Pollution exclusion should not preclude coverage for virus-related claims

Faced with mounting claims for insurance coverage as a result of the novel coronavirus (COVID-19) outbreak, commercial insurers are likely to search for any policy provision that they think will enable them to avoid paying virus-related claims. One provision that insurers ultimately may invoke in an attempt to deny such claims is the so-called “pollution exclusion” – an exclusion that can be found in both commercial general liability (CGL) insurance policies and property insurance policies. Policyholders should anticipate such an argument and should not walk away from insurance claims just because of it. Although the exclusion is often broadly worded, there is generally good reason not to read it to preclude coverage for third-party claims and/or first-party losses involving viruses, including COVID-19.

While the exact language of the pollution exclusion may differ from one policy to another, it typically provides that there is no insurance for “bodily injury” and/or “property damage” that “would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of ‘pollutants’ at any time.” Again, while its precise definition can vary among policies, “pollutant” is typically defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.”

Are you covered? Cannabis industry must prepare for cyberattacks in 2020

By Mike Sampson on 7 February 2020 Posted in Cyberliability, Insurance Coverage, Insurance General, Insurance News of Note

Experian Data Breach Resolution (Experian) has identified its “top data breach trends of 2020,” and the cannabis industry should take note. In its “Data Breach Industry Forecast 2020,” Experian predicts that “we will see many burgeoning industries, such as cannabis retailers, cryptocurrency entities, and even some environmental organizations targeted for cyberattacks as a result of online activism or ‘hacktivism.’”

In recognition of this risk, cannabis retailers as well as other cannabis-related businesses should – in addition to taking other prudent risk-mitigation steps – ensure that they have procured insurance to protect against potential cyber-related losses and claims. While the cyber-insurance market available to cannabis-related businesses is still rather limited, such businesses generally still can – and should – obtain at least some cyber coverage today. Continue Reading

Raccoons as legal roadkill: The Western District of Pennsylvania denies coverage for damage caused by masked bandits

By Mike Sampson and Kateri Persinger on 4 November 2019 Posted in Insurance Coverage, Insurance General, Insurance News of Note, Property Damage & Business Interruption

Reviewing philosopher Mark Rowlands’ 2012 work Can Animals Be Moral?, Jessica Pierce wrote in the Notre Dame Philosophical Reviews, “The question, ‘Can animals be moral?’ has suffered the worst kind of philosophical denial: an almost complete lack of interest by ‘serious’ philosophers.”

No longer. In an effort to apply “general canon[s] of contract interpretation,” the U.S. District Court for the Western District of Pennsylvania – in a recent insurance-coverage opinion of all places – implicitly (if not explicitly) considered this timeless, vexing question and concluded that “[a]nimals do not have conscious agency and are not subject to human law.”

In the honorable pursuit of robust coverage law – really, is there a more noble pursuit? – the court rendered raccoons and their woodland “companions” as nothing more than legal roadkill. Their demise, however, was not in vain. The court’s decision serves as a good reminder to all that just because a term used in an insurance policy is not defined does not mean that it is ambiguous.

Will your EPLI policy cover “wage and hour” claims in the wake of the California Court of Appeal’s decision in Southern California Pizza?

By Lilit Asadourian, Maisie McDonald and Lavinia S. Osilesi on 18 October 2019 Posted in Employment Practices Liability, Insurance Coverage, Insurance News of Note

It has long been acknowledged that typical Employment Practices Liability Insurance (EPLI) policies exclude coverage for “wage and hour” claims.[1] [2] However, a recent California Court of Appeal decision, Southern California Pizza Co., LLC v. Certain Underwriters at Lloyd’s, London Subscribing to Policy Number 11EPL-20208,[3] narrows the definition of what is a wage and hour claim, and improves the possibility of obtaining coverage for broad-brush wage and hour claims that tack on claims for failure to reimburse employees for business-related expenses.

In Southern California Pizza, the Court of Appeal held that claims brought under California Labor Code Sections 2800 and 2802 for failure to reimburse employee expenses did not fall within the wage and hour exclusion in a Lloyd’s of London EPLI policy that excluded coverage for claims “based upon, arising out of, directly or indirectly connected to or related to, or in any way alleging violations of any foreign, federal, state, or local, wage and hour or overtime law(s), including, without limitation, the Fair Labor Standards Act.” In doing so, the Court reversed the lower court’s dismissal of the insured’s coverage case and rejected prior federal court decisions that had denied coverage for Labor Code Sections 2800 and 2802 claims under similar exclusionary language, stating that the California Courts of Appeal are “not bound by those federal decisions, nor do we find them persuasive.”[4]

Accordingly, policyholders who previously would not have had coverage for these types of reimbursement-related claims may now be able to trigger an insurer’s broad defense obligations and also obtain indemnification for some claims, depending on the language of their EPLI policy.

In historic vote, U.S. House passes SAFE Banking Act; but, what will U.S. Senate do?

By Mike Sampson and Zachary S. Roman on 26 September 2019 Posted in Insurance Coverage, Insurance General, Insurance News of Note

In a historic moment, the U.S. House of Representatives, yesterday, voted 321 to 103 in favor of H.R.1595, the Secure and Fair Enforcement Banking Act of 2019, also known as the “SAFE Banking Act.” If ultimately enacted into law, this legislation would provide insurers, as well as banks and other institutions, a “safe harbor” to do business with “cannabis-related legitimate businesses” in the United States.

The SAFE Banking Act is intended to “create protections for depository institutions that provide financial services to cannabis-related legitimate businesses and service providers for such businesses.” As Politico observed, though, “[t]he cannabis banking bill isn’t just about banks.” It also affects insurance companies and the insurance market.

Review state cannabis regulations for insurance requirements

By Mike Sampson on 23 July 2019 Posted in Commercial General Liability, Insurance Coverage, Insurance General, Insurance News of Note

Like any business, a business operating in the U.S. cannabis industry needs both first-party and third-party liability insurance. Unlike other types of businesses, however, a cannabis-related business’ insurance needs may be dictated at least in part by state regulations. Although not every state that has legalized cannabis for medical and/or adult use has promulgated specific insurance requirements for this industry, a number of states, via their cannabis regulations, have done so. Accordingly, it is imperative for any cannabis-related business to carefully review the regulations in each jurisdiction in which it does business to ensure that it has obtained all required insurance. Continue Reading

Artificial Intelligence: The New Frontier for Assessing Insurance Coverage

By Emily Garrison, Andy Moss, Cristina Shea and Shruti Engstrom on 6 June 2019 Posted in Cyberliability, D&O, E&O, Professional Liability, Insurance Coverage, Insurance General, Insurance News of Note

U.S. and international businesses are accelerating their use of artificial intelligence (AI)[1] at an unprecedented rate. The second AI Index Report published in December 2018 by a Stanford University-led group concluded that “AI activity is increasing nearly everywhere and technological performance is improving across the board.” The AI Index Report further found that “the number of AI startups has seen exponential growth” and that “[f]rom 2013 to 2017, AI VC [venture capital] funding increased 350%.” Growth in this area will continue and will infiltrate every imaginable industry: from assisting doctors in detecting lung cancer to the use of self-driving trucks to deliver mail, AI is the New Frontier.

As businesses race to implement AI solutions and processes that may improve efficiency and lower costs, AI will also create new and ever-evolving risks. And when a company’s AI fails to perform as expected, or AI is breached or manipulated in a cyberattack, new and thorny questions about how to apportion liability for resulting losses emerge. The question only becomes thornier when it is a company’s supplier, contractor, or service provider that experiences a breach or failure.

It will be difficult to apply traditional tort liability schemes to AI-related loss scenarios, but there is no doubt that AI will change the way we look at the insurability of losses. Nonetheless, for businesses that use, or are considering using, AI, either directly or indirectly, there are concrete steps those companies can take to enhance their insurance and risk management programs to mitigate against the threat of AI-related loss. Although coverage needs vary from company to company and should be assessed on an individual basis, a non-exhaustive list of threshold issues to consider are as follows:

Self-insured retentions are not a windfall for excess insurers looking to avoid coverage

By David E. Weiss, Cristina Shea and Connor O'Carroll on 12 March 2019 Posted in Insurance Coverage, Insurance General

In Deere & Co. v. Allstate Ins. Co., 2019 WL 912151 (Cal. Ct. App. Feb. 25, 2019), a California Court of Appeal recently held that an insured’s self-insured retention (SIR)[1] was considered part of the underlying limit of liability such that it need not be satisfied again and again just to access excess insurance policies. This case represents another example of the California appellate courts shooting down an insurance company’s attempt to overreach. Nonetheless, insurance companies will continue to look for ways to avoid providing the coverage they contracted to provide, and policyholders must always be vigilant.

This particular dispute arose over insurance coverage for several asbestos personal injury claims made against manufacturer Deere & Company arising from products it manufactured from 1958 to 1986. During that period, Deere had coverage in place via a series of first-layer umbrella policies[2] for personal injury claims; several layers of excess insurance provided additional coverage above the limits of the first-layer umbrella policies. In all, there were 49 policies at issue representing $200 million in policy limits. In all of its first-layer umbrella polices, Deere contracted to pay an SIR before the coverage limits would be reached. Deere’s excess policies “followed form” to the first-layer policies, except the excess policies had different limits of liability. Continue Reading

Lightening the load: New York Appellate Division rejects heightened pleading standard for policyholders seeking Bi-Economy Market consequential damages

By Ann Kramer, Paul Breene, John Berringer, Rich Lewis and Anthony B. Crawford on 1 February 2019 Posted in Insurance Coverage, Insurance General, Insurance News of Note

In a recent unanimous decision, the Appellate Division First Department provided clarity on the pleading requirements for policyholders seeking special or consequential damages allowed under the landmark decision of Bi-Economy Market v. Harleysville Insurance Company of New York, 856 N.Y.S.2d 505 (N.Y., Feb. 19, 2008). Under Bi-Economy, policyholders may seek special or consequential damages resulting from an insurance company’s failure to provide coverage if such damages were foreseen or should have been foreseen when the insurance contract was made. Id. at 508. In its prior ruling in Panasia Estates v. Hudson Insurance Company, the First Department noted that the “reference to such damages as ‘special’ in Bi-Economy Mkt. … was not intended to establish a requirement of specificity in pleading.” 889 N.Y.S.2d 452, 453 (N.Y.A.D. 1 Dept., Dec. 15, 2009). The ruling, however, left open the question of what pleading requirements policyholders had to meet in order to state a claim for special damages, a question that it recently answered in D.K. Property v. National Union Fire Insurance Company of Pittsburgh, PA, 2019 WL 237454 (N.Y.A.D. 1 Dept., Jan. 17, 2019).

Federal court’s E-Cig decision provides cautionary tale

By Mike Sampson on 27 December 2018 Posted in Commercial General Liability, Insurance Coverage, Insurance General, Insurance News of Note

Every policyholder in every industry should make sure that it in fact has obtained insurance covering the actual, specific risks presented by its line of business.

That point is the critical one driven home by the U.S. District Court for the Central District of California in United Specialty Insurance Company v. E-Cig Vapor Emporium, LLC, No. EDCV 18-0002 JGB (SHKx), 2018 WL 5098859 (C.D. Cal. Oct. 15, 2018). While applicable to any business in any industry, this lesson is particularly valuable to businesses in certain newer industries – such as the vaping, e-cigarette, and cannabis industries – where the market for insurance may be more limited and the coverages offered may be more restrictive.