Feb 21 2019

Insurance Law – 2/22/2019


FIRST CIRCUIT    Professional Services-ERISA Exclusions (MA)

The U.S. Couft of Appeals for the First Circuit has ruled in Scottsdale Ins. Co. v. Byrne, No. 18-1526 (1st Cir. January 16, 2019) that a Massachusetts District Court did not err in declaring that a business and management indemnity policy was required to provide coverage for allegations that the insured mismanaged funds under its control. Despite separate exclusions in the policy for losses arising out of the rendering of professional services or for ERISA claims, the First Circuit declared that the underlying claims were not limited to allegations that the insured had mismanaged real estate developments so as to be subject to the "professional services" exclusion. Further, while agreeing that the underlying allegations of ERISA misconduct were excluded, the First Circuit declined to find that parallel allegations of negligence were likewise excluded merely because they arose from the same set of facts.

CALIFORNIA    Arbitration/TPAs

The California Court of Appeal has ruled in QBE Insurance Corporation v. American Claims Management, Inc., D073345 (Cal. App Feb 4, 2019) that a trial court did not err in confirming an arbitration of panel’s award allowing QBE to recover $18.5 million against a third?party claims administrator based upon ACM's mishandling of an underlying automobile accident claim. Emphasizing the narrow scope of judicial review of arbitration awards, the Fourth District declared that the objections raised by ACM did not fit within the statutory purview for overturning arbitration awards, nor was the panel's award so irrational that it could not stand.

CONNECTICUT    Performance Bonds

A federal district court has granted summary judgment to the bond company for the developer of a minor league baseball stadium, declaring that it was entitled to be reimbursed for over $39 million that it had paid on the insured’s behalf. In Arch Insurance Company v. Centerplan Construction Co., No. 16?1891 (D. Conn. Feb. 13 2019), Judge Bryant declared in a 63 page opinion that the property developer was obliged to reimburse Arch for over $39,000,000.00 for sums that it paid on behalf of Center Plan in response to demands from the City of Hartford under indemnity undertakings arising out of the stadium project. The court ruled that Arch had the right to demand collateral security when, in its sole discretion, it determined that the principal would potentially be liable to indemnify it on certain agreements. Further, the court ruled that the defendants had failed to provide persuasive evidence that Arch had acted in bad faith in issuing payment to the City of Hartford with respect to the underlying losses.

RHODE ISLAND    Bad Faith/Duty to Settle/Third Party Claimants

Clarifying an issue that had arisen in the wake of earlier bad faith rulings such as Asermely, Skaling I and II and DeMarco, the Rhode Island Supreme Court has ruled that liability insurers do not have any common law liability to third party claimants in the absence of a reasonable settlement demand within policy limits or an assignment of the insured’s rights. In Summit Ins. Co. v. Stricklett, No. 2017?185 (R.I. Feb. 5, 2019), the Supreme Court declared that the fiduciary obligations of nsurers to settle in good faith runs only to the insured or to a party to whom the insured have assigned their rights.

TEXAS    Privileged Communications/Testifying Experts

The Texas Supreme Court ruled in In Re: City of Dickerson, No. 70?0020 (Tex. Feb 15, 2019) that an insured was not entitled to compel discovery of drafts of an expert’s testimony even though the expert was an employee of the insurer and also a fact witness. In sustaining the intermediate appellate court's ruling that these exchanges did not waive the attorney-client privilege as the employee in question was Texas Windstorm's principal liaison with defense counsel in its lawsuit, the Supreme Court ruled that the email exchanges and accompanying draft revisions of the expert affidavit were attorney-client communications subject to the privilege notwithstanding the employee's additional role as a testifying expert in the litigation.

* * * Inside the Insurance Industry * * *

Texas Governor Greg Abbott has reappointed Kent Sullivan to a second term as the state’s Insurance Commissioner.

* * * Restating the Law * * *

A resolution has just been filed in the Texas legislature that would challenge the authority of the American Law Institute’s recently-approved Restatement of Law, Liability Insurance. HCR 58 asks the legislature to declare that “The ALI ’s most recent Restatement is neither consistent with well-established insurance law nor respectful of the role of state legislators in establishing legal standards and practice for the insurance industry, and it is not worthy of recognition by the courts as an authoritative reference.” The Resolution was introduced by Doctor Tom Oliverson, a Houston Republican who serves as the Vice-Chair of the House Insurance Committee.

* * * Cyber Claims * * *

A new report from Chubb concludes that small businesses are especially liable to suffer cyber attacks.

* * * Asbestos News * * *

In an unusual step, the U.S. Justice Department has asked a New Jersey judge to overturn the appointment of a Trustee to represent the interests of future asbestos claimants involving Duro Dyne due to concerns as to whether the trustee would be sufficiently independent.

* * * Sins of the Fathers * * *

Liberty Mutual has reportedly agreed to pay $6.5 million to resolve sexual abuse claims involving the Catholic Diocese of Duluth, Minnesota.


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