Hunton Insurance Recovery Blog

The Texas Supreme Court has reversed a lower appellate court decision and found that insurers of Anadarko Petroleum Corp. cannot use their own policy wording to avoid coverage for more than $100 million of Anadarko’s defense costs stemming from the 2010 Deepwater Horizon disaster.  Law360 interviewed Hunton’s Sergio F. Oehninger about the substantial impact the decision will have for policyholders in Texas and elsewhere.  Oehninger explained how the decision corrects fundamental errors by the lower court in the construction of insurance policies and how it illustrates the proper way to construe words chosen by the insurer that operate to limit or preclude coverage.  In the Anadarko matter, the London market policy contained a “joint venture” provision that capped joint venture liabilities at $37.5 million.  The insures applied the cap after paying that amount to Anadarko.  The Texas Supreme Court rejected the insurers’ argument and the decision of the court below, finding that the joint venture provision applies only to “liabilities” – that is, amounts Anadarko becomes legally obligated to pay to a third party.  Defense costs, in contrast, are not amounts paid to a third party and, thus, are not “liabilities” within the context of the joint venture provision.  The Court also drew on other policy provisions to support the distinction, including provisions that specifically refer separately to “liabilities” and “defense expenses.”  “The Texas Supreme Court’s reversal of the appellate panel’s ruling serves as a clear pronouncement of both insurance policy construction rules and proper appellate review in Texas,” Oehninger said.  “In this regard, the Supreme Court’s opinion serves to ‘right the ship’ and bring Texas case law back in line with precedent.”

Summary

Reversing a Texas Court of Appeals decision that allowed Anadarko’s Lloyd’s of London excess insurers to escape coverage for more than $100 million in defense costs incurred in connection with claims from the Deepwater Horizon well blowout, the Supreme Court of Texas held that the insurers’ obligations to pay defense costs under an “energy package” liability policy are not capped by a joint venture coverage limit for “liability” insured.  Anadarko Petroleum Corp. et al. v. Houston Casualty Co. et al., No. 16-1013 (Tex. Jan. 25, 2019).

In a huge win for policyholders, a New York appellate court, in D.K. Property, Inc. v National Union Fire Insurance Company of Pittsburgh, Pa., held that an insured need not provide a detailed factual description or explanation for why consequential damages are recoverable at the pleading stage.  Rather, an insured’s complaint must only (i) specify the types of consequential damages claimed; and (ii) allege that those damages reasonably were contemplated by the parties prior to contracting.

Rosen Millennium Inc. (“Millennium”), the cyber security and IT support subsidiary of Rosen Hotels & Resorts, Inc., has appealed to the Eleventh Circuit contending that a Florida federal court ignored Florida insurance law when it ruled that Travelers Insurance Company has no duty to defend it against a multimillion dollar claim arising out of a cybersecurity breach.

The doctrine of functus officio typically sets an arbiter’s award in stone: It forbids an arbiter from altering its award after the award has been rendered. But the doctrine has several exceptions. One such exception, known as the clarification exception, allows an arbitration panel to clarify an ambiguous final award. In Gen Re Life Corporation v. Lincoln National Life Insurance, the Second Circuit joined several other circuits in expressly adopting this exception, allowing an arbitration panel to clarify the meaning of its prior interpretation of rescission-clause in a ...

Notwithstanding the absence of a congressional war declaration since Japan bombed Pearl Harbor, Zurich American Insurance Company has invoked a “war exclusion” in an attempt to avoid covering Illinois snack food and beverage company Mondelez International Inc.’s expenses stemming from its exposure to the NotPetya virus in 2017. The litigation, Mondelez Intl. Inc. v. Zurich Am. Ins. Co., No. 2018-L-11008, 2018 WL 4941760 (Ill. Cir. Ct., Cook Cty., complaint filed Oct. 10, 2018), remains pending in an Illinois state court.

Policyholders facing any type of products liability scored a win in a recent decision from the District Court for the Northern District of Illinois.  The court found that an insurance company must defend its insured against claims arising out of a recall while simultaneously funding the insured’s affirmative claims for recovery.

The Supreme Court of Virginia’s decision yesterday finding no coverage for fire damage to a building is a cautionary tale for companies acquiring other companies. Erie Ins. Exch. v. EPC MD 15, LLC, 2019 WL 238168 (Va. Jan. 17, 2019). In that case, Erie Insurance issued a property insurance policy to EPC. The policy covered EPC only and did not cover any subsidiaries of EPC. EPC then acquired the sole member interest in Cyrus Square, LLC.  Following the acquisition, fire damaged a building that Cyrus Square owned.

In Zurich American Insurance Co. v. Don Buchwald & Associates, Inc., 2018 N.Y. Slip. Op. 33325(U) (Sup. Ct. N.Y. County, Dec. 21, 2017), the Supreme Court of New York held that Zurich was obligated to defend a talent and literary agency against claims brought by Hulk Hogan alleging that the agency aided and abetted one of its agents—Tony Burton—in publishing racist and sexual footage of Hulk Hogan online.  The decision also gives ammunition to policyholders seeking to recover their fees incurred while litigating against an insurer’s improper denial of coverage.  The court found that the insureds had “been cast in a defensive posture” due to the insurer’s claims seeking a declaratory judgment, and that this justified a fee-shifting award.

2018 was a big year for insurance coverage cases, especially those involving social engineering phishing, spoofing and other schemes of trickery and deception.

The insurance recovery lawyers at Hunton Andrews Kurth have compiled their list of the top insurance cases of 2018.  A copy of the Review can be found here.

Hunton Andrews Kurth insurance partner Michael Levine was recently interviewed by LegalTech News concerning Ohio’s recent adoption of the National Association of Insurance Commissioners’ (NAIC) Insurance Data Security Model Law. The law, modeled after the New York State Department of Financial Services Cybersecurity Requirements for Financial Service Companies Act, seeks to provide a framework for states to address risks and develop cybersecurity guidelines for insurance companies. Ohio became the second state, after South Carolina, to adopt the model law. As Mike ...

In the December 2018 edition of Virginia Lawyer Magazine, Hunton Andrews Kurth insurance coverage lawyers Syed S. Ahmad, Patrick M. McDermott, and Latosha M. Ellis discuss the importance of preserving improperly excluded evidence into the trial record for post-trial motions or appellate review. In the article, the authors explain how to make an offer of proof, the value of issue preservation during the motions stage of litigation, and the significance of motions in limine. 

As the new year gets under way, cases that will shape the insurance landscape in 2019 continue to proceed.  Among them are First Acceptance Ins. Co. v. Hughes, in which the Georgia Supreme Court will address the prerequisites for a policyholder to sue its insurance carrier for bad faith based on the insurer’s failure to settle the underlying dispute for an amount within the available policy limits.  Hunton Andrews Kurth’s insurance practice head, Walter Andrews, was asked by Insurance Law360 to comment on the significance of that case.  As Andrews explained, the insurer’s position is inconsistent with Georgia law.  "Georgia law does not require some particular form of settlement offer — or even an offer at all — to create an insurer's duty to settle claims against their insureds." Rather, as Andrews explained, “that duty arises when the insurer knows or reasonably should know that not settling will create an 'unreasonable risk' of the insured suffering a judgment in excess of his or her policy limits, regardless of whether a third-party claimant has first presented a settlement offer. Most often, that should be a jury question and not something that is susceptible to summary judgment."

New cybersecurity rules for insurance companies licensed in South Carolina are set to take effect in part on January 1, 2019. The new law is the first in the United States to be enacted based on the data security model law drafted by the National Association of Insurance Commissioners. The law requires licensed insurance companies to notify state insurance authorities of data breaches within 72 hours of confirming that nonpublic information in the company’s (or a service provider’s) system was “disrupted, misused, or accessed without authorization.” The breach reporting requirement is in addition to notification obligations imposed under South Carolina’s breach notification law and applies if the insurance company has a permanent location in the state or if the breach affects at least 250 South Carolina residents, among other criteria. The 72-hour notice requirement takes effect January 1, 2019.