Hunton Insurance Recovery Blog

A New York trial court held last week in American Home Assurance Co. v. The Port Authority of N.Y. and N.J., Index No. 651096/2012 (Sup. Ct. N.Y. Nov. 29, 2017) (Bransten, J.) that an insurance policy issued in 1966, to insure the construction of the World Trade Center, continues to provide insurance coverage over modern-day asbestos claims, with each claim constituting an individual occurrence.

A prior post in the Blog’s Bermuda Form Arbitration Series discussed several strategic considerations for the discovery and briefing stages of Bermuda Form arbitrations. This post focuses on the final stages of arbitration: The final hearing, and awards of interest and costs.

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The Final Hearing

The presentation of evidence in the “final hearing” of a London arbitration differs substantially from traditional trial practice in the United States. A party’s direct or affirmative evidence is presented in writing in witness statements. Witnesses are presented live only for cross-examination. A party should offer all its witnesses for cross-examination; if a party does not do so, it risks that the arbitrators will not give a witness’s direct evidence much weight. This rule does not apply if the parties agree that a witness need not be presented for cross-examination.

The Fifth Circuit recently upheld the dismissal on summary judgment of a policyholder’s claim under a commercial crime insurance policy, affirming the trial court’s narrow interpretation of the terms “owned” and “loss,” concluding that the policyholder did not “own” the funds at issue or suffer a “loss” when it loaned those funds to the fraudsters. In so holding, the court ignored state court precedent concerning construction of those same terms.

In Cooper Industries, Ltd. v. National Union Fire Insurance Co. of Pittsburgh, Pa., No. 16-20539 (5th Cir. Nov. 20, 2017), Cooper invested its pension-plan assets into what proved to be a multimillion-dollar Ponzi scheme. Over the course of many years, Cooper invested more than $175 million into various equity and bond investments managed by fraudsters who used the investment funds in furtherance of the Ponzi scheme. After discovering the fraud, Cooper recouped a large portion of its investment and sought coverage from its commercial crime insurer for the unrecovered $35 million. The policy limited coverage to “loss” of property that Cooper “owned.” Neither term was defined in the policy.

Whether a policyholder’s losses are “direct” or “indirect” can be coverage-determinative. Most financial institution bonds exclude “indirect” or “consequential” losses. A recent decision in Fed. Deposit Ins. Corp. v. Arch Ins. Co., No. CV C14-0545RSL, 2017 WL 5289547 (W.D. Wash. Nov. 13, 2017) addressed the issue of “direct” versus “indirect” losses in a dispute under a financial institution bond issued by Arch Insurance Company (Arch) to Washington Mutual Bank (WaMu). The court held that WaMu’s losses resulting from its purchase of fraudulent loans were “direct” losses, and that WaMu’s sale and contractual obligation to repurchase the fraudulent loans did not convert its losses from direct to indirect.

In Centurion Med. Liab. Protective Risk Retention Grp., Inc. v. Gonzalez, No. CV 17-01581 RGK (JCx), 2017 BL 392431 (C.D. Cal. Nov. 1, 2017), Centurion Medical Liability Protective Risk Retention Group sought a declaration that it owed no duty to defend a lawsuit alleging that its insureds—a group of medical practitioners—committed professional negligence during the delivery of a newborn child.  Centurion argued that it had no defense obligation because its insureds did not notify Centurion of the lawsuit within 20 days after it was filed, as required under the policy.

The U.S. District Court for the Middle District of Florida, in Innovak International v. The Hanover Insurance Co., recently granted summary judgment in favor of Hanover Insurance Company finding that it had no duty to defend Innovak against a data breach lawsuit. Innovak, which is a payroll service, suffered a breach of employee personal information, including social security numbers. The employees then filed suit against Innovak alleging it had negligently created a software that allowed personal information to be accessed by third parties. Innovak sought a defense for the lawsuit from its commercial general liability carrier, Hanover Insurance Company. Innovak argued that the employee’s allegations triggered the personal and advertising injury coverage part of the policy, which covers loss arising out of the advertising of the policyholder’s goods or services, invasion of privacy, libel, slander, copyright infringement, and misappropriation of advertising ideas. The court disagreed and found the employees’ allegations did not involve a publication that would trigger coverage under the commercial general liability policy.

A prior post in the Blog’s Bermuda Form Arbitration Series discussed several strategic considerations for London arbitrations involving the Bermuda Form, including considerations for initiating the arbitration, selection of arbitrators, and selection of counsel. This post focuses on strategic considerations for the discovery and briefing stages of London arbitrations.

In a recent brief filed in the Sixth Circuit, American Tooling Center, Inc. argued that the appellate court should reverse the district court’s decision finding no insurance coverage for $800,000 that American Tooling lost after a fraudster’s email tricked an employee into wiring that amount to the fraudster. As we previously reported here, the district court found the insurance policy did not apply because it concluded that American Tooling did not suffer a “direct loss” that was “directly caused by computer fraud,” as required for coverage under the policy. The district count pointed to “intervening events” like the verification of production milestones, authorization of the transfers, and initiating the transfers without verifying the bank account information and found that those events precluded a “finding of ‘direct’ loss ‘directly caused’ by the use of any computer.”

In this post in the Blog’s Bermuda Form Insurance Arbitration Series, we discuss the use of London-based arbitration to resolve disputes involving the Bermuda Form.

In this post in the Blog’s Bermuda Form Insurance Arbitration Series, we discuss additional features of the Bermuda Form that policyholders should take into consideration.