PANDEMIC UPDATE
The Pennsylvania Supreme Court announced on July 13 at it would accept review of two lower court decisions rejecting coverage for COVID 19 business interruption coverage claims.
CASES OF CONSEQUENCE
FIFTH CIRCUIT “Occurrence”/Bodily Injury (TX)
The 5th Circuit has ruled in Discover Property & Casualty Insurance Company v. Blue Bell Creameries, USA, No. 22-50842 (5th Cir. July 11, 2023) that a CGL insurer had no obligation to provide a defense to a shareholder derivative action following an outbreak of Listeria that caused a shutdown of the insured’s dairy factories in 2015. Applying Texas law to the dispute, the Fifth Circuit ruled that the shareholder claims did not arise out of an “occurrence” as the breach of fiduciary duties stemmed from intentional acts and the Listeria outbreak and the resulting financial harm were natural and probable consequences that could be reasonably anticipated.” The court also refused to find that intentional acts could constitute an “occurrence” because the policy would otherwise not have had a separate exclusion for injuries that are expected or intended.” Finally, the court ruled that the shareholder lawsuit did not seek “damages” because of “bodily injury.” The court observed that such policies only provide coverage for claims requiring proof of an actual bodily injury, “not all claims tangentially related to bodily injuries.”
FIFTH CIRCUIT Bad Faith/Prompt Payment Claims (TX)
The Fifth Circuit has asked the Texas Supreme Court to answer whether “In an action under Chapter 542A of the Texas Prompt Payment of Claims Act, does an insurer’s payment of the full appraisal award plus any possible statutory interest preclude recovery of attorney’s fees?” In Rodriguez v. Safeco Ins. Co. of Indiana, No. 22-11070 (5th Cir. July 12, 2023), the court noted that federal District Courts in Texas are split on this issue and that, whereas the Texas Supreme Court had previously ruled that payment of an appraisal and award did not eliminate a policy holder’s right to collect TPPCA damages, including attorney’s fees, the court’s ruling in Barber Technologies involved claims arising prior to the Texas Legislature’s September 2017 amendments to the TPPCA which changed, among other things, the method for determining the amount of attorney’s fees and interests and a court may award in-weather related insurance disputes.
SIXTH CIRCUIT Pollution/“Loss in Progress” Exclusion (OH)
The Sixth Circuit has ruled in James River Cas. Co. v. UniControl, Inc., No. 22-3721 (6th Cir. July 14, 2023) that an Ohio District Court did not err in holding that a “Claims In Progress” endorsement which precluded coverage for bodily injury or property damage “which begins or takes place before the inception date of coverage” eliminated coverage for allegations that UniControl’s predecessors had caused property damage to soil and groundwater in Indiana between 1918 and 1971. The court rejected UniControl’s argument that this exclusion only applied to that portion of the damage that had occurred prior to the policy period as “unreasonable” and as ignoring the fact that the exclusion includes both “begins” and “takes place.”
ELEVENTH CIRCUIT “Virus and Bacteria” Exclusion (FL)
The Eleventh Circuit has refused to apply a “virus or bacteria” exclusion to personal injury claims involving workers who were exposed to Legionella bacteria in a water cooling tower. In Southern-Owners Ins. Co. v. Waterhouse Corporation Nursery Supplies, Inc., No. 22-12703 (11th Cir., June 28, 2023), the court ruled that these claims did not allege that the discharge was in a “structure or building” as required by the exclusion. In an unpublished opinion, the Eleventh Circuit held that “a cooling tower is not a building or structure – rather, it constitutes large scale machinery.” In finding ambiguity in the exclusion, the court conceded that “one could reasonably interpret “structure” to include a cooling tower, but it would be equally reasonable to interpret “structure” to mean something more akin to a building.”
ELEVENTH CIRCUIT Coverage B/Duty to Defend/Recoupment (GA)
The Eleventh Circuit has ruled in a Georgia case that a liability insurer may not recoup legal fees that it paid to defend a case for which it was later held not to have had a duty to defend. In Continental Cas. Co. v. Winder Laboratories LLC, No 21-11758 (11th Cir. July 13, 2023), the Court of Appeals agreed with a Georgia District Court that CNA had no obligation to provide a defense to false advertising claims under the Lanham Act, Nevertheless, the Eleventh Circuit ruled that the insurer had no right to recoup the defense costs that it had paid under a reservation of rights due to the fact that, although a right to recoup was set forth in the RoR, no such right was contained in the policies at issue. To begin with, the court observed that while it had concluded that the insurers no longer had a duty to defend “that does not mean that the insurers never had a duty to defend at earlier stages of the case.” Further, the court declined to find that the reservation of rights letter created a new contract that set forth an explicit or implicit right of reimbursement where such a remedy was not provided for in the underlying insurance contract itself. The court ruled that in order for a new contract to exist it must have been supported by consideration and that the “consideration” that the insurer suggested existed, namely their agreement to defend, was already provided for under the written contract. While acknowledging a lack of guidance from state courts, the Eleventh Circuit predicted that the Georgia Supreme Court would follow the recent trend evidenced by the Restatement of Law, Liability Insurance disfavoring insurer claims for recoupment.
CALIFORNIA Bad Faith/Failure to Settle/Cumis
The California Court of Appeal has ruled an auto insurer did not act unreasonably or in bad faith in failing to settle a claim where, in fact, it had responded in a timely and fulsome fashion to a time limited demand but was unable to settle because plaintiff ‘s counsel withdrew the offer claiming that the insurer claiming wrongly that the insurer had made a counteroffer that added different terms. In Gomez v. Reliant General Claims Services Inc., B314207 (Cal. App. July 13, 2023), the Court of Appeal found that the plaintiffs had changed their agreement such that the settlement would not have effected a full release and that under California law “an insurer may be required to reject an offer to settle that does not adequately protect an insured from future liability…” The Second District did find, however, that the trial judge should not have granted summary judgment on the separate issue of whether the insurer breached its duty to defend by failing to provide separate Cumis counsel for its two insureds, holding that there appeared to be a potential basis for a conflict of interest between them.
ILLINOIS Construction Defect/Res Judicata
The Appellate Court has ruled in Nationwide Mutual Ins. Co. v. Beverly Glenn Homeowners Association, 2023 IL App. (3d) 220089 (Il. App. Ct. July 7, 2023) that a liability insurer was relieved of any obligation to provide a defense to a continuing dispute between a homeowners association and one of its members in light of an earlier ruling in the dispute granting summary judgment to Nationwide. In light of the fact that the most recent dispute involved the identical parties and an identical cause of action, the court held that the prior related favor of Nationwide operated as res judicata.
OHIO “Assault or Battery” Exclusions/Intent
The Ohio Supreme Court has ruled in Krewina v. United Specialty Ins. Co., 2023-Ohio-2343 (Ohio July 12, 2023) that an exclusion for “bodily injury arising from any actual threatened or alleged assault or battery” applied to an incident in which a fellow resident at a treatment center attacked the plaintiff with a knife. Whereas the underlying claimant had argued that her assailant lacked the mental state necessary to commit an “assault” or a “battery,” the court held that under such circumstances the civil law definitions of “assault” and “battery” controlled and that “when a commercial general-liability insurance policy excludes coverage for injuries arising out of an “assault or battery,” the subjective intent of the person who committed the assault or battery is irrelevant.”
OTHER DEVELOPMENTS OF NOTE
* * * Inside the Insurance Industry * * *
Farmers Insurance, which is believed to have a 2% share of Florida’s homeowners insurance market, announced last week that it would no longer underwrite personal lines policies, including homeowners, auto and umbrella insurance.
* * * Trustworthy, Thrifty, Clean and Reverent * * *
A former Texas bankruptcy judge filed suit this week against nearly 100 liability insurers in the U.S. District Court in Dallas, asking the court for a declaration that by standing in opposition to Boy Scout’s plan to resolve sexual abuse claims through its bankruptcy reorganization plain, the insurers had breached their contracts.
