Despite best intentions, sometimes policyholders encounter challenges adhering to the applicable statute of limitations or their policy’s limitation of suit deadline. In complex insurance claims, identifying, comprehending, and accurately quantifying significant and long-term losses may take several years. Even when all losses are readily apparent, the insurer may invest months or years in scrutinizing the claim and finalizing the adjustment of losses, requesting policyholders to furnish extensive supplemental information related to their claim and/or sit for interviews or examinations under oath. If the insurer is investing significant time into verifying a loss, the insured may not even realize a lawsuit could be necessary and fail to consider the applicable limitation period is running and could expire prior to a formal decision on coverage from the insurer. In fact, unscrupulous insurers can sometimes use a lengthy claim investigation to their advantage to run out any applicable deadline to file suit and then deny coverage.

Reprinted courtesy of Stephanie A. Giagnorio, Saxe Doernberger & Vita, P.C. and Kelly A. Johnson, Saxe Doernberger & Vita, P.C.

Ms. Giagnorio may be contacted at SGiagnorio@sdvlaw.com
Ms. Johnson may be contacted at KJohnson@sdvlaw.com

The California Court of Appeal affirmed the trial court's dismissal of the insured's claim for full coverage after suffering from the phishing scam. Door Sys. v. CFC Underwriting Limited, 2024 Cal. App. Unpub. LEXIS 3441 (Cal. Ct. App. June 3, 2024).

Door Systems was a leading distributer of integrated fire doors and fire protection smoke curtains. It alleged that on January 20, 2021, someone impersonating its President sent electronic correspondence to one of its clients, X-Act Finish & Trim, Inc. (X-Act). At the time, X-Act owed Door Systems $395,000. The impersonator demanded $395,000. X-Act made payment, but was later informed by Door Systems that the money had not been deposited into Door System's account. A subsequent investigation recovered $160,419.20, leaving a balance of $234,580 that Door Systems sought to recover from its insurer, CFC Underwriting Limited, under a cybersecurity policy.

Insurance coverage lawsuits often hinge on the plain and ordinary meaning of specific words or phrases. But not every word in an insurance policy can be defined. Yet without stable and predictable definitions, neither policyholders nor insurers can establish a clear and consistent scope of coverage. In a recent concurring opinion, Eleventh Circuit Judge Kevin Newsom suggests that artificial intelligence (AI) large language models (LLMs) could help resolve these definitional debates. His opinion in Snell v. United Specialty Insurance Company, No. 22-12581, 2024 WL 2717700 (11th Cir. May 28, 2024) highlights the pros and cons of calling upon technology to supply plain meaning.

Reprinted courtesy of Michael S. Levine, Hunton Andrews Kurth and Alex D. Pappas, Hunton Andrews Kurth

Mr. Levine may be contacted at mlevine@HuntonAK.com
Mr. Pappas may be contacted at apappas@HuntonAK.com

Human beings are social creatures. In today’s world, social media platforms are ever-growing and there are more users than ever before. But, at what cost? The use of social media has consequences. Policyholders should look to their CGL insurers for defense coverage, under Coverage A or Coverage B.

Coverage A Implications: Social Media Is Hurting Our Children
In February 2024, several plaintiffs filed suit against, among others, Meta, Facebook, Instagram, TikTok and YouTube, alleging that the social media companies design and market their platforms toward children, which has led to an epidemic of social media addiction.

Reprinted courtesy of Scott P. DeVries, Hunton Andrews Kurth and Torrye Zullo, Hunton Andrews Kurth
Mr. DeVries may be contacted at sdevries@HuntonAK.com
Ms. Zullo may be contacted at tzullo@HuntonAK.com

The Supreme Court of California recently weighed in on conflicting conclusions reached by California Courts of Appeal regarding insurance coverage for COVID-19 related losses, in its May 23, 2024 decision in Another Planet Entertainment, LLC, v. Vigilant Insurance Company, S277893.

As we expected, the court held that “allegations of the actual or potential presence of COVID-19 on an insured’s premises do not, without more, establish direct physical loss or damage to property within the meaning of a commercial property insurance policy.” The court noted that “direct physical loss or damage to property requires a distinct, demonstrable, physical alteration to property. The physical alteration need not be visible to the naked eye, nor must it be structural, but it must result in some injury to or impairment of the property as property.”

Finally weighing in on whether the presence of COVID-19 constitutes direct physical loss or damage to property, the California Supreme Court answered a certified question from the Ninth Circuit by determining there was no coverage under California law. Another Planet Entertainment, LLC v. Vigilant Ins. Co., 2024 Cal. LEXIS 2738 (Cal. May 23, 2024).

Another Planet operated venues for live entertainment. It suffered pandemic-related business losses when its venues closed. It alleged it suffered losses in excess of $20 million. Another Planet submitted a claim to Vigilant for direct physical loss or damage to its properties and consequent economic losses. Vigilant denied coverage contending Another Planet had not shown "physical loss or damage that would implicate coverage."

For Filicia Porter, the insurance bills were the final straw. They’d been climbing steeply for her assisted-living business as Florida was battered with ever more-powerful storms, and eventually, the numbers stopped adding up.

So in March, she finally decided to call it quits, shutting the facility near Palm Beach that she opened just two years ago. That came four months after she closed an older location in Port St. Lucie, opened in 2017. Together, they left a dozen residents scrambling to find another place to live.

Reprinted courtesy of Lauren Coleman-Lochner, Bloomberg and Melina Chalkia, Bloomberg

The Ninth Circuit affirmed the District Court's granting summary judgment to two insurers who denied coverage based upon inaccurate insurance applications. Hughes v. First National Insurance Company of America, 2024 U.S. App. LEXIS 6609 (9th Cir. March 20, 2024).

Plaintiff submitted a claim to First National Insurance Company of America and General Insurance Company of America when her property burned down. After learning that the property was used as a short-term rental and had suffered three prior lossses in the past five years, both insurers denied the claim. They then sought judicial recission of the policites based on material misrepresentations in plaintiff's insurance applications.

Both insurers had applications asking whether the property was used for business or commercial purposes, and whether the applicant had suffered a loss on the property in the last five years. If an applicant answered either question in the affirmative, the application was denied.

The Francis Scott Key Bridge collapse with the crash of container vessel Dali on March 26, 2024, in Baltimore was one of the most significant maritime losses in US history so far. As a result of the damages caused in terms of business interruptions and logistics scrambles, insurers will witness higher claims in 2024 across general insurance lines such as property, liability, and marine, aviation, and transit (MAT) insurance. However, the incident is unlikely to have a significant impact on the overall profitability of US insurers, as the average loss ratio of general insurance is expected to remain at 78.8% over 2024–28, according to GlobalData, a leading data and analytics company.

According to GlobalData's Global Insurance Database, property and motor insurance claims are expected to account for 11.9% and 14.7% share of the total general insurance claims in the US in 2024, amounting to $200.7 billion and $247.7 billion, respectively. Additionally, liability and marine, aviation, and transit (MAT) insurance claims are expected to account for a 6.6% and 1.3% share, amounting to $110.8 billion and $22.7 billion, respectively. However, with this event, the actual claims in 2024 might increase once the complete impact of the damage is realized.

The incident is expected to lead to the biggest marine insurance payout that is expected to cost insurers billions of dollars in losses. It is expected to surpass the marine losses of the Costa Concordia cruise ship disaster in 2012.

Insurance policies usually have cooperation clauses requiring policyholders to work with the insurance company when making a claim. These clauses ensure policyholders actively participate in claims investigations. Failure to cooperate may be a breach of the policy, and the insurer may deny coverage.

Proving non-cooperation, though, is challenging, as seen in a recent Eighth Circuit case, Cardinal Building Materials, Inc. v. Amerisure Insurance Company.[1] Amerisure claimed that its insured, Cardinal, had failed to cooperate in investigating Cardinal’s tornado claim.[2]

Reprinted courtesy of Rachel E. Hudgins, Hunton Andrews Kurth and Adriana A. Perez, Hunton Andrews Kurth

Ms. Hudgins may be contacted at rhudgins@HuntonAK.com
Ms. Perez may be contacted at pereza@HuntonAK.com

A federal court recently ruled that a carrier must defend its policyholder against a claim involving the treasurer’s erroneous payment to a scammer. The ruling shows that a “wrongful act” under a D&O policy need not be an egregious act of wrongdoing, that coverage may hinge on whether extrinsic evidence can establish coverage, and that breach of contract claims are not always uninsurable as a matter of law.

In Bridlewood Estates Property Owners Association v. State Farm General Insurance Co., a California federal district court evaluated whether an insured association may be entitled to coverage for a breach of contract claim under an endorsement to its package liability policy providing directors and officers (D&O) coverage. Because the claims arose from an email spoofing scheme resulting in the association’s treasurer mistakenly issuing payment to a fraudster instead of the contracting party, the court determined that contract claims were based on a “wrongful act” by an officer potentially covered by the policy and that, as a result, the lawsuit triggered the insurer’s defense obligations. The decision shows the potential for D&O coverage for contract claims, as well as highlights the difficulty insurers face to exclude contractual liability on public policy grounds, which vary greatly between states and can be swayed by policy provisions applying one particular state’s laws over another.

Reprinted courtesy of Evan Holober, Hunton Andrews Kurth and Geoffrey B. Fehling, Hunton Andrews Kurth
Mr. Holober may be contacted at eholober@huntonak.com
Mr. Fehling may be contacted at gfehling@HuntonAK.com