Top Developments – June 2021


Proposed New York legislation would create a private right of action against insurers for a refusal to pay or delay in paying a claim without “reasonable justification.” The legislation, introduced in May 2021, specifies circumstances in which “reasonable justification” would not exist, including where an insurer “failed to effectuate a prompt and fair settlement of a claim or any portion thereof” such that the insured was exposed to a judgment in excess of policy limits. The legislation requires that, before bringing an action, the claimant (i.e., a policyholder or an injured person) make a written demand to the insurer that “reasonably describe[s] the unfair claim settlement act or practice and the injury suffered[.]” The insurer then has thirty days to investigate the claim and make a settlement offer. In addition to the amount found to be due under the policy, the relief potentially available to a successful claimant includes consequential damages, reasonable attorneys’ fees and punitive damages. (N.Y. Assemb. B. 7285; Sen. B. 6813)



According to the University of Pennsylvania Law School’s Covid Coverage Litigation Tracker, to date, over 1,700 COVID-19 business interruption coverage cases have been brought nationwide. Of the 423 cases in which a motion to dismiss or for summary judgment has been filed, the courts found for insurers in 363 cases and for policyholders in 9 cases (motions were either denied or not decided in the remaining cases). Decisions in approximately 162 of those suits have been appealed.

Most (140) of the appeals are pending are before federal courts. In one case thought to be among the furthest along, Oral Surgeons, P.C. v. Cincinnati Insurance Company, No. 20-3211, the Eighth Circuit is reviewing a district court ruling that a COVID-19 related closure of a dental office did not qualify as direct “loss” to property under a commercial policy providing business interruption coverage. Audio of the argument in that case (from April 14, 2021) is available here.

Twenty-two of the appeals are before state courts, including two high courts.

The Ohio Supreme Court accepted the following certified question from an Ohio federal district court:

Does the general presence in the community, or on surfaces at a premises, of the novel coronavirus known as SARS-CoV-2, constitute direct physical loss or damage to property; or does the presence on a premises of a person infected with COVID-19 constitute direct physical loss or damage to property at that premises?

Neuro-Communication Services, et al. v. Cincinnati Insurance Company, No. 2021-0130. The insured filed its brief on June 14, 2021; the insurer’s brief is due next month.

The Oklahoma Supreme Court is set to review the dismissal of complaints by Native American tribes seeking coverage for alleged casino losses arising from government-ordered COVID-19 shutdowns. Cherokee Nation, et al. v. Lexington Insurance Company, et al., No. SD-119359; Choctaw Nation of Oklahoma v. Lexington Insurance Company, et al., No. SD-119413. Because the consolidated appeal is subject to the court’s accelerated procedure, appellate briefs are not permitted.


Legislation has been proposed – and, in some instances, enacted – in a number of states relating to business interruption coverage in the wake of the COVID-19 pandemic. In May 2021, New Jersey Governor Phil Murphy signed into law a bill that requires insurers to provide a summary of certain information to prospective and renewal policyholders under policies that provide coverage for loss of use and occupancy of a commercial property and business interruption. (N.J. Assemb. B. 4805; Sen. B. 3169) The summary must include, among other things:

Information concerning common coverage triggers;

Examples of perils typically covered;

A summary of common exclusions; and

The following statement, in a prominent place in the summary: “Your policy may not cover pandemics or viruses.”

Bills addressing pandemic-related coverage issues – including the addition of global virus transmission and pandemics as covered perils under business interruption coverage, restrictions on the applicability of virus or pollution exclusions, whether the presence of COVID-19 constitutes physical loss, and circumstances in which insurers must cover COVID-19 related business interruption claims – are pending in New Jersey and at least nine other states.


Arch Insurance Company v. Kubicki Draper, LLP, 2021 Fla. LEXIS 898 (Fla. June 3, 2021)

Florida Supreme Court holds that a liability insurer has standing to pursue a malpractice action against the law firm it hired to defend its insured in an underlying lawsuit where the insurer is contractually subrogated to the insured’s rights under the policy. The court agreed that only the insured (and not the insurer) was in privity with the law firm, but found that the policy’s subrogation provision* allowed the insurer to step into the insured’s shoes and sue the firm for failing to raise a statute-of-limitations defense. It also concluded that Florida’s public policy against assignment of legal malpractice claims (which is based on concerns about “creating a market” for such claims) was not implicated here, because the insurer was merely “trying to recover money it paid to its insured from the lawyer it hired.”

Video of the argument is available here.

* The provision states: “To the extent of any payment under this Policy, we [the insurer] shall be subrogated to all your [the insured’s] rights of recovery therefor against any person, organization, or entity and you shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. You shall do nothing after any loss to prejudice such rights.”


Darwin National Assurance Company v. Kentucky State University, 2021 Ky. App. LEXIS 31 (Ky. Ct. App. Mar. 19, 2021)

Kentucky appeals court rules that prejudice is not required to deny coverage under a claims-made and reported policy based on late notice. In declining to extend the “notice-prejudice” rule beyond “occurrence”-based policies, the court reasoned that application of the rule in this context would frustrate the purposes of the strict reporting requirements of claims-made and reported policies,* which it explained are designed to simplify insurers’ reserving practices and to reduce uncertainty in pricing. And requiring prejudice here, the court said, effectively would give the insured an extended reporting period “for free and without any consideration[.]”

On April 20, 2021, the policyholder filed a motion for discretionary review, which is pending before the Kentucky Supreme Court.

* The policy at issue provides: “The Insured(s) shall, as a condition precedent to the obligations of the Insurer under this Policy, give written notice to the Insurer … of a Claim made against an Insured as soon as practicable after the Organization[’s] General Counsel or Risk Manager, or any individual with functionally equivalent responsibilities, becomes aware of the Claim,” and “in no event shall such notice of any Claim be provided to the Insurer later than ninety (90) days after the end of the Policy Period or Discovery Period if purchased.”


Evanston Insurance Company v. Tristar Products, 2021 U.S. Dist. LEXIS 84020 (E.D. Pa. May 3, 2021)

Pennsylvania federal court finds that, under Pennsylvania and New York law, claims in a proposed class action lawsuit that an insured’s cookware products were defective did not allege an “occurrence” under the CGL policies at issue. The court concluded that: (1) the complaint, which asserted that the cookware did not have a “sustainable non-stick quality” and was not suitable for its intended purpose, alleged faulty workmanship and not an “active malfunction” as the insured claimed; and (2) the claimed damages were not fortuitous (i.e., did not qualify as an “accident”), because the insured allegedly expected the failure of the non-stick coating. In doing so, it rejected the insured’s argument that there could be no faulty workmanship claim absent a contractually-agreed standard for the product: “It is the alleged unsuitability of the Pans for their intended purpose … rather than the presence or absence of a formal contract, which leads [to the conclusion] that the Underlying Complaint is alleging ‘faulty workmanship’ as opposed to an active malfunction.”

White and Williams LLP represents certain insurers in the case.


In re Farmers Texas County Mutual Insurance Company, 2021 Tex. LEXIS 327 (Tex. Apr. 23, 2021)

Texas Supreme Court (in a partially divided decision) declines to recognize a Stowers failure-to-settle claim against an insurer where an underlying settlement, which included a contribution from the insured, did not exceed policy limits. The majority explained that, under Stowers, an insurer has a tort duty to accept a within-limits settlement of a covered claim where “the terms of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured’s potential exposure to an excess judgment.” The insured in this case contended that the insurer had failed to act as a reasonably prudent insurer, but the majority did not see that as a reason to extend Stowers to cases where an insured’s ultimate liability does not exceed policy limits. It explained that the insured nevertheless may have a non-Stowers contract claim against the insurer for breach of its indemnity obligation. Three justices disagreed on that point in a partial dissent: “When the insured disclaims all liability for the accident (as happens in the vast majority of settlements), the settlement does not establish any facts, and the insurer therefore has no duty to indemnify.”

Video of the argument is available here.