PANDEMIC UPDATE
South Carolina is the latest state whose Supreme Court has refused to allow property insurance coverage for COVID losses. On a certified question from the U.S. District Court, the South Carolina Supreme Court ruled in Sullivan Management, LLC v. Fireman's Fund Ins. Co, No. 28105 (S.C. Aug. 10, 2022) that "the presence of COVID-19 and corresponding government orders prohibiting indoor dining do not fall within the policy's trigger language of 'direct physical loss or damage.'"
The Florida District Court of Appeals has affirmed an insurer victory in Suhaag Garden, Inc. v. Certain Underwriters at Lloyds, London, No. 3D21-1803 (Fla. DCA3 Aug. 3, 2022), citing its Commodore ruling that "loss of intended use alone, without tangible alteration to the property, is not sufficient to trigger coverage under the plain language of the Policy." In a concurring opinion, Justice Gordo declared that coverage would, in any event, be subject to the policy's Ordinance or Law exclusion.
A consortium of North Carolina restaurants has asked the state Supreme Court to opine on whether COVID-19 business interruption claims are covered.
NEW CASES OF CONSEQUENCE
SIXTH CIRCUIT Voluntary Payment/Duty to Investigate (MI)
The Sixth Circuit has affirmed a Michigan court's ruling that a distributor of auto parts was not entitled to reimbursement by its liability insurer for a settlement that it made in response to threats of litigation by a disgruntled customer. In Trident Fasteners, Inc. v. Selective Ins. Co. of S.C., No. 21-1439 (6th Cir. Aug. 3, 2022) (unpublished), the court ruled that the insured violated the "voluntary payment" and "no action" clauses by settling over the insurer's objections. The court refused to find that Selective had waived the right to assert these clauses by failing to conduct a timely investigation, holding that the duty to investigate arose from the duty to defend and that, in this case, there was never a duty to defend because no suit was ever filed.
SEVENTH CIRCUIT Failure to Settle (IL)
The Seventh Circuit has ruled that an excess insurer has no right to proceed against an insured for failing to settle within its $2 million self-insurer retention. In North American Elite Ins. Co. v. Menard, Inc., No. 21-1813 (7th Cir. Aug. 4, 2022), the court ruled that that the SIR was not insurance, nor did the insured's agreement with its first layer insurer that it would act in good faith in its response to claims create a right of action for the excess insurer. In particular, the court rejected North American's argument that the implied duty of good faith and fair dealing that applies to all Illinois contracts created the same duties on the part of the insured to its excess insurer as applied to its primary carrier, notwithstanding the policies' different provisions.
ILLINOIS Pollution Exclusion/"Permitted Emissions"/Sudden and Accidental
A federal court has ruled that a pollution exclusion does not eliminate a CGL insurer's duty to defend allegations that the insured's laboratory emitted carcinogenic emissions of ethylene oxide from its sterilization facility. Judge Rowland ruled in Sterigenics, U.S. LLC v. National Union Fire Ins. of Pittsburgh, PA, No. 21-5481 (N.D. Ill. Aug. 3, 2022) that under Illinois law, pollution exclusions only apply to "hazards traditionally associated with environmental pollution." Despite National Union's argument that ethylene oxide is registered as a "priority pollutant," the court held that the exclusion was ambiguous as to whether it applies to "permitted emissions." Further the court ruled that the "sudden and accidental" exception to the exclusion applied in light of allegations in the underlying suit that the discharges were "unintended" without regard to whether they occurred continuously.
NEW JERSEY Policy Interpretation/"In Any Way Connected With"
The New Jersey Supreme Court ruled this week in Norman Int'l Co. v. Admiral Ins. Co., No. A-24-21 (N.J. Aug. 10, 2022) that an exclusion for any liability "arising out of, related to, caused by, contributed to by, or in any way connected with . . . [a]ny operations or activities performed by or on behalf of any insured" in certain counties in New York" relieved Admiral of any duty to defend a suit in which a resident of Nassau County claimed that he was injured by a blind cutting machine that he had purchased at a local Home Depot store. In rejecting the insured's argument that there must be a causal connection between the New York county and the resulting injuries, the Supreme Court declared that "the fact that Richfield provided the machine to Home Depot is enough to trigger the exclusion because the phrase 'in any way connected with' merely requires that the two are linked in some way, even if they are only tangentially connected."
WASHINGTON Claims Made/Public Policy
The Washington Supreme Court has ruled that "claims made and reported" provisions in a CGL policy issued to a building contractor would undermine the viability of the financial responsibility regime established for contractors and is therefore void as being against public policy. On a certified question from the U.S. District Court, the court ruled in Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc., No. 100466-4 (Wash. Aug. 11, 2022) "[t]hrough RCW 18.27.050 and RCW 18.27.140, the legislature has created a public policy wherein contractors must be financially responsible for the injuries they negligently inflict on the public. With such a public policy established, a contractor's CGL policy that requires the loss to occur and be reported to the insurer in the same policy year and fails to provide prospective or retroactive coverage is unenforceable.
OTHER DEVELOPMENTS OF NOTE
Inside the Insurance Industry
Zurich Insurance Group reported an unexpectedly positive 25%
increase in operating profit for the first half of 2022.
A federal judge in Chicago has denied Arthur J. Gallagher's request for a temporary restraining order against Alliant Insurance Services to prevent further alleging employee and client stealing.
Noteworthy New Coverage Litigation
A Sunoco subsidiary has sued AIG in Honolulu, alleging in Aloha Petroleum v. American International Group, No. 22-2372 that it is entitled to a defense against a suit by the City of Honolulu in which the plaintiff alleges that the insured's use of fossil fuel products have contributed to emissions of carbon dioxide, and other greenhouse gases and that the use of those products by the public have contributed to global warming.
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