In this blog post, Mark Miller addresses two common mistakes policyholders make with property insurance claims.
To provide context, it is important to understand how corporate property insurance claims are typically handled. Because property insurance claims present a series of complex legal issues, insurance companies typically obtain legal advice on larger property claims from inception. Policyholders, on the other hand, typically do not. Policyholders typically engage an insurance broker or public adjuster to handle claims on their behalf. Brokers and public adjusters know insurance industry custom and practice, and they know how to handle claims in accordance with long-established understandings with insurance companies regarding what insurers will and will not pay. Legal involvement on the policyholder side, if at all, only comes into play down the road when the insurance company refuses to pay what they owe.
It is only at this point, perhaps a year or more into the claim, that policyholders are advised by counsel about the legal implications of their claim, including mistakes that were made. This video illustrates two common mistakes.
Proof of Loss Deadlines
The first mistake centers around proof of loss deadlines. A proof of loss is a sworn statement outlining the loss. Many property insurance policies state that a proof of loss must be filed within a specific period of time, such as 90 days from the date of loss. With complex corporate claims, it is impossible to assess a loss within 90 days, let alone swear under oath that the stated amount is the full amount of loss suffered. Moreover, business interruption and other “time element” losses often continue long after the proof of loss deadline has expired. So, policyholders are faced with an impossible-to-meet deadline.
For this reason, insurance industry custom and practice is to ignore proof of loss deadlines. When asked if a proof should be submitted, insurance adjusters will likely say that there is no need to submit a proof of loss until the loss has been agreed to by the policyholder and the insurer. In fact, if a policyholder offers to submit a proof of loss before they are asked to do so by the insurance company, the insurance company will treat the unrequested proof as a “hostile proof.” The word hostile says it all. In the insurance industry, irrespective of what the policy says, policyholders are instructed not to submit proofs of loss unless and until the insurance company asks them to do so.
The mistake with respect to proofs of loss arises because policy language and industry custom and practice are different. Although most jurisdictions will not require a policyholder to submit a proof of loss in this typical situation, the law is far from uniform. The solution to the problem, as addressed more fully in the video, is really quite simple, request an extension.
Suit Limitation Deadlines
The second mistake that policyholders make is by being lulled into thinking that the insurance company will pay the claim and missing a limitation on filing suit. Many property insurance policies have a limitation on filing suit against the insurance company. Commonly, these limitations are one or two years. Problems arise because complex property insurance claims are not typically resolved in this time period. In fact, in some situations, business interruption losses can continue for two years or more. Hence, it makes no sense for a policyholder to preemptively file suit if the parties are still working out the claim.
For these reasons, industry custom and practice is to ignore suit limitations deadlines. Typically, insurance carriers are negotiating claims, and cutting checks for losses, long after the suit limitations period has expired.
The issue comes up only when the insurance carrier decides they are done paying the claim. At that point, their counsel sends the policyholder a letter stating that the insurance company is finished paying, and that there is no recourse, given that the suit limitations period has expired.
The solution, as addressed more fully in the video, is to obtain a suit limitations extension from the carrier.
Please watch the video to learn more, or Contact us if you have any questions.
The spread of the coronavirus from Wuhan, China, and the ensuing reactions from governments and corporations are causing tremendous disruption in the global supply chain, especially among the world’s largest jet and auto makers, as well as technology and telecom giants. Each day brings additional stories of compounding losses for businesses operating in and around Wuhan, and those dependent on them as either suppliers or customers.
Companies who are suffering interruption of their business should carefully review business interruption insurance policies to see if they may be covered for increased costs and loss of revenue resulting from the virus outbreak. There are many different variations in policy language, but many forms extend coverage to losses arising from : (1) closure of “dependent properties” in the chain of supply or distribution; (2) denial of access to business premises by civil authorities, sometimes even in the absence of direct physical loss or damage; (3) loss of ingress or egress to covered premises; (4) loss of attraction extensions; and (5) contagious disease. See Business Interruption Claims Best Practices; Best Insurance Recovery Decisions: Fountain Powerboat.
Crisis teams working to navigate the virus situation should assume responsibility for reviewing their property and business interruption policies to assess potential coverage for their losses and provide notice under the applicable policies. We can help.
The question of whether Lloyd’s of London is still relevant in today’s insurance market is a good question for corporate policyholders to consider. On the one hand,Lloyd’s plays an important if not crucial role in the U.S. market. They are known to ensure risks that others will not touch. They are also known for using innovative policy language.
However, Lloyd’s of London is not an insurer. Rather, it is a marketplace for underwriting risks. For a typical Lloyd’s of London policy, there is no single entity insuring the risk. Rather, underwriters of various corporate and non-corporate structures take portions of the risk. Each underwriter gives its two cents on what they want to pay. If there may be no lead appointed, it is not uncommon for underwriters to disagree as to how a claim should be paid or defended. This can lead to chaos.
When this chaos is imposed on cases filed in what is known as the “rocket docket,” such as that employed in the Eastern District of Virginia, all hell breaks loose. There, cases go from filing to trial in less than 12 months. To say that defense decisions in the rocket docket need to be made quickly is an understatement. Recently, we had the opportunity to gauge Lloyd’s of London’s performance in this setting, and they did not perform admirably.
Please watch the video to learn more, or Contact us if you have any questions.
Plus 5% Interest and Maybe More Damages for Insurer’s Bad Faith
A federal district judge in Illinois has issued an important ruling in the opioid insurance coverage wars, finding coverage for a $3.5 million settlement between an opioid distributor and the State of West Virginia.
The insurer raised the usual reflexive, rubbish coverage defenses, seeking first to deny coverage altogether by vilifying its insured as a willful drug pusher, and then, as a fallback, to chisel the insured out of full coverage by challenging the reasonableness of the total settlement amount and deducting amounts for allegedly “uncovered claims.” The court emphatically rejected each of these defenses and held that the entire settlement was for a covered loss in reasonable anticipation of liability based on the underlying negligence and public nuisance claims. The court found that these claims alleged damages “because of bodily injury.” The court also tacked on 5% per year interest from the date of the settlement payment, with the prospect that more damages for bad faith may be added later. The 5% interest and potential bad faith awards should remind insurers that continued recalcitrance may cost them much more than just the costs of defending and settling opioid claims. Moving forward, the decision should also benefit whichever industry – legal, respected and productive today – that tomorrow needs insurance protection when it finds itself the “villain” in the crosshairs of the next “public nuisance” shakedown by the plaintiffs’ bar.
The opinion in Cincinnati Ins. Co. v. H.D. Smith, L.L.C., Case No. 12-3289 (C.D. Ill. Sept. 26, 2019) is here.
Background of the Case
In 2012, West Virginia sued H.D. Smith, a distributor of controlled substances to pharmacies in West Virginia, on various theories arising from Smith’s alleged failure to put effective controls and procedures in place to guard against the theft and diversion of opioids. Smith’s insurer, Cincinnati Insurance, denied coverage of the claims. After years of coverage litigation, the Seventh Circuit ruled that Cincinnati had a duty to defend Smith. Cincinnati Ins. Co. v. H.D. Smith, L.L.C., 829 F.3d 771 (7th Cir. 2016).
In December 2016, shortly before a trial set for January 2017, Smith agreed to settle the West Virginia claims for $3.5 million. The court had denied all of Smith’s dispositive pretrial motions, and all but one of the other defendants had settled. Smith continued to deny that it had any actual liability to West Virginia, but it faced significant exposure as a non-resident defendant in front of a West Virginia jury.
Smith and Cincinnati cross-moved for summary judgment regarding coverage for the settlement. The court ruled entirely in favor of the insured on five major points of coverage.
1. The Settlement was in Reasonable Anticipation of Liability
The court held that an insured may have a reasonable anticipation of liability when it faces a jury trial against a sympathetic plaintiff with significant damages even if the facts against the insured are weak. Smith did not have to establish actual liability in order to have insurance coverage. An insured does not have “to refute liability in the underlying lawsuit and then, after obtaining a settlement, turn around and prove its own liability in order to succeed in a subsequent insurance coverage action.” Such a requirement would chill settlements.
The court found that Smith reasonably anticipated liability. Smith did not admit liability but faced significant exposure. Its pretrial motions had been denied and it faced an immediate trial in an unfavorable jurisdiction, with a popular sitting United States Senator and former governor slated to testify against it. The fact that all but one other defendant had settled was further evidence that Smith reasonably anticipated liability.
2. The Settlement Resolved Covered Claims Alleging an “Occurrence”
The insurer further contended that the settled claims did not allege a covered “occurrence” because they were premised on alleged willful and intentional misconduct by the distributor. The insurer argued that the settled claims were all based on allegations that the distributor:
“knew what was happening, but continued to intentionally and willfully send unwarranted amounts of controlled substances into West Virginia that could only lead to one result – illicit use and a compounding of the State’s prescription drug abuse epidemic . . . [and that] each and every cause of action [alleged], even those using the word “negligence,” incorporates and relies upon allegations of willful misconduct, a persistent course of conduct in violation of West Virginia law, and conscious disregard of the prescription drug abuse epidemic.”
The court had previously rejected this argument, holding that the claims either specifically alleged negligence, or alleged a mixture of negligent and intentional conduct, which is also covered. Cincinnati Ins. Co. v. H. D. Smith Wholesale Drug Co., 2015 WL 4624734 at *5 (C.D. Ill. Aug. 3, 2015), rev’d on other grounds, 829 F.3d 771 (7th Cir. 2016). The court reiterated its previous holding, rejecting insurer’s “intentional conduct” defense a second time. (Opinion at 31 n.2). The court held that Smith had alleged a covered “occurrence.”
3. The Settlement Resolved Claims Seeking Damages “Because of Bodily Injury”
The court next rejected the insurer’s argument that the distributor’s settlement was not covered because the settled claims did not seek “damages because of bodily injury.” First, the court quoted the Seventh Circuit’s earlier opinion on the duty to defend, which reasoned that if an insured under an automobile policy caused an accident in which a claimant became paralyzed, and the claimant sued the insured only for the cost of making his house wheelchair accessible (not for his physical injuries), those damages might not be covered if the auto policy only covered damages “for bodily injury.” However, if the auto policy covered damages “because of bodily injury,” [as Smith’s policy did,] then the insurer would have a duty to defend and indemnify. (Emphasis added).
The court went on to hold that, with respect to the settlement, both the negligence claims and the public nuisance claims asserted against Smith would likely include “damages because of bodily injury.” Damages in the form of “increased costs for, inter alia, public services relating to law enforcement and health care might be covered in the same manner that the paralyzed individual who makes his home wheelchair accessible would be.”
4. The Settlement Was for A Reasonable Amount
Next, the court rejected the insurer’s challenge to the reasonableness of the settlement amount. In determining reasonableness, the test is “what a reasonably prudent person in the position of the insured would have settled for on the merits of plaintiff’s claim.” The court found that the $3.5 million amount was reasonable even though it was higher than what most co-defendants paid. Disparities in opioid sales and Smith’s late position in the settlement queue made the higher amount reasonable in comparison. An additional factor that the court weighed in assessing reasonableness was that settlement avoided substantial defense costs. The complaining insurer faced the prospect of ongoing defense costs as high as the settlement amount.
5. The Covered Settlement Amount Would Not Be Chiseled Lower Because of “Allegedly Uncovered Claims”
The insurer’s last argument for shaving its payment obligation was that covered claims were not the primary focus of the litigation, and the settlement should be apportioned between covered claims and allegedly uncovered claims. The court entirely rejected this argument, and found that Smith:
“was not required to apportion its liability for different claims because that would either require the coverage trial to be a retrial of the merits of the insured’s underlying suit [or trial in the case of a settlement] and/or would discourage settlement because the insured would essentially have to prove its own liability for the underlying conduct even if it had not made that concession in arriving at a settlement.”
The court had already found that the settlement included covered negligence and public nuisance claims (see point 2 above). The litigation was primarily focused on claims that Smith wrongfully failed to recognize from its distribution pattern that West Virginians were obtaining improper prescriptions. The settlement agreement also noted that the government had never taken any administrative enforcement action against Smith and that Smith had never been found to be in violation of any state or federal regulations or guidelines concerning the distribution of controlled substances in West Virginia. And the settlement did not impose any penalties. Rather the focus of the settled claims was that Smith distributed more pharmaceuticals in the state than were medically necessary.
Accordingly, the court held that the insurer must pay the entire settlement “which plainly resolved potentially covered claims that the court concludes were the primary focus of the litigation. Moreover, the court has no basis to allocate the settlement between covered and any allegedly uncovered claims.”
Finally, the court awarded 5% interest from the date of settlement payment, and denied cross-motions for summary judgment on bad faith on the basis that there were unresolved genuine issues of material fact.
Reminiscent of those television adds where the insurance company brags about having seen everything, and paid it, the case of Capital Flip, LLC v. American Modern Select Insurance Company (W.D. Pa. 1999) is a funny insurance decision that illustrates a different story. There, malicious raccoons damaged a dwelling, and the insurance company refused to pay the claim. If you wonder how this crazy decision relates to large corporate insurance claims, please read on.
In Capital Flip, the policyholder bought a named peril property policy. One of the numerous perils covered was “Vandalism or malicious mischief.” The policyholder argued that the raccoons were engaged in malicious mischief. The court, looking to common usage of the words vandalism and malicious mischief, found that these acts typically related to a person. Since raccoons are not persons, the court held that there was no coverage.
Given that our law firm handles only large corporate insurance claims, I was hesitant to even read a decision about a home owner claim gone bad. But, I was curious. I wanted to see if raccoons really are malicious. After reading the decision, I contemplated what lessons, if any, large corporate policyholders could learn from this comical situation.
On reflection, there is only one lesson we can learn from Capital Flip – when insuring property, buy an “all risk” policy. All risk policies are the norm. They cover “all risks of physical loss or damage,” and case law interpreting these kinds of policies is settled and policyholder friendly. Coverage is exceedingly broad. Why then did Capital Flip buy a named period policy covering such limited perils? We don’t know, but perhaps it was to save money.
This funny insurance decision illustrates a point we make over and over again. If there is a claim, Insurance policy wording is all that matters. What the insurance broker says the policy covers means nothing. What the insurance company says the policy covers means even less. All that matters is insurance policy language.
We are often asked by clients to compare the claims practices of leading insurance carriers, which often leads to a conversation about Lloyd’s of London’s current insurance claim resolution practices.
A lot has changed since Lloyd’s of London earned its reputation in the United States 113 years ago. The Great San Francisco earthquake of 1906 presented a pivotal opportunity for Lloyd’s of London to show the United States that they were different and better than traditional U.S. insurance companies. Their approach then was to bring suitcases of cash, and pay policyholders on the spot, in full, irrespective of policy language. This aggressive stance helped to build a reputation for Lloyd’s of London, and U.S. policyholders purchased a lot of insurance from them because of this reputation.
Today, 113 years later, Lloyd’s approach to insurance claim resolution is dramatically different. Now, when a claim is made, it is difficult or impossible to find anyone who can speak for Lloyd’s, let alone any individual who can settle a claim. Lloyd’s employs lawyers as adjusters, and, as a result, many claims are unjustly viewed with skepticism. This approach has earned Lloyd’s of London the opposite reputation amongst corporate policyholders to positive reputation they justly earned 113 years ago.
Lloyd’s of London can turn this around, but to do so, they need to go back to their earlier approach of paying claims. If they do this, the growth in sales they desperately desire will follow, and the reputation of the institution will be saved.
Please watch the video to learn more, or Contact us if you have any questions.
It has been reported that thirty-one percent of organizations have experienced cyber-attacks. Moreover, cybercrime costs continue to accelerate with organizations spending nearly twenty-three percent more in 2017 than in 2016. On a corporate level, the average cost per breach is now at $11.7 million. While these statistics instill fear in some, they create opportunity for others. Insurers recognized an opportunity early on, and cyber insurance products quickly came to the rescue. Many of these cyber insurance policies, by design, covered very little. But they sell like hotcakes.
Corporate policyholders are more educated now than they were in the early cyber insurance days, but insurers still sell deficient cyber insurance products, and routinely deny cyber insurance claims that should be paid.
Please join Mark E. Miller, founding partner of Miller
Friel, PLLC, as he addresses these and other concerns in his recent PLI
Coverage under current cyber insurance policies;
How cyber insurance policies can be improved through negotiation;
Common bases for denials of cyber insurance claims; and
Best practices for handling corporate cyber insurance claims.
For additional information, please see Cyber Insurance – What Educated Policyholders Need to Know Now Presentation Materials.
New York has taken a two-prong approach to dealing with sexual abuse claims. First, the state legislature enacted the NY Child Victims Act. Second, New York publicly called out insurers telling them that providing Insurance Coverage for Child Victims Act Claims should be one of their highest priorities. See Insurers Should Prepare to Promptly Handle Wave of Child Sex Abuse Claims.
The state Department of Financial Services, in a guidance, told insurers they should be prepared to promptly approve coverage for those claims, when applicable, or face state action.
Based on our experience, many insurers are not treating policyholders fairly, and they are not promptly handling these kinds of claims. This was the subject of a recent PLI CLE Seminar where we addressed in detail some of the insurance implications we are seeing for Child Victims Act Claims. For additional information, please see PLI Seminar Course Materials.
What is the Child Victims Act?
Influenced by horrific, widely publicized incidents of sexual abuse, such as the ongoing Catholic Church scandal, and Larry Nassar’s widespread abuse of gymnasts, many states are revisiting how sexual abuse claims are handled in court. New York’s recently enacted Child Victims Act is a prime example.
The Child Victims Act revives claims for childhood sexual abuse or molestation that might otherwise be barred by statutes of limitation. Among other things, the Act creates a one-year window for claimants to file claims against their alleged abusers. That window for claims recently opened on August 14, 2019 and closes on August 14, 2020. Virtually any organization that works with children may be subject to liability.
In New York, a considerable number of Child Victims Act lawsuits were filed when the window opened for claims on August 14, 2019.
By 5:00 a.m. on the first day that lawsuits could be filed, roughly 200 lawsuits were filed;
On the first day, over 400 lawsuits were filed;
In the first two days, over 500 lawsuits were filed.
Plaintiffs’ lawyers contend that what we have seen to date is only a small portion of the lawsuits they intend to file.
New York is just one of many jurisdictions passing similar Child Victims Act laws. Child USA, reports that the vast majority of states have either passed or introduced laws extending the statute of limitations for child victims.
Insurance Coverage for Sexual Abuse Claims
Insurance coverage for sexual abuse claims is part of the solution. See Securing Insurance Coverage for Child Victims Act Claims Although insurance typically covers revived sexual abuse claims under the NY Child Victims Act and similar laws, insurance carriers don’t always see it this way. See Archdiocese of N.Y. v. Ins. Co. of N. Am., (N.Y. Sup. Ct. July 1, 2019); Rockefeller Univ. v. Aetna Cas. & Sur., (N.Y. Sup. Ct. Aug. 6, 2019).
Where plaintiffs seek financial compensation, insurance is always part of the solution. But, as we have seen with many of our clients facing claims for sexual abuse or harassment claims, many insurance carriers are circling the wagons to protect their own financial interests, rather than protecting their policyholders. Below is a list of some of the issues policyholders should consider:
1. Policies Providing Coverage
Two types of policies most commonly provide coverage: (1) Directors and Officers/ Employment Practices (D&O/EPLI) Policies and (2) General Liability (GL) Policies.
General Liability policies are the first kind of policy most policyholders think of when considering coverage. These “occurrence-based” policies cover allegations of bodily injury taking place during the policy period. Accordingly, numerous policies may be triggered by a claim and respond to a loss.
D&O/EPLI policies, by contrast, are just as important. Many D&O or management liability policies expressly cover sexual harassment. See Village of Piermont v. Am. Alt. Ins. Corp., 151 F. Supp. 3d 438, 441 (S.D.N.Y. 2015) (sexual assault covered under D&O policy). Allegations against institutions for actions of their employees often fall squarely within D&O/EPLI coverage. Unlike GL Policies, however, the triggered policy is the one in place when the claim is made, as opposed to the ones in place when when the alleged bodily injury occurred.
2. Providing Notice
Providing notice for these kinds of claims can be one of the most complicated and important things that a policyholder does. Some of the issues with notice include:
Does providing notice under one policy preclude coverage under another?
How do prior claims and prior notice provisions impact notice?
What exactly does each policy require for notice?
What is the legal consequence of providing improper notice?
Should the policyholder request authority to incur defense costs?
Should the policyholder seek consent to hire defense counsel?
Where must notice be sent, and how?
What does the law say about notice provided in a manner different from what is provided for under the policy?
What additional requests must be included with notice, and how do those requests vary from policy to policy?
Under which policies should notice be provided?
How important is it to search for additional policy information, and how should that search be conducted?
Providing notice properly requires time, thought, and legal analysis. In practice, many policyholders delegate this process to insurance brokers. Given the complexity of the issues, astute policyholders may want coverage counsel involvement at this stage of a claim.
3. Responding to Insurer Information Requests
Once notice is provided, policyholders should expect an onslaught of requests for information.
Managing insurance companies’ requests for information is no easy task, but two important ground rules need to be considered. First, insurance companies will request information that is designed to create defenses to coverage. Ironically, the same information requested by the insurers may harm the policyholders’ defense of the underlying claims. Second, information requests are inapplicable to defense of a claim. Defense obligations are typically controlled by what is known as the eight-corners rule. An insurer is permitted to review the four corners of the underlying complaint, and compare the allegation therein to the four corners of the policy. Based on this limited information, the insurer is required to either provide a defense (pay for defense counsel) or disclaim coverage.
Accordingly, policyholders should demand that the insurance carrier provide a coverage determination before engaging in requests for information designed to harm both coverage and defense of the claim.
4. Alleged Coverage Defenses to Sexual Abuse Claims
Insurers routinely raise a number of different reasons for not paying sexual abuse or harassment claims. An analysis of these so-called defenses, addressed from the perspective of a leading insurance company, is found in Munic Re’s 2010 study “Coverage and Liability Issues in Sexual Misconduct Claims.”
Three prominent insurance company arguments to defeat coverage include (1) sexual abuse exclusions, (2) no “occurrence”, and (3) policy not triggered.
Sexual Abuse Exclusions
Sexual abuse exclusions are not standard form, and do not appear uniformly in all policies by year. They may be found in some policies starting in the 1990s, but even then, they oftentimes come and go for an individual policyholder. More favorable versions expressly provide for a defense. Like all exclusions, they are construed narrowly and any ambiguities are construed in favor of coverage.
Just because a sexual abuse exclusion is present does not mean that coverage is precluded. The default rule is that the exclusion is severable, meaning that it may apply to an individual who is alleged to have perpetrated the abuse, but it does not apply to the organization who hired that individual. Moreover, allegations of negligence, false imprisonment, etc., should not trigger exclusion. SeeVillage of Piermont v. Am. Alt. Ins. Corp., 151 F. Supp. 3d 438, 451 (S.D.N.Y. 2015) (exclusion invalid as to false imprisonment claims).
Finally, and most obviously, policies that do not contain exclusions provide coverage. For example, there may be sexual abuse exclusions in policies starting in the late 1990s and thereafter, but that does not impact coverage for allegations of bodily injury taking place prior to that time. Similarly, a current D&O policy may contain such an exclusion, but the EPLI or Employment Practices Liability coverage section found in that same policy likely would not contain such an exclusion, because EPLI policies are designed to cover and do cover sexual harassment claims.
Occurrence — Neither Expected nor Intended from the Standpoint of the Policyholder
In a typical GL policy, “occurrence” may be defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions. . . . which is neither expected nor intended from the standpoint of the insured.” Although the definition varies over time, it raises two important issues with respect to sexual abuse or harassment claims. The first is the number of occurrences. The second is coverage for expected or intentional versus negligent conduct.
Determining the number of occurrences can be a touchstone issue in these kinds of cases. Multiple occurrences means multiple policies are triggered (giving rise to increased limits), but it can also trigger multiple deductibles. Unfortunately, legal tests seldom provide a bright line answer. For example, New York applies the “unfortunate event” test. Roman Catholic Diocese of Brooklyn v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 991 N.E.2d 666, 672 (N.Y. 2013). The unfortunate event test requires consideration of “whether there is a close temporal and spatial relationship between the incidents giving rise to injury or loss, and whether the incidents can be viewed as part of the same causal continuum, without intervening agents or factors.” Id. Unfortunately, the test does not lend itself to one absolute and indisputable outcome in the context of a school that is sued for the negligent hiring of a perpetrator who allegedly abused multiple victims.
The “neither expected nor intended” part of the “occurrence” definition clearly favors policyholders. Here, many insurance carriers paint with a broad brush, claiming that everything is intentional, and thus, not covered. These arguments, at most, apply only to perpetrators. The neither expected nor intended argument does not apply to organizations facing negligence-based claims.
When I was a young insurance coverage lawyer in the early 1990s, many coverage lawyers immersed themselves in the intricacies of trigger law. Now, virtually everyone who can read an insurance policy agrees that all GL policies in place during the time of bodily injury are triggered. Long gone are creative insurance company arguments attempting to limit the triggering of GL policies to one and only one policy period. That fight is over and the insurers came out on the wrong end of history.
Now, there are two accepted variations of the rule that all policies in place during the time of bodily injury are triggered: the All Sums approach, and the Pro Rata approach.
Under the All Sums approach, the policyholder can collect its total liability under any one triggered policy, up to policy limits. Matter of Viking Pump, Inc., 27 N.Y.3d 244, 255-56 (N.Y. 2016); Keyspan Gas E. Corp. v. Munich Reins. Am., Inc., 31 N.Y.3d 51, 58 (N.Y. 2018). Conversely, under the Pro Rata approach, each insurance carrier is allocated a “pro rata” share of the total loss covered under the various policies for the portion of the loss occurring during its policy period.Keyspan Gas, 31 N.Y.3d at 58. New York has not adopted a strict “all sums” or “pro rata” allocation rule. Viking Pump, 27 N.Y.3d at 257; Keyspan Gas, 31 N.Y.3d at 58.
5. Settling Insurance Claims — Best Practices
We have found that settlement of insurance claims for sexual abuse and harassment should be conducted in two phases: first defense, and second indemnity.
Before settlement with an underlying claimant can be addressed, policyholders need to secure coverage for defense of the claims asserted against them. The first step here is to create a coverage chart (time on the X axis, and dollars on the Y axis) indicating the policies available for various years of alleged injury. Then, create an overlay of when the allegations in the complaint took place to understand which policies are triggered.
From a legal standpoint, any triggered GL carrier is obligated to provide a defense for the entire action. Although one might think that this concept is a powerful thing, which is is, it does not always facilitate settlement because insurers are often more concerned about how much the other carriers will pay, than how much they will pay themselves. Getting things going requires a proactive approach, getting all of the insurers in one room, and hammering out a defense funding agreement.
Once a defense funding agreement has been reached, insurers should be approached for contribution, or indemnification for settlement with the underlying claimants. If the insurance carriers refuse to cooperate, litigation may be the best option. We have been repeatedly told by mediators that early mediation with insurers does not work unless a complaint has been filed. In our experience, litigation is the best way to get an insurance carrier to move.
The volume of child abuse cases filed is challenging the courts and discussions appear to be underway to structure an Alternate Dispute Resolution (ADR) process. Insurers will participate in that ADR process, but policyholders need to be prepared with respect to legal issues raised by the insurers, and they should not be afraid to use litigation against their insurance carriers as a tool to promote justice.
Finally, the law relating to settlement of claims with or without insurance carrier consent is difficult to navigate. The general rule is that a policyholder should not settle a case without consent from the insurer. There are exceptions to this rule, such as when an insurer has denied coverage for the claim. And, there are proven ways to obtain consent if a carrier is recalcitrant. If insurance coverage is important, a claim should not be settled without first contacting coverage counsel.
We recently obtained a favorable court ruling on behalf of our client, Tecumseh Products Company LLC, on an insurance coverage issue that has vexed corporate policyholders for decades — whether primary insurance policies contain aggregate limits for long-tail environmental insurance claims. See Bedivere Insurance Co., et al. v. Tecumseh Products Company LLC, et al., (Michigan State Court, 2019) (decision).
Good News for Manufacturers — Insurance is Provided for Pollution Claims Under Age-Old Insurance Policies.
1. The Aggregate Limits Issue for Environmental Claims
Tecumseh’s situation was not atypical. For years, even before litigation started in 2017, Tecumseh’s primary insurers and excess insurers conceded that their policies were at risk, but refused to pay a single dollar because of disagreement regarding whether or not the primary policies contained aggregate limits. If the primary policies did not contain aggregate limits, those policies are on the hook to pay their full per occurrence limits for each occurrence, meaning that there are multiple limits (rather than one limit) for each former manufacturing site. However, if those same primary policies contain aggregate limits, then payouts would be reduced dramatically, and in some situations could be zero because of prior payments on other claims.
2. The Primary/Excess Carrier Dilemma
Unsurprisingly, the primary insurance policy carriers have argued for years that their policies contain aggregate limits, and that they were already exhausted, or nearly exhausted from the payment of prior claims; whereas the excess insurers have taken the opposite view that the underlying policies do not contain aggregates, are not exhausted, and thus their policies have not yet been triggered. It’s been a classic case of the chicken and egg, with each set of insurers pointing the finger at the other, refusing to pay because of this aggregate stalemate, and both sets of insurers content to see their insured fronting the full costs of investigating and remediating the underlying environmental sites, as well as fully covering the cost of litigation by third party landowners and government agencies.
3. The Insurers’ Best Argument — Ignore Policy Language, We Know Better
In its litigation against its historical general liability insurers related to policies going back to the 1950s and involving a number of former manufacturing sites in Michigan and Wisconsin, Tecumseh purchased primary liability policies from Travelers Indemnity Company, Maryland Casualty Company (now part of Zurich) and Michigan Mutual Insurance Company (now part of Amerisure), as well as excess liability policies from Continental Insurance Company, London Market Companies, and other excess insurers. The primary policies were clear on their face that there were no aggregate limits, so that the full per occurrence limit was available for each individual site. These policies stated that aggregate limits equal to the per occurrence limits of each policy would apply if and only if the polices were “rated” (i.e., the calculation of premiums) based on remuneration (i.e., payroll data for certain periods of time). However, the policies did not even mention remuneration, let alone provide detailed payroll data for Tecumseh employees. Rather, the policies contained detailed annual sales information for Tecumseh, which the underwriters for the primary policies used to rate or adjust the premiums then due and owing.
4. As It Should — Policy Language Controls
Despite the clear language in these policies, the primary insurers, as they have done in just about every other long-tail pollution or asbestos case over the past four decades, argued that the court should disregard the clear language of the policies and instead should consider and rely upon evidence outside of the four corners of the policies, such as an underwriters manual, testimony by a former Travelers executive paid by Travelers to provide so-called “fact testimony,” and vague and generalized notions of “underwriting industry practices” in the 1950s-1970s. The Michigan trial court correctly rejected these arguments, holding that “[b]ased on the express terms of Primary Policies, no aggregate limits apply to property damage coverage in this case, [because] none of the policies contain any language indicating that the underwriters used or were authorized to use remuneration figures in the premium calculation.” The court added the following: “The Primary Policies in this matter contain plain and unambiguous language governing resolution of this motion as a matter of law. The Court further finds that it would construe any ambiguous language, if there were any, in favor of Tecumseh.”
The court’s decision in Bedivere Insurance Co., et al. v. Tecumseh Products Company LLC, et al., (Michigan State Court, 2019) is important for corporate policyholders facing long-tail liability claims. These include any claim where more than one occurrence policy has been implicated, including pollution, asbestos, silicosis, opioid, sexual abuse, and any other kind of claim where bodily injury or property damage has been alleged to have occurred over multiple policy periods.
This decision should become one of the seminal pro-corporate policyholder rulings on the aggregate limits issue, and we strongly encourage companies facing long-tail property damage and bodily injury claims to contact us if they have any questions.
Schools, religious organizations, and similar institutions (think childcare providers, summer camps, and any other businesses or nonprofits that provide services to children historically) now have less than a month to brace against an oncoming flood of claims under New York’s Child Victims Act. Although insurance typically covers revived claims under the NY Child Victims Act and similar laws, policyholders need a comprehensive approach to securing coverage. This post identifies some of the key issues that policyholders should consider to secure coverage.
The Child Victims Act revives claims for childhood
sexual abuse or molestation that might otherwise be barred by statutes of
limitation. N.Y. C.P.L.R. 214-g
(McKinney 2019). Specifically, the Act
creates a one-year window for claimants to file claims against their alleged
abusers. Id. The statute went into effect on February 14,
2019 and created a mandatory six-month waiting period in which claimants may
not file (presumably, to give defendants time to prepare their defense). Id.
That six-month moratorium lifts on Wednesday, August 14, 2019—or in a
little less than a month. See id. Claimants will then have a full year to file
any such revived claims, or until August 14, 2020. See id.
The clock is thus ticking and time is almost up. To this end, here is a brief list of suggested steps to help prepare for the coming wave of claims:
1. Search for, Locate, and Compile Relevant Insurance Policies
Most schools and similar organizations facing
legacy claims have General Liability (“GL”) policies going back many years, if
not decades. These GL policies provide
coverage for bodily injury taking place within the policy period. These policies can provide two tremendous
benefits to organizations facing claims under the Child Victims Act: defense
coverage and indemnity coverage. GL
policies typically have a “duty to defend,” requiring the insurance company to
defend against any potentially covered claims asserting bodily injury against
the insured. Also known as “litigation
coverage,” this duty to defend can provide vital coverage for insureds, as
lawsuits may drag on for several years and cost thousands of dollars in
GL policies also provide indemnity coverage,
meaning that if the claimant goes to trial and wins a verdict against the
insured, the insurance company will have a legal obligation to pay for the
judgment. Likewise, this indemnity
coverage also covers settlements with claimants seeking damages for bodily
injury. This is important because many
cases will not go to trial.
The applicable GL policies are those in place when
the alleged bodily injury occurred. Individuals
filing revived claims under the Child Victims Act may now be fully grown adults
alleging sexual abuse or molestation taking place many years ago, in the 1960s,
1970s, 1980s, and/or 1990s (or even earlier).
These policies may have been issued long before the widespread use of
computers or the existence of the Internet, so insureds may have to comb
through paper files and other hardcopy sources.
Even if the actual policies themselves have been lost, insureds should search
for letters, certificates of insurance, or other documents that refer to legacy
GL policies. Using secondary sources
such as these, insureds may be able to prove that they had coverage, even if
the actual policies have been lost.
2. Review Additional Types of Coverage
Depending on the institution, other kinds of
entities facing revived claims under the Act may also have Directors &
Officers (“D&O”), Employment Practices (“EPL”) and/or Errors &
Omissions (“E&O”) policies. D&O
policies cover claims made during the policy period against a company’s
directors and officers, typically for a “Wrongful Act.” Private company D&O policies also provide
entity coverage for the alleged “wrongful acts” of business itself. EPL coverage may also be implicated for
claims alleging wrongful retention and EPL coverage for institutions is
typically quite broad. By contrast,
E&O insurance — also known as Professional Liability insurance — covers
claims for professional errors and omissions.
For institutions specializing in education, these additional kinds of
policies may also provide coverage.
3. Provide Notice
After finding their legacy policies (or secondary
evidence thereof), insureds should provide notice to their insurance companies. Many insurance policies contain a Notice of
Claim or similar provision requiring the insured to provide written notice of
any “claim” (often defined to include both an actual lawsuit and a written
demand for monetary damages) “as soon as practicable.” In addition, some policies also require
notice of an “occurrence” likely to give rise to a later claim. Although the law with respect to notice is
often complex, and depending on applicable law, late notice may not be
problematic, the best practice is for policyholders to provide notice under
applicable insurance policies.
Schools, religious organizations, and other
institutions providing services to children may have already received letters
or emails from claimants alleging sexual abuse or molestation. These communications may qualify as “claims”
within the meaning of their policies, so insureds should report them to their
insurers as well as any actual lawsuits filed on or after August 14. If the claimants provide details of their
alleged abuse (including the years in which it occurred), insureds can also
anticipate which policies will likely be impacted.
4. Anticipate Likely Insurer Defenses
Depending on the size of the exposure, the insurers
will likely try and find ways to limit and/or deny coverage. For GL policies, insurers may argue that
there has not been an “occurrence,”meaning an accident, because the alleged
conduct was intentional. This so-called
defense has no merit for institutions, as no institution intends to harm
children, and claims against institutions are most always negligence-based (such
as failure to take action, failure to warn, negligent supervision, etc.).
Some GL policies may also have exclusions for
sexual abuse or molestation, but these exclusions were developed and used only
in recent years. The key issue here is
for policyholders to find and pursue coverage under older policies which do not
contain any such exclusion.
Alternatively, even if a policy contains an exclusion, depending on the
specific language, it may not apply.
Depending on the policy period, the insurer(s) may
also try and disclaim coverage by claiming that another insurer is on the hook
for the claimant’s alleged injuries. This
is more of a delay tactic than a basis for denial, but it can be frustrating to
policyholders when an insurer is bound to defend and indemnify, and the only
thing holding it back is its idea that some other insurer should share in
To this end, it’s helpful to understand how
allocation works regarding coverage for so-called “long-tail” claims taking
place over several policy periods. Courts
use tend to apply one of two approaches to determine how to apportion liability
across multiple policy periods: the “all sums” approach and proration. Keyspan Gas E. Corp. v. Munich Reins. Am.,
Inc., 31 N.Y.3d 51, 58 (N.Y. 2018). The
“all sums” approach allows the insured to collect its total liability under any
policy in effect during the periods of the alleged harm or injury, up to the
policy limits. Id.
The “all sums” allocation approach is akin to
“joint and several liability” and thus places the burden on the selected
insurer to seek contribution from the insurers that issued the other
policies. In re Viking Pump, Inc.,
27 N.Y.3d 244, 255 (N.Y. 2016).
By contrast, under pro rata allocation, each
insurer’s liability is limited to the sums incurred by the insured during the
policy period, meaning that each insurance policy is allocated a “pro rata”
share of the total loss for the portion of the loss occurring during its policy
period. Keyspan Gas, 31 N.Y.3d at
58. In other words, pro rata shares are
often calculated based on each insurer’s “time on the risk”—a fractional amount
corresponding to the duration of the coverage provided by each insurer in
relation to the total loss. Id. New York has not adopted a strict all sums or
pro rata allocation rule. Instead, the
particular language of the relevant insurance policy will govern the method of
allocation. Id.; Viking Pump,
27 N.Y.3d at 257. For example, the Court
of Appeals of New York has held that “all sums” allocation is appropriate for
policies containing non-cumulation and prior insurance provisions. Viking Pump, 27 N.Y.3d at 264.
Regardless of the defenses that the insurers raise,
insureds should review their coverage response(s) carefully and refuse to simply
take “no” for an answer. With these
kinds of claims, coverage denials are common, but rarely valid. Hiring a coverage attorney is oftentimes the
only way policyholders can achieve justice.
In closing, a storm is coming on August 14. Businesses and nonprofits are likely to face
revived claims under New York’s Child Victims Act. Insurance carriers have been preparing for
some time to limit liability at the expense of their policyholders, and most
have a game plan to do so. Although
insurance implications can be multifaceted, policyholders should not be
dissuaded from pursuing coverage. If
done correctly, coverage can be secured.
Policyholders must act now to batten down their insurance hatches and
line up coverage.