Casualty Co., which had issued it commercial general liability policies from 2000
to 2012, and again from 2012 to 2016.
State Farm declined, citing provisions in the policies for damage or injury
related to “rendering or failure to render any professional services or treatment.”
Morningstar filed a lawsuit charging the exclusion is inapplicable because it
holds no professional licenses, and that the exclusion, if enforced, would “render
the … policies meaningless.”
State Farm countersued, seeking to dismiss the lawsuit. The U.S. District
Court for the District of South Carolina upheld State Farm’s motion on May 24.
The court ruled that Morningstar’s arguments were “implausible,” noting
it offered no argument to back up its claim that the lack of professional licenses
would impact the insurance policy. It also said that the CGL policies provided
other coverages regardless of its professional services exclusion and thus, were not
SCORECARD: State Farm does not have to defend or indemnify the building
TAKEAWAY: The professional services exclusion was unambiguously listed
in the policies.
DEBRIS REMOVAL NOT COVERED BY FLOOD ENDORSEMENT
In october 2012, a long branch, n.j., apartment complex owned and managed by Oxford Realty Group Cedar, CLA Management and R.K. Patten LLC, (“Oxford”) suffered flood damage from Superstorm Sandy.
Oxford filed a claim with Travelers Excess and Surplus Lines Co. under a
flood endorsement to a property
policy that provided flood coverage
limited to $1 million. Oxford filed
a $1 million claim for flooding and
$208,000 for debris removal costs.
Travelers paid Oxford $1
million, and rejected the debris
removal claim, saying the policy
was limited to $1 million for flood
damage. In April 2014, the New
Jersey Superior Court ruled in favor
of Travelers, finding the policy to
be unambiguous about coverage
limits, and that the $500,000 additional coverage for debris removal listed in the
policy “must yield” to the $1 million coverage for all losses caused by the flood.
That decision was reversed by the N.J. appellate division, which ruled the
$1 million cap only applied to Oxford’s buildings, rather than an insured
occurrence, and that Travelers must pay for the debris removal. The state’s
Supreme Court reversed again, on May 25.
“Although the policy assigns debris removal a coverage sublimit, it does not
constitute a self-contained policy provision outside the application of the $1
million flood limit,” the court ruled.
SCORECARD: Travelers does not have to pay $208,000 for debris removal
TAKEAWAY: The flood endorsement “controls the extent of flood coverage
and it is not modified by the rest of the policy’s terms.”
COURT RULES FOR AGENT IN DUTY OF CARE CASE
In november 2013, two truckloads of copper were stolen from trucks owned by now-defunct Atic Enterprises Inc., which transported general freight. Atic had an insurance policy with Westchester Fire Ins. Co., sold to it by
Cottingham & Butler.
When Atic purchased its initial policy, covering the period of July 2012 to July
2013, it never informed Cottingham & Butler that it transported copper, instead
listing that it transported canned goods, paper products, nonalcoholic beverages
and general merchandise.
When a renewal of the policy
was discussed, Cottingham
& Butler sent a side-by-side
comparison of the proposed 2013-
2014 policy and the 2012-2013
policy. The newer policy explicitly
excluded copper (a change from
the prior policy), but Atic did not
update the cargo it transported to
When the two truckloads of
copper were stolen, the claim was
denied. Atic filed a lawsuit against the insurance agent, claiming negligence,
arguing that Cottingham & Butler owed a duty of care to the insured, that it
breached that duty and that the breach caused the insured’s damages.
The U.S. District Court for the Western District of Kentucky dismissed
Atic’s claim. On May 23, the U.S. 6th Circuit Court of Appeals agreed with that
“We find that Cottingham & Butler had no such additional duty [of care]
under Kentucky law, and even if it did, that the company satisfied that duty,” the
appeals court ruled.
It noted the insurance agent sent many documents to the trucking company
notifying it of the copper exclusion, even though the trucker did not admit that it
It also noted that a “duty to advise” an insured occurs when the insured pays
the agent consideration beyond a mere payment of premium; where there is an
extended period of time which would “put an objectively reasonable insurance
agent on notice that advice is being sought and relied on;” or when an insured
clearly asks for advice.
None of those factors occurred in the case, the court ruled.
SCORECARD: The insurance agent was not negligent when a copper theft
claim was denied.
TAKEAWAY: Since Atic never informed the agent that it was hauling copper,
the agent had no reason to further advise the trucker about the exclusion.
PROFESSIONAL SERVICES NOT COVERED UNDER POLICY
Morningstar consultants inc. was hired to inspect construction projects of Centex Homes. Its alleged failure to competently do that resulted in alleged property damage to certain construction projects
and lawsuits in eight states for negligence.
Morningstar sought defense and indemnification from State Farm Fire and