PANDEMIC UPDATE
On a certified question from a federal district court, the Ohio
Supreme Court has ruled that a policy's coverage for
"accidental physical loss or accidental physical damage"
requires loss or damage to Covered Property that is physical in
nature. In ruling that this policy did not cover loss of use of the
insured's premises during the COVID pandemic, the Supreme Court
ruled in Neuro-Communications Service, Inc. v. Cincinnati
Ins. Co., 2022-Ohio-4379 (Ohio Dec. 12, 2022) that it was
guided by the Sixth Circuit's ruling in Santo's Café
as well as the policy's "period of restoration"
language. The court also ruled that the parol evidence rule
precluded it from considering the insured's argument that this
policy covered virus losses since, unlike other Cincinnati
policies, it lacked a virus exclusion. Further, the court declined
to follow out of state authority in which courts have found
property insurance for premises that were declared uninhabitable
due to safety concerns. In this case, the state Supreme Court held
that the premises were unsafe only to the extent that they served
as an indoor space in which people could gather and Covid could be
transmitted. As a result, the court concluded that we conclude that
direct physical loss or damage to property does not arise from (1)
the general presence of Covid in the community, (2) the presence of
Covid on surfaces at a premises, or (3) the presence on a premises
of a person infected with Covid. Justice Donnelly issued a brief
dissent, arguing that the court should not have accepted the
certified question since there is already a clear body of law on
contract interpretation that federal courts may follow.
In its first opinion since being rebranded as the Maryland Supreme
Court, the court formerly known as the Maryland Court of Appeals
ruled in Tapestry, Inc. v. Factory Mut. Ins. Co., No. 1
(Md. Dec. 15, 2022) that the fact that virus particles may be
physically present in the indoor air of the insured's property
or may also be present on or adhering to that property so as to
impair the functional use of the property does not result in a
direct physical loss of or damage to the property unless it causes
"tangible, concrete, and material harm to the property"
or "deprivation of possession of the property."
As with Pennsylvania, it appears that California law will remain
somewhat uncertain until the state Supreme Court takes a hand.
While the Ninth Circuit and most intermediate state appellate court
opinions remain favorable to insurers, a group of judges within the
Second Appellate District continue to follow the outlier path that
they pioneered in Sierra Pacific. In Shusha, Inc. v. Century National Ins. Co.,
B313907 (Cal. App. Dec. 14, 2022), a three-judge panel ruled that
the insured's allegations that virus particles had caused
physical damage to its premises were sufficient to withstand the
insurer's demurrer notwithstanding the vast preponderance of
California courts to the contrary, including a contrary analysis
under similar facts adopted by a different panel of Los Angeles
jurists in United Talent Agency.
NEW CASES OF CONSEQUENCE
FOURTH CIRCUIT Res Judicata/Bad Faith
(MD/PA)
The Fourth Circuit has affirmed a Maryland ruling that claimants
who were injured in a hot air balloon accident could only recover
up to the $100,000 "per passenger" limit rather than the
policy's $1 million limit. In T.H.E. Ins. Co. v. Davis, No. 21-2044 (4th Cir.
Dec. 9, 2022), the court declined to find that the issue was
controlled by findings in an interpleader proceeding or the
underlying settlement agreement to which T.H.E. had not been party
or that there were disputed issues of fact that should have
precluded summary judgment. The court also declined to find that
the claimants were not "passengers" because they were
partly outside the cab of the balloon when they were electrocuted.
Having sustained the lower court's declaration of no coverage,
the Fourth Circuit likewise ruled that T.H.E. was not liable for
common law bad faith or for a claimed violation of 42 Pa. C.S.A.
§ 8371.
CALIFORNIA Silica/Contribution
Claims
In a complex opinion concerning cross-claims among various primary
and excess insurers of a respirator manufacturer for sums paid to
defend and settle silica claims, the Second District has ruled in
Truck Ins. Co. v. Federal Ins. Co., B298906
(Cal. App Nov. 14, 2022) (unpublished) that primary insurer Truck
had no right to demand reimbursement for sums that it paid after
exhausting its $500,000 primary limit because the settlement
agreement with the O'Quinn law firm whereby it had paid its
policy limit did not clearly state that the insurer had no
continuing duty to pay defense costs and therefore ruled that
exhaustion was not finally established until the California Supreme
Court denied review in this case in 2017. The Second District also
ruled that the release language in the O'Quinn settlement,
wherein Truck released various rights, extended to a waiver of
contribution claims against later insurers such as Federal and
First State. The court also restated its view that primary insurers
have no rights of equitable contribution against excess
insurers.
FLORIDA First Party Bad Faith
The Florida District Court of Appeals has ruled that a trial judge
erred in dismissing a homeowner's bad faith claim on the basis
that the insured's Civil Notice of Remedy failed to meet the
requirements of Section 624.155. In Lugassy v. United Property & Cas. Ins.
Co., No. 4D21-2929 (Fla. DCA2 Nov. 23, 20220), the Second
District ruled that Lugassy's CRN provided enough information
that he should have been able to go forward with his bad faith
claim.
KENTUCKY
The Kentucky Supreme Court has ruled that a trial judge failed to
follow its Wittmer standard for bad faith claims when it denied a
liability insurer's motion for a direct verdict in a bad faith
failure to settle case. In setting aside a $5 million verdict, a
majority ruled in Belt v. Cincinnati Ins. Co., 2019-SC-0426 (Ky.
Dec. Dec. 15, 2022), the court ruled that the standard for both
common law and statutory bad faith claims had been set forth in its
1993 opinion in Wittmer v. Jones and required proof that that the
loss was covered and that the insurer lacked a reasonable basis for
denying coverage and either knew there was no reasonable basis for
denying the claim or acted with reckless disregard for whether such
a basis existed. In this case, the court found that Belt had failed
to present evidence to support a finding of intentional misconduct
or reckless disregard. Three justices dissented, arguing that such
evidence was presented and that the trial judge acted appropriately
in allowing the case to go the jury.
OTHER DEVELOPMENTS OF NOTE
Inside the Insurance Industry
A.M. Best has downgraded its financial outlook for Wisconsin-based
Badger Mutual Insurance Company from "stable" to
"negative."
Allstate's CEO has confirmed his intention to pursue rate hikes
in 2023 and predicted that State Farm will do the same.
The Florida legislature has approved SB2, a package of reforms that are expected to
be approved by Governor DeSantis, including (1) a requirement that
policyholders of insurer of last resort Citizens Property Insurance
separately buy flood insurance; (2) require Citizens' insureds
to switch to commercial insurers if the cost of coverage is 20% or
less than the premium for Citizens policies; (3) expand the role of
arbitration in coverage disputes; (4) preclude the applicability of
Section 627.428 fee award provisions to insurance cases; (5) bar
insureds from assigning benefits in most cases; (6) limit bad faith
awards in cases where an insurer has not yet been held to be in
breach of its policy obligations and (7) expand the authority of
the state Office of Insurance Regulation to obtain financial
information from Florida insurers.
Sexual Assault Update
Five women have taken advantage of New York's new one year
window for filing time-expired sexual assault claims to sue Bill
Cosby and NBCUniversal for incidents that allegedly occurred at
various times and places between the 1960s and the 1990s.
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