Liberty Mutual Insurance v. Pella Corp.
2011 U.S. App. LEXIS 17136
| 8th Cir. | 2011Background
- Liberty Mutual sued for declaratory judgment to determine if it must reimburse Pella's defense costs under Liberty Mutual's GCL policies for two underlying suits.
- Two class actions, Pappas and Saltzman, alleged defective windows causing water intrusion and damages; Pella had no other insurance during the policy period (2000–2006) except pre-2001 carriers providing defense costs under separate agreements.
- ALAE endorsements in the policies governed reimbursement of defense costs; self-insured amount and whether reimbursement is in excess of other insurance shaped Liberty Mutual's duties.
- District court held Liberty Mutual had a contemporaneous duty to reimburse defense costs in excess of the self-insured amount so long as the underlying suits alleged a potentially covered occurrence.
- Court also addressed whether Liberty Mutual's coverage was excess over other insurance and whether the two suits alleged an occurrence or only damage to Pella's products/windows, following Iowa law on interpretation of insurance contracts.
- Pella cross-appealed, asserting bad-faith denial of coverage; district court granted summary judgment for Liberty Mutual on bad-faith claim and limited defense-cost recovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do policies require an established occurrence for reimbursement? | Pella contends reimbursement is contemporaneous upon allegations of an occurrence. | Liberty Mutual argues reimbursement only after an occurrence is established. | Ambiguity exists; reimbursement may occur based on allegations, not solely after establishing occurrence. |
| Are Liberty Mutual policies excess over other insurance or primary with other-insurance provisions? | Liberty Mutual is not excess over pre-2001 insurance; it may be primary. | Liberty Mutual argues policies are true excess over all other insurance. | Policies are primary with an other-insurance provision, not true excess; does not require exhaustion of all other coverage before reimbursement. |
| Do Pappas and Saltzman suits allege an occurrence or only defective-workmanship/property-damage? | Suits involve property damage and latent defects; allegations potentially within coverage. | Suits rest on fraud/defect claims not constituting an occurrence. | Under Iowa law, alleged defective workmanship leading to damage does not constitute an 'occurrence'; no duty to reimburse defense costs. |
| Did Liberty Mutual act in bad faith in denying coverage? | Pella asserts bad-faith denial regardless of grounds; insurer must act in good faith. | Liberty Mutual had reasonable bases (occurrence and other-insurance interpretations) for denial. | Court upheld summary judgment for Liberty Mutual; denial had a reasonable basis; no bad-faith liability. |
Key Cases Cited
- Emp'rs Mut. Cas. Co. v. Cedar Rapids Television Co., 552 N.W.2d 639 (Iowa 1996) (duty to defend depends on allegations that arguably fall within coverage)
- Pursell Constr. Inc. v. Hawkeye-Sec. Ins. Co., 596 N.W.2d 67 (Iowa 1999) (defective workmanship not an occurrence; 'accident' implies misfortune with damage)
- W.C. Stewart Construction, Inc. v. Cincinnati Insurance Co., 770 N.W.2d 850 (Iowa Ct.App. 2009) (reiterates Pursell framework for occurrence and damaged work)
- LeMars Mut. Ins. Co. v. Farm & City Ins. Co., 494 N.W.2d 216 (Iowa 1992) (true excess vs primary policy; factor-based assessment of policy structure)
- Nat'l Sur. Corp. v. Ranger Ins. Co., 260 F.3d 881 (8th Cir. 2001) (interpretation of 'other insurance' provisions under Iowa law)
- McCuen v. Am. Cas. Co. of Reading, Pa., 946 F.2d 1401 (8th Cir. 1991) (duty to reimburse defense costs aligns with defense duties)