< PreviousRegulatory/Law 18BEST’S REVIEW • SEPTEMBER 2022 By Rob Tugander A recent California decision tackles one issue: Is a public nuisance claim based on the willful acts of the insured’s predecessor barred from coverage? Lead Paint Litigation Raises Coverage Questions for Policyholders S tate and local governments have been pursuing “public nuisance” claims against companies responsible in some way for societal problems. We’ve seen cases against manufacturers and distributors of guns, lead paint and opioids. And this theory is being tested in climate change cases against energy companies. As new legal theories and trends emerge, so do insurance cases addressing coverage for those liabilities. A recent California decision tackles one issue: Is a public nuisance claim based on the willful acts of the insured’s predecessor barred from coverage? The case—Certain Underwriters at Lloyd’s London v. ConAgra Grocery Products Co.— addresses California Insurance Code Section 533. That law says an insurer is not liable for a loss caused by the policyholder’s willful act. The ruling derives from a California statute, but the court’s reasoning can be applied to similar disputes elsewhere involving “expected or intended” policy language. ConAgra was one of several paint manufacturers accused of creating a public health crisis by promoting the use of lead paint for interior use despite knowing that lead was hazardous to humans. After a trial, ConAgra was ordered to pay into a lead paint abatement fund. ConAgra itself did not promote lead paint for interior use. But its predecessor, W.P. Fuller & Co., did. And evidence showed Fuller knew that using lead paint indoors would likely harm children. The coverage dispute centered on whether Fuller’s knowledge could be imputed to ConAgra and whether the findings in the underlying case were sufficient to meet the willfulness standard under Section 533. ConAgra argued that Section 533’s deterrence policy didn’t apply to it, an innocent insured on the hook for a predecessor’s conduct over which it had Best’s Review contributor Rob Tugander is a partner with Rivkin Radler. He can be reached at Robert. Tugander@rivkin.com.19BEST’S REVIEW • SEPTEMBER 2022 no control. It analogized to vicarious liability cases that allowed innocent insureds to be indemnified for the wrongful acts of others. But the court disagreed that the successor’s knowledge mattered. ConAgra became liable for the public nuisance that Fuller caused, and thus stood in Fuller’s shoes for purposes of Section 533. With Fuller’s knowledge imputed to it, ConAgra proffered two reasons why Section 533’s willful standard wasn’t met. The court rejected both. The first rested on causation. ConAgra contended that Section 533 required a direct causal relationship and a close temporal connection between the willful act and the loss. As Fuller’s conduct happened decades ago, the loss was too attenuated from Fuller’s lead paint promotions. The court disagreed, finding that Section 533 applies whenever the loss is caused by a willful act. Fuller’s willful conduct was adjudged to be a substantial factor in creating a public nuisance; there’s no reason why Section 533 should not apply. ConAgra next argued that Section 533 applies only if it was shown that Fuller’s high-level managers knew of the hazards. Again, the court was unpersuaded. It was established that Fuller, the corporate entity, knew that lead paint was highly likely to cause harm when it promoted it for residential use. This was enough to trigger Section 533’s prohibition against insurance coverage. The point here is straightforward. Policyholders in the cross hairs of public nuisance litigation should not expect to be bailed out by their insurers. This is so, even where an insured’s liability arises solely from the deliberate acts of its corporate predecessor. BRTermOne ® Rate Card Equitable Financial Life Insurance Company One-Year Term (TermOne ® ) Equitable Financial Life Insurance Company of America One-Year Term (TermOne ® ) One year, non-participating, non-renewable, convertible - $25,000 minimum face amount. The maximum face amount varies by issue age. Annual premium mode only and no policy fee. Standard Uni-Tobacco is the only underwriting class. Annual premium rates per $1,000 face amount based on Age at Nearest Birthday. Premium rates are same for Tobacco and Non-Tobacco Use. Issue ages are 20 to 99 in all jurisdictions. Policy is convertible for issue ages 20 through 79. Rates shown are current and are subject to change and state availability. All coverage is subject to underwriting and approval of the Equitable Financial Life Insurance Company and Equitable Financial Life Insurance Company of America. 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Distributed by Equitable Network, LLC (Equitable Network Insurance Agency of California in CA; Equitable Network Insurance Agency of Utah in UT; Equitable Network of Puerto Rico, Inc. in PR), and Equitable Distributors, LLC, (NY, NY). When sold by New York state-based (i.e., domiciled) Equitable Advisors financial professionals, TermOne® is issued by Equitable Financial Life Insurance Company, 1290 Avenue of the Americas, New York, NY 10104. The TermOne® policy has a conversion privilege that permits the policy owner to exchange the TermOne® policy with a new permanent life insurance policy before the final conversion date without evidence of insurability. The new policy may be on any plan of life insurance, except for term insurance, that we or an affiliate of ours offer on the date of exchange subject to our or our affiliate’s rules then in effect as to plan, age and class of risk. This exchange is subject to the requirements stated in TermOne® policy form number ICC07-148-51, 148-51, or state variations. Equitable is a brand name of the retirement and protection subsidiaries of Equitable Holdings, Inc., including Equitable Financial Life Insurance Company (NY, NY), Equitable Financial Life Insurance Company of America, an AZ stock company with main administrative headquarters in Jersey City, NJ, and Equitable Distributors, LLC. Equitable Advisors is the brand name of Equitable Advisors, LLC (member FINRA, SIPC) (Equitable Financial Advisors in MI and TN). GE-3676446 (/2) (Exp /2) AdvertisementView past Issues & Answers sections at www.bestreview.com/issuesanswersarchive.asp Special Advertising Section I SSUES & A NSWERS: • Specialty Insurance Perspective • Climate Risk Disclosure Experts discuss the new opportunities in the specialty lines market and how insurers’ approaches to investing are evolving due to climate change exposure. Interviewed Inside: John Anthony Nationwide E&S Wholesale Bryan Clark WSIA Sabrina Hart Munich Re Specialty Insurance Tim Antonelli Wellington Management Commercial general contractor Excess & Surplus A+ AM Best FSC XV (12/22/2021) A+ Standard & Poor’s (5/7/2021) 100 Company Fortune Experience our expertise: nationwide.com/experience Products unavailable except through a licensed surplus line broker. Availability varies by state. Policy eligibility is subject to underwriting qualifi cations and approval by the insurer writing the policy. Insurance products underwritten by eligible surplus lines insurer affi liates of Nationwide Mutual Insurance Company, One Nationwide Plaza, Columbus, Ohio, 43215-2220, including Scottsdale Insurance Company (unlicensed except in AZ, DE and OH), Scottsdale Indemnity Company (unlicensed in AZ and DE), or Scottsdale Surplus Lines Insurance Company (unlicensed except in AZ and NJ). Scottsdale Surplus Lines Insurance Company is not an eligible surplus lines insurer in CA. Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. AM Best A+ (12/2021, The second highest of 16 ratings). Standard & Poor's A+ (5/2021, The fi fth highest of 21 ratings). ©2022 Nationwide. Real Expertise. Real Protection. At Nationwide, we have the depth of experience to handle the most unique and complex coverage challenges, providing protection for our members with a proven track record to be there when you need us.SPECIAL ADVERTISING SECTIONSPECIAL ADVERTISING SECTION Share this edition at www.bestreview.com/issuesanswersarchive.asp. BEST’S REVIEW • SEPTEMBER 202223 Issues & Answers: Specialty Insurance Perspective Providing E&S Solutions John Anthony, Senior Vice President of Contract P&C and Excess Umbrella for Nationwide E&S Wholesale, said the company has a large investment in advanced analytical models that can glean valuable insights from data. “We’re providing information for our partners to select the right risks and opportunities that we should be pursuing together,” he said. Following are excerpts from an interview. Does the current economic climate offer an opportunity to E&S insurers? I believe it does. Inherently, the E&S marketplace is poised to take advantage of different climates and economic marketplaces. Having a dynamic product offering and the ability to quickly develop and launch new products allows us the opportunity to take advantage of emerging opportunities in the changing environment. Economic and social changes always provide the E&S marketplace with unique and new opportunities for those positioned to take advantage of them. With the breadth and appetite and the product that the E&S marketplace provides, and the wide range of resources that we have, we’re able to capitalize on the changes in the external environments as they present themselves. What factors does Nationwide look at when considering risk? First, we have a world-class team of distribution partners that we know confidently transact business on our behalf, providing the best solutions to the best risks. Then we underwrite the insured. Good insureds that are safety conscious and really invested in their business usually perform better than those that aren’t as focused on providing a safe environment. Additionally, we look at individual risk characteristics. We have large amounts of data that we run through analytical models, and we have a specialized underwriting team with expertise that can help identify which risk characteristics are going to perform to our standards. How can carriers help distribution partners be mutually successful while maintaining profitability? One of the biggest things is the financial stability that a carrier can offer—providing a peace of mind that the carrier will be there in the client’s time of need, which would be a great selling point when you’re looking to select which carrier to put your risk solutions through. Additionally, having a national footprint where we can aggregate and glean information that may be outside of what the purview of our individual agents are provides a lot of solutions that may not be readily apparent to our distribution partners. How does Nationwide E&S measure success? At Nationwide E&S, we measure our success by our ability —year in and year out—to provide relevant and viable solutions and products to our partners and policyholders, while bolstering the financial strength of our organization. We pride ourselves on the breadth of product and specialized expertise in both underwriting and claims handling, and delivering world-class solutions in a dynamic and ever-changing environment. John Anthony Senior Vice President of Contract P&C and Excess Umbrella Nationwide E&S Wholesale “At Nationwide E&S, we measure our success by our ability— year in and year out—to provide relevant and viable solutions and products to our partners and policyholders.” Visit the Issues & Answers section at www.bestreview.com to watch an interview with John Anthony.THERE ARE NO BAD IDEAS, JUST BAD DECISIONS. MANAGE YOUR RISK BY CHOOSING A WSIA MEMBER. Some decisions are too precarious to take on alone. You need a partner who can help you create the right solution for your client’s risk, while minimizing yours. Choose a WSIA member to craft cost-effective solutions for complex risks. In fact, it’s so cost-effective that a recent analysis by Conning, Inc. concludes that wholesale distribution does not increase the cost to the insured. That’s a good decision! WSIA MEMBERS ARE INSURANCE PROFESSIONALS DEDICATED TO THE WHOLESALE DISTRIBUTION SYSTEM. Find a WSIA member at YUKCQTIƂPFCOGODGT SPECIAL ADVERTISING SECTIONSPECIAL ADVERTISING SECTION Share this edition at www.bestreview.com/issuesanswersarchive.asp. BEST’S REVIEW • SEPTEMBER 202225 Bryan Clark, President, Wholesale & Specialty Insurance Association (WSIA), and President, Gorst & Compass Insurance, said WSIA’s Insurtech Conference features exhibitors who come with technology solutions that are specific to the insurance industry. “The opportunity to meet with them, share specific needs, see demos, and hear about their services and products is great,” he said. Following are excerpts from an interview. “Insurtech” can be literally defined as the use of technology to improve the efficiency of the insurance industry. Can you touch on how you see it impacting wholesale, specialty and surplus lines right now? The term certainly has become a buzz word, but rightfully so because it is, and should be, an integral part of everything we do in surplus lines insurance. As the market for emerging risks, it’s appropriate that we would be aggressively leveraging insurtech in our businesses. We are finding that adopting digital solutions is good for everyone involved in the transaction and can be beneficial to the bottom line as it makes us more efficient across the board. I think it’s becoming necessary to get up to speed on solutions to remain competitive. What are some of the challenges of adopting insurtech? They vary by size and type of firm. In general, like with any new technology adoption, it can be challenging to integrate existing IT infrastructure with a new platform or technology. The key is to find ways to digitalize processes that have historically been more manual and to get help integrating them. There are a lot of solutions out there that can help with that process, but when you’re busy with client relationships and managing other aspects of business, it can be difficult to find and leverage them. It’s also obviously critical to keep data and cybersecurity in mind with adoption of these tools. How does WSIA’s Insurtech Conference help firms overcome these challenges? I think the real value comes in merging that exhibitor piece with great education opportunities targeted specifically to our segment of the industry. Many of us wear a lot of hats in our firms and having peers and experts all in one place to share ideas and best practices is an efficient way to make sure you’re not being left behind in this race to digitize. The sessions are varied and target people at different Meeting the Insurtech Challenge levels of expertise, and there is great content for CEOs, IT professionals, underwriters, brokers and HR professionals. It’s all technology-based, but technology is impacting the entirety of our organizations, and it’s nice to have a one-stop for people across our businesses to learn. Tell us about the 2023 Insurtech Conference. The next conference is April 2-5 in Nashville. I think that the basic structure of the conference will remain unchanged because it works so well to marry education with exhibitors there, but I would also anticipate more dedicated time for private meetings and networking opportunities because we know that attendees appreciate being able to interact outside of the structured sessions also. This is the only WSIA event that also welcomes nonmember attendees, so it’s an opportunity for those registrants to learn more about the industry and the association and interact as well. I would encourage anyone who is impacted by their firm’s technology in any way to save those dates and consider attending. To learn more about WSIA, please visit www.wsia.org. Bryan Clark President Wholesale & Specialty Insurance Association (WSIA) “Many of us wear a lot of hats in our firms and having peers and experts all in one place to share ideas and best practices is an efficient way to make sure you’re not being left behind in this race to digitize.” Issues & Answers: Specialty Insurance PerspectiveMunich Re Specialty Insurance Munich Re Specialty Insurance (MRSI) is a description of the insurance business operations of affiliated companies in the Munich Re (Group) that share a common directive to offer and deliver specialty property and casualty insurance products and services in North America. Products and services are underwritten and provided by Bridgeway Insurance Company (BIC), which is an affiliate of Munich Reinsurance America, Inc. BIC is a surplus lines insurers and surplus lines business can only be placed or accepted through a licensed surplus lines producer. Any inquiries concerning the product discussed herein should be directed through a licensed surplus lines producer or broker. Not all products are available in all U.S. states, and terms and conditions of coverage may vary by state. The information contained herein is intended for surplus lines brokers and producers only. It is also intended as general information only and does not constitute an offer to sell or a solicitation of insurance. Each company is financially responsible only for its own insurance products. For more information regarding MRSI, including BIC, visit https://www.munichre.com/us-non-life/en/general/munich-re-specialty-insurance-disclosures.html. © 2022 Munich Reinsurance America. All rights reserved. • Wide-ranging commercial insurance coverage options for today’s toughest mid-sized commercial challenges • Consistently speedy responses • An entrepreneurial approach and a commitment to evaluating every submission on its own merits • Creative solutions with customized coverage through A+ rated carriers Find out more about how we help businesses move forward with our property, casualty, healthcare, financial lines, and surety solutions. Visit munichrespecialty.com today. Our Excess and Surplus lines come with extras. SPECIAL ADVERTISING SECTIONSPECIAL ADVERTISING SECTION Share this edition at www.bestreview.com/issuesanswersarchive.asp. BEST’S REVIEW • SEPTEMBER 202227 Dynamic E&S Market Sabrina Hart, Munich Re Specialty Insurance President, Excess and Surplus, said the E&S market has historically been among the most dynamic. “The current market really is no exception to that. At Munich Re, we are working very closely with brokers to see where we can capitalize on these opportunities,” she said. Following are excerpts from an interview. How important is creativity when it comes to E&S business? It’s extremely important. With the world getting riskier by the day, the industry requires creativity in a number of areas, but specifically in critical coverage areas such as pandemic, cyber, wildfire, just to name a few. That especially holds true for the E&S market, where we are looking to create bespoke solutions for clients’ risk management needs. That’s being creative with respect to terms and conditions, program structures, risk appetite, and bringing creativity with the launch of new products. Even more critical is the value proposition that the E&S market brings to brokers. Creativity becomes even more important as demand grows. Where do you see the growth coming from in the specialty market, particularly in E&S lines? We see a market poised for substantial growth across all product lines, bolstered by the launch of new products and also enhancing some of our existing products. We believe in the coming years there will be even stronger growth in the specialty insurance solutions than we’ll find in the more traditional standard insurance markets. The trends that we see related to such critical issues around climate change and liability, as well as the need for our clients to manage those difficult risks are much stronger than they are when compared to more standard risk. Are there any particular emerging and challenging risks that you’re keeping an eye on? The ever-changing market conditions have created several emerging and challenging risks for our industry. Most notable is inflation, especially social inflation. We’re certainly seeing a trend of rising claims and insurance costs that are tied to increased litigation, along with extremely friendly judgments in favor of plaintiffs and nuclear jury awards. I would say cyber is top-of-mind as it relates to products. Cyber is candidly a very young business that lacks robust data. If you think about it, as an industry, we’ve been modeling property and casualty risk for hundreds of years. In comparison, we have such a relatively small amount of data for cyber. We also need to think about climate change and the repercussions of how the climate crisis directly affects insurance and reinsurance industries. When we think about the loss potentials from natural disasters, such as our storms, floods and wildfires, we see them increasing at such alarming rates, due in large part to climate change. How does Munich Re Specialty Insurance engage with broker partners? It’s all about a focused distribution approach. We refer to that as our select broker strategy. We have an outstanding team of broker relationship leaders who manage each of these select relationships. We engage with our valued brokers from the executive level to the producer marketing level, and everywhere in between. In addition to quarterly business reviews, we are in continual contact with our brokers. Broker engagement is a strategic pillar for us as we aspire to be a top E&S market. Our mission is to create a preferred-broker experience and a level of engagement that will differentiate us in the marketplace. Learn more about Munich Re Specialty Insurance’s E&S team and their creative coverage for tough middle-market risks at https://www.munichre.com/us-non-life/en/solutions/specialty- insurance/excess-and-surplus.html. Sabrina Hart President, Excess & Surplus Munich Re Specialty Insurance “Those operating in the E&S space tend to be at the forefront of industry trends, driving innovation, as it relates to coverage, along with the superior service that the community provides to brokers and clients.” Visit the Issues & Answers section at www.bestreview.com to watch an interview with Sabrina Hart. Issues & Answers: Specialty Insurance PerspectiveNext >