Nov 25 2022

Insurance Law - Week of November 25, 2022

PANDEMIC UPDATE

The U.S. Supreme Court issued a list of certiorari petitions that it was denying this, including Maryland auto dealer Bel Air Auctions effort to overturn the Fourth Circuit’s 2022 ruling denying coverage for its COVID claims against Chubb affiliate Great Northern.

The Ninth Circuit has sustained a California District Court’s refusal to find coverage for class action claims brought by skiers who were unable to schuss the slopes at Vail and other resorts due to COVID-related closures. In In Re: United Specialty Insurance Company Ski Insurance Litigation, No. 21-16986 (9th Cir. Nov. 22, 2022) (unpublished), the court did not affirm on the basis of the lower court’s finding that these losses were not due to any “quarantine” but instead found that there was no possibility of coverage because the policy’s “effective date of coverage” precluded coverage for losses suffered after March 15, 2020, when the resorts shut down.

In a second travel insurance case, the Second Circuit issued an unpublished opinion earlier this month in Oglevee v. Generali U.S. Branch, No. 22-336 (2d Cir. Nov. 2, 2022) upholding a New York District Court’s ruling that the Generali policy’s coverage for “quarantines” and “natural disasters” did not apply to trips that the insured was obliged to cancel due to COVID.

The Louisiana Supreme Court announced this week that it will review the intermediate appellate court’s ruling finding that Lloyd's owes coverage for the Cajun Conti restaurant's losses.

The Fourth District of the California Court of Appeal has ruled in Grech Motors, Inc. v. Travelers Prop. Cas. Co. of America, No. E07703 (Cal. App. Oct. 11, 2022) (unpublished) that a trial court did not err in sustain a trial court’s granting of Travelers’ demurrer without leave to amend in light of Musso and other recent Court of Appeals’ decisions holding that the inability to use property is not “direct physical loss.”

NEW CASES OF CONSEQUENCE

FIRST CIRCUIT           Coverage B/Trade Secrets/Disparagement (MA)

The First Circuit has reversed a Massachusetts District Court’s ruling that a CGL insurer had no duty to defend trade secrets claims against a business. In an oddly slangy opinion (coverage “kicked in”), Judge Thompson opined in Lionbridge Technologies v. Valley Forge Ins. Co., No. 21-1689 (1st Cir. Nov. 21, 2022) that allegations that the insured had deliberately spread misrepresentations about its competitors potentially set forth a claim for defamation under Coverage B. The court refused to find that Valley Forge’s duty to defend was negated by the “knowing violations” exclusion or other exclusions. In light of this ruling, the case was remanded to the District Court to resolve issues about whether Valley Forge had acted reasonably in refusing to pay hourly rates of $1400 an hour or in the manner in which it allocated fees between covered and non-covered claims. The First Circuit did affirm the lower court’s ruling that there was a “common interest” between Lionbridge and Valley Forge, despite these coverage disputes, that permitted Valley Forge to gain access to reports between Kirkland & Ellis and Lionbridge.

EIGHTH CIRCUIT           Agent E&O (AR)

The Eighth Circuit has ruled in I Squared Mgt. LLC v. McGriff Insurance Services, No. 21-3256 (8th Cir. Nov. 9. 2022) that an Arkansas District Court did not err in ruling that an insurance agent was not liable for advising a warehouse owner that it did not need to buy a builder’s risk insurance policy that would have covered a flood loss to the property. Consistent with rulings of the Arkansas Supreme Court that an insured not have only has a responsibility “to educate himself concerning matters of insurance coverage" and must communicate any requests for coverage to his agent in comprehensible terms. While noting that the Arkansas Supreme Court had suggested in its 1986 opinion in Stokes that this general rule might not apply if there were “special circumstances” in the relationship between the insured and its agent, the Eighth Circuit noted that even the Stokes court took a dim view of this exception and that no Arkansas court had ever applied it in the intervening four decades. In this case, the court found that there were not only no special circumstances but that it also did not appear that the agent was even aware that the insured owned a warehouse.

CALIFORNIA           Coverage B/Junk Faxes/Reasonable Expectations

Although the issue of CGL coverage for junk fax claims has largely faded since the heyday of the TCPA coverage wars fifteen years ago, a new California ruling has opened the door to increased litigation notwithstanding the addition of new exclusions to control these losses. On a certified question from the Ninth Circuit, the California Supreme Court ruled in Yahoo.com v. National Union Fire Ins. Co. of PA, S253593 (Cal. Nov. 17, 2022) that a CGL policy can provide coverage for such claims if doing so would be consistent with the insured’s objectively reasonable expectations of coverage. Even though the main body of AIG’s CGL policy contained a TCPA exclusion, it was superseded by Endorsement No. 1, which reinstated coverage for “personal injury” due to five offenses, including publication of material that violates a person’s right of privacy. The court emphasized that the policy provisions that are intended to limit coverage to “content-based” injuries were worded differently from these privacy wordings and that coverage therefore extended to injuries due to interference with the recipient’s rights to seclusion and not just communications involving private information. As the court summed up, “we do not find Yahoo!’s broad reading of the coverage provision to be conclusive. Rather, we agree with Yahoo! that the coverage provision is ambiguous and that the standard rules of contract interpretation do not resolve the ambiguity. Because the provision is ambiguous, we conclude that it must be interpreted in a way that fulfills Yahoo!’s objectively reasonable expectations, which must be determined in further litigation. Finally, if the foregoing procedures do not resolve the ambiguity, then we resort to the rule that ambiguities are to be resolved against the drafter, and here the insurer is considered to be the drafter of the specific coverage language whose meaning is in dispute.” The court did not express any opinion on arguments raised in the Ninth Circuit that coverage might separately be subject to the policy’s Violation of Statutes exclusion.

NEW YORK           CGL/Professional Services Exclusion

The Appellate Court has issued a brief opinion declaring that a trial court erred in failing to apply a “professional services” exclusion to claims that a consumer contracted the bacterial infection Methicillin-Resistant Staphylococcus Aureus (MRSA) during a pedicure performed at the insured’s nail salon. In Walker v. Erie Ins. Co., 2022 NY Slip Op 06332 (App. Div. Nov. 10, 2022), the Fourth Department agreed with Erie that the “evidence establishes that plaintiff contracted MRSA due to the rendering of a cosmetic service or treatment, namely, the professional pedicure performed by the insured.” The court rejected plaintiff’s argument that this exclusion only applies if the professional service was performed in a negligent manner. Nevertheless, the Appellate Division declined to enter judgment for Erie, finding that it had failed to sustain its burden of showing that the nail salon operator was aware that this exclusion was in its policy.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

S&P Global Market Intelligence reported this week that domestic P/C companies posted a combined ratio of 106.6 in the third quarter of 2022—the highest in five years. These poor results were attributed to major recent cat losses and increased repair costs due to inflation.

The NAIC has issued a letter to the Federal Insurance Office of the U.S. Treasury this week, complaining that a proposed set of requests to P/C insurers for information concerning the impact of climate-related losses on the availability and affordability of homeowners insurance had side-stepped the NAIC and had not been developed in partnership with state regulators.

Sexual Assault Claims

New York’s Adult Survivors Act goes into effect this week and will open a one-year window for the filing of sexual assault claims that would otherwise be barred by statutes of limitation.

Back to Newsletters