Sep 14 2018

MM Insurance News 9/14/18

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SEVENTH CIRCUIT    “Property Damage”/Bad Faith (IN)

The Seventh Circuit has ruled that a settlement that an insured negotiated to resolve a customer’s claim for lost profits due to its inability to sell plastic containers due to a defective component supplied by the insured failed to seek recovery for “property damage” under Indiana law.  In Berry Plastics Corp. v. Illinois National Ins. Co., No. 17-1815 (7th Cir. Sept. 10, 2018), the court observed liability insurance is intended to provide coverage for bodily injury or property damage that is caused by the insured's product after it leaves the manufacturer's hands and are not intended to insure "risk from the disappointed commercial expectations of the manufacturer's customer." Whereas the insured had argued that the lost profits should be deemed to have occurred "because of" the damage to some of the containers because the loss would never have occurred "but for" the failure of those containers, the Seventh Circuit predicted that the Indiana Supreme Court would take a narrower view and declared that coverage did not apply here because the lost profits were not specifically due to property damage but rather resulted from the failure of the insured's foil laminate product "to function as expected and warranted."  Having refused to find coverage, the Seventh Circuit also affirmed the lower court's dismissal of the insured’s bad faith claim.

CALIFORNIA    Duty to Defend/Estoppel/Bad Faith

One of the longest-running DJs in California concluded last week when a federal judge declined to set aside a jury’s $4.7 million verdict in favor of the residents of a mobile home park.  In Anderson v. Nationwide Mut. Ins. Co., No. 12-1057 (E.D. Cal. Sept. 7, 2018), Judge England concluded that (1) Century Surety had breached its duty to defend because there was a possibility that new drainage problems and flooding had occurred during its policy causing new and different damage than what had occurred earlier; (2) the insureds in this case suffered damage in the form of a Stipulated Judgment in favor of the tenants even though the insured had no personal liability to pay any part of this judgment; (3)  having wrongfully failed to defend, Century Surety lost the right to contest whether the resulting judgment was covered under its policy.  The District Court also declined to find that the Stipulated Judgment was unreasonable and not the product of arms-length negotiation while also rejecting Century Surety’s contention that it could not be liable for more than its policy limit.

FLORIDA    First Party/Assignments

In a case that may finally result in a ruling from the Florida Supreme Court concerning the viability of anti-assignment provisions in property insurance policies, the Florida District Court of Appeal has ruled in Restoration 1 of Port St. Lucie v. Ark Royal Ins. Co., No. 4D 17-1113 (Fla. 4th DCA Sept. 5, 2018) that a property insurer was entitled to reject a claim by a water restoration company based upon one spouse’s assignment of her rights following a first party loss in light of the wife’s failure to obtain the consent of her husband and mortgagees to the assignment.  Although the Florida Supreme Court has not enforced such clauses against the rights of insurers, the Fourth District declared that these precedents did not apply where the objecting party was an insured or mortgagee.   As the Fifth District has not recognized this distinction, the Florida Supreme Court may take the case to resolve this conflict.

ILLINOIS    Coverage B/Privacy

Allegations that a telemarketer fraudulently claimed that its product were free and then charged exorbitant fees for shipping and handling have been held to fall outside of a CGL policy’s coverage for invasion of privacy.  Unlike the Illinois Supreme Court's TCPA decision in Swiderski, Judge Ellis ruled in Nu Wave LLC v. Cincinnati Specialty Underwriter Insurance Company, No. 16 4504 (N.D. Ill. Sept. 5, 2018) that coverage did not extend to the right to be protected from lengthy phone calls especially where, as here, the consumer had initiated the call by telephoning the telemarketer.

MAINE    Duty to Defend/”Bodily Injury”

A federal district court has ruled in Zurich-American Ins. Co. v. Electricity Maine LLC, No. 17-165 (D. Maine Sept. 7, 2018) that a liability insurer was obligated to provide a defense to a lawsuit in which an electric utility’s customer claimed that the insured had violated RICO by scheming to lure them into long-term and above-market-rate service contracts.  Despite Zurich’s argument that such claims required proof of intentional acts that precluded any possibility of an “occurrence,” Judge Torreson found a duty to defend since “theoretically” one party could mislead another without intending to do so.  More surprisingly, the District Court found that there was a possibility that the customers had suffered “bodily injury.”   Even though their complaint only alleged “substantial economic harm,” the court found that the allegations did not rule out the possibility at trial that the customers had suffered mental anguish as a result.

MASSACHUSETTS    Coverage B/”Advertising Idea”

The Supreme Judicial Court has ruled that a running shoe manufacturer’s use of the name of a famed African barefoot marathon runner alleged the use of “another’s advertising idea” so as to trigger a duty to defend under Coverage B.  Whereas the insurers argued that the family’s suit against Vibram only involved a claim for a right of publicity and did not involve an “advertising idea” because the name “Bikila” did not contain any “secondary meaning” associated with the advertised product,   the Supreme Judicial Court ruled in Holyoke Mut. Ins. Co. v. Vibram USA, Inc., SJC-12401 (Mass. Sept. 12, 2018) that “advertising idea” is a broad term that encompasses “a wide variety of concepts, methods and activities related to calling the public’s attention to a business, product or service.”  Having found that the insurers had a duty to defend, the SJC did not reach the other issue that had been briefed to the court, namely whether the insurers were entitled to recoup defense costs they had paid up to the time that the court ruled that they did not have a duty to defend.

NEW YORK    Environmental

Olin Corporation has reportedly agreed to accept $120 million to resolve its environmental coverage dispute with Lamorak Insurance that is presently being tried in the Southern District before Judge Rakoff (Olin Corp. v INA, No. 84-1968 (S.D.N.Y.).


* * * Inside the Insurance Industry * * *

Lloyd’s of London announced last Friday that John Neal, the former head of QBE Insurance Group Ltd., will replace Inga Beale as its new chief executive officer.

* * * Restating the Law * * *

The ALI Reporters released “Revised Proposed Final Draft No. 2” last week, setting forth the changes that were agreed to at the May 22 ALI final debate on the Restatement of Law, Liability Insurance as well as additional legal authority and comments.  This revised draft is preliminary to the final text of the Restatement being published by West’s later this Fall.

The second of this month’s DRI webinars on the insurance Restatement is scheduled for 1 p.m. Eastern on September 25.  Michael Aylward (MM), Tom Chaseman (AIG) and Joanne Locke (Liberty Mutual) will address the Restatement’s controversial provisions for policy interpretation as well as substantive coverage issues, such as coverage for intentional acts, long-term claim covers and excess exposures.
Here’s a link to the written materials accompanying the September 25 program.

* * * Sins of the Fathers * * *

Spurred on by a grand jury’s shocking recounting of sexual abuse by Catholic priests in Pennsylvania, the Attorneys-General of New York, New Jersey, Illinois, Missouri, Nebraska and New Mexico have begun investigations of their own according to a report in last Friday’s New York Times.

* * * Across the Bar * * *

It was bad enough that the Bridge of Spies movie began with the Tom Hanks character explaining why multiple victims of an auto accident are only entitled to a single “occurrence” limit.  Now here is Judge Kavanagh testifying before the Senate Judiciary Committee that the evidence of his willingness to side against big, bad corporations is his opinion in Essex Ins. Co. v. Doe, No. 06-7163 (D.C. Cir. Jan. 4, 2008), a case that he characterized as one in which the insurer was trying to “squeeze” a victim of sexual abuse by characterizing abuse by multiple individuals at a single facility as being subject to a single $100,000 “occurrence” limit.   Gosh, can insurance lawyers stand all this public scrutiny??  Will people who sit next to us on airplanes start to understand what we really do?  Help.

* * * Cyber News * * *

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

Boston MM partners Michael Aylward and Steve Bolotin will be delivering a lecture on liability, risk management and insurance coverage issues arising out of cyber-risks at the IADC’s regional meeting in Boston on September 25.

* * * A Bad Wind’s Blowing * * *

Even as Hurricane Florence approached the Carolina coast, environmental groups are expressing concern that torrential rains and flooding could cause widespread dispersal of hog manure that is contained in hundreds of open pits in the flood plain.

* * * California Burning * * *

The California Department of Insurance reports that insurers have already received more than 10,000 claims from the Carr and Mendocino Complex wildfires that will result in insured losses of over $845 million.

* * * Opioids * * *

Vermont has become the latest state to sue Purdue, alleging fraudulent marketing and misrepresentations with respect to OxyContin.

* * * Mark Your Calendars * * *

DRI will be holding a one day insurance claims conference in Hartford on September 27.   Registration is free for all insurance company employees.

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.

Registration is now open for the DRI’s annual Insurance Claims and Practice Symposium at the Sheraton Hotel in New York City on November 27-29.

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