Insurance Law Alert

September 2021

In This Issue
Louisiana Court Denies Motion To Dismiss Civil Authority Coverage
ClaimsA Louisiana federal district court denied an insurer’s motion to dismiss a suit seeking civil
authority coverage, finding that the complaint sufficiently alleged property damage and aprohibition on access to the insured property. Pathology Lab. Inc. v. Mt. Hawley Ins. Co., 2021
WL 3378596 (W.D. La. Aug. 3, 2021). (Click here for full article)

Fifth Circuit Certifies Concurrent Causation Question To Texas Supreme
Court“[Simpson Thacher is]able to handle both direct
insurance and reinsurance
matters with equal flair, and also
adept at handling the most complex
of disputes regarding insurers’
business practices. Often called
on in cases involving potentiallysignificant exposure.”–Chambers USA
2021

The Fifth Circuit asked the Texas Supreme Court to address the parameters of the concurrent
cause doctrine, including which party bears the burden of proof regarding covered versus
non-covered causes of damage. Frymire Home Servs. Inc. v. Ohio Security Ins. Co., 2021 WL
3783150 (5th Cir. Aug. 26, 2021), certified question accepted (Tex. Sept. 10, 2021). (Click here
for full article)

Violation Of Statutes Exclusion Bars Coverage For All Claims, Including
Intentional Tort Claims, Rules Eighth Circuit
The Eighth Circuit ruled that a violation of statutes exclusion in a commercial umbrella policy
barred coverage for all underlying claims, thereby relieving the insurer of its duty to defend.
Rodenburg LLP v. Certain Underwriters at Lloyd’s of London, 2021 WL 3745782 (8th Cir.
Aug. 25, 2021). (Click here for full article)

Missouri Court Rules In Insurer’s Favor On Policy Limits And Number Of
Occurrences Disputes
A Missouri federal district court granted an insurer’s summary judgment motion, ruling thatpolicy limits for bodily injury claims applied on a per-occurrence, rather than a per-claim basis
and that the bodily injury claims at issue arose out of a single occurrence. Fluor Corp. v. Zurich
Am. Ins. Co., 2021 WL 3145794 (E.D. Mo. July 25, 2021). (Click here for full article)

Fifth Circuit Rules That Policy May Cover Settlement Stemming From
Fraudulent Wire Transfer
Vacating a summary judgment ruling in the insurer’s favor, the Fifth Circuit held that ademand letter to the policyholder constitutes a covered “claim” and that a settlement payment
constitutes a covered “loss” the policyholder was legally obligated to pay. HMI International,
LLC v. Twin City Fire Ins. Co., 2021 WL 3928970 (5th Cir. Sept. 2, 2021). (Click here forfull article)


Simpson Thacher & Bartlett LLP

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Delaware Court Rules That Professional Services Exclusion Does Not Bar
Coverage For Underlying False Claims Act Suit
A Delaware trial court ruled that a professional services exclusion in a Private Company
Management Liability Policy did not bar coverage for an underlying suit alleging False Claims
Act violations. Guaranteed Rate, Inc. v. Ace American Ins. Co., 2021 WL 3662269 (Del. Super.
Ct. Aug. 18, 2021). (Click here for full article)

Unfair And Deceptive Business Practices Claims Are Not Covered By
Professional Liability Policy, Says Georgia Court
A Georgia district court granted an insurer’s motion to dismiss, ruling that claims alleging
that the policyholder engaged in false and deceptive marking in connection with its medical
products did not fall within the scope of professional liability coverage. Elite Integrated
Medical, LLC v. Hiscox, Inc., No. 1:20-cv-3948 (N.D. Ga. Aug. 10, 2021). (Click here forfull article)

Two Federal Appellate Courts Affirm Dismissal Of Business Interruption
ClaimsThe Eleventh and Sixth Circuits affirmed the dismissal of claims seeking coverage for businesslosses incurred in the wake of government closure orders. Gilreath Family & Cosmetic
Dentistry, Inc. v. Cincinnati Ins. Co., 2021 WL 3870697 (11th Cir. Aug. 31, 2021); Santo’s
Italian Café LLC v. Acuity Ins. Co., No. 21-3068 (6th Cir. Sept. 22, 2021). (Click here forfull article)

Virginia District Court Grants Class Certification To Policyholders In
Business Interruption Coverage Suit
A Virginia federal district court granted a policyholder’s motion for class certification in a suitalleging breach of contract and bad faith by an insurer based on its coverage denial for COVID19-related business losses. Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., No.
2:20-cv-265 (E.D. Va. Aug. 19, 2021). (Click here for full article)

Ninth Circuit Rules That State Law Prohibiting Arbitration Of Insurance
Disputes Does Not Reverse Preempt Convention Treaty
The Ninth Circuit ruled that the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards is not subject to reverse preemption by Washington state law. CLMS Mgmt.
Servs. Ltd. Partnership v. Amwins Brokerage of Georgia, LLC, 8 F.4th 1007 (9th Cir. 2021).
(Click here for full article)

Citing Arbitration Panel’s Broad Powers Under Honorable Engagement
Clause, Seventh Circuit Upholds Arbitration Awards
The Seventh Circuit refused to set aside arbitration awards, finding that an honorable
engagement clause provided the arbitration panel with wide discretion to interpret theunderlying reinsurance agreement and impose remedies that extended beyond the “legal
obligations” of the agreement. Continental Casualty Co. v. Certain Underwriters at Lloyds of
London, 2021 WL 3720110 (7th Cir. Aug. 23, 2021). (Click here for full article)

Fifth Circuit Rules That Underlying Claimants Had Standing To Sue
Insurer Directly Following Default Judgment
The Fifth Circuit ruled that underlying claimants who had obtained a default judgment against
the policyholder had standing to sue the insurer directly notwithstanding a “no action clause.”
Levy v. Cincinnati Ins. Co., No. 20-50548 (5th Cir. Aug. 13, 2021). (Click here for full article)

STB News Alert
Click here to read about the Firm’s insurance-related honors.
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Property Damage
Alerts:Louisiana Court Denies Motion To
Dismiss Civil Authority Coverage
ClaimsA Louisiana federal district court denied aninsurer’s motion to dismiss a suit seeking civil
authority coverage, finding that the complaint
sufficiently alleged property damage and aprohibition on access to the insured property.
Pathology Lab. Inc. v. Mt. Hawley Ins. Co.,
2021 WL 3378596 (W.D. La. Aug. 3, 2021).
The coverage dispute arose out of local andfederal executive orders issued in connection
with a hurricane that made landfall inLouisiana. A medical laboratory sought
coverage for financial losses incurred during
the duration of the government orders. The
insurer denied coverage, arguing that civil
authority coverage was unavailable because
the orders were issued in anticipation ofproperty damage (rather than in responseto actual property damage) and did notcompletely prohibit access to the insured
property. The court rejected both assertions.
The court acknowledged that an initialmandatory evacuation order, issued prior
to the hurricane’s arrival, did not trigger
civil authority coverage because no property
damage had yet occurred. However, the court
concluded that subsequent orders requiring
evacuation and business closures were issued
in response to “extensive physical damage toall areas” surrounding the insured premises.

The insurer also argued that the government
orders did not completely prohibit access tothe insured premises as required by Louisiana
law. In particular, the insurer claimed that theorders used non-mandatory language (e.g.,“should”) and included daily curfews that
restricted access only during certain hours ofthe day. In addition, the insurer emphasizedthat laboratory employees accessed theproperty during the periods of closure to
perform exigent medical services. Rejecting
these assertions, the court concluded thataccess to the laboratory was “completely
prohibited” based on the extent of physicaldevastation to nearby property and the
mandatory nature of the orders, and that
employees’ alleged violations of those orders
to perform urgent procedures were irrelevant.

Fifth Circuit Certifies Concurrent
Causation Question To Texas
Supreme Court
Noting the absence of state law precedent on
the issue, the Fifth Circuit asked the Texas
Supreme Court to address the parametersof the concurrent cause doctrine, includingwhich party bears the burden of proof
regarding covered versus non-covered causesof damage. Frymire Home Servs. Inc. v. Ohio
Security Ins. Co., 2021 WL 3783150 (5th Cir.
Aug. 26, 2021), certified question accepted(Tex. Sept. 10, 2021).
The policyholder sought property coveragefor roof damage allegedly incurred during
a hailstorm. The insurer denied the claim,
arguing that the damage was caused by wear
and tear (which was excluded under thepolicy), rather than by wind and hail (whichwere covered perils). The policyholder’s3adjuster opined that although somepreexisting roof damage was possible, thehailstorm was the cause of the damage forwhich the policyholder sought repair.
The Fifth Circuit observed that this case“raises the difficult specter of whether
any ‘wear or tear’ on a roof triggers the‘concurrent cause’ scenario in building
insurance cases.” Further, the court notedthat if the concurrent causation doctrine
applies, there remain unsettled questions oflaw, including whether the policyholder, inadvancing a sole-cause theory of damage,bears the burden of discrediting concurrent
causes, and if so, what evidence is sufficientto establish a single cause of loss. As such, theFifth Circuit certified the following questions
to the Texas Supreme Court:
1. Whether the concurrent cause
doctrine applies where there is any
non-covered damage, including ‘wear
and tear’ to an insured property,
but such damage does not directly
cause the particular loss eventuallyexperienced by plaintiffs;
2. If so, whether plaintiffs alleging
that their loss was entirely caused
by a single, covered peril bear theburden of attributing losses between
that peril and other, non-covered or
excluded perils that plaintiffs contend
did not cause the particular loss; and3. If so, whether plaintiffs can meet thatburden with evidence indicating thatthe covered peril caused the entiretyof the loss (that is, by implicitly
attributing one hundred percent of
the loss to that peril).
We will report on developments inthis matter.

Coverage Alerts:
Violation Of Statutes Exclusion
Bars Coverage For All Claims,
Including Intentional Tort Claims,
Rules Eighth Circuit
Affirming a North Dakota district court
decision, the Eighth Circuit ruled that a
violation of statutes exclusion in a commercial
umbrella policy barred coverage for all
underlying claims, thereby relieving theinsurer of its duty to defend. Rodenburg
LLP v. Certain Underwriters at Lloyd’s ofLondon, 2021 WL 3745782 (8th Cir. Aug.
25, 2021).
Rodenburg, a law firm specializing in debt
collection, was sued by a claimant after her
wages were garnished as a result of mistaken
identity. The underlying suit alleged wrongful
garnishment, tort claims and violations of the
Fair Debt Collection Practices Act (“FDCPA”),
which provides protections for a person’s
right to privacy in debt collection matters.
Rodenburg’s insurer denied coverage and in
ensuing litigation, the district court ruled thata violation of statutes exclusion precluded
coverage. The Eighth Circuit affirmed.
The exclusion barred coverage for:Any liability arising directly or
indirectly out of any action or omissionthat violates or is alleged to violate:(a) The Telephone Consumer Protection
Act, . . .; (b) The CAN-SPAM Act of
2003, . . .; or (c) Any statute, ordinanceor regulation . . . that prohibits orlimits the sending, transmitting,communicating or distribution ofmaterial or information.
The Eighth Circuit concluded that alleged
violations of the FDCPA fall squarely
within this language, rejecting Rodenburg’s
contention that the FDCPA does not limit
communication in the same way that the
TCPA and CAN-SPAM Act do. The court
also rejected Rodenburg’s assertion thateven if the exclusion barred coverage forthe alleged FDCPA violations, it did not
apply to intentional tort claims, alleging
invasion of privacy, defamation and malicious
prosecution. Citing the broad exclusionary
language, the court held that all of the alleged
injuries, including those sounding in tort,

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originated from the FDCPA-violating conduct
and were thus excluded from coverage.

Missouri Court Rules In Insurer’s
Favor On Policy Limits And
Number Of Occurrences Disputes
A Missouri federal district court granted
an insurer’s summary judgment motion,
ruling that policy limits for bodily injury
claims applied on a per-occurrence, rather
than a per-claim basis and that the bodily
injury claims at issue arose out of a single
occurrence. Fluor Corp. v. Zurich Am.
Ins. Co., 2021 WL 3145794 (E.D. Mo. July25, 2021).
Fluor, a defendant in suits alleging leadrelated bodily injury, sought coverage
under four general liability policies issued
by Zurich. Each policy included a limits ofliability provision that specifically applied to“each occurrence.” In addition, all policies
defined “occurrence” as “an accident,
including continuous or repeated exposure toa condition, which results in bodily injury.”
Fluor claimed that each underlying plaintiff
constituted a separate occurrence under thepolicies, subject to its own per-occurrence
limit. Fluor additionally argued thatendorsements in two of the policies allowed
it to obtain bodily injury coverage on a “perclaim” basis.

operations. The court rejected Fluor’s
assertion that the immediate cause of eachplaintiff’s injury turned on his/her uniqueexposure to contamination, emphasizingthat Fluor’s analysis improperly focusedon “when and where” the underlying
injuries occurred rather than “the negligent
actions that caused the injury.” The court
distinguished decisions finding multiple
occurrences from environmental harm,noting that those cases involved distinct
incidents of property damage at numerous
sources of contamination, requiring different
remediation techniques.
In addition, the court ruled thatendorsements in two policies did not create
per-claim limits for bodily injury claims. The
endorsement stated: “LIMITS OF LIABILITYFOR COMPREHENSIVE GENERAL
LIABILITY AS DESIGNATED UNDER
ITEM 3 OF THE POLICY DECLARATIONSIS AMENDED TO READ: 500,000 EACH
CLAIM 500,000 EACH AGGREGATE ASRESPECTS INCIDENTAL PROFESSIONAL
LIABILITY ENDORSEMENT.” Citing the“clear reference” to professional liability
coverage, the court rejected Fluor’s contention
that the endorsement amended the peroccurrence bodily injury limits stated on the
Declarations forms. The court explained:
It strains credulity to think the phrase‘500,000 EACH CLAIM’ would beleft blank as to the type of coverage itapplied to, while the second phrase
immediately below it for the aggregate
limit specifically references an entirely
different type of coverage. The Court
declines to create ambiguity where none
exists and will read policies as a whole.

Fifth Circuit Rules That Policy May
Cover Settlement Stemming From
Fraudulent Wire Transfer
Addressing a preliminary matter, the court
ruled that the insured bears the burden of
establishing policy limits, rejecting Fluor’s
contention that policy limits provisions
should be treated like policy exclusions forpurposes of allocating burdens of proof.
With respect to the number-of-occurrences
dispute, the court concluded that under
Missouri’s cause-oriented approach, thealleged underlying injuries arose out of asingle occurrence—the lead smelter plant’s

Vacating a summary judgment ruling in theinsurer’s favor, the Fifth Circuit held that ademand letter to the policyholder constitutes
a covered “claim” and that a settlement
payment constitutes a covered “loss” thepolicyholder was legally obligated to pay. HMIInternational, LLC v. Twin City Fire Ins. Co.,
2021 WL 3928970 (5th Cir. Sept. 2, 2021).
HMI, an accounting and financial services
provider, fell prey to a fraudulent scheme
which resulted in the wire transfer of a client’s
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funds to a hacker. The client sent HMI a letteraccusing it of negligence and demanding
reimbursement. Twin City denied coverageand HMI brought suit. While that litigation
was pending, HMI settled with the client.
Thereafter, Twin City moved for summary
judgment, which the district court granted.
The district court reasoned that HMI was not“legally obligated to pay” the settlement, as
required by the policy, because the client had
never brought suit and because any potential
underlying negligence claim was barred by
the applicable statute of limitations. The Fifth
Circuit vacated the ruling.
The Fifth Circuit reasoned that the district
court erroneously equated “claim” with“cause of action,” explaining that a covered
claim includes a written demand for money,
which cannot be time barred. Additionally,
the Fifth Circuit ruled that the district court
misinterpreted “legally obligated to pay” torequire that HMI “actually lost or would havelost” if the clients had filed suit. Under Texas
law, “legally obligated to pay” can include
a contractual obligation to pay throughsettlement. The court deemed it irrelevantthat the clients never actually filed suit andthat the limitations period had seemingly
run on a potential negligence cause of action
because “insurers that breach their duty to
defend cannot challenge the reasonablenessof the settlement amount.”

Professional
Services Alerts
Delaware Court Rules That
Professional Services Exclusion
Does Not Bar Coverage For
Underlying False Claims Act Suit
A Delaware trial court ruled that a
professional services exclusion in a Private
Company Management Liability Policy
did not bar coverage for an underlying
suit alleging False Claims Act violations.
Guaranteed Rate, Inc. v. Ace American Ins.
Co., 2021 WL 3662269 (Del. Super. Ct. Aug.
18, 2021).
The policyholder, an underwriter offederally-insured mortgage loans, sought
approximately $18 million in coverage inconnection with a federal investigation ofalleged False Claims Act violations. ACE
denied coverage on several bases, including
a professional services exclusion. Ruling on
the parties’ cross-motions for judgment on
the pleadings, the court concluded that theexclusion did not apply.
The exclusion provided that ACE “shallnot be liable for Loss on account of any
Claim . . . alleging, based upon, arisingout of, or attributable to any Insured’s
rendering or failure to render professional
services.” The term “professional services”
was not defined. The court noted that thewrongful acts alleged in the investigation
involved the policyholder’s failure to meetcertain quality-control standards imposedby the government. The court concluded
that “[c]ompliance with applicable qualitycontrol standards is not a Professional Service
provided directly to borrower clients, suchthat coverage would be excluded by the
Policy’s Professional Services Exclusion.”

Unfair And Deceptive Business
Practices Claims Are Not Covered
By Professional Liability Policy,
Says Georgia Court
A Georgia district court granted an insurer’s
motion to dismiss, ruling that claims alleging
that the policyholder engaged in false anddeceptive marking in connection with its
medical products did not fall within thescope of professional liability coverage. Elite
Integrated Medical, LLC v. Hiscox, Inc., No.
1:20-cv-3948 (N.D. Ga. Aug. 10, 2021).
The state of Georgia initiated an investigationof Elite for alleged violations of statutory
and common law based on its marketing ofcertain medical products and services. The
state’s notice included a series of alleged
unfair and deceptive business practices,
including making false or misleading
representations regarding Elite’s stem therapy
and regenerative products. Hiscox denied
coverage, arguing that the claims did not
fall within the policy’s professional services
coverage. The court agreed and ruled that theinsurer had no duty to defend or indemnify
the claims.
The policy covered claims alleging negligencein “professional services,” defined as “[s]olely
in the performance of services as a physicalmedicine clinic including chiropractic,
hormone therapy, neuropathy, medical and6non-medical weight loss, allergy testing,durable medical equipment therapy and/or
instruction, PRP, and amniotic human tissue
injections and naltrexone implants.” Thecourt concluded that deceptive marketingclaims did not fall within the scope of thislanguage, explaining that making false or
misleading statements was “incidental to”
Elite’s performance of services as a medical
clinic. The court further reasoned thatmisleading advertising activities do not
involve use or application of specialized
learning unique to Elite’s profession.

the government to ban the use of a bike or ascooter on city sidewalks; it is quite anotherfor someone to steal it.” The court noted thatthe policy’s “period of restoration” provision
reinforced its conclusion, noting that there
was nothing to repair, rebuild or replace thatwould allow the resumption of in person
dining operations.

COVID-19 Alerts:
Two Federal Appellate Courts
Affirm Dismissal Of Business
Interruption Claims
In the second federal appellate ruling inthis context, the Eleventh Circuit affirmed
the dismissal of claims seeking coveragefor business losses incurred in the wake ofgovernment closure orders. Gilreath Family& Cosmetic Dentistry, Inc. v. Cincinnati
Ins. Co., 2021 WL 3870697 (11th Cir. Aug.
31, 2021).
Applying Georgia law, the Eleventh Circuit
ruled that the complaint did not allege
accidental physical loss or damage because
there was no “actual change in insured
property” that rendered it “unsatisfactoryfor future use” or that required “repairs.”
The court expressly rejected the contention
that the presence of particles caused
physical damage or loss to the insured (orother) property for purposes of businessinterruption and civil authority coverage.
In addition, the court emphasized thatemergency dental procedures conductedduring the closure periods demonstrated thatthe property was capable of being used for its
intended purpose.
The Sixth Circuit also affirmed the dismissalof business interruption coverage claims
in Santo’s Italian Café LLC v. Acuity Ins.
Co., No. 21-3068 (6th Cir. Sept. 22, 2021).
Applying Ohio law, the appellate court ruledthat neither the virus itself nor government
shut down orders constituted a “direct
physical loss of or damage to” property. The
court explained: “A loss of use simply is not
the same as a physical loss. It is one thing for

Other federal appellate courts are also poised
to rule on this issue. In Uncork and Create
LLC v. Cincinnati Ins. Co., No. 21-1311 (4thCir.), the Fourth Circuit will decide whether,under West Virginia law, a policyholder’sinability to use insured property for its
intended purpose constitutes a physicalloss for purposes of business interruption
coverage. And several policyholder businesses
urged the Second and Seventh Circuits toreverse a number of district court rulings
dismissing their claims that insurers
wrongfully denied coverage for their COVID19-related losses. 10012 Holdings v. Hartford
et al., No. 21-80 (2d. Cir.); Bradley Hotel
Corp. v. Aspen Specialty Ins. Co., No. 21-1173(7th Cir.); Crescent Plaza Hotel Owner LP v.
Zurich American Ins. Co., No. 21-1316 (7thCir.); Mashallah Inc. v. West Bend Mutual
Ins. Co., No. 21-1507 (7th Cir.); Bend Hotel
Development Co. v. Cincinnati Ins. Co., No.
21-1559 (7th Cir.).

Virginia District Court Grants Class
Certification To Policyholders In
Business Interruption Coverage
Suit
A Virginia federal district court granted apolicyholder’s motion for class certification ina suit alleging breach of contract and bad faithby an insurer based on its coverage denial for
COVID-19 related business losses. Elegant
Massage, LLC v. State Farm Mut. Auto. Ins.
Co., No. 2:20-cv-265 (E.D. Va. Aug. 19, 2021).

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The court concluded that plaintiff met therequirements of Federal Rule of Procedure 23
for purposes of establishing a class of persons
or entities within the Commonwealth of
Virginia that purchased and sought coverage
under the same income loss and/or extra
expense provisions as a result of government
orders issued from March 2020 forward.
In particular, the court concluded that thecommonality and typicality requirements
were satisfied because the central coveragequestions—the presence/absence of “direct
physical loss” and interpretation of a virus
exclusion—were the same across all classmembers.

In so ruling, the court deemed unpersuasive
State Farm’s assertion that questions ofpolicy interpretation would apply differently
to different class members dependingon type of business and specific factual
scenario. The court acknowledged thatplaintiffs may be unable to prove class-wide
damages without individualized inquiry,
but noted that the need for such individual
damage determinations does not forecloseclass certification.
Notably, the court rejected a proposed classthat would have included nearly 20,000
Virginia policyholders who purchased
identical all risk policies, explaining thatpolicyholders who did not file claims with
State Farm did not meet the commonality
requirement for the declaratory judgment
and breach of contract claims. The court heldthat even if the class were limited to the 111
policyholders that actually filed claims against
State Farm, the numerosity requirement ofRule 23 was satisfied.
In a previous ruling in this matter, the court
held that “direct physical loss” includes
property that is uninhabitable because of
an intangible risk. See December 2020 and
February 2021 Alerts.

Arbitration Alerts:
Ninth Circuit Rules That State
Law Prohibiting Arbitration Of
Insurance Disputes Does Not
Reverse Preempt Convention
TreatyAs discussed in our May 2019 Alert, federal
circuit courts are divided as to whether statelaws that prohibit the arbitration of insurance
disputes reverse preempt the Convention on
the Recognition and Enforcement of Foreign
Arbitral Awards, a multilateral treaty. The
Fourth and Fifth Circuits have held thatreverse preemption under the McCarran
Ferguson Act is limited to federal legislation(such as the Federal Arbitration Act) anddoes not encompass an international treaty
such as the Convention. See ESAB Grp. Inc.
v. Zurich Ins. PLC, No. 11-1243 (4th Cir. July
9, 2012); Safety Nat’l Cas. Corp. v. Certain
Underwriters at Lloyd’s, London, 587 F.3d
714 (5th Cir. 2009). However, the Second
Circuit reached the opposite conclusion in
Stephens v. American International Ins.
Co., 66 F.3d 41 (2d Cir. 1995). Last month,
the Ninth Circuit weighed in, ruling that
the Convention is not subject to reverse
preemption by Washington state law. CLMS
Mgmt. Servs. Ltd. Partnership v. Amwins
Brokerage of Georgia, LLC, 8 F.4th 1007 (9thCir. 2021).
In this insurance dispute, plaintiffs argued
that an arbitration provision in the relevant
policy was unenforceable because Washington
statutory law specifically prohibits
enforcement of arbitration clauses ininsurance contracts. Plaintiffs further argued
that, pursuant to the McCarran-Ferguson
Act, Washington state law reverse preempts
the Convention. A Washington district court
disagreed and enforced the arbitration
provision pursuant to the Convention. The
Ninth Circuit affirmed.
The Ninth Circuit ruled that the relevant
provision of the Convention is “selfexecuting,” and therefore not an “Act ofCongress” subject to reverse preemption
under the McCarran-Ferguson Act. In soruling, the court expressly rejected the Second
Circuit’s reasoning in Stephens.

8that honorable engagement language gives
the panel wide discretion to order remedies it
deems appropriate, even those not expressly
mentioned in the underlying agreement.

Citing Arbitration Panel’s
Broad Powers Under Honorable
Engagement Clause, Seventh
Circuit Upholds Arbitration Awards
The Seventh Circuit refused to set aside
arbitration awards, finding that an honorable
engagement clause provided the arbitration
panel with wide discretion to interpret theunderlying reinsurance agreement andimpose remedies that extended beyond
the “legal obligations” of the agreement.
Continental Casualty Co. v. Certain
Underwriters at Lloyds of London, 2021 WL
3720110 (7th Cir. Aug. 23, 2021).
In this reinsurance dispute between
Continental and the Underwriters, anarbitration panel issued a Final Award in the
Underwriters’ favor. At Continental’s request,
the panel later issued a supplemental award(“Interim Order No. 3”) that clarified how
its original award applied to certain futurebillings. Interim Order No. 3 specified that
the Underwriters “have fully and finallydischarged their past, present and future
obligations” as to certain asbestos losses.
Continental asked an Illinois federal court
to set aside Interim Order No. 3, as well as a
post-Final Award order denying its motion
for consideration. Continental argued thatthe panel strayed beyond the scope of thereinsurance agreement in issuing thoseawards. In particular, Continental claimed
that Interim Order No. 3 was a “sanction”
because the Underwriters had not sought aruling on future bills and that the panel lacked
authority under the arbitration agreement toissue sanctions. The district court confirmed
all arbitration awards and the Seventh
Circuit affirmed.
The Seventh Circuit reasoned that thearbitration agreement gave the panel broad
authority to “interpret the agreement as anhonorable engagement and not merely a legal
obligation.” More specifically, the court held

The court noted that while application ofan honorable engagement clause presents
a matter of first impression in the Seventh
Circuit, the First and Second Circuits have
similarly held that such clauses “leave thearbitrators pretty much at large in theformulation of remedies, just as in theformulation of contract interpretation.”(Citation omitted).

Direct Action
Alert:
Fifth Circuit Rules That Underlying
Claimants Had Standing To Sue
Insurer Directly Following Default
Judgment
The Fifth Circuit ruled that underlying
claimants who had obtained a default
judgment against the policyholder had
standing to sue the insurer directly
notwithstanding a “no action clause.”
The court held that the default judgment
constituted an “adversarial assignment” andthat a valid assignment of rights was not
required. Levy v. Cincinnati Ins. Co., No.
20-50548 (5th Cir. Aug. 13, 2021).
In several different actions filed over thecourse of a year, former students sued a tradeschool company, alleging negligence, fraud
and various statutory violations. In one suit,
the trade school failed to appear and thestate court entered a default judgment infavor of the plaintiffs. Thereafter, plaintiffs
sued Cincinnati Insurance as “judgment
creditors” of the trade school, seeking toenforce the insurer’s obligations under thepolicy. A Texas district court ruled thatplaintiffs lacked standing to bring a direct
action against Cincinnati because there wasno judgment against the school resulting froma fully adversarial trail or a valid assignmentof the policyholder’s claims. Alternatively,
the district court held that the policy did notcover the claims at issue based on a “first
filed” provision in the policy. The Fifth Circuit
reversed in part and affirmed in part.

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Addressing this matter of first impression
under Texas law, the Fifth Circuit noted thatthe specific language of the no action clause atissue required only “an adjudication against”
the policyholder, and not an “actual trial.”
The court concluded that a default judgment
satisfied that adjudication requirement so as
to allow the plaintiffs to bring a direct action
against Cincinnati.
However, the Fifth Circuit affirmed the
district court’s ruling that the lawsuit felloutside the scope of coverage. The court heldthat the claims in the lawsuit were sufficiently
interrelated to those in prior suits filed before
the policy incepted. As such, coverage wasbarred by a provision relating to claims “firstmade” prior to the period of policy coverage.

STB News Alert
Mary Beth Forshaw and Lynn Neuner wereamong the six Simpson Thacher partners
named as this year’s “Top 250 Women in
Litigation” by Euromoney’s Benchmark
Litigation. The feature honors theaccomplishments of America’s leading female
litigators who have participated in some of
the most impactful litigation matters in recent
history and who have earned the respect of
their peers and clients. Benchmark selects its
honorees through extensive research, client
feedback surveys and one-on-one interviews.
In addition to being named to the “Top 250
Women in Litigation” list, Lynn was also
recognized as “Top 10 Women in Litigation”
in the United States.

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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

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 byBryce L. Friedman / +1-212-455-2235
bfriedman@stblaw.com andSusannah S. Geltman / +1-212-455-2762
sgeltman@stblaw.com
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.
11SimpsonThacherWorldwide

UNITED STATESEUROPEASIANew York
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New York, NY 10017+1-212-455-2000

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Belgium+32-472-99-42-26

Beijing
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China+86-10-5965-2999

Houston
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Los Angeles
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Palo Alto
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Washington, D.C.
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Washington, D.C. 20001+1-202-636-5500

LondonCityPoint
One Ropemaker Street
London EC2Y 9HUEngland+44-(0)20-7275-6500

Hong Kong
ICBC Tower
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Hong Kong+852-2514-7600
Tokyo
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9-10, Roppongi 1-Chome
Minato-Ku, Tokyo 106-0032
Japan+81-3-5562-6200

SOUTH AMERICA

São Paulo
Av. Presidente Juscelino
Kubitschek, 1455
São Paulo, SP 04543-011
Brazil+55-11-3546-1000

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