United States: Insurance Law - Week Of October 14, 2022

PANDEMIC UPDATE

The California Court of Appeal has ruled that a Superior Court judge erred in refusing to allow a restaurant chain a chance to amend its complaint to set forth claims for "communicable disease event" coverage. In Amy's Kitchen, Inc. v. Fireman's Fund Ins. Co., A163767 (Cal. App. Oct. 4, 2022), the First District found that the trial judge had erred in requiring allegations of direct physical loss in order to assert a claim under the policy's "communicable disease" extension. The court emphasized that the cases requiring "physical alteration" nearly all involve business income claims that had not arisen under communicable-disease extensions or location-specific orders to clean, disinfect, or test for the coronavirus. Further, the court found that "none of these decisions focus on the reasonable interpretation of a communicable disease extension in which coverage is triggered by a communicable disease event causing costs to be incurred to "(c) Mitigate, contain, remediate, treat, clean, detoxify, disinfect, neutralize, cleanup, remove, dispose of, test for, monitor, and assess the effects [of] the communicable disease.'" Rather, the First District concluded that "the only plausible interpretation of subparagraph (c) of the communicable disease extension in this policy is that the need to clean or disinfect infected or potentially infected covered property constitutes "direct physical loss or damage" of that property within the meaning of the policy." The court therefore concluded that the insured should have been allowed to amend its pleadings to allege a "communicable disease event."

The Illinois Supreme Court has announced that it will not grant further review of recent rulings of the state Appellate Court affirming summary judgment for Society Insurance in COVID BI cases.

The Delaware Supreme Court issued a summary decision last week in APX Operating Co. v. HDI Global Ins. Co., No. 393, 2021 (Del. Oct. 3, 2022) adopting and affirming the Superior Court's October 18, 2021, ruling that HDI's contamination and pollution exclusion was not restricted to "traditional environmental contamination" and precluded coverage for the insured's COVID claims.

The Eleventh Circuit issued an unpublished opinion this week in 15 OZ Fresh and Healthy Foods LLC v. Certain Underwriters at Lloyds, London, No. 21-10949 (11th Cir. Oct. 11, 2022) declaring, consistent with its opinion earlier this year in S.A. Palm, that a Florida District Court did not err in dismissing an insured's COVID BI suit.

In light of the Washington Supreme Court's recent unanimous decision rejecting coverage for COVID BI claims, a group of local companies, including the Seattle Seahawks and Microsoft co-founder Paul Allen's Vulcan, Inc. have withdrawn their claims.

NEW CASES OF CONSEQUENCE

ARIZONA Actual Cash Value/Depreciation"/Broad Evidence Rule

On certified questions from a federal district court in Arizona, the state's Supreme Court has ruled in Walker v. Auto-Owners Ins. Co., CV 21-0236 (Ariz. Sept. 27, 2022) that when a homeowner's insurance policy does not define the terms "actual cash value" or "depreciation," an insurer may depreciate the costs of both materials and labor in determining the actual cash value of a covered loss. Further, the court concluded that that insurers could apply the so-called "broad evidence rule" to introduce evidence of labor depreciation as a pertinent factor in determining actual cash value" although the court did reserve the right to preclude reliance on the broad evidence rule with respect to other homeowner's insurance disputes "where appropriate."

CALIFORNIA E&O/Claims Made/"Claim"

The Second Appellate District has ruled that an e-mail by a disgruntled business partner in which he detailed misconduct by the insured but did not set forth a demand for damages was not a "claim" received prior to an E&O policy's inception In Playboy Enterprises v. Indian Head Ins. Co., B315763 (Cal. App. Oct. 4, 2022), the court rejected the insurer's characterization of the e-mail as an "implicit threat" of litigation and concluded that it was merely a request for a meeting with counsel to resolve this dispute.

ILLINOIS Auto/UM/Public Policy

The First District has ruled in Galarza v. Direct Auto Ins. Co., 2022 IL App. (1st)211595 (Ill. App. Ct. Sept. 30, 2022) that a provision in an automobile insurance policy which limits uninsured motorist coverage to insureds occupying an "insured automobile" violates section 143a of the Illinois Insurance Code (Insurance Code) (215 ILCS 5/143a (West 2020). The Appellate Court declared that "[a]n agreement will not be invalidated as violative of public policy unless it is clearly contrary to what the constitution, statutes, or judicial decisions have declared to be the public policy or unless it is manifestly injurious to the public welfare." Notwithstanding this exacting standard, the court found that this language was contrary to established case law in Illinois and, while it might make sense in the context of liability insurance, it would thwart the efficacy of UM coverage and would effectively "whittled away" the availability of UM coverage through unduly restrictive language.

NEBRASKA Bad Faith/Post-Loss Assignments

The state Supreme Court has ruled that a gutter company could not pursue bad claims against the property insurers of homeowners for whom it had performed storm-repair work. In Millard Gutter Co. v. Shelter Mut. Ins. Co., 312 Neb. 606 (Neb. Oct. 14, 2022), the court ruled that an assignee of a post-casualty loss claim cannot state a claim for bad faith. The court also refused to find that Millard Gutter had an independent right of action against the insurers for breach of the implied covenant of good faith and fair dealing. The court left open the issue of how these claims might have been resolved under the Insured Homeowners Protection Act of 2018, which had been enacted by the Nebraska legislature subsequent to the events at issue in this case.

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Verisk predicted this week that insurers may face claims exceeding $57 billion for losses from Hurricane Ian.

Lloyds has announced that it may have suffered a cyber-attack last week.

New Coverage Litigation of Note

The New Orleans Saints football team has sued its property insurers, seeking a declaration of coverage and bad faith damages due to the insurers' refusal to satisfy claims arising out of Hurricane Ida.

The Next Big Thing

A new UN report produced in conjunction with the Australia-based Minderoo Foundation predicts that liability claims associated with plastics pollution may cost industry and insurers as much as $30 billion in the U.S. in this decade alone.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.