Insurance Law Alert

November 2023

In This Issue
West Virginia Supreme Court Adopts Continuous Trigger For Long Tail
Injury Claims Arising From Exposure To Harmful Substances
The West Virginia Supreme Court ruled that a continuous trigger applied to potentially trigger
occurrence-based policies in effect from initial exposure through manifestation of bodily injury
in a case involving a latent cancer. Westfield Ins. Co. v. Sistersville Tank Works, Inc., 2023
W.Va. LEXIS 455 (W. Va. Nov. 8, 2023). (Click here for full article)“Skilled inhandling catastrophic
event liability issues andbad faith disputes, and acts
for an enviable client rosterof market-leading
insurance providers.”— Chambers USA
2023

Ruling On Motion To Compel Production Of Allegedly Privileged
Documents, Illinois Court Addresses Scope Of Common Interest Doctrine
And “At Issue” Waiver
An Illinois district court granted in part and denied in part a motion to compel the productionof certain documents, and addressed the scope of the common interest doctrine and the “atissue” waiver of privilege. Ansur Am. Ins. Co. v. Borland, 2023 U.S. Dist. LEXIS 190193 (S.D.
Ill. Oct. 23, 2023). (Click here for full article)

Fifth Circuit Rules That Pre-Petition Payment Of Insurance Policy Limits
Triggers Preference Provisions Of Bankruptcy CodeThe Fifth Circuit ruled that a pre-petition policy limits settlement payment to a tort victim
may be classified as a “transfer of an interest of the debtor in property” pursuant to federalbankruptcy law. Law Office of Rogelio Solis PLLC v. Curtis, 2023 U.S. App. LEXIS 26621 (5thCir. Oct. 6, 2023). (Click here for full article)

Citing Insured’s Failure To Comply With Consent Provision,
Ninth Circuit Rules That Excess Insurer Has No Duty To Indemnify
Underlying Settlement
The Ninth Circuit ruled that an excess insurer had no duty to indemnify an underlying
settlement based on the insured’s failure to seek or obtain the excess insurer’s consent prior tosettlement. Vizio, Inc. v. Arch Ins. Co., 2023 U.S. App. LEXIS 28735 (9th Cir. Oct. 30, 2023).
(Click here for full article)

Insurance Implications Of New York Attorney General’s Public Nuisance
Lawsuit Against PepsiCo
In one of the first lawsuits of its kind, New York Attorney General Letitia James has sued
PepsiCo, alleging harm to the public and environment stemming from the company’s singleuse plastic bottles. The suit raises the question of whether insurance coverage is available forthis and future similar lawsuits. (Click here for full article)
Simpson Thacher & Bartlett LLP

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West Virginia Supreme Court Adopts Continuous Trigger
For Long Tail Injury Claims Arising From Exposure To
Harmful Substances
HOLDING

The West Virginia Supreme Court ruled that a continuous trigger applied to potentiallytrigger occurrence-based policies in effect from initial exposure through manifestation of
bodily injury in a case involving a latent cancer. Westfield Ins. Co. v. Sistersville Tank
Works, Inc., 2023 W.Va. LEXIS 455 (W. Va. Nov. 8, 2023).

BACKGROUND

From 1985 through 2010, Sistersville Tank Works was insured under a series of generalliability policies issued by Westfield. The policies covered bodily injury “which occurs
during the policy period” and defined “occurrence” as “an accident, including continuous orrepeated exposure to substantially the same general harmful conditions.”
In 2014, 2015 and 2016, three former employees of Sistersville were diagnosed with cancer
and sued the company, alleging negligent failure to maintain tanks at a chemical plant inWest Virginia. The claimants had worked at the plant for various times between 1960 and2006 and were allegedly exposed to harmful materials and fumes during the course of
their employment.
Westfield denied coverage for the suits and sought a declaration of no duty to defend orindemnify the claims. Westfield argued that there was no “occurrence” within any policy
period because the claimants were not diagnosed with cancer until after the expiration of
the last liability policy. Ruling on the parties’ cross-motions for summary judgment, thedistrict court granted Sistersville’s motion, finding policy language ambiguous as to when
coverage was triggered. The district court also predicted that the West Virginia Supreme
Court would apply a continuous trigger to determine each insurer’s coverage obligations
over successive policy periods. On appeal, the Fourth Circuit noted the absence of West
Virginia authority on this issue and certified the following question to the West Virginia
Supreme Court: “At what point in time does bodily injury occur to trigger insurance
coverage for claims stemming from chemical exposure or other analogous harm that
contributed to development of a latent illness?”

DECISION

The West Virginia Supreme Court deemed the insuring
clause of the policy ambiguous as to what event(s) triggers
coverage in the context of latent or progressive diseases.
Noting that ambiguities must be resolved in favor of theinsured, the court endorsed the continuous trigger theory.
The court also found support for a continuous trigger
theory in the drafting history of general liability policies. In
particular, the court found “occurrence” language toencompass gradual or repeated exposure to harmful
conditions which inherently may occur over the course of
several policy periods.
Additionally, the court found that a continuous trigger
promotes cost efficiency because it “spread[s] the risk ofloss widely to all of the occurrence-based insurance policies
in effect during the entire process of injury or damage.”2

Finally, the court observed that while exposure to a harmful substance may not necessarily
cause an “immediate or discrete injury,” it is part of an ongoing injurious process, andtherefore constitutes “injury” under the continuous trigger theory.
COMMENTS

The West Virginia Supreme Court expressly rejected a manifestation trigger theory in thecontext of latent disease, deeming it inconsistent with both drafting history and the law
adopted by the majority of courts in other jurisdictions. The court noted that it had “foundno court that currently follows the manifestation trigger in the context of a bodily injury,
sickness, or disease.” In addition to the absence of historical or legal authority for amanifestation trigger, the court also deemed it inconsistent with policy language. In
particular, the court explained that the policy provides coverage for injuries taking place
during the policy period and thus “does not make coverage dependent on the time ofthe discovery.”

Ruling On Motion To Compel Production Of Allegedly
Privileged Documents, Illinois Court Addresses Scope Of
Common Interest Doctrine And “At Issue” Waiver
HOLDINGAn Illinois district court granted in part and denied in part a motion to compel the
production of certain documents, and addressed the scope of the common interest doctrine
and the “at issue” waiver of privilege. Ansur Am. Ins. Co. v. Borland, 2023 U.S. Dist. LEXIS
190193 (S.D. Ill. Oct. 23, 2023).

BACKGROUND

Ansur hired the defendant attorneys to represent its insured in an underlying productliability action. Thereafter, Ansur filed a legal malpractice suit alleging that the defendants
failed to adequately defend the insured, resulting in a higher than anticipated policy limits
settlement. In response, the defendants argued that Ansur was partly responsible for its
alleged loss.
In the malpractice suit, Ansur refused to produce certain materials on the basis of attorneyclient and work product privilege. The defendants moved to compel the production ofvarious materials, and the court addressed the following privilege-related issues: (1)whether certain individuals at Ansur were part of its “control group” such that theircommunications would give rise to a privilege; (2) whether Ansur and its reinsurers share
a common legal interest such that the sharing of privileged documents would not waive
privilege; and (3) whether Ansur waived privilege as to certain documents by placing theircontents “at issue” in the litigation.

DECISION

Under Illinois law, when a corporate client invokes attorney-client privilege, thecorporation must demonstrate that the employee involved in the communication falls
within the “control group” of the company. The court explained that the control groupconsists of two tiers: top management decision makers, and employees who directly advise
top management. In determining whether certain individuals were members of Ansur’scontrol group, the court emphasized that the focus must be on the level of decision-making
responsibility and the nature of advice given to decision makers, rather than the executive’s
job title.

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The court also addressed the defendants’ assertions that Ansur waived privilege as tocertain materials by sharing those materials with its reinsurers. Ansur argued that privilege
remained intact under the common interest doctrine, which holds that the privileged statusof otherwise protected documents is not waived by distribution to non-control group
parties where the parties to the communication share an “identical” interest and work
“toward a common legal goal.” The court noted that it was unable to determine whether anunderlying privilege existed in the first place without an inspection of the documents at
issue, but stated that “assuming an underlying privilege does exist, Ansur has submitted
affidavits demonstrating the common legal interest between Ansur and its reinsurers.”
Specifically, the court noted the common interest in holding the defendants liable for their
alleged malpractice and in recovering losses resulting from that malpractice. However, thecourt emphasized that communications between Ansur and its reinsurers are not protectedby the common interest doctrine if the content of those materials is not privileged in thefirst place, such as documents “related to finance or other insurance matters,” as opposed
to legal advice or legal strategy.
Finally, the court rejected the defendants’ contention that Ansur waived privilege as
to certain documents by placing the contents of such documents “at issue.” As thecourt noted, this doctrine prevents a party from strategically disclosing privileged
communications to use “as a sword,” but simultaneously invoking privilege “as a shield”
to other communications. The court concluded that Ansur did not place the contentsof any privileged materials “at issue” because it was defendants’ affirmative defense ofcontributory negligence (rather than the claims in the action filed by Ansur) that implicatedthe disputed communications.
COMMENTS

The decision sheds light on an important distinction in the context of whether certain
individuals are members of a company’s “control group” for purposes of attorney-client
privilege. The court emphasized that in order to be a member of a control group under
Illinois law, the employee must provide substantive advice that is relied upon by company
decision makers, rather than mere facts or information that is relied upon by decision
makers. Further, the decision suggests that an employee’s senior executive status, without
more, does not automatically qualify an individual as a control group member.

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Fifth Circuit Rules That Pre-Petition Payment Of
Insurance Policy Limits Triggers Preference Provisions
Of Bankruptcy CodeHOLDINGThe Fifth Circuit ruled that a pre-petition policy limits settlement payment to a tort victim
may be classified as a “transfer of an interest of the debtor in property” pursuant to federalbankruptcy law. Law Office of Rogelio Solis PLLC v. Curtis, 2023 U.S. App. LEXIS 26621(5th Cir. Oct. 6, 2023).

BACKGROUND

The dispute arose out of a motor vehicle accident that involved two fatalities. The family of
one victim (the Tellez family) filed suit against the tractor-trailer company whereas thefamily of the other victim (the Gomez family) issued a settlement demand for policy limits.
The insurer paid the policy limits to the Gomez family and then notified the Tellez family
that the policy had been exhausted. Thereafter, the Tellez family initiated an involuntary
bankruptcy proceeding against the tractor-trailer company. The interim trustee
commenced an adversary proceeding against the Gomez family, seeking to recover the
insurance proceeds paid to the Gomez family pursuant to Bankruptcy Code Section 547,
which provides the means by which a trustee may avoid any transfer of an interest of the
debtor in property, including those made on or within 90 days before the date of the filingof the petition. The Gomez family moved to dismiss, arguing that the proceeds were notproperty of the debtor’s estate since the debtor held “neither legal title in nor a contractual
right” to the policy proceeds, and otherwise lacked control over the disbursement of
those proceeds.
The bankruptcy court denied the motion to dismiss, ruling that the pre-petition paymentof the policy proceeds to the first family could be considered a “transfer of interest of the
debtor in property” under Section 547 of the Bankruptcy Code. More specifically, thecourt ruled that the Tellez family’s complaint, alleging over $8 million in claims against a$1 million policy limit, satisfied the “limited circumstances” set forth in Martinez v. OGA
Charters, L.L.C., 901 F.3d 599 (5th Cir. 2018), under which a debtor may have an equitableinterest in insurance proceeds such that they could be classified as property of the estate. In
OGA Charters, the Fifth Circuit specified that such limited circumstances may exist where,
as here, tort victims threaten the debtor’s estate over and above policy limits. The Fifth
Circuit affirmed.

DECISION

The Fifth Circuit ruled the debtor held an equitable property
interest in the policy proceeds under the precedent set forth in
OGA Charters. In OGA Charters, the court held that “where asiege of tort claimants threaten the debtor’s estate over and above
the policy limits, we classify the proceeds as property of theestate.” (Citations omitted). As the Fifth Circuit noted, thisproperty interest allows for a wider distribution of available assets
during liquidation of the estate.
Further, the Fifth Circuit deemed OGA Charters controlling,notwithstanding that OGA Charters presented the question ofwhether insurance proceeds were property of the debtor’s estatepursuant to Section 541 of the Bankruptcy Code (applicable where
policy proceeds have not been disbursed prior to petition), rather
than Section 547, at issue here, and which deals with pre-petition

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payments. In so ruling, the court noted that the meaning of the phrase “interest of the
debtor in property,” included in Section 541 is coextensive with the meaning of that samephrase in Section 547. The Fifth Circuit stated that:[T]he purpose of the avoidance provision is to [ ] preserve the property
includable within the bankruptcy estate . . . .“[P]roperty of the debtor”
subject to the preferential transfer provision is best understood as thatproperty that would have been part of the estate had it not been transferred
before the commencement of bankruptcy proceedings.
(Citations omitted). The Fifth Circuit therefore concluded that the bankruptcy court
correctly ruled that the trustee had properly alleged a transfer of the debtor’s property as
required by Section 547.
COMMENTSThis decision has important implications in the context of mass tort cases involving
multiple claimants seeking damages or settlement payments that exceed available
insurance proceeds. Under certain limited circumstances, pre-petition payments under aninsurance policy made within 90 days of the filing of a bankruptcy may be clawed backunder the Fifth Circuit’s rulings in OGA Charters and Curtis.

Citing Insured’s Failure To Comply With Consent
Provision, Ninth Circuit Rules That Excess Insurer Has
No Duty To Indemnify Underlying Settlement
HOLDING

The Ninth Circuit ruled that an excess insurer had no duty to indemnify an underlying
settlement based on the insured’s failure to seek or obtain the excess insurer’s consent prior
to settlement. Vizio, Inc. v. Arch Ins. Co., 2023 U.S. App. LEXIS 28735 (9th Cir. Oct.
30, 2023).

BACKGROUND

When Vizio was named as a defendant in a class action lawsuit arising out of its television
products, it notified Navigators, its primary insurer, and Arch, its excess insurer.
Navigators denied coverage and Arch requested more information. Vizio never provided
Arch with any substantive updates about the litigation and Arch never conveyed a formal
coverage decision, although Arch’s internal records reveal that Arch had decided to denycoverage. Two years later, Vizio settled the underlying suit without notifying Arch.
In ensuing coverage litigation, a California district court dismissed Vizio’s complaint, rulingthat it failed to properly notify Arch of a claim following exhaustion of primary policy
limits. The Ninth Circuit affirmed on different grounds.

DECISION

The Ninth Circuit ruled that the district court erred in holding that Vizio failed to provide
proper notice, explaining that the Arch policy did not require notice of a claim following
exhaustion of the primary policy limit. Rather, the policy required notice “as soon aspracticable after the . . . Company . . . becomes aware of such Claim.” The Ninth Circuit
held that Vizio’s original notice of the class action suit to Arch was sufficient under
the policy.
However, the Ninth Circuit ruled that Vizio failed to comply with its consent obligation,
rejecting Vizio’s assertion that the Arch policy did not incorporate the primary policy’s
consent provision. In particular, the court rejected Vizio’s assertion that the follow form

6

provision should be interpreted to mean that “only coverage” follows form, and does notindicate an intent for the consent clause to be incorporated in the excess policy. Similarly,
the court held that nothing in Arch’s excess policy conflicted with Navigator’s primarypolicy such that the Arch policy would “supersede” the consent provision in Navigator’s
policy. A clause entitled “Duties In The Event Of A Claim” in Arch’s policy, which did not
explicitly mention consent, merely required notification of claims and did not conflict withthe underlying consent provision.
Finally, the court rejected Vizio’s argument that it was excused from complying with theconsent provision because Arch breached its policy by not issuing a formal coverage denial.
The court noted that under California law, an “insurer’s breach of its policy renders a priorwritten consent provision unenforceable,” but explained that this principle applies only
when the policyholder has requested and been denied coverage. Here, however, Vizio neverrequested or had been denied coverage. Therefore, it was obligated to obtain Arch’s consent
prior to settlement.
COMMENTSThe Ninth Circuit’s decision highlights an important limitation on an insurer’s statutory
obligation to issue a coverage decision in a timely manner. California statutory law
indicates that an insurer’s failure to accept or deny coverage within 40 days of tenderconstitutes a breach of the policy. 10 C.C.R. § 2695.7(b). The court deemed this statutory
provision inapplicable to the present case, noting that it applies only after an insurer
receives “proof of claim,” defined as evidence that “reasonably supports the magnitude or
the amount of the claimed loss.” 10 C.C.R. § 2695.2(s). Here, Vizio had only provided“notice of claim,” defined by state statutory law as “notification to an insurer . . . thatreasonably apprises the insurer that the claimant wished to make a claim against a policy . .
. and that a condition giving rise to the insurer’s obligations under that policy or bond may
have arisen.” 10 C.C.R. § 2695.2(n). As such, the Ninth Circuit concluded that the statutory
40 day coverage denial did not apply.

Insurance Implications Of New York Attorney General’s
Public Nuisance Lawsuit Against PepsiCo
In one of the first lawsuits of its kind, New York Attorney General Letitia James has sued PepsiCo, alleging harmto the public and environment stemming from the company’s single-use plastic bottles. New York v. PepsiCo,Inc., No. 814682/2023 (N.Y. Sup. Ct. Erie Cnty. filed Nov. 15, 2023). The complaint alleges that PepsiCo’s
packaging “contributes significantly to high levels of plastic pollution along the Buffalo River, pollution thatis contaminating drinking water and harming wildlife.” Additionally, it alleges that PepsiCo failed to warn
consumers about these risks and misled the public about its efforts to combat pollution. According to thelawsuit, the vast majority of the trash collected at sites along the Buffalo River over the past decade was plastic,a significant amount of which came from PepsiCo products. The suit seeks injunctive relief, disgorgement, civil
penalties and restitution for the alleged damage.
The PepsiCo lawsuit raises the question of whether insurance coverage is available for this and future similar
lawsuits. Such determinations will ultimately depend on governing jurisdictional law and applicable policy
language, including in particular, exclusions relating to pollution and known loss. With respect to the pollution
exclusion, it may be noteworthy that the New York suit does not allege direct discharges of harmful plastic by
PepsiCo into the environment, but rather that its products ended up in New York rivers through consumer
misuse. Coverage disputes may implicate numerous other issues, including whether a policyholder’s conduct
constitutes an “occurrence” rather than intentional conduct and whether injunctive relief or monetary damages in
the form of penalties or disgorgement is subject 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

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

Bryce L. Friedman+1-212-455-2235
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Abigail W. Williams+1-202-636-5569
abigail.williams@stblaw.com

This edition of the
Insurance Law Alert was
prepared by Bryce L. Friedman /+1-212-455-2235
bfriedman@stblaw.com
Joshua Polster / +1-212-455-2266
joshua.polster@stblaw.com andKaren Cestarikcestari@stblaw.com.

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