Jul 19 2018

MM Insurance News 7/20/18

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The Second Circuit has summarily affirmed a Connecticut District Court’s ruling that Travelers must defend sexual abuse claims against the Saint Francis Hospital for its negligent supervision of an endocrinologist who practiced at the hospital and allegedly sexually abused dozens of children between 1963 and 1993.  Without clearly deciding issues relating to whether Travelers owed both professional liability and CGL coverage, the court ruled in Pacific Employers Insurance Company v. Saint Francis Care Inc, No. 16 2747 (2d Cir. July 6, 2018) that because the claims were covered under Travelers’ CGL policies, it could not “cabin” the loss to a single year based upon the policies’ non concurrency clauses.

SIXTH CIRCUIT  Cyber-Theft/”Computer Fraud” (MI)

The U.S. Court of Appeals for the Sixth Circuit has ruled that a Michigan manufacturer is entitled to coverage for sums that were stolen from it by a fraudster that masqueraded as its vendor in China.  In American Tooling Center, Inc. v. Travelers Cas. and Sur. Co. of America, No. 17-2014 (6th Cir. July 13, 2018), the Sixth Circuit ruled that this was a “direct physical loss” as ATC "immediately lost its money when it transferred the approximately $834,000.00 to the impersonator; there was no intervening event."  On the issue of whether this theft constituted "computer fraud", the Sixth Circuit contrasted the facts in this case to Pestmaster Services, in which the Ninth Circuit had ruled in favor of Travelers on this issue in a case where the fraudulent conduct occurred without the use of a computer.  The Sixth Circuit declared that in this case the impersonator had sent ATC fraudulent emails using a computer and that these emails fraudulently caused the insured to transfer the funds to a third-party account.  The Court of Appeals declared that if Travelers had intended to limit the scope of its "computer fraud" coverage to situations in which a third party gains access to or actually hacks into the insured's computer, it should have drafted the operative policy language more narrowly.

DELAWARE  Asbestos/Assignments/Choice of Laws

In a major victory for Travelers, the Delaware Supreme Court has ruled in The Travelers Ind. Co. v. CNH Industrial America, Inc., No. 420, 2017 (Del. July 16, 2018) that a trial court erred in applying Wisconsin law to the issue of whether the original insured’s rights could be validly assigned to a successor entity without the insurer’s consent.   The policies in question had been assigned to CNH by the insured’s parent corporation (Tenneco) as part of a 1994 corporate reorganization.  In light of its 2017 holding in Chemtura that policies insuring risks around the country should be interpreted in accordance with Section 188 of the Restatement (Second), Conflicts of Law with an emphasis on consistency and predictability, the Delaware Supreme Court ruled that Texas law should have applied as being the state with the most significant relationship to the policies.  Even though the insured subsidiary in question had been headquartered in Wisconsin at the time, the court emphasized the fact that the policies had been negotiated and procured through the parent corporation Tenneco’s offices in Texas.  As Texas law does not permit unconsented-to assignments, the Supreme Court set aside a $17.3 million judgment that the trial court had entered against Travelers for  CNH’s inherited asbestos liabilities.

DELAWARE  Asbestos/Allocation/Excess

The Delaware Supreme Court has ruled that GM’s successor is barred from obtaining excess coverage for legacy asbestos liabilities in light of representations that GM made in an earlier law suit against its primary insurer (Royal).  In  Motors Liquidation Co. DIP Lenders Trust v. Allstate Ins. Co., et al., No. 381, 2017 (Del. July 10, 2018), the Supreme Court affirmed a Delaware trial court’s finding that the successor entity was judicially estopped from arguing for an “all sums” allocation of these liabilities based on Delaware law in light of representations that GM had made in the earlier litigation against Royal that had convinced a judge in Delaware court to stay Royal's DJ in favor of GM’s coverage suit in Michigan.  The Delaware Supreme Court also noted that GM's counsel had assured the trial court at the time that the post-1971 policies were all written on a "claims made" basis and had further assured the court that it never intended to make a claim under these policies.  Additionally, despite the fact that these excess policies contain "occurrence"-based wording, whereas the primary Royal policies were amended after 1971 to provide coverage on a “claims made” basis, the Supreme Court ruled that any inconsistency between these provisions must give way to language in the excess policy stating that they only applied to losses that were also covered by the primary policy. 

SOUTH DAKOTA  Auto/Bad Faith

The South Dakota Supreme Court has ruled in Harvieux v. Progressive Northern Ins.Co., 2018 S.D. 52 (S.D. July 3, 2018)  that an auto insurer did not act in bad faith in disputing its insured's claim for uninsured motorist benefits whether there was a fairly debatable basis for questioning the severity of the claimant's injuries.


* * * Inside the Insurance Industry * * *

JLT Re predicts that the recent flooding in Japan, which has caused hundreds of deaths and vast property damage, may result in billions of dollars in covered losses.

Chubb has named Megan Watt, formerly the head of claims for Everest National,, to helm its U.S. claims operation as Executive Vice-President, Head of North America Claims.

Lloyd’s of London, which has a long history of insuring famous legs, was again successful in predicting the outcome of this year’s World Cup.  The secret sauce to Lloyd’s perspicacity is an algorithm that accounts for the collective insurable value of the players on each team.  The “insurable value” metric reportedly succeeded in predicting the outcome of this year’s matches, including Sunday’s final, 64% of the time. 

 * * * New Coverage Litigation * * *

Houston-based restauranteur Landry's Inc. has sued its insurer for refusing to defend a $20 million claim by J.P. Morgan Chase Bank based on credit card data breaches at the insured’s restaurants in 2014-2015.

* * * IBNR Dept. * * *

The family of a victim of the Waffle House shooting last April in Nashville has sued the father of the shooter, alleging that he was negligent in providing the AR-15-style rifle to his son.

* * * Across the Bar * * *

Troutman Sanders has reportedly raided Crowell & Moring through the hiring of William C. O'Neill, Leslie Davis and Michael T. Carolan in Washington, D.C., Jack Thomas in New York and Steven D. Allison in Orange County, California.

* * * Cyber News * * *

Here’s a link to the latest newsletter from MM’s cyber claims group.

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