Sep 10 2021

Insurance Law – 9/10/2021

PANDEMIC UPDATE

New Trial Court Rulings

Judge Smith has entered a short text order in Procaccianti Companies Inc et al v. Zurich American Ins. Co., No. 20-512 (D.R.I. Sept. 2, 2021), denying Zurich’s motion to dismiss and finding that “Plaintiffs have adequately alleged plausible claims for relief, and thus declines to dismiss them at this early stage. The instant Motion is therefore denied. However, resolution of the issues discussed in the papers, including whether the presence of Covid-19 constitutes "direct physical loss of or damage" to property and the effect of the Amendatory Endorsement on the original policy language, may be appropriate on a summary judgment motion following discovery.”

Appellate Activity

The Fourth Circuit heard argument last Friday in the insured’s appeal from Judge Berger’s ruling in UnCork & Create LLC v. The Cincinnati Ins. Co., No. 20-401 (D. W. Va. Nov. 20, 2020) that “direct physical loss” requires physical alteration to the premises.

The Sixth Circuit will hear its first COVID case on September 15, when a restauranteur’s appeal is argued in Santo’s Italian Café v. Acuity Ins. Co., No. 21-03068. United Policyholders has sought leave to argue in support of an amicus brief that the Plews Shadley firm authored. Meanwhile, the Seventh Circuit will hear oral argument in several COVID cases on September 10, including Crescent Plaza Hotel Owner v. Zurich American Ins. Co., No. 21-1316 and Bradley Hotel Corp. v. Aspen Specialty Ins. Co., No. 21-1173.

New Suits

The Trustees of the University of Pennsylvania have sued Factory Mutual in the Court of Common Pleas in Philadelphia seeking coverage for losses arising out of 171 locations.

OTHER CASES OF CONSEQUENCE

EIGHTH CIRCUIT           Notice Conditions/Waiver and Estoppel (AR)

The Eighth Circuit has ruled in Dowden v. Cornerstone National Ins. Co., No. 20-2192 (8th Cir. Aug. 30, 2021) that an insured’s equivocal report of an accident at a time that he had actually been sued forfeited any right to coverage for the ensuing default judgment. In affirming the Arkansas District Court's entry of summary judgment for the Cornerstone, the Court of Appeals ruled that the insured's failure to disclose that he had been sued violated the policy’s requirement that the insured forward notice of claims and that this policy requirement was in the nature of a notice provision, which are strictly applied by Arkansas courts, rather than part of the duty to cooperate, which require proof of prejudice. Further, the court rejected the Bankruptcy Trustee's argument that the insurer had waived its right to rely on this defense by promising that it would get a copy of what the insured had described in a telephone exchange as a police report and had never referenced as a lawsuit pleading.

ELEVENTH CIRCUIT           Business Risk Exclusions/Bad Faith (FL)

The Eleventh Circuit has ruled that a liability insurer did not err in refusing to defend allegations that the insured mismanaged and damaged a client’s citrus grove and stole from him. The court agreed with the Florida District Court that these claims were subject to Exclusion J.5 as involving damage to property on which the insured was performing operations. Further, the court refused to find that this exclusion was superseded by the policy’s “Farm Caretaker Endorsement, noting that this endorsement did modify several standard exclusions but not J.5. Having found that Travelers did not breach any duty to defend, the court further held in The Travelers Ind. Co. of Connecticut v. Richard McKenzie & Sons, Inc., No. 18-13172 (11th Cir. Aug. 26, 2021) that the insured’s $2.7 million “Coblentz” settlement judgment was unenforceable and therefore did not reach the lower court’s alternative holding that it was collusive.

ELEVENTH CIRCUIT           Construction Defect/”Property Damage” (FL)

The Eleventh Circuit has ruled that a Florida District Court has ruled that a subcontractor’s liability insurer did not err in refusing to pay for the cost of removing and replacing defective railings that the insured had installed in a condominium development. In light of its 2012 ruling in Amerisure v. Auchter Corp., the court held in Tricon Development of Brevard, Inc. v. Nautilus Ins. Co. No. 21-11199, 2021 U.S. App. LEXIS 27317 (11th Cir. Sep. 10, 2021) that CGL policies do not provide coverage for losses that solely involve faulty workmanship. In this case, the court found that the repair and removal of the insured’s defective work did not constitute “property damage” nor could the insured avoid Auchter by characterizing such costs as involving a “loss of use of property that is not physically injured.”

ELEVENTH CIRCUIT           Declaratory Relief/Jurisdiction (AL)

The Eleventh Circuit has ruled that a federal court’s decision to abstain from exercising jurisdiction under the federal Declaratory Judgment Act because of related state proceedings does not require that complete “parallelism” between the two actions. In affirming the Florida District Court’s dismissal of an insurer’s DJ in a carbon monoxide poisoning claims, the Eleventh Circuit ruled in National Trust Ins. Co. v. Southern Heating & Cooling, Inc., No. 20-11292 (11th Cir. Sept. 3, 2021) that even though the underlying tort action against Southern Heating did not completely parallel this coverage case, there was enough of a factual overlap to warrant dismissal under the nine factor test that it enunciated in its 2005 Ameritas opinion. As a result, the court ruled that while the degree of similarity between the proceedings is significant in deciding whether to allow the DJ to forward or not, “a district court may exercise its discretion and decline to adjudicate a claim under the Declaratory Judgment Act even in the absence of parallel proceedings.”


OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Industry analysts now predict that insureds losses in the Northeast from Hurricane Ida may cost as much as $5 billion.

Peter Zaffino, who is currently AIG’s president and CEO, will take on the additional title of chairman of the Company’s Board of Directors effective January 1, 2022.

Texas Governor Greg Abbott has named Cassie Brown as the state’s new Commissioner of Insurance for a term that expires on February 1, 2023.

Louisiana Insurance Commissioner Jim Donelon has threatened to fine insurers that failed to comply with his directive to pay temporary living expenses of insureds who have been displaced by Hurricane Ida.

Governor Kathy Hochul has named Adrienne Harris as the new superintendent of the New York State Department of Financial Services.

IBNR Update

The U.S. Coast Guard announced this week that it is investigating 350 reported oil spills in the Gulf of Mexico in the wake of Hurricane Ida.

Scout’s Honor

The Hartford announced this week that it will pay $787 million to the Boy Scouts of America in consideration of a complete release of any coverage obligations for pending and future sexual abuse claims. The Hartford had earlier negotiated a $650 million agreement that, unlike this latest deal, did not include local Scout councils or the underlying abuse victims.

Must See CLE

Boston partner Michael Aylward will be presenting his annual update on long-tail insurance coverage developments on September 30 at the FETTI conference in Chicago.

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