Jan 24 2020

Insurance Law – 1/24/2020

CASES OF CONSEQUENCE

TENTH CIRCUIT   Auto/Insured (CO)

The Tenth Circuit has ruled in Chavez v. Arizona Automobile Ins. Co., No. 18-1473 (10th Cir. Jan. 17, 2020) that a Colorado District Court properly dismissed an accident victim's effort to enforce a default judgment against an auto insurer where there was no evidence that the driver of the insured vehicle was a permissive user. As with the Colorado District Court, the Tenth Circuit ruled that the mere statement of the driver's name did not trigger a duty to defend since it did not also include an allegation that she was operating the vehicle with the insured's permission. The court noted that the underlying Complaint did not even include the named insured's address, which might have put the insurer on notice as to which policy might be at issue.

CALIFORNIA   Coverage B/"Malicious Prosecution"

The California Court of Appeal has ruled that a "Walker Process" claim that the insured fraudulently procured a patent from the U.S. Patent and Trademark Office and used that patent in an effort to monopolize markets was not a covered claim for "malicious prosecution." Despite the insured's argument that the Ninth Circuit's ruling in Lunsford supported a finding that the term "malicious prosecution" was ambiguous under California law, the court ruled in Travelers Property Casualty Company of America v. KLA-Tencor Corp., HO44890 (Cal. App. January 16, 2020)(unpublished) that malicious prosecution can only occur in the context of legal proceedings whereas a "Walker Process" claim arises from fraud on the PTO, not a court. Since neither the fraud element nor the use element of a "Walker Process claim necessarily involves legal proceedings, the court declined to extend "malicious prosecution coverage to such claims.

FLORIDA   Procedure

The Florida District Court of Appeal has ruled in Rodriguez v. Avatar Property & CAs. Ins. Co., Case No. 2d 18-65 (Fla. App. Jan. 15, 2020) that a trial court erred in granting a homeowner's insurer's motion to dismiss a property owner's water damage claim where the 37-page affidavit signed by the insurer's property adjuster included conclusions of law that were outside the competency of the signatory.

MASSACHUSETTS   First Party/"Innocent" Co-Insureds

The Supreme Judicial Court of Massachusetts has ruled that a spouse is entitled to recover property insurance for a fire that was deliberately set by her husband without any involvement or knowledge on her part. In adopting the so-called "innocent co- insured" doctrine, the court emphasized in Aquino v. United Property & Cas. Co., SJC-12705 (Mass. Jan. 21, 2020) that the standard fire policy mandated by G.L. c. 175 Section 99 which only avoids coverage for losses intentionally caused by "the insured." The court observed that Massachusetts recognizes the distinction between the articles "the" and "and" and that had the legislature intended to preclude recovery for innocent co-insureds, it would have drafted the statutory exclusion to apply to "an insured" rather than "the insured." The court ruled, however, that the innocent spouse was only entitled to recover half of the insured loss as that was the extent of her insurable interest in the property. Further, the court declined to impose 93A liability on the insurer, finding that its coverage position was arguably justified by "cryptic and confusing" language on this issue in its 1938 Kosior decision. The court was critical of United Property’s use of exclusionary language that was inconsistent with Section 99’s requirements but held that no injury had resulted from this misconduct.

MICHIGAN   "Occurrence"

The Michigan Supreme Court has requested amicus briefing in its review of the Court of Appeals’ ruling in Skanska USA Building Inc. v. M.A.P. Mechanical Contractors Inc. that the cost of removing and replacing the insured's faulty workmanship cannot constitute an "occurrence."

OHIO   Settlements/Liens

The Ohio Supreme Court has ruled that an auto insurer who settles a personal-injury claim with an accident victim does not have a duty to distribute a portion of the settlement proceeds to the victim’s former lawyer pursuant to a charging lien. In Kisling, Nestico & Redick v. Progressive Max Ins. Co., 2020-Ohio-82 (Ohio Jan. 16, 2020), the court declared that an action to enforce a charging lien is an in rem proceeding against a particular fund and that when a matter is resolved by settlement, the fund comes into being at the time the settlement is paid. A discharged law firm cannot call upon the equitable powers of the court to enforce a charging lien against a tortfeasor’s insurer when no court action was initiated on behalf of the victim and an out-of-court settlement was paid to the victim. The court concluded therefore that the discharged law firm’s remedy was to proceed against its former client for payment.

TEXAS   Duty to Defend/"Four Corners"

The Texas Supreme Court announced last week that will hear an oral argument on February 26, 2020 in the matter of Loya Ins. Co. v. Avalos. At issue is a July 25, 2018 ruling of the Texas Court of Appeals in which a divided panel of the Fourth District refused to apply an exception to the "eight corners" rule in a case where the insured had given deposition testimony that she had lied about driving the vehicle at the time of the accident.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Cameron and Tyler Winklevoss, who became famous for their feud with Mark Zuckerberg's and made a fortune investing in Bitcoins, announced last week that they are creating an insurance company to protect customers of their Gemini Trust Company against any losses as a result of the company's offline servers.

Across the Bar

Insurance coverage specialist Judy Selby has left her own consulting company to join the New York office of Hinshaw Culbertson. Prior to forming her own consultancy, Selby had been a partner at Duane Morris, Clyde & Co. and Baker Hostetler.

ATRA’s latest list of judicial hell holes gives top honors to the Philadelphia Court of Common Pleas.

New Coverage Litigation

In the first Massachusetts case to test the limits of commercial property insurance for cyber-theft, NELCO Worldwide has sued Chubb in federal court in Boston, alleging in New England Lead Burning Co. v. Federal Ins. Co., No. 20-0037 (D. Mass.) that it is owed coverage for two 2018 incidents in which fraudsters gained access to company e-mail credentials and fooled its finance manager into transferring funds to offshore accounts. The suit argues that the theft was a covered act of "computer fraud" and that Federal acted in bad faith in refusing to pay the loss.

 

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