California Court Dismisses COVID-19 Business Income Loss Suit

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.

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Minnesota Supreme Court Issues Ruling on First-Party Bad Faith Statute

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.

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Insurer Seeks Declaration that Insured not Entitled to Coverage for COVID-19-Related Losses in Excess of Aggregate Limits

by: Gina Foran

This week, U.S. Specialty Insurance Company (“USSIC”) filed a declaratory relief action in the U.S. District Court for the Southern District of Texas seeking a judicial declaration that  its insured, Gartner Group, Inc. (“Gartner”), is not entitled to coverage in excess of the Event Cancellation Insurance policy’s aggregate limit of $150 million for COVID-19-related losses.

USSIC issued an event cancellation policy to Gartner, a global research and advisory company that holds several events and conferences each year. Due to the COVID-19 pandemic, Gartner cancelled or postponed a majority of its events scheduled for 2020. In the complaint, USSIC states that it accepted Gartner’s submitted claims and that these claims will potentially exhaust the policy’s aggregate limit of indemnity of $150 million.

Gartner allegedly takes the position that it has a right to coverage in excess of the aggregate limit of $150 million based on a reinstatement of limits provision of the policy that allows the insured to request reinstatement of “that part of the Limit of Indemnity shown in the Schedule utilized by way of any potential or actual loss payment under this insurance.” USSIC states that  the reinstatement of limits provision has no impact on the aggregate limit of indemnity, which it states is capped at $150 million. Instead, USSIC states, the reinstatement of limits provision only authorizes Gartner to reinstate that part of the original limit of indemnity of an event/conference listed in the schedule of events that is eroded by payment of actual or potential loss.

USSIC additionally states that Gartner is not entitled to an increase of indemnity limits for COVID-19-related losses under the fortuity doctrine and known loss rule, as well as a prior known loss exclusion in the policy, all of which deal with whether insurance is available to an insured for known losses. USSIC states that because coverage under the requested reinstatement has not incepted, it should not be available because Gartner is aware of the COVID-19 pandemic.

California Restaurants File Declaratory Relief Action Seeking Coverage for COVID-19-Related Losses

by Dominica C. Anderson, Philip R. Matthews, and Gina M. Foran

On Wednesday, French Laundry and Bouchon Bistro, two high-end Michelin star Napa Valley restaurants, filed the first California coverage suit for COVID-19-related losses including lost business income. Plaintiffs, represented by the same firm that filed the first COVID-19 coverage lawsuit in New Orleans two weeks ago, allege that the Napa County stay-at-home order related to COVID-19 caused them to lose business and furlough over 300 employees.

Plaintiffs allege they carry a property, business personal property, business income and extra expense policy issued by Hartford Fire Insurance Company. Plaintiffs allege that the policy’s “Civil Authority” insuring agreement entitles them to “the actual loss of business income sustained and the legal, necessary and reasonable extra expenses incurred” due to the Civil Authority’s order prohibiting access to the businesses. The “Civil Authority” is the Napa County Health Officer, Karen Relucio, a named defendant who is alleged to have issued the stay at home order. Like many similar orders around the state, the order restricts restaurant services to take out and delivery.

It is important to note that the policyholders in this case allege that the policy contains a Property Choice Deluxe Form that specifically extends coverage to direct physical loss or damage caused by virus. The policyholders do not cite the specific policy language at issue and are not seeking any determination in their suit that their facilities are directly damaged by the virus.

Duane Morris’ insurance and reinsurance group continues to monitor COVID-19-related events.

Insurance Adjusters Can Be Sued Individually for Bad Faith in Washington

In a decision for Division One of the Washington Court of Appeals, Moun Keodalah, et al. v. Allstate Ins. Co., et al., No. 75731‑8-I, 2018 WL 1465526 (Wash. Ct. App. Mar. 26, 2018), the court held that a policyholder may directly sue an insurance claims adjuster for insurance bad faith and violations of the Washington Consumer Protection Act (“CPA”), even if the adjuster is acting within the course and scope of his or her employment. Prior to this decision, Washington courts permitted an insurance adjuster to be named individually in cases alleging bad faith or CPA violations only if they were employed by a third party independent adjusting firm.

The underlying case which resulted in the Keodalah decision involved a motorcycle accident where the insured, Keodalah, was hit by an uninsured motorcyclist while both were driving. The motorcyclist died and Keodalah suffered injuries. Keodalah had UIM insurance through Allstate.

A police investigation determined that the motorcyclist was speeding and that Keodalah was not on the phone during the time of collision. Allstate’s own investigation also revealed that motorcyclist was speeding and splitting lanes at the time of the accident and that the motorcyclist’s excessive speed caused the collision.

Keodalah requested that Allstate pay its $25,000 UIM limits. Allstate denied, offering $1,600 to settle the claim based on its assessment that Keodalah was 70% at fault. After Keodalah asked Allstate to explain its basis for its position, Allstate increased its offer to $5,000.

Keodalah then sued Allstate, asserting a UIM claim. Allstate designated Tracey Smith, an Allstate insurance adjuster on the claim, as its 30(b)(6) representative. Smith claimed that Keodalah ran the stop sign and was on his cell phone, despite the fact that Allstate had the investigative reports showing the opposite. Smith later admitted that her statements were untrue.

Before trial, Keodalah rejected Allstate’s offer of $15,000 to settle the claim. The case proceeded to trial where the jury determined the motorcyclist was 100% at fault and awarded Keodalah $108,000.

Keodalah then filed suit against Allstate and Smith. Keodalah alleged IFCA violations, insurance bad faith, and CPA violations. After the trial court dismissed Keodalah’s claims against Smith, the Washington Court of Appeals granted discretionary review on two issues.

First, the court looked at whether an individual insurance adjuster may be liable for bad faith, concluding that this is permissible. It reasoned that the pertinent statute, RCW 48.01.030, required that “all persons” involved in insurance act in good faith. The term “person” was defined to include an individual. Therefore, the court determined that under the plain language of the statute, insurance representatives, as individuals, had a duty to act in good faith and could be sued if they breach that duty. The court also cited to two Washington decisions for support – one in federal district court and one in Division Three of the Washington Court of Appeals – which similarly held that the same statute unambiguously applies to corporate insurance adjusters based on the statute’s plain language. The difference in Keodalah was that the insurance adjuster was an individual adjuster employed by the insurer, while the prior cases involved third-party corporate adjusters.

The second issue was whether an individual insurance adjuster could be liable for violation of the CPA, which prohibits “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” RCW 19.86.020. The court answered this question in the affirmative, rejecting Smith’s argument that a contractual relationship is required in order for there to be liability under the CPA.

The court did hold that the plaintiff was foreclosed from suing the insurance adjuster under the Washington Insurance Fair Conduct Act (“IFCA”) due to the recent decision in Perez-Cristantos v. State Farm Fire & Casualty Insurance Co, 187 Wn.2d 669, 672 (2017), which held that the IFCA does not create an independent cause of action against insurers for regulatory violations.

At this time, no petition has been filed yet seeking review of this decision by the Washington Supreme Court.