Coverage

Supreme Court of NY Decides COVID-19 Related Moratoriums Prohibiting the Cancellation or Non-Renewal of Insurance Policies may be Inapplicable if Notice of Cancellation or Non-Renewal was Provided Before March 29, 2020

On March 29, 2020, Executive Order No. 202.13 (“EO 202.13”) imposed a moratorium on insurers cancelling or non-renewing any property or casualty insurance policies in order to benefit insureds facing financial hardship as a result of the COVID-19 pandemic. Likewise, on March 30, 2020, the New York State Department of Financial Services enacted an Emergency Regulation (the “Emergency Regulation”) that imposed an identical moratorium on insurers. However, are EO 202.13 and the Emergency Regulation (collectively the “Federal and State Regulations”) applicable to an insurer who served a Notice of Cancellation or Non-Renewal (“Notice”) within a week of the Federal and State Regulations taking effect? According to the Supreme Court of New York, New York County, the Federal and State Regulations are not applicable to insurers who served a Notice prior to the Federal and State Regulations being issued, even if the Notice was not effective until after March 2020.

In 450 Grand Avenue Realty LLC v. Technology Insurance Company Inc., 2022 WL 260451 at *1 (N.Y. Sup. Ct. 2022), defendant insurer (the “Insurer”) issued a policy of insurance (the “Policy”) insuring the plaintiff insured’s (the “Insured”) premises, including risk of loss by fire. The Policy commenced on March 8, 2020, and was set to expire on March 8, 2021. On March 24, 2020—within a week of the Federal and State Regulations being imposed—the Insurer served a Notice that went into effect on April 26, 2020. Subsequently, on June 11, 2020, the Insured’s building suffered loss and damage caused by a fire and the Insurer disclaimed coverage. As such, the Insured sued seeking to recover $250,000 in building damage and $40,000 for loss of business income, rental value, and extra expenses that it asserts should be paid by the Insurer pursuant to the Policy.

The Insurer moved the Court to dismiss the complaint on the grounds that the Insured was not covered by insurance on the date of loss. Specifically, the Insurer claimed that it sent the Insured a Notice on March 24, 2020, effective on April 26, 2020, and that the Policy was cancelled before the Federal and State Regulations were issued. Conversely, the Insured stated the Notice was rendered invalid by the Federal and State Regulations, and that the Federal and State Regulations were created for situations such as presented here. The Insurer maintained that the Insured did not have a legally cognizable cause of action against the Insurer as it is irrefutable that the Policy was not cancelled due to financial hardship straining from the COVID-19 pandemic.

Ultimately, the Supreme Court of New York, New York County, held that the Policy was cancelled before the Federal and State Regulations were promulgated. However, the Court noted that—even if the Notice was rendered invalid by the Federal and State Regulations—the moratoriums only applied to insureds experiencing a financial hardship due to the COVID-19 pandemic, and the Insured failed to demonstrate that it suffered financial hardship related to the COVID-19 pandemic in its opposition papers. Consequently, the Court granted the Insurer’s motion to dismiss in its entirety and dismissed the Insured’s complaint.

Thanks to Drew Fryhoff for his contribution to this post.  Should you wish to discuss, please contact Thomas Bracken.

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Physical Distance and Adjoining Properties (PA)

On March 2, 2022, the Eastern District of Pennsylvania in Daisy Larcena Walker v. Foremost Insurance Company Grand Rapids, Michigan and Debra Elaine Tucker, granted Foremost Insurance Company Grand Rapids, Michigan (“Formeost”) and Debra Elaine Tucker’s (“Tucker”) motion for summary judgment in an insurance coverage dispute.

By way of brief background, the plaintiff, Daisy Larcena Walker (“Walker”), owns a single-family home, which she rents out to tenants. Foremost issued a Dwelling Fire Three Policy Landlord to Walker. In October 2019, a branch from a tree located on Walker’s property fell on Walker’s property and the adjourning property. The owner of the neighboring property claimed the fallen tree branch caused damage to her property. Walker and the neighbor requested coverage and in response, Foremost disclaimed coverage. The neighbor was insured by State Farm Fire and Casualty Company (“State Farm”) – State Farm covered the majority of damages.

Subsequently, the neighbor filed a lawsuit against Walker. This matter settled; however, Foremost declined to reimburse Walker for the settlement and costs of defense stating the policy did not provide coverage for the loss. State Farm then demanded subrogation form Walker for the monies paid by State Farm to resolve the neighbor’s claim. After seeking coverage from Foremost with respect to the State Farm action, Foremost agreed to defend Walker pursuant to a reservation of rights.

Foremost filed a motion for summary judgment seeking a declaration of no coverage. Based on the policy language and the location where the damage occurred, the court granted Foremost’s motion declaring the policy did not provide coverage to Walker. Walker argued the policy covered the damage to the neighbor’s property since the policy term “your premises” is extended to include the neighboring property as it is “adjacent to” an “other structure”. The court disagreed.

The court first held Walker failed to set forth evidence allowing a reasonable jury to find in Walker’s favor regarding the location of the fence. Second, the court held the location of the fence did not impact whether there was coverage because the fence did not constitute an “other structure” as defined by the policy. The court also held the tree did not constitute an “other structure” under the policy’s definition of “premises”. In addition, the court held the dwelling on the insured property is not “immediately adjoining” the area where the tree fell and caused damage. Specifically, the court relied on the plain language of the policy and the fact that ample land and a driveway intervened between the dwelling and the location where the damage occurred. Thanks to Lauren Berenbaum for her contribution to this post. Please contact Heather Aquino with any questions.Read More

No Winners In Travelers v. Wesco: Court Holds Policies Are Co-Primary On An Equal Share Basis

In a declaratory judgment action (“DJA”) initiated by Travelers Property Casualty Company of America (“Travelers”) in the Southern District of New York, Travelers sought a ruling that (1) Wesco Insurance Company (“Wesco”) has a duty to defend and indemnify a mutual insured, Broadway, as an additional insured on Wesco’s policy; (2) the coverage provided by Wesco is primary; and (3) Travelers’ obligations to Broadway are excess and non-contributory to Wesco’s with respect to the two pending underlying personal injury actions from which the DJA stems. Travelers contended that its policy’s “other insurance” clause indicates it is excess to, not co-primary with, Wesco’s policy. This argument is predicated upon Travelers’ “other insurance” language which explicitly states it is excess to policies for which Broadway is an additional insured.

Travelers and Wesco cross-moved for summary judgment–both were granted in part and denied in part. Travelers’ was granted as to Wesco’s duty to defend and, if necessary, indemnify Broadway as an additional insured, making Wesco’s coverage of Broadway, primary coverage. Wesco’s was granted as to the respective “other insurance” policies. Specifically, Wesco argued that the respective provisions mandate that the policies are co-primary because Travelers’ Blanket Additional Insured Endorsement provides the policy is primary when “a written contract or written agreement . . . specifically requires that this insurance apply on a primary and non-contributory basis.” Although Travelers countered that its amendment to the “other insurance” provision states its obligations are “excess over any of the other insurance . . . that is available to the insured when the insured is added as an additional insured under any other policy,” the court stated that the amendment modified only Section IV of the policy, not the Blanket Additional Insured Endorsement.

Stepping outside the language of the policies, the court supported its decision by pointing to the contract between Travelers’ named insured and Broadway. The contract stated in no uncertain terms that Broadway required Travelers’ named insured to include Broadway as an additional insured on a primary and non-contributory basis. Hence, on February 8, 2022, the court ruled that Travelers and Wesco have a co-primary duty to defend Broadway. We note also that Wesco attempted to saddle Travelers with 60% of the defense costs based on policy limits but the court denied this method of pro rata apportioning based on policy intent evidenced by the “methods of sharing” language.

This decision highlights the importance of “other insurance” intricacies and how thinking three or four steps ahead can limit exposure in the commercial litigation context.

Thanks to Richard Dunne for his contribution to this article.  If you have any questions, contact Matthew Care.

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Insurer Wins Summary Judgment After Waiver Of Inter-Policy Stacking In Purchase Of The Policy (PA)

In a case from the Western District of PA, Miale v. Nationwide Insurance Company of America, the court granted the defendant’s motion to dismiss against the plaintiff who brought a breach of contract claim (including bad faith) after they waived inter-policy stacking and their policy only covered one vehicle.  The plaintiff the wife of a decedent who file a suit for breach of contract and bad faith against the insurer after plaintiff’s husband was killed in a motorcycle accident .  The widow relied on her Nationwide RV policy which she argued covered both an RV and her husband’s motorcycle. However, the decedent had signed a waiver provision in exchange for reduced insurance premium.  Plaintiff argued the RV policy stacking waiver applied only to intra-policy stacking and did not apply to inter-policy stacking.

The court relied on Section 1738 of Pennsylvania’s Motor Vehicle Financial Responsibility in its ruling refusing to accept policyholder’s argument. That section provides for stacking of uninsured and underinsured benefits in motor vehicle insurance policies, however the court found that the decedent knowingly and voluntarily rejected inter-policy stacking when he signed the valid waiver to receive reduced premium.

This case is important in reiteration that the execution of a stacking waiver form for RV policy that covered only one vehicle meant that the policyholder could only have understood they were executing an inter-policy stacking form, even though the waiver form language included language from the statutory provision governing intra-policy stacking.

Thanks to Kevin Riley for his contribution to this article. Should you have any questions, please contact Tom Bracken.

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Additional Insured Coverage Analyzed in PA

Earlier this week, on January 31, 2022, in Cincinnati Insurance Company v. Colony Insurance Company, the U.S. District Court for the Eastern District of Pennsylvania analyzed whether a general contractor constituted an additional insured on its subcontractor’s insurance policy.

By way of brief background, Cincinnati Insurance Company (“Cincinnati”) commenced a declaratory judgment action (“DJ”) against Colony Insurance Company (“Colony”) alleging Colony is obligated to defend and indemnify Cincinnati’s named insured, Lobar, Inc. (“Lobar”) in connection with an underlying personal injury lawsuit commenced by Robert Sokoloff (“Sokoloff”). Sokoloff commenced the underlying lawsuit against Lobar alleging he sustained injuries when he slipped and fell on ice at a construction site controlled by Lobar. As the general contractor and/or construction manager, Sokoloff alleges Lobar was responsible for the dangerous condition created by the accumulation of ice that caused his fall. At the time of Sokoloff’s accident, Architectural Steel, Colony’s named insured, was a subcontractor to Lobar at the construction site. Lobar joined Architectural Steel to the underlying lawsuit. As Lobar and Architectural Steel entered a subcontract requiring Architectural steel to include Lobar as an additional insured for ongoing and completed operations, Cincinnati commenced the instant declaratory action.

Applying well-established Pennsylvania case law, the Court determined Lobar was not an additional insured under the Colony Policy. Looking to the plain language of the policy, the court analyzed the Additional Insured – Owners, Lessees or Contractors – Scheduled Person or Organization endorsement, which modified the Who Is An Insured section to include additional insured coverage with respect to liability “caused, in whole or in part, by “[y]our actions or omissions” or “[t]he acts or omissions of those acting on your behalf; in the performance of your ongoing operations…”. As there was no Pennsylvania case law on point, the Court looked to federal court opinions decided under Pennsylvania law. Citing Dale Corporation v. Cumberland Mutual Fire Insurance Company, the Court determined Sokoloff was not an employee of Architectural Steel at the time of the accident. This, coupled with the fact that the only mention of Architectural Steel was in the joinder complaint filed by Lobar, the Court determined Lobar did not constitute additional insured. Further, although Cincinnati included a certificate of insurance naming Lobar as an additional insured on the Colony policy, the Court rejected that argument as certificates of liability insurance do not constitute insurance contracts and do not, on their own, confer additional insured status.

The Court also noted Architectural Steel was not responsible for the snow and ice removal. The Court held the subcontract between Lobar and Architectural Steel did not require Architectural Steel to remove snow and ice from the accident site. In doing so, the Court reasoned there is no basis to find Sokoloff’s injuries were “caused in whole or in part of” by Architectural Steel as required to confer coverage to Lobar under the Colony policy. This ruling is significant because the Court looked beyond the four corners of the complaint to consider extrinsic evidence, such as the deposition testimony from the Underlying action. Ultimately, the Court denied Cincinnati’s motion for summary judgment and ruled in favor of Colony, therefore holding Lobar was not an additional insured under the Colony policy.

This case is significant as it reaffirms the principle set forth in Dale that a third party complaint cannot be used to bolster allegations in the original complaint to support coverage as doing so would violate the rule that “the obligation of a casualty insurance company to defend an action against the insured is to be determined solely by the allegations of the complaint in the action.”

Thanks to Lauren Berenbaum for her contribution to this post. Please contact Heather Aquino with any questions.Read More

Court Follows Trend Of Rejecting COVID-19 Business Loss Claims In The Absence Of Physical Loss Or Damage (NY)

A trial court recently continued the trend of New York courts finding no coverage for business loss claims due to the COVID-19 pandemic. In Benny’s Famous Pizza Plus v. Sec. Nat’l Ins. Co., 2021 N.Y. Misc. LEXIS 3843 (Supt. Ct., July 2, 2021), a restaurant sought coverage for property damage, specifically loss of business income and extra expenses, due to government ordered closures caused by the pandemic. The insurer denied the claim on several grounds, including that there was no direct physical loss or damage to the property as required by the policy and that the virus exclusion endorsement precluded coverage for the claims. The insurer moved to dismiss plaintiff’s complaint in the resulting declaratory judgment action.

In opposition, the restaurant argued that it was entitled to coverage under the “Civil Authority” provision of the policy, with the civil authority being the Executive Orders compelling all non-essential New York State businesses to cease in-person operations. Plaintiff further argued that the virus exclusion did not apply because: 1) its business interruption was not caused by a virus per se, but rather by civil authority in the form of the Executive Orders issued by the New York Governor; and 2) the language of the policy did not explicitly state that the exclusion applies under the “Additional Coverages” for “Civil Authority” section of the policy. Lastly, plaintiff asserted that, unlike other exclusions in the policy, the virus exclusion endorsement does not contain an anti-concurrent clause which means that the COVID-19 virus can be considered a concurrent cause of loss, along with civil authority.

The court rejected these arguments, finding that the insurer was entitled to dismissal as a matter of law. The court held that the phrase “direct physical loss or damage” in the policy was unambiguous and requires physical damage to the insured property itself as a condition for coverage. Citing to fourteen New York state and federal cases decided in 2021 alone, the court observed that New York courts have soundly rejected the argument that business closures due to the presence of the COVID-19 virus or New York State Executive Orders constitute physical loss or damage to property. That court also noted that the mere presence of the COVID-19 virus in the air or on surfaces of a covered property does not qualify as damage to the property itself.

Benny’s Famous Pizza is yet another example of a New York court rejecting COVID-19 business loss claims based upon closures caused by the government shut down. New York courts have now made it abundantly clear that such claims are not covered in the absence of direct physical loss or damage to the premises and that the presence of a virus alone is not enough.

Thank you to Tristan Montague for his contribution to this post. Please contact Andrew Gibbs with any questions.

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What’s in a Named Insured? (NY)

In a terse but interesting decision, the New York Supreme Court, Appellate Division, First Department, reversed the Supreme Court’s grant of Mt. Hawley Insurance Company’s motion to dismiss in CastlePoint Natl. Ins. Co. v. Mt. Hawley Ins. Co., based on the cross liability exclusion of Mt. Hawley’s policies.  The sole issue on appeal was whether Mt. Hawley correctly disclaimed coverage on a cross liability exclusion. Plaintiff Castlepoint alleged that Mt. Hawley was required to reimburse it for amounts paid that it believed Mt. Hawley was obligated to pay.

The Appellate Division stated in no uncertain terms that the Supreme Court’s interpretation and subsequent decision which held Trumball Equities, LLC was a named insured was plain wrong.  The provision at issue was the policy’s coverage exclusion for “any action, claim, or ‘suit’ brought by one Named Insured against any other Named Insured covered under this policy.”  The Appellate Division noted that although Trumball was indeed a named insured on a different premises, it was merely an additional insured on the premises where the loss occurred, and therefore, the cross-liability exclusion did not apply. In other words, the appellate court distinguished the different projects in which Trumball was a named insured as opposed to the instant project, in which it was merely an additional insured.

This decision certainly makes the definition of “Named Insured” a lot more interesting, and Wade Clark Mulcahy LLP will be watching to see if this prompts an action in rescission.

Thanks to Richard Dunne for his contribution to this article.  If you have any questions, please contact Matthew Care.

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New Jersey Passes Insurance Fair Conduct Act (NJ)

On January 18, 2022, Governor Phil Murphy signed into law the New Jersey Insurance Fair Conduct Act.  The Act establishes a private cause of action for first-party claimants against a UIM insurer for “unreasonably” denying or delaying claims.  It also allows a claimant to sue the insurer if the insurer violates any provision of New Jersey’s Unfair Claims Settlement Practices Act which governs “unfair methods of competition and unfair and deceptive acts or practices in the business of insurance” which includes “unfair claim settlement practices.”

Notably, the Act does not define what “unreasonable” conduct is.  Thus, courts will be left to decide that issue.  However, the statute provides 15 examples of “unfair claim settlement practices’ which include misrepresentation of the policy limit, failing to promptly investigate a claim, not making a good faith effort to settle a claim when liability becomes reasonably clear, and compelling insureds to institute litigation to recover benefits.

A successful insured will be entitled to recover actual damages, including actual trial verdicts which shall not exceed three times the applicable coverage amount, pre and post judgment interest, reasonable attorneys’ fees and reasonable litigation expenses.

The Act essentially creates a statutory “bad faith” cause of action.  In New Jersey, bad faith claims have traditionally been grounded in the common law and elaborated upon by New Jersey judges over the past several decades.  The statute serves to penalize insurers for certain types of conduct in handling claims for uninsured and underinsured motorist coverage.

The Act leaves many questions unanswered which will lead to significant litigation.  It will be left to the courts to decide what “unreasonable” conduct actually is, and it further straddled the gay between subjective and objective tests.  Courts will have to decide how much time amounts to “unreasonable delay” and what an “unreasonable denial of a claim for benefits” is.  Perhaps most importantly, courts will have to determine when a difference of opinion between an insurer and a claimant as to the value of a UM/UIM claim is unreasonable.

Thus, insurers should consider reviewing their claims handling practices for objective reasonableness.  Insurers should also consider educating their UM/UIM adjusters on the new law. If interested in a CLE on this topic, please contact WCM.

Thanks to Mike Noblett for his contribution to this article.Read More

To Avoid Further Litigation On “Settled” Matters, It Is Essential That A Settlement Agreement Does Not Leave Loose Ends

Settlement agreements typically signify the end of a legal dispute. However, to avoid a headache and potential for further litigation on “settled” matters, it is essential that the settlement agreement does not leave any loose ends. In Cincinnati Insurance Company v. Acadia Insurance Company, 2021 WL 6071718 (4^th Dep’t 2021), a woman fell on property owned by 60 LBC, insured by Plaintiff Cincinnati Insurance. 60 LBC hired a contractor to clear snow and ice from the area where the woman fell. Pursuant to the snowplow contract, the contractor was required to defend and indemnify 60 LBC for any injuries and to list 60 LBC as an additional insured. As such, the contractor procured coverage from Defendant Acadia Insurance.

Of course, the woman sued 60 LBC for negligence, and 60 LBC consequently requested  defense and indemnity from Acadia Insurance on the basis that it was an additional insured on the contractor’s policy. However, Acadia Insurance disclaimed coverage to 60 LBC on the ground that it was not an additional insured. Subsequently, in the litigation that ensued, 60 LBC was defended by Cincinnati Insurance. During the litigation, Cincinnati Insurance brought a third-party action against the contractor, asserting a breach of contract based on contractor’s failure to defend or indemnify 60 LBC and obtain coverage for 60 LBC as an additional insured.

Eventually, the underlying personal injury action was settled in an agreement whereby the woman received $350,000 from the contractor (paid by Acadia) and $50,000 from 60 LBC (paid by Cincinnati).  After the settlement, Cincinnati commenced an action against Acadia for breach of contract, alleging Acadia breached the contractor’s insurance policy by disclaiming coverage to 60 LBC as an additional insured. Acadia moved to dismiss the complaint, contending that 60 LBC’s coverage claim against Acadia was encompassed in the settlement and was barred by res judicata.

Upon review, the Appellate Division, Fourth Department held that that 60 LBC’s coverage claim against Acadia was not barred by res judicata because it was not encompassed in the settlement. The settlement made no mention of any claims directly against Acadia Insurance by 60 LBC or anyone else, nor did the stipulation of discontinuance. Essentially, Cincinnati Insurance’s cause of action against Acadia Insurance was considered to be separate and distinct from the disputes discussed in the settlement because Acadia Insurance was never sued for wrongly disclaiming coverage to 60 LBC. Therefore, since the settlement was inapplicable, the Fourth Department permitted Cincinnati Insurance—having paid $50,000 on behalf of 60 LBC—to proceed against Acadia Insurance on the coverage claim as a subrogee of 60 LBC.

This alarming overlook by the party(ies) finalizing settlement left an insurer subject to further coverage litigation and significant exposure.  It is a painful lesson to learn, given the ability of the party(ies) to initially conclude the matter and mitigate loss when the underlying suit was being settled.

Thanks to Drew Fryhoff for his contribution to this post. Should you wish to discuss, please contact Thomas Bracken.

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PA Court Holds COVID-19 Excluded From “Property Damage” Coverage Under All-Risk Property Insurance Policy

In a recent case from the Eastern District of PA, Maggios Famous Pizza, Inc. v. Selective Ins. Co. of the Sw., the court granted the defendant’s summary judgment against the plaintiff who sought coverage under an all-risk property policy. Finding that COVID-19 related loss of business did not qualify as actual damage to the property required by the policy.  The plaintiff in the case owned a large pizza and dining restaurant. The Pennsylvania Governor instituted a stay at home order in response to the COVID-19 pandemic. The large establishment was limited to takeout and delivery. Prior to the pandemic, the plaintiffs purchased property insurance from an insurance company in 2019. The plaintiff subsequently submitted a claim for “losses caused by the COVID-19,” which was denied by the defendant insurance company.

The court found in favor of the insurer finding that the Insurance policy does not cover the losses caused by COVID-19. After reviewing the policy as written, the court reasoned this outcome based on three different theories. First, the insurance policy does not cover pure economic loss. The plaintiff’s policy covers direct physical loss to the property, here although the plaintiffs were limited in conducting business the property did not suffer damage. Second, the policy as written requires physical loss, not a loss of certain uses. The plaintiff’s claimed that when they were forced to serve only takeout, they lost used of the physical property. Again, the policy only is activated for physical damage to the property. Lastly, the insurance policy expressly excludes coverage for all losses caused by virus. The insurance policy is an “all-risk “policy, meaning it pays for all sources of damage except sources that are specifically excluded. Although not the insurance company’s intention, COVID-19 is a virus and consequentially falls under the exclusion.

The insurer’s policy language dictates this outcome even if it is an all-risk policy.  The exclusion was properly interpreted by the Court and denied the Covid-19 “property” claims.

Thanks to Kevin Riley for his contribution to this article.  Should you wish to discuss Covid-19 insurance claims, feel free to contact Thomas Bracken.

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