Insurance Law Alert

October 2020

In This Issue
Trial Court Erred In Ruling That Asbestos-Related Injury-In-Fact Occurs
From Date Of First Exposure Through Death, Says New York Appellate
Court
A New York appellate court ruled that a trial court erred in holding that injury-in-fact in anasbestos action occurs from the date of first exposure through death or filing of suit, thereby
triggering every policy during that time frame. Carrier Corp. v. Allstate Ins. Co., 2020 WL
5987010 (N.Y. App. Div. 4th Dep’t Oct. 9, 2020). (Click here for full article)“[SimpsonThacher is] able
to handle both direct
insurance and reinsurance
matters with equal flair, and also
adept at handling the most complex
of disputes regarding insurers’
business practices.”– Chambers USA
2020

Deeming Excess Policy’s “Exhaustion” Requirement Ambiguous, NewYork Court Rules That Reinsurer Is Bound By Cedent’s Underlying
Allocation
A New York district court ruled that a “follow the settlements” clause obligates a reinsurer
to indemnify its cedent’s settlement payments, rejecting the reinsurer’s assertion that theunderlying settlement was outside the scope of coverage under the cedent’s excess policy
because the “exhaustion” requirement was not met. Fireman’s Fund Ins. Co. v. OneBeacon Ins.
Co., 2020 WL 6135101 (S.D.N.Y. Oct. 19, 2020). (Click here for full article)

Delaware Court Rules That Insurer Must Defend Opioid-Related
Litigation Against Rite Aid
A Delaware trial court ruled that an insurer is obligated to defend Rite Aid in certain lawsuits
relating to its distribution of opioids, finding that the suits alleged bodily injury and that policy
exclusions do not bar coverage. Rite Aid Corp. v. Ace American Ins. Co., 2020 WL 5640817(Del. Super. Ct. Sept. 22, 2020). (Click here for full article)

Courts Continue To Weigh In On Viability Of Covid-Related Coverage
Claims, Most Siding With Insurer
Courts across the country continue to address whether and under what circumstances Covidrelated business loss claims may proceed against insurers. (Click here for a jurisdictional chartthat summarizes recently-issued decisions)

NAIC Adopts Guiding Principles On Insurers’ Use Of Artificial Intelligence
In August 2020, the National Association of Insurance Commissioners unanimously adopted
guiding principles on the use of artificial intelligence that emphasize the importance ofaccountability, compliance and transparency in the use of artificial intelligence in insurance
operations. (Click here for full article)


Simpson Thacher & Bartlett LLP

1

OFAC And FinCEN Warn Of Risks Relating To Ransomware Payments
On October 1, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control and
Financial Crimes Enforcement Network concurrently issued formal advisories warning cyber
insurance firms and others of the regulatory risks relating to ransomware payments.
(Click here for full article)

Addressing Matter Of First Impression, Connecticut Supreme Court
Dismisses Asbestos-Related Medical Monitoring Claim
The Connecticut Supreme Court dismissed a putative class action seeking medical monitoring
relief, finding that even if Connecticut law recognized such a claim, plaintiffs failed to establish
a genuine issue of material fact as to whether medical monitoring was “reasonably necessary.”
Dougan v. Sikorsky Aircraft Corp., No. 2020 WL 5521391 (Conn. Sept. 14, 2020). (Click here
for full article)

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

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Trigger Alert:
Trial Court Erred In Ruling That
Asbestos-Related Injury-InFact Occurs From Date Of First
Exposure Through Death, Says New
York Appellate Court
A New York appellate court ruled that a trial
court erred in holding that injury-in-fact inan asbestos action occurs from the date offirst exposure through death or filing of suit,
thereby triggering every policy during thattime frame. Carrier Corp. v. Allstate Ins. Co.,
2020 WL 5987010 (N.Y. App. Div. 4th Dep’t
Oct. 9, 2020).
In this asbestos-related coverage suit, a
New York trial court granted the insured’s
partial summary judgment motion, rulingthat all policies in effect from first exposure
through death or commencement of suit
were triggered. The appellate court reversed,
ruling that an issue of fact exists as to theappropriate trigger under New York’s
injury-in-fact standard. More specifically,
the appellate court held that the insurer
raised a factual dispute as to whether
injury-in-fact occurs only when “a thresholdlevel of asbestos fiber or particle burden isreached that overtakes the body’s defense
mechanism.” The appellate court rejected
the insured’s contention that the insurer
was estopped from asserting this argument
because it was party to a case in California
in which the issue was litigated and decided
against it. Dismissing the collateral estoppel
argument, the court noted that the issues
in the two cases were not identical and that
New York and California apply different
substantive laws in determining what event
triggers asbestos-related coverage, or whenasbestos-related injury occurs.

The appellate court also ruled on several
other issues, including allocation. Relying on
Matter of Viking Pump, Inc., 27 N.Y.3d 244(2016) (discussed in our May 2016 Alert),
the court ruled that the non-cumulation andprior insurance clauses in the policy at issue“plainly contemplated” all sums allocationand vertical exhaustion.

Reinsurance Alert:
Deeming Excess Policy’s“Exhaustion” Requirement
Ambiguous, New York Court
Rules That Reinsurer Is Bound By
Cedent’s Underlying Allocation
A New York district court ruled that a“follow the settlements” clause obligates areinsurer to indemnify its cedent’s settlement
payments, rejecting the reinsurer’s assertion
that the underlying settlement was outside
the scope of coverage under the cedent’s
excess policy because the “exhaustion”
requirement was not met. Fireman’s Fund
Ins. Co. v. OneBeacon Ins. Co., 2020 WL
6135101 (S.D.N.Y. Oct. 19, 2020).
Fireman’s Fund issued excess liabilities to
Asarco. The policies conditioned payment on
exhaustion of underlying insurance, stating“[i]t is a condition that the insurance afforded
under [the policy] shall apply only after all theunderlying insurance has been exhausted.”
One of the excess policies was reinsured byGeneral Accident Insurance Company, with
OneBeacon as General Accident’s successorin-interest. The facultative certificate included
a follow the settlements provision, which,under New York law, obligates OneBeacon toaccept Fireman’s Fund’s good faith payment
decisions that are arguably within the scopeof coverage.
OneBeacon denied coverage, claiming thatthe follow the settlements provision doesnot “cure [Fireman’s Fund’s] failure tocomply with the exhaustion requirements inthe underlying Policies.” More specifically,
OneBeacon argued that Fireman’s Fundviolated the exhaustion requirement of its
excess policies because it allocated a portionof its settlement payment to a policy without
first paying the full policy limits of underlying
excess policies.

3The court deemed the undefined term
“exhaustion” ambiguous because it did not
expressly address whether the exhaustion
requirement could be met by settlement
payments or conversely, whether it required
actual payments by underlying insurers.
Having found ambiguity, the court adhered to
New York precedent holding that ambiguous“exhaustion” provisions are not construed torequire direct payment by underlying insurers
as a condition precedent to recover excess
insurance. As such, the court concluded that
OneBeacon was bound by Fireman’s Fund’s
settlement allocation.
The court distinguished decisions holding
that, for purposes of triggering excess
coverage, exhaustion requires actual payment
by underlying insurers, noting that thosecases involved different policy language or
jurisdictional law. See Ali v. Fed. Ins. Co.,
719 F.3d 83 (2d Cir. 2013) (see June 2013
Alert); Citigroup Inc. v. Federal Ins. Co., 649
F.3d 367 (5th Cir. 2011) (see September 2011
Alert); Forest Labs., Inc. v. Arch Ins. Co., 38
Misc. 3d 260 (N.Y. Sup. Ct. 2012), aff’d, 116
A.D.3d 628 (1st Dep’t 2014) (see October 2012
Alert). As discussed in previous Alerts, courts
have issued mixed decisions in this context,
driven largely by applicable “exhaustion”
policy language. See April 2018 Alert, June
2016 Alert, November 2015 Alert, September
2014 Alert, May 2014 Alert, December 2013
Alert, June 2013 Alert, October 2012 Alert,
April 2012 Alert, and October 2011 Alert.

Opioid Alert:
Delaware Court Rules That Insurer
Must Defend Opioid-Related
Litigation Against Rite Aid
A Delaware trial court ruled that an insurer
is obligated to defend Rite Aid in certain
lawsuits relating to its distribution of opioids,
finding that the suits alleged bodily injury andthat policy exclusions do not bar coverage.
Rite Aid Corp. v. Ace American Ins. Co., 2020
WL 5640817 (Del. Super. Ct. Sept. 22, 2020).
According to the court, certain government
entities alleged that Rite Aid knowingly
distributed opioids to its local pharmacies andimproperly dispensed prescription opioids
to its customers, which contributed to andperpetuated drug addiction, resulting ininjuries or death. Rite Aid sought a defense
under a 2015 policy issued by Chubb. The
insurer denied a duty to defend because,
among other things, the underlying claims
alleged economic loss rather than damages“because of personal injury,” required totrigger a duty to defend under the policy. Bothparties moved for summary judgment on the
duty to defend, and the court ruled in Rite
Aid’s favor.
Addressing choice of law, the court declined
to decide whether Delaware or Pennsylvania
law governed the dispute, holding thatboth states have significant interests in thelitigation and that the laws of the two states
do not differ materially with respect to therelevant issues. The court then ruled that theunderlying claims sought damages “becauseof personal injury” because the policy defined
personal injury to include “bodily injury.”
The court rejected Chubb’s assertion that theclaims alleged only economic loss because theunderlying plaintiffs were not the individuals
who actually suffered from opioid addiction.
In so ruling, the court relied on Cincinnati
Ins. Co. v. H.D. Smith LLC, 829 F.3d 771 (7thCir. 2016) (discussed in our July/August 2016
Alert) and Acuity v. Masters Pharmaceutical
Inc., 2020 WL 3446652 (Ohio Ct. App.
June 24, 2020) (discussed in our June
2020 Alert), which held that the policy’s
use of the phrase “because of bodily injury”
encompassed claims brought by the state torecover damages incurred due to the opioid
epidemic. Those courts reasoned that eventhough the government entities were seeking
damages for their own economic losses, someof those losses were arguably “because of
bodily injury.”
The court also concluded that the underlying
claims alleged only one occurrence andthus that the policy’s “Retained Limit” wassatisfied. Applying a cause-based analysis, thecourt explained that the tortious distribution
and/or dispensing of opioids arose from asingle occurrence because all injuries anddamage resulted from the same proximate
cause—Rite Aid’s alleged negligent action
in failing to implement proper controls.
The court rejected Chubb’s contention that
distribution and dispensing are separate
occurrences because they constitutedistinct activities that may result in distinct
economic losses.

4Additionally, the court rejected a“manifestation” trigger. Chubb argued that
under Pennsylvania law, the only potentiallyapplicable policy is the one in effect whenharmful effects first manifest themselves,
and thus that it has no duty to defend
because here, any alleged personal injury firstmanifested before 2015. See Pennsylvania
National Mutual Cas. Ins. Co. v. St. John, 106
A.3d 1 (Pa. 2014). However, the court ruledthat a “multiple trigger" applies for “latent
injury” cases, noting that “such injuries many
not manifest themselves until a considerable
time after the initial exposure causing injury
occurs.” The court ruled that the personal
injury of opioid abuse falls into the category ofsuch “latent injury.” Finally, the court rejected“known loss” or “loss in progress” defenses,
explaining that the allegation that Rite Aid

had “mere knowledge of a risk” prior to thepolicy period is not sufficient to bar coverage.
Alternatively, the court reasoned that thepolicy applies to “each separate person’sbodily injury occurring during the policy
period,” such that even if “Rite Aid knew it
injured certain persons before 2015, this does
not necessarily demonstrate that it also knew
it injured different persons in 2015.”
Courts in other jurisdictions have declined
to find coverage for opioid-related claims
by government entities. See, e.g. Travelers
Prop. Cas. Co. of Am. v. Actavis, Inc., 2017
WL 5119167 (Cal. App. Ct. Nov. 6, 2017);
Cincinnati Ins. Co. v. Richie Enterprises LLC,
2014 WL 3513211 (W.D. Ky. 2014) (discussed
in our November 2017 Alert).

Covid Alert:
Courts Continue To Weigh In On Viability Of Covid-Related Coverage Claims, Most
Siding With Insurer
Courts across the country continue to address whether and under what circumstances Covid-related businessloss claims may proceed against insurers. In this issue and in upcoming months, we keep you updated througha jurisdictional chart that summarizes recently-issued decisions.
Case

Jurisdictional
Law

Key Holdings and Notable Findings

Hilcrest Optical, Inc. v.
Continental Casualty Co.,
2020 WL 6163142 (S.D.
Ala. Oct. 21, 2020)

Alabama• Optometrist office’s coverage suit dismissed based on failure to allege“direct physical loss of or damage to property.” Temporary inability to use
property due to government actions does not constitute a direct physicalloss of property.
• Court rejects policyholder’s assertion that “extra expense” provision,
which refers to “period of restoration,” contemplates an inability to use
property as a direct physical loss.
• Court refuses to certify to the Alabama Supreme Court the question ofwhether Covid-related shut down orders allege “direct physical loss.”

Seifert v. IMT Ins. Co.,
2020 WL 6120002 (D.
Minn. Oct. 16, 2020)

Minnesota• Hair salon’s coverage suit dismissed based on failure to allege “direct
physical loss of or damage to” property, noting that mere “loss of use orfunction” is not sufficient. “Actual physical contamination” of the insured
property must be alleged.
• Civil authority coverage claims fail for the additional reason thatpolicyholder was not prohibited from entering insured property becauseof any “actual contamination or damage.”• Claims are also barred by virus exclusion that applies to any loss caused“directly or indirectly” by a virus. Thus, salon’s assertion that loss
was caused by government orders rather than virus is unpersuasive.
“Pursuant to the anti-concurrent loss provision, if a virus is any part ofthe casual chain causing a loss, then the loss is not covered.”

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Case

Jurisdictional
Law

Key Holdings and Notable Findings

It’s Nice, Inc. v. State
Farm Fire and Casualty
Co., No. 2020L000547(Ill. Cir. Ct. Sept. 29,
2020) (Oral Transcript)

Illinois• Restaurants’ coverage suit dismissed based on absence of allegations
asserting “direct physical loss,” emphasizing that complaint did not allege
presence of actual virus on the premises.
• Direct physical loss unambiguously requires “some form of actual
physical damage to the insured premises.” Under Illinois law,interpretation of the word physical in insurance contracts “is widely held
to exclude alleged losses that are intangible or incorporeal . . . such as
detrimental economic impact unaccompanied by a distinct demonstrable
physical alteration of the property.”• Even if insured alleged direct physical loss, coverage would be barred byvirus exclusion.

North State Deli, LLC v.
Cincinnati Ins. Co., No.
20-CVS-02569 (N.C.
Superior. Ct. Durham
Cnty. Oct. 7, 2020)

North Carolina

Oral Surgeons, P.C. v.
Cincinnati Ins. Co., 2020
WL 5820552 (S.D. Iowa
Sept. 29, 2020)

Iowa

Harvest Moon
Distributors, LLC v.
Southern-Owners Ins.
Co., 2020 WL 6018918(M.D. Fla. Oct. 9, 2020)

Florida• Restaurants are entitled to lost business income and extra expense
coverage stemming from government orders, based on court’s
determination that “accidental physical loss or accidental physicaldamage” is ambiguous.
• Court concludes that “direct physical loss” includes “the inability toutilize or possess something in the real, material, or bodily world” andthus encompasses a business owner’s loss of use or access to its businessproperty.
• Dental office’s coverage suit seeking business interruption coverage
dismissed based on failure to allege “physical” or “accidental” loss.
• Court references recent decisions holding that “virus-related closuresof businesses do not amount to direct loss to property by the Cincinnati
policy of insurance.”• Wine and beer distributor’s claim for coverage for losses incurred after
Disney refused to accept shipment or make payment during Covid-related
closure of park stated a plausible claim of “direct physical loss of ordamage to” property based on allegations that beer spoiled and became
undrinkable.
• Business income and extra expense claims nonetheless fail based on
failure to allege “suspension” of business operations. While Disney may
have suspended its operations, complaint fails to allege the policyholder
terminated all of its business activities.
• Exclusion for losses caused by “[a]cts or decisions . . . of any person,group, organization or governmental body” bars coverage because
Disney’s decision to refuse to accept product or issue payment was causeof policyholder’s loss.

Urogynecology Specialistof Florida, LLC v. Sentinel
Ins. Co., Ltd., 2020 WL
5939172 (M.D. Fla. Sept.
24, 2020)

FloridaInfinity Exhibits, Inc. v.
Certain Underwriters at
Lloyd’s London known
as Syndicate PEM 4000,
2020 WL 5791583 (M.D.
Fla. Sept. 28, 2020)

Florida• Medical office’s breach of contract claim against insurer is a “plausible
claim at this juncture” given lack of “binding case law on the issue of theeffects of COVID-19 on insurance contracts[’] virus exclusions.”• Court deems exclusion ambiguous based on missing portions of policythat were not submitted to the court.
• Trade shows’ coverage claims dismissed with prejudice based on failure
to allege “direct physical loss or damage to” property, noting that further
amendment of complaint would be futile.
• Court relies on Eleventh Circuit’s decision in Mama Jo’s (a non-Covid
coverage decision denying coverage for cleaning expenses based on lackof “direct physical loss”) and a series of recent Covid-related decisions
across jurisdictions, including Turek, 10E, LLC, Malube, Mudpie, andPappy’s) (discussed in last month’s Alert).

6

Case

Jurisdictional
Law

Key Holdings and Notable Findings

Travelers Casualty Ins.
Co. of Am. v. Geragos
and Geragos, 2020 WL
6156584 (C.D. Cal. Oct. 19,
2020)

California• Law firm’s counterclaims for business income and civil authority coverage
dismissed with prejudice based on lack of “direct physical loss of ordamage to property.”Franklin EWC, Inc. v.
Hartford Financial Servs.
Grp., Inc., 2020 WL
5642483 (N.D. Cal. Sept.
22, 2020)

California

Henry’s Louisiana Grill,
Inc. v. Allied Ins. Co. ofAm., 2020 WL 5938755(N.D. Ga. Oct. 6, 2020)

Georgia• Civil authority coverage is also barred by virus exclusion.
• Salon’s coverage claims dismissed based on virus exclusion, which applies
to “presence, growth, proliferation, spread or any activity of ‘fungi,’ wetrot, dry rot, bacteria or virus.”• Insured’s argument that civil authority coverage exists notwithstanding
virus exclusion because the government closure orders (rather than thevirus) prohibited access to their property is deemed “nonsense.”• Restaurant’s claims for coverage under business loss and civil authority
provisions dismissed based on absence of “direct physical loss of ordamage to” covered property.
• Construing government orders as constituting a direct physical loss
“exceeds any reasonable bounds of possible construction” and “would
potentially make an insurer liable for the negative effects of operationalchanges resulting from any regulation or executive decree, such as a
reduction in a space’s maximum occupancy.”• Civil authority coverage also rejected because insured failed to allege aprohibition on access to the premises.

Mark’s Engine Co. No.
28 Restaurant, LLC v.
Travelers Indem. Co. ofConn., 2020 WL 5938689(C.D. Cal. Oct. 2, 2020)

California• Restaurant’s claims for coverage under business income and civil
authority provisions dismissed based on lack of “direct physical loss [of]or direct physical damage [to]” property.
• Under California law, “losses from inability to use property do not
amount to ‘direct physical loss of or damage to property.’”• Government’s characterization of insured’s business as “non-essential,”
resulting in economic consequences, does not satisfy physical alteration
requirement.
• “Whatever physical alteration the virus may cause to property in general,nothing in the [pleadings] plausibly supports an inference that the virus
physically altered Plaintiff’s property, however much the public healthresponse to the virus may have affected business conditions for Plaintiff’s
restaurant. Even if Plaintiff could somehow recover for physical loss ordamage to other property, such loss or damage could hardly qualify as‘direct.’”• Even assuming the insured alleged direct physical loss, coverage is barredby a virus exclusion.

Vandelay Hospitality
Grp. v. Cincinnati Ins.
Co., 2020 WL 5946863(N.D. Tex. Oct. 7, 2020)

Texas• Restaurant’s complaint dismissed based on failure to plausibly plead“direct physical loss or damage.” Dismissal is without prejudice, allowing
policyholder opportunity to re-plead.

Rhonda Hill Wilson v.
Hartford Casualty Co.,
2020 WL 5820800 (E.D.
Pa. Sept. 30, 2020)

Pennsylvania• Law office’s coverage claims dismissed as a matter of law. Even assuming(without deciding) that Covid-related claims allege direct physical loss,
coverage is barred by a virus exclusion.
• Virus exclusion, which applies to “loss or damage caused directly or
indirectly by . . . fungi, wet rot, dry rot, bacteria or virus” “regardlessof any other cause or event that contributes concurrently or in any
sequence to the loss” is unambiguous and applies to Covid-related claims,
notwithstanding policyholders’ allegation that government orders were
the direct cause of loss.

7

Case

Jurisdictional
Law

Key Holdings and Notable Findings

Blue Springs Dental Care,
LLC v. Owners Ins. Co.,
2020 WL 5637963 (W.D.
Mo. Sept. 21, 2020)

Missouri• Dental care clinics’ claims for coverage under business income and civil
authority provisions raise issues of fact as to whether complaint alleges“direct physical loss.”• Policyholders’ allegations, accepted as true for purposes of ruling on
the dispositive motion, claim that customers and employees were likely
affected with virus, that there was “actual contamination by COVID-19,”
and that the virus is “physically transmitted by air and surfaces throughdroplets, aerosols, and fomites that remain infectious for extended
periods of time.”• Court relies on Studio 417, Inc. v. Cincinnati Ins. Co., 2020 WL 4692385(W.D. Mo. Aug. 12, 2020) (discussed in July/August 2020 Alert).
• Court declines to rule as a matter of law that “necessary suspension”
of business, as set forth in business income provision, requires a total
cessation of business activity.
• With respect to civil authority coverage, policyholders sufficiently allegeda prohibition on access based on government stay-at-home orders, notingthat three clinics were closed entirely and that one clinic limited its
operations to emergency services.
• Policyholders’ designation as an “essential business” (and therefore
arguably exempt from the restrictions imposed by the stay-at-homeorders) is not fatal to civil authority coverage claims, because issues offact exist as to scope, applicability and impact of orders.

Francois Inc. v.
Cincinnati Ins. Co., No.
20CV201416 (Ohio Ct.
Comm. Pl. Sept. 29, 2020)(Summary Order)

Ohio• Restaurants’ “complaint states claims which arguably fit the terms andconditions of the insurance policy.”

In re: National Ski Pass
Ins. Litig., 2020 WL
5884793 (JPML Oct. 2,
2020)• The Judicial Panel on Multidistrict litigation created two multidistrict
litigations (“MDL”) to centralize cases arising out of insurers’ refusal tocover ski trips that were canceled due to Covid. One MDL, in Missouri,
is comprised of cases against Arch Insurance Company. The other, in
California, is comprised of cases against United Specialty Insurance
Company. The court declined to create a single nationwide MDL, citing alack of factual commonality across the actions against each insurer.

In re: Society Insurance
Co. COVID-19 Business
Interruption Protection
Ins. Litig., 2020 WL
5887444 (Ill. Oct. 2, 2020)• The Judicial Panel on Multidistrict Litigation centralized more than 30
lawsuits against Society Insurance Company in Illinois, finding MDL
to be an efficient path for resolution based on common legal and factual
questions.
• The litigation includes individual claims and putative class actions, andapplication of six states’ laws.

8Regulatory Alerts:
NAIC Adopts Guiding Principles
On Insurers’ Use Of Artificial
Intelligence
In August 2020, the National Associationof Insurance Commissioners unanimously
adopted guiding principles on the use of
artificial intelligence (“AI”). The guidelines,
which are “aspirational guideposts” rather
than binding regulations, emphasize theimportance of accountability, complianceand transparency in the use of AI ininsurance operations. One significant goalin enacting the principles is to avoid “proxy
discrimination against protected classes”
when using AI platforms within the insurance
industry. The principles also address concerns
about consumer privacy and digital security.

The use of AI technology in the insurance
sector is still relatively new, and thesegeneral guideposts may ultimately be thefirst step in the future of AI regulation. Next
steps may involve reporting or certification
requirements for insurance companies,
similar to regulations imposed in the
cybersecurity context last year. See March
2019 Alert. For now, an NAIC Executive
Committee member notes that insurers“should be responsible for the creation,
implementation and impacts of any AI
system, even if the impacts are unintended.”

OFAC And FinCEN Warn Of Risks
Relating To Ransomware Payments
On October 1, 2020, the U.S. Departmentof the Treasury’s Office of Foreign Assets
Control (“OFAC”) and Financial Crimes
Enforcement Network (“FinCEN”)
concurrently issued formal advisories
warning cyber insurance firms and others of
the regulatory risks relating to ransomware

payments. Ransomware is a form of malware
designed to extort ransom payments fromvictims by encrypting data or programson their information technology systems
and demanding payment in return for thedecryption key. Over the last few years,
ransomware has become increasingly
sophisticated, targeting major corporations
and demanding virtual currency payments
such as bitcoin in amounts that are equivalent
to millions of U.S. dollars.
These attacks are perpetrated by a number ofglobal bad actors, including certain persons
and entities that have been designated on
OFAC’s Specially Designated Nationals andBlocked Persons (“SDN”) List pursuant tocyber-related sanctions implemented by the
U.S. government. Cybercriminals designatedas SDNs include the criminal organization
appropriately named Evil Corp and many of
its constituents. OFAC’s advisory reiterates
and reinforces informal guidance that it
has offered to the cybersecurity industry
recently, cautioning that, absent a license, it
is a violation of law for a U.S. person or entity
to pay or facilitate a ransomware payment
to a party designated by OFAC on the SDN
List. Under some circumstances, even nonU.S. persons may be penalized by OFAC for
their involvement in ransomware payments.
OFAC’s guidance explains that it may impose
penalties for sanctions violations based onstrict liability, meaning that penalties may
be imposed on parties even if they did notknow or have reason to know that they were
engaging in or facilitating a transaction
involving an SDN. For that reason, OFAC isencouraging victims of ransomware attacks,
as well as those involved in providing cyber
insurance, digital forensics and incident
response, and ransom payment processors,
to implement risk-based compliance anddiligence procedures to ensure that ransom
payments are not directed to SDNs and othersanctioned parties. Ransomware victims andrelated parties are also encouraged to reportransomware attacks to law enforcement
during the event or immediately thereafter.
Relatedly, FinCEN’s advisory explains of
the regulatory risks for entities that processransomware payments. Ordinarily, payments
are effected through a multi-step process
involving at least one depository institution
and one or more money services businesses(“MSBs”). The ransomware victim’s fiat
currency is typically transferred to a virtual9currency exchange, converted to a particularvirtual currency specified in the ransom note,and then transferred to the perpetrator’s
virtual currency wallet. The perpetrator willthen launder these funds through a variety
of means and often through foreign-locatedexchanges in jurisdictions with weak antimoney laundering controls. Cyber insurance
providers should take note of three points
raised in the advisory. First, entities involvedin making ransomware payments should
reevaluate whether they are required toregister as an MSB with FinCEN and comply
with applicable anti-money laundering
provisions of the Bank Secrecy Act. This may
include, for example, ransomware negotiatorsthat are responsible for transferring ransom
funds. Second, FinCEN offers in the advisoryten “red flags” for financial institutions—
including the victim’s depository institution
from which funds are originally drawn—to
identify, prevent, and report ransomware
and associated payments. To that end, we
expect there to be an increased focus in thefinancial industry on these types of issues.
Third, FinCEN reminds financial institutionsof their obligations to file Suspicious
Activity Reports for certain suspicioustransactions. While insurance companies
are not required to file such reports except
in specific limited circumstances, there may
be instances where doing so may be prudent
or required by certain parties involved in theransomware payment.
These advisories should serve as abellwether for the cyber insurance industry,
demonstrating that relevant regulatory
agencies are becoming increasingly focusedon ransomware payments as a hot button
issue that may usher in an era of increased
enforcement in this space. Insurancecompanies offering cyber insurance productsthat reimburse insureds for ransomware
payments should take heed of these warnings
and the shifting regulatory landscape,and consider whether they are taking
adequate steps to mitigate the regulatory
risks described in both advisories. Whileconsideration of the reasonableness andsufficiency of any such efforts is highly
contextual and fact-specific, these advisories
reinforce the need to ensure that insurancecompanies have appropriately considered
the risks of making those payments, and theprocesses by which those payments are made.

MedicalMonitoring Alert:
Addressing Matter Of First
Impression, Connecticut Supreme
Court Dismisses Asbestos-Related
Medical Monitoring Claim
The Connecticut Supreme Court dismissed
a putative class action seeking medical
monitoring relief, finding that even if
Connecticut law recognized such a claim,
plaintiffs failed to establish a genuine issueof material fact as to whether medical
monitoring was “reasonably necessary.”
Dougan v. Sikorsky Aircraft Corp., 2020 WL
5521391 (Conn. Sept. 14, 2020).

Several workers sued Sikorsky Aircraft
Corporation and others after being exposed
to asbestos during a construction project.
The complaint alleged negligence, battery,recklessness and violations of the Clean
Air Act. Plaintiffs sought compensatory
and punitive damages, as well as medical
monitoring expenses. A Connecticut trial
court granted the defendants’ summary
judgment motion, citing the lack of evidence
demonstrating any issue of fact as to physicalinjury. The trial court declined to recognize
a cause of action for medical monitoringthat would allow recovery for increased risk
of future injury absent present injury. The
Connecticut Supreme Court affirmed on
different grounds.
The Connecticut Supreme Court assumed,
without deciding, that Connecticut law would
recognize a remedy for medical monitoring
absent a present manifestation of physicalharm where a “subclinical cellular injury”“substantially increase[s] the plaintiffs’
risk of cancer and other asbestos relateddiseases.” The court nonetheless dismissed
plaintiffs’ claims based on their inability
10to prove that medical monitoring was“reasonably necessary.” In so ruling, thecourt rejected plaintiffs’ contention thatthe necessity of medical monitoring could
be established through generalized expert
testimony concerning the harmful effects
of asbestos exposure. Instead, the court
held that expert evidence must speak to
the plaintiffs’ specific conditions. The court
stated: “[i]n the absence of expert testimony
demonstrating the necessity of future testing,a fact finder would be unable to accurately
conclude whether a plaintiff should recoverfor medical monitoring.”
As discussed in previous Alerts, there isno judicial consensus on whether medical
monitoring claims are recognizable or
the elements necessary to substantiate
such claims. Even where such claims arerecognized, plaintiffs often encounter
obstacles in seeking medical monitoring
relief, including, in particular, issues
associated with exposure and causation. See
January 2012 Alert, September 2011 Alert.

STB News Alerts
Bryce Friedman was profiled in Law360 as
an “MVP” in Insurance for 2020. Bryce wasrecognized for his work advising insurers in
obtaining favorable rulings on Covid-related
claims and serving as national litigation
counsel to challenge legislation that would
retroactively change insurance contracts torequire insurers to cover pandemic losses
despite virus exclusions.

Lynn Neuner was selected for the third
consecutive year by Euromoney’s Benchmark
Litigation as one of the “Top 100 Trial
Lawyers in America.” The list highlights elite
trial attorneys in the U.S. selected based onclient and peer review. Benchmark calls Lynna “major player in insurance, commercial
and securities cases,” and noted that she has“emerged as one of New York’s few authorities
in the false advertising capacity.”
Susannah Geltman was profiled as a 2020
“Rising Star” by the New York Law Journal.
Susannah was recognized for advisingclients across a wide range of high-stakes,
complex litigation matters. Her pro bono
work, including leading teams in two highprofile impact cases, along with NRDC, and
ACLU and AIC, was also highlighted. The
honorees are selected for their influencein their practice areas in New York andbeyond, demonstrating strong leadership
qualities, showing expertise in litigationand committing themselves to pro bono,charitable and professional volunteer work.
Euromoney’s Benchmark Litigation 2021
recognized Simpson Thacher’s Litigation
Department as Tier 1 across five practiceareas, including Insurance. Benchmark notesthat Simpson Thacher “boasts a long history
as one of New York’s, and the country’s, mostesteemed full-service legal brands,” that is“more comprehensive in terms of national
coverage.” The publication also quotes a client
saying, “Simpson Thacher is a go-to firm forany type of legal dispute . . . [a]ny individual
or entity that retains them is going to get thebest counsel possible.”11

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

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