In what appears to be the first decision of its kind in Pennsylvania, a federal district court in Philadelphia dismissed at the pleadings stage the plaintiff-insureds’ claims for insurance coverage based on COVID-19-related business interruption losses.  In Wilson v. Hartford Cas. Co., No. 20-3384, 2020 U.S. Dist. LEXIS 179896 (E.D. Pa. Sept. 30, 2020), a Philadelphia attorney and her law firm filed a lawsuit against their insurer and broker seeking coverage for past and future business losses due to the Coronavirus and a myriad of associated state, city and court orders requiring the firm to close.  The insureds claimed that coverage was available under their policy pursuant to the “civil authority”, “lost business income and extra expense”, “extended busines income”, “business income extension for essential personnel”, and “limited fungi, bacteria, or virus” provisions, the latter of which had a limit of $50,000.  The insurer and broker both filed motions to dismiss the insureds’ amended complaint. Many of the early COVID-related business income rulings around the country have hinged upon whether coverage was triggered through “direct physical loss” or damage to the property at issue.  The court in this case, however, stated that it need not decide this threshold issue because the policy’s “virus exclusion” – which precludes coverage for “loss or damage caused directly or indirectly by … [p]resence, growth, proliferation, spread or any activity of ‘fungi’, wet rot, dry rot, bacteria or virus” -- clearly and unambiguously applied, as the plaintiffs “explicitly allege that their losses are caused by the...

Pennsylvania is shaping up as a hotbed of legislative action and high-stakes litigation aimed at compelling insurers to provide coverage for COVID-19-related business losses.  In addition to putative class actions and individual lawsuits being instituted across the state, the Commonwealth recently saw:  (1) two new pieces of legislation introduced in the Pennsylvania Senate on this issue; (2) a petition filed to consolidate all similar federal lawsuits nationwide via Multi-District Litigation (MDL) in the U.S. District Court for the Eastern District of Pennsylvania in Philadelphia; (3) an emergency motion filed by an insured requesting the Pennsylvania Supreme Court to invoke its “King’s Bench” powers to assume jurisdiction over and coordinate all similar state court coverage litigation, which was subsequently denied; and (4) commentators on “both sides of the aisle” debating whether a Pennsylvania Supreme Court opinion in a non-insurance coverage case could be construed as favorable to policyholders.  Insurers will continue to fight back, arguing that, among other things, the proposed legislation is unconstitutional, and that there is a lack of commonality among the lawsuits necessary to make an MDL or coordinated litigation appropriate in this instance. The Proposed Senate Bills On April 15, 2020, the Pennsylvania Senate joined its counterpart in the House of Representatives in proposing legislation that would essentially mandate insurance coverage for COVID-19 business losses.  As with the House bill, a report on which can be found here, Senate Bill No. 1114, entitled the “COVID-19 Insurance Relief Act” would, among other things, serve to override an exclusion found...

In what appears to be the first lawsuit of its kind in Pennsylvania, a Philadelphia restaurant filed a declaratory judgment action in federal court on April 10, 2020, seeking a ruling that it is entitled to insurance coverage for loss of business income due to its government-mandated closure on account of the COVID-19 pandemic.  LH Dining L.L.C. d/b/a River Twice Restaurant v. Admiral Indemnity Company, No. 2:20-cv-01869, U.S. District Court for the Eastern District of Pennsylvania.  River Twice is a six-month old BYOB restaurant serving modern American cuisine in a gentrified section of South Philadelphia known as Passyunk Square.  The restaurant has been closed since March 16, 2020, when the City of Philadelphia announced the closure of all non-essential businesses.  A myriad of similar state and local orders followed, including Governor Tom Wolf’s March 19, 2020 order requiring the closure of all “non-life-sustaining businesses” in the Commonwealth, and his March 23, 2020 and April 1, 2020 “stay at home” orders.  Although some restaurants are open for pre-ordered take-out and delivery, per Philadelphia’s March 22, 2020 emergency order, customers are prohibited from dining at the premises in order to promote social distancing measures.  The insured appears to be seeking coverage only under the “civil authority” extension of its “all-risk” insurance policy.  Civil authority coverage is usually included as part of business interruption coverage.  According to the Complaint, that provision provides coverage for the “actual loss of business income sustained … when access to the Insured Property is specifically prohibited by order of...

We hope that you and your families are safe and well, and that it is as enjoyable a holiday as possible for those of you observing Easter and Passover.    As reported in our last post, discussions were underway among Pennsylvania state legislators over proposed legislation that would essentially force insurers to provide coverage for COVID-19-related business interruption losses.  Those discussions came to fruition on April 3, 2020, when a bipartisan group of legislators introduced House Bill No. 2372, entitled the “Business Interruption Insurance Act”.  If enacted, this bill would require insurers with business interruption coverages in their policies to pay small business insureds for “loss or damage to property, which includes the loss of use of occupancy and business interruption … due to global virus transmission or pandemic.”  The proposed legislation would require the indemnification of insureds subject to the “broadest or greatest limit and lowest deductible” available under the business interruption coverage part, and would only be applicable to:  (a) policies in force on March 6, 2020, which represents the “date of the Proclamation of Disaster Emergency concerning the coronavirus pandemic…”; and (b) insureds with less than 100 full-time employees in the state.  Insurers may be able to obtain relief for the payment of such losses by applying for reimbursement with the Pennsylvania Insurance Commissioner, who would be authorized to collect the funds necessary for reimbursement from all property/casualty insurers doing business in the state, irrespective of whether they provide business interruption coverage.  Pennsylvania now joins New Jersey and...

TO OUR CLIENTS AND FRIENDS OF THE FIRM: First and foremost, we at RLB Law Group hope that you and your families are staying safe and healthy during these trying, unprecedented times.  Yesterday (March 19), Tom Wolf, the Governor of Pennsylvania, ordered all “non-life essential” businesses to close effective 8:00 p.m. EDT last night.  Like many of you, with our office now officially closed, the RLB team is working remotely for the foreseeable future; we, however, are available by email, phone or virtual methods to answer any of your COVID-19 legal questions, particularly in the areas of employment and insurance/reinsurance law. One of the most frequently-asked questions in recent days has been whether there is insurance coverage available for lost business income due to the government-mandated business closures arising from the COVID-19 outbreak.  In addition to the broad restrictions on businesses in Pennsylvania, New Jersey had ordered the closings of gyms, theaters, amusement parks, indoor malls and casinos earlier this week, as well as imposed a nighttime curfew.  As of last night, New Jersey added to the closure list spas, tattoo parlors, barbershops, nail and hair salons.  According to one infectious disease specialist we consulted with, this extreme phase of containment effort and “social distancing” will, in his estimation, likely last up to 3 months. Business interruption or business income coverage may be found as an “add-on” to commercial property policies.  Specific business interruption coverage parts or extensions which may be applicable to COVID-19 losses include “civil authority” coverage, which is...

The United States Court of Appeals for the Third Circuit recently affirmed a district court’s ruling that applied Pennsylvania law in finding there was no duty to defend trade secret and unfair competition claims under a commercial general liability (“CGL”) policy.  In Tela Bio, Inc. v. Federal Insurance Company, No. 18-1717, 2019 WL 211507 (3rd Cir. January 16, 2019), the insured, a hernia mesh manufacturer, sought insurance coverage for a suit accusing it of misappropriating confidential trade secrets and “poaching” employees from a competitor.  Before the insurer had even provided its coverage position, the insured filed a declaratory judgment action against it in federal district court in New Jersey.  Thereafter, the coverage action was transferred to the U.S. District Court for the Eastern District of Pennsylvania.  That court subsequently granted the insurer’s motion to dismiss the complaint for failure to state a claim on the basis that the insurer had no duty to defend.  On appeal, the issues were essentially three-fold: (1) whether the substantive laws of New Jersey or Pennsylvania applied to this dispute; (2) whether there was an obligation on the part of the insurer to defend these claims under the CGL policy’s personal and advertising injury coverage for libel and slander; and (3) even if coverage were triggered, whether the policy’s “IP rights” exclusion would apply.    As to the threshold choice of law issue, there was a “vigorous dispute” between the parties over whether the legal standards applicable to the duty to defend in Pennsylvania or New...

The United States Court of Appeals for the Third Circuit, predicting how Pennsylvania’s highest court would rule, recently held that real estate title insurance companies are only required to defend claims specifically covered under their policies.  In doing so, the Third Circuit found that the well-settled “in for one, in for all” rule requiring general liability insurers to defend an entire action if at least one claim was potentially covered did not apply to title insurers. In Lupu v. Loan City, LLC, Nos. 17-1944 & 17-2024, 2018 U.S. App. LEXIS 25561 (3rd Cir. September 10, 2018), a residential homeowner refinanced his home loan and mortgage with Loan City LLC.  Stewart Title Guaranty Company (“Stewart Title”) provided title insurance on the loan.  The mortgage was subsequently transferred on multiple occasions, eventually landing with Ocwen Loan Servicing, LLC (“Ocwen”).  The homeowner defaulted on his loan, and thereafter sued to void the instruments evidencing his debt.  The homeowner’s complaint, which was amended several times, initially focused on a challenge to the use of the so-called MERS System -- a private mortgage registry that allows its members to avoid the need for county-level public recordation when transferring mortgage interests -- claiming that it violated Pennsylvania law.  After the filing of a third amended complaint, however, the homeowner submitted responses to interrogatories claiming that the original loan documents were forged.  These new allegations prompted Ocwen to seek defense coverage from Stewart Title.  However, because the MERS-related allegations were not covered under the title policy, and because...

In the latest opinion emanating from a high-profile reinsurance case that we have been chronicling in this blog, the United States Court of Appeals for the Second Circuit recently vacated a district court’s ruling premised upon the so-called “Bellefonte rule” applied in reinsurance law, and directed the district court to reassess the facultative reinsurance certificates at issue based on standard rules of contract interpretation.  Global Reinsurance Corp. v. Century Indem. Co., No. 15-2164, 2018 U.S. App. LEXIS 12121 (2d Cir. May 9, 2018). Our blog posts on prior rulings in this matter can be found here and here.   To briefly recap, Global Re arose from a summary judgment ruling in which the underlying district court, relying largely upon the Second Circuit’s seminal decisions in Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2d Cir. 1990) and Unigard Security Ins. Co., Inc. v. North River Ins. Co., 4 F.3d 1049 (2d Cir. 1993), held that the reinsurer was not obligated to pay defense expenses billed by the cedent over and above the amounts set forth in the “reinsurance accepted” clauses of the facultative certificates at issue.  On appeal, the Second Circuit issued an initial opinion in which it undertook a detailed re-examination of its prior holdings in Bellefonte and Unigard.  The court specifically called into question the Bellefonte court’s conclusion that the reinsurance certificate in that case “unambiguously capped the reinsurer’s liability for both loss and expenses.”  The court noted that evidence of reinsurance industry custom and...

This will serve as an update on two significant decisions in the insurance coverage and reinsurance arenas that we blogged about last year:  (1) Mount Vernon Fire Insurance Company v. Visionaid Inc., in which the Massachusetts Supreme Judicial Court, answering certified questions from the First Circuit Court of Appeals, found that an insurer’s duty to defend does not include the duty to pay for the prosecution of counterclaims; and (2)  Global Reinsurance Corp. of America v. Century Indemnity Co., where the Second Circuit Court of Appeals certified a question to the New York Court of Appeals pertaining to the so-called “Bellefonte rule” applied in reinsurance law.  Click here for our prior post on Global Re and here for our prior post on Visionaid.  Recently, the First Circuit returned to Visionaid to resolve the sole remaining issue involving the insured’s claimed right to independent counsel.  In an entertaining opinion replete with humorous asides (“[t]he case pits an insured … against its employment-practices liability insurer (say that ten times fast!)”), the court ruled that there was no conflict of interest between the parties justifying the appointment of independent counsel to defend the insured at the insurer’s expense.  And in Global Re, the New York Court of Appeals answered the Bellefonte-related certified question posed by the Second Circuit, finding that there was no presumption or rule of construction imposing a cap which limits the total amount of reinsurance available under a facultative reinsurance certificate.  We delve into both recent decisions more fully below. (1) Mount...

The Massachusetts Supreme Judicial Court recently weighed in on the perennial issue of whether an insurer’s obligation to defend extends to the prosecution of counterclaims on behalf of the insured.  In Mount Vernon Fire Insurance Co. v. Visionaid, Inc., 477 Mass. 343 (2017), the state’s highest court ruled that the duty to defend does not require insurers to fund an insured’s counterclaim, even when it may be intertwined with the defense of a covered claim. The insurer in Visionaid issued an employment practices liability policy to the insured, a manufacturer of lens cleaning and eye safety products.   Under this “claims-made” policy, the insurer had a right and duty to defend, and was obligated to pay 100% of the defense costs for a covered claim.  In the underlying suit, a former employee sued the insured for wrongful termination based on age discrimination.  The insured, in turn, accused the then-employee of misappropriating funds.  The insurer agreed to defend the case subject to a reservation of rights, and appointed panel counsel.  The insured subsequently requested that the insurer pursue and fund a counterclaim for the alleged embezzlement.  The insurer declined to do so, contending that the policy did not require it to prosecute the counterclaim.  The insured countered that the insurer’s position created a conflict of interest justifying the appointment of independent counsel, at the insurer’s expense. The insurer filed a declaratory judgment action in Massachusetts federal district court seeking a ruling that it was not obligated to assert or fund the counterclaim. ...

The United States District Court for the Southern District of New York recently vacated an arbitration award against reinsurers based upon the “evident partiality” of the cedent’s party-appointed arbitrator in failing to disclose his significant contacts and relationships with the cedent and its principals.  Certain Underwriting Members at Lloyd’s of London v. Insurance Company of the Americas, No. 16-CV-323 (VSB) and Certain Underwriting Members at Lloyd’s, London Subscribing to Treaty No. 0272/04 v. Insurance Company of the Americas, No. 16-CV-374 (VSB) (S.D.N.Y. March 31, 2017).  Rosenthal Lurie & Broudy represented the Treaty No. 0272/04 underwriters (hereinafter referred to as the “third-layer reinsurers”) in these consolidated matters. The underlying arbitration proceeding involved a dispute as to whether coverage existed for two workers’ compensation claims under a clash catastrophe excess of loss reinsurance agreement.  The arbitration panel consisted of three arbitrators, one appointed by the cedent, another appointed by the first and second-layer reinsurers, and an umpire.  After a four-day hearing, the arbitration panel found in favor of the cedent.  The first and second-layer reinsurers were ordered to pay alleged losses of more than $2.5 million.  In addition, the award provided that in the event one of the claims exceeded $5 million, the third-layer reinsurers would be liable under a separate reinsurance agreement. The first and second-layer reinsurers subsequently filed a motion to vacate the arbitration award in the Southern District of New York, followed by a separate motion to vacate or modify the award by the third-layer reinsurers.  The cedent filed cross-motions...

In recent years, the Federal Deposit Insurance Corporation (“FDIC”), acting as a receiver, has filed numerous lawsuits against the former directors and officers of banks which failed during the course of the global financial crisis.  These suits generally contend that the alleged malfeasance of the directors and officers at the time led to the banks’ downfall.  A key and frequent issue emanating from these cases is whether the banks’ Directors & Officers (“D&O”) liability insurance policies provide coverage for such losses.  The United States Court of Appeals for the Ninth Circuit recently considered this issue, finding that a so-called “insured-versus-insured” exclusion contained in a D&O policy unambiguously barred coverage for the FDIC’s claims. In Federal Deposit Insurance Corp. v. BancInsure, Inc., 2017 U.S. App. LEXIS 452 (9th Cir. Jan. 10, 2017), the FDIC, acting in its capacity as receiver of the failed Security Pacific Bank (“Security Pacific”), filed a declaratory judgment action against its D&O carrier, BancInsure, seeking coverage for losses arising from the former directors’ and officers’ alleged negligence, gross negligence and breach of fiduciary duty.   BancInsure argued that coverage was barred by the D&O policy’s “insured-versus-insured” exclusion, which precluded coverage for claims brought “by, or on behalf of, or at the behest of” Security Pacific, a person insured under the policy, or any “successor, trustee, assignee or receiver”.  The FDIC countered that an exception for shareholder derivative suits set forth in the exclusion applied since its claims were similar to those asserted in such suits, and because the FDIC...

In the latest twist regarding the efficacy of the so-called “Bellefonte” rule applied in reinsurance law, the United States Court of Appeals for the Second Circuit has asked the New York Court of Appeals, the state’s highest court, to weigh in on whether there is a hard “cap” on the amount of combined “losses” and “expenses” that a reinsurer may be obligated to pay under a facultative reinsurance certificate even when the reinsured policy paid defense expenses outside of limits. In Global Reinsurance Corp. v. Century Indem. Co., No. 15-2164 (2d Cir. Dec. 8, 2016), the cedent claimed in the underlying federal district court action that the reinsurer was obligated to pay a share of more than $60 million in defense expenses incurred in connection with thousands of underlying asbestos bodily injury suits.  The reinsurer argued that the dollar amounts set forth in the “reinsurance accepted” sections of the nine facultative reinsurance certificates issued to the cedent (ranging from $250,000 to $2 million) unambiguously capped the amount that the reinsurer was obligated to pay for both losses and expenses combined.  The cedent countered that those limits applied only to “loss” (i.e. settlements and damages), and that the reinsurer was required to pay all expenses in addition to such limits, just as the cedent was obligated to do under the reinsured policy.  On summary judgment, the district court sided with the reinsurer, and, in so doing, relied upon the Second Circuit’s landmark reinsurance decisions in Bellefonte Reinsurance Co. v. Aetna Casualty &...

Earlier this month, the Supreme Court of Florida issued its long-awaited decision regarding the applicable standard for determining the availability of insurance coverage where there are multiple, concurrent causes of a property loss. In Sebo v. American Home Assurance Company, Inc., No. SC14-897 (Fla. Dec. 1, 2016), the court, applying the so-called "concurrent cause" doctrine, held that an entire claim may be covered even though one of the causes of the loss is excluded under a first-party property policy. The court suggested, however, that coverage may not apply if it can be established that an excluded peril is the "efficient proximate cause" of the loss.  In Sebo, the insured's $11.2 million home in Naples, Florida sustained serious water damage both before, and in the wake of, Hurricane Wilma in 2005. There was no dispute that the loss was caused by multiple perils, namely, a combination of construction defects, heavy rains and wind. The insurer denied coverage for most of the damage because the insured's "all-risk" property policy specifically excluded damage due to construction defects. The insured subsequently filed an action for declaratory relief against the insurer, and a jury found in favor of the insured in the amount of $8 million. The Second District Court of Appeal, however, reversed and remanded the case for a new trial, holding that the cause of the loss should be examined under the "efficient proximate cause" doctrine rather than the "concurrent cause" theory applied by the trial court.  On appeal, the Supreme Court was tasked...