Coverage

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.

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

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

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

Broad Policy Exclusions Are Vulnerable to Reasonable Expectations (PA)

On November 2, 2022, in Atain Insurance Company v. V2 Properties LLC, the Eastern District of Pennsylvania, Judge Padova issued a memorandum decision denying Atain Insurance Company’s (“Atain”) motion for judgment on the pleadings, arguing that its policy issued to V2 Properties (“V2”) provided no coverage for losses sustained in connection with a personal injury judgment entered against V2. The personal injury judgment resulted from a decedent’s fall from scaffolding while performing masonry work at a home construction site in Philadelphia. In the underlying action, it was alleged V2 was the general contractor for the project, responsible for the safety of all work performed. Based on an allegation in the underlying complaint stating that the decedent was a business invitee and construction worker performing masonry work at the site, Atain asserted that the decedent fell under “one or more of the several types of workers identified in the Employer’s Liability Exclusion,” and therefore, sought a judicial declaration stating it did not owe V2 a defense or indemnification in respect of the underlying action. In response to the declaratory judgment complaint, V2 asserted, among other things, an affirmative defense stating the policy did not reflect the reasonable expectations of the insureds and asserted the policy should be reformed to do so. Specifically, the policy’s Employer’s Liability Exclusion, barred coverage to, any insured to indemnify or contribute with another because of damages arising out of “bodily injury” to an “employee”, subcontractor, employee of any subcontractor, “independent contractor”, employee or any “independent contractor”, “temporary worker”, “leased worker”, “volunteer worker” of any insured or any person performing work or services for any insured arising out of and in the course of employment by or service to any insured for which any insured may be held liable as an employer or in any other capacity. In arguing against Atain’s judgment on the pleadings, V2 asserted that the exclusion is ambiguous as applied because it is unclear if “it is limited in its application to only those injuries sustained by direct employees of [V2]” or “vitiates all insurance coverage for the insured’s most common and foreseeable liability risk—liability for injuries to any workers on the construction job site.” This was rejected by the court because the language does not give rise to multiple meanings; however, the question of whether the language is reasonable in light of V2’s expectations, as an affirmative defense, was an issue on which the court was unwilling to rule. Specifically, it stated that the totality of the insurance contract had not been established and therefore it was not possible to ascertain the reasonable expectations of the insured. Accordingly, the court denied Atain’s motion and determined the question of reasonableness should be resolved on a full factual record. Thanks to Richard Dunne for his contribution to this article.  Should you have questions, contact Matthew Care.Read More

Third Circuit Upholds Assault Or Battery Exclusion In Sex Trafficking Case (PA)

In Nautilus Insurance Co. v. Motel Management Services, Inc., et al., the Court of Appeals for the Third Circuit analyzed whether the District Court’s judgment declaring that underlying sex trafficking actions fell within the scope of an insurance policy’s assault-or-battery exclusion.  On de novo review, the Court of Appeals affirmed the lower court’s ruling. Nautilus Insurance Company (“Nautilus”) issued a commercial general liability insurance policy to Neshaminy Inn and others (collectively “Inn”), in which Nautilus agreed to defend and indemnify the Inn for any liability incurred. However, the policy specifically excluded claims “any action or proceeding alleging damages arising out of any assault or battery.” The exclusion also included “[a]ny act or omission in connection with the prevention or suppression of such acts, including the alleged failure to provide adequate security.” The Inn sought coverage for state court lawsuits alleging three women were trafficked for sex at the Inn and Nautilus agreed to defend the Inn pursuant to a strict reservation of rights letter. Based on certain evidence developed in discovery, Nautilus commenced a lawsuit in the U.S. District Court for the Eastern District of Pennsylvania seeking a declaration of no coverage based on the assault or battery exclusion. Nautilus moved for judgment on the pleadings in all three lawsuits arguing there was no coverage based on the exclusion and the District Court agreed. The Third Circuit affirmed, holding that the plain language of the policy excluded all claims “arising out of any assault or battery.” The policy did not define the terms “assault” or “battery” so the court looked to Pennsylvania law for guidance. The cases defined an “assault” as “intentionally placing another person in imminent apprehension of a harmful or offensive bodily contact” and “battery” as a “harmful or offensive contact with the person of another absent the other’s consent.” Although the court recognized that policy exclusions are construed against the insurer, the court found that the exclusion applied because the victims alleged that their traffickers treated them in an aggressive or violent manner, which made them feel fear and anxiety while being trafficked. The court also noted that selling the victims for sex qualified as an assault because it placed them in imminent apprehension of a harmful or offensive bodily contact and that the force and drugs used to compel the victims’ participation subjected them to harmful or offensive bodily contact without their consent. The Third Circuit rejected the Inn’s argument that the sex trafficking claims do not necessarily involve violence in light of the victim’s alleged consent to the conditions, holding that allegations of “modern-day slavery – facilitated by forced drug use, violent criminal aggression, physical injuries, and a climate of fear and anxiety” eliminated any basis for such an argument. Accordingly, the court held that the exclusion applied, and that Nautilus had no duty to defend or indemnify the Inn for the underlying lawsuits. Please contact Lauren Berenbaum with any questions.Read More

Insured Contract Exclusion Requires A Third-Party

In Stevanna Towing, Inc., et al. v. Atlantic Specialty Ins. Co., No. 21-1420, 2022 WL 12241451 (3d Cir. Oct. 21, 2022), a Stevanna employee was injured when the boat he was deckhand on— which was being piloted by an employee of Georgetown Sand & Gravel—bumped into a barge. Stevanna, among others, resolved the suit with the employee and then sought reimbursement for the costs associated with its defense and settlement. Atlantic Specialty Insurance Company (“Atlantic”) denied coverage. Among the many issues was whether the insured contract exception to the employer-liability exclusion applied to provide coverage to certain additional parties. The Atlantic policy’s definition of insured contract included “that part of any other contract or agreement pertaining to [Stevanna’s] business . . . under which [Stevanna] assume[d] the tort liability of another party to pay for ‘bodily injury’ . . . to a third person or organization.” The court stated that for the exception to apply, Stevanna needed to have assumed the tort liability for injuries caused by another party; however, the indemnification agreement in question was for liability for injuries “caused in whole or in part by the negligence of Stevanna, its agents and employees.” Hence, as the “insured contract” did not expressly purport to assume the tort liability of another party, the court held the exception for insured contracts did not apply. Also noteworthy was the Third Circuit’s refusal to entertain the argument that Atlantic waived the implementation of the employer-liability exclusion by not referencing it in its denial letter nor in its answer to the complaint. The court stated “those omissions do not amount to an implied waiver under Pennsylvania law.” Thanks to Richard Dunne for his contribution to this article.  Should you have any questions, contact Matthew Care.Read More

Duty to Defend Triggered with a “reasonable possibility” of Coverage (NY)

The Appellate Division (4^th Dep’t) recently determined that even where a complaint does not include specific claims or allegations bringing it within the scope of a policy’s coverage, an insurer’s duty to defend may still be triggered if the complaint suggests a “reasonable possibility” that the claims may fall within the scope of the policy.  In Main St. Am. Assurance Co. v. Merchants Mut. Ins. Co., the Court addressed this issue in a case involving a plaintiff who was injured during the course of his work as a subcontractor on a construction project. The subcontractor obtained insurance through Merchants Mutual Insurance Company for the contractor’s benefit. The policy with Merchants Mutual provided coverage to the contractor, but “only with respect to liability for ‘bodily injury’ . . . caused, in whole or in part, by . . . [insured’s] acts or omissions.” Merchants Mutual argued it did not have a duty to defend the contractor because the complaint alleged Labor Law violations on the part of the contractor, and not negligence by the subcontractor, as contemplated by the policy.  The Appellate Division disagreed with Merchants Mutual, holding that even though the underlying complaint did not allege negligence by the subcontractor, it suggested a reasonable possibility that its negligence was a proximate cause of his injuries, thereby bringing the claim potentially within the policy. Accordingly, the Court held, Merchant Mutual’s duty to defend the contractor as an additional insured was triggered, despite the fact that the complaint did not actually allege that subcontractor had been negligent.  This decision is somewhat troubling for insurers as it shows that a court may find a duty to defend even where the underlying complaint did not specifically include claims or allegations falling within the scope of a policy’s coverage. Thanks to Erin Gallagher for her contribution to this post.  Should you have any questions, please feel free to contact Tom Bracken.Read More

Creative Pleading In PA Requires A Duty To Defend

In Siehl v. City of Johnstown, et al., the plaintiff was convicted of murder and was incarcerated for twenty-five years. The plaintiff alleged that, during his period of incarceration, the defendant city and county withheld exculpatory evidence and produced false disclosure statements. After multiple hearings, the Court determined that the defendant officers were untruthful and hid exculpatory evidence. The plaintiff was thereafter free. The plaintiff therefore sought damages for wrongful imprisonment, loss of freedom, economic loss, and critically, exposure to physically harmful prison conditions (e.g. a bodily injury). The defendant city and county thereafter added their insurance carrier to the action with a third-party complaint. The third-party defendant insurer issued an insurance policy to Cambria County, Pennsylvania. The policy in question included general liability coverage and law enforcement liability coverage that extended to cover damages because of “injury, sickness, disease, disability, shock, mental anguish, mental injury and humiliation” as well as false imprisonment, malicious prosecution, and deprivation of constitutional rights. The Eastern District began its analysis by citing the foundational pillars of insurance coverage law in Pennsylvania: the insurer’s duty to defend is broader than the duty to indemnify and the duty to defend arises whenever an underlying complaint may potentially come within the insurance coverage. The insurer argued that it owed no duty to defend the claims that were derivative of the initial malicious prosecution. The court disagreed. Concluding that the allegations in the lawsuit would, if true, be covered by the policy, the Eastern District concluded that “under the legally appropriate interpretation/evaluation of the applicable language at issue, [the insurer] owe[d] a duty to defend” partially because of the allegations in the complaint concerning a bodily injury caused by an occurrence. Thanks to Jason Laicha for his contribution to this article.  Should you have any questions, contact Matthew Care.Read More