CASES OF CONSEQUENCE

THIRD CIRCUIT "Occurrence"/Contract Claims/Duty to Indemnify (PA)

The U.S. Court of Appeals for the Third Circuit has ruled in Sapa Extrusions, Inc. v. Liberty Mutual Ins. Co. No. 18-2206 (3rd Cir. Sept 13 2019) that liability insurers with more recent "occurrence" wordings were not required to provide coverage for a lawsuit brought against a manufacturer of aluminum extruded profiles by customers who claimed that its producers were not what they had contracted for.. In an unusually nuanced opinion, the Third Circuit ruled that Pennsylvania law precludes coverage for claims based upon an insured's failure to perform according to its contractual obligations. Nevertheless, the court drew a distinction between liability policies that define "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions" and those, including seven policies issued by National Union and four by Liberty Mutual, that also required that such damage not be "expected or intended" by the insured. While affirming the District Court's ruling with respect to the more recent "occurrence" policies, the Third Circuit ruled that the older policies containing "expected or intended" language were materially different from the more recent "occurrence" forms and required further consideration by the District Court. The Third Circuit did, however, reject the insured's argument that the court should look beyond the "four corners" of the underlying complaint in assessing the claimed indemnity obligations of the defendant insurers. The Third Circuit declared that whereas such facts might be considered in determining an insurer's duty to defend and whereas an insurer could rely on evidence outside of the complaint to ultimately prove that it has no duty to indemnify, no similar right exists on the part of the policyholder.

SEVENTH CIRCUIT Jurisdiction/"Worldwide Coverage" (WI)

The Seventh Circuit has declared that it lacks jurisdiction to rule with respect to the rights of Lexington Insurance to obtain indemnification from a Taiwanese insurer whose policy provided additional insured coverage to Lexington's policyholder. In Lexington Ins. Co. v. Hotai Ins. Co., Ltd., No. 18-1141 (7th Cir. Sept. 12, 2019), Lexington had sought a declaration that it was entitled to be reimbursed for a settlement that it effected in a Texas suit against Trek Bicycle from a Taiwanese insurer whose policyholder manufactured bicycles for Trek. Without reaching the merits of the dispute, however, the Seventh Circuit declared that neither the Taiwanese insurer or the Taiwanese bicycle manufacturer had purposely availed themselves in the privilege of conducting business in Wisconsin so as to permit the Federal District Court there to exercise jurisdiction over them. Further, the Court declined to find jurisdiction on the basis of language in the Zurich (Taiwan) policy acknowledging Trek's rights as an additional insurer and extending coverage for liabilities incurred "worldwide."

ILLINOIS Auto/UIM/Insured

The Illinois Appellate Court has ruled that the former step-son of the named insured may be entitled to UM benefits under his former step-mother’s auto policies. insured vehicle. Whereas the trial court had ruled that Blake was not a "resident relative" so as to qualify as an insured, the Appellate Court ruled in State Farm Mutual Automobile Insurance Company v. Bierman, 2019 IL App (5th) 180426 (Ill. App. Ct. Sep 10 2019) that various dictionary definitions of "relative" confirmed that the terms related to by marriage could encompass the stepparent-stepchild relationship that had existed during the marriage between the insured and the decedent's father, the court ruled that Illinoi law finds that that "a relationship by affinity, including the stepparent-stepchild relationship, does not automatically terminate with the end of the marriage that created it." While acknowledging that it was also reasonable to assume that the divorce or death of a spouse terminates the marriage and therefore the surviving spouse was no longer "related by marriage" to her former husband's children, the court declared that these two alternative interpretations required it to conclude that the State Farm language was ambiguous. The case was therefore remanded to the trial court to find whether there was sufficient evidence to find that Blake had "resided primarily" with his former stepmother.

ILLINOIS Coverage B/Malicious Prosecution/Trigger

The Illinois Supreme Court will hear oral argument next week in a case that promises to resolve a dispute among the courts of the Appellate Court as to whether the trigger of coverage for malicious prosecution under Coverage B of the CGL policy is the initiation or conclusion of such proceedings. At issue in Sanders v. Illinois Union Ins. Co., is the First District’s ruling last January that a trial court had erred in dismissing claims against various liability insurers whose policies went into effect after the claimant was originally charged. A divided panel of the Appellate Division had ruled that a malicious prosecution does not occur until the tort is completed and that coverage was therefore not triggered until the suit against the claimant had been dismissed.

SOUTH DAKOTA Bad Faith/Worker’s Compensation Claims

The South Dakota Supreme Court has ruled in Blanchard v. Mid-Century Ins. Co., 2019 S.D. 54 (S.D. Sept. 11, 2019) that a trial court did not err in finding that a workers' compensation insurer did not act in bad faith by appealing a decision of the South Dakota Department of Labor awarding the plaintiff comp benefits. Notwithstanding the claimant's contention that Mid-Century had pursued a "baseless and meritless appeal", the Supreme Court found that the facts in this case failed to sustain a claimant's burden of proof with respect to a first-party bad faith claim in South Dakota. Further, the Supreme Court ruled that there exists a key difference between bad faith in a workers' compensation action and bad faith in a traditional first-party insured-insurer relationship because there is no contractual relationship between a claimant and the workers' compensation carrier." As a result, the court ruled that Mid-Century's decision to appeal was based upon "fairly debatable" contentions and therefore was not bad faith.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

Various property insurers have reported agreed to release their subrogation claims against PG&E for 2018 wildfire claims in consideration of $11 billion.

A new report from Guy Carpenter on the "Changing Nature of Risk" that was released at the recent Rendez-Vous in Monte Carlo concludes that, contrary to past loss cycles, a hardening of insurance and reinsurance markets may now finally be underway and that is being led by losses to property insurers from hurricanes, wildfires and other catastrophic causes.

California Insurance Commissioner Ricardo Lara has issued a letter to United Policyholders, apologizing for taking campaign contributions from the insurance industry despite having previously promised not to do so.

Washington’s Insurance Commissioner has fined Alaska Air’s captive insurer $2.5 million for operating without a license.

* * * Up in Smoke * * *

Reuters reports that over 30 law suits have now been filed for vaping-related deaths and injuries, with the majority seeking damages from Juul Labs.

* * * Must See CLE * * *

FETTI Claims Conference Chicago, IL September 25-27, 2019

DRI Annual Meeting New Orleans October 16-19, 2019

DRI Insurance Coverage Forum Hartford, CT November 6, 2019

FDCC I-3 Symposium November 6-8, 2019 New York City

DRI Insurance Coverage and Practice Symposium New York City December 5-7, 2019