Among the best insurance coverage dispute decisions of 2011 was Park Electrochemical Corp. vs. Continental Casualty Co., according to John N. Ellison, partner at Reed Smith L.L.P. in New York and Philadelphia.

In that decision, the United States District Court for the Eastern District of New York “correctly concluded that general territorial limitations in property policies do not apply to contingent business income losses suffered by U.S. companies,” he said.

“The importance of this case is that many companies impacted by the events in Japan and Thailand may face similar arguments raised by property insurers, and this decision should go a long way to dispelling that argument,” Mr. Ellison said.

Among the cases he singled out as the year's worst coverage decisions was Cracker Barrel vs. Cincinnati Insurance Co. In that case, the United States District Court of the Middle District of Tennessee ruled that employment practices liability insurance does not apply to claims brought by the Equal Employment Opportunities Commission because such actions don't qualify as “claims” within the meaning of such policies, he said. “I think this is just plainly a wrong decision, and is the first of its kind,” Mr. Ellison said. “If it stands, it largely defeats the purpose of purchasing EPLI coverage.”

Another decision Mr. Ellison included in the year's “best” category was SunTrust Mortgage Inc. vs. United Guaranty Residential Insurance Co. of North Carolina Inc. That case in the United States District Court for the Eastern District of Virginia involved United Guaranty seeking to deny claims on certain loans that had not been underwritten using Fannie Mae's Desktop Underwriter system.

“The court held earlier in the case that UG breached its mortgage insurance policy by failing to pay claims merely because they had not been underwritten using Desktop Underwriting, but that SunTrust was required to pay annual premiums to UG for the life of the insured loans notwithstanding that UG's maximum cumulative liability had been reached,” Mr. Ellison said.

However, the court then considered SunTrust's first material breach defense that UG materially breached the insurance policy by failing to refund premiums on performing loans when it knew it wouldn't pay claims on those loans and therefore couldn't demand continued payment of premiums, he said.

“These decisions are significant because of the enormous number of disputes and lawsuits pending between lenders and mortgage insurance companies and guaranty insurers whereby the insurers are attempting to avoid the coverage obligations for the thousands and thousands of defaulted loans around the country,” Mr. Ellison said.

Another case on the “worst” side of the year's ledger was Maxine Furs Inc. vs. Auto-Owners Insurance Co. This case in the 11th Circuit U.S. Court of Appeals held that the smell of curry is a pollutant that triggers a pollution exclusion. Essentially, curry aroma traveled through an air duct from an Indian restaurant to a furrier, leaving fur coats smelling like curry and in need of cleaning.

“The decision dramatically expands the scope and application of the "pollution exclusion' to something most normal people would not consider pollution,” he said.