I recently moderated a Bar Association of San Francisco Insurance Section program co-sponsored with the Cannabis Law Section. The program highlighted recent changes to local insurance requirements and market availability of coverage for cannabis businesses.

Local insurance requirements vary greatly by city and county, and it is important to take this into account—especially if you will be doing business throughout California. While certain coverages are still unavailable (i.e., true outdoor crop insurance) or prohibitively expensive (i.e., quality D&O insurance), one point of optimism is that the insurance market is actually adapting quickly and well to the demand for insurance for this industry. As a result, the panel recommended reviewing and updating your insurance portfolio often with the assistance of a broker who is well versed in the cannabis space. Continue Reading Insurance for the Cannabis Industry Program Takeaways

Tyler Gerking was inducted as a Fellow of the American College of Coverage Counsel’s 7th Annual Meeting in Chicago, Illinois on May 9, 2019. Mary McCutcheon presided over the meeting as she completed her term as President of the College.

The American College of Coverage Counsel (ACCC), established in 2012, is the preeminent association of U.S. and Canadian lawyers who represent the interests of insurers and policyholders. The ACCC’s membership currently stands at over 300 Fellows. Its mission is to advance the creative, ethical and efficient resolution of insurance coverage and extracontractual disputes; to enhance the civility and quality of the practice of insurance law; to provide peer-reviewed scholarship; and to improve the relationships among the members of our profession.

Rounding out Farella’s participation in the College, Jennifer Bentley, a summer associate at Farella in 2018, received First Prize in the ACCC Law School Practical Skills Writing Competition.

Massachusetts Appeals Court Gets It Right – Mostly

Hot on the heels of the Federal Tenth Circuit Court of Appeals’ decision in MTI, Inc. v. Employers Insurance Company of Wausau, __ F.3d __, 2019 WL 321423 (10th Cir. 2019) (about which I wrote earlier this month), the Appeals Court of Massachusetts also found that the phrase “that particular part” as used in exclusions j(5) and j(6) in the CGL policy must be applied narrowly. In All America Ins. Co. v. Lampasona Concrete Corp., 95 Mass. App. Ct. 79 (2019), the court held that damage caused to an underlying vapor barrier and a tile and carpet finish applied on top of the concrete floor slab poured by Lampasona was not excluded from coverage by the j(6) exclusion in the Lampasona’s policy. The court found that Lampasona did not install the vapor barrier or the tile/carpet, so they were not “that particular part” on which Lampasona was working.

Continue Reading “That Particular Part” – Yet More

Insurers often claim “economic damages” are not covered under a standard commercial general liability (CGL) policy. The Fourth District Court of Appeal’s decision in Thee Sombrero, Inc. v. Scottsdale Ins. Co., 28 Cal. App. 5th 729, 736 (2018) review and request to depublish denied (Jan. 30, 2019), demonstrates that “loss of use” can be measured by “economic damages”—i.e., loss in profit or diminution in value—so long as they are tied to a property interest.

In Thee Sombrero, Inc., the insured’s negligent security services resulted in the revocation of Thee Sombrero’s permit to use its property as a night club after a patron was allowed to enter without passing through the metal detector, resulting in a fatal shooting. Thee Sombrero sued the security company, and obtained a default judgment. Thee Sombrero then pursued Scottsdale to satisfy the judgment. The trial court found in favor of Scottsdale, but the Court of Appeal reversed, finding that “the loss of the ability to use the property as a nightclub is, by definition, a ‘loss of use’ of ‘tangible property.’ It defies common sense to argue otherwise.” Id. Continue Reading Damages for Permit Revocation Constitute Covered “Loss of Use”

We do not often write about coverage opinions from jurisdictions as far away as Oklahoma; however, a recent case from the Federal Tenth Circuit looked at one of our favorite topics and came out with a much better reasoned opinion than recent decisions from the Ninth Circuit.

I’ve written before on the topic of the meaning of “that particular part” as the phrase is used in exclusions j(5) and j(6) of the Commercial General Liability (“CGL”) policy. The “j” exclusions exclude coverage for damage to certain property. Specifically, the j(5) and (6) exclusions state that the insurance does not apply to:

(5) That particular part of real property on which you or any contractors or subcontractors working directly indirectly on your behalf are performing operations, if the “property damage” arises out of those operations; or

(6) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.

The part of these exclusions that some courts consistently get wrong is the meaning of the phrase “that particular part.” In particular, in June 2017 I wrote about the way the Ninth Circuit (supposedly applying California law) has on several occasions ignored the insurance industry’s own explanation of the meaning of the phrase “that particular part” and applied the exclusion to the entire project a contractor was working on. Continue Reading The 10th Circuit Correctly Construes “That Particular Part” Narrowly

On January 15, 2019, the Ninth Circuit certified the following question to the California Supreme Court:

Does a commercial liability policy that covers “personal injury,” defined as “injury… arising out of… [o]ral or written publication… of material that violates a person’s rights of privacy,” trigger the insurer’s duty to defend the insured against a claim that the insured violated the Telephone Consumer Protection Act by sending unsolicited text message advertisement that did not reveal any private information?
Yahoo! Inc. v. National Union Fire Insurance Company of Pittsburgh, Pa., No. 17-16452, D.C. No. 5:17-cv-0447-NC.

Yahoo! sought coverage under its general liability policies issued by National Union for a number of putative class actions alleging that it violated the TCPA by transmitting unsolicited text message advertisements to putative class members. National Union denied coverage and Yahoo! sued for breach of contract. The Northern District granted National Union’s motion to dismiss and Yahoo! appealed that order to the Ninth Circuit.

Continue Reading Ninth Circuit Asks the California Supreme Court to Interpret the Scope of Personal Injury Coverage

In an unpublished decision, the Ninth Circuit affirmed the Central District of California’s interpretation of the related acts provision in a professional liability policy, holding that related acts reported in a prior policy period were not excluded from coverage in a subsequent period because that policy defined “Policy Period” to mean only the current policy period, not any policy period. Attorneys Insurance Mutual Risk Retention Group, Inc. v. Liberty Surplus Ins. Co., No. 17-55597 (9th Cir., Feb. 15, 2019). As a result, the related acts clause, which incorporated this term, could not be read to aggregate claims first made under prior policy periods with those made in the current period. The case reinforces the importance of reviewing the particular language of an insurance policy rather than relying on case law interpreting similar language. Small differences in policy language can lead to significant changes in the available coverage. Continue Reading Claims-Made Policy Note: Policy’s Use of Defined Terms May Expand or Limit Coverage Under Related Acts Provision

In November, Tyler wrote about insurance issues raised by both the European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act, which goes into effect on January 1, 2020. California’s governor Jerry Brown signed two other cyber-related laws in September, which will also go into effect on January 1, 2020 – Assembly Bill 1906 and Senate Bill 327, which address security concerns relating to devices that are capable of connecting to the internet – the so-called Internet of Things or “IoT”. See California Civil Code 1798.91.04(a) et seq.

The bills largely mirror each other and, put very simply, require manufacturers of devices that are capable of being connected to the internet to equip them with “reasonable” security features that are both appropriate to the device and require a user to generate a new means of authentication before access is granted to the device for the first time. Technologists are debating whether the laws are good or bad, and if good, whether they go far enough. Regardless, the law will become effective and manufacturers of IoT devices will have to comply with them. The law does not provide for a private right of action; it permits the state’s Attorney General to enforce its provisions.

The new California law applies to all connected devices sold or offered for sale in California. Because California is such a large market, this likely means that all such devices sold in North America and Europe will comply with California’s regulations, and older, less secure devices will be diverted to countries with fewer regulations.

Continue Reading Are You Covered for California’s New IoT Laws?

A 6th Circuit case decided earlier this year demonstrates how positions taken by insureds in prior litigation can impact or foreclose coverage in subsequent disputes with insurers. See K.V.G. Properties, Inc. v. Westfield Ins. Co., 900 F.3d 818 (6th Cir. 2018).

In K.V.G. Properties, Inc., K.V.G., was unaware that its tenant was operating a cannabis growing operation. Although Michigan allowed for limited legal marijuana cultivation, there was no evidence the tenant was in compliance with local law. After a DEA investigation resulted in a search warrant, K.V.G. had the tenant evicted from the property. K.V.G. then sought recovery from Westfield under its property policy for extensive damage done to the property by the tenant, including torn out walls, and damage to the HVAC, duct work, and roofing. Continue Reading Evicting Tenants Over “Illegal” Cannabis Operation Comes Back to Bite Landlords in Coverage Dispute

An obscure niche product less than a decade ago, cyber insurance is now a staple of many companies’ risk transfer programs. Its rise in prominence is no wonder. High-profile data breaches have caused businesses millions of dollars in losses and untold reputational harm. Companies are right to shed some of their cyber risks through insurance, and the basic protections it offers are well known. It pays for the business’s investigation and notification to consumers of data breaches, and it defends against ensuing class action lawsuits and regulatory actions.

As valuable as these basic coverages are, companies should carefully consider and address their risks beyond them. Those that fail to do so may leave some of their biggest risks uncovered.

Cyber insurance is not an off-the-shelf product; there is no standard form. Dozens of insurers sell it, each using its own proprietary language. And the market is evolving rapidly to keep up with the risk environment’s shifting sands. Thus, simply renewing last year’s policy will not provide the cutting-edge protection available today. Like other contracts that a business signs, a proposed cyber insurance policy must be scrutinized and negotiated to meet the business’s unique needs.  And the challenges in this area require a group effort that pulls in personnel and resources not just from the finance or risk management departments, but also IT, Legal and others.

Two areas of cyber insurance are seeing particularly rapid change and uncertainty: coverage for exposures relating to the European Union’s General Data Protection Regulation (GDPR) and business interruption coverages. Broad coverage is ostensibly available for GDPR risks, but its enforceability under applicable law is in question. Business interruption coverages are increasingly addressing the interconnectedness and complexity of computer systems in the age of the cloud, where one system’s downtime can affect many other companies’ operations. Continue Reading Keeping Up With the Risks and Protections of Cyber Insurance