Feb 1 2019

Insurance Law – 2/1/2019

CASES OF CONSEQUENCE

FOURTH CIRCUIT    "Bodily Injury" (WV)

The Fourth Circuit has issued a brief unpublished opinion adopting the opinion of a federal district in West Virginia in State Auto. Mut. Ins. Co. v. Allegheny Med. Servs., No. 5:17-cv-02283 (S.D.W. Va. Apr. 17, 2018) that allegations by former patients that they had suffered emotional distress and psychological injuries as the result of sexual misconduct by a doctor failed to seek recovery for "bodily injury" or an "occurrence." In its per curiam opinion, the Fourth Circuit rejected the insured’s argument that there might later be evidence of physical injury arising from the patient’s mental anguish.

TENTH CIRCUIT    "Business Risk" Exclusions (OK)

The U.S. Court of Appeals for the Tenth Circuit has ruled in MTI, Inc. v. Employers Ins. Co., No. 17-6206 (10th Cir. Jan. 25, 2019) that the reference to "that particular part of property" in Exclusions J(5) and J(6) is ambiguous. In overturning an Oklahoma District Court’s ruling that the insured was not entitled to coverage for the cost of restoring a tower that collapsed due to the corrosion of anchor bolts that the insured had installed, the Court of Appeals declared that "that particular part" was ambiguous because it could be read to refer solely to the direct object on which the insured was operating, as Wausau had argued or, alternatively, could apply only to those parts of the project directly impacted by the insured’s work. As a result, the court declared that only the anchor bolts were excluded and that the insured was entitled to coverage for the collapse of the tower itself.

PENNSYLVANIA    Auto/"Household Vehicle" Exclusion

A divided Pennsylvania Supreme Court has ruled that a "household vehicle exclusion" contained in an auto policy violated Section 1738 of the Motor Vehicle Financial Responsibility Law ("MVFRL"), 75 Pa.C.S. § 1738, because the exclusion impermissibly acts as a de facto waiver of stacked uninsured and underinsured motorist coverages. In Gallagher v. GEICO Ind. Co., J-18-2018 (Pa. Jan. 23, 2019), the majority declared that "there simply is no reason that insurers cannot comply with the Legislature’s explicit directive to offer stacked UM/UIM coverage on multiple insurance policies absent a knowing Section 1738 waiver and still be fairly compensated for coverages offered and purchased." Justices Saylor and Wecht dissented, asserting that the Majority’s analysis conflates the rejection of stacking which requires a written waiver) with the exclusion of certain acts or occurrences from the defined scope of coverage itself (which requires no waiver), whereas nothing in the text of the MVFRL prohibits household vehicle exclusions.

TEXAS    Deepwater Horizon/Ultimate Net Loss/"Liability"

The Texas Supreme Court has ruled that a joint venture clause in an excess liability policy that made the policy’s limits proportional to the insured’s percentage interest in the company only applied to indemnity payments, whereas the policy’s full "ultimate net loss" limit applied to defense costs.. In Andarko Petroleum Corp. v. Houston Cas. Co., No. 16-1013 (Tex. Jan. 24, 2019), the Supreme Court declared that the insured could recover the entire $150 million limit for defense fees even though Andarko only had a 25% percent interest in the Deepwater Horizon well. In rejecting Lloyd’s argument that the joint venture clause in its policy capped coverage for fees and losses arising out of the Deepwater Horizon crisis at $37.5 million, the Supreme Court ruled that the reference to "liability" in the joint venture clause meant obligations that might be imposed on the insured by law to pay damages as distinguished from legal fees and other costs of defense.

WISCONSIN    Other Insurance/Subrogation/Defense Costs/Allocation

In a dispute between the liability insurers of two subcontractors concerning the priority of the "additional insured" coverage each owed to the Milwaukee Municipal Sewerage District for claims arising out of the local sewer system, the Wisconsin Supreme Court has ruled that Greenwich erred in claiming that its "other insurance" clause made it excess to the Steadfast policy. In Steadfast Ins. Co. v. Greenwich Ins. Co., 2019 WI 6 (Wis. Jan. 25, 2019), the court ruled that the outcome of this dispute was not controlled by the policies’ "other insurance" clauses, since the policies insured risks involving the operations of different insureds at different times and were therefore not "concurrent." Having found that both policies were primary and owed a defense, the court ruled that the underlying costs of defense should be shared by the carriers in proportion to their respective indemnity limits. Further, the court declared that Steadfast, as the insured’s subrogee, was contractually entitled to recover its attorney’s fees for compelling Greenwich to provide coverage. Justices Ann Bradley and Frank issued a separate opinion, concurring in the majority’s finding that the "other insurance" clauses did not apply but disagreeing that defense costs should be apportioned based on policy limits. They argued that Greenwich was, in effect, being rewarded for failing to defend by now only having to pay a small fraction of the total costs and should have owed 50%. The justices also contended that the "American Rule" should have barred Steadfast from recovering its legal fees in the coverage suit. Justice Rebecca Bradley also dissented, arguing that the court should have given effect to the excess "other insurance" wording in the Greenwich policy, thereby relieving it of any duty to defend.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

Munich Re reports that cat claims cost insurers $80 billion in 2018, less than 2017’s results but nearly double the average for the past several decades. 2018 proved to be the fourth costliest year for insurers since 1980.

Business Insurance reports that the Irwin Siegel Agency is now offering an "active assailant" insurance product to its customers.

American Family is replacing Miller Brewing as the naming sponsor of the Milwaukee Brewers ballpark.

* * * California Burning * * *

Citing "extraordinary financial challenges" that it faced in the wake of recent severe wildfires for which it may bear responsibility, the Pacific Gas & Electric Company filed for Chapter 11 protection this week, asking a California bankruptcy court to allow to enter into a $5.5 billion "debtor in possession" financing of its liabilities.

* * * New Coverage Litigation * * *

Erie Insurance Exchange filed suit against Walmart in state court in Chicago this week, seeking a declaration that it does not owed coverage for a class action claim in which consumers complain that the "all natural" chips sold to them contained various synthetic or artificial ingredients.

 

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