| Q&A of the Week |
Limited Pollution Liability Coverage
A Colorado subscriber recently asked the following question:
My client owns some property that is currently leased to others who use the site as a small grocery store. If the tenants were to put in an underground storage tank for gasoline sales, would endorsement CG 24 15, the limited pollution liability extension endorsement provide sufficient coverage for my client in the event of a pollution claim? Or, should we provide an underground storage tank policy for our client?
ANSWER: CG 24 15 replaces the pollution exclusion (f) found in the standard CGL form. It provides limited protection, subject to an aggregate limit shown in the endorsement's schedule, for some on-premises exposures that could face a landowner. Under the standard CGL form, coverage for bodily injury or property damage arising out of the dispersal, discharge, release, or escape of pollutants at or from premises owned by any insured is excluded. CG 24 15 deletes this part of the pollution exclusion thereby giving coverage to a landowner like your client. However, that same endorsement declares there is no coverage when a pollutant escapes at or from a storage tank or other container that is below the surface of the ground and that subsequently is exposed by erosion or excavation, allowing the pollutant to escape at a premises owned by any insured.
So, while your client would have some limited liability protection if the storage tank leaks gasoline by using CG 24 15, that protection is gone if the storage tank is somehow exposed and the pollutants then leak out and cause damage.
As for the underground storage tank policy, CG 00 42, that policy states that damages and injuries due to the escape of pollutants from an underground storage tank are covered, subject to listed exclusions. CG 00 42 is a claims-made policy so the bodily injury and property damage have to occur after the retroactive date shown in the declarations and before the end of the policy period, and of course, a claim for damages has to be made in writing during the policy period or any extended reporting period.
If you use either CG 24 15 or CG 00 42, your client will have liability coverage on a limited basis. You should consult with your client and the insurer to obtain the better choice. |
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| Litigation Watch |
Because of Bodily Injury
The insured's general liability insurer brought an action against the insured for a declaratory judgment that it owed no duty to defend the insured in an underlying lawsuit. This case is Cincinnati Insurance Company v. H.D. Smith, LLC, 2016 WL 3909558.
West Virginia sued H.D. Smith and other pharmaceutical distributors, seeking to hold them liable for contributing to the state's epidemic of prescription drug abuse. West Virginia alleged that the defendants acted negligently, recklessly, and in contravention of West Virginia law, and that this cost the state hundreds of millions of dollars every year.
H.D. Smith sought coverage under its general liability policy with Cincinnati Insurance Company. The insurer refused to defend the lawsuit and filed this declaratory judgment action. The U.S. District Court entered judgment in favor of the insurer and this appeal followed.
The United States Court of Appeals, Seventh Circuit, noted that the Cincinnati policy issued to H.S. Smith covered lawsuits seeking damages "because of bodily injury". The court said that such a policy provides broader coverage than one that covers damages only "for bodily injury". To the court, this meant that if the insured had a policy that only covered damages for bodily injury, it would be reasonable to conclude that the damages sought do not fall within the insurer's duty. However, if the insurance contract provides for damages because of bodily injury, then the insurer would have a duty to defend and indemnify.
The court pointed out that West Virginia alleged that its citizens suffered bodily injuries and that the state spent money caring for those injuries, money that the state seeks in damages. The state alleges that H.D. Smith negligently distributed drugs that were consumed by persons then residing in West Virginia. In so doing, H.D. Smith interfered with the right of West Virginians to be free from unwarranted injuries, addictions, diseases, and sicknesses. Thus, the state has incurred excessive costs related to diagnosis, treatment, and cure of addiction and has provided necessary medical care, facilities, and services for treatment of its citizens.
The Circuit Court held that the lawsuit against the insured sought damages because of bodily injury and was within the coverage of the policy. The ruling of the District Court was reversed.
Editor's Note: The U.S. Court of Appeals, Seventh Circuit, makes a distinction between coverage for damages "because of bodily injury" and coverage for damages "for bodily injury" in its decision in favor of the insured. In other words, if the policy in question here applied only to damages for bodily injury, there would have to be some bodily injury to the plaintiff. In this case, there was no bodily injury alleged to have been wrought upon the underlying plaintiff (the state of West Virginia), but the state did suffer excessive costs in treating citizens that were injured because of bodily injury. The court offers an interesting and subtle distinction to establish the duty to defend. |
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| Fraud of the Week |
Insuring Agent Fraud – California
AMOUNT: Unknown
Arraignment has been set for a former California insurance broker who has been charged in a decade-long automobile insurance scheme. The ex-insurance agent in Los Angeles was charged with one misdemeanor count for transacting insurance without a license. After receiving a complaint from one of the affected clients, an investigation was implemented by the California Department of Insurance that revealed that the agents' license had expired in 2002 and she had failed to renew her license while continuing to pose as an insurance broker. The investigation also revealed the ex-agent had been misrepresenting client information on automobile insurance applications for over a decade. The ex-agent falsified the birth dates and addresses of her clients to offer lower premiums in order to secure more business for herself and cheaper premiums for her clients. The victims did not know that their policy documents had been falsified and are not facing any penalties for the actions of this ex-agent.
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