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Archive for the ‘Insurance Coverage and Extra-Contractual Liability’ Category

Should I Stay or Should I Go?

Posted on: May 27th, 2021

By: Richard Smith

If I go there may be trouble, but if I stay it will be double…

These lyrics from the 80’s song by The Clash does a fairly nice job describing the dilemma that an insurance defense lawyer faces while the carrier that hired him to defend its insured reserves its own coverage defenses.   

Historically, a lawyer defending his client must defend all actions filed against his client in the same action.  When an insurer files a dec action its client must defend himself in order to preserve his coverage interest. By defending the client both on the liability and the coverage the lawyer faces the dilemma of giving advice to his client that may benefit the client’s defense but prejudice the client’s coverage position.  Often if not always these are in contravention to each other. Thus, the conflict.   

Because of the inherent conflict a lawyer cannot defend the insured on both the liability and the coverage issues nor can he limit his representation under informed consent.

The Kentucky Bar Association through its ethics opinion E-452 has provided succinct guidance for the insurance defense lawyer facing this possible dilemma. In a nutshell, the lawyer may defend the insured defendant when the insurer has reserved its coverage defenses in the following three scenarios:

  • Only where the declaratory action is filed in a completely different action
  • If the declaratory action intervenes in an existing action then it must be bifurcated and stayed while the liability issues are determined, or
  • If the insured has his own counsel that is self-selected to defend the coverage action against his insurer

Otherwise, a lawyer must withdraw his representation of the insured that he was hired to represent

….in other words, he must go….

Insurance carriers can eliminate much of these issues by instructing its coverage counsel to file a completely separate action to resolve the coverage issues.   Should the court require the coverage issues to be part of the same action it must bifurcate and stay the coverage issues from the liability issues until all of the liability issues are determined. If neither of these occur the insurer should expect its defense counsel to have to withdraw because of the inherent conflict.   

For more information, please contact Richard Smith at [email protected].

Supreme Court of Georgia Rewards Bad Behavior While Increasing The Exposure To Insurers for Failing to Settle Within Policy Limits

Posted on: May 24th, 2021

By: Phil Savrin

The Supreme Court of Georgia has dealt a severe blow to an insurance company’s ability to require advance notice of a lawsuit against its insured before being exposed to extra-contractual liability for the full amount of the judgment that may be returned. In GEICO Indemnity Company v. Whiteside, Bonnie Winslett was using the named insured’s vehicle with permission when she collided with a bicyclist named Terry Guthrie.  GEICO rejected Guthrie’s demand for the $30,000 policy limit but made numerous attempts to reach Guthrie’s lawyer to follow up on a counteroffer GEICO had made. Instead of engaging GEICO, Guthrie had already sued Winslett for personal injuries. Although Winslett was served with the lawsuit, neither she nor Guthrie’s lawyer notified GEICO as required by both the language of the policy and a Georgia statute for coverage to apply. For her part, Winslett assumed GEICO was handling the matter and threw the summons away. With Winslett having defaulted, Guthrie proceeded to obtain a judgment of $2.9 million. No sooner was the ink dry a week later when Guthrie forwarded the judgment to GEICO.  A clearer case of setting up the insurance company for a bad faith claim could hardly be crafted. 

In reviewing the judgment against GEICO, the Supreme Court first determined that the notice requirement is a matter of contract to obtain coverage under an insurance policy whereas a failure to settle claim is based on tort law – specifically, whether GEICO was negligent in not meeting the policy limit demand based on information that was known at the time. So viewed, the question was whether GEICO should have reasonably foreseen that Guthrie would file a lawsuit and that Winslett would not provide notice. The tort exposure, in other words, was not for the amount of coverage owed by GEICO but for its negligence in failing to settle when the limits was demanded. 

Applying tort principles, therefore, the question was whether Winslett’s failure to provide notice was an intervening act that cut off any exposure to GEICO for negligence.  Based on the facts presented, the Supreme Court determined that a jury could conclude that Winslett’s failure to give notice was foreseeable as she was an unsophisticated person who was not the named insured and who had driven the vehicle without a license, among other factors. As such, “but for” Geico’s negligence in not settling the exposure, the lawsuit and the judgment by default would not have resulted. 

The jury that considered GEICO’s negligence did apportion 30% of the fault to Winslett for having defaulted without providing notice to GEICO, with the remaining 70% assessed against GEICO. Curiously, though, the Supreme Court made no mention whatsoever of Guthrie’s role in refusing to engage the insurer who was attempting to negotiate settlement, in not disclosing that a lawsuit had been filed, and in then laying in wait until the default judgment was entered — all in a concerted effort to tag the insurer with bad faith.  

With the reasoning in this case, Georgia law on failure to settle continues to morph from an obligation owed to the insured to one that must also consider the interests of the claimants. Insurers are well-advised to maintain a watchful eye when demands are made and to be ever-vigilant to counter tactics that are being condoned by the courts in troublesome cases

For more information, please contact Phil Savrin at [email protected].

It May Be Legal, But It’s Not Civil

Posted on: April 13th, 2021

By: Michael Weinberg

A recent decision in the matter of Legal Sea Foods, LLC v. Strathmore Insurance Company, USDC (Mass) further addressed coverage for business income and extra expense losses caused by both state and local governments nationwide orders (the “Orders”)  in response to the Covid 19 pandemic. Legal Seafoods is a chain which operates 32 restaurants in the eastern United States (the Designated Properties”). Its restaurants were covered by a Strathmore property insurance policy (the “Policy”) which provided Business Income and Extra Expense for covered causes of loss.  Legal Seafoods incurred business income losses because of civil authority orders impacting its operations and because of the physical presence of Covid 19 infected individuals on its premises. The parties agreed interpretation of an insurance policy is a question of law and that Massachusetts law would govern. Based on the Court’s review of alleged facts, the complaint was dismissed.

Legal Seafoods claimed Strathmore breached its insurance contract for failure to provide coverage under the civil authority provision of the policy requiring Strathmore to pay Legal’s business interruption losses resulting from an action of civil authority.  The Policy provided coverage if the action “prohibits access” to the Designated Properties. The court distinguished between a government order which “prohibits” access to one which “limits” access. An order not preventing entrance to the insured premises but rather limiting the type of services provided does not “prohibit access.” Legal Seafoods alleged the orders mandated closure of and prohibited access to some of its restaurants. However, Legal Seafoods could not point to an order which “completely prohibited access to any of its Designated Properties.” In fact, Legal acknowledged the Orders permitted its restaurants to continue carry-out and delivery operations. Legal could not establish a necessary prerequisite of civil authority coverage: a prohibition on access to the premises. The fact that it was not financially feasible for Legal Seafoods to continue restaurant operations solely for carryout and delivery sales thereby forcing closure was immaterial. The relevant inquiry was whether the Orders completely prohibited access to the Designated Properties.

Legal Seafoods also pressed for coverage because of direct physical loss. Here, it alleged Covid-19 was “physically present on its properties” and caused loss or damage to those properties resulting in suspension of its operations. The court found the allegations insufficient. Courts in Massachusetts have narrowly construed the meaning of “direct physical loss” as requiring some kind of tangible, material loss. There must be enduring impact to the actual integrity of the premises. While the virus may harm human beings, this is not the case with property.

This decision is in line with the majority of others which have addressed business income loss insurance for companies impacted by the Covid 19 pandemic. Interpretation of the policies is made under the state law which applies. Courts interpreting policy language with a fair reading have found no business income loss. There are some outliers. These courts may find ambiguity in the policy’s insuring agreement or definitions and allow a case to move forward. Certain companies have gone through difficult times and an “ambiguity” may put out a lifeline to some whether called for or not.

For more information, please contact Michael Weinberg at [email protected].

Gov. Cuomo Rescinds Controversial Immunity Granted to New York Nursing Home Facilities for COVID-19 Deaths – Insurers May Be On Hook For Historic Public Policy Disaster

Posted on: April 8th, 2021

By: Kevin G. Kenneally, Esq. and William E. Gildea, Esq.

The embattled NY Governor Andrew Cuomo backtracked on his signature pandemic legislation that recently unraveled and marred his reputation, as allegations of cronyism and endangering the state’s most vulnerable elderly population were widely reported. This repeal follows disclosure of investigations into the Cuomo administration’s directive forcing nursing homes to accept COVID-19 patients from hospitals. This government order created a dangerous environment that allowed the virus to quickly spread in New York, leading to thousands of elderly resident deaths and illnesses.

The reversal likely will lead to catastrophic injury and wrongful death litigation against facilities, as well as exposure to their insurers, because of the Governor’s legal directive to accept elderly infected with COVID-19.

On April 6, 2021, the Governor signed legislation that repeals the immunity and protection previously conferred on skilled nursing and health care facilities in New York state for wrongful death and related claims arising from the COVID-19 crisis.  Senate Bill S5177 “[r]epeals the emergency or disaster treatment protection act which protects health care facilities and health care professionals from liability that may result from treatment of individuals with COVID-19 under conditions resulting from circumstances associated with the public health emergency.” (accessed April 8, 2021). 

The now-repealed Treatment Protection Act, also known as the Emergency or Disaster Treatment Protection Act (codified as part of Public Health Law Article 30-D) formerly shielded health care facilities such as long-term care (LTC) facilities and hospitals, including its administrators and executives, from liability at the respective facilities during the COVID-19 to “to promote the public health, safety and welfare of all citizens by broadly protecting the health care facilities and health care professionals in this state from liability that may result from treatment of individuals with COVID-19 under conditions resulting from circumstances associated with the public health emergency.”  The legislation previously shielded health care facilities and professionals from civil or criminal liability for harm or damages alleged to have been sustained by patients or elderly related to health care services if the following criteria was met: (1) the facility/professional was providing health care services in accordance with the applicable law/COVID-19 emergency rule, (2) the alleged act or omission was impacted by the facility/professional’s decisions or activities in response to or as a result of COVID-19, and (3) the health care services were administered in good faith. 

The newly-signed law, Senate Bill S5177 was introduced in the New York Senate on February 25, 2021 and was signed by Governor Cuomo on April 6, 2021. This followed news reports that the administration directive had endangered the elderly residents and that the directive allegedly was authored by an aide to the governor with ties to the LTC industry lobbyists.

Health care providers, professionals, hospitals, and long-term care facilities, and their insurers, should be aware of this repeal which dramatically changes the landscape for COVID-19 litigation in New York state, which has suffered among the worst COVID-19 outcomes for its elderly population.

For more information about this topic, please contact Kevin Kenneally at [email protected] or William Gildea at [email protected].

Texas’ Perfect Storm May Result In Largest Insured Loss In Texas History

Posted on: April 8th, 2021

By: Ken Coronel

Texas residents are still recovering from the extreme winter storm which left the state reeling from days of widespread blackouts, water shortages, millions left in the dark, and business closures. From the standpoint of the carriers writing in the state, the second-largest property insurance market among U.S. states, this was the “perfect storm”, with its frigid temperatures, duration of the cold, snow and freezing rain, and wind caused power outages, all combined with the frailty of the Texas power grid. And then there was the size of the event. You would not have a hurricane hit all of Texas.

Thousands of claims have already been filed in Texas. The vast majority are for damage from burst pipes. State Farm, the largest homeowner insurer in Texas, reports that it received a total of 75 claims for bust pipes in Texas in all of 2020. So far this year, it has received thousands of claims for bust pipes. The majority of the other claims are for damages caused by collapsed roofs and business interruption. The resolution of these claims will undoubtedly be rendered more costly and time consuming due to the pandemic.

The Insurance Council of Texas predicts busted pipes and water damage to homes and business across the state could result in hundreds of thousands of insurance claims. Indeed, the ICT stated that the ice storm could be the costliest storm Texas has experienced. A.M Best repeated that warning and predicted that insurers could suffer record first-quarter catastrophe losses.

Insurance organizations are projecting that claims could exceed 20 billion dollars, in aggregate. Texas has 4.9 million homeowner’s policies with over $10 billion in annual written premiums, according to the Texas Insurance Department. The widespread scale and claims volume of the storm could drive ultimate insured losses to a range of $10 billion to $20 billion. As a point of reference, U.S. industry first-quarter catastrophe losses have averaged $4.6 billion over the prior 10 years, with a high of $7.6 billion in 2017.

In light of the large size of the storm, a large number of individual carriers are exposed to losses. Insured losses in Texas will be heavily weighted toward personal lines coverage from homeowner’s losses and, to a lesser extent, automobile claims relative to commercial lines coverage. The ice will be a distant memory before we find out if this weather event results in the largest insured loss in Texas’ history.

For more information, please contact Ken Coronel at [email protected].