Insurance Law Alert

February 2021

In This Issue
Fifth Circuit Rules That Email Phishing Claims Are Not Covered By Computer
Transfer Fraud Or Funds Transfer Fraud Coverage Provisions
The Fifth Circuit ruled that losses stemming from wire transfers initiated by spoofed emails
were not covered by Computer Transfer Fraud or Funds Transfer Fraud coverage provisions of acommercial crime insurance policy. Mississippi Silicon Holdings, L.L.C. v. Axis Ins. Co., 2021 WL
406238 (5th Cir. Feb. 4, 2021). (Click here for full article)

Loss From Spoofing Attack Arises From Three Separate Occurrences Under
Computer Fraud Endorsement, Says Arizona Appellate Court“[SimpsonThacher’s] expertise
ranges from direct
insurance coverage of virtually
all kinds, through to reinsurance
matters and cases relating toinsurance companies’ businesspractices.”–Chambers New York2020

An Arizona appellate court ruled that an email spoofing scheme constituted three separate
occurrences under the policy’s Computer Fraud endorsement. AIMS Ins. Program Managers, Inc.
v. National Fire Ins. Co. of Hartford, 2021 WL 408874 (Ariz. Ct. App. Feb. 4, 2021). (Click here forfull article)

Minnesota Court Rules That Replacement Of Credit/Debit Cards Following Data
Breach Does Not Constitute “Loss Of Use Of Tangible Property”
A Minnesota federal district court ruled that an insurer was not obligated to indemnify a data
breach settlement payment, finding that the policyholder’s cost of replacing cancelled plastic credit
and debit cards did not constitute a loss of use of tangible property under a general liability policy.
Target Corp. v. ACE American Ins. Co., 2021 WL 424468 (D. Minn. Feb. 8, 2021). (Click here forfull article)

Florida Supreme Court Rules That Insured May Not Recover Extra-Contractual,
Consequential Damages For Breach Of Contract
The Florida Supreme Court ruled that Florida law does not permit an insured to recover extracontractual, consequential damages for breach of a first-party insurance contract. Citizens Prop. Ins.
Corp. v. Manor House, LLC, 2021 WL 208455 (Fla. Jan. 21, 2021). (Click here for full article)

First Trial Of COVID-19 Coverage Claims Ends With Judgment For Insurers
The first trial involving coverage claims for business loss in the wake of COVID-19-related
shutdowns concluded with a judgment in the insurers’ favor. Cajun Conti LLC v. Certain
Underwriters at Lloyd’s, London, No. 2020-02558 (La. Civ. Dist. Ct. Orleans Parish Feb. 10, 2021).
(Click here for full article)

Rejecting “Loss Of Use” Argument, New York Court Dismisses Policyholder’s
COVID-19 Coverage Suit
A New York trial court dismissed a bus company’s COVID-19-related coverage suit, ruling that lossof use or functionality does not constitute “direct physical loss or damage” to property. Visconti Bus
Service, LLC v. Utica Nat’l Ins. Grp., 2021 WL 609851 (N.Y. Sup. Ct. Orange Cnty. Feb. 17, 2021).
(Click here for full article)

Simpson Thacher & Bartlett LLP

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California Court Denies Motion To Dismiss Suit Seeking Coverage For COVID-19Related Business Losses
A California trial court refused to dismiss a suit seeking coverage for COVID-19-related businesslosses, finding that the complaint alleged sufficient facts to show “direct physical loss.” Goodwill
Indus. of Orange County, CA v. Philadelphia Indem. Ins. Co., 2021 WL 476268 (Cal. Super. Ct. Jan.
28, 2021). (Click here for full article)

Michigan Court Dismisses Business Income, Extra Expense And Civil Authority
Coverage Claims, But Allows Communicable Disease Coverage Claim To Proceed
A Michigan federal district court granted an insurer’s motion to dismiss coverage claims underpolicy provisions for business income, extra expense and civil authority, but held that thepolicyholder’s pleadings as to communicable disease coverage were sufficient to withstand dismissalon the pleadings. Salon XL Color & Design Grp., LLC v. West Bend Mutual Ins. Co., 2021 WL
391418 (E.D. Mich. Feb. 4, 2021). (Click here for full article)

Oklahoma Court Rules That Cherokee Nation Entitled To Coverage For COVID-19
Business Losses
An Oklahoma district court ruled that several insurers were obligated to cover business losses
sustained by the Cherokee Nation in the wake of government-mandated shutdowns. Cherokee
Nation v. Lexington Ins. Co., No. CV-2020-00150 (Okla. Dist. Ct. Jan. 14, 2021). (Click here forfull article)

Ireland’s High Court Rules That Insurer Must Cover Losses Stemming From
Forced Closure Of Business During COVID-19 Shutdown
Ireland’s High Court ruled that four pubs were entitled to insurance for business losses incurred
during the country’s mandated shutdown. Hyper Trust Limited Trading as the Leopardstown Inn
v. FBD Ins. PLC, No. 2020/3656 (Ireland High Court Feb. 5, 2021). (Click here for full article)

Texas Appellate Court Rules That Intentional Conduct, Even If Based On
Mistaken Belief, Is Not A Covered Occurrence
A Texas appellate court ruled that an insurer had no duty to defend or indemnify claims against a
policyholder that arose out of intentional conduct, even where that conduct was based on mistaken
beliefs. Latray v. Colony Ins. Co., 2021 WL 97204 (Tex. Ct. App. Jan. 11, 2021). (Click here forfull article)

Earth Movement Exclusion Is Unambiguous And Bars Coverage, Says Tenth
Circuit
Applying Colorado law, the Tenth Circuit ruled that an earth movement exclusion unambiguously
barred coverage for damage caused by a rockfall. Sullivan v. Nationwide Affinity Ins. Co. of Am.,
2021 WL 79765 (10th Cir. Jan. 11, 2021). (Click here for full article)

New York Department Of Financial Services Advises Insurers To Rigorously
Assess Cyber Risks
New York’s Department of Financial Services urged insurers to develop a rigorous approach to
cyber risk, recommending guidelines and best practices for assessing and managing such risks,particularly those related to ransomware attacks. (Click here for full article)

New York Court Rules That Putative Policyholder Failed To Establish Material
Terms Of Incomplete Policy
A New York federal district court ruled that a shipping company failed to establish material terms ofa policy for which it located only three endorsements and therefore that coverage was unavailable.
Cosmopolitan Shipping Co., Inc. v. Continental Ins. Co., 2021 WL 229661 (S.D.N.Y. Jan. 22, 2021).
(Click here for full article)

STB News Alerts
Click here to read about the Firm’s insurance-related publications.
2Cyber Alerts:
Fifth Circuit Rules That Email
Phishing Claims Are Not Covered
By Computer Transfer Fraud Or
Funds Transfer Fraud Coverage
Provisions
The Fifth Circuit ruled that losses stemmingfrom wire transfers initiated by spoofedemails were not covered by Computer
Transfer Fraud or Funds Transfer Fraud
coverage provisions of a commercial
crime insurance policy. Mississippi Silicon
Holdings, L.L.C. v. Axis Ins. Co., 2021 WL
406238 (5th Cir. Feb. 4, 2021).
An employee of MSH, a manufacturing
company, received an email purportedly
from one of its suppliers, directing it tochange banking information for future
payments. In accordance with that email,the MSH employee electronically changed
the information and initiated a wire transfer.
Another MSH employee authorized thetransfer on the bank’s website, and during a
confirmation call with the bank, a third MSH
employee verbally authorized the transfer.
A second payment was made, following
the same three-step authorization process.
Thereafter, MSH discovered that the emails
were fraudulent and that the funds had
been sent to hackers’ bank accounts. Axis
Insurance paid MSH the $100,000 limit
under a Social Engineering Fraud clause.
MSH filed suit, alleging it was entitled tocoverage under the Computer Transfer
Fraud and Funds Transfer Fraud provisions.
A Mississippi federal district court granted
Axis Insurance’s summary judgment motion,
finding that neither provision covered theloss. See April 2020 Alert.
The Fifth Circuit affirmed, ruling that there
was no “Computer Transfer Fraud,” definedby the policy as “the fraudulent entry ofInformation into or the fraudulent alterationof any Information within a Computer
System.” The court explained that although
the scheme “involved the creation of a‘fraudulent channel’ in MSH’s email systemthrough which the scammers could monitor,
and when necessary, alter emails,” suchmanipulation “does not constitute Computer
Transfer Fraud” because the scammers“did not manipulate those systems throughthe introduction of data or programs that
could independently instruct the Computer
System . . . . At best, the breach allowed
the fraudsters to monitor the computer
system and to act based on the information
they learned.”
Additionally, the court ruled that evenassuming the scheme constituted Computer
Transfer Fraud, other language in thisprovision “clearly suggests that this was not
the type of scheme Axis agreed to insure
MSH against.” The provision also required
the transfer to be made “without the Insured
Entity’s knowledge or consent.” Here,however, three MSH employees affirmatively
authorized the transfer. The court deemed
it irrelevant that the employees were tricked
into action by the fraudulent emails, notingthat the Computer Transfer Fraud provision
did not provide coverage for such scenarios.
By way of contrast, the court emphasized that
the Social Engineering Fraud provision clearly
contemplated situations such as the present
one, in which an employee acts in good faith
on a fraudulent instruction.
Having ruled that MSH’s knowledge of andinvolvement in the wire transfer precluded
coverage, the court declined to address the“complicated question” of whether the loss
“resulted directly from” the fraud scheme,as required by the Computer Transfer Fraud
provision. Courts in other jurisdictions

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have applied various causation standards indetermining whether the “direct” requirement
has been met in similar factual circumstances.

Loss From Spoofing Attack
Arises From Three Separate
Occurrences Under Computer
Fraud Endorsement, Says Arizona
Appellate Court
An Arizona appellate court ruled that an email
spoofing scheme constituted three separate
occurrences under the policy’s Computer
Fraud endorsement. AIMS Ins. Program
Managers, Inc. v. National Fire Ins. Co. ofHartford, 2021 WL 408874 (Ariz. Ct. App.
Feb. 4, 2021).
Criminals accessed an employee’s email
account in order to fraudulently intercept
payments from AIMS to one of its vendors.
The criminals used counterfeit domainnames similar to the vendor’s domain nameand opened accounts at the vendor’s bank.
Thereafter, the thieves intercepted emails
between AIMS and its vendor and replaced
them with fraudulent emails directing AIMS
to wire payments to the thieves’ accounts.
After the fraud was discovered, AIMS sought
coverage under a business property policy.
National paid $10,000—the policy limit
for a single occurrence under a Computer
Fraud endorsement but denied coverage
under a Forgery and Alteration endorsement.
In ensuing coverage litigation, an Arizonatrial court granted National’s summary
judgment motion.
The appellate court affirmed in part andreversed in part. The appellate court agreed
with the trial court that the Forgery andAlteration endorsement did not cover the
fraudulently induced wire transfers. The
endorsement insured against loss resulting
directly from forgery or alteration of“any check, draft, promissory note, bill of
exchange, or similar written promise, order
or direction to pay a sum certain money.”
The court rejected AIMS’s contention thatthe invoices attached to the fraudulent emails
were “similar . . . order[s] or direction[s] to
pay a sum certain money,” explaining thatthe attached invoices were not “of the same
nature” as checks, drafts, promissory notes orbills of exchange.
However, the court ruled that the fraud
constituted three separate occurrences under

the Computer Fraud provision. Although
the policy did not define “occurrence,” thecourt held that each act of fraud—namelyeach counterfeit demand for payment—was a
distinct “causative act.” The court explained:
Each email package represented aseparate fraudulent payment demand,and each resulted in a separate wiretransfer by AIMS, the victim of thefraud. In the language of the computer
fraud endorsement, each of the threewire transfers “result[ed] directly from”
a separate and distinct fraudulent
payment demand by the thieves.
In so ruling, the court rejected National’scontention that there was just one occurrence
because the loss was caused by a single
continuing fraudulent scheme. The court
distinguished cases in which “occurrence”
was defined to include continuous conditions
or where the policy included other verbiage
indicating that multiple claims may be treatedas a single occurrence.

Minnesota Court Rules That
Replacement Of Credit/Debit Cards
Following Data Breach Does Not
Constitute “Loss Of Use Of Tangible
Property”
A Minnesota federal district court ruled thatan insurer was not obligated to indemnify adata breach settlement payment, finding thatthe policyholder’s cost of replacing cancelledplastic credit and debit cards did notconstitute a loss of use of tangible property
under a general liability policy. Target Corp.
v. ACE American Ins. Co., 2021 WL 424468(D. Minn. Feb. 8, 2021).
Following a data breach of Target’s computer
networks, several banks that had issued thecompromised credit and debit cards cancelled
and reissued those cards to customers. The
banks sued Target for the costs associatedwith those actions. The parties eventuallyreached confidential settlements, and Target
sought indemnification from ACE.
The court granted ACE’s summary
judgment motion, ruling that Target failed
to demonstrate covered property damage,defined as the “loss of use of tangible property
that is not physically injured.” The court
explained that Minnesota law requires lossof-use damages to be “based on” the loss of4

use of the tangible property. Here, however,there was no nexus between the settlement
payment and the value of the loss of the use of
the payment cards. The court stated:
Target has not established a connection
between the damages incurred forsettling claims related to replacing thepayment cards and the value of the use of
those cards, either to the payment-card
holders or issuers. . . . For this reason,
the connection . . . is insufficiently direct
and, therefore, the damages claimed are
not loss-of-use damages covered under
the Policies.

in the policy, the insured was “entitled torecover monetary damages that will put itin the same position it would have been had
the other party not breached the contract.”
The appellate court noted that Citizens was
immune from a claim of bad faith based on
its “government entity” status, but ruled thatconsequential damages were permissible as a
remedy for the breach of contract claim.

Damages Alert:
Florida Supreme Court Rules
That Insured May Not Recover
Extra-Contractual, Consequential
Damages For Breach Of Contract
Answering a question certified by a Florida
appellate court, the Florida Supreme Court
ruled that Florida law does not permit
an insured to recover extra-contractual,consequential damages for breach of a firstparty insurance contract. Citizens Prop. Ins.
Corp. v. Manor House, LLC, 2021 WL 208455(Fla. Jan. 21, 2021).
Citizens insured several apartment buildings
owned by Manor House that were damaged bya hurricane. Citizens made several payments
and closed the claim file. Approximately
two years later, Manor House presented
another claim. Citizens reopened the fileand made additional payments. However,the parties disputed the replacement costs,
among other things. Ultimately, an appraisal
panel awarded Manor House more than
$8.6 million in replacement cost value and$8.3 million in actual cash value. Thereafter,
Manor House sued Citizens, alleging breachof contract and fraud. Manor House sought
extra-contractual damages related to rental
income that it allegedly lost due to the delay
in repairing the apartment complex.
A Florida trial court dismissed Manor House’s
claim for lost rental income, noting that
nothing in the insurance policy provided
coverage for such loss. A Florida appellate
court reversed, ruling that notwithstanding
the absence of coverage for lost rental income

Quashing the appellate court decision,
the Florida Supreme Court ruled that aninsured is not entitled to extra-contractual
damages for breach of a first-party insurance
contract that does not involve an award
under Florida’s bad faith statute. The court
explained that for breach of contract claims,“the contractual amount due to the insured
is the amount owed pursuant to the express
terms and conditions of the policy.” The court
noted that while extra-contractual damages
would be available in a separate bad faithaction pursuant to section 624.155, suchdamages are not recoverable in this caseagainst Citizens because Citizens is statutorily
immune from first-party bad faith claims.
The court expressly rejected the appellate
court’s premise that parties can “contemplate”
remedies outside the policy’s express terms.

COVID-19 Alerts:
Over the past month, nearly forty federal andstate courts across the country have dismissed
policyholder lawsuits seeking businessinterruption and other coverage stemmingfrom COVID-19-related closures. A small
handful of courts have recently allowed suchcases to proceed past the pleading stage orhave ruled in favor of coverage.

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First Trial Of COVID-19 Coverage
Claims Ends With Judgment For
Insurers
The first trial involving coverage claims forbusiness loss in the wake of COVID-19-related
shutdowns concluded with a judgment in theinsurers’ favor. Cajun Conti LLC v. Certain
Underwriters at Lloyd’s, London, No. 202002558 (La. Civ. Dist. Ct. Orleans Parish Feb.
10, 2021).
The restaurant filed suit in March 2020seeking coverage for business loss incurred
after state and local orders restricted traveland dine-in eating in order to slow the
spread of COVID-19. A bench trial began
in December 2020, and the court issued anotice of judgment this month, without awritten opinion.

noting that such an interpretation is notsupported by New York case law. The court
stated: “New York courts, state and federal,
applying New York law have uniformly heldthat this policy language is not ambiguous,and that it unambiguously excludes coveragefor the mere loss of use or functionalityof the covered premises in the absence ofactual, demonstrable physical harm thereto.”
The court also rejected Visconti’s claim
for civil authority coverage, finding thatthe complaint did not allege “prohibited
access” to insured property or damage toproperty elsewhere. Finally, the court notedthat even if “coverage were somehow found
to exist, it appears that there are threepolicy exclusions [virus, loss of use, loss ofmarket] which, singly or collectively, would
potentially create an insurmountable barrier
to Visconti’s recovery.”
Utica Insurance is represented by Simpson
Thacher in this matter.

California Court Denies Motion To
Dismiss Suit Seeking Coverage For
COVID-19-Related Business Losses

Rejecting “Loss Of Use” Argument,
New York Court Dismisses
Policyholder’s COVID-19 Coverage
Suit
A New York trial court dismissed a bus
company’s COVID-19-related coverage suit,
ruling that loss of use or functionality does
not constitute “direct physical loss or damage”
to property. Visconti Bus Service, LLC v.
Utica Nat’l Ins. Grp., 2021 WL 609851 (N.Y.
Sup. Ct. Orange Cnty. Feb. 17, 2021).
Visconti sought coverage for loss of businessincome under an all risk policy. Utica
disclaimed coverage, arguing that there wasno direct physical loss or damage to property
and that coverage was barred by a virus
exclusion and an exclusion for “delay, lossof use or loss of market.” Visconti sued forbreach of contract, and the court dismissed
the complaint.
The court rejected Visconti’s assertion that“loss of use” is sufficient to trigger coverage,

A California trial court refused to dismiss asuit seeking coverage for COVID-19-related
business losses, finding that the complaint
alleged sufficient facts to show “direct physicalloss.” Goodwill Indus. of Orange County,
CA v. Philadelphia Indem. Ins. Co., 2021 WL
476268 (Cal. Super. Ct. Jan. 28, 2021).
The underlying complaint alleged that
COVID-19 caused direct physical loss toinsured property because virus particles were
present at the properties, employees tested
positive for the virus, and the policyholder
was required to conduct sanitization ofproperties in order to remove COVID-19
particles from physical surfaces. Accepting
these allegations as true for purposes of theinsurer’s demurrer, the court concluded thatthe complaint sufficiently alleged “direct
physical loss.” The court recognized that
California federal courts have required aphysical change to property or a permanent
dispossession of property in order to satisfy
the “direct physical loss” requirement, butdeemed those cases factually inapposite.
Noting the “high standard that must be met
to prevail on a demurrer on an insurance
policy,” the court declined to rule as a matterof law that COVID-19 has not “in somemanner, caused physical damage to property.”6

Michigan Court Dismisses Business
Income, Extra Expense And Civil
Authority Coverage Claims, But
Allows Communicable Disease
Coverage Claim To Proceed
A Michigan federal district court granted
an insurer’s motion to dismiss coverageclaims under policy provisions for businessincome, extra expense and civil authority,
but held that the policyholder’s pleadings
as to communicable disease coverage were
sufficient to withstand dismissal on thepleadings. Salon XL Color & Design Grp.,
LLC v. West Bend Mutual Ins. Co., 2021 WL
391418 (E.D. Mich. Feb. 4, 2021).
The insured salon alleged that COVID-19
particles infected its property and exposed
staff and customers, thereby preventing theproperty from being used for its intended
purpose. The court held that these allegations
plausibly alleged “direct physical loss ordamage.” The policyholder also alleged thatgovernment shutdown orders were due tothe spread of COVID-19 throughout thestate, including at and within a mile of theinsured premises. The court concluded thatthese allegations were sufficient to withstanddismissal of the civil authority coverageclaim. However, the court ruled that coverage
under both provisions was unambiguously
excluded by a virus or bacteria exclusion. The
court further held that a consequential loss
exclusion, which encompasses “delay, loss ofuse or loss of market,” barred coverage underthe business income, extra expense and civil
authority coverage provisions.
The court declined to dismiss thesalon’s claim for coverage pursuant to acommunicable disease provision. The court
reasoned that while the virus exclusion
applied to other coverage clauses, it does notpreclude communicable disease coverage.

Oklahoma Court Rules That
Cherokee Nation Entitled To
Coverage For COVID-19 Business
LossesAn Oklahoma district court ruled thatseveral insurers were obligated to coverbusiness losses sustained by the Cherokee
Nation in the wake of government-mandated
shutdowns. Cherokee Nation v. Lexington
Ins. Co., No. CV-2020-00150 (Okla. Dist. Ct.
Jan. 14, 2021).

The Cherokee Nation argued that the covered
properties sustained “direct physical loss ordamage” because they could not be used asintended, emphasizing that use of the word“or” indicated that “loss” encompassed morethan tangible damage. The court agreed andgranted the Nation’s summary judgment
motion. Citing Elegant Massage LLC v.
State Farm Mutual Auto. Ins. Co., 2020 WL
7249624 (E.D. Va. Dec. 9, 2020) (discussed in
our December 2020 Alert), the court held that“direct physical loss” includes property that is
uninhabitable because of an intangible risk.

Ireland’s High Court Rules That
Insurer Must Cover Losses
Stemming From Forced Closure
Of Business During COVID-19
Shutdown
Ireland’s High Court ruled that four pubs
were entitled to insurance for business losses
incurred during the country’s mandated
shutdown. Hyper Trust Limited Trading as
the Leopardstown Inn v. FBD Ins. PLC, No.
2020/3656 (Ireland High Court Feb. 5, 2021).
FBD provided insurance to pubs throughout
Ireland through more than one thousand
different versions of the policy at issue inthe present case. The policy included a
provision that covered “losses arising fromthe imposed closure of the premises byorder of a government or local authority
following the occurrence of a number of
specified circumstances including ‘outbreaksof contagious or infectious diseases on thepremises or within 25 miles of the same.’” Thecourt ruled that under this provision, the pubs
were entitled to indemnification for losses
during and beyond the period of mandated
closure, rejecting the insurer’s contention that
there was no coverage because the closuresarose as a consequence of the countrywide
presence of COVID-19, rather than a local
7

outbreak at or near the insured premises.
In addition, the court rejected a strict “butfor” causation standard under which thepolicyholders would have to prove that theirlosses were caused solely by the pandemic,
rather than from a societal reaction to thevirus as well.

the policyholder’s conduct. In so ruling,
the court distinguished cases in which
the policyholder engaged in intentional
conduct, but performed that conduct in anegligent manner, thereby giving rise to acovered “occurrence.”

Property Insurance
Alert:
Earth Movement Exclusion Is
Unambiguous And Bars Coverage,
Says Tenth Circuit

Occurrence Alert:
Texas Appellate Court Rules That
Intentional Conduct, Even If
Based On Mistaken Belief, Is Not A
Covered Occurrence
A Texas appellate court ruled that an insurer
had no duty to defend or indemnify claims
against a policyholder that arose out ofintentional conduct, even where that conduct
was based on mistaken beliefs. Latray v.
Colony Ins. Co., 2021 WL 97204 (Tex. Ct.
App. Jan. 11, 2021).
The insurance dispute arose after thepolicyholder dumped debris on property
that he believed to be owned by a friend,
but in actuality was owned by the friend’s
neighbor. The neighbor sued and obtained
judgment against the policyholder. Colony
denied coverage on the basis that there wasno covered “occurrence” under the policy. A
Texas trial court agreed and granted Colony’ssummary judgment motion. The appellate
court affirmed.
The appellate court rejected the policyholder’scontention that even though the act of
dumping the debris was intentional, his
conduct was accidental because he wasacting under the misconception that hehad permission to dump the debris on
the property in question. The court ruledthat there was no occurrence because thedamage was “reasonably foreseeable” andthe type that would “ordinarily follow” from

Applying Colorado law, the Tenth Circuit
ruled that an earth movement exclusion
unambiguously barred coverage for damage
caused by a rockfall. Sullivan v. Nationwide
Affinity Ins. Co. of Am., 2021 WL 79765 (10thCir. Jan. 11, 2021).
Homeowners sustained extensive damage
when large boulders dislodged from an
outcropping and rolled down a hillside. At
least one boulder struck the homeowners’
residence. Nationwide denied coverage
under an earth movement exclusion thatdefined “earth movement” as a “[l]andslide”
or “[a]ny other earth movement including
earth sinking, rising or shifting,” among otherthings. The homeowners filed suit, asserting
claims for breach of contract, bad faith anddeclaratory judgment. A Colorado federal
district court granted Nationwide’s summary
judgment motion. The homeowners appealed
and moved to certify several questions oflaw regarding the exclusion to the Colorado
Supreme Court. The Tenth Circuit affirmed
the district court decision and denied the
motion to certify.
The Tenth Circuit rejected the homeowners’
contentions that a rockfall is not a landslide
and that the term “earth” refers to soil, notrock. The court noted that courts in several
other jurisdictions have concluded thatearth movement exclusions bar coverage fordamage caused by rockfalls and predicted that
the Colorado Supreme Court would find thosecases persuasive. The court reasoned that thecatch-all phrase “any other earth movement”
evidenced an intention for the exclusion to“be broadly inclusive of all natural materials
that comprise the surface of the earth,including rocks and soil.” Additionally,8

applying Colorado’s reasonable expectations
doctrine, the court held that “[i]t would beunreasonable for an ordinary reader to thinkthat damage caused by soil-only and soiland-rock slide events would not be covered
but damage caused by a rock-only slide event
would be.”The Tenth Circuit acknowledged that adifferent Colorado district court ruled that an
earth movement exclusion was ambiguous
and therefore did not bar coverage for damage
caused by a boulder that rolled down a slope
and struck a house, but deemed that decisionunpersuasive. See Kresge v. State Farm Fire
& Cas. Co., 2012 WL 849973 (D. Colo. Nov. 4,2012).

Regulatory Alert:
New York Department Of Financial
Services Advises Insurers To
Rigorously Assess Cyber Risks
As ransomware attacks and other cyberincidents continue to proliferate, New
York’s Department of Financial Services
urged insurers to develop a “rigorous anddata driven approach to cyber risk.” The
Department recommended guidelines andbest practices, including careful vettingof policyholder risk, the establishment ofcomprehensive risk strategy, retentionof cybersecurity experts and stringent
notice requirements for cyber incidents ininsurance policies. Although the guidelines
are not binding, the Department warned that
insurers’ failure to adequately assess cyberrisks could adversely impact the insurance
market overall. In addition, the Departmentemphasized the rising incidence ofransomware attacks in particular, cautioning
insurers that they may be held liable forransom payments made to sanctioned entities
pursuant to formal advisories issued by the
Office of Foreign Assets Control in October
2020. See October 2020 Alert.

Lost Policy Alert:
New York Court Rules That Putative
Policyholder Failed To Establish
Material Terms Of Incomplete
PolicyA New York federal district court ruledthat a shipping company failed to establish
material terms of a policy for which it locatedonly three endorsements and therefore thatcoverage was unavailable. Cosmopolitan
Shipping Co., Inc. v. Continental Ins. Co.,
2021 WL 229661 (S.D.N.Y. Jan. 22, 2021).
Former seamen filed lawsuits against
ship owners and operators, including
Cosmopolitan, alleging injury caused byasbestos exposure. Cosmopolitan settled thesuits and sought coverage from Continental
under a Protection & Indemnity policy
known as Policy C-4893. After conducting
an evidentiary hearing, the court concluded
that at least some of the seamen were coveredby the policy, but that Cosmopolitan did notmeet its burden of establishing all material
terms of the policy.
The court noted that New York law is unclear
as to whether the standard of proof forthe existence and terms of a lost policy is
preponderance of the evidence or clear andconvincing evidence. Declining to resolve that
uncertainty, the court held that Cosmopolitan
failed to meet either standard of proof. While
the record established that Continental Policy
C-4893 covered at least some of the asbestos
plaintiffs who worked on Cosmopolitan’s
vessels, the court ruled that Cosmopolitan
failed to show the material terms of the policy,
most notably the per-occurrence or pervessel limits of coverage. The court rejected
Cosmopolitan’s assertion that two forms of
insurance policies, submitted as examples ofmaritime policies issued around the coverage
period, sufficiently reflected the terms of
Policy C-4893. The court explained thatthe two sample polices were not consistentin several material terms, including policy
limit, time limitation, and premium. In
addition, the record did not establish that9

either comparator policy had any directconnection to Policy C-4893. Finally, thecourt emphasized that Policy C-4893 wasneither a renewal policy nor a “boilerplate”
policy—situations in which material terms
could arguably be inferred. As such, the court
ruled that the policy was unenforceable.

STB News Alerts
Susannah Geltman and Summer Craigauthored the United States chapter in thethird edition of The Insurance Disputes
Law Review. Published as part of The
Law Reviews series, the book discusses
important developments over the past year
in the quickly-evolving area of insurance

disputes across more than 15 jurisdictions.
The book features commentary on dealing
with insurance disputes and highlights
mechanisms for dispute resolution ineach jurisdiction.
Mary Beth Forshaw, Bryce Friedman andKaren Cestari served as Contributing Editorsof the recently published 2021 edition of
Lexology’s Getting the Deal Through:Insurance Litigation. Mary Beth, Bryce
and Karen co-authored the publication’s
chapter addressing United States insurance
law. The chapter highlights preliminary andjurisdictional considerations in insurance
litigation, the interpretation of insurance
contracts and notice to insurance companies,
as well as insurance litigation trends and theoutlook for the next year.

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

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

Joshua Polster+1-212-455-2266
joshua.polster@stblaw.com

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

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

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

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

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

Jonathan T. Menitove+1-212-455-2693
jonathan.menitove@stblaw.com

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

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

Isaac M. Rethy+1-212-455-3869
irethy@stblaw.com

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

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

This edition of the
Insurance Law Alert was
prepared by Bryce L. Friedman
bfriedman@stblaw.com / +1-212-4552235 and Susannah S. Geltman
sgeltman@stblaw.com / +1-212-4552762 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.
11SimpsonThacherWorldwide

UNITED STATESEUROPE

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

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

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ASIA

Beijing
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1 Jian Guo Men Wai Avenue
Beijing 100004
China+86-10-5965-2999
Hong Kong
ICBC Tower
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Hong Kong+852-2514-7600
Tokyo
Ark Hills Sengokuyama Mori Tower
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Minato-Ku, Tokyo 106-0032
Japan+81-3-5562-6200

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