Wyoming Supreme Court Rules Refinery Company Can Seek Extracontractual Insurance Recovery Against Holdout InsurerIn a landmark victory for policyholders, the Supreme Court of Wyoming found that a subsidiary of Sinclair Oil can invoke statutory bad faith damages  after prevailing in a coverage dispute with its insurer, Infrassure. The court rejected the district court’s analysis that supported the insurer’s narrow interpretation of the state’s insurance code. On certification from the 10th Circuit, the court found that a policy was “delivered” in Wyoming because the policyholder and the covered risk were in Wyoming. Per the court’s decision, proof of physical delivery beyond the stated headquarters address, to a Wyoming address, was not required.

Sinclair sought business interruption insurance recovery from Infrassure and other insurers after a 2013 fire and explosion at its petroleum refinery in Sinclair, Wyoming. The Swiss insurer spurned a settlement between Sinclair and the market of quota share participants and instead sought to litigate the loss. After a panel of appraisers affirmed that the loss value was actually higher than the market settlement that Infrassure rejected – a decision which Bradley later successfully defended on Sinclair’s behalf on appeal to the 10th Circuit – Sinclair sought to recover its attorney’s fees and enhanced interest at 10% under a provision in the Wyoming Insurance Code permitting a fee award and pre-judgment interest when an insurer “refuses to pay the full amount of a loss covered by the policy and that the refusal is unreasonable or without cause.” Although the policy insured a Wyoming company as additional insured and covered refining facilities located in Wyoming, the insurer argued that Sinclair could not invoke Wyoming’s bad faith remedies found in the insurance code, which excludes policies not “issued for delivery” or “delivered” in Wyoming. The Wyoming federal district court agreed with Infrassure’s contention that because there was no proof of physical delivery to the insured in Wyoming, Wyoming law did not apply. On appeal, the 10th Circuit accepted the suggestion from Sinclair’s appellate counsel (Marc James Ayers, with Bradley’s Appellate Practice Group), that the court certify the unsettled and novel question to Wyoming’s highest court to determine the applicability of the statute.

The Wyoming Supreme Court declined to adopt the insurer’s strict interpretation, finding after canvassing the law of many other jurisdictions, that the purpose of Wyoming’s insurance laws was to “protect public welfare and Wyoming residents from being taken advantage of by sophisticated insurance companies,” and that achieving this public purpose mandated a liberal interpretation of the law’s application to Wyoming interests. The court adopted a rule articulated by the New York courts, holding that a policy is “delivered or issued for delivery” in a state when it “covers both insureds and risks” located in that state. Because the Sinclair subsidiary and the insured refinery were in Wyoming, Sinclair was entitled to the protections mandated by the insurance law.

Although the Wyoming Supreme Court’s unanimous ruling directly addresses only Wyoming law, policyholders in other states should consider the impact of the ruling as persuasive authority for a broad application of favorable extracontractual remedies. Most jurisdictions permit fee shifting in at least some instances, and a strategy for recovering the policyholder’s legal expense in addition to the value of the insured loss should be considered at the outset of the litigation. Sinclair’s successful argument, as well as the strategy of seeking certification to a state’s highest court when appropriate, highlights tools that other policyholders may use in master commercial property insurance policies to maximize business interruption insurance recovery.

Insurers Assert Single Occurrence Defense to Duck Coverage for Nordstrom

Nordstrom, like other retailers, sustained property damage and business interruption expenses as a result of protests arising out of the Black Lives Matter movement. Although the retailer supports BLM, its insurers do not support Nordstrom. In a complaint filed in district court in the Western District of Washington (access here), Nordstrom alleges that its insurers contend that Nordstrom’s losses arise from discrete events that constitute multiple occurrences, thus subjecting the retailer to multiple deductibles. As Nordstrom’s complaint explains, “The insurers’ position is that Nordstrom’s civil unrest loss does not constitute “a [l]oss or series of losses or several losses, which are attributable directly or indirectly to one cause . . . or to one series of similar causes arising from a single event . . . irrespective of the period of time or area over which such losses occur,” in the language of most of the policies, or “any one loss . . . or series of losses arising out of one event,” as provided in two of the policies.”

This insurer defense is not unusual, but is misguided. Nordstrom’s insurance policies, and many other similar policies, treat related events as a single occurrence. Here Nordstrom’s policies define an occurrence to include a “series of losses or several losses,” provided that they are attributable to either one cause or a “series of similar causes.” Insurers prefer this broad definition of occurrence to minimize the available limits on policies with per-occurrence limits. But insurers favor a narrow reading of the same definition in policies with relatively high deductibles. Nordstrom’s policies provide $25 million in coverage above a $1 million per occurrence deductible. Nordstrom’s insurers may attempt to minimize their liability by treating each store, or each event in each city, as a separate occurrence. This interpretation disregards the causation language embedded in the occurrence definition in Nordstrom’s policies.

Watch this blog as we await the insurers’ response to the retailer’s complaint.

As the Fifth Circuit reminded us in a December 21 deUnder Pressure: Primary Insurer Must Reimburse Excess Insurer after Failing to Settle Case in Texascision, primary insurers can find themselves in excess insurers’ shoes if they reject settlement demands within their policy limits. In American Guaranty & Liability Insurance Co. v. ACE American Insurance Co., the Fifth Circuit upheld a lower court ruling requiring a primary insurer that rejected a $2 million policy-limits demand to pay the entire judgment because “a prudent insurer would have accepted” the settlement demand.

Before trial, the primary insurer rejected a $2 million policy-limits demand that would have insulated the excess insurer from liability. During jury deliberations, the primary insurer rejected another $2 million policy-limits demand after two adverse evidentiary rulings “aggravated [the insured’s] greatest known weaknesses in this case.” The primary insurer did so even though its own case manager recognized the possibility of an excess verdict due to the adverse evidentiary rulings. The jury rendered a verdict of $40 million, which the trial court reduced to $28 million due to the decedent’s comparative negligence. Plaintiffs settled with the insured for $10 million – $8 million more than the plaintiffs had repeatedly sought through their policy-limits demands.

The court emphasized that under these circumstances, the primary insurer should have realized the probability of an excess judgment “had materially worsened.” Based on the trial’s progression, a prudent insurer would have accepted the offer, and failure to do so breached the Stowers duty-to-settle standard in Texas. Stowers requires an insurer “to exercise ordinary care in the settlement of claims to protect its insureds against judgments in excess of policy limits.” The court held that the third $2 million settlement demand indisputably triggered a Stowers duty.

This decision reminds us that excess insurers can pressure reluctant primary insurers to accept policy-limits demands. Policyholders and their excess insurers can point to this detailed discussion of the underlying facts and the reasoning that led to the Fifth Circuit’s decision to support policy-limits demands. If the primary insurer rejects a policy-limits demand, the excess insurer that contributes to the settlement can – and likely will – seek recovery from the primary insurer. And if the excess insurer refuses to contribute to the settlement, the insured can – and likely will – seek recovery from the primary insurer along with exemplary damages for the primary insurers’ bad-faith refusal to settle. Policyholders and their excess insurers should invoke Stowers and similar duty-to-settle standards in other states to encourage primary insurers to satisfy their settlement obligations. In doing so, they can point to this example of insurer conduct that at least two courts found wanting.