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TX Court Rules That Duty to Defend Suit Seeking Damages Extends to Superfund Cleanup Proceedings Conducted by EPA, Claims Covered by CGL Policies

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Responding to an inquiry from the U.S. Court of Appeals for the Fifth Circuit, the Texas Supreme Court ruled Friday, in a 5 to 4 decision, that the "coercive nature" of the administrative proceedings employed by the Environmental Protection Agency (EPA) under Comprehensive Environmental Response, Compensation, and Liability Act's (CERCLA) cleanup and cost recovery provisions amount to a "suit", and a potentially responsible party's (PRP) receipt of a CERCLA letter from EPA, inviting the recipient to negotiate with EPA "is effectively a demand". Moreover, with respect to judicial review, "as a practical matter, courts afford PRPs no hope of relief, and consequently they have no choice but to comply with EPA's directives". The case is McGinnes Industrial Maintenance Corporation v. The Phoenix Insurance Company and The Travelers Indemnity Company. Chief Justice Hecht wrote the majority opinion.

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Are You Covered for a Superstorm?

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A version of our article titled Surviving the Storm originally appeared in a Bay Area Council publication in the March 2015. It discusses Superstorm Sandy's sobering preview of the types of insurance and risk management issues that business and residents face given the prospects of a catastrophic storm.

Florida Appeals Court Overturns Notice/Prejudice Ruling Against Policyholder

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Florida's Third District Court of Appeals recently held that whether "prompt" notice was given to an insurer of a claim occurring over three and a half years after a hurricane caused damages to a condominium is a question of fact that must be given to the jury. This ruling confirms that the date on which an insureds' duty to report a claim is triggered under an insurance policy's notice provision is an issue of fact not ripe for summary judgment. The case is Laquer v. Citizens Property Insurance Corporation.

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Don't Trust, Verify: What Every Business Needs to Know About Certificates of Insurance

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By Pillsbury Winthrop Shaw Pittman

Today, Pillsbury attorneys Joseph Jean, Alexander Hardiman and Matthew Putorti published their client alert titled Don't Trust, Verify: What Every Business Needs to Know About Certificates of Insurance. The Alert discusses the general rule in New York that a certificate of insurance (COI), by itself, does not provide insurance coverage. It explains that this means that businesses that rely solely on COIs as evidence of their status as additional insureds might not actually be covered in the event of a loss. A recent New York case, however, is a reminder that this general rule is not the end of the inquiry and that there are possible ways to still get recovery.

Additional Source: Southwest Marine & Gen. Ins. Co. v. Preferred Contractors Ins. Co., No. 153861/2014, 2015 N.Y. Slip Op. 30544(U) (N.Y. Cnty. Apr. 13, 2015).

USGS's Increase of Texas's Earthquake Risk Level: Commercial Real Estate and Insurance Implications

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By Pillsbury Winthrop Shaw Pittman

Today, Pillsbury attorneys James Lloyd, Vince Morgan, Adam Weaver and Tamara Bruno published their client alert titled USGS's Increase of Texas's Earthquake Risk Level: Commercial Real Estate and Insurance Implications. The Alert discusses the increase in seismic activity in the Fort Worth Basin and the likelihood that this increase will lead to a corresponding rise in the official earthquake risk level for the Fort Worth Basin when the United States Geological Survey (USGS) releases an updated earthquake hazard map in the coming months. This map and the USGS's estimates of seismic risk play a crucial role in determining insurance costs, building codes and lenders' insurance requirements.

Sweeping Ruling in Favor of "Litigation Insurance" Provided by the Duty to Defend

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A unanimous panel of the Illinois Appellate Court recently held that three insurers have a duty to defend any case in which the bare underlying allegations - if proved - would render their insured liable, regardless of extrinsic facts. This sweeping ruling confirms that the duty to defend is a form of "litigation insurance," protecting the insured against the costs of being wrongly sued, however groundless the claims against it may be. The case is Illinois Tool Works Inc. and ITW Finishing LLC v. Travelers Casualty and Surety Company, et al.

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A Boost for Business: Time to Reaffirm or Secure Terrorism Insurance

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Monday, we published our client alert A Boost for Business: Time to Reaffirm or Secure Terrorism Insurance. The Alert discusses H.R. 26, a bill signed into law on January 12, 2015 by President Obama enacting the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA of 2015). TRIPRA provides a federal backstop for insurance against risks of terrorism and extends until 2020 the Terrorism Insurance Program established under the Terrorism Risk Insurance Act (TRIA) of 2002, which expired at the end of 2014. The measure lifts a cloud of uncertainty that was proving difficult for property owners, especially in major metropolitan areas, as there was insufficient capacity in the private insurance market to meet their needs.

10th Cir. Rejects Claim That Pollution Exclusion In Liability Policies Are Ambiguous and Inapplicable

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On October 20, 2014, the U.S. Court of Appeals for the Tenth Circuit unanimously affirmed the lower court's ruling that the commercial liability insurance policies purchased by Headwaters Resources, Inc. contained unambiguous "pollution exclusion" provisions which excluded Headwaters' demand that its insurers reimburse its litigation defense costs. The case is Headwaters Resources, Inc. v. Illinois Union Insurance Company and ACE American Insurance Company.

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Texas Supreme Court Will Decide Important CERCLA Insurance Matter

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The Texas Supreme Court confirmed that it will decide an issue of Texas law that was certified to the Court by the U.S. Court of Appeals for the Fifth Circuit. The case is McGinnes Industrial Maintenance Corporation v. The Phoenix Insurance Company; The Travelers Indemnity Company. The issue is whether the receipt of Potentially Responsible Party (PRP) letters and unilateral administrative order, issued pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), from EPA Region 6 is a "suit" that triggers a duty by the insurers to defend, investigate and settle.

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New Jersey Appellate Division Orders Reformation of Surety Bond Consistent With Terms of its Principal's Contract

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New Jersey's Appellate Division recently reversed a trial court's dismissal of a general contractor's claim against a performance bond, holding that the bond must cover the general contractor as the intended obligee, even though the general contractor was not expressly named in the bond.

In Allied Building Products Corp. v. J. Strober & Sons, LLC, et al., A-1113-12T4 (NJ App. Div., September 5, 2014), Dobco, Inc. ("Dobco") was the general contractor for a science hall renovation project at William Paterson University. J. Strober & Sons, LLC ("Strober") bid for and was awarded a roofing subcontract on the project. The subcontract between Dobco and Strober required Strober to obtain payment and performance bonds, in the form annexed to the Dobco-Strober subcontract (which required that Strober be named obligee on the bonds).

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Determining the Number of Occurrences Arising From Multiple Construction Defects ... It Depends on Who Is Sued

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The United States District Court for the District of Oregon held that property damage incurred to a condominium project resulting from a myriad of construction defects constituted just one occurrence under the relevant excess general liability policy.

In Chartis Specialty Ins. Co. v. American Contractors Ins. Co. Risk Retention Group et al., Case No. 3:13-CV-1669 (D. Ore. Aug. 12, 2014), the owners association of a condominium complex sued its developers for property damage incurred to the condominium as a result of numerous and distinct construction defects. The owners association alleged that the developers failed in their duties as developers to build the condominium complex free from defects. The alleged defects included errors in the construction of the roof, fire sprinklers, insulation, and windows and doors, resulting in total damages of $3.6 million.

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Zurich Seeks to Assert Unprecedented Control over Defense Counsel

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Zurich has updated its "Litigation Management Guidelines" to give the insurer an unprecedented level of control over defense counsel's activities. The new Guidelines adopt the Recommended Case Handling Guidelines for Insurers created by The Defense Research Institute, and also append an extensive Addendum covering business policies, expense and professional fee payment, and other administrative points.

The Guidelines purport to impose a sweeping waiver of attorney-client privilege and work product protection, even though the law in most states imposes significant limitations on an insurer's access to privileged or protected information developed by defense counsel - especially where the insured is entitled to so-called Cumis or independent counsel as a result of conflicts of interest with its insurer. Zurich's Guidelines mandate almost complete and constant transparency in case development and strategy, stating "counsel should provide a significant development report to immediately communicate important case developments to the claims professional, such as settlement overtures by other parties, codefendant strategies or developments, new information obtained through discovery, etc." The Addendum also requires counsel to "enunciate the impact of the information being conveyed," specifically on "case strategy, evaluation, posture, and resolution opportunities." Zurich essentially attempts to coerce insureds to waive the attorney-client privilege and work product protection by expressly stating that Zurich reserves the right to review defense counsel's files and will not pay for defense activities for which Zurich is not given access to "full" explanation and documentation.

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Second Circuit - Architect's Faulty Designs Were Two Separate Defects

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On June 23, 2014, the Second Circuit Court of Appeals issued a decision in the case Dormitory Authority of the State of New York v. Continental Casualty Company (2014 WL 2808073), a declaratory judgment action filed by a building owner against the architect's insurance carrier over the faulty design of a dormitory. The issue in this case was whether two design defects in the structure of the building were "related." The owner sought a declaration that the design flaws were two separate defects because, if so, two separate policies would have responded to the claims, but if not, there would not have been sufficient limits to remediate both defects. Although this decision has not received much attention yet, the importance lies in the Second Circuit's agreement that the defects were separate, notwithstanding policy language that attempted to group related wrongful acts.


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Common-Law or Statutory Payment Bond: Do You Know What Type of Bond Your Contract Requires?

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Hard Hat Workforce Solutions, LLC v. Mech. HVAC Servs., Inc., 406 S.C. 294, 750 S.E.2d 921, 922 (2013).

How confident are you that the payment bond your subcontract required you to obtain falls within your state's payment bond statutory scheme? Bonds.jpg In Hard Hat Workforce Solutions, LLC v. Mech. HVAC Servs., Inc., 406 S.C. 294, 296, 750 S.E.2d 921, 922 (2013), the Supreme Court of South Carolina reversed the Special Circuit Courts decision granting summary judgment relief for a surety defendant on the theory that the plaintiff, a fourth-tier subcontractor, need not provide notice as required by statute because the bond at issue was a common-law, not statutory, bond. (Full write up, after the jump.)

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An American Policyholder in London: English Choice of Law Clauses in United States Insurance Policies

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By Pillsbury Winthrop Shaw Pittman

Today, Pillsbury attorneys Ray Sweigart and Jeff Kiburtz published their advisory titled An American Policyholder in London: English Choice of Law Clauses in United States Insurance Policies. The Advisory identifies a few of the issues on which English law is notably different from prevailing law in the United States and which ought to be taken into account when considering an English law and forum clause.