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MM Insurance News
Week of  March 30, 2018


CASES OF CONSEQUENCE

FOURTH CIRCUIT            Assault and Battery Exclusions (MD)

The Fourth Circuit has ruled that claims against a youth climbing organization for failing to prevent two of its trainers from engaging in consensual sex with a 14 year old were subject to a $100,000 policy sub-limit for assault and battery claims.  In Gemini Ins. Co. v. Earth Treks, Inc., No. 17-1652 (4th Cir. Mar. 27, 2018) (unpublished), the court ruled that although Maryland law ordinarily requires that a battery be unconsented to, consent could not be inferred in cases involving minors.  Further, the court rejected the insured’s argument that the 14 year old had not suffered any actual injury, finding that sexual contact with minors is presumed to be harmful as a matter of law without regard to whether it actually resulted in physical injury to the minor.

ILLINOIS                            First Party/"Earth Movement"

Judge Durkin has ruled in Juris Service Company, Inc. v. Acuity, a Mutual Ins. Co., No. 16-2271 (N.D. Ill. Mar. 15, 2018) that damage to the insured's building and cracking of windows due to the shifting of soil caused by the presence of the presence of "fill soil" was excluded under an all risks policy as involving "earth movement."  The court rejected the insured's contention that the "earth movement” exclusion should not apply to man‑made causes.  

NEW YORK                      Allocation/”Unavailability”

Notwithstanding concerns that its ruling in Viking Pump might reflect second thoughts with respect to the advisability of pro rata allocation, the New York Court of Appeals has reaffirmed the conclusion that it earlier adopted in Consolidated Edison that pro rata allocation is required in the absence of express policy provisions to the contrary.  Further, the court ruled in KeySpan Corp v. Munich Re, No. 20 (N.Y. Mar 27, 2018) that there is no "unavailability" exception exempting periods of time when insureds allegedly could not purchase insurance coverage for environmental liabilities.  The Court of Appeals declared that the cases recognizing an "unavailability" exception have generally done so on public policy grounds, whereas its adoption of pro rata allocation in Consolidated Edison was based on policy provisions limiting coverage to loss occurring “during the policy period.”

NEW YORK                      Additional Insureds/”Written Contract”

The Court of Appeals has ruled 5-2 in Gilbane Building Co. v. St. Paul Fire & Marine Ins. Co., No. 22 (N.Y. Mar 27, 2018) that standard language in CGL policies extending additional insured coverage “where required by written contract” only applied where the contract was between the named insured and the putative additional insured.  Two justices dissented, arguing that the language in question was ambiguous and that the majority was contorting the provision in question to undermine an important device that the construction industry had develop to transfer loss.

PENNSYLVANIA               Coverage B/Defamation/IP Exclusion

A federal district court has ruled in Tela Bio, Inc. v. Federal Ins. Co., No. 16-5585 (E.D. Pa. Mar. 15, 2018) that allegations that the insured stole a competitor's employee's trade secrets did not set forth any claim for libel or slander within the scope of Coverage B.  Judge Goldberg further ruled that any coverage that might otherwise have applied was subject to the policy's intellectual property exclusion in light of the fact that the underlying complaint was based upon the insured alleged theft of the plaintiff's intellectual property rights in its trade secrets and proprietary information.  

WASHINGTON                 Procedure/Service of Process

On a certified question from a local U.S. District Court, the Washington Supreme Court has declared in Ohio Security Ins. Co. v. AXIS Ins. Co., No. 94677-9 (Wash. Mar. 22, 2018)  that service of process on foreign insurers may only be accomplished through the Washington State Insurance Commissioner in light of the plain language, and legislative intent, of RCW 4.28.080(7)(a) and RCW 48.05.200(1).


                                                OTHER DEVELOPMENTS OF NOTE

                                              * * * Inside the Insurance Industry * * *


Arch Capital has appointed Marc Grandisson to be its new President and CEO, replacing Constantine Iordanou, who will continue on as chairman of the Board.

Final regulations promulgated this month by the Massachusetts Cannabis Control Commission will require all marijuana retailers to maintain liability insurance in the amount of $1 million each occurrence and $2 million in the aggregate.

Startup insurer Lemonade is expanding its operations into Pennsylvania and the District of Columbia.

                                                     * * * Restating the Law * * *


With a final vote on the Restatement of Law, Liability Insurance scheduled for the end of May, the Restatement Reporters posted Council Draft No. 5 this week, setting forth dramatic changes to Sections 3, 4 and 12.   In contrast to earlier iterations of Section 3, this latest draft abandons the Reporters’ favored “presumption of plain meaning” in favor of the traditional “plain meaning rule” approach.    “Custom, practice and usage” may be considered in assessing what a term means but extrinsic evidence may not be relied upon.  As to Section 4, the Reporters have substituted the general proposition that a term is ambiguous if it has two reasonable meanings and have deleted the earlier black letter rule that suggested that everything in a policy would be presumed to have been submitted by insurer.  Finally, the provisions of Section 12 imposing liability based on the conduct of defense counsel has been cut back substantially and now only applies where  an insurer fails to take “reasonable care” in selecting counsel or where a claims adjuster issues a directive to defense counsel or otherwise prevents defense counsel from exercising his or her independent professional judgment.   

                                     * * * New Coverage Litigation of Note * * *

Great American has filed a declaratory judgment action in the federal district court in North Carolina, arguing in Great American Excess & Surplus Ins. Co. v. Butterball LLC that the environmental insurance provisions in its policy do not cover $3.5 million in cleanup costs associated with a waste site in Carthage, Missouri that the insured did not include on the policy.

                                                     * * * IBNR Update * * *

A Maryland resident has sued Facebook in the U.S. District Court in San Jose for alleged violations of her privacy as the result of allowing her private information to be accessed by Cambridge Analytica.

Uber disclosed last week that it has $5 million in insurance with Old Republic for accidents involving its driverless vehicles.

                                               * * * This Week’s Photo * * *

As the snows of winter finally melt away, here’s to the coming of baseball.

                                              * * * Mark Your Calendars * * *

April 8 (Boston):              Fenway Park Opening Day

April 25-27 (Orlando):     Emerging and Environmental Claims Managers Meeting

May 22 (D.C.)                 ALI Final Vote on Insurance Restatement


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