Oct 25 2018

MM Insurance News 10/26/18


FIFTH CIRCUIT    E&O/Fees/”Loss” (TX)

The Fifth Circuit has ruled that AIG is not required to provide coverage for the multi-million dollar settlement of disputes involving the allocation of litigation expenses involving the late John O’Quinn’s representation of clients in breast implant litigation.  In John M. O'Quinn, P.C. v. Lexington Ins. Co., No. 16 20224 (5th Cir., Oct. 18, 2018), the Court of Appeals ruled that the settlements were subject to language in the Lexington policy excluding coverage for "reimbursement of legal fees, costs or expenses."  Furthermore, the court took note of Exclusion B in the policy which excluded coverage for any claim "arising out of, based upon or attributable to a criminal, fraudulent and a malicious...or dishonest Wrongful Act..."

SIXTH CIRCUIT    Liquor Liability Exclusions/Consent Judgments (OH)

The U.S. Court of Appeals for the 6th Circuit has ruled in Mesa Underwriters Specialty Ins. Co. v. Secret's Gentleman's Club, No. 17 3779 (6th Cir., Oct. 16, 2018) that an Ohio District Court did not err in requiring a liability insurer to afford coverage for a judgment against a men's drinking establishment for causing the intoxication of an individual who was soon thereafter involved in a fatal car accident.  The court refused to give effect to a liquor liability exclusion in the policy, declaring that the insured’s liability was premised on common law negligence and not based upon the selling or furnishing of alcoholic beverages or any other statutory violation of Ohio's dram shop statute.   Further, the court ruled that Mesa was collaterally estopped to contest a judgment that a state trial judge had entered following an evidentiary hearing that was conducted after the parties entered into a consent judgment.  The Sixth Circuit emphasized that the consent judgment entered into between the parties had not conceded liability and that a full evidentiary hearing was heard by the state judge.  The court rejected Mesa's argument that these findings were not binding since they pertained to the issue of Secret's liability for negligence not the applicability of insurance coverage for the sale of service of alcohol.  Further, the court found that because Mesa was in privity with its insured, the requirement of mutuality for estoppel was met.

NINTH CIRCUIT    “Occurrence”/Sexual Assault (CA)

On remand from a ruling of the California Supreme Court declaring that negligent supervision claims are independent of the intentional acts giving rise to them, the Ninth Circuit has issued an unpublished opinion in Liberty Surplus Ins. Co. v. Ledesma and Meyer Construction Co., No. 14-56120 (9th Cir. Oct. 18, 2018) declaring that a liability insurer must provide a defense to allegations that a thirteen year old student was sexually abused by an employee of the insured.  In keeping with the Supreme Court’s analysis, the Ninth Circuit found that whether there was an unforeseen “accident” must be considered from the standpoint of the insured seeking coverage and required a defense so long as the insured’s alleged negligent hiring or supervision of the perpetrator was a “substantial factor” in the resulting assaults.

TENTH CIRCUIT    Toxic Substances Exclusions (OK)

Having received an opinion from the Oklahoma Supreme Court that an exclusion for indoor exposure to toxic substances was not unenforceable as being against public policy, the Tenth Circuit has nevertheless ruled in Siloam Springs Motel LLC v. Century Surety Co., No. 17-6208 (10th Cir. Oct. 16, 2018) that the exclusion is ambiguous and should not be interpreted to preclude coverage for an incident in which motel guests were exposed to carbon monoxide fumes from a defective pool heater.  After a lengthy discussion of complex procedural issues arising out of prior jurisdictional concerns, the Tenth Circuit adopted the Nevada Supreme Court’s interpretation of the same exclusion in Casino West, which it declared was consistent with Oklahoma law, as evidenced by the dissenting opinion of one of the Oklahoma Supreme Court justices in its ruling on the certification issue.

ILLINOIS    Agents and Brokers/Limitations of Action

The Illinois Supreme Court has ruled that an insured's cause of action against an insurance agent for selling a policy that did not meet its needs arose when the policy was issued and not, as the insured contended, when the insurer ultimately denied a claim.  Overturning the Appellate Court's ruling that a "discovery rule" should apply under the circumstances, the court ruled in American Family Mutual Ins. Co. v. Krop, 2018 IL 122556 (Ill. Oct 18 2018) that the Illinois legislature had made clear through its 1997 enactment of the Insurance Placement Liability Act that agents (unlike brokers) do not have a fiduciary duty to policyholders.  In the absence of any fiduciary duty, the court concluded that the ordinary rules requiring insureds to read policies apply and that, assuming that it had the opportunityh to read the policy and could have understood iits wording, would have realized the problem at the time of policy issuance.  Justice Theis and Kilbride dissented, arguing that as the insured's claim was one in tort for negligence, it should not accrue until the insured actually suffered an injury at the point in time when its claim was denied by the insurer. 


* * * Inside the Insurance Industry * * *

Brown & Brown has announced that it will purchase Hays Companies.

AIG projects that it will suffer cat losses in excess of $1.5 billion in the third quarter of 2018 as the result of a hurricane in the Carolinas, mudslides in California and typhoons in Japan.

Arch Insurance announced that Matt Shulman will assume the newly created role of CEO, Arch Insurance North America, effective January 1, 2019. In this role, he will lead Arch Insurance’s operations in the United States and Canada.  Since 2016, Shulman has served as the president and CEO of Arch Insurance Europe.

* * * Fun with Numbers * * *

The SEC has reportedly opened an investigation of how Honeywell International is booking reserves for its asbestos liability exposures.

* * * Toxic Tort Update * * *

A Superior Court judge in San Francisco announced last week that she would not set aside the landmark $289 Roundup verdict against Monsanto but would reduce the damages to a mere $79 million.       

* * * MM on the Road * * *

Boston partner Michael Aylward will be chairing a panel this Friday on the future of the American Law Institute’s Restatement of Law, Liability Insurance at the American College of Coverage Counsel’s annual legal symposium at American University in Washington, D.C.

* * * Mark Your Calendars * * *

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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