SDV Insights

Federal and state courts tackled many interesting insurance-related issues this past year. Perhaps no state had a more impactful year than Illinois, which held that construction defects could constitute an occurrence, that a LEG 3 "extension" attempting to preclude coverage for faulty or defective workmanship was ambiguous as a matter of law (applying Illinois law), and that ostensibly prohibitive "catch-all exclusions" can render policy language ambiguous in favor of coverage.

The Tenth Circuit's recent broad application of Oklahoma law on "interrelated acts" creates concerning precedent for policyholders seeking to maximize coverage under a professional liability policy with per claim limits.

When an insurer handles a claim in violation of its duty to act in good faith, policyholders are often eager to sue the insurer for bad faith, seeking extra contractual damages. Before filing suit, however, it is critical that policyholders consider what state's law applies to the bad faith claim.

A majority of insurance policies require the insured to cooperate with the insurer. The cooperation clause generally states, "the insured agrees to Cooperate with us in the investigation, settlement or defense of the suit."

Illinois joins the majority of states finding "property damage that results inadvertently from faulty work can be caused by an 'accident' and therefore constitute an 'occurrence'."

It is well known that insurance policies universally impose a requirement that a "claim" be timely submitted. Unfortunately, this basic coverage condition is so well known that policyholders often overlook what exactly constitutes a "claim" under their insurance policy.

Builders risk claims routinely involve complicated and aggressive debate about the interplay between covered physical loss and uncovered faulty work. However, denials on this front have recently experienced a noticeable uptick in frequency, creativity, and aggressiveness.

The War and Hostile Action Exclusions have been standard exclusions in property and general liability policies for decades. With the rise of cyber claims, insurers have turned to these exclusions to deny coverage where the bad actor may have governmental roots.

In North River Ins. Co. v. Leifer, the United States Court of Appeals for the Second Circuit determined that a "prior knowledge" exclusion in a professional liability insurance policy excused the insurer from its duty to defend against malpractice claims brought against its insured. In so holding, the Second Circuit concluded that the insured failed to disclose facts and circumstances to its insurer that it knew or should have known could result in a future malpractice claim.

In National Union Fire Insurance Company of Pittsburg v. Cargill, Inc., the Eight Circuit Court of Appeals, applying Minnesota law, recently addressed whether damages associated with an employee's embezzlement scheme would be covered under a policy for employee theft.