Jul 23 2021

Insurance Law – 7/23/2021


Trial Court Rulings

Judge Autrey has ruled in United Hebrew Congregation of Saint Louis v. Selective Ins. Co. of America, No. 20-892 (E.D. Mo. July 7, 2021) that a synagogue's property had not suffered direct physical loss in light of the analysis of that term that the 8th Circuit recently adopted in Oral Surgeons.  As a result, the court did not address the applicability of the policy's virus exclusion.

In granting the insurer's motion for judgment on the pleadings, Judge Wolfson has ruled in T&L Catering, Inc. v. the Hanover Insurance Group Inc., No. 20-7934 (D.N.J. July 14, 2021) that the insured’s loss resulted from the COVID-19 virus.  In rejecting the insured's contention that the proximate cause of these losses was the government's Closure Orders, Judge Wolfson declared that whereas these orders might have been the immediate cause of the insurance losses, they were not the "predominant cause,"  inasmuch as, but for this pandemic, the State of New Jersey would never have issued such orders.

Judge Crawford has ruled in Salvatore's Italian Gardens Inc. v. Hartford Fire Ins. Co., No. 20-659 (W.D.N.Y. July 7, 2021) that a hotel and restaurant in western New York could not pursue its claim for business interruption coverage notwithstanding the insured’s claim that its Civil Authority coverage was triggered by Governor Cuomo's orders.  The District Court ruled that the complaint did not plausibly allege that these orders were issued in response to physical loss or damage in the vicinity of the insured's premises or that those orders prevented the insured from accessing its premises.  Moreover, the court ruled that the policy's Special Business Income coverage did not apply since there had been no direct physical loss or damage to the insured premises.  

A state trial court has ruled in Jenkinson's South Inc. v. Westchester Surplus Lines Ins. Co., Ocean County No. L-1607-20 (N.J. Super. July 2, 2021) that the insured had failed to establish that its property had suffered direct physical loss.  The court found unconvincing a contention by an employee that he had contracted COVID-19 while working on the premises.  Moreover, the court found that the insured had failed to show that any concentration of COVID-19 virus particles on the property had rendered it unsafe or inhospitable and that the case was therefore distinguishable from the Federal District Court's ruling in Gregory Packaging.  The court also ruled that each of the polices at issue contained a "loss of use" solution.  Finally, the court declared that various different "virus", "pollution" and "contaminate" exclusions applied.  The court rejected the insured's argument that even though the word "virus" appeared in certain of these exclusions, they were only intended to apply where they were subject to federal environmental statutes such as the Clean Air Act or RCRA

Judge Fitzgerald issued a brief opinion in MGA Entertainment Inc. v. Affiliated FM Ins. Co., No. 20-10499 (C.D. Cal. July 2, 2021) granting Affiliated FM's motion for judgment on the pleadings declaring that the insured's inability to use its property did not amount to "direct physical loss of or damage to property."

Judge Statom has ruled in In-N-Out Burgers v. Zurich American Ins. Co., No. 20‑01000 (C.D. Cal. July 7, 2021) that the allegations that there were virus particles on the insured's fast-food restaurants were not only conclusory but failed to demonstrate that actual physical damage had been caused to the property.  For similar reasons, the court refused to find that the Contingent Time Element coverage or Decontamination Cost coverages applied since there was no direct physical loss.  The case was therefore dismissed with leave to amend.

A judge in the Lackawanna Court of Common Pleas has denied an insurer’s demurrer to a COVID BI suit, ruling in Brown’s Gym v. The Cincinnati Ins. Co,, No. 20-3113 (Pa. Ct. Cm. Pl. July 13, 2021) that allegations that virus particles were present on the insured’s property were sufficient to support a claim of “direct physical loss.”  Further, the court ruled that language in the Cincinnati policy had created a reasonable expectation of coverage on the part of the insured.  In a 61 page opinion that surveys the numerous state and federal rulings to date in Pennsylvania, Judge Nealon concluded that an insured could pursue claims for coverage based on allegations that virus particles that were invisible to the naked eye had substantially reduced he utility of the insured’s property.  The court also asserted that the fact that the policy contained 26 different first party exclusions but lacked any virus exclusion implied an intent that such losses be covered.

Appellate Activity

The University of Pennsylvania's COVID Coverage Litigation Tracker reports that of nearly 2,000 lawsuits that were initially filed, over five hundred have been resolved through motions to dismiss or for summary judgment, of which more than 200 are now on appeal.  More than 80 percent of these are pending in the federal Circuit Courts of Appeal with the Ninth Circuit (56 appeals) leading the way, followed by the Third Circuit (39), the Eleventh Circuit (17) and the Sixth Circuit (16) far behind.  Of the 49 appeals pending in state courts, California leads the way with 9 followed by Pennsylvania (7), New Jersey (6), and Ohio (6).  Of this latter group, only one case is pending in a state Supreme Court (Ohio).

Lloyds has filed an opposition brief in the Eleventh Circuit, asserting that a Florida District Court did not err in refusing to find coverage for a business interruption losses alleged by a Palm Beach restaurant.  In SA Palm Beach, LLC v. Certain Underwriters of Lloyds, London, No. 20‑14812 (11th.), Lloyds asserts that there was no evidence or allegation of structural alteration or damage to support a finding of “direct physical loss."  The brief further argues the judgment was in any event properly granted in light of various exclusions for losses resulting from viruses, microorganisms and pollutants.

A Des Moines restaurant has appealed an Iowa District Court’s declaration that it has no coverage for COVID-19 claims asserting in its opening brief in Lisette Enterprises, Ltd. v. Regent Ins. Co., No. 21-2238, that the District Court both ignored Iowa's well-established principles of contract interpretation as well as Section 4 of the new Restatement of Law, Liability Insurance, in failing to give separate meaning to "physical loss" and "damage to property."  The brief further argues that the court improperly gave effect to the policy's virus exclusion despite the fact that there was no claim that the insured premises were closed as the result of the known or confirmed premise of virus particles.  Finally, the brief asserts that the insured had a reasonable expectation of coverage for said losses that the lower court ignored.

New Suits

Stonegate Group, which operates the popular Slug & Lettuce restaurant chain and hundreds of pubs through the United Kingdom, has sued MS Amlin Ltd., Liberty Mutual Insurance Europe SE and Zurich Insurance Plc, seeking over a billion in pandemic related business losses.


EIGHTH CIRCUIT             Auto/UIM/Policy Interpretation (MO)

The Eighth Circuit has ruled in Micheel v. American Family Mutual Ins. Co., No. 20-1800 (8th Cir. June 17, 2021) that a Missouri District Court erred in failing to grant an offset to an auto insurer for a policyholders claim for UIM benefits.  The Court of Appeals ruled that the trial court had erred in finding ambiguity based on a summary of the renewal covering, noting that such summaries are similar to declaration pages which are not controlling where the relevant policy language clearly establishes otherwise.

CALIFORNIA                    D&O/Contribution Claims

A District Court has ruled that allegations that corporate directors abetted various fraudulent transfers and engaged in civil conspiracy by approving an underlying corporate transaction triggered coverage under AIG's D&O policy and that AIG had failed to fulfill its policy obligations by failing to advance its $1 million Side A limit.  In XL Specialty Ins. Co. v. AIG Specialty Ins. Co., No. 20-6540 (C.D. Cal. July 13, 2021), Judge Phillips declared that AIG must reimburse XL for sums that it had paid pursuant to an excess policy, rejecting AIG's contention that XL was primarily lia
ble for the defense cost of its own insureds and could not therefore obtain subrogation or contribution from it.

FLORIDA                          Tripartite/Malpractice/Standing

In light of the Florida Supreme Court’s recent opinion reinstating an insurer’s E*O claim against the insured’s defense counsel, the Fourth District of the Florida Court of Appeal has issued an order in Arch Ins. Co. v. Kubicki Draper, LLP , 4D17-2889 (Fla. DCA4 July 14, 2021) remanding the case to the trial court for further proceedings.

NEVADA                           Umbrella Insurance/Exclusions/Disclosure

The Nevada Supreme Court has ruled that language in a personal umbrella liability policy precluding coverage for damages that are "payable to any insured" does not contravene state law nor is it unenforceable merely because the insured claimed to have been unaware of it.  As a preliminary matter, the court ruled in Sciarratta v. Foremost Ins. Co., 79604 (Nev. July 8, 2021)that this exclusion did not conflict with the auto insurance coverage requirements contained in NRS 687B.147, which applies to "a policy of motor vehicle insurance covering a private passenger car" inasmuch as umbrella liability policies are not "motor vehicle insurance" under Nevada law.  Further, the court refused to adopt the insured's argument that the exclusion was unenforceable, because he had not received any prior written notice of its inclusion in light of the fact that the insured in this case has not presented an affidavit or other direct evidence of such lack of notice.  The court ruled that evidence that the insurer presented, that he had not received a copy of the policy in March 2015 was insufficient to carry the insured's burden of proof, since he had not shown that he was never sent any earlier policy containing this language.  The court declared that "While we agree that an insurer's complete failure to disclose a policy exclusion might make the exclusion unenforceable, we hold that an insured who alleges that an exclusion was not disclosed must make that allegation in an affidavit rather than rely solely on the arguments of counsel."

NEW YORK                      Hired Contracts Exclusion/Assault and Battery

A federal district court has ruled in 7951 Albion LLC v. Clear Blue Specialty Ins. Co., No. 19-7309 (E.D. N.Y. July 9, 2021) that Contracted Security and Independent Contractors Exclusions precluded any obligation to defend or cover allegations that security services hired by a nightclub operated were negligent in failing to prevent a third-parties' assault.  While finding that it could not determine that these losses necessarily "arose out of" the performance of services by these security contractors, the court held that language in the exclusion extending to losses "in any way related to" the performance of services clearly applied here.  Further, the Court declined to rule that these exclusions rendered illusory the coverage provided by a Supplemental Assault and Battery Endorsement in the policy.  


Inside the Insurance Industry

A new Swiss Re Sigma report predicts that global insurance premiums will experience robust growth in the near future, rising 3.3% in 2021 and 3.9% in 2022, and may result in record total premium of $7 trillion in 2022.  The report cautions, however, that inflationary trends may hinder growth.

Cyber Update

S&P Global Ratings warns in its new S&P’s “Cyber Risk in A New Era: The Increasing Credit  Relevance of Cybersecurity” report that cyber-exposures are becoming more important in its assessment of the financial solvency and security of insurers.

Wisconsin Governor Tony Evers has signed Act 73, which adopts the NAIC model proposals requiring insurers to adopt cyber security measures to protect confidential policyholder information.  The legislation requires insurers doing business in Wisconsin to adopt information security programs within the next year and to conduct risk assessment analyses to protect against cyber attacks and hacking.  The law also requires insurers to develop incident response plans and procedures for giving notice in the event of data penetrations.

IBNR Dept.

One of the surviving unit owners at the Champlain Towers condominium complex in Surfside, Florida has filed suit against the condominium association and its insurers seeking a declaration that it is entitled to coverage for the loss to his property following the building's collapse on June 24th.

The Texas Court of Appeals has dismissed a lawsuit that Houston Astros fans brought against the team for shame and anguish resulting from the revelations of sign stealing following the Astros’ 2015 season.  The court ruled that a ticket to a baseball game entitles a fan to a seat and a view of the game but does not give them the right to sue for damages “based on how a sports team plays the game."

Must See CLE

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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