PANDEMIC UPDATE
In the first COVID trial to result in a jury verdict for a policyholder, a Texas jury has awarded $48 million to the Baylor College of Medicine in its suit against Lloyds. The Texas Court of Appeals had previously dismissed Baylor's claims against XL Insurance American Inc. and ACE American, which had different policy wordings.
The Ninth Circuit ruled last week in Out West Restaurant Group, Inc. v. Affiliated FM Ins. Co., No. 20-6786 (9th Cir. Sept. 2, 2022)(Unpublished) that the presence of COVID virus particles does not cause "direct physical loss or damage" to property and that any coverage that might apply is negated by an exclusion for "[c]ontamination, and any cost due to contamination including the inability to use or occupy property or any cost of making property safe or suitable for use or occupancy.".
The California Court of Appeal issued a lengthy opinion last week in Apple Annie v. Oregon Mut. Ins. Co., A163300 (Cal. App. Sept. 2, 2022), ruling that a trial court did not err in rejecting an insured's argument that "no physical alteration is necessary to show that the policyholder has suffered a 'physical loss of' insured property if the governmental authorities issue orders that prohibit the policyholder from using the insured property for its intended purpose," and (2) that" 'physical loss of' includes the loss of use of the insured property, even if that loss is temporary." Further, the First District rejected the insured's attack on a controversial section of Couch on Insurance, declaring that any weakness in the treatise's analysis of this issue was besides the point in light of the "wall of precedent" that has since sealed off this issue.
A federal judge in Denver has ruled in Western Union Co. v. ACE American Ins. Co., No. 21-127 (D. Colo. Aug. 24, 2022) that he need not reach the issue of "direct physical loss" inasmuch as Western Union's COVID BI claim is clearly subject to ACE's Pollution and Contamination exclusion.
NEW CASES OF CONSEQUENCE
SIXTH CIRCUIT First Party/Priority of Coverage/"Other insurance" (TN)
In a dispute with respect to the priority of first party property policies that respectively insured a landlord and its commercial tenant, the Sixth Circuit has predicted in Landmark American Ins. Co. v. HECO Realty Co., No. 21-5858 (6th Cir. Aug. 22, 2022) that Tennessee Supreme Court would not adopt the majority rule that the competing claims of insurers should be determined by reference to their lease agreement in a case like this one, where there is no evidence that the insurer has accepted its insured's contractual liability. As a result, the Sixth Circuit held that the issue must be determined in accordance with the policy's respective "other insurance" clauses and declared that, in light of the policies' "mutually repugnant" excess wordings, the loss should be pro-rated between Liberty Mutual and Landmark in proportion to the policies' respective limits of coverage.
NEW YORK Estoppel/Equitable Contribution
The Second Department has ruled in Lancer Ind. Co. v. Peerless Ins. Co., 2022 NY slip op 05030 (App. Div. Aug. 24, 2022) that Lancer was estopped to demand reimbursement from Peerless for $250,000 that each insurer had paid on behalf of their respective insureds to settle a serious personal injury suit because it had failed to reserve any right of equitable contribution at the time that the settlement was entered into. The court ruled that the doctrine of estoppel is not limited to disputes between insureds and insurers and has, in the past, been applied to allocation disputes among insurance companies.
OHIO Opioids/"Damages"
The Ohio Supreme Court has overturned an intermediate appellate court's declaration that a liability insurer must defend opioid suits against a pharmaceutical manufacturer. A year after hearing oral argument, the court ruled in Acuity Insurance v. Masters Pharmaceuticals, 2022-Ohio-3092 (Ohio Sept. 7, 2022) that law suits brought by governmental entities in Michigan, Nevada and West Virginia only seek damages for their own economic losses and not because of bodily injury. In favoring the Delaware Supreme Court's 2022 Rite-Aid analysis and rejecting the 7th Circuit's H.D. Smith approach that the Ohio Court of Appeals has heretofore followed, the court held that "the governments seek damages for their own aggregate economic injuries caused by the opioid epidemic and not for any particular opioid-related bodily injury sustained by a citizen as a direct result of Masters's alleged failures." The court found that "[t]he repeated use of the phrase 'the bodily injury' suggests that the damages sought in the underlying suit need to be tied to a particular bodily injury sustained by a person or persons in order to invoke coverage under the policies." As a result, the court chose not to reach Acuity's alternative argument concerning "loss in progress," although the court found that the insured's arguments against "loss in progress" were inconsistent with its claim that the suits sought damages "because of...bodily injury."
OHIO Lead Paint/"Damages"
In a ruling that enjoyed a brief shelf life, an Ohio appellate panel ruled last week that a trial court erred in declaring that money that a paint manufacturer paid into a governmental Abatement Fund to abate lead paint problems in California were not "damages." In the last of three cases involving the settlement of the County of Santa Clara litigation, the Eighth Appellate District ruled in Sherwin Williams Corp. v. Certain Underwriters at Lloyd's, London, No. 101187 (Ohio App. Sept. 1, 2022) that it would follow the analysis of the New York Supreme Court's Appellate Division in NL Industries rather than the conflicting opinion of the California Court of Appeal in ConAgra. Furthermore, in keeping with NL Industries, the Court of Appeals rejected the insurer's cross-appeal on "expected or intended," holding that there is a distinction between an insured's knowledge that its operations could have hazardous consequences and an actual intention to cause harm. The court also found that the sums were paid "because of...bodily injury." Writing in dissent, Justice Mays asserted that Sherwin Williams should be collaterally estopped to claim that the California payment was for "damages" covered under these policies.
VIRGINIA Crime Policy/"Securities"
A federal court in Virginia has ruled that a dispute involving the existence and scope of a Construction Management Agreement fell outside the scope of Travelers' Crime policy because the defendant was not accused of any theft or forgery of covered "securities". In Heartland Construction v. Travelers Casualty and Security Company of America, No. 21-43 (E.D. Va. Aug. 30, 2022), Judge Young declared "under plaintiff' interpretation of "Securities," service contracts would be covered under the Crime Policy as long as the contract requires the payment of money in exchange for services or another condition precedent, a position unsupported by the plain meaning and context of the Crime Policy."
OTHER DEVELOPMENTS OF NOTE
Inside the Insurance Industry
Hartford Financial Services Group announced this week that Doug Eliot, who has helmed the insurance giant since 2014, will be retiring at the end of 2022.
A.M. Best reports that U.S. property and casualty insurers suffered a net underwriting loss of $6.3 billion in the first half of 2022.
Morrison Mahoney In The News
Boston partner Michael Aylward will be delivering his annual update on environmental and mass tort insurance decisions at FETTI's annual claims conference in Chicago on September 22.
Restating the Law
The Advisers and Members Consultative Group for the Restatement of the Law, Torts (Concluding Provisions) project are scheduled to meet in Philadelphia on September 15-16 to debate concerning more than a dozen topics that the Reporter's Preliminary Draft No. 3 addresses, including estoppel, vicarious liability, medical malpractice, spoliation, medical monitoring and first party bad faith.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
