Developments in drone technology are often heralded as having the potential to change the landscape of business operations, most prominently in the consumer goods shipping sector. Yet, the development of federal regulation and guidance on the commercial use of drones lags behind the pace of innovation. Meanwhile, litigation highlighting the common law tort risks inherent in drone operations has been percolating in jurisdictions around the country. It is no surprise, then, that users of the technology face major uncertainty in terms of their exposure to liabilities, both known and unknown.
In a 4-3 decision filed on March 11, the Nevada Supreme Court responded to a certified question from the United States Court of Appeals for the Ninth Circuit. In Nautilus Insurance Company v. Access Medical, LLC; Robert Clark Wood, II; and Flournoy Management LLC, 137 Nev. Adv. Op. 10 (Nev. 2021), the court held that an insurer that reserves its right to seek reimbursement of defense costs paid to defend an insured may recover those defense costs from the insured upon a showing that the claim was not covered. The court held, “when a court finally determines that the insurer had no contractual duty to defend, the insurer may ordinarily recover in restitution if it has clearly reserved the right to do so in writing.”
The coverage dispute arose out of underlying litigation between former business partners that worked together selling medical devices. “After the partnership soured,” one of the former business partners alleged in a lawsuit that his former business partners (the insureds, in the coverage dispute) intentionally interfered with his new business, including by allegedly telling a prospective client that he was “banned” from selling medical devices. The former business partner-insureds tendered the intentional interference claim to their insurance carrier.
In an opinion filed on March 8, the California Court of Appeal, Second District, reversed a jury verdict against an insurer because the jury failed to make an explicit finding that the insurer acted unreasonably in some respect. In Alexander Pinto v. Farmers Ins. Exch., Case No. B295742, the court held that a bad faith claim requires a finding that the insurer acted unreasonably in some respect. Because the jury made no such finding (because the verdict form lacked any question asking the jury to make such a finding), the court vacated the verdict in favor of the insured and remanded the case for further proceedings.
The coverage dispute arose out of a single-car traffic accident. The victim offered to settle his claim against the vehicle owner in exchange for payment of the vehicle owner’s insurance policy limits. The offer lapsed before the insurer accepted it. The victim then obtained a judgment in excess of the vehicle owner’s insurance policy limits. The vehicle owner then assigned her claims against the insurer to the victim. The victim then sued the insurer alleging that the insurer should be held liable for its alleged bad faith failure to settle. The victim prevailed at trial against the insurer.
At issue in the appeal was the lack of an express finding by the jury that the insurer had acted unreasonably (again, the lack of an express finding was because the jury had not been asked this question on the verdict form). The court explained, “[t]he issue is whether, in the context of a third party insurance claim, failing to accept a reasonable settlement offer constitutes bad faith per se. We conclude it does not.”
The District of New Jersey granted a motion to dismiss a restaurant owner’s purported class action lawsuit seeking business interruption coverage by analyzing: (1) the New Jersey Governor’s Executive Order and (2) the policy language, in a commercial all-risk property damage policy, that excluded coverage for losses covered by viruses.
In N&S Restaurant LLC v. Cumberland Mutual Fire Insurance Company, No. 20-05289 (RBK/KMW), plaintiff filed a claim for loss of business income caused by the New Jersey Governor’s Executive Order which suspended the operation of non-essential retail businesses in response to the ongoing COVID-19 pandemic. The insurance policy provides coverage for “direct physical loss of or damage to Covered Property at the described premises . . . caused by or result[ing] from any Covered Cause of Loss.” Plaintiff requested coverage under three separate policy provisions: (1) the “Business Income” provision; (2) the “Extra Expense” provision; and (3) the “Civil Authority” provision.
The “Business Income” provision provides as follows:
We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your “operations” during the “period of restoration”. The suspension must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss. With respect to loss of or damage to personal property in the open or personal property in a vehicle, the described premises include the area within 100 feet of such premises.
The “Extra Expense” provision provides as follows:
We will pay necessary Extra Expense you incur during the “period of restoration” that you would not have incurred if there had been no direct physical loss or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.
The “Civil Authority” provision provides as follows:
When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises
The policy also denies coverage under several enumerated exclusions. Under the Virus Exclusion, Defendant “will not pay for loss or damage caused directly or indirectly by” any “Virus or Bacteria,” which is any “virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” The Virus Exclusion includes an anti-concurrent causation preamble, which states that “[s]uch loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss[.]”
Defendant denied Plaintiff’s request for coverage, citing two primary reasons: (1) the claim was barred by the Virus Exclusion, and (2) the claim did not arise out of physical loss or damage as required by each of the applicable provisions. Defendant asserted that because COVID-19 caused the Executive Order mandating closure of all non-essential businesses, the Virus Exclusion applies.
Plaintiff asserted that the Virus Exclusion does not apply because the “cause of Plaintiff’s loss was the Closure Orders, not the coronavirus.” Plaintiff supports this point by asserting that its claimed loss is not for decontaminating its premises as a result of a coronavirus infestation.
When analyzing Defendant’s motion to dismiss, the District Court focused on the anti-concurrent causation clause of the Virus Exclusion which specifically states that loss caused directly or indirectly by a virus is excluded. The District Court concluded that there is no doubt that COVID-19, a virus, caused New Jersey’s Governor to issue the Executive Order mandating closure of Plaintiff’s restaurant. Therefore, COVID-19 is still a cause of the closure because the Virus Exclusion specifically provides for such indirect causation. The District Court further stated that there is no requirement, as Plaintiff suggests, for the virus to have physically caused the loss, such as via contamination of the property. The District Court analyzed that although costs for decontamination would certainly be a direct loss caused by the virus, this is not the only possible loss that would trigger the Virus Exclusion. The District Court ruled that by its plain language, the Virus Exclusion applies, barring coverage
This District Court case is one of a growing number of rulings which dismiss similar cases. We expect that this body of law will continue to develop.
By: Gina Foran
Last week, Judge Birotte Jr. of the Central District of California dismissed a declaratory relief and bad faith action against Travelers Indemnity Company of Connecticut seeking coverage for COVID-19 business income losses. Plaintiff, a Los Angeles-based restaurant significantly impacted by COVID-19, held a policy with Travelers that it alleged provided coverage for COVID-19 losses.
By: Gina Foran
The Minnesota Supreme Court issued its long-anticipated ruling regarding the requirements an insured must prove in order to satisfy the state’s first party bad faith statute. Minn. Stat. § 604.18 creates a direct cause of action by an insured against its insurer if the insurer fails to act in good faith. Under section 604.18, subd. 2, a court may award costs to an insured against an insurer, provided the insured can make certain showings. The court held that the statute’s two-prong test requires that: (1) the insured prove, under an objective analysis, that after conducting an investigation and fairly evaluating the evidence, a reasonable insurer would not have denied the insured’s claim; and (2) the insured prove, under a subjective analysis, that the insurer knew, or recklessly disregarded information that would allow it to know, that it lacked a reasonable basis for denying the insured’s claim for benefits.
In Peterson v. Western National Mutual Insurance Company, 946 N.W.2d 903 (Minn. 2020), plaintiff held a Western National Mutual Insurance Company (“Western National”) auto insurance policy with limits of $250,000. After being involved in a car accident, plaintiff suffered bodily injuries, including chronic headaches, necessitating treatment. Plaintiff sued the driver of the other car and notified Western National that her damages would exceed the limits of the other driver’s insurance, such that she would seek underinsured motorist benefits under her Western National policy. After plaintiff settled with the other driver, she sent a settlement demand to Western National, seeking the policy’s limit. Plaintiff provided medical bills and authorized Western National to obtain additional medical records. The medical records showed that plaintiff experienced and sought treatment for chronic headaches after the accident. Western National failed to pay plaintiff her benefits, expressly denied plaintiff’s claim, and failed to respond to a renewed policy limits demand. Western National also failed to accept that plaintiff’s headaches were caused by the car accident.
By Damon Vocke
On July 31, the seven-member Judicial Panel on Multi-District Litigation (JPML) heard oral argument of extraordinary length on the potential consolidation of all federal cases involving business interruption coverage relating to COVID-19 and/or COVID-19 shutdown orders, totaling approximately 449 such federal cases, roughly 200 of which are putative class actions. Continue reading “Panel Rejects Consolidation Of All Federal Business Interruption Cases”
By Damon Vocke
On July 30, the Judicial Panel on Multi-District Litigation (the Panel) heard oral argument of extraordinary length on the potential consolidation of all the federal cases involving business interruption coverage relating to COVID-19 and/or the COVID-19 shut-down orders. There are some 449 such federal cases, approximately 200 of which are putative class actions.
Normally, the arguments for consolidation are short. This one was not. This was likely due to the importance of the pandemic-related litigation, as well as the multiplicity of positions.
Several policyholder plaintiffs argued for national consolidation. Insurer-specific consolidation was the most common fall-back position among the policyholder plaintiffs. Several policyholder plaintiffs argued against any consolidation – most notably, David Boies. Counsel for some of the insurer defendants argued on behalf of the industry against any consolidation. Continue reading “Lengthy Oral Argument on Potential Consolidation of Business Interruption Coverage Cases Related to COVID-19”
Berkshire Hathaway and one of its units on Monday urged a Pennsylvania federal court to toss a restaurant’s suit seeking insurance coverage for losses caused by the COVID-19 pandemic, arguing that a virus exclusion “plainly applies” to the restaurant’s claims.
To read the full text of this article, please visit the Law360 website.
To date, approximately 150 business-interruption insurance coverage lawsuits have been filed in federal courts arising from COVID-19 and related government-ordered restrictions. In what appears to be the first substantive ruling on the merits in these cases, the Southern District of New York recently ruled against an insured who could not meet its burden to show a likelihood of success in establishing “property damage” due to the novel coronavirus to support its claim for injunctive relief. See Social Life Magazine, Inc. v. Sentinel Ins. Co., 1:20-cv-03311-VEC (Dkt. 24-1, S.D.N.Y. May 14, 2020). Judge Caproni expressed sympathy “for every small business that is having difficulties during this period of time,” but concluded that “New York law is clear” in requiring actual property damage to trigger business interruption coverage. Because the insured’s coverage theory rested on a government shutdown in the absence of any property damage, the Court denied its preliminary injunction motion, reasoning “this is just not what’s covered under these insurance policies.”