Kerman’s Korner: When You’re Lost, Phone a Friend

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Walker Wilcox Matousek LLP is pleased to announce Kerman’s Korner, an audio-blog that will feature a series of story-driven, tips, thoughts, and lessons that Jeremy Kerman and the team at WWM have learned over the years.  The firm hopes that this will be a unique, informative, and entertaining way for us to facilitate discussion and debate on some of the recurring and emerging issues that we all face as we work on our various claims and cases together.

In the debut of Kerman’s Korner, Jeremy shares a practice tip for insurance claims that he learned after getting lost in Ireland.  Click here for audio.

Illinois Appellate Court Issues Favorable Ruling on Anti-Concurrent Cause Language

Bozek v. Erie Insurance Group

2015 IL App (2d) 150155

By: David E. Walker, Robert P. Arnold and Kristine M. Sorenson

On December 17, 2015 the Illinois Second District Appellate Court handed down a ruling applying Anti-Concurrent Causation (ACC) language in a first-party property policy to preclude coverage as a matter of law.  The decision is the first published Illinois appellate court ruling that squarely addresses application of ACC language, and the Court’s decision heavily favors the insurance industry.

The case of Bozek v. Erie Insurance Group, 2015 IL App (2d) 150155, involved damage to the insureds’ empty swimming pool following several days of heavy rains.  The rains created substantial hydrostatic pressure in the soils.  Pressure relief valves in the pool system, designed to counteract the uplift forces caused by the pressure, failed to work properly.  As a result, the pool itself uplifted causing a total loss.  The hydrostatic pressure in the soils also caused damage to the concrete pad surrounding the pool.

The insureds tendered the loss to Erie Insurance, their homeowners insurer. Erie retained Engineering Systems, Inc. (ESI) who concluded “the pool lifted upward because the ground water pressure pushed the pool upward because the pressure relief did not function properly.”  Erie then denied coverage, citing exclusions barring coverage for:

  • loss by “pressure or weight of water or ice, whether driven by wind or not, to a … swimming pool”;
  • loss by mechanical breakdown; and,
  • loss “by water damage, meaning: water below the surface on the ground.  This includes water which exerts pressure on, or flows seeps or leaks through any part of a building or other structure, including sidewalks, driveways, foundations, pavements, patios, swimming pools or decks.”

Critically, all of the foregoing exclusions were prefaced by the following ACC language:  “We do not pay for loss resulting directly or indirectly from any of the following, even if other events or happenings contributed concurrently, or in sequence, to the loss”.

The insureds filed a declaratory judgment lawsuit in the Circuit Court of McHenry County, Illinois against Erie, and the parties ultimately filed cross motions for summary judgment.  The insureds conceded that loss caused by “pressure…of water” was excluded, but argued that Erie had not established that loss by failure of the pressure relief valves was an excluded “mechanical breakdown.”  As such, they argued that the failure of the valve (a covered event) preceded the increase in pressure (an excluded event).  In their view, the phrase “in sequence to” in the ACC provision meant “subsequent to,” such that the ACC language would preclude coverage only where the excluded cause precedes the covered cause.  The insureds argued that, because the excluded hydrostatic pressure came after the failure of the valve, the ACC language did not apply and the claim was covered.

Erie argued that “in sequence to” meant “one after the other” and that the ACC language did not specify in which order the excluded cause must occur.  Erie also argued that the ACC language precludes coverage where an excluded cause happened in any sequence within the causation chain.

The Circuit Court adopted Erie’s interpretation of the ACC language and rendered judgment in Erie’s favor.  The insureds appealed to the Second District Appellate Court.

The Appellate Court affirmed, finding that the ACC clause barred coverage as a matter of law where the uplift of the pool resulted from the “convergence of two causes”, at least one of which was excluded, that “contributed concurrently” to the loss.

In reaching its decision, the Appellate Court first discussed the history of causation decisions in the first party property context and the varying causation rules that U.S. jurisdictions have implemented.  It then noted that ACC clauses were employed in response to concurrent-causation controversies and were intended to avoid application of rules that coverage applies whenever a covered cause is an “efficient” or “dominant” cause of the loss.

The Appellate Court found that a concurrent cause or event exists when two perils converge at the same point in time and operating in conjunction.  The Court focused on the point in time when the cause contributes to the loss, not the point in time when the cause of loss comes into existence.  For purposes of the insureds’ claim, the Court concluded that, because uplifting of the pool took place due to “concurrent” interaction of the hydrostatic pressure and the failure of the relief valves, the loss was indeed excluded.

Lastly, after examining two Mississippi Supreme Court ACC cases arising out of Hurricane Katrina, the Appellate Court noted that the two causes at issue, hydrostatic pressure and relief valve failure, did not lead to two separate losses as in the Mississippi cases.  Rather, the sole loss in the insureds’ claim was the uplifting of the pool and damage to the pool’s concrete pad, both of which were caused by a convergence of the hydrostatic pressure and failure of the relief valve.  The Appellate Court concluded that adoption of the insureds’ argument would be an ongoing implementation of Illinois’ “efficient proximate cause” doctrine, which the ACC clause was designed to avoid.

In a last ditch effort, the insureds argued that ACC clauses violated Illinois public policy and were unenforceable.  The Appellate Court first noted that only a minority of U.S. courts had adopted that argument but ultimately declined to rule on the issue because the insureds had waived the argument by failing adequately to brief it.  The tenor of the Court’s discussion, however, suggested it was not inclined to endorse the public policy argument.

In summary, the Appellate Court’s decision is a well-reasoned, thorough discussion of the ACC clause and should serve as persuasive precedent to other courts applying Illinois law.  This decision now provides insurers with appellate court precedent in Illinois to support a broad application of ACC language where the evidence adduced during the adjustment of the loss establishes that the actual loss the Insured suffered was caused by the convergence of multiple causative events in any sequence, at least one of which is an excluded cause.

Click here for PDF of Client Alert.

U.S. Senate Passes Cyber Information Sharing Act of 2015

By: Celeste M. King

On October 27, 2015 the U.S Senate passed by a vote of 74-21 the Cyber Information Sharing Act of 2015 (CISA).   The bill allows government agencies and businesses to share information about cybersecurity threats with one another.  The shared information is supposed to consist of “threat indicators” such as technical information about the type of malware used or how hackers cover their tracks once they penetrate a system.   Bill sponsors say that shared information will help organizations better understand the source and type of attacks and therefore be better able to anticipate and defend against cyber attacks.

Companies are encouraged but not required to share information on cyber threats with the Department of Homeland Security, which then shares information with other companies and government agencies.  The House approach could permit businesses to directly share information with other government agencies.  The Senate bill requires companies and the DHS to scrub individual’s personal information from the shared data.  Participating companies are granted immunity for civil lawsuits brought by customers who sue for sharing private data.

The Senate bill was co-sponsored by Senate Intelligence Chair Richard Burr (R-North Carolina) and Vice Chair Sen. Diane Feinstein (D-California).  Although supported by the White House and a wide range of business groups, the Senate bill was opposed by some legislators and technology companies such as Facebook, Google, Apple and Yahoo on grounds it provides too much data to government agencies without offering privacy protections for US citizens.   

Senate bill 754 must be reconciled with similar legislation passed by the House of Representatives last April.  A House-Senate agreement is not expected until after January 1, 2016.  Once signed into law by President Obama, the U.S. Attorney General has 180 days to finalize a plan for collecting and disseminating cyber threat data.

A PDF version of the 118-page bill can be found here.

Celeste King Authors Article for Financier Worldwide Magazine

Celeste M. King a founding partner in WWM’s Chicago office authored “Effective cyber security to combat crime and protect data” in the September issue of Financier Worldwide. The article discusses how companies can keep data secure and some of the meaningful and low-cost ways a company can reduce the likelihood and severity of cyber breaches.

To read the full article, please click here.

Jeremy Kerman Authors Article for June Issue of PLUS Journal

Jeremy D. Kerman an associate in WWM’s Chicago office authored “The Price Of Cooperation: Do Multiple Insurers Have To Share One Deductible?,” in the June issue of the Professional Liability Underwriting Society’s Journal. The article discusses the situation where the “Other Insurance” clauses in two or more insurance policies cancel each other out such that the insurers share in the costs of defending or indemnifying an insured who makes a claim under both policies, or when an incident triggers multiple policies.

To read the full article, please visit the PLUS website.

New Illinois Settlement Payment Deadlines Effective January 1, 2014

By:        Jill A. O’Donovan

This week, the Illinois Governor signed into law a bill providing specific deadlines affecting settlements in certain cases unless otherwise agreed by the parties.

Beginning January 1, 2014, defendants in personal injury, property damage, wrongful death and tort actions must provide a release to the plaintiff within 14 days of written confirmation of an agreement to settle.  The settling defendant must then pay the full settlement amount within 30 days after the plaintiff provides an executed release and any other documents required of the plaintiff to effect the settlement.  If a court finds that the defendant did not make timely payment, the court will enter judgment against the defendant for the amount of the release plus costs and interest.

As noted, the law only applies to “personal injury, property damage, wrongful death, and tort actions involving a claim for money damages.”  However, the law does not apply to class actions, state or local governments, certain State agencies and State employees.  Notably, as currently drafted, the law allows for the parties to specifically agree to opt out of the requirements of the Act.

For the full text of the Act, see:  http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=098-0548

Click here for PDF.

Follow the Money: No Homeowners Coverage for Employee Sued Individually for Data Theft

The Seventh Circuit Court of Appeals ruled on January 11, 2013 that there is no coverage under a homeowner’s policy for an employee of an accounting firm who had a CD stolen from her car. The CD contained financial information and other PII of 30,000 members of a pension fund and client of the accounting firm. The pension fund incurred more than $200,000 for credit monitoring and related mitigation expenses. It sued the accounting firm but also named the employee individually for negligently safeguarding the data. The employee tendered the claim to her homeowner insurer, Nationwide Insurance, which denied coverage on grounds that the policy excludes coverage for (i) damage to property “in the care of” the insured and (ii) a claim arising out of or related to a “business” engaged in by the insured. Applying Illinois law, the Court of Appeals affirmed the finding of no coverage based upon the two policy exclusions. Continue reading

Off to a Fast Start

In addition to the near-daily reports of more breaches, new laws and controversial workplace privacy issues, there have been 3 significant developments involving cyber and privacy already in 2013.

1. On January 17, 2013 the Department of Health and Human Services released its final “omnibus” rule in relation to HIPAA, effective March 26, 2013. The sweeping rule implements privacy regulations, increases penalties for HITECH violations, modifies breach notification rules, restricts disclosure of genetic information and expands the definition and responsibilities of business associates. Continue reading

WWM Case Alert: MN Supreme Court Restricts Scope Of AI Coverage

Joyce F. Noyes

Engineering & Constructions Innovations v. L.H. Bolduc & Travelers Indem. Co. (Minn. Jan. 23, 2013)

CGL insurers will take interest in a recent decision by the Minnesota Supreme Court, in which the Court held that a contractor did not qualify for additional insured (AI) coverage under its subcontractor’s policy and the subcontract’s indemnity provisions were unenforceable. The decision is noteworthy for two holdings. First, the Court adopted a narrow reading of the scope of an AI endorsement making the contractor an AI for liability “caused by the acts or omissions” of its subcontractor by limiting the AI coverage to claims involving the subcontractor’s negligence. Second, the court held that the subcontract’s indemnity provision violated Minnesota Statute § 337.01, et seq., because it required the subcontractor to indemnify the contractor for damages not caused by the subcontractor’s negligence and, due to the inapplicability of the AI coverage, was not supported by a coextensive insurance agreement. Continue reading