TIPS 75th Anniversary

Summer 1998
Volume 33 Issue 4

Table of Contents

The Additional Problems of Additional Insureds
By: Douglas R. Richmond

No Harm, No Foul: Why a Bad Faith Claim Should Fail When an Insurer Pays the Excess Verdict
By: David R. Anderson John W. Dunfee

Beyond Asbestos and Environmental Litigation: Coverage Disputes in the Twenty-first Century
By: M. Elizabeth Medaglia and Peter A. von Mehren

Insurance Coverage in Construction—The Unanswered Question
By: F. Malcolm Cunningham, Jr. and Amy L. Fischer

"No Good Deed Goes Unpunished": Personal Liability of Trustees and Administrators of Private Colleges and Universities
By: Eileen M. Evans and William D. Evans, Jr.

Not All Insurance Policies Are Adhesion Contracts: a Case Study of the ALTA Loan Title Policy
By: Keith J. Turner and Kenneth E. Dzien

The "Direct-Conflict" Test for First-Clause McCarran-Ferguson Cases
By: Farrokh Jhabvala

The Attorney-Client Privilege and Work Product Doctrines: The Boundaries of Protected Communications Between Insureds and Insurers
By: Michael Keeley


Abstracts

The Additional Problems of Additional Insureds , 33 Tort & Ins. L.J. 945 (1998).
By: Douglas R. Richmond
The term "additional insured" usually refers to any insured person or entity other than the named insured on an insurance contract. Problems related to "additional insureds" are prevalent in construction cases, in which the landowner generally tries to shift the risk to the general contractor, or in commercial real estate transactions in which commercial lessors attempt to guard against liability for occurrences on leased property.

This article discusses some of the differences between categories of insureds and examined the fundamentals of additional insured coverage, beginning with the procurement of coverage. Other issues discussed in the article include coverage for additional insureds' sole negligence, public policy aspects of coverage for additional insureds' negligence, severability of insureds' interests, additional insureds' tender of defense, and conflicts of interest. Also examined are two special problems involving additional insureds: reservations of rights and the antisubrogation doctrine. The article concludes with an examination of "other insurance," which bears discussion because additional insured coverage may result in several insurers underwriting the same risk.

No Harm, No Foul: Why a Bad Faith Claim Should Fail When an Insurer Pays the Excess Verdict , 33 Tort & Ins. L.J. 1001 (1998)
By: David R. Anderson and John W. Dunfee
This article addresses the issue of whether an insurer that has defended a claim from its inception and promptly paid an excess judgment should be liable to the policyholder for bad faith failure to accept a below-limits settlement demand. Most courts reject bad faith claims where the policyholder is not actually exposed to and injured by the excess judgment. Because damages are an essential element of a bad faith claim, courts should agree that an insurer’s prompt satisfaction of an excess judgment, no matter how large its size, precludes a policyholder’s bad faith (failure to settle) claim. Excess judgments are bound to result, occasionally, even when the insurer has exercised the utmost good faith. Allowing the insurer to pay the excess judgment to avoid a bad faith claim is entirely consistent with properly discharging its duty to the policyholder. Even where it is not in good faith, however, by paying the excess judgment, the insurer protects the policyholder from any harm and the policyholder should have no bad faith claim. By giving insurers greater protection in excess judgment situations–where the policyholder is not harmed–courts will provide greater certainty for insurers, protect policyholders, and preclude wasteful litigation.

Beyond Asbestos and Environmental Litigation: Coverage Disputes in the Twenty-First Century , 33 Tort & Ins. L.J. 945 (1998)
By: M. Elizabeth Medaglia and Peter A. von Mehren
This article will analyze these other types of coverage disputes that are gaining prominence in the field of insurance coverage disputes. Among the most prevalent are pharmaceutical drug and medical devices (including latex-induced injuries and diseases); tobacco; electromagnetic fields; solvents; noise-induced hearing loss; repetitive stress injuries; employment; sick building syndrome; lead poisoning; construction defects; intellectual property; and computer-related techno-torts. This wide range of discrete areas of law, for the most part, defies classification. Nevertheless, some generalizations can be made and parallels can be drawn when this developing body of law is viewed from a broader perspective. First and foremost, both the policyholder and carrier must read carefully the language of the policy under consideration. There is an unlimited variety in the language of general liability policies. Second, greater variety in the contextual surroundings of coverage claims appears likely in the future; another coverage wave of the magnitude of asbestos and the height of environmental claims seems unlikely. Whether or not a massive wave of coverage cases arises, courts and counsel have become far more educated and able to process large and complex coverage cases efficiently and effectively. As a result, cases mature far more readily, and more smoothly, than was the case ten or fifteen years ago. Third, choice of law will continue to be a critical threshold issue as may choice of forum. And finally, allocation mechanisms for spreading the loss among multiple policy periods will continue to be of critical importance.

Insurance Coverage in Construction—The Unanswered Question , 33 Tort & Ins. L. J. 1063
By: F. Malcolm Cunningham, Jr. and Amy L. Fischer
Because the issue of insurance coverage for construction losses would require an extensive treatise, this article attempts to outline some of the relevant questions that should be considered to maximize recovery or minimize loss when confronted with such claims. The first section asks the eternal question "Is there anybody out there?" and examines four potential sources of recovery in the construction industry: (1) builders’ risk policies; (2) CGL/comprehensive general liability policies; (3) project management protective liability insurance; and (4) E&O/professional negligence policies. The second section addresses the question, "What does it all mean?" After describing the general rules of construction used to interpret policies, this section considers the reasonable expectation doctrine as an alternative to—or perhaps an application of—traditional rules. The third section asks the question common to all fiduciary relationships: "Will you stand by me?" This section defines the separate and more expansive duty to defend third-party claims, as contrasted with the duty to indemnify. The next section addresses "what happens in the end" after sorting through various standard exclusions and exceptions to these exclusions in builders’ risk and CGL policies that have particular relevance to construction. The last section focuses on what should be a central question: "Whom do we serve?," and considers the initial issue that is usually faced by counsel in such disputes, i.e., conflicts arising from joint representation of the insurer and insured.

"No Good Deed Goes Unpunished": Personal Liability of Trustees and Administrators of Private Colleges and Universities , 33 Tort & Ins. L. J. 1107.
By: Eileen M. Evans and William D. Evans, Jr.
Written by an academic research scientist and her attorney spouse, this article should be required reading for any lawyer who serves as a volunteer, whether on a hospital boards, a church vestry, or even an ABA committee. Featured is a clear and lucid discussion of the kinds of issues facing trustees and other volunteers, including competing policy interests and the importance of arm’s-length relationships in all activities. Also highlighted is a discussion of Stern v. Lucy Webb Hayes National Training School for Deaconesses and Missionaries, commonly known as the Sibley Hospital case, in which District Judge Gerhardt Gesell ruled that the corporate model should be the standard for directors of charitable corporations. Judge Gesell also proposed several guidelines to resolve the problem of guidelines. Also worth reading are ten guidelines for any trustee: (1) attend meetings with homework complete; (2) know the by-laws, policies, and rules; (3) focus on policy, not administration; (4) advocate more than criticize (praise in public and criticize in private); (5) build consensus on important issues; (6) encourage risk taking by administrators; (7) attend to the budget as the basic policy document; (8) ensure that reward and evaluation systems are keyed to achieving institutional goals and not to personal predilections; (9) stimulate co-trustees to reflect and plan beyond the present; and (10) promote open communication.

Not All Insurance Policies Are Adhesion Contracts: a Case Study of the ALTA Loan Title Policy , 33 Tort & Ins. L. J. 1123 (1998)
By: Keith J. Turner and Kenneth E. Dzien
Decisional law has applied the contra proferentem presumption to lender's title insurance policies, notwithstanding the absence of the criteria for the automatic application of the rule. This article provides an overview of the rules of insurance policy interpretation, but specifically emphasizes the contra proferentem rule and the sophisticated policyholder exception to that rule. There is an apparent subrule to prove the sophisticated policyholder exception where the insured's interests were represented by some sort of industry or trade association in the policy drafting process. In this context the unique history surrounding the creation of the original standard form loan title policy, once explored, will prove the thesis of this article, which is that the contra proferentem rule should not be applied against title insurers when interpreting coverage for their loan title policies.

The "Direct-Conflict" Test for First-Clause McCarran-Ferguson Cases , 33 Tort & Ins. L. J. 1147 (1998)
By: Farrokh Jhabvala
More than fifty years ago, Congress enacted the McCarran-Ferguson Act to immunize certain activities within the business of insurance from the reach of most federal laws.The tendency to disregard the Act’s clear purpose and language and to shrink progressively its immunities has reached new heights with a series of recent appellate decisions that have applied federal laws to the business of insurance under the theory that the Act permits the application of federal laws to insurance transactions if they are not in "direct conflict" with applicable state insurance statutes. Because state laws that regulate unfair insurance competition and unfair insurance trade practices almost always proscribe conduct that is also banned by federal laws, the "direct-conflict" test enables courts to apply the very federal laws to insurance activities whose application the McCarran-Ferguson Act was designed to preclude. The "direct conflict" test was first enunciated in NAACP v. American Family Mutual Insurance Co., which held, in part, that the McCarran Act did not bar the application of the federal Fair Housing Act to a case alleging redlining by certain insurers. NAACP based its analysis on concepts borrowed from federal preemption law and concluded that the McCarran-Ferguson Act did not preclude the application of the Fair Housing Act because the latter did not "conflict" and was "consistent" with state law, even though it provided different remedies. NAACP, however, has not been uniformly followed by other circuits. Featured is a detailed discussion of recent decisions in the First, Third, Eighth, and Ninth Circuits.

The Attorney-Client Privilege and Work Product Doctrines: The Boundaries of Protected Communications Between Insureds and Insurers , 33 Tort & Ins. L. J. 1169 (1998)
By: Michael Keeley
The purpose of this article is to analyze these two evidentiary doctrines in the context of claims involving insurance policies in general, and fidelity bonds in particular. This analysis leads to the inevitable conclusion that such objections seldom justify an insured from withholding documents or information from the insurer, particularly when the policy at issue contains a cooperation clause. This is because the insured seldom has a justified expectation of privacy in documents and information gathered during its investigation, and because the primary function of the insured’s lawyer is to investigate the facts, not provide legal advice. When the insurer retains counsel during the investigation stage of its claim, however, it typically is for the primary purpose of obtaining legal advice on whether the claim is covered under the applicable policy, and as a result, the attorney-client privilege, and sometimes the work product doctrine, are applicable to requests for information from the insurer.

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