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

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The now-repealed Treatment Protection Act, also known as the Emergency or Disaster Treatment Protection Act (codified as part of Public Health Law Article 30-D) formerly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].

A Fortuitous Result? Duke Energy Defeats Summary Judgment Motion in Coverage Dispute Alleging that Duke “Intentionally” Contaminated Groundwater

Posted on: March 31st, 2021

By: Isis Miranda

“If you take a rock and throw it through a window, then you don’t get coverage for [the] costs of fixing it.” An attorney representing one of the nearly 30 insurance companies being sued by Duke Energy in North Carolina reportedly made this statement in characterizing Duke’s attempt to seek reimbursement for cleanup costs incurred after it constructed unlined coal ash basins that allowed contaminants to seep into the nearby groundwater. (Duke Energy Carolinas, LLC v. AG Insurance SA/NV, et al., No. 17CVS5594 (N.C. Sup. Ct. 2017).)

Under pressure from regulators and environmental groups, Duke ultimately agreed to excavate approximately 124 million tons of coal ash and permanently close all of its coal ash basins, including 31 in North Carolina, at an estimated cost of over $5 billion.  In the current coverage action, Duke is attempting to recoup approximately $600 million for environmental damage at 15 of its plants that purportedly occurred from 1971 to 1986 before it became self-insured.

Despite at least 27 sessions with a mediator, according to court filings, the large coverage action does not appear to have settled. The parties continue to file summary judgment motions on a variety of issues and debate whether the trial, which is expected to last between two and eight months, should be broken up into several mini-trials.

In one of the summary judgment motions, some of the insurers argued that coverage is not afforded for the losses because Duke “intended” to contaminate the groundwater, thus triggering an exclusion in one of the policies excluding from coverage “property damage caused intentionally” by or at the direction of the insured. The insurers alleged that Duke’s predecessor company knew before it constructed the unlined ash ponds that they would cause water contamination, citing as evidence letters and reports from various agencies and consultants, including letters from the U.S. Environmental Protection Agency in 1978 and 1981, advising that the use of an unlined ash pond could be “expected” to result in groundwater contamination.

In response, Duke contended that it believed that any contaminants released would be “negligible” and would, therefore, not pose any health risks or, alternatively, would be sufficiently diluted by the groundwater, bringing them to acceptable levels. Duke also noted that North Carolina regulators allowed it to design its ash ponds without a liner and the most recent standards had not been enacted until 2014, after the ponds were constructed.

Judge Louis A. Bledsoe, III, in denying the insurers’ motion on June 5, 2020, noted that even if he agreed that the insurers’ evidence established that Duke expected that some amount of contamination of the groundwater would occur, this would be insufficient to win the motion for two reasons.

First, according to Judge Bledsoe, the insurers’ evidence indicating that Duke “expected,” “anticipated,” “planned,” or was “substantially certain” groundwater contamination would occur, aside from being disputed by Duke, was insufficient to trigger the policy exclusion, which was “singularly focused instead on Duke’s intent and whether Duke intentionally caused covered property damage.” Judge Bledsoe found that the cases cited by the insurers had “limited persuasive force” since they addressed whether a loss was “expected,” which he distinguished from “intended.”

Second, Judge Bledsoe determined that there was a dispute over the definition of “property damage” such that he was unable to determine whether Duke intended to cause it. According to Judge Bledsoe, the insurers contended that “any detectable amount of groundwater contamination constitutes property damage,” whereas Duke argued that property damage has been suffered only if groundwater contamination has occurred “in the form and to the degree for which it faces liability” under the law, or, alternatively, where either the groundwater standard or naturally occurring constituent levels in groundwater have been exceeded, whichever is higher. The relevant policies defined property damage as “physical injury to or destruction of tangible property . . . including the loss of use.” Judge Bledsoe explained, however, that the “evidence” was “insufficient” for him to conclude that Duke intended to cause property damage, as defined under the policies.

With many more summary judgment motions in the pipeline and a lengthy trial on the horizon, this case will no doubt continue to address coverage issues in interesting, unexpected ways.

For more information, please contact Isis Miranda at [email protected].

Kentucky Appeals Court Holds That Claims-Made Policies Require No Showing Of Prejudice For Late Notice, Following Restatement Principles

Posted on: March 26th, 2021

By: Barry Miller

Notice provisions in claims-made policies are not subject to the notice-prejudice rule, according to a Kentucky decision applying the Restatement of the Law of Liability Insurance (“Restatement”).

Kentucky State University tendered a claim under its professional liability policy after two former employees alleged improper termination. The insurer denied coverage because the University gave notice of it claim 93 days after the policy period ended—three days late under the policy.

Kentucky has required insurers to show prejudice from late notice under occurrence-based policies since 1991. The trial Court agreed with the University that the insurer had to show prejudice under its claims-made policy as well.

But the Court of Appeals of Kentucky reversed, citing federal cases predicting that Kentucky would not require a showing of prejudice for claims-made policies.

It also cited § 35(2) of the Restatement.

The Restatement has generated controversy since the American Law Institute (“ALI”) issued draft principles in 2010. After 29 drafts, and eight years of lobbying by insurers and policyholders, the ALI issued the final Restatement in 2018. Some states responded with bills prohibiting their courts from applying the Restatement’s provisions.

Kentucky’s house and senate passed one such bill, providing that no restatement sets the law or public policy of Kentucky. Governor Andy Beshear vetoed the bill, saying it violated separation of powers.

Randy Maniloff’s “Coverage Opinions” newsletter reported on March 8 that three federal courts relied on the Restatement in February decisions. He noted that courts who have cited the Restatement so far have not written decisions that should cause insurers to lose any sleep.

Nor should the Kentucky court’s holding trouble insurers. It used the Restatement to reinforce a rule that Kentucky federal courts have applied since 2003, that insurers need not show prejudice from late notice under claims-made policies. But Kentucky insurers may sleep less soundly as they wonder whether this uncontroversial opinion foretells a wider use of the Restatement in the Commonwealth’s courts.

For more information, please contact Barry Miller at [email protected].

Insuring Cryptocurrency: Where Insurers Fear to Tread

Posted on: March 10th, 2021

By: Alexia Roney

When Janet Yellen, U.S. Treasury Secretary, called Bitcoin “extremely volatile” on February 22, 2021, the market proved her point as the cryptocurrency dropped a sixth of its value the next day. Yet, the cryptocurrency market, now worth nearly a trillion dollars, will continue to draw in the investors. So, is there insurance to minimize those risks?

Not nearly enough.

Barriers to insurance coverage for cryptocurrencies include the volatility of the market, the many differing business models, the complicated technical underpinnings for each cryptocurrency, an ill-defined and uncertain regulatory framework, and a hardening insurance market in the pandemic. Often litigation is necessary to determine what the digital asset is – a currency? a security? property?

Yet, a few insurers, such as XL Catlin and Lloyd’s of London, offer two types of insurance for the commercial market. First, companies and exchanges may obtain theft coverage for cryptocurrency. Such companies are prime targets for hackers because they collectively hold billions of dollars in cryptocurrency.

Second, insurers offer D&O coverage, which is essential for start-ups marketing new cryptocurrency – referred to as initial coin offerings or ICOs – as investments to attract directors, advisors, and investors. The U.S. Security and Exchange Commission considers ICOs securities and aggressively pursues enforcement actions against start-ups, officers, and directors for failing to comply with federal securities law.

Insurance will likely remain difficult to obtain over the near term. Even as the market develops, cryptocurrency readily flows internationally, outside the control or protection of financial institutions and governments. Insurers will hesitate to tread where investors rush.

For more information, please contact Alexia Roney at [email protected].