Jun 25 2021

Insurance Law – 6/25/2021


New Trial Court Rulings

Judge Goldsmith ruled in Dino Drop, Inc., v. Cincinnati Ins. CoNo. 20-12549 (E.D. Mich. June 21, 2021) that the insured had not plausibly alleged that its property had suffered any physical loss or damage.  The Court declared that "most courts have held that ‘loss’ and ‘damage; are distinguishable concepts even if they require tangible alteration of property as "the ordinary usage of those terms, can only be reasonably construed as extending to events that impact the physical premises completely (loss) or partially (damage)."  The Court rejected the insured's argument that the mere presence of virus on the premises caused direct physical loss noting that it does not physically alter the appearance, shape, structure or the material dimensions of the property."  The court also refused to find that the insurer's failure to add a virus exclusion to its policy implied an attempt to cover such losses. Judge Goldsmith similarly granted summary judgment to Cincinnati in Chelsea Ventures LLC v. Cincinnati Ins. Co,. No. 20-13002 (E.D. Mich. June 21, 2021).

Judge Albright has issued a brief ruling in Beazley Underwriting, LTV v. Daniels Hospitality Group, No. 20-829 (W.D Tex. June 22, 2021) granting Beazley's motion for judgment on the pleadings.   Although the court acknowledged that the "damage to property" language in Beazley’s policy was not contained in the Diesel Barbershop decision on which Beazley relied, the court found that it had been applied by another court in the Western District in Steiner Steakhouse in late December wherein the court ruled that the language required that there be "distinct, demonstrable, physical alteration of the property."  Further, the court refused to find any Civil Authority coverage, nothing that such coverage required that some physical damage occurs that results in governmental orders whereas here, the governmental orders were claimed to have caused the physical damage.  Finally, the court declared that a microorganism exclusion clearly applied, rejecting the insured’s contention that such exclusions only apply where the microorganism is already present on the insured’s premises.

A Manhattan café has lost its claim for business interruption coverage.  Judge Castel ruled in Broadway 104 LLC v. XL Insurance America Inc. No. 20-3813 (S.D.N.Y June 23, 2021) that the insured had not set forth a plausible claim for "direct physical loss," nor could it recover under Civil Authority provisions in the policy since there was no allegation of damage to nearby property and the governmental orders had not prevented the insured from accessing its premises.  The court also ruled that these claims were clearly subject to a virus exclusion in the XL policy, notwithstanding the absence of any "directly or indirectly" causation language in the exclusion.

Magistrate Noce has ruled in Hais, Hais and Goldberger, P.C. v. Sentinel Insurance Company, Ltd., No: 20-919 (E.D.  Mo. June 21, 2021) that a law firm may not proceed with its COVID business interruption suit by reason of a virus exclusion in the policy.  Notwithstanding the insured's argument that this exclusion was contained in the Computer and Media coverage part of the policy and therefore did not extend to these losses, the federal Magistrate noted that the endorsement in question specifically identified other coverage forms to which it applied, including "standard property coverage form."  

A state trial judge in Miami has ruled in Sukkah Miami Beach Acquisitions, LLC v. Zurich American Insurance Company, No: 20-017923-CA-44 (Fla. Cir. June 18, 2021) that a hotel operator's suit for business interruption claims must be dismissed owing to the insured's failure to demonstrate any direct physical loss or damage to its property.  

Appellate Filings

A group of Massachusetts restaurants has filed its opening brief in the First Circuit, arguing in American Food Systems, Inc. v. Fireman's Fund Ins. Co., No. 21-1307 by refusing to find "physical loss or damage" and rejecting the evidence that it presented that there might be virus particles on its property. 
Legislative Developments

The New Jersey Assembly voted 72 – 0 on June 21 to approve A.B. 4551 which would authorize insurers to begin offering coverage for a "global virus transmission or pandemic or both."  The bill authorizes the New Jersey Department of Banking and Insurance to "review and approve, as appropriate, any insurance policy rider submitted by an insured who decided to provide the coverage offered pursuant to Section 1 of this act."  Unlike prior legislative proposals, A.B.4551 does not retroactively mandate coverage under existing policies. 

Liability Claims

A federal judge in Baltimore ruled that week that the family of a Southwest Airlines flight attendant could not sue the airline for its claimed negligent failure to protect her against the virus.

Other cases of consequence

NINTH CIRCUIT                Duty to Defend/Brandt Fees (CA)

The Ninth Circuit has issued a memorandum opinion in Yahoo, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 19-16475 (9th Cir. June 23, 2021), ruling that the California District Court did not err in ruling that Yahoo was only entitled to 30 days interest for the defense costs that should have been paid by AIG pursuant to the deductible provisions of its liability insurance.  The court ruled that inasmuch as National Union would have initially paid all defense and settlement costs, and Yahoo would have reimbursed those costs within thirty days of receiving an invoice, Yahoo was not entitled to the full value of its defense and settlement costs, but rather, only the short-term deferral of those costs.  On the other hand, the court also rejected National Union’s cross-appeal that it should not recover Brandt fees since it had not apportioned the fees relating to covered vs. non-covered claims.  While acknowledging that Yahoo’s claim for 100% of its DJ fees was “ambitious,” the court ruled that Yahoo had supplied detailed billing records and the testimony of its general counsel that provided sufficient information to permit allocation.

ELEVENTH CIRCUIT        “Claims Made and Reporting”/Innocent Insureds (GA)

The Eleventh Circuit has ruled that a Georgia court erred in distinguishing between “claims made” and reporting provisions for an “innocent insured” clause in a professional liability policy.   Whereas, the Georgia District Court had distinguished between the Innocent Insured clause’s reference to notice and the separate reporting requirement for this "claims made and reported" policy, the Court of Appeals held in Maxum Ind. Co. v. Colliers International – Atlanta, LLC, No: 20-11964 (11th Cir. June 15, 2021) that there was no clear distinction between "nondisclosed" and "reporting" in the policy and that the District Court had therefore erred "in holding that the Innocent Insured Provision applies only in instances where another insured fails to comply with the notice requirements."           

FLORIDA                First Party/Water Exclusions/"Acts of Nature"

The Florida District Court of Appeal has ruled rust and corrosion are an “act of nature.”  In Dodge v. People's Trust Ins. Co. No. 4D20-1199 (Fla. App. June 2, 2021), the Fourth District declared that water damage to a home as a result of deterioration of cast iron pipes due to rust or corrosion was limited to $10,000 under a Limited Water Damage Coverage endorsement that set a sublimit for water losses that might otherwise be excluded as resulting from "human or animal forces or any act of nature."  The Court of Appeals declared that the ordinary meaning of the term "act of nature" is something that occurs naturally and does not require some sort of "uncontrollable or unpreventable event."

KENTUCKY            Bad Faith/Failure to Settle/Mediation

The Supreme Court of Kentucky has ruled in Mosley v. Arch Specialty Ins. Co., 2018 SC 0586 (Ky. June 17, 2021) that lower courts did err in dismissing bad faith claims against Arch Specialty and National Union for their claimed negligence in mediating wrongful death claims arising out of a mining fatality.  Notwithstanding the fact that Kentucky applies the same standard of good faith claims handling to third-party claimants as it does for policyholder claims, the Supreme Court held that in this case the third-party claimant had not shown that it suffered actual damage "that was outrageous because of the insurance carrier's conduct."  Further, the court ruled that the claimed liability of the insureds in this case was not "reasonably clear" as it was not "beyond dispute."  Similarly, the court ruled that there were issues of fact with respect to the claim liability of National Union's insureds.  The court took note of the fact that Arch had repeatedly offered its policy limit and that National Union ultimately settled the claims against its insured for $2,000,000 and declared that "mere delay in settlement does not rise to bad faith conduct."  Finally, the Supreme Court ruled that the trial court had not erred in preventing the insured from undertaking discovery until the underlying wrongful death action had been resolved thus, preventing her from developing evidence of claimed bad faith prior to the insurers filing dispositive motions. 

TEXAS                   Bad Faith/Discovery

The Texas Supreme Court has ruled in In Re USAA General Indemnity Company that an auto insurer may not categorically refuse to submit to a 30(B)(6) deposition in a UIM dispute where it is contesting both the amount of damages and the liability of the other motorist.  While refusing to grant USAA's motion to quash entirely, this Supreme Court did caution that the discovery should be proportional and may not intrude into matters that are privileged or beyond the scope of dispute.  The case was therefore remanded with instructions to the trial court to allow portions of USAA's motion to quash that had exceeded the appropriate scope for the deposition or dealt with privileged matters.  

OTHER developments of note

Inside the Insurance Industry

Legal & General Investment Management, a major European asset manager, announced this week that it is divesting its holdings in AIG and three other companies due to their ”insufficient action” to address the risks posed by climate change.

Jeff Bezos is reportedly having trouble buying insurance coverage for his upcoming vanity vault into space.

Cyber Update

MM Partner Dan Marvin will be among the panel of cyber-experts who will be speaking this Tuesday at 10 a.m. during Massachusetts Lawyers Weekly’s panel on new trends in ransomware claims.  
Third Party Litigation Funding 
Chief Judge Freda Wolfson issued an order last week amending the local rules of the U.S. District Court in New Jersey to require parties to disclose any involvement of third party litigation funding for their claims.  Judge Wolfson’s order also requires disclosure of whether the funding agreement requires the lender’s consent to litigation or settlement decisions.

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