Jul 9 2021

Insurance Law – 7/9/2021

PANDEMIC ROUNDUP

Having previously denied Factory Mutual's motion to dismiss, Judge Mazzant has now ruled in Cinemark Holdings Inc. v. Factory Mutual Ins. Co., No. 21-0011(E.D. Tex. June 29, 2021) that Factory Mutual's initial disclosures must include numerous categories of underwriting and drafting history materials, notwithstanding Factory Mutual's contention that such discovery would be unduly burdensome and involves issues that are irrelevant to this dispute.  The court ruled that the drafting history of the subject policy might shed light on which interpretation is the most reasonable.  Further, the court ruled that Factory Mutual's claims manuals would be relevant to whether it followed industry custom and its own internal guidelines for investigating Cinemark's claim.  The court rejected Cinemark's effort to sanction Factory Mutual for not producing these materials in its initial disclosures, however, and gave the insurer 30 days to do so.

Judge Rothstein has issued a brief ruling in Seven, LLC v. Ace Property and Cas. Ins. Co., No. 21-432 (W.D. Wash. July 1, 2021) holding that a hair salon was not entitled to proceed with its suit against its property insurer in light of an earlier omnibus order dismissing similar claims as failing to allege “direct physical loss” and as being subject to virus exclusions.

Judge Gilmore has issued an order in Kennard Law P.C. v. National Fire Insurance Company Hartford, No. 20-2534 (S.D. Tex. July 2021) adopting Magistrate Bryans’ June 21, 2021 report and recommendation that the case be dismissed in the absence of any direct physical loss to support the insured law firm’s claims.

Fireman’s Fund has sued the Walt Disney Company in the Los Angeles Superior Court seeking a declaration that it does not owe coverage for hundreds of millions of dollars in lost revenues attributable to the COVID-19 pandemic.  In Fireman’s Fund Ins. Co. v. The Walt Disney Company, No. 21 CV 24387 (Cal. Super.), Fireman’s Fund alleges that these claims fall outside the scope of its Motion Picture/Television Producers Portfolio policy as not involving cast, civil authority, imminent peril or producer’s indemnity coverages.

Sportswear manufacturer Puma has sued Zurich in the federal district court in Chicago alleging in Puma North America Inc. v. Zurich American Insurance Company, No. 21-3548 (N.D. Ill.) that its property insurance is triggered by the presence of virus droplets in its manufacturing premises.

OTHER CASES OF CONSEQUENCE

 
EIGHTH CIRCUIT                       Auto/UIM/Limits (MO)

  The Eighth Circuit has ruled that a Missouri District Court erred in ruling that an auto insurer owed a separate $1 million "per person" limits for three family members who died or were seriously injured in a collision with an uninsured motorist.  In Brazil v. Auto-Owners Ins. Co., No. 20-2764 (8th Cir. July 2, 2021), the court held that the policy unambiguously stated that accidents involving two or more individuals was subject to a $1 million aggregate, and that the trial court had therefore erred in declaring that coverage was available based upon the "per person" limit in the policy.  The court rejected the insured's argument that the "subject to" language in Section 4(b) of the limits language was rendered superfluous by this analysis or that Sections 4(a) and 4(b) could have been written as one provision so as to eliminate any ambiguity.  The court declared that "the canon against surplusage does not require courts to read a contract in a way that contains no surplusage” particularly as there was no reasonable interpretation of this language that did not contain some surplusage.

FLORIDA                                    Insurable Interest/Standing

The Florida District Court of Appeal has ruled that a property owner's decision during the term of its policy to transfer property ownership to a limited liability company in which the named insured only had a 25 percent interest did not preclude it from having an insurable interest to sue for vandalism losses that were subsequently suffered at the subject property.  In Cole v. Citizens Property Insurance Corp. 3D19-1830(Fla. Dca3, June 23, 2021), the Third District ruled that a trial court had erred in dismissing the plaintiff's suit for lack of standing, holding that under Florida law, whether a claimant has an insurable interest is not determined by any conceptions of title but rather whether the insured has a substantial economic interest in the property.  In this case, the Court ruled that the plaintiff had alleged sufficient facts to sustain a claim of an economic interest and that such allegations presented a fact issue that should have precluded the case from being dismissed at this early stage. 

ILLINOIS                                     Procedure/Disclosure/Auto Policies

The Appellate Court has affirmed a trial court's dismissal of a putative class action against State Farm for an alleged policy of failing to disclose the existence of umbrella coverage to third-party claimants.  In Kim v. State Farm Mutual Automobile Ins. Co. 2021 IL App. (1st) 200135 (Ill. App. June 30, 2021), the First District ruled that Section 143.24(b) of the Illinois Insurance Code, which requires that "any insurer insuring any person or entity against damages arising out of a vehicular accident shall disclose the dollar amount of liability coverage under the insured's personal private automobile liability insurance policy" does not apply to umbrella policies.  Further, the court ruled that the third-party claimant in this case had failed to present sufficient evidence to sustain its claims for fraud and negligent misrepresentation by State Farm. 

LOUISIANA                               Auto/UM/Bad Faith

The Louisiana Supreme Court has ruled in Baack v. McIntosh, No. 2020-C-01054 (La. June 30, 2021) that an insured's original waiver of UM coverage in its application for coverage did not remain in effect through subsequent renewals in which the insured had failed to check off the waiver box for UM coverage.  The Supreme Court agreed with the immediate appellate court which had declared that proof of an insured's rejection of UM coverage is satisfied solely by the existence of a properly completed and signed UM form, and that the insured's intent is irrelevant in making this determination.  The court rejected Zurich's argument that the UM forms were without legal effect due to the absence of initials in the blanks provided, which rendered them incomplete, as well as the fact that there was no intent on the insured's part to alter the prior rejection of the UM coverage from Zurich.  Rather, the court ruled that pursuant to Louisiana's auto insurance statutes, a signed and dated UM form with no selection equates to a selection of UM coverage.   However, the Supreme Court declined to award bad faith damages against Zurich, however, finding that it had reasonable basis to dispute the issue of UM coverage in light of prior appellate jurisprudence in Louisiana.

MASSACHUSETTS                       Agents and Brokers E&O/Statute of Limitations

In an unpublished opinion, the Massachusetts Appeals Court has affirmed a trial court’s ruling that a school waited too long to sue its insurance broker for telling it back in the 1960s and 1970s but it need not retain insurance policies for more than seven years.  In this case, where the school had thereafter been unable to locate insurance policies to respond to sexual abuse claims, the Appeals Court ruled in Fessenden School vs. Hub International, Ltd., 20-P-1171 (Mass. App. Ct. July 1, 2021) that the school began to suffer “appreciable harm” in 1995 or 2011-2012 when it had to hire consultants to documents its missing policy and not in more recent years when some insurers denied coverage for sexual abuse claims based on missing policies.

OKLAHOMA                                    Auto/UM/Public Policy

On a certified question from the Tenth Circuit, the Oklahoma Supreme Court has ruled in Lane v. Progressive Northern Ins. Co., 2021 OK 40 (Okla. June 29, 2021) that an exclusion in an auto policy eliminating UM coverage if the insured can obtain recovery to the statutory minimum limits was against public policy.  In light of language in 36 O.S. § 3636 requiring insurers to supply uninsured-motorist coverage in addition to standard liability coverage, the court declared that Progressive's UM exclusion "violates public policy because an insurer in Oklahoma cannot deprive its policyholder of uninsured-motorist coverage for which a premium has been paid through an exclusion that effectively erases its policy on which choice to purchase that coverage in the first place."
   


OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

A new Optis Partners report states that the 339 mergers and acquisitions among agents and brokers during the first half of 2021 were up 18% over 2020.

Marsh recently reported that its computer systems were breached at the end of April, compromising some confidential information including Social Security and federal tax ID numbers.

Aon has sued Marsh in state court in Miami and has more recently sought a temporary restraining order to bar the alleged poaching of key employees and information about clients and trade secrets.

Cyber Update 


The American Property Casualty Insurance Association (APCIA) last week promulgated a set of Guiding Principles for cyber extortion/ransomware claims that are intended to map out a strategy partnering with the business community and government agencies that have parallel interests in encouraging stronger cyber security and developing strategies to prevent or mitigate cyber attacks so as to complement the role of cyber insurance.  The principles state that "insurance is an important economic recovery resource for victims of ransomware attacks.  Prohibitions on the reimbursement of legal ransom payments presents potential unintended consequences such as limiting a meaningful risk management resource."  The principles conclude "insurance can play a role in enhancing resiliency, but ultimately cannot cure the criminal behavior that perpetuates the ransomware problem.  For this reason, there must be a holistic approach that focuses on the core drivers of the criminal behavior utilizing the expertise of all stakeholders."  
 
IBNR Dept. 

Five suits have now been filed in the wake of the Champlain Towers collapse.  In a telephonic hearing last week, the Circuit Court judge overseeing the litigation was told that the  condo association had maintained $30 million in property insurance and $18 million in liability coverage, which Judge Hanzman observed was unlikely to be enough.
 

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