ACCIDENTS OR OCCURRENCES
Arkansas utilizes an "objective" test in assessing whether a reasonable person in the circumstances of the insured would have "expected or intended" in the resulting harm. CNA Ins. Companies v. McGinnis, 282 Ark. 90, 666 S.W.2d 689 (1984). Claims of negligent supervision arising out of the insured's failure to properly supervise an employee who sexually abused children were held to constitute an "occurrence" in Silverball Amusement Co. v. Utahl Home Fire Ins. Co., 842 F.Supp. 1151 (W.D. Ark. 1994), aff'd per curiam, 33 F.3d 1476 (8th Cir. 1994). However, civil rights claims that the insured discriminated against the plaintiff on the basis of his race have been held not to constitute an "occurrence" given their intentional character. Entertainment Innovators, Inc. v. Scottsdale Ins. Co., 839 F.Supp. 654 (W.D. Ark. 1993). See also Commercial Union Ins. Co. v. Sky, Inc., 810 F.Supp. 249 (W.D. Ark. 1992)(sexual harassment was no "accident"). Further, the District Court ruled in Sky that the inclusion of claims based on negligent hiring and supervision did not trigger a duty to defend.
An exclusion for injuries intended by "any insured" precluded an innocent spouse's claim for coverage. Noland v. Farmers Ins. Co., 892 S.W.2d 271 (Ark. 1995).
A criminal acts exclusion in a homeowner's policy precluded coverage for an incident in which the insured's son accidentally shot the plaintiff, even though the State of Arkansas had never pressed criminal charges against Burrough or prosecuted him for the shooting, as his conduct was criminal in nature. Allstate Insurance Company v. Burrough, 1997 WL 408207 (8th Cir. July 23, 1997).
to injure may be inferred in cases of sexual assaults against minors, where
the insured's conduct is deemed inherently injurious as a matter of law.
ALLOCATION AND SCOPE ISSUES
“All sums” approach adopted by trial court in Murphy Oil USA, Inc. v. USF&G, Union No. 91-4392-2 (Ark. Cir. Ct. February 21, 1995).
Arkansas has only a state Supreme Court.
Unfair or deceptive consumer practices are proscribed by Ark. Code Ann. § 4-88-101 (Michie 1991). Unfair claims handling by insurers is regulated under Ark. Stat. Ann. § 66-3005 (1947).
To establish a claim for bad faith under Arkansas law, an insured must demonstrate that the insurance company engaged in affirmative conduct without a good faith defense. The insurer’s actions must be “dishonest, malicious, or oppressive in an attempt to avoid its liability under the insurance policy. Aetna Casualty & Surety Co. v. Broadway Arms Corp., 664 S.W.2d 463, 465 (Ark. 1984). An insurer’s refusal to pay a claim where a good faith dispute exists as to amount due is not bad faith. Stevenson v. Union Standard Ins. Co., 746 S.W.2d 39, 42 (Ark. 1988).
A third-party tort claimant has no right to assert bad faith claims against the tortfeasor’s liability insurer. Bell v. Kansas City Fire & Marine Insurance Company, 616 F. Supp. 1305 (W.D. Ark. 1985).
law, punitive damages may only be awarded based on conduct that is malicious,
wanton, in violation of a relationship of trust or confidence, or done
with a deliberate intent to injure another. Ray Dodge, Inc. v. Moore,
479 S.W.2d 518, 523 (Ark. 1972). In the insurance context, such damages
will only be awarded if the insurer has acted maliciously or with wanton
or willful disregard of the insured's rights and interests or in some perverse
manner. Carpenter v. Automobile Club Interinsurance Exchange, No.
94-1673 (8th Cir. July 3, 1995).
Held not to
encompass claims for mental distress. USF&G v. Shrigley, 26 F.Supp.
625 (W.D. Ark. 1939)(loss of consortium). Accord Entertainment
Innovators, Inc. v. Scottsdale Ins. Co., 839 F.Supp. 654 (W.D. Ark. 1993).
BREACH OF POLICY CONDITIONS
As timely notice is a condition precedent to coverage, there is no requirement to prove prejudice. Providence Washington Ins. Co. v. Yellow Cab Co., 331 F.Supp. 286 (W.D. Ark. 1971) and Hartford Acc. & Ind. Co. v. Loyd, 173 F.Supp. 7 (W.D. Ark. 1959). However, prejudice has been required under an excess policy. Campbell & Co. v. Utica Mut. Ins. Co., 820 S.W.2d 284 (Ark. App. 1991).
Circuit ruled in Vincent Soybean and Grain Company, Inc. v. Lloyd’s Underwriters
of London, No. 00-3053 (8th Cir. April 19, 2001) that a grain operator
waived any rights to coverage under a “seedsmen’s errors and omissions”
policy when he voluntarily entered into a settlement of a claim based upon
his negligent storage of the plaintiff’s seeds despite having previously
been advised by Lloyd’s that Condition 3B of the policy stated that the
insured should not admit liability for or settle any claim without Lloyd’s
written consent. In view of the fact that Lloyd’s had reserved its
rights and had told the insured that it would defend in the event that
he was sued, it had not acted in bad faith nor did any other basis
exist for excusing the insured’s violation of the cooperation clause in
BURDEN OF PROOF
Insured has the burden of establishing its right to recover under an insurance policy. Fort Smith Tobacco & Candy Co. v. American Guarantee & Liability Ins. Co., 208 F.Supp. 244 (W.D. Ark. 1962). Insurer must demonstrate applicability of policy exclusion. CNA Ins. Co. v. McGinnis, 663 S.W.2d 182, 10 Ark. App. 234 (1984) and U.S. Fire v. Reynolds, 667 S.W.2d 664, 11 Ark. App. 141 (1984).
There is little
or no Arkansas case law concerning the question of missing insurance policies.
In general, it appears that Arkansas follows the general rule that the
insured has the burden of proving the existence and terms of such a policy.
Bankers and Shippers Ins. Co. v. Murdock, 72 F.2d 292 (8th Cir. 1943).
Further, in the context of missing instruments, such as lost wills or deeds,
Arkansas courts have ruled that this burden must be satisfied by "clear
and convincing" evidence. Witt v. Graves, 787 S.W.2d 681 (Ark. 1990).
CHOICE OF LAWS
Arkansas courts will usually supply the substantive law of the state which "has the 'most significant relationship' to the outcome of the issues involved." Williams v. State Farm Mut. Auto. Ins. Co., 737 F.2d 741, 743 (8th Cir. 1984) and Snow v. Admiral Ins. Co., 612 F.Supp. 206, 209-10 (W.D. Ark. 1985). With insurance contracts, the relevant factors of the most-significant relationship test include: (1) where the policy was originated; (2) where it was negotiated; (3) where it was accepted, processed, executed, and renewed; (4) where the loss was reported and investigated; and (5) where the parties to the contract reside and/or do business.
It is important
to note, however, that Arkansas has not been completely consistent as to
the proper test to apply in conflicts cases involving contracts, including
insurance policies. See Bell v. Kansas City Fire and Marine Ins.
Co., 616 F.Supp. 1305 (W.D. Ark. 1985); Schlemmer v. Fireman's Fund Ins.
Co., 292 Ark. 344, 730 S.W.2d 217 (1987)(applying a choice-influence analysis
to choose state's law with better rule of law). Under a choice-influencing
analysis, the "considerations" are: 1) predictability of results;
2) maintenance of interstate and international order; 3) simplification
of the judicial task; 4) advancement of the forum government's interests;
and 5) application of the better rule of law. Bell, 616 F.Supp. at
1306. See also Snow, 612 F.Supp. at 208 (choosing state with better rule
CONFLICTS OF INTEREST
Where a conflict
of interest exists between the insured and the insurer, the insured may
select counsel of its own choosing. Northland Ins. Co. v. Heck's
Service Co., 620 F.Supp. 107, 108 (E.D. Ark. 1985) and Union Ins. Co. v.
The Knife Co., 902 F.Supp. 881 (W.D. Ark. 1995).
The Arkansas Supreme Court ruled in Unigard Security Ins. Co. v. Murphy Oil USA, Inc., 331 Ark. 211, 962 S.W.2d 735 (1998) that a verdict against the insured for punitive damages and a breach of contract involving the insured's use of the plaintiff's property failed to seek "damages" because of property damage. In its January 29, 1998 opinion, the court held that the underlying judgment was not sums that the insured was legally obligated to pay as damages because of property damage. Rather, these were sums that were incurred because of the insured's breach of its lease agreement. The court opined that it might have reached a different result if the claims were based upon a tort claim arising out of contamination on the plaintiff's property. However, as that claim had been dismissed under the statute of limitations, the court refused to find that an action for breach of a lease agreement was covered. For similar reasons, the court ruled that the punitive damage award were not sums payable because of property damage but, rather, reflected the malicious and oppressive conduct of the insured in vacating the premises and concealing the contamination from the owner. A dissenting justice argued that there should have been coverage and because the claims plainly arose out of the presence of pollutants on the property.
A pro-insurer pollution ruling was appealed to the Arkansas Supreme Court but was stayed in January 1995 due to the insolvency of the sole remaining insurer. Grantors to the Diaz Refinery v. Employers National Ins. Co., 890 S.W.2d 259 (Ark. 1995).
Federal district courts have consistently ruled that insurers have no duty to defend or indemnify insureds for Superfund claims. Maryland Cas. Co. v. Grisham (W.D. Ark., January 6, 1989) and Parker Solvents Co., Inc. v. Royal Ins. Companies, Civil No. 89-2293 (W.D. Ark. July 2, 1990). Both cases have since been upheld by the 8th Circuit.
In Federated Rural Electric Ins. Corp. v. Arkansas Electric Cooperatives, 853 F.Supp. 308 (E.D. Ark. 1994), rev'd, 48 F.3d 294 (8th Cir. 1995), a federal court dismissed a pollution claim on the basis that retaining diversity jurisdiction would prevent state courts from ever having the opportunity to consider the meaning of "damages." On appeal, however, the 8th Circuit ruled that this concern did not rise to the level of "exceptional circumstances" needed to support federal abstention.
Court of Arkansas had held that a liability insurer may have an obligation
to defend a suit seeking injunctive relief, which is not covered under
its policy, where the suit also seeks recovery for attorney's fees and
other miscellaneous items that might be found to constitute "damages."
Home Indemnity Co. v. City of Marianna, 291 Ark. 610, 727 S.W.2d 375 (1987).
Note that the Arkansas legislature enacted a statute in February 1990 providing
that property owners could sue polluters for the cost of cleaning up contamination
on their own property and that such clean up costs would be deemed "damages."
DUTY TO DEFEND
defense obligation must be determined by considering both facts known to
the insurer as well as the complaint against its insured. Mattson
v. St. Paul Title Co., 277 Ark. 290, 641 S.W.2d 16 (1982) and Northland
Ins. Co. v. Heck's Service Co., Inc., 620 F.Supp. 107 (E.D. Ark. 1985).
ESTOPPEL AND WAIVER
Delay in raising
a coverage defense will not create an estoppel absent proof of prejudice
to the insured. Grain Dealers Mut. Ins. Co., v. Portia Grain Co.,
699 F.Supp. 1380 (E.D. Ark. 1988).
FIRST PARTY/PROPERTY INSURANCE ISSUES
Circuit has ruled in Oakley, Inc. v. Farmland Mutual Insurance Company,
No. 00-1655 (8th Cir. April 11, 2001) that the insured’s soybeans that
had to be discarded because they were charred and blackened due to heat
that had generated from mold and fungus were covered under the insured’s
first party policy. Even though the policy excluded losses caused
by or resulting from mold, the court ruled that the claim fell within the
exclusion’s exception for ensuing fire. In any event, the court ruled
that the exclusion would not defeat coverage since the soybeans were damaged
by heat which is not excluded from coverage.
NUMBER OF OCCURRENCES
The leading case remains Travelers Indemnity Co. v. Olive's Sporting Goods, 297 Ark. 516, 764 S.W.2d 596 (1989) in which the Arkansas Supreme Court adopted a "cause" test for determining the number of "occurrences", holding that numerous persons injured in shooting incident all relate to one "occurrence" (insured's sale of guns to perpetrator).
a federal district court has ruled that three separate hepatitis claims
involving contaminated food at a Taco Bell outlet all arose out of the
same "occurrence"-the insured's negligent handling and storage of food.
In Fireman's Fund Ins. Co. v. Scottsdale Ins. Co., 968 F.Supp. 444 (E.D.
Ark. 1997), Judge Roy rejected Fireman's Fund's contention that each sale
of contaminated food was a separate "occurrence" under Scottsdale's primary
policy or that the limits of coverage might be increased based upon the
fact that the food was consumed off premises and might therefore fall within
the $2 million "completed operations" aggregate. The court ruled
that the aggregate provisions of the policy might limit coverage in the
event of multiple "occurrences" but were irrelevant in view of his holding
that the claims involved a single "occurrence."
Court of Arkansas ruled in Minerva Enterprises, Inc. v. Bituminous Cas.
Corp., 312 Ark. 128, 851 S.W.2d 403 (1993) that the pollution exclusion
is only intended to apply to "industrial pollution" and refused to uphold
it in a case involving a claim against a mobile home developer for a sewage
tank back-up. Although the case involved the "absolute" pollution
exclusion, the court's analysis seems intended to apply also to earlier
forms of the exclusion. The court stated that the intent of the exclusion
would be to "prevent persistent polluters from getting insurance coverage
for general polluting activities, whether by the insured or a third party,
and was never intended to cover those who are not active polluters but
had merely caused isolated damage by something that could otherwise be
classified as a `contaminant' or `waste.'"
Court of Arkansas has allowed coverage for punitive damages. California
Union Ins. Co. v. Arkansas, Louisiana Gas Co., 264 Ark. 449, 572 S.W.2d
393 (1978). The court has previously found, however, that coverage
may not be permitted where said damages flow from intentional torts. Southern
Farm Bureau Cas. Co. v. Daniel, 246 Ark. 849, 400 S.W.2d 582 (1969).
STANDARDS FOR POLICY INTERPRETATION
A policy term
will only be deemed ambiguous if it is susceptible to more than one equally
reasonable interpretation. State Fire & Cas. Co. v. Amos, 798
S.W.2d 440 (Ark. 1990); State Farm Fire and Casualty Company v. Midgett,
892 S.W.2d. 469, 471 (Ark. 1995). If a term is unambiguous, its construction
is a question of law for the court to decide. Hartford Fire Insurance
Company v. Carolina Casualty Insurance Company, 914 S.W.2d. 324, 326 (Ark.Ct.App.
1996). However, if a policy term is defined in the policy, a court
may not substitute a contrary interpretation based upon its common and
ordinary meaning. Enterprise Tools, Inc. v. Export-Import Bank of
U.S., 899 F.2d 437 (8th Cir. 1986).
THEORIES OF ALTERNATIVE LIABILITY
Market share claims were rejected against lead paint manufacturers in Davis
v. Dupont, 729 F. Supp. 652 (E.D. Ark. 1989).
TRIGGER OF COVERAGE