By: Max H. Stern & Holden Benon
It has been a busy year and a half since the earliest COVID-19-related Business Interruption lawsuits were filed, and we are now seeing real decisions being made by the appellate courts on these claims. The U.S. Circuit Courts of Appeals have established a uniformly favorable trend for insurance carriers – these courts have affirmed the district court decisions that have ruled in favor of the insurers, and in one case, the Sixth Circuit vacated a district court’s decision that ruled in favor of the policyholder.
Starting with the Ninth Circuit (where Duane Morris’ insurance group maintains a strong presence), carriers have enjoyed successful outcomes in a trio of much-anticipated decisions. In Mudpie, Inc. v. Travelers Casualty Insurance Company of America, Case No. 20-16858, 2021 WL 4486509, at *1 (9th Cir. Oct. 1, 2021) (applying California law), Mudpie, a San Francisco-based children’s store, brought a proposed class action asserting breach of contract and bad faith against its property insurance carrier. As in many COVID-19 business interruption cases, the carrier had denied its insured “Business Income” and “Extra Expense” coverage in 2020, after government authorities issued public health orders in response to the COVID-19 pandemic. Id. at *2. (For more background on business interruption insurance, please refer to one of our earlier blog posts on this topic.)
Mudpie made the argument that its inability to use its premises amounted to “direct physical loss or damage to” its property, sufficient to bring its claim within the scope of the policy’s business interruption coverage. Id. The court rejected this argument, however, reasoning that the phrase “direct physical loss of or damage to” requires some kind of physical alteration to the property in question. Id. at *5. The court also held that the policy’s virus exclusion bars coverage for the insured’s claims. Id. at *7. As many policyholders have tried arguing, Mudpie claimed that its losses were not subject to the policy’s virus exclusion because its losses were caused not directly by the virus, but by stay-at-home orders that restricted the insured’s use of its property. But the court didn’t buy this argument because Mudpie failed to meet the “efficient proximate cause” test. Id. (“Mudpie does not plausibly allege that ‘the efficient cause,’ i.e., the one that set others in motion was anything other than the spread of the virus throughout California, or that the virus was merely a remote cause of its losses.”) (internal citation omitted). In the end, the court affirmed the district court’s decision ruling in favor of the insurer. Id. at *7.
Continue reading “Carriers Enjoy Unanimous Success in Recent Wave of COVID-19 Business Interruption Decisions in Federal Appeals”
The California Court of Appeal for the Fourth District, Division Two, in 21st Century Ins. Co. v. Superior Court (Tapia), ___ Cal.App.4th ___ (No. E062244, September 10, 2015), recently confirmed some of the important protections for defending insurers against stipulated judgments that were established in the Hamilton and Safeco decisions and limited the application of other decisions that have been relied on by claimants and policyholders seeking to get around the Hamilton rule against bad faith actions premised on such stipulated judgments. Continue reading “Protections Against Defended Policyholder Manufacturing Bad Faith Case Via Stipulated Judgment Confirmed By California Court”
Today the California Supreme Court issued its decision in Fluor Corporation v. Superior Court. In a unanimous decision, authored by the Chief Justice, the Court rejected the enforceability of “consent to assignment” clauses as a bar to coverage when the loss pre-dates the assignment, based on California Insurance Code section 520, and overruled its prior decision in Henkel Corp. v. Hartford Acc. & Indem. Co. (2003) 29 Cal.4th 934.
Continue reading “California Supreme Court Issues Fluor Decision, Reverses Henkel Anti-Assignment Rule”
A California Court of Appeal has affirmed a summary judgment in favor of the insurer on defense and indemnity with respect to claims that arose from circumstances known to the policyholder when it applied for professional liability insurance but that were not disclosed to the insurer in the application. Crown Capital Securities, L.P. v. Endurance American Specialty Ins. Co. (Cal.Ct.App, 2d Dist., Div. 5, 4/10/15). Because the application stated that a claim is excluded from coverage if arising from any undisclosed circumstance that was required to be disclosed in response to a question asked, and the application requested disclosure of circumstances that may result in a claim, the policyholder was not entitled to coverage for claims arising from the known but undisclosed circumstance.
Continue reading “Application Exclusion Bars Coverage for Claims Arising from Known, Undisclosed Circumstance”
In McMillin Companies, LLC v. American Safety Indemnity Co. (4th Dist. Div. 1, No. D063586, January 22, 2015 (published in relevant part)), the California Court of Appeal for the Fourth District has provided some meaningful guidance on how a trial court should handle issues that regularly come up in cases where an alleged additional insured claims breach of the duty to defend by multiple insurers, including explaining the significance of an insurer’s unsuccessful attempt to obtain summary judgment on the duty to defend, the significance of other insurer settlements on claims against the remaining insurer, and the procedure for applying an offset to the policyholder’s claim for such settlements.
Continue reading “California Guidance on Complex Duty to Defend Disputes over Additional Insured Status”
The Second District Court of Appeal has issued an important new opinion that adds to this year’s series of California appellate decisions on when an insurer owes its policyholder a duty to pay for independent defense counsel, in Swanson v. State Farm General Ins. Co., ___ Cal. App.4th ___ (2013). In Swanson, the Court of Appeal found that an insurer that had issued to its policyholder a reservation of the right to deny coverage that gave rise to the type of conflict that creates a right to independent counsel under California Civil Code section 2860 (“Cumis counsel”) could end that duty by withdrawing that portion of the reservation of rights that created the right to have the insurer pay for such counsel. Continue reading “Controlling Cumis – California Court Confirms that Right to Independent Counsel Can be Terminated by Withdrawing ROR”
An intermediate appellate court in California has issued a decision addressing inter-insurer contribution claims for indemnity payments in the context of self-insured retentions (SIRs) that has a couple of new twists worth noting. In Axis Surplus Ins. Co. v. Glencoe Ins. Ltd. (April 11, 2012), the Court of Appeal for the Fourth District affirmed the trial court’s ruling that Axis was entitled to contribution from Glencoe in the amount of 60% of what Axis paid to settle a construction defect claim against their mutual insured, despite the facts that the insured only made its settlement payment that satisfied the Glencoe SIR after Axis made its settlement payment, that Axis did not prove actual covered damages exceeding the total settlement amount, and that both insurers’ policies contained equal-shares allocation “other insurance” wording.
Continue reading “New Twists In California Contribution Claims Involving SIRs”