Insurance Law Alert

April 2020

In This Issue
We hope you and your loved ones are staying safe and well. The COVID-19 pandemic
continues to rapidly evolve and present challenges to our community, our nation and theworld at large. The Firm is actively monitoring COVID-19 developments and evaluating
appropriate responses to best protect the safety and well-being of our colleagues, clientsand community.

California Supreme Court Says Vertical Exhaustion Triggers Excess
Coverage“[Simpson Thacher]is one of thepreeminent and mostsophisticated coveragelitigation firms.”– Chambers USA 2019(quoting a client)

The Supreme Court of California ruled that a policyholder was entitled to coverage under ahigher level policy once it had exhausted directly underlying excess policies for the same policy
period, and was not required to exhaust every lower level excess policy during the relevant timeframe. Montrose Chem. Corp. of Ca. v. Sup. Ct. of L.A. Cty., 2020 WL 1671560 (Cal. Apr. 6,2020). (Click here for full article)

Mississippi Court Rules That Email Phishing Claims Are Not Covered By
Computer Transfer Fraud Or Funds Transfer Coverage Provisions
A Mississippi federal district court ruled that losses stemming from wire transfers initiatedby spoofed emails were not covered by Computer Transfer Fraud or Funds Transfer coverage
provisions. Miss. Silicon Holdings, LLC v. AXIS Ins. Co., 2020 WL 869974 (N.D. Miss. Feb. 21,2020). (Click here for full article)

Indiana Court Of Appeals Rules That Computer Fraud Coverage Provision
Does Not Encompass Losses From Ransomware Attack
The Indiana Court of Appeals ruled that Computer Fraud coverage was not available forlosses stemming from a ransomware attack. G&G Oil Co. of In. v. Cont’l W. Ins. Co., 2020 WL
1528095 (Ind. Ct. App. Mar. 31, 2020). (Click here for full article)

Illinois Appellate Court Rules That Disclosure Of Fingerprint Scan
To Third Party Is “Publication” For Purposes Of Personal Injury And
Advertising Coverage
An Illinois appellate court ruled that allegations that the policyholder shared customers’
fingerprint data with a single vendor was a “publication” triggering a duty to defend under
the Personal and Advertising Injury coverage provision. W. Bend Mut. Ins. Co. v. Krishna
Schaumburg Tan, Inc., 2020 WL 1330494 (Ill. Ct. App. Mar. 20, 2020). (Click here forfull article)

Second Circuit Asks New York Court Of Appeals To Decide Whether
A Failure-To-Accommodate Discrimination Claim Is A Covered“Occurrence” Under General Liability Policy
The Second Circuit asked the New York Court of Appeals to address whether a general liability
insurer must defend a discrimination suit alleging failure to accommodate. Brooklyn Ctr. for
Psychotherapy, Inc. v. Phila. Indem. Ins. Co., 2020 WL 1777211 (2d Cir. Apr. 9, 2020).
(Click here for full article)

Simpson Thacher & Bartlett LLP

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Texas Supreme Court Rejects Policy Language Exception To
Eight-Corners Rule
The Texas Supreme Court rejected the contention that the eight-corners rule applies only if
the policy language requires the insurer to defend “all actions against its insured no matter if
the allegations of the suit are groundless, false or fraudulent.” Richards v. State Farm Lloyds,
2020 WL 1313782 (Tex. Mar. 20, 2020). (Click here for full article)

Eighth Circuit Rules That Insurer Must Defend Civil Rights Suit Based On
Wrongful Imprisonment, Notwithstanding That Initial Events Occurred
Before Policy Inception
The Eighth Circuit ruled that an insurer was obligated to defend a civil rights lawsuit stemmingfrom the arrest and imprisonment of an innocent man, notwithstanding that the murder
occurred before the policy incepted. Argonaut Great Cent. Ins. Co. v. Lincoln Cty., Mo., 2020
WL 1264213 (8th Cir. Mar. 17, 2020). (Click here for full article)

Sixth Circuit Rules That Insurer May Not Deduct Cost Of Labor In
Calculating Actual Cash ValueThe Sixth Circuit, applying Ohio law, deemed an Actual Cash Value provision ambiguous andinterpreted it against the insurer, ruling that labor cost depreciation could not be consideredin calculating ACV. Perry v. Allstate Indem. Co., 2020 WL 1284960 (6th Cir. Mar. 18, 2020).
(Click here for full article)

Two Courts Interpret Preemption Of Washington’s Statutory Prohibition
On Arbitration Of Insurance Disputes
The Ninth Circuit ruled that the Liability Risk Retention Act preempts Washington’s antiarbitration statute, Allied Prof’ls Ins. Co. v. Anglesey, 2020 WL 1179772 (9th Cir. Mar. 12,2020), and a Washington federal district court voided an arbitration provision in a reinsurance
agreement pursuant to Washington statutory law, Wash. Cities Ins. Auth. v. Ironshore Indem.,Inc., 2020 WL 1083715 (W.D. Wash. Mar. 6, 2020). (Click here for full article)

Pennsylvania Supreme Court Upholds Governor’s Executive Order,
Deeming COVID A “Natural Disaster” Under State Emergency Statute
The Pennsylvania Supreme Court upheld an executive order requiring the closure of all nonlifesustaining businesses, ruling that the COVID pandemic is a “natural disaster,” as defined by therelevant state Emergency Code. Friends of Danny DeVito v. Tom Wolf, Governor, 2020 WL
1847100 (Pa. Apr. 13, 2020). (Click here for full article)

Visit The Firm’s COVID-19 Resource Center
As the coronavirus spreads across the globe, we continue to monitor the impacts on businesses,
financial markets, and international trade and commerce. In this climate, our clients are facing
a number of legal issues related to the outbreak and resulting business disruptions. To help
you stay informed, we provide guidance on our Coronavirus (COVID-19) Resource Center for
management teams and boards of directors in navigating this crisis. We will continue to update
the page with key developments and insights that affect your business and the health and safetyof your employees. (Click here for full article)

STB News Alerts
Click here to read about the Firm’s insurance-related publications.

2

Excess Alert:
California Supreme Court Says
Vertical Exhaustion Triggers
Excess Coverage
The Supreme Court of California ruledthat based on applicable policy language, a
policyholder was entitled to coverage undera higher level policy once it had exhausted
directly underlying excess policies for thesame policy period, and was not required toexhaust every lower level excess policy during
the relevant time frame. Montrose Chem.
Corp. of Ca. v. Sup. Ct. of L.A. Cty., 2020 WL
1671560 (Cal. Apr. 6, 2020).

to write the policies differently to establish
alternative exhaustion requirements orcoverage allocation rules if they so wish.”
Addressing potential contribution claims
among insurers, the court ruled that aninsurer that is called upon to indemnify
Montrose’s loss may seek reimbursementfrom other insurers that issued policies atother points during the relevant time frame.
Finally, the court remanded a choice of law
issue for a determination by the lower court
as to whether certain policies should beconstrued under Connecticut or New Yorklaw, rather than California law.

Montrose sought indemnity from its primaryand excess general liability insurers formillions of dollars expended in environmental
remediation. Although the language of thevarious policies at issue differed in somerespects, each provided that Montrose must
exhaust the limits of its underlying insurance
before accessing coverage under excess
policies. Additionally, the excess policies
provided that “other insurance” must be
exhausted before excess coverage can beaccessed. The parties disputed whether the“other insurance” clauses required Montrose
to exhaust lower level insurance coverage
from other policy periods before seeking
excess coverage for any given policy period.

Cyber Alerts:

The California Supreme Court endorsed a“vertical exhaustion” approach under which
Montrose may access any excess policy once
it has exhausted other policies with lower
attachment points in the same policy period.
The court noted that none of the “otherinsurance” clauses explicitly address whether
Montrose is required to exhaust insurancewith lower attachment points in different
policy periods. For example, the court
explained that language requiring exhaustionof “all underlying insurance” could “fairly beread to refer only to other directly underlying
insurance in the same policy period that was
not specifically identified in the schedule ofunderlying insurance” (emphasis in original).
As such, the court declined to interpret the“other insurance” clauses as “a clear andexplicit direction to adopt a requirement ofhorizontal exhaustion in cases of long-tailinjury.” Highlighting the importance of policy
language, the court emphasized that “[p]arties
to insurance contracts are, of course, free

An employee of MSH, a manufacturing
company, received an email purportedly
from one of its suppliers, directing it tochange banking information for future
payments. In accordance with that email,the MSH employee electronically changed
the information and initiated a wire transfer
in the amount of $250,030. Another MSH
employee authorized the transfer andfollowing a confirmation call from the bank, athird MSH employee verbally authorized thetransfer. A second payment of $775,851.13
was made, following the same three-stepauthorization process. Shortly thereafter,
MSH discovered that the emails were
fraudulent and that the funds had been sent
to hackers’ bank accounts. Axis Insurance
paid MSH the $100,000 limit under a Social
Engineering Fraud clause. MSH returned
payment and filed suit, alleging it was entitled
to coverage under the Computer Transfer
Fraud and Funds Transfer provisions. The
court granted Axis Insurance’s summary

Mississippi Court Rules That
Email Phishing Claims Are Not
Covered By Computer Transfer
Fraud Or Funds Transfer Coverage
Provisions
A Mississippi federal district court ruled thatlosses stemming from wire transfers initiatedby spoofed emails were not covered byComputer Transfer Fraud or Funds Transfer
coverage provisions. Miss. Silicon Holdings,
LLC v. AXIS Ins. Co., 2020 WL 869974 (N.D.
Miss. Feb. 21, 2020).

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judgment motion, finding that neither
provision encompassed the underlying claims.
The Computer Transfer Fraud provision
covered loss “resulting directly from
Computer Transfer Fraud that causes thetransfer, payment or delivery of Covered
Property . . . without the Insured Entity’s
knowledge or consent.” Computer Transfer
Fraud, in turn, was defined as “the fraudulent
entry of Information into or the fraudulent
alteration of any Information within aComputer System.” The court ruled thatthe losses did not “result directly” from thefraudulent emails. The court explained thatwhile the emails “set in motion a series of
events which ultimately led to the loss,” theaffirmative conduct of the MSH employees
was responsible for the account change andwire transfer.

In addition, the court ruled that there wasno Computer Transfer Fraud coverage
because the transfers did not occur without
MSH’s “knowledge or consent” given thatthree employees explicitly authorized andeffectuated the wire transfers. The court
rejected MSH’s contention that coverage
was intended to apply to transfers that were
known to MSH, but made unwittingly, as theresult of fraudulent information.
For the same reason, the court rejected
coverage under the Funds Transfer Fraud
provision, which included the same“without the Insured Entity’s knowledge orconsent” language. In refusing to interpret“knowledge or consent” phrase to implicitly
require knowledge based on “true facts andcircumstances,” the court distinguished theSocial Engineering Fraud provision, which
expressly covered transfers made knowingly,
but as the result of false information. That
provision stated: “The Insurer will pay forloss resulting” from the payment or transfer

of money by “an Employee acting in goodfaith reliance upon a telephone, written, or
electronic instruction that purported to bea Transfer Instruction, but, in fact, was notissued by a Client, Employee or Vendor.”

Indiana Court Of Appeals Rules
That Computer Fraud Coverage
Provision Does Not Encompass
Losses From Ransomware Attack
Most decisions interpreting the scope ofcoverage under a Computer Fraud coverage
provision have involved incidents of email
phishing. In a recent decision, the Indiana
Court of Appeals addressed the scope ofComputer Fraud coverage available forlosses stemming from a ransomware attack,concluding that such coverage was notavailable. G&G Oil Co. of In. v. Cont’l W. Ins.
Co., 2020 WL 1528095 (Ind. Ct. App. Mar.
31, 2020).
G&G was the victim of a ransomware attack
that paralyzed its computer servers andworkstations. The hacker demanded a ransom
in exchange for passwords that would restore
G&G’s control over its computer system.
After G&G paid the ransom, it submitted aclaim to Continental seeking coverage forthe attack and ensuing losses. Continental
denied coverage, arguing that G&G had notpurchased “Computer Virus and Hacking
Coverage” and that the Computer Fraud
coverage provision did not apply. The court
agreed and granted Continental’s summary
judgment motion.
The Computer Fraud coverage provision istriggered by loss “resulting directly from theuse of any computer to fraudulently cause
a transfer of that property.” The court ruledthat G&G’s transfer of the ransom payment
was not “fraudulent,” even though it was
initiated by the hackers’ illegal act. The court
stated:Here, the hijacker did not use acomputer to fraudulently cause G&G
to purchase Bitcoin to pay as ransom.
The hijacker did not pervert the truth
or engage in deception in order toinduce G&G to purchase the Bitcoin.
Although the hijacker’s actions wereillegal, there was no deception involvedin the hijacker’s demands for ransom in
exchange for restoring G&G’s access to
its computers.
4Personal And
Advertising
Injury Alert:
Illinois Appellate Court Rules That
Disclosure Of Fingerprint Scan To
Third Party Is “Publication” For
Purposes Of Personal Injury And
Advertising Coverage
An Illinois appellate court ruled that
allegations that the policyholder sharedcustomers’ fingerprint data with a single
third-party vendor was a “publication”
triggering a duty to defend under the Personaland Advertising Injury coverage provision. W.
Bend Mut. Ins. Co. v. Krishna Schaumburg
Tan, Inc., 2020 WL 1330494 (Ill. Ct. App.
Mar. 20, 2020).
A putative class action alleged that thepolicyholder violated the Biometric
Information Privacy Act by sharing copies
of customers’ finger print scans with a thirdparty vendor without customer consent. West
Bend sought a declaration that it had no duty
to defend or indemnify the claims, arguingthat the complaint did not allege covered
Personal and Advertising Injury claims andthat coverage was barred by a violation of
statutes exclusion. An Illinois trial court
disagreed and granted the policyholder’ssummary judgment motion, and the appellate
court affirmed.
The Personal and Advertising Injury
provision covered claims arising out of the“oral or written publication of material
that violates a person’s right to privacy.”
The central issue in dispute was whether
the policyholder’s disclosure of fingerprintscans to a single vendor satisfied the“publication” requirement. The court heldthat it did, rejecting West Bend’s assertion
that publication requires dissemination to the
public at large.
Additionally, the court ruled that the violationof statutes exclusion did not bar coverage.
The exclusion applied to injuries “arising
directly or indirectly out of any action oromission that violates or is alleged to violate”
the TCPA, CAN-SPAM Act of 2003, or “anystatute, ordinance or regulation . . . thatprohibits or limits the sending, transmitting,communication or distribution of material
or information.” West Bend argued that theexclusion applied because the Biometric
Act provides that a private entity may not“disclose, redisclose or otherwise disseminate
a person’s or a customer’s biometric identifier
or biometric information.” Rejecting thiscontention, the court held that the exclusion“is meant to bar coverage for the violationof a very limited type of statute.” The court
reasoned that the title of the exclusion—“Violation of Statutes That Govern E-Mails,
Fax, Phone Calls or Other Method of Sending
Material or Information”—makes it clear thatthe exclusion “applies to statues that govern
certain methods of communication . . . not
to other statutes that limit the sending or
sharing of certain information.”

Coverage Alert:
Second Circuit Asks New
York Court Of Appeals To
Decide Whether A Failure-ToAccommodate Discrimination
Claim Is A Covered “Occurrence”
Under General Liability Policy
The Second Circuit asked the New York Courtof Appeals to address whether a generalliability insurer must defend a discrimination
suit alleging failure to accommodate—aquestion that turns on whether suchdiscrimination can be a covered “occurrence.”
Brooklyn Ctr. for Psychotherapy, Inc. v.
Phila. Indem. Ins. Co., 2020 WL 1777211 (2dCir. Apr. 9, 2020).
A hearing-impaired woman sued the Brooklyn
Center for Psychotherapy for allegedly
discriminating against her in violation ofvarious city ordinances and state and federal
statutes. Her complaint alleged that theCenter refused to provide interpreter services,causing her humiliation and emotional
distress. The Center’s insurer refused todefend or indemnify the suit on the basisthat it did not allege an “occurrence” under
the policy. A New York district court granted
the insurer’s motion to dismiss, ruling thatthe complaint alleged only intentional actsthat were not accidental “occurrences”
for purposes of policy coverage. The
Center appealed.

5New York coverage case law has distinguishedbetween discrimination claims that are basedon intentional discrimination (which areintentional wrongs not covered by insurance)and discrimination claims based on disparate
impact (which are potentially covered if basedon unintentional behavior). In considering
the Center’s appeal, the Second Circuit
noted the uncertainty regarding failure-toaccommodate claims. The Center argued that
so long as it reasonably believed that hiring
interpreters to accommodate the claimant’s
hearing disability would have been an undue
hardship on its business, any harm resulting
from that decision would be accidental andwithin the scope of coverage. Conversely, theinsurer contended that the Center’s refusal
to accommodate was, itself, an intentionalact, regardless of its reasons for doing so, andtherefore not covered under the policy.
Noting the lack of precedent and theimportant public policy implications relating
to this issue, the Second Circuit certified thefollowing question to the New York Court ofAppeals: “Must a general liability insurance
carrier defend an insured in an action
alleging discrimination under a failure-toaccommodate theory?”

Duty To Defend
Alerts:Texas Supreme Court Rejects
Policy Language Exception To
Eight-Corners Rule
Answering a question certified by the Fifth
Circuit, the Texas Supreme Court rejected thecontention that the eight-corners rule applies
only if the policy includes language requiring
the insurer to defend “all actions against its
insured no matter if the allegations of the suit
are groundless, false or fraudulent.” Richards
v. State Farm Lloyds, 2020 WL 1313782 (Tex.
Mar. 20, 2020).
The dispute centered on whether State Farm
was obligated to defend its insured against
personal injury claims arising out of an
ATV fatality. State Farm refused to defend,
arguing that the claims were barred by a
“motor vehicle exclusion” and an “insured
exclusion” in a homeowner’s policy. In

seeking a declaratory judgment as to its
defense obligations, State Farm submitted
two documents: the police report fromthe accident and a court order from a suit
involving the parental/guardian relationshipbetween the deceased child and the
grandparents that were supervising him at thetime of the accident. A Texas federal district
court considered those documents in finding
no duty to defend, rejecting the policyholders’objections under the eight-corners rule. The
district court reasoned that the eight-corners
rule applied only to policies that explicitly
require the insurer to defend all actions, even
if “groundless, false or fraudulent.” The court
explained that the eight-corners rule did not
apply because State Farm’s policy did notinclude this language, and instead required
State Farm to defend “if a claim is made or asuit is brought against an insured for damages
because of bodily injury . . . to which thiscoverage applies.”
The Texas Supreme Court rejected theassertion that the eight-corners rule applies
only when the policy includes a groundlessclaims clause. The court reasoned that caselaw did not support such a limitation, statingthat “Texas courts of appeal have routinely
applied the eight-corners rule for many
decades, without regard to whether the policy
contained a groundless-claims clause.” Thecourt noted that parties are free to contract
around the eight-corners rule, so long as they
do so with explicit language. However, thecourt ruled that merely omitting the words“groundless, false or fraudulent,” or similar
verbiage is insufficient to eliminate the eightcorners rule from the duty-to-defend analysis.

Eighth Circuit Rules That Insurer
Must Defend Civil Rights Suit
Based On Wrongful Imprisonment,
Notwithstanding That Initial Events
Occurred Before Policy Inception
The Eighth Circuit ruled that an insurer was
obligated to defend a county against a civilrights lawsuit stemming from the arrestand imprisonment of an innocent man,notwithstanding that the murder and initialinterrogation occurred before the policy
incepted. Argonaut Great Cent. Ins. Co. v.
Lincoln Cty., Mo., 2020 WL 1264213 (8th Cir.
Mar. 17, 2020).

6

On December 27, 2011, Russell Scott Faria’s
wife was murdered. Faria voluntarily went
to the police station that day and spent morethan forty hours there being questioned. He
was released from custody on December 29,
and then arrested on January 4, 2012. Heremained in jail until his trial in November
2013, when he was convicted of murder andsentenced to life in prison. An appellate court
granted Faria’s motion for a new trial and in
November 2015, he was retried and acquitted.
In 2016, Faria sued Lincoln County, thedistrict attorney and a police officer, alleging
civil rights violations. Argonaut argued thatit had no duty to defend the suit because
the relevant conduct occurred prior to thepolicy’s January 1, 2012 inception andbecause exclusions for malicious conduct
barred coverage. A Missouri district court
disagreed and granted the County’s motion
for judgment on the pleadings. The Eighth
Circuit affirmed.

including the “most pertinent actions”—hisarrest and murder charge.

Under Missouri law, an insurable event
occurs when the victim is first damaged. On
this basis, Argonaut argued that the operative“occurrence” for coverage purposes was
the murder and initial investigation, which
occurred prior to the policy’s inception. The
court disagreed, finding that the harm firstoccurred when Faria was formally arrested
in January 2012. The court acknowledgedthat one count of the complaint alleged aconstitutional violation based on Faria’s
initial “seizure” in December 2011, butemphasized that the remaining counts all
involved conduct that occurred in 2012,

Last month’s Alert reported on a North
Carolina Supreme Court decision holdingthat an Actual Cash Value (“ACV”) provision
in a property policy was unambiguous andincluded depreciation of labor costs. This
month, the Sixth Circuit, applying Ohio law,
deemed an ACV provision ambiguous andinterpreted it against the insurer, rulingthat labor cost depreciation could not be
considered in calculating ACV. Perry v.
Allstate Indem. Co., 2020 WL 1284960 (6thCir. Mar. 18, 2020).

In addition, the court ruled that the complaint
alleged “covered wrongful acts” outside thescope of an exclusion relating to “dishonest,
malicious, fraudulent or criminal acts . . . ora knowing violation of the law.” Although
the underlying complaint alleged numerous
malicious acts and knowing violations of law,the court noted that it also alleged recklessand incompetent conduct.

Property Policy
Alert:
Sixth Circuit Rules That Insurer
May Not Deduct Cost Of Labor In
Calculating Actual Cash Value

The property policy provided: “If you do not
repair or replace the damaged, destroyed
or stolen property, payment will be on an
actual cash value basis. This means there
may be a deduction for depreciation.”
The term “depreciation” was not defined.
Allstate argued that depreciation applied
to both material and labor, whereas thepolicyholder claimed that depreciation was
ambiguous with respect to labor costs because
depreciation typically refers to value lost as aresult of physical wear and tear.
An Ohio district court ruled in the insurer’sfavor. The Sixth Circuit reversed, noting that
there was “no clear answer from Ohio law
on whether labor costs are depreciable incalculating ACV.” The court therefore deemed
the provision ambiguous and construed it in
the policyholder’s favor.

7

Arbitration Alert:
Two Courts Interpret Preemption
Of Washington’s Statutory
Prohibition On Arbitration Of
Insurance Disputes
The Ninth Circuit ruled that the Liability Risk
Retention Act (“LRRA”), 15 U.S.C. § 3901,
preempts Washington’s anti-arbitration
statute, as applied to a risk retention group
chartered in another state and doing business
in Washington. Allied Prof’ls Ins. Co. v.
Anglesey, 2020 WL 1179772 (9th Cir. Mar.
12, 2020).
Allied Professionals, a risk retention group,
is chartered in Arizona and does business
in Washington. Allied Professionals insureda chiropractor who was sued by a former
patient. Allied Professionals denied theclaim and sought to rescind his policy basedon alleged omissions in the application.
A California district court granted Allied
Professionals’ motion to compel arbitrationand the Ninth Circuit affirmed. The Ninth
Circuit ruled that the LRRA, which supports
the formation of risk retention groups,
preempts Washington’s anti-arbitration
statute. The court held that there was noreverse preemption under the McCarranFerguson Act because the LRRA is “anexception to the McCarran-Ferguson Act’s
preference for state regulation of insurance.”
Washington’s prohibition on the arbitrationof insurance disputes was also at issue in
Wash. Cities Ins. Auth. v. Ironshore Indem.,Inc., 2020 WL 1083715 (W.D. Wash. Mar.
6, 2020). Washington Cities Insurance
Authority (“WCIA”), a self-insured risk
group, entered into reinsurance agreementswith Ironshore. The agreements included
an arbitration clause and a New York choiceof law provision. When a dispute regarding
Ironshore’s reinsurance obligations arose,
WCIA moved to void the arbitration andchoice of law provisions and Ironshore moved
to compel arbitration. The court granted
WCIA’s motion, ruling that both provisions
were void.
As a preliminary matter, the court held thatreinsurance qualifies as “insurance” for the
purposes of applying Washington’s antiarbitration statute, which defines “insurance”
as “a contract whereby one undertakes toindemnify another.” In so ruling, the court

noted that reinsurance was not explicitly
exempted from the statute (as other typesof insurance were). In addition, the court
ruled that a separate, more specific provision
governing the purchase of reinsurance
by local government joint insurance
programs did not operate as an exclusion
to the anti-arbitration provision. Thatclause provided local government entities“maximum flexibility in self-insuring” but
did not reference arbitration or authorize
the inclusion of arbitration provisions inreinsurance contracts. The court therefore
ruled that Washington’s statutory prohibition
on arbitration operated to void thearbitration clause.

Coronavirus
Alert:
Pennsylvania Supreme Court
Upholds Governor’s Executive
Order, Deeming COVID A “Natural
Disaster” Under State Emergency
StatuteThe Pennsylvania Supreme Court upheld anexecutive order requiring the closure of all
nonlife-sustaining businesses, ruling that
the COVID pandemic is a “natural disaster,”as defined by the relevant state Emergency
Code. Friends of Danny DeVito v. Tom
Wolf, Governor, 2020 WL 1847100 (Pa. Apr.
13, 2020).
Several businesses sought to invalidate
the March 16 Executive Order issued by
Pennsylvania Governor Tom Wolf on
statutory and constitutional grounds. The
Pennsylvania Supreme Court observed that
the Governor has “broad powers” under theEmergency Code to limit movement andoccupancy within the state as a result of a8natural disaster. The Code defines “natural
disaster,” in part, as: “Any hurricane, tornado,
storm, flood, high water, wind-driven water,
tidal wave, earthquake, landslide, mudslide,snowstorm, drought, fire, explosion or othercatastrophe which results in substantial
damage to property, hardship, suffering or
possible loss of life.” The court concluded
that the COVID pandemic falls within thescope of this definition, emphasizing that
“hardship, suffering [and] possible loss of life”
have resulted from the virus. In so ruling, thecourt rejected the plaintiffs’ assertion that the
COVID pandemic is not a “natural disaster”
under the Code because viral illness is notincluded in the list of triggering events and is
not of the same type or kind of catastrophe as
those listed in the Code.

Visit The Firm’s
COVID-19
Resource Center
As the coronavirus spreads across theglobe, we continue to monitor the impacts
on businesses, financial markets, andinternational trade and commerce. In thisclimate, our clients are facing a numberof legal issues related to the outbreak andresulting business disruptions. To help you
stay informed, we provide guidance on ourCoronavirus (COVID-19) Resource Center for
management teams and boards of directors
in navigating this crisis. We will continue
to update the page with key developments
and insights that affect your business andthe health and safety of your employees.
To learn more, or to read a recent article
titled “COVID-19 and Insurance Coverage:
Limitations on Civil Authority Provisions,”
please click here.

STB News Alerts:
The Court also rejected the business owners’
argument that even if the pandemic is anatural disaster under the Code, the Governor
was authorized only to act in “disaster areas”
and improperly closed down businesses
in non-disaster areas. The court reasoned
that all counties in which the businesses
operated had reported COVID cases, and thatin any event, given the rapid transmissionof the virus, that any location where two or
more people can congregate is within thedisaster area.
Policyholders’ attorneys have begun toargue that Friends of Danny DeVito lends
support to the assertion that COVID-related
losses were caused by “physical loss ordamage” for insurance coverage purposes(akin to weather-related natural disasters).
It should be noted that the Court’s rulingturns on specific language in Pennsylvania’s
Emergency Code, which does not include aphysical loss or damage requirement, as is thecase for many common business interruption
and civil authority coverage provisions ofproperty insurance policies.

Mary Beth Forshaw, Bryce Friedman andKaren Cestari authored an article titled,
Simpson Thacher Discusses COVID-19 andInsurance Coverage, which was published by
Columbia Law School’s Blue Sky Blog. The
article discusses the insurance implications,particularly under business interruption
provisions, of the COVID-related businessclosures and financial losses.
Bryce Friedman and Karen Cestari authoredan article titled, Email Phishing Scams And
Computer Fraud Coverage: Causation
Is Key, which was published by Mealey’s
Emerging Insurance Disputes. The article
discusses how email phishing scams havebecome an increasingly common meansfor hackers to fraudulently obtain funds
from companies, and addresses the scope of
insurance coverage for such incidents.

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
scraig@stblaw.com

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

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

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

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

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

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
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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