Jan 1 2018

MM Insurance News 2017: The Year in Review

active case links

 What Did We Learn In 2017?

Much of what we learned in 2017 were things that we were aware of but did not fully apprehend.  We have known for years that cyber-claims were coming but 2017 was the year when the dimension of the problem began to be clear (will future policy limits be expressed in Bitcoins instead of dollars?).   Similarly, cat claims are surely nothing new but to have so many extreme event clustered together is wholly unprecedented.  And while liability insurers have faced coverage claims arising out of sexual harassment since the 1980s, has there even been a year when so many high-profile claims surfaced within such a short time.   Call if the Trump Effect:  there are still rules but they don’t seem familiar or reassuring.

Here, for better or worse, is your editor’s choice of the 30 most consequential rulings from the year gone by along with a rogue’s list of major pending appeals to watch out for in 2018:

The 30 Most Significant Coverage Rulings of 2017 

1.    General Refractories Co. v. First State Ins. Co., 2017 WL 1416364 (3d Cir. April 21, 2017)

In a major victory for casualty insurers, the Third Circuit reversed a Pennsylvania District Court’s ruling that early asbestos exclusions were ambiguous and/or limited to the specific disease of “asbestosis.”  Instead, the Court of Appeals ruled that an exclusion for excess net loss “arising out of asbestos, including but not limited to bodily injury arising out of asbestosis or related diseases or to property damage” extended to all claims for bodily injury that would not have occurred “but for” the claimant’s exposure to the insured’s asbestos products.  The court rejected GRC’s contention that this exclusion was also only intended to apply to the exposure to mineral asbestos  in its raw, unprocessed form and therefore did not apply to the insured’s finished products.  

2.      Global Reinsurance Corp. v. Century Ind. Co., No. 124 (N.Y. Dec. 14, 2017)

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 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.  

3.     Xia v. Probuilders Specialty Ins. Co., 393 P.3d 748 (Wash. 2017).

In this case, the Washington Supreme Court pioneered a new way to find coverage for excluded losses.  A divided court issued an en banc opinion in April, declaring that even though indoor exposures to carbon monoxide fumes fell within the scope of the policy’s absolute pollution exclusion, the loss was nonetheless covered because its efficient proximate cause was a covered occurrence, namely the negligent installation of the home’s hot water heater.  In a lengthy opinion that surveyed the convoluted history of pollution exclusion jurisprudence in Washington, the court observed that the general theme in its past opinions was whether the loss involved “traditional environmental contamination” and whether the pollutant was “acting as a pollutant” or whether its toxic characteristic were incidental to the injury.  In this case, the court found that excluded cause (the release of toxic fumes) had been set in motion by a covered cause (the negligently-constructed hot water heater that allowed the fumes to escape due to incomplete combustion) and further ruled that the anti-concurrent causation language in Probuilder’s exclusion was unenforceable as being against Washington public policy.  Justice Madsen (joined in a concurrence by Justice McCloud) argued that the majority was abandoning stare decisis as the court’s earlier opinion in Quadrant had rejected any application of “efficient proximate cause” to such exclusions.  Hopes that the court would reconsider its decision were dashed at the end of the summer when Probuilder’s motion for reargument was denied.  

4.     Travelers Property Cas. Co. of America v. Actavis, Inc., G053749 (Cal. App. Nov. 6, 2017)

In a significant victory for insurers in the on-going opioid coverage debate, the California Court of Appeal ruled in November that allegations that a drug manufacturer engaged in a “highly deceptive marketing campaign” did not result from an “accident” as the insured’s actions foreseeably increased the use of heroin in California.   The Court of Appeal found that the that the insured had “engaged in “a common, sophisticated, and highly deceptive marketing campaign” aimed at increasing sales of opioids and enhancing corporate profits can only describe deliberate, intentional acts” that precluded any finding of an “accident” under California law.  In any event, the Fourth District ruled that these claims fell within the policy’s exclusion for products “sold, handled or distributed” by the insured.  

5.     Oxford Realty Group Cedar v. Travelers Excess & Surplus Lines. Co., 2017 WL 2290135 (N.J. May 25, 2017), 

The New Jersey Supreme Court declared in March that the Appellate Division erred in ruling that a commercial property insurer owed $500,000 in coverage for “debris removal” due to Superstorm Sandy in addition to the policy’s $1 million limit for flood damage.  The court found that even though the policy had a separate $500,000 limit for debris removal, that coverage was subject to the policy’s overall $1 million cap for flood damage, which stated that “[t]he most [Travelers] will pay for the total of all loss or damage caused by Flood . . . is the single highest Annual Aggregate Limit of Insurance specified for Flood shown in [Section B.14 of] the Supplemental Coverage Declarations.” (Emphasis added).  The court observed the policy’s flood endorsement clarified that this $1,000,000 ceiling will apply even if more than one Limit of Insurance applies, such as the Limit of Insurance for debris removal in the Supplemental Coverage Declarations.   The opinion contains a useful analysis of the role of surplus lines insurance and the limited role that traditional interpretive doctrines such as “reasonable expectations” and contra proferentem should play in divining the meaning of contracts entered into with sophisticated insureds.  

6.         Rancosky v. Washington National Ins. Co., 2017 WL 4296351 (Pa. Sept. 28, 2017)  

In September, the Pennsylvania Supreme Court ruled that proof of an insurer’s self-interest or ill will is not a required element of a statutory bad faith under Section 8371.  In light of the legislative history of Section 8371 and the fact that it was enacted in response to the Supreme Court’s refusal in D’Ambrosio to create a common law cause of action for bad faith, the court found that the reference to “bad faith” in Section 8371 did not require proof of subjective intent.  As a result, the court declared that “in order to prevail in a bad faith insurance claim pursuant to Section 8371, a plaintiff must demonstrate, by clear and convincing evidence, (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew or recklessly disregarded its lack of a reasonable basis in denying the claim. We further hold that proof of the insurer’s subjective motive of self-interest or ill-will, while perhaps probative of the second prong of the above test, is not a necessary prerequisite to succeeding in a bad faith claim. Rather, proof of the insurer’s knowledge or reckless disregard for its lack of reasonable basis in denying the claim is sufficient for demonstrating bad faith under the second prong” of Section 8371.  Two justice submitted separate concurring opinions.  

7.         R.T. Vanderbilt Companies Co. Inc. v. Hartford Accident and Indemnity Company, AC36749 (Conn. App. Ct. Mar. 7, 2017), appeal pending (Conn. 2018)  

In one of the longest opinions ever issued by the Connecticut Court of Appeals (161 pages), the court has ruled in March that a policyholder is not responsible for paying defense costs in asbestos cases allocable to years when coverage for such claims was unavailable owing to mandatory asbestos exclusions.   The Court of Appeals agreed with the insurers that there was no clear “trigger” precedent in Connecticut but agreed with the trial court that a continuous trigger made sense, rejecting efforts by various insurers to present expert evidence as to the etiology of these diseases.   The court found that such evidence was unnecessary because “trigger” is an issue of law, not of fact, and because courts that did accept such evidence have not found it helpful and have reached wildly different results.  In any event, the court found that the expert evidence that the insurers would have presented would not have changed its conclusion that a continuous trigger was appropriate.   The court also declined to adopt an equitable exception for the “unavailability” rule in cases such as this where the insured had continued to manufacture asbestos products even after it became uninsurable.   Accordingly, the Court of Appeals ruled that the trial court had not erred in excluding the expert testimony of Professor George Priest of the Yale Law School on this issue.   The court did rule, however, that arbitrarily using 1962 as a default date for the on-set of exposure was unreasonable and remanded that issue for further testimony and findings.  Finally, the court ruled that conventional pollution exclusions would not apply to asbestos exposures unless the exposure occurred in an “environmental” context.  On the other hand, the court gave effect to “occupational disease” exclusions in Gibraltar’s policies, holding that the trial court had erred in limiting their effect to claims by the insured’s employees.  The case has since been accepted for further review by the Connecticut Supreme Court.  

8.         Doe Run Resources Corp. v. American Guarantee & Liability Ins. Co., 2017 WL 5078078 (Mo. October 31, 2017).  

The Missouri Supreme Court, which heretofore has never considered the scope and effect of a pollution exclusion, ruled in this case that a trial court erred in declaring that an absolute pollution exclusion was ambiguous as applied to suits by neighboring property owners who alleged injuries due to toxic emissions from the insured’s lead smelting operations.   The Supreme Court declined to follow the Court of Appeal’s analysis in Hocker Oil, in which gasoline was held not to be a pollutant because it had commercial value and was not specifically identified in the exclusion.  Instead, the Supreme Court followed the view of the Eighth Circuit in a related case involving Doe Run, declaring that materials that irritate or contaminate are clearly “pollutants” whether they are specifically enumerated in the exclusion or are an essential part of the insured’s business.  

9.         Mount Vernon Fire Ins. Co. v. Visionaid, Inc., 76 N.E.2d 204 (Mass. 2017)

On a certified question from the federal First Circuit Court of Appeals, Massachusetts’ highest state court declared in June that the duty to liability insurers to defend does not extend to the cost of prosecuting counter-claims on behalf of the insured.  The court ruled that the plain meaning of “defend” was to “work to defeat a claim that would create liability against the individual being defended.”  As a result, it rejected the insured’s contention that “defend” should also encompass “anything a reasonable defense attorney would do to reduce the liability of the insured.”  Chief Justice Gants dissented, arguing that insurers must defend offensive claims if they are “inextricably intertwined” with the claims against the insured and any sums recovered by the insured would count against the amounts that the insurer would have to pay in indemnity.  The majority rejected this proposal as being unworkable and not finding any support in the policy language at issue.   The court also rejected VisionAid’s contention that Massachusetts “in for one, in for all” rule extended to the prosecution of claims, as distinguished from imposing a duty to defend all counts if any subset of them is covered.  Having answered the first two certified questions in the negative, the court elected not to address the third question, which had asked whether the insurer’s refusal to fund affirmative counter-claims created a conflict of interest allowing the insured to appoint counsel of its own choosing.   Following remand, the First Circuit ruled in November 2017 that the mere existence of this counter-claim did not create a conflict of interest that would have entitled the insured to substitute its own chosen defense counsel. 

10.       In Re State Farm Lloyds, No. 15-0903 (Tex. May 26, 2017)  

The Texas Supreme Court has issued a consolidated set of opinions on e-discovery disputes, declaring that courts should balance the burden and expense of ESI against its relevance in a given case.  As a result, the court declared that “when a party asserts that unreasonable efforts are required to produce ESI in the requested form and a “reasonably usable” alternative form is readily available, the trial court must balance any burden or expense of producing in the requested form against the relative benefits of doing so, the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the litigation, and the importance of the requested format in resolving the issues. Even without quantifying differences in time and expense, evidence that a “reasonably usable” alternative form is readily available gives rise to the need for balancing, and if these factors preponderate against production in the requested form, the trial court may order production as requested only if the requesting party shows a particularized need for data in that form and the requesting party pays the reasonable expenses of any extraordinary expenses required to retrieve and produce the information.”  The fate of these rules was thrown into doubt at the end of 2017, however, when the Supreme Court agreed to rehear the case.  

11.       Forsman v. Blues, Brews and Bar-B-Ques, 2017 ND 16 (N.D. Nov. 16, 2017)  

In a ruling that arguably had the coolest case caption of the year, the North Dakota Supreme Court ruled in November that a trial court erred in granting judgment to a tort claimant on her Miller-Shugart settlement, declaring that issues of fact remained with respect to the impact of liquor liability and assault and battery exclusions on the plaintiff’s garnishment claim against a bar’s liability insurer.  The Supreme Court declared that Miller-Shugart agreements preclude an insurer from re-litigating the liability of its insured, they are not determinative of coverage defenses.  

12.       H.J. Heinz Co. v. Starr Surplus Lines Ins. Co., 675 Fed. App’x 122 (3rd Cir. Jan. 11, 2017)

The year began with a bang when the Third Circuit affirmed a Pennsylvania District Court's declaration that H.J. Heinz misrepresented material facts with respect to its potential exposure for food contamination claims and is therefore barred from obtaining recovery under a product contamination policy that it purchased from AIG.  In an unpublished disposition, the court ruled that Starr had proved by clear and convincing evidence the clients had made material representations in the policy application upon which Starr had reasonably relied and that the advisory jury's recommendation that Starr had waived its right to assert rescission was not binding upon the District Court.  The Third Circuit rejected the insured’s argument that the policy’s designation of New York law was ineffective or that Starr could invoke the terms of a policy that it was claiming was void ab initio owing to the insured’s misrepresentation.  

13.       Pennsylvania Manufacturers Ins. Co. v. Johnson-Matthey, Inc., 2017 WL 1418401 (Pa. Super. April 21, 2017)  

Notwithstanding the Pennsylvania Supreme Court’s ruling in Pennsylvania National Mut. Ins. Co. v. St. John, 106 A.3d 1 (Pa. 2014) that the trigger of coverage for latent property damage claims is the date of “first manifestation,” the Commonwealth Court has ruled that claims arising out of long-tail environmental contamination are subject to the continuous trigger that the Supreme Court adopted for asbestos bodily injury claims in J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502 (Pa. 1993).   The Commonwealth Court (which hears appeals involving governmental agencies such as the PADEP) distinguished St. John as involving the negation of coverage under policies issued after manifestation and in a case where the manifestation occurred relatively soon after the insured’s misfeasance, as opposed to this case, where the policies were issued in the years prior to manifestation and the pollution arose out of discharges dating back decades earlier.  

14.       Givaudan Fragrances Corp. v. Aetna Casualty & Surety Co., 151 A.3d 576 (N.J. Feb. 1, 2017)  

In keeping with the recent trends on “long tail” assignment cases, the New Jersey Supreme Court ruled in February that the successor entity to a polluter was entitled to obtain coverage pursuant to an express assignment of rights from the original insured after the pollution had already occurred.  In aligning itself with what it perceived to be the majority position, the state Supreme Court declared that anti-assignment clauses are inapplicable to post-loss claim assignments.  

15.       Fire Insurance Exchange v. Oltmanns, 2017 UT 81 (Utah Nov 21, 2017)  

The Utah Supreme Court has ruled in this case that a homeowner's insurer did not act in bad faith in bringing an action for declaratory relief to dispute whether an AquaTrax personal watercraft was an excluded "jet ski" under its policy.  Even though the insurer had been found to owe coverage, the court ruled that the insurer’s position was “fairly debatable.”  The majority’s opinion was joined by an unusual “concurrence” from Justice Durham that joined in the result on an alternative basis (that the insured had waived its rights to see bad faith fees) but that set forth a comprehensive new theory of bad faith that would  support recovery for similar claims in future cases.  In particular, Justice Durham argued that Utah should recognize a higher standard of care amounting to a fiduciary obligation on the part of liability and should abandon the "fairly debatable" defense to bad faith.  The majority opinion took the unusual step of harshly criticizing the concurrence as ignoring established precedents and as proposing legal remedies that had not been briefed by the parties and that should not be adopted until they had been properly critiqued in an adversary proceeding.  

16.       Medidata Solutions, Inc. v. Federal Ins. Co., 2017 WL 3268529 (S.D.N.Y. July 21, 2017)  

Among the more notable cyber-rulings of 2017, was this determination by a federal district court in Manhattan 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.

17.       Atlantic Cas. Ins. Co. v. Garcia, No. 17-1224 (7th Cir. Dec. 22, 2017)

At year’s end, the Seventh Circuit ruled that an Indiana District Court did not err in granting summary judgment to a CGL insurer for the cost of investigating and remediating oil and solvent contamination due to dry cleaning operations prior to the time that the insured had acquired the property in 2004.   Notwithstanding the insured’s argument that the Montrose “claims in process” language in the CGL insuring agreement did not apply because they were unaware of earlier pollution and pre-2004 state environmental claims investigations, the Seventh Circuit found that the language turned on whether property damage had begun before the policy and not whether the insured knew that a claim was pending against it.  

18.       Haley v. Kolbe & Kolbe Millwork Co., 2017 WL 2953042 (7th Cir. Aug. 8, 2017)

Notwithstanding the Wisconsin Supreme Court’s 2016 Pharmacal ruling that extended the “integrated system analysis” to preclude coverage for claims arising out of the incorporation of the insured’s defective ingredient into a product, the Seventh Circuit has ruled that a Wisconsin District Court erred in applying Pharmacal to defeat  coverage for water intrusion claims arising out of defects in the insured’s window products.   Whereas the court below had declared that windows do not have any function except in conjunction with the home as a whole, the Seventh Circuit declared that unlike the defective pills at issue in Pharmacal, the plaintiffs in this case were seeking damages for the repair and replacement of specific elements of a larger structure.  Further, while agreeing that the “your product” exclusion barred coverage for the cost of removing and replacing the actual windows, the court declined to apply it to claims for cracked stucco and other interior damage to the home, rejecting the insurers’ argument that these were materials “furnished in connection with such goods or products.”

19.       Great Divide Ins. Co. v. Lexington Ins. Co., SJC-12164 (Mass. Nov. 1, 2017).  

In November, the Supreme Court of Massachusetts rejected an excess insurer’s argument that its “true excess” status trumped an “excess” other insurance clause in an auto policy.  Rather, the court ruled that because of these automobile liability policies contained conflicting "excess" provisions each must  contribute to the loss.  While acknowledging that a majority of courts in other states have held that a primary policy with an "other insurance" clause is essentially a primary policy and therefore it must be exhausted before a "true excess" policy is triggered, the SJC ruled that its interpretation of the policies reflected the actual language and not the perceived intent of the parties.  As a result, the court ruled that the Great Divide policy clearly covered the same level of excess risk for non-owned vehicles" as does the "excess" provision in the Lexington policy and that both policies therefore apply.   

20.       Nationwide Mut. Ins. Co. v. Pasiak, SC 19618 (Conn. Dec. 19, 2017)  

The Connecticut Supreme Court refused to find that public policy precludes insurers from having to indemnify their policyholders for punitive damage awards.  The court distinguished its 1992 opinion in Bodner as turning on the purpose of UIM coverage and emphasized the fact that this particular policy specifically insured intentional acts such as false imprisonment.  The court declared that: “It is not seemly for insurance companies to collect premiums for risks which they voluntarily undertake, and for which they actively advertise in competition with other companies, and then when a loss arises to say ‘It is against public policy for us to pay this award.’’’  

21.       Brownlee v. Liberty Mut. Ins. Co., No. 1 (Md. Dec. 18, 2017)  

On a certified question from a federal district court, the Maryland Court of Appeals has ruled that the public policy of Maryland would not be violated by applying Georgia law to the issue of whether an absolute pollution exclusion in a policy issued in Georgia to the Salvation Army precludes coverage for lead paint claims involving property owned by the insured in Baltimore.  The court ruled that Maryland’s principle of lex loci contractus required the application of Georgia law and that the mere fact that the Georgia Supreme Court had adopted a broader view of such exclusions than Maryland courts was not a basis for overthrowing this contractual principle on the grounds of public policy.  

22.       Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., No. SC16-1420 (Fla. Dec. 14, 2017)

A divided Florida Supreme Court ruled in December 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  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 they 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.  

23.       Liberty Mutual Fire Ins. Co. v. Casey, No. 16-P-32 (Mass. App. Ct. Mar. 29, 2017)  

The Appeals Court has ruled that an incident in which the insured twice deliberately assaulted an individual with a premeditated intent to injure him was excluded from coverage despite the fact that the insured had been drinking and had been smoking marijuana.  The court found even though the insured may have been drunk and/or stoned, he was still acting in accordance with a previously conceived plan to “whack” the victim and had not lost the capacity to understand what he was doing.  The Appeals Court distinguished these circumstances from those analyzed by the SJC in Talhouni, where the SJC found that an insured tripping on LSD had lost the capacity to form an intent to injure.  

24.       InComm Holdings, Inc. v. Great American Ins. Co., 2017 WL 1021749 (N.D. Ga. Mar. 16, 2017)  

A federal district court in Georgia ruled in March that claims against a debit card processor due to a coding error in InComm’s system for processing chit redemptions that allowed cardholders to redeem single chits more than once, resulting in more funds being added to their prepaid debit cards than actually purchased from retailers did not trigger coverage under a policy insured loss from damage “to money, securities and other property resulting directly from the use of any computer to fraudulently caused a transfer of that property from inside the premises…”   The court ruled that the transfers involved customers’ use of telephones and that telephones are not “computers.”   The court ruled that the mere fact that a computer was later used did not turn phone claims into “computer fraud” and that the losses did not result directly from computer use.  

25.       Perez-Crisantos v. State Farm Fire & Cas. Co., No. 92267-5 (Wash. Feb. 2 2017)  

In a rare victory for insurers, the Washington Supreme Court has ruled that the Insurance Fair Conduct Act that the Washington Legislature enacted in 2007 does not create a new and independent private cause of action for policyholders based upon an insurers' failure to comply with insurance regulations in the absence of evidence that the insurer acted unreasonably in denying coverage or benefits.  The Court ruled that these regulations, which require insurance companies to adjust claims fairly and promptly, are only enforceable by the insurance commissioner in the absence of bad faith on the part of the insurer.  The court took note of the fact that the IFCA explicitly creates a cause of action for first party insureds when they are "unreasonably denied a claim for coverage or payment of benefits" under RCW 48.30.015(1) whereas it does not create a cause of action in the absence of such evidence suggesting that the IFCA was not meant to create a cause of action for all regulatory violations.  The Supreme Court also ruled that the trial court had properly granted summary judgment to State Farm notwithstanding the insured’s contention that he should have been able to undertake further discovery with respect to internal compensation and incentive programs for claims processing.  

26.       Olin Corp v. OneBeacon American Ins. Co., 864 F.3d 130 (2nd Cir. 2017)  

In the latest chapter of an environmental coverage saga that dates back to 1983, the Second Circuit ruled in July 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.  

27.       Arden v. Forsberg & Umlauf, P.C., 402 P.3d 345 (Wash. 2017)  

In September, the Washington Supreme Court ruled that a Seattle defense firm was not ethically conflicted from accepting the defense of the policyholder claimant merely because the firm had a longstanding relationship with the insurer that had hired it, including numerous direct representation of that insurer in first party coverage disputes.  Arden had argued that the Forsberg firm should have disclosed their links to The Hartford at the time that they were hired to represent him.  Unlike its earlier holding in Tank, which had imposed a heightened duty on insurance defense counsel in disputed coverage cases, the Supreme Court ruled that there was no “inherent conflict” presented by counsel’s engagement, particularly as The Hartford did not issue a reservation of rights until months after counsel had been appointed and because The Hartford had made active efforts to settle the case even after issuing the RoR.  The court found no evidence that the firm had favored The Hartford over their insured client or that the insured had suffered any negative consequences due to this lack of disclosure.  

28.       Los Angeles Lakers, Inc. v. Federal Ins. Co., 2017 WL 3613340 (9th Cir. Aug. 23, 2017).  

A fragmented panel of the Ninth Circuit ruled in August that the L.A. Lakers are not entitled to D&O coverage for class action claims when, during a basketball game, the Lakers invited attendees to send a text to a specific number and then sent a response text message using an “automatic telephone dialing system,” in violation of the TCPA.  In the majority opinion, Judge Smith, joined in a concurrence by Judge Murphy, ruled in that as TCPA violations are an inherent invasion of privacy the suits clearly fell within a “personal injury” exclusion to Federal’s D&O policy.  The majority rejected the insured’s argument that the exclusion did not preclude coverage since plaintiffs were seeking recovery for “economic injury” and had expressly disclaimed any right to recover personal injury declaring that their claims all clearly “arose out of” these alleged invasions of privacy.  Judge Murphy concurred on the narrower basis that the class representative’s claim did expressly seek recovery for invasion of privacy.   Judge Tallman dissented, arguing that because TCPA claimants are not required to prove an invasion of privacy, TCPA claims are not a per se invasion of privacy.  

29.       Air Master & Cooling, Inc. v. Selective Insurance Company of America, No. A-5415-15T3 (App. Div. Oct. 10, 2017).

In October, the Appellate Division applied a continuous trigger of coverage to a construction defect claim but cut off the continuing trigger on a “known loss” basis.  The court ruled that although the use of the continuous trigger doctrine is "most readily justified" in the context of progressive bodily injury claims such as mesothelioma, New Jersey law clearly supports its application to cases of progressively developing property damage caused by water intrusion.  The Appellate Division ruled, however, that the end date for a continuous trigger is the point in time when the particular damage at issue becomes known to the parties, rejecting the insured’s argument that coverage should continue until such time as it becomes known that the damage is attributable to the conduct of the insured.  The court ruled that this sort of tolling argument made sense in the context of the statute of limitations but had no application to the applicable trigger of coverage for such claims.   

30.       American Economy Ins. Co. v. Hartford Fire Ins. Co., No. 16-35059 (9th Cir. May 26, 2017)

The U.S. Court of Appeals for the Ninth Circuit ruled in this unpublished opinion that a Washington District Court did not err in declaring that a CGL insurer did not owe coverage for allegations that the insured surreptitiously used spy ware to take screen shots and track keystrokes on laptop computers rented by the insured’s customers.  In a very brief opinion, the court ruled that while these claims potentially involved “privacy” claims under Coverage B, they were excluded as involving violations of statute governing the distribution or transmission of material.  As a result, the court ruled that Hartford and Liberty Mutual were entitled to be reimbursed for defense costs that the carriers had paid in the interim.  The Ninth Circuit was unpersuaded by the insured’s argument that the law of Pennsylvania or Washington should be applied or that its objection three years late constituted a rejected of the defense under a reservation. 

Five Appeals to Watch In 2018

California - The Ninth Circuit has sent a certified question to the California Supreme Court, asking whether “California’s common law notice-prejudice rule a fundamental public policy for the purpose of choice-of-law analysis?”  At issue in Pitzer College v. Indian Harbor Ins. Co., No. 14-56017 (9th Cir. Jan. 13, 2017) is whether a California District Court, applying New York law, correctly granted summary judgment to an EIL insurer based upon the insured’s decision to carry out an environmental clean up without give notice to or obtaining the insured’s consent for the work.  The Ninth Circuit has also asked the Supreme Court to decide whether the consent requirement in Indian Harbor’s EIL policy is a notice condition subject to a requirement of prejudice to preclude coverage.

The California Supreme Court also announced at the end of 2017 that it will review the Court of Appeal’s decision in Montrose Chemical Corp. v. Superior Court, B272387 (Cal. App. Aug. 31, 2017) that an insurer may not “electively stack” its environmental liability losses to access excess insurance in any year where it has exhausted all underlying policies but still has low layer coverage in other years. 

Connecticut - The Connecticut Supreme Court announced in 2017 that it would grant view of the Court of Appeal’s lengthy decision on trigger and allocation issues in asbestos cases in R.T. Vanderbilt discussed above.  

Massachusetts - The Supreme Judicial Court of Massachusetts announced on September 15 that it will accept direct appellate review of Holyoke Mut. Ins. Co. v. Vibram USA, Inc., SJC 12401, in which a Superior Court judge both ruled that trademark and privacy disputes involving the unauthorized use of a famed marathoner’s name for a running shoe did not trigger coverage did not involve an invasion of privacy or use of an “advertising idea” under Coverage B and that the prevailing insurers, despite having been found not to owe any duty to defend, had no right to recoup costs that they had paid in the interim.

Texas - The Texas Supreme Court announced in late 2017 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.

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