CASES OF CONSEQUENCE
THIRD CIRCUIT NFIP/Proofs of Loss (NJ)
The Third Circuit has ruled in Uddoh v. Selective Ins. Co. of America, No. 18-2274 (3d Cir. May 13, 2019 (unpublished) that a property owner was precluded from obtaining coverage for a flood loss sustained during Superstorm Sandy owing to deficiencies in the insured's submitted proof of loss. In a per curiam opinion, the Third Circuit observed that because the policy was issued pursuant to the National Flood Insurance Program, its conditions precedent to coverage must be strictly followed whereas in this case the insured's proof of loss did not comply with the SFIP’s requirements in numerous ways including the fact that it was signed "under protest." The Third Circuit rejected the insured's argument that these inadequacies were excused by a November 2012 concerning Sandy claims, noting that the Bulletin in question specifically stated that it "does not constitute a blanket waiver of the Proof of Loss Requirements of the SFIP."
FIFTH CIRCUIT Civil Rights Claims/Trigger of Coverage (MS)
While denying that it was adopting a "continuous trigger," the Fifth Circuit has ruled in a Mississippi case that law enforcement liability policies issued by St. Paul and Scottsdale must cover suits brought against public entities for the wrongful conviction and imprisonment of innocent men decades earlier. In Travelers Ind. Co. v. Mitchell, No. 17-60291 (5th Cir. May 29, 2019), the Court of Appeals declared that "We do hold that coverage was triggered in more than one year by more than one injury. But we do so because Travelers and Scottsdale agreed to policies that permit multiple triggers if there are different injuries, quite apart from any common law 'multiple trigger' principle." The court emphasized that the policies in question were triggered by the occurrence of a "bodily injury" as distinguished from the trigger of coverage as distinguished from the offense-based trigger for the torts of false imprisonment or wrongful detention and similar offenses in a policy’s "personal injury" coverage.
ELEVENTH CIRCUIT Standing/Class Actions (FL)
Having agreed to reconsider its original opinion, the Eleventh Circuit has now ruled in A&M Gerber Chiropractic, LLC v. GEICO General Ins. Co., No, 17-15606 (11th. Cir. May 30, 2019) that a lower court erred in allowing a chiropractic clinic to pursue an assigned claim against GEICO for refusing to pay the $10,000 statutory limit for PIP benefits in Florida. In light of the fact that GEICO had paid its insured over $7,000 despite the fact that he was only entitled to recover $2,500 since he had not received "emergency medical care," the court declared that the insured had not suffered any damage as the result of GEICO;s claims handling and that his assignee therefore lacked standing to bring a putative class action against GEICO.
CALIFORNIA Coverage B/Privacy/Publication/Criminal Acts
The California Code of Appeal has ruled that an incident in which an employer surreptitiously recorded an interview with a prospective employee constituted an "oral or written publication, in a manner, material that violates a person's right to privacy" within the scope of the policy's "personal and advertising injury coverage." In rejecting the insurer's argument that there had been no "publication" in this case. In an unpublished opinion, the Fourth District ruled in Nautilus Ins. Co. v. Mingione, G055914 (Cal. App. May 31, 2019) that a liability insurer was obliged to provide coverage for allegations that the insured violated Penal Code Section 632 was subject to a "criminal act" exclusion as there was never a finding of criminal conduct and because Nautilus had agreed to try the case based on stipulated facts which did not include any stipulation of criminal conduct. The court refused to imply a finding of criminal conduct merely based upon the facts that were described in the course of the trial. The court declared that the insured would reasonably have expected to be covered for conduct of this sort and that eliminating the coverage based upon this exclusion would have rendered this insurance "illusory." Further, the Court of Appeal rejected the insurer's argument that Section 637.2, which permits statutory damages in the amount of $5,000.00 per violation, was a form of "damages" insured by the policy and not merely an uninsurable "penalty."
SOUTH DAKOTA Duty to Defend/Bad Faith
In one of the first cases to rely on the ALI's Restatement of Law, Liability Insurance, a federal district court has predicted that the South Dakota Supreme Court would adopt Section 12's rule that a liability insurer may be sued for providing an "inadequate defense." In Sapienza v. Liberty Mutual Fire Ins. Co., No. 18-3015 (D.S.D. May 17, 2019) , the insured had argued that Liberty Mutual breached the duty to defend by taking over the defense of the lawsuit and countermanding the independent judgment of defense counsel and by failing to retain necessary experts and refusing to pay for certain defense activities. Despite having ruled that a cause of action for "inadequate defense" might be claimed, the District Court dismissed the insured's breach of contract claim, declaring that the factual allegations set forth in this count were mere "naked assertions devoid of further factual enhancement" and therefore fell afoul of the Twombly standard for motions to dismiss. The District Court declined to dismiss the insured’s claim that Liberty Mutual owed coverage for $60,000 that they had incurred to demolish their home in response to an order finding that it was in violation of height and set back restrictions and agreed to certify the question of whether complaint with orders for injunctive relief are "damages" under South Dakota law.
WISCONSIN Crime Coverage/Forgery/"Directions to Pay"
The Wisconsin Supreme Court has ruled in Leicht Transfer & Storage Company v. Pallet Central Enterprises, Inc., 2019 WI 61 (Wis. May 31, 2019) that sums that a shipping company paid under false pretenses after a vendor provided them with forged delivery tickets fell outside the scope of a commercial crime policy issued by Hiscox. Whereas the insured had argued that these forged delivery tickets comprised "directions to pay" within the meaning of the "forgery or alteration" coverage terms, the Supreme Court declared that the delivery tickets were merely evidence of deliveries and did not contain any terms requiring the insured to pay a sum certain. Rather, the court found in this case that an invoice is a request for payment, not a "direction to pay." Justice Bradley dissented, arguing against the majority's opinion ignored the standard business practices of the parties and conflicted with the insured's reasonable expectations of coverage.
OTHER DEVELOPMENTS OF NOTE
* * * Inside the Insurance Industry * * *
A new NAIC study concludes that Millennial are nearly three times more likely to buy flood insurance than Baby Boomers. The report also found that there is a common misconception among policyholders that all homeowner’s policies cover flood losses.
* * * Restating the Law * * *
Two new court opinions have relied on the American Law Institute's controversial Restatement of Law, Liability Insurance. In Travelers Indemnity Company v. Mitchell, No. 17-60291 (5th Cir. May 29, 2019), the Fifth Circuit cited Section 33’s analysis of "deemer clause" (Comment e.) whereas a federal district court in South Dakota predicted in Sapienza v. Liberty Mutual Fire Ins. Co., No. 18-3015 (D.S.D. May 17, 2019) that the South Dakota Supreme Court would follow Section 12’s recognition of a right of action against insurers for providing an "inadequate defense."
* * * Appellate Update * * *
Nearly two years after accepting a certified question from the Ninth Circuit in Pitzer College v. Indian Harbor Ins. Co., the California Supreme Court is scheduled to hear oral argument this week on the issue of whether California's common law notice-prejudice rule a fundamental public policy for the purpose of choice-of-law analysis and if the notice-prejudice rule is a fundamental public policy for the purpose of choice-of-law analysis, can the notice-prejudice rule override a provision in Indian Harbor’s pollution liability insurance policy requiring the insurer’s consent to remedial expenses except in emergency circumstances.
* * * Cyber Claims * * *
Here is the latest newsletter from MM’s cyber practice group.
* * * On the Road Again * * *
Boston partner Michael Aylward and AIG coverage maven Tom Chaseman will be speaking at this week’s DRI bad faith seminar on the likely implications of the ALI insurance Restatement for the future of bad faith litigation.
* * * 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