Insurance Law Alert

December 2020

In This Issue
No Coverage For Email Spoofing Losses, Says New Jersey Court
A New Jersey federal district court ruled that an insurer had no duty to indemnify losses
arising out of an email spoofing scam, finding that a theft exclusion unambiguously barred
coverage. Authentic Title Services, Inc. v. Greenwich Ins. Co., 2020 WL 6739880 (D.N.J. Nov.
17, 2020). (Click here for full article)

Pennsylvania Court Rules That Umbrella Insurers Are Obligated To
Defend Opioid Litigation“Market leader for
insurer representation,offering unmatched ability
in handling bet-the-company
litigation and arbitration
proceedings.”– Chambers USA
2020

A Pennsylvania federal district court ruled that two umbrella insurers were obligated tocontribute to the policyholder’s defense, finding that underlying claims brought by government
entities alleged damages “because of bodily injury.” Giant Eagle v. American Guarantee andLiability Ins. Co., 2020 WL 6565272 (W.D. Pa. Nov. 9, 2020). (Click here for full article)

Another Round Of Decisions Define The Scope Of Covid-Related CoverageOver the past month, more than 30 courts across the country have issued rulings in lawsuits
in which policyholders seek insurance coverage for Covid-related business losses. The
overwhelming majority of courts have dismissed the policyholders’ complaints as matter oflaw, finding that economic losses stemming from business interruptions do not satisfy the“direct physical loss of or damage to property” requirement of general liability policies.
(Click here for full article)

Eleventh Circuit Upholds Excess Insurer’s Failure-To-Settle Claim Against
Primary Insurer
The Eleventh Circuit ruled that a primary insurer is liable to an excess insurer for negligently
failing to settle the underlying suit against the policyholder, rejecting the primary insurer’s“safe harbor” defense. American Guarantee & Liability Ins. Co. v. Liberty Surplus Ins. Co.,
2020 WL 6554654 (11th Cir. Nov. 9, 2020). (Click here for full article)

Consumer Class Action Against Cereal Manufacturer Fails To Allege“Bodily Injury,” Says Missouri Court
A Missouri federal district court ruled that a cereal manufacturer was not entitled to generalliability coverage for class action claims alleging consumer fraud based on the company’s
alleged practice of misrepresenting high-sugar content cereals as “healthy.” Post Holdings, Inc.
v. Liberty Mutual Fire Ins. Co., 2020 WL 6381817 (E.D. Mo. Oct. 30, 2020). (Click here forfull article)

Simpson Thacher & Bartlett LLP

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Pennsylvania Court Rules That PRP Letter Is A “Suit” Triggering Duty To
Defend And Endorses Hybrid Approach To Categorizing RI/FS Costs As
Defense/Indemnity
A Pennsylvania court ruled that a Potentially Responsible Person notification constitutes a“suit” for purposes of triggering an insurer’s duty to defend, and endorsed a “hybrid” approach
to allocating remedial investigation and feasibility study expenses as indemnity or defense
costs. Penn. Manuf. Assoc. Ins. Co. v. Johnson Matthey, Inc., 2020 WL 6788769 (Penn.
Comm. Ct. Nov. 19, 2020). (Click here for full article)

Policyholder May Pursue Missouri Statutory Bad Faith Claim
Notwithstanding New York Choice Of Law Provision, Says Missouri Court
A Missouri federal district court ruled that a policyholder could pursue a Missouri statutory“vexatious refusal to pay” claim against its insurer, notwithstanding a policy provision thatdesignated New York law as controlling. Maritz Holdings Inc. v. Certain Underwriters at
Lloyd’s London Subscribing to Policies Numbered B122F10115115 and F10115116, 2020 WL
7023952 (E.D. Mo. Nov. 30, 2020). (Click here for full article)

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

2Cyber Alert:

Opioid Alert:

No Coverage For Email Spoofing
Losses, Says New Jersey Court

Pennsylvania Court Rules That
Umbrella Insurers Are ObligatedTo Defend Opioid Litigation

A New Jersey federal district court ruledthat an insurer had no duty to indemnify
losses arising out of an email spoofing scam,finding that a theft exclusion unambiguously
barred coverage. Authentic Title Services, Inc.
v. Greenwich Ins. Co., 2020 WL 6739880(D.N.J. Nov. 17, 2020).
Authentic, a title insurance agent, participatedin a real estate transaction in which Quicken
Loans was the mortgage lender. During
the course of the transaction, the parties
exchanged emails concerning a wire transfer
of funds from Authentic to Quicken. Several
emails sent to Authentic purported to be from
Quicken employees, but in actuality were sentby criminals using email addresses nearly
identical to those of Quicken employees. The
spoofed emails instructed Authentic to follow
certain wiring instructions. After the transfer
of funds, the parties discovered the fraud andAuthentic sought coverage under an Errors
and Omissions policy. The insurer denied
coverage based on an exclusion that applied
to losses “arising out of . . . the commingling,
improper use, theft, stealing, conversion,
embezzlement or misappropriation of funds
or accounts.”
In ensuing litigation, the court granted
the insurer’s summary judgment motion
seeking a declaration of no coverage. The
court held that the “claim for coverage
undeniably originated from, grew out of, or
had a substantial nexus to funds belonging
to Quicken that were transferred into the
Fraudulent Account.” In addition, thecourt concluded that the scenario involved“theft,” “stealing,” “misappropriation”
or “conversion,” rejecting Authentic’s
contention that the terms are ambiguous
as to whether they include conduct by the
insured, or are limited to conduct by third
parties. In so ruling, the court noted that
other policy exclusions contain language
specifying to whom they apply, indicatingthat the parties intended the theft exclusion
to apply regardless of whether the insured
was involved.

Over the past year, several courts haveruled that general liability insurers are
obligated to defend opioid manufacturers anddistributers against class action suits broughtby government entities, finding that theunderlying claims allege damages “because of
bodily injury.” See October, July/August, andJune 2020 Alerts. Last month, a Pennsylvania
federal district court followed suit, rulingthat two umbrella insurers were obligatedto contribute to the policyholder’s defense.
Giant Eagle v. American Guarantee andLiability Ins. Co., 2020 WL 6565272 (W.D.
Pa. Nov. 9, 2020).
Giant Eagle, a supermarket withpharmaceutical services, was named as adefendant in numerous lawsuits. Some of thesuits were brought by families of individuals
affected by opioid addition, while others werefiled by counties purportedly seeking damages
for the costs of medical treatment and otherservices related to opioid dependence. Twoof Giant Eagle’s umbrella insurers refused
to defend, arguing that the underlying suits
did not seek damages potentially coveredby their policies. The court disagreed andgranted Giant Eagle’s partial summary
judgment motion.

The court ruled that economic losses incurredby the counties in addressing opioid addition(e.g., costs related to medical treatment andrecovery services) were damages “becauseof bodily injury.” In addition, the court heldthat the complaints alleged an “occurrence”
or “accident” under the relevant policies. In
particular, the court noted that the complaints
alleged negligence with respect to Giant
Eagle’s failure to identify suspicious opioid3

orders and reasoned that public nuisanceclaims, which allege that Giant Eagle “shouldhave known” about pill mills, sufficiently
alleged fortuitous actions.
The court rejected the insurers’ contention
that the underlying claims alleged multiple
occurrences, such that Giant Eagle wasobligated to satisfy per-occurrence SIRs anddeductibles before seeking a defense fromumbrella insurers. The court explained thatfor purposes of determining the insurers’
duty to defend, the complaints need only
“potentially allege a single occurrence.”
Applying Pennsylvania’s cause-oriented test
for number of occurrences, the court stated:“It is certainly possible . . . that a court could
find that a single occurrence, i.e., Giant
Eagle’s comprehensive failure to maintaineffective controls over its opioid distribution
and sales, resulted in the injuries sufferedby the plaintiffs in the underlying lawsuits.”
In addition, the court concluded that undera “first manifestation rule,” the underlying
claims alleged injury that potentiallyoccurred during the policy years at issue. In
particular, the court noted that the record wasinsufficient to determine when bodily injury
first manifested, and that the complaints
allege bodily injury occurring from 1999
through the present. As such, a potential forcoverage under the policies existed, and the
duty to defend was triggered.
Finally, the court ruled that the insurers’ duty
to defend was triggered because Giant Eagle’s
payment of defense costs in the underlying
suits constitutes a “loss” as defined in theumbrella policies.
In Acuity v. Masters Pharmaceutical, Inc.,
2020 WL 3446652 (Ohio Ct. App. June 24,2020), discussed in our June 2020 Alert, an
Ohio appellate court ruled that an insurer
must defend a pharmaceutical distributor
against certain suits filed by government
agencies seeking to cover costs relating tothe opioid problem, finding that the suits
sought damages “because of” bodily injury
and that coverage was not precluded by aloss-in-progress provision. This month, theOhio Supreme Court agreed to review theappellate court decision. Acuity v. Masters
Pharmaceutical Inc., No. 2020-1134 (OhioDec. 15, 2020).

Covid Alert:
Another Round Of Decisions
Define The Scope Of Covid-Related
Coverage
Over the past month, more than 30 courts
across the country have issued rulingsin lawsuits in which policyholders seek
insurance coverage for Covid-related businesslosses. The overwhelming majority of courts
have dismissed the policyholders’ complaints
as matter of law, finding that economic losses
stemming from business interruptions do notsatisfy the “direct physical loss of or damage
to property” requirement of general liability
policies. A substantial number of courts havealso concluded that civil authority coverage isunavailable because government orders havenot prohibited access to insured premises andbecause property located in close proximity to
the insured premises has not been physicallydamaged. Among these rulings were two
decisions issued by federal courts in theSouthern District of New York. See Michael
Cetta, Inc. v. Admiral Indem. Co., 2020 WL
7321405 (S.D.N.Y. Dec. 11, 2020); 10012
Holdings, Inc. v. Sentinel Ins. Co., Ltd., 2020
WL 7360252 (S.D.N.Y. Dec. 15, 2020). Other
courts have dismissed complaints basedon the presence of a virus exclusion in thegoverning policy. Virtually all courts haverejected policyholders’ regulatory estoppel
arguments, finding no basis in fact or law for
application of the doctrine.
A small minority of courts have declined todismiss policyholder’s suits on the pleadings,
citing ambiguity in policy language or factualissues in dispute. See JGB Vegas Retail
Lessee, LLC v. Starr Surplus Lines Ins.
Co., 2020 WL 7258108 (D. Nev. 30, 2020);
Elegant Massage, LLC v. State Farm MutualAuto. Ins. Co., 2020 WL 7249624 (E.D. Va.
Dec. 9, 2020).

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Finally, judicial panels granted motions
to centralize proceedings in multidistrict
litigation in New York and Pennsylvania. The
New York MDL involves lawsuits alleging
that an insurer is obligated to pay for trips
cancelled because of Covid. The Pennsylvania
MDL involves individual and putativeclass action cases alleging that the insurer
wrongfully refused to cover business income
loss due to Covid-related government orders.
See In re: Generali COVID-19 Travel Ins.
Litig., 2020 WL 7382300 (U.S. Jud. Pan.
Mult. Lit. Dec. 15, 2020); In re: Erie COVID19 Bus. Interruption Protection Ins. Litig.,2020 WL 7384529 (U.S. Jud. Pan. Mult. Lit.
Dec. 15, 2020).

Excess Alert:
Eleventh Circuit Upholds Excess
Insurer’s Failure-To-Settle Claim
Against Primary Insurer
The Eleventh Circuit ruled that a primary
insurer is liable to an excess insurer for
negligently failing to settle the underlying suitagainst the policyholder, rejecting the primary
insurer’s “safe harbor” defense. American
Guarantee & Liability Ins. Co. v. Liberty
Surplus Ins. Co., 2020 WL 6554654 (11th Cir.
Nov. 9, 2020).
A tenant sued the owner and managementcompany of his apartment complex for
injuries incurred in a gas explosion. The
defendants collectively held several primaryand excess liability policies. Liberty, a primary
insurer, defended the suit. The tenant issued asettlement demand of $5 million with a thirtyday expiration. In response, Liberty offered$50,000. The tenant indicated he would
not negotiate further unless Liberty offered
its $1 million policy limit, and thereafter
lowered his demand to $3 million subject to
Liberty tendering its policy limit. Settlement
negotiations continued for several months
without success. After trial, the jury returned

a verdict of $72.96 million in compensatory
and punitive damages and attorney’s fees.
Thereafter, American Guarantee, an excess
insurer, sued Liberty, alleging that itnegligently failed to settle the underlying
suit and seeking reimbursement for the $2
million that American Guarantee contributed
to the ultimate $15 million settlement. A
Georgia district court found that Liberty was
negligent in failing to settle and the Eleventh
Circuit affirmed.
Under Georgia law, an excess insurer may
bring a failure-to-settle claim against a
primary insurer pursuant to equitable
subrogation. The Eleventh Circuit ruled that
American Guarantee satisfied the elementsof such a claim because Liberty’s duty tosettle was triggered by the tenant’s settlement
demands, which were within the insurers’
combined policy limits. In addition, the court
ruled that Liberty was not entitled to a “safeharbor” because it eventually offered its policy
limits. An insurer that receives a settlement
demand involving multiple insurers isprotected by a “safe harbor” from liability if itmeets the portion of the demand over which
it has control. However, the court deemed
the safe harbor doctrine inapplicable where,
as here, the insurer responds to a settlement
demand by attaching conditions within
its own control. Here, Liberty restricted
the use of its policy limit through a highlow agreement.

Bodily Injury
Alert:
Consumer Class Action Against
Cereal Manufacturer Fails To Allege“Bodily Injury,” Says Missouri
Court
A Missouri federal district court ruled thata cereal manufacturer was not entitled togeneral liability coverage for class action
claims alleging consumer fraud based on thecompany’s alleged practice of misrepresenting
high-sugar content cereals as “healthy.” Post
Holdings, Inc. v. Liberty Mutual Fire Ins. Co.,
2020 WL 6381817 (E.D. Mo. Oct. 30, 2020).
A putative class action suit alleged violationsof California statutory law, and express and5implied warranties based on the company’s
alleged “policy and practice of labeling highsugar cereals . . . with various health andwellness claims that suggest the cereals arehealthy, when they are not.” The complaint
further alleges that the sugar content in the
cereals is “highly likely to contribute” to“increased risk for, and actual contractionof, chronic disease.” Plaintiffs therefore
claim that they suffered bodily injury “in theform of increased risk” of certain illnesses.
The insurer denied coverage based on a lackof “bodily injury,” defined by the policy as“sickness or disease sustained by a person,
including death resulting from any of theseat any time; and [m]ental anguish, shock orhumiliation arising out of the bodily injury.”
The court granted the insurer’s summary
judgment motion, ruling that “[a]lthoughthe . . . Suit contains references to ‘bodily
injury,’ upon analysis, it is abundantly clearthat no ‘bodily injury’ is alleged to have beensustained by the . . . plaintiffs.” The court
explained that allegations of possible harm
do not constitute causes of action for bodily
injury absent actual adverse effects sustainedby the plaintiffs. In addition, the court ruledthat emotional damages are not covered
unless they result from actual physical injury.

Duty To Defend
Alert:
Pennsylvania Court Rules That PRP
Letter Is A “Suit” Triggering Duty
To Defend And Endorses Hybrid
Approach To Categorizing RI/FS
Costs As Defense/Indemnity
Addressing a matter of first impression underPennsylvania law, a Pennsylvania court ruledthat a Potentially Responsible Person (“PRP”)
notification constitutes a “suit” for purposesof triggering an insurer’s duty to defend. The
court also endorsed a “hybrid” approach toallocating remedial investigation (“RI”) andfeasibility study (“FS”) expenses as indemnity
or defense costs. Penn. Manuf. Assoc. Ins. Co.
v. Johnson Matthey, Inc., 2020 WL 6788769(Penn. Comm. Ct. Nov. 19, 2020).
In 2006, the Department of Environmental
Protection (“DEP”) identified Johnson
Matthey as a PRP for environmental

contamination at a land site. Thereafter,
Johnson Matthey entered into a consent
order and agreement in which it agreed toundertake RI/FS actions. In 2010, the DEP
added Johnson Matthey as a defendantin ongoing CERCLA litigation. Johnson
Matthey and its insurer disputed two issues:(1) whether the insurer’s duty to defend
was triggered by the 2006 PRP letter or by
the 2010 addition of Johnson Matthey as adefendant to the lawsuit; and (2) whether the
RI/FS costs are indemnity costs, subject tothe policies’ liability limits, or defense costs.
The court noted that while Pennsylvania’s
appellate courts have not yet addressed thequestion of whether an environmental agency
proceeding prior to the filing of a complaint
is a “suit” that triggers an insurer’s duty to
defend, numerous other state and federal
courts have concluded that PRP letters are
the “functional equivalent” of suits. The
court agreed with the reasoning in thosedecisions and held that the insurer’s duty to
defend was triggered by the 2006 PRP letter.
In so ruling, the court emphasized the legal
consequences of a PRP letter, the adjudicative
authority of administrative proceedings andthe involuntary nature of compliance withsuch actions.
The court also noted that jurisdictions havetaken various approaches to determine
whether RI/FS costs should be considered
defense or indemnity costs. Adopting a“hybrid” method that allocates costs between
defense and indemnity, the court set forth thefollowing standard:[W]e presume that to the extent an
expense is primarily attributable to an
RI, which addresses the sources, scope,and extent of the contamination, it is adefense cost. The burden should be on
the insurer, or any party disadvantagedby the presumption, to show that theinsured has derived an unjust benefit
from such an allocation . . . . Likewise,
we presume that to the extent that an
expense is primarily attributable to an
FS, which comprises plans for selecting
and implementing the remediation
alternatives for the site, it is anindemnity cost. The burden should be on
the insured, or any party disadvantagedby the presumption, to show that theinsurer has derived an unjust benefit
from such an allocation . . . .
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Choice Of Law
Alert:

statute advances an important public policy—“the equitable and fair treatment of Missouri
insureds”—and therefore overrides the choiceof law provision.

Policyholder May Pursue Missouri
Statutory Bad Faith Claim
Notwithstanding New York Choice
Of Law Provision, Says Missouri
Court

STB News Alerts

A Missouri federal district court ruled thata policyholder could pursue a Missouri
statutory “vexatious refusal to pay” claim
against its insurer, notwithstanding a policy
provision that designated New York law ascontrolling. Maritz Holdings Inc. v. Certain
Underwriters at Lloyd’s London Subscribing
to Policies Numbered B122F10115115 andF10115116, 2020 WL 7023952 (E.D. Mo. Nov.
30, 2020).
The policyholder sought coverage undera breach-response policy for two security
breaches. When the insurer denied coverage,
the policyholder sued, alleging breach ofcontract and vexatious refusal to pay pursuant
to Missouri statutory law. The insurer moved
to dismiss the statutory claim, arguing that
it fails to state a claim under New York law,which governs all disputes “arising out of” thepolicy pursuant to a choice of law provision.
The court agreed with the insurer that
“arising out of” is not limited to disputes
arising out of policy interpretation, andextends to vexatious refusal to pay claims.
However, applying Missouri conflict of law
rules, the court concluded that the Missouri

Bryce Friedman, Susannah Geltman and
Lynn Neuner recently authored chaptersin Commercial Litigation in New YorkState Courts, a joint venture of Thomson
Reuters and the New York County Lawyers
Association. The text covers the subjects
most often encountered in commercial
cases. Susannah Geltman co-authored the“Negligence” chapter, Bryce Friedman
authored a chapter titled “Reinsurance,”and Lynn Neuner co-authored the “Crisis
Management” chapter. The fifth editionof Commercial Litigation in New YorkState Courts features the work of 256
expert authors, including some of the bestcommercial litigators in New York.
The 20th edition of the Handbook on
Insurance Coverage Disputes has beenreleased this month. The Handbook,co-authored by former Simpson Thacher
partner and New York State Supreme Court
Justice Barry R. Ostrager, and edited by
Elisa Alcabes and Karen Cestari, discusses
thousands of insurance and reinsurancerelated decisions, including the most recent
and significant coverage rulings on emerging
issues, such as Covid, the opioid epidemic andcyber incidents.

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

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

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

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

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

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

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

Jonathan T. Menitove+1-212-455-2693
jonathan.menitove@stblaw.com

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

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

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

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

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

Joshua Polster+1-212-455-2266
joshua.polster@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
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Please click here to subscribe to the Insurance Law Alert.
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