Anti-Concurrent Cause Provision

A church sought coverage from its property insurer for sewer backup damages sustained during a flood. This case is Salem United Methodist Church of Cedar Rapids, Iowa v. Church Mutual Insurance Company, 864 N.W.2d 553 (2015).

The church had property insurance but not flood insurance. In 2008, the Cedar River overflowed its banks and inundated the City of Cedar Rapids. Salem Church sought coverage from Church Mutual for losses resulting from sewer backup. When the insurer denied coverage, Salem sued for breach of contract. The district court entered judgment for the church and the insurer appealed.

The Court of Appeals of Iowa noted the policy language that stated the insurer will not pay for loss or damage caused directly or indirectly by flood, that is, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not. The policy also stated that such loss or damage is excluded regardless of any other cause of loss or event that contributes concurrently or in any sequence to the loss. Furthermore, the policy provided coverage for direct physical loss or damage to covered property caused by back up of water or sewage through sewers or drains, only if caused by an event away from the described buildings and when the damage is not caused by flood waters that did not enter the building through foundations, walls, floors, windows, cracks, roofs, or through other openings of the building; sewer or water damage occurring as a result of, either before or after, the excluded flood waters is not covered.

The insurer contended that the policy clearly and unambiguously provides that there is no coverage for damages arising from the concurrent causes when one of the causes is excluded. The insurer also contended that even if the anti-concurrent cause language is not given effect under the facts of the incident, the district court erred in its opinion based on jury findings.

The court of appeals said that the exclusion for flood damage is clear. Moreover, the policy clearly excludes coverage for damages that are concurrently caused by a covered cause and an uncovered cause of loss. The court said that the policy also clearly covers damage to covered property caused by back up of water or sewage through sewers or drains only when the damage is not caused by flood. The court decided that the district court erred in construing the policy and if a flood is a concurrent cause, there is no coverage.

The court reversed and remanded the ruling of the district court.

Editor's Note: The Court of Appeals of Iowa upheld the anti-concurrent cause provision in the policy, holding that the insured, which had sustained losses resulting from sewer back up after the river flooded, would have to prove that the flood was not a concurrent cause of its losses. This is especially relevant to the reversal since the jury in the district court was never asked if the church's damages were caused by concurrent causes and if so, whether the insurer proved that the flood was a concurrent cause of the church's damages.

Coverage for Damages Arising out of the Ownership or Use of a Motor Vehicle

Motorcyclists injured in an intersection collision with a crop sprayer brought an action against the driver and owner of the crop sprayer. The liability insurer sought a declaration that it had not duty to defend or indemnify the driver. This case is Berkley Regional Specialty Insurance Company v. Dowling Spray Service, 860 N.W.2d 257 (2015).

Scott and Tracy Dowling operate the Dowling Brothers Partnership, a custom farming business. The partnership owns and uses a John Deere self-propelled crop sprayer. In 2010, the partnership lent the sprayer to Troy Dowling, a nephew. Troy is not a member of the partnership or an employee; he has his own business. Troy was driving the sprayer to one of his customer's fields and collided with a motorcycle driven by Seiler. Both Seiler and his passenger were seriously injured and both sued for damages.

At the time of the accident, Troy had a commercial general liability policy with Berkley Regional Specialty Insurance Company and a commercial auto insurance policy with Great West Casualty Company. The Dowling Brothers Partnership had a multi-module insurance policy with Farm Bureau Mutual Insurance Company. All three insurers sought a declaratory judgment that they had no duty to defend or indemnify Troy. The circuit court held that Farm Bureau failed to show that the claims against Troy clearly fell outside the scope of coverage and so, Farm Bureau had a duty to defend and indemnify Troy. Farm Bureau appealed.

The Supreme Court of South Dakota noted that by its policy language, Farm Bureau's policy is organized into sections for each type of insurance the insured chooses and each section is divided into coverage modules. The Dowling brothers chose multiple types of insurance protections, that is, vehicle section, liability section, property section, and umbrella liability section. The court examined the property and liability sections of the policy and noted that the liability section specifically excluded any damages or medical expenses arising out of the ownership, operation, use, or entrustment to others of any motor vehicle.

The court said that the sprayer was undisputedly a motorized land vehicle and the brothers entrusted it to Troy for his use. Under the plain language of the policy, the court said that the coverage is excluded. However, the court went on, there were questions from the injured parties that needed to be addressed, based on other sections and provisions in the multi-module policy that the partnership had with Farm Bureau.

The court examined the language of the policy sections and ruled that Troy did not meet any of the definitions of an “insured”. Similarly, no coverage existed under the business module because that section provided coverage only for the business indicated by class in the declarations that is conducted at or from the insured location. In this instance, Troy's use of the sprayer was for his own personal business and not the partnership's business. The court then addressed the vehicle liability coverage section.

The Seilers argued that the use of the sprayer implicated the vehicle liability coverage. The court said that the vehicle section makes clear that for each owned personal vehicle, the named insured needed specific vehicle insurance coverage. In this instance, the partnership did not have specific vehicle insurance coverage for the sprayer. Moreover, the vehicle liability module provided coverage for a particular vehicle only to the extent the coverages are indicated in the declarations of that vehicle. As for the sprayer, it did not have specific vehicle insurance and the declarations did not indicate vehicle liability coverage for it. Therefore, the court ruled that the terms of the vehicle liability module are not implicated.

From the review of the Farm Bureau policy, the court ruled that the language unambiguously provided no coverage for the claims against Troy. The finding of the circuit court was reversed.

Editor's Note: The Supreme Court of South Dakota meticulously reviewed each section of the insured's multi-module policy and found that no coverage existed under any of the sections. The driver's use of the sprayer was expressly excluded from coverage under all of the policy sections.

When Is a Claim a Claim?

The insured manufacturer of cast vinyl films brought an action against the commercial general liability insurer seeking coverage in an underlying defective product lawsuit. This case is Ritrama v. HDI-Gerling America Insurance Company, 2015 WL 4730916.

Ritrama manufactures pressure-sensitive flexible films and cast vinyl films for various applications, including for vehicle graphics products. Over a number of years, Burlington purchased more than $8 million worth of products from Ritrama to manufacture graphic decals for its customers in the recreational vehicle (RV) industry. No later than 2008, Burlington reported to Ritrama that RV owners were experiencing issues with the graphics. Burlington sent Ritrama a spreadsheet detailing three claims for monetary damages in the amount of $53,219 based on the product failures.

The manager of Ritrama responded to the spreadsheets by explaining that his group went over the claim summary and then asked what Burlington expected Ritrama to do about the claims. The technical director of Ritrama sent a settlement proposal to Burlington, offering to settle for a 50-50 split or an immediate credit issued to Burlington in the amount of $26,609. The director also stated that when the credit was issued, Ritrama would consider the claim closed.

In early 2009, Ritrama purchased a commercial general liability policy from Gerling that provided coverage for claims made between March 31, 2009 and March 31, 2010. This was a claims-made policy. In July of 2009, Ritrama advised its insurance agent of its issues with Burlington and the agent sent a notice of occurrence to Gerling. In January of 2011, Burlington sent a letter through its litigation counsel to Ritrama demanding payment and threatening litigation. After Ritrama failed to meet Burlington's demands, Burlington brought a lawsuit against Ritrama. When Ritrama submitted the lawsuit to Gerling, the insurer denied coverage and refused to defend Ritrama.

Ritrama then filed its lawsuit against the insurer, claiming that the insurer breached its duty to defend. Gerling moved for summary judgment and the district court granted the motion. The insured appealed.

The United States Court of Appeals, Eighth Circuit, noted three issues on appeal: the district court erred in adopting too broad a definition of “claim” for the policy, namely, that the term means an assertion by a third party that the insured may be liable to it for damages within the risks covered by the policy; the district court erred in finding the term unambiguous; and the court erred in granting summary judgment in favor of Gerling because whether Burlington made a claim under the policy was a disputed factual issue.

The circuit court said the policy did not define the term “claim”, so the court employed ordinary contract interpretation principles to determine the meaning the parties ascribed to the term. The court found that the definition adopted by the district court is entirely consistent with the dictionary definitions, including Black's Law Dictionary. Moreover, the circuit court said that the district court's definition is consistent with the policy as a whole. And, the court said the district court's definition is not contrary to the primary purpose of claims-made insurance policies, and in fact, reaffirms the purpose of such policies by recognizing that, absent policy language to the contrary, a claim is submitted when a demand has been made or when the claim is brought to the insurer's attention and not when an unnecessarily formalistic procedure for making a claim has been followed.

In light of case law on the subject, the circuit court ruled that to be considered a claim under the policy, the third party must make some kind of demand or assertion of a legal right. In this instance, that is what happened and the district court's interpretation was deemed to be correct.

The circuit court also ruled that the term is not ambiguous. The court noted that Ritrama advanced no reasonable interpretation different from that of the district court. As for Ritrama's argument that there was a disputed factual issue as to whether Burlington actually made a claim, the circuit court agreed with the district court that the spreadsheet sent from Burlington to Ritrama in 2008 constituted a list of demands for damages in spreadsheet form. In fact, the court went on, in the context of surrounding communications and already developed discussions on the issue between the parties, there is no reasonable way to interpret the spreadsheet as anything other than a demand for relief.

The ruling of the district court was affirmed.

Editor's Note: The U.S. Circuit Court of Appeals ruled that the focus of whether a claim has been made is whether a demand for relief has been made. A mere request for information is generally insufficient to constitute a claim, whereas a demand for relief generally constitutes a claim. In this instance, the claimant showed that it made a demand by its actions and words, and this demand was made prior to the effective date of the insured's claims-made policy. Thus, there was no coverage for the insured.

Mold Exclusion and Water as a Good or Product

The insurer made a motion for summary judgment that its policy provides no coverage for any claim or injury resulting from the allegations contained in a complaint filed against its insured. This case is Acuity v. Reed & Associates of Tennessee, 2015 WL 4998972.

The McKees filed a lawsuit against Reed alleging that they suffered injuries as a result of mold infestation at the house they rented from Reed. The McKees alleged they incurred medical bills, hotel bills, moving expenses, and other monetary loss, and suffered pain and suffering.

Reed tendered the defense to its insurer, Acuity. Acuity defended the lawsuit but also filed a declaratory judgment action against Reed seeking a declaration that the policy does not contain the coverage at issue and that Acuity may therefore cease its defense.

The United States District Court for the Western Division of Tennessee noted that its duty is to determine whether Acuity has a duty to defend based on the allegations in the McKee complaint, that is, whether the allegations in the complaint apply to damages within the risk covered by the insurance policy.

Reed has a general liability policy that provides primary coverage and an excess liability coverage policy that provides a higher monetary limit to certain claims covered in the primary policy. Reed claimed that the McKee allegations trigger a duty to defend under two coverages in the primary policy—coverage A and coverage B. Coverage A applies to claims for bodily injury and property damage, coverage B applies to damages due to personal and advertising injury. The allegations center on two general claims: that Reed is responsible for non-medical damages suffered as a result of Reed's alleged wrongful eviction of the McKees, and that Reed is responsible for bodily injuries suffered as a result of mold infestation.

Acuity argued that the complaint does not state a claim covered by coverage A in that eviction is not an occurrence under the policy and an eviction is not bodily injury or property damage as defined in the policy. The court agreed that the allegations of retaliatory eviction does not include damages covered by coverage A. The only stated damages suffered as a result of the eviction were unnecessary expenses for moving and storage and lost money that the McKees had paid toward the purchase of the house.

However, the court noted, the McKees also allege bodily injury as a result of the mold infestation. The McKees alleged that the mold affected their water supply. The insurer countered that the policy contained a fungi or bacteria exclusion and this precludes any coverage. The court said that at first glance, the mold exclusion appears to do away with coverage for claims of bodily injury stemming from mold exposure. Reed argued that the exception stating that the exclusion does not apply to fungi contained in a good or product means that the alleged damages are covered by the policy. The court said that other federal courts have held that water does constitute a good or product, and so, it agreed with Reed.

The court ruled that the exception to the mold exclusion applies in this case as a result of mold in the water supply. The insurer's motion for summary judgment was denied and the insurer owed the insured a defense.

Editor's Note: The U.S. District Court noted that the fungi or bacteria exclusion generally bars coverage for damages and injuries arising from mold inhalation or ingestion. However, the exception in the policy stating that the exclusion does not apply to any fungi or bacteria that are on or contained in a good or product intended for bodily consumption applies in this instance since the complaint by the McKees clearly alleged bodily injury as a result of mold infestation affecting the water in the home. And since water has been held by federal courts to constitute a good or product intended for bodily consumption, the U.S District Court required the insurer to continue its defense.