May 8, 2023   •   News

Insurance Coverage Case Law – Weekly Update “April 29, 2023 – May 5, 2023”

By Ryan T. Leagre

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May 8, 2023   •   News

Insurance Coverage Case Law – Weekly Update “April 29, 2023 – May 5, 2023”

By Ryan T. Leagre

Last week, Indiana federal courts and the Seventh Circuit issued four insurance related decisions. These decisions implicate the scope of the attorney-client privilege in insurance disputes, the insurability of settlements arising out of anti-kickback and false claim allegations, the enforceability of one-year contractual limitations provisions in insurance policies, and important qualifications for the selection of an umpire. Summaries of each decision are included below.

Stratford Ins. Co. v. Shorewood Forest Utilities (N.D. Ind. May 1, 2023)

Case Overview: This case involves a neighborhood subdivision seeking insurance coverage for class action claims asserted against the subdivision related to a sewer agreement the subdivision entered with another company to expand the subdivision. The claimants obtained a consent judgment against the subdivision under an agreement that they would only pursue damages against the subdivision’s insurer. The insurer filed a lawsuit seeking a declaration that it owes no coverage for the consent judgment. Discovery disputes ensued. Underlying claimants and the subdivision sought communications between the insurer, the former board of directors of the subdivision, and retained defense counsel. The insurer asserted these communications were privileged and refused to produce them.

Ruling:  The court agreed with the insurer, finding that the communications were privileged and had not been waived. In particular, the court held that the waiver of the privilege by one insured (the subdivision) did not waive the privilege that applied to other insureds (former board of directors). It also found that “mere allegations of collusion and bad faith are insufficient…to determinate that there is no privilege.”

In a separate ruling, the court quashed deposition notices and subpoenas that the underlying claimants and subdivision served on non-party attorneys who represented the various parties in the underlying litigation. The court held that much of the information sought was likely privileged and that allegations of collusion amongst the parties and their attorneys was not enough to overcome the privilege.

Citations: 2023 U.S. Dist. LEXIS 75159 and 2023 U.S. Dist. LEXIS 75161

 Astellas United States Holding, Inc. v. Fed. Ins. Co. (7th Cir. May 3, 2023)

Case Overview: Pharmaceutical company sought $10 million in insurance coverage under its D&O policy for a $100 million settlement it entered with the federal government due to alleged anti-kickback and false claim violations. The insurer argued that Illinois law prohibited it from covering the settlement because it was restitution for intentional wrongdoing.

Ruling: The Seventh Circuit affirmed district court’s grant of summary judgment in favor of the pharmaceutical company. The D&O policy covered damages, settlements, and judgments “but only to the extent that such damages are insurable under applicable law.” The key disputed issue was whether the settlement payment from the pharmaceutical company to the federal government was compensatory (insurable) or restitutionary (uninsurable). The court held that the fact that the pharmaceutical company had been accused of fraudulent conduct by the federal government was not enough to establish fraud, which could have transformed the settlement payment into restitution. Had there been more evidence of actual fraud, the court may have agreed with the insurer. But here the federal government and the company settled early, before any lawsuit was filed, so there was little evidence to consider. Because the burden of proof was on the insurer to show the settlement was entirely restitutionary, and because it did not offer sufficient evidence to support that claim, the court found that the underlying settlement was covered under the insurer’s D&O policy up to $10 million.

Citation: 2023 U.S. App. LEXIS 10883

 Indiana GRQ, LLC v. American Guar. and Liab. Ins. Co. (N.D. Ind. May 4, 2023)

 Case Overview: The policyholder sued seven insurance companies after flooding caused damage to its South Bend facility. The insurers paid part of the claim and denied the rest. The insurers argued that the policyholder’s suit was time barred because the policy required it to file suit within 12 months of the loss, and the policyholder waited 46 months to file suit.

Ruling: The court held that the insurers waived their contractual limitation period defense by negotiating with the insured for three years and never once mentioning the 1-year limitations period. Even when the insurers raised the provision three years after the loss, they did not appear to insist that this limitations period had started ticking. The court held as a matter of law that the policyholder’s suit was not time barred as a result of the insurers’ waiver.

Citation: 2023 U.S. Dist. LEXIS 78017

Sawmill Woods Homeowners Ass’n v. W. Bend Mut. Ins. Co. (N.D. Ind. May 5, 2023)

 Case Overview: A condominium building association sued its property insurer after the insurer denied a $1,250,514 claim for wind damage to several buildings. The insurer paid $12,027 and denied further coverage. The association invoked the appraisal provision. Because the parties were unable to agree on an umpire, they asked the court to select one.

Ruling: The court found that several of the umpire candidates had the qualifications and experience to serve as an umpire. In selecting Ben Smith to serve as the umpire, however, the court noted that he was one of only two candidates who was a HAAG Certified Inspector of residential and commercial roofs, and that he was the only certified umpire and appraiser by the Insurance Appraisal and Umpire Association. These certifications seemed to carry more weight than the number of years of experience and total claims handled as an appraiser and umpire.

Citation: 2023 U.S. Dist. LEXIS 78844

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