Mar 31 2023

Insurance Law Newsletter - Week of March 31, 2023


THIRD CIRCUIT                  D&O

            The Third Circuit has ruled in Liberty Insurance Underwriters v. Cocrystal Pharma, Inc., No. 22-2242 (3d Cir. Mar. Mar. 29, 2023) that a Delaware judge erred in granting summary judgment to a D&O insurer on the grounds that the SEC’s investigation of the insurer following the merger of Biozone Pharmaceutical, Inc. and Cocrystal Discovery, Inc. did not involve a “wrongful act.”

CALIFORNIA                        Environmental/”Voluntary Payments”

            The California Court of Appeal has sustained a lower court’s ruling that a local water district violated voluntary payment prohibitions by entering into a consent decree to resolve the federal government’s claim for natural resource damages due to mercury contamination of the Guadalupe River Watershed.  In a fifty page opinion, the Sixth District declared ruled in Santa Clara Valley Water District v. Century Ind. Co., H047394 (Cal. App. Mar. 30, 2023) that:  “Because the District, without notifying Century or obtaining its consent, settled the NRD Claim and incurred expenses to comply with its obligations under the Consent Decree, its actions constituted a voluntary payment that precluded its right to seek indemnity under the policies. In so holding, we find that the NVP provisions apply to the District’s settlement even though it was achieved through a consent decree rather than a more traditional settlement agreement. We conclude further that because the NRD Claim was disposed of by settlement as embodied in the Consent Decree, there was no “adjudication” that gave rise to an “ultimate net loss” that would have given the District the right to pay the obligation and thereafter seek indemnification from Century.”

CALIFORNIA                        Equitable Contribution

            Reaffirming the rule that equitable contribution is only available in cases where insurers share the same risk, the Fourth District has ruled in California Capital Ins. Co. v. Employers Compensation Ins. Co., No. G060532 (Cal. App. Mar. 20, 2023) that a general liability insurer was not entitled to be reimbursed costs of defense or settlement by the employer’s liability insurer of their mutual insured.  In a succinct decision, the Court of Appeal declared: “ It is well settled that an equitable contribution claim only lies if the two insurers share the same level of liability on the same risk as to the same insured. In this case, the general liability insurance is not entitled to equitable contribution because it did not insure the same risk as the workers' compensation and employers' liability insurance. 


MASSACHUSETTS                       Duty to Defend/Bad Faith/Recoupment

            The state Appeals Court has ruled in John Moriarty & Associates v. Zurich American Ins. Co., No. 22 P 275 (Mass. App. Ct. Mar. 31, 2023) that a trial judge erred in ruling that an insured could not pursue contractual or bad faith claims against a liability insurer that had promised to defend but waited months before reimbursing the insured for its costs of defense.  The Appeals Court also found that a justiciable controversy had been pleaded with respect to whether Zurich had a right to recoup those defense costs that it had since paid, notwithstanding the insurer’s argument that it had not yet made a demand for reimbursement and had only reserved the right to seek recoupment in the event that the court otherwise ruled that it did not owe coverage.   The court also discussed the contours of the recoupment case law without voicing an ultimate opinion on the viability of such claims in Massachusetts.  Finally, the Appeals Court declined to rule on whether Zurich might have an indemnity duty in the event of an adverse judgment in the  underlying suit, holding that such issues were premature.

NEW YORK                          Rescission

            The Second Department has sustained a lower court’s denial of an insurer’s motion for summary judgment on its rescission claims.   While ruling that the trial court had erred in finding that the motion was “procedurally improper” because the insurer had failed to include necessary parties, the Appellate Division nonetheless ruled in American Empire Surplus Lines Ins. Co. v. ZNKO Construction, Inc., 2023 NY slip op 01496 (App. Div. Mar. 22, 2023) that no basis for summary judgment existed in light of disputed issues of fact with respect to whether the alleged misrepresentations were material, and whether the plaintiff waived its right to rescind by accepting further premiums after learning of facts which would allow for rescission.

SOUTH CAROLINA            Liquor Liability Insurance/Direct Rights

            The South Carolina Supreme Court has ruled that the victim of a drunk driving accident could not sue a liability insurer for its claimed negligence in failing to notify the South Carolina Department of Revenue that the insured bar had allowed its statutorily-mandated liquor liability insurance to lapse.  On a certified question from a federal judge, the court has declared in Denson v. National Cas. Co., No. 2021-1389 (S.C. Mar. 29, 2023) that the plaintiff could not make out a claim for negligence per se because he had not demonstrated either that National Casualty owed him a common-law duty of care, or that the legislature had intended to create a private right of action when it enacted S.C. Code Ann. § 61-2-145(C) [(2022) requiring such businesses to maintain liability coverage.

WISCONSIN                         Auto/UIM/Reducing Clause

            The Wisconsin Supreme Court has ruled in Secura Supreme Ins. Co. v. Estate of Huck, 2023 WI 21 (Wis. Mar. 22, 2023) that language in an auto policy stating that the insurer’s duty to pay UIM benefits is reduced by all amounts that the insured receives from worker’s compensation should ultimately reflect the net result and not just the initial payment received, part of which was  insurer is not statutorily authorized to reduce UIM liability limits by the total worker's compensation and tortfeasor settlement payments the Estate initially received but later reimbursed.   This result was criticized in a concurring opinion as well as a lengthy dissent in which Justice Bradley attacked the majority for engaging in a result-oriented analysis and ignoring the plain language of the policy.


Inside the Insurance Industry

            Swiss Re reported last week that inflationary pressures in 2022 increase the value of property and casualty claims by 5-7.5%.

Tort Reform in the Sunshine State 

            Governor DeSantis has signed sweeping tort reform legislation (HR 837) which, among other things, shortens the statute of limitations for negligence suits from 4 to 2 years; eliminates pure comparative negligence (a claimant may not recover in the future if he or she is more than 50% at fault); allows an insurer to avoid bad faith liability it tenders its limits within 90 days of receiving notice of a claim; clarifies that bad faith is not mere negligence and requires tort claimants to act in good faith in their settlement demands to liability insurers, including time-limited demands.  Here is an excellent summary of HR 837 that was prepared by Clarke Silverglate’s Frank Ramos.  Meanwhile, the Florida plaintiffs’ bar filed thousands of law suits in advance of the effective date of the statute.

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