Introduction
The Eleventh Circuit Court of Appeals’ recent decision in ECB USA, Inc. v. Chubb provides several important lessons for corporate policyholders faced with potential coverage issues arising from their consulting or professional services.
The issue in ECB was whether Chubb’s professional services liability policy applied to claims against an accounting firm for a faulty
The “Four Corners rule” (a.k.a. the “Eight Corners rule”) is the foundation for many states’ common law regarding the Duty to Defend under liability policies. Under that regime, the court treats “the underlying complaint and the insurance policy” as “the only documents relevant” to deciding whether an insurer owes the policyholder a duty to defend. Badger Mining Corp. v. First Am. Title Ins. Co., 534 F. Supp. 3d 1011, 1020 (W.D. Wis. 2021); 1 General Liability Insurance Coverage § 5.02 (5th ed.) (providing a “50-State Survey: Duty to Defend Standard: ‘Four Corners’ or Extrinsic Evidence?”).
The rule presents a problem for policyholders when the complaint’s allegations do not raise a duty to defend on their face, however, during the course of the litigation, it becomes apparent that claims that do give rise to a duty to defend are, in fact, at issue. If the case is pending in federal court, policyholders can assert the “constructive amendment doctrine”; that is, that the complaint has been effectively amended to include the unpleaded claims and, therefore, the insurance company should provide a defense.Continue Reading Expanding the “Four Corners” rule through constructive amendment
An indemnification provision is a legally binding agreement between two parties specifying that one party (indemnitor) will compensate the other party (indemnitee) for any losses or damages that may arise from a particular event or circumstance. This type of provision appears in nearly all commercial contracts and is an important tool to allocate risk between parties. As a result, indemnification is one of the most commonly and heavily negotiated contract provisions.
For companies doing business across state lines, it is critical to consider differences in states’ laws regarding indemnification. This blog post highlights just a few differences between the laws of neighboring states—Pennsylvania, Delaware, and New Jersey—and the importance of drafting clear contractual indemnity provisions with reference to which state law governs.Continue Reading The importance of drafting clear contractual indemnity provisions
The U.S. Supreme Court’s ruling in Dobbs v. Jackson Women’s Health Organization and its progeny have sparked confusion and uncertainty for individuals, medical providers, and employers with respect to the consequences of providing, seeking, or facilitating abortion care. Moreover, for both medical providers and employers, questions arose as to whether and how liability insurance might help alleviate these risks.
Now that a year has passed since the Dobbs decision, it is worth revisiting the liability landscape, as well as the question of how insurance coverage might play a role in providing relief with respect to the ongoing risk of litigation.
Background
The Dobbs decision, which held that access to abortion care is no longer a constitutionally protected right, raised a host of questions as to whether medical providers and employers might face civil or criminal liability for facilitating access to abortions, particularly in states that responded by enacting a panoply of restrictions in response to Dobbs. This uncertainty was heightened by inevitable litigation concerning the viability of the new statutes and has led to widespread confusion in many states. This confusion has been exacerbated by the Centers for Medicare & Medicaid Services (“CMS”), which initiated investigations into hospitals in Missouri and Kansas, asserting that they were in violation of the law by failing to offer necessary, life-saving abortion services.Continue Reading One year after Dobbs: Are medical providers and employers still at risk for lawsuits stemming from abortion access, and should they consider the role of liability coverage?
When a loss event badly damages a key piece of equipment or machinery, an insured business often faces the complicated question: repair or replace? This is especially so when the extent of the damage is unclear because some may still be hidden.
A business presented with this dilemma is well advised to go through that decision-making process assuming that it is spending its own money.
In all likelihood, however, the business will have insurance for the loss event, and most commercial property policies are written on a “replacement cost” basis. Yet, those policies often define “replacement cost” as being the lesser of “the cost to repair, rebuild or replace” the damaged property with property of comparable size, material and quality. They commonly include coverage for the loss of business income sustained by the insured due to the suspension of the insured’s business during the “period of restoration,” and tie the length of that period to the date when the damaged property should be “repaired, rebuilt or replaced” with reasonable diligence.
These standard commercial property provisions contain a trap for the unwary. Hidden within them lurks the opportunity for the insurance company to second guess the decisions that its insured is now forced to make under abnormal conditions and while facing financial distress.Continue Reading Too damaged to repair? How to maximize your insurance recovery
I recently wrote about lessons that could be learned from the ongoing insurance coverage jurisprudence related to the coronavirus / Covid-19 pandemic. That article discussed broad trends that had developed and cohered across this vast litigation landscape, through multiple decisions in many courts over the course of several months or more. Although descriptive, most of those trends have been and are anti-plaintiff, anti-policyholder, and anti-insurance recovery.
Is a pro-policyholder trend on the horizon?
This piece is different in two important respects. First, it focuses on a point that has not yet achieved a level of pervasiveness that could be fairly characterized as a trend, although it should and hopefully will reach that point soon. Second, this piece discusses a positive outcome for policyholders seeking to recover for their coronavirus- and Covid-19-related losses.Continue Reading Policyholders seeking coverage for Covid-19-related losses may have reason to be optimistic
In the past few months, in cases considering whether SARS-CoV-2/COVID-19 can cause direct physical loss or damage to property so as to trigger business income coverage, policyholders have secured three wins in state appellate courts: Ungarean in the Superior Court of Pennsylvania, Huntington Ingalls in the Vermont Supreme Court, and Cajun Conti in the Louisiana
Many commercial property insurance policies require that policyholders submit a Sworn Statement in a Proof of Loss (also referred to as “Proof of Loss”) in order to receive benefits under the policy. A Proof of Loss provides the insurer with specific information about the incident giving rise to the claim, such as the cause, the nature of any damage sustained, and the financial impact to the business, if any. In the event a policyholder suffers a financial loss as a result of an insured event, it is essential that the policyholder understands how to calculate business income losses covered under its policy so it can attest to that amount in the Proof of Loss. Ultimately, the specific language in the policy will dictate the policyholder’s approach for calculating business income losses, but there are two general approaches typically used by insurance industry experts.
Top-Down or Gross Receipts Method
The first approach is referred to as the “Top-Down or Gross Receipts Method”. Under this approach, the policyholder must (1) calculate the lost sales resulting from covered property damage and then (2) subtract expenses that were saved as a result of not achieving those sales.
(1) Projected Sales – Actual Sales = Lost Sales
(2) Lost Sales – Saved Expenses = Business Income Losses
“Projected Sales” (also referred to as “but for revenue”) is the revenue the policyholder would have earned between the date covered property damage forced the policyholder to suspend its operations and the date when the policyholder resumed, or reasonably could have resumed, normal operations (the “Period of Restoration”) if the insured event had not occurred. To develop a foundation for Projected Sales, the policyholder may consider:
(a) the history of sales in the years leading up to the incident;
(b) the pre-loss average monthly sales achieved in those years;
(c) actual purchase orders and/or contracts that could not be fulfilled/satisfied due to the covered event;
(d) the rate of inflation; and
(e) any other factors that could influence the expected sales volume or price offered for impacted products
These other factors may include seasonality, growth, industry trends, and other outside factors (e.g., political changes, changes in industry regulations, competition, economic forecasts and conditions, etc.).Continue Reading Calculating business income losses for a business interruption claim
Recently, a California federal court issued a favorable decision for policyholders seeking coverage for losses arising from COVID-19 who paid significant premiums to purchase substantial coverage limits including “coverage for business interruption losses from a virus.” Sunstone Hotel Investors, Inc. v. Endurance Am. Spec. Ins. Co., Case No. SACV 20-02185 (C.D. Cal., June 15, 2022).
The facts
In Sunstone Hotel Investors, Inc., the Boston Marriott Long Wharf (the “Marriott”) hosted a three-day conference in February 2020. Following the event, the Boston Public Health Department informed the hotel that three attendees tested positive for COVID-19. Sunstone, the operator of the Marriott, timely filed an initial notice of loss with Endurance under its environmental impairment liability policy for the losses stemming from the presence of COVID-19.
In exchange for the placement of the policy, Sunstone paid a significant premium for an aggregate maximum of $40 million limit of insurance to protect itself against all kinds of events, including $25 million for “business interruption losses from a virus.”
After receiving the notice, Endurance denied the claim in full. Following the notice but prior to denial, the Boston public health authorities informed the Marriott that the City would force it to quarantine and close immediately if the hotel failed to suspend its operations. The Marriott thereafter suspended its operations for a period of 14 days. Prior to the hotel’s reopening date, the State of Massachusetts issued a governmental order mandating the closure of all non-essential businesses, which included the hotel. The Marriott thus remained closed until July 7, 2020, when the State permitted it to reopen at limited capacity. Continue Reading A policyholder win: Court finds coverage for COVID-19 related losses
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?