May 22 2020

Insurance Law – 5/22/2020


FIFTH CIRCUIT     “Occurrence”/Construction Disputes (LA)

The Fifth Circuit has ruled in Gilchrist Construction Company LLC v. Travelers Ind. Co, 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."

NEW JERSEY     First Party/Floods/Anti-Concurrent Causation

The Appellate Division has ruled in Estate of Ronald Doerfler v. Federal Ins. Co., A4215-18T1 (App. Div. May 14, 2020)(unpublished) that a surface water exclusion precluded coverage for Superstorm Sandy damage to the insured’s home, notwithstanding the Estate’s argument that "wind was the initiating and efficient proximate cause of the storm surge that destroyed plaintiffs' homes" and, because wind damage was covered under their policies, "the surface water exclusions do not apply" to them. The Appellate Division agreed with the trial court that the concurrent causation theory did not apply here in light of “anti-sequential” language in the Federal policy.

NEW YORK     Pandemic/Business Interruption

Social Media Magazine is asking the Second Circuit to grant interlocutory review of a Manhattan court's denial of it request for a preliminary injunction that would have compelled Sentinel Insurance to cover its COVID-19 business interruption losses.

OKLAHOMA     Fee Awards/Prevailing Party

Even though a property insurer offered its policyholder four times the amount that a jury ultimately awarded, the Oklahoma Supreme Court has ruled that the offer was irrelevant with respect to determining who was the "prevailing party" for purposes of awarding attorney's fees since it was tendered outside the 60‑day period provided for under 36 O.S. § 3629(B). In response to a certified question from the U.S. Court of Appeals for the Fifth Circuit, the Supreme Court declared in Hamilton vs. Northfield Ins. Co. 2020 OK 28(Okla. May 5, 2020) that the purpose of the statute was to create an incentive for insurers to promptly investigate and resolve claims and that this purpose would be undermined by permitting insurers to make attorney offers so as to avoid **** liability for the awards: “Were this Court to allow insurers to untimely offer a payment at a later date, and then use that untimely payment to deny attorney's fees owed to the policy holder, then the purpose of a statute intended to ensure prompt payment of claims would thoroughly afforded."

SOUTH CAROLINA     Procedure/Permissive Intervention

In its latest opinion analyzing construction defect disputes, the South Carolina Supreme Court has ruled in Builders Mutual Insurance Company vs. Palmetto Pointe at Peas Island Condominium Property Owners Association, Inc., 27970, (S.C., May 13, 2020) that a trial court did not abuse its discretion in rejecting efforts by insurers to intervene in the underlying lawsuit to ask special questions with respect to any damages that might be awarded. The court ruled that the insurers had no direct right of intervention, nor was permissive intervention appropriate, given the practical problems that it would create for the court and defense counsel. The court noted that it would oblige the defendants and their attorneys to concede the fact of liability for faulty workmanship in an effort to ensure that the maximum amount of damages could be allocated to covered claims. Nevertheless, while refusing to allow the insurers to intervene, the Supreme Court emphasized that the outcome of the underlying action was not binding on the insurers with respect to their indemnity obligations and that they were free to dispute the amount of damages allocable to their policies in subsequent coverage litigation. The court acknowledged the difficulty of reaching sorting out post-trial allocation issues and helpfully observed that "Where perfect precision is not achievable, a fair approximation must suffice."

VIRGINIA     “Occurrence”/Construction Claims

A federal district court in Alexandria has ruled in Builders Mutual Insurance Company v. J.L. Albrittan, Inc, No. 19-1315 (E.D. Va. May 7, 2020) that summary judgement should enter for a building contractor's CGL carriers in light of allegations in the underlying complaint that water intrusion problems in the plaintiff's home were the result of intentional misrepresentations and concealment that the insured undertook in an effort to induce the plaintiff to purchase the property. Further, Judge Brinkema ruled that even if there were allegations of negligent conduct in the underlying suit, that conduct would not constitute an "occurrence" since the damage in question was limited to the insured's work. In any event, the District Court declared that any coverage that might otherwise apply would be subject to the policy exclusions for expected or intended injury for various "business risk" exclusions.


Inside the Insurance Industry

Rising ratios and high severity losses in recent years have prompted A.M. Best to revise its outlook for NAMIC Insurance from “stable” to “negative."

New Jersey’s insurance commissioner has directed insurers across all liability lines to rebate premiums to policyholders in light of the reduced risk experience resulted from citizens being forced to shelter in place since March.

Pandemic Update

There are now over 240 BI pandemic coverage cases. The litigation continues to be concentrated in a few large states: Pennsylvania (31); California (26); Illinois (25); Washington (19); Ohio (18) and Texas (14). However, the volume of filings may have as much to do with aggressive marketing by plaintiffs’ firms as the number of affected businesses in those states. For instance, there has been a recent surge of suits by dentists in the Eastern District of Washington (Seattle). We are also beginning to see agents and brokers being added as defendants on “negligent procurement” theories.

The three pending motions to consolidate COVID-19 BI coverage litigation are not currently on the schedule for the May 28 meeting of the Joint Panel on Multi-District Litigation. If not added by emergency motion, they will likely not be considered until the next JPMDL meeting on July 30 in Boston.

The Pennsylvania Supreme Court issued a summary order on May 14 denying the Tambellini Restaurant's request that it utilize its "King's Bench Powers" to exercise original jurisdiction to coordinate all pending state BI DJs.

A newly-issued Best’s Special Report, “Stress Testing Rated Companies for COVID-19” concludes that most U.S. P/C companies will be address to cope with pandemic loss claims, albeit with damage to earnings and reputation. “Insurers are likely to see a significant hit to earnings in 2020, rather than a material decline in risk-adjusted capitalization,” said Mahesh Mistry, senior director, AM Best Rating Services. “Reputational risk in certain markets may also be a problem, as any legal disputes become more visible to consumers, policyholders, regulators and legislators.”

Lloyd’s now projects that it will pay more than $4 billion for pandemic losses.

There are now only seven states considering legislative proposals to retroactively mandate business interruption coverage for pandemic losses. Louisiana Senator Rick Ward has bowed to opposition from the state’s Insurance Commissioner and fellow Republicans and has agreed to withdraw the retroactive coverage elements of SB 477. As revised, the bill would only require property insurers to add a form to their policy explain what sort of BI losses are not covered by existing policies.

Despite the hope that Lloyd’s recently filed motion to dismiss the Prime Time Grill litigation in Miami might yield an early and useful victory in the pandemic BI war, rumors are now circulating of a possible settlement.

Morgan & Morgan stated last week that they plan to sue two Florida nursing homes where 34 residents have died due to COVID-19.

Pennsylvania Insurance Commissioner Jessica Altman issued a tweet on May 11 warning businesses that opened in contravention of the state’s shut down order might risk losing their insurance coverage in light of “illegal acts” exclusions in the policies. A new article in Insurance Journal takes a skeptical view of what “illegal act” exclusions actually might accomplish in these cases.

A Kansas computer engineer has published an interactive map analyzing how the use of specific words in shut down orders may enable policyholder arguments that their businesses have suffered a direct physical loss.

California Governor Gavin Newson has signed Executive Order #N-62-20 declaring that any worker’s COVID-19-related illness hall be presumed to arise out of and in the course of his or her employment for purposes of obtaining worker’s compensation benefits.

Across the Bar

Hunton Andrews Kurth has snagged insurance pro Scott DeVries from Winston & Strawn to head up its “insurance recovery” group in San Francisco. In an interview with Law360, DeVries explained that his move was prompted in part by possible disqualifying conflicts of interest that might result from Winston & Strawn’s interest in representing insurers in various matters.

New Coverage Litigation

Markel Insurance has filed suit against the Holy Family Institute in federal court in Philadelphia, seeking a declaration that its insurance does not extend to allegations that the insured covered up allegations of sexual abuse by priests back in the 1970s and 1980s.

Cyber Claims

Despite a cyber-attack that largely disabled the operating systems of the Texas judiciary earlier this month, the court system has announced that it will not pay a ransom demand.

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