On May 10, 2018, the Eleventh Circuit Court of Appeals affirmed a Northern District of Georgia decision barring coverage for a loss claimed to arise under a “Computer Fraud” policy issued by Great American Insurance Company to Interactive Communications International, Inc. and HI Technology Corp. Interactive Commc’ns Int’l, Inc. v. Great Am. Ins. Co., No. 17-11712, 2018 WL 2149769 (11th Cir. May 10, 2018). InComm sells “chits,” each of which has a specific monetary value to consumers who can redeem them by transferring that value to their debit card. To redeem a chit, a consumer dials a specific 1-800 number and goes through a computerized interactive voice system. InComm lost $11.4 million when fraudsters manipulated a glitch in the system by placing multiple calls at the same time. This allowed consumers to redeem chits more than once. InComm sought coverage for these losses under its “Computer Fraud” policy.
On April 13, 2018, the Superior Court of New Jersey, Appellate Division, affirmed a trial court decision finding that a bill of sale intended to include the transfer of insurance rights and finding that such transfer did not violate an anti-assignment clause. Cooper Industries, LLC, Plaintiff-Respondent, v. Columbia Casualty Company And One Beacon America Insurance Company, Defendants-Appellants, and Employers Insurance Of Wausau, Allstate Insurance Company, Lexington Insurance Company And Westchester Fire Insurance Company, 2018 WL 1770260,(N.J. Super. A.D., 2018). In May 1986, Cooper Industries merged several entities and transferred assets to a “new” McGraw-Edison Company through a bill of sale. Eighteen years later, on November 30, 2004, Cooper Industries merged the new McGraw-Edison company into itself. In 2009, the Environmental Protection Agency determined that Cooper Industries was responsible for generating and disposing of hazardous substances due to McGraw-Edison’s actions taken years earlier. Cooper Industries sought coverage under the commercial general liability policies McGraw-Edison had in place at the time of the environmental and pollution-related occurrences.
In a ruling earlier this month, an Eleventh Circuit Court of Appeals judge ruled in Scott, Blane, and Darren Recovery L.L.C., Anova Foods Inc. v. Auto-Owners Insurance Co., No. 17-12945-E, 2018 WL 1611256 (11th Cir. 2018), that an insurer did not have a duty to defend and indemnify its insured in a false marketing suit. Anova Food Inc. was sued by its competitor, King Tuna, for allegedly falsely asserting in its advertising that it treated tuna meat with a smoking process using filtered wood chips. King Tuna claimed that, in reality, Anova treated its tuna with synthetic carbon monoxide. In finding that King Tuna’s lawsuit did not trigger Auto-Owner’s duty to defend, the court held (1) that the lawsuit did allege a covered “advertising injury”; (2) that coverage was excluded under the policy’s “failure to conform” exclusion; and (3) coverage was barred by Anova’s untimely notice of the lawsuit.
In Selective Ins. Co. of the Southeast v. William P. White Racing Stables, Inc. (http://caselaw.findlaw.com/us-11th-circuit/1882819.html), the Eleventh Circuit recently ruled that a liability insurer is not required to defend its insured against a claim for spoliation of evidence. In the underlying case a jockey, James Rivera, was paralyzed in a racing accident when the horse he was riding suddenly collapsed. Mr. Rivera sued the race track, Mr. Rivera’s employer, and the horse’s veterinarians, claiming that the horse was not fit to be raced due to the negligence of most of the defendants. His claims against his employer, White Racing Stables, did not assert negligence but alleged that by failing to preserve the horse’s remains, White Racing had violated Florida’s workers compensation law by failing to investigate and pursue Mr. Rivera’s claims against the other defendants. He also asserted a claim for spoliation.
In a recent insurer’s failure-to-settle case, Hughes v. First Acceptance Ins. Co. of Ga., the Georgia Court of Appeals reaffirmed that there is no hard-set rule conducive to summary judgment; rather, the court ruled that a jury should determine whether the insurer’s actions had been “reasonably prudent.” Plaintiff Robert Jackson allegedly caused a five-vehicle collision that resulted in his death and the serious injuries of others, including Julie An and her minor child, Jina Hong. An and Hong, through their counsel, communicated with Jackson’s insurance company, First Acceptance, stating that they were “interested” in settling their claims within Jackson’s policy limit of $25,000. Counsel also requested that the insurer send him policy information within 30 days. An later claimed that this communication represented an offer of settlement, when, 41 days later, they sent First Acceptance a letter withdrawing their “offer” and stating their intent to file suit due to the insurer’s failure to respond. An and Hong then filed suit and were ultimately awarded $5,334,220 in damages. First Acceptance paid $25,000 towards the award, leaving Jackson’s estate exposed to over five million dollars in damages.
An eye-popping settlement in Georgia serves as a cautionary tale for insurers who refuse to provide a straight answer when responding to a demand for policy limits and as a lesson for insureds dealing with recalcitrant insurers: Don’t just take “no” for an answer.
In a recent Client Alert, Hunton & Williams insurance attorneys Lorelie Masters, Michael Levine, and Geoffrey Fehling discuss the importance of reviewing historical liability insurance policies and the potential benefit these policies can have on minimizing exposure to environmental hazards. In Cooper Industries, LLC v. Employers Insurance of Wausau, et al., No. L-9284-11 (N.J. Super. Ct. Law Div. Oct. 16, 2017), a New Jersey trial court held that an electrical products manufacturer was entitled to coverage rights under commercial general liability policies issued to a predecessor company for environmental remediation costs stemming from a U.S. Environmental Protection Agency cleanup of a 17-mile stretch of the Passaic River in New Jersey.
A case decided last week by the Sixth Circuit illustrates the importance of seeking bankruptcy claim policy amendments when placing D&O coverage. Indian Harbor Ins. Co. v. Zucker (6th Cir. Jun. 20, 2017) involved the application of the insured-vs.-insured exclusion and specifically, whether the policy’s insured-vs.-insured exclusion precluded coverage for a claim brought by a company’s liquidating trust, to which the company’s claims had been assigned by the company as debtor-in-possession after the company filed for bankruptcy. After the company’s claims were assigned to the liquidating trust, the trustee sued several of the company’s former executives for breach of fiduciary duty. Continue Reading Sixth Circuit Rules That Insured-vs.-Insured Exclusion Bars Coverage for Liquidation Trustee’s Claim