SDV Insights

Federal and state courts tackled a myriad of interesting insurance-related issues this past year. Over two years into the pandemic, we saw the first state high court decision regarding whether property policies provide coverage for COVID-19 losses. Elsewhere, as our country continues to grapple with the opioid epidemic, courts are confronted with whether commercial general liability policies provide coverage for various opioid-related damages. In a very interesting policyholder friendly decision, the Supreme Court of Washington found a claims-made CGL policy to be violative of public policy. The Court of Appeals of North Carolina was tasked with evaluating coverage for a disease contracted through a hot tub display. And - on the more mundane side, yet still important for the industry - the Texas Supreme Court refined its application of the eight-corners rule. These are merely a sampling of the impactful insurance decisions rendered in 2022.

We now unveil the top 10 most influential coverage decisions of 2022 and look ahead to a few cases to keep an eye on as 2023 unfolds.


1. ACE Am. Ins. Co. v. Rite Aid Corp.
270 A.3d 239 (Del. 2022)
Supreme Court of Delaware
January 10, 2022

Acuity, Inc. v. Masters Pharms., Inc.
2022-Ohio-3092 (Ohio 2022)
Supreme Court of Ohio
September 7, 2022

Does an opioid suit seeking purely economic damages constitute “damages because of personal injury,” triggering a CGL insurer’s duty to defend?

No, not under Delaware law. Although opioid coverage cases have been on the rise, this one is particularly interesting because the underlying suits were brought by two counties against a pharmacy retailer, Rite Aid. The underlying suits alleged that the opioid epidemic was causing increased treatment expenses and criminal justice system expenditures. The two municipalities sought economic damages for handling emergency responses to overdoses, providing addiction treatment, conducting opioid-related investigations, and arrests. Through this decision, the Delaware Supreme Court narrowed a CGL insurer’s duty to defend, holding that because the “alleged damages do not depend on proof of bodily injuries . . . the complaints are not covered by the 2015 Policy.” Rite Aid’s CGL Policy—which contains language standard in most CGL policies—provides coverage for “damages because of personal injury, which includes damages claimed by any person or organization for care, loss of services or death resulting at any time from the personal injury.” In narrowing the insurer’s duty to defend, the Court noted that, “[i]f the [third-party plaintiffs] . . . sued Rite Aid on behalf of these hospitals to recover their actual, demonstrated costs of treating bodily injuries caused by opioid overprescription, the 2015 Policy would most likely be triggered.”

The Supreme Court of Ohio recently analyzed a similar issue involving claims against a wholesale distributor of opioid products. In Masters Pharm., Inc, the Ohio Supreme Court overturned an Ohio Court of Appeals ruling that Acuity had a duty to defend under its CGL policy a now-out-of-business drug wholesaler in public nuisance suits brought by municipal governments over the opioid epidemic. Like the Rite Aid case, the Masters court found that because claims brought against Masters did not seek damages because of bodily injury, the distributor’s liability insurer had no duty to defend.

As the number of opioid claims continue to proliferate, these cases illustrate that the classification of damages sought can be dispositive in assessing whether coverage is triggered.

To learn more about this case, click here.

2. Ernst & Haas MGMT. Co. v. Hiscox, Inc.
23 F.4th 1195 (9th Cir. 2022)
United States Court of Appeals, Ninth Circuit
January 26, 2022

Does a crime insurer owe coverage for funds lost by an employee who was conned by email requests to transfer funds to fraudsters?

Yes – at least pursuant to California law. In a situation that is becoming far too common, an insured responded to fraudulent phishing emails by wiring $200,000 to the alleged con artists. The Central District Court of California dismissed the insured’s action, holding that the loss did not fall under the “Computer Fraud” or “Funds Transfer Fraud” provisions of the insured’s commercial crime policy. The Ninth Circuit overturned the Central District Court of California’s ruling, holding that (1) the insured’s loss of funds pursuant to a fraudulent email fell within the “Computer Fraud” provision of its commercial crime policy and (2) the insured’s loss fell within the “Funds Transfer Fraud” provision of its commercial crime policy.

Courts throughout the country are split on whether a willful transfer of funds—not resulting from a hacking breach of a computer system—warrants coverage under similar commercial crime policies. Many federal courts across the country, including the eleventh, second, and sixth circuits, have overwhelmingly found that such attacks were covered.¹ However, other courts, including the fifth circuit, have held for the insurer under circumstances similar to Hiscox.² While the holding in Hiscox is a win for policyholders, it is important that business owners nonetheless stay vigilant when conducting wire transactions.

To learn more about this case, click here.

3. Monroe Guar. Ins. Co. v. BITCO Gen. Ins. Corp.
640 S.W.3d 195 (Tex. 2022).
Supreme Court of Texas
February 11, 2022

Is the exception to the eight-corners rule articulated in the Fifth Circuit’s Northfield case permissible under Texas law?

Yes. Under the traditional “eight-corners rule,” Texas courts look solely to the “four-corners” of the complaint and the “four-corners” of the insurance policy in evaluating an insurer’s duty to defend. The Fifth Circuit Court of Appeals has recognized exceptions to the eight-corner rule, as exemplified in Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004). But even after the Northfield decision, the Texas Supreme Court had not recognized any exceptions that would allow for the consideration of extrinsic evidence.

In Monroe, however, the Texas Supreme Court held that courts may consider extrinsic evidence “if the underlying petition states a claim that could trigger the duty to defend, and the application of the eight-corners rule, due to a gap in the plaintiff’s pleading, is not determinative of whether coverage exists . . . provided the evidence (1) goes solely to an issue of coverage and does not overlap with the merits of liability, (2) does not contradict facts alleged in the pleading, and (3) conclusively establishes the coverage fact to be proved.” Due to the limiting language used in Monroe, it will be interesting to see whether Texas courts are reluctant to allow extrinsic evidence in future coverage actions.

To learn more about this case, click here.

4. First Solar, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA
274 A.3d 1006 (Del. 2022)
Supreme Court of Delaware
March 16, 2022

Under Delaware law interpreting a claims-made D&O policy, does the “fundamentally identical” standard apply to determine whether two underlying claims are related?

No. While a stockholder class action suit was pending against First Solar for an alleged misrepresentation, a second stockholder suit was filed by stockholders who had opted out of the first. The ensuing coverage action analyzed whether the second suit was a “related claim” with respect to the first suit.

First Solar’s D&O policy included a standard related claim provision providing that a related claim is a claim “alleging, arising out of, based upon or attributable to any facts or Wrongful Acts that are the same as or related to those that were . . . alleged in a Claim made against an insured.” In finding for the insurer, the Supreme Court of Delaware held that the language of the policy should govern and that no jurisdictions have adopted the “fundamental identity” standard “for all relatedness injuries regardless of the contractual language at issue.”

This case is a notable loss for policyholders, as Delaware has long been considered friendly to corporate insureds. While many policyholders believed that the “fundamental identity” standard of analyzing claims made policies was precedent, the First Solar court noted that the standard was “just an observation.”

To learn more about this case, click here.

5. Verveine Corp. v. Strathmore Ins. Co.
184 N.E.3d 1266 (Mass. 2022)
Supreme Judicial Court of Massachusetts
April 21, 2022

Under Massachusetts law, are economic losses arising from the COVID-19 pandemic considered “direct physical loss of or damage to” property?

No. In April, the Massachusetts Supreme Judicial Court became the first state court of last resort to analyze whether purely economic losses resulting from COVID-19 are covered under “direct physical loss of or damage to” property provisions of commercial property insurance policies. Since the beginning of the pandemic, a litany of federal courts have analyzed similar provisions. A majority of those decisions have found that neither the virus itself, nor the governmental orders restricting businesses, amounted to “physical loss of or damage to” property. Specifically, many of the federal court cases required a “physical alteration” to property to render the event insurable.

In Verveine, the Massachusetts Supreme Judicial Court found for the insurer, holding that for a loss to be categorized as a “physical loss of or damage to” property, there must be a distinct, demonstrable, physical alteration to the property. The court further held that the mere presence of the virus is not sufficient, as the virus is movable and fleeting enough to return the property to its uncontaminated state without long-term effects on the use of the property. The Verveine case is important for policyholders to note, as other state high courts may soon follow its reasoning as persuasive authority.

To learn more about this case, click here.

6. Preferred Contractors Ins. Co. v. Baker & Son Constr. Inc.
200 Wash.2d 128 (Wash. 2022)
Supreme Court of Washington
August 11, 2022

Does a claims-made CGL policy violate public policy?

Yes, according to Washington law. Baker & Son Construction worked as a sub-contractor on a project for general contractor Cox Construction. During construction in October 2019, a Baker employee allegedly caused a two-by-four to fall from a railing. The two-by-four struck Ronnie Cox, the owner of Cox Construction. Mr. Cox died that night in his sleep. Baker notified its insurance agent of the incident, but because no action had yet been brought against Baker, the insurance agent told Baker that no further action was necessary. In September 2020, Cox’s widow filed a wrongful death action against Baker.

Baker’s insurer issued manuscript CGL policies to Baker in 2019 and 2020. The policies were non-retroactive and non-prospective, which in effect limited coverage under each policy to one calendar year. Because the accident occurred in 2019 and the wrongful death suit was filed and reported in 2020, the insurer denied coverage. The insurer filed a declaratory judgment action, seeking a declaration that it had no duty to defend or indemnify Baker in the wrongful death action. The lower court then issued a certified question to the Supreme Court of Washington, asking the state’s highest court to answer whether a non-prospective and non-retroactive CGL policy requiring a loss to occur and be reported in the same year violated Washington’s public policy.

The Washington Supreme Court held that such policies were so narrow that they rendered coverage illusory. In its analysis, the court acknowledged that private contracts limiting liability are typically enforceable. In the case of contractors and subcontractors, who are required by statute to carry at least $100,000 of insurance for injury or damage to members of the public, however, the court felt that such restrictive coverage presents an undue risk to members of the public. Although claims-made CGL policies are few and far between, this case highlights that such policies may be against public policy, especially in states with minimum statutory insurance requirements for contractors.

To learn more about this case, click here.

7. N.C Farm Bureau Mut. Ins. Co., Inc. v. Carpenter
879 S.E.2d 313 (N.C. Ct. App. 2022)
Court of Appeals of North Carolina
October 18, 2022

Does a “Consumption Exception” to the Fungi or Bacteria exclusion within a CGL policy reinstate coverage for injuries related to a hot tub display?

Under North Carolina law, yes. At issue in this case was CGL coverage for a spa company for claims by individuals who contracted Legionnaires disease from a hot tub display exhibit. The case made it to the North Carolina Court of Appeals, which analyzed two issues: (1) whether the Policy’s “Fungi or Bacteria Exclusion” was triggered and (2) in the event the Fungi or Bacteria Exclusion was triggered, whether the “Consumption Exception” applied, requiring the insurer to defend the claim. The Policy excluded coverage for “bodily injury” or “property damage” caused by bacteria or fungi “on or within a building or structure . . . .” The Court held that, from a duty to defend standpoint, there was ambiguity as to whether the spa company’s hot tub display satisfied the exclusion’s “on or within a building or structure” requirement. Thus, the insurer was ordered to provide a defense to its insured . The Consumption Exception provided that, “[The Fungi or Bacteria Exclusion] does not apply to any ‘fungi’ or bacteria that are, are on, or are contained in, a good or product intended for bodily consumption.” The Court of Appeals held the hot tub was “a good or product” and that the water was “intended for bodily consumption” within the meaning of the exception. This case is a reminder that ambiguous policy language may provide unexpected paths to coverage.

To learn more about this case, click here.

8. Sportsinsurance.com, Inc. v. Hanover Ins. Co., Inc.
2022 WL 16706941 (2d Cir. 2022)
United States Court of Appeals, Second Circuit
November 4, 2022

Does a suit limitation provision bar an insured from bringing a bad faith action?

Yes, under New York law. Sportsinsurance’s commercial crime policy included a suit limitation provision that barred it from bringing a legal action against its insurer at any time beyond two years of when Sportsinsurance “discovered” a loss. In 2016, Sportsinsurance discovered that its CFO was embezzling money from the company. In 2017, Sportsinsurance submitted a claim to Hanover, which Hanover denied. In 2019, after a Canadian Court found that the CFO wrongfully misappropriated funds, Sportsinsurance submitted a second claim, which Hanover denied. The following year, Sportsinsurance sued Hanover, claiming that Hanover breached the express terms of the policy and the implied covenant of good faith and fair dealing. Sportsinsurance sought a declaratory judgment consistent with those claims.

The District Court dismissed the breach of contract claim as time-barred, but denied Hanover’s motion to dismiss the breach of the implied covenant of good faith and fair dealing and declaratory judgment claims. Under New York law, courts typically uphold suit limitation provisions so long as they are reasonable. The District Court reiterated that statutory limitation periods do not apply where policies contain “exceptionally clear language” that fix a limitation period, as was the case here.

On November 4, 2022, the Second Circuit affirmed the District Court’s holding with respect to the dismissal of the breach of contract claim, however, it reversed the District Court’s holding with respect to the breach of the implied covenant of good faith and fair dealing and declaratory judgment claims. In effect, the Second Circuit held that all claims at issue would be dismissed as time-barred. In its reasoning, the Second Circuit reiterated the two-year contractual limitation period was “fair and reasonable and thus enforceable.” The holding is an important reminder for policyholders to be cognizant of contractually-imposed limitation periods and to carefully review the particular jurisdiction’s law on this potentially dispositive issue.

To learn more about this case, click here.

9. Yahoo!, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA
519 P.3d 992 (Cal. 2022).
November 17, 2022
Supreme Court of California

Where a bargained-for CGL policy endorsement is adopted verbatim from other insurer-drafted policies, should the Court interpret unresolvable ambiguities in the insured’s favor?

Yes, under California law. In Yahoo!, Yahoo tendered claims to its commercial liability insurer, claiming it was entitled to coverage under an endorsement which provided for “personal injury” defined to include “written publication, in any matter, of material that violates a person’s right of privacy.” The issue before the court was whether a “personal injury” provision that has been modified by an endorsement with respect to advertising injuries triggers the insurer’s duty to defend a claim that the insured violated the Telephone Communication Protection Act of 1991. The California Supreme Court found that the coverage provision was ambiguous. However, because the endorsement was negotiated for, the Court had to analyze whether the ambiguity should be resolved in favor of the insurer or the insured. The Court reasoned that “the disputed coverage language under review is standard form language adopted verbatim from insurer-drafted policies. Under such circumstances, the insured — Yahoo — cannot be charged with creating the ambiguity that led to the dispute, and therefore it is appropriate for courts to interpret any unresolvable ambiguities in Yahoo!’s favor.” The provisions at issue “must be interpreted in a way that fulfills Yahoo’s objectively reasonable expectations, which must be determined in further litigation.” This case is important in highlighting potential ambiguity in CGL policy provisions, specifically those negotiated by both parties in the form of an endorsement.

To learn more about this case, click here.

10. Lionbridge Techs., LLC. v. Valley Forge Ins. Co.
53 F.4th 711 (1st Cir. 2022)
United States Court of Appeals, First Circuit
November 21, 2022

Does a CGL policy’s advertising and personal injury provision provide a defense for a trade secrets action that does not specifically plead defamation?

Yes, under Massachusetts law. This case is significant because it provides precedent for covering for claims that are not specifically pleaded, but implied. In Lionbridge, an insured language translation company sued its general liability insurer, seeking a judgment declaring that the insurer had a duty to defend it in a competitor’s trade secrets lawsuit. The court found that the policy was triggered despite the fact that the third-party in the underlying suit never actually claimed that it was defamed by the insured. The First Circuit held that "the policy's coverage for claims arising out of an oral or written publication that slanders or libels an organization creates a reasonable expectation that the policy would protect Lionbridge from a suit claiming that Lionbridge's statements caused reputational injury to [the third-party plaintiff]." The court cited language standing for the proposition that third-party complaints need not specifically and unequivocally make out a claim within coverage, but rather, need only show a possibility that the liability claim falls within the insurance coverage. This case is important, as it expands coverage for claims articulated, but not pleaded directly, in third-party suits.

To learn more about this case, click here.

Cases to Watch in 2023

1. Admiral Ins. Co., v. Tocci Bldg. Corp.
F.Supp.3d 201 (D. Mass. 2022)
United States District Court, District of Massachusetts
March 28, 2022

Under Massachusetts law, do construction defect claims against a general contractor for work performed by subcontractors qualify as “occurrences” or “accidents” resulting in property damage under the insured’s CGL policies?

The District Court of Massachusetts held that they do not, but the First Circuit will review the holding and oral argument is scheduled for January, 11, 2023. In Tocci, the insured sought defense and indemnity from its CGL insurer, Admiral, for a suit by the project owner. Admiral denied coverage, claiming that construction defect claims are not “occurrences” resulting in property damage under CGL policies, and “even if [the third-party lawsuit] had alleged that Tocci was liable for property damage caused by an occurrence, the exclusion ‘Damage to Property’ bars coverage for property damage arising out of Tocci’s operations or ‘your work.’” The District Court held that costs associated with correcting Tocci’s faulty work are not the type of loss covered by CGL policies. Specifically, the court reasoned that “faulty workmanship fails to constitute an accidental occurrence in a commercial general liability policy.” This case is important to watch in 2023, as Massachusetts rulings to date rely on outdated policy forms and remain in the minority position on these issues nationally.

2. Overstreet v. Allstate Vehicle & Prop. Ins. Co.
2022 WL 1579278 (5th Cir. 2022)
United States Court of Appeals, Fifth Circuit
May 19, 2022

Under Texas law, when does the concurrent causation doctrine apply and how are losses allocated between covered and uncovered damages?

The Texas Supreme Court is expected to answer this question in 2023. In Overstreet, the insured alleged that a leaky roof in his home was caused by a strong hailstorm that hit his neighborhood shortly after he purchased his property policy. Allstate “argues that almost all the roof damage was due to uncovered causes, namely a combination of wear and tear and earlier hailstorms that hit the roof before [the insured] purchased the policy.” The District Court granted summary judgment to Allstate because the insured did not prove what damages were solely attributed to the covered storm. On appeal, The Fifth Circuit certified three questions to the TX Supreme Court: (1) Does the concurrent cause doctrine apply when non-covered damage (such as wear and tear) does not directly cause the claimed loss; (2) if so, do plaintiffs have to allocate their losses between the covered peril and non-covered perils that plaintiffs contend did not cause the particular loss; and (3) if so, whether plaintiffs can meet that burden with evidence indicating that 100% of the loss is attributable to the covered peril. This case is important for policyholders to follow, as the Texas Supreme Court’s certified answers may elucidate the application of the concurrent causation doctrine for future cases.

3. American Nat’l Ins. Co. v. Bertha Arce
No. 21-0843 ( Tex. 2022)
Supreme Court of Texas
November 18, 2022

Under Texas law, where an insured allegedly made misrepresentations while applying for a life insurance policy, must an insurer prove the insured intended to deceive in its application in order to rescind the policy?

While the Seventh Court of Appeals analyzed the alleged misrepresentation under common law elements of intent-to-deceive, the Texas Supreme Court will decide whether the issue is more appropriately adjudicated by the Texas Insurance Code. Specifically, the Texas Supreme Court will review whether insurers seeking to rescind a policy based on a material misrepresentation must prove the insured’s intent to deceive under the state’s insurance code. In its petition for review, American National argued that Texas Insurance Code Section 705.051 includes “no requirement for an insurer to prove the insured intended to deceive when the misrepresentation was made in order to prevail.” Depending on how this case unfolds, the Texas Supreme Court will provide further guidance in circumstances involving an insurer’s attempt to rescind a life insurance policy.

Thank you for reading SDV’s “Top 10 Insurance Cases of 2022.” As you can see, policyholders continue to face litigation and uncertainty arising out of a variety of different policy forms and factual circumstances. If you have an existing coverage concern—or if you’d like to take proactive measures in mitigating your risk exposure—Saxe Doernberger & Vita, P.C. can help.

For more information or questions, contact Jeffrey J. Vita at JVita@sdvlaw.com, Grace V. Hebbel at GHebbel@sdvlaw.com or Michael A. Amato at MAmato@sdvlaw.com.

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¹See Principle Solutions Grp., LLC v. Ironshore Indem., Inc., 944 F.3d 886 (11th Cir. 2019); Mediadata Solutions, Inc. v. Fed, Ins. Co., 728 Fed. App’x 117 (2d Cir. 2018); and American Tolling Ctr., Inc. v. Travelers Cas. & Surety Co. of Am., 895 F.3d 455 (6th Cir. 2018).
²See InComm Holdings, Inc. v. Great Am. Ins. Co., 2017 WL 1021749 (N.D. Ga. 2017), aff’d sub nom., 731 F. App’x 929 (11th Cir.); Mississippi Silicon Holdings, LLC. V. Axis Ins. Co., 440 F. Supp. 3d 575 (N.D. Miss. 2020), aff’d sub nom., 843 F. App’x 581 (5th Cir. 2021); Sanderina, LLC. V. Great Am. Ins. Co., 2019 WL 4307854 (D. Nev. 2019).