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SEPTEMBER 2017

 

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 (DMyles@JSHFIRM.com) or Alan Rutkin (Alan.Rutkin@Rivkin.com).

 

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. http://www.bullivant.com/Montrose-Chemical-v-Superior-Court

  

 

AUGUST 2017

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.

 

 

BLOGS

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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