May 16 2018

MM Insurance News 05/16/18

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NOTEWORTHY NEW RULINGS

SECOND CIRCUIT Limitations Periods (CT)

The U.S. Court of Appeals for the Second Circuit has asked the Connecticut Supreme Court to clarify what it means for there to be a "continuing course of conduct" that might toll the 3‑year statute of limitations. In a dispute between an insurance company and an adjuster, the Second Circuit declared in Evanston Insurance Company v. William Kramer and Associates LLC, 16-2082 (2nd Cir. May 2018) that the evidence in this case was unclear and did not justify the District Court's entry of judgment for the defendant when the jury had found a continuing course of conduct. The case was therefore forwarded to the Connecticut Supreme Court for determination of whether the relationship between Evanston and the adjuster satisfied the special relationship circumstances that might require a tolling of the 3-year statute of limitations.

ELEVENTH CIRCUIT Computer Fraud (GA)

The Eleventh Circuit has ruled that $11.4 million that the insured lost when hackers manipulated the insured’s computerized interactive telephone system to permit customers to repeatedly redeem “chits” to their debits cards did not “result directly” from computer fraud. In Interactive Communications Int’l Inc. v. Great American Ins. Co., No. 17-11712 (May 10, 2018) (unpublished), the court ruled that “although the fraudsters' manipulation of InComm's computers set in motion the chain of events that ultimately led to InComm's loss, their use of the computers did not ‘directly’ – which is to say immediately and without intervention or interruption – cause that loss” as several steps intervened between the fraudulent manipulation of the IVR system to enable duplicate chip redemptions and the insured's ultimate loss.

CALIFORNIA E&O

The Fourth District has ruled that a "Life Insurance Agent's Errors and Omissions" did not cover claims that the insured had conspired with customers to avoid taxes. In Lindsey Financial Inc. v. American Automobile Ins. Co., EO67037 (Cal. App. May 8, 2018) (unpublished), the Court of Appeal declared that the claims against the insurance agent were based upon its financial planning and consulting services in connection with a tax-avoidance scheme and did not involve “the rendering of or the failure to render professional services in connection with a Covered Product" and were, in any event, subject to an exclusion for tax preparation services or financial advice.

CONNECTICUT First Party/”Collapse”

Judge Underhill has issued an order in Karas v. Liberty Mut. Ins. Co., No. 13-1836 (D. Conn. Apr. 30, 2018) in one of the numerous pending first party coverage disputes involving the availability of “collapse” coverage for crumbling home foundations, asking the Connecticut Supreme Court to explain what it means for there to have been a “substantial impairment of structural integrity” in order to trigger collapse coverage.

ILLINOIS Coverage B/Malicious Prosecution/Trigger

The Appellate Court has rejected arguments that allegations that a law professor conspired to falsely blame the plaintiff for a murder that he was ultimately found not to have committed should give rise to “personal injury” coverage in the policy year when the claimant was ultimately exonerated. Notwithstanding the claimant's argument that the offense of "malicious prosecution" does not exist until such time as the claimant is exonerated, the Sixth Division aligned itself with numerous other Illinois precedents on this issue, declaring in First Mercury Ins. Co. v. Ciolino, 2018 Ill. App. (1st) 171532 (Ill. App. Ct. May 11, 2018) that coverage should only arise in the policy year in which the malicious prosecution commenced. The Appellate Court also rejected the insured’s argument that he should be entitled to coverage in any event owing to an agent's statement to him that the First Mercury policy would cover claims for malicious prosecution, noting that the agent had not specified which policy or policies were being described nor had the plaintiff shown justifiable reliance on any such misrepresentation

MASSACHUSETTS Asbestos/Independent Counsel

The Supreme Judicial Court issued an order last week in OneBeacon America Corp. v. Celanese Corp., FAR 25694, denying the insured’s request that the SJC accept review of the Appeals Court’s 2017 opinion that it was not entitled to independent counsel for the defense of underlying asbestos suits and that, having rejected OneBeacon’s proffered defense, was not entitled to be reimbursed for the fees that it had paid to its own chosen counsel in the interim.

NEW YORK Absolute Pollution Exclusion

A state trial court has ruled in National Union Fire Ins. Co. of Pittsburgh, PA v. Burlington Ins. Co., 2018 N.Y. Misc. LEXIS 1503 (Sup. Ct. April 27, 2018) that an absolute pollution exclusion did not apply to liability claims arising out of the insured’s alleged failure to provide first responders at the World Trade Center with proper respirators or other protective gear. The court rejected Burlington's argument that the pollution exclusion should apply since "none of the workplace safety issues or injuries would exist but for the polluted environment."

NEW YORK Declaratory Relief/Standing

The Appellate Division has ruled in Preferred Contractors Insurance Company Risk Retention Group LLC v. Nuway Interior Corp., 2015-0709730 (App. Div. May 2, 2018) that other defendants in a declaratory judgment action had not been injured by the court’s entry of a default judgment as to the insureds for failing to appear or answer and therefore lacked standing to appeal that order.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

PCIAA and ISO report that the net income of domestic P&C companies fell 16% in 2017 to $36.2 billion and that the industry’s combined ratio rose to 103 percent. The U.K. Intellectual Property Office has rejected efforts by Marsh to prevent start up insurer Marshmallow from trademarking its name. In a fourteen page opinion, the IPO concluded that the slight similarity between “Marsh” and “Marshmallow” was unlike to confuse consumers and “that the very different conceptual messages conveyed by the words MARSH and MARSHMALLOW (meanings will which fix themselves in the mind of the average consumer and act as a hook to aid their recall), are more than sufficient to offset the moderate degree of visual and aural similarity between these words.” Hannover Re has announced plans to merge its specialty lines business with that of HDI Global. The new company (HDI Global Specialty Risk" will underwrite agency and specialty insurance business for E&O, D&O, sports and entertainment, aviation, offshore energy and other exotic lines of insurance risks.

* * * Lawyers, Guns and Money * * *

Having already sued Lockton for its refusal to market insurance products for gun owners, the National Rifle Association has now also sued New York’s Governor and its top insurance regulations, claiming that the First Amendment rights of its members were infringed guidance letters sent banks and insurers urging them to cut their ties to the NRA.

* * * Asbestos Update * * *

The U.S. Supreme Court agreed this week to accept review of the Third Circuit’s ruling last year in In Re Asbestos Products liability Litigation, No. 16-2602 (3d Cir. Oct. 3, 2017) on the issue of whether manufacturers can be liable under maritime law where their products are modified after the fact to include asbestos components.

* * * Across the Bar * * *

The American Bar Association reports that the number of lawyers in the United States rose 15.2 percent over the past decade to 1,338,678 attorneys.

* * * Cyber Update * * *

Here’s a link to Morrison Mahoney’s weekly cyber claims newsletter.

* * * Restating the Law * * *

With the scheduled vote on the Restatement of Law, Liability Insurance now only a week away, the American Law Institute has posted an on-line video from Reporter Tom Baker trying to explain the tortured evolution of the Restatement’s treatment of the plain meaning rule and contra proferentem.

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