| Q&A of the Week |
Increased Cost of Construction Coverage for Tenant's Improvements and Betterments
We have an insured tenant presenting a claim under BP 00 03 01 10 for upgrades required when repairing covered property. The damage is to an Ansul system and hood vent. A cooking fire caused damage to various parts of the system because of a malfunction. The system was installed by the insured as an improvement years ago. The code now requires an upgrade to type of system used. There is no building coverage in the policy. Does the increased cost of construction additional coverage apply to the improvements and betterments even though the policy says the coverage "applies only to buildings" insured at replacement cost? Does the ordinance or law exclusion apply to the upgrade costs?
ANSWER: The form is pretty specific in stating that the increased cost of construction additional coverage applies only to buildings insured on a replacement cost basis. Since your insured does not carry building coverage, this additional coverage would not apply. On the other hand, the ordinance or law exclusion is broader and applies to "any property," which means it would apply to the insured's Ansul system and hood vent. The cost for upgrades would not be covered. |
| |
| Litigation Watch |
Houses as Advertisement
The insurer filed a declaratory judgment action against an architecture firm seeking a declaration that it had no duty to indemnify for a copyright infringement. This case is Mid-Continent Casualty Company v. Kipp Flores Architects, 602 Fed.Appx. 985 (2015).
Kipp Flores obtained a judgment against a builder, Hallmark Design Homes for copyright infringement for building hundreds of buildings from its designs without licensing them. Hallmark's insurer, Mid-Continent, filed a declaratory judgment action seeking a declaration that it has no duty to indemnify under its policies. The U.S. District Court ruled in favor of the architecture firm and this appeal followed.
The United States Court of Appeals, Fifth Circuit, noted that the insurance policies issued by Mid-Continent generally exclude coverage for copyright infringement, but that they exempt from the exclusion an advertising injury arising out of infringement in Hallmark's advertisement, as defined in the policies. So the major issue here, said the court, was whether the underlying judgment, which established that Hallmark infringed the copyrights of Kipp by constructing homes from Kipp's designs without a license to do so, triggered coverage for an advertising injury under the policy terms.
Mid-Continent argued that there is no coverage because the prior judgment did not concern an advertising injury on its face and because Kipp relied primarily on the use of the houses as advertisements, but a house cannot be an advertisement. The court said that the prior judgment conclusively established Hallmark's liability for copyright infringement, including copyright infringement committed in connection with Hallmark's advertising. The court said that this is a covered offense and moreover, the record shows that Hallmark engaged in advertising activities during the policy periods.
Because the jury determined that the houses themselves infringed the copyright of Kipp, the court continued, the determinative question for coverage is whether the houses themselves were advertisements such that the jury verdict potentially gives rise to coverage as an injury arising out of infringement upon another's copyright, trade dress or slogan in Hallmark's advertisement. The court found that Kipp presented evidence that the houses themselves were used to attract customers and Mid-Continent never offered any evidence to the contrary.
Mid-Continent did not dispute the fact that Hallmark used the infringing homes themselves to market to customers, but then argued that an infringing house can never be an advertisement as a matter of law. Mid-Continent argued that under the terms of the policy and common sense, a house cannot be a notice and it cannot be broadcast or published in accordance with the terms of the policy definition of advertisement. The Court of Appeals did not agree.
The court decided that it is undisputed that Hallmark's primary means of marketing its construction business was through the use of the homes themselves, both through model homes and yard signs on the property of the infringing homes it had built, all of which were marketed to the general public. The court concluded that the infringing houses in this case as used by Hallmark all qualify as advertisements under the terms of the policies. Because the court concluded that Hallmark infringed Kipp's copyright in its advertisement, the policies define the resulting injury as an advertising injury, that is, an injury arising out of the infringement in the advertisement. Thus, the judgment against Hallmark is because of that advertising injury and under the plain language of the policy, the court ruled, Mid-Continent owes a duty to indemnify.
The ruling of the district court was affirmed.
Editor's Note: The U.S. Court of Appeals, Fifth Circuit, finds that, in accordance with Texas law, advertising is a marketing device designed to induce the public to buy something. In this case, the homes built by the insured were, in effect, advertising since the insured used them to solicit business. This made the houses advertisements, and since the policy exempted from the copyright infringement exclusion an advertising injury arising out of infringement in the insured's advertisement, the insurer owed the duty to indemnify. |
| |
| Fraud of the Week |
Arson – Connecticut
AMOUNT: Unknown
A Brookfield woman was sentenced to twelve years in prison for setting fire to her mother's home in order to collect the insurance money. Gasoline was poured throughout the house and ignited. Inside the garage, which was not burned, was the daughter's car full of frozen food, two television sets, a digital camera, and four cellphones. She was found guilty of first-degree arson, conspiracy to commit first-degree arson, and insurance fraud.
|
| |
|
|
|
| Subscribe to FC&S |
| FC&S Online is the unquestioned authority on insurance coverage interpretation and anlaysis for the P&C industry. FC&S offers unbiased analysis and interpretation and keeps you current on the latest ISO and AAIS revisions. Providing instant access to the very latest information, FC&S is the resource that agents, attorneys, brokers, risk managers, underwriters, and adjusters rely on to research commercial and personal lines coverage issues. |
| • |
Quickly and accurately determine coverage under a policy at the time of loss |
| • |
Research coverage issues and interpretations, including court cases |
| • |
Access experts live to discuss specific situations |
| • |
Find answers to questions based on real-world claims disputes |
| • |
View and print ISO forms |
| • |
Access updates on breaking litigation and bureau developments |
 |
|
| |
| Join Us Live! |
| FC&S editors regularly conduct web-based demos of the service. Feel free to contact Christine Barlow, cbarlow@alm.com, for more information. They only take 30 minutes, a small investment of time that will help you learn all that FC&S Online has to offer. |
| |
| Contact Us |
As always, your comments and questions are welcome.
Contact us at:
FC&S Department
Phone: 800-543-0874
Fax: 859-692-2246
Email: eAlerts@nuco.com |
| |
|
