Aug 28 2019

Insurance Law – 8/30/2019


FIRST CIRCUIT    Declaratory Relief/Diversity Jurisdiction (MA)

In Bearbones, Inc. v. Peerless Ind. Ins. Co., No. 18-1139 (1st Cir. Aug, 21, 2019), a federal court of appeal has ruled that it cannot address the substantive question of whether a Massachusetts District Court properly granted summary judgment to Peerless where questions of fact exist concerning whether diversity jurisdiction exists. Although there was complete diversity between the two insured Massachusetts corporations and Peerless (an Illinois corporation), the court took note of the fact that there must also be diversity as to whether the parties have their principal place of business and that Peerless had alleged in its Answer that it had its principal place of business in Massachusetts. The appeal was therefore put on pause for 90 days during which time the District Court would clarify the actual facts as to jurisdiction.

SIXTH CIRCUIT   Guns/Assault and Battery Exclusions (KY)

The Sixth Circuit has ruled that six claims brought against a nightclub for failing to protect patrons from an "active shooter" were subject to an assault and battery exclusion in the club’s general liability policy. In United Specialty Ins. Co. v. Cole’s Place, Inc. No. 18-5445 (6th Cir. Aug. 22, 2019), a divided appellate panel found that the U.S. District Court judge in Kentucky had properly exercised jurisdiction, despite competing claims in state court. Further, the Sixth Circuit ruled that the District Court has correctly ruled that these attacks were a "battery" and that the alleged liability of the club for failing to prevent the assaults "arose out of" excluded acts.

EIGHTH   CIRCUIT First Party/Employee Theft (MN)

The U.S. Court of Appeals for the Eighth Circuit has ruled in C.S McCrossan, Inc. v. Federal Ins. Co., No. 18-1949 (8th Cir. Aug. 6, 2019) that a Minnesota District Court was correct in declaring that the "employee theft" and "forgery" sections of Federal’s policy did not provide coverage because the embezzler was an "authorized representative" of the insured.

TENTH CIRCUIT   Uber/"Mend the Hold" Doctrine (OK)

Although the so-called "mend the hold" doctrine prohibits an insurer that has asserted one basis for denying coverage from adopting a different rationale after the dispute goes into suit, the Tenth Circuit has ruled in Genzer v. James River Ins. Co., No. 18-1605 (10th Cir. Aug. 20, 2019) that an auto insurer’s bases for disputing a UIM claim by an Uber driver had changed as the result of shifting legal arguments presented by the claimant and were therefore not subject to the "mend the hold" doctrine. In any event, the Tenth Circuit noted that Oklahoma courts had yet to clearly adopt the "mend the whole" doctrine and questioned whether they would ever do so. As a result, the Court of Appeals affirmed the Oklahoma District Court’s ruling that the James River policy was not ambiguous with respect to the scope of coverage for when covered transportation services ended.

ILLINOIS   Environmental/Duty to Defend/"Suit"

The Appellate Court has ruled that ITW’s liability insurers were not obligated to pay defense costs for a mediations that the insured entered into with the federal government to avoid litigation over its responsibility to clean up a hazardous waste site notwithstanding the insured’s contention that the mediation was linked to a law suit involving the original source of the contamination. Not only was the mediation clearly not a "suit," the First District further ruled in Illinois Tool Works v. ACE Specialty Ins. Co., 2019 IL App (1st) 181945 (Ill. App. Ct. Aug. 23, 2019) that the subject of the mediation was separate from the claims that were in litigation and that imposing "a duty to defend ITW in the AUS-OU mediation merely because it involves claims related to the Site 36 lawsuit would lead to an absurd result."

MISSISSIPPI   First Party/Katrina/Procedure/Special Master

The Mississippi Supreme Court has ruled that a state trial judge erred in transferring to herself one of the State’s HAP Katrina suits against property insurers while at the same time stating that these cases were overburdening the judiciary and should be referred to a special master for disposition. While declaring that a judge might, under appropriate circumstances circumvent the arbitrary assignment of cases to trial judges where doing so would be more efficient, the Supreme Court ruled in Safeco Ins. Co. of America v. Hood, No. 2017-IA-01554 (Miss. Aug. 22, 2019) that these stated goals were clearly inconsistent with Judge Green’s ruling that she did not have time for these cases and wanted to assign them to a Special Master whose fees would be borne by the parties. Further, the court ruled that assigning these cases to a Special Master over the insurers’ objection, together with the extraordinary range of powers conferred on the Master to exercise jurisdiction "concurrently" with the judge, was an abuse of discretion.


* * * Inside the Insurance Industry * * *

A.M. Best reports that net income among property/casualty insurers rose 69.3% to $59.20 billion based on lower cat losses and higher investment income. In a separate analysist, A.M. Best reported last week that net domestic P/C. underwriting income declined 9.6% to $4.83 billion in the first half of 2019.

* * * Cyber Developments * * *

A coordinated ransomware attack has paralyzed government resources in twenty small Texan towns.

* * * TCPA World * * *

The First Circuit ruled last week that a Massachusetts District Court erred in ruing that Verizon was not liable under the TCPA for unauthorized, automated calls to a "hybrid" phone. In Breda v. Cellco Partnership, the court ruled that the statute extended to calls received by a phone customer through a "Voice over Internet Protocol" that transmits calls via the Internet rather than through traditional cellular communications.

* * * IBNR Dept. * * *

The Illinois Department of Public Health has reported what is believed to be the first death attributable to "vaping." The Denver Post also reported this week that the Colorado Department of Public Health and Environment is investigating two cases of lung disease that may be due to vaping. Meanwhile, the federal Centers for Disease Control disclosed last week that it is investigating 193 cases of severe respiratory distress that may be linked to e-cigarettes.

* * * Opioids * * *

The judge presiding over the State of Oklahoma’s suit against Johnson & Johnson ruled in favor of the plaintiff on Monday, declaring that J&J had caused the opioid epidemic in Oklahoma and must pay the State $572 million. The State had been seeking $17 billion in damages.

* * * Reinsurance Update * * *

The Supreme Judicial Court of Massachusetts has requested amicus filings in the matter of Employers Ins. Co. of Wausau v. New England Re, SJC-12783. At issue is the question "Where multiple arbitration agreements are silent on the issue of consolidation of proceedings, whether a court may compel one party to proceed to arbitration in accordance with a demand for arbitration by the other party, leaving the issue of consolidation of the proceedings for that arbitrator or arbitration panel to decide." The SJC removed the case on its own motion from the Appeals Court earlier this year.

* * * New Coverage Litigation * * *

Arch Insurance filed suit against the University of Southern California on August 9, seeking a declaration that it does not owe coverage for a $215 settlement of sexual abuse claims arising out the misconduct of a university gynecologist and alleging that USC improperly attempted to persuade Arch to delete a sexual misconduct exclusion in its professional liability nsurance policies without sharing its knowledge of impending suits against the university.

Putnam Investments sued Ace American Insurance in Boston last week, seeking a declaration that Ace owes coverage for $4.5 million in legal fees incurred in defending against an SEC investigation of its securities business.

* * * Must See CLE * * *

FETTI Claims Conference
Chicago, IL
September 25-27, 2019

DRI Annual Meeting
New Orleans
October 16-19, 2019 

DRI Insurance Coverage Forum
Hartford, CT
November 6, 2019 

FDCC I-3 Symposium
November 6-8, 2019
New York City

DRI Insurance Coverage and Practice Symposium
New York City
December 5-7, 2019


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