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Vol. 3, Iss. 7
April 23, 2014
Declarations:
The Coverage Opinions Interview With Robert Shapiro
Driving With An A-List Celebrity Lawyer; The Trial Of The Century; L.A. Traffic; LegalZoom Live; Predicting The Oscar Pistorius Verdict
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Very few lawyers are household names. Robert Shapiro is one of them. That’s because, well, he’s spent a lot of time in your household. First as O.J. Simpson’s attorney in the Trial of the Century that was broadcast non-stop, and captivated the country, for eight months in 1995. More recently Shapiro has been in your den as the public face of LegalZoom, telling you for years in the company’s commercials that they put the law on your side.
While these things have made Shapiro famous, there is a lot more to his career than O.J. and LegalZoom. A real lot. Mr. Shapiro was kind enough to speak with me about his long and impressive career, the impact of the Simpson case and few other things along the way.
No One Trick Pony
I called Shapiro’s Los Angeles office of hundred or so-attorney firm Glaser Weil Fink Jacobs & Shapiro LLP at the appointed time and waited while his assistant patched me into his car. That Robert Shapiro was speaking to me while driving in Century City just added to the experience of being on the phone with one of the all-time biggest celebrity lawyers. I didn’t ask him this, but even-money (or maybe even 5:4) says he was wearing four-figure sunglasses. At least that’s how I pictured him as we spoke.
I started by reading Shapiro his resume. Unlike many very successful lawyers, who got that way by doing one thing very well, Shapiro’s career is marked by tremendous diversity: prosecutor; defense attorney; commercial litigator; international lawyer; celebrity/entertainment lawyer; entrepreneur – founder of LegalZoom and Shoedazzle (an internet fashion subscription service); and author – The Search For Justice (Simpson case; New York Times bestseller) and Misconception (fiction). He is also Chairman of the Brent Shapiro Foundation, a nonprofit organization created to raise drug and alcohol awareness, named for his son who died from chemical dependency disease in 2005. Shapiro has served as a legal analyst on all major networks, appeared in three movies (as himself), been recognized as a “Top 100 Trial Lawyer” by the National Trial Lawyers Association and is the recipient of the pro-bono lawyer of the year from the State of Nevada. Of course, for some in L.A., they would say that Shapiro’s greatest achievement is that he has lots of mentions on TMZ.com.
After reading this list to Shapiro I asked him, after all he’s done, how much longer did he plan to go at it? He gave me no sense whatsoever that he is going to stop anytime soon. He told me that he’s currently involved in major civil litigation and still doing some criminal work. I guess it’s not surprising that this is the case. Shapiro is 71, which isn’t as old as it used to be, and he lives in L.A., where even the nachos are organic. And he also seems to be in very good physical shape. His hobby is boxing and he is very serious about it. I found some video of him in the ring. This isn’t exactly playing on the firm’s softball team.
That Robert Shapiro isn’t slowing down was proven beyond a reasonable doubt when I asked him this. If a major celebrity were charged with murder, the trial was going to last for many months, be the subject of cable news every night and, quite simply, grip the nation’s attention, would be take the case as the defendant’s lawyer? “That’s a great question,” he said. I was expecting him to take all of a nanosecond to answer – No. Been there. Done that. Once was enough. But, instead, he paused, then broke the silence telling me that he would “consider it.” He said it depended on the person and the circumstances.
As a celebrity lawyer, Shapiro’s list of clients is seriously A-List: In addition to O.J. Simpson, some others are or have been Christian Brando, Darryl Strawberry, José Canseco, Vince Coleman, Johnny Carson, Ol’ Dirty Bastard, Linda Lovelace, the Kardashians, Lindsay Lohan (briefly), Steve Wynn and Eva Longoria. Other high-profile clients include Golden Boy Boxing, Wynn Resorts and Rockstar Energy Drink.
I’m always curious if famous lawyers have it more difficult, because their opponents try harder to beat them, so they can hold up the win as a trophy. Shapiro didn’t think this was the case. Lawyers always want to win. But he did say that his success has made it easier to achieve favorable settlements in civil cases.
Misconception, Shapiro’s 2001 co-authored work of fiction, which I read in preparing for the interview, is excellent. It has an average of four stars out of five from (finicky) Amazon reviewers and several put the book in the couldn’t-put-it-down category. The book tells the story of a small-town Louisiana doctor, enjoying a perfect life, and who has now been nominated for Surgeon General of the United States. However, it all falls apart when a weekend of infidelity leads to a pregnancy, after which the doctor is then accused of murdering his own unborn child by slipping the mother the controversial abortion pill RU-486. Shapiro told me that the book was optioned for a movie but it couldn’t get made. The subject matter, the abortion debate, was simply too controversial for anyone to touch.
Speaking of works of fiction, Shapiro is not the only participant from the O.J. Simpson case to try his hand at that in the post-trial years. I put together this list of others: Marcia Clark (5 fiction books); Chris Darden (4); Alan Dershowitz (2); and even the Juice himself penned a (strange) fiction book. Is this just coincidence, was there something in the water in the L.A. criminal courts building or did the trial do something to its participants to force a need on them to express themselves in the form of storytelling? Shapiro didn’t see any cause and effect here – probably just people capitalizing on their name recognition to try to sell books.
The O.J. Simpson Case
One does not speak to Robert Shapiro without asking about The People of the State of California vs. Orenthal James Simpson. Despite all of Shapiro’s success – including before the Simpson case – O.J. is going to be mentioned in the first paragraph of his obituary. It is. And that’s not a bad thing. After all, Shapiro won a trial that looked impossible to win and he was at the helm of a case that will go down in legal history as one of the biggest of all time. Indeed, I believe that the Simpson case, despite making no law, can be talked about in the same sentence as Marbury v. Madison when it comes to its influence.
Since I strongly believe this, I asked Mr. Shapiro a simple question – what do you see as the impacts of the Simpson case? He gave me three.
First, it was the first time that the public got to see a real trial. Until then, trials were something that only existed on television shows. This brought home what a real drama, and its significance, looks like. Second, the case showed how different races can view the same evidence in such opposing ways. Third, the case demonstrated the value of forensic evidence – and the fact that it can be contaminated.
Shapiro is right about all of this. The Simpson trial really did show how the sausage is made. It was the first reality television show. Speaking of the case’s impact on race, the term “the N-word” became mainstream during the Simpson trial – used by the media to deal with Mark Furman’s testimony. Today we take forensic evidence and DNA for granted. But at the time of the Simpson case it was a curiosity.
And the list of impacts of the Simpson case goes on. The case will always be a part of the debate about cameras in the courtroom. The case demonstrated that cable news programming could be successfully accomplished by reporting on trials. Not to mention that it launched the careers of many on cable news.
Mark Geragos and Pat Harris say in their book, Mistrial, that the criminal justice system is becoming unfairly weighted toward the prosecution. The authors focus on three events in the 1980s and 90s that they say have caused this. The politicization of the justice system, i.e., political candidates cannot afford to be branded as soft on crime; the O.J. Simpson verdict serving as an “I told you so” moment – look, murderers are going free (the authors say that Simpson did it); and television commentators pandering to the O.J. crowd and ranting and raving that the court system is stacked against the victim and for the defense.
The Simpson case made celebrities of everyone involved. I’m pretty sure that if I stood at the corner of 17th and Market outside my office and showed people, of the right age, a picture of Judge Lance Ito and Supreme Court Chief Justice John Roberts, more people would recognize Ito – even after nearly 20 years. [Hey, when do the Summer Associates start?]
Lastly, the Simpson case brought us Jackie Chiles!
LegalZoom
Robert Shapiro is a co-founder of LegalZoom.com. You know exactly what they do. And you know exactly why you know -- the company’s long-running commercials where Shapiro tells you at the end that LegalZoom puts the law on your side. Shapiro told me that these days he is not involved in LegalZoom’s operations. In addition, his commercials are no longer used. It was decided that people got tired of seeing him.
I used LegalZoom as the basis to ask an obligatory insurance question. LegalZoom’s entire business is based on its position that it is not practicing law. Nonetheless, it is still doing things, of a legal nature, that potentially subject it to charges that it did something wrong, that caused a customer to suffer a financial loss. Because this business model is unique, I asked Shapiro if it was hard to place liability insurance for it. No, he told me. The company has been very careful to avoid any interpretation that it is in any way practicing law. That doesn’t mean that LegalZoom has not been accused of the unauthorized practice of law in some jurisdictions. But, Shapiro told me, the company has prevailed in all jurisdictions that have made such a charge.
Not that Robert Shapiro needed any more proof that, when you’re talking to me, you are not talking to Mike Wallace, this sealed the deal. I asked him if he wouldn’t mind saying his trademark LegalZoom tagline for me. He kindly obliged. And he didn’t mail it in either. No way. It was a serious effort. When he said to me “LegalZoom, we put the law on your side,” it had all of the inflections that you’ve heard on the commercials. It was fun, and kind of eerie actually, to hear this being the only listener. But what a good sport he was for indulging a little silliness on my part.
L.A. Traffic
Los Angeles is well-known for its interminable traffic. I asked Shapiro how he deals with this occupational hazard of the City of Angels. Most of the time he’s on the phone he told me. Blue tooth, he assured me, so he’s not breaking any laws. If not, it’s the Sinatra station on satellite radio or switching between CNN and Fox News.
[Shapiro is a Sinatra fan and represents Steve Wynn. As I was writing this I was reminded of that fantastic commercial from years ago for the Golden Nugget in Vegas where a very young Steve Wynn tells Sinatra that Wynn runs the place. Sinatra’s only reaction is to peel off a bill, place it in Wynn’s hand and say to him: “See that I get enough towels.” I know that this has nothing whatsoever to do with anything, but writing this made me think of it.]
The Oscar Pistorius Trial
I couldn’t let the call with Mr. Shapiro end without asking him about the Oscar Pistorius trial. The similarities between the Pistorius and Simpson cases are uncanny – both in their facts and gripping impact on their respective nations. Shapiro is confident that it is not going to end well for the Blade Runner. He told me that he has “no doubt” that Pistorius is going to be found guilty. Not to mention that he sees a conviction of homicide and not culpable homicide. [Culpable homicide, he explained to me, is South Africa’s equivalent to our manslaughter. But South African law is stringent about when you can use deadly force.]
Robert Shapiro is from a small town in central New Jersey and went on to conquer the legal profession in so many ways. As I was thanking him for his time, and we were exchanging final pleasantries, I summed up his career for him – “Not bad for a kid from Plainfield.” “No, not bad,” he said.
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Vol. 3, Iss. 7
April 23, 2014
Boy George Is Following Coverage Opinions On Twitter [Really, He Is]
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I had the thrill of meeting music and cultural legend Boy George last week. And he is now following Coverage Opinions on Twitter! For real. Check out the Twitter notice sent to Coverage Opinions.
And it’s really not surprising that Boy George would want to keep up with the latest developments in the world of coverage. After all, the most important insurance lizard is not the gecko. Not even close. It’s the Coverage Chameleon! Coverage Coverage Coverage Coverage, Coverage Chameleon….
Thanks Boy George for letting me get a picture and the Twitter follow.
Follow Coverage Opinions on Twitter @covopinions
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Vol. 3, Iss. 7
April 23, 2014
Randy Spencer’s Open Mic:
20 Song Titles
That Are Really Coverage Issues
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To most Culture Club fans, the group’s chart-topping hit, “Do You Really Want To Hurt Me?,” is about Boy George’s relationship with band drummer Jon Moss. But insurance coverage folks know what this smash hit is really about -- “Do you really want to hurt me?” is the pivotal question that will determine whether the “expected or intended” exclusion applies to bar coverage.
So that got me to thinking, what other song titles are really coverage issues in disguise? A lot, it turns out. Consider all of these coverage issues that you’ve been signing about over the years.
“Crumblin’ Down,” by John Mellencamp. Coverage Issue: Is faulty workmanship an occurrence?
“Pay It Back,” by Elvis Costello. Coverage Issue: Reimbursement of defense costs
“Stay (Just A Little Bit Longer),” by The Chantels. Coverage Issue: Extended Reporting Period
“Always Crashing The Same Car” by David Bowie. Coverage Issue: It’s time to non-renew this policy
“Same Mistakes,” by One Direction. Coverage Issue: Single occurrence
“Who Are You?,” by The Who. Coverage Issue: You are not an insured
“I Can’t Stop Hurting You,” by Rick Springfield. Coverage Issue: Continuous trigger
“Leave Me Alone,” by Michael Jackson. Coverage Issue: Insured’s right to independent counsel
“Rock ’n Roll Ain’t Noise Pollution,” by AC/DC. Coverage Issue: Pollution exclusion is limited
to traditional environmental pollution
When It’s All Over,” by Alicia Keys. Coverage Issue: Claim first made after the policy expired
“Stand By Me,” by Ben E. King. Coverage Issue: Is there a duty to defend?
“I Don’t Know,” by Ozzy Osbourne. Coverage Issue: Montrose Endorsement does not apply
“Help me, Rhonda,” by the Beach Boys. Coverage Issue: Insured named Rhonda has a duty to cooperate
“Daddy’s Gonna Pay For Your Crashed Car,” by U2. Coverage Issue: There’s been no tender of claim
“Feel No Pain,” by Sade. Coverage Issue: Insurer not prejudiced by late notice
“I Didn’t Mean To Hurt You,” by John Lennon. Coverage Issue: Intentional conduct can still be an accident
“Innocent Man,” by Billy Joel. Coverage Issue: Criminal act exclusion does not apply
“Severe Emotional Distress,” by Into Eternity. Emotional injury, without physical manifestation, is not “bodily injury.”
“I Won’t Pay Your Price,” by Motorhead. This mediation is over.
And some recording artists are themselves coverage issues in disguise. Cher is Allocation and INXS was formed by a bunch of guys from an umbrella unit.
That’s my time. I’m Randy Spencer.
Contact Randy Spencer at Randy.Spencer@coverageopinions.info
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Vol. 3, Iss. 7
April 23, 2014
Justice Sonia Sotomayor Declines Request For Coverage Opinions Interview –
But In Such A Gracious Way
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Of course I was disappointed when U.S. Supreme Court Justice Sonia Sotomayor declined my request to be interviewed for Coverage Opinions. But I was not disappointed, nor surprised, in how gracious Her Honor was in turning me down. If nothing else it was exciting to see Coverage Opinions mentioned on Supreme Court letterhead.
See Justice Sotomayor’s letter here
Justice Sotomayor is not going to see any liability coverage cases at One First Street. That’s for sure. Liability coverage issues never get to the U.S. Supreme Court. [There is a greater chance of me playing in the NBA than the Supreme Court agreeing to hear a pollution exclusion case.] But then-Judge Sotomayor was involved in a lot of them during her time on the Second Circuit and District Court.
When Judge Sotomayor was nominated to the Supreme Court in 2009, by a Democratic President, she was, not surprisingly, labeled a liberal in this age of the politicization of the Supreme Court nomination process. At the time of her nomination I looked at Judge Sotomayor’s body of opinions that she had authored in liability coverage cases. My conclusion -- Judge Sotomayor had been very (make that very, very) insurer-friendly during her time on the bench. In fact, at one point in my review, I actually said to myself, Has she ever ruled in favor of a policyholder? She had, of course, but her record reflects that her decisions had overwhelmingly been in favor of insurers. In general, not what you would have expected from someone being tagged as a liberal. The final score was insurers by a landslide. [My report on Judge Sotomayor’s insurance record was picked up by The Philadelphia Inquirer, the insurance press and loads of blogs. It was pretty neat.]
Here are some key quotes from a sample of Judge Sotomayor’s opinions in coverage cases that have favored insurers:
Maska U.S., Inc. v. Kansa General Ins. Co., 198 F.3d 74, 84 (2d. Cir. 1999) (Sotomayor, J.) (“We hold that the absolute pollution exclusions in the Zurich policies do not violate any established Vermont public policy, and that Maska has waived its contention that Zurich's failure to comply with the statutory filing requirements voids the exclusions. We further hold that coverage is not available under U.S. Fire’s Defender policy because the underlying environmental liability claims were neither asserted against Maska nor reported to U.S. Fire during the policy period.”).
Greenidge v. Allstate Ins. Co., 446 F.3d 356, 364 (2d. Cir.) (Sotomayor, J.) (“Unfortunately, it was the Greenidges’ own actions, and not Allstate’s, that put them at risk of a large adverse judgment. The law of bad faith is not intended to reduce the incentives of insured parties to protect their own interests in situations where they are empowered to do so. In the instant case, the Greenidges had ample opportunity to protect their own interests. Allstate was aware of the options available to the Greenidges, and it was also aware that the Greenidges were represented by private counsel. Allstate was therefore entitled to assume that the Greenidges would take steps to protect their own interests. The Greenidges’ failure to do so does not convert Allstate's refusal to accept the Seay plaintiffs’ settlement offer into a display ‘of recklessness on the part of the insurer.’”).
Hugo Boss Fashions, Inc. v. Federal Insurance Co., 252 F.3d 608, 625 (2d. Cir. 2001) (Sotomayor, J., Dissenting): “I am in agreement with the majority on all matters except the duty to defend. The majority holds that even when an insurance policy exclusion unambiguously denies coverage, an insurer will need to defend a suit whenever it is ‘uncertain’ that this Court would have concluded that the policy exclusion was unambiguous. … Because I find no such requirement in New York law, I respectfully dissent from Part II.A. of the majority’s opinion.”).
Tradin Organics USA, Inc. v. Md. Cas. Co., 2009 U.S. App. LEXIS 7918, *1-2 (2d. Cir.) (Summary Order) (“Exclusions like the ‘Your Product’ exclusion here are ‘intended to exclude coverage for damage to the insured’s product, but not for damage caused by the insured’s product to persons or property other than the insured’s own product. … As such, the risk that [Tradin] would be required to make good on its warranty of quality was a contractual or commercial risk that [Maryland] did not intend to insure. The policy provided by Maryland was a liability policy, not a performance bond. Because Tradin’s claim was based on damage to Tradin’s product--a risk specifically excluded by the ‘Your Product’ provision--Maryland properly denied coverage of the claim.”) (citations and internal quotation marks deleted).
United States Underwriters Ins. Co. v. Affordable Hous. Foundation, 88 Fed. Appx. 441, 441-42 (2d. Cir. 2004) (Summary Order) (“For substantially the reasons discussed by the district court, and after conducting our own close reading of the policy, we conclude that - despite the L-257 endorsement letter - the policy remains unambiguous with respect to the question disputed by the parties. Examining the policy as a whole, we find that the policy, irrespective of whether the conditions of the L-257 letter are met, unambiguously excludes bodily injuries to the employees of contractors from coverage.”) (citations and internal quotation marks deleted).
A.M. v. Royal Ins. Co. of Am., 2000 U.S. App. LEXIS 12036, *2-3 (2d. Cir. 2000) (Summary Order) (“Hazard claims, however, that these exclusions (‘the Abuse Exclusions’) do not apply because, as the settlement agreement with A.M. and D.M. stipulates, he was criminally insane when he committed the underlying acts against A.M., and an insane individual cannot form legal intent under Vermont law. … We reject this argument. Unlike the ‘intentional acts’ exclusion in the policy at issue in Combs, which barred coverage for intentional conduct by the insured, the Abuse Exclusions in this case do not, on their face, require that the insured have acted intentionally. Moreover, we are unpersuaded by Hazard’s claim that the exclusions contain an implicit intent requirement. Given that a separate provision of each policy expressly excludes coverage for injury ‘which is expected or intended’ by the insured, reading an intent requirement into the ‘Abuse Exclusions’ as well would render the latter provisions all but superfluous.”).
Mount Vernon Fire Ins. Co. v. Chios Constr. Corp., 1996 U.S. Dist. LEXIS 414, *9-10 (S.D.N.Y.) (Sotomayor, J.) (“Thus, there is not even a metaphysical possibility that the Doctor injury claim is covered. Although Frka, the Chios employee on site, states that ‘no subcontractor was permitted to work at any of the job sites without Chios supervision,’ this statement does not magically transform C & T from an independent contractor into a Chios employee or agent. On the factual record before me, it is clear that Chios never treated its subcontractors as employees or agents and that C & T controlled the means and manner by which its work was performed.”).
I am disappointed that I won’t be able to ask Justice Sotomayor, as, of course, I would have, whether Her Honor misses hearing liability coverage cases. [Like there could be any doubt.] But I appreciate that she took the time to consider my request. |
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Vol. 3, Iss. 7
April 23, 2014
Alice In Wonderland Provides Proof That The Legal System Makes No Sense
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Last month, Justice Don Willett dissented from the Texas Supreme Court’s denial of a petition for review in El-Ali v. State. The case involved the Texas civil forfeiture statute. In doing so, Justice Willett observed that “[a] generation ago in America, asset forfeiture was limited to wresting ill-gotten gains from violent criminals. Today, it has a distinctive ‘Alice in Wonderland’ flavor, victimizing innocent citizens who’ve done nothing wrong.”
Alice in Wonderland is considered one of the best examples of the literary nonsense genre. It has become the proverbial analogy to something that doesn’t make sense. It even has a dictionary entry, meaning “suitable to a world of fantasy or illusion,” according to the folks at Merriam-Webster.
It turns out that Justice Willett isn’t the only one to see Alice in Wonderland as an appropriate way to describe something in the legal system as suitable to a world of fantasy or illusion. In fact, this has been going on as far back as 1929. And there have been about 700 more cases since then where a court saw something as sufficiently out of whack to warrant an analogy to Alice’s trip down the rabbit hole. Needless to say, that speaks volumes about the system.
Here are some examples where a court or party in a case needed to resort to Alice in Wonderland to make a point about something just not making sense.
The first time was Tall Timber Lumber Co. v. C.I.R., 16 B.T.A. 300 (Board of Tax Appeals 1929) (“Invested capital is a statutory creation, the nature of which is at times so confusing that a Senator of the United States recently, while speaking to the Senate, compared the statute to ‘Alice’s Adventures in Wonderland.’”).
Here are a few more good examples of judicial opinions – these involving insurance coverage -- that engaged in Alice in Wonderlanding:
SR Intern. Business Ins. Co. Ltd. v. World Trade Center Properties, LLC, 445 F. Supp. 2d 320 (S.D.N.Y. 2006) (“When the Insurers focus on broad principles and not on the actual words at hand, these broad principles become the grin on the Cheshire cat: When the Insurers are all done, the cat-the text of the Travelers policy-disappears, and all that is left is the grin. Lewis Carroll, Alice in Wonderland 67 (Grosset & Dunlap 1972) (1865). That is no way to read an insurance policy, or indeed any other document.”).
Continental Western Ins. Co. v. Pimentel & Sons Guitar Makers, Inc., 2006 WL 6335399 (D.N.M. 2006) (“When faced with this ‘Alice in Wonderland’ area of the law, Continental chose not to define the terms, ‘trademark’ and ‘other intellectual property rights,’ in its policy. Now, Continental argues that the terms trademark and trade name ‘clearly’ apply to the claims at hand.”).
Hartford Ins. Co. of the Midwest v. Minagorri, 675 So. 2d 142 (Fla. Ct. App. 1996) (“By contrast, the tortfeasor in the present case had coverage that was lower than Minagorri’s limits. Although Hartford’s argument engages in the Alice-in-Wonderland practice of departing from the usual meaning of words, it does not take a leap through the looking-glass for this Court to conclude that the tortfeasor who injured Minagorri was ‘uninsured’ to the extent those injuries exceeded the policy limits.”).
Taylor Morrison Services, Inc. v. HDI-Gerling America Ins. Co., 746 S.E.2d 587 (Ga. 2013) (“Humpty Dumpty used a word to mean ‘just what [he chose] it to mean—neither more nor less,’ and [insurers], too, are free to be unorthodox, but when they seek to use a term in an unusual way, they need to clearly signify the unusual sense in which the word is used. Cf. Lopez v. Gonzales, 549 U.S. 47, 54–55(II), 127 S.Ct. 625, 166 L.Ed.2d 462 (2006) (citing L. Carroll, ALICE IN WONDERLAND and Through the Looking Glass at 198 (Messner 1982)).”). |
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Vol. 3, Iss. 7
April 23, 2014 |
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Court Holds That Policyholder Counsel’s Rate Of $1,000 Per Hour Is Reasonable
Addressing a policyholder’s right, under New York law, to recover legal fees to establish its entitlement to a defense, a Louisiana federal court had this to say: “ILU argues that the fees charged by Dickstein Shapiro are unreasonably high, specifically honing in on Heintz’s hourly rate of $1,000. After reviewing the documents provided by LaGen, including copies of the unredacted invoices, the Court concludes that the hourly rates of (1) Heintz for $,1000; (2) Kanemitsu for $630; and (3) the various associates for between $290–490 are reasonable. Though they are slightly higher than market rates found by other courts, see Bravia Capital Partners, Inc. v. Fike, 296 F.R.D. 136, 145 (S.D.N.Y.2013) (citing cases which found that an hourly rate of $550–425 for partners and $221–325 for associates was reasonable), the Court finds that the complexity of the issues presented; the skill required to perform the legal services properly; the high stakes of the underlying litigation and the favorable results obtained by Dickstein Shapiro; and the experience, reputation, and ability of the firm’s attorneys warrants an hourly rate slightly higher than what may be customary in the Southern District of New York.” Louisiana Generating LLC v. Illinois Union Ins. Co., No. 10-516 (M.D. La. Mar. 27, 2014).
More On The “Coconut Exclusion”
The March 19th issue of Coverage Opinions addressed the “Coconut Exclusion” that was at issue in Brooks v. Zulu Social Aid and Pleasure Club, No. 2012CA1307 (La. Ct. App. Mar. 6, 2013). At stake was coverage for injuries sustained by a parade spectator when a coconut, thrown by a rider in the Zulu parade, hit her in the face. The liability policy at issue contained a “Coconut Exclusion,” which provided: “[i]t is hereby agreed and understood that there will be no coverage for any coconut thrown in any fashion from anywhere on the float. Coconuts may be handed from the first layer of the float only.”
To me, the Coconut Exclusion seemed un-crackable as applied to the facts of the case. Not being one to run away from a tough issue, Josh Pollack, of Proskauer’s Los Angeles office and member of the Insurance Recovery & Counseling Group, sent in this effort to help the policyholder get coverage for the problems caused by an awry coconut toss.
“Alas, the poor coconut. Much maligned, often the subject of jokes (I won’t milk this one), and frequently tossed at parade goers during Mardi Gras, it has now lost insurance coverage if thrown “in any fashion” from a float. Talk about injustice. It is bad enough that the lowly coconut is torn from its home in paradise and passed around like a trinket. At least it was able to recover insurance if a float rider threw it at someone. Now the coconut has lost even that last semblance of dignity.”
The Coconut Exclusion in Brooks v. Zulu Social Aid and Pleasure Club “clearly should be rejected as violating public policy. How can anyone with common decency even suggest that a coconut should only have insurance coverage if “handed” from a float? The real harm to the coconut comes from being tightly gripped and thrown like a baseball (the humiliation!). Although the Louisiana Court of Appeals was correct in reversing the trial court’s grant of summary judgment to Lloyd’s, its reasoning was flawed. The trial court should have stood up for the rights of coconuts and ruled that the ‘Coconut Exclusion’ is unenforceable as a matter of law. Zulu was nuts to agree to the exclusion in the first place.”
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Vol. 3, Iss. 7
April 23, 2014
Appeals Court:
You Can Knock Your Wife’s Lover Unconscious At A Urinal And Get Coverage
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Back in the January 8th issue of Coverage Opinions I mentioned a coverage case involving two guys fighting at a urinal in a bar. Mercury Casualty Co. v. Noll (Cal. Ct. App. Sept. 26, 2013). Well here’s another recent one in the urinal fighting genre. And it’s even more interesting. In Noll the two guys didn’t know each other. But, in Schaefer v. Allstate, No. 27109 (Ohio Ct. App. Apr. 9, 2014), the guy seeking coverage knocked his wife’s lover unconscious at the urinal. In Noll the court flushed the insured’s hope for coverage. But, in Schaefer, the court held that the insured was entitled to coverage.
Of course Schaefer involved whether coverage was owed for a seemingly intentional act. The appeals court reversed the trial court which had found that no coverage was owed for that reason. The appeals court, resting its decision on the basis that an intentional act can be an accident, when the injury is unintended and unforeseen, concluded that, based on the following facts, that there was a genuine issue of fact as to whether the insured’s push to the victim’s shoulder could reasonably be expected to result in him falling over and sustaining injury:
“Musil testified that he noticed Schaefer ahead of him in line for the restroom, but was not certain it was him until Schaefer turned out of line to step up to a urinal. At that time, Musil was approximately three people back from the adjacent urinal. According to Musil, he stepped out of line and stood next to Schaefer. While yelling at Schaefer to leave his wife alone, Musil pushed Schaefer’s right shoulder, attempting to turn him so that Schaefer would be facing Musil. Schaefer fell, hit his head, and was rendered unconscious. Musil testified that he was ‘shocked’ and thought Schaefer was ‘faking it,’ but did not touch him because he was worried that someone would misinterpret his attempt to help. Instead, Musil stood and waited for security to arrive. Schaefer testified that he suffered lacerations and bruises to his head.”
Wow. Two urinal-related liability coverage decisions in a six-month period. I hope we see a steady stream of these. |
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Vol. 3, Iss. 7
April 23, 2014
Insurance Adjuster Goes Wild
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I take my work seriously. And so do you. But sometimes people can just go over the top in attempting to accomplish something on the job. Such was allegedly the case in Robinson v. Affirmative Insurance Holdings, Inc., No. 12-2159 (N.D. Ala. Mar. 27, 2014).
On January 27, 2010, Pearlie Robinson went to bed with her 2008 Kia Spectra parked outside of her home. The following morning there was no longer a 2008 Kia Spectra outside her home. Robinson reported the incident to law enforcement authorities as a “theft.” They eventually recovered the Kia but it had sustained damage that had not existed prior to being stolen. Robinson was insured under a policy issued by Affirmative Insurance Company that provided for “full coverage” for loss and damage resulting from “theft, fire, larceny, malicious mischief and/or vandalism.”
Robinson notified AIC and USAgencies Management Services of the damage and submitted a claim. During the course of AIC and USAgencies’s investigation into the claim they suggested that the evidence they had obtained demonstrated that Robinson had been involved in the damage to the vehicle. They advised her that, unless she dropped her claim, they would turn their investigation results over to law enforcement, who would charge her with arson and/or insurance fraud. Robinson’s claim was denied on the basis that the damage to her vehicle did not fall within the policy’s definition of “loss.”
The opinion does not address what “evidence” had allegedly been uncovered to suggest that Robinson had played a part in the damage to the vehicle. But Robinson obviously did not believe it to be the case as she filed suit against various parties, asserting several causes of action, including intentional infliction of emotional distress. The court dismissed Robinson’s count for intentional infliction of emotional distress, but granted her leave to amend the complaint to plead more serious factual allegations.
But here’s the best part of the case. The defendants argued that the conduct alleged by plaintiff did not rise to the level of outrage as recognized in Alabama case law. Why not? Well, because what happened to Ms. Robinson wasn’t “as bad” as what happened in Nat’l Sec. Fire & Casualty Co. v. Bowen, 447 So. 2d 133 (Ala.1983), where the court affirmed a verdict for the plaintiff for outrageous conduct. In Bowen, the insurance investigators: “(1) took the plaintiff out into the woods, held a gun to his head, and threatened to kill him, (2) told the plaintiff he would look good next to his dead brother, (3) threatened to kill the plaintiff's two small sons, (4) bribed witnesses, and (5) obtained an indictment against the plaintiff for arson and false pretenses based upon false evidence.”
I took a look at Bowen and here is what the court concluded about the emotional distress claim: “After a thorough review of the evidence, we opine that the conduct of National Security’s agents was so horrible, so atrocious, so barbaric, that the jury could find as a matter of fact that Bowen suffered severe emotional distress; that no civilized person could be expected to endure the acts committed without suffering mental distress.”
Obviously these are very aberrational cases. Note to coverage counsel – your client just doesn’t have a good case when your defense is that the insurer’s conduct didn’t meet the “so barbaric” standard. |
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Vol. 3, Iss. 7
April 23, 2014
The Proposed ALI “Principle Of Liability Insurance”
That Should Rate High For Insurer Concern
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It wasn’t very long ago that the American Law Institute’s “Principles of the Law of Liability Insurance” were either unknown to many in coverage circles or, for those familiar with them, dismissed as academic irrelevance. I know. I was in the room at the 2012 DRI Insurance Coverage Symposium in New York City when the question was asked, to many hundreds, if they were familiar with the ALI Principles. Only a smattering of hands went up. While I was familiar with the Principles project, put me down as one who, for a long time, dismissed them as the stuff of law professors, academic mumbo jumbo, and nothing that I – as a practicing lawyer – needed to know about. Nothing to see here. Move along folks.
But much has changed in the past couple of years. Far from being some secret Skull and Bones-like project, the ALI Principles of Liability Insurance are presently the most talked-about subject amongst liability insurance professionals. As for their possible significance or impact on liability coverage issues, that gets back to the first point -- there wouldn’t be all this talk if there were nothing to see.
The ALI’s Principles Project brings together a host of stakeholders in liability insurance to produce a text that sets forth the law on several liability insurance coverage issues. To be more specific concerning what is a Principles Project, first consider an ALI Restatement (think of the ALI Restatement of Contracts or Torts). In simple terms, a Restatement sets forth what the law is concerning a certain issue. A Principles Project, however, sets forth what is purported to be the best law or what the law should be. So to the extent that a Principle sets forth what is already the existing law, there is no practical difference between a Restatement and Principles Project. However, a Principles Project also purports to set forth more direct statements of what courts actually do and make adjustments to the law that are superior.
I’m not personally involved in the ALI’s Principles Project. The closest I get to the official process is that the American Law Institute is located in Philadelphia and I could walk to its offices if I were so inclined. But you don’t need to know the secret handshake to see why insurers have not given a warm welcome to this latest entrant to the library of all things insurance coverage. As I said, the ALI Principles are now the most talked-about subject amongst liability insurance professionals. But the chat is not all pleasant. To be sure, simply because there are insurer-side representatives involved in the project does not mean that they agree with all of the Principles adopted.
For example, there has been much insurer consternation over the ALI’s proposed Principle that an insurer that breaches the duty to defend loses the right to defend or associate in the defense of the claim, the right to assert any control over the settlement of the claim AND the right to contest coverage for the claim. Waiver of coverage defenses is a very strong – punitive, you might say -- consequence for a breach of the duty to defend. The issue was recently before the New York Court in Appeals in the highly publicized K2-II case, which helped to focus attention on this proposed waiver Principle.
But waiver of coverage defenses, for a breach of the duty to defend, is not the law in the vast majority of states. Rather, there are different consequences imposed on insurers for breaching the duty to defend. Since case law already exists, addressing the consequences for an insurer for beaching the duty to defend, this Principle should not be as concerning for insurers as some others. In other words, I believe that the ALI Principles are less likely to be relevant in situations where a court is addressing an issue for which law already exists on its books.
This is not to say that insurers have been wrong to be concerned about the Principles’s support for the waiver rule. Far from it. For example, ALI’s draft waiver Principle was being urged on the New York Court of Appeals in K2-II. While the New York high court ultimately declined to adopt the waiver rule, concluding that existing New York law mandated otherwise, insurers were right to be concerned. This was uncharted territory. Nobody knew what the New York Court of Appeals would do and how it would respond to an ALI draft Principle being thrust upon it.
Where insurer consternation should be greatest is for those Principles, with which they disagree, that address issues for which there is no or little existing law -- either in a particular state or nationally. For example, courts that are called upon to resolve a coverage issue for the first time in their state will often examine the case law nationally that makes up different schools of thought and decide which camp to join. When weighing this decision, and seeing some merit to all camps, it would not be surprising for the court to choose the rule set out in the Principles as the “tie-breaker.” Likewise, if case law on an issue is sparse nationally, the rule set out in the Principles may be an attractive option for the court. The court gets an answer and can cite to a source for it. This is where I believe that the Principles are likely to have their greatest impact – cases where a court is confronting an issue that has never come before it.
To put all of this another way, on the continuum of concern that insurers should have for each ALI Principle, more is warranted for those issues where case law is sparse than where case law is developed.
All of this being so, consider the following proposed ALI Principle (as set out in Tentative Draft No. 2; March 28, 2014) addressing an issue that is on the table for a vote at the ALI’s annual membership meeting at the end of May. As it is an issue where the law is sparse, it is one that is in the category of having a better chance of being affected in the future by the adoption of a Principle. Depending upon the speed at which the meeting’s proceedings move, smoke seems poised to rise from the chimney of the Ritz-Carlton in Washington announcing the approval of the following ALI Principle of the Law of Liability Insurance.
By way of introduction, Chapter 2, Section 18 of the Principles (not yet approved) states that when a defense is provided under a reservation of rights and “there are common facts at issue in the claim and the coverage defense such that the claim could be defended in a manner that would advantage the insurer at the expense of the insured, the insurer must provide an independent defense of the claim.” This is essentially the adoption of California’s “Cumis rule.” In general, many states apply a rule that looks something like Cumis (just not in statute form and without a name). The key issue here is whether the reservation of rights creates a conflict that requires an insurer to pay for the insured’s selection of independent counsel. That’s where the disputes exist. But because Section 18 is not inconsistent with the rules that exists in many states, it is not a Principle that should rank too high on the continuum of insurer concerns.
Section 19 goes on to state that, when independent defense counsel is required, “[t]he insurer is obligated to pay the reasonable fees of the defense counsel and related service providers on an ongoing basis in a timely manner.” This too, as a general principle, is also the rule in many states.
However, the comment to the rule states that an insurer’s panel rate is not per se the reasonable fee to be paid to the insured’s independent counsel (it is, however, under the Cumis statute). The comment states that the panel rate is relevant but not dispositive. However, the comment also acknowledges that a lawyer’s rate may be excessive in relation to the complexity of the claim or the amount at stake. The comment states that when a dispute over what is a reasonable rate for independent counsel arises, and they do regularly, the insured has the option of paying the difference between the panel rate and the independent counsel’s rate. That is the ideal solution. It just doesn’t come out this way too often.
Now here’s the part that insurers should be quite concerned about. The Section 19 comment goes on: “In the event of a dispute during the course of the defense about the reasonableness of fees, the insurer must pay the disputed fees and may bring an action against the independent defense counsel seeking return of the disputed fees after the duty to defend has ended and any coverage defenses have been adjudicated or settled, so as not to invade the attorney—client privilege or work-product immunity. If the fees are later found to be unreasonable, the insurer’s sole recourse is from defense counsel, not the insured.”
While this provides a much-needed rule, on the much-disputed and generally law-lacking issue of “what is a reasonable rate for independent counsel,” it is an approach that exists nowhere in the law and creates a host of problems. It is easy to see what will happen when an insurer believes that a rate in the $200 per hour range is reasonable, and the insured hires counsel that regularly charges $600 (or more), and claims that is a reasonable rate. If the Section 19 comment’s approach is used, the insurer must pay independent counsel $600 per hour and then, at some point down the road – maybe a long way down the road -- engage in litigation with such counsel over the reasonableness of its fees. The comment also states that the insurer can request reasonable security from the independent counsel for the fees in dispute. Yeah, like that’s gonna be a simple and non-contentious process.
If the difference between the insurer’s proposed reasonable rate, and the rate charged by independent counsel, is several hundred dollars per hour, and it will be in many cases, then the amount of disputed fees at stake, even for a case of moderate duration, will be quite significant. In many cases the amount will be too much for insurers to simple walk away from, as well as perhaps make a settlement of the fee dispute difficult to achieve.
Under this approach, underlying cases will end and then Act II will begin – collateral litigation over the reasonableness of defense counsel’s fees. Insurers will have to hire counsel to handle the disputes or saddle their in-house counsel with them. That no court (that I know of) has adopted, or even considered this approach to the reasonable fee issue, speaks volumes about it merit.
The Section 19 comment’s approach may also have some unintended consequences. If insurers are paying several hundred dollars per hour more than they believe is reasonable, it may force them to settle more cases on a cost of defense basis. In other words, turn off the meter for the defense, even if it means settling a non-meritorious case. Nobody wins there -- except plaintiffs with, well, non-meritorious cases.
Policyholders may think that none of this affects them. After all, the insurer is the one paying the defense bills and any subsequent litigation over the reasonableness of the fees is between the insurer and defense counsel. But policyholders may re-think this at renewal time when they see the affect that these higher defense bills have on their experience, and, hence, renewal premium. Maybe the lunch wasn’t so free for the policyholder after all.
In addition, under this approach, will policyholders really get the choice of counsel that it is specifically designed to give them? After all, some lawyers may be unwilling to represent a policyholder under this arrangement. While counsel may get its full rate during the duration of the case, it is also signing on to possible litigation over the reasonableness of its fees. Counsel runs the risk of having to pay some fees back, as well as incurring the expense of the fee dispute litigation.
Simply put, Section 19’s approach to resolving the reasonable fee issue is a recipe for a variety of disputes and litigation between insurers and law firms and may come with a host of unintended consequences. It is hard to believe that ALI believes that a solution to the reasonable fee issue is one that welcomes -- even endorses -- litigation.
Any project like the ALI’s “Principles of the Law of Liability Insurance” is not going to make every stakeholder happy. But Section 19 is one Principle that should rate high for insurer concern. Insurers should make it very clear that, just because they were on the roster of participants in the Principles process, does not mean that they agree with every Principle adopted.
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Vol. 3, Iss. 7
April 23, 2014
Supreme Court Hands A Blow To Policyholders Seeking Insurance Coverage
Of Last Resort [Big Big Win For Brokers And Agents]
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I said this in the March 5, 2014 issue of Coverage Opinions: “On one hand, cases addressing whether a policyholder can sue its broker, for failing to obtain insurance to cover a claim, aren’t coverage cases in the true sense of the word. They do not address whether an insurer is obligated to provide coverage, under certain policy provisions, for a specific loss that took place. That being so, it is easy to overlook such cases if your focus is on judicial opinions addressing insurance coverage.
But it could also be said that cases addressing broker liability are nothing short of coverage cases. After all, if a policyholder fails to obtain any, or adequate, insurance from its own insurer for a claim, and, if its insurance broker is legally responsibility for the coverage deficiency can be established, then the broker’s errors and omissions policy may fill the void. Thus, the broker’s errors and omissions policy can sometimes be an insured’s policy of last resort. When you look at it this way, a broker liability case is a coverage case with a different name.
Even if broker liability cases are designed to get the insured to the same place as a traditional coverage case, I still don’t follow them that closely. But sometimes you have to stand-up and take notice of a broker liability decision. Sometimes such cases simply can’t be ignored.”
The Indiana Supreme Court’s decision in Groce v. American Family Mutual Ins. Co., No. 48S02-1307-CT-472 (Ind. Apr. 3, 2014) is in the category of broker and agent liability decisions that simply can’t be ignored.
At issue before the Hoosier high court in Groce was when did the statute of limitations begin to run for a claim against an insurance agent for professional liability. In very simple terms, the Groces obtained a homeowners insurance policy from American Family. On October 27, 2007, their home sustained substantial fire damage. A dispute arose regarding the amount of insurance benefits payable under the policy. The Groces alleged that their agent “negligently failed to obtain a fire insurance policy . . . which would have paid the entire cost of reconstructing their [r]esidence if it was damaged or destroyed by fire.” In essence, the Groces received “replacement cost” coverage, but in an amount capped by the policy limits. The Groces alleged entitlement to the full costs to rebuild and repair their home -- without any limitation due to policy limits. The Groces filed suit against their agent and insurer on June 22, 2009.
The Groces alleged that their agent’s liability stemmed from an August 18, 2003 exchange between the agent and Ms. Groce concerning the coverage to be obtained. [There’s more to it than that but that’s the gist of it for purposes of discussion here.]
So when did the Indiana Supreme Court conclude that the statute of limitations began to run for the Groces’s professional liability claim against their insurance agent? Answer: no later than the time of the alleged statements of the agent to Ms. Groce on August 18, 2003. The court concluded that the statute of limitations began to run on this date because “the Groces, in the exercise of ordinary diligence in reviewing their homeowners insurance policy, could have timely discovered that the company’s replacement cost liability was capped at the dwelling loss coverage limit[.]” Therefore, the court held that the two-year statute of limitations period, for the Groces’s professional liability claim against their agent, began to run at this time. So their 2009 action against the agent was barred.
In reaching its decision, the Groce court relied on the Indiana Supreme Court’s 2008 decision in Filip v. Block, which the Groce court characterized as follows: “The Filip Court began its analysis noting ‘that a claim against an agent for negligent procurement of the wrong coverage begins at the start of coverage if the breach was discoverable at the time through ordinary diligence.’ While the physical loss did not occur until the fire, a policyholder receives protection from risk of loss when the policy is issued, and thus any claim based on inadequacy of coverage generally occurs when the policy is issued. Because the Filip plaintiffs could have ascertained that ‘their policy lacked coverage of nonbusiness personal property and business interruption, and that the building and business personal property coverage had inadequate limits,’ the limitations period began to run as to such claims ‘on or shortly after the activation of the policy.’ An exception to this general rule exists when a policyholder reasonably relies upon an agent’s representations where the agent ‘insists that a particular hazard [is] covered.’ This exception negates an insured’s duty to read part of the policy.”
Why is this decision a blow for policyholders (or underlying plaintiffs) seeking “last resort” coverage and such a big win for brokers and agents? Easy. Many people do not read their policies until after a loss has taken place. So if their policy does not contain adequate coverage, this is the point at which they’ll discover it. But if they could have discovered it earlier, by reading the policy, and the policy has been in place for even a relatively short period of time before the loss, then there’s a good chance that the statute of limitations, for any professional liability action against their agent or broker, will have run by the time such action is filed. |
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