Maniloff's Top 10 Coverage Decisions Of 2006
It is hard to write excellent legal prose for a number of reasons, not the least of which is the surprising resistance one encounters to good writing from many people who treat legal writing as if it is not an art but merely an industrial process, like bleaching wood pulp. These people treat any attempt at originality, creativity or -- heaven forbid -- humor as if you had showed up at a job interview with a Harley tattoo on your forehead. In addition, writing anything good is just plain hard, often agonizing, work. Strangely enough, really good writing does not bear the marks and bruises of all this laboring, but instead reads as if it flowed naturally from the author's fingertips with little effort. Good writing glides, turns, shoots and scores like The Great One in his prime.
So here is an example of legal writing that is really good, by Randy Maniloff, of White and Williams in Philadelphia. Here is a link to Randy's upcoming article in Mealey's Litigation Report: Insurance on the year's 10 most significant insurance decisions. When I praise the writing, don't take that to mean I slight the substance, because good writing is substance. I place this article in my highest category of legal writing -- the Steve Buscemi class -- named after the actor who always brings something fresh, surprising and original to a role, who puts maximum effort into each part without letting you see the effort, and who worked as a firefighter for four years before becoming a star, and then showed up for work at his old firehouse the day after 9/11, working 12-hour shifts at Ground Zero while disdaining publicity.
I can't quibble with Randy's case selection -- I've written about many of them myself -- although for sentimental reasons, I found myself wishing at least one of the Hurricane Katrina coverage cases, which I have spent so much time analyzing and of which I have grown so fond, had made the list. My favorite analysis in Randy's piece is French v. Assurance Co. of America (4th Cir. 2006), particularly this excerpt that brings clarity to a construction defect issue that often seems murky:
However, the flaw in this argument is that the subcontractor exception to the your work exclusion is not called the subcontractor exception to the occurrence requirement. The French Court recognized this and concluded that, notwithstanding that the EIFS was defectively installed by a subcontractor, such defective application does not constitute an accident, and, therefore, is not an occurrence under the CGL policy.
My favorite lede from the analysis of the cases is this one, from Standard Fire Ins. Co. v. Spectrum Community Assoc., 46 Cal.Rptr.3d 804 (Cal.App. 2006):
What's the difference between a John Grisham novel and the continuous trigger? Answer: Nothing. They are both legal fiction.
And here's a great short summary of Brannon v. Continental Casualty Co.:
-- Supreme Court of Alaska gave an insurer a chilly reception to its argument that the statute of limitations on an insured's action for breach of the duty to defend began to run from the time of the disclaimer . . . .
Print the article out and read the whole thing. At 23 pages, it will take a little time, but it's worth it.
I enjoyed Randy’s article as well, particularly his selection of Patrons Oxford Ins. Co. v. Harris. The Patrons Oxford opinion appears to be a well-reasoned solution to the age-old dilemma insurers are faced with when their insured receives a settlement offer below policy limits yet the insurer is defending the underlying litigation under a reservation of rights (i.e., settling would avoid the risk of an excessive judgment, but why settle if coverage doesn’t exist?). However, as Randy points out:
"Despite the frequency in which this coverage drama plays out, it has not been addressed by a significant number of courts â€" at least not as many as one would expect. Moreover, the decisions that have addressed the issue are not consistent, sometimes leave questions unanswered and may also create collateral issues."
I propose a solution based on the advantages of eliminating post-settlement coverage litigation. My proposal is to create specialized tribunals; courts that focus solely on insurance coverage issues. Coverage disputes could be decided in these specialized tribunals first, while the underlying litigation is stayed. Although such a change would admittedly be drastic, it would eliminate much of the factual and legal uncertainty involved in underlying litigation where insurance coverage issues lurk.
The need for these specialized tribunals is evidenced by the financial uncertainty in cases like Patrons Oxford and Frank’s Casing (also cited by Randy). How can a plaintiff value his case when the source of payment could be a judgment proof insured or a wealthy insurer? How can an insured decide to settle when it is impossible to determine what portion of the settlement he will be responsible for? How can an insurer decide to settle when it may not be contractually obligated to?
The case law in many jurisdictions has further complicated matters. The parties must also consider the insurer’s duty to settle, its duty of good faith and fair dealing, and its right of reimbursement. When coverage is uncertain during the underlying litigation, the scope of these doctrines is also uncertain.
With specialized tribunals to determine coverage first, this uncertainty disappears. In an ideal world, here is how it could work:
The specialized tribunals are made up of insurance law experts. The expertise held by these judges would allow faster and more reliable resolution of coverage issues. When a plaintiff sues an insured, the insurer has two options. The insurer can undertake the defense unconditionally, or deny coverage and simultaneously initiate an action in the specialized tribunal.
Naturally, the insurer’s choice between its options depends on the difficulty of the coverage issue. If coverage clearly exists, the insurer will avoid the specialized tribunal and defend the insured unconditionally. If coverage clearly does not exist, the insurer can assert its position to the specialized tribunal. Theoretically, the tribunal would be able to quickly determine coverage does not exist because the issue is not difficult. Either way, all parties should be satisfied because coverage has been resolved and the underlying litigation does not suffer a long delay.
The real benefit of specialized tribunals is apparent when the coverage issue is difficult. Here, the parties can benefit from the expertise and specialization of the judges. These judges will be able to make faster and more reliable coverage determinations because of their expertise in insurance matters. Further, their specialization in insurance coverage disputes will result in a smaller docket. This too will provide for faster determinations.
Some may argue that this framework is flawed because of the burden on the underlying litigation from being stayed during resolution of coverage. However, there are several facts that mitigate this burden of delay.
First, when coverage is questionable, the plaintiff will not necessarily benefit from a speedy resolution of the underlying litigation. For example, in Patrons Oxford, the insured assigned its coverage claim to the plaintiff in return for a covenant not to execute against the insured. Thus, while the underlying litigation was resolved, the plaintiff could not collect until it successfully litigated coverage with the insurer. Either way, the coverage dispute must be decided before the plaintiff can recover. However, the advantages of having a specialized tribunal determine this issue first can been seen by an example. Assume that a specialized tribunal determines a difficult coverage issue in favor of the insurer. If the insured is judgment proof, the plaintiff can save time and money by avoiding pointless litigation. However, if the insured has assets (or if coverage exists), the plaintiff can proceed with the assurance of being able to collect a judgment.
Second, the specialized tribunals could have a set of flexible procedures to ameliorate the burden of delay on the underlying litigation. One rule could be that discovery in the specialized tribunal of facts relevant to the merits of the underlying litigation are also admissible in the underlying litigation. This would promote efficiency by avoiding duplicative discovery. Further, the specialized tribunal could allow for the plaintiff to intervene, if such meritorious issues arise, to protect its own interests.
Obviously this solution is not perfect, but it accomplishes the significant goal of resolving coverage issues first. A great deal of complexity in insurance litigation would be removed if coverage issues did not persist during the underlying litigation. The problem is in developing a framework to accomplish this.
I welcome any feedback as I am still in law school at the University of Houston Law Center.
You raise some interesting points. Here are my thoughts. I just so happen to have a lot of experience litigating the main question raised in Parsons, which is the validity of an assignment/stipulated judgement, and how much the insurer is liable for if the assignment stands up. I won't go into all of it here. I think as far as coverage issues go, jurisdictions are all over the map on this question, but it isn't a particularly intellectually difficult one either to think through to yourself or argue to a judge. Some others are tougher, so it intrigues me about the special insurance panels you mention, because one of the things I fear often is being in state court where I have no idea what kind of judge I may get. At a certain level of insurance practice, you prefer to be in federal court no matter whether you represent the insurer or the policyholder because of the quality of the judge and because you have some certainty how the process will work. So in some regards, federal court is this special insurance tribunal you speak of. A couple problems with your idea: I suppose you could put this into insurance contracts and people would have to abide by it like they do with arbitration, but if so, why not just use an arbitration panel? Most insurance contracts do not call for arbitration, in large part because a lot of people, me included, would rather be in court, and also because arbitration is seldom any cheaper than court. Also, where would you find the lawyers to participate in the special panels. To be honest, there aren't that many really great coverage lawyers out there, relative to the amount who actually work on coverage cases, and so finding qualified people might be hard to do, especially because who would want to give up a successful practice to trade for being on the panel?
Also, I'm no Con Law expert, but if this is under the auspices of the court, it wouldn't work, because you have a right to an Article III federal judge unless you and the other party waive the right and consent to a U.S. Magistrate or whatever. I suppose in state court there are fewer structural problems, but it sounds expensive. I'm not sure others wouldn't object that there isn't enough insurance litigation to justify its own special courts.
All in all, insurance law is for the most part judge-made law, its all about the common law, and I'm not so sure the quality of decisions would be any better with special tribunals, because insurance experts usually come from either the policyholder or the company side, and they have their own particular views just like judges.
I think, all in all, as far as the issue you raise about not having the coverage issues persist through litigation, there are already ways around it: declaratory actions. Policyholders can bring them, as can insurance companies, as long as doing so would not force the policyholder to defend the coverage action by admitting liability to the third-party claimant. I have ripped into people in court for slash-and-burn litigation and delaying tactics, when they should have brought a dec. action and clarified the issue, rather than conducting the litigation in a bad faith way.
I guess my overall reaction is what you propose sounds complex. Insurance law is already pretty complex -- the whole art of coverage law is to impose the illusion of order on chaos -- and so I'm not sure I could handle any more.