May 3 2019

MM Insurance Law Update – 5/3/2019

CASES OF CONSEQUENCE

SIXTH CIRCUIT    "Occurrences" (OH)

The Sixth Circuit has ruled that it was reasonable for an insured to argue that as its alleged liability was for the negligent supervision of an employee who sexually assaulted three women, it should only be liable for a single "occurrence" deductible. In reversing an Ohio District Court’s declaration that each assault was a separate "occurrence," the Court of Appeals ruled in The Scott Fetzer Co. v. Zurich American Ins. Co., No. 18-3057 (6th Cir. April 30, 2019)(unpublished) that there were two reasonable interpretations of "occurrence" and that the one favoring the insured must therefore be adopted.

SEVENTH CIRCUIT    Bad Faith/Failure to Settle (IL)

The U.S. Court of Appeals for the Sixth Circuit has affirmed an Illinois District Court's ruling that a professional liability insurer did not act in bad faith in failing to pay its $1 million limit to settle medical malpractice claims that ultimately resulted in a $5.2 million judgment against the insured. In Surgery Center at 900 North Michigan Avenue, LLC v. American Protective Ins. Co., No. 18-2622 (6th Cir. April 25, 2019), the court declared that the insured had failed to show that there was a "reasonable probability" that an excess verdict would result, particularly given testimony that the insured had opposed settlement and that both it and defense counsel believed that the case was highly defensible. The Sixth Circuit declared that a mere possibility of an excess verdict is an insufficient basis for imposing extra contractual liability under Illinois law.

ILLINOIS   Asbestos/"Occurrences"/Stub Policies

The Appellate Court has ruled in Continental Cas. Co. v. Hennessy Industries, Inc., 2019 IL App (1st) 180183 (Ill. App. Ct. April 29, 2019) that a trial court erred in finding that asbestos law suits against a brake equipment manufacturer all arose out of a single ‘occurrence." In light of language in the policies stating that "all such exposure to substantially the same general conditions existing at or emanating from one premises location shall be deemed one occurrence," the First District ruled that losses involving diverse locations could not be grouped together as a single "occurrence." Notwithstanding Illinois cases in which appellate courts have adopted a single "occurrence" ruled on the grounds that the cause of the insured’s liability was its manufacture of asbestos products, the Appellate Court ruled in this case that there was no need to rely on a "cause" test where the language of the policy specifically provided an alternative construction of the meaning of "occurrence." The First District left open the issue of whether stub policies issued by American Home should be treated as providing a separate limit of coverage for the "stub" period. Whereas the trial court had ruled that the stub issue was moot given its finding that there was only one "occurrence," the Appellate Court declared that the issue needed to be analyzed but remanded it to the trial court for further findings.

NEW JERSEY   First Party/Computer Fraud/"Social Engineering"

A federal district court has denied a property insurer’s motion to dismiss claims that it owes "computer fraud" coverage for a million dollars that an insured was fooled into electronically transferring to a bogus bank account. In The Children’s Place, Inc. v. Great American Ins. Co., 2019 WL 1857118 (D.N.J. April 25, 2019), Judge Salas rejected Great American’s argument that the fraudster’s manipulation of the insured’s e-mail account did not involve the "use" of a computer. Further, despite Great American’s alternative argument that the cause of the fund transfers was the insured’s own actions and not the fraudster’s hack, the court found that the insured’s Complaint pleaded sufficient facts in this regard to withstand a motion to dismiss and that the factual question of what actually caused the insured’s loss should be left to a jury to decide.

WEST VIRGINIA   Construction Defect/"Occurrence" (TN)

In a case arising under Tennessee law, the West Virginia Supreme Court has ruled that a contractual liability exclusion precluded coverage for construction defect claims against a building contractor. In J.A. Street & Associates v. BITCO General Ins. Corp., No. 17-0079 (W. Va. May 1, 2019), the court ruled that the exclusion applied to liability arising out of the insured’s failure to carry out its contractual obligations and was not restricted to circumstances where the insured assumed liability under a contract.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

Lower catastrophic losses and improved underwriting results boosted Travelers’ first quarter profit in 2019 and lower its combined ratio from 95.5 to 93.7.

Lloyd's CEO John Neal has announced plans to make the market more efficient and reduce internal costs over the next five years.

* * * New Coverage Litigation of Note * * *

A sports trading card company sued its liability insurer in federal court in Chicago last week, alleging in Upper Deck Co. v. Liberty Mut. Ins. Co., No. 19-752 (N.D. Ill.), alleging that Liberty Mutual has failed to fully the defense of anti-trust claims brought against it by competitor Leaf Trading Cards.

* * * Mark Your Calendars * * *

The recently rechristened Massachusetts Insurance and Reinsurance Bar Association will be holding its annual conference on June 13 at the Back Bay Harvard Club. This year’s symposium will focus on the long-term implications of the ALI Restatement of Law, Liability Insurance. Representatives of Liberty Mutual and Travelers will join outside counsel in surveying provisions of the Restatement and the reaction that it has provoked since the ALI approved it in May 2018.

* * * Must See CLE * * *

American College of Coverage Counsel
Chicago Athletic Club
May 7-9, 2019

DRI Insurance Bad Faith Conference
Westin Washington, D.C.
June 5-7, 2019

 

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