Insurance Law Alert

April 2021

In This Issue
Indiana Supreme Court Rules That Ransomware Losses May Be Subject
To “Computer Fraud” Coverage
The Indiana Supreme Court reversed an appellate court decision that granted an insurer’ssummary judgment motion, holding that issues of fact existed as to whether the policyholder’sransomware payment was covered under a commercial policy’s Computer Fraud provision.
G&G Oil Co. of Indiana, Inc. v. Continental Western Ins. Co., 165 N.E.3d 82 (Ind. 2021).
(Click here for full article)

SEC Investigation Is Not A Covered Securities Claim, Says New York Court“Renownedin the market
as accomplished trial
lawyers and coverageexperts who offer quality
representation to clients in
the insurance industry.”– Chambers USA
2020

A New York federal district court dismissed a policyholder’s breach of contract suit against its
insurer, finding that a Securities and Exchange Commission investigation was not a covered
Securities Claim under the D&O policy. Hertz Global Holdings, Inc. v. National Union Fire
Ins. Co. of Pittsburgh, 2021 WL 1198802 (S.D.N.Y. Mar. 30, 2021). (Click here for full article)

New York Appellate Court Rules That Follow Form Excess Insurer Is Not
Bound By Prior Ruling Regarding Scope Of Coverage For Underlying
PolicyA New York appellate court ruled that an excess insurer is not bound by a prior judicial rulingfinding coverage under the primary policy underlying the follow form excess policy. Aspen
Specialty Ins. Co. v. RLI Ins. Co., Inc., 2021 WL 1259156 (N.Y. App. Div. 1st Dep’t Apr. 6,2021). (Click here for full article)

Kentucky Appellate Court Declines To Apply Notice-Prejudice Rule To
Claims Made Policy
Addressing a matter of first impression under Kentucky law, a Kentucky appellate court ruledthat a notice provision in a claims-made-and-reported policy was unambiguous and was not
subject to the notice-prejudice rule. Darwin National Assurance Co. v. Kentucky State Univ.,
2021 WL 1045716 (Ct. App. Ky. Mar. 19, 2021). (Click here for full article)

Florida Appellate Court Addresses Application Of Separability And Limit
Of Liability Clauses
A Florida appellate court ruled that an insurance policy provided only $1 million in coverage(rather than $2 million) for a mid-air collision between two airplanes based on language in thepolicy’s limit of liability provision. Endurance Assurance Corp. v. Hodges, 2021 WL 1115452(Dist. Ct. App. Fla. Mar. 24, 2021). (Click here for full article)

Texas Supreme Court Rules That Breach Of Insurance Policy Is
Prerequisite To Insurance Code Claims
The Texas Supreme Court held that a plaintiff must establish an insurer’s liability under aninsurance policy in order to seek recovery on Insurance Code claims and that bifurcation of thebreach of contract and Insurance Code claims is necessary. In re State Farm Mutual Auto. Ins.
Co., 2021 WL 1045651 (Tex. Mar. 19, 2021). (Click here for full article)



Simpson Thacher & Bartlett LLP

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Texas Supreme Court To Consider Exception To Eight Corners Rule
The Texas Supreme Court agreed to consider whether courts may use certain information
outside the allegations in the complaint and the insurance policy in evaluating an insurer’s duty
to defend. BITCO General Ins. Corp. v. Monroe Guaranty Ins. Co., No. 19-51012 (Tex. Mar. 19,2021). (Click here for full article)

California Court Refuses To Dismiss Claims Against Entities That
Acquired Reinsurer
A California federal district court refused to dismiss claims alleging that companies that
acquired a reinsurer intentionally interfered with the reinsurance contract between theacquired reinsurer and the plaintiff insurance companies. California Capital Ins. Co. v. Enstar
Holdings US LLC, 2021 WL 1406028 (C.D. Cal. Apr. 14, 2021). (Click here for full article)

Rejecting Tolling Argument, California Court Rules That Insurer’s
Contribution Claim Is Time Barred
A California federal district court dismissed an insurer’s equitable contribution claim against
another insurer, finding that the claim was time barred by the applicable statute of limitations.
Lexington Ins. Co. v. QBE Specialty Ins. Co., 2021 WL 735665 (N.D. Cal. Feb. 25, 2021).
(Click here for full article)

Cities Cannot Use State Tort Law To Sue Companies For Climate Change
In Federal Court, Says Second Circuit
The Second Circuit ruled that municipalities may not use state tort law to hold multi-national
companies liable in federal court for climate change-related costs. City of New York v. Chevron
Corp., 2021 WL 1216541 (2d Cir. Apr. 1, 2021). (Click here for full article)

Pennsylvania Court Rules That Dental Practice Is Entitled To Coverage
For COVID-19-Related Losses
A Pennsylvania trial court granted a dental practice’s summary judgment motion, finding that
it was entitled to coverage under Business Income, Extra Expense and Civil Authority coverage
provisions, and that several policy exclusions did not apply. Timothy A. Ungarean, DMD v.
CAN, 2021 WL 1164836 (Pa. Ct. Comm. Pl. Allegheny Cnty. Mar. 22, 2021). (Click here forfull article)

Pennsylvania Court Dismisses Class Action Suits Seeking Business
Interruption Coverage
A Pennsylvania federal district court dismissed four class action suits seeking coverage for
COVID-19-related losses, finding that the insured properties did not incur any “direct physicalloss.” Chester County Sports Arena v. Cincinnati Specialty Underwriters Ins. Co., 2021 WL
1200444 (E.D. Pa. Mar. 30, 2021). (Click here for full article)

In Trio Of Rulings, New Jersey Federal District Courts Dismiss COVID-19Related Coverage Suits
Three federal district courts in New Jersey dismissed suits seeking coverage for business losses
stemming from government shutdown orders issued in response to the COVID-19 pandemic.
Dezine Six, LLC v. Fitchburg Mutual Ins. Co., 2021 WL 1138146 (D.N.J. Mar. 25, 2021);
Benamax Inc. LLC v. Merchant Mutual Ins. Co., 2021 WL 1171633 (D.N.J. Mar. 29, 20210);
7th Inning Stretch LLC v. Arch Ins. Co., 2021 WL 1153147 (D.N.J. Mar. 26, 2021). (Click here
for full article)

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

2Cyber Alert
Indiana Supreme Court Rules That
Ransomware Losses May Be Subject
To “Computer Fraud” Coverage
The Indiana Supreme Court reversed anappellate court decision that granted aninsurer’s summary judgment motion, holdingthat issues of fact existed as to whether
the policyholder’s ransomware payment
was covered under a commercial policy’s
Computer Fraud provision. G&G Oil Co. ofIndiana, Inc. v. Continental Western Ins. Co.,
165 N.E.3d 82 (Ind. 2021).
G&G Oil, the victim of a ransomware attack,paid approximately $35,000 to regain accessto its computer systems. Continental denied
coverage for the loss, noting that G&G Oil
declined computer hacking coverage. G&G
Oil sued Continental and the parties crossmoved for summary judgment. The trial
court granted Continental’s motion and anappellate court affirmed. (See April 2020
Alert). The Indiana Supreme Court reversed.

The Computer Fraud provision covered
loss “resulting directly from the use of any
computer to fraudulently cause a transfer ofthat property.” The Indiana Supreme Court
ruled that “fraudulently cause a transfer”
was unambiguous and means “to obtainby trick.” Applying this interpretation, thecourt held that factual disputes existed as towhether G&G Oil’s computer systems wereaccessed “by trick.” While G&G Oil allegedthat a targeted spear-phishing email was thesource of attack, the factual record was notconclusive as to the manner in which the
hackers obtained access to the company’s
computer system. As such, the court ruledthat summary judgment was inappropriate.
Furthermore, the court held that factualissues existed as to whether G&G Oil’s losses“resulted directly from the use of a computer.”
The Indiana Supreme Court held that the trial
court erred in ruling as a matter of law thatG&G Oil’s voluntary payment of ransom wasan intervening cause that severed the causal
chain of events. Instead, the Indiana Supreme
Court held that “resulting directly” requires
loss that resulted either “immediately or
proximately without significant deviationfrom the use of a computer” and that G&G
Oil’s loss satisfied that standard.

D&O Alert
SEC Investigation Is Not A Covered
Securities Claim, Says New YorkCourt
A New York federal district court dismissed a
policyholder’s breach of contract suit against
its insurer, finding that a Securities andExchange Commission (“SEC”) investigation
was not a covered Securities Claim under the
D&O policy. Hertz Global Holdings, Inc. v.
National Union Fire Ins. Co. of Pittsburgh,
2021 WL 1198802 (S.D.N.Y. Mar. 30, 2021).
In 2013, a securities class action was filed
against Hertz. In 2014, the SEC demanded
documents relating to the company’s
financial statements and issued an orderof investigation stating that the SEC had“information that tends to show” violationsof securities laws. National Union agreed
that the class action was a “Securities Claim”
under the policy, but argued that the SEC
investigation did not trigger coverage. Hertz
ultimately settled with the SEC, agreeing to
pay a $16 million penalty. Thereafter, Hertz
sued National Union for breach of contractand sought a declaration that National Union
was obligated to pay the expenses of the SEC
investigation and settlement costs. The court
granted National Union’s motion to dismiss.
The policy covers “Securities Claims” against“Hertz the Organization,” as well as “Claims
against Individual Insureds.” Securities
Claim is defined as “a Claim, other than aninvestigation of an Organization . . . alleging
violation of securities laws or regulations.”
The court ruled that this language
unambiguously excludes the SEC
investigation from coverage, rejecting Hertz’s
assertion that the investigation was a covered“administrative or regulatory proceeding.”
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The court also rejected Hertz’s contention that
the SEC order issued in connection with theinvestigation was a claim alleging a violationof securities laws. The court explained that
language in the order stating that the SEC
has information that tends to show multiple
possible violations is not equivalent to an
actual claim.
In addition, the court dismissed Hertz’s
argument that the costs of the SEC
investigation should be included as part ofthe covered securities class action, notingthat the SEC investigation did not arise
from that action. Finally, the court deemed
unpersuasive Hertz’s assertion that theinvestigation was covered as a “claim” against
Insured Individuals. The court emphasizedthat the investigation targeted Hertz as anorganization, rather than any individual
executives, and held that the cooperation of
executives or their participation in tolling
agreements is not equivalent to claims against
those individuals.

not a party to the original action. A New York
trial court ruled in Aspen’s favor, and theappellate court reversed.
The appellate court ruled that RLI is notbound by the prior ruling under the law of
the case doctrine because it was not a party
to that action. For the same reason, thecourt declined to apply the doctrines of res
judicata or collateral estoppel. Apsen argued
that the prior judicial determination as toadditional insured coverage under Ironshore’s
primary policy is binding on RLI because
RLI’s excess policy is a “follow form” policythat incorporates the terms of Ironshore’s
policy. Rejecting this argument, the court
stated: “[a] follow-form policy was neverintended to bind an excess carrier to a judicial
interpretation of an underlying policy in a
related but wholly non-controlling decision.”

Excess Alert
New York Appellate Court Rules
That Follow Form Excess Insurer
Is Not Bound By Prior Ruling
Regarding Scope Of Coverage For
Underlying Policy
Reversing a trial court decision, a New Yorkappellate court ruled that an excess insurer
is not bound by a prior judicial ruling finding
coverage under the primary policy underlying
the follow form excess policy. Aspen
Specialty Ins. Co. v. RLI Ins. Co., Inc., 2021
WL 1259156 (N.Y. App. Div. 1st Dep’t Apr.
6, 2021).
The coverage litigation arose out of a bodily
injury suit. In a separate case arising out of
the same accident, a New York trial court
ruled that Ironshore Indemnity, a primary
insurer, owed coverage for the underlying
claims based on an additional insured
endorsement. In the present suit, Aspensought a declaration that RLI, an excess
insurer whose policy follows form to theIronshore primary policy, is bound by that
judicial determination. In response, RLI
argued that it was entitled to relitigate theissue of whether Ironshore’s policy provided
additional insured coverage because RLI was

Notice Alert
Kentucky Appellate Court Declines
To Apply Notice-Prejudice Rule To
Claims Made Policy
Addressing a matter of first impression under
Kentucky law, a Kentucky appellate court
ruled that a notice provision in a claimsmade-and-reported policy was unambiguous
and was not subject to the notice-prejudicerule. Darwin National Assurance Co. v.
Kentucky State Univ., 2021 WL 1045716 (Ct.
App. Ky. Mar. 19, 2021).
On September 2, 2015, former employees
of a university sued for wrongful discharge,
among other claims. The university sought
coverage under a professional liability policy
in effect from July 1, 2014 to July 1, 2015. The
policy stated that a claim was deemed to havebeen made on the date that the university
received notice of the claim, and required theuniversity to give the insurer written notice4

“as soon as possible” but no less than ninety
days after the policy’s end date. The university
notified its insurer of the claim on October 2,
2015—93 days after the policy’s end date. The
insurer denied coverage based on untimely
notice. In ensuing litigation, a Kentucky
trial court granted the university’s summary
judgment motion. The trial court ruled thatthe notice provision was unambiguous,
but that the notice-prejudice rule applied,
and that notice was arguably timely under
Kentucky’s three-day mailbox rule. The
appellate court reversed.
The appellate court agreed with the trial
court that the ninety-day notice provision
was unambiguous, but overturned the trial
court’s ruling as to the notice-prejudice rule.
The court explained that imposing a prejudicerequirement would “rewrite the Policy” and“grant KSU coverage it did not purchase.”
The appellate court also held that Kentucky’s
mailbox rule applies only to the service of
certain court-related papers, not to noticerequirements imposed by contract.

Coverage Alerts
Florida Appellate Court Addresses
Application Of Separability And
Limit Of Liability Clauses
Reversing a trial court decision, a Florida
appellate court ruled that an insurance policy
provided only $1 million in coverage (rather
than $2 million) for a mid-air collision
between two airplanes based on languagein the policy’s limit of liability provision.
Endurance Assurance Corp. v. Hodges,
2021 WL 1115452 (Dist. Ct. App. Fla. Mar.
24, 2021).
A mid-air collision between two airplanes
resulted in the death of four individuals. Theirestates filed wrongful death claims against
Dean Aviation, the flight school that owned
both airplanes. Dean Aviation was insured by
Endurance under a policy with a $1 million
per-occurrence limit. The plaintiffs argued
that the policy provided a total of $2 million
in coverage, $1 million for each airplane
involved in the accident. Plaintiffs relied ona separability clause that stated “[w]hen two
or more Aircraft are insured under this Policy
the terms of [the] Policy will apply separately

to each.” The trial court agreed and issued adeclaratory judgment in plaintiffs’ favor.
The appellate court reversed, ruling that the
separability clause did not alter the $1 million
limit on liability. In particular, the court relied
on a “regardless” clause in the limit of liability
provision which stated that “[r]egardless ofthe number of Insureds under this Policy,
persons or organizations who sustain Bodily
Injury or Property Damage,” total liability islimited by the per-occurrence limits stated in
the policy. The court noted that under Florida
law, inclusion of “qualifying [regardless]clauses evidences an established custom in
the insurance industry . . . where the intent is
to limit liability coverage to a single amount,even though multiple insured vehicles are
involved in an accident.”

Texas Supreme Court Rules That
Breach Of Insurance Policy Is
Prerequisite To Insurance Code
ClaimsThe Texas Supreme Court granted aninsurer’s petition for writ of mandamus,
holding that a plaintiff must establish an
insurer’s liability under an insurance policyin order to seek recovery on Insurance Codeclaims and that bifurcation of the breachof contract and Insurance Code claims isnecessary. In re State Farm Mutual Auto. Ins.
Co., 2021 WL 1045651 (Tex. Mar. 19, 2021).
The Plaintiffs, who held underinsured
motorist coverage with State Farm, wereinvolved in automobile accidents and received
settlement payments from other drivers’
insurers. Following those settlements, State
Farm refused to pay additional amounts
sought by the plaintiffs. The plaintiffs sued,
alleging failure to settle in good faith andfailure to provide a reasonable explanation
for claim denial, in violation of the Texas
Insurance Code. The plaintiffs did not assert
any common law breach of contract claims,
but sought damages in the amounts owed
under their respective State Farm policies.
State Farm moved to bifurcate trial, arguingthat an initial trial to establish liability under
the policies was a prerequisite to liability
under the Insurance Code. The Texas
Supreme Court agreed.
The court rejected the plaintiffs’ assertion
that they could recover UIM benefits as
extra-contractual damages without first5

establishing that they were legally entitled
to recover under the policy if they were notasserting a breach of contract claim. The
court explained that in order to seek damages
under the Insurance Code, a party must
either establish “a right to receive benefits
under the policy,” or “an injury independentof a right to benefits”—neither of which were
established here.
In order to assert independent injuries,
a party must establish that the insurer’s
violations “caused an injury apart from[its] failure to pay as much as the insureds
believe they should have been paid under
their UIM policies.” The court deemed itirrelevant that plaintiffs’ Insurance Codeclaims were not premised on a denial of
benefits, and instead were based on failure
to settle or provide reasonable explanation
for denying the claims. The court explained:“the question is not whether the insured’s
claims are independent of the right to receive
policy benefits. The question is whether the
alleged ‘damages are truly independent of
the insured’s right to receive policy benefits.’”(Emphasis in original). Because the only
damages sought by plaintiffs were predicatedon State Farm’s contractual obligation under
the policies, the court ruled that “plaintiffs’‘independent injury’” theory failed.
Having concluded that plaintiffs must
establish their right to policy benefits inorder to recover under their Insurance
Code claims, the court further held that
State Farm was entitled to bifurcation of
trial. The court explained that bifurcation
was warranted because it preserves judicial
resources, eliminates conflicts relating to
the admissibility of evidence, and avoids
unnecessary prejudice to the insurer.

Duty To Defend
Alert
Texas Supreme Court To Consider
Exception To Eight Corners Rule
The Texas Supreme Court agreed to consider
whether courts may use certain information
outside the allegations in the complaint andthe insurance policy in evaluating an insurer’s
duty to defend. BITCO General Ins. Corp.
v. Monroe Guaranty Ins. Co., No. 19-51012(Tex. Mar. 19, 2021).
The coverage dispute arose out of a negligent
lawsuit against a drilling company. The
company tendered defense of the suit to two
insurers, one of which agreed to defend.
The other insurer refused, arguing it had no
duty to defend because the parties stipulated
that the alleged property damage occurred
outside the policy’s coverage period. The
drilling company sued both insurers, seeking
a declaration that they were obligated todefend the suit. A Texas district court granted
the drilling company’s summary judgment
motion. On appeal, the Fifth Circuit asked
the Texas Supreme Court to address two
issues of law. Bitco Gen. Ins. Corp. v. Monroe
Guaranty Ins. Co., 2021 WL 955155 (5th Cir.
Mar. 12, 2021).
First, the Fifth Circuit asked the Texas
Supreme Court to address whether the narrow
exceptions to the eight corners rule, as set
forth in Northfield Ins. Co. v. Loving Home
Care, Inc., 363 F.3d 523 (5th Cir. 2004), arepermissible under Texas law. In Northfield,
the Fifth Circuit agreed to consider extrinsic
evidence in evaluating an insurer’s duty
to defend “when it is initially impossible
to discern whether coverage is potentially6implicated,” and “when the extrinsic evidence
goes solely to a fundamental issue of coverage
which does not overlap with the merits of orengage the truth or falsity of any facts allegedin the underlying case.”
Second, the court sought guidance as towhether it is permissible for a court toconsider evidence of a stipulated date related
to the underlying occurrence to determine
an insurer’s duty to defend. The Fifth Circuit
noted that “a definitive answer to thisquestion is important because ascertaining
the date of an occurrence is a frequently
encountered ‘gap’ in third party pleadings,”
and “the omitted date can be key to thequestion of the duty to defend.”
Last month, the Texas Supreme Court
accepted certification. We will keep you
posted on developments in this matter.

However, plaintiffs claimed that when the
defendant companies acquired Maiden, theyinterfered with Maiden’s performance under
the treaty. In particular, plaintiffs allege thatthe defendants fabricated coverage disputes
and directed Maiden to refuse payment for
losses and to demand the return of funds forpayments already made. Defendants moved todismiss the complaint.
The court denied the motion, finding thatthe complaint sufficiently alleged claims forintentional interference with contractual
relations and inducing breach of contract. The
court noted that while plaintiffs “do not allege
exactly how Defendants directed Maiden tobreach the Treaty,” the complaint nonethelessmet the federal notice pleading standards
so as to survive dismissal. Additionally, thecourt refused to dismiss the complaint on
the ground that defendants were agents ofMaiden and thus could not be held liable forinterference with or inducing breach of thereinsurance treaty. Because the court declined
to take judicial notice of the agreements
between Maiden and the defendants, those
documents could not be used to support
defendants’ agency argument.

Contribution Alert
Reinsurance Alert
California Court Refuses To
Dismiss Claims Against Entities
That Acquired Reinsurer
A California federal district court refused todismiss claims alleging that companies that
acquired a reinsurer intentionally interferedwith the reinsurance contract between theacquired reinsurer and the plaintiff insurancecompanies and induced a breach of that
contract. California Capital Ins. Co. v. Enstar
Holdings US LLC, 2021 WL 1406028 (C.D.
Cal. Apr. 14, 2021).
Plaintiff insurance companies alleged thatthey entered into a reinsurance treaty
with non-party Maiden Reinsurance andthat for several years, Maiden fulfilled its
contractual obligations under the treaty.

Rejecting Tolling Argument,
California Court Rules That
Insurer’s Contribution Claim Is
Time Barred
A California federal district court dismissed
an insurer’s equitable contribution claim
against another insurer, finding that the claim
was time barred by the applicable statuteof limitations. Lexington Ins. Co. v. QBE
Specialty Ins. Co., 2021 WL 735665 (N.D. Cal.
Feb. 25, 2021).
A policyholder tendered defense of aconstruction defect suit to Lexington
Insurance Company. The policyholder opted
not to seek coverage from another insurer,
QBE, because it wished to preserve limits
on the QBE policy for future claims andbecause the QBE policy included a deductible.
Lexington agreed to defend and ultimately
settled the suit. Thereafter, Lexington madeseveral requests to QBE for contributionof defense and indemnity expenses, which
QBE refused. More than two years after the7

underlying settlement, Lexington filed an
action for equitable contribution.
The court dismissed the action, ruling that
it was time-barred under California’s twoyear statute of limitations for equitable
contribution claims. Under California law, thelimitation period for an equitable contribution
claim accrues when the non-contributing
insurer first refuses the demand to contribute,but is tolled until all defense obligationsin the underlying action are terminated by
final judgment. Applying this standard, thecourt held that Lexington’s claim against
QBE accrued in 2016, when QBE refused toparticipate in the policyholder’s defense—nearly three years before Lexington filed
suit. Further, the court held that the statuteof limitations was tolled only from the dateof underlying settlement, which was morethan two years before Lexington filed suit.
The court rejected Lexington’s assertion thatthe statute of limitations is tolled until thedate of last underlying payment for which theinsurer seeks contribution. The court notedthat the argument had “some support” in
California case law, but was not binding bypersuasive authority.
QBE also argued that dismissal was warranted
based on a “selective tender” rule, which
recognizes a policyholder’s right to selectan insurer for tender. The court declined toaddress the merits of the “selective tender”
argument based on its finding that dismissal
was warranted on statute of limitations
grounds, but noted that it would be“extremely reluctant” to apply the rule basedon its apparent inconsistency with California’s
recognition of equitable contribution claims
among insurers. The court stated: “The rightto seek equitable contribution is predicatedon the commonsense principle that wheremultiple insurers or indemnitors share equal
contractual liability . . . the selection of whichindemnitor is to bear the loss should not beleft to the often arbitrary choice of the loss
claimant.” (Citations omitted).

ClimateChange Alert
Cities Cannot Use State Tort Law To
Sue Companies For Climate Change
In Federal Court, Says Second
Circuit
The Second Circuit ruled that municipalities
may not use state tort law to hold multinational companies liable in federal court
for climate change-related costs. City of New
York v. Chevron Corp., 2021 WL 1216541 (2dCir. Apr. 1, 2021). As such, the court affirmed
the dismissal of a public nuisance lawsuitbrought by the City of New York against fiveoil companies to recover damages allegedly
caused by the companies’ global fossil fueloperations. The Second Circuit held thatfederal common law, rather than state law,
governs claims arising out of global warming,
which is a “uniquely international problemof national concern” that implicates foreign
policy. Additionally, the court ruled thatfederal common law is displaced by the Clean
Air Act, which grants the Environmental
Protection Agency (rather than federal courts)
the authority to regulate domestic emissions.
Finally, the Court held even with respect toclaims that are not subject to the Clean Air
Act (e.g., claims arising out of non-domestic
emissions), judicial caution and foreign policy
concerns mitigated against allowing suchclaims to proceed under federal common law.
As the court noted, the Ninth Circuit similarly
affirmed dismissal of a public nuisancesuit seeking damages for property damage
allegedly caused by greenhouse gases emitted
by gas, oil and utility companies. Kivalina v.
ExxonMobil Corp., 2012 WL 4215921 (9thCir. Sept. 21, 2012) (see November 2012
Alert).
Few courts have addressed whether climatechange claims, if allowed to proceed, would
implicate coverage under general liability
policies. As discussed in our May 2012 andOctober 2011 Alerts, the Virginia Supreme
Court ruled that an insurer owed no duty to
defend or indemnify global warming-related
claims, finding that the underlying complaint
did not allege a covered “occurrence.” AES
Corp. v. Steadfast Ins. Co., 2012 WL 1377054(Va. Apr. 20, 2012).

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COVID-19 Alerts
The Eighth Circuit and the Ohio Supreme
Court are poised to rule on whether property
insurers are obligated to indemnify businesslosses arising out of state-mandated closures
enacted to slow the spread of COVID-19.
This month, the Eighth Circuit heard oral
arguments in Oral Surgeons PC v. Cincinnati
Ins. Co., No. 20-3211 (8th Cir. argued Apr. 14,2021), in which an Iowa dental clinic seeksbusiness interruption coverage for pandemicrelated losses. And in Neuro-Communication
Services Inc. v. Cincinnati Ins. Co., 2021
WL 274318 (Ohio Apr. 14, 2021), the Ohio
Supreme Court agreed to accept the certified
question of whether the existence of the
COVID-19 virus constitutes direct physicalloss or damage under a commercial property
policy. Other noteworthy rulings addressing
the scope of coverage for COVID-19-related
claims are discussed below.

Pennsylvania Court Rules That
Dental Practice Is Entitled To
Coverage For COVID-19-RelatedLossesA Pennsylvania trial court granted a dental
practice’s summary judgment motion,
finding that it was entitled to coverage
under Business Income, Extra Expense andCivil Authority coverage provisions, andthat several policy exclusions did not apply.
Timothy A. Ungarean, DMD v. CAN, 2021
WL 1164836 (Pa. Ct. Comm. Pl. Allegheny
Cnty. Mar. 22, 2021).
The policyholder alleged that as a result of
COVID-19 and state shutdown orders, he
was forced to cease most of his business
operations, resulting in lost income. The court
ruled that the policyholder was entitled tocoverage for those losses, rejecting numerous
arguments asserted by the insurer.
First, the court found that the policyholder
suffered “direct physical loss of or damage
to property,” rejecting the contention thatsome physical alteration of or demonstrable
harm to property is required. The court heldthat “loss” reasonably encompasses the lossof use of property. The court further foundthat the loss of use of property was “direct”
and “physical” because the spread of COVID19 and related government orders had a“close logical, causal and/or consequential

relationship to the ways in which Plaintiff
materially utilized its property andphysical space.”
Second, the court held that the policy’s“period of restoration” clause did not indicatethat the contract required actual tangible
damage in order to trigger Business Income
and Extra Expense coverage. The court
reasoned that restoration could include
changes relating to partitions, ventilation,
sanitization or expansion of existing space.

Third, the court concluded that thepolicyholder was entitled to Civil Authority
coverage, holding that the phrase “prohibits
access to the described premises” did not
require a complete prohibition of access. The
court stated:
Although Plaintiff’s business (a dental
practice) was technically permitted
to remain open to conduct certain
limited emergency procedures, thisdoes not change the fact that an actionof civil authority effectively prevented,
or forbade by authority, citizens of
the Commonwealth from accessing
Plaintiff’s business in any meaningful
way for normal, non-emergency
procedures; procedures that likely
yield a significant portion of Plaintiff’s
business income.
Finally, the court ruled that coverage was
not barred by exclusions for Contamination,
Fungi, Wet Rot, Dry Rot and Microbes, orConsequential Loss. The court noted thatwhile a contamination exclusion “might, attimes, cover viruses when viruses actuallycontaminate property,” it did not bar coverage
where, as here, the losses were caused by therisk of person-to-person transmission as well
as state orders issued to mitigate that spread,separate and apart from any contamination ofproperty. With respect to the Consequential
9Loss exclusion, the court deemed it
unenforceable, finding that its application“would effectively eliminate coverage for any
kind of loss and/or damage caused by any
covered peril, which closes Plaintiff’s businesswhile it is being repaired.”

Pennsylvania Court Dismisses
Class Action Suits Seeking Business
Interruption Coverage
A Pennsylvania federal district court
dismissed four class action suits seeking
coverage for COVID-19-related losses, findingthat the insured properties did not incur any“direct physical loss.” Chester County Sports
Arena v. Cincinnati Specialty Underwriters
Ins. Co., 2021 WL 1200444 (E.D. Pa. Mar.
30, 2021).
The plaintiff businesses held “all risk”
property policies that included identical
coverage provisions for Business Income,Extended Business Income, Extra Expense
and Civil Authority. Cincinnati denied
coverage for the businesses’ pandemic-related
claims, and in ensuing litigation, moved todismiss the policyholders’ complaints. The
court granted the insurer’s motion, findingthat the businesses failed to allege any “direct
physical loss,” as required by the policy. The
court stated:
Government orders in response to avirus simply do not fit this physicality
requirement. Under Pennsylvania law,clear and unambiguous terms (like“direct physical loss”) must be given
their plain meaning, and when there
is no alteration to a physical structure,
Third Circuit precedent points inthe direction of finding no physicalloss. . . . A contrary holding would
require expanding “direct physical loss”
beyond its plain meaning to encompass
purely economic loss.

In so ruling, the court noted the “plethoraof similar cases in district courts across thecountry” that have also dismissed coverage
suits involving comparable policy provisions
and factual allegations.

In Trio Of Rulings, New Jersey
Federal District Courts Dismiss
COVID-19-Related Coverage Suits
Last month, three federal district courts
in New Jersey dismissed suits seeking
coverage for business losses stemming fromgovernment shutdown orders issued in
response to the COVID-19 pandemic.
In Dezine Six, LLC v. Fitchburg Mutual
Ins. Co., 2021 WL 1138146 (D.N.J. Mar. 25,2021), the court ruled that a virus exclusion
precluded coverage for a hair salon’s COVID19 related losses. The court rejected thepolicyholder’s assertion that the exclusion
did not apply to coverage under the Business
Income, Extra Expense and Civil Authority
coverage provisions because those provisions
referred to “expenses” whereas the virus
exclusion referred to “loss or damage.” Thecourt also rejected a regulatory estoppel
argument, noting that the policyholder
failed to allege that the insurer mademisrepresentations to insurance regulatorswith respect to the virus exclusion.
Applying similar reasoning and enforcing avirus exclusion, another New Jersey federal
district court dismissed a food retailer’s
coverage suit in Benamax Inc. LLC v.
Merchant Mutual Ins. Co., 2021 WL 1171633(D.N.J. Mar. 29, 20210). The court concluded
that the exclusion “is a complete defense
to coverage compelling the dismissal of
Plaintiff’s complaint on this ground alone.”
In 7th Inning Stretch LLC v. Arch Ins. Co.,
2021 WL 1153147 (D.N.J. Mar. 26, 2021),
the court dismissed a professional baseballorganization’s coverage suit, finding that
allegations that government actions forced
the cessation of minor league baseball,resulting in lost income, did not satisfy the“direct physical loss of or damage to property”
requirement. The court held that allegations
that it was “statistically certain” that the virus
was present on insured property were notsufficient to trigger coverage, stating that “thepresence of a virus that harms humans but
does not physically alter structures does notconstitute coverable property loss or damage.”
10

STB News Alerts
Simpson Thacher’s Insurance Practice again
received the National Practice Group of theYear award at Euromoney’s Benchmark
Litigation 2021 Awards virtual ceremony.
This is the eighth time the Firm has received
the Insurance Firm of the Year award.
Mary Beth Forshaw was also recognized as
Insurance Litigator of the Year, which she
also won in 2016. The Benchmark Litigation

Awards honor firms and attorneys that haveemerged as leaders in their particular areas oflaw over the past year.
Josh Polster has been named to Law360’s
2021 Insurance Editorial Advisory Board. The
Advisory Board is responsible for providing
feedback to the publication about its news
coverage, as well as expanding the pool ofpotential industry experts and collecting
insights on how to best shape future content.

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

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 Bryce L. Friedman
bfriedman@stblaw.com / +1-212-4552235 and Susannah S. Geltman
sgeltman@stblaw.com / +1-212-4552762 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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13