The Complex Insurance Coverage Reporter

TOP DEVELOPMENTS

“ARISING OUT OF”

Rowe v. State Mut. Ins. Co., 2025 Me. LEXIS 89 (Me., Sept. 23, 2025)

Maine Supreme Court, in the premises liability context, holds that an exclusion in a mobile homeowners policy for injury or damage “arising out of a premises . . . that is not an ‘insured location’” precluded coverage for underlying negligent failure-to-warn claims. The court looked to authority from a workers  compensation case, where it stated that “the term ‘arising out of ‘employment means that there must be some causal connection between the conditions under which the employee worked and the injury, or that the injury, in some proximate way, had its origin, its source, or its cause in the employment. . . . [T]he employment need not be the sole or predominant causal factor for the injury and . . . the causative circumstance need not have been foreseen or expected.” In this case, it found there to be “an immediate relationship between the injury and a condition of the uninsured premises” (specifically, a gap created by the owner-insured at the entrance to a mobile home), and rejected the claimant’s argument that the injury instead arose from the insureds’ negligent conduct in failing to warn. Separately, the court held that the property did not qualify as an “insured location,” reasoning it was not listed in the declarations and there was no evidence the insureds had resided there or acquired it for use as a residence.

PRIMARY-UMBRELLA POLICY CONFLICT

Georgetown Chicken Coop, LLC v. Grange Ins. Co., 2025 Ky. LEXIS 202 (Ky., Sept. 18, 2025)

Kentucky Supreme Court holds that a commercial umbrella policy (CUP) endorsement excluded coverage for underlying dram shop claims, notwithstanding that the insured’s primary businessowners policy (BOP) afforded liquor liability coverage. The CUP jacket contains (1) a liquor liability exclusion (Exclusion C), which states the exclusion does not apply where “valid ‘underlying insurance ‘for the liquor liability risks described above exists”; and (2) an endorsement (CU 47) providing that Exclusion C is “replaced by the following . . . .” The court concluded that CU 47 unambiguously replaced all of Exclusion C, including the exceptions that would have preserved coverage, and not just the exclusionary portions as the insured had argued. This conflict with the primary policy did not alter the outcome. According to the court: “Though the BOP and the CUP are related, they are separate policies, so we need only look to the four corners of the CUP for our analysis. The CUP must be enforced as written, otherwise [the insured] would be extended insurance coverage beyond the bargained-for terms.”

CASES TO WATCH

Second Green Mt. Townhouse Corp. v. Mesa Underwriters Specialty Ins. Co., 2025 U.S. Dist. LEXIS 190807 (D. Colo., Sept. 27, 2025)

Colorado federal trial court, on summary judgment, dismisses an assignee-plaintiff’s claims alleging breach of contract and “bad faith” against a liability insurer, reasoning that the insured’s purported assignment of its rights to the plaintiff under a Nunn agreement* was collusive. The court explained: “Collusion may be found where the evidence demonstrates an absence of conflicting interests – the ‘lack of opposition between a plaintiff and an insured that otherwise would assure that the settlement is the result of hard bargaining.’” It cited the following discussion of “some hallmarks of collusion”:

Any negotiated settlement involves cooperation to a degree. It becomes collusive when the purpose is to injure the interests of an absent or nonparticipating party, such as an insurer or nonsettling defendant. Among the indicators of bad faith and collusion are unreasonableness, misrepresentation, concealment, secretiveness, lack of serious negotiations on damages, attempts to affect the insurance coverage, profit to the insured, and attempts to harm the interest of the insurer. They have in common unfairness to the insurer, which is probably the bottom line in cases in which collusion is found. [Emphasis added.]

Here, the court found collusion “not hard to spot,” given that:

• the insured did not negotiate the alleged damages in the Nunn agreement;
• the insured agreed to pay millions of dollars in legal fees that were not recoverable in the underlying litigation;
• eight days before signing the agreement, the plaintiff offered to settle for $3 million and then, without negotiation, the insured agreed to pay 347% more;
• the insured appeared to have meritorious defenses (including a $1.5 million counterclaim, supported by opinions from two experts) and numerous affirmative defenses, and had already obtained dismissal of one plaintiff’s claims; and
• the recitals in the agreement, which were one of the only aspects the insured apparently did negotiate, “suggest an attempt to influence insurance coverage and harm [the insurer’s] interests.”

Based on this “undisputed evidence,” the court concluded the insured “did not negotiate the settlement amount at all and the Nunn Agreement was the result of collusion.”

The court recently granted the insured’s motion to extend the time to file a notice of appeal to November 28, 2025.

* The court explained that, under a Nunn agreement, “an insured assigns its bad faith claims to a third party in exchange for the third party’s agreement to pursue the insurer directly for payment of an excess judgment rather than the insured.”