Noteworthy insurance cases from 2019
Here are six insurance coverage decisions from 2019 that will help shape the coverage landscape for years to come.
There were a number of 2019 insurance coverage decisions that will undoubtedly shape the coverage landscape for years to come. Policyholders enjoyed a number of significant wins, including victories in areas involving business income coverage to directors and officers liability.
Here is a summary of some of 2019’s most notable coverage decisions.
The cases
1. California Supreme Court holds that the requirement of prejudice for late notice defense is a fundamental public policy of the state for choice of law analysis.
California’s highest court held in Pitzer College that the state’s insurance notice-prejudice rule is a “fundamental public policy” for the purpose of choice of law analyses. This unanimous ruling, issued in response to certified questions from the Ninth Circuit, confirmed and emphasized California’s common-law rule that policyholders who provide “late notice” may proceed with their insurance claim, absent a showing by the insurer of substantial prejudice.
The California Supreme Court also extended the prejudice requirement, holding that a first-party insurer must show that it was prejudiced before denying coverage under a policy’s “consent provision,” which typically provides that the policyholder must obtain the insurer’s “consent” before incurring costs and expenses.
This case is Pitzer Coll. v. Indian Harbor Ins. Co., 447 P.3d 669 (Cal. 2019).
2. Washington high court holds insurers bound by representations in agent’s certificates of insurance.
In responding to a certified question from the Ninth Circuit, the Washington Supreme Court held that an insurer is bound by representations regarding a party’s additional insured status contained in a certificate of insurance issued by the insurer’s authorized agent, even where the certificate contains language disclaiming any effect on coverage. To hold otherwise, the court noted, would render meaningless representations made on the insurer’s behalf and enable the insurer to mislead parties without consequence.
The certified question and ruling stem from T-Mobile USA’s appeal of the district court’s summary judgment ruling in favor of Selective Insurance Company on T-Mobile USA’s breach of contract and declaratory judgment claims.
Selective issued the insurance policy to a contractor of T-Mobile Northeast, a wholly-owned subsidiary of T-Mobile USA. Through endorsement, the policy extended “additional insured” status to T-Mobile NE because the contract between T-Mobile NE and the insured required that T-Mobile NE be added as an additional insured. Additional insured status was not, however, extended to T-Mobile USA, as T-Mobile USA had not entered a written contract with the insured. Despite the fact that T-Mobile USA was not an additional insured under the policy, Selective’s authorized agent, acting with Selective’s apparent authority, issued a certificate of insurance to T-Mobile USA, stating that T-Mobile USA was “included as an additional insured” under the policy.
Based on the agent’s representations in the certificate of insurance, T-Mobile USA argued that it had additional insured status because Selective is bound by its agent’s representations that T-Mobile USA was included as an additional insured. The Washington Supreme Court agreed with T-Mobile USA, holding that, under Washington law, an insurance company is bound by the representation of its agent under such circumstances.
The case is T-Mobile USA Inc. v. Selective Ins. Co. of Am., 787 F. App’x 395 (9th Cir. 2019).
3. Insurance team wins summary judgment for Hurricane Harvey business income loss.
A Texas judge ruled that Hunton Andrews Kurth is entitled to coverage from Great Northern Insurance Co., a unit of Chubb, Ltd., for losses its predecessor firm suffered when Hurricane Harvey closed its Houston office and disrupted business in 2017. The court held that the insurance policy, written specifically for a law firm, covered business income loss until the firm’s operations were restored to their pre-loss levels. The court rejected Chubb’s argument that coverage lasted only until the physical damage that closed the building had been repaired. Rather, siding with Hunton, the court found that the policy language affords, in addition to ordinary business income coverage during the damage period, “extended period” coverage that commences after the damaged property is repaired and after the firm’s operations resume.
Michael Levine, a partner on Hunton’s insurance recovery team that led the coverage litigation and who argued the firm’s summary judgment motion, commented that “[i]t is disingenuous for an insurance company to come in after the fact and contend that any extended interruption is the result of damage in other parts of the city. If you cover hurricanes, then you should cover the loss caused by the hurricane, and not later contest causation when the insurer has already conceded that physical loss has occurred to covered property.”
The case is Hunton Andrews Kurth LLP v. Great N. Ins. Co., No. 2019-17480 (157th Dist. Ct., Harris County, Tex. Dec. 6, 2019).
4. Georgia Supreme Court holds a “valid offer” necessary for establishing bad faith failure to settle.
The Georgia Supreme Court ruled that First Acceptance Insurance Co. need not pay a $5.3 million excess judgment against its insured, even though the insurer could have settled the claim for the $50,000 policy limit. The case stemmed from a July 2012 jury verdict finding the policyholder at fault in a five-vehicle crash that killed the policyholder and injured five others. The $5.3 million verdict was obtained by two plaintiffs who suffered a neck injury and a traumatic brain injury, respectfully.
After receiving a $5.3 million verdict, the administrator of the policyholder’s estate sued First Acceptance, alleging bad faith in the insurer’s failure to accept plaintiffs’ demands and settle the claims within the policy limits. The administrator sought to recover the excess judgment as well as punitive damages and attorney’s fees. The trial court granted summary judgment to the insurer in 2016, but the Georgia Court of Appeals reversed that judgment the following year.
The Georgia Supreme Court again reversed, entering judgment in favor of the insurer. The high court reasoned that an insurer’s duty to settle arises only after the injured party presents a valid, time-limited offer to settle within the insured’s policy limits. According to the Georgia Supreme Court, the plaintiffs’ demands did not include a deadline for acceptance by the insurer; thus, the insurer did not act unreasonably by not accepting the offer before it was withdrawn.
The head of Hunton’s insurance coverage group, Walter Andrews, explained that the decision stands to hinder settlements and potentially subject innocent insureds to staggering liability beyond that covered by their insurance because the court took “an overly narrow approach” that is “disturbing and is likely to act as a deterrent to settlements in the future. By creating this false and narrow test, it means that insurance companies in Georgia will not be trying to settle personal injury cases unless the settlement negotiations are initiated by the injured party, which means that fewer cases will settle and cases will linger longer in courts, which is not in the interests of either the injured parties or the insured defendants.”
The case is First Acceptance Ins. Co. of Ga., Inc. v. Hughes, 826 S.E.2d 71 (Ga. 2019).
5. Opioid settlement triggers insurer’s duty to indemnify where covered claims are “primary focus” of the action.
A federal court in Illinois ruled that Cincinnati Insurance Company was required to indemnify H.D. Smith for a $3.5 million settlement it reached with the State of West Virginia. The settlement resolved an action in which West Virginia alleged that H.D. Smith contributed to the state’s opioid addiction epidemic through its negligent distribution of opioid prescription drugs. The underlying lawsuit was brought by the West Virginia attorney general against H.D. Smith and 13 other drug manufacturers and distributors in June 2012. The suit included counts for negligence, unjust enrichment, public nuisance, violations of the West Virginia Uniform Controlled Substances Act and violations of the West Virginia Consumer Credit and Protection Act.
Generally, the duty to defend the entire lawsuit is triggered by the presence of just one covered claim, among others, that may not be covered. The court’s decision in H.D. Smith illustrates a similar concept in the context of settlement and indemnity. Under the Illinois federal court’s ruling, an insurer’s duty to indemnify can be triggered by the settlement of a lawsuit that contains mixed covered and noncovered claims as long as the covered claims are, as the court explained, the “primary focus” of the action.
The case is Cincinnati Ins. Co. v. H.D. Smith Wholesale Drug Co., No. 12-3289, 2019 WL 4727039 (C.D. Ill Sept. 26, 2019).
6. Texas Supreme Court holds Anadarko’s $100M Deepwater Horizon defense costs are not subject to joint venture liability limits.
Reversing a Texas Court of Appeals decision that allowed Anadarko’s Lloyd’s of London excess insurers to escape coverage for more than $100 million in defense costs incurred in connection with claims from the Deepwater Horizon well blowout, the Supreme Court of Texas held that the insurers’ obligations to pay defense costs under an “energy package” liability policy are not capped by a joint venture coverage limit for “liability” insured. The Texas Supreme Court rejected the insurers’ reading of the policy and found that the term “liability insured” refers to Anadarko’s liability to third parties for damages and the joint venture provision, which contained a limit only with respect to Anadarko’s liability and did not limit the insurers’ responsibility for Anadarko’s defense expenses.
Sergio Oehninger, counsel on Hunton’s insurance recovery team, commented that “[t]he insurer’s position could have cost the insured over $100 million in defense costs. The opinion makes clear that a policyholder’s defense costs in similar disputes will not be subject to the joint venture provision’s limit of liability, or to any other similar limit for ‘liability insured.’ ”
The case is Anadarko Petroleum Corp. v. Houston Cas. Co., 573 S.W.3d 187 (Tex. 2019).
(c) 2020 Hunton Andrews Kurth. All rights reserved. Republished here with permission.
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