Feb 27 2019

MM Insurance Law Update – 3/1/2019

CASES OF CONSEQUENCE

FIRST CIRCUIT    Auto/UIM (NH)

The U.S. Court of Appeals for the First Circuit has ruled that an umbrella liability insurer was not required to provide underinsured motorists benefits where its insured had rejected this coverage in writing, as provided for under RSA 264:15. In Kelly v. Liberty Ins. Corp., No. 18-1614 (1st Cir. Feb. 22, 2019), the court ruled that the insured’s declination of coverage was effective even though it was not made a part of the written terms of the Liberty policy or explicitly referenced therein. In the absence of any express requirement to this effect in the statute, the First Circuit declined to imply a requirement that the insured's declination be physically made a part of the policy.

FOURTH CIRCUIT    Late Notice/Default/Prejudice (SC)

The Fourth Circuit has declared that a South Carolina judge did not err in ruling that a liability insurer did not owe coverage for a $5 million judgment for the victim of a bar fight that entered after the insured failed to give timely notice to its insurer and was defaulted in the underlying suit. In an unpublished opinion, the Fourth Circuit ruled in Founders Ins. Co. v. Richard Ruth’s Bar & Grill, No. 17-1282 (4th Cir. Feb. 21, 2019) that Founders was prejudiced by the insured’s failure to give it timely notice of the law suit even though it had earlier given notice of a letter of representation from the claimant’s attorney. The court ruled that even though such a letter might put the insurer on notice of the possibility of subsequent liquidation, the insured was still obliged to notify the insurer when an actual law suit was filed against it. Further, the Fourth Circuit opined that the South Carolina Supreme Court would find that the entry of a default constitutes prejudice as a matter of law, since the insurer’s defense counsel had been unable have it set aside and because the judgment precluded the insurer from investigation and/or raising any defenses on its insured’s behalf.

ARIZONA    Bad Faith/TPAs

A federal district court has ruled that an aggrieved employee could not sue an insurer’s TPA for bad faith in the adjustment of his claim for worker’s compensation benefits. In Centeno v. American Liberty Ins. Co., 2019 WL 568926 (D. Ariz. Feb. 12, 2019), the court ruled that there was no contractual relationship between the employee and the TPA to support such a claim. Further, the court declined to impose liability on the basis that the TPA had “aided and abetted” the insurer’s denial of coverage in the absence of any allegations of misconduct on the part of the TPA that were separate and apart from the alleged bad faith claims against the insurer.

CALIFORNIA    Asbestos/Excess/SIR

The First District has ruled that a trial court had erred in ruling that the insured must satisfy a separate “per occurrence” SIR for its higher layer excess policies once its umbrella policy limits had become exhausted. In Deere & Co. v. Allstate Ins. Co., A145170 (Cal. App. Feb. 25, 2019), the Court of Appeal ruled that the “follow form” language in these excess policies did not extend to the retained limit provisions in the umbrella policy as the “follow form” clause specifically did not include policy limits. Rather, the court declared that Deere could access its upper layer limits once the underlying umbrella limits had become exhausted, without having to pay additional retained limits for each higher layer of coverage. Further, the Court of Appeal ruled that the excess insurers were required to reimburse Deere for legal fees incurred in the defense of cases that had been dismissed in Deere’s favor, rejecting the excess insurers’ argument that their coverage only applied if there had been an adjudication of liability against the insured.

CALIFORNIA    Agents/Standing

The California Court of Appeal has ruled in United Farmers Agents Association, Inc. v. Farmers Group, Inc., B282541 (Cal. App. Feb. 22, 2019) that a trade association representing a group of Farmers agents lacked standing to bring suit against Farmers Group for allegedly violating the terms of their agreements. The Second District ruled that that the UFAA could not sue Farmers, even under a theory of “associational standing,” because the facts of this case required the participation of the individual agents.

MISSISSIPPI    Estoppel

The Mississippi Supreme Court has ruled in Hinton v. Pekin Ins. Co., No. 2018-CA-0383 (Miss. Feb. 9, 2018) that a liability insurer was not estopped to dispute coverage for injuries suffered by a deer hunter due to the negligent construction of a tree stand that the insured had sold to the claimant in light of the fact that the policy in question expressly excluded coverage for losses arising out of tree stands. The court rejected arguments that this exclusion was not actually a part of the policy or that Pekin should be estopped to raise this exclusion owing to its failure to either defend the case or bring an action for declaratory relief to confirm its obligations.

NEW MEXICO    “Occurrence”/Property Damage/Bad Faith

A federal judge has ruled in West American Ins. Co. v. Atyani, No. 17-1047 (D.N.M. Feb. 14, 2019) that a liability insurer correctly refused to defend allegations that a restauranteur violated New Mexico statutes by withholding tips from employees because, even though cash tips could potentially be viewed as “tangible property” to support a loss of use claim for “property damage,” any such damage was the “expected or intended” result of the insured’s willful implementation of this practice. Nevertheless, the court declined to also dismiss the insured’s bad faith claim, in light of allegations describing claimed missteps in the insurer’s investigation of the loss and a delay of over a year in deciding to bring a declaratory judgment action.

PENNSYLVANIA    Bad Faith/Auto

A federal district court has dismissed an insured's bad faith claims arising out of his auto insurance referral to pay uninsured motorist benefits to him, declaring in McDonough v. State Farm Fire and Casualty Company, No. 18-2247 (E.D. Pa. Feb 7, 2019) that the insured had failed to set forth sufficient facts to support a statutory claim for bad faith under Section 8371 and that his common law bad faith claims were subsumed within his claims for breach of contract.

TEXAS    Disqualification of Counsel

The Texas Supreme Court has ruled in In Re RSR Corp and Quemetco Metals LTD Inc., No. 18‑0189 (Tex. Feb 15, 2019) that a trial court did not err in refusing to permit RSR and Quemetco to seek disqualification of counsel on the theory that their insurer had obtained privileged and confidential information from fact witnesses who were neither legal staff or lawyers. The Supreme Court emphasized the fact that insureds had earlier abandoned this argument and had solely sought disqualification in an earlier proceeding on an alternative basis. In light of the fact that disqualification is a severe remedy, the Court declined to permit RSR and Quemetco to revive a theory of disqualification that they had earlier abandoned and opposed.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

Two former Markel executives who were fired for having an “undisclosed personal relationship” have sued Markel for defamation and for being denied millions of dollars in incentive payments.

* * * Cyber Claims * * *

Beazley and Marsh have announced plans to partner in providing effective cyber protection for policyholders.

* * * Across the Bar * * *

Mike Marick, Karen Dixon and two other Hinshaw coverage lawyers are moving across town to what will henceforth be known as Skarzynski Marick & Black LLP.

* * * On the Road Again * * *

Boston partner Michael Aylward teamed up with Judge William Highberger for a presentation on “An Insider’s Perspective on the ALI Liability Insurance Restatement” at this week’s midyear meeting of the International Association of Defense Counsel.

 

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