United States: The Top Five Of 2014

Everyone, it seems, does a retrospective list at this time of the year of the most important cases of the past twelve months. We would be remiss if we didn't compile one of our own.

Here is our list of the five most influential insurance cases of 2014.

  1. Ewing Constr. Co., Inc. v. Amerisure Ins. Co.,No. 12-0661 (Texas Jan. 17, 2014). The year began with a long-awaited decision by the Texas Supreme Court that interpreted and applied the "Contractual Liability" Exclusion found in most Commercial General Liability insurance policies. Ewing Construction Company built several tennis courts for a school district in Corpus Christi. Soon thereafter, the courts began flaking and crumbling, and cracking, causing the school district to sue Ewing for breach of contract and for faulty workmanship. Ewing turned the suit over to its liability insurer, which denied coverage on the basis of the Contractual Liability Exclusion in its policy. That exclusion says that the policy does not apply to harm "for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement." The exclusion has an exception (meaning that the exclusion does not apply) for liability "[t]hat the insured would have in the absence of the contract or agreement." The United States District Court for the Southern District of Texas agreed with the carrier that the school district's claims against Ewing arose from liabilities Ewing had assumed under its construction contract. Ewing appealed to the United States Court of Appeals for the Fifth Circuit. That Court, in turn, asked the Texas Supreme Court for guidance about the scope and application of the Contractual Liability Exclusion under Texas law. The question was whether the exception to the exclusion applied under the circumstances. That question depended, according to the Supreme Court, on whether Ewing had agreed in its contract to assume obligations beyond those imposed on a contractor as a matter of general tort law. The contract required nothing more of Ewing than that it build the tennis courts in a "good and workmanlike manner." Failing to perform in a "good and workmanlike manner" is functionally and substantively the same as performing negligently. "Accordingly," the Ewing court said, "we conclude that a general contractor who agrees to perform its construction work in a good and workmanlike manner, without more, does not enlarge its duty to exercise ordinary care in fulfilling its contract, thus it does not 'assume liability' for damages arising out of its defective work so as to trigger the Contractual Liability Exclusion." A great many courts have applied the Contractual Liability Exclusion simply because there is a breach of contract claim against the insured. The Texas Supreme Court applied the exception to the exclusion in the only way that meets the reasonable expectations of the average insured. In doing so, the decision in Ewing will likely influence other courts when faced with this common and recurring question in construction-defect insurance coverage cases. That makes the decision one of the five most important in 2014.
  2. IMO Industries v. Transamerica, et al. ,Docket No. A-6240-10T1 (N.J. App. Div. Sept. 30, 2014). The reactions among insurance lawyers to this decision range from head-scratching bewilderment to disbelieving outrage. On its face, the decision appears to eliminate one of the most important obligations an insurance company has to its insureds: To defend them in litigation without regard to the indemnity limits of the policy. Most CGL policies contain the express promise that the costs of defending the insured in litigation are "outside the limits" of indemnity liability in the policy. Thus, if the limits of liability are $100,000, and it costs the carrier $200,000 — or $2 million — in attorneys fees and costs to litigate the case, the carrier has to keep on defending and paying defense costs until the case is either settled or resolved by motion or a trial. In IMO, the New Jersey Appellate Division not only eliminated the carrier's contractual obligation to defend after the indemnity limits had been reached, it ruled that the insured would have to pay back to the carrier the defense costs that had exceeded the limits of liability. This case reinforces the old adage "hard facts make bad law." It involved coverage for thousands of underlying asbestos personal injury claims, most of which were getting resolved for a few thousand dollars each. This meant that the $1 million indemnity limit of liability in the polices was going to be reached, if at all, many years into the future. In the meantime, the carrier had paid out in defense costs 15 times the amount of the indemnity limits. This created what the trial court and the carriers called the "running spigot theory" of defense payment. The Appellate Division seemed simply to have a hard time believing that it could have been the intent of coverage for a carrier to pay out many multiples of the indemnity limit in defense costs, with no end in sight. The Court had second thoughts, however, about the wider application of the trial court's decision. It observed: "We recognize that some of Judge Coburn's statements in his oral decision of May 24, 2011, if applied to other types of liability coverage, may deviate from the expectations of insureds who purchase 'outside the limits' policies and pay premiums to cover all their litigation expenses." No kidding. Accordingly, the Court said: "To allay some of the fears expressed by amicus curiae, the exhaustion decision in this case is closely tied to its facts. We reach no general conclusion that an insurer's obligations to cover defense costs and other litigation expenses through an 'outside the limits' policy is limited by the maximum amount of indemnification coverage provided in that policy." The problem with such "designer" decisions — that is, decisions that purport to be limited to the facts of this one case — is that one never knows for sure if a court in some future case might not find the facts and circumstances sufficiently similar to the facts in IMO to justify depriving yet another policyholder of the defense obligations it purchased with its premium dollars. The IMO decision is such a dramatic departure from the entire concept of CGL coverage that it warrants a mention as one of the most important decisions of 2014.
  3. St. Paul Mercury Ins. Co. v. FDIC, No. 13-14228 (11th Cir. Dec. 17, 2014). This case decided an issue that comes up in bank-failure cases very frequently. It involved the interpretation of an "Insured-vs.-Insured" exclusion in a Directors' & Officers' Liability Insurance policy. (Full disclosure: Kilpatrick Townsend & Stockton represented the insured officers of the bank.) The scenario is depressingly common. The Federal Deposit Insurance Corporation takes over as the receiver for a failed bank. It's the receiver's job to pay creditors' claims from the remaining receivership assets. In these cases, the FDIC usually becomes the bank's biggest creditor after it pays out to the bank's depositors the money it insures on customer deposits. In St. Paul Mercury, one of the steps the FDIC took was to sue two of the bank's former officers for allegedly mismanaging certain of the bank's loans. The officers put the bank's D&O carrier on notice of the FDIC's claims and the carrier denied coverage, thereafter suing in federal court in Georgia for a declaration that it had no coverage obligations. One of the defenses the carrier raised was the "Insured-vs.-Insured" exclusion, which provides that the policy will not cover any loss on account of any claim made against an insured "brought or maintained by or on behalf of any Insured." There is a U.S. Supreme Court case, O'Melveny & Meyers v. FDIC, 512 U.S. 79 (1994), that held that the FDIC "steps into the shoes of" a failed bank when it acts as a receiver. From this interpretation, a number of courts have concluded that the FDIC-as-receiver essentially becomes an "insured" for purposes of applying the Insured-vs.-Insured exclusion. The Eleventh Circuit, however, concluded that the exclusion is ambiguous and, applying the universal rule that ambiguities are to be resolved liberally against the insurance company, held that the exclusion did not apply to the FDIC's claims against the officers as a matter of law. It sent the case back to the U.S. District Court for further proceedings. There are a great many decisions that interpret this exclusion in the context of an FDIC receivership and they are all over the map. This decision by one of the circuit courts of appeal that sits directly below the U.S. Supreme Court should have considerable influence over how future courts interpret the Insured-vs.-Insurance exclusion.
  4. Owner's Ins. Co. v. Jim Carr Homebuilders,No. 1120764 (Ala. Sup. Ct. Mar. 28, 2014). With this decision, the Alabama Supreme Court left the ranks of the outlier state Supreme Courts (there are now only three outliers remaining) that have held that construction defects can never be "accidental" for purposes of liability insurance coverage. In September 2013, the Alabama Supreme Court had issued an opinion in Owner's Insurance Co. v. Jim Carr Homebuilders LLC ("JCH I"), in which the Court bucked the recent trend of other state Supreme Courts, which had been reversing themselves and concluding that the faulty workmanship of a building contractor could constitute a covered "occurrence" under the contractor's commercial general liability policies. During a brief period in the spring and summer of 2013, the high courts of North Dakota, West Virginia, Connecticut and Georgia all held, for the first time, that faulty workmanship resulting in property damage can constitute a covered occurrence under the standard CGL policy. In JCH I, the Alabama Supreme Court had agreed with the carrier that faulty workmanship can never be accidental and, therefore, any bodily injury or property damage resulting from a construction defect can never be covered. On March 28, 2014, the Alabama Supreme Court withdrew its JCH I opinion and replaced it with a new one that reached an opposite — and unanimous — conclusion ("JCH II"). First, the JCH II opinion observed, as others have done, that the definition of "occurrence" in the CGL policy — "an accident, including continuous or repeated exposure to the same general harmful conditions, which causes 'bodily injury' or 'property damage' during the policy period neither expected nor intended from the standpoint of the insured" — does not turn on the ownership or character of the property that has been damaged by the act or event. Rather, it simply asks whether the damage was unintended (i.e., whether it was an accident). Second — and here is the relatively unique aspect of the decision — the Alabama Supreme Court examined the "Your Work" exclusion in the context of whether or not the policyholder had purchased "products completed-operations hazard" insurance coverage. Briefly, the "Your Work" exclusion says that the policy does not apply to: "'Property damage' to 'your work' arising out of it or any part of it and included in the 'products-completed operations hazard.'" "Your work" means: "(1) Work or operations performed by you or on your behalf; and (2) [m]aterials, parts or equipment furnished in connection with such work or operations." The products completed-operations hazard ("PCOH"), is defined as those risks that arise out of products that have left the insured's physical possession or work that has been completed and turned over to the owner. In JCH II, the policyholder argued, and the Alabama Supreme Court agreed, that the "Your Work" exclusion applies if, and only if, the policyholder declined to purchase PCOH coverage. Stated another way, according to JCH II, the CGL policy does not ordinarily cover risks that arise out of products that have left the insured's possession or work that has been completed. That is, instead, a risk for which the policyholder can purchase coverage with an additional premium. But if the policyholder does buy PCOH coverage, then the "Your Work" exclusion does not apply because the subject of the exclusion is not included in the noncovered products completed-operations hazard. It was not at all clear from JCH I that the insured had, in fact, purchased PCOH coverage. In fact, it appeared from the way the opinion was written that JCH had not purchased such coverage. In JCH II, however, we learn that JCH had purchased $4 million in PCOH coverage. Accordingly, the "Your Work" exclusion simply did not apply to the property damage at issue.
  5. North Counties Engineering, Inc., et al. v. State Farm General In. Co.,No. 133713 (Cal. Ct. App. Mar. 13, 2014). In this case, the California Court of Appeals nails the response to a question that many other courts have answered incorrectly. The fact pattern is a common one. An engineering or construction firm has a Commercial General Liability policy that covers claims of damage for work that it has completed. At the same time, the policy excludes damage "arising from the provision or failure to provide professional services." The question is: Where is the line between providing competent construction work and providing "professional services?" North Counties Engineering, Inc. and a related company, North Counties Development, Inc., were hired to build a dam, an access road, a spillway, and a sediment basin. Shortly after construction was complete, the State of California began investigating complaints that the dam was causing sediment to accumulate in downstream waterways and that it was causing erosion in the surrounding area. The State eventually brought suit against the dam's owner to fix the problems. The owner, in turn, sued NCE and NCD for negligent construction of the dam, breach of contract, and breach of warranty. The complaint fell squarely in the coverage provided by the "products completed-operations hazard" (or PCOH) provision of the policy, which covers claims of faulty construction if the damage occurs after the project has been completed and turned over to the owner. NCE tendered the lawsuit to its CGL insurance carrier, which denied. NCE then sued the carrier for coverage and the case went to trial. After the presentation of all the evidence to the jury, the trial court directed a verdict in favor of the carrier on the basis of the "Professional Services" Exclusion in the policy. On appeal, the California Court of Appeals looked at the list of tasks in the definition of "professional services" and did not find either "construction" or "labor," two of the tasks that appeared in the allegations in the complaint against NCE. In addition, and here is the key insight into the proper application of a Professional Services exclusion, the Court distinguished a 1989 Court of Appeals case in which a professional services exclusion was found applicable to a customer's injury while she was having her ears pierced. The NCE Court noted that injury resulting from the faulty ear piercing "occurred while [the insured] was operating a retail cosmetics store." In other words, the injury occurred during the act of piercing. In contrast, the damage in NCE "occurred after the appellant's work was completed." PCOH coverage is defined as damage that occurs after the insured's work is complete or after the insured's product is no longer in the insured's physical possession. NCE completed construction of the dam and turned it over to the owner. It was only then that damage arose from the allegedly faulty construction. Thus, PCOH coverage and the Professional Services exclusion can be said to be mutually exclusive. There should, in fact, never be any overlap between what a PCOH provision covers and what a Professional Services exclusion excludes. If the injury or damage a party seeks against a contractor occurred on the job and during construction, it is then — and only then – that a Professional Services exclusion might apply. If the damage occurs after the job is complete, PCOH coverage applies but the exclusion never should. This insight is so important, and so clearly correct, that NCE makes our list of the most important decisions of 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions