Aug 13 2021

Insurance Law – 8/13/2021


Trial Court Decisions

In a battle between the Pasich Law Firm and O’Melveny & Myers, a federal district court ruled last week in The Los Angeles Lakers v. Federal Ins. Co., No. 21-2281 (C.D. Cal. Aug. 6, 2021) that the Lakers’ suit should be dismissed without prejudice. Judge Hatter declined to find that instances in which basketball players had been diagnosed with COVID-19 after playing at the Staples Center supported a finding that there were virus particles in the facility or had caused physical damage to the property.

The presiding judge in the New Jersey District Court has handed a victory to The Hartford, ruling in JRJ Realty v. Twin City Fire Ins. Co., No. 20-13095 (D.N.J. Aug. 12, 2021) that a chain of restaurants had not pleaded a plausible claim for coverage. In granting Twin City’s motion for judgment ton the pleadings and dismissing the insured’s Amended Complaint with prejudice, Judge Wolfson ruled that these claims were subject to a virus exclusion in the policy and rejected the insured’s claim that this exclusion only applied to conditions on the insured premises and not to “protecting against a pandemic.” The court rejected the insured’s reliance on Urogynecology, noting that even courts in Florida failed to find its analysis persuasive. The court also rejected the insured’s argument that the exclusion did not apply because the efficient proximate cause of its loss was Governor Murphy’s shut down orders and not the virus itself. The court noted that the policies “specifically provide that loss or damage caused by a virus “is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” Because the Executive Orders were issued by Governor Murphy in response to the COVID-19 virus and pandemic, the COVID-19 virus was a contributing cause of Plaintiffs’ losses.”

A Federal District Court has ruled in Northwell Health, Inc. v. Lexington Ins. Co., 21-1104 (S.D. N.Y. July 26, 2021) that increased costs that a New York-based health care provider incurred in providing treatment and providing outpatient lost revenue to an inability to provide elective procedures or outpatient care during the pandemic. Although Northwell had alleged that respiratory droplets carrying the virus could be on the property, Judge Rakoff held that the complaint did not allege any facts supporting the conclusion that the coronavirus compromises the physical integrity of objects by harming surfaces and structures as opposed to harming the people who touch them. The District Court ruled that the insured's argument would collapse this coverage into "loss of use” of the premises and distinguished cases involving other types of contaminants in light of the fact that the coronavirus does not "persist" or irreversibly alter the physical condition of the property. The court also declined to find any "communicable disease" coverage noting that none of the governmental agency orders were issued due to the presence of a communicable disease on or about the insured's property. Judge Rakoff ruled that Governor Cuomo's orders did not render the premises uninhabitable or prohibit the insured from accessing them. The Court also noted that the insured had not pleaded that the Civil or Military Authority coverage applied because there was no damage to a nearby location that prohibited access to Northwell's locations. In any event, the District Court ruled that any coverage that might otherwise have applied is subject to an exclusion for "contaminants or pollutants." The court rejected the insured's argument that because terms such as "discharge" and "dispersal" are often used in pollution clauses that only address environmental or industrial substances, a "virus" should similarly only be excluded in environmental claims. The court observed that "grouping viruses with environmental and industrial pollutants may be unorthodox, but Northwell cites no controlling cases concerning "contamination" not to include one of the terms in its contractual definition."

A federal district court in New Orleans has dismissed an effort by famed Creole restaurant Galatoire's to obtain insurance coverage for its COVID-19 lawsuits. In New Orleans Equity v. U.S. Specialty Ins. Co., No. 20-1935 (E.D. La. Aug. 3, 2021), Judge Ashe declined to find that losses suffered by two Bourbon Street restaurants had suffered “accidental contamination” of an “insured product.”

In a brief order, Judge Shipp has ruled in Salon Dare Inc. v. Sentinel Ins. Co., Ltd., No. 20‑9616 (D.N.J. Aug. 6, 2021) that Sentinel was entitled to judgment on the pleadings because a virus exclusion in its policy precluded any possibility of coverage for this beauty parlor's claim for business interruption coverage due to COVID 19. The court rules that the claims were clearly excluded as involving "loss or damage caused directly or indirectly by the presence, growth or spread or any activity of fungi, wet rot, dry rot, bacteria or virus."

Appellate Activity

Pennsylvania’s intermediate appellate court has ruled that a judge in the Allegheny County Court of Common Pleas had erred in ordering that state court COVID BI suits against Erie Insurance be consolidated and coordinated. In HTR Restaurants, Inc. v. Erie Insurance Exchange, 2021 PA Super 158 (Pa. Super. Aug. 10, 2021), the Superior Court held that the trial judge had misapplied Rule 213.1 by granting coordination not only in pending business interruption coverage cases against Erie but in cases that have not yet been filed. The Superior Court declared that the reference to “pending” actions Rule 213.1 made clear that the rule “does not permit coordination of cases that are not filed at the time of the motion for coordination.” Further, the Superior Court found that the lower court’s order had inappropriately treated Rule 213.1 as a substitute for creating a class action and, furthermore, that the court erred in ordering coordination of some cases before the parties had a chance to respond or object. The case was therefore remanded to the Court of Common Pleas.

The Ninth Circuit heard oral argument this week from the Chattanooga Lookouts minor league baseball team, the Selane Products dental appliance manufacturers and children’s product manufacturer Mudpie seeking a reversal of the dismissal of their suits seeking coverage for COVID BI losses. The first oral arguments in the Second and Seventh Circuits are scheduled for early September.


SECOND CIRCUIT           First Party/Superstorm Sandy/”Flood” (NY)

The Second Circuit has issued a summary order in New York University v. Factory Mutual Ins. Co., No. 20-1093 (2nd Cir. July 26, 2021) that a New York district court did not err in ruling that various additional coverages potentially applicable to Superstorm Sandy losses were all subject to a $40 million sub-limit for or damage caused by flood. In rejecting the insured's argument that these additional coverages were separate and apart from the $40 million flood sub-limit. While observing that the “ "address clause" language in the flood sub-limit was potentially ambiguous, the court concluded the district court did not err in going on to conclude that the parties had actually intended that it apply to more properties than those literally specified by the "address clause." In light of extrinsic evidence with respect to the dealings of the parties during the negotiation for the issuance of this coverage and the failure of NYU to present contrary evidence, the court found that "no reasonable jury could conclude that the parties intended to change how the flood supplement operated in the 2011 policy…"/

SEVENTH CIRCUIT           Title IX/E&O/Sexual Misconduct Exclusion (IL)

The Seventh Circuit has ruled in The Netherland Ins. Co. v. Macomb Community Unit School District No. 185, No. 20‑3510 (7th Cir. Aug. 6, 2021) that allegations that the insured School District had violated Title IX by failing to protect two female students from sexual misconduct by a male student fell outside the scope of liability policies issued to the district by Netherlands and Consolidated Insurance. Applying Illinois law, the court declared that the underlying claims fell within the scope of a sexual misconduct exclusion which applies to "any actual or alleged sexual misconduct or sexual molestation of any person …". Judge Easterbrook pithily pointed out that "any means any." Unlike the Illinois District Court, which had declared the exclusion to be ambiguous, the court rejected any suggestion that the exclusion is limited to sexual misconduct committed by employees and therefore did not apply to claims arising out of a student's misconduct. In any event, the court ruled that the exclusion would apply even under the limited interpretation adopted by the trial court inasmuch as liability under Title IX could only arise based on the actions of the school district's employees and not due to any misconduct by a student. The court also pointed out that the school district had purchased insurance covering sexual misconduct but that this coverage was written on an “occurrence” and had expired before this misconduct occurred.

MASSACHUSETTS           Coverage B/Duty to Defend/Independent Counsel

Judge Saris has ruled in Lionbridge Technologies, LLC v. Valley Forge Ins. Co., No. 20-10014 (D. Mass. Aug 5, 2021) that allegations the insured improperly manipulated the bidding and auction process for the forced sale of a litigation support company in order to gain inappropriate trade secret information, failed to trigger coverage under a CGL policy. In rejecting the insured’s argument that these claims involved commercial disparagement triggering Coverage B, the District Court held that neither general statements about a business or statements of opinion are sufficient to give rise to a claim of commercial disparagement. The Court also declined to find coverage on the theory that the claims against the insured arose from the use of another's advertising idea, rejecting the insured's argument that allegations in the underlying complaint that it had changed its website to emphasize the industry that made up a larger share of plaintiff's business potentially set forth a covered claim. The Court agreed with Valley Forge that these allegations suggested that there was an effort to use another's business model and trade secrets, not its advertising ideas. The court also rejected the insured's argument that Valley Forge, by its agreement to defend these claims under reservation of rights, was not judicially or equitably estopped to dispute coverage. Having found that Valley Forge did not have a duty to defend, the court did not reach the issue of whether it was obligated to reimburse the insured for the difference between the $800 an hour rate charged by Kirkland & Eilis partners and the reduced $400 hourly rate that it had agreed to pay under a reservation of rights. The insured had argued that it was entitled to recover 100 percent of all bills charged.

TEXAS           Trigger of Coverage/Forever Chemicals

A federal district court has ruled in Crum & Forster Specialty Ins. Co. v. Chemicals, Inc., 2021 U.S. Dist. LEXIS 146702 (S.D. Tex. Aug. 5, 2021) that a liability insurer must provide a defense to the manufacturer of aqueous film-forming foam that allegedly injured firefighters. Notwithstanding the fact that the underlying complaints in the Multi-District Litigation in South Carolina failed to allege when the firefighters had been exposed to PFAs containing AFF or first manifested symptoms of such exposure, the court declined to give effect to language in the Crum & Forster 2011-2019 policy stating that "if the date cannot be determined … then such bodily injury will be deemed to have occurred or existed before the policy." In this case, the Court declared that, under Texas law, a duty to defend must arise where evidence might ultimately be established showing that injury occurred during the policy periods.

WASHINGTON           Bad Faith/Consent Judgments/Reasonableness

The Washington Supreme Court has reinstated a $1.7 million consent judgment, ruling in Wood v. Milionis Construction Inc. No. 98791‑2 (Wash. Aug. 5, 2021) that a divided panel of the Court of Appeals had erred in substituting its own judgment for that of the trial judge with respect to whether the amount of the judgment reflected the insured’s damages. Whereas the Court of Appeals had pointed to documents in which defense counsel consistently valued the claims at $400,000 or less, the Supreme Court held that the trial court had conducted an appropriate reasonableness analysis and that the Court of Appeals had failed to consider the value of the plaintiff's extra contractual claims as well as allowable attorney's fees.


Inside the Insurance Industry

Zurich reported this week that its operating profit rose 60% to $2.7 billion in the first half of 2021.

The fallout from the failed merger discussions between Aon and WTW continued this week as the Joe Peiser, the head of global broking for Willis, has moved to become the North American commercial risk leader for Aon.

New Coverage Litigation

Kinsale Insurance has sued the Fairwinds Estate Winery, asserting that its excess policy does not cover the winery for losses from recent wildfires since the insured has already received over $8 million in payments from its primary insurer.


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