May 30 2019

MM Insurance Law Update – 5/31/2019


FIRST CIRCUIT    D&O/"Claims Made"/Related Claims (MA)

The First Circuit has affirmed a Massachusetts court’s ruling that a D&O insurer had no duty to defend an SEC enforcement action brought during the policy period in light of evidence that it was related to administrative orders and subpoenas that were entered before the policy period. In ruling that these claims were not "first made" during the policy period, the court ruled in Biochemix, Inc. v. AXIS Reinsurance Company, No. 17-2059 (1st Cir. May 23, 2019) that these were related claims. The court ruled that it was sufficient that there was a "substantial overlap" between the earlier and later claims and that the policy's Inter-Related Wrongful Acts provision did not require that they be identical. MM’s Bill Schneider represented AXIS.

ELEVENTH CIRCUIT    E&O/"Professional Services" (FL)

The Eleventh Circuit has refused to give malpractice coverage to a counselor who was sued for giving care that he was neither certified or qualified to render. In an unpublished opinion, the Court of Appeals ruled in Chapman v. ACE American Ins. Co., No. 18-12972 (11th Cir. May 21, 2019), a drug abuse counselor was alleged to have contributed to the suicide of a young patient that he was counseling for AHDH and other mental health problems. The court emphasized that under Florida law, mental health counseling and substance abuse counseling are treated as distinct professions governed by different statutes, licensing and training. In this case, the definition of "professional services" in the Ace policy was defined as meaning drug and alcohol abuse counseling whereas the claims against the insured were for his alleged negligence in providing mental health counseling not substance abuse counseling. Furthermore, the insured lacked the required licensure, education or experience to provide mental health counseling. As a result, the Eleventh Circuit agreed with the Florida District Court that the underlying claims were not for "professional services."

ALABAMA   Construction Claims/"Occurrence"

The Alabama Supreme Court has ruled that a trial court erred in requiring a liability insurer to defend construction defect claims against a building contractor. In Nationwide Mut. Fire Ins. Co. v. The David Group, Inc., No. 1170588 (Ala. May 24, 2019, the court ruled that the underlying complaint solely sought recovery for defective construction and the insured had failed to present any evidence of allegations that the property owner had suffered damage to their personal property or other resulting damage beyond the insured’s faulty workmanship.

CALIFORNIA   Duty to Defend/"Suit"

Demands by the Pentagon that a government contractor investigate and repair construction defects in the U.S. Army’s $35 million Patriot Missile Guidance Enter have been held not to constitute a "suit" in Harper Construction Company Inc. v. National Union Fire Insurance Company of Pittsburgh, PA, No. 18-471 (S.D. Cal. March 28, 2019). The court found that the demand was not a "civil proceeding" nor was there evidence that National Union had consented to it as a means of alternative dispute resolution. Further, the court granted partial summary judgment to AIG with respect to the insured’s claim that the insured was entitled to repair costs that it had voluntarily incurred. The court declared that these sums were not "damages" since there was no judgment, court order or decree declaring that the insured was legally liable to pay them.

SOUTH DAKOTA   "Damages"/Tripartite Claims

A federal district court has asked the South Dakota Supreme Court to declare whether the cost of an insured tearing down their house pursuant to a court injunction are "damages" covered under a liability policy. In Sapienza v. Liberty Mut. Fire Ins. Co., 2019 U.S. Dist. LEXIS 84973 (D.S.D. May 17, 2019), the District Court separately adopted the "inadequate defense" theory of liability set forth in Section 12 of the ALI Restatement of Law, Liability Insurance, declaring that Liberty Mutual might be liable for overriding the advice of the insured’s own chosen counsel and refusing to engage an independent expert architect or contractor to support the insured’s defense. While concluding that the insured’s factual allegations failed to sustain a finding of liability on this basis, the District Court allowed the insured an additional 14 days to supplement its claims. The court did dismiss the insured’s bad faith claims, ruling that the insured’s alleging decisions to "hinder" the insured’s defense were not support by the facts alleged and were unrelated to the allegedly "deficient" defense that the insurer had provided.


* * * Inside the Insurance Industry * * *

Beazley PLC announced this week that its MediaTech policy, which offers limits of up to $25 million, is being revised to include coverage for business interruption loss, dependent business interruption loss, cyber extortion loss, data recovery costs, e-crime including fraudulent construction and telephone fraud, and criminal rewards.

* * * Cyber Claims * * *

Beazley reports that ransomware claims received by is clients doubled during the first quarter of 2019 compared to the same period in 2018. The average demand rose to $224,871 compared to $166,324 that year before.

Various on-line resources maintained by the Philadelphia court system have been frozen since last Tuesday when a virus intrusion was reported.

* * * IBNR Update * * *

A federal district court has enjoined Anheuser Busch from advertising claims that rival Molson Coors uses corn syrup in the production of its light beers.

* * * The Unfriendly Skies * * *

Two flights attendants have filed a putative class action against Delta Airlines in federal court in Manhattan, alleging that the "Passport Plum" uniforms made for the airline by Land’s End have caused them rashes and headaches. Ah, but did these injuries occur within the United States and its territories?

* * * New Coverage Litigation of Note * * *

The owners of the Noah’s Ark theme park have sued Allied World and three other insurers, seeking coverage for $1 million in lost revenues after heavy rains caused landslides that washed out access road to the popular Kentucky tourist attraction. True to its antecedents, the ark itself was not damaged by the flood.

* * * Summer Reading * * *

The latest issue of DRI’s For the Defense features Boston partner Michael Aylward’s article on "The Art of Coverage Opinions: Ten Tips for Better Legal Writing."

* * * In Memoriam * * *

We lost two wonderful athletes this week. Bart Starr played in the first football game that I saw on American TV after my family returned from Hong Kong and I thrilled to his Packers’ victory in the Ice Bowl. Bill Buckner was a tragic figure. A skilled veteran who late in his career still managed to play a major role in getting the Red Sox to the 1986 World Series, was left in one inning too long in Game 6 and suffered a personal calamity that rankled for years. Only after the surfeit of triumphs after 2004 was Red Sox nation able to acknowledge Bucker’s gifts and his great heart.

* * * Must See CLE * * *

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

Massachusetts Insurance and Reinsurance Bar Association Conference
Back Bay Harvard Club
June 13, 2018



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