Insurance

Property Insurers Are Not Responsible For Financial Losses (NY)

Over the three years since the start of the pandemic, business owners have filed over 2,400 lawsuits over business interruption losses resulting from the pandemic and government orders. Both federal and state courts have upheld motions to dismiss these claims.

The Second Circuit in 10012 Holdings, Inc. v. Sentinel Insurance Co. applied New York law to affirm the dismissal of an art gallery’s Covid-19 business interruption claim, holding that “‘direct physical loss’ and ‘physical damage’ … do not extend to mere loss of use of a premise, where there has been no physical damage to such premises; those terms instead require actual physical loss of or damage to the insured’s property.” This decision falls in line with the 10 other circuit courts, having all unanimously said that property insurance does not encompass economic losses from Covid-19-related business interruption claims.

Business interruption insurance typically appears as an add-on to commercial property insurance policies. This coverage is designed to make the insured whole for lost income and additional expenses incurred during a period when business operations are interrupted because of a covered cause of loss. Loss of use of premises when there is no physical damage does not constitute a “direct physical loss” that is covered by the policy’s business income and extra income provisions.

Thanks to Dominika Rybaltowski for her contribution to this post. Please contact Heather Aquino with any questions.

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New York Appellate Court Continues Trend of Finding No Coverage For Financial Loss Due To COVID-19 Related Closures

The Appellate Division, First Department recently followed the national trend in rejecting Madison Square Garden’s (“MSG”) claim that it was entitled to insurance coverage for losses related to the COVID-19 pandemic. In Madison Square Garden Sports Corp. v. Factory Mutual Insurance Company, 35 related MSG companies sued four of its insurers, alleging that they failed to provide coverage for losses caused by COVID-19 related closures. MSG alleged that it suffered substantial financial losses due to seats being empty for almost a year. The lower court granted the insurers’ motion for partial dismissal of the complaint, except for MSG’s claims for coverage under the policies communicable disease and claims preparation cost provisions. The First Department affirmed the lower court’s decision, holding that MSG failed to allege actual physical damage that occurred as a result of the closures and loss of business caused by the COVID-19 pandemic. Citing its prior decision in Consolidated Rest. Operations, Inc v. Westport Insurance Corp., 205 A.D. 3rd 76, 80-87 (1^st Dep’t 2022), lv granted in part, dismissed in part, 39 N.Y. 3rd 943 (2022), the Court held that to recover under the terms of policies that ensure against physical loss or damage, plaintiffs must allege actual physical damage. Simply alleging loss based on COVID-19 related closures is insufficient to state a cause of action for breach of contract and insufficient to warrant coverage under the defendants’ policies. The Court added that the lower court properly declined MSG’s request to take judicial notice of the various executive orders, scientific studies and other matters concerning COVID-19 as those documents are not “matters of common and general knowledge well established and authoritatively settled.” In light of it ruling, the Court declined to address the parties’ arguments regarding whether certain exclusions applied to bar recovery. Although the MSG decision did not completely dispose of the lawsuit and the issue of coverage under the policies communicable disease clauses remain, the decision follows the clear trend of state and federal courts not supporting property coverage claims for COVID-19 business losses in the absence of physical loss or damage. We will continue to monitor and report on these decisions. Thank you to Arianna Arca for her contribution to this post. Please contact Andrew Gibbs with any questions.Read More

Duty To Defend Does Not Extend To Liability From “Lessor’s Risk” Due To Injury To Non-Tenants Off-Premises

The United States District Court for the Eastern District of New York recently granted an insurer’s motion for summary judgment and declaratory judgment that it did not have a duty to defend or indemnify the defendant landlord holding that the term “lessor’s risk,” as used in insurance policies, is an unambiguous term that does not cover tort claims from non-tenants injured off the premises. In Colony Insurance Company v. 28-41 Steinway, LLC, the Court addressed this issue on Colony’s motion for summary judgment and declaratory judgment that it did not have a duty to defend or indemnify 28-41 Steinway. This coverage dispute arose out of an underlying personal injury suit in which underlying plaintiff, Figueroa, alleged his foot was run over by an excavator while working on a project involving the sewer system at the premises, 28-41 Steinway Street, Astoria, New York. Colony argued that it was entitled to a declaration that it owed no duty to defend or indemnify 28-41 Steinway for any damages in the underlying action because the relevant policy included a “lessor’s risk only” limitation. According to Colony, the “lessor’s risk only” limitation precludes indemnification for tort claims by non-tenants and for injuries sustained outside of the premises. 28-41 Steinway argued, inter alia, that the policy’s “lessor’s risk only” language was undefined and ambiguous, therefore urging the Court to construe that term in its favor and against Colony. The Court noted that although 28-41 Steinway’s interpretation of “lessor’s risk only” may be correct based on the “purely textual meaning” of that term, the Court was required to look also to context, including “customs, practices, usages, and terminology.” The Court held that “lessor’s risk only,” as used in insurance, “has a specialized meaning that limits insurance coverage to damages sought by property tenants, or at the very least to injuries suffered on the landlord’s property.” Accordingly, based on the facts of the case, the Court granted Colony’s motion for summary judgment, holding that because it was undisputed that Figueroa was not a tenant and did not suffer an injury on the premises, the “lessor’s risk only” limitation applied to preclude coverage. This decision confirms two important matters for insurers.  First, it holds “lessor’s risk only” is an unambiguous term with a specialized meaning. This is beneficial to insurers, as ambiguous terms are construed in favor of the non-moving party, and against the movant. Second, it reaffirms that insurance contracts are not to be interpreted solely based on their “purely textual meaning,” but in context, which includes the customs, practices, usages, and terminology as generally understood in the particular trade or business. Thanks to Erin Gallagher for her contribution to this post.  Should you have any questions, please contact Tom Bracken.Read More

Time is of the Essence in NY

At the end of 2022, a New York Federal Court granted summary judgement in favor of the Great Northern Insurance Co. (a/k/a Chubb) and found it proper to deny a $1.5 million insurance claim for missing art. Philip Weintraub & Jamelia Weintraub v. Great Northern Insurance Co., 2022 WL 17993903 (S.D.N.Y. Dec. 29, 2022). The insured’s 2019 coverage period with Chubb started from August 18, 2019 to August 18, 2020. The insured discovered the art was missing one week after the 2019 policy coverage began. Since the insured was last in the barn where the art was stored back in October 2018, the loss could have occurred at any moment during that period of time.  

The insured’s loss was not covered under the 2019 policy because the insured, under New York law, did not meet the burden to prove that the loss occurred within the coverage period of 2019. The insured’s loss was not covered under the 2018 policy either, even though the insured has maintained continuous coverage with Chubb since the 1990s. The insured failed to submit any notice of loss “as soon as possible” as required by the 2018 policy. Indeed, the insured did not file the lawsuit until more than two years after the loss. Interestingly, the court noted that the language that requires notice of loss “as soon as possible” was only explicitly included in the 2018 policy, not 2019 policy. If such language was not included in the policy delivered to the insured or readily available to the insured online, then such term has no binding effect.  

Thanks to Sherry Lin for her contribution to this post. Please contact Heather Aquino with any questions

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NJ Bad Faith Claim Dismissed As Mere Denial Of Coverage Is Not Grounds For Bad Faith

The United States District Court for the District of New Jersey recently granted an insurer’s motion to dismiss a bad faith claim where the insurer merely denied coverage and declined to settle with the plaintiff, reiterating that more than a denial of coverage is required to establish bad faith on the part of an insurer.  In Terrance Minor v. Allstate New Jersey Insurance Co., ABC Corp. (1-5) and John Does (1-5), the Court addressed this issue on Allstate’s motion to dismiss.  Minor was involved in an uninsured motor vehicle accident, claiming that Allstate (his vehicle’s insurer) owed him uninsured motorist coverage. Minor alleged that he attempted to resolve his claim with Allstate, but that Allstate refused to settle or go to arbitration. Minor alleged that Allstate breached the covenant of good faith and fair dealing in not settling with him.  In reaching its decision, the Court noted that to establish a breach of the duty of good faith and fair dealing under New Jersey law, a plaintiff must allege that: “(1) the defendant act[ed] in bad faith or with a malicious motive, (2) to deny the plaintiff some benefit of the bargain originally intended by the parties, even if that benefit was not an express provision of the contract.” In the insurance coverage context, the court noted, establishing bad faith “requires a plaintiff to ‘show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.’” The Court disagreed with Minor’s argument that Allstate had acted in bad faith because despite numerous discussions regarding resolution between Minor and Allstate, Allstate refused to settle or go to arbitration. In doing so, the Court also rejected the argument that an insurer’s denial of coverage inferentially establishes bad faith. The Court further noted that the complaint itself did not establish bad faith, as it failed to point to specific provisions of the insurance contract or specific dealings between the parties that could potentially allow the Court to infer that Allstate had no reasonable basis to deny coverage. This decision emphatically reiterates the standard on NJ bad faith.  First, it requires a plaintiff to show specificity within the complaint, and that plaintiff avers specific provisions of the insurance contract or specific dealings between the parties rise to the level of bad faith. Second, it demonstrates that an insurer’s refusal to settle or arbitrate a claim, even after numerous discussions with the other parties, is not enough, standing alone, to establish bad faith. Thanks to Erin Gallagher for her assistance in this article.  Should you have any questions, please contact Tom Bracken.Read More

Insurer’s Denial Goes To Jury If Policyholder’s Expert Report Contradicts Insurer’s Grounds for Denial (NY)

The United States District Court for the Western District of New York recently determined that summary judgment is inappropriate where competing expert reports make it impossible to determine whether an insurance company’s asserted exclusions apply.  In James P. Pronti & Kelly A. Pronti v. Hanover Insurance Company, the Court addressed this issue in a breach of contract case where the Prontis, plaintiff homeowners, alleged that the defendant insurance company, Hanover, breached the policy of insurance by denying coverage for damages caused by a leaking pipe. Both parties obtained expert reports, which reached differing conclusions regarding what caused the pipe to leak. Based on its expert report and its interpretation of the relevant policy provisions and exclusions, Hanover disclaimed coverage. The Court found that there was a genuine dispute of material fact regarding whether Hanover had established an applicable exclusion under the Policy, and accordingly denied both parties’ motions for summary judgment. The Court held that because the expert reports “clearly dispute” what caused the leak in the Prontis’ piping, it was impossible for the Court to determine whether Hanover’s asserted exclusions apply on a summary judgment motion. Notably, the Court rejected Hanover’s assertion that the Prontis’ expert report had failed to actually contradict Hanover’s expert report because it did not affirmatively state what caused the pipe to leak. The Court agreed that the Prontis’ expert report did not expressly state what specifically caused the pipe to leak, but noted that the report did state that general wear and tear did not cause the leak, which contradicted Hanover’s report. The Court held that because an insurer that is relying on an exclusion to disclaim coverage has the burden of demonstrating that the exclusion applies, in order to prevent Hanover from carrying its burden of proof regarding the policy exclusion, the Prontis’ report needed only to dispute Hanover’s report, and was not required to state its own reason for the leaking pipe. Because the Prontis’ report disputed the findings in Hanover’s report, the Court held, it created a genuine dispute, and therefore made summary judgment inappropriate. This decision, of course, reiterates the insurer’s high burden to disclaim coverage.  An insured’s expert report does not necessarily need to make specific conclusions regarding causation, but needs only to contradict an insured’s expert report in order to raise a genuine dispute of material fact on summary judgment. Thanks to Erin Gallagher for her contribution to this article.  Should you have any questions or would like to discuss this decision, please feel free to contact Tom Bracken.Read More

Call Your Next Witness (Cannabis Edition) — Alex Buscher of Buscher Law LLP

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Context Important in ERISA Dispute Over Unclear Language (PA)

On November 16, 2022 in a lawsuit entitled, Frietas, et al. v. Geisinger Health Plan, et al., No. 4:20-CV-01236, Third Circuit Chief Judge Brann disposed of a proposed class action alleging that Geisinger Health Plan (“GHP”) illegally tried to recoup payments from plan users following their injury settlements, finding that documents uncovered through discovery explicitly gave the company the right to do so. Specifically, Lori Freitas and Kaylee McWilliams, lead plaintiffs in the subject lawsuit (“Plaintiffs”), were subscribers to employer-based health insurance provided by defendant, Geisinger Health Plan (“GHP”). Unfortunately, Plaintiffs were involved in separate car accidents resulting in personal injuries, and subsequently, personal injury settlements from the respective third-party tortfeasors. Prior to settlement, Plaintiffs filed respective claims with GHP for costs related to treatment of their injuries. Upon learning of Plaintiffs’ settlement(s), GHP brought reimbursement action(s) against Plaintiffs to recover costs from their settlements related to health insurance benefits provided by GHP relying on a clause in the Group Subscription Certificate (“Certificate”).  However, the clause in the Certificate did not explicitly set out GHP’s right to reimbursement or include the ERISA Employer Welfare Plan (“Plan”) and its declarations. Plaintiffs, in protest, paid a portion of GHP’s demand and countersued in the form of class action. Specifically, Plaintiffs sought monetary relief and alleged that GHP violated the Employee Income Security Act (“ERISA”) and its fiduciary duties therein. When GHP’s initial motion to dismiss was denied, the case proceeded to discovery giving rise to the Plan and its declarations, which authorized GHP to seek both reimbursement from Plaintiffs and subrogation from third-parties. GHP filed a FRCP 12(b)(6) motion, which was converted into a motion summary judgement, stating that the related plan documents, when read in its entirety, allowed GHP to seek reimbursement of such costs. Ultimately, the court agreed and granted GHP’s motion for summary judgment. Specifically, the court found no inconsistency between the Certificate and the Plan. While the Certificate only provided a general right to subrogation from third-parties (rather than reimbursement from Plaintiffs), the language of the Certificate as supplemented by the Plan, authorized more expansive rights for GHP to enforce recovery. The court additionally found that the Plaintiffs’ allegations did not establish willful or bad faith conduct by GHP which would constitute a violation of its fiduciary duty as an aggravated beneficiary under ERISA. Importantly, the court indicated that GHP could have violated federal law by seeking reimbursement through the Certificate alone, however, any such violation could not have been willful being that GHP believed in good faith that they were enforcing the terms of the Plan in its entirety. Further, GHP’s good faith interest of enforcing its own reimbursement provisions did not give rise to a violation of GHP’s fiduciary duty of loyalty. Interestingly, after Plaintiffs’ suit had commenced, each of their respective employers elected to use a non-GHP plan and GHP ceased any further demand for reimbursement. Thus, since Plaintiffs had already agreed to and paid a portion of the demand, and GHP was no longer seeking reimbursement, the court rendered the rest of Plaintiffs’ claims as moot. In practice, Fritas acts as a word of caution to insurers and subscribers alike. When seeking reimbursement from subscribers, insurers are not necessarily limited to the language on the certificate of subscription so long as such authority is contained elsewhere in the plan. However, recovery efforts must abide by federal laws and be executed through the specific clause providing such authority. Conversely, subscribers are reminded of the age-old expression – be careful what you sign up for. Thanks to Kendal Hutchings contribution to this post.   Should you have questions, contact Matthew Care.Read More

Call Your Next Witness – Ryan Eakes of Typhoon Farma

After a short break, the Call Your Next Witness podcast is back, with our first in a series of cannabis-related interviews.

The Cannabis Industry was taboo as recently as 10 years ago.  But now, not only is it a blossoming industry, but its becoming mainstream to the point where attorney and insurance conventions are including presentations specific to cannabis and how to insure that risk.

But how does one actually get into the commercial cannabis space, and what is the day-to-day like?  Ryan Eakes, Chief Operating Office of Typhoon Farma, a  hemp farm in western Colorado, offers some great insight into those questions through his own journey.   With a background in construction and business development — not in agriculture — Ryan jumped on an opportunity to get into the cannabis and hemp world on the ground floor.   Ryan encounters daily challenges that are truly unique to the cannabis industry, especially given the ever-changing regulatory framework he has to navigate.  Listen here, or search for Call Your Next Witness wherever you download podcasts.

Think of this interview as “Cannabis for Dummies.”  For questions about WCM’s practice in the cannabis insurance space, please contact Brian Gibbons.

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Third Circuit Rejects Policyholder Claims Where Pennsylvania’s UIM Coverage Rejection Requirements Are Satisfied

Uninsured and underinsured motorist (“UIM”) coverage is not mandatory in Pennsylvania and insureds have the option of rejecting such coverage by signing an approved form. In Keeler v. Esurance Insurance Services, Inc., the Court of Appeals for the Third Circuit recently addressed whether a waiver of UIM coverage by insureds was void to permit them to maintain claims against their motorcycle insurer. Plaintiff Nathan Keeler suffered serious injuries when his motorcycle collided with an SUV which had pulled out of an intersection. The SUV driver’s insurer settled for the bodily injury limit of $300,000 but Keeler claimed injuries in excess of that amount and sought to recover UIM benefits from their insurer Esurance. The claim was denied on the basis that plaintiff had signed a rejection form waiving UIM coverage and had consistently not paid premiums for such coverage. Plaintiffs sued various Esurance entities, claiming breach of contract and bad faith denial of insurance coverage. They sought damages exceeding $75,000 and Esurance removed the case to the United States District Court for the Western District of Pennsylvania. Esurance moved for summary judgment, arguing that it properly denied the claim for UIM benefits based upon plaintiffs’ signed waiver. Plaintiffs cross-moved on the grounds that the waiver was void because Esurance failed to print it in a “prominent type and location” as per Pennsylvania law. They also claimed that because Esurance’s renewal notices did not mention UIM protection, also required by Pennsylvania law, that the waiver was void. The District Court disagreed and held that the UIM rejection form was valid and that there was no civil remedy for defective renewal notice under Pennsylvania law. The Third Circuit affirmed, holding that the UIM rejection form satisfied the prominent-type-and-location requirement under Pennsylvania law. The court observed that the form was included on a separate document from the policy itself, was organized by subject matter, with the waiver in its own section in a readable sized font with a bold, underlined title in all capital letters, with a signature line that was signed by plaintiff. The court also held that while Esurance violated Pennsylvania’s renewal form prominence requirement, Pennsylvania law does not provide for a civil remedy for such deficiencies. Thus, Esurance’s violation did not affect the validity of the UIM waiver. The Keeler decision highlights the importance of insurer compliance with Pennsylvania’s UIM rejection form requirements and supports a denial of UIM coverage where the requirements are met, and insureds waive such coverage. Thank you to Haley Matthes for her contribution to this post. Please contact Andrew Gibbs with any questions.Read More