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Vol. 3, Iss. 11
July 16, 2014

 

 

I read several profiles of Stanley Feldman and the former Chief Justice of the Arizona Supreme Court is often labeled as a liberal or some other similar-meaning term. Of course, nobody was calling then-Justice Feldman a liberal on May 29, 1984, the day that the Arizona high court issued his decision in Gilbreath v. St. Paul Fire & Marine Insurance Co. Here Feldman wrote that no coverage was owed to a day care center for liability arising out of the sexual assault of a child by a center employee. His rationale: “While it may appear curious that the proprietors of a day care center contracted for insurance which excluded the risks most likely to occur, the words used in endorsement number 2 indicate that is exactly what was done here.” Deciding a coverage case based on policy language is hardly the hocus pocus of a liberal jurist. What does this prove? Nothing that I didn’t already know – labels are for the lazy.

Chief Justice Feldman authored in the neighborhood of 400 opinions during his 21 years on the Arizona Supreme Court. To be sure, conservatives will be able to find lots that they believe make Feldman deserving of the liberal title. But to sum up a Supreme Court Justice’s two-decade career in one word is simply not fair. Those lawyers doing so would surely object to having their own careers described as mediocre simply because they lost some cases.

Over a 21 year period any Supreme Court Justice is going to hear cases involving every issue imaginable. By definition judges are the ultimate general practice lawyers. But Feldman, having spent many years as a personal injury lawyer before joining the high court, surely had lots of ideas about insurance coverage the first day he donned a robe.

I took a look at the opinions that Justice Feldman authored in coverage cases involving liability insurance policies. While there are certainly some that insurers can point to and say, See, I told you, Feldman’s a liberal, the overall score was just as I expected -- a mixed bag, with policyholders winning some and insurers winning some.

Chief Justice Feldman was kind enough to speak with me about his career – both his long-service on the Arizona Supreme Court and in private practice, including as a mediator. I also asked him about being labeled as a jurist. I don’t know much about Arizona (I’ve been to Tombstone -- which I highly recommend (for a day)), but it was an honor to speak to the man that the Phoenix New Times News said for 20 years “had as much impact on life in Arizona as anyone.” [And that’s saying a lot. Charles Barkley spent four seasons with the Phoenix Suns while Feldman served as Chief Justice.]

Joining The Supreme Court

Justice Feldman joined the Arizona Supreme Court in 1982. A seat had opened up and Feldman applied. The Commission on Appellate Court Appointments, part of the state’s merit selection system, sent three names to Governor Bruce Babbitt. Feldman got the nod.

I asked Justice Feldman if it was difficult to make the transition from many years practicing law to all of a sudden being one of the five most important people in the state making it. While he acknowledged that it took some getting used to, to go from advocating for one side to being a neutral in the middle, he didn’t express a lot of difficulty with the transition. He’d said that he’d done a lot of appellate work in private practice and as President of the State Bar of Arizona (an integrated bar, i.e., mandatory) he had a prior relationship with the high court.

Training For The Arizona Supreme Court

Chief Justice Feldman’s training for the judiciary began long before he attended the University of Arizona College of Law in the early 1950s. He spent his earliest years in the Bronx during the depression where his father ran a grocery store and his mother modeled fur coats. At age five the family moved to Tucson to address his mother’s respiratory problems. There his father opened a window coverings business.

Despite graduating first in his law school class, Feldman couldn’t get a job or even land an interview for that matter. There were few opportunities for Jewish lawyers at that time. So he opened an office by himself and focused principally on personal injury cases. Later he formed a firm that would become the one where he still practices today – Haralson, Miller, Pitt, Feldman & McAnally.

I asked Chief Justice Feldman if his upbringing, and nature of his private practice, is what led to him often being referred to as the judge who was “the champion for the little guy.” I purposely didn’t use the word “liberal” as I knew from my preparation for the interview that he really dislikes that term. But using the softer term, champion for the little guy, didn’t go over well either. He was quite clear that he doesn’t agree with that label either.

The former Chief told me that by growing up in a small business family it gave him a certain way of looking at the world. It was part of him. He made no apologies for being who he was. “I didn’t leave me behind when I came to the court,” he said.

Judicial Philosophy; An Insurance Coverage First; The Verdict

So if Chief Justice Feldman rejects the liberal label, and if he’s not the so-called champion for the little guy, what is he? He explained to me that the hallmark to his jurisprudence is four things: common sense, a sense of reality, history and precedent.

My review of Justice Feldman’s opinions in coverage cases left no doubt that the man who majored in history, and once considered a career as a history teacher, includes a historical element in his jurisprudence. He told me that he looked at history when confronted with issues in private practice and brought this technique for understanding issues to the court – which he said “was new to other members.” Indeed, you get a sense from reading Feldman’s opinions that throughout his many years in private practice there was a supreme court justice inside fighting to get out. Nobody just wakes up one day and begins to write so scholarly.

Nowhere was Chief Justice Feldman’s use of history in his decision making more apparent to me than in Ohio Casualty Ins. Co. v. Henderson (1997). The case involved the application of the “expected or intended” exclusion. In reaching his decision Feldman looked in detail at the drafting history of the exclusion going back to 1960. I’ve seen coverage cases that look at the drafting history of the pollution exclusion. I’ve seen coverage cases that look to the drafting history of the “business risk” exclusions for guidance. But I have never seen a decision – and there a ton of them in this category – that looked at the drafting history of the “expected or intended” exclusion to reach a decision. [And when I went looking for one last week, Ohio Casualty v. Henderson was the only that I could find.]

By the way, Justice Feldman held in Henderson that no coverage was owed on account of the “expected or intended” exclusion: “[C]ommon sense and reason tell us some type of bodily injury was so substantially certain to occur when the three armed men entered a presumably crowded theater during business hours that we must infer an intent to injure without regard to Henderson’s claimed lack of specific intent.” Insurers can’t complain about this outcome or the test that was adopted to reach it.

My verdict on Justice Feldman’s handling of liability coverage cases is this. If you just count decisions -- policyholders did better. But in every case, regardless of who won, I saw Justice Feldman’s use of common sense, a sense of reality, history and/or precedent in how the outcome was reached. Disagree with the outcome. Disagree with the reasoning. Call what he views as common sense nonsense. But criticism of his effort would be entirely unfair. Justice Feldman’s opinions are lengthy and unquestionably scholarly. Whatever you think of a decision, you’d be hard-pressed to say that Feldman didn’t give the issue a fair look.

Mediation And The Star-Struck Factor

Chief Justice Feldman retired from the Supreme Court at the end of 2002 and returned to private practice. His bio on his firm website lists insurance coverage near the top of the list of his practice areas. He also serves as a mediator, arbitrator, consultant and expert witness on various matters, including, first on the list – insurance law.

I wondered if Arizona practitioners found it intimidating to work with one of the state’s most famous lawyers. Were lawyers star-struck, so to speak, when mediating a case with their former Chief Justice? He didn’t think so. Instead he told me that, as a former Supreme Court Justice serving as a mediator, he feels that the parties come to the process with higher hopes and expectations that what he says will carry more weight.

Where he did see a star-struck effect was with law students. When teaching he felt that they were afraid to argue with him because of his position. “You wanna be lawyers, argue with me,” he implored students. “Tell me why I’m wrong.”

Justice Feldman’s Insurance Coverage Legacy: Morris And Darner

No discussion of Chief Justice Feldman’s record in liability coverage cases would possibly be complete without discussing his two most noteworthy:

In United Servs. Auto Ass’n v. Morris, 741 P.2d 246 (Ariz. 1987), Justice Feldman addressed whether an insured that is being defended under a reservation of rights violates the cooperation clause if it settles the case without its insurer’s consent. He answered the question like this: “An insurer that performs the duty to defend but reserves the right to deny the duty to pay should not be allowed to control the conditions of payment. The insurer’s insertion of a policy defense by way of reservation or nonwaiver agreement narrows the reach of the cooperation clause and permits the insured to take reasonable measures to protect himself against the danger of personal liability. Accordingly, we hold that the cooperation clause prohibition against settling without the insurer’s consent forbids an insured from settling only claims for which the insurer unconditionally assumes liability under the policy.” Id. at 252. However, the insured must still prove that coverage is owed and the settlement was reasonable.

One subsequent Arizona appeals court put Morris this way: “[T]he insurer must be made aware that it may waive its reservation of rights and provide an unqualified defense, or defend solely on coverage and reasonableness grounds against the judgment resulting from the Morris agreement.” Leflet v. Redwood Fire and Cas. Ins. Co., 247 P.3d 180, 185 (Ariz. Ct. App. 2011).

Justice Holohan dissented. More about that below.

Justice Feldman told me that, as he saw it, there was nothing revolutionary about his decision in Morris. “It was grounded in precedent and common sense.”

In Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 682 P.2d 388 (Ariz. 1984), Justice Feldman authored an opinion that adopted the reasonable expectations doctrine for purposes of the interpretation of insurance policies. A detailed analysis of Darner is beyond the scope here. The decision has nearly 1,400 citing references on Westlaw. Justice Feldman told me that he saw Darner as a perfect example of his 4-part method for reaching decisions. The decision’s money paragraphs are as follows:

“[I]n proper circumstances, [the reasonable expectations doctrine] will relieve the insured from certain clauses of an agreement which he did not negotiate, probably did not read, and probably would not have understood had he read them.” Id. at 399. However, Feldman also explained that, “if not put in proper perspective, the reasonable expectations concept is quite troublesome, since most insureds develop a ‘reasonable expectation’ that every loss will be covered by their policy … the reasonable expectation concept must be limited by something more than the fervent hope usually engendered by loss.” Id. at 395.

Expanding on the reasonable expectations doctrine, then-Vice Chief Justice Feldman stated in Gordinier v. Aetna Cas. & Sur. Co., 742 P.2d 277 (Ariz. 1987) that “Arizona courts will not enforce even unambiguous boilerplate terms in standardized insurance contracts in a limited variety of situations: 1. Where the contract terms, although not ambiguous to the court, cannot be understood by the reasonably intelligent consumer who might check on his or her rights, the court will interpret them in light of the objective, reasonable expectations of the average insured; 2. Where the insured did not receive full and adequate notice of the term in question, and the provision is either unusual or unexpected, or one that emasculates apparent coverage; 3. Where some activity which can be reasonably attributed to the insurer would create an objective impression of coverage in the mind of a reasonable insured; 4. Where some activity reasonably attributable to the insurer has induced a particular insured reasonably to believe that he has coverage, although such coverage is expressly and unambiguously denied by the policy.” Id. at 283-84 (citations omitted) (italics in original).

In Philadelphia Indem. Ins. Co. v. Barerra, 21 P.3d 395 (Ariz. 2001), Justice Feldman, looking at the factors from Gordinier, held that a DUI exclusion, in a rental car agreement, that precluded coverage for a customer who got into an accident while driving a rental car intoxicated, was unenforceable, as it violated the lessee’s reasonable expectations. “Regardless of ambiguity, or even a complete lack thereof, this case is an example of one of the ‘limited variety of situations’ in which Arizona courts will not enforce boilerplate terms in standardized insurance contracts.” Id. at 404.

Justice Holohan, the Morris dissenter, dissented in Darner – and it’s one of the strongest I have ever seen. He stated: “Every insurance company in this state must review its current method of operation because today’s decision will significantly affect current policies and future policies written in this state. Of course, a company may elect to cease doing business in this state because of our ‘enlightened’ insurance law, but, hopefully, a more cautious approach may be deemed prudent until such time as appropriate legislation can be sought to establish the insurance policy as a document with some binding effect. In the interim it appears that every insurance agent will be required to do a complete review of the policy with the insured and establish some form of record to support the conclusion that the insured was advised and understood the nature, extent and limitations of the policy which was purchased. The sale of insurance in Arizona may take on much the same formality as the taking of a plea of guilty in a criminal case. Darner at 406-07. Holohan added: “Whatever evil the majority is attempting to eliminate, the remedy advanced is like decapitation to cure dandruff—a cure that is far worse than the disease.” Id. at 407.

I couldn’t hang up the phone without asking Chief Justice Feldman about Holohan’s dissent. He said he got along fine with Holohan and called him a “fine judge.” As for Holohan’s prediction in Darner about insurer’s leaving Arizona, Feldman put it this way: “I guess he was wrong.”

 
 
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