on all issued before the trail court, which held that Scottsdale breached its duty to defend and that it was not entitled to any discovery on the reasonableness of the settlement. With respect to the duty to defend issue, Scottsdale essentially argued that because Farm Bureau provided Haynie a defense by competent counsel, the duty to defend was not breached. Scottsdale reasoned that only one defense can be afforded to an insured, and as such, an insurer can satisfy its defense obligations through the actions of any co-insurer. The Court rejected this reasoning, noting that at the very least, Scottsdale should have attempted to assist or participate in the defense of Haynie with Farm Bureau. The Court reasoned that Scottsdale’s failure to even contact Farm Bureau to offer participation in the defense precludes it from credibly arguing that it fulfilled its duty to defend obligation. As the Court explained: Scottsdale made no effort to contact the co-insurer to further understand the claims, offered no coordination, and provided no other defense support pending a ruling that would affirmatively confirm whether coverage existed under the policy. It simply made the unilateral decision that it was done. An insurer must ensure an insured is defended … even as it disputed coverage. Scottsdale did nothing to honor the contractual benefit that Haynie had secured under the policy, or to confirm that it had no obligation to do so. When an insurer defends the insured, it also defends itself against a duty to defend claim. Scottsdale’s decision to “roll the dice” on its opinion that Haynie was not insured under the policy exposed Haynie, and itself, to great risk. While the Court concluded that Scottsdale breached its duty to defend, the Court nevertheless agreed that Scottsdale was only obligated the amount of the underlying settlement to the extent it was reasonable. Based on tax records referenced by Scottsdale in the coverage litigation, the Court found reason to believe that the value of the property constructed by Haynie was far less than $5.65million, thus suggesting that the settlement amount was not reasonable. The Court agreed, therefore, that the lower court erred in denying Scottsdale the opportunity to conduct a reasonableness hearing that that the court further erred in denying Scottsdale the opportunity Add to Flipboard Magazine.
From 1999 to 2008, a registered investment representative worked for Hantz Financial Services (“Hantz”). From 2000 to 2008, that same representative embezzled client funds. In March 2008, a client filed a FINRA arbitration demand against the representative and Hantz. The representative committed suicide days later, and thereafter, Hantz’s investigation revealed the extent of the representative’s embezzlement. In July 2009, Hantz settled the customer’s claim that prompted its investigation. By that same time, Hantz had also settled twenty other client claims without litigation. Another client pursued FINRA arbitration against Hantz. In that matter, FINRA issued a July 2009 award, which a Michigan trial court confirmed in December 2010, and an appellate court affirmed in January 2012. In May 2008, Hantz tendered a proof of loss to National Union Insurance Company, its fidelity bond company. The bond, effective for the period January 26, 2008 to January 26, 2009, provided indemnity for “loss resulting directly from dishonest or fraudulent acts committed by an Employee acting alone or in collusion with others.” With respect to litigation losses, the bond imposed a twenty-four month period from the date of a “final judgment or settlement” to sue National Union to recover such losses. National Union investigated Hantz’s claim until March 2011, when it disclaimed coverage. In March 2013, Hantz sued National Union for breach of contract and statutory penalties under Michigan law. The District Court granted National Union’s summary judgment motion, finding that Hantz’s claim were not “direct losses” covered by the bond. The Sixth Circuit affirmed but on the alternative ground that Hantz had failed to sue National Union in the twenty-four month limitation period. The Sixth Circuit noted that there was no dispute that the limitations period applied to all claims settled by July 2009. With respect to the FINRA arbitration award, which was confirmed by a judgment in December 2010, the court rejected Hantz’s arguments that a final judgment had not been entered until January 2012 when the appellate court affirmed the trial court’s judgment. In rejecting Hantz’s argument, the Sixth Circuit applied the Michigan rule of construction that when a policy employs a legal term of art, the term is given its legal meaning. In this case, that meant that “final judgment” meant a judgment entered by a trial court. The Sixth Circuit also rejected Hantz’s estoppel/waiver argument, noting that throughout its two and a half year claim investigation, National Union repeatedly reserved its rights to deny coverage. Accordingly, the Sixth Circuit affirmed the District Court’s Order, holding that National Union did not have to pay first party benefits to Hantz under the fidelity bond. Hantz Financial Services v. American International Specialty Lines Insurance Co., No. 15-2237, 2016 U.S. App. LEXIS 20352 (6th Cir. Mich. Nov. 9, 2016). Add to Flipboard Magazine.
In its recent decision in Camp Richardson Resort, Inc. v. Philadelphia Indemnity Ins. Co., 2016 U.S. Dist. LEXIS 155707 (E.D. Cal. Nov. 9, 2016), the United States District Court for the Eastern District of California had occasion to consider the scope of coverage afforded under a liquor liability policy and its intersection with California Dram shop laws. Philadelphia’s insured, Camp Richardson Resort, ran a year-round resort in the Lake Tahoe area on property owned by the U.S. Forest Service. Camp Richardson was sued by a neighboring landowner over rights to the property on which the resort was located. The suit alleged causes of action such as trespass, violation of constitutional protections, quiet title, inverse condemnation and unjust enrichment. The lawsuit also included causes of action for nuisance, and among other things, the alleged that patrons at the Camp Richardson resort were often loud, boisterous and drunk and frequently trespassed onto claimant’s property while inebriated. In particular, the pleading alleged that Camp Richardson allowed for patrons to become intoxicated by securing a liquor license for a bar on its property, by creating a party-oriented spot, and by allowing the patrons to enter claimant’s property. Philadelphia denied coverage for the underlying suit under its general liability policy as well as a liquor liability endorsement to the policy. The liquor liability coverage part insured’s liability for damages because of an ‘injury” resulting from the selling, serving or furnishing of any alcoholic beverages. Camp Richardson argued that Philadelphia had a duty to defend because of allegations of drunk patrons entering on the underlying claimant’s property. In considering the issue, the court noted that under California law, a “person who sells, furnishes, gives or causes to be sold, furnishes or given away, any alcoholic beverage” is immune from liability for having done so. The only exception to this is when alcohol is sold or given to an obviously intoxicated minor, and this exception is limited to situations where the act of serving alcohol to an obviously intoxicated minor is the proximate cause of the underlying injury. The court reasoned, therefore, that this is the only potential liability covered under a liquor liability coverage form, at least in California. Applying this law to the underlying complaint, the court observed that while the underlying suit alleged that plaintiffs were responsible for over-selling alcohol to patrons, these allegations did not contain any allegations that Camp Richardson furnished alcohol to an obviously intoxicated minor. The court concluded that in the absence of any such allegations, the liquor liability coverage part did not apply since there was no possibility of Camp Richardson having liquor liability, and as such, Philadelphia had no duty to defend. Add to Flipboard Magazine.
In its recent decision in Johnson v. GeoVera Specialty Ins. Co., No. 15-30803, 2016 U.S. App. LEXIS 17530 (5th Cir. September 27, 2016), the United States Court of Appeals for the Fifth Circuit explored whether or not certain alleged breaches of a policy’s “cooperation clauses” precluded policy coverage. GeoVera insured Johnson under a homeowner’s insurance policy. Johnson’s house sustained windstorm damage in a hurricane. Johnson’s house sustained fire damage in a separate event nearly two years later. Johnson sought coverage for both losses. GeoVera, alleging that Johnson violated the policy’s “cooperation” clauses, denied coverage. GeoVera’s policy imposed the following duties of cooperation on Johnson: (1) “cooperate with GeoVera in the investigation of a claim,” (2) “prepare an inventory of damaged personal property showing the quantity, description, actual cash value and amount of loss,” (3) “attach all bills, receipts and related documents that justify the figures in the inventory,” (4) “show the damaged property as often as GeoVera reasonably required,” (5) “provide GeoVera with requested records and documents,” and (6) “submit to examination under oath.” The policy provided that GeoVera would owe no coverage if Johnson’s breach of any cooperation duty prejudiced GeoVera. The Court found Johnson in violation of numerous cooperation duties. Johnson invoked her contractual appraisal right under GeoVera’s policy, but demolished and remodeled a significant portion of the house before GeoVera could conduct its appraisal. Johnson “almost completely gutted the interior, performed extensive framing repairs, and then terminated the appraisal process.” GeoVera, after invoking its own contractual appraisal right, subsequently requested that Johnson produce “several videos and thousands of photos of the fire damage” known to be in Johnson’s possession. Johnson refused to provide the requested videos and photographs until well after the coverage litigation had commenced. Johnson refused to testify under oath regarding the incident until over a year following the loss. Johnson further refused to provide documentation justifying the figures in her proof-of-loss list. The Court concluded that Johnson had clearly not complied with Johnson’s cooperation duties under GeoVera’s policy. The Court further held that Johnson’s non-compliance had prejudiced GeoVera. The Court held that noncompliance prejudices an insurer when an insured’s noncompliance frustrates two basic purposes of a policy’s cooperation clause: (1) “to enable the insurer to obtain relevant information concerning the loss while the information is fresh,” and (2) “to protect the insurer against fraud, by permitting it to probe into the circumstances of the loss.” The Court identified several manifestations of prejudice against GeoVera. Johnson, in “significantly altering the state of [her] house before GeoVera’s agent could appraise it,” precluded GeoVera from accurately assessing the economic magnitude of the claimed fire damage. Johnson, by significantly delaying submission of probative videos and photographs depicting the claimed damage, forced GeoVera to “engage in an unorthodox, more expensive inspection process.” Johnson also prejudiced GeoVera by initially refusing to submit to examination under oath, because Johnson’s significant delay “caused Johnson to forget information vital to protect GeoVera from fraud during the claims process.” The Court concluded that Johnson failed to comply with her duty to cooperate under GeoVera’s policy, and that Johnson’s noncompliance had prejudiced GeoVera. The Court accordingly denied coverage. Add to Flipboard Magazine.
In its recent decision in S.M. Elec. Co. v. Torcon, Inc., 2016 N.J. Super. Unpub. LEXIS 2289 (N.J. App. Div. Oct. 19, 2016), the Superior Court of New Jersey, Appellate Division, had occasion to consider what constitutes a “claim” for purposes of triggering an insured’s reporting obligation under a professional liability policy. Greenwich Insurance Company insured Torcon under successive claims made and reported professional and pollution liability policies: the first in effect for the period November 11, 2007 to February 1, 2009 and the second for the period February 1, 2009 to February 1, 2010. The policies’ professional liability coverage part insured Torcon for liabilities arising out of its services “as an architect, engineer, land surveyor, landscape architect, or construction manager.” Notably, the policies defined the term “claim” as a “demand received by the INSURED for money or services that arises from PROFESSIONAL SERVICES or CONTRACTING SERVICES.” The policies further defined the term “claim” as not being limited to lawsuits, petitions, arbitrations or other forms of alternative dispute requests filed against Torcon. At issue was a claim arising out of Torcon’s work as a construction manager for the construction of a hospital in New Jersey. On May 7, 2008, Torcon received a letter from the owner of the project providing “Notice of Material Breach” because of problems with the hospital’s electrical work. One week later, Turcon wrote a letter to the project’s electrical subcontractor, declaring it to be in default. The subcontractor responded promptly with a letter stating that it had incurred significant additional costs with the project that were the result of Torcon’s delays in process change orders. The subcontractor further stated that it was in the process of preparing a claim seeking a “compensatory settlement for all damages incurred.” The subcontractor followed with a letter dated August 19, 2008. The letter, titled “Demand for Equitable Adjustment” stated that the subcontractor was seeking some $15 million “as compensation for the additional cost of performing the work … .” The letter attributed some $12.5 million of this due to Torcon’s alleged substandard performance as a construction manager. The letter requested change orders for costs resulting from productivity losses, labor cost overruns, and material cost overruns.” An amended claim letter was sent on September 17, 2009. Suit ultimately was filed against Torcon in January 2010. Torcon first reported the matter to Greenwich after suit was filed under the policy issued to it for the period February 1, 2009 to February 1, 2010. Greenwich denied coverage on the basis that the claim was actually first made in August 2008, and as such was not a claim first made and reported under the 2009-2010 policy. On motion for summary judgment, the trial court agreed and held in Greenwich’s favor. On appeal, the Appellate Division agreed that the policies’ definition of “claim” was not ambiguous, but instead would be understood by an average policy holder as encompassing demand letters rather than being limited to lawsuits or petitions. The court further agreed that the August 2008 letter to Torcon was a claim since it stated that Torcon erred in its capacity as a construction manager and stated that as a result, Torcon was liable to the subcontractor for some $12.5 million in damages. Torcon contended that because the letter demanded an equitable adjustment and sought a change order, it should not be considered a “claim” against Torcon but instead a request for additional payment as any contractor might make as a result of a change in circumstances encountered during the course of a construction project. The court rejected this argument, observing that: The letter clearly conveyed a demand. This was not a request for change orders regarding future conduct, but a claim for equitable compensation by one party seeking, as a matter of right, the payment of money in connection with the other party’s alleged wrongdoing. Finding that the August 2008 letter qualified as a “claim,” the court agreed that it was not a claim first made and reported during the 2009-2010 policy period and that Torcon was not entitled to coverage for the matter. Add to Flipboard Magazine.
New York’s Department of Financial Services (“NYDFS”) recently proposed cybersecurity regulations intended to protect consumers and financial institutions from the ongoing threat of cyber-attacks. NYDFS’s proposed “Cybersecurity Requirements for Financial Services Companies” regulate all financial services companies including banks, insurance companies, and any other entity subject to financial services laws. The Proposed Regulation defines a “Covered Entity” as “any [p]erson operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the [New York] banking law, the insurance law or the financial services law.” The goal is to secure “Nonpublic Information,” from misuse, disruption and unauthorized access. “Nonpublic Information” is broadly defined to include “all electric information that is not Publicly Available” and includes personal information and intellectual property, as well as several categories of information that a Covered Entity receives from or about its consumers. The Proposed Regulation addresses five key areas: Establishment of a cybersecurity program; Adoption of a cybersecurity policy; Role of the chief information security officer; Oversight of third-party service providers; Additional items that relate to security practices and other matters. The first requirement is that the Covered Entities must establish a cybersecurity program designed to ensure the confidentiality, integrity and availability of their information systems. The program must perform certain core cybersecurity functions, including: identification of cybersecurity risks and detection of cybersecurity events (i.e. an act or attempt to gain unauthorized use of an informational system); implementation of policies and procedures to protect from cybersecurity events; responsiveness to cybersecurity events to mitigate the negative events; and recovery from cybersecurity events and restoration of normal operations. The written cybersecurity policy mandated by the proposed regulations imposes more stringent requirements on a regulated financial institution. It requires the Covered Entity’s cybersecurity policy to address multiple areas, such as customer data privacy, vendor and third-party service providers, and incident response. Moreover, it requires that the cybersecurity policy is reviewed by the financial institution’s board of directors and approved by a “Senior Officer” at least once a year. Additionally, the Proposed Regulation requires each Covered Entity to designate a Chief Information Security Officer that will be responsible for overseeing and implementing the cybersecurity program and enforcing the cybersecurity policy. That person will also be responsible for reporting on the cybersecurity program, at least bi-annually, to the board of directors. The Proposed Regulation also sets forth policies and practices that Covered Entities must implement related to third-party service providers, in order to ensure the security of information systems accessible to them. These policies and practices must include identification and risk assessment of third parties, minimum cybersecurity practices that third-parties must meet, due diligence processes used to evaluate the cybersecurity practices of third parties, and an annual assessment of third parties. The Proposed Regulation further requires Covered Entities to encrypt their Nonpublic Information by January 2018 and for Nonpublic Information in transit and by January 2022 for Nonpublic Information at rest. Further, beginning January 15, 2018, Covered Entities must have the chair of the board sign a certification for the Superintendent of Financial Services stating that the Covered Entity is in full compliance with the Proposed Regulation. Finally, the Proposed Regulation provides that it “will be enforced pursuant to, and is not intended to limit, the superintendent’s authority under any applicable laws.” Those laws include provisions of the New York Banking Law, Insurance Law and Finance Law that impose civil and even criminal penalties for false disclosures made with an intent to deceive a regulator. This gives rise to the possibility that the individuals who sign the compliance certification may be exposed to personal liability if the Covered Entity is found to have not complied with the Proposed Regulation. For now, the proposed regulation is subject to a 45 day notice and comment period that began on September 28, 2016, and is slated to take effect January 1, 2017. While the new Regulations apply only to financial institutions in New York, they will have an outside impact given the state’s central role in the financial sector. With the effective date of January 1, 2017 just around the corner, Covered Entities should begin assessing their cybersecurity risks and developing their cybersecurity program to begin documenting their compliance efforts. The use of legal counsel familiar with data security and privacy issues is always recommended. Add to Flipboard Magazine.
In Westfield Ins. Co. v. West Van Buren, LLC, the Appellate Court of Illinois, affirmed the trial court’s decision holding that the developer, West Van Buren, LLC (“Van Buren”), was not entitled to defense and indemnification under the policy of the roofing subcontractor, Total Roofing, because the suit did not allege an “occurrence.” In 2002 Van Buren constructed a condominium development in Illinois and subcontracted with Total Roofing for the construction of the roof. In connection with the project, Total Roofing obtained a CGL policy with Westfield Insurance Company (“Westfield”), which offered coverage for property damage caused by an “occurrence.” After construction was completed and shortly after the Condo Association took charge of the building, the Condo Association claimed construction defects including roof leaks that infiltrated the building and individual apartments. The Condo Associated demanded that Van Buren reconstruct the roof but when Van Buren refused, the Condo Association paid for the repairs itself and sought reimbursement from Van Buren and Total Roofing, alleging shoddy workmanship breach of warranty and consumer fraud. Westfield denied coverage to Van Buren but afforded defense to Total Roofing under reservation of rights. Westfield filed suit seeking a declaration that it owed no duty to defend to Van Buren and the trial court ultimately found in favor of Westfield, holding that Van Buren was not entitled to defense or indemnification. The appellate court affirmed, stating that it was questionable whether Van Buren was even an additional insured because the policy language implied that the additional insured coverage was limited to coverage available to the named insured during ongoing operations, and the Association’s suit involved leaks which occurred after the roof was completed. Regardless, the main focus of the court’s decision was the lack of a “property damage” caused by an “occurrence.” In this regard, policy defined an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policy defined “property damage” as “a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.” The Appellate Court reached its decision for the following three reasons: Westfield’s policy required an accidental event to trigger coverage alleged intentional bad acts by the developer and resulting damage due to shoddy workmanship of which Van Buren was allegedly aware. Since the alleged damage was not an accident, it was not an “occurrence” and, therefore, the allegations did not fall within coverage under the policy. The allegations in the Complaint did not constitute “property damage” based upon case law holding that “physical” injury occurs when property is altered in appearance, shape, color or other material dimensions. Travelers Ins. Co. v Eljer, 197 IL 2d 278, 308 (2001). The Association’s allegations that shoddy work by Total Roofing diminished value of the units did not constitute “physical” injury. The factual allegations of personal property damage set forth in the complaint were not offered for purposes of recovery and were only tangential to the claims. Therefore, those allegations do not trigger coverage. Further, the Association was not acting on behalf of individual unit owners, nor was the complaint amended to include the unit owners. Based upon the foregoing, the Court found that Westfield had no duty to defend Van Buren and, as such, no duty to indemnify. The decision includes a vigorous dissent. Add to Flipboard Magazine.