Pet insurance: Proposed model rules may afford better protection to paw-licyholders

By Lauren Gubricky and John Vishneski on 23 June 2022 Posted in Insurance Coverage, Insurance General

Pet insurance is becoming a popular choice for pet owners, fueled by an increase in pet ownership during the pandemic, advancements in veterinary medicine, and a growing recognition that pets (or “companion animals”) are members of the family. Although the pet insurance industry is accelerating at a record pace, many owners have been irritated by the claims process and the surprising lack of sufficient coverage. To address some of these concerns, the National Association of Insurance Commissioners (NAIC) is working on a proposed model law that may offer better protection to owners and ensure a consistent regulatory framework among states.

The basics of pet insurance coverage

Pet insurance is a unique product. Although it contains many elements of human health insurance, it is considered a type of property and casualty insurance. On the marketplace, an owner generally has three coverage options: (1) accident only, (2) accident and illness (the most popular), or (3) accident, illness, and wellness (preventive).

The first pet insurance policy in the United States was issued by Veterinary Pet Insurance (now Nationwide) in 1982 for the famous TV dog, Lassie. Nearly 40 years later in 2021, the North American Pet Health Insurance Association (NAPHIA) reported that pet insurers collected $2.6 billion in premiums – 88% of which came from policies insuring dogs. And, insurers are not just collecting; they are paying some significant claims. The highest paid claim in 2021 was $50,602 for a 5-year old terrier mix in New York who was hit by a car.

Major concerns

The largest drawback of currently available policies is that they all exclude coverage for “pre-existing conditions.” This exclusion may mean that conditions diagnosed or treated in a particular coverage period would be excluded in a subsequent policy period, to the surprise of many owners. For example, one insurer denied a claim for a dog’s hospitalization after swallowing a stuffed animal, citing the dog’s “pre-existing condition” for eating objects. Policies also generally exclude coverage for hereditary conditions and may require a month-long waiting period before coverage even kicks in.

Some pet insurers have also been the subject of consumer fraud claims. One pet insurance broker was the subject of a class action lawsuit in 2020 for its violation of various states’ consumer protection laws because it allegedly misrepresented the basis for changes to an insured’s monthly premiums – some of which increased nearly 200% over a certain period. In addition, the Office of the Insurance Commissioner in Washington found that two insurers, ACE American Insurance Company and Indemnity Insurance Company of North America (Chubb), overcharged consumers through rate increases and did not disclose the increases to their customers. It ordered the companies to repay $4.7 million – including interest – to policyholders.

Can property or specie insurance provide coverage for crypto losses?

By Jessica E. Gopiao and Christopher Kuleba on 9 June 2022 Posted in Cryptocurrency, Cyberliability, Insurance Coverage, Insurance General

How cryptocurrencies are viewed by courts can be determinative when seeking coverage for a cryptocurrency-related loss, and whether cryptocurrency is “money,” “securities,” or “property” has been the subject of heavy debate.

In our previous blog post, we explored how your current D&O and/or cyber insurance policies may provide coverage for crypto-related losses. In this article, we discuss whether and how coverage may also exist for certain losses under typical property and/or specie insurance policies.

Is cryptocurrency “property”?

When determining whether your loss of or inability to access your cryptocurrency is covered under your property and/or specie policy, the first question to ask is whether cryptocurrency constitutes covered “property.”

The Internal Revenue Service (“IRS”) has provided some guidance. In March 2014, the IRS declared that “virtual currency”, such as Bitcoin and other cryptocurrency, will be taxed as “property” and not currency. See IRS Notice 2014-21, Guidance on Virtual Currency (March 25, 2014); see also IRS Has Begun Sending Letters to Virtual Currency, Internal Revenue Serv. (July 26, 2019), (“IRS Notice 2014-21 … states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions.”).

Two state Supreme Courts reach commercially reasonable results by permitting post-loss assignments

By Lisa Szymanski and Nicholas Rodriguez on 2 June 2022 Posted in Commercial General Liability, Insurance Coverage, Insurance General, Property Damage & Business Interruption

The well-established principle that a policyholder may assign benefits under an insurance policy following a loss was recently reaffirmed by state supreme courts in two jurisdictions: South Carolina and Puerto Rico. These two jurisdictions join the majority rule, which holds that assignments following an insured loss are permissible because they do not change the scope of the insured risk. The majority rule makes commercial sense, as it ensures the free alienability of property, while at the same time maintaining the benefit of the bargain that was struck when the insurance company underwrote the policy.

San Luis Center Apartments v. Triple-S Propiedad, Inc., 2022 WL 611245 (P.R. Feb. 15, 2022)

In a February 2022 decision, the Supreme Court of Puerto Rico, addressing an issue of first impression, ruled that an insured property owner’s assignment of both the prosecution of its claim and a portion of claim proceeds to an investment company was proper, notwithstanding a non-assignment clause in the policy, because the assignment was made after the policyholder’s property sustained damage during Hurricane Maria. The court rejected the insurance company’s argument that the suit against it could not proceed because the policyholder, in making the assignment, had purportedly breached the insurance policy’s non-assignment clause, which provided that “[y]our rights and duties under this policy may not be transferred without our written consent.” In reaching its holding, the court reasoned that because the assignment was made after the property damage occurred, the change in the claimant’s identity did not alter the risk that had been underwritten, the scope of the policy’s coverage or the amount the insurance company would be obligated to pay. Therefore, the policyholder did not breach the contract by making the assignment.

Insurance applications seeking an insured’s subjective opinions cannot support insurer defenses of misrepresentation or concealment

By Keith Meyer on 26 May 2022 Posted in Insurance Coverage, Insurance General

When applying for insurance, prospective (or existing) insureds are frequently asked to confirm, either in a formal application or in a side letter, that they are not aware of any circumstances, incidents or events that could result in a claim being made against it. If the insured identifies any potential claim, the insurer will either decline coverage or exclude the identified, potential claim from coverage.

But if the insured answers “no,” which is typically the case, the insurer issues the policy and collects the premium. If a claim is eventually made under the policy, the insurer will often review the insured’s application answers to determine if the claim should have been disclosed and whether there is a basis for denying coverage based on misrepresentation or concealment. But does an insured’s application answer truly justify such a defense? In answering application questions, is the insured supposed to speculate about future events? Maybe not, at least in some states.

California Civil Code Section 339 rejects subjective judgments as a basis for misrepresentation defenses

In California, for example, application answers that are based on an insured’s opinion cannot be the basis for rescission. California Insurance Code § 339 states: “Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his own judgment upon the matters in question.” In other words, questions in an insurance application that require an insured’s subjective judgment cannot be the grounds for a claim of misrepresentation or concealment.

Insurance application questions that ask the insured to identify circumstances that it believes may result in a future claim, or ask the insured to opine on the likelihood that it could be held liable in the future, seek the insured’s subjective opinion. That type of judgment call cannot justify a defense of misrepresentation or concealment in California under Section 339. What a party believes or does not believe is not objective factual information.

The Ninth Circuit agrees that statements of opinion cannot support a misrepresentation defense

The Ninth Circuit is in accord. It has reviewed the same issue with respect to an insured’s answers in a professional liability insurance policy application. In James River Ins. Co. v. Schenk, 523 F.3d 915 (9^th Cir. 2008), the insurance application at issue read:

After inquiry, are any [lawyers within the firm] aware of any circumstances, allegations, Tolling [sic] agreements or contentions as to any incident which may result in a claim being made against the Applicant or any if [sic] its past or present Owners, Partners, Shareholders, Corporate Officers, Associates, Employed Lawyers, Contract Lawyers or Employees or its predecessor in business?

Id. at 918 (emphasis added).

The question sought the insured’s subjective assessment as to whether past occurrences might give rise to future claims. The Ninth Circuit found that a reasonable person could conclude that the question “elicited a statement of opinion” and held that a statement of opinion could not be the basis of a claim for legal fraud. Id. at 922. The James River court found that questions asking the insured as to whether an incident “may result” denotes something more than a purely theoretical possibility of a lawsuit. The court reasoned: “Whether the factual circumstances concerning any individual client gave rise to a sufficient probability of legal action was a judgment call reflecting an analysis of those circumstances.” Id. at 921-22 (emphasis added).

War exclusion: changing battlefields and coverage implications

By Stephanie Gee and Cristina Shea on 23 May 2022 Posted in Cyberliability, Insurance Coverage, Insurance General

In early February of this year, we wrote about a New Jersey court’s recent decision in Merck & Co., Inc. et al. v. Ace American Ins. Co. et al., Case No. UNN-L-2682-18 (N.J. Sup. Ct.) regarding the applicability of a “war exclusion” for acts of cyberwarfare. Shortly thereafter, the Russian invasion of Ukraine once again brought to the forefront images of war—both in the traditional sense—as well as in the context of cyberwarfare. While the war in Ukraine has thus far comprised of mainly mostly low-impact cyberattacks by Russian-linked hackers, the perceived increased risk of cyber-attacks in the Russia/Ukraine conflict certainly has the insurance market evaluating its appetite for coverage in this area and looking for ways to clarify coverage in the event of a cyber-attack.

One way the market has sought to clarify coverage is through the use of the “war exclusion” that is typically found in property and casualty policies, cyberliability policies and other forms of coverage. This exclusion was originally designed to exclude damage arising from these “traditional” warlike acts between sovereign and/or quasi-sovereign entities. See Pan American World Airways, Inc. v. Aetna Casualty & Surety Company, 505 F.2d 989 (2nd Cir. 1974) (“[W]ar is waged by states or state-like entities and includes only hostilities carried on by entities that constitute governments, at least de facto in character”).

But, traditional notions of warfare are evolving. “Attacks” are now often committed behind the shield of computer screens and in a technological territory. Unsurprisingly, this evolving landscape of war is translating to evolving views on insurance coverage and evolving arguments around the interpretation of the “war exclusion.”

Are your crypto risks insured? Look at D&O and cyber policies first

By Jessica E. Gopiao, Christopher Kuleba and Andy Moss on 17 May 2022 Posted in Cryptocurrency, Financial Insurance Coverage, Insurance Coverage, Insurance General

Evidenced by its $1.29 trillion market cap, (CoinMarketCap, May 17, 2022) interest in cryptocurrency has skyrocketed in recent years (Haar, 2022). Indeed, as of April 2, 2022, the cryptocurrency market was larger than Italy’s GDP, the eighth largest in the world (Adams and Walker, 2022).

Of course, with more interest and value comes more risk, such as theft of digital assets, cyber security concerns, and regulatory impacts. With respect to the evolving crypto markets, this increase in risk is widespread and readily apparent. Indeed, President Biden signed an executive order on March 9, 2022 requiring the government to assess the risks and benefits of creating a central bank digital dollar, as well as other cryptocurrency issues (Johnson and Shalal, 2022; White House, 2022).

Who is at risk?

If you or your company trade cryptocurrencies on your own behalf or on behalf of clients, make or receive payments in cryptocurrency, store the keys and digital wallets that secure cryptocurrencies and other digital assets like NFTs, develop blockchain technologies, or advise whether cryptocurrencies are a sound investment, then you or your company may be exposed to crypto-related losses.

As an example, companies and their directors and officers could face shareholder or derivative actions alleging gross negligence or breach of fiduciary duties based on allegedly unsound advice relating to the investment in, use of, or management of cryptocurrencies or other digital assets. Public companies may also be subject to regulatory investigations involving cryptocurrencies.

Cryptocurrency is also a popular target for ransomware hackers. Since the first bitcoin block was mined in 2009, more than $1.3 billion has been stolen from cryptocurrency exchanges (Kenneth, 2021).

Will insurance cover crypto-related losses?

Given that cryptocurrency is in its infancy, most insurance policy forms do not expressly address crypto-related losses or risks. That said, specific coverage for such losses may be available, particularly under D&O (directors’ and officers’ liability or management liability) coverage or cyber (network security/privacy liability) coverage. Depending on the text of the policy and the nature of the loss at issue, coverage may lie under existing E&O, crime, and property policies as well.

D&O insurance

D&O insurance protects the personal assets of and provides armor for a company’s board and management. More specifically, it insures (1) claims made against the directors and officers when the company cannot indemnify them (“Side A” coverage); (2) the company itself when the company is required to indemnify its insured directors and officers for claims made against them (“Side B” coverage); and (3) the company against its own liability in a securities claim or (in the case of private companies) any non-excluded claim made against the company as an insured entity (“Side C” coverage).

The policy’s definitions of “Claim” and “Loss” are a good place to start to determine whether D&O coverage may be triggered for crypto-related losses. The term “Claim” should be broad enough to include civil lawsuits, criminal proceedings, administrative proceedings, and investigations against directors and officers, and sometimes include demands to enter into a tolling agreement or requests for interviews or to produce documents made to directors and officers. The term “Loss” should include defense costs, damages, settlements, judgments, and pre- and post-judgment interest, and also should include certain fines and penalties, punitive, exemplary, and multiplied damages (when insurable under applicable law), and awards of plaintiff’s attorney’s fees, among other items.

Reading insurance policies: context is key

By Tim Law on 3 May 2022 Posted in Insurance Coverage, Insurance General

A fundamental canon of construction used to interpret statutes and contracts is noscitur a sociis, which translates to “it is known by the company it keeps.” In Virginia v. Tennessee, 148 U.S. 503, 519 (1893), the United States Supreme Court explained that “the meaning of a term may be enlarged or restrained by reference to the object of the whole clause in which it is used.” In other words, context is key.

Noscitur a sociis is often utilized when terms are used in a list, allowing words to draw meaning from the common elements of the list. To take a simple example, the word “mustang” could have a different intended meaning when used with “ranger” and “explorer” (vehicles manufactured by Ford) than if used with “filly” and “mare” (horses). Finding the common connection between words in a list is helpful in discerning meaning.

Insurance policies have special interpretive rules

An insurance policy is a special kind of contract, one where ambiguous insurance policy language must be interpreted in favor of insurance coverage for the policyholder. Provisions that grant insurance coverage are read broadly, and exclusions to insurance coverage are construed narrowly. In insurance law, noscitur a sociis is most often used to narrow the reach of exclusions, resolving contextual ambiguities in favor of finding coverage. It can also be used appropriately to construe insuring agreements broadly and to identify multiple reasonable meanings of insurance policy language. Noscitur a sociis should never be used to narrow insuring agreements or to expand exclusions by interpretation.

A provision can be ambiguous in context

Because insurance policies must be read as a whole, the doctrine of noscitur a sociis is an appropriate tool to identify an ambiguity in insurance policy language where a plain-meaning reading of isolated provisions could appear, at first blush, to lack ambiguity.

In Flagship Credit Corp. v. Indian Harbor Ins. Co., 481 F. App’x 907, 910-12 (5th Cir. 2012), the Fifth Circuit considered whether statutory damages for violations of the Texas Business and Commercial Code constituted a “penalty” that fell within an exclusion of “fines, penalties or taxes imposed by law.” The court determined that the word “penalties” gained meaning from the words “fines” and “taxes,” which are paid to the government. While the definition of “penalty” could possibly extend to private settlements for civil wrongs of the type prohibited by the Texas Business and Commercial Code, in context, the terms “fines” and “taxes” made clear that the term “penalties” should be limited to payments to the government.

Likewise, in Hunters Ridge Condo. Ass’n v. Sherwood Crossing, LLC, 395 P.3d 892 (Or. Ct. App. 2017), the court used the doctrine of noscitur a sociis to determine that the word “condominium” was ambiguous in the context of a building being used for both residential and commercial purposes. The other listed structures in the policy definition of “condominium”—“apartment” and “townhouse”—were residential in character, shedding “considerable light” on how a purchaser of insurance would interpret the term “condominium.” Accordingly, the court limited the exclusion to wholly residential structures.

Florida: the time to move for attorney’s fees post-appraisal

By Wesley Butensky and Christopher Kuleba on 21 April 2022 Posted in Insurance Coverage, Insurance General, Property Damage & Business Interruption

Most residential property policies provide for an “appraisal” as an alternative dispute resolution mechanism when the insurer concedes coverage for a loss in whole or part, but the amount of the loss is disputed. The resulting appraisal award is binding on the parties absent certain limited grounds for challenging the award or the insurer’s obligation to pay it in full. Once issued, absent any cognizable challenge, an insurer must timely pay the award—often within 30 days by contract—subject to any applicable sub-limits, deductibles, or other policy limitations. Florida law has long held that where an insured is forced to file suit to compel appraisal or recover policy benefits and an appraisal later ensues, an insurer’s payment of the resulting appraisal award operates as a “confession of judgment”—the functional equivalent of a judgment in the insured’s favor sufficient to trigger the insured’s entitlement to attorneys’ fees and costs as the prevailing party under Sections 627.428 (for admitted insurers) or 626.9373 (for surplus lines insurers) of the Florida Statutes. Bryant v. GeoVera Specialty Ins. Co., 271 So. 3d 1013, 1019-20 (Fla. 4th DCA 2019); Jerkins v. USF & G Specialty Ins. Co., 982 So. 2d 15, 17-18 (Fla. 5th DCA 2008); Goff v. State Farm Florida Ins. Co., 999 So. 2d 684, 688 (Fla. 2d DCA 2008); Velez v. Scottsdale Ins. Co., No. 9:17-CV-81310, 2019 WL 7837204, at *2 (S.D. Fla. Aug. 2, 2019).

Historical lack of clarity and the source of confusion

Until recently, however, insureds had little guidance from Florida courts as to whether an insurer’s payment of an appraisal award also triggered Florida Rule of Civil Procedure 1.525’s thirty-day deadline to file a motion for fees and costs, or whether the insured was first required to move for and await the entry of an actual final judgment. The lack of clarity stems from Rule 1.525’s triggering mechanism: resembling Section 627.428 in requiring the “filing of [a] judgment, including a judgment of dismissal, or the service of a notice of voluntary dismissal” but with the additional requirement that such judgment or notice “conclude[] the action as to that party.”

Policyholders grapple with strategies for responding to New York’s new insurance disclosure law

By Ann Kramer, Eric Toepfer and Noel Paul on 12 April 2022 Posted in Insurance Coverage, Insurance General

Insurance disclosure requirements have just become far more complex and onerous for parties that face litigation in New York state courts. In our January article (updated in February), we discussed the particulars of New York’s new Comprehensive Insurance Disclosure Act as it stood when the legislation was signed into law in late December 2021 and as contemplated by amendments proposed by the governor and being considered by the legislature. In late February, many of these proposed amendments were enacted into law.

With the law now seemingly settled, defendants are just beginning to grapple with this legislation, including developing long-term strategies for managing disclosures, taking stock of insurance-related information to get ahead of disclosure obligations, and initiating conversations with insurance coverage counsel, brokers and insurers. Until New York courts provide more direction regarding the application of the law, advance preparation and planning by policyholders to satisfy the legislation’s requirements will be key.

Recent amendments

As indicated above, the Comprehensive Insurance Disclosure Act was amended shortly after its passage. Three of these amendments in particular are worth noting. First, where the original version of the law was retroactive in applying to all existing lawsuits, the law now is limited to only those lawsuits filed on or after January 1, 2022. Second, defendants now have 90, rather than 60, days after service of an Answer to disclose the insurance-related information required by the law. Third, the law is no longer confined to policies sold or delivered in New York; instead, defendants must disclose responsive policies regardless of where the policy was procured or delivered.

Recent opinions provide support for insureds seeking coverage for BIPA claims

By John Vishneski and Andrew Barrios on 7 April 2022 Posted in Commercial General Liability, Employment Practices Liability, Insurance Coverage, Insurance General

Since the Illinois Supreme Court’s ruling that class actions alleging violations of the Illinois Biometric Information Privacy Act (“BIPA”) trigger general liability coverage, the focus of BIPA coverage litigation has shifted to the applicability of three exclusions often found in general liability policies: (1) the Employment Related Practices exclusion, (2) the Violation of Statutes exclusion, and (3) the Access or Disclosure exclusion. Although the first quarter of 2022 brought a mixed bag of opinions, with four out of seven resulting in a finding of coverage, the scorecard with respect to each specific exclusion tells a different story that generally favors the policyholders. As outlined in this blog post, insureds facing BIPA lawsuits therefore have plenty of reason to continue pressing their insurers for coverage.

Employment-related practices exclusions

The Employment-Related Practices exclusion bars coverage for bodily injury or personal and advertising injury to a person arising out of any of the following:

Refusal to employ that person
Termination of that person’s employment
Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, or discrimination directed at that person

In coverage disputes arising out of employment-based BIPA class actions, the issue is whether the conduct at issue is an employment-related practice that falls within the third prong of the exclusion.

As outlined in a previous blog post, there is case law outside of the BIPA context standing for the proposition that the phrase “employment-related” has a narrow meaning and only refers to matters that concern the employment relationship itself. According to this line of case law, where the conduct at issue in a lawsuit does not arise out of personnel management or employee discipline (i.e., the employment relationship), but instead merely happens to involve an employee, the third prong of the exclusion does not bar coverage.