Update on Recent Legal Developments

Summarized by Teresa Snider

Craig R. Brown, Vice President and Deputy General Counsel of RiverStone Claims Management, LLC, Robert E. Sweeney, Jr., Senior Litigation Attorney at CNA, and Teresa Snider of Butler Rubin Saltarelli & Boyd LLP provided the attendees of the July 10, 2013 AIRROC Education Day with an update on recent legal developments.

Bob Sweeney began with a summary of United States Fidelity & Guaranty Co. v. American Re-Insurance Company, 20 N.Y.3d 407 (N.Y. 2013), in which the New York Court of Appeals held that a follow-the-settlements clause generally requires reinsurers to defer to a cedent’s allocation decisions, but factual disputes as to the objective reasonableness of the allocation precluded summary judgment. Craig Brown then described two recent decisions addressing allocation in the insurance context. In the first case, John Crane, Inc. v. Admiral Insurance Co., No. 1–09–3240, 2013 Ill. App. LEXIS 358, 2013 IL App (1st) 093240-B (Ill. App. Ct. June 4, 2013), the court addressed multiple issues, including horizontal exhaustion, allocation, “all sums,” trigger, and the impact of a carrier settlement. In the second case, a California trial court ruled in Plant Insulation Co. v. Fireman’s Fund Insurance Co. that the continuous trigger determination in Armstrong is still accurate. The court additionally held that aggregate completed operations limits apply to operations claims for any triggered policy incepting after the operations were completed, even if the given claimant was only exposed during operations. Allocation between insurance policies was also the subject of Kaiser Cement & Gypsum Corp. v. Insurance Co. of State of Pennsylvania, 215 Cal. App. 4th 210 (Cal. Ct. App. 2013), which was summarized by Teresa Snider. The Kaiser decision has since been decertified by the California Supreme Court.

Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estado, pending in the U.S. District Court for the Northern District of Illinois, like the Kaiser Cement case, demonstrates the importance of the contract language at issue to a case’s outcome. In Pine Top Receivables, a key issue was whether the liquidator had assigned only the right to collect reinsurance recoverables or whether the right to arbitrate with the reinsurer was subsumed within the assignment. 2013 U.S. Dist. LEXIS 28040 (N.D. Ill. Feb. 25, 2013). The court concluded that, under the terms of the contract, the right to arbitrate had not been assigned; that decision is the subject of an interlocutory appeal to the Seventh Circuit.

The next case discussed was Standard Fire Insurance v. Knowles, 133 S. Ct. 1345 (2013), in which the Supreme Court unanimously held that a potential class representative’s stipulation that a proposed class would not seek more than $5 million was not binding on members of the proposed class and did not defeat federal jurisdiction under the Class Action Fairness Act if the matter in controversy exceeds $5 million in sum or value.

Next, Craig Brown discussed Oregon Senate Bill 814, which was signed into law on June 10, 2013. The legislation amended the Oregon Environmental Cleanup Assistance Act, retroactively negating assignment clauses, affecting non-cumulation clauses, and largely eliminating the effectiveness of owned property exclusions. It remains to be seen whether the retroactive application will be enforceable.

Bob Sweeney discussed AIU Insurance Co. v. TIG Insurance Co., 2013 WL 1195258 (S.D.N.Y. Mar. 25, 2013), in which the court applied Illinois law in determining that timely notice to the reinsurer was a condition precedent to coverage under the reinsurance contracts at issue. The case is currently on appeal.

The next few cases discussed, including Midwest Family Mutual Insurance Co. v. Wolters, 831 N.W.2d 628 (Minn. 2013) (carbon monoxide poisoning from a faulty furnace installation not covered due to absolute pollution exclusion) and Mountain States Mutual Casualty Co. v. Roinestad, 296 P.3d 1020 (Colo. 2013) (policy excluded claim resulting from hydrogen sulfide gas poisoning caused by discharge of cooking grease into sewer system), interpreted and applied pollution exclusions.

The final three cases addressed the consequences of litigation strategy. In New Hampshire Insurance Co. v. Magellan Reinsurance Co., 2013 Tex. App. LEXIS 5437 (Tex. Ct. App. May 2, 2013), the Texas appellate court upheld the trial court’s denial of a motion to compel arbitration, finding that the cedent was judicially estopped from shifting its position concerning arbitrability. In Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013), the Supreme Court ruled that because the parties agreed to have the arbitrator decide whether an arbitration clause authorized class arbitration, the arbitrator did not exceed his powers in so doing. Finally, in K2 Investment Group LLC v. American Guarantee & Co., 2013 N.Y. LEXIS 1461 (N.Y. June 11, 2013), the New York Court of Appeals held that, “when a liability insurer has breached its duty to defend its insured, the insurer may not later rely on policy exclusions to escape its duty to indemnify the insured for a judgment against him.”