Insurance Law Alert

February 2020

In This Issue
Delaware Supreme Court Rules That Physical Attack Cannot Be“Accidental,” Even Where Resulting Injury Was Unintended
The Delaware Supreme Court ruled that the determination of whether an incident was an“accident” for purposes of coverage under a homeowner’s policy must focus on the intent of theinsured party, not the victim. Applying this standard, the court concluded that an intentional
assault was not a covered “occurrence” even where the assailant did not expect the resulting
death. USAA Casualty Ins. Co. v. Carr, 2020 WL 467935 (Del. Jan. 29, 2020). (Click here forfull article)“Marketleader for insurer
representation, offering
unmatched ability inhandling bet-the-company
litigation and arbitration
proceedings.”– Chambers USA
2019

Tenth Circuit Declines To Expand Limited Exceptions To “Four Corners”
Complaint Rule
The Tenth Circuit ruled that extrinsic facts could not be used to trigger an insurer’s duty to
defend where the complaint failed to allege facts giving rise to the possibility of coverage.
Chavez v. Arizona Auto. Ins. Co., 947 F.3d 642 (10th Cir. 2020). (Click here for full article)

Missouri Court Addresses Horizontal Exhaustion And “Drop Down”
Obligation Following Primary Insurer’s Insolvency
Applying California law, a Missouri federal district court ruled that language in excess policies
was ambiguous as to whether it required excess insurers to “drop down” and provide coveragefollowing a primary insurer’s insolvency. In addition, the court ruled that coverage under theexcess policies was contingent upon horizontal exhaustion of all applicable primary policies,
but that issues of fact existed as to the period of continuous loss. O’Reilly Auto Enters. v. U.S.
Fire Ins. Co., 2020 WL 520129 (W.D. Mo. Jan. 31, 2020). (Click here for full article)

Nebraska Supreme Court Rules That Professional Services Exclusion
Does Not Bar Coverage For Civil Rights Claims Against Law Enforcement
AgentsThe Nebraska Supreme Court ruled that a professional services exclusion did not apply to civilrights claims against a county and law enforcement officers. Gage County v. Employers MutualCasualty Co., 304 Neb. 926 (2020). (Click here for full article)

Professional Services Exception To Policy Exclusion Restores Coverage
For Email Phishing Claims, Says New York Court
Applying Connecticut law, a New York federal district court ruled that a policy exclusion
did not bar coverage for cyber-fraud losses because a professional services exception to the
exclusion restored such coverage. SS&C Technology Holdings, Inc. v. AIG Specialty Ins. Co.,
2020 WL 509028 (S.D.N.Y. Jan. 31, 2020). (Click here for full article)

Simpson Thacher & Bartlett LLP1

Denying Cross-Motions For Summary Judgment, Virginia Court
Addresses Novel Issues In Cyber Coverage Dispute
A Virginia federal district court addressed several novel cyber-related coverage issues,
including the following: which act constitutes the operative “occurrence” in an email phishing
scheme; the number-of-occurrences presented by cyber claims; the location of the occurrence
for purposes of a territory provision; and the scope of admissible cybersecurity expert
testimony. Quality Plus Svs., Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2020 WL
239598 (E.D. Va. Jan. 15, 2020). (Click here for full article)

Notwithstanding “Relative Exposure” Policy Language, Delaware Court
Rules That “Larger Settlement Rule” Controls Allocation
A Delaware court ruled that allocation of settlement payments between covered and noncovered payments must be based on the “Larger Settlement Rule,” notwithstanding policy
language referencing the insured’s “relative legal and financial exposure” with respect todefense and settlement costs. Arch Ins. Co. v. Murdock, No. N16C-01-104 (Del. Super. Ct. Jan.
17, 2020). (Click here for full article)“Related Acts” Provision And “Prior Acts” Exclusion Do Not Relieve
Insurer Of Duty To Defend Shareholder Derivative Suit, Says
Pennsylvania Court
A Pennsylvania federal district court ruled that a D&O insurer was obligated to defend ashareholder derivative suit, finding that a “related acts” provision and a “prior acts” exclusion
did not bar coverage. Vito v. RSUI Indem. Co., 2020 WL 424592 (E.D. Pa. Jan. 27, 2020).
(Click here for full article)

California Appellate Court Rules That Non-Signatory Is Bound By
Arbitration Clause In Insurance Policy
Reversing a trial court decision, a California appellate court ruled that a non-signatory to an
insurance policy was bound by an arbitration clause contained therein. Philadelphia Indem.
Ins. Co. v. SMG Holdings, Inc., 2019 WL 7790891 (Cal. Ct. App. Dec. 31, 2019). (Click here forfull article)2

Occurrence Alert:

Delaware Supreme Court Rules
That Physical Attack Cannot Be“Accidental,” Even Where Resulting
Injury Was Unintended
Abrogating contrary Delaware case law,the Delaware Supreme Court ruled that thedetermination of whether an incident wasan “accident” for purposes of coverage undera homeowner’s policy must focus on theintent of the insured party, not the victim.
Applying this standard, the court concluded
that an intentional assault was not a covered“occurrence” even where the assailant did not
expect the resulting death. USAA Casualty
Ins. Co. v. Carr, 2020 WL 467935 (Del. Jan.
29, 2020).
Amy Joyner-Francis suffered sudden cardiac
death after being assaulted by Trinity Carr.
Evidence in a criminal trial demonstrated
that the assault was a contributing causeof the victim’s death and that death was a“result outside the risk of which Carr shouldhave been aware.” Following the criminal
trial, Carr was named as a defendant in a civilsuit. USAA, which provided homeowner’s
insurance to Carr’s mother, sought adeclaration that it had no duty to defend
or indemnify.
The Delaware Supreme Court ruled that
USAA had no duty to defend or indemnify thesuit against Carr. The court held that JoynerFrancis’s death was not an “occurrence,”
defined as “an accident . . . which
results . . . in . . . bodily injury.” The court
explained that the determination of whether
an incident constitutes an accident must be
made from the insured’s perspective, rather
than the victim’s. Therefore, because Carrintended the physical attack, it could not
be deemed accidental. The court rejected
Carr’s assertion that the resulting death was
accidental because it was not foreseeable,
stating that “the question is whether the
events that caused [the victim’s] death wereaccidental, not whether the death itself wasan accident.”
Additionally, the Delaware Supreme
Court ruled that even if the attack could
be construed as an “occurrence,” coverage
would be excluded by a clause that applies
to injury “which is reasonably expected orintended by any insured even if the resulting

bodily injury . . . is of a different kind,
quality or degree than initially expected orintended.” The court deemed this provisionunambiguous, finding the meaning of the
exclusion to be clear: coverage is excluded
where the insured intended to cause someinjury, even if the actual resulting injury was
more or less serious than intended.

Duty To Defend
Alert:

Tenth Circuit Declines To Expand
Limited Exceptions To “FourCorners” Complaint Rule
The Tenth Circuit ruled that extrinsic facts
could not be used to trigger an insurer’s duty
to defend where the complaint failed to allege
facts giving rise to the possibility of coverage.
Chavez v. Arizona Auto. Ins. Co., 947 F.3d
642 (10th Cir. 2020).
The coverage dispute arose out of a car
accident in which Marlena Whicker rearended a taxi, injuring its passenger. At thetime of the accident, Whicker was livingwith the owner of the vehicle, but was notlisted as an insured on the automobile
policy. However, the policy covered drivers
who were using the vehicle with a named
insured’s permission. The injured passenger,
as assignee of Whicker, sued the automobile
insurer, seeking payment for a $700,000
default judgment that had been issued in thetort litigation.
The Tenth Circuit dismissed the complaint
against the insurer, ruling that the underlying
complaint did not trigger the insurer’s duty
to defend. More specifically, the court heldthat the complaint’s failure to plausibly allege(or raise an inference) that Whicker was apermissive insured under the policy was fatal
to the request for a defense. In so ruling, thecourt reiterated Colorado’s “four corners”
complaint rule, under which the duty to
defend arises only when the allegations in thecomplaint create the possibility of coverage
under the relevant policy. The court declined
to consider extrinsic evidence bearing on
Whicker’s potential status as a permissive
driver, noting that the Tenth Circuit hasrecognized only two narrow exceptions to the3

“four corners” rule (permitting considerationof “indisputable [extrinsic] facts” and facts
known from “parallel judicial proceedings”),
neither of which applied here.

Excess Alert:

Missouri Court Addresses
Horizontal Exhaustion And “DropDown” Obligation Following
Primary Insurer’s Insolvency
Applying California law, a Missouri federal
district court ruled that language in excess
policies was ambiguous as to whether it
required excess insurers to “drop down”
and provide coverage following a primary
insurer’s insolvency. In addition, the court
ruled that coverage under the excess policies
was contingent upon horizontal exhaustion of
all applicable primary policies, but that issuesof fact existed as to the period of continuous
loss. O’Reilly Auto Enters. v. U.S. Fire
Ins. Co., 2020 WL 520129 (W.D. Mo. Jan.
31, 2020).
The coverage dispute arose out of underlying
asbestos-related claims. O’Reilly, successorin-interest to the original policyholder,sought a declaration regarding the defense
and indemnity obligations of excess
insurers Columbia Casualty Company andContinental Casualty Company. The excess
insurers sought summary judgment on two
issues: (1) that they were not obligated to“drop down” due to the insolvency of Home
Insurance Company, the primary insurer
underlying both excess policies; and (2) thatthey owed no duty to defend or indemnity
under the principle of horizontal exhaustion
because other primary policies (issued byUnited States Fire) were not exhausted. The
court denied the motion.
The court ruled that excess policy language
was ambiguous as to the excess insurers’ duty
to “drop down” following Home’s insolvency.
The court explained that policies can preclude“drop down” obligations if they expressly
state that excess liability is triggered when
primary insurance is “exhausted by paymentof the underlying policy limit.” However,
the excess policies at issue contained thefollowing language: “if the applicable limitof liability of the underlying insurance is lessthan as stated in the schedule of underlying

insurance because the aggregate limit ofliability of the underlying insurance has
been reduced this policy becomes excess ofsuch reduced limit of liability.” The court
deemed the term “reduced” ambiguous,
explaining that it may or may not include
reduction by Home’s insolvency. Construing
this ambiguity in favor of coverage, the court
ruled that the excess insurers were obligatedto bear the risk of Home’s insolvency. In soruling, the court rejected the excess insurers’
contention that a separate “loss” provision,
which defined loss as “sums paid as damages
in settlement of a claim or in satisfaction of ajudgment,” operated to preclude “drop down”
coverage absent actual payment by underlying
insurance.

With respect to horizontal exhaustion, thecourt noted that under California law, thepresumption is that excess coverage does not
attach until all applicable primary policies
have been exhausted. To overcome thispresumption, a policy must include language
stating that it is “excess to a specificallydescribed policy and that coverage attaches
only when the limits of the specific policy
are exhausted.” The excess policies did notcontain this language. Rather, they defined“loss” as sums paid after deductions for “allrecoveries, salvages and other insurances.” In
addition, other provisions referenced “otherinsurance,” further supporting the position
that the excess policies were not intended toattach until all primary insurance had been
exhausted.
Notwithstanding this finding, the court heldthat it was not in a position to grant the excess
insurers’ summary judgment motion as towhether their obligations were subject to theexhaustion of U.S. Fire’s primary policies.
The court explained that “the principles ofhorizontal exhaustion apply only where theperiod of continuous loss is the same for the4primary and excess policies at issue.” Here,the excess insurers failed to show the absenceof a genuine dispute regarding the periodof continuous loss and whether it spanned
coverage periods in which U.S. Fire issued
primary policies.

Professional
Services Alert:

Nebraska Supreme Court Rules
That Professional Services
Exclusion Does Not Bar Coverage
For Civil Rights Claims Against Law
Enforcement Agents
The Nebraska Supreme Court ruled that a
professional services exclusion did not apply
to civil rights claims against a county andlaw enforcement officers. Gage County v.
Employers Mutual Casualty Co., 304 Neb.
926 (2020).
Six individuals who spent nearly two
decades in prison for crimes they did notcommit alleged civil rights violations against
Gage County, several county offices andcertain individual law enforcement officers(collectively “Gage County”). Gage County
thereafter sought defense and indemnity
under a general liability policy and anumbrella policy issued by Employers MutualCasualty Company, both of which contained
professional services exclusions. A Nebraska
district court granted the insurer’s summary
judgment motion, ruling that the exclusions
barred coverage. The district court reasoned
that “professional services” encompasses
conduct that involves specialized knowledge,
training and experience, including law
enforcement services. The Nebraska Supreme
Court reversed.
The parties disputed the correct legal
standard for determining whether underlying
conduct constitutes “professional services.”
Gage County argued that “professional” must
be interpreted in accordance with case law
involving Nebraska’s statute of limitations
for professional negligence claims, Neb.
Rev. Stat. § 25-222 (2016). In contrast,
the insurer argued that insurance case law
involving professional liability policies wascontrolling. The court declined to resolve

this dispute, stating that “[t]his case does
not require us to import definitions from ourcase law to answer the question of whether
law enforcement is considered a profession,
because the plain language of the [Employers
insurance] policies answers that question.”
The court explained that when the Employers
policies are read together “as a whole,” it isclear that the professional services exclusions
are not intended to apply to acts of law
enforcement. Although the general liability
policy did not define “professional services,”the umbrella policy and a linebacker policy(not at issue) contained a list of professions
encompassed by the exclusion which did notinclude law enforcement. In addition, theumbrella policy listed law enforcement as an“occupation” under a separate occupations
liability exclusion. According to the court,
these provisions indicate that the parties
understood law enforcement to be outside thescope of the professional services exclusion.

Cyber Alerts:

Professional Services Exception To
Policy Exclusion Restores Coverage
For Email Phishing Claims, Says
New York Court
Applying Connecticut law, a New York federal
district court ruled that a policy exclusion
did not bar coverage for cyber-fraud losses
because a professional services exception to
the exclusion restored such coverage. SS&C
Technology Holdings, Inc. v. AIG Specialty
Ins. Co., 2020 WL 509028 (S.D.N.Y. Jan.
31, 2020).
SS&C, a financial technology company,
provided business processing management
services to Tillage Commodities Fund. SS&C
fell prey to an email phishing scheme inwhich “spoof” emails purportedly from Tillage
requested wire transfers. Before the fraud
was discovered, SS&C sent nearly $6 million
of Tillage’s funds to bank accounts in HongKong. Tillage sued SS&C, alleging negligenceand breach of contract, among other causes ofaction. SS&C sought defense and indemnity
under a Specialty Risk Protector Policy. The
insurer agreed to defend SS&C, but refused toindemnify the settlement between Tillage andSS&C.
5The policy’s Modified Investment Advisor
Exclusion applied to:
Loss in connection with a Claimmade against an Insured alleging. . . the exercise of any authority or
discretionary control by an Insured
with respect to any client’s funds or
accounts. Provided, however, that thisexclusion shall not apply to any Claimarising out of your performance ofProfessional Services. Notwithstanding
the foregoing sentence, it is expressly
understood and agreed that there
shall be no coverage for the monetary
value of any funds lost due to theInsured’s exercise of such authority or
discretionary control . . . .
The parties agreed that the “Provided,
however” exception to the exclusion applied
because the Tillage action arose out of SS&C’s
professional services. The central issue indispute was whether the “Notwithstanding”
sentence, which operated as a “carve out” tothe exception, was applicable. The court heldthat it was not. The court explained that theagreement between Tillage and SS&C did
not give SS&C “authority or discretionary
control” over Tillage’s funds. Although SS&C
had administrative privileges (i.e., the ability
to transfer funds at the direction of Tillage),
SS&C had no independent authority to act
without Tillage’s approval. Additionally, thecourt held that the “Notwithstanding” clause
was ambiguous as to whether “funds lost”
encompassed funds that were stolen. As such,the court resolved this ambiguity in SS&C’s
favor and granted its summary judgment
motion on its breach of contract claim.
However, the court dismissed SS&C’s claim
alleging breach of the implied covenant ofgood faith and fair dealing. The court statedthat while the insurer’s coverage position was
found to be “lacking in merit,” it was “not so
totally frivolous as to warrant the inference
that it was made in bad faith.”

Denying Cross-Motions For
Summary Judgment, Virginia Court
Addresses Novel Issues In Cyber
Coverage Dispute
Most recent cyber-coverage decisions havefocused on interpretation of Computer Fraud
provisions. See January 2020 Alert; May2019 Alert; July/August 2018 Alert; May2018 Alert. In a decision issued last month,a Virginia federal district court addressed
other issues that may arise in the cyber claim
context: which act constitutes the operative“occurrence” in an email phishing scheme; thenumber-of-occurrences presented by cyber
claims; and the location of the occurrence forpurposes of a territory provision. In addition,
the court ruled on the scope of admissible
expert testimony in this context. Quality Plus
Svs., Inc. v. National Union Fire Ins. Co. of
Pittsburgh, PA, 2020 WL 239598 (E.D. Va.
Jan. 15, 2020).
Over the course of about two weeks, aQuality Plus employee received five emails,
purportedly from the President of thecompany, instructing her to make wiretransfers to banks in Mexico and Hong Kong.
After the payments were made, Quality Plus
discovered that the emails were fraudulent
and sought coverage under a Funds Transfer
Fraud provision. The provision, which
covered loss “resulting directly from a
Fraudulent Instruction directing a financial
institution to transfer, pay or deliver Funds,”
contained a $1,000,000 per occurrence limit
with a $10,000 deductible.

6

National Union argued that Funds Transfer
Fraud coverage was inapplicable and thatseveral exclusions barred coverage. In
addition, National Union claimed that a
Territory Condition, which limited coverage
to loss “resulting directly from an Occurrence
taking place within the United States ofAmerica,” precluded coverage.
The court ruled that the operative“occurrence” was the transmission of theemails by the criminals (rather than Quality
Plus’s instructions to the banks to transfer
the funds). However, the court ruled thatcoverage could not be decided as a matter oflaw based on the following disputed issuesof fact:
The Location From Which The Sender
Transmitted The Emails: National Union
argued that the terms of the Territory
Condition were not met because evidence
indicated that the fraudulent emails weresent from Nigeria. In response, Quality Pluscontended that the IP addresses could havebeen fabricated and proffered testimonythat one of the purported hackers “sounded
American, with no identifiable accent” duringa phone call with Quality Plus’s President.
Emphasizing that the location of the origin of
the emails would be outcome determinative
as to coverage, the court denied summary
judgment on this issue.
The Number Of Occurrences: The policy
defined “Occurrence” as an act or event,or combination or series of acts of events“committed by the same person acting alone
or in collusion with other persons.” Quality
Plus argued that the losses resulted fromfive separate occurrences because different
individuals were responsible for sending
each fraudulent email. It emphasized thatthe emails contained at least four different
signature blocks and that the five transactions
occurred over a seventeen-day period andinvolved four different banks in two countries.
In contrast, National Union claimed that
there was only one occurrence because
the emails were sent by the same person
acting alone or in concert with others, asevidenced by the common IP addresses andother similarities. The court concluded thatthe number-of-occurrences issue should
be decided by the finder of fact, based onevidence relating to common identifying
characteristics (or lack thereof) in the emails.

Finally, the court denied Quality Plus’s
motion to exclude National Union’s expert
witness. The expert’s opinion supported
National Union’s contention that the emails
were similar to each other and were sentfrom Nigeria. The court ruled that the expert
met the standards set forth in Federal Ruleof Evidence 702, finding that his specialized
cybersecurity knowledge would help the trierof fact to understand the evidence and that
his opinions were based on reliable principles
and methods.

D&O Alerts:

Notwithstanding “Relative
Exposure” Policy Language,
Delaware Court Rules That
“Larger Settlement Rule” Controls
Allocation
A Delaware court ruled that allocation of
settlement payments between covered andnon-covered payments must be based on the“Larger Settlement Rule,” notwithstanding
policy language referencing the insured’s“relative legal and financial exposure” withrespect to defense and settlement costs. Arch
Ins. Co. v. Murdock, No. N16C-01-104 (Del.
Super. Ct. Jan. 17, 2020).
The dispute arose out of underlying
shareholder litigation against Dole Food
Company and its executives. The lawsuits
were settled for a total of $222 million.
Previous rulings in this matter addressedvarious coverage issues under policies in
Dole’s insurance program. In the present
motion, the court addressed allocation of thesettlement payments.
7

A policy provision addressing the allocation of
insurance coverage stated that:
If in any Claim, the Insureds who areafforded coverage for such Claim incur
Loss jointly with others (including
other Insureds) who are not afforded
coverage for such Claim, or incur anamount consisting of both Loss coveredby this Policy and loss not coveredby this Policy because such Claim
includes both covered and uncovered
matters, then the Insureds and theInsurer agree to use their best efforts todetermine a fair and proper allocationof covered Loss . . . . In making suchdetermination, the parties shall take
into account the relative legal andfinancial exposures of the Insureds inconnection with the defense and/or
settlement of the Claim.
The insurers argued that the provision
requires allocation between covered anduncovered loss (the “relative exposure” rule),
and that the Dole parties bear the burdenof proving whether and to what extent a
settlement payment pertains to a covered loss.
In contrast, the Dole parties asserted that
the Larger Settlement Rule applies, underwhich the entire amount of the settlement
is recoverable unless the insurers are able
to establish that some uncovered liability
increased the overall settlement amount.

The court deemed the allocation provisionunambiguous, but “mostly unhelpful.” Thecourt explained that the provision relates
only to a situation in which the parties
work together to arrive at a “fair and proper
allocation,” and does not address the situation
presented here, where the parties havefailed to agree on allocation and leave that
determination to the court. Absent language
providing guidance, the court concluded

that the Larger Settlement Rule must apply.
In so ruling, the court noted that policy
language covers “all Loss that the Insured(s)become legally obligated to pay” and does
not limit coverage based on “[a]ny typeof pro rata or relative exposure analysis.”
The court emphasized that the insurers
retained their subrogation rights under thepolicies to seek payment from uncovered
underlying defendants.

“Related Acts” Provision And“Prior Acts” Exclusion Do Not
Relieve Insurer Of Duty To Defend
Shareholder Derivative Suit, Says
Pennsylvania Court
A Pennsylvania federal district court ruledthat a D&O insurer was obligated to defend
a shareholder derivative suit, finding thata “related acts” provision and a “prior acts”
exclusion did not bar coverage. Vito v. RSUI
Indem. Co., 2020 WL 424592 (E.D. Pa. Jan.
27, 2020).
In April 2017, a minority shareholder of
Unequal Technologies Company sent thecompany an inspection of records demand.
In June 2018, the shareholder filed suitagainst the company, two directors and otheraffiliated entities. The complaint alleged thatthe shareholder was deprived of an electedseat on the board and that one of the directors
engaged in various acts of fraud. RSUI, thecompany’s D&O insurer, refused to defend.
The insurer argued that another shareholder’s2015 demand letter and 2016 derivative suit
were “prior related acts” that, together withthe 2018 action, constitute one interrelated
claim that was first made prior to RSUI’s
2017-2018 policy period. In support of thisassertion, RSUI pointed to eight overlapping
allegations between the two law suits.
Alternatively, the insurer argued that the2018 shareholder suit was based on wrongfulacts that occurred before the first policy wasissued in 2013.
The court rejected these assertions. The
court acknowledged the similarities between
the 2016 action and the current suit, but
concluded that “significant differences”
rendered them separate claims. In particular,
the court noted that the prior action sought
different relief, involved different parties andwas based on a more limited set of factual
allegations. Moreover, the court noted that8

“at its core,” the later suit was based on thecompany’s alleged refusal to give the minority
shareholder a seat on the board in 2017—an
issue not raised in the 2016 shareholder suit.
In addition, the court dismissed RSUI’s
argument that the “prior acts” exclusion
barred coverage because numerous events
pre-dating the first policy (issued in 2013)
formed the basis of the 2018 suit. The court
deemed it irrelevant that some counts inthe 2018 action were based on conduct that
occurred prior to 2013, emphasizing thatmuch of the alleged wrongdoing occurred
during or after 2017 and that the pre-2013
conduct was “not a necessary ‘but for’ cause of
the [2017] election claims.”

Arbitration Alert:

California Appellate Court Rules
That Non-Signatory Is Bound By
Arbitration Clause In Insurance
PolicyReversing a trial court decision, a California
appellate court ruled that a non-signatory
to an insurance policy was bound by anarbitration clause contained therein.
Philadelphia Indem. Ins. Co. v. SMG
Holdings, Inc., 2019 WL 7790891 (Cal. Ct.
App. Dec. 31, 2019).

The appellate court concluded that SMG
could be compelled to arbitrate because it
was an intended third-party beneficiary of thepolicy. The court explained that beneficiarystatus was demonstrated by policy language
covering “managers,” and because thelicense agreement for use of the Convention
Center required Farmers to name SMG as
an additional insured. In addition, the court
ruled that SMG was estopped from arguingthat it was not bound by the arbitration
clause because it had sought to benefit
from the policy by tendering defense to
Philadelphia Indemnity.
Conversely, the court ruled that Philadelphia
Indemnity was not equitably estopped fromenforcing the arbitration clause against SMG.
The court explained that the insurer did notargue that SMG was not an insured under
the policy, but instead denied coverage basedon the location of the accident giving riseto injury. Finally, the court rejected SMG’s
assertion that the arbitration clause waslimited to disputes between Philadelphia
Indemnity and Future Farmers because thearbitration clause referred to “the insured”(rather than “any insured” or “an insured”).
The court stated: “by the policy’s terms, SMG
is an ‘insured’ by virtue of it being a manager
and a party required by contract to becovered. That SMG is not the named insured
is of no consequence.”

Future Farmers of America licensed useof the Fresno Convention Center for an
event. In connection with the license,
Future Farmers obtained insurance from
Philadelphia Indemnity that covered itself
as well as “managers, landlords, or lessors ofpremises” and any organization “as requiredby contract.” During the event, an attendee
was injured in the parking lot. When theattendee sued SMG Holdings, the property
manager of the Convention Center andparking lot, Philadelphia Indemnity refused
to defend, arguing that SMG was not covered
for an injury that occurred in the parking
lot. Thereafter, Philadelphia Indemnity
moved to compel arbitration pursuant to anarbitration clause in the policy. A trial court
denied the petition, ruling that SMG was nota third-party beneficiary of the policy andthat Philadelphia Indemnity was equitably
estopped from forcing SMG to arbitratebecause it had denied SMG’s tender. The
appellate court reversed.
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

Elisa Alcabes+1-212-455-3133
ealcabes@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
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Lynn K. Neuner+1-212-455-2696
lneuner@stblaw.com

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

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jonathan.menitove@stblaw.com

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ckronenberg@stblaw.com

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cwaldman@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
mforshaw@stblaw.com /+1-212-4552846 and Bryce L. Friedman
bfriedman@stblaw.com /+1-212-4552235 with contributions
by Karen Cestarikcestari@stblaw.com.

The contents of this publication are for informational purposes only. Neither this publication nor the
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Los Angeles, CA 90067+1-310-407-7500
Palo Alto
2475 Hanover Street
Palo Alto, CA 94304+1-650-251-5000
Washington, D.C.
900 G Street, NW
Washington, D.C. 20001+1-202-636-5500

ASIA

Beijing
3901 China World Tower A
1 Jian Guo Men Wai Avenue
Beijing 100004
China+86-10-5965-2999
Hong Kong
ICBC Tower
3 Garden Road, Central
Hong Kong+852-2514-7600
Tokyo
Ark Hills Sengokuyama Mori Tower
9-10, Roppongi 1-Chome
Minato-Ku, Tokyo 106-0032
Japan+81-3-5562-6200

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