Florida Property Insurers Must Pay All Losses If Any “Concurrent Cause” Is Covered

Destroyed HouseIn the latest of a string of recent decisions adverse to insurers, the Florida Supreme Court held that, where a residential property incurs damage due to the cumulative or combined effects of multiple “concurrent” causes, any of which a homeowners policy covers, the insurer must pay the entire loss even if its policy expressly excludes the other causes. Sebo v. Amer. Home Assurance Co., No. SC14-897 (Dec. 1, 2016). The same rule will presumably be applied to other property lines and by analogy to liability policies also.

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Insurance Archaeology and the London Market

Archive FilesLong-tail coverage disputes often involve multiple policies issued over multiple policy periods over multiple layers of insurance. Sometimes the potential relevant policies go back decades or more. Locating these ancient policies is an enormous task. Locating the placing, underwriting and claims files that go along with these policies is even more difficult. Compound all of this difficulty with insurance placed in the London Market prior to 1992.

To many, the workings of the London Insurance Market is a mystery, especially when discussing the marketplace known as Lloyd’s of London. Unlike the manner in which insurance was produced and underwritten in the US by domestic insurers, the London Market, and especially Lloyd’s, had its own, unique, way of doing business. In a recent discovery dispute, a US Magistrate Judge, on a motion to compel discovery, had to address many of these issues.

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Squire Patton Boggs Reinsurance Newsletter December 2017

The December 2016 edition of the Squire Patton Boggs Reinsurance Newsletter is out! In this issue, we discuss the 7th Circuit’s decision on waiver of removal because of a service-of-suit clause, the 2nd Circuit’s affirmance that an arbitration must take place in New York and not based on an arbitration clause in an endorsement applicable to only Bermuda and UK reinsurers, and the 2nd Circuit’s decision in a non-reinsurance case on what happens when the arbitral organization expressly designated in an arbitration clause refuses jurisdiction over the arbitration. Many more cases are discussed along with a list of our recent presentations and publications. To find prior issues of the Reinsurance Newsletter, just search “Reinsurance Newsletter” under Insights & Events tab on the Squire Patton Boggs webpage.

Defining Injury to Property For Investment Losses

frustrated stressed man desperate with financial market graphic going downSection 3420 of the New York Insurance Law provides for a limited direct right of action by an underlying plaintiff against an insurance company where a judgment has been obtained against the insured by the plaintiff and has not been paid after 30 days after service of the judgment with notice of its entry. This provision provides to policies providing coverage for personal injuries and injury or destruction of property.

In a recent case, a New York motion court was asked to determine whether a pure economic loss–investment losses in a brokerage account allegedly due to improper handling of investments–is property damage under Section 3420 so that a direct right of action is permitted.

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What a Difference a Word Makes

Words have powerLack of precision in reinsurance contract wording has been known to engender anomalous results. Often a single word or phrase can cause a court or arbitrator to construe an agreement in ways unintended. In reinsurance arbitrations, when the panel majority decides how a contract operates based on its construction of a word or phrase, the losing party is likely stuck with that result even if a court might have construed the contract differently.

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Insurable Interest and Life Insurance

Man with paper bag on his headThere’s lots that has been and will be written about the changes in the definition of insurable interest in the context of life insurance. Traditionally, an owner of a life insurance policy had to have an insurable interest in the life of the person insured. Typically that meant the policyholder herself, or her spouse or child. The insured life could not be that of a stranger with no connection to the owner. Purchasing a policy on a stranger’s life is considered gambling on someone’s life and generally is not permitted in most jurisdictions.

But a lot has changed: the definition of insurable interest in various states has been amended, and life insurance policies are now frequently sold, either individually or packaged and sold as collateral for securities issued backed by these portfolios of life insurance policies. The traditional notion of an insurable interest on someone else’s life has been altered.

Recently, the Seventh Circuit Court of Appeals succinctly addressed a dispute where a bank sought life insurance proceeds on an individual’s life from a policy it purchased, acting as a securities intermediary, a few years before the person died. Upon acquiring the policy, the bank, in its intermediary capacity, was named as the beneficiary.

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The Dangers of Selecting an Exclusive Arbitral Forum

vipmembersArbitration clauses in commercial contracts often specify an arbitral forum before which any dispute must be arbitrated. Insurance and reinsurance contracts containing arbitration clauses are no different. Specificity about the arbitral forum (or the arbitral rules or the appointing authority in case of an impasse) in an arbitration clause has resulted in much case law over the years when the forum no longer exists or refuses to take the dispute (or where the rules referenced have changed or are outdated or the appointing authority does not exist or refuses to appoint). So while specificity is generally a good thing in a contract, sometimes too much specificity backfires when a dispute arises years later and circumstances have changed.

The United States Court of Appeals for the Second Circuit recently addressed the issue of an arbitral forum that refused to take an arbitration in a consumer contract. While not an insurance or reinsurance contract, the court’s pronouncements could have an effect on a dispute under an insurance or reinsurance contract where an arbitral forum is exclusively prescribed in the arbitration clause.

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Contractual Privity and Reinsurance

Close-up image of a firm handshake between two colleaguesIn most jurisdictions a policyholder cannot bring a direct action against a reinsurer because of the lack of contractual privity. Yes, there are some quirky statutes and jurisdictions that allow a direct right of action under certain circumstances, but the general rule is that where there is no contractual relationship between the reinsurer and the underlying policyholder, a direct action against the reinsurer will not withstand a motion to dismiss. Reinsurers typically like this rule because it prevents suits by policyholders against them when claims are denied by the direct insurer/cedent or where claims handling issues arise.

In a recent case, however, with unique factual and contractual circumstances, a reinsurer brought a direct action against a policyholder. How do you think the reinsurer’s action fared?

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Disclaimers and Late Notice When to Raise and When Waived

businesswoman waving goodbye from tentWhen an insurance company decides to disclaim coverage it has to be very careful about timing the notice and the substance of the disclaimer. Courts have been generally strict in finding that a carrier’s failure to specify a ground for disclaimer precludes the carrier from raising that ground subsequently as an affirmative defense in a coverage action. Disclaimers based on late notice add additional complexity given the carrier’s need to demonstrate prejudice in many states.

In a recent coverage case in New York, a carrier sought to amend its answer to assert the affirmative defense of late notice. The motion court granted the carrier’s motion, but on appeal, the appellate court reversed, holding that the carrier waived its right to assert the late notice defense. The carrier appealed, and the New York Court of Appeals reversed and reinstated the motion court’s order allowing the answer to be amended to assert the affirmative defense of late notice.

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Additional Insured By Written Contract Clause Construed to Bar Coverage

Business People Meeting

Commercial construction projects necessarily involve many moving parts, including multiple parties from the owners to the construction managers to the project financiers to the contractors and to the sub-contractors. These moving parts generally result in a web of interrelated insurance policies covering the project. Typically, when there is no controlled insurance program, contractors and sub-contractors are required to obtain liability insurance covering their potential negligence and very often are also required to add others, like the property owner or construction manager, as additional insureds onto those insurance policies.

But not all additional insured clauses are the same. In this post, we discuss what a New York appellate court recently called an “additional insured by written contract” clause. The language of an additional insured clause may make all the difference as to whether a party is covered as an additional insured or not.

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