CORPORATE
POLICYHOLDER
Risk. Recover. Repeat.
Insurer-Paid Defense Costs: Can Insurers Get Their Money Back?
The Pandemic vs. The Policyholder
IN THIS ISSUE
Out of Sight, But Not Out of Mind
What's Wrong With This Picture?
Insurance Coverage for Emerging Contaminants
Mind the Gap: Coverage Gaps Created by Commercial General Liability Policies
Policyholders Hit With Ransomware Strike Insurance Coverage Oil in Indiana
Letter from the Publisher
Volume 5
Interview With Greg Shantz: General Counsel of CertaPro Painters Ltd.
Dear Readers, For most industries, the biggest story of the past 18 months has been the coronavirus pandemic. The insurance industry is no exception. Hundreds of lawsuits have been filed by policyholders arguing that their insurance policies provided coverage for business interruption losses and other expenses associated with a COVID-19 outbreak on their premises. Though the vast majority of cases have gone in insurers’ favor, many are still battling today. Final coverage determinations might not happen for years – and more problems could be around the corner given the rising number of infections in recent months. This is just one example of the uncertain landscape facing today’s corporate policyholders. Others involve the importance of cyber insurance amid the rampant rise of ransomware attacks – the cost to businesses of which has doubled since 2019 to $20 billion – as well as liabilities stemming from new regulations of PFAS chemicals and the significant coverage gaps created by commercial general liability policies. All these topics and more – including guidance on improving contractual indemnification provisions, whether certain facts can be used to trigger or defeat an insurer’s duty to defend, and the challenges in recoupment of fees from insurers – are covered in the latest issue of Corporate Policyholder magazine, a publication of the Barnes & Thornburg Insurance Recovery and Counseling Practice Group. The world of corporate insurance is changing rapidly. Our hope is that the articles in this issue offer key insights and context that policyholders can use to navigate the pressing issues they now face.
LETTER FROM THE PUBLISHER
Scott N. Godes and Carrie R. Raver Insurance Recovery and Counseling Practice Group Barnes & Thornburg LLP Fall 2021
For up-to-the-minute insights about insurance recovery, follow our Policyholder Protection blog.
Final coverage determinations might not happen for years – and more problems could be around the corner given the rising number of infections in recent months.
Insurer-Paid Defense Costs:
Corporate policyholders generally know that liability insurance is a critical part of any risk management program, not only for settling a claim, but also to defend the company. But they might not know that the insurance industry is now asking policyholders to pay their insurers back at the end of a disputed claim. Indeed, insurance carriers are pushing for recoupment of defense costs – a trend that merits a close watch from companies and risk management personnel. In so doing, they should understand that an insurer’s duty to defend is broader than its duty to indemnify. Specifically, an insurer must defend its insured against claims for which there is potential, rather than actual, coverage. Thus, in many cases, an insurer has to defend its insured, even if the insurer believes that some or all of the claims are not covered by the policy. But what if, in its reservation of rights letter, the insurer attempts to “reserve” the right to recoup defense costs? Such attempts were common in the late 1990s and early 2000s, as some state courts accepted an implied, quasi-contractual, and/or unjust enrichment theory. That had changed in recent years, restoring policyholder confidence that recoupment of defense costs was off the table. But as one 2021 case and the aftermath highlight, insurers are back at it using new tactics, and policyholders must be ready.
Can insurers get Their Money Back?
By Austin Bersinger
Read the article
Does an insurance company have a duty to defend a lawsuit against your company where the actual facts of the claim are within coverage, but the complaint fails to mention potentially covered facts? Perhaps surprisingly, the answer depends on the state law that governs the questions of insurance policy interpretation. Consider the following example in which the complaint is silent as to potentially covered allegations, but the true facts should be covered under the policy. Let’s start with a company that we’ll refer to for now as 654 Enterprises, a general contractor on a construction project. A worker employed by a subcontractor is severely injured while climbing down a ladder and brings a personal injury lawsuit against 654 (but not against his own employer). The worker alleges 654 failed to keep the construction site clean after a series of rainstorms led to the accumulation of mud that compromised the ladder’s stability. During the course of litigation, however, it is revealed that the principal cause of the worker’s injuries was his own negligence: His feet got tangled in an extension cord he was carrying, causing him to trip and fall. That development is important – read on to find out why.
By John L. Corbett
Facts outside the Pleadings and the Duty to Defend
You know those puzzles where you look at a picture and you’re supposed to find all the little things that are wrong, like a bear driving a car or a pedestrian with two different colored shoes? Let’s play the same game and see how many problems you can find with this contract provision: Keeping in mind the risk allocation purpose of indemnification provisions, let’s ask ourselves five questions to identify some of the ways we might improve our hypothetical Section 4.
By Kenneth M. Gorenberg
Section 4. Indemnification. To the fullest extent allowed by law, Vendor agrees to defend, indemnify and hold Customer harmless from all claims, losses, liabilities, damages and expenses (including reasonable attorneys’ fees and costs) resulting from negligence or more culpable conduct.
PFAS. PFOS. PFOA. Never heard of these chemicals? They are emerging contaminants that the EPA and state environmental agencies are gradually beginning to regulate. They will soon join (if they have not already) chlorinated solvents and other contaminants that have been regulated for decades as potential sources of liability for your company. Growing environmental regulation of emerging contaminants could mean potential enforcement actions against current or former users of these chemicals. An essential part of a thoughtful risk management strategy to address potential emerging contaminant liability is to carefully consider whether historical liability policies may provide coverage for environmental investigations and remediation that may be required due to its presence in the environment.
By John P. Fischer and Jennifer C. Baker
Addressing a key argument that insurance companies raise, pollution exclusions in general liability policies should not necessarily preclude all coverage for PFAS liabilities, depending on the language of the policies and the law of the relevant jurisdiction.
Insurance Coverage For Emerging Contaminants
Dealing with nearly 400 franchisees across the country and in Canada during a global pandemic – especially when it comes to complex insurance issues – is no easy task. But Greg Shantz, general counsel at CertaPro Painters Ltd., has always relished the opportunity to solve problems, educate people on intricate legal issues, and help them achieve their goals. For Greg, there’s no one-size-fits-all approach for insurance. And specific expertise matters. This has never been truer than in our current moment, when so much remains uncertain about insurance regulation in a post-COVID-19 world.
Read the interview
Interview with Greg Shantz
General Counsel of CertaPro Painters Ltd.
"My biggest caution to people when they’re evaluating insurance brokers and policies is to go beyond the bottom-line cost. Ask specific questions about what you’re getting and why."
We talked to Greg about all these issues, plus his role at CertaPro, where he sees business owners struggle most with insurance policies, handling claims disputes, and more.
One of the most important things a business owner can do to protect their business is to purchase insurance. If you are new to the realm of insurance – or are simply relying on common sense – you may believe that the best policy to protect your business is a simple commercial general liability policy (CGL). After all, a typical CGL appears to provide broad coverage, usually for “all sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies.” Yet while this language initially appears broad, the standard CGL policy is often rife with exclusions and definitions that may significantly undercut your coverage – limiting the types of injury and damage “to which this insurance applies.” These exclusions or definitions can create what are called coverage “gaps” when standing alone or interacting with other policies you may have.
While there certainly may be arguments that you could make in favor of coverage, the easiest solution to the coverage gap is to ensure no gaps exist at all.
By Kelsey Dilday
Early 2020 will likely be remembered for the flurry of announcements about the coronavirus – from the World Health Organization declaring COVID-19 a Global Health Emergency on January 31 to California’s move to become the first state to force businesses deemed “non-essential” to close on March 19. As a result of these orders, millions of businesses across the country chose or were forced to close their doors to the clientele that kept their businesses operational. Restaurants and bars, hair and nail salons, and spas, daycare centers, and health clubs were hit hardest, as many state and local governments deemed them “nonessential,” forcing their doors closed for longer periods of time, without the promise of regular income. For many, insurance coverage was a means to preserve their business throughout the ensuing pandemic and to keep doors open and staff employed. Facing coverage denials from their insurers, many policyholders took to the courts, often with the survival of their businesses hanging in the balance.
The Pandemic Vs. The Policyholder
COVID-19 and Business Interruption Coverage Claims
By Kelsey Dilday and James J. Leonard
Of the nearly 500 cases to date, only nine had outcomes on the side of the policyholder where policyholders have won coverage on a motion for summary judgment.
One of the larger pitfalls to coverage arguments is the virus or “pollutant” exclusion. Generally, insurers have argued, and courts have accepted, that any losses — whether business interruption, civil authority, or cleanup and sanitation costs — stemming from the COVID-19 pandemic are excluded under such provisions.
The cost of ransomware to businesses is estimated to have doubled since 2019 to $20 billion, according to Coveware. Policyholders turn to their insurance policies to recover losses which average more than $230,000 per incident. In the case discussed, the carrier denied a policyholder’s claim as being outside the computer fraud provisions of the commercial crime portion of the policy. Two lower courts sided with the carrier, but the Indiana Supreme Court ruled in favor of coverage. This is a significant win for policyholders seeking coverage for losses under policies not sold as “cyber insurance.” The article discusses the decision and the precedents cited in an area of litigation that only promises to expand as ransomware and similar digital crimes proliferate.
By Scott N. Godes
The Indiana Supreme Court’s construction of “resulting directly from the use of a computer” was correct, and it was a positive result for insureds to see the lower court decision overturned on this point.
Originally published in the Journal on Emerging Issues in Litigation
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