Apr 21 2023

Insurance Law Newsletter - Week of April 21, 2023


            The California Court of Appeal has sustained a lower court's demurrer with respect to a restaurant's COVID business interruption claim.  In Coast Restaurant Group Inc. v. Amguard Ins. Co., GO61O40 (Cal. App. April 10, 2023), the Fourth District ruled that the Superior Court erred in refusing to find allegations of “direct physical loss” but declared that the demurrer should nonetheless be sustained due to the applicability of the policy’s virus and ordinance or law exclusions.  The Fourth District declined to rule that giving effect to these exclusions would render the policy's coverage "illusory" or that coverage was required pursuant to California’s efficient proximate cause doctrine.

            The Second Circuit has issued a summary order in Connecticut Children’s Medical Center v. Continental Cas. Co., No. 22-322 (2d Cir. April 13, 2023) affirming a Connecticut District Court’s grant of summary judgment to CNA on the grounds that the presence of virus particles had not caused “direct physical loss” in light of the analysis adopted by the state’s Supreme Court in Connecticut Dermatology.  The court also refused to provide “disease contamination coverage” for this loss since the generic health orders issued in Connecticut were not specific to the insured’s premises.


SECOND CIRCUIT             E&O/”Prior Knowledge” Exclusion  (NY)

            The Second Circuit has issued a summary order in North River Ins. Co. v. Leifer, No. 22-1009 (2d Cir. April 18, 2023), affirming a New York District Court’s declaration that a Prior Knowledge exclusion relieved a professional liability insurer of any duty to defend a malpractice claims against an attorney as “(1) Leifer had knowledge of the facts and circumstances giving rise to Lee’s malpractice claim, and (2) a reasonable attorney would have understood that Leifer’s conduct could reasonably have been expected to give rise to a malpractice claim.”

FIFTH CIRCUIT                   First Party Property/Mold  (TX)

            The Fifth Circuit has ruled in Buchholz v. Crestbrook Ins. Co., No. 22-50565 (5th Cir. April 18, 2023) that a “Biological Deterioration or Damage Clean Up and Removal”  endorsement that added mold coverage to a homeowner’s policy so long as an outbreak was due to a covered peril did not cover generalized mold infestation caused by moisture and condensation within the structure’s wall.  In light of the Texas Supreme Court’s 1965 ruling in Fiess, the court declared that generalized mold infestation was not a covered peril.

EIGHTH CIRCUIT               Liability Limits/Bad Faith (MO)

            A divided panel of the Eighth Circuit has ruled in Fluor Corp. v. Zurich American Ins. Co., No. 21‑3389 (8th Cir. April 13, 2023) that a Missouri District Court erred in holding that Zurich American could not have committed bad faith in refusing to contribute more to settle smelting BI claims that ultimately resulted in a $300 jury verdict.  Whereas the District Court ruled that Zurich had already exhausted its $3.5 million policy limits as the result of earlier settlements, the Eighth Circuit ruled that an endorsement to the policy could be interpreted as requiring that the limits of coverage apply on a “per claim” basis and that Zurich American therefore still had obligations to defend and settle.  In a dissent that is twice as long as the majority opinion, Justice Colliston argues that this interpretation flouts Missouri’s rules of contract interpretation and that the endorsement in question clearly only applies to “incidental professional liability” claims.

MASSACHUSETTS           Asbestos/Settlements/Successor Liability

            A federal District Court has ruled that a settlement agreement that CNA entered into years ago resolving an asbestos manufacturer's coverage claims remains binding and requires the insurer to continue to pay defense costs as previously agreed.   In Continental Insurance Company v. Neles-Jamesbury Inc., No. 21-11767 (D. Mass. Mar. 28, 2023), Judge Hillman rejected the insurer's contention that the agreement was not binding upon it since its insured was Neles Inc. and that it had never insured Neles-Jamesbury or Jamesbury Corporation.  The court also declined to rule that CNA had preserved the right to raise such arguments through the generic resignation of rights in the earlier Agreement.  Further, the court found that implying a right to termination was inconsistent with that section of the agreement which required Continental to defend and pay its share of defense costs up until the date that it exhausts its indemnity limits.  Finally, the court ruled that these arguments were contrary to Massachusetts' law, which favors settlement agreements that hold people to their contracts and avoid costly and time-consuming litigation.

NEVADA                               Sexual Assault Endorsement/Limits/Ambiguity

            Where a CGL policy contained both a $1 million “occurrence” limit for bodily injury and property damage claims and a separate endorsement adding $1 million in coverage to the policy for abuse and molestation claims, a federal district court in Reno has ruled in Carson City v. Travelers Ind. Co., No. 22-0006 (D. Nev. April 19, 2023) that Travelers was wrong in contending that its indemnity obligations to fund settlement of sexual abuse claims involving a municipal summer camp were restricted to the policy’s $1 million LAM endorsement.   Despite Travelers’ contention that the endorsement made clear that it was the sole source of coverage for sexual abuse claims, the District Court found that whereas the endorsement did contain exclusionary language it also stated that its coverage was “in addition to, and not included within” Coverage A and therefore could reasonably be interpreted to support Carson City’s claim that it was entitled to both the policy’s $1 million “occurrence” limit and the $1 million LAM endorsement limit.   While therefore ruling for the insured on the coverage issue, Judge Hicks declined to award bad faith damages, holding that Travelers’ position had also been reasonable and that it had not breached the implied covenant of good faith and fair dealing.

TEXAS                      Additional Insureds/Excess/Follow Form

            The Texas Supreme Court has ruled in ExxonMobil Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 21-0936 (Tex. April 14, 2023) that the state Court of Appeals erred in refusing to hold that Exxon was an additional insured under an umbrella policy that National Union had issued to an oil refiner that had contracted to do work for Exxon.   Whereas the Court of Appeals had ruled that the follow form language in the umbrella policy incorporated by reference language in the partes’ service agreement that only required primary coverage for Exxon, the Texas Supreme Court ruled that the service agreement’s restrictions were not referred to or incorporated by reference with respect to the umbrella policy. As a result, the court ruled that the National Union policy did not satisfy the long-standing rule in Texas “that the terms of a separate contract may be incorporated by reference into an insurance policy if that reference is clearly manifested in the terms of the policy itself.”  The court ruled, therefore, that Exxon was an additional insured under the umbrella policy because AIG had acknowledged its rights as an additional insured under the CGL policy


Inside the Insurance Industry 

            Moody’s predicts that auto insurers will initially benefit from cars getting accident avoidance features, but that autonomous vehicles could eventually translate into significantly lower premiums and profits.

Fitch Ratings reported last week that  cat losses and deteriorating auto results increased the industry statutory combined ratio to 102.5 in 2022.


            WakeMed has sued Willis Towers Watson Southeast, Inc. in federal court filing in North Carolina seeking indemnification for a class action brought by patients who claimed that WakeMed had made unauthorized disclosure of private information  through its use of the Meta Pixel tracking tool.

Why Lawyers Have A Bad Name

            A consumer class action has been filed against Henkel Corporation in Missouri by the Harvath Law Group alleging that the defendant's 88 oz. container of 'All' laundry detergent does not contain enough detergent for '58 loads' as advertised.

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