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INSURANCE INSIGHTS
Summer 2017
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Firm Client Prevails in Kentucky Bad Faith Case
In Caudill v. New Hampshire Insurance Co., No. 2014-CA-000921-MR, 2016 WL 3356439 (Ky. Ct. App. June 10, 2016), the Firm defended our client against allegations that it violated eight provisions of the Kentucky Fair Claims Handling Act in connection with an underlying case involving the electrocution of a miner in rural Kentucky. After Firm attorneys led by Matthew Fink, Cody Moon, and Kelly Stoltz secured a series of favorable summary judgment rulings, an intermediate appellate court affirmed and, on June 8, 2017, the Supreme Court of Kentucky denied discretionary review.
In affirming, the court of appeals held not only that the claimant made no showing of intentional or outrageous conduct "driven by evil motives" needed to prove bad faith, but went further and found that even if the claimant had met this high threshold standard, the insurer would still be entitled to summary judgment on each of the specific bad faith claims at issue.
Specifically, the court found that the primary carrier's initial erroneous denial of coverage did not impart on the excess carrier a duty to drop down. "As the excess insurer, New Hampshire simply had no duty to explore coverage issues, reserve rights, investigate the merits of the claim, or monitor the underlying lawsuit until [the primary carrier] tendered its policy limits."
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Nicolaides Attains Dismissal of Yahoo Complaint
In
Yahoo! Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa.,
No. 17-cv-00447 NC, 2017 WL 2405025 (N.D. Cal. June 2, 2017), Yahoo sought a defense against class-action lawsuits alleging that it violated the Telephone Consumer Protection Act (TCPA) by sending unauthorized text messages. Yahoo maintained that the text messages potentially involved an "oral or written publication, in any manner, of material that violated a person's right of privacy," one of the offenses enumerated in its "personal injury" liability coverage. Yahoo asserted that our client therefore owed Yahoo a duty to defend.
Moving to dismiss the complaint for failure to state a claim, we argued that Yahoo's alleged conduct did not involve the "personal injury" coverage in the first instance. We emphasized that to potentially involve the right of privacy offense, the content of the communication must be at issue and allegedly violate another's right to secrecy. In contrast, the claims against Yahoo were based on the receipt of uninvited communications and not directed at the substance of those communications.
The court agreed and granted the motion. It emphasized that, under California insurance law, the right of privacy offense "only plausibly" encompassed an injury caused by the unauthorized dissemination of private information to third parties. Because the TCPA lawsuits did not allege that Yahoo divulged secret content to third parties, the court concluded the lawsuits did not implicate the "personal injury" coverage as a matter of law and no duty to defend ever arose.
Yahoo's appeal to the Ninth Circuit is pending.
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Florida Supreme Court Adopts the
Concurrent Causation Doctrine
In Sebo v. American Home Assur. Co., 2016 WL 7013879 (Fla. Dec. 1, 2016), the Florida Supreme Court confronted the thorny issue of concurrent causation in determining whether the destruction of the insured's home was covered under an all-risk policy. As is often the case in these claims, multiple causes of loss combined to cause the damage: an excluded peril (faulty, inadequate or defective design or workmanship) and covered perils (hurricane winds and rainwater). The Court was called upon to consider whether the efficient proximate cause theory or the concurrent causation doctrine should apply in determining whether the loss was excluded from coverage.
Under the efficient proximate cause approach, if the cause of loss that sets the other causes in motion is not excluded from coverage, then the loss is covered. Under the concurrent cause doctrine, a loss is not excluded from coverage if an insured peril is a concurrent cause of the loss, even if it is not the prime or efficient cause. Because the causes of the loss - human negligence and weather conditions - "acted in concert" with each other, the Court opted to apply the concurrent cause doctrine. Because wind and rain were covered perils, the faulty workmanship exclusion did not apply to preclude coverage for the destruction of the home.
The Court observed that if American Home had wanted to avoid the application of the concurrent cause doctrine, it could have made the faulty design/workmanship exclusion subject to "anti-concurrent" causation language, which would preclude coverage for loss or damage caused by faulty design or workmanship, regardless of whether any other causes or events contributed to or aggravated the loss. Although most states find anti-concurrent causation provisions to be enforceable, a minority of states do not, including California, Washington, West Virginia, and North Dakota. An insurer seeking to apply anti-concurrent causation language to a policy exclusion should therefore confirm that the jurisdiction permits insurers to contract around the efficient proximate cause rule in this manner.
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Wire Fraud Through Social Engineering
In May 2017, the FBI published a Public Service Announcement warning of an alarming 2,370 percent increase in identified actual and attempted losses because of email wire transfer fraud between January 2015 and January 2016. Statistics show those incidents left over five billion domestic and international dollars vulnerable. Alarmingly, one expert estimated that the incidents collected by the FBI may represent just 20 percent of actual and attempted attacks.
One tactic used by fraudsters is to attempt to trick the victim into wiring money to a fraudulent account by posing as a legitimate entity or person with an existing relationship with the victim, and requesting a simple change in wire detail information. Such scams are varied and ever more sophisticated. For example, a fraudster may impersonate a supplier and ask to change the bank details for invoice remittance. In another scenario, a fraudster may target participants in a real estate transaction and send a last-minute email requesting an account change for escrow payment. According to the FBI, these two scenarios were trending in 2016 and these trends are continuing throughout 2017.
Typically, absent specific coverage for the actual corpus of the transferred funds, cyber insurance policies do not cover the amount lost. Wire transfers are very hard to reverse and once the fraudulent funds reach their final destination, often through numerous intermediary banks in overseas accounts, recovery is near impossible. Anyone falling victim to the scam can and should immediately contact the FBI, the Secret Service, and counsel capable of intervening with the banks. For businesses small and large, increased awareness and understanding of the ever-present danger of the scams, two-person verbal wiring authentication, and looking carefully for clues of email fraud, such as email misspellings, typos, and bad grammar, are essential. As far as insuring this risk, underwriters must scrutinize the size of funds being transferred into and out of its insureds accounts before writing substantial limits on this coverage and not simply rely on the size of business revenue during the underwriting process.
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Spotlight On: Katherine Mast
Katherine Mast
relishes the challenge of helping her clients navigate and resolve complex, unusual, and novel coverage issues, successfully handling matters involving bad faith, professional liability, priority of coverage, intellectual property, excess liability, and environmental and mass tort issues. Katherine is a partner in our Los Angeles office and has been with the Firm since its inception, establishing our Los Angeles office in 2014 and growing the Firm's California practice. She is an active member of the American Bar Association's Insurance Coverage Litigation Committee, speaking often about topics of interest to the insurance industry and bar.
Outside of the office, Katherine takes advantage of Southern California's many hiking trails, parks, and beaches to spend time with family and friends. She enjoys gardening and dining al fresco, eating and sharing the pomegranates, lemons, and clementines grown in her backyard
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Chambers USA Ranks Firm Partners and Practice
This national exposure further distinguishes our Firm's professionals as exceptional attorneys who work on complex, high-profile, high-stakes matters with recognized success.
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Welcome to the Firm
Patricia practices in the Firm's Los Angeles office as an associate. She has extensive experience with insurance coverage disputes and investigations involving a wide range of issues, such as commercial, employment, media, and international business insurance litigation, including international intellectual property issues.
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As a leading national insurance coverage firm, our attorneys are licensed in the following states:
o California
o Colorado
o Connecticut
o Florida
o Georgia
o Idaho
o Illinois
o
Maryland
o Missouri
o Nevada
o New York
o Ohio
o Wisconsin
Our attorneys are also admitted in numerous federal circuit and district courts throughout the nation.
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Notable Speaking Engagements
Richard Nicolaides and Jared Clapper held a practical client seminar examining common coverage and liability issues arising in contamination and food recall claims, including a discussion of illustrative claims and recent developments in related case law.
Highlighting real-life examples, Richard Nicolaides and Daniel Graham conducted client seminars emphasizing the issues that can arise under "personal and advertising injury" coverage from business dispute and intellectual property infringement claims.
Amy Cassidy
and
Jeffrey Labovitch
presented "Good Faith Claim Handling" to clients, comparing claims handling regulations in California, Florida, Oklahoma, and Texas. Amy and Jeff presented alongside employment and professional liability defense attorneys who addressed "Ethics Within the Tripartite Relationship."
In September, Cody Moon and Mary Licari will present to a client about the challenging insurance coverage issues that can arise under Missouri law.
On December 8,
Kelly Stoltz
will present "Ethical Considerations of Defending the Uncooperative Insured" at DRI's
Insurance Coverage and Practice Symposium
in New York City. During the presentation, Kelly will speak about how to avoid ethical missteps when the insured is too eager to settle, and how to protect the insurer from coercive consent judgments.
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Nicolaides Fink Thorpe Michaelides Sullivan LLP is a global law practice dedicated to representing the interests of insurers and reinsurers. From offices across the U.S., the firm counsels its clients and litigates complex coverage disputes around the world. The firm's market-leading appellate practice prosecutes and defends a broad spectrum of appeals nationwide, and frequently participates in high exposure trials.
This publication is provided by Nicolaides Fink Thorpe Michaelides Sullivan LLP for educational and informational purposes only and is not intended and should not be construed as legal advice. This newsletter may be considered advertising under applicable state laws.
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