Insurance Law Alert

February 2016

In This Issue
D.C. Court of Appeals Rules That Professional Services Exclusion Does
Not Negate Duty to Defend
The District of Columbia Court of Appeals vacated a superior court decision holding that
insurers had no duty to defend underlying suits on the basis of a professional services
exclusion. Carlyle Inv. Mgmt., LLC v. Ace Am. Ins. Co., 2016 WL 555742 (D.C. Feb. 11, 2016).
(Click here for full article)“Many other firms
do insurance work, but
we go straight to Simpson
Thacher for the‘bet-the-company’
fact-intensive stuff.”–Benchmark 2016,
quoting a client

New Hampshire Supreme Court Rules That Excess Insurer’s Duty to
Defend is Triggered Only Upon Exhaustion of Primary Coverage
The New Hampshire Supreme Court ruled that an excess insurer has no duty to defend until
the primary insurer’s coverage is exhausted. Old Republic Ins. Co. v. Stratford Ins. Co., 2016
WL 302212 (N.H. Jan. 26, 2016). (Click here for full article)

Failure-to-Warn Suit Alleges Bodily Injury Triggering Insurer’s Duty to
Defend, Says California Court
A California federal district court ruled that an insurer was obligated to defend a class action
suit alleging that a mattress company failed to warn consumers of harmful product defects
because the complaint alleged “bodily injury.” Hartford Fire Ins. Co. v. Tempur-Sealy Int’l,Inc., 2016 WL 232431 (N.D. Cal. Jan. 20, 2016). (Click here for full article)

Courts Reach Contradictory Conclusions Whether Prejudice Is Requiredfor Late Notice Defense Under Claims-Made Policy
The New Jersey Supreme Court ruled that an insurer need not establish prejudice in order todeny coverage under a claims-made policy based on late notice, Templo Fuente De Vida Corp.
v. Nat. Union Fire Ins. Co. of Pittsburgh, Pa., 2016 WL 529602 (N.J. Feb. 11, 2016), whereasa Maryland appellate court held that an insurer was not entitled to disclaim coverage under aclaims-made-and-reported policy, notwithstanding a nearly three-year delay in notice. Fundfor Animals, Inc. v. Nat. Union Fire Ins. Co. of Pittsburgh, Pa., 2016 WL 385222 (Md. Ct.
Spec. App. Feb. 1, 2016). (Click here for full article)

New York Statute Requires Insurer to Issue Separate Disclaimer to
Additional Insured, Says New York Court
A New York trial court ruled that New York Insurance Law section 3420(d) requires an insurer
to provide separate and timely disclaimers to each “additional insured” and that failure to doso results in a waiver of policy exclusions. Vargas v. City of New York, 2016 WL 184531 (N.Y.
Sup. Ct. N.Y. Cnty. Jan. 15, 2016). (Click here for full article)

Simpson Thacher & Bartlett LLP

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California Appellate Court Rules That Policyholder’s Failure to Obtain
Excess Insurer’s Consent Prior to Settlement Constitutes Prejudice
Applying Missouri law, a California appellate court ruled that a policyholder was obligated toobtain the consent of an excess insurer prior to settling an environmental pollution suit. Doe
Run Res. Corp. v. Fidelity & Cas. Co. of N.Y., 2016 WL 379839 (Cal. Ct. App. Feb. 1, 2016).
(Click here for full article)

Insured Responsible for Pro Rata Shares of Insolvent Insurers, Says New
Jersey Appellate Court
A New Jersey appellate court ruled that a policyholder was responsible for sums allocated toinsolvent insurers and that such costs should not be reallocated to solvent primary and excess
insurers. Ward Sand and Materials Co. v. Transamerica Ins. Co., 2016 WL 237781 (N.J. Sup.
Ct. App. Div. Jan. 12, 2016). (Click here for full article)

Reinsurer Required to Follow the Fortunes, Says New York Court
A New York federal district court ruled that a reinsurer is bound by a ceding insurer’s
settlements pursuant to the follow-the-fortunes doctrine. Utica Mut. Ins. Co. v. ClearwaterIns. Co., 2016 WL 254770 (N.D.N.Y. Jan. 20, 2016). (Click here for full article)

Florida Appellate Court Rules That Post-Loss Assignment of Policy
Benefits Is Valid Notwithstanding Lack of Insurer Consent
A Florida appellate court upheld a homeowner’s post-loss assignment of policy benefits to awater removal company despite her failure to obtain insurer consent. Bioscience W., Inc. v.
Gulfstream Prop. & Cas. Ins. Co., 2016 WL 455723 (Fla. Dist. Ct. App. Feb. 5, 2016).
(Click here for full article)

Hawaii Supreme Court Clarifies Scope of Work-Product Protection andInsurer Bad Faith
The Supreme Court of Hawaii ruled that issues of fact precluded summary judgment on an
insurer bad faith claim, and that application of the work-product doctrine to documents
prepared by a dual capacity in-house attorney/claims adjuster turns on whether the documents
were prepared “because of” litigation. Anastasi v. Fidelity National Title Ins. Co., 2016 WL
462380 (Haw. Feb. 4, 2016). (Click here for full article)

Minnesota Supreme Court Rules That Depreciated Labor Costs May Be
Considered in Calculating Actual Cash Value
The Minnesota Supreme Court ruled that where a policy does not define “actual cash value,”
the trier of fact may determine whether the depreciation of labor costs should be considered.
Wilcox v. State Farm Fire & Cas. Co., 2016 WL 516707 (Minn. Feb. 10, 2016).
(Click here for full article)

STB News Alerts
Simpson Thacher and several attorneys have been recognized with numerous insurance-related
honors. (Click here for full article)

2Defense Alert:

D.C. Court of Appeals Rules That
Professional Services Exclusion
Does Not Negate Duty to Defend
The District of Columbia Court of Appeals
vacated a superior court decision holding that
insurers had no duty to defend underlying
suits on the basis of a professional services
exclusion. Carlyle Inv. Mgmt., LLC v. Ace
Am. Ins. Co., 2016 WL 555742 (D.C. Feb.
11, 2016).
Following the “mortgage and liquidity crises”
in 2008, several lawsuits were filed against
the Carlyle Capital Corporation, its parent
company and other affiliates. The suits
alleged, among other things, that the Carlyle
defendants enticed investors into unsafe
investments by issuing false and misleadingstatements. The Carlyle defendants turnedto their private equity management andprofessional liability insurers for theadvancement and reimbursement of defense
costs, which the insurers denied on the basisof a professional services exclusion. The
Carlyle defendants brought suit alleging
breach of contract and seeking a declaration
as to the insurers’ defense obligations. A
District of Columbia trial court granted
the insurers’ motion to dismiss, ruling thatthe professional services exclusion was
unambiguous and excluded coverage forall losses alleged in the underlying suits.
The appellate court vacated the ruling andremanded the matter for discovery.

The appellate court ruled that the term
“professional services” was ambiguous.
Noting that the definition of “professional
services” contained eight sub-parts andincluded various important terms that were
undefined (such as “investment management
services,” “fund” and “organization”), thecourt held that the exclusion was “not easy

to interpret.” In addition, the appellate
court expressed doubt as to the trial court’sapplication of the “eight corners rule” indismissing the duty to defend suit as a matterof law. For example, the court questioned
whether all of the claims alleged in a 121-page,nineteen-count complaint filed by liquidatorsof the Carlyle Capital Corporation (including
claims alleging breach of fiduciary and otherduties, breach of fiduciary duty as a de facto
or shadow director, wrongful trading andunjust enrichment) fell within the scope ofthe exclusion as a matter of law. Similarly, theappellate court noted the trial court’s failure
to specify how the exclusion encompassed
underlying claims relating to corporate
governance or arising out of conduct orstatements unrelated to the solicitation forthe purchase or sale of interests.

Excess Alert:

New Hampshire Supreme Court
Rules That Excess Insurer’s Duty
to Defend is Triggered Only Upon
Exhaustion of Primary Coverage
Answering a question certified by the First
Circuit, the New Hampshire Supreme Court
ruled that an excess insurer has no duty to
defend until the primary insurer’s coverage isexhausted. Old Republic Ins. Co. v. Stratford
Ins. Co., 2016 WL 302212 (N.H. Jan. 26,
2016). Noting that the allocation of defense
costs between a primary and an excess
insurer was previously unsettled under New
Hampshire law, the New Hampshire Supreme
Court joined the majority of jurisdictions
in holding that an excess insurer has no
obligation to participate in the defense of apolicyholder until primary policy limits havebeen exhausted. The court explained that“[u]ntil the excess insurer has indemnity
exposure, there is no reason it should have arole in making strategic decisions regarding
the defense of an insured, nor should it berequired to pay a share of the defense costs.”
The court expressly distinguished cases inwhich two insurers, both with excess “otherinsurance” provisions, have been required
to shared defense costs equally. In thosecases, competing excess “other insurance”
provisions were deemed mutually repugnant
and thus unenforceable, rendering both
policies co-primary.
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factual allegations of bodily injuries.
Bodily Injury Alert: from
Therefore, the court concluded that the

Failure-to-Warn Suit Alleges Bodily
Injury Triggering Insurer’s Duty to
Defend, Says California Court
A California federal district court ruled thatan insurer was obligated to defend a classaction suit alleging that a mattress company
failed to warn consumers of harmful productdefects because the complaint alleged “bodily
injury.” Hartford Fire Ins. Co. v. TempurSealy Int’l, Inc., 2016 WL 232431 (N.D. Cal.
Jan. 20, 2016).

A class action complaint alleged that TempurSealy failed to inform consumers that its
products emitted a chemical odor that
contained a known carcinogen and caused
serious allergic reactions. Although thecomplaint contained numerous allegations
relating to personal injuries, it explicitly
stated that plaintiffs were not seeking
damages for physical injuries. Rather, theunderlying plaintiffs sought injunctive relief
and compensatory, actual and statutory
damages pursuant to various consumer
protection statutes, as well as “such otherand further relief as this Court may deem
just and proper.” Hartford initially defended
the suit, but later sought a declaration thatthe underlying claims were not coveredby the policies. Both parties moved forsummary judgment. The court ruled in favorof Tempur-Sealy, finding that the complaint
at least potentially alleged damages for“bodily injury.”
Although the complaint did not assert any
specific claims for bodily injury, the court
reasoned that the statutory consumer
protection claims incorporated and derived

complaint demonstrated potential liability
under the policy. The court rejected theargument that there was no duty to defend
because the complaint expressly declined toseek damages for physical injuries, explainingthat the plaintiffs’ “purported disavowalof bodily injury claims is not dispositive.”
Finally, the court ruled that the complaint
alleged an “occurrence” notwithstanding
allegations of intentional fraud and deceit.
The court held that the series of events
leading up to the alleged misrepresentations—i.e., the manufacture and sale of defective
mattresses—sufficiently alleged an
unexpected “occurrence.”
The court relied on Plantronics, Inc. v.
American Home Assurance Co., 2014 WL
2452577 (N.D. Cal. May 30, 2014), which
required an insurer to defend a complaintthat alleged facts supporting a potential
claim for bodily injury but that explicitly
disclaimed damages for physical injury.
However, as reported in our July/August 2011
Alert, a California appellate court ruled thata failure-to-warn lawsuit alleging that nailproducts contained harmful toxins did not
trigger an insurer’s duty to defend, because
the complaint did not allege bodily injury.
Ulta Salon, Cosmetics & Fragrance, Inc. v.
Travelers Prop. Cas. Co. of Am., 127 Cal.
Rptr.3d 444 (Cal. Ct. App. 2011). Although
the underlying complaint in Ulta differed insome significant respects from the complaint
in Tempur-Sealy, the Ulta court explicitly
rejected the notion that a potential forcoverage could be established by speculating
about ways in which the complaint might beamended in the future.

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Late Notice Alerts:
Courts Reach Contradictory
Conclusions Whether Prejudice Is
Required for Late Notice Defense
Under Claims-Made Policy
New Jersey Supreme Court Says Prejudice is
Not Required

The New Jersey Supreme Court ruled that aninsurer need not establish prejudice in orderto deny coverage under a claims-made policy
based on late notice. Templo Fuente De Vida
Corp. v. Nat. Union Fire Ins. Co. of Pa., 2016
WL 529602 (N.J. Feb. 11, 2016).
National Union insured First Independent
Financial Group under a claims-madepolicy. The policy required as a “condition
precedent” to coverage “written notice to theInsurer of any Claim made against an Insured
as soon as practicable.” First Independentsought coverage under the policy for claims
arising out of a failed purchase agreement.
National Union denied coverage based onlate notice because First Independent did
not provide notice until six months after
receiving the first-amended complaint. In
ensuing coverage litigation, a New Jersey
trial court granted National Union’s summary
judgment motion. Although the trial court
found insufficient evidence that the claims
had been made outside the policy period, it
found that coverage was nonetheless barredbecause notice was not provided “as soon
as practicable.” An appellate court affirmed,
explaining that the policy required theinsured to provide notice both within thepolicy period and as soon as practicable. The
New Jersey Supreme Court affirmed.
The New Jersey Supreme Court ruled thatFirst Independent’s unexplained six-monthdelay in providing notice violated the policy’s
notice provision as a matter of law. The
court further ruled that National Union was
not required to establish prejudice fromFirst Independent’s failure to provide notice“as soon as practicable.” In so holding, thecourt expressly referenced the unambiguous
condition precedent policy language andemphasized the equal bargaining power ofFirst Independent and National Union as
two sophisticated business entities. The court
explained that equitable concerns presented
in late notice cases involving policyholders
who are “unsophisticated consumers”

were not at issue given First Independent’s
business acumen. For this reason, it islikely that policyholders will argue that
Templo Fuente’s no-prejudice rule should
be limited to cases involving sophisticatedcorporate insureds.
Maryland Appellate Court Requires “Actual
Prejudice”

Maryland statutory law requires an insurer
to establish actual prejudice in order to denycoverage based on late notice under a claimsmade policy. See Sherwood Brands, Inc. v.
Great Am. Ins. Co., 13 A.3d 1268 (Md. 2011)(under Ins. § 19-110, an insurer may disclaim
coverage based on untimely notice only if
it “establishes by a preponderance of theevidence that the lack of cooperation or notice
has resulted in actual prejudice”). Applying
section 19-110, a Maryland appellate court
recently held that an insurer was not entitledto disclaim coverage as a matter of law
under a claims-made-and-reported policy,
notwithstanding a nearly three-year delay innotice. Fund for Animals, Inc. v. Nat. Union
Fire Ins. Co. of Pittsburgh, Pa., 2016 WL
385222 (Md. Ct. Spec. App. Feb. 1, 2016).
In 2000, the Fund for Animals sued Feld
Entertainment, Inc., a circus operator,
alleging violations of the Endangered Species
Act (the “ESA Case”). In 2007, Feld filed aseparate action against the Fund and alleged
RICO violations in connection with the Fund’sprosecution of the ESA Case. Feld asserted
that the Fund bribed individual plaintiffs totestify falsely and committed other criminal
acts for the purposes of establishing standing
in the ESA Case. The RICO suit was stayedpending resolution of the ESA Case, and was
ultimately settled.
Nearly three years after the countersuit
was brought, the Fund sought coverage for
the RICO suit from National Union undera 2007 claims-made-and-reported policy.
By that time, a court had already ruled
against the Fund in the ESA Case and madenumerous factual findings detrimental to
the Fund. National Union denied coveragebased on late notice. The coverage dispute
went to trial, and at the close of evidence, thecourt granted National Union’s motion forjudgment, finding that it had met its prejudiceburden under section 19-110. The appellate
court reversed.

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The appellate court acknowledged theuntimeliness of the Fund’s notice of the RICO
suit and that the adverse ruling in the ESA
Case prejudiced National Union. However,the court held that National Union failed
to establish a causal link between the delay
and the prejudice. In particular, the court
explained that National Union did not provethat, “had it been given timely notice of the
RICO Case, in 2007 or early 2008, instead of
untimely notice in 2010, it would have takensome action in that period of delay that would
have averted that judgment.” In so ruling,
the court emphasized that National Union
did not insure any defendant in the ESA Caseand had no contractual right to control any
aspect of that litigation. In this respect, thecase is distinguishable from cases in which
an insurer is not provided notice until after
a judgment has been issued against thepolicyholder in an underlying suit in which
the insurer could have controlled the defense.
Under such circumstances, the court notedthat the insurer would be prejudiced by thedelay due to its inability to investigate claims
and to control the defense.

Disclaimer Alert:

New York Statute Requires Insurer
to Issue Separate Disclaimer to
Additional Insured, Says New YorkCourt
A New York trial court ruled that New York
Insurance Law section 3420(d) requires
an insurer to provide separate and timely
disclaimers to each “additional insured”
and that failure to do so results in a waiverof policy exclusions. Vargas v. City of New
York, 2016 WL 184531 (N.Y. Sup. Ct. N.Y.
Cnty. Jan. 15, 2016).

Liberty issued insurance to a sub-contractor
involved in a construction project. The
policy provided additional insured coverage
to several parties involved in the project,including other contractors and certain New
York City agencies. When a personal injury
lawsuit was served against the contractors
and the City agencies, one of the additional
insured contractors tendered defense andindemnity to Liberty. Liberty promptly
disclaimed coverage on the basis of a policy
exclusion. However, the City defendants did
not receive a copy of the disclaimer letter. The
City defendants filed a third-party complaint
against Liberty, arguing that as to the City’s
claim for coverage, Liberty violated its timely
disclaimer obligation under section 3420(d).
The court agreed.
Liberty argued that it timely disclaimed
coverage to the City defendants via its
disclaimer letter to the other additional
insured party. Alternatively, Liberty argued
that it was not obligated to disclaim as to theCity defendants until they had tendered aclaim, which Liberty argued occurred upon
the City’s filing of a third-party complaint.
The court rejected both arguments. First,
the court ruled that an insurer’s obligations
under section 3420(d) apply to additional
insureds and that Liberty’s disclaimer to adifferent additional insured was not effective
as to the City defendants. Second, the court
held that even if the City defendants’ thirdparty complaint was the event that triggered
Liberty’s disclaimer obligation, its disclaimer
was still untimely as a matter of law. The
court explained that Liberty’s answer, which
effectively disclaimed coverage, was served
45 days after receipt of the complaint. Under
New York law, delays of more than 30 days
have been declared untimely as a matterof law.

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Settlement Alert:

California Appellate Court Rules
That Policyholder’s Failure to
Obtain Excess Insurer’s Consent
Prior to Settlement Constitutes
Prejudice
Applying Missouri law, a California appellate
court ruled that a policyholder was obligatedto obtain the consent of an excess insurer
prior to settling an environmental pollution
suit. Doe Run Res. Corp. v. Fidelity & Cas. Co.
of N.Y., 2016 WL 379839 (Cal. Ct. App. Feb.
1, 2016).
Environmental litigation against Doe Run
began in 2001. Doe Run notified its excess
insurer, Fidelity, of the suit, but Fidelity
did not participate in the defense. In 2011,
Doe Run informed Fidelity of anticipatedmediation but did not specify that a potential
settlement might implicate Fidelity’s excess
coverage. At mediation, Doe Run agreed tosettle for $55 million. Approximately one
month later, in response to a status inquiry,
Doe Run informed Fidelity of the settlement.
Shortly thereafter, Doe Run filed suit seeking
coverage from Fidelity. A California trial court
granted Fidelity’s summary judgment motion
and the appellate court affirmed.
The Fidelity policy provided indemnification
for “ultimate net loss,” defined as “the sum
actually paid or payable in cash in settlement
or satisfaction of losses for which the Insured
is liable either by adjudication or compromisewith the written consent of the company.” Theappellate court ruled that Doe Run violated
this provision by failing to obtain Fidelity’s
consent prior to settlement. The court further
ruled that under Missouri law, a violation ofa consent clause, without more, is sufficient
to preclude coverage. The court explainedthat a showing of prejudice is not required,because the “very fact of depriving the insurerof the ‘opportunity to protect its interests’”
prior to settlement constitutes prejudice itself.
The court stated, “[t]here [is] no need for the
insurer to prove that, despite the loss of that
opportunity, it might have done better if it
had been notified.”

Allocation Alert:

Insured Responsible for Pro Rata
Shares of Insolvent Insurers, Says
New Jersey Appellate Court
A New Jersey appellate court ruled thata policyholder was responsible for sums
allocated to insolvent insurers and that suchcosts should not be reallocated to solvent
primary and excess insurers. Ward Sandand Materials Co. v. Transamerica Ins. Co.,2016 WL 237781 (N.J. Sup. Ct. App. Div. Jan.
12, 2016).
Ward, a municipal waste operator, was sued
for environmental contamination. Ward wasinsured under a series of primary and excess
policies during the relevant time frame.
While litigation against Ward was pending,several insurers became insolvent. The New
Jersey Property Liability Insurance Guaranty
Association (“PLIGA”) contributed to defense
costs on behalf of the insolvent insurers.
Ward ultimately settled the underlying
litigation and sought indemnification fromPLIGA and its primary and excess insurers. A
New Jersey trial court ruled that costs mustbe allocated pro rata among insurers and thatWard was responsible for sums allocated to
its insolvent insurers to the extent that suchsums exceeded settlement payments made by
PLIGA. The appellate court affirmed.
The appellate court ruled that under wellestablished state law, Ward was responsible
for the pro rata shares of its insolvent
insurers to the extent that such sums were
not paid by PLIGA. See Carter-Wallace, Inc.
v. Admiral Ins. Co., 154 N.J. 312 (1998);
Owens-Illinois, Inc. v. United Ins. Co., 138
N.J. 437 (1994); Sayre v. Ins. Co. of N. Am.,305 N.J. Super. 209 (1997). Ward argued
that a 2004 amendment to the PLIGA Act(N.J.S.A. 17:30A-5) required the solvent
insurers to cover those costs. The appellate
court acknowledged that the amendment
shifts responsibility for an insolvent carrier’s
pro rata share to solvent insurers rather
than the policyholder. However, the court
held that the amendment was inapplicablebecause it applied prospectively and here, theinsurer insolvencies had occurred prior to theamendment’s December 2004 effective date.
The court rejected Ward’s assertion that theamendment should be applied retroactively
on the basis that it is “ameliorative”
or “corrective.”7

Reinsurance Alert:
Reinsurer Required to Follow theFortunes, Says New York Court

A New York federal district court ruled thata reinsurer is bound by a ceding insurer’s
settlements pursuant to the follow-thefortunes doctrine. Utica Mut. Ins. Co. v.
Clearwater Ins. Co., 2016 WL 254770(N.D.N.Y. Jan. 20, 2016).
Utica insured Goulds, a pump manufacturer,
under primary and umbrella policies.
Clearwater issued reinsurance certificates
for the umbrella policies, which required
Clearwater to “follow [Utica’s] liability inaccordance with the terms and conditionsof the policy reinsured hereunder.” Goulds
was sued in several suits alleging asbestosrelated injuries and, pursuant to a settlementagreement between Goulds and Utica, Utica
provided defense and indemnity coverage to
Goulds. Utica sought reimbursement from
Clearwater pursuant to the reinsurance
certificates. Clearwater made some, but not
all payments, and Utica brought suit alleging
breach of contract. The court granted Utica’s
summary judgment motion.
The court ruled that Clearwater was boundby Utica’s underlying settlement with Goulds
under the follow-the-fortunes doctrine, which
requires a reinsurer to accept a cedent’s
reasonable, good faith settlement decisions.
The court rejected Clearwater’s assertion
that Utica settled in bad faith because
Utica purportedly shifted liability from its
primary policies to its umbrella policies,
which purportedly had more reinsurance
and which Clearwater reinsured. In soruling, the court noted that “a cedent has
no obligation to strictly align its interests
with the reinsurer” and that knowledge of asettlement’s impact on reinsurance recovery,
standing alone, does not amount to grossnegligence or recklessness. Additionally,
the court concluded that Utica’s settlement
was reasonable under the circumstancespresented.
Finally, the court held that Clearwater was
obligated to cover various billings, including
defense costs, declaratory judgment expenses,
and orphan share payments. The court ruledthat all such payments were within the scopeof “loss expenses,” defined as “all expenses
incurred in the investigation, adjustment,

settlement or litigation of claims, awards orjudgments.” The court reasoned that Utica’s
declaratory judgment expenses constituted“loss expenses” because the factual record
established that those costs were incurred toresolve the underlying coverage dispute. In
so ruling, the court noted that Clearwater’s
own claims handlers testified that they
understood declaratory judgment expenses
to be “loss expenses.” With respect todefense costs, the court rejected Clearwater’s
assertion that Utica, as an umbrella insurer,
had no obligation to fund the underlying
policyholder’s defense. The court ruledthat Utica’s position that it was obligatedto defend the policyholder based on
purported exhaustion of primary policies was
reasonable. Therefore, under the follow-thefortunes “at least arguably within the scopeof insurance coverage” standard, Clearwater
was obligated to cover those costs. The casehas been appealed to the Second Circuit. We
will keep you posted on developments inthis matter.

Assignment Alert:

Florida Appellate Court Rules That
Post-Loss Assignment of Policy
Benefits Is Valid Notwithstanding
Lack of Insurer Consent
A Florida appellate court upheld ahomeowner’s post-loss assignment ofpolicy benefits to a water removal company
despite her failure to obtain insurer consent.
Bioscience W., Inc. v. Gulfstream Prop. &Cas. Ins. Co., 2016 WL 455723 (Fla. Dist. Ct.
App. Feb. 5, 2016).
When a homeowner suffered water damage,
she hired Bioscience to perform emergency
water removal services. She executed
an “Assignment of Insurance Benefits”
authorizing Bioscience to bill and to collectpayment directly from Gulfstream, herproperty insurer. When Gulfstream denied
the homeowner’s claim, Bioscience, asassignee of the right to recover policy benefits,sued for breach of contract. A Florida trial
court granted Gulfstream’s motion forsummary judgment, finding that state law
and the insurance policy prohibited theassignment of benefits without insurer
consent. The appellate court reversed.

8

The policy provided that “[a]ssignment of
this policy will not be valid unless we give ourwritten consent.” The appellate court ruledthat this provision prohibited assignment of
the entire policy but not the assignment offinancial proceeds derived from a benefit of
the policy. On this basis, the court upheld
the assignment because it involved an“assignment of a benefit under the policy to
Bioscience, namely a right to seek payment
for the mitigation services it rendered.” In
addition, the court noted that the “losspayment” provision of the policy supported
its holding because the provision recognized
the potential need to pay third parties thatmight be “legally entitled” to payment under
the policy. Finally, the court noted thateven where policies contain specific antiassignment clauses, courts routinely allow
the assignment of policy benefits after a loss
has occurred.

Bad Faith/
Discovery Alert:

Hawaii Supreme Court Clarifies
Scope of Work-Product Protection
and Insurer Bad Faith
In Anastasi v. Fidelity National Title
Insurance Co., 2016 WL 462380 (Haw.
Feb. 4, 2016), the Supreme Court of Hawaii
ruled that issues of fact precluded summary
judgment on an insurer bad faith claim, andthat application of the work-product doctrine
to documents prepared by a dual capacity
in-house attorney/claims adjuster turns
on whether the documents were prepared“because of” litigation.
Anastasi sued Fidelity for bad faith andbreach of contract after Fidelity allegedly
delayed payments under a title insurance
policy. In particular, Anastasi alleged that
Fidelity knew early on that the deed tothe property was forged, but continued tolitigate the issue in order to delay payment.
A trial court granted Fidelity’s summary
judgment motion on the bad faith claim,
finding that its actions were reasonable asa matter of law. The trial court also ruledthat Fidelity was entitled to withhold certain
documents as protected by the attorney-client
privilege and the work-product doctrine. Anintermediate appellate court vacated the badfaith ruling, finding that issues of fact existed
as to whether Fidelity acted reasonably. The
appellate court also ruled that the trial court
abused its discretion in ruling that certain
documents, which were prepared by anindividual that acted in a dual capacity as
in-house counsel and claims adjuster, were
protected by the work-product doctrine or byattorney-client privilege. The Hawaii Supreme
Court affirmed in part and vacated in part.
With respect to the bad faith claim, theHawaii Supreme Court agreed that issuesof fact precluded summary judgment.
Viewing the evidence in the light mostfavorable to Anastasi, the court held that aquestion existed as to whether Fidelity acted
reasonably given the information it had as
to the underlying forgery and the time atwhich it obtained that information. The court
rejected Fidelity’s arguments that (1) it should
not be found to have acted in bad faith,
because it was exercising its rights under thepolicy; and (2) the enhanced standard of goodfaith under Hawaii law should not apply totitle insurers.
As to the discovery ruling, the Hawaii
Supreme Court held that the relevant inquiry
for determining if a document is protectedby the work-product doctrine is whether
the document was prepared in anticipationof litigation. Where, as here, an attorney
performs both legal duties and claims
adjusting, the test is whether materials werecreated “because of” litigation. The Hawaii
Supreme Court ruled that the appellate court
erred in focusing on whether the materials
were prepared before or after a formal
determination had been made on the claim.
The court stated that “the rule clearly focuseson the purpose of the prepared material andnot on when it is prepared.” Similarly, it
found error in the appellate court’s use of apresumption that materials prepared before
a final determination on the insured’s claim
are not work product. The court remanded
the discovery matter to the trial court for adetermination of work-product protection
based on the “because of” litigation test.

9

Property
Insurance Alert:

Minnesota Supreme Court Rules
That Depreciated Labor Costs May
Be Considered in Calculating ActualCash Value
Last month’s Alert reported on an Arkansas
Supreme Court decision holding that state law
prohibits including the depreciation of laborcosts in calculating the actual cash value ofa covered loss even where a policy provision
expressly allows for such depreciation. Shelter
Mut. Ins. Co. v. Goodner, 2015 WL 8482788(Ark. Dec. 10, 2015). In Shelter Mutual, thecourt relied solely on a prior decision in which
the term “actual cash value” was undefined
and thus deemed ambiguous. See Adams v.
Cameron Mut. Ins. Co., 430 S.W.3d 675 (Ark.
2013). This month, the Minnesota Supreme
Court reached the opposite conclusion, rulingthat where a policy does not define “actual
cash value,” the trier of fact may determine
whether the depreciation of labor costs should
be considered. Wilcox v. State Farm Fire
& Cas. Co., 2016 WL 516707 (Minn. Feb.
10, 2016).
The Minnesota Supreme Court ruled thatthe “actual cash value” provision was not
ambiguous, notwithstanding the absence ofa definition or specified calculation method.
The court reasoned that “actual cash value”
is a legal term of art that refers to the “actualloss” incurred by the policyholder. The court
held that a trier of fact is afforded broad
discretion to adopt a “flexible approach”

that considers “every fact and circumstancewhich would logically tend to the formationof a correct estimate of the loss.” Where,
as here, labor depreciation is not expressly
precluded from consideration, the court
held that there is no basis for disallowing
it as a relevant factor. In endorsing a factspecific approach, the court emphasized thatlabor cost depreciation “is only one of manyfactors to be considered by the trier of fact;
and its relevance depends on the facts andcircumstances of the particular case.”

STB News Alerts
Mary Beth Forshaw received the Insurance
Lawyer of the Year Award at the 2016
Benchmark Litigation Awards dinner.
For the fourth consecutive year, Simpson
Thacher was also named the Insurance
Practice of the Year.
Benchmark also recognized David Wolland Simpson Thacher with a National Impact
Case Award for their victory in a closelywatched appeal before the New York Court ofAppeals on behalf of DB Structured Products,
Inc., in which the Court of Appeals upheld
the dismissal of a suit alleging breaches ofrepresentations and warranties with respect
to several hundred millions of dollars inmortgage loans as time-barred. Benchmark
Litigation honors firms and attorneys thathave emerged as leaders in their particularareas of law over the past 12 months.

10

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.
Mary Kay Vyskocil+1-212-455-3093
mvyskocil@stblaw.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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