PANDEMIC UPDATE
The Seventh Circuit has ruled in Froedtert Health, Inc. v. Factory Mutual Ins. Co., No. 22-2577 (7th Cir. June 2, 2023) that $85 million that a hospital chain spent to implement safer treatment procedures for patients during the pandemic were not covered under its commercial property policy beyond the policy’s separate $4 million limit for losses due to communicable disease.
The Illinois Appellate Court has sustained a Superior Court’s dismissal of an insured’s class action against its property insurer for allegedly violating the Illinois Eavesdropping Act by recording a telephone interview with the insured concerning his COVID 19 claims. In Cook Au Vin, LLC v. Mid-Century Ins. Co., 2023 IL App. (1st) 220601 (Ill. App. Ct. May 24, 2023) the First District ruled that the eavesdropping statute prohibits the surreptitious recording of a private conversation by one who is not a party to the conversation and therefore did not apply here where Mid-Century was a direct participant in a conversation with its policyholder and his attorney. Furthermore, the court ruled that there was nothing "surreptitious" about the recording, which the claims adjuster had declared he was doing at the onset of the conversation.
CASES OF CONSEQUENCE
THIRD CIRCUIT Energy/”Occurrence” (PA)
In a case arising under New York law, the Third Circuit has ruled that a Pennsylvania District Court erred in requiring a contractor’s liability insurer to accept coverage for allegations that its insured ‘s hydraulic fracking services to extract natural gas from wells owned by U.S. Energy had damaged dozens of those wells. Whereas the District Court had ruled that the jury’s finding that the insured “fail[ed] to perform its contract with U.S. Energy in a workman like manner” was not the same as “faulty workmanship,” the Court of Appeals concluded in American Home Assur. Co. v. Superior Well Services, No. 22-1498 (3d Cir. May 31, 2023) that these terms are, in fact, equivalent and ruled that faulty workmanship, such as rendering a substandard service or causing damage by use of an unsuitable product, as was the case here, does not constitute an “occurrence’” under Pennsylvania law. The Third Circuit also rejected the lower court’s finding that the “occurrence” requirement did not apply to the policy’s Underground Resources and Equipment Coverage endorsement.
SIXTH CIRCUIT Coverage B/Disparagement/Slogan (MI)
The Sixth Circuit has ruled in L&K Coffee, LLC v. LM Insurance Corp., No. 22-1727 (6th Cir. June 1, 2023) that a Michigan District Court did not err in declaring that a CGL insurer had no duty to defend Lanham Act claims that a coffee manufacturer falsely labeled his coffee beans as all coming from Kona in the Hawaiian Islands. The court refused to “look behind the pleadings” to infer a claim for disparagement based upon the possibility that consumers who were disappointed by the taste of the insured’s coffee might thereafter develop a poor opinion of Kona coffee as not being worth its high price. The court also refused to find that he word "Kona" is a slogan.
SEVENTH CIRCUIT Property Insurance/Payment to Co-Payees (IL)
The Seventh Circuit has ruled in Thirteen Investment Company, Inc. v. Foremost Ins. Co., No. 22-2203 (7th Cir. May 2, 2023) that a factory owner had no right of recovery against Foremost for a fire loss where Foremost had already delivered settlement checks to the insured’s public insurance adjuster. The court ruled that under Illinois law, Foremost had fully satisfied its policy obligations by issuing checks made payable to the insured and the public adjuster, even though the public adjuster later endorsed the name of all co-payees and cashed the checks, keeping the proceeds. While recognizing that the Illinois Supreme Court has not yet resolved this issue, the Seventh Circuit declared that an insurer fully satisfies its obligations when it issues a check to a joint co-payee that is not responsible for the co-payee’s misconduct in unilaterally cashing the check.
CALIFORNIA Fraud/Restitution
The California Court of Appeal has ruled in Nationwide Insurance Company of America v. Tipton, CO95606 (Cal. App. May 26, 2023) that a trial court did not err in converting criminal restitution orders to civil judgments against defendants who had defrauded Nationwide. In affirming the Superior Court's ruling, the Third District found that Penal Code Section 1214 equates a restitution order with a civil judgment and articulates how such orders can be enforced within criminal courts. The court went on to find that "if a civil court is asked to convert such a restitution into a civil judgment, as is the case here, it is not error for it to do so."
MONTANA CGL/”Occurrence”
The Montana Supreme Court has ruled in Christian v. United Fire and Casualty Company, 2023 MT 100 (Mt. May 30, 2023), that allegations that a general contractor failed to honor his contractual duties to pay his subcontractors failed to set forth a claim for bodily injury, property damage or “personal and advertising injury” under CGL policy.
OTHER DEVELOPMENTS OF NOTE
* * * Inside the Insurance Industry * * *
State Farm has announced that it is no longer accepting new applications for business or personal P/C coverage in California. State Farm attributed its decision to “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”
In the wake of State Farm’s decision, Allstate has also announced that it is withdrawing from the California market and a third major insurer (Farmers) is imposing tight restrictions on the risks that it will continue to underwrite in California.
Allegations by Republican Attorneys-General that insurers are violating anti-trust laws through their participation in the U.N.-back Net-Zero Insurance Alliance appear to be having their desired effect. Last week, four earlier defecting insurers were joined in their departure by QBE, Allianz SE, Axa SA, Scor SE and Sompo Int’l Holdings.
* * * Environmental Update * * *
3M Co., DuPont de Nemours Inc. and other chemical manufacturers have agreed to pay the City of Rome, Georgia more than $100 million to settle claims that the “forever chemicals” in their products polluted the City’s drinking water.
* * * MM On The Road * * *
Boston partner Michael Aylward will be speaking at DRI’s Bad Faith claims conference in Charlotte, North Carolina on June 14. Aylward will provide an update on the American Law Institute’s new Torts Restatement’s treatment of first party bad faith.