Dec 22 2017

MM Insurance News 12/22/17

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THIRD CIRCUIT EIL Insurance/Reformation (NJ)

The Third Circuit has ruled in Indian Harbor Ins. Co. v. NL Environmental Management Services, Inc., No. 16-3262 (3d Cir. Dec. 14, 2017)(unpublished) that an environmental liability policy that was purchased to resolve an underlying environmental liability dispute involving lead pigment contamination must be reformed as the parties never intended to cover losses involving “NL Environmental Managers” and that the failure to list this entity on a policy exclusion was a “scrivener’s error.”

NINTH CIRCUIT Federal Jurisdiction/CAFA/”Mass Actions” (CA)

The Ninth Circuit Court of Appeals has affirmed a California District Court’s declaration that a mass subrogation action filed by 26 homeowner’s insurers on behalf of 145 policyholders whose homes were damaged due to the defendant’s defective plumbing products work were not a “mass action” conferring federal jurisdiction under the federal Class Action Fairness Act (CAFA). In remanding the case to state court, the court ruled in Liberty Mut. Fire Ins. Co. v. EZ-FLO International, Inc., No. 17-56523 (9th Cir. Dec. 14, 2017) that Section 1332(d)(2)’s definition of a “mass action” as involving a suit seeking $5 million or more by 100 or more persons referred to the named plaintiffs in the suit and not, as here, the individuals on whose behalf suit was brought.

ELEVENTH CIRCUIT Bad Faith/Duty to Settle (FL)

The Eleventh Circuit has ruled that the so-called “Powell” rule, wherein Florida courts have ruled that insurers have a duty to make settlement offers even in the absence of a demand from the plaintiff, should only arise in situations where the insured’s liability is clear. In Welford v. Liberty Mut. Ins. Co., No. 16-14054 (11th Cir. Nov. 29, 2017), the Eleventh Circuit declared that under the Berges “totality of circumstances” test, Liberty Mutual’s failure to make a settlement offer before this case went into suit was, at worst, negligent. The court observed that, “[w]hile Liberty did not make a pre-suit settlement offer, there was no affirmative duty under applicable Florida law to do so, and even if there was, such a duty would have been inapplicable because Middleton was not clearly liable for the accident.

CALIFORNIA “Sexual Act” Exclusion

A federal district court has ruled that the owner of a warehouse where an X-rated video was filmed is not entitled to coverage for claims by actors who claimed that they had tested positive for HIV after engaging in sexual acts during the shoot. In Atain Specialty Ins. Co. v. Armory Studios, LLC, No. 15-5124 (N.D. Cal. Dec. 15, 2017), the court ruled that such claims were excluded as “arising out of or resulting from . . . sexual abuse . . . or sexual behavior intended to lead to, or culminating in any sexual act” despite the insured’s contention that its alleged liability for failing to provide safe premises and the like fell outside the scope of the exclusion. Further, the court found that the exclusion did not require that the sexual behavior have been perpetrated by the insured in order to apply.


A divided Florida Supreme Court has ruled that a CGL insurer’s duty to defend was triggered by an insured contactor’s receipt of so-called Chapter 558 demand letters that are a statutory pre-condition to the ability of homeowners to sue construction companies. Answering a certified question from the Eleventh Circuit, the majority ruled in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., No. SC16-1420 (Fla. Dec. 14, 2017), the majority found that the “notice and repair” process set forth in Chapter 558 was not a “civil proceeding” but was nonetheless an “alternative dispute resolution proceeding” within the policy’s definition of a “suit” if there is evidence that C&F had consented to this ADR proceeding. Justice Lewis concurred but questioned whether a CGL policy would even ordinarily cover the type of construction defect claims that Chapter 558 governs. Justice Lawson concurred in the majority’s finding that these are not “civil proceedings” but also questioned whether were even an ADR proceeding. Justice Pariente disputed the majority’s finding that Chapter 558’s pre-suit procedure were not a “civil proceeding” and argued that requiring an insurer’s consent in order to compel a defense might incentivize contractors to avoid these ADR proceedings, thus undermining the efficacy of Chapter 558.

NEW YORK Reinsurance

Answering a certified question from the Second Circuit concerning the New York Court of Appeals’ 2004 opinion in Excess Insurance v. Factory Mutual, the Court of Appeals has ruled in Global Reinsurance Corp. v. Century Ind. Co., No. 124 (N.Y. Dec. 14, 2017) that a “per occurrence” cap in a reinsurance contract does not cap the expenses that the reinsurer may owe where the cedent may be obliged to pay expenses beyond the limits of coverage, as for defense costs. Notwithstanding a substantial body of case law that had emerged in the past decade interpreting Excess as limiting the payment obligations of facultative reinsurers absent language expressly exempting defense costs from treaty limits, the state Court of Appeals declared that its 2004 opinion established neither “a principle of construction or a strong presumption that a per occurrence liability cap in a reinsurance contract limits the total reinsurance available under the contract,” including defense costs.

TEXAS Bad Faith

The Texas Supreme Court announced on Friday that it would grant rehearing in a case that it issued last April setting forth broad principles governing when insureds may recover damages based upon an insurer's violation of the Texas Insurance Code in a case where the jury separately found that the insurer did not owe coverage for the insured’s first party loss. USAA had urged the court to grant rehearing, arguing that the court’s opinion in USAA Texas Lloyd’s v. Menchaca had “unsettled” established bad faith jurisprudence in the Lone Star state.


* * * Inside the Insurance Industry * * *

Brian MacLean, who has worked at the Travelers for three decades, will be retiring as its president and chief operating officer effective March 31, 2018.

In a move designed to accelerate its use of artificial intelligence and telematics in risk assessment, American Family has acquired Chicago-based Networked Insights.

* * * California Burning * * *

Farmers Insurance reports that, to date, it has received 4000 claims from the wildfires in northern California with an estimated aggregate value of $1.2 billion. Farmers reportedly believes that the eventual cost to it will be only $90 million after reinsurance and taxes are factored in. California Insurance Commissioner David Jones stated earlier this month that he believes that insured losses from the wildfires will exceed $9.4 billion.

* * * Opiods * * *

Greenfield, Massachusetts has become the latest municipality to sue drug manufacturers for their alleged contribution to the opioid abuse crisis.

* * * IBNR Dept. * * *

A family that lost three members in the mass shootings last month at the First Baptist Church in Sutherland Springs are suing a San Antonio sporting goods store that sold firearms to Devon Patrick Kelley that he used to kill 26 people that day

A federal judge in the Southern District of New York has dismissed Anna Wurtzburger’s $20 million false advertising suit against Kentucky Fried Chicken despite the plaintiff’s claim that KFC had falsely advertised that her bucket of chicken would be “full to overflowing.”

* * * Across the Bar * * *

Judge Alex Kozinski, who has dominated the U.S. Court of Appeals for the Ninth Circuit for years, announced his retirement this week following various allegations of sexual harassment.

Clyde & Co. announced this week that it has taken on fifteen Sedgwick partners.

* * * This Week’s Photo * * *

UFO? or Santa?New York Times reported last week that the Pentagon has been operating a top secret program for the past decade to track unidentified flying objects.


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