Jun 18 2021

Insurance Law – 6/18/2021

PANDEMIC ROUNDUP

New Trial Court Rulings

Insurers did not fare well in the first two COVID cases to be decided in New Hampshire and Rhode Island.

In Schleicher & Stebbins Hotel Corp. v. Starr Surplus Lines Ins. Co., No. 217-2020-CV 00309 (N.H. Super. June 15, 2020), Judge Kissinger granted partial summary judgment to a hotel chain, declaring that the potential presence of virus particles inside the insured’s hotels were akin to the smell of cat urine that the New Hampshire Supreme Court had treated as “direct physical loss” in Mellin.   The Superior Court rejected the insurer’s argument that Mellin’s requirement of “distinct and demonstrable” harm to the property required that there be damage that was incapable of remediation and that could be perceived by one of the five senses.  While dismissing AXIS on the basis of a pollution exclusion that expressly referenced “viruses,” the court refused to give effect to a “microorganism” exclusion as it found that a virus is not a living organism and therefore cannot be a “microorganism.”

In Atwells Realty Corp. v. Scottsdale Ins. Co., No. PC-2020-04607 (R.I. Super. June 4, 2021), Superior Court judge declared that physical loss might have resulted from the presence of the virus on the insured’s property.  The court observed that the insurer’s argument that physical loss requires structural alteration to the property was inconsistent with policy’s Causes of Loss—Special Form, which included coverage for losses due to radioactive contamination  electromagnetic energy that might affect the use of property but would not physically alter it.  The Superior Court also ruled that Atwells had pleaded sufficient facts to support a claim for Civil Authority coverage, noting that many of the federal decisions precluding coverage in COVID cases have relied on a “plausibility” standard that is not followed by state courts in Rhode Island.  Finally, the court refused to give effect to a virus exclusion in the Scottsdale policy, as it lacked “arising out of” or “directly or indirectly” prefatory language” and as Scottsdale had failed to prove that the insured’s loss was “caused by or resulted” from the COVID 19 virus.

Having found coverage in various bellwether cases in the MDL litigation against Society Insurance, a Judge Chang has issued a further ruling in In Re: Society Insurance MDL No. 2964" rejecting Society's request for a mediated interlocutory review of this ruling. 

Judge Coleman has refused to grant GEICO's petition for interlocutory review of her denial of its motion to dismiss, ruling in Siegal v. GEICO Cas. Co
., No. 20-4306 (N.D. Ill. June 14, 2021) that GEICO had failed to establish that her rulings were inconsistent with established Seventh Circuit precedent, nor had it shown that the resolution of these questions of law would expedite the litigation given that there are remaining claims in the lawsuit concerning other aspects of the insured's dispute. 

Judge Tigara has dismissed a San Francisco landlord's effort to obtain coverage for COVID-19 losses.  As a preliminary matter, the District court declined to remand the case, finding that the California insurer sued by Broadway 644 was not the insured that issued this policy and was, therefore, irrelevant to the consideration of diversity jurisdiction.  Further, the court ruled in 644 Broadway, LLC vs. Falls Lake Fire & Casualty, No. 20-8421 (N.D. Cal. May 21, 2021) that the insured's suit did not seek recovery for direct physical loss of or damaged property because it did not allege any physical damage to any nearby property that caused the civil authority to issue its orders.  The court ruled that "these orders might have prevented plaintiff's tenants from operating their businesses, but an inability to occupy a storefront does not equate to physical loss or damage."  The court declined to find that the insurer's inclusion of exclusions that do not require physical damage, such as those for fraudulent or dishonest acts, require interpreting "direct physical loss" to include non-structural damage.

Judge Bellis has ruled in Hartford Fire Insurance Company v. Moda LLC, No. XO6-UYCY-CV-20-6056095-S (Conn. Super. June 15, 2021) that the insured's warehouses and apartment buildings these losses were subject to a virus exclusion in the policy.  The court rejected the insured's argument that this exclusion was limited to losses occurring in the State of New York nor did it arise out of any of the specified causes of loss that were identified as an exception to this exclusion. 

Judge Padova has dismissed a tavern owner's suit, ruling in Spring House Tavern Inc. v. American Fire and Casualty Company, No. 20-2872 (E.D. Pa. June 16, 2021) that the insured's loss of use of its business premises did not involve "direct physical loss or direct physical damage to the covered property".  The court declined to follow a state judge's decision in Ungarean, ruling that the case was not only on appeal to the intermediate appellate court in Pennsylvania but that it had failed to take into account Third Circuit authority such as Motorists Mutual Insurance Company v. Hardinger, 131 F. Appx. 823 (3rd Cir. 2005).  Unlike the facts in Hardinger, the court ruled that there was no allegation that the COVID virus itself was present on the insured's property or had made it "physically unusable."  The court also ruled that the insured could not obtain coverage for these losses pursuant to the "contamination coverage" portion of the policy, as it had only applied to loss of perishable stock due to the failure of refrigeration and other equipment systems. 

Appellate Briefing

 A hotel chain has filed its brief with the Ninth Circuit arguing in BA LAX, LLC v. Hartford Fire Insurance Company, No. 21-55109 that  the California District Court erred in finding that a loss of use of the insured's property did not cause direct physical loss to the premises and/or that a virus exclusion in the Hartford policy was inapplicable to global pandemics nor should it apply where the "predominating" cause of the insured's loss were stay-at-home orders rather than the virus itself. 

APCIA and NAMIC have filed a joint amicus submission in 10E LLC v. The Travelers Indemnity Company of Connecticut, No. 20-56206, urging the Ninth Circuit to affirm a California district court's declaration that requiring coverage for COVID-19 business interruption losses would be contrary to the terms of the subject policy and financial ruinous to the insurance industry.  

OTHER CASES OF CONSEQUENCE

KENTUCKY                       Auto/”Motor Vehicle”                

The Kentucky Supreme Court has ruled in Davis v. Progressive Direct Insurance Company, 2020 -SC-0168-DG (Ky. June 17, 2021) that injuries suffered by an insured  when her motorcycle collided with a horse drawn buggy failed to trigger the policy’s UM coverage in light of the fact that the buggy was neither a "motor vehicle" nor a "trailer of any type".  The court declined to rule that this language was ambiguous or that the insured had a reasonable expectation of coverage that might support a claim for coverage based on the public policy of Kentucky.

MISSISSIPPI                     First Party/Collapse/Water Exclusion/Bad Faith

On a petition for interlocutory review of an order denying Farm Bureau's motion for summary judgment in a first party bad faith case, the Mississippi Supreme Court has ruled in Mississippi Farm Bureau Cas. Ins. Co. v. Hardin, No. 2020-IA-0032-SCT (Miss. June 2021) that water intrusion problems that had damaged the insured's home did not resolve it being a "state of collapse" as it was still standing inhabitable and furthermore, the damage that water intrusion to the insured's home is the result of another's failure to properly maintain a ditch near the property was subject to a water damage exclusion in the policy as involving "water below the surface of the ground, including water which exerts pressure on or seeps, leaks, or flows through a building…"  Finally, the court rejected any suggestion that Farm Bureau might have acted in bad faith owing to the fact that it had a legitimate basis for contesting coverage.

PENNSYLVANIA              Employment Practices Liability Insurance

The Pennsylvania Superior Court has ruled in Penn Psychiatric Center Inc v. United State Liability Ins. Co., 2021 PA Super 125(PA Super June 17, 2021) that a trial court did not err in granting U.S. Liability's demurrer with respect to the insured's effort to obtain EPL coverage for an action brought against one of its therapists by two former patients who had no employment relationship with the Penn Psychiatric Center.  As had the trial court, the Superior Court declared that the policies coverage for "work-place torts" was restricted to employment-related claims and did not extend to allegations that the insured had been negligent in its supervision of therapist as regards patients.

RHODE ISLAND               First Party/Appraisals

The Rhode Island Supreme Court has ruled in Machado v. Narragansett Bay Ins. Co,. No. 2019-374 (R.I. June 17, 2020) that a homeowner had no right to demand an appraisal of a water damage loss nearly two years after it had accepted the insurer’s offer of payment without contest.   In affirming the lower court's entry of summary judgment for Narragansett Bay, the Supreme Court ruled that the insureds had waived any right that they might otherwise have had to an appraisal because of the fact that their eventual request for an appraisal was unreasonably late and materially prejudiced Narragansett Bay  The court rejected the insureds’ contention that their delay was justified because they had not realized at the time how extensive the damage was.  The court was also not persuaded by the insured’s argument that the check that Narragansett Bay had sent them was not accompanied by a release and did not state that the payment was "full and final"

Other developments of note

Inside the Insurance Industry

The proposed merger between Aon and Willis Towers Watson now faces a further, unexpected obstacle in the form of an anti-trust law suit brought by the U.S. Department of Justice.  The DOJ complaint alleges the merger would “substantially” harm competition and raise the cost of insurance for property, casualty and financial risk broking for larger customers.  ,”  In prepared remarks, U.S. Attorney General Merrick Garland stated that “Allowing Aon and Willis Towers Watson to merge would reduce that vital competition and leave Americans with fewer choices, higher prices and lower quality services.”  AON has responded that the government’s suit reflects “a lack of understanding of our business, the clients we serve and the marketplaces in which we operate.”  In an April 30 earning call, AON’s CEO had optimistically forecast that “our ability to address client need and accelerate innovation will only get better in our pending combination with Willis Towers Watson, which continues to increase our commitment and excitement to the potential of the combined firm.”

Cyber Update 

Several major cyber-insurers, including AIG, AXIS, Beazley, Chubb, The Hartford, Liberty Mutual Insurance and Travelers, have joined forces to create CyberAcuView with the state goals of (1)  helping the insurance industry to provide better value and service for policyholders in their cyber risk mitigation; (2) providing leadership in addressing cybercrime and increasing resilience to cyber risk; and (3)  ensuring a competitive market for cyber insurance. 

New Coverage Litigation 

Two Travelers entities have filed suit in the U.S. District Court in Austin alleging in Discover Property & Casualty Ins. Co. v. Blue Bell Creameries U.S.A., Inc., 21-00487 (W.D.Tex.) that their policies do not afford coverage for a listeria outbreak involving the insured's ice cream products.

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