Hunton Insurance Recovery Blog

On September 18, 2019, a Texas federal court vacated its prior ruling and entered summary judgment for the insured, finding that after a hacker impersonating the customer convinced the insured to wire $1 million out of the customer’s account, the insurer had a duty to defend its insured against claims by its customer because the potential for coverage existed.  See Quality Sausage Company, LLC, et al. v. Twin City Fire Insurance Co., Civil Action No. 4:17-CV-111 (S.D.TX) (Dkt. No. 110).  The prior order was based on disputed extrinsic evidence, which the court considered in deciding the duty to defend, even though Texas’ narrow exception to the “eight corners” rule is limited to only undisputed extrinsic evidence.

On August 19, 2019, a Texas appellate court reversed a trial court’s summary judgment in favor of an excess carrier, and ruled as a matter of law that an arbitration award in favor of a former officer was covered under the EPL component of a management liability policy.  In doing so, the court rejected the carrier’s reliance on an Insured v. Insured exclusion.  The court also looked to the policy’s definition of “Interrelated Wrongful Acts,” a concept typically relied on by carriers to deny or limit coverage, to sweep a variety of allegations within the scope of the policy’s EPL insuring agreement and an exception to the Insured v. Insured exclusion.

In two cases decided June 28, 2019, the Texas Supreme Court held that an insurer’s invocation of a contractual appraisal provision after denying a claim does not as a matter of law insulate it from liability under the Texas Prompt Payment of Claims Act (“TPPCA”). But, on the other hand, the court also held that the insurer’s payment of the appraisal award does not as a matter of law establish its liability under the policy for purposes of TPPCA damages.

A federal court last month turned away an insurer’s legal arguments seeking to avoid financial institution bond coverage for a bank’s losses resulting from a borrower’s use of forged documents to obtain a $3.6 million loan.  In doing so, the Arizona court rejected Everest National Insurance Company’s narrow construction of the bond’s “Securities” insuring agreement and ruled that the notice-prejudice rule applies to a financial institution bond.

Coverage often turns on the meaning of a single word or phrase in an insurance policy. The definition of “counterfeit” in financial institution bonds can be especially tricky. On June 12, 2017, the court in Harvard Sav. Bank v. Sec. Nat’l Ins. Co., No. 15-CV-11674, 2017 WL 2560900, at *1 (N.D. Ill. June 12, 2017) addressed the definition of “counterfeit” in the financial institution bond issued by Security National Insurance Company to Harvard Savings Bank. As the ruling illustrates, terminology that may appear to be insignificant can often make all the difference between millions of dollars in recovery versus no coverage being available.

The interplay between primary and excess insurance is often litigated, especially in the context of settlements. On April 26, 2017, the First Circuit in Salvati v. Am. Ins. Co., 16-1403, 2017 WL 1488238, at *1 (1st Cir. Apr. 26, 2017) considered whether the settlement agreement entered into between plaintiff and the insureds/primary insurer was sufficient to trigger excess insurance coverage under the insured’s policy with American Insurance Company.

In a March 17, 2017 opinion, a Minnesota federal court rejected a financial institution bond carrier’s attempt to rescind the bond it issued to a credit union despite the credit union’s manager making a false statement in the bond application that she had no knowledge of any act which might give rise to a claim, after she had embezzled $3 million. See National Credit Union Administration Board v. CUMIS Insurance Society, Inc., No. 16-139, 2017 WL 1047256 (D. Minn. Mar. 17, 2017).  The court refused to attribute the embezzler’s misrepresentation to her employer because, in embezzling the credit union’s money, she was working solely for her own benefit.

A panel of the California Court of Appeals, in an unpublished opinion (Stein v. Axis Ins. Co., (Cal. Ct. App., Mar. 8, 2017, No. B265069) 2017 WL 914623), issued March 8, 2017, held that a policy exclusion requiring "final adjudication" did not support a refusal to pay the policyholder's defense costs by Houston Casualty Company (HCC) following a trial court's entry of judgment where the policyholder still could pursue appeal.

The recovery of attorneys' fees is an important issue in almost every lawsuit, and especially for policyholders in litigation against their insurer.  In almost every case, the policyholder and its insurer will dispute whether the policyholder's attorneys' fees are reasonable and necessary, with insurer arguing that they are not.  On Tuesday, February 7, 2016, the Texas Supreme Court heard oral argument in In re National Lloyds Insurance Company, Wardlaw Claims Service, Inc., and Ideal Adjusting, Inc., Case No. 15-0591, regarding whether a policyholder seeking recovery of its attorneys' fees should be permitted to discover its insurance company's attorneys' fee information—such as hourly rates and time spent on the matter.

With hurricane season in full swing, policyholders should keep an eye on the Texas Supreme Court for a decision that may impact future recovery efforts. On Tuesday, October 11, 2016, the Texas Supreme Court heard oral argument in USAA Texas Lloyds Co. v. Gail Menchaca, Case No. 14-0721, regarding whether a jury’s award of damages for the insurer’s failure to conduct a reasonable investigation (in violation of the Texas Insurance Code) could stand despite the jury’s finding that the insurer did not breach the insurance policy.

In Cypress Point Condo. Ass'n, Inc. v. Adria Towers, L.L.C., 076348, 2016 WL 4131662, at *8 (N.J. Aug. 4, 2016), a condominium association sued its general contractor for rainwater damage to the condominium complex, after the project was completed, which was allegedly the result of defective work performed by subcontractors. The condominium association also sued the developer's CGL insurers, seeking a declaration that claims against the developer were covered by the policies. The trial court granted summary judgment to the insurers, finding that there was no "property damage" or "occurrence," as defined and required by the policies, to trigger coverage. The condominium association appealed, and the Appellate Division reversed, concluding that "consequential damages caused by the subcontractors' defective work constitute[d] 'property damage' and an 'occurrence' under the polic[ies]."

In a July 5, 2016 opinion in Home Loan Inv. Co. v. St. Paul Mercury Ins. Co., the United States Court of Appeals for the Tenth Circuit addressed claims for bad faith delay or denial of coverage under Colorado law in connection with a fire loss under a foreclosed property protection policy. After a jury verdict in favor of the Insured on its breach of contract and statutory bad faith claims, the Insurer moved for judgment as a matter of law (JMOL) regarding the statutory bad faith claim. When its motion was denied, the Insurer appealed.

The Insurer argued in its JMOL and on appeal that because its ...

On April 14, 2016, in the case of St. Paul Mercury Ins. Co. v. Am. Bank Holdings, Inc., 15-1559, 2016 WL 1459517, at *1 (4th Cir. Apr. 14, 2016), the Fourth Circuit held that notice to a registered agent started the clock for purposes of calculating timely notice under American Bank's liability policy with St. Paul.  The policyholder, American Bank Holdings, Inc., provided untimely notice after the registered agent forwarded the underlying lawsuit to American Bank's CFO, who was no longer with the business. With no apparent back-up for the CFO, the underlying lawsuit remained untouched until the plaintiff obtained and sought to enforce a $98.5 million default judgment. When American Bank alerted St. Paul, the insurer denied coverage based on untimely notice under the policy's provision that notice be given "as soon as practicable, but in no event later than: (a) sixty (60) days after expiration of the Policy Year in which the Claim was first made." American Bank later spent approximately $1.8 million in attorneys' fees and costs getting the default judgment vacated and the state-court lawsuit dismissed.