Jul 31 2020

Insurance Law – 7/31/2020

CASES OF CONSEQUENCE

ELEVENTH CIRCUIT     E&O/Security Deposit Disputes/”Loss” (GA)

The U.S. Court of Appeals for the Eleventh Circuit has ruled in AEGIS Electric and Gas International Services Ltd. v. ECI Management LLC, No. 19-11114 (11th Cir. July 30, 2020) that a Georgia District Court erred in refusing to require AEGIS to provide a defense to a lawsuit in which a former tenant alleged that the insured manager of an apartment complex had wrongfully withheld the security deposits of current and former tenants in violation of Georgia's security deposit law. Whereas the district court had interpreted the subject real estate service's professional liability insurance policy the Georgia District Court had declared that any multiplied damages would be excluded as involving intentional acts and that any base damages awarded did not involve a covered "loss." That the Eleventh Circuit agreed with the district court that the unreimbursed deposit did not constitute a "loss" of a standing, especially as the policy's definition of "loss" stated that coverage that does not extend to "any disgorgement, return, withdrawal, restriction of reduction of any sums which are or were in possession or control of any insured …" Nevertheless, the Eleventh Court concluded that any attorney's fees that might separately be awarded under the Georgia Statute would constitute a potential "loss" under the policy and that AEGIS had therefore wrongfully failed to defend. Circuit declared.

CALIFORNIA     Jurisdiction/Fraudulent joinder/Abstention

A federal district court has declined to remand a pandemic coverage DJ to state court even though the insured had included L.A. Mayor Eric Garcetti as a non-diverse defendant. In Mark's Engine Company No. 28 Restaurant LLC v. Travelers Indemnity Company of Connecticut, No. 20-04423 (C.D. Cal. July 27, 2020), Judge Birotte refused to find that the fraudulent joinder of Mayor Garcetti was a basis for avoiding diversity jurisdiction, nor was was Colorado River or Younger abstention required under the circumstances.

ILLINOIS     Duty to Defend/Extrinsic Facts/”Occurrence”

The Illinois Appellate Court has that a CGL insurer was not obliged to provide a defense to or afford coverage for allegations by property owners that a contractor had removed hundreds of planks of wood at various stores and windows belonging to the plaintiffs without the owner's permission and had subsequently refused to return them. In Pekin Ins. Co. v. McKeown Classic Homes, Inc., 2020 IL App (2d) 190631 (Ill. App. Ct. July 29, 2020), the Second District ruled that the trial court had not erred in analyzing the duty to defend based upon the facts alleged in the suit against the insured without considering those additional facts alleged by the insured in its counterclaim in the declaratory judgment action. Additionally, the court ruled that these facts fell outside the "true but unpleaded" doctrine that some Illinois courts have acknowledged as extending the insurer's obligation to defend where a potential for coverage arises based either on the facts actually pleaded or if the insurer court possesses knowledge of true but unpleaded facts" that support a claim for coverage. In this case, the Appellate Court found the insured's explanation that these items were mistakenly removed by one of its subcontractors was not known to Pekin at the time, nor was it pleaded until the insured submitted its counterclaim for declaratory relief. As such, the court ruled that "where the insurer is unaware of a purportedly true but unpleaded fact, that fact may not be considered in determining the duty to defend." Under the circumstances, the Appellate Court agreed with the trial judge that the suit did not allege damages on account of an accidental "occurrence."

ILLINOIS     Duty to Defend/”Assault and Battery” Exclusion

The First District has ruled that a trial court erred in requiring a liability insurer to provide a defense to a wrongful death action arising out of an assault that occurred in the parking lot outside the insured's nightclub in Chicago. In Markel Int’l Ins. Co. Ltd. v. Montgomery, 2020 IL App. (1st) 191175 (Ill. App. Ct. July 4, 2020), the Appellate Court ruled that the injuries alleged by the plaintiffs clearly resulted from an excluded "assault" and rejected the insured’s argument that there were allegations of negligent conduct on the part of the nightclub that did not relate to or arise out of a potential assault and battery. As the court had found that Markel had no duty to defend, the Appellate Court further refused to find that it was estopped to deny coverage.

MARYLAND     Auto/UIM/”Damage to Property”

The Maryland Court of Appeals has ruled in Berry v. Queen No. 10 (Md. July 27, 2020) that the inclusion of the words "damage to property" in Maryland's UIM statute requires that insurers reimburse policyholders for loss of use of damages, such as rental car costs. In a lengthy opinion that analyzes Maryland jurisprudence with respect to words such as "damage" and "property", the court concluded that "damage to property" encompasses the loss of use damages.

MICHIGAN     Auto/No-Fault/Fraud

The Michigan Supreme Court has ruled in MEEMIC Insurance Company v. Fortson, No. 158302 (Mich. July 29, 2020) that an anti-fraud provision in a personal auto policy declaring that the policy was void if any insured person intentionally concealed and misrepresented any facts relating to the insurance did not preclude the availability of no-fault coverage pursuant to MCL500.3105. The court declared that no-fault policies may contain contractual defenses so long as they are supported by statute or based on a common-law defense that has not been abrogated by the act but that in this case, the anti-fraud provision was not a statutory defense permitted by the no-fault act nor of a sort acknowledged under the common-law that would permit rescission. Justice Zhra and Clement issued a concurring opinion expressing concern that the majority had declared that only that the majority had found that the common-law admission had to be analyzed with the no-fault statute to reach the same result. Instead, the court ruled that the appropriate approach was to assess whether the no-fault policy revisions facilitate the goals of the state statute and are harmonious with the legislature's no-fault insurance regime.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Chubb reported this week that it suffered a $330 million loss in the second quarter of 2020 compared to a $1.15 billion profit last year.

Despite the impending merger of Aon and Willis, current industry leader, Marsh & McLennan continues to enjoy excellent financial results. In a call with analysts, CEO Daniel Glaser commented that the Aon-Willis merger "is not good for the market of our client but is good for Marsh".

Pandemic Update

The Joint Panel on Multi-District Litigation heard 90 minutes of oral argument from fifteen attorneys last Friday as it considered three competing proposals to consolidate all federal pandemic BI suits before federal judges in Chicago, Miami or Philadelphia. While the panel seemed disinclined to impose a national MDL, there did seem to be possible interest in consolidating suits within individual Districts or insurer-specific MDLs.

Meanwhile, a state court in Pittsburgh has awarded half a loaf to a local eatery. Although the Pennsylvania Supreme Court rejected the Tambellini Restaurant’s emergency request in May that all Covid-19 BI cases be consolidated under the Supreme Court’s original jurisdiction, a state court in Pittsburgh agreed last week to assume jurisdiction over all state court actions against Erie Insurance.

Never let it be said that there are not economic opportunities in every financial crisis. Newport Beach-based Elite Risk Insurance is offering "Pandemic Outbreak with COVID-19 Relapse" coverage with limits ranging from $2 to $25 million. Boston-based One 80 Intermediaries similarly announced that it would be offering manuscripted pandemic coverage last month.

The State of New Hampshire has begun an investigation with respect to whether ventilation problems are to blame for a recent outbreak of COVID-19 virus infections in New Hampshire nursing homes.

Cyber Update

IBM's recently released Fifth Annual Cyber Resilient Organization Report concludes that a growing number of organizations have adopted formal enterprise-wise security response plans, but that only one-third have also developed specific playbooks for common attack types. The report further observes that companies with formal security response plans are less likely to experience serious disruptions as a result of cyber-attack. Over the last 2 years only 39 percent of these companies experienced a disrupted security incident compared to 62 percent of those with less formal or consistent plans.

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