2020 Year in Review Coverage Rob Moseley Rob

2020 Year in Review: Coverage Rob Moseley Rob. Moseley@momarlaw. com 864 -248 -6026 Robert “Rocky” C. Rogers Rocky. rogers@momarlaw. com 864 - 248 -6029 (direct) Kristen L. Nowacki Kristen. nowacki@momarlaw. com 864 -248 -6046 (direct)

Overview � I. Bad Faith � II. RORs � III. Duty to Defend � IV. Discovery Issues/ Privilege � V. Federal Jurisdiction � VI. Financial Responsibility � VII. Miscellaneous � VIII. What to Expect for 2021

Bad Faith � Travelers Property Cas. Co. v. North American Terrazzo Co. , 2020 U. S. Dist. LEXIS 212797, at *2 (W. D. Wash. Nov. 13, 2020) ◦ Duty to refrain from engaging in conduct which demonstrates greater concern for insurer’s monetary interest than for insured’s financial risk ◦ DJ should not seek adjudication of same facts as underlying case, due to enhanced obligation of fairness to insured when defending under ROR ◦ Duty to conduct thorough investigation of cause of accident & nature/ severity of damages ◦ Held: bad faith for insurer to initiate DJ knowing that it could not determine whether damages were excluded

Good Bad Faith Decisions � Montanez v. Liberty Mut. Fire Ins. Co. , 824 F. App'x 905, 906 (11 th Cir. 2020) ◦ Multiple claimants, insufficient policy limits ◦ Diligently investigated ◦ Offered limits and proposed global settlement within 32 days ◦ No duty to offer policy limits when multiple claimants, no knowledge limits would settle claim � Pratt v. Gov't Emples. Ins. Co. , No. 8: 18 -cv-1607 -T-36 AEP, 2020 U. S. Dist. LEXIS 116508, at *38 (M. D. Fla. July 2, 2020) ◦ Consent judgment is not an excess judgment ◦ No bad faith claim

RORs � In most states, an ROR is crucial to preserve coverage issues ◦ Should inform insured of coverage issues ◦ Cite all relevant policy provisions ◦ Apply policy provisions to facts � Selective Way Ins. Co. v. MAK Servs. , 232 A. 3 d 762(Pa. Super. Ct. 2020) ◦ Insurer issued general reservation of rights without mentioning exclusion ◦ Held not sufficient and estopped from disclaiming coverage on basis of that exclusion

RORs, cont. � Choinsky v. Emplrs Ins. Co. , 938 N. W. 2 d 548 (Wis. 2020) ◦ Denied coverage but sought to intervene in underlying suit within a week ◦ 4 ways to avoid breaching duty to defend: �Defend under ROR; �Defend under ROR and file DJ; �Nonwaiver agreement; or �Intervene, seek bifurcation, and stay of underlying proceedings. ◦ Retroactively paid attorneys fees after circuit denied motion to stay and defended under ROR ◦ Did not breach duty to defend

RORs, cont. � Penn-American Ins. Co. v. Morgan Fleet Servs. , 2020 Ga. App. LEXIS 448 (Ga. Ct. App. Aug. 14, 2020) ◦ Failure to issue unambiguous reservation of rights notification before undertaking defense of insured precluded insurer’s ability to challenge coverage/void policy ◦ An email to the insured indicating insurer would provide a defense under a ROR and would forward a letter shortly was not itself a ROR, but was only a statement of future intent to issue a ROR ◦ Unambiguous ROR letter not sent until approximately 6 months later, during which time insurer had retained outside counsel to defend insured

Duty to Defend � Loya Ins. Co. v. Avalos, 63 Tex. Sup. Ct. J. 969 (2020) ◦ Texas follows “ 8 corners” rule ◦ Allegations of pleadings compared to policy ◦ Recognized narrow exception for “collusive fraud” between insured and claimant

Duty to Defend, cont. � Nat’l Continental Ins. Co. v. Aiazbekov, 818 Fed. App’x 468 (6 th Cir. 2020) ◦ While suit was pending, driver fled country ◦ Insurer undertook efforts to locate driver, including hiring private investigator, who learned driver had fled country ◦ After driver fled, insurer settled claims against trucking company for $500 K (half of policy limits), expressly excluding from release any claims against driver ◦ Default judgment obtained against driver for $2. 6 million ◦ Insurer filed DJ prior to default judgment arguing it had no duty to satisfy default judgment because driver’s failure to cooperate ◦ Under Illinois law, duty of insured to cooperate is enforceable as basis to deny coverage/obligation to indemnify provided: � Insurer shows it exercised reasonable degree of diligence in seeking the insured’s participating � The insured’s absence was due to a refusal to cooperate � Substantial prejudice to insurer as a result

Discovery Issues in the Coverage Case � Woods v. Standard Fire Ins. Co. , 2020 U. S. Dist. LEXIS 83437, at *2 (E. D. Ky. May 12, 2020) ◦ Ordered to produce: �Claims file related to UIM claim �In house attorney’s coverage opinion �Coverage opinion/ communications related to UIM claim ◦ Protected: �Claims file related to bad faith claim �Draft pleadings (work-product) �Attorney communications related to bad faith claim

Discovery Issues, cont. � Hovsepyan v. Geico Gen. Ins. Co. , 2020 U. S. Dist. LEXIS 86129, at *3 (E. D. Cal. May 15, 2020) ◦ Attorney-client communications related to UM arbitration privileged ◦ Ordered to produce unredacted copy of claims manual � Idahoan Foods v. Allied World Assurance Co. United States, 2020 U. S. Dist. LEXIS 71243, at *4 (D. Idaho Apr. 22, 2020) ◦ “Where a party has alleged bad faith, Courts throughout the nation have by a slim margin found that reserve information should be produced. ” ◦ “Having reserve information could help [the insured]—and the Court—understand why [the insurer] denied payment. ” ◦ But held communications with reinsurer not relevant to bad faith claim “Reserve information may be relevant for many reasons—particularly to a bad faith claim—and the Court finds several of those reasons applicable to the facts of this case. For example, discovery of how an insurer arrived at the reserve amount and whether its employees followed statutory and company guidelines would be relevant to the employees' reasoning and intentions. ” Stein v. Farmers Ins. Co. , 2020 U. S. Dist. LEXIS 231523, at *6 (S. D. Cal. Dec. 8, 2020) �

Discovery Issues, cont. � “[A]ssisting an adjustor in writing a denial letter is not a privileged task. “ Canyon Estates Condo. Ass'n v. Atain Specialty Ins. Co. , 2020 U. S. Dist. LEXIS 10915, at *3 (W. D. Wash. Jan. 22, 2020) ◦ Had to produce most of the information sought by plaintiff which included attorney invoices

Federal Jurisdiction ◦ Whitcomb v. Twin City Fire Ins. Co. , No. CV-20 -01770 -PHX-MTL, 2020 U. S. Dist. LEXIS 212379, at *10 (D. Ariz. Nov. 13, 2020) � Plaintiff brought claims, including bad faith, after insurer denied UM benefits � After removal, plaintiff sought to add adjuster which would destroy diversity � Court ordered remand ◦ Bundrick v. Allstate Fire & Cas. Ins. Co. , 2020 U. S. Dist. LEXIS 204488, at *4 (W. D. Wash. Nov. 2, 2020) � “The Court recently examined this issue and concluded that the Washington Supreme Court's opinion in Keodalah v. Allstate Insurance Company, 194 Wn. 2 d 339, 449 P. 3 d 1040 (Wash. 2019) leaves open the possibility that an insurance adjuster may be subject to a duty of good faith under Washington common law. ” � Remanded case ◦ See also James v. Allstate Fire & Cas. Ins. Co. , 2020 U. S. Dist. LEXIS 133242, at *9 (N. D. Tex. July 28, 2020) (remanding case and holding adjuster may be liable for bad faith under Texas law); but see Kirby v. Shelter Ins. Co. , 2020 U. S. Dist. LEXIS 30996, at *15 (S. D. Miss. Feb. 24, 2020) (holding adjuster may only be liable for gross negligence, malice or reckless disregard in handling claim and found adjuster improperly joined).

Federal Jurisdiction, cont. � Trustgard Ins. Co. v. Collins, 942 F. 3 d 195 (4 th Cir. 2019) ◦ Insurance coverage DJ action in federal court seeking no duty to indemnify under policy or MCS 90 while underlying action ongoing in state court ◦ Liability of motor carrier insured in underlying case disputed ◦ Court found that the potential injury to the insurer was merely hypothetical insofar as motor carrier insured may ultimately not be found liable and therefore insurer not harmed � This would violate rule against advisory opinions and Article III ◦ As a second ground for avoiding deciding the issue, court held federal court should have abstained from exercising jurisdiction over the controversy � Federal Declaratory Judgment Act is permissive � Federal Abstention Doctrine advises against federal court deciding issue where doing so would interfere with state court proceedings

Federal Jurisdiction, cont. � Trustgard-like cases ◦ Nat’l Spec. Ins. Co. v. S. Fla. Transp. Svcs, Corp. , 2020 U. S. Dist. LEXIS 181408 (S. D. Fla. Sep. 29, 2020) ◦ LM Gen. Ins. Co. v. Nichols, 2020 U. S. Dist. LEXIS 46040 (D. S. C. Mar. 17, 2020) ◦ Prime Ins. Co. v. Gkd Mgmt, LP, 2020 U. S. Dist. LEXIS 243174 (D. Utah Dec. 29, 2020) ◦ Workarounds: � Should not apply to cases seeking determination of duty to defend (provided insurer is providing defense under ROR) � Cases holding where duty to indemnify is decided on same grounds as duty to defend, no violation of advisory opinion rule � Should not apply in admitted liability situations � Federalism and abstention policies n/a if underlying case and coverage case both in federal court (remove whenever possible) � Does not apply to state declaratory judgment actions

Financial Responsibility � Cutrer v. TWT Transp. , L. L. C. , 2020 U. S. Dist. LEXIS 164808, at *17 (M. D. La. Sep. 9, 2020) ◦ Unscheduled tractor hauling mobile bathroom detached and LA DOT worker injured while jumping out of the way ◦ MCS-90 not triggered: “The only property being moved was the mobile bathroom which belonged to [the vehicle owner]; it was being moved for the use of his son; and neither [the vehicle owner] nor the motor carrier] received any compensation from a third party to transport it. ” ◦ Question of fact whether a temporary substitute even though owned by named insured ◦ Bathroom was “mobile equipment” but covered because it was being towed by covered auto

Financial Responsibility, cont. � Penske Truck Leasing Co. , L. P. v. Safeco Ins. Co. , 2020 U. S. Dist. LEXIS 90281 (D. Ct. May 22, 2020) ◦ Motor carrier renter of truck with GVW 25, 999 lbs ◦ Rental agreement provided renter must provide liability insurance and could satisfy this requirement by (a) purchasing coverage provided by Penske or (b) by providing their own coverage in the minimum of $1, 000 CSL ◦ Rental agreement provided liability coverage provided through Penske would be “in accordance with the standard provisions of a basic automobile liability insurance policy as required in the jurisdiction in which the Vehicle is operated. . . with limits as required by the state financial responsibility law or other applicable statute ◦ CT law required $20 k/$40 K/$10 K, but incorporated by reference FMCSA regulations requiring $750 K for intrastate commerce with vehicles in excess of 18, 000 lbs ◦ Court held Penske only required to provide $20 K because it was not motor carrier subject to $750 K limits ◦ Held responsibility to meet higher limits was on motor carrier renter, not Penske (citing 5 th Circuit case holding similarly for obligation of motor carrier, not insurer, to place MCS 90 endorsement on policy)

Financial Responsibility, cont. � Rafanello v. Taylor-Esquivel, 2020 U. S. Dist. LEXIS 232 (N. J. Super Ct. App. Nov. 23, 2020) ◦ Insured dump truck being operated by unlisted driver in New Jersey ◦ Policy contained a step-down provision for unlisted drivers (from $750, 000 to $35, 000) ◦ Court held that NJ law required $750, 000 in coverage because, “at the very least, the dump truck was engaged in intrastate commerce” and was a CMV ◦ Thus, step-down provision not triggered

Miscellaneous � Progressive Northern Ins. Co. v. Estate of Roos, C. A. No. EQCV 027457 (Sioux Cnty. Iowa June 30, 2020) ◦ “Specifically described auto” for purposes of scheduled coverage included non-owned trailers identified only by year and approximate value; no VIN required ◦ 49 C. F. R. § 390. 5 definition of “employee” under FMCSA regulations to include independent contractor could be used to interpret employee exclusion under insurance policy issued to motor carrier to satisfy federal financial responsibility requirements under FMCSA regulations and which contained MCS 90 Endorsement � Employee not defined in policy itself ◦ Same rule did not apply to insurance policy issued to non-motor carrier entity which did not include MCS 90 Endorsement ◦ Same rule did not apply to another policy issued to motor carrier where that other policy itself defined “employee” but did not include independent contractor

What to Expect in 2021 abstention/Trustgard holdings will continue � Eyes on the new administration � Increase in federal financial responsibility limits to $2, 000 � Federal