Insurance Law Alert

October 2021

In This Issue
Policy Exclusion Bars Coverage For BIPA Claim, Says North Carolina
Court
A North Carolina district court ruled that an insurer had no duty to defend claims alleging
violations of the Biometric Information Privacy Act, finding that a policy exclusion relating
to the collection and distribution of information precluded coverage. Mass. Bay Ins. Co. v.
Impact Fulfillment Servs., LLC, 2021 WL 4392061 (M.D.N.C. Sept. 24, 2021). (Click here forfull article)

Ninth Circuit Affirms Dismissals Of Business Interruption Coverage SuitsIn Trio Of Rulings
Simpson Thacher
Named Finalist for
The American Lawyer’s
Insurance Litigation
Department of the Year 2021
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Addressing the “direct physical loss or damage” policy requirement and application of a virus
exclusion, the Ninth Circuit affirmed three district court dismissals of COVID-19-related
coverage suits. Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 2021 WL 4486509 (9th Cir. Oct.
1, 2021); Chattanooga Prof. Baseball LLC v. National Cas. Co., 2021 WL 4493920 (9th Cir.
Oct. 1, 2021); Selane Products, Inc. v. Continental Cas. Co., 2021 WL 4496471 (9th Cir. Oct. 1,2021). (Click here for full article)

Minnesota Court Rules That Allegations Of COVID-19 Contamination Are
Sufficient To Withstand Dismissal Of Coverage Suit
Addressing a matter of first impression under Minnesota law, a Minnesota trial court ruledthat allegations of actual contamination of the COVID-19 virus on the insured premises were
sufficient to withstand the insurer’s dismissal motion. Life Time, Inc. v. Zurich Am. Ins. Co.,
No. 27-CV-20-10599 (Minn. Civ. Ct. Oct. 7, 2021). (Click here for full article)

Parting Ways With Majority Of Federal Courts, Missouri District Court
Allows Some COVID-19 Coverage Claims To Proceed, But Dismisses
OthersA Missouri federal district court granted in part and denied in part an insurer’s summary
judgment motion in a suit seeking coverage for COVID-19-related business losses. K.C. Hopps,
Ltd. v. Cincinnati Ins. Co., Inc., 2021 WL 4302834 (W.D. Mo. Sept. 21, 2021). (Click here forfull article)

Pharmaceutical Company’s Settlement Payment To DOJ Is Not
Uninsurable Disgorgement Of Ill-Gotten Gains, Says Illinois District Court
An Illinois district court granted a policyholder’s summary judgment motion, finding that asettlement payment constituted a covered “loss” under an excess policy and that coverage was
not barred based on considerations of public policy. Astellas US Holding, Inc. v. Starr Indem.
& Liab. Co., 2021 WL 4711503 (N.D. Ill. Oct. 8, 2021). (Click here for full article)

Simpson Thacher & Bartlett LLP

1

Tennessee Appellate Court Declines To Find “Other Insurance” Clauses
Mutually Repugnant
A Tennessee appellate court ruled that an “other insurance” clause in a policy rendered its
coverage primary to another insurer’s coverage, declining to adopt an approach under which
both clauses are deemed irreconcilable so as to require pro rata allocation. Sentry Select Ins.
Co. v. Tennessee Farmer’s Mut. Ins. Co., 2021 WL 4352537 (Tenn. Ct. App. Sept. 24, 2021).
(Click here for full article)

Washington Supreme Court Rules That Filed-Rate Doctrine Applies To
Suits Against Intermediaries Who Do Not File Rates
Answering a certified question, the Washington Supreme Court ruled that the filed-rate
doctrine applies to rates charged by mortgage servicers and brokers that participated in the
procurement of the policy at issue. Alpert v. Nationstar Mortgage, LLC, 494 P.3d 419 (Wash.
2021). (Click here for full article)

Illinois Supreme Court Rules That Insurer May Not Depreciate Labor
Costs In Calculating Actual Cash ValueThe Illinois Supreme Court ruled that labor costs may not be depreciated in the ACV
calculation. Sproull v. State Farm Fire & Cas. Co., 2021 IL 126446 (Ill. Sept. 23, 2021).
(Click here for full article)

Ohio Court Rules That Absolute Pollution Exclusion Does Not Bar
Coverage For Lead Paint Bodily Injury Claims
An Ohio district court predicted that the Ohio Supreme Court would not find a pollution
exclusion applicable to bodily injury claims stemming from exposure to lead paint. Goolsby
v. Best in Neighborhood, LLC, 2021 WL 4391216 (N.D. Ohio Sept. 24, 2021). (Click here forfull article)

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

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Right To Privacy
Alert:
Policy Exclusion Bars Coverage For
BIPA Claim, Says North Carolina
Courtwith Hartford Cas. Ins. Co. v. Greve, 2017
WL 5557669 (W.D.N.C. Nov. 17, 2017),
aff’d, 2018 WL 3752235 (4th Cir. Aug. 7,2018) (see Sept. 2018 Alert), which heldthat a similar exclusion barred coverage foralleged violations of the Driver’s Privacy
Protection Act.

A North Carolina district court ruled that aninsurer had no duty to defend claims alleging
violations of the Biometric Information
Privacy Act (“BIPA”), finding that a policy
exclusion relating to the collection anddistribution of information precluded
coverage. Mass. Bay Ins. Co. v. Impact
Fulfillment Servs., LLC, 2021 WL 4392061(M.D.N.C. Sept. 24, 2021).
The underlying suit alleged that thepolicyholder’s practice of keeping employee
fingerprints on file as part of payroll
procedures violated the BIPA. The company’s
insurers refused to defend the suit, arguingthat several policy exclusions, including a“Recording and Distribution of Material or
Information Exclusion” barred coverage. The
court agreed and granted the insurers’ motion
to dismiss.
The exclusion provided that the policy did notcover “personal and advertising injury” that
arose directly or indirectly out of any violationor alleged violation of(1) The Telephone Consumer Protection
Act . . . ; (2) The CAN-SPAM Act of 2003
. . . ; (3) the Fair Credit Reporting Act. . . ; or (4) Any federal, state, or local
statute, ordinance or regulation, otherthan the TCPA, CAN-SPAM Act of 2003
or FCRA . . . that addresses, prohibits,
or limits the printing, dissemination,
disposal, collecting, recording, sending,transmitting, communicating or
distribution of material or information.
Applying the principle of ejusdem generis (alegal principle of interpretation under which
general, catch-all language that directly
follows a list of specific items is considered
to include “only things of the same kind,character and nature as those specificallylisted”), the court concluded that the BIPA,
which prohibits the collection and disclosureof biometric identifiers, is of the “same kind,character and nature” as the statutes specified
in the exclusion and thus falls within the“catch-all” language of subsection (4). As
the court noted, this conclusion comports

The court expressly distinguished West Bend
Mutual Ins. Co. v. Krishna SchaumburghTan, Inc., No. 125978 (Ill. May 20, 2021)(discussed in our May 2021 Alert), in which
the Illinois Supreme Court ruled that a
violation of statutes exclusion did not negate
an insurer’s duty to defend a suit alleging
BIPA violations. The exclusion in West Bend
only referenced the TCPA and the CAN-SPAM
Act of 2003, and contained less expansive
language in the catch-all provision.

COVID-19 Alerts:
Ninth Circuit Affirms Dismissals
Of Business Interruption Coverage
Suits In Trio Of Rulings
In Mudpie, Inc. v. Travelers Cas. Ins. Co.
of Am., 2021 WL 4486509 (9th Cir. Oct.
1, 2021), the Ninth Circuit affirmed thedismissal of a putative class action suitseeking business income and extra expense
coverage based on losses incurred in thewake of government shut down orders. As
discussed in our September 2020 Alert, thedistrict court ruled that the policyholder
failed to allege the requisite direct physicalloss of or damage to insured property. The
Ninth Circuit affirmed, holding that under
California law, an inability to use property
for its intended purpose does not constitute“direct physical loss of or damage.” Rather, a“distinct, demonstrable, physical alteration”
is necessary. The court also concluded that a3

virus exclusion barred coverage, rejecting thepolicyholder’s assertion that the losses werecaused by local orders that restricted use ofproperty, rather than the virus itself.
In a second decision, the Ninth Circuit
affirmed an Arizona district court’s dismissalof a suit brought by professional baseballteams. Chattanooga Prof. Baseball LLC v.
National Cas. Co., 2021 WL 4493920 (9thCir. Oct. 1, 2021). The teams argued that avirus exclusion in the applicable policies did
not preclude coverage because their alleged
losses were not attributable to the virus itself,
but rather a host of other factors including the“attendant disease,” the resulting pandemic,
governmental responses and a lack of league
players. Applying the law of various states
based where the teams were located, theNinth Circuit concluded that (1) under an
efficient proximate cause analysis, the virus
exclusion barred coverage because the teams“do not plausibly allege that any of these othercauses, and not the spread of the COVID-19
virus, were the ‘efficient proximate cause’ thatset others in motion”; (2) under a concurrent
causation analysis, the teams did not allege
concurrent causes of losses that would besusceptible to allocation; and (3) under aproximate cause analysis, there were nointervening causes that broke the causal chain
originating with the COVID-19 virus.
In a third decision, the Ninth Circuit ruledthat allegations that stay-at-home orders
caused the policyholder to suspend its
operations did not constitute allegations of“direct physical loss of or damage to” property
for purposes of coverage under businessincome, extra expense and civil authority
policy provisions. Selane Products, Inc. v.
Continental Cas. Co., 2021 WL 4496471 (9thCir. Oct. 1, 2021). The policyholder argued
that a microbe exclusion demonstrated thatmicroscopic organisms can cause physicalloss of or damage to property (and thus socould virus particles). The court rejected thisassertion, noting that even if it deemed thisargument persuasive, coverage would still
be unavailable because the policyholder did
not allege the presence of the virus on its
property.
As reported in previous Alerts, the Sixth,
Eighth and Eleventh Circuits have similarly
upheld district court dismissals of COVID-19
coverage suits. Appeals are pending in theFirst and Second Circuits.

Minnesota Court Rules That
Allegations Of COVID-19
Contamination Are Sufficient To
Withstand Dismissal Of Coverage
Suit
Addressing a matter of first impression under
Minnesota law, a Minnesota trial court ruledthat allegations of actual contamination of the
COVID-19 virus on the insured premises were
sufficient to withstand the insurer’s dismissal
motion. Life Time, Inc. v. Zurich Am. Ins.
Co., No. 27-CV-20-10599 (Minn. Civ. Ct. Oct.
7, 2021).
Life Time sought coverage under a builder’srisk policy for losses incurred after it wasforced to cease numerous construction
projects. It alleged that infiltration of the virus
onto its construction sites, as well as shut
down orders, required cessation of work andresulted in business losses. The court denied
the insurer’s motion to dismiss, ruling that
under Minnesota law, Life Time alleged facts
which, if proved, could support a finding of
direct physical loss.
The court relied on Minnesota decisions
finding coverage where contaminationof property resulted in a loss of function
or value. While those decisions involved
contamination by asbestos, pesticide andsmoke, the court deemed them persuasive
authority for the proposition that “structural
damage to property” is not required toestablish direct physical loss.

Parting Ways With Majority Of
Federal Courts, Missouri District
Court Allows Some COVID-19
Coverage Claims To Proceed, But
Dismisses Others
A Missouri federal district court granted inpart and denied in part an insurer’s summary
judgment motion in a suit seeking coverage
for COVID-19-related business losses. K.C.
Hopps, Ltd. v. Cincinnati Ins. Co., Inc., 2021
WL 4302834 (W.D. Mo. Sept. 21, 2021).
A restaurant owner sought coverage underpolicy provisions for business income,extra expense, civil authority and ingress/
egress. The insurer denied coverage, and in
ensuing litigation, both parties moved forsummary judgment. Applying Kansas andMissouri law (after finding that no conflict oflaw existed), the court denied the insurer’s
4

motion as to claims under the businessincome and extra expense provisions,finding that the policyholder raised material
issues of fact as to the existence of “direct
physical loss” or “direct physical damage”
to insured property. In particular, the court
held that those undefined terms could besatisfied by proof of physical contaminationof the COVID-19 virus—evidence of which
was submitted by the policyholder’s expert
witnesses. In so ruling, the court explainedthat policy exclusions for contaminants would
be rendered meaningless if contamination
could never constitute a covered loss. The
court rejected the insurer’s contention thatthe contaminants listed in the exclusion
were distinguishable from COVID-19 in thateach of the excluded conditions “could bereasonably expected to cause actual, tangible
alteration to property,” whereas the COVID19 virus could be eliminated easily and “overa period of time, dies off without any needfor repair.”

The court distinguished Oral Surgeons, P.C.
v. Cincinnati Ins. Co., 2020 WL 2753874 (8thCir. July 2, 2021), in which the court, facedwith identical policy language, dismissed
COVID-19-related coverage claims based on
the absence of direct loss to property (seeJuly/August 2021 Alert). The court reasoned
that Oral Surgeons precludes coverage
where a policyholder alleges physical loss
based on government orders, but does notwhere, as here, the policyholder submits
proof of physical contamination. The court
also distinguished Promotional Headwear,
Int’l v. Cincinnati Ins. Co., 504 F. Supp.
3d 1191 (D. Kan. 2020), in which the court
stated that even “assuming that the virus
physically attached to covered property, it
did not constitute direct, physical loss ordamage required to trigger coverage because
its presence can be eliminated,” noting thatcase did not have the benefit of discovery andexpert testimony.

However, the court dismissed the civil
authority and ingress/egress coverage claims,
explaining that while the government orders
limited the policyholder’s operations, they did
not prevent the policyholder from accessing
the premises. In addition, the court denied
the policyholder’s summary judgment motion,
finding that issues of material fact existed as
to the actual presence of the virus on insured
premises, whether such presence caused
physical loss or damage, and the extent ofdamages.
Finally, the court addressed the following
additional issues:
Expert testimony: The court held thatthe policyholder raised a triable issue
of fact as to physical loss or damage by
viral contamination on the premises eventhough its experts never specifically tested
the insured premises. The court deemed it
sufficient that the expert relied on data related
to the community spread of the virus in therelevant geographic region, together withtestimony that numerous employees were
infected with the COVID-19 virus during therelevant time frame.
Continued, limited use of insured property:
The court rejected the insurer’s assertion thatthe policyholder’s continued, albeit reduced
use of insured premises throughout therelevant time period indicated the absenceof direct physical loss or damage. The
court explained that “while the fact that thepremises were still used in some capacity isrelevant to the extent of Plaintiff’s damages,that fact does not preclude coverage.”
Exclusions: The court ruled that policy
exclusions entitled “Ordinance or Law,”“Delay or Loss of Use,” and “Acts or
Decisions” did not preclude coverage because
the cause of the policyholder’s loss was thealleged presence of the COVID-19 virus on its
premises, not government orders or decisions.
Damages: The insurer argued that thepolicyholder did not sustain damages
because the amount it received in pandemic
relief, including forgiven government loans,exceeded the amount it allegedly lost as aresult of the virus and shutdown orders.
Rejecting this assertion, the court noted thatthe purpose of such governmental relief was
to keep employees paid, not to compensate
businesses for lost income.

5

D&O Alert:
Pharmaceutical Company’s
Settlement Payment To DOJ Is Not
Uninsurable Disgorgement Of IllGotten Gains, Says Illinois District
Court
An Illinois district court granted apolicyholder’s summary judgment motion,
finding that a settlement payment constituted
a covered “loss” under an excess policy
and that coverage was not barred based on
considerations of public policy. Astellas US
Holding, Inc. v. Starr Indem. & Liab. Co.,
2021 WL 4711503 (N.D. Ill. Oct. 8, 2021).
The Department of Justice initiated aninvestigation of Astellas’ charitable donations
to certain patient assistance programs. The
investigation, which focused on whether
Astellas had made donations in order to“funnel impermissible co-pay assistance”
to patients using its drugs, resulted in theissuance of subpoenas and a civil investigation
demand relating to potential False Claims
Act (“FCA”) violations. The parties ultimately
settled for $100 million plus interest. Federal
denied coverage, arguing that the settlement
was not for a covered “loss,” defined to
exclude “matters which may be deemeduninsurable under applicable law.” Federal
also argued that coverage was prohibited asa matter of Illinois public policy. The court
rejected these assertions.

The court ruled that Federal did not meet its
burden of establishing that the settlement
was an uninsurable disgorgement payment
intended to divest Astellas of the benefit itreceived by virtue of its wrongdoing. Federal
argued that the settlement agreement’s
designation of $50 million as “restitution
to the United States” demonstrated thatthe payment was, in fact, restitution basedon Astellas’ ill-gotten gains. Rejecting
this contention, the court explained thatthe “restitution” label in the settlementagreement was used to identify the taxdeductible portion of the payment, as
required by federal law, and did not support
a finding that such amounts represented
disgorgement payments.
Instead, the court concluded that thesettlement payment constituted damages
to compensate the government for loss
incurred. In so ruling, the court noted thatthe purpose of the False Claims Act (and thedamages allowed under it) supported Astellas’
assertion that the settlement payment
represented compensation to the government
rather than restitution.
The court also rejected Federal’s contention
that the overall intention of the settlement
was to “divest Astellas of the net benefit of its
unlawful scheme” and was thus uninsurable
under Illinois law. The court stated:
despite the Government’s allegations and‘themes’ about Astellas’ intent to profit
from its donations to the ARI Funds,
the damages sought by the Government
and agreed upon in the Settlement
Agreement were primarily (if not solely)compensatory damages under the FCA
meant to cover the Government’s losses
in the form of Medicare payments.
The court distinguished decisions in which
settlement payments were held to constituteuninsurable disgorgement, reasoning thatin those cases damages were based on a
calculation of the money the insured had
wrongfully taken directly from underlying
claimants. Here, however, there was no
calculation of wrongfully obtained profits andthe record established that the settlement
amount was derived from the number of“tainted” prescriptions paid by Medicare tothird parties.
Federal also argued that the settlement
payment was uninsurable because it released
liability for unjust enrichment, among otherclaims for which the government could seek
disgorgement. However, applying a “primary
focus” analysis, the court concluded that
Astellas was entitled to coverage for the entire
settlement because a covered loss was a
primary focus of the settlement.

6

Finally, the court ruled that coverage of thesettlement would not contravene public
policy, which prohibits insurance coveragefor liability arising out of a policyholder’sintentional or willful wrongs. The court
reasoned that the wrongful conduct was “onlyalleged” and not admitted in the settlementagreement, and emphasized the absence ofauthority supporting Federal’s assertion that“it is against Illinois public policy to insure thepayment of damages to a third party resulting
from an insured’s fraudulent conduct.”

PolicyInterpretation
Alert:
Tennessee Appellate Court Declines
To Find “Other Insurance” Clauses
Mutually Repugnant
A Tennessee appellate court ruled that an“other insurance” clause in a policy rendered
its coverage primary to another insurer’s
coverage, declining to adopt an approach
under which both clauses are deemed
irreconcilable so as to require pro rata
allocation. Sentry Select Ins. Co. v. Tennessee
Farmer’s Mut. Ins. Co., 2021 WL 4352537(Tenn. Ct. App. Sept. 24, 2021).
A farm owner purchased insurance from
Sentry to cover damage to certain equipment.
That policy included an “other insurance”
clause containing two subsections. The firstsection stated that if the policyholder had
insurance subject to the “same plan, terms,
conditions and provisions” as the Sentry
policy, Sentry would pay a proportionate
share of coverage. The second section statedthat if the policyholder had insurance “otherthan that described” in the first section,
Sentry would pay only the amount in excess ofthat due from the other insurer.

When a fire destroyed the insured equipment,
the policyholder sought coverage under both
policies. Both insurers argued that theircoverage was excess to the other policy. A trial
court ruled that the two-year gap between thepurchase of the Sentry policy and purchaseof coverage under the Farmer’s Mutual policy
demonstrated that the Sentry policy was
intended to be primary and the Farmer’s
Mutual policy was intended to be excess. The
appellate court affirmed on different grounds.
The appellate court held that the order inwhich the policies were obtained is immaterial
to interpretation of “other insurance” clauses,
so long as both policies were in effect at thetime of injury or loss. Further, the court
held that “other insurance” clauses are notnecessarily repugnant where, as here, each
includes different language that could bereconciled. The court explained that Farmer’s
Mutual policy would be deemed primary only
if the Sentry policy was “specifically written
as excess,” which was not the case. The courtemphasized that language in subsection oneof the Sentry policy, requiring it to pay a
pro rata share when another policy contains
the same terms and conditions, indicates its
intent to be primary. The court noted thateven under the second subsection, whichapplied when another policy contained
different terms and conditions, Sentry would
still be primary because that provision statedthat Sentry would pay the amount “in excessof the other amount due from that otherinsurance.” The court explained that because
the Farmer’s Mutual policy was written
strictly as excess, there was no “amount due”
from that policy.

Two years after obtaining the Sentry policy,
the farm owner added the equipment to an
existing Farmer’s Mutual policy. The “otherinsurance” clause in that policy stated that its
coverage “is excess over any other insurance”
unless “other insurance is specifically written
as excess over the insurance provided inthis endorsement.”7Filed Rate Alert:
Washington Supreme Court Rules
That Filed-Rate Doctrine Applies To
Suits Against Intermediaries Who
Do Not File Rates
Our January 2021 Alert reported on a Ninth
Circuit decision that asked the Washington
Supreme Court to decide whether the filedrate doctrine extends to scenarios in which anintermediary, rather than a regulated entity,
charges the filed rate to its customers. Lastmonth, an en banc panel of the Washington
Supreme Court answered the certified
question in the affirmative, ruling that the
filed-rate doctrine applies to rates charged
by mortgage servicers and brokers thatparticipated in the procurement of the policy
at issue. Alpert v. Nationstar Mortgage, LLC,
494 P.3d 419 (Wash. 2021).
A homeowner was required by Nationstar,
his mortgage company, to maintain ahazard insurance policy. When his policy
lapsed, Nationstar purchased “force placed”
insurance and charged the homeowner arate approved by the Washington InsuranceCommissioner. The homeowner sued
Nationstar and the insurer’s brokers, alleging
that although the rate he was charged
accurately reflected the rate approved by stateauthority, it did not represent the true costof the insurance. He claimed that Nationstar
and the brokers participated in an unlawful
kickback scheme in which his premiums wereartificially inflated. The defendants argued
that the homeowner’s claims were barred by
the filed-rate doctrine.
The Washington Supreme Court agreed,ruling that the doctrine applies to suits
against intermediaries that, unlike regulated
insurers, do not actually file the rates withstate agencies. The court emphasizedthat “labels do not necessarily govern thedoctrine’s applicability” and noted that theSecond, Third and Eleventh Circuits have also
concluded that application of the doctrine
does not depend on the identities of the
defendants as rate filers. Rather, it “turns onwhether awarding damages squarely attacks
the filed-rate.”
The court declined to answer a second
certified question, relating to what damages

are barred by the filed-rated doctrine. Instead,the court remanded the matter to the Ninth
Circuit with instructions to analyze whether
the particular relief sought by the homeownercomports with state law precedent.

Property Insurance
Alert:
Illinois Supreme Court Rules That
Insurer May Not Depreciate Labor
Costs In Calculating Actual CashValue
As discussed in previous Alerts, several
state supreme courts and federal appellate
courts have addressed whether an insurer
may depreciate labor costs in calculating
actual cash value (“ACV”). See May 2021
Alert; March and April 2020 Alerts; April
2019 Alert; March 2017 Alert; January
and February 2016 Alerts. Outcomes haveturned largely on policy language, as wellas governing jurisdictional law and public
policy considerations. Last month, the Illinois
Supreme Court weighed in, ruling that laborcosts may not be depreciated in the ACV
calculation. Sproull v. State Farm Fire & Cas.
Co., 2021 IL 126446 (Ill. Sept. 23, 2021).
The State Farm policy provided that “we will
pay only the actual cash value at the time of
the loss of the damaged part of the property,
up to the applicable limit of liability.” The
policy did not define ACV. When State Farmdepreciated both labor and materials in
calculating ACV payment, the policyholder
filed a putative class action, alleging breach ofcontract and deceptive business practices.
An Illinois trial court denied State Farm’s
motion to dismiss. Noting the lack of Illinois
case law and jurisdictional split on this issue,
the court concluded that ACV was ambiguousand should be construed in the policyholder’sfavor. The trial court rejected State Farm’s
argument that Illinois statutory law, whichstates that the method for calculating ACV
is “replacement cost of property at timeof loss less depreciation, if any,” permits
depreciation of both labor and materials. 50
Ill. Adm. Code 919.80 (d)(8)(A) (2002). The
trial court certified the following question to
the appellate court:

8

Where Illinois’ insurance regulations
provide that the “actual cash value” or“ACV” of an insured, damaged structureis determined as “replacement cost of
property at time of loss less depreciation,
if any,” and the policy does not itself
define actual cash value, may the
insurer depreciate all components of
replacement cost (including labor) in
calculating ACV?
The appellate court answered the questionin the negative. Deeming the policy
unambiguous, the court held that the phrase“replacement cost of property” refers to “realproperty—an asset that can lose value overtime due to wear and deterioration, resulting
from use or the elements, and does notrefer to services, such as labor.” The Illinois
Supreme Court affirmed, though on different
grounds.
The Illinois Supreme Court found thatthe policy was ambiguous because its
language was susceptible to two reasonableinterpretations. The court rejected State
Farm’s contention that even if the policy was
ambiguous, it may not be construed against
State Farm because Illinois statutory law
supplies the definition of ACV. The court
explained that while the statute generallyprescribes the method of calculating ACV as“replacement cost of property at time of loss
less depreciation, if any,” it does not define
depreciation or identify a specific method
for its calculation. Having found the policy
ambiguous, the court construed it in theinsured’s favor. Notably, the court expressly
limited its ruling to cases in which the policy
does not define ACV to expressly include labor
depreciation.

Pollution Exclusion
Alert:

find the exclusion applicable to such claims.
Goolsby v. Best in Neighborhood, LLC, 2021
WL 4391216 (N.D. Ohio Sept. 24, 2021).
The court noted that Ohio courts haveheld that standard pollution exclusions
are intended to apply to “traditional
environmental contamination” claims andthat the Ohio Supreme Court has ruled thata pollution exclusion did not bar coveragefor carbon monoxide claims. As such, thecourt deemed the exclusion ambiguous as towhether it encompasses claims arising out of
exposure to lead paint. The court recognizedthat this issue was “not a definitively settled
question of Ohio law” but declined to certify
the matter to the Ohio Supreme Court.

STB News Alerts
Simpson Thacher has been named a finalist
by The American Lawyer for its biennial“Litigation Department of the Year” inthe category of Insurance. The American
Lawyer’s “Litigation Department of the Year”
is a highly-competitive contest that recognizes
the nation’s top litigation departments andhonors outstanding achievements in thelegal profession.
Lynn Neuner was selected for the fourthconsecutive 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. who are selectedbased on client and peer review. In addition,
Lynn was recently inducted as a Fellow into
the American College of Trial Lawyers, aninvitation-only fellowship of trial lawyers
from the United States and Canada who haveshown the highest standards of trial advocacy,
ethical conduct, integrity, professionalism
and collegiality.

Ohio Court Rules That Absolute
Pollution Exclusion Does Not Bar
Coverage For Lead Paint Bodily
Injury Claims
Courts across the country are split as towhether a pollution exclusion precludes
coverage for lead paint bodily injury claims.
Last month, an Ohio district court predictedthat the Ohio Supreme Court would not
9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

Joshua Polster+1-212-455-2266
joshua.polster@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 / +1-212-455-2846
mforshaw@stblaw.com andAndrew T. Frankel / +1-212-455-3073
afrankel@stblaw.com
with contributions by Karen Cestarikcestari@stblaw.com.

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