May 8 2020

Insurance Law – 5/8/2020

CASES OF CONSEQUENCE

SEVENTH CIRCUIT     Negligent Misrepresentations/Federal Rules (IL)

The Seventh Circuit has ruled in Turubchuk v. Southern Illinois Asphalt Company, Inc., No. 18-3507 (7th Cir. April 29, 2020) that an Illinois jury should not have been permitted to award an $8 million verdict based upon an insured's failure to disclose the full extent of its insurance coverage. The Seventh Circuit declined to find that a "negligent misrepresentation" common law claim could be founded based upon counsel's failure to properly comply with the disclosure requirements of FRCP 26. While leaving open the possibility that a factual basis might exist for finding liability, the Court of Appeals remanded the case to the trial court, observing that "it was legal error for the district court … to allow plaintiffs' negligence claim to proceed when it relied on a Federal Rule of Civil Procedure for a duty of care."

EIGHTH CIRCUIT     Auto/Moving Property Exclusion (MN)

The Eighth Circuit has ruled in Great West Cas. Co. v. Decker 19-1266 (8th Cir. April 29, 2020) that a Minnesota District Court was correct in ruling that an individual, who was injured when bales of hay that were being loaded onto a truck fell on him, could not recover under a Miller-Shugart consent judgment agreement in light of a "moving property" exclusion which excluded from coverage certain permissive users "while moving property to or from" the insured truck. The court ruled that this exclusion was not contrary to the public policy of Minnesota, nor did it undermine state's No-Fault Act.

ELEVENTH CIRCUIT     Auto/”Occurrences”

The Eleventh Circuit has affirmed a Georgia District Court's declaration that a chain collision constituted a single “accident” for purposes of the limits of the auto policies involved. In Grange Mutual Casualty Company v. Slaughter, No. 18-1355 (11th Cir. May 1, 2020), the court ruled that this dispute was governed by the Georgia Supreme Court's 2010 adoption of the "cause" rule in Matty and rejected the claimant's argument that Matty was merely a default rule and was contrary to the definition of "accident" in the policies as involving "continuous or repeated exposure to conditions." The Eleventh Circuit ruled that the definition of “accident “ in the policies was, in fact, consistent with the "cause" approach and Matty and that the claimant's argument would necessarily result in there being separate "accidents" each time a new vehicle was struck.

ILLINOIS Bad Faith/Good Faith Dispute

The Appellate Court has ruled in Wells v. State Farm Fire and Casualty Company, 2020, IL App (1st) 190631 (Ill. App. April 28, 2020) that a trial court did not err in dismissing bad faith claims against a homeowner’s insurer. In holding that there was no evidence that State Farm had acted vexatiously or unreasonably in denying the insured's claim for water damage to her home, the First District declared that there was clearly a bona fide dispute with respect to whether the property was unoccupied at the time of loss. Further, the court ruled that the insured's complaint contained factual conclusions that were insufficient to survive a motion to dismiss pursuant to § 2-615.

NEW YORK     Arbitrations/Procedure

The New York Court of Appeals has ruled that where there was no evidence that parties to an insurance arbitration mutually agreed to treat the issuance of a partial decision as having the same effect as a final award, the arbitration panel acted within the bounds of its broad authority by reconsidering a Partial Final Award that addressed some, but not all, of the issues submitted for arbitration. In reversing a contrary opinion of the Appellate Division, the Court of Appeals declared in American International Specialty Lines Ins. Co. v. Allied Capital Corp., No. 23 (N.Y. April 30, 2020), the Court of Appeals ruled that the panel acted within its authority in reversing an initial award, in which it had ruled that AISLIC owed a duty to defend but that the underlying qui tam settlement was not a “covered loss” and issuing a subsequent decision declaring that the settlement was covered.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Nationwide Insurance announced last week that current “work at home” arrangements will be made permanent for five claims offices in Gainesville, Florida; Harleysville, Pennsylvania; Raleigh, North Carolina; Wausau, Wisconsin. and Richmond, Virginia.

Kathleen Birrane has been named to serve as Maryland’s new Insurance Commissioner, replacing Al Redner. Birrane is a partner with the DLA Piper law firm but was formerly principal counsel to the state’s Insurance Commission.

Elon Musk, the controversial founder of space and auto pioneer Tesla, announced last week that he is replacing the company’s existing D&O coverage with his own personal fortune.

AIG announced this week that it suffered an underwriting loss of $87 milliion in its general insurance section in the first quarter of 2020 compared with a profit of $179 million the year before.

Policyholder advocates are pointing to Friends of DeVito v. Wolf as supporting their claim that closure losses due to state shut-down orders are covered by commercial property policies. In Wolf, the Pennsylvania Supreme Court ruled on April 15 that emergency orders closing businesses in the Keystone State were warranted under the Pennsylvania Emergency Code as the Covid-19 pandemic is “natural disaster”, which the statute defies as a “catastrophe which results in substantial damage to property, hardship, suffering or possible loss of life.”

COVID-19 Pandemic

There are now over eighty separate law suits in which insureds—principally restauranteurs—are seeking coverage for pandemic-related business interruption losses.

In Pennsylvania, a Pittsburgh restaurant has filed an emergency praecipe petition with the Pennsylvania Supreme Court asking it to invoke the dusty and obscure “King’s Bench Power” to exercise plenary jurisdiction over all pandemic BI cases in the state courts.

Willis Towers Watson now predicts that the costs of the pandemic crisis to property and casualty insurers in the United States and the United Kingdom could be anywhere from 32 billion to 80 billion dollars.

Meanwhile, state and federal legislative efforts to retroactively mandate BI coverage seem to be stalled. A new Standard & Poor’s bulletin predicts that such efforts will be likely to fail in the face of fierce legal challenges by insurers and accordingly are not likely to be a major financial factor for P/C companies. The report direly warned, however, that “[w]hile we currently view this development as unlikely, structural changes forcing carriers to provide business interruption coverage for communicable diseases such as COVID-19 could profoundly influence the creditworthiness of P/C insurers.”

In England, the Hospitality Insurance Action Group has filed a “collective action” against major insurance companies seeking insurance coverage for pandemic losses suffered by hotels, restaurants, bars, pubs and nightclubs. The Mischon de Reya firm of solicitors who are bringing the case—the firm is already involved in a similar suit againt Hiscox—have also offered to review clients’ policies for free.

Cyber Update 

A surge of ransomware attacks during the pandemic has reportedly driven up the average cost of ransomware payments by 33 percent ($111,605.00) during the first quarter of 2020.

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