PANDEMIC UPDATE

Citing the Ohio Supreme Court’s recent declaration that
commercial property insurance policies do not cover COVID BI
losses, the Sixth Circuit issued brief opinions in five cases
affirming the dismissal of policyholder claims.

The California Courts of Appeal continue to nibble around the
edges of the COVID coverage controversy. In John’s Grill, Inc. v. Hartford Financial
Services Group, Inc., A162709 (Cal. App. Dec. 27, 2022), the
First District ruled that a trial court erred in dismissing a
restauranteur’s claims against Sentinel Insurance in light of a
Limited Virus Coverage endorsement in the policy which the couoet
interpreted as containing an affirmative grant of coverage for
“loss or damage” caused by a virus and a definition of
“loss or damage” that the court held was broad enough to
encompass pervasive infiltration of virus particulates onto the
surfaces of covered property. Although the court acknowledged that
this coverage was limited to specific causes, none of which had
been alleged by the insured, it ruled that the broader
interpretation advocated by Sentinel would turn the coverage
provided by this endorsement into an “empty promise.”

In light of these conflicting opinions, the Ninth Circuit issued
an opinion this week in Another Planet Entertainment, LLC v. Vigilant Ins.
Co., No. 21-16093 (9th Cir. Dec. 28, 2022) certifying the
following question to the California Supreme Court: “Can the
actual or potential presence of the COVID-19 virus on an
insured’s premises constitute ‘direct physical loss or
damage to property’ for purposes of coverage under a commercial
property insurance policy?”

CASES OF CONSEQUENCE

FIFTH CIRCUIT Employee Exclusion (TX)

The Fifth Circuit has ruled in National Liability & Fire Ins. Co. v. Riata
Cattle Co., No. 21-40846 (5th Cir. Dec. 21, 2022) that an
insured was not entitled to coverage for claims by an employee that
he was injured due to the insured’s failure to properly
maintain the truck in which he was injured in light of a policy
exclusion for injuries to “‘[e]mployee’ of the
‘insured’ arising out of any course of: (1) employment by
the ‘insured’ or (2) performing the duties related to the
conduct of the ‘insured’s’ business.” Further, the
court declined to rule that this exclusion was negated by Form F,
the endorsement required under Texas law to ensure that policies
conform to state transportation regulations.

GEORGIA PFAS/Absolute Pollution Exclusion

A federal district court in Atlanta has ruled in Grange Ins. Co. v. Cycle-Tex, Inc., No. 21-147
(N.D. Ga. Dec. 5, 2022) that allegations that the insured caused or
contributed to the discharge of harmful toxic per- and
polyfluoroalkyl substances chemicals into North Georgia waterways
are subject to a total pollution exclusion. In granting summary
judgment to Grange, the court held that PFAS chemicals are clearly
“pollutants.” While acknowledging the insured’s
argument that regulatory surcharges assessed for water filtration
remedies were not claims for “bodily injury” or
“property damage” subject to Section 1 of the Total
Pollution Exclusion, the court nonetheless held that these were a
“loss, cost or expense” to treat or neutralize pollution
within Section 2 of the exclusion.

NEW YORK Tripartite

The Appellate Division of the New York Supreme Court has ruled a
liability insurer may go forward with its legal malpractice claim
against defense counsel on the theory that its mishandling of the
underlying claim obliged Federal to pay millions more to settle
than it should have owed. However, the First Department ruled in Federal Ins. Co. v. Lester Schwab Katz &
Dwyer, LLP, 2022 NY slip op 7149 (App. Div. Dec. 15, 2022) that
the trial judge should have dismissed Federal’s claims of fraud
and negligent misrepresentation as the evidence did not support
these theories of liability.

NEW YORK War

Judge Furman has ruled in Hartford Fire Ins. Co. v. The Western Union
Co., No. 22-CV-0557 (S.D.N.Y. Sept. 22, 2022) that a war
exclusion relieved Hartford of any duty to defend Western Union
against allegations by the families of victims of Malaysian Air
Flight 17 that Western Union facilitated financial transaction that
allowed pro-Russian dissidents in Ukraine to shoot down the
aircraft in 2014. Applying Colorado law, the District Court ruled
that the loss clearly arose out of an “insurrection”
within the scope of the exclusion.

OHIO First Party/Cyber Claims/Direct Physical
Loss

Having recently ruled that COVID virus particles do not cause
“direct physical loss,” the Ohio Supreme Court ruled last
week that property insurance policies do not cover ransomware
claims in which malware is attached to the insured’s computer,
encrypting access to stored files and data. In EMOI Services, LLC v. Owners Ins. Co.,
2022-Ohio-4649 (Ohio Dec. 27, 2022), the court ruled that the
policy’s electronic equipment endorsement did not apply to this
loss because “software is an intangible item that cannot
experience direct physical loss or direct physical damage” and
that “[c]omputer software cannot experience “direct
physical loss or physical damage” because it does not have a
physical existence.”

OTHER DEVELOPMENTS OF NOTE

Inside the Insurance Industry

Catastrophe modeler Karen Clark & Co. estimates that insured
losses from last week’s severe weather events could exceed $ 5
billion.

Barry Gilway has announced plans to step aside after a decade as
the CEO and Executive Director of Florida’s Citizens Property
Insurance Corporation.

Barry Gilway has announced plans to step aside after a decade as
the CEO and Executive Director of Florida’s Citizens Property
Insurance Corporation.