Insurance Law Alert

October 2019

In This Issue
Connecticut Supreme Court Affirms Unavailability Exception To Pro Rata
Allocation
Connecticut’s highest court has ruled that a manufacturer of asbestos-containing products is
not responsible for payment of claims during years in which it was unable to buy insurance.
R.T. Vanderbilt Co., Inc. v. Hartford Accident and Indemnity Co., 2019 WL 4926802 (Conn.
Oct. 4, 2019). (Click here for full article)“[Simpson Thacher]is one of the preeminentand most sophisticatedcoverage litigation firms.”– Chambers USA 2019(quoting a client)

Illinois Court Rules That Insurer Must Indemnify Underlying Opioid
Settlement Payment
An Illinois federal district court ruled that a liability insurer was required to indemnify a $3.5
million settlement payment made by a pharmaceutical company in an underlying suit arisingout of opioid distribution. Cincinnati Ins. Co. v. H.D. Smith Wholesale Drug Co., 2019 WL
4727039 (C.D. Ill. Sept. 26, 2019). (Click here for full article)

Sixth Circuit Rules That Dishonesty Exclusion Does Not Bar Coverage For
Conspiracy, Defamation And Unfair Practices Claims Against Insured
The Sixth Circuit ruled that a dishonesty exclusion did not preclude coverage for claims
alleging civil conspiracy, unfair competition, defamation, disparagement and violation of the
Ohio Deceptive Trade Practices Act. Evanston Insurance Co. v. Certified Steel Stud Assoc.,
Inc., 2019 WL 4674072 (6th Cir. Sept. 25, 2019). (Click here for full article)

Washington Supreme Court Rules That Agent’s Statement In Certificate
Binds Insurer To Additional Insured Coverage, Notwithstanding
Disclaimer That Certificate Cannot Expand Coverage
The Washington Supreme Court ruled that an insurer is bound by representations made by its
authorized agent with respect to a party’s additional insured status, even where the insurance
certificate expressly stated that it does not expand coverage beyond the terms of the policy.
T-Mobile USA Inc. v. Selective Ins. Co. of Am., 2019 WL 5076647 (Wash. Oct. 10, 2019).
(Click here for full article)

Seventh Circuit Rules That Breach Of Contract Exclusion Renders
Coverage Illusory, Remands For Reformation Of Policy
The Seventh Circuit ruled that a breach of contract exclusion rendered errors and omissions
coverage illusory and remanded the matter for reformation of the contract so as to meet thereasonable expectations of the insured. Crum & Forster Specialty Ins. Co. v. DVO, Inc., 2019
WL 4594229 (7th Cir. Sept. 23, 2019). (Click here for full article)

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Insurer That Prevailed In Suit Brought By Plaintiff’s Assignee Can Still Be
Sued By Plaintiff, Says Michigan Court
A Michigan federal district court ruled that an injured party was not barred from suing an
insurer by the doctrines of res judicata or collateral estoppel, notwithstanding that the insurer
had prevailed in a suit brought by the assignee of the injured party. Massengale v. State
Farm Mutual Auto. Ins. Co., 2019 WL 4640307 (E.D. Mich. Sept. 24, 2019). (Click here forfull article)

If Insured Demonstrates Prejudice, Insurer May Be Estopped From
Denying Coverage Even Where Policy Does Not Cover Claim, Says Florida
Appellate Court
A Florida appellate court ruled that an insured’s affirmative defense of estoppel could give rise
to coverage notwithstanding that the underlying claims alleged non-covered intentional acts.
Hurchalla v. Homeowners Choice Prop. & Cas. Ins. Co., Inc., 2019 WL 5198731 (Dist. Ct. App.
Fla. Oct. 16, 2019). (Click here for full article)

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

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Allocation Alert:

Connecticut Supreme Court Affirms
Unavailability Exception To Pro
Rata Allocation
Connecticut’s highest court has ruled thata manufacturer of asbestos-containing
products is not responsible for payment ofclaims during years in which it was unable
to buy insurance. R.T. Vanderbilt Co., Inc. v.
Hartford Accident and Indemnity Co., 2019
WL 4926802 (Conn. Oct. 4, 2019).
The coverage dispute arose from thousands of
personal injury lawsuits against Vanderbilt.
The company and approximately thirty of its
insurers sought declarations regarding theirrespective obligations as to the underlying
claims. As discussed in our March 2017
Alert, a Connecticut appellate court issued
the following rulings in this matter: (1) acontinuous trigger governs asbestos-related
claims; (2) Connecticut recognizes anunavailability exception to pro rata allocation,
under which a policyholder is not responsible
for uninsured periods if insurance was notavailable in the marketplace during thattime; (3) a standard pollution exclusion is
ambiguous as to whether it applies only to
traditional environmental contamination or“more broadly to circumstances such as therelease of asbestos dust and similar toxic
industrial products within a building whenused as intended”; and (4) occupational
disease exclusions are not limited toclaims brought by a policyholder’s own
employees, but rather bar claims brought bycomplainants who developed occupational
disease while using the policyholder’s
products in the course of working for another
employer.
The Connecticut Supreme Court affirmed thetrigger, allocation and pollution exclusion
rulings based on the “thorough and wellreasoned opinion” of the appellate court. As
to the occupational disease exclusion, theConnecticut Supreme Court emphasizedthat the exclusion did not contain language
expressly limiting its application to
Vanderbilt’s employees, whereas otherexclusions did include such verbiage. The
court rejected Vanderbilt’s assertion that
under principles of workers’ compensation
law, “occupational disease” is a “term ofart that is tied to the employee-employer

relationship” such that “no specific referenceto employees needed to be added to the
exclusion.” The court explained: “to readthe exclusions as urged by Vanderbilt would
require us to add otherwise nonexistentlanguage specifically limiting their application
to Vanderbilt’s employees, which is contrary
to how we interpret . . . insurance policies.”

Coverage Alerts:

Illinois Court Rules That Insurer
Must Indemnify Underlying Opioid
Settlement Payment
An Illinois federal district court ruled that aliability insurer was required to indemnify a$3.5 million settlement payment made by apharmaceutical company in an underlying
suit arising out of opioid distribution.
Cincinnati Ins. Co. v. H.D. Smith Wholesale
Drug Co., 2019 WL 4727039 (C.D. Ill. Sept.
26, 2019).
The Attorney General of West Virginia sued
H.D. Smith, a pharmaceutical distributor,
alleging negligence, public nuisance andviolations of various state statutes based on
the company’s allegedly improper sales of
opioids to pill mills and other entities. The
complaint sought damages and injunctive
relief. Cincinnati denied coverage undergeneral liability and umbrella policies issued
to Smith. In a prior ruling in this matter,
the Seventh Circuit ruled that Cincinnati
had a duty to defend Smith, finding that theunderlying suit alleged damages becauseof bodily injury. Smith filed two motions to
dismiss the underlying suit, which were bothdenied. Thereafter, Smith settled the case for$3.5 million.

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Cincinnati refused to indemnify thesettlement, arguing that the settlement
payment was (1) not made “in reasonableanticipation of liability for covered claims,”and (2) unreasonable. The court rejectedboth assertions. First, the court held that
Smith faced a potential for significant liability
in the underlying suit, noting that all otherdefendants had settled, that many of Smith’s
defenses had been rejected by West Virginia
courts, and that it faced “a lengthy andcostly trial in an unfavorable jurisdiction.”
Second, the court held that the settlement
encompassed covered claims. Although someof the underlying relief sought (injunctive
relief, fines and statutory penalties) was
outside the scope of coverage, the courtemphasized that the suit also alleged covered
negligence claims and sought monetary relief“because of bodily injury.”
Finally, the court ruled that the settlement
amount was reasonable based on a“commonsense consideration of the totalityof facts bearing on the liability and damage
aspect of plaintiff’s claim, as well as therisks of going to trial.” Although Smith’ssettlement payment was higher that mostof its co-defendants’ payments, Smith wasallegedly responsible for more aggregate salesof opioids during the relevant time period.
The court declined to allocate the settlement
between covered and non-covered claims,
finding no basis to do so, and noting that the“primary focus” of the underlying litigation
was potentially covered claims. The court also
declined to rule as a matter of law on Smith’s
claim for attorneys’ fees based on Cincinnati’s
allegedly “vexatious and unreasonable”
delay in payment, finding the factual record
insufficiently developed on this issue.

Sixth Circuit Rules That Dishonesty
Exclusion Does Not Bar Coverage
For Conspiracy, Defamation And
Unfair Practices Claims Against
InsuredReversing an Ohio district court, the Sixth
Circuit ruled that a dishonesty exclusion did
not preclude coverage for claims alleging civil
conspiracy, unfair competition, defamation,
disparagement and violation of the Ohio
Deceptive Trade Practices Act (“ODTPA”).
Evanston Insurance Co. v. Certified SteelStud Assoc., Inc., 2019 WL 4674072 (6th Cir.
Sept. 25, 2019).
ClarkDietrich, a steel product manufacturer,
sued CSSA, a trade association comprisedof ClarkDietrich’s competitors. The suitalleged unfair competition, defamation,
disparagement, violation of the ODTPA andcivil conspiracy. A jury returned a verdict
against CSSA on all counts. Evanston, CSSA’s
insurer, sought a declaration that it had no
duty to indemnify CSSA. Evanston argued
that a dishonesty exclusion barred coverageand that the claims were uninsurable as amatter of law, among other things.
The district court ruled in Evanston’sfavor. The court held that the dishonesty
act exclusion, which excludes coverage for“any claim based upon or arising out of any
dishonest, deliberately fraudulent or criminal
act . . . committed by or at the direction of
the Insured,” barred coverage. The court
reasoned that because that the jury found thatCSSA committed unlawful acts in furtheranceof a conspiracy, “the jury necessarily foundthat ‘CSSA’s publication was intentionallyfalse’ and involved a dishonest act.”
The Sixth Circuit reversed, finding that the
unlawful acts did not necessarily involve
dishonesty. The court reasoned that thejury did not have to find that CSSA acted
dishonestly when it violated ODTPA or
defamed and disparaged ClarkDietrich
because intent is not a required elementof ODTPA violations, and the jury “could
have held CSSA liable for defamation anddisparagement by concluding that CSSA
entertained serious doubts as to the truth ofits statements.”
The Sixth Circuit also ruled that the civil
conspiracy verdict did not necessarily
implicate the dishonesty exclusion. The court4

acknowledged that the conspiracy claim
required a finding of intent, but reasoned thatthe intent could have related to the intent
to publish statements that happened to befalse, rather than an intent to make false
statements. The court stated: “A finding thatCSSA intentionally published statements that
happened to be false is not equivalent to afinding that CSSA acted dishonestly.”
Finally, the court rejected Evanston’sargument that the claims, based on
intentional conduct, were uninsurable as amatter of law. Although Ohio law prohibits
liability insurance from covering damages
caused by intentional acts, that prohibition
applies to acts “undertaken with intent toinjure.” The court concluded that the evidence
did not support a finding that CSSA actedwith intent to injure when it committed theunlawful acts at issue.

Washington Supreme Court
Rules That Agent’s Statement
In Certificate Binds Insurer To
Additional Insured Coverage,
Notwithstanding Disclaimer That
Certificate Cannot Expand Coverage
The Washington Supreme Court ruled that aninsurer is bound by representations made by
its authorized agent with respect to a party’s
additional insured status, even where theinsurance certificate expressly stated that it
does not expand coverage beyond the terms of
the policy. T-Mobile USA Inc. v. Selective Ins.
Co. of Am., 2019 WL 5076647 (Wash. Oct.
10, 2019).
The dispute centered on whether T-Mobile
was entitled to additional insured coveragefor property damage under a policy issued
by Selective Insurance to an antenna
contractor. An agreement between T-Mobile
and the contractor required the contractor tomaintain insurance that listed T-Mobile as
an additional insured. Selective’s authorized
agent issued a certificate of insurance to
T-Mobile which stated that T-Mobile “isincluded as an additional insured” under
the policy. However, the certificate also
stated that the certificate is for informational
purposes only, “confers no rights upon thecertificate holder,” and does not extend oralter coverage under the policy. The certificate
further warned that if the certificate holder
is an additional insured, the policy must

be endorsed and that statements on thecertificate do not confer rights in lieu of suchendorsements.

When T-Mobile sought coverage as anadditional insured under the contractor’s
general liability policy, Selective refused todefend, arguing that T-Mobile was not named
as an additional insured in the policy. A
Washington district court ruled in Selective’sfavor, finding that the certificate could notconfer coverage as to T-Mobile. As discussed
in our November 2018 Alert, the parties
appealed, and the Ninth Circuit certified
the following question to the Washington
Supreme Court:
Under Washington law, is an insurer
bound by representations made by
its authorized agent in a certificate
of insurance with respect to a party’s
status as an additional insured undera policy issued by the insurer, when
the certificate includes language
disclaiming its authority and ability to
expand coverage?
The Washington Supreme Court answered
the question in the affirmative. It explainedthat an insurance company is bound by
the representations of its agents, and that
T-Mobile’s reliance on those representations
was reasonable. The court further held thatthe certificate’s disclaimers were ineffective
because they were “general boilerplate,”
whereas the additional insured statements
were specifically written into the certificate.
Notably, the court deemed it irrelevantthat the representation was made in a
certificate, which, under Washington law, is
not a binding insurance policy. As the court
explained, the case turns on whether anagent’s representation (whether “via letter,email, certificate of insurance or somethingelse”) is binding on an insurer, not whether acertificate itself can confer policy rights.
5the insured’s reasonable expectations of
Policycoverage. The Seventh Circuit remanded
the matter to the district court, noting that aoutcome would be the elimination ofConstruction Alert: possible
the endorsement as to errors and omissions

Seventh Circuit Rules That Breach
Of Contract Exclusion Renders
Coverage Illusory, Remands For
Reformation Of Policy

The Seventh Circuit ruled that a breachof contract exclusion rendered errors andomissions coverage illusory and remanded
the matter for reformation of the contract so
as to meet the reasonable expectations of theinsured. Crum & Forster Specialty Ins. Co. v.
DVO, Inc., 2019 WL 4594229 (7th Cir. Sept.
23, 2019).
DVO, a mechanical designer and builder,
was sued for breach of contract based on its
alleged failure to fulfill its mechanical andstructural design duties. Crum & Forster
initially agreed to defend DVO under areservation of rights, but later denied
coverage. The parties agreed that the policy’s
errors and omissions provision, which covers
a failure to render professional services,encompassed the allegations against DVO.
The parties also agreed that an endorsementthat excludes coverage for claims “based uponor arising out of” breach of contract barred
coverage for the underlying claims. The soleissue in dispute was whether the exclusionary
language rendered coverage illusory.
A Wisconsin federal district court ruled thatcoverage was not illusory. It reasoned thatwhile the exclusion barred professional claims
brought by a party to the underlying contract,
it would not exclude coverage for tort claims
brought by third-parties based on DVO’s dutyof care as a designer and builder. The Seventh
Circuit reversed.
The Seventh Circuit explained that under
Wisconsin law, “arising out of” is broadly
construed to include “any conduct that has
at least some causal relationship between
the injury and the event not covered,
which sweeps in third-party claims as wellwhen so related.” Given the breadth of the
exclusion and the “overlap between claimsof professional malpractice and breachof contract,” the court concluded that theexclusion rendered errors and omissions
coverage illusory. Additionally, the court
held that contract reformation must reflect

coverage, while allowing it to remain in effectas to other coverages.

Estoppel Alerts:

Insurer That Prevailed In Suit
Brought By Plaintiff’s Assignee
Can Still Be Sued By Plaintiff, Says
Michigan Court
A Michigan federal district court ruled thatan injured party was not barred from suing
an insurer by the doctrines of res judicata or
collateral estoppel, notwithstanding that theinsurer had prevailed in a suit brought by theassignee of the injured party. Massengale v.
State Farm Mutual Auto. Ins. Co., 2019 WL
4640307 (E.D. Mich. Sept. 24, 2019).
After allegedly sustaining injuries in a car
accident, Massengale sought treatment
from Spine Rehab. She assigned Spine
Rehab her rights to collect no fault personal
injury protection (“PIP”) benefits for thetreatments she received. Thereafter, Spine
Rehab sued State Farm seeking payment
for its chiropractic services. That action
resulted in a finding of “no cause of action”
in State Farm’s favor. On the verdict form,
the jury answered “no” to the question“Did [ ] Massengale sustain an accidental
bodily injury?” Following the verdict, State
Farm moved to dismiss a pending lawsuit
initiated by Massengale. State Farm argued
that Massengale’s claims were barred by res
judicata and collateral estoppel.
The court denied State Farm’s summary
judgment motion, ruling that the judgment
against Spine Rebab did not have preclusive
effect in Massengale’s action. Under Michigan
law, res judicata bars a subsequent action
when (1) the first action was decided on the
merits; (2) both actions involve the same
parties or their privies; and (3) the matterin the second case was or could have been
resolved in the first action.

6

The central issue before the court waswhether Spine Rehab and Massengale were inprivity. State Farm argued that the assignee
relationship established “a clear substantial
identity of interests, and a working functional
relationship in which Massengale’s interests
were presented and protected by Spine
Rehab,” thereby satisfying the “privity” prong.
The court disagreed, holding that an assignor/
assignee relationship, standing alone, does
not suffice to establish privity for res judicata
purposes.
Further, the court explained that because
Massengale assigned only a small portionof her benefits to Spine Rehab (her PIP
benefits), there was no “substantial identityof interests” between them. More specifically,
the court reasoned that at trial, Spine Rehab
needed only to demonstrate a particular
injury necessitating its chiropractic services
in order to collect PIP benefits; it did not offer
evidence relating to any other alleged injuries.
Finally, the court noted that although State
Farm may have fully litigated Massengale’s
medical history in defending the Spine
Rehab suit, the proper inquiry is whether
Massengale, as a non-party to that action,
had a “full and fair opportunity to litigate” inthe first action. The court held that she did
not. Applying the same reasoning, the court
ruled that collateral estoppel did not bar
Massengale’s suit against State Farm.

If Insured Demonstrates Prejudice,
Insurer May Be Estopped From
Denying Coverage Even Where
Policy Does Not Cover Claim, Says
Florida Appellate Court

ultimately resulted in a substantial verdict
against the insured. Thereafter, the insurer
moved for summary judgment, arguing thatthe underlying verdict established intentional
conduct, which was excluded by the policy.
The insurer’s summary judgment motion did
not address the insured’s affirmative defenses.
A Florida trial court granted the insurer’ssummary judgment motion.
The appellate court reversed, finding thatthe trial court erred in dismissing the casewithout addressing the insured’s affirmative
defenses. The appellate court explained that
under Florida precedent, an insurer may be
estopped from denying coverage, even where
the policy does not cover the underlying
claim, if the insured has been prejudicedby the insurer’s assumption of the defense.
Therefore, the court explained, the insured’s
affirmative defense of estoppel, which waslegally sufficient and had not been negated,should not have been dismissed. The court
remanded the matter for a determination
as to the sufficiency of the insured’s
affirmative defenses.

STB News Alerts
Mary Beth Forshaw spoke at the 2019 ARIAS
U.S. Fall Conference on October 4 in New
York. Her panel, “Bench and Jury Trials,
ARIAS and Other Arbitral Forums – What
We Can Learn from Each Other,” discussed
differing considerations in trying cases before
judges, juries and arbitrators, among othertopics.

A Florida appellate court ruled that aninsured’s affirmative defense of estoppel could
give rise to coverage notwithstanding thatthe underlying claims alleged non-covered
intentional acts. Hurchalla v. Homeowners
Choice Prop. & Cas. Ins. Co., Inc., 2019 WL
5198731 (Dist. Ct. App. Fla. Oct. 16, 2019).
An underlying suit against the insured
alleged tortious interference with contract.
The insurer initially defended under areservation of rights, but subsequently
sought a declaration that the policy did notcover the underlying “intentional acts.” In
her answer, the insured raised affirmative
defenses of estoppel, waiver and laches,among other things. The underlying suit
7

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

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

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

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

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

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

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

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

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

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

Daniel J. Stujenske+1-212-455-2419
dstujenske@stblaw.com

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

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