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Coverage Opinions
Effective Date: September 10, 2014
Vol. 3, Iss. 12
 
   
 
 
 

Declarations: The Coverage Opinions Interview With Leigh Steinberg –
The Greatest Sports Agent In History
The Real Jerry Maguire; The Real Forrest Gump; Sports Agent By Accident; The Leigh Steinberg Way; Being Star-Struck Just Once; Who Really Said “Show Me The Money!”

The man who Forbes called “the greatest sports agent in history” is frequently mentioned as the inspiration for Tom Cruise’s character in the hit movie Jerry Maguire. But when it comes to the agent who represented the number one overall pick in the NFL draft an unprecedented eight times, along with over 60 other first round picks, it is a life that is imitating art.

Randy Spencer’s Open Mic
Jewish Grandmother Insurance And Policies For Other Serious Gastronomic Risks
[Have Randy Spencer’s Stand-up Coach At Your Holiday Party Or Other Corporate Event]

MUST READ Reservation Of Rights Case (A Top 10 Case Of 2014)
Insurer wins coverage case but is found to owe $5 million because its ROR was not effective. If you read only one article in this issue of CO, make it this one.

8th White And Williams Coverage College Is Almost Here

Declarations: The Coverage Opinions Interview With Sonia Waisman
The Coverage Lawyer Who Is No One-Trick Pony
Sonia Waisman, of California’s McCloskey, Waring & Waisman, LLP, is a veteran and accomplished insurance coverage lawyer. But she’s also one of the nation’s leading authorities on animal law. How this came to be is a story zoo won’t want to miss.

Insurer Cherry Bombs: Court Holds That Pollution Exclusion Does Not Apply To Fireworks [Yes, Fireworks]
Here is the latest entry in the category of unusual pollution exclusion cases.

A-L-Hi To Coverage For Pre-Tender Defense Costs:
ALI Principles Looking To Shift The Law

Over three times as many states preclude coverage for pre-tender defense, without the insurer needing to prove prejudice, than otherwise. But despite this lopsided score, the ALI Principles seem to be requiring an insurer to establish “substantial prejudice” to disclaim such coverage.

Court Holds That Labrador/Boxer Mix Is An Underinsured Motorist [Most Interesting Dog Bite Coverage Case Ever]

Court Declares Excess Policy Triggered Based On Insured’s Own Funding To Establish Exhaustion Of Primary
Insurers often argue that the insured’s participation, in funding underlying limits, is not permissible for establishing exhaustion to reach an excess policy. An appeals court permitted it.

Court’s Solution To Determining The Hourly Rate For Independent Counsel: Put It In The Policy
Is a simple solution to a complex problem out there for the taking?

Texas Appeals Court Provides Roadmap For Punitive Damages Coverage
Punitive damages, in some way, shape or form, are insurable in 38 states. Here’s one way how.

Mississippi Supreme Court Provides A Clinic In Plain Meaning To Preclude Coverage [Yes, Mississippi]
Courts usually say that the most important consideration for determining coverage is the language of the policy. The Mississippi Supreme Court showed how that works.

Tapas: Small Dishes Of Insurance Coverage News And Notes
·Rest In Peace Joan Rivers (Joan Rivers Meets The 7th Circuit)

 
 
 
 

 

 

 

Vol. 3, Iss. 13
September 10, 2014

 

 
 

When it comes to Leigh Steinberg everyone seems to have it wrong.  The man who Forbes called “the greatest sports agent in history” is frequently mentioned as the inspiration for Tom Cruise’s character in the hit movie Jerry Maguire.  Yes, Leigh Sternberg’s life should by associated with a movie – but not that one.  It’s Forrest Gump.  And in Steinberg’s case it is a life that is imitating art.
 
With his grandfather managing a posh LA country club, the youngster Steinberg found a seat on Marilyn Monroe’s lap and attended his first baseball game with George Burns.  As student body president at Berkeley in 1970, Steinberg gave campus tours to Jimi Hendrix and Jim Morrison and Gloria Steinem [“After a tour of the campus I took her to my dorm room.  Besides her intelligence I was also struck by her beauty.”]  Steinberg also engaged in a heated exchange with California’s then-Governor Ronald Reagan over student protest issues popular in the day.  Years later Reagan honored Steinberg with a Presidential Commendation for Community Service.  From the very beginning Steinberg’s life resembled Forrest Gump -- and his career as a sports agent began in the same fashion.
 
I’m on the phone with the 65-year old Robert Redford-resembling Steinberg to ask him about his recent New York Times bestselling memoir – The Agent – and a few other things that a huge sports fan would love to ask the man considered one of the pioneers of professional sports as an industry.
 
Also on the phone is Lauren Kelly, my research assistant and a second year student at Villanova Law School.  Coincidentally, Steinberg’s former partner and Villanova Law alum, Jeff Moorad, committed $5 million for the creation of the school’s Jeffrey S. Moorad Center for the Study of Sports Law.  Steinberg, along with Moorad, spoke at Villanova not long ago.  Lauren mentions to Steinberg that she’s a Villanova law student and the two of them start jawing away about the law school, his visit and making plans to meet the next time he’s there.  It was clear from this initial exchange that the affable Steinberg was going to be an easy guy to interview.         
            
The Statistics

When telling the story of a sports agent it makes sense to start at the end – their career statistics.  While Steinberg is not defined solely by these numbers, you can’t obtain his accolades without them.  Steinberg represented the number one overall pick in the NFL draft an unprecedented eight times, along with over 60 other first round picks, and seven NFL Hall of Famers.  He has also represented multiple first round picks and hall of famers in baseball and basketball and been involved with representation of athletes in many other areas of sports.  Steinberg has been rated the #6 Most Powerful Person in the NFL according to Football Digest and the #16 Most Powerful Person in Sports according to The Sporting News.  His client list includes Steve Bartkowski, Steve Young, Troy Aikman, Warren Moon, Bruce Smith, Thurman Thomas, Kordell Stewart, Jeff George, Ben Roethlisberger, Myron Rolle, Matt Leinart, Mark Brunell, Ricky Williams, Howie Long, Eric Karros, Dusty Baker, Lennox Lewis and Oscar de la Hoya. 

The Accidental Sports Agent And What Real Leverage Looks Like
 
Leigh Steinberg didn’t set out to be a sports agent.  It happened by accident – in a true Forrest Gump-esque manner.  While at law school at Berkeley, Steinberg served as an undergraduate dorm counselor and made friends with a resident named Steve Bartkowski.  Bartkowski played quarterback for the school and in 1975 was chosen by the Atlanta Falcons as the number one pick in the NFL draft.  Bartkowski was not happy with the progress that his agent was making in reaching an agreement with the Falcons so he asked the 26 year-old and fresh out of law school Steinberg to take over as his agent.  Steinberg, working out of the card room in his parents’ house, secured a four-year agreement for Bartkowski worth $600,000 – the most lucrative rookie contract in NFL history at the time.               
 
How did Steinberg pull this off?  Simple: leverage.  The Falcons were coming off a horrible year.  The team had the worst offense in the league and attendance was way down.  The Falcons could not afford to fail to sign Bartkowski, who was seen as their savior.  To alienate their fans would have been a public relations disaster.  At that time, the World Football League had completed two seasons.  Steinberg found two WFL teams that were interested in signing Bartkowski.  Using the possibility that Bartkowski would take his talents elsewhere, Steinberg secured a record deal. 
 
With the Bartkowski deal under his belt, Steinberg set out to start a sports agency, which means getting to know the people who could introduce you to the right athletes. 
 
The Agent And The Leigh Steinberg Way 
 
Sports is all about the action on the field.  But sports fans crave what they can’t see.  And that’s what makes Steinberg’s book such a great read.  I get really fidgety on airplanes.  But I sat motionless on a three-hour flight reading The Agent.  That’s because Steinberg, when describing deal after deal for his superstar clients, and other interactions, provides countless behind the scenes stories to which a sports fan is never privy. 
 
Steinberg describes how many very high stakes contract negotiations played out (sometimes all night) and the use of leverage that was such a huge part of them.  He takes you behind the scenes of his negotiations with Cowboys’s owner Jerry Jones to sign Troy Aikman.  Each side had leverage.  Aikman had more.  One Steinberg lesson to aspiring agents when it comes to contract negotiations.  The team will point out your clients’ weaknesses to defend its position.  Don’t bring the athlete, or his father, to these meetings.
 
The Agent takes you along for the ride with Steinberg and Aikman as they sit in the back of a limousine after the Cowboys won the 1993 Super Bowl and Aikman was named the game’s MVP.  Steinberg describes a late night call from a shaken Warren Moon who had just been charged with spousal abuse.  And my favorite story: Steinberg negotiated a deal where Steelers QB Ben Roethlisberger, who had grown a heavy beard, would be paid $100,000 by Gillette, to shave his beard after the 2006 Super Bowl, is the Steelers won.  As Steinberg sat in the stands during the game, Gillette began to re-negotiate the terms.  That didn’t last long.  Steinberg knew which button to push to get the deal back to where it had been.  [The Steelers won.  Ben’s shearing, on the David Letterman Show, can be found on Youtube.]     
 
Leigh Steinberg is known for his A-list of clients.  But that’s not all that defines him as an agent.  Steinberg’s objective has always been, he tells me, to help his clients have a “fulfilling life during and after sports.”  He requires his clients to donate money to their alma maters and communities and find causes that they want to tackle.  He recommends that they retrace their roots by setting up charities that are close to their hometowns.  Steinberg works with his clients so that their second career is even better.  To anyone who says that this all sounds like self-serving PR, so Show me the examples, Steinberg can.  He has a career’s worth of them and many are discussed in the book.  This is the Leigh Steinberg way.           
 
Becoming An Agent
 
Lots of people want to be a sports agent.  But what are the chances of succeeding at the level of representing an NFL first round draft pick?  I ask Steinberg this question and his response is immediate: “incomprehensively small.”  He explains that the “economics of starting up in the field are daunting.”  The NBA and NFL have negotiated rookie salary caps, which takes away skillful negotiation, and there are caps on what an agent can charge.  For example, in the NFL it’s 3% (of a severely capped contract) and an agent may have to pay $20,000 for a rookie to train for the scouting process.  Steinberg has this sobering conclusion for would-be agents: “For most agents, unless a practice is filled with many starters and major stars, it is difficult to make a real living.”         
 
Jerry Maguire And Who Really Said “Show Me The Money!”
 
Leigh Steinberg will always be mentioned as the real-life inspiration for Jerry Maguire.  He served as a consultant on the film, had a cameo (introducing Jerry to Troy Aikman) and spent time on the set during the filming.  There is a great picture in The Agent of Steinberg being flanked by Tom Cruise and Cuba Gooding, Jr. (Oscar for Best Supporting Actor).  The movie made Steinberg very recognizable.  Someone paid $15,000 to have lunch with him (“Crazy, I know,” Steinberg says in his memoir.)  
 
Steinberg will always be associated with Jerry Maguire and Jerry Maguire will always be associated with four words: “Show me the money!”  Where did this line – one of the most famous in cinema history – come from?  The answer is a buzz kill.  Steinberg’s client, Tim McDonald, his first to take advantage of NFL free agency, and deciding amongst teams, was being interviewed by Jerry Maguire director Cameron Crowe.  The interview took place in a hotel room with CNN’s Moneyline, hosted by Lou Dobbs, on in the background.  McDonald says that he spoke the line during the interview and Crowe claims that he said it.  That’s it.  That’s the whole story.  So not only was the line never shouted over the phone, the way it was in Jerry Maguire, but its provenance is in doubt, and both possibilities are deadly dull.
 
Being Star Struck
 
Steinberg’s life has been one of non-stop interaction with athletes, movie stars, politicians and the like.  He has long-hosted a party at the Super Bowl that is so exclusive and star-studded that there are tickets from past parties offered for sale on Ebay. 
 
Of course, Steinberg can’t do his job if he’s walking around star-struck all day long.  But surely there must be someone he’s met where he found himself in awe.  I ask him.  He pauses.  It’s a really long pause.  I’m waiting for him to say no.  But then he finally blurts out a name – “Ok, Jimi Hendrix.”      
     
What’s Ahead For The NCAA
 
The NCAA’s several legal kerfuffles of late have been a big story so of course I ask Steinberg about it and the biggest issue of them all – should student athletes be paid?  Not surprisingly, a guy who has spent his life trying to maximize the value of athletes sees the NCAA and NFL as being too restrictive on student athletes.  While he has two diplomas from the venerable Berkeley, Steinberg doesn’t hide from stating the obvious -- not every student athlete is in school to hit the books.  He says that high school football players should be allowed to go straight to the NFL to pursue their dream.  “Athletes are on campus because they are forced to be there to get to the pros.”  Besides, as Steinberg sees it, the system would take care of itself.  He explains to me that it would become clear to some athletes that they need more time to mature so they would migrate back to campus.          
 
As for paying student athletes: “We’re getting closer,” he tells me.  Steinberg advocates for a monthly stipend for student athletes since they can’t hold a job on campus.  He says they should be able to go out on a date and fly home for Thanksgiving.       
 
The National Past Time: Football (And The Other Football) 
 
Pro football long ago surpassed baseball as the most popular sport in America.  We all know that.  But, in fact, as far as Steinberg is concerned, baseball isn’t even number two – that would be college football.  I ask Steinberg why.  His reasons are so many that I can’t even keep up with his answer: football’s marriage to television and the superb production level; the ability to watch your home team anywhere; weekly games making for ideal promotional build-up; the long off season creates a hunger for the game; the draft; the appeal of quick bursts of dramatic action; the contact nature of the game; the synergy with college football; gambling; fantasy leagues; constant innovations in the game; social media; and endless supportive media content and analysis shows.  And there were a couple more that I missed.
 
What about the other football?  Lauren asks Steinberg how one of the most creative sports minds ever would crack the soccer nut?  How do you keep the soccer frenzy, that exists around the World Cup, going after the tournament is over, she wants to know.    
 
Steinberg doesn’t seem optimistic about the situation.  He says that the flurry of interest around the World Cup is “in large part occasioned by nationalism.”  The failure to popularize soccer is not for lack of trying, Steinberg points out.  There is plenty of soccer on television.  But Americans don’t respond.  The game just doesn’t fit the mold of how Americans enjoy sports – high scoring and built-in bathroom breaks.  It is this disconnect that is at the heart of the soccer problem.  Even bringing David Beckham to Los Angeles can’t solve this, Steinberg says.  He once suggested that the rules of the game be Americanized.  That brought a lot of hate mail.                  
 
The Crash And Comeback
 
In a sad turn of events, Steinberg’s life unraveled in the 2000s.  The spiral down began in 1999 when he sold his agency (“probably the worst decision I ever made”) and culminated in early 2012 when he filed for bankruptcy.  It was a confluence of events that led to his downfall; but alcoholism played a big part.  In between there were legal disputes over agency clients, the death of his father, his children developing vision problems, an employee caught taking an illegal loan from a player, losing two houses to mold, divorce, a DUI arrest and a series of lawsuits.  The man who once lived in a $7 million home moved back into his mother’s house.  As Steinberg says in The Agent: “It is quite a decline to go from chauffeur-driven limousines and private plans to having your car repossessed and not having enough to eat.”
 
But America is the land of the comeback story.  And Steinberg is on a mission to write that chapter in his life.  He has been sober since March 2010.  He has re-entered the agent world and looks to represent superstar athletes of every sport, as well as coaches, television and radio broadcasters and others.  He also plans to build an agency marketing arm to promote athletes, corporations, colleges, teams and leagues, as well as develop a virtual studio for the creation and facilitation of sports themed content.  Steinberg plans to continue to teach sports law and with the many causes that are so important to him, such as climate change and green issues, race relations, domestic violence, steroids and concussions in sports and still others.             
 
Forrest Gump
 
Steinberg is talking to me about some of the crazy coincidences in his life.  His jokes about how surreal it is that, while at Berkeley, he engaged in a testy exchange with Ronald Reagan – who years later would give him a Presidential Commendation.  I ask him if Gloria Steinem called him after his book came out.  “I think she lost my number,” he speculates.  Steinberg tells me that he was hesitant to write an autobiography because it would be so Forrest Gump-like that “no one would believe it.”        
 
Despite its very high ups, and very low downs, Leigh Steinberg has had an unimaginable life.  And there is still much more to go as Steinberg sees it.  Surely it would have been much different if he hadn’t been Steve Bartkowski’s dorm counselor.  I ask Steinberg what that life might have looked like.  Maybe television news, he had offers in politics (“probably what I was trained for”) and from a DA’s office and opportunities in corporate litigation.  But it never came to that.  “[Steve Bartkowski] probably [freed me] from a life of legal drudgery,” Steinberg says, with a sigh of relief.      

 
 


Vol. 3, Iss. 13
September 10, 2014

 

Jewish Grandmother Insurance And Policies For Other Serious Gastronomic Risks





Have Randy Spencer’s Stand-up Coach At Your Holiday Party Or Other Corporate Event

Having a side-splitting stand-up comic at your holiday party or other corporate event sounds like a great idea – as long as you’re not the one responsible for hiring the guy who told all those inappropriate jokes. But Randy Spencer’s stand-up coach, Brad Trackman, is a hilarious stand-up comic who can bring down the house in a “corporate” setting. Brad headlines clubs all over the country, recently appeared on the Late Late Show with Craig Ferguson on CBS and has opened for some of comedy’s biggest names, including Joan Rivers and Robin Williams (collectively, rest in peace). While Brad’s club act can be anything goes -- he also does a lot of private corporate gigs nationally because he can be just as funny as a “clean” comic (many comics can’t pull that off). Brad will make your next holiday party or other corporate event one to remember. And the guy who hires him won’t hear anything about it except--great idea. Contact Brad at bradtrackman@aol.com and check out his recent (and clean) national TV performance on
Gotham Comedy Live.

You’ve seen those stories about insurance policies covering celebrities’ one-of-a-kind traits. The one that seems to get mentioned most-often is a policy supposedly covering Liberace’s hands. A Google search reveals that insurance policies have also supposedly been taken out on Tom Jones’s chest hair and Michael Flatley’s legs.  These seem like policies half-designed for a real purpose (akin to disability) and the other half just to generate media attention – which they seem to do.

A recent Reuters story reported that these days some insurers in China are also issuing policies covering unusual risks. But unlike policies that focus on celebrities’ unique qualities, China’s gimmicky policies cover risks confronted by average folks. According to the Reuters story, insurance is (or was) available for such things as your bride becoming pregnant before the honeymoon, your team being knocked out of the World Cup, burning your tongue eating hotpot (cooking raw meat and vegetables in a boiling pot of soup at the center of a table) and naughty child insurance to protect against your child throwing a tantrum and smashing something.

The article reported that the policies are motivated by stalled premium growth and seen as a way to engage with new customers. However, some of the policies do not sit well with Chinese insurance regulators, who see them as more akin to the Chinese love for gambling.

If Chinese insurers can provide financial protection for burning your tongue eating hotpot, then imagine the opportunities that exist for U.S. insurers taking a similar tack with everyday gastronomic hazards:

• Your Nana pleads with you: “Eat, eat, you’re skin and bones.” You then get sick after your fifth bagel and lox.

• The pop-up thing in the turkey malfunctions and your Thanksgiving bird is as dry as a Steven Wright bit.

• You buy chicken stir fry at the Whole Foods prepared foods counter but don’t notice the sign that it’s tofu faux-chicken.

• A little too much wasabi sticks to a Philly roll and you stop breathing.

• You eat too much of your 8 year-old daughter’s Halloween candy and she sues you for conversion (or worse, tells mommy).

• A Slurpee brain-freeze causes the loss of 10 IQ points.

• You make a big losing investment in the stock market because a fortune cookie said that you’ll soon have great wealth.

• You die from eating Pop Rocks.

• You are attacked by PETA protestors after eating animal crackers.


That’s my time. I’m Randy Spencer. Randy.Spencer@coverageopinions.info


 


Vol. 3, Iss. 13
September 10, 2014

MUST READ Reservation Of Rights Case (A Top 10 Case Of 2014)

 

I’m capable of writing a hyperbolic headline in Coverage Opinions now and then. Really, I am. But this isn’t one of them. If you read only one article in this issue of CO, make it this one.

In Builders & Exteriors, Inc. v. Mid-Continent Casualty Co., No. WD 76880 (Mo. Ct. App. Sept. 2, 2014), Mid-Continent’s insured, Advantage Builders, was sued for construction defects. Mid-Continent undertook its defense, under a “reservation of rights,” filed a declaratory judgment action, and a Missouri trial court found that Mid-Continent owed no coverage. It sounds like a textbook case in claim handling. So how it is that a Missouri appeals court just held that Mid-Continent was liable for $3 million in compensatory damages for bad faith failure to settle and $2 million in punitive damages? [Although those damage numbers need to be re-tried because of a problem with how they were split.]

The answer is this: Even though Mid-Continent provided two reservation of rights letters to its insured, the appeals court held that the reservation of rights letters were not “effective.” It didn’t matter that the letters contained a lot of pages, setting out the facts at issue and voluminous policy language and that Mid-Continent stated that it was reserving its rights. Despite all those words, the court concluded that the letters did not adequately explain why Mid-Continent may not have owed coverage to its insured.

The court put it like this: “Here, both letters only vaguely informed the insured that Mid–Continent would investigate and perform a coverage analysis and that it was reserving its right to assert that there may be no duty to defend or indemnify against the claims. The letters generally discussed the nature of the underlying lawsuit and set forth various provisions of Advantage’s general liability policy. Neither letter clearly and unambiguously explained how those provisions were relevant to Advantage’s position or how they potentially created coverage issues.”

Because of what the court called ineffective reservation of rights letters, Mid-Continent was estopped to deny coverage: “Here, Mid–Continent’s purported ‘reservation of rights’ notification was not timely or clear, nor did it fully and unambiguously inform the insured of the insurance company’s position as to coverage. Thus, regardless of the court’s January 2012 declaratory judgment ruling that the policy language did not explicitly cover the claims of Alsation, because Mid–Continent failed to effect a proper reservation of rights, it was prohibited from asserting only limited coverage for the claim. Therefore, Mid–Continent was estopped to deny coverage for the claim to the extent of its policy limits.”

There is a lot of detail to the opinion concerning how the claim was handled and how that played into the court’s decision. It’s too much to get into here. And, in any event, none of that is the point of my discussion of the case. It is that, simply because an insurer sends a letter, even a very long letter, and calls it a reservation of rights, may not make it so.

Despite how commonplace reservation of rights letters are for insurers in the claims context, some courts have concluded that they are not always done right – concluding that, while a letter with the words “reservation of rights” may have been issued, the notice provided to the insured in such letter, of the reasons why coverage may not be owed for some claims or damages, was not sufficiently specific to be adequate. The courts’ conclusion is that the reservation of rights letter did not “fairly inform” the insured of the bases why coverage may not be owed. See Safeco Ins. Co. of Am. v. Liss, No. DV 29-99-12, 2005 Mont. Dist. LEXIS 1073, at *41 (Mont. Dist. Ct. Mar. 11, 2005) (“In this case, the Court finds that Safeco’s reservation of rights letter did not ‘fairly inform’ Liss of the reasons it was reserving its rights and that the letter was inadequate as a matter of law to preclude application of the estoppels doctrine.  The only factual reference contained within the policy is: ‘As you are aware, this lawsuit arises out of a gunshot incident on July 10, 1997.’  More importantly, the letter sets forth pages of policy provisions but does not explain why Safeco believed the insurance policy would possibly not cover Liss for the shooting incident.  In other words, Safeco did not ‘apply’ the sole fact stated to the policy’s legal terms.”); Osburn, Inc. v. Auto Owners Ins. Co., No. 242313, 2003 WL 22718194, at *3 (Mich. Ct. App. Nov. 18, 2003) (“[W]e conclude that, because Auto Owners’ reservation of rights letter was not sufficiently specific to inform plaintiffs of the policy defenses the insurer might assert, the letter did not constitute ‘reasonable notice.’”); Hoover v. Maxum Indem. Co., 730 S.E.2d 413 (Ga. 2012) (explaining that a “reservation of rights is not valid if it does not fairly inform the insured of the insurer’s position,” and holding that insurer’s letter was inadequate because it “did not unambiguously inform [the insured] that [insurer] intended to pursue a defense based on untimely notice of the claim”).

Needless to say, given how many reservation of rights letters insurers write, this issue is critically important for them. I have been doing a training seminar on this “fairly inform” requirement of a reservation of rights letter for years. If you’ve see it you know how passionate I am about the issue. Two out of the last four of my Top 10 Cases of the Year articles have included one addressing this issue (make that three out of five).

 


Vol. 3, Iss. 13
September 10, 2014

8th White And Williams Coverage College Is Almost Here

 

The 8th Annual White and Williams Coverage College is quickly approaching - October 2 at the Pennsylvania Convention Center in Philadelphia.  Registration is brisk and we are well on our way to a capacity crowd of students from insurance and related companies from all across the country.  If you are planning to attend, the time to register is now. Come see why the Coverage College draws so many insurance professionals from across the country year after year (last year there were 600 registered students from 19 states and 150 companies). Don’t miss the social event of the claims season! Click here for more information about the WW Coverage College.

 


Vol. 3, Iss. 13
September 10, 2014


Declarations: The Coverage Opinions Interview With Sonia Waisman

The Coverage Lawyer Who Is No One-Trick Pony





Sonia Waisman may not have nine lives.  But she certainly has at least two. 

Waisman, of California’s McCloskey, Waring & Waisman, LLP, is a veteran and accomplished insurance coverage lawyer, having spent a career--including as national insurer counsel--handling a wide-variety of claims, such as environmental, toxic tort, personal and advertising injury, construction defect and bad faith, to name just a few, under various types of policies.  Before joining her current firm, Waisman was a partner in the L.A. office of Morrison & Foerster.

 

So far Waisman’s resume resembles that of many coverage lawyers.  But then it makes a sharp turn.  Waisman is also one of the nation’s leading authorities on animal law.  To drive this point home, there are about 150 law schools in America that teach Animal Law.  Waisman is the co-author of the case book that is used by nearly all of them.  Animal Law, Cases and Materials (5th Edition; Carolina Academic Press) is clearly the 900 pound gorilla in the field.        

I set out to learn how this coverage lawyer came to have such a completely unrelated expertise. All I’m interested in is animal law.  None of the questions on my legal pad are about insurance – well, except one:  How can a coverage lawyer write a 700 page single-spaced, tiny font, law book, and devote barely five of them -- five little pages -- to the subject of insurance?  Say It Ain’t So…nia!

Waisman’s journey to renowned animal lawyer started at California Western School of Law in the late 1980s and her involvement with the Animal Legal Defense Fund.  Following law school she saw a notice of an e-mail group of animal law professors being formed.  At that time there were only about a dozen law schools in the country with an Animal Law course offering.  She contacted her law school, which thought of itself as being progressive, and suggested that it offer a course in Animal Law.  The school’s response…You’ll teach it, right?

So in the late 1990s Waisman created and began teaching a course that filled the animal law gap that was missing in California Western’s curriculum.  And then, while continuing her full time coverage litigation practice throughout, she plugged another hole in animal legal studies – a case book.  The field had grown past the point of being taught using lots of handouts.  Waisman’s first edition of Animal Law, Cases and Materials, was published in 2000.  While Waisman’s days of teaching Animal Law are over, at least for now (she also taught at Loyola Law School (L.A.) and Vermont Law School), the case book (along with her coverage practice) keeps her busy.  The fifth edition of Waisman’s “proudest accomplishment” was just published.     

These days law schools have been coming under pressure, even more than ever before, about not preparing their students for the actual issues that will confront them upon graduation.  I’ve been practicing for 23 years and am still waiting to use the lessons I learned in Comparative Matrimonial Law Between Papua New Guinea and Idaho.  Maybe animal law sounds like that – just another example of law schools being completely out of touch.  But it’s not.  Not even close.  This was made very clear both from reviewing Waisman’s case book and discussing the subject with her.   

When talking about animal law, and her case book, Waisman is quick to tell me what animal law is not.  It’s not animal rights and it’s not animal activism.  It’s animal law.  You see this right away when you open the book.  There are chapters called Property and Beyond, Torts, Constitutional Law, Criminal Law, Contracts and Wills and Trusts.  You quickly recognize that the table of contents in Waisman’s case book mirrors the first year law school curriculum and bar exam.  The book demonstrates that animals touch every cornerstone of life and the law.  This is why animal law has a real place at the table of legal education. 

This is just cat scratching the surface but the Con Law chapter discusses such things as a church’s right to engage in animal sacrifice, constitutional standing to protect animal interests and statutes designed to prevent harassment of hunters.   The Torts chapter looks at damages recoverable for the death of a pet, in a veterinary malpractice setting and otherwise.  The Criminal Law chapter explores animal cruelty.  Contracts brings us pets in the context of landlord-tenant disputes and marital dissolution.  And Wills and Trusts explores such things as wills that contain provisions concerning animal care after the testator’s death and modern pet trust statutes.  In addition, a chapter on Commercial Uses of Animals covers a vast array of legal issues pertaining to the raising and slaughter of animals for food, which Waisman believes is or should be relevant to everyone who consumes these animal products as well as those who don’t.

Waisman stressed during our call that her objective as a teacher, and that of the case book, is not to ask philosophical questions.  Rather, it is to encourage students to think about the rationale and ramifications of judicial and legislative action and to look at what a court or legislature did and ask – Does that make sense?  Philosophical discussion would be fine--if the subject were animal rights.  But this is animal law.                    

I see this clearly when Waisman and I get into a discussion of last year’s Texas Supreme Court decision in Strickland v. Medlen, where the court held that bereaved owners could not recover emotional injury damages from a shelter that negligently euthanized their dog.  Several animal welfare organizations filed amicus briefs opposing emotional injury damages.  In general, their reasons were that, to allow damages for emotional injury, would harm pets.  Pet litigation would become a cottage industry, which would lead to an increase in insurance costs and vets needing to practice defensive medicine.  As a result, care would become too expensive for some pets.  [Coincidentally, Strickland v. Medlen was written by Justice Don Willett, who I had the privilege of interviewing in the May 7, 2014 issue of Coverage Opinions.]

When discussing the case, Waisman looks at the various issues and asks the same question.  Does it make sense that recovery is allowed for the sentimental value of a lost heirloom, such as an athletic ring, but not a dog that is considered a member of your family?  Does it make sense that the question can’t even be presented to a jury to let them decide if damages for emotional injury should be awarded? It would be very easy for a discussion of Strickland v. Medlen to bleed into philosophical questions, but Waisman is focused on legal ones.      

[From Justice Willett’s opinion: “The Medlens find it odd that Texas law would permit sentimental damages for loss of an heirloom but not an Airedale. Strickland would find it odd if Texas law permitted damages for loss of a Saint Bernard but not for a brother Bernard. The law is no stranger to incongruity[.]”]

Now, about Animal Law, Cases and Materials devoting well under 1% of its pages to insurance law, I take Waisman to task.  How could you?, I ask.  Does that make sense?  Her response is a valid one.  In most coverage cases involving animals, she tells me, the case isn’t about the animal, it’s about the insurance policy.  So they are not really animal law cases.  They are insurance law cases -- that just so happen to involve animals.  I see her point.  In other words, in most dog bite coverage cases, insurance is the tail wagging the dog.  

 


Vol. 3, Iss. 13
September 10, 2014

Insurer Cherry Bombs: Court Holds That Pollution Exclusion Does Not Apply To Fireworks [Yes, Fireworks]

 

One of the things that makes the pollution exclusion such a fan-favorite is that its applicability is sometimes tested against unusual substances, i.e., ones that don’t necessarily shout pollution when come across. For example, just since 2011, courts have addressed whether such things as aroma from curry, cooking oil, deli odors, ejaculate (see CO – issue), swine waste odors and bat guano qualified as a “pollutant.” These seemingly unusual pollution exclusion cases are sure to continue to leach from courthouses. Here is the latest entry is this pollution exclusion category. [Far be it from me to question another insurer’s decision to litigate a coverage issue, but this one seemed like a real hail Mary.]

At issue in Charter Oak Fire Ins. Co. v. Endurance American Specialty Ins. Co., No. 13–00558 (D. Hawaii Aug. 20, 2014) was the potential availability of coverage for an enormous tragedy. The facts are simple, as stated by the court. “VSE [Corp.] had a contract with the federal government to destroy seized fireworks. VSE subcontracted with Donaldson Enterprises, Inc., to have Donaldson destroy those fireworks. On April 11, 2011, an explosion occurred where the fireworks were being stored that killed [five] Donaldson employees who were in the process of destroying the fireworks at the time of the explosion. Four suits were filed in state court arising out of the deaths of the five Donaldson employees.”

Charter Oak Insurance insured VSE and undertook its defense. Charter Oak then sought reimbursement of the defense costs from Endurance Insurance on the basis that VSE was an additional insured under the policy Endurance issued to Donaldson. Endurance undertook VSE’s defense under a reservation of rights (noting that there were “ significant coverage issues”).

The Endurance policy issued to Donaldson contained a pollution exclusion. And there was nothing unusual about it. It excluded coverage for “bodily injury” or “property damage” “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ ... [a]t or from any premises, site or location which is or was at any time used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste.” The policy defined “Pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”

Lots of other things happened in the litigation – both procedurally and substantively. But those things are not important here. But here’s what is.

Endurance argued that, since the fireworks were waste, the explosion of the fireworks was an “actual ... discharge of ‘pollutants,’” that caused bodily harm, and that such harm therefore fell under the pollution exclusion contained in the policy.

The court provided a detailed analysis of the issue – perhaps more than some others might have. It first looked to two Hawaii cases and noted that they did not limit the pollution exclusion (as in California, the court observed) to traditional environmental pollution. The court pointed to Hawaii federal cases that applied the pollution exclusion to: physical and emotional injuries caused by the escape of concrete dust from a concrete recycling plant; and injuries caused when a plumber “poured an extremely strong drain cleaner down the maintenance drain, releasing noxious fumes” at a Wal–Mart store.

The court rejected Endurance’s argument that, because the fireworks were waste, that per se made them pollutants: “According to Endurance, because what Donaldson was destroying should qualify as ‘waste,’ it also qualifies as a ‘pollutant.’ This court reads the words following ‘including’ as examples of ‘irritants’ or ‘contaminants.’ That is, ‘waste’ cannot be a ‘pollutant’ without being an ‘irritant’ or ‘contaminant.’ Because ‘waste’ does not expand the definition of ‘pollution’ beyond ‘irritants’ and ‘contaminants,’ some forms of ‘waste’ (i.e., waste that is neither an ‘irritant’ nor a ‘contaminant’) may not necessarily be ‘pollutants.’ Thus, while ‘vapor’ is part of the list that includes ‘waste,’ not all ‘vapors’ are ‘pollutants.’ Water vapor, when it is not an ‘irritant’ or ‘contaminant,’ would not be a ‘pollutant.’”

The court also noted that “[f]ireworks might be considered hazardous waste on their own, but it was not the fireworks themselves that caused the injury. Unlike the drain cleaner (or the dust in Allen), fireworks can sit out exposed without necessarily emitting fumes, causing irritation, or generating what a layperson would consider pollution. Even if the court looks at the flammable components of the fireworks, not at the manufactured fireworks, the mere presence of those components did not cause any irritation or contamination, so it is not clear that the components fit the definition of ‘pollutants’ for purposes of this case.” The court expanded on this: “Even if the fatal explosion could be said to have ‘arisen out of’ the presence of the fireworks or their components, and even if the fireworks or their components were ‘pollutants,’ it is not at all clear that, in the Liability Suits, VSE is being sued in connection with an explosion allegedly arising out of ‘the discharge, dispersal, seepage, migration, release or escape’ of pollutants.”

So the court held that fireworks cannot be a “pollutant” without first being an “irritant.” But for many of us, fireworks are an irritant. Ooh. Aah.

 


Vol. 3, Iss. 13
September 10, 2014

A-L-Hi To Coverage For Pre-Tender Defense Costs:
ALI Principles Looking To Shift The Law

 

If you’ve been reading Coverage Opinions of late you’ve seen me take issue with certain aspects of the American Law Institute’s “Principles of the Law of Liability Insurance” Project. In general, my beef has been with certain proposed Principles that open the door to insureds securing coverage for intentional conduct. At the heart of a liability policy is that coverage is tied to the concept of fortuity. But certain draft ALI Principles seem intent on altering this cornerstone of a liability policy. These are not the only ALI Principles that divert from majority positions and, if adopted, would constitute a shift in the law. The ALI Principles’s stated mandate is to develop “coherent doctrinal statements based largely on current state law, but also grounded in economic efficiency and in fairness to both insureds and insurers.” Principles that constitute a shift in the law are not that.

By way of comparison, suppose 26 states apply Rule A to a coverage issue, 13 states apply Rule B and 11 states are silent or have no clear rule. If the ALI drafters choose to adopt Rule A, that is surely important, and not everyone will agree, but the decision is at least a “coherent doctrinal statement based largely on current state law.”

Here’s a look at another draft ALI Principle that seems to depart from the project’s mandate. Chapter 3 of the ALI Principles, next up on the table, addresses policy Conditions. The language of §42 is dense but I believe what it is saying is that, for an insurer to disclaim coverage based on the insured’s failures to cooperate, obtain consent before incurring any expense or provide timely notice of a claim, it must prove that it was caused to incur “substantial prejudice.”

It’s not a secret that insurers have generally not fared well in their efforts to be relieved of policy obligations on the basis that their insured did not provide notice of a claim in a timely manner. First, as a starting point, even when claims are reported months after they should have been, that is oftentimes not late enough to serve as a breach of the policy’s notice requirement. What’s more, even when a claim is sufficiently tardy, to qualify as having formally breached the policy’s notice requirement, the insurer usually must prove that it was prejudiced by the insured’s delayed notification in order for such breach to serve as a basis to exclude coverage. And prejudice is frequently difficult for insurers to establish (at least courts think so). For these reasons, insurers have had a difficult go at it when attempting to disclaim coverage for defense and indemnity on the basis that their insured did not provide notice of a claim in a timely manner.

This being so, it is probably not going to ruffle too many insurer feathers if an ALI Principle is adopted stating that (for an occurrence policy) an insurer must establish prejudice to disclaim coverage based on late notice. Whether the test is “prejudice” or “substantial prejudice” is a different issue but not relevant to the discussion here.

But there is a close cousin (sibling, even) to late notice where insurers’ fortunes have been significantly different. There are times when an insurer is not seeking to completely disclaim coverage for defense and indemnity on account of late notice. Rather, the insurer is only asserting that is has no obligation to reimburse its insured for defense costs incurred by the insured prior to the time that the insured placed the insurer on notice of the claim. These are referred to in coverage circles as “pre-tender defense costs.” [Chrissie Hynde’s favorite coverage issue.] Pre-tender defense cost can be no small issue. Even if the pre-tender period is relatively brief, the defense costs racked up during this time could have been substantial. Think how active litigation can be right after a complaint is filed. Not to mention that the defense expenses are being incurred by non-panel counsel.

Unlike their unimpressive results in disclaiming all coverage for defense and indemnity on the basis of late notice, insurers have done remarkably well in avoiding any obligation to pay for pre-tender defense costs. Court decisions have not been, er, in the middle of the road.           

Why have insurers been so much more successful when it comes to pre-tender defense costs? In general, some courts are unwilling to saddle an insurer with an obligation to pay for defense costs that it had no ability to control. Other courts conclude that the duty to defend does not arise until the insurer receives notice of the claim. And some courts rule in favor of insurers on the basis that an insured that incurs defense costs, prior to providing notice to the insurer, has breached the policy’s “voluntary payments” provision. At the heart of these decisions is that, unlike when it comes to late notice, insurers are generally not obligated to pay for pre-tender defense costs – even if they were not prejudiced by them.

The difference between late notice and pre-tender defense costs, even within the same state, can be dramatic. For example, New Jersey courts have not put out a welcome mat for insurers when it comes to late notice. The Garden State sets a very high burden on insurers seeking to disclaim coverage for defense and indemnity on the basis of late notice—requiring a likelihood of appreciable prejudice. But when the issue is pre-tender defense costs, New Jersey courts have served insurers Country Time on the porch, holding that an insurer is only obligated to pay for that portion of the defense costs arising after it was informed of the facts triggering the duty to defend—and no showing of prejudice is required. Several examples abound of states whose standards between late notice and pre-tender defense costs are this diametric.

The clear majority rule nationally is that insurers are not obligated to pay for pre-tender defense costs–even if they were not prejudiced by them. More specifically, the national scorecard on coverage for pre-tender defense costs (based on any court in a state addressing the issue) – updated through July 2014 -- looks like this: 21 states preclude coverage without the insurer needing to prove prejudice; 6 states preclude coverage only if the insurer can prove prejudice; and 23 states have no instructive authority.

But despite this lopsided score favoring no prejudice required, the ALI Principles seem to be requiring an insurer to establish “substantial prejudice” to disclaim coverage for pre-tender defense costs. Admittedly, §42’s substantial prejudice requirement, for the insured’s failures to cooperate, obtain consent before incurring any expense or provide timely notice of a claim, does not specifically state that it encompass pre-tender defense costs. But that seems to be what it is saying.

Incidentally, and respectfully, the Comment to §42, under the heading “Voluntary-payment conditions” is blank, except to say “still researching.” It is also possible that, when §42 was being drafted, it was just not considered that, when it comes to late notice, there is a related issue where the rules are much different. So it is still possible that the ALI drafters will conclude that, for purposes of pre-tender defense costs, §42 is not a coherent doctrinal statement based largely on current state law.

 

 

 


Vol. 3, Iss. 13
September 10, 2014

Court Holds That Labrador/Boxer Mix Is An Underinsured Motorist
[Most Interesting Dog Bite Coverage Case Ever]

 

I love dog bite coverage cases. And there are a lot of them. So that’s a good thing. But that also means that there are a lot of dog bites. And since I also love dogs -- that’s not such a good thing. It’s a real double-edge sword. [As mentioned in Lauren Kelly’s article in the last issue of Coverage Opinions, the Insurance Information Institute reported earlier this summer that, in 2013, dog bites accounted for a whopping one-third of all dollars paid for homeowner’s liability claims.]

The New Mexico federal court’s decision in State Farm v. Bell, No. 13-666 (D.N.M Aug. 22, 2014) is as interesting of a dog bite coverage case as you’ll see. That’s because the case is as much about the dog as the insurance policy.

The facts were succinctly stated by the court: “On January 17, 2009, Melissa LaBarre, the then teacher of Sophia Bell, was at the Bells’ residence to drop off a kitten. [The kitten is not relevant – but it’s nice that the case offers something for cat people too.] Ms. LaBarre brought Jeb [a 65-pound lab/boxer mix] with her on the trip, because after leaving the Bells’ Ms. LaBarre intended to drop Jeb off at her parents’ home while she ran errands. Ms. LaBarre left Jeb inside her vehicle parked in the Bells’ driveway while she went into the Bells’ residence. Ms. LaBarre was inside the Bells’ residence between 15–45 minutes. At the completion of their visit, Ms. LaBarre, Sophia, and Sophia's mother, Theresa Bell, went out to the driveway. Sophia remained outside the vehicle, although she may have leaned into the car, and attempted to hug Jeb. Sophia was face to face with Jeb because of the height of the SUV. Jeb growled and barked at Sophia and ultimately bit Sophia. Ms. LaBarre and Ms. Bell immediately separated Sophia and Jeb. Sophia experienced serious injuries to her face, requiring a number of reconstructive surgeries.”

The Bells made a claim under their underinsured motorist policy with State Farm. It was not disputed that Ms. LaBarre was an underinsured motorist under the policy. At issue was this: “In order for [the Bells] to be entitled to compensation under their insurance policy, the injury must have ‘aris[en] out of the operation, maintenance, or use of an uninsured motor vehicle.’” The Bells argued that it was. State Farm argued that it was not as the vehicle was the “mere situs” of the injury.

In general, there is lots of law that addresses the question whether, for purposes of auto coverage, an injury arises out of the operation, maintenance, or use of a motor vehicle or the vehicle was the mere situs of the injury. Although no such cases existed in New Mexico specifically involving a dog bite, dog bites cases from around the country, involving this issue, abound.

After reviewing several cases nationally that have addressed whether a dog bite arises out of the use of a vehicle, the court held that, under the facts before it, it did. Most interestingly, the court was persuaded by the Bells’ expert, a veterinarian with 38 years experience, including specifically focusing on animal behavior for the last twelve. The vet testified that “Jeb developed a strong attachment to Ms. LaBarre, based upon several factors including the fact that Ms. LaBarre was the only human in the household and that Jeb was the only animal in the household. Dr. Nichol further stated that as Sophia was unfamiliar to Jeb, Jeb was likely startled by Sophia’s sudden appearance at the car door and by her attempts to hug him. This is confirmed by Ms. LaBarre’s testimony about Jeb’s reaction to Sophia. Dr. Nichol testified that due to the fact that Jeb was inside a vehicle, he was trapped and had no way to escape what Jeb perceived to be a potential threat.”

Based on this testimony – and other factors, such as the bite being facilitated by the height of the vehicle – the court concluded that the vehicle was a contributing factor to the injury and not just the mere situs: “Finally, and most importantly, the testimony of Dr. Nichols and Ms. LaBarre herself demonstrate that the bite occurred because of the unique setting of the car. Contrary to Plaintiff’s assertion, the fact that Jeb was specifically territorial over the vehicle is relevant; it transforms the vehicle from the mere situs of the injury into a contributing factor to the bite. Jeb felt threatened because he was in a confined space, the vehicle. Further, being in a confined space not only made him feel threatened but also made him territorial over the vehicle. Therefore, it was something about the characteristics of the vehicle itself that facilitated the bite, making the vehicle an active accessory to the bite. This was more than simply transporting Jeb in the vehicle.”

I’m far from an authority on UM/UIM issues. But I am familiar with this “use of the auto” versus “mere situs” issue as it comes up just the same in CGL cases involving the applicability of the “auto” exclusion. The Bells’s counsel’s use of the vet expert, to overcome the “mere situs” defense, was doggone good lawyering.

 


Vol. 3, Iss. 13
September 10, 2014

Court Declares Excess Policy Triggered Based On Insured’s Own Funding To Establish Exhaustion Of Primary

 

I rarely address primary--excess exhaustion cases in CO. They are often too policy language specific to offer any takeaways of substance. But I address Plantation Pipe Line Company v. Highlands Ins. Co., No. 12-29 (Tex. Ct. App. Aug. 29, 2014) here. It has a takeaway – that primary--excess exhaustion cases are, well, policy language specific. In addition, I included it because the court held that the insured’s participation, in funding the underlying limits, was permissible for establishing exhaustion. Insurers often argue that this should not be so.

The Texas appeals court framed the sole issue in the case in a tidy fashion: “[w]hether the trial court erred in ruling that Plantation, as a matter of law, forfeited all of its coverage under the excess policy it purchased from Highlands by settling its coverage claims against its lower-level insurers for less than the full limits of those policies, even though Plantation agreed to pay the difference between the underlying settlement amounts and the underlying policy limits.”

More specifically, at issue was coverage for Plantation Pipe Line’s environmental property damage liability on account of a pipe line leak that took place in 1975 when I was in third grade. Plantation spent close to $12 million on remediation efforts. Plantation had $7.9 million collectively in excess coverage (over a $100,000 SIR) from three insurers and then a $10 million excess policy from Highlands Insurance on top of that. Highlands was put into receivership. I’m sure that created a boatload of issues, but the court addressed the matter as if it did not.

Plantation sued the three excess insurers below Highlands for coverage. These three insurers, with $7.9 million between them in limits, collectively settled for $4,550,000. Plantation sought coverage from Highlands for the amount of the remediation costs that exceeded the $8 million in underlying limits. Highlands denied coverage. Plantation sued.

The issue is straightforward. As Plantation saw it, the underlying $8 million in coverage had been exhausted, as the amount that wasn’t paid by the settling underlying insurers – because they settled for less than their full limits – was made up for by Plantation’s payment.

The trial court disagreed, holding that “Highlands was not liable because the other insurers settled their claims with Plantation for less than their various full policy limits and because they had neither paid, nor had they been held liable to pay, the full limits on their individual policies.”

Plantation appealed and the Court of Appeals of Texas reversed. Here’s where it gets more complicated as the court’s decision was tied to the language of the Highlands policy.

The court looked to the limits language of the Highlands policy, and then inserted a follow-form definition from an underlying policy, and concluded that the Highlands policy now read as follows: “It is expressly agreed that liability shall attach to the Company only after the Underlying Umbrella Insurers have paid or have been held liable to pay the full amount of all sums which the insured or any organization as his insurer, or both, become legally obligated to pay as damages, whether by reason of adjudication or settlement, because of personal injury, property damage or advertising liability.” (emphasis added).

Based on this language – which addressed payment by the insured, including for settlements -- the court held that there had been exhaustion of the Highlands policy’s underlying limits: “Highlands has not disputed that Plantation and the other carriers altogether have paid a sum in excess of the attachment point ($8 million) of the Highlands policy. We believe that the language in the Highlands policy is unambiguous, and we see nothing that requires payment of losses solely by the insurers up to the attachment amount in the Highlands policy.”

As for a case that Highlands cited in support of its position, the court addressed it in detail and held that it did not dictate a different result, because, yes, it had different policy language.

 


Vol. 3, Iss. 13
September 10, 2014

Court’s Solution To Determining The Hourly Rate For Independent Counsel:
Put It In The Policy

 

It is an issue that has confronted us all and one with no easy answers. An insurer determines that, on account of a defense being provided under a reservation of rights, the insured is entitled to independent counsel, to be paid for by the insurer (or a court makes this decision for the insurer). Now the question turns to determining the hourly rate to be paid to the insured’s selected counsel. The insurer usually maintains that it will pay independent counsel the same rates it would have paid its panel counsel, who is well-qualified to handle the case. Not so fast says the insured, countering that panel counsel’s hourly rates are lower than market rates (i.e., the rates sought to be charged by independent counsel) because panel counsel is willing to work at a discount—in exchange for the volume of work that is receives on account of serving in such role. As we all know, the difference between these two rates can be substantial.

While there is certainly case law addressing this rate disparity issue, there’s not as much as you would think, given how commonly occurring the dispute is. Presumably that’s because many are resolved through negotiation.

A Minnesota District Court just weighed in on the question of the rate to be paid to independent counsel. While the court’s decision is not some sort of breakthrough, it did make two interesting observations about the issue that are worth noting.

In Select Comfort Corp. v. Arrowood Indemnity Co., No. 13-2975 (D. Minn. Aug. 26, 2014) a Minnesota federal court addressed whether Select Comfort was entitled to independent counsel on account of being defended by its insurer under a reservation of rights. Specifically, Select Comfort was named as a defendant, in a putative class action in California, brought by certain purchasers of the company’s Sleep Number beds, alleging that the beds had a propensity to develop and incubate mold, leading to adverse health consequences.

Arrowood retained counsel and stated in its reservation of rights letter that none of the issues identified therein created a conflict of interest for the counsel retained by it. Select Comfort disagreed and responded that it intended to have its own firm litigate the action. Coverage litigation ensued. The court, applying Minnesota law, held that the reservation of rights created a conflict that justified independent counsel. Putting aside a lot of discussion and other related issues, the court held that “Arrowood reserved its right to challenge coverage on the issue of the intentionality of Select Comfort’s conduct and the Minnesota cases confirm that such a reservation creates a qualifying conflict of interest.”

Now to the rate issue. Arrowood argued that there was a “potential for abuse of allowing for separate counsel when a conflict of interest arises from a reservation of rights . . . because such counsel often charge more than panel counsel regularly retained by the insurer.” However, the court dismissed this, noting that “the potential for abuse would be better managed through the determination of the reasonableness of costs of alternative counsel—a determination that could account for rates paid to panel counsel.” Interestingly, the court (although applying Minnesota law) cited to California’s Cumis statute -- which pegs independent counsel’s rate at the insurer’s panel rate -- when stating that reasonableness of independent counsel’s rate “could account for rates paid to panel counsel.” So panel counsel’s rate cannot be ignored when deciding the rate to be paid to independent counsel.

Second, and this is even more noteworthy, the court observed that the potential for rate abuse could also be better managed “by the parties through contract, i.e. by setting out the parameters for the insured’s hiring of independent counsel, in the event the insured believes a conflict of interest exists, as part of the insurance agreement.”

What about that? Why not address the rate to be paid to independent counsel (and other related issues) – if the insured is so entitled – in the policy itself? The insurer can essentially borrow the language from the Cumis statute and state in its policy (or an endorsement) as follows: “The insurer’s obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended.”

I’ve certainly seen policies that do this – but not often. Given the frequency of the rate issue, the challenge to resolve it and policyholders’ fondness of the argument that, if this is what the insurer wanted it should have written it in the policy, is a simple solution to a complex problem out there for the taking?

 


Vol. 3, Iss. 13
September 10, 2014

Texas Appeals Court Provides Roadmap For Punitive Damages Coverage

 

When it comes to the potential availability of coverage for punitive damages there is often more than meets the eye. First, the answer to the oft-asked question, whether punitive damages are insurable in such and such state, is many times provided by one word: yes or no. While one of those two answers may be the right one generally, the issue is often-times much more complex than can be adequately answered with a single word. In fact, when all of the variations of the issue are considered, there may be as many as a dozen possible answers to the question whether punitive damages insurable.

In addition, in my experience, punitive damages are often referred to, generally speaking, as uninsurable. However, as the Texas Supreme Court pointed out a few years ago, punitive damages, in some way, shape or form, are insurable in 38 states.

Speaking of Texas and punitive damages coverage, last week, in Tesco Corp. v. Steadfast Ins. Co., No. 13-91 (Tex. Ct. App. Aug. 28, 2014), a Texas Appeals Court addressed coverage for $1.5 million in punitive damages awarded in an action for injuries sustained by a worker on a Tesco Corp. drilling rig. The trial court concluded that Colorado law applied and punitive damages are not insurable there. Case closed.

The Texas appeals court saw it differently. The court concluded that Texas law governed the dispute. From there it turned to whether the punitive damages awarded to the injured worker, in the underlying suit, were covered. The court started where it must – the policy language. The court held that the policy language encompassed coverage for punitive damages. “Generally, language in a standard form liability policy providing for coverage for ‘sums’ or ‘all sums’ an insured becomes liable to pay as a result of bodily injury encompasses punitive damages, if not otherwise excluded. There is no language in the Policies making any distinction as to the types of damages covered or expressly excluding coverage for punitive damages. Steadfast could have included an express exclusion from liability for punitive damages, but it did not.”

[In my experience, people sometimes jump right to the question whether a state’s public policy permits coverage for punitive damages. But the true starting point needs to be the policy language. If the punitive damages are not covered by the policy language, then they are not covered by the policy, and public policy permissibility is never reached. For example, many states that have looked at the issue have held that a policy that provides coverage for “compensatory damages” does not cover punitive damages, but punitive damages are not compensatory damages.]

Now the court reached the public policy issue. It answered the question, whether Texas public policy precludes coverage for punitive damages, this way: depends. “[W]hen the insured is a corporation or business that must pay exemplary damages for the conduct of one or more of its employees, and other employees and management are not involved in or aware of an employee’s wrongful act, the purpose of exemplary damages may be achieved by permitting coverage so as not to penalize the many for the wrongful act of one. When a party seeks damages under these circumstances, courts should consider valid arguments that businesses be permitted to insure against them.” (citation and internal quotes omitted).

In other words, were other Tesco employees/management aware of, or involved in, the supervisor’s wrongful conduct or the pervasiveness of the practice at issue [a certain drilling technique that allegedly caused the injuries]? If so, then the injury may have been caused by avoidable conduct “such that public policy is best served by requiring the insured to bear the costs of punitive damages.” Presumably there will now be a trial on the extent that Tesco employees/management had such awareness of, or involvement in, the drilling practice at issue.

[I have not considered whether, or how, this analysis differs from the often-seen distinction between no coverage allowed for directly-assessed punitives but coverage is available for vicarious liability-assessed punitives.]

So are punitive damages insurable in Texas? The answer can be provided in one word – it’s just that the word isn’t yes or no.

 


Vol. 3, Iss. 13
September 10, 2014

Mississippi Supreme Court Provides A Clinic In Plain Meaning To Preclude Coverage [Yes, Mississippi]

 

It is routine for a court, setting out to resolve an insurance coverage dispute, to begin its opinion by laying out the rules that will determine its decision. And it is likely that, somewhere in the court’s recitation, will be a statement that its most important consideration is to be the language of the policy. If the policy language is clear we apply it as written and case closed. It is likely that one party will believe that the court was true to its word, and made its decision by applying solely the plain language of the policy, and the other party is likely to see it otherwise.

The Mississippi Supreme Court just decided Hayne v. The Doctors Company, No. 2013-252 (Miss. August 28, 2014). Plain meaning of a policy is what was on trial. Borrowing liberally the court’s factual summary… Dr. Steven Hayne had worked as a forensic pathologist in death investigations for the State of Mississippi. In 1992 he conducted an autopsy on the body of Christine Jackson, a three-year-old girl who was raped and murdered. During the autopsy, he observed what he described as bite marks. Hayne identified Kennedy Brewer, the boyfriend of the victim's mother, as the person who had made those marks, based upon a comparison with an upper-palate imprint obtained from Brewer. At Brewer's trial, Hayne testified that he had no doubt that nineteen of the marks on the victim's body had been made by Kennedy Brewer. This so-called bite-mark evidence was the “centerpiece of the prosecution.” Brewer was convicted of capital murder and sentenced to death. However, semen had been found on the victim, and years after his conviction, Brewer was able to gain access to the semen for DNA testing. The testing excluded Brewer as the source of the semen that had been found on the deceased victim, and his capital murder conviction was vacated in 2002. Brewer had spent fifteen years behind bars, with seven of those on death row. In 2008, Brewer filed suit against Hayne for malicious prosecution, fraud, and negligent misrepresentation.

Dr. Hayne sought coverage under a medical malpractice policy issued by The Doctors. Coverage litigation ensued. The policy provided coverage to Hayne for claims brought against him for incidents occurring during the coverage period, with “claim” defined as a suit alleging “injury, disability, sickness, disease, or death to a patient arising from [Hayne’s] rendering or failing to render professional services....”.

The Doctors argued that, because Brewer was never a patient of Hayne’s, and Brewer alleged injuries only to himself, the plain language of the policy precluded coverage for Hayne.

More specifically, The Doctors argued that “the language of the policy does not provide coverage for Hayne in the context of a suit brought by a wrongfully convicted criminal defendant against whom Hayne had testified. According to The Doctors, the policy provides coverage only for suits alleging injury to a patient. Brewer, however, is alleging injuries to himself. Brewer was never a patient of Hayne’s and makes no claim or contention to that effect. Neither does Hayne. Therefore, according to The Doctors, the policy does not cover Brewer’s claim against Hayne. The Doctors argues that if anyone was a patient of Hayne’s in the context of the Brewer complaint, it was Christine Jackson, the crime victim upon whom Hayne performed the autopsy which formed the basis for his testimony against Brewer. However, Brewer is not alleging that Hayne injured Christine Jackson, and he is not contending that she was Hayne’s patient.”

The court agreed with The Doctors and held that no coverage was owed to Hayne. The court’s decision—reached even in the face of allegations the policy was internally inconsistent and that The Doctors made representations that the policy provided coverage for the incident--was completely tied to the policy language: “We are constrained to agree with The Doctors’ position that Brewer simply cannot, by any stretch of the imagination, be considered Hayne’s patient. The language of the policy is unambiguous in this regard. Further, an insured is charged with the knowledge of the terms of the policy upon which he or she relies for protection. Although Hayne claims that The Doctors negligently misrepresented to him in the policy booklet that the policy would cover him for suits such as the one he now faces, the plain language of the policy itself unambiguously informs him that it does not. When the language of the policy is unambiguous, knowledge of the policy is imputed to the insured.”

Hayne is a very interesting and unusual case. There are plenty of cases involving coverage for convictions, determined by later-DNA testing, to have been wrongful. I’ve never seen one with facts like this. But the real take-away from Hayne is that, while the court seemed to have opportunities to find the policy ambiguous, it rejected them. The court held that no coverage was owed based on its obligation to uphold the plain meaning of the policy.

 

 
 
Vol. 3, Iss. 13
September 10, 2014
 
 

Rest In Peace Joan Rivers (Joan Rivers Meets The 7th Circuit)

The stand-up comedy world suffered a great loss last week when Joan Rivers died. Rivers was of course known for her acerbic style. There are those who didn’t like her for that reason. Those in that camp should consider this. Rivers once stood up for a heckler and for her trouble ended up being sued. She had to go to the Seventh Circuit to clear her name.

I discussed this decision in the July 24, 2013 issue of Coverage Opinions. This is a good time to repeat it.

Joan Rivers performed a show at a casino in Wisconsin. During her set she told a joke about Helen Keller. She was heckled by an audience member that had a deaf son. After the show, Ann Bogie, a different audience member, asked Rivers to autograph a book. Bogie expressed frustration to Rivers about the heckler. Rivers responded by expressing sympathy for the heckler because of her son. This exchange between Bogie and Rivers had been filmed and was used – sixteen seconds in all -- as part of an eighty-two minute documentary about Rivers.

Bogie sued Rivers alleging that she was portrayed in the film as having approved of condescending and disparaging remarks by Rivers to the heckler. Bogie alleged that her privacy was invaded by the distribution of the film and it misappropriated her image for commercial purposes without her consent.

The case made it to the Seventh Circuit which addressed several reasons why the District Court was correct in dismissing Bogie’s complaint for failure to state a claim. The Appeals Court in Bogie v. Rosenberg (a/k/a Joan Rivers), 705 F.3d 603 (7th Cir. 2013) held that Bogie’s conversation with Rivers was not in a place that a reasonable person would consider private. While it took place backstage, it was in the presence of several security personnel and a film crew.

In addition, the court held that the alleged intrusion into Bogey’s privacy would not be highly offensive to a reasonable person. “The fact that Bogie was embarrassed to be filmed saying something she regrets having said and now deems offensive does not convert the filming itself into a highly offensive intrusion.”