Apr 24 2020

Insurance Law – 4/24/2020

CASES OF CONSEQUENCE

SEVENTH CIRCUIT     Auto/Covered Auto/Estoppel (IN)

Where a commercial auto policy limited coverage to designated "covered autos", the Seventh Circuit has ruled in Markel Ins. Co. v. Rau, No. 19-2433 (7th Cir. April 9, 2020) that Markel had no obligation to provide coverage for losses involving a car crash involving one of the insured's ambulances that was not listed on the policy. Although the insurance agent had requested that the ambulance be added, no action had been taken on the request at the time that the accident occurred. Leaving aside the issue of whether the request had ever actually been received, the court declined to find that the pre-requisites for coverage had been satisfied. Nor did it find that Markell was obliged to provide coverage on the theory of estoppel.

EIGHTH CIRCUIT     First Party/”Faulty Workmanship”/Resulting Loss (IA)

The Eighth Circuit has ruled that a builder’s risk policy cover windstorm damage to panels on a municipal wastewater treatment facility in Iowa City despite Travelers’ argument that the loss had been caused by its insured’s “faulty workmanship.” In Joseph J. Henderson & Sons, Inc. v. Travelers Property Casualty Ins. Co. of America, No. 18-3341 (8th Cir. April 20, 2020), the court held that the policy’s faulty workmanship exclusion was subject to resulting loss language where the damage was due to a covered cause of loss such as a windstorm. The court also rejected Travelers’ argument that even if the faulty workmanship exclusion lacks an anti-concurrent-cause provision, coverage is nevertheless excluded because faulty workmanship was the sole proximate cause or the efficient proximate cause of loss.

ELEVENTH CIRCUIT     “Amusement Device” (FL)

Injuries that a bystander suffered at "Rum Feast 2017 when he was struck by a giant inflatable beach ball failed to trigger coverage under the festival promoter’s general liability policy in light of an exclusion in the policy for claims arising out of the use of "amusement devices" including those that "require the user to strike, punch or kick." Notwithstanding the District Court's complaint that the exclusion suffered from a "deplorable lack of a serial comma,” the Eleventh Circuit declared in Princeton Excess and Surplus Lines Ins. Co. v. Hub City Enterprises, No. 19-14193 (11th Cir. Mar. 30, 2020) (unpublished) that the exclusion was unambiguous, rejecting the insured's argument the beach ball was only intended to be a "decoration."

CALIFORNIA     First Party/Bad Faith/Genuine Dispute Defense

The California Court of Appeal has ruled in 501 East 51st Street, Long Beach LLC v. Kookmin Best Ins. Co., B293605 (Cal. App. April 16, 2020) that a trial court did not err in finding that a property insurer did not act in bad faith in denying coverage for damage to a Long Beach apartment complex that the insured claimed was covered as having been caused by a ruptured underground water main. Although experts hired by the parties had reached conflicting conclusions concerning the cause of the damage, the Second District held that there was no material dispute that the insurers had denied the claim in good faith based on an expert report concluding the damage was not caused by the broken water main and that there was therefore a “genuine coverage dispute” that precluded any claim of bad faith.

COLORADO     TCPA/Advertising Exclusions

Having inherited this long-running DJ from Judge Matsch, Judge Kane has ruled that National Union does not owe coverage for a $280 million judgment that the states of California, Illinois,, North Carolina, Ohio and the federal government recently obtained against the DISH cable network for violations of federal law prohibiting unauthorized telephone solicitations and other illegal telemarketing practices. In National Union Fire Ins. Co. of Pittsburgh, PA v. Dish Network LLC, No. 15-1053 (D. Colo. April 17, 2020) , the federal district court declared that injunctive remedies to bar future TCPA violations were not “damages.” Further, Judge Kane ruled that statutory damages awarded pursuant to TCPA are an uninsurable penalty under Colorado law. In any event, the court refused to find that emotional distress is a “bodily injury” or loss of toner fluid “property damage.” Finally, the court ruled that any applicable “personal injury” coverage was negated by the policy’s Advertising Conduct Exclusion as well as an earlier exclusions for insureds in the businesses of broadcasting or telecasting.

ILLINOIS     Independent Counsel/Punitive Damage Claims

The First District has published a 2019 opinion in which it rejected Zurich’s arguments that a trial court had erred in ruling that an insured was entitled to “Peppers” counsel in a case where the insurer contended that (1) no conflict of interest existed because Steadfast waived every coverage defense other than noncoverage for punitive damages and (2) Xtreme forfeited its right to a defense by breaching its duty to cooperate. The Appellate Court ruled in Xtreme Protection Services, LLC v. Steadfast Ins. Co., 2019 IL App (1st) 181501 (Ill. App. April 16, 2020) that a conflict of interest existed given how disproportionately large the claim for punitive damages was and that the claimed breach of the duty to cooperate was not viable since it was solely based on the insured’s refusal to accept the insurer’s appointed defense counsel.

OTHER DEVELOPMENTS OF NOTE

COVID-19 Pandemic

A Philadelphia law firm has filed a petition with the U.S. Judicial Panel on Multidistrict Litigation requesting that all federal cases seeking coverage for COVID-19 business interruption losses be transferred to the U.S. District Court for the Eastern District of Pennsylvania and consolidated before Judge Timothy Savage, who is presiding over a new DJ that the Golomb & Honik firm filed on behalf of two Philadelphia restaurants. The pleading argues that MDL consolidation is appropriate because “the fact that the Actions do, and the tag-along actions will, involve different, geographically dispersed defendants with slightly different policy language in disparate industries does not preclude consolidation or coordination here because the central issue – whether business closures resulting from government orders triggers coverage under business interruption policies – will be the same across all cases.”

Pennsylvania has become the seventh state to propose requiring coverage for pandemic losses, with dueling House and Senate bills. House Bill No. 2372 would mandate BI coverage for business with less than 100 employees and provides for reimbursement from a fund managed by the state Insurance Department. By contrast, SB 1114, which was filed on April 15, also extends coverage to larger businesses but only for 75 percent of the otherwise applicable policy limits. SB 1114 also differs from HB 2372 in that it lacks any provision for reimbursement to commercial property insurers through surcharges on other admitted carriers.

Chubb CEO Evan Greenberg has warned legislators that state and federal proposals that would retroactively mandate coverage for COVID-19 business interruption losses. “The insurance industry is a fundamental part of the economic plumbing of this country,” Greenberg said in an interview Thursday. Forcing insurers to foot the bill for losses not covered by policies “would do great damage. It would bankrupt the industry.”

RIMS issued a letter to the Congressional leadership on April 20 urging Congressional action on the Pandemic Risk Insurance Act of 2020 that would encourage insurers to provide coverage for pandemic business interruption claims by creating a 95% reinsurance backstop subject to an industry-wide $250 million deductible and an overall cap of $500 billion. RIMS reported that it had surveyed its members and found that nearly two-third expected to suffered COVID-19 business interruption losses and an equal number would be willing to pay 5% more to obtain coverage against future losses.

The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) projects that the cost of proposed legislation creating a conclusive presumption that COVID-19 claims by first responders are work-related could range from $2.2 billion to $33.6 billion with an approximate mid-range estimate of $11.2 billion, or 61 percent of the annual estimated cost of the total workers’ compensation system prior to the impact of the pandemic.

A survey by the Washington Insurance Commissioner finds that only FM Global is offering pandemic coverage as part of its base policy, although fifteen other insurance offer limited coverage through optional endorsements: AIG, Brotherhood Mutual, Chubb, Church Mutual, EMC, Great American, Hartford Fire & Casualty, Liberty Mutual, MS & AD, Mutual of Enumclaw, Nationwide, North River, Philadelphia Indemnity, Travelers and Zurich.

Dozens of Massachusetts restauranteurs sent an open letter to Governor Baker this week urging him to support legislation to mandate business interruption coverage for pandemic losses.

Cyber Update

Cybersecurity consultant VMWare Carbon Black reports ransomware attacks against U.S. businesses more than doubled last month, due in large part to weakened security resulting from so many employees working from home.

Restating the Law

Utah has become the latest state to adopt legislation admonishing state judges not to follow the recently-enacted restatement of law, liability insurance insofar as it is inconsistent with the common law. House Bill 0037 was signed into law by Governor Gary Herbert on March 24, 2020.

In Kentucky, a similar bill (HB-150) was overwhelmingly approved in the Kentucky House of Representatives and unanimously passed by the Kentucky Senate but was vetoed by Governor Andy Beshear on April 14. In his veto message, Governor Beshear expressed concern that HB-150 would have violated the separation of powers doctrine by allowing the legislature to dictate to the judiciary where or how they could rely on legal treatises.

New Coverage Litigation

Punk rocker Michael Ness is the subject of a new coverage action in California in which New York Marine alleges that the liability policy that it issued to his Social Distortion bank does not cover assault and battery claims brought by a Trump supporter who got into a fist fight with Ness during a July 19 concert.

A hotel’s liability insurer has filed suit in federal court in Atlanta, seeking a declaration in Atain Specialty Ins. Co. v. Virahi Hotel, Inc., No. 20-1582 (N.D. Ga.) that allegations that the insured aided and abetted sex trafficking on its premises are not covered by its policy.

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