NEW YORK POLICYHOLDERS MAY BE ON THE HOOK FOR UNINSURED PERIODS EVEN WHEN INSURANCE WAS OTHERWISE UNAVAILABLE

Guest Blogger:  John G. Koch, Weisbrod Matteis & Copley PLLC

 The New York Court of Appeals recently struck a blow to policyholders by relieving an insurer of its obligation to indemnify for that part of a long-term harm that occurred when applicable insurance did not exist in the marketplace. See KeySpan Gas East Corp. v. Munich Reinsurance America Inc. et al., No. APL-2016-00236. As is often the case when a loss occurs over multiple, successive policy periods, gaps in available insurance coverage may appear. Gaps in coverage may exist for a number of reasons, including insurer insolvency, lost policies, policy exclusions or occasionally a policyholder’s failure to purchase insurance. Those gaps present problems when liability for long-term harm is allocated pro rata among triggered insurance policies. In such cases, courts are usually faced with two basic options, depending on the law of the jurisdiction: A court may either shift liability for those gaps in coverage to other insurers of the risk, or it may put policyholders on the hook for the gaps. In Keyspan, New York’s highest court opted for the second option, requiring the insured to shoulder the pro rata share of all those periods in which applicable insurance did not exist in the marketplace.

Keyspan’s basic facts are all too familiar. The insured, Keyspan, is statutorily liable for cleaning up contamination that resulted from years of operations beginning in the late 1800s. Keyspan sought coverage and asserted that any pro rata allocation of cleanup costs should not include periods where insurance covering pollution did not exist in the market place (whether due to a pollution exclusion or the fact that general liability coverage was unavailable to public utilities prior to 1925, as Keyspan’s expert testified).

One of Keyspan’s insurers, a Chubb company (Century Indemnity), challenged Keyspan’s position, asserting that insurance policies it issued in the 1950s and 60s obligate it to pay only for damages attributable to occurrences during those policy periods. Chubb argued the insured should have to pay for the coverage gap due to the unavailability of insurance coverage. The New York Court of Appeals agreed, stating that, in situations where cleanup costs must be allocated pro rata, the “during the policy period” proviso in the policies was inconsistent with excluding from the allocation years where insurance was unavailable. The Court essentially reasoned that the “during the policy period” language controlled and relieved insurers from having to pay damages attributable to periods when the insurer’s policies were not in force.

There are a number of takeaways from Keyspan worth noting.

First, and perhaps most importantly, Keyspan does not address the separate and distinct duty to defend. The duty to defend is not mentioned once in the entire opinion (or in the decisions below). This should come as no surprise because the question before the Court of Appeals was who had to pay damages in the form of cleanup costs. Neither defense costs nor the duty to defend were at issue. In fact, the Court never once mentioned its longstanding, oft-cited seminal decision addressing the duty to defend in long-tail cases: Continental Casualty Co. v. Rapid-American Corp., 609 N.E.2d 506, 514 (N.Y. 1993). Accordingly, Keyspan has no impact on the New York Court of Appeals’ several decisions stating that once the duty to defend is triggered by at least one potentially covered claim, the insurer owes a duty to defend the entire claim, including non-covered allegations, without foisting part of the defense onto its insured.  See, e.g., id.; Fieldston Prop. Owners Ass’n, Inc. v. Hermitage Ins. Co., 945 N.E.2d 1013, 1018 (N.Y. 2011).

Second, the Court of Appeals took care to note that the “unavailability” issue was irrelevant in cases where pro rata allocation is inappropriate, citing to its 2016 decision in Matter of Viking Pump, Inc., 27 NY.3d 244, 255 (2016). Pursuant to Viking Pump, if an insurance policy contains a non-cumulation or prior insurance or similar clause, the “all sums” method applies to the indemnity obligation. In such instances, the policy with the non-cumulation or similar clause and the insurance tower above it must pay all damages up to policy limits, with no proration to the insured for uninsured periods.

Third, Keyspan is at odds with the federal Second Circuit Court of Appeals’ Stonewall decision and the decisions of courts in several other “pro rata” jurisdictions that have refused to shift to the policyholder gaps in coverage due to the unavailability of insurance.  Compare Keyspan, No. APL-2016-00236, with Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178 (2d Cir. 1995); Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994). The Court defended its departure from other courts’ rulings by asserting that, in New York, the language of the policy is paramount, whereas other courts, it asserted, focused instead on the public policy of maximizing insurance coverage.

This justification illustrates the tension between touting the policy language as paramount while at the same time adopting the legal fiction that an indivisible long-term loss can be fairly allocated based on time on the risk. By way of illustration, isn’t it true that in most cases environmental damage continuing after 1986 is at least in part attributable to discharges from preceding decades? For example, a migrating contaminated groundwater plume may cause continuing damage, but that continuing damage is undoubtedly also due to the fact that the groundwater is contaminated in the first place from discharges long ago. How is it improper to ask an insurer that issued coverage while discharges were occurring to pay for a part of the damage that results from the continued presence of pollutants in periods where coverage is no longer available in the marketplace? What about the proviso that the insurance policy provides coverage for all sums the insured must pay as damages due to “continuous or repeated exposure to substantially the same general conditions”—i.e., the continued exposure of soil and groundwater to preexisting contamination?

For that matter, what if most of the harm at issue occurred during early operations when discharges were often unregulated, more frequent and more toxic? It may still be impossible to establish the precise quantity and quality of harm during every policy period, but generally speaking, why should insurers on the risk during those earlier years be allowed to pass off a disproportionate share of an “indivisible” liability to the insured for years when no coverage was available? Isn’t this especially odd when, often, the cause of the harm during that post-1986 period—continuing migration of groundwater contaminated by discharges from long ago—begins to attenuate in the later years? It is difficult to find justification for these incongruities in the policy language.

Fourth, one might expect the Keyspan ruling to raise a whole host of new problems in allocation cases where New York law applies. Perhaps some policyholders may be more likely to take on the fact burden of proving that a loss is divisible and can be attributed to certain policy periods on a principled basis—certainly not something that will promote judicial efficiency or economy. At the very least, policyholders will be sure to assert, rightly so, that the coverage block for purposes of allocation should end as soon as the potential liability for environmental harm became known, if not earlier. Indeed, how can an allocation fairly be accomplished with an open-ended coverage block? Will coverage end when a slurry wall is installed? When regulatory standards are met and there is no longer a legal obligation to remediate? When a remedial investigation/feasibility study is complete and estimated cleanup costs are more or less known? When “additional” or “new” damage is de minimis?

None of these latter end-dates makes sense, especially in the context of a pro rata allocation that rests on the legal fiction that an equal amount of harm resulted from every occurrence in every policy period from inception to the present. Needless to say, these issues may make pro rata allocation in New York more difficult, not less, and will likely require more guidance from New York courts. It’ll be interesting.

For more information on insurance coverage law, including news, updates and links to important information in the industry and how it may affect your business, follow my blog, or twitter handle: @CoverageLawAtty.

 

FEMA’s (Under)Adjustment Of Flood Insurance Claims: Lessons Learned From Sandy

 

Blogger:  Lee M. Epstein

Many business owners and most homeowners purchase flood insurance  through the National Flood Insurance Program (“NFIP”). Unfortunately, most homeowners affected by Hurricane’s Harvey and Irma and the associated flooding won’t have insurance. For example, only 17% of those suffering flood damage from Harvey were insured. The numbers in Florida are better but nevertheless well-under 50% of those suffering a flood loss will be insured.

Even those with flood insurance may still be up the proverbial creek without a paddle. The Federal Emergency Management Agency (“FEMA”), the agency that manages the NFIP, publishes statistics that reveal systematic underpayments of flood insurance claims.

According to FEMA, in the aftermath of Superstorm Sandy, nearly 144,000 policyholders filed flood insurance claims. When numerous problems, including fraud, were uncovered in connection with the adjustment of those claims, FEMA offered those policyholders an opportunity to have their claims re-reviewed. Over 19,000 Sandy claimants took advantage of that opportunity. To date, FEMA has closed 16,744 of those claims. Approximately 83.7% of those closed claims have resulted in additional payments totaling $227,060,819, or approximately $14,000 for each underpaid Sandy claimant. Thus, FEMA openly acknowledges that it vastly underpaid policyholders. Based on that large sample, if every one of the 144,000 Sandy claimants had sought a re-review, the underpayments would have exceeded $2,000,000,000. That is extraordinary.

But there is more. If a Sandy claimant was not satisfied with the FEMA re-review, they were entitled to a Third-Party Neutral Review by, for example, a retired judge. Approximately 2,277 Sandy claimants have requested a Third-Party Neutral Review. To date, 1,087 Third-Party Neutral Reviews have been completed. Total additional payments of $19,668,316 have been made based on those Third-Party Neutral Reviews or approximately $18,000 per claim. Thus, those Sandy claimants who pursued both a re-review and a Third-Party Neutral Review of their claim received, on average, an additional $32,000 over the amount FEMA originally offered to pay on their claim.

And there is still more. Sandy claimants that pursued Third-Party Neutral Reviews with the assistance of competent legal counsel and other professionals fared even better.

Those currently suffering flood losses throughout the country can learn several valuable lessons from the experience after Sandy.

First, flood insurance policyholders should anticipate and be prepared for FEMA to initially undervalue their claim.

Second, flood insurance policyholders should not hesitate in asking FEMA to reevaluate its initial of adjustment of flood insurance claims.

Third, in order to enhance the recovery on any flood insurance claim, policyholders should seek the advice and counsel of competent professionals.

Fourth and, perhaps, most importantly, don’t give up and don’t give in.

For more information, please contact Lee M. Epstein, Weisbrod Matteis & Copley PLLC

 

PROPERTY LOSS AND BUSINESS INTERRUPTION CHECKLIST FOR COMMERCIAL INSUREDS

Blogger:  Lee M. Epstein

 

Beyond the personal toll extracted by Hurricanes Harvey and Irma, the property and business losses are projected to be among the greatest caused by a natural disaster. As the recovery efforts continue in earnest, the following Checklist is offered to assist those who have suffered a loss and are planning to submit an insurance claim for any property loss and business interruption suffered.

□    Restore service to any property protection systems that have been damaged, such as
     sprinklers and alarms

       □    If property protection cannot be restored, post a watch

□    Notify all insurance companies whose policies may be implicated

       □   Consider whether notice should be given to excess insurance companies or to
           insurance companies whose policies have expired

□    Prepare a preliminary report describing:

      □    The type of loss

      □    The date and time of the loss

      □    The location of the loss

      □    A contact person at the company

      □    The property involved, including: buildings, equipment and stock

□    Determine if:

      □    The property is protected from further damage

      □    Any buildings require temporary enclosures

      □    Any utility lines have been damaged and require repairs

□    Identify and separate damaged and undamaged property

□    Commence salvage operations

□    Determine whether:

      □    Production can be restored at the damaged facilities

      □    Damaged equipment can be repaired

      □    Substitute facilities and equipment are available and necessary

      □    Lost production can be made up through inventory, overtime, or other
           suppliers

□    Formulate a plan with the insurance company’s input for making repairs, 
     securing substitute facilities and equipment and undertaking other loss
     mitigation efforts

□    Set up accounting procedures to track:

      □    Property Damage

            □    Create separate accounts for all loss-related expenses

            □    Implement procedures for collecting and maintaining all loss-related
                 documentation  in accordance with insurance policy terms, including
                 invoices, contracts and manpower hours

            □    Inventory damaged and undamaged goods

      □    Business Interruption

            □    Determine the “period of interruption”

            □    Determine the quantity of lost production as reflected in inventory 
                 records, production records and sales records. Compute what the business
                 would have normally produced, had there been no loss, then see how many                    
                 units were actually produced.  The difference is the gross lost production.
                
            □    Deduct any sales or production that can be continued or made up through
                 the use of existing inventory, the utilization of other plants, the utilization
                 of overtime hours or other loss mitigation efforts.  The difference is the
                 net lost production.

            □    Multiply the net lost production by the marginal value of a single
                 production unit.

            □    Add back the extra costs associated with replenishing inventory and loss
                 mitigation efforts.

□    Prepare and submit claim

      □    Summarize

            □    Date, location and type of loss

            □    Amount claimed

      □    Break down the amount claimed

            □    Property damage

                  □    Real property

                  □    Equipment

                  □    Stock and supplies

                  □    Demolition and debris removal

      □    Business Interruption

            □    Interruption Period

            □    Sales value of lost production

            □    Expenses incurred to reduce the loss

□    Attach supporting documentation for each element of the property damage and
     business interruption

□    Press for written extensions of time to submit claim and to file suit if necessary

□    Seek prompt payment of claim by insurance company

□    If a dispute over a claim arises, determine

      □    Whether appraisal is appropriate or beneficial

      □    Whether litigation will expedite payment of claim

 

For more information, please contact Lee M. Epstein, Weisbrod Matteis & Copley PLLC

The Long And Winding Road

 

Blogger:  Lee M. Epstein

As many commentators have noted, Hurricane Harvey made landfall nearly twelve years to the day of Hurricane Katrina in 2005. Back then, I had just completed a trial in a small Parish next door to New Orleans. Fortunately, my flight home took off safely on Friday afternoon before Katrina hit the following Monday. I personally was spared the devastation suffered by so many in New Orleans then and in Houston now. But so many that I befriended lost so much.

Over the succeeding years, I’ve had many opportunities to revisit New Orleans. I’ve watched as the people of that great city have recovered, reclaimed and rebuilt. It was slow and it was hard but it happened.

With Harvey now in the rear view mirror, and Irma rumbling through the Caribbean, more heartache is on the way. We’ve been down this road. It’s long and winding but we’ve made it through before and will do so again.

For more information, please contact Lee M. Epstein, Weisbrod Matteis & Copley PLLC

Unanimous Supreme Court Upholds Katrina Fraud Verdict In Favor Of Weisbrod Matteis & Copley Clients

In a unaniimagesmous decision, the U.S. Supreme Court upheld a jury’s verdict that State Farm committed fraud in the adjustment of insurance claims arising out of Hurricane Katrina. A copy of the Court’s decision can be accessed at https://www.supremecourt.gov/opinions/16pdf/15-513_43j7.pdf. The case involving Weisbrod Matteis & Copley clients, Cori and Kerri Rigsby, represents an important victory for both whistleblowers and insurance policyholders.

The Rigsbys sued State Farm under the False Claims Act (“FCA”), which permits individuals to sue on behalf of the federal government. The Rigsbys were former claim adjusters employed by a contractor retained by State Farm to adjust insurance claims in the aftermath of Hurricane Katrina. They alleged, and eventually proved at trial in a bellweather case, that State Farm fraudulently represented to the government that Katrina-related damage to the exemplar home was caused by flood rather than wind. State Farm sold both federal government-backed flood insurance policies and general homeowners policies. By misclassifying wind damage as flood damage, State Farm was able to shift liability to the federal government and away from State Farm.

State Farm sought to dismiss the case on a procedural technicality by arguing that one of the Rigsbys’ former lawyers had prematurely leaked the lawsuit in violation of the FCA’s “seal” requirements. Pursuant to those “seal” requirements, lawsuits brought under the FCA must be filed under seal for a minimum of sixty days. State Farm argued that the seal was broken when the Rigsbys’ former lawyer disclosed the lawsuit to the news media and others.

In a unanimous decision, the Supreme Court rejected State Farm’s contention that the seal violation required dismissal of the Rigsbys’ lawsuit. The Court recognized that the seal requirement is intended to benefit the government because it prevents those suspected of fraud from being tipped off. As a result, the Court concluded that “it would make little sense to adopt a rigid interpretation of the seal provision that prejudices the government by depriving it of needed assistance from private parties.”

With the Supreme Court’s affirmance, State Farm must now satisfy the jury’s verdict of $758,000, which represents the damages for a single home, as well as an order to pay attorneys’ fees. The Rigsbys are now ready to move forward and prove the scope of State Farm’s fraud already proven fraud, which could involve thousands of homes and billions of dollars. Indeed, the State of Mississippi contends that State Farm also improperly shifted its Hurricane Katrina losses onto Mississippi’s Homeowner Assistance Program, which was set up to pay thousands of policyholders for losses that were not covered by insurance.  Mississippi has retained Weisbrod Matteis & Copley to pursue these claims against State Farm and other insurers on the State’s behalf. Stay tuned as more on these developing cases will follow.

START SPREADIN’ THE NEWS…NEW YORK’S HIGHEST COURT SAYS PRO RATA ALLOCATION IS LEAVING TODAY

new_york_1

Guest Blogger: John G. Koch, Weisbrod Matteis & Copley PLLC

In a much anticipated decision, New York’s highest court handed policyholders a significant victory in In re Viking Pump, Inc. & Warren Pumps, LLC, Insurance Appeals, No. 59 (N.Y. May 3, 2016).  In the context of long-tail bodily injuries or property damage spanning multiple policy periods, the Court declared that policy language is the King of New York and trumps all else when determining whether the “all sums” or “pro rata” allocation approach applies to a liability insurer’s indemnity obligation.  Specifically, the Court held that the “all sums” approach applies to an insurer’s indemnity obligation where the policy contains language inconsistent with a pro rata approach. In this case, the Court reasoned that a “non-cumulation” or “anti-stacking” clause is inconsistent with allocating an insurer’s liability on a pro rata basis.  Although Viking Pump dealt only with the duty to indemnify, its ruling applies to the broader duty to defend and bolsters existing case law recognizing that the duty to defend language in most general liability policies cannot be reconciled with a pro rata allocation approach.

To put the Viking Pump decision in context, insurers usually prefer a pro rata approach, meaning they can only be liable for their share of a loss based on the time period their policies were in force compared to the overall period that the long term injury or property damage occurred.  This rests on the legal fiction that a single indivisible loss taking place over many years can be treated as one occurrence in each successive policy period, which is an expedient method for dividing the indivisible loss among multiple successive policies based upon each policy’s time on the risk, as opposed to the extent of actual injury or damage that took place during any specific period.  Id.  As the Court stated, the foundation of this approach is that no insurer will have to pay for any injury or damage that occurs outside of its policy period.  Viking Pump, slip op. at 11-12.

Insurers usually prefer the pro rata approach because their risk is typically reduced and the risk of lost policies, insurer insolvencies or other gaps in coverage may fall upon the policyholder.  In contrast, under the “all sums” approach, each successive insurance policy triggered by a long term injury or damage is, essentially, jointly and severally liable for the entire loss up until the policy’s limits are exhausted.  Under this approach, the insured may target one or many insurers for the entire loss, leaving it to the insurers to seek contribution from one another.

Prior to Viking Pump, insurers often brandished Consolidated Edison Co. of New York v. Allstate Insurance Co., 98 N.Y.2d 208 (2002), to assert that New York is a “pro rata” state.  But in Viking Pump, the Court of Appeals distinguished and limited the reach of Consolidated Edison by pointing out that it never formed a blanket rule for pro rata allocation and that the policies in Consolidated Edison did not contain non-cumulation or similar clauses.  Viking Pump, slip op. at 11-12.

The Viking Pump Court held that non-cumulation clauses are antithetical to the concept of a pro rata allocation.  Non-cumulation clauses essentially provide that where a single loss triggers successive policies, any amount paid by a prior policy will reduce the limits of the policy containing the non-cumulation clause.  The original purpose of the clause was to prevent policyholders from double dipping when the industry made the switch from accident based policies to occurrence based policies.  Non-cumulation clauses are inconsistent with a pro rata allocation because they “plainly contemplate that multiple successive insurance policies can indemnify the insured for the same loss or occurrence,” whereas the entire premise underlying pro rata allocation is that an insurer cannot be liable for the same loss to the extent the loss occurs in another insurer’s policy period – hence the legal fiction that a separate occurrence takes place in each successive policy period.  Id. at 18 (emphasis added).  The two provisions are logically inconsistent.  Thus, adopting the pro rata approach would render the non-cumulation clause superfluous in violation of New York’s principles of policy interpretation. For this reason, the Court determined that the “all sums” approach applies to policies containing a non-cumulation clause.

In addition to the pro rata versus all sums allocation issue, the Court determined that the proper method for allocating between primary and excess layers of insurance under the “all sums” method is vertical exhaustion – meaning that a single primary policy may be required to respond to the long term loss up to its policy limits, at which time the excess coverage above that policy is pierced on an all sums basis.  The Court rejected the argument that horizontal exhaustion should apply, where all primary coverage would have to be exhausted before any excess coverage must respond to a loss, noting that the excess coverage was tied to the exhaustion of only the underlying policy, not prior or subsequent policies.  Thus, the Court ruled that vertical exhaustion is the appropriate method.

Although Viking Pump specifically addressed the effect of non-cumulation clauses, it undoubtedly stands for the propositions that: (1) no blanket rule controls how an  insurer’s indemnity obligation must be allocated, and (2), where language or a clause in an insurance policy is inconsistent with the pro rata approach, pro rata allocation does not apply.

The latter point is especially important when considering the issue of whether the duty to defend is subject to pro rata allocation.  Most general liability policies provide that the insurer has a duty to defend “any suit” in which at least one potentially covered claim is alleged.  New York courts have interpreted this language as requiring the defense of the entire lawsuit so long as at least one claim is at least in part potentially covered.  A pro rata allocation is inconsistent with the language obligating insurers to “defend” “any suit” if at least one potentially covered claim is alleged.  Thus, the reasoning in Viking Pump suggests that the “all sums” approach is the appropriate method respecting the duty to defend and is consistent with the duty to defend language found in most liability policies.

To learn more, contact John G. Koch

Every Dawg Has Its Day – A Report From Philly I-Day 2016

cyber securityGuest Blogger: Emily Breslin Markos, Weisbrod Matteis & Copley PLLC

On Thursday, April 28th, I had the pleasure of attending Philly I-Day, an annual event where insurance professionals gather to network, share ideas and get informed about industry trends.  The attendees had the opportunity to hear from Tom Finan, who previously served as the Senior Cybersecurity Strategist and Counsel with the Department of Homeland Security.  While in this role, he established and led the agency’s Cyber Incident Data and Analysis Working Group (CIDAWG), which I previously blogged about.  I appreciated hearing him speak about the important work that the CIDAWG has done to secure businesses against cyber-attacks.  Mr. Finan shared that the National Protection and Programs Directorate (NPPD) recently held a workshop to focus on the execution of the repository for reporting cyber incidents, as described in my previous blog post.

I was surprised to learn that Mr. Finan invented the acronym CIDAWG for the working group, and intentionally made it, well, awesome.  He boasted that it is the best acronym in the federal government to date, and I tend to agree, at least until we all start calling the President “P-Dawg.”   To learn more about the CIDAWG’s continuing cyber-security efforts, please visit:  www.dhs.gov/cybersecurity-insurance.

While at the event, I also had the opportunity to attend a Presentation given by our own Lee Epstein, with Kevin M. McPoyle of KMRD Partners, on effective communications between brokers and policyholders.  In our work representing policyholders, we have seen our clients rely on brokers as an incredible source of expertise, guidance, and comfort when it comes to our client’s coverage needs.  Unfortunately, we have also had the firsthand experience of having communications between the policyholder and broker unearthed in coverage litigation, and sometimes used against the policyholder.

For example, when a broker gives the unequivocal opinion that a certain claim is not covered, that can come back to haunt the policyholder.  The insurer may rely on that statement as evidence of no coverage, and a court may find the broker’s statement compelling.  In light of that, Lee and Kevin discussed how can brokers strike a balance between providing helpful and definitive advice to their clients, while aware that their statements can carry a great deal of weight if the claim is ever litigated.

Two main themes emerged from the discussion.  First, the broker’s role is to offer business advice, not legal advice, and couching communications in business terms can avoid many problems if the claim ever goes to litigation.  Second, when there is a question as to the scope of coverage, setting forth advice in terms of what the insurer’s position may be provides sound advice to the policyholder, but also protects the policyholder in the event of litigation.  It was an eye-opening Presentation, and fodder for continuing discussion.

To learn more, contact Emily Breslin Markos

Weisbrod Matteis & Copley Uncovers Massive Fraud In the Adjustment Of Superstorm Sandy Claims

I, and several colleagues, recently had the good fortune of joining the law firm of Weisbrod Matteis & Copley (“WMC”) and opening its first office based outside of Washington, D.C. in Philadelphia, PA. In addition to representing corporate policyholders in maximizing insurance recoveries, WMC is one of the leading firms in the country representing individuals who have been left high and dry by their insurers after a major disaster, such as Hurricane Katrina or Superstorm Sandy, strikes.

For nearly ten years, the firm has represented the whistleblowers who first discovered fraudulent engineering reports after Hurricane Katrina. It remains the only firm in history to prove to a jury that a FEMA-contracted insurer committed fraud in adjusting Hurricane Katrina claims.

WMC is now bringing that experience to bear for the benefit of home and business owners who continue to suffer so greatly in the aftermath of Superstorm Sandy. The firm represents nearly 1300 Sandy victims who are seeking a fair adjustment of their flood insurance claims by FEMA. Unfortunately, that adjustment process is rife with fraud.

On the positive side, both congress and the media are taking note. Recently, WMC partner, August Matteis, appeared on a television news segment along with Congressman Tom MacArthur to discuss the fraud. You can view that segment by clicking here. Most recently, Matthew Krauss, another WMC attorney, appeared on Maggie Glynn’s radio show to further explain how Sandy victims are being underpaid. That interview can be heard by clicking here.

Victims of natural disasters have suffered enough. If nothing else, FEMA owes them an honest adjustment of their insurance claims.

 

For more information, please contact Lee M. Epstein.

Caveat Emptor in the Brave New World of Cyber Insurance Coverage

databreach

Guest Blogger:  Martin Bienstock, Weisbrod Matteis & Copley PLLC

There are two types of entities in the world, goes the adage: those who have learned that their data was breached; and those who just don’t know it yet.  The cost of these data breaches is no laughing matter, however; according to a recent study sponsored by IBM, the average data breach costs a company more than $200 for each record lost.[1]  (In the health-care sector, the cost are even greater, approaching $400 per-record lost record.[2])  The more records that are lost, the greater the per-record expense, so that a large data breach may give rise to exorbitant costs.[3]

Thoughtful executives can mitigate these costs through effective utilization of insurance coverage.  Insurance companies aggressively are marketing new cyber-insurance policies that provide first-party and third-party coverage in the event of a data breach.  Often, the new policies are accompanied by an exclusion in the entity’s Commercial General Liability Policy for losses arising from a data breach.

Entities entering the market for cyber coverage therefore must be vigilant to ensure that, at the end of the day, their efforts not yield less coverage than previously had been available.

Cyber Insurance Policies Are Often Conditioned Upon Maintaining a Particular Level of IT Security.

The new cyber policies typically require an applicant to complete a comprehensive assessment of its cyber security measures, affirming, for example, that it has in place “up-to-date, active firewall technology,” and “updated anti-virus software active on all computers and networks.”[4]   Coverage may be conditioned on the accuracy of these representations.[5]   In the event of a breach, if it turns out that the IT security information represented in the application form was inaccurate, coverage might not be available.

Thus, in one recent case,[6] an insurer sought to deny coverage because, among other things, the insured health-care provider had not maintained the level of IT security described in its application.  The insurer argued that the policy therefore was void.[7]  Under cyber-liability policies, then, an insured might be excluded from coverage in the event that it was negligent in implementing cyber-security measures – hardly the result that the insured had in mind when it purchased the policy.

Traditional CGL Policies Offer Some Protection for Data Breaches Even When the Insured Failed to Maintain Adequate IT Security.

When a data breach arises from an entity’s failure to maintain security, third-party coverage likely would be available under a standard Commercial General Liability Policy.  The standard CGL Policy provides coverage for “advertising injury.”  It defines such advertising injury to include injury caused by “oral or written publication, including publication by electronic means,” which “disclosed information about a person’s private life.”

This definition of “advertising injury” is ill-suited for costs arising from a data breach since it depends upon “publication.”  In the event of a data breach, many of the costs are unrelated to the actual publication of private data; the costs arise from the mere possibility of publication, not its actuality.  Conditioning data-breach coverage upon an irrelevant “publication” standard makes little sense.

Two recent cases highlight the limitation of relying on the “publication” standard to provide protection against data-breach claims.  In one case, electronic data concerning 50,000 employees fell out of a transport van and never was recovered.  The Connecticut Supreme Court held that the data had not been “published,” since there no factual support for the conclusion that the data, which was not in a readily usable format, ever was accessed by anyone.[8]  In contrast, in another recent case, the Fourth Circuit Court of Appeals affirmed a district court decision that damages resulting from a data-breach did constitute “advertising injury” because the information had been made available on the internet, and therefore was “published.”[9]

Cyber-data and Cyber-security policies can be better designed than the CGL “advertising injury” coverage, so that coverage is not dependent on publication.  But as some insureds have learned to their dismay, cyber-liability policies may be drafted to shift the costs of negligence back to the insured, and to make coverage unavailable for the very data breaches for which the insured purchased the insurance in the first place.

Caveat Emptor

Cyber-risk insurance therefore may serve a useful purpose by providing coverage that is targeted specifically towards data breaches, and that covers damages that go beyond the scope of the traditional CGL Policy. Buyers must beware however that the extra financial and administrative burden they assume in buying such policies not leave them worse-off than before.

For more information, please contact Marty at mbienstock@wmclaw.com or 202.751.2002.

 

[1] IBM 2015 Cost of Data Breach Study United States, conducted by Ponemon Institute LLC (May 2015) at 1.

[2] Id. at 7.

[3] Id. at 7.

[4] A sample cyber-risk policy issued by Travelers Group and containing these representations (last accessed on the date of publication) is available here .

[5] Id., Cyber-Risk Policy at III.M. (p. 22).

[6] Columbia Cas. Co. v. Cottage Health Sys., 15-cv-3432 (2015 C.D. Cal.).

[7] Id., Dkt No. 22.

[8] Recall Total Info. Mgmt., Inc. v. Fed. Ins., 317 Conn. 46, 115 A.3d 458 (2015).  The Connecticut Supreme Court adopted the reasoning of the appellate court in Recall Total Information Management, Inc. v. Federal Ins. Co., 147 Conn.App. 450, 465, 83 A.3d 664 (2014).

[9] Travelers Indem. Co. of Am. v. Portal Healthcare Sols., L.L.C No. 14-1944, 2016 WL 1399517, at *2 (4th Cir. Apr. 11, 2016).

“UBER” Liabilities: Legislatures Respond To Emerging RideShare Liabilities With New Insurance Laws

Guest Blogger, Annie Kernicky, Esq.

The growing popularity of rideshare services like Uber and Lyft is resulting in new and emerging liabilities. Just last week in Michigan, for example, an Uber driver, in between shooting six people, allegedly picked up passengers for Uber. Passengers flock to rideshares for their touch-and-go convenience and low cost, and courts and legislatures are trying to keep up.

Situations such as the Michigan shooting will not only spur an increase rise in litigation connected to rideshare services (see previous blog post), but are also prompting new laws across the county to ensure that minimum insurance and adequate coverage exist during, and even before, a passenger’s trip in a rideshare vehicle.uBER 3

California, for example, recently enacted a new law designed to clarify what insurance coverage is required during the various phases that a rideshare driver goes through during a day of driving – i.e. Period 1, the time when the Uber app is on, but the driver hasn’t yet been matched to a driver; and Periods 2 and 3, which includes when the driver is matched with a rider, when the driver picks up the rider, and the entire drive until the rider is dropped off at the destination.

Like others of its kind across the country, the new California law sets insurance coverage requirements for all Transportation Network (TNCs) and driver partners while they are logged into the Uber platform and waiting for a trip request, i.e. Period 1.  The law requires either the TNC, Uber’s affiliate Rasier-CA LLC, or the rideshare driver partner to maintain primary third-party liability insurance that provides coverage in the amounts of $50,000 per individual with a total of $100,000 per accident along with up to $30,000 for property damage during Period 1.  Prior to the law, California’s minimum insurance requirement was $15,000. The new law also means that standard and optional coverages a driver may have purchased on their own personal auto policy no longer apply while the driver is logged into the app (in California only).

Outside of California, other states are enacting similar insurance-related laws, especially during Period 1 when other insurance may not be applicable because a passenger has not yet been picked up. At the beginning of February, in Florida, the Senate Judiciary Committee voted in favor of the law, which would set minimum insurance coverage requirements for when drivers are using their personal vehicles and are logged into the companies’ apps, but not in the act of transporting a paying passenger.  Among others, the Florida bill would require a TNC driver or company to maintain primary automobile insurance issued by specified insurers with certain coverages in specified amounts during the different periods, and also require a TNC driver to carry proof of insurance coverage at all times during the use of a personal vehicle for rideshare services.

Certainly the trend is to require rideshare drivers (or companies) to have higher insurance minimums when a driver has the company app on, even with no passengers in the vehicle.  These measures not only help protect public safety, but also ensure that there is adequate coverage and responsibility if an accident or potential liability does occur while a driver is using a rideshare app.

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