Sanders v. The Phoenix Insurance Company Is a Comprehensive Insurance Coverage Decision, But Have Bad Facts Again Made Bad Law?
So this is interesting, from a couple of perspectives. The First Circuit Court of Appeals has issued a fairly comprehensive opinion addressing a number of issues in insurance coverage law in Massachusetts. The facts are a little salacious, and read more like a John Grisham plot than real life, but unfortunately, odd facts often underlie key decisions in insurance law. I say unfortunately because it means that many decisions concerning insurance coverage are often so unique to their unusual facts that they can easily be distinguished away by litigants in other cases, leaving parties with less guidance for future conduct than one would expect to glean from the case law. This case is a perfect example: I will bet this fact pattern will never, ever repeat itself in an insurance coverage dispute.
Nonetheless, this case has some discussions that apply broadly enough that the ruling can easily be expanded to other cases. For instance, the Court answers the question of whether Chapter 93A demand letters – which Massachusetts law requires a party to send to a business before suing it for unfair trade practices – can trigger a duty to defend. The Court held that it cannot, and distinguished away a key, longstanding Massachusetts decision that many lawyers have used for years to argue to the contrary. Still, I have to say that even on this point, I am not totally convinced that the issue is settled after this decision; I think there will be room to argue to the contrary in other cases that involve other fact patterns and, more importantly, somewhat different policy language. Personally, I am skeptical that, although the decision suggests that it should be or is the rule, no Chapter 93A demand letter, no matter what relief it seeks or the details of the claim, can ever trigger coverage under any policy language.
I would also highlight the Court’s analysis of the issue of whether an assignment of rights to the claimant from the insured gave rise to a viable claim for recovery against the insurer. The Court found that policy language governing when the insurer agreed to be sued precluded such a claim. It would be beyond the scope of a relatively short blog post to explain why that ruling has some wobbly legs underneath it, but suffice it to say, as I do in this article in Massachusetts Lawyers Weekly on the case, that, after this ruling, lawyers who are considering assigning insurance rights as part of a settlement need to carefully consider whether there is any value to doing so in Massachusetts.
The decision is Sanders v. The Phoenix Insurance Company, which you can find here.
A Reminder of Why Insurance Companies Matter
Its entirely politically incorrect in 2015, and rightfully so, to ever equate litigation (or football, or anything else) to war, but that doesn’t change the fact that there are historical lessons to be learned from military history and wonderful allusions and metaphors to be drawn from it. See, for instance, my early article on excessive fee litigation under ERISA, which predicted that early defense rulings would eventually give way to favorable plaintiff rulings; to capture that idea of fortune shifting from one side to the other, I borrowed, for the article’s title, the American Civil War concept of the high water mark, which was the furthest point north that the Confederacy advanced into Pennsylvania before the tide turned on the Confederacy once and for all.
This morning, again, something about litigation drew me back, for a historical reference, to the Civil War, namely to the battle of the Wilderness, where soldiers fought among such dense forests that they effectively could not see the forest for the trees, in a nearly literal sense. Those of us who litigate insurance related disputes on a regular basis often likewise get lost in the trees, focused on the specific details of whether a particular claim is covered or not, and whether an insurer did the right thing (or acted in bad faith, to use the legal concept) in a particular situation.
However, the picture of the insurance industry, from 30,000 feet and looking at the forest as a whole, is brighter than that which a narrower focus on the specifics of an individual claim would otherwise paint. Eamonn Freeman, Managing Director of an insurance company based in Ireland, has created an interactive presentation of the world’s largest disasters, and the scale of the insurance payments arising from them. As you flip through it, just think how much worse the suffering from these catastrophes would have been without insurance companies, which is the most interesting lesson, I think, that you can take from the presentation.
How to Trigger Insurance Coverage for an ERISA Claim
Well, how can I not comment on this, given the focus of both this blog and my practice? The Second Circuit was just presented with the question of whether an insurer has to provide a defense to a company and its officer, under the employee benefits liability portion of a policy, for an ERISA claim related to a retaliatory discharge/reclassification claim brought by an employee of the insured. The employee claimed, in essence, that she had been retaliated against for complaining of sexual harassment.
Now, coverage by insurers for complaints alleging sexual harassment or similar claims under standard CGL policies have their own complicated backstory, revolving around the question of whether, no matter what is actually alleged in the complaint by the employee, the acts in question are intentional, dishonest or otherwise harmful in a manner that precludes coverage. Some of this history goes back to at least the 1980s, and, having been involved with a client’s rollout of the coverage, it played a role to some degree in the creation and eventual acceptance of EPLI – or employment practices liability insurance – coverage.
The insurer here took the same tack with regard to the ERISA claim at issue, and, given the history noted above and the nature of the claim, understandably so. The issue, though, as the Second Circuit found, is that the ERISA claim itself did not require any type of intentional misconduct, which is basically true across the board with most types of ERISA claims, and held that the insurer therefore could not deny coverage for the ERISA claim based on an exclusion for dishonest or malicious acts. The Court found that the ERISA claim could, in essence, simply be a claim for negligent conduct – at least as pled in the complaint – and thus the insurer could not deny a defense to the insured based on such an exclusion, which would not reach a claim of negligence.
There are a number of lessons here for both insured companies (and their officers) who are sued in ERISA cases and for their insurers. First, don’t assume that principles related to coverage of employment related claims will transfer to an ERISA claim; they may very well not do so. Second, you have to pay close attention to the true nature of an ERISA claim (including its key legal elements) before deciding whether or not there is coverage, and not simply to the surrounding factual allegations relating to the insured’s conduct (which in most harassment and similar claims are usually pretty egregious, at least as alleged by the plaintiff).
Anyway, here is the decision, which is Euchner-USA, Inc. v. Hartford Casualty Insurance Company, and here is an article providing a nice summary, for those of you who don’t want to read the full decision.
Insurance Coverage for Disgorgement or other Equitable Remedies
You say disgorgement, I say damages. Sorry, I couldn’t, try as I might, make that fit into the old lyric “you say tomato, I say tomahto, lets call the whole thing off,” but the sentiment fits. In this recent Sixth Circuit decision, reported on here, the Court addressed the question of whether certain employment related damages could be considered disgorgement by the employer, which would not be covered under the employer’s insurance policy because it excluded disgorgement, or should instead be treated as traditional damages, which are covered. The Court concluded that the sums that were awarded could more fairly be described as damages owed to the claimants, and not as disgorgement of ill-gotten gains, and were therefore covered.
Its an interesting decision that raises two issues that companies that defend against employment related claims should always be aware of. First, that there is always room within their insurance policies to look for potential coverage, particularly given the growth of employment practices liability insurance over the past decade and more. Second, that the question of what constitutes disgorgement, or other equitable remedies which are also often not covered, can be a tricky question, and is not always obvious on first review. All sorts of policies limit coverage to awards that constitute damages as that term is understood in the law, often without defining the term, while excluding or otherwise precluding coverage for disgorgement or other types of losses that fall within the realm of equitable relief. It is important to make a thorough and accurate analysis of whether the sums at issue are properly construed as damages or instead as equitable relief in this realm, both for insurers deciding whether to provide coverage and for insureds electing whether to challenge a denial of coverage.
Cyber Insurance for Cyber Risks
I have maintained a healthy interest in cybercrimes, cyber risks and related liability exposures, for at least two reasons central to the topics of this blog. The first is that, other than credit card companies, probably no one holds more protected personal information than the entities involved with ERISA plans, from health insurers to mutual fund companies to plan sponsors to record keepers. The second is that, from an insurance coverage perspective, developments in this area echo – more than vaguely even if less than resoundingly – the impact on insureds and on the insurance industry of the expansion of environmental liabilities approximately thirty years ago. Then, as now, you had the sudden creation of new potential liabilities – in that case, environmental exposures – that were not foreseen and taken into account by insurers in setting premiums, followed, in short order, by two developments: first, litigation over whether the exposures should be covered under previously issued policies that were not necessarily underwritten in a manner that would account for those risks and then, second, by the industry altering forms and policy language (such as the wording of pollution exclusions and the increased use of the claims made form) in reaction to those events.
You can see the beginnings of exactly those same events now, with regard to the rise of liability for cyber-crimes and related computer security breaches, as insureds, insurers and their coverage lawyers debate the extent to which standard general liability policy language captures or instead excludes those risks, while at the same time the industry develops products and policy language to respond to those exposures. A colleague and I presented this exact theory, as a lens for understanding the insurance coverage issues raised by cyber liabilities, in a major presentation last year, which is captured in this PowerPoint presentation.
I thought of this today, as I read this article pressing the idea that courts will be expanding the liabilities imposed on corporations for data and similar breaches. If the author is right, both the amount of insurance coverage litigation over coverage for cyber liabilities and the creation of new policy language by the insurance industry to deal with the issue will expand hand in hand with that development, in the same way both moved in tandem with the increase in environmental liabilities thirty years ago.
In Deepwater Now: Texas Supreme Court Weighs in on Additional Insured Issues
I absolutely love this story on the Fifth Circuit asking the Texas Supreme Court to consider the scope of insurance coverage for claims arising out of the Deepwater Horizon oil spill loss; the case itself is fascinating as well. The reason is that insurance coverage law is an odd little area, in that massive numbers of decisions in that area are issued each year, and yet most do little more than move the chains a little bit in terms of refining or redefining the law in this area. This point is well-illustrated, for those of you who like support for a proposition, by Randy Maniloff’s on-going series of excellent coverage newsletters, aptly titled Coverage Opinions, which details the continuing flow of judicial decisions in this area.
At the same time, though, the history of insurance coverage law is written in big letters, by the big dollar cases that bring out the best lawyers and arguments that the industry and the policyholder bar have to offer; it is these cases that drive the development of the case law in new directions, and often rewrite the framework in which insurance coverage disputes are analyzed and decided for the next few decades. It was the big money exposures of asbestos and Superfund – issues now so old that they could have been referenced in a retro-movie like Argo, in the same way it featured rotary phones to add period authenticity - that gave rise to much of the case law that currently governs most disputes over trigger and allocation. Likewise, the issues at the heart of the Deepwater Horizon coverage dispute are additional insured and coverage for contractual indemnity obligations that have been floating around insurance coverage law for the entire length of my career, with often inconsistent results; a major decision in a high profile case like Deepwater Horizon is almost certain to reframe those discussions for many years going forward.
Empirical Proof of What I Always Thought (And Said): The Benefits of Litigation over Arbitration
This is great. I have lost count of how many times I have explained my view that arbitration is not, by definition, preferable to litigation for resolving disputes, and that instead, in each and every given case, a party should think carefully about which dispute resolution forum is preferable. I have written and spoken on the idea that, initially, company decision makers should put aside the assumption that arbitration will save money, because it generally does not. There are more controls on the litigation process than are built into the arbitration process and, as a result, if one side or another is interested in bogging down the process in excessive discovery, motion practice, or other efforts, they can more easily run up the costs in an arbitration than they can in litigation. Arbitration, as a result, is only less expensive if both parties set out in good faith to make it that way. If one party sees a tactical benefit in doing otherwise, though, the dynamics of arbitration make it far too easy to turn arbitration into an expensive, time consuming, seemingly never ending event. Judges, as a general rule, won’t allow this to the same extent in court.
Second, there are tactical considerations in deciding between arbitration and litigation, which have to do with the strength of a party’s case, and whether that strength is based on legal arguments or instead on facts. It is my view that a case based on legal theories is better prosecuted in court, for at least two reasons. First, motions to dismiss and summary judgment are effective avenues in that forum to have the court rule, relatively early on, as to the strength of those legal defenses. Arbitration panels are, for various reasons, more often inclined to hold all such issues over for the final hearing, eliminating the possibility of an early outcome without having to engage in a full evidentiary hearing on the evidence. In my experience, the only real consistent exception to this dynamic in arbitrations is when the arbitration panel is chaired by a well-regarded retired judge, who may be inclined to incorporate more of the courtroom structure into the arbitration process. Second, in a case built on legal theories, it is always better to have a second chance to press that theory if it is rejected the first time around, which litigation allows by means of appeal. Arbitration generally doesn’t allow that, as state arbitration acts and the Federal Arbitration Act generally impose very limited rights of appeal from arbitration rulings.
In this excellent article in Inside Counsel, authors Alan Dabdoub and Trey Cox provide empirical support for these views, which have, until now, been based simply on my own years of arbitrating and litigating cases, and of observing the difference between the two. The authors use a comparative study of 19 different cases, about half in arbitration and about half in litigation, to demonstrate that litigation, and not arbitration, can often be the faster and less expensive path for resolving disputes. It is well worth a read.
Back to the Future: Insurance Coverage Law from Asbestos to Cyber Risks
This is a very fun – if you can use that word for insurance disputes – discussion of the United Kingdom’s Supreme Court determining what trigger applies under insurance policies issued to insureds sued for asbestos related injuries. Its partly fun because it replays a highly contentious and, for all involved, expensive chapter in American legal history, namely the decade or so long battle in the United States courts to decide which insurance policies were triggered by – and thus had to cover – injuries caused by asbestos exposure. The courts here struggled for many years to decide which of many possible triggers apply, including: a continuous or multiple trigger which found coverage under all policies in effect from the time the worker was exposed to asbestos through the incubation period in the worker to the time the worker’s illness actually came to exist; an exposure trigger, making policies in effect when the worker was exposed to asbestos applicable; a manifestation trigger, under which policies in effect when the asbestos related disease manifested itself apply; and an injury-in- fact trigger, under which the policies apply that were in effect when a worker, previously exposed to asbestos years before, actually suffered injury from the exposure. Because of the diverse American legal system, with its numerous federal circuits and 50 state court systems, no one, single rule was ever settled upon as universally applicable. It appears in the UK, though, they are settling on one single rule, at least according to the article.
Some of you, particularly those of you who have heard me speak over the years, are familiar with my view that modern American insurance law, for all intents and purposes, springs out of the trigger of coverage and other disputes from the early 1980s concerning coverage for asbestos related losses, and in particular out of the D.C. federal court’s adoption of the multiple trigger standard for applying general liability policies to asbestos losses; in part, these events became the touchstone for coverage disputes to come because of the ease with which court decisions on these issues could, by analogy, be extended to other types of long tail exposures, such as environmental losses and other types of toxic torts, in which - as with asbestos - the event that would eventually cause injury (whether to person or property) happens years before either injury occurs or is learned of. In my view, before then, insurance law had changed little (speaking broadly) for generations. After the explosion in coverage litigation over asbestos, close textual analysis of key terms in insuring agreements, policy definitions and exclusions became crucially important and widespread, far more than it was before these watershed events; indeed, some of the methodology applied by courts at that time and the decisions they made in interpreting policy terms still reverberate in coverage decisions today. Many issues and developments in the insurance industry and the law of insurance coverage can be traced back to these events, from the expansion in use of the claims made policy form to the existence of significant, always on-call insurance coverage practice groups representing policyholders.
A few months ago, I spoke on the subject of cyberinsurance before a large insurance industry group, and the organizing principle of my talk was the idea that the evolution of coverage forms and coverage litigation involving insurance for cyber exposures was mimicking, and would continue to mimic, the industry’s past experience with both asbestos and – in terms both of temporal proximity and legal analysis – its close cousin, environmental exposures. The reality is that, while past performance may not guarantee future results, the development of new insurance coverage exposures as well as of policy forms to deal with them always harken back at this point to the legal and industry developments of 30 years ago that arose out of asbestos and environmental exposures, but almost never, interestingly enough, to legal and industry developments that predate that.
At the Intersection of Insurance and Plan Fiduciaries
Well, given the title of this blog, I couldn’t exactly let this decision pass unnoticed. In this decision from the Court of Appeals of New York, Federal Insurance Company v. IBM, the Court denied insurance coverage for IBM under an excess fiduciary liability (apparently) policy, for a settlement by IBM of a claim that amendments to benefit plans in the 1990s violated ERISA. The Court, in short, found that the claim did not invoke IBM’s status as a fiduciary under ERISA, essentially because it involved settlor, rather than fiduciary, functions. The Court applied standard rules of policy interpretation, under which insurance policy language must be given a reasonable construction under the circumstances, to conclude that policy language that applied to claims against a fiduciary involving ERISA meant claims where the insured qualified as a fiduciary under that statute, and did not, contrary to IBM’s arguments, involve any broader meaning of the word fiduciary.
Three points about the case interested me, which I thought I would mention. The first is the case’s status as an exemplar of a phenomenon of insurance work that I have frequently mentioned in the past, which is that all major litigation disputes end up in court twice: the first time as against the insured, and the next time as against the insurer, involving the question of whether that first dispute is covered under the insurance policies held by that insured.
The second is that the case illustrates one of the most important aspects of another theme of this blog, which is the importance of what I have come here to call defensive plan building, which is a fancy way of saying developing benefit plans and affiliated structures that protect plan sponsors and fiduciaries from liability. Having liability insurance in place to protect them from the costs and potential liabilities of litigation is crucial. While in this case IBM can easily afford the uncovered exposure, this will not be the case for the vast majority of plan sponsors. Careful attention to the scope of, and holes within, insurance coverage for benefit plan operations is crucially important.
And finally, the humorous aspect of the decision is the third item, consisting of IBM being put in the position, to seek coverage, of having to argue for a broad definition of fiduciary in the context of a plan dispute. As we know from the controversy over the Department of Labor’s recent attempt to expand the definition of fiduciary under ERISA to catch more fish, most entities run from the label of fiduciary like a groom from a shotgun wedding.
Liability Seen Through a Looking Glass, or Determining Insurance Coverage After the Fact
I have written before and no doubt will again that one of the most interesting aspects of insurance coverage law is that all the flotsam and jetsam of American economic life eventually washes up on its shores; by this, I mean that whatever issues of liability are working their way through the court system will eventually show up again, sometimes in Alice in Wonderland looking glass fashion, in court as an insurance coverage dispute over whether there is coverage for that particular type of liability.
It happened again here, in this case involving whether insurers have to cover Bear Stearns’ consent decree and disgorgement related to securities trades, with the court, as explained in this article here, finding that there was no coverage. Two points jumped out at me about the story, which I thought I would mention, the first substantive and the second of more academic interest. Substantively, what is of interest is the court’s firm ruling against insurance coverage of the disgorgement of ill-gotten gains. This is a common issue under many types of insurance policies and under different provisions of the policies, from the insuring agreement to definitions of covered damages to exclusions, and the court comes down firmly and cleanly on the side that disgorgement is not covered, basing the finding in part on the public policy impact of allowing coverage of such a loss. Of less substantive interest is the fact that this is one of those coverage cases where, as noted above, the past repeats itself, only in a through the looking glass kind of way. I say this because the coverage case turned on the court and the parties going back to issues that the insured must have thought were resolved by its consent decree in the original action, in which it specifically avoided any finding of knowing misconduct, and litigating them anew, with different and more comprehensive findings, to decide coverage. The coverage litigation, in many ways, required litigating an issue that the insured was able to avoid having decided in the underlying case in which liability was imposed on it, and which the insured probably hoped or perhaps even thought was closed after the original case ended, only to have the issue examined yet again, in a new light, in the coverage case.
Denial of Benefit Claims, The Repeat Player, and Saving Money on Litigation
One of the first posts I wrote on this blog was about insurance coverage and the concept of the repeat player. The idea behind it was that insurers use the same counsel over and over again in coverage disputes, with the result that they put on the field – to use a sports metaphor – counsel who have a great deal of experience with the specific policy provisions at issue and a deep reservoir of knowledge about the effect of different fact patterns on the application of those provisions; the post pointed out that insureds are therefore not well served by using their general outside lawyers to represent them in such disputes, but are instead better served by finding their own “repeat players” to represent them in such cases, who can match the other side’s lawyers in expertise on and familiarity with the insurance policy types, terms and principles at issue.
The same holds true in ERISA litigation, particularly in the realm of denied benefit claims, whether they be short term or long term disability claims, health insurance, 401k issues, pension disputes, employee life insurance or other types of benefits made available by employers. Under ERISA, such benefits are governed by the terms of the plans under which they are provided, and litigation over any of them is subject to certain rules that are consistent across the field, such as those concerning the standard of review, the impact of conflicts of interest on the part of the administrator of the benefit plan, the contents of the administrative record, exhaustion of administrative remedies, regulations governing claims handling, and the scope of discovery. Most plan sponsors and administrators use “repeat players” to represent them on denial of benefit claims, to such an extent that some obtain discounted pricing in exchange for using the same counsel over and over again. This is actually beneficial to all involved on the defense side of such cases, as it creates a dynamic not just of cost savings for the plans, but also of the development of the level of expertise that comes through regular handling of the same type of cases, in this instance denied benefit claims under ERISA; this manner of developing expertise through repetition is exactly what is meant to be captured by the short-hand phrase “repeat player,” and this type of a consistent, mutually beneficial relationship between plans or administrators and their lawyers on such cases is how that expertise gets developed and brought to bear.
Interestingly, one should note that there is nothing unique to the defense side when it comes to the benefit of using a “repeat player” in denial of benefit claims under ERISA. You will have to trust me when I tell you that I routinely see the difference when, on the other side of the “v.” from me, is a lawyer who regularly represents plan participants in such disputes, as opposed to a general practice lawyer who represents plan participants only occasionally. This area of the law, like many others, is one where plaintiffs – who unlike the defendants may rarely be involved in such cases – also benefit from retaining a “repeat player.”
Mark Herrmann, the Chief Counsel for litigation at Aon, the insurance brokerage, wrote – whether he meant to or not – of this phenomenon in his piece the other day for Above the Law on “flotsam and jetsam,” in which he discussed the benefits to in-house legal departments of identifying areas of legal work that a company can bundle up and turn over, en masse, to an outside lawyer, who will handle the entire line of work for a fixed, and reduced, yearly retainer. I have over the years met with in-house benefit people and made the same suggestion with regard to a company’s handling of benefit claims, explaining that they are perfect for assigning to one counsel in exchange for a fixed fee payment structure for several reasons, including: (1) they are predictable in terms of time and cost investment, partly because discovery is limited; (2) the exposure to the company is narrow and predictable, because of the limited remedies available under ERISA and the ability to quantify the benefit amounts at issue under the relevant plan terms; and (3) the legal principles are consistent and should be well-known to defense counsel. This combination of predictability of the case with the expertise of the “repeat player” makes benefit claims perfectly suited to being bundled up in their totality and assigned to one outside counsel for a long period in exchange for cost savings to the company assigning the work.
Now as I noted, I have broached this idea over the years with plan sponsors and administrators, but I have to say I have never explained the concept quite as well as Mark Hermann did in his story. Writing as an in-house lawyer, he does a better job, I think, of isolating and describing the benefit to businesses in taking this approach than I have been able to do as an outside lawyer who can do no more than look through the window at the pressures, demands and needs of client companies. If you are in the benefits business, though, when you read his piece on it, think for a moment about how perfectly his description of “selling off” these types of cases fits the environment in which companies handle denial of benefit claims under their company benefit plans, and how well his idea would work for those types of claims.
Interesting Developments in the Insurance Coverage World
I thought I would pass on two interesting insurance coverage stories, with some thoughts on each. The first is this one here, about the New Jersey Supreme Court finding that an insurer that loses an insurance coverage action can be ordered to pay attorney’s fees incurred by the insured in a separate but related coverage action in another jurisdiction. A prevailing insured’s right to recover fees incurred in an insurance coverage dispute with its insurer is a slow moving but inexorable carve out from the American Rule, which holds that parties are responsible for their own attorney’s fees, and somewhere down the road we are likely to find it has become the overwhelming majority rule in this country. The expansive reading of that obligation imposed in this New Jersey decision is reflective of that trend.
The second is this one, about a finding that an insurer had no duty to defend its insured against a class action seeking only economic losses based on the risk of bodily injury, rather than seeking recovery for bodily injury itself actually suffered by the class plaintiffs. The court found that the insurer had no duty to defend because coverage was limited to claims for bodily injury, and the action did not actually seek to recover for identifiable physical injury. This case caught my eye because it reflects a narrow, highly technical reading of the policy language and of the coverage it granted, pursuant to which the court refused to expand the coverage to include a defense obligation simply because the case pled against the insured had some relationship to possible allegations of bodily injury; the duty to defend is often interpreted by courts to be so broad that often courts, and sometimes even insurers, view the duty as triggered if the claim even comes close to fitting the terms of coverage. You can call this kind of a horseshoes approach to determining the duty to defend, as in close is good enough to do it. The court here did not buy it, and in that it is a moral victory for those of us who understand insurance policies as contracts whose terms should be honored and applied as written.
The Attorney-Client Privilege in Insurance Litigation
My in-box, like most of you I assume, is inundated on a day in, day out basis with offers of webinars, seminars, and the like on every topic under the sun that the sponsors think I might even conceivably have any interest in or professional connection to. Most I ignore without even opening, as not even close to being on point with my professional interests and concerns. Even of that remaining subset of ones that have something to do with my work, or my blogging interests, or my professional development, I seldom pass them along in a post because they often appear to simply be lawyers over-complicating and over-analyzing what should be, and normally is, a relatively simple point or area of law (what, lawyers making something more complicated than is necessary? Who’d have thunk it?). My favorite in this regard are the seminars that are routinely touted to me about the complexities of the tripartite relationship in the insurance context, an area of law in which there is, frankly, little complexity and most of the rules of which I summed up right here in this post some time ago.
A different species of educational opportunity, however, consists of those that actually provide a detailed level of analysis on a question that is in fact complicated, and that presents nuances that need to be dealt with in the day to day hurly-burly of practice. This webinar here, on the attorney-client privilege in the context of insurance coverage counseling and litigation, looks on its face to fall into that category. The privilege, in this context, is a lot of fun for a litigator, like me, who enjoys working with the rules of evidence, and exploiting - or conversely defending against - gaps in the protection provided by the privilege. Two issues that quickly jump to the forefront of my mind even as I write this post - both of which appear to be covered by the webinar - are the interrelationship of the privilege with bad faith litigation, including in particular the impact on whether and how to use an advice of counsel defense, and the possible risk of disclosure by means of discovery from an expert witness. There are many more, but they seem to fall within the broad categories listed in the webinar’s agenda, so rather than my reciting them, you may just want to take a listen.
A Nicely Supported Overview of Global Warming Litigation and its Impact on Insurers
Well now, I think this is exactly what I said in this post here, as well as elsewhere on this blog in the past. Global warming litigation is heating up (pretty funny pun, huh?), litigation costs from the defense of those cases pose a significant threat to the insurance industry, and insurance coverage litigation to sort out coverage for those costs is bound to follow on the heels of such global warming cases. This story that popped up in my in-box today does, however, provide the most systematic overview of these points that I have seen to date. It’s a particularly provocative read right now, as I look out my window here in Boston at temperatures in the mid-forties and sunshine, even though its still just the beginning of March.
Climate Change Litigation and Insurance Coverage
I have posted in the past about how everything eventually makes its way through the insurance industry, in terms of any types of new lawsuits or liability theories, and as this article makes clear, litigation over climate change will be no different. The suits are coming, and while their viability is yet to be determined, they will pose challenges for the insurance industry, because the development of theories of liability in this area will eventually lead to demands for insurance carriers to cover the defense costs or liabilities arising from those theories, just as occurred with asbestos and pollution, and almost certainly with the same types of pitched battles over the existence of coverage as occurred in those areas. This will raise a whole host of issues for carriers that will mimic the types of issues that played out with regard to the large scale - and often unanticipated - exposure posed by environmental litigation and asbestos, only on a broader and probably even more complicated level. Just think, for instance, about how difficult it will be to develop exclusions against climate change lawsuits, if that is the direction insurers elect to go, that are broad enough to encompass the as yet unknown range of legal theories, while still being concise enough in their wording to avoid being declared ambiguous.
On Fiduciary Liability Insurance
I have written before that one of the things that makes insurance coverage law interesting is the fact that almost every trend in liability or litigation eventually shows back up in insurance disputes, in a sort of fun house mirror sort of way. Whether it is corporate exposure for asbestos liabilities, or the sudden invention of Superfund liability, those liability risks eventually end up in insurance coverage litigation over the question of whether insurers have to cover them. I cannot think of one major doctrinal development in tort liability or one trend in liability exposure in the last 20 to 30 years that has not, eventually, resulted in litigation to determine whether insurance policies cover the new exposures flowing from those developments and trends.
Anyone who reads this blog knows that ERISA governed plans, and in particular pension and 401(k) plans, have become a huge target for large dollar claims over the past several years. Just a click through the posts on this blog detail many of the claims, such as stock drop and excessive fee litigation, that are working their way through the legal system. And with this, hand in hand, has come a new focus on whether plan fiduciaries have appropriate insurance coverage in place for those risks. Some do, some don’t, and others - consistent with insurance coverage litigation trends in the past when relatively new theories of liability have had to be analyzed under policies written before the theories themselves were developed in depth - won’t know unless and until courts pass on the meaning and scope of their policies. But here, though, is a good initial primer on the question and here, likewise, is a webinar that looks likely to provide much greater detail on the subject. One thing that is for sure is that this is an area of the law that anyone involved with the representation of plan fiduciaries needs to have more than a passing familiarity with at this point.
Maniloff, Sotomayor and Insurance Coverage Law
Just too funny not to post this today, even though this was supposed to be a post-free Friday while I finish up a brief. Randy Maniloff of White and Williams has done a (mock) thorough piece of opposition research into the new Supreme Court nominee and discovered, somewhat apparently to his shock, that her rulings reflect a consistent trend of finding in favor of insurers, rather than insureds, on coverage and bad faith issues that have come before her. His piece detailing this is here.
My take? The decisions and quotes Randy highlights reflect a focus by the judge on the specific facts of the cases and on the details of specific insurance coverage doctrines, rather than a looser approach of relying on easy maxims that tend to add up to nothing more than the tie goes to the runner, which in this area means the insured, such as “ambiguous provisions must be construed against the insurance company.” When you focus on the facts of the cases and the details of this area of the law, you don’t end up with any sort of an insured oriented bias, and instead you often find that the insurer’s decision is upheld because the insurer used that same focus in the first instance in making its own decision with regard to coverage.
Kudos to Randy, for again using humor to shed some light into the dark corners of insurance coverage law, this time, whether intentionally or not, on the extent to which judicial approach affects the outcome of coverage cases.
Thanks to Point of Law for passing his piece along.
Randy Maniloff's Top Ten Insurance Coverage Decisions for Dummies and the Rest of Us
Some bloggers blog their way to greatness, other bloggers have greatness thrust upon them. For some reason, that line popped into my head when Randy Maniloff’s always entertaining article on the top ten insurance coverage decisions of the past year appeared, like manna from heaven, in my in-box yesterday, providing one weary blogger - i.e., me - with a gift wrapped post for this morning. Substantively, there is much to be gleaned from the article and the cases it reviews, on issues ranging from the current state of trigger of coverage problems to an excellent decision on handling duty to defend disputes concerning obviously intentional conduct that has been pled as negligence for purposes of triggering insurance coverage, all written with the author’s trademark good humor and style (something anyone who reads a lot of insurance coverage briefs, opinions, articles and - yes - blogs can attest is not always present in written work in this area of the law). Moreover, the author has tossed in a free extra, a truly comical special section titled “Coverage for Dummies: The Top Ten," which collects ten excellent examples of people doing really dumb things and then demanding that their insurers protect them against the outcome.
And best of all, in what can only have been a transparent attempt by the author to garner a review on this blog, one of his top ten decisions (non-dummy division) is an ERISA case, the Supreme Court’s decision in MetLife v. Glenn. More seriously, its inclusion is almost mandatory in any collection of the most important decisions affecting the insurance industry (which, obviously, underwrites and administers the vast majority of employer provided disability plans), as it is guaranteed to generate more subsequent court rulings than any other insurance related decision of the past year, as the courts of each circuit move, over time, to realign their jurisprudence to accord with Glenn.
Intellectual Property Exclusions and Trends in Insurance Coverage Law in Massachusetts
At this point, I think we are entering a new era in Massachusetts law concerning insurance coverage, one different than any I have seen before in my decades of litigating such cases in the Commonwealth. In this brave new world, policies are apparently applied as written, and insureds cannot just claim ambiguities or that they had expectations - somehow reasonable despite being contrary to the actual wording of the policy - of coverage somehow different than that actually provided. That, at least, is the moral of Finn v. National Union, decided last week by the Supreme Judicial Court. In essence, the court enforced the plain language of an intellectual property exclusion in the policy, despite attempts by the insured to argue that it did not necessarily encompass some of the factual variation of the particular claim at issue, and the court expressly held as well that the reasonable expectations doctrine is inapplicable because the exclusion unambiguously precluded coverage. The court, interestingly, didn’t even elect to stop there, deciding to also hammer home the point that the plain language of unambiguous policy provisions controls, by pointing out that extrinsic evidence supporting a contrary reading of the policy cannot be considered in the absence of ambiguity; this is contrary to decades of actual practice in the state’s trial courts, where lawyers for policyholders would regularly toss anything and everything possibly pointing towards coverage into their arguments. The novelty of this idea in Massachusetts practice is illustrated by the fact that the court actually had to go back almost 40 years and then another 40 years more to find two Massachusetts cases to cite to that effect, despite how widely accepted and uncontroversial this idea is in other jurisdictions. A new day dawning? Maybe, but it certainly fits with my sense of the development of insurance coverage case law in this state over the past few years.
Plain English and the Insurance Coverage Lawyer
I have written before about why insurance companies use experts on insurance coverage, and why policyholders need to use them too. Indeed, there is little doubt in my mind that lawyers who aren’t specialists in the field often put their clients at a disadvantage when they engage insurance companies in disputes over insurance policies without bringing in someone with years of experience interpreting and arguing over the language in policies. This case here out of the Massachusetts Appeals Court yesterday, involving a seemingly routine dispute over which of two insurers should foot the bill for an accident involving an automobile, illustrates the point beautifully. The court’s decision - which placed the risk on an auto insurer and liberated a general liability insurer - pivoted on one issue, consisting of what exactly is meant by the three mundane words “arising out of.” Plain English words, of course, ones that we have all used since we were children and which everyone knows the meaning of. But to understand and interpret an insurance policy, you need to understand the gloss on those words that generations of insurance coverage litigation have grafted onto them and, indeed, to apply the relevant policy terms you have to give a more precise definition to that term than most individuals would bother to give to it in daily speech. Here’s how Massachusetts law now defines those three little words:
Our cases indicate that the expression "arising out of," both in coverage and exclusionary clauses,
"must be read expansively, incorporating a greater range of causation than that encompassed by proximate cause under tort law. Indeed, cases interpreting the phrase ... suggest a causation more analogous to 'but for' causation, in which the court examining the exclusion inquires whether there would have been personal injuries, and a basis for the plaintiff's suit, in the absence of the objectionable underlying conduct."
Bagley v. Monticello Ins. Co., 430 Mass. 454, 457 (1999), and cases cited.
The statement in Ruggerio, supra at 797, that "the expression ['arising out of'] does not refer to all circumstances in which the injury would not have occurred 'but for' the involvement of a motor vehicle," does not weaken the broad standard of Bagley, and that standard has been quoted by the Supreme Judicial Court with approval. See Fuller v. First Financial Ins. Co., 448 Mass. 1, 6-7 (2006). Put another way, what is required for injuries to "arise out of" the loading of a vehicle is a reasonably apparent causal connection between the loading of the vehicle and the injury. See Ruggerio, supra at 798; Metropolitan Property & Cas. Ins. Co. v. Santos, 55 Mass.App.Ct. at 795.
Plain as day, right?
On Discovery Problems and Solutions
Permalink | Here’s an interesting law review article, passed along in detail by the Workplace Prof, on problems, and potential solutions, in managing discovery. Discovery, to beat what must now be a dead horse, has become infinitely more complicated and expensive - with far more consequences for mistakes - in any type of complex litigation with the adoption of the federal rules governing electronic discovery (and in fact with the rise of computerized data itself). Regular readers know that I have argued before in this space that the courts need to develop a jurisprudence that analyzes the need for and cost of electronic discovery - which can often involve massive amounts of computer generated and/or stored data - in much greater depth than the more superficial analysis of discovery disputes that has historically been the norm: in essence, courts should engage in a more searching inquiry into disputes over electronic discovery, given their costs and how much of such data is likely to be irrelevant in any given case, before granting extensive discovery into electronically stored data. At a minimum, there should be a degree of inquiry that, even if it won’t allow conclusive enough findings to decide to outright not allow such discovery, will still allow an intelligent, reasoned limitation on exactly what the scope of that discovery should be. I would argue that, in cases that warrant it, it would even be appropriate to hold a mini-trial type proceeding, maybe of two or three witnesses, and then to rule on to what extent such discovery is warranted. This approach would be a far cry from how courts have traditionally addressed discovery disputes, but, as the article suggests, it is past time for the courts to begin applying a more systemic and in-depth approach to controlling discovery.
This is particularly important in the areas covered by this blog, ERISA litigation and insurance coverage litigation, where computerized data, communications and information processing, is almost literally the coin of the realm. Electronic discovery is therefore truly a major cost-driver and risk factor in these areas of the law. The development, at the boots on the ground level of magistrate judges (to whom discovery disputes are often assigned), special discovery masters and trial judges, of the law of electronic discovery provides an opening for courts to really address these issues, in the manner suggested by the article and with fresh eyes, and its an opportunity that should be taken advantage of, one that calls for curiosity, innovation and reasoned experimentation. I will give you one example, to make my point. One of my partners was recently handling a massive, multi-party litigation, in which there were numerous interrelated legal and factual issues, some of which may be outcome determinative. Rather than engage in the traditional approach of years of discovery with only minimal court oversight, followed by summary judgment motions, the court instead ordered some discovery, followed by summary judgment motions on the key potentially outcome determinative legal issues, followed by, if any party believed further discovery was needed to resolve those issues, the filing of Rule 56(f) affidavits to justify such discovery; the court would then decide what further discovery would be allowed before it would rule on the legal issues. The end result was order out of what otherwise could have been chaos, and a case that stayed on track towards resolution. It’s a good example of a court proactively using existing procedural tools to narrow the issues, and decide on what issues further and potentially expensive discovery is actually needed. This appears to be exactly the type of use of existing procedural tools and focus on the timing of discovery that the article's author is advocating as the means to improve discovery.
What Happens When ERISA and the Law of Insurance Coverage Collide?
Permalink | Wow, I guess this is really Seventh Circuit week here, with, I guess, a particular focus on the jurisprudence of Judge Easterbrook, whose opinion in Baxter I discussed in my last post. This time, I turn to his decision from Wednesday in Federal Insurance Co. v. Arthur Andersen, which strikes right at the intersection of the two subject areas in the title of this blog, insurance and ERISA. The Arthur Andersen opinion concerns the extent of coverage, if any, for Arthur Andersen’s massive settlement of lawsuits related to its retirement liabilities upon its well publicized, post-Enron collapse, under a policy covering breaches of fiduciary duty. The court found that there was no coverage, for a number of reasons, the most salient of which being that, first, the losses in question were the actual pension amounts, which the policy does not cover (it instead covers only other losses related to a pension plan, separate from the actual amount of the pension benefits in question), and second, that although the claims in question related to pension plans, they were not actually for breaches of fiduciary duty related to such plans, which is all that the policy actually responds to. There are some interesting lessons for plan sponsors and plan administrators in these findings: first, that it is important to remember that, in buying fiduciary liability coverage, this is not the same thing as insuring the benefits owed to pensioners themselves, and, second, that the exact scope of the coverage is narrow and limited by its exact terms, which may not extend coverage to the specific allegations of any particular lawsuit arising from the pension plan. What’s the take away? A close look by an expert is needed when selecting insurance coverage for pension plans and the people who run them, if for no other reason than to have an accurate understanding of the extent to which potential problems with the plans may actually be covered.
Beyond these lessons in the case for people on the ERISA side of this blog’s title, the decision provides a fascinating run through a number of complicated insurance coverage topics for those of you who are interested in the insurance coverage half of this blog’s title. The judge - or perhaps his clerk, I don’t know the practices in that particular court - writes fluidly on the law of estoppel, waiver, the duty to defend, and the respective rights of the insurer and the insured when it comes to control of the defense and settlement of a covered lawsuit.
A Potpourri of Interesting California Insurance Coverage Decisions
Permalink | Still on trial, but I did have time this afternoon to read this interesting piece, summarizing a number of interesting appellate decisions over the past year from California courts on a range of insurance coverage issues, running from post-claim underwriting of health insurance to the scope of coverage granted by directors and officers policies. The cases include one that provides an interesting analysis of the scope of the attorney-client privilege in the context of insurance, an issue I have talked about at some length in the past on this blog. You can find the article right here. For those of you interested in the subjects covered by this blog, it is probably a worthwhile read.
A Break from LaRue: Anticipating Insurance Coverage Disputes Over Climate Change Exposures
Permalink | Can’t do LaRue all the time, every post, although, frankly, the more one thinks about the Supreme Court’s three opinions, the more one can come up with to talk about. I will return to various issues raised by the opinion here and there, as time and interest allows. For now, though, I think I owe some posts that can be attributed to the insurance litigation side of this blog’s title to readers who are interested in that topic, and I have been thinking - when not obsessing over whether individuals can sue for mistakes in their 401(k) plans, that is - about all the legal seminars and publications that have been showing up in my in-box lately anticipating insurance coverage litigation over climate change issues. One of the interesting things about these is that they are showing up in droves now, long before suits seeking to recover for climate change losses have even been pursued. As I have said before on these electronic pages, insurance is the real leading edge indicator for a lot of issues, and one of them is climate change; the insurance industry will be one of the first to be heavily impacted by increased climate related losses, through its coverage of property and liability risks, and will, concomitantly, be one of the first to take concrete business steps in response to global warming. This early media drumbeat over insurance coverage issues related to climate change litigation reflects an eternal truth: that any possible new area of business liability, such as over climate change, will simultaneously spawn a cottage industry in representing businesses against insurers over those new liabilities. On a more substantive note, the particularly interesting thing to me about the seminars I am seeing is that these educational materials present the issue as essentially an extension into the climate change area of the legal developments generated during the last broadly contested, high stakes area of coverage disputes, namely environmental losses related to Superfund and other environmental liabilities. It’s a logical step, if one thinks about it: the environmental coverage disputes revolved primarily around the environmental impacts of the dumping of pollutants, and the new climate change issues will also concern environmental impacts, only in this instance ones that stem from the global warming impacts of certain business practices. The earlier environmental coverage rulings issued primarily in the late eighties and early nineties are thus a natural base on which to analyze the insurance coverage issues raised by climate change liabilities. In a way, it even fits the historical development of insurance coverage law. The environmental coverage litigation really expanded from, and built upon, the mass tort coverage disputes of asbestos, most concretely in the extension of trigger of coverage issues decided in that earlier context into the environmental pollution context; it only makes sense that the same historical evolution would continue into the next “hot” (pun intended) realm of insurance coverage litigation, in this instance by taking coverage decisions related to environmental polluting and rejiggering them to apply to climate change exposures.
Insurance Coverage, Tuberculosis, and that Guy on the Plane
Permalink | You see, everything at the end of the day is about insurance. Risk sharing that allows smaller businesses to move forward with operations, plaintiffs’ decisions over who has enough insurance to warrant suing, even the economic dislocations of climate change - everything comes back to the insurance industry. Here’s a great example, and an amusing one. Remember the lawyer who flew across the Atlantic after being diagnosed with tuberculosis? And who naturally was thereafter sued by other passengers who became quite worried about what they might have picked up from the guy? (Your faithful correspondent here moves three rows away on a commuter train if someone even sniffles, so I certainly have sympathies for those other passengers.) Well, he notified his homeowner’s insurer of those cases and the insurer is paying to defend him, but it has now launched the real battle, namely litigation over whether or not there is coverage for these claims against him; if there isn’t, he’s stuck paying any judgments or settlements. You can find the whole story here. A couple of interesting side points. First, there is no doubt the insurer is, as the article suggests, taking the right tack here; the proper approach is to defend and simultaneously ask a court to declare whether there is any coverage. This is particularly so in this instance because of the second side point, which is that, on first glance, those coverage defenses of the homeowner’s insurer noted in the article aren’t the best; without even knowing the facts beyond what I’ve read in the media in the past or reading the complaint, I can spot the potential holes in their arguments from here. When coverage is particularly debatable, it makes no sense for an insurer to simply deny coverage and leave the insured on its own, because of the potential exposures - a long story, best saved for another day - that can attach to the insurer if it is wrong in deciding that there is no coverage; rather, the best tactical play in that situation is to defend the insured, and to not deny coverage unless and until a court agrees there is no coverage. The downsides to the insurer in that situation are nothing more than the costs of litigating the coverage question and possibly, depending on the jurisdiction, having to pay the insured’s costs in the coverage litigation if the court decides there is coverage; that’s a heck of a lot cheaper than the potential liabilities, including bad faith judgments, that can attach to an insurer that simply denies coverage on its own, and is later found to have been wrong.
Insureds, Prior Knowledge and Insurance Coverage
Permalink | One of the more ambiguous and gray areas in insurance coverage law is the question of when an insured is or should be aware that a claim is on its way. The law recognizes that this can certainly occur at some point before the insured actually is handed suit papers by a process server, but the law is certainly not crystal clear as to when that is. This is a question of particular importance for insureds because various contractual policy terms in a policy and various common law principles read into the insurance relationship can all preclude coverage if that date is deemed to be before the effective date of the insurance in force when the insured actually is served with the suit papers. For instance, many policies contain terms precluding coverage if the insured knew or should have known of the potential claim before a policy took effect and, for that matter as well, failure to disclose an expected claim in applying for a policy can result in the policy being voided for misrepresentation in many jurisdictions.
Of interest on this topic is this article here at Law.com concerning whether attorneys, covered under professional liability policies, are on notice in this manner whenever an unhappy client complains about a case or, if not whenever the client complains, how much complaining is necessary for the insured to be aware that a claim is likely and to lose coverage as a result if and when that client does file suit. A new declaratory judgment action filed in New Jersey seeks to answer that particular question. Of particular interest to me, however, is the fact context in which the complaining arose. It concerned a client unhappy with the terms of a settlement negotiated by the insured attorney. It’s a cliche of mediation, uttered by every mediator trying to push two unhappy parties to reach agreement on a resolution, that “a good settlement is one where both sides are unhappy.” Well, if that’s the case, then does the complaining after the fact mean that the lawyers involved are always thereafter on notice of a potential claim that they have to report to their malpractice insurers? It would be kind of silly to have a legal rule holding that the usual griping that often accompanies settlement has to be reported to the lawyers’ insurers to protect their rights to coverage in those one out of a million times that the complaining eventually morphs into a malpractice suit. Admittedly, this is something of a deliberately far fetched example, but it does point out the practical considerations that have to be factored into the question of how far in advance of the filing of suit the insured’s obligations can attach. Too far in advance, and the legal rule creates an unworkable, burdensome scenario for all involved, including insurers who would have to process multiple and unnecessary notices concerning many events that will never lead to suit; not far enough in advance and insurers lose the protections those policy terms and common law doctrines were intended to provide.
Bad Faith, Sureties, Insurance Coverage, and Punitive Damages: Who Gets the Check When the Misconduct Ends?
Permalink | Here’s a neat little story out of the Massachusetts Lawyers Weekly today on a Massachusetts Appeals Court decision holding that the surety on a construction contract does not cover, under the construction bond it issued, punitive damages awarded for the bad faith conduct of a principal of the construction company covered under the bond. Although turning on the specific language of the bond and what losses it extended to, the ruling parallels the common issue arising under insurance policies of all types as to whether a policy’s coverage extends to punitive damage awards and, in fact, whether public policy even allows parties to insure punitive damages awards, an issue I discussed awhile back in some detail in this post here. The primary issue in those cases is twofold: first, whether the policy language extends coverage to punitive damage awards and then, second, whether allowing a party to insure against such an award provides the wrong marketplace incentives with regard to corporate conduct and should not be allowed as a result.
Those same two issues were in play in this surety bond case, with the Appeals Court first concluding that the language of the bond does not extend to the punitive damages award itself, and second, that expanding the language to cover such awards would risk undermining the entire surety bond system in the state. The court’s conclusion on this issue is summed up in this paragraph from the opinion:
By its terms, then, the bond did not cover punitive damages, payment of which is payment for punishment, not for "labor, materials and equipment" [which is what the bond stated it covered]. See Gasior v. Massachusetts Gen. Hosp., 446 Mass. 645, 653 (2006) ("purpose of punitive damages has been described as punishment and deterrence rather than compensation of an injured party"); Kapp v. Arbella Mut. Ins. Co., 426 Mass. 683, 686 (1998). To conclude that the bond encompassed punitive damages would be to rewrite the agreement Travelers made with Peabody and to risk diluting through punitive awards to a few subcontractors and materialmen the "security to [all] subcontractors and materialmen on public works," LaBonte v. White Constr. Co., 363 Mass. 41, 45 (1973), that the bond is designed to afford. See New Hampshire Ins. Co. v. Gruhn, 99 Nev. 771, 773 (1983).
I can’t say I disagree with the court on either aspect of its reasoning. Standard rules of contract interpretation, properly applied, cannot support a finding that the relevant language of the bond extended coverage to punitive damage awards, and the policy reasons for not extending coverage in general to such awards is frequently compelling in insurance coverage cases, just as it was in this case.
The case itself is C & I Steel v. Travelers Casualty and Surety, and you can find the opinion itself here.
I Can't Believe Its Not Butter: How Many Deductibles Apply to Claims Involving a Butter Like Substance
Permalink | Here’s a tasty little tidbit for you insurance coverage junkies out there. Law.com has this interesting article on a ruling as to the number of deductibles that apply to suits alleging lung injuries from the flavoring used in manufacturing microwave popcorn. As the article explains, a New York state appeals court has found that the “supplier of the buttery substance used in microwave popcorn must pay a minimum $50,000 deductible for every worker at a Missouri plant who successfully asserts a claim that the flavoring caused lung problems or other respiratory ailments.” The issue before the court was whether certain policy language in the manufacturer’s insurance policies, which stated that the policies’ deductibles applied per occurrence, meant that one deductible applied to all such claims or instead one deductible applied to each such claim. As the article lays out the court’s reasoning, the court found that the structure of the policy language led naturally to the latter interpretation. Determining the number of claims or occurrences, including for purposes of determining how many deductibles apply, is a common problem in insurance coverage law, one that is oft litigated. The article’s presentation of the court’s reasoning suggests that the court approached this issue in an entirely appropriate manner, as it focused on the actual policy language used to reach its determination.
All You Need to Know About Anti-Concurrent Cause Policy Language, Hurricane Katrina and Insurance Coverage Law
Permalink | What is the sound of the internet clapping? Who knows. A healthy round of applause is due, though, for prominent insurance coverage blogger David Rossmiller, who has spent the last several months on his blog -aptly named the Insurance Coverage Law Blog - detailing and dissecting the insurance coverage disputes arising in the aftermath of Hurricane Katrina. Really, probably no one has covered that aspect of the disaster more thoroughly and consistently, in any media. Appleman on Insurance has now just published his 42 page treatise on the history and application of the anti-concurrent cause language in insurance policies, with a focus on its application to losses arising from Hurricane Katrina. David has now posted the article on his blog, right here.
David, incidentally, somehow manages to practice as a partner in a Portland firm, post to his blog every single work day (even on vacation), and still write scholarly articles like this one. Either he doesn’t sleep, or the three hour time difference between where he is - Oregon - and where I am -Boston - somehow gives him a 27 hour day.
Bad Faith Failure to Settle and the Obligations of Excess Carriers
Permalink | I wanted to return for a moment to a decision from the Massachusetts Supreme Judicial Court from earlier this month, Allmerica Financial Corporation v. Certain Underwriters at Lloyds' London, in which the court held that an excess carrier that had issued a follow form policy to an insured was not bound by or required to follow the settlement decisions of the insured's primary carrier, to whose policy the excess carrier's policy followed form. For those of you who may not be familiar with follow form policies, they are excess policies that incorporate - or borrow or "follow form" to - the same terms and exclusions as are contained in the primary policy issued to the mutual insured of both the excess carrier and the primary carrier. There's nothing very surprising in this holding, and anyone knowledgeable about the practices of the insurance industry since the time of, oh, say the end of the civil war, would know that excess carriers who have issued following form policies do not abdicate to the primary insurer the right to decide whether to spend the excess carrier's money as part of a settlement. So nothing too surprising in the court's opinion, to that extent.
But what might be surprising to some or interesting to others is the fact that, while the law may well be that excess carriers are not bound by the settlement decisions of underlying primary carriers, they may well be exposed to significant bad faith liability, in particular under Massachusetts' unfair trade practices statute, if they refuse to join in on such a settlement. As a general rule in Massachusetts, by statute insurers are obligated to agree to a reasonable settlement of a claim and, by statute, can be hit with multiple damage awards if they fail to do so. Now, think about it, and play out the scenario in which the primary carrier elects to settle, even if the amount will exceed the limits of the primary policy and require some payment by the excess carrier. Presumably, the primary carrier is doing so because settlement on those terms is reasonable. Well then, what about the excess carrier? If it refuses to go along, has it committed a breach of the obligation to reach a reasonable settlement by refusing to participate in the settlement reached by the primary carrier, which was premised on the participation of the excess carrier in the settlement?
There are a lot of ins and outs to this, and I would have to write a full blown law review article here to address them all. But for now, my point is only this. It is one thing for the state's highest court to say that an excess carrier is not obligated by the terms of a follow form policy to join in a settlement reached by the primary carrier, but it is an entirely different question whether other sources of legal obligation, such as the state's unfair trade practices act, impose an obligation to the contrary. I would argue that they don't and shouldn't, but outside of the digital confines of this blog, I certainly don't get the last word on this subject.
It should be noted, however, that the Supreme Judicial Court did nod at this issue in its opinion, and in so doing suggested both that excess carriers have a great deal of leeway in deciding whether to settle a case where the loss will be in excess of the primary policy's limits and that it should not be easy to show that an excess carrier committed bad faith by declining to participate in an arguably reasonable settlement to which the primary carrier was willing to commit. The Court, in a footnote, explained that the question of the excess carrier's bad faith obligations was not at issue, but cited Hartford Casualty Insurance Company v. New Hampshire Insurance Company, a 1994 decision, as reflecting current Massachusetts law on the duty an excess carrier “owes to its insured not to act negligently in refusing to settle a case.” Indeed, the Court then went one step further and, in a different footnote, expressly declared that the Court’s conclusion in Allmerica with regard to the follow form obligations of excess carriers with regard to settlements “should not be construed to limit the settlement responsibilities of insurers articulated in” Hartford Casualty.
The Hartford Casualty case set forth a very high standard for imposing bad faith liability on a carrier that fails to settle a case, finding that there is only a bad faith failure to settle if no reasonable insurer at all would have failed to settle the case on the terms presented to it. That's a pretty high standard. I would argue, given the Supreme Judicial Court's deliberate citation of that case in two footnotes in a case, Allmerica, that didn't require the Court to even address issues of bad faith failure to settle, that the Court was reinforcing that bad faith failure to settle claims can only be maintained against excess carriers - even ones that issued follow form policies and even where the primary carrier wants to settle - if the very high bar set forth in the 1994 Hartford Casualty case is met.
The Joint Defense Privilege in Massachusetts, With a Little Insurance Thrown In For Good Measure
Permalink | Here's a dog bites man story: the joint defense privilege exists in Massachusetts. For those of you who are unfamiliar with the topic, the joint defense privilege allows parties on the same side of the dispute in a multiparty litigation to share information amongst themselves and their various attorneys without waiving the attorney client privilege. Normally, the privilege only attaches to information kept in confidence by a party and its attorney, and if they disclose it to anyone else, the privilege is lost (or waived, as the litigators say). However, the joint defense privilege allows parties who have a shared interest in litigating against yet another party to disclose information to each other without waiving the privilege. The Massachusetts Supreme Judicial Court has now officially recognized this principle, but what makes it a little bit of a dog bites man story is that Massachusetts lawyers and trial court judges have been acting for decades as though the joint defense privilege exists. The Supreme Judicial Court acknowledged this in its opinion, stating:
Although this court has not had occasion to consider the common interest doctrine or any of its components, there is no doubt that attorneys and their clients have relied on its implicit existence. It is evident from cases such as Commonwealth v. Beneficial Fin. Co., 360 Mass. 188 (1971), the longest criminal trial in the history of the Commonwealth, that joint defense arrangements have been used in criminal trials in Massachusetts for a substantial period of time. Indeed, in The Society of Jesus of New England v. Commonwealth, 441 Mass. 662, 666 (2004), we noted without comment that the defendants in that criminal case had entered into a "Joint Defense Agreement." The principle, at least in the litigation context, is incorporated into Proposed Mass. R. Evid. 502 (b) (3). The parties have brought to our attention numerous well-reasoned decisions of judges in the Superior Court recognizing the validity of the joint defense privilege in civil cases.
It is not surprising, by the way, that the issue came up, and was finally decided by the Supreme Judicial Court, in an insurance related case; insurance disputes routinely involve multiple parties, from primary carriers to excess carriers to insurance agents to third party administrators, and on and on. It is very difficult for all of the parties on one side or the other of the case to align their positions and litigate effectively without sharing privileged information.
Life Insurance, Good Health, and the Reasonable Expectations Doctrine
Permalink | Wow, here is a great insurance coverage story out of the Massachusetts Lawyers Weekly, concerning a state trial court decision over the impact of a particular clause in a life insurance policy. The case involved a life insurance policy containing a clause under which the policy only became effective if the insured was in good health at the time of issuance. The life insurer had a medical exam conducted on the applicant for the coverage, and found him to be healthy enough for the policy to be issued. Two weeks later, however, he was found by his own physicians to have a terminal disease. The life insurer sought to deny the claim, after his death, for the life insurance proceeds on the ground that the good health requirement was not met.
The state trial court, probably rightly so, ruled against the insurer, restricting the good health clause to limiting coverage if the insured knew or should have known that he was not in good health, and rejected the insurer’s argument that the clause instead applies on an objective level and precludes coverage if the insured was not in good health at the time of issuance, without regard to what the insured or anyone else actually knew at that time. The court’s choice seems to me to be a reasonable and fair result. But what is really interesting about it is that in doing so, the trial court rejected 85 year old precedent to the contrary, finding that it was outdated and that changing the rule to instead apply in the manner selected by the trial court better conformed to the reasonable expectations of the insured.
I have talked before in this blog about the reasonable expectations doctrine, and about the idea that it can be understood as a tool for the court to look at an insurance contract and give it the most realistic and sensible interpretation for the parties given that the parties themselves at the time of contracting are limited in their ability to anticipate the future events over which they are contracting and have only a finite capacity for capturing all possible contingencies in the policy language. This case represents a perfect example of that use of the doctrine, particularly so given the extraordinary rarity of the fact pattern at issue. Really, what reasonable insured or insurer - particularly after the insurer had arranged for a pre-coverage medical examination of the applicant - would have anticipated this exact fact pattern? And for that matter, what applicant would buy coverage, after being examined and having his medical records reviewed by the insurer prior to coverage being approved, if the coverage would vanish if, contrary to the knowledge of both the insurer and the insured, he was thereafter found to be terminally ill?
Cost of Living Benefits and Disability Benefits
Permalink | There are some who believe that insurance policies are by definition ambiguous - mostly lawyers who solely represent policyholders for a living - and others, on occasion including judges, who sometimes seem to believe that unless a policy specifically excludes something, than it is either ambiguous and provides coverage or simply provides coverage because the policy didn’t come out and say it does not. None of this is correct. Instead, the question of what policies cover should turn on the specific language of the policy in question and the rules of policy interpretation that apply in the specific jurisdiction in question.
The First Circuit applied this proper approach correctly here in this case, Prostkoff v. Paul Revere Life Insurance Company, where the parties disputed whether the plaintiff was entitled to cost of living increases in his disability benefits after the age of 65. The court correctly concluded that the policy language was not ambiguous and that the policy should not be construed to grant such coverage.
There isn’t much law talked about in this case, so I am not sure of its value to practioners, outside of the unlikely event that someone, somewhere, is presented with the exact same dispute over the availability of cost of living adjustments to disability payments after the age of 65. At a minimum, it’s a case that may be worth citing simply as an exemplar of the right approach to interpreting and understanding policy language that may not be perfectly clear on its face.
Me and LaRue, and Business Insurance Too
Permalink | There is an article in Business Insurance magazine this week, the June 25th issue, on the Supreme Court accepting review of the LaRue decision, in which I am quoted. The article is here - subscription required - and if you read it, you will note that it ends on my comment that I expect the Supreme Court to overturn the Fourth Circuit. A short article intended really just as a little news blurb on the subject for the benefit of the magazine’s business management oriented readership, the reporter did not have the space to go into why I think the Court will overturn the lower court decision, but I, obviously, have the space to do so here. So to the extent anyone is interested in the question, here’s my thinking.
First, I don’t really expect the Court to do much, if anything, with the question of the scope of equitable remedies issue. If anything, given the language of the statute, despite the fact that many people want the Court to expand individual remedies and available damages under ERISA - including, I have found in my litigation practice, many District Court judges who are displeased with the limitations of the statute but nonetheless consider themselves duty bound to enforce its restrictions on recovery - the Court has probably read the range of equitable relief that can be pursued in as broad and pro-plaintiff a manner as the language allows, with its test of whether the relief sought would be equitable or not way back in the days of the divided bench. There simply isn’t much more you can do with the statute’s restriction of recovery in certain circumstances to equitable relief unless you are simply going to ignore the actual language of the statute and rewrite it by judicial fiat, which this Court certainly isn’t going to do and arguably, the thinking of Ronald Dworkin and his heirs aside, no court should do.
In a way, this issue is a perfect parallel to a long running and common problem in the insurance coverage field, in which there was an oft litigated dispute over whether insurance policies, because they only cover claims for damages, cover lawsuits seeking equitable relief, the issue being that the policies only cover damages and equitable relief is something different than damages. In both insurance coverage and ERISA cases - such as LaRue - the simple fact of the matter is that equitable relief does mean something particular, something that is different than a claim for damages, and the question is what is the impact of that difference.
Second, with regard to the more fundamental question of whether the individual plan participant could recover just for losses to his account in the plan, yes, I do think the Court will overrule the Fourth Circuit and find that such an individual plan participant can bring such an action. I can never recall whether the saying is that the Court follows the election returns, or is that the Court doesn’t follow the election returns, so I looked it up, and in fact the saying is that they follow the returns, although every author who writes this then adds qualifiers to the comment, such as in this piece here. Either way, the kind of relief sought by the plaintiff in the LaRue case, to be able to enforce his investment instructions in his own retirement savings account, clearly fits with the current Zeitgeist and, more interestingly, is of a piece - and a natural fit with - the changes to retirement savings plans put into place by the Pension Protection Act. Beyond that, the statutory language that is at issue in this part of the case is completely open to either the interpretation selected by the Fourth Circuit, or that sought by the plaintiff, and thus the Court can realign this part of ERISA without doing any violence to the statutory language. Combine these things, and I get a reversal.
Why You Should Hire a Lawyer With A Black Belt in Commercial Arbitration
Permalink | You know, the term martial arts is really just an umbrella for a whole range of more particular styles of physical combat, and the diversity is actually kind of fascinating. What does this have to do with anything? Well, I was reminded of this by this post from the Adjunct Law Prof on a ruling by the Virginia state supreme court concerning the grounds on which one can challenge an arbitration ruling when the arbitration is governed by the Virginia state arbitration act. Litigation is much like martial arts, in the sense that we subsume within that phrase a lot of areas that actually have their own specific quirks, and for which experience in one area may not necessarily transfer to success in another. Commercial arbitration, as the Adjunct Law Prof’s post reflects, is one such area. States have their own arbitration acts, unique to their states, and the federal system has its federal arbitration act, which is what most people talk of when discussing the law of arbitration. But the outcome of an arbitration can vary depending, as that post shows, on which particular arbitration act governs an arbitration. The Adjunct Law Prof’s post explains that the outcome in Virginia under that state’s arbitration act would be different under both New York law and in the federal system.
And thus among the black arts of arbitrating cases is knowing when, and how, to maneuver around various state arbitration acts and the federal arbitration act, and knowing how to get the best act for your case to be applicable. And subtleties like that are why it is important to hire a lawyer skilled and experienced with arbitration, rather than to just assume that litigation is litigation, and that a different set of skills is not necessary for the subset of litigation known as commercial arbitration.
The First Circuit on Professional Liability Insurance
Permalink | What SCOTUSBLOG does for the Supreme Court - maintaining a steady and running review of goings on at the high court - Appellate Law and Practice does for the First Circuit, only with a little more humor and quirkiness than SCOTUSBLOG employs. A regular check of Appellate Law and Practice ensures that you don’t miss anything at all, yet alone anything of importance to your own practice areas, that takes place at the First Circuit.
I mention this today because Appellate Law and Practice has the story of a decision out of the First Circuit last week concluding that, as is in fact the rule, business decisions and activities that are not unique to the type of professional services conducted by an insured are not within the scope of that insured’s professional liability coverage. To quote Appellate Law and Practice,
In short, under what the First thinks is Massachusetts law, professional “Errors and Omissions” insurance (in this case for an insurance broker) doesn’t cover business decisions, which, in this case was a breach of an exclusivity agreement that resulted in an arbitration award. Or, in the words of the First, “A promise by an agent to represent one insurer exclusively for certain lines of insurance is not itself a professional service, nor does a diversion of business in breach of such a contract comprise the performance of professional service. The closest cases interpreting Massachusetts insurance law hold that overcharging clients in fees, even though for work done in a professional capacity, is not itself a professional service covered by malpractice or E&O policies.”
The First Circuit is right about this issue, and between rulings out of that circuit and from the state courts, Massachusetts is becoming a jurisdiction in which this rule is clear and can be expected to be enforced. Not all jurisdictions are like that about this issue, and it can sometimes be hard to convince a court that this is the rule, because it is a limitation on coverage that is generally not expressly laid out in professional liability policies and is instead something that logically flows from the language and structure of the policy. This is not the case in the First Circuit or Massachusetts, however, where the courts clearly get this point.
Commercial Arbitration and the Federal Arbitration Act
Permalink | Very few things can still reduce me to an adolescent rumble of uttering very, very, very cool, and it is particularly remarkable when something in the practice of law has that effect. These three posts, from Workplace Prof, Adjunct Law Prof Blog, and SCOTUSBLOG had that effect on me when I came in to them on my desktop this morning. They all discuss the fact that the Supreme Court has accepted a case presenting the question of whether parties to arbitration agreements can contract around the Federal Arbitration Act and change the extent of judicial review of an arbitrator’s ruling. As I have discussed in a number of posts in the past, I am one of many people who have a healthy skepticism about commercial arbitration, and one of my many concerns with the format has to do with the extremely limited judicial review of arbitration decisions, even ones that are obviously and fundamentally flawed. I discussed this point in some detail here. For those clients who are interested in arbitrating, I often counsel close analysis of the pluses and minuses of doing so, and in particular I recommend attention to the arbitration agreement itself with the idea of adding into it particular protections or litigation tools that would otherwise be missing from the process. Now, it looks like the Supreme Court will be addressing the question of to what extent parties can actually do this. As I said, very, very cool, at least to those of us with a long standing interest in the pros and cons of arbitration, and how to improve it by private agreement.
Massachusetts Insurance Coverage Law in a Nutshell
Permalink | I wanted to pass on to you a case out of the United States District Court for the Northern District of Ohio that was issued about the time I was trying a patent infringement case last month, and which I wasn’t able to comment on then as a result. With a little more time now, however, I wanted to go back to it and mention it here, because, despite being out of Ohio, it applies Massachusetts law on the duty to defend under insurance policies and on the rules for interpreting insurance policies. The court provides a terrific, and easily quoted, summation of the rules in this state on those issues:
Under Massachusetts law, as in most jurisdictions, "the question of the initial duty of a liability insurer to defend third-party actions against the insured is decided by matching the third-party complaint with the policy provisions . . ." Sterilite Corp. v. Continental Cas. Co., 17 Mass. App. Ct. 316, 318, 458 N.E.2d 338 (1984). The duty to defend arises if, in comparing the policy terms with the third-party complaint, "the allegations of the complaint are 'reasonably susceptible' of an interpretation that they state or adumbrate a claim covered by the policy terms . . . Otherwise stated, the process is one of envisaging what kinds of losses may be proved as lying within the range of the allegations of the complaint, and then seeing whether any such loss fits the expectation of protective insurance reasonably generated by the terms of the policy." Id. (quoting Vappi & Co., Inc. v. Aetna Cas. & Sur. Co., 348 Mass. 427, 431, 204 N.E.2d 273 (1965)) (citations omitted); see also Simplex Techs., Inc. v. Liberty Mut. Ins. Co., 429 Mass. 196, 197-98, 706 N.E.2d 1135 (1999) (quoting same). The insured bears the initial burden of proving that a claim falls within the grant of coverage. See Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 321, 568 N.E.2d 631 (1991).
"It is well settled in [Massachusetts] that a liability insurer owes a broad duty to defend its insured against any claims that create a potential for liability." Simplex, 429 Mass. at 199 (quoting Doe v. Liberty Mut. Ins. Co., 423 Mass. 366, 368, 667 N.E.2d 1149 (1996)) (emphasis supplied by Simplex court). The cause of action stated in the complaint need only give rise to a possibility of recovery, "there need not be a probability of recovery." Id. (citation omitted) (emphasis added). Indeed, a duty to defend may arise "even if the claim is baseless." Mt. Airy Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir. 1997) (applying Massachusetts law); see also Sterilite, 17 Mass. App. Ct. at 324 ("the insurer stands in breach of its duty even if the third party fails in the end to support any such claim of liability by adequate proof."). In addition, "[t]hat some, or even many, of the underlying claims may fall outside the coverage does not excuse [the insurer] from its duty to defend the actions." Simplex, 429 Mass. at 199 (quoting Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 322, 568 N.E.2d 631 (1991)).
Massachusetts courts have explained that, "when construing the language of an insurance policy, it is appropriate 'to consider [whether] an objectively reasonable insured, reading the relevant policy language, would expect to be covered." Nashua Corp. v. First State Ins. Co., 420 Mass. 196, 200, 648 N.E.2d 1272 (1995) (quoting Hazen Paper Co. v. U.S. Fidelity & Guar. Co., 407 Mass. 689, 700, 555 N.E.2d 576 (1990). Further, "an insured is entitled to the most favorable interpretation of the policy language when there is more than one rational interpretation of the policy language, or where the policy language is ambiguous." Id.; see also Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 12, 545 N.E.2d 1156 (1989) ("Where the language permits more than one rational interpretation, that most favorable to the insured is to be taken.").
The case is Royal Insurance Company v. Boston Beer Company, 2007 U.S. Dist. LEXIS 25513 (D. Ohio 2007). The decision comes out of a court that, unfortunately, does not make all of its opinions available for free on line, something that all courts frankly should do, and so I cannot provide a link to the opinion.
Insurance Coverage Litigation and the Elastic Concept of Ambiguity
Permalink | When I was taking constitutional law in law school, I had a professor who liked to say that what standard of review the Supreme Court applied to certain types of issues depended on whether or not the justices wanted to uphold or instead overturn the statute before them; a more cursory level of review guaranteed that it would be upheld, and a more searching standard of review would inevitably lead to the statute being struck down. Readers of this blog who are lawyers probably had constitutional law professors who said much the same thing (even then, it didn’t sound particularly original to me).
The concept of ambiguity can sometimes play much the same role in insurance coverage disputes. Courts sometimes invoke it as a handy, out of the blue lightning bolt to tilt the case in favor of the insured, often, frankly, without providing much intellectual support for concluding that the particular insurance policy term involved is in fact ambiguous. Better courts and judges don’t do this, but it happens enough to be a given risk that must be accounted for by any insurance company involved in insurance coverage litigation. Most jurisdictions have a variety of legal rules that buttress the ambiguity question, which in theory should make the interpretation of debated policy terms more complicated than the simple syllogism of ambiguity equals coverage.
What brings these thoughts to mind is that David Rossmiller has a nice post today on the ambiguity of the manner in which courts find ambiguity in insurance policies. Better still, David provides a link to an excellent article on the subject that presents a perfect example of a court subtly handling the ambiguity question in a manner that should be the norm, and never the exception. If you want to know more on the elastic concept of ambiguity and its role in insurance coverage litigation, his post and the article he links to are a fine place to start.
Animators at Law and Sophisticated Trial Graphics
I recently had a fun virtual meeting, by conference call and downloads, with Animators at Law, who produce 2D and 3D trial graphics, and in particular with Christine McCarey, a former in-house counsel and now the company’s national director of business development. I have been at this long enough to remember when trial graphics were big glorified poster boards or, worse yet, were projected by what appeared to be simply updated versions of the overhead projectors that jurors, typically recoiling in fright, remembered with horror from junior high school.
Well, that was then and this is now. Christine, tracking my professional interests, showed off some great pieces of work from a range of intellectual property and insurance coverage cases that were both imaginative and informative; in this visual age, they are the kind of things that a jury will actually note and remember. I particularly liked two examples, the first a graphic from a trade dress infringement trial that showed the defendant’s product literally morphing over time from its original design into a design that perfectly mimicked the plaintiff’s product (for those of you who don’t do this kind of work and wouldn’t know trade dress infringement from a cocktail dress, that kind of a match puts the defendant in the position of having to rely on technical legal defenses, while letting the plaintiff reinforce in the jury’s mind that, hey, the competing products look too much the same for this to be legal).
The second example that I really liked was a series of exhibits from an environmental insurance coverage case. What I liked best about them was that they took what is in essence a dry textual issue - what does insurance contract language mean and how does it apply to these facts - and transformed it into something visual and catchy. That’s no mean feet, and it’s a long way from those bar graphs showing layers of excess policies that passed for exhibits in insurance coverage cases lo these many years ago.
Fun stuff, and if you have an interest in state of the art trial graphics, you could certainly do worse than talk with Christine.
The Tripartite Relationship and the Attorney Client Privilege
Permalink | One of the more unwieldy of legal fictions is the so-called tripartite relationship among the insured, the insurer, and the defense counsel defending the insured against the claim. Duties run every which way in the relationship, and this beast is at its most cantankerous when one gets into the question of how the attorney client privilege fits in. In particular, if the insured and the insurer end up in a coverage dispute, the question of who has access to the communications between the insured and the defense counsel - just the insured, or also the insurer - quickly becomes a bone of contention.
I have talked before about the difficulty presented by this issue, and how it impacts insurance coverage and bad faith litigation. How exactly is an insurer to get at all the evidence of what happened in the underlying case, or at all of the facts that might shed light on whether or not the loss, in truth, is within the scope of coverage, if much of the evidence on that is laid out in the communications of the party who was actually on the scene - the lawyer litigating the case? A quick example highlights the problem. Suppose, for example, the issue presented is whether a settlement entered into by the insured was actually for losses within the scope of the coverage rather than just having been styled in that manner to try to place the loss within the coverage, and was actually paid for uncovered parts of the lawsuit. What more telling evidence could there be than the information communicated, orally and in writing, to the insured from the defense lawyer negotiating the settlement? After all, she is giving the advice on the settlement and structuring its terms - so if there is a question of whether the settlement is actually covered, shouldn’t that evidence both be admissible and discoverable?
Would seem so, but that isn’t necessarily the law. Which leads me to the real point of today’s post, which is to recommend Marc Mayerson’s review of the case law on this question.
Hurricane Katrina Coverage Litigation
Permalink | Unlike the postman (neither sleet nor rain, etc.), I am easily diverted from my appointed rounds. This is another way of saying that contrary to what I said in my last post, I am not returning right away to a run down of a handful of interesting ERISA decisions handed down in the First Circuit just before the holidays. I am digressing from that topic today for the simple reason that if you have any interest in the Hurricane Katrina related coverage litigation that is swamping - pun intended - the states affected by that hurricane, you'll find no better analysis and discussion of that subject than that offered today by David Rossmiller on his blog. I wanted to make sure I passed that along today.
Malicious Prosecution in Massachusetts
When I first saw this headline - “Doctor can sue insurance company for malicious prosecution” - in the local legal newspaper, my first thought was they are running a dog bites man story to open the new year. Why, after all, would an insurance company be immune from being sued for malicious prosecution? But when you delve a little deeper, you find the story, and the case it discusses, are much more meaningful than the headline suggests. In the case, Chervin v. The Travelers Insurance Company, the issue really wasn’t whether an insurance company could be sued for malicious prosecution, but instead what must be proven to sustain such a claim, whether against an insurance company or anybody else. The Supreme Judicial Court took the opportunity presented by the case to bring the law on this cause of action into the modern era, and to determine what the elements of that claim should be today.
For insurance companies, it’s a particularly useful case in that it really presents the parameters that cabin an insurance company’s decision to file a subrogation or other action against a third party as a result of a loss covered by the insurer. For that reason alone, it is worth a read. The case, ably briefed for the insurer by loyal blog reader and stellar local youth soccer coach Scott McConchie, can be found here. Unfortunately, however, the Lawyers Weekly article with the questionable headline quoted above, has vanished from the internet in the twelve hours since I came across it.
Ten Exciting Moments in Insurance Coverage Law, 2006
Permalink | Here is an article insurance coverage litigator Randy Maniloff is publishing in Mealey’s early next month discussing Randy’s picks for the ten most important insurance coverage decisions from across the country over the past year. The cases cover issues ranging from the absolute pollution exclusion to junk faxes, and a range of topics in-between.
While the article is useful as a primer for staying up to date on what has occurred in the insurance coverage field over the last twelve months, what I think I like the best about it is it demonstrates the breadth of issues at play in this field. Most people - including many lawyers - look at an insurance policy and see a seemingly impenetrable document; in addition, many lawyers who don’t work in this field don’t realize how diverse an area of practice it really is. Insurance coverage lawyers, however, look at insurance policies and see the untold number of issues that lurk within them, and know the range of legal and factual issues that practicing in this field can present to the practitioner. The breadth of Randy’s article really drives home that point.
Attorney's Fee Awards, and the Duty to Indemnify
Permalink | I have written before about the American Rule - which requires parties to a lawsuit, in the absence of a fee shifting statute or contractual agreement, to pay their own legal fees - and the exception under Massachusetts law that runs in favor of insureds who prevail in coverage cases against their insurers. The Supreme Judicial Court has now established that this exception runs only to disputes over an insurer’s duty to defend, and not to disputes over the duty to indemnify. Thus, while an insured who proves that its insurer breached a duty to defend can recover from the insurer its legal fees in proving this point, the same is not true for an insured who proves that its insurer breached the duty to indemnify. Here’s the story, with a link to the case.
This resolves an unsettled point of Massachusetts law, as to whether the right to recover attorneys fees runs along with a claim over the duty to indemnify, or instead only along with a claim for breach of the duty to defend. It turns out to be the latter only.
In the long run, it’s a better decision than the opposite holding would have been. A decision to deny indemnity without a reasonable basis for doing so is already punishable in Massachusetts under the state’s consumer protection act. When, in contrast, a denial of indemnity is reasonable, an insurer should be able to try to prove that its coverage determination was correct without having to factor in the risk of having to pay the insured’s legal fees if a court finds that the insurer’s interpretation of its coverage obligations, while reasonable, was wrong.
The Attorney-Client Privilege in Insurance Coverage and Bad Faith Lawsuits
Like all of you, I am sure, I receive almost daily pitches in my in-box for seminars, podcasts, books and publications that promise to educate me on various topics that the pitchers have decided I must be interested in. Of course, these may be the same marketing wizards who send me twenty pitches a day for on-line pharmacies, so I may be giving them too much credit when I assume they are actually targeting their offerings to my professional interests in such topics as patent litigation, ERISA and insurance coverage. Nonetheless, sort of like playing horseshoes, they do sometimes come close to the mark with the offerings they email me.
This one caught my eye the other day, for a teleconference on the attorney-client privilege, with the hook that the privilege is supposedly under assault in the context of insurance coverage litigation. The short version pitch that was sent to me goes like this:
The sanctity of attorney-client privilege has been shaken by court decisions allowing discovery of attorney-client communication in the context of certain insurance lawsuits. Attorneys and clients must always be conscious of preserving the privilege, but insurance disputes gives rise to unique areas of concern.
In insurance cases, counsel often become involved prior to litigation, during the claims process - for coverage advice or to assist with investigations. These pre-litigation communications often end up subject to discovery.
Some courts have found the privilege waived in bad-faith suits where the insurer relies on an advice-of-counsel defense - sometimes even without that defense being raised. Insured's counsel also argue that attorneys who participate in insurance investigations are not providing legal advice but are acting as adjusters whose communications with the insurer are not privileged.
Now, I have litigated these issues a number of times. While I have sometimes won these disputes outright, more often than not, the court finds a way to split the baby and give some limited and controlled discovery while at the same time imposing some restrictions intended to protect the primary communications at the heart of the attorney-client relationship, namely those in which actual legal advice itself is transmitted.
There are a couple of points that jump out at me about this whole issue that I wanted to mention. The first is that there is some truth to the argument that it is hard to investigate the facts at issue in both insurance coverage and bad faith litigation because of the attorney-client privilege and work product doctrine, and it is often necessary to carve out some exceptions to those protections against discovery to allow discovery in those kinds of cases to proceed. This often holds true for both insurers trying to learn the underlying facts of the claim over which coverage is being disputed and for insureds trying to learn the facts of what the insurer did with regard to coverage, or the denial of coverage, for such claims. The simple fact is that lawyers for the insured, in defending and settling the underlying claim, and lawyers for the insurer, in providing coverage analysis and recommendations, are participating in activities that are at the heart of insurance coverage and bad faith litigation, but do so while engaging in what would normally be privileged communications. Effective prosecution and defense of these types of lawsuits therefore often raises the question of the extent to which discovery is proper in light of, or instead precluded by, the attorney-client privilege.
The second point that jumped out at me is that this is another one of those issues that is, much like what I talked about in my post yesterday, deja vu all over again. It seems like every several years - maybe it works out to be once every generation of seminar presenters - the books and the articles and the seminars appear declaring the attorney-client privilege to be under assault as a result of discovery rulings issued in the context of insurance coverage and bad faith litigation. I don't know for sure, but it sure seems to me that, despite these periodic "the sky is falling" pronouncements, the attorney-client privilege is still alive and well, and being raised in response to all sorts of discovery requests.
Insurance Coverage Trial Exhibits
I added a new category today, Insurance Coverage Trials, as a place to collect useful tips, ideas and articles on trying insurance coverage cases that might be useful to readers of this blog who either try such cases or hire (and thereafter manage) lawyers who try such cases. What prompted this idea was a long and very comprehensive pretrial conference in a patent infringement action I am litigating, during which I got to thinking about trial graphics and other fancy doodads and geegaws to submit to the jury; this in turn reminded me of Marc Mayerson's terrific, near scholarly recent piece about designing and admitting into evidence trial graphics in insurance coverage litigation. Marc talks in detail about best practices in designing these types of trial aids, and about the rules for getting them before the jury. What I like best though, I think, is that his post is really focused on design issues, and about what types of graphics best communicate information to a jury.
Readers of other posts of mine, like this one here, know I have a layperson's interest in design (the very thing which got me interested in intellectual property litigation and rights in the first place), so it is fun for me to see a lawyer address from a somewhat different direction, namely that of graphic design, a subject - trial graphics and exhibits - that litigators normally don't consider from that perspective.
Contract Law and Insurance Coverage
Although we treat insurance coverage cases as contract disputes, I am not altogether convinced that the law of contracts really is the animating principle behind insurance coverage decisions. Certainly, at the very least, one can't take a gander at a standard contracts hornbook (that is lawyer talk for a book that provides a readers digest type summary of an entire legal subject) and really have any idea from it how to resolve an insurance coverage dispute. At a minimum, it is certainly the case that only by adding quasi-contractual principles - such as the reasonable expectations doctrine - to the traditional rules of contract law that the contract law regime can be seen as explaining the outcome of insurance coverage cases.
Whatever the case may be on that front, one of my favorite blogs, covering decisions out of the First Circuit, has the story of a recent decision from the First Circuit that applies the old law school contracts class chestnut of mutual mistake to an insurance coverage dispute. The post and the case are interesting reading, for those of us who like either contract law or insurance coverage, or worse yet, like me, both.
On Suing Insurance Companies
I spoke awhile back on the phenomenon of lawyers suing insurance companies just because that is where the money is. As a long time coverage and bad faith litigator, it has always been clear to me that there is at least some of that going on (which is not to suggest that no such lawsuits have merit, as clearly many do). Turns out that what empirical data there is, such as the numbers discussed here and here showing the disproportionate degree to which insurance companies are involved in litigation, are consistent with my gut sense on this point.
Insurance Coverage and Personal Jurisdiction
Every state has its litigation tricks and traps, and we all know that there are some states that insurers would simply rather steer clear of. With this in mind, some insurers try to control what states' litigation risks and regimes they will be exposed to by limiting the states in which they write business. But covered risks are often mobile, and even when they are not, we all know that an insured's business operations in one state may expose it to liability in another. As a result, as this story reminds us, an insurer can find its obligations and exposures governed by the law of a state whose law it never intended to subject itself to.
Attorney Fee Awards in Insurance Coverage Litigation
When I was first starting out as a lawyer, stuck with research assignments that required figuring out all aspects of a particular state's law on a particular issue, I always liked to begin by looking for a federal district court decision on the subject, because the federal court decisions had a tendency to include a comprehensive summary of all the law in the state in question on the issue in dispute. This saved the work of reviewing multiple state court decisions, each of which tended to address only one narrow part of the overall issue without discussing other state court decisions that addressed other aspects of the issue. I have always attributed this, by the way, to the federal courts' greater access to law clerks, who could be counted on to turn opinions into minor treatises.
Anyway, here is a perfect example of this phenomenon, only here on an issue that matters to this blog: namely, when can an insured obtain recovery of attorneys fees under Massachusetts law from an insurer in a lawsuit over coverage. Massachusetts state court decisions establish that coverage litigation is an exception, at least here, to the American rule, and that in Massachusetts, it is loser pays, at least if the insurer is the loser in the case.
But the Massachusetts state court decisions to this effect are spread across several cases and could arguably be limited to their facts, unless you synthesize them and push their reasoning one step further. The federal district court in Massachusetts has taken this last step for us, reviewing the Massachusetts state court decisions on this issue and concluding that they add up to an insured being entitled to recover the attorneys fees it incurs in establishing either a duty to defend or a duty to indemnify on the part of the insurer, without limitation to whether the policy in question provides first party or instead third party coverage.
Discovery of Reserves and Other Repetitive Events
Here is a nice post on whether claim reserves are discoverable in insurance coverage or bad faith litigation, with some case law on the topic as well. The discovery of claim reserve information is one of those issues that is a consistent point of dispute from one coverage or bad faith action to the next. In fact, given how much it comes up, it is kind of amazing the amount of time and money spent - some would say wasted - in insurance coverage and bad faith litigation over discovery issues such as this one. Some of that, it is fair to say, is driven by the fact that insureds and claimants in such lawsuits are often convinced there is some document somewhere in the insurer's files that is the key that will unlock the entire case, and are determined as a result to obtain every single piece of paper possessed by the insurer that they can grab hold of. In truth, there almost never is such a key stone document, and even when there is, you can be pretty certain it isn't going to be found in the claim reserves or in similar information, such as reinsurance documents, that are likewise routinely the source of a tug of war over production and discovery in coverage and bad faith litigation.
But the other part of the problem is that what we may really need is some sort of federal rules of evidence, insurance coverage and bad faith subsection (hopefully then adopted by the states as well as part of their own evidence codes, in states like Massachusetts that don't automatically follow the federal rules of evidence), that synthesizes all the case law on these types of issues that arise repetitively in coverage or bad faith litigation, and sets down a rule once and for all on them. In this tidy little daydream for a Friday morning, we could then all stop relitigating the same discovery points over and over again, frequently with little more than a change of judge and forum from the last time we argued over them.
Choice of Law in Insurance Coverage Litigation
Lawyers today are specialists, as evidenced by the long list of single issue law blogs listed on the bottom left of this blog (for an explanation of that list, see here). And with specialization comes what I call "without a second thought" tools, which are approaches to practice that are second nature to those in a particular specialty but of little interest and infrequent relevance to those practicing most other specialties. A "without a second thought" tool is often the unarticulated backdrop behind a specialist's decision to proceed on a case or represent a client in a specific way, one that influences the tactical decisions made on the more front and center issues in a case. At the same time, lawyers who practice in other areas may never even give that topic a second look.
For insurance coverage litigators, choice of law is exactly this type of "without a second thought" tool, subtly and consistently influencing other decisions on a coverage dispute, as this post here discusses, but one that, as a different post reminds us, is an issue that may seldom, if ever, be of relevance to lawyers litigating in other specialties.
Judge's Ruling In Hurricane Katrina Coverage Litigation
I don't have anything to say about this right now, and everybody will be weighing in tomorrow on what the decision itself means, but I thought I would note that the court has issued its opinion, favorable to the insurer and the insurance industry, in the Hurricane Katrina coverage case that went to trial recently. First word on the ruling is here. I do note with amusement that both sides claim to have won.
Hurricane Katrina Insurance Claims
Readers of this prior post know that I had some questions as to whether the Maryland legislature engaged in the necessary amount of due diligence before enacting the Fair Share Act. There is certainly much to be said, though, for the very fact of state legislatures attempting to resolve difficult problems, such as the availability of health benefits.
McGlinchey Stafford, through its Hurricane Law Blog, provides another fine example of a state legislature trying to solve a difficult problem, one that is particularly interesting for those of us with an interest in the insurance industry and its role in the recovery of states affected by Hurricane Katrina. While much media coverage has centered in recent weeks on the Hurricane Katrina coverage litigation that has been ongoing in federal court in Mississippi, and which is now primed for a ruling by the court (thanks to David Rossmiller for the link), the Louisiana state legislature has continued with legislative activities directed at an orderly clean up and recovery, this time by extending the time for affected policyholders to file property damage claims. Recognizing that the dispersion of residents after the flooding may have made it difficult for residents to assess their losses and timely file insurance claims, the state legislature "extended the period within which Hurricane Katrina insurance claims must be filed by one year -- until August 30, 2007." The legislature also instructed the state to promptly file a declaratory judgment action to establish the constitutionality of this change. The complaint ("petition" in Louisiana legal lingo) is interesting reading, both for its description of the new change in the law and of the need for it. A hearing on the petition is set for August 21.
Coverage Lawyers, and How to Pay Them
It seems like everyone is weighing in on the question of billable hours and alternative fee arrangements these days. My colleague and occasional lunch companion - and forceful proselytizer for abandoning the billable hour - Chris Marston weighed in on his blog the other day on the evils of the billable hour and his belief that alternative fee arrangements are better for both the client and the law firm representing the client. Chris' post caused Arnie Herz to tag Chris' firm as "cutting edge" and provoked a thoughtful commentary from Carolyn Elefant on who should bear the risk of mistakes made in establishing a non-billable hour pricing arrangement.
Chris' comments lay a nice foundation for considering a particular question that has often puzzled me, namely whether a policyholder should ever pay coverage lawyers by the billable hour, given certain fee shifting rules available to policyholders - but not to insurers - and a particular structural aspect of coverage litigation. Under Massachusetts law, a policyholder who prevails on a coverage case against an insurer can generally recover his attorney fees from the insurer, in one of those remarkable and relatively rare exceptions to the American rule (under which all parties are generally responsible for their own legal fees and costs). In addition, Massachusetts' bad faith statute - Chapter 93A - under which claims for insurance bad faith are prosecuted, presents still another avenue for recovering fees from an insurer. Beyond that, when a policyholder sues its insurer after a loss, the amount that is being sought from the insurer is usually either already a sum certain (the amount of the loss already being known) or can be readily guesstimated. Still beyond this, an experienced insurance coverage litigator ought to be able to make a fair guess - known in other businesses, such as home remodeling, as an estimate - from past experience as to how much time will have to be put into such a case to prevail on behalf of the client.
Given these avenues for fee shifting to the insurer if the policyholder prevails, the ability to craft a contingency arrangement based on the known value of the loss and the resulting likely amount of recovery, and the knowledge base of the experienced practitioner, there seems little reason why someone suing an insurance company should ever have to pay by the hour. One would think that a policyholder could expect a fee arrangement calculated on the basis of the likely recovery, and structured around the likelihood of recovering fees at the end of the day from the insurer if the lawyer was right to recommend challenging the insurer's coverage determination in the first place.
If you take this little thought experiment a step further, such a paradigmatic shift in how policyholders compensate their coverage lawyers would likely benefit not only policyholders, but insurers and the court system as well. The simple fact of the matter is that insurers are not always wrong on their coverage determinations, no matter what many policyholder lawyers may think. In fact, given the amount of coverage decisions they make on a given day, the relatively few that are challenged in court, and the even fewer that are ever overturned by a court, it is fair to say that insurers are right far more often than they are wrong. You can almost prove this point by a faux mathematical equation: number of coverage decisions by the insurance industry in a year, minus the number reversed by a court in a year, leaves behind a whole lot of coverage determinations that are simply correct.
If insureds compensated their coverage lawyers not by the billable hour, but instead by the fee shifting and/or contingency bonus they would receive if successful, one could expect semi-frivolous lawsuits against insurers, and even those of at best debatable merit, to be brought far less often than they are currently. It would only make sense that if an insured's lawyer was paid to be right about whether to challenge a coverage determination in court, rather than being paid simply for challenging the coverage determination - rightly or wrongly - in court, policyholders would almost certainly receive from their attorneys the type of objective analysis of coverage that is needed to properly determine whether a coverage determination is right or wrong, before a decision to sue an insurer is made; it would now be in the best interest of both the insured and the insured's lawyer not to file lawsuits against insurers on which they are unlikely to prevail. This would be a nice change, both for the burdens on the courts and the costs to insurers of simply being in business, from the current environment in which it is fair to say that some, but certainly not all, lawyers sue insurance companies simply because, to borrow from the bank robber Willie Sutton, that is where the money is.
More on Arbitration
Apparently I am not the only one with concerns about the arbitration process, which I discussed in a recent post. As this article notes, both the Eleventh Circuit and the Georgia state courts are displaying an overt hostility towards parties who challenge arbitration decisions in court, after the arbitration has concluded. What is unclear from the article, however, is whether the courts are displaying a justified anger against parties who bring meritless challenges to arbitration rulings into court, or are instead displaying a simple prejudice against such challenges. If the former, it is hard to quarrel with the attitude being displayed by the courts, but if it is the latter, it is unwarranted.
The Federal Arbitration Act, which as a general rule will govern arbitration contracts that impact interstate commerce in some manner and which controls most litigation over arbitration decisions in federal courts, provides express grounds on which an arbitration ruling can be challenged and overturned in court. Many states have similar arbitration acts that apply similar rules to arbitrations governed by state law. Judges often display a sort of knee jerk belief that arbitration is semi-sacred and is not to be tampered with, at least not lightly. These arbitration acts, however, require the courts to intervene when the standards for doing so under those acts are met, and in my experience, they are met more often than courts seem to be willing to recognize. For instance, many arbitration clauses impose express rules on the arbitration, and an arbitrator who decides in a manner inconsistent with such rules is, in reality, operating outside of his or her authority. An arbitration decision reached under such circumstances should be set aside. The Federal Arbitration Act and many state arbitration acts require courts to fairly entertain such arguments, and to set aside an arbitration if appropriate to do so. A judicial hostility towards challenges to arbitrations is certainly not consistent with this, but for that matter neither is the benign prejudice against overturning such decisions that judges sometimes appear to manifest.
For an example of a court properly understanding its role in overseeing arbitrations, see this post.
Coverage Arbitration Pros and Cons
As soon as I read the article Arbitration's Fall From Grace in GC South, I knew I needed to pass it along to others. Insurance policies are often written with arbitration clauses that require coverage disputes between the insured and the insurer to be arbitrated. In seminars I have given, I often discuss the pros and cons of arbitrating a coverage dispute, and I try to emphasize that arbitration is not necessarily preferable to litigation. It depends on what you want to accomplish in the dispute resolution process, and variables related to how you think you should get to the result you are pursuing. Do you need certain types of discovery to win, types that are more readily available in the court system than under the rules of the American Arbitration Association? If so, then you want to avoid arbitration.
Another key question is whether you are aiming to prevail on summary judgment - the arbitration rules do not explicitly provide for such motion practice, and I have arbitrated cases in which substantial briefing and expense has gone into simply trying to convince the arbitration panel to hear summary judgment type motions.
Another key consideration is the legal strength of your case. Is the body of law in the circuit that the case would be litigated in if the matter were not arbitrated favorable to you? If so, I often advise clients to avoid arbitration. Why? Because if the law is in your favor but an arbitration panel misapplies it, you have no right of appeal; if a trial court misapplies it and you lose at that level as a result, you can have it overturned on appeal. Thus, if you should win on the law, you shouldn't willingly go to arbitration, if you can avoid it.
I have won more commercial arbitrations than I have lost, but whichever end of the stick I have ended up on, one fact has remained consistent: for any even mildly complicated case, arbitration can be an unwieldy beast.
All these problems and more are discussed in wonderful detail in the article. In my own experience, the article is right on the money, both with regard to the pros, and the cons, of arbitrating disputes.
Hurricane Katrina Coverage Litigation
Call it professional jealousy that someone else has such an interesting case to try, call it the same urge to look that slows up traffic when there is an accident over by the side of a road, call it simply a professional interest in a fascinating insurance coverage dispute, but I am fascinated by the trial that began yesterday in federal court in Mississippi arising out of the wind and storm damage caused by Hurricane Katrina. In it, well known plaintiffs' attorney Richard Scruggs is claiming that Nationwide Mutual Insurance Company wrongly denied coverage of damage to the plaintiffs' home. In a nutshell, Nationwide argues that "while wind damage is covered by its homeowners' policies, damage from flooding is excluded, including Katrina's wind-driven storm surge." The plaintiffs counter that, one, the agent misled them into not purchasing a flood policy and, two, the damage was in any event predominately wind damage, with their lawyer arguing that:
weather data shows Katrina's 140 mph wind hit the Mississippi coast three hours before any storm surge flooding [and that] Nationwide's experts ignored that evidence and wrongly blamed water for the vast majority of the damage to the [plaintiffs'] house.
The case is expected to be a bellwether for thousands of other suits making similar claims:
The trial, being heard without a jury by U.S. District Judge L. T. Senter Jr., is the first among hundreds of lawsuits that have been filed by Gulf Coast homeowners challenging insurance companies over the wind-verses-water issue. Plaintiffs' attorneys hope a ruling in the homeowners' favor would pressure insurance companies to pay out hundreds of millions of dollars in settlements for homeowners whose claims have been rejected.