Best Lawyers recently recognized Miller Friel attorney Tae E. Andrews as one of four Ones to Watch for Insurance Law in the District of Columbia.
Best Lawyers gives these recognitions to attorneys who are earlier in their careers for outstanding professional excellence in private practice in the United States. All candidates must be nominated and vetted by their peers.
Miller Friel, PLLC is pleased to announce that Stephen R. Mysliwiec has joined the firm as a partner, serving clients from Miller Friel’s Washington, DC office. Steve was previously a partner in the Washington, DC office of DLA Piper, one of the world’s largest law firms, where he was a partner for over 30 years.
Steve is recognized as one of the leading insurance recovery lawyers in the country, representing some of the largest and best known companies in the world with respect to all lines of commercial insurance. Steve has litigated numerous insurance coverage disputes involving policyholders in the real estate, construction, banking, healthcare, life insurance, hotel, assisted living, computer, transportation, steel, commodities, and food service industries. Steve also represents trade associations, builders, and owners regarding various insurance coverage and liability issues arising from claims of defective workmanship and defective building materials. He has submitted numerous amicus briefs in appellate courts around the country on these issues. Steve iscurrently representing a number of companies in connection with their business income losses caused by COVID-19.
Steve’s practice also involves advising clients with respect to the insurance aspects of transactional matters. He helps developers, contractors, owners, lenders, landlords, tenants and other clients in the real estate, construction and financial services sectors deal with insurance and indemnity issues in complex real estate and construction transactions. He also advises clients regarding the insurance aspects of mergers and acquisitions, insurance for initial public offerings, insurance issues in bankruptcy proceedings, trade credit insurance, reps and warranties insurance, and environmental insurance. He also has substantial experience advising owners and lenders regarding insurance programs for professional sports stadium projects, including OCIP programs.
“Miller Friel is thrilled to have a lawyer of Steve’s experience, reputation and caliber,” said Brian Friel, Co-Founder and Managing Partner. Brian added, “with the addition of Steve to our team, Miller Friel continues its path forward asone of the leading insurance policyholder law firms in the country, exclusively representing companies pursuing insurance recovery.” As noted by Co-Founder, Mark Miller, “Steve shares our vision as a single practice law firm, focused entirely on representing corporate policyholders without any conflicts or constraints imposed by insurers or brokers, in a team effort to maximize insurance recovery.”
“I share Miller Friel’s belief that a boutique insurance recovery law firm is the right model to most effectively and vigorously represent corporate policyholders,” added Steve. “Also, I am drawn to Miller Friel because of its cohesive team atmosphere, surrounded by other attorneys who have been fighting for insureds since the early days of this practice area.” Steve further stated, “DLA Piper is a wonderful firm, and it was difficult for me to decide to leave. But my practice is focused on representing policyholders, which I will be able to continue to do with Mark and Brian and the rest of the Miller Friel team. I look forward to helping expand the firm’spolicyholder client base andtoburnishing the firm’s reputation as one of the leading, if not the leading, corporate policyholder law firms in the country. There is a sense of excitement and focus here at Miller Friel that is very special. I am excited about continuing to represent my policyholder clients and to expanding my practice both nationally and internationally.” Steve received his B.A magna cum laude fromthe University of Notre Dame in 1970 where he was a member of Phi Beta Kappa, his M.A. from the University of Notre Dame in 1972, and his J.D. from Yale Law School in 1975, where he was Notes Editor of the Yale Law Journal. Steve was a law clerk in the Fifth Circuit for the renowned Judge John R. Brown.
Twenty-six years ago, I sat in an overcrowded courtroom filled with insurance company lawyers ready to argue that insurance companies should not pay for environmental cleanup costs. A distinguished grey-haired gentleman lawyer, my boss, was leading an assault on the insurance industry. He walked slowly to the podium and said, “Your Honor, you see all of these men and women here in nice suits? They are all liars.” The question American businesses should ask with respect to coronavirus is whether history repeats itself.
The CEO of the insurance giant Chubb, Evan G. Greenberg, stated in a recent WSJ Opinion that it won’t help anyone “to try to pin the damage on insurers like my company.” Decades ago, insurance carriers made this same argument with respect to the environment. There, insurance companies were held responsible, and American businesses were helped greatly. The same will likely hold true for coronavirus losses.
Mr. Greenberg’s is wrong to assert that “virus is not covered.” At a minimum, Mr. Greenberg begs a legal question that will be decided by the courts. Insurance companies willingly and knowingly sold insurance policies covering “all risks.” For decades, if not longer, it has been the law that “all risks” policies cover all risks of direct physical loss or damage unless specifically and unambiguously excluded. And, courts throughout this country have held that coverage is provided in similar situations, where property cannot be used for its intended purposes, or is otherwise rendered unsafe to use. COVID-19 is a covered risk. It has rendered property unsafe and unusable. The presence of Covid-19 alone triggers coverage.
The only question, then, is whether COVID 19 is excluded from coverage. On April 10, President Trump correctly noted that there is a problem with what insurance carriers are pushing, stating:
In a lot of cases, I don’t see it. I don’t see reference, and they don’t want to pay up. I would like to see the insurance companies pay if they need to pay.
No insurance policies, other than those being currently issued, contain COVID-19 exclusions. Some policies address viruses. Others do not. Each policy needs to be individually considered, and in a lot of cases, coverage clearly exists.
Mr. Greenberg claims that it would be “wildly counterproductive” to force big insurance companies to pay for losses they didn’t insure. Insurance companies litigated what they claimed were uncovered environmental claims for decades, only to pay in the end. The failure to pay covered claims is and has always been counterproductive.
Recognizing this, numerous states are considering bills requiring insurers to pay for Covid-19 losses. To this, Greenberg claims protections under Article I of the Constitution. This classic “red herring” distracts us from the fact that most insurance policies address this issue head on. Insurance is a regulated industry, and insurers are contractually bound to follow newly enacted laws and regulations. Constitutional crises avoided.
A quick Google search would have businesses believing that there is no insurance coverage for coronavirus losses. Insurance carriers and brokers have seized control of the narrative, and they have done a good job of convincing policyholders that coronavirus claims are not covered. This analysis offers an alternative and correct view — businesses are covered.
There is a frenzy of misinformation about coverage for coronavirus claims. Fortunately, none of this has any bearing on coverage. To get the correct answer, one must read the insurance contract without preconceived notions of coverage. If this is done, businesses are left with many insurance-related options to counter coronavirus-related losses.
This point is illustrated by looking at how insurance policy language addresses three common coronavirus claims: (1) third-party lawsuits, (2) business interruption losses, and (3) event cancellation losses.
1. Third-Party Lawsuits
With coronavirus, businesses are susceptible to lawsuits alleging that they should have done something to prevent injury to persons. The first of these claims was just filed–a lawsuit alleging wrongdoing on the part of a cruise ship company. Just as night follows day, more will follow.
General Liability policies cover allegations of “bodily injury.” If a claimant alleges that he or she was injured, coverage is triggered. Coronavirus lawsuits are classic examples of covered general liability claims.
Insurance carriers, however, are pushing the narrative that coronavirus is a pollutant and therefore excluded from coverage pursuant to pollution exclusions. This is an old concept. In the past, insurers found themselves paying pollution claims, no matter what kind of pollution exclusions they put in their policies. So, they expanded the exclusions to prevent coverage for environmental cleanups.
Insurance carriers now argue that pollutants include any kind of “irritant” and that pollution exclusions apply to almost any claim. For example, if the sun got in a person’s eyes and that resulted in a car crash, insurers would argue that the sun is an irritant, and that the pollution exclusion precludes coverage. Yet, everyone knows that sunshine is not a pollutant. Similarly, if a third party is burned and sues, insurers will argue that fire is an irritant, and that the pollution exclusion precludes coverage. Of course, fire is not a pollutant, and at least one court awarded bad-faith damages where an insurance carrier made this claim. See Winning Bad Faith Coverage Cases at Trial.
Common sense will prevail here as well. Coronavirus is not a pollutant.
2. Business Interruption Losses
Almost certainly, the largest category of losses business will experience as a result of the coronavirus are business interruption losses. Airline flights have been sidelined, people are not going out, and businesses of all kinds are suffering. The narrative insurers push here is an old one: insurers argue that property policies are not triggered unless there is physical injury to tangible property. This narrative was developed after 9/11 to stem payments to businesses suffering huge financial losses.
Based on policy language, though, physical injury is not required. All-risk property insurance policies cover “all risks of physical loss or damage.” This insuring clause addresses two separate things. First, it states that it covers all risks of physical loss. Second, it states that it covers all risks of damage. Damage includes all forms of financial loss. Coronavirus is the risk. If it caused damage in the form of financial loss, this falls squarely within coverage.
There is substantial case law on this issue as well.
Case Example One — A church smelled because gasoline was leaking into the basement. The house was unsafe and smelled so bad that the owner had to move out. The insurer denied coverage, stating that there was no physical damage to the house. The court held otherwise, finding coverage.
Case Example Two – A river meandered, leaving a structure precariously sitting on a riverbank. The structure was fine, but it could not be used because it was unsafe and could fall down. The insurer argued there was no coverage because there was no physical damage to the property. The court ruled otherwise, finding coverage.
Case Example Three – A homeowner rented its house to crack dealers. After the crack dealers left, the home smelled so bad that it could no longer be rented. The home had no structural damage, so the insurer denied coverage. The court disagreed, as the house could not be used as intended.
There are two overlapping and well-developed lines of cases holding that physical injury to property is not required. The first relies on the inability of the property to be used as intended. The second relies on the fact that the property was somehow rendered unsafe. Both lines of cases are directly applicable to coronavirus losses.
In addition, property policies contain numerous other insuring clauses that similarly do not contain a requirement of physical injury to property in order to be triggered. Among them, ingress/egress coverage (covering financial losses when a business is prevented from entering their property) and civil authority coverage (covering losses when the government prevents normal operations).
The leading case on these issues is Fountain Powerboat Indus. v. Reliance Ins. Co., 19 F. Supp. 2d 552 (E.D.N.C. 2000). The Fountain Powerboat Decision is one of History’s Best Insurance Decisions. There, the Fountain Powerboat company of North Carolina had a work slowdown as the result of a hurricane. It pursued relief under their property insurance policy pursuant to an “ingress/egress” provision. Its insurance carrier denied coverage based on an all-too-common insurance industry custom and practice—denying coverage because there was no physical damage to insured property. The court flatly rejected this argument in favor of insurance policy language and awarded Fountain Powerboat the attorney’s fees it incurred to pursue the action against its insurer.
3.Event Cancellation Losses
Every day now, more and more major events are being canceled or postponed because of the coronavirus, including trade association conferences, college and professional sporting events, and concerts. Even a conference on Coronavirus was canceled because of coronavirus. What is missing from the headlines are the myriad of trade associations that need money from events to survive but have been forced to cancel events because of coronavirus.
Event cancellation insurance is commonly triggered when an event is necessarily cancelled, abandoned, curtailed, or postponed. A typical scenario, where an event is cancelled (or postponed) due to coronavirus concerns, falls squarely within coverage. See Event Cancellation Insurance Claim Denials Tips for Recovery.
Yet, insurers are fighting coronavirus event cancellation claims. One argument that insurance companies are making is that an event was cancelled due to fear and panic. Given that policies don’t contain fear or panic exclusions, there is no merit to this argument. Similarly, insurers allege that the events could have proceeded but for the public’s fear and panic.
Not all event cancellation policies are the same. In some situations, insurers argue that the cancellations must result from the “physical or legal inability to proceed” with an event, and short of either a physical barrier preventing the public from entering a hotel conference center or sports arena, or a government order banning any mass gatherings, there is no coverage. Again, the insurers’ position is inconsistent with the policy language. For example, if there is a genuine fear of contracting the virus, this is a “physical inability” to proceed with the event. In addition, many companies have instituted travel bans, making it physically and legally impossible for employees to travel. Also, even if a government recommends that the public not attend mass gatherings (events with over 250 people), this is a form of “legal inability” to proceed with events.
Both of these reasons for denial bring to mind a situation that we are currently addressing. We had a settlement meeting with seven insurance companies scheduled for months. The meeting was to take place in NYC, and the insurers had agreed to be present in person at that meeting. Several days before the meeting, various insurers notified us that they could not attend because of coronavirus. Many had travel restrictions. Others were just unwilling to subject themselves to any additional risk of contracting the virus.
Were these insurers motivated by panic? Should this insurer-scheduled event have gone forward as planned? The insurers said, “No. We won’t attend. We are rational. You need to cancel. Coronavirus is a legitimate reason to cancel.” In other words, events that insurers should attend must be canceled, but all others must go forward.
Unless the insurers learn to be honest about what is going on, their hypocrisy will cost them dearly. Coronavirus cancellations are exactly what event cancellation policies are designed to cover.
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 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.
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 peril 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.