Case Briefs

The facts of Nantes are simple: Nantes was a nurse at Griffin Hospital in Derby. In 2007, she rented rooms at her home in Ansonia to two medical residents from California who were participating in a month-long internship at the hospital and agreed to drive them to and from work. In exchange, the residents paid her $460 for their share of utilities and car expenses. One night, Nantes and the two residents arrived home from work and Nantes parked her car in the garage, but left the engine running. The exhaust soon filled Nantes' home and caused the two residents to suffer brain damage and injuries when Nantes dragged them, unconscious, outside.

At the time, Nantes had a homeowner's policy issued by the plaintiff, which contained the standard exclusion for “bodily injury ' arising out of ' the ownership, maintenance, use, loading or unloading of motor vehicles ' ” The plaintiff denied coverage based on this exclusion. Nantes subsequently assigned her rights under the policy to the residents, and the parties then submitted the question of damages to binding arbitration in California.

However, before the arbitration began, the plaintiff filed a declaratory judgment action in Connecticut against Nantes, the residents and Nantes' automobile insurer, seeking a declaration that the automobile exclusion precludes coverage for the residents' injuries. The trial court denied the defendants' motion to strike the complaint as a misuse of the declaratory judgment statute and then granted summary judgment for the plaintiff based on the plain language of the motor vehicle exclusion.

The Supreme Court affirmed both rulings. The court first rejected the defendants' claim “that the plaintiff's action was a misuse of the declaratory judgment statute because the complaint did not seek a declaration of the parties' future rights or obligations but instead sought legal vindication of the plaintiff's refusal to provide Nantes with a defense and indemnification in the California arbitration proceeding.” The court held that there clearly was a “bona fide dispute” between the parties about coverage under Nantes' policy, and so whether the plaintiff sought a declaratory judgment before or after refusing to defend or indemnify Nantes was irrelevant. The court likewise dismissed the defendants' contention that the plaintiff was “forum-shopping” in an attempt to “deprive the true plaintiffs of their chosen forum” (i.e., California). The court noted that “[t]he action was brought by a Connecticut insurance company to determine whether a Connecticut homeowner's insurance policy covers injuries that occurred in a Connecticut home. ' Under our law, a forum does not become inappropriate simply because the defendants would prefer to litigate elsewhere or because they would prefer to be the plaintiffs.”

While it was not the exclusive practice for insurers to seek a declaratory judgment before refusing to tender a defense or indemnify an insured, Nantes clears the way for a more aggressive, ex post facto use of declaratory judgment actions. This is particularly so as a remedy for actions in other states in which coverage is disputed, but for which Connecticut is a plausible forum ' because, for example, the insured premises are in Connecticut.

On the merits, the court gave a broad reading to its prior cases construing “arising out of” the use of a motor vehicle ' in particular, Hogle v. Hogle, 167 Conn. 572 (1975), which had held that a passenger's injuries in a car accident arose out of the use of a motor vehicle, even though the cause-in-fact of the accident was the driver's dog leaping from the backseat to the front and distracting the driver. 167 Conn. at 574, 576-79. The court held that even though Nantes had closed the garage door and thereby allowed the carbon monoxide to fill her house, the residents' injuries (including being dragged outside) had some “connection with” the act of parking her car. Therefore, all of those injuries arose out of the use of a motor vehicle and were excluded.

Interestingly, the court's specific holding ' that parking a car constitutes using it ' may prove less important than the issue that the court chose not to address: the viability of the “concurrent cause” doctrine in Connecticut. This doctrine “operates to extend coverage to a loss caused by the insured risk even though the excluded risk is a contributory cause, [when] a policy expressly insures against loss caused by one risk but excludes loss caused by another risk.” 303 Conn. at ___ (quoting Estate of Jones v. Smith, 320 Wis. 2d 470, 475-76 (App.), review denied, 321 Wis. 2d 49 (2009)). However, the court chose not to “resolve the more fundamental question of whether the doctrine of concurrent causes is a doctrine recognized under this state's common law[,]” because Hogle controlled the outcome.

Insurer Can't Deny Coverage on One Ground and Reserve the Right to Deny Coverage on Other Grounds

The Supreme Court of Georgia recently held that an insurer waived its right to assert a defense based on untimely notice where it did not properly alert the insured that the lack of timely notice would be a potential bar to coverage. In reversing a Georgia Court of Appeals ruling regarding the insurer's duty to defend, the Supreme Court held that an insurer was not permitted to deny coverage on one ground and also reserve the right to deny coverage on other grounds. Hoover v. Maxum Indemnity Company, 2012 WL 2217040 (Ga. June 18, 2012).

James Hoover (“Hoover”) sued his employer Emergency Water Extraction Services, LLC (“EWES”) after sustaining serious injuries from falling off a ladder at work. A month after the complaint was filed, EWES first provided notification of the occurrence to its commercial liability insurer, Maxum Indemnity Company (“Maxum”). Maxum denied any obligation for defense and indemnification, but solely on the basis of an Employer's Liability exclusion in the policy. However, Maxum reserved its rights to deny coverage on several other grounds, including “that coverage for this matter may be barred or limited to the extent the insured has not complied with the notice provisions under the policy.”

Maxum filed a declaratory judgment action against EWES but did not mention failure to provide timely notice as a reason for it denying coverage. Rather, Maxum relied solely on the Employer's Liability exclusion. This action was dismissed when the court held that Maxum could not seek declaratory judgment after denying coverage.

After obtaining a $16.4 million judgment against EWES, Hoover brought a claim in assignment against Maxum, alleging breach of the duty to defend and seeking indemnification. In this action, Maxum asserted a late notice as a defense. The trial court held that EWES failed to provide timely notice of the occurrence but that Maxum had nevertheless breached its duty to defend EWES in the underlying litigation.

The Court of Appeals held that EWES had failed to give timely notice as required by the policy, and therefore, Maxum was not obligated to defend or indemnify. The court rejected Hoover's contention that Maxum waived its policy defense regarding notice by only reserving, and not asserting it as a ground for the denial of coverage in its denial letter. Since EWES had failed to provide timely notice as was required by the policy, Maxum had no duty to defend.

Reversing the Court of Appeals, the Georgia Supreme Court held that Maxum had waived its right to assert a late notice defense and, therefore, could no longer deny a duty to defend on that ground. The court held that Maxum could not both deny the claim on one ground and reserve its right to deny on other grounds at a later date. Rather, the proper procedure in such situations is for an insurer to defend the insured under a reservation of rights and to then file a declaratory judgment action to determine its coverage obligations under the policy. The court reasoned that the purpose of the reservation of rights is to protect the insurer and insured by allowing the insurer to investigate the claim to determine its obligations while not forfeiting its right to ultimately deny coverage. The court held that it was not the purpose of a reservation of rights to allow an insurer to deny coverage and then continue its investigation into other reasons for denial to use if challenged on the first denial.

The court further held that even if Maxum could deny coverage on one ground, while simultaneously reserving its rights on others, Maxum's attempt to reserve its rights was defective because it was ambiguous and did not fairly inform EWES of Maxum's position. The court explained that Maxum did not clearly put EWES on notice that Maxum intended to pursue a late notice defense because it used “boilerplate language” in its denial letter in an attempt to reserve the right to assert a slew of other defenses at a later date. According to the court, after Maxum denied the claim this should have been the end of the matter, and Maxum would have had no need to further investigate or obtain additional information unless it was served with a third-party complaint in favor of coverage. Construing liberally in favor of EWES, the court held that Maxum's purported “reservation of rights” was invalid.

Three justices concurred in part and dissented in part to the decision. In their opinion, Georgia law did not stand for the broad proposition that an insurer cannot both deny a claim and reserve the right to assert other defenses at a later date. Rather, the proper rule is that an insurer only implicitly waives a late notice defense when it is aware of a late notice problem and continues to proceed as if there is no intention to enforce the notice provision in the policy. The justices noted, though, that applying this rule to the case at hand did not affect the outcome because there was at least some evidence that Maxum intended to waive the late notice defense when it did not include the defense in its declaratory judgment action.

Finally, these three justices also disagreed with the majority's opinion that Maxum's reservation of rights was defective. They reasoned that absent a statement or conduct by the insurer evidencing an intent to waive, the “mere assertion” of a single defense does not necessarily waive other possible defenses.

Daniel J. Krisch, a partner at Halloran & Sage LLP in Hartford, CT, contributed the first Case Brief. His practice focuses on appellate litigation, insurance coverage and complex civil litigation. Mia Finsness, an associate at Clyde & Co US LLP, contributed the second Case Brief. This Case Brief contains the personal views of the author only. The content does not necessarily represent the views of the firm or its clients.

CT Supreme Court Expands the Scope of the Automobile Exclusion in Homeowner's Policies

The insured under a standard homeowner's policy parks her car in her garage when she arrives home from work, but absent-mindedly leaves the car running all night, which causes her house to fill with carbon monoxide. Two guests in her home suffer neurological damage from carbon monoxide poisoning and injuries while being dragged from the home as a result. Are their injuries covered under the policy, or excluded as arising out of the use of a motor vehicle?

In New London County Mutual Ins. Co. v. Nantes , 303 Conn. __ (2012), the Connecticut Supreme Court held the latter; and, in so holding, the court: 1) expanded the scope of the motor vehicle exclusion; and 2) upheld the use of a declaratory judgment action to affirm the plaintiff's prior denial of coverage and refusal to defend. However, the court's decision also leaves a significant unanswered question concerning the viability of the “concurrent cause” doctrine under Connecticut law.

The facts of Nantes are simple: Nantes was a nurse at Griffin Hospital in Derby. In 2007, she rented rooms at her home in Ansonia to two medical residents from California who were participating in a month-long internship at the hospital and agreed to drive them to and from work. In exchange, the residents paid her $460 for their share of utilities and car expenses. One night, Nantes and the two residents arrived home from work and Nantes parked her car in the garage, but left the engine running. The exhaust soon filled Nantes' home and caused the two residents to suffer brain damage and injuries when Nantes dragged them, unconscious, outside.

At the time, Nantes had a homeowner's policy issued by the plaintiff, which contained the standard exclusion for “bodily injury ' arising out of ' the ownership, maintenance, use, loading or unloading of motor vehicles ' ” The plaintiff denied coverage based on this exclusion. Nantes subsequently assigned her rights under the policy to the residents, and the parties then submitted the question of damages to binding arbitration in California.

However, before the arbitration began, the plaintiff filed a declaratory judgment action in Connecticut against Nantes, the residents and Nantes' automobile insurer, seeking a declaration that the automobile exclusion precludes coverage for the residents' injuries. The trial court denied the defendants' motion to strike the complaint as a misuse of the declaratory judgment statute and then granted summary judgment for the plaintiff based on the plain language of the motor vehicle exclusion.

The Supreme Court affirmed both rulings. The court first rejected the defendants' claim “that the plaintiff's action was a misuse of the declaratory judgment statute because the complaint did not seek a declaration of the parties' future rights or obligations but instead sought legal vindication of the plaintiff's refusal to provide Nantes with a defense and indemnification in the California arbitration proceeding.” The court held that there clearly was a “bona fide dispute” between the parties about coverage under Nantes' policy, and so whether the plaintiff sought a declaratory judgment before or after refusing to defend or indemnify Nantes was irrelevant. The court likewise dismissed the defendants' contention that the plaintiff was “forum-shopping” in an attempt to “deprive the true plaintiffs of their chosen forum” (i.e., California). The court noted that “[t]he action was brought by a Connecticut insurance company to determine whether a Connecticut homeowner's insurance policy covers injuries that occurred in a Connecticut home. ' Under our law, a forum does not become inappropriate simply because the defendants would prefer to litigate elsewhere or because they would prefer to be the plaintiffs.”

While it was not the exclusive practice for insurers to seek a declaratory judgment before refusing to tender a defense or indemnify an insured, Nantes clears the way for a more aggressive, ex post facto use of declaratory judgment actions. This is particularly so as a remedy for actions in other states in which coverage is disputed, but for which Connecticut is a plausible forum ' because, for example, the insured premises are in Connecticut.

On the merits, the court gave a broad reading to its prior cases construing “arising out of” the use of a motor vehicle ' in particular, Hogle v. Hogle , 167 Conn. 572 (1975), which had held that a passenger's injuries in a car accident arose out of the use of a motor vehicle, even though the cause-in-fact of the accident was the driver's dog leaping from the backseat to the front and distracting the driver. 167 Conn. at 574, 576-79. The court held that even though Nantes had closed the garage door and thereby allowed the carbon monoxide to fill her house, the residents' injuries (including being dragged outside) had some “connection with” the act of parking her car. Therefore, all of those injuries arose out of the use of a motor vehicle and were excluded.

Interestingly, the court's specific holding ' that parking a car constitutes using it ' may prove less important than the issue that the court chose not to address: the viability of the “concurrent cause” doctrine in Connecticut. This doctrine “operates to extend coverage to a loss caused by the insured risk even though the excluded risk is a contributory cause, [when] a policy expressly insures against loss caused by one risk but excludes loss caused by another risk.” 303 Conn. at ___ (quoting Estate of Jones v. Smith , 320 Wis. 2d 470, 475-76 (App.), review denied , 321 Wis. 2d 49 (2009)). However, the court chose not to “resolve the more fundamental question of whether the doctrine of concurrent causes is a doctrine recognized under this state's common law[,]” because Hogle controlled the outcome.

Insurer Can't Deny Coverage on One Ground and Reserve the Right to Deny Coverage on Other Grounds

The Supreme Court of Georgia recently held that an insurer waived its right to assert a defense based on untimely notice where it did not properly alert the insured that the lack of timely notice would be a potential bar to coverage. In reversing a Georgia Court of Appeals ruling regarding the insurer's duty to defend, the Supreme Court held that an insurer was not permitted to deny coverage on one ground and also reserve the right to deny coverage on other grounds. Hoover v. Maxum Indemnity Company, 2012 WL 2217040 (Ga. June 18, 2012).

James Hoover (“Hoover”) sued his employer Emergency Water Extraction Services, LLC (“EWES”) after sustaining serious injuries from falling off a ladder at work. A month after the complaint was filed, EWES first provided notification of the occurrence to its commercial liability insurer, Maxum Indemnity Company (“Maxum”). Maxum denied any obligation for defense and indemnification, but solely on the basis of an Employer's Liability exclusion in the policy. However, Maxum reserved its rights to deny coverage on several other grounds, including “that coverage for this matter may be barred or limited to the extent the insured has not complied with the notice provisions under the policy.”

Maxum filed a declaratory judgment action against EWES but did not mention failure to provide timely notice as a reason for it denying coverage. Rather, Maxum relied solely on the Employer's Liability exclusion. This action was dismissed when the court held that Maxum could not seek declaratory judgment after denying coverage.

After obtaining a $16.4 million judgment against EWES, Hoover brought a claim in assignment against Maxum, alleging breach of the duty to defend and seeking indemnification. In this action, Maxum asserted a late notice as a defense. The trial court held that EWES failed to provide timely notice of the occurrence but that Maxum had nevertheless breached its duty to defend EWES in the underlying litigation.

The Court of Appeals held that EWES had failed to give timely notice as required by the policy, and therefore, Maxum was not obligated to defend or indemnify. The court rejected Hoover's contention that Maxum waived its policy defense regarding notice by only reserving, and not asserting it as a ground for the denial of coverage in its denial letter. Since EWES had failed to provide timely notice as was required by the policy, Maxum had no duty to defend.

Reversing the Court of Appeals, the Georgia Supreme Court held that Maxum had waived its right to assert a late notice defense and, therefore, could no longer deny a duty to defend on that ground. The court held that Maxum could not both deny the claim on one ground and reserve its right to deny on other grounds at a later date. Rather, the proper procedure in such situations is for an insurer to defend the insured under a reservation of rights and to then file a declaratory judgment action to determine its coverage obligations under the policy. The court reasoned that the purpose of the reservation of rights is to protect the insurer and insured by allowing the insurer to investigate the claim to determine its obligations while not forfeiting its right to ultimately deny coverage. The court held that it was not the purpose of a reservation of rights to allow an insurer to deny coverage and then continue its investigation into other reasons for denial to use if challenged on the first denial.

The court further held that even if Maxum could deny coverage on one ground, while simultaneously reserving its rights on others, Maxum's attempt to reserve its rights was defective because it was ambiguous and did not fairly inform EWES of Maxum's position. The court explained that Maxum did not clearly put EWES on notice that Maxum intended to pursue a late notice defense because it used “boilerplate language” in its denial letter in an attempt to reserve the right to assert a slew of other defenses at a later date. According to the court, after Maxum denied the claim this should have been the end of the matter, and Maxum would have had no need to further investigate or obtain additional information unless it was served with a third-party complaint in favor of coverage. Construing liberally in favor of EWES, the court held that Maxum's purported “reservation of rights” was invalid.

Three justices concurred in part and dissented in part to the decision. In their opinion, Georgia law did not stand for the broad proposition that an insurer cannot both deny a claim and reserve the right to assert other defenses at a later date. Rather, the proper rule is that an insurer only implicitly waives a late notice defense when it is aware of a late notice problem and continues to proceed as if there is no intention to enforce the notice provision in the policy. The justices noted, though, that applying this rule to the case at hand did not affect the outcome because there was at least some evidence that Maxum intended to waive the late notice defense when it did not include the defense in its declaratory judgment action.

Finally, these three justices also disagreed with the majority's opinion that Maxum's reservation of rights was defective. They reasoned that absent a statement or conduct by the insurer evidencing an intent to waive, the “mere assertion” of a single defense does not necessarily waive other possible defenses.

Daniel J. Krisch, a partner at Halloran & Sage LLP in Hartford, CT, contributed the first Case Brief. His practice focuses on appellate litigation, insurance coverage and complex civil litigation. Mia Finsness, an associate at Clyde & Co US LLP, contributed the second Case Brief. This Case Brief contains the personal views of the author only. The content does not necessarily represent the views of the firm or its clients.