United States: Insurance Law - Week Of December 23, 2022

PANDEMIC UPDATE

The California Supreme Court has again declined to address whether COVID claims are insured, denying an insured's request that it review the First Appellate District's pro-insurer ruling in Apple Annie v. Oregon Mutual Insurance Company.

The Michigan Supreme Court issued orders on December 7 denying appeals by Gavrilde Management, Gourmet Deli and Three Won Three Corporation.

In a case featured two local sports teams and a very Philadelphia-specific case docket number, Judge Baylson has issued an order in Philadelphia Eagles Ltd. Partnership v. Factory Mut. Ins. Co., No. 21-1776 (E.D. Pa. Dec. 15, 2022) that the recent conflicting opinions of the state Superior Court have persuaded him that limited discovery should go forward since it no longer seems likely that there will be a definite ruling establish Pennsylvania law on COVID in the near future. Judge Baylson concluded: "Although this may seem unusual, the issues raised by the parties may require discovery and because facts can be forgotten or mistaken, and human recollection is not infinite, this Court believes that it would be fair to allow the Plaintiffs to commence limited discovery to at least get some 'beachhead' of facts in the possession of the Defendants that may be informative if it is eventually held, under authoritative court decision and based on Pennsylvania Law, that either of these policies have some ambiguity or that any of the other Plaintiffs' theories are allowed to proceed. Fairness to the Plaintiffs without undue prejudice to the Defendants, warrants discovery."

CASES OF CONSEQUENCE

ILLINOIS Coverage B/"Trade Dress" Infringement

The First District has ruled in State Farm Firer & Cas. Co. v. Advanced Inventory Management, Inc., 2022 IL App (1st) 220662 (Ill. App. Ct. Dec. 15, 2022) that allegations that the insured sold counterfeit and mis-branded medical devices satisfied Coverage B's requirement of trade dress infringement in the insured's advertising. The court rejected State Farm's contention that the allegations of infringement concerning "functional" aspects of product design that were not protected "trade dress." Further, the Appellate Court declined to grant judgment to State Farm on the basis of allegations of intentional conduct, holding that claims under the Lanham Act permitted recovery on the basis of negligent conduct and that State Farm could therefore not satisfy its burden of proof with respect to this exclusion.

OREGON First Party/Ransomware/"Direct Loss"

A federal district court has ruled in Yoshida Foods Int' v. Federal Ins. Co., No. 21-1455 (D. Or. Dec. 6, 2022) that Chubb owed coverage for an incident in which an anonymous hacker gained unauthorized entry into Yoshida Foods' computer system and used malware to encrypt the data in the computer system's storage devices. In holding that the policy's Computer Fraud section covered $100,000 that the insured's president paid to obtain four keys to decrypt the company's data, Judge Baylson rejected Federal's contention that Yoshida Foods did not suffer a "direct loss" from computer fraud and that the only loss that the company suffered was when it repaid Mr. Yoshida for the ransom payment he made with his own cryptocurrency. To the contrary, the court ruled that "Both the ransom payment made by Mr. Yoshida and the reimbursement of that amount by Plaintiff were proximately caused by the hacker's computer violation directed against Plaintiff's computer system. There was no intervening occurrence between the ransomware attack, the ransom payment, and the reimbursement to Mr. Yoshida, which were all part of an unbroken sequence of events."

NORTH CAROLINA Long-Tail/Trigger of Coverage

The North Carolina Supreme Court has at long last clarified state law with respect to long-tail claims. In Radiator Specialty Co. v. Arrowood Ind. Co., 2022-NCSC-134 (N.C. Dec. 16, 2022), the court ruled in a 77 page opinion that benzene claims arising out of the insured's sale for forty years of its "Liquid Wrench" product and miscellaneous cleaners, degreasers and lubricants triggered coverage from the date of first exposure, rejecting "actual injury" arguments by Fireman's Fund and insured Radiator Specialty that earlier years are not triggered because coverage should not begin until claimants had suffered a "cognizable injury." Citing a Sixth Circuit opinion, the court expressed concern that limiting coverage to later "actual injury" years might render the policyholder's insurance rights illusory since by then coverage would be excluded under most policies. While adopting RSC's broader trigger, the Supreme Court rejected the insured's contention that it should be entitled to obtain coverage on an "all sums" basis. Instead, the court held that a "time on the risk" rule should apply. Even so, the court held that the insured could allege exhaustion on a 'vertical" basis and could therefore pursue claims against Landmark "so long as "[n]o other valid and collectible insurance was available to [RSC] for damages covered by the policy."

WASHINGTON First Party/"Collapse"

The Washington Court of Appeals has ruled in Windcrest Owners Ins. Co. v. Allstate Ins. Co., No. 82836-3-I (Wash. App. Dec. 12, 2022) that damage to a condominium building was due to gradual decay of structural components and that the property had not suffered "an abrupt falling down or caving in" as required for "collapse" coverage by Allstate's policy.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Florida Governor Ron DeSantis has signed Senate Bill 2A.

Insurance Journal reports that insurers are denying FTX-related crypto claims even as cyber insurers are demanding more information from other policyholders about potential links to FTX that might result in claims.