On April 5, 2024, Judge William Conley of the Western District of Wisconsin rejected State Auto Mutual Insurance Company’s motion to dismiss Miller Friel client Chroma Color Corporation’s cross-claim, holding that Chroma Color had sufficiently plead causes of action for breach of contract and bad faith. In April 2023, plaintiff Ceme-Tube filed an amended products liability complaint against Chroma Color relating to Chroma Color’s ultraviolet light protection concentrate in finished products. Ceme-Tube asserted claims for negligence, breach of implied warranty of merchantability and fitness, and breach of express warranty.
Because Wisconsin is a direct action state, plaintiff Ceme-Tube also filed suit against Chroma Color’s insurers, two of which subsequently filed cross-claims for declaratory judgment against Chroma Color, seeking an order that their policies do not cover Ceme-Tube’s claim. In response, Chroma Color filed cross-claims against the two insurers for breach of contract and bad faith. One of the insurers, State Auto, moved to dismiss, arguing that the underdeveloped facts did not support a claim of breach of contract or bad faith.
In denying State Auto’s motion to dismiss Chroma Color’s cross-claim for breach of contract, the Court stated:
Chroma Color has adequately alleged its claims, even if its breach of duty to indemnify claim may be premature to resolve right now. Also, dismissing Chroma Color’s cross-claims would serve little purpose other than delay, as Chroma Color would presumably later raise its claims if the court concluded that State Auto’s policies covered Ceme-Tube’s claims.
As for Chroma Color’s cross-claim for bad faith, the Court noted:
[Chroma Color] alleges no reasonable justification exists for State Auto to provide a qualified defense or deny coverage. Second, it asserts that State Auto knew or should have known that Ceme-Tube’s complaint alleges “property damage” resulting from an occurrence and that the policy exclusions did not apply. Chroma Color further asserts that State Auto knew or should have known that its planned cross-claim against all defendants would create a conflict of interest, prohibiting a shared counsel arrangement with another defendant-insurer.
Miller Friel is proud to represent Chroma Color in its efforts to secure insurance coverage for both defense and indemnity under its insurance policies to cover the costs associated with the underlying litigation by Ceme-Tube, particularly our firm’s continued track record of success in prosecuting bad faith claims against insurance companies. The decision is Ceme-Tube LLC v. Chroma Color Corporation, W.D. Wisc. No. 3:22-cv-00703-wmc, April 5, 2024.
In the first few months of the Covid-19 pandemic, a massive number of Covid-19 insurance lawsuits were filed by personal injury lawyers with minimal experience in insurance recovery litigation.
Recent Decisions Call Out Insurance Carrier Plea: Don’t Make Us Pay Our Fair Share of Covid-19 Losses
They filed suit, asserting claims on behalf of nail salons, tattoo parlors and small family-owned restaurants, many times without even alleging the presence of coronavirus . The initial results were expected – insurers filed motions to dismiss in response to policyholders’ complaints, resulting in one court dismissal after another. Understandably, policyholders took notice, particularly larger, more sophisticated companies, often times opting to defer litigation until the dust had settled. In the meantime the insurance industry continued its strategy of full claim denials, without exception, regardless of facts or policy language at issue.
Recent Pro-Policyholder Covid-19 Court Decisions
Recently, as the second wave of the coronavirus continues to infect tens of millions of more people and continues to impact most of the world’s business, additional insurance lawsuits were filed, this time by sophisticated companies with the help of experienced insurance coverage litigators, involving actual or suspected Covid-19 test positive cases on site and insurance policies without virus exclusions.
Better Pleading – Better Results
The major issue in these cases is whether policyholders had adequately alleged in their complaints that they knew or suspected employees, vendors or guests were infected with the virus at the time they were on site, such that that these policyholders satisfied the pleading requirement that the virus had caused a risk of “physical loss or damage” to their property, i.e., the virus was present, and that it either caused damage to the insured premises or prevented use of insured property for its intended purposes.
These recent business income Covid-19 lawsuits have resulted in a surge in the number of pro-policyholder Covid-19 court decisions, rejecting insurers’ motions to dismiss and properly allowing policyholders to proceed to discovery and ultimately to trial. This time, it is the insurance companies that have taken notice, now realizing they’re looking at even more Covid-19 business income claims being filed, more litigation, and more risk of having to pay these claims.
The Surge in Pro-Policyholder Decisions
Just in the past two months, nearly a dozen courts around the country have denied insurance companies’ motions to dismiss, finding that policyholder-plaintiffs have adequately alleged the virus had caused “physical loss or damage,” and in one case involving a virus exclusion, a federal district judge ruled that the exclusion was ambiguous.
1. The Presence of Coronavirus Damages Property
For example, the federal district court in St. Louis, Blue Springs Dental Care, LLC v. Owner’s Insurance Co., Case No. 20-CV-00383-SRB (W.D.MO Sept. 21, 2020), in noting that, like most property policies, the term “physical loss” is not defined in the policy, adopted a “plain and ordinary meaning” of that term – physical means “having material existence; perceptive especially through the senses and subject to the laws of nature,” and “loss” means “the act of losing possession” and “deprivation.” Applying these common sense definitions to Covid-19, the court concluded that because the insured had satisfied its pleading obligations by alleging that,
the presence of Covid-19 on and around the insured property deprived Plaintiffs of the use of their property and also damaged it
The Court logically concluded that “it is likely customers, employees, and/or other visitors to the insured properties over the recent months were infected with the coronavirus,” causing plaintiffs to suspend their business operations.
2. Dismissal is Improper, Even if the Presence of Coronavirus is not explicitly Plead.
In New Jersey, a state court judge further advanced policyholders’ claims by denying an insurance company’s motion to dismiss on the issue of “physical loss or damage” even though the policyholders did not allege that any single person was infected with the virus while on site, concluding that the policyholders “should be afforded the opportunity to develop their case and provide the event of the Covid-19 closure may be a covered event under the Coverage C, Loss of Income, when occupancy of the described premises is prohibited by civil authorities.” Optical Services USA/JCI v. Franklin Mutual Ins. Co., No. BER-L-3681-20 (N.J. Super. Ct., Law Div., Bergen Cty. Sept. 17, 2020).
3. Virus Exclusions are Ambiguous and Construed in Favor of Coverage.
In a truly ground breaking decision and one certainly sending shock waves through the insurance industry, a federal judge in Florida denied an insurance company’s motion to dismiss in a claim involving a policy with an express virus exclusion which barred any claim for “loss or damage caused directly or indirectly by the presence, growth, proliferation, spread, or any activity of fungi, wet rot, dry rot, bacteria or virus.” Urogynecology Specialist of Florida LLC v. Sentinel Ins. Co., Case No. 6:20-cv-1174-Orl-22EJK (M.D. Fla. Sept. 24, 2020). Here, the court concluded that the case should proceed forward because none of the cases cited by the insurer, mostly involving pollution, “dealt with the unique circumstances of the effect of Covid-19 has had on our society – a distinction this Court considers significant.”[1]
Strategies to Capitalize on Recent Pro-Policyholder Covid-19 Court Decisions
These recent cases are just the front edge of a continuing surge in the number of pro-policyholder Covid-19 court decisions around the country. As a result, policyholders can and should pursue their Covid-19 claims. As we predicted at the start of the pandemic, Insurance Companies Will Pay For Covid-19 Losses.
As more courts follow suit, the pressure on insurers to settle claims will increase significantly, but litigation is likely a necessary first step towards this outcome. Insurers will not settle unless they face the prospect of adverse court decisions and the resulting risk of a jury trial. Policyholders that opt to sit on the sidelines risk having their claims compromised by bad lawyering and bad fact claims pursued by unsophisticated, poorly represented businesses.
[1] Other recent pro-policyholder Covid-19 court decisions include: Studio 417, Inc. v. Cincinnati Ins. Co., No. 6:20-cv-03127 (W.D. Mo. Aug. 12, 2020); Somco, LLC v. Lightning Rod Mut. Ins. Co., No. CV-20-931763 (Ohio Cir. Ct. Aug. 12, 2020); K.C. Hopps, Ltd. v. Cincinnati Ins. Co., No. 4:20-cv-00437 (W.D. Mo. Aug. 13, 2020); Ridley Park Fitness LLC v. Phila. Ins. Cos., No. 200501093 (Pa. Cty. Ct. Aug. 31, 2020); SSF II, Inc. v. Cincinnati Ins. Co., No. 20CV002644 (Ohio Cty. Ct. Sept. 8, 2020); Francois Inc. v. Cincinnati Ins. Co., No. 20CV201416 (Ohio Cty. Ct. Sept. 29, 2020); and Best Rest Motel Inc. v. Sequoia Ins. Co., No. 37-2020-00015679 (Cal. Cty. Ct. Sept. 30, 2020); North State Deli LLC v. Cincinnati Ins. Co., No. 20-CVS-02569 (N. Carolina General Ct. Justice, Durham Cty.).
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.”
CONCLUSIONS
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.
We have received numerous requests from businesses seeking to understand insurance coverage for phishing scams. Many of these businesses have become the victim of phishing attacks and are pursuing claims for coverage.
Scam I: Phishing
Computer email scams are increasing on an alarming rate. The FBI reports that companies have been swindled out of billions of dollars due to email scams over the past few years. To counteract this, the FBI recently issued public service warnings to businesses about criminals using bogus email accounts to pose as CEOs to trick financial controllers into wiring funds to the fraudsters’ bank accounts. See FBI’s Public Service Announcements, www.fbi.gov. Last year, Equifax, one of the three major credit reporting agencies in the US, announced a data breach affecting 143 million customers, based on hackers accessing Social Security numbers, birthdates, addresses, and driver’s license numbers.
Most companies have experienced these types of scams first-hand. The reason for this is that phishing scams have become more and more sophisticated over time. We all know to look out for that email from a Nigerian prince asking us to hold $10 million dollars of money for them. We also know not to respond to a bank asking us to “click here” to verify user names and passcodes. With organizations, the scams have become much more sophisticated. Cyber criminals hack into an organization’s internal computer system so that they can send what look bona fide emails from a CEO or CFO requesting the payment of invoices to a “new” bank, which coincidentally is located in China. Employees who get one of these emails from their management, naturally respond asking for confirmation. Those emails are then intercepted by the cyber-criminal, and the cyber-criminal responds saying that all is ok.
Scam II: Insurance Company Response
Insurance companies are responding to these scams by offering specialized policies, for additional premiums of course, specifically addressing these risks or adding coverage to their standard Fidelity/Crime or Cyber Liability policies, typically under the moniker of “Deception Fraud” or “Social Engineering” insuring agreements. As with most things in the world of insurance, the devil is in the details, but some of the insurance coverage bought to specifically to cover phishing scams is worthless.
Here’s how many insurance companies are deceiving their corporate policyholders. “Deception Fraud” and “Social Engineering Fraud” are so broadly defined in the policies that they cover nearly every possible computer scam. For example, in the currently available Private Choice Premier Policy, Crime Coverage Part offered by The Hartford Insurance Company, “Deception Fraud” is defined as “the intentional misleading of a person to induce the Insured to part with Money or Securities by someone, other than an identified Employee, pretending to be an Employee, owner of the Insured, . . . a Vendor, a Customer, a Custodian, or a Messenger.” Incredibly broad, which is exactly what companies want to protect them against risks, right? Not so fast. This coverage may come with a very small sub-limit of $50,000-$100,000, whereas other coverages under these same policies may have limits of between $1-$5 million.
What’s even worse (and here comes the true deception) is the fact that insurers often take the position that losses falling under “Deception Fraud” or “Social Engineering Fraud” cannot also be covered under other higher limits insuring agreements, such as “Computer Fraud” or “Funds Transfer Fraud” (which are typical coverages in Fidelity/Crime policies). Insurers argue that, despite higher limits under other coverage grants, that the loss nonetheless must be recognized as a “Deception Fraud” or “Social Engineering Loss” only, subject to a small limit of insurance. In other words, heads insurers win, tails policyholders lose. Given this widely adopted position of insurers, Policyholders were better off rejecting these new highly promoted enhancements to coverage and relying upon coverage they previously had.
Insurance Coverage for Phishing
Insurance coverage for There’s nothing more disappointing and frustrating than to spends thousands, if not hundreds of thousands, of dollars buying insuring policies to protect against the risk of fraud, only to have an insurance accompany argue that it sold a nearly worthless policy. Corporate policyholders should review their current and prospective policies to spot this and other clever limitations, and demand appropriate changes. If a company has already become a victim to phishing, however, it is not too late to challenge an insurance company regarding this kind of position which creates an unnecessary and unwarranted gap in coverage and retain coverage counsel to assess all options.
In this post, Miller Friel attorney Brian Friel discusses media liability insurance claims and how insurance carriers improperly deny media liability insurance claims. In the example presented here, a prominent TV and radio host was sued for defamation. The media liability insurer denied the claim based on an improper reading of an exclusion. Turning this improper media liability insurance claim denial around involved comparing the facts of the company’s on-air statements across multiple media outlets, and the language of the policy, which indicated that the insurance company’s initial denial improper.
Please watch the video to learn more, or Contact us if you have any questions.
When corporate policyholders consent to defense counsel in litigation, they assume that the law firm defending them is loyal to their interests. Law firms are presumed to be independent, which goes part and parcel with a the ethical obligation of a litigator to “zealously” litigate on behalf of their clients. Yet, over the years, insurance carriers have instituted higher and higher levels of control over defense counsel. Chubb appears to be at the forefront of this growing trend, and Chubb’s control of defense counsel through direct ownership of “House Counsel” law firms illustrates just how problematic this issue has become.
1. The Fox
Recently, Chubb issued a press release announcing that it has promoted Liz Daly to Senior Vice President, and something called “House Manager” for its North American Claims Organization. Chubb states that “House Counsel attorneys provide litigation, trial and appellate legal services to Chubb’s commercial and personal policyholders.” There are 11 different law firms in 18 cities in the U.S. that currently fall within Chubb’s House Counsel program. These firms provide legal services just like other law firms, such as defending companies in “commercial litigation including contract disputes . . . . state and federal courts and agencies alleging discrimination, retaliation and harassment involving the following federal statutes and claims and their equivalents: Fair Housing Act, Americans With Disabilities Act (ADA).”
2. The Fox is Well Hidden
A casual observer would never know Chubb owns these law firms. The name Chubb is not found anywhere in those law firm firms’ names. Rather, the firms sound and look like your garden variety independent law firms, with names such as Kuluva, Armijo & Garcia in California, McGuinness & Cicero in Florida, and Daly, Lamastra, Cunningham, Kirmser & Skinner in New Jersey. In fact, the Daily in Daly, Lamastra, Cunningham, Kirmser & Skinner appears to be the very Liz Daly who also serves as a Senior Vice President for Chubb.
3. The Fox is in the Hen House
Leaving aside the issue of whether the lawyers at these firms are providing the highest quality legal services, the most important question is why would any company trust its insurer’s in-house claims lawyers to defend and protect their interests? Often times, the ultimate determination of whether an insurer will provide full coverage, or even perhaps the determination of whether it will file an action against its insured to recoup the attorneys’ fees it has paid on its insured’s behalf, results from facts discovered during the course of litigation . A Chubb lawyer, who also may wear the hat of company claims executive, consciously or subconsciously, may steer a case in a way that is not in the best interests of an insured in terms of coverage. Or an in house insurance company lawyer may share confidential information with its employer, Chubb, about the insured.
There is an inherent conflict of interests, both real and potential with this kind of relationship. It’s in an insurance company’s interests to pay as little as possible for a claim. An insurance company employee can not serve its employer’s interests and zealously represent a client in litigation that has interests adverse to the insurer. What’s more, it’s unclear how many other insurers are providing this sort of in-house legal service to their insureds.
When an insurance carrier has agreed to defend, corporation should insist on independent legal counsel. If you’re uncertain as to your rights, contact a coverage lawyer.
TheCorporate Board, one of the leading journals of corporate governance, recently published one of our articles, entitled “Tips and Traps in Corporate Liability Coverage.” In this article, we address some of the most important insurance issues faced by directors and officers. These include notice, securing defense coverage, coverage for governmental investigations, coverage for criminal investigations, and many more. We welcome your comments and questions.
In today’s post, Brian Friel addresses one of the most common reasons for denial raised by insurance carriers today: retroactive date exclusions. These retro-date exclusions have become a favorite reason for denial by insurance carriers, but they are seldom applicable. In this video, Brian addresses a typical scenario. A client came to us with a denial letter from its insurance carrier that relied primarily on a retro date exclusion.
After carefully reviewing the policy, we determined that the retroactive date exclusion did not apply. We took our argument to the insurance company, explained our reasoning, and the insurance company retracted its denial, resulting in a multimillion dollar settlement for our client.
This arc — from denial letter, to coverage analysis, to positive outcome — is highly repeatable. We use this kind of approach for each and every one of our corporate policyholder insurance clients. A denial letter from an insurance carrier is not the end of the road for an insurance claim; it is an invitation to re-examine the claim and negotiate. Corporate policyholders have the opportunity to overturn a denial of coverage, but this typically cannot be done without skilled legal assistance.
Watch the video to learn more about how corporate policyholders can overturn insurance claim denials based on retroactive date exclusions, and please feel free to contact us if you have any questions.
When a claim comes in, it is important for corporate policyholders to look at all potentially applicable insurance policies, which include not just the most obvious kinds of coverage. Multiple insurance policies typically cover a single claim. The reason for this is that lawsuits often allege more than one thing. Within a single claim, certain allegations may trigger D&O (Director and Officer) coverage, others may fall under E&O (Errors and Omissions) coverage, while others may trigger EPLI (Employment Practices) coverage. More often than not, a claim will extend into multiple lines of coverage, effectively multiplying the potential coverage. Insurance policies are complex, and the law controlling coverage even more so. What corporate policyholders do early in the claims process is critical.
This video addresses the ninth biggest mistake made by corporate policyholders: not understanding potential conflicts of interest when pursuing insurance claims. To call this a mistake made by corporate policyholders, however, is misleading. The reason why corporate policyholders misunderstand conflicts in insurance cases is because they are seldom provided with sufficient information to identify insurance recovery law conflicts of interests.
Panel Counsel Relationships with Insurance Carriers
The larger United States law firms offer a wide range of legal services to clients, and “one stop shopping,” for high quality lawyers at a selected firm often makes sense. It is not uncommon for a company to utilize one law firm for a variety of legal disciplines. And, if litigation ensues, it is a benefit to the company if the chosen law firm is also panel counsel for their insurance carrier. That way, the matter can be defended using a law firm the corporation trusts.
Potential Insurance Conflicts of Interest
This model, however, does not work with insurance recovery claims. Most large multi-practice law firms have conflicts when it comes to providing advice on insurance claims. Some directly represent insurance companies in transactional and litigation matters, and seek waivers to represent corporate policyholders whenever an opportunity to help a corporate policyholder arises. Most large law firms also serve as panel counsel. Law firms that rely on litigation typically want to be listed as panel counsel, as that permits them to represent policyholders in litigation, and get paid, at least in part, by insurance carriers.
In either the waiver or the panel counsel situation, insurance carriers ask for something from the law firms representing them. If defense counsel is asked to handle an insurance claim, policyholders should be aware of their limitations. For example, in exchange for being listed as panel counsel, law firms must agree to many things, which typically include, not filing bad faith lawsuits, not deposing executives at the insurance company, and providing the insurance company with a “heads up” before litigation is filed. The overriding view is that insurance companies will not tolerate law firms that turn against them. This which makes it difficult or impossible for any law firm with insurance company relationships to zealously represent the interests of a corporate policyholder client.
If your are in-house counsel tasked with handling an insurance claim, watch this video to better understand what kinds of questions should be asked to avoid insurance recovery law conflicts of interest.
