Sep 28 2018

MM Insurance News 9/28/18

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NOTEWORTHY NEW  RULINGS

SECOND CIRCUIT    Sexual Abuse/Intent/Bad Faith (CT)

The Second Circuit has affirmed a Connecticut District Court's ruling that a liability insurer owed coverage for sexual abuse settlements involving a Catholic Archdiocese.  In Hartford Roman Catholic Diocese Corp. v. Interstate Fire and Cas. Co., No. 16 2999 (2nd Cir. Sept. 19, 2018) the Second Circuit ruled that allegations that the Diocese knowingly failed to prevent priests from abusing children fell outside the scope of an assault and battery exclusion in these excess policies as the exclusion was limited to "liability of any Assured for assault and battery committed by or at the direction of such Assured …."  The Second Circuit adopted the view of the dissenting judge in Interstate Fire and Casualty Company v. Roman Catholic Church of Phoenix, 761 F.3d 953 (9th Cir. 2014) that "such assured" was not the same as "any insured" and was restricted to the insureds who commit or direct the wrong.  The court also rejected Interstate Fire's argument that the Connecticut Supreme Court would use an "objective" standard of intent in measuring whether claims such as this constitute an "occurrence."  Despite having found coverage, the Second Circuit also agreed with the District Court that Interstate Fire had not engaged in a pattern or practice of bad faith for which liability might be imposed pursuant to CUIPA and CUTPA.  Although there was evidence that Interstate Fire had engaged in misconduct in its handling of sexual abuse claims in a small percentage of other matters in Connecticut and around the United States, the Second Circuit ruled that Interstate's misconduct in nine cases in a limited sample of 57 cases out of more than 1,700 sexual abuse settlements did not constitute a "prevalent, usual or widespread" practice as required to establish statutory bad faith in Connecticut.

SECOND CIRCUIT    Reinsurance/”Follow the Settlements” (NY)

The Second Circuit has issued a significant reinsurance opinion expanding upon the New York Court of Appeals recent ruling in Global Re v. Century Indemnity Company, 30 N.Y. 3d 508 (2017) while also opening new doors with respect to potential problems for cedents seeking recovery from their reinsurers.  In Utica Mutual Ins. Co. v. Clearwater Insurance Company, No. 16-2535 (2nd Circuit Sept. 25, 2018), the Court of Appeals ruled that a New York District Court had erred in ruling that Clearwater's maximum obligation under various facultative certificates was the stated liability limit of $5 million.  As with Global Re, the Second Circuit pointed out that the certificates contained "follow the form" language that obliged the reinsurer to reimburse the cedent for indemnity payments as well as expenses paid by Utica in its handling and defense of the underlying asbestos claims even to the extent that the result required a payment in excess of $5 million.  The Second Circuit was not persuaded by Utica's argument that it should defer to the amounts that it had paid pursuant to settlements with Gould Pumps, moreover, and declared that the District Court would need to make further findings with respect to the extent to which these payments were covered.  Significantly, the Second Circuit also rejected the District Court's conclusion that the amount of the Goulds Pumps’ settlement that Utica had allocated to Clearwater was reasonable or that a “follow the settlements” obligation could be inferred in this case.  Even though the certificates stated that Clearwater "shall follow the ceding Company's liability in accordance with the terms and conditions of the policy," the Second Circuit declined to read this language as setting forth a "followi the settlements" obligation.  Finally, the court ruled that Utica Mutual had violated the terms of the facultative certificate by failing to obtain the reinsurer's consent before entering into these settlements notwithstanding Utica's claim that it should be relieved of any such obligation pursuant to the doctrine of "impossibility."  The court declared that, "Even if Utica had shown that obtaining TPF&C's authorization was impossible and thus excused, Utica also needed to establish that Clearwater's performance was also not excused by reason of the unrealized condition – the authorization for settlement."  As a result, the court ruled that Clearwater was not obligated to follow Utica's settlements with Gould's Pumps but rather must indemnify Utica according to Utica's proven liability on the umbrella policies.  The case was therefore remanded to the District Court for further proceedings wherein Utica would have the burden of proving that the loss was specifically caused by a risk covered by these facultative certificates.

EIGHTH CIRCUIT    Malicious Prosecution/Intentional Acts Exclusion (NE)

Allegations that a police officer tampered with evidence to obtain a murder conviction have been held to be subject to an intentional acts exclusons and did not to fall within a “malicious prosecution” exception to the exclusion.   In Sampson v. St. Paul Fire Marine Ins. Co. No. 17-1106 (8th Cir. Sept. 11, 2018) the Eighth Circuit ruled that witness tampering was not the same as malicious prosecution under Nebraska law.  Further, the court rejected the insured’s argument that giving effect to this exclusion for a "criminal, dishonest, fraudulent or malicious acts" would render illusory the policy's coverage for intentional acts such as false arrest, false imprisonment and civil rights violations.  Rather, the Eighth Circuit declared that it was the intent of the policy to exclude coverage for acts with "specific intent" whereas the policy did provide coverage for "general intent acts."

CONNECTICUT    First Party/Collapse/Crumbling Foundation Claims

In contrast to recent federal district court rulings rejecting efforts by Connecticut homeowners to gain coverage for crumbling foundation rulings, Judge Shea has issued a pair of decisions allowing these claims to go forward against GEICO and AMICA.

In Sirois v. USAA Cas. Ins. Co., No. 16-1172 (D. Conn. Sept. 18, 2018), the District Court ruled that issues of fact precluded entering summary judgment for a homeowner's insurer with respect to the availability of "collapsed" coverage for crumbling foundation claims.  Notwithstanding "sudden" language in the operative "collapse" provisions of these policies, Judge Shea declared that the policy's coverage for "caving in" was, at best, ambiguous and that the insured's proposed interpretation of this term as providing coverage for situations in which property yielded or submitted to pressure was a reasonable interpretation.  The court noted that although numerous Federal District Courts have recently ruled in favor of insurer's on similar claims, none of these policies contained the same definition of "collapse" as was featured in the USAA policy.  The District Court did enter partial summary judgment for USAA with respect to the insured's claims of statutory bad faith, finding that the insured had failed to present sufficient evidence to support a claim that USAA's conduct involved a "general business practice." 

Judge Shea separately ruled that Ainsworth v. AMICA Mutual Ins. Co., No. 16-1139 (D. Conn. Sept. 17, 2018) that a homeowner's crumbling foundation claim was not precluded by the 1- year limitation period set forth in the policy.  Even though the insured’s discovered this damage in September 2012, the court ruled that based on the allegations in the complaint, the operative time period was sometime in the summer 2015 realized that the cracking could not be fixed and made their property structurally unsound.  Furthermore, Judge Shea declined to dismiss claims under pre-2007 "collapse" language that lacked any requirement of a sudden or abrupt collapse.  Finally, he declined to dismiss the insured’s claims for statutory bad faith, finding that the pleadings set forth sufficient facts that, if true, would support a finding of bad faith on the part of AMICA.  

FLORIDA    Bad Faith/Failure to Settle

A narrowly divided Supreme Court of Florida has further expanded the scope of bad faith in the Sunshine State.  In Harvey v. GEICO General Insurance Company, No. SC17-85 (Fla. Sept. 20, 2018), a majority of the justices ruled that the Fourth District Court of Appeal had misapplied cases such as Boston Old Colony and Berges in setting aside a bad faith verdict against a liability insurer for allowing an excess verdict to enter against the policyholder.  The majority found that the Fourth District had erred in finding that an insurer cannot be liable for bad faith where the excess judgment was due in part to the insured's own action or inaction.  Further, the court declared that the fiduciary obligation that it had identified in Berges required insurers to be proactive and to initiate settlement negotiations in cases where the insured's liability was clear and injuries were so serious that a judgment in excess of policy limits was likely.  The majority criticized decisions of the Eleventh Circuit and other federal courts that have taken a more lenient view of the obligation of insurers to protect the interests of the policy holders.  The majority declared that GEICO had not fulfilled its obligations in this case.  Even though it had tendered its $100,000.00 policy limit only 9 days after the accident, the court found that the insurer's obligations did not end when it tendered its limits where, as here, the claimants had demanded a financial accounting of the insured's assets not provided in a timely fashion.  Accordingly, the Supreme Court declined to excuse GEICO's conduct in this case even though it was the insured whose inaction and delay had caused the settlement to fail.  It ruled that, "[a]n insured's actions cannot let the insurer off the hook when the evidence clearly establishes that the insurer acted in bad faith in handling the insured's claim."  Three of the seven justices joined two separate dissents that variously argued that the insured’s conduct is relevant in assessing a bad faith failure to settle.  The dissenters contended majority's analysis "muddies the waters between negligence and bad faith" and will bolster "contrived bad faith claims."  Justice Polston separately dissented and said the court lacked jurisdiction since the Fourth District's case did not directly conflict with the court's prior precedents. 

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

Andreas Berger, who presently serves as the chief regions & markets officer of Allianz Global Corporate & Specialty SE, has been hired by Swiss Re to serve as its new CEO Corporate Solutions.

A new A.M. Best survey reports that insurers are embraced some new technologies, notably cloud computing, but are wary of others such as blockchain.  As the report concludes: “Insurers have little appetite for operational risk stemming from innovation.”

CoreLogic reports that the cost of Hurricane Florence may be as high as $30 billion but that so many homeowners did not have available insurance that insured losses will “only” be in the $6-10 billion range.
 
The NCIB’s latest “Hot Wheels” report concludes that older model Hondas and Ford and Chevrolet pick-ups trucks were the most stolen vehicles in the U.S. in 2017.

* * * On the Road Again* * *

Boston partner Michael Aylward has been busy this week.   On Tuesday, he participated in a DRI Webinar discussing the American Law Institute’s Restatement of Law, Liability Insurance.  Later in the day, he partnered with MM’s Steve Bolotin for a presentation at the New England regional meeting of the International Association of Defense Counsel for a presentation on “Cyber Claims:  Will Today’s Insurance Policies Cover Tomorrow’s Losses.”  Later in the week, he will present his annual survey of consequential long-tail insurance coverage rulings and developments at FETTI’s annual conference in Chicago.

* * * IBNR Dept. * * *

Two Massachusetts consumers have filed a putative class action, claiming in Michael Froio and Mikhail Surman v. Ocean Spray Cranberries Inc., No. 1:18-cv-12005 (D. Mass.) that the fruit juice manufacturer has falsely claimed that its products contain “No High Fructose Corn Syrup, Artificial Colors or Flavors.”

* * * New Coverage Litigation * * *

A liability insurer has filed suit in Colorado, alleging in First Mercury Ins. Co. v. Bridge Diagnostics, Inc., No. 18-2429 (D. Colo.) that it does not owe coverage for an engineering company that has been blamed for the fatal collapse of a pedestrian bridge in Miami last year.

* * * Blowing A Gasket * * *

After being criticized for its tardy response to dozens of gas explosions in Andover and Lawrence, Massachusetts, Ohio-Based Columbia Gas has announced that it will voluntarily compensate customers for injury or damage to their property and business interruption losses.

* * * Mark Your Calendars * * *

FETTI is holding its annual claims conference on environmental, toxic tort and related insurance issues in Chicago on September 27-28.

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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