Continued litigation over "horizontal" v. "vertical" exhaustion triggers of additional layers of coverage as reflected in Gull Industries, Inc. v. Granite State Insurance which followed SantaFe Braun, Inc. v. Insurance Company of North America (2020) 52 Cal.App.5th 19, and Montrose Chemical Corp. of California v. Superior Court (2020) 9 Cal.5th 215, rather than Continental Casualty Company v. Rohr, Inc. (2020) 201 Conn. App. 636.  (I currently have a pending decision, i.e., already argued, in the California Court of Appeal the issue of whether vertical exhaustion rather than horizontal exhaustion will apply to a primary carrier seeking contributions from other policy year carriers that promised to continue in force as underlying insurance as to now exhausted policies).

Laura A. Foggan, Chair – Insurance/Reinsurance Group, Crowell & Moring LLP, and member of the FDCC:  We all can certainly say that throughout 2021 we saw a tremendous about of litigation on Covid-19 business interruption coverage. 

• Throughout 2021, in the COVID-related business interruption litigation nationally, we've seen that the courts have widely rejected policyholder efforts to treat loss of use as though it were direct physical loss of or damage to property.  Policyholders recently have pivoted towards the bald contention that the "physical presence" of COVID somehow constitutes direct physical loss or damage but, as the Bridal Expressions ruling illustrates, this lacks a factual basis and hasn't gotten traction either.  
• In recent state appellate rulings such as Inns By the Sea, Nail Nook and Sanzo, state appellate courts have lined up with their federal counterparts, similarly giving effect to the core requirement of direct physical loss or damage in commercial property policies. 
• And not only have federal and state appellate courts lined up to find no coverage, the two cases tried to verdict – one to a judge (the Oceana Grill case, also known as Cajun Conti) and the other to a jury (KC Hopps) have also found no coverage. As the Cajun Conti and KC Hopps trials demonstrate, even if a policyholder's complaint did survive a motion to dismiss, this would only move the case to the next stages, such as motions for summary judgment or even trial, where ultimately insurers have also prevailed. 
• The experience with COVID-related business interruption cases in 2021 shows that courts generally understand that these types of policies cover property, such as an insured's building or its personal property e.g., equipment, furniture, against risk of direct physical loss or damage like fire, windstorm or theft. 

I anticipate that we will see additional litigation over cyber coverage issues in the coming year, under specialty cyber policies and other coverage lines. These issues are emerging in the courts, and there has been relatively little precedent to date. Also, there has been such an upsurge in ransomware attacks and other cyber events during the past year that follow-on questions of insurance seem inevitable. 

Joseph Monteleone, Partner at Weber Gallagher, and member of the ICLC Editorial Advisory Board:  Delaware is becoming increasingly the jurisdiction of choice for policyholders.  That being said, Delaware is not uniformly a bad jurisdiction for insurers.  The worst forum for insurers is Delaware state court, but the results have been more mixed before the Delaware Supreme Court.  Fortunately, there is no intermediate appellate court, so getting a loss at the Superior Court level before the Delaware Supreme Court is fairly expeditious.  Of course, your strategy should not be that we will prevail upon appeal.  If you are an insurer, it's still best to try to avoid Delaware state court jurisdiction.

It should be noted that the federal district court in Delaware is not a bad place to be.  The problem is getting diversity jurisdiction.  With many policyholders and some insurers incorporated in Delaware, that will often defeat diversity.

Michael Miguel, Principal at McKool Smith: While country-wide decisions on COVID and cyber-attack fallout dominated the insurance headlines in 2021, and justifiably so, there were other decisions with significant potential import. Delaware's Supreme Court decided it would apply its own law to Delaware corporations, and not the law of the principal place of business in the Dole case. Coverage for fraud that would be prohibited in California under D&O policies was available under Delaware law. A Delaware superior court found coverage for Verizon under D&O insurance, holding a fraudulent transfer could be considered a "securities claim." Lastly, in Guaranteed Rate, Inc. v. Ace American a civil investigation demand was considered a "claim" and a mortgage broker's defense costs to respond to a False Claims Act investigation were covered.

Other cases that I think could be significant, depending on their precedential value, included (i) a Pennsylvania decision holding that an insurer may intervene and propose special verdict forms and jury interrogatories to assist in determining indemnity coverage (A.H. v. Roosevelt Inn, LLC); (ii) a Maryland court holding in CX Reinsurance Co. v. Johnson that underlying tort claimants are intended third-party beneficiaries under a company's insurance, with rights accruing upon injury, such that those rights are unaffected by subsequent agreements between the policyholder and insurer concerning the existence of coverage, since a policy may not be altered after a claim is made; and (iii) the Bankruptcy court in New York holding that the anti-assignment clauses in insurance contracts do not nullify the transfer of insurance rights to bankruptcy plan trusts (In re Purdue Pharma L.P., 9/17/21).

Leslie Thorne, Partner at Haynes Boone: COVID/BI cases continue to loom large, with conflicting opinions continuing to come out of different courts.  Just last week, we saw differing opinions come out of courts sitting in New York.  While federal circuit courts are starting to weigh in, one thing that has kept things unpredictable is that the vast majority of decisions are coming out of federal courts making Erie guesses.  Until we start to see a critical mass of state high courts decide these issues, it's still a jump ball.

Alexander Sugzda, partner at Cohen Ziffer Frenchman & McKenna: Insurance litigation, especially business interruption claims, was dominated in 2021 by COVID claims.  A fairly concrete trend with regard to those claims is that policyholders who are not able to allege the physical presence of the coronavirus on their properties, as well as policyholders with policies that contain the standard-form virus exclusion adopted by the insurance industry in the wake of the SARS pandemic, have not been successful in pursuing their claims in court, with insurers devoting significant resources to having such cases decided quickly, and the vast majority of those cases in which motions to dismiss have been filed having those motions granted.  Insurers have attempted to parlay this early success into favorable decisions on cases without those same facts, hoping to create a de facto impression in the minds of judges that COVID cases are not covered under property damage and business interruption policies.  There has been some success with this effort, but there have also been dozens of courts who have brushed aside that smokescreen, looked at the facts, and found that significant differences meant that other cases must go forward.  As the record continues to be developed in those cases around the country, with insurer witnesses testifying that they did very little analysis before denying COVID claims en masse, expert opinions further educating parties and courts about the physical properties of the coronavirus, courts will be confronted with cases with very different policy language and facts than the cases dismissed earlier in the year.

One commenter wished to remain anonymous in order to avoid conflicts of interest. Her analysis focused on bad faith issues in Florida.

Conduct of the insured/claimant is relevant to the totality of the circumstances.  In Florida, there is a tension between policyholders and insurers on whether the conduct of the insured (or claimant) is relevant to a determination of whether the insurer satisfied its duties of good faith.  This year, the Eleventh Circuit issued three opinions related to the issue.

In Florida, bad faith is evaluated pursuant to the totality of the circumstances, and, in third-party bad faith, the question is whether the insurer diligently worked on the insured's behalf to avoid an excess judgment, as if it were standing in the insured's shoes.  Eres v. Progressive Am. Ins. Co., 998 F.3d 1273 (11th Cir. 2021).  In 2021, the Eleventh Circuit granted summary judgment in favor of the insurers in three bad faith cases in which the claimants alleged that the insurers' transmission of overly broad releases to the claimants to settle personal injury and/or wrongful death claims was bad faith. The Eleventh Circuit held that the releases did not create a jury question on bad faith.  Pelaez v. Government Employees Ins. Co., 13 F.4th 1243 (11th Cir. 2021); Eres v. Progressive Am. Ins. Co., 998 F.3d 1273 (11th Cir. 2021); Robles v. GEICO Indem. Co., No. 20-14651, 2021 WL 4451971 (11th Cir. Sept. 29, 2021).  These cases are significant because they recognize that the conduct of the claimant or the policyholder and his/her lawyer is important to the totality of the circumstances and whether a realistic opportunity to settle ever existed. 

Extra-contractual damages are not available in a coverage action.  In Florida, a bad faith action cannot be prosecuted at the same time as a coverage action.  This means, where an insured believes its insurer breached the policy, it must wait for a final determination on the contract action before it can seek extra-contractual damages in a bad faith action.  Notwithstanding the two-step process, an insured sought to test the law.  

In Citizens Property Ins. Corp. v. Manor House, LLC, 313 So. 3d 578 (Fla. 2021), the Florida Supreme Court held that extra-contractual or consequential damages are not available to a property policyholder in a first-party breach of insurance contract case – and are only available in a bad faith.  Id. at 582.  Citizens Property Insurance Corporation ("Citizens") is a government entity that is statutorily immune from first-party bad faith suits in Florida.  Id. at 583.  The policyholder tried to circumvent the statutory immunity by seeking extra-contractual, consequential damages from Citizens in a breach of contract and fraud action.  The policyholder sought to recover rental income lost during Citizens' alleged delay in adjusting and paying the claims.  However, the policy did not provide lost rental income as a covered loss.  The Florida Supreme Court "conclude[d] that extra-contractual, consequential damages are not available in a first-party breach of insurance contract action because the contractual amount due to the insured is the amount owed pursuant to the express terms and conditions of the insurance policy."  Id. at 584.