Insurance Law Alert

September 2018

In This Issue
Business Interruption Coverage In The Wake Of Florence
As North and South Carolina and other coastal states grapple with the devastation caused
by Hurricane (turned Tropical Storm) Florence, affected companies will likely seek businessinterruption coverage to alleviate their losses. (Click here for full article)“They are avery high-class,strategic andimpressive firm.”– Chambers USA 2018(quoting a client)

New York And Delaware Courts Address Whether Disgorgement
Payments Are Covered Under Liability Policies
The Delaware Supreme Court ruled that class action settlement payments were notuninsurable disgorgement under New York law, whereas a New York appellate court held thata disgorgement payment to the Securities and Exchange Commission was not a covered “loss.”
In re: TIAA-CREF Ins. Appeals, 2018 WL 3620873 (Del. July 30, 2018); J.P. Morgan Sec., Inc.
v. Vigilant Ins. Co., 2018 WL 4494692 (N.Y. App. Div. 1st Dep’t Sept. 20, 2018).
(Click here for full article)

Department Of Justice Files Statement Of Interest Regarding Fraud And
Mismanagement Of Asbestos Trust

Insurance
Litigation
Department of
the Year– New YorkLaw Journal
2018

The Department of Justice filed a Statement of Interest in In re Kaiser Gypsum Co., No.
16-31602 (Bankr. W.D.N.C. 2016), relating to the management and transparency of asbestos
trusts, emphasizing the need for accountability and proper administration in order to protect
against fraud and abuse. (Click here for full article)

Ohio Rejects ALI’s Restatement Of Law, Liability Insurance
In an unprecedented move, Ohio expressly rejected the Restatement of Law on Liability
Insurance, deeming it not authoritative under Ohio law and against Ohio public policy.
(Click here for full article)

Applying Tennessee Law, Delaware Court Rules That Insurer Is Entitled
To Reimbursement Of Defense Costs
A Delaware state court ruled that, under Tennessee law, an insurer has a right toreimbursement of defense costs following a judicial determination that there was no duty to
defend, where the insurer preserved such a claim. Catlin Specialty Ins. Co. v. CBL & Assocs.
Props., Inc., 2018 WL 3805868 (Del. Super. Ct. Aug. 9, 2018). (Click here for full article)


Simpson Thacher & Bartlett LLP

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Law Firm Not Entitled To Coverage For Violation Of Privacy Claims, Says
Fourth Circuit
The Fourth Circuit ruled that an insurer had no duty to defend a law firm in class action suits
alleging violation of federal privacy laws. Hartford Cas. Ins. Co. v. Ted A. Greve & Assocs.,
2018 WL 3752235 (4th Cir. Aug. 7, 2018). (Click here for full article)

Kentucky Supreme Court Rules That Intentional Acts, Even If Based On
Mistaken Beliefs, Are Not Covered Occurrences
The Supreme Court of Kentucky ruled that a mining company’s unauthorized removal ofminerals from an adjacent farm based on its mistaken beliefs regarding property lines was nota covered occurrence under a liability policy. Am. Mining Ins. Co. v. Peters Farms, LLC, 2018
WL 3913781 (Ky. Aug. 16, 2018). (Click here for full article)

Supreme Judicial Court Of Maine Says That Lower Court Erred In Finding
That School Assault Injuries Were Not Expected Or Intended
The Supreme Judicial Court of Maine ruled that injuries resulting from an attack on a highschool student were expected and intended and thus excluded from coverage under a liability
policy. Vermont Mut. Ins. Co. v. Ben-Ami, 2018 ME 125 (Aug. 21, 2018).
(Click here for full article)

Nevada Court Rules That Losses Arising From Employee Theft Are Not
Covered By Crime Policy
A Nevada federal district court ruled that a night club was not entitled to coverage under acommercial crime policy for losses arising from a theft scheme orchestrated by employees. CP
Food & Beverage, Inc. v. U.S. Fire Ins. Co., 2018 WL 3993408 (D. Nev. Aug. 6, 2018).
(Click here for full article)

Massachusetts Supreme Judicial Court Rules That Celebrity’s Name Is“Advertising Idea” For Purposes Of Advertising Injury Coverage
The Supreme Judicial Court of Massachusetts ruled that a company’s use of a famed marathon
runner’s name to advertise its running shoes constituted use of another’s “advertising idea” forpurposes of advertising injury coverage. Holyoke Mut. Ins. Co. in Salem v. Vibram USA, Inc.,2018 WL 4344538 (Mass. Sept. 12, 2018). (Click here for full article)

Insurer’s Equitable Subrogation Claim Not Subject To Statute Of
Limitations, Says Connecticut Appellate Court
A Connecticut appellate court ruled that an insurer’s equitable subrogation claim against
alleged tortfeasors was not subject to two statutes of limitations applicable to the underlying
negligence claims. Gov’t Employees Ins. Co. v. Barros, No. 184 Conn. App. 395 (Aug. 28,2018). (Click here for full article)

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Hurricane Alert:

Business Interruption Coverage
In The Wake Of Florence
As North and South Carolina and othercoastal states grapple with the devastation
caused by Hurricane (turned Tropical Storm)
Florence, affected companies will likely seekbusiness interruption coverage to alleviate
their losses. Business interruption coverage
generally applies to losses an insured sustains
due to the necessary suspension of operations
as a result of a covered peril. The suspensionof business operations may be due to physicaldamage to the business itself, a civil authority
order preventing the business from operating,or damage to a third-party supplier of goods
or services that the business relies on.
In order for business interruption coverage
to apply, the insured typically must establishthat it was necessary to suspend its business
operations. Some courts interpret asuspension of operations to include either apartial or complete interruption of business.
See Prudential LMI Commercial v. Colleton
Enterprises, Inc., 976 F.2d 727 (4th Cir.
1992); Fountainbleau 2006, LLC v. UnitedStates Fire Ins. Co., 2010 WL 11597704 (N.D.
Ga. Dec. 21, 2010). Other courts, however,
have interpreted suspension to require acomplete cessation of activity, such that losses
arising from reduced hours of operation,for example, are not covered. See Quality
Oilfield Prods., Inc. v. Michigan Mut. Ins.
Co., 971 S.W.2d 635, 638 (Tex. App. 1998).
Additionally, policy language often requiresthat the suspension of business was due to a“direct physical loss or damage to” covered
property. Fountainbleau, 2010 WL 11597704;
Ne. Georgia Heart Ctr., P.C. v. Phoenix Ins.
Co., 2014 WL 12480022 (N.D. Ga. May 23,2014).
Storm-related business losses may also
implicate civil authority provisions, which
provide coverage when a civil authority orderprohibits access to the insured’s premises due
to direct physical loss or damage to property.
Assurance Co. of Am. v. BBB Serv. Co., 265
Ga. App. 35 (2002). For coverage undercivil authority provisions, courts generally
require a complete denial of access to thecovered property. See Paradies Shops, Inc.
v. Hartford Fire Ins. Co., 2004 WL 5704715(N.D. Ga. Dec. 15, 2004) (finding an ordergrounding all flights after September 11th

was not an order that specifically prohibited
access to stores in airports); Abner, Herrman& Brock, Inc. v. Great N. Ins. Co., 308 F.
Supp. 2d 331 (S.D.N.Y. 2004) (concludingthat traffic restrictions which merely made itdifficult for customers to access the covered
property were insufficient to implicate
business interruption indemnity); 730
Bienville Partners, Ltd. v. Assurance Co. ofAm., 2002 WL 31996014 (E.D. La. Sept. 30,2002) (finding no coverage where the FAA
prohibited flights into the affected city but
there was no order prohibiting access to theinsured’s hotel).
Furthermore, civil authority coverage is
generally available only when the order was
made because property was actually damaged;
a mere threat of damage is insufficient. See
Assurance Co. of Am., 265 Ga. App. 35;
Paradies Shops, Inc., 2004 WL 5704715.
Moreover, courts typically require a sufficientcausal nexus between the civil order and theproperty damage in order to find coverage
under a civil authority provision. Dickie
Brennan & Co. v. Lexington Ins. Co., 636 F.3d
683 (5th Cir. 2011); S. Texas Med. Clinics,
P.A. v. CNA Fin. Corp., 2008 WL 450012(S.D. Tex. Feb. 15, 2008).

Policyholders may also seek coverage forstorm-related losses under a contingent
business interruption (“CBI”) policy
provision. CBI coverage applies to losses
incurred by policyholders as a result of
damage to the property of a third-party
that supplies goods or services to thepolicyholder’s business. Many CBI provisions
require the third party to be a direct supplierto the policyholder. In such cases, theexistence of an intermediate entity in the
supply chain would preclude CBI coverageeven where an indirect supplier sustains
property damage that prevents the transfer ofgoods or services. See Millennium Inorganic
Chemicals Ltd. v. Nat’l Union Fire Ins. Co. of
Pittsburgh, PA, 744 F.3d 279 (4th Cir. 2014).
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Finally, issues relating to the proper measureof recovery are often raised in the context
of business interruption coverage disputes.
More specifically, courts have addressed theappropriate measure of recovery for businessinterruption losses as well as the standard of
proof for establishing lost profits. Althoughspecific policy language and governing law
may be outcome determinative in any given
case, courts have generally held that businessinterruption recovery should reflect what
the insured business would have earned if
no interruption had occurred. Prudential
LMI Commercial, 976 F.2d 727. Thus, courts

facilities) (Louisiana law) (discussed in our
October 2010 Alert); Catlin Syndicate Ltd. v.
Imperial Palace of Miss. Inc., 600 F.3d 511(5th Cir. 2010) (Mississippi law) (discussed
in our May 2010 Alert); Finger Furniture Co.
v. Commonwealth Ins. Co., 404 F.3d 312 (5thCir. 2005) (Texas law). Addressing a related
recovery issue, the Fifth Circuit has also heldthat the amount of “charges and expenses”
to which a policyholder is entitled underbusiness interruption coverage must be offset
by income earned by the policyholder during
the relevant time frame. Consol. Cos., Inc.,
2010 WL 3223137.
We will keep you apprised of importantdevelopments in coverage actions that arise inthis context.

Disgorgement
Alert:
typically look to the earnings of the businessprior to the interruption in calculating lost
income recovery. In terms of the appropriate
standard of proof, courts have emphasizedthat lost profit damages must be establishedwith “reasonable certainty” and cannot bebased on hypothetical or speculative forecasts.
Blis Day Spa, LLC v. Hartford Ins. Grp., 427
F. Supp. 2d 621 (W.D.N.C. 2006).
Significantly, the Fourth Circuit has heldthat an insured may not claim as a source of
expected earnings (or operational expenses)
a source that would not itself have comeinto being but for the interrupting peril.
Prudential LMI Commercial, 976 F.2d 727(finding that motel could not claim that if it
was not damaged, it would have been able toprofit from the influx of temporary residents
and relief workers that the hurricane brought
to the area).
The Fifth Circuit, addressing businessinterruption claims in the wake of Hurricane
Katrina, reached the same conclusion. Consol.
Cos., Inc. v. Lexington Ins. Co., 2010 WL
3223137 (5th Cir. Aug. 17, 2010) (holding that
calculation of lost profits must be based on a
scenario in which the hurricane did not strikeat all, not on a scenario in which the hurricane
struck, but did not damage the policyholder’s

New York And Delaware Courts
Address Whether Disgorgement
Payments Are Covered Under
Liability Policies
The Delaware Supreme Court ruled thatclass action settlement payments were notuninsurable disgorgement under New York
law. In re: TIAA-CREF Ins. Appeals, 2018 WL
3620873 (Del. July 30, 2018).
TIAA-CREF, a company that provides
counseling for retirement accounts, pensions
and other investments, was named as adefendant in three class action suits that
alleged failure to pay financial gains that had
accrued in customers’ accounts. TIAA-CREF
settled the actions and sought reimbursementof defense costs and settlement paymentsfrom its liability and excess insurers. The
insurers denied coverage and argued, among
other things, that the settlement payments
were uninsurable disgorgement under New
York law. A Delaware state court disagreed.
See November 2016 Alert. The Delaware
Supreme Court affirmed the ruling.
The Delaware Supreme Court noted that
New York public policy prohibits insurance
coverage for disgorgement where “payment
is conclusively linked, in some fashion, toimproperly acquired funds in the hands of theinsured.” However, the court concluded that4

no such showing of ill-gotten gains was madehere. The court distinguished New York cases
finding disgorgement uninsurable, explainingthat those cases involved conclusive links
between the insured’s misconduct and thepayment of funds, whereas here, TIAA-CREF
expressly denied any liability. Additionally,
the court noted that the New York cases
finding disgorgement uninsurable involved
claims brought by government or regulatory
entities, whereas the claims against TIAACREF were brought in private civil actions.
In a case involving payments to the Securities
and Exchange Commission (“SEC”), a New
York appellate court recently ruled that apolicyholder was not entitled to coverage
for a portion of a payment that expressly
represented disgorgement. J.P. Morgan Sec.,Inc. v. Vigilant Ins. Co., 2018 WL 4494692(N.Y. App. Div. 1st Dep’t Sept. 20, 2018).

Asbestos Alert:

Department Of Justice Files
Statement Of Interest Regarding
Fraud And Mismanagement Of
Asbestos Trust
In recent years, a lack of transparency has
led to escalating concerns relating to fraud
and mismanagement of asbestos trusts.
Such problems were highlighted in In re
Garlock Sealing Techs., LLC, 504 B.R. 71(Bankr. W.D.N.C. 2014), a matter specificallyreferenced in the Department of Justice’s(“DOJ”) Statement of Interest (and discussed
in our February 2014 Alert).

The insurance dispute arose out of asettlement between the SEC and Bear Stearns& Co. Under the settlement, Bear Stearns
agreed to pay $160 million as “disgorgement”
and $90 million as a civil penalty inconnection with deceptive trading claims.
When Bear Stearns sought indemnification
for the disgorgement portion of thesettlement, its insurers denied coverage.
A New York trial court ruled that thedisgorgement payment was a covered “loss”
under the policy because it represented
third-party gains. This month, the appellate
court reversed.
The appellate court ruled that thedisgorgement payment was not a covered“loss,” defined by the operative liability policy
to exclude “fines or penalties imposed by law.”
The appellate court ruled that the insurers
were entitled summary judgment because
the disgorgement payment constituted an
excluded penalty. The court relied on the
United States Supreme Court’s ruling inKokesh v. S.E.C., 137 S. Ct. 1635 (2017),
which expressly held that “SEC disgorgement
constitutes a penalty.” Although Kokesh
was decided in the context of a statute oflimitations dispute, the New York appellate
court held that “[t]he Supreme Court’s
rationale as to the nature of disgorgement. . . applies with equal force to the issue of
whether the disgorgement paid by Bear
Stearns, even if representing third party
gains, was a ‘Loss’ within the meaning of
the policy.”

This month, the DOJ filed a Statement ofInterest in In re Kaiser Gypsum Co., No.
16-31602 (Bankr. W.D.N.C. 2016), relating
to the management and transparency ofasbestos trusts created under 11 U.S.C.
§ 524(g) of the Bankruptcy Code. The
Statement of Interest emphasizes the needfor accountability and proper administrationof asbestos trusts in order to protect against
fraud and abuse. Further, the DOJ statesthat the government will object to any
proposed plan of reorganization that lacks
sufficient protections. Although no formal
reorganization plan has been approved in thematter, the DOJ indicated that it has filed theStatement of Interest proactively, in order togive the parties time to address its concerns.
The Statement of Interest sets forth several
provisions that the DOJ expects to be
included in the plan, including the following:
provisions to prevent excessive legal fees
and administrative costs, provisions to avoid
conflicts of interests among members of theTrust Advisory Committee, and provisions
5

that preclude payment to claimants who
are unable to establish exposure to thedefendants’ products.
The Statement also implicitly addresses the
DOJ’s standing to be involved in In re Kaiser
Gypsum Co., emphasizing that the federal
government is entitled to reimbursement ofMedicare payments to trust claimants. The
DOJ states:
The United States has a strong interestin ensuring that the trust operates in atransparent manner and complies with
its obligations under the (Medicare)statute; that claimants are informed of
their potential obligation to reimburse
the Medicare program; that the trust’s
assets are preserved to the greatest
extent possible to pay the claims oflegitimate asbestos victims; and thattrust assets are not dissipated throughpayment of fraudulent claims, excessive
professional fees, or mismanagement.

Restatement Alert:
Ohio Rejects ALI’s Restatement Of
Law, Liability Insurance
In May 2018, the American Law Institutepublished the first Restatement of the Lawof Liability Insurance, a work that has been
criticized in some quarters for failing torestate existing law.
In an unprecedented move, Ohio expressly
rejected the Restatement, deeming it notauthoritative under Ohio law and against
Ohio public policy. See Ohio Rev. Code Ann.
§ 3901.82. The legislation states that the
Restatement of the Law of Liability Insurance“does not constitute the public policy of thisstate and is not an appropriate subject ofnotice.”It remains to be seen whether additional
states will follow suit, and whether the
new Ohio legislation will face any judicial
challenges. We will keep you posted on thisand other related matters.

Defense Costs
Alert:

Applying Tennessee Law, Delaware
Court Rules That Insurer Is Entitled
To Reimbursement Of Defense
Costs
A Delaware state court ruled that, under
Tennessee law, an insurer has a right toreimbursement of defense costs following a
judicial determination that there was no duty
to defend, where the insurer preserved sucha claim. Catlin Specialty Ins. Co. v. CBL &Assocs. Props., Inc., 2018 WL 3805868 (Del.
Super. Ct. Aug. 9, 2018).
When CBL was sued in a class action, it
sought defense and indemnity from Catlin.
Catlin agreed to advance defense costs
but expressly reserved its right to seek
reimbursement of those costs in the event it
was determined that Catlin had no duty to
defend. In a subsequent declaratory judgment
action, a Delaware court ruled that Catlin had
no duty to defend the class action. Catlin thensought reimbursement, arguing that CBL was
unjustly enriched by the defense. The court
agreed and ruled in the insurer’s favor.
Although the Tennessee Supreme Court
had not addressed the issue, the Delaware
court concluded that an insurer’s right toreimbursement based on unjust enrichment
was supported by Tennessee case law.
In particular, the court concluded thatreimbursement is proper where it isdetermined that the insurer had no duty to
defend, the insurer expressly reserved its rightto reimbursement, the policy is silent as toreimbursement and the policyholder accepted
the defense notwithstanding the reservation.
The court rejected CBL’s contention that there
was no unjust enrichment because Catlin’s
offer to defend served its own interests in thatit provided protection against the risk of an
adverse coverage decision.
The court also rejected CBL’s assertion thatan insurer’s right to reimbursement “haslost favor in recent years.” The court notedthat the recently-formulated Restatementof the Law on Liability Insurance reflects
this purported shift, but explained that the
Restatement is “mere persuasive authority”
rather than controlling law until a court has

6adopted it and that Tennessee courts have notexpressly endorsed the new Restatement.
Finally, the court granted Catlin’s request for
pre-judgment interest, finding that Tennessee
statutory law permits the imposition of prejudgment interest based on equitable factors.
The court deemed the accrual date for prejudgment interest the date upon which thecourt ruled that Catlin had no duty to defend.

intrusion upon a person’s seclusion/solitude,
the facts alleged in the underlying suits did
not allege such conduct. The court reasoned
that seclusion/solitude privacy claims
typically encompass physical invasions, suchas wiretapping or trespass. Here, however, thealleged invasion was the taking of informationthat was available as a matter of publicrecord. Thus, the court concluded that theunderlying allegations did not fall within the
exception to the exclusion, and Hartford had
no duty to defend or indemnify the claims.

Privacy Alert:

Law Firm Not Entitled To Coverage
For Violation Of Privacy Claims,
Says Fourth Circuit
The Fourth Circuit ruled that an insurer had
no duty to defend a law firm in class action
suits alleging violation of federal privacy
laws. Hartford Cas. Ins. Co. v. Ted A. Greve& Assocs., 2018 WL 3752235 (4th Cir. Aug.
7, 2018).
Greve, a personal injury law firm, was suedin two class action suits alleging violationsof the Driver’s Privacy Protection Act. The
complaints alleged that Greve obtained
plaintiffs’ names and addresses from
accident reports maintained by the State ofNorth Carolina and that the firm used that
information to mail legal advertisements.
Hartford, Greve’s liability insurer, refused todefend on the basis of two policy provisions.
A North Carolina federal district court agreed
and entered judgment on the pleadings inHartford’s favor. The Fourth Circuit affirmed.
Hartford’s policy provided coverage for
personal and advertising injury (which
includes violations of the right to privacy),
but expressly excluded coverage for (1) injury
arising out of the violation of a person’s
right to privacy created by a state or federallaw, unless liability would exist even in theabsence of the statute, and (2) injury arising
directly or indirectly from a statute, ordinanceor regulation that prohibits or limits thesharing of information. The court ruled thatboth exclusions squarely applied here. The
court rejected Greve’s assertion that theunderlying plaintiffs could potentially statea claim for invasion of privacy under North
Carolina common law, separate and apartfrom the statutory violation. Although North
Carolina recognizes a privacy tort based on an

Occurrence Alert:

Kentucky Supreme Court Rules
That Intentional Acts, Even If
Based On Mistaken Beliefs, Are Not
Covered Occurrences
The Supreme Court of Kentucky ruled thata mining company’s unauthorized removalof minerals from an adjacent farm basedon its mistaken beliefs regarding propertylines was not a covered occurrence under aliability policy. Am. Mining Ins. Co. v. Peters
Farms, LLC, No. 2018 WL 3913781 (Ky. Aug.
16, 2018).
Ikerd Mining removed more than 20,000
tons of coal from land owned by Peters Farms.
The vast majority of that coal was wrongfully
mined based on Ikerd’s mistaken belief as tothe location of Peters’ property line. Peters
sued Ikerd and Ikerd’s insurer, American
Mining, for trespass and conversion.
American Mining argued that there was no
occurrence under its policy because Ikerd’s
mining was intentional. A Kentucky trial court
ruled that the damage to Peters’ property was7caused by accident, and thus constituted acovered occurrence. The trial court further
held that coverage was available under aproducts-completed operations hazard(“PCOH”) clause. An intermediate appellate
court affirmed.
The Kentucky Supreme Court reversed,
holding that Ikerd’s conduct could not be
deemed accidental in light of Ikerd’s intent
and control. As to intent, the court explainedthat while it may not have been Ikerd’s intent
to mine Peters’ coal specifically, Ikerd didintend to mine and sell the coal it extracted.
In other words, although Ikerd’s trespass
might have been innocent rather than willful,
the relevant inquiry for coverage purposes iswhether Ikerd intended to act. With respect
to control, the court concluded that Ikerd
had complete control over its employees who
extracted the coal and, indeed, directed themto excavate coal from Peters’ property forseveral months. Thus, the court ruled thatPeters’ property damage was not caused by acovered occurrence. Additionally, the court
reversed the PCOH ruling, explaining that
because the PCOH clause creates an exception
to a policy exclusion, it cannot be invokedwhere, as here, there was no initial grant ofcoverage in the first place.

Expected Or
Intended Alert:

Supreme Judicial Court Of Maine
Says That Lower Court ErredIn Finding That School Assault
Injuries Were Not Expected Or
Intended
Vacating a lower court decision, the Supreme
Judicial Court of Maine ruled that injuries
resulting from an attack on a high school
student were expected and intended andthus excluded from coverage under a liability
policy. Vermont Mut. Ins. Co. v. Ben-Ami,
2018 ME 125 (Aug. 21, 2018).
The factual record established that two
students, Francoeur and Ben-Ami, engaged
in a verbal dispute during a school event andthat Francoeur later planned an attack on
Ben-Ami. On the day of the assault, Francoeur
approached Ben-Ami from behind in aclassroom and struck him multiple times in

the face. Ben-Ami sustained a broken jaw andother serious injuries.
The central issue in dispute was whether
coverage under Francoeur’s homeowner’s
policy was barred by an exclusion for “bodily
injury . . . [w]hich is expected or intended
by the insured.” Under Maine law, thisexclusionary language has been deemedambiguous as to whether it requires anobjective standard or rather a subjective
perspective based on the insured’s personal
beliefs and intent. Resolving this ambiguity
in favor of the insured, Maine courts haveinterpreted the exclusion to mean “bodily
injury that the insured in fact subjectively
wanted (‘intended’) to be a result of his [orher] conduct or in fact subjective foresaw aspractically certain (‘expected’) to be a resultof his [or her] conduct.” Applying this legal
standard, the lower court concluded thatthe exclusion did not apply. The trial court
reasoned that Francouer did not consider
the consequences of his actions and did not
subjectively intend the extent of injuries that
he caused.
The Supreme Judicial Court of Maine vacatedthe decision, holding that the lower court’s
findings regarding Francouer’s expectationand intent were factually inconsistent withthe account of the attack. More specifically,
the Supreme Judicial Court of Maine ruledthat in light of the premeditated nature of
the assault, the ambush tactic and magnitudeof the injuries, “the evidence compelled thecourt to find, at the very least, that Francoeurmust have subjectively foreseen as practicallycertain (i.e., expected) that his deliberately
violent conduct would result in bodily injury
to Ben-Ami.”
Significantly, the court declined to adopt
a bright line rule that physical assaults
categorically fall within an expected orintended exclusion as a matter of law.
Although Maine has recognized that someactions invoke the exclusion as a matter of law(e.g., sexual assault, murder, armed robbery),the court reasoned that a physical altercationis qualitatively different than those typesof conduct.

8

Coverage Alert:

Nevada Court Rules That Losses
Arising From Employee Theft Are
Not Covered By Crime Policy

and law enforcement. The court also heldthat CP’s investigative expenses did not
result “directly” from the theft because CP
undertook the investigation to demonstrate
to law enforcement that the club owners were
not involved in the scheme.

A Nevada federal district court ruled thata night club was not entitled to coverage
under a commercial crime policy for losses
arising from a theft scheme orchestrated by
employees. CP Food & Beverage, Inc. v. U.S.
Fire Ins. Co., 2018 WL 3993408 (D. Nev. Aug.
6, 2018).

Advertising
Injury Alert:

CP operated a club where patrons could
purchase “funny money” to tip waitresses
or pay dancers who, in turn, gave the funnymoney back to CP in exchange for cash. After
receiving multiple complaints, CP discoveredthat certain employees were overcharging
customers’ credit cards and keeping the
profits for themselves. CP paid chargebacks
to customers’ credit cards and incurred
substantial expenses in investigating andresolving the theft with both law enforcementand defrauded customers. CP sought coverage
from U.S. Fire, which denied coverage on
the basis that CP’s losses did not “result[ ]directly from theft” as required by the policy.
In ensuing litigation, the court granted U.S.
Fire’s summary judgment motion.

Addressing this matter of first impression
under Nevada law, the court ruled that “directmeans direct,” such that a loss is covered
only if CP sustained a direct theft of its own
property. The court rejected a proximate
causation standard, explaining that “[i]fproximate cause were sufficient, that would
render the word ‘directly’ superfluous.”
Applying the “direct means direct” standard,
the court concluded that there was nocoverage because the employees stole moneyfrom the customers, not CP, and because
CP’s losses were incurred indirectly throughits restitution/disgorgement to customers

Massachusetts Supreme Judicial
Court Rules That Celebrity’s Name
Is “Advertising Idea” For Purposes
Of Advertising Injury Coverage
The Supreme Judicial Court of Massachusetts
ruled that a company’s use of famed
marathon runner Abebe Bikila’s name toadvertise its running shoes constituted use ofanother’s “advertising idea” for purposes ofcoverage under an advertising injury clause.
Holyoke Mut. Ins. Co. in Salem v. Vibram
USA, Inc., 2018 WL 4344538 (Mass. Sept.
12, 2018).
The family of famed barefoot marathon
runner Abebe Bikila sued Vibram, alleging
improper use of the name Bikila to advertise
Vibram’s running shoes. Vibram tendered
defense to its insurers, who denied coverageon the basis that there was no covered
advertising injury. More specifically, theinsurers argued that the underlying claims
did not allege “use of another’s advertisingidea” in Vibram’s advertisements, as requiredby the policy. A Massachusetts trial court
agreed and granted the insurers’ summary
judgment motion. In so ruling, the trial
court found that the underlying complaint
asserted only that Vibram’s advertisements
implicated a “personality right” (rather thanan “advertising idea”), which is excluded
from coverage pursuant to an intellectual
property exclusion. The Supreme Judicial
Court granted an application for direct review
and reversed.
Ruling on this matter of first impression
under Massachusetts law, the Supreme
Judicial Court ruled that Bikila’s nameconstituted an “advertising idea” because hisfamily had used his name to promote theirown commercial and educational ventures.
The court stated: “we conclude that thecomplaint reasonably may be interpreted as
9claiming that the Bikila family intentionallycreated a connection between their familyname and Abebe Bikila’s legacy and desirable
qualities for purposes of using ‘Bikila,’ andeverything it conveyed, to attract customers totheir running-related commercial ventures.”
The court noted that other jurisdictions
have interpreted “advertising idea” broadly
to include a wide array of concepts that are
implemented in connection with marketingand sales.

Statute Of
Limitations Alert:
Insurer’s Equitable Subrogation
Claim Not Subject To Statute Of
Limitations, Says Connecticut
Appellate Court

A Connecticut appellate court ruled thatan insurer’s equitable subrogation claim
against an alleged tortfeasor was not subject
to two statutes of limitations applicableto the underlying negligence claims. Gov’t

Employees Ins. Co. v. Barros, 184 Conn. App.
395 (Aug. 28, 2018).
An automobile insurer paid the policy limit
for bodily injury to its policyholder after a
car accident. More than three years after theaccident, the insurer brought an equitable
subrogation claim against the other driver.
The driver argued that the claim was barredby two statutes of limitations applicable tothe underlying claims for negligent operationof a motor vehicle. A Connecticut trial court
disagreed and entered judgment in theinsurer’s favor. The appellate court affirmed.
The appellate court ruled that equitable
subrogation claims are not subject to statutesof limitations, but rather may be barred by adefense of laches, which applies only if there
has been an unreasonable and prejudicial
delay in bringing suit. The court further heldthat the driver waived a defense of laches, andthat even if he had not, there was no evidenceof an unreasonable delay or prejudice. The
court also rejected the driver’s contention thatthe statutes of limitations for the underlying
tort claims should apply to the equitable
subrogation claim because the insurer “stands
in the shoes” of the policyholder.

10

Simpson Thacher has been an international leader in the practice of insurance and reinsurance law for
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Mary Beth Forshaw+1-212-455-2846
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Deborah L. Stein+1-310-407-7525
dstein@stblaw.com

Daniel J. Stujenske+1-212-455-2419
dstujenske@stblaw.com

This edition of the
Insurance Law Alert was
prepared by Bryce L. Friedman
bfriedman@stblaw.com /+1-212-4552235 and Deborah L. Stein
dstein@stblaw.com / +1-310-407-7525
with contributions
by Karen Cestarikcestari@stblaw.com.

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