Jul 10 2020

Insurance Law – 7/10/2020


FIFTH CIRCUIT     First Party/”Insured Residence”/Vacancy (LA)

The Fifth Circuit has sustained a lower court's declaration that an insured could not recover for a fire loss that occurred before they could finish repairs and move into their home where their insurance agent had mistakenly purchased a policy requiring that the insured be living in the premises at the time of any covered loss. In Geovera Specialty Ins. Co. v. Joachim, No. 19-30604 (5th Cir. July 6, 2020), the court rejected the insured's argument that any construction of "residence premises" to require occupancy was contrary to the exclusions in the policy for vacant premises. The Fifth Circuit declared that under Louisiana law (as elsewhere) an exclusion cannot be used to create coverage that would not otherwise exist under the policy. Further, the court declined to find that precluding coverage under these circumstances would render the policy wording "absurd." In light of the circumstances, the court observed that "purchasing the wrong insurance policy is not unheard of, and the law provides a remedy where the fault lies with the agent who procured it."

SIXTH CIRCUIT     “Habitability” Exclusions/Consent Judgments (MI)

The U.S. Court of Appeals for the Sixth Circuit has declared that a liability insurer that failed to defend wrongful death claims against the landlord is now bound to honor a $3 million garnishment action arising out of its insured's consent judgment with the claimants. In Hamilton Specialty Ins. Co. v. Transition Investment LLC, No. 19-1935 (6th Cir. June 19, 2020) (unpublished), the Court of Appeals ruled in an oddly stilted opinion that a Michigan district court had not erred in finding that Hamilton Specialty had wrongfully failed to defend allegations that the insured landlord had failed to properly maintain an apartment in which 12 people were living. Notwithstanding Hamilton Specialty's contention that any such claims were clearly excluded from coverage in light of a manuscripted exclusion for violation of civil or health and safety codes pertaining to habitability, the 6th Circuit found that the underlying allegations did not clearly establish a causal nexus between the landlord's statutory violations and the resulting injuries. Although the statutory violations may have worsened, or even caused, the injuries here, the record doesn't demand finding that anything aside from Transition's negligence caused the fire or that harm would have been avoided had Transition followed all applicable codes." The Sixth Circuit also rejected Hamilton Specialty's argument that its insured was prohibited from entering into consent judgments, declaring that it had lost the right to make such demands once it refused to defend.

NINTH CIRCUIT     Burden of Proof/Exceptions to Exclusions /Extrinsic Facts (NV)

In a dispute between two insurers arising out of additional insured coverage for construction claims, the Ninth Circuit has certified questions to the Nevada Supreme Court, asking which party has the burden of proving the applicability of an exception to an exclusion. In Zurich American Ins. Co. v. Ironshore Specialty Ins. Co. No. 18-16937 (9th Cir. July 2, 2020), the Court of Appeals also stated that it would seek guidance with respect to whether such proof might include extrinsic evidence "and, if so, whether only extrinsic evidence available at the time the insured tendered the defense of the lawsuit to the insurer is relevant for proving an exception to the exclusion." At trial, the Nevada District Court had granted summary judgment in favor of Ironshore in light of an exclusion in the policy for property damage "which first existed, or is alleged to have first existed prior to inception of this policy" and that coverage was not reinstated by reason of an exception to this exclusion for a continuation of damage as the result of "sudden and accidental" property damage during the policy. The court observed that the resolution of this issue would likely require extrinsic evidence given that there is no allegation in the underlying complaints as to when the damage to the plaintiffs' homes occurred as the result of faulty construction activity by the insured subcontractors.

MICHIGAN     Construction/”Occurrence”

The Michigan Supreme Court has ruled in Skanska USA Building Inc. v. M.A.P. Mechanical Contractors, Inc., No. 159510, 159511 (Mich. June 29, 2020) that unintentionally faulty work by subcontractors that damages the insured’s work product constitutes an "accident" for purposes of CGL coverage. Whereas the Court of Appeals had relied on its earlier decision in Hawkeye – Security Ins. Co. v. Vector Construction 460 N.W.2d 329 (Mich. App. 1990), the Supreme Court ruled that Hawkeye had construed a 1973 CGL form and did not take into account changes effected in 1986 that expanded CGL coverage to include certain business risks including damaged caused by a subcontractor's faulty workmanship. As other courts have recently found, the court observed that it was inconsistent to interpret "accident" to preclude coverage for faulty workmanship since it would render superfluous the "your work" exclusion in the CGL form. The Supreme Court further declared that Hawkeye will henceforth be “cabined” to pre-1986 policies.


Allstate Insurance has agreed to pay $4 billion to acquire auto insurance competitor National General.

Chubb projects that its second quarter losses due to the COVID-19 pandemic may approach $1.4 billion.

Start up Insurer Lemonade reportedly raised $319 million as a result of its initial public stock offering.

Pandemic Update

On July 16, the American College of Coverage Counsel will be presenting a free 90 minute webinar featuring expert lawyers representing both insureds and insurers analyzing the legal, strategic and political implications of the pandemic litigation. The program is being presented through the auspices of the Boston College Law School. Here is a link to register for the conference.

Here is an updated COVID-19 DJ case list from Tom Baker’s UPenn pandemic case tracking group, reflecting 609 individuals suits filed as of the start of July.

It is perhaps emblematic of the current era that the first ruling on pandemic BI claims comes in the form of an oral argument and ruling from the bench that was posted last week on YouTube. In dismissing a restaurant management company’s claim against Michigan Insurance Company, Circuit Court Judge Joyce Draganchuk declared "The complaint here does not allege any physical loss of or damage to the property," Judge Draganchuk said. "The complaint alleges a loss of business due to executive orders shutting down the restaurants for dine-in services due to the COVID-19 threat. But the complaint also states that at no time has COVID-19 entered the Soup Spoon or The Bistro through any employee or customer, and in fact states it has never been present in either location. So there simply are no allegations of direct physical loss of or damage to either property."

The Nevada Department of Business and Industry, Division of Insurance has issued a bulletin notifying property insurers that “[u]ntil the Governor’s Declaration of Emergency related to COVID-19 is lifted, the NVDOI will not approve any exclusion language related to COVID-19, viruses, or pandemics.” The Department announced that this action was necessary in order to “protect consumers against unexpected narrowing of previously expected insurance coverage and ambiguity of interpretation of insurance contracts during a time of great uncertainty and financial strain.”

The UK Financial Conduct Authority (FCA) has asked the English High Court to give urgent consideration to a Test Case presenting the issue of whether English business interruption policy wordings apply to COVID-19 claims. This Test Case is expected to be heard by the court next month. The policy forms terms of the Test Case do not contain “direct physical loss" language but instead focus on whether there has been a "prevention, denial of hindrance of access or inability to use the premises.” Additionally, the court will consider whether these losses followed or resulted from covered causes due to local outbreaks of the COVID-19 virus or were due to a general collapse in economic activity due to national government measures.

A Cincinnati pub is urging a federal judge in the matter of Troy Stacy Enterprises, Inc. v. The Cincinnati Ins. Co., No. 20-312 (S.D. Ohio) not to certify the meaning of various policy terms to the Ohio Supreme Court, especially as the District Court might cease to have jurisdiction over this case if the JPMDL orders consolidation of federal court COVID-19 insurance DJs at its upcoming July 30 hearing in Washington, D.C.

Back to Newsletters