COVID-19 business interruption coverage litigation may have stolen the show in 2020, but those cases should not eclipse other important insurance coverage cases decided throughout this past year. As the courts nationwide struggled with the insurance coverage implications of COVID-19 related business loss, other significant coverage decisions were overshadowed. Read on to learn about how computer glitches, biometric privacy, and a falling wheelbarrow have all played a role in\ shaping some of the most interesting and influential insurance coverage decisions of 2020, as well as get a sneak peek at the key coverage decisions looming in 2021. Enjoy!

1. Nash Street, LLC v. Main Street America Assurance Company, No. 20389, 2020 WL 5415325 (Conn. 2020)

Do exclusions k(5) and k(6) absolve an insurer of its duty to defend its insured for allegations of faulty workmanship?

No, under Connecticut’s broad duty to defend standard. Plaintiff, represented by SDV, sought a defense for a suit alleging faulty workmanship after part of a homeowner’s structure collapsed while work was performed on the foundation. The insurer denied coverage to the plaintiff, arguing that there was no coverage for “that particular part of any property that must be restored, repaired, or replaced because ‘your work’ was incorrectly performed on it.” The Connecticut Supreme Court sided with the insured, holding that exclusions k(5) and k(6)(which are identical to ISO GL exclusions j(5) and j(6)) did not unambiguously preclude coverage because it was at least possible that the exclusion was intended to apply only to damage in the area of the dwelling where the insured performed work. Because the contractor only worked on the basement, but damage occurred to the entire structure, coverage was not unambiguously excluded. As part of its analysis, the Court also articulated a new and more expansive test for the duty to defend, holding that an insurer owes a defense whenever there is “legal uncertainty,” meaning that it is unclear how a court might interpret a policy’s relevant language.

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2. Port Consol, Inc. v. Int’l Ins. Co. of Hanover, PLC 826 F.App’x 822 (11th Cir. 2020)

Do computer glitches that cause constant and repeated errors by a fuel pump constitute a single occurrence, or a series of occurrences?

It turns out that it’s only a single occurrence. According to the Eleventh Circuit, the repeated thefts of fuel resulting from a programming error were each an individual occurrence under a commercial property insurance policy. Specifically, a dispute arose when Port Consol filed a claim with its property insurer for losses arising out of a program glitch that dispensed thousands of gallons of extra fuel. Although each customer was only supposed to receive an allotted amount of fuel, the error allowed each customer to receive an extra 100 gallons of fuel per transaction at no charge. These losses frequently occurred between 2013 and 2015, with numerous “thefts” occurring between different drivers. When Port Consol sought coverage for the losses, Hanover argued that each “theft” constituted a separate occurrence, and as such, the loss never exceeded the applicable deductible. The Eleventh Circuit agreed with Hanover, holding that each “theft” constituted a separate occurrence. Therefore, it was subject to a separate deductible, because the “thefts” were distinguishable acts by time and space.

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3. Dorchester Mut. Ins. Co. v. Krusell 150 N.E.3d 731 (Mass. 2020)

Does an abuse and molestation exclusion preclude coverage for bodily injury arising out of a physical assault by the insured, which caused serious bodily injury?

No, according to the Massachusetts Supreme Judicial Court. The coverage actions arose out of a physical altercation between the insured and the underlying plaintiff. After a verbal dispute, the insured pushed the plaintiff, causing him to fall into a vehicle and eventually onto the ground. The plaintiff suffered broken bones and other injuries that required hospitalization and ultimately brought a civil suit against the insured. The insured sought a defense from his homeowner’s insurer, Dorchester Mutual Insurance Company, who denied coverage based on an exclusion for “bodily injury . . . arising out of sexual molestation, corporal punishment or physical or mental abuse.” The coverage action eventually made its way up to Massachusetts’ highest court, which held that Dorchester’s application of the exclusion was contrary to the reasonable expectations of the insured. Specifically, the Supreme Judicial Court held that the term “physical abuse” was ambiguous, and an insured would not expect the term and exclusion to apply to the insured’s conduct. The decision is a reminder that an insurance policy’s language should always be interpreted based upon the insured’s reasonable expectations.

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4. Erie Ins. Exch. v. Moore 228 A.3d 258 (Pa. 2020)

No. In Erie, the named insured went to the home of his ex-wife, intending to shoot and kill her and then kill himself. After killing his ex-wife, he was interrupted by her boyfriend at the house. A scuffle ensued, and the insured eventually shot the boyfriend multiple times. The insured’s estate was sued by the boyfriend, and the estate, in turn, sought coverage from the homeowner’s policy issued by Erie. Erie denied coverage, stating that the policy did not cover bodily injury, which was “expected or intended.” The Pennsylvania Supreme Court held that the exclusion did not apply because the language was ambiguous. It was conceivable that the injuries could have been caused by a negligent or accidental discharge of the firearm. Notably, the court interpreted the intentional acts exclusion to apply only where the insured intends or expects to cause the bodily injury that occurred. Similarly, because the allegations could be interpreted to constitute accidental conduct, they were an “occurrence” under the policy.

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5. Montrose Chem. Corp. v. Superior Court of Los Angeles Cty.

Should vertical exhaustion be applied to a long-tail loss spanning thirty-five years?

Yes, in California. Montrose Chemical sought coverage from multiple liability insurers for liability arising out of environmental damage in Los Angeles occurring between 1947 and 1982. Because the loss spanned many years, the insurers argued about the priority of coverage and their respective liabilities. The California Supreme Court resolved the dispute, holding that vertical exhaustion is the rule in California for cases (1) that involve progressive loss spanning multiple policy periods, (2) where all primary insurance has been exhausted, and (3) where permitted by policy language. Under the Montrose decision, an insured may access excess insurance whenever the underlying limits are exhausted for the same policy period. While vertical exhaustion is the rule, the Court also noted that excess insurers on the hook for the loss can seek contribution from other excess policies any given policy period also liable to the insured.

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6. W. Bend Mut. Ins. Co. v. Krishna Schaumburg Tan, Inc.

Does the Personal and Advertising Injury section of a business owner’s liability policy provide coverage for alleged violations of biometric privacy-related statutes?

Yes, under Illinois’ Biometric Information Privacy Act. Here, the named insured was hit with a class-action lawsuit alleging that it improperly used biometric scanning equipment and data in violation of the relevant statute. The insured sought a defense, arguing that the suit fell under the personal and advertising injury coverage grant for damages arising out of the “oral or written publication of material that violates a person’s right of privacy.” The court agreed, holding that the complaint alleged an injury that falls within this definition. As biometric privacy laws become more prevalent across the country, this decision reminds insureds to look to general liability policies for possible coverage.

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7. Skanska USA Bldg. Inc. v. M.A.P. Mech. Contractors, Inc.

Does a subcontractor’s defective construction constitute a covered “occurrence” under a general liability policy?

Yes. On June 29, 2020, Michigan become the twenty-sixth state to recognize defective construction as an “accident” and therefore a covered “occurrence” under a general liability policy. The construction manager plaintiff sought coverage for liability arising out of a general contactor’s faulty installation of several expansion joints. Concluding that faulty workmanship was not an “occurrence,” the subcontractor’s insurer denied coverage. SDV filed an amicus brief arguing that the subcontractor’s faulty workmanship was an “accident” and therefore, an “occurrence” under the policy, and the Michigan Supreme Court agreed. Notably, the court stated that the alternate view, expressed in decisions such as Weedo v. Stone-E-Brick, Inc., 405 A.2d 788 (N.J. 1979), reflected “an outdated view of the insurance industry.” This decision represents another victory for construction industry policyholders, as states across the country trend in favor of coverage for defective construction.

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8. N. Star Mut. Ins. v. Ackerman

Does the motor vehicle exclusion in a CGL policy preclude coverage for a vehicle accident caused by a falling wheelbarrow?

Not exactly. Here, the insured, Ackerman Homes, was sued after an unsecured wheelbarrow fell from one of its trucks, causing a serious accident and significant injuries on Interstate 94 in North Dakota. After being sued, Ackerman sought coverage from its commercial general liability insurer, North Star Mutual (“North Star”). NorthStar denied coverage, asserting that an exclusion for bodily injury arising out of the operation of a motor vehicle applied. Rejecting this argument, the North Dakota Supreme Court held that there were multiple acts of negligence that were independent in nature and non-vehicle related, including Ackerman’s failure to remove the wheelbarrow or warn drivers of its presence after it became loose. Because the injury was just as equally caused by these negligent actions, the exclusion did not apply, and Ackerman was entitled to coverage under its general liability policy.

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9. North State Deli, LLC v. The Cincinnati Ins. Co.

Roses 1, LLC, et al. v. Erie Insurance Exchange

Do commercial property policies provide coverage for COVID-19 related business interruption losses?

It depends. Insurers across the country have faced lawsuits arising out of denials for COVID-19 related business interruption losses, most commonly under commercial property policies. Many insurers have denied these claims on the basis that the insured’s property did not suffer “direct, physical loss” as required by the policy form. Since the outbreak of the pandemic in March, numerous courts have had the opportunity to decide this issue, resulting in decisions both for and against coverage. In Roses 1, LLC v. Erie, for example, the D.C. Superior Court granted Erie’s motion for summary judgment on the basis that, among other things, plaintiffs did not suffer direct, physical loss by way of actual virus exposure or the government’s shutdown orders. Contrast this decision with North State Deli, LLC v. Cincinnati, in which the court granted the insureds’ motion for summary judgment, holding that the term “direct physical loss” was ambiguous and concluded that the term includes “the loss of use or access to covered property even where that property has not been structurally altered.” These two decisions illustrate the diametrically opposed views on thi critically important and novel coverage issue. As we head into 2021, expect to see a significant number of decisions, which hopefully will provide greater clarity on coverage for COVID-19 related claims. You can stay up to date on all COVID-19 related lawsuits and decisions by following SDV’s COVID Tracker at the link below:

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10. In re Solera Ins. Coverage Appeals 240 A.3d 1121 (Del. 2020)

Does a shareholder appraisal action qualify as a “Securities Claim” under a D&O policy, thereby entitling an insured to coverage for such actions?

No, according to the Delaware Supreme Court. D&O policies generally provide coverage for a “Securities Claim” against an insured. Given the varied definitions of this term, it remains unclear exactly what type of adverse actions fall under this coverage grant. The Supreme Court of Delaware provided some guidance in 2020, holding that a shareholder appraisal action is not a “Securities Claim.” In 2016, Solera Holdings was acquired by Vista Equity as part of a merger. The agreed-upon stock price of $55.85 for the merger was too low, according to the shareholders who brought an appraisal action under Del. Code Ann. tit. 8, § 262. While incurring more than $13 million in legal fees and expenses, Solera sought reimbursement from its D&O carriers. The carriers denied coverage, arguing that the appraisal action did not qualify as a “Securities Claim,” defined broadly by the policy to include “any actual or alleged violation of any federal, state or local statute, regulation, or rule or common law regulating securities . . . .” Though the Superior Court decided that the appraisal action was a “Securities Claim” and within the scope of coverage, the Delaware Supreme Court reversed its decision because appraisal actions under § 262 do not adjudicate wrongdoing, something required by the definition of “Securities Claim.”

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CASES TO WATCH IN 20201

1. In re Farmers Texas County Mutual Insurance Co. Case No. 19-0701 (Texas Supreme Court)

In 2021, the Texas Supreme Court will decide whether the “Stowers” doctrine applies even though the insured is not hit with a verdict in excess of policy limits. Here, the named insured brought a “Stowers” doctrine claim against her auto insurer, Farmers Insurance Group, after it rejected a settlement offer for $350,000, which was well within policy limits. Instead, Farmers countered with an offer of $250,000. Fearing an excess verdict, the insured herself put up the additional $100,000 to settle the case. She subsequently brought a claim against Farmers for violating the “Stowers” doctrine. The “Stowers” doctrine, which requires that insurers act fairly and reasonably in considering settlement offers where a judgment may exceed policy limits, has traditionally applied only where an excess verdict is rendered. If the Texas Supreme Court accepts the insured’s arguments, it would have the effect of expanding the Stowers Doctrine to apply even prior to a verdict in excess of policy limits.

2. Citizens Property Insurance Corp. v. Manor House, LLC, et al.

In September of 2020, the Florida Supreme Court heard oral argument on the issue of whether or not a first party policyholder is entitled to consequential damages for a breach of contract claim. Plaintiffs brought suit against their first party property carrier, Citizens, alleging breach of contract and fraud for Citizens’ failure to properly adjust a loss from Hurricane Frances in 2004. According to Manor House, Citizens failed to timely and adequately adjust the loss, as well as pay undisputed amounts. Although a bad faith claim was barred by statute, plaintiffs sought extra-contractual, consequential damages for lost rents as a result of Citizens’ conduct and delay. The Florida Supreme Court accepted the following certified question from the Fifth Circuit District Court of Appeal: “[I]n a first—party breach of insurance contract action brought by an insured against its insurer, not involving suit under Section 624.155, Florida Statutes, does Florida law allow the insured to recover extra-contractual, consequential damages?” The Florida Supreme Court is set to decide this important question in the coming months.

3. G&G Oil Co. of Indiana v. Continental Western Insurance Co.

The Indiana Supreme Court will soon decide whether a commercial crime policy provides coverage for a bitcoin ransomware attack. G&G Oil filed a claim under its crime policy issued by Continental after suffering a ransomware attack, whereby the hacker accessed its computer system and rendered the computer system unusable. In order to regain access and decrypt its computer network, G&G paid four bitcoins worth approximately $35,000. G&G then sought coverage under its commercial crime policy, which was subsequently denied by Continental on the basis that the loss did not arise directly from the use of a computer to transfer funds fraudulently. The Court of Appeals of Indiana agreed, holding that the perpetrator did not engage in deception as part of its attack. The decision is likely to have broad implications for the increasing number of computer crime claims in today’s insurance marketplace.

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