Mar 7 2019

Insurance Law – 3/8/2019


FIRST CIRCUIT    Property Insurance/Ambiguity/"Decay" (MA)

The First Circuit has ruled that a commercial property policy’s coverage for the collapse of a church ceiling was not negated by operation of the wear and tear exclusion’s reference to loss caused by "decay." Relying on dictionary definitions, the court declared in Easthampton Congregational Church v. Church Mut. Ins. Co., No. 18-1881 (1st Cir. Feb. 22, 2019) that "decay" could mean both a "progressive decline in strength" or "rot" and was therefore ambiguous and must be applied to cover a collapse due to the gradual weakening of ceiling nails caused by seasonal changes in temperature.

FOURTH CIRCUIT    Jurisdiction/"Direct Actions"/Waiver (VA)

The Fourth Circuit has ruled in Gateway Residences at Exchange LLC v. Illinois Union Ins. Co., No. 18-1491 (4th Cir. Feb. 22, 2018). As a preliminary matter, the Fourth Circuit declared that the Virginia District Court had probably exercised diversity jurisdiction over this case. Although Section 1332(c) provided that the insurer shall have the jurisdiction of its insured in "direct action" cases, the court ruled that a reach and apply action by a third party claimant against a liability insurer to recover on a judgment against its insured is not a "direct action." Further, although Gateway had argued that Illinois Union had waived the right to contest coverage because it did notify Gateway of its coverage denial within forty-five days as required by Virginia Code Section 38.2-2226, the Fourth Circuit ruled that this statute only applied to "defenses" based upon a policy breach and therefore did not apply here where Illinois Union had denied coverage based upon the fact that the underlying claim was first reported to it nineteen months after its "claims made and reported" policy had expired. The court ruled that a denial based on the "scope" of coverage is not a "defense," since a "defense" presupposes that coverage would exist but for a policy exclusion or condition. Further, the court ruled that there could not be a "breach" inasmuch as the insurer’s action or inaction had occurred months after the policy had expired.

CONNECTICUT    First Party/"Collapse"

Judge Bolden has rejected efforts by homeowners to amend their crumbling foundation coverage claims to add a claim for breach of the implied coverage of good faith and fair dealing. The District Court ruled in Moura v. Harleysville Preferred Ins. Co., No. 18-422 (D. Conn. Feb. 26, 2019) that state courts have "typically" refused to find that conduct of this sort would support an "implied covenant" claim.

TEXAS    Worker’s Compensation/Subrogation Waiver

The Texas Supreme Court has ruled in Exxon Mobil Corp v. Insurance Company of the State of Pennsylvania, No. 17-0200 (Tex. Feb 15, 2019) that the Court of Appeals erred in concluding that a subrogation waiver effected by a workers' compensation carrier did not encompass an agreement by the insured with a third party to procure a waiver of "all rights of subrogation and/or contribution…" Whereas the intermediate appellate court had concluded that the subrogation waiver was inoperative as to an injured worker's recovery against the third party because the insured was not contractually obligated to indemnify the third party for the loss, the Supreme Court declared that the endorsement waiving the carrier's recovery rights was effective as to the bodily injury claim because it referred to another contract only to identify who may claim the waiver and at what operations but does not refer to and thus did not incorporate any other contractual limitations.

WISCONSIN    "Coverage B"/Exclusions

The Supreme Court ruled in West Bend Mut. Ins. Co. v. Ixthus Medical Supply, Inc., 2019 WI 19 (Wis. Feb. 28, 2019) that a liability insurer erred in failing to defend Lanham Act claims involving the trademark of a medical supplies manufacturer. Despite West Bend’s argument that the claims against its insured were mainly based on the important distribution of infringing surgical strips, the Supreme Court pointed to allegations in the underlying complaint that also asserted infringement in the form of the insured’s own advertising. Further, despite allegations in the complaint that Ixthus acted intentionally and with knowledge that it was defrauding Abbott by buying international test strips at the lower price and selling them domestically to increase profit, the Supreme Court ruled that the "knowing violation" exclusion did not apply because the Lanham Act is a strict liability statute that does not require proof of intentional acts in order to impose liability. The court concluded that "[d]espite Abbott's general allegations of knowing violations, Abbott could prevail on several covered advertising injury claims without establishing that Ixthus knowingly violated Abbott's rights." Similarly, the court declined to give effect to West Bend’s "criminal acts" exclusion as some of the claims against the insured were not premised on crimes.


* * Inside the Insurance Industry * * *

Connecticut Governor Ned Lamont has nominated Andrew Mais to serve as the Nutmeg State’s latest insurance commissioner.

Lloyd’s has appointed Burkhart Keese as its new Chief Financial Officer.

Jane Tutoki has resigned her position as vice-chair of Sedgwick Claims Management Services. Tutoki was formerly the Global CEO of Cunningham Lindsey Group, which Sedgwick acquired in 2018.

A state judge has ordered former New York Governor Eliot Spitzer to reimburse former AIG CEO Maurice "Hank" Greenberg $132,727 for the cost of producing 47 million pages of documents in his defamation case against Spitzer.

William Smith, a veteran insurance executive who ran Kemper and National Union for years, died last week at age 92.

* * * Asbestos Update * * *

The Supreme Judicial Court of Massachusetts has adopted an interpretation of the state’s statute of repose that will dramatically limit future asbestos claims arising out of construction activity. Answering a certified question from a U.S. District Court, the SJC ruled in Stearns v. Metropolitan Life Ins. Co., SJC-12544 (Mass. Mar. 1, 2019) that the six-year statute of repose set forth in G. L. c. 260, § 2B completely eliminates all tort claims arising out of any deficiency or neglect in the design, planning, construction, or general administration of an improvement to real property after the established time period has run, "even if the cause of action arises from a disease with an extended latency period and even if a defendant had knowing control of the instrumentality of injury at the time of exposure."

* * * Opioid Update * * *

OxyContin maker Purdue Pharma LP is reportedly considering bankruptcy in the face of mounting law suits and liability claims around the country.

* * * Restating the Law * * *

In the face of continuing criticism of its new insurance Restatemeent, the American Law Institute has embarked upon a charm ofense to reassure judges that it comports with the common law. Lead Reporter Tom Baker spoke to a gathering of judges in California earlier this year and reprised his presentation to a judicial conference in Houston on February 25.

* * * California Burning * * *

PG&E conceded last week that "it is probable that the utility’s equipment will be determined to be an ignition point of the 2018 Camp fire" and took a $10.5 billion charge for its fourth quarter 2018 financial results in anticipation of liability claims.

* * * Across the Bar * * *

Policyholder stalwart L.D. Simmons will reportedly be leaving McGuire Woods soon to start a new career as a sports psychologist.


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