Category Archives: Insurance

No Coverage For Bank’s Class Action Settlement For Overdraft Fees (PA)

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Six class actions were filed against PNC Bank on the grounds that it manipulated overdraft fees and failed to disclose to customers that there was an “opt out” option for such fees. PNC settled the litigation for $102 million that included a $30 million attorneys’ fee component.  Axis Insurance Company, an excess insurer for PNC, denied coverage for the settlement as a refund or “reimbursement” of overdraft fees falling within the “professional services charge exception” to covered damages.

PNC put forth three arguments. First, PNC argued that the language of the “professional services charge exception” was ambiguous, and should be construed in favor of coverage. PNC also argued that the district court was mistaken in holding that the exclusion barred coverage for reimbursements. And finally, PNC argued that it was an error to categorize the settlement as a “reimbursement,” as the crux of the suit dealt with a broader issue of PNC’s overall banking policies.

 

The District Court ruled that PNC was not entitled to coverage for the settlement under the exception.  Nonetheless, it ruled that Axis was on the hook to pay the $30 million portion of the settlement that was designated for attorneys’ fees. On May 9, 2016, the U.S. Court of Appeals for the Third Circuit affirmed that PNC was not entitled to coverage, but reversed the District Court’s ruling with respect to  attorney’s fees.

The Appeals Court, led by Third Circuit Judge Thomas Vanaskie, ruled that there was no ambiguity in the professional services charge exception.  It was factually accurate to categorize the settlement as a “reimbursement,” and therefore the “professional services charge exception” applied to bar coverage under the Axis policy. Since the entire settlement could be categorized as a “reimbursement,” the $30 million earmarked for attorney’s fees also constituted a reimbursement, and Axis was not liable for such under the “professional services charge exception.”

Thanks to Melanie Brother for her contribution.

For more information, contact Denise Fontana Ricci at .

 

 

Insurers Must Defend Alleged FIFA Fraudster (EDNY)

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In 2015, the U.S. Justice Department charged more than 40 defendants in a wide-ranging corruption case centered on international soccer. Most of these defendants were officials connected with soccer’s international governing body, FIFA.   One of those defendants is Eduardo Li, an elected member of FIFA’s executive committee, and president of the Costa Rican Football Federation. The indictment alleges that Li participated in a racketeering conspiracy, violating the federal RICO statute. Other charges against Li include wire conspiracy, wire fraud, and money laundering. The indictment alleges that the various defendants participated in a criminal scheme that involved accepting over $150 million in bribes and kickbacks in exchange for doling out lucrative television deals, clothing sponsorship contracts, and host country selection for the World Cup.

FIFA maintained a $50 million directors and officers liability policy with Lloyds and Axis Specialty Europe SE. After the indictment, Li sent a letter to the insurers requesting payment under the policy for his defense in the criminal action. The insurers denied Li’s claim, asserting an exclusion in the policy that there was no coverage with respect to claims alleging RICO violations. The D&O policy also included a criminal defense costs limitation that provided coverage only if criminal “investigative proceedings” are initiated against an insured. After the denial, Li moved by order to show cause in federal court for a preliminary injunction requiring the insurer’s to pay for his defense in the criminal action.

The insurers argued that Li did not constitute an “insured person” because the D&O policy only provided coverage for those that acted in a “managerial or supervisory capacity,” and Li never served as a FIFA executive committee member (he was elected to the committee but never served on it). The insurers also asserted that the defense cost limitation applies because the US indictment based on RICO violations does not constitute “investigative proceedings.” Interestingly, the insurers abandoned any argument based on its original denial position citing the RICO exclusion.

On April 27, 2016, Judge Raymond J. Dearie in Eastern District Court granted Li’s request for an injunction, and required the insurers to provide him with a defense in the criminal action. Judge Dearie happens to preside over the criminal action against the FIFA defendants. The court found that the policy definition for “investigation” includes any formal hearing, and that this “presumably encompasses an indictment and criminal trial.”  The court also rejected the notion that Li was not entitled to coverage as an “insured person” because he never served on FIFA’s executive committee. The court examined the D&O policy and held that nowhere did it limit coverage only to FIFA committee members who acted in a managerial or supervisory capacity. Rather,  coverage applied to all FIFA chairmen and executives or “any person acting in a comparable function.”

Judging from the court’s decision it would appear that the insurers’ coverage arguments were tenuous at best. However, the main thrust of the insurers’ challenge to Li’s injunction was premised on jurisdictional grounds. The insurers challenged whether Judge Dearie even had jurisdiction over the coverage dispute due to the policy’s forum selection clause requiring a Swiss place of jurisdiction and the application of Swiss law. Again Judge Dearie rejected any jurisdictional arguments. Since Judge Dearie presides over the criminal matter, he asserted that his court had ancillary jurisdiction over the coverage dispute and that he could rule on the merits of the case.

Even if the insurers could not make the most cogent coverage arguments, they took the appropriate measures by attempting to limit coverage. There are potentially 40 or more “insured persons” seeking a defense. The court may also have been persuaded by Li’s difficult financial positon. Li was being defended under a policy by Chubb,  but the policy was exhausted shortly after Li sought the injunction. The insurers are not at a complete loss through because a willful acts exclusion in the policy may allow them to claw back any money they pay out. And there’s certainly enough evidence to indicate that Li willfully participated in the corrupt scheme at FIFA; he once boasted:  “There’s no Arab sheikh who can buy tickets to the kind of events us leaders of world football have access to.”

Thanks to Dan Beatty for his contribution to this post. If you have any questions about this post, please email Brian Gibbons at Brian Gibbons for additional information.

 

Do CGL Policies Now Insure Data Breaches?

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The case that everyone is talking about is Travelers Indemnity v. Portal Health, a just released, unpublished Fourth Circuit opinion. The quick story is that the Fourth Circuit affirmed the trial court opinion and held that Travelers owed coverage (specifically defense) under a CGL policy for a data breach. The real story is a bit more nuanced.

In the case, Portal Healthcare, a Virginia based company, was sued in NY in a class action lawsuit. In the lawsuit, patients of Glen Falls Hospital claimed that Portal Healthcare failed to safeguard medical records entrusted to Portal Healthcare by the hospital and instead allowed those records to be posted on the internet – accessible to everyone via a Google search. Portal Healthcare was insured by Travelers under two consecutive commercial general liability insurance policies – a 2012 policy and a 2013 policy. The Policies were not standard policies – rather they contained special endorsements that expanded the scope of personal injury, advertising injury and web site injury.

Specifically, the 2012 Policy contained a Web Xtend Liability Endorsement that deleted and replaced the definition of Personal and Advertising Injury liability. The 2013 Policy contained an Amendment of Coverage B – Personal And Advertising Liability Endorsement that deleted and replaced the definition of Personal and Advertising Injury liability. Under both endorsements, the parties (and court) seemed to agree that coverage was triggered if the underlying complaint alleged: (1) injury arising out of the offense of “electronic publication of material that . . . gives unreasonable publicity to a person’s private life” (the language utilized in the insuring agreement of the 2012 Policy) or (2) injury caused by the offense of “electronic publication of material that . . . discloses information about a person’s private life” (the language utilized in the insuring agreement of the 2013 Policy).

In respect of the first point, Travelers argued that, although the data was available to the general public, since Portal Healthcare did not intend to publish it, publication did not occur. This argument was rejected by the court which held that it was the fact of publication (and not the intent of publisher) that mattered.

In respect of the second point, Travelers argued that there was no “publicity” given to a person’s private life as the leak was not intended to generate publicity. This argument was also rejected by the court which held that since the leaked data was available to the general public, publicity had occurred.

All of this seems rather straightforward, so why all the fuss? It seems that a top sheet review might be to blame. When you look at the trial court’s decision and the policies themselves, you see that the Travelers’ decision to broaden the scope of potential claims that would qualify as “personal and advertising injury” is the root cause of the decision. So, it’s true that CGL policies might have more potential exposure to data breaches – but only if you enhance the coverages.
For more information about this post please e-mail Bob Cosgrove.

New York Court Permits Insurer To Rely On Flood Exclusion Omitted From Disclaimer

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It is never a good practice for an insurer to omit applicable exclusions in a disclaimer, but according to a New York Second Department decision issued this week, that mistake is not always fatal.  In Provencal, LLC v. Tower Ins. Co. of New York, the insured’s premises suffered water damage as a result of rain storms and the collapse of a retaining wall.  The insurer disclaimed coverage based on an exclusion for damage caused by water migrating from under the ground.

After the insured filed suit, the insurer relied on an exclusion barring coverage for damage caused by flood and/or surface water.  The insured countered that the policy exclusion did not bar coverage because the insurer failed to specifically identify the exclusion in its disclaimer.  The Second Department disagreed, and held that the exclusion barred coverage despite the fact that it was not identified in the disclaimer.

In reaching that decision, the court reasoned that the line of New York cases addressing an insurer’s obligation to disclaim coverage with specificity was grounded in New York Insurance Law §3420(d)(2), and that statute applies only to accidents arising out of bodily injury or death.  Because the damages in Provencal were property damage, the statute did not apply.

With the statute inapplicable, the court analyzed the disclaimer by analyzing the issue through the prism of estoppel.  Because the insured did not show that it was prejudiced by the insurer’s piecemeal disclaimer, the court held that the insurer was entitled to rely on the exclusion.

All disclaimers should be thorough.  They should all cite every ground upon which they are based.  That is especially true in the context of bodily injury claims.  But the Second Department’s decision in Provencal shows that, at least in the context of property damage claims, not all piecemeal disclaimers are fatal.  Why risk it though?  Insurers should cite all applicable exclusions in their disclaimers.

Thanks to Mike Gauvin for his contribution to this post.  For more information, please email Dennis M. Wade at .

WCM Partner Fights on the Side of Angels and Against Policyholders.

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Such was the mission tasked to Partner Bob Cosgrove when he was asked to be a panel speaker at a March 22, 2016 Anderson Kill sponsored seminar entitled “Fight Night: Attacking and Defending Insurance Claims.” Mr. Cosgrove was asked to explain (to a pro policyholder audience) how and why insurance companies analyze claims and why, contrary to policyholder beliefs, such behavior is typically reasonable. Hopefully, the explanations stuck.

For more information about this post, please e-mail Bob Cosgrove .

Insured’s Affiliates Not Named As An Insured? Court Says No Problem. Maybe.

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An insurance policy might list only one named insured, and no additional insureds, but according to one recent New York Supreme Court decision, that does not necessarily mean the insured’s affiliates are not entitled to coverage.

In El-Ad 250 West, LLC v. Zurich American Ins., Zurich issued a builders’ risk policy to a condominium developer.  After Hurricane Sandy, the developer and its affiliated companies sought coverage under the policy for additional interest paid on construction loans and lost earnings resulting from delays in selling units in the building.  The policy identified only the developer as an insured and did not name any of the affiliates as a named insured or an additional insured.  In fact, the policy specifically provided that “[f]or the purpose of Delay in Completion Coverage only, the Named Insured shall be shown as below… There shall be no Additional Named Insureds, unless otherwise endorsed.”

Relying on that language, and the fact that the affiliates were not listed on the policy, Zurich moved for partial summary judgment, arguing that the affiliates were not covered under the policy.  The court denied Zurich’s motion.  In doing so, the court relied on a long line of authority recognizing that “[t]he name of the insured in the policy is not always important if the intent to cover the risk is clear.”  According to the court, if the parties intended to include the affiliates as insureds, there would be coverage, even if the affiliates were not identified in the policy.

Applying that principle to the facts before it, the court held that summary judgment was inappropriate because there was evidence that “Zurich’s underwriting process appears to have accounted for the affiliates, suggesting it understood coverage might extend to them.”

On the surface, it appears that the court was quick to abandon the well-established rule that extrinsic evidence is not be considered in the face of an unambiguous policy provision, but that really was not the case.  In El-Ad, the court was not interpreting the scope of the covered risk, but rather the identities of the parties to whom the policy applied. El-Ad should serve as an important reminder to underwriters to understand the identities of their insureds, and whether the insured claims “affiliates” within its embrace.  The good news is that El-Ad is not a broad invitation to examine extrinsic evidence to rebut unambiguous policy language.

Thanks to Michael Gauvin for his contribution to this post.  For more information, please email Dennis Wade at .

Uninsured Driver Cannot File Suit Under New Jersey Law

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A recent New Jersey court revealed that a “good faith” belief that one possesses insurance is not enough to overcome a statute that requires a plaintiff to maintain insurance coverage on their own vehicle. In Bencosme v. Kannankara, plaintiff filed suit against defendant Joseph Kannankara after he was injured in a car accident. During discovery, it was determined that plaintiff was an uninsured driver at the time of the accident. Pursuant to N.J.S.A. 39:6A-4.5(a) a person who fails to maintain “medical expense benefits coverage . . . shall have no cause of action for recovery of economic or noneconomic loss.” N.J.S.A. 39:6A-4.5(a).  Defendant filed a motion for summary judgment arguing that the plaintiff was barred from filing suit since he did not maintain insurance coverage. The court granted defendant’s motion, and dismissed plaintiff’s complaint.

Plaintiff appealed, arguing that he should be entitled to maintain coverage since he made a “good faith effort” to obtain automobile coverage.  Apparently, the plaintiff was a victim of a scam, and was under the impression he had insurance coverage at the time of the accident.

The Appellate Court upheld the dismissal, noting that the statute does not make an exception for persons who make a good faith effort to obtain coverage. Since there is no ambiguity in the statute, it should be interpreted pursuant to its plain language.

This case shows that defense counsel should always investigate whether a plaintiff maintained proper automobile insurance coverage at the time of an accident.  If a plaintiff is uninsured, a defendant can seek an early dismissal.

Thanks to Heather Aquino for her contribution to this post.

 

 

NJ Supreme Court — Late Notice (Without Prejudice) Remains a NJ Policy Defense in Claims Made Policies.

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Late notice, in the absence of a showing of “appreciable prejudice” by the insurer, has gone the way of the dodo bird in respect of its viability as the basis for a disclaimer on an occurrence based policy. However, in NJ (and in many other jurisdictions) late notice (even without appreciable or material prejudice) remained a defense in claims made policies (on the theory that timely notice was a material condition of the policy). Whether such a late notice defense was still viable was the question that the NJ Supreme Court decided yesterday in the case of Templo Fuente De Vida Corp., et al. v. National Union Fire Insurance Co. In an unanimous decision, the Court ruled that the answer is “yes.”

In Templo Fuente, a real estate closing went bad when the financing to fund the loan fell through. A directors and officers lawsuit was filed against Templo Fuente. Templo Fuente thereafter presented the claim to National Union for coverage under a claims made policy – some six months after being served with the complaint. National Union disclaimed coverage on the grounds that a condition precedent to coverage – timely notice – had not been met. The trial court and the appellate court agreed with National Union, but Templo Fuente appealed to the New Jersey Supreme Court, Templo Fuente argued (among other things) that allowing a late notice disclaimer (in the absence of “appreciable prejudice”) was contrary to the growing national trend.

The New Jersey Supreme Court disagreed and ruled for National Union. In reaching its decision, the Court noted that:
the requirement of notice in an occurrence policy is subsidiary to the event that invokes coverage, and the conditions related to giving notice should be liberally and practically construed.
By contrast, the event that invokes coverage under a “claims made” policy is transmittal of notice of the claim to the insurance carrier. In exchange for limiting coverage only to claims made during the policy period, the carrier provides the insured with retroactive coverage for errors and omissions that took place prior to the policy period.

This decision is obviously good news for insurers since the pricing for claims made policies is largely predicated on timely notice. But, what may be even better news is that in reaching its decision (in dicta) the Court noted that one of the reasons that claims made policies should be treated differently than occurrence based policies is that the insureds in claims made policies are “knowledgeable insureds, purchasing their insurance requirements through sophisticated brokers” who effectively know (or should know) what they are buying. One wonders whether this argument could be successfully used as a defense in respect of disclaimers on other types of policies or on other types of legal issues where there are “knowledgeable insureds” with “sophisticated brokers.”

For more information about this post please e-mail Bob Cosgrove .

Additional Insurance Claim Torched Based on Lack of Indemnity Agreement (NY)

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In American Ins. Co. v Schnall, the Appellate Division, First Department recently dealt with the issue of whether blanket additional insured coverage could be triggered simply by an agreement between the parties to procure such coverage – without an indemnity agreement between the parties.

Brooklynbaca, LLC, doing business as The Brooklyn Star operated a bar and restaurant in the Brooklyn neighborhood of Williamsburg. In order to better serve its (hipster) patrons, Brooklynbaca contracted with Scientific Fire Prevention Company to install a cooking exhaust duct in the restaurant.  The service agreement contained an insurance procurement provision in favor of Scientific but Brooklynbaca did not assume Scientific’s tort liability.  A fire erupted in the restaurant’s kitchen damaging the building owner’s property.

American Insurance Company insured Brooklynbaca under a liability policy. Scientific sought coverage under the American policy’s additional insured endorsement which provided coverage to organizations that Brooklynbaca was “required by a written insured contract to include as an insured.”  The parties became embroiled in litigation and Scientific sought a declaration that it was entitled to additional insured coverage.  A New York State trial court denied the insurers’ motion for summary judgment and an appeal followed.

The First Department reversed the trial court finding that although the service agreement contained an insurance procurement provision it did not require that Brooklynbaca assume any tort liability on the part of Scientific.  As such, without a clause requiring Brooklynbaca’s assumption of tort liability, the service agreement did not constitute a “written insured contract.”  The First Department thus found that Scientific was not entitled to additional insured coverage under the American policy.

Thanks to Steve Kaye for his contribution to this post and please write to Mike Bono for more information.

Foot Doctor Defeated in Action for Rescission (NJ)

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The rescission of any liability policy is never easily obtained.  The courts scrutinize whether the insurer has met its substantial burden of establishing that the insured made a misrepresentation of material fact.  On a practical level, judges are reluctant to grant rescission where it will leave an innocent plaintiff without any source of funds to pay his claim.

How should a New Jersey court decide a professional liability insurer’s request for rescission where the insured professional admittedly made a false statement concerning the location of his practice and has no personal assets to satisfy a claim for malpractice?  Does it matter that New Jersey requires physicians and podiatrists to maintain significant limits of professional liability insurance?

In DeMarco v. Stoddard the New Jersey Supreme Court held that rescission was properly granted to a Rhode Island based insurer where the insured podiatrist falsely represented in the application for insurance that at least 51% of his practice was generated in Rhode Island.

The facts of DeMarco are simple.  Dr. DeMarco represented in his original and at least three renewal applications that his practice met the 51% requirement. In reality, it appears that the entirety of his practice was based in New Jersey.  A malpractice claim was filed against him in New Jersey, which was promptly forwarded to his professional liability insurer to handle.  The insurer responded by issuing a reservation of rights letter and filing an action for declaratory judgment in Rhode Island.  The underlying plaintiff eventually amended his malpractice complaint to add the insurer and sought a declaration that the insurer was required to defend and indemnify the defendant doctor up to his policy limits of $1 million.

The legal issue was whether the insurer was entitled to rescission because of the podiatrist’s clear material misrepresentation of fact.  The practical issue was who would bear the consequences of the doctor’s misrepresentation: the innocent claimant or the innocent insurer?  In a 5-2 decision, the Supreme Court sided with the insurer holding that a contrary decision “suggests that fraudulent conduct is condoned.”

In Demarco, the misrepresentation was clear and conceded. The case is significant because the Supreme Court confirmed the right of a professional liability insurer to rescind a policy based on the professional’s misrepresentation of material fact even if the professional was virtually judgment proof. The court also weighed the harm to an innocent claimant against the public policy of discouraging fraudulent conduct against an insurer, and found in favor of the insurer. A rare case indeed.

If you have any questions, please email Paul at