United States: Insurance Law - Week Of August 5, 2022

PANDEMIC UPDATE

The Ninth Circuit has ruled in Palmomar Health v. American Guarantee and Liability Ins. Co., No. 21-50673 (9th Cir. July 28, 2022) that losses due to the presence of coronavirus particles on its property are subject to a "contamination" exclusion for "any cost due to Contamination including the inability to use or occupy property." Although the Court of Appeals observed that a separate endorsement deleted the word "virus" from the definition of "contaminant," it held that this endorsement only applied to property located in Louisiana and therefore did not apply to these claims. The court separately found that insofar as these losses were caused by government shut down orders and not the virus itself, coverage was excluded as involving "[l]oss or damage arising from the enforcement of any law, ordinance, regulation or rule regulating or restricting . . . occupancy, operation, or other use . . . ."

NEW CASES OF CONSEQUENCE

FIFTH CIRCUIT CGL/Auto Exclusion/Policy Interpretation (TX)

The Fifth Circuit has affirmed a Texas District Court's finding that an auto exclusion precluded CGL coverage for a wrongful death action involving a 3 year old child who died of heat exhaustion after school employees accidentally left him on a school bus. Despite the insured's argument that these claims fell within the scope of an endorsement to the policy for injuries "arising out of sexual and/ or physical abuse, caused by one of your employees, or arising out of your failure to properly supervise," the court ruled in Scottsdale Ins. Co. v. Discovering Me Academy, No. 21-2059 (5th Cir. Aug. 2, 2022)(unpublished) that this endorsement was subject to the auto exclusion in the main body of the policy.

EIGHTH CIRCUIT Property Insurance/Ordinance or Law Endorsement (MN)

The Eighth Circuit has ruled in The Cincinnati Ins. Co. v. Rymer Companies, No. 21-2259 (8th Cir. July 28, 2022) that a Minnesota District Court erred in holding that an "ordinance or law" endorsement did not require a property insurer to pay for the entire cost of replacing a warehouse roof following a tornado, even though much of the damage was due to moisture and corrosion that pre-dated the tornado. The Court of Appeals declared that the endorsement's requirement that "a Covered Cause of Loss occurs to a covered building or structure, resulting in the enforcement of an ordinance or law" was satisfied since a local ordinance barring partial repairs would not have been triggered "but for" the tornado.

NINTH CIRCUIT Discovery/Sanctions (NV)

The Ninth Circuit has ruled in Liberty Ins. Corp. v. Brodeur, No. 21-15444 (9th Cir. July 28, 2022) that a Nevada District Court judge abused its discretion in imposing sanctions on defendant homeowners pursuant to Fed. R. Civ. P. 37(c)(1). The case, in which Liberty sought a declaration that it homeowner's policy does not cover litigation arising from an accident involving defendants' all-terrain vehicle was therefore remanded for further proceedings.

NINTH CIRCUIT Opioid Litigation

McKesson has filed an appeal with the Ninth Circuit seeking reversal of a federal district court's April 6, 2022 declaration that various suits by governmental entities seeking reimbursement for costs associated with the opioid epidemic did not allege an accidental "occurrence" under California law.

NORTH CAROLINA Bad Faith/Assignability of Claims

A federal judge has ruled that an excess insurer has no right to sue the primary insurer under the North Carolina Unfair and Deceptive Trade Practices Act in violation of N.C. Gen. Stat. §§ 58-63-10 and 58-63-15 by failing to settle the claims against their mutual insured because UDTPA claims are not assignable. On the other hand, Judge Whitney ruled in Allianz Global Risks USA Ins. Co. v. Travelers Property Cas. Co. of America, No. 21-576 (W.D.N.C. July 19, 2022) that Travelers had failed to submit sufficient legal arguments to warrant also dismissing Alllianz' claim for punitive damages as part of its equitable subrogation claims.

OHIO Property Insurance/Cyber/Direct Physical Loss

The Ohio Supreme Court heard oral argument this week in Emoi Services LLC v. Owners Insurance Company. At issue is whether the Court of Appeals was correct in ruling last November that a property insurer owed coverage for an incident in which cybercriminals hacked into the insured's computer system and encrypted its contents until the insured paid a ransom.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

The insurance mess in Florida got a little worse this week with the declaration that Weston Property is the fifth insurer to be declared insolvent by state insurance regulators.

The feud between Arthur J. Gallagher and Alliant has flared up again with a new suit filed by AJG in federal court in Chicago alleging that Alliant had "engaged in a corporate raid of Gallagher's Chicago office."

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