Coverage Denied in NJ Environmental Suit Based on Policy’s Pending Litigation Exclusion

By: Sheila Raftery Wiggins

The New Jersey Appellate Division ruled that an insurer is not obligated to indemnify an insured for natural resources damages that it may pay in the underlying lawsuit brought by the New Jersey Department of Environmental Protection (“NJDEP”) because of the Policy’s Prior or Pending Litigation Exclusion.  This exclusion applies because the NJDEP’s suit is based on the same environmental contamination alleged in a 1987 Administrative Consent Order between the NJDEP and the insured.  Handy & Harman, et. al v. Beazley USA Services Inc. (Syndicates 623 and 2623 at Lloyd’s London), A-2068-20 (N.J. App. Div. March 2, 2023) (unpublished).

Lesson:  An administrative consent order – required by an environmental statute in order for the property to be sold in the 1980’s – is sufficient to constitute a “claim,” as defined by the Policy’s Prior or Pending Litigation Exclusion.

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California Court of Appeal Disposes of COVID-19 Coverage Dispute After Discovery Reveals Cause of Business Income Losses

By Max H. Stern and Holden Benon

Late last week, the California Court of Appeal issued another COVID-19 business interruption decision reminding us that creative arguments do not win the day for policyholders in California.  The true facts are decisive.

In Best Rest Motel, Inc. v. Sequoia Ins. Co., No. D079927, 2023 WL 2198660 (Cal. Ct. App. Feb. 24, 2023), the court upheld a trial court’s ruling on summary judgment, reasoning the policyholder could not show that its loss of business income was caused by “direct physical loss of or damage to property,” within the meaning of its commercial multi-peril insurance policy.

The policyholder, San Diego-based Best Rest Motel, Inc. argued that the presence of virus-infected droplets caused physical loss or damage rendering its property incapable of safely providing lodging to guests.  Readers familiar with these issues may recognize this as an attempt to plead facts that fall within the “hypothetical scenario” posited in dicta by the court in Inns-by-the-Sea.

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Mistakes Do Not Prove Malice: Federal Court in Dallas Enters Summary Judgment on Policyholder’s Bad Faith Claim

By: Daniel B. Heidtke

Alleging an insurer was “dilatory, deficient, and pre-textual” in its handling of a claim is not enough to state a claim for bad faith, explained the Northern District of Texas, as it entered summary judgment against a policyholder’s breach of the duty of good faith and fair dealing claim earlier this month.  After recognizing that the record lacked “expert testimony, proof of standard industry practices, [] legal authority” or evidence that demonstrated duplicity, the court held that the policyholder failed to meet his burden.  After all, the court explained, “mistakes do not prove malice” nor “does delay ensure duplicity”.

In Craig Collins v. State Farm Lloyds, Civil Action No. 3:21-cv-0982 (N.D. Tex. Feb. 3, 2023), Collins filed a claim on his homeowner’s insurance policy after a tornado damaged his home.  Collins’s insurer sent an adjuster to his home, who “took photographs, inspected the property, and filed a report.”  The adjuster recommended a total replacement cost, which Collins’s insurer paid.  The insurer continued to adjust and investigate his claim, performing a second inspection of Collins’s roof and, after paying an additional sum, sent a third adjuster to inspect Collins’s home.  The third adjuster recommended that the insurer pay an additional sum, which the insurer did, and hired an engineering firm to further inspect the property.  After concluding its inspection, the engineering firm concluded that no further damages were due to the tornado, but were due to “foundation movement and age-related deterioration.”  Evidently unhappy with the outcome and perhaps equally unhappy with the process, Collins filed suit alleging breach of contract, violation of the Texas Prompt Payment of Claims Act, violations of the Texas Deceptive Trade Practices Act, and breach of the common-law duty of good faith and fair dealing.

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ACCs and EPC: Ninth Circuit Certifies Question of Whether Policy Provision Can Circumvent Efficient Proximate Cause Doctrine

By: Daniel B. Heidtke

Earlier this month, the United States Court of Appeals for the Ninth Circuit certified the following questions to the Montana Supreme Court: “Whether an anti-concurrent cause (‘ACC’) clause in an insurance policy applies to defeat insurance coverage despite Montana’s recognition of the efficient proximate cause (‘EPC’) doctrine” and, if so, whether the relevant language in the policy at issue was an ACC clause that effectively circumvented the EPC doctrine.

In Ward v. Safeco Insurance Co. of America, Case No. 21-35757, the Court first analyzed Montana’s EPC doctrine, which provides: “where covered and noncovered perils contribute to a loss, the peril that set in motion the chain of events leading to the loss or the predominating cause is deemed the efficient proximate cause or legal cause of loss.”

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Duane Morris Insurance Team Expands Services in Washington State

Duane Morris is pleased to announce that Bill Baron has been admitted to practice law in the State of Washington. The firm has a team of coverage lawyers representing clients in insurance matters in Washington State.

The Team

About Duane Morris

Duane Morris is a recognized leader in the insurance and reinsurance industry, nationwide and internationally. The firm handles the full range of insurance matters, from the routine to the most complex, and our attorneys have a depth of experience in the field that is unsurpassed in the United States. Led by a core team representing commercial liability insurers in general, excess and professional lines, we also vigorously represent clients operating in all lines of the insurance and reinsurance business, including property and casualty, life, accident and health, management and professional liability, financial lines, surety and financial guaranty. Continue reading “Duane Morris Insurance Team Expands Services in Washington State”

Jim Dobbas to the Rescue

By: William J. Baron

The Ninth Circuit has held that the California rule permitting insurers to intervene to defend suspended corporate insureds also applies under federal procedural rules.  (See California Dept. of Toxic Substances Control v. Jim Dobbas, Inc. (9th Cir. 2022) 54 F.4th 1078, 1082.)

In Jim Dobbas, the Department of Toxic Substances Control (DTSC) sought a default judgment against a bankrupt limited liability company (Collins), which formerly owned contaminated land in Elmira, California.  The DTSC had obtained an order in Bankruptcy Court permitting it to sue Collins, but only to seek recovery from Collins’ insurers.

Upon receiving notice of the suit and the request for a default judgment, Collins’ insurers filed a motion to intervene as of right under Federal Rule of Civil Procedure 24(a)(2) to defend the claims against Collins, and also moved to set aside the default that had been entered.  (Id. at 1083-1084.)  The District Court denied the insurers’ motions to intervene and declined to set aside the default.  (Id. at 1084-1085.)

The Ninth Circuit reversed the first ruling, holding that the insurers were entitled to intervene as of right.  (Id. at 1082, 1090-1092.)  The Court found that California law applied and that the insurers had a legally protectable interest in intervening to defend the action, based on California’s direct action statute, Insurance Code section 11580.  (Id. at 1089-1093.)  The opinion noted that California courts have “repeatedly held that insurers have a protectable interest under § 11580 in preventing defaults by their insureds that are incapable of defending themselves or otherwise unwilling to do so,” because this statute permits plaintiffs to seek recovery on judgments from the defendants’ insurers.  (Id. at 1090 and 1090 fn. 14.)

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Clock is Ticking: New Law Restricts Time-Limited Policy Limit Settlement Demands

By: Dominica Anderson and Daniel B. Heidtke

Certain time-limited settlement demands delivered on or after January 1, 2023 will be subject to additional restrictions as California Code of Civil Procedure (“CCP”) Sections 999-999.5 take effect in the New Year.  In the past, policyholder counsel have issued policy-limit demand letters, with little detail, and little time to respond; threats and concerns over acting in “bad faith” abound.  In enacting CCP § 999-999.5, the California Legislature set about to establish restrictions and, importantly, clearer guidelines—for both policyholders and insurers.

Pursuant to CCP § 999(b)(2), a “time-limited demand” is defined as:

“an offer prior to the filing of the complaint or demand for arbitration to settle any cause of action or a claim for personal injury, property damage, bodily injury, or wrongful death made by or on behalf of a claimant to a tortfeasor with a liability insurance policy for purposes of settling the claim against the tortfeasor within the insurer’s limit of liability insurance, which by its terms must be accepted within a specified period of time.”

Thus, the new statutory requirements apply only to pre-litigation settlement demands and further only to limited causes of action and claims under automobile, homeowner, motor vehicle, or commercial premises liability insurance policies for property damage, personal or bodily injury and wrongful death claims.  (CCP § 999.5(a).)

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A Split Usage Based Auto Insurance Model for Owners of Level Four Autonomous Vehicles?

By: Holden Benon

On June 15, 2022, the National Highway Traffic Safety Administration (NHTSA) released its initial summary reporting on autonomous vehicle crashes collected through its Standing General Order. According to the NHTSA, in the last year, there were 130 reported crashes involving vehicles with levels 3-5 automated-driving systems. Although NHTSA’s recent summary does not specify what caused these accidents, we might anticipate two eventualities going forward: the number of reported crashes may increase as autonomous vehicle technology becomes more widely adopted, and the question of whether crashes were caused by the driving system or the driver will increasingly be a factor in determining liability. Against this backdrop, one might wonder how personal auto insurance will evolve to meet these changes.

By way of background, road vehicles come with varying degrees of automation technology. To differentiate between these varying degrees, the Society of Automotive Engineers defined different levels: “level zero” refers to fully manual vehicles, while “level one” refers to cars with basic driving assistance features (e.g., adaptive cruise control) and “level two” refers to cars with more advanced driving features (think Tesla Autopilot). Meanwhile, levels three and four refer to “conditional driving automation” and “high” automation, respectively. Level five, the highest defined level of autonomy, refers to “full” automation, where no driver is needed at all.

This article focuses on personal auto insurance for owners of level four autonomous vehicles, i.e., vehicles equipped with artificial intelligence systems capable of performing all driving tasks, but which also permit the driver to take full control if necessary or if desired.

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Lead Paint Coverage Claim Bites the Dust

By: Gina Foran, Bill Baron, and Phil Matthews

Duane Morris lawyers helped secure a victory at the California Court of Appeal when the court held Tuesday that ConAgra’s insurers have no duty to indemnify ConAgra against a public nuisance action in which ConAgra was ordered to contribute to an abatement fund due to its predecessor’s promotion of the use of lead paint in pre-1950 homes.  (See Certain Underwriters at Lloyd’s London, et al. v. ConAgra Grocery Products Company, et al., Case No. A160548, April 19, 2022, certified for publication (“ConAgra”).)

The underlying case (the “Santa Clara Action”) began in 2000 when Santa Clara County, later joined by other California government agencies filed a class action complaint against certain lead paint manufacturers, including ConAgra, NL Industries, Inc., and Sherwin-Williams Company. The focus of the underlying case was narrowed, and that case ultimately went to trial on one cause of action for representative public nuisance.  In pursuing that causes of action, the underlying plaintiffs alleged that the presence of lead in paint and coatings in and around homes and buildings in California created a public health crisis created and/or assisted by the defendants.  In a pre-trial appeal in the Santa Clara County action, the court held that the representative public nuisance cause of action required as an essential element that the paint manufacturers had acted intentionally with actual knowledge that their marketing of lead paint for interior residential use would cause harm.  (See County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 299 (“Santa Clara I”).)  The underlying case went to trial under that standard, and the court found the manufacturers jointly and severally liable for representative public nuisance.

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Coverage Was Not In the Cards for Circus Circus Casino, Holds Ninth Circuit

By Max H. Stern and Holden Benon

Yesterday, the United States Court of Appeals for the Ninth Circuit issued a succinct but well-reasoned decision that there was no coverage for a Las Vegas Hotel & Casino’s COVID-19-related business interruption loss under the coverage provided by an “all risks” insurance policy. See Circus Circus LV, LP v. AIG Specialty Ins. Co., No. 21-15367 (9th Cir. Apr. 15, 2022).

Even though Nevada law governed the analysis, the court’s written opinion leaned heavily on appellate authorities that applied California law (in particular, the California Court of Appeal’s Inns-by-the-Sea decision and the Ninth Circuit’s Mudpie decision).  The Circus Circus court followed the Inns-by-the-Sea causation analysis in holding that, despite Circus Circus’ allegation that the coronavirus was present on its premises, it failed to identify any direct physical damage to its property caused by the virus which led to the Casino’s closure. “Rather,” the court observed, “the allegations surrounding Circus Circus’s closure are based on the local Stay at Home Orders.”  Citing Mudpie, the court also held that Circus Circus failed to allege it suffered a direct physical loss of its property, reasoning the loss must be due to a “distinct demonstrable, physical alteration of the property.”

The  Circus Circus decision adds to the line of appellate authorities that have adhered to the same reasoning articulated in the initial COVID-19 appellate decisions that came down last year.  In the cases that are still currently pending, the odds certainly seem to favor the carriers.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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