Jan 23 2019

Insurance Law 1/18/2019


FIFTH CIRCUIT    Sexual Assault Exclusion/"Control" (TX)

The Fifth Circuit has ruled that a retailer’s CGL insurer did not owe coverage for the sexual assault of one employee by a fellow employee. In United Fire and Casualty Co. v. Kent Distributors, Inc., No. 18-50134 (5th Cir. Jan. 11, 2019), the Court of Appeals agreed with a Texas District Court was correct in declaring that a liability insurer declared that the plaintiff's claims fell within the scope of a policy exclusion for bodily injury suffered by employees. Furthermore, the court ruled that any liability on the part of the insured was subject to the Texas Abuse or Molestation Exclusion. Although the plaintiff had argued that this exclusion was ambiguous in that it failed to define what it meant for the victim of molestation to be "in the care, custody or control of any insured," the Fifth Circuit agreed with the Texas District Court that "control" should be interpreted in accordance with its commonly understood meaning as "in the power or authority to manage, direct, govern, administer or oversee" which applied in this situation where the assaulted victim was in the store at the time as an employee.

NINTH CIRCUIT    Coverage B/Invasion of Privacy/TCPA Claims (CA)

In light of conflicting opinions from the California Court of Appeal with respect to whether earlier editions of the CGL form cover junk fax claims, the Ninth Circuit has issued an opinion in Yahoo! Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 17 16452 (9th Cir. Jan. 16, 2019) asking the California Supreme Court whether such claims involve an "oral or written publication of material that violates a person's right of privacy" and, in particular, whether this privacy "offense" covers the right to secrecy, seclusion or both.

TENTH CIRCUIT    Third Party Beneficiaries (KS)

In a case arising under Kansas law, the Tenth Circuit has ruled that the president of a coal company failed to establish that he was entitled to coverage under the liability insurance policy issued to the coal company or that the insurer had ever undertaken to insure him. In Liberty Mutual Fire Insurance Company v. Woolman, No. 17-3249 (10th Cir. Jan. 14, 2019) the court declined to accept Woolman's argument that he was Liberty Mutual's "true" client or should be considered to be a third party beneficiary of the insurer's dealings with Clemens Coal.

CALIFORNIA    Invasion of Privacy/Attorney Immunity

The California Court of Appeal has ruled that a trial court erred in holding that an insurer’s law firm could not be sued for invading a policyholder’s privacy by sending to State Farm tax returns that the insured’s accountant had inadvertently provided to the firm pursuant to its investigation of a first party fire loss. While sustaining the dismissal of the insured's elder abuse claims, the First District declared in Strawn v. Morris, Polich & Purdy, LLP, a 150562 (Cal. App. Jan. 4, 2019) that the "litigation privilege" embodied in Civil Code § 47(b)(2) did not apply to pre-litigation conduct, notwithstanding the defendant's contention that they were representing State Farm in anticipation of a possible lawsuit arising out of the fire loss.

ILLINOIS    Coverage B/Malicious Prosecution/Trigger

The Illinois Appellate Court is at it again. Just when it appeared that Illinois law was settled that it the commencement of a malicious prosecution that is the trigger under Coverage B, a panel of the First District has ruled 2-1 in Sanders v. Illinois Union Ins. Co., 2019 IL App. (1st) 180158 (Ill. App. Jan. 15, 2019), that the offense of "malicious prosecution" does not occur until the claimant is exonerated. Writing in dissent, Presiding Justice Mason declared that he could "see no legal or grammatical reason why … we should conclude that malicious prosecution happens however, Justice Mason declared that "The overwhelming weight of authority in Illinois supports the conclusion that it is the commencement of prosecution, and not exoneration, that triggers coverage for malicious prosecution."

NORTH DAKOTA    "Fracking" Exclusion

A federal district court has ruled that injuries suffered by two oil field workers in the course of a well fire are excluded from coverage as "arising, in whole or in part, out of "hydrofracking" or the storage or disposal of any "flowback." In XTO Cas. Co. v. Great West Cas. Co., (D.N.D. Jan. 2019), the court refused to find that the use of the term "arising out of" rendered the exclusion ambiguous under Montana law, nor should the exclusion be voided as rendering the coverage "illusory."

VERMONT    Cyber/"Physical Loss"

The Vermont Supreme Court has ruled in Rainforest Chocolate LLC v. Sentinel Ins. Co., 2018 Vt. 140 Dec. 28, 2018) that a trial court erred in declaring that a theft of funds from "spoofing" was not subject to an exclusion for "physical loss" due to "false pretenses" because the policy was ambiguous with respect to whether electronically-transferred funds were a "physical loss" or not. Although the policy excluded coverage where the four "voluntarily parting with any property by you or anyone else to whom you have entrusted the property if induced to do so by any fraudulent scheme, trick, device or false pretense", the court noted that the Sentinel frequently referred to both "physical loss and physical damage" and "loss and damage" without clearing defining either. The case was therefore remanded back to the trial court to determine whether the "spoofing" loss was covered under the "forgery" or "money and securities" sections of this commercial property policy, although the court did observe in passing that the loss clearly fell outside the scope of the policy’s "computer fraud" section.


* * * Inside the Insurance Industry * * *

2019 has already seen significant turnover in state insurance regulation. In Michigan, newly-elected Governor Gretchen Whitmer has appointed Anita Fox, an old friend of mine from her days at Steptoe & Johnson and the FDCC, to serve as the director of the Michigan Department of Insurance and Financial Services. Meanwhile, in Wisconsin, Governor-elect Tony Evers has appointed American Family’s chief legal officer, Mark Afable, to serve as the state’s new insurance commissioner. Afable will succeed Ted Nickel, who had held the post since 2011. In Hawaii, Colin Hayashida is the new Insurance Commissioner. Finally, New York Governor Andrew Cuomo has announced that his chief of staff Linda Lacewell will succeed DFS Superintendent Maria Vuollo.

Vermont licensed 25 new captive insurers in 2018.

* * * California Burning * * *

Several major property insurers, including Allstate, State Farm and USAA, have sued Pacific Gas & Electric, seeking reimbursement for losses that they have paid for wildfires for which PG&E may be responsible. Meanwhile, PG&E has announced this it will be filing for bankruptcy in the face of an estimated $30 billion in liabilities.

* * * Concussions * * *

A new "Outside the Lines" investigation by ABC News forecasts that football is being impacted at all levels from Pop Warner to the NFL by the refusal of insurers to provide liability coverage in light of emerging concerns about CTE and similar exposures.

* * * Cyber Update * * *

At year’s end, Michigan and Ohio joined South Carolina in enacting legislation modeled on the NAIC’s Insurance Data Security Act.

* * * Opioid Litigation * * *

A report in the New York Times details documents that the Massachusetts Attorney General has obtained concerning the personal involvement of members of the Sackler family in marketing Purdue Pharma’s OxyContin product and concealing its dangerous and addictive properties.

A new study published last week in the Journal of the American Medical Association finds a clear correlation between the marketing of OxyContin and similar products by manufacturers and levels of drug overdose and addiction due to opioids.

* * * Across the Bar * * *

Some of the finest insurance coverage lawyers in West Virginia are now doing business in Clarksburg under a new name: Varner & VanVolkenburg.

* * * Crumbling Foundation Claims * * *

Hartford ($3.5 million); Liberty Mutual ($7 million) and Travelers ($5 million) have entered into agreements with the State of Connecticut to help fund losses that hundreds of homeowners in Eastern Connecticut have suffered due to impurities in concrete that has caused their home foundations to crack and crumble.

* * * New Coverage Litigation of Note * * *

US snack food giant Mondelez has sued Zurich in state court in Illinois seeking $100 million in coverage for losses arising out of the 2017 NotPetya ransomware attack on it. Zurich had reportedly originally offered to pay $10 million to resolve the claim but ultimately denied coverage altogether on the basis of an exclusion for losses due to "hostile or warlike action in time of peace or war" by a "government or sovereign power." Although the U.S. and other Western governments claimed that the Russians were behind the NotPeya malware attacks, it remains to be seen whether this can be proven or where cyber-attacks will be considered to be an act of war by a foreign power.


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