Insurance Coverage Update September 2014

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Covered in this post:
  • Court Applies Factual Nexus Test to Exclude Coverage for Related Claims
  • Southern District Permits Discovery Reflecting Reserve Information But Defers Ruling on Admissibility
  • Appellate Division Finds No Duty to Defend Non-Covered Contract Claims
  • Insureds Lose Coverage by Violating Policy's Lawsuit Limitation Provision

NEW YORK            

Directors & Officers Coverage - Related Claims
Court Applies Factual Nexus Test to Exclude Coverage for Related Claims
 
Nomura Holding Am. v. Fed. Ins. Co., 2014 U.S. Dist. LEXIS 127574 (S.D.N.Y. Sept. 11, 2014)
 
The Southern District of New York finds no coverage for RMBS claims under "related acts" provision in D&O policy, but strictly construes a separate manuscripted endorsement designed to preclude coverage for a known RMBS consolidated lawsuit and related claims. 

This action involves claims for coverage for five lawsuits initiated between 2011 and 2012 against the insured arising out of various securitizations of residential mortgage-backed securities ("RMBS").  Previously, in 2008, the insured had separately been named as a defendant in a different consolidated action which also arose from RMBS.  (the "2008 RMBS Consolidated Action").
 
Discovery - Reserve Information
Southern District Permits Discovery Reflecting Reserve Information But Defers Ruling on Admissibility
 
Nat'l Union Fire Ins. Co. v. H&R Block, Inc., 2014 U.S. Dist. LEXIS 123966 (S.D.N.Y. Sept. 4, 2014)
 
An insurer initiated this action seeking declaration that it has no obligation to indemnify its insured in connection with either the settlement of or the defense costs incurred in connection with an underlying action.  The insurer had disclaimed coverage for the underlying action on the basis that the alleged damages did not constitute personal injury and advertising injury and further, that the insured's failure to cooperate barred coverage.  In this action, the insured filed a counterclaim, arguing that it did not violate the policy's cooperation provision and that any failure to provide information was based on the insurer's refusal to sign the protective order that was entered in the underlying action and common interest agreement.  The underlying action was settled prior to the commencement of this action. 
 

NEW JERSEY

Duty to Defend
Appellate Division Finds No Duty to Defend Non-Covered Contract Claims
 
Selective Ins. Co. v. Hospicomm, Inc., 2014 N.J. Super. Unpub. LEXIS 2315 (App. Div. Unpub. 2014)
 
The New Jersey Superior Court, Appellate Division, ruled that the liability insurer for a general contractor was not obligated to defend (reimburse defense costs) the general contractor for breach of warranty and other contract claims asserted against it in a suit arising from damage caused by a malfunctioning fire suppression system.  The decision also confirmed that certificates of insurance are not proof of a party's status as an additional insured.
 
The general contractor agreed to build a nursing home facility and subcontracted the installation of a fire suppression system.  Improper installation by the subcontractor resulted in the fire suppression system activating and causing water damage.  The owner of the nursing home, and later its subrogating property insurer, filed suit against the general contractor and the subcontractor, alleging breach of contract, breach of implied and express warranties and negligence.
   
Lawsuit Limitation
Insureds Lose Coverage by Violating Policy's Lawsuit Limitation Provision
 
Rihanna Corp. v. Certain Underwriters at Lloyd's of London, 2014 N.J. Super. Unpub. LEXIS 2216 (App. Div. Sept. 11, 2014)

A group of insureds were denied coverage in connection with a fire at their restaurant because they failed to comply with their policy's lawsuit limitation and their delay in filing suit was not excused by equitable considerations.
 
Plaintiff insureds, the owners of a restaurant, suffered a fire loss on October 3, 2008 and sought coverage under their insurance policy. The insurer issued a reservation of rights letter on January 7, 2009 and, on October 29, 2009, disclaimed coverage because of "concealment, misrepresentation or fraud," as suspicion existed regarding whether the restaurant's owner purposefully set the fire. The insurer also pointed to the insureds' failure to "submit to examinations under oath" in connection with an adjuster's investigation of the fire.