Insurance Law Alert

November 2018

In This Issue
Wisconsin Supreme Court Rules That All Fire-Related Property Damage
Arose From A Single Occurrence
The Wisconsin Supreme Court ruled that a fire that lasted three days and damaged multiple
properties constituted a single occurrence under a general liability policy, subject to a single
per-occurrence limit. Secura Ins. v. Lyme St. Croix Forest Co., LLC, 2018 WI 103 (Oct. 30,2018). (Click here for full article)“Market leader for
insurer representation,offering unmatched ability
in handling bet-the-company
litigation and arbitration
proceedings.”– Chambers USA
2018

Fourth Circuit Rules That Claims Arising Out Of Two Bridge Collapses Are“Related” And Subject To Single Claim Limit
The Fourth Circuit ruled that an insurer was obligated to pay only a single claim limit under aliability policy with respect to multiple claims arising from two bridge collapses because claims
arising out of the collapses were “related claims.” Stewart Engineering, Inc. v. Continental
Cas. Co., 2018 WL 5832805 (4th Cir. Nov. 7, 2018). (Click here for full article)

Second Circuit Vacates Ruling In Insurer’s Favor In Hurricane Sandy
Property Damage Case
The Second Circuit ruled that a New York federal district court erred in granting summary
judgment to an insurer in a coverage dispute arising out of property damage caused by storm
surges during Hurricane Sandy. Madelaine Chocolate Novelties, Inc. v. Great Northern Ins.
Co., 2018 WL 5276274 (2d Cir. Oct. 23, 2018). (Click here for full article)

California Appellate Court Rules That Revocation Of Permit To Use
Property As Nightclub Constitutes Property Damage
A California appellate court ruled that a policyholder’s inability to use property as a nightclub
constituted covered property damage. Thee Sombrero, Inc. v. Scottsdale Ins. Co., No. E067505(Cal. Ct. App. Oct. 25, 2018). (Click here for full article)

Citing Ambiguities In Policy Application, Eighth Circuit Upholds Bad FaithAward Against Property Insurer
The Eighth Circuit affirmed a district court decision holding that a property insurer acted inbad faith by refusing to pay claims, rejecting the insurer’s assertion that the insurance contract
was void based on misrepresentations in the policy application. Hayes v. Metropolitan Prop. &Cas. Ins. Co., 2018 WL 5852740 (8th Cir. Nov. 9, 2018). (Click here for full article)

Simpson Thacher & Bartlett LLP

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Minnesota Supreme Court Rules That Statutory Law Prohibiting
Subrogation Actions Against Insureds Is Not Limited To Named Insureds
The Minnesota Supreme Court ruled that a state statute that prohibits an insurer from filinga subrogation action against its insured applies to any party covered by the insurance policy.
Depositors Ins. Co. v. Dollansky, No. A17-0631 (Minn. Nov. 14, 2018).
(Click here for full article)

Finding That Panel Exceeded Its Authority, New York Appellate Court
Vacates Arbitration Award
A New York appellate court vacated an arbitration award in an insurance dispute on the basisthat the arbitration panel exceeded its authority when it reconsidered a final liability award it
had previously rendered. American Internat’l Specialty Lines Ins. Co. v. Allied Capital Corp.,
2018 WL 5285241 (N.Y. App. Div. 1st Dep’t Oct. 25, 2018). (Click here for full article)

Ninth Circuit Asks Washington Supreme Court To Decide Whether
Authorized Agent Can Bind Insurer To Additional Insured Coverage
Where Certificate Disclaims Its Ability To Expand Coverage
The Ninth Circuit asked the Washington Supreme Court to address whether the rule that aninsurer is bound by an authorized agent’s representations overrides the rule that certificates of
insurance do not change the scope of coverage under a policy, where the certificate expressly
echoes the latter rule. T-Mobile USA Inc. v. Selective Ins. Co. of Am., 2018 WL 5905058(9th Cir. Nov. 9, 2018). (Click here for full article)

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Policy Limits
Alerts:
Wisconsin Supreme Court Rules
That All Fire-Related Property
Damage Arose From A Single
Occurrence
Reversing an appellate court decision, theWisconsin Supreme Court ruled that a firethat lasted three days and damaged multiple
properties constituted a single occurrence
under a general liability policy, subject to asingle per-occurrence limit. Secura Ins. v.
Lyme St. Croix Forest Co., LLC, 2018 WI 103(Oct. 30, 2018).
The coverage dispute arose out of a forest
fire that lasted three days and burned over
7,000 acres of land belonging to numerous
individuals and businesses. The fire allegedly
began in logging equipment owned by Duerr
Logging. Secura Insurance, Duerr’s generalliability insurer, sought a declaration thatthe fire was a single occurrence subject tothe policy’s $500,000 per-occurrence limit.
A Wisconsin circuit court rejected Secura’s
argument, holding that “each ‘seepage’ ofthe fire onto another’s property constitute[d]a separate occurrence” and thus that thepolicy’s $2 million aggregate limit applied.
An intermediate court of appeals affirmed,
finding that there was a separate occurrenceeach time the fire spread to a new pieceof real property. The Wisconsin Supreme
Court reversed.
Applying a cause theory under which there is
one occurrence when “a single, uninterrupted
cause results in all of the injuries anddamage,” the Wisconsin Supreme Court
concluded that all of the fire-related damage
arose from a single occurrence. The court
explained that the fire burned continuously
for three uninterrupted days and was caused
by a single precipitating event. Additionally,
the court noted that in focusing on thenumber of real properties damaged, theappellate and circuit court mistakenly applied
an effects-oriented analysis, which has been
rejected under Wisconsin law.
An Indiana appellate court also recently
applied a cause-based approach to find one
occurrence subject to a single per-occurrence
policy limit. Auto-Owners Ins. Co. v. Long,
2018 WL 5575178 (Ind. App. Ct. Oct. 30,2018). Reversing a trial court decision, theappellate court ruled that bodily injuriescaused by exposure to toxic fumes emanatingfrom a postal package arose from a single
occurrence. The appellate court reasoned
that although the policyholder committed
two wrongdoings (failing to properly
package and label the box in accordancewith postal regulations), the injuries arosefrom “one proximate, uninterrupted, andcontinuing cause.”

Fourth Circuit Rules That Claims
Arising Out Of Two Bridge
Collapses Are “Related” And
Subject To Single Claim Limit
As discussed in our March 2018 Alert, aNorth Carolina federal district court ruledthat an insurer was obligated to pay only asingle claim limit under a liability policy withrespect to multiple claims arising from two
bridge collapses because claims arising out of
the collapses were “related claims.” Stewart
Engineering, Inc. v. Continental Cas. Co.,2018 WL 1403612 (E.D.N.C. Mar. 20, 2018).
This month, the Fourth Circuit affirmed
the ruling. Stewart Engineering, Inc. v.
Continental Cas. Co., 2018 WL 5832805(4th Cir. Nov. 7, 2018).
Stewart was the structural engineer
designer for two pedestrian bridges. During
construction, both bridges collapsed, killing
one worker and injuring several others. Whensuits were filed against Stewart, it sought
defense and indemnity from Continental up
to the aggregate policy limit of $5 million.
Continental argued that its obligation was
limited to the $3 million per-claim limit.
The district court agreed and granted
Continental’s summary judgment motion.
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Affirming the district court, the Fourth Circuit
ruled that claims arising out of both bridge
collapses constituted “related claims,” definedby the policy as “all claims . . . arising out of. . . a single wrongful act; [or] . . . multiple
wrongful acts that are logically or causallyconnected by any common fact, situation,
event, transaction, advice, or decision.” The
Fourth Circuit explained that even though thetwo collapses caused different injuries, theyarose out of wrongful acts that were logicallyand causally connected. In particular, thecourt emphasized that claims arising out ofboth bridge collapses were connected by thefollowing common facts: a single contract for
Stewart’s design services for both bridges;
the same engineer and project manager
supervised both bridges; and “crucially,
the same design flaw caused the collapse ofboth bridges.”

Property Damage
Alerts:Second Circuit Vacates Ruling In
Insurer’s Favor In Hurricane Sandy
Property Damage Case
The Second Circuit ruled that a New Yorkfederal district court erred in granting
summary judgment to an insurer in acoverage dispute arising out of property
damage caused by storm surges during
Hurricane Sandy. Madelaine Chocolate
Novelties, Inc. v. Great Northern Ins. Co.,2018 WL 5276274 (2d Cir. Oct. 23, 2018).

Madelaine Chocolate suffered property
damage caused by storm surges—aphenomenon produced when water is pushed
towards the shore by the force of winds. The
company sought approximately $40 million
for property damage and $13.5 million forlost income and extra expenses under an allrisk policy issued by Great Northern. The
insurer refused to pay most of the claimed
amount on the basis that storm surges were
excluded from coverage. A New York district
court granted Great Northern’s summary
judgment motion, finding that coverage
was unambiguously excluded under a flood
exclusion.
Vacating the decision, the Second Circuit
held that the trial court erred in relying on
cases that involved different policy language.
In particular, the Second Circuit emphasizedthat the policy here contained a Windstorm
Endorsement, which operated to provide
coverage for windstorm-related losses. The
Windstorm Endorsement included an anticoncurrent causation clause which statedthat windstorm means wind “regardlessof any other cause or event that directly or
indirectly: contributes concurrently to; orcontributed in any sequence to, the loss ofdamage . . . .” The Second Circuit remanded
the matter, instructing the district court toassess whether the anti-concurrent causation
clause conflicts with or creates an ambiguity
with respect to the flood exclusion.

California Appellate Court Rules
That Revocation Of Permit To Use
Property As Nightclub Constitutes
Property Damage
Reversing a trial court decision, a California
appellate court ruled that a policyholder’sinability to use property as a nightclub
constituted covered property damage. Thee
Sombrero, Inc. v. Scottsdale Ins. Co., No.
E067505 (Cal. Ct. App. Oct. 25, 2018).
Sombrero, a commercial property owner,
obtained a conditional use permit to operate
its premises as a nightclub. Sombrero hired
Crime Enforcement Services (“CES”) to
provide security at the club. After a fatalshooting at the club, the conditional use
permit was revoked and replaced with amodified permit that allowed the property to
be used only as a banquet hall. Sombrero sued
CES, alleging that CES’s negligence caused
the shooting that resulted in the revocation of4the permit, which in turn caused a diminution
in property value and loss of income. After adefault judgment was entered against CES,
Sombrero sued Scottsdale, CES’s liability
insurer. A California trial court ruled in favorof Scottsdale, holding that Sombrero’s claim
was for economic loss, not covered “property
damage.” The appellate court reversed.
The policy defined property damage as“[p]hysical injury to tangible property” or“[l]oss of use of tangible property that is
not physically injured.” The appellate court
concluded that the revocation of the permit
constituted a loss of use of property because
without the permit, Sombrero could not use
the property as a nightclub. The court statedthat “the reasonable expectations of theinsured would be that ‘loss of use’ means theloss of any significant use of the premises,
not the total loss of all uses” (emphasis inoriginal). Additionally, the appellate court
ruled that the trial court erred in finding
only economic loss, explaining thatdiminution in property value was not theloss itself, but rather was a proper measureof damages for the loss of use of property asa nightclub.

levels of his residence to a tenant and her
two children.
Hayes sued Metropolitan for breach ofcontract and bad faith. The contract claim
was dismissed as time-barred, and the badfaith claim proceeded to a bench trial. A
Nebraska district court ruled in Hayes’ favor,
finding that the application was ambiguous
and therefore that Metropolitan could notestablish that Hayes knowingly provided
false information with the intent to deceive.
Finding no basis for rescission, the district
court concluded that Hayes had met hisburden of establishing Metropolitan’s
bad faith refusal to pay. The Eighth
Circuit affirmed.

Bad Faith Alert:
Citing Ambiguities In Policy
Application, Eighth Circuit Upholds
Bad Faith Award Against Property
Insurer
The Eighth Circuit affirmed a district court
decision holding that a property insurer
acted in bad faith by refusing to pay claims,
rejecting the insurer’s assertion that theinsurance contract was void based on
misrepresentations in the policy application.
Hayes v. Metropolitan Prop. & Cas. Ins. Co.,2018 WL 5852740 (8th Cir. Nov. 9, 2018).
Hayes sought coverage under a homeowner’s
policy for fire-related damage. Metropolitan
denied the claim, asserting that the policy
was void because Hayes made material
misrepresentations in his insurance
application. In particular, Metropolitan
argued that Hayes indicated on theapplication that his property was not used
for business or rental purposes, when in fact,
Hayes used his garage in connection withhis plumbing business and rented the upper

The Eighth Circuit rejected Metropolitan’s
assertion that Hayes lacked standing andthe court had no jurisdiction to hear thebad faith claim because the contract was
rescinded at the time of trial. The court
also held that rescission was improper
because Metropolitan failed to establish
deception and reliance, requisite elementsof misrepresentation. In addition, the Eighth
Circuit agreed with the district court’s
finding that the application was “not a modelof clarity” with respect to the issues of rental
or business usage because those questions
were answered with pre-printed “x”
notations rather than manually filled out
by Hayes himself.
Finally, the court upheld the district court’s
bad faith ruling, finding that Hayes met hisburden of demonstrating that Metropolitan
had no reasonable basis for denying his
5claim and acted with reckless disregard ofthat fact. In so ruling, the court emphasizedthat Metropolitan learned of Hayes’ use of
the garage for business purposes and of therental tenants shortly after the fire, but did
not seek to rescind the policy on those bases
until eighteen months later. The court also
noted that a finding of reckless disregard was
supported by the fact that Metropolitan tried
to secure a release of the bad faith claim in
exchange for paying off Hayes’ mortgage.

Subrogation Alert:
Minnesota Supreme Court Rules
That Statutory Law Prohibiting
Subrogation Actions Against
Insureds Is Not Limited To Named
Insureds
The Minnesota Supreme Court ruled that astate statute that prohibits an insurer fromfiling a subrogation action against its insured
applies to any party covered by the insurance
policy. Depositors Ins. Co. v. Dollansky, No.
A17-0631 (Minn. Nov. 14, 2018).

Dollansky rented a motor home from Karavan
Trailers, Inc. The rental agreement provided
that Dollanksy was responsible for all damage
to the motor home and required him to obtainan extension of his personal automobile
insurance for the motor home. When a firecaused damage to the motor home, Karavan
submitted a claim for the full amount ofdamage to Dollanksy’s automobile insurer.
The insurer paid the deductible but denied
coverage for the remainder of the claim.
Thereafter, Karavan submitted a claim to its
own insurer, Depositors Insurance Company,
which paid the full amount of damages.

Depositors then sued Dollansky, alleging that
it was subrogated to the rights of Karavan.
A Minnesota federal district court granted
Dollansky’s summary judgment motion, citing
Minnesota statutory law which prohibits
an insurance company from “proceed[ing]against its insured in a subrogation
action where the loss was caused by thenonintentional acts of the insured.” Minn.
Stat. § 60A.41(a) (2016). An intermediateappellate court affirmed, rejecting Depositors’
assertion that Dollansky was not an insured
within the meaning of the statute because he
was not a named insured on Karavan’s policy.
The Minnesota Supreme Court granted review
and affirmed.
The Minnesota Supreme Court rejected
Depositors’ contention that the statuteapplied only to named insureds, noting
the absence of the term “named insured”
in the applicable provision. However, theMinnesota Supreme Court found that thestatute was ambiguous because “insured”
could mean “any party covered by some partof the insurance policy,” or alternatively,
could mean “any party who is covered by the
specific section of the insurance policy thatapplies to the particular loss at issue.”
Relying on legislative history and public
policy considerations, the court concluded
that the term “insured” in § 60A.41(a) isintended to “broadly protect the rights of
insureds against subrogation” and thus
includes any person who has coverage under
the insurance policy. Applying this standard,
the court concluded that Dollansky was aninsured under Karavan’s policy because hehad permission to use the motor home andthe policy defined “insured” to include“[a]nyone else while using with yourpermission a covered ‘auto’ you own.”
The court acknowledged that its rulingconflicted with the rental agreement, whichassigned responsibility for any damage to
Dollansky, but reasoned that the statutory
language warranted that result. Finally,
the court noted that rather than seeking
subrogation against Dollansky, Depositors
could have brought an action against
Dollanksy’s insurer seeking reimbursement
or could have filed a declaratory judgment
action seeking a ruling on the priority of thetwo policies.

6Arbitration Alert:
Finding That Panel Exceeded Its
Authority, New York Appellate
Court Vacates Arbitration Award
A New York appellate court vacated anarbitration award in an insurance dispute on
the basis that the arbitration panel exceeded
its authority when it reconsidered a final
liability award it had previously rendered.
American Internat’l Specialty Lines Ins. Co.
v. Allied Capital Corp., 2018 WL 5285241(N.Y. App. Div. 1st Dep’t Oct. 25, 2018).

Allied sought defense and indemnity from
American International Specialty Lines
Insurance Company (“AISLIC”) for anunderlying False Claims Act suit that it
had settled for approximately $10 million.
When AISLIC denied coverage, Allied filed
for arbitration. During arbitration, theparties agreed that the panel would issue
an immediate determination as to AISLIC’s
liability under the policies and that a separate
evidentiary hearing would be held as to theamount of defenses costs, if any, to which
Allied was entitled. The panel issued a partial
final award which held that the underlying
claims against Allied were covered under thepolicy and that Allied was entitled to defense

and indemnity, but that the $10 million
settlement payment was not a covered “loss.”
The panel ordered a separate hearing toaddress defense costs.
Thereafter, the panel issued a “corrected”
partial final award. The “corrected” partial
final award was based on the panel’s view thatit could reconsider the original award because
it was not final since issues associated with
defense costs were outstanding. The correctedpartial final award changed course from theoriginal partial final award by holding thatthe underlying settlement was a covered loss
under AISLIC’s policy. Thereafter, the panel
issued a final award granting Allied more than
$11 million in damages and interest. A New
York trial court denied AISLIC’s motion tovacate the corrected partial award and final
award. The appellate court reversed.
The appellate court ruled that the arbitration
panel exceeded its authority when itreconsidered the partial final award. The
court explained that under the common
law doctrine of functus officio, an arbitrator
may not entertain an application to change
a final award, except to correct a deficiency
of form or miscalculation. The appellate
court emphasized that the parties had
expressly agreed that the panel was “to makean immediate, final determination” as toliability and that any subsequent hearing on
defense costs would be separately addressed.
Thus, once the panel made a determination
as to liability, and expressly labeled it a“partial final award,” “its authority over such
issue was ended.” Additionally, the courtemphasized that it was not bound by thepanel’s statements in the corrected award
that the original partial final award was not
final because the parties had not bifurcatedthe proceedings. The court stated that “[b]ythat logic, an arbitrator could avoid exceeding
his or her authority when reconsidering apartial final award as along as the arbitrator
stated that the parties did not bifurcate
the proceedings or that the arbitrator did
not intend for the award to be final as to aparticular issue.”7

Coverage Alert:
Ninth Circuit Asks Washington
Supreme Court To Decide Whether
Authorized Agent Can Bind Insurer
To Additional Insured Coverage
Where Certificate Disclaims Its
Ability To Expand Coverage
The Ninth Circuit asked the Washington
Supreme Court to address whether the rulethat an insurer is bound by an authorized
agent’s representations overrides the rulethat certificates of insurance do not change
the scope of coverage under a policy, where
the certificate expressly echoes the latterrule. T-Mobile USA Inc. v. Selective Ins. Co.
of Am., 2018 WL 5905058 (9th Cir. Nov.
9, 2018).
The dispute centered on whether T-Mobile
was entitled to coverage for property damage
as an additional insured under a policy
issued by Selective Insurance to an antenna
contractor. An agreement between T-Mobile
and the contractor required the contractor
to maintain insurance that listed T-Mobile
as an additional insured. Selective’s
authorized agent issued a certificate of
insurance to T-Mobile which stated that
T-Mobile “is included as an additional
insured” under the policy. However, thecertificate also stated that the certificate is
for informational purposes only, “confers norights upon the certificate holder,” and does
not extend or alter coverage under the policy.

The certificate further warned that if thecertificate holder is an additional insured, thepolicy must be endorsed and that statementson the certificate do not confer rights in lieu
of such endorsements.
When T-Mobile sought coverage as anadditional insured under the contractor’s
general liability policy, Selective refused todefend, arguing that T-Mobile was not named
as an additional insured in the policy. In
ensuing litigation, a district court ruled in
Selective’s favor, finding that the certificate
could not confer coverage on T-Mobile. On
appeal, the Ninth Circuit found that thiscase implicated two competing principles oflaw: (1) that an insurance company is boundby the representations of its authorized
agents; and (2) that a certificate of insurance
cannot be used to extend or alter thecoverage provisions of a policy. Noting that
the Washington Supreme Court has notaddressed how these two principles can bereconciled on the record presented, the court
certified the following question:
Under Washington law, is an insurer
bound by representations made by
its authorized agent in a certificate of
insurance with respect to a party’s status
as an additional insured under a policy
issued by the insurer, when the certificate
includes language disclaiming its authority
and ability to expand coverage?
We will keep you posted on any developmentsin this matter.

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Simpson Thacher has been an international leader in the practice of insurance and reinsurance law
for more than a quarter of a century. Our insurance litigation team practices worldwide.

Mary Beth Forshaw+1-212-455-2846
mforshaw@stblaw.com

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

Craig S. Waldman+1-212-455-2881
cwaldman@stblaw.com

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

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

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

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

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

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

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

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

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

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

Deborah L. Stein+1-310-407-7525
dstein@stblaw.com

Daniel J. Stujenske+1-212-455-2419
dstujenske@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
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Please click here to subscribe to the Insurance Law Alert.
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