Dec 6 2019

Insurance Law – 12/6/2019

CASES OF CONSEQUENCE

FIRST CIRCUIT    Bad Faith/First Party/Estimation (MA)

The First Circuit has ruled in River Farm Realty Trust v. Farm Family Cas. Ins. Co. No. 19-1188 (1st Cir. Nov. 19, 2019) that a property insurer did not act in bad faith in its adjustment of a homeowner’s water loss. Further, the court refused to find a Section 3(9)(f) violation both by reason of the fact that there was a reasonable basis for the insurer's estimate and due to the existence of a good-faith dispute with respect to the demands in question with respect to the amounts owed for this water damage. The court noted that although an excessive demand on the part of a policy holder does not relieve an insurer under its statutory duty to extend a fair offer of settlement once liability and damages are reasonable clear, excessive demands may be considered as part of the overall circumstances affecting the amount that would qualify as a reasonable offer and response. Morrison Mahoney partner Bill Schneider represented Farm Family.

ALABAMA   Discovery/"At Issue" Doctrine

The Alabama Supreme Court has ruled that an insured does not waive the privilege attached to its communications with defense counsel by bringing an action to obtain reimbursement for a settlement. While agreeing that the insured has the burden of establishing the reasonableness of the settlement that it negotiated, the court declared in Ex parte Dow Corning Alabama, Inc., 1171118 (Ala. Nov. 27, 2019) that the reasonableness of this agreement could be established without compelling the disclosure of the contents of privileged communications in keeping with prior cases involving disputes over the reasonableness of attorney's fees as well as out-of-state authority on this specific issue.

ILLINOIS   Coverage B/Trigger/Malicious Prosecution

Resolving an issue on which Illinois appellate courts have been sharply divided, the Supreme Court ruled in Sanders v. Illinois Union Ins. Co. 2019 IL 125465 (Ill. Nov. 21, 2019) that the "offense" of malicious prosecution occurs when a criminal defendant is wrongfully convicted rather than the later date when he or she is exonerated of that offense. The Supreme Court ruled that the policy’s use of the word "offense" refers to the conduct of the insured giving rise to the malicious prosecution. The court emphasized that this was an "occurrence"-based policy focusing on the conduct of the insured, whereas if it concluded that exoneration was an appropriate trigger, coverage would depend on acts or circumstances taking place long after the insured's conduct had ended. The court also refused to find that the insured's conduct could be divided into different "occurrences" with different trigger dates, declaring instead that the officers' fabrication of evidence was the single cause of all three trials.

MASSACHUSETTS   Pollution/Absolute Exclusions

In keeping with the general principle that an exception to one exclusion does not create coverage if a second exclusion separately applies, Judge Hillman has ruled in Performance Trans, Inc. v. General Star Indemnity Company, No. 19-40086 (D. Mass. November 25, 2019) that a total pollution exclusion relieved a liability insurer of any obligation to provide coverage for a spill that occurred in New York when the insured's tanker truck drove off a highway and overturned discharging several thousand gallons of gasoline and diesel fuel. Notwithstanding the insured's argument that the total pollution exclusion could be not given effect without rendering illusory separate coverage provided pursuant to a Special Hazards and Fluids Limitation endorsement, the District Court declared that the Special Hazards endorsement's exception for losses resulting from the upset or overturn of an auto only set forth an exception to the exclusion otherwise applied in that endorsement and did not separately create coverage that did not otherwise exist under the policy.

MASSACHUSETTS   "Insured Location"

The Supreme Judicial Court of Massachusetts will hear oral argument this week in Green Mountain Insurance Company v. Estate of Powers, SJC 12760. At issue is whether a homeowner's policy excluding coverage for bodily injury "arising out of premises owned by the insured but that it's not an insured location" under the policy covers an injury that occurred at the location owned by the insured but was not the "insured location" listed on the policy.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Marsh has announced that John Drzik will be stepping down as head of its global risk and digital unit.

Arch Re plans to take over Aspen Re’s global credit and surety reinsurance business that Aspen Re is exiting.

Cyber Update

A federal district court in San Francisco has ruled that the possibility of credit monitoring to respond to an increased risk of future identity theft is insufficient to support class action certification under FRCP 23(b)(3) for the damage claims of millions of individuals who claim that their private information was compromised by Facebook’s negligent data security practices. While refusing to grant class status for the plaintiffs’ damage claim, Judge Alsup separately ruled in Adkins v. Facebook, Inc., No. 18-5982 (N.D. Cal. Nov. 26, 2019) that class status was appropriate for the plaintiffs’ claim for injunctive relief to compel Facebook to improve its on-line security.

A new article in Bloomberg News explores the emerging challenge that cyber claims present for property insurers through the lens of Merck’s pending law suit against its insurers over the issue of whether a war risk exclusion precludes coverage for financial losses caused by the NotPetya virus.

Sexual Assault Update

Pennsylvania has become the latest state to relax its statute of limitations for sexual assaults. HB962, which Governor Wolf signed into law last week, eliminates the statute of limitations for criminal charges involving child sexual abuse and substantially extends the limitations period for civil actions by victims who were 23 or younger when they were assaulted. Victims previously had to sue before age 30; now they will be able to bring claims until they turn 55. While HB962 does not revive expired claims, the legislature approved a separate measure that begins the process of authorizing a constitutional amendment to create a two year window for such suits.

IBNR Dept.

An aggrieved vegan has sued Burger King, alleging in Williams v. Burger King Corp., No. 19-24755 (S.D. Fla.) that Burger King has deceived consumers by advertising its "Impossible Whopper" as a meat-free alternative whereas these "Impossible Meat" products are cooked on the same grill as regular burgers and have thereby become coated with "meat by-product."

Must See CLE

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

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