Jan 10 2020

Insurance Law – 1/10/2020


SIXTH CIRCUIT   First Party/ACV/Policy Interpretation (OH)

The Sixth Circuit has ruled in Richelson v. Liberty Ins. Corp., No. 19-3035 (6th Cir. Jan. 6, 2020) that a homeowner could not reasonably interpret an Actual Cash Value endorsement to his policy as creating additional coverage for damage to his roof from a windstorm. In rejecting the insured’s effort to bring a class action against Liberty for its alleged fraud in inducing Ohio policyholders to purchase this coverage with a LibertyGuard endorsement, the Sixth Circuit agreed with the District Court that this endorsement sets forth an ACV exception to the general rule of replacement cost coverage for first party losses involving roof damage caused by hail and wind.

EIGHTH CIRCUIT   First Party/Collapse/"Building Decay" (MO)

The U.S. Court of Appeals for the Eighth Circuit has ruled in Westchester Surplus Lines Ins. Co. v. Interstate Underground Warehouse & Storage, Inc., No. 18-3448 (8th Cir. Jan. 3, 2020) has ruled that a commercial property insurer did not owe coverage for losses due to the insured’s underground storage facilities as the result of "dome-outs" that caused these former limestone mine shafts to collapse. Despite the insured’s argument that Westchester Fire that this loss was due to collapse of a building due to "decay," the court found that the insured’s installation of reinforcing bolts into the "rubble zone" above the natural ceiling of the mine shafts did not make them part of the insured "building." Because the decay that caused the "dome outs" occurred in the rubble zone, the Eighth Circuit therefore concluded that it was not "building decay."


The Eleventh Circuit has affirmed a Florida District Court’s dismissal of RICO claims that various auto repairs shops brought against seven auto insurers alleging that the carriers’ "direct repair programs" fraudulently forced the garages to accept below market value for their work. In Crawford’ Auto Center, Inc. v. State Farm Mut. Automobile Ins. Co., No. 17-12583 (11th Cir. Dec. 20, 2019), the court ruled that the plaintiffs’ "vague allusions" failed to satisfy the elements for a wire fraud claim to support a RICO action, nor was it an action for "extortion."

CALIFORNIA   Environmental/Horizontal Exhaustion

The California Supreme Court heard oral argument last week in Montrose Chemical Corporation v. Superior Court, 14 Cal.App.5th 1306 (App. 2nd Dist. 2017). At issue is whether the Court of Appeal erred in requiring horizontal exhaustion of lower layer policies before an insured could access its excess coverage for long-tail losses.

MONTANA   Bad Faith/Failure to Settle

The Montana Supreme Court has ruled that a liability insurer did not act in bad faith in paying its policy limit to the third party claimant even though the claimant refused to execute a release in favor of its insured. In High Country Paving, Inc. v. United Fire & Cas. Co., 2019 MT 297 (Mt. Dec. 31, 2019), the court declared that a full and final release of all claims is not required for there to be a "settlement" between an injured third party and an insurer pursuant to the Montana Unfair Claims Settlement Practices Act (§ 33-18-201(6)). Rather, the court declared that "when it is reasonably clear that the amount required for a final settlement of all claims—including general damages reasonably shown to have been caused by the insured’s conduct—exceeds policy limits, an insurer has a duty to pay policy limits to an injured third party, without conditioning such a payment on obtaining a release for its insured."

PENNSYLVANIA   Releases/Third Party Beneficiaries

The Pennsylvania Supreme Court has opened the way for construction defect claims against a building contractor’s insolvent liability insurer arising out of problems with the U Conn campus. Whereas a trial court had ruled that that Reliance was a third party beneficiary of a 2016 settlement that the State entered into with Suffolk Contraction that released both the Defendants "and their respective Insurers," the state Supreme Court ruled in Suffolk Construction Corp. v. Reliance Ins. Co. (In Liquidation), J-119-2019 (Pa. Dec. 17, 2019) that "at best, the language is ambiguous as to whether Suffolk released its own insurers, including Reliance, from providing insurance coverage for claims related to the Project." Having concluded that the language of the Release was ambiguous, the Supreme Court declined to reach the issue of whether Reliance was a third party beneficiary of its insured’s release with the State of Connecticut.

VIRGINIA   Auto/"Use"

The Virginia Supreme Court has ruled that an assault of a special needs student by a fellow student on the insured’s school bus did not trigger State Farm’s obligation to pay UIM benefits because the assault did not arise out of the "use" of an insured vehicle. In Corriveau v. State Farm Mut. Auto Ins. Co., No. 181533 (Va. Dec. 19, 2019), the court ruled that the bus was merely the "situs" of the assault and that this use was wholly and separate from the use of the bus as a means of transportation.


Inside the Insurance Industry

– Wisconsin-based Church Mutual Insurance has converted to a mutual holding company.

– Philadelphia Insurance has announced that Robert O’Leary will succeed Jamie Maguire as its chairman. O’Leary will continue as the Company’s CEO.

– Business Insurance reports that January 1 renewals evidence a trend in which Commercial property policyholders will see ongoing price increases and cuts in capacity through 2020. Meanwhile, businesses are seeing a double-digit increase in the cost of D&O coverage.

– Property insurance rate increases set to continue.

IBNR Update

With the deadline for new claims set to expire on January 31, a new class action suit has been filed in the Essex Superior Court against Columbia Gas and other companies that are alleged to have caused or contributed to the 2017 gas explosions in Andover, North Andover and Lawrence.

Scout’s Honor

Eight victims of sexual abuse filed suit against the Boy Scouts of America in Washington, D.C. this week. Even though the abuse occurred in jurisdictions where the claims are now time-barred, the suit alleges that the plaintiffs may pursue relief in Washington, D.C. because the Boy Scouts were incorporated there in 1910 and obtained a congressional charter in 1916.

New Coverage Litigation

A California winery has sued its property insurer for losses due to recent wildfires, alleging in Wine Estates, Inc. v. Certain Underwriters at Lloyd’s that it was owed coverage for smoke damage.

2019 Year-End Survey

If anyone missed our year end survey of the most insurance cases and claim trends of 2019, here's a link to the article.


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