May 28 2021

Insurance Law – 5/28/2021

pandemic roundup

In a significant setback for Washington policyholders seeking coverage for COVID losses, the federal judge in the Western District who was assigned he consolidated docket of COVID cases has issued an omnibus order dismissing several hundred individual suits.  In a 75 page opinion, Judge Barbara Rothstein ruled that Washington law required actual physical injury to property and that the virus exclusions in the policies at issue unambiguously applied, notwithstanding the insureds’ claims of ambiguity and regulatory estoppel.

A judge in the Allegheny Court of Common Pleas has granted summary judgment to a Pittsburgh restaurant, declaring in MacMiles LLC dba Grant Street Tavern v. Erie Insurance Exchange, No. GD-20-7753 (Pa. Ct. Cm Pl. May 25, 2021) that Erie’s argument that the policy required actual physical damage to the premises conflated “direct physical loss of” with “direct physical . . . damage to” and ignored the fact that these two phrases were separated by the word “or.”   Under the circumstances, Judge Ward ruled that Grant Street Tavern had suffered “direct” and “physical” loss of use of its property without any tangible harm to property.  The court also declined to give effect to a policy exclusion for enforcement of laws or ordinances.

A consortium of 58 faith-inspired colleges and universities has sued 16 property insurers in the Pierce County Superior Court in Washington alleging in Pacific Lutheran University v. Certain Underwriters at Lloyds, et al.  that they are entitled to coverage for their COVID business interruption losses.

Judge Denise Casper has become the latest federal district court judge of Massachusetts to find for insurers in a COVID-19 case.  In Accents of Sterling, Inc. v. Ohio Security Insurance Company, No. 20-11005 (D. Mass. May 25, 2021), the court granted Ohio Security's motion for judgment on the pleadings, declaring that under Arizona law (where the insured's business premises were situated) a loss of functionality did not give rise to a finding of direct physical loss."  In any event, the court ruled that any coverage that might otherwise have applied was just to the virus exclusion notwithstanding the insured’s argument that its losses were due, at least in part, to governmental orders restricting the use of the property and not merely due to the virus itself.  In this case, the court found that the virus either directly or indirectly caused the alleged losses and that the exclusion therefore applied.  Finally, the court rejected the insured's effort to invalidate the virus exclusion based upon the theory of regulatory estoppel, noting that it never had been adopted or applied by an Arizona court.  The court also refused to find that the insured's failure to refer to the term "pandemic" in the virus exclusion gave rise to a reasonable expectation of coverage on the part of the insured.

Judge Boulee has granted a property insurer's motion to dismiss, ruling in G&A Family Enterprises v. American Family Insurance Company, No. 20-03192 (N.D. Ga May 13, 2021) that the COVID-19 virus had not caused any "direct physical loss" to the insured's barbeque restaurants withstanding the absence of any specific definition of "direct physical loss", the court ruled that it's plain meaning and Georgia caselaw required that it involve "actual, physical damage to the covered premises."  The court also declined to find that any "civil authority" coverage might potentially apply as there was no allegation that the insured was prohibited from accessing its restaurant nor was the claim based upon direct physical loss or damage to any property.  Finally, the court ruled that the virus or bacteria exclusion applied notwithstanding the insured's contention that such exclusions would have rendered the insurance coverage provided by the policies illusory.

Judge Pratt has ruled in Georgetown Dental, LLC v. Cincinnati Insurance Company, No. 21-0383 (S.D. Ind. May 17, 2021) that both Indiana law and similar claims involving insured dentists mandated dismissal of the insured's claims as failing to seek recovery for any "direct physical loss to its property or those of others."  The court ruled that "direct physical loss of or damage" even though phrased in the disjunctive, required that there be some "actual demonstrable harm of some form."  As a result, the court rejected the insured's argument that "loss" encompasses a "loss of use" without any demonstrable harm to the premises.  Further, the court found that this interpretation was consistent with the "period of restoration" language in the policy which clearly connotes some time in which is repairing or replacing or rebuilding physical harm to the premises.

Judge Smith has ruled in Yellow Strawberry CCDR, Inc. v. Continental Casualty Company, No. 20-61754 (S.D. Fla.  May 18, 2021) that a Florida hair salon had not pleaded a plausible claim for business interruption coverage as there was no "direct physical loss" to its business premises, citing the Eleventh Circuit's opinion in Mama Jo's.  Similarly, the court ruled that the insured had failed to plead a plausible claim for "civil authority" coverage as the underlying governmental orders, while limiting the ability of customers to access the insured's salon, were not issued in response to any physical loss at a location nearby the insured salon.

As of last week, the UPenn COVID Coverage litigation Tracker reported that insurers had obtained outright dismissals in 302 cases and summary judgment in another 15 as against denials of motion to dismiss in 49 cases and summary judgment being granted to policy holders in 8 cases.  As has been true in the past, insurers are prevailing in a higher percentage of cases in federal court (92.3 percent) as contrasted with state courts (54.1 percent).


SIXTH CIRCUIT                Auto/”Actual Cash Value” (OH)

The U.S. Court of Appeals for the Sixth Circuit has ruled in Wilkerson v. American Family Ins. Co., No. 20-4113 (6th Cir. May 13, 2021) that taxes and fees that a motorist must pay in purchasing a replacement vehicle after an accident are only covered if the insured opts to repair or replace the damaged vehicle, but do not otherwise fall within the policy's coverage for the "actual cash value" of the damaged vehicle.  In the absence of clear authority from the Ohio Supreme, the Sixth Circuit predicted that Ohio courts would conclude that ”actual cash value" refers to market value, not replacement cost less depreciation.

ELEVENTH CIRCUIT        Late Notice/Conflicts of Law (GA)

The Eleventh Circuit has declared in an unpublished opinion that Georgia courts should only apply the law of a foreign jurisdiction where Georgia common law is in conflict with the statute of another state and not where there is a conflict between the common law of two jurisdictions.  Although the policies in question were issued to the insured's parent company in California, the Eleventh Circuit interpreted Georgia’s rule of lex loci contractus as requiring that Georgia law control unless it conflicts with the statute of another jurisdiction. The court ruled that "where a foreign state has adopted the English common law and there is no statute from that state to govern a contractual dispute, the outcome of the dispute can then only be determined by that state's common law.  In light of the fact that Georgia does not require proof of prejudice in late notice cases, the court ruled in Mt. Hawley Ins. Co. v. East Perimeter Pointe Apartments, No. 19-13824 (11th Cir. May 27, 2021) that the insured's 2-year delay in notifying its liability insurers of two lawsuits arising out of an assault and murder at its apartment complex was untimely as a matter of Georgia common law.  Although the insured gave immediate written notice of the suits when they were filed, it had failed to give notice of the original incident two years earlier.

ILLINOIS                          Privacy/Coverage B

The Illinois Supreme Court has ruled in West Bend Mutual Insurance Company v. Krishna Schaumburg Tannning, No. 125978 (Ill. May 20, 2021) that allegations that a tanning salon violated the Illinois Biometric Information Privacy Act (BIPA) by sharing a customer's fingerprints without her permission triggered coverage under CGL policies as involving the publication of material in violation of a person's right of privacy.  In affirming the Appellate Court's declaration of coverage, the state Supreme Court rejected West Bend's contention that "publication" required dissemination of information to the general public, notwithstanding dicta to that effect in its TCPA opinion in Swiderski.  Rather, the court ruled that the common and ordinary meaning of this term, as evidenced by various dictionaries, comprised both a limited sharing of information of the single party and a broad sharing of information to multiple recipients.  Furthermore, in light of these alternative possible meanings, the court ruled that this undefined term must be considered to be ambiguous and, therefore, interpreted in favor of coverage.  The court also ruled that these claims were not subject to a “Violation of Statutes” exclusion, as the statutes enumerated in the exclusion (TCPA, CAN-SPAM etc.) all prohibit certain methods of communication which is not the case with BIPA.  Applying the rule of ejusdem generis, the court held that the exclusions referenced to other statutes could not be read so broadly as to apply to laws that do not regulate the method of communication and that the exclusion was, at best, ambiguous in this regard and, therefore, could not be applied to defeat coverage.


Inside the Insurance Industry 

S&P Global Ratings reported last week that the COVID-19 pandemic has cost global multiline insurers about $8 billion in 2020.  Although insurers still earned a net profit of $36 billion, that result was down from $56 billion in 2019 and $48 billion in 2018.

Insurance Journal reported last week that CNA Financial paid $40 million last March to regain control of its network following a ransomware attack. 

A new A.M. Best report on "Florida's Difficult Market Continues to Challenge Insurance" finds that, even in the absence of any serious hurricanes, property insurance in Florida posted a combined ratio of 131.5 in 2020, 18 points worse than the year before and the worst results in the last 5 years.  Best suggests that the worsened results are due to social inflation pressures, more-frequent severe convective storms and an increase in roof replacement claims. 
IBNR Dept. 

Amy Cooper, who was fired by Franklin Templeton after she was videotaped threatening a black man in Central Park who had objected to her dog running off leash while he was bird watching, has now sued her employer for firing her without conducting a full-and-proper investigation. 

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