May 13 2022

Insurance Law - Week of May 13, 2022


Following four separate oral arguments, the Eleventh Circuit issued a single opinion week, affirming the lower court’s dismissal of COVID 19 BI claims in each case. In SA Palm Beach LLC v. Certain Underwriters at Lloyds London, No. 20‑14812 (11th Cir. May 5, 2022), the court ruled that the policyholders were not entitled to business interruption coverage for lost profits during the pandemic because COVID‑19 "did not cause a tangible alteration of the insured properties." In a 34-page opinion, the court noted the lack of Florida appellate authority on this issue but concluded, consistent with its 2020 opinion in Mama Jo's and the majority view in other states that there must be physical damage to property in order for this coverage to apply. The court also ruled that, although one of the claimants had specifically alleged that the presence of coronavirus particles" on its property had caused damage, this general allegation of physical injury was outweighed by specific allegations that there was not actual physical alteration of the condition of the premises. As in Mama Jo's, the court ruled that a building that merely needs to be cleaned has not suffered a "loss" which is both "direct" and "physical." The court did remand the Emerald Coast case for further proceedings in the U.S. District Court as the trial judge had not ruled on the issue of "spoilage" coverage which does not require direct physical loss in order for coverage to apply.

The Appellate Division of the New Jersey Superior Court heard oral argument for several hours this week concerning several consolidated policyholder appeals of pro-insurer COVID rulings.

O'Brien Sales and Marketing Inc. has advised the Ninth Circuit that it is abandoning its appeal of a California District Court's 2021 ruling in favor of Transportation Insurance Company.

The Seventh Circuit ruled last week in Paradigm Care & Enrichment Center LLC v. West Bend Mut. Ins. Co., No. 21-1695 (7th Cir. May 3, 2022) that the virus does not cause direct physical loss. Further, the court rejected the insured’s effort to obtain coverage under the communicable disease section of its policy as the Illinois shut-down orders were not specifically directed to any outbreak of COVID on the insured's premises. The court also dismissed the insured’s "sue and labor" claim, noting that the "sue and labor" provision does not itself establish coverage but merely imposes obligation on an insured seeking coverage that is outlined elsewhere in the policy.


SEVENTH CIRCUIT           Day Care Exclusions (IL)

The Seventh Circuit has ruled in Liberty Mutual Fire Ins. Co. v. Kaci Clayton, Special Administrator of the Estate of Kenzi Alyse Schuler, No. 21-1665 (7th Cir. May 6, 2022) that a homeowner’s insurer did not owe coverage for a wrongful death claim involving an infant who was being care for by the insured at her home. In affirming the Illinois District Court’s grant of summary judgment to the insurer, the Seventh Circuit held that the regular and compensated home day care services provided by the insured qualified as a business under the policy’s day care endorsement and that the injury was excluded because it “arose out of” or was “in connection” with the defined home day care business.

ILLINOIS           First Party/Appraisals/Procedure

The Illinois Appellate Court has ruled in Travelers Indemnity Company of America v. Townes of Cedar Ridge Condominium Association, 2022 IL App. (3rd) 200542 (Ill. App. April 25, 2022) that a trial judge was correct in dismissing a suit brought by Travelers seeking a declaration considering the scope of its appraisal provision in a case where Travelers had earlier refused the insured’s demand for appraisal on the grounds that what was at issue was the scope of its coverage, not the value of the covered loss. The Third District declared that "once Travelers denied Cedar Ridge's request for an appraisal, there was no longer an actual controversy regarding the applicability of the appraisal provision," and that the court therefore lacked jurisdiction to sustain this declaratory judgment action.

MISSOURI           Procedure/Settlement

The Missouri Supreme Court has ruled in Jameson v. Still, No. SC99279 (Mo. April 26, 2022) that a trial court did not err in refusing to grant summary judgment to MetLife in a case that the insurer claimed was already settled. The court ruled that Article V § 10 of the Missouri Constitution required a finding that there was no settlement agreement between the parties, because MetLife's $25,000 counteroffer constituted a rejection that terminated plaintiff's settlement offer of $150,000 under the common law of contracts and prevented MetLife from reviving the offer to accept it.

NEW JERSEY Policy Interpretation

The Appellate Division has ruled in Dela Vega v. The Travelers Ins. Co., No. A-2272-19 (App. Div. May 6, 2022) that a trial court did not err in refusing to enforce an intra-family liability step-down exclusion in an auto policy which the court ruled was "patently unfair" and contrary to the insured's reasonable expectations of coverage since it was not identified on the policy’s declarations page. On the other hand, the court also ruled that Travelers did not act in bad faith in denying coverage.

NEW YORK Sexual Misconduct Exclusion

The Appellate Division of the New York Supreme Court has ruled in Madison Square Boys and Girls Club Inc. v. Atlantic Specialty Ins. Co., 2021-03843 (App. Div. April 21, 2022) that a boys and girls club was not entitled to coverage for failing to prevent sexual abuse by employees and volunteers at the facility. Although the policy provided coverage for "third-party wrongful acts”, including sexual harassment, the court took note of the fact that it also expressly excluded claims for sexual misconduct and child abuse. The First Department also affirmed the dismissal of claims against various excess insurers as their policies followed form to the underlying insurance containing these exclusions.


Industry News

CNA Financial has appointed Scott Lindquist, a former senior executive at Farmers Group, to serve as its new chief financial officer.

Opioid Litigation

Walgreens has agreed to pay $683 million to settle the State of Florida’s suit alleging that that it caused or contributed to the state’s opioid crisis.

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