Dec 30 2022

Insurance Law - Week of December 30, 2022


Citing the Ohio Supreme Court’s recent declaration that commercial property insurance policies do not cover COVID BI losses, the Sixth Circuit issued brief opinions in five cases affirming the dismissal of policyholder claims.

The California Courts of Appeal continue to nibble around the edges of the COVID coverage controversy. In John’s Grill, Inc. v. Hartford Financial Services Group, Inc., A162709 (Cal. App. Dec. 27, 2022), the First District ruled that a trial court erred in dismissing a restauranteur’s claims against Sentinel Insurance in light of a Limited Virus Coverage endorsement in the policy which the couoet interpreted as containing an affirmative grant of coverage for “loss or damage” caused by a virus and a definition of “loss or damage” that the court held was broad enough to encompass pervasive infiltration of virus particulates onto the surfaces of covered property. Although the court acknowledged that this coverage was limited to specific causes, none of which had been alleged by the insured, it ruled that the broader interpretation advocated by Sentinel would turn the coverage provided by this endorsement into an “empty promise.”

In light of these conflicting opinions, the Ninth Circuit issued an opinion this week in Another Planet Entertainment, LLC v. Vigilant Ins. Co., No. 21-16093 (9th Cir. Dec. 28, 2022) certifying the following question to the California Supreme Court: “Can the actual or potential presence of the COVID-19 virus on an insured’s premises constitute ‘direct physical loss or damage to property’ for purposes of coverage under a commercial property insurance policy?”


FIFTH CIRCUIT           Employee Exclusion (TX)

The Fifth Circuit has ruled in National Liability & Fire Ins. Co. v. Riata Cattle Co., No. 21-40846 (5th Cir. Dec. 21, 2022) that an insured was not entitled to coverage for claims by an employee that he was injured due to the insured’s failure to properly maintain the truck in which he was injured in light of a policy exclusion for injuries to “‘[e]mployee’ of the ‘insured’ arising out of any course of: (1) employment by the ‘insured’ or (2) performing the duties related to the conduct of the ‘insured’s’ business.” Further, the court declined to rule that this exclusion was negated by Form F, the endorsement required under Texas law to ensure that policies conform to state transportation regulations.

GEORGIA           PFAS/Absolute Pollution Exclusion

A federal district court in Atlanta has ruled in Grange Ins. Co. v. Cycle-Tex, Inc., No. 21-147 (N.D. Ga. Dec. 5, 2022) that allegations that the insured caused or contributed to the discharge of harmful toxic per- and polyfluoroalkyl substances chemicals into North Georgia waterways are subject to a total pollution exclusion. In granting summary judgment to Grange, the court held that PFAS chemicals are clearly “pollutants.” While acknowledging the insured’s argument that regulatory surcharges assessed for water filtration remedies were not claims for “bodily injury” or “property damage” subject to Section 1 of the Total Pollution Exclusion, the court nonetheless held that these were a “loss, cost or expense” to treat or neutralize pollution within Section 2 of the exclusion.

NEW YORK           Tripartite

The Appellate Division of the New York Supreme Court has ruled a liability insurer may go forward with its legal malpractice claim against defense counsel on the theory that its mishandling of the underlying claim obliged Federal to pay millions more to settle than it should have owed. However, the First Department ruled in Federal Ins. Co. v. Lester Schwab Katz & Dwyer, LLP, 2022 NY slip op 7149 (App. Div. Dec. 15, 2022) that the trial judge should have dismissed Federal’s claims of fraud and negligent misrepresentation as the evidence did not support these theories of liability.

NEW YORK           War

Judge Furman has ruled in Hartford Fire Ins. Co. v. The Western Union Co., No. 22-CV-0557 (S.D.N.Y. Sept. 22, 2022) that a war exclusion relieved Hartford of any duty to defend Western Union against allegations by the families of victims of Malaysian Air Flight 17 that Western Union facilitated financial transaction that allowed pro-Russian dissidents in Ukraine to shoot down the aircraft in 2014. Applying Colorado law, the District Court ruled that the loss clearly arose out of an “insurrection” within the scope of the exclusion.

OHIO           First Party/Cyber Claims/Direct Physical Loss

Having recently ruled that COVID virus particles do not cause “direct physical loss,” the Ohio Supreme Court ruled last week that property insurance policies do not cover ransomware claims in which malware is attached to the insured’s computer, encrypting access to stored files and data. In EMOI Services, LLC v. Owners Ins. Co., 2022-Ohio-4649 (Ohio Dec. 27, 2022), the court ruled that the policy’s electronic equipment endorsement did not apply to this loss because “software is an intangible item that cannot experience direct physical loss or direct physical damage” and that “[c]omputer software cannot experience “direct physical loss or physical damage” because it does not have a physical existence.”


Inside the Insurance Industry

Catastrophe modeler Karen Clark & Co. estimates that insured losses from last week’s severe weather events could exceed $ 5 billion.

Barry Gilway has announced plans to step aside after a decade as the CEO and Executive Director of Florida’s Citizens Property Insurance Corporation.

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