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Douglas C. Rawles

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On January 6, 2023, the Third Circuit affirmed lower court rulings in 14 consolidated appeals from orders dismissing claims for property damage and business interruption losses resulting from the coronavirus and/or COVID-19. Policyholder lawyers can (and will) find fault with many parts of Wilson v. USI Ins. Service LLC, Case No. 20-3124, in which the Third Circuit tries to predict how the state supreme courts of New York and Pennsylvania would interpret the phrase “physical loss of or damage to property.” 

The Wilson court distills the issue presented as, “whether the businesses’ inability to use their properties for their intended business purposes constitutes ‘physical loss of’ property.” In answering this question “no,” the Wilson court interpreted physical loss of property to require a “complete (or near complete) dispossession of the property, regardless of the purpose for which that property is used,” for there to be physical loss.

What this conclusion means to businesses that lease premises

This conclusion does little for business policyholders who rent space and commit resources towards a particular endeavor. According to Wilson, as long as the property has some function or use, there is no physical loss, even where the policyholder cannot, in whole or in part, conduct its chosen business due to the presence of a deadly virus or disease. In other words, as long an insured restaurant space can be used to, for example, store auto parts, in the court’s view, the policyholder has not been dispossessed of the property, and is not entitled to coverage. This interpretation is neither commercially reasonable nor in keeping with the expectations of policyholders who are tenants operating businesses in the buildings.Continue Reading Physical loss and reasonable expectations of policyholders: The Third Circuit whiffs

On October 4, the California First Appellate District in Amy’s Kitchen, Inc. v. Fireman’s Fund Insurance Company, 2022 Cal. App. LEXIS 836, reversed a trial court’s order granting the insurer’s demurrer in a COVID-19 property damage claim, and remanded to allow the policyholder to amend its allegations of loss under a communicable disease coverage extension.  In so doing, the court applied correctly the pleading standards in California, and a process of careful evaluation of the policy language in context, existing physical loss or damage law in California, ultimately applying the clear language in the policy in a common sense manner.  The Amy’s Kitchen decision is important because it interpreted the policy in the way a reasonable layperson would read its language, focusing on the actual policy language, not terms of art defined by case law.  

The facts

Amy’s employs more than 2,500 people to manufacture meals at facilities in California, Oregon and Idaho.  As alleged in Amy’s complaint, COVID-19 was present at Amy’s locations because some of Amy’s employees had confirmed cases, prompting Amy’s to take measures to mitigate, contain, clean, disinfect, monitor and test for COVID-19.  Public health orders also required Amy’s to implement various measures, including decontamination, disinfection and sanitization of its facilities to continue operating.Continue Reading Amy’s Kitchen: A step in the right direction

A California appeals court recently sharpened the teeth of insurance companies’ duty to settle [Ace Am. Ins. Co. v. Fireman’s Fund Ins. Co. (2016) 2 Cal. App. 5th 159].  By broadening the situations in which an insurer can be held liable for failing to settle within limits to include cases that never go to verdict or judgment, this ruling protects policyholders from unreasonable insurer decision-making without forcing them into risky trials.  With a clear split among the California Appellate Divisions, this issue is now ripe for Supreme Court review.

On the set of Warner Bros.’ superhero film “Green Lantern,” a stunt gone wrong injured a special effects supervisor, who then sued Warner Bros. Entertainment Inc. and related entities to recover damages for his injuries. Warner Bros. had a $2 million primary policy and $3 million umbrella policy with Fireman’s Fund, and an excess policy of $50 million with Ace American to respond to the accident.
Continue Reading Recent California Ruling Enables Excess Carriers to Put Additional Pressure On a Primary Carrier to Accept a Reasonable Policy Limits Demand

On Monday, April 25, 2016, the Supreme Court of Colorado ruled that policyholders could not be indemnified for a settlement incurred before providing their insurers of notice of the claim—even if the insurer did not suffer any prejudice from lack of notice. In a 4-3 decision in Travelers Prop. Cas. Co. v. Stresscon Co., No. 13SC815 (Colo. Apr. 25, 2016) (“Stresscon”) the court held that “no-voluntary-payments” provisions (or “consent-to-settle” provisions) would excuse an insurer’s duty to indemnify settlement amounts of which the insured had not provided notice.

The question before the court was whether the notice-prejudice rule it had applied to occurrence-based liability policies in Friedland v. Travelers Indem. Co., 105 P.3d 639 (Colo. 2005) (“Friedland”) prevented an insurer from avoiding indemnification under the “no-voluntary-payments” provision. In Friedland, the Colorado Supreme Court agreed with jurisdictions that require an insurer to show prejudice before denying a claim if notice was untimely. The court stated in Friedland that notice provided after a claim had settled did not necessarily preclude a policyholder’s recovery of insurance benefits, but created a presumption that the insurer suffered prejudice. If the policyholder adequately rebutted the presumption of prejudice, then the insurer would be permitted to deny coverage only if it proved actual prejudice. The court did not address the question of how the notice-prejudice rule interacted with a no-voluntary-payments provision.

This question was answered Monday in Stresscon. In Stresscon, a concrete subcontractor (the policyholder) was sued by its contractor to recover damages incurred as a result of construction delays caused by the policyholder. Before any suit had been filed, the policyholder entered into a settlement with the contractor without consulting its insurance company. Several months later, the policyholder sued its insurer (and other entities) and ultimately recovered a jury verdict for bad faith breach of contract.
Continue Reading Colorado Supreme Court Holds That An Insurer Need Not Show Prejudice If Denying Coverage For A Settlement Prior to Notice of Claim

Businesses may find it more challenging to purchase or renew cyber liability insurance coverage, according to recent articles by Advisen¹, Reuters, and follow-up communications with Robert Parisi, managing director and National Cyber Risk Product Leader at Marsh. Brokers are warning that policyholders should expect sharp increases in premiums and deductibles, coupled with declining limits. Although…