Jan 8 2021

Insurance Law – 1/8/2021

 

PANDEMIC ROUND UP

 

A federal district court in Atlanta has ruled in KD Unlimited Inc. v. Owners Ins. Co., No. 20‑2163 (N.D. Ga. Jan. 5, 2021), that the insured salon had not pleaded a plausible claim for a "direct physical loss of or damage" to its property since there was no evidence of any physical change as a result of COVID-19. As with his ruling last October in Henry’s Louisiana Grill, Judge Thrash ruled that "an insured cannot recover by attempting to artfully plead temporary impairment to economically valuable use of property as physical loss or damage." The court found that its conclusion was reinforced by the "period of restoration" language which contemplated physical change in the property that required restoration. The court also noted that the plaintiff had not specifically alleged that COVID was on its premises, finding that "the mere threat of exposure is insufficient to trigger coverage."

 

In the first Massachusetts case to consider the availability of coverage for COVID-19 business interruption claims, a judge in the elite Business Litigation Session ruled in Verveine Corp. v. Strathmore Insurance Company, Suffolk No. SUCV2020-1378-BLS2 (Mass. Super. Ct. Dec. 28, 2020) that Strathmore's motion should be dismissed inasmuch as the inability of a restaurateur to operate the Little Donkey Restaurant in the manner in which it was originally intended failed to allege "direct physical loss of or damage to property." The court ruled that this interpretation of "physical loss" was inconsistent with Massachusetts law as well as the numerous decisions that had recently emerged in this area in other states. The court distinguished cases involving the buildup of carbon monoxide or noxious fumes from an oil spill inside the insured's property inasmuch as there was no allegation in this case that the COVID-19 virus was actually present in the plaintiff's restaurants, resulting in physical contamination of the property. Having declared that there was no direct physical loss, the court did not reach the issue of whether the virus exclusion in the Strathmore policy would have applied. As a result, the court also dismissed a negligence claim that the insured had separately brought against its agent for acquiring a policy containing a virus exclusion, declaring that no basis for recovery existed since she had independently determined that coverage applied without regard to the applicability of the virus exclusion.

 

OTHER RULINGS OF CONSEQUENCE

 

FIRST CIRCUIT     Pollution Liability Insurance (MA)

 

The First Circuit has ruled that an excess insurer owed coverage for the cost of cleaning up an oil spill after an accident involving one of its tankers, despite a total pollution exclusion in its policy. The court ruled in Performance Transportation, Inc. v. General Star Ind. Co., No. 20-1022 (1st Cir. Dec. 18, 2020) that the exclusionary language was ambiguous due to alleged inconsistencies between policy terms and, in particular, a claimed conflict between the policy’s Special Hazards Endorsement and an exception to the Endorsement that provided coverage for “short term drilling fluid events.” The opinion is surprising in that it ignores (and does not even cite) First Circuit and SJC authority stating that courts may not find ambiguity based on exceptions to exclusions. The court also ruled that it was reasonable for a petroleum trucking company to be covered for oil spills involving its trucks.

 

EIGHTH CIRCUIT     “Claims Made”/Single “Claim”/Estoppel (AR)

 

The U.S. Court of Appeals for the Eighth Circuit has ruled in Pine Bluff School District v. ACE American Ins. Co., 19-2594 (8th Cir. Dec. 28, 2020) that an Arkansas district court did not err in refusing to require a legal liability insurer to provide a defense to a teacher's retaliatory discharge lawsuit under its scholastic advantage educators legal liability policy. In affirming the lower court's entry of summary judgment for ACE American, the Eighth Circuit ruled that the insured had forfeited its rights to coverage by not giving notice to its insurer until 6 months after the 60 day grace reporting period under the "claims made" policy in effect when this claim was first asserted against the School District. The court also rejected the insured's argument that ACE American had waived its right to assert these provisions, declaring that its delay in denying coverage was not unreasonable, nor did Arkansas law permit waiver and estoppel to broaden the scope of coverage provided by a policy. The court ruled that coverage was triggered by an EEOC charge during the 2015 policy and that a subsequent 2016 lawsuit arose out of the original claim so as to limit coverage to the 2015 policy.

 

NINTH CIRCUIT     Excess/Exhaustion (CA)

 

The Ninth Circuit has ruled in Scottsdale Ins. Co. v. Certain Underwriters at Lloyds, London, No. 19-55502 (9th Cir. Dec. 18, 2020) that a California District Court erred in refusing to allow an excess insurer to challenge the primary insurer’s allocation of $17 million paid to settle claims against the Dickstein Shapiro law firm where there was evidence that Underwriters had engaged in collusion by allocating sums that it did not owe coverage for so as to shift the loss to the excess insurer.

 

MONTANA     “Occurrence”/Duty to Indemnify/Procedure

 

The Montana Supreme Court has ruled in Farmers Insurance Exchange v. Wessel, 2020 MT 319 (Mt. Dec. 22, 2020) that the insured’s campaign of intimidation and threatened violence due to a dispute over road access did not involve an accidental "occurrence" within the scope of Farmers' homeowners' coverage. The court ruled that "as the conduct alleged was both intentional and done purposefully by the Insureds to cause injury and damages to the Flores and the Estate, it does not come under the terms of the policy, which requires that an "occurrence" or "accident" is needed to trigger coverage." The Supreme Court also ruled that the trial court had erred in finding that issues of fact remained as regards to the claimed indemnity obligation notwithstanding its rule that there was no duty to defend. Rather, the Court ruled that "where there was no coverage under the Policy -- and no corresponding duty to defend, there cannot be a duty to indemnify."

 

TEXAS     Discovery

 

In Tim Long Plumbing, Inc. v. Kinsale Ins. Co., 2020 WL 6559869 (E.D.Tex. Nov. 11, 2020), a federal district court has ruled that discovery requests presented to a homeowners insurer was overbroad but that the insured could obtain the insurer’s claim filed as well as portions of the underwriting file that were relevant to how the insurer interpreted policy terms. The court also ruled that Kinsale must produce those portions of its claims handling manual that were relevant to (1) the circumstances and extent to which Defendant’s adjusters are permitted to authorize payment of claims and (2) any explanation of the agency relationship and authority on which Defendant’s adjusters can act on its behalf. As to the insurer’s assertion of a “work product” defense, the court found that claim materials before the case went into suit were not protected but that relevant post-suit documents must be produced for in camera review by the court.

 

OTHER DEVELOPMENTS OF NOTE

 

Inside the Insurance Industry

 

The European Commission has initiated a review of Aon’s proposed acquisition of Willis Towers Watson. In a statement, EC Executive Vice-President Margrethe Vestager said: “We have opened an in-depth investigation to assess carefully whether the transaction could lead to negative effects for competition, less choice and higher prices for European customers in the commercial risk brokerage market.”

 

A.M. Best’s latest list of the world’s largest insurer gives top marks to (1) United Health Group (U.S.); (2) Ping An Insurance (China) and (3) AXA S.A. (France).

 

Zurich North America’s cyber and professional lines underwriting chief, Yosha DeLong, is moving on to Bermuda-based Mosaic Insurance Holdings Ltd., where she will be the start up company’s senior vice president and head of cyber underwriting.

 

Across the Bar

 

Robin Cohen, who has been the head of McKool Smith’s insurance recovery practice, has jumped ship with a large group of McKool Smith lawyers and staff to form her own firm: Cohen Ziffer Frenchman & McKenna.

 

New Coverage Litigation

 

Turner Construction Company has sued Utica Mutual in federal court in New York seeking a declaration that it is entitled to coverage for construction injuries that occurred during the named insured's work on Time Inc.'s new headquarters in Manhattan.

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