Mississippi Court Holds Insurance Broker Testimony Not Professional Services

In its recent decision in Henson v. United States Liability Insurance Company, 2012 U.S. Dist. LEXIS 101963 (N.D. Miss. July 23, 2012), the United States District Court for the Northern District of Mississippi had occasion to consider the boundaries of what constitutes professional services under an insurance broker’s errors and omissions policy; in particular, whether giving deposition testimony constitutes “professional services.”

The insured, Mid-Delta Insurance Agency, was insured under a professional liability policy issued by Lloyd’s for the period October 8, 2009 to October 8, 2010.  The policy had a retroactive date concurrent with the policy’s inception, meaning that the insured had no coverage for wrongful acts committed prior to October 8, 2009.  

At issue was coverage for the insured’s alleged error in applying for a client’s insurance policy in June 2009.  The coverage was placed with Republic Insurance Company, but Republic later denied coverage for a significant loss on the basis of misrepresentations contained in the policy application.  Mid-Delta was sued by its client for its alleged errors, and Mid-Delta thereafter sought a defense under the Lloyd’s policy.  Lloyd’s denied coverage on the basis that the wrongful act happened prior to the policy’s retroactive date.  Mid-Delta nevertheless argued coverage was triggered because the individual broker responsible for completing the application with Republic made statements in a January 2010 examination under oath (“EUO”) taken by Republic that formed part of the basis for Republic’s decision to deny coverage.  Mid-Delta, therefore, contended that it was the examination under oath that was the “wrongful act” and that the broker’s testimony at the EUO constituted “professional services.”  Lloyd’s argued, on the other hand, that it was the June 2009 completion of the Republic application that was the “wrongful act,” not testimony given at an EUO used to confirm a “wrongful act.”

In analyzing this issue, the court looked to the policy definition of “professional services,” which was defined in pertinent part as “services the Insured performs for others in their capacity as a licensed agent or broker, general agent, managing general agent or underwriter, program administrator …” and included specific services such as consulting, appraising real estate, benefits counseling, premium financing, notary public, serving as an expert witness, e-commerce services, and risk management.  Noting that this definition was specifically detailed, the court concluded that giving testimony in an EUO did not constitute professional services, stating:

Henson did not give his sworn statement while marketing, selling, or serving insurance products.  Instead Henson answered questions regarding his alleged errors in completing  [the] insurance application.   Henson was not providing professional services; he was making statements about events which transpired in June 2009.  The court cannot conclude that testifying about an insured’s allegedly wrongful act is in itself a wrongful act or professional service covered by the E&O policy.

Having concluded as such, the court went on to address whether the October 8, 2009 retroactive date in the policy was proper.  Mid-Delta showed evidence that it had requested to purchase prior acts coverage.  Lloyd’s, however, had rejected this request since Mid-Delta had allowed its prior professional liability to lapse.  The court found Lloyd’s decision in this regard reasonable, and observed that Mid-Delta could have avoided a gap in its coverage by purchasing an extended reporting period from its prior carrier.  In passing, the court noted that as an insurance-related company, Mid-Delta “should have known that the [Lloyd’s] E&O policy did not provide coverage for prior acts.”

10th Circuit Holds Food Poisoning Claims Arose Out of Single Occurrence

In its recent decision in Republic Underwriters Ins. Co. v. Moore, 2012 U.S. App. LEXIS 14907 (10^th Cir.), the United States Court of Appeals for the Tenth Circuit, applying Oklahoma law, had occasion to consider whether numerous incidents of food poisoning was the result of a single occurrence or multiple occurrences.

The coverage dispute related to a ten-day period in 2008 during which the insured, The Country Cottage Restaurant, prepared and served E. coli-contaminated food, causing 341 persons becoming sickened, one of which resulted in a fatality.  Notably, The Country Cottage prepared and served a portion of this food  away from its restaurant at a church function.  This event resulted in 21 persons becoming infected.  All other affected individuals were sickened as a result of having eaten food prepared at Country Cottage’s restaurant.

The Country Cottage had primary coverage through Republic Underwriters, with limits of liability of $1 million per occurrence and $2 million in the aggregate, with a separate $2 million aggregate limit applicable to products/completed operations.  The Country Cottage also had an excess policy through Southern Insurance Company with limits of liability of $2 million per occurrence and in the aggregate.   The insurers filed an interpleader action and argued that the various bodily injuries all happened out of a single event; namely, “Country Cottage’s preparation, handling or storage of food that purportedly became contaminated with E. coli.”  Thus, insurers, argued, all injuries arose out of a single occurrence, and as such, only $3 million in total insurance proceeds were available for the losses ($1 million per occurrence limit under the Republic Underwriters’ policy and $2 million under the Southern policy).  The individual claimants argued on the other hand that the E. coli outbreak could have resulted from a number of factors, such as contamination by the food handlers and cross-contamination from various sources.  Given these uncertainties, they argued, the court must find multiple occurrences based on the number of possible causes.  Certain claimants also argued that each individual sale of contaminated food constituted a separate occurrence.

The lower court concluded that there were two occurrences in light of the “geographical distinction” between the two places of food preparation: the restaurant and the church.  Citing to its decision in Business Interiors, Inc. v. Aetna Casualty & Surety Co., 751 F.2d 361 (10^th Cir. 1984), however, the Tenth Circuit disagreed.  In Business Interiors, the court considered a situation in which a dishonest employee forged or altered forty separate checks.  The Tenth Circuit concluded that cause of the insured’s loss was the “continued dishonesty” of a single employee and could not be considered multiple, independent acts.  The court found this reasoning applicable to Country Cottage’s food preparation:

Here, all the injuries were proximately caused by the restaurant’s ongoing preparation of contaminated food.  Hence, there was but one occurrence.  It does not matter that the food was served with other food items prepared at another location because the contamination originated at the restaurant.  Nor does it matter that the precise underlying cause of the contamination is unknown because the fact remains that the contamination originated at the restaurant.   

Thus, finding that all injuries were caused by Country Cottage’s “ongoing preparation of contaminated food,” the court concluded that the number of locations at which the food was prepared or served was not a relevant consideration.  Instead, the injuries arose out of a single occurrence, thus triggering only a single occurrence limit under the Republic policy.

California Court Holds No Coverage Under GL Policy for Professional Advice

In its recent decision in Aquarius Well Drilling, Inc. v. Am. States Ins. Co., 2012 U.S. Dist. LEXIS 9854 (E.D Cal. July 16, 2012), the United States District Court for the Eastern District of California had occasion to consider whether a claim for damages arising out of the insured’s bad professional advice triggered coverage under a general liability policy.

Aquarius Well Drilling, a well drilling and well testing company, was sued for its alleged failure in properly testing a water well that “suddenly and unexpectedly ceased producing water” after purchased by Aquarius’ client.  The underlying complaint alleged that Aquarius “falsely represented the productivity of the well, and fraudulently concealed the actual condition of the well.”  The complaint also contained various allegations of negligence.  Aquarius’ general liability insurer, American States, denied coverage for the suit on the basis that it did not allege “property damage” arising out of an “occurrence.”  In particular, American States took the position that bad professional advice cannot constitute an occurrence under a general liability policy.  Aquarius, on the other hand, contended that American States at least had a duty to defend since the underlying complaint contained allegations of negligence; specifically, allegations of inadequate well testing and negligence misrepresentation.

The court observed that the underlying complaint alleged that Aquarius misrepresented the viability of the well and its history of water production.  The court further observed that the complaint contained allegations of fraud and of negligence.  These negligent claims, however, were for negligent misrepresentation and the theory that “Aquarius had a duty to perform a thorough test of the well, but failed to do so and failed to disclose the [well’s] actual condition.”  The court agreed with American States that the fraud claims did not allege an occurrence.  It also agreed that the negligence claims did not constitute an occurrence, explaining:

Similarly, the negligence claims allege that Aquarius's act of testing the well and reporting that it was producing twelve gallons per minute were deliberate and wilful acts, but, for the purposes of those claims, the Manleys assume Aquarius made honest mistakes. However, even if Plaintiffs' alleged errors were the result of simple negligence, the acts of testing and reporting the results of those tests were still deliberate and wilful acts and the Manleys' reliance was foreseeable: there was no "accident" or otherwise unexpected, unusual, and unforeseen result that accrued as the result of Aquarius's tests and report.

Additionally, citing to Ray v. Valley Forge Ins. Co., 77 Cal. App. 4th 1039 (Cal. App. 1999), the court agreed that a general liability carrier has no duty to defend claims for bad professional advice, since Aquarius intentionally gave the advice, even if unintentionally erroneous.  As the court explained:

Here, the Manleys allege that Aquarius was acting in its professional capacity by performing a well test and preparing a report that indicated the well produced twelve gallons of water per minute. As alleged, Aquarius intended that the Manleys rely on this information, even if it turned out later (as it apparently did) that the professional advice that Aquarius provided was in error. Because Aquarius's acts were deliberate, there was no accident, and therefore no duty to defend.

Florida Court Finds No Coverage for Chinese Drywall Claim

In its recent decision in First Specialty Insurance Corp. v. Milton Construction Co., 2012 U.S. Dist. LEXIS 97972 (S.D. Fla. July 16, 2012), the United States District Court for the Southern District of Florida had occasion to revisit the issue of whether the total pollution exclusion applied to a class action lawsuit alleging harms caused by Chinese drywall.

The insured, Milton Construction Company, was named as a defendant in a class action brought by homeowners alleging property damage and bodily injury as a result of the use of Chinese drywall in condominiums manufactured by Milton.  While the underlying suit was brought in Louisiana, the condominiums at issue were built in Florida.  Milton sought coverage under successive general liability policies issued by First Specialty, each of which contained total pollution exclusions precluding coverage for loss “arising out of, in whole or in part, the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.”  First Specialty denied coverage to Milton under both policies on the basis of this exclusion.

After determining that Florida law governed the coverage dispute, the court looked to Florida law governing the total pollution exclusion.  Citing to the Florida Supreme Court’s seminal decision in Deni Associates of Florida, Inc. v. State Farm Fire & Casualty Ins. Co., 711 So. 2d 1135 (Fla. 1998), the Milton court observed a consistently broad application of the total pollution exclusion in Florida, even to matters not traditionally thought to involve environmental or industrial pollution.  The court further observed that the decision in Deni served as the basis for decisions by the Southern District of Florida holding the exclusion applicable to Chinese drywall claims similar to those brought against Milton. See, e.g., Colony Ins. Co. v. Total Contracting & Roofing, Inc., 2011 U.S. Dist. LEXIS 120269 (S.D. Fla. Oct. 18, 2011); General Fidelity Ins. Co. v. Foster, 808 F. Supp. 2d 1315 (S.D. Fla. 2011).  The court found “these decisions well-reasoned and instructive,” explaining:

In this case, the sulfur compounds that exited the Chinese drywall allegedly caused "rapid sulfidation" to personal property, including home appliances, and "eye problems, sore throat and cough, nausea, fatigue, shortness of breath, fluid in the lungs, and/or neurological harm" to the homeowners. …  From these allegations, it is readily apparent that the drywall's release of sulfur compounds both contaminated and irritated people and things. Therefore, the sulfur compounds constitute "pollutants" and the Total Pollution Exclusion applies.

In reaching its decision, the court considered and rejected various arguments raised by Milton.  Among these assertions was that the underlying action did not specify whether the sulfur caused the loss or whether “it was in fact the Chinese Drywall that was causing the harm.”  The court concluded that on the contrary, the complaint clearly alleged that the installed drywall emitted injury-causing sulfur. The court also rejected Milton’s assertion that the exclusion “is overbroad and could lead to absurd results, if literally construed.”  In other words, Milton argued that the exclusion should be limited to traditional environmental pollution.  The court found this argument unavailing as well, explaining:

This argument is foreclosed by Deni Associates, wherein the Florida Supreme Court unequivocally stated: "[w]e cannot accept the conclusion reached by certain courts that because of its ambiguity the pollution exclusion clause only excludes environmental or industrial pollution." See Deni Associates, 711 So. 2d at 1138-39. … The cases upon which Milton relies, by contrast, apply Louisiana law, which is exactly the opposite of Florida's. In Deni Associates, the Florida Supreme held that the pollution exclusion was unambiguous, even while noting that a minority of jurisdictions, including Louisiana, had reached contrary conclusions. See Deni Associates, 711 So. 2d at 1137-39. Moreover, "the fact that different judges have reached different interpretations of similar policy language does not necessarily mean that the language is ambiguous."

Finally, the court rejected Milton’s argument that First Specialty had a duty to defend since it was possible that it would be required to perform destructive testing on the drywall, which could result in harm to other parts of the condos.  The court found that this argument made “no sense,” since the duty to defend is based solely on the allegations of the underlying complaint, which made no reference to destructive testing.  As the court explained “[i]f … the Louisiana plaintiffs have not sought compensation for destructive testing or cleanup, then obviously First Specialty would have no duty to defend against such non-existing allegations.”

Massachusetts Court Holds No Coverage for Withheld Employee Tips

In its recent decision in Berkshire-Cranwell Limited Partnership v. Tokio Marine & Nichido Fire Ins. Co., 2012 U.S. Dist. LEXIS 93635 (D. Mass. July 6, 2012), the United States District Court for the District of Massachusetts had occasion to consider whether claims brought by the insured’s employees for wrongful withholding of tips triggered coverage under general liability and/or employee benefit liability policies.

The insured, Cranwell Resort, is a resort spa in Lenox, Massachusetts.  It charged “service fees” at its restaurants and spa, but it was alleged that these service fees were not distributed to the employees that actually performed the services.  Cranwell was named as a defendant in two separate class actions lawsuits brought by employees alleging violations of Massachusetts Tips Act and Massachusetts’ Wage Act, as well as causes of action for breach of contract, conversion, and breach of the implied covenant of good faith and fair dealing.  For reasons not even clear to the court, Cranwell did not give notice of the suits to its insurers until almost three and a half years after the suits were filed.  Cranwell had two potentially responsive policies: both general liability policies with employee benefit liability (“EBL”) extensions.  Both insurers denied coverage on the basis that the claims were not covered, and that in any event, Cranwell failed to give timely notice of the suits.

In considering coverage under the policies’ general liability coverage, the court identified the key issue as whether the suits qualified as claims for “property damage,” defined in pertinent part as loss of use of tangible property.  The court observed that some courts, such as those in Nevada and Arkansas, have considered cash to constitute tangible property.  The court further noted, however, that in each of these cases, it was “conversion of actual paper currency.”  For instance, in Capitol Indem. Corp. v. Wright, 341 F.Supp.2d 1152 (D.Nev. 2004), when an employee of a group home instructed a resident with Alzheimers’s disease to withdraw money from an ATM, the court concluded that the converted funds constituted tangible property.  Likewise, in Hortica-Florists’ Mut. Ins. Co. v. Pittman Nursery Corp., 2010 WL 749368  (W.D.Ark. Mar 2, 2010), where a company manager required each employee to pay him $1,000 to retain their jobs, the court held that the payments constituted tangible property.

The court noted that the distinction between the facts involving Cranwell and those in Wright or Pittman was that the monies involved in latter cases were “misappropriated as a physical object.”  Such was distinguishable from cases involving conversion of “non-currency monies,” such as wages.  The court explained this difference:

When the Black and Wechter plaintiffs alleged that their tips, characterized as service fees were wrongfully converted, they were clearly alleging that Plaintiff took their money for its exchange value and not in the form of some physical object or objects.  There was, with perhaps an occasional exception, no physical handover of tangible currency from the employees to Plaintiff.  Instead, Plaintiff simply retained the service fees, diverting them into its general account.  In this circumstance, no “tangible property” was involved, no duty to defend arises, and no coverage adheres.

In reaching this conclusion, the court considered and rejected Cranwell’s argument that in some instances, guests at the resort paid the service fees in cash, and that in some instances, this cash was paid directly to the employees before being diverted to Cranwell’s general account.  The court concluded that there was no allegation that the service fee payments were ever “in the hands” of the plaintiff employees. The court further hel that the decisions in Wright and Pittman, relied on by Cranwell, were not controlling on a Massachusetts court, and strongly suggested that their reasoning was improper.

Having determined that the underlying suits did not allege “property damage,” the court considered Cranwell’s argument that the suits triggered its employee benefits liability coverage.  The court noted that while Cranwell’s two EBL policies contained slightly different definitions of “employee benefits,” both pertained to “fringe benefits,” such as health insurance or retirement plans.  Applying the principle of ejusdem generis, the court concluded that “a reasonable insured would find the list of fringe benefits under the definition of ‘employee benefits’ to be inclusive of only traditional health, welfare and retirement benefits, and exclusive of wages such as cash tips.” 

Finally, while not necessary to the court’s decision in light of its other findings, the court held that Cranwell’s delay in giving notice to its insurers vitiated its right to coverage.  During the three and a half year delay, the classes were certified in the two lawsuits, several motions and cross motions for summary judgment were made, and Cranwell had begun settlement discussions with underlying plaintiffs.  Under the circumstances, the court concluded that Cranwell’s insurers suffered “substantial prejudice,” as required by Massachusetts law.  As the court concluded, “the transit of both lawsuits was all but over before Defendants even learned of them.  In such a situation, it would be unfair to expect Defendants to step in at the last minute to shoulder settlement and defense costs without any opportunity to shape the course of litigation.”

Pennsylvania Court Addresses Application of Retroactive Date

In its recent decision in A.P. Pino & Associates, Inc. v. Utica Mutual Ins. Co., 2012 U.S. Dist. LEXIS 92472 (E.D.Pa. July 3, 2012), the United States District Court for the Eastern District of Pennsylvania had occasion to consider the application and enforceability of a retroactive date in a professional liability policy.

Utica Mutual insured A.P. Pino & Associates (“APA”) under two consecutive Life Insurance Agents and Brokers Errors and Omissions policies for the periods October 15, 2009 through 2010 and October 15, 2010 through 2011.  Both policies contained an October 15, 2009 retroactive date and stated that coverage was unavailable for wrongful acts that took place prior to this date.  

Prior to October 15, 2009, APA’s principal, Pino, was insured under a professional liability policy issued by a different carrier.  The named insured was Pino rather than APA.  It was only when Pino decided to grow his business and hire a number of producers that he decided to switch carriers and purchase a policy in APA’s name.  He claimed to have selected Utica because Utica offered prior acts coverage.  Such coverage, however, was not automatically granted.  Utica determined whether to offer prior acts coverage, or use a retroactive date, based on whether the insured was a new business entity or an entity with prior errors and omissions coverage.  Because APA had not previously been insured under a professional liability policy (i.e., because Pino’s prior coverage was in his name only), Utica decided to treat APA as a new business and thus issued the policies with a retroactive date concurrent with the inception of the first policy issued to APA, i.e., October 15, 2009. 

Although the retroactive date was fully disclosed in all phases of the underwriting for both policies (i.e., the quotes, binders, etc.) and was clearly identifiable in the policies themselves, Pino later claimed that he was not aware of the retroactive date, or its effect, until he later sought coverage for a loss.  The loss involved a lawsuit filed in November 2010 by an APA client arising out of Pino’s advice concerning life insurance.  Because the advice was given in Spring 2009, Utica denied coverage based on the October 15, 2009 retroactive date.  APA, nevertheless, argued that Utica had a duty to defend and indemnify APA based on its reasonable expectations that the policies issued by Utica provided prior acts coverage, or in the alternative, that the policies should be reformed to reflect these expectations.

The court agreed as an initial proposition that the retroactive date was clearly and unambiguously stated in the policy.  Pino’s assertion that he “did not read the policies” did not require the conclusion that Utica could not enforce the retroactive date.  As the court explained, “if a policy is ‘plain and free of ambiguity, and could have been readily comprehended by [an insured] had he chosen to read them,’ then the parties are bound by the signed agreement.” The court further held that the doctrine of reasonable expectations did not compel a different result, since the doctrine is limited to “unsophisticated non-commercial insureds” and only to protect insureds from deceptive language.  Noting that Pino was not an unsophisticated insured and that the retroactive date was not the result of insurer deception, the court found the doctrine inapplicable.

APA also argued that the policies should be reformed to provide the prior acts coverage it had requested when it applied for the initial policy.  Specifically, APA argued that a mutual mistake existed because APA was mistakenly treated by Utica as a new business enterprise.  The court rejected this argument on the basis that Utica’s treatment of APA as a new business was not based on a mistake, but rather based on APA’s lack of prior insurance coverage.  The court further rejected APA’s argument that there was a unilateral mistake on Utica’s part, explaining that:

While Plaintiffs may have been unilaterally mistaken that APA would receive prior acts coverage, Plaintiffs have not presented a scintilla of evidence that Utica engaged in either active fraud or had good reason to know of Plaintiff’s unilateral mistake, thereby precluding reformation of the policy.

7th Circuit Addresses Insured vs. Insured Exclusion

In its recent decision in Miller v. St. Paul Mercury Ins. Co., 2012 U.S. App. LEXIS 13298 (7^th Cir. June 29, 2012), the United States Court of Appeals for the Seventh Circuit, addressing Illinois law, had occasion to consider the application of an insured vs. insured exclusion in a D&O policy.

St. Paul’s insured, Strategic Capital Bancorp, Inc. (“SCBI”), was sued by five plaintiffs for alleged fraud, civil conspiracy, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.  Of these plaintiffs, three qualified as “insureds” under the St. Paul policy as former directors of SCBI.  The other two plaintiffs were never directors or officers of SCBI, nor did they otherwise qualify as insureds.  St. Paul denied coverage to SCBI for the lawsuit on the basis of an insured vs. insured exclusion barring coverage for “Loss on account of any Claim made against any Insured : … brought or maintained by or on behalf of any Insured or Company in any capacity … .”  On motion to dismiss, the United States District Court for the Central District of Illinois held in favor of St. Paul.

On appeal, the Seventh Circuit noted that insured vs. insured exclusions are standard in D&O policies and that were the underlying suit brought solely by former SCBI directors, the exclusion would operate to bar coverage.  Alternatively, were the underlying suit brought solely by non-insureds, it would not apply.  The dilemma presented to the court, therefore, was “how to apply the policy when insured and non-insured plaintiffs join their individual claims in one lawsuit.”

The court identified three potential ways to resolve this question.  The first would be that as long as at least one non-insured plaintiff is not part of the lawsuit, then the exclusion is inapplicable.  The court acknowledged that this “rule would produce arbitrary results depending on whether insured plaintiffs did or did not have a non-insured plaintiff join in the same lawsuit.”  Moreover, this rule “would also make it easy for insured plaintiffs to evade the terms and purposes of the insured vs. insured exclusion by recruiting just one non-insured plaintiff to join an otherwise collusive or intramural lawsuit.”  The second alternative, proposed by St. Paul, would be that the presence of one insured plaintiff voids coverage for the entire lawsuit, regardless of how many non-insured plaintiffs were in the lawsuit.  St. Paul, at oral argument, conceded that under this rule if a lawsuit is brought by ninety-nine non-insured plaintiffs, and just a single insured plaintiff, then coverage would be unavailable.  The court found this proposed resolution unavailing as well, explaining that it too invited “arbitrary results depending on whether many people with similar claims file one consolidated lawsuit or many separate lawsuits.”

In light of the arbitrariness of these two potential approaches, the court revisited its reasoning as set forth in Level 3 Communications, Inc. v. Federal Ins. Co., 168 F.3d 956 (7^th Cir. 1999), wherein the court required an allocation of indemnity and defense costs for a lawsuit brought by both insured and non-insured plaintiffs.  The Miller court found that this approach:

… minimizes the risk of arbitrary results and discourages efforts to manipulate the result by the ways in which individual claims happen to be combined or separated. This answer also has the advantage of conforming to the parties' reasonable expectations: the insurer owes no duty to indemnify for claims brought by insured plaintiffs but does owe that duty for claims brought by others.

The court observed that the St. Paul policy, similar to the policy in Level 3, required allocation of defense and indemnity costs between covered and non-covered claims.  A lawsuit brought by insureds and non-insureds, explained the court, presents a claim “that includes both covered and uncovered matters, depending on the status of the different plaintiffs” and thus, under the reasoning in Level 3, St. Paul owed a coverage obligation to SCBI for the claims brought by non-insureds, but not for those brought by insureds.

St. Paul argued that Level 3 was distinguishable on several grounds, none of which were persuasive to the court.  First, St. Paul argued that in Level 3, the insured plaintiff did not join the underlying suit until well after it had been filed.  The court, however, concluded that issues of timing, and which plaintiffs are part of the original pleading, are not valid considerations under Level 3.  St. Paul also advocated for a “majority” rule, under which the insured vs. insured exclusion would apply to an entire suit if the damages claimed by insured plaintiffs outweighed those claimed by non-insured plaintiffs.  The court rejected this theory as well, explaining that:

This proposed additional requirement for a majority of non-insured claimants or dollars has no basis in the St. Paul policy language. It would also invite similarly arbitrary results, depending again on whether insured and non-insured plaintiffs filed separate or joint complaints. What would happen if one or more plaintiffs settled so as to shift the balance one way or the other? And should the relevant majority be the number of claimants or the number of dollars? By contrast, the allocation provision in the St. Paul policy gives us a fairly clear answer: coverage is not all-or-nothing based on one of these (perhaps unstable) majorities. Coverage is allocated based on "the relative legal exposure of the parties to covered and uncovered matters."

Finally, St. Paul argued that certain exceptions to the insured vs. insured exclusion as stated in the policy, by negative implication, operated to bar coverage of an entire claim when it includes the “active” participation of any insured plaintiff, regardless of whether the other plaintiffs are insured or not.  The court rejected this argument as well, finding that the “exceptions provide no guidance on how to treat claims by non-insured plaintiffs who were never subject to the exclusion.”