Insurance

AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION & INDEMNITY ASSOC., INC. v. DANN OCEAN TOWING, INC., NO. 13-1495

Decided: June 26, 2014

The Fourth Circuit affirmed the district court’s decision and held that the choice-of-law provision in the parties’ maritime insurance contract required the application of New York’s six-year statute of limitations, rather than the equitable doctrine of laches, which is ordinarily applied under maritime law, to determine the timeliness of certain claims brought under the insurance contract.

The American Steamship Owner’s Mutual Protection and Indemnity Association, Inc. (the “Club”) provided insurance for a tugboat owned by Dann Ocean Towing, Inc. (“Dann Ocean”).  After Dann Ocean’s tugboat damaged a barge, the barge owner asserted a claim for property damage against Dann Ocean.  The United States also asserted a claim against Dann Ocean for environmental damage to the reef.  Both cases settled.

Though the Club originally agreed to contribute an amount towards the settlement, one of Dann Ocean’s underwriters became insolvent, and was unable to pay its portion of the settlement.  The Club, however, paid the shortfall to preserve the “extremely favorable” settlement offer.  Dann Ocean refused to reimburse the Club for the shortfall.  In response, the Club declined to reimburse Dann Ocean for certain insurance claims.  Dann Ocean then refused to pay its insurance premiums and the Club filed suit, alleging a breach of the maritime insurance contract by failing to reimburse the Club for the shortfall and by failing to pay the premiums.  Dann Ocean filed a counterclaim alleging that the Club breached the insurance contract by failing to indemnify Dann Ocean for covered losses.  Both parties alleged that the respective claims against them were time-barred, and thus filed cross motions for summary judgment.

On appeal, the Court noted the absence of any authority that would prevent a federal court sitting in admiralty from enforcing a choice-of-law provision in a maritime contract, which incorporates a statute of limitations, in place of the traditional doctrine of laches.  The Court stated that the plain language of the maritime contract provided that New York law governed the contract.  The Court asserted that this provision evidenced the parties’ intent that, subject to stated exceptions in the contract, New York law would determine the timeliness of claims brought under the contract.  The Court also noted that the parties failed to indicate or preserve the application of the doctrine of laches for any claims brought under the contract.  Furthermore, the Court noted that under basic principles of contract interpretation, ambiguities are to be resolved against the insurer and in favor of the insured party.  Therefore, the Fourth Circuit affirmed the district court’s application of New York’s six-year statute of limitations to the Club’s claims.

Full Opinion

Abigail Forrister

KENNEY V. THE INDEPENDENT ORDER OF FORESTERS, NO. 13-1788

Decided:  March 10, 2014

The Fourth Circuit Court of Appeals reversed the district court’s dismissal of the insurance beneficiary’s complaint against the insurance company, for bad-faith “handling” of her claim for proceeds on the policy, pursuant to the West Virginia Unfair Trade Practices Act (“WVUTPA”). The Fourth Circuit held that actions brought pursuant to the WVUTPA sound in tort and not in contract. The Fourth Circuit further held that West Virginia law governs the underlying lawsuit and that the complaint states a claim upon which relief can be granted.

On September 19, 2011, Ronald Kenney passed away, leaving his wife, Audrey Kenney (“Kenney”) as the sole beneficiary of a life-insurance policy (the “policy”) issued by The Independent Order of Foresters (“IOF”), a Canadian corporation. At the time of Mr. Kenney’s death, the Kenneys were residents of West Virginia. At the time that IOF issued the policy, the Kenneys resided in Virginia. The policy contains a choice-of-law provision that states that rights will be governed by “the laws of the State in which this certificate is delivered.” On September 21, 2011, Kenney filed a claim with IOF to collect the policy benefits, which she believed to be $130,000, but IOF responded that the policy was worth only $80,000. However, although the policy was originally worth only $80,000, Mr. Kenney subsequently applied for and received a $50,000 increase in coverage. For almost one year, IOF refused to pay $130,000 to Kenney. On July 20, 2012, IOF reversed course and agreed to pay $130,000.

Kenney sued IOF in West Virginia state court, pursuant to the WVUTPA. She acknowledged that she had obtained the coverage to which she was always entitled. However, she alleged that IOF’s conduct in connection with its handling of her claim constituted an unlawful settlement practice prohibited by the WVUTPA.

On appeal, the Fourth Circuit addressed three issues: (1) whether Kenney’s lawsuit pursuant to the WVUTPA sounds in tort or contract; (2) whether West Virginia law or Virginia law governs the outcome of the suit pursuant to West Virginia’s choice-of-law rules; and (3) whether the complaint’s factual allegations sufficiently state a claim upon which relief can be granted.

First, the Fourth Circuit concluded that Kenney’s WVUTPA claim sounds in tort. Although Kenney’s WVUTPA claim would not exist but-for the policy, her claim was not predicated on the terms of the policy itself; rather Kenney’s complaint makes clear that her cause of action stems from IOF’s allegedly bad-faith “handling” of her claim for proceeds on the policy. In other words, not withstanding the repeated references to the policy (a contract) in the complaint, the “essential claim” underlying Kenney’s lawsuit is IOF’s allegedly tortious conduct. The tort-nature of the action is further evidenced by the type of damages available under the WVUTPA and the type of relief prayed for in the complaint. A successful plaintiff suing pursuant to the WVUTPA may recovery attorney’s fees and punitive damages, which are not available in contract cases.

Second, the Fourth Circuit concluded that West Virginia law applies pursuant to the lex loci delicti approach and the Restatement approach. Under the lex loci delicti choice-of-law approach, courts apply the “law of the place of the wrong.” The Fourth Circuit rejected IOF’s argument that Kenney felt the effects of its allegedly unlawful conduct in Virginia, the state where the policy was issued and where Mr. Kenney applied for the increase in coverage. The Kenneys moved from Virginia to West Virginia in 2003 and lived there continuously until Mr. Kenney passed away in 2011. Kenney filed her claim on the policy with IOF from West Virginia and remains a West Virginia resident. Therefore, the injury to Kenney undoubtedly occurred in West Virginia, not Virginia, and West Virginia law applies pursuant to the lex loci delicti choice-of-law approach.

The Fourth Circuit then addressed the Restatement choice-of-law approach, which applies the law of the state with the most significant relationship to the occurrence and the parties under the principles stated in § 6. Section 145(2) then lists four contacts to consider determining the most significant relationship. The first is “the place where the injury occurred,” which is West Virginia. The second is “the place where the conduct causing the injury occurred,” which is Canada, the place where the letter denying the full benefit of the policy to Kenney was sent from IOF. The third is “the domicile, residence, nationality place of incorporation and place of business of the parties.” Here, Kenney is currently a West Virginia resident and IOF is headquartered in Canada. The fourth is “the place where the relationship, if any, between the parties is centered,” which is West Virginia, where Kenney sought to collect, and was denied, policy benefits. In sum, none of the contacts point to Virginia, and three of the four point to West Virginia.

However, the contacts must be analyzed against several factors set forth in section 6, which, inter alia, include: “the relevant policies of the forum;” “the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue;” “the protection of justified expectations;” and “the basic policies underlying the particular field of law.” The Fourth Circuit rejected IOF’s argument that, based on Oakes, the section 6 factors lead to applying Virginia law. In contrast to the Oakes plaintiff, who filed a claim in the nonforum state, Kenney filed a claim with the Commissioner in West Virginia- not an analogous entity in Virginia. Thus, the relevant policies of West Virginia are operative, and its public policy should be “vindicated.”

Unlike the majority of states, it is well settled that West Virginia law, and the WVUTPA specifically, allows plaintiffs to recover for unfair settlement practices independent of any claim on a policy or contract. The difference between West Virginia’s law and Virginia’s law is substantial: one state’s law allows Kenney’s cause of action to proceed and the other state’s law does not. West Virginia courts will not apply the substantive law of a foreign state when that state contravenes its public policy. Accordingly, even assuming that the majority of the section 145(2) contacts point to Virginia law–which, as analyzed above, they do not—West Virginia’s favoritism toward laws that align with its own public policy trumps any comity to Virginia’s law. Therefore, West Virginia law also applies pursuant to the Restatement approach and the district court erred in determining that Virginia law applies.

Finally, the Fourth Circuit concluded that Kenney’s complaint stated a claim upon which relief could be granted pursuant to West Virginia law. IOF’s motion to dismiss, its opposition to Kenney’s motion for reconsideration, and its brief on appeal, each focus nearly exclusively on resolving the issue of which state’s law applies and on arguing that Kenney’s complaint failed to state a claim pursuant to Virginia law. IOF never contended, however, that Kenney’s complaint would also fail to state a claim upon which relief could be granted should West Virginia law apply; consequently, IOF waived any such argument.

Full Opinion

– Sarah Bishop

MILLENNIUM INORGANIC CHEMICALS, LTD. V. NAT’L UNION FIRE INS., NO. 13-1194

Decided: February 20, 2014

The Fourth Circuit held that the term “direct,” as used in the two commercial liability insurance policies at issue, was not ambiguous and, therefore, reversed and remanded the case to the district court for entry of summary judgment in favor of National Union Fire Insurance (“National Union”) and ACE American Insurance Company (“ACE”) (collectively, the “Insurers”).

Millennium Inorganic Chemicals Ltd. (“Millennium”) purchased a commercial liability insurance policy including contingent business interruption (“CBI”) insurance coverage from National Union and ACE. Pursuant to the purchase agreement, the Insurers respectively agreed to bear responsibility for 50% of Millennium’s covered losses, up to the specified limits. As pertinent to the CBI coverage, both Insurers issued a Binder of Insurance, stating that the liability coverage only applied to losses attributed to direct suppliers. Neither Binder provided any coverage for indirect suppliers. Shortly after issuing the Binders, both Insurers issued policies to Millennium with essentially identical terms. Specifically, each policy included an Endorsement titled “Contingent Business Interruption Contributing Properties Endorsement” (the “Endorsement”). The Endorsements insured Millennium against certain losses resulting from the disruption of Millennium’s material supply caused by damage to certain “contributing properties.”

Millennium was in the business of processing titanium dioxide at its processing plant in Western Australia. Natural gas received through the Dampier-to-Bunbury National Gas Pipeline (the “DB Pipeline”) was the energy source for Millennium’s operation. Millennium purchased the gas under a contract with Alinta Sales Pty Ltd. (“Alinta”), a retail gas supplier. Alinta, however, purchased the gas it offered for sale from a number of natural gas producers, one of which was Apache Corporation (“Apache”). Once Apache processed the natural gas, it injected the gas into the DB Pipeline, at which point custody, title, and risk passed from Apache to Alinta. Under Alinta’s contract with Millennium, title to the gas passed to Millennium only at the time of delivery, i.e., when the gas left the DB Pipeline and was delivered to Millennium’s facility by way of a separate delivery line. Millennium’s contract for the purchase of natural gas was solely with Alinta, and Millennium had no business relationship with Apache.

An explosion occurred at an Apache facility causing its natural gas production to cease on June 3, 2008. Apache notified Alinta, and Alinta, in turn, sent a notice of force majeure to Millennium and other customers. As a result, Millennium’s gas supply was curtailed, and it was forced to shut down its titanium dioxide manufacturing operations for several months. Consequently, Millennium sent notice of claim letters to the Insurers, seeking coverage for its losses. The Insurers, however, denied coverage because they concluded that Apache was not a direct supplier to Millennium.

Invoking diversity jurisdiction, Millennium filed a declaratory judgment action in the District Court for the District of Maryland. Millennium, further, asserted claims of breach of contract and failure to act in good faith. The district court denied the Insurers’ motion for summary judgment with respect to the declaratory judgment claim and granted the Insurers’ motion with respect to the bad faith claim. In an accompanying opinion, the court concluded that coverage under the policies extended only to “direct contributing properties.” The court then reviewed the meaning of that term and held that, because the term “direct” was ambiguous under the policies, the doctrine of contra proferentem applied in favor of Millennium. Accordingly, the district court held that Apache qualified as a “direct” supplier to Millennium, and that Apache’s facility was a “direct contributing property” within the meaning of the policies. In so holding, the district court observed that, despite not having a direct contractual relationship with Apache, Apache’s facility provided a direct supply of natural gas to Millennium’s premises.

As an alternative holding, the district court opined that the Endorsements also provided coverage for damage to contributing properties “which wholly or partially prevents delivery of material to Millennium or to others for the account of Millennium.” The court then concluded that this provision was also ambiguous because if failed to explain who must hold the account of the insured—the one who delivers, or the other to whom delivery is made. Based upon this ambiguity, it again applied the doctrine of contra proferentem, construing the phrase “for the account of” in favor of coverage for Millennium. After the district court granted Millennium’s motion for partial summary judgment, the parties stipulated and agreed to entry of judgment in favor of Millennium in the amount of $10,850,000, with the Insurers expressly preserving their right to appeal the judgment. Final judgment was then entered against the Insurers in the stipulated amount, and this appeal followed.

On appeal, the Fourth Circuit examined the plain language of the policies and held that the term “direct” was clear and without ambiguity. In so holding, the Court defined the term “direct,” according to Webster’s Third New International Dictionary, as “proceeding from one point to another in time or space without deviation or interruption,” or “transmitted back and forth without an intermediary.” The Court, therefore, reasoned that for Apache to be considered a direct contributing property to Millennium, it must have supplied Millennium with materials necessary to the operation of its business “without deviation or interruption” from “an intermediary.” Based on the undisputed facts of the case, however, the Court found that neither Apache nor Apache’s facilities could be considered a “direct contributing property” of Millennium. Specifically, Millennium did not dispute that it received its gas from Alinta, and that Alinta—not Apache—had the sole ability to control the amount of gas directed to Millennium. The court, therefore, found the relationship between Apache and Millennium was clearly interrupted by “an intermediary,” Alinta.

Next, the Court addressed Millennium’s alternative argument that it could also receive coverage under the “for the account of” clause of the Endorsements, and found that this contention failed for the same reason as Millennium’s primary argument. Because coverage under the policies was only triggered by damage to direct contributing properties, there could be no coverage under any reading of the “for the account of” clause because apache was not a direct supplier. Thus, the Fourth Circuit reversed and remanded the case to the district court for entry of summary judgment in favor of the Insurers.

Full Opinion

– W. Ryan Nichols

Perini/Tompkins Joint Venture v. ACE American Insurance Company, No. 12-2415

Decided: December 16, 2013

The Fourth Circuit held that, under Maryland statutory law, Maryland common law, or Tennessee law, the United States District Court for the District of Maryland properly granted summary judgment to ACE American Insurance Company (ACE), as Perini/Tompkins Joint Venture (PTJV)’s failure to obtain ACE’s consent prior to settling an underlying dispute precluded PTJV from claiming reimbursement under certain insurance policies with ACE.  Furthermore, PTJV did not demonstrate that ACE intentionally relinquished its right to invoke the voluntary payment and no-action clauses in these policies.  The Fourth Circuit therefore affirmed the decision of the district court.

In 2005, Gaylord National LLC (Gaylord) hired PTJV to manage the construction of a $900 million hotel and convention center (the Project) in Maryland.  Under its construction contract with PTJV, Gaylord agreed to purchase an Owner Controlled Insurance Policy (OCIP)—a program sold by ACE “to insure only the Project and its participants.”  Gaylord purchased two OCIP policies from ACE: a general liability policy and an excess liability policy (collectively, the Policies).  PTJV was, by endorsement, added as a named insured on both Policies.  Each of the Policies contained voluntary payment clauses, under which an insured could not—except at its own cost—“voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without [ACE’s] consent.”  Each of the Policies also contained no-action clauses, under which an insured could not sue for coverage “unless all of [the] terms [of the Coverage Part] have been fully complied with.”

During construction, certain property damage to the Project occurred.  After the completion of the Project, PTJV and Gaylord settled certain litigation arising from the Project—but PTJV did not seek to obtain ACE’s consent prior to settlement.  On May 6, 2009—about six months after the settlement and almost two years after the underlying damage to the Project occurred—PTJV sent ACE a formal, written notice of an insurance claim.  The letter did not mention PTJV’s settlement with Gaylord.  ACE issued a reservation of rights letter over ten months later, listing the potential grounds for denial of coverage.  On December 13, 2010, PTJV sued ACE in the district court, alleging breach of contract and other claims.  The district court granted summary judgment in ACE’s favor, and PTJV appealed.  PTJV argued on appeal that, inter alia, ACE must demonstrate actual prejudice before denying coverage under section 19-110 of the Maryland Code or under Maryland common law—thus creating an issue of fact—and that certain statements and conduct on the part of ACE should constitute waiver of its right to invoke the voluntary payment and no-action provisions in the Policies.

The Fourth Circuit first noted a choice of law issue—specifically, whether to apply the law of Maryland or the law of Tennessee, the state in which the Policies became binding insurance contracts.  However, the Fourth Circuit found that the outcome of the case was the same under either Maryland or Tennessee law.  While section 19-110 of the Maryland Code provides that the insurer may only disclaim coverage due to the insured’s failure to cooperate or failure to provide notice if the insurer proves, by a preponderance of the evidence, “that the lack of cooperation or notice has resulted in actual prejudice to the insurer,” the court applied the Maryland case Phillips Way, Inc. v. American Equity Insurance Co., 795 A.2d 216, to find this section inapplicable to PTJV’s failure to meet a condition precedent in the no-action clause.  The Fourth Circuit also held that ACE was not required to show prejudice under Maryland common law; the court applied a broad reading of Phillips Way, under which “an insured’s failure to obtain the insurer’s prior consent to a settlement does not ever require prejudice.”  However, even if ACE was required to show prejudice, the court held that ACE would have been prejudiced as a matter of law per the Maryland case of Prince George’s County v. Local Gov’t Ins. Trust, 879 A.2d 81.  Furthermore, the Fourth Circuit held that the Tennessee cases of Anderson v. Dudley Moore Insurance Co., 640 S.W.2d 556, and State Auto. Ins. Co. v. Lashlee-Rich, 1997 WL 781896, counseled the same result: ACE would also not be required to demonstrate prejudice under these cases.  Lastly, with regard to ACE’s purported waiver of its right to invoke the voluntary payment and no-action clauses, the Fourth Circuit noted that the statements and conduct cited by PTJV did not demonstrate intentional relinquishment.  Indeed, ACE stated that it would not waive “any other terms, conditions, exclusion or provisions” of one of the Policies in a September 8, 2010 letter, in which ACE offered to pay part of the claim.

Full Opinion

– Stephen Sutherland

Hartford Fire Insurance Company v. Harleysville Mutual Insurance Company, No. 12-1761

Decided: November 15, 2013

The Fourth Circuit held that “for purposes of the nominal party exception to the rule of unanimity governing removal,” contractor G.R. Hammonds, Inc. (Hammonds) was a nominal party in a contribution suit between insurers, and Hammonds’ consent was therefore unnecessary to the removal of the suit to federal court.  Thus, the Fourth Circuit affirmed the holding of the United States District Court for the District of South Carolina.

Between 1995 and 2009, several insurance companies insured Hammonds for overlapping or subsequent periods. These companies included Hartford Fire Insurance Company (Hartford), Harleysville Mutual Insurance Company (Harleysville), and Assurance Company of America (Zurich).  Hammonds performed allegedly defective roofing work on a project in Charleston, South Carolina (Concord West Project), between 1998 and 2001.  After homeowners and their association sued Hammonds in state court (Concord West Action), Hartford, Harleysville, and Zurich agreed to split the costs of a million-dollar settlement by paying a third each—subject to the right to resolve the proper allocation through arbitration or litigation.  Harleysville then filed a declaratory judgment action in the United States District Court for the Eastern District of North Carolina (North Carolina Action), seeking a declaration of the rights and obligations of Hammonds’ various insurers with regard to the damages incurred during Hammonds’ Concord West Project, as well as Hammonds’ allegedly defective work on other projects.  Several days later, Hartford filed an action for declaratory judgment in a South Carolina state court (South Carolina Action), naming Hammonds and Hammonds’ other insurers as defendants; Hartford sought a declaration of each insurer’s share of the Concord West Action settlement, as well as equitable contribution from the other insurers in the event that the court found Hartford to have overpaid its share.  Harleysville removed the action to federal court.  The other defendant insurers consented to removal; however, Hammonds did not consent or object.  After removing the action, Harleysville filed a motion to dismiss, stating that the South Carolina Action duplicated the parallel North Carolina Action.  Hartford moved to remand, noting that Hammonds did not join in or consent to the notice of removal.  After finding that Hammonds was a nominal party, the district court dismissed the South Carolina Action under the first-to-file rule.  Hartford appealed the dismissal of this action.

Noting that it had “never defined a nominal party for purposes of the nominal party exception to the rule of unanimity necessary for removal,” the Fourth Circuit focused the practical inquiry on “whether the suit can be resolved without affecting the non-consenting nominal defendant in any reasonably foreseeable way.”  The Fourth Circuit noted that Hartford could not reasonably argue that Hammonds would be affected by the case’s outcome: Hartford did not seek a monetary judgment against Hammonds, and it did not seek non-declaratory injunctive relief—nor did any of the parties in the North Carolina Action.  Furthermore, Hammonds’ absence from the suit would not render the final judgment unfair to any of the parties.  The Fourth Circuit also noted the unlikelihood of a potential “whipsaw” effect that would deprive Hartford of due relief.

Full Opinion

– Stephen Sutherland

Angela Johnson v. American United Life Insurance Company, No. 12-1381

Decided May 24, 2013

The Fourth Circuit reversed the district court’s denial of accidental death and dismemberment (“AD & D”) benefits to the insured’s widow through group policies issued by American United Life Insurance Company (“AUL”). By construing the policy language against the drafting party, AUL, the court found that the insured’s drunk-driving death could be considered an “accident” under the policy and, therefore, awarded such benefits to the insured’s widow under the Employee Retirement Income Security Act (“ERISA”).

The insured, Richard Johnson (“Richard”) participated in an employee welfare benefit plan (“the Plan”) that provided him a standard AD & D and life insurance benefits of $25,000 through a policy paid for by Richard’s employer, and a voluntary AD & D and life insurance benefits of $100,000 through a policy paid for by Richard. When Richard died in a drunk-driving accident, his widow Angela Johnson (“Johnson”) received life insurance benefits, but AUL refused to pay AD & D benefits, concluding that Richard’s death was not the result of an “accident” under the Plan. Under the AD & D provision in the policies, AUL pays benefits “[i]f a Person has an accident while insured under the policy which results in a [covered] loss.” The policies do not explicitly define the term “accident,” however; the AD & D provision contains a limitations clause expressly excluding the payment of benefits in various circumstances. Drunk driving is not listed as a specific circumstance for such exclusion. However, drunk driving is expressly set forth as a limitation to the Seat Belt benefit under the employee-paid policy. In any event, AUL concluded that Richard’s drunk-driving death was not accidental due to the fact that he should have foreseen the widely known consequences of drinking excessive amounts of alcohol. As such, AUL issued a denial letter from which Johnson appealed under ERISA.

The Fourth Circuit sought to determine whether Richard’s crash qualified as an “accident” under the AUL policies. The court analyzed the policies as ERISA plans and, as a result, according to contract principles. Where a contract is ambiguous, the rule of contra proferentum requires strict construction of such terms in favor of the insured and in accordance with his or her reasonable expectations. Richard’s policy was ambiguous because the term “accident” was not defined and drunk-driving was not specifically listed in the limitations clause. Therefore, the court chose to construe the policy against the drafter, AUL, who had the ability to eliminate the ambiguity, but failed to do so. The court also addressed the issue of using North Carolina state law to define “accident.” The North Carolina statute defines an accident in terms of an accidental result rather than accidental means. Therefore, an accident can still occur where the insured intentionally acted, yet did not intend the injury that resulted from that act. In this case, the court found that although the insured became voluntarily intoxicated, he did not necessarily intend the car crash. Specifically, the court found that driving with a BAC of .289 is not substantially certain to result in death or severe injury. Therefore, according to principles of construction and the governing statute, the court found Richard’s death to be an “accident” and that AUL owed benefits under the AD & D provisions.

Full Opinion

– Sarah Bishop

Dooley v. Hartford Accident and Indemnity Co., No. 12-1882

Decided: May 16, 2013

The Fourth Circuit affirmed the decision of the United States District Court for the Western District of Virginia concerning an insured party’s ability to stack Uninsured/Underinsured Motorist (“UM/UIM”) coverage. The district court’s decision that Petitioner Dooley’s 2008 policy prohibited him from stacking the UM/UIM coverage for each insured vehicle was not error.  Accordingly, the Court held Dooley was not entitled to recover from Hartford under the policy’s UM/UIM coverage.

Dooley initially obtained automobile insurance from Hartford in 2003 and paid two separate premiums for coverage of his two vehicles.  He later added a third vehicle and renewed his policy in 2008.  While the 2008 policy was in effect, Dooley was severely injured in an automobile accident while driving a vehicle insured under the policy. As a result of this collision with Wilmer Phillips, he incurred medical and related expenses that exceeded the liability coverage provided under Phillips’ automobile insurance policy. He contended that Phillips was an underinsured motorist within the meaning of Virginia’s statute and sought payment from Hartford based on the UM/UIM provision in his 2008 policy.  The UM/UIM endorsement did not state the amount of UM/UIM coverage available but simply referred the reader to the “Declarations” section of the policy, which likewise did not contain any specified amount of such coverage. Despite this complete omission of any stated coverage limits, Hartford agreed that it remained obligated under Virginia Code § 38.2-2206(A) to provide UM/UIM coverage “equal” to the policy’s general liability limits.  However, based on the anti-stacking clause of the policy, Hartford maintained that the limit for UM/UIM coverage for each person was $100,000.

The issue before the court ultimately was reduced to whether the anti-stacking clause prevented Dooley from stacking the UM/UIM coverage of $100,000 per person provided in the policy for each of the three insured vehicles.  Dooley maintained that the omissions on the declarations page of any stated amount of UM/UIM coverage rendered the anti-stacking provision ambiguous and unenforceable. As such, he alleged that he was entitled to coverage of $100,000 for each of the three covered vehicles, for a total amount of up to $300,000.  The court was not persuaded.  Relying on established principles of insurance policy interpretation and Virginia Supreme Court precedent, the Fourth Circuit reasoned that the fact that the amount of UM/UIM coverage was not separately “shown in the declarations” section of the 2008 policy was not determinative.  Because Virginia Code § 38.2-2206(A) mandated that UM/UIM coverage “shall equal” the general liability coverage, the provision by operation of law provided Dooley an equal amount of UM/UIM coverage under the Hartford policy. Accordingly, the anti-stacking provision in Dooley’s policy unambiguously prevented the stacking of UM/UIM coverage, leading the court to affirm the district court’s award of summary judgment in favor of Hartford.

Full Opinion

-Kara S. Grevey

Francis v. Allstate Insurance Company, No. 12-1563

Decided: March 7, 2013

The Francises appealed a decision by the district court finding that diversity jurisdiction existed and granting summary judgment to Allstate on its claim that the Francises’ insurance policy did not provide coverage for the claims asserted in the underlying action. The Fourth Circuit upheld both decisions by the district court and affirmed.

In March 2008, Troy Towers, an employee at the Maryland School for the Deaf, sued the Francises, alleging that they made false statements claiming sexual abuse by Towers. At the time, the Francises were insured under a California Renters Policy issued by Allstate. The Francises filed suit against Allstate, contending that Allstate had a duty to defend them against Towers’ suit pursuant to the policy. By the time a final judgment in favor of the Francises was rendered in the underlying suit, the Francises had incurred $66,347 in attorney’s fees and costs. Allstate removed and filed a motion for summary judgment, contending that the insurance policy did not provide coverage for the claims asserted in the underlying action. The Francises moved to remand on the ground that the amount in controversy did not exceed $75,000. The Francises also opposed Allstate’s motion on the merits. The district court granted Allstate’s motion for summary judgment. The Francises appealed.

When Allstate filed its Notice of Removal, the object of the litigation was the Francises’ request that Allstate defend them in the underlying action, which cost $66,347, so the Francises argued that the amount in controversy was not satisfied. Allstate countered that the requirement was satisfied when attorney’s fees were added. Attorney’s fees are not generally included in the amount in controversy calculation, except where the fees were provided for by contract or are permitted by statute. Allstate brought its action under a suit that permitted recovery of attorney’s fees and thus satisfied the amount in controversy requirement. Next, the Francises challenged the merits of the district court’s coverage determination. The Fourth Circuit found that Maryland choice of law provisions applied, and, under those provisions, California law controlled whether Allstate had a duty to defend the Francises in the underlying action. Under California law, the Francises had to establish that the underlying action arose from an accident. The Fourth Circuit found that the Francises’ behavior was not an accident because it was calculated and deliberate—they clearly intended to make the statements at issue. Accordingly, the Fourth Circuit affirmed the district court’s ruling.

Full Opinion

-Michelle Theret

Fortier v. Principal Life Insurance Co., No. 10-1441

Decided: January 11, 2012

Dr. Kenneth Fortier became medically disabled, closed his practice, and applied for disability benefits from defendant Principal Life Insurance Company, which had issued short-term and long-term group disability policies to the practice. The policies provided that an insured who is disabled is entitled to receive 60% of his pre-disability earnings capped at $1,500 per week for short-term benefits and $6,000 per month for long-term benefits; which benefits are reduced by the amount that all disability benefits exceed his pre-disability earnings. Principal Life determined that Fortier was disabled, as defined in the policies, but in view of the fact that he was receiving $15,470 per month in disability benefits on his individual disability policies issued by another company, he was not entitled to any further benefits under Principal Life’s group disability policies. Dr. Fortier commenced this action under ERISA, claiming that the administrator of the Principal Life policies had misconstrued the policies in calculating his pre-disability earnings, and that his pre-disability earnings were far greater than those calculated. More particularly, Dr. Fortier contended that Principal Life erroneously deducted from his gross pre-disability earnings one-time business expenses occurred by him in starting up his practice and pursuing litigation. The Fourth Circuit Court of Appeals affirmed the district court’s judgment in favor of Principal Life, concluding that the administrator’s interpretation of the policies was reasonable. The administrator concluded that because Fortier claimed the one-time expenses as deductions on his federal income tax returns, he thereby represented that they were ordinary and necessary business expenses.

Full Opinion

-Sara I. Salehi

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