Feb 19 2021

Insurance Law – 2/19/2021


As we mentioned in last week’s newsletter, proposals have been filed by legislators in New York, Oregon, Pennsylvania and Rhode Island that would dramatically change the playing field for the resolution of COVID-19 insurance claims. Here are the details:

  • New York: Assembly Bill 1937 mandates that all commercial property policies be interpreted as covering pandemic business interruption losses and that any virus exclusions be declared “null and void.” Expiring policies are deemed to be renewed on the existing coverage terms. This relief is limited to businesses with 250 or fewer employees. Insurers who are obliged to pay such losses, including excess lines insurers, may apply to the Superintendent of Financial Services for reimbursement, said payments to be funded through assessments on insurers writing business in New York.
  • Oregon: House Bill 2730 requires that policies issued to Oregon businesses or insuring property in Oregon treat pandemic losses as involving “direct physical loss” unless they contain exclusions for virus-related losses due to pathogens or near the insured’s property that result from government closure orders. The proposal would require insurers to promptly adjust losses and allows insureds to sue for damages—including attorney’s fees—if insurers fail to comply with the bill’s requirements. Treble damages may be awarded if the insurer acted unreasonably. The proposal applies to all insureds without regard to the number of employees.
  • Pennsylvania: Senate Bill 42 mandates coverage for pandemic-related first party policies on all polices in effect on or after March 6, 2020. The statute would mandate a finding of “property damage” for losses in cases including those where (1) a person has been positively identified as having been infected with COVID-19; (2) the presence of at least one person positively identified as having been infected with COVID-19 in the same municipality of this Commonwealth where the property is located or (3) The presence of COVID-19 having otherwise been detected in this Commonwealth. The bill allows full coverage for small businesses but limits larger employers to 75% of the policy limits. It also stipulates that any constitutional challenges shall be solely decided by the Pennsylvania Supreme Court.
  • Rhode Island: H 5052 mandates that commercial property policies issued to Rhode Island businesses with 150 or fewer employees shall treat business interruption resulting from the pandemic as “direct physical loss” and that insurers may not deny coverage for said losses based on virus exclusions. Insurers that are thereby required to pay losses may apply for reimbursement to the Rhode Island Department of Business Regulation. Such payments shall be funded through assessments on licensed insurers.


SECOND CIRCUIT     Fraud/Statute of Limitations/Laches (CT)

The U.S. Court of Appeals for the Second Circuit has ruled in Connecticut General Life Ins. Co. v. BioHealth Laboratories, Inc. No. 20-2312 (2nd Cir. Feb. 10, 2021) that allegations that managers of various employee health and wellness plans who were sued by laboratory testing companies for submitting fraudulent or overstated claims for medical services purportedly provided to Connecticut General's plan members were not subject to Connecticut's three-year statute of limitations for tort claims. In setting aside the Connecticut District Court's dismissal of the plaintiff's complaint, the Second Circuit declared in a brief opinion that the plaintiff's equitable claims, which include their federal claims, are not subject to any statute of limitations and are instead governed only by the doctrine of laches.

COLORADO     Bad Faith/Assignments/Stipulated Judgments

The Colorado Court of Appeals has sustained a lower court’s declaration that an insured breached the terms of its auto policy by stipulating to a judgment and assigning its right to an accident victim. In State Farm Mutual Automobile Ins. Co. v. Goddard, 2021 WL 501122 (Colo. App. Feb. 11 2021), the Court of Appeal rejected the insured’s argument that the insured could not have violated the terms of its policy in light of the fact that policy assignments were authorized by the Colorado Supreme Court’s decision in Nunn v. Mid-Century Ins. Co., 244 P. 3d 116 (Colo. 2010). In Nunn, the Supreme Court ruled that a policyholder did not breach the terms of its policy by entering into a stipulation with an accident victim not to execute on the excess judgment and to assign its rights, including bad-faith claims, to the accident victim. Instead, it concluded that an insured who has "suffered a judgment in excess of policy limits, even if the judgment is confessed and the insured is protected by a covenant not to execute, has suffered actual damages and will be permitted to maintain an action against insurer for bad-faith breach of the duty to settle." In this case, however, the Court of Appeals declared that "before an insured is justified in stipulating or judgment and assigning its claims against the insurer to a third-party claimant, it must first appear that the insurer has unreasonably refused to defend the insured or to settle the claim within policy limits." While rejecting State Farm's argument that there must be a finding of bad faith on the part of the insurer before an insured is justified in entering such an agreement, the Court of Appeals found that the facts in this case did not preclude a judge from ruling that the insured violated the terms of his policy by entering into a stipulated judgment with the accident victim where there was conflicting evidence at trial with respect to whether State Farm appeared to have acted unreasonably in denying a policy limit settlement.

NEW HAMPSHIRE     Insurance Regulations

The New Hampshire Supreme Court has sustained a life insurer’s challenge to rules that state regulators had adopted limited premiums for long term care policies, declaring that the regulations contradicted the terms of the statute governing LTC insurance and therefore, being ultra vires, were unenforceable. In Genworth Life Ins. Co. v. New Hampshire Department of Insurance, No. 2019-0727 (N.H. Feb. 17, 2021), the court agreed with the insurer that the Amended Regulations exceeded the Commissioner’s mandate under RSA 415-D:12 because they are not reasonable rules that either promote premium adequacy or protect policyholders in the event of substantial rate increases. As a result, the court did not address the insurers’ alternative argument that retroactive regulation violating the takings clauses of the New Hampshire and United States constitutions.

NEW JERSEY     Agents and Brokers

The New Jersey Supreme Court has accepted a certified question from the Third Circuit on the issue of whether the insurance agents of Northwestern Mutual should be classified as independent contractors or not.

NEW YORK     Duty to Defend/Recoupment

The Second Department has ruled that a liability insurer had no right to recoup defense costs that it had paid to defense its insured during the period of time between when a trial court vacated a default judgment against its insured and the Appellate Division reinstated the default. In American West Home Ins. Co. v. Gjonaj Realty & Management Co., 2020 WL 7767944 (App. Div. Dec. 30, 2020), the Appellate Division first found that American West was not estopped to assert these claim since it had initially denied on the basis of the lack of timely notice and had thereafter defended under a reservation of rights, including a right to recoup. Nevertheless, the court found that American West had no right of recoupment. Whereas a duty to defend is based upon the potential for coverage and exists independently of the duty to indemnify, the Second Department ruled that the court’s ultimate determination that American West had no duty to pay the default judgment did not relieve of its duty to pay defense costs in the interim. The court acknowledged that federal cases had found a right to recoupment but that the insureds had not opposed recoupment in some of these cases and other federal district courts had more recently refused to allow recoupment. As a result, the court found that insurers have no right to unilaterally impose a right of recoupment through a reservation of rights letter that is not based upon actual terms in its policy.

NEW YORK     CTE Litigation/Discovery

The Appellate Division has ruled in Alterra America Ins. Co. v. National Football League, 2021 NY Slip Op 00900 (App. Div. Feb. 11, 2021), that a trial judge did not err in denying efforts by the NFL's liability insurers to compel discovery of underlying defense settlement materials and electronically stored information concerning CTE/concussion claims against the league. The First Department ruled that the trial court had properly exercised its broad discretion in denying discovery and that the cooperation clauses in the defendant's policies did not operate as waivers of otherwise applicable attorney-client and work-product privileges belonging to the NFL. Further, the court ruled that there was not a waiver of the attorney-client privilege merely because the parties had a common interest in the outcome of the underlying actions. The court declared that “by seeking coverage, the NFL did not put its privilege in protected information at issue.”


Inside the Insurance Industry

Peter S. Zaffino will succeed Brian Duperreault as AIG’s new CEO on March 1, 2021.

AIG reported this week that it suffered a net loss of $60 million in the fourth quarter, due mainly to a $1.2 billion loss from derivatives but that this result was smaller than the anticipated loss for the quarter. AIG also indicated that its 2020 results reflected $1.1 billion in cost-related COVID-19 claims, as well as higher catastrophe losses.

Progressive Insurance has announced plans to acquire Protective Insurance Corporation in an effort to expand its footprint in the trucking market.

Sins of the Fathers

The Diocese of Winona-Rochester, Minnesota has reached agreement with over 100 alleged victims of past sexual abuse by clergy members in consideration of a payment of $21.5 million. The settlement reportedly includes a contribution of $6.5 million from the Diocese's insurers.

Lawyers, Guns and Money

A judge in Broward County ruled this week that a local school district had no legal obligation to warn students and faculty at the Marjorie Stoneman Douglas High School of the possibility that a disturbed former student might engage in a mass shooting at the school in 2018. The judge noted that the school district had no control over Nikolas Cruz at the time and emphasized that he had not been a student at the school for over a year when the shooting occurred.

Back to Newsletters