Executive Summary Blog

Executive Summary Blog

Legal developments affecting professional liability insurers

Letter Alleging Wrongful Termination and Seeking Reinstatement Constitutes a “Demand for Damages or Other Relief”

Posted in “Claim”

In a win for Wiley Rein’s client, the U.S. District Court for the District of Colorado has held that a liability insurer had no duty to defend an Equal Employment Opportunity Commission (EEOC) charge and related lawsuit on the basis that a letter predating the charge and lawsuit was a “claim” first made prior to the policy period. Scottsdale Indem. Co. v. Convercent, Inc., 2017 WL 5446093 (D. Colo. Nov. 14, 2017). The court held that the pre-policy letter, which alleged wrongful termination based on age discrimination, sought reinstatement and threatened litigation, constituted a “claim” because it was a “demand for damages or other relief.”

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Washington Court Finds Coverage for Fraudulently Originated Loans Repurchased by Now-Defunct Bank

Posted in Loss

A Washington federal court has denied an insurer’s motion for summary judgment regarding coverage under a fidelity bond issued to a now-defunct bank for losses incurred in connection with fraudulently originated loans the bank purchased, resold, and ultimately repurchased pursuant to contractual obligation. The court held that the loan originators were “Employees” under the policy, and the bank’s immediate, initial loss in the amount it paid for the faulty loans was a direct result of the loan originators’ fraud. Federal Deposit Ins. Corp. v. Arch Ins. Co., 2017 WL 5289547 (W.D. Wash. Nov. 13, 2017).

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Insurer Obligated to Pay Full Policy Limits on Loss Despite Potentially Concurrent Policies With Competing “Other Insurance” Clauses

Posted in Other Insurance

A federal court in South Carolina has held that an insurer breached its contract with its insured by not paying the full policy limits even though its policy included an “other insurance” clause and there was another insurance policy that potentially covered the same loss.  Michelin North America, Inc. v. Federal Ins. Co., No 6:17-1599 (Nov. 7, 2017).  In so holding, the court noted that the dispute between the two insurers (only one of which was a party to the case), as to the appropriate proration of the insured’s loss has “no impact” on the insured’s right to fully recover under the one insurer’s policy.

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No Coverage Available Where Insured Fails to Provide Notice of Potential Claim During First Policy Period and Knew About, But Failed to Disclose, Potential Claim Prior to Second Policy Period

Posted in “Claim”, Notice of Claim, Prior Knowledge/Warranty Exclusion

The United States District Court for the District of Maryland has held that where notice of a potential claim is not reported during the first policy period and the insured knew about, but failed to disclose, the potential claim prior to the second policy period, coverage is precluded under both policies.  James River Ins. Co. v. Brick House Title, LLC, 2017 WL 5126154 (D. Md. Nov. 6, 2017).  Furthermore, because the insured’s failure to notify the insurer of a potential claim is not a breach of contract, the insurer is not required to show prejudice under Maryland’s notice-prejudice rule for claims-made-and-reported polices.

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Federal Court Limits Information Discoverable by Insurer Concerning Insured’s Prior Knowledge

Posted in Discovery Issues, Prior Knowledge/Warranty Exclusion

The United States District Court for the Middle District of Florida has ruled regarding the discoverability of a broad array of documents sought by an insurer in a declaratory judgment action concerning application of a prior knowledge condition.  Berkley Assurance Co. v. Expert Grp. Int’l Inc., 2017 WL 4574599 (M.D. Fla. Oct. 13, 2017).  The court’s order included mixed rulings on seven of the insurer’s requests for production (RFPs) and one interrogatory.

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No Crime Coverage for Amounts Wired by Insured’s Customer to Fraudster Posing as Insured

Posted in Cyber Policies and Issues

A New Jersey federal district court has held that a commercial crime policy does not afford coverage for a loss caused by a fraudulent wire instruction scheme where an imposter, posing as the insured, directed the insured’s customer to pay receivables to the impostor’s account.  Posco Daewoo America Corp. v. Allnex USA, Inc., No. 52:17-cv-00483-JMV-MF (D.N.J. Oct. 31, 2017).  The court did not address threshold issues regarding trigger and causation but instead held that there was no coverage because the insured did not own the funds at issue.

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Carve Out for Fines and Amounts Imposed by Statute Bars Coverage

Posted in Breach of Contract – coverage for amounts due pursuant to contract, exclusions

Applying California law, the United States District Court for the Central District of California has held that an insurer owed no coverage for an underlying lawsuit because the suit sought amounts that fell completely within a carveout from the definition of “damages” for fines and amounts imposed by statute.  Local Initiative Health Auth. for Los Angeles County v. OneBeacon Prof’l Ins., Inc., 2017 WL 3579491 (C.D. Cal. July 7, 2017).

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Insured Fails to Allege Bad Faith Damages When Settlement Was Funded by Another Insurer

Posted in Bad faith/duty to settle

A California federal district court has held that an insured did not suffer damages sufficient to support a bad faith claim for failure to indemnify because another excess insurer during a prior policy year had paid for the settlement.  Genesis Ins. Co. v. Magma Design Automation, Inc., No. 2017 WL 4642443 (N.D. Cal. Oct. 16, 2017).

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Court Declines to Hold Broker Accountable for Insured’s Failure to Report Known Claims in Application

Posted in Notice of Claim

A Massachusetts federal court has held that, absent special circumstances, an insurance broker does not owe a fiduciary duty of care to its client and therefore is entitled to accept its clients’ representation that all known claims had been reported in its application and has no duty to investigate whether potential claims were not reported.  Biochemics, Inc. v. Axis Reins. Co., 2017 WL 4317384 (D. Mass. Sept. 28, 2017).

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Insurer Was Not Prejudiced by Insured’s Failure to Cooperate

Posted in Cooperation

Applying Maryland law, the United States District Court for the District of Maryland has held that an insurer was required to satisfy an underlying judgment because its insured’s failure to cooperate did not prejudice the insurer’s ability to defend.  Mora v. Lancet Indem. Risk Retention Group, Inc., 2017 WL 4618461 (D. Md. Oct. 16, 2017).

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