Reed Smith's Insurance Recovery Group Ready to Help Policyholders after U.S. Congress Fails to Extend TRIA

This post was written by Doug Widin, Gary Thompson, Mike Sampson, Ann Kramer, Amber Finch and Kit Chaskin.

Last week, the U.S. Congress adjourned for the year without making any provision for extending the federal Terrorism Risk Insurance Act (“TRIA”). Absent some sort of extension, TRIA thus will expire next week – on December 31, 2014. As a result, insurers will no longer be required to offer terrorism insurance, and even those insurers that do offer the coverage may well reassess their risk and price the coverage at substantially increased premium rates.

Terrorism insurance is an important protection which most policyholders reportedly opt to buy. Without being able to obtain and/or afford it, policyholders may be at significant risk – and not just in the event of a domestic terrorist attack. Many lenders require borrowers to have terrorism coverage in place as part of their loan policies. Real estate deals, equipment financing, and many other commercial transactions technically depend on the availability and procurement of terrorism coverage as part of the overall insurance requirements for the deal. Lack of terrorism insurance could put loans or deals at risk.

You can read more about TRIA and Congress’ failure to act in Reed Smith’s recent Client Alert, “Congress’ Failure to Extend Terrorism Risk Insurance Act Requires Policyholders to Act Diligently Before January 1.”

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You Can Assign Your Bad Faith Claims in Pennsylvania

This post was written by Luke Debevec, John Ellison and Lisa Szymanski.

This week, in a 5-1 decision resolving a certified question from the U.S. Court of Appeals for the Third Circuit, the Pennsylvania Supreme Court adopted the positions advanced by Reed Smith LLP on behalf of United Policyholders, concluding that policyholders are permitted to settle claims against them by assigning to plaintiffs and other claimants their rights to both statutory and common law-based bad faith claims against their insurance companies.

The Court’s decision in Allstate Property and Casualty Insurance Co. v. Jared Wolfe, is a significant victory for policyholders in Pennsylvania who face dangerous litigation that their insurance companies refuse to defend or unreasonably refuse to settle. Faced with such bad faith conduct by its insurer, a policyholder often has no financial means of satisfying a judgment other than assigning its coverage claim against the insurer, and little interest or experience in direct litigation with the insurer. When a policyholder is victimized by an insurance company’s bad faith, a settlement that assigns the policyholders insurance claims to the plaintiff in exchange for a release that protects the policyholder from the results of the insurer’s breach is often the most practical solution. The Supreme Court’s decision recognizes the assignment remedy as a valuable and necessary tool for protecting the Commonwealth’s diverse policy-holding citizens from insurance company bad faith and a means of deterring and punishing bad faith behavior.

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Potentially Fraudulent Insurance Company Practices Are Exposed In Superstorm Sandy Litigation

This post was written by Jay Levin and Jennifer Katz.

[This article was first published on IRMI.com and is reproduced with permission. Copryright 2014, International Risk Management Institute, Inc.]

We recently marked the two year anniversary of Superstorm Sandy. With that anniversary came an influx of litigation in response to insurance companies denying or overly limiting coverage. That litigation recently revealed highly questionable practices within the industry.

Most striking is the opinion in Raimey v. Wright National Flood Insurance Company, Case No. 1:14-MC-00041-CKP-GRB-RER (E.D.N.Y. Nov. 7, 2014). There United States Magistrate Judge Gary R. Brown exposed “reprehensible [and possibly widespread] gamesmanship” by a professional engineering firm, U.S. Forensic, retained by Wright National Flood Insurance to investigate damage to the Raimey home following Superstorm Sandy.

 

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Deputy Secretary of Treasury Encourages Financial Institutions

This post was written by Courtney Horrigan and Caitlin Garber.

Top-ranking U.S. officials continue to stress the importance of securing adequate protection in the event of cyberliability losses. Most recently, those efforts have been directed to financial institutions, an industry particularly susceptible to cyber attacks. On December 3, 2014, United States Deputy Secretary of the Treasury, Sarah Raskin, delivered a speech at the Texas Bankers’ Association Executive Leadership Cybersecurity Conference wherein she provided banks with a simple checklist to consider before a cyber attack occurs. Notably, one item on the Deputy Secretary’s checklist was cyberliability insurance – coverage at which the Deputy Secretary recommended all banks take a hard look.

In her speech, the Deputy Secretary stated that while new, the cyberliabity insurance market is growing, noting that “[m]ore than fifty carriers now offer some type of cyber insurance coverage…for organizations of all sizes, from small, family-owned shops to Fortune 500 companies.” Raskin described the cyberliability insurance market as “a mechanism that bolsters cyber hygiene for banks across the board.” She explained that cyberliability insurance not only provides a measure of financial support in the event of a cyber attack, but the underwriting processes associated therewith can also present banks with useful information to assess existing risk levels and the ability to identify those tools and best practices that the organization may currently be lacking.

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On the Coattails of United States v. Trek Leather, Make Sure You Have Suitable D&O Coverage

This post was written by Andy Moss and Stephen Winter.

Corporate directors and officers have a long list of things that can keep them up at night. Personal liability for civil fines and penalties arising out of negligence or even gross negligence committed in the course of their service to the company should not be one of them. But recently, in United States v. Trek Leather, Inc., 767 F.3d 1288 (Fed. Cir. 2014) (en banc), a federal appeals court held that the government could hold a corporate officer liable for a civil penalty based on gross negligence committed by the officer or his or her agents acting in the scope of their duties to the company, and without the government establishing fraudulent intent or attempting to pierce the corporate veil. Following the decision, a representative of the Department of Justice, although speaking for himself and not the DOJ, sought to downplay the effect of Trek Leather by—perhaps unwittingly—stating that the result in Trek Leather simply reaffirms long-standing government policies. In light of the decision in Trek Leather, as well as at least one Justice Department attorney’s belief that it is wholly appropriate to pursue individual directors or officers in their personal capacities for fines and penalties without even having to establish fraud or wrongful conduct by the director or officer himself or herself, a director or officer might understandably sleep a little less soundly.

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The End of the Snow Is Still Not the End of the Problems For the Buffalo, NY Area

This post was written by John Ellison, Rich Lewis and Anthony Crawford.

The Buffalo, New York area has been devastated with record level snowfalls causing widespread damage. Now that the snow has stopped falling, warmer weather and potentially heavy rainfall may cause flooding and will likely exacerbate the losses being experienced. This will complicate insurance claims because policyholders will inevitably face pushback from insurance companies regarding the extent of damage from the snowstorms versus subsequent flooding. In a recent Client Alert, members of Reed Smith’s Global Insurance Recovery Group give Buffalo, New York area businesses short term and long term advice on handling potential property damage or business interruption claims arising from the recent snowstorms.

Court's reasoning that "bacteria" is not a "pollutant" favorable for policyholders in other cases

This post was written by Mike Sampson and Caitlin Garber.

Insurance companies often look to the pollution exclusions in their commercial general liability policies in attempts to exclude coverage for many types of claims. They will try to fit all sorts of things within the definition of “pollutants.” Just last Friday, though, the U.S. District Court for the Eastern District of Louisiana made that more difficult, offering a common-sense understanding of the term “pollutant.” That court found that “under Louisiana law, Legionella and Pseudomonas aeruginosa bacteria” – the bacteria which cause Legionnaire’s disease – “do not qualify as ‘pollutants’ within the meaning of [pollution] exclusions.”

At issue, in relevant part, in Paternostro v. Choice Hotel International Services Corp., No. 13-0662 (E.D. La.), is whether primary and excess commercial general liability insurance policies provide coverage for claims brought against a hotel’s (i) franchisor and (ii) franchisee, owner, and operator by guests or invitees of the hotel who allegedly suffered personal injuries as a result of exposure to Legionella and Pseudomonas aeruginosa bacteria in the hotel.

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Hackers Don't Care About Your Insurance

This post was written by Brian Himmel, Andy MossDavid Weiss and Cristina Shea.

A recent study reports that the median amount of time between a breach of a company’s computer network and the discovery of the incident is 229 days. But some cyberliability policy forms require that both the breach event and discovery of loss (or resulting claim) occur during the policy period. So what happens when a breach is discovered three months into the policy period but, unbeknownst at the time, the intrusion actually occurred six months before, or even earlier? If your company’s cyberliability insurance policy excludes breach events occurring before the inception of the policy period, the company could find itself without coverage for an otherwise-covered claim or loss.

The use of retroactive dates and extended reporting periods to avoid such a gap in coverage is addressed in a Client Alert issued by members of Reed Smith’s Insurance Recovery Group. Retroactive dates extend the policy’s coverage back to a date earlier than the actual policy period, with the goal of covering events that already occurred but had not been discovered at the time the policy was purchased. An extended reporting period lengthens the period of time, beyond the expiration of the policy period, during which a claim or loss can be made against the insured and reported to the insurance company. These provisions can provide a critical protection under a cyberliability insurance program given the delays that may exist between a breach and its discovery.
 

A free pass for NICO and Resolute?

This post was written by Michael H. Sampson, Ann V. Kramer, Jennifer D. Katz and Natalie C. Metropulos.

A number of insurance companies have recently entered into reinsurance agreements with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc. When this occurs – and the arrangements do not require the consent of policyholders – the policyholders unexpectedly find themselves involved with NICO and/or its “affiliated claims adjuster,” Resolute Management, Inc. (“Resolute”). But, what happens when a policyholder disagrees with NICO’s and/or Resolute’s approach to adjusting, defending, or resolving claims? Are NICO and Resolute “untouchable”? Just recently, a New York appellate court addressed these questions, finding that NICO and Resolute could escape liability in such instances. In a recent Client Alert, members of Reed Smith’s Global Insurance Recovery Group take a closer look at that recent decision, OneBeacon American Insurance Co. v. Colgate-Palmolive Co., and explain why “all hope is not lost.”

Reed Smith's Insurance Recovery Group: Head of The Class In Insurance Law (Again)

Last week, U.S. News-Best Lawyers named Reed Smith its 2015 National Law Firm of the Year in Insurance Law. This is the second consecutive year that U.S. News-Best Lawyers has recognized our Insurance Recovery practice as its top firm for insurance law.

Reed Smith’s Insurance Recovery Group counsels and represents policyholders in insurance disputes and transactions. With more than 85 insurance recovery lawyers in offices around the globe, we represent clients throughout the world, both as an advocate in disputes with insurance carriers, as a trusted advisor for diverse insurance-related issues, and as a counselor in the purchase of insurance products. We have recovered billions of dollars for policyholders in matters involving the entire range of commercial insurance products. In addition to this latest award by U.S. News – Best Lawyers, the group is named among the best policyholder coverage practices by Chambers USA, Chambers UK, Legal 500 US and Legal 500 UK. American Lawyer Media’s Legal Intelligencer named our Insurance Recovery Group one of Pennsylvania’s “Litigation Departments of the Year” for 2014 – the only policyholder-focused firm recognized in the Pennsylvania-based publication – and The National Law Journal named our Chicago Insurance Recovery team the 2014 “Chicago Litigation Department of the Year: Insurance.”

If you have any questions about potential claims, or your insurance program in general, please feel free to contact our Global Practice Group Leader, Douglas E. Cameron, or any Reed Smith Insurance Recovery Group attorney with whom you routinely work.

General Liability Insurance and Disease-Related Claims

This post was written by Michael H. Sampson and Caitlin R. Garber.

The Ebola crisis has raised numerous issues worldwide. Many of the concerns sparked by the crisis – particularly in the insurance coverage context – are not unique to that disease, however. For example, coverage concerns relating to Ebola-related claims would be similar to those for many other disease-related claims. Many different types of insurance policies, including general liability policies, could be implicated by such claims.

For example if sued for an act or omission which results in a third party contracting Ebola, or some other disease, one’s general liability insurance policy may provide protection. Such policies typically provide coverage for, among other things, “Personal Injuries” (or “bodily injury”) caused by or arising out of an “occurrence.” An “occurrence” is typically defined to mean an “accident.” That said, careful attention should be paid to the language of the specific coverage grant and the definition of relevant terms in one’s particular general liability insurance policy.

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As Federal and State Agencies Warn of Increased Cyber Threats, Insurance Incentives for Compliance with NIST Cybersecurity Framework May Be on the Horizon

This post was written by J. Andrew Moss and Emily Garrison.

Since the President’s February 2013 Executive Order directing the National Institute of Standards and Technology (NIST) to lead the development of a voluntary framework to address and reduce cyber risks, the agencies and stakeholders involved have been exploring whether to tie the February 2014 Framework for Improving Critical Infrastructure Cybersecurity (the NIST Framework) to incentives such as cyberliability insurance. For example, in a Report to the President on Cybersecurity Incentives, the Treasury Department suggested that “[c]yber insurance can promote adoption of stronger security measures” because, among other reasons, “insurers could require policyholders to comply with minimum security standards as a condition of insurance coverage, including adoption of the Framework.”

The Treasury Department held a public meeting on November 6 that included a discussion of developments in the market for cyberliability insurance and the NIST Framework.

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Catch Me If You Can: Fake Doctor's Application Voids Coverage For Himself But Not For Innocent Co-Insureds

This post was written by Kevin B. Dreher and Natalie C. Metropulos.

In life, sometimes even the law imitates art. As if copied straight out of the script of “Catch Me If You Can,” the U.S. District Court in South Carolina issued a ruling on October 21, 2014 in which it held that despite a false application for professional liability insurance submitted by an applicant pretending to be a doctor, the insurance afforded to the company and other doctors and nurses identified as named insureds under the policy remained in force and was not void ab initio as to the innocent co-insureds. Evanston Insurance Company v. Agape Senior Primary Care, et al., 2014 WL 5365679.

As Frank Abagnale Jr. said to Carl Hanratty, “people only know what you tell them.” Earnest Addo took that to heart and posed as Dr. Arthur Kennedy to obtain employment with Agape Senior Primary Care. Once employed, he filled out an application for professional liability insurance with Agape’s professional liability insurer, Evanston, warranting that he was a licensed medical doctor. Turns out Addo’s representations in his application to Evanston were false – he was in fact not a doctor. After discovering the fraud, Evanston sought to void the coverage it issued to Dr. Kennedy (a/k/a Addo) along with the coverage it issued to Agape and to every other doctor, nurse and health care professional employed by Agape.

 

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Property Exposed to the Ebola Virus - Are Associated Business Income Losses Covered Under First Party Policies?

Can policyholders expect coverage for loss of Business Income if (1) they must close their business and decontaminate it after the property is exposed to persons with the Ebola virus or (2) civil authorities prohibit access to their property because of such exposure?

In the first circumstance, policyholders would seek Business Income coverage, which covers policyholders for lost income and unavoidable continuing expenses when damage to property causes a suspension of business operations. In the second circumstance, policyholders would seek coverage under Civil or Military Authority clauses, covering loss of income where an action or order of an authority, taken or issued on account of property damage, prevents access to the policyholder’s premises. The key question under either coverage is whether the property exposed to an Ebola patient has suffered “property damage.”

Case law supports coverage in either circumstance. First, the Ebola virus, while not particularly hardy, can survive on dry surfaces for hours after exposure, and for days in expelled fluids kept at room temperature. Accordingly, cleanup must be undertaken in a thorough manner by professionals wearing protective equipment. 

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Beware Of Gaps In Your Cyber Risk Policy - AreYou Covered In the Event of an Insider Attack or Data Breach?

This post was written by Brian T. Himmel, J. Andrew Moss and Robert H. Owen.

The evolving market for cyberliability insurance coverage reveals significant differences in the scope of coverage afforded under available policies. A coverage gap that may exist under some policies is for insider cyber attacks. While external attacks receive substantial news coverage, a recent study finds that businesses may be far less equipped to stave off attacks involving insiders: employees, vendors, suppliers and others who may have authorized access to critical or sensitive data. Liability insurance protection – even under specialized cyberliability policy forms – may potentially lag behind on this important issue. Differences in policy language – including policy definitions and exclusions – may have a significant impact on the scope of coverage available for a cyberliability claim. It is therefore critical to understand the coverage provided under your company’s cyberliability policy in response to insider attacks or data breaches.


Brian Himmel and Andrew Moss are partners in the Reed Smith Insurance Recovery Group and co-leaders of the Group’s Cyberliability practice area. Rob Owen is an associate in the Insurance Recovery Group. Companies considering cyberliability coverage or interested in determining whether certain types of claims may be included as an insured risk under a particular policy form should contact Brian, Andrew or Rob to address questions regarding their specific cyberliability coverage needs.