Insurance Law Alert

April 2016

In This Issue
Colorado Supreme Court Declines to Extend Notice-Prejudice Rule toVoluntary Payments Violation
The Colorado Supreme Court ruled that an insurer need not establish prejudice in orderto deny coverage based on a policyholder’s violation of a voluntary payments provision.
Travelers Prop. Cas. Co. of Am. v. Stresscon Corp., 2016 WL 1639565 (Colo. Apr. 25, 2016).
(Click here for full article)“SimpsonThacher & Bartlett
is an elite firm that has
demonstrated expertisein handling high-stakes
matters.”–Chambers 2015,
quoting a client

Alaska Supreme Court Prohibits Enforcement of Defense Cost
Reimbursement Provision
The Alaska Supreme Court ruled that state statutory law prohibits enforcement of a policy
provision entitling an insurer to reimbursement of defense costs, even where the insurer
specifically reserved the right to seek reimbursement and it was later determined that there
was no coverage. Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C.,
2016 WL 1171299 (Alaska Mar. 25, 2016). (Click here for full article)

California Appellate Court Rules That Defending Insurer Is Entitled toEquitable Contribution of Defense Costs from Non-Defending Insurer
A California appellate court ruled that two successive insurers that shared indemnity costs
on a pro rata basis must also share defense costs and that the defending insurer was entitledto equitable contribution from the non-defending insurer. Certain Underwriters at Lloyds,
London v. Arch Specialty Ins. Co., 2016 WL 1436362 (Cal. Ct. App. Apr. 11, 2016). (Click here
for full article)

Fourth Circuit Rules That Insurer Must Defend Class Action Suit Alleging
Online Breach of Medical Records
The Fourth Circuit ruled that an insurer was required to defend a class action suit based on thepolicyholder’s release of class members’ confidential medical records. Travelers Indem. Co. of
Am. v. Portal Healthcare Solutions, L.L.C., 2016 WL 1399517 (4th Cir. Apr. 11, 2016).
(Click here for full article)

Georgia Supreme Court Rules That Pollution Exclusion Applies to Lead
Paint Claims
Addressing an issue of first impression under Georgia law, the Georgia Supreme Court ruledthat a pollution exclusion bars coverage for injuries arising out of the ingestion or inhalation oflead-based paint. Georgia Farm Bureau Mutual Ins. Co. v. Smith, 2016 WL 1085397 (Ga. Mar.
21, 2016). (Click here for full article)

Simpson Thacher & Bartlett LLP

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New York Court Endorses Pro Rata Allocation of Asbestos Losses, With
Policyholder Responsible for Orphan Shares
A New York federal district court ruled that under New York and Georgia law, losses fromprogressive asbestos injuries must be allocated among insurers on a pro rata basis and thatthe policyholder was responsible for “orphan shares” created by the insolvency of one insurer.
Liberty Mutual Ins. Co. v. The Fairbanks Co., 2016 WL 1169511 (S.D.N.Y. Mar. 22, 2016).
(Click here for full article)

New York Appellate Court Rules That Insurer Did Not Waive Coverage
Denial Based on Policy Exclusion
A New York appellate court rejected a policyholder’s argument that an insurer waived its rightto rely on a policy exclusion to deny coverage because it failed to identify that specific provisionin its disclaimer letter. Provencal, LLC v. Tower Ins. Co. of N.Y., 2016 WL 1354865 (N.Y. App.
Div. 2d Dep’t Apr. 6, 2016). (Click here for full article)

South Carolina Court Rules That Policy Benefits Cannot Be Assigned
Without Insurer Consent
A South Carolina court rejected a successor entity’s attempt to obtain insurance coverage
issued to a predecessor company, finding that the insurer did not consent to the assignment
and that limited exceptions to the consent requirement did not apply. PCS Nitrogen, Inc. v.
Continental Casualty Co., C.A. No. 11-CP-10-387 (S.C. Ct. Common Pleas Mar. 23, 2016).
(Click here for full article)

Two Courts Reject General Liability Coverage for TCPA Claims
A Colorado federal district court and an Ohio appellate court denied coverage for claims
alleging violations of the Telephone Consumer Protection Act. Ace American Ins. Co. v. Dish
Network, LLC, 2016 WL 1182744 (D. Colo. Mar. 28, 2016); Acuity, A Mutual Ins. Co. v. The
Siding and Insulation Co., 2016 WL 1276471 (Ohio Ct. App. Mar. 31, 2016). (Click here forfull article)

Pennsylvania Court Rules That Two Lawsuits Do Not Allege Interrelated
Wrongful Acts
A Pennsylvania federal district court ruled that conduct alleged in two separate complaints
against the insured was not sufficiently interrelated so as to bar coverage pursuant to aninterrelated wrongful acts exclusion. Connect America Holdings, LLC v. Arch Ins. Co., 2016
WL 1254073 (E.D. Pa. Mar. 31, 2016). (Click here for full article)

South Carolina Appellate Court Grants Insurers’ Motion to Compel
Arbitration
A South Carolina appellate court granted defendant insurers’ motion to compel arbitration
against non-signatories to the arbitration agreement. Wilson v. Willis, 2016 WL 806063 (S.C.
Ct. App. Mar. 2, 2016). (Click here for full article)

Florida Appellate Court Strictly Enforces Insured vs. Insured Exclusion
A Florida appellate court ruled that an insured vs. insured exclusion barred coverage regardlessof the capacity in which the former director brought suit. Durant v. James, 2016 WL 1295100(Fla. Dist. Ct. App. Apr. 4, 2016). (Click here for full article)2

Voluntary
Payments Alert:

Colorado Supreme Court Declines
to Extend Notice-Prejudice Rule toVoluntary Payments Violation
The Colorado Supreme Court ruled that aninsurer need not establish prejudice in orderto deny coverage based on a policyholder’sviolation of a voluntary payments provision.
Travelers Prop. Cas. Co. of Am. v. Stresscon
Corp., 2016 WL 1639565 (Colo. Apr.
25, 2016).
Stresscon, a subcontractor, sought coverage
from Travelers for an underlying claim arisingout of a construction accident. Travelers
issued a reservation of rights. Thereafter,Stresscon settled the underlying claim without
consulting Travelers. Among numerous
issues in dispute was whether Travelers was
obligated to pay for the settlement given
Stresscon’s violation of the policy’s voluntary
payments provision. A Colorado trial court
applied a notice-prejudice rule, finding thatin order to deny coverage, Travelers must
establish that it was prejudiced by Stresscon’s
violation of the voluntary payments provision.
An appellate court affirmed. See October 2013
Alert. The Colorado Supreme Court reversed,
ruling that the notice-prejudice rule thatgoverns late notice defenses does not extend
to a breach of a voluntary payment provision.
In refusing to impose a prejudice requirementin this context, the Colorado Supreme Court
reasoned that a voluntary payments provision
is not a “mere technicality,” but rather “afundamental term defining the limits or
extent of coverage.” The court cited Craft v.
Philadelphia Ins. Co., 2015 WL 658785 (Colo.
Feb. 17, 2015) (discussed in our February
2015 Alert), in which the court ruled thatthe notice-prejudice rule does not apply toviolations of date-certain notice requirements
in claims-made policies. The court stated,“[l]ike the notice of claim requirement of
the claims-made policy at issue in Craft,the no-voluntary payments clause of thecontract at issue here goes to the scope of
the policy’s coverage.” Therefore, “applying a
notice-prejudice rule to excuse an insured’s
noncompliance with such a contractual
provision would essentially rewrite theinsurance contract itself and effectively create
coverage where none previously existed.”

Because the trial court denied Travelers’
motion for directed verdict solely on the basisof the notice-prejudice rule, and because it
was undisputed that Stresscon voluntarily
settled the underlying claim without
Travelers’ consent, the court reversed the jury
verdict in favor of Stresscon and remanded
the case with directions to issue a directedverdict in Travelers’ favor.

Defense Cost
Alerts:

Alaska Supreme Court Prohibits
Enforcement of Defense Cost
Reimbursement Provision
Answering questions certified by the Ninth
Circuit, the Alaska Supreme Court ruled thatstate statutory law prohibits enforcementof a policy provision entitling an insurer
to reimbursement of defense costs, even
where (1) the insurer specifically reserved
the right to seek reimbursement; (2) the
insured accepted the defense subject to thereservation of rights; and (3) it was later
determined that there was no coverage.
Attorneys Liability Protection Society, Inc. v.
Ingaldson Fitzgerald, P.C., 2016 WL 1171299(Alaska Mar. 25, 2016).
Alaska statutory law provides that infurnishing a policyholder with independent
counsel, an insurer “shall be responsible” forthe fees and costs associated with potentiallycovered claims. AS 21.96.100(d). Although thestatute does not specifically address whether
an insurer can later seek reimbursementof defense costs, the court interpreted thestatute to prohibit such reimbursement. The
court reasoned that the statute focuses on the“mandatory requirement that insurers pay forthe cost of independent counsel,” using terms
such as “shall” and “obligation.” The court
therefore concluded that the statute “clearly
allocates to the insurer the responsibility
to pay” defense costs and that “[a]ny effort
by the insurer to shift such expenses to an
insured would violate the allocation thatthe statute requires and would therefore beinvalid.” The court held that the prohibition
against reimbursement applies not only incases where it is subsequently determinedthat a policy exclusion bars coverage, but also
to cases where it is determined that there was3“no possibility of coverage” in the first place.
The court stated that “even if it were later
determined that there was no possibility ofcoverage, that denial has no retroactive effecton the duty to defend.” In so ruling, the court
expressly distinguished California statutory
and common law in this context, which allows
for reimbursement of defense costs.

California Appellate Court Rules
That Defending Insurer Is Entitledto Equitable Contribution of
Defense Costs from Non-Defending
Insurer
A California appellate court ruled that two
successive insurers that shared indemnity
costs on a pro rata basis must also sharedefense costs, and that the defending
insurer was therefore entitled to equitable
contribution from the non-defending insurer.
Certain Underwriters at Lloyds, London v.
Arch Specialty Ins. Co., 2016 WL 1436362(Cal. Ct. App. Apr. 11, 2016).
Underwriters and Arch insured Framecon
under successive primary policies. When
Framecon was sued in construction defectlitigation, it sought a defense from both
insurers. Underwriters agreed to defend
under a reservation of rights, but Archrefused to defend, citing an “other insurance”
provision that stated that if another insurer
was providing a defense, Arch’s policy would
be “excess” with regard to defense costs,
even if coverage were found to apply. The
underlying claims against Framecon were
ultimately settled. Arch and Underwriters
provided indemnification on a pro rata, “timeon the risk” basis. Thereafter, Underwriterssought equitable contribution from Arch forthe defense costs incurred in the underlying
litigation. Both parties moved for summary
judgment. A trial court ruled in favor of Arch,concluding that the “other insurance” clause
was valid and enforceable with respect toArch’s defense obligations. The appellate
court reversed.
The appellate court ruled that Underwriters
was entitled to equitable contribution of
defense costs from Arch because both insurers
were “on the risk” during the operative timeframe. The court held that Arch’s “otherinsurance” provision was an unenforceable“escape clause” that violated public policy.
The court explained that:Arch’s policy made Arch liable for
defense costs, but then purported
to extinguish that obligation
when other insurance afforded a
defense . . . . [E]nforcing Arch’s
clause would result in imposing on
Underwriters the burden of shouldering
a portion of defense costs attributable
to claims arising from a time when Archwas the only insurer.
In addition, the court ruled that Arch
could not circumvent this result by placing
the “other insurance” provision in the“coverage” section of the policy as well as the“limitations” section, noting that location is
not determinative in this context.

Data Breach Alert:
Fourth Circuit Rules That Insurer
Must Defend Class Action Suit
Alleging Online Breach of Medical
Records

The Fourth Circuit ruled that an insurer was
required to defend a class action suit based on
the policyholder’s release of class members’
confidential medical records. Travelers
Indem. Co. of Am. v. Portal Healthcare
Solutions, L.L.C., 2016 WL 1399517 (4th Cir.
Apr. 11, 2016).
Portal was sued in a class action complaint
alleging negligence, breach of warranty
and breach of contract, among otherthings, based on the accidental release ofconfidential medical records online. Portalsought coverage under policies that covered
damages because of injury arising from “theelectronic publication of material that . . .
gives unreasonable publicity to a person’s
private life.”
Travelers sought a declaration that it had no
duty to defend on the ground that there had
been no “publication.” In particular, Travelers
argued that there was no publication
because (1) Portal did not intend to expose
the materials to the public, and (2) nothird party was alleged to have viewed theinformation. A Virginia district court rejectedboth arguments, ruling that Travelers was
obligated to defend the suit. Travelers Indem.
Co. of Am. v. Portal Healthcare Solutions,
L.L.C., 35 F. Supp.3d 765 (E.D. Va. 2014). The
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district court reasoned that publication does
not hinge on intent or third-party access. The
court stated that “[p]ublication occurs when
information is ‘placed before the public,’
not when a member of the public reads theinformation placed before it.” In so ruling, thecourt distinguished Recall Total Info. Mgmt.
Inc. v. Fed. Ins. Co., 83 A.3d 664 (Conn. App.
Ct. 2014), aff’d, 2015 WL 2371957 (Conn. May
26, 2015) (discussed in May 2015 Alert), in
which the court found no publication whereconfidential records had fallen out of the backof a van and were never recovered. The court
explained that “[t]his case is distinguishable
because, here, the information was posted on
the internet and thus, was given not just toa single thief but to anyone with a computerand internet access.” The Fourth Circuit
affirmed for the reasons set forth in the
district court’s opinion.

exclusions are enforced “without requiringthat the pollutant at issue be explicitly namedin the policy.”

Allocation Alert:

New York Court Endorses Pro
Rata Allocation of Asbestos Losses,
With Policyholder Responsible forOrphan Shares
Applying New York and Georgia law, a New
York federal district court ruled that losses
from progressive asbestos injuries must be
allocated among insurers on a pro rata basis.
The court further held that the policyholder
was responsible for “orphan shares” createdby the insolvency of one insurer. Liberty
Mutual Ins. Co. v. The Fairbanks Co., 2016
WL 1169511 (S.D.N.Y. Mar. 22, 2016).

a valve manufacturer, was named
Pollution Exclusion Fairbanks,
as a defendant in numerous asbestos-related
injury suits. Fairbanks’ insurers paid its
Alert:
defense and indemnity costs. When one

Georgia Supreme Court Rules That
Pollution Exclusion Applies to Lead
Paint Claims

Addressing an issue of first impression underGeorgia law, the Georgia Supreme Court
ruled that a pollution exclusion bars coveragefor injuries arising out of the ingestion or
inhalation of lead-based paint. Georgia Farm
Bureau Mutual Ins. Co. v. Smith, 2016 WL
1085397 (Ga. Mar. 21, 2016).
Georgia Farm Bureau filed a declaratory
judgment action seeking a ruling that it
had no duty to defend or indemnify claims
alleging lead paint-related injuries. A Georgia
trial court granted the insurer’s summary
judgment motion, finding that the pollution
exclusion barred coverage. An appellate
court reversed, noting the conflict among
jurisdictions on this issue and concludingthat the term “pollutant” was ambiguous as
to whether it encompassed lead or lead-based
paint. Smith v. Georgia Farm Bureau Mutual
Ins. Co., 2015 WL 1432625 (Ga. Ct. App. Mar.
30, 2015) (discussed in our May 2015 Alert).
The Georgia Supreme Court reversed, rulingthat lead paint is a pollutant under the policy.
The court explained that Georgia law does
not limit pollution exclusions to traditional
environmental pollution and that pollution

insurer became insolvent, Fairbanks argued
that the solvent insurers had to assume thecosts previously borne by the now-insolvent
insurer (the “orphan shares”). Fairbanks
further contended that each insurer was liable
on a joint and several, or “all sums” basis,
up to policy limits. In contrast, the insurers
argued that Fairbanks was responsible forpayment of the orphan shares and thatindemnification costs should be allocatedamong insurers on a pro rata basis. The court
agreed with the insurers, ruling that underboth New York law (which governed somepolicies) and Georgia law (which governed
others), pro rata allocation was appropriate.
The court held that New York precedentsupports a pro rata approach to allocating
progressive injury claims, recognizing that
New York courts have consistently rejected
an all sums approach as inconsistent with
policy language requiring injuries to occur“during the policy period.” The court also
dismissed Fairbanks’ argument that noncumulation provisions in certain policies
were inconsistent with pro rata allocation.
Although one court applying New York law
has applied an all sums approach, see Viking
Pump, Inc. v. Century Indem. Co., 2 A.3d 76(Del. Ch. Ct. 2009) (discussed in December
2009 Alert), the court commented that the5decision had “limited persuasive value” given
the weight of authority against it and thefact the Delaware Supreme Court certified
the issue for review by the New York Courtof Appeals, which heard argument in March2016. The court reached the same conclusion
under Georgia law. Although Georgia
appellate courts have not expressly addressed
allocation for progressive injuries, the court
held that “well established principles ofcontract interpretation support applying a pro
rata approach.”
The court also ruled that under both New
York and Georgia law, Fairbanks was
responsible for the orphan share payments.
The court explained that when one insurer
becomes unable to pay, “there is logic in
having the risk [of] such defalcation fall on
the insured, which purchased the defaulting
insurer’s policy, rather than on anotherinsurer which was a stranger to the selection
process.” The court rejected Fairbanks’
argument that a Georgia insolvency statuterequired solvent insurers to cover the costsof an insolvent insurer. The court held thatthe statute applied only where there is an
overlap in coverage between a solvent andinsolvent insurer. Here, Liberty Mutual andthe insolvent carrier were never on the risk at
the same time.

Waiver Alert:

New York Appellate Court Rules
That Insurer Did Not Waive
Coverage Denial Based on Policy
Exclusion
A New York appellate court rejected apolicyholder’s argument that an insurer
waived its right to rely on a policy exclusion
to deny coverage because it failed to identify
that specific provision in its disclaimer letter.
Provencal, LLC v. Tower Ins. Co. of N.Y.,
2016 WL 1354865 (N.Y. App. Div. 2d Dep’t
Apr. 6, 2016).
The policyholder sought coverage for waterrelated damage under a commercial property
policy. The insurer disclaimed coverage,
identifying a particular exclusion relating tounderground water. In ensuing litigation,
the insurer argued, among other things, thatthe damage was excluded by a flood andsurface water exclusion. The court agreed

and ruled in the insurer’s favor. On appeal,
the policyholder conceded that the floodand surface water exclusion applied, butargued that the insurer had waived its right todisclaim coverage on that basis because it was
not specifically mentioned in the disclaimer.
The court explained that New York Ins. Law§ 3420, which imposes strict disclaimer
requirements, does not apply here because
the statute is limited to death or bodily injury
claims, and does not encompass property
damage claims. Therefore, common law
principles of waiver applied. Under New
York precedent, common law waiver requiresa showing of prejudice resulting from theinsurer’s conduct. The court held that thepolicyholder failed to establish prejudice andthat the insurer was therefore not estopped
from relying on the flood and surface water
exclusion in denying coverage.

Assignment Alert:

South Carolina Court Rules That
Policy Benefits Cannot Be Assigned
Without Insurer Consent
A South Carolina court rejected a successor
entity’s attempt to obtain insurance coverage
issued to a predecessor company, finding thatthe insurer did not consent to the assignment
and that limited exceptions to the consent
requirement did not apply. PCS Nitrogen,Inc. v. Continental Casualty Co., C.A. No.
11-CP-10-387 (S.C. Ct. Common Pleas Mar.
23, 2016).
PCS Nitrogen sought coverage forenvironmental contamination claims underliability policies issued to Columbia Nitrogen
Corporation (“CNC”). Insurers had issued
primary and umbrella policies to CNC, which
expressly provided that “[a]ssignment ofinterest under this policy shall not bind[the insurer] until its consent is endorsed
hereon.” Through a series of acquisitions,asset purchases and mergers, PCS Nitrogen
became the “successor-by-merger” to some(but not all) of the original assets andliabilities of CNC. PCS Nitrogen argued that it
received a valid assignment of CNC’s policies
as part of one of the corporate transactions
which purported to transfer CNC’s insurance
rights and benefits. PCS Nitrogen further
argued that insurer consent was not required
6because under South Carolina law, antiassignment clauses do not apply to post-loss
assignments. The court disagreed and ruled infavor of the insurers.
The court ruled that CNC’s insurance policies
were never assigned to PCS Nitrogen. In soruling, the court noted that the transaction
documents purported only to transfer“benefits and proceeds” rather than thepolicies themselves, and that in any event,any such transfer was contingent on insurer
consent. The court rejected PCS Nitrogen’s
post-loss assignment argument, explainingthat South Carolina strictly limits assignments
without consent to cases where a chose inaction (i.e., a current obligation to pay a sumof money) exists. The court held that a chosein action did not exist here because there had
been no judgment or settlement against CNC.
Finally, the court also rejected the argumentthat PCS Nitrogen was entitled to CNC’s
insurance rights as a corporate successor,
finding no factual support for that assertion.

TCPA Alert:

Two Courts Reject General Liability
Coverage for TCPA Claims
A Colorado federal district court and an
Ohio appellate court denied coverage forclaims alleging violations of the Telephone
Consumer Protection Act (“TCPA”).
In Ace American Ins. Co. v. Dish Network,
LLC, 2016 WL 1182744 (D. Colo. Mar. 28,
2016), a Colorado federal district court ruledthat an insurer had no duty to defend orindemnify claims that DISH Network violated
the TCPA.
The United States and several states sued
DISH, alleging that it violated the TCPA andrelated state laws by making solicitation
calls to phone numbers on the Do Not Call
Registry. Plaintiffs sought statutory damages,
civil penalties and an injunction preventing
future TCPA violations. Ace filed a declaratory
judgment action, seeking a ruling that it had
no duty to defend or indemnify the claims.
The court agreed and granted Ace’s summary
judgment motion.
The court ruled that general and excess
liability policies did not provide coverage
because the underlying claims did not seek“damages.” The underlying complaint sought
statutory damages under the TCPA ($500
for each violation), as well as treble damages
and civil penalties. The court held that these
forms of relief are financial penalties that arepunitive in nature rather than compensatory
or remedial. The court therefore ruled thatthe statutory damages were excluded frominsurance coverage under Colorado law. The
Supreme Courts of Illinois and Missouri
reached the opposite conclusion, ruling that
TCPA damages were not uninsurable punitive
damages. See Standard Mutual Ins. Co. v.
Lay, 989 N.E.2d 591 (Ill. 2013) (discussed inJune 2013 Alert); Columbia Casualty Co. v.
HIAR Holding, L.L.C., 411 S.W.3d 258 (Mo.
2013) (discussed in September 2013 Alert).
The court also ruled that coverage under a
Personal and Advertising Injury provision
was barred by a Broadcasting and Telecasting
Exclusion. The court noted that although
TCPA claims might fall within the scopeof Personal and Advertising Injury as an“invasion of seclusion” claim, coverage
was nonetheless barred by an exclusion for
insureds in the business of “advertising,broadcasting, publishing or telecasting.”
In so ruling, the court rejected DISH’s
argument that the exclusion was ambiguous
and/or should be construed to apply only tobusinesses that produce content.
An Ohio appellate court also rejected coverage
for TCPA claims, ruling that an insurer had
no duty to indemnify a class action settlement
arising out of fax blasting claims. Acuity, A
Mutual Ins. Co. v. The Siding and Insulation
Co., 2016 WL 1276471 (Ohio Ct. App. Mar.
31, 2016).
Acuity had paid nearly $2 million toward
an underlying settlement pursuant to a
Personal and Advertising Injury provision.
However, the policyholder sought anadditional $2 million under a Property
Damage provision, which covered property
damage caused by an “occurrence,” defined
as “an accident, including continuous orrepeated exposure to substantially the same
harmful conditions.” The court agreed with
Acuity that sending unsolicited faxes does notconstitute an “occurrence” and is precludedby the intentional acts exclusion. The court
explained that even if a policyholder does notintend to violate the TCPA, it does intend tosend the faxes, with knowledge that sending
them would use the recipients’ paper, toner,7and time. The court stated, “[u]nder Ohio law,
an intent to cause harm will be inferred when‘the insured’s intentional act and the harmcaused are intrinsically tied so that the act has
necessarily resulted in the harm.’”

Claims-Made
Alert:

Pennsylvania Court Rules That Two
Lawsuits Do Not Allege Interrelated
Wrongful Acts
Last month, we reported on decisions
upholding the denial of claims-madecoverage based on policy provisions that bar
coverage for acts “interrelated” to wrongfulacts allegedly committed prior to the policy
period. See March 2016 Alert. This month, aPennsylvania federal district court reached
the opposite conclusion, finding that conduct
alleged in two separate complaints against theinsured was not sufficiently interrelated so as
to bar coverage pursuant to an interrelated
wrongful acts exclusion. Connect America
Holdings, LLC v. Arch Ins. Co., 2016 WL
1254073 (E.D. Pa. Mar. 31, 2016).
Life Alert and Connect are competitors
in the market for medical alert response
systems. In 2009, Life Alert sued Connect
alleging trademark infringement and unfair
competition. The action was settled and an
injunction was issued enjoining Connect fromusing Life Alert’s trademarks. In 2013, Life
Alert brought another suit against Connect.
This time, Life Alert named several otherdefendants who were not included in thefirst action. The complaint alleged unfair
competition, trademark infringement andfalse advertising, among others. The parties
settled the 2013 action and Connect sought
coverage from Arch under a claims-madepolicy. Arch denied coverage on several bases,
including an interrelated claims provision
which precluded coverage for claims arisingout of wrongful acts that are related towrongful acts that occurred before thepolicy’s inception date. In ensuing litigation,a Pennsylvania federal district court granted
Connect’s motion for summary judgmenton the interrelated claims provision issue,
ruling that the two lawsuits were not based oninterrelated wrongful acts.

The policy defined Interrelated Wrongful Acts
as “Wrongful Acts that have as a common
nexus any fact, circumstance, situation,
event, transaction, cause or series of causallyconnected facts, circumstances, situations,
events, transactions or causes.” The court
held that the term “common nexus” wasambiguous and should be construed torequire a “link between the acts.” The court
acknowledged that the 2009 and 2013
complaints shared numerous similarities:
they alleged many of the same causes ofaction; they both claimed that Connect
deliberately caused confusion and deception
among customers; and they both involved
some of the same trademarks. However, thecourt noted that Connect’s alleged scheme
and conduct were different in each action.
Whereas the 2009 complaint focused onConnect’s website and internet activities, the2013 complaint centered on a telemarketing
scheme. In addition, the 2013 action included
a new false advertising claim and allegations
relating to a trademark that was not yet inexistence in 2009. Finally, the court notedthat in the 2013 action, Life Alert did not seek
an injunction and did not allege that Connect
had violated the 2009 injunction. Based onthese factors, the court concluded that there
was no “common nexus” between the two
actions.

Arbitration Alert:

South Carolina Appellate Court
Grants Insurers’ Motion to Compel
Arbitration
A South Carolina appellate court granted
defendant insurers’ motion to compel
arbitration against non-signatories to thearbitration agreement. Wilson v. Willis, 2016
WL 806063 (S.C. Ct. App. Mar. 2, 2016).
Several lawsuits alleging fraud and unfair
trade practices were brought by policyholders
and competing insurance agents against two
insurance agents and their agency. Plaintiffs
also named several insurers as defendants,
arguing that they were liable underrespondeat superior for failing to investigate
or supervise the agents. The insurers moved
to compel arbitration and dismiss the suits,
relying on an arbitration provision in theagency agreement they had executed withthe agency. A trial court denied the insurers’
motion to compel, noting that the agency had
not signed the agency agreement and that the8plaintiffs were not parties to the agreement.
The appellate court reversed.
First, the court ruled that South Carolina
law does not require both parties to sign anagreement for it to be enforceable. Therefore,
although the agency never signed the agency
agreement, the court deemed it valid andenforceable based on the course of conduct(i.e., that the agency sold insurance policies
on behalf of the insurers pursuant to theagency agreement). The court rejected astatute of frauds argument, noting that
performance of the agency agreement
was possible within a year because either
party could terminate at will within ninety
days’ notice.
Second, the court held that the arbitration
provision was sufficiently broad so as toencompass plaintiffs’ tort claims. The
provision required arbitration of any
dispute that “arises in connection with theinterpretation of this Agreement. . . .” Thecourt reasoned that the tort claims were“premised on rights and duties that would notexist but for” the agency agreement, and werethus “inextricably linked” to the agreement.
Third, the court ruled that compelling
arbitration against non-signatories (theplaintiff policyholders and agencies) wasappropriate. The court held that the nonsignatories were equitably estopped fromarguing that their status as non-signatories
preluded enforcement of the arbitration
provision because their complaints sought
to benefit from the enforcement of otherprovisions in the agency agreement. Although
the plaintiffs did not expressly rely on any
provisions in the agency agreement, the court
held that the plaintiffs received a “direct
benefit” from that agreement because theirclaims were based on duties that arose fromthat contract.
Fourth, the court held that the insurers did
not waive the right to compel arbitration.
Although the insurers did not assert
arbitration as a defense in their answers, they
did not delay in moving to compel arbitration(actions had been pending for six to elevenmonths when the motion to compel was filed).
In addition, limited discovery had occurred
before to the motion to compel. The court
therefore concluded that the plaintiffs were
not prejudiced by the motion to compel.

Finally, the court rejected the argumentthat the agreement to arbitrate (governedby the Federal Arbitration Act) was reversepreempted by state statutory law which
exempts “any insured or beneficiary under
any insurance policy from arbitration.” Thecourt explained that the South Carolina
statute did not apply because the operative
contract was an agency agreement rather thanan insurance policy.

Directors andOfficers Alert:

Florida Appellate Court Strictly
Enforces Insured vs. Insured
Exclusion
Previous Alerts have reported on decisions
that address the parameters of an insured
vs. insured exclusion, which bars coveragefor claims made against an insured company
or officer by an “Insured Person,” typicallydefined as “any past, present or future
director, trustee, officer, employee orhonorary or advisory director or trustee of theCompany.” See January 2015 Alert, Octoberand April 2014 Alerts. A majority of courts
have deemed insured vs. insured exclusions
unambiguous and enforceable as written. In
a recent decision, a Florida appellate court
joined this trend, finding that the exclusion
barred coverage regardless of the capacityin which the former director brought suit.
Durant v. James, 2016 WL 1295100 (Fla.
Dist. Ct. App. Apr. 4, 2016).
Durant, a former director/shareholder,brought suit against James, the President andCEO of the insured company. Although eachparty met the definition of “Insured Person”
in the exclusion, Durant argued that theexclusion did not apply because he was notsuing James in his official capacity as former
director, but rather in a personal capacity,
in connection with a money judgment
obtained in a personal civil action relating
to overvalued stock. The court rejected thisargument, stating that “the capacity in which
the claimant sued the other officer or director
in the first instance ha[s] no bearing on thebar on coverage under a D&O policy’s insured
versus insured exclusion.”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.

David J. Woll
+1-212-455-3136
dwoll@stblaw.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This edition of the
Insurance Law Alert was
prepared by Mary Beth Forshaw
mforshaw@stblaw.com /+1-212455-2846 and Bryce L. Friedman
bfriedman@stblaw.com /+1-212-4552235 with contributions
by Karen Cestarikcestari@stblaw.com.

The contents of this publication are for informational purposes only. Neither this publication nor the
lawyers who authored it are rendering legal or other professional advice or opinions on specific facts
or matters, nor does the distribution of this publication to any person constitute the establishment of an
attorney-client relationship. Simpson Thacher & Bartlett LLP assumes no liability in connection withthe use of this publication. Please contact your relationship partner if we can be of assistance regardingthese important developments. The names and office locations of all of our partners, as well as ourrecent memoranda, can be obtained from our website, www.simpsonthacher.com.
Please click here to subscribe to the Insurance Law Alert.
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