Jul 30 2021

Insurance Law – 7/30/2021

PANDEMIC UPDATE

Trial Court Rulings

Another federal judge in Massachusetts has ruled for a property insurer.  In Albertina Guzman Picot v MAPFRE Ins. Co., No. 20-11261 (D. Mass. July 27, 2021), Judge Mastroianni ruled that, consistent with other opinions of the federal judges in Massachusetts, the insured nail salon had failed to present a plausible claim for “direct physical loss” and that these claims were in any event excluded as resulting directly or indirectly from the COVID 19 virus.  MAPFRE is represented by Morrison Mahoney’s Bill Schneider and Michael Aylward.

  A California judge has dismissed a film studio’s effort to obtain coverage for COVID losses suffered by Ben Affleck’s Hypnotic film.  In Hoosegow Products, Inc. v. Chubb National Ins. Co., No. 20-8253 (C.D. Cal. July 16, 2021), Judge Fitzgerald accepted the insured’s stipulation to dismiss the case without prejudice.

Federal Magistrate Kim has granted a property insurer's motion to dismiss in CTT Comedy v. Nautilus Ins. Co., No. 21-3064 (N.D. Cal. July 13, 2021) holding that "direct physical loss of property does not include the temporary loss of use due to governmental stay at home orders."  Further, the court ruled that coverage was subject to the virus exclusion in the Nautilus policy. 

Having twice dismissed a medical provider’s suit with leave to amend, Judge Fitzwater now dismissed the case with prejudice.  In Vandelay Hospital Group v. Cincinnati Ins. Co., No. 20-1348 (N.D. Tex. July 13, 2021), the court ruled that insured had failed to plead a claim for direct physical loss particularly in as much as any virus particles present on its property could be easily removed by cleaning.  In a separate order, Judge Fitzwater dismissed an insured dentist’s claim, ruling in Christy Jo Berkseth-Rojas v. Aspen American Insurance Company, No. 20-948 (N.D. Tex. July 13, 2021) that she had failed to plead a plausible basis for business interruption coverage, nor was the dentist's loss covered as involving "sue and labor." 


Judge Jennings has granted summary judgment in Goodwood Brewing LLC v. United Fire Group, No. 20-306 (N.D. Ky. July 13, 2021), holding that the insured had failed to plead a claim for direct physical loss to its property, nor was there any basis for civil authority coverage since there was there was no evidence that the insured had been unable to gain access to its premises as the result of governmental orders.  Accordingly, the court rejected the insured's argument that it had a reasonable expectation to coverage owing to the fact that the policy "explicitly covers loss in the absence of damage."  The court ruled that under Kentucky law a reasonable expectation only arises to resolve ambiguity and therefore did not apply here.

New Suits

The venerable American Museum of Natural History filed suit in state court in New York last week, asserting that Affiliated FM has wrongfully refused to pay its COVID losses based on exclusions for contamination and communicable diseases. 

NEW CASES OF CONSEQUENCE

FIFTH CIRCUIT                 Cyber/"Publivation"/Invason of Privacy

In a major victory for policyholders, the Fifth Circuit has ruled that a Texas District Court erred in refusing to find liability insurance coverage for losses resulting from a data breach of a hotel chain's computer systems.  In Landry's Inc. v. The Insurance Company of the State of Pennsylvania, No 19-20430 (5th Cir. July 21, 2021), the court held that there was a "publication" of private information as to trigger the policy's "personal and advertising injury" coverage when malware that hackers had installed on the hotel chain's computer systems captured and transmitted confidential information from magnetic strips on credit cards used by hotel and casino customers.  The court noted that the policy referred to "publication, in any manner" and therefore implicitly intended that "publication" receive a broad construction.  The court also took note of the fact that the term "publication" is used both with respect an invasion of privacy but also as to defamation wherein it had been held to the coverage so long as there was any communication from one party to another.  Applying these general principles to the facts at issue, the court found that there was clearly a "publication" since the malware installed on the insured's computer system had communicated private information belonging to customers to the hackers.  Further, the court found that the hackers had published this credit card data themselves by using it to make fraudulent purchases.  In both instances, the disclosures "exposed or presented the credit card information to view" and therefore, resulted in a "publication" within the common dictionary definition of that term.  The court also rejected ICSOP's argument that the policy's coverage for injuries "arising out of a violation of a person's right of privacy" only applied to tort damages resulting from an invasion of privacy and not, as here, sums that the hotel chain was obliged to pay to credit card companies pursuant to its contractual arrangements with them.  The court dismissed this latter argument as resting on "salami slicing distinctions."  

ELEVENTH CIRCUIT        First Party/Hurricane Damage (FL)

The Eleventh Circuit has ruled in St. Louis Condominium Association, Inc. v. Rockhill Ins. Co. No. 19-12716 (11th Cir. July 20, 2021) that a Florida District Court did not error in finding coverage for damages that a condominium complex suffered as a result of Hurricane Irma but that the court had also not errored in only awarding a fraction of the amount sought by the Condominium Association.  The court ruled that the District Court had not erred in striking the testimony of the insurer's expert, given the insurer's unreasonable failure to produce the expert for deposition, before the discovery deadlines expired.  Further, the court ruled that the trial court had not erred in denying Rockhill's effort to disqualify the expert testimony of the insured's experts, holding that their testimony satisfied the gatekeeping standards set forth by Daubert.  The court declined to re-visit the District Court's earlier denial of Rockhill's motion for summary judgment, declaring that this was inappropriate, inasmuch as the case had gone forward through a full trial, nor had Rockhill properly preserved any challenge to the denial of its motion for judgment as a matter of law.  On the other hand, the court also rejected the Association's cross-appeal, finding that there was adequate evidence to support the jury's finding of pre-existing damage to the condominium complex and that the policy's 3 percent hurricane deductible was not rendered unenforceable, because Rockhill had failed to obtain approval from the Florida Office of Insurance Regulation under Fla. Stat. § 627.701(2).


FLORIDA                          Auto/Fraud/EUO

The Florida District Court of Appeal has ruled that a trial court erred in granting a policyholder's motion in limine to preclude any suggestion of fraud, including the insured's failure to appear for an examination under oath.  In Safeco Ins. Co. of Illinois v. Barthelmy, 4D20-1045 (Fla. DCA4 July 14, 2021), the Fourth District ruled that the excluded evidence was directly related to the core issue of the case, namely whether the insured's failure to cooperate or appear at his EUO prevented Safeco from conducting a meaningful fraud investigation.  While acknowledging the possibility that a reference to fraud might have been prejudicial to the insured, the court ruled that the probative value of this highly relevant evidence outweighed the danger of unfair prejudice.
 
ILLINOIS                          Auto/UM/Collateral Estoppel

The Illinois Appellate Court has ruled that an automobile liability insurer was precluded from pursuing claims against another insurer to support its contention that the motorist that struck its insured was not an uninsured motorist.  The First District ruled in American Freedom Insurance Company v. Garcia, 2021 IL App (1st) 200231 (Ill. App. Ct. June 25, 2021) that the absence of coverage had already been established by an earlier proceeding between that insurer and its policy holder that was biding in this case, notwithstanding American Freedom's contention that its due process rights were violated by not being able to challenge that finding and by reason of the fact that it was a necessary party to the earlier litigation, but had not been included as a party nor was it in privity with any party such that it would be collaterally estopped by the outcome of the litigation. 


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

In the face of fierce federal opposition in the United States, Aon announced this week that it is abandoning its effort to merge with Willis Towers Watson.  At the same time, Aon has agreed to pay a $1 billion termination fee to WTW.

An Atlanta jury returned a guilty verdict last week against former Georgia Insurance Commissioner Jim Beck on 37 counts of fraud and money laundering for stealing more than $2.5 million from the state-chartered Georgia Underwriting Association.

Reuters reported last week that AIG has set September 14 as its global “return to work” day for all Company employees.


W.R. Berkley’s net income in the second quarter of 2021 rose 233% to $237.2 million.  In addition to a significance increase in net premiums written , the Company’s combined ratio improved to 89.7% from 98.7% in Q2 2020.

Chubb announced this week that its second quarter earnings had yielded a net profit of $2.27 billion compared with a net loss of $331 million in Q2 2020. 

New Coverage Litigation
                  
Utica Mutual, having recently received a $11 million jury verdict from Clearwater Insurance for reinsurance claims involving asbestos losses arising out of its insured Goulds Pumps, has now filed suit against Munich Re alleging that it is entitled to recover $2.7 million pursuant to various certificates that American Re issued reinsuring primary and umbrella liability policies that were issued to Goulds Pumps during the 1970s.  
 

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