Hunton Insurance Recovery Blog

Most insurance policies seek notice from the insured “as soon as practicable.” In certain jurisdictions, an insurance company cannot void coverage by arguing that the insured’s notice was somehow “late” unless the insurer can show that it has been prejudiced. This is referred to as the “notice-prejudice” rule. Because insurance is a state-law issue, the law on this issue varies from state to state.

In a recent client alert, Hunton Andrews Kurth LLP real estate attorney Laurie Grasso and insurance attorneys Geoffrey B. Fehling, Cary D. Steklof, and Evan J. Warshauer discuss the important lesson real estate companies and their officers and directors can take away from the Illinois federal district court’s decision in Old Guard Insurance Company v. Riverway Property Management, LLC et al., No. 1:23-cv-01098 (C.D. Ill. Sep. 6, 2024). The court found a commercial general liability insurer had no duty to defend or indemnify a property management company or its owner in lawsuits that included allegations of intentional conduct, holding that the allegations did not fall within the policies’ definition of occurrence, which required “an accident.”

In an insurance coverage lawsuit brought by 3M Co. and certain of 3M’s wholly owned subsidiaries, including Aearo LLC, the Delaware Superior Court recently ruled that 3M’s payment of litigation costs on Aearo’s behalf do not count toward Aearo’s $250,000 Self-Insured Retention (SIR) contained in several of its legacy policies. This ruling is significant because 3M and Aearo seek, among other things, more than $370 million in defense fees for nearly 300,000 product liability lawsuits consolidated in a multidistrict litigation in the US District Court for the Northern District of Florida and state court in Minnesota. Parent companies, and those looking to acquire, should be aware of legacy policy provisions like those expressly prohibiting satisfaction of an SIR by anyone except the named insured.

As social media continues to grow, businesses have turned to different platforms to promote their products. This advertising strategy can have unintended consequences, including copyright infringement claims, if businesses fail to take certain steps when sharing photos and videos to promote their product.

For example, many multinational music companies have filed lawsuits against brands for copyright infringement. Given the frequency of these claims, businesses may think that infringement and similar intellectual property claims are covered by their liability insurance policies. But that is not always the case.

The most common source of coverage is “Coverage B” in commercial general liability policies, which protects against claims alleging personal and advertising injury. Those claims can include allegations of libel, slander, invasion of privacy, copyright infringement, false arrest, and wrongful eviction. All policies are not created equal, however, and references to advertising or intellectual property rights may not actually lead to coverage for social media missteps involving alleged infringement. As a result, it is important for an insured to understand the coverage afforded under their CGL policies and additional coverage options that may provide broader coverage.

There are several common limitations on coverage that may come into play for claims involving social media.

Last week, a California federal judge held that a D&O liability insurer must advance subpoena-related defense costs on behalf of two former biotech directors and officers after the insurer could not provide conclusive evidence that the subpoenas alleged actual wrongdoing by the individuals after the company’s merger, as required to trigger the policy’s “Change in Control” exclusion. See AmTrust Int’l Underwriters DAC, Plaintiff, v. 180 Life Sciences Corp., et al., N.D. Cal. No. 22-CV-03844-BLF, 2024 WL 557724 (N.D. Cal. Feb. 12, 2024). The decision highlights the interplay of two significant D&O coverage issues—government investigations and M&A transactions—and underscores why policyholders must pay close attention to how their liability insurance policies may be impacted by a merger, acquisition, asset sale or similar deal.

Companies face significant exposure from privacy related claims. An increasing number of these claims result from efforts at the state level to regulate use of personal data. One key focus is Illinois’ Biometric Information Privacy Act (“BIPA”), but as lawmakers in other states continue to introduce legislation aimed at regulating the use of biometric data, more court decisions may muddy the waters regarding what conduct may be covered under a general liability policy.

The Hawaii Supreme Court emphatically rejected insurer efforts to seek reimbursement of defense costs absent a provision in the policy providing for such reimbursement in St. Paul Fire & Marine Insurance Company v. Bodell Construction Company, No. SCCQ-22-0000658, 2023 WL 7517083, (Haw. Nov. 14, 2023). The state high court’s well-reasoned decision rests on bedrock law regarding insurance policy construction and application, follows the nationwide trend of courts compelling insurers to satisfy their contractual obligations in full, and should carry great weight as other jurisdictions continue to debate the same issue.

The Fifth Circuit recently reaffirmed that an insurer’s duty to indemnify hinges on the facts determined in the underlying case, not the allegations. Thus, as confirmed by the Fifth Circuit’s July 31, 2023 decision in Liberty Mut. Fire Ins. Co. v. Copart of Conn., Inc., No. 21-10938, 2023 WL 4862793 (5th Cir. July 31, 2023), an adverse duty-to-defend decision may not foreclose a liability insurer’s indemnity obligations.

Whether an insurer has a right to reimburse defense costs after a finding that it has no duty to defend remains an open question in Georgia. However, in Continental Casualty Co., et al. v. Winder Laboratories, LLC, et al., Case No. 21-11758 (11th Cir. Jul. 13, 2023), the Eleventh Circuit Court of Appeals has weighed in with its prediction on the likely answer. Persuaded by the logic of other jurisdictions that, “wide-ranging reimbursement is necessarily inappropriate in a system—like Georgia’s—that is predicated on a broad duty to defend and a more limited duty to indemnify,” the Eleventh Circuit predicted that, “the Supreme Court of Georgia would follow that logic to adopt a ‘no recoupment’ rule to protect its insurance system.”  

The Fifth Circuit recently held that Blue Bell Creameries’ commercial general liability (CGL) insurers do not have a duty to defend the ice cream company in a shareholder lawsuit, which arose from a Listeria outbreak. The decision underscores the importance of coordination of different coverages and policies across insurance programs, as well as the potential perils policyholders may face if forced to seek recovery for certain losses under non-traditional policies.

When is a catch-all provision too broad? When “a plain-text reading of that provision would swallow a substantial portion of the coverage that the policy otherwise explicitly purports to provide,” according to the Seventh Circuit Court of Appeals. Citizens Insurance Co. of America v. Wynndalco Enterprises LLC, Case No. 22-2313.

On April 11, 2023, Maryland Governor Wes Moore signed into law the Child Victims Act of 2023, allowing Maryland to join the growing number of states to rejuvenate previously time-barred lawsuits by victims of child sexual abuse against public school boards, government entities and private institutions. The Act also increases the statutory cap on civil damages for child sexual abuse—damages against public school boards and government entities are capped at $890,000 per incident, while per-incident damages against private institutions, including independent schools, are capped at $1.5 million. Maryland follows other states, like California and New York, which paved a path for abuse victims to bring previously time-barred claims based on alleged abuse that occurred decades earlier. Maryland is the first state, however, to pass this type of statute with a lookback period of infinite duration—meaning there is no limit for how long ago the alleged abuse occurred, and the statutes of limitation for lawsuits based on future acts of abuse are eliminated. Other states, such as New York and New Jersey, created limited lookback periods (one or two years), during which survivors were able to file previously time-barred claims.  

In ExxonMobil Corp. v. Natl. Union Fire Ins. Co. of Pittsburgh, PA, the Texas Supreme Court held that an insurance policy did not incorporate the payout limits of an underlying service agreement and thus the insured was entitled to the higher limits under the insurance policy. 2023 WL 2939596, at *1 (Tex. Apr. 14, 2023).

PFAS Regulation

Per- and polyfluoroalkyl Substances (“PFAS”) are a class of substances that have increasingly become the target of federal and state regulation in everything from drinking water, groundwater, site contamination, waste, air emissions, firefighting foam, personal care products, food and food packaging, and now consumer and commercial products. PFAS are widely-used chemicals that have the unique ability to repel both oil and water, which led to their application in many products including items such as stain and water-repellent fabric, chemical-and oil-resistant coatings, food packaging materials, plastics, firefighting foam, solar panels and many others. The carbon-fluorine bond is the strongest in nature, making these compounds highly persistent in the environment.

In First Mercury Insurance Co. v. First Florida Building Corp., et al., a federal district court ordered that an insurer had a duty to defend its insured against an underlying personal injury lawsuit. 2023 WL 23116, at *1 (M.D. Fla. Jan. 3, 2023). First Mercury is a cautionary tale about how insurers may try to circumvent their obligations by improperly considering extrinsic evidence when determining whether they have a duty to defend their insureds.

In a recent opinion, the Northern District Court of Illinois reaffirmed the bedrock principle that an insurer’s duty to defend is broad and triggered by any allegations in a complaint that potentially fall within a policy’s coverage grant.  In Harleysville Pref. Ins. Co. v. Dude Products Inc., et. al., Case No. 21-c-5249 (N.D. Ill. Dec. 21, 2022), the insured, Dude Products, Inc., sought coverage from its insurer, Harleysville Preferred Insurance Company, against a class action lawsuit that alleged Dude Products intentionally and falsely marketed its wipes as “flushable” even though the product allegedly did not break apart and caused “clogs and other sewage damage.” 

One of the most valuable aspects of liability insurance is defense coverage, which protects policyholders from significant costs to defend against and litigate claims that may never result in a judgment or settlement. Companies and their directors and officers can incur thousands or even millions of dollars in defending against claims that are resolved long before trial. Even after purchasing robust defense coverage and getting an insurer to defend a claim, however, companies may be surprised when months or even years later the insurer reverses its position and not only withdraws from the defense but also demands repayment of all defense costs paid to date. A recent case, Evanston Insurance Co. v. Winstar Properties, Inc. No. 218CV07740RGKKES, 2022 WL 1309843 (C.D. Cal. Apr. 14, 2022), shows the perils of insurer “recoupment” and underscores the importance of assessing insurer recoupment rights, if any, throughout the claims process.

In 1938, a DuPont chemist’s experiment yielded not—as he first thought—a lumpen, waxy mistake, but a new chemical with remarkable properties: heat-resistance, chemical stability, and low surface friction. Decades of continuing experimentation yielded a class of chemicals with the capacity to make non-stick, water-resistant coatings. In time, these chemicals, per- and polyfluoroalkyl substances (PFASs), would become a major component in thousands of consumer goods: food packaging, non-stick cookware, waterproof clothing, paint, stain-resistant carpets and furniture, and firefighting foams. The discovery of the toxicity of these remarkable chemicals lagged behind the widespread adoption, but eventually yielded a moniker that reflected PFAS’s stability and longevity: “Forever Chemicals.”

This post in our Landmark Montana Supreme Court Decision Series discusses the Montana Supreme Court’s consideration of an insurer’s duty to defend in National Indemnity Co. v. State, 499 P.3d 516 (Mont. 2021).

In an appeal to the Ninth Circuit, a private equity firm has asked the court to reverse an order finding there was no coverage for a suit alleging it concealed that a facility it sold was run by Joaquín “El Chapo” Guzmán. AKN Holdings had purchased a manufacturing facility in Reynosa, Mexico, from Thermo Fisher, unaware that the facility “was overrun” by the drug cartel of “El Chapo.” After discovering the concealment, AKN Holdings sued Thermo Fisher and, while that suit was pending, in turn sold the facility to FINSA, also without disclosing the cartel activities or its pending lawsuit.

While policyholders have experienced a wide range of conflicting rulings related to COVID-19 business interruption losses, a recent Northern District of Illinois decision shows that the pandemic continues to present a range of exposures beyond business interruption losses, including for claims under directors and officers liability policies. In Federal Insurance Co. v. Healthcare Information and Management Systems Society, Inc., No. 20 C 6797 (N.D. Ill. Oct. 19, 2021), the court rejected the insurer’s broad reading of a professional services exclusion, contract exclusion, and the insurability of alleged restitution to deny coverage under a D&O policy for losses arising from a cancelled trade show.