United States: Insurance Law - Week Of December 2, 2022

PANDEMIC UPDATE

The Ninth Circuit has issued a summary order in Tao Group v. Employers Ins. Co. of Wausau, No. 22-15506 (9th Cir. Nov. 22, 2022) confirming a California court's declaration that a restauranteur was not entitled to COVID BI coverage whether this loss was presented under the law of California, Illinois, Nevada or New York

A federal court in Chicago has narrowly preserved part of the claims of the Westin Excelsior Hotel in Rome. In Q Excelsior Italia SRL v. Zurich American Ins. Co., 21 C 1166 (N.D. Ill. Nov. 21, 2022), Judge Freeman granted Zurich's motion to dismiss with respect to policy coverages requiring evidence of "direct physical loss" but refused to dismiss the insured's separate claim for Cancellation of Bookings losses, which both parties had conceded would cover these types of losses. Despite Zurich's contention that it had already exhausted the limits of this coverage, the District Court held that the claimed evidence of exhaustion was inappropriate in the context of a Rule 12(b)(6) motion to dismiss, while leaving the door open for Zurich to resurrect these arguments by way of a summary judgment motion later in the case.

NEW CASES OF CONSEQUENCE

SIXTH CIRCUIT Public Officials Coverage/Tax Liability Exclusion (MI)

The Sixth Circuit has ruled in Safety Specialty Ins. Co. v. Genesee County Board of Commissioners, No. 22-1189 (6th Cir. Nov. 21, 2022) that class action suits against various Michigan counties for illegally retaining the proceeds from the tax foreclosure sales of private property fell outside the scope of a Public Officials liability policy that excluded losses "[a]rising out of . . . [t]ax collection, or the improper administration of taxes or loss that reflects any tax obligation."

FLORIDA Cyber/Unauthorized Funds Transfers/Motion to Dismiss

Judge Chappell has dismissed Swiss Re from a suit seeking coverage for improper wire fund transfers, declaring in The Landings Yacht, Golf and Tennis Club v. Swiss Re Corporate Solutions, No. 22-459 (M.D. Fla. Nov. 21, 2022) that the insured's claim that it was from out of state and befuddled by a confusing matrix of parent corporations was no excuse for suing the wrong insurer. As to the remaining insurers, the District Court declared that the plaintiff's complaint alleged sufficient facts to avoid a motion to dismiss at this early stage of the proceedings.

MASSACHUSETTS Claims Made and Reported

Harvard announced this week that it will ask the First Circuit to overturn a federal judge's November 2 ruling that its delay of 13 months in giving notice of a lawsuit challenging its affirmative action admissions policies precluded coverage under a "claims made" policy issued by Zurich.

MINNESOTA Products/"Per Occurrence" Deductible/Allocation

A federal court has rejected an insurer's contention that its "per occurrence" deductible applied separately to each of the 5000 suits contending that 3M's "Bear Hugger" product is defective. In Federal Ins. Co. v. 3M Co., No. 21-2093 (D. Minn. Nov. 23, 2022), Judge Tunheim ruled that "3M is only responsible for one deductible per policy period, because the policies' deductible's occurrence or event language applies to the design and manufacture of the devices." However, the District Court rejected 3M's contention that Federal must pay 100% of the cost of the defending the Bear Hugger MDL litigation, ruling instead that a Multi-District Litigation proceeding is not a single "suit" and that Federal's duty to defend therefore only involved the individual cases that are covered under its policy.

OKLAHOMA Absolute Pollution Exclusion

A federal district court has ruled in Ohio Security Ins. Co. v. B&B Heat Air, Inc., No. 21-009 (W.D. Okla. Nov. 23, 2022) that an absolute pollution exclusion precluded coverage for claims that a homeowner suffered respiratory injuries due to inhaling minute insulation fibers that were dispersed by the insured's negligent installation of an HVAC system in her home. Notwithstanding recent adverse APE rulings from the Oklahoma Supreme Court, Judge Eagan rejected the insured's argument that the exclusion should not apply in this case because it did not use any "pollutants" during its work or that it had a reasonable expectation that it would be covered for the completed installation of an HVAC system. To the contrary, the court held that nothing in the exclusion limited its applicability to cases in which the insured uses or supplies the pollutant in the ordinary course of its business.

WASHINGTON Cyber/"Loss"/Absolve Exclusion/Set-Offs

On a certified question from a trial judge, the Washington Court of Appeals has ruled in T-Mobile USA, Inc. v. Steadfast Ins. Co., No. 82704-9-I (Wash. App. Nov. 28, 2022) that $17.3 million paid by T-Mobile for "costs tied to responding to government regulatory agencies, defending itself in numerous underlying lawsuits, defending itself against Experian, and prosecuting its indemnification claim" against its vendor Experian for a data breach caused by Experian was a covered "loss" for which Zurich was obliged to pay over the insured's $10 million deductible. Despite Zurich's claim that T-Mobile's subsequent recovery of $10.75 million from Experian brought the loss below the insured's deductible, the Court of Appeal held that this payment was reimbursement to T-Mobile and did not "absolve" T-Mobile so as to be excluded from coverage. Further, the court refused to find that Zurich had the right to allocate the entire amount of the Experian payment as a set-off to the excess over the $10 million deductible. The case was therefore remanded to the trial judge for further proceedings.

WEST VIRGINIA Auto Policies/Omnibus Clauses/Limits

On a certified question from the Fourth Circuit, the West Virginia Supreme Court has ruled in Ball v. United Financial Cas. Co., No. 22—0155 (W. Va. Nov. 17, 2022) has ruled that an auto insurer may not rely on an exclusion for injury to employees in a case involving a non-employee permissive user of an insured vehicle who backed into the employee at a job site. The court ruled that the exclusion was void as being in conflict with W. Va. Code, 33-6-31(a). While United Financial argued that while the exclusion was unenforceable up to the $25,000 minimum liability coverage required by §17D-4-2(b), it remained enforceable as to any amount above that statutory minimum, the Supreme Court ruled that United Financial was required to provide Perry with coverage of up to the full $1 million afforded by the policy.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Liberty Mutual Holding Company is considering the sale of its businesses in Spain, Portugal and Ireland for a reported $1 billion.

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