Almost eight months into the new administration, the federal government has slashed staffing at the Environmental Protection Agency and begun unwinding both recent and long-standing environmental rules. Policyholders and carriers see the regulatory pullback from pollution and other standards as bringing immediate benefits and long-term uncertainty.
Pollution claims have largely emerged from historic commercial general liability policies written before the mid-1980s, when an absolute pollution exclusion became the industry standard, and subsequent pollution risk policies, said Max H. Stern of Duane Morris.
“Very likely, we’ll see a decrease in new claims being made with a major reduction in environmental enforcement, and that will be helpful to the pollution liability insurance market because they’re just going to have less risk,” he told Law360. Read the full article on the Law360 website.
Chambers USA Recognizes Duane Morris Insurance Group and Attorneys
Duane Morris LLP is pleased to announced that Chambers USA has recognized Duane Morris Insurance group and attorneys.
Nationwide
Insurance: Dispute Resolution: Insurer
Philip R. Matthews, Insurance: Dispute Resolution: Insurer
Max H. Stern, Insurance: Dispute Resolution: Insurer
California
Philip R. Matthews, Insurance: Insurer
Max H. Stern, Insurance: Insurer
Pennsylvania
Steven Burgess Davis, Insurance
California Supreme Court Questions Existence of “So-Called” Illusory Coverage Doctrine Under California Law As It Rejects Insured’s Coverage Arguments For COVID-19-Related Losses
By Max Stern, Terrance Evans, Todd Norris and Jessica La Londe
On August 8, 2024, in a case entitled John’s Grill v. The Harford Financial Services Group, No. S278481, the Supreme Court of California questioned the existence of the “so-called” illusory coverage doctrine under California law, as it concluded that a policyholder had, in any event, failed to satisfy its foundational elements.
John’s Grill suffered substantial losses during the COVID-19 pandemic. Its insurer denied coverage on various grounds including that the loss or damage claimed by John’s Grill did not fall within the insurance policy’s “Limited Fungi, Bacteria or Virus Coverage” endorsement. That endorsement generally excludes coverage for any virus-related loss or damage that the policy would otherwise provide, but it extends coverage for virus-related loss or damage if the virus was the result of certain specified causes of loss, including windstorms, water damage, vandalism, and explosion.
John’s Grill acknowledged that it could not meet the latter specified cause of loss limitation. Instead, it contended the limitation was unenforceable because it rendered the policy’s promise of virus-related coverage illusory. The Court of Appeal below agreed, and allowed John’s Grill’s claims for virus-related losses or damage to proceed.
Relying on “long-settled principles of contract interpretation,” the Supreme Court of California reversed, concluding that the “plain meaning of the policy govern[ed].” The Court stated that it “has never recognized an illusory coverage doctrine as such,” and rejected “the so-called illusory coverage doctrine [as articulated by John’s Grill],” stating that it “does not appear in our precedents.”
The Court went on to explain that even assuming some version of the doctrine did exist under California law, there were two hurdles John’s Grill would still need to clear before it could establish coverage, and it had not cleared either one in this case. First, in such a case, an insured would have to “make a foundational showing that it had a reasonable expectation that the policy would cover the insured’s claimed loss or damage.” The Court declared that “[s]uch a reasonable expectation of coverage is necessary under any assumed version of the doctrine.” Here, the Court concluded that based on the policy language limiting coverage to certain causes, John’s Grill could not have an objectively reasonable expectation the policy would provide coverage for all virus-related loss or damage, regardless of the cause. Second, the Court explained that even accepting John’s Grill’s articulation of the doctrine, it still could not demonstrate that coverage was illusory. The Court noted that restaurants handle both raw and cooked food, which could be contaminated by a virus and that “John’s Grill has not shown that the prospect of such contamination by water damage or other specified cause of loss is so unrealistic as to render the promised coverage illusory.” According to the Court, it is for the insured to consider the likelihood of benefiting from the policy’s limited virus coverage when obtaining coverage.
Insurers Prevail in California Supreme Court on COVID-19 Business Interruption Coverage
By Todd Norris, Max Stern, Brian Kelly, Terrance Evans and Jessica La Londe.
Earlier today, the Supreme Court of California issued a long-awaited opinion answering an insurance coverage question that had been certified to it by the Ninth Circuit Court of Appeals in Another Planet Entertainment, LLC v. Vigilant Ins. Co. (Cal. May 23, 2024, No. S277893) 2024 WL 2339132: “Can the actual or potential presence of the COVID-19 virus on an insured’s premises constitute ‘direct physical loss or damage to property’ for purposes of coverage under a commercial property insurance policy?” (Another Planet Entertainment, LLC v. Vigilant Insurance Co. (2022) 56 F.4th 730, 734.)
“[T]he question [arose] in the context of a civil lawsuit filed by Another Planet Entertainment, LLC (Another Planet) against its property insurer, Vigilant Insurance Company (Vigilant). Another Planet operates venues for live entertainment. It suffered pandemic-related business losses when its venues closed, and Vigilant denied Another Planet’s subsequent claim for insurance coverage. Another Planet filed suit in federal district court, alleging that the actual or potential presence of the COVID-19 virus at its venues or nearby properties caused direct physical loss or damage to property and triggered coverage under its insurance policy. The district court granted Vigilant’s motion to dismiss for failure to state a claim, and Another Planet appealed. According to the Ninth Circuit, the issue on appeal “[was] whether [Another Planet’s] allegations, if taken as true, were sufficient to show ‘direct physical loss or damage to property’ as defined by California law.’ (Another Planet, supra, 56 F.4th at p. 731.) Because the Ninth Circuit concluded that resolution of this question of California law could determine the outcome of the case pending before it, the Ninth Circuit certified the question to [the Supreme Court of California.]” (Another Planet, 2024 WL 2339132, at *1.) Continue reading “Insurers Prevail in California Supreme Court on COVID-19 Business Interruption Coverage”
Two Novel Ways to Lose Attorney-Client Privilege According to Recent Special Master Decisions
There are well-known ways to waive the protection of the attorney-client privilege: for example, the intentional disclosure of an initially confidential communication to someone outside of the privileged relationship waives the privilege; accusing your lawyer of malpractice also waives the privilege. But there are also some less well-known ways to waive the attorney-client privilege that can trip up the unwary…
Read the full article by Kevin P. Allen on the Duane Morris website.
Coverage Denied in NJ Environmental Suit Based on Policy’s Pending Litigation Exclusion
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.
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”
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.
Ninth Circuit Applies Nevada Law and Finds No Coverage for COVID-19 Business Interruption Loss
By Max H. Stern and Holden Benon
Late last week, the United States Court of Appeals for the Ninth Circuit ruled there was no coverage for the policyholder’s COVID-19-related business interruption loss under the coverage provided by a commercial property policy. See Levy Ad Group, Inc. v. Federal Ins. Co. et al., No. 21-15413 (9th Cir. Mar. 17 2022, applying Nevada law). In reaching its decision that the insured’s economic losses did not constitute “direct physical loss or damage,” the Levy court simply stated it agreed with “the numerous published decisions interpreting nearly identical policy language . . . and unanimously concluding coverage does not exist.”
Levy represents the first appellate authority applying Nevada law ruling to these issues in the COVID-19 context, and we are confident it will not be the last to come down in favor of the insurers. Earlier this month, the Ninth Circuit heard oral arguments in Circus Circus LV, LP v. AIG Specialty Insurance Co., another COVID-19 business interruption case that originates in the Silver State. With Levy now decided, it seems unlikely that Circus Circus will break ranks for the “numerous published decisions” in the insurers’ favor.
If you have any questions regarding the Levy decision, or questions regarding business interruption insurance issues generally, please feel free to contact us. Duane Morris has an extensive insurance coverage practice within the Ninth Circuit states and beyond.
California’s Highest Court Rejects Inns-by-the-Sea’s Petition for Review
By Max H. Stern and Holden Benon
This week, the California Supreme Court declined to hear the Policyholder’s appeal of the Court of Appeal’s decision in The Inns by the Sea v. California Mutual Ins. Co., which we previously reported on. For those tracking the COVID-19 business interruption appellate landscape, this should come as no surprise. The Court of Appeal’s decision is well-reasoned, and it is aligned with many COVID-19 business interruption decisions across the nation that have reached very similar conclusions. Policyholder attorneys expressed it is “hard to feel hopeful at this point.” We can understand why.