Insurance Law Alert

October 2022

In This Issue
Another Illinois Court Addresses Scope Of Coverage For BIPA Claims,
Concluding That Two Exclusions Bar Coverage
An Illinois district court ruled that two policy exclusions precluded coverage for underlying
claims alleging violations of the Biometric Information Privacy Act. Cont’l Western Ins. Co. v.
Cheese Merchants of Am., LLC, 2022 WL 4483886 (N.D. Ill. Sept. 27, 2022). (Click here forfull article)“Skilled inhandling catastrophic
event liability issues andbad faith disputes, and acts
for an enviable client rosterof market-leading insurance
providers.”– Chambers USA
2022

New York Court Rules That War Exclusion Bars Coverage For Claims
Against Financial Institution
A New York district court ruled that an insurer had no duty to defend or indemnify claims
against Western Union, finding that a war exclusion squarely applied to bar coverage. Hartford
Fire Ins. Co. v. W. Union Co., 2022 WL 4386836 (S.D.N.Y. Sept. 22, 2022). (Click here forfull article)

Florida Court Rules That Three Lawsuits Against Policyholder Are Subject
To Single Limit Under Related Claims Provision
A Florida district court ruled that three lawsuits brought against a policyholder across different
policy periods were “related claims” and therefore subject to a single policy limit. Assoc. Indus.
Ins. Co., Inc. v. Slattery, Sobel & Decamp, LLP, No. 6:22-cv-80 (M.D. Fla. Sept. 14, 2022).
(Click here for full article)

Insurer Must Defend Nuisance Claim Against Landfill Operator, Says
Indiana Court
An Indiana district court ruled that an insurer was obligated to defend a nuisance suit against
its policyholder, finding that the claims alleged a covered occurrence. Savers Prop. & Cas. Ins.
Co. v. Rockhill Ins. Co., 2022 WL 9461874 (S.D. Ind. Oct. 14, 2022). (Click here for full article)

Second Circuit Rules That Reinsurer Is Bound By Cedent’s Underlying
Allocation
The Second Circuit ruled that a reinsurer was obligated to indemnify its cedent’s underlying
settlement payments, rejecting the reinsurer’s assertion that the settlement was outside thescope of coverage under the cedent’s excess policy and the reinsurance policy. Fireman’s Fund
Ins. Co. v. OneBeacon Ins. Co., No. 20-4282 (2d Cir. Sept. 15, 2022). (Click here for full article)

Simpson Thacher & Bartlett LLP

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Nebraska Supreme Court Rules That Assignee Of Policy Benefits May Not
Bring First-Party Bad Faith Claims Against Property Insurer
The Nebraska Supreme Court ruled that a contractor, as assignee of insurance benefits, may
not assert first-party bad faith claims against a property insurer. Millard Gutter Co. v. Shelter
Mutual Ins. Co., 312 Neb. 606 (2022). (Click here for full article)

Another State Supreme Court Rejects Coverage For Pandemic-RelatedLossesThe Delaware Supreme Court affirmed a lower court decision holding that a pollution andcontamination exclusion barred coverage for pandemic-related business losses. APX OperatingCo., LLC v. HDI Global Ins. Co., 2022 WL 5056431 (Del. Oct. 5, 2022). (Click here forfull article)

STB News Alerts
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Privacy Alert:
Another Illinois Court Addresses
Scope Of Coverage For BIPA
Claims, Concluding That Two
Exclusions Bar Coverage
As discussed in previous Alerts, the Illinois
Supreme Court and several Illinois district
courts have addressed whether certain policy
exclusions bar coverage for claims alleging
violations of the Biometric Information
Privacy Act (“BIPA”). See March and April
2022 Alerts; May and October 2021 Alerts.
Last month, another Illinois district court
weighed in, ruling that two commericalgeneral liability policy exclusions precluded
coverage for the underlying BIPA claims.
Cont’l Western Ins. Co. v. Cheese Merchantsof Am., LLC, 2022 WL 4483886 (N.D. Ill.
Sept. 27, 2022).

The underlying complaint alleged that Cheese
Merchants’ use of a biometric time tracking
system that scans employees’ hands forauthentication violates the BIPA. Continental
Western argued it had no duty to defend thesuit based on three policy exclusions: (1) an
employment-related practices exclusion;(2) a disclosure of personal information
exclusion; and (3) a violation of law exclusion.
The court concluded that the first exclusion
did not apply but that the latter two did.
The employment-related practices exclusion
applied to “Employment-related practices,
policies, acts or omissions such as coercion,
demotion, evaluation, reassignment,
discipline, defamation, harassment,
humiliation, discrimination or malicious
prosecution directed at that person.” Thecourt noted that while using one’s hand toclock in and out of work might seem like apractice related to employment, the “complete
text and the overall structure of the provision”

indicates that hand scanning is not a practiceencompassed by the exclusion. In particular,
the court explained that everything else listed
in the exclusion related to mistreatment
targeted at a specific employee, rather thana company-wide policy. As the court noted,
other Illinois courts have similarly deemed
this exclusion inapplicable to BIPA claims.
The disclosure of personal information
exclusion excluded coverage “arising out of
any access to or disclosure of any person’sor organization’s confidential or personal
information, including patents, trade secrets,
processing methods, customer lists, financial
information, credit card information, healthinformation or any other type of nonpublic
information.” Emphasizing the breadth ofthe language in this provision, the court
concluded that BIPA claims are precisely
about protecting personal information. The
court rejected Cheese Merchants’ assertion
that the list of examples included in the
exclusion indicated that it was intended toapply only to information associated withprotected trade secrets, financial informationor health information. The court explainedthat the list of examples was illustrative,
not exhaustive, and deemed the exclusion
unambiguous in light of the catch-allphrase “or any other type of nonpublic
information.” Other Illinois courts are split as
to whether similar exclusions bar coverage for
BIPA claims.
The violation of law exclusion barred coveragefor claims:
arising directly or indirectly out of any
action or omission that violates or isalleged to violate: (1) The Telephone
Consumer Protection Act (TCPA) . . .
(2) The CAN-SPAM Act of 2003 . . .
(3) The Fair Credit Reporting Act(FCRA), including the Fair and Accurate
Credit Transactions Act (FACTA) . . . or
(4) Any federal, state or local statute,ordinance or regulation, other than
the TCPA, CAN-SPAM Act of 2003
or FCRA and their amendments andadditions, that addresses, prohibits,
or limits the printing, dissemination,
disposal, collecting, recording, sending,transmitting, communicating or
distribution of material or information.
The Illinois Supreme Court and numerous
other Illinois district courts, faced with asimilar exclusion, have concluded that it3

does not apply to BIPA claims. However,
the Cheese Merchants court ruled that
this “broad” and “sweeping” exclusion—
particularly the fourth catch-all provision,
applies squarely to such claims. The court
rejected Cheese Merchants’ assertion that
under the principle of ejusdem generis, thecatch-all provision should be limited in scope
to items of a similar nature to those expressly
listed. The court explained that ejusdem
generis typically applies only when there
is “room for doubt about the sweep of the
text.” Here, however, the court noted that thecatch-all component of the exclusion “goes togreat lengths to emphasize its expansiveness.”
In addition, the court held that ejusdem
generis does not apply because that canonof interpretation depends on the existenceof a discernable theme common among thespecific examples listed. The court held thatthe present exclusion lacked such a common
thread, noting that while the TCPA and CANSPAM Act of 2003 both generally protect
privacy by regulating against unwanted
communications, the FCRA relates to thesafekeeping of financial information. Finally,
the court noted that even if a very generalized
theme of “statutes that protect privacy” could
be inferred from the language, it would be “atsuch a high level of generality that it would
sweep in BIPA.”
The court expressly distinguished W. Bend
Mut. Ins. Co. v. Krishna Schaumburg Tan,
Inc., 183 N.E.3d 47 (Ill. 2021) (discussed in
our May 2021 Alert), in which the Illinois
Supreme Court ruled that a violation of
statutes exclusion did not apply to BIPA
claims. The exclusion in that case did notreference the FCRA—a distinction the court
deemed “meaningfully different.” The court
stated:The Illinois Supreme Court confronted
an exclusion with a strong thematiccurrent running through all of thespecific examples. . . . But here, theexclusion covers two types of privacy
statutes: two statues that protect privacy
when communicating with consumers. . . and one statute that protects
the privacy of information given by
consumers. The inclusion of the FCRA
expands the scope of the exclusion. And
it signals that the general provision
is not limited to communicatingwith consumers.

Coverage Alerts:
New York Court Rules That War
Exclusion Bars Coverage For Claims
Against Financial Institution
A New York district court ruled that aninsurer had no duty to defend or indemnify
claims against Western Union, finding thata war exclusion squarely applied to bar
coverage. Hartford Fire Ins. Co. v. W. Union
Co., 2022 WL 4386836 (S.D.N.Y. Sept.
22, 2022).
The coverage dispute arose out of an attack
on a Malaysian airline that resulted in thedeath of an American college student. The
student’s family sued Western Union andother financial institutions, alleging that they
provided financial support to the Donetsk
People’s Republic (“DPR”), a Russian-backed
separatist group in Ukraine responsible
for the attack. Western Union tendered thelawsuit to Hartford, seeking coverage undera general liability policy. Hartford denied
coverage on the basis of a war exclusion thatapplied to bodily injury or property damage
arising directly or indirectly out of“(1) War, including undeclared or civil
war; (2) Warlike action by a militaryforce . . . ; or (3) Insurrection, rebellion,
revolution, usurped power, or action taken
by governmental authority in hindering or
defending against any of these.”
Applying Colorado law, the court held thatthe exclusion unambiguously precluded
coverage for the underlying claims. In
particular, the court explained that it neednot decide whether the claims arose out of“war” or “warlike action” because they clearlystemmed from an “insurrection.” In so ruling,
the court emphasized that the underlying
complaint alleged that the DPR engaged in a4

violent uprising in order to create a “protostate” through control of territory in eastern
Ukraine. The court deemed it irrelevant that
other allegations in the complaint gave rise to
the possibility that the DPR had other motives
for the attack, noting that its objective of
overthrowing the Ukrainian government wasits primary purpose.

The court further held that coverage wasbarred in any event by a financial services
exclusion, which applied to bodily injury“resulting from the rendering of or the failure
to render financial services.” Because theunderlying complaint alleged that Western
Union’s role in the attack stemmed solely
from its financial support to the DPR, thecourt concluded that the exclusion plainly
applied—regardless of whether Western
Union allegedly provided non-financial
support as well.
The applicability of a war exclusion is at theheart another coverage dispute, Mondelez
Int’l, Inc. v. Zurich Am. Ins. Co., 2018 WL
4941760 (Ind. Cir. Ct.). There, Zurich cited a
war-related exclusion in denying coverage fora claim arising out of a 2017 malware attack
that affected the policyholder’s servers andcomputers. The parties settled this matterlast week.

Florida Court Rules That Three
Lawsuits Against Policyholder
Are Subject To Single Limit Under
Related Claims Provision
A Florida district court ruled that threelawsuits brought against a policyholder acrossdifferent policy periods were “related claims”
and therefore subject to a single policy limit.
Assoc. Indus. Ins. Co., Inc. v. Slattery, Sobel& Decamp, LLP, No. 6:22-cv-80 (M.D. Fla.
Sept. 14, 2022).

Time share developers brought three lawsuits
against the policyholder, asserting claims of
tortious interference with contract, unfair
and deceptive trade practices and civil
conspiracy, based on its alleged participation
in a timeshare exit scheme. The insurer
defended the claims under a reservationof rights, but brought the present action
seeking a declaration that it had no further
duty to defend or indemnify. According to
the insurer, the underlying suits constitute asingle claim under the professional liability
policies, subject to a single limit of liability,
which had already been exhausted. The court
agreed and ruled in the insurer’s favor.
Each of the consecutive policies at issue
included a provision stating that: “Claims
alleging, based upon, arising out of or
attributable to the same Wrongful Act(s) orInterrelated Wrongful Acts shall be treated asa single Claim.” The policies further provided
that “All such claims, whenever made . . .
shall be subject to the Limit of Liability andRetention set forth in such policy.” Applying
this language, the court concluded that all
three suits against the policyholder were asingle claim. The court explained that eachclaim arose from the same allegations of false
and misleading advertising, following “anidentical pattern,” aimed at achieving thesame goal.
Because the record indicated that the limit ofliability had been exhausted through paymentof claim expenses, the court ruled that theinsurer’s duty to defend the policyholder
was terminated.

Insurer Must Defend Nuisance
Claim Against Landfill Operator,
Says Indiana Court
An Indiana district court ruled that aninsurer was obligated to defend a nuisancesuit against its policyholder, finding that theclaims alleged a covered occurrence. Savers
Prop. & Cas. Ins. Co. v. Rockhill Ins. Co.,
2022 WL 9461874 (S.D. Ind. Oct. 14, 2022).
Residents of a town filed a class action
lawsuit, seeking injunctive relief andmonetary damages based on thepolicyholder’s allegedly negligent andintentional conduct in operating its landfill.
The complaint alleged that the improper
construction and maintenance of thelandfill resulted in the release of noxious
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odors, pollutants and contaminants in thesurrounding area.

Reinsurance Alert:

The court concluded that the complaint
alleged an “occurrence,” defined by thepolicy as “an accident, including continuous
repeated exposure to substantially the samegeneral harmful conditions.” In so ruling,
the court rejected the insurer’s contention
that the alleged damage at issue was caused
by a professional error or omission, and thus
outside the scope of general liability coverage.
The court explained: “The Underlying
Plaintiffs are not alleging a failure to perform
a contractual duty or failure to meet acontractual standard of care; they are alleging
a breach of the duty not to create a nuisancethat interferes with the Underlying Plaintiffs’
use and enjoyment of their property.”

Second Circuit Rules That
Reinsurer Is Bound By Cedent’s
Underlying Allocation

The court also ruled that the professional
services exclusion did not relieve theinsurer of its duty to defend. Under
Indiana law, a professional service means“any business activity . . . which involves
specialized knowledge, labor or skill which
is predominantly mental or intellectual as
opposed to physical or manual in nature.”
The court noted that while some of theallegations in the complaint related to thepolicyholder’s “highly regulated” activities
as a “sophisticated landfill operator,” otherallegations (such as “the simple act ofimproperly covering the waste with dirt”)
were acts of basic manual labor rather thanprofessional services.

Affirming a New York district court decision,
the Second Circuit ruled that a reinsurer was
obligated to indemnify its cedent’s underlying
settlement payments, rejecting the reinsurer’s
assertion that the settlement was outside thescope of coverage under the cedent’s excess
policy and the reinsurance policy. Fireman’s
Fund Ins. Co. v. OneBeacon Ins. Co., No.
20-4282 (2d Cir. Sept. 15, 2022).
Fireman’s Fund issued excess policies to
ASARCO that conditioned payment on
exhaustion of underlying insurance. One
excess policy was reinsured by OneBeacon, as
successor-in-interest to the original reinsurer.
OneBeacon denied coverage for Fireman’s
Fund’s underlying settlement payments,
arguing that it violated the exhaustion
requirement of its excess policies because it
allocated a portion of the payment to a policy
without first exhausting the full policy limits
of underlying excess policies.
As discussed in our October 2020 Alert, a
New York district court rejected OneBeacon’s
assertion, ruling that it was bound by
Fireman’s Fund’s allocation decision pursuant
to a follow the settlements clause. Morespecifically, the district court explained thatthe exhaustion requirement in Fireman’s
Fund’s policy was ambiguous, and therefore
under New York precedent, could be met
through a below-limits settlement of theunderlying policy so long as the total covered
losses exceeded the policy’s attachment point.
The district court also rejected OneBeacon’s
contention that the reinsurance policy itself
required payment of policy limits in full by
underlying primary and excess polices before
reinsurance coverage would attach.
The Second Circuit affirmed, ruling thatthe exhaustion provisions at issue did notunambiguously require underlying insurers
to pay full underlying limits and instead,permitted exhaustion by a below-limits
settlement. The court explained that a
Payment of Loss provision did not define“exhaustion” or specifically require actual
payment. Additionally, the court held thata Limit of Liability provision, which did
require exhaustion of limits “solely by reason6

of losses paid thereunder,” was irrelevantto this case because that provision applies
only when underlying aggregate limits ofliability have been reduced or exhausted byprevious per-occurrence claims, requiringthat excess insurer to provide coverage at alower attachment point, which was not thecase here.
OneBeacon also argued that Fireman’s Fundwas judicially estopped from arguing that theexhaustion provision was ambiguous because
it took a “clearly inconsistent” positionin other litigation. The court rejected thisassertion, concluding that the position taken
by Fireman’s Fund in other cases was notinconsistent with its current interpretation of
the exhaustion requirement.
Finally, the Second Circuit ruled that the
OneBeacon’s reinsurance policy did not
require full payment of the underlying limitsof liability by the underlying insurers before
reinsurance coverage attached. The relevant
provision in the policy provided that there
was no reinsurance coverage “for any loss
under $78 million.” The court explained
that, “reminiscent of the exhaustion issue,”the reinsurance policy’s attachment point is
not contingent upon payment by underlying
insurers; rather, the reinsurance policy
applies once the policyholder’s covered losses
exceed $78 million.

Bad Faith Alert:
Nebraska Supreme Court Rules
That Assignee Of Policy Benefits
May Not Bring First-Party Bad Faith
Claims Against Property Insurer
The Nebraska Supreme Court ruled that acontractor, as assignee of insurance benefits,
may not assert first-party bad faith claims
against a property insurer. Millard Gutter
Co. v. Shelter Mutual Ins. Co., 312 Neb.
606 (2022).
Millard Gutter, as assignee of various insured
property owners who had sustained stormrelated losses, sued Shelter Mutual Insurance.
The complaint alleged breach of contract andbad faith claims. Shelter Mutual argued that
Millard Gutter lacked standing to bring thebad faith claim. A district court agreed anddismissed the suit.

Addressing this matter of first impression
under Nebraska law, the Nebraska Supreme
Court ruled that a policyholder cannot validly
assign to a non-policyholder an existing
tort claim of first-party bad faith. The court
noted that while “the law generally supports
the assignability of rights, it does not permit
assignments for matters of personal trust or
confidence, or for personal services,” such aslegal malpractice claims. The court concluded
that these same limitations apply to firstparty bad faith claims, holding that while “theproceeds from such an action are assignable
absent a statute to the contrary, . . . the rightto prosecute or control such an action cannot
be validly assigned.”
The court also rejected Millard Gutter’salternative argument that it had standing
because it was asserting its own claim forfirst-party bad faith against Shelter Mutual
Insurance. The court explained that no dutyof good faith and fair dealing was owed
to Millard Gutter because such duties are
dependent upon a contractual relationshipbetween a policyholder and insurer.

COVID-19 Alert:
Another State Supreme Court
Rejects Coverage For PandemicRelated Losses
As discussed in previous Alerts, thehighest courts in Washington, Oklahoma,
Massachusetts, Iowa, Wisconsin and South
Carolina have all ruled that pandemicrelated business losses are not covered underproperty policies. This month, the Delaware
Supreme Court joined this growing consensus
in APX Operating Co., LLC v. HDI Global Ins.
Co., 2022 WL 5056431 (Del. Oct. 5, 2022).
7

The lower court had granted the insurer’s
motion to dismiss, finding that even assuming(without deciding) that the claims alleged“direct physical loss or direct physical harm,”
there was no coverage because a pollution
and contamination exclusion unambiguously
barred coverage. The Delaware Supreme
Court affirmed the dismissal in asummary order.

STB News Alerts
Euromoney’s Benchmark Litigation 2023
recognized Simpson Thacher’s Insurance
Litigation Department as Tier 1. Benchmark
Litigation reports that Simpson Thacher“boasts a long history as one of New York’s,
and the country’s, most esteemed full-service
legal brands.”
Lynn Neuner, Global Co-Chair of the Firm’s
Litigation Department, was selected forthe fifth consecutive year by Euromoney’s
Benchmark Litigation as one of the “Top100 Trial Lawyers.” The list highlights elite
trial attorneys in the United States who are
selected based on client and peer review.
Earlier this year, Lynn was recognized
for the fourth consecutive year as one of
Benchmark’s “Top 10 Women In Litigation”
in the United States, which identifies leading
women litigators on the basis of their trial
acumen, the strength of their client and peer
reviews and their proven achievements.

8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

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

Sarah E. Phillips+1-212-455-2891
sarah.phillips@stblaw.com

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

Joshua Polster+1-212-455-2266
joshua.polster@stblaw.com

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

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

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

Abigail W. Williams+1-202-636-5569
abigail.williams@stblaw.com

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

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

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

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

This edition of the
Insurance Law Alert was prepared byBryce L. Friedman / +1-212-455-2235
bfriedman@stblaw.com andChet A. Kronenberg / +1-310-407-7557
ckronenberg@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
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Please click here to subscribe to the Insurance Law Alert.
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