I hesitated to write this blog post, which is meant to be non-political. We are currently in the middle of a very bad election season, and any topic that remotely touches on politics is likely to lead to chaos online. But I was intrigued by the hearings I watched yesterday of President Trump’s Supreme Court nominee, Amy Connie Barrett, especially given the insurance decision I once wrote. She often says that when she criticizes a court decision, she is not personally critical of the judge who wrote it. I am posting this brief article in the same spirit.
Whatever your political opinions, it is fair to say that Judge Barrett is a very intelligent person. She’s a law professor, and she’s also (as I’m writing this) a judge for the 7th Circuit. But the only time I dealt with insurance issues, she felt that her reasoning was very wrong. I think she finally agreed, since she retracted the decision. The wrong decision shows us once again why insurers prefer to litigate before conservative judges in the federal courts, rather than the state court system. Conservative judges tend to favor insurance companies. This is not meant to be a political statement. It is just an observation based on many years of experience. (And I respectfully refuse to reveal any of my personal political opinions!)
the case, Emmis Communications v. Illinois National, addressed the issue of covering the liability of directors and employees for litigation resulting from a complex plan to make the company private. In 2010, seven separate shareholder lawsuits were filed against the policyholder, Emmis, after abandoning the go-private plan. Emmis reported the lawsuits to her carrier, Chubb, which accepted coverage under reservation of rights. The lawsuits were voluntarily dismissed, and no class was ever adopted. Later, in 2011, a major shareholder filed a derivative suit against Emmis’ board of directors, in connection with an aspect of the collapsed deal. Chubb eventually accepted to cover that lawsuit, too.
Then, in 2012, five preferred shareholders sued Emmis under federal securities laws, claiming some facts that were similar to those on which plaintiffs relied in previous cases. Chubb denied coverage on the grounds that the 2012 securities case was unrelated to the previous cases, which included various claims, so Chubb had no obligation to defend.
So, if the cases weren’t related, and the 2012 case was a whole new and different matter, Illinois National (the carrier in 2012) had an obligation to file a defense, right? right?
The beauty of insurance policies, from a carrier’s point of view, is that they are like exploring a wonderful forest! Lots of mysterious exceptions and limitations hiding in all the nooks and crannies!
Here, Illinois National Policy excluded claims “as stated under [the Chubb policy]. Too bad, so sad,” Illinois National said. I reported the claim under Chubb’s policy, so no luck. (It doesn’t matter that Chubb refused coverage. This is just a technical matter.)
Emmis sued Illinois National to enforce coverage. In the district court, Emmis argued that the language of exclusion is vague, and that it applies only to lawsuits that Chubb has already been informed of. When the Illinois National Policy came into effect. The District Court had mercy on Ames, and she wrote as follows.
The Court does not agree with INIC that the relevant language is unambiguous. The term “as stated under [the Chubb Policy]”to refer to any claim reported under Chubb Policy at any time, as urged by the INIC, but may also reasonably be read to refer to any claims reported under Chubb Policy at the time the INIC Policy entered into force, October 1, 2011, at the urging of Emmis.
Emmis Commc’ns Corp vs. Ill. Nat’l Ins. a company, 323 F. Supp. 3d 1012, 1023 (SD Ind. 2018).
Enter the Seventh Circuit, and Judge Barrett, who reversed the district court, ignoring building and purpose rules (which is “insurance”) wrote:
On appeal, the parties were informed of several legal issues arising from the Byzantine language of exclusion. But we can solve this case in one problem: the meaning of “as reported”. We disagree with the opinion of the district court. Illinois National’s proposed interpretation is correct. The phrase has no discernible time limits. Once Emmis or one of her agents reports a claim to Chubb, at any time, that claim is “reported”, and therefore disqualified. The timing of the report is irrelevant. Emmis acknowledged in her memo that she in fact reported her claim to Chubb. This solves our question. The exception applies, so a summary ruling had to be entered in favor of Illinois National.
Emmis Commc’ns Corp vs. Ill. Nat’l Ins. a companyIssue No. 18-3392 in *3 (7th District July 2, 2019).
One of the reasons I find this decision interesting (aside from the general notion that “Byzantine exclusion” is unambiguous) is that when I listened to Justice Barrett’s testimony, I spoke of using secondary articles to discern the true intent of the framers of the Constitution. I’m not sure why the interpretation of “Byzantine exclusion” is different. There is no reasonable way in which a policyholder could purchase a policy that would allow a disclaimer of coverage, leaving the policyholder to his own devices, simply because more than one carrier has been notified of the loss. If you’ve been under insurance for a while, you know that “as reported” language is designed to prevent coverage of “known losses” – the “coincidence” argument that insurance companies often tell. (The validity of the so-called “known loss” doctrine is a topic for another publication.) The language is not designed to forfeit coverage of a claim different from a claim reported under an earlier policy.
Emmis filed for reconsideration, and to their credit, Judge Barrett and the committee quietly reversed their earlier decision and confirmed coverage, for the reasons stated in the district court’s decision. The language was ambiguous, and had to be interpreted in favor of the document holder. Eames com. Corp. against Ill. Nat’l Ins. Share. , 937 F.3d 836 (7th Circuit 2019).
Here are some quick points from this case. First, Emmis did the right thing here. Do not notify carriers selectively. Notify each carrier that can provide coverage. Force them to take a stand. Second, if you have to litigation, be prepared to deal with judges who don’t fully understand insurance law. I’ve been practicing Coverage Law for 35 years, and I’m learning something new every day. However, we expect judges to master every area of law, from admiralty to zoning, which is simply unrealistic. Finally, don’t give up easily. As Emmis happily knows, if you refuse to answer “no” for an answer, sometimes good things can happen.