Insurance Law Alert

October 2016

In This Issue
Seventh Circuit Rules That Insurer May Rely On Evidence Outside
Complaint To Deny Defense Under Illinois Law
The Seventh Circuit ruled that when an insurer defends under a reservation of rights or seeksa declaratory judgment regarding its defense obligations, it is entitled to rely on evidence
extrinsic to the underlying complaint in establishing that it has no duty to defend. Landmark
Am. Ins. Co. v. Hilger, 2016 WL 5239833 (7th Cir. Sept. 22, 2016). (Click here for full article)“Extremely
thorough, detailed,always well preparedwhen getting ready for trial,
they knew every aspect of
the record.”–Chambers 2016,
quoting a client

Creditor Exclusion Negates Insurer’s Duty To Defend Fraud Suits, Says
Fifth Circuit
The Fifth Circuit ruled that an insurer had no duty to defend suits alleging that the insured
fraudulently induced companies to enter into loan agreements, finding that a Creditor
Exclusion unambiguously barred coverage. Markel Am. Ins. Co. v. Verbeek, 2016 WL 5400412(5th Cir. Sept. 27, 2016). (Click here for full article)

Alaska Statute Barring Insurer’s Reimbursement Of Defense Costs From
Policyholder Is Preempted By Federal Law, Says Ninth Circuit
The Ninth Circuit ruled that the Liability Risk Retention Act preempts an Alaska statutethat precludes an insurer from recouping expenses incurred in defending uncovered claims.
Attorneys Liab. Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., 2016 WL 5335036 (9thCir. Sept. 23, 2016). (Click here for full article)

Nevada Court Addresses Scope Of Coverage For Qui Tam Action
A Nevada federal district court ruled that a qui tam action against an insured fell within the
coverage period of a professional liability policy, but that a limit set forth in an endorsement
capped the insurer’s liability and defense obligations. My Left Foot Children’s Therapy, LLC v.
Certain Underwriter’s at Lloyd’s London, 2016 WL 5219458 (D. Nev. Sept. 19, 2016).
(Click here for full article)

Ohio Appellate Court Rules That Audit Request Is A “Claim” Under
Claims-Made Policy
An Ohio appellate court ruled that a letter issued by a software compliance organization was a“claim” under a claims-made policy, but that coverage was barred by a policy exclusion. Eighth
Floor Promotions v. The Cincinnati Ins. Cos., 2016 WL 5900078 (Ohio Ct. App. Oct. 11, 2016).
(Click here for full article)

Simpson Thacher & Bartlett LLP

1

New York Court Says That Policyholder’s Notice Under Claims-Made
Policy Was Deficient
A New York federal district court ruled that an insurer had no duty to provide coverage undera claims-made policy because the insured’s notice of claim was deficient. Univ. of Pittsburgh v.
Lexington Ins. Co., 2016 WL 4991622 (S.D.N.Y. Sept. 16, 2016). (Click here for full article)

Florida Supreme Court Rules That Insurer Bad Faith Is Not Prerequisite
to Statutory Attorneys’ Fees
The Florida Supreme Court ruled that an insured is entitled to attorneys’ fees under statestatutory law when an insurer incorrectly denies benefits and a subsequent judgment or its
equivalent is issued in the insured’s favor and that bad faith is not required. Johnson v. Omega
Ins. Co., 2016 WL 5477795 (Fla. Sept. 29, 2016). (Click here for full article)

Seventh Circuit Rules That Insurer Acted In Bad Faith By Refusing To Pay
Life Insurance Benefits
Notwithstanding a common law prohibition on stranger-originated life insurance policies, theSeventh Circuit ruled that Sun Life Assurance acted in bad faith by refusing to pay the proceedsof a life insurance policy to a stranger-beneficiary. Sun Life Assurance Co. of Canada v. U.S.
Bank Nat’l Assoc., 2016 WL 5929825 (7th Cir. Oct. 12, 2016). (Click here for full article)

Illinois Court Rules That Property Policy Term “Commencing” Is
Ambiguous
An Illinois federal district court denied an insurer’s summary judgment motion, finding thatthe term “commencing” was ambiguous and that there were questions of fact relating to thetiming of the commencement of property damage. Temperature Serv. Co., Inc. v. Acuity, A
Mutual Ins. Co., 2016 WL 6037968 (N.D. Ill. Oct. 14, 2016). (Click here for full article)

California Court Rules That Policyholder’s Wrongful Display Of
Trademarked Logo Is Not Advertising Activity
A California federal district court ruled that a liability insurer properly denied coverage ofclaims alleging use of another company’s trademarked logo, finding that such conduct did notconstitute covered advertising activity. Infinity Micro Computer, Inc. v. Continental Cas. Co.,2016 WL 5661755 (C.D. Cal. Sept. 29, 2016). (Click here for full article)

New York Court Applies Preponderance Of The Evidence Standard To
Proving Lost Policy Terms
A New York federal district court ruled that the proper standard for determining the existence
and terms of a lost policy is preponderance of the evidence. Pacific Employers Ins. Co. v. Troy
Belting & Supply Co., 2016 WL 5477758 (N.D.N.Y. Sept. 29, 2016). (Click here for full article)2

Duty toDefend Alerts:

Seventh Circuit Rules That Insurer
May Rely On Evidence Outside
Complaint To Deny Defense Under
Illinois Law

scenarios, the relevant question is whether the
insurer reasonably refused to defend based
solely on the allegations in the complaint.
However, where, as here, the insurer files adeclaratory judgment action, it is entitled topresent evidence outside of the complaint tonegate its defense obligations, so long as it
does not determine an ultimate issue in theunderlying dispute.

Reversing a lower court decision, the Seventh
Circuit ruled that when an insurer defends
under a reservation of rights or seeks adeclaratory judgment regarding its defense
obligations, it is entitled to rely on evidence
extrinsic to the underlying complaint inestablishing that it has no duty to defend.
Landmark Am. Ins. Co. v. Hilger, 2016 WL
5239833 (7th Cir. Sept. 22, 2016).
Two lawsuits filed against Peter Hilger allegedthat he and other defendants overstated thevalue of life insurance policies that served ascollateral for loans in order to persuade credit
unions to fund those loans. Hilger sought adefense from Landmark under a professional
liability policy issued to a company that
was a co-defendant in the suits. Although
Hilger was not a named insured, he argued
that he was covered under a policy provisionthat defined “covered persons and entities”
to include independent contractors that
performed professional services on behalfof the named insured. Landmark sought adeclaration that it had no duty to defend.
An Illinois federal district court enteredjudgment on the pleadings in Hilger’s favor.
On appeal, Landmark argued that it is entitled
to take discovery and offer evidence regarding
the nature of Hilger’s relationship to thenamed insured company in order to disputeits duty to defend. The Seventh Circuit agreed.
The Seventh Circuit ruled under Illinois
law that “an insurer seeking a declaratory
judgment on its duty to defend is entitled to
introduce evidence outside the underlying
complaint so long as it does not implicate an‘ultimate issue’ in the underlying action.” Inso ruling, the court expressly abrogated priorcase law that suggested that an insurer’s rightto look beyond the complaint was limited tosituations in which the insurer had a “strong
reason to believe” that it had no duty to
defend. In addition, the court clarified thatthe strict “four corners” rule applies only
when an insurer denies coverage without
seeking a declaratory judgment or defending
under a reservation of rights. Under thoseCreditor Exclusion Negates
Insurer’s Duty To Defend Fraud
Suits, Says Fifth Circuit
The Fifth Circuit ruled that a D&O insurer
had no duty to defend suits alleging that theinsured fraudulently induced companies toenter into loan agreements, finding that a
Creditor Exclusion unambiguously barred
coverage. Markel Am. Ins. Co. v. Verbeek,
2016 WL 5400412 (5th Cir. Sept. 27, 2016).
Color Star entered into loan agreementswith several companies. When Color Star
defaulted on its obligations, the companies
sued, alleging fraudulent inducement. ColorStar sought a defense from Markel. Markel
refused to defend based on a Creditor
Exclusion that bars coverage for “any Claimbrought or maintained by or on behalf of: Any
creditor of a Company or Organization in thecreditor’s capacity as such . . . .” In ensuing
litigation, a Texas district court ruled that theCreditor Exclusion precluded coverage for theunderlying suits. The Fifth Circuit affirmed.
Color Star argued that the Creditor Exclusion
applies only to breach of contract claims
brought by creditors to recover debt owed
by Color Star and not to the claims at issue,
which alleged inaccurate financial statementsthat were “at best peripheral to the debt.”
Color Star also contended that the Exclusion3

does not apply because at least one of theunderlying plaintiffs sued in its capacity as aninvestor, not as a creditor. The Fifth Circuit
rejected both assertions. It explained that
the Exclusion applies because all damages
sought in the underlying complaint originatedfrom the loan and credit agreement. The
court deemed it irrelevant that the underlying
claims sounded in fraud rather than breach ofcontract, noting that in determining whethera policy exclusion applies, “it is not the causeof action alleged that determines coverage but
the facts giving rise to the alleged actionableconduct.” The court also dismissed Color
Star’s “capacity” argument, reasoning that
although the underlying complaint used
the term “investment” in referring to theloan, the “factual allegations reveal that theorigin of the damages is the fraudulently
induced loans.”

Alaska Statute Barring Insurer’s
Reimbursement Of Defense Costs
From Policyholder Is Preempted By
Federal Law, Says Ninth Circuit
The Ninth Circuit ruled that the Liability Risk
Retention Act preempts an Alaska statute that
precludes an insurer from recouping expenses
incurred in defending uncovered claims.
Attorneys Liab. Protection Society, Inc. v.
Ingaldson Fitzgerald, P.C., 2016 WL 5335036(9th Cir. Sept. 23, 2016).
Attorneys Liability Protection Society(“ALPS”), a risk retention group charteredin Montana, issued a professional liability
policy to a law firm located in Alaska. ALPS
defended the law firm in an underlying suit
but reserved the right to seek reimbursementof defense costs for claims deemed notcovered under the policy. Thereafter,
ALPS brought suit, seeking a declarationof no coverage and reimbursement ofdefense costs. The dispute made its way
to the Alaska Supreme Court, which heldthat Alaska statutory law prohibits aninsurer from seeking reimbursement ofdefense costs even where a policy provides
for such reimbursement and where theinsurer explicitly reserves the right to seek
reimbursement. See Attorneys Liability
Protection Society, Inc. v. Ingaldson
Fitzgerald, P.C., 370 P.3d 1101 (Alaska 2016)(discussed in our April 2016 Alert).
ALPS argued that it was nonetheless entitled
to reimbursement because the Liability Risk

Retention Act (“LRRA”) preempts Alaska
statutory law. The court agreed, stating that
Alaska’s “prohibition on reimbursementof fees and costs incurred by an insurer
defending a non-covered claim offends the
LRRA’s broad preemption language and thatno exception applies to save the law.”

False Claims
Act Alert:

Nevada Court Addresses Scope Of
Coverage For Qui Tam Action
A Nevada federal district court ruled thata qui tam action against an insured fellwithin the coverage period of a professional
liability policy, but that a limit set forthin an endorsement capped the insurer’s
liability and defense obligations. My LeftFoot Children’s Therapy, LLC v. Certain
Underwriter’s at Lloyd’s London, 2016 WL
5219458 (D. Nev. Sept. 19, 2016).
After receiving notice of a qui tam action
alleging that it provided medicallyunnecessary services in violation of federal
and state law, a policyholder tendered theclaim to Underwriters under a professional
liability policy. Underwriters extended$25,000 of coverage pursuant to a Billing
Errors Endorsement. The insured filed suit,seeking a declaration that Underwriters
had a duty to defend up to $2 million in
expenses and to indemnify the underlying
claims. Underwriters argued that the qui
tam action falls outside the policy’s coverage
period and that any available coverage waslimited to $25,000. Ruling on cross-motions
for summary judgment, the court rejected
Underwriters’ argument about the coverage
period, but agreed with its argument as topolicy limits.
The court’s coverage analysis turned on
application of a Billing Errors Endorsement.
Pursuant to the Endorsement, the policy
provided coverage for the period of April 15,
2015 to April 16, 2016, but was not required torespond to events “which arise from any facts,
circumstances, situations, events, transactions
or causes of action which are underlying or
alleged in litigation pending on or prior to theinitial effective date.” Underwriters argued
that it had no coverage obligation because4the qui tam action was filed on October 28,
2014. The court rejected this argument, citing“the unique procedural stature of qui tam
lawsuits under the False Claims Act,” which
contemplates that complaints will remain
under seal for at least 60 days after being
filed, causing significant delays in providing
notice to the defendant. The court therefore
concluded that the operative date forpurposes of a qui tam coverage suit is when
the insured receives notice of the suit. The
court reasoned, “[i]t would be superfluous
for the Endorsement to explicitly state thatthe date of service is the date of notice forpurposes of coverage as it is commonly
understood that a qui tam suit under the FCA
becomes active once the defendant has noticeof the law suit and that notice most often
occurs at the time of service.” Because theinsured received notice of the qui tam actionin June 2015, the court held that it fell within
the Endorsement period.
As to policy limits, the court ruled that theEndorsement expressly limited coverage
to $25,000, inclusive of defense costs.
The court rejected the argument that theEndorsement was ambiguous as to whether
the $25,000 limit included defense costs.
The court explained that policy language
requiring the Underwriters to “indemnify
the Insured for Loss . . . which the Insured is
obligated to pay and Claims Expenses which
the Insured incurs” makes clear that bothdefense and indemnity costs are capped at the$25,000 limit.

Coverage Alerts:

Ohio Appellate Court Rules That
Audit Request Is A “Claim” Under
Claims-Made Policy
Reversing a trial court decision, an Ohio
appellate court ruled that a letter issued bya software compliance organization was a“claim” under a claims-made policy, but thatcoverage was barred by a policy exclusion.
Eighth Floor Promotions v. The Cincinnati
Ins. Cos., 2016 WL 5900078 (Ohio Ct. App.
Oct. 11, 2016).
Eighth Floor, a retail manufacturer,
received a letter from the Business Software
Alliance (“BSA”), an entity that represents
the interests of software companies. The
letter informed Eighth Floor of the BSA’s
investigation of the company’s duplication ofcertain proprietary software products. The
letter requested that the company audit its
software and that it preserve as evidence all
copies of certain software products. Eighth
Floor retained counsel and sent notice to
Cincinnati, its liability insurer. Cincinnati
denied coverage on the basis that the audit
request was not a “claim” because it wasneither a “written demand for monetarydamage or non-monetary relief” nor a “civil
proceeding commenced by filing a complaint
or similar pleading.” Thereafter, Eighth
Floor discovered numerous unauthorizedsoftware installations and entered into
a settlement with the BSA. Cincinnati
reiterated its coverage denial, this time citing
to a policy exclusion relating to copyright
infringement claims. An Ohio trial court ruledin Cincinnati’s favor, finding that the audit
letter did not satisfy the policy’s definition of“claim.” The appellate court reversed in part.
The appellate court explained that the audit
letter was a “demand for non-monetary relief”
because it stated that if Eighth Floor did notconduct an audit, the BSA would initiate
litigation. The court further noted that theaudit request sought the preservation ofevidence and used language indicating its
belief that violations had already occurred.
However, the court agreed with Cincinnati
that coverage was nonetheless barred by apolicy exclusion.

5

Notice Alert:

New York Court Says That
Policyholder’s Notice Under
Claims-Made Policy Was Deficient
A New York federal district court ruled thatan insurer had no duty to provide coverage
under a claims-made policy because theinsured’s notice of claim was deficient. Univ.
of Pittsburgh v. Lexington Ins. Co., 2016 WL
4991622 (S.D.N.Y. Sept. 16, 2016).
Lexington issued a claims-made policy to
the University of Pittsburgh for the period
February 1, 2011 to February 1, 2012. On thelast day of the coverage period, the insured
filed a notice of claim. The notice listed thelocation of the occurrence as the Universityof Pittsburgh’s Salk Hall and stated that“[s]enior management has been advised by
the University of Pittsburgh that this projectis experiencing problems and delays in its
early stages.” Opinion & Order, Univ. of
Pittsburgh v. Lexington Ins. Co., No. 13-cv335 (S.D.N.Y. July 21, 2016). Lexington
argued that the notice was insufficient andthat there was no coverage because the policy
required adequate notice as a precondition
to coverage. The court agreed and granted
Lexington’s summary judgment motion.
Applying Pennsylvania law, the court
held that notice to Lexington was “plainly
insufficient to meet the conditions precedent
to coverage.” In particular, the notice failed
to articulate any actual or alleged breachof a professional duty or injury or damage
that might result in a claim, as required by
the policy. In so ruling, the court noted that
notice provisions under claims-made policies
should be strictly applied, notwithstanding“harsh consequence[s].” The court rejected
the insured’s argument that the failure tocomply with the policy’s notice provisions
should be excused because it substantiallycomplied with its terms. The court explainedthat if such reasoning were credited, “anypurchaser of a claims-made policy could
effectively transform it into a broader (andtypically more expensive) occurrence policyby asserting nebulous ‘claims,’ with specificity
to be filled in only later . . . .”The insured has recently appealed to theSecond Circuit. We will keep you posted on
any further developments in this matter.

Bad Faith Alerts:

Florida Supreme Court Rules
That Insurer Bad Faith Is Not
Prerequisite to Statutory Attorneys’
Fees
The Florida Supreme Court ruled thatan insured is entitled to attorneys’ fees
under state statutory law when an insurer
incorrectly denies benefits and a subsequent
judgment or its equivalent is issued in theinsured’s favor and that bad faith is not
required. Johnson v. Omega Ins. Co., 2016
WL 5477795 (Fla. Sept. 29, 2016).
A homeowner sought coverage from Omegafor sinkhole-related damage. Omega initiallydenied the claim based on an expert’s report,
but subsequently agreed to provide coverageafter receiving a report issued by a second
expert. The homeowner thereafter sought
attorneys’ fees under Fla. Stat. § 627.428,
which allows an insured to recover fees
incurred as a result of prevailing on a claim
for insurance benefits. Omega argued that ashowing of wrongful conduct or bad faith wasa prerequisite to an award of fees under the
statute. A Florida trial court disagreed andruled in the homeowners’ favor. An appellate
court reversed, ruling that the statuterequired some type of bad faith conduct
on the part of the insurance company. The
Florida Supreme Court reversed.
Addressing a preliminary matter, the Florida
Supreme Court held that an insurer’s paymentof a settlement or a previously-denied claim
constitutes the functional equivalent of aconfession of judgment for purposes of theattorneys’ fees statute. The court further
6

held that bad faith or “wrongfulness” is not
relevant to recovery under the statute. Rather,
the existence of a dispute between the insurer
and policyholder, coupled with payment toor a favorable judgment for the policyholder,suffices to satisfy the statute because awrongful denial “means an incorrect denial,
not one made in bad faith.” The court rejected
Omega’s argument that an award of attorneys’
fees was unwarranted because it compliedwith the investigation procedures set forthin Florida’s sinkhole statute before denying
coverage.

Seventh Circuit Rules That Insurer
Acted In Bad Faith By Refusing To
Pay Life Insurance Benefits
Notwithstanding a common law prohibition
on stranger-originated life insurance policies,
the Seventh Circuit ruled that Sun Life
Assurance acted in bad faith by refusing to
pay the proceeds of a life insurance policy to a
stranger-beneficiary. Sun Life Assurance Co.
of Canada v. U.S. Bank Nat’l Assoc., 2016 WL
5929825 (7th Cir. Oct. 12, 2016).
Charles Margolin purchased a $6 million
life insurance policy from Sun Life. Four
years after policy issuance, Margolin notified
Sun Life that it was transferring ownershipand beneficiary status of the policy to U.S.
Bank. When Margolin passed away, U.S.
Bank sought to recover the policy’s proceeds.
Although it did not officially deny the claim,
Sun Life initiated an investigation of theclaim based on its belief that it constituted
an “illegal wagering” contract. U.S. Bank
filed suit, alleging breach of contract andbad faith. A Wisconsin federal district court
granted U.S. Bank’s motion for judgmenton the pleadings on the breach of contract
claim, ruling that it was entitled to policy
proceeds plus statutory interest. U.S. Bank
National Assoc. v. Sun Life Assurance Co. of
Canada, 2015 WL 3645700 (W.D. Wis. June
10, 2015). The district court also ruled that
Sun Life acted in bad faith because its claim
investigation was not objectively reasonable.
U.S. Bank National Assoc. v. Sun Life
Assurance Co. of Canada, 2015 WL 6554657(W.D. Wis. Oct. 29, 2015). The Seventh
Circuit affirmed.
On appeal, Sun Life argued that its refusal
to pay policy benefits was authorized (andin fact compelled) by Wisconsin statutory
law voiding all gambling contracts. See
Wis. Stat. § 895.055. The court rejected thisargument, explaining that statutory insurance
law preempts the general anti-gambling
statute and expressly provides that insurance
policies are not invalid “merely because thepolicyholder lacks insurable interest.” Wis.
Stat. § 631.07(4). The court further explainedthat the appropriate remedy for claims basedon stranger-oriented life insurance policies
under Section 631.07(4) is payment to adifferent beneficiary, not invalidation of thepolicy. Here, the court held that U.S. Bank
was entitled to recover under the policy
because “no one who is equitably entitledto the proceeds . . . has stepped forward
to claim them.” The Seventh Circuit alsoaffirmed the bad faith ruling and impositionof statutory interest.

Ambiguity Alert:

Illinois Court Rules That Property
Policy Term “Commencing” Is
Ambiguous
An Illinois federal district court denied aninsurer’s summary judgment motion, findingthat the term “commencing” was ambiguous
and that there were questions of fact relating
to the timing of the commencement of theproperty damage at issue. Temperature Serv.
Co., Inc. v. Acuity, A Mutual Ins. Co., 2016
WL 6037968 (N.D. Ill. Oct. 14, 2016).
Policyholders sought coverage under acommercial property policy issued by Acuity
for damages caused by the “differential
settlement” of soil around the insured
property. Acuity denied coverage, and7

litigation ensued. During discovery, Acuity
issued an interrogatory asking for “the dateon which the direct physical loss you claim
is covered pursuant to the Acuity policy
first occurred.” Policyholders argued thatthe phrase “first occurred” was vague andoverly broad, but responded that “at thistime [Plaintiffs] cannot state when the direct
physical loss ‘first occurred’, but the direct
physical loss is ongoing and occurred after. . . the inception date of the Acuity policy.”
On this basis, Acuity argued that there wasno coverage as a matter of law because
policyholders had not established thatproperty damage had “commenced” during
the coverage period.
Addressing this matter of first impression
under Illinois law, the court ruled that thepolicy’s use of the word “commenced” wasambiguous because it could be interpreted
to mean “the first occurrence of the type ofloss claimed,” or “each occurrence of theloss in a series of multiple losses.” The court
further held that a question of fact existed
as to whether any of the alleged damage“commenced” during the policy period. In thiscontext, the court noted that resolution would
likely require the weighing of conflicting
expert testimony and that the policyholder
bears the burden of establishing coverage.

Advertising
Injury Alert:

California Court Rules That
Policyholder’s Wrongful Display
Of Trademarked Logo Is Not
Advertising Activity
A California federal district court ruled thata liability insurer properly denied coverageof claims alleging use of another company’s
trademarked logo. The court agreed with theinsurer that such conduct did not constitutecovered advertising activity. Infinity Micro
Computer, Inc. v. Continental Cas. Co., 2016
WL 5661755 (C.D. Cal. Sept. 29, 2016).
Cisco Systems alleged that the policyholder
wrongfully displayed Cisco’s trademarked“Premiere Certified Partner” logo on thepolicyholder’s website. Cisco further allegedthat the policyholder was selling counterfeit
Cisco goods, and demanded over $1.5 million

in damages. When the policyholder tendered
the demand to Continental, it denied
coverage, arguing that the claim did not allege
covered advertising injury and that several
exclusions applied. In ensuing litigation,
the court granted Continental’s summary
judgment motion.
The policy covered “personal and advertising
injury,” defined as injuries arising out of“the use of another’s advertising idea in your‘advertisement.’” Although the policy did not
define “advertising idea,” the court concluded
that the Cisco logo could not reasonably beconstrued as an “advertising idea.” The court
stated:To read the term “advertising idea”
so broadly as to cover any act takenin the course of marketing, including
the use of a logo, would render theterm meaningless. It remains unclear
to the court how Plaintiff’s decision
to say that it was an authorized Cisco
reseller, when in fact it was not, isa “marketing idea” and not simply
a misrepresentation.
The court further reasoned that its holding
was supported by a policy exclusion
for injuries arising out of trademark
infringement, explaining that any
expectation of coverage for the use of anothercompany’s trademarked logo would beunreasonable. Finally, the court held thatprovisions covering injuries arising outof “slogan infringement” or “trade dress”
were inapplicable.

8

Lost Policy Alert:

New York Court Applies
Preponderance Of The EvidenceStandard To Proving Terms Of Lost
PolicyA New York federal district court ruledthat the proper standard for determining
the existence and terms of a lost policy is
preponderance of the evidence and that aplaintiff failed under this standard to raise
an issue of fact regarding the terms of a lost
policy. Pacific Employers Ins. Co. v. Troy
Belting & Supply Co., 2016 WL 5477758(N.D.N.Y. Sept. 29, 2016).
Troy Belting, a manufacturer of asbestoscontaining products, sought coverage from
Unigard under policies allegedly issued
by Unigard or its predecessor, Jamestown
Insurance Company, during the period 1949
to 1974. Neither Troy Belting nor Unigard hadcopies of the alleged policies at issue. Unigard
argued that Troy Belting failed to present
sufficient evidence to establish the existence
and scope of coverage for asbestos claims. The
court agreed and granted Unigard’s summary
judgment motion.
The court noted that the Second Circuit has
not directly addressed the standard of proof
for establishing the existence and termsof lost policies by secondary evidence andthat New York district courts have issued
mixed decisions on this issue. Some haveapplied a “preponderance of the evidence”
standard, while others have required proof
by “clear and convincing evidence.” The court
concluded that “the usual civil standard”

of preponderance of evidence was proper,
reasoning that nothing in statutory or caselaw supported a heightened evidentiarystandard.
The court held that Troy Belting failed to meetthe preponderance of the evidence standard
despite its reliance on expert testimony, data
relating to the company’s coverage history(e.g., evidence relating to prior coverage
limits), correspondence, Board of Directors
meeting minutes relating to liability andfinances, ledgers with entries labeled as“insurance,” copies of endorsements issued
by Jamestown, and evidence relating toUnigard’s conduct in connection with a 1977
asbestos lawsuit. The court concluded thatwhile the evidence established that some
type of policy was issued during the period inquestion, there was insufficient evidence bywhich a jury could determine the terms andconditions of the policy by a preponderanceof the evidence. The court noted that“speculation is insufficient when evidence ofterms and conditions is lacking.”
The court also rejected Troy Belting’s
sanctions motion based on Unigard’s alleged
destruction of the policies. The court ruledthat spoliation sanctions were unjustified
because any destruction occurred before thepresent litigation commenced. The court
dismissed the argument that Unigard wasaffirmatively obligated to preserve policies
based on its knowledge that Troy Belting wasnamed in several asbestos suits, noting thatcourts “lay responsibility for preserving copies
of policies with the insured more than theinsurer.”9Simpson Thacher has been an international leader in the practice of insurance and reinsurance law for
more than a quarter of a century. Our insurance litigation team practices worldwide.

David J. Woll
+1-212-455-3136
dwoll@stblaw.com

Bryce L. Friedman+1-212-455-2235
bfriedman@stblaw.com

Deborah L. Stein+1-310-407-7525
dstein@stblaw.com

Mary Beth Forshaw+1-212-455-2846
mforshaw@stblaw.com

Michael D. Kibler+1-310-407-7515
mkibler@stblaw.com

Craig S. Waldman+1-212-455-2881
cwaldman@stblaw.com

Andrew T. Frankel+1-212-455-3073
afrankel@stblaw.com

Michael J. Garvey+1-212-455-7358
mgarvey@stblaw.com

Susannah S. Geltman+1-212-455-2762
sgeltman@stblaw.com

Lynn K. Neuner+1-212-455-2696
lneuner@stblaw.com

Tyler B. Robinson+44-(0)20-7275-6118
trobinson@stblaw.com

Elisa Alcabes+1-212-455-3133
ealcabes@stblaw.com

Chet A. Kronenberg+1-310-407-7557
ckronenberg@stblaw.com

George S. Wang
+1-212-455-2228
gwang@stblaw.com

Summer Craig+1-212-455-3881
scraig@stblaw.com

This edition of the
Insurance Law Alert was
prepared by Mary Beth Forshaw
mforshaw@stblaw.com /+1-212455-2846 and Bryce L. Friedman
bfriedman@stblaw.com /+1-212-4552235 with contributions
by Karen Cestarikcestari@stblaw.com.

The contents of this publication are for informational purposes only. Neither this publication nor the
lawyers who authored it are rendering legal or other professional advice or opinions on specific facts
or matters, nor does the distribution of this publication to any person constitute the establishment of an
attorney-client relationship. Simpson Thacher & Bartlett LLP assumes no liability in connection withthe use of this publication. Please contact your relationship partner if we can be of assistance regardingthese important developments. The names and office locations of all of our partners, as well as ourrecent memoranda, can be obtained from our website, www.simpsonthacher.com.
Please click here to subscribe to the Insurance Law Alert.
10SimpsonThacherWorldwide

UNITED STATESEUROPE

SOUTH AMERICANew York
425 Lexington Avenue
New York, NY 10017+1-212-455-2000

LondonCityPoint
One Ropemaker Street
London EC2Y 9HUEngland+44-(0)20-7275-6500

São Paulo
Av. Presidente Juscelino
Kubitschek, 1455
São Paulo, SP 04543-011
Brazil+55-11-3546-1000

Houston
600 Travis Street, Suite 5400
Houston, TX 77002+1-713-821-5650
Los Angeles
1999 Avenue of the Stars
Los Angeles, CA 90067+1-310-407-7500
Palo Alto
2475 Hanover Street
Palo Alto, CA 94304+1-650-251-5000
Washington, D.C.
900 G Street, NW
Washington, D.C. 20001+1-202-636-5500

ASIA

Beijing
3901 China World Tower
1 Jian Guo Men Wai Avenue
Beijing 100004
China+86-10-5965-2999
Hong Kong
ICBC Tower
3 Garden Road, Central
Hong Kong+852-2514-7600
Seoul
25th Floor, West Tower
Mirae Asset Center 1
26 Eulji-ro 5-gil, Jung-gu
Seoul 100-210
Korea+82-2-6030-3800
Tokyo
Ark Hills Sengokuyama Mori Tower
9-10, Roppongi 1-Chome
Minato-Ku, Tokyo 106-0032
Japan+81-3-5562-6200
11