The court determined the insurer must defend after confusion arose in renewal of the insured's policy. Nat'l Fire & Marine Ins. Co. v. Infini PLC, 2019 U.S. Dist. LEXIS 1052 (D. Ariz. Jan 3, 2019).
The insured, Infini, was insured by Lexington Insurance Company for medical procedures it performed. Wells Fargo Insurance Services was Infini's broker. On July 24, 2014, Well Fargo sent a renewal application to Infini. Several weeks later, Infini returned the application after crossing out certain kinds of liposuction - specifically liposelection and lipodissolve - because Infini did not perform these procedures. On the same page, the application noted that Infini performed large quantities of "local anesthesia lipo." Wells Fargo sent the handwritten application to Lexington's underwriter. A note signified that "the premium increase is due to the significant increase in exposures." But the coverage ultimately obtained did not included coverage for liposuction.
An Infini doctor performed a liposuction procedure on Donna Willis. After the procedure, she was hospitalized and required additional surgeries. Ms. Willis filed suit against Infini. Lexington informed Infini that the new policy did not cover injuries caused by liposuction and it would not defend. Infini filed a third-party complaint against Lexington, alleging Lexington had wrongfully denied coverage. Lexington moved for summary judgment.
The court noted that to prevail, Lexington had to show it provided full and adequate notice to Infini regarding the change in liposuction coverage, or that the change in coverage was not unusual or unexpected. Lexington had to also demonstrate that it did not induce a reasonable belief of coverage through ts acts. There remained factual disputes over whether Infini was ever given full and adequate notice of the change in terms, whether the change was unusual or unexpected, or whether Lexington's conduct caused Infini to reasonably expect it had coverage for liposuction.
Several facts in the record could support a finding that Infini did not receive full and adequate notice of the change in coverage. All of Infini's previous policies provided coverage for liposuction. Infini's rates went up in the 2014-2015 policy, which would generally indicate the same or better coverage. Lexington's underwriter noted that the premium increase was due to the significant increase in exposure. Further, it was hard to believe that Infini would agree to the 2014-2015 policy if it had known that it did not cover liposuction procedures, which were most likely to cause liability. Therefore, Lexington had failed to demonstrate it provided sufficient notice to Infini of the lack of coverage in the 2014-2015 policy.
Moreover, a reasonable jury could find that Lexington was reckless as to the reasonableness of its conduct in processing Infini's application for renewal and in its ultimate decision to deny coverage. Therefore, Lexington was not entitled to summary judgment in Infini's bad faith claim.
