Insurance

Is Cyberattack Considered Hostile/Warlike Action (NY)

In Merck & Co., Inc. et al. v. Ace American Ins. Co. et al, the New Jersey appeals court ruled in favor of Merck & Co. in its $1.4 billion insurance claim over the 2017 NotPetya cyberattack. The court found that the “Hostile/Warlike Action” exclusion in Merck’s all-risks property insurance policies did not apply to the cyberattack, despite Russia’s attribution. In 2017, Merck & Co., Inc. fell prey to a crippling cyberattack that compromised its computer and network systems. The attack was traced back to the Ukrainian accounting software, M.E. Doc, previously accessed by an unknown entity. Over 40,000 machines within Merck’s network were infected, causing substantial disruptions globally and spreading to at least sixty-four countries, including Russia. Merck sought coverage for its losses through its “all risks” property insurance policies, However, their insurer, ACE American Insurance Company, invoked the “Hostile/Warlike Action” exclusion contained within their policies, triggering a legal dispute. Although Merck conceded the word “warlike” might not be applicable, they asserted the word “hostile” should be read in the broadest possible sense, as meaning “adverse,” “showing ill will or a desire to harm,” “antagonistic,” or “unfriendly.” The court analyzed the exclusion clause and found it did not align with ACE’s broad interpretation since the exclusion explicitly referred to damages caused by hostile or warlike actions by a government, which required the involvement of military action. Crucially, the policy did not state that damages resulting from government actions driven by ill will alone were excluded. The court also considered the history of the war exclusion, which has been included in policies for over a century.  It noted that these exclusions had consistently been applied solely within the context of explicit war or organized military actions. The court’s decision has significant implications for the insurance landscape, emphasizing the need for precise policy language and historical context in interpreting insurance exclusions. It reaffirmed that the “Hostile/Warlike Action” exclusion did not encompass a cyberattack on a non-military company providing commercial accounting software. Regardless of whether the attack was instigated by a private actor, government, or sovereign power, the exclusion was not applicable to deny coverage for Merck’s losses. Thanks to Aron Goldberger for his contribution to this article.  Should you have any questions, contact James Scott.Read More

Pandemic-Shutdown-Induced Lost Revenue May Be Covered Under All-Risk Policy (PA)

The Superior Court of Pennsylvania recently issued an order that adds a wrinkle to the oft-litigated dispute between insureds and insurers regarding coverage for losses related to the COVID-19 pandemic: absent sufficient policy definitions, an insured’s lost revenues may satisfy an insurance policy’s coverage for loss of business income and extra expense incurred due to the suspension of an insured’s operations caused by a “direct physical loss of or damage.” In Scranton Club v. Tuscarora Wayne Mutual Group Inc, the Scranton Club, a private social club, was insured under an all-risk insurance policy from Tuscarora Wayne Insurance Company.  The Scranton Club filed a claim under its policy because it was required to close due to the pandemic and, as a result, sustained lost revenues and was forced to furlough or layoff the majority of its employees. Tuscarora denied the claim because the Scranton Club did not suffer any “direct physical loss of or damage to” its premises. The Scranton Club sued, seeking coverage and asserting a claim of bad faith. Tuscarora filed preliminary objections, which were granted by the trial court. The Scranton Club thereafter appealed to the Superior Court. There was no dispute that the policy in question provided coverage “for direct physical loss of or damage to” covered property at the premises and for loss of business income and extra expense incurred due to the suspension of an insured’s operations caused by a “direct physical loss of or damage to” the covered property. The Scranton Club argued that it sustained a “direct physical loss of or damage to property” when it was prohibited from hosting and serving customers on its premises during the pandemic. Importantly, the Superior Court noted that the policy issued by Tuscarora did not provide a definition for the phrase “direct physical loss or damage to property” or any of the individual terms contained within that phrase. The Superior Court held that the insured’s allegation that it lost the use of its property during the pandemic was sufficient, as a matter of law, to trigger coverage and survive the insurer’s preliminary objections. The Superior Court also affirmed the trial court’s determination that the applicability of the policy’s Virus Exclusion could not be determined as a matter of law and, therefore, the insurer’s preliminary objection was denied. On this basis, the Superior Court overruled the trial court’s dismissal of the insured’s claim for bad faith against the insurer. Thanks to Jason Laicha for his contribution to this article.  Should you have questions, contact James Scott.Read More

“Tree Removal” Exclusion Not Applicable If The Tree Removal Operations Are Not “Active”

The Eastern District held Hiscox Insurance could not use a “tree removal” exclusion clause in its policy issued to MRB Lawn Services to deny coverage when a motorcyclist collided with a boom lift that was improperly obstructing a public roadway. Hiscox Insurance Co. v. MRB Lawn Services et al., No. 22-cv-2827, 2023 WL 6050221 (E.D.PA. Sept. 15, 2023).The relevant tree exclusion in the policy stated coverage “does not apply to ‘bodily injury’ arising from ‘ongoing operations of tree removal.’”  The court scrutinized the “ongoing operations” language in the exclusion with U.S District Judge Kelley Hodge stating “the tree removal exclusion clause does not encompass bodily injury sustained in a collision occurring on a roadway between job sites where trees were not being removed, even if tree removal services occurred at nearby properties earlier in the day of the accident.” Given tree removal services were not happening when the decedent struck his head against the boom lift while trying to avoid it, the court sided with the policyholders and found that Hiscox must defend the action. The judge clarified that Hiscox would have a better argument to deny coverage and if the boom lift was performing tree removal services on the roadway where the accident occurred. It did not matter whether the boom lift had been used for tree removal earlier in the day or whether it was going to be used for tree removal services later in the day. The only relevant inquiry for the tree removal exclusion is whether trees were being actively removed by the boom lift at the time of the accident. Thanks to Anand Tayal for contributing to this article.  Should you have any questions, please contact Tom Bracken.Read More

Duty To Defend An Additional Insured May Extend Even If Named Insured Is Not A Defendant (NY)

The United States District Court in the Southern District of New York recently held that Harleysville Insurance Company had a duty to defend the City of New York as an additional insured in an underlying personal injury action, even though the insured was not a named defendant. City of New York v. Harleysville Insurance Company, No. 22-CV-3306 (RA), 2023 WL 4548715 (S.D.N.Y. July 14, 2023). The City entered into a contract with Prestige Pavers of NYC to reconstruct an entrance to a playground in Manhattan. Prestige was the named insured under a commercial general liability policy issued by Harleysville. The relevant language of the policy included an additional insured endorsement, which identified the City as an additional insured but only for “bodily injury,” “property damage,” or “personal and advertising injury” caused, in whole or in part, by your acts or omissions or the acts or omissions of those acting on your behalf: (a) in the performance of your ongoing operations; or (b) in connection with your premises owned by or rented to you. Id. at 2. In February 2020, a minor child filed an action against the City alleging that a gate at the playground fell on the minor child and caused serious and permanent personal injuries alleging it was the duty of the City to maintain the Playground.  The City notified Harleysville of the action and demanded a defense. Harleysville initially denied coverage, stating that the contract did not contain language that required defense and indemnity on behalf of the City for their “sole independent negligence” since the underlying case did not name Prestige as a defendant. The City argued the complaint presented a reasonable possibility of coverage because the complaint alleged that the City “and its agents”, including Prestige, had a duty to maintain the safety of the playground, and the injury stemmed from the alleged negligence of both parties. Harleysville argued that the City failed to establish that the accident was caused by Prestige’s acts or omissions, and so the City does not qualify as an additional insured. Id. The court held for the City, and that it met its burden of demonstrating that the allegations in the underlying complaint suggested a reasonable possibility of coverage under the Harleysville Policy and thus Harleysville’s duty to defend under the Policy was invoked. The court opined there was a “reasonable possibility” that Prestige, as a contractor, was acting as the City’s agent and there was a “reasonable possibility” that the gate fell due to Prestige’s negligence. Thus, the court held the City is entitled to a defense as an additional insured, at least until the accident is later proven to be outside coverage. Even though the underlying action did not name the insured as a defendant, Harleysville is still compelled to defend the City as an additional insured because the duty to defend is based only on the “reasonably possibility of coverage” and not definitive proof of coverage. Thanks to Martha Osisek for her assistance with this article.  Should you have any questions, please contact Tom Bracken.Read More

The Eternal Dispute of the Status of Additional Insured

An insurance broker and a building management company (Dovan) were sued by a property named Parkview that suffered a fire loss, for inadequate insurance for the fire loss.  Parkview alleged gross negligence in Dovan’s alleged failure to review the relevant policy. Dovan Management Group LLC v. AmGuard Insurance Company, 2023 WL 5216635 (N.J. Super. Ct. App. Div. Aug. 15, 2023).  Dovan in turn filed a separate claim against Parkview’s insurance company AmGuard, attempting to claim that in one provision of the management agreement, Parkview was required to name Dovan as an additional insured.  AmGuard refused to accept Dovan’s tender by denying Dovan’s additional insured status under the policy. AmGuard relied on the exclusionary language in the policy endorsement that expressly excluded the underlying claims and claimed that Dovan even lacked standing in bringing the action.  In general, policy exclusions have to clear, specific and unambiguous in order to be enforceable.  And this is one of the cases where the policy language was not subject to multiple interpretations.  The appellate court ruled that even if Dovan was considered an additional insured under the policy, the business liability section of the exclusion applies.  The business liability exclusion excluded Dovan’s costs incurred in defending the underlying action since the claim was related to the property damage arising from Dovan’s contractual obligation with Parkview to review and recommend the appropriate amount of insurance.  AmGuard successfully defended itself by implementing specific and unambiguous language into the policy. Thanks to Yifan Lin for her contribution to this article.Read More

Excess Carrier Has No Duty to Defend

In Harmon Cove IV Condominium Association Inc v. Indian Harbor Insurance Company, 2023 U.S. Dist. LEXIS 71960 (2023), the US District Court for the District of New Jersey held that Scottsdale Insurance Co. had no duty to provide coverage to a condominium association and its pool maintenance company for its negligence in allowing a maintenance worker to fall while working in the course of his employment. The judge ruled that the “Injury to Worker Exclusion” provision contained in the Scottsdale excess insurance policy applied.

The court recognized that an insurance policy is a contract “between parties who are not equally situated,” due to the fact that it is generally “prepared unilaterally by the insurer” and the insured’s “understanding is often impeded by the complex terminology used.” Therefore, when a language in the provisions of an insurance policy “fairly supports two meanings,” courts are to construe the policy “to comport with the reasonable expectations of the insured.”

Due to the lack of ambiguity in the policy, the Court ruled that Scottsdale is not obligated to defend or indemnify, as the plain terms of the Injury to Worker Exclusion were evident, and all plaintiffs’ claims against Scottsdale were subsequently dismissed. The primary takeaway from this case is that specific and clear language in an additional insured endorsement outlining the conditions for coverage is essential in determining additional insured coverage under a contractor’s policy.

Thanks to Matthew Staniloff for his contribution to this post. Please contact Heather Aquino with any questions.

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Balcony Collapse Coverage Suit Gets Second Chance Where Additional Insured Coverage is Found to be Ambiguous

In Westminster American Insurance Company v. Security National Insurance Company, the Third Circuit recently reversed a decision of the United States District Court for the Eastern District of Pennsylvania which held that an Employer’s Liability Exclusion (“ELE”) in a contractor’s policy precludes coverage for claims arising from a balcony collapse at a Philadelphia apartment building. The building owner and property manager sought additional insured coverage after a construction accident injured two workers. One of the men worked for the building’s property manager, Altman Management Co., Inc. (“Altman”). The ELE provided that coverage is unavailable for bodily injury to an employee of “any insured” arising out of and in the course of either (1) employment by the insured, or (2) the performance of duties related to the conduct of the insured’s business. The policy also included a Blanket Additional Insured Endorsement, which listed several entities in a schedule as insureds, but “only to the extent that the person or organization shown in the Schedule is held liable for your acts or omissions arising out of your ongoing operations performed for that insured.” In dismissing the lawsuit, the District Court found that Altman was an additional insured under the policy and therefore the ELE applied to preclude injuries sustained by its employee. The question of coverage on appeal was dependent on whether Altman was an additional insured listed on the policy schedule, as the District Court ruled. The appellants argued that a party does not become an “additional insured” unless they are “held liable for the named insured’s acts or omissions arising out of its ongoing operations performed for that insured.” They argued that Altman cannot be held liable based on the exclusivity of remedies provision in the Pennsylvania workers compensation statute, so Altman cannot be an “additional insured” under the policy. In reversing the District Court’s decision, the Third Circuit agreed and held that the ELE did not preclude coverage for the underlying settlements because the terms of the Additional Insured Endorsement were ambiguous. The Court found that there was more than one way to interpret the terms of the endorsement, so the provision would be construed against the insurer. The Court explained that being listed in the schedule alone did not confer additional insured status to Altman and that other interpretations were viable, and therefore the language was ambiguous. The takeaway from this decision is that the specific language in an additional insured endorsement is important in determining additional insured coverage under a contractor’s policy. Simply being listed as an additional insured in a schedule is not sufficient where there is limiting language in the endorsement and parties should consider the putative insured’s status and involvement in the work and accident. Thank you to Susan Derasmo for her contribution to this post. Please contact Andrew Gibbs with any questions.Read More

Insurer Not Liable for Supplemental Spouse Liability (NY)

In New York, the Insurance Law requires motor vehicle insurers to notify policyholders about the availability of Supplemental Spouse Liability (SSL) coverage. In Levy v. New York Central Mutual Fire Insurance Company, the Westchester County Supreme Court addressed whether New York Central had notified the plaintiff about the availability of SSL insurance. The plaintiff, driving his car, accidentally struck his wife in a driveway. The plaintiff’s wife filed a claim against the plaintiff to New York Central, alleging she was injured due to the plaintiff’s negligence. New York Central informed the plaintiff’s wife her claim would not be considered as there was no SSL coverage. The plaintiff filed two causes of action: one alleging that New York Central failed to provide notice and the other alleging that New York Central was liable for breach of contract by not providing coverage to the plaintiff.

The plaintiff claimed that the SLL notice failed to comply with the notification requirements. The Court stated “As set forth above, the SLL notice was partially bolded, alerting plaintiff of an important notice. There is no requirement for the entire page to be bolded. Although the SLL notice was not page 1 of the 89-page document, it was page 1 of one of the various notices in the insurance packet. A look at the insurance policy indicates that every new section of the policy starts with page 1 and continues for however many pages address that topic. This does not conflict with 11 NYCRR § 60-1.6 (b) (3), which provides flexibility for the term premium notice. In addition, while not set forth in the decision, the sample notification provision, provided under 11 NYCRR § 60-1.6(b)(5) is identical to what New York Central provided to plaintiff in the policy. Even if it was not identical or did not contain the bolded and all capital title of Supplemental Spousal Liability Coverage, the regulation itself states that an equivalent may be used.”

New York Central established that it complied with the SSL notification requirements. This ruling serves as a reminder of the importance of thoroughly reading insurance policies and their coverage.

Thanks to Seamus Rooney for his contribution to this post. Please contact Heather Aquino with any questions.

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PTSD Damages Not Permitted In Connecticut Underinsured Motorist Claim In The Absence Of Credible Expert Testimony

The Supreme Court of Connecticut recently issued a decision addressing the proof necessary to establish underinsured motorist (“UIM”) coverage for certain damages claims. In Menard v. State, the Court evaluated whether plaintiffs were entitled to receive UIM benefits for post-traumatic stress disorder (PTSD) resulting from an auto accident. Plaintiffs in that case were state troopers who were injured in a motor vehicle accident involving an intoxicated driver and filed actions seeking UIM benefits from the State of Connecticut. The trial court issued judgment in favor of the plaintiffs, except as to their claims for PTSD damages. In doing so, the trial court found that the diagnosis and expert testimony of their expert was not credible and that the covered damages must be caused by “bodily injury”.  Plaintiffs had argued that PTSD should be considered a “bodily injury” where plaintiffs have “physical manifestations” of PTSD.  The trial court found that the plaintiffs’ PTSD claims were not due to physical injuries. The Appellate Court agreed and determined that the plaintiffs could not recover UIM benefits for PTSD. The Supreme Court agreed with this ruling but based its decision on different grounds. The Court instead found that plaintiffs’ expert witness was not credible and rejected the expert’s opinion that plaintiffs had PTSD. Thus, plaintiffs were not eligible to recover damages for PTSD, even if such coverage was afforded for such an injury under the UIM statute and the State of Connecticut’s UIM policy. The Court found that the trial court did not act arbitrarily in rejecting the expert opinion regarding PTSD and that this was a proper basis for determining UIM benefit eligibility. The Court also reversed the Appellate Court’s holding that the trial court should have reduced the award by the sums plaintiffs received to settle their Dram Shop claims. The Court recognized that the legislature abrogated the common-law rule regarding pretrial settlement payments when it adopted General Statute §52-216a. A trial court may reduce damages to account for pretrial settlement payments when the award would otherwise be excessive as a matter of law in the absence of such a reduction. The Court found that plaintiffs’ damages award was not excessive and that the Dram Shop settlement payments were not a “collateral source” to warrant a reduction. The Menard case highlights the importance of expert testimony in establishing causation and damages in UIM cases in Connecticut. The Court found that plaintiffs there failed to establish certain injuries even though they were potentially covered under the policy and applicable statute. Defendants should be prepared to challenge such claims where the proof is insufficient. Thank you to Arianna Arca for her contribution to this post. Please contact Andrew Gibbs with any questions.Read More

Western District of Pennsylvania Denies Reformation of Service Contract’s Indemnity and Insurance Provisions (PA)

In the recent case captioned Complaint of Borghese Lane, LLC, No. 2:18-CV-00533-MJH, 2023 WL 3060705 (W.D. Pa. Apr. 24, 2023), the District Court for the Western District of Pennsylvania granted a motion for partial summary judgment in favor of a party which claimed it had suffered a breach of contract to the extent that it was not named as an additional insured on its contract partner’s insurance policies. The court’s opinion contains a helpful overview of Pennsylvania law concerning reformation of contracts that pertain to contractual insurance and indemnification requirements.

In brief, the matter at issue in Borghese arose out of a service contract entered into by ITS (a marine and industrial services company) and McKees Rocks (a harbor services company). The contract concerned a barge mooring area on the Ohio River in Western Pennsylvania,

The contract contained an indemnity provision whereby McKees Rocks was to indemnify ITS for claims arising out of McKees Rocks’ services at the mooring area. Additionally, the contract contained an insurance provision whereby McKees Rocks was to name ITS as an additional insured on its policies.

However, McKees Rocks did not name ITS as an additional insured on its policies; McKees Rocks also refused to defend and indemnify ITS. McKees Rocks claimed that the obligations imposed on it by the contract were done so in error and that those obligations should have been imposed on a third party, Borghese (a marine transport and towing company), for the benefit of ITS and McKees Rocks.

ITS moved for partial summary judgment against McKees Rocks on the issue of breach of contract and contractual indemnity. In response, McKees Rocks sought reformation of the contract and argued that it is not bound by the terms of the indemnity and insurance provisions as drafted because the contract was the result of a mutual mistake of the parties.

The court disposed of McKees Rocks’ reformation argument because the evidence presented demonstrated that while McKees Rocks retained Borghese to perform certain functions, McKees Rocks itself was responsible for management of the mooring area. The court looked to testimony about the extensive drafting process, including rounds of negotiations, that preceded the execution of the final contract. Thus, the court found no mutual mistake and, on that basis, denied McKees Rocks’ request for reformation. The court then disposed of McKees Rocks’ substantive argument regarding indemnity and insurance because, with no reformation of the contract, McKees Rocks breached the contract by failing to name ITS as an additional insured on its policies.

Thank you to Jason Laicha for his contribution to this post.  Should you have any questions, contact Matthew Care.  Read More