Gas on the Fire: First Circuit's Homeowner's Insurance Carrier Decision After a "Conflagration"

"It seems self-evident that a story which involves throwing gasoline on a smoldering fire is unlikely to have a happy ending. That is true here, but the parties to this appeal have sifted through the embers and identified what some might regard as an oxymoron: an interesting insurance coverage question." - Vermont Mutual Insurance Company v. Andrew Zamsky

In a decision issued on October 9, 2013, the First Circuit Court of Appeals ruled that a homeowner’s insurance carrier owed a duty to defend and indemnify its insured against personal injury claims arising from an accident occurring on uninsured property owned by the carrier’s policyholder.  In Vermont Mutual Insurance Company v. Andrew Zamsky,  the defendant, Andrew Zamsky, was an insured under three homeowner’s policies issued to his parents by Vermont Mutual.  The three policies, on three different properties owned by Zamsky’s parents, required Vermont Mutual to defend and indemnify all insured persons for claims for “bodily injury” caused by a covered “occurrence.”   Zamsky’s parents also owned a fourth property that was not insured.   Unfortunately, the injury occurred on the uninsured property.

One evening in the fall of 2008, Zamsky, his girlfriend, and several of their friends drove to the uninsured property and decided to make an outdoor fire. One of the friends retrieved a portable fire pit from a shed on the property, and they placed it on a deck attached to the house.  They tried to start a fire, but the wood was damp and would not stay lit.  Another friend then grabbed a container of gasoline and poured it on the fire.  As the First Circuit explained, the “consequent conflagration set at least three of the assembled persons aflame.”  One of them, Zamsky’s girlfriend, was badly burned.  She eventually sued, asserting “a golconda of negligent acts and omissions.”   Vermont Mutual provided Zamsky with a defense to the litigation under a reservation of rights but, while that case was still pending, filed a declaratory judgment (“DJ”) action in Massachusetts Federal Court, seeking a determination that it was not required to defend or indemnify Zamsky under the policies.

In the DJ action, Vermont Mutual relied on an “uninsured location” exclusion of the policies, which excluded coverage for any injury “arising out of a premises” owned by an insured, but that was not itself an “insured location.”  Vermont Mutual argued that, because the injury had occurred on the uninsured property, it was not required to either defend or indemnify Zamsky.

The First Circuit rejected Vermont Mutual’s argument.  The Court found that the “arising out of a premises” language was ambiguous, and it interpreted that provision to mean “arising out of a condition of a premises.”   Although the injury occurred on the uninsured property, it had not resulted from a “condition” of the uninsured property.   Because the injury resulted from events that occurred on the property, and not from any condition of the uninsured property itself, the Court held that the exclusion did not apply and that Vermont Mutual owed a duty to defend and indemnify Zamsky.

For more information on professional liability matters contact attorney Greg Moffett at 601-410-1500 or a member of Preti Flaherty's professional liability group.

The Nuts and Bolts of Accountants Liability Insurance

Most wise accountants purchase professional liability insurance to protect them against claims that may arise during the course of their professional duties.  This insurance will generally protect accountants regardless of whether the claims occur in the context of tax, planning, auditing, or other accounting work.  Nonetheless, Accountants Liability Insurance will not necessarily protect against all claims that can arise, and while insurance carriers are usually required to defend their insureds from claims that are even tangentially related to an accountants’ practice, the insurance carrier may not be required to pay any judgment or settlement that results.

Most policies exclude certain types of claims altogether.
Accountant’s professional liability policies cover only certain claims – typically described as claims for damages caused by any act, error, omission or personal injury arising out of the rendering of professional accounting services.  Should such a claim appear, consult your broker.  You may have other policies that could apply.  Your broker will tell you, though, that APL policies contain several specific exclusions from coverage.

Criminal and similar acts are excluded.
Physically or sexually assaulting a client does not constitute “professional services.”  Defrauding a client with a Ponzi scheme or lying to a client about the returns an accountant failed to file will also likely fail the test of coverage.  If the claim includes these allegations, the insurer will probably defend the case but will otherwise reserve its rights.  A final adjudication of such wrongful acts will undo your coverage.

Contractual claims are excluded.
By including allegations of breach of contract, a claimant may benefit from a longer statute of limitations.  While many APL policies exclude “contractual liability,” the caselaw increasingly blurs the distinction between the actions.  Experienced attorneys for claimants take this into account when drawing up complaints.

Court Hears KPMG Auditor Liability Case: Erases $38 Million Dollar Judgment

The NJ Supreme Court recently overturned a $38 million dollar judgment against accounting giant KPMG, after the court found that an accountant cannot be liable to a third party absent actual and specific knowledge that the audit would be used by someone other than the client.  See Cast Art Industries v. KPMG (Feb. 16, 2012).

In a decision that clarified the scope of an accountant’s potential liability, the court ruled that, "An auditor is entitled to know at the outset the scope of the work it is being requested to perform and the concomitant risk it is being asked to assume." The Court’s ruling offers a long awaited limitation of liability for the accounting industry. 
Massachusetts, Maine, and New Hampshire already follow some form of the restatement (Second) of Torts approach which limits an auditor’s potential liability to the class of persons that the auditor has agreed may rely upon the auditor’s report.

For further information please contact Ken Rubinstein at (617) 226-3868 or learn more about his Professional Services law practice here.