The Ninth Circuit has ruled in Paul Evert’s RV Country, Inc. v. Universal Underwriters Ins. Co. No. 17-15730 (9th Cir. April 25, 2018)(unpublished) that a liability insurer has no duty under California law to indemnify its insured for punitive damages that were awarded in a case that it was defending.
The Eleventh Circuit has issued a short, unpublished opinion in Evanston Ins. Co. v. J&J Cable Co., No. 17-11188 (11th Cir. April 20, 2018), affirming an Alabama District Court’s declaration that an absolute pollution exclusion did not apply to damage caused by a release of sewage as the contamination did not occur in an industrial context.
The California Court of Appeal has ruled in Sullivan v. Fireman’s Fund Ins. Co., B281479 (Cal. App. April 24, 2018)(unpublished) that a homeowner’s insurer did not owe coverage for a counter-claim arising out of environmental contamination on and around the insured premises as the individuals owning the property had deeded their interests in the property to a Trust. Under the circumstances, the court ruled that there was no potential for coverage and declined to consider arguments that coverage arose through a “testamentary transfer” or an “implied in fact” assignment.
In spite of the presumption against allowing the insurers of property owners to subrogate against tenants that it adopted in DiLullo in 2002, the Connecticut Supreme Court has ruled in Amica Mut. Ins. Co. v. Muldowney, SC 19794 (Conn. April 10, 2018) that lower courts properly allowed subrogation based on evidence that the terms of the lease put the tenants on notice that they would be responsible for any damages to the leased property and were required to purchase their own insurance policy for the defendants’ and the landlord’s mutual benefit. In light of facts that the tenants had agreed in the lease to secure an insurance policy for the landlord’s benefit, the Supreme Court declared that allowing subrogation in this case was fair and consistent with the doctrine of equitable subrogation, as the defendants should not have expected that their liability would be covered by the landlord’s insurance policy or that some part of their rent payment was intended to pay for the landlord’s insurance.
NEW YORK Environmental/Allocation/Non-Cumulation Clauses (NY)
On remand from the Second Circuit’s ruling that Viking Pump required that an insured be permitted to obtain coverage for its environmental liabilities from excess insurers on an “all sums” basis, Judge Rakoff has ruled in Olin Corp. v. Certain Underwriters at Lloyd’s, No. 84-1968 (S.D.N.Y. April 18, 2018) that Olin shall receive $55 million from the excess insurer (Lamorak) as Lamorak is only entitled to a set off of about $2.66 million for earlier global settlements that Olin negotiated with its other insurers. As those settlements were not broken down on a site by site basis, the court ruled that the amounts allocable to the “prior insurance” subject to Lamorak’s non-cumulation clause must be calculated on a pro tanto basis taking into account the total number of sites at issue. Judge Rakoff also granted summary judgment to London based on a judgment reduction clause in its prior settlement that required Olin to protect it in the event of contribution claims against it by other insurers.
WISCONSIN Environmental/Excess/Duty to Defend
Another long running environmental coverage dispute took an unexpected turn last week when the Wisconsin Court of Appeals ruled that excess insurers should have dropped down and accepted the defense of claims that were covered by underlying policies but which the underlying insurers had declined to defend. Notwithstanding general language to this effect in the Supreme Court’s 2010 Johnson Controls opinion, District I of the Court of Appeals declared in Johnson Controls, Inc. v. Central Nat. Ins. Co. of Omaha, 2014 AP 2050 (Wis. App. April 25, 2018) that this general rule could not countermand specific language in the Central National policies declaring that a duty to defend only arose if a loss was covered that was not covered by the primary policy. In such circumstances, the court declared that “no reasonable insured would expect the Central National policy language to establish a duty upon Central National to drop down and provide a defense in the event the primary insurer refused to do so where it is undisputed the primary and excess policies provided identical coverage for the claimed loss.”
OTHER DEVELOPMENTS OF NOTE
* * * Inside the Insurance Industry * * *
John Parry, who has served as Lloyd’s Chief Financial Officer since December 2014, has announced plans to leave. Hartford Financial Services reported last week that it earned $428 million in after-tax net income from continuing operations in the first quarter of 2018, up 41% from 2017. Swiss Re Corporate Solutions has announced plans to create a standalone excess and surplus business unit in North America. W.R. Berkley has reported net income of $166.4 million for the first quarter of 2018, up 34.8% from 2017. Pool Re reports that the frequency of terrorist attacks in advanced markets is 37% lower than twenty years ago but that recent attacks are deadlier than in the past.
* * * Restating the Law * * *
The Governors of Iowa, Maine, Nebraska, South Carolina, Texas and Utah have issued a joint letter to the American Law Institute, expressing concern that the proposed Restatement of Law, Liability Insurance ignores common law rules, will destabilize insurance markets and may necessitate legislative action.
* * * Across the Bar * * *
Cozen O’Connor has jump started its life insurance group by acquiring 14 lawyers from Drinker Biddle & Reath.
* * * Cyber * * *
MM’s Cyberpractice group has published its latest newsletter. The parent company of Saks Fifth Avenue, Saks Off 5th and Lord & Taylor disclosed last week that a hack into customers’ confidential information had been going on for nine months before it was discovered in March.
* * * In the Statehouses * * *
The New York State Senate is presently considered S423B, which would amend Section 3421 to allow insurance coverage for punitive damages:
S 3421. PUNITIVE DAMAGES AND CIVIL PENALTIES COVERAGE.
1. AN INSURER MAY PROVIDE AND AN INSURED MAY PURCHASE INSURANCE AGAINST AN AWARD OF PUNITIVE DAMAGES, OR CIVIL PENALTIES, OR OTHER NON-COMPENSATORY DAMAGES IN ANY LIABILITY INSURANCE POLICY EXCEPT IN A POLICY OF PERSONAL LINES INSURANCE ISSUED TO A NATURAL PERSON FOR NON-BUSINESS PURPOSES, OR A COMMERCIAL AUTOMOBILE LIABILITY INSURANCE POLICY.
2. COVERAGE MAY PROVIDE PROTECTION FOR VICARIOUS LIABILITY RESULTING FROM THE CONDUCT OF ANOTHER, OR WHEN ASSESSED AGAINST A PARTY DIRECTLY FOR GROSS NEGLIGENCE OR RECKLESS CONDUCT. COVERAGE SHALL NOT APPLY WHERE LIABILITY RESULTS FROM ACTION THAT WAS INTENDED TO CAUSE THE RESULTING HARM, DAMAGE OR INJURY. COVERAGE SHALL APPLY ONLY WHEN EXPRESSLY PROVIDED FOR BY THE INSURANCE POLICY.
* * * IBNR Dept. * * *
The Ninth Circuit has ruled that a monkey has Article III standing to sue individuals who published “selfie” pictures that the crested macaque took of itself several years but could not sue under the federal Copyright Act because only humans have standing to sue under the Act.