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Archive for the ‘Insurance Coverage/Bad Faith’ Category

Cancellation vs. Expiration: The Subtle Distinction and Why it Matters

Posted on: February 14th, 2017

By: Connor M. Bateman

In most jurisdictions, insurers must adhere to a detailed set of statutory provisions when cancelling or refusing to renew certain types of insurance policies. Most notably, insurers are often charged with delivering or mailing a written notification to the insured providing clear and unequivocal notice that the insurance coverage at issue is ending. Even slight deviations from the statutory requirements governing such notices will likely vitiate the cancellation or nonrenewal and cause coverage under the policy to remain in place.

Although the law typically requires strict compliance with these provisions, there is an important distinction between cases where an insurer cancels a policy and cases where the policy simply expires by its own terms due to the insured’s failure to remit his or her premium payment. In the latter case, an insurer is not bound by the notice requirements in place for cancellations. The same distinction exists between cases where an insurer refuses to renew a policy and cases where the coverage simply lapses.

For example, say that an insurance company issues a standard residential fire insurance policy for a one year effective term. The insured consistently makes timely premium payments for five years and renews his coverage at the end of each term by paying the renewal premium. On the sixth year, however, the insured fails to pay the minimum balance required to renew his coverage and the policy expires at the end of that term. Although insurers are normally required to provide written notification of an impending nonrenewal, many courts have determined that this requirement only applies to cases where the insurer is unwilling to renew an insurance policy. In other words, the statutory notice provisions are generally inapplicable to situations where a policy is not renewed because of nonpayment of premium by the insured. Thus, in the above example, the insurer would have no obligation to notify the insurer that the policy was set to expire.

This distinction may prove crucial in cases where a loss occurs after the policy expires, and the insured insists that coverage should be afforded due to the insurer’s failure to abide by the statutory notice provisions. Although it is important for insurers to carefully follow the statutory guidelines when cancelling policies, insurers should also be aware of the distinction between instances where the termination of coverage is due to the expiration of the risk insured by the policy.

Belt And Suspenders: Reserving Rights In A Changing Liability Landscape

Posted on: December 1st, 2016

insurance-coverageBy: Philip W. Savrin

In many jurisdictions, substantive coverage cannot be expanded by means of waiver or estoppel. An important exception can exist where the insurer provides a defense to the insured in a third party liability action without having first reserved its rights to deny coverage. In general, a reservation of rights letter, sent out at the commencement of the defense, is intended to fairly inform the insured of potential coverage defenses. Theoretically at least, the insured can then make an informed choice to allow the insurer to control the defense or to take steps to protect its own interests. If the insurer does not advise the insured of coverage issues before providing a defense, some courts will allow substantive coverage to be created by waiver or estoppel in that limited circumstance.

Even if this rule applies, ambiguities can arise when facts develop during the liability case that impact defenses to coverage. From a practical perspective, it can be challenging for a claims adjuster who is focused on the defense of the insured to be mindful of coverage issues that may emerge, especially when the defense was provided without a reservation of rights because there was no coverage issue at the outset of the litigation. Most jurisdictions are silent on when rights must be reserved in this circumstance, while other courts allow flexibility by holding that a reservation of rights must be sent in a timely manner. This standard can be rather slippery to apply, which can be perilous for an insurer with the burden to preserve its coverage defenses in a timely and adequate manner.

Regardless of the rules in a particular jurisdiction, insurers are well-advised to evaluate coverage throughout the life of the liability claim, even if a reservation of rights letter has been issued to preserve the issues identified early on in the proceeding. A good rule of thumb is to reiterate the coverage issues in communications with the insured at various intervals, particularly when decisions are being made about the defense strategies, settlement opportunities, and trial. In this manner, the insured will be informed of the decisions being made on its behalf and the insurer for its part will be able to ensure that its coverage defenses are being preserved.

For any questions you may have, please contact Phil Savrin at

Insurance Claims “Arising Out Of” Halloween Festivities

Posted on: October 19th, 2016

pumpkin-dogBy: Jessica Samford

As the witching hours of Halloween draw nearer, the time has come for the next installment of the FMG insurance coverage blog’s glossary of insurance terms. While the thought of interpreting a lengthy insurance policy may seem frightening to some, let’s take a quick look at one commonly utilized phrase in all types of insurance policies—“arising out of”—using the spirited theme of Halloween as inspiration.

Imagine a costumed homeowner is giving out candy to a group of rambunctious trick-or-treaters on her porch when all of a sudden her dog gets spooked and darts out of the door, knocking one unlucky ghoul down the steps. Such an occurrence is likely to fall within the liability coverage provided by a homeowner policy, which typically has language covering liability resulting from bodily injury “arising out of” the ownership, maintenance, or use of real or personal property.

Now conjure up a vision of that same homeowner on her porch collecting $5 admission fees from her neighbors as they enter her homemade haunted house attraction, of which her costumed dog is the feature creature. If a neighbor is cursed with a dog bite in this spooky scenario, the “arising out of” phrase may come up a second time when analyzing applicable coverage exclusions.  This is because most homeowner policies contain some sort of business activity exclusion, which typically provides that coverage is excluded for bodily injury “arising out of” business pursuits of an insured.

Interestingly, courts are likely to interpret the phrase differently within the same policy. Generally, courts construe “arising out of” quite broadly when used in the grant of coverage, frequently finding that almost any causal connection triggers the phrase.  At the same time, courts have construed “arising out of” narrowly in determining whether an exclusion applies, traditionally applying a “but-for” standard of causation: but for the insured’s new Halloween business venture, would the neighbor have been  bitten?  It would seem unlikely under these fictional facts.  No matter what arises this Halloween, don’t be bewitched by these divergent interpretations of “arising out of” and stay tuned for more spellbinding installments of FMG’s insurance blog.

Self-Driving Cars Will Likely Change the Insurance Landscape

Posted on: September 21st, 2016

Self-driving car conceptBy: Melissa Santalone

This week Uber debuts its pilot program for self-driving cars in Pittsburgh.  These lucky Uber users in Pittsburgh will be among the first Americans to come into direct contact with technology that is expected to eventually make its way into our everyday lives.  With the greater implementation of this technology, huge changes are likely to come in the legal and insurance realms and new cyber security concerns will be created.

The increased usage of self-driving cars, while intended to make driving safer, also opens up new opportunities for hackers.  Every car operated by a computer could be at risk of being taken over by hackers or invaded by ransomware or viruses.  This could pose catastrophic consequences for passengers, as well as other vehicles sharing the road.  This is especially true for fleets of vehicles programmed to communicate with each other, a problem which will no doubt be of special interest to Uber.  These new risks create new needs for protection by automakers, fleet operators, and individual vehicle owners.  Insurers will have an opportunity to offer protection from these new risks in the form of additional lines of insurance coverage.

This technology is coming and the inevitable changes it will bring are going to change the auto insurance industry and raise new and serious cyber security concerns.  The time for preparation is now.

FDA Continues to Fight the First Amendment But Facteau Deals Another Blow

Posted on: August 18th, 2016

Doctor workplace with digital tablet and stethoscope

By: Kristian Smith

Last month, a federal jury in Massachusetts acquitted two executives of medical device company Acclarent, Inc. of 14 felony counts of fraud related to off-label promotion of Acclarent’s “Stratus” device. United States v. Facteau, et al. stemmed from the distribution of Acclarent’s Relieva Stratus Microflow Spacer (“Stratus”) for off-label use. Although Stratus was cleared by the FDA as a medical device intended to maintain an opening to a patient’s sinus and provide moisture by using a saline solution, Acclarent’s CEO, William Facteau, and Vice President of Sales, Patrick Fabian, promoted the product off-label, as a steroid delivery device. The FDA claimed that Facteau and Fabian had misbranded the device and had committed fraud on the FDA by intending to use the device in a way other than its cleared use.

Although Facteau and Fabian were convicted on 10 misdemeanor counts relating to the same charges, the jury still accepted that it is not a crime for device manufacturers to make truthful, non-misleading statements about off-label use. The jury instead convicted Facteau and Fabian based on their conduct, mainly because of a violation of the Park Doctrine, which provides that responsible corporate officers can be liable for misdemeanor violations of the Federal Food, Drug and Cosmetic Act (“FDCA”) even if the corporate officer had no intent to commit, or even knowledge of, the offense.

This is only one of many recent victories for medical device companies in the off-label promotion realm.

In February, a Texas jury acquitted medical-device manufacturer Vascular Solutions and its CEO of all counts in a criminal case that alleged the company illegally promoted Vari-Lase, a device to treat varicose veins, off-label. The Vascular Solutions case was particularly memorable for the trial judge’s jury instruction that it is not a crime for a device company to provide doctors with truthful, non-misleading information about off-label product uses. This was a significant blow to the FDA’s long-standing practice of discouraging (and prosecuting) off-label promotion.
In 2015, in Amarin Pharma, Inc. v. FDA, a federal judge in New York found that Amarin, a drug manufacturer, was entitled to engage in truthful and non-misleading speech promoting the off-label use of its medical device, and such speech could not form the basis of a prosecution for misbranding. This decision was based in large part on the Second Circuit’s 2012 watershed decision in U.S. v. Caronia, where the Court held that to avoid infringing on the First Amendment, misbranding provisions of the FDCA could not be construed to prohibit and criminalize truthful off-label promotion of FDA-approved drugs.

Even with more and more federal courts embracing Caronia, the FDA continues to prosecute drug and device manufacturers (and their corporate officers) for off-label promotion. With the decisions in Facteau and Vascular Solutions, though, it looks like the FDA will have a more difficult path to prosecution than ever before.