Insurance Law Alert

November 2019

In This Issue
Delaware Supreme Court Rules That Claims Alleging Fraudulent Transfer,
Unlawful Dividend And Breach Of Fiduciary Duty Are Not Covered“Securities Claims”“Marketleader for insurer
representation, offering
unmatched ability inhandling bet-the-company
litigation and arbitration
proceedings.”– Chambers USA
2019

The Supreme Court of Delaware ruled that a Securities Claim coverage provision in an
Executive and Organization Liability policy is unambiguous and does not encompass avariety of statutory and common law claims arising out of a corporate “spin-off” transaction.
In re Verizon Ins. Coverage Appeals, 2019 WL 5615263 (Del. Oct. 31, 2019). (Click here forfull article)

Connecticut Supreme Court Rules That Crumbling Foundation Claims Are
Not Covered Under “Collapse” Provisions In Homeowners’ Policies
In three decisions issued this month, the Connecticut Supreme Court ruled that “collapse”
provisions in homeowners’ insurance policies do not encompass claims arising from defective
concrete. Karas v. Liberty Ins. Corp., 2019 WL 5955947 (Conn. Nov. 12, 2019); Vera v. Liberty
Mut. Ins. Co., 2019 WL 5955936 (Conn. Nov. 12, 2019); Jemiola v. Hartford Cas. Ins. Co.,2019 WL 5955904 (Conn. Nov. 12, 2019). (Click here for full article)

Two Collisions Within One Second Constitute Two Separate Occurrences,
Says Pennsylvania Court
A Pennsylvania federal district court ruled that an automobile accident involving two collisions
within a second of each other gave rise to two separate occurrences for insurance coveragepurposes. Busby v. Steadfast Ins. Co., 2019 WL 5682758 (E.D. Pa. Oct. 31, 2019). (Click here
for full article)

West Virginia Does Not Recognize Broker’s Duty To Advise Or Special
Relationship Test, Says State Supreme Court
The Supreme Court of Appeals of West Virginia ruled that West Virginia does not recognize a
broker’s duty to advise clients or any “special relationship” exception that would trigger such aduty. Mine Temp, LLC v. Wells Fargo Ins. Servs. of W. Va., 2019 WL 5692296 (W. Va. Nov. 4,2019). (Click here for full article)


Simpson Thacher & Bartlett LLP

1

Reversing Trial Court, Michigan Appellate Court Deems Application
Misrepresentation Material, Warranting Rescission
A Michigan appellate court ruled that an insurer was entitled to rescind a policy based on amaterial misrepresentation in the application but remanded the matter for a determination as
to whether the policy should be reformed to provide coverage for an additional insured. Doa
Doa, Inc. v. PrimeOne Ins. Co., 2019 WL 5680994 (Mich. Ct. App. Oct. 31, 2019). (Click here
for full article)

Michigan Court Rules That Insurance Policy Is Executory Contract And
That Insurer Cannot Enforce Bankruptcy Exclusion
A Michigan federal district court ruled that an insurance policy was an executory contract andthat an otherwise applicable bankruptcy exclusion constituted an unenforceable ipso facto
clause. In re Cmty. Mem’l Hosp., 2019 WL 3296994 (E.D. Mich. July 23, 2019). (Click here forfull article)

Insurer Entitled To Compel Production Of Confidential Settlement
Agreement Between Insured And Third Party In Separate Matter, Says
Ohio Court
An Ohio federal district court compelled an insured to produce a confidential settlementagreement, finding the agreement relevant to a pending action between the insurer andinsured, and not otherwise privileged. Navigators Specialty Ins. Co. v. Guild Assocs., Inc.,
2019 WL 5962686 (S.D. Ohio Nov. 12, 2019). (Click here for full article)

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

2Securities Claim
Alert:

Delaware Supreme Court Rules
That Claims Alleging Fraudulent
Transfer, Unlawful Dividend And
Breach Of Fiduciary Duty Are Not
Covered “Securities Claims”
The Supreme Court of Delaware ruled thata Securities Claim coverage provision in an
Executive and Organization Liability policy
is unambiguous and does not encompass
a variety of statutory and common law
claims arising out of a corporate “spin-off”
transaction. In re Verizon Ins. Coverage
Appeals, 2019 WL 5615263 (Del. Oct.
31, 2019).
The coverage dispute arose out of a “spinoff” transaction by which Verizon created
Idearc, a new corporate entity, anddistributed shares of Idearc common stock
to Verizon shareholders. When Idearc filed
for bankruptcy several years later, U.S.
Bank, as trustee for creditors, sued Verizon
and others, alleging violations of fraudulent
transfer statutes, payment of unlawful
dividends and common law claims for breachof fiduciary duty, unjust enrichment and alter
ego liability. Verizon ultimately prevailed attrial after incurring more than $48 million
in defense costs. Verizon’s insurers refused
to cover the defense costs on the basisthat the complaint did not allege covered“Securities Claims,” defined, in part, as claims
alleging a “violation of any federal, state,
local or foreign regulation, rule or statuteregulating securities.”
A Delaware trial court ruled that the
Securities Claim provision was ambiguousand should be construed in Verizon’s favor.
In doing so, the trial court interpreted
the provision to encompass any claim“pertaining to laws one must follow whenengaging in securities transactions.” Basedon this interpretation, the trial court granted
Verizon’s summary judgment motion.
The Supreme Court of Delaware reversed,
deeming the provision unambiguous. The
court reasoned that the language of theprovision mirrors the language used in“a specific area of the law recognized as
securities regulation.” Therefore, the court

explained, the Securities Claim provision
is “aimed at a particular area of the law,
securities law, and not of general application
to other areas of the law.” Because none of
the underlying claims implicated a regulation,
rule or statute specifically directed atsecurities law, the court held that the insurers
had no duty to fund Verizon’s defense. As thecourt noted, the New York Court of Appeals
and the Ninth Circuit have construed similar
provisions in the same manner.

Defective Concrete
Alert:

Connecticut Supreme Court Rules
That Crumbling Foundation Claims
Are Not Covered Under “Collapse”
Provisions In Homeowners’ Policies
In three decisions issued this month, theConnecticut Supreme Court ruled that“collapse” provisions in homeowners’
insurance policies do not encompass claims
arising from defective concrete. These
decisions illustrate the absence of insurance
coverage for the vast majority of claims
stemming from the faulty concrete used toconstruct the foundations of thousands ofConnecticut homes.
In Karas v. Liberty Ins. Corp., 2019 WL
5955947 (Conn. Nov. 12, 2019), the court
answered three certified questions. First, thecourt ruled that “substantial impairment ofstructural integrity” is the applicable standard
for collapse under a Liberty Mutual policy.
The insurer argued that the policy’s use of
the term “collapse” is unambiguous because
it specifically excludes settling, cracking,shrinking, bulging or expansion. The insurer
therefore asserted that the “substantial
impairment” standard—which applies whenpolicies do not define “collapse” and the termis therefore deemed ambiguous—should not
be taken into account when interpreting thepolicy at issue. Rejecting this contention,
the court concluded that the language wasinsufficient to remove ambiguity as to theexact scope of “collapse.” In so ruling, thecourt noted that the insurer could haveused more precise verbiage to limit collapse
to a sudden and catastrophic event, had it
so intended.
3

Second, the court clarified that the structural
impairment standard includes a temporalelement, requiring collapse to be imminent toqualify for coverage. The court noted that thisconclusion was supported by Connecticut’s
and other states’ case law and comports witha reasonable layperson understanding of
the term “collapse.” The court emphasizedthat whether the evidence satisfies thisstandard in any given case necessarily turns
on the specific facts, including in particular,
expert testimony.
Third, the court ruled that a policy exclusion
relating to the collapse of a “foundation”
unambiguously applies to the basement wallsof a home. The Connecticut Supreme Court
deemed inapposite or unpersuasive federal
and state court decisions that have “rejected
insurers’ claims that the foundation of a home
clearly includes the home’s basement walls”
and have reasoned that “foundation” canreasonably be interpreted to refer solely to thefootings beneath the basement walls.

On the same day that Karas was decided, theConnecticut Supreme Court also found nocoverage available for concrete claims in acase involving substantially identical policy
language. See Vera v. Liberty Mut. Ins. Co.,2019 WL 5955936 (Conn. Nov. 12, 2019). In a
third case, Jemiola v. Hartford Cas. Ins. Co.,2019 WL 5955904 (Conn. Nov. 12, 2019), thecourt affirmed a trial court decision holdingthat Hartford had no duty to cover the costsof replacing crumbling walls. The court
ruled that the collapse provision at issue—
which defined collapse as “an abrupt falling
down or caving in” such that it “cannot be
occupied for its current intended purpose”—
unambiguously foreclosed coverage given thatthe home remained standing and continued tobe occupied by the homeowner.

Number Of
Occurrences Alert:
Two Collisions Within One
Second Constitute Two Separate
Occurrences, Says Pennsylvania
Court

A Pennsylvania federal district court ruledthat an automobile accident involving two
collisions within a second of each other gave
rise to two separate occurrences for insurance
coverage purposes. Busby v. Steadfast
Ins. Co., 2019 WL 5682758 (E.D. Pa. Oct.
31, 2019).
A Lyft car carrying passenger Busby rearended a car when traffic came to a stop.
Approximately one second later, the Lyft
car was hit by the car behind it. Busby sued
both drivers and settled for an undisclosed
amount. Steadfast, Lyft’s insurer, paid Busby
the $1 million per-accident policy limit. In
addition, USAA, Busby’s automobile insurer
paid her $300,000, the per-accident limit.
Thereafter, Busby sued both insurers seeking
an additional $1 million from Steadfast and$200,000 from USAA for what she deemed“the second accident”—i.e., the rear-endingof the Lyft car. The insurers denied coverage,
arguing that the accident involved only one
covered accident.
The court disagreed and granted Busby’s
summary judgment motion. Applying
Pennsylvania’s cause-oriented approach,the court concluded that there was not one
proximate, uninterrupted cause of Busby’s
injuries. Although the two crashes took place
only one second apart, the court explainedthat “it was enough time for Busby to be
thrown forward as a result of the Lyft crashand then again as a result of the [second]crash.” The court further reasoned that thefirst collision was not the proximate cause of
the second collision, which might still haveoccurred even if the first had not taken place.
Notably, the court distinguished multi-car
collisions initiated by the last car in line,
stating: “[w]hat happened here is not like achain reaction motor vehicle crash where thelast car hits the car in front of it which thenhits the car in front of it as a result of thefirst impact . . . . [S]uch a ‘domino’ type ofcollision . . . would be one accident under the
relevant policies.”
4

Courts in other jurisdictions have reachedconflicting decisions as to whether and underwhat circumstances multi-car collisions
constitute a single occurrence or multiple
occurrences. See January 2019 Alert; June2018 Alert; March 2016 Alert; October
2015 Alert.

Broker Liability
Alert:

West Virginia Does Not Recognize
Broker’s Duty To Advise Or Special
Relationship Test, Says State
Supreme Court
Courts in numerous jurisdictions haveruled that insurance brokers may be liable
to insureds for negligent procurement or
failure to advise if the broker and insured
share a “special relationship.” See February
2018 Alert; October and March 2014 Alerts;
December 2012 Alert. This month, theSupreme Court of Appeals of West Virginia
weighed in, ruling that West Virginia does
not recognize a broker’s duty to advise clientsor any “special relationship” exception thatwould trigger such a duty. Mine Temp, LLC v.
Wells Fargo Ins. Servs. of W. Va., 2019 WL
5692296 (W. Va. Nov. 4, 2019).
Mine Temp, a mining company, contractedwith Wolf Run Mining to provide independent
contractors to work at a coal mine operated
by Wolf Run. Pursuant to the contract, Mine
Temp was required to indemnify Wolf Run
for claims arising out of the mining operationand to obtain general liability insurance witha $1 million limit. Mine Temp utilized Wells
Fargo’s brokerage services to obtain suchinsurance and ultimately purchased a policy
from Chubb Custom Insurance Company.
When a Mine Temp employee was fatally
injured at a Wolf Run mine, his estate sued
Mine Temp and Wolf Run. Chubb refused
to defend or indemnify Mine Temp on thebasis of an Employer’s Liability Exclusion.
Thereafter, Mine Temp sued Wells Fargo,
claiming that the broker breached its duty
to act with reasonable care in obtaining
the appropriate insurance. A West Virginia
Circuit court granted Wells Fargo’s summary
judgment motion.

The Supreme Court of Appeals of West
Virginia affirmed, holding that West
Virginia law does not recognize a negligent
procurement claim against an insurance
agent, even under special circumstances. The
court stated: “this Court has never recognized
an insurance agent’s ‘duty to advise’ . . . nor
the ‘special relationship’ exception that would
trigger such a duty.” Further, the court notedthat regardless of whether a duty to advise
exists, the negligent procurement claim basedon the lack of coverage for claims arising outof the mining contract was moot. The court
explained that because the independent
contractor agreement had expired prior to thefatal accident, it was no longer an “insured
contract” under the policy.

Rescission Alert:

Reversing Trial Court, Michigan
Appellate Court Deems Application
Misrepresentation Material,
Warranting Rescission
A Michigan appellate court ruled that aninsurer was entitled to rescind a policy
based on a material misrepresentation in
the application but remanded the matterto determine whether the policy should
be reformed to provide coverage for an
additional insured. Doa Doa, Inc. v.
PrimeOne Ins. Co., 2019 WL 5680994 (Mich.
Ct. App. Oct. 31, 2019).
PrimeOne issued general liability andproperty insurance to Doa Doa (“DDI”),
the owner of a bar. Garden City Real Estate(“GCRE”), the owner of the building inwhich the bar was located, was listed as anadditional insured in the general liability
section of the policy, but not the property
section. When a fire destroyed the bar, DDI
and GCRE sought coverage from PrimeOne.
During its claim investigation, PrimeOne
discovered that the bar had called the police
several times during the prior few years in
response to various incidents of criminal
activity. This contradicted a statement madeby DDI in the policy application, which asked:“Number of police calls within the past year
(If any describe in detail).” In response, DDI
stated that one call relating to a fight had beenplaced. PrimeOne sought to rescind the policy
based on this misrepresentation.
5

A trial court denied PrimeOne’s summary
judgment motion, finding that issuesof fact existed as to whether the alleged
misstatement was material. The trial court
reasoned that materiality turned on credibility
determinations regarding the testimony ofPrimeOne’s President and underwriter, bothof whom stated that the policy would not havebeen issued had they known about the bar’s
history of police activity.
The appellate court reversed, deeming themisrepresentation material as a matter oflaw. The appellate court emphasized thatthe application asked not only about the
number of police calls, but also the nature ofthose calls. The bar’s failure to provide that
information was material, the court reasoned,
because PrimeOne’s underwriting guidelines
provided that it would not insure any businesswith two or more assault or battery incidents
within the past three years. Had the bar
answered the application question fully andhonestly, PrimeOne would have rejected theapplication as a matter of course. As such,the contested testimony and subsequentcredibility determination were unnecessary toprove materiality.
The court rejected DDI’s contention thatPrimeOne’s failure to ask about police call
activity in most of its other policy applications
evidenced a lack of materiality. The court
stated: “differently worded questions
designed to collect information about risk
do not bear upon the question of whether,
if presented with the information about
the multiple prior police calls to Bar 153,
defendant would have chosen to issue theparticular insurance policy to DDI.”
With respect to GCRE’s coverage claim, thecourt noted that the remedy of rescission as to“innocent third parties” uninvolved in making
any misrepresentations is a matter of equity
within the court’s discretion. Here, there
was no indication in the record that GCRE
was involved in filling out the insurance
application. Therefore, the court remanded
the matter to determine whether rescission
as to GCRE would be equitable or whether
reformation was warranted.

Bankruptcy Alert:

Michigan Court Rules That
Insurance Policy Is Executory
Contract And That Insurer Cannot
Enforce Bankruptcy Exclusion
A Michigan federal district court ruled thatan insurance policy was an executory contract
and that an otherwise applicable bankruptcy
exclusion constituted an unenforceable ipso
facto clause. In re Cmty. Mem’l Hosp., 2019
WL 3296994 (E.D. Mich. July 23, 2019).
At the time of its bankruptcy filing,
Community Memorial Hospital (“CMH”)
was insured under a D&O policy issued by
National Union. Following its bankruptcy
petition, CMH renewed the policy. At CMH’s
request, the renewal policy included a “tail”
endorsement that provided coverage forclaims made during the three-year period
following the wind-down. When a trust,acting as assignee of CMH’s rights, sued
former directors and officers, National Union
denied coverage. The insurer argued thatcoverage was barred by Endorsement 10
to the policy, which excluded coverage forloss in connection with a claim “alleging,arising out of, based upon, attributable to,or in any way involving . . . any Wrongful
Act which is alleged to have led to or
caused . . . bankruptcy.” Thereafter, the trust
filed suit, seeking a ruling that Endorsement
10 was an unenforceable ipso facto clause—i.e., “a provision in an executory contractthat provides for termination or modification
based on the filing of a bankruptcy petition.”
Such clauses are prohibited under federalbankruptcy law. See 11 U.S.C. § 365(e)(1).
As a preliminary matter, the court addressed
whether the insurance policy was an“executory contract,” because the prohibition
on ipso facto clauses applies only to suchcontracts. Under bankruptcy precedent,
courts have defined “executory contract”
to mean a contract “so far unperformedthat failure of either [party] to complete
performance would constitute a material
breach excusing performance of the other.”National Union argued that the tail coverage
at issue constituted a policy distinct from thepre-bankruptcy insurance policy and wastherefore not subject to the Bankruptcy Codeprohibitions relating to executory contracts.
In contrast, the trust asserted that the tail6

coverage was merely a continuation of the
pre-petition policy and was part of thatoriginal, unperformed contract. The court
agreed with the trust, explaining that the
tail coverage was “an appendage to the 2012
policy,” with “pre-petition roots that make itpart of an executory contract.”
Having deemed the policy an executory
contract, the court also concluded that
Endorsement 10 was an unenforceable ipso
facto clause. As to this point, the court notedthat it had held in a previous ruling that theipso facto prohibition may be triggered even if
the challenged clause invalidates only part ofa contract, rather than the entire contract.
The decision is significant in its finding thatthe pre- and post-petition insurance policies
at issue were “essentially the same” forpurposes of the executory contract analysis.
However, the court expressly distinguishedcases involving “distinctively different”
insurance policies issued before and after thebankruptcy and cases in which the debtor
entered into a new policy with a different
insurer post-petition, such that there was nocontinuing relationship between the parties.
In those instances, courts have not deemed
insurance policies to be executory contracts.

Discovery Alert:

Insurer Entitled To Compel
Production Of Confidential
Settlement Agreement Between
Insured And Third Party In
Separate Matter, Says Ohio Court
An Ohio federal district court compelled aninsured to produce a confidential settlementagreement, finding the agreement relevant
to a pending action between the insurer
and insured, and not otherwise privileged.
Navigators Specialty Ins. Co. v. Guild
Assocs., Inc., 2019 WL 5962686 (S.D. Ohio
Nov. 12, 2019).

by Bio-Energy in both litigations overlapped,
entitling Ace American to view the settlement
to ensure there would be no double recovery.
The court noted that third parties havestanding to challenge confidentiality orders
in order to obtain relevant information.
Furthermore, the court explained, “absent
some privilege or other compelling reason
to protect the contents of a settlementagreement, there is a strong public policy infavor of granting access to such documents.”
Applying these principles, the court granted
Ace American’s motion to compel. The court
reasoned that the information contained in
the settlement agreement was not privileged
and was relevant to Ace American’s pending
litigation given the substantial overlap ofdamages sought by Bio-Energy in bothcases. However, the court cautioned thatthe ultimate issue of admissibility of thesettlement agreement in Ace American’s
litigation was a separate issue to be
determined by the trial court in that matter.

STB News Alerts
Andy Frankel was named a Law360 MVP in
the practice area of Insurance, an honor given
to top attorneys selected by the publicationfrom a group of over 900 submissions.
Susannah Geltman and Summer Craig
co-authored The Insurance Disputes Law
Review (U.S.) (edition 2). The publication
provides an overview of recent developments
and expected trends in insurance law,
including an analysis of recent cases in theareas of cyber-related incidents, climatechange litigation and allocation.

Ace American Insurance Company, anon-party to the action, sought to compel
production of a settlement agreement
filed under seal between its policyholder,
Bio-Energy LLC, and Guild Associates.
Ace American argued that the settlementagreement was relevant to its own litigation
with Bio-Energy because the damages sought
7

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 D. Kibler+1-310-407-7515
mkibler@stblaw.com

Susannah S. Geltman+1-212-455-2762
sgeltman@stblaw.com

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

Michael J. Garvey+1-212-455-7358
mgarvey@stblaw.com

Elisa Alcabes+1-212-455-3133
ealcabes@stblaw.com

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

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

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

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

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

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

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

Craig S. Waldman+1-212-455-2881
cwaldman@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.
8SimpsonThacherWorldwide

UNITED STATESEUROPE

SOUTH AMERICANew York
425 Lexington Avenue
New York, NY 10017+1-212-455-2000

LondonCityPoint
One Ropemaker Street
London EC2Y 9HUEngland+44-(0)20-7275-6500

São Paulo
Av. Presidente Juscelino
Kubitschek, 1455
São Paulo, SP 04543-011
Brazil+55-11-3546-1000

Houston
600 Travis Street, Suite 5400
Houston, TX 77002+1-713-821-5650
Los Angeles
1999 Avenue of the Stars
Los Angeles, CA 90067+1-310-407-7500
Palo Alto
2475 Hanover Street
Palo Alto, CA 94304+1-650-251-5000
Washington, D.C.
900 G Street, NW
Washington, D.C. 20001+1-202-636-5500

ASIA

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

9