CLAIMS-MADE COVERAGE
Zurich Am. Ins. Co. v. Syngenta Crop Prot. LLC, 2024 Del. LEXIS 68 (Del. Feb. 26, 2024)
Delaware Supreme Court concludes that a letter from a lawyer informing an insured of possible lawsuits without identifying potential plaintiffs or demanding payment is not a “claim for damages” within the meaning of claims-made CGL and umbrella liability policies. Citing case law from Delaware and other jurisdictions, it reasoned that, in the ordinary sense, a “claim for damages” (which the policies did not define) is “a demand or request for monetary relief by or on behalf of an identifiable claimant.” According to the court, the letter in question did not meet this definition because it did not identify any claimants “except in the vaguest terms” or request monetary relief on any claimant’s behalf, but rather communicated only a threat of future litigation. As a result, the letter was not a claim made before the policy periods at issue.
POLLUTION EXCLUSION
Wesco Ins. Co. v. Brad Ingram Constr., 2024 U.S. App. LEXIS 1488 (9th Cir. Jan. 23, 2024)
A divided Ninth Circuit panel, applying California law, holds that a pollution exclusion* in a CGL policy does not preclude a duty to defend an underlying suit alleging physical injury from exposure to “clouds of toxic dust” deposited in the environment by a wildfire and released during clean up efforts. Citing MacKinnon v. Truck Ins. Exch., 73 P.3d 1205 (Cal. 2003), the majority explained that determining whether a “pollution event” (i.e., “environmental pollution”) resulting in excluded injury has occurred involves consideration of “the character of the injurious substance” and whether the exposure resulted from a “mechanism specified in the policy.” It concluded that a potential for coverage (and, therefore, a defense obligation) existed because, although wildfire debris may be considered a “pollutant” in certain circumstances, the mechanism alleged in the underlying complaint – “expos[ure] . . . to clouds of toxic dust during the loading and unloading of [the underlying plaintiff’s] truck” – did not clearly constitute an “event commonly thought of as pollution.”
The dissent disagreed with the majority’s application of the “governing legal standard,” reasoning that, “[e]ven though the dust was originally created by a wildfire and may consist of natural material, that does not prevent it from being part of a pollution event,” and a reasonable insured would have viewed the alleged circumstances to have been “an act of pollution.”**
On February 20, 2024, the Ninth Circuit denied the insurer’s request for rehearing.
* The exclusion precludes coverage for “‘[b]odily injury’ . . . which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.” The policy defines pollutants as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”
** Similarly, in finding for the insurer, the trial court said: “Given the heavy regulation of the cleanup effort evidenced by the hazardous materials gear worn by those involved, a reasonable layperson would consider the release of toxic dust in this context to be environmental pollution.”
SETTLEMENT PRECLUSIVENESS
In re Ill. Nat’l Ins. Co., 2024 Tex. LEXIS 158 (Tex. Feb. 23, 2024)
Texas Supreme Court holds that a settlement between an insured and investor-claimants that limited the claimants’ recovery to the limits potentially available under the insured’s D&O liability policies did not bind the insurers, which had not consented to the settlement, as to coverage or the amount of any covered loss. Preliminarily, it concluded that the settlement imposed on the insured a legal obligation to pay damages within the meaning of the policies and the claimants could pursue a direct action against the insurers. Nonetheless, the insurers were not barred from challenging coverage or the reasonableness of the settlement amount because, by protecting the insured against any “actual risk of liability” beyond its obligation to pay insurance recoveries to the claimants, the settlement eliminated any “meaningful incentive to ensure that the judgment or settlement accurately reflects the plaintiff[s’] damages and thus the defendant-insured’s covered liability loss.” Thus, although the federal bankruptcy and district courts had approved the settlement, it did not result from the “fully adversarial trial” necessary to bind insurers under Texas law.
STUB POLICIES
California appeals court addresses annualization of aggregate limits under excess liability “stub” policies in the context of underlying asbestos products claims. The court held that an additional limit was available for the five-month extension periods of two of the policies, which expressed the limits as “in the aggregate for each annual period during the currency of this policy” and “for all damages sustained during each annual period of this policy,” respectively. Finding ambiguity, it concluded, based on extrinsic evidence, that the insured had desired “merely to extend its insurance, rather than reduce its scope or expense,” and the insured’s payment of a prorated premium for the extensions suggested that “it intended to receive the same level of coverage as it had been, rather than diluting it.” By contrast, the court held that a single limit was available for the full term of a third policy, which provided for a limit “with respect to loss excess of the Underlying Insurance which occurs during the term of this Certificate.” Because this language was seen to unambiguously set the limits “for the entire duration of the policy,” any considerations as to the insured’s purported reasonable expectations were irrelevant.
TRIGGER OF COVERAGE
Westfield Ins. Co. v. Sistersville Tank Works, Inc., 895 S.E.2d 142 (W. Va. 2023)
West Virginia Supreme Court of Appeals, on certified question* from the Fourth Circuit, holds that claims for latent injury stemming from chemical exposure or analogous harm are subject to a “continuous trigger” under “occurrence”-based CGL policies. It concluded that the policy language was “ambiguous as to when coverage is triggered” and, therefore, considered drafting history of the 1966 CGL Form, which it believed evidenced an intent to: (1) “afford[] coverage for singular, repeated, or continuous exposures to hazardous substances if those exposures cause either a singular or a progressive bodily injury, sickness, or disease”; and (2) reject a “manifestation trigger” theory, which would have been “arbitrary and unworkable.” In addition, the court considered approaches taken in other jurisdictions, the majority of which, it believed, had concluded that these types of policies “incorporate a continuous trigger of coverage in the context of bodily injuries.”
The dissent was in favor of adopting the “manifestation” theory because it would have “provide[d] certainty to all parties as to when coverage is triggered” and was “consistent with” the court’s prior decisions addressing when bodily injury takes place.
On February 6, 2024, the Fourth Circuit concluded that the answer to the certified question “resolves the central disagreement between the parties” and affirmed the district court’s decision applying a “continuous trigger.” Westfield Ins. Co. v. Sistersville Tank Works, Inc., No. 20-2052, 2024 U.S. App. LEXIS 2685, at *2 (4th Cir. Feb. 6, 2024).
* The certified question was: “At what point in time does bodily injury occur to trigger insurance coverage for claims stemming from chemical exposure or other analogous harm that contributed to development of a latent illness?”
FEATURE ARTICLE
High Court Should Endorse Insurer Standing In Bankruptcy
By: Frank Perch
Insurers are at the center of any mass tort Chapter 11 bankruptcy. The goal of every mass tort case is to achieve a global resolution of claims, with releases of the debtor and its affiliates, by centralizing the adjudication of claims, and creating a fund for payment of claims with contributions from the debtor and its liability insurers. Maximizing insurer dollars available for paying claims, and minimizing insurers’ abilities to dispute coverage or challenge claim valuations, are key objectives.
As a result, mass tort bankruptcy plans inherently have wide-ranging impacts on the insurer-insured relationship. Despite anti-assignment provisions in most policies, policies are assigned to a trust. Trustees are responsive to trust advisory committees which are usually populated by representatives of claimants’ interests.
This article appeared in Law360.
2023 YEAR IN REVIEW
Cases to Know
A divided Sixth Circuit panel holds that, under Ohio’s “all sums” allocation scheme, “targeted” insurers may seek indemnity contribution from a policy reinsured by a captive insurer. The court rejected the insured’s argument that allowing contribution from a captive it partly owned would undermine the purpose of “all sums” and explained that “[a]ll sums shifts the burden of calculating relative liability, but it doesn’t absolve the insured of all financial burden”. It distinguished cases from other jurisdictions that have not permitted contribution for uninsured or self-insured periods, reasoning that the insurers here did not seek contribution from the insured and “[n]o jurisdiction has prohibited contribution whenever an insured will face financial consequences down the line.”
A petition for rehearing en banc was denied on February 15, 2023.
Dostal v. Strand, 984 N.W.2d 382 (Wis. 2023) (Occurrence; Preclusion)
Wisconsin Supreme Court, in a 4-3 decision, holds that an insured’s second-degree reckless homicide conviction did not preclude subsequent claims for insurance coverage on the basis that the alleged conduct did not qualify as an “occurrence” (i.e., an “accident”).* The majority concluded that (1) issue preclusion did not bar the claimant (Dostal) from seeking insurance coverage for her claims against the insured (Strand); and (2) fact issues regarding the application of the policy’s resident relative and intentional acts exclusions made summary judgment inappropriate. The issue of whether the insured’s conduct constituted an “accident,” it said, was not actually litigated in the prior criminal proceeding and it would seem injury resulting from even reckless conduct can still be “accidental.” The following example is provided: “if a person is driving 90 miles per hour on a city street, such conduct would no doubt be reckless, but that doesn’t mean it isn’t an ‘accident’ if the driver unintentionally hits a pedestrian. Such an event may still occur ‘by chance’ or ‘without one’s foresight or expectation.’”
The Chief Justice disagreed in a strongly-worded dissent (emphasis added – citations omitted):
Strand’s conviction for his act of reckless homicide, killing his own child Haeven, precludes Strand from claiming that Haeven’s death was an accident.
* * *
The jury in Strand’s criminal trial conclusively determined, beyond a reasonable doubt, that Strand caused Haeven’s death and that he was “aware” that his actions created a “unreasonable and substantial” risk of her death. The jury’s verdict foreclosed Strand from later arguing that Haeven’s death was an “accident.” Because Strand has no coverage under State Farm’s policy, Dostal cannot recover against State Farm either.
The majority avoids this inevitable conclusion by ignoring the law of our state and blindly relying on foreign authorities. It makes no effort to scrutinize the cases it cites and summarily labels them “persuasive.” As a result, the majority interprets Strand’s homeowner’s insurance policy as providing “Reckless Homicide Insurance,” indemnifying policyholders for their decisions to disregard known “unreasonable and substantial risk[s] of death or great bodily harm.” This is absurd.
* According to the opinion, as relevant here, criminal recklessness is defined by statute to mean “that the actor creates an unreasonable and substantial risk of death or great bodily harm to another human being and the actor is aware of that risk.” Wis. Stat. § 939.24(1).
New Jersey appeals court holds that a “Hostile/Warlike Action” exclusion* in commercial property insurance policies did not apply to claimed losses from the “NotPetya” malware/cyberattack which was introduced into the insured’s systems through tax software used in its Ukraine office. The court acknowledged no precedent considering the exclusion and no cases that involve a cyberattack, and interpreted it as requiring the “involvement of military action.” It also referred in part to certain cases construing “similar exclusions” which it said “demonstrate a long and common understanding that terms similar to ‘hostile or warlike action’ by a sovereign power are intended to relate to actions clearly connected to war or, at least, to a military action or objective.” Here, according to the court, the exclusion did not apply even though Russian Federation actors were thought to have orchestrated the attack: “We agree with the trial court that the plain language of the exclusion did not include a cyberattack on a non-military company that provided accounting software for commercial purposes to non-military consumers, regardless of whether the attack was instigated by a private actor or a ‘government or sovereign power.’”
The New Jersey Supreme Court dismissed a pending appeal in the case on January 26, 2024.
* The exclusion provides “[t]his policy does not insure [against]:
Loss or damage caused by hostile or warlike action in time of peace or war, including action in hindering, combating, or defending against an actual, impending, or expected attack:
(a) by any government or sovereign power (de jure or de facto) or by any authority maintaining or using military, naval, or air forces;
(b) or by military, naval, or air forces;
(c) or by an agent of such government, power, authority, or forces[.]”
Rhode Island Supreme Court concludes that a pollution exclusion in a commercial package policy issued to a residential heating system installer is ambiguous as applied to a claim for a heating oil leak into a home. The court concluded that the policy’s definition of “pollutant”* – which did not explicitly list home heating oil – was “reasonably susceptible of different constructions.” Noting that the issue was one of first impression, it considered decisions from other jurisdictions, including the “most extreme approach” taken by the Indiana Supreme Court in State Auto. Mut. Ins. Co. v. Flexdar, Inc., 964 N.E.2d 845, 851 (Ind. 2012) (“Applying basic contract principles, our decisions have consistently held that the insurer can (and should) specify what falls within its pollution exclusion. . . .Where an insurer’s failure to be more specific renders its policy ambiguous, we construe the policy in favor of coverage.”). While it did not adopt that approach, the Rhode Island court reiterated that “‘diversity of judicial thought as to the meaning of terms in an insurance contract is proof positive’ of ambiguity” (quoting Textron, Inc. v. Aetna Cas. & Sur. Co., 754 A.2d 742, 749 (R.I. 2000)).
* The policy defined “pollutant” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”
Sixth Circuit, applying Kentucky law, holds that CGL insurers have no duty to defend a pharmaceutical distributor against claims by cities and municipalities seeking to recover costs expended in response to the “opioid epidemic.” Citing Acuity v. Masters Pharm., Inc., 2022 Ohio LEXIS 1814 (Ohio Sept. 7, 2022) and ACE Am. Ins. Co. v. Rite Aid Corp., 270 A.3d 239 (Del. 2022), the court reasoned that the underlying lawsuits did not seek damages “because of” (i.e., “on account of” or “by reason of”) “bodily injury,” but rather sought “to recover costs incurred due to the opioid epidemic” (e.g., expenses for police, emergency, health, prosecution, corrections, rehabilitation, and other services). “[T]he surrounding context and overall purposes of the policies make clear that an insured would not reasonably expect coverage of the underlying lawsuits,” the court said. It explained this in part as follows (citations omitted):
. . .the policies use both “because of bodily injury” and “for bodily injury” interchangeably; even if the terms are not equivalent, this mixed usage informs an insured’s expectations by hinting that those terms are at least comparable.
Reading these terms as fungible also accords with the Kentucky rule of contract interpretation that inconsistencies in a policy are to be harmonized where possible. Here, reading “for” and “because” to have different meanings introduces confusion rather than clarity into provisions that use both phrasings, such as one stating that the policy covers claims for damages “because of bodily injury” but that the insurer has “no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’. . .to which this insurance does not apply.”against any ‘suit’ seeking damages for ‘bodily injury’. . .to which this insurance does not apply.”