Week Ahead in Insurance: Oct. 4, 2021

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(Reuters) - Here are some events of interest to the Insurance Law community this week. All times are local unless otherwise noted.

Monday, Oct. 4

9:30 a.m. – The 1st U.S. Circuit Court of Appeals will hear its first COVID-19 business income interruption insurance case, an appeal by the multistate Legal Sea Foods restaurant chain from the dismissal of its lawsuit against Strathmore Insurance for breach of contract and unfair claims practices. A federal judge in Boston ruled that Legal Sea Foods did not plausibly allege “direct physical loss or damage” to its restaurants, even though it said the virus had been “physically present” at some locations, since viruses harm people rather than property. The judge also dismissed claims under the policy’s Extra Expense and Civil Authority insuring clauses. Legal Seafoods has urged the 1st Circuit to certify a question on the meaning of “direct physical loss or damage” to Massachusetts’ highest court, which last month took over an appeal from a state court’s covid-coverage ruling in Strathmore’s favor even though neither party had asked it to do so. The case to be heard Monday is Legal Sea Foods LLC v. Strathmore Insurance Co., 1st U.S. Circuit Court of Appeals No. 21-1202. For Legal Sea Foods: Michael Levine of Hunton Andrews Kurth. For Strathmore: Gregory Varga of Robinson & Cole.

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Tuesday, Oct. 5

10:30 a.m. – The 3rd U.S. Circuit Court of Appeals will hear a challenge by several insurance companies to the U.S. Bankruptcy Court’s appointment of James Patton as the Future Claimants Representative in the Imerys Talc Bankruptcy, and its approval of Patton’s firm, Young Conaway Stargatt and Taylor, as the FCR’s counsel. The group, collectively called the Cyprus Historical Excess Insurers, all provided excess coverage to Imerys, a former Johnson & Johnson supplier that filed for bankruptcy protection in the face of thousands of lawsuits claiming that asbestos in talcum powder causes ovarian cancer. The insurers allege Patton has an “actual, concurrent conflict of interest” representing claimants because Young Conaway represented two of them in an earlier asbestos case. A federal judge in Delaware last year upheld the bankruptcy court’s appointment, finding the insurers – CNA’s Continental Insurance and AIG’s National Union Fire Insurance of Pittsburgh – expressly waived the potential conflict when they retained Young Conaway, and had also missed the deadline to object to Patton’s appointment in the bankruptcy court. The case is In re: Imerys Talc America, Debtor; Cyprus Historical Excess Insurers v. Future Claimants Representative, 3rd U.S. Circuit Court of Appeals No. 20-3485. Arguing for Cyprus: Anton Metlitsky of O'Melveny & Myers. For the FCR: Edwin Harron of Young Conaway Stargatt & Taylor.

Wednesday, Oct. 6

12 noon – The 2nd U.S. Circuit Court of Appeals will consider whether people covered by Medicare can appeal a physician or hospital’s determination to admit them informally, as outpatients for observation, rather than as inpatients. “Observation status” carries heavy financial consequences for Medicare patients because formal admission as an inpatient is required for hospitalization coverage under Medicare Part A and for rehabilitation services after discharge. After a 2019 bench trial, a federal judge in Connecticut ruled in favor of one category of patients – those who were initially admitted as inpatients, but whose status was changed following a hospital utilization review required by Medicare – and ordered the U.S. Health and Human Services Department to create an appeals process for them. The 2nd Circuit stayed the order pending the outcome of HHS’ appeal. Both sides have drawn amicus support. The case is Lee Barrows et al. v. Xavier Becerra, Secretary of Health and Human Services, 2nd U.S. Circuit Court of Appeals No. 20-1642. Arguing for Barrows et al.: Alice Bers of the Center for Medicare Advocacy. For HHS: Adam Jed, U.S. Justice Department.

Thursday, Oct. 7

9 a.m. – The 5th U.S. Circuit Court of Appeals will again consider whether the government can recoup alleged overpayments by Medicare while the provider awaits a hearing by an Administrative Law Judge – a 90-day period by statute, but a three- to five-year period in real life. A federal judge in Dallas ruled in January 2020 that recoupment of $7.6 million from Family Rehabilitation Inc. during the lengthy wait would be a due process violation. The government argues the case is indistinguishable from Sahara Health v. Azar, which the 5th Circuit decided in its favor last November. However, Family Rehab notes that the government was the appellee in Sahara Health; in this case, the government is the appellant, and must overcome the district court’s finding that ALJ hearings are necessary to safeguard against a high rate of error in the government’s audits and pre-ALJ reviews. The case is Family Rehabilitation Inc. v. Becerra, 5th U.S. Circuit Court of Appeals No. 20-10271. For Family Rehab: Rebekah Plowman of Stimlabs; Chesley McLeod of Arnall, Golden & Gregory. For Becerra et al.: Joshua Salzman, U.S. Justice Department.

Friday, Oct. 8

Covington Specialty Insurance Co. will argue to the 5th U.S. Circuit Court of Appeals that it has no duty to defend or indemnify its insured, USAI LP, against a negligence, premises liability and wrongful-death lawsuit by the widow of a private security guard who died as a result of a flash flood at the USAI-owned property he was watching. Since the guard used his automobile as his “post,” Covington maintained that his death arose from the use of a vehicle and denied USAI’s tender of defense based on the commercial general liability policy’s automobile exclusion. A federal judge in Dallas last year found that material facts about the details of the guard’s death remained in dispute, and therefore, Covington could not meet its burden of showing the auto exclusion applied. The judge ruled for USAI on the duty to defend and said he would rule on indemnification after the wrongful death lawsuit concludes. The case is Covington Specialty Insurance v. USAI LP, 5th U.S. Circuit Court of Appeals No. 21-10010. For Covington: Michael Knippen and Brian Bassett of Traub Lieberman Straus & Shrewsberry. For USAI: Douglas Skelley and Rebecca DiMasi of Shidlofsky Law Firm.

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