Sep 17 2021

Insurance Law – 9/17/2021

PANDEMIC UPDATE

According to the University of Pennsylvania’s COVID Coverage Litigation Trackers, just over 2000 COVID-related insurance suits have now been filed. Of these, just under 30% (544) have been disposed of through motion practice. Insurers have won on motions to dismiss in 500 cases and have obtained summary judgment in another 32. So far, policyholders have only obtained summary judgment in 11 cases. 194 cases are pending in the federal courts of appeal, with the majority in the Ninth (64) and Third (40) Circuits. 62 cases are also pending in state courts of appeal. To date, only two appeals have been decided.

New Trial Court Opinions

In a case arising under Pennsylvania law, Judge Casper has ruled in Kutest Kids Early Intervention v. Ohio Security Ins. Co., No. 20-11169 (D. Mass. Sept. 20, 2021) that the insured had failed to plead that its premises suffered physical damage and that the policy’s ISO virus exclusion would eliminate coverage anyway, notwithstanding the insured’s regulatory estoppel and reasonable expectations arguments.

A federal district court in Tennessee has ruled in Creative Business, Inc. v. Covington Specialty Ins. Co., No. 20-2452 (W.D. Tenn. Sept. 9, 20/21) that a property insurer was entitled to judgment on the pleadings in light of the absence of any allegation that the insured's property had been physically damaged or destroyed by the presence of the COVID virus. Further, the court ruled that the Pathogen Exclusion in the policy would have precluded coverage since it applied to any loss that occurred directly or indirectly from pathogenic materials. The court also ruled that the restaurant operator was not entitled to Spoilage Coverage since any expired food had not resulted from a Covered Cause of Loss within the scope of this endorsement.

Judge Hernandez has issued a series of rulings in Oregon granting insurers’ motions to dismiss COVID claims due to the absence of any allegation of direct physical loss to the property in the following cases: North Pacific Management, Inc. v. Liberty Mutual Fire Ins. Co., No. 21-404 (D. Ore. Sept. 7, 2021); Nari Suda, LLC v. Oregon Mutual Ins. Co., No. 20-1476 (D. Or. Sept. 6, 2021); Hillbro, LLC v. Oregon Mutual Ins. Co., No. 21-382 (D. Or. Sept. 7, 2021) and Nue, LLC v. Oregon Mutual Ins. Co., No. 20-449 (D. Ore. Sept. 4, 2021).

Appellate Activity

The First Circuit will hear its first COVID appeal when oral argument is held before it on October 4 in Legal Sea Foods, LLC v. Strathmore Ins. Co., No. 21-1202

OTHER CASES OF CONSEQUENCE

EIGHTH CIRCUIT           Auto/I"n The Business of Servicing"Exclusion (MN)

The Eighth Circuit has ruled in Westfield Ins. Co. v. Advanced Auto Transport, Inc., No. 20-2103 (8th Cir. Aug. 30, 2021) that a Minnesota District Court correctly granted judgment to an auto insurer on the grounds that the lessee and operator of the insured’s truck were not "insureds" under the policy. The court ruled that the claimants were excepted as “insured” as being in the business of "selling, servicing or repairing autos." The court rejected an argument advanced by the operator's insurer (Carolina Casualty) that these individuals were independent contractors who were in a separate business of transporting autos." Rather, the court ruled that "where the driver is acting in furtherance of the commercial interests of the auto servicing business and performing a function that is an integral part of the auto servicing business, then the vehicle is used in the business, and the driver is working in that business."

ELEVENTH CIRCUIT           Bad Faith/Failure to Settle (FL)

The U.S. Court of Appeals for the 11th Circuit has ruled in Eres v. Progressive American Ins. Co., No. 20-11006 (11th Cir. June 1, 2021) that a Florida District Court did not err in holding that an automobile liability insurer did not act in bad faith in failing to settle a wrongful death suit involving an intoxicated insured in light of the fact that Progressive had repeatedly offered its $20,000 policy. Although Progressive had sought to add language protecting its insureds from future subrogation claims which the claimants' attorney characterized as a rejection of the release, the court noted that Progressive had stated that counsel was free to strike out any portion of the draft release language that he found objectionable. Although the court observed that under Florida law an overbroad release can create a factual issue regarding bad faith, it held in this case that there was no factual dispute in light of the uncontroverted evidence that Progressive had offered to strike any release language that the claimant objected to.

ILLINOIS           Misrepresentations

The Appellate Court of Illinois has ruled in Evanston Ins. Co. v. OnPoint CAS Solutions, LLC, 2021 IL App. (1st) 200899 (Ill. App. Sept. 3, 2021) has ruled that a liability insurer was not relieved of its obligation to defend a suit based upon the alleged negligence of a surgical computer operator in placing screws in an orthopedic procedure, notwithstanding the fact that the insured was aware of the injuries suffered by the claimant at the time. The Appellate Court declared that Evanston had not shown that the insured possessed knowledge or had reason to believe from its awareness of the errant procedure that it would be sued at some later date, and that coverage was, therefore, not voided by the insured’s statement in the policy application that it was unaware of any facts or circumstances likely to give rise to a claim.

TEXAS           Coverage B/Exclusions

A federal district court has ruled in Great American Insurance Company v. Beyond Gravity Medica, Inc., No. 20-53 (S.D. Tex. Sept 15, 2021) that any claim under Coverage B was negated by operation of the "knowing violations" exclusion in light of the allegations in the underlying suit that the insured had knowingly and intentionally appropriated the claimant's trade secrets and violated various franchise agreements and non-compete provisions. Further, the court ruled these claims were subject to a "breach of contract" exclusion in the policy. Finally, the court ruled the allegations that the insured had misled consumers by continuing to use the claimant's branding and curriculum after rescinding the franchise agreements fell afoul of the policy's exclusion for claims "arising out of the unauthorized use of another's name or product in your email address, domain name or method tag or any other similar tactics to mislead another's potential customers."

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

The Federal Insurance Office of the U.S. Department of the Treasury has issued a request for information from insurers concerning the risks that climate change may pose to the industry. Responses are due by November 15, 2021.

Great American is marketing a new “HomeHQSUM” policy that insures businesses that insureds operate from their private residences.

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