Claims And Issues

IF SECRETARY JAMES MATTIS FOLLOWED AN UNLAWFUL ORDER: DEFENSES TO COVERAGE?

Suppose Secretary of Defense James Mattis was given an unlawful order?   Other names for unlawful orders include "illegal orders" and "unjust orders".  When I was growing up, the standard question was whether a German soldier who was given an unlawful order to round up people and put them into concentration camps and kill them should obey or if the German soldier stood on high moral ground by refusing to obey those unjust orders.

Nowadays the question is forward-looking, not backward-looking.  The question is posed in modern times more immediately as well, such as orders to bomb Tehran in Iran, or to bomb with a missile strike launched against Pyongyang, North Korea?  The question in these cases is really whether starting a so-called preventive war to eliminate a long-term future threat based on currently perceived, unchanged conditions would constitute an unlawful order? 

To try to answer that question from an insurance coverage perspective, which is after all what we do here on this blog, let's first assume that the official is not immune from liability or suit.

Would insurance policies potentially cover following an illegal order like this?

To answer this insurance coverage question, let's move beyond the James Mattis of the title to this article.  Let's move beyond him personally, even in a hypothetical case like this one, to any official or officer and ask the same question:  Would insurance policies available to the official potentially cover the official for following an unlawful order such as bombing Tehran or Pyongyang based only on the current world situation?

Here are some issues that would arise under any insurance policy that may be available to the official who obeys an unjust order.

Is it "fortuitous" as affording "all risk" coverage?  As I will explore more deeply in a forthcoming article, judges often say that there is a good reason to deny coverage for "all risks" if the event that causes damage was not "fortuitous."

By using this word, courts mean that it is not fortuitous on its face when the event that caused the damage claim was inherent in the thing itself, such as an opal which becomes cracked which is an apparently normal and usual event.

Judges in other courts and other cases, and even the same judges in the same cases, also use the word to mean that if the event that caused the damage was not due to an external cause but instead was due to an inherent defect in the thing itself rather than an external cause, such as where the insured brings it about by her or his own act.  In such a case, they hold, there can be no insurance coverage.

Following an unjust order to begin an unprovoked unjust war can legitimately be held up as the opposite of fortuitous, and so uninsurable in any case.

Is it an accident causing damage neither expected nor intended from the standpoint of the insured?  Courts unfamiliar with first-party insurance concepts like "all risks" coverage often analogize the insurance requirement that a loss be "fortuitous," to the third-party requirement that the risk insured must be an "accident." 

If third-party policies were available to the official who follows an order to nuke Tehran or Pyongyang right now, then just as the resulting damages can legitimately be held up as the opposite of fortuitous under an all-risks first-party policy, so the official's conduct should legitimately be held the opposite of a covered "accident" under a third-party policy.

Would the "war risk" exclusion apply?  This is an interesting question.  The war risk exclusion probably applies to damages from war.  Arguably it should not apply to damages resulting from a decision to follow someone else's unlawful order even if following that order means war.

If this construction were followed in our hypothetical situation, the war risks exclusion probably would be held inapplicable to the official's decision to follow the unlawful order.

Public policy.  This is not a path that most courts are happy to follow when considering insurance coverage questions.  Courts generally shy decisively away from public policy questions in the context of passing on insurance coverage questions.

However, as can be seen from our brief discussion here of "fortuitous," the very nature of insurance coverage itself is involved in this particular question.  When judges say that a risk or damage is "fortuitous" or not, they are really passing on whether the risk or damage was insurable in the first place.

Further, the Florida Supreme Court has held that intentional religious discrimination is something that cannot be insured as a matter of public policy.  Ranger Ins. Co. v. Bal Harbour Club, Inc., 549 So. 2d 1005 (Fla. 1989).

It is not much of a leap from that decision to also declare that the decision to bomb Tehran or Pyongyang under present conditions ought not to be insurable as a decision to follow an unlawful order.

Hopefully, these hypothetical questions will all remain only theoretical, as they are now.

Please Read The Disclaimer.  ©2018 by Dennis J. Wall.  All Rights Reserved.

OPEN THE EVIDENCE ENVELOPE, PLEASE.

In an Amended Order in Multidistrict Litigation against pharmaceutical manufacturers, one judge unintentionally perhaps highlighted the need for disclosure, not concealment, of evidence.  Insurance coverage questions may become difficult if not impossible to decide if this pattern continues.

The Amended Order came in this MDL case:  In Re:  Abilify (Aripiprazole) Product Liability Litigation, No. 3:16-md-2734, 2018 WL 1357914 (N.D. Fla. March 15, 2018).  It was an opinion denying motions for summary judgment because the Court ruled that there were genuine issues of material fact.

"Plaintiffs allege that, after taking Abilify as prescribed, they developed impulsive and irrepressible urges to engage in certain harmful behaviors, including impulsive gambling, eating, shopping, and sex.  Defendants deny the allegations and maintain that Abilify could not, and did not, cause Plaintiffs' impulse control problems."  In Re:  Abilify (Aripiprazole) Product Liability Litigation, No. 3:16-md-2734, 2018 WL 1357914, at *1 (N.D. Fla. March 15, 2018).

The Court held that there were genuine issues of material fact surrounding these allegations and denials in a huge record of apparently conflicting evidence:

Now, having carefully considered the law, the voluminous record, and the parties' arguments, the Court concludes that Plaintiffs have satisfied their burden to demonstrate that a genuine dispute of material fact exists as to whether Abilify can cause uncontrollable impulsive behaviors in individuals taking the drug.

In Re:  Abilify (Aripiprazole) Product Liability Litigation, No. 3:16-md-2734, 2018 WL 1357914, at *1 (N.D. Fla. March 15, 2018).

The problem is that the public cannot possibly know what the apparently conflicting evidence actually was.  The opinion is riddled with holes for redacted evidence, like this one:  "Moreover, the record reflects [*** REDACTED ***]."    In Re:  Abilify (Aripiprazole) Product Liability Litigation, No. 3:16-md-2734, 2018 WL 1357914, at *26 (N.D. Fla. March 15, 2018).  Say again, please; what is it that the record reflects?

We simply do not know a lot of what witnesses testified and documents revealed.  "Portions of the briefing and record in this matter were filed under seal. This redacted version of the Court's Order omits references to information included in sealed materials."  In Re:  Abilify (Aripiprazole) Product Liability Litigation, No. 3:16-md-2734, 2018 WL 1357914, at *1 n.1 (N.D. Fla. March 15, 2018).  If a judge omits references to evidence, yet tells us that the Court's ruling is based on what appears to the Court to be contradictory evidence, what value does that serve and whose?

Arguably not the value of the public, who pay to maintain the judicial system.

In particular, how can insurance coverage questions be resolved in this situation?  Does the blacked-out evidence show that consequences or side-effects from using this drug were perhaps neither expected nor intended from the standpoint of the pharmaceutical companies, and thus not a covered "accident" or "occurrence"?

Is it possible that there is an exclusion applicable to this evidence?

How can we know answers to questions like these without seeing the evidence?

And whose interests are served by blacking out the evidence in cases like this?

Please Read The Disclaimer.  ©2018 by Dennis J. Wall.  All Rights Reserved.

ARE LOSSES FROM CLIMATE CHANGE "FORTUITOUS"?

Insurance carriers have denied claims and are facing more claims for losses "related to accelerating climate-related disasters, such as California's fires last fall, and lawsuits that target fossil fuel companies as some of the world's largest greenhouse-gas emitters."  Reportedly, not one penny has been paid out in insurance proceeds in lawsuits alleging damage from climate change.

Don't hold your breath (unless you're standing outside, in certain areas), but newly filed lawsuits may affect that outcome, including a new lawsuit filed "by California cities and based on public nuisance law, seeks to hold Exxon, BP, and other oil companies accountable for flooding caused by sea level rise."  Jacques Leslie, "Insurers Are Backing Fossil Fuel Companies and Then Charging You For Climate Change Risks" (Los Angeles Times Online, Tuesday, March 13, 2018).

If insurance carriers routinely and successfully deny claims for damage allegedly caused by climate change, how can Exxon, BP, and other oil companies sued in the reported new lawsuit as "accountable for flooding caused by sea level rise," claim that these losses are "fortuitous"?  That they were all the results of an "accident"?

Or that an act of humanity ought to be treated by insurance law as an act of God?

Please Read The Disclaimer.  ©2018 by Dennis J. Wall.  All Rights Reserved.

VOUCHERS: ACCIDENTS NEITHER EXPECTED NOR INTENDED, OR KNOWN LOSSES?

Vouchers take the place of public schooling so that people can pay for charter schooling.

Vouchers are paid by taking money from public school taxes.  This seems to be the trade-off for the prospect that the children of parents holding vouchers will perform well academically if they do not have to attend public schools but can choose to attend charter schools instead.

However, years of studies show that "private school vouchers may harm students who receive them." The most recent study reporting the same dismal results came in June from a proponent of school choice.  See also here.

This calls into question the availability of insurance coverage for those who enable or even mandate such choices.  Many kinds of insurance policies contain the equivalent of the Commercial General Liability or CGL "occurrence" definition, which many States including Florida equate with the standard CGL Exclusion 1:

There is to put it simply no coverage for an occurrence which is not an accident neither expected nor intended from the standpoint of the insured.

In the case of school vouchers, the relatively poor academic performance of voucherized students seems to qualify as an event that should not be covered by insurance.  This has ramifications on several different fronts.

Hedge Funds and other Investors in Charter Schools, and Charter School Administrators.  These people certainly have, or should carry, Errors and Omissions (E&O) or Directors and Officers (D&O) coverage or the equivalent.   If they push vouchers knowing of their consequences at this time, there seems to be a real insurance coverage issue over whether their choices could even potentially be covered as accidents neither expected nor intended from their standpoint.

School Boards and School Board Members.  Boards and their Members carry or should carry something like School Officials Professional Liability Policies, whatever the policies might be called.  Putting aside questions of immunity, if any, there is still a very real question of whether School Boards and their Members can claim insurance coverage in the face of years of such poor test results that choosing vouchers for children may not be capable of an argument that such choices, again, are accidents neither expected nor intended from the standpoint of the insured.

"Known Loss Doctrine" proponents.  Some judges and many lawyers have argued that insurance coverage is or should be "excluded" whenever the policyholder knows that a loss has happened for which the policyholder is now claiming coverage.  There is rarely any such exclusion written in any insurance policy, but the argument is made often, usually by people who do not practice insurance coverage law.

Insurance is not available however unless there is a risk to be covered.  In this situation, there does not seem to be much risk of the outcome with vouchers.  Once vouchers are chosen, the outcome seems to follow.  This may present another situation for the so-called "known loss doctrine," not as a supposed "exclusion" but simply because insurance arguably does not exist to cover known losses.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

WELLS FARGO: COVERAGE FOR 5,300+ "BAD APPLES?" OR FORESEEABLE DAMAGES?

News reports have been published since at least 2013 that certain demands that Wells Fargo made (makes?) on its employees pretty much foreseeably result in fraud.  Recent news reports advise that because Wells Fargo employees were subject to "cross-selling" requirements, among other requirements, at least 5,300 Wells Fargo employees at the present count opened millions of bogus accounts and credit cards in the names of Wells Fargo customers so that the employees could meet their sales quotas.  See, e.g., Michael Corkery and Stacy Cowley, "DealBook / Wells Fargo Warned Workers Against Sham Accounts, But 'They Needed a Paycheck'" (New York Times Online, posted September 16, 2016); Andrew Ross Sorkin, "DealBook / Pervasive Sham Deals at Wells Fargo, and No One Noticed?" (New York Times Online, posted September 12, 2016).

Yesterday as this article is written, the current head of Wells Fargo confirmed the fraudulent opening of bogus accounts in testimony before the United States Senate.

He blamed the 5,300+ bad apples.  He called them "rogue employees."

Are there any insurance policies including any bonds that provide coverage for 5,300+ bad apples and rogue employees?  Wells Fargo is undoubtedly looking at this question right now.  So are its insurance carriers.

Or if the damages to Wells Fargo employees are not really the results of misconduct by 5,300+ bad apples and rogue employees, but if instead they are proven to be the results of corporate requirements imposed on the apples by Wells Fargo, it seems that there may be good arguments that many if not all of the damages to Wells Fargo customers were foreseeable and even intentional.   Wells Fargo admits that it has known about the fraud since at least 2013 and the "illegal sales" may have begun in 2009.  Michael Corkery, "DealBook / Illegal Activity at Wells Fargo May Have Begun Earlier, Chief Says" (New York Times Online, posted Tuesday, September 20, 2016).

There is a recurring exclusion or "carve-out" from commercial general liability insurance "occurrence" coverage when the policyholder is shown to intentionally cause the damages complained of by the underlying plaintiff.  This is a frequent insurance coverage issue.  If that is shown to be the case here, then Wells Fargo faces some difficult issues of what it knew and when it knew it, as they say, if Wells Fargo is inclined to put on proof to contest whether the reported pattern of fraud was a covered "occurrence" or the exclusionary insurance coverage equivalent of intentional damages.

Time will tell.  Stay tuned as coverage issues develop along with the liability issues embedded in this behavior.

Please Read The Disclaimer.  ©by Dennis J. Wall.  All Rights Reserved.

"INSURANCE CLAIMS AND ISSUES," THE BOOK: COMING IN 2016!

 

 Storm Clouds lined up over the Gulf of Mexico.  Photograph and text copyright 2015-2016 by Dennis J. Wall.

I am hard at work on an anthology of the best blogs from "Insurance Claims and Issues."  The anthology I submit to my publisher will keep all hyperlinks intact, including links to the Insurance Claims and Bad Faith Law blog.  When articles posted on Insurance Claims and Bad Faith Law blog are important to the anthology of "Insurance Claims and Issues," I am including them in the anthology too.

As each previously posted article is updated, the posted articles will remain just as available here as they always have been.  New articles will benefit from me being better informed and better equipped to discuss future insurance claims and issues.

I have contracted with Thomson Reuters (West Publishing Company to those fortunate to have the experience) to publish "Insurance Claims and Issues," the Book, in the late Spring or early Summer of 2016.  Best wishes to everyone for a joyous and Happy New Year!

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of "Insurance Claims and Issues" (forthcoming Thomson Reuters 2016).  All rights reserved.

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HOMEOWNERS CAN SUE FRACKING COMPANIES FOR DAMAGES & INJURIES THEY CAUSE.

               The headline says it all:  “Oklahoma Justices Say Homeowners Can Sue Oil Companies Over Quakes,” reported by Richard A. Oppel, Jr., p. A14, col. 1 (New York Times Nat’l ed. Wed., July 1, 2015). 

               The decision was unanimous.  Richard A. Oppel, Jr., “Oklahoma Justices Say Homeowners Can Sue Oil Companies Over Quakes” p. A14, col. 1 (New York Times Nat’l ed. Wed., July 1, 2015). 

               How will fracking companies defend against damages suits when they do not have immunity?  Richard A. Oppel, Jr., “Oklahoma Justices Say Homeowners Can Sue Oil Companies Over Quakes” p. A14, col. 1 (New York Times Nat’l ed. Wed., July 1, 2015). 

               And how will fracking companies claim liability insurance coverage when they are sued for damages?

 

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of “Lender Force-Placed Insurance Practices” (American Bar Association 2015).  All rights reserved.

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"Known Loss Doctrine" Applied to Liability Insurance ...

   ... by Federal Court in Florida.

   It is sometimes difficult to distinguish the so-called Known Loss "Doctrine" from Policy Limitations on Coverage Grants, such as limitations to Covered Loss or Damage "commencing ... During the policy period shown in the Declarations," as in the case of 3303-05 Marina Road, LLC v. West Bend Mutual Insurance Co., Download 3303-05 Marina Road, LLC v. West Bend Mut. Ins. Co. (Wis. Ct. App. Case No. 2009AP1629, Opinion Filed September 8, 2010) PUBLIC ACCESS also published as 2010 WL 3489391 ¶15 (Wis. Ct. App. September 8, 2010)(Westlaw subscription required to access Westlaw; page numbers not available at time of this publication).  As the Wisconsin Court described the "doctrine" in this First-Party Case, in which it appears to have been exclusively applied (until recently):  "'The known loss doctrine is a common law defense to insurance coverage according to which insurers are not obligated to cover losses that are already occurring when the coverage is written or [that] have already occurred."  Id. ¶21.

   A Federal Court in Florida may have recently extended the "Known Loss Doctrine" to Liability Insurance Coverage; the decision actually appears to have depended on language found in the Liability Insurance Policies at issue there.  In that case, a Homeowner sued the Contractor who constructed her home, "alleging that her residence contained numerous construction defects."  She recovered a Judgment against the Contractor totaling $1,297,998.36, and another Award for Costs in the amount of $167,147.71.  The Federal Judge was faced with five CGL or Commercial General Liability Policies issued to the Contractor, including two "initial" Policies and three "renewal" Policies from two different Liability Insurance Companies.  Arnett v. Mid-Continent Casualty Co., Download Arnett v. Mid-Continent Casualty Co. (M.D. Fla. Case No. 8.08CV2373, Order Filed July 16, 2010) PUBLIC ACCESS also published as 2010 WL 2821981 *2 (M.D. Fla. July 16, 2010)(Westlaw subscription required to access Westlaw; the Online Docket of this case on Pacer reflects that this Federal Declaratory Judgment Action has been temporarily Stayed by Order of Court until an appeal "of the underlying state court judgment" is exhausted.).

   Among other Insurance Coverage Claims, the two Insurance companies asserted in that Federal Declaratory Judgment Action that the underlying Damages Claims of the Homeowner against their Insured, the Contractor, "constituted known injuries".  "The insurers argue that [the Insured-Contractor] became aware of the damages during [the] initial policy, and therefore, [that] the damages constituted 'known losses' which are not covered under any subsequent policies."  Immediately after stating this contention, the Federal Court pointed to specific language in the Liability Insurance Policies which expressly addressed knowledge of "bodily injury" or "property damages" prior to the policy period and provided that "any continuation, change or resumption of such 'bodily injury' or 'property damage' during or after the policy period will be deemed to have been known prior to the policy period.'"  Arnett v. Mid-Continent Casualty Co., 2010 WL 2821981 at *3.

   The Federal Court held in that case that there was Coverage under the Liability Insurance Policies for some, but not all, of the Damages claimed by the Homeowner based upon whether or not "the known loss clause bars coverage," or not.  See id. at *4.

   The Federal Court's decision may bear on the resolution of some Catastrophe Claims which may or arguably were known to the Policyholders and other Insureds before the Policy Coverage began -- perhaps even before the Liability Insurance Policy Coverage began.

    Dennis Wall is Co-Author of the leading book on Insurance Coverage for Catastrophe Claims, "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company 2008; 2010 Supplement in process).  Mr. Wall will be a featured speaker on several panels which will address the BP Oil Spill Catastrophe.  On September 15, 2010, he will be a featured speaker on a panel addressing "BP Oil Spill Damages Claims:  The Coverage Predicates" at the September 15, 2010 Seminar of the Insurance Law Committee sponsored by the Orange County Bar Association in Orlando, Florida.   Mr. Wall will speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010 on "Dealing With Catastrophic Disasters:  How to Properly Investigate and Handle Overwhelming Claims".  The American Conference Institute is offering a discount to readers of this Blog:  Download ACI Advises Readers of the Insurance Claims and Issues and Insurance Claims and Bad Faith Law Blog are entitled to a discount.

Please Read The Disclaimer.

  

Wisconsin Court Holds: First-Party Loss "During Policy Period" Coverage.

   The Court of Appeals of Wisconsin has held that a limitation in First-Party Policies to "cover loss or damage commencing:  (1) During the policy period shown in the Declarations" is a part of the Property Insurance Policies' Coverage Grant.  3303-05 Marina Road, LLC v. West Bend Mutual Insurance Co., Download 3303-05 Marina Road, LLC v. West Bend Mut. Ins. Co. (Wis. Ct. App. Case No. 2009AP1629, Opinion Filed September 8, 2010) PUBLIC ACCESS also published as 2010 WL 3489391 ¶¶15, 22 (Wis. Ct. App. September 8, 2010)(Westlaw subscription required to access Westlaw; page numbers not assigned at time of this publication).

   "In other words, the parties agree that by the plain language of the Policies, the Policies only cover 'physical loss of or damage to Covered Property' beginning after the Property was added to the Policies by the October 23, 2003 endorsement."  Id. ¶16.

   The nature of the Policyholders' Claims against West Bend included both Coverage and Bad Faith.  they filed suit against West Bend, "alleging that West Bend had breached its obligation to provide coverage for the damages to the Property under the terms of the Policies and did so in bad faith."  Id. ¶8.  After a month-long Bench Trial which included ten days of testimony, the Trial Court dismissed the Complaint.  "The trial court's decision was based on its finding that damage to the Property pre-existed the policy period."  Id. ¶ 9.  For the above reasons, the Court of Appeals of Wisconsin affirmed.

   Although West Bend attempted to raise the "known loss" doctrine on appeal, neither the Trial Court nor the Appellate Court rested their judgments on this ground.   Moreover, as the Appellate Court noted, in the Trial Court, "West Bend did not assert the known loss doctrine as a defense."  Id. ¶8.  "In any event, our conclusion that the plain language of the Policies excludes coverage is dispositive, regardless of whether any comments from the trial court imply that it considered the known loss doctrine."  Id. ¶22.

    Dennis Wall is Co-Author of the leading book on Insurance Coverage for Catastrophe Claims, "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company 2008; 2010 Supplement in process).  Mr. Wall will be a featured speaker on several panels which will address the BP Oil Spill Catastrophe.  On September 15, 2010, he will be a featured speaker on a panel addressing "BP Oil Spill Damages Claims:  The Coverage Predicates" at the September 15, 2010 Seminar of the Insurance Law Committee sponsored by the Orange County Bar Association in Orlando, Florida.   Mr. Wall will speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010 on "Dealing With Catastrophic Disasters:  How to Properly Investigate and Handle Overwhelming Claims".  The American Conference Institute is offering a discount to readers of this Blog:  Download ACI Advises Readers of the Insurance Claims and Issues and Insurance Claims and Bad Faith Law Blog are entitled to a discount.

Please Read The Disclaimer.