United States: Insurance Law - Week Of December 9, 2022

PANDEMIC UPDATE

The New York Appellate Division has ruled that a Broadway musical may continue to pursue its COVID claims despite a "communicable disease" exclusion. In Tina Turner Musical v. Chubb Ins. Co. of Europe, Case No. 2022-02269 (App. Div. Dec. 6, 2022), the First Department declared that the exclusion "did not clearly and unmistakably preclude from coverage losses caused by communicable diseases that were of such a systemic nature as to lead to quarantine or travel advisory orders by a national or international body or agency" and therefore did not apply here where the orders in question were issued by the State of New York and New York City.

Pennsylvania remains the state with the largest number of pending COVID claims and the least amount of appellate authority. Two new rulings from the Keystone State's intermediate appellate court have now taken diametrically different views of the law and seem unlikely to do much to change this situation.

In Ungarean v. CNA, 2022 PA Super 204 (Pa. Super. Nov. 30, 2022), the Superior Court ruled 5-4 that a Pittsburgh judge had not erred in finding coverage for a dentist's COVID BI losses. The majority opinion declared that, at a minimum, the insured reasonably equated the loss of use of his business with "direct physical loss." The court also refused to give effect to exclusions for contamination, ordinance or law and Acts or Decisions of Governmental Actions.

Mysteriously, the four dissenting justices in Ungarean prevailed in Macmiles LLC v. Erie Ins. Exchange, 2022 PA Super. 203 (Pa. Super. Nov. 30, 2022) and found that a trial court erred in finding coverage for a bar, holding that "Court decisions from across the country overwhelmingly and persuasively support a conclusion that MacMiles' loss of income claim is not covered." In particular, the Superior Court found that the trial judge had erred in finding "loss of use" coverage based on the "or" in "direct physical loss or damage." The court ruled "where the alleged property damage is invisible (as is the possible presence of Covid-19 on surfaces), it does not qualify as physical damage for purposes of a commercial property insurance policy. The five justices who joined in the majority in Ungarean concurred in the result but did not join the opinion.

NEW CASES OF CONSEQUENCE

FIRST CIRCUIT Auto/Sale of Autos Exclusion (NH)

The First Circuit has ruled that the insurer of a car dealership did not owe coverage for liability claims against an auctioneer and his assistant who was behind the wheel of a dealership vehicle that was being sold at auction when the car suddenly accelerated, injuring several spectators. Applying New Hampshire law, the court ruled In Motorists Commercial Mut. Ins. Co. v. Hartwell, No. 21-1603 (1st Cir. Nov. 23, 2022) that the policy's auto business exclusion and the suspended license exclusion eliminated coverage notwithstanding the New Hampshire Amendatory Endorsement's grant of coverage to "[s]omeone using a covered 'auto' while he or she is working in a business of selling, servicing or repairing 'autos' unless that business is yours." In this case, the court held that the auto business exclusion clearly applied as these individuals were clearly in the business of selling cars.

NINTH CIRCUIT Mobile Equipment Exclusion/Stunting Activity (CA)

The Ninth Circuit has ruled in Indian Harbor Ins. Co. v. Group SHS LLC, No. 21-50678 (9th Cir. Dec. 2, 2022) that a California District Court erred in applying an exclusion "for bodily injury arising out of mobile equipment used for 'any prearranged racing, speed, demolition, or stunting activity'" to a bizarre incident in which a spectator was injured by a float that the insured had created by joining two forklifts with a swing in which his wife sat during her birthday party. In this unpublished opinion, the Ninth Circuit ruled that "stunting activity" could have multiple meanings but that, under the principle of ejusdem generis, its proximity to words such as "racing" and "speed" required that it be limited to activities involving "great skill or daring" and therefore did not apply to a ceremonial "float" that was being driven at 2 miles per hour.

FLORIDA Assignment of Benefits

The Florida District Court of Appeals has ruled in Kidwell Group LLC v. ASI Preferred Ins. Corp., No. 5D21-2946 (Fla. DCA Nov. 22, 2022) that a trial judge did not err in holding that an agreement assigning Kidwell insurance proceeds failed to comply with section 627.7152, Florida Statutes (2020) notwithstanding Kidwell's argument that the assignment agreement is merely voidable rather than void such that ASI Preferred Insurance did not have standing to challenge the validity of the assignment.

ILLINOIS Subrogation/Insureds

The Illinois Supreme Court has ruled in Sheckler v. Auto-Owners Ins. Co., 2022 IL 128012 (Ill. Nov.28, 2022) that the Appellate Court erred in holding that an insurer's duty to defend [or indemnify] extended to the tenants of the insured property against a third-party negligence contribution claim when the tenants are not identified as persons insured under the policy. In adopting the dissent filed in the intermediate appellate ruling, the Supreme Court declared that Auto-Owners was not obliged to defend tenants who were the subject of third-party claims by a repair company from whom Auto-Owners had subrogated for fire damage due to a gas explosion in the tenant's apartment. The Supreme Court ruled that the interediate appellate court had erred in relying on its Dix and that the policy itself controlled and precluded any duty to defend.

MINNESOTA Commercial Property/Building Code

The Minnesota Supreme Court has ruled in St. Matthews Church of God and Christ v. State Farm Fire & Cas. Co., A21-0240 (Minn. Nov. 23, 2022) that a property insurer was not required to pay for the repair of cracks in masonry that were discovery after drywall was removed that had been damaged in the course of a storm. As the masonry cracks had pre-dated the storm, State Farm had refused to pay for these repairs, even though the City of St. Paul refused to allow the church to go forward with replacing the drywall unless the masonry cracks were fixed first. In affirming the ruling of lower courts that State Farm did not owe coverage for this work, the Supreme Court emphasized that Minn. Stat. § 65A.10, subd. 1 (2020), stipulates that "In the case of a partial loss, unless more extensive coverage is otherwise specified in the policy, this coverage applies only to the damaged portion of the property." In this case, the court ruled that the State Farm policy did not provide for broader coverage and that, accordingly, State Farm's obligation to pay for repairs from the storm to work necessary to bring up to code only that part of the property that was damaged by the storm.

NEW YORK Limitations Period/Broker E&O

The Appellate Division has sustained a trial court's dismissal of negligent claims against the insured's agent. In Farage v. Associated Ins Mgt. Corp., 2022 NY Slip Op 06318 (App. Div. Nov. 10, 2022), the First Department ruled that "the allegations against the broker defendants are unavailing. The reason that plaintiff did not receive insurance proceeds is not because the terms of her policy were unfavorable but because she failed to sue within the limitations period. Thus, any negligence or breach of contract by plaintiffs' brokers is not the proximate cause of plaintiff's alleged damages."