United States: Insurance Law - Week Of November 4, 2022

NEW CASES OF CONSEQUENCE

The Ninth Circuit has issued another unpublished ruling sustaining a California District Court's dismissal of a restauranteur's COVID BI suit. In Protégé Restaurant Partners v. Sentinel Ins. Co., No. 21-16814 (9th Cir. Oct. 25, 2022), the court ruled yet against that COVID may interrupt an insured's business but it does not cause direct physical loss to the insured's property. The court declined to find that it was likely that the California Supreme Court would adopt a different conclusion.

The New Hampshire Supreme Court will hear oral argument for an hour on November 10 in Schleicher & Stebbins Hotels v. Starr Surplus Lines Ins. Co., 2022-0155. At issue is whether a Superior Court judge erred in granting summary judgment to a hotel chain in their COVID BI claim against numerous property insurers.

FIFTH CIRCUIT "Owned Property" Exclusion/Mitigation (MS)

The U.S. Court of Appeals for the Fifth Circuit has rejected an assignee's claim that sums paid by a property owner to stabilize property following a building collapse did not fall outside the scope of that "owned property exclusion" merely because they were incurred to limit the insured's liability to third parties. Rather, the court ruled in Hudson Specialty Ins. Co. v. Talex Enterprises, LLC, No. 21-60794 (5th Cir. Oct. 28, 2022, that this clause unambiguously excluded expenses incurred for the "repair, replacement, enhancement, restoration or maintenance" of the insured's property for any purpose "including mitigating potential harm to the public or adjacent buildings and limiting liability to third parties." In light of this finding with respect to the scope of the exclusion, the Fifth Circuit declared that the City of Macomb was not entitled to recover sums paid for stabilization and demolition; or any cleanup; or any consulting fees; repairs to flower beds or streetlights. The court did find however, that the Mississippi court had erred in refusing to find coverage for claims by local police and fire departments for security at the site. Further, that the court found a question of fact as to whether public work expenses were excluded.

SEVENTH CIRCUIT Auto/UIM/Bad Faith (IL)

The Seventh Circuit has ruled that a motorist could not bring bad faith claims against her auto insurer for failing to promptly adjust her UIM claim. In Bernacchi v. First Chicago Ins. Co., No. 21-3663 (7th Cir. Oct. 20, 2022), the Court of Appeals declared that the insured's "case rests entirely on state regulations and statutes. But these provisions do not provide a private cause of action. It is well established under Illinois law that 'a violation of the insurance rules contained in Title 50 of the Illinois Administrative Code does not give rise to a private cause of action'."

FLORIDA First Party/Assignment of Benefits

The District Court of Appeal has ruled that a trial court erred in dismissing a contractor's assignment of benefits suit against a property insurer. Whereas the trial court had declared that the contractor had no right given that it had subsequently transferred the assignment to a third-party vendor, the Second District ruled in The Kidwell Group v. Florida Farm Bureau Cas. Ins. Co., No. 2D21-321 (Fla. DCA Oct. 19, 2022) that the documents concerning this second assignment were not a part of the underlying complaint and that the trial court had therefore erred in looking outside the four corners of the complaint in granting Farm Bureau's motion to dismiss.

In another assignment of benefits case, the First District ruled in Air Quality Assessors v. Southern Owners Ins. Co., No. 1D21-1217 (Fla. DCA Oct. 26, 2022) that a judge should not have dismissed a contractor's suit against a homeowner's insurer, noting that the post-loss assignment was valid, that the underlying suit did not preclude the possibility that the work was excluded as involving mold or mildew and that Southern Owner's policy was ambiguous as to whether rain damage was excluded.

ILLINOIS Asbestos/Duty to Defend/Extrinsic Facts

The Appellate Court has sustained a lower court's declaration that CNA must defend asbestos BI suits against an architectural firm. In Continental Ins. Co v. Sargent & Lundy, 2022 IL App (1st) 210677 (Ill. App. Ct. Oct. 28, 2022)(unpublished), the First District rejected the insurer's contention that the trial court should have looked to the actual facts of the case as falling within the scope of its exclusion for the rendering of or failure to render professional services, holding instead that CNA's duty to defend was determined by the allegations in the underlying suits, even if the facts alleged were false, groundless or fraudulent. On the other hand, the Appellate Court also ruled that the trial judge did not abuse his discretion in refusing to award pre-judgment interest, agreeing with the lower court that the insured's damages were neither liquidated nor easily determinable.

NEW YORK Excess/Duty to Defend

The Appellate Division has affirmed American State's third-party claims seeking a declaration that Farm Family owes a duty to defend as primary insurer. In AVR Powell Dev. Co. v. American States Ins. Co., 2022 NY Slip op 06078 (App. Div. Nov. 1, 2022), the First Department ruled that "Farm Family did not raise a triable issue of fact as to whether the coverage provided by its policy is excess to any potential coverage provided by American States." Further, the court ruled that Farm Family's own summary judgment motion was property denied because, even if its coverage was "co-primary" with American States, it still had a duty to defend subject to an allocation of defense costs between the two insurers.

TEXAS Total Pollution Exclusion

A federal district court in Houston has adopted a Magistrate's finding that a CGL insurer owed coverage for claims by neighboring property owners that the flooding of their property during Hurricane Harvey was due to the insured's discharge of dust, sand and debris from its construction site into the San Jacinto River impeded the river's ability to retain water and caused it to overflow its banks during the storm. Despite an exclusion for damage "which would not have occurred in whole or party but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants' at any time," Magistrate Nelson had issued a report in Everest Nat'l Ins. Co. v. Megasand Ent., Inc., No. 4:20-CV-1265 (S.D. Tex. August 5, 2022) that the exclusion did not apply and that summary judgment be granted to the insured. As a preliminary matter, the Magistrate declined to consider extrinsic evidence, declaring that the limited exception to the "eight corners" ruled recognized by the Texas Supreme Court in BITCO did not apply here where the underlying complaints were not silent as to how this damage occurred. As to the exclusion, the Magistrate found that the discharged materials were not "irritants" or "contaminants" and that Everest National had failed to provide a "limiting principle" that would avoid an overbroad interpretation to these terms.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

This week brought more disappointing financial results for U.S. P&C companies On Tuesday, AIG reported a 39% decline in third quarter income due to $600 million in cat losses from Hurricane Ian and other storms as well as a substantial drop in investment income in recent months. Meanwhile, CNA reported a 50% drop in its quarterly results compared to 2021.

A federal judge in San Diego ruled this week that policyholder claims that GEICO failed to give adequate auto premium rebates during the pandemic should be certified to proceed as a class action lawsuit.

Lawyers, Drugs and Money

CVS and Walgreen both announced tentative agreements this week to settle opioid litigation against them by state and local governments across the country. Under the agreements, CVS Health would pay $4.9 billion and Walgreens $4.8 billion, bringing the aggregate amount of opioid settlements to date to $50 billion. Walmart is also reportedly close to a $3 billion deal.

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