Dec 13 2019

Insurance Law – 12/13/2019

CASES OF CONSEQUENCE

NINTH CIRCUIT    Choice of Laws/Duty to Defend (CA)

The Ninth Circuit has ruled in Pulte Home Corp. v. TIG Ins. Co., No. 18-55797 (9th Cir. Dec. 4, 2019) that a California District Court did not err in applying a Georgia choice of law provision to liability claims arising out of the insured alleged defective home owner's construction. In an unpublished opinion, the Ninth Circuit declared that the parties had a reasonable basis for designating Georgia law, given the fact that the insured’s principal place of business was in Georgia at the time of the policies were contracted, nor had the insured identified any conflict between Georgia law and a fundamental policy of California. Unlike the notice issue that was recently considered by the California Supreme Court in Pitzer, the Ninth Circuit found in this case that California does not have a fundamental policy requiring the application of California law to claims based on the implied covenant of good faith and fair dealing. Nonetheless, the Ninth Circuit ruled that the California District Court had erred in granting summary judgment to TIG on the issue of its duty to defend in light of the fact that TIG had not shown that the underlying claims could not have arisen out of ongoing operations at the site. Given the vagueness of the allegations in the underlying complaint, the court ruled that TIG had failed to meet its burden to prove "without dispute" that its business risk exclusions applied.

ELEVENTH CIRCUIT   Cyber/"Fraudulent Transfer" Coverage/Causation (GA)

The Eleventh Circuit has ruled in Principle Solutions Group, LLC v. Ironshore Indemnity Inc., No. 17-11703 (11th Cir. December 9, 2019) that a commercial crime policy’s coverage for "Computer and Funds Transfer Fraud" that insured "loss resulting directly from a 'fraudulent construction' directing a 'financial institution' to transfer or pay funds" applied to a "phishing" incident in which fraudsters fooled a business into transferring $1.7 million to an offshore bank account in China. The Eleventh Circuit ruled that the email instruction to the insured constituted a "fraudulent instruction," notwithstanding Ironshore’s contention that the email had merely instructed the insured to work with counsel to wire funds later in the day and had not instructed the insured to wire a specific amount of money to a specific recipient." The Eleventh Circuit also rejected Ironshore’s alternative argument that this loss had not resulted directly from the e-mail instruction. The court ruled that under Georgia law, "proximate cause is not necessarily the last act or cause or the nearest act to the injury" and can also include "all of the natural and probable consequences" of an action unless there is a sufficient and independent intervening cause. In this case, the court ruled that the intervening causes claimed by Ironshore (notably an inquiry by Wells Fargo with respect to the authenticity of the request) were certainly foreseeable if not necessarily inevitable. Writing in dissent, Judge Tjoflat agreed that the e-mail from the fraudsters was unambiguously a "fraudulent instruction" but argued that the issue of causation presented factual issues that should have been left to the jury and should not have been resolved by the District Court on summary judgment.

NEW YORK   Bad Faith/Consequential Damages

In a first party dispute where a manufacturer of renewable bio-diesel fuel alleges that Lloyd's failure to more promptly adjust its claim increased its total losses because it could not rebuild its facility without the interim funding payments, the First Department has ruled in Certain Underwriters at Lloyd's v. BioEnergy Development Group, LLC, 2019 NY Slip Op 08779 (App. Div. Dec. 5, 2019) that the trial court erred in dismissing the insured’s claim for consequential damages. The Appellate Division declared that, "given the purpose and particular circumstances of the property damage and business interruption policies, it was foreseeable that excessive delay would cause defendants to incur, as alleged, tens of millions of dollars in uncovered business interruption losses and attorneys' fees necessary to recover therefor."

PENNSYLVANIA   Auto/UIM/Emotional Distress

The Pennsylvania Superior Court has ruled in Evans v. Travelers Ins. Co., 2019 PA Super. 353 (Pa. Super. Dec. 4, 2019) that a trial court erred in refusing to require Travelers to compensate an insured who claimed to have suffered post-trauma stress disorder as a result of bodily injuries that she suffered in an auto accident. Whereas the trial court had ruled that Travelers' was entitled to summary judgment because Evans had failed to show that her PTSD resulted from physical injuries suffered in the accident, the Superior Court ruled that, under Pennsylvania law, "bodily injury" extends to symptoms of severe depression, nightmares, stress and anxiety requiring psychological treatment. The court distinguished earlier cases that had declined to find "bodily injury" coverage for emotional distress, declaring that those cases involved allegations of mental anguish that were based solely on emotional injury without any accompanying physical injury, as was the case here.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Fitch reported last week that U.S. property and casualty insurers will likely obtain a moderate improvement in underwriting revenue in 2020 but that markets will otherwise remain relatively stable for the near term.

The California Insurance Commissioner has promulgated a new regulation prohibiting insurers from cancelling policies issued to homeowners who live in zip codes adjoining areas where there have been recent wildfires. Insurers have responded that these new requirements are imposing unreasonable burdens on them, particularly in light of rate decreases that the CDI has forced them to make in recent years.

California Burning

Pacific Gas and Electric has agreed to pay $13.5 billion to victims of California wildfires in compensation for damage allegedly caused by its equipment.

Environmental Update

The Trump Administration announced a bold new environmental initiative last week: toilet flushing. At a meeting with small businessmen, the President complained that "People are flushing toilets 10 times, 15 times as opposed to once. They end up using more water…The EPA is looking at that very strongly at my suggestion."

Cyber Update

A new article in the Wall Street Journal comments on the debate over the applicability of "warclusions to cyber attacks at the Journal’s recent "WSJ Pro Cybersecurity Executive Forum."

Here is the latest newsletter from MM’s Cybersecurity, Data Security and Privacy practice group.

 

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