Insurance Law Alert

June 2022

In This Issue
Fifth Circuit Rules That Duty To Defend Was Never Triggered Despite
Insurer’s Knowledge Of Underlying Suit
Affirming a Texas district court decision, the Fifth Circuit ruled that an insurer did not breachits duty to defend because the insured had never requested a defense or sought coverage.
Moreno v. Sentinel Ins. Co., Ltd., 35 F.4th 965 (5th Cir. June 2, 2022). (Click here forfull article)

Texas Appellate Court Rules That Voluntary Parting Exclusion Does Not
Bar Coverage For Fraudulent Email Scam Losses“Simpson Thacher
is top of the game forcoverage litigation.”– Chambers USA 2022
(quoting a client)

A Texas appellate court ruled that a voluntary parting exclusion does not bar coverage forlosses stemming from an email impersonation scheme because it conflicts with a coverageendorsement in the policy. Cent. Mut. Ins. Co. v. Reliance Prop. Mgmt., Inc., 2022 WL 1657031(Tex. Ct. App. May 25, 2022). (Click here for full article)

Social Engineering Exclusion Bars Coverage For Policyholder’s EmailScam Losses, Says Pennsylvania District Court
A Pennsylvania district court granted an insurer’s summary judgment motion, finding that apolicy exclusion for losses caused by computer-related activities barred coverage for cyberrelated losses. Constr. Fin. Admin. Servs. LLC v. Fed. Ins. Co., 2022 WL 2073824 (E.D. Pa.
June 9, 2022). (Click here for full article)

Arbitration Clause In Reinsurance Contract Does Not Require Original
Insured To Arbitrate Claims Against Reinsurer, Texas Appellate Court
Rules
A Texas appellate court ruled that an arbitration clause in a reinsurance contract was notbinding on the original insured under the “direct benefits estoppel” doctrine. Travelers Indem.
Co. v. Alto ISD, 2022 WL 1668859 (Tex. Ct. App. May 25, 2022). (Click here for full article)

Reversing District Court, Eighth Circuit Rules That Challenge To Validity
Of Contract Must Be Arbitrated
The Eighth Circuit granted a motion to compel arbitration, ruling that a challenge to thevalidity of a contract containing an arbitration clause should be resolved by an arbitration
panel rather than a court. Benchmark Ins. Co. v. SUNZ Ins. Co., 2022 WL 1916542 (8th Cir.
June 6, 2022). (Click here for full article)

Eleventh Circuit Rules That Breach Of Contract Exclusion Unambiguously
Bars Coverage For Underlying Suit
The Eleventh Circuit ruled that an insurer had no duty to defend or indemnify underlying
losses based on a breach of contract exclusion. Ala. Space Sci. Exhibit Comm’n v. Markel Am.
Ins. Co., 2022 WL 1667904 (11th Cir. May 25, 2022). (Click here for full article)



Simpson Thacher & Bartlett LLP

1

Citing Policyholder’s Reasonable Expectations, New Jersey Appellate
Court Refuses To Enforce Policy Exclusion
A New Jersey appellate court ruled that although an exclusion in an automobile policy was
unambiguous, it was nonetheless unenforceable because it was contrary to the policyholder’sreasonable expectations. Vega v. Travelers Ins. Co., 2022 WL 1436461 (N.J. App. Div. May 6,2022). (Click here for full article)

First Circuit Certifies Coverage Question To Massachusetts Supreme
Judicial Court
The First Circuit asked the highest court of Massachusetts to address whether the state
recognizes a common law duty for insurers to cover the costs incurred by an insured to prevent
imminent covered loss in the absence of a policy provision addressing such coverage. Ken’s
Foods, Inc. v. Steadfast Ins. Co., 36 F.4th 37 (1st Cir. June 7, 2022). (Click here for full article)

Direct Action Alert: New Jersey Appellate Court Rules That Claimant Has
Standing To Sue Insurer And Broker Under State Statutory Law
Reversing a trial court decision, a New Jersey appellate court ruled that a claimant was entitledto sue his attorney’s malpractice insurer and an insurance broker under New Jersey’s direct
action statute. D’Agostino v. Colony Ins. Co., 2022 WL 1553717 (N.J. App. Div. May 17, 2022).
(Click here for full article)

Second Circuit Upholds Dismissal Of Suit Stemming From PandemicRelated Premium Reduction
Applying the filed-rate doctrine, the Second Circuit affirmed the dismissal of a putativeclass action suit stemming from an insurer’s “Giveback Program,” which provided premium
reductions during the early months of the pandemic. Grossman v. Geico Cas. Co., 2022 WL
1656593 (2d Cir. May 25, 2022). (Click here for full article)

Supreme Court Of Wisconsin Rules That Restaurants Are Not Entitled To
Business Interruption Or Civil Authority Coverage For Pandemic-RelatedLossesThe Supreme Court of Wisconsin ruled that allegations of government shutdown orders andthe physical presence of the COVID-19 virus at insured property were insufficient to state the“physical loss of or damage to” property required by the policy. Colectivo Coffee Roasters, Inc.
v. Soc’y Ins., 2022 WI 36 (June 1, 2022). (Click here for full article)

In Consolidated Appeal, New Jersey Appellate Court Affirms Dismissal Of
Policyholders’ COVID-19 Coverage SuitsA New Jersey appellate court held that insurers had no obligation to cover business losses
incurred as a result of government orders aimed at slowing the spread of COVID-19. MAC
Prop. Grp. LLC v. Selective Fire & Cas. Ins. Co., 2022 WL 2196396 (N.J. App. Div. June 20,2022). (Click here for full article)

Reversing Trial Court, Louisiana Appellate Court Rules That Restaurant’s
Pandemic-Related Business Losses Are Covered By All Risk Policy
A Louisiana appellate court ruled a trial court erred in refusing to issue a declaratory judgmentin favor of a restaurant seeking insurance coverage for its COVID-19-related losses. Cajun
Conti LLC v. Certain Underwriters at Lloyd’s, London, 2022 WL 2154863 (La. Ct. App. June15, 2022). (Click here for full article)

2Defense Alert:
Fifth Circuit Rules That Duty To
Defend Was Never Triggered
Despite Insurer’s Knowledge Of
Underlying Suit
Affirming a Texas district court decision, theFifth Circuit ruled that an insurer did notbreach its duty to defend because the insured
had never requested a defense or sought
coverage. Moreno v. Sentinel Ins. Co., Ltd., 35
F.4th 965 (5th Cir. June 2, 2022).
N.F. Painting was sued in connection with aworker’s injury. N.F. Painting did not notify
Sentinel of the suit or seek a defense andinstead independently retained counsel.
However, a co-defendant in the suit, also
insured by Sentinel, did tender its defense to
the insurer. More than two years later andafter a judgment was entered against N.F.
Painting, the underlying claimant, as thirdparty beneficiary to the policy, sued Sentinel,
seeking to recover the judgment. The district
court ruled that N.F. Painting was not entitled
to coverage since it had failed to notify
Sentinel of the suit or request a defense. The
Fifth Circuit affirmed.

papers may trigger the duty to defend “in theordinary case,” this was not an ordinary case
based on the absence of any correspondence
relating to Sentinel’s defense. Likewise, thecourt held that a letter from Sentinel to N.F.
Painting’s counsel indicating that it would
not provide a defense or indemnity did notsupport an inference that N.F. Painting had
requested a defense in light of N.F. Painting’s
clear decision to hire its own counsel rather
than seek coverage from Sentinel.
Finally, the court rejected the contention
that N.F. Painting’s non-compliance did not
relieve Sentinel of its indemnity obligations
absent a showing of prejudice. The court
explained that where notice is “whollylacking,” prejudice is not required and thatin any event, the issuance of a $1.6 million
judgment against N.F. Painting without priornotice to Sentinel constituted prejudice as amatter of law.

Cyber Alerts:
Texas Appellate Court Rules That
Voluntary Parting Exclusion Does
Not Bar Coverage For Fraudulent
Email Scam Losses
A Texas appellate court ruled that a voluntary
parting exclusion does not bar coverage forlosses stemming from an email impersonation
scheme because it conflicts with a coverageendorsement in the policy. Cent. Mut. Ins.
Co. v. Reliance Prop. Mgmt., Inc., 2022 WL
1657031 (Tex. Ct. App. May 25, 2022).

The Fifth Circuit ruled that Sentinel did notbreach its duty to defend because its defense
obligations were never triggered in the firstplace based on N.F. Painting’s failure totender defense. The court deemed it irrelevantthat Sentinel received notice of the suit fromanother insured defendant, noting that “Texas
law requires a request from the insured forwhom a defense would be provided, notsomeone else, to trigger the duty to defend.”
The court also deemed it irrelevant that
N.F. Painting’s attorney sent certain court
documents to Sentinel in response to
Sentinel’s request for that material. The court
observed that while the transmission of court

Reliance was the victim of an email scam inwhich a fraudster impersonated a company
employee and requested wire transfers.
Central Mutual Insurance denied coverage forthe loss, citing a voluntary parting exclusion,
which applied to loss resulting from the“[v]oluntary parting with any property . . . if
induced to do so by any fraudulent scheme,
trick, device or false pretense.” In a
subsequent trial, a jury entered a special
verdict finding, among other things, that
Reliance’s loss resulted from the voluntary
parting of property induced by a fraudulent
scheme. Nonetheless, the jury also found that
Reliance was entitled to $25,000 based on
Central’s violation of its duty of faith and fairdealing. After a post-verdict hearing, the court
awarded Reliance $220,000 for its principal
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loss and $25,000 in damages for the violationof good faith. The appellate court affirmed inpart and reversed in part.
The appellate court concluded that thevoluntary parting exclusion could not bereconciled with an endorsement in thepolicy that provided coverage for various
fraud-based crimes. The court noted that theendorsement expressly modified the “Causesof Loss” form in which the voluntary parting
exclusion was located, followed by only ageneral statement that all other limitations
or exclusions apply. As such, the appellate
court ruled that the trial court correctlydisregarded the jury’s verdict response as tothe voluntary parting exclusion. As discussed
in our January 2019 and March 2020 Alerts,
a few other courts have addressed applicationof a voluntary parting exclusion to cyberfraud-related losses, with one court enforcing
the exclusion to bar coverage and the otherdeeming it ambiguous.
The appellate court also addressed a forgery
provision that applied to the forgery or
alteration of “checks, drafts, promissory
notes, or similar written promises, orders ordirections to pay a sum certain in ‘money.’”
The court concluded that this language wasbroad enough to encompass fraudulent
emails and wire transfer instructions. Thisconclusion runs counter to the vast majority
of decisions in this context; most courts haveconcluded that impersonated email messages
and corresponding wire transfer instructions
are not negotiable instruments within themeaning of a forgery provision.
Finally, the court reversed the $25,000
damage award, finding that the record was
devoid of evidence to support a finding of
bad faith.

Social Engineering Exclusion Bars
Coverage For Policyholder’s EmailScam Losses, Says Pennsylvania
District Court
A Pennsylvania district court granted aninsurer’s summary judgment motion, findingthat a policy exclusion for losses caused bycomputer-related activities barred coveragefor cyber-related losses. Constr. Fin. Admin.
Servs. LLC v. Fed. Ins. Co., 2022 WL
2073824 (E.D. Pa. June 9, 2022).

Construction Financial was the victim of afraudulent scheme involving impersonating
emails, resulting in wire transfers to ahacker’s account. In effectuating thosetransfers, a Construction Financial employee
failed to follow a protocol designed toensure legitimate invoice payments. When
Construction Financial filed an insurance
claim for its loss, Federal denied coverageon the basis of exclusions that applied
to loss “based upon, arising from or inany consequence of any . . . unauthorizedaccess to, or use or alteration of, any
computer program, computer, computer
system or communication facilities that areconnected thereto.”
In response, Construction Financial argued
that the losses were proximately causedby the employee’s negligence, not theunauthorized access to computers, and that
under applicable North Carolina law, there
is coverage when there is more than one
cause of injury and only one of the causes is
excluded. Rejecting this contention, the court
held that the employee’s failure to obtainthe necessary documentation was not an
independent cause of loss. The court stated:
CFAS’s lack of receipt of proper
documentation could not have caused
the injury in question (here, thefraudulently-induced money transfers)
without the emails precipitated by the
hacker’s unauthorized access to [the]network. CFAS would not have sent thefunds to the bank account included by
the fraudster without first receiving theunauthorized emails. The existence ofthe loss did not depend on the existence(or lack thereof) of the documentation,
but rather upon the unauthorized emails.
Additionally, the court noted that theexclusion contained particularly broad
language that encompassed losses based
upon, arising out of or “in consequence ofany” computer-related losses.
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Arbitration Alerts:
Arbitration Clause In Reinsurance
Contract Does Not Require Original
Insured To Arbitrate Claims
Against Reinsurer, Texas Appellate
Court Rules
A Texas appellate court ruled that anarbitration clause in a reinsurance contract
was not binding on the original insured
under the “direct benefits estoppel” doctrine.
Travelers Indem. Co. v. Alto ISD, 2022 WL
1668859 (Tex. Ct. App. May 25, 2022).
Alto School District was insured undera property policy issued by Texas Rural
Education Association (“TREA”). In turn,
TREA obtained reinsurance for part of theunderlying property risk from Travelers.
When a dispute arose over the settlementof a claim, Alto sued TREA and Travelers,
alleging negligence, common law fraud,
misrepresentation and violation of statestatutory law. Travelers moved to dismissor stay, arguing that Alto was required toarbitrate the claims pursuant to an arbitration
clause in the reinsurance contract eventhough Alto was a not a signatory to thatagreement. A trial court disagreed and denied
the motion, and the appellate court affirmed.
The appellate court rejected Travelers’assertion that Alto was required to arbitrate
its claims against Travelers pursuant toa “direct benefits estoppel” theory, underwhich a non-signatory may be bound to anarbitration agreement if it seeks to derivea direct benefit from that agreement. The
court explained that Alto’s claims were notbased solely on the reinsurance contract,and instead arose from general obligations

imposed by state statutory and common law.
In particular, the court reasoned that Alto’s
claims against Travelers stemmed from
Travelers’ role as adjuster of the insurance
claims and sounded in tort and statutory law,rather than breach of contract. The courtemphasized that direct benefits estoppel is
not implicated “even if the claim refers toor relates to the contract or would not havearisen but for the contract’s existence.”

Reversing District Court, Eighth
Circuit Rules That Challenge To
Validity Of Contract Must Be
Arbitrated
The Eighth Circuit granted a motion tocompel arbitration, ruling that a challenge
to the validity of a contract containing an
arbitration clause should be resolved byan arbitration panel rather than a court.
Benchmark Ins. Co. v. SUNZ Ins. Co., 2022
WL 1916542 (8th Cir. June 6, 2022).
SUNZ Insurance Solutions, an affiliate of
SUNZ, entered into Program Agreementswith two Florida companies. The
Program Agreements, which set forth thebinding terms and conditions of workers
compensation policies between the parties,
contained an arbitration clause applicable
to “any controversy or claim arising out ofor relating in any way to this [Program]
Agreement or the breach or alleged breach
thereof.” However, the first page of theProgram Agreement stated that the insurance
policy would prevail in the case of any
conflict between the Program Agreement andinsurance policy. In a subsequent lawsuit
between SUNZ and several other entities, thetwo Florida companies filed crossclaims forbreach of contract. The companies alleged

5that the Program Agreements were void
because they were never filed with state
regulatory agencies. SUNZ moved to dismissthe crossclaims or alternatively compel
arbitration. A Minnesota district court denied
both motions.
The Eighth Circuit reversed, finding that the
district court erred in refusing to compel
arbitration. The court explained:
The Policy cannot be read without
the Program Agreement, which
explicitly controls the administrationof the Policy and only becomes binding
and enforceable after its execution.
While . . . the crossclaim alleges that
SUNZ breached the Policy, it is theProgram Agreement that drives thequestion of liability. And, under the
Program Agreement both parties
agreed to submit to arbitration any
disagreement regarding its terms.

breach of contract and bad faith. The district
court granted Markel’s summary judgment
motion, and the Eleventh Circuit affirmed.
The policyholder argued that the lack of
expansive language in the breach of contract
exclusion (e.g., “based upon, arising out ofor in any way involving”) as compared toother policy exclusions indicated that thebreach of contract exclusion was meant tobe construed narrowly. The court explainedthat even if construed narrowly, the exclusion
still applied because the only basis for thedamages awarded was the underlying writtenagreement. In addition, the policyholder
contended that the “plethora of allegationsof wrongdoing” in the Statement of Claimsuggested potential tort liability, separate
and apart from the breach of contract claims.
The court rejected this assertion as well,
explaining that the alleged facts did notsupport such independent causes of action.

As the court noted, issues as to a contract’s
validity must be addressed by the arbitrator
rather than the court, unless the challenge isto the arbitration clause itself, which was not
the case here.

Coverage Alerts:
Eleventh Circuit Rules That
Breach Of Contract Exclusion
Unambiguously Bars Coverage For
Underlying Suit
Affirming an Alabama district court decision,
the Eleventh Circuit ruled that an insurer had
no duty to defend or indemnify underlying
losses based on a breach of contract exclusion.
Ala. Space Sci. Exhibit Comm’n v. Markel
Am. Ins. Co., 2022 WL 1667904 (11th Cir.
May 25, 2022).
The policyholder entered into an agreement
to produce and fund a children’s television
show. When the policyholder stopped
funding, the programming company filed
an arbitration demand. Markel denied the
producer’s request for coverage based on an
exclusion for claims for “any actual or alleged
liability . . . under any written or express
contract or agreement, except to the extent
that [the policyholder] would have been liablein the absence of such contract or agreement.”
After the policyholder received an unfavorable
arbitration award, it sued Markel, alleging

Further, the court held that the exclusion
applied despite the filing of a claim for breachof the implied duty of good faith and fairbecause a breach of the duty is a breach ofcontract and Alabama law does not recognize
an independent tort arising out of a breachof contract. Finally, the court held that aquantum meruit claim was also subject to thebreach of contract exclusion, emphasizingthat when an express contract exists, there isno viable claim for quantum meruit.

Citing Policyholder’s Reasonable
Expectations, New Jersey Appellate
Court Refuses To Enforce Policy
Exclusion
A New Jersey appellate court ruled that
although an exclusion in an automobile
policy was unambiguous, it was nonethelessunenforceable because it was contrary to thepolicyholder’s reasonable expectations. Vega
v. Travelers Ins. Co., 2022 WL 1436461 (N.J.
App. Div. May 6, 2022).
6

The dispute arose when the policyholdersought coverage from St. Paul Protective
Insurance Company for injuries sustainedin an automobile accident. A St. Paul claims
adjuster initially offered the $100,000 limiton the policy, but several months later
rescinded the offer. The adjuster noted thatthe initial offer was based on a mistaken
reading of the policy and that in fact, thepolicy provided a bodily injury limit ofonly $15,000 pursuant to an intra-family
exclusion. In ensuing litigation, a New Jersey
trial court deemed the exclusion ambiguous
and contrary to New Jersey’s public policy ofcompensating victims of car accidents. The
appellate court affirmed.
Although the appellate court held that theexclusion was unambiguous, it deemed
it unenforceable as contrary to thepolicyholder’s reasonable expectations.
In particular, the court explained that thedeclarations page indicated that the limit
was $100,000 per person for bodily injury
and that nothing on the declarations pagereferenced exclusions that would operate
to reduce that limit. While the exclusion
was included under a section entitled“Exclusions,” the court concluded that itconstituted a “hidden trap” that was “buried”
in the thirty-eight page policy. Emphasizingthat if an experienced adjuster initiallybelieved the policy limit to be $100,000,
a reasonable policyholder would likewise
understand coverage to correspond with thelimits listed on the declarations sheet, thecourt stated: “A clearly worded exclusion canstill function as a hidden trap if the remainderof the policy, and particularly the declarations
sheet, would lead a reasonable policyholder to
expect different coverage.”

First Circuit Certifies Coverage
Question To Massachusetts
Supreme Judicial Court
The First Circuit asked the highest court of
Massachusetts to address whether the state
recognizes a common law duty for insurers
to cover the costs incurred by an insured
to prevent imminent covered loss in theabsence of a policy provision addressing suchcoverage. Ken’s Foods, Inc. v. Steadfast Ins.
Co., 36 F.4th 37 (1st Cir. June 7, 2022).
The coverage dispute arose after Ken’s
Foods discovered an accidental dischargeof wastewater at one of its facilities.

The company immediately addressed
the problem in cooperation with local
authorities. According to Ken’s Foods,
without such measures, it would have been
forced to suspend operations entirely or
engage specialized contractors, either at asignificantly larger cost. Steadfast refused
to cover the cost of the prevention efforts,
arguing that the policy covered only cleanup
costs and business losses resulting from asuspension of operations.
In ensuing litigation, Ken’s Foods concededthat the policy “on its face” did not coversuch preventative costs, but argued that
Massachusetts would nevertheless recognize
a common law duty on the part of insurers
to reimburse expenses incurred to prevent
imminent covered loss. The district court
disagreed and granted Steadfast’s summary
judgment motion.

On appeal, the First Circuit noted theabsence of Supreme Judicial Court decisions
on point. As the court observed, courts inother jurisdictions have reached conflicting
conclusions, with some recognizing such aduty even absent guiding policy language, andothers rejecting such an extra-contractual
obligation. As such, the First Circuit asked
the Massachusetts Supreme Judicial Court toaddress the following question of law:
To what extent, if any, does
Massachusetts recognize a common-law
duty for insurers to cover costs incurredby an insured party to prevent imminent
covered loss, even if those costs are notcovered by the policy?
We will keep you apprised of any
developments in this matter.
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Direct Action
Alert:New Jersey Appellate Court Rules
That Claimant Has Standing To Sue
Insurer And Broker Under State
Statutory Law
Reversing a trial court decision, a New Jersey
appellate court ruled that a claimant wasentitled to sue his attorney’s malpracticeinsurer and an insurance broker under New
Jersey’s direct action statute. D’Agostino v.
Colony Ins. Co., 2022 WL 1553717 (N.J. App.
Div. May 17, 2022).
D’Agostino retained an attorney to represent
him in an employment matter. When thematter resulted in an unfavorable judgment,
D’Agostino filed a legal malpractice action
against his former attorney and was awarded$330,000 in damages. Unbeknownst to
D’Agostino, the attorney was insured under aprofessional liability policy issued by Colony,which had refused to defend or indemnify
the suit. When D’Agostino was not able torecover the judgment from the attorney,
he filed a claim with the Lawyers’ Fund for
Client Protection. After the attorney died,
D’Agostino discovered the existence of theColony policy and sought reimbursement.
When the broker informed him that Colony
had previously denied coverage, D’Agostino
sued, alleging wrongful denial of coverage andbad faith.
A trial court dismissed the suit, finding that
D’Agostino lacked standing because he was
not a third-party beneficiary of the policy
nor an assignee of the rights to that policy.
The appellate court reversed, ruling that
D’Agostino had standing to file suit under
N.J.S.A. 17:28-2, New Jersey’s direct action
statute. The appellate court acknowledgedthat Colony was entitled to assert several
potential defenses to coverage, including thatthe claims were time-barred, but concluded
that the statute provided a basis for standing
against Colony.
The appellate court also held that D’Agostino
stated a claim against the broker for negligent
failure to procure appropriate professional
liability coverage, noting that New Jersey
recognizes the duty of care of brokers to“foreseeable third parties injured by thebroker’s negligence.”

Filed-Rate Alert:
Second Circuit Upholds Dismissal
Of Suit Stemming From PandemicRelated Premium Reduction
Applying the filed-rate doctrine, the Second
Circuit affirmed the dismissal of a putativeclass action suit stemming from an insurer’s“Giveback Program,” which provided
premium reductions during the early monthsof the pandemic. Grossman v. Geico Cas. Co.,
2022 WL 1656593 (2d Cir. May 25, 2022).
The complaint, which asserted causes ofaction for breach of the covenant of goodfaith and fair dealing, unjust enrichment andviolations of New York General Business Law,alleged that the insurer’s premium reduction
was inadequate, resulting in windfall profits
to the insurer, and that advertising about the
program was misleading.
The Second Circuit upheld the district court’s
dismissal of the suit based on the filed-rate
doctrine. The court held that the doctrine
squarely applied because the complaintsought a recalculation of rates that wereapproved by the New York Department of
Financial Services, regardless of the natureof the causes of action in the complaint, theculpability of the insurer or the possibility of
inequitable results.

COVID-19 Alerts:
Supreme Court Of Wisconsin Rules
That Restaurants Are Not EntitledTo Business Interruption Or Civil
Authority Coverage For PandemicRelated Losses
Reversing a lower court decision, theSupreme Court of Wisconsin ruled that
allegations of government shutdown orders
and the physical presence of the COVID-19
virus at insured property were insufficient
to state the “physical loss of or damage to”
property required by the policy. Colectivo
Coffee Roasters, Inc. v. Soc’y Ins., 2022 WI
36 (June 1, 2022).
Colectivo filed a class action complaint
against Society seeking declaratory andinjunctive relief and damages after the insurer
denied coverage for lost income claims.
8Various business owners sought coverage
under property policies containing similar
language. Each policy required “direct
physical loss of or damage to” insured
property. The court deemed this phrase
unambiguous and requiring “a detrimental
physical alteration of some kind” or “aphysical loss of the insured property.” Thecourt concluded that the policyholders failed
to satisfy this requirement, stating:A circuit court denied Society’s motion todismiss, finding that the presence of the virus
on insured property and the inability to use
property for its intended purpose constituted
allegations of physical loss or damage.
The Supreme Court of Wisconsin reversed,
ruling that those allegations were insufficient
to allege direct physical loss or damage.
In particular, the court emphasized thatviral presence does not alter property or
require repair or remediation, and that while
government orders might have restricted
use of property, a loss of use is distinct fromphysical loss or damage. The court also
rejected Colectivo’s civil authority coverageclaim for the additional reason that the
government orders did not prohibit access toinsured property.
Colectivo also sought coverage under acontamination provision that covered losses
arising from a suspension in operations andthat “results in an action by a public healthor governmental authority that prohibits
access to the [property] or production of[Colectivo’s] product.” Upholding Society’s
denial under this provision, the court notedthat even assuming that the presence of
COVID-19 constitutes “contamination,” thecoverage claim failed because the suspension
in operations was caused by government
orders rather than the virus itself.

In Consolidated Appeal, New Jersey
Appellate Court Affirms Dismissal
Of Policyholders’ COVID-19
Coverage Suits
Ruling on six consolidated appeals, a New
Jersey appellate court held that insurers
had no obligation to cover business losses
incurred as a result of government orders
aimed at slowing the spread of COVID-19.
MAC Prop. Grp. LLC v. Selective Fire & Cas.
Ins. Co., 2022 WL 2196396 (N.J. App. Div.
June 20, 2022).

[N]o plaintiff alleges the coronavirus
was present on their properties orrendered their properties uninhabitable.
Instead, plaintiffs’ businesses were shut
down or had their operations limited by
the [Executive Orders]. Each plaintiff
would have been able to continuefunctioning . . . without interruption
had Governor Murphy not issued his[Executive Orders]. None of plaintiffs’
premises required any repairs due todamage, nor needed to be relocated andthen reopened.
The court also ruled that civil authority
coverage was unavailable, reasoningthat access to insured property was not“prohibited,” as required by the policy.
Additionally, there was no damage to nearby
property; instead, the government orders
were issued in order to slow the spread of
the virus.
Finally, the court rejected the policyholders’regulatory estoppel arguments as without
merit and ruled that for several policies,
coverage was barred in any event by avirus exclusion.
Employing the same reasoning, another New
Jersey appellate court affirmed a summary
judgment ruling for an insurer on businessincome and civil authority coverage claims
this month. Rockleigh Country Club, LLC v.
Hartford Ins. Grp., 2022 WL 2204374 (N.J.
App. Div. June 21, 2022).

Reversing Trial Court, Louisiana
Appellate Court Rules That
Restaurant’s Pandemic-Related
Business Losses Are Covered By All
Risk Policy
A Louisiana appellate court ruled a trial
court erred in refusing to issue a declaratory
judgment in favor of a restaurant seeking
insurance coverage for its COVID-19-related
9

losses. Cajun Conti LLC v. Certain
Underwriters at Lloyd’s, London, 2022 WL
2154863 (La. Ct. App. June 15, 2022).
As discussed in our February 2021 Alert, therestaurant filed suit in March 2020, seeking
coverage for business loss incurred after stateand local orders restricted travel and dine-in
eating in order to slow the spread of the virus.
After a bench trial, the court issued a notice of
judgment in the insurer’s favor.

capacity and operating protocols and constantdecontamination efforts, among other things.
In addition, the court deemed the “period ofrestoration” provision ambiguous, noting thatthe term “repair” could plausibly include therestaurant’s cycle of cleaning and disinfection.
In contrast, the overwhelming majority ofcourts across the country have concluded thata “period of restoration” provision indicatesthat actual, tangible destruction or alterationis necessary to trigger coverage.

This month, the appellate court reversed,
finding the policy ambiguous as to whether it
provided coverage for the pandemic-related
losses. In particular, the court held that“direct physical loss of or damage to property”
could reasonably encompass a suspensionof normal business operations, changes to

In finding the policy ambiguous, the courtemphasized several other factors, includingthat expert testimony indicated that there wasan “overwhelming probability” that people
present at the insured property were infectedwith the virus during the relevant time period
and that the policy lacked a virus exclusion.

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

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

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

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

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

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

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

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

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

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

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

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

This edition of the
Insurance Law Alert was prepared by
Mary Beth Forshaw / +1-212-455-2846
mforshaw@stblaw.com andBryce L. Friedman / +1-212-455-2235
bfriedman@stblaw.com
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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