Apr 10 2020

Insurance Law – 4/10/2020


FIRST CIRCUIT     Duty to Defend/Duty to Investigate (MA)

The First Circuit has affirmed a Massachusetts court’s declaration that a subsequent insurer was not obliged to share in the defense of mold liability claims that were known to the insured prior to the policy period. In sustaining anti-Montrose wordings in the CGL insuring agreement, the court ruled in Clarendon National Ins. Co. v. Philadelphia Ind. Co., No. 19-1212 (1st Cir. April 1, 2020) that allegations that additional mold had occurred during Philadelphia’s policy period due to new leaks and the landlord’s unsuccessful efforts to repair the problem did not create a potential for coverage triggering a duty to defend. The First Circuit also ruled that a liability insurer does not have an independent duty to investigate to search for facts supporting coverage where there are no allegations in the Complaint presenting a potential for coverage. In dicta, the court also observed that even where a Complaint alleged facts triggering coverage, an insurer might be relieved of any defense obligation if "there is 'undisputed, readily knowable, and publicly available information' in court records that demonstrates that the insurer has no duty to defend" and if "there is 'an undisputed extrinsic fact that takes the case outside the coverage and that will not be litigated at the trial of the underlying action.'" The First Circuit also ruled that Philadelphia had not violated the Unfair Claims Settlement Practices Act in its adjustment of this loss and that, in particular, it had adequately explained the basis for denying coverage.

CALIFORNIA     Environmental/Exhaustion/Allocation

The California Supreme Court has adopted a “vertical exhaustion” rule for insureds seeking excess coverage for “long-tail” losses. In Montrose Chemical Corp. v. Superior Court, S244737 (Cal. April 6, 2020), the Supreme Court ruled that the Court of Appeal had erred in holding that an insured must exhaust all available insurance in underlying layers before claiming coverage in a higher excess layer. Instead, the court declared that “Reading the insurance policy language in light of background principles of insurance law, and considering the reasonable expectations of the parties, we agree with Montrose: It is entitled to access otherwise available coverage under any excess policy once it has exhausted directly underlying excess policies for the same policy period.” The court ruled, however, that any excess insurers who are triggered on this “vertical’ basis could pursue claims for equitable contribution against unexhausted insurers that provided lower layer insurance in other years.

FLORIDA     Procedure/Venue

The judge overseeing the insurance coverage dispute with Cox Industries concerning Hulk Hogan's, notorious sex tape had been transferred from Tampa to the federal district court in Florida. In Hiscox Ins. Co. v. Bollea, No. 20‑221 (N.D. Fla. March 31, 2020), Judge Moody declared that a transfer of venue was appropriate in light of the fact that Cox Enterprises is headquartered in Georgia and most, if not all of the relevant witnesses to the case, reside in Georgia.

MARYLAND     Asbestos/Trigger/Allocation

The Maryland Court of Appeals has rejected arguments that a general liability insurer should be jointly and severally liable for a judgment in an asbestos personal injury lawsuit. In Rossello v. Zurich American Ins. Co., No. 24 (Md. April 3, 2020), the court affirmed that a "time of the risk" pro rata approach to allocation was consistent with the language in the policy as well as abundant precedent from the Maryland Court of Special Appeals since its decision in Utica Mutual in 2002. The court also took note of the fact that since 2002, nine of the ten Supreme Court allocation decisions outside of Maryland have rejected "joint and several" liability and adopted proration based upon time of the risk. The court also clarified its “trigger of coverage” analysis, holding that coverage in “long-tail” cases is not limited to be year of "manifestation" and that in cases of continuing injury, an "injury in fact" approach may trigger coverage in all years when injury occurred. Finally, without explicitly addressing whether there should be an “unavailability” exception for allocation omitting years in which insurance was commercially available, the court ruled in this case that the insured in this case could not evade its responsibility for loss occurring between 1977 and 1985 since it had failed to prove that it could not buy general liability insurance covering asbestos liability claims during this period.

MASSACHUSETTS     Bad Faith/Failure to Settle

In a devastating bad faith ruling, the Appeals Court has not only sustained a trial court’s conclusion that Liberty Mutual acted unreasonably in failing to settle a case before trial but has reversed the lower court’s award of $25 in nominal damages and has instead remanded the case for findings with respect to whether the damages should be based upon a doubling or trebling of the jury’s $4.5 million verdict against the insured. In Chiuli v. Liberty Mut. Ins. Co., No. 18-P-1288 (Mass. App. Ct. April 1, 2020), the court found that Liberty Mutual and its appointed defense counsel had taken an unduly optimistic view of the prospects for a defense verdict and should not have allowed the case to go to trial. The court rejected Liberty Mutual’s argument that the insured’s liability must be “clear” in order to give rise to a duty to settle under Section 3(9)(f), nor did the possibility of some comparative fault avoid the fact that liability was “reasonably clear” in this case. While therefore sustaining the trial court’s finding that Liberty Mutual had violated Section 3(9)(f), the Appeals Court reversed the lower court’s finding that this violation was not willful, ruling instead that the insurer had willfully embarked on an untenable appeal in an effort to take advantage of the plaintiff’s limited financial resources to pressure him into a more advantageous settlement.

PENNSYLVANIA     TCPA/”Accident”/Privacy

A federal district court has ruled in Selective Insurance Company of America v. J. Reckner Associates, Inc. No. 18‑4450 (E.D. Pa. March 31, 2020) that a general liability insurer was not obligated to provide coverage for claims arising out of the insured's transmission of unsolicited faxes in violation of the Telephone Consumer Protection Act. In granting summary judgment for Selective, Judge Wolson ruled that the underlying allegation solely reflected intentional and reckless conduct on the part of Reckner that could not constitute "an accident" under Pennsylvania law. The court rejected the insured's argument that because TCPA is a strict liability statute there was a possibility that it could be held liable without proof of intentional conduct. Furthermore, the court refused to find that Coverage B applied, holding that the offense of "privacy" "only protects the privacy right to secrecy, not to seclusion."


Inside the Insurance Industry

As insurers around the world struggle to cope with the pandemic crisis and fend off political pressure to pay uncovered losses, insurers are responding in diverse ways. Chubb has pledged not to lay off any employees and offered $10 million in global recovery assistance. Travelers plans to accelerate commission payments to help its agents with their cash flow. Allstate is offering to waive 15% of current auto premiums.

Fitch Ratings Inc. placed the AA- financial strength rating of Lloyd’s of London on “rating watch negative” due to pandemic concerns.

COVID-19 Pandemic

APCIA and other leading trade groups issued statements to Congress last week expressing concern that efforts to compel property insurers to cover COVID-related business interruption claims could bankrupt the industry in light of projections that the present pandemic could generated as many as 30 million claims business interruptions claims from small businesses alone could cost as much as $220-$383 billion per month. In a separate letter, the trades joined numerous business groups in urging Congress to pass separate legislation creating a COVID-19 Recovery Fund.

Louisiana has joined Massachusetts, New Jersey, New York and Ohio in proposing legislation to require insurers to cover BI losses. Unlike other proposals, the Louisiana bill does not provide for reimbursement through assessments of other insurers.

The Gauthier Houghtaling law firm in New Orleans, which recently filed suit on behalf of Thomas Keller’s French Laundry restaurant, is marketing itself as the spear point of WERBIG: a national coalition of restaurants seeking coverage from their property insurers.

California’s Insurance Commissioner has ordered insurers not to enforce deadlines for claims for claims for coverage until 90 days after the current “state of emergency” ends.

New Coverage Litigation

Restaurants continue to lead the charge against property insurers to compel coverage for COVID BI claims, including a new filing in federal court in Chicago on behalf of numerous bars and restaurants and a suit in Tampa on behalf of a local sports grill.

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