Sep 15 2017

MM Insurance News 9/16/17

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NOTEWORTHY NEW RULINGS

EIGHTH CIRCUIT Allocation/Burden of Proof/Experts (MN)

The U.S. Court of Appeals for the Eighth Circuit has ruled in UnitedHealth Group v. Executive Risk Specialty Ins. Co., 15-1076 (8th Cir. Sept. 7, 2017) that a District Court did not err in refusing to require various excess professional liability insurers to reimburse a health insurer it for $350 million that it had paid to settle RICO claims and allegations that it had mismanaged various ERISA plans owing to the insured’s failure to show what portion of the settlement was for covered claims. While acknowledging that the Minnesota Supreme Court had not yet ruled with respect to which party bears the burden of allocating between covered and non‑covered claims in an undifferentiated settlement, the Eighth Circuit opined that an insured must do more than simply show that some of the claims that it settled were covered. In order to avoid summary judgment, a policyholder need not prove allocation with precision but must present evidence of a "non-speculative" nature. Further, the Court of Appeals ruled that the trial judge did not abuse his discretion in refusing to permit the insured’s “expert” (James Halverson) from giving testimony with respect to allocation as, by Halverson’s own admission, he was not an expert on ERISA claims.

CALIFORNIA Additional Insureds/”Ongoing Operations”

The Court of Appeal has ruled that a general contractor was entitled to coverage for construction defect claims under policies issued to a subcontractor. In Pulte Home Corp. v. American Safety Ind. Co., No. D070478 (Cal. App. Aug. 30, 2017), the Fourth District agreed with the trial court that the contractor had shown that the claims against it involved operations that were still on-going on or after the date of the “additional insured” endorsements to these policies. Although American Safety had argued that the homes in question were damaged after the insured’s work was completed, the Court of Appeal found that “[f]rom the circumstances shown in the tenders of defense, in which property damage became evident after the work was completed, American Safety was placed on sufficient notice that some of the subcontractors' work could have been ongoing and/or completed during its policy periods, since the homes were constructed in phases The court also sustained the lower court’s finding that American Safety had acted in bad faith in denying coverage and must pay punitive damages in an amount equal to the compensatory award. The lower court’s award of Brandt fees was set aside an remanded for recalculation, however, as the insured had sought to inflate its claim following the trial by changing the basis for its fees from a contingency award to one based on an hourly rate.

CONNECTICUT Asbestos/Discovery

Magistrate Judge Margolis has ruled in ITT Corp. v. Travelers Cas. & Sur Co., No. 12‑38 (D. Conn. Aug. 31, 2017) that Travelers did not violate prior discovery orders by refusing to turn over documents involving other policyholders who privacy would have been invaded by such disclosures. The court declared that Travelers concern with respect to its other policyholders was not purely speculative as one insured had in fact provided a declaration in opposition to the Motion to Compel. While agreeing that discovery would not be permitted for that particular insured, the Magistrate requested further briefing as to eight other unidentified policyholders. The Magistrate did find Travelers had gone beyond what earlier orders permitted with respect to redacting names by also removing policy numbers, claims related data, and aggregate amounts paid and reinsurance information from the documents that it had produced. The court also rejected Travelers' contention that asbestos loss information that it had submitted to the Connecticut Insurance Department in 2009 as part of a market examination process were privileged from disclosure in litigation in light of a Connecticut statute that prohibited the Insurance Commissioner from making such documents public.

MASSACHUSETTS Bad Faith

Having previously ruled that a TPA might be liable for having failed to settle a wrongful death suit against a nursing home that resulted in a verdict in excess of limits and a $12 million punitive damage award, Judge Saris has reconsidered her opinion and has now declared in Calandro v. Sedgwick Claims Management, No. 15-10533 (D. Mass. Sept. 8, 2017) Sedgwick is protected from 93A liability because the $1.8 million offer that it made to the claimant in response to the claimant’s 93A demand letter issued after the verdict, reflecting the amount of the compensatory award and lost interest, was “reasonable” pursuant to the “safe harbor” provisions of Section 11.

SOUTH DAKOTA “Occurrence”/Construction Defects/Exclusions

The South Dakota Supreme Court has joined the growing number of jurisdictions holding that faulty workmanship may constitute an "occurrence". In Lowery Construction & Concrete, LLC v. Owners Ins. Co., 2017 S.D. 53 (S.D. Aug. 31, 2017), the Supreme Court declared that a trial court had erred in refusing to require a CGL insurer to defend a law suit in which a homeowner sued the general contractor for breach of contract, breach of warranty and negligence for negligently installing drain tile around the claimant’s house, causing the frame to crack and floors to heave. Further, he court refused to find that Exclusions J(6) and (7) applied, as the allegations of damage were not limited to the “particular part of real property” that the insured had worked on.

TEXAS Environmental/EIL/”Waste Site” Endorsements

A federal district court has ruled that AISLIC must provide a defense to certain underlying Superfund claims against a waste transporter notwithstanding various pollution exclusions in its policies. In USA Environment LP v. American Int’l Specialty Lines Ins. Co., No. 16-2216 (S.D. Tex. July 7, 2017), Judge Atlas declared that the pollution exclusion was superseded by the addition of a Blanket Non-Owned Disposal Sites Endorsement in the 2011-2014 policies despite AISLIC’s argument that the USOR site had been abandoned in 2010 and was therefore not a “waste disposal site” by 2011. The court also rejected AISLIC’s effort to restrict coverage to the first of its eleven policies, declaring that the insureds had presented sufficient evidence to avoid the non-cumulation provision in the policies for “progressive, indivisible property damage . . . caused by related or continuous exposure to substantially the same general harmful conditions or substances.”

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

Willis Towers Watson’s latest Commercial Lines Insurance Pricing Survey finds that domestic commercial insurance pricing was essentially flat in the first half of 2017.

Participants at this year’s Rendez-Vous in Monaco are estimating that Hurricanes Harvey and Irma may result in an insured loss of somewhere between $20 and $30 billion and may result in a general stabilization of reinsurance pricing. AIR Worldwide is predicting that insured losses from Irma will range from $20-40 billion.

Reinsurance analysts questioning whether the slow pace of Hurricane Harvey as it meandered across Texas and Louisiana may impact the application of “hours” clauses that allow reinsurers to aggregate diverse losses occurring within a finite period of days.

The U.S. Senate approved a proposal last Friday that would extend the NFIP for 90 days and add $15 billion in funding for flood damage.

* * * Cyber * * *

Equifax revealed last week that it was the victim of a third party hack last May that may have compromised confidential information belonging to 143 million people. By Sunday, no fewer than twenty-five putative class actions had been filed in federal court. According to an article in Insurance Journal, the insured’s ultimate exposure may vastly exceed its reported $100-150 million cyber coverage limits.

Pool Re has announced plans to add cyber insurance to its terrorism cover starting next April.

* * * Across the Bar * * *

The Saul Ewing and Armstein Lehr law firms have announced plans to merge.

Sedgwick’s troubles continue as the managing partner of its New York office, John Blancett, announced plans to jump ship to Kennedys CMK.

* * * New Coverage Litigation * * *

Scholle IPN has sued Liberty Mutual and Great American in the Business Litigation Session of the Massachusetts Superior Court in Boston seeking coverage under various umbrella liability policies for moldy applesauce claims.

* * * Summer Reading * * *

Boston partner Michael Aylward’s critique of Section 3 of the ALI Restatement, “The Problem of Plain Meaning” has been published in this month’s issue of DRI’s For the Defense” magazine.

* * * IBNR Dept. * * *

The son of the late great jazz pianist Thelonious Monk has sued the North Coast Brewing Company alleging that its "Brother Thelonious Belgian-style Abbey Ale” infringes his father's intellectual property by using Monk's image without the estate's permission.

A federal judge in San Jose has declined to dismiss a putative class action against the manufacturers of Kona beer, declaring aspects of the product’s packaging and advertising might lead consumers to reasonable conclude that the beer was made in Hawaii and not in New Hampshire. Judge Freeman observed that Hawaii is “a state as well as a state of mind.”

* * * Must See CLE * * *

DRI Annual Meeting (Chicago): October 4-8, 2017

FETTI Annual Claims Conference (Chicago): October 4-6, 2017

DRI Northeast Insurance Industry Claims Conference (Hartford): November 2, 2017

2017 FDCC Insurance Industry Institute (New York City): November 9-10, 2017

DRI Insurance Coverage and Practice Symposium (New York City): December 6-8

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