Policyholder Counsel Should Welcome Changes to Proposed Revisions to FRCPs - But Still Push For Rejection

The Advisory Committee on Civil Rules recommends changes to the Federal Rules of Civil Procedure to the federal Judicial Conference.  For several years that body has been debating proposals to curb perceived discovery abuses (particularly in the area of e-discovery sanctions) and to bring down the cost of discovery in civil litigation overall.  On the discovery side, initial drafts of the proposed amendments included changes to the presumptive number of interrogatories, requests for admission, number of depositions, and the length of depositions.

As reported in various places incuding the K&L Gates' e-discovery blog the committee, which is having a final meeting on these rules here in Portland starting tomorrow, has largely dropped these proposals following significant opposition from many quarters including comments by law professors and various segments of the bar.  However, the committee is still promoting a dramatic change to Rule 26's foundational rule on the scope of discovery which would put the burden on the requesting party to justify discovery requests as being "proportional" to the case.  As articulated in comments  by policyholder counsel, this change will disadvantage businesses (and individuals) in litigation with insurance companies, where it is usually the "little guy" (the policyholder) who is trying to penetrate layer upon layer of insurance company bureaucracy to find the truth.  This often requires multiple rounds of discovery requests, multiple depositions and a lot of other types of digging.

So while it is good news that the committee has withdrawn the changes on discovery tools, the overall proposed change to Rule 26 is still cause for concern.  Unfortunately, opportunities for public input are limited after this point - the issue may become fodder for an unusual public fight in the Congress over the federal rules.

Twenty Questions to Ask Coverage Counsel In Business Litigation

The American Bar Association's Business Torts committee has posted an excellent article (registration, ABA membership required) on the 20 questions that a business owner should ask coverage counsel about potential coverage issues arising from business litigation.  These are the most critical, and often ignored, issues that must be considered when making decisions about coverage strategy.  Included among these are whether the insurer has the right to "recoup" defense costs that it pays if it is later determined that there is no indemnity coverage, and whether the insurer is entitled to receive attorney-client communications and what impact that might have on waiver issues.  Because the law on almost all of these issues varies state to state, businesses that get involved in litigation in multiple states may need to revisit these issues in each piece of litigation.  (Even where all policies are purchased in the same state, choice-of-law principles may not permit the law of that state to govern all coverage issues).  A very nicely done article!

Oregon Federal Court Rules on Characterization of Environmental Cleanup Costs

Last week Magistrate Judge Stewart issued an order on the thorny issue of how to characterize some of the costs associated with a complex environmental cleanup.  Are they indemnity costs that deplete the insured's insurance policies, or are they defense costs, which do not?  The decision resolves yet more issues in the Siltronic litigation between Siltronic, a major player at the Portland Harbor Superfund Site, its primary layer carriers (principally Wausau), and excess carrier AIG.  Siltronic has had to perform some cleanup-type work and extensive studies and monitoring at its facilities, well in advance of any cleanup of the contaminated sediment in the Willamette River that is the focus of the site.

Under the Oregon Environmental Cleanup Assistance Act's 2003 amendments certain investigatory costs are presumptively deemed "defense" costs, whereas some types of remedial costs are presumptively deemed "indemnity" costs.  But environmental sites are notoriously complex and what seems like remediation to some can look like further investigation to others.  In Siltronic the company and its primary-layer carriers reached an agreement on an allocation of the costs in such a way that the primary policy was exhausted, meaning that the excess carrier (AIG) would be on the hook.  AIG challenged the allocation, arguing that the primary carrier had designated many costs as indemnity that should have been defense.

Judge Stewart's decision is quite nuanced and deserves a close read.  Overall, her approach was to go behind the labels applied by the agencies, vendors, or attorneys to look at what was actually going on when a particular cost was incurred and its purpose, to see whether the statutory presumptions had been overcome (or whether they applied at all).  This decision is something of a harbinger for what will likely be significant disputes between policyholders, their primary carriers, and excess carriers when the "big" remediation at the Portland Harbor begins in earnest.

Oregon Bill That Would Assist Insurers In "Lost-Policy" Battles Dies

Those of us in the coverage game who deal with "long-tail" claims -- that is, claims under older occurrence-based policies -- routinely have to deal with a common problem: the policies are gone.  Businesses destroy old records, change hands, have a flood, etc., and the old insurance policies are gone.  Professional records managers are now trained to keep insurance policies forever and many have digitized their insurance archives.  But for those without such an archive the "lost-policy" battle with the insurance company (and often multiple carriers) can turn into a real bruiser.

This year the insurance industry proposed an innocuous-seeming bill in the Oregon legislature that would have permitted insurance companies to unilaterally cease sending the full copy of a new insurance policy to the policyholder, instead giving the policyholder a link to the policy forms hosted on the carrier's website.  The bill would have only required the carrier to keep the link live for the term of the policy, and would have only required the policy to be archived for ten years.  This bill appeared to have been part of a nationwide push by industry to save money, and trees (a laudable goal), by delivering policies electronically.  The difference in the Oregon bill, however, was that it did not permit policyholders to choose not to participate in the new scheme - every other piece of legislation that I could find required the policyholder to "opt in" before the carrier was excused from doing things the "old-fashioned" way.

I penned a letter to the chair of a Senate committee hearing this bill, available here, and testified against the bill.  More detail on the problems that I saw with the bill, and in particular the further leg-up that it would give insurers in future lost-policy battles, is in the letter.  The bill stalled in committee and died with the end of the short session.

This is a good example of how even small, seemingly insignificant, and possibly well-intentioned changes to the insurance code can have unforeseen repercussions in insurance coverage disputes.  Hopefully now that the policyholder bar is a bit more organized we can engage the industry on every change, not just the big ones.

Washington Federal Court: Insurer Cannot Litigate Contested Issues In Declaratory Judgment While Underlying Case Pending

With characteristic good humor, Judge Robart of the Western District of Washington recently reiterated a very important principle in the resolution of duty to defend issues: the insurance carrier may not seek a determination on the duty to defend while the underlying case is still going on if in doing so the court would be asked to make rulings that have any potential to prejudice the insured's defense of the underlying case.  You can find the decision here.  In thecase a law firm was sued by a former client over mishandling of discovery in a workplace injury case that resulted in the former client being sanctioned (and the lawyer involved being disciplined by the bar).  The firm's malpractice carrier agreed to defend but "reserved its right" to file a declaratory judgment action to determine whether certain potential exclusions precluded coverage, thus absolving it of the duty to defend.  Judge Robart solicited briefing from the parties as to how he might decide the carrier's contentions without prejudicing the defense of the underlying case.  But, as he noted, even the best laid plans of judges often go awry: the briefing only confirmed that because there were significant disputes of fact and law between the carrier and the law firm, including about when the firm "knew" about the discovery misconduct, continued litigation of the coverage dispute could prejudice the law firm's defense.  Therefore the court granted the law firm's motion to stay the case until after the underlying dispute resolved.  The lesson for policyholders is that although the standard admonition to carriers is to pick up the defense and then file a declaratory judgment action to resolve duty to defend issues, the carrier should not be permitted to always do so. 

Insured's Online Research Not Recoverable as Costs, Court Punts on Whether Recoverable as Fees

The Oregon Court of Appeals has once again confirmed that computerized legal research costs (Westlaw, Lexis, etc.) are not recoverable as costs under state law (in this case, the state law permitting recovery of costs on appeal), in a case arising out of a dispute over a homeowner's insurance policy.  The policyholder apparently argued that under the court's prior holdings awarding such research costs where a statute permits recovery of attorney fees.  Not so fast, noted the court: the policyholder didn't ask for research costs as fees, she asked for them as costs.  The court therefore declined to decide whether computerized legal research costs are recoverable as fees under ORS 742.061.  Although a small issue in the scheme of things, recovery of research costs in coverage cases is important because relatively few coverage issues have been addressed by the Oregon courts, requiring counsel to research out-of-state legal developments in order to render effective representation to policyholder clients.

In Case You Missed It - 2013 Wrap Up of Portland Harbor Coverage Cases

I am making an effort to get onto this blog every case of recent vintage touching on important coverage issues associated with the Portland Harbor Superfund Site (and there have been a lot of them).  Here's one from just before I started this blog last year - Siltronic Corp. v. Employers Ins. Co. of Wausau, 921 F. Supp. 2d 1099 (D. Or. 2013).  In this decision, Magistrate Judge Stewart (by consent of the parties) granted summary judgement in the insurer's favor on the issue of whether cleanup costs paid before there was a final agreement with DEQ/EPA on Siltronic's obligations exhausted the policy limits, thereby excusing any additional defense obligation.  Judge Stewart characterized Siltronic's argument as trying to add the term "final" to the exhaustion clause -- "exhaustion by payment of judgments or settlements" -- and rejected it, looking to Washington and Texas court decisions for guidance on what constitutes such payments in the environmental arena.  Somewhat ironically (given that this argument usually benefits the policyholder in a duty to defend dispute) Judge Stewart gave strong recognition to the somewhat unique structure of environmental "suits" as part of the decision.

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