Pay Attention to Policy Language in a Hardening Insurance Market

Ian Ascher[1] and Jared Zola

The insurance market has proven to be a difficult environment for buyers in 2019. The long tenure of the soft insurance market cycle is changing, and is presenting challenges with pricing, capacity, and sustainability of favorable coverage terms. Coming out of difficult natural catastrophe years in 2017 and 2018, the property insurance market took a sharp turn to protect insurers’ bottom lines. While hardening of the property insurance market was expected, the broader casualty market has taken this opportunity to drive corrective action on their portfolios as well, leaving insurance buyers with little leverage.

How Insurers Are Reacting to the Market Shift

Insurers are approaching the market shift with different strategies, some focused on rate increases, while others are focused on restricting terms, or both. While individual loss experience still plays a role in renewal outcomes, there appears to be more of a portfolio-level push on rate and terms regardless of individual quality of risk factors for any given policyholder. In this environment, stricter control over capacity deployment leads to less competition, which may force the buyer into tough decisions regarding what utility insurance provides for its organization. The guarantee of comprehensive coverage at a fair price becomes harder to balance in a setting where definitively having both is less than certain. Continue reading “Pay Attention to Policy Language in a Hardening Insurance Market”

Hurricane Harvey Insurance Claim Gets Twisted

Jared Zola and Daniel R. Belzil

Almost two years after Hurricane Harvey devastated parts of Texas and Louisiana, Central America, and several Caribbean islands, the coverage issues arising out of it are far from resolved. The court decisions addressing these coverage issues have not all been positive from the insured’s perspective. In particular, one recent decision in the United States District Court for the Southern District of Texas, Pan Am Equities, Inc. v. Lexington Insurance Company, No. H-18-2937 (May 2, 2019) (“Pan Am Equities”), should give insureds in Texas and elsewhere pause heading into the 2019 Hurricane Season.

The Dispute—Which Deductible Applies?

The insured in that case owned several commercial properties in Houston, including an apartment building and parking garage that sustained more than $6.7 million in flood damage as a result of Hurricane Harvey. Its properties were insured by a commercial property insurance policy that provided “Flood” coverages as well as coverages for loss caused by the peril of “Windstorm and Hail.” Continue reading “Hurricane Harvey Insurance Claim Gets Twisted”

Recent Lawsuit Highlights Need for Careful Review of Cyberinsurance Policies

James S. Carter and Amy J. Spencer

The “WannaCry” and “NotPetya” computer viruses that infected computer systems around the world in 2017 sounded a wakeup call. They demonstrated the power of a cyber event to disrupt the core operations of numerous companies and other organizations. Now some fear that another unpleasant surprise related to the 2017 virus attacks may be on the horizon—this time from the insurance industry. A recent lawsuit alleges that an insurer denied coverage for losses arising out of the “NotPetya” virus based on an exclusion for “hostile and warlike actions.” A version of this war exclusion appears in virtually all insurance policies, including cyberinsurance policies, which are supposed to address cyber events like “WannaCry” and “Not Petya.”

The lawsuit is Mondelez International, Inv. v. Zurich American Insurance Company. Filed late last year in Illinois state court, the policyholder, a snack food and beverage maker, alleges that it suffered a nightmare cyber scenario. Two separate intrusions of the “NotPetya” virus at different locations “rendered permanently dysfunctional approximately 1700 of [the policyholder’s] servers and 24,000 laptops.” According to the complaint, the virus caused property damage, commercial supply disruptions, unfulfilled customer orders, reduced margins, and other covered losses aggregating well in excess of $100,000,000. Continue reading “Recent Lawsuit Highlights Need for Careful Review of Cyberinsurance Policies”

California Corner: Loss of Use under Commercial General Liability Insurance Policies Includes the Inability to Use a Property in a Particular Manner

Julia K. Holt

Most commercial general liability (“CGL”) policies contain standard, insurance industry-drafted language regarding an insurer’s duty to defend and indemnify its insured. The language typically states something like, the insurer “will pay those sums that the insured becomes legally obligated to pay as damages because of . . . ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages.” Commercial General Liability Insurance Policy Form No. CG 00 01 04 13, § I, Coverage A.1.a. (Insurance Services Office, Inc. 2012). “Property Damage” is defined as “[p]hysical injury to tangible property, including all resulting loss of use of that property” or “[l]oss of use of tangible property that is not physically injured.” Id. at § V, ¶ 17.a and b.

The second definition of “property damage” provides coverage when the allegations do not amount to physical injury of tangible property. However, insurers often attempt to strictly narrow the coverage available by arguing that certain types of lost use are not covered because they are merely the loss of economic privileges that accompany the property, such as the right to hold a liquor license or to use the property a certain way via a permit. In other words, insurers often argue that “loss of use” of tangible property requires the total loss of all uses on the property, not merely some uses. The California Court of Appeal recently rejected this argument. See Thee Sombrero, Inc. v. Scottsdale Ins. Co., 28 Cal. App. 5th 729, 239 Cal. Rptr. 3d 416 (2018). Continue reading “California Corner: Loss of Use under Commercial General Liability Insurance Policies Includes the Inability to Use a Property in a Particular Manner”

Insurance Coverage for Hurricanes: Insurers May Dispute “Causation”

Jared Zola, Linda Kornfeld, John E. Heintz, and Alan Rubin

Like the 2017 Atlantic Hurricane season before it, the 2018 season brought devastating storms to the United States. A prime example: One of the most powerful hurricanes on record to hit Florida’s Panhandle wreaked havoc in October 2018 and left a trail of devastation in its wake as it weakened to tropical storm status but still brought large-scale destruction to southeastern states.

Hurricane Michael made landfall on October 10 approximately 20 miles southeast of Panama City, Florida, with biblical 155 mph sustained winds, violent waves, and heavy rain. The extent of the damage in Florida is still being evaluated, but it is extensive to the naked eye. Two hospitals were evacuated. Many homes were destroyed, power lines were downed, cars and trucks overturned and destroyed.

It took weeks before roads were cleared and electricity was fully restored. Even once businesses reopened, the storm’s destruction prevented employees from traveling to work. In addition, municipalities reported decreased tax revenues from business closures. The economic impact of storm-related losses for businesses and municipalities combined will be significant. Continue reading “Insurance Coverage for Hurricanes: Insurers May Dispute “Causation””

Insurance Can Reduce the Financial Repercussions to Your Supply Chain of Superstorms, Wildfires, Climate Change, and Global Economic Disruptions

Welcome to “California Corner,” dedicated to posts authored by our new team of Insurance Recovery attorneys based in our Los Angeles office. Partner Linda Kornfeld, who serves as vice chair of the Insurance Recovery group, Partner David Thomas and Of Counsel Julia Holt focus on national and California-specific issues, including property and weather-related business interruption issues, data breach and privacy issues, and professional liability, asbestos, and environmental liabilities. Their clients include telecommunications companies, universities, real estate developers, manufacturers, and nonprofit organizations around the country. We hope you find their perspectives informative and insightful!

Linda Kornfeld, David Thomas, and Julia Holt

Many companies in today’s global economy are dependent upon the efficient and disruption-free operation of their multinational supply chains. Unfortunately, such supply chains are vulnerable to numerous physical and non-physical elements, including natural disasters, information technology failures, cyberattacks, pandemics, climate change, and civil and political unrest. These vulnerabilities can, and often do, result in the disruption of business operations resulting in significant financial losses. Continue reading “Insurance Can Reduce the Financial Repercussions to Your Supply Chain of Superstorms, Wildfires, Climate Change, and Global Economic Disruptions”

Insurance Recovery for Losses Related to Hurricane Harvey

Jared Zola, John D. Heintz, and Justin F. Lavella

 

 

 

Insurance for Property Damage and Business Interruption Losses

Businesses and communities throughout Texas and the Gulf Coast are bracing for the impact of Hurricane Harvey that is expected to wreak havoc this weekend. Harvey is unique because it quickly and unexpectedly transformed from what was predicted to be a smaller-scale storm to a Category 2 hurricane—and may be upgraded to Category 3 before it makes landfall. This transformation has left many major businesses and facilities in the storm’s expected path with significantly less time to prepare, and in some cases shutdown operation, than would ordinarily be expected. Continue reading “Insurance Recovery for Losses Related to Hurricane Harvey”