Insurance Law Alert

February 2023

In This Issue
Illinois Court Rules That Filed-Rate Doctrine Does Not Preclude Excessive
Premium Claims During Pandemic
An Illinois district court declined to dismiss claims alleging that an insurer charged excessive
premiums during the COVID-19 pandemic, ruling that the filed-rate doctrine did not apply.
Thomas v. GEICO Cas. Co., 2023 U.S. Dist. LEXIS 19332 (N.D. Ill. Feb. 6, 2023). (Click here
for full article)

Emphasizing Key Distinction Between Defense And Indemnity
Obligations, Second Circuit Clarifies Jurisdictional Standard For
Declaratory Judgment Actions“[SimpsonThacher is] able tohandle both direct insurance
and reinsurance matters withequal flair, and also adept at
handling the most complex of disputes
regarding insurers’ business practices.
Often called on in cases involving
potentially significant exposure.”– Chambers USA 2022

The Second Circuit ruled that a New York district court properly concluded that it lacked
jurisdiction to rule on a declaratory judgment action regarding an insurer’s duty to indemnify
for lack of a justiciable case or controversy, but remanded the case so that the district court
could determine whether it had jurisdiction to address whether the insurer owed a duty to
defend. Admiral Ins. Co. v. Niagara Transformer Corp., 2023 U.S. App. LEXIS 297 (2d Cir.
Jan. 6, 2023). (Click here for full article)

Placement Of Barriers And Mementos At Site Of George Floyd Incident
Does Not Give Rise To Business Interruption Or Civil Authority Coverage
For Property Owner, Says Minnesota Court
A Minnesota district court dismissed a suit seeking business interruption and civil authority
coverage, finding that the placement of cement barriers and mementos during periods of civil
unrest did not constitute physical loss or damage to property or a prohibition on access toproperty. Cup Foods Inc. v. Travelers Cas. Ins. Co. of Am., 2023 U.S. Dist. LEXIS 10711 (D.
Minn. Jan. 23, 2023). (Click here for full article)

Eighth Circuit Predicts That South Dakota Supreme Court Would
Prohibit Assignment Of Legal Malpractice Claims Against InsurerAppointed Counsel
The Eighth Circuit dismissed a malpractice suit brought by a tort victim against insurerappointed counsel, ruling that the assignment of such claims was prohibited by South Dakota
law. Thompson v. Harrie, 2023 U.S. App. LEXIS 2753 (8th Cir. Feb. 3, 2023). (Click here forfull article)

Wisconsin Supreme Court Rules That Reckless Homicide Conviction DoesNot Eliminate Possibility Of “Accident” For Insurance Coverage Purposes
The Wisconsin Supreme Court ruled that a reckless homicide conviction, which entails theactor’s awareness of a risk of harm, does not necessarily preclude a finding of an “accident” forinsurance coverage purposes. Dostal v. Strand, 2023 Wisc. LEXIS 7 (Wis. Jan. 26, 2023).
(Click here for full article)
Simpson Thacher & Bartlett LLP

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Illinois Court Rules That Filed-Rate Doctrine Does Not
Preclude Excessive Premium Claims During Pandemic
HOLDINGAn Illinois district court declined to dismiss claims alleging that an insurer charged
excessive premiums during the COVID-19 pandemic, ruling that the filed-rate doctrine did
not apply. Thomas v. GEICO Cas. Co., 2023 U.S. Dist. LEXIS 19332 (N.D. Ill. Feb.
6, 2023).

BACKGROUND

In response to reduced rates of driving during the COVID-19 pandemic, GEICO
implemented a “giveback” program that applied a 15% premium reduction on automobile
policies. Plaintiffs alleged that this reduction was insufficient in comparison to the
reduction in policyholders’ risk profiles and therefore violated the Illinois Consumer Fraud
and Deceptive Business Practices Act. GEICO moved to dismiss the suit based on the
filed-rate doctrine, which prohibits courts from invalidating a rate that has been filed with aregulatory agency.

DECISION

Declining to apply the filed-rate doctrine, the court noted that the Illinois Department of
Insurance only publishes filed rates and has no authority to set or approve automobile
insurance rates. The court deemed this fact outcome determinative, rejecting GEICO’s
assertion that the mere filing of a rate with a state agency is sufficient to implicate thefiled-rate doctrine. While the Illinois Supreme Court has not addressed this issue, anintermediate state appellate court had also concluded that the doctrine does not apply
where a rate is filed, but is not subject to regulatory approval. The court distinguished aSeventh Circuit decision that applied the filed-rate doctrine to claims against a public
utility, explaining that it involved application of federal law rather than state law, and thatthe regulatory agency in that case (the Illinois Commerce Commission) had different
authority and responsibility than the Illinois Department of Insurance.

IMPLICATIONSLast year, the Second Circuit dismissed identical claims against GEICO, ruling that the
file-rate doctrine squarely applied because the premiums were approved by the New York
Department of Financial Services. (See June 2022 Alert). In other contexts, courts haveapplied the filed-rate doctrine broadly to bar statutory and common law claims against
both insurers and intermediaries. (See March 2022 Alert, November, October and January
2021 Alerts and September 2020 Alert). The Thomas decision sets a limit on the scope of
this doctrine, at least under Illinois law, for claims based on rates that are merely publishedby a regulatory agency, but not subject to any review or approval by that agency. However,the court acknowledged that other courts have held that filing alone is sufficient to
implicate the filed-rate doctrine.

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Emphasizing Key Distinction Between Defense
And Indemnity Obligations, Second Circuit
Clarifies Jurisdictional Standard For Declaratory
Judgment Actions
HOLDING

The Second Circuit ruled that a New York district court properly concluded that it lacked
jurisdiction to rule on a declaratory judgment action regarding an insurer’s duty to
indemnify for lack of a justiciable case or controversy, but remanded the case so that the
district court could determine whether it had jurisdiction to address whether the insurer
owed a duty to defend. Admiral Ins. Co. v. Niagara Transformer Corp., 2023 U.S. App.
LEXIS 297 (2d Cir. Jan. 6, 2023).

BACKGROUND

Niagara purchased PCB chemicals from Monsanto for use in its manufacture oftransformers. The purchase agreement provided that Niagara would defend and indemnify
Monsanto against any claims arising out of the PCBs. When Monsanto was named as adefendant in suits across the country, it demanded defense and indemnity from Niagara.
Although Niagara denied liability, Monsanto did not commence formal litigation against
Niagara. Thereafter, Niagara notified Admiral, its insurer, of Monsanto’s demands, seeking
defense and indemnity in connection with any claims made by Monsanto. Admiral denied
coverage and filed a declaratory judgment action, seeking a ruling that it had no duty to
defend or indemnify. The district court granted Niagara’s motion to dismiss on justiciability
grounds, ruling that there was no “case or controversy” under the Declaratory Judgment
Act because there was no “practical likelihood” that Niagara would incur liability. In soruling, the district court emphasized that Monsanto had not sued Niagara or explicitly
threatened to sue and that questions existed as to the enforceability of theindemnification agreement.

DECISION

The Second Circuit affirmed the district court’s ruling that it lacked jurisdiction to issue a
declaratory judgment as to Admiral’s duty to indemnify Niagara. The court explained that
because the duty to indemnify is triggered by a determination of liability; the absence ofany real or threatened litigation against Niagara, in conjunction with the uncertainty as tothe validity and scope of the indemnification agreement, meant there was no “practical
likelihood” of a case or controversy as to Niagara’s duty to indemnify Monsanto.
However, the court remanded the matter with respect to a declaration as to Admiral’s duty
to defend. The court explained that “the district court’s jurisdiction to declare Admiral’s
duty to defend Niagara properly turns on the question of whether there exists a ‘practical
likelihood’ that Monsanto will file suit.” (emphasis in original). Further, the court notedthat a third-party action against an insured is a sufficient, but not necessary, condition forjurisdiction over a Declaratory Judgment Act suit based on the duty to defend.
Importantly, the court emphasized that even if the district court concludes that it has
jurisdiction to declare Admiral’s duty to defend Niagara, it may nevertheless decline toexercise such jurisdiction.

IMPLICATIONSThis decision not only highlights the important distinction between an insurer’s defense
and indemnity obligations in the context of the justiciability analysis, but also clarifies the“considerable confusion” among district courts as to the scope of discretion in declining to
exercise jurisdiction in such cases, even where jurisdiction is deemed to exist. In particular,
the court reiterated the “broad discretion” of district courts to decline jurisdiction based on
six enumerated considerations, at the same time noting that discretion in this context is
not “unfettered.”3

Placement Of Barriers And Mementos At Site Of
George Floyd Incident Does Not Give Rise To Business
Interruption Or Civil Authority Coverage For Property
Owner, Says Minnesota Court
HOLDINGA Minnesota district court dismissed a suit seeking business interruption and civil
authority coverage under a property insurance policy, finding that the placement of cement
barriers and mementos during periods of civil unrest did not constitute physical loss ordamage to property or a prohibition on access to property. Cup Foods Inc. v. Travelers Cas.
Ins. Co. of Am., 2023 U.S. Dist. LEXIS 10711 (D. Minn. Jan. 23, 2023).

BACKGROUND

Following the killing of George Floyd in front of the policyholder’s store, the City of
Minneapolis placed cement barriers on nearby street corners. In addition, citizens placed
mementos and other structures at those intersections. The policyholder sought coverage
under its property policy’s business interruption and civil authority provisions andthereafter sued Travelers for breach of contract.

DECISION

The court granted Travelers’ motion to dismiss. The court ruled business interruption
coverage was unavailable based on the absence of allegations of physical loss or damage toproperty. The court noted that while the objects “occupied physical space,” there was no
physical alteration to property because the objects could have been moved. As such, thecourt distinguished cases involving contamination by pesticides or asbestos fibers,
explaining that those scenarios presented a physical alteration or contamination ofproperty by a harmful substance.
Additionally, the court held that the policyholder’s claim for civil authority coverage failed
because there was no prohibition on access to property. The court explained that while thebarriers might have restricted or hampered access to the policyholder’s store, they did notaltogether prohibit access. In so ruling, the court emphasized that customers were able toenter the intersections through gates or via sidewalks.

IMPLICATIONS

The wave of pandemic-related coverage litigation has shed light on the allegations
necessary to substantiate business interruption and civil authority coverage claims. The
Cup Foods decision applies those same well established principles to scenarios involving an
alleged loss in revenue related to civil unrest or protest. With respect to civil authority
coverage claims, this decision aligns with those issued in the wake of the September 11
terrorist attack. See 730 Bienville Partners Ltd. v. Assurance Co. of Am., 67 F. App’x 248(5th Cir. 2003) (FAA closure of airports after September 11 terrorist attacks did not“prohibit access” to policyholder’s hotels even though they significantly reduced hotel
capacity); 54th St. Ltd. Partners LP v. Fid. & Guar. Ins. Co., 306 A.D.2d 67 (N.Y. App. Div.
1st Dep’t 2003) (diversion of traffic that adversely affected policyholder’s restaurant was
not a denial of access for purposes of civil authority coverage).

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Eighth Circuit Predicts That South Dakota Supreme
Court Would Prohibit Assignment Of Legal Malpractice
Claims Against Insurer-Appointed Counsel
HOLDINGThe Eighth Circuit dismissed a malpractice suit brought by a tort victim against insurerappointed counsel, ruling that the assignment of such claims was prohibited by South
Dakota law. Thompson v. Harrie, 2023 U.S. App. LEXIS 2753 (8th Cir. Feb. 3, 2023).

BACKGROUND

An automobile accident resulted in the death of Thompson. When his estate sued the otherdriver involved, the driver’s automobile insurer appointed counsel to defend the action.
The action resulted in a default judgment against the driver, based upon counsel’s failure to
file an answer and his inability to practice law in South Dakota. Following the entry of
judgment against the driver, Thompson’s estate and the driver entered into an agreementin which all of the driver’s claims against its insurer and the law firm were assigned toThompson’s estate. Following the assignment, Thompson’s estate brought suit and the law
firm moved to dismiss. A South Dakota district court granted the motion.

DECISION

The Eighth Circuit affirmed the dismissal, predicting that the South Dakota Supreme Court
would not allow the assignment of legal malpractice claims. The court cited the “strictprivity rule” for legal malpractice claims and noted the prohibition on assignment of
personal injury claims. The court expressly distinguished cases involving assigned claims
against an insurance agent, emphasizing the heightened levels of confidence and trust
implicated in the attorney-client relationship.

IMPLICATIONS

The decision sets a bright line rule prohibiting the assignment of legal malpractice claims
under South Dakota law, as the court expressly rejected a “case-by-case approach” todecide the validity of such assignments. As the Eighth Circuit noted, the highest courts inseveral states have prohibited the assignment of legal malpractice claims. See October 2022
and September 2015 Alerts.

5

Wisconsin Supreme Court Rules That Reckless Homicide
Conviction Does Not Eliminate Possibility Of “Accident”
For Insurance Coverage Purposes
HOLDING

The Wisconsin Supreme Court ruled that a reckless homicide conviction, which entails theactor’s awareness of a risk of harm, does not necessarily preclude a finding of an “accident”
for insurance coverage purposes. Dostal v. Strand, 2023 Wisc. LEXIS 7 (Wis. Jan.
26, 2023).

BACKGROUND

Strand was convicted of reckless homicide following the death of his infant daughter.
Thereafter, the infant’s mother brought a negligence and wrongful death action against
Strand. Stand tendered the suit to State Farm, which denied coverage. State Farm argued
that the reckless homicide conviction, which required a finding that “Strand created an
unreasonable and substantial risk of death or great bodily harm and that he was aware ofthat risk,” precluded a finding that the events gave rise to a covered accident. Alternatively,
State Farm argued that coverage was barred by an intentional acts exclusion. The trial court
granted State Farm’s summary judgment motion and the intermediate appellate court
affirmed.

DECISION

The Wisconsin Supreme Court reversed. Addressing this matter of first impression under
Wisconsin law, the court held that the criminal conviction did not have preclusive effect as
to the coverage question. The court emphasized that the focus in the accident inquiry forinsurance coverage purposes is not whether the actor intended his actions, but whether heintended the results. The court stated: “A person may engage in behavior that involves a
calculated risk without expecting—no less reasonably—that an accident will occur. Suchbehavior, which may be reckless for criminal responsibility purposes, does not necessarilymean that the actor reasonably expected the accident to result.” (emphasis in original).
Further, the court noted that the jury addressed only the issue of criminal guilt and did not
make a determination as to what factual events actually occurred. Based on the disputed
versions of facts in the criminal case, the jury’s conviction could have been based on aseries of discrete events, some of which may be deemed accidental, the court explained.
Finally, the court ruled that issues of fact existed as to whether the intentional acts
exclusion applied. The exclusion barred coverage for bodily injury that is either expected orintended by the insured. The court acknowledged that while intent may be inferred where
the conduct is intentional and “substantially certain to cause injury,” it declined to “infer
intent to injure as a matter of law merely because the insured’s intentional act violated
the criminal law.” Because intent is not a requisite element of reckless homicide, the court
concluded that the conviction does not preclude a finding that Strand’s conduct was anaccident under the insurance policy.

IMPLICATIONS

Courts across jurisdictions employ different standards in evaluating whether conduct is“accidental” under a governing policy and under what circumstances an intent to injure
may be inferred. While the decision in Strand turns primarily on the specific facts
presented, including the absence of a special verdict in the criminal case and the nature of
the criminal charges, the decision illustrates the parameters of issue preclusion for mattersrelating to insurance coverage.

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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.

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

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

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

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

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Isaac M. Rethy+1-212-455-3869
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George S. Wang
+1-212-455-2228
gwang@stblaw.com

Abigail W. Williams+1-202-636-5569
abigail.williams@stblaw.com

This edition of the
Insurance Law Alert was prepared byBryce L. Friedman / +1-212-455-2235
bfriedman@stblaw.com andChet A. Kronenberg / +1-310-407-7557
ckronenberg@stblaw.com
with contributions by Karen Cestarikcestari@stblaw.com.

The contents of this publication are for informational purposes only. Neither this publication nor the
lawyers who authored it are rendering legal or other professional advice or opinions on specific facts
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Please click here to subscribe to the Insurance Law Alert.
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