Aug 27 2021

Insurance Law 8/27/2021


Trial Court Decisions

Judge Jacobius of the Cook County Circuit Court in Chicago ruled in favor of Society Insurance in 17 separate COVID-19-related business interruption cases last week, declaring that the insureds had failed to plead viable claims for “direct physical loss.” The court rejected the insureds’ argument that virus particles might be present, holding that “[s]ince the existence of the particles is not visible to the naked eye and cannot be seen or felt, any purported damage is not ‘physical in nature.”

A federal court in Missouri has dismissed a suit brought on behalf of nineteen local hair salons, ruling in Gateway Clippers Holdings LLC v. West Bend Mut. Ins. Co., No. 20-01676 (E.D. Mo. Aug. 2\6, 2021) that “[i]n line with many other courts before it, the Court concludes that Plaintiff did not plead a “direct physical loss of” its property because it did not plead any “physical alteration of property, or, put another way, a tangible impact that physically alter[ed] property.” Judge Autrey also held that the insured’s effort to avoid West Bend’s virus exclusion was “untenable” inasmuch as “COVID-19 is nothing more than disease caused by the coronavirus…”

Appellate Activity

The Second Circuit will hear its first COVID-19 insurance case on September 2 when it considers arguments in 10012 Holdings, LLC v. Hartford Fire Ins. Co.. The Seventh Circuit will follow next on September 10 when a consolidated oral argument occurs will be heard in Sandy Point Dental PC v. Cincinnati Ins. Co. and three other cases.


SECOND CIRCUIT           Professional Liability (CT)

Only days after hearing oral argument, the Second Circuit has ruled that a Connecticut District Court did not err in holding that excess insurers did not owe coverage for a medical malpractice judgment against an obstetrician and the hospital where she practiced. In Day Kimball Healthcare, Inc. v. Allied World Surplus Lines Ins. Co., No. 20-3803 (2d Cir. Aug. 27, 2021), the court rejected the insureds’ effort to manufacture malpractice coverage under Agreement C of their professional liability program, holding that this coverage was clearly limited to employee benefit claims (the insured had waived its right under Agreement A by failing to make a timely claim under this “claims made” malpractice coverage). The court declared that “the underlying litigation is a medical malpractice action that clearly implicates only the professional liability coverage.”

THIRD CIRCUIT           Duty to Defend/”Occurrence”/Trespass (PA)

The Third Circuit has ruled that intentional trespass may be an "occurrence" under Pennsylvania law. In Westminster American Insurance Company v. Spruce 1530 LLC, No. 19–2207 (3rd Cir. Aug. 19, 2021), Westminster American had argued that there could not be an occurrence since this claim arose out of a second lawsuit for intentional trespass based upon the insured's failure to abide by the demarcation of property that had been established in the first lawsuit. Despite the underlying complaints allegation of intentional trespass, the Third Circuit agreed with the Pennsylvania District Court that there was a possibility that the encroachments documented in this case occurred negligently and not intentionally.

SEVENTH CIRCUIT           Reinsurance/Arbitration/”Honorable Engagements” (IL)

The Seventh Circuit has ruled that a reinsurance panel did not exceed its authority when it issued a ruling in respond to CNA’s motions for rehearing and reconsideration declaring that Continental and Continental Casualty were forbidden to issue future cessions to Lloyd’s that only included a single loss retention for long-tail losses attributable to multi-year policies. In Continental Cas. Co. v. Certain Underwriters at Lloyd's, London, No. 20–2892 (7th Cir. Aug. 23, 2021), the court emphasized the FAA’s strong public policy in support of arbitration and the limited circumstances under which arbitration panel decisions could be overturned. It also took note the fact that for over 40 years, Continental had calculated reinsurance cessions by applying a separate retention to each reinsured year and had only taken this more aggressive posture after claims handling was transferred to Resolute Management in 2010. Despite the cedent’s argument that the panel should not have been allowed to issue rulings as to future cessions, the Seventh Circuit took note of the “honorable engagement” clause in the reinsurance treaties as being the arbitrators broad license to do what they felt best.

EIGHTH CIRCUIT           “Personal Injury”/Statutory Violation Exclusion (ND)

The Eighth Circuit has ruled that a "Distribution of Material in Violation of Statutes" exclusion precluded coverage for under the Fair Debt Collection Practices Act and various common law theories that a consumer brought against a law firm that had aggressively pursued her to recover a debt that was actually owed by someone else. In Rodenburg LLP v. Certain Underwriters at Lloyd's, London, No. 20–2521 (8th Cir. Aug. 25, 2021) that the emotion distress suffered by the claimant did not involve bodily injury caused by “an occurrence” but that a duty to defend would nonetheless have arisen in light of allegations that the law firm defamed this individual by communicating information about the debt to third parties in violation of her right of privacy. In holding that this duty was negated by the Distribution of Material exclusion, however, the court ruled that the FDCPA was clearly a statute “that prohibits or limits the sending, transmitting, communicating or distribution of material or information…" and that the conduct underlying the invasion of privacy claim was the same conduct underlying the FDCPA claim and therefore clearly "arose out of" acts excluded by this endorsement.

NEW YORK           Excess Billings/Recoupment (NY)

A Federal District Court has ruled that a liability insurer was within its rights to claim a credit on later defense bills based upon audits revealing excessive charges on bills that it had paid in full in the past. In 360Heros, Inc. v. Mainstreet America Assur. Co., No. 17 – 549 (N.D.N.Y. Aug. 25, 2021), Judge D'Agostino preliminarily rejected efforts by the plaintiff to strike various affidavits submitted by the insurer, declaring that affiants may not be experts so long as their affidavits concern matters of which they have personal knowledge. Further, while acknowledging that recoupment will generally not be permitted as a counterclaim where the insurer seeks to recover damages pursuant to the unilateral assertion of a right that the policyholder has not assented to, the District Court ruled in this case that the insurer could assert recoupment as a credit against other bills that it owed. The court agreed with Mainstreet that the Gauntlett Law Firm (whose bills were at issue and who brought this suit) had submitt3ed bills that were “excessive, redundant or otherwise unnecessary hours” and should be cut by 15%. The court noted numerous examples of improper or excessive charges, including the failure to use paralegals or law clerks, charging 100% for travel and charging dozens of hours to prepare for short depositions. In light of the fact that Mainstreet’s prior payments exceeded the amount of the reduced fee authorized by the court, Judge D’Agostino ordered the Gauntlett Law Firm to reimburse Mainstreet America for the difference.


Inside the Insurance Industry

COVID losses and reduced premiums combined to produce a $2 billion net loss for Lloyd’s in 2020, according to industry analyst Insurance DataLab.

Brown & Brown of Massachusetts has announced plans to acquire Berkshire Insurance Group.

Cyber Update

Travelers CEO Alan Schnitzer was among several corporate leaders who attended a White House summit last week on cyber concerns. In a subsequent state, Schnitzer stated: “At the White House, I highlighted the critical role that the insurance industry plays in strengthening America’s cybersecurity. Insurers help organizations manage cyber risk efficiently and effectively, including by conducting cyber risk assessments, advising on hardening cyber defenses and providing ongoing monitoring of cyber vulnerability. After a breach has occurred, insurers provide technical expertise and financial support to facilitate recovery. Working together, the industry can also identify and share trends in the cyber risk environment and promote the adoption of cybersecurity best practices."

New Coverage Litigation

The Roman Catholic Archdiocese of Brooklyn has sued Arrowood Indemnity in state court in North Carolina, alleging that it has mismanaged the runoff operations of its predecessor Royal Insurance and wasted at least $500 million, imperiling the availability of sufficient funds to pay sexual abuse claims that may be covered under Royal policies issued between 1956 and 2000.

Scout’s Honor

Efforts by the Boy Scouts of America to gain approval for an $850 million bankruptcy settlement of its sexual abuse liabilities hit a snag last week when the federal judge overseeing the proceedings refused to authorize disbursement of millions of dollars in attorney’s fees and denied the BSA’s request to be released from an earlier agreement wherein The Hartford had agreed to pay $650 million to fund the deal.

IBNR Dept.

Thirty years after four month old Spencer Elden appeared nude on the cover of Nirvana’s breakthrough Nevermind album swimming after a dollar bill, Elden has sued the band in federal court claiming that he has suffered life-long emotional distress and that Nirvana and the record producer exploited childhood pornography.



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