7/17/2017

Around the CLM - July 2017

A New York precedent is challenged, California courts split on Right to Repair Act interpretations, and West Virginia is on the verge of limiting products liability actions against sellers that are not the manufacturers.

By Phil Gusman

Arizona: Insurer Cannot Assert Exclusion Based on Information from Its Own Appointed Defense Counsel 

In Cosgrove v. National Fire & Marine Ins. Co., the U.S. District Court for the District of Arizona held that National Fire & Marine Ins. Co. (NFM) was estopped from denying coverage based on a policy exclusion when it obtained the supporting facts from insurer-retained defense counsel. While defending a general contracter (GC), WTM Construction, the insurer-appointed defense counsel reported to NFM that the GC had not entered into written subcontracts with the subcontractors. NFM asserted its subcontractor exclusion as a result. The court held that NFM was estopped to assert the exclusion, stating, “Precluding defendant from asserting a coverage defense based on the subcontractor exclusion may seem like a harsh result. But if defendant had done its own investigation of WTM’s claims, rather than relying on the information disclosed by the attorney retained to represent WTM,” then NFM would not be precluded from applying the exclusion.—From CLM Member Alicia G. Curran

California: Appellate Courts Split on Right to Repair Law 

The recent case of Gillotti v. Stewart reveals a split in state law authority concerning the preclusive effect of California’s Right to Repair Act. Gillotti directly challenges the 4th Appellate District’s 2013 holding in Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC that the act “does not eliminate common law rights and remedies where actual damage has occurred.” In Gillotti, the trial court rejected the argument that tort claims, such as negligence, based on violations of building standards covered by the act furnished an independent basis for recovery. Affirming the trial court’s view, the 3rd Appellate District specifically disapproved of the Liberty Mutual rule, concluding that the act bars common law claims for damages caused by construction defects within the act’s scope. This split of authority regarding the scope and preclusive effect of the act could be resolved by the California Supreme Court in McMillin Albany LLC v. Superior Court.—From San Diego Chapter Vice President Michael Parme

Missouri: Changes in Store for Workers Comp Law, Human Rights Act 

Two last-minute changes to the Missouri Workers Compensation Law and Human Rights Act will benefit employers. Senate Bill 66 clarifies uncertainty about how reaching maximum medical improvement could limit an employee’s right to temporary total disability benefits, how long an employee has to counter an employer’s disability rating, and under what circumstances an employee’s voluntary choice to leave an employer could terminate benefits. The bill also states that any positive test for a non-prescribed controlled substance constitutes a rebuttable presumption that the substance contributed to the employee’s injury, limiting benefits by one-half. Senate Bill 43 addresses the Missouri Human Rights Act, eliminating supervisor liability, setting damage caps, refocusing juries on “business judgment” and actual discrimination rather than “fairness,” clarifying the Whistleblower Law, and requiring proof of a motivating factor in discrimination claims. The governor is expected to sign both bills.—From CLM Members Damon M. Gruber, John M. Allen, and Philip Sholtz

New York: Court of Appeals Limits Scope of “Caused By” in Additional Insured Endorsements

In Burlington Insurance Co. v. NYC Transit Authority, the New York Court of Appeals held that “where an insurance policy is restricted to liability for any bodily injury ‘caused, in whole or in part’ by the ‘acts or omissions’ of the named insured, the coverage applies to injury proximately caused by the named insured.” The court ruled that the phrase “arising out of” is broader than the phrase “caused by” as they are used in additional insured endorsements. The Burlington Insurance decision effects a significant change in New York law because numerous New York courts had followed prior decisions of the New York Appellate Division, 1st Department, that equated the phrases “caused, in whole or in part” and “arising out of” and broadly interpreted them in similar additional insured endorsements.—From CLM Members Kevin E. Wolff and Timothy P. Smith

Ohio: Motorcycle Scheme Triggers False Pretenses Coverage 

In Canfield Motor Sports Inc. v. Motorist Mutual Ins. Co., an Ohio appeals court upheld a declaratory judgment granted in favor of an insured who sought coverage under its CGL policy on the basis that it voluntarily parted with its motorcycles by trick, scheme, or under false pretenses. Canfield Motor Sports had contracted with Elite Auction Sales Inc. to sell the motorcycles at a public auction. Several weeks after the bikes were sold and before Canfield received the sale proceeds, Elite filed for bankruptcy protection. On appeal, Motorist Mutual argued that Canfield failed to offer any evidence concerning the bankruptcy or to establish that Elite had otherwise tricked Canfield to surrender the motorcycles. While Ohio law generally requires that the scheme or trick exist at the time of the transfer, the appellate court nevertheless reasoned that the chain of events occurring before and after this period—most notably the bankruptcy—was sufficient to infer the existence of fraudulent intent on the date that the motorcycles were retrieved by Elite.—From Northeast Ohio Chapter Secretary Michael C. Brink

West Virginia: Governor Signs Bill Limiting Products Liability Actions 

The West Virginia legislature recently passed, and the governor signed, a bill designed to limit products liability actions against sellers of products that are not the manufacturers of those products. House Bill 2850 adds a new section, §55-7-31, to the Code of West Virginia that states, “No product liability action shall be maintained against a seller,” followed by limited exceptions, including if the seller is the manufacturer. The bill lists a range of other exceptions, some of which include if the seller knows about a defect that causes harm; modifies the product in an unauthorized way; makes an express warranty separate from the manufacturer’s warranty; fails to exercise reasonable care in assembling, maintaining, storing, transporting, or repairing the product that leads to the harm for which recovery is sought; or if the manufacturer cannot be identified, despite a “good-faith exercise of due diligence” to do so.—From CLM Member Natalie Schaefer



Phil Gusman is managing editor of CLM magazine, a publication of the CLM. He can be reached at phil.gusman@theclm.org.

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