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."
Michael Aylward
Morrison Mahoney
Boston, MA
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Seventh Circuit
Privacy Exclusions/"Arising Out Of" (IL)
Allegations that a debt collection agency harassed a debtor and made 53 abusive phone calls that ultimately caused her to miscarry have been held subject to a Recording and Distribution of Material or Information in Violation of Law" exclusion in Zurich's CGL policies, as well as a Violation of Communications or Information Law exclusion. Despite the insured’s argument that these exclusions were limited to the statutory claims against it and that Zurich’s duty to defend was still triggered by the plaintiff’s common law privacy claims, the Seventh Circuit ruled in Zurich American Ins. Co. v. Ocwen Financial Corp. No. 19-3052 (7th Cir. Mar. 12, 2021) that these exclusions applied not only to statutory claims but to all common law claims based upon conduct that violated the statutes. The court declared that if the plaintiff would not have been injured but for the conduct that violated an enumerated law, then the exclusion applies to all claims flowing from that underlying conduct regardless of the legal theory.
Michael Aylward
Morrison Mahoney
Boston, MA
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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.
Michael Aylward
Morrison Mahoney
Boston, MA
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Delaware
First Party/"Earth Movement" Exclusion
The Delaware Supreme Court has ruled that the collapse of a pedestrian bridge and retaining wall at the insured's home following a severe weather event that resulted in a combination of water backups from drainage systems, scouring of supporting earth embankments, heavy rain and tree debris were subject to an "earth movement" in a homeowner's policy. In Monzo v. Nationwide Property & Casualty Ins. Co., 199,2020 (Del. Nar. 11, 2021), the court ruled that "earth movement" encompassed the "scouring" of earth embankments that had resulted in this loss. The court rejected the insured's argument that the exclusion does not apply to earth movement when combined with water, noting that the exclusion applied to losses "resulting directly or indirectly from earth movement due to natural or unnatural causes…" The court also noted that the exclusion included types of earth movement such as "mudslides" that contain water. On the other hand, the supreme court held that the trial court had erred in granting summary judgment to Nationwide with respect to the collapsed retaining wall as, unlike the pedestrian bridge, the undisputed facts did not establish that "scouring" had contributed to the wall's collapse.
Michael Aylward
Morrison Mahoney
Boston, MA
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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.
Michael Aylward
Morrison Mahoney
Boston, MA
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Nevada
Duty to Defend/Recoupment/Restitution
A narrowly divided Nevada Supreme Court has ruled that a general liability insurer is entitled to recoup defense costs that it paid under protest in a case that it had no duty to defend. On a certified question from the Ninth Circuit, the majority declared in Nautilus Insurance Company v. Access Medical, LLC, No. 79130 (Nev. Mar. 11, 2021) that “when a court determines that an insurer never owed a duty to defend, the insurer expressly reserved its right to seek reimbursement in writing after defense was tendered, and the policy accepted the defense from the insurer, then the insurer is entitled to that reimbursement. Under generally applicable principals of unjust enrichment and restitution, the insurer has conferred a benefit on the policyholder; the policyholder appreciated the benefit; because it is reasonable for the insurer to accept the policyholder's demand, it is equitable to require the policyholder to pay." The majority concluded that this holding was consistent with Restatement of Restitution and found that, whereas the ALI’s new Restatement for liability insurance had reached a different conclusion, it had done so for reasons that the court disagreed with. Three justices dissented, arguing that a court should not rely on equitable principles to imply contractual terms where an express agreement existed between the parties that lacked such terms, nor was it appropriate to permit Nautilus to create a remedy through a unilateral reservation of rights that are not set forth in the agreed terms of the policy itself.
Michael Aylward
Morrison Mahoney
Boston, MA
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New Hampshire
Subrogation
The New Hampshire Supreme Court has ruled that the property insurer of a college may not subrogate against college students for accidentally setting fire to their dormitory. In Ro v. Factory Mutual Ins. Co., 2009-620 (N.H. Mar. 10, 2021), the court extended the anti-subrogation rule to students notwithstanding the absence of any formal "possessory interest" in the college dormitory that they damaged. Factory Mutual had argued that students had no more possessory interest in their residences than guests in a hotel and were therefore not “co-insureds” under the policy. The supreme court disagreed, concluding that Factual Mutual’s arguments rested too heavily on property law whereas subrogation is an equitable remedy that does "not depend upon feudal principals” and that courts have likened the relationship between a college and residential student to that of a landlord and tenant in other cases.
Michael Aylward
Morrison Mahoney
Boston, MA
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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."
Michael Aylward
Morrison Mahoney
Boston, MA
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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.
Michael Aylward
Morrison Mahoney
Boston, MA
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