Hunton Insurance Recovery Blog

Earlier this week, Eustis Insurance Co. (Eustis) filed a third-party complaint against wholesale insurance broker, R-T Specialty, Inc. (R-T Specialty), after the broker allegedly failed to properly advise New Hotel Monteleone, Inc. (Hotel Monteleone) about its cybersecurity exposures and coverage that R-T Specialty was tasked to procure. The case represents another example of the exposure that might result from a failure to engage brokers and coverage counsel experienced in the risks to be insured. This potential is especially significant when it comes to cyber exposures, which are vastly different from the legacy exposures that brokers and insurers are accustomed to handling.

Last week, two blind customers sued Sweetgreen, a D.C.-based salad chain, alleging violations of Title III of the Americans with Disabilities Act of 1990 (ADA) and sections of New York’s Human Rights statute. In the Complaint, the customers claim that Sweetgreen’s online ordering system “prevents blind customers from customizing and placing their orders in the same way as sighted customers can.” Title III prohibits discrimination on the basis of disability at “places of public accommodations,” like restaurants, movie theaters, schools, and recreation facilities. Courts are split about whether “places of public accommodation” are limited to actual physical structures or include websites that are part of an integrated merchandising effort. The tide is pressing toward the broader reading of the statute, emboldened in part by the Department of Justice’s long-awaited website accessibility regulations (now set to be published in fiscal year 2018).

On March 18, 2016, a Florida jury awarded Hulk Hogan (real name Terry Bollea) $115 million in damages in his lawsuit against Gawker.com. Mr. Bollea sued Gawker in Florida state court after it published portions of a video showing him having sex with the wife of a former friend, Todd Clem (a DJ better known as Bubba the Love Sponge). Mr. Bollea claimed he did not know he was being filmed and sought $100 million. He claimed, among other things, that his “goodwill, commercial value, and brand [were] substantially harmed” and that he suffered emotional distress by the posting. Following trial, the jury deliberated for six hours and awarded more than the amount sought: $55 million for economic harm and $60 million for emotional distress. On March 21, 2016, the jury awarded an additional $25 million in punitive damages.

As the New York Times recently reported, Bill Cosby joins the ranks of celebrity homeowners who have tapped defense coverage under their ordinary homeowner’s insurance. Others who paved the way include Roger Clemens, O.J. Simpson, and Bill Clinton. Each had “enhanced personal injury clauses” buried in the fine print of their policies that can provide a defense against lawsuits.¹ Bill Cosby has such a policy, and a federal court in California recently denied American International Group’s (“A.I.G.”) request to allow A.I.G. to immediately appeal an earlier decision which held that a “sexual misconduct” exclusion in Mr. Cosby’s homeowner’s policy did not limit this coverage and that A.I.G., therefore, owed a duty to defend Mr. Cosby against a lawsuit brought in California state court by Janice Dickinson (“Dickinson action”).² In denying A.I.G.’s request for an interim appeal, the court determined that it would be more efficient for the Ninth Circuit to “analyze all exclusions of the policy at the same time.”³

On Monday, a Tennessee jury awarded $55 million to FOX sportscaster Erin Andrews in her suit against Michael Barrett, her stalker, and the Marriott hotel where they both stayed. In 2008, Mr. Barrett secretly videotaped Ms. Andrews through a peephole as she changed clothes in her hotel room. Hotel staff had revealed that she was staying at the hotel and, upon Mr. Barrett’s request, gave him a room next to hers. Mr. Barrett’s surreptitious video of Ms. Andrews was later made public. Ms. Andrews sued Mr. Barrett, West End Hotel Partners, LLC (the owner/franchisee of the hotel) and Windsor Capital Group, Inc. (the operator of the hotel) for negligence, invasion of privacy, and infliction of emotional distress causing embarrassment. The jury found the hotel’s owner and operator 49% at fault, comprising approximately $27 million of the total verdict.

With nearly 2000 locations, the recent outbreaks linked to Chipotle restaurants involving three strains of E. coli, norovirus and Salmonella, have had a substantial impact on the fast-food chain’s supply chain.  In a recent article appearing in Risk Management Magazine, The Chipotle Outbreaks Highlight the Risks of Supply Chain Failures, Syed comments on the insurance issues that are likely to arise, and the ways those issues might be affected by the post-event conduct of affected companies.

Globalization has inspired the development of cross-border business activities, as companies across several industries seek new markets for their goods and services.  The dynamic rewards have been accompanied by a corresponding increase in novel risks, and those who rely on traditional risk assessment mechanisms have often been left unnecessarily exposed.

On February 11, 2016, New York’s highest court held in Selective Ins. Co. of Am. v. Cnty. of Rensselaer, 2016 N.Y. Slip Op. 01001 (2016) that, in a class action alleging improper strip searches of arrestees over a four-year period, each improper strip search was a separate occurrence under the policies at issue, mandating a separate deductible per strip search. Significantly, although the issue in this case concerned application of per-occurrence deductibles, the same reasoning would apply if the issue had been over the number of applicable policy limits.

Hunton & Williams LLP attorneys Mike Levine and Matt McLellan, along with Tim Monahan of Lockton Companies, LLC., presented to a group of risk managers and insurance professionals on Wednesday evening, February 17^th, about strategies and pitfalls in the claim presentation process. The event was well-attended and the audience was lively with questions for the presenters. A copy of the PowerPoint can be downloaded here. Key points discussed with the group include:

A federal court in New York has held that an insurer carries the burden of demonstrating which, if any, defense costs should be allocated to the defense of non-covered entities. High Point Design, LLC v. LM Ins. Co., No. 14-cv-7878, 2016 WL 426594 (S.D.N.Y. Feb. 3, 2016). The court ruled that once the policyholder established that amounts were spent defending covered claims, the burden shifts to the insurer to show that certain of those amounts resulted from the defense of other claims against non-covered entities. To meet that burden, the insurer was required to show that the relevant costs would not have been incurred but for the non-covered claims.

Florida’s Third District Court of Appeals held on Wednesday that a general liability policy’s absolute employer’s liability provision did not preclude coverage for injuries sustained by an employee at a work event located on the property of an additional insured because of the policy’s separation of insureds provision. In Taylor v. Admiral Insurance Co., No. 3D14-720 (Fla. 3d DCA Feb. 10, 2016), Taylor, as assignee of Vizcaya Museum & Gardens, Villa Vizcaya and Miami-Dade County (collectively “Assignors”), appealed an award of summary judgment in favor of Admiral Insurance Co. (“Admiral”) on her claims of breach of contract and common law and statutory bad faith. Admiral cross-appealed the trial court’s finding that the Assignors are additional insureds under the policy.

As discussed in a February 1, 2016 posting, the court in Foster Poultry Farms v. Certain Underwriters at Lloyd’s, London, No. 14-cv-953, 2015 WL 5920289 (E.D. Cal. Oct. 9, 2015) held that losses associated with alleged noncompliance with federal sanitation regulations were covered by the “accidental contamination” and “government recall” provisions of a food contamination insurance policy. After a four-day bench trial, the court issued a decision awarding the insured, Foster Poultry Farms, $2.7 million for lost profits related to destroyed chicken, the loss of ...

Insureds Find Place to Roost in Foster Poultry Contamination Case, Westlaw Journal Insurance Coverage
January 15, 2016

Article discussing the insurance implications of food contamination events, including product recalls, government investigations and litigation. Large-scale food safety issues have been hard to miss in the news lately. Chipotle’s multi-state E. Coli outbreak and listeria monocytogenes found in samples of Blue Bell Creamery ice cream products are some of the recent examples. After a recall, retailers and other companies involved must focus resources on ...

A recent ruling by a New York trial court highlights the duty of an insurer to timely respond to its policyholders. In Robert Vargas, et al. v. The City of New York, et al., No. 154323/13 (N.Y. Sup. Jan. 15, 2016), the court required an insurer to defend and indemnify its policyholder against lead exposure claims, even though the policy contained a lead exclusion, because the insurer’s disclaimer of coverage was untimely.

Winter Storm Jonas has finally departed the mid-Atlantic, leaving behind snow depths best measured with a yardstick and, now, mounting reports of significant damage to property and resulting interruptions to businesses near and far from the path of the storm. Roof collapses under weight of snow and ice; flooding from burst pipes and broken water mains; fires caused by downed electrical lines; and food spoilage caused by losses of electrical power are but just a few of the impacts Jonas has left in his wake.

Prior blog posts discuss new laws imposing, among other things, insurance-related requirements on ride-sharing companies like Uber and Lyft (also known as transportation network companies or TNCs) and their drivers. While many states have passed such laws, the Florida legislature is now dealing with competing proposals for regulating TNCs. On Tuesday, a Florida Senate committee unanimously approved a bill to regulate TNCs. A different bill is making its way through the Florida House. Both bills include insurance requirements but the devil is in the details.

States continue to increase their regulation of ridesharing companies like Uber and Lyft (also known as Transportation Network Companies or TNCs) and their drivers. The increased regulation comes with increased insurance obligations and Farmers Insurance is expanding a new product to fulfill those requirements. As one example, the governor of Ohio recently signed a bill that includes insurance coverage requirements applicable to TNCs and their drivers. To help remedy the potential coverage gaps that must now be filled, Farmers announced on Monday that it would expand its ridesharing coverage to Ohio.

After our December 15, 2015 post about the Discussion Draft of the Restatement of the Law on Liability Insurance, the American Law Institute released Council Draft No. 2 on December 28, 2015. Relevant to my last post, Council Draft No. 2 contains revisions to §19 of Chapter 2, addressing the duty to defend. While the Reporters’ Memorandum notes that no substantive changes have been made to the black letter law of this section, the comments section has been revised to reflect a proposed intermediate approach. ALI Restatement of the Law: Liability Insurance, Council Draft No. 2 (not approved), Dec. 20, 2105 p. xiv. These revisions reflect a more moderate position than that taken in the previous Discussion Draft.

On December 14, 2015, a federal court in California denied Evanston Insurance Company’s motion to dismiss Uber’s breach of contract and breach of the implied covenant of good faith and fair dealing claims. Evanston Insurance Company v. Uber Technologies, No. 15-cv-03988-WHA (Dec. 14, 2015). The case concerns Evanston’s duty to indemnify Uber for claims arising from two car accidents during which drivers were allegedly logged on to the Uber App.

A federal judge in Indiana recently found that an insurer is not entitled to control the defense of its insured because a conflict of interest exists where the insurer is in litigation with the insured over an alleged policy breach arising out of the manner in which underlying litigation would be defended. Valley Forge Insurance Co. v. Hartford Iron & Metal Inc., et al., No. 1:14-cv-00006-RLM-SLC, N.D. Ind. (Dec. 7, 2015).

At present, the general rule is that an insurer that breaches its duty to defend still may contest coverage. Signature Dev. Companies, Inc. v. Royal Ins. Co. of Am., 230 F.3d 1215, 1222 (10th Cir. 2000). However, the tides may soon change. The Discussion Draft of the Restatement of the Law on Liability Insurance proposes that “[a]n insurer that breaches the duty to defend a claim loses the right to assert any control over the defense or settlement of the claim and the right to contest coverage for the claim.” See § 19, “Consequences of Breach of the Duty to Defend, ALI Restatement of the Law: Liability Insurance, Discussion Draft (April 30, 2015), p. 147. The proposed Restatement explains, “[t]he forfeiture-of-coverage-defense rule discourages insurers from attempting to convert a duty-to-defend policy into an after-the-fact defense-cost-reimbursement policy.” Id. at 148. The Restatement further explains that insurers should be wary to outright deny a defense. Rather, it suggests that “[t]he proper procedure is to provide a defense subject to a reservation of rights and then, if appropriate, institute a declaratory-judgment action to terminate the duty to defend…If the insurer cannot, or does not choose to, file a declaratory-judgment action, it can preserve its coverage defenses by refusing to settle the claim while continuing to provide a defense (subject to the risks attendant to breach of the duty to make reasonable settlement decisions).” Id. at 149.¹

The Georgia Court of Appeals held on November 20, 2015, that compliance with an excess liability policy’s notice provision is not a precedent to coverage. Plantation Pipe Line Co. v. Stonewall Insurance Co., No. A15A1359 (Nov. 20, 2015 Ga. App., 3rd Div.). In Plantation Pipeline, the insured sought coverage for ground contamination originating from a 1976 pipeline leak. The leak was fixed and remediated shortly after it was discovered. In 2009, Plantation discovered further contamination at the site, which it again remediated. Plantation sought coverage for the remediation. Stonewall denied coverage based on the policy’s notice provision, contending that notice of the leak and remediation was untimely. The parties cross-moved for summary and the trial court granted Stonewall’s motion. On appeal, the Georgia Court of Appeals affirmed, finding that Plantation’s notice was not timely as it did not report the claim to Stonewall for more than two years. However, the majority agreed with Plantation that the notice provision does not “expressly stipulate that compliance with the notice provision is a condition precedent to coverage.” The panel further found that “the policy does not even contain a general provision that no action will lie against Stonewall unless, as a condition precedent thereto, Plantation shall have fully complied with all terms of the policy.” Thus, the panel found it was error for the trial court to preclude coverage based on a failure to provide timely notice.

A federal court in Virginia recently held in Travelers Casualty and Surety Company v. Schur, No. 3:15CV60-HEH (E.D.Va., Nov. 24, 2015), that a liability insurer’s so-called “business pursuits” and “known falsity” exclusions do not preclude a defense against defamation allegations where the allegations raised at least a potential for coverage under the policy.  The decision illustrates the continued application of Virginia’s “eight corners” and “potentiality” rules, which mandate a narrow application of the underlying allegations against the language of the policy and require a defense if any allegation raises even a potentiality for coverage.

The Supreme Court of Texas has ruled that CERCLA enforcement proceedings brought by the EPA are a “suit” as that term is used in commercial general liability insurance policies.  In doing so, Texas joins the majority of other jurisdictions to consider the issue. McGinnes Industrial Maintenance Corp. v. The Phoenix Insurance Co., No. 14-0465 (Tex. June 26, 2015).

The Tenth Circuit Court of Appeals recently held in KF 103-CV v. American Family Mut. Ins. Co., No. 14-1403 (10th Cir. Oct. 29, 2015), that a general liability insurer owed a defense to a real estate developer who allegedly trespassed on nearby easements, causing a loss of use of those easements and a diminution in value to the dominant property.  The decision illustrates the expansive defense coverage owed under ordinary general liability insurance, with coverage extending to claims alleging only a loss of use or property value.

Background 

Insurers To Indemnify $132 Million Loss From Train Collision Allegedly Caused By Texting Engineer, FC&S Legal
November 9, 2015

In Those Certain Underwriters at Lloyd’s London et al. v. Connex Railroad LLC, a Los Angeles trial court found that an insurer must indemnify its insured railroad for $132 million in claims arising out of a commuter train collision caused by alleged texting by engineer.  In finding for the insured, the court rejected application of the policies' "intentional acts" exclusion, holding that the exclusion only applies where the insured would have known that ...

Maryland’s Court of Special Appeals recently ruled in James G. Davis Construction Corporation v. Erie Insurance Exchange¹ that a subcontractor’s insurer was obligated to defend the general contractor against allegations that it was negligent in its supervision of the subcontractor. In doing so, the court reversed the trial court’s ruling that the general contractor was covered only for claims of vicarious liability for the subcontractor’s actions.

In a decision of import to businesses facing intellectual property infringement lawsuits, the Southern District of Florida has ruled that a commercial general liability policy’s “knowing violation” and “infringement” exclusions do not apply to lawsuits involving allegations of intent and knowledge in the context of advertising injury. E.S.Y., Inc., et al. v. Scottsdale Insurance Company, No. 15-21349 (S.D. Fla. October 14, 2015) (“E.S.Y.”).

Tapping Corporate Predecessors’ Liability Insurance Policies Just Became Easier Following Fluor Ruling, Westlaw Journal Insurance Coverage, volume 26, issue 2
October 15, 2015

In a landmark decision, the California Supreme Court on August 20, 2015, held that enforcing an anti-assignment clause in an insurance policy as a bar to coverage – where the assignment occurred post-loss – was contrary to California Insurance Code Section 520, which provides that consent-to-assignment clauses are invalid if invoked after a loss has happened.  See Fluor Corp. v. Superior Court ...

In a decision of import to employers and contractors in particular, the First Circuit Court of Appeals has limited the scope of a commercial general liability policy’s “employer liability” exclusionary endorsement, finding that in the case of contractors and subcontractors, the exclusion applies only to bodily injury claims brought by persons who have contracted directly with the policyholder. United States Liab. Ins. Co. v. Benchmark Constr. Servs., Inc., No. 14-1832 (1st Cir. August 12, 2015) (“Benchmark”).

Retaining Insurance Coverage in the Face of Late Notice and Misconduct Exclusions, Risk Management
August 24, 2015

Retaining Insurance Coverage in the Face of Late Notice and Misconduct Exclusions – A Texas federal court recently ordered an insurer to reimburse an oil and gas company for costs and expenses incurred while defending against environmental claims.  See Tow v. Water Quality Ins. Syndicate (In re ATP Oil & Gas Corp.), No. 14-3280, 2015 WL 3545091 (Bankr. S.D. Tex. June 5, 2015). The court found that a duty to defend existed even though the insured failed to immediately ...

In a landmark decision, the California Supreme Court on August 20, 2015, held that enforcing an anti-assignment clause in an insurance policy as a bar to coverage – where the assignment occurred post-loss – was contrary to California Insurance Code Section 520, which provides that consent-to-assignment clauses are invalid if invoked after a loss has happened.  See Fluor Corp. v. Superior Court (Hartford Accident & Indemnity Co.), Case No. S205889 (Cal. Aug. 20, 2015).  The opinion overruled the California Supreme Court’s prior decision in Henkel Corp. v. Hartford Accident & Indemnity Co., 29 Cal. 4th 934 (2003). Henkel had held that corporate successors were not entitled to recovery under an insurance policy assigned without the insurer’s consent, even if the assignment was post-loss and therefore imposed no additional obligations on the insurer. The California Supreme Court’s overruling of Henkel stands to facilitate corporate transactions by making it easier for companies to rely on insurance policies issued to their corporate predecessors.

A federal court in New York recently found that litigation concerning damages related to a third party’s product recall required a defense under a commercial general liability policy. Thruway Produce, Inc. v. Mass. Bay Ins. Co., 2015 U.S. Dist. LEXIS 94846 (S.D.N.Y. July 20, 2015).

On July 27, 2015, the United States Court of Appeals for the Fifth Circuit held in Kinsale Insurance Company v. Georgia-Pacific, LLC, No. 14-60770 (5th Cir. July 27, 2015), that a claim brought by one insured against another insured is not barred by an “insured versus insured” exclusion where the claim is not for “property damage,” but for indemnity arising from a third party’s claim for “property damage.”

The Appellate Division of the Superior Court of New Jersey recently ruled in Cypress Point Condominium Association, Inc. v. Adria Towers, L.L.C.¹ that consequential damages to the common area and units of a condominium complex caused by a subcontractor’s defective work constituted “property damage” and an “occurrence” under the building developer’s standard-form CGL policies, even though the policies were unlikely to cover direct damages like replacement costs. The case serves as a reminder that not all damages are treated alike by insurance policies, and policyholders therefore should not assume that an adverse determination as to one type of loss will apply to all resulting loss.

On May 27, 2015, the First Circuit Court of Appeals in Cardigan Mountain School v. New Hampshire Ins. Co., CV 14-2182, 2015 WL 3393771 (1st Cir. May 27, 2015), held that the policyholder, sufficiently pled a plausible case that an insurance policy had been issued by New Hampshire Insurance Company for the period 1967–1968, even though neither party could locate the policy.  The decision demonstrates a favorable application of the “plausibility” pleading standard articulated by the Supreme Court in Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly, in the murky context of a lost insurance policy case.

The Eleventh Circuit recently ruled, applying Alabama law, that a breach of warranty claim constitutes an “occurrence,” triggering coverage under a general liability insurance policy, and that the policy’s contractual liability exclusion does not bar coverage from any resulting liability. See Pa. Nat’l Mut. Cas. Ins. Co. v. St. Catherine of Siena Parish, No. 14-12151, 2015 U.S. App. LEXIS 9659 (11th Cir. June 10, 2015). The decision underscores that coverage exclusions must be construed narrowly and in favor of coverage, and that insurers must use precise language when they seek to exclude coverage for a particular type of exposure.