Sep 4 2019

MM Insurance Law Update – 9/6/2019

CASES OF CONSEQUENCE

EIGHTH CIRCUIT    Auto/Stacking/Jurisdiction (MO)

The Eighth Circuit has ruled that a Missouri court did not err in sustaining unambiguous anti-stacking provisions in an auto policy. Further, the appellate court declined to find that the District Court did not err in granting summary judgement to the insurer, notwithstanding the claimants’ argument that Brillhart abstention was required due to a subsequently-filed state court coverage action. In GEICO Cas. Co. v. Isaacson, No. 18-2273 (8th Cir. Aug. 7, 2019), the court declared that "we see nothing improper in GEICO’s decision to file a declaratory judgment action promptly to resolve an outstanding issue, even if Rice and K.M. understandably chose to wait until they obtained a wrongful death judgment before raising the issue in state court."

TENTH CIRCUIT   First Party/Covered Property (CO)

The Tenth Circuit has sustained a Colorado District Court’s ruling that a homeowner was not entitled to coverage for economic loss that he suffered as the result of being defrauded in a wine Ponzi scheme. In the scheme, a broker represented to prospective customers that he would acquire valuable wines for them in the future if they would pay him now (a modern variation on Wimpy saying "I will gladly pay you Tuesday for a cheesburger today"). As the insured had never actually received any of the promised vintage bottles, the Tenth Circuit ruled in Hasan v. AIG Property Casualty Company, No. 18-1309 (Tenth Cir. Aug. 27, 2019) that there had not been a "direct physical loss of damage to valuable articles …"within the scope of his AIG "Valuable Collections" policy. The court rejected the insured’s claim for coverage based on a statement on AIG's web site stating that "new acquisitions are immediately covered at the time of purchase." Moreover, the court found that there was no evidence that the insured had ever actually purchased any of this wine since the broker had apparently failed to use money received from customers to order any wine at all in most cases.

CALIFORNIA   Environmental/Consent Requirements/Choice of Laws

The California Supreme Court ruled in Pitzer College v. Indian Harbor Ins. Co., S239510 (Cal. Aug. 29, 2019) that California's "notice-prejudice" principle is a fundamental aspect of the state's public policy. Further, in keeping with Section 187 of the Restatement Second, Conflicts of Law, the Supreme Court ruled that a California court might refuse to give effect to a provision in an environmental insurance policy requiring the insured to obtain the insurer’s consent before incurring remediation expenses. Although the policy contained a choice of law clause designating New York law as controlling, the court ruled that such choice of law provisions are not enforceable where they conflict with a fundamental policy of the forum state. In this case, the court found that California had a fundamental interest in preventing "technical forfeitures" of coverage due to untimely notice. However, the court did leave open the issue of whether New York or California would be found to have the greater interest in the outcome of this coverage dispute. Further, while observing that the "notice-prejudice" rule applied to consent requirements in first party policies but not liability insurance, the Supreme Court left open the issue of whether the Indian Harbor policy was first or third party insurance.

CONNECTICUT   First Party/Damages/Proof

The Connecticut Supreme Court has ruled a trial court did not err in awarding emotional distress damages to a homeowner based upon evidence that had been presented by the insurer at trial. In Riley v. Travelers Home and Marine Ins. Co., SC 19968 (Conn. Sept. 10, 2019), the Supreme Court ruled that under Connecticut’s so-called "waiver rule when a trial court denies a defendant’s motion for a directed verdict at the close of the plaintiff’s case, the defendant, by opting to introduce evidence in his or her own behalf, waives the right to appeal the trial court’s ruling. As a result, the Supreme Court ruled that Travelers had waived the waived the right to challenge the sufficiency of the evidence in the plaintiff’s case-in-chief, and the trial court therefore properly relied on Travelers’ own evidence when it denied a JNOV motion that it filed following the verdict arguing that the insured had not presented sufficient evidence to warrant an award of damages.

MASSACHUSETTS   Professional Liability/Allocation/Burden of Proof

A federal judge has ruled that a liability insurer was obliged to provide a defense to counterclaims brought by departing partners in a law firm because allegations that the remaining partner had mishandled requests for transferring files by client involving specialized legal knowledge so as to constitute "professional services." Judge Stearns separately ruled in Governo v. Allied World Ins. Co., No. 17-11672 (D. Mass. Aug. 27 2019) that there was no coverage for the partners’ request for a declaration of the meaning of the partnership agreement or for alleged ERISA violations. He directed Governo to present the court will a declaration of the amount of fees allocable to the defense of the counter-claims (as opposed to the cost of prosecuting Governor’s own claims against the departing partners). The court noted that although this would ordinarily be the insurer's burden, it made sense to assign the burden to Governo in this case since they were his bills that he was best able to determine whether the work was incurred to defend against the counterclaims or to pursue his own affirmative claims.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

The imminent Brexit of the United Kingdom from the European Union is accelerating the flight of insurance and reinsurance capital from London to Belgium, Luxembourg, Ireland and other European insurance centers.

AIG announced this week that Duncan Ellis, who cujrrently helm Marsh’s U.S. property practice, will be its new head of Retail Property, North America General Insurance.

* * * Appellate Update * * *

The Supreme Judicial Court of Massachusetts is scheduled to hear oral argument this week in Rawan v. Continental Cas. Co., SJC 12691. At issue is whether bad faith damages may be assessed against a liability insurer for failing to settle a case in which the liability of its insured was clear where any such settlement required the insured’s consent and the insured had refused to give its assent.

* * * In Memoriam * * *

Dennis Patterson, who steered Farmers Insurance through the worst of the environmental coverage wars and then overcame Melinda Ballard and "toxic mold," passed away earlier this month. His like will not come again soon.

* * * New Coverage Litigation of Note * * *

Kiwi Hospitality has sued RLI Insurance for Hurricane Harvey-related damage to a Quality Inn hotel in Houston.

North River Insurance has filed a new suit in the federal district court in Georgia seeking reimbursement from CNA, Nationwide and Travelers for $11 million that it paid for contaminated flour.

* * * IBNR Dept. * * *

The Miami Herald reports that environmental testing at a former golf course that is the planned location of David Beckham’s new soccer stadium has detected extremely high levels of arsenic. The arsenic is believed to have come from ash from a municipal incinerator that was operated on the site before it was turned into a muni course.

* * * Must See CLE * * *

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

DRI Annual Meeting
New Orleans
October 16-19, 2019

American College of Coverage Counsel Law Symposium
Fort Lauderdale
November 1

DRI Insurance Coverage Forum
Hartford, CT
November 6, 2019

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

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

 

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