Sanders v. The Phoenix Insurance Company Is a Comprehensive Insurance Coverage Decision, But Have Bad Facts Again Made Bad Law?

Posted By Stephen D. Rosenberg In Coverage Litigation , Coverage for Professional Services , Defense Costs , Duty to Defend , Duty to Indemnify , Homeowners Insurance
Permalink | print this article

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

Posted By Stephen D. Rosenberg In Coverage Litigation , Duty to Indemnify , Excess Policies , Fire Insurance , Health Insurance , Homeowners Insurance , Industry News
Permalink | print this article

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.

Insurance Coverage, Tuberculosis, and that Guy on the Plane

Posted By Stephen D. Rosenberg In Coverage Litigation , Duty to Defend , Duty to Indemnify , Homeowners Insurance
Permalink | print this article
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.

Is It Just Plain Rational for Insurers to Pull Back from Coastal Markets?

Posted By Stephen D. Rosenberg In Alternative Energy: Law, Regulation and Policy , Homeowners Insurance , Industry News
Permalink | print this article
Anyone interested in the topics of this blog is probably familiar with the media coverage of homeowners insurers raising rates and/or simply withdrawing from writing homeowners insurance in coastal regions, including not just in the traditional hurricane regions of the south but up through New England as well. Many stories are replete with sturm und drang about the issue, ranging from political criticism of insurers to questioning of the companies’ motives. Studies like this one here, however, suggest that it is instead entirely rational for insurers, who should have a long term perspective in mind, to substantially reduce their exposure to coastal risks. The long term potential loss exposure in those markets is clearly growing exponentially, and it would be fundamentally irrational for insurers not to recognize and respond to it.

I have written before about the idea of insurance and insurers as leading indicators, and that is what you are seeing in this scenario as well. If insurers are unwilling to expose themselves to the increasing risk posed by coastal development in the era of global warming, then it may be that they are on to something, and the political sturm und drang should be directed at ameliorating the risks they are forecasting and trying to avoid, rather than at them for doing so.

All You Need to Know About Anti-Concurrent Cause Policy Language, Hurricane Katrina and Insurance Coverage Law

Posted By Stephen D. Rosenberg In Coverage Litigation , Exclusions , Homeowners Insurance
Permalink | print this article
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.

Risk Transfer, Major League Baseball and Insurance

Posted By Stephen D. Rosenberg In Homeowners Insurance , Industry News
Permalink | print this article
It’s a truism that insurance greases the skids for the entire economy; as a risk sharing mechanism, it allows businesses and individuals to move forward knowing they won’t bear the entire cost if something goes wrong. David Rossmiller’s ongoing coverage at his blog of the response of coastal states to a decrease in available homeowners coverage post-Katrina can be understood along these lines as the story of what happens when the availability of risk sharing of this nature is severely reduced. Another good example is here, in this story out of the New York Times today, of baseball teams’ decisions to obtain insurance covering them against the risk of a high priced player becoming disabled during the season; the insurance reimburses the team for some part of the contract still owed by the team to the player. Interestingly, much the same way homeowners insurance has become more expensive and less accessible in coastal areas because of recent hurricane losses, professional baseball teams have run into the same pricing and availability problem with regard to this type of disability coverage because of large losses recently paid out by insurers on certain former players who were unable to finish out their contracts. I guess both stories, the one in the Times and the one David has been extensively covering at his blog, evidence the same thing: the never ending tension between insurers’ recent loss history and the market’s appetite for ever more insurance, only at a price the consumer is willing to pay.

Waterfront Property and the Costs of Homeowners Insurance

Posted By Stephen D. Rosenberg In Homeowners Insurance
Permalink | print this article
Rising home insurance costs in beachfront areas is a trendy topic, and the Boston Globe weighed in on it yesterday, in this article discussing consumers on Cape Cod joining together to question the industry’s rate setting. The article’s lead (or lede, as I have learned from former newspaper reporter turned lawyer and blogger David Rossmiller) frames the topic of the article, pointing out that “a growing army of homeowners have watched as home insurers have left Cape Cod and remaining companies insist they must raise rates because of hurricane fears.” For those of you who are more interested in the substance of the criticisms across the country of rate setting and market departures by homeowners insurers in response to hurricane projections than in the joining together on the Cape of consumers to challenge it, David Rossmiller at the Insurance Coverage Blog has been covering this issue in great detail, with a focus on Florida and the Hurricane Katrina affected regions. That’s the place to go for more on this issue.

Hurricane Katrina Coverage Litigation

Posted By Stephen D. Rosenberg In Coverage Litigation , Homeowners Insurance , Punitive Damages
Permalink | print this article
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.

Hurricanes and Homeowners Insurance

Posted By Stephen D. Rosenberg In Homeowners Insurance
Permalink | print this article

Well, I just got lucky. Vain as I am I went looking for my name on other blogs, and came right to David Rossmiller's latest post (I'm just kidding - I read his blog regularly), which in turn led me to a new blog he is reading out of Britain on reinsurance named ReRisk. And why did I get lucky, besides just the fact that it was instantly clear that ReRisk is a fun read? Because of this. I have talked in other posts about my preference for facts, for hard verifiable numbers, when analyzing arguments and problems, and I have a particular preference for this with regard to insurance pricing and availability issues, since much of the public discussion on that topic tends to be primarily posturing and not about a rational discussion of the economics of the matter (see this post here, for instance).

At the same time, both on this blog and elsewhere, there has been plenty of discussion about insurers repricing or not offering homeowners insurance in coastal areas based on hurricane prediction models, including some articles pointing out that the pricing changes are because hurricanes are becoming a bigger threat or were at least previously undervalued as a threat (see this post here, for instance). And yet I don't ever recall seeing much real data showing or instead disproving that statement. Until here, in ReRisk's post from a couple weeks back. I am not sure his chart answers the question of whether insurers are right that the threat is increasing (although quite clearly, even if the hurricanes themselves aren't increasing, the ever increasing construction on the coasts makes a modern hurricane far more risky fiscally than were hurricanes in the past), but it is certainly very entertaining food for thought on these issues.

Coastal Homeowners Insurance - Distorting the Market or a FAIR Complaint?

Posted By Stephen D. Rosenberg In Homeowners Insurance
Permalink | print this article

Here's an interesting story today about the Massachusetts Attorney General challenging the rate increases that have been approved for the state's homeowners' insurer of last resort, the FAIR plan. The problem is one that is riling coastal homeowners' insurance markets up and down the eastern seaboard, namely the rate increases being imposed by insurers - and in particular state mandated insurers of last resort for homeowners who cannot obtain insurance in the private market - on coastal properties so as to account for hurricane risks. I have talked before about the real question with regard to what rate increases the FAIR plan should be allowed to impose, and the consumer and sometimes political opposition to what would otherwise appear to be appropriate increases by the FAIR plan and similar plans. The issue that it presents is to a large extent a question of the degree to which we should be comfortable letting the market set the rates, or even the availability, of insurance for such homes, or whether the market for such coverage should be distorted by state regulated insurers and the pressure on them to charge less than may be correct from an actuarial perspective.

While one might initially be inclined to view the Attorney General's response to the rate increases by the FAIR plan as being exactly this type of political pressure to distort the rates away from what a private carrier would charge for the same coverage, it is not that easy to immediately dismiss his assertions that there are problems with the hurricane models used to support the rate increases, at least without further independent investigation of that charge. Having saved a collapsing health insurer from dissolution some years ago, he has a certain credibility on these issues. And as a lawyer, and in particular an insurance coverage specialist, I am happy to consider a challenge to an insurer's decision that can be decided on the basis of a careful analysis of an insurer's underlying factual reasoning and evidence, which is all the Attorney General seems to be asking for.

Hurricane Katrina Insurance Coverage and the Insurance Industry

Posted By Stephen D. Rosenberg In Homeowners Insurance
Permalink | print this article

I tend to be a fan of facts, and of hard numbers, as they frequently paint a picture different than the one that would otherwise appear. This is no less true for the subject matter of this blog than for other subjects. Lawsuits and litigation, and the discussions about them, often focus on the spectacular or the rare. Insurance coverage is no different, as it is really the rare case that turns into a courtroom drama, a point I hinted at here, when I noted how relatively few coverage determinations are actually challenged in court and overturned. There has been much discussion in recent weeks about the Hurricane Katrina coverage litigation taking place in Mississippi, and in particular the hundreds of lawsuits still pending in the federal courts there. Yet in contrast, as this article reminds us, the vast majority of claims arising out of Hurricane Katrina have been settled amicably, with insurers paying out multiple billions of dollars in claims in Louisiana and Mississippi, and insureds reporting a high level of satisfaction with their insurers' responses to the claims. The Insurance Information Institute reports that a year after the storm, approximately 95% of the Hurricane Katrina related claims in those two states have been resolved. Now, of course, the caveat is that we all know the old saying, that there are three kinds of lies - lies, dang lies and statistics - and thus we would need to see the underlying data - in particular the survey questions - to know how much credence to give this report, but I suspect the results being reported here bear a pretty good resemblance to reality.

Hurricane Katrina Insurance Claims

Posted By Stephen D. Rosenberg In Coverage Litigation , Homeowners Insurance
Permalink | print this article

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.

Economic and Behavioral Distortions, and How Insurance and ERISA Law Cope With Them

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Homeowners Insurance , Known Loss Doctrine , Punitive Damages , Standard of Review
Permalink | print this article

One of the problems that insurers, and insurance law, have to confront is the distortion in behavior, economic and otherwise, that insurance can create. Insurance coverage law deals with this problem in a number of ways, such as by means of the known loss doctrine, which - although the specifics of its application vary from jurisdiction to jurisdiction - essentially holds that a person cannot insure against an expected, existing or highly probable loss. As such, it prevents an insured company or individual from insuring against something the company or the person intends to do and knows is likely to cause harm. One can think of the known loss doctrine in this context as protecting against people undertaking harmful activities that they would not otherwise have done if they did not think they could insure themselves against the consequences.

We can also understand the various treatments given by the courts of different states to the question of whether a punitive damages award against an insured is insurable as being part of the same thought process. . . .

Continue Reading