Hunton Insurance Recovery Blog

While America was tuned into the big game, one California insurance broker faced its own treacherous showdown in the form of a putative class action filed on February 8, 2024 stemming from a data breach. With cyber incidents still on the rise, this is a story we know all too well: an unauthorized third party gains access to personally identifiable information, the company eventually detects the threat actor and leadership must decide how to respond. Once notifications to the public go out, the individuals impacted often file suit to recover for their alleged harm.

On March 20, 2023, the Southern District of New York denied a policyholder’s claim for coverage and granted the insurer’s motion for judgment on the pleadings in Pine Management, Inc. v. Colony Insurance Company. The parties disputed whether a real estate liability insurance policy provided defense and indemnification for Pine Management, Inc. in an underlying lawsuit brought by numerous companies that Pine managed. A simple question proved pivotal in the outcome: whether Pine had timely sought coverage for its claim.

The Fourth Circuit recently affirmed insurance coverage for a South Carolina policyholder based on the “axiomatic principle” that an insurer which fails to fully and fairly articulate its potential coverage defenses in a reservation of rights letter loses the right to contest coverage on those grounds. Stoneledge at Lake Keowee Owner’s Assoc. v. Cincinnati Ins. Co., No. 19-2009, 2022 WL 17592121 (4th Cir. 2022) (quoting Harleysville Group Insurance v. Heritage Communities, Inc., 803 S.E.2d 288 (S.C. 2017)). More particularly, in Stoneledge, the Fourth Circuit affirmed per curiam a South Carolina District Court’s grant of summary judgment in favor of a homeowners association that had successfully sued its general contractors for construction defects and was seeking to recover the damages owed from the contractors’ insurers. The Fourth Circuit agreed that the insurers’ vague reservation of rights letters failed to reserve the defenses on which the insurers purported to deny coverage.

A Delaware court recently granted summary judgment to a mortgage broker targeted in a federal government investigation for alleged False Claims Act violations, holding that the company’s directors and officers liability (“D&O”) insurer was required to indemnify more than $15 million in settlement costs with the U.S. Department of Justice. Guaranteed Rate, Inc. v. ACE American Insurance Company, No. N20C-04-268 MMJ CCLD (Del. Super. Ct. Sept. 6, 2022). We previously reported on the policyholder’s earlier victory in this case, in which the court held that a Civil Investigative Demand (“CID”) from federal authorities triggered the insurer’s obligation to pay defense costs under the D&O policy.

Pugs’ button noses and claim recognition
Broad coverage grants and puppies who listen
Insurance policies tied up with strings
These are a few of our favorite things

Earlier this year, New York passed a law addressing dogs and homeowners’ insurance. Some insurers selling homeowners’ insurance policies will decide whether and how to issue coverage based on the type of dog residing with the homeowners. For example, these kinds of dogs may result in lower premiums or more favorable terms than other dogs: ^[1]

While companies develop their return-to-office policies or decide to keep employees working remotely, they should be mindful of potential liability under the Worker Adjustment and Retraining Notification Act (“WARN Act”) in the event of future layoffs. A recent opinion from the Eastern District of Virginia provides a timely alert for companies to review their employment practices liability (“EPL”) coverage and understand their risk of future exposures. The court held that remote employees alleging violations under the WARN Act—a statute requiring sixty days’ notice before a “mass layoff” at a “single site of employment”—could receive class certification, despite the fact that class members physically worked at different locations. EPL policies can effectively mitigate the related risk by covering the cost of litigation, as well as the company’s resulting liability.

While COVID-19 dominated the insurance coverage landscape in 2021, it was not the only subject of significant decisions in the insurance space. Directors and Officers coverage (“D&O”) and cyber insurance continued to make headlines while other coverage lines left the industry questioning what is to come in 2022. In our recently published "Year in Review: Top Insurance Cases of 2021," we highlight a few of the most impactful trends and cases in 2021 and look forward to what 2022 may deliver in the world of insurance coverage. A copy of the full publication can be found here

The Central District of California recently rejected an attempt by Federal Insurance Company, a Chubb company, to avoid its duty to defend its insureds in an $8.5 million lawsuit with a former employee.

TriPacific Capital Advisors, LLC acquired Directors and Officers (D&O) coverage from Federal and Employment Practices Liability (EPL) coverage from Travelers Insurance Company. While those policies were in effect, a former TriPacific employee sued the company and its president, Geoffrey Fearns, for a variety of employment-related causes of action concerning his termination and compensation. TriPacific and Fearns tendered notice to both insurers, seeking indemnification and defense costs. Both policies contained a duty to defend.  While Travelers agreed to defend under a reservation of rights, Federal denied coverage based on multiple grounds, including its policy’s “other insurance” provision, contending that the provision rendered its policy “excess” to the Travelers policy.  Federal also argued that TriPacific had not satisfied the D&O policy’s $150,000 self-insured retention and, thus, coverage had not been implicated, in any event. TriPacific maintained that neither the SIR nor the “other insurance” provision pertained to Federal’s duty to defend and brought suit to enforce the duty to defend.

The Superior Court of Delaware held that a directors and officers liability insurer must advance defense costs to a mortgage broker targeted in a federal government investigation of alleged False Claims Act violations. In Guaranteed Rate, Inc. v. ACE American Insurance Company, No. N20C-04-268 MMJ CCLD (Del. Sup. Ct. Aug. 18, 2021), Guaranteed Rate received a Civil Investigative Demand from federal authorities in June 2019 regarding the company’s underwriting and issuance of federally-insured mortgage loans. Eleven days later, Guaranteed Rate provided notice of the CID under a private company management liability policy issued by ACE American Insurance Company.

One year into the COVID-19 pandemic, courts have issued hundreds of rulings in COVID-19 business interruption lawsuits, many favoring insurers. Yet those pro-insurer rulings are not based on evidence, much less expert opinion evidence. For insurers, ignorance is bliss.

The Hunton Insurance Recovery Team recently issued a client alert analyzing how two Ohio federal judges ruled on COVID-19 coverage cases.

As previously reported, an Oklahoma state court recently granted summary judgment to the Cherokee Nation for its COVID-19 business interruption claim. The court has now issued a more substantive opinion, establishing the merits of the Cherokee Nation’s claim and providing yet another blueprint for policyholders seeking to recover COVID-19-related losses under “all risk” commercial property insurance policies.

Not surprisingly, COVID-19 business interruption insurance disputes dominated media headlines for most of 2020. Nonetheless, there were a number of other insurance rulings that will undoubtedly shape the coverage landscape. Policyholders enjoyed a number of significant wins including significant victories related to COVID-19 business interruption cases. The start of a new year gives us an opportunity to highlight some of 2020’s most notable coverage decisions. A copy of our recently published Year in Review: Top Insurance Cases of 2020 can be found here

In a resounding victory for policyholders, an Oklahoma state court granted partial summary judgment for the Cherokee Nation in its COVID-19 business interruption claim. The Cherokee Nation is seeking coverage for losses caused by the pandemic—specifically, the inability to use numerous tribal businesses and services for their intended purpose.

Based on the “all risks” nature of the policy and the fortuitous nature of its loss, the Cherokee Nation sought a partial summary judgment ruling that the policies afford business interruption coverage for COVID-19-related losses. The policy provided coverage for “all risk of direct physical loss or damage,” which the Cherokee Nation contended was triggered when the property was “rendered unusable for its intended purpose.” In support of this view, and consistent with established insurance policy interpretation principles, such as providing meaning to every term and reading the policy as a whole, the Cherokee Nation argued that a distinction must exist between “physical loss” and “physical damage.” This distinction demands an interpretation supporting the “intended purpose” reading of the policy language. Thus, the physical presence of COVID-19 depriving the Cherokee Nation of the use of covered property for its intended purpose triggered a covered loss.

As reported in a recent Hunton Andrews Kurth client alert, Mitigating FCRA Risks in the COVID-19 World (Oct. 23, 2020), consumer litigation claims related to the Fair Credit Reporting Act (FCRA) doubled in the years leading up to the COVID-19 pandemic. After a slight decrease in FCRA filings due to court closures and other COVID-19 restrictions, claims will likely resume their previous upward trajectory. In fact, the Consumer Financial Protection Bureau (CFPB) has already seen an uptick in consumer complaints, many of which mention COVID-19 specific keywords.

The Seventh Circuit affirmed a ruling from the Northern District of Illinois that a subcontractor’s insurer must defend the general contractor in a negligence suit brought by an employee of the subcontractor for injuries suffered on the job.

A Massachusetts intermediate appellate court recently found no coverage for a general contractor listed as an additional insured under a subcontractor’s general liability insurance policy. The general contractor sought coverage for a negligence action brought by an employee of the subcontractor regarding workplace injuries.

We previously reported on the July 30 argument before the MDL Panel regarding plaintiffs’ motion to consolidate more than 275 COVID-19 Business Interruption cases.

On July 30, the Judicial Panel on Multidistrict Litigation held a Zoom hearing on a motion filed by plaintiffs’ lawyers to consolidate hundreds of business interruption claims filed across the country. The Panel permitted a number of plaintiffs’ counsel and two insurers’ counsel to each argue for 3 uninterrupted minutes and then respond to questions.

The Ohio Court of Appeals on June 24 enforced liability insurance for a company that had distributed opiates, finding that the insured had a duty to defend the insured in lawsuits filed by government agencies and pending in the Opioid Multidistrict Litigation.  Acuity v. Masters Pharm., No. C-190176 (Ohio Ct. App. June 24, 2020).  A unanimous three-judge panel overturned a trial court decision that had accepted arguments of insurers that, because the underlying suits were brought by government entities seeking to recover for “their own economic loss,” the damages sought did not qualify as “damages because of or for a ‘bodily injury.’” Relying on the Seventh Circuit’s decision in Cincinnati Ins. Co. v. H.D. Smith, L.L.C., 829 F.3d 771 (7th Cir. 2016), the Court of Appeals acknowledged that “[t]he governmental entities are seeking their own economic losses,” but concluded that some losses at issue “(such as medical expenses and treatment costs) are arguably ‘because of’ bodily injury,” bringing policyholder claims “potentially within the policies’ coverage.”  Slip op. ¶ 30.  The trial court thus had erred in finding that the insurer had no duty to defend in the underlying opioid cases.

A group of Las Vegas-based restaurants recently filed a class action lawsuit to recover business interruption damages against their insurer. The Egg Works chain alleged that U.S. Specialty wrongly denied their claims for financial losses stemming from the Nevada governor’s closure of non-essential businesses during the COVID-19 pandemic. The governor’s orders limited the restaurants to takeout and delivery service only.

The Fourth Circuit recently held that an insurance company was obligated to cover millions in legal fees incurred in defending an employment suit against the owners of DARCARS, a DC-area based car dealership. The court ruled that the relevant policy exclusion was ambiguous and, as a result, construed the exclusion narrowly against the insurer and in favor of coverage.