United States: Insurance Law - Week Of November 11, 2022

PANDEMIC UPDATE

The U.S. Court of Appeals for the Fourth Circuit has affirmed a Virginia ruling that a chain of fitness stores is not entitled to commercial property insurance for their COVID-related business interruption losses. In Fountain Enterprises v. Markel Ins. Co., No. 21-2326 (4th Cir. Nov. 2, 2022) (unpublished), the court declared in a per curiam order and without oral argument that there was no coverage in the absence of any "material destruction or material harm to the covered premises" consistent with the "unanimous decisions by our sister circuits..."

NEW CASES OF CONSEQUENCE

SECOND CIRCUIT State of Limitations/Bad Faith (NY)

The Second Circuit has issued a summary order in Sportsinsurance.com, Inc. v. The Hanover Ins. Co., No. 21-1967 (2d Cir. Nov. 2, 2022) that a New York District Court did not err in ruling that a company's suit seeking coverage for embezzlement by its chief financial officer was barred by the policy's 2-year statute of limitation. The court declared that under New York law "an agreement which modifies the Statute of Limitations by specifying a shorter, but reasonable, period within which to commence an action is enforceable." Further, the Second Circuit agreed with Hanover that the New York District Court should also have dismissed the insurance claims for breaching the implied covenant of good faith and fair dealing as also being side-barred. Notwithstanding the insurance argument that the term "loss" is ambiguous and should construed as only applying to the embezzlement, not claims arising out of claims or damages arising out of Hanover's handling of the loss, the court ruled that all the underlying allegations involved the adjustment of the underlying loss and were therefore subject to the same limitations period.

NINTH CIRCUIT "Because of Bodily Injury" (OR)

After a water park was sued by the family of a patron who was injured and ultimately settled the claims for $49 million it sued its insurance agent for only placing liability insurance for it with a policy containing a $5 million limit. In Bliss Sequoia Insurance and Risk Advisors, Inc. v. Allied Property and Casualty Ins. Co., No. 20-35890 (9th Cir. Oct. 27, 2022), the Ninth Circuit agreed with an Oregon District Court that these negligence claims were not covered under the agency's general liability policy. Notwithstanding the agency's argument that its liability was "because of" a "bodily injury" under a strict "but for" analysis, the Ninth Circuit declared that this construction presented a "highly improbable understanding" of the policy's scope of coverage and that if "because of" were understood to refer to literal but for causation, "liability insurers would have no way of setting premiums equal to expected cost; they would be insuring against a range of possible claims so vast that an estimate of the probability that a claim within that range would actually be filed would be arbitrary." The court ruled that the phrase "because of bodily injury" in this policy includes only damages that are the foreseeable result of bodily injury, "not just any that may arise in a daisy chain of lawsuits connected in some way to someone's injury." Further, the court declared that it saw no reason to delay the resolution of this case by certifying the question to the Oregon Supreme Court.

FLORIDA Auto Insurance/Appraisal/Waiver

The Florida District Court of Appeal has affirmed a trial judge's dismissal of assigned claims an auto insurer, declaring in NCI, LLC v. Progressive Ins. Co., 5D21-1282 (Fla. DCA Nov. 4, 2022) that the appraisal provision in this auto policy was enforceable and that Progressive had not waived its right to insist upon the insured's claim being appraised before this litigation could go forward.

MASSACHUSETTS "Claims Made and Reported"/ERP

A high stakes dispute between Harvard and Zurich with respect to the availability of liability insurance for litigation concerning the university's affirmative action efforts that are now pending in the United States Supreme Court came to a crashing halt last week after Judge Burroughs ruled in President and Fellows of Harvard College v. Zurich American Ins. Co., No. 21-11530 (D. Mass. Nov. 2, 2022) that Harvard's claims were untimely since they had been presented to Zurich later than the 90-day extended reporting period in the 2014-2015 "claims made and reported" policy at issue. The district court observed that claims made and reported provisions are strictly enforced in Massachusetts. Further, the District Court refused to find that an insurer's actual or constructive knowledge of a claim triggered coverage in the absence of the required notice. As a result, Judge Burroughs ruled that "it is thus clear that Zurich's lack of prejudice, or constructive, or even actual knowledge would not change Harvard's obligation to provide notice in full compliance with the terms of the Policy."

PENNSYLVANIA "Accident"/Intentional Acts Exclusion/"Abuse"

A federal district court in Pittsburg has ruled that a homeowner's effort to conceal his son's murder of a friend by giving the handgun to a third party that delayed the police investigation and th discovery of the boy's body for several months resulting in emotional distress to his parents did not arise out of an "accident" under homeowner's insurance policies. In Rosenberg v. Chubb Indemnity Ins. Co., No. 22-137 (W. Pa. Oct. 31, 2022), Judge Horan further ruled that these claims were subject to the policy's exclusion for "intentional acts", rejecting the insured's argument that liability might be based on merely reckless conduct not subject to the exclusion. The court also ruled that these claims were subject to constituted "abuse" within the policy's exclusion for damages arising out of sexual molestation, sexual misconduct or harassment; or abuse." The court emphasized the fact that only the terms "molestation" and "misconduct or harassment" were modified by "sexual" and that the absence of any similar limitation with respect to abuse signaled an intention to give it a much broader scope, including this act of murder. Finally, the court dismissed the insured's argument that their umbrella carrier (Hudson) had a duty to defend once Chubb refused to provide coverage under its primary policy and held that any coverage that might have applied is likely being held at this umbrella coverage likewise did not apply in light of the absence of an "occurrence" or "accident."

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Despite a twenty percent growth in earned premiums in the third quarter of 2022, Markel reported last week that it suffered a net investment loss of $281.5 million during the quarter.

Having recently sold most of its Northbrook campus, Allstate is reportedly considering relocating its headquarters to downtown Chicago.

State Insurance Commissioners were reelected this week in California, Georgia, Kansas and Oklahoma.

MM On the Road

Boston partner Michael Aylward participated in an insurance panel at the SMU Dedman School of Law in Dallas this week, discussing the unique problems that litigating insurance claims involving celebrity policyholders present.

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