insurance – Page 2 – Duane Morris Insurance Law

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.

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March 17, 2021 by Daniel B. Heidtke

Rejection of Reasonable Settlement in Third Party Insurance Claim Not Per Se Unreasonable

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.”

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March 10, 2020 by Mark A. Bradford

Proposed Illinois Data Transparency and Privacy Act Referred to State Senate Judiciary Committee

On February 27, 2020, the Illinois State Senate referred SB2330, which if enacted would create the Data Transparency and Privacy Act (the “Proposed Act”), to its Judiciary Committee. The Proposed Act would apply to “businesses”, including insurers, intermediaries, and other third-party service providers, who collect or disclose the personal information of 50,000 or more persons, Illinois households, or a combination thereof or who derive 50% or more of their business’s annual revenue from the sale of personal information. As currently drafted, SB2330 may apply to insurers and other affiliates who write a limited number of policies in Illinois but meet the statutory thresholds through business written outside of Illinois. While the Proposed Act contains a carve-out for personal information collected, processed, sold, or disclosed under the Gramm-Leach-Bliley Act, SB2330 may still have applicability to many insurers and reinsurers admitted to write business in Illinois and may also be of particular note to surplus lines carriers from both an enterprise and an underwriting perspective.

Under SB2330, Illinois consumers, including policyholders who meet the statutory definitions, would have several broad rights concerning personal information: (1) the right to transparency, (2) the right to know, and (3) the right to opt out, correct, and delete. SB2330, 101st Gen. Assemb., Reg. Sess., §§15, 20, 25 (Ill. 2020). Businesses who meet the statutory definition would be required to establish a procedure for collecting consumers’ requests and also for authenticating the consumer making each request. Id. at §30(a). The Proposed Act would mandate a response to a consumer’s request within 45 days. Id. at §30(e). Each impacted business would be required to post links on its website and mobile applications for the purpose of processing consumer requests. Id. at §30(b).

A violation of the Proposed Act would be statutorily deemed an unlawful practice under the Consumer Fraud and Deceptive Business Practices Act. Id. at §40(b). Whether such a finding is constitutionally permissible is something which may need to be tested if the Proposed Act is enacted depending upon regulatory guidance and interpretation. The Illinois Attorney General would be tasked with enforcement of the Proposed Act in terms of alleged violations of the Illinois Consumer Fraud and Deceptive Business Practices Act. Id. Consumers would also have a right of action in the event of “an unauthorized access and exfiltration, theft, or disclosure as a result of the business’ violation of the duty to implement and maintain reasonable security procedures and practices . . . .” Id. at §40(a).

As of March 4, 2020, the Proposed Act has not been scheduled for hearing and has only received a single reading, in a single chamber of the General Assembly. The Illinois Constitution mandates that each bill shall be read by title on at least three different days in each house. ILL. CONST. art. IV, §8(d). It is unclear whether the Proposed Act will meet a similar fate as previous data privacy legislation proposed in recent Illinois sessions. As the Proposed Act has an effective date of July 1, 2021, as currently drafted, it is unclear whether data privacy is something that might have legs in the regular session or something that could be resurrected in the veto session following this November’s election. Either way, SB2330 and similar proposed legislation in other States are of note particularly for insurers who write in multiple jurisdictions and may face an obligation to comply with data privacy laws, each with their own nuance, across multiple jurisdictions.

August 30, 2019 by Duane Morris

Florida Federal Court recognizes Federal Admiralty Rule of Strict Enforcement of Warranties in Marine Insurance Preempts State Law

We are pleased to present a decision in which we prevailed from the United States District Court for the Southern District of Florida.

The ruling is significant for its holding that the 11th Circuit Court of Appeals [encompassing the US Southeast including Florida] recognizes an established Federal Admiralty rule of law that warranties in marine insurance are to be strictly enforced. The ruling clarifies a number of inconsistent decisions in Florida holding that only navigational limits warranties were entitled to strict enforcement, and that the Florida Anti-Technical statute otherwise applied. The primary distinction is that the strict enforcement of a warranty excuses the policy from responding in the event of a violation independent of a causal relationship between the violation and the claimed loss, whereas many states’ laws, such as Florida’s Anti-Technical Statute, require the insurer to prove a causal relationship between the violation and the claimed loss to deny a claim.

February 28, 2018 by Paul J. Killion

A Reservation of Rights Alone Is Not Enough to Trigger Independent Counsel in California

Last month, California’s Third Appellate District added to a growing list of California appellate decisions holding that the mere possibility or potential for a conflict is not legally sufficient to require a defending insurer to provide independent counsel under California’s Cumis statute, Civil Code section 2860. Simply because the insurer sent a reservation of rights letter is not enough.

In Centex Homes v. St. Paul Fire and Marine Ins. Co. (1/22/2018, No. C081266) __Cal.App.5th __, the Third District addressed a dispute between insurer St. Paul and a developer, Centex Homes, regarding whether the insurer was required to provide independent counsel to defend Centex against actions brought by several homeowners alleging construction defects. St. Paul insured one of Centex’s subcontractors—Ad Land Venture—and Centex tendered the lawsuits to St. Paul for defense. St. Paul agreed to defend, subject to certain reservations of rights, including St. Paul’s right to deny indemnity to Centex for any claims by the homeowners not covered by the policy, including claims for damage to Ad Land’s work and damage caused by the work of other subcontractors not insured by St. Paul.
St. Paul appointed a defense attorney to defend Centex in the underlying actions, but Centex claimed St. Paul’s reservation of rights created a conflict requiring St. Paul to pay for independent counsel under California Civil Code section 2860.

Centex essentially argued that a right to independent counsel exists whenever an insurer reserves rights. The Third District disagreed. Quoting Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1421, the court explained, “a conflict of interest does not arise every time the insurer proposes to provide a defense under a reservation of rights. There must also be evidence that ‘the outcome of [the] coverage issue can be controlled by counsel first retained by the insurer for the defense of the [underlying] claim.’” The court rejected the contention that defense counsel in a construction defect case could control the outcome of the coverage case. (Centex, supra, at p.13-14.)

A conflict of interest exists “only when the basis for the reservation of rights is such as to cause assertion of factual or legal theories which undermine or are contrary to the positions to be asserted in the liability case[.]” (Gafcon, supra, 98 Cal.App.4th at 1421-22.) A “mere possibility of an unspecified conflict does not require independent counsel[;]” rather, the conflict must be “significant, not merely theoretical, actual, not merely potential.” (Dynamic Concepts, supra, 61 Cal.App.4th at 1007.)

The Centex decision follows a long line of California decisions that are “both considered and settled.” (Centex, supra, at p.8.) California courts have repeatedly held that in the absence of an actual conflict of interest giving rise to the insured’s right to independent counsel, the defending insurer controls the defense of the underlying suit, including settlement and trial. “[U]ntil such a conflict arises, the insurer has the right to control defense and settlement of the third party action against its insured, and is generally a direct participant in the litigation.” (Gafcon, supra, 98 Cal.App.4th at 1407, citing James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093, fn. 3; see also Federal Ins. Co. v. MBL, Inc. (2013) 219 Cal.App.4th 29, 41 [“[T]he mere fact the insurer disputes coverage does not entitle the insured to Cumis Counsel;…”]; Blanchard v. State Farm Fire and Cas. Co. (1991) 2 Cal.App.4th 345, 350; Dynamic Concepts, Inc. v. Truck Ins. Exch. (1998) 61 Cal.App.4th 999, 1007; Long v. Century Indem. Co. (2008) 163 Cal.App.4th 1460, 1468; Centex Homes v. St. Paul Fire & Marine Ins. Co. (2015) 237 Cal.App.4th 23, 31-32.)

October 11, 2017 by Duane Morris

2016 Insurance-Related Class Actions Filed In or Removed to Federal Court

This report analyzes 210 insurance-related class actions filed in or removed to federal court in 2016. In many respects, the results are predictable. The greatest percentage of the insurance-related class actions involve coverage or claims handling decisions, although there were a few interesting pockets of recurring class claims, such as inflated drug prices and cost of insurance (‘‘COI’’) increases for life insurance policies. The predominant forum choices were on the American coasts, California and Florida being the preferred locations. One notable result was the frequency of voluntary dismissals by the plaintif fand individual settlements reached with the named plaintif fonly. It can only be surmised that either these cases never were intended to be consummated as class actions or that impediments arose after filing that prevented a cost-effective resolution on a class-wide basis.

To read the rest of this article by Duane Morris partner Charlotte E. Thomas, please visit the Duane Morris website.

April 11, 2017 by Christine Cusick Ross

Excess Insurer’s Obligations Regarding Settlement Offers of Underlying Claims

Does an excess insurer have an absolute right to veto a settlement under a policy’s “no action” and “no voluntary payments” clauses? The Ninth Circuit has predicted that, under California law, the answer is no. In a March 21, 2017 decision, the Ninth Circuit affirmed a district court’s $6,080,568 judgment in favor of an insured in a breach of contract and bad faith lawsuit against its excess general liability insurer arising from an underlying patent infringement dispute. (Teleflex Med. Inc., v. National Union Fire Ins. Co. of Pittsburgh, PA., No 14-563666, 9th Cir., 2017 U.S. App. LEXIS 4996.)

In reaching its decision, the Ninth Circuit confirmed the California rule set forth in Diamond Heights Homeowners Ass’n v. Nat’l Am. Ins. Co. (1991) 227 Cal. App. 3d 563, which provides that an excess insurer has three options when presented with a proposed settlement of a covered claim that has met the approval of the insured and the primary insurer: (1) approve the proposed settlement, (2) reject it and take over the defense, or (3) reject it, decline to take over the defense, and face a potential lawsuit by the insured seeking contribution toward the settlement

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August 4, 2016August 4, 2016 by Duane Morris

Insurer’s Duty to Initiate Settlement Discussion

By Thomas R. Newman

The covenant of good faith and fair dealing that is implied by law in every liability insurance policy requires the insurer to concern itself with the interests and welfare of the insured as well as its own interests and welfare, and in so doing “the insurer at the very least must itself consider and determine whether or not a settlement offer is in the best interest of the insured.” Garner v. American Mut. Liability Ins. Co., 31 Cal. App. 3d 843, 847-848, 107 Cal. Rptr. 604, 607 (3d Dist 1973). If it is, as where liability is clear and the injuries or damages are likely to result in a judgment in excess of the policy limits, some courts have held that the insurer has an affirmative duty to initiate settlement negotiations. Goheagan v. American Vehicle Ins. Co., 107 So. 3d 433, 438 (Fla. Dist. Ct. App. 1012); Noonan v. Vermont Mut. Ins. Co., 761 F. Supp. 2d 1330 (M.D. Fla. 2010)(Florida law); SRM, Inc. v. Great Am. Ins. Co., 798 F.3d 1322, 1323 (10^th Cir. 2015)(Oklahoma law)(“a primary insurer owes its insured a duty to initiate settlement negotiations with a third-party claimant if the insured’s liability to the claimant is clear and the insured likely will be held liable for more than its insurance will cover”).

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May 6, 2016May 6, 2016 by Paul J. Killion

Parent of Insured Corporation Has No Standing to Seek Declaratory Relief as to Insured’s Coverage

Does the parent and controlling shareholder of an insured corporation have standing to seek declaratory relief as to the insured’s insurance coverage? Under California law, the answer is no. In a March 30, 2016 decision, ordered published April 28, 2016, Division Two of the California Court of Appeal for the First District held that a parent corporation that is not an insured under the insurance contract is not a “person interested under a written instrument” for purposes of California’s declaratory relief statute, Code of Civil Procedure section 1060. (See D. Cummins Corp. v. Untied States Fid. and Guar. Co., __Cal.App.4th__ (Cal. Court of Appeal, First Dist. No. A142985, 4/28/2016).)

The Holding Company in the case was the controlling owner of an insured facing asbestos claims, but the Holding Company was not an additional insured or otherwise in privity with the insurer. Nonetheless, the Holding Company argued it had a “practical interest in the proper interpretation of Cummins Corp.’s insurance policies given its relationship to, and its central role in the pursuit of those insurance assets.” (Slip Opn. p. 7.) The Court of Appeal found the argument “not persuasive.” (Id.) “While Holding Co. may, as it says, have a ‘practical interest’ in the success of Cummins Corp.’s litigation with the insurers by virtue of its relationship with the corporation, it has not shown how that indirect interest—no matter how enthusiastic it may be [citation omitted]—translates into ‘a legally cognizable theory of declaratory relief.’” (Id.) It is only the insured itself that has “a direct interest in the interpretation of the policies in question” for purposes of Section 1060. (Id.)

May 4, 2016 by Duane Morris

Viking Pump: New York Court of Appeal Holds That Consolidated Edison Pro Rata Allocation Rule and Horizontal Exhaustion Rule Do Not Apply Under Facts of Case

By Philip R. Matthews

The New York Court of Appeal on Tuesday, May 3, held that the Consolidated Edison pro rata allocation rule does not apply where the policies have prior insurance and non-cumulation clauses. The Court held that the pro rata rule in Consolidated Edison depends on policy language and that the prior insurance and non-cumulation clause is inconsistent with a pro rata approach. However, the Court did say that prior insurance and non-cumulation clauses would be enforced as anti-stacking clauses. Such enforcement could limit the amount of coverage available to a policyholder. The Court of Appeal also held that under the circumstances of the case, horizontal exhaustion would not apply.

To view this decision, please visit the New York Courts website.