Archive for the ‘Insurance Practices’ Category

New York’s Court of Appeals Holds that Anti-Stacking Provision Justifies “All Sums” Allocation to Continuous Injury Claims

Tuesday, May 3rd, 2016

By Timothy D. Kevane, Sedgwick New York

In a landmark decision, the New York Court of Appeals broke with its prior precedent adopting a “pro rata” allocation among general liability policies for continuous injury claims, and held that where the policy contains an anti-stacking or similar provision, an “all sums” approach will apply. Viking Pump, Inc. v. TIG Insurance Co., — N.Y.3d –, 2016 WL 1735790 (N.Y. May 3, 2016).

The case involved claims arising from longterm exposure to asbestos from the insured’s pump manufacturing business. The question was how to allocate the indemnity obligation among successive policies, which obligated the insurers to pay “all sums” because of bodily injury occurring during the policy period.  Pursuant to the Court’s prior opinion in Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208 (2002), the pro rata method of allocation was applied to claims involving environmental contamination over a number of years and policy periods based on two key provisions in the policy: (i) the agreement to indemnify the insured for “all sums” for which the insured was liable arising out of an occurrence; and (ii) indemnification applied to liability incurred as a result of an occurrence “during the policy period” only.  The all sums method of allocation permits the insured to recover its total liability under any policy in effect when the damage occurred, whereas the pro rata approach adopted by the Court in Consolidated Edison limits the insurer’s liability to sums incurred by the insured during the policy period.

The Court held that the pro rata allocation it endorsed in Consolidated Edison did not apply here since the policies contained non-cumulation (anti-stacking) or similar “prior insurance” provisions. These provisions adjust the policy’s limit if the insurer made any payment for the same injury under a prior policy concerning the same incident, thus preventing the insured from “stacking” the limits of consecutive policies.  According to the Court, these provisions made the policies at issue “substantively distinguishable” from those in Consolidated Edison, which contemplated that different policy wording might compel an all sums allocation (some of the policies in Consolidated Edison in fact did contain anti-stacking provisions, but the decision made no reference to them).  The Court found that these provisions undermined the very premise upon which pro rata allocation is based.  If the intent had always been to allocate damages based on policy periods, the anti-stacking provisions would be rendered superfluous.  Since contractual interpretation principles would prohibit such a result, the only reconciliation was to adopt an all sums approach to the insuring clause.  In reaching its decision, the Court suggested that the Second Circuit’s recent application of a pro rata approach for policies containing anti-stacking provisions in Olin Corp. v. Amer. Home Assur. Co., 704 F.3d 89 (2nd Cir. 2012) may have relied on an unduly narrow interpretation of Consolidated Edison.  Given that the weight of authority has favored pro rata allocation over all sums, and that other courts have followed New York’s lead, it remains to be seen how these pro rata jurisdictions respond to Viking Pump.

Finally, the Court held that the insured would only be required to vertically exhaust its coverage, thus allowing it to access each excess policy once the immediately underlying policies’ limits are exhausted – even if other underlying policies during different policy periods are not exhausted. The Court found this approach more consistent given the language tying attachment of the excess policies to policies that cover the same policy period and the adoption of the all sums approach.

Setting the Standard: Ontario Court Enforces Hybrid Arbitration Agreement in Favour of Bermudian P&I Club

Wednesday, February 17th, 2016

By Alex J. Potts, Sedgwick-Chudleigh Bermuda

In the recent decision of T. F. Warren Group Inc and Vanguard Shipping (Great Lakes) Ltd v The Standard Steamship Owners’ Protection and Indemnity Association (Bermuda) Limited [2015] ONSC 7778, the Ontario Superior Court of Justice granted a stay of court proceedings under Ontario’s International Commercial Arbitrations Act 1990, in order to enforce a hybrid London arbitration agreement between two insureds and The Standard Club, a Bermudian Protection & Indemnity Association (‘the P&I Club’).

The liability insurance claims asserted in the proceedings related to a maritime incident that occurred in 2011, when a ship collided with a railway bridge on the Maumee River in Ohio. As the Court noted in passing: “the bridge was very likely minding its own business.

Section 25 of the P&I Club’s Defence Rules imposed conditions that arguably could be read as giving the P&I Club unilateral discretion to delay the submission of any dispute to arbitration. In particular, section 25 provided that:

  1. The insured party had to submit the dispute to the P&I Club;
  2. No insured party was entitled to maintain any legal proceedings against the P&I Club unless and until the matter had been submitted to the P&I Club for decision;
  3. The parties then would engage in mandatory mediation (in London); and
  4. If the matter was not settled by mandatory mediation within 14 days, “the dispute shall be referred to and finally resolved by arbitration in London,” subject to the UK’s Arbitration Act 1996.

The Court noted that the P&I Club sat on the insured’s claim for a year.  The Court observed that, “the entire premise of granting a stay under the ICAA is that the party whose action is stayed is not denied access to justice but is gently but firmly directed to the correct door to obtain it.

To mitigate against the risk of further delays, the Court ordered an interim stay of the proceedings, which would then become a permanent stay if all conditions precedent to commencement of arbitration proceedings had been waived or completed within a reasonable period of time.

Although this decision should give comfort to the various P&I Clubs that are incorporated in Bermuda and in the UK that the Canadian Courts will enforce London and Bermuda arbitration agreements, it also illustrates the importance of careful drafting of such clauses, so that they can be easily understood, performed, and enforced.

New Jersey Supreme Court Affirms Viability of Late Notice Defense Under Claims-Made Policies

Friday, February 12th, 2016

By William Brennan, Sedgwick New York

In a decision released yesterday, the New Jersey Supreme Court held that an insurer could deny coverage under a claims-made directors and officers policy based on the insured’s late notice, without any evidence of prejudice to the insurer.

In Templo Fuente De Vida Corp., et al. v. National Union Fire Insurance Co., ___ A.3d ___, 2016 WL 529602 (N.J. Feb. 11, 2016), the underlying plaintiffs brought a number of claims against First Independent Financial Group. (“First Independent”) in the wake of a failed real estate deal for which First Independent had promised to provide funding, only to come up empty when the closing date rolled around.  First Financial’s D&O policy with National Union required it to provide notice of claims “as soon as practicable” and within the policy period.  Yet First Financial did not notify National Union of this claim until six months after it had been served, and after it had retained counsel and filed an answer.  National Union promptly disclaimed on grounds of late notice.  In the ensuing coverage litigation brought by the underlying plaintiffs, to whom First Financial assigned its insurance claim, the trial court granted National Union summary judgment on the basis of the late notice defense, brushing aside the plaintiffs’ arguments that National Union should be required to demonstrate prejudice arising from the late notice.  After an affirmance by the New Jersey Appellate Division, the issue arrived at the Supreme Court.

The New Jersey Supreme Court acknowledged that New Jersey does require insurers to show prejudice in order to make out a late notice defense, but noted that this principle applied only to occurrence policies.  The Court emphasized that it approached occurrence and claims-made policies differently due to its belief that the “vast majority” of policyholders with occurrence policies were unsophisticated consumers buying adhesion contracts, while claims-made policyholders, especially for D&O policyholders like First Independent, were sophisticated insureds advised by sophisticated brokers.  Given this background, the Court found that the National Union policy at issue, including its notice requirement, “sufficiently conformed to the objectively reasonable expectations of the insured, and, hence, did not violate the public policy of New Jersey.”  It therefore enforced the prompt notice requirement as written, without imposing a further “prejudice” requirement.

Staying Current on Emerging and Complex Insurance Claims

Friday, February 12th, 2016

In the ever changing legal environment, staying current on complex coverage issues is critical. The upcoming Emerging and Complex Insurance Claims Forum will provide in-house counsel, outside counsel, and policyholder professionals updates on the latest hot topics.

The topics to be covered include: legalized marijuana, drones, cyber liability, social media, product liability claims, additional insured’s, construction claims, SIRs, ADR and additional topics as they hit the news. This event also offers an extended session on allocation, run by the experts who live it every day. This is an opportunity to learn from leading coverage attorneys, litigators, mediators, technology experts, international business experts, and in-house professionals from insurance companies.

The Forum is sponsored by HB Litigation Conference and will be held in Los Angeles on February 25-26, 2016, at the Los Angeles Athletic Club. Laurie Kamaiko, a partner in the firm’s Cybersecurity & Privacy Group and a member of its Insurance Division, will be a panelist on “Cyber Liability Coverage: You say Yes, I Say No.”

HB Litigation Conferences is a premier provider of Insurance, Mass Torts, Construction, and Professional Development conferences, content and networking. Complete details for this insurance forum can be found at http://litigationconferences.com/insurance-allocation-complex-claims-2016/

HB has made this conference complimentary to in-house counsel. Others may save $200 using promotion code SEDGWICK.

Privy Council Enforces Arbitration Agreement: When “May” Means “Must”

Friday, January 29th, 2016

By Alex J. Potts, Sedgwick-Chudleigh Bermuda

The Privy Council has handed down its judgment in Anzen Limited v Hermes One Limited [2016] UKPC 1, a case concerning enforcement of an arbitration agreement. The judgment can be found at http://www.bailii.org/uk/cases/UKPC/2016/1.html. The appeal came from the Eastern Caribbean (BVI) Courts, but the decision is of significance for all arbitration-friendly offshore jurisdictions whose final right of appeal lies with the Privy Council, including Bermuda and the Cayman Islands.

The main issue on the appeal was the proper interpretation of an arbitration clause in a BVI company’s shareholders’ agreement which provided that, in the event of an unresolved dispute, “any party may submit the dispute to binding arbitration.” The arbitration agreement was subject to English law, and any arbitration was intended to be subject to ICC arbitration rules and the English Court’s supervisory jurisdiction.

It was concluded both at first instance and in the BVI Court of Appeal that the use of the word “may” effectively resulted in the arbitration clause being non-exclusive, permissive and optional, rather than mandatory; and that, unless and until a party actually had exercised its arbitration option by commencing an ICC arbitration with respect to a dispute, there was no basis for the BVI Court to stay any Court proceedings.

The Privy Council disagreed. Although it did not accept that the arbitration clause was mandatory in all circumstances, it concluded that it was mandatory in the event that either party unequivocally insisted on there being an arbitration of any unresolved disputes (even if that party was not minded to commence arbitration itself, but simply waited until the other party did so).

The decision is to be welcomed as yet another example of the Court’s willingness to uphold and enforce arbitration agreements in arbitration-friendly jurisdictions such as Bermuda, the BVI, and the Cayman Islands.

However, the decision also illustrates, quite starkly, the importance of careful drafting of any arbitration agreement or jurisdiction agreement. Had the parties and their lawyers clearly used the word “shall” rather than the word “may” in the arbitration clause, they might have avoided the time and costs associated with over two years of litigation and two appeals.

Washington Supreme Court Broadly Interprets “Arising Out Of” for Purposes of UIM Claims

Monday, January 25th, 2016

By Eliot Harris, Sedgwick Seattle

On January 14, 2016, the Washington State Supreme Court rendered an important decision on when an injury “arises out of” the use of a vehicle for the purpose of uninsured motorist (“UIM”) coverage.

In Kroeber v. GEICO Insurance Co., a woman was shot outside a bar by the driver of an uninsured vehicle, and sought UIM coverage from her automobile insurer. The woman’s insurer, GEICO, provided coverage for damages that the insured was legally entitled to recover from the owner or operator of an uninsured motor vehicle due to bodily injury sustained and caused by an accident, provided that the liability of the owner or operator of an uninsured motor vehicle arises out of the ownership, maintenance or use of the uninsured motor vehicle. GEICO denied the claim because the woman’s injuries did not arise out of the use of the uninsured motorist’s truck, and she sued for coverage.

Prior Washington courts had found that the phrase “arising out of” in a UIM policy does not mean proximate cause, but indicates a lesser standard of causation having some relationship to or connection with the use, maintenance or ownership of the uninsured vehicle. The Kroeber court concluded that existing case law did not establish that the vehicle or an attachment to it need be the direct cause of the injury, but that the injury must have a causal relationship to the condition of the vehicle, a permanent attachment thereto, or some aspect of its operation. Thus, the court found, the phrase “arising out of” should be broadly construed to mean a mere causal connection between the injury and the use of the vehicle. The court distinguished situations where the vehicle serves as the “mere situs” of the accident, and noted that the distinction and determination for when the use of a vehicle causes the injury versus when it is the mere situs of the injury is a factual determination to be made by the trial court.

Kroeber is significant because it opens the potential for UIM coverage for injuries that are not directly caused by the vehicle, but are the independent actions of the operator of the vehicle at the time of the incident.

Sedgwick Supports ACCEC Insurance Law Symposium

Friday, January 8th, 2016

The American College of Coverage and Extracontractual Counsel (ACCEC) is hosting an Insurance Law Symposium on January 22, 2016, at Boston College Law School, in Newton, Massachusetts. Our partner Bruce Celebrezze is Secretary-Treasurer of the ACCEC.

The symposium is designed to enhance and further the dialogue on the issues facing today’s insurance industry by bringing together insurance professionals and regulatory authorities to share insights.  Topics range from intellectual property disputes and D&O liability to cybersecurity and data breach claims. The Hon. Herbert Wilkins (ALI Council member and former Chief Justice, Supreme Judicial Court of Massachusetts) will speak on A Chief Justice’s Perspective on Restatements and the Law.

Established in 2012, the ACCEC brings together pre-eminent lawyers representing the interests of both insurers and policyholders to improve the quality of the practice of insurance law and to increase civility and professionalism in its field. Its mission includes educating all sectors involved in insurance disputes — including the judiciary, legal and insurance professionals, and businesses — on critical topics such as best practices in policy formation and claims handling, developing trends in insurance law, and bad faith. Through its Board of Regents and its working committees, the College engages in a wide variety of activities designed to promote those goals, in addition to improving the civility and the quality of the practice of insurance law.

The registration deadline is Friday, January 15. Space is limited and available on a first-come, first-served basis. For more details, click here.

Damages for Late Payment of Insurance Claims

Monday, November 9th, 2015

By Andrew Milne, Sedgwick London

The UK Government recently proposed legislation to provide policyholders with the right to sue their insurers for damages caused by late payment of valid claims. This new section on late payment damages was introduced in the Enterprise Bill in September 2015, and is currently being considered by the two chambers of the UK Parliament, the House of Lords and the House of Commons.  If passed by the UK Parliament, as is expected, the Enterprise Bill would bring insurance policies governed by English and Welsh law into line with that of many other jurisdictions, including most US states.  It could lead to a new clause being inserted into the Insurance Act 2015 (which becomes effective in August 2016), and would introduce an implied term into every insurance and reinsurance contract requiring payment of any sums due in respect of a claim within a reasonable period of time.  Insurers that fail to adhere would be liable to pay damages in addition to claim payments and interest.  Damages could be substantial where insureds or reinsureds can demonstrate that late payment had a significant impact on their business.

Assessing what is a reasonable time in which to pay a claim depends on the facts of each case, but is likely to be influenced by (1) the type of insurance, (2) the size and complexity of the claim, (3) the need to comply with any relevant legislation, and (4) factors outside an insurer’s control.  Insurers that can show they are waiting for information from an insured which is reasonably needed before paying a claim are likely to have a solid defense.  Insurers will be able to contract out of these changes when dealing with business insurance, provided they draw the relevant term to the insured’s attention before the policy becomes effective. It remains to be seen whether insureds would agree to this.

The determination to include this section to the Enterprise Bill comes as a surprise given that a similar provision in the Insurance Bill (now the Insurance Act 2015) was eliminated because it was deemed too controversial for inclusion in that bill.  It has not received a unanimous welcome in the insurance market, as concerns have been raised that the new term could be exploited by policyholders and give rise to US-style bad faith litigation.  Lloyd’s reportedly is lobbying for the section to exclude insurance for large risks; however, the proposed changes likely will be retained given the UK Government’s concerns about the effect a delay in paying a claim can have on an insured’s ability to resume trading after an insured loss.  Insurers should consider reviewing their internal claims risk management procedures, and perhaps ensure that claim denials, and situations involving delayed payment of a claim, are reviewed and approved by management.  Insurers also should confirm that third-party administrators or other entities involved in claims handling are aware of the new provisions, and further review their own insurance coverage to ensure cover for any damages awards.

The Road Ahead for Automated Cars

Wednesday, October 28th, 2015

By Hilary Rowen, Sedgwick San Francisco

Cars are starting to drive themselves. “Driver assistance” features—such as lane maintenance, adaptive cruise control, automatic braking and parking—are featured in some current model cars. Both traditional automobile manufacturers and technology companies, most notably Google, are developing more fully autonomous cars.

The new automotive technology will have three trajectories: the incremental addition of increasingly sophisticated driver assistance features to traditional automotive technology; the introduction of vehicles with operator controls that are designed to be fully autonomous in at least some driving situations; and the introduction of vehicles that do not have operator controls. The first two options are different paths to the same goal: a car that can drive itself much of the time, but that needs an operator as backup. These cars will be versatile. Under operator control, these cars can be driven anywhere and in any driving conditions. Under automated control, the cars will be able to drive themselves in many locations and a range of driving conditions. The third option—the purely robotic car—will probably be restricted to a narrower range of geographic locations: surface streets in urban downtowns and suburban locations with a high concentration of technology companies will likely be the initial venues for street-legal robots.

For more information about driverless cars and the future of insurance policies click here.

© 2015 Reprinted with permission, TheRecorder.com, October 26, 2015

Note: the title of the printed version of this article was “Sharing the road: Automated cars and human drivers.”

Self-Driving Cars: A View from 2025

Tuesday, September 29th, 2015

By Hilary Rowen, Sedgwick San Francisco

An array of self-driving cars will be on the road within the next decade. Over the next few years, sensors and software will substitute for the human driver in an increasingly wide range of driving conditions. What will the driving and auto insurance worlds look like in 2025?

A Vision of the Future in 10 Years

By 2025, fully autonomous vehicles, with no driver controls, likely will be deployed in a variety of settings. However, the geographic footprint and driving conditions in which fully automated vehicles can travel will remain restricted. These driverless vehicles primarily will be owned by commercial operations, rather than individuals. They will be quite common in some locations, including downtown areas of large cities, suburban technology clusters and tourist destinations.

Further deployment will depend not only on technological developments but also on political debates not dissimilar to the current issues arising from the launch of Uber in various cities.

To continue reading…

© 2015 Reprinted with permission, WardsAuto.com

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