May 12 2023

Insurance Law Newsletter - Week of May 12, 2023


          The Fifth Circuit has sustained a Louisiana District Court's declaration that a hotel was not entitled to coverage for COVID business interruption losses.  In Hotel Management of New Orleans LLC v. General Star Indemnity Company, No. 22-30354 (5th Cir. May 5, 2023), the court declared that its 2022 ruling in Q Clothier precluded any finding that the insured had suffered a direct physical loss.  The court also affirmed the lower court's dismissal of claims against First Specialty based upon a forum-selection clause designating New York state courts as the required forum for litigation.

          The Second District has ruled in Starlight Cinemas, Inc. v. Massachusetts Bay Insurance Company, B313518 (Cal. App. May 1, 2023) that a trial court had not erred in dismissing the insured's claim without leave to amend in view of the absence of any allegation that its property had been physically altered by the presence of COVID virus particles.  Following a wait of recent state appellate opinions on this issue, the Second District disagreed with recent rulings that have allowed these claims to go forward and sustained the claim’s dismissal.


FOURTH CIRCUIT            DJ Fees/Allocation  (W VA)

The Fourth Circuit has ruled in Moses Enterprises LLC v. Lexington Ins. Co., No. 22-1373 (4th Cir. April 28, 2023) that a West Virginia judge erred in requiring Lexington to reimburse its insured for the full cost of his DJ fees where some of those fees were incurred to prosecute his "Jenkins Act" for alleged violations of the West Virginia Unfair Trade Practices Act (for which West Virginia does not allow fee recovery).  Despite the insurance argument that in this case the two claims were pursued as a single action, the Fourth Circuit declared that they were, in fact, distinct causes action.  As a result, the case remanded for further findings as to the sums that were incurred to obtain payment of the insured's insurance recovery.

EIGHTH CIRCUIT             Procedure/”Snap Removal”  (MO)

          The Eight Circuit has ruled in M&B Oil, Inc. v. Federated Mutual Insurance Company, No. 21-3817 (8th Cir. May 1, 2023) that a Missouri District Court erred in allowing Federated Mutual to remove an insurance dispute to federal court before the plaintiff had properly served a non-diverse defendant.  In this case, the court ruled that the City of St. Louis had always been a part of this case and that "snap removal or not, an absence of complete diversity makes a federal forum unavailable."  The court did suggest, however, that snap removal might be appropriate if a plaintiff had fraudulently joined a non-diverse defendant. 

ELEVENTH CIRCUIT        Attorney’s Fees (FL)

The Eleventh Circuit has ruled in Southern-Owners Insurance Company v. Maronda Homes, Inc. of Florida, No. 20-11526 (11th Cir. May 5, 2023) that a Florida district court did not err in in refusing to grant a policyholder's claim for attorney's fees under Fla. Stat. § 627.428 in light of the fact that it already dismissed the case for lack of subject matter jurisdiction.  Notwithstanding an unpublished contrary opinion from the court in 2008, the court held that it was in fact bound by its earlier decision in certain British underwriters at Lloyd's of London v. Jet Charter Services, Inc., F.2d 534 (11th Cir. 1984) in which it had rules that awards of attorney's fees under Section 627.428 are integral to the merits of the case and therefore are not really collateral, as it had found in its 2008 unpublished opinion in Prime Insurance Syndicate.

CALIFORNIA          Duty to Defend/Bad Faith

          The California Court of Appeal has ruled in Dua v. Stillwater Ins. Co., B314780 (Cal. App. May 5, 2023) that a trial judge erred in granting summary judgment to a homeowner's insurer based upon an animal liability exclusion where there were questions of fact with respect to the ownership or domicile of the pit bulls that had attacked the underlying claimants.  The court took issue with Stillwater's denial of any duty to defend notwithstanding statements from its policyowner that she did not own the dogs and that the dogs were in the care, custody and control of her boyfriend who was walking them at the time that the dog attack occurred.  "There is no evidence that Stillwater took any measures to investigate or otherwise negate the fact suggesting that an animal liability exclusion may not apply and there was potential coverage, and therefore it had a duty to defend Dua."  The case was therefore remanded to the trial court for reconsideration of issues as to whether Stillwater acted in bad faith or could be held liable for punitive damages based upon its failure to investigate or accept coverage.

ILLINOIS                          Declaratory Relief/Actual Controversy

            The Appellate Court has ruled in Shelter Mut. Ins. Co. v. Mouw, 2023 IL App (First) 221368 (Ill.  App. Ct. April 27, 2023) that an insured was not entitled to bring an action for declaratory relief seeking to enforce its right to appraisal where it had already denied its insured's claim as well as the insured's demand for appraisal.  Under the circumstances, the First District ruled that there was no “actual controversy” to support jurisdiction and that a DJ action should not be used as a vehicle to ratify conduct that had already occurred.

MINNESOTA          Property Insurance

          Minnesota Supreme Court has ruled on Wesser v. State Farm Fire & Casualty Company, A21-1587 (Minn. April 26, 2023) that language in a fire insurance policy stating that "no interest accrues on the loss until after the loss becomes payable" is sufficient to preclude pre-award interest under Minn. Stat. Section 54909 (2022).  The court emphasized that the statutory language in question provided that pre-award interest should be granted "except as otherwise provided by contract or allowed by law " 

TEXAS                   Misrepresentation

          In a case that poses the question of whether the common law requirement that insurer is seeking to avoid coverage based upon policy on the misrepresentations must prove that the insured intended to deceive the insurer is in conflict with the plain language of Section 705.051 of the Texas Insurance Code, the state supreme court has ruled in American National Ins. Co. v. Arce, No. 21-0843 (Tex. May 2023) that Section 705.051 does not displace the common law scienter rule or because the statute prescribes necessary, not exclusive or sufficient, conditions for denying recovery under a contestable policy."   American National had argued that the plain language of Section 705.051 allowed rescission of a policy based on an innocent, unknowing or careless misstatement in an insurance application so long as the statement is of a material fact that either induced the policy's insurance or affected the premium charged.


* * * Inside the Insurance Industry * * *

          Insurance Journal reports that Chubb CEO Evan Greenberg has publicly criticized third party litigation funding, observing that it will have an impact on the availability and cost of liability insurance and is of dubious societal value.

* * * Across the Bar * * *

          Twenty Clyde & Co. insurance coverage lawyers have left the firm to form Werner Ahari Mangel in Washington, D.C.

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