May 5 2023

Insurance Law Newsletter - Week of May 5, 2023


            In keeping with its 2022 opinion in Oral Surgeons, the Eight Circuit ruled last week in Olmstead Medical Center v. Continental Cas. Co., 2023 WL 3086691 (8th Cir. Apr. 26, 2023) that a Minnesota District Court did not err in ruling that the presence of virus particles did not satisfy the policy requirement of direct physical loss to property.  The court distinguished earlier Minnesota Supreme Court opinions such as Marshall Produce as construing “markedly different” policy wordings that lacked a requirement of “physical” damage.

            The California Court of Appeals has sustained a lower court's dismissal of a Native American tribe's claim for business interruption coverage, ruling in Santa Ynez Band of Chumash Mission Indians versus Lexington Ins. Co., B320834 (Cal. App. April 27, 2023) that the insured had not presented sufficient evidence to show that the COVID virus caused physical damage to its casino. 


FLORIDA                              First Party Insurance/Pollution Exclusion/Blood

            The Florida District Court of Appeal has ruled that homeowners insurer may not rely on a pollution exclusion to avoid reimbursing a homeowner for clean up costs incurred after an intruder defecated and bled profusely inside the insured's home.  In Florida Farm Bureau General Insurance Company v. Worrell, Case No. 5D21-3196 (Fla. DCA 5 April 28, 2023), the Fifth District agreed with a lower court that blood is not a "pollutant" and is, in fact, "materially different from any of the substances listed to illustrate that which constitutes a ‘pollutant.’”  Further, the Court ruled that blood does not meet the exclusion’s definition of "waste" since it is not a material to be "recycled, reconditioned or reclaimed."  Having concluded that the cost of cleaning up blood was not excluded, the court found it unnecessary to address fecal matter was a “pollutant” since it was, at most. a "concurrent cause" of the insured's loss.

MASSACHUSETTS           Molestation Exclusion

            Judge Stearns has rejected contribution claims by the liability insurer of a landlord who sought reimbursement from the insurer of a lessee for sums paid to settle a rape claim on the property.  In Commerce Ins. Co. v. Philadelphia Ind. Ins. Co., No 21-40053 (D. Mass. April 27, 2023), the District Court declared that the lessee’s insurer (Philadelphia) was relieved of any duty to provide coverage in light of a policy exclusion for “bodily injury arising out of the actual or threatened abuse or molestation by anyone of any person while in the care, custody, or control of any insured.”  Despite Commerce's arguments to the contrary, the District Court held that rape is clearly a form of  "molestation."  The court declined to accept Commerce's argument that the Supreme Judicial Court's recent analysis of the term "physical abuse" in Dorchester Mutual v. Miville was in any way relevant or required proof that the assaulting party held an imbalance of power over his victim.   Further, Judge Stearns ruled that the victim was in the care or custody of the lessee, as a tenant is always in the care of his or her landlord.

MASSACHUSETTS           Employee Exclusion

            Yet another Massachusetts court has sustained a surplus lines exclusion for injury to employees.  In Nautilus Ins. Co. v. Moura, No. 21-11864 (D. Mass. April 28,2023), Judge Saris ruled that the Nautilus L205 endorsement precluded any duty  to defend claims by a worker who fell off a roof while removing scrap metal.  Despite disputed questions as to whether the individual in question was employed by a subcontractor, the court ruled that this individual was employed by an insured under the policy, and therefore, is subject to the exclusion.  As a result, while granting summary judgment to Nautilus on the basis of the L205 exclusion, the court declined to find that the L282 exclusion applied since it is restricted to claims involving contractors and subcontractors.  The court also rejected the underlying claimant's argument that giving effect to the  L205 endorsement was unreasonable or a violation of Chapter 93A.  MM’s Michael Aylward represents Nautilus.

NEW JERSEY                     First Party/Cyber/War Exclusion

            The Appellate Division has sustained a lower court’s’ finding that a war risk exclusion in a commercial property policy did not preclude coverage for first party losses sustained as the result of the NotPetya cyberattacks in 2017.    In Merck & Co. v. ACE American Ins. Co., A-1879-21 (App. Div. May, 1, 2023), the court refused to give effect to an exclusion for “[ll[oss or damage caused by hostile or warlike action in time of peace or war, including action in hindering, combating, or defending against an actual, impending, or expected attack.”   Rather, the court declared that:  “Coverage could only be excluded here if we stretched the meaning of "hostile" to its outer limit in an attempt to apply it to a cyberattack on a non-combatant firm that provided accounting software updates to various non-combatant customers, all wholly outside the context of any armed conflict or military objective. But that approach would conflict with our basic construction principles requiring a court to narrowly construe an insurance policy exclusion.”  As a result, the Appellate Division agreed with the trial judge “that the plain language of the exclusion did not include a cyberattack on a non-military company that provided accounting software for commercial purposes to non-military consumers, regardless of whether the attack was instigated by a private actor or a "government or sovereign power.”  The court also found that this understanding was consistent with the history of war exclusions and earlier cases that “demonstrate a long and common understanding that terms similar to "hostile or warlike action" by a sovereign power are intended to relate to actions clearly connected to war or, at least, to a military action or objective.”


Inside the Insurance Industry

            Michael Kreidler, who is the nation’s longest-serving insurance commissioner, told staff this week that he will not be seeking reelection as Washington’s Insurance Commissioner. 

            CNA announced this week that it earned $297 million in the first quarter of 2023, up slightly from the year before.

Sexual Torts Update

            A Los Angeles court has sentenced Dr. James Heaps to 11 years in prison for sexual abusing female patients while a gynecologist at UCLA.   The University recently paid nearly $700 million to settle civil claims arising out of Heaps’ misconduct.

Across the Bar 

            The Covington & Burling law firm, which recently opened a Boston office, has promoted coverage partner Gretchen Hoff Varner to helm its large San Francisco office.

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