May 29 2020

Insurance Law – 5/29/2020


EIGHTH CIRCUIT     “Occurrence” (MO)

The U.S. Court of Appeals for the Eighth Circuit has ruled in American Family Mutual Ins. Co., S.I., vs. Mid-American Grain Distributors, LLC, No. 19-2050 (8th Cir., May 12, 2020) that a contractual dispute between a grain storage company and a designer with respect to plans to design and construct a grain storage facility fall outside the scope of any obligation to defend under a CGL policy inasmuch as the insured’s defective constructive work was not an "occurrence" under Missouri law. n keeping with the Missouri Appeals Court's decision in American States Insurance Company vs. Mathis, 974 S.W.2d 647) (Mo. Ct. App. 1998), the Eighth Circuit that the claimant's damages would be "normal, expected consequence of Mid-American's allegedly shoddy work were the foreseeable or expected result of that work as a matter of law.”

ELEVENTH CIRCUIT     First Party/Vermin and Spiders

Who's scared of a pandemic when your house is infested with highly venomous "brown recluse spiders"? The Eleventh Circuit has ruled in Robinson v. Liberty Mutual Ins. Co., No. 19-10940 (11th Cir. May 11, 2020) that damage suffered by an Alabama homeowner as a result of a spider festation was excluded from coverage as involving a loss "caused by…birds, vermin, rodents or insects." Notwithstanding the insured's argument that arachnids are not technically a type of “insect,” the Eleventh Circuit agreed with the Alabama District Court that the common and ordinary meaning of “insect,” as exemplified by popular dictionaries, certainly includes spiders. Whatever the technical meaning of this term within the scientific community, the court ruled that "Alabama law cautions against using technical or scientific definitions to interpret the terms of an insurance contract." In any event, the court ruled that the spiders were clearly vermin as being a small, harmful or objectionable animal that is difficult to control. The court ruled that it was appropriate for the district court to take judicial notice of these dictionary definitions without providing the insureds an opportunity to provide contrary testimony.

FLORIDA     First Party/”Earth Movement” Exclusion

The Third District of the Florida Court of Appeals has ruled in Hernandez v. Citizens Property Ins. Corp., 3D19–156 (Fla. App. Ct. May 20, 2020) that an earth-movement exclusion in a property damage policy precluded coverage for cracks to the wall and flooring in this home as the result of vibrations caused by off-site blasting explosions. The court emphasized the fact that the exclusion in question applied if the loss was caused "directly or indirectly" by earth movement and "regardless of any other cause or event contributing concurrently or in any sequence to the laws" whether caused by natural or man-made activities.


In a case where a $25 million personal injury settlement was initially set aside due to misconduct on the part of the plaintiff's counsel, the Appellate Court has ruled in Illinois State Bar Association v. McNabola Law Group PC, 2019 IL App (1st) 182386 (Ill. App. Ct. May 18, 2020) that a trial court erred in finding coverage for efforts by a personal injury victim's former counsel to obtain attorney's fees for his work on the file. The court ruled that there was no E&O coverage for this dispute in light of the fact that the plaintiffs were not seeking damages arising from wrongful conduct as defined in the malpractice policy. The court ruled that the claim was merely a motion to adjudicate an attorney's lien and that it did not seek damages.

NEW HAMPSHIRE     Auto/UIM Waiver/Policy Renewals

The New Hampshire Supreme Court has ruled that an excess insurer is not required to obtain a new UIM waiver every year that it renews coverage even if changes to the scope of coverage are effected in the interim. In O'Donnell v. Allstate Indemnity Company, No. 2018-0706 (N.H. May 22, 2020) that the court held that a written waiver of uninsured motorist coverage that O'Donnell had executed in September of 2011 was still in effect in 2015, when he was involved in an accident with an underinsured motor vehicle. The court rejected the insured's argument that the statement in RSA 264:15 that such waivers “shall remain effective upon policy amendment or renewal, unless the named insured requests such coverage in writing” did not apply here because his coverage was reduced in the interim from $2 million to $1 million. In this case, the court ruled that even with the various changes to the policies, the successive policies were a "renewal" within the scope of the statute.

PENNSYLVANIA     Pandemic/Feeral Jurisdiction

A federal district court has declined to retain jurisdiction over a COVID-19 business interruption coverage dispute, noting the lack of clear Pennsylvania law on the subject. In remanding the case to the Court of Common Pleas, Judge Horan ruled in Dianoia's Eatery LLC v. Motorists Mut. Ins. Co., No. 20-706 (W.D. Pa. March 19, 2020) that her exercise of jurisdiction was discretionary and noted the Third Circuit's recent decision in Kelly v. Maxum Specialty, wherein the Court of Appeals had declared that "where state law is uncertain or undetermined, the proper relationship between federal and state courts require district courts to step back and be particularly reluctant to exercise [Declaratory Judgment Act] jurisdiction."

WASHINGTON     Ethics/Conflicts of Interests/Prior Clients

In contrast to the Colorado Supreme Court's opinion earlier this month in Persichette, the Washington Supreme Court has refused to disqualify members of a law firm from suing it for bad faith, notwithstanding their extensive representation of the insurer in bad-faith cases in earlier years. In Plein v. USAA Cas. Ins. Co., No. 97563-9 (Wash. May 21, 2020) (en banc), the court declared that these earlier cases were not "substantially related" to the current representation and therefore did not violate WRPC 1.9(a). The court interpreted 2006 amendments to Rule 1.9(a) as requiring that the representations be “factually related” and therefore declared that general knowledge the counsel might have acquired through its prior representation with respect to business customs and practices, including the thought processes of adjusters and in-house attorneys, was not disqualifying.


Pandemic Update

There are now more than 250 business interruption coverage law suits pending.

The APCIA, NAMIC and the Big I unveiled a proposal last Thursday that would provide a voluntary market to insure future pandemic-like BI losses. In a May 21 press release, the trades urged Congress to enact a “Business Continuity Protection Act” modeled on TRIA that would provide business revenue replacement assistance that would reimburse up to 80 percent of payroll, benefits, and expenses for three months. As detailed in the press release:

  • Protection must be purchased at least 90 days before the Presidential declaration.
  • Businesses could choose a desired level of protection for 3 months relief for up to 80% of: payroll (excluding highly compensated employees); employee benefits; and operating expenses.
  • Multistate businesses would provide a specific allocation of protection at the time of application or renewal.
  • Businesses would purchase revenue replacement assistance through state-regulated insurance entities that voluntarily participate with the BCPP.
  • Relief would be automatically triggered and immediately paid following a Presidential viral emergency declaration (no advance documentation or claims adjustment).

Meanwhile, various trade associations representing dentists (one of largest group of businesses suing their property insurers, have thrown their support behind HR 6494, the Business Interruption Insurance Coverage Act, which would require insurers to “make[] available business interruption insurance coverage” for COVID-19 related losses for an increased premium.

AXA has agreed to pay restaurant BI claims in France while it appeals the ruling of a Paris court that its policies provide coverage for pandemic losses. Here's a copy of the court's ruling.

The Reed Smith firm has filed a motion on behalf of United Policyholders, a national amicus advocacy group for insureds, to file a brief in support of Prime Time Sports Grill's opposition to Lloyd’s motion to dismiss its COVID-19 business interruption claims due to the lack of any direct physical loss to the insured property.

The Financial Services Committee of the Massachusetts Senate took written testimony last Friday with respect to S. 2655, which would retroactively mandate business interruption coverage for pandemic losses.

The very excellent Chris Martin of Houston, TX is running a 45 minute webinar at 1 p.m. Eastern on COVID-19 insurance issues. Here’s a link to pre-register.

A legal services company has decided to withdraw the May 13 action that it brought against its commercial property insurer in state court on May 13. In a written statement, Magna Legal Services declared that it decided to drop its suit against Hartford Fire Insurance as well as its insurance broker because "now more than ever, we need to work together to get through this period of uncertainty."

Department of Self-Promotion

At the ripe age of 65, I just did my first Podcast as part of DRI’s “Conversation With…” series, talking about the impact of the COVID-19 pandemic on the insurance industry and coverage attorneys as well as the role of the American College of Coverage Counsel in trying to come to terms with this crisis.

Non-Pandemic News

Two class actions have already been filed against the Boyce Hydro Power LLC by residents of Midland whose homes were flooded after a dam collapsed following heavy rains.


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