May 15 2020

Insurance Law – 5/15/2020

CASES OF CONSEQUENCE

FIFTH CIRCUIT     “Occurrence” (LA)

The Fifth Circuit has ruled in Gilchrist Construction Company LLC v. Travelers Indemnity Company, No. 19-30863 (5th Cir. May 8, 2020) that a Louisiana District Court did not err in granting summary judgement with respect to a construction company's effort to compel CGL for a $5.6 million judgment arising from insured's intentional and malicious burial of rubble and construction debris in and around the plaintiff's property. In the summary opinion, the Fifth Circuit affirmed the lower court's determination that intentional malicious behavior is not an accidental "occurrence." The court declared that "the fact that the parties expressly bargained for Gilchrist to "leave a clean, nicely shaped dirt pile to the property owner's satisfaction when all activities are complete" does not result in the violation of that contractual provision being unforeseeable or unexpected and therefore, included in coverage."

TENTH CIRCUIT     Bad Faith/Failure to Settle/Selection of Counsel (KS)

The U.S. Court of Appeals for the Tenth Circuit has ruled in Progressive Northwestern Insurance Company v. Gant, No. 18–3226 (10th Cir. April 30, 2020) that an automobile liability insurer was not liable for a $7 million judgment that allegedly resulted from its appointed defense counsel's failure to uncover evidence of a separate liability policy issued to the insured's business. In an opinion that discusses and repeatedly relies on one of the more controversial provisions (Section 12) of the new ALI Restatement of Law, Liability Insurance, the Tenth Circuit found that both Progressive and defense counsel had made reasonable efforts to investigate whether other coverage existed and had been told by the insured that none did. "We can think of no doctrinal support, or other good reason, for ruling that an insurer cannot rely on its insured's assurance that there is no other coverage with another insurer…" Also, while observing that Section 12 of the Restatement suggested the possibility that an insurer might be liable for selecting unqualified defense counsel, the court found that in this case, the scattered reports that Progressive had received concerning the lawyer's habit of impeding settlement were vastly outweighed by the fact that he had tried hundreds of cases over the course of years and that these three complaints might well reflect disgruntled competitors as much as any accurate information. In any event, the Tenth Circuit observed that Section 12 only permits liability in such cases if there was "harm caused by any subsequent negligent act or omission of the selected counsel that is within the scope of the risk that made the selection of counsel unreasonable,” whereas in this case there was no causal relationship between the alleged instances of file mishandling in the past and the failure to locate the business policy in this case. Finally, the court refused to impose vicarious liability on Progressive, since there was no evidence that it had sought to interfere with the lawyer's independent exercise of his professional judgment on behalf of the client. The court rejected Gant’s argument that t Progressive's case management guidelines, noting that the Guidelines explicityly instructed defense counsel not to “allow anything contained in these Guidelines to interfere with any ethical directive or obligation governing conduct as defense counsel.

COLORADO     Ethics/Disqualification of Counsel/Former Clients

The Colorado Supreme Court has ruled in Persichette v. Owners Ins. Co., 2020 CO 33 (Colo. May 4, 2020) that Rule 1.9(a) of the Colorado Rules of Professional Conduct, which precludes a lawyer who "formerly represented a client in a matter" from representing a second client "in the same or a substantially-related matter" if the second client's interests are materially adverse to the interests of the former client, precluded a policyholder from hiring an attorney to sue Owners Insurance for under-insured motorist's benefits in light of the fact that the lawyer in question had represented Owners in nearly 500 cases between 2004 and 2017, including 23 UIM disputes similar to those at issue in this case. The Supreme Court concluded that the trial court had erred in failing to grant Owners motion to disqualify because it had misconstrued "substantially related" to mean the "same" matter. Further, while observing that a general knowledge of insurer practices would not necessarily disqualify a lawyer from subsequently suing his former client, the Court found that in this case Levy had worked closely with the claims adjuster involved, had trained him with respect to serving as an effective witness and had intimate knowledge of the claims executives supervising the case including knowledge of their personalities and tendencies and how they might come across as witnesses.

OHIO     Misrepresentation/Rescission

The Ohio Supreme Court has ruled that an insured's failure to disclose that her sister lived with her was sufficient to void the coverage ab initio and preclude coverage for an auto accident caused by the sister. In Nationwide Mutual Fire Insurance Company v. Pusser, 2020-Ohio-2778 (Ohio May 6, 2020), the Supreme Court declared that language in the Nationwide Policy that expressly incorporated the information in the policy application and that advised the insured that its responses were deemed to be warranties was sufficient to put the insured on notice of the consequences of any misrepresentation. The Supreme Court reversed the intermediate appellate court, which had found that the policy language was insufficiently clear because it merely said that misrepresentations "could" render the coverage void. Further, the court ruled that insurers are not required to declare their coverage void and return the insured's premium before filing a complaint for declaratory judgment based upon a misrepresentation. The court observed that any contrary finding would be "uneconomical" and would have the undesirable effect of leaving policyholders without insurance during the pendency of the coverage litigation.

TEXAS     Duty to Defend/8 Corners Rule/Fraud by Insured

In contrast to its recent strict adherence to the eight corners ruling in Richards v. State Farm Lloyd’s, the Texas Supreme Court has ruled in Loya Ins. Co. v. Avalo, No. 18–0837 (Tex. May 1, 2020) that courts may consider extrinsic facts in cases involving false statements made by an insured in a collusive attempt to secure coverage. Relying on dicta in its 2009 opinion in Pine Oak, the court adopted "an exception to the eight corners rule…where the parties to underlying suit collude to make false allegations that would invoke the insurer's duty to defend." The Supreme Court drew a distinction between cases where an insurer has been prevented from looking behind false allegations in the plaintiff’s suit against the policyholder and cases like this, where the fraudulent statements were made by the insured. Further, in such cases, the court ruled that an insured is not required to bring a declaratory judgment action to determine its duty to defend before withdrawing any representation of the insured.

WASHINGTON     Duty to Defend/Bad Faith

A divided Washington Supreme Court has ruled that a title insurer wrongly failed to defend a property owner against communications from local Native American tribes concerning fishing rights guaranteed to them under the 1854 Treaty of Medicine Creek. In Robbins v. Mason County Title Ins. Co., No. 96726-1 (Wash. May 7, 2020), the Court ruled that the tribes' claims potentially constituted a "demand" within the duty to defend provisions of the title insurance policy. Further, the Court ruled that the insurer had acted in bad faith in failing to defend since its refusal to do so was based upon an erroneous interpretation of Washington law. The Court declared that Washington law, with respect to whether the Tribes' asserted right was an easement for profit, and whether a profit is an easement, was unclear at the time of the denial, and that, under such circumstances, where the legal basis for coverage is unclear, an insurer must defend or face bad faith. Nevertheless, the Supreme Court remanded the case for further findings as the Superior Court had granted summary judgment to Robbins without considering the title insurer's affirmative defenses. Three of the nine justices dissented asserting that there was no duty to defend in the absence of a complaint, nor were the Tribes' claims a "demand" sufficient to trigger any duty to defend. The dissenters construed the letter as merely advising Robbins that the Tribes intended to fish on his property and to not assert any legal rights against him. In any event, the dissenters pointed to an exclusion in the title policy for claims involving "public or private easements not disclosed by the public records”

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Allstate Life faces a putative class action lawsuit brought in California on behalf of elderly insureds from it has allegedly withheld millions of dollars of insurance benefits.

AIG expects that it may suffer $272 million in COVID-19 related losses in the First Quarter of 2020, although it hopes that these losses will be contained by virus exclusions in its commercial property policies. AIG has also announced plans to place its internal insurtech platform Blackboard U.S. Holding Inc. into runoff.

COVID-19 Pandemic Litigation

There are now nearly 150 individual declaratory judgment actions seeking coverage for COVID-19 related business interruption losses. Most are pending in the courts of Pennsylvania (23); California (20); Florida (15) and Ohio (11). Attached are two charts that we've created illustrating the growth in this litigation since mid-March and the concentration of litigation around the United States.

Three competing requests have now been filed with the Joint Panel on Multi-District Litigation seeking consolidation before federal judges in Chicago, Miami and Philadelphia. Meanwhile, a praecipe motion by the Joseph Tambellini Restaurant in Pittsburgh that asks the Pennsylvania Supreme Court to exercise original jurisdiction over pending state cases through its “King’s Bench Power” met with a powerful response from AIG and a coalition of industry trade groups that filed amicus briefs opposing the request.

 IBNR Dept.

A federal judge in Vermont entered judgment for Ben & Jerry’s last week, ruling in Ehlers v Ben & Jerry’s Homemade Inc, No. 19-00194 (D Vt. May 7, 2020) that the famed ice cream maker did not deceive consumers by claiming that its cream came from “happy cows” (at least 50% is mass-produced) as this was merely a statement of opinion, nor was there any evidence that consumers cared.

Sexual Assault Update

The Ohio State University has reportedly agreed to pay $41 million to settle claims by 162 individuals who alleged that they were sexually assaulted by team doctor, Richard H. Strauss.

Cyber News

The Grubman Shire Law Firm in Manhattan, which counts among its clients celebrities such as Lady Gaga, Madonna and Bruce Springsteen, has reportedly suffered a hack of firm files totaling 756 gigabytes and now faces a ransomware demand for an unspecified amount. The hack was perpetrated by a group called Revil (also known as Sodinokibi) which earlier this year extracted $2.3 million in bitcoins as a result of an earlier similar on Travelex.

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