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SECOND CIRCUIT Limitations Periods (CT)

The Second Circuit has asked the Connecticut Supreme Court to clarify what it means for there to be a “continuing course of conduct” that might toll the 3‑year statute of limitations. In a dispute between an insurance company and an adjuster. the Second Circuit declared in Evanston Insurance Company v. William Kramer and Associates LLC, 16-2082 (2nd Cir. May 10, 2018) that the evidence in this case was unclear and did not justify the District Court’s entry of judgment for the defendant when the jury had found a continuing course of conduct. The case was therefore forwarded to the Connecticut Supreme Court for determination of whether the relationship between Evanston and the adjuster satisfied the special relationship circumstances that might require a tolling of the 3-year statute of limitations.

EIGHTH CIRCUIT First Party/Business Interruption (AR)

The Eighth Circuit has ruled in an Arkansas case that an insured’s duty to mitigation only extends to the prevention of losses that would have been covered under its policy. In Welspun Pipes v. Liberty Mut. Fire Ins. Co., No. 17-1470 (8th Cir. May 25, 2018), the court refused to require a commercial property insurer to reimburse a manufacturer for $14 million in mitigation costs that a manufacturer incurred after a fire loss shut down production at its main facility. The Eight Circuit declared that this language provided that Liberty Mutual will not pay more than it would pay if Welspun “had been unable to make up lost production -9- or continue operations or services.” It therefore agreed with the District Court that Paragraph C.2. is limited to additional expenses that are necessary because they reduce a covered business income loss.

CALIFORNIA Equitable Contribution/Failure to Settle

The Fifth District has ruled in California Capital Ins. Co. v. Scottsdale Ind. Ins. Co., F070598 (Cal. App. May 18, 2018) that Scottsdale wrongfully failed to accept “additional insured” coverage for the defendants in a wrongful death case that California Capital took to trial and that resulted in a large verdict after the insurer rejected opportunities to settle within its liability limits. In a lengthy but unpublished opinion, the Fifth District agreed with the trial court that while California Capital could recover a share of defense costs from Scottsdale on a theory of equitable contribution, it could not pursue claims for breach of contract or breach of the implied covenant of good faith and fair dealing based on an assignment from its insureds. The court found that the insureds had not suffered any injury, since California Capital had paid the entire judgment and costs of defense. The Court of Appeal also refused to allow equitable subrogation, as neither insurer was superior to the other. In remanding the case to the Superior Court to determine an equitable division of the costs of defense and the excess verdict, the Fifth District instructed the trial court to consider ”the nature of the two policies providing coverage for the loss, the scope of the risks they were intended to cover, and the facts surrounding the loss. The two insurers issued different types of policies, covering different risks. One was an automobile policy, covering use of the trailers. The other policy covered losses occurring on or near the insureds’ premises in the course of its farming operations, which included the loss arising out of the grape harvesting operation. The trial court may consider how each policy applied to the loss, in light of the particular facts of the accident. The trial court may also consider the policy limits of both policies, and any other relevant factors related to the policies and their coverages.”

MASSACHUSETTS E&O/”Professional Services”

A federal district court has ruled in Barron v. NCMIC Ins. Co., 2018 U.S. Dist. LEXIS 75512 (D. Mass. May 4, 2018) that chiropractors were not entitled to E&O coverage for allegations that engaged in various fraudulent schemes in an effort to obtain higher payments from GEICO under Massachusetts’ No-Fault Personal Injury Protection (PIP) statute. Although the underlying action did contain allegations that the insured chiropractors were negligent in their treatment of patients, the court emphasized that the suit did not allege that this mistreatment caused injury to any particular individual, nor was any relief sought by GEICO for such injuries.

PENNSYLVANIA Assault and Battery Exclusions

A federal district court has refused to require a liability insurer to cover allegations that a motel negligently allowed its premises to be used for sex trafficking. In Nautilus Insurance Co. v. Motel Management Services Inc., No. 17-4491 (E.D. Pa. May 24, 2018), Judge Savage ruled that a woman’s claim that was taken to the motel and forced to engage in sex acts was a claim for assault and therefore subject to a broad “assault and battery” exclusion that extended both to assaults and to allegations that the insured has failed to provide adequate security to prevent assaults. In any event, the court declared that the public policy of Pennsylvania prohibits requiring coverage for intentional or criminal acts.

SOUTH CAROLINA Tripartite/Claims Against Defense Counsel

The South Carolina Supreme Court has ruled that a liability insurer has the right to bring a malpractice action against the law firm that it hired to defend its insured. On certified questions from a U.S. District Court, the state Supreme Court ruled in Sentry Select Ins. Co. v. Maybank Law Firm, LLC, Opinion No. 27806 (S.C. May 30, 2018) that even though the insurer is not defense counsel’s client, it could pursue an action based on the attorney’s breach of his duties to the insured client. Maybank had argued that allowing a direct right of action would destroy the sanctity and integrity of the attorney client relationship by: (1) dividing the loyalty of the attorney between the client and the insurer; (2) threatening the attorney-client privilege; (3) allowing the insurer to direct the litigation even though the insured is the client; and (4) opening the door to other non-clients to sue attorneys for legal malpractice. The Supreme Court acknowledged these concerns and cautioned insurers not to place an attorney in a conflict between his client’s interests and the interests of the insurer. The court declared the insurer may recover only for the attorney’s breach of his duty to his client, when the insurer proves the breach is the proximate cause of damages to the insurer. “If the interests of the client are the slightest bit inconsistent with the insurer’s interests, there can be no liability of the attorney to the insurer, for we will not permit the attorney’s duty to the client to be affected by the interests of the insurance company. Whether there is any inconsistency between the client’s and the insurer’s interests in the circumstances of an individual case is a question of law to be answered by the trial court.” Chief Justice Beatty dissented, arguing that South Carolina should not allow insurers to bring such actions or pursue assignments of legal malpractice claims.


* * * Inside the Insurance Industry * * *

The Texas Department of Insurance has launched a “keep it simple” campaign to remove jargon from insurance wordings and regulations. Or “just say no.” The Washington Post reported last week that liability insurers that insure schools and municipalities are declining to cover losses that may result from arming teachers,

* * * Cyber * * *

South Carolina has enacted legislation based on the NAIC’s model data security act that requires insurers to implement measures to protect the data and confidential information of policyholders.

* * * Asbestos Update * * *

Judge Rya Zobel has issued a new opinion in Stearns v. Metropolitan Ins. Co., NO. 15-13490 (D. Mass.) asking the Supreme Judicial Court of Massachusetts to clarify whether “the Massachusetts statute of repose, G.L. c. 260 Sec. 2B, can be applied to bar personal injury claims arising from diseases with extended latency periods, such as those associated with asbestos exposure, where defendants had knowing control of the instrumentality of injury and the time of exposure.”

* * * IBNR Dept. * * *

The Estate of Michael Jackson sued ABC and the Walt Disney Company last week for allegedly using the pop singer’s songs in a TV documentary without permission or compensation.

The discovery of metal shards in Spam has prompted a vast product recall.

* * * Appellate Update * * *

The Ninth Circuit heard oral argument last week in Seneca Ins. Co. v. Cybernet Entertainment, Inc., No. 18-15082. At issue is whether a District Court in California was correct in ruling that a liability insurer had no duty to defend allegations that a porn studio failed to protect its “artists” from exposure to AIDS.

* * * Spring Reading * * *

The May 2018 issue of DRI’s For the Defense magazine features an article by Boston partner Michael Aylward analyzing the evolution of the ALI Restatement’s treatment of the “known loss” doctrine in contrast to its common law antecedents. In a clear case of poetic injustice, the ALI voted on May 22 to change the wording of Section 46 that makes this article entirely out of date. Sigh.

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