A federal judge has ruled that Interstate Fire & Casualty Co. and Fireman’s Fund Insurance Co. must cover a $25.5 million punitive damages award against an apartment complex’s owner and manager in an underlying carbon monoxide poisoning case. U.S. District Judge Alan B. Johnson granted Apartment Management Consultants LLC (AMC) and Sunridge Partners LLC’s motion for summary judgment and denied the insurance companies’ opposing motion, holding that the insurers were precluded from relying on a punitive damages exclusion in the relevant policies because of Interstate’s failure to timely issue a reservation of rights. The judge wrote:
The court finds that [the insurers] may not assert noncoverage as a defense to the claim and they are precluded from raising the punitive damages exclusion as a means of avoiding or denying indemnity.
Sunridge owns an apartment complex in Casper, Wyo., that AMC manages. A former tenant, Amber Nicole Lompe, filed suit against Sunridge and AMC in May 2012, claiming she suffered injuries when she was exposed to carbon monoxide in her apartment. A federal jury in December found Sunridge and AMC negligent and awarded Ms. Lompe $2.7 million in compensatory damages and $25.5 million in punitive damages.
Sunridge and AMC were covered under a primary and an excess policy issued by Interstate and an excess policy from Fireman’s Fund from March 31, 2010, to March 31, 2012. Interstate initially accepted the companies’ tender of the defense in the underlying suit and later reserved its rights on the issue of punitive damages in November 2013, several days before trial. Shortly after the jury returned its verdict, Interstate and Fireman’s Fund filed the instant suit, seeking a declaration that they don’t have to pay any punitive damages in the Lompe lawsuit.
The insureds continued in their summary judgment motion that the insurers were estopped from denying coverage for the punitive damages award because Interstate had not reserved the right to deny coverage. In their motion, the insurance companies sought a declaration that the policies provide no coverage for the award and that they aren’t estopped from relying on the punitive damages exclusion. Judge Johnson said in his order that it can’t be “meaningfully disputed” that the insurers were on notice that punitive damages would be sought in the underlying action from the time that the complaint was filed in May 2012.
The decision points out that while Wyoming law generally doesn’t allow the doctrines of estoppel and waiver to be used to expand a policy’s coverage, such rules are frequently subject to exceptions. Judge Johnson said he had “little difficulty” in applying an estoppel exception in the instant case to prevent Interstate and Fireman’s Fund from denying coverage. The insurers showed a “complete disregard” of their insureds’ exposure to punitive damages, the judge said, noting that they didn’t heed Sunridge and AMC’s pleas to settle the case within the policy limits.
Allowing the insurers to escape coverage by virtue of the November 2013 reservation of rights letter, after nearly 19 months of “lurking in the bushes” following the filing of the underlying complaint, would be “manifestly unfair and egregious,” Judge Johnson said. “Sunridge and AMC were lulled into a false sense of security when Interstate defended without a reservation of rights, although it could have made an explicit reservation of rights and agreed to provide a conditional defense as early as May of 2012,” the judge wrote. He added that since the excess policies adopt the terms and conditions of Interstate’s primary policy, they cannot exclude coverage based on the punitive damages exclusion either. I must say that I enjoyed reading the judge’s comments because he clearly realized that the insurance companies were dead wrong in trying to avoid their contractual and legal obligations to the insureds.
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.