Decision Impact
Millennium Organic Chemicals Ltd. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, et al., 744 F.3d 279 (4th Cir. Feb. 20, 2014)

Our full analysis of this decision can be found in our April 2014 post.


Fourth Circuit Examines Contingent Business Interruption Coverage

Business interruption insurance provides coverage for losses caused by unexpected interruptions of an insured’s business or operations due to damage to the insured’s property. Contingent Business Interruption (CBI) coverage, a counterpart to business interruption coverage, provides coverage for damage to the property of others, which interrupts an insured’s business or operations. The Fourth Circuit analyzed the undefined term “direct” as used in the CBI provision.

The Fourth Circuit held the term “direct” is not ambiguous as used in the CBI provision.   Therefore, based on the reasoning in the Millennium decision, insureds need to understand that CBI coverage may only apply to supply chain disruptions caused by direct suppliers.

While the Millennium decision is based on an interpretation of an endorsement to a commercial general liability policy, CBI coverage is typically offered through first-party property policies. Therefore, this decision is important to the extent it offers one of the few recent examples of a court’s analysis of the precise language in each CBI insuring agreement and will no doubt prove critical to the outcome of these cases. More cases related to this coverage are expected as insureds seek coverage to address their concerns arising out of conducting business using complex global supply chains.


Nationwide Mut. Ins. Co. v. Ryan, 2014 U.S. Dist. LEXIS 49790 (N.D. Cal. Apr. 8, 2014)

Our full analysis of this decision can be found in our June 2014 post.



Estimator’s Credibility Can Influence Bad Faith Determinations

Estimators need to ensure that their inspections and reports concerning repairs to property are credible. These reports may be at issue in subsequent bad faith litigation. Estimators can create credible reports by inspecting and photographing the property as well as by creating and obtaining supporting documentation throughout the estimating process. Further, insurers should be confident in the estimates when they base their coverage decisions on an estimator’s inspection/report.


BSC Holding, Inc. et al. v. Lexington Ins. Co., 559 Fed. Appx. 663 (10th Cir. Mar. 11, 2014)


Insurers Must Provide Substantial Evidence Of Prejudice Caused By Delayed Notice

This decision illustrates the burden placed on insurers to show they were prejudiced by an insured’s late notice of a claim. The insured detected water intrusion in its underground salt mine in January of 2008 and did not provide notice to its insurer until July 2010. The court held the insurer was not prejudiced by the late notice based on the following reasoning:

The insurer was not prejudiced by the delay of the investigation of the claim. The court held evidence that the insurer independently inspected the salt mine and could not identify any witness whose recollection may have grown stale by the delay in providing notice indicated the insurer did not suffer any prejudice by the delayed investigation.

The delay caused no prejudice even though the insurer was not able to participate in the remediation of the site. The court found no evidence that the insurer was precluded from participating in the remediation of the site.

The delay caused no prejudice in the underwriting process.   The court found no evidence that the delay prevented the insurer from meaningfully evaluating the risk while underwriting subsequent policies.


Whitehouse Condominium Group, LLC v. The Cincinnati Ins. Co., 569 Fed. Appx. 413 (6th Cir. June 18, 2014)

Our full analysis of this decision can be found in our June 2014 post.


Sixth Circuit Holds “Actual Cash Value” Does Not Allow Insurers To Deduct Costs Related To A Decrease In Market Value Of The Property

Based on the downturn faced in some real estate markets, the Whitehouse Condo. court’s refusal to take market factors and conditions into account should be a consideration during the adjustment of claims. Therefore, based on this decision, insurers should not assume external market factors carry weight in determining the ACV of a loss.


Horvath v. State Farm General Ins., 2014 Cal. LEXIS 8097 (Cal. June 30, 2014)

Our full analysis of this decision can be found in Tressler’s July 2014 First Party Property Alert.


Damage From Heavy Rainstorm Falls Within a Flood Exclusion

The Horvath court held the term “flood” “includes deluges caused by excess rainfall.” This decision is significant certainly in California, and perhaps on a broader scale, with regard to policyholder arguments of ambiguity in flood exclusions as well as what exactly constitutes a “flood.” The court’s reasoning is sure to provide guidance on the application of these exclusions. The Horvath court rejected an interpretation limiting the term “flood” to damages caused by “an existing body of water exceeding its bounds and inundating the surrounding area with water.”


Axis Surplus Insurance Co. v. Caribbean Beach Club Association, Inc., 2014 Fla. App. LEXIS 9721 (Fla. Ct. App. June 27, 2014)

Our full analysis of this decision can be found in our July 2014 post.



Florida Court Finds Potential Coverage Defenses Waived When Insurer Fails to Inform Insured of Its Entire Coverage Position as Soon as Possible

The Axis decision illustrates the risks to insurers when they don’t specifically raise and assert coverage defenses as soon as possible. Here, a potentially valid coverage defense was rendered useless because the court found the defense was not timely brought to the attention of the insured.


Hamilton Prop. v. The American Ins. Co., 2014 U.S. Dist. LEXIS 91882 (N.D. Tex. July 7, 2014)

Our full analysis of this decision can be found in our July 2014 post.



Claim That One Hailstorm Produced Damage to Building’s Roof Fails to Meet Insured’s Burden of Proof

This decision illustrates the importance of assignment of the burden of proof on the issue of allocation. It can be difficult to give the jury enough evidence for a “reasonable basis” to allocate damage between covered and uncovered/excluded causes of loss. Thus, the party with the burden of proof often has a very high hurdle to overcome — here, the insured could not overcome that hurdle. Arguably, the insured’s decision to take the aggressive position that “all” of the damage was covered (and that “none” of the damage was uncovered/excluded) made its hurdle even higher.

Also, it is notable that in its discussion of the duty to give timely notice, the court seemed to apply, or at least suggest, that the appropriate trigger of coverage is injury in fact, not manifestation. The court imported the injury in fact trigger from CGL coverage, but most courts will apply a manifestation trigger to first party coverage, even if some other trigger applies to liability insurance.


Joy Tabernacle – The New Testament Church v. State Farm Fire and Cas. Co., 2014 U.S. Dist. LEXIS 97478 (E.D. Mich. July 18, 2014)

Our full analysis of this decision can be found in our August 2014 post.



Coverage Barred for “Collapse” of Old Church Structure

The decision illustrates the role of investigations and expert opinions regarding causation. Each side relied on contractors and engineers regarding the cause of the collapse. In addition, the theory of concurrent causation was rejected under Michigan law. The provisions of the specific policy, state’s law and causes of loss can significantly impact coverage.


Pellegrino v. State Farm Fire & Cas. Co., 568 Fed. Appx. 129 (3d Cir. June 2, 2014)

Our full analysis of this decision can be found in our September 2014 post.



Third Circuit Rejects Bad Faith Action Based on Insurer’s Refusal to Pay Actual Cash Value for Unnecessary Repairs

Many policies provide for the repayment of a loss on a replacement cost basis, but only if repairs are commenced or completed within a certain period of time after the loss. Accordingly, the insured will only be entitled to receive the “actual cash value” of the repairs until such repairs are commenced or completed. When making such a payment, the insurer should be aware of how the relevant jurisdiction defines “actual cash value” and whether labor and overhead and profit must be paid or depreciated. When issuing an ACV payment, the insurer should make clear and in writing to the insured that the insured is entitled to the additional cost of repairs up to the replacement cost, but only if repairs are started or completed by a specific date.


National Union Fire Ins. Co. of Pittsburgh, Pa. v. TransCanada Energy USA, Inc., 114 A.D.3d 595 (N.Y. App. Div. 1st Dep’t Feb. 25, 2014)


MKB Constructors v. Am. Zurich Ins. Co., 2014 U.S. Dist. LEXIS 78883 (W.D. Wash. May 27, 2014)

Our full analysis of both decisions can be found in our October 2014 post.



Are Documents Prepared by Counsel and Communications with Counsel Generated Before Suit Privileged? It Depends.

Insurers frequently retain counsel prior to making a coverage determination with respect to first-party property claims. However, the privileges and protections afforded documents that those attorneys prepare and the communications shared between the insurer and its counsel during the pre-litigation claim adjustment phase have been the subject of much debate. In 2014, there were two decisions, one from a New York state court and one from a Washington federal court, which came down on opposite sides of discovery disputes over such documents. In both cases, documents and communications that relate to the attorney’s opinions regarding the insurer’s liability, as well as legal advice regarding coverage, will continue to be protected. On the other hand, these cases also suggest that, where attorneys are perceived as conducting the claim adjustment and investigation themselves, their documents and communications may not be protected.


Mirarchi v. Seneca Specialty Ins. Co., 564 Fed. Appx. 652 (3d Cir. Apr. 29, 2014)


Third Circuit Rejects Bad Faith Claim Where Carrier Relied Upon a Genuine Estimate of ACV


The owner of a commercial property in Philadelphia filed a claim under its property policy after the building was destroyed by fire. The policy contained coverage limits of $600,000 and specified that valuation for claims purposes would utilize the Actual Cash Value (“ACV”) method.   Disagreements over valuation under the policy could be submitted to a mutual appraisal process. After the claim was submitted, policyholder and carrier obtained estimates of the ACV. The policyholder’s expert estimated ACV in excess of the policy limits while the carrier’s expert estimated ACV at just more than $330,000.   This discrepancy prompted the parties to submit the matter for appraisal and resolution before an umpire.   In the meantime, the carrier paid to the policyholder the amount of its estimate. The umpire concluded that the ACV was slightly in excess of the policy limits, after which the carrier paid the balance remaining on the policy limits.


Although the policy limits were paid in full, the policyholder sued alleging that the carrier delayed payment in bad faith. The court recognized that in Pennsylvania, bad faith involves delayed payment of proceeds with no reasonable basis where the carrier knew or recklessly disregarded the lack of reasonable basis. The court found that the carrier had “relied on a genuine and considered estimate of ACV”. Therefore, it did not act in bad faith and all claims were dismissed.


Strauss v. Chubb Indem. Ins. Co., 771 F.3d 1026 (7th Cir. Nov. 18, 2014)


Seventh Circuit Applies Continuous Trigger to Latent Damage Under First-Party Property Policy


Homeowners discovered long-term progressive damage to their property in 2010 and filed suit against the insurers that had been on the risk between 1994 and 2005. While Wisconsin courts had previously only applied a continuous trigger in the third-party liability context, the court extended that trigger theory to the first-party property context as a result of the policy’s definition of “occurrence.” Because the policy referenced “continuous or repeated exposure,” the court found that the insurer had contemplated the possibility of long-term damage. Under the court’s interpretation, the long-term damage constituted a single loss, and it was therefore irrelevant that the damage was not discovered until more than five years after the insurer stopped providing coverage for the home.


The court limited its ruling to the policy language at issue, but this decision may signal a shift from the prior majority position that the manifestation trigger applies in the first-party property context.

Jane Street Holding, LLC v. Aspen American Ins. Co., 581 Fed. Appx. 49 (2d Cir. Oct. 16, 2014).


Second Circuit Applies Plain Meaning of Scheduled Locations Endorsement to Super Storm Sandy Loss


A policyholder that occupied the 33rd floor of a New York City skyscraper submitted a claim under its flood policy for the loss of a $2.2 Million generator housed in the basement of the building. The policy contained a Scheduled Locations Endorsement defining the “covered location” as the 33rd floor of the building. The Endorsement extended coverage to “property in the open, or in vehicles, on or within 1,000 feet” of the covered location. Otherwise, a $50,000 limit applied for all other property.


Based upon the location of the generator in the basement, the Carrier paid $50,000 on the claim.   After Summary Judgment was entered by the District Court, the Second Circuit affirmed the dismissal of all claims.   Examining and applying the plain meaning of the Endorsement’s terms, the court found the generator was not located in the covered location and therefore coverage was limited to $50,000.


James D. Fowler v. Nationwide Mut. Fire Ins. Co., 64 S.E.2d 249 (S.C. Ct. App. Aug. 6, 2014)


Volunteer Fire Chief’s Opinions Concerning Cause And Origin Of Home Fire Inadmissible.


The insured filed suit against his insurer, Nationwide, claiming they improperly denied his claim for damages related to a fire at his home. Nationwide denied coverage after conducting its own investigation of the fire. Specifically, it hired a certified fire investigator who found the fire was intentional. This finding contradicted with the findings of the volunteer fire chief that originally responded to the fire who found the fire was unintentional and may have been caused by a heater.


Prior to the trial, Nationwide filed a motion in limine to exclude the fire chief’s testimony concerning the cause and origin of the fire. The trial court held the Chief was not qualified to render such in opinion.   The trial court admitted a “Truck Report” into evidence which discussed the Chief’s opinion related to cause and origin.


In reversing the trial court’s decision, the appellate court held the Chief was not a qualified expert and could only testify as a lay witness. The statements in the “Truck Report” related to cause and origin should have been excluded because the Chief did not have the requisite “special knowledge, skill, experience or training” under the South Carolina Rules of Evidence to render such an opinion.


The appellate court also held the Chief’s statements made in the “Truck Report” were not admissible under the public records hearsay exception because the Report contained opinions and conclusions.