Federal and state courts tackled a myriad of interesting insurance-related issues this past year. The U.S. Supreme Court also surprisingly addressed coverage issues in 2024, in not one—but two—decisions. It is rare for the Supreme Court to confront insurance coverage issues which usually involve matters of state law. The highest court’s assessment of the nuances of insurance to resolve maritime choice of law issues and interpret an insurer’s role in bankruptcy proceedings is indicative of the significant role that insurance coverage plays in resolving commercial disputes.
Additionally, 2024 included a pivotal opinion from the 5th Circuit, which welcomed the principle that negligent construction can constitute “property damage” under a CGL policy if it causes a harmful change to the property. Elsewhere in the country, the Hawaii Supreme Court ruled that reckless conduct can qualify as an “accident” under a CGL policy’s definition of “occurrence”; however, the court simultaneously ruled that greenhouse gases fall within the scope of “pollutants” under the policy’s pollution exclusion. Cyber coverage decisions were also prominent, and the 5th Circuit chimed in with an interesting decision interpreting the scope of coverage afforded under a “system failure” provision. These decisions represent a mere sampling of the multitude of insurance issues courts nationwide have grappled with in 2024.
We now proudly unveil the Top 10 most influential coverage decisions of 2024 and look ahead to a few cases to watch as 2025 unfolds.
Case Number 1:
Southwest Airlines Co. v. Liberty Ins. Underwriters, Inc.
90 F.4th 874 (5th Cir. 2024)
United States Court of Appeals, Fifth Circuit
January 16, 2024
Are losses incurred as a result of an airline’s business decisions to mitigate damages due to a computer disruption covered under a cyber insurance policy’s System Failure clause?
Yes, under Texas law.
The court held that losses incurred from the insured’s business decisions made to mitigate damages are covered under a cyber insurance policy, provided they are directly linked to the computer system failure and are part of a mitigation effort.
In 2016, Southwest Airlines suffered a computer system failure, resulting in a three-day disruption of its flight schedule. Southwest sought to recover over $77 million in losses under its cyber risk policy, which included “System Failure Coverage” that provided the insurer would pay “all Loss…that an Insured incurs…solely as a result of a System Failure.” While the primary insurer and first three tiers of excess insurers paid $50 million, Liberty, the fourth-tier excess insurer, denied coverage. Liberty argued that the losses, including discount codes, travel vouchers, reimbursements, airline points, and advertising costs, were not covered because they stemmed from Southwest’s business decisions, not directly from the system failure.
The Fifth Circuit held that the losses were covered under the “System Failure Coverage” provision, rejecting Liberty’s contrary argument that Southwest’s business decisions were the main cause of the losses. The court explained that these business decisions can only be deemed the sole cause of loss if they were the precipitating cause of the costs incurred and not merely a part of the causal chain, that stemmed from the system failure. The court also found that Liberty’s interpretation of the “consequential damages” exclusion was overly restrictive, concluding that limiting coverage to only direct and immediate damages would render much of the policy’s protection illusory. The Fifth Circuit ultimately remanded the case to determine the sole cause of the loss.
This decision is important for policyholders as it considers cyber coverage to include first-party business income losses related to mitigation costs. It also emphasizes the need for policyholders to carefully document their mitigation efforts to establish a causal link between their actions and the system failure, ensuring that their claims are supported.
Case Number 2:
Great Lakes Ins. SE v. Raiders Retreat Realty Co.
601 U.S. 65 (2024)
Supreme Court of the United States
February 21, 2024
Are choice-of-law provisions in maritime insurance contracts presumptively enforceable under federal law?
Yes, according to the U.S. Supreme Court.
The Supreme Court upheld long-standing precedent, confirming that choice-of-law provisions in maritime contracts are presumptively enforceable under federal law (with limited exceptions) as they promote efficiency and certainty in maritime commerce.
In Great Lakes, the insured filed counterclaims under Pennsylvania law after its boat ran aground, despite the policy’s choice-of-law provision specifying New York law. The Court upheld the enforceability of the choice-of-law provision, noting that such provisions, like forum selection clauses, promote efficiency and certainty in maritime commerce by minimizing uncertainty about the applicable legal framework or venue for disputes. The Court also declined to create a new exception for cases where the law of the forum state conflicts with the law designated in the contract, emphasizing that such a rule would undermine the predictability and uniformity essential to maritime law.
This ruling highlights the importance for policyholders to negotiate choice-of-law provisions in maritime insurance contracts before entering into agreements, to ensure that disputes are governed by their preferred legal jurisdiction. It also serves as a reminder to review existing maritime contracts to identify any choice-of-law provisions in the event of a dispute.
Case Number 3:
Daileader v. Certain Underwriters at Lloyds London Syndicate 1861
96 F.4th 351
United States Court of Appeals, Second Circuit
March 18, 2024
- Do allegations that an insurer impaired its insured’s claims by denying coverage require a higher standard for a mandatory injunction?
- Does a Bankruptcy/Insolvency Exclusion in a D&O policy preclude defense costs for a director in an adversary proceeding?
Under New York law, the Second Circuit Court answered both questions affirmatively.
In Daileader, three healthcare companies (collectively “Oaktree”) faced financial trouble and filed for Chapter 7 bankruptcy. The Chapter 7 Trustee accused Daileader, who had been appointed as Oaktree’s independent director, of breaching fiduciary duties and initiated adversary proceedings against him. Daileader sought coverage for his defense under Oaktree’s Directors & Officers (“D&O”) insurance, which included a $1 million primary policy and $9 million in excess coverage. While the primary insurer covered the defense, Syndicate 1861, the first-tier excess insurer, denied coverage based upon a Bankruptcy/Insolvency Exclusion. Daileader sought a preliminary injunction to compel Syndicate 1861 to cover his defense costs.
The court ruled that mandatory injunctions, which compel action, require a higher standard than prohibitory injunctions, which only prevent actions. The court emphasized the need for a strong showing of both irreparable harm and likelihood of success. The director failed to show irreparable harm, which the court deemed essential for granting a preliminary injunction.
The second issue the court addressed was whether the Bankruptcy/Insolvency Exclusion applied to the adversary proceeding. The Exclusion applied to any claims against Daileader arising from a wrongful act alleged to have contributed to Oaktree’s bankruptcy. Daileader argued that if any of the trustee’s claims were covered, the insurer had a duty to defend all of them. The insurer countered that if any claim was excluded, it had no duty to defend. The court sided with the insurer, stating that the policy defined “Claim” as a civil proceeding, not just a cause of action. Since the adversary proceeding stemmed from conduct excluded by the policy, the court concluded that the exclusion applied.
This case highlights the significance of understanding policy exclusions, especially regarding bankruptcy or insolvency, as they can severely limit or exclude coverage. Also, policyholders may face challenges when seeking a court order to compel insurers to pay, as the standard for obtaining an injunction is higher in these situations.
Case Number 4:
Truck Ins. Exch. v. Kaiser Gypsum Co., Inc.
602 U.S. 268 (2024)
Supreme Court of the United States
March 19, 2024
In a Chapter 11 bankruptcy case, is an insurer a “party in interest” and thus entitled to the right to be heard regarding a debtor’s reorganization plan?
Yes, according to the U.S. Supreme Court.
The Supreme Court unanimously held that an insurer with financial responsibility for bankruptcy claims qualifies as a “party in interest” and is entitled to participate in the proceedings, including but not limited to, the bankrupt organization’s proposed reorganization plan.
In Truck Ins. Exch., Kaiser and Hanson Cement, as Chapter 11 debtors, proposed a reorganization plan that created a trust for asbestos-related claims. Truck Insurance Exchange opposed the plan, which allowed the trust to resolve claims without the insurer’s involvement, potentially exposing the insurer to substantial and fraudulent liabilities. While the district court and the Fourth Circuit upheld the plan, invoking the “insurance neutrality” doctrine, which limits insurer objections unless the reorganization plan increases its obligations or impairs its policy rights, the Supreme Court held that Truck’s financial responsibility for bankruptcy claims, and potential exposure to fraudulent made against it, render Truck a “party in interest” entitled to be heard. The Court also rejected the insurance neutrality doctrine, finding it conceptually flawed for narrowly focusing on whether a plan directly alters an insurer’s contract rights or liabilities, while ignoring broader impacts upon insurers.
This case is a rare instance of the Supreme Court addressing insurance-related matters. By broadly defining “party in interest” to include liability insurers, the Court expands insurers’ procedural rights and ability to participate in bankruptcy cases. Thus, insured businesses considering Chapter 11 bankruptcy should consider engaging with their insurers early to avoid resistance and prolonged litigation over reorganization plans.
Case Number 5:
New York City Hous. Auth. v. Harleysville Worcester Ins. Co.
226 A.D.3d 804
Supreme Court, Appellate Division, Second Department, New York
April 10, 2024
Is a subcontract requiring a party to be included as an additional insured on the subcontractor’s insurance, sufficient to trigger a coverage obligation without contractual privity between the relevant parties?
No, under New York law.
The Supreme Court, Appellate Division, held that in order to obtain additional insured status, there must be a direct contractual relationship between the named insured and the party seeking coverage, regardless of any references to coverage in a subcontract.
In Harleysville, a general contractor of a construction project and several non-contractor parties sought insurance coverage and a defense under a commercial general liability policy issued to a project subcontractor in connection with an underlying personal injury lawsuit. This request was based on a subcontract agreement, wherein the subcontractor agreed to indemnify and insure the general contractor and the non-contractor parties and to name each of them as additional insureds under its commercial general liability insurance policy.
The appellate court found that the subcontractor’s insurer was not obligated to defend or indemnify the non-contractor plaintiffs because they were not additional insureds as defined by the policy. Although the policy included an endorsement granting additional insured status to entities for whom the subcontractor was performing operations, the court determined that this provision required privity of contract between the named insured and the parties seeking additional insured status. Since only the general contractor had a direct contract with the subcontractor, it was the only party deemed to be entitled to additional insured status under the policy, despite the subcontractor’s agreement with the general contractor to provide such coverage for other entities.
This case highlights the importance of owners and all downstream parties to carefully review and understand the policy requirements for additional insured coverage. Not all additional insured endorsements require privity of contract with the named insured. When privity of contract is required, those parties seeking additional insured coverage should ensure that a written agreement is in place with the named insured. Alternatively, those parties may choose to pursue their contractual indemnity rights or increase their own policy’s limits to better protect themselves from liability.
You can click here to read SDV’s full analysis on this case and its implications in the article authored by Nina Catanzaro and Bethany Barrese.
Case Number 6:
Dexon Computer, Inc. v. Travelers Prop. Cas. Co. of Am.
101 F.4th 969 (8th Cir. 2024)
The United States Court of Appeals, Eighth Circuit
May 20, 2024
Does a “related acts” provision in a liability policy covering trademark infringement relieve an insurer of its duty to defend if some infringing acts occurred before the policy’s Retroactive Date?
No, not under Minnesota law.
While a “related acts” provision limits coverage by excluding acts that occurred before the retroactive date or those connected to acts before it, the insurer still has a duty to defend if any act, even as part of a series, is arguably within the scope of coverage.
Dexon Computer Inc. sought defense from its liability insurer, Travelers, after another entity, Cisco, sued for trademark infringement. Travelers invoked the policy’s “related acts” provision, which treats related acts as occurring on the date of the first act in the series, thus arguing that the infringing acts involved conduct that occurred before the policy’s retroactive date of May 18, 2019, excluding coverage. The district court interpreted “related” narrowly, focusing on whether the acts before the Retroactive Date were closely linked to those during the covered period, and found that not all alleged acts of infringement were necessarily related to prior acts, meaning some claims could still be covered.
The Eighth Circuit affirmed, ruling that an insurer’s duty to defend arises if any part of a claim is arguably within the scope of coverage. Accordingly, so long as one post-Retroactive Date act is arguably unrelated to pre-Retroactive Date acts, Travelers owes Dexon a defense. The court found that Dexon met this burden, triggering Travelers’ duty to defend, but clarified that this ruling did not address the issue of indemnification.
This decision ensures that insurers must defend a claim if any part is arguably within the policy’s coverage, even if some acts occurred before the Retroactive Date. It protects policyholders by discouraging insurers from denying defense based solely on “related acts” provisions.
Case Number 7:
Truck Ins. Exch. v. Kaiser Cement
549 P.3d 781 (Cal. 2024)
California Supreme Court
June 17, 2024
Do the indemnity obligations of first-level excess insurers attach immediately upon the exhaustion of the underlying primary policy, in cases of continuous injury spanning multiple policy periods?
Yes, under California law.
In cases of progressive loss, spanning multiple policy periods, insureds can access excess policy limits immediately upon the exhaustion of an underlying primary policy for the same policy period, without first needing to exhaust all triggered primary policies covering other policy periods.
Kaiser Cement and Gypsum Corporation manufactured asbestos-containing products over a 30-year period, leading to thousands of lawsuits. Several primary policies were triggered and exhausted, except for one Truck Insurance primary policy. Truck Insurance sought contribution from excess carriers, who argued that they were not obligated to pay until the Truck policy was exhausted. The Court of Appeals agreed, finding that Truck Insurance was not entitled to contribution from the first-layer excess insurers because without Kaiser’s complete exhaustion of all primary policies on the risk—which included the Truck Insurance primary policy limits–coverage under the excess policies was not triggered.
In reversing the Court of Appeal decision, the California Supreme Court held that, under standard “other insurance” language in the applicable policies, “vertical exhaustion” principles apply, meaning that excess insurers are required to provide coverage immediately upon the exhaustion of a primary policy, insuring the same policy period, that sits directly below the excess carrier’s coverage. The court clarified that “other insurance” provisions apply only to policies with lower attachment points within the same policy period and emphasized that an adoption of horizontal exhaustion could lead to more coverage disputes due to different terms in policies from different years.
The court’s adoption of the “vertical exhaustion” standard is a significant victory for policyholders as it embraced policy “stacking”, whereby policies affording coverage during the period of continuous damage may be added together so that the maximum limits of all consecutive policies in place during the period of injury or damage are accessed, notwithstanding the fact that some primary policies on the risk may be unexhausted. The ruling affirms policyholders’ discretion to pursue excess coverage, including those spanning successive periods, to maximize insurance recovery.
You can click here to read SDV’s full analysis of this case and its implications in the article authored by Will Bennett.
Case Number 8:
Lessard v. R.C. Havens & Sons, Inc.
241 N.E.3d 744 (Mass. App. 2024), review denied, 244 N.E.3d 1006 (Mass. 2024)
Massachusetts Court of Appeals
August 14, 2024
Are the costs of repairing or removing construction defects recoverable as “property damage” under a commercial general liability policy?
No, not under Massachusetts law.
In a case of first impression, the Appeals Court of Massachusetts held that the costs to repair or remove construction defects are not covered under CGL policies because “property damage” requires property to have been in good initial condition.
In Lessard, homeowners brought a claim against their contractor, R.C. Havens & Sons, for construction defects and were awarded $270,000 in damages. The contractor’s insurer refused to provide indemnity, arguing that construction defects alone do not constitute “property damage.” The trial court ruled in favor of the insurer, and the homeowners appealed.
The Court of Appeals affirmed the judgment, defining “property damage” as “physical injury,” implying that “injury” requires the property to be initially in proper condition and then later damaged, not defective from the start. This is distinguishable from claims for the cost of repairing or removing damage caused by construction defects, which may constitute property damage. The court noted that this interpretation aligns with the purpose of general liability policies, which cover physical damage, not economic losses.
This case underscores the importance for insureds to secure coverage for construction defect claims through policy endorsements or contract provisions. Relatedly, knowledge of the applicable choice of law can help policyholders prevent uninsured losses.
Case Number 9:
TIG Ins. Co. v. Woodsboro Farmers Coop.
117 F.4th 715 (5th Cir. 2024)
The United States Court of Appeals, Fifth Circuit
September 20, 2024
Can physical damage caused by negligent construction qualify as “property damage” under a CGL policy?
Yes, under Texas law.
The Fifth Circuit held that negligent construction can constitute “property damage” under a commercial general liability (“CGL”) policy if it causes a harmful change to the property, such as damage that renders the property unusable.
Woodsboro Farmers Cooperative contracted with E.F. Erwin to construct grain silos, but poor workmanship by a subcontractor and exposure to weather rendered the silos unusable, requiring costly reconstruction. Woodsboro sued the subcontractor, and an arbitration panel awarded $988,000 in damages. Erwin’s general liability insurance provider, TIG, sought a declaratory judgment that it had no duty to defend or indemnify, and the court ruled in TIG’s favor. The district court found in favor of TIG, concluding that there was no covered “property damage,” only defective construction. Woodsboro appealed, arguing that the district court erred in its finding no “property damage.”
The Fifth Circuit disagreed with the district court’s narrow analysis and instead reasoned that the poor construction not only made the silos defective but also exposed them to weather, which caused physical damage. The damage went beyond mere defective construction, constituting “a harmful change in appearance, shape, composition, or other physical dimension” to the property. The court further found that genuine issues of material fact remained, reversing the district court’s summary judgment in favor of TIG and remanding the case for additional review.
For policyholders, this decision clarifies that negligent construction leading to actual physical damage is covered under a CGL policy, even if the initial defects stemmed from poor workmanship.
Case Number 10:
Aloha Petroleum, Ltd. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA
557 P.3d 837 (Haw. 2024)
Supreme Court of Hawaii
October 7, 2024
- Can recklessness qualify as an “accident” under a commercial general liability (“CGL”) policy’s definition of “occurrence”?
- Are greenhouse gases considered “pollutants” under a CGL policy’s pollution exclusion?
The Hawaii Supreme Court answered both questions in the affirmative.
The court held that an “accident” under a CGL policy includes reckless conduct, provided that the harm in question was not “practically certain” to occur. It also ruled that greenhouse gases qualify as “pollutants” under the policy’s Pollution Exclusion due to their environmental damage.
Aloha Petroleum and other oil companies were sued for allegedly failing to warn consumers about the environmental risks of fossil fuels and their contribution to climate change through greenhouse gas emissions. Aloha sought defense under its CGL policies, but the insurers denied coverage, arguing that the harm was foreseeable and thus not an “accident” and that greenhouse gases were pollutants excluded under the policy.
The court held that “accident” under a CGL policy includes reckless conduct, provided the harm was not “practically certain” to occur. Only harm that is certain or intentional falls outside the definition of an “occurrence.” This aligns with the principle of fortuity, covering risks that are not inevitable. However, the court also determined that greenhouse gas emissions qualify as a “contaminant” and thus a “pollutant” insofar as they cause environmental damage. Products like fossil fuels, which harm the environment when used, thus fall within a GGL policy’s Pollution Exclusion.
This decision is helpful to policyholders in Hawaii by recognizing reckless conduct as an “accident” under CGL policies. However, policyholders in industries involving products like fossil fuels may face exclusions for resulting environmental damage. Therefore, such policyholders should consider additional lines of coverage to address any potential gaps in their CGL policies.
Honorable Mention Case from 2024:
North State Deli LLC et al. v. Cincinnati Ins. Co. et al.
No. 225PA21-2, 2024 WL 5100978 (N.C. 2024)
Supreme Court of North Carolina
December 13, 2024
Does a government order mandating the closure of businesses during the COVID-19 pandemic constitute a “direct physical loss” under an all-risk commercial property insurance policy?
Yes, under North Carolina law.
The North Carolina Supreme Court held that the insuring phrase “direct physical loss” could reasonably include the loss of a property’s use for its insured purpose as such interpretation is consistent with the reasonable expectations of policyholders.
In North State Deli LLC, a North Carolina restaurant sought coverage under its “all-risk” commercial property insurance for business interruption losses sustained during government-mandated COVID-19 closures.
The court held that the phrase “direct physical loss” can include both complete destruction and broader forms of dispossession, deprivation, or impairment of use, such as temporary government-mandated closures. This aligns with a reasonable policyholder’s interpretation of the phrase to encompass temporary loss of use or access, even without physical harm to the property. The court also emphasized that the absence of virus exclusions in the policy supported the insureds’ belief that their losses were covered.
This ruling is a significant victory for policyholders still recovering from the economic hardships caused by the COVID-19 pandemic. Unlike many other state high courts that sided with insurers in similar business interruption cases, the North Carolina Supreme Court’s decision is a rare victory for policyholders and clarifies that insurance policies in North Carolina can cover losses from pandemic-related business interruptions.
CASES TO WATCH OUT FOR IN 2025:
Case Number 1:
Jane Doe v. The Church of Jesus Christ of Latter-Day Saints
723 F. Supp. 3d 451 (D. Md. 2024)
United States District Court, District of Maryland
March 18, 2024
Is Maryland’s Child Victims Act (CVA) constitutional?
The United States District Court for the District of Maryland certified this question to the Maryland Supreme Court to answer in 2025.
The CVA provides that, effective October 1, 2023, “an action for damages arising out of an alleged incident or incidents of sexual abuse that occurred while the victim was a minor may be filed at any time,” notwithstanding any statute of limitations, statute of repose, or any other law, provided that the plaintiff is still alive at the time the lawsuit is filed.
While the primary focus of the case is the constitutionality of the CVA, there are significant insurance implications. In response to hundreds of sexual assault claims under the CVA filed against the Catholic Archdiocese, the Archdiocese filed for bankruptcy and sought assistance from insurers to cover the claims. Insurers contend that if the CVA is deemed unconstitutional, the bankruptcy proceedings will be voided, absolving the Archdiocese of liability and relieving insurers of their duty to cover these claims.
The Maryland Supreme Court’s decision on the CVA’s constitutionality will significantly impact insurance coverage for sexual abuse claims. If upheld, delayed claims may proceed, increasing insurers’ exposure. If deemed unconstitutional, the Archdiocese’s bankruptcy could be reversed, and insurers may avoid increased liability.
Case Number 2:
Hairston v. Josh LKU
No. 363030
State of Michigan Court of Appeals
November 21, 2023
Can a judgment creditor use writs of garnishment to pursue an insurer for alleged bad faith refusal to settle, when that bad faith claim has not yet been litigated or reduced to judgment?
The Michigan Supreme Court will answer this question in 2025. This case stems from a general liability insurance coverage dispute where the judgment creditor sought to recover from the debtor’s liability insurers through writs of garnishment. The creditor’s claim was based on an alleged bad-faith refusal by the insurers to settle the claim. The creditor had an assigned claim for bad faith, but the trial court quashed the writs of garnishment. The creditor appealed the decision, which centered on whether such a claim could be litigated within a garnishment proceeding without first being adjudicated in a separate lawsuit.
The appellate court reversed the trial court’s decision to quash the writs of garnishment, ruling that a bad-faith refusal to settle claim can be litigated within a garnishment proceeding and the validity of the assignment and the claim’s collectability can be addressed in that context. The court found that the trial court had incorrectly interpreted Michigan’s court rules and overlooked binding precedent.
The Michigan Supreme Court’s forthcoming decision will be crucial in determining how bad-faith insurance claims are addressed within garnishment proceedings. It will clarify the extent to which such claims can be litigated within the garnishment process, shaping the future handling of these types of disputes.
CONCLUSION
Thank you for reading SDV’s “Top 10 Insurance Cases of 2024.” As you can see, policyholders continue to face litigation and uncertainty arising from various 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. may be able to help.
For more information or questions, contact Jeffrey J. Vita at JVita@sdvlaw.com, or Michelle A. Grieco at MGrieco@sdvlaw.com.
*SDV extends special thanks to David G. Jordan, who assisted in the quality control of the final draft. SDV also extends special thanks to Kiley Stackpole and Jacquelyn Matthews, two Law Clerks who played a vital role in the research and production of this article.