3 Ways COVID-19 Will Continue to Impact Insurance Industry in 2021

Insurance Journal

The effects of the COVID-19 pandemic will be felt by the insurance industry and its customers well into 2021 as consumers and businesses continue to face economic challenges, according to a new survey by consumer credit reporting firm TransUnion.

Insurance customers will also expect insurers to offer digital tools that make it easier to conduct business.

“The unpredictable environment that lies ahead indicates consumers and businesses will increasingly rely on and choose insurers offering online resources and tools that can best meet their needs, particularly as digital adoption continues to grow,” said Mark McElroy, executive vice president and head of TransUnion’s insurance business.

TransUnion conducted the survey of 3,148 U.S. consumers with active auto, homeowners, renters and/or life insurance policies during the first week of December. In their analysis of the findings, TransUnion researchers identified several trends they believe the insurance industry can expect to see play out during 2021.

Three Trends to Watch

Trend #1: The financial and economic challenges brought forth by COVID-19 will continue to impact consumers and businesses, potentially leading to profitability impacts for insurance carriers down the road.

Looking at the next three months ahead, TransUnion’s consumer survey indicates respondents are primarily concerned about being able to pay for their auto insurance bill (44%), followed by their car payment (26%), mortgage payment (23%) and life insurance bill (22%).

A recent TransUnion analysis also noted an increase in the distribution of higher risk auto insurance shoppers as well as those with payment accommodations in 2020. Factors such as rising unemployment and varying financial impacts may be contributing to this trend, and it will be imperative for insurers to be able to identify which customers are facing COVID-19 hardship to strengthen engagement.

Within the commercial automotive space, TransUnion has observed that many insurers are experiencing relative stability in underwriting performance in the short-term resulting from fewer claims on less congested roads and less miles driven, among other confluent factors. As the broader environment begins to normalize, insurers will again need to implement strategies that help them increase segmentation and remain competitive in the wake of COVID-19.

Trend #2: Consumers and businesses expect insurers to have a greater understanding of their individualized needs in light of shifting behaviors and preferences.

For respondents who own or lease a car (90%), TransUnion’s survey indicated that 72% used their vehicle less in the time since COVID-19 was named a global pandemic or don’t use their vehicle anymore. Given this drop, there may be greater consumer interest in usage-based insurance and telematics programs. The survey found 61% of drivers would allow their insurance carrier to collect real-time information about their mileage and driving habits if it could lower their premium.

Looking at the commercial and personal property space, respondents expressed a strong preference for at-home settings when asked to choose their preferred work environment for 2021 – 37% of respondents cited a preference to work at-home, and 31% preferred a hybrid of working in-person and at-home, with more time spent working from home. These findings may signal less demand for commercial real estate as well as broader shifts within the commercial and personal space as employers extend work-from-home policies or adopt hybrid work environments to best address employee needs and operational demands.

Trend #3: Insurance digitization efforts will continue to strengthen in 2021.

Digital adoption in the insurance industry grew 20% globally in the past year. This transformation is taking place across the insurance policy lifecycle, from marketing to claims submissions to digital policy servicing. TransUnion’s survey found that almost half of respondents (47%) filed an auto and/or property claim in the last year, and of those, nearly four in 10 (39%) used a mobile app, website portal or e-mail.

Consumer preferences for interacting via digital/online platforms also support this trend. The survey found respondents preferred to communicate with an insurance provider primarily via e-mail (32%) and telephone calls (32%), followed by an insurer mobile app or website portal (18%). As digitization grows, insurers must balance introducing and expanding digital customer interactions while also delivering friction-right experiences and protecting against fraud.

Florida Adopts Less Stringent Summary Judgment Standard

John A. Rine and Sarah Hock | Lewis Brisbois

On New Year’s Eve, Florida’s Supreme Court issued an amendment to essentially apply the federal summary judgment standard to cases in Florida state courts starting on May 1, 2021. See In Re: Amendments to Florida Rule of Civil Procedure 1.510, No. SC20 1490 (Fla. Dec. 31, 2020) (per curiam). This change brings Florida in line with the majority of states (38).

Summary judgment is easier to obtain under the federal standard. A moving party need only show that the opposing party lacks the evidence to support its case at trial. Under the soon-to-be obsolete Florida standard, however, moving parties had to entirely “disprove the nonmovant’s theory of the case in order to eliminate any issue of fact.” See id. at 3. The nonmoving party could defeat a summary judgment motion by showing that there was a slight doubt on any material fact. See id. at 4-5.

This change is good news for defendants and their insurers. With summary judgment easier to obtain, weak claims can be defended prior to trial. Claims may be resolved more quickly and economically. The threat of summary judgment also gives defendants powerful leverage in settlement discussions. The shift may also reduce the backlog of cases accumulated during the suspension of jury trials over the past summer.

A. Florida’s Previous Summary Judgment Standard

Florida’s summary judgment standard was notoriously restrictive. Summary judgment could not be granted if there was even the slightest dispute on any material fact. See, e.g., Jones v. Dirs. Guild of Am., Inc., 584 So. 2d 1057, 1059 (Fla. 1st DCA 1991). The moving party had to show the facts were so clear that “nothing remain[ed] but questions of law.” Hervey v. Alfonso, 650 So. 2d 644, 646 (Fla. 2d DCA 1995) (citing Humphrys v. Jarrell, 104 So. 2d 404 (Fla. 2d DCA 1958)). This meant summary judgment was nearly impossible to win. Because the nonmoving party could produce the slightest shred of evidence and defeat summary judgment, even meritless claims could reach trial.

B. The Federal Summary Judgment Standard

The federal summary judgment standard was articulated in a trilogy of United States Supreme Court cases in 1986. See Celotex Corp. v. Catrett, 477 U.S. 317 (1986); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). The Celotex trilogy established that summary judgment is appropriate where the moving party shows that the opposing party does not have enough evidence to establish the elements of its claims. If no reasonable jury could return a verdict for the nonmoving party, summary judgment should be awarded.

C. Florida’s Change

Florida’s shift to this standard was prompted by a certified question from the Fifth District Court of Appeal in Lopez v. Wilsonart, LLC, 275 So. 3d 181 (Fla. 5th DCA 2019). Wilsonart concerned a fatal motor vehicle accident. Jon Lopez rear-ended a freightliner driven by Samuel Rosario. See id. at 831. His estate sued both Mr. Rosario and his employer, Wilsonart, LLC. See id. Dashcam video from Mr. Rosario’s truck showed that he had been driving in the center lane, gradually stopping at a red light, and then hit from behind. See id. at 832. This contradicted the plaintiff’s allegations that Mr. Rosario had suddenly swerved in front of Mr. Lopez. See id. at 833. The trial court granted summary judgment in favor of Rosario and Wilsonart based on the video evidence. See id.

On appeal, the issue was whether the court could grant summary judgment based on the video, or whether it must let the jury weigh the evidence. See id. The Fifth District Court of Appeal held that the latter was true, finding that the trial court had improperly weighed competing evidence on material facts. See id. at 833-834. It reversed the trial court’s decision. See id. Recognizing the strength of video evidence, however, it certified the question for the Florida Supreme Court to determine whether courts could make an exception and grant summary judgment where video evidence completely negates the nonmoving party’s claims. See id. at 834.

The Florida Supreme Court viewed this question as raising a larger issue — whether Florida’s summary judgment standard had an “unreasonable definition of what constitutes a ‘genuine issue’ in need of resolution by a jury.” Wilsonart, LLC v. Lopez, No. SC19-1336, 2020 Fla. LEXIS 2144, at *6-*7 (Dec. 31, 2020). It asked the parties to brief whether Florida should adopt the more permissive federal summary judgment standard. See id. The court was convinced and held that Florida would. See id. at *7. Simultaneously with this ruling, the court released amendments to Florida Rule of Civil Procedure 1.510 to bring the Rule in line with Federal Rule of Civil Procedure 56. In Re: Amendments to Florida Rule of Civil Procedure 1.510, No. SC20-1490 (Fla. Dec. 31, 2020) (per curiam).

D. Effect on Florida Jurisprudence

The Florida Supreme Court explained that the amendments to Rule 1.1510 will have three major impacts:

  1. Most importantly, the requirement that the moving party must negate or otherwise conclusively “disprove the nonmovant’s theory of the case in order to eliminate any issue of fact” is abandoned. See id. at 3. Instead, the movant will prevail if the nonmoving party cannot show that it will have sufficient evidence to establish the elements of its claims. See id. 3–4.
  2. There will be a new definition of what constitutes a genuine issue of material fact. The old Florida definition – the “slightest doubt” – is now replaced with the federal definition – whether a “reasonable jury could return a verdict for the nonmoving party”. See id. at 4–5; see also Jones v. Dirs. Guild of Am., Inc., 584 So. 2d 1057, 1059 (Fla. 1st DCA 1991) (discussing “slightest doubt” definition).
  3. Courts now must recognize the similarity between a motion for directed verdict and a motion for summary judgment. See id. at 2–3. In both contexts, the inquiry will now be identical. The court will consider “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Id.

Conclusion

The importance of the Florida Supreme Court’s adoption of the federal summary judgment standard is tremendous. Skilled defense counsel may be able to dispose of weak or meritless claims more quickly and economically than before.

Oregon Court of Appeals Addresses Economic Loss Doctrine and Vicarious Liability in Construction Dispute

Blake Robinson | Davis Wright Tremaine

The Oregon Court of Appeals recently issued a decision touching on the economic loss doctrine and vicarious liability in a construction dispute.1 The outcome provides key lessons for manufacturing companies that may maintain principal-agent relationships with distributors or maintenance service companies based on the level of control one party exerts over the other.

Case Background

Quality Plus Services, Inc. was hired to perform welds on piping on an Intel construction project and used a fusion welding machine manufactured by Georg Fischer, LLC to carry out its task. During the course of the work, a service message displayed on the machine’s screen, so Quality Plus contacted Plastic Services Northwest, Inc., a Georg Fischer distributor, to service the machine.

While servicing the welding machine, the Plastic Services technician inadvertently adjusted one of its settings. Quality Plus did not notice the adjustment and continued using the machine to make more than 900 additional welds. Several months later, while Georg Fischer was servicing the machine, it discovered the adjustment and notified Quality Plus. The parties ultimately determined that the adjustment caused all of the more than 900 welds to be non-conforming, and thus had to be replaced at a cost of over $800,000.

Quality Plus asserted a negligence claim, among other things, against Plastic Supply, and sought to hold Georg Fischer vicariously liable for Plastic Supply’s negligence. The Court of Appeals was tasked with determining whether Quality’s Plus’s claims were barred by the economic loss doctrine, as well as whether Georg Fischer was liable for Plastic Supply’s negligence.

The Court’s Ruling

The Court of Appeals held that the economic loss doctrine did not apply. While a party can recover damages for injuries negligently caused to their person or property, a party generally cannot recover if negligence causes a purely “economic loss”—for example, a reduced stock price or lost profits.

Georg Fischer and Plastic Supply argued that Quality Plus had suffered a purely economic loss—costs to provide replacement welds, lease costs for idled equipment, and expenses to remove the defective piping, among other things. Quality Plus countered that it suffered property damage in that the adjustment to the welding machine caused the welds to be manufactured in a way that left them no longer fit for their intended purpose, and thus damaged.

Georg Fischer and Plastic Supply also argued that Quality Plus did not suffer property damage because the piping was actually owned by a different subcontractor. Quality Plus responded by arguing it was sufficient that the piping was in its possession and control. The Court of Appeals agreed with Quality Plus on both arguments and held that the economic loss doctrine did not bar Quality Plus’s negligence claim.

Separately, Georg Fischer argued that it could not be held vicariously liable for Plastic Supply’s negligence because Georg Fischer had no control over Plastic Supply’s work. Generally, one party is only vicariously liable for the negligence of another party if the latter is the agent of the former. Whether a principal-agent relationship exists often depends on whether the purported principal had the right to control the purported agent.

Here, the Court of Appeals held that Georg Fischer was vicariously liable, noting that there was evidence that George Fischer and Plastic Supply’s relationship went beyond that of a typical manufacturer and distributor. The court primarily focused on Georg Fischer’s maintenance and service manual for the welding machine, which included highly specific information about who was permitted to service the machine and the manner in which it must be serviced.

Conclusion

The Court of Appeals’ decision highlights that the economic loss doctrine does not rigidly limit damages in negligence cases—a product not crafted to specification can constitute property damage. Moreover, the plaintiff need not actually own the product, as long as the plaintiff was in possession or control of it. Finally, manufacturing companies should be aware that they could be held liable if another company causes damage by negligently servicing the manufacturer’s construction equipment.

FOOTNOTES

1 JH Kelly, LLC v. Quality Plus Services, Inc., 305 Or App 565, 472 P3d 280 (2020).

State Farm Pilot Uses Sensors to Detect Wiring Defects That Can Cause Fires

Jim Sims | Claims Journal

State Farm is sending sensors that can detect hazards in electric wiring to 40,000 homeowners in California, Arizona and Texas as part of a pilot project that will measure potential savings and customer acceptance.

Mike Fields, a State Farm vice president and leader of the insurer’s Red Labs team, said during an interview Friday that customers who sign up for the project will receive a Ting sensor for free and up to $1,000 for electrical repairs if any problems are detected. The devices, manufactured by Whisker Labs, retail for $349. One Ting plugged into a wall socket can detect loose connections, damaged wires or faulty appliances.

“We know it works in the home,” Fields said. “We want to know the acceptance rate for homeowners.”

State Farm said electrical fires make up 13% of all home fires and cause about $1.3 billion in damages annually in the United States. Electrical fires cause $100,000 in damages, on average.

“No one wants to see those fires,” Fields said.

The Ting software detects tiny electrical arcs, which are precursors to imminent fire risks, Whisker Labs says on its website. If a malfunction is detected, the Ting device sends the homeowner an alert via smart phone.

“The device is simple,” Fields said. “We wanted to wait and make sure that there was an easy and simple way for customers to install it.”

Fields said the Ting device can detect defects not only in wiring inside the home, but also in the transformer outside. That device converts electricity from high-voltage power lines to a lower voltage for household use.

Often transformers are mounted on power poles and can cause wildfires if they shoot off sparks. Investor-owned utilities in California have been ordered to pay billions for damages caused by wildfires ignited by their malfunctioning equipment.

Fields said State Farm chose to market the pilot project to policyholders in areas of California, Arizona and Texas that have a greater wildfire risk specifically to gauge its impact. He said if a Ting device detects a problem with a transformer, it will alert the homeowner, who hopefully willnotify the utility.

Field said State Farm started the project in 2019 by installing 2,000 Ting devices in homes owned by its employees and agents. Since September, the carrier has sent another 11,000 sensors to customers.

He said only about 22 alarms have been set off so far. He said 10 of those alerts were for problems with transformers. The Ting devices also detected an electric heater that was overheating, a sparking outlet, and defective circuit breakers.

State Farm Ventures, the carrier’s investment arm, has an ownership stake in WhiskerLabs, although Fields said that is separate from the partnership for the pilot project. The company, headquartered in Germantown, Md., launched Ting in 2017. The company said that while fundamentally different, the closest market analog to Ting for electrical fire safety applications is the Arc-Fault Circuit Interrupter (AFCI), which was incorporated into the U.S. electrical code in 2010. AFCI’s have a global market of $4 billion, WhiskerLabs said in a press release last year.

Fields said State Farm has also field tested devices that detect water leaks — which are another common cause of property damage claims. He said customers found that it was expensive to install devices that both detected leaks and shut off water to the house, leading to a low “turn-on rate,” except for a small segment of high-income customers. He said devices that detect leaks but can’t shut the water off are easier to install, but most customers wanted devices that shut off the water supply.

Ninth Circuit Adopts General Rule Regarding Circumstances in Which Excess Insurers May Dispute Exhaustion of Underlying Insurance

Alex Silerman | PropertyCasualtyFocus

Addressing an issue of first impression, the Ninth Circuit recently adopted a general rule that will sharply limit the ability of excess insurers to second-guess payment decisions made by lower-level insurers. Subject to limited exceptions, the court concluded that an excess carrier generally cannot challenge decisions underlying insurers made with respect to earlier, unrelated claims, as a basis for arguing that its own layer of coverage has not yet been reached.  AXIS Reinsurance Co. v. Northrop Grumman Corp., No. 19-55135 (9th Cir. Sept. 14, 2020).

The Settlements

The case arises from two underlying lawsuits against Northrop Grumman Corp. for alleged ERISA violations. One was filed by the Department of Labor (DOL) and settled for an undisclosed amount. The other, filed by administrators of a Northrop employee benefits plan, settled for over $16 million (the “Grabek Settlement”). Northrop tendered coverage for both settlements to its insurers, including AXIS. The AXIS policy attached excess of primary and first-layer excess policies, each providing limits of $15 million. AXIS had no payment obligations until the combined $30 million limits of underlying insurance was exhausted in payment of covered loss.

The underlying carriers each determined that the DOL settlement was covered under their policies. As such, the primary carrier contributed its entire limit and the first-layer excess carrier paid the rest, leaving $7 million available for the Grabek Settlement. Having determined the Grabek Settlement also was covered under its policy, the first-layer excess insurer put up the remaining limits of its policy. Northrop then sought the nearly $10 million balance of the settlement from AXIS.

While AXIS did not dispute coverage for the Grabek Settlement, it did take issue with the DOL settlement, which AXIS claimed was uninsurable as a matter of California public policy, and thus should not have been paid by the underlying insurers. AXIS nonetheless paid its share of the Grabek settlement and subsequently filed an action seeking reimbursement of the amount of the DOL settlement from Northrop. AXIS’s theory was that it was forced to prematurely “drop down” and provide coverage for the Grabek Settlement only because the underlying insurers improperly exhausted or otherwise eroded their policy limits in payment of non-covered loss. The district court granted summary judgment to AXIS and Northrop appealed.

The Appeal

The Ninth Circuit framed the issue as follows: “when, if ever, may an excess insurer challenge an underlying insurer’s payment decision as outside the scope of coverage?” Under its “improper erosion” theory, AXIS maintained that insureds bear the risk that excess carriers might withhold payment of otherwise covered claims based on a disagreement as to how the claim was adjusted by underlying insurers in the coverage tower. Northrop disagreed, of course, as did the Ninth Circuit, which concluded that the excess carrier, not the insured, assumes the risk that underlying carriers may handle claims in a manner that implicates upper-layer excess coverage.

Although the Ninth Circuit and California state courts have yet to address the issue, a panel of the Ninth Circuit found Northrop’s position was consistent with the few other cases that have done so. The court relied principally on Costco Whole Sale Corp., 387 F. Supp.3d 1165 (W.D. Wash. 2019), in which a Washington district court found “the weight of authority holds that an excess insurer may not challenge the underlying insurers’ payment decisions in order to argue that their policy limits were not (or should not have been) exhausted … unless there is an indication that the payments were motivated by fraud or bad faith.”

The Ninth Circuit agreed with the Costco approach, and thus adopted it as a general rule. In doing so, the panel emphasized, as did the Costco court, that parties are free to contract around the rule. The court noted that a 2016 Alabama decision involving an excess policy issued by AXIS Surplus Insurance Company did just that. The policy in that case specifically reserved the excess carrier’s right to second-guess payment decisions by underlying insurers, expressly stating that “amounts paid by underlying insurance for losses that would not have been payable under the Axis Excess Policy do not count towards the $10 million” limit of liability, and that, “any amounts that the Primary Policy paid for flood losses do not erode the $10 million threshold.”

In addition, the court rejected the district court’s concern that the Costco rule functionally prohibits excess carriers from challenging their coverage obligations.  In this particular case, AXIS did not dispute that the claim it was asked to cover—the Grabek Settlement—was covered under its policy. It instead sought to reduce its liability for that claim by disputing coverage for a different claim (the DOL settlement), which it was not asked to cover. The Ninth Circuit emphasized that under the Costco rule, excess carriers remain free to dispute coverage for claims tendered to them, even when an underlying insurer determines that the same claim is covered under its own policy. Excess carriers may not, however, second-guess other insurers’ payments of earlier, unrelated claims, without first showing that such payments were motivated by fraud or bad faith, or by pointing to a specific contractual right. Here, AXIS did not allege that Northrop and the underlying carriers engaged in fraud or bad faith, and the court found no contractual basis in the AXIS policy for AXIS’s improper erosion theory. The panel reversed the district court order on this basis alone.

There was an additional issue on appeal as to whether the DOJ settlement called for disgorgement, for which insurance coverage is barred by California public policy. While the court did not reach that issue given its ruling on improper erosion, it did note that the Costco rule would still apply even where underlying limits were paid for earlier, unrelated claims that were arguably uninsurable as a matter of law. In that event, the court explained that the burden would be on the excess insurer to show that the payments made by the lower-level carriers for the earlier claim were motivated by fraud or bad faith, or that the excess carrier had a contractual right to challenge the payments. Since AXIS was never asked to provide coverage for the DOL settlement, the Ninth Circuit seems to indicate that the outcome here would be the same even assuming the DOL settlement did in fact constitute disgorgement.