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.

Major Victory for Policyholders in Oregon Environmental Coverage Dispute

Today the Ninth Circuit affirmed the trial court's decision in Anderson Brothers v. St. Paul Fire & Marine in favor of the policyholder in the first case to reach the Ninth Circuit on the issue of whether an EPA "104(e)" information demand triggers an insurance carrier's duty to defend.  I am very proud to represent Anderson Brothers, a family-owned and operated business with deep roots in Portland, in this litigation.  The decision, written by Judge Rheinhardt, confirms what not only the trial judge (Judge Mosman) had held, but what two other judges in Oregon have held, which is that a 104(e) letter from the EPA (in this case, issued as part of the Portland Harbor Superfund Site process) is one potential starting point for CERCLA's adversarial process involving (potentially) strict liability. As such, a 104(e) letter qualifies as a "suit" not only under Oregon common law but under the Oregon Environmental Cleanup Assistance Act (OECAA), Oregon's unique statute governing some environmental insurance claims.  This is a significant victory for a small business caught up in some very dramatic machinations here in Portland as insurance companies try to control their overall exposure to the costs of defending hundreds of businesses and government entities in the line of fire at the Harbor Site, and is proof positive that the Oregon legislature did right by small business when it passed the OECAA in 1999.

*Disclaimer:  Success in this (or any other) case does not guarantee success in any other case.

Oregon Federal Court: Participation in Superfund Site ADR Part of Defense Obligation

Judge Marco Hernandez recently issued his rulings after a bench trial in the long-running Ash Grove Cement Co v. Liberty Mutual et al. environmental coverage litigation.  In 2008 Ash Grove became embroiled in the Portland Harbor Superfund Site when it received a “104(e)” information demand from the EPA.  When Ash Grove’s insurers (including Liberty and Travelers) refused to pay for Ash Grove’s defense, it sued.  In 2010, Ash Grove prevailed on the issue of whether the “104(e)” letter triggered the duty to defend – an issue of first impression under Oregon law – meaning that Ash Grove’s insurers were held liable for defense costs.  Of course since 2008 a lot has happened at the Harbor, including the commencement of an ADR process involving all the major players at the site.  At the March, 2013 trial on Ash Grove’s damages, the insurers argued that even if (as the Court had already found) they are required to pay for the response to the “104(e)” letter, Ash Grove’s costs to participate in the ADR process are not a reasonable and necessary part of the defense to the "104(e)" letter.   In effect, the insurers were trying to pick apart the defense obligation into discrete parts.  Ash Grove argued that in a complicated, fluid, non-traditional situation like a Superfund dispute such an approach makes no sense.  Judge Hernandez’s Findings and Conclusions, available here, adopted Ash Grove’s argument.  In so doing he established an important precedent (on that issue, and others) for all of the other policyholders who are currently suing their insurers to cover costs of defense associated with the Harbor.  The insurers have pledged to appeal.

Insurer Gets Creative Seeking to Defeat SB 814 Independent Counsel Provision

Insurer CNA has filed its brief in the long running Schnitzer coverage litigation concerning defense coverage at the Portland Harbor Superfund Site and it's interesting reading.  The issue here is not the duty to defend per se, because Schnitzer's insurers are defending. The issue rather is whether the "independent counsel" provision of SB 814, the amendment to Oregon's Environmental Cleanup Assistance Act (OECAA) passed this last legislative session, mean that Schnitzer's insurers have to pay the full rates being charged by Schnitzer's Los Angeles-based environmental defense counsel.  So far CNA has been paying only what it claims is its ordinary "panel" rate for Oregon defense lawyers, which is a small portion of the hourly rate charged by Schnitzer's LA lawyers.

SB 814 contains a clause requiring an insurer to pay for experienced environmental counsel, which Schnitzer argues means whatever rates are charged by available experienced Superfund defense lawyers; since all of the lawyers with that kind of experience in Portland are already representing other entities at the Site, CNA must pay Los Angeles rates.

CNA makes the following arguments that I found interesting (and I'm paraphrasing heavily here): 1) the insurance policies (which are standard older GL forms) give it the absolute right to control the defense, and therefore the "savings clause" in the OECAA applies, negating the independent counsel provision; 2) SB 814 cannot apply to existing counsel that are already being paid by the insurance company because that would interfere with the Oregon State Bar's rules on conflicts of interest and attorney ethics, and the Legislature cannot overrule the Bar's rules.  The second point is the most creative, but seems a little thin at first glance.  The problem with the first argument is that Oregon courts have not directly confronted the scope of an insurer's right to control the defense - which CNA acknowledges by citing only out-of-Oregon cases in its brief.  But if CNA wins the day, that could spell trouble for anyone trying to take advantage of the independent counsel provision, not just those in Schnitzer's highly unusual situation.

Stay tuned, as they say.

Magistrate Judge Sullivan Endorses Conventional Wisdom on Oregon Bad Faith Claims

It is conventional wisdom in the insurance coverage bar that there is no bad faith claim available when a liability insurer breaches the duty to defend.  This is based on several rather old cases.  In more modern times the Oregon Court of Appeals has suggested that the issue may be ripe for re-examination.  But in this decision (link below) federal Magistrate Judge Sullivan adopted the conventional wisdom and granted a motion to dismiss the policyholder's bad faith claim.  What is somewhat remarkable here is that this is an environmental contamination coverage claim governed (it appears) under the Oregon Environmental Cleanup Assistance Act.  That Act was amended effective June 10, 2013 (a few weeks before this decision came down) to provide for bad faith claims in these kinds of situations (whether the amendments would apply here may be an open question).  No objections were filed, so Judge Hernandez adopted Judge Sullivan's findings without review.  This case may be a good illustration of exactly why the amendments (SB 814) adopted this legislative session were so necessary.

Russell v. Liberty Mutual Insurance Company, Dist. Court, D. Oregon 2013 - Google Scholar:

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Oregon Supreme Court Will Review Landmark Case on Stipulated Judgments

The Oregon Supreme Court has accepted review in the landmark Brownstone Homes Condo Ass'n v. Brownstone Forest Heights LLC case, on the issue of stipulated judgments.  To simplify greatly, the case involves a developer (the LLC) that was sued along with one of its subcontractors, A&T Siding, by the condo association.  A&T was denied coverage by its carrier, and so entered into a stipulated covenant judgment with the association in which it assigned its coverage claim against its carrier, Capitol.  The condo association then attempted to enforce the judgment as a garnishee on Capitol.  The trial court denied recourse, holding that: 1) under the "Stubblefield" rule Capitol had no liability because the covenant did not leave any potential unsatisfied liability; and 2) ORS 31.825 (which permits assignments) did not control because that statute requires that the assignment take place after judgment was entered, and here the assignment and judgment happened at the same time.  The Court of Appeals affirmed, holding that a garnishment proceeding by an injured claimant is subject to Stubblefield because of the Reuter decision, which limited the rights of a garnishee to those held by the primary defendant.  The court also agreed that ORS 31.825 requires a specific sequence in a stipulated judgment with assignment and that unless the proper sequence is followed, the statute has no application.  Finally, the court held that a good-faith-cooperation requirement in the agreement did not make the agreement Stubblefield-compliant with regard to the insured's continued exposure to liability.

The Oregon Supreme Court identified the following issues for appeal (I'm paraphrasing): 1) does Reuter really mean that Stubblefield applies to garnishment proceedings?; 2) does ORS 31.825 require that judgment-covenant proceed in a specific order; and 3) most tantalizingly, if the Court of Appeals were right on #1 and #2, should Stubblefield be abrogated?  The alignment of the parties and interests of the counsel pursuing the appeal are somewhat odd, so amicus participation seems likely.  This will be one to watch in the fall as briefing comes in.