Mar 19 2021

Insurance Law – 3/19/2021

PANDEMIC ROUNDUP

Four Ohio liberal arts colleges (Denison, Kenyon, Ohio Wesleyan and the College of Wooster) have filed suit against Certain Underwriters at Lloyd’s in the U.S. District Court in Columbus seeking coverage for an estimated $1.2 billion in financial losses due to the pandemic.

Three sports teams have taken to the courts to secure insurance coverage for pandemic related reverses. Last Thursday, the Blank Rome firm filed suit against Factory Mutual in the Philadelphia Court of Common Pleas, alleging that Factory Mutual owes coverage up to the policy’s $1 billion limit and has acted unreasonably in claiming that it only owes the $1 milliion limit for “communicable diseases.” On Monday, the Lakers filed suit against Federal Insurance in the U.S. District Court in Los Angeles, alleging that Chubb unreasonably refused to cover its claims and earned billions of dollar in profit in 2020 while its policyholders suffered. Meanwhile, the owners of the Sacramento Kings and their arena sued Factory Mutual in the U.S. District Court for the Eastern District of California last Thursday seeking $850 million for lost revenue for lost hotel bookings and entertainment and sporting events that had to be cancelled due to the pandemic.

Other new high-profile suits include:

Insurers are now 4-0 in Massachusetts Judge Saylor has ruled in Kamakura, LLC v. Greater New York Mutual Insurance Company, No. 20-11350 (D. Mass. March 9, 2021) that a Boston restauranteur had not pleaded a viable claim for business interruption coverage for pandemic-related losses. The District Court expressed sympathy for the plaintiff's plight and observed that whereas a pandemic was the sort of widespread disaster for which a small business not only could not prepare but for which insurance coverage ought to be routinely available, the court could not find coverage in this case in light of the plain language of the subject policies as written. In keeping with the recent Massachusetts rulings in Legal Sea Foods and SAS, Judge Saylor declared that a mere threat to the insured premises without any actual physical damage was not a basis for coverage. The court rejected the insured's argument that the presumed or imminent threat of contamination which renders premises unusable for its intended purpose was insufficient to trigger coverage. The court distinguished the Massachusetts cases cited by the insured but declared that even if they held for the proposition stated, they did not apply here where the business loss was due to governmental orders and not the presence of the coronavirus itself. Judge Saylor observed in the footnote, however, that he was skeptical that either Matzner or Arbeiter fairly reflected Massachusetts law since they failed to cite the appeals court's decision in HRG Development. The court declined to find that the absence of a virus exclusion was evidence of an intent to provide coverage and declared, in any event, that extrinsic facts could not be considered by the court in the absence of ambiguous policy language. Apart from a question of whether the presence of the virus could cause direct physical loss, the court found that it was only speculation that virus particles were actually present within the insured's restaurants. Further, the court observed that the shutdown orders were not on account of the presence of virus particles and applied across the board without regard to whether business had been previously or were presently contaminated with the coronavirus. The court also declined to find civil authority coverage noting the absence of any allegation that other property had suffered physical damage. Having found an absence of coverage, the court likewise dismissed the insured's assertions of bad faith under G.L. c 93A. The court ruled that even if the coverage denial was mistaken, there was a good faith basis for it and declined to find that GNY had not conducted a sufficient investigation since the complaint did not allege what GNY should have considered that it did not. The court ruled that bad faith could not be based upon the failure of GNY to inspect the insured's premises or documents concerning its business activities since this denial was based upon policy interpretation rather than any factual finding as to the condition of the premises.

In other cases:

  • Bachman’s Inc. v. Florists Mut. Ins. Co., No. 20-2399 (D. Minn. Mar. 16, 2021)(although structural damage to property is not necessary for there to be “direct physical loss,” coverage does not arise in this case where insured flower shop has not alleged that the virus particles are present on its property causing contamination).
  • Food For Thought Caterers Corporation v. Sentinel Insurance Company, No. 20-34018(S.D.N.Y. Mar. 6, 2021)(holding that Appellate Division’s 2002 ruling in Roundabout Theatre requires more than mere loss of use of premises).

OTHER RULINGS OF CONSEQUENCE

SEVENTH CIRCUIT     Privacy Exclusions/”Arising Out Of” (IL)

Allegations that a debt collection agency harassed a debtor and made 53 abusive phone calls that ultimately caused her to miscarry have been held subject to a Recording and Distribution of Material or Information in Violation of Law" exclusion in Zurich's CGL policies, as well as a Violation of Communications or Information Law exclusion. Despite the insured’s argument that these exclusions were limited to the statutory claims against it and that Zurich’s duty to defend was still triggered by the plaintiff’s common law privacy claims, the Seventh Circuit ruled in Zurich American Ins. Co. v. Ocwen Financial Corp. No. 19-3052 (7th Cir. Mar. 12, 2021) that these exclusions applied not only to statutory claims but to all common law claims based upon conduct that violated the statutes. The court declared that if the plaintiff would not have been injured but for the conduct that violated an enumerated law, then the exclusion applies to all claims flowing from that underlying conduct regardless of the legal theory.

DELAWARE      First Party/”Earth Movement” Exclusion

The Delaware Supreme Court has ruled that the collapse of a pedestrian bridge and retaining wall at the insured's home following a severe weather event that resulted in a combination of water backups from drainage systems, scouring of supporting earth embankments, heavy rain and tree debris were subject to an "earth movement" in a homeowner's policy. In Monzo v. Nationwide Property & Casualty Ins. Co., 199,2020 (Del. Nar. 11, 2021), the court ruled that "earth movement" encompassed the "scouring" of earth embankments that had resulted in this loss. The court rejected the insured's argument that the exclusion does not apply to earth movement when combined with water, noting that the exclusion applied to losses "resulting directly or indirectly from earth movement due to natural or unnatural causes…" The court also noted that the exclusion included types of earth movement such as "mudslides" that contain water. On the other hand, the Supreme Court held that the trial court had erred in granting summary judgment to Nationwide with respect to the collapsed retaining wall as, unlike the pedestrian bridge, the undisputed facts did not establish that "scouring" had contributed to the wall's collapse.

NEW HAMPSHIRE      Subrogation

The New Hampshire Supreme Court has ruled that the property insurer of a college may not subrogate against college students for accidentally setting fire to their dormitory. In Ro v. Factory Mutual Ins. Co., 2009-620 (N.H. Mar. 10, 2021), the court extended the anti-subrogation rule to students notwithstanding the absence of any formal "possessory interest" in the college dormitory that they damaged. Factory Mutual had argued that students had no more possessory interest in their residences than guests in a hotel and were therefore not “co-insureds” under the policy. The Supreme Court disagreed, concluding that Factual Mutual’s arguments rested too heavily on property law whereas subrogation is an equitable remedy that does "not depend upon feudal principals” and that courts have likened the relationship between a college and residential student to that of a landlord and tenant in other cases.

NEVADA      Duty to Defend/Recoupment/Restitution

A narrowly divided Nevada Supreme Court has ruled that a general liability insurer is entitled to recoup defense costs that it paid under protest in a case that it had no duty to defend. On a certified question from the Ninth Circuit, the majority declared in Nautilus Insurance Company v. Access Medical, LLC, No. 79130 (Nev. Mar. 11, 2021) that “when a court determines that an insurer never owed a duty to defend, the insurer expressly reserved its right to seek reimbursement in writing after defense was tendered, and the policy accepted the defense from the insurer, then the insurer is entitled to that reimbursement. Under generally applicable principals of unjust enrichment and restitution, the insurer has conferred a benefit on the policyholder; the policyholder appreciated the benefit; because it is reasonable for the insurer to accept the policyholder's demand, it is equitable to require the policyholder to pay." The majority concluded that this holding was consistent with Restatement of Restitution and found that, whereas the ALI’s new Restatement for liability insurance had reached a different conclusion, it had done so for reasons that the court disagreed with. Three justices dissented, arguing that a court should not rely on equitable principles to imply contractual terms where an express agreement existed between the parties that lacked such terms, nor was it appropriate to permit Nautilus to create a remedy through a unilateral reservation of rights that are not set forth in the agreed terms of the policy itself.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Marsh & McLennan, which was formed 117 years ago when Henry Marsh of Illinois and Donald McLennan of Minnesota merged their brokerages, will now be known simply as “Marsh McLennan,” the boldest branding move since Cozen & O’Connor dropped its ampersand two decades ago.

Acadia Insurance has named Simone Grimes as its new CFO, succeeding Charles Hamblen who is retiring this year.

There is no indication that any insurance money is involved in the $27 million dollar settlement that the City of Minneapolis negotiated last week with the family of George Floyd. Minneapolis has been self-insured for years.

Across the Bar

Policyholder maven Seth Lamden is leaving Neal Gerber Eisenberg to join Blank Rome’s insurance recovery group in Chicago.

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