Jul 2 2021

Insurance Law – 7/2/2021


Having largely run the table in the U.S. District Courts over the past year, the insurance industry has won the first COVID-19 dispute to be considered by a federal appellate court.  In Oral Surgeons, P.C. v. The Cincinnati Ins. Co., No. 20-3211 (8th Cir. July 2, 2021), the Eighth Circuit ruled today that an Iowa District Court did not err in dismissing an oral surgeon’s business interruption claim as it had not pleaded any physical alteration to its property.

A state trial court ruled last week in Capri Holdings v. Zurich America Ins. Co., No. BER-L-00232021 (N.J. Super.) that the parent company of Versace and other fashion houses may not proceed with their suit for business interruption losses as they had failed to plead a claim for "direct physical loss or damage" to the insured premises.

In Riverside Dental of Rockford, Ltd., v. Cincinnati Ins. Co., No. 20‑50284 (N.D. Ill. June 29, 2021), Judge Reinhard granted Cincinnati's motion to dismiss, declaring that there is no "civil authority" coverage in this case because the Illinois Governor's orders did not prohibit access to the insured premises. 

Judge Russell ruled in Govinda, LLC d/b/a Hampton Inn Midwest City v. Columbia Mut. Ins. Co., No. 20-542 (W.D. Okla., June 28, 2021) that summary judgment should enter for Columbia Mutual in keeping with the Court's earlier analysis of similar issues in Goodwill Industries.  As it had in the past, the District Court held that a mere loss of use of property was not "a direct physical loss."  The court was unpersuaded by state trial judges who had ruled to the contrary in the Cherokee Nation and Choctaw Nation cases.  Further, the court ruled that these claims were subject to a virus exclusion, rejecting the insured's contention that its loss was not due to a virus.  The court denied the insured's motion for summary judgment, holding that there was no evidence of damage to any adjoining property sufficient to trigger "civil authority" coverage. 

Judge Frizzell has ruled in Till Metro Entertainment v. Covington Specialty Ins. Co., No. 20‑255 (N.D. Okla., June 28, 2021) that judgment should enter on the pleadings for the insurer in this case, declaring that the insured had not suffered "direct physical loss", notwithstanding the insured's allegation that virus particles were present on its property.  The court ruled that this allegation was not supported by facts, and, in any event, even if COVID-19 was present, it would not constitute "direct physical loss" because its presence could be eliminated by cleaning.  Finally, the court ruled that these claims were subject to an exclusion in the policy for damage due to the discharge, dispersal or release "of any pathogenic or poisonous biologic or chemical materials."   On the other hand, the court declined to give effect to the policy's pollution exclusion, as the insurer that the Special Form containing this exclusion applied to business income claims. 

Judge Kronstadt ruled in Madera Group LLC v. Mitsui Sumitomo Insurance USA Inc.,
 No. 20-7132 (C.D. Cal. June 25, 2021) that a chain of California restaurants had failed to adequately plead a claim for coverage for its business interruption claims.  Despite the insured's argument that New Jersey law should apply and that MSI should therefore be estopped from asserting its virus exclusion, the court declared that Section 1646 required that California law applied and that California has yet to adopt the theory of “regulatory estoppel."  The District Court declared that it could not be determined as a matter of law that allegations that it was "statistically certain" that that virus particles were on the insured’s premises did not result in “direct physical loss.” On the other hand, the court found that any resulting coverage was defeated by operation of the virus exclusion.  The court ruled that the exclusion was unambiguous and rejected the insured's argument that it did not apply since it did not specifically refer to "pandemics."  The court also declined to find that the "efficient proximate cause” doctrine precluded applicability of the exclusion or that "regulatory estoppel" provided any basis for disputing its application.  The suit was therefore dismissed with leave to amend.

Judge Jordan ruled in The Kirkland Group v. Sentinel Insurance Company, Limited, No. 20‑496 (S.D. Miss. June 29, 2021) that the insured's business interruption claims were excluded from coverage owing to an exclusion for loss due to any cause the Court contributes concurrently or in any sequence to the loss … presence, growth, proliferation, spread or any … virus." 

Jenner & Block filed another amicus brief for the Restaurant Law Center, arguing in the First Circuit that the Court of Appeals should reverse a Massachusetts District Court's declaration that American Food Systems and its member restaurants are not entitled to business interruption coverage.

Tapestry Inc. has sued Factory Mutual in state court in Maryland seeking coverage for a claimed $1 billion dollar loss for lost revenue involving its Coach and Kate Spade companies.


SECOND CIRCUIT            Estoppel/Reservation of Rights Letters  (NY)

The Second Circuit has ruled in Philadelphia Ind. Ins. Co. v. Yeshibat Beth Hillel Krasna Inc., No. 20-1413 (2d Cir. 2021) that a general liability insurer was estopped from disputing that its policies covered an auto accident by reason of its failure to issue a timely disclaimer of coverage as required by Section 3420(d).  The Second Circuit declared in a memorandum opinion that New York requires that denials be issued "with a high degree of specificity on the grounds on which the disclaimer is predicated" and that Philadelphia Indemnity's reservation of rights letter, which only stated that the loss “might or might not be covered” failed to meet this standard.

SEVENTH CIRCUIT          Auto/Priority of Coverage (IL)

  In a dispute between two commercial auto insurers with respect to the priority of coverage for serious personal injury claims arising out of an accident involving a municipal ambulance, the Seventh Circuit has ruled in Continental Western Ins. Co. v. Country Mutual Ins. Co., No. 20-2962 (7th Cir. June 24, 2021) that Country Mutual's policy was primary and that Continental Western was therefore entitled to be reimbursed for all defense costs that it had paid with respect to the underlying actions.  The court found that it was the intention of the parties and the understanding of both insurers that this ambulance was owned by the joint Service founded by two local fire districts and not individually by the Town of Hamil Fire Department, which was the named insured under the Continental Western policy.

NINTH CIRCUIT                Duty to Defend/Damages/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.

ALABAMA                        Auto/UIM/”Covered Person” (AL)

The Alabama Supreme Court has ruled in Jay v. USAA, 1190941 (Ala. June 18, 2021) that the claimant was not entitled to recover UM benefits from USAA owing to the fact that he was not a "covered person" under an auto policy that had been issued to his father-in-law.  The claimant had argued that he was entitled to coverage owing to the fact that his wife was insured under this policy.  However, the court observed that she was not a "named insured" and pointed out that the claimant had mistakenly read an insurance card which referred only referred to "name of insured" for his spouse.  Likewise, the court declined to find ambiguity based upon a claimed conflict between the "name of insured" language on this insurance card and the identification of his spouse as an "operator" on the declarations page of the USAA policy.

CALIFORNIA                        Insurer Insolvencies

The California Court of Appeal has ruled that a San Francisco Superior Court erred in ruling that injunctive orders precluded various claimants from proceeding in New York against an insolvent California insurer.  In In Re Castlepoint National Insurance Company, A158646 (1st Dist. June 15, 2021), the First Appellate District ruled that "absent a substantial risk of interference with the commissioner or the liquidation proceedings, if the claims are not asserted against Castlepoint and if the commissioner could not have asserted the claims on behalf of Castlepoint, then they are not barred by the injunctions preventing interference with the commissioner's possession or management of Castlepoint's assets."

FLORIDA                               First Party/Post-Loss Factual Investigation

The Florida District Court of Appeal has ruled that a trial court erred in declaring that a property insurer’s initiation of appraisal proceedings. waived its right to seek post-loss information.  In Safepoint Ins/. Co. v. Hallet, Case no. 5D20-206(Fla. DCA5, June 25, 2021), the Fifth District ruled that the insured's right to sue was dependent on its satisfaction of all policy conditions and that the insurer's right in this case to seek additional information concerning the claimed property loss was not dependent on the status of appraisal proceedings. Nevertheless, the Fifth District harshly criticized the abusive demeanor of the insurer's counsel in his examination of the insured and stated that it was referring the matter to the Florida Bar Association for further investigation.  

MISSOURI                              Late Notice

A federal district court has ruled that an insured’s untimely notice precluded its insurer’s duty to defend an Oregon trademark infringement claim.  In Cincinnati Insurance Company v. Jacob Riger & Co. LLC., No. 20-177 (W.D. Mo. June 25, 2021), Judge Wimes. declared that the insurer suffered prejudice by reason of being denied any opportunity to defend, investigate the claim, participate in settlement negotiations or select trial counsel.  The District Court separately ruled that Cincinnati had no duty to defend a second proceeding in Missouri against Riger's parent company, as the parent company was not an insured under its policy.  In a separate ruling, Judge Wimes declared that Cincinnati had been in contempt of court by reason of its efforts to challenge various discovery decisions and must reimburse the insured for the legal fees in seeking sanctions.

OTHER developments of note

Inside the Insurance Industry 

A new report from S&P Global Inc. predicted this week that the P&C industry will see a 6% increase in net premium in 2021 and a combined ratio of 99.7 for the year.   The report declared that “the U.S. P&C industry has not produced combined ratios of less than 100% for four consecutive calendar years in the 25 years for which S&P Global Market Intelligence has collected statutory data.”

A.J. Gallagher reported this week that the RagnarLocker ransomware attack on its systems last September compromised the personal information of some policyholder clients.

Florida Governor Ron DeSantis has vetoed Senate Bill 54, which would have repealed Florida’s No Fault insurance law and instead impose a new requirement that all motorists buy insurance with limits of 25/50 for bodily injury and 10k for property damage. Critics had expressed concern that the legislation would have increased the number of uninsured drivers in the Sunshine State.

New Coverage Litigation

KDK-Tech has sued Navigators Insurance in Alabama seeking coverage for opioid litigation claims.

Sexual Abuse Update

The Boy Scouts of America have reached a tentative agreement with firms representing 60,000 claimed victims of sexual abuse to resolve their claims through a $850 million settlement fund.  According to Insurance Journal, the settlement gives the claimants the option to oppose any reorganization plan that includes a $650 million settlement with BSAs insurer, the Hartford Casualty Insurance Company.

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