Insurance Law Alert

December 2022

In This Issue
Selective Tender Rule Bars Insurer’s Equitable Contribution Claim
Against Another Insurer, Says Washington Court
A Washington district court granted an insurer’s summary judgment motion, ruling that it had
no obligation to contribute to a settlement because the policyholder had never tendered theclaim to it. Munich Re Syndicate Ltd 457 v. Fireman’s Fund Ins. Co., 2022 WL 16625601 (E.D.
Wash. Nov. 1, 2022). (Click here for full article)

Fourth Circuit Rules That Insurers’ Reservations Of Rights Were
Insufficient“If you have a major
issue, an exceptionallyhigh value or critical claim,

Applying South Carolina law, the Fourth Circuit ruled that three reservation of rights letterswere insufficient to provide a basis for a coverage denial. Stoneledge at Lake Keowee Owners’
Assoc., Inc. v. Cincinnati Ins. Co., 2022 WL 17592121 (4th Cir. Dec. 13, 2022). (Click here forfull article)

Simpson is where you turn.”– The Legal 500(quoting a client)

California Court Refuses To Order Consolidated Arbitration Of Dispute
Involving Two Reinsurance Agreements
A California trial court denied a motion to compel consolidated arbitration of an entity’s
dispute with two reinsurers relating to the same claim. Schools Ins. Authority v. General
Reinsurance Corp., No. 34-2022-00326377 (Cal. Super. Ct. Nov. 23, 2022). (Click here forfull article)

Insured Breached Its Duty To Cooperate And Is Therefore Not Entitled To
Coverage, Says Ninth Circuit
Affirming a Washington district court decision, the Ninth Circuit ruled that an insured
breached its duty to cooperate and was therefore not entitled to coverage under a marine
policy. United States Fire Ins. Co. v. Icicle Seafoods, Inc., 2022 WL 17424295 (9th Cir. Dec. 6,2022). (Click here for full article)

Two Appellate Courts Address Scope Of Coverage For Intentional Acts
Resulting In Unintended Injuries
A South Carolina appellate court ruled that an intentional acts exclusion barred coverage for
injuries arising out of a physical altercation, regardless of whether the insured party intended
to cause harm to the victim, South Carolina Farm Bureau Mutual Ins. Co. v. Longphre, 2022
WL 17484348 (S.C. Ct. App. Dec. 7, 2022), whereas a New York appellate court denied aninsurer’s summary judgment motion regarding its duty to defend and indemnify claims arisingout of a physical altercation. Vermont Mutual Ins. Group v. LePore, 2022 WL 17490490 (N.Y.
App. Div. Dec. 8, 2022). (Click here for full article)

Simpson Thacher & Bartlett LLP

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Joining Vast Majority Of State And Federal Courts, Ohio Supreme Court
Rules That Pandemic-Related Business Losses Are Not Covered By All
Risk Property Policy
Answering a certified question, the Ohio Supreme Court ruled that a business owner was notentitled to coverage for losses incurred in the wake of government closure orders aimed at
slowing the spread of the virus. Neuro-Communication Services, Inc. v. Cincinnati Ins. Co.,
2022 WL 17573883 (Ohio Dec. 12, 2022). (Click here for full article)

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

2the selective tender rule does not bar
Contribution Alert: that
contractual subrogation pursuant to theSelective Tender Rule Bars
Insurer’s Equitable Contribution
Claim Against Another Insurer,
Says Washington Court
A Washington district court granted aninsurer’s summary judgment motion, rulingthat it had no obligation to contribute to asettlement because the policyholder had nevertendered the claim to it. Munich Re Syndicate
Ltd 457 v. Fireman’s Fund Ins. Co., 2022 WL
16625601 (E.D. Wash. Nov. 1, 2022).
A winery sought coverage from Munich Re forlosses incurred as a result of contaminatedwine. The winery did not tender the claim
to Fireman’s Fund, which had also issued
a policy during the relevant time period,
based on a broker’s belief that the Fireman’s
Fund policy did not cover the loss. Munich
Re ultimately paid nearly $700,000 andthen sought contribution from Fireman’sFund. In connection with its contribution
request, Munich Re forwarded to Fireman’s
Fund an unsigned “Release and Subrogation
Agreement” that purportedly assigned allindemnification rights to Munich Re. WhenFireman’s Fund refused to contribute to thesettlement, Munich Re sued, asserting claims
for equitable contribution and equitableindemnification. The court dismissed
both claims.
The court ruled that under Washington’s
selective tender rule, Fireman’s Fund could
not be liable to Munich Re for a claim forwhich its insured did not request coverage.
As the court noted, the selective tender rule“preserves the insured’s right to invoke or
not to invoke the terms of its insurance
contracts.” Because the underlying claim
was never tendered to Fireman’s Fund, thecourt concluded that there could be no rightof equitable contribution. The court also
dismissed the equitable indemnification
claim, noting that under Washington law,that cause of action is “mainly recognized as
an equitable ground under which attorney’s
fees may be awarded.” In any event, the court
noted that Munich Re failed to allege any
wrongful act or omission, a required elementof an equitable indemnification claim.
Finally, the court rejected Munich Re’s
attempt to assert a contribution claim undera theory of subrogation. Munich Re argued

draft Release and Subrogation Agreement.
Rejecting this contention, the court explainedthat subrogation was not pled in thecomplaint and was presented for the first timein opposition to Fireman’s Fund’s summary
judgment motion. It declined to allow
Munich Re to amend its complaint, stating“[a]mendment at this time would render
pointless the Court’s scheduling deadlines
and also prejudice Fireman’s Fund.”Reservation Of
Rights Alert:
Fourth Circuit Rules That Insurers’
Reservations Of Rights Were
Insufficient
Applying South Carolina law, the Fourth
Circuit ruled that three reservation of rights
letters were insufficient to provide a basis fora coverage denial. Stoneledge at Lake Keowee
Owners’ Assoc., Inc. v. Cincinnati Ins. Co.,
2022 WL 17592121 (4th Cir. Dec. 13, 2022).
The coverage dispute arose out of faulty
construction claims brought by a homeowners
association against contractors. The
contractors’ general liability insurers,
Builders Mutual and Cincinnati, sent threereservation of rights letters over the course of
the underlying litigation. After the underlying
claims were resolved by a partial judgment
and subsequent settlement, the contractors
sought a declaration of coverage. Rulingon the parties’ cross-motions for summary
judgment, a South Carolina district court heldthat the insurers had failed to adequately
reserve their right to contest coverage. The
Fourth Circuit affirmed.

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The Fourth Circuit concluded that theinsurers’ reservations of rights did not include
sufficient information relating to the potential
bases for a coverage denial. Applying thestandard set forth in Harleysville Group
Insurance v. Heritage Communities, Inc.,
803 S.E.2d 288 (S.C. 2017) (discussed in our
February 2017 Alert), the court explainedthat “generic denials of coverage coupledwith furnishing the insured with a copy ofall or most of the policy provisions (througha cut-and-paste method) is not sufficient.”
Here, the first letter “merely refers theinsured to certain policy exclusions andsummarizes the general nature of those
exclusions.” The court found that this was
precisely the type of reservation that theHarleysville court deemed insufficient. The
second letter similarly referred to “coverage
issues” in general and indicated that “yourwork product is not covered” under certain
referenced exclusions. The court stated:“Under Harleysville, simply stating a policy
exclusion—without more—does not constitutea sufficient reservation of rights.”
As to a third letter, the court noted it wasa “closer question,” but concluded that thelisting of several exclusions, together withstatements that “coverage may be limited byseveral other exclusions and endorsements”
and that “[i]t is doubtful that the claim
alleges the happening of an ‘occurrence’or that the ‘claim alleges property damage
within the policy definition,” was insufficient.
In so ruling, the court emphasized thata reservation of rights must address
the question of “why” coverage may be
unavailable under certain policy provisions.

Arbitration Alert:
California Court Refuses To Order
Consolidated Arbitration Of
Dispute Involving Two Reinsurance
Agreements
A California trial court denied a motion tocompel consolidated arbitration of an entity’s
dispute with two reinsurers relating to thesame claim. Schools Ins. Authority v. General
Reinsurance Corp., No. 34-2022-00326377(Cal. Super. Ct. Nov. 23, 2022).
Schools Insurance Authority (“SIA”), an
entity that administers risk for public school
districts, entered into separate reinsurance
agreements with General Reinsurance Corp.
and Great American Insurance Company,
both of which contained arbitration
provisions. After SIA paid $2.6 million tosettle a claim against a school district, itsought indemnification from the reinsurers.
Both denied coverage on the basis that theclaim was outside the effective date of theircoverage periods. The parties tentatively
agreed to a consolidated arbitration but were
not able to agree on certain rules, including
the appointment of an arbitrator. SIA sought
to compel the reinsurers to participate ina consolidated arbitration pursuant to the
California Code of Civil Procedure, which
permits a court to consolidate arbitration
proceedings when certain factors are met.
The court denied the motion to compel
consolidated arbitration, ruling that
California’s procedural rules were
inapplicable based on the explicit reference
to the Federal Arbitration Act (“FAA”) in theagreement between General Reinsurance
and SIA. The court explained that where,
as here, an agreement states that claims
must be arbitrated pursuant to the FAA andthere is no other provision indicating an
intent to incorporate California arbitration
law, the arbitration is governed exclusively
by the FAA’s procedures rather than stateprocedural law.
The court noted that the agreement
contained a provision stating that it would
be interpreted in accordance with California
law, but explained that such reference(which was not within the arbitration
provision) was a choice of law provisionand did not evidence an intent to substitutestate arbitration procedural rules for the4

default FAA procedural rules. The court
stated: “Again, the governing language in thearbitration provision only refers to the FAA
and the general choice-of-law provision only
provides that the contract is governed by andinterpreted pursuant to California law. Thereis no statement that the contract is ‘enforced’
pursuant to California law.”
In addition, the court rejected SIA’scontention that General Reinsurance
implicitly waived any objection to a
consolidated arbitration. The court reasoned
that even though the parties tentatively
agreed to some form of a consolidated
arbitration, General Reinsurance did
not consent to the specific consolidated
arbitration request by SIA in accordance with
California procedural law.
Finally, the court emphasized that
notwithstanding its ruling, the parties were
free to reach any agreement regarding
a consolidated arbitration and that any
decisions relating to a consolidated
arbitration would be made by the arbitrator,
not the court.

Coverage Alerts:
Insured Breached Its Duty To
Cooperate And Is Therefore Not
Entitled To Coverage, Says Ninth
CircuitAffirming a Washington district court
decision, the Ninth Circuit ruled that aninsured breached its duty to cooperate andwas therefore not entitled to coverage undera marine policy. United States Fire Ins. Co. v.
Icicle Seafoods, Inc., 2022 WL 17424295 (9thCir. Dec. 6, 2022).
A policyholder sought “loss of hire” coverage
from its insurers for losses allegedly
stemming from damage to a fish processing
vessel. The insurers disputed coverage
under their policies and also argued that thepolicyholder breached its duty to cooperate
in the adjustment of the claim. The district
court ruled that the policyholder breachedan express duty to cooperate by withholding
historical financial information sought by the
insurers and that the insurers were therefore
discharged of their coverage obligations. The
Ninth Circuit affirmed.

The Ninth Circuit held that the district court
misconstrued a specific loss mitigation
provision as imposing a duty to cooperate,
but concluded that the error was harmlessbecause Washington law imposes an implied
duty of good faith and fair dealing thatobligates parties to cooperate with eachother. The court noted that an insurer may
be relieved of its coverage obligations if thepolicyholder fails to comply with a material
request and the insurer suffers resulting
prejudice, regardless of whether the duty tocooperate is expressly included in the contract
or implied by law, as was the case here. The
court concluded that this standard was met
because the policyholder failed to produce
material financial information relating to theunderlying claim for more than a year, despite
the insurers’ requests. The court further
held that the insurers were prejudiced by thedelay because the policyholder threatened
administrative action and a bad faith claim
if it did not receive payment in full for theclaim. The court explained: “Insurers thenfaced a ‘Hobson’s choice’ of either paying the[unsubstantiated] claim, or exposing itself tobad faith liability.”

Two Appellate Courts Address
Scope Of Coverage For Intentional
Acts Resulting In Unintended
Injuries
A South Carolina appellate court ruled that an
intentional acts exclusion barred coverage for
injuries arising out of a physical altercation,
regardless of whether the insured party
intended to cause harm to the victim. South
Carolina Farm Bureau Mutual Ins. Co. v.
Longphre, 2022 WL 17484348 (S.C. Ct. App.
Dec. 7, 2022).
An individual injured in a physicalaltercation argued that Farm Bureau, which
insured the other individual in the fight,
was required to provide coverage for his
injuries. Farm Bureau denied coveragebased on an intentional acts exclusion. The
court explained that the exclusion applied
because the record indicated that the insured
intentionally pushed the injured party. The
court deemed it irrelevant that the record
also contained evidence that the insured did
not intend to cause injury, explaining thatcoverage is excluded for unexpected results ofintentional acts. In granting Farm Bureau’ssummary judgment motion, the court notedthat the underlying complaint’s couching5

of the incident in terms of negligence did
not create a genuine issue of material fact
where, as here, the factual record indicatesunequivocal intentional conduct.
In contrast, a New York appellate court
affirmed a trial court decision denying
an insurer’s summary judgment motion
regarding its duty to defend and indemnify
claims arising out of a physical altercation.
Vermont Mutual Ins. Group v. LePore, 2022
WL 17490490 (N.Y. App. Div. Dec. 8, 2022).

read as alleging that [Cole’s] injuries were
negligently inflicted by [LePore].’”
The court noted that an insured may beentitled to coverage for an intentional act thatcauses an unintended injury, and explainedthat in evaluating whether coverage exists,a court typically looks to the point of viewof the insured to determine whether a result
was unexpected. Finally, the court held thatthe doctrine of transferred intent (underwhich a defendant may be held responsible
for unintentionally harming an individual if
the defendant intended to harm a different
individual) was inapplicable because it applies
to a tort analysis rather than an insurer’s
duties pursuant to a contract.

COVID-19 Alert:
LePore was sued by Cole for injuries Colesustained while trying to diffuse an altercation
between LePore and another party. LePore
sought coverage under a homeowners’ policy
which excluded coverage for bodily injury“[w]hich is expected or intended” by aninsured. The insurer denied coverage, arguingthat there was no “occurrence” under thepolicy and that an intentional acts exclusion
applied.
The court held that the insurer failed to meetthe “heavy burden” required to be relieved ofits duty to defend on a summary judgment
motion, emphasizing that there must be “nopossible factual or legal basis upon which
the insurer may eventually be held obligatedto indemnify the insured under any policy
provision.” The court explained that thebill of particulars indicated that LePore
negligently and carelessly struck Cole while
she was trying to stop the altercation, that
Cole was inadvertently hit by LePore, andthat LePore did not intend to injure Cole. The
court held that these allegations gave rise to
the possibility that Cole’s injuries resulted
from LePore’s unintentional conduct. The
court noted that while “the record contains
evidence suggesting that the incident at issue
was an intentional tort, ‘the pleadings can be

Joining Vast Majority Of State And
Federal Courts, Ohio Supreme
Court Rules That Pandemic-Related
Business Losses Are Not Covered
By All Risk Property Policy
Answering a certified question, the Ohio
Supreme Court ruled that a business owner
was not entitled to coverage for losses
incurred in the wake of government closure
orders aimed at slowing the spread of thevirus. Neuro-Communication Services, Inc. v.
Cincinnati Ins. Co., 2022 WL 17573883 (OhioDec. 12, 2022).
An Ohio district court certified the following
question to the Ohio Supreme Court:
Does the general presence in thecommunity, or on surfaces at a premises,of the novel coronavirus known as
SARS-CoV-2, constitute direct physicalloss or damage to property; or does
the presence on a premises of a person
infected with COVID-19 constitute direct
physical loss or damage to property atthat premises?
The court answered in the negative, holdingthat none of the three scenarios listed in
the question involved direct physical loss
or damage. As a preliminary matter, thecourt agreed with the insurer that “loss”
requires something physical in natureand does not include a loss of the ability
to use property for its intended purpose.
6

The court noted that the policy’s “period ofrestoration” provision, which refers to repair,rebuilding or replacement, reinforces theconclusion that loss must involve some sort ofphysical alteration.
With respect to the three factual scenarios
presented in the certified question, the court
noted that the first and third were “relatively
straightforward to answer” because they“clearly do not involve any physical alterationof Covered Property.” The court noted thatthe answer to the second scenario may
be less obvious, but was “not appreciably
different.” In particular, the court explainedthat regardless of whether virus particles exist
only temporarily on surfaces (a fact disputedby the parties), their mere existence does not
involve any physical alteration to property.
The court deemed it irrelevant that
subsequent policies issued by Cincinnati
included a virus exclusion (whereas thepolicy at issue did not) because the parol
evidence rule prohibits consideration of otheragreements absent ambiguity. Finally, thecourt distinguished cases outside the COVID19 context in which physical loss or damage
was found notwithstanding an alleged
absence of physical or structural alteration.
Those cases, arising out of the presenceof harmful gases, vapors or dust, involved
different policy language, property thatwas rendered uninhabitable or “an entirely
different degree of harm.”
In other COVID-19 coverage news, theMichigan Supreme Court issued threesummary orders this month, denying appealsbrought by insured restaurants whose claims
for business loss coverage were denied byappellate courts. See Gavrilides Mgmt. Co.,
LLC v. Michigan Ins. Co., SC 164166 (Mich.
Dec. 7, 2022); Three Won Three, Corp. v.
Property-Owners Ins. Co., SC 164565 (Mich.
Dec. 7, 2022); Gourmet Deli Ren Cen, Inc. v.
Farm Bureau Gen. Ins. Co. of Michigan, SC
164578 (Mich. Dec. 7, 2022).

STB News Alerts
Chet Kronenberg and associate Lindsay
DiMaggio authored an article titled “Ky.
Ruling Shows Need For Consistent Insurer
Claim Replies,” published by Law360. The
article details a recent decision in which
the Kentucky Supreme Court ruled thata policyholder’s tender of a government
subpoena to its directors and officers liability
insurer a few years before it was named
as a defendant in related civil litigation
did not trigger a prior-notice exclusion inits professional liability policy. The article
further explores implications of the decisionin future coverage litigation arising out ofyears-long governmental investigations.
Andy Frankel and Summer Craig authored
the United States chapter in the fifth editionof The Insurance Disputes Law Review.
The book, which is published as part of The
Law Reviews series, explores the quicklyevolving area of insurance disputes across 18
jurisdictions worldwide over the past year. It
examines important developments, featurescommentary on dealing with insurance
disputes and highlights mechanisms for
dispute resolution in each jurisdiction.

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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

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

Sarah E. Phillips+1-212-455-2891
sarah.phillips@stblaw.com

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

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

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

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

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

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mgarvey@stblaw.com

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+1-212-455-2228
gwang@stblaw.com

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

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

This edition of the
Insurance Law Alert was prepared by
Chet A. Kronenberg / +1-310-407-7557
ckronenberg@stblaw.com and
Joshua Polster / +1-212-455-2266
joshua.polster@stblaw.com
with contributions by Karen Cestarikcestari@stblaw.com.

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Please click here to subscribe to the Insurance Law Alert.
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