Insured’s Failure to Cooperate Dooms Judgment Creditor’s Claim against Insurer

September 30, 2012 | Insurance Coverage

Kings Sports, Inc., which advertised and sold golf clubs online, was sued by Roger Cleveland Golf Company, Inc., for allegedly violating Cleveland Golf’s trademarks by advertising and selling golf clubs that looked like clubs it manufactured but that actually were not manufactured by it or with its permission. State Farm Fire and Casualty Company, Kings Sports’ insurer, attempted to contact Kings Sports and its owner by phone, only to learn that its number was no longer in service. State Farm also sent numerous letters to Kings Sports requesting contact about the claim and advising that failure to communicate or cooperate could result in a denial of coverage. In addition, a claims representative visited Kings Sports’ business address, only to find the space vacant. State Farm made multiple phone calls to all known phone numbers, and sent email messages to Kings Sports, but had no success in reaching the company or its owner.

In the meantime, an employee of Kings Sports entered into a settlement agreement with Cleveland Golf, agreeing to a $1 million judgment, which he executed as the “owner” of Kings Sports. Cleveland Golf agreed not to pursue Kings Sports for the amount of the judgment but only to seek to collect from State Farm. 

State Farm filed a complaint seeking a declaratory judgment against Kings Sports and Cleveland Golf. Cleveland Golf counterclaimed, arguing that State Farm had breached its duty to defend Kings Sports with respect to Cleveland Golf’s suit. The district court ruled in favor of State Farm, and Cleveland Golf appealed.

The Eleventh Circuit affirmed. It found that “no fair minded jury” could conclude from the evidence that State Farm had acted other than diligently and in good faith in its effort to secure information from Kings Sports and its owner and to provide a defense of the lawsuit filed by Cleveland Golf. The circuit court then ruled that because Kings Sports and its owner had failed to cooperate in the defense of that lawsuit, notwithstanding State Farm’s efforts, recovery on the policy was foreclosed for Kings Sports, its owner, and, by extension, Cleveland Golf. Accordingly, the Eleventh Circuit upheld the district court’s decision to award summary judgment in favor of State Farm.

The case is State Farm Fire and Cas. Co. v. Kings Sports, Inc., No. 11-16169 (11th Cir. Sept. 4, 2012).

New & Noteworthy

Circuit Court Rejects Contention that Insurer Waived Right to Deny Coverage

After Connie King’s teenage son was in an automobile accident, her health insurer denied coverage based on two policy exclusions. She sued, arguing that the insurer had waived its right to deny coverage because it had paid some expenses from the accident as well as prior excludable losses. The district court ruled in favor of the insurer, and the U.S. Court of Appeals for the Fifth Circuit affirmed. The circuit court first noted that it was undisputed that the policy exclusions applied to the accident. It then ruled that because waiver would change the terms of the policy to bring within coverage a loss or risk that the policy expressly excluded, the district court had correctly concluded that Ms. King’s waiver argument was without merit. King v. Freedom Life Ins. Co., No. 11-60862 (5th Cir. Aug. 21, 2012).

Total Pollution Exclusion Bars Coverage of Claim Arising from Carbon Monoxide Poisoning

A boat owner died from carbon monoxide poisoning and his wife sued the mechanic who had repaired the boat, contending that he had neglected to cover the exhausts for the starboard engine. The insurer that had issued the mechanic a commercial general liability insurance policy went to court, seeking a determination that it was not obligated to defend him. The district court agreed with the insurer, and the wife appealed. The circuit court affirmed the district court’s decision, finding that the policy’s total pollution exclusion clause barred coverage. The circuit court explained that there was no language in the policy that restricted application of the exclusion to “traditional” environmental pollution. Because the boat owner died from carbon monoxide poisoning, his wife’s claim was barred from coverage by the total pollution exclusion, the circuit court concluded. Scottsdale Ins. Co. v. Pursley, No. 11-12808 (11th Cir. Aug. 20, 2012).

Share this article:

Related Publications


Get legal updates and news delivered to your inbox