Mountain Valley Property (MVP) purchased from Applied Underwriters a comprehensive insurance package that included multiple lines of insurance. As part of the package it entered into a three-year Reinsurance Participation Agreement (RPA) with AUCRA, a company related to Applied Underwriters. The RPA contained a mandatory arbitration clause and a Nebraska choice-of-law clause.
MVP sued Applied Underwriters and its related companies, asserting that the package was overpriced and that it was charged unlawful fees in premiums and in amounts claimed to be due under the RPA.
The United States District Court for the District of Maine referred the claims against AUCRA to arbitration for a determination of their arbitrability. The arbitrator ruled that the case was not arbitrable and had to be adjudicated in court.
The arbitrator noted that a Nebraska statute provides that a written contract to submit to arbitration a controversy thereafter arising between the parties is enforceable, except when the written contract "is an agreement concerning or relating to an insurance policy."
Section 1012(b) of the McCarran-Ferguson Act, 15 U.S.C.
§§1011-1015 provides, "No Act of Congress shall be
construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance . . .
unless such Act specifically relates to the business of insurance."
Therefore, the arbitrator concluded, the Federal Arbitration Act, which provides generally that arbitration clauses in contracts are enforceable, is "reverse-preempted" by the Nebraska statute.
AUCRA moved to vacate the arbitration award. That motion was denied. AUCRA appealed the denial of the motion to vacate.
In Mountain Valley Property, Inc. v. Applied Risk Services, Inc., __ F.3d __, 2017 WL 2981798 (1st Cir. 2017), the court did not determine whether the decision of the arbitrator was correct. It held that it was enough under the Federal Arbitration Act that the arbitration award did not demonstrate a manifest disregard for the law.
Thursday, July 27, 2017
Thursday, July 20, 2017
US District Court holds that Bill Cosby's homeowner's insurer has a duty to defend him in cases asserting he defamed alleged sexual assault victims by denying the assaults
I've posted here and here about the declaratory judgment action by AIG, Bill Cosby's homeowner's and umbrella insurer, seeking a declaration that it has no duty to defend or indemnify him in three defamation lawsuits against him. Those lawsuits allege that Cosby lied when he denied the plaintiffs' accusations that he raped them. They allege defamation rather than assault because the statute of limitations has run on assault claims The defamation allegations are not barred because the statements were made at a later period in time. (A criminal trial against Cosby for sexual assault ended in a mistrial as a result of a deadlocked jury.)
AIG contended that the defamation allegations come within an exclusion in the homeowner's policy for sexual misconduct excluding "liability . . . for . . . personal injury arising out of any actual, alleged, or threatened by any person: (a) sexual molestation, misconduct or harassment; . . . or (c) sexual, physical or mental abuse." The umbrella policy has a similar but not identical exclusion.
AIG had filed a declaratory judgment action in California with respect to a separate civil lawsuit by a plaintiff making the same allegations against Cosby. The California court granted Cosby's motion to dismiss. Applying California law, the California court held that AIG has a duty to defend Cosby because the sexual misconduct exclusions do not unambiguously bar coverage. It held that under that state's law the phrase "arising out of" can be interpreted broadly or narrowly. Under a narrow interpretation, the plaintiff's injuries arose out of Cosby's statements, not sexual misconduct.
In a recent decision in the Massachusetts case, AIG Property Casualty Co. v. Green, 217 F.Supp.3d 415 (D. Mass. 2016), the first issue before the United States District Court for the District of Massachusetts was whether AIG was judicially estopped from arguing that Massachusetts law differs from California law in the interpretation of "arising out of." In California AIG had argued that there was no difference between Massachusetts and California law because both states interpret the phrase broadly. In Massachusetts it was now arguing that there was a difference and that Massachusetts law should apply.
Let me say that as a litigator the discussion of judicial estoppel made my stomach hurt. The AIG attorneys in California had to argue that under both California and Massachusetts law the phrase "arising out of" is broadly construed. The only other alternative would be to concede that in one of the states the phrase is construed narrowly, and the court should apply the law of the state construing it broadly. Unless it was incontestably true that California construes "arising out of" narrowly, the latter argument would border on malpractice. When the California court held that "arising out of" should be construed narrowly in the context of the case before it, should AIG no longer be allowed to argue that Massachusetts construes the phrase broadly? In my view that would simply be unfair.
The US District Court agreed with me and declined, in its discretion, to apply the doctrine of judicial estoppel. It held that there was no evidence that AIG was attempting to defraud or mislead either court. It merely argued in California that coverage was barred under the law of either state. AIG would gain no unfair advantage by arguing in Massachusetts that the laws of California and Massachusetts conflict. (The court did not say this, but the conflict of law arose, or at least became more obvious, as a result of the California decision.)
That ruling became moot, however, because the court then held that the exclusions did not apply under Massachusetts law either. The court quoted a number of cases that vaguely define "arising out of" as requiring an intermediate level of causation, between proximate (or direct) cause but more than causation in fact (but for X happening, Y could not have happened). The court found that the sexual misconduct exclusions are "at least ambiguous." It held, "while no doubt related to and setting the stage for the defamation claims, the alleged sexual misconduct is multiple steps removed from the defamatory injury-causing statements."
AIG has appealed the decision. Stay posted.
AIG contended that the defamation allegations come within an exclusion in the homeowner's policy for sexual misconduct excluding "liability . . . for . . . personal injury arising out of any actual, alleged, or threatened by any person: (a) sexual molestation, misconduct or harassment; . . . or (c) sexual, physical or mental abuse." The umbrella policy has a similar but not identical exclusion.
AIG had filed a declaratory judgment action in California with respect to a separate civil lawsuit by a plaintiff making the same allegations against Cosby. The California court granted Cosby's motion to dismiss. Applying California law, the California court held that AIG has a duty to defend Cosby because the sexual misconduct exclusions do not unambiguously bar coverage. It held that under that state's law the phrase "arising out of" can be interpreted broadly or narrowly. Under a narrow interpretation, the plaintiff's injuries arose out of Cosby's statements, not sexual misconduct.
In a recent decision in the Massachusetts case, AIG Property Casualty Co. v. Green, 217 F.Supp.3d 415 (D. Mass. 2016), the first issue before the United States District Court for the District of Massachusetts was whether AIG was judicially estopped from arguing that Massachusetts law differs from California law in the interpretation of "arising out of." In California AIG had argued that there was no difference between Massachusetts and California law because both states interpret the phrase broadly. In Massachusetts it was now arguing that there was a difference and that Massachusetts law should apply.
Let me say that as a litigator the discussion of judicial estoppel made my stomach hurt. The AIG attorneys in California had to argue that under both California and Massachusetts law the phrase "arising out of" is broadly construed. The only other alternative would be to concede that in one of the states the phrase is construed narrowly, and the court should apply the law of the state construing it broadly. Unless it was incontestably true that California construes "arising out of" narrowly, the latter argument would border on malpractice. When the California court held that "arising out of" should be construed narrowly in the context of the case before it, should AIG no longer be allowed to argue that Massachusetts construes the phrase broadly? In my view that would simply be unfair.
The US District Court agreed with me and declined, in its discretion, to apply the doctrine of judicial estoppel. It held that there was no evidence that AIG was attempting to defraud or mislead either court. It merely argued in California that coverage was barred under the law of either state. AIG would gain no unfair advantage by arguing in Massachusetts that the laws of California and Massachusetts conflict. (The court did not say this, but the conflict of law arose, or at least became more obvious, as a result of the California decision.)
That ruling became moot, however, because the court then held that the exclusions did not apply under Massachusetts law either. The court quoted a number of cases that vaguely define "arising out of" as requiring an intermediate level of causation, between proximate (or direct) cause but more than causation in fact (but for X happening, Y could not have happened). The court found that the sexual misconduct exclusions are "at least ambiguous." It held, "while no doubt related to and setting the stage for the defamation claims, the alleged sexual misconduct is multiple steps removed from the defamatory injury-causing statements."
AIG has appealed the decision. Stay posted.
Thursday, July 13, 2017
US District Court denies summary judgment to insurer in bad faith claim on the basis of statements made by its attorney
In Continental Western Ins. Co. v. Preferred Mut. Ins. Co., 2016 WL 6434081 (D. Mass.), the United States District Court for the District of Massachusetts chose not to recite the facts, which were undisputed. So I'm guessing a little here, and I have no idea what the underlying case was about.
This appears to be a subrogation case. A subrogation case is one where an insurer paid a loss, and then sued the tortfeasor or other liable party for reimbursement of the amount it paid. In this case, the defendant in the subrogation case was covered by insurance, so it's an insurer versus insurer dispute. Preferred Mutual Insurance Company was the insurer seeking subrogation. Continental Western Insurance insured the individual sued by Preferred Mutual.
Continental turned the tables on Preferred Mutual and sued it, alleging that it engaged in unfair and deceptive trade practices by filing claims against Continental's insured without conducting a reasonable investigation based on all available information. Preferred Mutual moved for summary judgment, meaning that it asked the court to rule prior to trial that there were no facts in support of Continental's claim.
It lost, because of communications between its attorney and its claims specialist. Those statements included:
This appears to be a subrogation case. A subrogation case is one where an insurer paid a loss, and then sued the tortfeasor or other liable party for reimbursement of the amount it paid. In this case, the defendant in the subrogation case was covered by insurance, so it's an insurer versus insurer dispute. Preferred Mutual Insurance Company was the insurer seeking subrogation. Continental Western Insurance insured the individual sued by Preferred Mutual.
Continental turned the tables on Preferred Mutual and sued it, alleging that it engaged in unfair and deceptive trade practices by filing claims against Continental's insured without conducting a reasonable investigation based on all available information. Preferred Mutual moved for summary judgment, meaning that it asked the court to rule prior to trial that there were no facts in support of Continental's claim.
It lost, because of communications between its attorney and its claims specialist. Those statements included:
The evidence that Mr. Lodigiani was actually engaged in a partnership with Elvins Brantley appears thin.None of which is to say that Preferred Mutual can't prevail at trial. These may be isolated statements in a slew of evidence pointing to liability. But they are enough to require a trial where all the facts can be considered.
Preferred Mutual would have difficulty in sustaining the burden of proving Mr. Lodigiani was involved in a partnership with Elvins Brantley.
The law is clear, it is the facts that are in short supply.
It is likely we must ignore facts that cut against coverage and give Mr. Lodigiani the benefit of the disputed facts, among them his assertion that he was not in a partnership.
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