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In an important new opinion clarifying the impact of estoppel in Illinois, the U.S. Court of Appeals for the Seventh Circuit has ruled in Hyland v. Liberty Mutual Fire Ins. Co., No. 17-2712 (7th Cir. Mar. 15, 2018) that Liberty Mutual’s failure to either defend its insured or to bring a declaratory judgment action estopped it from disputing its indemnity duty after it was found to have owed a defense but that the insurer’s obligations were capped by its $25,000 policy limit rather than the $4.6 million default judgment that entered against its insured. Judge Easterbrook declined to find that Liberty Mutual’s failure to defend could have caused any injury beyond what the policy provided for, as there was no evidence that a vigorous defense would have defeated the plaintiff’s personal injury claim or diminished the damages to which he was entitled. However, the Seventh Circuit rejected Liberty Mutual’s argument that it should not at least owe 9% supplemental interest on that part of the award that it did owe.

NINTH CIRCUIT   Excess/”Other Insurance”/Stacking (CA)

In a dispute between the liability insurer of the owner of an apartment building and the insurer of its property manager, the Ninth Circuit has ruled in Atain Specialty Ins. Co. v. Sierra Pacific Mgt. Co., No. 16-17221 (9th Cir. Mar. 13, 2018)(unpublished) that a “Real Estate Managed” endorsement that made Atain’s coverage excess to other available insurance was enforceable under California law and not an illegal “escape clause.” The court ruled that the clause was narrow in scope and reflected the contractual relationship between the owner and manager and the relatively low premium charged by Atain for the insured’s property management operations. The Ninth Circuit also rejected California Casualty’s argument that language in its policy precluded its insured from stacking successive $1 million policy limits for the period of time when the underlying claimant allegedly suffered injury as the result of exposure to microorganisms in pigeon droppings.

ILLINOIS Bad Faith/Failure to Settle

The First District has ruled in Hana v. Illinois State Medical Inter-Insurance Exchange, 2018 IL App (1st) 162166 (Ill. App. Mar. 16, 2018) that a $14 million bad faith verdict against a medical malpractice carrier for failing to settle claims against its insureds must be set aside owing to the fact that the verdict was rendered by a jury of six in violationi of the constitutionally-required dozen in Illinois. Further, the Appellate Court cautioned that, on remand, a new trial should not permit evidence of an offer of settlement that the insurer had made three years after the underlying verdict, Additionally, the court observed that the pattern jury instructions that the trial court had used were out of date did not reflect the bad faith principles that have since been articulated by the Illinois Supreme Court in cases such as Haddick.

MASSACHUSETTS Auto Insurance/”Costs”

The Appeals Court has dismissed a putative class action against an auto insurer for refusing to pay additional amounts to an individual who was injured in an auto accident with Liberty Mutual’s insured. As the claimant had not produced any documentation that she had paid for substitute transportation, the court ruled in In Skiffington v. Liberty Mutual Ins. Co., 17-P-425 (Mass. App. Ct. Mar. 8, 2018), the court ruled that Liberty Mutual had acted appropriately in refusing to make further payments.

NEBRASKA Reinsurance/Procedure

A federal district court has ruled in Applied Underwriters Captive Risk Assur. Co. v. Charter Oak Oil Co., No. 17-164 (D. Neb. Jan. 4, 2018) that a suit against a reinsurer should be dismissed in favor of an earlier-filed action brought by the reinsurer in Connecticut. In upholding the applicability of the “first filed” ruled to such disputes, Judge Gerrard declared that it was not necessary that the concurrent litigation in another state be completely identical so long as the subject matter of the suits “substantially overlapped.” Further, the court declined to find “compelling circumstances” such as bad faith or a rush to the courthouse that would justify abrogating the “first filed” rule in this case.

NEW YORK  Failure to Procure Insurance

The First Department has ruled in Zurich American Ins. Co. v. Tower National Ins. Co., 2018 NY Slip Op 01401 (App. Div. Mar. 1, 2018) that judgment should not have entered on the plaintiff’s negligent procurement claim as it was unclear whether the insurer had actually denied the underlying claim or on what basis and, accordingly, questions remained as to whether the defendant had satisfied its contractual undertakings to buy insurance to protect the plaintiff.

PENNSYLVANIA Reinsurance/Bad Faith/Direct Action Claims

Judge Hornak has dismissed a policyholder’s claims against its property insurer’ reinsurer, ruling in Three Rivers Hydroponics, Inc. v. Florists Mutual Ins. Co., No. 15-809 (W.D. Pa. Feb. 8, 2018) that the insured was not in privity with Hartford Steam Boiler, nor was it a third party beneficiary of the reinsurance agreement between HSB and Florists Mutual. The District Court also dismissed the insured’s statutory bad faith claims as HSB was not an “insurer” for purposes of Section 8371.

UNITED KINGDOM Arbitration/Reinsurance

The Court of Appeal has reversed an earlier declaration that language in a reinsurance arbitration clause requiring that appointed arbitrators have at least “ten years’ experience of insurance or reinsurance” could only be satisfied by employment in the insurance industry itself. Instead, the Court of Appeal ruled in Allianz Insurance PLC & Ors v Tonicstar Limited EWCA Civ 434 (2018) that a Queen’s Counsel who specialized in insurance work and had represented insurers and reinsurers for more than a decade was qualified to serve as an arbitrator.


* * * Inside the Insurance Industry * * *

New Hampshire Insurance Commissioner Roger Sevigny is planning to retire this summer after 16 years with the New Hampshire Insurance Department.

Victor Pepin will serve as the Chief Operating Officer for Norfolk & Dedham Insurance Company.

The Missouri Senate has given unanimous approval to HB 1531 that creates an interpleader procedure whereby an insurer may deposit its limits into court to resolve cases in which multiple parties are claiming entitlement to the policy limits and is thereafter insulated from any extracontractual exposure or liability beyond the policy limits. The bill was previously approved by the House in January.

* * * New Coverage Litigation of Note * * *

Mt. Hawley has filed an action in the federal district court for the Western District of Texas, arguing in Mt. Hawley Ins. Co. v. Slay Engineering, et al., No. 18-252 that its liability insurance does not cover allegations that its insureds were negligent in their construction of a municipal sports complex near San Antonio.

* * * IBNR Update * * *

The Estate of Harper Lee has sued Aaron Sorkin for transforming the character of Atticus Finch in Sorkin’s proposed script for a forthcoming theatrical production of “To Kill A Mockingbird.” Uber has suspended testing of autonomous vehicles after one of its experimental cars struck and killed a pedestrian in Tempe, Arizona. 

* * * Mark Your Calendars * * *

March 21-23 (Chicago): DRI Insurance Coverage and Claims Institute

April 8 (Boston): Fenway Park Opening Day

April 25-27 (Orlando): Emerging and Environmental Claims Managers Meeting

May 22 (D.C.): ALI Final Vote on Restatement of Law, Liability Insurance.

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