We keep hearing about how difficult it is for our clients to get property insurance these days, both for homes and businesses in Northern California’s wildfire-prone areas. Which, of course, is most of Northern California.  Those who have not yet been non-renewed are dreading a potential notice on their next renewal cycle, and those who have been non-renewed or are purchasing new property are increasingly left with the FAIR Plan as the only available option. 

There is hope that things will improve. On September 21, 2023, Governor Newsom signed an Executive Order urging Commissioner Lara to take action to address the crisis in the property insurance market.[1]

Simultaneously, the Department of Insurance (“DOI”) announced proposed regulatory changes intended to curb the exodus of insurance companies from the market and provide additional options for those having difficulty finding insurance.[2] Continue Reading Regulatory Changes Underway To Address Dwindling California Property Insurance Market

I recently wrote an article for Business Insurance on how the war exclusion will affect commercial policyholders. The war exclusion has received a lot of attention over the past year, particularly since Russia invaded Ukraine in February. Policyholders’ concern that insurers will assert the exclusion as a basis to deny coverage is increasing in light

The “war” exclusion has gotten more attention over the past couple of weeks in light of Russia’s invasion of Ukraine. For good reason. This exclusion, common in property and liability policies alike, typically eliminates coverage for losses caused by “hostile or warlike action” from a nation-state or its agencies, or by military forces. Insurers have recently invoked this exclusion in an attempt to avoid providing coverage for losses arising from Russia’s 2017 “NotPetya” cyberattack against Ukraine, which spread beyond Ukraine’s borders and caused widespread damage to computer systems, including hardware, at a number of companies around the world.

A New Jersey court recently rejected an insurer’s reliance on a “war” exclusion in a property insurance policy, under which the insured had sought coverage for losses caused by the NotPetya cyberattack. See Merck Co. Inc. et al. v. ACE American Insurance Co. et al., Case number UNN L 002682-18, in the Union County Superior Court of New Jersey.
Continue Reading The War Exclusion in a Time of War

Unfortunately, we again write while wildfire is devouring homes and businesses in Napa and Sonoma, and threatening many more. We’ve previously posted tips about first steps that you should take in the event your business has suffered a fire loss. We want to provide this refresher, as prompt action is important to preserve your business’ rights under its insurance policies and to maximize its ultimate insurance recovery. If your business has sustained a fire loss, below are steps for you to take in working with your insurers to ensure that you receive the maximum benefits under any applicable insurance policies.
Continue Reading Maximizing Business Insurance Coverage Benefits After a Fire

The coronavirus (COVID-19) has already caused severe disruption to the economy. In the U.S., governmental entities as well as the private sector are implementing more and more drastic measures to respond to the coronavirus.  While these efforts may be wise in light of the substantial public health concerns, they threaten to bring parts of the economy to a virtual halt, adversely impacting most every business and resulting in substantial losses.  The Organization for Economic Cooperation and Development estimates that if the coronavirus continues to spread more widely, it could cut global growth in 2020 by half.

Business Interruption

As a company determines the impact of the coronavirus on its business, it should assess the business interruption coverage available under its commercial property (or “first-party”) insurance policies. 
Continue Reading Business Interruption Coverage for the Coronavirus (COVID-19)

In Pitzer College v. Indian Harbor Insurance Company, the California Supreme Court resolved two previously open questions in insurance law: (1) it concluded that the notice-prejudice rule[1] is a fundamental public policy of California, and (2) it concluded that the notice-prejudice rule applies to consent provisions, but only in first-party policies.

This decision provides three primary lessons to insureds. First, when a first-party insurer cites a strict notice provision as a complete bar to coverage, a California policyholder should respond by citing the notice-prejudice rule, even if the policy selects the law of a state that does not follow the notice-prejudice ruleSecond, the insured should do the same if a first-party insurer cites a consent provision as a basis to limit coverage for otherwise-covered expenses. In both cases, the notice-prejudice rule may override the choice of law provision and preserve coverage unless the insurer was actually and substantially prejudiced by the delayed notice/consent. Third, in the case of third-party policies, the insured should continue to promptly notify the insurer in the event of a claim and should seek consent before incurring otherwise-covered expenses. The insured should not rely on the notice-prejudice rule to potentially save coverage where it delays notice or fails to seek consent for expenses under a third-party policy.
Continue Reading California Supreme Court Ruling Clarifies That the Notice-Prejudice Rule Is a Fundamental Public Policy That May Override Choice of Law Provisions

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

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