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INSURANCE INSIGHTS
Spring 2017
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Multi-Million Dollar Reimbursement Win
in New Yo
rk
Matthew Fink
and
Charles Hafner
recently won a significant victory allowing our client to recover over $24 million in settlements and defense costs paid in connection with a foster care abuse suit.
In National Union Fire Ins. Co. of Pittsburgh, Pa v. The Roman Catholic Diocese of Brooklyn, No. 653575/2014, 2017 WL 748834 (N.Y. Sup. Ct., N.Y. Cty.), social agencies affiliated with the insured placed 10 children in a foster home between 1985 and 1994, where they were abused until 2007. As of 1996, all claimants had been formally adopted by the abusive parent. Our client had issued primary liability coverage to the insured from 1985 through 2001, but coverage in each year was subject to a $250,000 self-insured retention for each "occurrence" under each policy. The insured argued that the claims were a single "occurrence" because the abuse suffered by the claimants was similar, and that no policies issued after adoption were implicated because the insured's duties had ended.
Using New York Court of Appeals precedent that Nicolaides helped establish, we argued that all insurance policies in effect until 2007 were implicated and all injuries to each of the 10 claimants were caused by at least one "occurrence" unique to that claimant in each policy year. We further argued that termination of the insured's duty was irrelevant--the only consideration was whether an injury occurred during the relevant policy period.
In a decision based substantially on our Firm's briefs, the New York County Supreme Court agreed. It found that all policies issued from foster placement through the end of the abuse were implicated, and that the injuries to each claimant in each period were caused by a unique "occurrence." Therefore, the insured owed up to eight self-insured retentions for each policy. Since all settlement and defense costs fell within the insured's self-insured retentions, our client was entitled to reimbursement.
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Firm Prevails for Client,
Allowing Over $1.2 Million Recovery
Robert Marshall and
Wen-Shin Cheng secured summary judgment in favor of our client in a long-running battle for additional insured coverage for Mitsui Sumitomo's named insured, Schaefer Systems.
In Mitsui Sumitomo Ins. Co. of America, et al. v. Travelers Property Casualty Co. of America, No. 3:15-cv-00207-RJC-DCK (W.D.N.C.), the underlying plaintiff sued Schaefer after a sophisticated warehouse inventory handling system Schaefer built set off a sprinkler system, soaking the plaintiff's pharmaceutical products. Schaefer's subcontractor, Wiginton, installed the sprinkler system--but had installed the sprinkler head too low, which interfered with pallets being moved by the inventory handling system.
Before suit, Mitsui
Sumitomo
and Schaefer tendered the claim to Wiginton's liability insurer pursuant to an additional insured endorsement. Although Wiginton's carrier received the tender and a copy of the underlying complaint, no further communications were sent. Over a period of two years, Mitsui defended Schaefer including payments to two law firms because of the complexity of the underlying claims which included allegations of improper licensing along with negligence and strict liability.
Having paid for Schaefer's defense in the underlying action, Mitsui
Sumitomo, along with
Schaefer, sued Wiginton's insurer for declaratory relief, breach of contract, and equitable subrogation.
Wiginton's insurer claimed that it did not have a duty to defend because Mitsui
Sumitomo
and Schaefer never tendered the underlying complaint or requested reimbursement for specific defense invoices. It also argued that the defense costs
Mitsui
Sumitomo had paid were uncovered voluntary payments.
The district court disagreed. It held that Wiginton's insurer's duty to defend was triggered when the underlying complaint was filed because the carrier had knowledge of a suit potentially within its policy's coverage and the insured had sought coverage for the pre-suit claim. The court also found that having forfeited its right to control the defense by improperly denying coverage, Wiginton's carrier could not contest defense costs. The court found Mitsui Sumitomo was entitled to reimbursement for over $1.2 million in defense costs plus interest.
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ERISA Fiduciary Not Entitled to Recovery
Barbara Michaelides
, Amy Cassidy, and Thomas Arvanitis secured an appellate victory on an issue of first impression in the Seventh Circuit Court of Appeals. In Central States, Southeast & Southwest Areas Health & Welfare Fund v. American International Group, Inc., 840 F.3d 448 (7th Cir.), an ERISA plan fiduciary sought reimbursement from an accident insurer for medical expenses the fiduciary paid on behalf of beneficiaries injured in athletic activities, as well as a declaration requiring the insurer pay all similar claims in the future. The insurer had issued policies allegedly covering the same medical expenses to schools, leagues, churches, and other institutions where the injuries occurred.
Under ERISA, an ERISA fiduciary may obtain only "appropriate equitable relief." The Seventh Circuit held that the plaintiff fiduciary could not recover sums it had already paid on behalf of the parties' mutual insureds because the relief it sought was legal, not equitable. The court explained that a claim for monetary relief is legal in nature unless the plaintiff seeks specifically identified funds in the defendant's possession. The fiduciary, however, sought recovery from the insurer's general funds, not any specific, traceable funds. The Seventh Circuit joined the Second, Third, Fifth, Sixth, and Eighth Circuits in reaching this conclusion. It also affirmed the district court's determination that it lacked subject matter jurisdiction to issue a declaration regarding potential future medical expenses because the issue was not ripe.
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New York's New Cybersecurity Regulation Effective March 1
On March 1, 2017, the New York Department of Financial Services new cybersecurity rule, 23 NYCRR 500, took effect. It requires banks and insurers to meet minimum cybersecurity standards in an effort to protect consumers and increasing cyber crime. New York's new regulations are the first of their kind in the nation.
The new cybersecurity rule applies to individuals and non-governmental entities, defined as "Covered Entities," operating in the state of New York under the authorization of the Banking Law, the Insurance Law, or the Financial Services Law. The regulation requires a Covered Entity "to assess its specific risk profile and design a program that addresses its risk in a robust fashion."
Among other things, the regulations impose several reporting requirements. Covered Entities must designate a qualified Chief Information Security Officer (CISO), either internally or via a third party service provider, to oversee and implement the program and policies. The CISO must report at least annually to the entity's board of directors. The CISO must also submit annual certificates to New York's Superintendent of Financial Services certifying compliance with the requirements of the regulation and documenting current and planned remedial efforts addressing identified areas for improvement. Finally, Covered Entities have 72 hours to notify the superintendent of any cybersecurity events "impacting the Covered Entity" required to be noticed to other regulators, or "that have a reasonable likelihood of materially harming any material part of normal operation(s) of the Covered Entity."
The regulations provide an aggressive timeline for compliance with staggered "transitional periods" outlining the implementation schedule starting August 28, 2017, through March 1, 2019, for various sections. Absent an exemption, the regulations are specific and onerous to Covered Entities.
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Defective Workmanship Is Not Covered
"Property Damage"
In
Walsh Construction Co. v. Old Republic General Ins. Corp.,
No. 16-CH-8266 (Ill. Cir. Ct.) g
eneral contractor Walsh Construction sought coverage as an additional insured under a subcontractor's liability policies for an underlying lawsuit alleging defective welding of underwater gates at an aquarium. The suit alleged that poor quality welding work resulted in corrosion and damage to the welds themselves, but not to the gates' mechanical system, the aquarium's tanks, sea life, or any other property.
Finding in favor of our client, the court determined that the underlying suit failed to allege covered damages. Because there were no allegations of damage to anything but the gates and welds, the suit exclusively sought compensation for Walsh's defective work--
i.e.
non-covered economic damages.
The court also held that the underlying suit failed to allege an occurrence triggering coverage because defective work is not "accidental
." The court's decision highlights the importance of always first assessing whether a given claim falls within a policy's insuring agreement.
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Joseph Lang is a founding partner of Nicolaides Fink Thorpe Michaelides Sullivan LLP and focuses his
practice on liability insurance coverage and commercial litigation. Joe counsels insurers on complex coverage disciplines, inter-insurer disputes and matters addressing environmental contamination, construction defect, product recall, trademark infringement, product liability, premises liability, bad faith, and toxic mold. He
has successfully tried cases to verdict and summary judgment in courts throughout the United States.
 Outside of the office, Joe likes to fish, play golf and spend time with his family. When not cheering for the Cubs, Bears, Blackhawks and Notre Dame, Joe can be found coaching softball, baseball, flag football, and basketball. Joe's ideal Saturday is firing up the backyard grill for some traditional German sausages or a slow-smoked pork shoulder and enjoying a cold bier in the company of family and friends.
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Our Team is Expanding
Cynthia Keener practices in the Firm's Los Angeles office. With over 20 years handling coverage disputes, Cynthia is an experienced litigator and advisor. Cynthia joins us after heading up the Los Angeles office of CNA's coverage firm. She has handled a wide range of subjects, with extensive experience on matters involving environmental issues and coverage for toxic torts
.
Scott Jalowiec joins our
San Francisco office as an associate. Scott has handled a variety of insurance matters including construction defect, primary and excess general liability, environmental, toxic tort, and bad faith.
Rebecca Bennett, a 2015 graduate of DePaul University College of Law, joins our Firm as an associate in our Chicago office. She brings experience in a wide variety of litigated matters.
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As a leading national insurance coverage firm with offices in
Chicago, Los Angeles, San Diego, San Francisco
and
White Plains
, we represent our domestic and international clients in state and federal courts throughout the nation.
We believe that the more diverse we become, the better we are as a law firm, which is why we are proud that women constitute
mo
re than 50% of our attorneys and more than 50% of our partners.
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Notable Speaking Engagements
On May 11, 2017,
Sara Thorpe
will speak on a panel at the
ACCEC Annual Meeting
in Chicago on the latest developments in the recovery of attorneys' fees in coverage and bad faith litigation.
Ian Cooper
, Robert Marshall,
and
Jonathan Viner
will provide a practical seminar to a client in Texas on coverage position letters (including reservation of rights letters), avoiding bad-faith allegations, and navigating disputes between primary and excess insurers.
In May, Amy Cassidy and
Jeffrey Labovitch
are presenting "California's Fair Claims Regulations Training and Good Faith Claim Handling," and providing the insurance coverage perspective for "Ethics Within the Tripartite Relationship" during a seminar being held in conjunction with an employment and professional liability defense firm.
Mary Licari
and
Cody Moon
will provide training to our clients in 2017 on how insurance companies can avoid potential pitfalls in Missouri, including a discussion of 537.065 settlements, covenants not to execute, and evolving bad faith law.
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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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