May 6 2022

Insurance Law - Week of May 6, 2022


Two days after the Massachusetts Supreme Judicial Court’s ruling in Verveine Corp. v. Strathmore Ins. Co., the New Hampshire Supreme Court announced that it would accept interlocutory review of a trial court’s ruling in Schleicher & Stebbins Hotel v. Starr Surplus Lines Insurance Companies that a hotel chain was entitled to coverage for its business interruption losses.

The Ninth Circuit issued an unpublished opinion on Monday in Palmdale Estates LLC v. Blackboard Ins. Co., No. 21-15258 (9th Cir. May 2, 2022), holding that a California District Court did not err in giving effect to a virus exclusion inasmuch as the pandemic was clearly the efficient proximate cause of the insured’s business losses.

The Eleventh Circuit heard oral argument last week in Dukes Clothing LLC v. The Cincinnati Insurance Company, No. 21‑11974 (Alabama law).

Having lost its appeal in the First Department of the New York Appellate Division on April 7, Consolidated Restaurants Operations now hopes to pursue an appeal in the New York Court of Appeals.

A federal district court in Baltimore has certified a question to the Maryland Court of Appeals. In Tapestry, Inc. v. Factory Mut. Ins. Co., No. 21-01941 (D. Md. Aug. 25, 2022), Judge Russell asked the state’s high court to answer whether: "when a first-party, all-risk property insurance policy covers “all risks of physical loss or damage” to insured property from any cause unless excluded, is coverage triggered when a toxic, noxious, or hazardous substance—such as Coronavirus or COVID-19—that is physically presentin the indoor air of that property damages the property or causes loss, either in whole or in part, of the functional use of the property?"

In light of this development in Maryland, Cordish Companies last week sought en banc review of the Fourth Circuit’s decision in The Cordish Companies Inc. v. Affiliated FM Insurance Company, No. 21‑2055 (4th Cir. April 14, 2022) . In its filing, Cordish proposes that the court defer a final ruling until guidance is obtained from the Maryland Court of Appeals that will clarify whether Maryland law follows the principles of West Virginia law that the Fourth Circuit relied on its earlier Uncork and Create ruling that was the basis for the court’s April 14 affirmance in this case.

The Maryland Court of Appeals has declined to invalidate an emergency order that the chief of the trial court implemented in the early stages of the pandemic tolling the statute of limitations for civil actions while the emergency was in effect. In Murphy v. Liberty Mutual Insurance Company, Misc. No. 5 (Md. April 27, 2022), the court ruled that this order was within the discretionary powers of Judge Barbera and neither usurped the powers of Maryland’s Governor or legislature, nor did it violate the prohibition against "suspension of laws” in Article 9 of the Maryland constitution.


SECOND CIRCUIT           Premium Audits/”Unjust Enrichment” (NY)

The Second Circuit has issued a summary affirmance in ASG & C v. Arch Specialty Ins. Co., No. 21-1761 (2d. Cir. Mar. 22, 2022),declaring that a policyholder was not entitled to pursue a claim for unjust enrichment against a liability insurer that had submitted an invoice to it based a retroactive audit of the premium owed under its policy. As had a New York District Court, the Second Circuit ruled in this case that a party could not pursue a claim for unjust enrichment where the claims were based upon an express written contract between the parties. Moreover, the court ruled that Arch had not been enriched at all in light of the fact of that the insured had never paid the invoice for the additional premium that Arch claimed was due.

FOURTH CIRCUIT           "Collapse"/Bad Faith (NC)

The Fourth Circuit has ruled that a North Carolina District Court erred in failing to treble an award of damages against Philadelphia Indemnity for violating the state’s Unfair and Deceptive Trade Practices Act by improperly denying coverage for an insured’s “collapse” loss. In DENC, LLC v. Philadelphia Ind. Ins. Co., No. 20‑1640 (4th Cir. April 18, 2022), the court rejected Philadelphia's argument that "collapse" requires that a structure fall to the ground, finding that it was sufficient that the breezeway had fallen a foot. The court further rejected Philadelphia's argument that any "collapse" had begun prior to its policy period as the result of ongoing water intrusion over the years or that its "extra expenses" coverage did not extend to costs that the insured incurred to provide temporary housing to building residents. Having found coverage, the Fourth Circuit also declared that Philadelphia Indemnity had violated § 58‑63‑15(11)(n) by first granting coverage and then denying it in a confusing letter that failed to provide a reasonable expectation of the basis for its denial. More consequentially for Philadelphia Indemnity, the Fourth Circuit also ruled that there were "aggravating factors" in this case that required that the UDTPA damages be trebled. The court ruled that conduct need not be fraudulent, malicious or grossly negligent in order to be willful. Writing in dissent, Judge Rushing agreed with the majority that Philadelphia's policy covered the collapse of the breezeway but argued that there was no bad faith inasmuch as Philadelphia’s letter, “while not a model of clarity,” had explained the basis for the denial.

CALIFORNIA           “Cumis” Counsel

The Third District has sustained a Superior Court's declaration that an auto insurer did not act unreasonably in refusing to appoint as Cumis counsel the law firm that the insured had already hired to pursue an affirmative claim against the driver who collided with them. In Simonyan v. Nationwide Insurance Company of America, CO91100 (Cal. App., April 19, 2022) (unpublished), the Court of Appeal rejected the insured's argument that there was a conflict of interest between him and Nationwide because Nationwide had determined that he was liable for causing the accident, whereas he wanted to sue the other driver. Further, the court declined to find that a conflict of interest existed merely because Nationwide had raised the insured's premium and removed his driving discounts following this accident. The court ruled that the insured's contention that appointed defense counsel would work against this interest merely because Nationwide had raised his premiums based upon its successful default was no more than a mere possibility.

GEORGIA           Recoupment

While acknowledging that Georgia courts have heretofore been silent on the issue of whether a liability insurer is entitled to recoup the cost of defending suits that are not covered, a federal court has ruled in Mt. Hawley Insurance Company v. East Perimeter Pointe Apartments LP, No. 20-cv-3529 (N.D. Ga. Apr. 1, 2022) that a CGL insurer could not recover sums that it had paid to defend allegations that its insured had failed to maintain adequate security on its premises, holding that such a right was not explicitly recognized by the terms of the policy.

ILLINOIS           Auto/Stacking

The Illinois Appellate Court has ruled that an auto insurer’s liability was limited to a single $1 million limit and that an auto dealer could not stack the limits applicable to each of the insured’s fleet of vehicles. In West Bend Mut. Ins. Co. v. Vaughan’s Fetch, Inc., 2022 IL App (5th) 202168 (Ill. App. April 5, 2022), the Fifth District ruled that anti-stacking provisions are not against public policy and that in this case the West Bend “policy clearly and unequivocally provided that regardless of the number of covered autos, claims made, or vehicles involved, the most it would pay for the total of all damages resulting from any one accident was the ‘Limit of Insurance for Covered Autos Liability Coverage shown in the Declarations.”

MASSACHUSETTS           Named Insureds/”Doing Business As”

The Supreme Judicial Court of Massachusetts has ruled in Masonic Temple Association v. Patel, SJC- 3109 (Mass. April 25, 2022) that a CGL policy which identified the named insured as “Dipka, Inc. dba Super 8” did not extend coverage to liability claims concerning the development of a former Masonic temple into a boutique hotel business that was totally unrelated to the insured’s Super 8 motel business. While declining to adopt a hard and fast rule with respect to the effect of a “dba” designation in the title of the named insured, the court ruled that in this particular case, the policy was clearly intended to only cover risks associated with the operation of the Super 8 motel. In particular, the court took note of the fact that a boutique hotel might present risk exposures. The court also declined to find coverage under two endorsements to the insurance policies issued to Dipka, Inc. that provided increased limits for “ALL PROJECTS” and “ALL LOCATIONS,” holding that these endorsements unambiguously were linked to Super 8 Motel-related occurrences in order to trigger an expansion of the scope of coverage. The court also affirmed the dismissal of the plaintiff’s claims against its insurance agent, finding the agent would not have understood that Dipka’s request that the policy be amended to include the temple association as a loss payee was also intended as a request to broaden the coverage to include this separate business. Writing in dissent, Chief Justice Budd argued that the policy did not unambiguously restrict coverage to the “dba” and that the court’s ruling three decades ago in Tufts University established that a CGL policy could cover other risks that may not have been disclosed at the time to the insurer.

NEW HAMPSHIRE           Additional Insured/Breach of Policy Conditions

The New Hampshire Supreme Court ruled last week in Cincinnati Speciallty Underwriters Ins. Co. v. Best Way Homes, Inc., No. 2021-0280 (N.H. April 27, 2022) that a general liability insurer had no obligation to provide a defense to a personal injury suit brought against a contractor that had failed to comply with a policy requirement that all subcontracts be in writing and contain indemnity and insurance terms. In light of the fact that this endorsement stated that a failure to comply with this condition would preclude coverage for any operations or completed operations performed for the insured by any independent contractors or subcontractors, the court ruled that in this case, the failure of a staircase installed by the insured's subcontractor was excluded from coverage and precluded any duty to defend. The court rejected the insured's argument that the language of the endorsement, which required the named insured to "obtain a formal written contract with all independent contractors and subcontractors in force at the time of the injury or damage" was ambiguous, where the work in question was completed 6 years prior to the accident. The court further rejected the insured's argument that this condition only precluded coverage for work completed prior to the effective date of the policy. "That the conditions precedent employ present-tense language does not mean that the exclusionary provision is limited to injuries resulting from the subcontractor's work performed during the policy's coverage. Rather, it merely indicates that the insured must meet the conditions precedent at the time it seeks coverage, in order for the policy to cover the damages."

NEW YORK           Bad Faith (OH)

In a brief opinion applying Ohio law, the First Department has ruled in 2015 Freeman LLC v. Seneca Specialty Ins. Co., 2022 NY slip op 02086 (App. Div. Mar. 29, 2022) that a property insurer acted reasonably in denying an insured’s first party property loss in light of misrepresentations in the policy application.


Insurance Industry News

Hartford Financial Services Group had a $440 million profit for the first quarter of 2022, up 80% from the year before.

CNA Financial reported this week that it earned $313 million during the first quarter of 2022, more or less unchanged from $312 million in the same period last year.

Argo Group has postponed its Annual Meeting while its Board evaluates “strategic alternatives” for the Bermuda-based company, including a possible sale.

Privacy Update

Google has agreed to pay $100 million to resolve class action claims brought by Illinois residents who claimed that Google violated the Illinois Biometric Privacy Act by using its photo app to collect their personal information.

Connecticut’s Governor is expected to sign a consumer data privacy Bill of Rights that received nearly unanimous approval this month from the state legislature.


The New York Court of Appeals has overturned a $16.5 million asbestos talcum verdict, declaring in Nemeth v. Brenntag North America, No. 24 (N.Y. April 25, 2022) that notwithstanding the difficulty of proving causation in toxic tort cases, a plaintiff is still required to show that he was exposed to sufficient levels of toxin to cause this particular injury.

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