A Fine Piece of Insurance Policy Analysis
I turn today from my recent obsession with ERISA preemption and the Wal-Mart case to other arguably unhealthy obsessions, including insurance coverage decisions, contract interpretation and the fine art of drawing a good judge. On Monday, the Massachusetts Appeals Court issued its opinion in American Commercial Finance Corp. v. Seneca Insurance Co.,in which the issue before the court was whether a fire insurance policy covered costs incurred after a fire to protect the premises against any possible subsequent damage (including another fire). As per the court's opinion, the policy did not contain any express language stating whether or not the policy covered such costs, and any experienced coverage lawyer will tell you that when a court starts off noting that fact or something similar, it is a pretty good bet that the ultimate finding will be that the loss was covered under the policy. Now the absence of policy language expressly precluding coverage of a certain event - of an exclusion actually stating that the policy does not cover a particular event or loss - should not lead inexorably to the conclusion that the event is therefore covered. Reasoning of this nature goes against the general proposition that an insurer cannot and should not be expected to anticipate every possible turn of events and account for them with express limitations on coverage written directly into the policy; if insurers were prophetic enough to be able to do so, as some courts and commentators have pointed out, you would end up with insurance policies that run into the hundreds of pages. That unremarkable idea, however, as anyone who has defended an insurance company against a claim that is not expressly excluded under a policy will tell you, is most often honored only in the breach.
But the Appeals Court judge here did not proceed in such a manner. Instead, as is more proper and far more defensible intellectually, he analyzed the actual language used in the policy related to the insured's obligation after a fire to use reasonable steps to protect the property from further damage, and concluded that it logically implied an obligation on the part of the insurer to pay for the costs of doing so. Although anytime you argue over words in a contract - any contract, not just an insurance policy - there is room to differ as to what the final conclusion should be as to how to interpret it, the judge's reasoning in this case is logical and hard to fault. As such, it is what many insurance coverage decisions are not: useful to future parties trying to guide their contracting and their conduct, understandable and defensible.
And this leads to the point about drawing a good judge. The opinion was authored by Judge Doerfer, who for several years before being appointed to the Appeals Court, served as a Superior Court judge, the Superior Court being Massachusetts' primary and highest level trial department. I can remember litigating complex coverage cases in state court back then, and being pleased to draw Judge Doerfer, who was known to have the intellectual curiosity and scholarly disposition needed to handle such cases. This is in contrast to a case - a true story - in which I appeared in a trial court (I won't identify it so as to protect both the guilty and the innocent) in a coverage case in which the insured and the insurer filed cross motions for summary judgment on the duty to defend. In that case, as in most cases, the determination of whether there was a duty to defend depended simply on a comparison of the policy to the complaint, with a duty to defend existing if the complaint described a claim that potentially might be covered. There generally either is or is not a duty to defend in that circumstance; it has to be one or the other, and all you have to do to decide is make that comparison, barring peculiarities of a nature absent from that case. Now, since one motion said there is a duty to defend and the other said there isn't, one of the parties had to be right given this standard, yet somehow this judge found both parties to be wrong, denying both parties' motions for summary judgment. It ended up being fixed on appeal, but it just goes to show that drawing the right judge right off the bat makes a world of difference, both in the outcome of the case and in the amount of litigation it will require to get to the right outcome.