Hydraulic Fracking – Recent Developments in CA, NY, NJ and PA

December 20th, 2012

By Greg Lahr

For our readers who are keeping tabs on developments in the hydraulic fracturing (“fracking”) industry, we thought you would be interested in Sedgwick’s latest Hydraulic Fracturing News Flash regarding a recent proposal in California to regulate fracking, which can be viewed here.

Here are some recent developments that we are following in other states:

In New York, the Department of Environmental Conservation (“DEC”) has prepared a Revised Draft Supplemental Generic Environmental Impact Statement (“SGEIS”) on the Oil, Gas and Solution Mining Regulatory Program. The SGEIS pertains to issuing well permits for horizontal drilling and high-volume hydraulic fracturing for extracting oil and natural gas from the Marcellus Shale and other low-permeability gas reservoirs. Since making the SGEIS available for public review in September 2011, the DEC has drafted proposed regulations, which are available for comments from December 12, 2012 to January 11, 2013. At least until the regulations are finalized, it appears that the DEC’s moratorium on issuing well permits for horizontal drilling and fracking will continue.

In Pennsylvania, appellate review of the constitutionality of Act 13 of 2012 (“Act 13”), 58 Pa. C.S. §§ 2301 et seq. (signed into law on February 14, 2012), continues with the filing of appellate briefs to the Pennsylvania Supreme Court in September 2012. According to the General Assembly, Act 13 broadly reformed the laws that govern the development of oil and gas resources in Pennsylvania by establishing uniformity and promoting growth in the industry though the pre-emption of local ordinances that impose conditions or limitations on oil and gas operations. The General Assembly intended to allow oil and gas development as a permitted use in any zoning district, and mandate that restrictions placed on oil and gas development by municipalities be no greater than those placed on other industrial uses. A number of municipalities sought a declaratory judgment that Act 13 is unconstitutional, and requested that the Act be permanently enjoined. After the Pennsylvania Attorney General filed preliminary objections based primarily on standing and justiciability grounds, the municipalities filed a motion for summary judgment. On July 12, 2012, the Commonwealth Court issued a decision that granted in part and denied in part the summary judgment motion, and in part sustained the Attorney General’s objections. Significantly, the court declared a section of Act 13, which provides for uniformity of local ordinances, to be unconstitutional. Cross-appeals were filed by the municipalities and the Attorney General.

In New Jersey, a one-year moratorium on fracking signed by Governor Christie is set to expire in January 2013. However, a New Jersey assemblyman is currently sponsoring legislation that would extend the ban on fracking until the state Department of Environmental Protection reviews the federal Environmental Protection Agency’s study on the effects of fracking, which may not be out in final form until 2014.

Cases to Watch in 2013

December 20th, 2012

The onset of the new year brings lists of all types: holiday gift lists, the best movies of 2012, New Year’s resolutions. The Sedgwick Insurance Law Blog has made a list of the insurance cases to watch in 2013. Some are just getting off the ground and we will be watching to see how they move through the courts, while others are ongoing and we are watching for decisions from the appellate courts. Our list crosses various lines of insurance coverage and issues, but we know it is far from complete. Please vote for your pick(s) and/or tell us what case you are watching.

Survey can be found here.

Please look out for the post in early January with the results.

 

Welcome to our New Editors

December 19th, 2012

We are pleased to introduce three new editors to the blog for 2013: Jeannine Jacobson, associate in our Fort Lauderdale office, Chen Foley, associate in Bermuda, and Aaron Mandel, associate in New York. 

Libor Fixing Probe – UBS Facing Potential $1 Billion Fine

December 17th, 2012

UBS, Switzerland’s largest bank, is set to become the second financial institution to enter into a settlement arising out of the Libor rate-fixing scandal.  The potential agreement would reportedly allow UBS to pay approximately $1 billion to settle allegations that it attempted to rig various interbank interest rates to increase trading profits.  The deal would resolve investigations conducted by certain U.S., British and Swiss regulators, including the U.S. Department of Justice, the U.S. Commodities Futures Trading Commission, and the U.K. Financial Services Authority.  UBS is expected to make the announcement next week, as early as Monday. 

Although UBS was granted leniency for cooperating with investigators, this fine is more than double the $450 million paid by Barclays earlier this year to settle its role in the Libor scandal. The Libor rate is used to set borrowing rates for over $350 trillion worth of lending contracts worldwide.  The Libor probe has involved approximately 20 of the biggest banks across three continents, involving regulators from the U.S., Canada, Europe, and Japan.  Recently, British prosecutors arrested several individuals as part of a criminal investigation into rate manipulation.  One of these individuals, Thomas Hayes, is a former UBS trader employed with the bank from 2006 to 2009.  UBS is also facing investigations from the Canadian Competition Bureau, the Attorneys General of Connecticut and New York, and the Monetary Authority of Singapore.  It was not immediately clear whether the Canadian Libor probe would be part of the imminent settlement.

The Libor settlement is just one of the problems encountered by UBS over the past year.  Earlier this year, a rogue UBS trader cost the company $377 million before being jailed, and UBS reportedly had some involvement in issues arising out of the Facebook IPO.  More recently, the company announced that it would lay off 10,000 employees as part of its efforts to wind down a significant part of the investment bank. (“UBS faces $1bn fine over Libor allegations,” CNN.com, December 14, 2012;  “UBS in Talks Over $1 Billion Penalty,” The Wall Street Journal, December 13, 2012“UBS faces $1 billion fine for Libor rigging,” Reuters, December 13, 2012).

Texas Courts Continue to Address Appraisal Procedures

December 15th, 2012

We thought our readers would be interested in an article by Lisa Henderson from the Fall 2012 issue of newsletter by the Alternative Dispute Resolution Committee of the Tort Trial & Insurance Practice Section of the American Bar Association.  Lisa discusses appraisal clauses commonly found in property insurance contracts and the dispute over the appraisal process in Texas over the past few years.

Click here to read the article.

Pennsylvania Court Finds No Coverage for Construction Defect Claims Under General Liability Policies

December 11th, 2012

By Stevi Raab

In the case of American Home Assurance Co. v. Trumbull Corp., No. GD-11-006886 (Ct. Com. Pl. Allegheny County, Oct. 10, 2012), the court granted summary judgment in favor of two excess general liability insurers on a matter of first impression relating to coverage for damages caused by alleged faulty workmanship.  The court held that, under Pennsylvania law, general liability policies do not cover such claims.

In 2007, Trumbull Corporation completed construction of a reinforced soil slope and foundation pad for a new J.C. Penney store in southwestern Pennsylvania.  Shortly after the store opened, cracks began appearing in the J.C. Penney store and two additional buildings due to soil settlement.  Three commercial tenants moved out of the shopping center because of the cracks and sued Trumbull for faulty workmanship.  Trumbull submitted the claim to its primary and excess general liability insurers.

Trumbull’s primary insurer agreed to defend it under a reservation of rights, but Trumbull’s excess insurers filed an action against Trumbull seeking a declaration that they were not obligated to provide coverage.  The excess insurers moved for summary judgment, arguing that, under Pennsylvania law, damage to buildings resulting from faulty workmanship does not constitute an “occurrence” under general liability policies.

In considering the excess insurers’ summary judgment motion, the court noted that Pennsylvania courts had previously considered coverage for construction defect claims under three fact scenarios:  (1) where the work itself was damaged; (2) where there was damage to portions of the project and the work was performed under a contract between the insured and property owner; and (3) where there was damage to other portions of the project and there was no contract between the insured and property owner.

Although Pennsylvania courts had consistently agreed that an insurer may properly deny coverage for damage to the faulty work itself, the court noted that the last two situations could be analyzed under two inconsistent lines of reasoning:  the first finding coverage for ancillary damage, and the second concluding that damage resulting from faulty workmanship is never covered because “faulty workmanship can never constitute an accident.”  According to the court, Trumbull presented a fourth situation – i.e., where the faulty workmanship damages the property of a third party who was not involved in the project and had no relationship with the insured.  However, because it concluded that Pennsylvania’s appellate courts have adopted the second of the lines of reasoning described above, the court held that the excess insurers were not obligated to provide coverage to Trumbull.

Trumbull indicates that Pennsylvania courts have adopted a blanket rule that general liability policies do not cover damages resulting from faulty workmanship.  If appealed, the Trumbull decision will provide Pennsylvania’s appellate court with the opportunity to clarify Pennsylvania law regarding coverage for construction defect claims under general liability policies.

Failure to Read and Understand Policy Not an Absolute Bar to Negligence Claim Against Broker

December 10th, 2012

By Daniel Bryer

The New York Court of Appeals decided in the case of American Building Supply Corp. v. Petrocelli Group, Inc., No. 188, 2012 N.Y. Slip Op. 7849 (N.Y. Nov. 19, 2012), that an insured’s failure to read and understand its policy is not an absolute bar to recovery against a broker for the negligent failure to obtain specifically requested coverage.  In a four to two decision, the Court of Appeals held that, where issues of fact exist as to a request of specific coverage, the insured can maintain an action for negligence and breach of contract against the broker for failure to procure adequate insurance coverage even though the insured received the insurance policy without complaint.

Plaintiff American Building Supply Corp. (“ABS”) hired defendant Petrocelli Group, Inc. and allegedly requested Petrocelli obtain general liability coverage for its employees in case of injury.  ABS claimed that it informed Petrocelli that only employees entered the premises, never customers.  Nevertheless, Petrocelli obtained, and ABS renewed, an insurance policy that specifically excluded injury to any “employee of any insured.”  Subsequently, an ABS employee was injured at the facility and the insurer disclaimed based on the “employee” exclusion.

To establish its claim for negligence, ABS needed to establish that it specifically requested Petrocelli obtain coverage not provided in the policy.  Petrocelli maintained, however, that ABS’s claim was barred by its receipt of the insurance policy without complaint.

The Court noted that an insurance agent has a common-law duty to obtain requested coverage for a client; however, there is no continuing duty to advise, guide or direct a client to obtain additional coverage.  The Court stated that New York appellate courts have held that once an insured has received its policy, it is presumed to have read and understood the policy and cannot rely on the broker’s word that the policy covers what the insured requested.  Conversely, other appellate courts have held that receipt and presumed reading of the policy does not bar an action for negligence against the broker.

Ultimately, the Court of Appeals held an insured should have a right to “look to the expertise of its broker with respect to insurance matters.”  The failure to read the policy, at most, may give rise to a defense of comparative negligence but should not bar, altogether, an action against a broker.  Moreover, the failure to read and understand the policy is not an absolute bar to recovery under the facts of this case.

Welcome to Our New Partners

December 3rd, 2012

We are pleased to announce that three of the editors of the Insurance Law Blog have been elected to the firm’s partnership, effective January 1, 2013.  Alex Potente, David Dolendi and Maria Cousineau are longstanding members of Sedgwick’s editorial team and helped transition our insurance and property coverage newsletters to a blog format.  A few other of our insurance attorneys were promoted, including Valerie Rojas (LA – Fidelity/Bond and D&O) and John Seybert (NY – Healthcare).  Congratulations to all!

Please click here for more information.

 

Superstorm Sandy – NY Governor Cuomo Issues Executive Order Regarding Adjuster Licenses

November 30th, 2012

It has been a month since Superstorm Sandy hit the east coast causing tens of billions of dollars of damage to homes and businesses. On the insurance front, various states have revised regulations or issued executive orders impacting the way claims are assessed and handled. Today, NY Governor Cuomo issued an executive order directing that temporary licenses be issued on an expedited basis to out-of-state insurance adjusters. In addition, the NY Department of Financial Services (DFS) issued a new regulation requiring insurance companies to start investigating claims in 6 business days, rather than 15 days under current rules. The DFS website will feature online report cards on performance of insurance companies since the storm.

Following the storm, governors of New York, New Jersey, Connecticut and Maryland directed insurance companies not to enforce the homeowners’ hurricane deductibles given that the National Hurricane Center downgraded sandy to a “post-tropical storm” just before it made landfall. But, other states may allow insurance companies to enforce the hurricane deductibles. For instance, Sandy was still classified as a hurricane when it passed by North Carolina.

Estimates are that there will be between $10 billion to $20 billion in insured losses from the superstorm.

We are closely following the business and insurance implications from the storm and will provide updates on regulations and litigation as they arise.

 

Second Circuit Finds that Insured’s Notice to Broker Is Not Notice to the Insurer and Precludes Coverage for Property Owner’s Damage Claim

November 28th, 2012

By David Dolendi

In Pfeffer v. Harleysville Group, Inc., No. 11-CV-4513, 2012 WL 5392933 (2d Cir. Nov. 6, 2012) (applying New York law), a panel of the U.S. Court of Appeals for the Second Circuit held that the insured’s notice of a property damage claim to his insurance broker did not constitute notice to his insurance carrier under New York law.

The insured owned a six-unit apartment building in Brooklyn.  In December 2006, the insured received complaints from his tenants about noise and vibrations caused by a nearby construction project.  The insured investigated the complaints and noticed minor cracks and wall shifts in his building and reported the incident to his insurance broker.  The broker advised him to “wait and see” if the damage became worse upon the completion of the neighboring construction before filing a claim.  The insured then proceeded to retain engineers to evaluate the damage and also hired an attorney to pursue legal action against the adjacent property owner.  The loss was eventually reported to the insurer in January 2008, which was more than a year after the insured first contacted the broker.

The insurer denied coverage for the claim based on the condition in the policy that required the insured to provide the insurer with “prompt notice of the loss or damage.”  The insured filed suit in New York state court seeking coverage for the loss.  The insurer removed the case to the federal district court and then immediately moved for summary judgment.  The district court granted the insurer’s summary judgment and held that the insured’s delay of more than a year to report the property damage claim was untimely and unexcused.  The Court of Appeals affirmed the decision, finding that the insured’s notice of the loss was not “prompt” because he consulted two engineers, took extensive notes regarding the damage, and retained an attorney to pursue litigation against his neighbor all before notifying the insurance carrier.  The Court of Appeals also rejected the insured’s argument that the untimely notice should be excused because he reasonably relied on the broker’s advice that he should wait to evaluate the damage before filing the claim with the insurer.  The court noted that New York courts have previously held that notice to a broker is not notice to the insurance carrier.

It does not appear from the court records that the insured also asserted a claim against the broker for professional negligence, but the Sedgwick Insurance Law Blog will be following any developments in this matter.

 

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