Friday, June 20, 2014
Oregon Class Action Filed Against Regence BCBS Over Non-Profit Status
In a follow-on to a much larger class action filed earlier this spring in Illinois against another Blue Cross/Blue Shield insurer group, the same Chicago law firm (along with an East Coast personal-injury firm) has turned its sights on Oregon's Regence Blue Cross/Blue Shield, accusing Regence of violating its own charter and Oregon law by funneling profits to executive bonuses and hoarding cash, rather than operating like a true non-profit. This adds to the trouble that the "blues" find themselves in from a ruling two days ago in the BCBS Antitrust MDL proceeding in federal court in Alabama, in which Judge Proctor denied the BCBS' motion to dismiss the allegations that BCBS conspires on a national level to squelch competition in the health insurance market. The Oregon class action suit likely faces similar challenges on a procedural level before the merits are addressed, meaning that even if the suit proceeds forward, it is unlikely to have any short-term impact on health insurance rates in Oregon.
Tuesday, June 17, 2014
Fifth Circuit Certifies Whether "PRP" Letter Is a "Suit" to Texas Supreme Court
A new development, of sorts, in development of state law on whether a PRP letter constitutes a "suit" under legacy long-tail CGL policies: the Fifth Circuit has certified the question over to the Texas Supreme Court in McGinnes v. Phoenix Insurance. Texas remains as one of the few states not to have addressed the question. Most states have answered in the affirmative; a few have said "no." Indeed the federal district court in McGinnes appears to have sided with the minority, holding that because CERCLA did not exist when the policies were issued, the parties could not have intended that the definition of "suit" would be broad enough to encompass administrative actions like a PRP letter. That approach begs the question whether a policy should be interpreted based on modern "lay" understandings of terms, or based on lay understanding at the time of the policy. Most courts (including Oregon) interpret GL policies -- which, after all, never "expire" -- based on current versions of the dictionary. But the way the Fifth Circuit phrased the insurer's view on Texas law suggests that Texas law may be different, or at least may be open on that point. As a very large state with a lot of industrial activity, Texas cases tend to get cited a lot and can have an outsized impact on insurance industry litigation strategy nationally. The Texas Supreme Court is not required to accept the referral, so we will follow this to see what develops.
Update: The Texas Supreme Court has accepted the certified questions.
Update: The Texas Supreme Court has accepted the certified questions.
Monday, June 9, 2014
Nevada Supreme Court Knocks It Out of the Park on Pollution Exclusion
We are venturing a little afield from the Pacific Northwest today to acknowledge a big win for policyholders in Nevada. The Nevada Supreme Court in CENTURY SURETY COMPANY v. CASINO WEST INC, answering questions certified to it in 2012 by the Ninth Circuit (after oral argument was held back in 2011), held that the so-called "absolute" pollution exclusion is not in fact "absolute" when it comes to non-"traditional" pollutants.
The facts of this case are very sad: four people died in a hotel room situated over a pool heater room when carbon monoxide filled the room, due to a blocked fresh-air intake. The carrier denied coverage based on the pollution exclusion and an "indoor air quality" exclusion. (That "indoor-air" exclusion is not typical, and therefore I won't discuss it here). The federal trial court denied the carrier's motion for summary judgment, finding that both exclusions were ambiguous. However, the trial court (and then the Ninth Circuit) noted that there is a considerable split among the states on whether the modern pollution exclusion applies only to traditional pollutants or covers all substances arguably within the broad scope of its wording, but that the courts could not determine how the Nevada courts would come down in that debate.
The Nevada Supreme Court put itself firmly in the pro-policyholder camp, using an analysis that could have been lifted from some of the best Oregon case law on policy interpretation. The court first emphasized that insurance policies are interpreted from the perspective of the ordinary purchaser of insurance, not a lawyer or insurance professional. Second, the court emphasized that any ambiguity in a policy -- whether on its face or when applied to a factual situation -- is resolved against the drafter (the insurer) and that exclusions are read very narrowly, with the burden on the insurer to establish application.
With that, the court observed that although it would be reasonable to read the pollution exclusion as broadly applying, and including carbon monoxide, it would also be reasonable to take the policyholder's view that it only covers "traditional," outdoor, pollutants. The court noted that the exclusion is worded so broadly (using, for example, the term "irritants") that it could potentially apply to any substance including soap or shampoo, barring coverage for any accident involving such common, and usually innocuous, items. The court also noted that dictionary definitions of "pollutant" are narrower than the exclusion and implicitly refer only to "traditional" pollution. Finally, the court looked to the exclusion's drafting history, noting that it was put in place largely in reaction to the proliferation of environmental contamination statutes (like CERCLA). The court therefore found the exclusion ambiguous and adopted the policyholder's proposed interpretation, meaning that the carrier cannot rely on the exclusion.
The Nevada court's decision is similar in many ways to the seminal Oregon case on the subject, A-1 Sandblasting & Steamcleaning Co., Inc. v. Baiden, 53 Or. App. 890, 894, 632 P.2d 1377 (1981), aff’d, 643 P.2d 1260 (Or. 1982), in which the Oregon Court of Appeals held that paint was not within the ambit of the exclusion, and found the exclusion ambiguous. Nevertheless, insurers in Oregon continue to deny indemnity coverage -- and sometimes even a defense -- based on a broad interpretation of the pollution exclusion, perhaps because the exclusion is written so broadly and because so many other courts have applied the exclusion broadly. (Which again points to the need for additional disincentives in Oregon law for carriers to deny claims first to see if the insured will complain.) This new decision will make it more dangerous for carriers to take that approach, at least in Nevada.
The facts of this case are very sad: four people died in a hotel room situated over a pool heater room when carbon monoxide filled the room, due to a blocked fresh-air intake. The carrier denied coverage based on the pollution exclusion and an "indoor air quality" exclusion. (That "indoor-air" exclusion is not typical, and therefore I won't discuss it here). The federal trial court denied the carrier's motion for summary judgment, finding that both exclusions were ambiguous. However, the trial court (and then the Ninth Circuit) noted that there is a considerable split among the states on whether the modern pollution exclusion applies only to traditional pollutants or covers all substances arguably within the broad scope of its wording, but that the courts could not determine how the Nevada courts would come down in that debate.
The Nevada Supreme Court put itself firmly in the pro-policyholder camp, using an analysis that could have been lifted from some of the best Oregon case law on policy interpretation. The court first emphasized that insurance policies are interpreted from the perspective of the ordinary purchaser of insurance, not a lawyer or insurance professional. Second, the court emphasized that any ambiguity in a policy -- whether on its face or when applied to a factual situation -- is resolved against the drafter (the insurer) and that exclusions are read very narrowly, with the burden on the insurer to establish application.
With that, the court observed that although it would be reasonable to read the pollution exclusion as broadly applying, and including carbon monoxide, it would also be reasonable to take the policyholder's view that it only covers "traditional," outdoor, pollutants. The court noted that the exclusion is worded so broadly (using, for example, the term "irritants") that it could potentially apply to any substance including soap or shampoo, barring coverage for any accident involving such common, and usually innocuous, items. The court also noted that dictionary definitions of "pollutant" are narrower than the exclusion and implicitly refer only to "traditional" pollution. Finally, the court looked to the exclusion's drafting history, noting that it was put in place largely in reaction to the proliferation of environmental contamination statutes (like CERCLA). The court therefore found the exclusion ambiguous and adopted the policyholder's proposed interpretation, meaning that the carrier cannot rely on the exclusion.
The Nevada court's decision is similar in many ways to the seminal Oregon case on the subject, A-1 Sandblasting & Steamcleaning Co., Inc. v. Baiden, 53 Or. App. 890, 894, 632 P.2d 1377 (1981), aff’d, 643 P.2d 1260 (Or. 1982), in which the Oregon Court of Appeals held that paint was not within the ambit of the exclusion, and found the exclusion ambiguous. Nevertheless, insurers in Oregon continue to deny indemnity coverage -- and sometimes even a defense -- based on a broad interpretation of the pollution exclusion, perhaps because the exclusion is written so broadly and because so many other courts have applied the exclusion broadly. (Which again points to the need for additional disincentives in Oregon law for carriers to deny claims first to see if the insured will complain.) This new decision will make it more dangerous for carriers to take that approach, at least in Nevada.
Friday, June 6, 2014
Wash. Court of Appeals Gets It Dead Wrong on What Is a "Suit"
Earlier this week Division One of the Washington Court of Appeals issued its much-anticipated decision in the Gull Industries v. State Farm litigation. The issue was whether a letter from the state equivalent of the EPA constitutes a "suit" under a standard-form legacy GL policy (that is, a policy issued before the ISO form defined "suit"). Only if something constitutes a "suit" does the insurer have a duty to defend, which in the environmental context often means paying for very expensive investigations and studies of contamination and remediation options. So there is potentially a lot at stake.
One word describes this Court of Appeals decision: wrong. Confusingly enough, the decision starts off in the right direction, finding that the term "suit," undefined, is ambiguous. That's in keeping with that other courts have found, including Oregon's courts. That's where the decision falls apart: having found an ambiguity, the court should have applied the maxim that ambiguous terms are applied against the drafter (the insurer). But without any discussion of that standard, rather than adopting a broad, policyholder-friendly interpretation, the court imposed a definition not drawn from any source reflecting the view of an ordinary purchaser of insurance (like the dictionary); rather, the court looked to what other courts had adopted as an interpretation, and picked and chose among aspects of those decisions that it preferred. The interpretation adopted by the Court of Appeals for "suit" is this: something that "communicate[s] an explicit or implicit threat of immediate and severe consequences" if not responded to and is "adversarial or coercive in nature."
The letter sent by Ecology (the Washington state equivalent of EPA) was in response to a voluntary notification by the policyholder that pollution had been discovered and would be cleaned up. Ecology told the insured, in response, that it was placing the site on a list of contaminated sites awaiting cleanup. The letter did not explicitly tell the insured to do anything. But, as noted by the court, the letter advised the insured that there were specific requirements in state law that cleanup efforts must adhere to. Implied in that statement is the threat, drawn from the cleanup-requirements statute, that if those standards were not complied with, there will be enforcement action. But the Court of Appeals completely ignored that reality, simply saying that the letter "did not advise" the insured of those consequences.
The approach taken by Division One has been rejected by many courts, including the Ninth Circuit in Anderson Bros. v. St. Paul Fire & Marine. In Anderson Brothers the Ninth Circuit affirmed its observation in Aetna Cas. & Sur. v. Pintlar, that the realities of environmental statutes must be considered in deciding whether a communication from a regulatory agency that does not spell out every potential liability or ramification is a "suit." In Gull Industries the reality was that the the insured, after self-reporting the contamination, was going to constantly be looking over its shoulder to see what Ecology thought of what it was doing. That makes Ecology's letter a "suit."
The practical effect of decisions like this one is to discourage policyholders from voluntarily entering into agreements with regulators or self-reporting contamination and cleanup efforts. Instead, policyholders are encouraged to bait regulators into taking explicitly "adversarial or coercive" steps. That's bad for the environment and bad for the public. It may be that the Court of Appeals was trying to goad Ecology into changing the wording of its letters, but there's no reason that the burden of solving this problem should be put in the hands of environmental regulators. This may be a rare circumstance where Washington legislators and policyholder advocates can take a page from Oregon, and enact a Washington version of the Oregon Environmental Cleanup Assistance Act, which (as some of my colleagues have noted) contains a definition of the term "suit" that much broader than the standard adopted by the Washington court.
One word describes this Court of Appeals decision: wrong. Confusingly enough, the decision starts off in the right direction, finding that the term "suit," undefined, is ambiguous. That's in keeping with that other courts have found, including Oregon's courts. That's where the decision falls apart: having found an ambiguity, the court should have applied the maxim that ambiguous terms are applied against the drafter (the insurer). But without any discussion of that standard, rather than adopting a broad, policyholder-friendly interpretation, the court imposed a definition not drawn from any source reflecting the view of an ordinary purchaser of insurance (like the dictionary); rather, the court looked to what other courts had adopted as an interpretation, and picked and chose among aspects of those decisions that it preferred. The interpretation adopted by the Court of Appeals for "suit" is this: something that "communicate[s] an explicit or implicit threat of immediate and severe consequences" if not responded to and is "adversarial or coercive in nature."
The letter sent by Ecology (the Washington state equivalent of EPA) was in response to a voluntary notification by the policyholder that pollution had been discovered and would be cleaned up. Ecology told the insured, in response, that it was placing the site on a list of contaminated sites awaiting cleanup. The letter did not explicitly tell the insured to do anything. But, as noted by the court, the letter advised the insured that there were specific requirements in state law that cleanup efforts must adhere to. Implied in that statement is the threat, drawn from the cleanup-requirements statute, that if those standards were not complied with, there will be enforcement action. But the Court of Appeals completely ignored that reality, simply saying that the letter "did not advise" the insured of those consequences.
The approach taken by Division One has been rejected by many courts, including the Ninth Circuit in Anderson Bros. v. St. Paul Fire & Marine. In Anderson Brothers the Ninth Circuit affirmed its observation in Aetna Cas. & Sur. v. Pintlar, that the realities of environmental statutes must be considered in deciding whether a communication from a regulatory agency that does not spell out every potential liability or ramification is a "suit." In Gull Industries the reality was that the the insured, after self-reporting the contamination, was going to constantly be looking over its shoulder to see what Ecology thought of what it was doing. That makes Ecology's letter a "suit."
The practical effect of decisions like this one is to discourage policyholders from voluntarily entering into agreements with regulators or self-reporting contamination and cleanup efforts. Instead, policyholders are encouraged to bait regulators into taking explicitly "adversarial or coercive" steps. That's bad for the environment and bad for the public. It may be that the Court of Appeals was trying to goad Ecology into changing the wording of its letters, but there's no reason that the burden of solving this problem should be put in the hands of environmental regulators. This may be a rare circumstance where Washington legislators and policyholder advocates can take a page from Oregon, and enact a Washington version of the Oregon Environmental Cleanup Assistance Act, which (as some of my colleagues have noted) contains a definition of the term "suit" that much broader than the standard adopted by the Washington court.
Tuesday, June 3, 2014
Contempt Proceeding on Appeal Part of Underlying Claim for Purposes of Claims-Made Coverage
A federal judge in the Western District of Washington recently addressed a very uncommon issue in coverage litigation - whether a contempt proceeding is a new "claim" for purposes of a "claims-made" policy - that has resonance for a common issue in risk management: when to report a claim. In Great American Insurance Company v. Sea Shepherd Conservation Society the policyholder -- a conservation group -- was sued by a Japanese whale "research" organization to stop the group from interfering with whale "research" in the Pacific ocean. The trial court denied a request for an injunction, whereupon the group planned to set to sea and interfere with the "research." But the appeals court reversed and granted an injunction. The group stopped its planning, but some members of the group participated in some foreign organizations' efforts at sea, leading to a contempt motion being filed in the appellate court, naming some additional parties and alleging (obviously) violation of the restraining order. The appellate court set up a whole new proceeding to adjudicate the contempt issue, before the court commissioner. That process is still going on.
Sea Shepherd did not tender the claim until the contempt proceeding was initiated. The court held that although the contempt proceeding related to new facts, involved some additional parties, and was proceeding in a new forum (the appeals court), it was part of the original lawsuit, which qualified as a "claim" under the policy. Because the policy required that a claim be reported during the policy period or (at least) within 90 days of the end of the policy period, the court held that there was no duty to defend Sea Shepherd.
These are highly unusual facts so not too many lessons can be drawn from this case. One take-away, however: when trouble arises in a business, carefully consider, at every turn, whether what has happened is a claim to be reported or even just a "circumstance" that should be reported (a "notice of circumstance"). It is very unusual that a business gets in trouble for over-reporting a claim; it is much more usual, as in this case, for the opposite to be true.
Sea Shepherd did not tender the claim until the contempt proceeding was initiated. The court held that although the contempt proceeding related to new facts, involved some additional parties, and was proceeding in a new forum (the appeals court), it was part of the original lawsuit, which qualified as a "claim" under the policy. Because the policy required that a claim be reported during the policy period or (at least) within 90 days of the end of the policy period, the court held that there was no duty to defend Sea Shepherd.
These are highly unusual facts so not too many lessons can be drawn from this case. One take-away, however: when trouble arises in a business, carefully consider, at every turn, whether what has happened is a claim to be reported or even just a "circumstance" that should be reported (a "notice of circumstance"). It is very unusual that a business gets in trouble for over-reporting a claim; it is much more usual, as in this case, for the opposite to be true.
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