Aug 8 2018

MM Insurance News 8/10/18

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NOTEWORTHY NEW  RULINGS

D.C. CIRCUIT    First Party/”Vacancy” (DE)

The U.S. Court of Appeals for the D.C. Circuit has ruled in Katopohis v.  Windsor-Mount Joy Mut. Ins. Co., No. 16-7132 (D.C. Cir. July 31, 2018) that water damage to the insured’s vacation home on the Delaware shore fell outside the scope of their homeowners’ policy as the insureds had failed to comply with a policy provisions requiring that water be shut off if the property was going to be unoccupied for 72 hours or longer.  The court rejected the insured’s argument that the limitations imposed by the vacancy endorsement rendered the policy language ambiguous, noting that it was in the nature of endorsements to modify the policy’s grant of insurance.  The court also declared that this limitation did not violate the insured’s reasonable expectations of coverage, as it was not hidden in fine print and was clearly stated. 

FIFTH CIRCUIT     “Other Insurance”/Allocation/Burden of Proof (TX)

The Fifth Circuit has ruled that language in a contractor’s excess liability insurance making it excess to “other insurance” included sums that the insured was contractually entitled to recover from subcontractors pursuant to indemnification agreements.   In keeping with its 2010 opinion in RSR, the court declared in Satterfield & Pontikes Construction Co. v. U.S. Fire Ins. Co.,  No. 17-20513 (5th Cir. Aug, 2, 2018) that settlement proceeds resulting from an indemnity agreement also count as “Other Insurance.”  Further, the Fifth Circuit agreed with the Texas District Court that it was the insured’s burden to allocate its settlements with subcontractors in a case where, as here, much of the recoveries were for mold damage that was excluded from coverage. 

CONNECTICUT   First Party/"Collapse”/Crumbling Foundation Claims

A Federal District Court in Connecticut has ruled in Andrew v. Allstate Ins. Co., No. 17 1192 (D. Conn. July 24, 2018) that allegations that the insured's basement foundation is crumbling due to defective concrete did not involve any "sudden" collapse within the scope of Allstate's homeowner's coverage.  Having found that the loss was not covered, Judge Shea also granted summary judgment to Allstate with respect to the insured's statutory bad-faith claims.  

DELAWARE    “Damages”/Disgorgement/Consent

Despite the fact that New York law precludes coverage for an insured’s disgorgement of profits, the Delaware Supreme Court has ruled in In Re:  TIAA/CREF Insurance Appeals, No. 478, 2017 (Del. July 30, 2018) that coverage was permitted in this case because the broker did not take monies from investors but rather allocated them through a risk sharing arrangement that spread the costs and benefits among all of the investors.   The court also  ruled that TIAA/CREF had sustained its burden of proving the reasonableness of $7.5 million in defense costs and that Arch had waived the right to argue that the insured did not obtain its consent before settlling two of the underlying class action suits.

ILLINOIS    “Claims Made and Reported”/Late Notice

The Appellate Court has ruled in Southwest Disability Services and Support v. Proassurance Specialty Ins. Co., 2018 IL App (1st) 171670 (Ill. App. Ct. July 27, 2018) that a "claims made and reported" liability insurance policy did not provide coverage for a claim that was received 9 months after the policy expired.  In affirming the lower court's entry of judgment for Proassurance, the First District observed that the policy unambiguously required that notice of occurrence be "reported during the policy period."  The court rejected the insured's effort to conflate this coverage requirement with a late notice defense, nor did it rule that the insurer's failure to defend or commence an action for declaratory relief was a basis for imposing estoppel in light of the fact that there was no coverage under the policy to begin with.

MARYLAND    Auto/UIM/EUO

The Maryland Court of Special Appeals has ruled in Dolan v. Kemper Independent Ins. Co., No. 0084 (Md. App June 28, 2018) that an insured forfeited its right to obtain UIM benefits by refusing to appear for an examination under oath.  The intermediate appellate court declared that the insured's failure to appear was both a breach of the insurance contract and a failure to satisfy a condition precedent to UIM coverage, nor could the insured remedy these defects by subsequently submitting to a discovery deposition. 

TEXAS    Duty to Defend/”Four Corners” Doctrine

A federal District Court has ruled in Everest National Insurance Company v. Gessner Engineering, 2018 WL 3361458 (S.D. Tex. July 10, 2018) that because Texas follows a strict "four-corners" analysis of the duty to defend, a liability insurer was obliged to provide a defense to a construction defect lawsuit, notwithstanding and exclusion in its policy for claims of which the insured is already aware since the current Complaint against the insured an earlier action filed before Everest’s policy that the plaintiff had voluntarily dismissed.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

David McElroy of Arch Insurance has been hired by AIG to be the new Chief Executive Officer of Lexington Insurance.   Meanwhile, AIG announced on Thursday that its quarterly profit fell 17%.

Berkshire Hathaway has reported earnings of $943 million for the second quarter of 2018 compared to a $22 million loss in the same period last year.

The Senate voted last week to extend the National Flood Insurance Program for another four months.

Mike Chaney has announced that he will seek re-relection to a fourth term as the Insurance Commissioner of Mississippi when his current term expires in 2019.

 * * * Restatement Fallout * * *

Ohio Governor John Kasich signed SB 239 last week, authorizing local governments to implement procedures to encourage tourism in the Buckeye State.   Imagine our surprise, therefore, to sign this sleepy little provision tucked away inside this Trojan Horse:

Sec. 3901.82. The Restatement of the Law, Liability Insurance that was approved at the 2018 annual meeting of the American law institute does not constitute the public policy of this state and is not an appropriate subject of notice.

 This is fascinating.  Was the legislature concerned that this Restatement would curtail tourism in Ohio?  Did Tom and Kyle misbehave at a conference in Cleveland?  Will local governments in Ohio benefit from taking this principled stand against the ALI?  Who knows?  Stay tuned!

* * * California Burning * * *

The Mendocino Complex fire in norther California is now the second largest in the state’s history.  At week’s end, it had scorched nearly 300,000 acres of land in Lake County.

* * * Asbestos * * *

The Pennsylvania Supreme Court announced last week that it would grant review of Roverano v. John Crane, Inc., in which the Superior Court ruled last year that the Fair Share Act, which the legislature adopted in 2011 and which does away with joint and several liability in most cases, applies to asbestos litigation.

* * * Cyber News * * *

A local bank in Virginia has sued the insurer that issued a financial institution bond, alleging in National Bank of Blackburg v. Everest National Ins. Co., No. 18-310 (W.D. Va.) that the insurer is acting unreasonably in treating a $2.4 million hacking theft by Russian cyber-criminals as being subject to the bond’s $50,000 Debit Card Rider limit instead of the Coverage and Electronic Crime Rider.

* * * New Coverage Litigation * * *

Michigan State University has sued its long-time liability insurer United Educators and twelve other insurers in state court in Michigan seeking coverage for claims arising out of sexual assaults by Dr. Larry Nassar, including a $500 settlement fund that it agreed to create last May to compensate the victims of Nassar’s assaults.

* * * E&O Exposures * * *

A Los Angeles jury has rejected a malpractice claim against the insured’s law firm for failing to seek coverage for the underlying employment discrimination action, finding in Landmark Worldwide, LLC. v. Seyfarth Shaw, LLP, Case No. BC635695, Cal. Super. June 29, 2018) that the scope of the firm’s duties did not extend to providing advice on coverage-related matters.

* * * Mark Your Calendars * * *

The American College of Coverage and Extra-Contractual Counsel will be holding its annual legal symposium at the American University law school in Washington, D.C. on October 26.

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