Jul 16 2021

Insurance Law – 7/16/2021

PANDEMIC UPDATE                   

New Suits

Nordstrom’s filed suit in state court in Seattle last week, seeking recovery from XL, AIG, CNA and several other insurers.

Trial Court Rulings

Judge Feinerman dismissed COVID claims in three separate suits last week, ruling in CFIT Holding Corp. v. Twin City Fire Insurance Company, 20 C 3453 (M.D. Ill. July 8, 2021), G.O.A.T. Climb and Cryo, LLC v. Twin City Fire Insurance Company, No. 20-c-5644 (M.D. Ill. July 8, 2021) and Melcorp Inc. v. West American Insurance Company, No. 20-c-4839 (M.D. Ill. July 8, 2021)  that the speculative presence of virus particles on the insurance property did not cause "direct physical loss" since such particles can be easily removed with disinfectant and would, in any event, bring the claim within the scope of the policy's virus exclusion.  The court ruled that the insured could not on the one hand argue that the virus exclusion does not apply while on the other hand arguing that its premises were closed because there were virus particles on the property itself.  .  The court also declined to find substance to the insured's bad faith claim under Section 155 nor would it allow the insured to proceed with its allegation that the insurer was unjustly enriched by charging premium for coverage that did not apply to these claims. 

Judge Gettleman ruled in Radiological Society of North American, Inc. v. Those Certain Underwriters At Lloyd's, London, No. 21 C 1265 (M.D. Ill. July 8, 2021) that a medical association could not obtain “event cancellation” coverage for a conference that had had to cancel during the pandemic by reason of a "communicable disease" exclusion in the policy.  Following New York law, the District Court held that the exclusion in question, while somewhat confusingly written, unambiguously applied to losses caused by a pandemic.

Notwithstanding various federal opinions from the Eastern District of Pennsylvania declining to exercise jurisdiction over COVID disputes, a federal Magistrate has issued a report in State Street Restaurant Group Inc. v. Cincinnati Casually Company, No. 20-816 (M.D. Pa. July 8, 2021) recommending that the Plaintiff's Motion to Remand the Case to state court be denied as the insured's suit was not limited to claims for declaratory relief.  The Magistrate observed that it was Plaintiff's choice to combine independent claim for damages with its request for declaratory relief and that, having made this choice, it could not now argue that the court had only limited jurisdiction over this dispute.
Appellate Activity

AIG has filed its opposing brief in Circus Circus LV, LP v, AIG Specialty Ins. Co., No. 21-15367 (9th Cir.) arguing that Nevada courts would follow those of California in requiring demonstrable physical alteration of property for “direct physical loss” and in applying a “contamination” exclusion to the COVID-19 virus.

Philadelphia indemnity filed its opposition brief in Goodwill Industries of Central Oklahoma v. Philadelphia Indemnity Ins. Co., No. 21-6045 (10th Cir.) las week, urging the Tenth Circuit to follow the Eighth Circuit's recent ruling in Oral Surgeons precluding "direct physical loss" coverage for COVID claims.


SIXTH CIRCUIT                  Absolute Pollution Exclusion/Coal Dust (KY)

The Sixth Circuit has affirmed a Kentucky District Court's declaration that a pollution exclusion in a D&O policy precluded coverage for allegations that the insured criminally concealed high levels of coal dust in its mines that caused Black Lung disease.  In Barber. v. Arch Ins. Co., No. 20-6307 (6th Cir. July 7, 2021), the court rejected the insured's argument that coal dust is not a pollutant. The Court also rejected the insured's argument that the criminal proceedings did not arise out of the discharge or release of coal dust.  While acknowledging that there might be other causes, such as the insured's criminal conduct, the Court held that "arising from… does not require a direct proximate causal connection but instead merely requires some causal relation or a connection."

SEVENTH CIRCUIT           Farm Policy/Motorized Vehicles (IL)

  The Seventh Circuit has ruled in American Bankers Insurance Company of Florida v. Shockley, No. 20-1938 (7th Cir., Jun 28, 2021) that a farm owner's policy issued to an Illinois equestrian center that included both general liability insurance provisions and "farm coverage" extended coverage to an incident in which an employee driving a golf cart struck bystander.  While observing that the policy was ambiguous with respect to whether it was a "farm" or CGL policy and noted that language in the policy expressly excluding coverage for injuries arising out of the recreational use of motorized vehicles implied that coverage was intended for non-recreational uses as here.

MASSACHUSETTS             First Party/"Contaminated Soil" Exclusion

The Appeals Court has issued an unpublished decision in DIV Sumner Street LLC v. Great American E&S Insurance Company, 20-P805 (Mass. App. Ct. July 2, 2021) affirming a lower court’s ruling that costs incurred by the insured in excavating and removing asbestos‑contaminated soil from its property was excluded pursuant to an exclusion for cost based upon, arising out of, or related to any...CONTAMINATED SOIL.  It is excavated or otherwise disturbed and, thereafter, removed from the COVERED LOCATION.”  Despite the insured’s argument that the inclusion of the word “thereafter” suggested that only those costs that arise once the contaminant soil has been removed from a covered location are intended to be excluded, the court declared that “thereafter” was only used in this case as a point of emphasis and that “because of the laws of physics, contaminated soil cannot be removed from any location from which it originates without being excavated or otherwise disturbed prior to that removal.”

NEW YORK                        Reinsurance/Asbestos/Allocation

A New York jury has awarded $11 million to Utica Mutual in a long running dispute with its reinsurer over the insurer's payment of asbestos losses on behalf of a product manufacturer.  In Utica Mutual Insurance Company v. Clearwater Insurance Company, No. 13-1178 (M.D. N.Y. July 8, 2021), the jury found that Utica Mutual had not breached the implied covenant of good faith and fair dealing in the manner in which it allocated these Goulds Pump losses so as to exhaust various policy aggregates. 


Inside the Insurance Industry 

Karen Clarke & Co. estimates that insured losses from Hurricane Else may near $300 million.

The European Commission has lifted its objections to the acquisition of Willis Towers Watson by Aon, so long as the parties agree to carry out various commitments, including WTW’s agreements to sell Willis Re and other assets to Arthur J. Gallagher.  

Thirteen years after its acquisition of Safeco, Liberty Mutual has announced plans to further expand its footprint in the personal lines and small business insurance markets through the purchase of Ohio-based State Auto Financial Group for a reported $1 billion.

Applied Underwriters has announced plans to buy the U.S. specialty lines division of Generali Group.

HFS has named Carrie Brodzinski as the chief underwriting officer for its global specialty claims unit.  Before joining Hartford, Brodzinski was the head of global underwriting at Axa XL and XL Catlin.

Bad Faith Update 

Missouri’s Governor has signed H.B. 345, which amends Section 435.415 to protect liability insurers from arbitration awards in proceedings that they do not consent to or participate in. Section 2 of the legislation stipulates that:

2.  Any arbitration award for personal injury, bodily injury, or death or any judgment or decree entered on an arbitration award for personal injury, bodily injury, or death shall not be binding on any insurer, shall not be admissible in evidence in any lawsuit against any insurer for any party to an arbitration award, and shall not provide the basis for any judgment or decree, including any garnishment, against any insurer, unless the insurer has agreed in writing to the arbitration proceeding.  Any arbitration award for personal injury, bodily injury, or death or any judgment or decree confirming, modifying, or correcting any arbitration award for personal injury, bodily injury, or death shall not be subject to garnishment, enforcement, or collection from any insurer unless the insurer has agreed in writing to the written arbitration agreement.  Unless otherwise required by the insurance contract, an insurer's election not to participate in an arbitration proceeding shall not constitute, nor be construed to be, bad faith.  This section shall not apply to any arbitration required by statute or arising out of an arbitration agreement preceding the date of the injury or loss which is the subject of the arbitration.

The legislation also amends Section 537.065 to make clear that an insured may only enter into a Covenant not to Execute if the insurer has first been given an opportunity to accept coverage or withdraw its reservation of rights.

CLE to See. 

Boston partner Michael Aylward will be moderating a panel of prominent policyholder counsel on the “View from the Other Side” at DRI’s upcoming Bad Faith and Extracontractual Liability seminar in Chicago on July 22-24.

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