Nov 20 2020

Insurance Law – 11/20/2020


ARIZONA      Pandemic/Virus/Regulatory Estoppel

A federal district court has dismissed an effort by 24 minor league baseball teams to obtain coverage for business income losses resulting from the COVID-19 pandemic. In Chattanooga Professional Baseball LLC v. National Cas. Co., No. 20-1312(D. Ariz. Nov. 13, 2020), Judge Rayes declined to find that there was any dispute that the government orders in question were issued as a direct result of the COVID-19 virus. Further, the court rejected the insureds' regulatory estoppel argument as being without legal support outside of New Jersey and as having been specifically rejected by courts in Texas and some of the other states where these teams were domiciled.

CALIFORNIA     Pandemic/Direct Physical Loss (HW)

Applying Hawaii law, a federal court in Los Angeles has ruled in Water Sports Kauai, Inc. v. Fireman's Fund Ins. Co. No. 20–03750 (N.D. Cal. Nov 9, 2020) that whereas the actual presence of contaminants inside covered property might trigger coverage, the “mere threat of exposure” to the COVID-19 virus did not result in "direct physical loss" to the insured premises. Judge Orrick declared that there no evidence in this case that an actual physical exposure caused the insured to close its retail stores in Hawaii. The court also was not swayed by the insured's contention that other, similar properties in Hawaii had been contaminated, noting the absences of any allegation of a specific "income support property" within the insured's supply chain, which had suffered a direct physical loss and then caused the insured a specific loss. As with other recent California cases, Judge Orrick distinguished the federal court's 2018 ruling in Total Intermodal as being limited to cases in which the insured was permanently dispossessed of its property, which had not occurred here.

ILLINOIS      Agents and Brokers/Statutes of Limitation

The Illinois Appellate Court has that a trial court did not err in dismissing a untimely malpractice action against an insurance agent for failing to procure an insurance policy that would have protected it against a class action claim. Further, the Court ruled in ruled in Austin Highlands Development v. Midwest Insurance Agency Inc., 2020 IL App (1st) 191124 (Ill. App. Ct. Oct. 19, 2020) that the statute containing this limitations period was not unconstitutional. The Court rejected the insured's argument that because Midwest acted as its broker and worked for it he was an "insurance producer" for purposes of Section 2‑2201 and that the 2 year limitations period set forth in Section 2.619.1 therefore would not have accrued on the date that the policy was issued. The court also rejected Austin's argument that Section 13‑214.4 which provides for this separate statute of limitations against "insurance producers" was unconstitutional special legislation.

NEW JERSEY     Advertising Injury/Copyright Infringement/Exclusions

The Appellate Division has that a state trial court did not err in holding that allegations that the insured infringed on a competitor’s copyrighted computer program triggered a duty to defend under Coverage B. In Superior Integrated Solutions, Inc. v. Mercer Ins. Co. of New Jersey, No. A-1027-18T4 (N.J. Super. Ct. App. Div. 2020), the court concluded that allegations that the insured had infringed the computer program in an attempt to solicit Reynolds's customers and persuade them to use Superior's services constituted “advertising” and triggered the policy’s coverage for “copyright infringement.” Further, the Appellate Division ruled that these claims were not subject to the “intentional acts” or “prior publication” exclusion in Coverage B or a Computer Software Professional Activities Exclusion. As to the latter exclusion, the court observed it applies specifically to the insured’s “rendering of service or advice to its customers or other covered persons. It does not apply to a claim made by a third party for injuries caused by Superior where Superior was not selling computer software programs to that party.”

MISSISSIPPI     Pandemic/”Direct Physical Loss”

In Real Hospitality LLC d/b/a Ed's Burger Joint v. Travelers Casualty Insurance Company of America, No. 20-00087 (S.D. Miss. Nov. 4, 2020), Judge Starrett dismissed a restaurant's suit for business interruption coverage, declaring that the plaintiff had not pleaded the facts to sustain a finding of direct physical loss of or damage to the insured premises. Despite the insured's argument that the inclusion of the disjunctive term "or" permitted recovery based merely on some sort of "damage" to its property, the court held that even if the policy was intended to cover "permanent dispossession" in addition to physical alteration, as in Total Intermodal, the property must be either physically lost or the insured must have suffered a permanent dispossession of it. In this case, the court ruled that "when all of the provisions are read together it makes logical sense that the property that is insured, i.e. the building and/or personal property in or on the building, must first be lost or damaged before Business Income coverage kicks in." The court also rejected the insured's effort to analogize the lifting of executive orders relating to the pandemic as involving a "repair" within the policy's "period of restoration" language. The court emphasized that the policy at issue was one of commercial property insurance, not a stand-alone business interruption policy and what is insured is damaged to the insured's property, not the insured's operations within it. Moreover, Judge Starrett declared that even if coverage otherwise existed, the virus exclusion clearly applied.

OKLAHOMA     Pandemic/”Direct Physical Loss”/Abstention

A federal district court has declined to refrain from exercising jurisdiction over a declaratory judgment action involving a COVID-19 business income loss. In Goodwill Industries of Central Oklahoma Inc., et al. v. Philadelphia Indemnity Insurance Co., No. 20-511 (W.D. Okla. November 9, 2020), Judge Russell ruled that the insured had shown that this case satisfied the requirements for abstention that the Tenth Circuit had set forth in Mhoon.

In a separate ruling, Judge Russell granted Philadelphia Indemnity’s motion to dismiss, finding that the plain and ordinary meaning of “direct physical loss of or damage to property” required that there be some “physical alteration” of the property Further, the court ruled that the virus exclusion would apply since “COVID-19 is a virus that "is capable of inducing physical distress, illness or disease." The court rejected the insured’s argument that the exclusion only applies to “actual contamination” and not contamination that is merely “suspected,” declaring that this interpretation was inconsistent with the language in the exclusion extending it to virus that are “capable” of inducing disease.

PENNSYLVANIA     Pandemic/Virus Exclusion/Regulatory Estoppel

A federal judge has dismissed a dentist's suit seeking coverage for a COVID-19 related business interruption losses, declaring that even though the insured's complaint made a conclusory assertion that his property had suffered "direct physical damage as well as non-physical damage" rendering the property "unsafe, unhabitable and/or otherwise unfit for its intended use, there were no facts pleaded to support any allegation of physical damage. In keeping with the Third Circuit's 2002 opinion in Port Authority of New York, Judge Bartle ruled in Handel v. Allstate Ins. Co., No. 20-3198 (E.D. Pa. Nov. 6, 2020) that "direct physical loss" requires proof of some sort of "distinct, demonstrable, and physical alteration" of the structure. In this case, the court found that the plaintiff's property had remained inhabitable and usable, albeit in limited ways, and had not suffered any physical damage. For similar reasons, the court declined to permit Civil Authority coverage, noting that the Pennsylvania governor's order "limit, rather than prohibit, access to the property." Furthermore, the court ruled that any coverage that might otherwise apply was eliminated by the policy's virus exclusion. Finally, the court rejected the insured's regulatory estoppel argument. The court declared that under Pennsylvania law, a plaintiff must show statements that a party made to a regulatory agency and a subsequent inconsistency. In this case, the court found that ISO and AIS have made statements to insurance regulators when the virus exclusion was first presented in 2006, but that the endorsement was intended to clarify "that loss, cost or expense caused by, resulting from or related to any virus…is excluded" was entirely consistent with the position that Allstate was now taking in this case.


Inside the Insurance Industry

A judge in New York has discussed Maurice Greenberg’s defamation suit against former NY AG Eliot Spitzer, holding that Greenberg had failed to present evidence that various statements that Spitzer made to the press and in a book were made with “actual malice.” In his 69-page ruling in Maurice R. Greenberg v. Eliot L. Spitzer, Judge Victor G. Grossman, of New York Supreme Court, a state trial court in Carmel, New York, said there is “no evidence offered that Defendant ‘entertained serious doubts as to the truth of his publication’ as required for establishing that he acted with a reckless disregard for the truth.”

Pandemic Update

The trial of the first COVID-19 business interruption suit is going forward this week in New Orleans. Cajun Conti v. Certain Underwriters at Lloyd’s was also the first pandemic DJ when it was filed in state court in Louisiana on March 16.

The Supreme Court of the United Kingdom is hearing oral argument this week with respect to cross appeals from the High Court’s rulings in the pandemic BI test case brought by the Financial Conduct Authority earlier this year.

A federal judge in Pittsburgh has granted Chubb’s request that he recuse himself in Historical Society of Western Pennsylvania v. Federal Insurance Company, No. 20-1286 (W.D. Pa. Nov. 13, 2020) in light of his social connections to members of the non-profit’s Board of Directors.

A new report from A.M. Best finds that the pandemic has substantially impacted D&O capacity and renewal premiums, as well as tightening coverage for medical professional liability and employment practices liability lines.


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