Jan 31 2020

Insurance Law – 1/31/2020


FIFTH CIRCUIT    Absolute Pollution Exclusion (TX)

The Fifth Circuit has sustained a lower court's declaration that liability claims arising out of an unplanned discharge of "rock fines" from the insured's quarry operations were subject to an absolute pollution exclusion in an umbrella policy. The dispute in Eastern Concrete Materials Inc. v. ACE American Ins. Co., No. 18-11043 (5th Cir. Jan. 17, 2020) arose out of an incident in which mineral debris from blasting operations at the insured's stone quarry in New Jersey had inadvertently been discharged into adjoining creeks as a result of the insured's effort to avoid flooding in the face of severe rainstorms, resulting in clean up directives from the New Jersey Department of Environmental Protection. Despite the insured's argument that the Fifth Circuit in Texas courts lacked jurisdiction over it, the Court of Appeals concluded that it did, citing the fact that the policy had been procured in Texas and that Eastern Concrete had sufficient juridical contacts with Texas to sustain a claim of jurisdiction. The Fifth Circuit further concluded that Texas law had the more significant relationship to the case and should control the availability of coverage. Applying Texas law, the Fifth Circuit ruled that rock fines are a "contaminant" subject to this exclusion notwithstanding Eastern Concrete's contention that rock fines are simply small particles of rock that are neither inherently dangerous or contaminants. While conceding that the New Jersey EP was not claiming that the release of rock fines caused any threat of harm to drinking water or local water supplies, the Fifth Circuit concluded that their release nonetheless constituted a discharge of " contaminants " since their presence in water supplies might change the flow and contours of the stream including areas used for trout spawning and would affect the available food sources for fish and other species.

COLORADO   Jurisdiction

Magistrate Tafoya has issued a Report in Philadelphia Ind. Co. v. U.S. Olympic Committee, No. 19-12131 (D. Colo. Jan. 28, 2020) recommending that a liability insurer’s effort to obtain a declaration that it does not owe coverage for claims arising out of Doctor Larry Nassr’s sexual molestation of young athletes because the court cannot exercise federal subject matter jurisdiction in this case because federally-charted corporations such as the U.S.O.C. have national citizenship but are not citizens of any individual states.

ILLINOIS    Auto/Anti-Stacking

The Illinois Supreme Court has reversed a ruling of the Appellate Court that "anti-stacking" language in an automobile insurance policy was ambiguous. In Hess v. Estate of Klamm, 2020 IL 126649 (Ill. Jan. 24, 2020), the state Supreme Court refused to find that multiple liability limits were triggered pursuant to multiple vehicles that were insured under the policy merely because the limits were stated separately as applying to these vehicles. Rather, the Supreme Court ruled that its analysis of similar language in Hobbs still applied notwithstanding the fact that the policy in this case listed the limits of liability separately on the first two pages of the declarations identifying insured vehicles. Rather, the court ruled that when the declarations are read together with the anti-stacking clause, there is no ambiguity as to the amount of bodily injury liability coverage provided under the policy.

MARYLAND   Cyber/Ransomware/"Direct Physical Loss"

A federal district court has ruled in National Ink and Stitch LLC v. State Auto Property & Casualty Insurance Company, No. 18-2138 (D. Md. Jan 23 2020) that an embroidery and screen printing business was entitled to coverage for first party losses that it suffered as the result of a December 2016 ransomware attack that prevented the insured from accessing its art files and other data on its computer servers. The had insured unsuccessfully to ransom its data and thereafter employed a security company which replaced and reinstalled the software although the programs thereafter operated slowly and inefficiently. In requiring State Auto to provide coverage for this loss pursuant to the Business Owners Special Form Computer Coverage endorsement, Judge Gallagher ruled that the ransomware attack had caused "direct physical loss of or damage" to the insured's computer systems and that State Auto was therefore obliged to reimburse the insured for the entire cost of replacing the system. The court emphasized that the insured was not solely seeking the cost of replacing its data but rather had paid for a fully functioning computer system that was not slowed by the necessary remedial and protective measures or risk of reinfection from a dormant computer virus. Finally, the court rejected State Auto's contention that the policy requirement that there by "physical loss or damage" equated with an utter inability on the part of the computer system to function. In this case, the court found that loss of use, loss of reliability and impaired functionality demonstrated that the computer system had suffered a physical loss or damage" to it without any requirement that the system become "completely inoperable."


Inside the Insurance Industry

Even as losses from the coronavirus in China are spreading worldwide, Insurance Journal reports that claims for event cancellation and business interruption are unlikely to be covered as standard forms include exclusions for communicable diseases.

Emerging Issues

An unidentified woman has sued Wyndham Hotels and G6 Hospitalilty in the U.S. District Court in Portland, Maine for failing to prevent sex trafficking at their hotels.

A new report from Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse finds that a record number of securities class actions were filed in 2019.

New Coverage Litigation

TIG Insurance has brought an action in federal court in Louisiana seeking a declaration that it does not have any obligation to defend Brad Pitt's "Make It Right Foundation" against allegations that the foundation constructed defective homes in New Orleans for the victims of Hurricane Katrina.

Hiscox filed an action in Florida this week, asking the court in Hiscox Ins. Co. v. Cox Broadcasting, No. 20-221 (M.D. Fla.) to rule that it has no obligation to cover Cox Broadcasting for defamation claims arising out of the illicit publication of the infamous Hulk Hogan sex tapes.

Mark Your Calendars

ABA Insurance Section
Phoenix AZ
February 20-22, 2020

IADC Winter Meeting
Pebble Beach, CA
February 24-27, 2020

FDCC Winter Meeting
Phoenix, AZ
March 4-8, 2020

DRI Insurance Coverage and Claims Institute
Chicago, IL
April 1-3, 2020

EECMA Annual Claims Conference
Orlando, FL
May 6-8, 2020


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