Hunton Insurance Recovery Blog

Hunton Insurance partners Syed Ahmad and Michael Levine were interviewed by Law360 for its year-end article discussing the top insurance rulings in 2019, for their insights on two of the year’s biggest insurance decisions.

In R.T. Vanderbilt Co. Inc. v. Hartford Accident and Indemnity Co., the Connecticut Supreme Court affirmed that state law permits an "unavailability of insurance" rule, under which a policyholder is not liable to pay a share of its own defense and indemnity costs for periods when insurance for a certain risk was unavailable in the marketplace. Instead, those costs must be divvied up on a proportional, or “pro rata,” basis among insurers that issued policies covering that risk in other periods.  The Court applied the rule in Vanderbilt because the insured was unable to obtain coverage after 1985 for individuals' claims for asbestos injuries allegedly caused by exposure to the company's industrial talc.  The Court also affirmed that an "occupational disease" exclusion in some of Vanderbilt's policies bars coverage not only for asbestos claims brought by the company's own workers, but also those brought by people who were allegedly sickened by Vanderbilt's products in the "course of their work for other employers." Similar exclusions are common in other manufacturers’ liability policies, according to attorneys.  Hunton’s Syed Ahmad explained that “as with other decisions breaking new ground, this case will naturally be the focus for future battles in other states about the scope of this and similar exclusions.”  “Time will tell if what the court did here will be the start of a trend, with other courts following suit, or if the case will turn out to be an outlier with other states going their separate ways,” Ahmad added.

In contrast, Hunton’s Michael Levine commented on what may be one of the strangest insurance decisions of the year.  In August, the Seventh Circuit withdrew its own prior ruling in Emmis Communications Corp. v. Illinois National Insurance Co., that an AIG unit properly denied radio broadcasting company Emmis Communications Corp. coverage for a shareholder suit, and instead affirmed the trial court’s decision that Emmis is covered.  Initially, on July 2, 2019, the Circuit Court reversed the district court’s ruling that AIG must cover Emmis’ $4.1 million in defense costs in a shareholder suit alleging that Emmis and its board tried to strip shareholder rights in a go-private transaction.  On August 22, 2019, however, and without any explanation or reasoning, the same Seventh Circuit panel issued a new order vacating its prior decision and upholding the district court’s ruling.  The reversal of fortune affirmed the district court’s finding that the shareholder suit was tied to separate events from several prior shareholder suits over the failed go-private deal and, thus, was not subject to a policy exclusion for “any claim alleging, arising out of, based upon, attributable to or in any way related directly or indirectly, in part or in whole, to an interrelated wrongful act."  The court stated that while a literal interpretation of the exclusion would indeed bar coverage for Emmis, such a result would be nonsensical because of the exclusion’s breadth.  Instead, broad wording notwithstanding, the exclusion should be limited to only claims that share the same causes of action as the previous suits.  Hunton insurance partner Michael Levine commented that the Seventh Circuit’s decision to do an about-face and affirm Judge Lawrence’s ruling was a significant blow to directors and officers insurers, which have often argued for broad interpretations of identical or similar “interrelated wrongful act” exclusions.  "If you take Illinois National’s interpretation of this language to its logical extreme, any common fact could conceivably trigger the exclusion,” Levine said. “It could be something as minor as the mere fact that two claims were filed against the same corporate defendant. Emmis showed the Seventh Circuit why that interpretation led to an absurd result."