Hunton Insurance Recovery Blog

While millions have been captivated by Wayfarer Studio’s production of “It Ends With Us,” a lesser-known but real-life insurance drama is unfolding off-screen. Last week, Harco National Insurance Company found itself in the spotlight when it filed a declaratory judgment action against its insureds, including, among others, Wayfarer Studios LLC, It Ends With Us Movie LLC and Justin Baldoni (jointly “Defendants”) asserting it has no obligation to defend the claims brought against Defendants by Blake Lively in Lively v. Wayfarer Studios, et al., U.S.D.C., S.D.N.Y. Case No. 1:24-cv-10049-LJL (the “Underlying Action”). 

A recent decision by the Fifth Circuit illustrates an important principle in insurance coverage disputes: The wording of insurance policies and basic grammar principles are important to coverage determinations, placing the onus on the insurers that draft insurance contracts to use clear and unambiguous language, especially in seeking to deny coverage based on exclusions. In Paloma Resources, L.L.C. v. Axis Ins. Co., No. 22-20228 (5th Cir. July 7, 2025), the insurance policy included an intellectual property exclusion, which used the phrase “actual or alleged” before listing a series of clauses. The court held that use of “the” immediately before the “misappropriation of ideas or trade secrets” clause in the exclusion meant that it was reasonable to interpret the exclusion as applying only to actual misappropriation, rather than broader actual and alleged misappropriation. Because the policyholder’s narrower reading of the exclusion based on the word “the” was reasonable, the court was required to adopt it, regardless of whether the insurer’s preferred, narrower interpretation was equally or even more reasonable.

Aon released a recent report titled “2025 Transaction Solutions Global Claims Study: Managing Deal Risk to Secure Investments and Enhance Returns.” That report described over $300 million in representation and warranties insurance claim payouts for North American clients, a record annual total. Aon also reported that the median payment size was $5.5 million, indicating significant recovery on noticed claims. Hunton partner Syed Ahmad was recently quoted in a Law360 article, commenting that the market for M&A insurance is largely driven by the underlying deal activity. He added that “[r]ecoveries at this rate can also influence perceptions and increase the demand for these products by repeat players in the marketplace.”

After four years of litigation, key limitations in the California FAIR Plan fire policy were found to be unlawful in Jay Aliff v. California FAIR Plan Association. Originally designed to be California’s insurer of last resort, the California FAIR Plan has increasingly become the default plan for those in California who do not qualify for policies with private insurers.

The decision is significant, not only because of the vast number of individuals who have come to depend on FAIR Plan policies for coverage, but also because so many of these policies have been implicated by the devastating wildfires that engulfed the Los Angeles area in January of this year, especially by those whose properties did not burn but instead were rendered uninhabitable because of smoke, soot and ash. The decision speaks directly to the plight of those policyholders by clarifying that a property insurance policy cannot redefine core property insurance concepts like “direct physical loss” or “smoke damage” in ways that unlawfully restricts coverage.