Fort Lauderdale, Fla. (April 25, 2023) – On March 24, 2023, Florida Governor Ron DeSantis signed a sweeping tort reform bill, CS/CS/HB 837 (HB 837), into law. Among its numerous implications, HB 837 amends Florida Statute §624.155 (the Civil Remedy Statute), heightening the insured’s burden for recovery of extracontractual, i.e. “bad faith,” damages under Florida law.

Preceding Legislation
HB 837 is the second piece of legislation that was passed in the last three months addressing an insured’s right to recover bad faith damages. Prior to HB 837’s enactment, on December 16, 2022, Governor DeSantis signed into law S.B. 2-A, which created Florida Statute Section 624.1551 (“Civil Remedy Actions Against Property Insurers”). This statute prohibits recovery of bad faith damages absent an adverse adjudication that the insurer breached the policy and a final judgment against the insurer. Section 624.1551 also clarifies that acceptance of an offer of judgment or an appraisal award does not constitute an adverse adjudication and does not, on its own, give rise to a cause of action for extracontractual damages.

Reprinted courtesy of Bradley S. Fischer, Lewis Brisbois and Samantha S. Rhayem, Lewis Brisbois
Mr. Fischer may be contacted at Bradley.Fischer@lewisbrisbois.com
Ms. Rhayem may be contacted at Samantha.Rhayem@lewisbrisbois.com

The Ninth Circuit asked the California Supreme Court to address whether the policy's virus exclusion was enforceable to preclude coverage for business income losses due to the present of COVID-19 at the insured's properties. French Laundry Partners LP v. Hartford Fire Ins. Co., 2023 U.S. App. LEXIS 2845 (9th Cir. Feb. 6, 2023).

French Laundry Partners owned two restaurants in Napa County, California. The restaurants were forced to shut down due to the government orders related to the COVID-19 pandemic. It sought coverage for its economic losses, but Hartford denied the claim. French Laundry filed suit.

The California Court of Appeal reversed the trial court's grant of the insurer's demurrer on a COVID-19 claim and remanded the case for further proceedings. John's Grill v. Hartford Fin. Servs. Group, 2022 Cal. App. LEXIS 1056 (Cal. Ct. App. Dec. 27, 2022).

John's Grill had two insurers, Hartford and Sentinel. Hartford's motion to quash service of summons was granted by the trial court and affirmed by the appellate court. Sentinel's policy had customised trigger-of-coverage language that was virus-specific. The Sentinel endorsement (1) contained an affirmative grant of coverage specifically for "loss or damage" caused by a virus; and (2) a special definition of 'loss or damage" that included "direct physical loss or direct physical damage to" property, but was broad enough to encompass pervasive infiltration of virus particulates onto the surfaces of covered property, which is what John's Grill alleged here.

Although collateral agreements provide security for insurers on policies with large deductibles, they can create hardships for insureds that are out of proportion with the insurers’ security concerns. Insurers require collateral as security for the repayment of insureds’ deductible obligations for large-deductible liability insurance policies. But collateral agreements also can tie up millions of dollars of insureds’ money for long periods of time and leave insureds with no way of recovering their money once the collateral has served its purpose.

Reprinted courtesy of Brian J. Clifford, Saxe Doernberger & Vita, P.C. and Anna M. Perry, Saxe Doernberger & Vita, P.C.
Mr. Clifford may be contacted at BClifford@sdvlaw.com
Ms. Perry may be contacted at APerry@sdvlaw.com

Conceding it was an unusual step, the federal district court ordered that limited discovery take place before ruling on the insurers' motions to dismiss the insureds' business interruption claims due to COVID-19. Philadelphia Eagles Limited Partnership v. Factory Mut. Ins. Co., 2022 U.S. Dist. LEXIS 225729 (E.D. Pa. Dec. 15, 2022).

The Philadelphia Eagles submitted claims to its insurer, Factory Mutual Insurance Company, for large loss of of revenue due to COVID-19. Similarly, the Philadelphia 76ers submitted claims to Hartford Fire Insurance Company for losses due to COVID-19. The insurers denied claims. When suits were filed, the two insurers moved to dismiss.

The broker's argument that its liability could not be established until after the insurer was found to have breached the policy failed. Pedernal Props., LLC v. Marsh United States Inc., 2022 U.S. Dist. LEXIS 207618 (N. D. Okla. Nov. 16, 2022).

Marsh procured a property policy from Markel American Insurance Company naming Pedernal as the insured. Pedernal suffered a loss and submitted a claim to Market. Markel denied the tender and refused payment to Pedernal. Pedernal then filed suit against Markel for breach of contract and bad faith in its claim handling. Pedernal also alleged Marsh omitted certain information from Markel in connection with the insured property. Pedernal sought damages from Marsh for negligence.

The Hawaii Supreme Court granted certiorari in a case involving an agent's alleged negligence in deciding not to submit a claim. Pflueger, Inc. v. AIU Holdings, Inc., 2023 Haw. LEXIS 3 (Haw. Ct. App. Jan. 6, 2023). Our post on the Intermediate Court of Appeals decision is here

The insured received a subpoena and informed the agent. The agent responded that a subpoena was not considered a "claim" and did not submit the claim to the insurer. Later, the insured's attorney submitted the claim which was denied as untimely. The insured settled with the insurer, but continued the lawsuit against the agent.
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New York, N.Y. (January 31, 2023) - Following up on our previous updates regarding the pending New York legislation known as the Grieving Families Act, just before the deadline on January 30, 2023, Governor Hochul vetoed the piece of legislation.

For months, the New York legal and business communities had been following the progress of Bill S74A, also known as the “Grieving Families Act,” which was passed by the New York legislature in June 2022. After Governor Hochul was reelected and sworn in, we learned that she had until January 30, 2023 to sign the current or an amended version of the bill, send it back to the legislature for more changes, or veto it. Although the legislature and plaintiffs bar had been pressuring the governor to sign the bill, other groups launched a concerted effort to veto or at least amend the bill.

Federal and state courts tackled a myriad of interesting insurance-related issues this past year. Over two years into the pandemic, we saw the first state high court decision regarding whether property policies provide coverage for COVID-19 losses. Elsewhere, as our country continues to grapple with the opioid epidemic, courts are confronted with whether commercial general liability policies provide coverage for various opioid-related damages. In a very interesting policyholder friendly decision, the Supreme Court of Washington found a claims-made CGL policy to be violative of public policy. The Court of Appeals of North Carolina was tasked with evaluating coverage for a disease contracted through a hot tub display. And - on the more mundane side, yet still important for the industry - the Texas Supreme Court refined its application of the eight-corners rule. These are merely a sampling of the impactful insurance decisions rendered in 2022.

Reprinted courtesy of Jeffrey J. Vita, Saxe Doernberger & Vita, P.C., Grace V. Hebbel, Saxe Doernberger & Vita, P.C. and Michael A. Amato, Saxe Doernberger & Vita, P.C.
Mr. Vita may be contacted at JVita@sdvlaw.com
Ms. Hebbel may be contacted at GHebbel@sdvlaw.com
Mr. Amato may be contacted at MAmato@sdvlaw.com

Following the basic notice requirements to provide timely and adequate notice of a claim contained in all insurance policies seems elemental to triggering an insurer’s duty to defend a policyholder. However, even sophisticated insureds can sometimes miss the simple notice provisions in their policies. This is why all insureds, no matter the level of their legal knowledge, need to pay close attention as to when and how to place their insurance companies on notice of a potential claim. If not, policyholders can easily lose out on significant coverage.

Harvard’s failure to meet this simple notice requirement lost the school $15 million of insurance coverage from its excess carrier for a claim stemming from a 2014 lawsuit filed against Harvard alleging unconstitutional admission policies. After the admission case was filed, Harvard tendered its defense to its primary insurer, AIG, with a policy limit of $25 million. Harvard additionally maintained an excess policy with Zurich with coverage of $15 million.

One of the most publicized security breaches was the 2013 hack of Target’s payment and security system. What's not as well known is that access credentials were stolen from an HVAC contractor that was working with Target. The data connection that was accessed was being used for electronic billing, contract submissions and project management. An employee of the HVAC company fell victim to a phishing attack by clicking on an email that contained malware. The rest is cybersecurity history.

While the construction industry does not generally face the same information security regulatory requirements as the healthcare and financial sectors, it does face the same threats. At a time when remote work is increasing risks, many sources report that the construction industry lags behind others in bolstering its security systems. That lack of security can lead to liability for significant losses.

Reprinted courtesy of James T. Dixon, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.