Travelers Indemnity v. Portal Healthcare Solutions

The US Court of Appeals for the Fourth Circuit rendered an unpublished opinion on the above referenced action pursuant to cross-motions for summary judgment filed by the parties in US District Court for the Eastern District of Virginia.  The dispute arose over whether Travelers had a duty to defend Portal against class-action allegations that Portal posted confidential medical records on the internet.  The US District Court concluded that Travelers did have a duty to defend Portal against the underlying class action and the US Court of Appeals affirmed.  Keep in mind that an insurer’s duty to defend is generally construed more broadly than its duty to indemnify.

The district court included the following paragraph in the background section related to the language found in the 2012 and 2013 policies issued by Travelers:

The 2012 and 2013 Policies obligate Travelers to pay sums Portal becomes legally obligated to pay as damages because of injury arising from (1) the “electronic publication of material that … gives unreasonable publicity to a person’s private life” (the language found in the 2012 Policy) or (2) the “electronic publication of material that … discloses information about a person’s private life” (the language found in the 2013 Policy). (See doc. 1, at 5-6)

Personal and advertising injury liability coverage is offered under Coverage B in the CG 00 01 04 13 CGL policy form published by ISO.  The insuring agreement for Coverage B covers sums that the insured becomes legally obligated to pay as damages because of “personal and advertising injury” to which this insurance applies.  The insuring agreement also covers defense of the insured against any “suit” seeking those damages.  “Personal and advertising injury” means injury, including consequential “bodily injury”, arising out of one or more of the following offenses:  …e.  Oral or written publication, in any manner, that violates a person’s right of privacy.  In the Travelers case, the district court concluded (and the appeals court affirmed) that making confidential medical records publicly assessable via an internet search does fall within the plain meaning of “publication”, even if the publication was unintentional.  The court also determined that posting confidential medical records online without security restriction gives “unreasonable publicity” to, and “disclosure” of information about, patients’ private lives.

I believe one could argue that, given similar circumstances to those in the Travelers case, there is at least the potential for coverage under the ISO CGL form sufficient to give rise to a duty to defend on the part of the insurer.

Turning to the issue of limits, the most common limits we see on a standard CGL policy are $1,000,000 with a general aggregate limit of $2,000,000.  In the ISO CG 00 01 04 13, Section III – LIMITS OF INSURANCE, Part 1. states:

1.  The limits of Insurance shown in the Declarations and the rules below fix the
most we will pay regardless of the number of:

a.  Insureds;
b.  Claims made or “suits” brought; or
c.  Persons or organizations making claims or bringing “suits”.

2.  The General Aggregate Limit is the most we will pay for the sum of:

a.  Medical expenses under Coverage C;
b.  Damages under Coverage A, except damages because of “bodily injury” or
“property damage” included in the “products-completed operations
hazard”, and
c.  Damages under Coverage B.

The following subpart also applies to the “personal and advertising” limit;

4.  Subject to Paragraph 2. above, the Personal and Advertising Injury Limit is the most we will pay under Coverage B for the sum of all damages because of all “personal and advertising injury” sustained by any one person or organization.

My reading of the above policy language from the ISO CGL policy, and supported by expert commentary from IRMI – How the Limits Apply in the CGL, the Personal and Advertising limit applies separately to each person or organization that sustains damages because of a covered offense or offenses. Consequently, in an action by multiple plaintiffs arising out of the same offense, multiple Personal and Advertising limits could be exposed but limited by the general aggregate limit under each policy period. Once the aggregate limit under the policy is exhausted, no further claims be made against the policy term as set forth in Part 2 above, with the exception of products-completed operations losses.

One of the key findings in this case is that “publication”, for purposes of qualifying for coverage under personal and advertising injury coverage in a CGL, does not have to be intentional nor would it have to be actually accessed by an outside party. This raises the possibility for coverage for “personal and advertising injury” for accident publications of information which violates a person’s right to privacy.

ISO has developed several coverage endorsements which provide more flexibility in how insurers choose to address cyber exposure, including an optional endorsement which deletes the invasion of privacy-related offense from the definition of personal and advertising injury applicable to Coverage B under the ISO CGL Coverage Form. A summary of some of these options can be found in an article published by Insurance Journal – ISO Comments on CGL Endorsements for Data Breach Liability Exclusion.

Urban Friesz works as a Vice President and Senior Claims Specialist in our Minneapolis, MN location. He can be reached by phone at 952-229-8856 or by email at urban.friesz@bmsgroup.com

Disclaimer: This article and the Website content that can be linked to through this article are offered for informational purposes only. The article and linked-to Website content are made available without warranty of any kind. They are not offered or intended as advice on any specific facts or circumstances, and you should not rely on them as a substitute for independently obtaining such advice.

 

Fading El Niño – What’s Next For Insurance Industry?

A Q1 and El Niño wrap up

With winter and Q1, 2016, behind us, the insurance industry can review the active weather pattern and resulting insured losses. As mentioned in my blog post last fall, Florida experienced lots of weather activity, which is typical during strong El Niño winters such as this past one.  However, overall insured losses, while not historic, haven’t been benign either: Q1 losses ran about 31% above the 10-year average insured loss according to my estimates with Texas and the Southern Gulf states taking the brunt of the insured losses.  Although the remarkable blizzard (January 22–24) resulted in limited insured impacts based on the Property Claim Services (PCS) initial estimate, winter storms increased losses in the West.  In fact, the PCS issued four separate bulletins for the state of California more than any other year during the last 10 winter seasons.  Examples like this highlight the relatively predictable impacts of an El Niño winter.

After virtually tying the record for the strongest El Niño (as defined by a three-month running mean sea-surface temperature anomaly in the so-called Niño 3.4 region of the central and eastern equatorial Pacific Ocean), sea-surface temperatures (SST) are steadily cooling. NOAA’s March El Niño outlook suggests this El Niño may be all but gone by late spring or early summer.  In fact, some climate models and a recent government outlook suggest a shift to its opposite, La Niña by this fall.  As a result, the insurance industry needs to consider the potential for higher losses which are often associated with the La Niña phenomenon.

March_ENSO_Anomaly_SubSurface

Looking below the surface in the ocean waters in the Central Pacific, you can also see a trend of colder-than-average water working its way eastward across the International Date Line, eating away at the warmer-than-average equatorial Pacific water from below – another sign of a weakening El Niño.  Source: CPC

The unpredictable El Niño-La Niña relationship

Scatterplot showing the relationship in El Niño / La Niña states from one year to the next, for every year since 1950 in which an El Niño occurred. Each dot represents a pair of “year 1 vs. year 2” El Niño / La Niña states. In general, the stronger the El Niño (higher values on the x-axis), the stronger the subsequent La Niña (lower values on the y-axis). For more details and a larger version of the graphic, see the associated ENSO Blog post

Scatterplot showing the relationship in El Niño / La Niña states from one year to the next, for every year since 1950 in which an El Niño occurred. Each dot represents a pair of “year 1 vs. year 2” El Niño / La Niña states. In general, the stronger the El Niño (higher values on the x-axis), the stronger the subsequent La Niña (lower values on the y-axis). For more details and a larger version of the graphic, see the associated ENSO Blog post

El Niño and La Niña events each typically last for only 9-12 months, and they typically recur every 2-7 years, according to Columbia University’s International Research Institute for Climate and Society.  Flip-flops from a strong El Niño to La Niña are not unusual. For example, the record-setting El Niño of 1997-98 was almost immediately followed by La Niña the following summer, reaching moderate-to-strong intensity before finally ending in Spring, 2001. A similar pattern followed the strong El Niño of 1972-73.  However, neutral conditions followed three other strong El Niño’s that occurred in 1982-83, 1965-66 and 1957-58.

What Does It All Mean for the Insurance Industry?

Expect higher losses! If La Niña develops, historical insurance industry losses suggest worldwide impacts, but likely these impacts won’t be fully felt until 2017 when the La Niña is fully developed.  However, there are some broad trends that have shown up in past weakening El Niño events that could give a hint on what to expect in 2016.

Severe Weather Season

Various climate forcers such as North American snowpack, Pacific Decadal Oscillation and Gulf of Mexico SST can influence North American severe weather, muddling the impacts that El Niño or La Niña might have. Disregarding these factors and only looking at past weakening El Niño events that transitioned to La Niña, the data suggests weather will vary based on location. A moderate-to-strong La Niña tends to promote severe weather across the Southeast (conversely, El Niño promotes severe weather in Florida, the high plains of Texas, and up through Colorado to Minnesota).

Although insurance loss data suggest on average a La Niña year sees about double the insured loss that might occur during El Niño years, the reason for increased losses may have more to do with the location of the losses than the severity of the storms. La Niña years seem to favor stronger storms over the Southeast (Dixi Alley). This area is densely populated, which may lead to more claims of severe weather.  But like with any weather peril, even a quiet year can have an EF-5 roll into a city and cause devastation.  In the end, insured losses are largely based on good luck or bad luck.  Example: if the Joplin tornado of 2011 had shifted a few miles south during that La Niña year, no one would talk about it today.

This severe weather season the key could be the summer heat expected in the central Plains and Great Lakes could mix with the wet spring expected in Texas and Louisiana and increase instability leading to storms in the Northern Plains and Ohio River Valley.

Atlantic Hurricane Season 2016

Much hype accompanied last hurricane season due to El Niño’s tendency to produce stronger wind shear, which tends to tear apart developing or mature tropical cyclones and result in less tropical development. Sure enough, June through October, 2015, Caribbean wind shear was the highest on record since 1979, according to Dr. Phil Klotzbach, tropical scientist at Colorado State University (CSU). The team at CSU has also in the past pointed out that the timing makes a big difference:  If a transition to La Niña happens late in the year, it’s less likely to influence the Atlantic hurricane season.  The forecast team at CSU will issue their first outlook for the 2016 Atlantic season on April 14.

However, the CSU team and other leading researches have pointed out that U.S. hurricane impact rises dramatically in a La Niña or neutral season compared to an El Niño season. On an annualized basis since 1950, major hurricane landfall rates during La Niña years are 20% higher than neutral conditions and almost 280% higher than El Niño rates.

Hist_ENSO_Impacts

General stats of past La Niña and El Niño Atlantic hurricane seasons and the number of landfalls with adjusted historical total insured losses when accounting for all hurricane and tropical storm impacts for those years.

With El Niño potentially vanishing by the start of the 2016 hurricane season, the chance increases for tropical cyclones surviving to make U.S. landfall. If El Niño was the only factor, that is. I expect the team at CSU to discuss El Niño / La Niña, but also discuss the possible switch to a cool mode of the Atlantic Multidecadal Oscillation (AMO), which might suggest less storm activity in the next decade. This is because the far North Atlantic has been quite cold for about three years, and the SST pattern continues to cool (evolving as it did in the early 1960’s [the last time the AMO switched from a warm phase to cool phase with SST cooling in the North Atlantic and a slow progression of colder anomalies propagating into the tropical Atlantic and with warmer anomalies hanging on closer to the U.S. coastline).

The odds may shift a bit toward a more active Atlantic hurricane season in 2016, but El Niño’s absence doesn’t guarantee that outcome. Since the 2006 season, there have been some very active seasons with very few landfalling hurricanes, and the insurance industry still awaits that major hurricane landfall.

Summary:

El Niño, La Niña, or the lack of either (known as the neutral phase), is only one large-scale forcing on the atmosphere. Its presence or absence does not definitely determine severe weather or hurricane.  Climate models indicate a La Niña will follow the recent powerful El Niño, and we can look at past weather patterns to speculate future impact on particular insurance portfolios.  Right now the best analog years would be 1988, 1995, 1998, 2007, and 2010 during those years PCS losses averaged 10.6B, but what is more important is using those years to understand where the severe weather and hurricanes occurred to get an ideas of what might occur this year.  For example: U.S. landfalling hurricanes were limited, but in almost all those year the western Caribbean and Gulf of Mexico experienced some named storm activity.

2016_AnalogYears_v2

Historical hurricane tracks of the 1988, 1995, 1998, 2007, and 2010 hurricane seasons  Source: NOAA Historical Hurricane Tracks

Climate forcers like El Niño and La Niña can help predict the frequency of overall extreme weather activity, but truthfully, long-term predictions about the number of named storms, location of landfall or the power of other severe weather is impossible. The best way for the insurance industry to prepare is to carefully consider the risks and their potential impact. BMS’ weather risk management module in iVision can help carriers better understand their risk and manage portfolio accumulation in areas prone to hurricanes and severe weather. iVision also has tools to track forecasted hurricanes, including detailed hurricane wind fields. It has several severe variables around severe weather which can be combined with hurricane layers to provide a holistic view of an event and help carriers understand the range of potential loss outcomes from extreme weather events.  Learn more about the Hurricane Risk Management Module and Severe Storm Risk Management Module.