Enough is Enough: Fifth Circuit Holds Duty to Defend Does Not Include Costs of Prosecuting Insured’s Fee-Dispute Counterclaim

Aldous v. Darwin National Assurance Co., No. 16-10537 (5th Cir. Mar. 16, 2017), presents a thicket of coverage issues. However, the clearest and most significant one for the insurance industry is that the duty to defend, under Texas law, does not extend to the cost of prosecuting an insured’s counterclaim.

This coverage litigation started as an attorney-client dispute over the non-payment fees and then morphed into a legal malpractice action. Darwin National Assurance Co. insured Aldous under a professional liability insurance policy. Aldous, following …

Continue Reading

Drilling Down Policy Language Results in Finding Two Occurrences Because Two Separate Events were Proximate Cause of Insured’s Losses

Hundreds, if not thousands, of cases have been decided based on the meaning of “arising out of” and “arising from” when used in an insurance policy. The recent case of Seahawk Liquidating Trust v. Certain Underwriters at Lloyds London, 2016 U.S. App. LEXIS 871 (5th Cir. Jan. 19, 2016)demonstrates that it is not only the words that matter, but the context in which the words are used is equally important. In Seahawk, the Fifth Circuit Court of Appeals held that two storms occurring …

Continue Reading

Supreme Court of Texas Declines to Adopt Incorporation Theory: But Destructive Repairs are Covered

Ruling on certified questions from the Fifth Circuit Court of Appeals, the Supreme Court of Texas has positioned the state as another jurisdiction to refuse to characterize mere incorporation of a defective component into a product or system as “physical injury” to property that would trigger coverage under a standard form CGL policy. The court also refused to narrowly apply the “impaired property” exclusion by rejecting the insured’s argument that the exclusion should be limited to those situations where the property is restored to use …

Continue Reading

Below Limit Settlement Obliterates Excess Coverage

In Martin Resource Management Corporation v. AXIS Insurance Company, an excess insurer was held by the United States Court of Appeals for the Fifth Circuit to have no obligation to indemnify its insured under the terms of its excess insurance policy after the insured settled with its primary insurer for an amount below the primary policy limits.

The insured had sought coverage from both its primary and excess policies for the cost of defending underlying litigation in Texas state court. The primary insurer settled …

Continue Reading

Feels like a Fraud: Fifth Circuit Rules in Favor of Insurer; Awards $6M in Fraudulent Claims Case

In Allstate Insurance Company et al. v. Michael Kent Plambeck, DC, et al. United States Court of Appeals for the Fifth Circuit, September 17, 2015, an insurer was awarded a $6 million verdict against a group of chiropractors, lawyers and telemarketers that coerced individuals into making fraudulent claims against the insurer. The District Court awarded the verdict based on the Racketeer Influenced and Corrupt Organizations Act (RICO). On September 17, 2015, the Fifth Circuit Court upheld the verdict.

The insurer accused the telemarketers of …

Continue Reading

Bad Faith in Louisiana: Insured’s Claim for Bad Faith Not Limited to Statutory Cause of Action

In a multi-layered decision, Century Surety Company v. Belvins, (United States Court of Appeals for the Fifth Circuit, August 18, 2015), the Fifth Circuit found that a policyholder could assert non-statutory bad faith claims against an insurer under Louisiana law.  It also held that a district court could not sua sponte dismiss unchallenged counterclaims without notice to the parties, and affirmed that Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942)’s broad abstention doctrine (applicable in declaratory judgment action) did not …

Continue Reading

Blurred Lines Between Trademark and Trade Dress: Fifth Circuit Rules on “Web-Dress” Infringement

In Test Masters Educational Services, Inc. v. State Farm Lloyds, No. 14-20473, 2015 U.S. App. LEXIS 11148 (5th Cir. June 29, 2015), the Fifth Circuit affirmed a district court’s ruling that the amended counterclaim in the underlying lawsuit did not trigger a duty to defend on the basis of trade dress infringement.

The underlying dispute arose from the ongoing legal saga between Test Masters Educational Services, Inc. (TES) and Robin Singh Educational Services, Inc. Both entities provided test preparation services under the name “Testmasters.” …

Continue Reading

Presumption of No Bad Faith Upheld Where District Court Interpreted Exclusion Like the Insurer

In Global Management Enterprise, L.L.C. v. Commerce & Industry Insurance Co., the insurer provided workers’ compensation coverage to the plaintiff-employer. 2015 U.S. App. LEXIS 9179, *3 (5th Cir. June 2, 2015). The policy excluded employees eligible for benefits under the Longshore and Harbor Workers’ Compensation Act (LHWCA), but, by endorsement, the policy extended to “street cleaning.” An employee injured while cleaning a beach sought to recover benefits. The insurer originally disclaimed based on the LHWCA exclusion and later denied that the employee was covered …

Continue Reading

Louisiana Supreme Court Expands Failure to Settle and Misrepresentation Claims Against Insurers

In Kelly v. State Farm Fire & Casualty Co., 2015 La. LEXIS 697 (La. May 5, 2015), the Louisiana Supreme Court answered two critical questions regarding an insurer’s claim handling responsibilities. First, the court held that an insurer can be found liable for bad faith failure to settle, notwithstanding that the insurer never received a firm settlement offer. Second, the court held that an insurer can be found liable for misrepresenting or failing to disclose facts that are not related to the insurance policy’s …

Continue Reading