Jun 17 2022

Insurance Law - Week of June 17, 2022


Policyholders finally have caused for celebration, as two intermediate state appellate courts found coverage for COVID claim.

In New York, the First Department of the Appellate Division ruled in New York Botanical Gardens v. Allied World Ins. Co., No. 16127 (App. Div. June 14, 2022), the First Department found coverage in a pollution policy that insured "the necessary suspension of your business operations at a location owned or leased to you as a result of an order by a government body or authority denying access to the location . . . provided that" the suspension and the order must be "caused solely and directly by a pollution incident on, at or under an independent location." "Independent location" is defined as "a location that is not and was not at any time a location owned, leased, managed, operated or used by an insured." The First Department distinguished the cases cited by Allied World as being based on language in commercial property which, unlike this pollution policy, do not permit coverage for a partial denial of access to the insured premises.

The Louisiana Court of Appeals likewise ruled in Cajun Conti v. Certain Underwriters at Lloyd’s, London, 2021-CA-0343 (La. App. June 15, 2022) that a New Orleans restaurant could obtain coverage under a commercial property policy.

Despite these wins, insurers continued to run up the score in federal court.

In Farmington Dental Associates, LLC v. Cincinnati Ins. Co., No. 21-2080 (2nd Cir. June 8, 2022), the Second Circuit issued a summary order, declaring that the District Court’s ruling that limitations on the operation of the insured’s dental practice was not a direct physical loss was consistent with the Connecticut Supreme Court’s Capstone decision that carbon monoxide did not cause physical injury so as to trigger property damage coverage under a CGL policy.

The Fifth Circuit has sustained a Texas District Court’s ruling that a law firm has no covered for COVID business interruption, ruling in Ferrer & Poirot LLP v. The Cincinnati Ins. Co., No. 21-11046 (5th Cir. June 9, 2022) that the policy’s coverage for “direct loss” still required physical damage as “physical” was an unneeded word because ‘loss’ was already defined as ‘accidental physical loss or accidental physical damage’”.

In Windy City Limousine Co. v. Cincinnati Financial Corp., No. 21-4901 (7th Cir. June 6, 2022), the Seventh Circuit declared that it would continue to follow its Illinois ruling in Sandy Point and rejected the insured’s argument that the COVID virus rendered its business “effectively inoperable” as well as its contention that it should be treated differently because it was an “essential business.” The court also declined the insured’s invitation to import the liability insurance definition of “property damage” into the property insurance section of the policy, declaring that “there is a difference between a policy’s third party liability coverage and its property coverage.”

In Troy Stacy Enterprises, Inc. v. Cincinnati Ins. Co., No. 21-4008 (6th Cir. June 8, 2022), the Sixth Circuit has issued an unpublished opinion, declaring that a consolidated claim involving businesses located in Illinois, Minnesota, New York, Ohio, , Pennsylvania and West Virginia, the Sixth Circuit agreed that Ohio law should apply to all of the insured claims since there was no reason that other’s state’s substantive law would conflict with Ohio law concerning the meaning of “direct physical loss” and other policy terms. Applying Ohio law, the court ruled that it’s prior rulings in Santo’s Italian Café and Dakota Girls, foreclosed any contention that the virus had caused “direct physical loss” to the insured’s premises.

Missouri, once a perceived a stronghold of policyholders in the COVID wars, is now solidly in the insurer camp. In Planet Sub Holdings v. State Auto Property & Cas. Ins. Co., No. 21-2199 (8th Cir. June 6, 2022), the Eighth Circuit declared that whether these claims were construed under the law of Kansas, Missouri or Oklahoma, the result would be the same. In keeping with its ruling earlier this year in Monday Restaurants, the court declared that there must be some “physicality” to the insured’s injury in order for coverage to apply. The court also declined to find coverage for “food-borne illness,” as there was no outbreak of virus from the insured’s premises.

In Dukes Clothing LLC v. Cincinnati Ins. Co., No. 21-11974 (11th Cir. June 6, 2022),, the Eleventh Circuit found that its recent rulings in SA Palm Beach (Florida law) and Henry’s LA Grill (Georgia law) were consistent with the approach the Alabama Supreme Court would apply if these questions were presented to it. Thus, the court found that these premises had not suffered “direct physical loss” and that, even if virus particles were present, there is no coverage if “a property or surface can be cleaned and quickly restored to its previous condition, then the property has not suffered direct ‘accidental physical loss or accidental physical damage’ such that it has been tangibly altered.”

The Eleventh Circuit also issued an unpublished opinion in PF Sunset View v. Atlantic Special Ins. Co., No. 11580 (11th Cir. June 2, 2022) declared that these Florida restaurants’ claims were governed by its recent ruling in SA Palm Beach.


FOURTH CIRCUIT           Declaratory Relief/Abstention (VA)

The Fourth Circuit has ruled that a med mal insurer’s contention that its coverage was waived by the insured’s alteration of a patient’s medical charts would be better addressed in state court and that a Virginia District Court therefore did not abuse its discretion in declining to exercise discretion under the federal Declaratory Judgment Act. In light of the parallel state court proceeding, the Fourth Circuit declared in Medical Mutual Ins. Co. of North Carolina v. Littaua, No. 21-1215 (4th Cir. May 23, 2022) that the trial court had broad discretion to refuse to entertain the insurer’s DJ and that “efficiency does not support abstention.”

SEVENTH CIRCUIT           Property Insurance/Limitations Period (IN)

The Seventh Circuit has affirmed an Indiana District Court’s ruling that a condominium association’s claim for hurricane damage was barred by the two year limitations period. In Legends Creek Homeowners Association v. Travelers Ind. Co. of America, No. 20-3163 (8th Cir. May 10, 2022), the court declared that the two year limitations period for fling suit was not tolled by the fact that some of the insured’s claims were denied after the two year period had expired, nor did Travelers have an affirmative duty to warn its insured in the interim that the suit period was about to expire.

ELEVENTH CIRCUIT           Indemnity/Negligent Procurement (FL)

The Eleventh Circuit has ruled in Endurance American Specialty Ins. Co. v. Liberty Mut. Ins. Co., No. 19-14664 (11th Cir. May 16, 2022) that indemnity undertaking in the service contract between Safeco Insurance and an independent insurance agent authorized to issue policies on Safeco’s behalf did not apply to a claim that Safeco conspired with a tort claimant to pursue a claim against the broker for failing to obtain higher auto limits for the insured. Applying Florida law, the court ruled that alleged misconduct by Safeco did not involve any breach of the contract or any negligence by Safeco in the placement of this insurance. In particular, the court ruled that suggestions that defense counsel made to plaintiff’s counsel concerning a possible negligent procurement claim could not be imputed to Safeco.

FLORIDA           Property Insurance/Attorney’s Fees

The Florida District Court of Appeals has ruled in Kidwell Group, LLC v. American Integrity Insurance Group, No. 5D21-1000 (Fla. App. Ct. May 27, 2022) that a trial court erred in looking outside the four corners of the insured’s complaint in granting a property insurer’s motion to strike the insured’s claim for attorney’s fees.


Inside the Insurance Industry

Fitch Ratings report that professional liability insurance results have improved but that this line of business continues to endure a 108 combined ratio.

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