United States: Insurance Law - Week Of December 16, 2022

PANDEMIC UPDATE

On a certified question from a federal district court, the Ohio Supreme Court has ruled that a policy's coverage for "accidental physical loss or accidental physical damage" requires loss or damage to Covered Property that is physical in nature. In ruling that this policy did not cover loss of use of the insured's premises during the COVID pandemic, the Supreme Court ruled in Neuro-Communications Service, Inc. v. Cincinnati Ins. Co., 2022-Ohio-4379 (Ohio Dec. 12, 2022) that it was guided by the Sixth Circuit's ruling in Santo's Café as well as the policy's "period of restoration" language. The court also ruled that the parol evidence rule precluded it from considering the insured's argument that this policy covered virus losses since, unlike other Cincinnati policies, it lacked a virus exclusion. Further, the court declined to follow out of state authority in which courts have found property insurance for premises that were declared uninhabitable due to safety concerns. In this case, the state Supreme Court held that the premises were unsafe only to the extent that they served as an indoor space in which people could gather and Covid could be transmitted. As a result, the court concluded that we conclude that direct physical loss or damage to property does not arise from (1) the general presence of Covid in the community, (2) the presence of Covid on surfaces at a premises, or (3) the presence on a premises of a person infected with Covid. Justice Donnelly issued a brief dissent, arguing that the court should not have accepted the certified question since there is already a clear body of law on contract interpretation that federal courts may follow.

In its first opinion since being rebranded as the Maryland Supreme Court, the court formerly known as the Maryland Court of Appeals ruled in Tapestry, Inc. v. Factory Mut. Ins. Co., No. 1 (Md. Dec. 15, 2022) that the fact that virus particles may be physically present in the indoor air of the insured's property or may also be present on or adhering to that property so as to impair the functional use of the property does not result in a direct physical loss of or damage to the property unless it causes "tangible, concrete, and material harm to the property" or "deprivation of possession of the property."

As with Pennsylvania, it appears that California law will remain somewhat uncertain until the state Supreme Court takes a hand. While the Ninth Circuit and most intermediate state appellate court opinions remain favorable to insurers, a group of judges within the Second Appellate District continue to follow the outlier path that they pioneered in Sierra Pacific. In Shusha, Inc. v. Century National Ins. Co., B313907 (Cal. App. Dec. 14, 2022), a three-judge panel ruled that the insured's allegations that virus particles had caused physical damage to its premises were sufficient to withstand the insurer's demurrer notwithstanding the vast preponderance of California courts to the contrary, including a contrary analysis under similar facts adopted by a different panel of Los Angeles jurists in United Talent Agency.

NEW CASES OF CONSEQUENCE

FOURTH CIRCUIT Res Judicata/Bad Faith (MD/PA)

The Fourth Circuit has affirmed a Maryland ruling that claimants who were injured in a hot air balloon accident could only recover up to the $100,000 "per passenger" limit rather than the policy's $1 million limit. In T.H.E. Ins. Co. v. Davis, No. 21-2044 (4th Cir. Dec. 9, 2022), the court declined to find that the issue was controlled by findings in an interpleader proceeding or the underlying settlement agreement to which T.H.E. had not been party or that there were disputed issues of fact that should have precluded summary judgment. The court also declined to find that the claimants were not "passengers" because they were partly outside the cab of the balloon when they were electrocuted. Having sustained the lower court's declaration of no coverage, the Fourth Circuit likewise ruled that T.H.E. was not liable for common law bad faith or for a claimed violation of 42 Pa. C.S.A. § 8371.

CALIFORNIA Silica/Contribution Claims

In a complex opinion concerning cross-claims among various primary and excess insurers of a respirator manufacturer for sums paid to defend and settle silica claims, the Second District has ruled in Truck Ins. Co. v. Federal Ins. Co., B298906 (Cal. App Nov. 14, 2022) (unpublished) that primary insurer Truck had no right to demand reimbursement for sums that it paid after exhausting its $500,000 primary limit because the settlement agreement with the O'Quinn law firm whereby it had paid its policy limit did not clearly state that the insurer had no continuing duty to pay defense costs and therefore ruled that exhaustion was not finally established until the California Supreme Court denied review in this case in 2017. The Second District also ruled that the release language in the O'Quinn settlement, wherein Truck released various rights, extended to a waiver of contribution claims against later insurers such as Federal and First State. The court also restated its view that primary insurers have no rights of equitable contribution against excess insurers.

FLORIDA First Party Bad Faith

The Florida District Court of Appeals has ruled that a trial judge erred in dismissing a homeowner's bad faith claim on the basis that the insured's Civil Notice of Remedy failed to meet the requirements of Section 624.155. In Lugassy v. United Property & Cas. Ins. Co., No. 4D21-2929 (Fla. DCA2 Nov. 23, 20220), the Second District ruled that Lugassy's CRN provided enough information that he should have been able to go forward with his bad faith claim.

KENTUCKY

The Kentucky Supreme Court has ruled that a trial judge failed to follow its Wittmer standard for bad faith claims when it denied a liability insurer's motion for a direct verdict in a bad faith failure to settle case. In setting aside a $5 million verdict, a majority ruled in Belt v. Cincinnati Ins. Co., 2019-SC-0426 (Ky. Dec. Dec. 15, 2022), the court ruled that the standard for both common law and statutory bad faith claims had been set forth in its 1993 opinion in Wittmer v. Jones and required proof that that the loss was covered and that the insurer lacked a reasonable basis for denying coverage and either knew there was no reasonable basis for denying the claim or acted with reckless disregard for whether such a basis existed. In this case, the court found that Belt had failed to present evidence to support a finding of intentional misconduct or reckless disregard. Three justices dissented, arguing that such evidence was presented and that the trial judge acted appropriately in allowing the case to go the jury.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

A.M. Best has downgraded its financial outlook for Wisconsin-based Badger Mutual Insurance Company from "stable" to "negative."

Allstate's CEO has confirmed his intention to pursue rate hikes in 2023 and predicted that State Farm will do the same.

The Florida legislature has approved SB2, a package of reforms that are expected to be approved by Governor DeSantis, including (1) a requirement that policyholders of insurer of last resort Citizens Property Insurance separately buy flood insurance; (2) require Citizens' insureds to switch to commercial insurers if the cost of coverage is 20% or less than the premium for Citizens policies; (3) expand the role of arbitration in coverage disputes; (4) preclude the applicability of Section 627.428 fee award provisions to insurance cases; (5) bar insureds from assigning benefits in most cases; (6) limit bad faith awards in cases where an insurer has not yet been held to be in breach of its policy obligations and (7) expand the authority of the state Office of Insurance Regulation to obtain financial information from Florida insurers.

Sexual Assault Update

Five women have taken advantage of New York's new one year window for filing time-expired sexual assault claims to sue Bill Cosby and NBCUniversal for incidents that allegedly occurred at various times and places between the 1960s and the 1990s.

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