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January 2018

Submitted by: Alan Rutkin & Jay R. Sever



The following two recent cases involve interesting applications of business risk exclusions:

West Side Salvage, Inc. v. RSUI Indemnity Co., No. 16-3928, 2017 WL 6422107, at *1 (7th Cir. Dec. 18, 2017)


In West Side Salvage, the Seventh Circuit addressed the scope of the damage to property exclusion.  In the underlying tort action, the owner of a grain bin noticed that the bin was in danger of exploding due to the rising temperature of the grain. As a result, the grain bin’s owner contracted with a repair company to solve the problem.  While the repair company was attempting to address the problem, the grain bin exploded, causing injuries to three workers and damage to the bin. 


The issue before the court was whether the damage to property exclusion in the excess general liability policy precluded coverage for the claim.  The district court had determined that the exclusion precluded coverage only for the grain and not for the grain bin.  Applying Illinois law, the Seventh Circuit rejected the district court’s narrow interpretation of the damage to property exclusion.  The Seventh Circuit found that the exclusion applied not just to “precise” area where the work was taking place.  The court instead found that the exclusion applied to the damage to the grain bin as well as the grain.



Dorsey v. Purvis Contracting Grp., LLC, 17-CA-369 C/W 17-CA-370SI (La. App. 5 Cir. 12/27/17)


In Dorsey, a Louisiana appellate court affirmed summary judgment in favor of the insurer in a construction defect lawsuit after finding that the work product exclusion and the damage to your work exclusion applied to bar coverage.  The plaintiff claimed that she contracted with Purvis Contracting Group, LLC ("Purvis") to perform a complete rehabilitation and renovation of her home after Hurricane Katrina.  The plaintiff claimed that some work was incomplete and other work was not performed in a workmanlike manner, and that Purvis misrepresented that he/it was a licensed general contractor rather than a licensed "home improvement contractor" and that such a claim constituted an "advertising injury."


The court of appeal held that the plaintiff’s property damage claims were excluded by the work product exclusion and damage to your work exclusion found in the CGL policy.  In so finding, the court relied upon the consistent rulings in Louisiana that the CGL policy does not serve as a performance bond.  The court also held that the plaintiff’s claim based on Purvis' misrepresentation/ false advertisement as a licensed general contractor was not covered because it did not arise out of the enumerated offenses set forth in the CGL policy's coverage for personal and advertising injury.


Another interesting recent case addressed when an assignee may recover tort damages from the tortfeasor's insurer:



Erie Ins. Co. v. McKinley Chiropractic Center, P.C., 294 Va. 138, 803 S.E.2d 741 (2017).


The Supreme Court of Virginia held that when an injured party assigns its rights of recovery from a tortfeasor and its insurer, the assignee is barred from maintaining an action against the tortfeasor’s insurer until a claim against the tortfeasor is reduced to judgment.


A woman was injured in an automobile accident and visited a chiropractor for treatment. To satisfy any debts incurred to the chiropractor, the injured woman assigned to the chiropractor all rights stemming from the wreck against the tortfeasor and its insurer. The tortfeasor and its insurer then settled directly with the injured woman, and the chiropractor sued the tortfeasor’s insurer, claiming the insurer had failed to honor the assignment. An intermediary appellate court agreed with the chiropractor, and the Supreme Court of Virginia reversed.


The Supreme Court reasoned that an injured party has no right to recover tort damages from a tortfeasor’s insurer until the injured party’s claim against the tortfeasor is reduced to judgment. Because the injured party’s claim against the tortfeasor had not been reduced to a judgment, the injured party could not maintain an action against the insurer. And, because the injured party had no right to maintain a claim against the insurer, the Court concluded that the injured party’s assignee likewise could not maintain an action against the insurer.



December 2017

Submitted by: Alan Rutkin


New York Law Comes to You

Dan Kohane, Hurwitz & Fine (New York)


New York’s highest court handed down a decision that puts out-of-state insurers on notice that they must pay heed to New York’s liability insurance “deeming statute” even where they issue policies to insureds in other states.


This is a significant decision because non-NY carriers who issue policies to non-NY based insurers may be subjected to NY 3420 disclaimer obligations if their insureds have a “presence” in New York and the loss occurs in NY.  3420 applies to policies issued or delivered in NY.  Our Court of Appeals has expanded its interpretation of “issued or delivered in NY” to include policies neither issued to NY-based insureds nor delivered to NY addresses.


Carlson v American Intl. Group, Inc.


On November 20, 2017, New York’s highest court dramatically expanded the breadth of the state’s deeming statute, Insurance Law §3420.  The Court of Appeals held that it not only applied to policies that were issued to New York insureds or by New York insurers but also to insureds that have a presence in New York and create risks in New York.


Out-of-state insurers must take heed.  If they issue policies to companies (and perhaps individuals) who have a presence in New York (operate a business, for example), New York disclaimer requirements will apply to that policy and that insurer, even if the policy were issued by an out-of-state insurer to an insured whose home office was located outside of New York.


For insurers regularly issuing reservation of rights letters or have not followed the statutory obligation in New York to disclaim within 30 days and send copies of disclaimer letters to the injured party and other claimants, they will learn to quickly determine whether their insureds have a presence in New York State and have created a risk in New York State.  If so, that their reservation of rights letters may be ineffective as may be their exclusion- or breach- based disclaimers not copied to injured persons and other claimants or not sent within 30 days after they received notice.  The penalty is a significant one: the loss of a right to rely upon policy exclusions and breaches of policy conditions.


Carlson, individually and as Administrator of his deceased wife’s estate (as and assignee of Porter) commenced a New York “Direct Action” against National Union Insurance Company (“National”) and American Alternative Insurance Company (“AAIC”) seeking to secure insurance proceeds from policies issued to MVP Delivery (“MVP”) and Porter, under NY Insurance Law 3420(a)(2).  That section permits an action against an insurer to recover liability insurance coverage if a plaintiff (turned judgment creditor) obtains a defendant (turned judgment debtor) and the judgment creditor believes the insurer’s policy covers the judgment but the insurer refuses to pay it.


That statute – which contains a variety of significant provisions that govern New York liability insurance, including Draconian rules on disclaimers, only applies to policies “issued or delivered in New York”.


The New York Court of Appeals held that the term “issued or delivered” in New York applied not only to policies issued to insureds that had offices in New York and not only to insureds who received the policies in New York, but encompassed situations where both insureds and risks were located in New York State.


Claudia Carlson was killed when a truck with a DHL logo, owned by MVP and driven by Porter crossed the double-yellow line and hit her head on. The jury awarded her Estate $20 million that was eventually reduced to $7.3 million.  MVP’s insurer paid the Estate $1.1 million and assigned to Carlson’s Porter’s right to other coverage.  There was an issue of DHL responsibility for the accident, but if it were responsible, National Union provided a $3 million dollar primary policy, followed by a $2 million excess policy with AAIC and then a $23 million umbrella policy with National Union.


AAIC moved to dismiss the lawsuit arguing that its policy was not “issued or delivered” in New York.  It had been issued to DHL’s predecessor, Airborne, Inc., headquartered in Washington and later assumed by DHL, headquartered in Florida.  AAIC was in New Jersey when the policy was issued.


Insurance Law Section 3420 is a “deeming statute”, requiring carriers whose policies are bound by its terms, to permit direct actions, disclaim coverage promptly, accept notice of claim from injured persons in addition to insureds and disclaim promptly in bodily injury and wrongful death cases, generally within 30 days.  Because of the statute’s disclaimer requirements, reservation of rights letters issued in such cases are usually ineffective to preserve an insurer’s right to rely upon policy exclusions and breaches of policy condition.  Accordingly, broadening the scope of policies impacted by this statute exposes insurers to significant and additional risks in New York.


In 2008, the Court of Appeals considered the same question in a case where a New Jersey insurer issued a policy to a New Jersey insured, East Coast Stucco that covered New York risks.  The language of the statute was slightly different at that time, applying to policies “delivered or issued for delivery in this state”.


It is undisputed that the policy was actually delivered in New Jersey by a New Jersey insurer to a New Jersey insured. Was the policy nonetheless “issued for delivery” in New York? We answer in the negative.


A policy is “issued for delivery” in New York if it covers both insureds and risks located in this state (citations omitted) By including New York as an “Item 3.C.” state, the policy covers risks located in New York. East Coast Stucco is a New Jersey company, with its only offices located in that state, so it cannot be said that the insured is located in New York. Because the policy was neither actually “delivered” nor “issued for delivery” in New York, Preserver is not required [to comply with the statute].

Preserver Ins. Co. v Ryba, 10 NY3d 635, 642 [2008]


However, in Carlson, the same court held that:


DHL is ‘located in New York because it has a substantial business presence and creates risks in New York.  It is even clearer that DHL purchased liability insurance covering vehicle-related risks arising from vehicles when delivering its packages in New York, because its insurance agreements say so.


Again, note that East Coast Stucco, the insured in the Preserver case, also purchased liability insurance coverage to protect New York risk, because its insurance agreements say so.


The Court of Appeals held that the change in statutory language, from “issued for delivery” to “issued or delivered” broadened its application.  Applying the language to policies issued “by an insurer located in New York or by an out-of-state insurer who mails a policy to a New York address would undermine the legislative intent” of the statute.


The court specifically rejected a strong three-judge dissent suggesting that the dissent’s approach would wrongly exclude “an insurance policy issued by a national insurer located in Connecticut to a retailer operating in all fifty states, if the policy was delivered to the retailer’s headquarters in Arkansas – even if the policy was specifically written to cover risks in New York created by the insured’s extensive operations in this state.”


The dissenting judges noted, properly, that the majority’s “misinterpretation” of Insurance Law 3420 “enacts sweeping changes across the Insurance Law, generating substantial implications, both known and unknown”. It pointed out that the term “issued for delivery” – the phrase used in Preserver is not the phrase now used in 3420, which is “issued or delivered”.


The dissent’s language is instructive and suggests frightening consequences”


[I]t is hardly plausible that the legislature intended to require every automobile insurer throughout the country—regardless of where the policy was issued or delivered—to comply with New York insurance statutes on the chance that the insured vehicle may be driven into New York.


The majority opinion claims that it was limited the statute to policies that cover “both insureds and risks” located in New York.  The dissent wonders whether it will be applicable when an out-of-state resident drives into New York and it owns property or vacations in New York.


 What is clear, though, is this.  If the insured has a “presence” in New York (even if its home office is somewhere else) and creates New York risks, Insurance Law Section 3420 will apply to its policies.  Carriers must become familiar with the requirements of that statute and the significant penalties for non-compliance with its detailed obligations.



Bad Faith and Pollution Exclusion

Tom Segalla, Goldberg Segalla (New York)


Tom Segalla reported on two recent interesting cases.


Bad Faith Verdict Reduced - Expert Testimony


The Ninth Circuit Court of Appeals in the case of King v. GEICO Indemnity Company, No. 14-35700 (9th Cir. Nov. 13, 2017) reviewed the three guideposts set forth in BMW of N. Am. v. Gore, 517 U.S. Gore, 517 U.S. 559, 574-75, 115 S. Ct. 1589, 134 L. Ed. 809 (1996) and concluded “that the punitive damage award is unconstitutionally excessive.” The court noted that GEICO’s conduct was lot to moderately reprehensible and that was a disparate ratio between the actual harm to the injured party and the punitive damage award. A 4-to-1 ratio is followed by this court. The court also considered the admissibility of expert testimony and noted that “. . . it is well-established that experts may not give opinions as to legal conclusions, experts may testify about industry standards, and the reasonableness of an insurer’s claims handling is generally an issue of fact.” Here the plaintiff’s expert did not testify about an ultimate issue of law, but testified concerning the insurer’s handling of the claim in relation to industry standards and the insurer’s own claim manual. As a testifying expert, I am sensitive to these issues. Read the full decision here:


Pollution Exclusion – Applied As Unambiguous (Lead)


The Supreme Court of Missouri, in the case of Doe Run Resources Corp. v. American Guarantee & Liability Ins. Co., 2017 WL 5078078 (Oct. 31, 2017), reversed the trial court, and held that the pollution exclusion was unambiguous, and therefore, the policy did not provide coverage and the insurer did not have a duty to defend the insured in an underlying action. The insured had been sued by 25 minor plaintiffs who alleged that the insured’s manufacturing process produced lead and lead concentrates, which exposed them to harmful emissions. The insurer denied coverage and a duty to defend based upon the pollution exclusion. In reaching its decision, the court relied upon the ordinary meaning of the words utilized in the exclusion because the policy did not defend the terms “irritant” or “contaminant.” Further, the court cited to a virtually identical ruling in the case Doe Run Res. Corp. v. Lexington Ins. Co., 719 F.3d 868, 874 (8th Cir. 2013) and rejected the application of Hocker Oil Co. v. Barker-Phillips-Jackson, Inc., 997 S.W. 2d 510 (Mo. App. 1999) to the facts of this case because the underling actions did not allege any injuries from the insured’s business products. The courts also stated that lead as a “contaminant” or “irritant” was a pollutant under the policy. Goldberg Segalla’s Toxic Tort and Environmental Practice Group continually monitor types of policy issues. If you would like a copy of our recent Pollution Exclusion Update, please advise.



California and the Construction Industry

Bob Olson, Greines, Martin, Stein & Richland LLP (Los Angeles, CA)


Bob Olson reported on three recent California appellate decisions that affect coverage in the construction industry.  


McMillin Mgmt. Servs., L.P. v. Fin. Pac. Ins. Co., No. D069814, 2017 WL 5377823 (Cal. Ct. App. Nov. 14, 2017) and Pulte Home Corp. v. American Safety Indemnity Co., 14 Cal.App.5th 1086, 223 Cal.Rptr.3d 47 (2017), both address coverage under additional insured endorsements issued to developers or general contractors that purport to limit coverage to ongoing operations.  Both hold that so long as the insured subcontractor worked on the project during the policy period, a duty to defend is for homeowners suits brought much later even though the project remained unfinished (and the homes unsold) when the policy lapsed.  McMillan and Pulte held that there is potential ongoing operations coverage regardless when the home was completed and sold.  Both decisions are out of the Fourth District, Division One in San Diego, which is a hotbed of such construction defect coverage litigation.  Review has been denied in Pulte; the time for review has not expired in McMIllin.


Glob. Modular, Inc. v. Kadena Pac., Inc., 15 Cal. App. 5th 127, 134 (Cal. Ct. App. 2017), petition for review filed (Oct. 17, 2017), was decided by the Fourth District, Division Two in Riverside.  (California Court of Appeal decisions are binding throughout the state, but other Courts of Appeal may disagree with them.)  Global Modular addressed the faulty workmanship, j(5), j(6), exclusions for damage to “that particular part of real property on which you [or subcontractors] are performing operations” and to “that particular part of” property that has to be replaced or repaired “because ‘your work’ was improperly performed on it,” respectively.  Other courts, including the Ninth Circuit predicting California law, have held that these exclusions bar coverage for insured general contractors for damage to any part of the overall project itself.  Global Modular reads the exclusions much more narrowly as applying only to damage caused temporally at the time the work is being done and only as to that specific element of the project being worked on.  Thus, for example, if a subcontractor does not seal things sufficiently and water later leaks in even though the project is still ongoing the exclusions would not apply.  And the j(6) exclusion applies only “to the specific part of the insured's work on which the insured performed faulty workmanship and not, more broadly, to the general area of the construction site affected by the insured's work.”  Id. at 140, original italics.  (The Pulte decision also addressed the j(5) and j(6) exclusions and read them narrowly.)





November 2017

Submitted by: Alan S. Rutkin


An Interview with Member Thomas Leidell (Tokio Millennium) on the Insurance Ramifications of Recent Storms


1)Does the insurance industry assume that severe storms will now be occurring more frequently?


When I consider the various articles that have been published on this topic, along with discussions from qualified experts, personally, my visceral sense is that frequency has not increased, but the severity has been intensifying.  2017, however, involved an increase in both frequency and severity.  I would consider this a bit of an anomaly when you think the last active season was almost a full decade ago.  



2)Does this affect underwriting?


In recent years, we have had a soft market.  It is too soon to know whether these recent circumstances will affect rates or content within the underwriting contracts/policies.  At this time, I am unaware of any companies changing their underwriting based on this year’s storms.


3)Does this affect claims handling?


Most of my career has evolved around claims.   Claims departments are viewed as an expense in our industry which does not provide a corporate revenue stream.  Based on this fact, claims departments need to be cognizant of determining the proper level of staffing for budget purposes.  This can be quite challenging to leverage a proper staffing allocation based on claims frequency versus sufficient staffing for good customer service.  Catastrophe has always been a bit of the “wild card,” for proper analysis, since events are generally unpredictable from year to year and the idea is to find the happy medium for sufficient workloads for a claims staff.  


In claims, generally the best way to manage this balance is to have contracts with qualified independent adjusters to assume the claim overload from catastrophic events.  The industry has had a low with catastrophic events over the last decade, so no doubt this year’s events will be a challenge.  This is compounded by the recent California wildfires.


In comparison, there are distinct differences in the characteristics between Hurricane Harvey and Irma.  Harvey was principally a flood event that will have ramifications to the commercial segment of the industry.  Harvey will pose challenges for loss quantification determination for coverages such as business interruption, contingent business interruption and ingress/egress.  Physical damage assessment is much more expedient in exposure determination versus these other coverages.  Hurricane Irma was a combination of wind with tidal surge implications. This also poses challenges to claim adjustment as to coverage, separation of the actual loss cause and proximate causation. 


Claims departments are taking advantage of the latest technologies in using drones and more sophisticated estimation.  Drones allow companies to assess damage areas much more expediently, especially if the area has restricted access. I am also aware of the recent use of parametric triggers, measuring wind speed, which have been set up in the State of Florida. This data can provide essential information that would trigger coverage for certain contracts.  It is too early to determine how effective this use of technology will play out to the industry.



Zizik Reports on Defense Costs


In a rare Massachusetts decision dealing with a carrier's rights in seeking to defend an insured without a reservation of rights, the Massachusetts Appeals Court (the state's intermediate appellate court) decided that a CGL carrier was not liable for its insured's defense counsel fees incurred while the issue of whether the carrier had the right to take over and control the insured's defense was being litigated.  The case provides an interesting look at the interplay between an insured and its liability carrier where the carrier has advised the insured that it will defend the claim without a reservation of rights, but where the insured believes that the carrier's control of the defense creates a conflict of interest between the interests of the insured and the carrier that necessitates the appointment of independent counsel.  The decision discusses the circumstances under which, although the carrier has agreed to defend and is not reserving its rights under the policy, a conflict may still exist that could give rise to the insured's entitlement to independent counsel (although the court ruled that it did not in this case). OneBeacon America Ins. Co. v. Celanese Corp., Mass. App. Ct. Case No. 16-P-203, October 16, 2017.  The case is attached.



Kate’s Collection of Interesting Cases On Chinese Courts’ Recognition of American Judgments


Kate Browne put together a report on several unusual decisions.


On June 30, 2017, the Wuhan Intermediate People's Court recognized and enforced a civil money judgment issued by the Los Angeles Superior Court in a breach of contract case. The Court relied on the legal principle of "reciprocity.”

This decision represents the first time that a Chinese court has recognized and enforced an American judgment. This is a positive development for parties seeking to enforce U.S. judgments (and, in particular, California judgments) in China. The Wuhan Decision, however, is not precedential, and it remains to be seen whether other Chinese courts will follow the Wuhan Court's approach and recognize U.S. judgments based on reciprocity. As a result arbitration may be the best option for international parties entering into contracts with Chinese parties because the enforcement of arbitration awards is guaranteed by the New York Convention, which has more than 150 participating jurisdictions, including China.

The Law in China on Recognition of Foreign Judgments

Article 282 of the People's Republic of China (PRC) provides that PRC courts will recognize and enforce foreign judgments or rulings if required by:

(a) a multilateral or bilateral treaty concluded or acceded to by PRC, or
(b) the principle of reciprocity,

provided that the judgment is not in violation of the basic principles of the PRC law or sovereignty, security or the public interest of PRC.

The first basis under Article 282 for recognition and enforcement was not applicable in the Wuhan Decision because neither the U.S. nor China has ratified the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters or otherwise adopted a bilateral treaty on recognition and enforcement of civil judgments. (China does have bilateral agreements with other countries and regions, including France, Spain, Italy, Greece, Hungary, Hong Kong and Macau.)

The second basis for recognition and enforcement is the principle of reciprocity. The legal concept of reciprocity considers how the court that issued the foreign judgment would view a request to enforce a judgment from a Chinese court. There is, however, no official interpretation or guidance, legislative or judicial, as to what constitutes reciprocal treatment under Chinese law, leaving the Wuhan Court to consider the issue of reciprocity based on the record before it.

The Underlying Lawsuit

The underlying case before the Los Angeles Superior Court involved a dispute over a share transfer agreement between Chinese residents involving shares in an American company. The plaintiff sued two defendants alleging they had defrauded her of $125,000 by means of a fake share transfer transaction. The defendants failed to appear, and the court entered a default judgment in favor of the plaintiff on July 24, 2015.

In October 2015, the plaintiff applied to the Wuhan Court to recognize and enforce the U.S. Judgment. In support of her application, and the argument that the principle of reciprocity should apply, the plaintiff cited the opinion of a federal court in California in Hubei Gezhouba Sanlian Indus. Co. v. Robinson Helicopter Co. In Robinson Helicopter, the American court enforced a $ 6.5 million judgment awarded by the Higher People's Court of Hubei Province, against Robinson Helicopter Company, an aircraft manufacturer based in California. The United States Court of Appeals for the Ninth Circuit ultimately affirmed the district court's decision.

The Wuhan Decision

The Wuhan Court held, without detailed analysis or discussion, that the Robinson Helicopter precedent was sufficient to satisfy the requirements of reciprocity. The Wuhan Court also concluded that the underlying judgment did not violate basic principles of Chinese law, state sovereignty, security or the public interest, again without detailed analysis or discussion. The Wuhan Court rejected the defendants' invitation to assess the underlying merits of the parties' dispute under the share transfer agreement. In doing so, the Wuhan Court held that because the Chinese proceeding involved only an application for judicial assistance, it would be inappropriate to review the substantive rights and obligations of the parties, which already had been adjudicated by the American court.

Accordingly, the Wuhan issued a ruling on June 30, 2017, recognizing and enforcing the U.S. Judgment.

What Does This Mean for Parties Seeking to Enforce Foreign Judgments

The Wuhan Decision opens the door for the first time to the realistic possibility that parties may be able to enforce their American judgments in China without needing to re-litigate the underlying merits of the dispute. Although the Wuhan Decision does not have precedential effect as a matter of Chinese law, it will provide parties a basis to argue before other Chinese courts that the principle of reciprocity has been established with respect to American court judgments.

The Wuhan Decision is a promising development for parties that have obtained favorable U.S. judgments against Chinese defendants with limited or no assets in the U.S. While, as a practical matter, the defendants' lack of U.S. assets makes these favorable U.S. judgments unenforceable in the U.S., the Wuhan Decision suggests that seeking to enforce these judgments in China may not be a fruitless exercise. Given that fact, it may no longer be safe for Chinese parties to assume that contractual provisions calling for dispute resolution before American courts are mere "paper tigers" that can only result in a court judgment ultimately unenforceable in China.

Both the Robinson Helicopter and the Wuhan cases involved default judgments. Chinese courts seem do exercise a degree of procedural review when considering foreign court judgments, including requiring proof that the foreign court had legally summoned the parties. Accordingly, before deciding to enforce the U.S. Judgment, the Wuhan Court evaluated and credited the plaintiff's evidence showing that the Los Angeles Superior Court had duly summoned the two defendants through service by mail and publication in newspapers. The fact that the Wuhan Court ultimately decided to enforce the U.S. Judgment, notwithstanding the fact that it was a default judgment, will require PRC parties without assets in the U.S. to think twice before deciding not to appear and defend when duly served in a U.S. court proceeding.

It remains to be seen whether other Chinese courts will adopt the Wuhan Court's approach and recognize U.S. judgments based on reciprocity (especially because the Wuhan Decision involved a Chinese plaintiff seeking to enforce a judgment against two Chinese defendants), it is apparent that Chinese courts have shown increased willingness recently to recognize and enforce foreign judgments based on reciprocity. Last year, the Nanjing Intermediate People's Court similarly recognized and enforced a Singapore court judgment based on reciprocity in the absence of a treaty for mutual recognition and enforcement of judgments between China and Singapore.



IU Honors John Trimble


John Trimble was honored by the Indiana University Robert H. McKinney School of Law with its Distinguished Alumni Award for his service to the law school, legal profession and community.  The Indiana University Robert H. McKinney School of Law annually recognizes alumni, friends, and faculty who have brought distinction upon themselves, their profession, and the School of Law in three separate categories: Honorary Alumnus Award: the Early Career Achievement Award; and the highest distinction awarded by the Alumni Association, the Distinguished Alumni Award. There are between 1 – 3 recipients who are chosen every year from the more than 12,000 alumni from the school. Those chosen have participated in school activities through mentoring students, judging moot court competitions, speaking on panels or presenting lectures to students. In addition, those honored have excelled in the practice of law, in government service, or as members of the judiciary.



John Woodward Reports on Oklahoma Law


In Raymond v. Taylor, 2017 OK 80, decided in September, the Supreme Court of Oklahoma decided that a UM carrier does not have a right of subrogation against an under-insured tortfeasor's assets, including excess liability coverage. The tortfeasor had primary auto coverage of $1 million, and a $40 million excess policy. The Plaintiff's injuries exceeded the underlying limit. The UM carrier paid its limit, then intervened to subrogate. The Supreme Court, in a 5-4 decision, overturned the trial court and civil appeals court, and held that the right of subrogation was limited to the tortfeasor's liability limit, and the UM carrier had no right to anything from the excess policy.

DeSantis Tort Victory


Sal DeSantis enjoyed a recent victory in a tort decision concerning ice.  A summary is attached.







The Insurance Coverage Section has had a busy first month.


First and foremost, we are getting ready for the Insurance Industry Institute.  We will feature many true leaders.  We’ll have the preeminent legal authority on climate change (Michael Gerrard), the most sought-after insurance mediator in the country (David Geronemus), and many others who really are at the top of our field.  We have a new location, right in the heart of New York’s theater district.  Click here to REGISTER TODAY!


DRI’s insurance program is this December in NYC.  Are you going?  Let’s put together an Insurance Coverage Section dinner group.  Contact Don Myles ( or Alan Rutkin (


Jay Sever is leading our Section’s program for Amelia Island: Intervention, DJ or Nothing:  What’s An Insurer To Do To Resolve Coverage Issues?  This will be a national level discussion addressing the issue of intervention by insurance carriers in underlying tort litigation.  The discussion will use as a jumping off point the South Carolina Supreme Court decision in Harleysville Group Insurance v. Heritage Communities, Inc., which suggests that an insurer must intervene to seek a differentiated verdict or risk being stuck with a general verdict.  The discussion will analyze the practicality of intervention and compare the process with declaratory judgment actions and other procedural methods to resolve insurance coverage disputes. 


Michael Aylward, a member of ALI as well as FDCC, has prepared an article updating us on the soon to happen ALI Restatement of Law, Liability Insurance.  Click here to read.


Kate Browne prepared an interesting piece on the legal issues arising from voice-activated technology.  Click here to read.


If you’re concerned about additional insured issues in California and in particular, ongoing operations clause issues, Andy Downs suggests that you consider Pulte Home Corp. v. American Safety Indemnity.  Also, Andy also recently wrote an interesting article on stacking in California.




Jay Sever is now leading the Insurance Coverage Section's planning for a program in Amelia Island.  Jay's panel will address the important issues emerging from the recent South Carolina Supreme Court decision in Harleysville Group Insurance v. Heritage Communities, Inc.  This decision suggests that an insurer must intervene to seek a differentiated verdict or risk being stuck with a general verdict.



MAY 2017


We provide an important coverage development submitted by Jennifer Johnsen with Gallivan, White and Boyd. Jennifer was assisted by Jessica Waller in writing their analysis of the published 3/31/17 Order that tackles the permissive scope of bad faith coverage discovery of the insurer’s attorney-client privileged communications in the case of Contravest Inc., et al. v. Mt. Hawley Insurance Company, C.A. No.9:15-cv-00304, USDC, South Carolina.  This Order evidences further erosion of the attorney-client privilege and expansion of discovery in the context of bad faith litigation.  While some solace can be taken in the court’s refusal to apply a per se waiver of the attorney-client privilege, the prima facie requirement provided by this Order is not a particularly high hurdle to clear. The Order reflects that even in historically conservative jurisdictions, insurers (and their coverage counsel) are wise to act under the assumption that their attorney-client communications may be viewed by a potential plaintiff in a bad faith action warranting they draft their written communications accordingly.




August 2017 Blog
By: Alan S. Rutkin, Rivkin Radler, LLP, New York, NY

One of the hottest coverage related issues is cyber, and one of the hottest cyber issues is hacking.  At what point is there a hack that triggers cyber coverage? 


Over the past ten days, two courts have considered this issue in the context of fraudulent emails—imposters—authorizing payments.  The courts reached different results, for different reasons.


In Medidata Solutions, Inc. v. Federal Insurance Co., 15-CV-907(SDNY July 21, 2017), the Southern District of New York took a policyholder-friendly view of this issue.  The policyholder released nearly $5 million to a thief based on an email that appeared to come from the company’s president.  The email, of course, actually came from a thief.  To trigger the coverage, the thief’s action had to be a fraudulent entry into the policyholder’s computer system that changed data.  The court held that the spoof email was such an act. 


The next week, in American Tooling Center, Inc. v. Travelers Casualty and Surety Co., No. 16-12108 (ED Mich. Aug. 1, 2017), the court found that impersonation email did NOT trigger cyber coverage because the resulting loss was NOT a “direct loss” that was “directly caused by computer fraud.”


This is an issue to keep watching.



July 2017 BLOG

By: Jennifer E. Johnsen, Gallivan White Boyd, P.A.

S.C. District Court vacates all prior orders in Urena v. Nationwide Ins. Co. after concluding it lacks subject matter jurisdiction due to plaintiff’s failure to present evidence of a valid assignment from the insured.

By now, most of you who practice in the insurance coverage/bad faith arena are aware of the 2015 time limit demand decision in Urena v. Nationwide Ins. Co., C.A. No. 2:13-cv-3544-DCN (D.S.C. 2015), in which the court ordered that Nationwide pay $1.1 million, far more than its $50,000 policy limits, when it failed comply with a time limit demand by just one business day.  The demand, which was the result of a clear liability automobile accident, was received on February 16 and had a time limit demand deadline of February 17.  A check was issued by the Nationwide adjuster and put in the mail on February 17 but it was not received until Tuesday, February 21, the day after a federal holiday.  When the check was received after the deadline, it was rejected, a tort suit was filed and a verdict was obtained against Nationwide’s insured in the amount of $1.15 million.


In the subsequent bad faith action against Nationwide brought by the injured plaintiff, purportedly as an assignee of Nationwide’s insured, the court found that Nationwide's conduct in processing the underlying claim was negligent because the adjuster handling the claim received the demand letter from plaintiff’s counsel but failed to read all of it -- including the actual time limit demand deadline -- and failed to tender payment in a timely manner even though she testified she could have and would have sent the payment as requested had she read the demand. Therefore, the court held that Nationwide breached its duty to its insured and did not adhere to the standard of care in processing the claim, thereby subjecting its insured to a substantial verdict in excess of policy limits. Nationwide was ordered to pay the difference between the coverage provided and the amount of the verdict -- $1.1 million. 


That decision, however, did not end the case.  Following the trial, the parties engaged in extensive motions practice challenging the validity of the decision, including the assignment and the Court’s jurisdiction.  In February 2017, the court denied Nationwide’s motion contesting the court’s subject matter jurisdiction and granted the plaintiff’s motion to join the insured as a plaintiff in the action.  The court also ordered discovery on the validity of the assignment from the insured.  Nationwide then filed a motion to alter or amend the February 2017 order on the grounds that (1) the court lacked subject matter jurisdiction because the plaintiff failed to introduce evidence of the assignment prior to judgment; (2) the assignment was void as against public policy; and (3) joinder of the insured violated Nationwide’s Seventh Amendment right to trial by jury. 


In a surprising reversal, the court issued the current order vacating all prior orders and dismissing the case for lack of subject matter jurisdiction. In doing so, the court concluded that the plaintiff lacked standing to bring the action due to his failure to present evidence of a valid assignment from the insured prior to judgment. Because he lacked standing, the court lacked subject matter jurisdiction over the action ab inito

While this outcome undoubtedly is a big win for Nationwide (at least for now), it begs the question of the validity of the court’s conclusion that Nationwide was negligent in processing the claim by failing to get the settlement check to counsel on time. That conclusion has not been and may never be tested.  But, we know how at least one South Carolina District Court judge views these kind of facts, and insurers would be wise to keep this case in mind when handling time limit demands.


June 2017 BLOGS


New York’s Highest Court Applies Proximate Cause Test To Additional Insured Endorsement

By: Traub, Lieberman, Straus & Shrewsberry LLP


In The Burlington Insurance Company v. NYC Transit Authority, et al., (N.Y. June 6, 2017), the New York Court of Appeals – New York’s highest court – held that when an insurance policy states that additional insured coverage applies to bodily injury “caused, in whole or in part” by the “acts or omissions” of the named insured, the coverage applies to injury “proximately caused by the named insured.” The Court rejected the argument that an additional insured obligation is owed under this language when the named insured is without fault. In so holding, the Court concluded that the Appellate Division “erroneously interpreted” this policy language as extending coverage to injury only causally linked to the named insured and “wrongly concluded that an additional insured may collect for an injury caused solely by its own negligence, even where the named insured bears no legal fault for the underlying harm.” Thus, the Court of Appeals rejected the notion that “caused, in whole or in part” equates to “but for” causation. The Court also rejected the First Department’s conclusion that the phrases “arising out of” and “caused by” do not “materially differ.”


Burlington concerned coverage for an underlying matter arising out of a project in which New York City Transit Authority (“NYCTA”) contracted with Breaking Solutions, Inc. (“BSI”) to provide equipment and personnel and for BSI to perform tunnel excavation work on a New York City subway. BSI purchased CGL insurance from Burlington with an endorsement that afforded additional insured coverage to NYCTA, MTA and the City as additional insureds “. . . only with respect to liability for ‘bodily injury’ , ‘property damage’. . . caused, in whole or in part, by” 1. Your acts or omissions; or 2. The acts or omissions of those acting on your behalf.”


During the policy period, an MTA employee fell off an elevated platform as he tried to avoid an explosion after a BSI machine touched a live electrical cable that was buried in concrete at the excavation site. Suit was filed against the City and BSI, asserting claims under New York’s Labor Law, as well as for general negligence and loss of consortium. Burlington assumed the defense of BSI and accepted the City’s tender under a reservation or rights. The City impleaded NYCTA and MTA, asserting claims for indemnification and contribution based on a lease of certain transit facilities. NYCTA tendered its defense to Burlington as an additional insured.


Burlington initially accepted NYCTA’s defense subject to a reservation of rights. However, discovery revealed that the BSI machine operator could not have known about the location of the cable or the fact that it was electrified, andas a result, the trial court dismissed the plaintiff’s claims against BSI with prejudice. Thereafter, Burlington settled the underlying case, disclaimed coverage to NYCTA and MTA, and commenced a subrogation and coverage action against NYCTA and MTA. The trial court granted Burlington’s motion for summary judgment, concluding that NYCTA and MTA were not additional insureds. The Appellate Division reversed, concluding that “the act of triggering the explosion . . . was a cause of [the employee’s] injury within the meaning of the policy.”


On appeal to the Court of Appeals, NYCTA and MTA argued that “caused, in whole or in part” means “but for causation.” The Court disagreed and sided with Burlington, concluding that there was no coverage obligation because, “by its terms, the policy endorsement is limited to those injuries proximately caused by BSI [the named insured].” The Court reasoned that not all “but for” causes result in liability and “[m]ost causes can be ignored in tort litigation.” In contrast, “‘proximate cause’ refers to ‘legal cause’ to which the Court has assigned liability.” The Court acknowledged that “but for BSI’s machine coming into contact with the live cable, the explosion would not have occurred and the employee would not have fallen or been injured,” but “that triggering act was not the proximate cause of the employee’s injuries.” As such, BSI was not at fault and the plaintiff’s injury was “due to NYCTA’s sole negligence in failing to identify, mark, or de-energize the cable.”


In reaching its conclusion, the Court discussed the amendment of the ISO form in 2004 to replace the “arising out of” language with “caused, in whole or in part,” noting that the change was “intended to provide coverage for an additional insured’s vicarious or contributory negligence, and to prevent coverage for the additional insured’s sole negligence.”



Internet of Things Privacy Lawsuit -Bose Sued for Taking Headphone Data Without Consent

 By: Kate Brown


On April 19, 2017, a class action was filed in federal court in Illinois by Kyle Zak. Mr. Zak paid $350 for a pair of Bose wireless headphones. The suit claims Bose violated the federal Wiretap Act, the Illinois Eavesdropping Statute, and the Illinois Consumer Fraud and Deceptive Business Practice Act, by secretly collecting, transmitting and disclosing to third parties, including a data mining company, the private music and audio selections of customers who downloaded its Bose Connect mobile app. The complaint also asserts claims for intrusion upon seclusion and unjust enrichment. The complaint alleges that an individual's audio selections “provide an incredible amount of insight into his or her personality, behavior, political views, and personal identity." The lawsuit seeks injunctive relief requiring Bose to discontinue its illegal practices and destroy all data it has collected, in addition to actual and statutory damages arising from the invasion of privacy, including the return of the products' purchase price and disgorgement of profits.


According to attorney Jay Edelson, who is representing the class, "What we hope to demonstrate through this suit is that multibillion-dollar companies are not allowed to grab whatever private data they want from their customers simply because they can make a buck off of doing so. Companies need to be transparent about the data they take and what they are doing with it, and get consent from their customers before monetizing their personal information." Calling the internet of things "a growth area" in terms of both lawsuits and the world in general, Mr. Edelson told the media that while some people may not consider the sharing of their listening histories and preferences to be "a very serious privacy violation." Mr. Edelson believes, at a minimum, companies need to obtain consent before scooping up and sending such data upstream.

The Edelson firm has also filed a class action against tele-health provider MDLive Inc., a Florida-based company that offers consultations with board-certified physicians and therapists over phones and other devices for $49. The suit claims MDLive designed its mobile app to secretly capture screenshots, including sensitive patient information, that it transmitted and stored without restricting access to medical providers with a legitimate need to see it.  The named plaintiff, Joan Richards, is seeking certification of a nationwide class that she estimates will number in the thousands and more than $5 million in damages, in addition to injunctive relief.


The cases are Zak v. Bose Corp., in the U.S. District Court for the Northern District of Illinois, and Auman v. Confide Inc., in the U.S. District Court for the Southern District of New York.


What's New This Month--Insurance Companies Offer Services Through Google Home and Alexa and Sell Policies On Facebook

 By: Kate Brown


Insurance companies are discovering the benefits of using voice activated technology as a tool to attract new customers and offer additional services. Last month, Progressive Insurance Company partnered with Google to offer home and auto advice and insurance to Google Home customers—becoming the first insurer on the Google Assistant-powered voice-activated speaker, which can engage in two-way conversations. Customers can approach their Google Home assistant and say: “Google, let me talk to Progressive.” This activates a process that enables customers to get tips on car buying and insurance, home buying, moving, smart home technology, and other topics.


Last September, Liberty Mutual Insurance launched the first insurance-focused service for Amazon’s Alexa, a voice-controlled device that plays music; provides news, sports and directions; and controls lights/appliances. The Liberty Mutual service offers insurance from its Liberty Mutual and Safeco brands.


In January, Grange Insurance introduced  "Grange Insurance Skills on Alexa," a service that lets people ask Alexa to help find a local independent Grange Insurance Agent; hear the insurer tip of the day; and learn general information about Grange Insurance and its home, auto, business and life insurance products.


New distribution channels are also developing. Next Insurance recently announced  that it would sell insurance via Facebook Messenger, which suggests that chatbots will become more common. Chatbots cut costs for insurance companies while providing better service to customers, who can use their phones (by now an extension of the hand for many people) to text an inquiry rather than have to navigate a phone tree and eventually sit on hold for several minutes while listening to bad music or ads.


If artificial intelligence can power "robo-advisers" for investment companies, it can likely handle an introductory sales presentation or answer routine customer inquiries in the insurance context. An unintended consequence of the growth in robo-advisors in the U.S. may be a decrease in class actions. According to the London based management consulting firm A.T. Kearney, robo-advisors will have $2.2 trillion in assets under management by 2020, up from $200 billion in 2016. When Bloomberg BNA looked at the client agreements or terms and conditions for 11 robo-advisers, they found that the majority had provisions mandating arbitration under the rules of FINRA, the American Arbitration Association or the Judicial Arbitration and Mediation Services Inc. (JAMS).

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