PANDEMIC ROUNDUP
SA Palm Beach has asked the Eleventh Circuit to consolidate the appeal of its claims against Lloyd’s with two other COVID-19 BI cases now on appeal in the court: Emerald Coast Rests., Inc. v. Aspen Specialty Ins. Co., No. 21-10190, and R.T.G. Furniture Corp. v. Hallmark Specialty Ins. Co., No. 21-10490. In SA Palm Beach LLC v. Certain Underwriters at Lloyd’s, London, No. 21-18412, the Appellant argues that “While the cases are not identical, each turns on the meaning of the term “physical loss of or damage to” under Florida law. Consolidating the cases would allow one panel to decide whether “physical loss of or damage to” encompasses the stay-at-home orders, COVID-19 in general, the actual presence of COVID-19 on the insured property, or some combination. It will also save the Court time by requiring only one panel to interpret the meaning of “physical loss of or damage to” under Florida law, which is a question that the Florida Supreme Court has not yet addressed.”
Judge Hendricks has ruled in Black Magic, LLC v. The Hartford Financial Services Group, Inc., No.: N0-1743 (D.S.C. Mar. 12, 2021) that an insured of Twin City Fire Insurance may not also proceed against the insurer’s affiliates: Hartford Financial Services Group or Hartford Fire Insurance Company. In granting these defendants’ motion to dismiss, the District Court declared that plaintiff had no standing to sue either since they were not the issuing insurer and had not caused it any injury. The court also ruled that Black Magic had not demonstrated that these defendants were subject to general or specific personal jurisdiction in South Carolina. The Court ruled that the reference to “The Hartford” on the policy was merely a tradename used by Hartford-related entities. Accordingly, the case will proceed with only Twin City as a defendant.
In denying the insured’s motion for partial summary judgment and granting summary judgment to Cincinnati, Judge Welch ruled in Indiana Repertory Theater Inc. v. The Cincinnati Cas. Co., Marion Superior Court No. 49D01-2004-PL-013137 (Ind. Super. Mar. 12, 2021) that the suit did not plead a claim for “direct physical loss.” The court found a split in authority around the country was evidence of ambiguity but did not compel him to so find. In considering the out-of-state case law on this issue, the Court was more persuaded by the cases cited by Cincinnati and therefore found that the theater’s loss of use did not have any “physical impact on its property” as there was no evidence that the theater was physically different since the governmental shutdown orders in March 2020. The Court ruled that “if loss of se of your property qualified as direct physical loss to property, then the terms “physical” would have no meaning.” The Court also ruled that a “physical” element of damage was consistent with the “period of restorations” language referring to the necessity of repairing, rebuilding or replacing the affected property. The court, therefore, granted partial summary judgment to Cincinnati with respect to the claim for declaratory relief (Count 1). However, the Court also allowed plaintiff’s request for additional time to develop evidence regarding the presence of the virus inside its theater as potentially establishing a claim for “direct physical loss.” In light of the conflicting affidavits that had been submitted in support of the plaintiff’s Rule 56(f), application, the Court declared that Black Maginc should have “the opportunity to demonstrate the presence of the virus at the theater and that the virus caused physical alteration or was at least capable of doing so.”
A Georgia District Court has declared in Restaurant Group Management LLC v. Zurich American Ins. Co., No. 20-4782 (N.D. Ga. Mar. 16, 2021) that the insured had failed to establish that any of these premises had suffered direct physical loss.” In a footnote, the court expressed skepticism that allegations that virus particles were present on the premises might satisfy this burden declaring that “without testing of the premises or confirmed transmissions on site, this court has deemed such assumptions “conjecture in speculation” insufficient to withstand a motion to dismiss”. The court ruled that “the phrases “loss of”” and “damage do” make it clear that coverage is predicated upon a change in the insured property resulting from external condition rendering the insured property, initially and the satisfactory condition, unsatisfactory.” In this case, the court ruled that allegations that COVID-19 particles were present on the property had not caused any actual physical damage to the premises. While dismissiing most of the insureds’ claim, the court left open the possibility of coverage under the “Expense to Reduce Loss” provision. While agreeing with Zurich that it made intuitive sense to understand this provision as only covering costs incurred to mitigate a potential claim under the rest of the policy, the court found that the drafting of the provision suggested a broader understanding and that coverage might not depend on whether the insured had otherwise pleaded a viable business income claim. Nevertheless, the court dismissed this “Expense to Reduce Loss” claim in light of the insured’s failure to identify the expenses they incurred to reduce the amount of lost business income.
A Virginia hospital chain has sued Zurich. In Carilion Clinic v. American Guarantee and Liability Insurance Company, No. 21-168 (W.D.Va.), the insuredt alleges that over 1,300 of the insurance employees tested positive for COVID-19 and that it was “statistically certain” and that it was “statistically certain” that there were virus particles inside its facilities. The complaint emphasizes the addition of a “virus deletion endorsement” to the policy as well as a section of the policy that expressly covers “interruption by communicable disease.” The suit was filed by the Woods Rogers and Pillsbury Winthrop Shaw Pittman law firms.
Great Divide Insurance has filed a counterclaim against ViacomCBS, asserting that the insured’s claims for lost revenues due to the interruption, postponed or cancellation of television productions are premature in light of its inadequate response to the insurer’s requests for backup documentation.
In other rulings:
Florexpo LLC v. Travelers Property Casualty Company of America, No. 20-20124 (S.D.Cal. Mar. 8, 2021)(flower stock that florist lost because he could not get into his warehouse during shut down as subject to exclusion for “acts or decisions, including failure to act or decide, other than a person, group, organization, or governmental body”).
J&NLanmark, Inc. v. Twin City Fire Ins. Co., No. 20-333 (A.D.Ky. Mar. 10, 2021)(upholding exclusion for “fungi”, wet rot, dry rot, bacteria, or virus” despite insured’s argument that this particular exclusion should not apply to the COVID-19 virus since it groups with things that are not disease-causing agents).
Soundview Cinemas, Inc. v. Great American Ins. Group, Nassau County No. 605985-20 (N.Y. Sup. Ct. Feb. 8, 2021)(dismissing case due to lack of “direct physical loss” and holding that brokers did not break duties by failing to provide insurance coverage for pandemic).
Summit Hospitality Group Ltd. v. The Cincinnati Ins. Co., No. 20-254 (E.D.N.C. March 4, 2021)(allegatio that COVID-19 survives or remains infectious on surfaces for days, physically affecting and damaging all that it comes into contact with, did not create coverage inasmuch as plaintiff had not alleged that COVID-19 was discovered in any of its covered properties).
Town Kitchen LLC v. Certain Underwriters at Lloyds, No. 20-22832 (S.D. Fla. Feb. 26, 2021)(“The harm from COVID-19 stems from having living, breathing human beings inside one’s business—it is not damage done to the physical business itself, it is damage done to other living, breathing human beings. To the extent it is a physical harm, such as COVID-19 particles present on surfaces in the restaurant, those can be easily cleaned”)
OTHER RULINGS OF CONSEQUENCE
FIFTH CIRCUIT First Party/Floods (TX)
The Fifth Circuit has ruled in Playa Vista Conroe v. Insurance Company of the West, No. 20-20307 (5th Cir. Mar. 5, 2021) that a property insurer owed coverage for damage that a condominium association suffered during Hurricane Harvey in 2017. The court that an exclusion in a flood endorsement for loss due to a hurricane or tropical storm did not apply to damage suffered by boat slips on the property since such property rests on water and it was not subject to language in the policy excluding coverage for floods. The court noted that a separate section in the policy did exclude flood damage to boat slips and docks but that the damage in this case did not result from a “flood.”
CALIFORNIA Bad Faith/Duty to Settle
The California Court of Appeal has ruled that a trial court erred in dismissing an insured’s claim that it suffered damage due to its insurers failure to settle a subrogation claim before it went into suit. Even though an offer to settle within the policy limits was never actually presented and the case had settled before it resulted in a verdict (much less a judgment in excess of policy limits!), the court declared in Planet Bingo LLC v. The Burlington Ins. Co., EO74759 (Cal. App. Mar. 18, 2021) that California law does not require an express formal offer to settle within policy limits and that the pre-litigation subrogation demand that AIG had made to Planet Bingo clearly invited settlement negotiations that potentially triggered liability of the part of Burlington Insurance.
INDIANA Cyber/Computer Fraud Coverage
The Indiana Supreme Court has ruled in G&G Oil Company of Indiana, Inc. v. Continental Western Ins. Co., No. 20S-PL-617 (Ind. Mar. 18, 2021)that the Court of Appeals erred in refusing to find “computer fraud” coverage for a spear-fishing loss. In reversing this result, the Supreme Court declined to find that the fact that the insured in this case had specifically declined to purchase computer virus and hacking coverage under the Agricultural Outpoint Coverage part of the policy, declaring that each part of the policy should be read individually unless otherwise specified. The court emphasized that the “interplay between computer fraud coverage and computer hacking is an emerging area of the law” and that computer hacking itself is evolving swiftly in today’s digital environment. In this case, the court ruled that a reasonable policyholder would understand the term “fraudulently cause a transfer” as meaning “to obtain by trick”. In light of this standard, the court ruled that neither party had sustained their burden with respect to summary judgment owing to questions of fact with respect to how the hack occurred and whether it was obtained by trick. The court also ruled that there was a sufficient causal connection between this alleged fraud and the resulting loss to satisfy the requirement “that it had resulted directly from the use of a computer.” Although Continental Western had pointed to the fact that the loss actually resulted from the insured’s voluntary payment of Bitcoin after consulting with the FBI and other computer technical services after its operations had been shut down, and it had lost access to its computer files, the court ruled that this payment was nearly the immediate result without significant deviation from the use of a computer to shut down the insurance access to its files. Under the circumstances, the court ruled that this “voluntary” payment did not break the causal chain. While therefore reversing, the lower court’s entry of summary judgment for Continental, , the court also ruled that G&G Oil had not established its right to coverage through its own motion for summary judgment and, therefore, remanded the case back to the trial court for further proceedings.
SOUTH DAKOTA Bad Faith/Attorneys Fees
The South Dakota Supreme Court has ruled in Sentell v. Farm Mutual Ins. Co. of Lincoln County, S.D., 2021 S.D. 19 (S.D. Mar. 10, 2021) that a homeowner who prevailed on his contract claim following a hail and wind storm was not also entitled to recover attorney’s fees pursuant to the state Unfair Trade Practices Act absent a separate determination by the jury that the insurer had engaged in an unfair trade practice. In this particular case, the Supreme Court emphasized that the insured had demanded a trial by jury and that therefore a jury was required to decide all of the issues presented by the case “because the question whether Farm Mutual engaged in acts or practices declared unlawful under Chapter 58-33 is a triable issue of fact and [the insureds] demanded a trial by jury, the issue was required to be presented to a jury unless the parties entered into a stipulation or otherwise agreed…to have the court decide the issue.”
TEXAS Bad Faith/Prompt Payment Statute
The Texas Supreme Court has ruled that an insurer’s payment of an appraisal award does not absolve the insurer of statutory liability under the Texas Prompt Payment of Claims Act when an insurer accepts a claim but pays only part of the amount it owes within the statutory deadline. In Hinojos v. State Farm Lloyds, No. 19-0280 (Tex. Mar. 19, 2021), the court ruled that because the insurer in this case did not pay the amount that must be paid on the claim before the statutory deadline, it was not entitled to summary judgment.
OTHER DEVELOPMENTS OF NOTE
Inside the Insurance Industry
The Hartford’s Board of Directors voted this week to reject Chubb’s $23.24 takeover bid. In a March 23 press release, the Company stated
The Hartford today announced that its board of directors, after consultation with its financial and legal advisors, has unanimously rejected Chubb Limited’s March 11, 2021, unsolicited proposal to acquire The Hartford and determined that entering into discussions regarding a strategic transaction would not be in the best interests of the company and its shareholders. The board reaffirmed its commitment and resolve in the continued execution of The Hartford’s strategic business plan.
Meanwhile, CNA Financial has confirmed that it was the target of a major cyber-attack last week. In a bulletin posted on its web site, CNA stated:
On March 21, 2021, CNA determined that it sustained a sophisticated cybersecurity attack. The attack caused a network disruption and impacted certain CNA systems, including corporate email.
Upon learning of the incident, we immediately engaged a team of third-party forensic experts to investigate and determine the full scope of this incident, which is ongoing. We have alerted law enforcement and will be cooperating with them as they conduct their own investigation.
Out of an abundance of caution, we have disconnected our systems from our network, which continue to function. We’ve notified employees and provided workarounds where possible to ensure they can continue operating and serving the needs of our insureds and policyholders to the best of their ability.
The security of our data and that of our insureds’ and other stakeholders is of the utmost importance to us. Should we determine that this incident impacted our insureds’ or policyholders’ data, we’ll notify those parties directly.
