Two March decisions of the New York State Court of Appeals, New York's highest court, as well as a May decision by a lower New York Court, will undoubtedly have some impact in the insurance industry. The first case, Thyroff v. Nationwide Mutual Insurance Company, 2007 WL 844860 (March 22, 2007, N.Y. Ct. App.), recognized for the first time that a common-law cause of action of conversion applies to the wrongful taking of electronic data. The question of extending conversion claims to electronic data came to the Court via a certified question from the Federal Court of Appeals for the Second Circuit. Nationwide allegedly terminated Thyroff's exclusive agent contract. Thyroff contended that the day after his termination, Nationwide took possession of the hardware, software and personal information maintained in the computer system Thyroff leased from Nationwide. Included in the system were personal e-mails, correspondence and other information about clients that Thyroff said represented personal property he needed to conduct business as an insurance agent. Thyroff sued Nationwide for breach of contract and conversion of electronic information. The Federal District Court dismissed the suit. The Second Circuit affirmed the dismissal of the contract claim but said the conversion issue depended on an unsettled issue of New York state law. The New York State Court of Appeals then held that the type of data that Nationwide allegedly took possession of - electronic records that were stored on a computer and were indistinguishable from printed documents - are subject to a claim of conversion in New York. Thus, insurers who lease computer hardware and software to their agents may now face a claim for conversion if they deny the agents access to electronic records and data following termination of the business relationship.
The second case handed down in March by the New York State Court of Appeals, Rosenberg v. MetLife, 2007 WL 922920 (March 29, 2007, N.Y. Ct. App.), involved an issue regarding whether statements in a U-5 form, which employers in the securities industry are required to file when they terminate an employee, are entitled to an absolute or qualified privilege against defamation. An absolute privilege protects a firm from liability for a defamation claim regardless of motive, whereas a qualified privilege is more limited and may be vitiated upon a showing of actual malice, which may include recklessness or negligence. After terminating one of its insurance brokers, MetLife filed a Form U-5 with the National Association of Securities Dealers ("NASD") disclosing the reasons for the termination, and stated that the broker was fired for apparently violating company policies and procedures involving speculative insurance sales, and because he may have been an accessory to money laundering. The broker contended he was fired because he was an Hasidic Jew and filed a federal lawsuit against MetLife for libel and employment discrimination. The Federal District Court dismissed the claim on a motion for summary judgment by MetLife, holding that the statement at issue was absolutely privileged. The broker appealed, and the Second Circuit Court of Appeals certified the question to the New York State Court of Appeals whether Form U-5 statements are accorded an absolute or qualified privilege under New York law. The New York State Court of Appeals held that employers in the securities industry cannot be sued over the contents of the Form U-5 notices they must file with the NASD when terminating employees. The Court stated that U-5 submissions, which disclose the reasons for termination and are available to regulators and prospective employers, are analogous to complaints made against attorneys and are entitled to the same absolute privilege against lawsuits. Thus, financial institution insurers now have some protection when their insured member firms of the NASD are sued for defamation or libel arising out of the firm's filed U-5 disclosures regarding an employee's termination.
The third decision of interest, Continental Cas. Co., et al. v. Employers Ins. Co. of Wausau, et al., 2007 WL 1345692 (May 8 ,2007, Sup. Ct., N.Y. Co.), was issued last month by a Manhattan trial court. CNA brought an action against a class of over 20,000 asbestos-injured claimants seeking a declaratory judgment that CNA's primary and excess policies were exhausted by previously made settlement payments to individual members of the class who had asbestos-related tort claims against the now bankrupt Robert A Keasbey Company. By May 1992, CNA had paid out the combined aggregate limits of $8,700,000 in connection with claims against Keasbey. Between May 1992 and May 2001, the excess insurance carriers, including CNA, paid out over $100,000,000 under their policies. Shortly thereafter, the attorneys for the majority of the asbestos-injured claimants sent a letter to Keasbey's litigation counsel asserting that the products hazard/completed operations aggregate limits did not apply to the so-called non-products claims involved in the underlying asbestos action. CNA commenced an action to resolve the dispute, estimating that approximately $100,000,000 to $250,000,000 was at issue, and that it was costing CNA about $600,000 to $1,000,000 per month to defend Keasbey in the pending asbestos personal injury actions. After a 34-day bench trial, the court issued a decision and disagreed with CNA's claim that their policies were exhausted, finding that they might still be liable for over $250 million. The court noted the issue was whether claimants' actions fell under the policies' "products hazard" and "completed operations" titles or their "premises" and "operations" coverage. The court found that risks of injuries at issue in the underlying claims of over 20,000 individuals were derived from Keasbey's work with asbestos away from its premises, and thus fell under the company's limitless "operations" coverage. It stated that the evidence at trial showed the injuries occurred while the installation operations of Keasbey were ongoing, which were covered under the operations coverage provisions of the subject insurance policies. Therefore, the court ruled that Keasbey's insurers may be liable for almost limitless liability coverage to the over 20,000 claimants. This decision is obviously of great importance to asbestos insurers with policies similar to CNA, as well as to their reinsurers, due to the potential for large losses.