Sep 11 2020

Insurance Law – 9/11/2020

CASES OF CONSEQUENCE

FIFTH CIRCUIT     Pollution Legal Liability/”Claim” (TX)

The Fifth Circuit has ruled in Waste Management, Inc. v. AIG Specialty Ins. Co., No. 19‑20674 (Fifth Cir. Sept 4, 2020) that a plea agreement that WMI negotiated to resolve federal criminal charges that it had illegally allowed hazardous waste to be discharged from its sanitary landfill in Honolulu into the Pacific Ocean in violation of the Clean Water Act did not arise out of a "claim" covered under AIG's pollution legal liability. As had the Texas District Court, the Fifth Circuit rejected the insured's contention that an earlier Administrative Order on Consent that had resolved civil proceedings arising out of the discharges were related to the criminal enforcement process and therefore part of the same covered "claim." The court questioned whether it was even appropriate to consider the guidance documents from the AOC in light of Texas' strict "eight corners" rule for assessing an insured's duty to defend. Also, the Court refused to find that AIG's duty to defend the defense language in the policy wherein AIG agreed to defend against "such claim" could be read so expansively as to trigger a duty to defend in all criminal or civil proceedings arising from the same pollution incidents. Further, the court refused to find that the criminal indictment itself constituted a claim for clean-up costs as it did not seek any remedy from Waste Management. Finally, the court declared that the District Court had not erred in granting Waste Management's motion to remand notwithstanding the inclusion of a non-diverse party (AIG Claims). In this case, the court ruled that AIG Claims had been improperly joined in order to defeat Federal jurisdiction and that, although Texas courts did recognize a right to sue insurance adjusters in their individual capacity in certain circumstances, there was no allegation that AIG Claims had failed to properly investigate or handle the claim but merely a "threadbare" allegation that it had issued a denial letter to Waste Management.

ALASKA     Environmental/Implied Obligations

The Alaska Supreme Court has ruled in Martinez v. GEICO, S. 17041 (Alaska Sept 4, 2020) that an automobile liability insurer had no obligation to pay for additional damage and environmental contamination that resulted from a year-long delay in remediating an oil spill following a crash involving the insured vehicle. Although the Supreme Court had earlier ruled in this case that GEICO might potentially be liable if it had voluntarily assumed liability for the clean up, the Supreme Court found that the trial court had fully reviewed the evidence and had found no evidence of an independent undertaking. To the contrary, GEICO’s efforts to clean up the spill had been delayed due to the property owner’s insistence that he be allowed to do it himself (at GEICO’s expense) even though he was not licensed for this work by the State of Alaska. Under the circumstances, the Court found that Geico was acting as part of its normal adjusting activities to protect its policyholder by cleaning the spill and had not acted independently to benefit the property owner.

FLORIDA     Post-Loss Assignments

A divided intermediate appellate court has issued a per curiam opinion in Landmark Construction, Inc. v. Anchor Property and Casualty Insurance Company, 5D19-2629 (Fla. DCA5 Sept. 4, 2020) asking the Florida Supreme Court to answer whether Article X, Section 4(c) of the Florida Constitution allows the owner of homestead real property to assign post-loss insurance benefits through a third-party contractor for repairs made to the homestead property.

FLORIDA     COVID-19/Virus Exclusion

A federal district court in Fort Myers has ruled that a virus exclusion in a commercial property policy for pandemic-related business interruption losses. In granting Allied Insurance’s motion to dismiss, the court ruled in Martinez v. Allied Insurance Company of America, No. 20-401 (M.D. Fla. Sept 2, 2020) that "[b]ecause Martinez's damage resulted from COVID-19, which is clearly a virus, neither the Governor's Executive Order narrowing dental services to only emergency procedures nor the disinfection of the dental office of the virus is a 'covered cause of loss' under the plan language of the policy's exclusion."

MICHIGAN     COVID-19/”Direct Physical Loss”/Virus Exclusion

Property insurers also scored a significant win in Michigan last week. In granting State Farm's motion to dismiss with prejudice, Judge Ludington ruled in Turek Enterprises, Inc. v. State Farm Mutual Automobile Ins. Co., No. 20-11655 (E.D. Mich. Sept 3, 2020) that the insured’s business interruption loses were not the result of an "accidental direct physical loss to Covered Property." Despite the insured's argument that this term could be construed as extending coverage to claims for loss of use because the property had become uninhabitable, the court ruled that such an interpretation was inconsistent with the wording loss “to” property and not “loss of property.”. The court cited with approval the recent Circuit Court opinion in Michigan as well as a recent federal district court decision in Diesel Barbershop while distinguishing the policyholder victory in Missouri in Studio 417 as involving different policy wordings. The court also pointed to the fact that the insured in Studio 417 has specifically alleged that there was virus on its premises, which Turek had not. Furthermore, the court concluded that any coverage that might have exited would be negated by operation of the policy's virus exclusion. Despite the insured’s argument that its loss resulted from government shutdown orders and that the virus was not the sole, direct or proximate cause of its losses, the court observed that the exclusion was subject to an anti-concurrent causation clause that applied here the shut-down order, and by extension, the insured business interruption losses would not have occurred but for COVID-19.

VERMONT      Suit Limitations Period

The Vermont Supreme Court has ruled in Brillman v. New England Guarantee Insurance Company, Inc., 2020 VT 16 (Vt. Aug. 2020) that a trial court erred in holding that language in a homeowners' policy requiring that the suit be brought "within 1 year after the date of loss" was ambiguous. To the contrary, the Vermont Supreme Court ruled that a suit brought by a policyholder over 8 years after her home originally suffered water damage was clearly untimely. Notwithstanding the trial court's declaration that the "date of loss" language could reasonably be construed to mean either the date of the covered damage to the insured properly or the date that the insurer breached its contractual obligations, the Supreme Court found that it clearly ran from the date of the covered occurrence. In keeping with numerous decisions from around the United States, the Vermont Supreme Court ruled that the suit limitations clause use of the term "loss" unambiguously refers to the event causing damage rather than any subsequent contractual breach on the party of the homeowners' insurer. Nevertheless, the Court ruled that the harsh results of an inflexible application of the 1 year limitation may be mitigated by the doctrines of waiver and estoppel, declaring that an insurer may be precluded from relying on such a defense if its conduct caused the insured to delay filing suit or, as in this case, if the insurer failed to provide notice to its policyholder with respect to the applicable deadlines.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

The former head of AIG's Legal Operations Center has sued the Company in federal court in Manhattan alleging in Aaron Katzel v. American International Group Inc. that he was illegally terminated in retaliation for raising concerns about inadequate controls with respect to the transformation of the Legal Operations Center in 2015.

California Insurance Commissioner Ricardo Lara has issued a Notice to all property and casualty insurers calling on them to cover additional living expenses for policyholders who remain under mandatory evacuation or whose homes are otherwise inaccessible or uninhabitable due to the recent wildfires in California.

Pandemic Update

There are now over 1200 DJs pending across the United States.

The issue of whether dozens of individual COVID-19 suits against five commercial property insurers should be consolidated has now been briefed to the Joint Panel on Multi-District Litigation and awaits disposition at the JPMDL’s next hearing on September 24.

Golden Eagle is the target of a consolidated suit in federal court in Pittsburgh wherein the plaintiffs claim that the supermarket chain’s practice of requiring even health-impaired customers to wear masks is discriminatory and violates the Americans with Disabilities Act.

Across the Bar

Clyde & Co. has snagged Marc Voses, who has headed up Goldberg Segalla’s cybersecurity and data privacy practice group, to join their New York office.

New Coverage Litigation

Luxottica, Inc. has sued Allianz in federal court in Ohio, arguing that it is owed a defense to three class action suits involving the insured’s LensCrafter stores.

Cyber Update

A new report from S&P Global declares that cyber claims may be both a blessing and a curse for insurance companies inasmuch as cyber-attacks are vastly expanding the market and need for cyber insurance while raising the stakes with respect to the size and impact of covered losses. The report warns of the challenge presented by an accumulation of claims within a cyber insurance portfolio that may expose insurers to high financial loses as well as the uncertainties resulting from so-called "silent cyber risks" which are neither explicitly excluded or covered.

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