Since the Boston Marathon bombings, the hot topic in insurance coverage circles has been terrorism insurance. I was interviewed by Massachusetts Lawyers Weekly here on the subject.
After the events of September 11, 2001, insurers started excluding terrorism risks from their policies. In response, the federal government passed the Terrorism Risk Insurance Act ("TRIA"), under which the federal government acts as a "reinsurer" (basically an insurer's insurer that steps in if losses become too high). As I noted to Lawyer's Weekly, for the coverage to kick in, the Secretary of the Treasury must certify that an incident was an act of terrorism. If that happens, then businesses who purchased terrorism coverage will be covered, and those who did not purchase it will not be covered. If the event is not declared terrorism then -- presumably but not definitely -- neither the terrorism endorsement nor the terrorism exclusion would apply, and coverage would be determined under other policy terms.
So far, the Secretary of the Treasury has not made a determination one way or another, and there is no deadline by which he must do so. The Boston Globe has an article on the issue here.
To be clear, terrorism insurance is unlikely to affect third-party claimants -- the people who were injured or relatives of those who were killed in the bombings. Third-party insurance only applies if the insured was negligent. While some lawyers would no doubt be willing to explore a theory that the Boston Athletic Association -- the organization in charge of the marathon -- provided insufficient security, most of the injured will probably seek compensation from OneFundBoston, a nonprofit organization that has been set up to compensate the injured in a similar manner to the September 11 Victim Compensation Fund. (You can donate to OneFundBoston here.)
Terrorism insurance will cover first-party claims by businesses who purchased the endorsement whose property was damaged in the bombings and who lost income because of closures after the bombings.
The events in Boston are the first time that terrorism insurance has become an issue since TRIA was passed, and they have brought to light flaws in the legislation. Businesses who did not purchase the insurance -- most of those affected by the marathon bombings -- are advocating that the government not declare the bombings to be an act or terrorism, because such a declaration will mean that they don't have coverage for their losses.
TRIA is set to expire in 2014, and the debate over whether it should be renewed is underway. According to this article in Property Casualty 360, the Insurance Information Institute favors renewal of the act because insurers will simply exclude terrorism coverage if the act is not renewed. The Consumer Federation of America opposes renewal because it allows insurers to charge premiums without taking on risk (since losses are paid by the federal government).
The events in Boston have shown us that TRIA needs to be amended. Its unintended consequence is that the federal government has been put in the untenable policy position where if it declares an act to be terrorism, many businesses will lose out on insurance coverage.
The way to avoid that is to amend the Act. The terrorism endorsement should be made an expected, even mandatory, part of general liability policies and no additional premium should be charged for it. If claims are made, the government would pay insurers a fee to administer them.
The solution makes sense because it would acknowledge that terrorism is an attack on our country as a whole. It is not right that only certain, random businesses -- those that happen to be on a particular block of a particular street -- should bear the financial loss of such attacks. The businesses would have their losses paid by the government, which is funded by the entire country.
Moreover, the solution would address the concerns of both the Insurance Information Institute and the Consumer Federation of America. Insurers would continue to provide terrorism insurance as part of their policies. They would be paid for their actual work of administering claims. The government would be freed to make a determination of whether an act was terrorism based on whether or not it actually was terrorism, not on whether such a determination will cause businesses to close.
Tuesday, May 14, 2013
Saturday, May 4, 2013
SJC issues problematic decision on title insurers' duty to defend
The Supreme Judicial Court of Massachusetts has held that a title insurer does not have a duty to defend an insured against all counts of a complaint, and that a title insurer engaging in litigation to cure a title defect covered by the policy does not have a duty to defend the insured against reasonably foreseeable counterclaims.
Elizabeth Moore lived with her husband Thomas Moore. The title to the house was in Thomas's name. In 2001, as part of refinancing, Thomas executed a note and mortgage to a predecessor of GMAC, which obtained a First American title insurance policy. At that time he conveyed the property to himself and Elizabeth.
Due to an error in how the paperwork was filed, when Thomas died in 2007 the property vested in Elizabeth, to the exclusion of GMAC.
First American could have resolved this title defect through negotiation or by initiating litigation. It chose to initiate litigation on behalf of GMAC against Elizabeth. Elizabeth brought counterclaims against GMAC, alleging intentional infliction of emotional distress, violation of Mass. Gen. Laws ch. 93A, and money had and received for mortgage payments alleged to have been made to GMAC in error.
GMAC sought from First American costs incurred in defending the counterclaims.
In GMAC Mortgage, LLC v. First Am. Title Ins. Co., 464 Mass. 733 (2013), the Supreme Judicial Court of Massachusetts assumed that the counterclaims were not causes of action that were covered by the insurance policy. It addressed whether First American was nevertheless obligated to defend. It noted that the situation was analogous to a complaint that alleges some causes of action that are covered by an insurance policy and other causes of action that are not covered. In those situations, liability insurers have a duty to defend the whole action. (The court called this the "in for one, in for all" rule; I generally refer to it simply as the duty to defend.)
The court held that the in for one, in for all rule of general liability insurance defense does not apply to title insurance, because title insurance is fundamentally different from general liability insurance. Title insurance does not insure against future risks; it insures against risks (clouds on a title) that were in existence (but unknown) when the policy was issued.
The court's analysis is incorrect. Liability insurance often covers risks that are in existence but unknown when the policy was issued. Long-tail losses come to mind. Those are claims for environmental contamination or asbestosis, for example, where the loss occurred but was undiscovered over a long period of time.
The court continued, "in light of the limited purpose and scope of title as compared to general liability insurance, title insurers should not be obliged to defend against non-covered claims just because they may be asserted in litigation that also implicates title-related issues to a limited extent. Moreover, because title issues are discrete, they can be bifurcated fairly easily from related claims, . . . thus, the central policy behind that 'in for one, in for all' -- that parsing multiple claims is not feasible -- is not implicated to the same extent in the title insurance context as in the general liability insurance context."
The court also held that a title insurer has no duty to defend counterclaims that were a reasonably foreseeable response to a choice by the title insurer to institute litigation.
Somewhat offensively, in my view, the court noted that "because the issues covered by a title policy are relatively discrete, an attorney for a title insurance company (who typically specializes in real property issues) feasibly can defend only the title-related issues." While I am sure there are some attorneys for title insurance companies whose practices are limited to real estate litigation, title insurance companies are perfectly capable of hiring attorneys who have knowledge of both real estate litigation and tort litigation deriving from real estate disputes. But because the court thought that would be asking too much of title insurance companies, it declined to impose a complete defense obligation on them.
It also declined to impose that obligation because a "reasonably foreseeable" rule of title litigation "would quickly become a work-around to our conclusion that 'in for one, in for all' does not apply to title insurance." (Perhaps; but so what?)
In what reads to me as doublespeak, the court wrote, "we disagree with GMAC that it is the litigation initiated by a title insurance company that exposes the risk of third party claims. Instead the exposure to risk comes from the title defect itself, not its method of cure."
The court softens its position somewhat when it notes that in this case the counterclaims were a result of the fact that GMAC continued to pursue foreclosure when it knew of the title defect. "Moore may very well have sued GMAC for such intentional conduct even if First American had attempted to cure the title defect through negotiation s opposed to litigation. For this reason, we are unwilling to go so far as to say that First American invited the liability of Moore's action." That's a fine statement -- but it contradicts the court's holding that a title insurer has no duty to defend counterclaims that are a reasonably foreseeable response to litigation the insurer chose to litigate. The court is now saying that in this case the counterclaims were not a reasonably foreseeable result of the insurer's litigation -- they were a result of the insured's, not the insurer's, actions.
The court further softened its position by stating that a title insurer may have a duty to defend an insured against compulsory counterclaims.
Thanks to Mike Tracy at Rudolph Friedmann for bringing this case to my attention when it was first issued.
Elizabeth Moore lived with her husband Thomas Moore. The title to the house was in Thomas's name. In 2001, as part of refinancing, Thomas executed a note and mortgage to a predecessor of GMAC, which obtained a First American title insurance policy. At that time he conveyed the property to himself and Elizabeth.
Due to an error in how the paperwork was filed, when Thomas died in 2007 the property vested in Elizabeth, to the exclusion of GMAC.
First American could have resolved this title defect through negotiation or by initiating litigation. It chose to initiate litigation on behalf of GMAC against Elizabeth. Elizabeth brought counterclaims against GMAC, alleging intentional infliction of emotional distress, violation of Mass. Gen. Laws ch. 93A, and money had and received for mortgage payments alleged to have been made to GMAC in error.
GMAC sought from First American costs incurred in defending the counterclaims.
In GMAC Mortgage, LLC v. First Am. Title Ins. Co., 464 Mass. 733 (2013), the Supreme Judicial Court of Massachusetts assumed that the counterclaims were not causes of action that were covered by the insurance policy. It addressed whether First American was nevertheless obligated to defend. It noted that the situation was analogous to a complaint that alleges some causes of action that are covered by an insurance policy and other causes of action that are not covered. In those situations, liability insurers have a duty to defend the whole action. (The court called this the "in for one, in for all" rule; I generally refer to it simply as the duty to defend.)
The court held that the in for one, in for all rule of general liability insurance defense does not apply to title insurance, because title insurance is fundamentally different from general liability insurance. Title insurance does not insure against future risks; it insures against risks (clouds on a title) that were in existence (but unknown) when the policy was issued.
The court's analysis is incorrect. Liability insurance often covers risks that are in existence but unknown when the policy was issued. Long-tail losses come to mind. Those are claims for environmental contamination or asbestosis, for example, where the loss occurred but was undiscovered over a long period of time.
The court continued, "in light of the limited purpose and scope of title as compared to general liability insurance, title insurers should not be obliged to defend against non-covered claims just because they may be asserted in litigation that also implicates title-related issues to a limited extent. Moreover, because title issues are discrete, they can be bifurcated fairly easily from related claims, . . . thus, the central policy behind that 'in for one, in for all' -- that parsing multiple claims is not feasible -- is not implicated to the same extent in the title insurance context as in the general liability insurance context."
The court also held that a title insurer has no duty to defend counterclaims that were a reasonably foreseeable response to a choice by the title insurer to institute litigation.
Somewhat offensively, in my view, the court noted that "because the issues covered by a title policy are relatively discrete, an attorney for a title insurance company (who typically specializes in real property issues) feasibly can defend only the title-related issues." While I am sure there are some attorneys for title insurance companies whose practices are limited to real estate litigation, title insurance companies are perfectly capable of hiring attorneys who have knowledge of both real estate litigation and tort litigation deriving from real estate disputes. But because the court thought that would be asking too much of title insurance companies, it declined to impose a complete defense obligation on them.
It also declined to impose that obligation because a "reasonably foreseeable" rule of title litigation "would quickly become a work-around to our conclusion that 'in for one, in for all' does not apply to title insurance." (Perhaps; but so what?)
In what reads to me as doublespeak, the court wrote, "we disagree with GMAC that it is the litigation initiated by a title insurance company that exposes the risk of third party claims. Instead the exposure to risk comes from the title defect itself, not its method of cure."
The court softens its position somewhat when it notes that in this case the counterclaims were a result of the fact that GMAC continued to pursue foreclosure when it knew of the title defect. "Moore may very well have sued GMAC for such intentional conduct even if First American had attempted to cure the title defect through negotiation s opposed to litigation. For this reason, we are unwilling to go so far as to say that First American invited the liability of Moore's action." That's a fine statement -- but it contradicts the court's holding that a title insurer has no duty to defend counterclaims that are a reasonably foreseeable response to litigation the insurer chose to litigate. The court is now saying that in this case the counterclaims were not a reasonably foreseeable result of the insurer's litigation -- they were a result of the insured's, not the insurer's, actions.
The court further softened its position by stating that a title insurer may have a duty to defend an insured against compulsory counterclaims.
Thanks to Mike Tracy at Rudolph Friedmann for bringing this case to my attention when it was first issued.
Tuesday, April 30, 2013
Saturday, April 27, 2013
One more thing on waivers of liability in field trip permission slips
My testimony before the Boston School Committee meeting is here. My testimony starts around 23:35. Boston School Committee member Mary Tamer's exchange with legal advisor Alissa Ocasio begins at around 3:04:18. They agreed that Ms. Ocasio would provide the school committee with information about what other Massachusetts school districts do with respect to waivers of liability in permission slips. As far as I know Ms. Ocasio has not responded to that request yet. (But the answer is, it varies. Some districts use waivers and others don't. However, that is irrelevant. Other school districts should look to Boston, not the other way around.)
See my other posts on the issue here, here, and here.
See my other posts on the issue here, here, and here.
Thursday, April 25, 2013
Summary of Massachusetts Lawyers Weekly article on permission slip waivers
Yesterday's post noted that Massachusetts Lawyers Weekly published an article on my fight to have the Boston Public School system remove its waiver of liability from its field trip permission slips.
In response to requests from readers of this blog who do not subscribe to Lawyers Weekly, this is a summary of the article.
Lawyers Weekly nicely detailed my point of view on the issue, which I posted here. Lee McGuire of the BPS indicated that the BPS is not about to make any changes (but I note that the Boston School Committee requested additional information from the BPS legal department which, to the best of my knowledge, has not yet been presented). McGuire cited a 2002 Supreme Judicial Court case called Sharon v. City of Newton. In my opinion McGuire miscited the opinion, which addresses voluntary afterschool activities (in that case, cheerleading), and stated:
Throughout my dealings with the BPS, they have gone out of their way to assure me that my children will not be "penalized" if I choose not to have them participate in field trips because I don't want to sign the release of liability. They are doing that to get around the potential exception for public education activities stated in Sharon, trying to put field trips in the category of voluntary afterschool activities rather than an essential part of the public school curriculum.
As the article notes, both the BPS and I agree that the field trips are a very important part of the public education experience. In third grade at my kids' school, for example, the students study pilgrims. (The school does a fantastic job of integrating the point of view of Native Americans into the curriculum, by the way, including visits with members of the Wampanoag tribe.) A central feature of that course of study is a field trip to Plimoth Plantation. The attempt to put that field trip in the category of an afterschool activity rather than an essential part of the curriculum is flatly wrong, and I don't believe that a Massachusetts court would uphold that attempt. But Massachusetts courts have not ruled on the question of whether releases for essential public education activities are binding.
The article notes that I write on field trip permission slips that I am signing the waiver under protest. I don't want anyone to think that I am giving legal advice that such a notation would have any effect on whether or not the waiver is binding. But if we could get a significant group of parents to do it, the BPS might (or might not) take notice.
Finally, the article quotes me as saying that "I know that at some point someone is going to slip up and someone is going to get hurt." I did say that the reporter, but I regret it. What I should have said is that statistically it is likely that at some point in time some kid on a BPS field trip will be injured because of the negligence of the BPS or one of its partners. I am fully confident in both the BPS and its partners, but as a civil litigator I know that accidents happen. My point is that if an accident happens when a child is in the care of the BPS, whether on a field trip or otherwise, that child should have the same rights as anyone else. The BPS and the students in its care are best protected by insurance, not waivers of liability.
In response to requests from readers of this blog who do not subscribe to Lawyers Weekly, this is a summary of the article.
Lawyers Weekly nicely detailed my point of view on the issue, which I posted here. Lee McGuire of the BPS indicated that the BPS is not about to make any changes (but I note that the Boston School Committee requested additional information from the BPS legal department which, to the best of my knowledge, has not yet been presented). McGuire cited a 2002 Supreme Judicial Court case called Sharon v. City of Newton. In my opinion McGuire miscited the opinion, which addresses voluntary afterschool activities (in that case, cheerleading), and stated:
We have not had occasion to rule on the validity of releases required in the context of a compelled activity or as a condition for the receipt of essential services (e.g., public education, medical attention, housing, public utilities), and the enforceability of mandatory releases in such circumstances might well offend public policy. . . . In this case, Merav's participation in the city's extracurricular activity of cheerleading was neither compelled nor essential, and we conclude that the public policy of the Commonwealth is not offended by requiring a release as a prerequisite to that participation.(Emphasis added.)
Throughout my dealings with the BPS, they have gone out of their way to assure me that my children will not be "penalized" if I choose not to have them participate in field trips because I don't want to sign the release of liability. They are doing that to get around the potential exception for public education activities stated in Sharon, trying to put field trips in the category of voluntary afterschool activities rather than an essential part of the public school curriculum.
As the article notes, both the BPS and I agree that the field trips are a very important part of the public education experience. In third grade at my kids' school, for example, the students study pilgrims. (The school does a fantastic job of integrating the point of view of Native Americans into the curriculum, by the way, including visits with members of the Wampanoag tribe.) A central feature of that course of study is a field trip to Plimoth Plantation. The attempt to put that field trip in the category of an afterschool activity rather than an essential part of the curriculum is flatly wrong, and I don't believe that a Massachusetts court would uphold that attempt. But Massachusetts courts have not ruled on the question of whether releases for essential public education activities are binding.
The article notes that I write on field trip permission slips that I am signing the waiver under protest. I don't want anyone to think that I am giving legal advice that such a notation would have any effect on whether or not the waiver is binding. But if we could get a significant group of parents to do it, the BPS might (or might not) take notice.
Finally, the article quotes me as saying that "I know that at some point someone is going to slip up and someone is going to get hurt." I did say that the reporter, but I regret it. What I should have said is that statistically it is likely that at some point in time some kid on a BPS field trip will be injured because of the negligence of the BPS or one of its partners. I am fully confident in both the BPS and its partners, but as a civil litigator I know that accidents happen. My point is that if an accident happens when a child is in the care of the BPS, whether on a field trip or otherwise, that child should have the same rights as anyone else. The BPS and the students in its care are best protected by insurance, not waivers of liability.
Wednesday, April 24, 2013
Massachusetts Lawyers Weekly covers my efforts to remove release of liability from field trip permission slips
Saturday, April 6, 2013
What seemed like the circular firing squad of cost-savings measures is really a Christmas savings account masquerading as free money
When a friend of mine sent me a tip that the Davenport, Iowa community school district planned to take a one month "insurance holiday," I thought I was all set with a snarky and indignant post. A month without insurance? That's self-insurance, not always a terrible idea for a local government -- unless you've already entered into an insurance contract under which you are required to, you know, pay your premiums and all.
But as I looked into it, my snark gave way to confusion.
According to this article from the Quad City Times, the cost savings would be $2 million. According to its website, the school district has has 15,841 students and 2,200 employees. I'm not an underwriter, but $24 million a year in insurance to protect 18,000 people (plus various bystanders)? Keeping in mind that the premium is much lower than the insurance limit -- otherwise, what's the point? -- that's some serious disaster planning. Unless the district is talking about a holiday from health insurance for its employees, in which case the savings is about $900 a month per employee, which seems like a typical premium. Except that then all the employees will quit (or get too sick to work), which doesn't seem like good long-term planning.
And then there's this quote from the superintendent:
But as I looked into it, my snark gave way to confusion.
According to this article from the Quad City Times, the cost savings would be $2 million. According to its website, the school district has has 15,841 students and 2,200 employees. I'm not an underwriter, but $24 million a year in insurance to protect 18,000 people (plus various bystanders)? Keeping in mind that the premium is much lower than the insurance limit -- otherwise, what's the point? -- that's some serious disaster planning. Unless the district is talking about a holiday from health insurance for its employees, in which case the savings is about $900 a month per employee, which seems like a typical premium. Except that then all the employees will quit (or get too sick to work), which doesn't seem like good long-term planning.
And then there's this quote from the superintendent:
We have an insurance fund and over the years it has built up. so what we would do is use some of that build up rather than taking money out of our general fund to pay a month’s premium.So, it's not really a cost-saving measure at all. Or an insurance holiday. The district was putting money in an account for insurance, and every month it had a little extra, and the little extra accumulated, and now it's using the accumulation to pay its premiums for a month. That's simply getting caught up on your accounting and fooling some taxpayers along the way into thinking that your failure to stay caught up all along has miraculously produced a windfall.
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