Case Citation: Samsung Fire & Marine Ins. Co., Ltd (U.S. Branch) v. RI Settlement Tr., No. 61 EAP 2024, 2026 WL 2115725 (Pa. July 21, 2026)

The Situation: Is a business accused of knowingly profiting from and harboring the sex trafficking of minors entitled to insurance coverage to protect it from the financial consequences of its actions? By a 6-0 vote, the Pennsylvania Supreme Court just moved one step closer to answering yes. 

Although that headline likely will dominate discussions of last week’s decision, it obscures a more important takeaway. 

Two of six justices concurred to say they would have gone a step further. They also would hold that public policy permits requiring insurers to cover a drug dealer who intentionally gave his customer a bag of heroin labeled “suicide,” which she injected and died from, and for which her estate sued him. Previously, the Pennsylvania Supreme Court had rejected his coverage claim in a badly fractured 2004 plurality decision. Now, at least two sitting justices on the court have said they will overrule that decision if given the chance. 

Those two justices, in their concurrence last week, lamented that a public-policy-based coverage denial deprives policyholders of the “option to shop the insurance market to choose policies that would provide the coverage they sought.” In addition, they criticized the insurers for trying to take advantage of “unsuspecting policyholders who dutifully paid their premiums to secure the insurer’s obligations to provide the precise coverage [they] now disclaim.”

Thankfully, the majority did not go that far. 

The majority opinion carefully hewed to the questions presented. It declined to extend the public policy bar from an insured’s intentional, per se illegal, conduct (dealing heroin) to an insured’s allegedly negligent failure, while running a lawful hotel business, to stop a third party from engaging in illegal sex trafficking at its premises. The majority did not overrule the 2004 drug dealer decision. It held simply that “neither an insurer’s duty to defend nor its duty to indemnify is abrogated on the basis of public policy when the insured is alleged to have enabled or profited from sex trafficking.”

Notable, too, is what was not decided. 

The majority assumed without deciding that the insurance policy terms provided coverage in the first place, without answering whether the insured’s conduct was: (1) an accidental “occurrence” under the policy; (2) excluded as causing “expected or intended” injuries under the policy; or (3) excluded under a “violation of law” clause in the policy.

Looking Ahead: So, what is going on and how did we get here? 

Courts increasingly seem to be forgetting why the void-for-public-policy doctrine exists and why it matters for interpreting contractual intent—two points loom large.

First, why it exists. The concurrence hangs its hat on the idea that deterrence in this context does not work. In its view, “[i]f the insured’s conduct amounted to criminal conduct that would warrant criminal penalties, those penalties would deter such misbehavior, more so than the prospect that the insurance policy may not cover damages for the victims.” What that misses is that some conduct will escape criminal sanction under the higher “beyond a reasonable doubt” standard and heightened procedural rights in a criminal trial, but be judged for what it truly is at an ordinary civil trial under the “clear and convincing” or “preponderance of the evidence” standards. Especially for primarily lawful businesses that support criminal conduct on the side, that financial incentive can be powerful. 

Second, how the “void for public policy” doctrine impacts contractual intent. Party expectations are formed against the backdrop of the law. For most of the insurance industry’s history, it was understood that policies could not cover crimes. There was no reason to include a “no coverage for criminal acts” clause in a policy just as there was no reason to include a “no coverage for magic” clause. Obviously, these did not qualify. However, what happens when a jurisdiction abandons or severely dials back its common law “void for public policy” doctrine? Even if insurers add “criminal acts” exclusions immediately, for the next few decades, policies will continue to percolate that were signed under the old understanding that such clauses were unnecessary. How should courts treat those policies? 

If the goal is to enforce party intent, then coverage should be denied as a matter of policy interpretation. Retroactively requiring new “criminal acts” exclusions would make the mistake of judging the policy by a set of expectations that did not exist at signing.

KEY TAKEAWAYS FOR INSURERS

  1. Find opportunities to ease the upheaval of doctrinal shifts. Sometimes arguments that delay the impact of a coverage expansion are exactly what is needed, since it allows time for evaluation and repricing. Decisions like last week’s offer clues to which tack will be best received in a given jurisdiction.
  2. Get into the nitty gritty on policy. Increasingly, courts are making decisions based on “common sense” ideas about deterrence and incentives without any empirical grounding. This presents an inroad for advocacy that sweats the details and fills that void by explaining what the evidence actually says.

A recent decision of the U.S. Court of Appeals for the Eleventh Circuit provides some important pointers for insurers and their appellate counsel about appealing decisions in declaratory judgment actions. The key point is that before taking an appeal, the would-be appellant needs to ensure that there is either a final judgment or an order that is enforceable by the contempt power and awards substantive relief to the prevailing party.

In Northfield Insurance Co. v. North Brook Industries, Inc., – F.4th –, 2026 WL 1453206 (11th Cir. May 22, 2026), the insurer, Northfield, brought a declaratory judgment action regarding whether under a commercial general liability insurance policy it had a duty to defend or indemnify its insured, North Brook, a hotel operator, in an underlying case involving sex trafficking. North Brook responded to the suit by filing a motion to dismiss arguing that: (1) the claim relating to the duty to indemnify was not ripe (as it needed to await resolution of the underlying action); and (2) Northfield’s coverage position was incorrect and therefore there was a duty to defend. The district court agreed that a duty to defend existed, granted the motion to dismiss, and retained jurisdiction with respect to the duty to indemnify.

Northfield appealed the district court’s order, asserting that the district court’s order was equivalent to an injunction requiring Northfield to defend the underlying action, and therefore the order was appealable under 28 U.S.C. § 1292(a)(1).

On its own initiative, the Eleventh Circuit questioned whether it had appellate jurisdiction. It explained that “[t]o have the injunctive effect necessary for appeal, the order (1) must be a clear and understandable directive from the district court, (2) must be enforceable through contempt proceedings, and (3) must give some or all of the substantive relief sought.” (Cleaned up.) In another case, James River Insurance Co. v. Ultratec Special Effects Inc., 22 F.4th 1246 (11th Cir. 2022), the court had found appellate jurisdiction because the district court’s order affirmatively granted declaratory relief in favor of the insured, and the order was equivalent to an injunction because if the insurer failed to pay defense costs it would be subject to contempt proceedings. In North Brook, in contrast, the district court only concluded that the insurer’s declaratory relief claim failed to state a claim and did not award relief in favor of the insured. Accordingly, the court of appeals dismissed the appeal for lack of appellate jurisdiction.

The Eleventh Circuit pointed out two ways that an insurer faced with the same situation could ensure that the district court’s order is appealable. First, the insurer could move the district court to enter a Rule 54(b) partial final judgment regarding the duty to defend. Second, the insurer could seek leave to amend the complaint to withdraw the request for declaratory relief on the duty to indemnify. If the second route is chosen, the insurer may need to try to ensure that it is not waiving its right to later litigate the duty to indemnify.

Rideshare and delivery app drivers using their personal vehicles typically have coverage under two auto insurance policies: one provided through the service they are drivers for (such as Uber, Lyft or DoorDash) and their personal auto policy. Depending on the scope of coverage and exclusions in the two policies there could be a potential for a gap in coverage or duplicative coverage. The Wisconsin Court of Appeals recently addressed this issue, construing a personal auto policy in a manner that found an ambiguity and avoided a gap in coverage. This case is important for personal auto insurers to review.

In Ramirez v. Voyager Indemnity Insurance Co., – N.W.3d –, 2026 WI App 21; 2026 WL 668115 (Wis. Ct. App. Mar. 10, 2026), a delivery driver for DoorDash had a personal auto policy through First Chicago Insurance Company and delivery coverage through DoorDash’s insurer,  Voyager Indemnity Insurance Company. When an accident occurred, the driver had just completed several food deliveries and was on his way to downtown Milwaukee. He was not making a delivery but had the app open on his phone.

The First Chicago personal policy excluded coverage for “bodily injury or property damage incidental to or emanating from the … operation of any vehicle … for delivery related business.” (Bold face removed.) The term “delivery related business” was defined as “the ownership, maintenance or operation of any auto while it is being used to carry … food for compensation or a fee,” with other specifics. The Voyager policy issued to DoorDash provided coverage only while a driver is “actually fulfilling a delivery request made through a delivery application” and specified that coverage “ends when the delivery operator has completed the delivery request(s) made through the delivery application.” (Bold face removed.)

A passenger who was injured in the other vehicle sued the driver, DoorDash and both insurers. Both insurers filed motions for summary judgment. First Chicago argued that the personal auto policy excluded coverage because the bodily injury was “incidental to or emanating from” the use of the vehicle for “delivery related business.” Voyager argued that its policy did not provide coverage because the driver was not making a delivery at the time of the accident. The trial court granted both insurers’ motions, finding no coverage under either policy for the accident.

The Wisconsin Court of Appeals reversed in part, concluding that the First Chicago exclusion was ambiguous and that the policy provided coverage. It explained that, with respect to the “incidental to or emanating from” wording, “[a] reasonable insured would not know how broadly to read this language and could reasonably expect coverage under the First Chicago [personal] policy while driving in Milwaukee and not actively engaged in a food delivery (e.g., by accepting a delivery on the DoorDash app).” The court further reasoned that the insured would reasonably believe that “the Voyager policy covered him when he was making deliveries and the First Chicago policy covered him when he was not making deliveries.” Moreover, “[b]asing insurance coverage on whether or not an app was open on [the driver’s] phone, especially when no explicit language exists in the policy to address such a situation, would lead to absurd results that frustrate an insured’s reasonable expectations.” The court acknowledged public policy concerns about a potential gap in coverage but did not base its decision on that ground.

A potential difficulty that personal auto insurers may face in this context is that they may not be familiar with the wording of all policies issued to ridesharing and delivery app companies, and those policies may vary in their wording. Personal auto insurers trying to exclude coverage while drivers are driving for ridesharing or delivery purposes may need to tread carefully to avoid a potential finding of ambiguity while at the same time trying to avoid either a gap or duplication in coverage.

Occurrence-based liability policies often include a condition that requires the insured, or someone on their behalf, to provide a carrier prompt notice of the occurrence. Delays in reporting a claim can potentially provide a carrier with a late notice defense. The viability of this defense can turn on whether timeliness is evaluated from the perspective of a named insured or a claimant, as a claimant in A.B. v. Barrow, — F.4th —, 2026 WL 40906 (11th Cir. Jan. 7, 2026), found out when the Eleventh Circuit rejected an attempt to rewrite the notice condition to obtain coverage for a $10 million verdict.

The Occurrence & Underlying Lawsuits

When the claimant/plaintiff, A.B., was ten years old, she was allegedly sexually exploited by her mother and David Barrow in or about late 2013.

In February 2018, A.B. filed a lawsuit against Barrow in Alabama alleging that Barrow invaded her privacy. While the privacy invasion action was underway, A.B. filed a separate lawsuit against Barrow and his wife in February 2018 pursuant to the Alabama Fraudulent Transfer Act. During discovery in this suit, A.B., through her attorney, requested a “copy of all insurance policies in force in effect” at the time of the occurrence. On September 25, 2018, it was disclosed that Barrow was insured by Nationwide. A.B.’s attorney thereafter served a subpoena on Nationwide on November 9, 2018, requesting the production of the relevant policies, which were produced in January 2019,  including the operative umbrella liability policy in effect in or about late 2013.

The Policy’s “Policy Conditions” section provided:

4. Notice. You or someone on your behalf must:

(a) as soon as reasonably possible, give us, our agent or sales representative written notice of
an occurrence to which this policy may apply.

(b) promptly give us all legal papers or reports relating to the occurrence when a claim or suit is
filed against an insured.

The policy defined “you” and “your” to mean “the first named insured shown on the Declarations,” which in this case was Barrow. It also defined “occurrence” to include incidents resulting in “personal injury caused by an insured … during the policy period.” “Personal injury” was defined to include “invasion of rights of privacy.”

In July 2019, Nationwide retained counsel to defend Barrow as its insured in the Privacy Invasion Action. The Alabama state court held a bench trial and ruled in favor of A.B. by awarding $4 million in compensatory damages and $6 million in punitive damages, for a total verdict of $10 million.

Subsequent Direct Action

In July 2022, following the entry of judgment and Barrow’s failure to pay the judgment, A.B. sued Nationwide and Barrow in state court under Alabama’s direct action statute, which permits prevailing plaintiffs to sue the judgment debtor’s insurer directly. Nationwide removed the action to federal court and moved for summary judgment on the ground that “neither Barrow nor A.B. notified Nationwide of its potential duty to indemnify in the time required by the umbrella policy” given the 58-month lapse between Barrow’s conduct (which constituted the occurrence) and the November 2018 subpoena, which the parties agreed constituted constructive notice. The federal district court granted Nationwide’s motion for summary judgment and A.B. appealed to the Eleventh Circuit.

Eleventh Circuit Result

The Eleventh Circuit first turned to the issue of whether A.B. or her attorney could give Nationwide notice of the alleged occurrence as the parties disagreed whether the service of the subpoena constituted the provision of notice “on [Barrow’s] behalf” under the notice condition of the Policy. Nationwide contended that traditional agency principes define “on behalf of” to mean “as an agent of.” While the Eleventh Circuit agreed that this was the traditional interpretation and that “on behalf of” traditionally meant “for the benefit of,” it noted that the meanings of both phrases have changed such that both phrases are used interchangeably. Given this linguistic evolution as reflected in modern dictionaries and usage guides, the Eleventh Circuit adopted A.B.’s position that she, through her attorney, could give notice on behalf of Barrow as that is the common everyday interpretation.

After holding that the language of the Nationwide policy’s notice provision and Alabama law authorize a claimant/injured party or their attorney to give notice to the insurer, the Eleventh Circuit turned to the dispositive late notice issue. Alabama law only permits the consideration of two factors: the length of the delay and the reasons for the delay. Travelers Indem. Co. of Connecticut v. Miller, 86 So. 3d 338, 342 (Ala. 2011). Prejudice is irrelevant. Id.

The Eleventh Circuit explained that “[w]hether Nationwide received timely notice under its policy depends on whether [one] evaluate[s] timeliness from the perspective of A.B. as the injured party or instead from the perspective of Barrow as the insured.” From A.B.’s perspective, A.B.’s attorney acted with reasonable promptness under the circumstances.  From Nationwide’s perspective, Barrow, as the insured, was presumed to be familiar with when his own alleged conduct reportedly occurred, as well as the provisions of his policy and nothing in the record suggested that “Barrow did not receive or understand the policy, or that he was otherwise excused from giving notice.”

The Eleventh Circuit held that the notice provision was properly interpreted from Nationwide’s perspective, which focused on the insured, because otherwise the disjunctive “or” between “you” or “someone on your behalf” in the Policy’s notice condition would be detached from “the policy’s single timing requirement and create two different notice deadlines.” Put differently, the Policy “allows notice from someone other than Barrow; it does not reset the notice clock for that person.” The Eleventh Circuit further reasoned that if it were to accept A.B.’s alternative interpretation, third-party claimants would “obtain greater rights” than the named insured. Since there was no evidence of any valid excuse for the approximate 58-month delay between late 2013 and November 2018, the Court was “not free to rewrite the contract to reach a different result,” and the grant of summary judgment for Nationwide was affirmed.  

Looking Ahead

As with any coverage analysis, words and grammar matter. It is therefore important to analyze whether a third party claimant’s – or an insured’s – coverage position is an attempt to rewrite the conditions of the contract. Pointing out such attempts to the court may be persuasive not only in jurisdictions that have strict notice condition analytical requirements, such as Alabama, but also in jurisdictions that require prejudice. It is also important to demonstrate to a court that a third-party claimant (who essentially stands in the shoes of the insured by bringing a direct action) should not have greater rights that the insured themselves as that could render an otherwise valid condition impermissibly written out of a policy.

Case Citation: Johnson v. Reliance Standard Life Insurance Company, No. 23-13443, 2025 WL 3251015 (11th Cir. Nov. 21, 2025)

The Situation: By a 2-1 vote, the Eleventh Circuit has held that a policy interpretation (1) endorsed by the dissenting opinion, (2) suggested by a prior Eleventh Circuit panel, and (3) adopted by other courts around the country was not just wrong, but so unreasonable that it failed arbitrary-and-capricious review. The case is a cautionary tale in several respects.

The dispute arose under a long-term-disability (LTD) policy that excluded coverage for pre-existing conditions, defined as “any Sickness or Injury for which the Insured received medical Treatment, consultation, care or services, including diagnostic procedures, or took prescribed drugs or medicines.” For two years pre-policy, the plaintiff had symptoms of a rare auto-immune disease, scleroderma. She received treatment, took medicines, and underwent diagnostic procedures. But none of her doctors could figure out what it was, diagnosing her with nearly a dozen other ailments instead. After the policy kicked in, her doctors landed on the correct diagnosis. The question for the Court was whether something counts as a preexisting condition if the insured was treated for it pre-policy but her doctors didn’t name it correctly.

The Result: The majority answered no, holding that the insurer thus wrongly denied coverage. This outcome was unlikely for two main reasons. First, this was an ERISA LTD policy that granted the insurer “discretionary authority” to interpret it. The insurer could lose only if its interpretation was not just wrong, but so unreasonable as to be “arbitrary and capricious.” Second, multiple judges already had interpreted similar policy language in line with the insurer’s interpretation.

Starting with the deferential standard of review, it may have been diluted in part due to a quirk of the Eleventh Circuit. In contrast to other circuits that apply regular abuse-of-discretion review to an insurer’s discretionary interpretation of its own ERISA policy, the Eleventh Circuit uses a bespoke six-step sequence that starts by asking whether the insurer’s interpretation is wrong under de novo review, then only later asks if it is so wrong as to be arbitrary and capricious. This sequence triggers what influence scholar and renowned psychologist Robert Cialdini calls commitment-and-consistency bias: someone is more likely to agree with a stance if they first agree with it a little. Here, once a judge convinces themself that an interpretation is wrong, there is a stronger cognitive temptation to believe it is also very wrong. By contrast, leading with the abuse-of-discretion question creates a more level playing field.

Second, at the policy interpretation stage, things got metaphysical. The majority viewed the pre-policy doctors’ activities as treating symptoms rather than a medical condition. Because they repeatedly misdiagnosed the plaintiff with other ailments instead of scleroderma, the majority reasoned, they could not have been treating her “for” scleroderma. The “symptoms are not the disease” and “an indication of something is not the thing itself,” just as “a wet umbrella is [not] ‘the same thing’ as a hurricane.” 

The dissent saw it differently. The plaintiff had been treated, prescribed medication, and undergone diagnostics “for the ‘various symptoms and conditions of scleroderma.’” There was “more than mere ‘consistency’ between what [she] was treated for and scleroderma; they are the same thing.” Borrowing an umbrella of its own, the dissent reasoned that if one “us[es] an umbrella to stay dry without knowing whether the current rainstorm is a hurricane or quick summer shower,” either way, “the umbrella fends off the rains.”

Since both majority and dissent found different dictionaries and prior cases siding with their respective interpretations, one would expect the insurer to prevail under arbitrary-and-capricious review. Instead, the majority seized on a stray answer at oral argument, construing it as an admission that the insurer would deny coverage if any pre-policy symptom was not inconsistent with the later diagnosis. The majority held that that position, albeit taken from another party in a different case, “is unreasonable—full stop.” So, it reversed the judgment of the district court.

Looking Ahead: This appeal seems ripe for rehearing en banc (although quite rare, especially in insurance coverage cases). As to standard of review, even the majority acknowledged that the Eleventh Circuit’s six-step sequence “is likely unnecessarily complex (and may even obscure the lawful result in certain cases)”—the result here is a prime example. If not now, then when the right case comes along, insurers may consider investing in overturning this framework and the subtle cognitive bias it creates.

As to the merits policy interpretation, how lower courts apply the majority’s test is key. That test seems to be that the right disease need not be formally diagnosed pre-policy so long as it at least is “suspected.” The majority suggests that “strong indications” of the particular illness, “reasonable cause” to diagnose the particular illness, or “a distinct symptom or condition from which one learned in medicine can diagnose the disease” all qualify but were not satisfied on these facts. Whether that blurry line will yield consistent results in practice remains to be seen.

KEY TAKEAWAYS FOR INSURERS

  1. Look out for interpretive frameworks that create commitment-and-consistency bias. Experiments have shown that judges are susceptible to this type of cognitive effect. Although hard to prove in any given case, the long-term effect can be significant. Investing in reshaping the law into a more level playing field affects not just the individual cases but also their broader ripples into adjacent caselaw.
  2. Issue framing and careful answers at oral argument matter. Insurers often are held to a higher standard, even when the law requires more lenient treatment. The impact of this can be mitigated by having a firm theory of the case and knowing exactly when one can, cannot, or must cede ground.

A recent Missouri Court of Appeals decision provides helpful precedent for liability insurers facing legacy environmental claims and class actions. The court strictly construed the policy period, concluding that claims based on conduct or injury occurring after the expiration of the policy were not covered, even if the underlying contamination began earlier.

In Certain Underwriters at Lloyd’s London v. Northrup Grumman Corporation, –– S.W.3d ––, 2025 WL 3072808 (Mo. App. Nov. 4, 2025), the underlying class action alleged that waste containing trichloroethylene (TCE) and other contaminants migrated from a site previously operated by Litton Industries (later acquired by Northrop), contaminating private wells in the area. The federal court dismissed most of the claims, and the parties settled the remaining claims.

Northrop sought coverage for the settlement under a Lloyd’s policy in effect from 1964-1967 and a Wausau policy in effect from 1969-1971. Both policies covered “all sums which the Insured shall become legally obligated to pay as damages because of either ‘property damage’ or ‘personal injury.’” Based on the policy language quoted in the opinion, neither policy specified what conduct needed to happen during the policy period to trigger coverage. The class action plaintiffs alleged that Northrop, after acquiring Litton in 2001, failed to warn, monitor, or remediate TCE contamination, resulting in injuries to property owners from 2004 onward.

The Missouri Court of Appeals affirmed the trial court’s conclusion that the insurers had no duty to defend or indemnify Northrup. The court explained that the class was “people who were harmed from 2004 through the present,” and their claim was “that Northrup knew as of at least 2004 that TCE contamination had spread, but did not warn the public.” There was thus no potential coverage under the 1960s/1970s-era policies. Despite Northrup’s efforts to tie the claims to the original contamination, the court explained that “[t]he London Policy and Wausau Policy only provide coverage for injury or damage that occurs during the policy period,” and “[t]he Class Action Plaintiffs alleged that they were injured from Northrup’s actions when Northrup failed to monitor the spread of TCE, failed to warn about TCE, failed to remediate TCE, and failed to stop the spread of TCE,” all of which “occurred outside the policy period.”

This decision underscores that coverage is strictly tied to the policy period—a helpful precedent in defending against attempts by policyholders to expand coverage for legacy liabilities.

In Gore and Associates Management Company, Inc. v. SLSCO Ltd., — F.4th —, 2025 WL 2938795 (2025), Plaintiff Gore and Associates Management Company sued Defendant SLSCO Ltd. and its surety, Hartford Fire Insurance Company, as an assignee, for alleged financial losses Gore’s subcontractors (all LLCs) sustained after SLSCO and Hartford Fire allegedly failed to pay for work related to rebuilding projects in Puerto Rico and the Virgin Islands after Hurricane Maria in September 2017. At the outset of the litigation, Gore claimed that the federal courts had diversity jurisdiction over the action.

On appeal, the First Circuit sua sponte questioned whether this was so because the plaintiff had alleged in the operative complaint that it was an assignee of three subcontractors’ claims but failed to allege the citizenship information of the assignors and the record did not provide additional information. The parties were asked to submit supplemental briefs on whether the court had diversity jurisdiction. In addition, Gore was specifically ordered to provide information about the citizenships of the assignor subcontractors. Since the subcontractors were alleged to be LLCs, Gore was obligated to provide information about the citizenship of all the members for each assignee.

While the parties submitted briefs, Gore did not submit any evidence supporting its position that there was complete diversity. Accordingly, the First Circuit remanded the case to the district court for jurisdictional factfinding that directed the district court to determine: (1) whether the subcontractors were completely diverse from the defendants and, if not; (2) whether the assignments to Gore were a collusive attempt to manufacture diversity jurisdiction in violation of 28 U.S.C. § 1359, which provides that “[a] district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made … to invoke the jurisdiction of such court.”

The Result

Upon remand, the parties agreed before the district court to exchange written discovery and reserved the right to take depositions and request an evidentiary hearing—no party sought an evidentiary hearing. Instead, the parties submitted simultaneous briefs to the district court. In a subsequent report issued in September 2025, the district court explained that Gore failed to present sufficient evidence to assess the citizenship of its subcontractor-assignors because it relied on unreliable, speculative, inconsistent documents that were inadmissible (due to lack of authentication and hearsay) under the Federal Rules of Evidence such that the Court could not make adequate factual findings regarding diversity of citizenship much less move to the second question assessing the motive behind the assignments. The First Circuit held that this was fatal to Gore’s suit because it bore the burden of demonstrating the validity of the assignments, as the party seeking to invoke diversity jurisdiction. While Gore sought another remand to conduct additional discovery and seek an evidentiary hearing, the First Circuit refused to do so because Gore had already been given seven months for that purpose. The case was dismissed.

Looking Ahead

It is important to remember that an assignee of an insurance claim steps into the assignor’s shoes. As such, if an insurer has a good faith basis to suspect that diversity jurisdiction exists only as a result of an assignment, then it should alert the federal court to the potential jurisdictional defect. This will force the assignee to provide the court with sufficient evidence that there is complete diversity and there was no collusion. If an assignee cannot, then that may end a suit close to its inception (or even after it has been fully litigated because there was no federal jurisdiction to begin with). It is also important to recognize that LLCs have the citizenship of all their members, and typically the identity of an LLC’s membership is not publicly known. This should be ascertained or confirmed early in litigation, to avoid a potential problem on appeal years later.

Welcome to Robinson+Cole’s Covering Appeals blog, a new resource that analyzes the latest developments in insurance coverage appeals and provides an in-depth analysis of industry trends.

Our Insurance Appeals team is known for handling cutting-edge and precedent-setting insurance appeals nationwide, having been involved in key cases arising from the COVID-19 business interruption insurance litigation, Chinese-manufactured Drywall, labor depreciation, September 11th catastrophe, Hurricane Katrina, and various other issues. Our decades of experience with insurance law and the insurance industry enables us to see the big picture.

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The Supreme Courts of Pennsylvania and North Carolina have issued two of what are presumably the last state supreme court decisions in COVID-19 business interruption insurance cases. While they reached split results (with the Pennsylvania court ruling for the insurer and the North Carolina court ruling for policyholders in a case without a virus exclusion), as a practical matter, this is unlikely to have a substantial impact on the insurance industry.

Overview

In Ungarean v. CNA, 323 A.3d 593 (Pa. 2024), the Pennsylvania Supreme Court ruled for the insurer, reversing an intermediate appellate court decision that had found coverage for business income losses resulting from COVID-19 government orders restricting the operations of a dental practice. Construing the meaning of “direct physical loss of or damage to property” together with the policy’s definition of “period of restoration,” the court held that “there must be some physical alteration to the subject property necessitating repairs, rebuilding, or entirely replacing the property either at the same location or a new one.” Merely economic losses were not covered. Pennsylvania joined a near-unanimous consensus of other courts, although the court noted that it based its decision on the policy language and not the decisions of other courts.

The Result

It appeared insurers would achieve a complete victory at the state supreme court level until the North Carolina Supreme Court’s recent rulings. In North State Deli, LLC v. Cincinnati Insurance Company, 908 S.E.2d 802 (N.C. 2024), that court surprisingly departed from the overwhelming nationwide consensus. Construing the words “direct physical loss” differently from all of the other state high courts that have addressed the issue, the North Carolina court held that restrictions on restaurant operations during the pandemic could reasonably be considered “material deprivation of property,” notwithstanding that the property itself was not harmed and could be used for various purposes, including to provide food for takeout and delivery service.

The definition of “period of restoration” did not aid the insurer because, unlike most policies (including the one in Ungarean), this one was construed to provide up to 12 months of coverage even if there was no need to repair or replace property or move to a new location. So, the plaintiffs’ bar, pressing on after dozens of defeats, eked out one win—which will likely be a pyrrhic victory. Even if the different policy wording in Ungarean would not have changed the outcome, the good news for insurers is that property insurance policies in North Carolina generally have two or three-year suit limitation provisions. In addition, on the same day that North State Deli was decided, the North Carolina high court issued a second opinion, enforcing a contamination exclusion in a COVID-19 case: Cato Corporation v. Zurich American Insurance Co., 386 S.E.2d 667(N.C. 2024). So even if a few remaining cases are pending in North Carolina lower courts, the insurer should prevail if the policy has a virus or contamination exclusion.

Takeaways for Insurers

Although insurers failed to obtain a complete shutout in these cases at the state supreme court level, given that contractual suit limitation periods in North Carolina have expired and many policies have virus exclusions, North State Deli is unlikely to be of significant concern to the industry.

Hawai’i is generally an unfavorable jurisdiction for insurers given its “legal uncertainty rule,” under which there is a duty to defend if a determinative issue is nationally disputed and not yet decided in Hawai’i. However, as the Hawai’i Supreme Court recently clarified, that rule does not apply if the coverage issue debated nationally is not determinative. In Aloha Petroleum, Ltd. v. National Union Fire Insurance Company, 557 P.3d 837 (Haw.’i 2024), two counties sued major oil companies, alleging that they knew, in the 1960s, that their products would cause climate change and acted, at a minimum, recklessly in selling fossil fuels, damaging the counties. The Hawai’i Supreme Court addressed two certified questions from the state’s federal district court.

The Result

First, the court held that, in ordinary parlance, an “accident” can include reckless conduct. Using the example of a taxi driver running a red light while texting, that is considered an “accident,” even though the behavior qualifies as “reckless.” Only if the insured intended to cause the harm—the law infers an intent to harm—or the harm was “practically certain” would the court find the “accident” requirement unsatisfied. The court disagreed with the Virginia Supreme Court’s ruling in a similar climate change case because Virginia applies a different standard under which a “natural or probable consequence” of an insured’s voluntary act is not an “accident.”

Second, the court held that under a “total” pollution exclusion, greenhouse gases were “pollutants.” This was true regardless of whether the court restricted the pollution exclusion to traditional environmental pollution (a rule the court adopted) or interpreted the exclusion literally (as some other state high courts have). Distinguishing a Wisconsin Supreme Court decision holding that carbon dioxide in an office building was not a “pollutant,” the Hawai’i Supreme Court explained that “[c]arbon dioxide may not be a pollutant in a single office building, but it is when billions of tons are added to the atmosphere every year.” Rejecting the policyholder’s argument that only hazardous wastes fall within traditional environmental pollution, the court reasoned that “reducing GHG emissions is the most consequential environmental pollution issue our species has faced.” The reasonable expectations doctrine could not preserve coverage for the policyholder because “[i]f a business sells a product that is inherently polluting, that fact must be part of its reasonable expectation.”

Takeaways for Insurers

Overall, this case bodes well for insurers on this critical, high-exposure issue. If policyholders cannot prevail in a jurisdiction with more policyholder-friendly insurance law, they are unlikely to prevail elsewhere.