Insurance Law Alert

July/August 2021

In This Issue
Fifth Circuit Rules That Data Breach Was A “Publication” That Violates
Right Of Privacy Under Insurance Policy
Reversing a Texas district court decision, the Fifth Circuit ruled that a credit card data breachconstitutes a “publication” that triggers an insurer’s duty to defend. Landry’s Inc. v. Ins. Co. of
the State of Pa., 2021 WL 3075937 (5th Cir. July 21, 2021). (Click here for full article)

Eighth Circuit Affirms Dismissal Of Business Interruption Loss Coverage
Suit“[Simpson Thacher’s]
expertise ranges fromdirect insurance coverageof virtually all kinds, throughto reinsurance matters and cases
relating to insurance companies’
business practices.”–Chambers New York2021

In one of the first federal appellate rulings on the issue, the Eighth Circuit affirmed an Iowa
federal district court’s dismissal of an oral surgeon’s lawsuit seeking business interruption
coverage for COVID-19-related losses. Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2021 WL
2753874 (8th Cir. July 2, 2021). (Click here for full article)

Insurer Must Cover Damages Stemming From Incorporation Of Insured’s
Contaminated Ingredient Into Third-Party’s Product, Says North Carolina
Court
A North Carolina federal district court granted a policyholder’s summary judgment motion,
ruling that a general liability policy covered damages resulting from the incorporation of theinsured’s contaminated ingredient into a pet food company’s product. Penn Nat’l Sec. Ins. Co.
v. LinkOne SRC, LLC, 2021 WL 2345164 (E.D.N.C. June 8, 2021). (Click here for full article)

Hawaii Court Rules That Policyholder May Recover Employee Dishonesty
Coverage Under Multiple Successive Policies
A Hawaii federal district court ruled that a company was entitled to recover the $250,000
per-occurrence sublimit for each of five successive policies for losses stemming from an
employee’s theft over a twenty-year period. Arc in Hawaii v. DB Ins. Co., Ltd., 2021 WL
2481672 (D. Haw. June 17, 2021). (Click here for full article)

Sixth Circuit Rules That Pollution Exclusion Bars Coverage For Criminal
Claims Alleging Submission Of Fraudulent Dust Samples
The Sixth Circuit ruled that a pollution exclusion barred coverage for a criminal investigationand charges against a company and its executives stemming from the fraudulent submission ofdust samples to a federal agency. Barber v. Arch Ins. Co., 2021 WL 2828021 (6th Cir. July 7,2021). (Click here for full article)


Simpson Thacher & Bartlett LLP

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Missouri Appellate Court Rules That Methamphetamine Is A Contaminant
Under Exclusion In Homeowner’s Policy
A Missouri appellate court ruled that a homeowner’s insurer had no duty to pay for the costs
to remove methamphetamine contamination because the policy did not cover the costs ofcomplying with an ordinance that requires the insured to remove pollutants. Vogelsang v.
Travelers Home and Marine Ins. Co., 2021 WL 3086223 (Mo. App. Ct. June 29, 2021).
(Click here for full article)

Resolving Conflict Between District Courts, Second Circuit Rules That
Defense Costs Are Subject To Reinsurance Limits
The Second Circuit ruled that facultative reinsurance certificates issued by two reinsurers
provided indemnity for defense costs within policy limits, not in addition to them. Utica Mut.
Ins. Co. v. Munich Reins. Am., Inc., 2021 WL 3197017 (2d Cir. July 29, 2021). (Click here forfull article)

Jury Says Reinsurer Must Reimburse Cedent For Underlying Asbestos
Settlement, Finding No Evidence Of Bad Faith In Underlying Allocation
In a dispute relating to several facultative reinsurance contracts, a federal jury in New Yorkawarded the ceding insurer approximately $11 million, finding that it did not act in bad faith or
improperly allocate underlying asbestos settlement payments to the reinsured policies. Utica
Mut. Ins. Co. v. Clearwater Ins. Co., No. 6:13-cv-1178 (N.D.N.Y. July 8, 2021). (Click here forfull article)

Eleventh Circuit Rules That Innocent Insured Provision Applies To Both
Notice And Reporting Provisions
The Eleventh Circuit ruled that an innocent insured provision applies not only when theprincipal insured fails to give timely notice of a claim under a claims-made-and-reported
policy, but also when the principal insured fails to comply with an extended reporting period
provision. Maxum Indem. Co. v. Colliers Int’l-Atlanta, LLC, 2021 WL 2434350 (11th Cir. June15, 2021). (Click here for full article)

Tenth Circuit Says Utah Law Does Not Require Defending Insurer To
Settle For Policy Limits Where Coverage Is Debated And Declaratory
Judgment Action Is Pending
The Tenth Circuit ruled that an insurer defending under a reservation of rights has no duty toaccept a policy limits settlement offer where the insurer has filed a declaratory judgment action
disputing coverage and the court ultimately finds none. Owners Ins. Co. v. Dockstader, 2021
WL 2662251 (10th Cir. June 29, 2021). (Click here for full article)

Fourth Circuit Affirms That Insurer’s Rejection Of Settlement Demands
Did Not Violate State Law Duty To Act In Good Faith
The Fourth Circuit ruled that an insurer did not engage in bad faith when it rejected two timelimited settlement demands. Columbia Ins. Co. v. Waymer, 2021 WL 2556586 (4th Cir. June22, 2021). (Click here for full article)

STB News Alert
Click here to read about the Firm’s insurance-related honors.

2Cyber Alert:
Fifth Circuit Rules That Data
Breach Was A “Publication” That
Violates Right Of Privacy Under
Insurance Policy
Reversing a Texas district court decision,
the Fifth Circuit ruled that a credit card
data breach constitutes a “publication” thattriggers an insurer’s duty to defend. Landry’s
Inc. v. Ins. Co. of the State of Pa., 2021 WL
3075937 (5th Cir. July 21, 2021).

that the policyholder exposed customers’
credit card data to hackers as it wasrouted through the company’s computer
system. Second, the complaint alleged thathackers used that credit card data to makefraudulent purchases. The court held that“[b]oth disclosures expos[ed] or present[ed]”personal information, and that “either one
standing alone would constitute the sort of‘publication’ required by the Policy.”
Additionally, the Fifth Circuit ruled that theunderlying claims alleged injury arising out
of a violation of privacy. The court explainedthat “arising out of” extends the scope ofcoverage beyond violations of privacy per
se to “all injuries that arise out of such
violations.” (Emphasis in original).

COVID-19 Alert:
The policyholder sought coverage forassessments imposed in connection with adata breach that compromised the personal
data of millions of credit card holders. The
insurer argued that “personal and advertising
injury” coverage was unavailable because
there was no “publication” of material
that violated a person’s right of privacy,
as required by the policy. A Texas federal
district court agreed and dismissed thesuit. The district court reasoned that the
hacker’s accessing of data, without more,
did not constitute a “publication” and thatthe damages sought were not “privacy”
damages because the suit was brought bya bank and processing company based on
the policyholder’s alleged failure to follow
industry cybersecurity standards, rather
than consumers whose personal data was
improperly obtained.
The Fifth Circuit reversed, holding that under
Texas’s “eight-corners rule” for determining
an insurer’s duty to defend, the underlying
complaint alleged claims potentially within
the policy’s coverage. The court reasoned
that the policy’s use of “publication in any
manner” provided “the broadest possible
definition” of publication. Applying thatinterpretation, the court concluded that theunderlying complaint sufficiently alleged
publication. First, the complaint alleged

Eighth Circuit Affirms Dismissal
Of Business Interruption Loss
Coverage Suit
In one of the first federal appellate rulingson the issue, the Eighth Circuit affirmed
an Iowa federal district court’s dismissal ofan oral surgeon’s lawsuit seeking businessinterruption coverage for COVID-19-related
losses. Oral Surgeons, P.C. v. Cincinnati Ins.
Co., 2021 WL 2753874 (8th Cir. July 2, 2021).
The policyholder sought coverage for businesslosses incurred during state-mandated
shutdowns and restrictions aimed at slowing
the spread of COVID-19. Cincinnati denied
coverage based on the lack of “physicalloss” or “physical damage,” as required by
the policy.
The Eighth Circuit ruled that an inability
to use property fully as intended does notconstitute a physical loss, emphasizing that“there must be some physicality to the loss
or damage of property—e.g., a physicalalteration, physical contamination or physicaldestruction.” The court reasoned that the“period of restoration” policy provision
supported this interpretation because only
property that has “suffered physical loss or
physical damage requires restoration.” Inso ruling, the court cited case law in which
courts have found no “physical loss ordamage” for business losses stemming from a
power outage or trade embargo.
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The Eighth Circuit’s ruling accords withthe overwhelming majority of Iowa stateand federal decisions (as well as those ofjurisdictions across the country) holdingthat the COVID-19 pandemic and related
government restrictions do not constitutedirect physical loss or damage for purposes offirst-party insurance coverage.

Coverage Alerts:
Insurer Must Cover Damages
Stemming From Incorporation Of
Insured’s Contaminated IngredientInto Third-Party’s Product, Says
North Carolina Court

into a third-party’s product, but deemed thosedecisions unpersuasive and not controlling.
The court also ruled that coverage was notbarred by a product recall exclusion. The
court noted that the damages sought were
not for “goods or products . . . manufactured,sold, handled, distributed or disposedof by” LinkOne, as required by theexclusionary language, because it was thepet food company, rather than LinkOne,
that manufacturer and disposed of the final
product. In addition, the court held thatdamages were not excluded by an “impaired
property” provision, which applied toproperty that “can be restored to use” byremoval or replacement of LinkOne’s product.

A North Carolina federal district court
granted a policyholder’s summary judgment
motion, ruling that a general liability
policy covered damages resulting from theincorporation of the insured’s contaminatedingredient into a pet food company’s product.
Penn Nat’l Sec. Ins. Co. v. LinkOne SRC, LLC,
2021 WL 2345164 (E.D.N.C. June 8, 2021).
LinkOne, a company that provides fresh andfrozen ingredients to pet food manufacturers,
discovered that a cleaning brush was leftin a tanker truck that was subsequently
filled with LinkOne’s product and delivered
to a pet food manufacturer. Based on thecontamination, the pet food company shut
down its production line and destroyed thetainted product. LinkOne reimbursed thecompany and sought coverage from Penn
National. The insurer denied the claim basedon the lack of “property damage” and several
policy exclusions. In ensuing litigation,
the court granted LinkOne’s summary
judgment motion.
The court ruled that the damages the petcompany incurred from its production
shutdown and product recall were “becauseof property damage,” defined as “physicalinjury to tangible property, including all
resulting loss of use of that property . . . orloss of use of tangible property that is not
physically injured.” The court rejected Penn
National’s contention that the only property
damaged was LinkOne’s own property, which
was excluded under the policy. The court
acknowledged case law in other jurisdictions
finding no coverage for the incorporation of
the policyholder’s contaminated ingredient

Hawaii Court Rules That
Policyholder May Recover
Employee Dishonesty Coverage
Under Multiple Successive Policies
A Hawaii federal district court ruled thata company was entitled to recover the$250,000 per-occurrence sublimit for eachof five successive policies for losses stemmingfrom an employee’s theft over a twenty-year
period. Arc in Hawaii v. DB Ins. Co., Ltd.,
2021 WL 2481672 (D. Haw. June 17, 2021).
The insured discovered that its accountant
had engaged in numerous incidents of theft
and forgery from 1998 through 2017, resulting
in nearly $7 million in losses. The company
sought coverage under Forgery and Employee
Dishonesty provisions in commercial property
policies. DB Insurance argued that it fulfilled
its obligation by paying a single limit of$250,000 under the Employee Dishonesty
provision and that it had no coverageobligation under the Forgery provision.

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The court ruled that coverage under theForgery provision was triggered and that a
Criminal Acts Exclusion did not bar coverage.
The court explained that the exclusion
appeared in the general policy, whereas
the grant of forgery coverage was issued ina separate “Enhancement Endorsement”
and that under state law, specific provisions
preempt general provisions where the two
conflict.
In addition, the court rejected DB Insurance’s
contention that it was obligated to pay onlya single policy sublimit under the Employee
Dishonesty provision. DB Insurance argued
that payment under successive policies wasprohibited by a “one occurrence provision,”
which stated that “All loss or damage:
Caused by the same person or persons; orInvolving a single act or series of related
acts: is considered one occurrence.” Thecourt rejected this argument, finding thepolicy language ambiguous as to whether
an “occurrence” can extend beyond a policy
period. The court also rejected the contention
that a non-cumulation provision limited
the insurer’s obligation to provide coverage
under successively-issued policies, finding
the provision “temporally ambiguous” as towhether it applies across successive policies.
However, the court granted DB Insurance’s
motion to dismiss the bad faith and punitive
damages claims, emphasizing that the issues
in dispute related to ambiguous provisions
and unsettled questions of law.

Pollution Exclusion
Alerts:Sixth Circuit Rules That Pollution
Exclusion Bars Coverage For
Criminal Claims Alleging
Submission Of Fraudulent Dust
Samples
Our November 2020 Alert reported on a
Kentucky district court decision holding thata pollution exclusion barred coverage for acriminal investigation and charges against acompany and its executives stemming fromthe fraudulent submission of dust samples
to a federal agency. Barber v. Arch Ins. Co.,
2020 WL 6087951 (W.D. Ky. Oct. 15, 2020).
This month, the Sixth Circuit affirmed.

Barber v. Arch Ins. Co., 2021 WL 2828021(6th Cir. July 7, 2021).
A criminal action alleged that Armstrong
and its employees submitted fraudulent
dust samples to the Mine Safety and HealthAdministration. Arch denied coverage,
arguing that a pollution exclusion barred
coverage. The district court agreed and ruledin the insurer’s favor and the Sixth Circuit
affirmed.
The Sixth Circuit rejected Armstrong’s
assertion that coal dust is not a “contaminantor irritant” where, as here, it is confined
inside a mine “where it is supposed to be,”rather than dispersed into the environment.
In so ruling, the court noted that coal dustlevels in mines are strictly monitored byregulatory agencies and that coal dust
inhalation can result in bodily harm.
In addition, the court rejected Armstrong’s
contention that the exclusion was inapplicablebecause the criminal charges did not“arise from” and were not “based on” or“attributable to any direction, request, orvoluntary decision to test for, abate, monitor,
clean up, remove, contain, treat, detoxifyor neutralize Pollutants,” as required by
the exclusion. More specifically, Armstrong
argued that “arising from” requires causality
and that the criminal charges were caused byan alleged conspiracy rather than Armstrong’s
duty to regulate coal dust. The court stated:
Absent the . . . regulations, theemployees would not have had tomonitor or submit samples at all, andtherefore would not have conspired
to commit fraud . . . . Accordingly,
the criminal proceedings arose froma direction to test for or monitora pollutant, and the pollution
exclusion bars coverage for thecriminal proceedings.

Missouri Appellate Court Rules
That Methamphetamine Is A
Contaminant Under Exclusion In
Homeowner’s Policy
A Missouri appellate court ruled that ahomeowner’s insurer had no duty to pay
for the costs to remove methamphetamine
contamination because the policy did
not cover the costs of complying with an
ordinance that requires the insured to remove5pollutants. Vogelsang v. Travelers Home andMarine Ins. Co., 2021 WL 3086223 (Mo. App.
Ct. June 29, 2021).
After police discovered methamphetamineat the policyholder’s residence, a local
agency issued an order to vacate, which
required testing and remediation prior to any
reoccupation of the home. Travelers refused
to pay those expenses, citing a provision that
excluded coverage for “the costs to comply
with any ordinance or law which requiresan ‘insured’ or others to test for, monitor,
clean up, remove, contain, treat, detoxifyor neutralize, or in any way respond to, or
assess the effects of, pollutants.” A trial court
granted Travelers’ summary judgment motion
and the appellate court affirmed.
The appellate court ruled thatmethamphetamine is a pollutant, which thepolicy defined to include any “contaminant.”
Acknowledging that at least one Missouri
appellate court has held that a different toxic
vapor, carbon monoxide, is not a pollutant
for insurance coverage purposes, the court
concluded that methamphetamine falls
within the ordinary meaning of contaminantbecause it makes the house “unfit for use
by the introduction of unwholesome orundesirable elements.” The court further heldthat the order to vacate required removalof the methamphetamine, rejecting thehomeowner’s contention that removal was
required only if she sought to reoccupy herhome, and that she retained the right not
to do so. The court deemed that assertion“patently unreasonable.”

Reinsurance
Alerts:Resolving Conflict Between District
Courts, Second Circuit Rules That
Defense Costs Are Subject To
Reinsurance Limits
The Second Circuit ruled that facultativereinsurance certificates issued by Munich andCentury reinsured defense costs within limits,
not in addition to them. Utica Mut. Ins. Co.
v. Munich Reins. Am., Inc., 2021 WL 3197017(2d Cir. July 29, 2021).
Utica sought reinsurance from Munich andCentury for losses paid to its insured forasbestos-related claims. Disputes as to theexistence and scope of coverage under certain
certificates resulted in two separate lawsuitsin New York federal district court. In one
suit, the court ruled in the reinsurer’s favor,
finding that Utica’s defense costs were subject
to policy limits. In the other suit, a different
judge ruled that defense costs were in
addition to policy limits. The Second Circuit,hearing the appeals in tandem, ruled that
defense costs eroded policy limits and were
not supplemental to them.
Because the reinsurance coverage “followedform” to Utica’s umbrella policy, the central
issue in dispute concerned the application of
Utica’s umbrella policy. Utica acknowledgedthat the umbrella policy made defense costs
subject to policy limits, but argued that thepolicy was modified by an endorsementthat allowed defense costs to be in addition
to limits. The Second Circuit rejected thisassertion, explaining that the endorsement,
which expressly applied to “any occurrence
not covered by” the primary policy, wasunambiguous and referred only to scenarios
in which the umbrella policy “dropped
down” to provide primary coverage in thefirst instance because the primary policy did
not cover the particular claims. The court
explained that the endorsement did not apply
where, as here, the primary policy provided
coverage and umbrella policy was triggeredby virtue of exhaustion of the primarypolicy limits.
In addition, the court deemed unpersuasive
Utica’s assertion that the facultativecertificates required the reinsurers toreimburse the disputed defense costs,
6

regardless of Utica’s own obligations under
its umbrella policy. Utica claimed that it wasentitled to bill the reinsurers for defense
costs in addition to policy limits because
the certificates bound the reinsurer to pay
all “expenses incurred” by Utica. The court
held that Utica’s construction “violates thecontractual intent of facultative reinsurance”
which connects a reinsurer’s liability to thecedent’s liability under the operative policy.
More specifically, the court explained that“incur” means “to become liable or subject
to” and thus requires a legal liability to pay.
Under the follow form clauses, the reinsurers’
liability is tied to coverage under Utica’s
umbrella policy. The court stated: “[t]he only
‘expenses incurred’ that the reinsurers must
reimburse are those that Utica is liable to pay
under the 1973 umbrella policy (or good faith,reasonable settlements of disputes affectingthat policy and within its terms).”
Finally, the court ruled that Century wasentitled to a new trial on its bad faithcounterclaim against Utica. The counterclaim
alleged that Utica violated its duty of goodfaith by improperly billing Century for
defense costs in addition to limits, among
other things. The district court had instructed
the jury that an essential element of thebad faith counterclaim was a finding that
Century fulfilled its obligations under thereinsurance certificate and that “this element
is in dispute.” The Second Circuit deemed
these instructions erroneous, explaining“there is no actual dispute whether Century
did all it was obligated to do under the 1973
certificate. As a matter of law, Century is not
obligated under the certificate to pay defense
in addition to limits—the only pertinent issue
at trial regarding Century’s obligations.”

Jury Says Reinsurer Must
Reimburse Cedent For Underlying
Asbestos Settlement, Finding
No Evidence Of Bad Faith In
Underlying Allocation
In a dispute relating to several facultativereinsurance contracts issued by Clearwater
Insurance Company, a federal jury in New
York awarded Utica Mutual Insurance
Company approximately $11 million,
finding that Utica did not act in bad faithor improperly allocate underlying asbestos
settlement payments to the reinsured policies.
Utica Mut. Ins. Co. v. Clearwater Ins. Co.,
No. 6:13-cv-1178 (N.D.N.Y. July 8, 2021).

The jury also concluded that the underlying
primary policies contained aggregate limits
and that Utica had paid up to those limits.
In a prior ruling in this case, the Second
Circuit ruled that the reinsurance certificateswere expense-supplemental and thus required
Clearwater to reimburse Utica for expenses
in addition to the stated limit of liability.
See October 2018 Alert. In that decision, theSecond Circuit also ruled that neither thereinsurance certificates nor certain contracts
through which Clearwater participated as partof a pool of reinsurers imposed a follow thesettlements obligation. The court therefore
concluded that Clearwater’s indemnity
obligations must be based on Utica’s provenliability under its umbrella policies.

Notice Alert:
Eleventh Circuit Rules That
Innocent Insured Provision Applies
To Both Notice And Reporting
Provisions
Reversing a Georgia district court decision,
the Eleventh Circuit ruled that an innocent
insured provision applies not only when theprincipal insured fails to give timely notice ofa claim under a claims-made-and-reported
policy, but also when the principal insured
fails to comply with an extended reporting
period provision. Maxum Indem. Co. v.
Colliers Int’l-Atlanta, LLC, 2021 WL 2434350(11th Cir. June 15, 2021).
When a company and its executive officer
were sued, the company promptly provided
notice of the claim to Maxum Indemnity,
which issued a reservation of rights. The
executive asked the company for any
applicable insurance policies, but the7company failed to provide the Maxum policy.
Several months later, the executive learned
about the Maxum policy and requested
coverage. In response, Maxum sought adeclaration it had no duty to provide coverageto the executive based on a failure (of both thecompany and executive) to comply with thepolicy’s reporting provision. A Georgia district
court granted Maxum’s summary judgment
motion, holding that an innocent insured
provision did not apply to violations of thereporting provision.
The Eleventh Circuit reversed, ruling that theinnocent insured provision unambiguously
applies to violations of both the policy’s
notice provision and its extended reporting
period provision. The court noted that theinnocent insured provision applies when
coverage “would be excluded, suspended
or lost . . . [b]ecause of noncompliancewith any condition relating to the giving ofnotice to [Maxum] with respect to which
any other ‘insured’ shall be in default
solely because of the failure to give such
notice,” so long as the innocent insured
complies with such condition “promptly
after obtaining knowledge of the failure of
any other “insured” to comply therewith.”
Maxum argued that the provision is limited
to violations of the notice provision because
it refers only to “giving of notice” andmakes no mention of “reporting.” Rejecting
this contention, the court held that bothprovisions operate in unison in providing
instructions and timeframe for “the transfer
of information.”

Settlement Alerts:
Tenth Circuit Says Utah Law
Does Not Require Defending
Insurer To Settle For Policy Limits
Where Coverage Is Debated And
Declaratory Judgment Action Is
Pending
Affirming a Utah district court decision, theTenth Circuit ruled that an insurer defending
under a reservation of rights has no duty toaccept a policy limits settlement offer where
the insurer has filed a declaratory judgment
action disputing coverage and the court
ultimately finds none. Owners Ins. Co. v.
Dockstader, 2021 WL 2662251 (10th Cir.
June 29, 2021).

A policyholder sought coverage under his
homeowner’s policy for civil claims arisingout of an assault and battery. The insurer
agreed to defend under a reservation ofrights and sought a declaration that its
policy did not cover the underlying conduct.
Thereafter, the underlying claimant made a
policy limits settlement demand, which theinsurer conditionally accepted upon a findingof coverage in the then-pending declaratory
judgment action. The claimant then made asecond offer to settle for policy limits, and theinsurer reiterated its position that it would
pay policy limits if the declaratory judgment
action resulted in a finding of coverage. Whenthe claimant made a third offer with the sameterms, the insurer declined to respond.

The Tenth Circuit rejected the assertion that
Utah law requires a defending insurer toaccept a reasonable policy limits settlement
offer when a declaratory judgment action as
to coverage is pending, regardless of whether
there is ultimately coverage under the policy,
noting the absence of authority supportingthat proposition. The court noted that theinsurer was obligated to continue defending
until the coverage issue was resolved, but
rejected the notion that the duty to defend
includes an absolute duty to settle even where
the declaratory judgment action results in afinding of no coverage.
The dissenting opinion argued that aninsurer’s duty to accept a settlement while
awaiting a coverage ruling in a declaratory
judgment action should turn on whether
the insurer acted reasonably under thecircumstances that existed at the time of thesettlement offers, regardless of a subsequentfinding of no coverage. Rejecting this
proposition, the Tenth Circuit stated:8If we follow the dissent’s logic to its
natural conclusion, an insurer would
have to pay an uncovered claim solong as a third-party claimant made asettlement offer before a district court
rendered a decision about coverage. The
dissent’s approach would undermine
Utah law by making the insurer’s right toseek a declaratory action illusory.

Fourth Circuit Affirms That
Insurer’s Rejection Of Settlement
Demands Did Not Violate State Law
Duty To Act In Good Faith
The Fourth Circuit ruled that an insurer did
not engage in bad faith when it rejected twotime-limited settlement demands. Columbia
Ins. Co. v. Waymer, 2021 WL 2556586 (4thCir. June 22, 2021).
A driver insured by Columbia Insurance
struck another vehicle, seriously injuring
both occupants. Shortly after the accident,
counsel for the injured parties made a tenday settlement demand for the $1 million
policy limit. Although Columbia Insurance
had set a reserve on the claim for $1 million
in light of the severity of the accident, it
rejected the offer based on the absence of
medical records substantiating the extent of
the claimants’ injuries. Columbia Insurancesought and received authorization to accesshospital records, but was unable to obtain
documentation within the ten-day period,
which expired without action.
A few months later, after receiving medical
bills and records, Columbia Insurance offeredto pay policy limits. The claimants rejected
the offer and responded with a second
demand, which alleged a violation of goodfaith and noted the possibility of tort recovery
for all damages, even those exceeding policy
limits. The offer, which included a fifteenday deadline, proposed two options. One
option contemplated litigation only on thebad faith claim, with damages limited toeither $1 million or $3.5 million depending on
outcome. The second contemplated litigation
as to both liability and bad faith, and boundColumbia Insurance to a jury damage award,
without any right to appeal that verdict as
excessive. Columbia Insurance rejectedboth offers.

limit and filed suit, seeking a declaration thatits refusal to accept the first demand did notconstitute bad faith under South Carolina
law. The district court granted the insurer’ssummary judgment motion, and the Fourth
Circuit affirmed.
The Fourth Circuit noted that while this “waslikely a policy limits case” from the start,
the ten-day deadline in the first demand did
not afford Columbia Insurance sufficient
time to validate the extent of damages.
The court noted the absence of South
Carolina precedent on whether a lack oftime to investigate constitutes an objectively
reasonable basis for refusing a policy limits
settlement demand, but predicted that theSouth Carolina Supreme Court would findthat an insurer must be afforded reasonable
time to evaluate the risk of an excess
judgment before accepting a settlement
demand.
Additionally, the court concluded that theinsurer did not act in bad faith in refusing
the second settlement demand, which
included “non-traditional” terms set by theclaimants, including “the waiver of significant
legal rights.” Addressing this matter of first
impression under South Carolina law, thecourt deemed persuasive Florida state law
holding that an insurer’s refusal to agree tosuch “unorthodox” settlement demands does
not constitute bad faith.

STB News Alert
Susannah Geltman and Joshua Polster wereamong five Simpson Thacher partners named
to Benchmark Litigation’s sixth annual “40& Under Hot List.” The publication honors
the most notable up-and-coming litigation
attorneys in the U.S. under the age of 40 andis based on extensive research and feedback
from peers and clients.

A jury ultimately awarded the claimants $6.5
million. Columbia Insurance paid its policy
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.

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
Mary Beth Forshaw / +1-212-455-2846
mforshaw@stblaw.com and
Joshua Polster / +1-212-455-2266
joshua.polster@stblaw.com
with contributions by Karen Cestarikcestari@stblaw.com.

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