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November 2017

Submitted by: G. David Godwin



Upcoming Events

For the Winter Meeting at Amelia Island, the Extra-Contractual Section is pairing up with the Appellate Section for the presentation: “Reversal of Misfortune: How to Establish Favorable Precedent Affecting Bad Faith Litigation.”  The presentation will develop an understanding of the benefits of employing a proactive approach creating favorable precedent, under which emerging insurance bad-faith issues are identified early and an active trial and appeal strategy is pursued in cases with the best facts and in the best jurisdictions. Our all-star panel consists of Vicki Roberts, Laurie Hepler and Scott Hofer.  Look for it once the schedule is published and we hope you will join in the discussion.


For the Annual meeting, July 29-August 3, at Wailea Beach Resort & Spa on the island of Maui, we are working with the ADR section on a joint presentation.  We are currently developing the topic and assembling a panel.  We welcome any ideas, and if you are interested in speaking, please let us know.




Insurance Expert Resource:  We are working on a project to update the resource list of bad faith experts.  This will include known plaintiff as well as go-to defense experts.  In order to make it as useful as possible, we need contributions from everyone.  So if you have a current list that you are willing to share, please forward it to Wystan Ackerman at .


FDCC Amicus Brief:  A huge thanks to all E-C section members for your contribution to the brief prepared by the FDCC for submission to the Supreme Court of Nevada in the matter Century Surety Company v. Dana Andrew, Case No. 73756.  The brief offers the Court a 50-state survey on the issue: “Whether, under Nevada law, the liability of an insurer that has breached its duty to defend, but has not acted in bad faith, is capped at the policy limit plus any costs incurred by the insured in mounting a defense, or is the insurer liable for all losses consequential to the insurer's breach?”  The Court has not yet ruled on the FDCC’s Motion for Leave to File the brief.  If it is accepted, it will be available at the Court’s website.


Recent Insurance Coverage Case Law

In National Union Fire Ins. Co. of Pittsburgh, Pa. v. TransCanada Energy USA, Inc., 2017 NY Slip Op 06513 (N.Y. Sup. Ct. App. Div. Sept. 19, 2017), a power-generating turbine was taken out of operation because of excessive vibrations caused by a crack in the turbine's rotor.  The insured sought coverage for its losses under its property insurance policy tower.  The unit was taken out of operation during the policy period and had been functioning properly until that time, notwithstanding the pre-policy crack in the rotor.  It was undisputed that the crack started prior to the inception of the policy and continued to lengthen during the policy period.  Notably, the unit functioned in line with an alarm and trip system with protocols established when the insurance policy was underwritten and was functioning properly under these protocols until the date it had to be taken off line because of the excessive vibrations caused by the expanding crack.


In affirming the grant of partial summary judgment to the insured and against the carriers, the court stated that the insured's property sustained a physical loss or damage during the policy period.  A key factor in finding for the insured was the lack of any provision in the policy excluding physical loss or damage originating prior to the commencement of the policy period.  The appellate court also affirmed the finding of time-element damages for the entire period when the unit was not available to generate electricity (8 months).  The court noted that New York case law does not generally provide business interruption losses beyond the time needed to physically restore the property, but that those cases (retail) were not applicable here.  Because the unit was not available for power generation for the 8-month period, the insured was unable to earn future capacity revenues during the liability period.  The court rejected the application of the time element exclusion that provides no coverage for any increase in loss due to retroactive or future changes in capacity or bonus payments in effect at the time of loss.  Those payments were defined in the policy to be those paid in return for attaining or exceeding certain production levels.  Here, the insured was a regulated entity that sold at actual production capacity, not when it attained or exceeded specific production levels.  According to the court, the carriers did not meet their burden to show that the exclusion applied.


This summary first appeared in .





October 2017


Extra-Contractual Section Success! Unanimous Reversal and Remand Won in Colorado Court of Appeals


Terence Ridley, a partner in the national litigation firm Wheeler Trigg O’Donnell LLP (WTO), and former FDCC Director, recently argued and won a case in the Colorado Court of Appeals.  The appellate court reversed and remanded the case for a new trial, and affirmed a sanctions award against the plaintiff’s counsel. The defendant’s insurer hired Ridley to handle the appeal after the trial judge directed that the defendant be found at least 51% liable, leading the jury to award the plaintiff over $1,000,000.


The case, Claycomb v. Fox (2016CA1333), involved a two-vehicle accident in 2012. The plaintiff claimed that WTO’s client pulled out in front of him, and that the resulting collision caused severe injuries to the plaintiff. At the close of evidence at trial, the plaintiff moved for a directed verdict that the defendant was at least 51% liable as a matter of law. The trial court agreed and instructed the jury to find the defendant more than 50% liable. The jury then awarded almost 1.3 million to the plaintiff, finding that defendant was 80% liable, the plaintiff 20% comparatively at fault.


Post-verdict in the trial court, WTO won sanctions against the plaintiff’s counsel for filing frivolous post-trial motions. On appeal, WTO argued that the judge erred by determining as a matter of law that the defendant was at least 51% liable, because the allocation of fault was a question of fact for the jury – not a question of law for the judge. A three-judge panel unanimously agreed. The Court of Appeals vacated the verdict and remanded for a new trial, while also affirming the sanctions on opposing counsel.



JUNE 2017

South Carolina Federal Court Compels Cedent to Produce All Communications With Its Reinsurer In Bad Faith Action

Most courts hold that communications and other documents between an insurer (the “cedent”) and its reinsurer are generally not relevant and not discoverable in a coverage action with a policyholder. Courts often note that reinsurance information reflects a business decision by the primary insurer to spread risk or to satisfy statutory reserve requirements, neither of which are typically relevant to coverages issues raised by a specific claim under the policy. However, a bad faith claim can present an exception to the rule.

One recent example is ContraVest Inc. v. Mt. Hawley Ins. Co., No. 9:15-cv-00304-DCN, 2017 U.S. Dist. LEXIS 48638 (D.S.C. Mar. 31, 2017). In that action, a claimant-assignee of a policyholder’s insurance claim brought a lawsuit against the insurer for declaratory judgment, bad faith, breach of contract, and unjust enrichment. The dispute concerned an owners association lawsuit against the policyholder (a developer) for construction defects. The insurer refused to defend and denied coverage for the claim. The policyholder settled the claims and assigned its rights and claims against the insurer to the owners association who filed the coverage action. During discovery the owners association sought production of all of the insurer/cedent’s communications with its reinsurers for all of the insured’s claims made under the pertinent policies. Despite this broad request not limited to the claim at issue, the magistrate judge issued a report and recommendation compelling the insurer/cedent to produce the communications. The district court affirmed the ruling, finding that communications with the reinsurer were relevant and probative of the insurer/cedent’s good faith to the extent the communications provided an explanation for granting or denying portions of the insured’s claims or otherwise described the handling of the insured’s claims. Because the owners association alleged that the insurer/cedent had changed its interpretation of the policies once it was evident that it would have to provide coverage, the insurer/cedent’s prior handling of claims under the same policies was relevant and, consequently, discoverable.

ContraVest is a good example of how carefully crafted bad faith allegations can open doors to the discovery of reinsurance information usually found to be irrelevant. Insurers facing such claims should include in their litigation strategy a plan to limit the scope of their communications with reinsurers and avoid allowing the court to decide the issue. This may entail an agreement with the policyholder for a limited production or a search for communications regarding specific issues raised in the litigation. Developing such a strategy requires an early analysis of reinsurer communications to provide sufficient foundation as to what must be protected.

more Calendar

Webinar - The FDCC, Your Firm and You

Webinar - Succession Planning for In-House Counsel

2/24/2018 » 2/28/2018
2018 Winter Meeting - Amelia Island

4/6/2018 » 4/8/2018

5/20/2018 » 5/23/2018
Litigation Management College

5/20/2018 » 5/23/2018
Litigation Management Graduate Program

Featured Members
Melinda S. KollrossDefense Counsel, Clausen Miller PC, Chicago, IL
J. Eric MilesDefense Counsel North, Pursell & Ramos, PLC, Nashville, TN

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