“established by the state.”
3. Fluor Corp. v. Super. Ct.
Writing for a 6-3 majority, Chief Jus-
tice Roberts noted that, despite the stat-
ute’s ambiguous language, it was implau-
sible for Congress to have intended to
exclude residents of states that had not
established exchanges. The decision was a
relief to health insurers that were bracing
for a monumental decline in customers
and a sharp increase in premiums.
In a victory for corporate policyholders,
the California Supreme Court in Fluor
Corp. v. Super. Ct., 61 Cal. 4th 1175 (2015),
held that an anti-assignment clause in
a liability policy does not bar coverage
where the assignment occurred post-loss. This decision overturned the Court’s
prior decision, Henkel Corp. v. Hartford
Accident & Indemnity Co., 29 Cal. 4th 934
(2003), which held that corporate successors were not entitled to recovery under
an insurance policy assigned without the
insurer’s consent, even if the assignment
was post-loss and therefore imposed no
additional obligations on insurers.
The Court found that Henkel neglected
to consider California Insurance Code
§ 520, a provision that was intended to
avoid unjust enforcement of consent-to-assignment clauses. Fluor is a victory
for corporate policyholders because it
protects their ability to assign coverage
rights to corporate successors. Further,
California is now in line with a majority of jurisdictions that prohibit insurers
from asserting anti-assignment clauses to
avoid coverage for pre-assignment losses.
4. Hartford Casualty Insurance
Co. v. J.R. Marketing LLC
In Hartford Casualty Insurance Co. v. J.R.
Marketing LLC, 61 Cal. 4th 998 (2015),
the California Supreme Court was asked
to weigh in on an insurer’s ability to seek
reimbursement of defense costs directly
from a policyholder’s independent counsel. In this case, the Hartford had been
directed by a court enforcement order to
pay the legal fees of its policyholder, J.R.
Marketing LLC, under a reservation of
rights, in a third-party action.
The Hartford argued it was entitled to
reimbursement of fees and services be-
yond the enforcement order to the extent
that the costs were “abusive, excessive,
unreasonable or unnecessary.” The trial
court ruled in favor of Squire Sanders, the
policyholder’s independent counsel, that
the Hartford could not pursue a claim for
reimbursement directly against a non-in-
sured. The Court of Appeal affirmed the
trial court’s decision.
On further appeal, the California Supreme Court reversed the decision, holding that the Hartford could sue Squire
Sanders directly. Although the Court
noted that its findings were limited to
the unusual facts of the case, this case has
raised discussion among insurers about
whether they can now successfully argue
that reimbursement actions can be asserted directly against independent counsel.
Such actions would likely be opposed vigorously by the defense bar, which will argue that an independent counsel’s duty to
zealously advocate on behalf of its client,
the policyholder, would be negatively impacted if the costs associated with its legal
strategy could be contested by the insurer.
5. Travelers Property Casualty
Co. of America et al. v. Federal
In Travelers Property Casualty Co. of
America et al. v. Federal Recovery Ser-
vices, 2015 WL 2201797 (D. Utah May
11, 2015), a Utah federal court issued one
of the first rulings concerning coverage
of a cyber insurance policy. Travelers is-
sued a cyber policy to a data storage and
processing company, Federal Recovery
Services, which provided coverage for
“errors and omissions wrongful acts.”
Federal Recovery subsequently entered
into a service agreement with fitness center
operator Global Fitness Holdings, which
required Federal Recovery to process its
member accounts and transfer member
fees to Global Fitness. Global Fitness later
entered into an asset purchase agreement
with a different fitness company under
which it agreed to transfer all of its mem-
ber accounts data to the purchaser. Federal
Recovery refused to transfer some of this
data unless Global Fitness satisfied certain
demands for compensation. Global Fit-
ness sued Federal Recovery for breach of
contract, as well as other causes of action.
Pursuant to its cyber policy, Travelers
agreed to defend Federal Recovery un-
der a reservation of rights, but then filed
a declaratory judgment action seeking a
ruling that it did not have to defend. The
policy provided coverage to Federal Re-
covery for “errors and omissions wrong-
ful acts,” which were defined as “any er-
ror, omission or negligent act.” The Utah
federal court ruled that Travelers did not
have a duty to defend Federal Recovery.
Although the insured’s policy covered er-
rors, omissions and negligent acts, Global
Fitness’ claim that Federal Recovery will-
fully withheld data was not covered.
Interestingly, Travelers, one of the few cy-
ber insurance coverage decisions issued,
did not involve one of the many data
breaches that have resulted in the cyber
insurance boom. This decision suggests
that courts will decide at least some fu-
ture cyber insurance cases based on well-
employed traditional coverage theories.
The year 2016 will undoubtedly bring
much-needed legal guidance to the cyber
insurance field, particularly in light of the
U.S. Court of Appeals for the Third Cir-
cuit’s recent ruling in FTC v. Wyndham
Worldwide Corp., 799 F.3d 236 (3d Cir.
2015), that the Federal Trade Commis-
sion has the authority to regulate cyber-
security as an unfair business practice.
While insurers have seen a multitude
of decisions impacting all aspects of the
marketplace in 2015, it is likely that 2016
will bring even more important deci-sions. In addition to new cyber liability
decisions, insurers will likely see litigation
challenging the Affordable Care Act and
employing disparate impact analysis in
2016. In addition, insurers may see interesting developments in class action jurisprudence, wage and hour litigation, and
regulatory actions and investigations.
Kymberly Kochis is a partner with Sutherland Asbill &
Brennan LLC, experienced in counseling insurers on
litigation and governance matters, and representing
them in complex class action litigation. She also regularly counsels clients confronted with investigations
from the U.S. Securities and Exchange Commission,
U.S. Attorney offices, departments of insurance and
offices of State Attorneys General. She can be reached
by e-mail at email@example.com.
Veronica M. Wayner is an attorney with Sutherland
Asbill & Brennan LLC who works with large insurance
companies in federal and state courts on complex
insurance coverage cases and class action lawsuits.
She also advises clients on business litigation, employment and labor law, and internal investigation matters.
E-mail her at firstname.lastname@example.org