February was a particularly active month for insurance litigation, with several key rulings impacting coverage disputes across multiple states. Recent court decisions are clarifying the application of pollution exclusions, D&O policy “bump up” provisions, and the handling of related claims in securities litigation, among other areas.
In Illinois, the state’s Supreme Court addressed a critical question regarding pollution exclusions: whether emissions authorized by a permit constitute “pollutants.” The court’s guidance emphasizes the importance of considering the permit itself when determining if the exclusion applies. This ruling provides insurers and policyholders with a clearer framework for assessing coverage in environmental liability cases, potentially reducing ambiguity and litigation over permitted discharges. The specifics of the case and the court’s reasoning are expected to influence future disputes involving similar circumstances.
Delaware’s highest court weighed in on the interpretation of “bump up” exclusions in Directors and Officers (D&O) liability policies. These exclusions typically limit coverage for increases in indemnity obligations above a certain threshold. The Delaware ruling clarifies the scope of these exclusions, offering guidance on how they interact with other policy provisions. D&O insurance is crucial for protecting corporate directors and officers from personal liability, and this decision will impact how companies assess their coverage needs and manage potential risks.
The Fourth Circuit Court of Appeals tackled the complex issue of related claims in securities litigation. This is a frequent point of contention, as insurers often dispute coverage for claims deemed to be interconnected. The court’s decision provides insight into how courts will evaluate the relationship between claims and determine whether they fall within the scope of a policy’s coverage. This ruling is particularly relevant for companies facing securities class actions, where the potential for significant financial exposure is high.
In Louisiana, the Fifth Circuit Court of Appeals reversed earlier rulings that had directed insurance disputes to arbitration. This shift back towards traditional court proceedings could have significant implications for the resolution of insurance claims in the state. Arbitration is often favored by insurers due to its perceived efficiency and cost-effectiveness, but the Fifth Circuit’s decision restores the option of litigating these disputes in the court system.
An Indiana federal judge considered whether crane inspectors were providing “professional services” when performing inspections. The key issue was whether an exclusion for claims arising from professional services applied to the inspectors’ work, despite the term “professional services” being undefined in the policy. This case highlights the importance of clear and unambiguous policy language, as courts will often interpret ambiguous terms against the insurer. The ruling underscores the need for insurers to carefully define key terms in their policies to avoid disputes over coverage.
Finally, a Wyoming federal judge addressed the application of the “insured vs. Insured” exclusion in a case involving litigation between a board member and the company over a merger. This exclusion typically bars coverage for claims brought by one insured against another. The court’s decision clarifies the scope of this exclusion and its applicability in the context of internal disputes within a corporation. Such exclusions are common in liability policies and are designed to prevent collusive lawsuits among insured parties.
Beyond these specific rulings, the broader insurance landscape is facing new challenges and opportunities presented by the increasing use of Artificial Intelligence (AI). A recent article in the Phoenix Business Journal highlighted the growing adoption of AI in underwriting, claims handling, risk assessment, and customer service. , the article noted that insurers are increasingly relying on AI to make critical decisions, raising questions about the type and extent of coverage businesses need. Businesses are urged to disclose their AI usage to insurers, as incomplete disclosures could lead to policy rescission. The classification of AI – whether as a support tool or an independent decision-maker – will also impact coverage under Errors & Omissions (E&O), D&O, and Commercial General Liability (CGL) policies.
The Delaware Supreme Court also recently revived insurer claims in the Blackbaud ransomware case, signaling a potential shift in how cyber insurance claims are handled. This case could set a precedent for future disputes involving ransomware attacks and the scope of cyber insurance coverage.
These recent court decisions and emerging trends underscore the dynamic nature of insurance law and the importance of staying informed about evolving legal interpretations. Businesses and policyholders should work closely with legal counsel to ensure they have adequate insurance coverage and understand their rights and obligations.
