CASES OF CONSEQUENCE

FIFTH CIRCUIT Duty to Defend/Extrinsic Evidence (TX)

The Fifth Circuit has issued an unpublished opinion in State Farm Lloyds v. Richards, No. 18-10721 (5th Cir. Sept. 9, 2019) asking the Texas Supreme Court to clarify whether there should be an exception to the "eight corners rule" that would permit an insurer to rely on extrinsic evidence to apply a policy exclusion under a policy that lacks earlier standard language requiring insurers to defend claims even if the allegations against the insured are "false, groundless or fraudulent."

CALIFORNIA First Party/Statute of Limitations/Tolling

The California Court of Appeal has ruled in Hufstedler v. Mercury Ins. Co., G056113 (Cal. App. Sept. 9, 2019)(unpublished) that the equitable tolling doctrine that the state Supreme Court adopted in Prudential LMI did not apply to salvage a homeowner’s untimely claim against her property insurer where the insurer responded to the insured’s objections to its denial by agreeing to consider any additional facts or arguments that she might wish to raise but also stated in each of these letters that it continued to stand on its original denial and reminded the insured of the one year statutory deadline for bringing a claim.

FLORIDA Third Party Claims/Procedure

A federal district court judge in Florida has ruled that sailors who obtained a $3 million judgment against the shipping company that abandoned them for a year in Cuba after their vessel capsized may seek to recover the judgment from the owner's insurer, Travelers. Despite Travelers’ claim that Florida does not permit direct action claims against liability insurers, Judge Scola ruled in Bodden v. Travelers Property Cas. Co. of America, No. 18-25095 (S.D. Fla. Sept. 9, 2019) that these claims were permitted by Florida Statutes section 627.4136. Further, the court ruled that the sailors’ claims were not barred by the judgment that it obtained in a declaratory judgment after the insured failed to respond, as Travelers had elected not to name the sailors as defendants in that proceeding.

MASSACHUSETTS Construction Defect/"Impaired Property" Exclusion

In a case arising out of a dispute between the City of Worcester and a contractor that installed a faulty cooling system for a municipal ice rink, a federal magistrate has ruled in Fontaine Brothers, Inc. v. Acadia Ins. Co., No. 18-11636 (D. Mass. Aug. 29, 2019) that the City’s claims were excluded from coverage as involving "impaired property." The court ruled that the City’s principal contention--that the insured’s alleged decision to install condensers manufactured with carbon steel instead of the contractually-required stainless steel tubes had caused premature corrosion of the condensers—could potentially be an "occurrence" since it was possible that this decision was based on the insureds negligence. Nevertheless, Magistrate Robertson ruled that Exclusion M defeated any coverage that might otherwise apply inasmuch as no property other than the condensers suffered damage and that any loss of use was cured once the condensers were removed and replaced.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

RMS estimates that insured losses in the Caribbean from Hurricane Dorian could exceed $6.5 Billion.

Sedgwick has completed its takeover of York Risk Services.

Liberty Mutual has named David Perez to be chief underwriting officer, North America for Global Risk Solutions commercial and specialty lines.

* * * Cyber News. * * *

Here’s the latest newsletter from MM’s cyber and data privacy practice group.

ProPublica has posted a controversial article on its web site, "The Extortion Economy: How Insurance Companies Are Fueling A Rise in Ransomware Attacks," setting forth the thesis that entities that are publicized as having purchased cyber-coverage or who are likely to have done so are more likely to become the targets of ransomware attacks. A September 3 Insurance Journal article takes a different view, asserting that the increase in cyber-attacks against municipalities has actually been less than other entities but has received greater publicity.

* * * IBNR Dept. * * *

The BBC reported this week that Taylor Swift pursued a claim against Microsoft several years ago due to potential consumer confusion that might result from the ill-fated "TayTweets" Chabot program that Microsoft shut down after 18 hours because it became dominated by racist tweets.

* * * New Directions * * *

Coverage superstar L.D. Simmons, formerly of McGuire Woods, has embarked on his new career as a sports and psychology coach.