Jul 12 2018

MM Insurance News 7/13/18

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NOTEWORTHY NEW  RULINGS

SECOND CIRCUIT  Computer Fraud Coverage (NY)

The Second Circuit has summarily affirmed a New York District Court’s ruling that the victim of a cyber “spoofing” attack was entitled to coverage for its loss under a Computer Fraud policy.  In a brief opinion, the Second Circuit declared in Medidata Solutions, Inc. v. Federal Ins. Co., No. 17 2492 (2d Cir. July 6, 2018) that actual hacking was not required to trigger coverage so long as a third party had fraudulent inserted of data into the insured's computer system.  In this case, the Court of Appeals declared that the spoofing attack quite clearly amounted to a "violation of the integrity of the computer system through deceitful and dishonest access" since the fraudsters were able to alter the appearance of their emails so as to falsely indicate that the emails were sent by a high-ranking member of the company.  The court also rejected Federal’s argument a “direct loss” had not resulted from a covered.  While acknowledging that Medidata employees themselves had to take action in order to cause the transfer and resulting loss of funds, the court concluded that "we do not see their actions as sufficient to sever the causal relationship between the spoofing attack and the losses incurred."

EIGHTH CIRCUIT  Indemnity/Priority of Coverages (MO)

In a dispute between the respective insurers of an apartment complex and the property manager concerning liability for a tragic accident in which an 11 year old girl was accidently struck by bullets that patrons at the insured's swimming pool fired during a July 4 party, the Eighth Circuit has ruled that a Missouri District Court erred in finding that the liability insurers of the property manager were entitled to indemnification from the insurer of the apartment complex (Great American).   In Federal Ins. Co. v. Great American Ins. Co. No. 16-4045 (8th Cir. June 28, 2018), the Court of Appeals ruled that the conduct in question involved "gross negligence" and therefore fell outside the scope of the indemnification provisions set forth in the management agreement for the property.  The case was therefore remanded to determine whether the priority of coverage among these insurers should be determined in accordance with the respective terms of the policies or the contractual arrangements among the insureds.

COLORADO  Discovery/Implied Waiver/”At Issue”

The Colorado Supreme Court has ruled in State Farm v. Griggs, 2018 CO 50 (Colo June 4, 2018) that an insurer did not place any privileged communications “at issue” when it submitted an affidavit from its former attorney to rebut allegations of discovery misconduct.  The Supreme Court declared that an implied waiver should only be found where a client is asserting a claim or defense that depends on privileged information.  In this case, the court found that the attorney's affidavit only set forth facts and did not refer to any claims or defenses nor did it refer to any legal advice that counsel had given to State Farm or, indeed, to any communications between counsel and State Farm.  Finally, the court emphasized the fact that State Farm had not offered the affidavit in support of any claim or defense that depended on privileged information or advice of counsel.

CONNECTICUT  First Party/Crumbling Foundation Litigation

The Connecticut Supreme Court announced this week that it will accept review of the U.S. District Court in Karas v. Liberty Mutual and will answer the following questions with respect to the availability of coverage under older homeowner’s policy forms for crumbling foundation claims in eastern Connecticut:

  1. Is “substantial impairment of structural integrity” the applicable standard for “collapse” under the contract of insurance provision at issue? 
  2. If the answer to Question One is “Yes,” then what constitutes “substantial impairment of structural integrity” for purposes of applying the “collapse” provision of the homeowner’s insurance policy at issue?
  3. Under Connecticut law, do the terms “foundation” and/or “retaining wall” in a homeowner’s insurance policy unambiguously include basement walls?  If not, and if those terms are ambiguous, should extrinsic evidence as to the meaning of “foundation” and/or “retaining wall” be considered?

LOUISIANA  Auto/UM/Stacking/Waiver 

The Louisiana Supreme Court has ruled that a liability insurer did not waive its right to contest an insured’s claim by erroneously paying similar claims in the past.  In giving effect to anti-stacking wordings in State Farm’s auto policy, the court ruled in Forvendel v. State Farm Mut. Automobile Ins. Co., No. 2017-C-2074 (La. June 27, 2018) that finding that the insurer’s erroneous decision to pay a 2007 loss would lead to the “absurd conclusion” that the insurer was forever barred from relying on this limitation to coverage. 

MISSOURI  Auto/Permissive Use 

The Missouri Supreme Court has ruled in Griffitts v. Old Republic Ins. Co., No. SC96740 (Mo. July 3, 2018) the issue of whether a vehicle operator was a permissive user under the omnibus clause of Old Republic's policy was not affected by the fact that the operator was drunk at the time of the accident.  Old Republic had argued that because the employer's rules precluded drinking and driving, the operator was in violation of these rules and could not be operating the vehicle with the named insured's authorization or permission.  The Supreme Court distinguished between the "operation" and "use" of a covered auto, declaring that Campbell's use (as distinct from his "operation" of the vehicle was within the scope of permission given by the named insured and therefore covered under the omnibus insurance clause. 

SOUTH CAROLINA  Auto/UIM/Punitive Damages/Allocation

On A certified question from a federal district court, the South Carolina Supreme Court has ruled in GEICO v. Poole, No. 27821 (S.C. July 5, 2018) that an auto insurer’s coverage for punitive damages need not be prorated between the underlying claims for bodily injury and property damage even though the policy in question was written on a "split limits" basis.  The state Supreme Court declined to find that allocation was required by South Carolina's auto insurance statutes or that a failure to allocate would result in the violation of constitutional due process under BMW v. Gore.  Whether public policy required the apportionment of punitive damages in the context of underinsured motorist claims was, in the court's view, a decision to be addressed by the South Carolina legislature and not its judiciary.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

Dame Inga Beale announced this week that she will be stepping down after five years as CEO of Lloyd’s.  Beale’s departure comes on the heels of Lloyd’s CFO John Parry’s retirement last May.

Swiss Re’s latest sigma report, “World Insurance in 2017,” states that property and casualty premiums increased around the world by 2.8% to $2.2 trillion last year, down from 2016 but above the 10-year average of 2.1%,

The Texas Department of Insurance will hold a public hearing in Austin on July 19 to hear testimony concerning proposals to reorganize the manner in which Texas regulates surplus lines insurance.

 * * * Across the Bar* * *

Chicago-based insurance powerhouse Tressler LLP has added four new lawyers to its coverage group:  William McVisk, Partner in Chicago, Eric Homberg, Senior Associate in Los Angeles, Daniel Zemsky, Senior Associate in Newark and Beth Yoffie, Senior Counsel in Orange County.

 * * * Privacy Claims * * *

 Liability insurers beware---California has a new state privacy statute. 
The California Consumer Privacy Act of 2018, which was signed into law on June 28, 2018, allows consumers to obtain information about personal information that businesses have collected about them and to require that information be deleted and/or not sold to third parties.  The Act only applies to business that have annual gross revenues exceeding $25 million or that have personal information on more than 50,000 consumers or that derive a majority of their income from the sale of personal consumer information.  Violations may be prosecuted by the state Attorney-General but are also subject to a private right of action or class action claims in Section 1798.150 upon thirty days notice to a business and with the consent of the State.

* * * Cyber News * * *

 Marsh L.L.C. has named Kevin Richards to the newly created position of global head of cyber risk consulting.

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