Jul 7 2022

Insurance Law - Week of July 8, 2022


The Fifth Circuit has declined to postpone oral argument in a Louisiana case, ruling in Coleman E. Adler, LLC v. AXIS Surplus Ins. Co., No. 21-30478 (5th Cir. June 29, 2022) that the insured’s motion to certify these issues to the Louisiana Supreme Court would be “carried with the case.”

The North Carolina Court of Appeals has set aside an early policyholder victory, ruling in North State Deli v. The Cincinnati Ins. Co., No. 21-293 (N.C. App. July 5, 2022) that mere loss of use of the insureds’ restaurants did not cause direct physical loss to the properties.

Two panels of the Illinois Appellate Court issued summary affirmances last week. In State & 9 Street Corp. dba Bulldog Ale House v. Society Ins. Co., 2022 IL App (1st) 211222 (Ill. App. Ct. June 30, 2022), the First District ruled that various restaurant and bar owners had not pleaded a viable claim for business interruption loss as the business premises had not suffered direct physical loss or damage. Further, the Appellate Court refused to find that the policies’ contamination provisions covered these losses as Governor Pritzker’s shut down orders were not issued on account of any outbreak on the insured’s premises but rather were intended to prevent the spread of the COVID virus. In Bottleneck Mgt., Inc. v. Zurich American Ins. Co., 2022 IL App. (1st) 211462 (Ill. App. Ct. June 30, 2022), the court similarly ruled that the trial court had not erred in observing that the virus could be easily cleaned from building surfaces, declaring, as it had previously ruled in Sweet Berry Café, that this was a matter of “common knowledge.”


SECOND CIRCUIT           E&O/Prior Acts Exclusion

The Second Circuit has issued a summary affirmance in Knox v. Ironshore Ind. Co., No. 21-3032 (2d Cir. June 23, 2022), declaring that gender-based employment discrimination claims against a clothing retailer were subject to a “prior acts” exclusion in light of the fact that the discriminatory guideline in question had been adopted prior to the issuance of Ironshore’s policy.

ELEVENTH CIRCUIT           Bad Faith (FL)

The Eleventh Circuit has reinstated an accident victim’s bad faith suit against the tortfeasor’s insurer, declaring that the Florida District Court erred in failing to instruct the jury that bad faith is also present when an insurer fails to advise an insured about settlement offers and likely litigation outcomes. In Brink v. Direct General Ins. Co., No. 21-10770 (11th Cir. June 28, 2022), the court ruled that an insurer may be liable in Florida both in negligently failing to settle and for failing to apprise its insured of the risks of an excess verdict. In a lengthy dissent, Judge Anderson argued that the trial judge did not abuse his discretion in failing to give this instruction, that his failure to do so did not harm the plaintiff that the majority was, in effect, creating an independent cause of action for “failure to advise” claims.

CALIFORNIA           Disqualification of Counsel

The California Court of Appeal has sustained a trial court’s ruling that the Pillsbury Winthrop law firm could continue to represent a pipe manufacturer in this coverage litigation, notwithstanding insurers’ argument that it should be disqualified because in the course of this litigation the firm hired two lawyers who had formerly been employed at a firm that handled AIG coverage matters. In Victaulic Co. v. American Home Assur. Co., A163396 (Cal. App. June 28, 2022), the First District declared that the insurers had not shown any abuse of discretion on the part of the trial judge, nor had they shown that this present representation conflicted with any prior attorney-client relationship or that these lawyers were privy to confidential information.

ILLINOIS           Consent Judgment/Bad Faith

The Appellate Court has ruled that a liability insurer is bound by a consent judgment that its insured entered into after it declined to defend but that its liability is capped by its $3 million policy limit and not the $6 million amount of the consent judgment. In Country Mut. Ins. Co. v. Olsak, 2022 IL App (1st) 200695 (Ill. App. June 27, 2022), the First District agreed with the trial judge that the consent judgment was not collusive despite the conflicting interests of the lawyers who negotiated.it. The First District ruled that the conflict of interest was obvious and reflected a “stunning lack of judgment” but ultimately concluded that it could find no authority for overturning a consent judgment based solely on a conflict of interest on the part of counsel. Nevertheless, the court ruled that Country Mutual’s obligations were capped by its policy limit, declaring that “an insurer’s breach of its duty to defend does not expose the insurer to liability greater than the policy limits; it only estops the insurer from raising policy defenses to the coverage that already exists.” Further, the court ruled that Country Mutual was not liable for bad faith under Section 155 as its decision not to defend was not vexatious or unreasonable.

LOUISIANA           Assault and Battery Exclusion

The Louisiana Supreme Court has ruled in Kazan v. Red Lion Hotels, 2021-CC-01820 (La. June 29, 2022) that an assault and battery exclusion in a CGL policy eliminates coverage for allegations that a motel allowed a customer to be abducted from its parking lot. The court ruled that a policy does not have to have a “specific exclusion for kidnapping provided the words of a policy – even if stated in general terms – are otherwise sufficient to unambiguously bar coverage for such conduct.”

NEW YORK           Construction Exclusion

The First Department has ruled in Cookies on Fulton, Inc. v. Aspen Specialty Ins. Co., 2022 NY slip op 04219 (App. Div. June 30, 2020) that a personal injury claim resulting from the insured’s installation of light bulbs in a customer’s store involved “maintenance” and therefore fell within an exception to Aspen’s exclusion for “construction” and “renovation” activities..


Inside the Insurance Industry

MarketScout reports that rates for the renewal of commercial property/casualty business rose 5.9% during the second quarter of 2022, about the same as the 6% average for the first quarter of the year and 5.8% at the end of 2021.

Gallagher Re reported last week that rates for property reinsurance rates for renewals in Florida rose by as much as 50% and 40% nationally. In a new report, Gallagher Re attributes the increases to concerns about inflation and natural catastrophes.

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