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Insurability of Punitive Damages -- Texas Style
It's not as if the only cases I read these days are from the former independent nation of Texas, but the Texas Supreme Court is on a roll in clearing out its backlog of important insurance cases, some involving additional insured coverage (and here), and a new important decision on the insurability of punitive damages.
One of the great myths in the insurance industry is that punitive damages are not insurable. This is false, particularly considering that the majority of US jurisdictions allow coverage for punitive damages at least in some circumstances. The argument against coverage in premised on the notion that it would undermine the deterrent effect of imposing punitive damages were the defendant able to in turn seek insurance recovery. A century ago the same debate in the same terms was had over whether liability insurance policies were themselves contracts violative of public policy, since it would undermine the deterrent effect of imposing tort liabiltiy were the defendant able to in turn seek insurance recovery. See Mary McNeely, Illegality as a Factor in Liability Insurance, 41 Col. L. Rev. 26 (1941) (an excellent early analysis of some of these questions). As McNeely wrote three score years ago, "Throughout its history the insurance device has been alternatively hailed as a promoter of communal welfare and damned as a generator of evil."
So too is framed the interesting recapitulation of these familiar polarities from the majority and (main) concurring opinions in Texas. Fairfield Ins. Co. v. Stephens Martin Paving LP (Texas Feb. 15, 2008).
What I would add is that the data and more rigorous theoretical analyses do not suggest there is a major "moral hazard" problem in liability insurance, see C. Heimer, Reactive Risk and Rational Action: Managing Moral Hazard in Insurance Contracts (1985). And courts should not assume a set of governing facts without evidence (for given the data here the easy assumption that allowing indemnification "encourages" misconduct is surely problematic and not a proper subject for judicial notice). This is not to suggest that there isn't lazy underwriting -- insurers should vet their potential insureds to see if they might be the kind of of folks or companies to engage in misdeeds. But as the Texas majority holds, the principle of freedom of contract should allow whatever coverage is provided by the contract terms -- and if insurers do not want to cover punitive damages in their policies, they can say that.
Posted by Marc Mayerson at February 18, 2008 3:59 PM | Add New Comment
Cleaning Up the Mess in Texas: Insurer Funding Payment of Liability Claims When Coverage Is Doubted
In May 2005, the Texas Supreme Court unanimously held that a liability insurer that voluntarily settles a claim against an insured may recover the payment against its own insured if it proves that the claim is uncovered and it reserved its right to seek recoupment. The Texas Supreme Court, while unanimous in result, was badly splintered in rationale.
Two years ago, the Court granted rehearing. Yesterday, the Court changed course, with a majority ruling that an insurer does not have a unilateral right or an equitable claim to recover a settlement payment. Excess Underwriters v. Frank's Casing (Tex. Feb. 1, 2008). The court reaffirmed its prior decision in Matagorda County, which barred a primary insurer from seeking recoupment of defense cost. Recent case law in other jurisdictions have split on the issue, but the more robust recent opinions (Illinois, Massachusetts, Wyoming) line up with Texas.
Posted by Marc Mayerson at February 2, 2008 9:03 AM | Add New Comment
The Covenant to Provide Notice: Materiality or Prejudice Needed To Refuse Payment
Sometimes courts get it right, both analytically and in the result. This was true in the landmark decision of the Texas Supreme Court in PAJ, Inc. v. Hanover Insurance Co. (Texas Jan. 11, 2008). In this case, the Texas court holds that “an insured’s failure to timely notify its insurer of a claim or suit does not defeat coverage if the insurer was not prejudiced by the delay.” While I agree with the holding, what may be more significant is the court’s adoption of the right analytical approach, specifically, considering the notice provision as covenant whose breach discharges the insurance company’s performance only where that breach constitutes a material breach of the contract.
Continue reading "The Covenant to Provide Notice: Materiality or Prejudice Needed To Refuse Payment"
Posted by Marc Mayerson at January 16, 2008 2:09 PM | Add New Comment
A Dog in the Fight: Policyholder Interest in Inter-Insurer Disputes
When an insurer pays a policyholder’s claim, the insurer sometimes seeks to off-load that payment “vertically”, that is, by suing other insurance companies that issued lower-layer coverage, or “horizontally”, that is, by suing other insurance companies that issued coverage in other policy periods.
Continue reading "A Dog in the Fight: Policyholder Interest in Inter-Insurer Disputes"
Posted by Marc Mayerson at October 15, 2007 10:05 AM | Comments (2)
A Dog in the Fight: Policyholder Interest in Inter-Insurer Disputes
When an insurer pays a policyholder’s claim, the insurer sometimes seeks to off-load that payment “vertically”, that is, by suing other insurance companies that issued lower-layer coverage, or “horizontally”, that is, by suing other insurance companies that issued coverage in other policy periods.
Continue reading "A Dog in the Fight: Policyholder Interest in Inter-Insurer Disputes"
Posted by Marc Mayerson at October 15, 2007 10:05 AM | Comments (3)
The "Insurance Hoax" -- Insurers Paying Too Little and Too Late
Bloomberg recently published a hard-hitting piece decrying the property-casualty industry's claims-handling practices. Insurers perceive that the article to punches below the belt, as this response from the Insurance Information Institute shows. The III piece is interesting to me because of its immoderate tone, something at odds with most of the writing that comes from III, which is a great source of financial statistics in particular on the performance of the P-C insurance industry. While the III is certainly right that insurers pay claims every day, the III and the rest of the industry need to recognize the wide-spread perception that at the point of claim insurers adopt an adversarial posture. Experienced, thoughtful observers of the industry have written about this at length (and the linked article is I think the most important thing ever written on the P-C industry), and the point of first-party insurance bad-faith law in part is to counterbalance the power imbalance that insurers hold over their insureds at the time of claim -- at the time their insureds are most in need and dependent on their performance, which explains the emotional oomph that typifies through-the-eyes-of-insureds' reporting on insurers' claims-paying (or claims-denying) practices.
I agree with the III that the Bloomberg story is too facile, and it is inappropriate to leap from the observation that an insurer paying less than what the policyholder wanted ineluctably means that the insurer is paying less than what the policyholder deserved. I recently suffered a major homeowners' loss when a (crazed) intruder broke into my home and caused huge amounts of damage; our insurer was fantastic in dispatching someone to board up a broken door, arrange for a contractor to do repair work, and reimburse us for other loss (including paying the vendor of our choice on some home electronics). So I know first hand that insurers can ride to the rescue, treat their customers with "good hands," and live up to their advertising slogans. On the other hand, I bring suits against insurers on behalf of clients when I think amounts are owed and unpaid, and I am kept busy by wrongful denials by insurers inflicted against my corporate clients (both large and small). At a time when respected news outlets like Bloomberg (and CNN and PBS) feel comfortable producing pieces that seem well suited to the Fight Bad Faith Insurance Companies website, the insurance industry should look deep into its practices and understand the perceptions of consumers and businesses to ensure that insurers' historic mission of helping their insureds, being "there" in the time of need, is embraced and, more importantly, put into practice every day in paying claims.
Posted by Marc Mayerson at August 30, 2007 1:06 PM | Comments (6)
The "Insurance Hoax" -- Insurers Paying Too Little and Too Late
Bloomberg recently published a hard-hitting piece decrying the property-casualty industry's claims-handling practices. Insurers perceive that the article to punches below the belt, as this response from the Insurance Information Institute shows. The III piece is interesting to me because of its immoderate tone, something at odds with most of the writing that comes from III, which is a great source of financial statistics in particular on the performance of the P-C insurance industry. While the III is certainly right that insurers pay claims every day, the III and the rest of the industry need to recognize the wide-spread perception that at the point of claim insurers adopt an adversarial posture. Experienced, thoughtful observers of the industry have written about this at length (and the linked article is I think the most important thing ever written on the P-C industry), and the point of first-party insurance bad-faith law in part is to counterbalance the power imbalance that insurers hold over their insureds at the time of claim -- at the time their insureds are most in need and dependent on their performance, which explains the emotional oomph that typifies through-the-eyes-of-insureds' reporting on insurers' claims-paying (or claims-denying) practices.
I agree with the III that the Bloomberg story is too facile, and it is inappropriate to leap from the observation that an insurer paying less than what the policyholder wanted ineluctably means that the insurer is paying less than what the policyholder deserved. I recently suffered a major homeowners' loss when a (crazed) intruder broke into my home and caused huge amounts of damage; our insurer was fantastic in dispatching someone to board up a broken door, arrange for a contractor to do repair work, and reimburse us for other loss (including paying the vendor of our choice on some home electronics). So I know first hand that insurers can ride to the rescue, treat their customers with "good hands," and live up to their advertising slogans. On the other hand, I bring suits against insurers on behalf of clients when I think amounts are owed and unpaid, and I am kept busy by wrongful denials by insurers inflicted against my corporate clients (both large and small). At a time when respected news outlets like Bloomberg (and CNN and PBS) feel comfortable producing pieces that seem well suited to the Fight Bad Faith Insurance Companies website, the insurance industry should look deep into its practices and understand the perceptions of consumers and businesses to ensure that insurers' historic mission of helping their insureds, being "there" in the time of need, is embraced and, more importantly, put into practice every day in paying claims.
Posted by Marc Mayerson at August 30, 2007 1:06 PM | Comments (8)
Product Recalls
Product-recall expense can prove increasingly expensive in this time of international distribution, just-in-time inventories, far-flung shipping, and the like. Of course, the current poster child is Mattel, which seems to be doing a very good job in managing the recall of some of its Chinese-made toys. Policies today routinely seek to exclude the cost of product-recall expense, which can be staggering and life-threatening to a company -- both in terms of cost and perhaps more importantly in reputation of the producer. Speciality policies exist to deal with various types of recalls, and there has been litigation concerning product-tampering coverage and the more traditional liability insurance coverage and the scope of the product-recall exclusion (known in the trade as the "sistership" exclusion). The current wave of recalls involving Chinese-made products may well stimulate demand for this product, but I would not be surprised to see provenance exclusions developed or warranties required from assured as to quality control and quality assurance from their foreign contractors.
Posted by Marc Mayerson at August 29, 2007 11:55 AM | Add New Comment
Product Recalls
Product-recall expense can prove increasingly expensive in this time of international distribution, just-in-time inventories, far-flung shipping, and the like. Of course, the current poster child is Mattel, which seems to be doing a very good job in managing the recall of some of its Chinese-made toys. Policies today routinely seek to exclude the cost of product-recall expense, which can be staggering and life-threatening to a company -- both in terms of cost and perhaps more importantly in reputation of the producer. Speciality policies exist to deal with various types of recalls, and there has been litigation concerning product-tampering coverage and the more traditional liability insurance coverage and the scope of the product-recall exclusion (known in the trade as the "sistership" exclusion). The current wave of recalls involving Chinese-made products may well stimulate demand for this product, but I would not be surprised to see provenance exclusions developed or warranties required from assured as to quality control and quality assurance from their foreign contractors.
Posted by Marc Mayerson at August 29, 2007 11:55 AM | Comments (1)
A Man, A Plan, A Canal -- A Flood
No one should be surprised that the United States Court of Appeals today reversed the decision of the Louisiana District Court on whether losses occasioned by rising water in New Orleans was the result of a "flood" and thus excluded from coverage under several different forms of "flood" exclusion. The case, In Re Katrina Canal Breaches Litigation (5th Cir. Aug. 2, 2007), centered on whether the negligence in the design and construction of the levees that allowed water to escape from the protective flood-control system should be considered to be the operative event for insurance purposes, such that the water damage resulting cannot be said to have arisen from a "flood." The Fifth Circuit ruled that "even if the plaintiffs can prove that the levees were negligently designed, constructed, or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs' policies unambiguously preclude their recovery."
Continue reading "A Man, A Plan, A Canal -- A Flood"
Posted by Marc Mayerson at August 2, 2007 3:43 PM | Comments (2)
A Man, A Plan, A Canal -- A Flood
No one should be surprised that the United States Court of Appeals today reversed the decision of the Louisiana District Court on whether losses occasioned by rising water in New Orleans was the result of a "flood" and thus excluded from coverage under several different forms of "flood" exclusion. The case, In Re Katrina Canal Breaches Litigation (5th Cir. Aug. 2, 2007), centered on whether the negligence in the design and construction of the levees that allowed water to escape from the protective flood-control system should be considered to be the operative event for insurance purposes, such that the water damage resulting cannot be said to have arisen from a "flood." The Fifth Circuit ruled that "even if the plaintiffs can prove that the levees were negligently designed, constructed, or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs' policies unambiguously preclude their recovery."
Continue reading "A Man, A Plan, A Canal -- A Flood"
Posted by Marc Mayerson at August 2, 2007 3:43 PM | Comments (2)
Blawgworld 2007
I am gratified to report that Insurance Scrawl was included in Blawgworld 2007, a very lengthy "e book" in .pdf format that collects a number of articles or blog entries from 2006 for inclusion in one handy collection. My contribution, originally published here, concerns the role in bad-faith cases of coverage counsel who manages a claim, focusing on the question whether counsel is a necessary trial witness and disqualifies him or her from continuing to represent the client. The piece further discusses whether the back-and-forth between a policyholder and its carrier -- even where conducted outside-lawyer to outside-lawyer -- constitutes evidence admissible at trial of the bad-faith claim, even if the inaptly called "settlement privilege" would preclude its introduction as evidence on the principal contract claim regarding coverage. I selected the piece for inclusion in this collection because I thought it highlights an interesting and different angle that reflects some of the intellectual ground I try to stake out marrying granular detail of doctrine with the practicalities facing lawyers in this field. I'm please to remind previous readers of the piece as originally published and to introduce new readers to it.
No doubt that any collection such as BlawgWorld will omit many fine commentators, but I take as the project's point more to show off the range and diversity of this newer forum for discussion writ large and to encourage lawyers -- who strike all of us legal bloggers as ideal readers and competitors -- to take advantage of the considerable benefits these vectors of communication present. I certainly spend at least 30 minutes a day cruising through various blog entries in the US, UK, and Canada, as well as news sources that utilize an RSS feed, to keep up on the most current developments and to stimulate my own thinking. I find this work is more effective at keeping up to date on legal developments than just about any other mode of communication, and the manner in which people write in BlawgWorld makes ingesting that information easy.
You are cordially invited to find materials in which you have an interest -- and if the right stuff does not already exist out there then, by gum, you've got the tools via blogging to start your own printing press too and get into and shape the conversation, the practice of law, public policy, and court decisions, too.
Posted by Marc Mayerson at July 30, 2007 10:41 PM | Add New Comment
Blawgworld 2007
I am gratified to report that Insurance Scrawl was included in Blawgworld 2007, a very lengthy "e book" in .pdf format that collects a number of articles or blog entries from 2006 for inclusion in one handy collection. My contribution, originally published here, concerns the role in bad-faith cases of coverage counsel who manages a claim, focusing on the question whether counsel is a necessary trial witness and disqualifies him or her from continuing to represent the client. The piece further discusses whether the back-and-forth between a policyholder and its carrier -- even where conducted outside-lawyer to outside-lawyer -- constitutes evidence admissible at trial of the bad-faith claim, even if the inaptly called "settlement privilege" would preclude its introduction as evidence on the principal contract claim regarding coverage. I selected the piece for inclusion in this collection because I thought it highlights an interesting and different angle that reflects some of the intellectual ground I try to stake out marrying granular detail of doctrine with the practicalities facing lawyers in this field. I'm please to remind previous readers of the piece as originally published and to introduce new readers to it.
No doubt that any collection such as BlawgWorld will omit many fine commentators, but I take as the project's point more to show off the range and diversity of this newer forum for discussion writ large and to encourage lawyers -- who strike all of us legal bloggers as ideal readers and competitors -- to take advantage of the considerable benefits these vectors of communication present. I certainly spend at least 30 minutes a day cruising through various blog entries in the US, UK, and Canada, as well as news sources that utilize an RSS feed, to keep up on the most current developments and to stimulate my own thinking. I find this work is more effective at keeping up to date on legal developments than just about any other mode of communication, and the manner in which people write in BlawgWorld makes ingesting that information easy.
You are cordially invited to find materials in which you have an interest -- and if the right stuff does not already exist out there then, by gum, you've got the tools via blogging to start your own printing press too and get into and shape the conversation, the practice of law, public policy, and court decisions, too.
Posted by Marc Mayerson at July 30, 2007 10:41 PM | Add New Comment
Discovery of NMA Wordings for Lloyd's Policies
One difficulty in pursuing London market insurance recovery has been putting together what the actual wording of the insurance contract was. While there have been efforts afoot to move toward "contract certainty," that is, to finalize the actual wordings in advance of the effective date of the policy, this aspiration seems to remain elusive in implementation. As a result, what one usually has is a "slip," which is essentially a commitment to contract where syndicates at Lloyd's indicate the proposed share the syndicate is willing to accept in the proposed policy (as indicated by the underwriter's "scratch", i.e., initials or imprimatur) and a general statement of what the policy wording is expected to be (a list of major terms, exclusions, and the like).
Continue reading "Discovery of NMA Wordings for Lloyd's Policies"
Posted by Marc Mayerson at July 13, 2007 9:09 AM | Comments (1)
Discovery of NMA Wordings for Lloyd's Policies
One difficulty in pursuing London market insurance recovery has been putting together what the actual wording of the insurance contract was. While there have been efforts afoot to move toward "contract certainty," that is, to finalize the actual wordings in advance of the effective date of the policy, this aspiration seems to remain elusive in implementation. As a result, what one usually has is a "slip," which is essentially a commitment to contract where syndicates at Lloyd's indicate the proposed share the syndicate is willing to accept in the proposed policy (as indicated by the underwriter's "scratch", i.e., initials or imprimatur) and a general statement of what the policy wording is expected to be (a list of major terms, exclusions, and the like).
Continue reading "Discovery of NMA Wordings for Lloyd's Policies"
Posted by Marc Mayerson at July 13, 2007 9:09 AM | Comments (1)
On Suits and Prophylactics: Recurring Environmental Coverage Issues
Commercial general liability policies provide coverage for the insured’s liability for “damages” on account of bodily injury and property damage and require the insurer to provide a defense to “suits” seeking such damages. Since the beginning of the environmental liability coverage wars some twenty-five years ago, insurers have disputed whether their insureds’ environmental liabilities seek to impose “damages”, are on account of “property damage,” and are adjudicated in the context of “suit[s].” Recent cases have continued to address these recurring issues.
Continue reading "On Suits and Prophylactics: Recurring Environmental Coverage Issues"
Posted by Marc Mayerson at May 22, 2007 12:31 AM | Comments (1)
On Suits and Prophylactics: Recurring Environmental Coverage Issues
Commercial general liability policies provide coverage for the insured’s liability for “damages” on account of bodily injury and property damage and require the insurer to provide a defense to “suits” seeking such damages. Since the beginning of the environmental liability coverage wars some twenty-five years ago, insurers have disputed whether their insureds’ environmental liabilities seek to impose “damages”, are on account of “property damage,” and are adjudicated in the context of “suit[s].” Recent cases have continued to address these recurring issues.
Continue reading "On Suits and Prophylactics: Recurring Environmental Coverage Issues"
Posted by Marc Mayerson at May 22, 2007 12:31 AM | Comments (1)
Odoriferous Occurrence
Anaerobic decomposition produces among other things hydrogen sulfide gas. It is this gas that makes flatulents distinctive from, shall we say, the bouquet of a rose. This was illustrated in a recent coverage case involving a Minnesota pig farm that created a concrete lagoon with capacity to hold 1.5 million gallons of manure. Three-quarters of a mile away was a neighbor’s home.
Continue reading "Odoriferous Occurrence"
Posted by Marc Mayerson at May 21, 2007 2:04 PM | Add New Comment
Odoriferous Occurrence
Anaerobic decomposition produces among other things hydrogen sulfide gas. It is this gas that makes flatulents distinctive from, shall we say, the bouquet of a rose. This was illustrated in a recent coverage case involving a Minnesota pig farm that created a concrete lagoon with capacity to hold 1.5 million gallons of manure. Three-quarters of a mile away was a neighbor’s home.
Continue reading "Odoriferous Occurrence"
Posted by Marc Mayerson at May 21, 2007 2:04 PM | Add New Comment
Appraising Appraisers and Appraisals
In many property-insurance policies, a party has a right to demand an appraisal, which is procedure in which the value of lost or damaged property is determined. Typically, an appraisal takes the form of what I call a 1 + 1 + 1 structure – each party appoints its own appraiser, and if the two party-appointed appraisers cannot agree on a number the two together then select an umpire (or a court will select an umpire to decide if the two cannot agree on one). That some form of alternative dispute resolution is used for valuation, however, does not mean that there is no room for judicial intervention in disputes involving insurance policies with appraisal provisions.
Continue reading "Appraising Appraisers and Appraisals"
Posted by Marc Mayerson at March 2, 2007 11:51 PM | Comments (7)
Appraising Appraisers and Appraisals
In many property-insurance policies, a party has a right to demand an appraisal, which is procedure in which the value of lost or damaged property is determined. Typically, an appraisal takes the form of what I call a 1 + 1 + 1 structure – each party appoints its own appraiser, and if the two party-appointed appraisers cannot agree on a number the two together then select an umpire (or a court will select an umpire to decide if the two cannot agree on one). That some form of alternative dispute resolution is used for valuation, however, does not mean that there is no room for judicial intervention in disputes involving insurance policies with appraisal provisions.
Continue reading "Appraising Appraisers and Appraisals"
Posted by Marc Mayerson at March 2, 2007 11:51 PM | Comments (7)
Does a Court's (Reversed) Disparagement of the Policyholder's Coverage Claim Alone Eviscerate Its Bad-Faith Claim?
A common enough scenario in a liability-insurance case: the parties file cross-motions for summary judgment, with the insurer arguing it has no duty to defend. In Acme United Corp. v. St. Paul Fire & Marine Ins. Co. (7th Cir. Jan. 9, 2007), the question presented was whether an advertising injury liability insurance policy provided coverage for a suit against the insured for product disparagement. In Acme, the district court accepted the argument of the insurer, thus cutting off the ability of the policyholder to obtain recovery of the defense costs it had run up. Where, as here, the appellate court reverses and finds coverage, does the district court's now-reversed ruling effectively impale the policyholder's bad-faith claim?
Posted by Marc Mayerson at February 18, 2007 11:02 PM | Comments (2)
Does a Court's (Reversed) Disparagement of the Policyholder's Coverage Claim Alone Eviscerate Its Bad-Faith Claim?
A common enough scenario in a liability-insurance case: the parties file cross-motions for summary judgment, with the insurer arguing it has no duty to defend. In Acme United Corp. v. St. Paul Fire & Marine Ins. Co. (7th Cir. Jan. 9, 2007), the question presented was whether an advertising injury liability insurance policy provided coverage for a suit against the insured for product disparagement. In Acme, the district court accepted the argument of the insurer, thus cutting off the ability of the policyholder to obtain recovery of the defense costs it had run up. Where, as here, the appellate court reverses and finds coverage, does the district court's now-reversed ruling effectively impale the policyholder's bad-faith claim?
Posted by Marc Mayerson at February 18, 2007 11:02 PM | Comments (2)
Insurers' Duty to Defend their Insureds Against Intentional Torts
The duty to defend undertaken by an insurance company is an essential component of the “peace of mind” coverage provided by liability insurance protection. Given the breadth with which the duty to defend is ordinarily construed by the courts, the defense-cost coverage of a policy is also referred to as “litigation insurance,” that is, insurance against the risk and burden of suits brought against the insured. Disputes have raged over whether that litigation insurance applies, however, to suits against the insured alleging an – or only – intentional tort.
Continue reading "Insurers' Duty to Defend their Insureds Against Intentional Torts"
Posted by Marc Mayerson at February 10, 2007 11:52 PM | Comments (3)
Insurers' Duty to Defend their Insureds Against Intentional Torts
The duty to defend undertaken by an insurance company is an essential component of the “peace of mind” coverage provided by liability insurance protection. Given the breadth with which the duty to defend is ordinarily construed by the courts, the defense-cost coverage of a policy is also referred to as “litigation insurance,” that is, insurance against the risk and burden of suits brought against the insured. Disputes have raged over whether that litigation insurance applies, however, to suits against the insured alleging an – or only – intentional tort.
Continue reading "Insurers' Duty to Defend their Insureds Against Intentional Torts"
Posted by Marc Mayerson at February 10, 2007 11:52 PM | Comments (3)
Cone of Silence or Echo Chamber: A Policyholder’s Privileged Communications and its Insurers
An insurance company that receives a claim from one of its policyholders inevitably wears both a white hat and a black one. The insurer is there to help its insured deal with the claim – it may dispatch claims handlers or service providers to help the policyholder in its time of need; the insurer, however, also is the insured’s adversary in the sense that it must determine whether it has any obligation to pay the insured. To the latter extent, the insured and the insurer have directly adverse interests. (The law of first-party insurance bad faith is predicated on the recognition in part of this fundamental adversity of interests between the insurer and its insured, especially at the precise moment when the insured is calling upon the insurer for performance.)
The insurer’s wearing two hats poses the opportunity for mischief when those roles get confused or blurred. Take the example of a defense lawyer hired by an insurance company to defend the insured: the defense attorney plainly has an attorney-client relationship with the insured, the touchstone of which is confidentiality. Assume that the defense lawyer is told a fact by the insured that supports the insurer’s denying coverage: the insured confesses to being drunk while driving, the insured acknowledges that it knew of a latent problem before it purchased the policy, or the insured knew of the potential claim against it for a long time but had simply hoped it would go away and so did not notify the insurer sooner. The insurance company might wish to learn of this fact because it might permit it to terminate its defense obligation and avoid paying anything on the claim. In these circumstances, may the defense counsel tell the insurance company about this admission from the insured?
Posted by Marc Mayerson at January 21, 2007 4:08 PM | Comments (8)
Cone of Silence or Echo Chamber: A Policyholder’s Privileged Communications and its Insurers
An insurance company that receives a claim from one of its policyholders inevitably wears both a white hat and a black one. The insurer is there to help its insured deal with the claim – it may dispatch claims handlers or service providers to help the policyholder in its time of need; the insurer, however, also is the insured’s adversary in the sense that it must determine whether it has any obligation to pay the insured. To the latter extent, the insured and the insurer have directly adverse interests. (The law of first-party insurance bad faith is predicated on the recognition in part of this fundamental adversity of interests between the insurer and its insured, especially at the precise moment when the insured is calling upon the insurer for performance.)
The insurer’s wearing two hats poses the opportunity for mischief when those roles get confused or blurred. Take the example of a defense lawyer hired by an insurance company to defend the insured: the defense attorney plainly has an attorney-client relationship with the insured, the touchstone of which is confidentiality. Assume that the defense lawyer is told a fact by the insured that supports the insurer’s denying coverage: the insured confesses to being drunk while driving, the insured acknowledges that it knew of a latent problem before it purchased the policy, or the insured knew of the potential claim against it for a long time but had simply hoped it would go away and so did not notify the insurer sooner. The insurance company might wish to learn of this fact because it might permit it to terminate its defense obligation and avoid paying anything on the claim. In these circumstances, may the defense counsel tell the insurance company about this admission from the insured?
Posted by Marc Mayerson at January 21, 2007 4:08 PM | Comments (8)
‘Round and ‘Round the Tort Liability Goes – When It Stops, Whither the Insurance Chose?
Generally, the law allows “choses in action” to be alienated (sold). This is a change that has been adopted over the course of the last 100 years or more. See W.W. Cook, The Alienability of Choses in Action, 29 Harv. L. Rev. 816 (1916). Because claims under insurance contracts properly viewed are choses in action, (Black’s Law Dictionary (5th ed. 1979) at 219), most courts have allowed insurance claims to be sold, too, even when the transaction takes the form of an “assignment.”
Posted by Marc Mayerson at December 26, 2006 6:02 PM | Comments (2)
‘Round and ‘Round the Tort Liability Goes – When It Stops, Whither the Insurance Chose?
Generally, the law allows “choses in action” to be alienated (sold). This is a change that has been adopted over the course of the last 100 years or more. See W.W. Cook, The Alienability of Choses in Action, 29 Harv. L. Rev. 816 (1916). Because claims under insurance contracts properly viewed are choses in action, (Black’s Law Dictionary (5th ed. 1979) at 219), most courts have allowed insurance claims to be sold, too, even when the transaction takes the form of an “assignment.”
Posted by Marc Mayerson at December 26, 2006 6:02 PM | Comments (2)
Caveat Advocat: Defense Lawyers as Coverage Lawyers
While insurance-coverage law has developed over the last 20 years into a rarefied specialty practice, lawyers who handle the defense of liability cases cannot punt on considering coverage issues – or they risk malpractice claims by their disgruntled clients. The New York Appellate Division recently confirmed that defense counsel may be exposed for failing to investigate the possibility of coverage – even where defense counsel has been retained by another insurance company for the benefit of the insured defendant.
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Posted by Marc Mayerson at December 23, 2006 6:03 PM | Comments (1)
Caveat Advocat: Defense Lawyers as Coverage Lawyers
While insurance-coverage law has developed over the last 20 years into a rarefied specialty practice, lawyers who handle the defense of liability cases cannot punt on considering coverage issues – or they risk malpractice claims by their disgruntled clients. The New York Appellate Division recently confirmed that defense counsel may be exposed for failing to investigate the possibility of coverage – even where defense counsel has been retained by another insurance company for the benefit of the insured defendant.
Continue reading "Caveat Advocat: Defense Lawyers as Coverage Lawyers"
Posted by Marc Mayerson at December 23, 2006 6:03 PM | Comments (1)
Now You See It, Now You Don’t: Payments Received from Insolvent Insurers
Insurers collect premiums, invest them, incur overhead, and pay claims. Sometimes this life cycle gets out of whack, leading to the voluntary or forced insolvency of an insurance company. Whenever an insolvency occurs, one job of the rehabilitator or liquidator is to equitably distribute whatever money is available to the policyholders with unpaid claims in the queue. And a policyholder that already received payment from the insurer may be required to disgorge those monies back to the estate if it is found that the claim payment constitutes a preference.
Continue reading "Now You See It, Now You Don’t: Payments Received from Insolvent Insurers"
Posted by Marc Mayerson at November 17, 2006 1:10 AM | Comments (1)
Now You See It, Now You Don’t: Payments Received from Insolvent Insurers
Insurers collect premiums, invest them, incur overhead, and pay claims. Sometimes this life cycle gets out of whack, leading to the voluntary or forced insolvency of an insurance company. Whenever an insolvency occurs, one job of the rehabilitator or liquidator is to equitably distribute whatever money is available to the policyholders with unpaid claims in the queue. And a policyholder that already received payment from the insurer may be required to disgorge those monies back to the estate if it is found that the claim payment constitutes a preference.
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Posted by Marc Mayerson at November 17, 2006 1:10 AM | Comments (1)
Trigger and Allocation for Asbestos, Other Bodily Injury, and Property Damage: Recent Cases and the Policyholders' Winning Argument
“Who pays” and “how much” continue to be central questions in insurance-recovery litigation by policyholders for asbestos, environmental clean up, pharmaceutical, lead-paint, toxic-tort and other conditions that produce loss over time. Because insurance contracts are governed by state law, the coverage wars apparently will continue until each inch of turf is won or lost. Most recently, the Delaware Supreme Court has weighed in on the question of trigger of coverage (“who pays”) for asbestos- liability claims, the Minnesota Supreme Court has addressed allocation of loss (“how much”) among triggered policies, and the New Hampshire Supreme Court has now been asked to address the allocation question, too.
Posted by Marc Mayerson at October 26, 2006 4:24 PM | Comments (4)
Trigger and Allocation for Asbestos, Other Bodily Injury, and Property Damage: Recent Cases and the Policyholders' Winning Argument
“Who pays” and “how much” continue to be central questions in insurance-recovery litigation by policyholders for asbestos, environmental clean up, pharmaceutical, lead-paint, toxic-tort and other conditions that produce loss over time. Because insurance contracts are governed by state law, the coverage wars apparently will continue until each inch of turf is won or lost. Most recently, the Delaware Supreme Court has weighed in on the question of trigger of coverage (“who pays”) for asbestos- liability claims, the Minnesota Supreme Court has addressed allocation of loss (“how much”) among triggered policies, and the New Hampshire Supreme Court has now been asked to address the allocation question, too.
Posted by Marc Mayerson at October 26, 2006 4:24 PM | Comments (4)
Berkshire Hath A Way Out for Equitas and Lloyd’s
A long-rumoured transaction between Equitas and Warren Buffett’s Berkshire Hathaway has been announced. This will be a two-step transaction whereby (1) Equitas will be absorbed into a National Indemnity Company subsidiary in exchange for a cash payment and a promise of providing additional reinsurance and (2) a channeling injunction will be obtained cutting off the exposure of Equitas, Lloyd’s, names, and Berkshire beyond the money in the new vehicle. If consummated, the deal will achieve the long-sought finality for names (the individual investors on the responsible pre-1992 syndicate years of account) and for the current Lloyd’s enterprise.
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Posted by Marc Mayerson at October 20, 2006 1:58 PM | Comments (11)
Berkshire Hath A Way Out for Equitas and Lloyd’s
A long-rumoured transaction between Equitas and Warren Buffett’s Berkshire Hathaway has been announced. This will be a two-step transaction whereby (1) Equitas will be absorbed into a National Indemnity Company subsidiary in exchange for a cash payment and a promise of providing additional reinsurance and (2) a channeling injunction will be obtained cutting off the exposure of Equitas, Lloyd’s, names, and Berkshire beyond the money in the new vehicle. If consummated, the deal will achieve the long-sought finality for names (the individual investors on the responsible pre-1992 syndicate years of account) and for the current Lloyd’s enterprise.
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Posted by Marc Mayerson at October 20, 2006 1:58 PM | Comments (11)
The Duty to Defend Class-Action Claims (Before a Class with Covered Claimants Is Certified)
A liability insurer’s promise to defend its insured is at the core of the protection purchased by policyholders and, in most states, the insurer will be required to defend any suit alleging facts that possibly could result in a judgment against the insured that would be covered by the policy’s duty to indemnify. A duty to defend will be found where the undisputed facts surrounding a claim – typically the language of the policy and the allegations of the complaint – permit proof of a claim potentially covered by the duty to indemnify. The complaint-allegations test, or what some jurisdictions term the eight-corners rule, results in the duty to defend being found by courts easily, commensurate with the broad contract language and the policy’s intention to afford the insured “litigation insurance” protecting against the risk and burden of litigation.
In any given liability case, the insured defendant might win, in which event no indemnity would be required, or the insured defendant might lose the case on a ground that is outside the scope of coverage; nothwithstanding the possibility of results where the insurer will not have a duty to indemnify the policyholder, the insurer still has a duty to assume the defense, which matures at the outset of the liability case. Because the duty to defend arises based on the possibility of the duty to indemnify a complaint, rather than based on a prediction of the likely outcome or indeed the actual outcome, we typically say that the duty to defend is broader than is the duty to indemnify.
Although an insurer's duty to defend will be triggered if the allegations raise the possibility of a duty to indemnify, sometimes
the complaint is unclear whether nestled within the allegations is a potentially covered claim. An interesting take on the issue arose in a recent Eleventh Circuit decision, Hartford Acc. & Indem. Co. v. Beaver (11 Cir. Oct. 16, 2006).
Posted by Marc Mayerson at October 18, 2006 5:10 PM | Add New Comment
The Duty to Defend Class-Action Claims (Before a Class with Covered Claimants Is Certified)
A liability insurer’s promise to defend its insured is at the core of the protection purchased by policyholders and, in most states, the insurer will be required to defend any suit alleging facts that possibly could result in a judgment against the insured that would be covered by the policy’s duty to indemnify. A duty to defend will be found where the undisputed facts surrounding a claim – typically the language of the policy and the allegations of the complaint – permit proof of a claim potentially covered by the duty to indemnify. The complaint-allegations test, or what some jurisdictions term the eight-corners rule, results in the duty to defend being found by courts easily, commensurate with the broad contract language and the policy’s intention to afford the insured “litigation insurance” protecting against the risk and burden of litigation.
In any given liability case, the insured defendant might win, in which event no indemnity would be required, or the insured defendant might lose the case on a ground that is outside the scope of coverage; nothwithstanding the possibility of results where the insurer will not have a duty to indemnify the policyholder, the insurer still has a duty to assume the defense, which matures at the outset of the liability case. Because the duty to defend arises based on the possibility of the duty to indemnify a complaint, rather than based on a prediction of the likely outcome or indeed the actual outcome, we typically say that the duty to defend is broader than is the duty to indemnify.
Although an insurer's duty to defend will be triggered if the allegations raise the possibility of a duty to indemnify, sometimes
the complaint is unclear whether nestled within the allegations is a potentially covered claim. An interesting take on the issue arose in a recent Eleventh Circuit decision, Hartford Acc. & Indem. Co. v. Beaver (11 Cir. Oct. 16, 2006).
Posted by Marc Mayerson at October 18, 2006 5:10 PM | Add New Comment
Trial Graphics in Insurance-Coverage Cases: Advocacy with Data and Pictures
A picture may be worth a thousand words, but trial lawyers do not have a set of ready principles for the development of the pictures – graphics – we use at trial. A bulleted-list of points displayed in PowerPoint is hardly a substitute for a well-designed graphic that communicates to the jury. Where allowed by the budget, lawyers will work with trial-graphics firms to assist in making pretty pictures. But the case should remain that of counsel, which means that counsel must take responsibility for the development of graphics for trial.
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Posted by Marc Mayerson at October 8, 2006 2:16 PM | Comments (9)
Trial Graphics in Insurance-Coverage Cases: Advocacy with Data and Pictures
A picture may be worth a thousand words, but trial lawyers do not have a set of ready principles for the development of the pictures – graphics – we use at trial. A bulleted-list of points displayed in PowerPoint is hardly a substitute for a well-designed graphic that communicates to the jury. Where allowed by the budget, lawyers will work with trial-graphics firms to assist in making pretty pictures. But the case should remain that of counsel, which means that counsel must take responsibility for the development of graphics for trial.
Continue reading "Trial Graphics in Insurance-Coverage Cases: Advocacy with Data and Pictures"
Posted by Marc Mayerson at October 8, 2006 2:16 PM | Comments (9)
What An Underwriter Wants: D&O Insurance Submissions and the Hunt for the Virtuous Insured
The negotiations of directors’ and officers’ policies tend to follow a bit of a different pattern from that in other lines of insurance, and the reason for this is plain: the insureds under these policies include the most important individuals at a company who are trying to cover their own assets. D&O negotiations for sophisticated companies often will involve not only price negotiations but an unusual amount of negotiations over wordings, too.
Posted by Marc Mayerson at September 15, 2006 9:43 AM | Comments (1)
What An Underwriter Wants: D&O Insurance Submissions and the Hunt for the Virtuous Insured
The negotiations of directors’ and officers’ policies tend to follow a bit of a different pattern from that in other lines of insurance, and the reason for this is plain: the insureds under these policies include the most important individuals at a company who are trying to cover their own assets. D&O negotiations for sophisticated companies often will involve not only price negotiations but an unusual amount of negotiations over wordings, too.
Posted by Marc Mayerson at September 15, 2006 9:43 AM | Comments (1)
Jury Instructions in Insurance-Coverage and Insurance Bad-Faith Cases
There is no formbook of jury instructions for complex insurance-coverage disputes, and even were there such a tome at best it would be a point of departure and not the destination. Complex insurance coverage disputes are marked by factual uncertainty, difficult legal terrain, and close parsing of issues. One mistake that lead counsel often makes in my view is not to personally take ownership of the jury instructions and instead delegates their preparation to the junior member of the team. Ultimately, it is the jury instructions that determine the case – and the appeal. Thus, it should be the responsibility of lead trial counsel to be intimately familiar with the drafting, submission, and argument over instructions to the jurors.
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Posted by Marc Mayerson at August 31, 2006 12:17 PM | Comments (1)
Jury Instructions in Insurance-Coverage and Insurance Bad-Faith Cases
There is no formbook of jury instructions for complex insurance-coverage disputes, and even were there such a tome at best it would be a point of departure and not the destination. Complex insurance coverage disputes are marked by factual uncertainty, difficult legal terrain, and close parsing of issues. One mistake that lead counsel often makes in my view is not to personally take ownership of the jury instructions and instead delegates their preparation to the junior member of the team. Ultimately, it is the jury instructions that determine the case – and the appeal. Thus, it should be the responsibility of lead trial counsel to be intimately familiar with the drafting, submission, and argument over instructions to the jurors.
Continue reading "Jury Instructions in Insurance-Coverage and Insurance Bad-Faith Cases"
Posted by Marc Mayerson at August 31, 2006 12:17 PM | Comments (1)
Conflict of Laws and Insurance Disputes: Choice of Law or Choice of Outcomes?
Most insurance policies are silent as to which state’s substantive law governs their terms. As a result, insurance-coverage lawyers often find ourselves deep into the world of choice of law and conflict of laws, a subject most of us sidestepped in our law-school education. Conflicts issues are (largely) untethered from the merits yet can be outcome determinative, so it is crucial to understand and focus on choice-of-law principles in complex insurance disputes, which can yield the application of different state laws within a single case to issues of contract formation, performance, and bad faith.
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Posted by Marc Mayerson at August 22, 2006 5:39 PM | Comments (3)
Conflict of Laws and Insurance Disputes: Choice of Law or Choice of Outcomes?
Most insurance policies are silent as to which state’s substantive law governs their terms. As a result, insurance-coverage lawyers often find ourselves deep into the world of choice of law and conflict of laws, a subject most of us sidestepped in our law-school education. Conflicts issues are (largely) untethered from the merits yet can be outcome determinative, so it is crucial to understand and focus on choice-of-law principles in complex insurance disputes, which can yield the application of different state laws within a single case to issues of contract formation, performance, and bad faith.
Continue reading "Conflict of Laws and Insurance Disputes: Choice of Law or Choice of Outcomes?"
Posted by Marc Mayerson at August 22, 2006 5:39 PM | Comments (3)
Additional Insured?: Defense Assured
Companies that work with each other share insurance through adding the other company as an “additional insured” in connection with their work together. Sometimes it is not clear that the claim falls within the scope of additional-insured coverage. The New York Appellate Division recently confronted whether an insurer had a duty to defend in those circumstances, answering the question that it does. BP A.C. Corp. v. One Beacon Ins. Group, 2006 NY Slip Op. 05297 (N.Y. App. Div., 1st Dept. July 6, 2006).
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Posted by Marc Mayerson at July 10, 2006 4:53 PM | Comments (3)
Additional Insured?: Defense Assured
Companies that work with each other share insurance through adding the other company as an “additional insured” in connection with their work together. Sometimes it is not clear that the claim falls within the scope of additional-insured coverage. The New York Appellate Division recently confronted whether an insurer had a duty to defend in those circumstances, answering the question that it does. BP A.C. Corp. v. One Beacon Ins. Group, 2006 NY Slip Op. 05297 (N.Y. App. Div., 1st Dept. July 6, 2006).
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Posted by Marc Mayerson at July 10, 2006 4:53 PM | Comments (3)
Equitas Financials -- 2006 Version
As part of the Reconstruction and Renewal of Lloyd’s in 1996, various participants in the Lloyd’s enterprise established several companies for the purpose of reinsuring the then-open syndicate years of account and managing the runoff of claims under those and prior years’ insurance policies. In 1997, the liabilities of a Lloyds’ owned-entity called Lioncover were reinsured into Equitas too.
Equitas issues an annual report and accompanying press release that discusses its results to date. Some of the highlights this year:
Continue reading "Equitas Financials -- 2006 Version"
Posted by Marc Mayerson at June 29, 2006 2:16 PM | Add New Comment
Equitas Financials -- 2006 Version
As part of the Reconstruction and Renewal of Lloyd’s in 1996, various participants in the Lloyd’s enterprise established several companies for the purpose of reinsuring the then-open syndicate years of account and managing the runoff of claims under those and prior years’ insurance policies. In 1997, the liabilities of a Lloyds’ owned-entity called Lioncover were reinsured into Equitas too.
Equitas issues an annual report and accompanying press release that discusses its results to date. Some of the highlights this year:
Continue reading "Equitas Financials -- 2006 Version"
Posted by Marc Mayerson at June 29, 2006 2:16 PM | Add New Comment
Running Out of Time: Statute of Limitations for Liability Insurance Policies
Liability-insurance policies were introduced in 1881, yet there is no great certainty in most states as to when the statute of limitations commences for bringing suit on an insurance policy for performance. Somewhat complicating matters – and simplifying it too – is the availability of declaratory relief, a remedy designed in part to pull insurance disputes into court. So to understand the application of statute of limitations in this context, one must draw distinctions among several concepts: (i) anticipatory repudiation of contract, which is considered a present breach of contract; (ii) anticipatory relief of seeking a declaration of rights before breach of contract; (iii) continuing breach of the duty to defend by an insurer; and (iv) breach of the duty to indemnify. The Alaska Supreme Court recently confronted these issues and elected to follow the California Supreme Court's approach to the questions presented.
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Posted by Marc Mayerson at June 13, 2006 3:36 PM | Add New Comment
Running Out of Time: Statute of Limitations for Liability Insurance Policies
Liability-insurance policies were introduced in 1881, yet there is no great certainty in most states as to when the statute of limitations commences for bringing suit on an insurance policy for performance. Somewhat complicating matters – and simplifying it too – is the availability of declaratory relief, a remedy designed in part to pull insurance disputes into court. So to understand the application of statute of limitations in this context, one must draw distinctions among several concepts: (i) anticipatory repudiation of contract, which is considered a present breach of contract; (ii) anticipatory relief of seeking a declaration of rights before breach of contract; (iii) continuing breach of the duty to defend by an insurer; and (iv) breach of the duty to indemnify. The Alaska Supreme Court recently confronted these issues and elected to follow the California Supreme Court's approach to the questions presented.
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Posted by Marc Mayerson at June 13, 2006 3:36 PM | Add New Comment
Discovery of Other-Insured Claim Files in Insurance and Bad-Faith Disputes
Among the typical skirmishes in insurance-coverage litigation is the scope of discovery. In seeking discovery in insurance-coverage cases and for insurance bad-faith claims, policyholders seek information from insurers about the underwriting of the policy at issue and the carrier’s handling of the policyholder’s claim for coverage. Disputes arise once the policyholder moves beyond those materials to information showing the general practice of the insurer, how the insurer’s response to the particular insured compares with how it has handled other claims, and the insurer’s own understanding of the policy language as evidenced through claims-handling manuals, training materials, and other types of interpretative aids. See generally Saldi v. Paul Revere Life Ins. Co., 224 F.R.D. 169 (E.D. Pa. 2004); Colonial Life v. Superior Court(Perry) 31 Cal. 3d 785 (1982); Carey-Canada v. Cal. Union Ins., 118 FRD 242 (D.D.C. 1986). One recurring subject has been other-claims information, that is, information in claim files dealing with other insureds.
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Posted by Marc Mayerson at June 5, 2006 5:05 PM | Comments (2)
Discovery of Other-Insured Claim Files in Insurance and Bad-Faith Disputes
Among the typical skirmishes in insurance-coverage litigation is the scope of discovery. In seeking discovery in insurance-coverage cases and for insurance bad-faith claims, policyholders seek information from insurers about the underwriting of the policy at issue and the carrier’s handling of the policyholder’s claim for coverage. Disputes arise once the policyholder moves beyond those materials to information showing the general practice of the insurer, how the insurer’s response to the particular insured compares with how it has handled other claims, and the insurer’s own understanding of the policy language as evidenced through claims-handling manuals, training materials, and other types of interpretative aids. See generally Saldi v. Paul Revere Life Ins. Co., 224 F.R.D. 169 (E.D. Pa. 2004); Colonial Life v. Superior Court(Perry) 31 Cal. 3d 785 (1982); Carey-Canada v. Cal. Union Ins., 118 FRD 242 (D.D.C. 1986). One recurring subject has been other-claims information, that is, information in claim files dealing with other insureds.
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Posted by Marc Mayerson at June 5, 2006 5:05 PM | Comments (2)
Late Notice by Liability Insurance Policyholders as Excuse Not to Pay – of Notice, Covenants, Conditions, Material Breaches, Innominate terms, and American versus English Law
Courts continue to struggle with claims where the policyholder may not have provided notice as soon as one might have liked, and the coverage litigation typically centers on whether the dispositive argument is “no harm, no foul” -- that is, policyholders will argue that coverage is not lost unless the insurer has been prejudiced in some fashion from the allegedly “late” notice. The Illinois Supreme Court and a Texas appellate court both have confronted this question recently, and these are largely consistent with recent holdings from New York’s highest court finding that the notice provision must be enforced as written – no ifs, ands or buts.
Posted by Marc Mayerson at May 27, 2006 10:13 PM | Comments (5)
Late Notice by Liability Insurance Policyholders as Excuse Not to Pay – of Notice, Covenants, Conditions, Material Breaches, Innominate terms, and American versus English Law
Courts continue to struggle with claims where the policyholder may not have provided notice as soon as one might have liked, and the coverage litigation typically centers on whether the dispositive argument is “no harm, no foul” -- that is, policyholders will argue that coverage is not lost unless the insurer has been prejudiced in some fashion from the allegedly “late” notice. The Illinois Supreme Court and a Texas appellate court both have confronted this question recently, and these are largely consistent with recent holdings from New York’s highest court finding that the notice provision must be enforced as written – no ifs, ands or buts.
Posted by Marc Mayerson at May 27, 2006 10:13 PM | Comments (5)
Taming the Lion(cover): Lioncover, Lloyd's, Equitas, and the Central Fund(s)
W. Mark Felt or Hal Holbrook playing him said to "follow the money," which has proven difficult in the instance of Lloyd's of London, and a task made all the more important as asbestos and environmental liabilities continue to fall upon corporate policyholders in the US that purchased broad insurance in the 1950s, 60s and 70s through the London market. While lawyers and policyholders may be familiar with Equitas, the reinsurance runoff and claims-handling vehicles set up in the late 1990s to deal with liabilities arising under historical Lloyd's policies, I have long believed that a key for litigators is something called Lioncover, a reinsurance vehicle originally set up to bailout important players at Lloyd's who were involved in Peter Cameron Webb "managed" syndicate years of account. Lioncover, which I understand to be a wholly owned subsidiary of the Corporation of Lloyd's and which houses the PCW business, initially was not reinsured into Equitas when Equitas was set up as part of the "Reconstruction and Renewal" of the Lloyd's operation. It was later poured into the Equitas structure but also is explicitly backed by the Lloyd's enterprise itself. Lioncover is a lever one can use to uncover the financial vehicles backing old Lloyd's policies (which contra to popular myth are not backed solely by the assets of Equitas or by the trust funds in the US). Lloyd's annual report for 2005 contains a few interesting crumbs worthy of note for Lloyd's/Equitas watchers.
Continue reading "Taming the Lion(cover): Lioncover, Lloyd's, Equitas, and the Central Fund(s)"
Posted by Marc Mayerson at May 17, 2006 12:54 PM | Comments (1)
Taming the Lion(cover): Lioncover, Lloyd's, Equitas, and the Central Fund(s)
W. Mark Felt or Hal Holbrook playing him said to "follow the money," which has proven difficult in the instance of Lloyd's of London, and a task made all the more important as asbestos and environmental liabilities continue to fall upon corporate policyholders in the US that purchased broad insurance in the 1950s, 60s and 70s through the London market. While lawyers and policyholders may be familiar with Equitas, the reinsurance runoff and claims-handling vehicles set up in the late 1990s to deal with liabilities arising under historical Lloyd's policies, I have long believed that a key for litigators is something called Lioncover, a reinsurance vehicle originally set up to bailout important players at Lloyd's who were involved in Peter Cameron Webb "managed" syndicate years of account. Lioncover, which I understand to be a wholly owned subsidiary of the Corporation of Lloyd's and which houses the PCW business, initially was not reinsured into Equitas when Equitas was set up as part of the "Reconstruction and Renewal" of the Lloyd's operation. It was later poured into the Equitas structure but also is explicitly backed by the Lloyd's enterprise itself. Lioncover is a lever one can use to uncover the financial vehicles backing old Lloyd's policies (which contra to popular myth are not backed solely by the assets of Equitas or by the trust funds in the US). Lloyd's annual report for 2005 contains a few interesting crumbs worthy of note for Lloyd's/Equitas watchers.
Continue reading "Taming the Lion(cover): Lioncover, Lloyd's, Equitas, and the Central Fund(s)"
Posted by Marc Mayerson at May 17, 2006 12:54 PM | Comments (1)
ACE's "Plea Agreement" with Law Enforcement and Regulators
Law enforcement, insurance regulators, and insurance-industry participants continue to collide regarding "contingent commissions" and bid rigging that occurred in US insurance markets in the 1990s and '00s. One insurer, Liberty Mutual, says it would rather fight than switch, and it has announced it will defend litigation brought by state attorneys general and insurance regulators. Most other insurers have sought to put the matter behind them.
For example, ACE Ltd. recently reached accord with the New York Attorney General's office and New York's insurance commissioner regarding its conduct principally regarding the broker Marsh and ACE's effort to expand its excess general-liability insurance business. (Illinois and Connecticut signed on, too). In a document whose title is rich in irony -- an "Assurance of Discontinuance and Voluntary Compliance" -- ACE undertakes to set up a compensation fund and to conform its future business practices. Review of the "Assurance of Discontinuance" provides rich, indeed stunning, detail into how business was done at the expense of corporate policyholders in particular whose premiums were sufficiently large as to make bid-rigging, kickbacks, lying, and cheating lucrative for the participants -- both the individuals whose bonuses and power reflected their success in business and the companies that employed them that generated large premiums from the widespread conspiracy and corruption endemic to the top-tier of the insurance brokerage industry and the insurers that paid them.
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Posted by Marc Mayerson at April 27, 2006 11:37 PM | Add New Comment
ACE's "Plea Agreement" with Law Enforcement and Regulators
Law enforcement, insurance regulators, and insurance-industry participants continue to collide regarding "contingent commissions" and bid rigging that occurred in US insurance markets in the 1990s and '00s. One insurer, Liberty Mutual, says it would rather fight than switch, and it has announced it will defend litigation brought by state attorneys general and insurance regulators. Most other insurers have sought to put the matter behind them.
For example, ACE Ltd. recently reached accord with the New York Attorney General's office and New York's insurance commissioner regarding its conduct principally regarding the broker Marsh and ACE's effort to expand its excess general-liability insurance business. (Illinois and Connecticut signed on, too). In a document whose title is rich in irony -- an "Assurance of Discontinuance and Voluntary Compliance" -- ACE undertakes to set up a compensation fund and to conform its future business practices. Review of the "Assurance of Discontinuance" provides rich, indeed stunning, detail into how business was done at the expense of corporate policyholders in particular whose premiums were sufficiently large as to make bid-rigging, kickbacks, lying, and cheating lucrative for the participants -- both the individuals whose bonuses and power reflected their success in business and the companies that employed them that generated large premiums from the widespread conspiracy and corruption endemic to the top-tier of the insurance brokerage industry and the insurers that paid them.
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Posted by Marc Mayerson at April 27, 2006 11:37 PM | Add New Comment
What You See Is Not What You Get: Renewal Policies
One aspect of insurance practice that I like is the seemingly unlimited number of nooks and crannies in insurance law. But like a tree falling in the forest, the existence of one pro-policyholder rule or another in a given state has little impact on human behavior -- or trial outcomes -- unless that rule is called upon. One such rule is the "renewal rule."
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Posted by Marc Mayerson at April 5, 2006 12:11 AM | Comments (3)
What You See Is Not What You Get: Renewal Policies
One aspect of insurance practice that I like is the seemingly unlimited number of nooks and crannies in insurance law. But like a tree falling in the forest, the existence of one pro-policyholder rule or another in a given state has little impact on human behavior -- or trial outcomes -- unless that rule is called upon. One such rule is the "renewal rule."
Continue reading "What You See Is Not What You Get: Renewal Policies"
Posted by Marc Mayerson at April 5, 2006 12:11 AM | Comments (3)
Blast Fax -- Policyholders Continue to Obtain Defense Coverage
The ongoing fights over coverage for junk faxes continue, with the trend favoring policyholders, most recently in the form of a US Court of Appeals for the Tenth Circuit decision, Park University Enterprises, Inc. v. American Cas. Co. (10th Cir. March 27, 2006).
A year ago at this time, policyholders began to feel more confident following an Eighth Circuit opinion that refused to follow negative decisions from the Seventh and Fourth Circuits; since then, the trend has continued to swing toward policyholders, at least insofar as they seek defense coverage to class actions alleging violations of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. 227.
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Posted by Marc Mayerson at March 29, 2006 11:57 AM | Add New Comment
Blast Fax -- Policyholders Continue to Obtain Defense Coverage
The ongoing fights over coverage for junk faxes continue, with the trend favoring policyholders, most recently in the form of a US Court of Appeals for the Tenth Circuit decision, Park University Enterprises, Inc. v. American Cas. Co. (10th Cir. March 27, 2006).
A year ago at this time, policyholders began to feel more confident following an Eighth Circuit opinion that refused to follow negative decisions from the Seventh and Fourth Circuits; since then, the trend has continued to swing toward policyholders, at least insofar as they seek defense coverage to class actions alleging violations of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. 227.
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Posted by Marc Mayerson at March 29, 2006 11:57 AM | Add New Comment
Witness for the Prosecution: Me!
Insurance lawyers face a dilemma in that we sometimes can be called as witnesses in bad-faith trials. As a result, policyholder counsel like me need to consider whether we should be the person who interacts with the insurance company’s representatives, for we risk being disqualified from serving as trial counsel for our clients.
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Posted by Marc Mayerson at March 19, 2006 3:41 PM | Comments (3)
Witness for the Prosecution: Me!
Insurance lawyers face a dilemma in that we sometimes can be called as witnesses in bad-faith trials. As a result, policyholder counsel like me need to consider whether we should be the person who interacts with the insurance company’s representatives, for we risk being disqualified from serving as trial counsel for our clients.
Continue reading "Witness for the Prosecution: Me!"
Posted by Marc Mayerson at March 19, 2006 3:41 PM | Comments (3)
Aloha to Unasserted Coverage Defenses: Waiver, Estoppel, and Mend the Hold in Insurance Cases
Sometimes when an insurance company does not have an obligation to perform, it can be required to pay anyway. There are typically three doctrinal hooks that force insurers to provide coverage in circumstances where the terms of the contract strictly speaking does not require them to do so: waiver, estoppel, and “mend the hold.”
Posted by Marc Mayerson at March 12, 2006 5:17 PM | Comments (2)
Aloha to Unasserted Coverage Defenses: Waiver, Estoppel, and Mend the Hold in Insurance Cases
Sometimes when an insurance company does not have an obligation to perform, it can be required to pay anyway. There are typically three doctrinal hooks that force insurers to provide coverage in circumstances where the terms of the contract strictly speaking does not require them to do so: waiver, estoppel, and “mend the hold.”
Posted by Marc Mayerson at March 12, 2006 5:17 PM | Comments (2)
Entwining Physical and Economic Losses under Business-Interruption Insurance
In his seminal book published more than 75 years ago entitled Business Interruption Insurance (Philadelphia 1930), C.M. Kahler wrote that “[u]nfortunately the development of an adequate system of business interruption insurance has been hampered by the fact that it has always been considered as a part of the direct damage insurance of the particular hazard.” Had United Airlines heeded Kahler’s insights into the nature of business-interruption coverage it could have structured its policy coverage to position itself better for recovery from its 9/11 losses; instead, United Airlines litigated a case that it lost at the trial court level and lost again on appeal to the Second Circuit. United Air Lines, Inc. v. Insurance Co. of the State of PA (2d Cir. Feb. 22, 2006).
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Posted by Marc Mayerson at February 28, 2006 11:03 PM | Comments (1)
Entwining Physical and Economic Losses under Business-Interruption Insurance
In his seminal book published more than 75 years ago entitled Business Interruption Insurance (Philadelphia 1930), C.M. Kahler wrote that “[u]nfortunately the development of an adequate system of business interruption insurance has been hampered by the fact that it has always been considered as a part of the direct damage insurance of the particular hazard.” Had United Airlines heeded Kahler’s insights into the nature of business-interruption coverage it could have structured its policy coverage to position itself better for recovery from its 9/11 losses; instead, United Airlines litigated a case that it lost at the trial court level and lost again on appeal to the Second Circuit. United Air Lines, Inc. v. Insurance Co. of the State of PA (2d Cir. Feb. 22, 2006).
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Posted by Marc Mayerson at February 28, 2006 11:03 PM | Comments (1)
The Risks of the Seas and of Federal Courts Seizing -- or Being Seised of -- Jurisdiction
Insurance contracts typically are creatures of state law. As a result, unlike other kinds of complex litigation, insurance-coverage disputes often are litigated in state, not federal, court. There are exceptions to this where there is diversity jurisdiction, though in complex, multiparty coverage cases it is often unusual for there to be complete diversity between and among all the parties.
Insurance disputes can end up in federal court under admiralty jurisdiction, which provides a jurisdictional hook to get into federal court where the insurance is maritime in character – or what is sometimes referred to as “salty.” There are traditional forms of maritime insurance that are subject to federal jurisdiction, such as hull, protection and indemnity, and cargo. Other forms of coverage may have a relationship to maritime risks, and parties may fight over getting into federal court and having federal admiralty law apply.
Posted by Marc Mayerson at February 19, 2006 3:34 PM | Add New Comment
The Risks of the Seas and of Federal Courts Seizing -- or Being Seised of -- Jurisdiction
Insurance contracts typically are creatures of state law. As a result, unlike other kinds of complex litigation, insurance-coverage disputes often are litigated in state, not federal, court. There are exceptions to this where there is diversity jurisdiction, though in complex, multiparty coverage cases it is often unusual for there to be complete diversity between and among all the parties.
Insurance disputes can end up in federal court under admiralty jurisdiction, which provides a jurisdictional hook to get into federal court where the insurance is maritime in character – or what is sometimes referred to as “salty.” There are traditional forms of maritime insurance that are subject to federal jurisdiction, such as hull, protection and indemnity, and cargo. Other forms of coverage may have a relationship to maritime risks, and parties may fight over getting into federal court and having federal admiralty law apply.
Posted by Marc Mayerson at February 19, 2006 3:34 PM | Add New Comment
What a Director (or Officer) Wants: A Guide for Insureds to the Wordings of D&O Policies
Claim frequency and claim values are going up for directors and officers of corporations, but insurance premiums are going down, coverage terms are getting broader, limits are increasing, and retentions are constant or decreasing. This is one of the findings in the most recent report from Tillinghast/Towers Perrin. As the report states, it “seems counterintuitive that there is a decrease in the excess premium given the increase in excess limits and increasing claim severity.” Premiums decreased by 8 percent in Tillinghast's survey (downward pressures confirmed by others) compared to last year’s survey of some 2000 survey participants, with average limits being $14.3 million. And 25 percent of US participants reported increased enhancements to their coverage terms and another 10 percent reported narrowing of exclusions. The principal markets for this insurance in the US are provided by Chubb and AIG, with other players trying to gain market share in different segments, such as Beazley.
Following the recent uptick in corporate liability and corresponding coverage disputes -- and the reported instances where directors have been required to dig into their own pockets as part of a settlement, directors and officers increasingly are asking about the precise terms of the coverage (roughly one-half of all companies in the Tillinghast survey). Increasingly, corporate directors and officers are scrutinizing (or should be scrutizing) the terms of the corporate-provided indemnities provided by their companies, in addition to evaluating the other form of protection for them, private insurance, and in both instances raising questions of credit-risk for each. What follows is a guide for in-house counsel, risk managers, and the directors and officers themselves to understand the coverage afforded by D&O policies and the specific changes that one might look for, and one needs to understand that issues may change depending on the particular industry in which the company operates. Sweating the small stuff here is important, because whether or not an insurance company affords indemnification may turn on the presence of one word or phrase – or its absence.
Posted by Marc Mayerson at February 11, 2006 4:32 PM | Comments (6)
What a Director (or Officer) Wants: A Guide for Insureds to the Wordings of D&O Policies
Claim frequency and claim values are going up for directors and officers of corporations, but insurance premiums are going down, coverage terms are getting broader, limits are increasing, and retentions are constant or decreasing. This is one of the findings in the most recent report from Tillinghast/Towers Perrin. As the report states, it “seems counterintuitive that there is a decrease in the excess premium given the increase in excess limits and increasing claim severity.” Premiums decreased by 8 percent in Tillinghast's survey (downward pressures confirmed by others) compared to last year’s survey of some 2000 survey participants, with average limits being $14.3 million. And 25 percent of US participants reported increased enhancements to their coverage terms and another 10 percent reported narrowing of exclusions. The principal markets for this insurance in the US are provided by Chubb and AIG, with other players trying to gain market share in different segments, such as Beazley.
Following the recent uptick in corporate liability and corresponding coverage disputes -- and the reported instances where directors have been required to dig into their own pockets as part of a settlement, directors and officers increasingly are asking about the precise terms of the coverage (roughly one-half of all companies in the Tillinghast survey). Increasingly, corporate directors and officers are scrutinizing (or should be scrutizing) the terms of the corporate-provided indemnities provided by their companies, in addition to evaluating the other form of protection for them, private insurance, and in both instances raising questions of credit-risk for each. What follows is a guide for in-house counsel, risk managers, and the directors and officers themselves to understand the coverage afforded by D&O policies and the specific changes that one might look for, and one needs to understand that issues may change depending on the particular industry in which the company operates. Sweating the small stuff here is important, because whether or not an insurance company affords indemnification may turn on the presence of one word or phrase – or its absence.
Posted by Marc Mayerson at February 11, 2006 4:32 PM | Comments (6)
AIG Settles NY State Charges and Buys Insurance Against Future Liability
AIG has settled New York state charges related to accounting, bid rigging, premium overcharges, and other improprieties. There are many components of this settlement, including admissions of wrongdoing by AIG. One component of interest to corporate policyholders is the $375 million fund being established for the benefit of policyholders that purchased or renewed AIG excess casualty policies between January 1, 2000, and September 30, 2004. Each policyholder within this class will receive a proportionate share of the settlement fund based on the ratio of the premiums it paid to the amount paid by all policyholders in the class.
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Posted by Marc Mayerson at February 9, 2006 12:54 PM | Comments (2)
AIG Settles NY State Charges and Buys Insurance Against Future Liability
AIG has settled New York state charges related to accounting, bid rigging, premium overcharges, and other improprieties. There are many components of this settlement, including admissions of wrongdoing by AIG. One component of interest to corporate policyholders is the $375 million fund being established for the benefit of policyholders that purchased or renewed AIG excess casualty policies between January 1, 2000, and September 30, 2004. Each policyholder within this class will receive a proportionate share of the settlement fund based on the ratio of the premiums it paid to the amount paid by all policyholders in the class.
Continue reading "AIG Settles NY State Charges and Buys Insurance Against Future Liability"
Posted by Marc Mayerson at February 9, 2006 12:54 PM | Comments (2)
Fettering the Insurer’s Privilege to Control the Defense It Is Duty Bound to Provide
For more than fifty years, policyholders and their insurers have been struggling over the insurer’s promise to defend and the insurer’s control the defense. Policyholders properly have been concerned that an insurance company that controls the defense of an action potentially covered by the carrier’s duty to indemnify will use that control to avoid that very same indemnity obligation. While in egregious cases where a lawyer hired by the carrier has abused his or her relationship with the insured, the client, so as to favor the lawyer’s source of income – the insurance company – the courts have responded to protect the insured’s interests. But most courts have ruled that such after-the-fact remedies are insufficient: they do not adequately compensate for the injury; meritorious claims are not pursued (in part because insureds may not discover the abuse); and the potential for this abuse alone undermines the dominant purpose of the insurance relationship to afford protection and peace of mind for the insured.
Posted by Marc Mayerson at February 4, 2006 11:39 PM | Add New Comment
Fettering the Insurer’s Privilege to Control the Defense It Is Duty Bound to Provide
For more than fifty years, policyholders and their insurers have been struggling over the insurer’s promise to defend and the insurer’s control the defense. Policyholders properly have been concerned that an insurance company that controls the defense of an action potentially covered by the carrier’s duty to indemnify will use that control to avoid that very same indemnity obligation. While in egregious cases where a lawyer hired by the carrier has abused his or her relationship with the insured, the client, so as to favor the lawyer’s source of income – the insurance company – the courts have responded to protect the insured’s interests. But most courts have ruled that such after-the-fact remedies are insufficient: they do not adequately compensate for the injury; meritorious claims are not pursued (in part because insureds may not discover the abuse); and the potential for this abuse alone undermines the dominant purpose of the insurance relationship to afford protection and peace of mind for the insured.
Posted by Marc Mayerson at February 4, 2006 11:39 PM | Add New Comment
With Friends (Clients) Like These . . . .
Lawyers working for insurance companies have been exposed to significant pressures from their clients in recent years. While cost-containment billing guidelines and other measures have created significant tensions in those relationships, even the most creative, out-of-the-box management consultant for insurers is unlikely to have dreamt up the facts of a recent Mississippi Supreme Court case.
Continue reading "With Friends (Clients) Like These . . . ."
Posted by Marc Mayerson at January 30, 2006 11:37 AM | Comments (5)
With Friends (Clients) Like These . . . .
Lawyers working for insurance companies have been exposed to significant pressures from their clients in recent years. While cost-containment billing guidelines and other measures have created significant tensions in those relationships, even the most creative, out-of-the-box management consultant for insurers is unlikely to have dreamt up the facts of a recent Mississippi Supreme Court case.
Continue reading "With Friends (Clients) Like These . . . ."
Posted by Marc Mayerson at January 30, 2006 11:37 AM | Comments (5)
Medical-Malpractice Liability and Insurance Myths -- and Reality
Nearly 100,000 killed last year, the same rate as in the ongoing, repellent genocide in Darfur. But this figure is the estimate of the number of Americans who die annually due to medical-malpractice errors.
That’s one of the key points emphasized in the trenchant new book by Professor Tom Baker, The Medical Malpractice Myth (2005). Baker’s slim, accessible, engaging, and well-written volume argues that the prevailing myths concerning medical malpractice and doctors’ liability-insurance premiums are the stuff of urban legend.