Jul 28 2017

MM Insurance News 7/28/17

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CASES OF CONSEQUENCE

SECOND CIRCUIT Environmental/Allocation/Bad Faith (NY)

In the latest chapter of an environmental coverage saga that dates back to 1983, the Second Circuit ruled last week in Olin Corp v. OneBeacon American Insurance Company, No. 15‑2047 (2nd Cir. July 18, 2017) that a New York District Court had not erred in requiring coverage for environmental liability claims under a 1970 umbrella policy. In light of the non‑cumulation clause in the Commercial Union umbrella policy, the court ruled that the insured could seek coverage under an “all sums” approach in keeping with the New York Court of Appeals 2015 ruling in Viking Pumps. Surprisingly, the court further declared that the issue of whether the underlying $300,000 primary policy had been exhausted was similarly subject to Viking Pumps even though that policy lacked a non‑cumulation clause and would ordinarily have been subject to a standard "time of the risk" allocation analysis. The Second Circuit ruled, however, that the District Court had erred in interpreting the non‑cumulation clause as only applying where similar prior policies have been issued by the same insurer. On the other hand, the court ruled that this clause only had the effect of reducing the policy’s limits insofar as it could be shown that Olin had received payments for these specific sites from the earlier excess insurers. The Second Circuit also affirmed the District Court's ruling that OneBeacon's conduct with respect to the handling of this claim did not involve any unfair claims practices within the scope of the Massachusetts Consumer Protection Act G.L.c. 93A.

FIFTH CIRCUIT Agents and Brokers/Third Party Claims (MS)

The Fifth Circuit has ruled that a landlord that was added as an additional insured to the lessee’s policy had no right to sue an insurance agent for not purchasing enough insurance to cover the cost of rebuilding the property after a devastating fire. In affirming a Mississippi court's entry of summary judgment for the property insurer and agent, of the Fifth Circuit ruled in Emerald Coast Finest Produce Company, Inc. v. Alterra American Ins. Co., No. 16‑60471 (5th Cir. July 20, 2017) that a “negligent procurement” claim could only be brought by a party that was an insured at the time of contracting, whereas the landlord was not added until the policy was actually issued.

CALIFORNIA Rescission

The First District has ruled that a Los Angeles judge erred in allowing an insurer to rescind a homeowner’s policy based upon alleged misrepresentations with respect to prior claims involving the property. In Duarte v. Pacific Specialty Ins. Co., A143828 (Cal. App. June 29, 2017), the Court of Appeal declared that the question in the policy application, which had asked whether “damage remained unrepaired from previous claim and/or pending claims, and/or known or potential (a) defects, (b) claim disputes, (c) property disputes, and/or (d) lawsuits?” was ambiguous and that the insured’s answer “no” did not clearly involve a material misrepresentation.

NEW YORK First Party/Computer Fraud

A federal district court has ruled in Medidata Solutions, Inc. v. Federal Ins. Co., 15‑907 (S.D.N.Y. July 21, 2017) that a $4.7 million loss that Chubb must reimburse a cloud computing company for $4.7 million that it lost when it was tricked into effecting a wire transfer to a third party who had “spoofed” the on-line identity of the insured’s CEO. Federal had disputed this claim arguing that the loss did not constitute covered "computer fraud" because the emails had no required access to the insured's computer system or manipulation of those computers or input of fraudulent information. Judge Carter ruled, however, that “computer fraud” did not require actual hacking. Further, the District Court ruled that the loss was covered under the policy's Funds Transfer Fraud coverage. Even though this coverage normally requires that the funds be transferred without the insured’s consent, the court found that the consent in this case was fraudulently obtained and therefore invalid. The court did refuse to find “forgery” coverage, however, as, whether or not a spoofed email constitutes a "forgery" there was no financial instrument that was forged in this case.

OREGON Declaratory Relief/Attorney’s Fees

The Oregon Supreme Court has ruled in Spearman v. Progressive Classic Ins. Co., SC063995 (Or. June 22, 2017) that the safe harbor provisions of ORS 742.061(3) that immunize an insurer from awards of attorneys fees in UM cases if the insurer has accepted coverage for the insured’s claim and has agreed to binding arbitration with respect to the “damages due the insured” protected an auto insurer that had questioned the nature and extent of the claimant’s injuries as well as the reasonable and necessity of the plaintiff’s medical expenses.

SOUTH CAROLINA Procedure/Diversity Jurisdiction

Rejecting an auto insurer’s claim of fraudulent joinder, a federal district court has ruled in Aung v. GEICO, 2017 WL 2416475 (D.S.C. June 5, 2017) that a bad faith claimant’s inclusion of the insurer’s local adjuster defeated diversity jurisdiction and required that the claims be remanded to state court.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

Beazley CEO Andrew Horton has stated that Beazley will sharpen its focus on growing specialty lines in the United States along with professional and management liability for mid-sized policyholders given the declining values in underwriting property, reinsurance and marine lines. According to a recent article in Business Insurance specialty lines currently account for 45 to 50 percent of Beazley's revenue but are hoped to grow to 55 percent in the next few years.

The State of Minnesota has entered into consent orders fining American Family and Bristol West Casualty for failing to pay third-party insurance claims presented under their auto policies. Meadowbrook Insurance has announced that Fred Browning will succeed Roger Walleck as its chief underwriting officer.

* * * New Coverage Litigation * * *

The Catholic Mutual Relief Society of America has sued Security Insurance Company of Hartford in the U.S. District Court in Minneapolis alleging in Catholic Mutual Relief Society of America v. Arrowwood Indemnity Company, No. 17-3141 D.Minn. that various insurers have wrongly failed to provide coverage for numerous sexual abuse claims pursuant to policies issued in the 1960s.

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