Articles Posted in Insurance

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The Texas Supreme Court confirmed that it will decide an issue of Texas law that was certified to the Court by the U.S. Court of Appeals for the Fifth Circuit. The case is McGinnes Industrial Maintenance Corporation v. The Phoenix Insurance Company; The Travelers Indemnity Company. The issue is whether the receipt of Potentially Responsible Party (PRP) letters and unilateral administrative order, issued pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), from EPA Region 6 is a “suit” that triggers a duty by the insurers to defend, investigate and settle.

McGinnes is in the waste disposal business and, in the 1960s, McGinnes removed waste from a paper mill and released it into three ponds located adjacent to the San Jacinto River. McGinnes is a potentially responsible party at the San Jacinto Waste Pits Superfund site in Harris County, Texas. McGinnes is cooperating with EPA in developing a cleanup plan for the site, but McGinnes is also being sued in state court for past violations of the state environmental laws pertaining to waste cleanups. Its liability could well be assessed at millions of dollars in addition to the cleanup costs. The Fifth Circuit believes that this issue of state law requires clarification by the Texas Supreme Court. This is an important case; different courts in different states have issued rulings coming down on both sides of this issue. No date for oral argument has been scheduled.

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New Jersey’s Appellate Division recently reversed a trial court’s dismissal of a general contractor’s claim against a performance bond, holding that the bond must cover the general contractor as the intended obligee, even though the general contractor was not expressly named in the bond.

In Allied Building Products Corp. v. J. Strober & Sons, LLC, et al., A-1113-12T4 (NJ App. Div., September 5, 2014), Dobco, Inc. (“Dobco”) was the general contractor for a science hall renovation project at William Paterson University. J. Strober & Sons, LLC (“Strober”) bid for and was awarded a roofing subcontract on the project. The subcontract between Dobco and Strober required Strober to obtain payment and performance bonds, in the form annexed to the Dobco-Strober subcontract (which required that Strober be named obligee on the bonds).

Strober was awarded the subcontract with Dobco, but in accordance with the company’s procedure, Colonial did not review the actual subcontract. Nevertheless, an underwriter approved issuance of the performance bond, and Strober paid for the bond.

However, when the performance bond was issued, it named William Paterson University as the obligee, rather than Dobco. Dobco advised Strober that it rejected the bond, because it was required to name Dobco as obligee. As a result, Strober issued payment and performance bonds naming Dobco as obligee, using a power of attorney and Colonial’s seal. Colonial asserted that the bonds were a nullity, because Strober was only authorized to issue bid bonds using Colonial’s seal and power of attorney, in accordance with its “partnership account.” Nevertheless, Dobco rejected these bonds as well, and demanded that Colonial issue the bonds with various documents that ordinarily accompany payment and performance bonds. Strobco did not procure the bonds, but nevertheless began its work on the project.

During the project, Dobco became concerned with Strober’s performance, and requested the bonds that had not been delivered. Strober repeatedly contacted Colonial, but was advised several times that the bonds were “still in underwriting,” even though Colonial had already accepted the premium. Eventually, Dobco terminated Strober, and Strober filed for bankruptcy protection. Dobco filed a claim against the bond, but it was denied because Dobco had rejected both sets of bonds, and Colonial maintained, therefore, that they were not in effect.

On cross-motions for summary judgment, the trial court dismissed Dobco’s claim against the bond, citing established New Jersey law that a surety is “chargeable only according to the strict terms of its undertaking and its obligation cannot and should not be extended either by implication or by construction beyond the confines of its contract.” Since Dobco rejected both bonds, the trial court found that there was no valid contract between Colonial and Dobco.

The Appellate Division reversed, noting that, when a bond incorporates a contract by reference, the bond and the contract must be considered as one integrated document in ascertaining the meaning of the bond’s provisions. The Appellate Division held that “strict construction” should have only applied after the extent of the surety’s undertaking was determined; it should not have been used to interpret the language creating the surety’s obligations under the bond. Thus, the Court held that the bond was intended to secure Strober’s contractual obligation to Dobco, which required Strober to obtain a performance bond, naming Dobco as obligee. In so holding, the Court stated, “[W]hen Colonial agreed to bond [Strober’s] performance, it undertook the obligation to do so in the form required by the contract. That Colonial chose not to review the contract it bonded cannot relieve it of obligations voluntarily undertaken.” The Court was unmoved by Colonial’s argument that Dobco rejected both bonds, and ordered the bond reformed, consistent with the Dobco-Strober subcontract.

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The United States District Court for the District of Oregon held that property damage incurred to a condominium project resulting from a myriad of construction defects constituted just one occurrence under the relevant excess general liability policy.

In Chartis Specialty Ins. Co. v. American Contractors Ins. Co. Risk Retention Group et al., Case No. 3:13-CV-1669 (D. Ore. Aug. 12, 2014), the owners association of a condominium complex sued its developers for property damage incurred to the condominium as a result of numerous and distinct construction defects. The owners association alleged that the developers failed in their duties as developers to build the condominium complex free from defects. The alleged defects included errors in the construction of the roof, fire sprinklers, insulation, and windows and doors, resulting in total damages of $3.6 million.

Chartis, which provided liability insurance for the developers in excess of $2 million per occurrence/$4 million aggregate, argued that the damages at issue were the result of multiple occurrences, subject to at least two retentions; i.e., $4 million. The Chartis Policy defined “occurrence” as:

an accident, including continuous or repeated exposure to conditions, which results in … Property Damage neither expected nor intended from the standpoint of the Insured. All such exposure to substantially the same general conditions shall be considered as arising out of Occurrence.

Because there were multiple defects/conditions resulting in property damage, Chartis argued for multiple occurrences.

The court disagreed, finding that despite various defects, the property damages at issue arose from just one occurrence: the developers’ failure to perform its duties. In reaching this holding, the court looked to the allegations and facts forming the basis of the settlement between the owners association and developers, rather than the actual cause of the property damage at issue. The court explained that “in insurance coverage cases, it is the insured’s actual conduct, not the imputed conduct of another, that determines coverage.” Id. at 10 (quoting McLeod v. Tecorp Int’l, Ltd., 844 P.2d 925 (Or. App. 1992). The court found that because the allegations asserted that the property damage was the developers’ failure to ensure that the condominium was properly developed, and not that the developers negligently performed any of the work themselves, the property damage was caused by a single occurrence.

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Zurich has updated its “Litigation Management Guidelines” to give the insurer an unprecedented level of control over defense counsel’s activities. The new Guidelines adopt the Recommended Case Handling Guidelines for Insurers created by The Defense Research Institute, and also append an extensive Addendum covering business policies, expense and professional fee payment, and other administrative points.

The Guidelines purport to impose a sweeping waiver of attorney-client privilege and work product protection, even though the law in most states imposes significant limitations on an insurer’s access to privileged or protected information developed by defense counsel – especially where the insured is entitled to so-called Cumis or independent counsel as a result of conflicts of interest with its insurer. Zurich’s Guidelines mandate almost complete and constant transparency in case development and strategy, stating “counsel should provide a significant development report to immediately communicate important case developments to the claims professional, such as settlement overtures by other parties, codefendant strategies or developments, new information obtained through discovery, etc.” The Addendum also requires counsel to “enunciate the impact of the information being conveyed,” specifically on “case strategy, evaluation, posture, and resolution opportunities.” Zurich essentially attempts to coerce insureds to waive the attorney-client privilege and work product protection by expressly stating that Zurich reserves the right to review defense counsel’s files and will not pay for defense activities for which Zurich is not given access to “full” explanation and documentation.

The Guidelines require development reporting by the defense counsel to Zurich including:

• Acknowledgement – counsel should send a letter acknowledging receipt of the new case and outlining the legal team assigned, along with any matters of immediate concern/information that may resolve the case quickly
• Initial Report – counsel should send an initial report with:

– a summary of the complaint allegations, factual basis for litigation, a summary of preliminary investigation information, and preliminary evaluation of liability and damages – a litigation plan identifying significant activities (investigation, motions, discovery, etc.) counsel proposes to initiate, discovery and motions that have been or may be initiated by others, and estimated completion dates and expenses for each activity – settlement discussion with any recommendations on arbitration, mediation, or negotiations – discussion on the potential success of dispositive motions before/after the commencement of discovery and when motions to dismiss or for summary judgment are appropriate – trial date estimate
• Significant Development Report – counsel should communicate significant developments including summaries of depositions, pretrial reports, and, if applicable, settlement options and/or dispositive motions, updated liability and damages evaluation, updated litigation plan, and trial report (no later than 45 days prior to the trial date)

Other specific guidelines and restrictions are included, regarding such issues as time charges, multiple attorney attendance at certain functions, and required measures on updating. On matters of planning and case building, Zurich requires that any discovery contemplated by counsel must be discussed during the Case Management Conference (“CMC”) between counsel and the insurer’s claims professional and confirmed in the Case Management Plan (“CMP”) completed by counsel and sent to the claims professional to be reviewed and authorized with a corresponding budget. CMPs must be also re-evaluated at least every 180 days, and the CMC must include an Early Resolution Action Plan. The Guidelines require defense counsel to obtain Zurich’s permission before performing such core defense functions as conducting legal research, pursuing discovery, retaining experts, filing dispositive motions, preparing exhibits, and deciding how a matter should be staffed and whether more than one attorney should attend major litigation events.

Courts across the country have refused to enforce litigation management guidelines that unduly interfere with the independent professional judgment of defense counsel. For example, in Dynamic Concepts, Inc. v. Truck Insurance Exchange, 61 Cal. App. 4th 999, 1009 (Cal. Ct. App. 1998), the California Court of Appeal made clear that an insurer cannot impose restrictions on defense counsel that hinder counsel’s ability to provide a full and complete defense, stating that “[i]nsurer-imposed restrictions on discovery or other litigation costs may well violate the insurer’s duty to defend as well as the attorneys’ ethical responsibilities to exercise their independent professional judgment in rendering legal services.” Thus, if Zurich’s Guidelines are challenged and shown to encroach upon defense counsel’s ethical and professional responsibilities, they are unlikely to be enforced.

State ethics boards have also refused to permit such rigid oversight of the policyholder’s defense counsel as is mandated by Zurich’s Guidelines. The Supreme Court of Ohio Board of Commissioners on Grievances and Discipline, for example, has expressly forbidden such insurer influence on the defense, stating in an advisory opinion that “it is improper under DR 5-107(B) for an insurance defense attorney to abide by an insurance company’s litigation management guidelines in the representation of an insured when the guidelines interfere with the professional judgment of the attorney. Attorneys must not yield professional control of their legal work to an insurer.” Again, provided an influence upon the professional judgment of defense counsel is shown, guidelines like Zurich’s are likely to fail before the ethics boards of many jurisdictions.

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On June 23, 2014, the Second Circuit Court of Appeals issued a decision in the case Dormitory Authority of the State of New York v. Continental Casualty Company (2014 WL 2808073), a declaratory judgment action filed by a building owner against the architect’s insurance carrier over the faulty design of a dormitory. The issue in this case was whether two design defects in the structure of the building were “related.” The owner sought a declaration that the design flaws were two separate defects because, if so, two separate policies would have responded to the claims, but if not, there would not have been sufficient limits to remediate both defects. Although this decision has not received much attention yet, the importance lies in the Second Circuit’s agreement that the defects were separate, notwithstanding policy language that attempted to group related wrongful acts.

After the project was completed, it was determined that the architect incorrectly estimated the steel requirement for the structural steel girts and exterior façade (“Steel Girt Defect”). The owner sent a demand letter to the architect in 2002. Separately, it was also discovered that snow and ice were sliding off of the building on the sidewalk below. A study determined that the design of the façade failed to account for temperature variations appropriate for a building in New York (“Façade Defect”). A claim was first asserted against the architect in 2004.

The architect’s professional liability policies are claims-made policies that defined “related claims” as “all claims made against [the architect] and reported to [the insurer] during any policy year arising out of . . . a single wrongful act or related wrongful acts.” The policies further provided that “[a]ll related claims shall be considered a single claim first made and reported . . . within the policy year in which the earliest of the related claims was first made and reported.” The two separate claims implicated two different policies because they were reported at different times.
The district court granted summary judgment in favor of the owner, finding that the Façade Defect was not related to the Steel Girt Defect. On appeal, the insurer argued that the demand letter for the Steel Girt Defect was broad enough to include all design defects in the building. The Second Circuit disagreed and found that the demand letter focused entirely upon the Steel Girt Defect and “could not be fairly read as an omnibus claim concerning all architectural defects . . .”

The insurer also argued that the defects were “related claims” under the policy because they arose out of a single wrongful act or related wrongful acts. The Second Circuit rejected this claim as well, holding that one defect relates to the structural integrity of the building, while the other relates to the building’s aesthetic design. Furthermore, each system had its own distinct engineering considerations and involved different design teams and contractors. The problems also manifested themselves at different times, resulted in different types of damage, and the solutions to each issue were completely different. Importantly, the Court stated, “[t]hat both may have resulted from the generalized negligence of the Architects is an insufficient degree of relatedness.”

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Hard Hat Workforce Solutions, LLC v. Mech. HVAC Servs., Inc., 406 S.C. 294, 750 S.E.2d 921, 922 (2013).

How confident are you that the payment bond your subcontract required you to obtain falls within your state’s payment bond statutory scheme? Bonds.jpg In Hard Hat Workforce Solutions, LLC v. Mech. HVAC Servs., Inc., 406 S.C. 294, 296, 750 S.E.2d 921, 922 (2013), the Supreme Court of South Carolina reversed the Special Circuit Courts decision granting summary judgment relief for a surety defendant on the theory that the plaintiff, a fourth-tier subcontractor, need not provide notice as required by statute because the bond at issue was a common-law, not statutory, bond. (Full write up, after the jump.)

This dispute arose out of the construction of a high school in York County (the “Project”). Ediface, Inc. (“Ediface”) was hired by York County to serve as the general contractor and Ediface hired Walker White, Inc. (“Walker”) to perform mechanical and plumbing work on the Project. As part of the agreement between Ediface and Walker, Ediface required Walker to furnish a payment bond which Walker in turn procured from Great American Insurance Company (“GAI”).

Walker later subcontracted with Mechanical HVAC Services, Inc. (“MHS”) to install ductwork for the Project. MHS subcontracted with Hard Hat Workforce Solutions, LLC (“Hard Hat”) for temporary skilled labor on MHS’s ductwork portion of the project.

By 2010, with the Project well under way, Walker had paid MHS the full value of their subcontract. However, MHS failed to pay $85,000 allegedly owed to Hard Hat for its work on the Project. In January of 2010, Hard Hat contacted Walker informing the company that MHS owed it $85,000. A month later, Walker told MHS it was in default under its subcontract with Walker due to its lack of performance; MHS abandoned the project thereafter.

Hard Hat brought a claim against Walker and received a default judgment. Hard Hat also filed a claim to collect on the payment bond Walker obtained from GAI pursuant to Walker’s subcontract. GAI argued that Hard Hat could not collect on the payment bond because it failed to provide Walker adequate notice pursuant to Section 29-5-440 of the South Carolina Code of Laws (“Section 29-5-440”). GAI filed a motion for summary judgment stating it could only be liable to Hard Hat for the amount Walker owed MHS at the time Hard Hat informed Walker of its claim on the bond. GAI was able to easily prove it paid MHS well before Hard Hats notice of its intent to pursue payment under the payment bond and thus could argue it owed nothing to Hard Hat as a result.

GAI made that argument in its motion for summary judgment and the Special Circuit Court found it persuasive. The Special Circuit Court reasoned that Hard Hat’s bond claim was subject to Section 29-5-440‘s notice provisions, stating that “South Carolina statutory law is party of every contract.” Hard Hat, 750 S.E.2d at 923. The court determined that Hard Hat did not provide proper notice, as required by the statutory scheme, and thus granted GAI’s motion for summary judgment.

In a decision of first impression, the South Carolina Supreme Court reversed the circuit court’s decision. After an analysis of South Carolina’s payment bond statutes, the Court held the payment bond at issue was not a statutory payment bond and thus not subject to the notice requirements under Section 29-5-440.

Looking to the statute, the Court developed a definition that distinguished statutory and common-law bonds under South Carolina law. Statutory bonds are defined as those either:

  1. provided because required by statute and in accordance with the minimum guidelines set out in Section 29-5-440 of the South Carolina Code, or
  2. that contain express or implied reference to the provisions detailed in the statute.

Id. at 925.

In contrast, common-law bonds are defined as either:

  1. any bond not required by statute (i.e., voluntarily provided, perhaps to meet a contractual provision in the agreement between the parties), or
  2. any bond required by statute but that specifically varies the statutory requirements so as to provide broader protection.

Ibid.

In applying this rule, the Court found that GAI’s bond was a common-law bond. It was not required by statute, but instead, only required by Walker’s contract with Edifice. Further, the bond made no specific mention of Section 29-5-440 or any other notice requirement. As such, the Court enforced the bond by its terms and held that Hard Hat had no duty to comply with any notice provision as no such provision existed pertinent to its action on the bond. Buttressing this decision was South Carolina’s policy of treating payment bonds issued by a surety for consideration as an insurance policy. See U. S. for Use of Wheeling-Pittsburgh Steel Corp. v. Algernon Blair, Inc., 329 F. Supp. 1360 (D.S.C. 1971) (stating bonds, like insurance, are construed in favor of coverage) (internal citations omitted).

While this decision is rooted in South Carolina public policy and South Carolina-specific statutory interpretation, the broader lesson is clear: contractors, subcontractors and sureties alike should be as versed in the terms of their payment bonds as they are in the statutory scheme under which those bonds fall. Had the surety and the subcontractor required to procure the bond known that an action to collect on the payment bond fell outside South Carolina’s payment bond statutory scheme, the surety and contractor would have included notice provisions or at minimum referenced the statutory scheme in the text of the bond. As such, this decision should strike the curiosity of a party to a contract requiring a payment bond. What kind of bond is it?

Photo: www.LendingMemo.com – Creative Commons

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Today, Pillsbury attorneys Ray Sweigart and Jeff Kiburtz published their advisory titled An American Policyholder in London: English Choice of Law Clauses in United States Insurance Policies. The Advisory identifies a few of the issues on which English law is notably different from prevailing law in the United States and which ought to be taken into account when considering an English law and forum clause.

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Pillsbury attorneys Robert L. Wallan, and Alyson R. Parker published today their advisory titled Shamrock Shake: St. Patrick’s Day Earthquake in Los Angeles Is a Reminder to Check Your Property Insurance Policy on the heels of a 4.4-magnitude earthquake that shook L.A. County out of bed at 6:25 a.m. on St. Patrick’s Day. The Advisory reminds everyone to be informed about their current and future residential or commercial earthquake insurance coverage.

Additional Resources: Insurance and the Polar Vortex: Recovering Losses from the Big Chill of 2014

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On Thursday, March 13, a California Court of Appeal found substantial evidence that State Farm General Insurance Co. (State Farm) had a duty to defend North Counties Engineering Inc. (North Counties) under a policy that included products-completed operations coverage notwithstanding that the policy also included a professional services exclusion. The Court, in North Counties Engineering Inc. v. State Farm General Insurance Co., Case No. A133713, ordered State Farm to cover North Counties’ defense costs in two lawsuits filed in 2004 in connection with construction of a dam that had been completed in 1999 for Lolonis Winery (Lolonis). It reversed the trial court’s order granting State Farm’s motion for a directed verdict and, among other things, reconfirmed that the insurer “owes a broad duty to defend its insured against claims that create a potential for indemnity” and “any doubt ‘as to whether the facts give rise to a duty to defend is [to be] resolved in the insured’s favor.'” On remand, judgment will be entered confirming that State Farm had a duty to defend North Counties.

The Lawsuits

In 2004, the State of a California filed suit against Lolonis alleging that construction of the Lolonis dam caused damage to downstream tributaries and potential erosion in nearby waterways (People of the State of California ex rel. California Regional Water Quality Control Board v. Lolonis Vineyards, Inc. Lolonis Winery, in turn, filed a cross-complaint against North Counties and others involved in the design and construction of the dam asserting claims for breach of contract, negligence, indemnity, and declaratory relief. Lolonis later filed a second action against North Counties and the others for breach of contract, express/implied warranty, and negligence (Lolonis Vineyards, Inc. v. North Counties Engineering Co.).

State Farm initially refused North Counties’ claim under its policy. It later came to light that, in its claim activity log, State Farm included May 7, 2004 as the date of loss rather than the date of loss set forth in the underlying actions, which was1997 through 1999. The 2000 version of the policy included a Products-Completed Operations Liability Exclusion endorsement. In contrast, the 1997 through 1999 versions of the policy included in the “Coverage and Limits” coverage for “Products-Completed Operations” in the amount of $2,000,000.

In 2007, State Farm changed its coverage position, confirming that it would provide a defense from September 5, 2007 forward, and also pay its Cumis counsel, under a reservation of rights. It refused, however, to reimburse North Counties for more than $500,000 in costs incurred before it confirmed it would cover the defense. North Counties then filed the North Counties Action seeking unreimbursed defense costs .

Trial Court Sides With State Farm in North Counties Action
After extensive discovery, State Farm and North Counties proceeded to a 22-day jury trial. Thereafter, the trial court granted State Farm’s motion for a directed verdict, purportedly “based on ‘the circumstances as they existed at the time of [North Counties’] initial tender, including the facts reasonably available to State Farm at that time and State Farm’s evaluation of such facts.'” The order concluded that “as a matter of law, the only work at issue in the underlying actions relating to [North Counties] was their performance of professional services–including any labor or contracting work,” which was subject to the policies’ professional services exclusion. Judgment for State Farm was entered the same day as the order, and North Counties timely filed its appeal.

Court of Appeal Reverses the Trial Court’s Order in North Counties Action
Duty to Defend
The Court of Appeal reconfirms that an insurer “owes a broad duty to defend its insured against claims that create a potential for indemnity.” It explained that such a duty “exists whenever the lawsuit against the insured seeks damages on any theory that, if proved, would be covered by the policy,” and that the insurer’s obligation to provide a defense “is excused only when ‘the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.'” Its duty may exist “even when it ultimately has no obligation to indemnify, either because no damages are awarded in the underlying action or because the actual judgment is for damages not covered by the policy.” Ultimately, it emphasized that “any doubt ‘as to whether the facts give rise to a duty to defend is resolved in the insured’s favor.'”

Substantial Evidence of Duty to Defend
The Court went on to find that the trial court’s approach to the motion for a directed verdict was erroneous because it was not “looking to determine whether there was any evidence that might support a conclusion that there was a duty to defend, but rather [it was] looking only for evidence — indeed, even inferences from evidence — that there was not.” The Court identified illustrations evidencing the trial court’s erroneous approach, including its emphasis on North Counties’ “expertise,” and its conclusion that it apparently should have had errors and omissions coverage. Ultimately, it found that “[t]he law requires a trial court in ruling on State Farm’s motion … to look for any evidence that might support appellants, and draw all inferences in their favor. The court here acted 180 degrees contrary. And reached the wrong conclusion,” finding that there was evidence supporting State Farm’s duty to defend.

Coverage was Not Precluded by the Professional Services Exclusion
The Court ultimately rejected State Farm’s primary argument that the professional services exclusion precluded coverage. State Farm argued that “[t]he availability of liability benefits is scrutinized in light of the insurance contract as a whole, the allegations of the underlying complaints in their entirety, the universe of facts as they existed at the time of tender, and ‘common sense.'” The Court found, however, that neither case cited supported State Farm’s theory that “allegations in the underlying complaints must be looked at in ‘their entirety.'” “The ‘professional services’ exclusion is not the panacea State Farm would have it, certainly not when analyzed under the appropriate standard: ‘narrowly against the insurer.'”

It found it important that, during their testimony, three of State Farm’s own claims personnel admitted that the pertinent policy information — the declarations pages in existence before 2000 — demonstrated that State Farm had a duty to defend. It found “much more evidence that supported a possible duty to defend, including the fact that once the proper declarations page was located and reviewed, State Farm agreed to defend.”

It also focused on North Counties’ many roles in the construction of the dam. It found that “[t]here were many allegations, and much evidence, without the language of the exclusion, including that damages were sought for ‘negligence in the construction of the dam,’ and as the ‘direct result of negligent construction by [North Counties]’.” It further found that “there was evidence of something other than professional services was acknowledged by State Farm’s counsel.” According to the Court, the professional services exclusion did not preclude the potential for coverage under the existing facts.

It rejected State Farm’s secondary argument that there was no coverage, making several observations about the products-completed operations provision. It noted several times where State Farm referred to it as “coverage,” and that it “was referred to on the pertinent declarations page(s) as protection offered under the policy, with its own separate limits of $2,000,000.” Ultimately, it left open the question whether the products-completed operations coverage rendered the policy ambiguous, as North Counties’ contended, or not, as State Farm contended, finding that “it certainly complicated the situation, as have similar policy provisions.”

It ended it analysis by observing that none of the cases relied on by State Farm “involve such exclusion in the context of a policy that also has [products-completed operations] coverage.” Prior to the Court’s ruling, there were no California cases that dealt with a professional services exclusion and products-completed operations coverage where there was a potential conflict about coverage.

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One of the first tactical lessons most litigators learn is not to overstate your position. Another lesson is to always remain civil, even in the face of an un-civil opponent. These lessons are sometimes difficult for young lawyers, brimming with aggression, to digest. Most of the time when one of those lawyers inserts unfortunate language in a brief–say, openly mocking the opponent’s argument–cooler heads prevail and a sage senior lawyer excises the offending language.

Most of the time. But not all of the time. This short Sixth Circuit opinion, Bennett v. State Farm Mutual Insurance is a good lesson to young lawyers. I can’t deliver a judicial bench slap any better than the court, so let me just quote Judge Kethledge:

“There are good reasons not to call an opponent’s argument “ridiculous,” which is what State Farm calls Barbara Bennett’s principal argument here. The reasons include civility; the near-certainty that overstatement will only push the reader away (especially when, as here, the hyperbole begins on page one of the brief); and that, even where the record supports an extreme modifier, “the better practice is usually to lay out the facts and let the court reach its own conclusions.” Big Dipper Entm’t, L.L.C. v. City of Warren, 641 F.3d 715, 719 (6th Cir.2011). But here the biggest reason is more simple: the argument that State Farm derides as ridiculous is instead correct.”

Ouch. Whatever feeling of satisfaction that lawyer had when he wrote “ridiculous” in his brief must have felt worlds away when he read that opinion.

There’s another lesson here: Always carefully review defined terms in your insurance policy. In Bennett, “The question presented is whether Bennett was an “occupant” of the Fusion–as that term is defined by State Farm’s policy–at the time she was on the vehicle’s hood. If she was, then she is entitled to coverage for the injuries she sustained there; if not, then not.” The policy defined “occupying” as “in, on, entering or alighting from.” Since Mrs. Bennett was “on” the car, she was “occupying” it as defined by the policy.

One last lesson for insureds: Don’t give up too easily. It would have been very easy for Mrs. Bennett to hang her head when State Farm denied her claim because she was on the hood, and wasn’t an “occupant” of the car. But she stuck with it and pressed her case. Good for her.