The Second Circuit’s Ali Decision Supports Zeig on Exhaustion of Insurance

John A. Gibbons

John A. GibbonsThe Second Circuit’s June 4, 2013 decision in Ali v. Federal Insurance Co. addresses when and how a policyholder may recover from excess liability insurance policies for future liabilities when underlying insurers are insolvent. (Opinion linked here). A number of insurer-leaning commentators have cast the case as a rethinking of Zeig v. Massachusetts Bonding & Insurance Co., 23 F.2d 665 (2d Cir. 1928), the seminal Second Circuit decision authored by Judge Augustus Hand, which first established the principle that policyholders could recover against excess insurance policies even if the policyholder did not collect the full limits of underlying insurance policies.  In Zeig, the Second Circuit rejected an excess insurer’s attempt to walk away from its insurance obligations simply because Mr. Zeig settled his claim against a separate insurance company. Zeig established the principle, recognized by numerous courts since, that a policyholder’s settlement with one insurer does not forfeit the policyholder’s rights against other insurers.

The characterization that the Second Circuit has now called Zeig’s common-sense, and widely recognized principle into question, however, seriously misreads the decision in Ali. To understand Ali—what it does and does not hold—requires an understanding of the issues that were actually ruled on by the district court and affirmed by the Second Circuit. Continue reading “The Second Circuit’s Ali Decision Supports Zeig on Exhaustion of Insurance”

“Common Sense” Prevails: Court Rejects Excess Insurer’s Position that Defense Costs Coverage Is Dependent on Payment of Damages

Justin F. Lavella

lavella“The duty to defend is broader than the duty to indemnify.” For many policyholders, this oft-repeated maxim of insurance law embodies a variety of different expectations. The first and foremost expectation is that policyholders are entitled to a defense from their insurer even if coverage for future liability may be in doubt. A second common expectation is that a policyholder’s defense costs will be paid by its insurers as those costs are incurred. A third expectation is that a judicial decision obligating a primary carrier to pay defense costs will ensure that excess insurers also are obligated to pay any unreimbursed defense costs once the primary policy is exhausted.

Unfortunately, as many policyholders’ mass tort liabilities—such as asbestos and environmental claims—have begun to implicate higher-level excess policies, many of the above expectations have not only gone unsatisfied but have come under attack by increasingly obstructionist excess insurers. For some policyholders, this has resulted in a second generation of coverage litigation over liabilities and coverage issues long thought to have been resolved. Continue reading ““Common Sense” Prevails: Court Rejects Excess Insurer’s Position that Defense Costs Coverage Is Dependent on Payment of Damages”

Bills Propose to Prohibit Insurers from Using Anti-Concurrent Causation Clauses in New York

Jared Zola

Zola, JaredAn important issue that frequently arises in connection with devastating storms and other natural disasters is determining whether peril-specific exclusions, deductibles, or sub-limits found in commercial property insurance policies apply to claims for losses that have more than one contributing cause of loss. For example, Superstorm Sandy damaged many businesses and homes with a combiimage by Shutterstock licensenation of high winds, severe rain, and flooding. Some property insurance policies may exclude coverage for flood losses and cover wind losses. Substantial debate has arisen over the years about the appropriate causation test and application of that test to multi-peril losses. Continue reading “Bills Propose to Prohibit Insurers from Using Anti-Concurrent Causation Clauses in New York”

Keep Your Insurer’s Feet to the Fire to Get Paid

Edward Tessler

The wheels of justice can turn slowly. This is especially true in litigation about insurance coverage. For large insurance coverage actions such as those seeking insurance for asbestos claims or environmental claims, the case can very well go on for years and years. There is no incentive for an insurance company to shorten that time period because it is holding onto the money while the litigation continues. A cash flow analysis generally shows that it is in the insurance companies’ interest to have the case continue because the amount insurance companies are making on the money they are holding is greater than the cost of their continuing the litigation. We often see insurance companies’ answers to the policyholder’s complaint asserting anywhere from 30 to 50 affirmative defenses. Many of these defenses have little or no basis, but they serve to complicate the action and make it last longer.

The policyholders’ goal should be to get the case to trial. Too often it seems that insurance companies have little interest in settling, except at a deep discount, until the case is close to trial. This is consistent with the insurance companies wanting to hold the money for a longer amount of time. By pushing the case to trial, the policyholder is encouraging the insurance company to settle at a reasonable amount. If the insurance company does not settle, then the policyholder will still have its claim resolved at trial. Continue reading “Keep Your Insurer’s Feet to the Fire to Get Paid”

Valuing Commercial Insurance Claims Arising from Superstorm Sandy

Jared Zola

Zola, JaredOn April 4, 2013, I spoke at the @NYLawJournal and @JAMSADR event “Commercial Insurance Claims Arising from Super Storm Sandy: Is There a ‘New Normal’?” I was the policyholder attorney voice on the second panel, which focused its discussion on “Quantum: Provisions & Proof” in connection with Sandy claims.

The moderator began our panel discussion by asking me the following question:

Jared, based on what you have seen to date, what do you expect will be the most contentious valuation issue arising from Sandy claims? Continue reading “Valuing Commercial Insurance Claims Arising from Superstorm Sandy”

State Attorneys General Increasingly Concerned with Data Privacy

Aaron R. Lancaster

Aaron R. LancasterOver the past few years, State Attorneys General (AGs) have grown increasingly active in a variety of areas not traditionally within their domain. One of the areas in which AGs have increased their attention is data privacy. Notably, in the past year AGs have added data privacy enforcement units, worked with their legislatures to expand their data privacy enforcement capabilities, and have brought high-profile investigations and enforcement matters on data privacy issues. As a result of this increased activity, companies should closely scrutinize their insurance portfolios to ensure that they are covered for any such investigations and enforcement activity, and, if not, work with insurance brokers to consider obtaining insurance to address these risks. Continue reading “State Attorneys General Increasingly Concerned with Data Privacy”

After Large-Scale Disaster, Serious Insurance Issues Loom for Texas Fertilizer Plant

Jared Zola

Zola, JaredNo one ever wants to see a tragedy, and no one wants to see injuries and loss of life such as we are seeing in the wake of Wednesday’s massive explosion at West Fertilizer Co. in central Texas. Our thoughts are with those who have lost loved ones or suffered injury or destruction of property. While insurance is of no solace in these circumstances, it can be a key factor in recovery from such disasters. Policyholders must act promptly to protect their rights and to obtain the full extent of their coverage.

Companies whose business includes large-scale industrial operations should make sure that they have appropriate liability insurance to cover claims brought by those alleged injured from their operations. However, they also should make sure that they have the following types of insurance coverage, which may be crucial not only to their recovery, but also to better ensure jobs for their employees. Continue reading “After Large-Scale Disaster, Serious Insurance Issues Loom for Texas Fertilizer Plant”