Dec 20 2019

Insurance Law – 12/20/2019

CASES OF CONSEQUENCE

TENTH CIRCUIT    Bad Faith/UIM (OK)

The Tenth Circuit has ruled that that an auto insurer did not act in bad faith in refusing to pay the amount of UIM benefits demanded by its insured. Applying Oklahoma law, the Tenth Circuit ruled in Shotts v. GEICO General Ins. Co., No. 18-6206 (10th Cir. Dec. 2, 2019), that GEICO had a reasonable basis for disputing the extent of the insured's claimed injuries. The court refused to find bad faith based upon alleged inadequacies in GEICO’s investigation, declaring that GEICO had, in fact, conducted a "thorough, timely, and reasonable review of the claim" and that a jury could not have concluded that its investigation was unreasonable. Finally, the court rejected the insured's argument that GEICO had acted in bad faith when it failed to make a prompt "first dollar payment," declaring instead that the first dollar payment requirement only applied where an insurer intended to exercise subrogation rights against the tortfeasor. Where, as here, an insurer has waived its rights to subrogation, the prompt first dollar payment rule did not apply.

ELEVENTH CIRCUIT   Liquor Liability Exclusion (FL)

The Eleventh Circuit has ruled that an "absolute liquor liability exclusion" precluded any duty to defend allegations that a strip club caused or contributed to a fatal auto accident involving an inebriated patron who was allowed to consume alcohol at the club. In AIX Specialty Ins. Co. v. Members Only Management, LLC, No. 19-11210 (11th Cir. Dec. 11, 2019)(unpublished), the court ruled that as the sole claim against Members Only was brought under Florida’s Dram Shop Act. As the Dram Shop Act, the claims were subject to that section of the exclusion for violations of a statute relating to the "distribution or use of alcoholic beverages," and were therefore excluded from coverage. Further, the court rejected the insured’s argument that giving effect to this exclusion would render its coverage "illusory," observing that the policy would still provide coverage for premises liability claims and other claims unrelated to alcohol.

ARKANSAS   Auto/Medical Payments

The Arkansas Supreme Court has ruled in Crockett v. Shelter Mutual Insurance Company, 2019 Ark. 365 (Ark. Dec. 5, 2019) that an automobile insurer acted reasonably and appropriately in issuing medical payments commensurate with the actual cost of the services. The court rejected the insured's argument that they were entitled to additional funds because the med pay provisions of the policy were ambiguous or contrary to public policy. The court refused to find that the phrase "the amount for which we can discharge" medical expenses could also reasonably be interpreted to mean the amount for which Shelter itself is responsible for discharging.

MASSACHUSETTS   Bad Faith/"Consent to Settle" Clauses

The Supreme Judicial Court ruled this week in Rawan v. Continental Cas. Co., SJC 12691 (Mass. Dec. 16, 2019) that a professional liability insurer was not liable to the underlying claimant for failing to effectuate a settlement as required by G.L.c. 176D § 3(9)(f) where its policy contained a "consent to settle" clause and the insured had refused to permit it to settle. While ruling that the inclusion of a consent to settle clause in a professional liability policy does not violation Section 3(9)(f), the court declared that insurers still owe "residual duties" to third-party claimants pursuant to Chapter 176D even when an insurer refuses to settle and could potentially be held liable if they fail to properly investigate a claim or encourage their insured to settle in cases where liability does seem clear. In this case, however, the court ruled that the insurer's investigation was, on the whole, reasonable and that it had made good-faith efforts in an unsuccessful attempt to persuade its policyholder to settle. The court observed that consent to settle clauses pre-dated the adoption of the unfair settlement practices statutes such as Chapter 176D and furthermore serve a valuable purpose in the professional liability context by including protection for a professional's reputation and good will. While therefore ruling that it was not illegal or a per se violation of Section 3(9)(f) to include such terms in their policies, the court ruled that even professional liability insurers might be liable under Section 3(9) for violating "residual duties" including a thorough investigation of the facts, a careful attempt to determine the value of the claim, good-faith efforts to convince the insured to settle for such an amount and the absence of "misleading, improper or extortionate conduct toward the third-party claimant."

VERMONT   Inland Marine/"Covered Property"/Debris

The Vermont Supreme Court has ruled in Commercial Construction Endeavors Inc. v. Ohio Security Insurance Company, 2019 Vt. 88 (Vt. Dec. 12, 2019) that an insurer exhausted its coverage obligations for loss suffered by a contractor when a barn that it was building was destroyed by high winds after the insured failed to properly buttress the frame. Although the insurer had paid the limit of its "off-premises" property coverage, the insured sought to obtain additional limits based on a claimed ambiguity in the Inland Marine floater. The Supreme Court declined to find any ambiguity, however, and ruled that the Inland Marine coverage did not apply since the barn was not the "covered property" of the insured. Further, the Supreme Court agreed with the trial court that the policy did not cover the insured's expenses for removing the destroyed barn as this debris removal was not a loss involving business personal property.

OTHER DEVELOPMENTS OF NOTE

California Burning

Governor Gavin Newsom, whose assent is necessary to any resolution of Pacific Gas & Electric’s bankruptcy, announced Friday that he was rejecting a proposed $13.5 billion compensation plan for wildfire victims.

The FAIR Plan, California’s insurer of last resort, sued the state’s Insurance Commissioner last week to block new regulations that would require it to expand the scope of its property insurance coverage for fire losses. In its filing in the Los Angeles Superior Court, the FAIR Plan asserts that the Commissioner has exceed his statutory authority and that the regulation would destabilize the insurance marketplace and prevent it from complying with its ability to provide basic property insurance to consumers.

Cyber Update

Municipal operations in the City of New Orleans suffer a cyber-attack last week. The attack was reportedly not a serious one and did not involve any ransomware claim.

Me Too II

The New York Times reported last week that Harvey Weinstein’s insurers have agreed to fund a $25 million settlement to resolve allegations of rape and sexual assault against the former Hollywood mogul. The payments will be a part of a comprehensive $47 million agreement, including reimbursement to Weinstein for his own legal fees. Weinstein and his studio recently sued Zurich and various Chubb entities seeking coverage.

Across the Bar

Former Lloyd’s Chief Executive Inga Beale has become an independent member of Clyde & Co. along with former Grant Thornton Chief Executive Stephen Chipman.

Flushed Away

Now that the U.S. EPA is on the case concerning the major environmental problems created by poor flushing habits, they might also examine recent reports of enormously high levels of pharmaceutically-related chemicals in bodies of water that are being flushed downstream from major pharma plants.

 

Back to Newsletters