Feb 14 2020

Insurance Law – 2/14/2020

CASES OF CONSEQUENCE

SEVENTH CIRCUIT    Limits/Excess/"Custom and Usage" (IL)

In a complex dispute between two AIG companies and the primary insurer for a trucking company concerning the amount that RLI was obliged to contribute to the settlement of two catastrophic wrongful death cases, the Seventh Circuit has ruled in Lexington Ins. Co. v. RLI Ins. Co., No. 19-1426 (7th Cir. Jan. 29, 2020) that the "Aggregate Corridor Deductible" in RLI’s $2 million primary policy operated as a deductible to RLI’s obligations and was not, as the AIG parties contended, a self-insured retention. Despite extensive briefing by the parties that sought to construe this language on the basis of industry "custom or usage," the Seventh Circuit found that neither was a reliable means of gauging the meaning of the term. While acknowledging that the ACD was ambiguous in its meaning, the court resolved this ambiguity on the basis of the negotiations among the parties when the policies were issued and declared that the Illinois District Court had not erred in granting summary judgment for RLI as the "emails and underwriting files show that New Prime, RLI, and AIG itself all intended the combined liability of New Prime and RLI to be capped at $5 million per occurrence, so that AIG’s liability would begin at $5 million per occurrence, not at $7 or $7.5 million."

EIGHTH CIRCUIT   Construction Defect/Business Risk Exclusions (MN)

The Eighth Circuit has ruled that a Minnesota District Court was correct in requiring a liability insurer to defend claims that a builder’s negligence caused construction defects in a luxury apartment complex, including a leaking roof. In Westfield Ins. Co. v. Miller Architects & Builders, No. 18-2970 (8th Cir. Jan. 30, 2020), the court ruled allegations that water had come through a defectively installed roof and damaged the "finishes and electrical work in the building’s interior" was sufficient to meet the policy’s requirement of "property damage" caused by an "occurrence" and was not subject to Exclusions J(5), J(6) and L. In particular, the court rejected Westfield’s argument that the reference to "that particular part of the property" on which the insured was performing operations in Exclusion J should extend to the entire apartment complex because the insured had responsibility for the entire area.

ILLINOIS   Arbitration/ADR

The Appellate Court has ruled in Caterpillar, Inc. v. Insurance Company of North America, 2019 IL App (3d) 190032 (Ill. App. Ct. July 2, 2019) that a 1999 settlement agreement between Caterpillar and Wausau with respect to welding fumes PI claims against Caterpillar precluded the insured from now bringing a separate law suit to compel payment of defense costs. Rather, the Third District ruled that the 1999 agreement bound the parties and required that Caterpillar’s claim be submitted to arbitration. The court declined to find that any delays on Wausau’s part in asserting the 1999 agreement as a defense to these claims precluded it from doing so now.

MASSACHUSETTS   Bad Faith/Consent Judgments

The First Circuit heard oral argument last week in the matter of Capitol Specialty Ins. Co. v. Higgins, No. 19-1496. At issue are cross-appeals arising out of a multi-million dollar award against the liability insurer of a bar for its claimed violation of claims settlement practices by failing to conduct a full investigation or settle the case in a timely fashion. The claimant has cross-appealed, arguing that her enhanced 93A damages should have been based on a $7.5 million consent judgment with the bar.

NEBRASKA   Auto/Household Reduction Exclusions

The Nebraska Supreme Court ruled last week that a trial court erred in ruling that a household exclusion could be enforced to the extent of reducing the available limits of coverage from $100,000 to the statutory minimum of $25,000. In Shelter Mut. Ins. Co. v. Freudenburg, 304 Neb. 1015 (Neb. Feb. 7, 2020), the court ruled that the reference to "liability coverage" in § 60-310, in stating that "an automobile liability policy shall not exclude, limit, reduce, or otherwise alter liability coverage under the policy solely because the injured person making a claim is the named insured in the policy or residing in the household with the named insured" referred to the policy limits and not the coverage required by law. "Simply put, an automobile liability policy in any coverage amount is not permitted to exclude or reduce liability coverage under the policy solely on the ground the claimant is a named insured or resident in the named insured’s household."

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Marsh reports that U.S. commercial insurance prices increased by over ten percent in the fourth quarter of 2019

Allstate and Chubb reported last week that lower cat losses and improved premium rates had yield significantly better fourth quarter results than in 2018. Chubb net income for the quarter was $1.2 billion compared to $3.6 billion in 2018, whereas after-tax catastrophe losses in the quarter were $353 million compared with $506 million the year before.

Meanwhile, Allstate earned $11.47 billion in the fourth quarter of 2019 up 21.0% from the year before. Property-Liability insurance premiums earned increased by 5.4%.

New Coverage Litigation

German-based Merck KGaA has brought suit against HDI Global for failing to defend it against a trademark infringement action that pharma competitor Merck & Co. brought against it last month in federal court in New Jersey.

Cyber Update

Here is the latest issue of MM’s cyber claims newsletter.

The U.S. Justice Department announced this week that it is bringing charges against four members of the Chinese People’s Liberation Army who are suspected of masterminding the 2017 Equifax hack. War risk exclusion anyone?

Emerging Issues

Insurance Journal reports on the continuing controversy in California with respect to the "smoke taint" reported in bottles of wine made out of grapes that were harvested after being exposed to smoke during recent California wildfires trigger coverage under first party property and crop policies.

Mark Your Calendars

ABA Insurance Section Mid-Year Meeting
Phoenix AZ
February 20-22, 2020

IADC Mid-Year 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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