United States: Insurance Law - Week Of July 15, 2022

PANDEMIC UPDATE

The Sixth Circuit has ruled that a "contamination" exclusion precludes coverage for an Ohio insured's COVID claims, declaring in Dana, Inc. v. Zurich American Ins. Co., No. 21-4160 (6th Cir. July 6, 2022)(unpublished) that the exclusion applies to the policy's "time element" coverages and is not, as the insured had argued, limited to traditional environmental contamination.

A federal judge in Chicago has supplemented his May 2021 opinion, which rejected a dentist's claim for business interruption coverage but left open the issue of the total limits applicable to the policy's coverage for "disease contamination" losses. Whereas Massachusetts Bay had contended that it only owed a single $25,000 limit because the "occurrence" that caused the shut-downs was the pandemic itself, Judge Kennelly has now ruled in Dental Experts v. Massachusetts Bay Ins. Co., No. 20-5887 (N.D. Ill. July 7, 2022) that the number of "occurrences"" should be determined instead by the shut down orders in the ten states where the insured maintained offices (although individual orders in each state were "related" and therefore did not count separately).

Judge Burroughs has ruled in Creative Solutions v. Hartford Fire Ins. Co., No. 20-11720 (D. Mass. July 7, 2022) that the insured had failed to plead a claim for "physical damage." Rejecting the insured's argument that the use of "physical damage" distinguished this claim from Verveine, SAS and Legal Sea Foods, the District Court declared that "if anything, the inclusion of the word 'physical' before 'damage'" makes it even clearer that CSI's coverage under the Business Income provision is not triggered unless its suspension of operations is tied to some physical effect on property at the Covered Premises."

NEW CASES OF CONSEQUENCE

NINTH CIRCUIT Inter-Carrier Disputes/Contribution (CA)

The Ninth Circuit has ruled that a professional liability insurer is not entitled to be reimbursed by a contractor's CGL carrier for construction claims that it separately settled under its E&O policy. In an unpublished opinion, the court ruled in Admiral Ins. Co. v. ACE American Ins. Co., No. 21-55789 (9th Cir. July 5, 2022)(unpublished) that Admiral had no rights of equitable indemnity since its coverage did not overlap the ACE CGL policy's coverage, nor did it pay a debt for which ACE was primarily liable so as to give rise to a claim for equitable subrogation.

NINTH CIRCUIT Contractual Liability Exclusion (CA)

The Ninth Circuit has ruled in AKN Holdings LLC v. Great American E&S Ins. Co., No. 21-55590 (9th Cir. July 8, 2022) that a contractual liability exclusion precluded any duty to defend claims of fraud by a property purchaser based upon the insured's sale of a warehouse facility without disclosing that the property had been overrun by El Chapo's drug cartel. In an unpublished opinion, the court declared that the "fraud alleged in the FINSA Action could not be completed absent a final purchase agreement transferring the Reynosa facility to an unwitting buyer-and a subsequent default on AKN's payment obligations by declaring bankruptcy-FINSA's fraud claims could not exist without the relevant underlying contract."

ELEVENTH CIRCUIT Late Notice (GA)

The Eleventh Circuit has ruled in Siasim Columbia LLC v. Scottsdale Ins. Co., No. 21-12918 (11th Cir. June 29, 2022)(unpublished) that a Georgia District Court did not err in finding that a property owner's six month delay in giving notice of storm-related damage to its property insurer was unjustified and therefore precluded coverage for the loss.

ELEVENTH CIRCUIT Reinsurance/"Follow the Fortunes" (FL)

The Eleventh Circuit has ruled that a reinsurer had no duty to reimburse an inter-governmental insurer for the copy of defending an inverse condemnation claim against one of its insureds in light of the fact that the insured municipality's interference with the property in question had begun five years before the issuance of the reinsured policy. In Public Risk Mgt. of Florida v. Munich Reinsurance America, Inc., No. 21-17774 (11th Cir. June 29, 2022), the court ruled that inasmuch as PRM had provided a defense that it did not owe under the reinsured policy, Munich Re had no duty to reimburse it for the cost of that defense. In rejecting the cedent's argument that Munich Re was bound to "follow its fortunes" and could not second guess the ceding insurer's decision to defend, the Eleventh Circuit declared that this reinsurance agreement lacked "follow the fortunes" language and that, in the absence of such language, it would not infer any such requirement.

FLORIDA First Party/Late Notice

The Florida District Court of Appeals has refused to find that an expert affidavit submitted by a homeowner created an issue of fact as to whether the insured's two year delay in giving notice of damage from Hurricane Irma created an issue of fact that should have precluded summary judgment. In Perez v. Citizens Property Ins. Corp., No. 3D20-1709 (Fla. App. DCA3 July 6, 2022), the Third District declared the "investigator's report, based on an investigation conducted nearly three years after the claimed date of loss, was insufficient as a matter of law to create a genuine issue of material fact to overcome the prejudice caused to Citizens. The court declared that "Perez's failure to report her loss for over two years, and only after she had conducted repairs and failed to keep any records of her claimed repair costs, rendered it impossible for Citizens to determine whether the claimed damages were a result of the claimed covered event."

MASSACHUSETTS "As Damages"/Fee Awards

The Supreme Judicial Court of Massachusetts has ruled that fees that are awarded against an insured in an underlying action brought pursuant to the state Consumer Protection Act (G.L. c.93A) are not "sums payable as damages" because of bodily injury or property damage and that a trial judge therefore erred in requiring a CGL insurer to cover these fee awards. In Poirier v. Vermont Mut. Ins. Co., SJC-13209 (Mass. July 6, 2022), the court distinguished between fees and damages in 93A cases, declaring that "they serve two different purposes --damages are to compensate for the injury, and awards of attorney's fees are to deter misconduct and recognize the public benefit of bringing the misconduct to light." The SJC further found that 93A fee awards are not taxable costs within the policy's Supplementary Payment coverage.

NEBRASKA Property Insurance/"Extra Expense"

The Nebraska Supreme Court has ruled that language in a commercial property policy insuring costs incurred to "equip" a replacement property after the insured's premises burned was ambiguous and could reasonably be construed to cover the cost of remodeling the new building. In North Star Mut. Ins. Co. v. Miller, 311 Neb. 941 (Neb. July 8, 2022), the court conceded that the nature of the replacement premises had necessitated substantial relocation expenses and significant costs to equip and operate the replacement premises but declared that this should not be a factor in determining whether Extra Expense coverage applied. Having found coverage, the Supreme Court remanded the case to the trial court for further findings as to what amount of attorney's fees should reasonably be awarded to the insured.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Sentry Insurance announced last week that it had hired Heather Schenker, who was formerly Nationwide's vice president of underwriting, to be is new Head of Specialty, directing its excess and surplus/specialty lines division.

Two class action law suits were filed against Aon in the U.S. District Court in Chicago on June 29 seeking damages for cyberattacks in December 2020 and February 2022 that allegedly compromised the confidential information of 145,000 individuals.

New Coverage Litigation of Note

Amber Heard's CGL insurer has sued her in the U.S. District Court in Los Angeles seeking a declaration that a jury's recent defamation award to her former husband Johnny Depp resulted from a "willful act" and therefore is uninsurable per Section 155. New York Marine also alleges in its July 8 Complaint that it also has no duty to pay the fees of defense counsel that appeared in the case after Heard forced out the firm that the insurer had hired to defend.

The Louis Berger Group has sued units of Chubb and Liberty Mutual in New Jersey state court, seeking a declaration of the so-called "Cabrera" litigation in Washington, D.C. in which the families of soldiers who were killed in Afghanistan have sued government contractors who paid protection money the Taliban.