Apr 17 2020

Insurance Law – 4/17/2020

CASES OF CONSEQUENCE

FIRST CIRCUIT     Duty to Defend/Named Insured (MA)

In an odd case in which a schismatic faction of a Presbyterian church in Newton, Massachusetts filed papers with the Secretary of State’s office appropriating the original name of the church and then sought coverage from the named insurer’s D&O carrier for having trespassed on church property, the First Circuit ruled in Newton Covenant Church v. Great American Ins. Co., No. 19-1826 (1st Cir. April 10, 2020) that Great American had no obligation to provide a defense under its directors and officers policy, inasmuch as its coverage was limited to civil proceedings against any insured, whereas the break-away faction was not an insured under the policy. In any event, the court noted that any coverage that might otherwise arise as a putative insured would have been subject to an exclusion in the policy for claims between insureds.

SECOND CIRCUIT     “Occurrence”/Discrimination (NY)

In a novel claim involving alleged violations of the Americans with Disabilities Act based upon a healthcare center's refusal to address the special needs of the plaintiff’s disabled 7 year old son, the Second Circuit has asked the New York Court of Appeals to clarify whether discrimination based upon a "failure to accommodate" constitutes an "occurrence" under New York law. In Brooklyn Center for Psychotherapy, Inc. v. Philadelphia Ind. Ins. Co., No. 19-2266 (2nd Cir. April 9, 2020), the Second Circuit declared that a plaintiff alleging disability discrimination may seek recovery on three theories (1) disparate treatment; (2) disparate impact; or (3) failure to make a reasonable accommodation." The court observed that New York courts had refused to allow coverage for disparate treatment claims but had suggested the possibility that insurers might be required to defend "disparate impact" claims. In the absence of any law, however, with respect to "reasonable accommodation claims", the court asked the New York Court of Appeals whether insurers were required to defend.

FLORIDA     First Party/Burden of Proof

The Florida District Court of Appeal has ruled in Citizens Property Ins. Corp. v. Kings Creek Condo, Inc., No. 3D18-661 (Fla. App. DCA3 Mar. 18, 2020) that a trial court erred in granting a directed verdict to a property owner with respect to damage caused by Hurricane Wilma and remanded the case to permit Citizens to present evidence at trial that the insured had not met its burden of proving that this damage was due to a covered cause of loss.

INDIANA     Cyber/Ransomware/Computer Fraud

The Indiana Court of Appeals has ruled in G&G Oil Company of Indiana v. Continental Western Ins. Co., 19A-PO-1498 (Ind. App. Ct. Mar. 312020) that a trial court did not err in ruling that a policy's Commercial Crime and Fidelity Coverage did not cover a ransomware attack that shut down the insured's computer systems until it paid nearly $35,000 in BitCoins to buy back its data. Whereas G&G had argued that the policy’s coverage for fraud should be interpreted broadly as including "unconscionable dealing" such as the fraudster’s phishing scheme, the Court of Appeals ruled that “the hijacker did not use a computer to fraudulently cause G&G to purchase Bitcoins to pay as ransom. The hijacker did not pervert the truth or engage in deception in order to induce G&G to purchase the Bitcoin. Although the hijacker’s actions were illegal, there was no deception involved in the hijacker’s demands for ransom in exchange for restoring G&G’s access to its computers. For all of these reasons, we conclude that the ransomware attack is not covered under the policy’s computer fraud provision.”

SOUTH DAKOTA     “Accident”/Intentional Acts

The South Dakota Supreme Court has ruled in Olson v. Progressive Northern Ins. Co., 2020 S.D. 21 (S.D. April 8, 2020) that a domestic dispute that erupted into shooting between two vehicles that fatally killed a young girl failed to trigger coverage under either the shooter's policy. As a preliminary matter, the court rejected the insured's argument that although the insured had fired with an attempt to kill his wife, he had not intended to shoot his daughter and that her death was therefore the result of an "accident." Rather, the court concluded that it was sufficient that the insured had acted intentionally to cause injury when he discharged his handgun. "The applicable rule is that an act is inherently injurious if it is certain to result in some injury, although not necessarily the particular alleged injury." In any event, the court declared that it was the settled public policy of South Dakota that "insurance coverage cannot extend to an individual who intentionally harms others, even where the harm is unforeseen by the victim." Finally, the court ruled that the incident did not involve the insured's use of a covered auto as the vehicle was the mere "situs" from which the accident resulted and was not causally connected to the discharge of the insured's gun.

TEXAS     First Party/Phishing/Fidelity

A federal district court has denied AIG's argument that its commercial crime coverage was in the nature of fidelity insurance and, therefore, not subject to the Texas Prompt Payment of Claims Act. In denying National Union’s motion to dismiss efforts to compel coverage for a "phishing" scheme, Judge Boyle ruled in RealPage, Inc. v. National Union Fire Insurance Company of Pittsburg, PA, No. 19‑1350 (N.D. Tex. April 1, 2020), that although such coverage included fidelity components, it also insured Computer Fraud and Funds Transfer Fraud that were not in the nature of fidelity insurance.

OTHER DEVELOPMENTS OF NOTE

COVID-19 Pandemic 

Even as state efforts to legislate business interruption coverage for COVID-19 property losses appears to have stalled, some are looking to Congress to create a TRIA-like backstop as a compromise solution to the problem.

House Financial Services Committee Chair Maxine Waters has reportedly circulated draft legislation entitled, "The Pandemic Risk Insurance Act of 2020," that would create a federal backstop for pandemic losses once the industry's payments exceed a $250 million threshold. Business Insurance reports that insurers that participate in the program will be charged an annual premium for re-insurance coverage "based on the actuarial cost to providing such re-insurance coverage, including costs of administering the program."

Meanwhile, seven Republican members of the U.S. Senate Banking Committee wrote to President Trump last week, expressing concern that state legislative proposals mandating coverage for COVID losses "would potentially undermine our understanding of contractual obligations."

At his Friday pandemic press conference, Trump reportedly stated that property insurers should be paying such losses. Even though some policies may exclude virus claims "in a lot of cases, I don't see it. I don't see reference, and they don't want to pay up. I would like to see the insurance companies pay if they need to pay."

Meanwhile, Pennsylvania became the latest state to have legislation filed proposing to require insurers to pay such losses. Joining Louisiana, Massachusetts, New Jersey, New York, Ohio, Pennsylvania and South Carolina.

APCIA President David Sampson released a statement on April 6 expressing concern that forcing property insurers to pay Covid 19 business interruption claims, now estimated at $225-431 billion per month just for businesses with 100 employees or less, would wipe out the insurance industry’s $831 billion surplus in less than three months.

A new report issued by S&P Global Market Intelligence concludes that property and casualty insurers are among the industries least likely to suffer serious adverse economic damage due to the pandemic.

New Jersey Executive Order 123 creates a 90 “grace period” for the payment of P/C policy premiums.

California Insurance Commissioner Ricardo Lara issued an order on Monday requiring premium rebates to policyholders for lines of insurance where the risk of loss has dropped substantially due to reduced activity because of sheltering in place, including private passenger automobile, commercial automobile; workers’ compensation; commercial multi-peril; commercial liability and medical malpractice.

Meanwhile, the All England Lawn Tennis and Croquet Club will reportedly receive $141 million from an event cancellation insurer following its decision to cancel this year Wimbledon tennis tournament. St. Andrew’s reportedly has a similar policy in effort to the 2020 Open Championship that was to have occurred later this year.

The Geragos & Geragos law firm and several local businesses filed 5 separate law suits in Los Angeles Superior Court seeking to compel coverage from Travelers Indemnity.

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