Benefits of Involving Counsel In Choosing Your Insurance Program

All companies routinely review their insurance coverage programs, usually through risk management talking to a trusted insurance broker.  Today I came across this excellent "Sound Advice" podcast from Tonya Newman, a colleague at Neal Gerber & Eisenberg in Chicago, about the reasons that companies should involve counsel in discussions at renewal time.  It is of course fairly self-serving to say so, but insurance coverage counsel can provide a perspective on what insurance to buy that brokers often cannot.  If coverage counsel have recently represented the company in coverage disputes they may be more intimately familiar with how standard-form exclusions intersect with the company's products or business practices.  And because insurance procurement decisions should involve a good deal of candid self-assessment, and review of prior claims, it may be worth while to consider doing that kind of assessment inside the attorney-client privilege rather than having the conversations strictly with an insurance broker who may be subject to subpoena in a later claim.  The presentation is very well done and I commend it to other policyholder counsel, brokers, and risk managers.

Trial Court Rejects Constitutional Challenge to New Provisions of OECAA

Today the trial court judge in the long-running environmental coverage contribution battle between Lloyd's and several other carriers for Zidell Marine rejected a constitutional challenge mounted by Lloyd's to one of the newest provisions of the Oregon Environmental Cleanup Assistance Act (OECAA).  This case has had many zigs and zags but to briefly sum up, Zidell sued its carriers for failing to defend it in a cleanup action brought by the state, both for defense costs and for the cost of the cleanup.  Several of the carriers including Beneficial settled with Zidell.  Lloyd's did not.  Lloyd's later was tagged in the coverage action (which itself has gone on for years with multiple trips up the appellate chain) for millions of dollars; Lloyd's then sued Beneficial and others arguing that those carriers did not contribute to the overall "pie" in proportion to their coverage.  In June of this year new amendments to the OECAA went into effect.  One provision of the amendments provides that a carrier that has settled with a policyholder in "good faith" is protected from a contribution suit by other, non-settling carriers.  Beneficial and the other defendants in the Lloyd's contribution case filed a motion to dismiss arguing that under that new provision, Lloyd's has no cause of action.  Lloyd's in turn argued, among other things, that a) the statute does not apply if there has been a "final judgment" in the underlying coverage case; b) the statute is unconstitutional; c) there are questions of fact about whether the Beneficial et al. settlements were in "good faith."  In today's decision the trial court held that there has been no "final judgment" in the coverage case between Zidell and Lloyd's, meaning that the statute applies, and rejected the constitutional argument.  She held, however, that there are some questions of fact and allowed discovery into whether the settlements were in good faith.  More appeals appear inevitable, so stay tuned.  However, this appears to be the first enforcement by a trial court of the new provisions of the OECAA, and the first rejection of a constitutional challenge to one of the new provisions, and it's certainly notable for that alone.

Presentation on Anderson Brothers Decision

For those of you who missed the OSB Environment and Natural Resources Committee's CLE on the Anderson Brothers decision yesterday, click here for the presentation visuals (via Prezi) and here for a short article that I wrote for ENR on the decision.  Thanks to everyone who came and for the great questions.

Oregon Supreme Court Sets Limits on What Constitutes "Proof of Loss" For Attorney Fee Purposes

Today the Oregon Supreme Court held that a policyholder is not entitled to attorney fees under Oregon's fee-recovery statute for insurance coverage disputes (ORS 742.061) until the insured has given the insurance company information that at least suggests that coverage is requested under the policy  The case is Zimmerman v. Allstate.  The facts, briefly: Zimmerman was injured in an accident with a motorist who it turns out was underinsured (UIM), but she didn't seek UIM coverage from Allstate from the outset of her claim, because she didn't know the extend of her injuries and didn't know what the policy limits of the other motorist were.  So at the outset she only made a claim for personal injury (PIP) benefits under her Allstate policy.  Later, after retaining a lawyer, discovering that her injuries exceeded her PIP benefit, and discovery that the other motorist only had the minimum in coverage, she made a demand for UIM benefits.  Allstate paid, and she then sought her attorney fees all the way back to the time that she submitted her first claim.

Oregon's attorney fee statute allows recovery of attorney fees if the carrier does not settle the claim within six months of "proof of loss."  (For UIM claims, a carrier may avoid fee exposure by doing other things as well, but that is specific to UIM claims).  The Oregon courts have interpreted the phrase "proof of loss" very broadly, to encompass virtually any kind of notice provided by the insured about the loss.  However, in this case the Court did not award fees all the way back to the initial notice, because auto coverage comes in two parts (reduced to its essence): PIP coverage, and UIM coverage.  The Court reasoned that because the trigger of coverage between the two forms of benefit are so different, and the initial notice provided by Zimmerman did not contain information directed at the UIM trigger of coverage, attorney fees would only apply based on the timing of the notice from Zimmerman that UIM coverage was being sought.

The Court went to great lengths to emphasize that the general law applicable to "proof of loss" was not changed by the decision, which was driven by the type of coverage involved.  It is, however, a reminder that policyholder counsel should inform carriers as soon as possible of every type of coverage claim that may potentially be implicated by a loss.

Washington Supreme Court Confirms that Washington Insurance Defense Counsel Has One Client: Insured

The Washington Supreme Court has confirmed the long-standing rule in Washington that a lawyer hired by an insurance company to defend an insured has only one client -- the insured -- and that the insurance company is not a client in any respect. This case arose out of a mechanic's lien dispute and evolved into a title insurer malpractice claim against a law firm - an interesting enough situation on its own.  The basic facts are these: a lender for purchase of a piece of land, Sterling, hired a title company -- Stewart -- to make sure that it would have a first priority lien.   Stewart messed up:  a general contractor, Mountain West, had already started work, giving it first priority.  Sterling got sued when Mountain West tried to foreclose on its lien.  Stewart was the title company and also, as is usual, issued a title insurance policy providing liability coverage to Sterling.  Stewart agreed to hire Sterling a lawyer, the well-known and well-respected Witherspoon Kelley firm.  A dispute arose between Witherspoon Kelley and the insurer, Stewart, over strategy.  The case ended badly, and the insurer, Stewart, sued the law firm for malpractice.

The problem for the insurer, Stewart, was that under long-settled Washington law, an insurance company is not a client of the lawyer that it hires to defend its insured.  (That is a different rule than in Oregon, where the insurance company and the insured are both clients of the attorney, with the attorney's primary duty and loyalty to the insured.)  Stewart argued that although it was a "nonclient," because its interests were aligned with those of its insured, it was an "intended beneficiary" of the representation of the insured, and could sue.  The Washington Supreme Court said no, that the "intent" is to be viewed from the perspective not of the insurer, but of the insured and its attorney, and that neither the insured nor the attorney intended to benefit the insurer.  The court also rejected the argument that because the lawyer had a duty to keep the insurance company informed about the case, the lawyer owed the carrier a duty; that contractual obligation, the court found, did not create a duty of care running to the carrier.

The court's holding is consistent with Washington's generally protective attitude toward the attorney-client relationship in the insurance-defense context, and the protections that it has extended in the Tank case and after to policyholders being provided a defense by their carriers.  The court acknowledged that its holding is in conflict with the law in other states.  (No published case law on the subject exists in Oregon, but one would expect Oregon to come out differently than Washington - see above.)  But that, of course, is what makes practicing in the Northwest enjoyable - cross a river, and the law is different!

Wonder Why You Never Hear About Crop Insurance Coverage Disputes? Here's Why

Short decision today from the Washington Supreme Court reversing the Court of Appeals on enforcement of an arbitration clause in an insurance policy.  Here the farmer wanted to sue both the insurance broker and the insurer at the same time to avoid the risk of inconsistent decisions, and having to litigate in two fora.  That's a common issue.  What is notable about the case is the kind of insurance policy involved: crop insurance, which is one of those features of the ag business that most people don't know about.  Crop insurance is issued by ostensibly private companies but underwritten by the federal government, and claims under those policies are tightly governed by federal law.  Part of the law requires that claims be dealt with in a federal arbitration program with very limited rights of review.  The law is so tight that very few folks challenge the arbitrability of these claims, resulting in a whole body of insurance coverage law being created outside of public view (except for the very intrepid) in an industry where losses are frequent and sometimes enormous.  Whether that's good public policy is for others to debate, but at least you know why you don't see courts issuing decisions on crop losses.

Rely On "Certificates of Insurance" At Your Great Peril

I came across this new decision from the Ninth Circuit, on a Washington case (full disclosure: I learned of it courtesy of a national firm's "Lexology" article), and it reminded me of a point that I continually try to hammer home with clients and transactional lawyers, who deal in these things daily: a "certificate of insurance" is barely worth the paper that it is printed on, and is never a substitute for a thorough review of the insurance policy itself.

In this case a hospital contracted with a nursing staffing service to provide skilled nurses.  As part of the deal the hospital required that the nursing staffing service demonstrate that it had adequate liability insurance.  The staffing service provided a certificate of insurance, which the underwriter prepared, showing that it had $5m of insurance.  Great.  What the certificate didn't show was that there was a $1m self-insured retention (SIR), meaning that the staffing service was responsible for the first $1m of any loss.  A patient was injured and sued both the hospital and the staffing service; damages were slightly less than $1 million.  The hospital convinced the plaintiff to drop the claim against the hospital by showing plaintiff's lawyer the certificate indicating plenty of coverage.  Plaintiff dropped the hospital, but when it got a judgment against the staffing service within the SIR, the service could not pay, and declared bankruptcy.  The plaintiff succeeded in getting its claim against the hospital revived.  Hospital sued the insurance company and the underwriter claiming that the certificate was deceptive.  Problem: the certificate (a standard form) has no blank for SIR or deductible, despite the fact that that is absolutely critical information.  The Ninth Circuit agreed with the trial judge that the hospital had no claim.

Lesson: if you do not have a long-standing business relationship, don't just ask for the certificate of insurance when entering into any kind of contract where insurance matters (and there are few such contracts) - ask for the policy itself, with all declarations and endorsements, and have it reviewed by someone familiar with insurance policies and finding "holes" in coverage, like a large SIR.