If It’s December, It Must Finally Be Time for Congress to Do Something About TRIA

Posted on December 12, 2014 by Dick Bennett

It looks like Congress is finally turning its attention to reauthorizing the Terrorism Risk Insurance Act (TRIA). The statute will sunset on December 31st unless action is taken before then.

Addressing our nation’s urgent problems at the last possible minute has become a Congressional hallmark in recent decades, and TRIA is no exception. We ran a post explaining how the statute works in early May, and we optimistically titled it “Congress Moves Towards Reauthorization of TRIA.” We should have known better. TRIA was enacted in 2002 with a sunset date of December 31, 2005. It has since been reauthorized twice – for two years by the Terrorism Risk Insurance Extension Act (TRIEA) in 2005 and then again for seven years by the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) in 2007. TRIEA was sent to the President’s desk by Congress on December 22nd while TRIPRA was sent to the White House even closer to the wire, on December 26th. Congress is at least consistent.

shutterstock_177862862 The House of Representatives’ Financial Services Committee sent a reauthorization bill to the House floor on June 20th, but it was never voted on by the full chamber. It had been passed out of the committee on a partisan 32-27 vote, and its sponsors evidently felt that it reduced the federal government’s backstop role too drastically to have any chance of passing the Senate. The upper chamber then passed a reauthorization bill of its own on July 17th by a 93-4 vote and sent it to the House, but it languished there until recently as TRIA’s expiration date grew ever closer.

In recent weeks, extensive negotiations between Senator Charles Schumer (D.-N.Y.) and the Chairman of the House’s Financial Services Committee, Representative Jeb Hensarling (R.-Tex.), finally broke the bill free, and the House approved an amended version of the Senate’s TRIPRA of 2014 on Wednesday of this week. The vote was an overwhelming 417-7, and the amended measure now heads back to the upper chamber. Read more ›

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Tagged with: TRIA
Posted in Terrorism, Terrorism Insurance

Florida Court: Under All-Risk Policy, Insured Does Not Bear Burden of Showing Loss Was Caused by a Sinkhole

Posted on December 9, 2014 by Dick Bennett

On November 26th, a unanimous panel of Florida’s Second District Court of Appeals held that a trial judge had erred in placing the burden of showing that loss was caused by covered sinkhole activity on the shoulders of the insured. In Mejia v. Citizens Prop. Ins. Corp., 2014 WL 6675717, 2014 Fla. App. LEXIS 19526 (Fla.Dist.Ct.App., Nov. 26, 2014), the court stated that the policyholder under an all-risk contract of insurance has met his burden by showing that the insured property suffered a loss while the policy was in effect; the burden then shifts to the insurance carrier to prove that the cause of the loss was excluded from coverage.

shutterstock_3414932 Alfredo Mejia owned a home that was insured by Citizens Property Insurance Corporation, and he made a claim for damage, contending that it was caused by sinkhole activity. The insurer retained BCI, an engineering firm, and it denied liability after BCI concluded that the damage was not caused by a sinkhole. A breach of contract action followed.

The policy was an all-risk contract of insurance that excluded earth movement, settlement, and loss caused by a sinkhole. The insured had paid an additional premium for a Sinkhole Loss Coverage Endorsement, however; that added sinkhole loss as a covered peril and stated that the earth movement and sinkhole exclusions did not apply.

Prior to trial, the lower court ruled that Mejia had the burden of showing that the damage was, in fact, occasioned by sinkhole activity. Instructed to that effect, the jury found that the policyholder had not established by the greater weight of the evidence that his home had suffered physical damage caused by a sinkhole. Final judgment was entered in favor of the carrier. Read more ›

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Tagged with: Bias, Florida
Posted in All Risk, Burden of Proof, Experts, Homeowners Coverage, Sinkhole

New Jersey Court: Loss of Use – Without More – Can Be “Direct Physical Loss or Damage”

Posted on December 4, 2014 by Dick Bennett

Last month, a New Jersey federal court held that the term “direct physical loss of or damage to” property did not require that the property be physically altered in any permanent way. In Gregory Packaging, Inc. v. Travelers Property Cas. Co., 2014 WL 6675934, 2014 U.S. Dist. LEXIS 165232 (D.N.J., Nov. 25, 2014), the court determined that an ammonia release that rendered the insured manufacturing plant unusable until the gas had been dissipated “physically transformed the air” within the facility and thereby inflicted direct physical loss or damage to the plant.

shutterstock_134470478 Gregory Packaging manufactured and sold juice cups, and it was in the process of installing a refrigeration system at a new plant in Newman, Georgia when anhydrous ammonia was accidentally released into the facility, severely burning a subcontract worker. The plant was evacuated, and a remediation company was retained to dissipate the gas. That process took several days.

The facility was insured by Travelers Property Casualty Company under a contract of insurance that afforded coverage for “direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss.” The insurer denied liability for Gregory Packaging’s property damage and business interruption claims, arguing that there had been no physical loss or damage because the term connoted a physical change or alteration to insured property requiring its repair or replacement. The policyholder responded by placing the matter in suit in federal court in New Jersey, and it then sought partial summary judgment on the sole issue of whether the ammonia release constituted an instance of direct physical loss or damage to the property. Read more ›

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Tagged with: Ammonia, Georgia, New Jersey
Posted in Direct Physical Loss or Damage, Explosion, Seepage or Leakage

With Respect to Discoverability, Indiana Federal Court Distinguishes Between Pre-Suit and Post-Suit Reserves

Posted on November 26, 2014 by Dick Bennett

In May, we reported on a Third Circuit decision holding that loss reserve information was generally irrelevant and not discoverable. In October, a federal court in Indiana came to the same conclusion with respect to post-suit reserves. In G & S Metal Consultants, Inc. v. Continental Casualty Co., 2014 WL 5431223, 2014 U.S. Dist. LEXIS 151431 (N.D.Ind., Oct. 24, 2014), the court agreed that reserves established after litigation were irrelevant because of the multiplicity of factors that were necessarily considered in establishing them. The opinion suggests that pre-suit reserves are discoverable unless they have been set in anticipation of litigation and consultation with counsel, however.

shutterstock_157718609 G & S Metal Consultants filed suit for property damage and business interruption loss after a steam explosion at a Georgia facility. After discovery was complete, the insurer, Continental Casualty, successfully sought permission to file an amended answer asserting additional affirmative defenses and a counterclaim based on alleged misconduct by G & S during the claim adjustment process that it had allegedly learned of during discovery, and the court reopened discovery to allow the policyholder to defend against the counterclaim. The insured then sought to question the carrier’s 30(b)(6) designee about reserves, and it filed a motion to compel after Continental’s attorneys objected to that line of questioning.

On October 24th, the court denied the motion. Judge Paul R. Cherry’s opinion distinguished between loss reserves set during the claim adjustment process and loss reserves set during litigation. With respect to the latter, he held that such information was essentially irrelevant because there were simply too many factors involved in the carrier’s decisions. As he explained: Read more ›

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Tagged with: Indiana
Posted in Discovery, Explosion, Privilege, Reserves

Seventh Circuit: Under Wisconsin Law, “Continuous or Repeated Exposure” Language Means That a Continuous Trigger Theory Applies

Posted on November 19, 2014 by Dick Bennett

Yesterday, in Strauss v. Chubb Indem. Ins. Co., – F.3d – , 2014 WL 6435314, 2014 U.S. App. LEXIS 21794 (7th Cir., Nov. 18, 2014), the Court of Appeals held that the use of the phrase “continuous or repeated exposure” in a Wisconsin first-party property policy’s definition of occurrence meant that the contract of insurance contemplated that the continuous trigger theory determined whether loss was covered. As a result, a claim for 11 years of gradual water damage under a series of insurance policies was held to be timely even though it was first presented when the damage was initially discovered, five years after the last contract of insurance had expired.

shutterstock_124109527 The Strausses had constructed a home in Mequon, Wisconsin in 1994, and they were insured by four separate Chubb carriers from then until October of 2005. In October of 2010, Mr. and Mrs. Strauss discovered that a defect during construction in 1994 had been allowing water infiltration during every rainstorm over the past 16 years, causing damage to the building’s envelope. They made claim under the 1994-2005 Chubb policies, but the insurers denied liability, and the Strausses brought suit in federal court in October of 2011, within one year of their discovery of the damage.

The policies covered “all risks of physical loss to [the] house” with coverage limited “only to occurrences that take place while this policy is in effect.” The term “occurrence” was then defined as”

a loss or accident to which this insurance applies occurring during the policy period. Continuous or repeated exposure to substantially the same general conditions unless excluded is considered to be one occurrence.

Finally, there was a “Legal Action Against Us” clause mandating that any action against the insurers be brought “within one year after a loss occurs.” Read more ›

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Tagged with: Continuous or Repeated Exposure, Continuous Trigger, Manifestation, Wisconsin
Posted in Ambiguity, Homeowners Coverage, Trigger, Water

New Jersey Court Holds $22 Million “Named Storm” Deductible Applicable to a Superstorm Sandy Loss

Posted on November 3, 2014 by Dick Bennett

On October 29th, a New Jersey trial court held that a commercial policyholder’s Superstorm Sandy claims were subject to a $22 million “named storm” deductible equal to 2% of the total insurable values at risk at all of the loss locations for which the insured made claim. In Wakefern Food Corp., et al. v. Lexington Ins. Co., Case No. L-6483-13 (N.J.Super.Ct., Middlesex Cty., Oct. 29, 2014), the court held that damage had begun to occur hours before Sandy was downgraded and no longer constituted a “named storm” as defined and that that fact “created a substantial nexus between the storm and Wakefern’s total losses” justifying application of the deductible.

shutterstock_197340095 Plaintiff Wakefern was a buying cooperative consisting of the owners of ShopRite and PriceRite supermarkets, and it had a commercial property policy issued by Lexington Insurance Company. After Superstorm Sandy struck on October 29, 2012, Wakefern made claim for over $50 million in damage at dozens of different locations.

The contract of insurance afforded wind and hail coverage up to a $150 million sub-limit. It also stated that the wind and hail coverage was subject to either a $250,000 per occurrence deductible or a deductible of “2% of Total Insurable Values at the time of the loss at each location involved in the loss or damage arising out of a Named Storm.” The phrase “total insurable values” (TIV) was not defined, but the policy recited that a “named storm” was “a storm that has been declared by the National Weather Service to be a Hurricane, Typhoon, Tropical Cyclone, Tropical Storm or Tropical Depression.” Read more ›

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Tagged with: Named Storm Deductible, New Jersey, Total Insurable Values
Posted in Deductible, Hurricane, Superstorm Sandy

Second Circuit Affirms a Southern District Decision Construing “Covered Location” Narrowly

Posted on October 30, 2014 by Dick Bennett

In January, the Southern District rejected an insured’s $2 million claim for a generator destroyed by Superstorm Sandy. The unit was in the basement of an office building in lower Manhattan, but the contract of insurance defined “covered location” to mean the 33rd floor of the structure. The district court rejected the policyholder’s argument that language insuring personal property “in buildings or structures at a ‘covered location’ “ extended coverage to the entire building including its basement. On October 16th, a panel of the Court of Appeals affirmed this carrier-friendly interpretation in Jane Street Holding, LLC v. Aspen American Ins. Co., — Fed.Appx. –, 2014 WL 5287051, 2014 U.S. App. LEXIS 19905 (2d. Cir., Oct. 16, 2014).

shutterstock_110443643 Jane Street Holding, LLC was a trading company with offices in One New York Plaza in lower Manhattan. On September 2, 2011, it purchased a commercial property policy from Aspen American Insurance Company for the 2011-2012 policy year. Jane Street subsequently bought a $2.2 million generator and installed it in the basement of One New York Plaza. The policy was renewed “as expiring” on September 2, 2012, and the generator was totally destroyed when Superstorm Sandy struck on October 29, 2012 and flooded Lower Manhattan.

The contract of insurance afforded $15 million in coverage for business personal property, $10 million in coverage for Electronic Data Processing Equipment, and $15 million in coverage for Equipment Breakdown, and the generator was covered property as defined by all three coverage parts. However, the governing policy language defined covered personal property as Jane Street’s “business personal property in buildings or structures at a ‘covered location’ or in the open (or in vehicles) on or within 1,000 feet of a ‘covered location.’ “ If the contract of insurance contained a Scheduled Locations Endorsement as Jane Street’s policy did, “covered location” was then defined to mean “a location that is described on the Location Schedule” of the endorsement. In this case, the location schedule listed “One New York Plaza, 33rd Floor, New York, N.Y. 10004” as the “covered location.” Read more ›

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Tagged with: Basement, Covered Location, Generator, New York
Posted in Flood, Insured Premises, Superstorm Sandy, Water

Oklahoma Supreme Court Reconciles Sewer Backup Exclusion With Accidental Discharge Coverage Grant

Posted on October 29, 2014 by Dick Bennett

In May, we reported that a New York court had found that a policy containing both an exclusion for water that backs up through sewers and drains and a coverage grant for accidental discharge or overflow from a plumbing system was neither internally inconsistent nor ambiguous in nature. The post can be found here. On June 17th, Oklahoma’s highest court agreed, albeit without citing the New York case, and it held that the two provisions were fully reconcilable and enforceable. The case in question is Porter v. Oklahoma Farm Bureau Mut. Ins. Co., 330 P.3rd 511, 2014 Okla. LEXIS 72 (Okla., June 17, 2014).

shutterstock_167733947 Justin and Brandy Porter owned a home that was damaged when raw sewage entered the premises on November 14, 2009. Their homeowners carrier was Oklahoma Farm Bureau Mutual Insurance Company, and the insurer denied. Litigation followed. After the district court granted Oklahoma Farm Bureau’s motion to dismiss and the state’s intermediate level appellate panel affirmed, the Oklahoma Supreme Court granted the Porters’ writ of certiorari.

The contract of insurance afforded all risk coverage for real property loss but covered loss to personal property on a specified perils basis. One of the specified perils enumerated was:

Accidental Discharge or Overflow of Water or Steam from within a plumbing, heating, air conditioning or automatic fire protection sprinkler system[.]

With respect to both real and personal property, the policy also excluded loss caused by “water damage meaning . . . water which backs up through sewers or drains[.]” Read more ›

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Tagged with: Accidental Discharge, Oklahoma, Sewer Backup
Posted in Ambiguity, Flood, Seepage or Leakage, Water

Pennsylvania Court: Inaction When Damage is Known to Be Likely is Enough to Render the Loss Non-Fortuitous

Posted on October 24, 2014 by Dick Bennett

On September 19th, a federal court in Pennsylvania held that a wall collapse was not fortuitous because the insureds knew that the wall was unstable and likely to fall and yet took no steps to correct the problem. No one could say the loss was certain to happen, but the court effectively held that the insureds’ inaction was enough to make the collapse non-fortuitous given the likelihood that the wall would fail if it wasn’t repaired or braced. The decision is Fry v. Phoenix Ins. Co., 2014 WL 4662481, 2014 U.S. Dist. LEXIS 131504 (E.D.Pa., Sept. 19, 2014).

The Frys owned a home in Fleetwood, Pennsylvania. The house was a wood-frame structure with a stone veneer, and they noticed that the veneer was bulging in 2003. An engineering report that they commissioned at the time attributed the problem to “an insufficient number of veneer wall ties and fasteners,” and the Frys paid $22,000 to have the exterior wall repaired.

As of 2011, the policyholders were insured by Phoenix Insurance Company, and the contract of insurance extended coverage to the peril of collapse, which was defined as “an abrupt falling down or caving in” of a portion of the structure. In July of that year, the Frys made claim for bulging of the veneer’s exterior after a storm, and both the policyholders and Phoenix then secured expert reports. The insured’s expert attributed the movement to the fact that “there is not a good connection between the stone veneer and the framed wall,” and he recommended repair and temporary bracing from outside if repairs could not be done “within the next couple months.” The carrier’s expert ascribed the problem to “inadequate anchorage to the wood-framing” as well and also recommended repair and temporary bracing until that could be accomplished. The insurer denied liability because the bulging was “not sudden and accidental” in nature. Read more ›

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Tagged with: Pennsylvania
Posted in Collapse, Fortuity, Water, Wear and Tear

Florida Court: Your Own Attorney is Simply Not a “Disinterested” Appraiser

Posted on October 22, 2014 by Dick Bennett

As noted yesterday, last month saw an intermediate level appellate panel in Florida address whether the attorney for the policyholder could serve as that party’s appraiser. It was a case of first impression in the Sunshine State. In Florida Ins. Guar. Assn. v. Branco, 2014 WL 4648208, 2014 Fla. App. LEXIS 14602 (Fla.Dist.Ct.App., Sept. 19, 2014), the panel held that it was impermissible to select one’s own lawyer to act in that capacity when the contract of insurance called for a “disinterested” appraiser.

shutterstock_122066239 The Brancos’ home was damaged by a sinkhole in April of 2010, and they made claim under a homeowner’s policy issued by Homewise Preferred Insurance Company. The insurer denied liability, asserting that what had happened did not qualify as a “sinkhole loss” as defined, and the Brancos brought suit. Homewise was subsequently declared insolvent, and Mr. and Mrs. Branco filed an amended complaint substituting the Florida Insurance Guaranty Association as defendant.

FIGA then conducted its own investigation, and it admitted in its answer that the sinkhole activity was a contributing cause of loss and that the Brancos were entitled to recover. Mr. and Mrs. Branco demanded appraisal three weeks later and filed a motion to compel such a proceeding which was granted by the trial judge. FIGA then took an appeal, making three arguments in opposition to the order to compel appraisal. Read more ›

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Tagged with: Disinterested Appraiser, Florida
Posted in Arbitration and Appraisal, Loss Adjustment, Sinkhole