Jun 19 2019

MM Insurance Law Update – 6/21/2019


FIRST CIRCUIT    Structured Settlements/Fraud  (MA)

The First Circuit has affirmed a Massachusetts District Court’s dismissal of claims by accident victims who had alleged that Lexington defrauded them by purchasing annuities to settle their claims against Lexington policyholders that proved to have less value than was allegedly originally promised.  Despite the plaintiffs’ claim that Lexington misrepresented the terms of their tort settlements and had violated RICO through its practice of overstating the ultimate dollar payout from these structured settlements, the First Circuit held in Ezell v. Lexington Ins. Co., No. 18-2064 (1st Cir. June 11, 2019)  that the plaintiffs had failed to prove fraud with particularity in light of the fact that the settlement agreements merely stated that the dollar value of the settlements would be “annuitized” and did not make any representations with respect to what the ultimate value of the annuity payments would prove to be.

FIRST CIRCUIT    Duty to Defend/”Occurrence”/”Bodily Injury” (ME)

The First Circuit has ruled that allegations that a utility negligently misrepresented the cost of electrical services to consumer constituted an accidental “occurrence” under Maine law.   While agreeing that the plaintiffs’’ RICO claims were not covered, the court declared in Zurich American Ins. Co. v. Electricity Maine, LLC, No. 18-1968 (1st Cir. June 17, 2019) that Zurich was obliged to provide a defense since other claims in the suit did not require proof of intentional acts on the part of the insured.  Further, the court ruled that these claims potentially sought recovery for “bodily injury” because, even though the claims in no way alleged emotional distress due to the utility’s overbilling, such damages might be awarded based on the facts otherwise alleged.  The court ruled that the Zurich’s policy’s definition of “bodily injury,” which restricted coverage for emotional distress to mental anguish resulting from an otherwise covered “bodily injury” was ambiguous.

EIGHTH CIRCUIT     “Batch Clauses”  (MN)

In a dispute between a primary insurer and an excess insurer concerning the application of “batch clauses” to product liability claims against an air intake duct manufacturer, the Eighth Circuit has ruled in National Union Fire Insurance Company of Pittsburgh, PA v. Donaldson Company Inc., No. 18‑1063 (8th Cir. June 14, 2019) that AIG’s obligations with respect to funding a $6 million settlement were capped at a single $1 million “occurrence” limit despite the fact that the underlying losses had concededly occurred in several of its policy years.  Whereas Federal had argued that the batch clause had the effect of aggregating multiple claims as a single "occurrence" but it did not supersede the separate requirement in the policies that bodily injury or property damage take place during the policy period, the Eighth Circuit ruled that Federal's construction ignored the specific text of the batch clause and conflicted with its principal purpose.  As a result, the Eighth Circuit ruled that under Minnesota law "when a defective ‘lot’ of goods or products is involved, the claims are consolidated into a single ‘occurrence’ deemed to occur on the date the insured first received notice of the injury during the policy period."  Finally, the Eighth Circuit agreed with the District Court that only two "lots" were implicated in this case, rejecting Federal's argument that at least four lots were involved based upon minor changes in the design of the ducts in question.  Writing in dissent, Justice Arnold disagreed that the batch clause endorsement should be allowed to aggregate occurrences taking place across different policy periods.

PENNSYLVANIA    Property Insurance/Actual Cash Value/Overhead

The Pennsylvania Supreme Court has announced that it will agree to review Kurach v. Truck Insurance Exchange in which the Superior Court recently ruled that  a homeowner's insurer was not obliged to reimburse its policyholder for General Contractor Overhead and Profit attributable to the cost of repairing a water damage loss covered by the policy.  The intermediate appellate court had taken note of the fact that the Truck policy at issue explicitly defined actual cash value as meaning "the reasonable replacement cost at time of loss less deduction for depreciation in both economic and functional obsolescence" and only promised to pay GCOP "if it is reasonably likely that the services of General Contractor will be required to manage, supervise and coordinate the repairs."  The Superior Court had ruled that GCOP was not required to be included by the language in the policy or any public policy of the State of Pennsylvania.

SOUTH CAROLINA    Privilege/Bad Faith

On a certified question from the Fourth Circuit  in a bad faith case, the South Carolina Supreme Court has declared in In Re Mt. Hawley Ins. Co., No. 27892 (S.C. June 13, 2019)that an insurer’s “denying liability and/or asserting good faith in the answer does not, standing alone, place the privileged communications 'at issue'.”  However, the court justified this result based on State Farm Mutual Automobile Ins. Co. v. Lee, 13 P.3d 1169 (Ariz. 2000), in which the Arizona Supreme Court  required a disclosure of privileged legal advice from the insurer’s coverage counsel based upon its conclusion that the insurer had, in fact, placed that advice “at issue” by contending that the coverage positions adopted by its claims adjusters had been “informed by counsel.”   The court therefore seemingly opened the door to requiring disclosure in cases where the insurer made an affirmative claim of good faith that expressly or impliedly relied on counsel’s advice. 


* * * Inside the Insurance Industry * * *

Nevada Senate Bill 86, which was signed into law on June 1, 2019, will allow surplus lines insurers to domesticate in Nevada.  Up to this point, carriers that wished to write surplus lines insurance in Nevada had to establish dual insurance companies.  SB 86 also removes an earlier requirement that non-resident adjusters maintain a place of residence in Nevada.

In the wake of George Insurance Commissioner James Beck’s decision to step aside while a federal investigation of fraud and money laundering plays out, a local police chief has been named to serve as interim commissioner.

New Jersey has enacted SB 2720, which requires the owner of three wheeled autocycles and similar conveyances to have PIP coverage.

Michigan has enacted legislation (SB 1) to reform to its no‑fault auto insurance regime. 

* * * Pelvic Mesh:  Round II * * *

In an apparent reprise of the internecine malpractice litigation that ensued after the Fen/Phen settlements a few years ago, the New York Times reported this week that two lawsuits have been brought by groups of women who were plaintiffs in the Pelvic Mesh litigation accusing their lawyers of misdoubt.  In New Jersey, the plaintiffs allege that counsel illegally took 40 percent of their recoveries even though state law caps contingent fees of 33 percent.  A separate suit filed in federal court in Houston alleges that the lawyers in that case took on so many cases that they missed filings and significantly diminished the plaintiffs' eventual recovery.

* * * On the Road Again * * *

It was your editor’s privilege to lecture last week at the Defense Trial Counsel of West Virginian’s annual claims conference.   I have always been amazed at the number of extraordinary lawyers and leaders of the defense bar that have emerged from relatively small states like West Virginia.  


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