Dec 6 2018

MM Insurance Law Update 12/6/18


CALIFORNIA    Subrogation

Just as suspended corporations are precluded from filing suit, the California Court of Appeal has ruled in Travelers Property Casualty Company of America v. Engel Insulation Inc., C085753 (Cal. App. Nov. 30, 2018) that an insurer may not file its own action to assert claims as the subrogee of a suspended corporation. 

CONNECTICUT    First Party/Crumbling Foundation Claims

Judge Shea has ruled in Cockill v. Nationwide Property & Cas. Ins. Co., 18‑254 (D. Conn. Nov. 27, 2018) that a homeowner's insurer was not obliged to provide first-party coverage for an insured’s crumbling basement walls.  Whereas the insured had argued that the loss must be covered because the policy did not expressly exclude damage from “chemical reactions,” the District Court held that loss from cracking was excluded pursuant to the collapse provisions in the policy.  The court also rejected the insured's argument that they were entitled to reimbursement “for the reasonable cost of repairs made solely to protect covered property from further damage” in light of the fact that policy further states that this obligation only arises “if the peril causing the loss is covered." 

ILLINOIS    Auto/UIM/Stacking

The Appellate Court has ruled that an insured employee would recover up to $4 million in UIM benefits due to an ambiguity in an auto policy caused by the fact that a separate premium was listed for each of the insured’s 16 vehicles.  While agreeing that anti-stacking language would be upheld where it is stated unambiguously, the Fifth District ruled in Barlow v. State Farm Mutual Automobile Ins. Co., 2018 IL App. (5th) 170484 (Ill. App. Ct. Nov. 20, 2018) that the stacking language would not be sustained where a declarations page prints the policy limit more than once.  In such circumstances, an insured might reasonably read the policy as providing coverage equal to the sum of the printed limits.

INDIANA     "Insured/"Resident of Household

The Indiana Court of Appeals has ruled in United Farm Family Mutual Insurance Company v. Matheny, 18A‑CT‑515 (Inc. App. Nov. 28, 2018) that a trial court in refusing to find that the grown son of a homeowner who resided in a separate apartment upstairs was not an “insured” for purposes of applying an exclusion for "intentional or criminal acts" to an incident in which the insured's son intentionally shot a trailer park tenant during a dispute.  The Court of Appeals concluded that the son was a resident of the insured's household since, despite the fact that he lived in a separate area upstairs, he had full access to the house and depended on his father for food, housing, utilities and transportation. 

MASSACHUSETTS    E&O/”Legal Services”

A federal district court has ruled in Governo v. Allied World Assurance Company No. 17‑11672 (D. Mass. September 28, 2018) a law firm’s professional liability insurer was obliged to provide a defense to counterclaims brought by former members of the firm who alleged that Governo had mishandled notifications of their departure to firm clients.  Despite AWAC’s argument that this dispute did not involve legal services, Judge Wolf declared that the acts in question arose out of the specialized knowledge or skill expected of an attorney.   The court separately found that the firm was not entitled to any award of damages based upon its claimed failure to disclose the existence of a benefit plan as this was a “business decision” arising under ERISA and not a “legal service.”

NEW JERSEY    First Party/Sewer Backups

 The Appellate Division has ruled in Salih v. Ohio Security Ins. Co., No. A‑1179-17T1 (App. Div. Dec. 3, 2018) that a trial court did not err in ruling that a property insurer’s coverage for damage to the insured’s restaurant resulting from a backup of raw sewage from a clogged toilet was capped by a $25,000 endorsement insuring "direct physical loss or damage caused by water . . . which backs up into a building or structure through sewers or drains which are directly connected to a sanitary sewer or septic system."   The court took note of the fact that this form had replaced an earlier exclusion that precluded coverage altogether “for water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sub pump or related equipment" and that, while such losses were not completely excluded, the endorsement capped coverage at $25,000 and excluded coverage for business income or extra expenses such as those claimed by the restaurateur in this case.


* * * Inside the Insurance Industry * * *

The National Council of Insurance Legislators (“NCOIL”) will debate a resolution at its Annual Meeting this week that would uphold the authority of state insurance departments to regulate insurers in the face of a growing regulatory effort on the part of the Federal Reserve Board.   The “Resolution Asserting McCarran-Ferguson Reverse Preemption over the Supervision of Insurance Companies by the Federal Reserve Board and its Examiners” urges Congress to act to prevent the Fed from encroaching on the authority of state insurance regulators.

The Hartford has acquired Y-Risk, a managing general entity that specializes in underwriting “shared economy” businesses.

* * * New Coverage Litigation * * *

Navigators Insurance has filed in California, asking a federal judge to declare that it does not owe coverage for allegations that its insured American Traffic Solutions and Hertz misled rental car customers with respect to charges associated with highway tolls.

* * * California Burning * * *

Merced Property & Casualty Company has declared insolvency in the face of a significant exposure to Camp Fire claims.

* * * Cyber Update* * *

Here’s the latest newsletter from our cyber-security practice group.

* * * Across the Bar* * *

The Dykema law firm has announced plans to merge with D.C.‑based litigation boutique Loss, Judge & Ward.


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