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September 2019




            Depending upon your jurisdiction, allocation of covered vs. uncovered claims in a particular case can range from challenging to nearly impossible.  A recent case from the Eighth Circuit Court of Appeals, RUSI Indemnity Co. v. New Horizon Kids Quest, Inc., 933 F.3d 960 (8th Cir. 2019), provides excess insurers with a pathway, at least, for obtaining an allocation decision following a jury verdict even when the primary carrier did not obtain an allocation at trial.  In New Horizon, the primary carrier did not dispute liability for an alleged physical, and possibly sexual, assault on a child who was being cared for and supervised by the insured.  Although the jury awarded four distinct classes of damages, it did not allocate its award between damages for physical assault (covered) and sexual assault (not covered).  When the insured demanded that its excess carrier pay the part of the award that exceeded its primary coverage limits, the excess carrier asked the district court to allocate the jury’s award.  The district court refused to do so, saying that “[the excess insurer] was unable to prove ‘that the jury determined sexual abuse occurred or that one cent of the award was based on such a determination.’”

            On appeal, the Eighth circuit observed that the Minnesota Supreme Court had previously held in an arbitration case that an insurer was “entitled to litigate” the question of allocation in a post-arbitration action if the insurer had properly reserved its rights to do so.  In New Horizon, the Eighth Circuit predicted that the Minnesota Supreme Court would extend that reasoning to cases involving jury verdicts and held that the excess carrier “must be afforded an opportunity to prove in a subsequent coverage action that the jury award included damages for uncovered as well as covered claims.”  The court found it significant that deciding whether the assault was sexual in nature was not necessary to resolve the underlying action and that the excess carrier, while it hired a jury consultant and sent a representative to attend trial, was not obligated and did not have a right to participate in the defense of the underlying action.  Therefore, while the Eighth Circuit noted that while an allocation action would be complex and fact-intensive, the court remanded the case to the district court to make those determinations based primarily upon the transcript of the initial trial.

            While the New Horizon case was based upon Minnesota state law, the opinion provides a well-reasoned road map that excess insurers can provide to courts in other jurisdictions when faced with post-verdict allocation issues arising in cases in which the excess insurer did not participate at trial.


June 2019


In response to the recent ALI Restatement of Liability Insurance, the Tennessee General Assembly amended Tennessee Code Annotated section 56-7-102 in order to make clear how policies of insurance are to be interpreted.  In addition, the amendment to the statute codified that Tennessee is a four-corner jurisdiction as to an insurer’s duty to defend.  In 2019, the statute was again amended by the General Assembly creating a rebuttable presumption of good faith when an insurer seeks to have its obligations determined by an interpleader action or a declaratory judgment action.  The statute now reads in full:


§ 56-7-102. Policies of insurance to contain entire contract; construction and interpretation; duty to defend


(a) Every policy of insurance, issued to or for the benefit of any citizen or resident of this state on or after July 1, 1907, by any insurance company or association doing business in this state, except fraternal beneficiary associations and mutual insurance companies or associations operating on the assessment plan, or policies of industrial insurance, shall contain the entire contract of insurance between the parties to the contract, and every contract so issued shall be held as made in this state and construed solely according to the laws of this state.


(b) A policy of insurance is a contract and the rules of construction used to interpret a policy of insurance are the same as any other contract.


(c) A policy of insurance must be interpreted fairly and reasonably, giving the language of the policy of insurance its ordinary meaning.


(d) A policy of insurance must be construed reasonably and logically as a whole.


(e) An insurance company's duty to defend depends solely on the allegations contained in the underlying complaint describing acts or events covered by the policy of insurance. This subsection (e) does not impose a duty to defend on an insurance company that has no duty to defend pursuant to this title or that has an express exclusion of the duty to defend in the policy of insurance.


(f) An insurance company may determine its obligations under a policy of insurance as to any and all parties or claimants through a declaratory judgment action, an interpleader claim or action, or both. The filing of such action or claim creates a rebuttable presumption the insurance company is acting in good faith when making a determination of its obligations under a policy of insurance.


Tenn. Code Ann. § 56-7-102.


Other jurisdictions have, and will continue, to enact legislation in response to ALI Restatement of Liability Insurance.  A cursory review revealed that these include Arkansas, Indiana, Kentucky, Michigan, North Dakota, and Ohio.


Our thanks to Jon Stewart of Rainey Kizer Reviere & Bell PLC for the help in drafting this article.

September 2018

College Football season is here, with controversies about events off the field. The NFL is here with controversies about what happens on the field, but before the game even starts. And insurance claims abound, full of controversy, year round.

 In Georgia and many other states, premises liability for “negligent security” allegedly leading to third-party criminal acts on the plaintiff continue to grow in number and severity. As a result, many CGL policies now contain exclusions seeking to limit exposure for such claims. The most common appear to be assault and battery endorsements that either exclude or create a sub-limit, often with the sub-limit coverage eroding with defense expenses. Another common endorsement is an exclusion for claims arising out of the use of a “firearm” or a “weapon.” These seems straightforward enough in most cases, though “weapon” is often undefined and thus open to scrutiny.

 But on August 30, one such exclusion was deemed ambiguous to one judge in the Middle District of Georgia. In Hudson Specialty Ins. Co. v. Snappy Slappy, LLC d/b/a Jus One More, Civil Action No. 5:18-cv-00104-TES (M.D. Ga. Aug 30, 2018), Hudson Specialty’s motion for judgment on the pleadings was denied. The Plaintiff insured Jus One More. A fatal shooting had occurred on its premises in an altercation between two invitees. The claim was that negligent security permitted this incident to happen. The CGL policy has an endorsement that excluded “’bodily injury’ … arising out of the manufacture, imploration, sales, distribution, gunsmithing, ownership, maintenance or use of firearms or weapons.” There was no dispute a firearm or weapon was used. Rather, the Court, in denying the motion, said that the provision was ambiguous because it did not identify against whom the exclusion applied, i.e., was it applicable only to the “insured’s use” of firearms, or was it applicable to “any use of firearms.” The only case law cited by the Judge was general policy interpretation rules. No effort was made by the Court to compare this allegedly “ambiguous” language to other cases in Georgia addressing similarly worded policies. Had that been done, the outcome may have been different. The Order was signed by the Magistrate Judge, and not the Federal Judge. A motion to reconsider is likely.

 In the motor carrier world, direct action claims are quite common. Many states, including Georgia, permit direct actions against the liability insurance provider of a tractor-trailer involved in a motor vehicle bodily injury claim (as well in other circumstances). The Georgia Supreme Court recently held, however, that such direct action claims were pre-empted if the “liability insurance” was through a risk retention group created under Federal law. Reis v. OOIDA Risk Retention Group, Inc., 303 Ga. 659, 814 S.E.2d 338 (2018). OOIDA was a liability risk retention group created pursuant to the federal Liability Risk Retention Act of 1986, 15 USC 3901 et seq. and not charted or domiciled in Georgia. The Supreme Court of Georgia concluded that direct action claims were substantive rights for the plaintiff, not merely a procedural right. The Court further held that the LRRA preempted direct action lawsuits by bodily injury plaintiffs under the law of states in which the group was not charted. The Court relied upon the language of 15 USC 3902(a)(1): “… a risk retention group is exempt from any State law … to the extent that such law … would make unlawful, or regulate, directly or indirectly, the operation of a risk retention group.” Applying this language, the direct action statute was deemed a regulation on the risk retention group by a non-domiciliary state, and thus pre-empted.

 Another issue that is smoking and will quickly become highly important is the impact of state marijuana laws that conflict with Federal law. In KVG Properties, Inc. v. Westfield Ins. Co., No. 17-2421 (6th Cir. Aug. 21, 2018) at 4:20 p.m., the 6th Circuit ruled that a property damage claim caused by a marijuana growing operation under a commercial property policy was excluded. The Policy covered “direct physical loss of or damage to Covered Property … caused by or resulting from any Covered Cause of Loss,” which is any “risk of direct physical loss.” The Policy contained an exclusion for “loss or damage caused by or resulting from” any “criminal act by you, any of your partners, members, officer….” The Insured was a landlord seeking coverage for the property damage caused by its tenant that operated the marijuana growing operation. Westfield argued that the claim was excluded because the conduct was criminal under both Federal and state law. The Insured argued that cultivating marijuana for medical purposes was legal under Michigan law, and thus the claim was not excluded. The Court was able to avoid this intriguing federalism issue by essentially applying a judicial estoppel argument to reach its conclusion. In its eviction proceedings against the tenant, the Insured argued successfully that the tenant’s conduct was illegal. That, and a DEA raid, jointly convinced the Court that there was insufficient evidence that the tenant had complied with Michigan’s Medical Marijuana Act. This issue, and variations of it, will continue to arise as long as the Federal drug laws conflict with the growing legalization of marijuana at the state and local level.

 In Switzerland, I was on a panel that discussed the discoverability of reserve information in reinsurance and coverage litigation. A recent case adds to this body of case law. In Neidich v. Progressive Advanced Ins. Co., No. 17-5375 (E.D. Pa. Aug. 22, 2018), a Federal court permitted discovery of reserves in a bad faith claim arising out of an automobile incident, finding that reserves were not always work product or protected from discovery. This adds to the split body of case law permitting discovery of reserve information.

 Finally, I leave you with the words of Circuit Judge Kethledge, from Bennett v. State Farm Mut. Auto. Ins. Co., 731 F.3d 584 (2013) as a good lesson on professionalism and use of hyperbole in briefing:

There are good reasons not to call an opponent’s argument “ridiculous,” which is what State Farm calls Barbara Bennett’s principal argument here. The reasons include civility; the near-certainty that overstatement will only push the reader away (especially when, as here, the hyperbole begins on page one of the brief); and that, even where the record supports an extreme modifier, “the better practice is usually to lay out the facts and let the court reach its own conclusions.” Big Dipper Entm’t, L.L.C. v. City of Warren, 641 F.3d 715, 719 (6th Cir. 2011). But here the biggest reason is more simple: the argument that State Farm derides as ridiculous is instead correct.

Kim M. Jackson



April 2017

T.S. Eliot’s comment notwithstanding, April is a pretty great month.   A new season of baseball is just underway, The Masters reminds us once again that perfection is possible and my daffodils are just starting to bloom.

Things are not as cheery across the pond.  Just as the shock of Brexit was starting to wear off, Lloyd’s announced a new policy banning employees from drinking during office hours. Brokers reportedly have nothing to fear, as the new restrictions apply only to back office workers who are directly employed by Lloyd’s, but is it any wonder that many in the City are looking to relocate to Dublin and or the Continent? A new survey by Intelligent Insurer reports that 32 percent of survey respondents indicate a preference for relocating operations from London to Dublin to maintain access to the EU.  Germany was the runner-up with 13 percent of the votes.  The survey did not comment on the fact that very good beer is brewed in Ireland and Germany.

Speaking of the U.K., the Court of Appeal has ruled in W.R. Berkley Insurance (Europe) Limited v Teal Assurance Company Limited (2017) that the payment of monies into an escrow account is not an insured “loss” for purposes of liability insurance.  Writing for the court, Sir Stephen Tomlinson opined that payments into an escrow fund that had been created for the purpose of later issuing payments to injured parties did not trigger coverage because “[t]here was no ascertainment of the insured’s liability, whether as to its minimum or as to its entirety, and thus no ascertained loss.”Steve Catlin, who founded Catlin Underwriting Agencies in 1984, has announced plans to retire at the end of 2017.  Catlin will continue to act as a consultant to XL Group until September 30, 2018.

Meanwhile, on this side of the Atlantic, a federal judge in Manhattan has issued a new opinion that’s making waves in reinsurance and arbitration circles.   The issue in Certain Underwriting Members at Lloyd’s, London Subscribing to Treaty No. 272/04 v. Insurance of the Americas, NO. 16-374 (S.D.N.Y. Mar. 31, 2017) was whether an arbitration panel’s award against a reinsurer should be set aside owing to the failure of a party-appointed arbitrator (Alex Campos) to disclose personal and business relationships with the cedent.   While acknowledging that an arbitrator’s failure to disclose a relationship is not an automatic basis for vacating an award, Judge Broderick  found good grounds for “evident partiality” in this case given the extensive business ties between Campos and ICA and its principals as well as the odd behavior of Campos in pretending not to know ICA’s Treasurer when he testified at the hearing (despite the fact that Campos had hired him only a few months earlier to be the CFO for one of his companies).   The court was unmoved by ICA’s argument that party-appointed arbitrators need only be “disinterested” and that the rule allowing some ex parte communications showed that the standards of partiality were more relaxed in the context of “tripartite industry organizations.”

Section members who made it to Charleston last month were treated to a great meeting, including a very interesting panel that we co-sponsored with the Property and Energy Sections on the economic, legal and insurance coverage aspects of attacks on our nation’s energy infrastructure.  The good news is that it’s a lot harder to shut down the grid than you might think as you not only have to know how to hack into a utility’s computer but also how to then manipulate the intricate elements of SCADA and energy distribution systems.  The bad news is that people are already trying and, like other kinds of cyber-attacks, it’s just a matter of time.

Our next meeting will be in Montreux, Switzerland at the end of July.  Our Section is co-sponsoring a program with Extra-Contractual entitled “Can we Talk? The importance of Communication when Dealing with Excess and Reinsurers"  We’ll be examining reporting duties and waiver problems among different levels of insurance and reinsurance.  The panel will also examine some of the ways in which insurance arbitrations in the EU and UK are different from U.S. practices.  If you are planning to attend the Switzerland and have an interest in speaking, please contact me immediately.

That’s all for now.  Go Red Sox!

Michael Aylward, Section Chair
Reinsurance, Excess and Surplus Lines Section






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