PANDEMIC UPDATE

Notwithstanding the recent Cajun Conti policyholder victory in the Louisiana Court of Appeals, a federal district court judge in New Orleans has sided with the numerous federal rulings declaring that COVID BI claims are not on account of "direct physical loss." In Port Cargo Services v. Westchester Surplus Lines Ins. Co., No. 22-01018 (E.D. La. Aug. 16, 2022), Judge Lemelle ruled that the Burnside Plantation, famed as the venue where the penny-dreadful "Mandingo" movie was filmed in 1975, had not been physically damaged. In light of Louisiana's unusual legal code, Judge Lemelle declared that an intermediate state opinion was not due extraordinary deference and that he was convinced, in any event, that the Louisiana Supreme Court would ultimately agree with the dissenting judge in Cajun Conti that these policy wordings are not ambiguous.

The First District of the Illinois Appellate Court has issued four separate opinions affirming lower court rulings in which Society Insurance had prevailed over local restauranteurs. In these related appeals, the court held that no "direct physical loss" had been pleaded and declined to infer ambiguity based on the absence of a virus exclusion.

NEW CASES OF CONSEQUENCE

SEVENTH CIRCUIT Fee Claims/Reasonable and Necessary (IN)

Having previously ruled that a D&O insurer must provide a complete defense to governmental investigations of USA Gymnastics arising out of the Larry Nass sexual assault scandal, he Seventh Circuit has rejected Liberty's contention that substantial portions of these fees were excessive r unreasonable. In USA Gymnastics v. Liberty Insurance Underwriters, Inc., No. 21-2914 (7th Cir. Aug. 1, 2022), the court held that its review was guided by the presumption that fees that an insured pays when it has no certainty that they will be reimbursed by an insurer are "road-tested" and presumed to be reasonable, a standard that the court held to be a "substantive" as opposed to "procedural" aspect of Indiana law nd thus one that a federal court must follow. The court rejected the insurer's argument that USAG's general counsel had not aggressively monitored the work of the six defense firms, holding that an absence of request for write downs was not necessarily evidence of lax supervision and that an insured "may supervise its outside counsel without refusing to pay portions of legal bills or engaging in hairsplitting about those ills." The court also ruled that the presumption applied even if the insured had not paid 100% of the fees, o long as it had paid a high enough percentage to create an incentive to "economize." The court also referred to the trial court's observation that the insured's expert testimony was more persuasive and that attorney Brand Cooper's testimony for Liberty was internally inconsistent.

FLORIDA First Party/Untimely Notice/Prejudice

The Florida District Court of Appeal has ruled that a trial court erred in dismissing a homeowner's claim or Hurricane Irma damage based upon the insured's 13 month delay in giving notice of the damage. In Perez v. Citizens Property Ins. Corp., No. 4D21-2944 (Fla. DCA4 Aug. 10, 2022), the Fourth District agreed hat the insured's notice was not "prompt" but found that Citizens had failed to show how this delay had rejudiced its ability to investigate or respond to the claim.

FLORIDA Litigation Funding/Assignments

he Florida District Court of Appeals has ruled that a trial court erred in dismissing a litigation funding company's suit against a homeowner's insurer. Despite the fact that the assignment that the insured received concededly failed to supply information required by Section 627.7152, the Fifth District ruled in Sigma Funding Group, LLC v. Security First Ins. Co., 2020-AP-000017 (Fla. DCA5 Aug. 19, 2022) that it was unclear whether this was an assignment "to or from a person providing services to protect, repair, restore or replace property" so as to be subject to this statute.

ILLINOIS Construction Defect/Additional Insureds/Priority of Coverage

he Appellate Court has ruled in Capitol Construction Solutions, Inc. v. Selective Ins. Co. of South Carolina, 022 IL App. (1st) 200808 (Ill. App. Ct. Aug. 3, 2022) that a lower court did not err in holding that any overage that Selective owed to a GC under a policy that it had issued to a subcontractor was excess to he GC's own coverage with Country Mutual in light of language in the policy's additional endorsement tipulating that the coverage was only excess unless the contract required that it be "primary and non-contributory.," which this policy did not.

MASSACHUSETTS Allocation/Duty to Defend

Having previously ruled that defense costs in an asbestos case were not subject to "pro rata" allocation but that insurers did have an equitable right to seek restitution after the fact for fees allocable to uninsured periods of time, Judge Salinger has now done an about face and has ruled in Crosby Valve LLC v. OneBeacon Ins. Co., 1284CV02705 (Mass. Super. July 19, 2022) that the considerations that had led the Supreme Judicial Court of Massachusetts to apply a "time on the risk" analysis to indemnity claims in Boston Gas did not apply to the duty to defend because the duty to defend is broader than the duty to defend and that if an insurer owes coverage for any part of a law suit, it must defend the entire case. Since an insurer may not require its policyholder to pay for the defense of non-covered claims, the Superior Court ruled that it followed that the insured did not owe for defense of claims allocable to non-covered periods, especially as there is no correlation between the cost of defending a case and the period of time in which injuries occurred.

NORTH CAROLINA Discovery/Attorney-Client Privilege

The North Carolina Supreme Court ruled last week that a judge in the Business Litigation Session did not err in requiring the disclosure of Latham & Watkins' investigation of internal misconduct by the insured's employees. In keeping with its recent ruling in Window World that "business advice' is not a privileged communications, the Supreme Court observed in Buckley LLP v. Series 1 of Oxford Ins. Co., 2020 NCSC 94 (N.C. Aug. 19, 2022) that in today's business world, investigations of alleged violations of company policy, including policies prohibiting sexual harassment or discrimination, are ordinary business activities and, accordingly, the communication made in such investigations are not necessarily "made in the course of giving or seeking legal advice for a proper purpose." In this case, the Supreme Court had properly applied Window World in assessing where communications that contain intertwined business and legal advice had the 'primary purpose' of seeking or providing legal advice.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Liberty Mutual announced last week that former CNA Financial executive Kevin Smith will be its new president of Global Risk Solutions, North America.

Climate Change Litigation Warms Up

The Third Circuit ruled last week in City of Hoboken v. Chevron Corp., No. 21-1728 (3d Cir. Aug. 17, 2022) that numerous oil companies who are being sued by the City of Hoboken and the State of Delaware for damage from rising sea levels due to global warming had no basis for removing their case to federal court as the suit that the plaintiffs had brought in state court in Delaware solely sought recovery based on common law tort liability theories. The opinion is noteworthy both for its procedural impact and because the court's analysis does not begin until page 20, the first nineteen pages being the list of AmLaw100 attorneys and amici who filed appearances in the case.

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