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The ongoing COVID-19 pandemic led to unprecedented closures and losses for businesses throughout the United States. Naturally, policyholders have sought recovery for pandemic-related losses under their “all risk” commercial property policies. According to the University of Pennsylvania Carey School of Law Covid Coverage Litigation Tracker, there have been approximately 2,300 of these COVID-19 coverage cases filed to date. Early pre-trial court decisions overwhelmingly favored insurers; however, recent appellate and high court decisions have demonstrated a slight shift in favor of policyholders.

For example, one of the first COVID-19 coverage decisions was issued by a Michigan state court in the summer of 2020:  Gavrilides Management Company LLC et al v. Michigan Insurance Company. The Gavrilides court rejected the policyholder’s arguments that (1) the loss use of property constitutes a “direct physical loss” covered by the policy and (2) the virus exclusion should not apply since the loss use was caused by government orders. This full dismissal was just the start of policyholders’ uphill court battles.  Since Gavrilides, nearly 70% of state court merits hearings have resulted in a full dismissal with prejudice. In federal courts, that number jumps to nearly 87%.…

Continue Reading Direct physical loss in COVID Coverage cases: Are policyholders seeing a litigation shift in favor of COVID-19 coverage?

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

A California Court of Appeal recently held that the alleged loss of use of a premises as a nightclub qualified as “property damage” under a general liability insurance policy. Thee Sombrero, Inc. v. Scottsdale Ins. Co., 2018 WL 5292072 (Cal. Ct. App. Oct. 25, 2018).

Thee Sombrero, Inc. (Sombrero) owned and operated a nightclub in Colton, CA. After a fatal shooting at the club, city officials revoked Sombrero’s use permit and made it so the premises could only be used as a banquet hall. Sombrero sued its private security company, Crime Enforcement Services (CES), claiming that its subpar security caused the shooting and cost Sombrero its ability to run a nightclub on its property.

Sombrero alleged that the property was worth $2,769,231 as a nightclub and only $1,846,153 as a banquet hall. In 2012, Sombrero secured a default judgment against CES for $923,078 – the difference in value between the nightclub and banquet hall.…

Continue Reading Tangible property doesn’t have to be physically lost to find coverage

Purchasing insurance for a cannabusiness can feel like a daunting task, but it does not have to be one.

In addition to grappling with many of the same issues and questions that any business confronts when seeking insurance, a cannabusiness encounters certain additional, unique challenges due to the industry in which it operates. That is no reason to panic, however. And, it is certainly no reason to avoid purchasing insurance.

There are a number of steps that a cannabusiness – or, really, any business – can take to maximize the likelihood that the insurance-procurement process will be smooth and successful. In particular, when purchasing insurance, a cannabusiness should consider the following 10 steps: …

Continue Reading Ten important steps a cannabusiness should consider when purchasing insurance

Last week, the Wisconsin Supreme Court issued two opinions in which it held that pollution exclusions barred coverage for third-party claims resulting from alleged contamination of water due to the seepage of cow manure and septage, respectively. As addressed in Chief Justice Shirley S. Abrahamson’s dissents to the two decisions, the majority’s opinions in both cases – Wilson Mutual Insurance Co. v. Falk, Nos. 2013AP691, 2013AP776, 2014 WL 7375656 (Wis. Dec. 30, 2014), and Preisler v. General Casualty Insurance Co., No. 2012AP2521, 2014 WL 7373070 (Wis. Dec. 30, 2014) – were faulty for a number of reasons.
Continue Reading Wisconsin Supreme Court’s misapplication of the pollution exclusion and disregard for policyholders’ business and purpose in purchasing insurance

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

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.
Continue Reading You Can Assign Your Bad Faith Claims in Pennsylvania

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.
Continue Reading Potentially Fraudulent Insurance Company Practices Are Exposed In Superstorm Sandy Litigation

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.
Continue Reading Deputy Secretary of Treasury Encourages Financial Institutions

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