On March 7, 2025, the California Department of Insurance issued Bulletin 2025-7, which provides crucial guidance on the handling of smoke damage claims for properties affected by the Los Angeles wildfires. This bulletin clarifies the Department’s position on insurance coverage for smoke damage and outlines the expectations for insurers in processing these claims. The bulletin
Introduction
Judge Corley’s (N.D. Cal.) January 10, 2025 decision in Bottega, LLC v. National Surety Corporation provides guidance for commercial policyholders who have closed down their businesses due to wildfires, smoke, ash and soot that is especially timely given the ongoing wildfires in Southern California. The decision highlights the complexities of business interruption insurance claims, distinguishes
The wildfires in Los Angeles, including the Palisades, Eaton, Hurst, and Runyon Canyon fires, are fast-moving, destructive, and scary. As of the evening of January 8, 2025, they have caused extensive damage and led to the evacuation of more than 100,000 residents. The Palisades Fire has burned 18 square miles, the Eaton Fire 16.5 square
M&A activity is making a comeback in 2023, according to Bloomberg Law (“M&A Roars Back in $40 Billion Surge Led by Miners, Storage” A. Kirchfeld and D. Nair, Feb. 6, 2023). The rise in transactions—and the likelihood of claims involving them—will no doubt lead to continued D&O insurance coverage disputes over the “bump up” exclusion.
Policyholders can navigate this speed bump, carriers waving the recent Seventh Circuit decision in Komatsu Mining Corp. v. Columbia Casualty Co., No. 21-2695 (7th Cir. Jan. 23, 2023), and the Final Statement of Decision After Phase One Court Trial entered in Onyx Pharmaceuticals, Inc. v. Old Republic Insurance Co., Case No. CIV 538248 (Cal. Super. Ct. San Mateo Cty. Dec. 30, 2022), notwithstanding.
Rules for the Road to keep in mind:
1. Choice of law matters
Several courts have addressed the bump-up exclusion recently, and arrived at different results. Indeed, despite analyzing the same bump-up exclusion, the San Mateo County Court in California (applying California law) ruled in favor of insurers in Onyx whereas the Delaware Superior Court ruled in favor of the policyholders in Northrup Grumman Innovation Systems, Inc. v. Zurich American Insurance Co., 2021 Del. Super. LEXIS 92 (February 2, 2021) (the Delaware Supreme Court denied interlocutory appeal), and the Eastern District of Virginia Court (applying Virginia law) did as well in Towers Watson & Co. v. National Union Fire Insurance Co., 2021 U.S. Dist. LEXIS 192480 (E.D. Va. Oct. 5, 2021) (currently on appeal in the Fourth Circuit). The Seventh Circuit applied Wisconsin law in Komatsu, ruling in favor of insurers based on a different version of the exclusion. In short, Delaware and Virginia law remain favorable whereas policyholders have not fared as well thus far under California and Wisconsin law. Continue Reading Navigating the “Bump-Up” exclusion in 2023: Rules for the road
At $40-70 billion in estimated insured losses, Hurricane Ian is the nation’s second most expensive natural disaster for the insurance industry. Less than two months later, Hurricane Nicole made landfall in Florida. Securing insurance coverage for these losses will be an important part of rebuilding and recovery.
Recently, Reed Smith’s insurance coverage lawyers hosted a webinar, “Maximizing Insurance Recovery after Hurricane Ian,” to answer several frequently asked questions policyholders ask (or should ask) to ensure maximum recovery after these natural disasters. We summarize a few of those answers below.
What type of insurance coverage applies? Property Damage? Business Income? Ordinance and Law? Service Interruption? All of the above?
Put simply, the answer is: It depends on the facts and the language of the policy, but one or more types of coverage may apply. For example, a policyholder may have property damage coverage if they sustained physical damage to buildings, business property (e.g., machinery, equipment, raw materials, etc.), or property of others in the policyholder’s control. That same policyholder may also have service interruption coverage if they experienced dislocation of utility or telecommunications service and suffered business income losses as a result.
All types of common coverages are discussed during the webinar, which can be viewed on demand.Continue Reading Hurricane Ian and Hurricane Nicole: Answering questions policyholders frequently ask (or should ask) to ensure maximum recovery
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.”). Continue Reading Can property or specie insurance provide coverage for crypto losses?
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.Continue Reading Are your crypto risks insured? Look at D&O and cyber policies first
More than a year has passed since COVID-19 first plagued the United States and impinged on the health of more than 34 million Americans. Hundreds of thousands of businesses have shuttered due to the pandemic. Policyholders have relied, and will continue to rely on their business interruption insurance policies to respond to their pandemic-related losses. In these unprecedented times, trillions are at stake with many policyholders calling on the courts to protect their rights.
Reed Smith’s Insurance Recovery Group recently launched a Thomas Reuters column covering cutting-edge topics in insurance from the policyholder perspective. The first column article titled “The appeal of COVID-19 business interruption appeals” discusses the current appellate landscape of COVID-19 business interruption cases.
Brief overview of appellate landscape
The only appellate court that has issued a ruling is the 8th U.S. Circuit Court of Appeals in Oral Surgeons v. Cincinnati Insurance. There, the 8th Circuit affirmed the Iowa district court’s decision to dismiss the insured’s complaint, reasoning that dismissal was warranted where the policy required direct “accidental physical loss or accidental physical damage” and the complaint did not allege any physical alteration of property. The complaint, rather, only pled “generally that Oral Surgeons suspended non-emergency procedures due to the COVID-19 pandemic and the related government-imposed restrictions.” Given the particular policy language, allegations of that complaint, and lack of a “physical alteration” requirement under the law of most states, the decision is not expected to have a significant impact (if any) on pending appeals.
Appeals remain pending in California, District of Columbia, Florida, Illinois, Indiana, Massachusetts, Michigan, New Jersey, New York, Ohio, Oklahoma, Pennsylvania and Wisconsin. No state appellate court has yet rendered a decision.
The article flags five pending appeals for policyholders to keep an eye on, as they will likely shape the future of the law surrounding insurance coverage for COVID-19 business interruption losses.
Continue Reading Five COVID-19 business interruption appeals to keep an eye on
The COVID-19 pandemic has caused a wave of business interruption lawsuits, particularly between policyholders and their insurance companies. Initially, the nationwide trend was in favor of insurance companies, but recent decisions confirm that policyholders are gaining traction.
Policyholder arguments gather steam in court
One of the pioneer lawsuits, for example, recently survived a summary judgment motion. In Cajun Conti LLC v. Certain Underwriters at Lloyd’s of London, No. 2020-02558 (La. Civ. Dist. Ct., Orleans Parish, Nov. 4, 2020), the policyholder, a restaurant group, sought a judgment declaring that its insurance company should cover losses related to an order entered by Louisiana’s governor banning gatherings of 250 people or more. This caused the restaurants to operate at 50 percent capacity and cease service by 9 p.m. On November 4, 2020, the Louisiana state court denied the insurance company’s motion for summary judgment after finding the following four issues of material fact:
(1) Whether COVID-19 constitutes direct physical loss or damage;
(2) Whether the policy interests necessitate a more liberal reading of prior case law;
(3) If COVID-19 constituted a physical loss or damage, whether COVID-19 impacts the environment;
(4) In the context of civil authority coverage, whether COVID-19-related damages to property at another location within one mile of any of the restaurants is a covered cause of loss.
Likewise, a Pennsylvania state court overruled the insurance company’s motion to dismiss a tavern’s complaint for business interruption coverage because “at this very early stage, it would be premature for this court [to] resolve the factual determinations put forth by defendant to dismiss plaintiff’s claims.” Taps & Bourbon on Terrace, LLC v. Those Certain Underwriters at Lloyd’s, London, No. 00375 (Pa. Ct. Com. Pl. Phila. Cnty. Oct. 27, 2020) (emphasis added). The complaint alleged that the tavern sustained business losses resulting from “the COVID-19 pandemic and . . . state and local orders mandating that all non-essential businesses be temporarily closed.” The order also recognized that “the law and facts are rapidly evolving in the area of COVID-19-related business losses.”
Interpretation of “physical loss of or damage to” property
One area of law that has developed is the interpretation of the phrase “physical loss of or damage to” property, which is commonly found in policies at issue in COVID-19 business interruption cases. Noting the import of the disjunctive “or” in the phrase “physical loss of or damage to” property, the court in Hill and Stout PLLC v. Mutual of Enumclaw Insurance Company, No. 20-2-07925-1 (Wash. Super. Ct. King Cnty. Nov. 3, 2020) held that the policy provided alternative means for coverage: (1) physical loss of property (the Physical Loss Option) and (2) damage to property (the Damage Option). The Washington state court found the Physical Loss Option ambiguous and, consequently, construed it in favor of the policyholder. Under this interpretation, the court concluded that a dental practice’s alleged inability “to see patients and practice dentistry” sufficed to trigger the Physical Loss Option for coverage under the policy.Continue Reading Recent pro-policyholder COVID-19 business interruption decisions