Claims and Bad Faith Law Blog

EVEN COVID COVERAGE DEPENDS ON LANGUAGE OF THE POLICY.

COVID ER (Jae C. Hong / Associated Press)

Coverage depends on the language of the insurance policy at bar.  It does not depend on hypotheticals and abstractions or majority views or trends.  To say again, coverage depends on the language of the policy, even for COVID.

In  Sacramento Downtown Arena LLC v. Factory Mut. Ins. Co., No. 2:21-cv-00441-KJM-DB,  2022 WL 16529547 (E.D. Cal. Oct. 28, 2022), the Court denied the carrier's motion to dismiss claims of insurance coverage for alleged  COVID-19 losses.  The policy at issue in that case is an "all risks" property policy with aggregate limits of "several hundred million dollars."

The plaintiffs "operate and manage the Golden 1 Center, which is the home of the Sacramento Kings, as well as a nearby hotel and outdoor shopping center."  The State of California and Sacramento County urged people to stay home, allegedly resulting in losses from cancelled basketball games, "a Bon Jovi concert, a talk by the former First Lady of the United States, and a graduation ceremony for Sacramento State University, among many others."  The basketball team and arena lost money; the hotel's occupancy rate dwindled to zero before the hotel closed; revenues of restaurants and retailers dropped, and "[t]he  plaintiffs also spent money cleaning, replacing air filtration systems, remodeling, and taking other precautions."  Sacramento Downtown Arena, 2022 WL 16525947, at *1 (record references omitted). 

The plaintiffs put forward a reasonable theory for coverage which, under California law, is enough to trigger coverage even if there is a reasonable competing coverage theory put forward by the carrier.  Once again, the language of the actual policy at issue in the particular case determined the outcome of the coverage issue.  "No matter what might be possible to plead and prove about a different policy and viral pandemics in the abstract, the policy at the center of this case can reasonably be interpreted as defining the presence of a 'communicable disease' as 'physical loss or damage.'"  Sacramento Downtown Arena, 2022 WL 16525947, at *4.

The policy at issue expanded on the policy's coverage for property damage.  In its first section, it set out a description of what the carrier identified in the policy as "other additional coverages."  The carrier wrote in its policy that these "additional coverages" are "coverages 'for insured physical loss or damage.'  One category of additional coverages relates to 'communicable disease response'," leading to the reasonable interpretation in the eyes of the Court that insured property damage includes "additional coverages" as stated in the policy including coverage for "communicable disease response," as also stated in the policy.  Since this interpretation offered by the policyholders is reasonable, it defeated the carrier's motion to dismiss in this case.  Sacramento Downtown Arena, 2022 WL 16525947, at *1.

To put it in the language of the policy's contamination exclusion – which was also raised by the carrier and rejected by the judge in this case – "it is reasonable to read the policy as defining the presence of a 'communicable disease' as non-excluded 'physical damage'[.]"  Sacramento Downtown Arena, 2022 WL 16525947, at *5.

The actual language used in the policy at issue also distinguished this judge's decision in Sacramento Downtown Arena from another ruling the same judge made on the same day in a different case denying all coverage for COVID claims under a differently written policy.  Vision Serv. Plan v. Ill. U. Ins. Co., No. 2:22-cv-00743-KJM-DB, 2022 WL 16530097, at *1, *4-*5 (E.D. Cal. Oct. 28, 2022).

Please read the disclaimer.  ©2022 Dennis J. Wall.  All rights reserved.

NO COVID COVERAGE, NO BAD FAITH CLAIM.

In Morningside Cafe Inc. v. Acuity Ins., No. 20-cv-05584, 2022 WL 952736 (N.D. Illinois March 30, 2022), a District Court followed the settled rule that where there is no insurance coverage, there can be no insurance bad faith claim.  In Morningside Cafe, the claims were made by a small business under its CGL (commercial general liability) policy for Covid-related damages, to no avail.

As the District Judge in the Northern District of Illinois explained:

    As explained above, the Policy's Business Income, Civil Authority, and Virus Exclusion provisions preclude coverage for Plaintiff's alleged business income losses. Because no coverage exists, Plaintiff has not alleged a plausible basis for its bad faith denial of insurance coverage claim. Accordingly, this claim must also be dismissed.

Morningside Cafe Inc. v. Acuity Insurance, 2022 WL 952736, at *6.

Please read the disclaimer.  ©2022 Dennis J. Wall.  All rights reserved.

WELCOME TO JAPAN, TAKATA AIRBAG LITIGATION POLICY SAYS.

Made a product that allegedly injured and killed motorists on U.S. highways, filed for bankruptcy and faced many personal injury claims you cannot afford to pay?  Want to buy insurance for that and make the claimants go after your insurance company in a land far far away?  No problem.

          This is what happened with Takata airbags and an insurance policy Takata purchased before it filed for bankruptcy but after Takata was sanctioned with a recall order by the National Highway Traffic Safety Administration.  The policy in question contained an express provision that it would apply to pay claims in the event a trustee pursued the policy proceeds for example.  However, the policy also expressly provided that the trustee in such a case would have to sue in Japan under the Takata policy's forum-selection clause.  This was essentially the decision by a Bankruptcy Judge in In re TK Holdings, Inc. (Green v. Mitsui Sumitomo Ins. Co., Ltd.), No. 17-11375 (BLS)Adv. Pro. No. 20-51004 (BLS), 2021 WL 6101496 (Bankr. D. Del. December 20, 2021).

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

CLASS ACTION COVID DAMAGES CLAIMS.

A motion to certify a class of insurance coverage claimants with COVID-related loss of income, expenses, and other damages was granted in part, denied in part in Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., No. 2:20-cv-265, 2021 WL 3686668 (E.D. Va. August 19, 2021).

          The Court in that case denied the motion to certify a Nationwide Class of policyholders whose COVID-19 coverage claims have been denied by State Farm for various business interruption losses and damages.

          The Court granted the motion to certify what the Court called a "Virginia Sub-Class":

All persons or entities in the Commonwealth of Virginia with a Businessowners insurance policy issued by State Farm on Form CMP-4100, including a Loss of Income and Extra Expense endorsement on Form CMP 4705.1 or CMP 4705.2, or with the same or substantially similar terms, in effect at any time between March 23, 2020 through June 30, 2020, and who submitted claims for business income losses and/or extra expenses incurred as a result of social distancing, closure and/or stay-at-home orders issued from March 2020 forward, which Defendants denied.

Elegant Massage, 2021 WL 3686668, at *11.  How the Court reached this decision is a textbook example of Rule 23 Class Certification analysis.

          Emphasizing the discretion extended to District Judges ruling on Class Certification motions -- discretion extended even by the Roberts Court -- the Court in this case carefully considered the requirements extant under both Rule 23(a) and 23(b).

          The focus here is of course on the Court's treatment of Insurance Bad Faith Claims.  In addition, claims for various kinds of Business Interruption Coverage and the carrier's Virus Exclusion are highlighted for our purposes.

1. Rule 23(a) Numerosity. In part here pertinent, State Farm previously answered an Interrogatory in the case in which it identified 111 "claim files of insureds located in the Commonwealth of Virginia who submitted business interruption claims relating to the COVID-19 pandemic."  Elegant Massage, 2021 WL 3686668, at *5.  That was good enough to satisfy the numerosity requirement under Rule 23 "at this time."  The question of whether the  certified class would be limited later on -- clearly because some of the 111 claims were presumably not denied and so they should not be in a class of denied claims, or they did not involve Bad Faith claims and thus should not be included in a class of Bad Faith claims -- could be answered later.
2. Rule 23(a) Commonality and Typicality. The insurance coverage questions are common to the class members.  These coverage questions include resolution of the term "accidental direct physical loss," and application of the Virus Exclusion.

        The class members also presented the question in common of whether the carrier acted in good faith.

        The commonality requirement is therefore satisfied here.  Elegant Massage, 2021 WL 3686668, at *6.

        The Court held similarly that the typicality requirement of Rule 23(a) is also satisfied here.    For very much the same reasons in the eyes of the Court, the claims of the class members and the plaintiff's claims satisfy the typicality requirement.  Elegant Massage, 2021 WL 3686668, at *6-*7.

3. Rule 23(a) Adequate Representation. State Farm did not challenge the adequacy of the plaintiff's counsel to represent the class.  The Court found no evidence that the representation would be in any way inadequate.  This requirement too is satisfied.  Elegant Massage, 2021 WL 3686668, at *7.

        There are still requirements under Rule 23(b) to consider, and the Court in this case considered them all.  They are condensed here.

1. Rule 23(b) Predominance.   For all claims of all class members in this case, the Court will need to "determine the proper legal interpretation of the Defendants' 'all risk' policy as it pertains to the COVID-19 mandatory closures."   Elegant Massage, 2021 WL 3686668, at *8.   Note that the Plaintiff in this particular case initially voluntarily closed its business "[a]s a result of the policies on social distancing and restrictions on its business[.]"  Elegant Massage, 2021 WL 3686668, at *2.  One week after plaintiff's voluntary closure, however, the Governor of Virginia issued an executive order for the (involuntary) closure of recreational and entertainment businesses, a category which included businesses like the plaintiff's.   Elegant Massage, 2021 WL 3686668, at *1.

        Even after holding that the insurance coverage issues predominate here, this Court examined each count of the operative complaint to determine whether the claims alleged in those counts predominate for the class as a whole or whether they are claims unique to the individual plaintiff that filed this lawsuit.

        After refusing certification of a class for Declaratory Judgment across the nation, the Court never again turned to Count I, the Declaratory Judgment count at bar.

        Count II is a claim alleged for breach of the insurance contract common to all the class members.  The Court reviewed its previous denial of the carrier's motion to dismiss the breach of contract count and concluded that "the questions of law and fact" necessary to adjudicate Count II "predominate across each member of the purported class."  Elegant Massage, 2021 WL 3686668, at *9.

        Count III is of great interest here for the reason that it contains an alleged claim for Insurance Bad Faith.  As with the Court's previous denial of the carrier's motion to dismiss this claim, the Court again "reasoned that since 'coverage is a pre-requisite to a claim for bad faith' Plaintiff may proceed with Count III," Elegant Massage, 2021 WL 3686668, at *9, and thus so may the class members.   Simply put, "the questions of fact and law required to establish Count III for the Virginia Subclass are predominate across each member of the purported class."      Elegant Massage, 2021 WL 3686668, at *10.

2. Measurable Damages and 3. Superiority under Rule 23(b).  The Court also considered the roles of Measurable Damages and of Superiority under Rule 23(b) and held that they are met here as well.  As for proof of damages "using common proof," that determination will be made if necessary following the close of discovery.   Elegant Massage, 2021 WL 3686668, at *10.  As to Superiority, from all that has been said so far it was something of a foregone conclusion that the treatment of the interests of the class members in a class action is superior to any alternatives to adjudicate those interests; class action treatment will, the Court held, serve the interests of "efficiency, time, and uniformity of decision, and because the Court also finds that common issues predominate[.]"   Elegant Massage, 2021 WL 3686668, at *10.

The Elegant Massage decision to certify a class is a tour-de-force in the certification of class actions under Rule 23.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.  

ABA: UPDATE ON BUSINESS INCOME LOSSES IN THE CORONAVIRUS PANDEMIC.

Dennis Wall's opening section of Recent Developments in Business Litigation, titled REMEDIES IN BUSINESS LITIGATION: UPDATE ON BUSINESS INCOME LOSSES IN THE CORONAVIRUS PANDEMIC, can be found on pages 279-286 of this PDF provided by the Tort Trial & Insurance Practice Section of the American Bar Association. Reprinted here with permission.

 

The article can also be found at 

https://www.dennisjwall.com/attachments/tips_56-2_bus_lit_(final_file)_(7-29-21)-2.pdf.

 

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

COVID COVERAGE, MAJORITY VIEWS, PRESENTING AND DEFENDING COVERAGE CLAIMS.

The current majority view of most Covid coverage claims is concisely expressed in a recent decision in the U.S. District Court for the District of Connecticut:

    To the extent something more than the presence of COVID-19 alone can be alleged as a loss and a basis for insurance coverage, Farmington may file an Amended Complaint by August 20, 2021. If they cannot do so by this date, the dismissal of this Complaint will be with prejudice.

Farmington Vill. Dental Assoc's, LLC v. Cincinnati Ins. Co., No. 3:20-cv-01647 (VAB), 2021 WL 3036902, at *1 (D. Conn. July 19, 2021) (emphasis in original).

          This is a typical case of Covid insurance coverage claims by businesses since the pandemic began.  Farmington Village Dental Associates presented its claims for income losses under fairly standard policy provisions in this case:

    This dispute stems from the parties’ interpretations of the “Business Income, Extra Expense, Civil Authority, Ingress and Egress and Sue and Labor provisions” of the Policy.

Farmington, 2021 WL 3036902, at *2.  Farmington presented many arguments in favor of coverage for its losses, including arguments that are presented across the nation in other, similar cases.  The federal court in Connecticut, however, looked to Connecticut law as the deciding factor and denied Farmington's coverage claims accordingly:

    Under Connecticut law, however, losses due to a property's inoperability without any physical loss or damage to the property itself are not recoverable with this type of property insurance coverage. 

Farmington, 2021 WL 3036902, at *10.  This holding defeated all of Farmington's coverage arguments in the eyes of the federal judge who decided this case, which would include Farmington's arguments that the policy provisions were ambiguous and that they should in this case be defeated by the doctrine of an insured's reasonable expectations.

          The approach taken by the court in this case may actually be hopeful.  It may signal that courts, some of them, are no longer deciding Covid coverage questions by invoking so-called majority views to decide Covid coverage issues.  To the extent that courts turn to established rules of State insurance coverage law, as in this case, then there may be room for different results in different cases with different facts in different jurisdictions.  There is a saying that "one size does not fit all."

          After this decision, it is perhaps a little clearer that the "majority view on Covid coverage" does not fit all.

See forthcoming § 7:20, "Virus Exclusions and the Coronavirus Pandemic of Covid-- 19," in CATASTROPHE CLAIMS:  INSURANCE COVERAGE FOR NATURAL AND MAN-MADE DISASTERS (coming in Fall 2021), and the forthcoming article on Remedies in TORTS, TRIAL AND INSURANCE PRACTICE JOURNAL Survey Edition (American Bar Association 2021).

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

GOT AN INSURABLE INTEREST? DOESN'T MEAN YOU HAVE POLICY RIGHTS.

 

Flying on the Fourth.  (Photo ©Dennis J. Wall)

Florida has an insurable interest statute.  Fla. Stat. § 627.405.  It provides that you have an insurable interest in property whenever you have "any actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage or impairment." 

          Seems clear, doesn't it?  Seems strong, too, right?

          In fact, it used to be the law that the statute provided the holder of an insurable interest the right to sue under her homeowner's policy.  Not any more.

          In Reconco v. Integon Nat'l Ins. Co., 312 So. 3d 914 (Fla. 4th DCA 2021), an intermediate appellate court in Florida held that the only thing that counts any more to claim rights under the policy -- in that case, a homeowner with an insurable interest in her home was claiming the right to arbitration under the force-placed insurance policy -- is the policy itself.  Force-placed insurance policies often provide that the homeowner is not insured, just like the policy at issue in this case.

          Since the homeowner is not an insured under the force-placed insurance policy, the homeowner may have an insurable interest in her home but the homeowner has no rights under the force-placed insurance policy.  Only the money lender has rights under the force-placed insurance policy.  Reconco, 312 So. 3d at 917-18.

          Think that force-placed insurance issues are a thing of the past, a relic of the 2008-2009 Great Recession?  Think again.  The opinion does not give us a date of when the premiums and the policy were placed by force on the homeowner who legally could never complain, but that does not obscure the fact that the issues are recent and not a thing of the past at all.  The premiums and the policy in this case were force-placed after the homeowner bought the property in 2013, and before 2017 when Hurricane Irma struck her house.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

"MATCHING" REQUIREMENTS FOR REPLACEMENT PARTS: FLORIDA STATUTE, INSURANCE POLICY.

 

(Image courtesy of NASA)

In SFR Serv's, LLC v. Lexington Ins. Co., No: 2:19-cv-229-FtM-29NPM, 2021 WL 322367 (M.D. Fla. February 1, 2021), the Court addressed many motions in limine.  The Court's rulings on one of them is addressed here:  the insurance carrier's motion in limine to prevent evidence and argument on the issue of matching replacement roof tiles on damaged property.

    The Court's opinion was written for the benefit of the lawyers and the parties in that particular case because so many details come clear only from reading the parties' filings on the electronic docket known as PACER or "Public Access to [Federal] Court Electronic Records," and not from reading the decision alone. 

    The plaintiff in this case is a roofing company.  It contracted with a condominium association to repair roofs that were damaged during Hurricane Irma.  The association gave the roofer an Assignment of Insurance Benefits.

    The roofing company asked the carrier to pay for the cost of replacing roof tiles, in pertinent part.  In pertinent part, the carrier refused to pay.  The roofer sued the carrier.  Its complaint was originally filed in Florida Circuit Court, and was then removed to U.S. District Court by the carrier.

    The complaint may seem to be bare-bones upon review on PACER, but it was good enough to withstand the carrier's motion to dismiss in federal court.  Obviously, the complaint in this case contained all the allegations for claims upon which relief can be granted.  However, the controversy over replacement roof tiles is not alleged in the complaint.  To understand that controversy, we need to turn to the Federal Judge's February 1, 2021 opinion.

    The carrier "seeks to preclude," first, "any evidence, testimony and comment regarding the Florida 'matching' statute, Florida Statutes § 626.9744."  SFR Services, 2021 WL 322367, at *1.  Section 626.9744, as quoted by the Court in this case, provides in part pertinent to the Court's holding:

Unless otherwise provided by the policy, when a homeowner's insurance policy provides for the adjustment and settlement of first-party losses based on repair or replacement cost, the following requirements apply:

...

(2) When a loss requires replacement of items and the replaced items do not match in quality, color, or size, the insurer shall make reasonable repairs or replacement of items in adjoining areas. In determining the extent of the repairs or replacement of items in adjoining areas, the insurer may consider the cost of repairing or replacing the undamaged portions of the property, the degree of uniformity that can be achieved without such cost, the remaining useful life of the undamaged portion, and other relevant factors.

 

SFR Services, 2021 WL 322367, at *1.  To summarize what has just been quoted, the features of the Florida statute that the Court saw as pertinent to this case by quoting this language from the statute, were:

• The statute applies by its terms to "a homeowner's insurance policy."
• The statute applies to the "adjustment and settlement of first-party losses based on repair or replacement cost."
• When "the replaced items do not match" in important respects, then the carrier must take certain actions specified in the statute.

The Court quickly held that Section 626.9744 simply did not apply to the carrier in this case:  "The Policy at issue is a commercial policy, not a homeowner's policy....  Therefore, this statute does not apply to Lexington in this case, and this portion of the motion in limine is GRANTED."  SFR Services,  2021 WL 322367, at *1 (boldface by the Court).

    The question of excluding "evidence or argument concerning an alleged requirement to 'match' under the insurance policy at issue" was a different story, however.  The Court denied the carrier's motion and allowed the plaintiff "to present evidence and argument that the Policy requires 'like kind and quality,' which includes matching tiles."  SFR Services,  2021 WL 322367, at *2.

    The insurance policy at issue in the SFR Services case provided the carrier "with the option of repairing, rebuilding or replacing the damaged property 'with other property of like kind and quality....'"  On the basis of this policy language, then, the carrier's motion to exclude all evidence and argument that the policy requires "matching tiles," was quite simply denied.  "It is up to a jury to decide" whether the carrier's argument that the "non-matching tiles" it proposed to use to repair the condominium roofs damaged by Hurricane Irma constituted property "'of like kind and quality'."   SFR Services,  2021 WL 322367, at *2.

    There you have the twin rulings of the SFR Services Court.  They do not match, but they addressed two different things.  One was a statute.  The other was an insurance policy.  In this case, the insurance statute did not govern the insurance policy;  it didn't even apply to it.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

THE PANDEMIC HAS REVEALED MANY THINGS. VIRUS EXCLUSION INTERPRETATION DISPLAYED.

(LexisNexis)

In Franklin EWC, Inc. v. Hartford Fin. Serv's Grp., Inc., No. 20-cv-04434-JSC, 2020 WL 7342687 (N.D. Cal. December 14, 2020) (Corley, USMJ), a U.S. Magistrate Judge found that Sentinel Insurance Company's attempt to add a "virus exclusion" to its Business Owner's policy was legitimate, that the language of the virus exclusion was unambiguous and so it should be applied in that case to exclude coverage for a Business Interruption claim.

None of the parties or their lawyers appear to have raised the issue of the insurance carrier's placement of the exclusion in that policy.  The record in the case is on display in PACER.  Volumes are revealed by reading the policy itself as in any case and in this case, by reading the policy on PACER.

By its own terms, the insurance policy at issue in that case added the purported virus exclusion "to Paragraph B.1. Exclusions of the Standard Property Coverage Form," in pertinent part.  Franklin EWC, Inc. v. Hartford Financial Services Group, Inc., Dkt. No. 10-1 at p. 127 (N.D. Cal. Case No. 20-cv-04434-JSC).

The carrier added the virus exclusion with its own chosen label of Exclusion "i".

However, there already was an Exclusion i in the policy, a Pollution Exclusion.  Franklin EWC, Inc. v. Hartford Financial Services Group, Inc., Dkt. No. 10-1 at pp. 47-48 (N.D. Cal. Case No. 20-cv-04434-JSC).

The Magistrate did not mention this, whether or not the parties and their lawyers ever mentioned it in this coverage case.

The identical policy language and policy arrangement were at issue in Urogynecology Specialist of Fla., LLC v. Sentinel Ins. Co., No. 6:20-cv-1174-Orl-22EJK, 2020 WL 5939172 (M.D. Fla. Sept. 24, 2020). 

There, among other things in her opinion in that case, the District Judge pointed out that it appears to be ambiguous, that it does not seem logical, to classify a virus as a pollutant.  By labelling the attempted Virus Exclusion as Exclusion i in an endorsement to the main policy, the carrier in that case was apparently writing an insurance policy that would exclude damage caused by the virus as damage caused by pollutants described in Exclusion i in the Coverage Form.  See Urogynecology Specialist of Fla., LLC v. Sentinel Insurance Co., 2020 WL 5939172, at *4.

The arrangement of the policy forms and specifically the identification of the new "virus exclusion" with the policy's Pollution Exclusion gives rise to ambiguity.  And it is axiomatic, as they say, that ambiguous insurance policies are construed against the insurance companies which drafted them in the first place.

Such was the case for several reasons in Urogynecology Specialist of Fla., LLC v. Sentinel Insurance Co.

More was the case in Urogynecology Specialist of Fla., LLC v. Sentinel Insurance Co., as well.  The Court carefully pointed out in that case, that its interpretation of insurance coverage for losses caused in a pandemic was itself taking place in a pandemic:

Importantly, none of the cases dealt with the unique circumstances of the effect COVID-19 has had on our society—a distinction this Court considers significant. Thus, without any binding case law on the issue of the effects of COVID-19 on insurance contracts virus exclusions, this Court finds that Plaintiff has stated a plausible claim at this juncture. Plaintiff alleged the existence of the insurance contract, losses which may be covered under the insurance contract, and Sentinel’s failure to pay for the losses. These allegations, when read in the light most favorable to Plaintiff, are facially plausible.

Urogynecology Specialist, 2020 WL 5939172, at *4.

The Magistrate in the Northern District of California did not mention the context of her policy interpretation, she just applied what she and apparently the lawyers in the case saw as the majority view, and that ended the matter for them.

The pandemic has revealed many things.  Who knew that interpreting insurance policies would be among the things revealed?

More of these revelations will be explored in a forthcoming ABA Tort Trial & Insurance Practice Law Journal (Spring 2021) article by Dennis J. Wall, Remedies in Business Litigation:  Update on Business Income Losses in the Coronavirus Pandemic.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

Business Interruption (BI) and COVID-19.

Like the people of the United States, not every virus exclusion looks alike.

        (Image courtesy New York Public Library Digital Collections)    

    Read your clients' policies before you decide whether and how to argue for or against insurance coverage for the pandemic.  See, e.g., Covid Coverage Litigation Tracker Blog News posted October 27, 2020,

"Not All Virus Exclusions Are Equal."

   

 

 

(Brennan Linsley /Associated Press)

    On a related note, read the cases to find the law, not just the headnotes.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

LIABILITY INSURER'S DUTY TO DEFEND COVID-19 CASE UNDER FLORIDA LAW.

NOT IN THIS FIRST-PARTY INSURANCE CASE OF NO COVERAGE FOR COVID-19 CLAIMS.

Under Florida law, "an insurer's duty to defend its insured against legal action depends solely on the facts alleged in the pleadings and on the legal claims alleged against the insurer [sic; should be "alleged against the  insured"]."   Mauricio Martinez, DMD, P.A. v. Allied Ins. Co. of Am., ___ F. Supp. 3d ___, No. 2:20-cv-00401-FtM-66NPM, 2020 WL 5240281, at *1 n.2 (M.D. Fla. Sept. 2, 2020).

This was actually a first-party insurance case.  However, apparently the policyholder's coverage argument occasioned a footnote in which the Court  reflected both on the propriety of defending litigation, and on the contractual duty to defend where such a duty exists.

As the Court noted in the body of its opinion, "[t]he scope of insurance coverage is defined by the language and terms of the insurance policy[.]"  Mauricio Martinez, DMD, P.A., 2020 WL 5240281, at *2.

Due to the carrier's virus exclusion in the first-party policy at issue in this case, there was no coverage for the COVID-19 claims of the policyholder.

The holdings in third-party or liability insurance cases and the judicial interpretation of insurance statutes concerning a liability insurer's duty to defend throughout the United States, are extensively discussed in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH §§ 3:51 - 3:64 (Thomson Reuters West 3d edition & 2020 Supps.).  Coverage and Policy Defenses to First-Party Insurance Coverage are addressed in id., Volume 2, throughout Chapter 11 and particularly in § 11:1.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

ARBITRATION OF AN INSURANCE COVERAGE DISPUTE IN TEXAS.

(Brennan Linsley Associated Press)

"This is an insurance coverage dispute."  5556 Gasmer Mgt LLC v. Underwriters at Lloyd's, London, ___ F. Supp. 3d ___, No. 19-cv-00974, 2020 WL 2813599, at *1 (S.D. Tex. May 29, 2020).  The coverage dispute arose as to the coverage provided under a commercial property insurance policy.

    In that insurance coverage dispute, the federal court was confronted with motions to arbitrate filed by "Insurer Defendants" and by "Broker Defendants."

    The policy at issue contained a broad, express arbitration provision governing "[a]ll matters ... in relation to this insurance[.]"  "This Court agrees that all means just that -- all."  5556 Gasmer, 2020 WL 2813599, at *3 (emphasis by the Court).

    The carriers were signatories to the insurance policy which included this express provision.  The brokers were not signatories.

     Accordingly, the court in that case granted the insurance carriers' motion to arbitrate and denied the brokers' motion to arbitrate.  The court further stayed all proceedings "until the arbitral proceedings conclude in their entirety."  5556 Gasmer, 2020 WL 2813599, at *1.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

Insurance Coverage for Losses Caused by Looting?

Is looting covered by insurance?  An Insurance Coverage lawyer's answer:  It depends on what the policy says.  One insurance policy does not fit all.

For another view, see Sam Dean, Laurence Darmiento, and Ronald D. White, Business / Is Looting Covered by Insurance?  Depends on the Business, LOS ANGELES TIMES online, May 31, 2020.

Please read the disclaimer. ©2020 Dennis J. Wall.  All rights reserved.

"Oh, Bedvidere! Come here boy!" Foghorn Leghorn goes silent with SPO.

A Stipulated Protective Order was signed in the insurance case of Bedivere Ins. Co. v. Blue Cross & Blue Shield of Kansas, Inc. & Allied World Specialty Ins. Co., Nos. 18-cv-02371 & 18-cv-02515, 2020 WL 1140394 (D. Kan. March 9, 2020) (O'Hara, USMJ). It was written by the parties, all of them insurance companies, and their lawyers of course. The lawyers of record came from Miami and Chicago and California, as well as local counsel from Kansas. They came bearing a proposed stipulated protective order.

    The Clerk wrote this on the Docket Entry for the proposed order, which Westlaw did not pick up in its report: "AGREED PROTECTIVE ORDER. The court finds good cause to enter the order submitted by the parties. Signed by Magistrate Judge James P. O'Hara on 3/9/2020." Bedvidere Ins. Co. v. Blue Cross & Blue Shield of Kansas, Inc., Case Nos. 18-cv-02371-DDC & 18-cv-02515-DDC, DE #88, proposed "Agreed Protective Order," filed March 9, 2020.

    The ones who wrote the proposed order said that their "Agreed Protective Order is based on the District of Kansas Model Protective Order." Bedvidere, 2020 WL 1140394, at *1. Except that it isn't.

    The lawyers included three categories of protection for "confidentiality" that the lawyers select in the first place. Interestingly, the lawyers wrote categories of confidentiality based on lawyers and not on their clients seeing the materials: "In particular, the parties have included three levels of confidentiality -- Confidential, Confidential -- Attorneys' Eyes Only, and Confidential -- Outside Counsel Only[.]" Bedvidere, 2020 WL 1140394, at *1. The District of Kansas Model Protective Order does not include such categories of secrecy, and neither do the District of Kansas Guidelines for the Model Protective Order.

    And what was so important that it has to be kept secret and available only in these two consolidated lawsuits and no others? This is an insurance coverage case. It involves competing coverages under Directors' and Officers' and Errors and Omissions insurance policies. See Download Bedvidere Ins. Co. v. Blue Cross & Blue Shield of Kansas Inc. No. 18-cv-02371-DDC DE #55 Amended Complaint filed 10.14.19 (D. Kan.).

    Very hush-hush indeed.

    Seriously, though: If you can get a stipulated protective order signed to keep your insurance coverage secrets, then what if anything must be disclosed?

Please read the disclaimer. ©2020 Dennis J. Wall. All rights reserved.

 

SPECIAL APPEALS IN MARYLAND: INSURANCE COVERAGE FOR LEAD POISONING.

Two insurance coverage issues were addressed by the Maryland Court of Special Appeals in Pennsylvania Nat'l Mut. Cas. Ins. Co. v. Jeffers, ___ A.3d ___, No. 960, 2020 WL 502612, at *1 (Md. Ct. Spec. App. January 31, 2020) (stated not released for permanent publication):

    This case involves two issues of insurance coverage that have arisen in the context of judgments for lead poisoning.

[* * *] 

    We shall hold that the insurer in this case was not obligated to indemnify the insured for bodily injury that occurred before its policy period began or after its policy period ended. Although we recognize that an unborn child may suffer bodily injury from exposure to lead while in utero, we shall hold that the evidence in this case was insufficient to establish when any such injury began, and thus insufficient to establish an obligation on the insurer’s part. Finally, we shall hold that the insurer must pay postjudgment interest on the entire amount of the judgment even if it is obligated to indemnify its insured for only part of the judgment.

Based on these rulings, the appellate court reversed a summary judgment effectively entered against the carrier on the issue of interest liability, affirmed a summary judgment in favor of the carrier on the issue of "bodily injury" liability coverage, and remanded.

Please read the disclaimer. ©2020 Dennis J. Wall.  All rights reserved.

  

"REVERSE PREEMPTION" OF RICO IN all INSURANCE CASES?

It was held in an insurance case earlier this year that RICO was "reverse preempted" by the McCarran-Ferguson Act. This decision meant that the insurance issues could not be litigated in that action because they were matters relegated to the States to address with regard to insurance.

The decision was immediately appealed. It is still on appeal as of this writing. Ogles v. Security Benefit Life Ins. Co., 401 F. Supp. 3d 1210 (D. Kansas July 12, 2019), appeal docketed, No. 19-3154 (10th Cir. July 29, 2019).

Stay tuned.

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"THOSE WHO HAVE EYES TO SEE, LET THEM SEE."

In answer to two certified questions, the Supreme Court of Washington has unanimously given us enough material to fill books.  This will be the first of two posted articles addressing these answers.  The second article will be posted here later.

    In Peoples v. Utd. Serv's Auto. Ass'n, ___ Wash. 2d ___, ___ P.3d ___, No. 96931-1, 2019 WL 6336407 (Wash. Nov. 27, 2019), the Supreme Court of Washington was confronted with two questions.  Both were certified by a U.S. District Court for answers under Washington State law.

    The two questions arose out of the claims of two of the plaintiffs in the District Court, one Krista Peoples and one Joel Stedman.  Both of them were physically injured in a motor vehicle accident.   Both claimed Personal Injury Protection or PIP benefits to pay for the bills of their medical providers.  Both of them were denied PIP benefits.

    Besides this common core of facts, their claims presented the same broad question of whether the plaintiffs were injured in their business or property so that they could claim standing to sue under Washington State's Consumer Protection Act.

    That is where the questions posed by their separate claims diverged.

    Krista Peoples presented the first question.  She alleged that USAA routinely denied PIP claims based on a "practice of algorithmic review[.]"  Peoples, 2019 WL 6336407, at *1, ¶ 3:

    Specifically, Peoples alleges that USAA refuses, without any individualized assessment, to pay medical provider bills whenever a computerized review process determines that the bill exceeds a predetermined limit. According to Peoples, USAA’s failure to investigate or make an individualized determination regarding the reasonableness or necessity of a provider’s charges before denying payment[.]

Peoples's claim was alleged as a class action.  But that was not important to the outcome of her question.  She and the class prayed for "actual damages, including unpaid medical bills and expenses incurred to investigate USAA's wrongful conduct." Peoples, 2019 WL 6336407, at *1, ¶ 3.

    But Peoples and the class emphatically did not sue for their personal injuries incurred in the accident.  Nor did they sue simply because the benefits for which they contracted related to payment of treatment for their personal injuries.

    Rather, they sued because they were deprived of contract benefits, the benefits of statutorily required PIP coverage.  That was their alleged injury to property or business, and that is what conferred standing upon them to sue under the Washington State Consumer Protection Act.

    Stripped to its simplest elements, their question was whether "the wrongful denial of PIP benefits is an injury to 'business or property' under" the CPA.  It bears repeating that "they seek to hold their insurance companies liable for benefits owed under contract. We conclude that the deprivation of contracted-for insurance benefits is an injury to 'business or property'” and that the type of contracted-for insurance benefits does not matter.  Peoples, 2019 WL 6336407, at *3, ¶ 9.

    Beyond contracted-for insurance benefits, the Court answered that policyholders also have "a related right to insurance dealings free from bad faith," that this "protected property interest" is invaded by "[c]laims handling and wrongful denial of benefits, ... regardless of the type of event that triggers coverage." Peoples, 2019 WL 6336407, at *4, ¶ 12.

    In other words, the "algorithmic review" challenged by Krista Peoples and her class may have been the alleged cause of contract benefits being denied here, but it was the wrongful denial of benefits that was important to the outcome.  What was important to the Supreme Court in this decision was the result and not the cause. 

    For all these reasons, the Washington Supreme Court's answer to the Krista Peoples's certified question was in the affirmative:

Therefore, to the extent proved, the plaintiffs may recover actual damages, including out-of-pocket medical expenses that should have been covered, and can seek injunctive relief to compel the payment of benefits to medical providers.

Peoples, 2019 WL 6336407, at *4, ¶ 13.

    To summarize, the key to alleged 'injury to business or property' in the Peoples' class claims was "the deprivation of contracted-for insurance benefits."  That was their injury.  That conferred their standing to sue.

In the next article arising from the Peoples case, the second certified question will be addressed along with the question of whether "injuries to business or property" can ever include "investigative costs or time lost."

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COURAGE, INSURANCE COVERAGE, AND STIPULATED SETTLEMENTS IN MASSACHUSETTS.

The Supreme Judicial Court of Massachusetts has rendered a decision that has many features, all of them interesting and some of them moving.

The complicated background of the decision in this case is thoroughly explored by Nina E. Kallen, Esquire in her blog article posted in Insurance Coverage Law in Massachusetts on Wednesday, October 16, 2019. I will also write another article this week about some of the other rulings in this important decision that I do not address here today.

In my judgment, one of the more important features of this decision is not readily apparent, however. I am going to ask Ms. Kallen for her comments on it by sending her a copy of this article with an email today. If we miss anything unique to this decision and Massachusetts law here, she is the right person to ask.

The decision came on October 1, 2019 in the case of Commerce Ins. Co. v. Szafarowicz, 131 N.E.3d 782 (Mass. 2019). It involves a couple of stipulated settlement agreements in a Wrongful Death Action. Commerce was defending its insured under a reservation of rights at the time, and Commerce was simultaneously pursuing a separate Declaratory Judgment Action of no coverage. Massachusetts, like most jurisdictions, permits the filing of a DJA while defending an insured under a reservation of rights to deny all coverage.

The insureds stipulated to settlement in the Wrongful Death Action before there was a determination in the Declaratory Judgment Action. The judge in the Wrongful Death Action (we are not told her or his name in the opinion) "ordered that judgment enter in favor of the [deceased claimant's] estate" far in excess of the policy limits. The policy limits were at most $500,000.00 and the original judgment was entered in the Wrongful Death Action in the amount of $5,617,510.00 (later increased to $7,669,254.41). Commerce, 131 N.E.3d at 789.
We do not know the date of the stipulated settlements because the Massachusetts Court does not tell us, but we know that "the judge ordered that judgment enter in favor of the estate" on December 28, 2016. Commerce, 131 N.E.3d at 789.

"[A]nother Superior Court judge resolved the declaratory judgment action" on February 21, 2019. The Declaratory Judgment judge (again, we are not told her or his name, only that this was a different judge from the Wrongful Death judge) held that there was no coverage for the policy's "optional bodily injury coverage of its automobile policy" because, the DJA judge found, the injuries in question "'did not arise out of an accident under the policy.'" Commerce, 131 N.E.3d at 790-91. Accordingly, said the Supreme Judicial Court in Commerce, "Commerce has no obligation to pay any amount of the $7.7 million judgment in the wrongful death action beyond the $20,000 it already paid under its compulsory bodily injury coverage." Commerce, 131 N.E.3d at 791 (emphasis by the Court).

So, to recap what happened on the facts here, the insureds stipulated to a settlement with the claimant's estate in the Wrongful Death Action for what became a judgment of $7.7 Million. That was years before the Declaratory Judgment was concluded. This means, of course, that everyone involved including Commerce, Commerce's lawyers, and the DJA judge knew that the estate was pursuing a damages determination of some 15 times what might be called the "full" policy limits of $20,000 for compulsory bodily injury coverage and $480,000 for optional bodily injury coverage.

To say again, because it bears repetition here, at the time that the DJA judge ruled in the liability insurance company's favor the insureds had already stipulated to damages far exceeding the potential policy limits. (The insureds also stipulated that their driver's negligence caused the accident which resulted in the claimant's death, a stipulation which would have triggered insurance coverage if that particular stipulation was determinative, which clearly it was not).

Nevertheless, Commerce persisted. That is clearly one way to put it. On a human level, of course the deceased claimant's loved ones are the first to command our empathy. Yet on a human level we cannot overlook the behavior of Commerce and its lawyers who for many years must have confronted the risk of losing many times, and for a lot of money, before they obtained a final Declaratory Judgment of no coverage.

That is likely to be the overlooked story of this case that I want to feature in this article today. Right or wrong, the people at the insurance company involved in this case and the lawyers who represented the insurance company in the DJA deserve to have their courage recognized, too.

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TWO FOR THE INSURANCE COVERAGE BOOKS OF BUSINESS.

Two recently published articles will appeal to everyone concerned with insurance policy interpretation and to insurance coverage lawyers in particular. One article addresses general principles that apply to all insurance coverage cases. The other addresses a specialized niche. Both are available on Westlaw.

The first is by the estimable Kenneth S. Abraham, and the title of the article is self-explanatory. It will find a ready audience among insurance coverage lawyers generally: Plain Meaning, Extrinsic Evidence, and Ambiguity: Myth and Reality in Insurance Policy Interpretation, 25 CONN. INS. L.J. 329 (Spring 2019).

The other is addressed to a specialized niche of insurance coverage issues involving many insurance policies, many parties, and likely a lot of corporate money at stake. It is by James M. Fischer, Understanding the "Exhaustion of Coverage" Doctrine in the Context of Continuous Trigger Coverage, 25 CONN. INS. L.J. 263 (Spring 2019).

Please Read The Disclaimer. ©2019 Dennis J. Wall. All Rights Reserved.