Life, Health & Disability News
Revocation of Life Insurance Beneficiary Designation by Divorce
By Philip M. Howe, Esquire
This article will discuss those statutes in many states which provide that divorce will revoke a life insurance beneficiary designation. There are two fairly recent U.S. Supreme Court decisions addressing this issue, rare in the area of life insurance. This article will discuss a sample of the many state court decisions which deal with this issue. Further, this article will discuss the line of cases which examine the issue when it involves both ERISA-governed and non-ERISA life insurance.
In Sveen v. Melon, 138 S. Ct. 1815 (2018) the U.S. Supreme Court dealt with a Minnesota Statute, Section 524.2-804 (1) which stated, ”dissolution or annulment of marriage revokes any revocable beneficiary designation made by an individual to the individual’s former spouse.” The policyholder may re-name the former spouse as beneficiary. The Court went on to approve of the revocation of a designation made prior to the enactment of the statute. [Page 1819.]
The Court in Sveen wrote that a decedent’s failure to change his beneficiary designation probably “resulted from inattention.” [Page 1819.] In Sveen, the husband had designated his wife as beneficiary. The divorce decree made no mention of the life insurance policy. He later died. The Court wrote that the statute is designed to “reflect a policyholder’s intent and so to support, rather than impair, the contractual scheme.” The Court noted the policyholder can reverse the effect of the statute with a “stroke of a pen.” [Pages 1822-1823.]
The Massachusetts Supreme Judicial Court made a similar ruling in A.F.L.A.C. v. Parker, ___ Mass. ___,178 NE 3d 859 (2022) interpreting Mass. General Laws c. 190 B, Section 2-804 B. The facts were similar to those in Sveen, supra. In addition, the former wife claimed that she had paid the insurance premiums after the divorce in exchange for the Insured’s promise to keep her as the beneficiary. But the Separation Agreement provided that it included the parties’ “entire understanding” and it was silent on any such agreement to keep the former wife as the beneficiary. There was no post-divorce agreement to maintain the former wife as the beneficiary. [Page 868.]
The New York Surrogate Court decided In Re The Estate Of Joseph Sugg, 49 Misc. 3d 455, 12 N.Y. S. 3d 842, 2015 N.Y. Slip. Op. 25220 (2015) involving a similar statute, EPTL Section 5-1.4 (a) (1). The Court ruled that the statute’s effect is automatic. The beneficiary designation is not revoked by divorce only where the “terms of a governing instrument provide that the benefit is not revoked by a divorce…” [Page 469.]
The New Jersey Supreme Court decided Vasconi v. Guardian Life Insurance Company, 124 NJ 338, 590 A. 2d 1161 (1991). Under N.J.S.A. 3B: 3-14, divorce revokes a life insurance beneficiary designation. There was no reference to the life insurance in the divorce property settlement agreement. [Page 338.] The agreement included a mutual waiver of all claims either party may have against the other arising from the marital relationship. [Page 341.] The Court wrote further, “A demonstrated intention to change beneficiaries is insufficient if not executed in the manner prescribed in the policy for effecting such a change.” [Page 342.]
The Court in Vasconi supra at 349 went on to write that the surviving divorced spouse may overcome the presumption of revocation by convincing the trial court on remand that the parties’ intention was to distribute the insurance proceeds differently from the other assets in the estate.
In Egelhoff v. Egelhoff, 532, U.S. 141, 121 Sup. Ct. 1322, 49 L. Ed. 2d 264 (2001) the U.S. Supreme Court held that ERISA preempts any state statute which would revoke a beneficiary designation in the event of the divorce of the Insured policyholder from the beneficiary under life coverage issued under an ERISA governed employee benefit plan. ERISA’s preemption Section is 29 U.S.C. 1144 (a) providing that ERISA “shall supersede any and all state laws insofar as they shall now or hereafter relate to any employee benefit plan” covered by ERISA. [Page 141.]
The widow had remained as the beneficiary after the divorce under her former husband’s group life insurance coverage under an employee benefit plan. Under a Washington State statute divorce revoked the beneficiary designation. Wash. Revised Code, Section 11.07.010 (2) (a).
The Court in Egelhoff wrote that a state law relates to an ERISA plan “if it has a connection with or reference to such a plan.” This occurs when it “binds plan administrators to a particular choice of rules for determining beneficiary status.” That is, on these facts an administrator would have to pay benefits to beneficiaries chosen by state law rather than those identified in the plan documents. This interferes with nationally uniform plan administration. [Page 141.]
Colorado has a similar decision in Ragan v. Ragan, 494 P. 3d 664, 2021 COA 75 (2021). The former wife remained as the life insurance beneficiary after her divorce from the Insured. Under Colorado Statutes, Section 15-11-804 (2) (a) (i) (2) divorce revokes any beneficiary designation. In Ragan, the estate of the Insured had filed an action against the former wife claiming the life insurance proceeds which the plan administrator had paid to her. The estate claimed no liability against the plan administrator, but claimed that it could recover against the former wife under the above statute.
The Court in Ragan found that ERISA preempted the Colorado statute. It relied on Egelhoff, supra. [Page 668.]
Pennsylvania reached an opposite result in In Re: Estate of Easterday, 209 A. 3d 331 (PA Supreme Court, 2019.) The Insured had group life insurance and died while his divorce was pending. His estate claimed the life insurance proceeds. The Insured had also not changed the beneficiary of his 401 (K) retirement account. The Court ruled that ERISA did not preempt a state law breach of contract claim to recover the funds which had been paid to the former wife under an ERISA qualified employee benefit plan. The Estate had claimed that the statute, Section 611.2, had nullified the beneficiary designation since the Insured had died during the divorce proceedings. The Estate had brought the action to compel the former wife to pay the estate both the life insurance proceeds and the 401 (K) benefits.
As a result, Pennsylvania and Colorado seem to be in direct conflict. It remains to be seen if the U.S. Supreme Court will resolve this conflict.
First, needless to say, in whichever state one practices family law, one must first be keenly aware whether there is any such statute providing that divorce revokes a life insurance beneficiary designation. See Endnote below for a list of those states in addition to the states discussed above.
Second, the statutes may all be accommodated by clear drafting of the property settlement agreement in the divorce, acknowledging the statute and expressing the parties’ desire either to abide by its revocation or to provide that any beneficiary designation (s) specifically survive the statue. In that event, the agreement should list the policies by number, the name of the insurer who issued it and the name of the beneficiary whose designation is to survive the divorce.
Life Insurance Claims
With respect managing a life insurance claim, if the Death Certificate indicates that the Insured was survived by a spouse, and the spouse is the named beneficiary, there should be no issue.
However, if the informant on the Death Certificate is not the spouse and the spouse is the named beneficiary, this raises the question of whether there might have been a divorce. There is then the question of whether in the Insured’s jurisdiction there is such a revocation by divorce statute.
There might not have been a divorce, but the question should be explored if there is such a statute. The agent might have a quick answer on whether there has been a divorce. If not, a search of the Family Law Court in the Insured’s jurisdiction might well disclose whether there has been a divorce. Many court dockets are accessible online.
The next question is whether in the Insured’s state there is a revocation by divorce statute. If so, we must next address whether it applies or whether the life insurance was issued under an employee benefit plan.
Next, if there has been a divorce and if there is an applicable revocation by divorce statute, it is best next to explore with the agent if they have any knowledge of the divorce and whether there had been any discussion of changing the beneficiary. It is possible that the agent knows a great deal, that the Insured intended to keep his/her former spouse as beneficiary and this is reflected in the property settlement agreement for the divorce or in some other document. In that event, and if there is no adverse claim by a third party, it is best to obtain a copy of the relevant portion of the agreement referring to the beneficiary designation. Needless to say, this is a sensitive document and obtaining even the small portion of it relating to the beneficiary designation might be difficult and must be handled with great sensitivity.
If there is an adverse claim by a third party to the proceeds, such as from the current spouse or from the Insured’s children, or if it appears the Insured simply did not consider the life insurance when going through the divorce, it is best to make the insurer’s position clear to the former spouse and any adverse claimants. We recommend a letter citing the statute verbatim, that the insurer is bound to follow the statute and recommend that the claimants consult with separate attorneys. State that the insurer will take no action while the parties attempt to resolve the matter.
The insurer should interplead the proceeds only if one of the adverse claimants files an action against the insurer. This might well be added to the above letter, but any mention of litigation should be done with great sensitivity as it is a potentially heated topic.
Lastly, there might be a divorce, a revocation statute, a former spouse claiming as beneficiary and no adverse claim. In that event, we recommend a letter to the former spouse describing the statute, its impact on the life insurance beneficiary designation and indicating who is the contingent beneficiary. We also recommend advising the former spouse to consult with their attorney and state that the insurer will take no action until hearing further from the former spouse.
In addition to the above states, the following are states with revocation by divorce statutes:
Alabama Section 43-8-137
Delaware Title 12, Section 209
Nebraska Section 30-2333
North Carolina General Statutes Section 31 – 5.4
Oregon Statutes Section 112-315
South Carolina S.C. Code 62-2-507
Tennessee Tenn. Code Section 32-1-202
Virginia VA Code Section 64.2 – 412
West Virginia WV Code 41-1-6
Wyoming WY Statutes 2-6-118.
Phil Howe is a civil litigator with lengthy experience in defending complex medical and financial issues in the areas of life, disability, health, automobile, homeowners, property, and casualty insurance, including claims of bad faith. He has additional experience in condominium, construction, medical malpractice, personal injury, and real estate litigation. He has tried cases in California and Massachusetts state and federal courts. Mr. Howe has also managed litigation nationwide as house counsel for an insurer that issued individual and group life, health, and disability insurance. He is a member of the DRI Life, Health and Disability Committee, has published in its newsletter, and has presented for many years at the Eastern Claims and International Claims Associations.
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From the Governmental Liability Committee
Civil Rights and Governmental Liability Seminar
By Mary G. ErlingsonI am the Chair of the Civil Rights and Governmental Liability Seminar scheduled for January 23-25, 2023, at Caesars Palace in Las Vegas. The seminar planning committee has spent countless hours to bring you what is bound to be a spectacular event. The planning committee has spent months and done an outstanding job of identifying relevant topics and premier speakers. Our committee has a long history of not only providing outstanding legal education, but also providing chances for all those that attend to make connections with their colleagues. There are opportunities for attendees to grow their networks, attend events, engage with like-minded practitioners, and focus on practice-specific career development.
Attending this seminar will build your network of attorneys and industry professionals. Attorneys practicing governmental liability and civil rights law from around the United States will attend. Further, a cross-section of industry professionals that provide insurance coverage to governmental entities both large and small will be at this seminar. Expanding your network through small personal interactions with other attendees along with more engaged interactions will achieve your objectives of building business relationships to further career goals. Also, and more importantly, attending will result in you forming lifelong friendships and connections. The connections you will make in Las Vegas when you meet and get to know other attendees will build your reputation, build trust, and offer you support from other professionals for years to come. Attending this seminar invites an opportunity for you to create the right connections with others that have the same goals, and for you to continue to foster those relationships you have already built.
This seminar will provide you with opportunities to not only experience the fun and excitement of Las Vegas, but to do so at events that other professionals in your field from across the United States will attend. All participants look forward to the welcoming cocktail reception that will be held on Monday, January 23. I am sure no one will be disappointed! Following the welcome cocktail reception, you will have your choice of a Dine-Around location from one of several popular local restaurants. There is no better place to reconnect and make new friends than at a Dine-Around. On Tuesday evening, only a 15-minute walk from Caesars Palace to the Paris Las Vegas Casino, there will be an incredible premier networking event at the Beer Park. The Beer Park will provide you with a relaxed atmosphere to continue your conversations with friends, enjoy a bite of food and your favorite cocktails. At the same time, you will be enjoying the atmosphere of one of Las Vegas Strip’s best rooftop bars, all while experiencing the incomparable Bellagio Fountains. Be sure to look through the seminar brochure and read the upcoming Governmental Liability Community Posts for many more opportunities for you to network in Las Vegas.
Finally, if you need another reason to attend this seminar, you will have sensational educational opportunities. You will have the opportunity to earn 8 Continuing Legal Education credit hours including ethics for in person sessions, plus you will have access to an additional 4 online Continuing Legal Education credits. We have all come to know and expect DRI seminars to provide seminar attendees with outstanding speakers that provide relevant and practical information along with the tools that enhance a practitioner’s skills. This seminar will not disappoint. In addition to past popular sessions, such as Tom Dupree’s Supreme Court update, we have a session focused on practical qualified immunity that will provide very practically based tips and tools to raise the defense of qualified immunity in an effective and persuasive manner. This year’s seminar has blockbuster speakers and is a “can’t miss” opportunity for governmental liability practitioners to enhance their knowledge and skills. I urge everyone to look at the brochure for more details on each of the outstanding educational sessions coming up in Las Vegas. Thank you to all the seminar planning committee members, and I look forward to seeing you in Las Vegas.
Mary G. Erlingson is a founding member and the managing partner of Erlingson Banks, PLLC. Mary serves as general counsel to several law enforcement agencies in Louisiana. In addition, Mary represents various public entities in civil litigation. Her dual role as general counsel and defense attorney has provided Mary with the unique opportunity to develop many related areas of practice including governmental relations, employment law, ethics law, law enforcement defense, corrections defense, and administrative law.
Cases of Interest from the U.S. Second Circuit
By Alexandra A. Calhoun, Esq.
In re New York City Policing During Summer 2020 Demonstrations, 27 F.4th 792 (2022)
Individuals present at demonstrations for racial justice and police reform brought civil rights’ actions asserting claims against city, city police department, and police officers regarding defendants’ allegedly unconstitutional conduct in response to demonstration and allegedly unconstitutional department policies. Police Benevolent Association of the City of New York, Inc. (PBA) moved to intervene as a right pursuant to FRCP 24(a).
The PBA is the collective bargaining agent for NYPD police officers. The PBA argued that it had interests at stake as to both the merit and remedy phases of the litigation, citing specifically an interest in maintaining officer safety that would be affected if the policies that governed front-line officers’ rules of engagement with demonstrators were declared unlawful. The PBA also criticized the leadership of the City and the NYPD for failing to provide guidance in advance of protests. The Second Circuit held that PBA had a “direct, substantial, and legally protectable interest in officer safety” and granted PBA’s motion to intervene.
Vengalattore v. Cornell University, 36 F.4th 87 (2022)
Mukund Vengalattore, a former Assistant Professor of Indian descent, appealed from a judgment dismissing his amended complaint which alleged that in disciplining him in response to an inappropriate relationship with a student, the university discriminated against him on the basis of gender and national origin, in violation of Title IX of the Education Amendment and Title VI of the Civil Rights Act.
Regarding gender bias, the complaint alleged instances where the student was alleged to have been “sexist against men” and a tenure committee’s comments that while the faculty considered the student’s accusations to be false and malicious, they would be taking no action against her as she was a woman. As for national origin, the complaint noted the student made racial comments and a comment by another tenure committee member that “the only students who are prepared to take the abuse [Vengalatorre] dishes out are both men and they are both from the Indian subcontinent, where perhaps the culture between advisor and protégé is different.”
Defendants moved for dismissal arguing that Title IX did not authorize a private right of action for discrimination in employment and that the complaint lacked sufficient allegations of national origin discrimination to state a claim under Title VI.
The Second Circuit held that Title IX allowed a private right of action for a university’s international gender-based discrimination against a faculty member, and that Vengalattore’s Title IX claim should not have been dismissed. However, the Second Circuit held that the allegations were not sufficient to raise a claim under Title VI as the complaint failed to demonstrate reliance upon the discriminatory statements in making its decision.
Felder v. United State Tennis Association, 27 F.4th 834 (2022)
A black security guard brought an action against United State Tennis Association (USTA), alleging race discrimination, age discrimination, and retaliation in violation of Title VII of Civil Rights Act when the association refused to issue his security credentials. The 2nd Circuit noted the issue as “what a Title VII plaintiff must adequately allege to plead the existence of an employer-employee relationship pursuant to the joint employer doctrine.”
USTA contracts with security firms that employ and assign security guards to work at USTA, most notably, the U.S. Open Tennis Championships. AJ Squared Security hired Felder as a security guard and assigned him to work at the 2016 U.S. Open. Felder alleges that USTA failed to give him credentials. At issue was whether the USTA was an employer so as to establish a Title VII claim. The Second Circuit held that merely refusing to issue credentials is not enough to adequately plead a joint-employment relationship. “Were it enough to say that the USTA’s refusal to issue credentials automatically rendered it a joint employer to Felder, we would be required to say that issuing credentials also renders it a joint employer, as both equally demonstrating the exertion of some control over who may work as a security guard at the U.S. Open. But this would eliminate the need to consider any other indicia of a common law agency relationship in applying the joint employer doctrine; would vastly expand Title VII liability in a manner that no other Circuit has endorsed; and would contravene the Supreme Court’s instruction that we turn to a multi-factor analysis under the common law agency for discerning whether an employer-employee relationship exists.”
Anilao v. Spota, 27 F.4th 855 (2022)
Ten nurses filed claims under §1983 for false arrest and malicious prosecution due to defendants’ allegedly improper prosecution for child endangerment and endangerment of a physically disabled person. Defendants Spota and Lato were prosecutors at the District Attorney’s Office. At issue was whether Spato and Lato were entitled to absolute immunity for actions they undertook as prosecutors.
The Second Circuit held that absolute immunity must apply even though the plaintiffs plausibly alleged “disgraceful behavior” by the prosecutors. “But the impediments to the fair, efficient functioning of a prosecutorial office that liability could create lead us to find that immunity must apply here.” Evidence that the charges were brought for improper purposes does not necessarily deprive prosecutors of their immunity.
Morales v. City of New York, 2022 WL 2840035 (2022)
Morales alleged that he was terminated from his position as Deputy Commissioner of the New York City Department for Citywide Administrative Services (DCAS) in violation of his First Amendment rights because he provided unfavorable statements to investigators during interviews regarding the City’s involvement in two transactions made during his tenure.
The Second Circuit noted that to prevail on a First Amendment retaliation claim, a plaintiff must establish that protected speech was a but-for cause of some adverse employment action. Morales conceded that he could not produce any direct evidence of retaliatory animus and instead relied upon the five-month span between his allegedly protected speech and the final decision to terminate him. The 2nd Circuit noted that the timing of an adverse employment action is not evidence of causation when the employer began considering the action before the allegedly protected activity took place. As DCAS established that it had been considering terminating Morales before his comments, the Second Circuit established there was no causation. As such, Morales’ claim must fail.
Thomas v. Wellenruether, 2022 WL 1026047 (2022)
Thomas brought suit against Wellenruether alleging that Wellenruether violated Thomas’s Fourth Amendment rights by using excessive force. Wellenruether entered a gas station and observed a man (Thomas) inside the convenience store holding up his arm at a right angle, pointed at the attendant. As Thomas was departing, the store attendant left the store, pointed at Thomas and shouted he had been robbed. Wellenruether, though off-duty, was permissibly carrying his service revolver.
Wellenruether yelled for Thomas to stop and identified himself as a police officer. He also testified that Thomas “spun around” toward him, putting Wellenruether in fear for his life. Wellenruether then fired a single shot (First Gunshot) at Thomas which missed. Thomas then began to run away throwing the BB gun away from his person. Wellenruether heard and saw the gun being thrown away and concluded Thomas had discarded it.
Wellenruether then testified that he saw Thomas reach into his waistband and spin around. Wellenruether then fired a second shot (Second Gunshot), which struck the back of Thomas’s neck. The magistrate judge ruled the First Gunshot was not excessive force, but the Second Gunshot was. The Second Circuit declined to overrule this.
Wellenruether appealed, among other issues, the question of waiver of the defense of qualified immunity. Wellenruether failed to raise qualified immunity as a defense in answer to plaintiff’s amended complaint and did not move for summary judgment on qualified immunity. Further, qualified immunity was not mentioned in his proposed jury instructions. The 2nd Circuit held that under those circumstances, Wellenruether’s litigation strategy evinced an intentional decision not to assert qualified immunity, so the affirmative defense was waived.
Henderson v. Greenville Central School District 2022 WL 2236949
Rachel Henderson alleged that Greenville Central School District (“Greenville”) fired her from her job as an aide in retaliation for her inquiries about a potentially dangerous student at Greenville High School. The District Court granted summary judgment for Greenville, holding that Henderson’s inquiries were not speech on a matter of public concern and thus were not constitutionally protected. The Second Circuit affirmed.
The Second Circuit articulated the rule that in determining whether speech was a matter of public concern it must focus on the motive of the speaker and attempt to determine whether the speech was calculated to redress personal grievances or whether it has a broader public purpose. Henderson argued that she was concerned about a dangerous person at the school, but the record showed that Henderson’s safety concern centered on that allegedly dangerous person’s relationship to Henderson’s son. Further, it was undisputed that the content of Henderson’s speech suggested a lack of firsthand knowledge. Affirming the District Court’s decision, the 2nd Circuit held “her search for personal comfort ‘to get to the bottom of this situation’ may be understandable but it does not suggest that her fact-gathering inquiries should be elevated to a matter of public concern.”
Alexandra Calhoun is an associate at Sugarman Law Firm LLP.
Cases of Interest from the U.S. Sixth Circuit
By Dale Conder, Jr.
Laborers’ Int’l Union, Local 860 v. Neff, 29 F.4th 325 (6th Cir. 2022)
Ohio juvenile court and its employees’ union tried negotiating a new contract. When the parties could not reach an agreement, the union sued the juvenile court. Because Ohio juvenile courts are an arm of the state, the court held that sovereign immunity barred most of the claims. The Sixth Circuit also rejected the union’s Contracts-Clause claim. Under Sixth Circuit precedent, a Contracts-Clause violation is not actionable under § 1983. The court rejected the union’s request for an injunction under the Takings Clause because the union had a state-law provision for obtaining just compensation, i.e., filing suit in state court. The union’s individual-capacity claims failed because qualified immunity protected the individuals. Qualified immunity applied because there was no precedent clearly establishing that the individuals breached the contract.
Judge Sutton concurred in his opinion to highlight the split of authority on the issue of whether contracts-clause violations are actionable under § 1983. In his concurring opinion, he urged the Supreme Court to address this issue in an appropriate case.
Lindke v. Tomlinson, 31 F.4th 487 (6th Cir. 2022)
This case arose from a nasty custody battle. In response to the mother’s motion, the state judge entered a personal protective order (PPO) against Lindke, the father. The father had been harassing the mother by assaulting her, threatening her, and sending nude photos of the mother to family and friends. Lindke continued to violate the PPO. The judge issued a second PPO. After the mother obtained sole custody of the child, Lindke’s harassment continued. The judge found that the First Amendment protected most of Lindke’s Facebook posts. But tagging the mother “in a specific Facebook post violated the PPO.” Lindke disagreed with the judge’s conclusion; rather than appeal, Lindke sued the judge in federal court claiming violations of his rights under the First and Fourteenth Amendments. Under Article III, a federal court lacks jurisdiction if there is not a live case or controversy between the parties. In Lindke, the state-court judge acted in an adjudicatory capacity. The judge was not adverse to Lindke, she merely applied a state statute based on the law and the facts. Article III does not grant federal courts jurisdiction in these circumstances because the judge did not act in an enforcement capacity. Therefore, the court lacked subject matter jurisdiction over the claims against the state-court judge.
Novak v. City of Parma, 33 F.4th 296 (6th Cir. 2022)
Novak decided to exercise the “‘fundamental American right’ of ‘mocking our government officials.’” He did this by creating a Facebook account that was a knockoff of the Parma police department’s actual page. He then began publishing posts mocking the police, e.g., the page offered “free abortions in a police van.” The police arrested Novak for violating a statute making it illegal to use a computer to disrupt or impair police functions. Following a grand jury indictment and a trial, the jury acquitted Novak. He then sued the police officers. If his posts were protected speech, the police could not use protected speech to establish probable cause. The Sixth Circuit, however, stopped short of deciding if the First Amendment protected Novak’s Facebook activity. The court determined that qualified immunity protected the officers. The court also rejected Novak’s Fourth Amendment claim. The court held that it was reasonable for the officers to rely on the warrants issued by a magistrate judge. Novak’s malicious-prosecution claim failed because he did not show that the officers did not aid in the decision to prosecute. Because Novak failed to establish any threats or orders from the police, his prior-restraint claim failed.
Smith v. Kentucky, 36 F.4th 671 (6th Cir. 2022)
A probation officer working for the state of Kentucky raped plaintiffs on multiple occasions. Plaintiffs sued the governor and the state alleging that the defendants “‘directly violated plaintiffs’ rights . . . to be free from involuntary sexual servitude guaranteed by’” the Thirteenth Amendment. The court rejected plaintiffs’ Thirteenth Amendment claims because the amendment does not create a private cause of action. Also, the ratification of the Thirteenth Amendment did not waive a state’s sovereign immunity.
Carr v. Louisville-Jefferson Cnty., 37 F.4th 389 (6th Cir 2022)
In 2008, the plaintiff entered an Alford plea to second-degree manslaughter. Several years later, the governor pardoned her. She then sued several police officers, the city, and the county. The district court found that Heck v. Humphrey barred her §1983 claims. The Sixth Circuit reversed. The court held that a full pardon removes all legal consequences of the conviction. The pardon removes the risk of inconsistent results arising out of the same facts. In other words, Heck prevents using §1983 to collaterally attack a conviction. The full pardon removes this risk; therefore, Heck did not bar plaintiff’s §1983 action.
Lindke v. Freed, 37 F.4th 1199 (6th Cir. 2022)
Freed was the city manager for Port Huron, Michigan. Freed had a Facebook account that he used to connect with friends and family. In the “About” section, he described himself as “Daddy to Lucy, Husband to Jessie and City Manager, Chief Administrative Officer for the citizens of Port Huron.” He linked to the city’s page and provided his city email. When the pandemic hit, he posted about policies he implemented for Port Huron. Lindke did not agree with Freed’s handling of the pandemic, and he responded with criticism. Freed deleted Lindke’s comments and blocked Lindke. Lindke believed this violated his First Amendment rights and sued. The district court disagreed and Lindke appealed. The Sixth Circuit held that Freed was not a state actor when posting to his Facebook page. There was no law requiring Freed to maintain a social-media account as part of his job. Freed’s page was a personal page. He created the account years before the city hired him as city manager. Freed’s page did not belong to the city. For example, when Freed leaves the city-manager job, his successor will not inherit the page. Freed did not use city employees to update or post to his page. The Sixth Circuit rejected other circuits’ reliance on the appearance of the Facebook page, and focused on Freed’s official duties and use of government resources or government employees in determining if the Facebook page was a government page.
Dale Conder, Jr. is a member of the law firm Rainey, Kizer, Reviere & Bell, P.L.C., with offices in Memphis and Jackson, Tennessee. Mr. Conder is a resident in the firm’s Jackson, Tennessee office. He practices in the areas of general insurance defense, employment law, and defense of municipalities and their employees, particularly police officers in § 1983 litigation. Mr. Conder has published and lectured in the areas of trial practice, civil procedure and civil rights litigation. He is a member of DRI and the Tennessee Defense Lawyers Association.
Interested in joining the Governmental Liability Committee? Click here for more information.
From the Governmental Liability Committee (Cont.)
Cases of Interest from the U.S. Eighth Circuit
By Rebecca Mann
Doe v. Aberdeen School District, 42 F.4th 883 (8th Cir. 2022). Parents of minor child sued speech education teacher and school officials for violating Fourth and Fourteenth Amendment rights of three students for removing students, sometimes forcibly, to a separate area for disciplinary action and forcing the children to participate in physical activities (such as swimming and horseback riding). There were also allegations of general physical and emotional abuse. The Eighth Circuit concluded that secluding children in a small room or calm-down corner constituted a seizure and violated the children’s Fourth Amendment rights, in part because the children were forcibly brought to the area and barred from leaving. The Eighth Circuit also determined that forcibly removing a child’s clothes to put on his bathing suit was also a seizure. However, these actions of physical or verbal abuse did not meet the “high bar” to violate the plaintiffs’ substantive due process rights.
Roberson v. Dakota Boys & Girls Ranch, 42 F.4th 924 (8th Cir. 2022). A minor child was diagnosed with multiple mental illnesses, including bipolar disorder and substance abuse. After she stole a vehicle and threatened to attack people, she was declared a delinquent, removed from her parents’ care, and placed in a psychiatric facility where she later committed suicide. The Eighth Circuit determined that the private facility was a state actor and therefore constitutionally required to provide adequate medical care. The minor child’s parents were permitted to assert a 1983 claim for deliberate indifference to their daughter’s medical needs against the private hospital.
McDaniel v. Neal, 44 F.4th 1085 (8th Cir. 2022). Plaintiff was arrested for shoplifting and tried to escape. During the altercation, he was thrown to the ground and suffered a skull fracture and a traumatic brain injury. He sued the police officers for violating his rights due to excessive force. The Eighth Circuit determined that the police officer was entitled to qualified immunity because there was no previously established case law that tackling an individual after they dodged a taser while attempting to escape was excessive force.
Saunders v. Thies, 38 F.4th 701 (8th Cir. 2022). Police officers initiated a traffic stop after a vehicle made an “abrupt” turn and stopped in front of a fire hydrant. After approaching the vehicle, the officers also noticed an open liquor bottle and a child not properly restrained in a booster seat. Plaintiff passed the preliminary breath test and was only cited for an open bottle of liquor in the vehicle. Despite the stop lasting 22 minutes, it was not an unreasonable length of time because Plaintiff was on the phone for a significant amount of time and the police also had discussions with family members who came out of the house during the stop. The Eighth Circuit determined the district court properly granted qualified immunity to the officers and dismissed plaintiffs’ claims.
Rebecca Mann is a partner at Gunderson Palmer Nelson Ashmore LLP, licensed to practice in South Dakota, North Dakota, and Montana. She specializes in Workers’ Compensation, Insurance Defense, and Civil Rights/Governmental Tort Liability. Rebecca routinely practices in both state and federal courts as well as administrative tribunals.
Cases of Interest from the U.S. Eleventh Circuit
By Michael D. Strasavich, Esq.O’Laughlin v. Palm Beach County, 30 F.4th 1045 (11th Cir. 2022). Two firefighters disciplined for Facebook activity sued county alleging that social media policy unconstitutionally restricted their free speech and free association rights under the First Amendment to the United States Constitution and under the Florida Constitution, and was unconstitutionally overbroad and vague. While recognizing that the firefighters’ free speech rights under the First Amendment were not absolute, the Court reversed the district court, determining that the speech in question addressed a matter of public concern, and remanded the case for further proceedings. The Court also affirmed the dismissal of the Free Association claim. Lastly, the Court found that the social media policy at issue was unconstitutionally overbroad, as it prohibited “content that could be reasonably interpreted as having an adverse effect upon Fire Rescue morale, discipline, operations, the safety of staff, or perception of the public.” The Eleventh Circuit remanded the overbreadth claim to the district court for further proceedings.
LaCroix v. Town of Fort Myers Beach, Florida, 38 F.4th 941 (11th Cir. 2022). Individual seeking to share religious message on public streets and sidewalks of municipality sued after receiving citation for violating municipal sign ordinance. The ordinance prohibited some categories of signs including portable signs. While the ordinance’s prohibition on portable signs is content neutral, the complete ban on all portable signs carried in all locations “almost surely violates the First Amendment.” LaCroix at 945. Further, the prohibition fails intermediate scrutiny as it entirely forecloses a venerable form of speech and does not leave open alternative channels of communication. Content neutrality did not save the municipal ordinance from First Amendment scrutiny. Portable handheld signs often convey political, religious, or personal messages, thereby requiring the ordinance to be narrowly tailored to serve a significant governmental interest while leaving open ample alternative channels for communication of the information. The ordinance fails to leave open such alternative channels.
Sailboat Bend Sober Living, LLC v. City of Fort Lauderdale, Florida, 46 F.4th ---,2022 WL 3702126, (11th Cir. Aug. 26, 2022). Owners of for-profit sober living home brought suit under Fair Housing Act (FHA) and Americans with Disabilities Act (ADA) alleging that code enforcement decisions were motivated by hostility to the disabled, that their accommodation request was wrongfully denied, and that the zoning ordinance discriminated against the disabled. Sailboat Bend is a sober living facility for individuals recovering from addiction, and its residents are considered “disabled” under federal and city law. After being cited for building and fire code violations and having two accommodation requests denied, Sailboat Bend reduced its occupancy to three people rather than make required and expensive safety upgrades to the property. The City also passed a zoning ordinance placing some restrictions on the ability of Sailboat Bend to operate in residentially zoned districts; however, the zoning ordinance undeniably treats individuals with disabilities more favorably than similarly-situated nondisabled individuals. Thus, the ordinance is not facially discriminatory. Differential treatment is not discriminatory treatment when the differential treatment favors the plaintiffs. Even though the ordinance places certain restrictions on individuals with disabilities that it does not place on individuals without disabilities, this is only because individuals with disabilities are the only ones permitted to live together in community residences in the subject zone. The Court thus rejected the claims under the FHA and ADA, and further rejected the reasonable accommodation claim under the FHA and ADA. The Court also rejected a claim for intentional discrimination on the basis of disability.
Davis v. Waller, 44 F.4th 1305 (11th Cir. 2022). Hostage shot non-fatally by two state troopers while being forced by felon to drive logging truck to flee brought § 1983 case against state troopers for excessive force under the Fourth Amendment. The Eleventh Circuit affirmed the trial court’s grant of summary judgment based on qualified immunity. Forced to drive at gunpoint, the Plaintiff drove an 84,000-pound logging truck loaded with timber towards seven officers with no signs of stopping. Several officers opened fire on the cab of the truck, though they allegedly knew that the plaintiff was being forced to drive. The whole episode had begun when the felon shot his pregnant girlfriend and took his grandmother hostage, later fleeing in a truck together with his wounded girlfriend who he would eventually throw from the moving vehicle. The felon eluded officers, with the felon firing shots at the officers. When the felon’s vehicle ran out of gas, he searched for a new vehicle at a logging site. He found the hostage and ordered him to drive at gunpoint, while the felon hid in the foot well trying to push the gas pedal with his hands. The hostage had called 911, and dispatchers relayed over the radio that the felon had hijacked a logging truck, was armed, and had forced the hostage to drive it. The logging truck proceeded towards parked police vehicles and began to knock them out of the way, with officers bailing out from behind their vehicles and eventually opening fire at the moving truck, which stopped after striking one of the patrol cars. As the hostage exited the truck, an officer fired one more shot which hit the hostage in the shoulder. The hostage was shot a total of nine times.
The Eleventh Circuit found that the officers were acting in their discretionary capacities, and evaluated the officers’ actions for their reasonableness. The Court was satisfied that the defendants’ decisions to shoot at a moving, 84,000 pound logging truck were reasonable, citing the principle that the determination of reasonableness must be made from the perspective of the officer at the time the force was used, and not with the 20/20 vision of hindsight. The Court held that any reasonable officer would reasonably believe his own life was in imminent danger and that the lives of others would be jeopardized if the felon was permitted to escape. The Court also cited precedent consistently upholding an officers’ use of force and granting qualified immunity in cases where one used or threatened to use their vehicle as a weapon to endanger officers or civilians. The Court also found that no warning was required before firing under the circumstances presented. Finally, the Court determined that the actions of the officers did not violate clearly established laws with materially similar facts.
Michael D. Strasavich practices with the Mobile, Alabama law firm of Burr & Forman LLP. He represents companies in insurance defense, insurance coverage, ERISA, products, real estate, and bankruptcy litigation. He is a member of DRI and the Alabama Defense Lawyers Association.
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Insurance Law: Covered Events
Eleventh Circuit Reiterates Uphill Battle for Cedents Seeking to Imply Follow-the-Fortune Clauses in Reinsurance Contracts
By Sharon D. Stuart
Edited by Regen O'Malley
Historically, the duty of utmost good faith has been held to require a ceding insurer to place its reinsurer in the same position as itself and to give to the reinsurer the same means and opportunity of judging the value of the risks. Unigard Sec. Ins. Co., v. North River Ins. Co., 4 F.3d 1049, 1069 (2d Cir. 1993). Under this doctrine, the cedent: will carefully underwrite its business; will provide to the reinsurer all facts and information material to the risk; does not conceal facts which ought in good conscience to be communicated to the reinsurer; and takes the interests of its reinsurer into consideration when settling claims. The reinsurer, on the other hand, does not second guess the cedent’s claim practices and pays claims upon demand. In other words, the reinsurer follows the fortunes of its cedent as if it were a party to the original insurance contract. See, e.g., Sun Mut. Ins. Co. v. Ocean Ins. Co., 107 U.S. 485 (1883); N. River Ins. Co. v. Ace Am. Reins. Co., 361 F.3d 134, 139-40 (2d Cir. 2004).
A typical follow-the-fortunes clause might say:
“All claims involving this reinsurance when settled by the Company, shall be binding on the Reinsurer, which shall be abound to pay its portion of such settlements....”
American Bankers Ins. Co. of Fla. v. Northwestern Nat. Ins. Co., 198 F.3d 1332, 1334 (11th Cir. 1999).
In the absence of such an express provision, courts and arbitrators are often asked to imply a following provision. The Eleventh Circuit recently examined a case in which a cedent claimed that its reinsurer had a duty to follow its fortunes and reimburse it for a settlement and defense costs although the reinsurance contract did not contain an explicit follow-the-fortunes clause. Public Risk Mgmt. of Fla. v. Munich Reinsurance Am., Inc., 38 F.4th 1298 (11th Cir. 2022).
Public Risk Management of Florida (“PRM”) is a self-insured public entity risk management program. PRM exclusively insures certain local government entities in Florida, including the City of St. Pete Beach (“St. Pete”). PRM provided Public Officials Errors and Omissions Coverage (“E&O coverage”) to St. Pete under a Coverage Document covering the period from April 1, 2008 to April 1, 2009 (the “Coverage Document”). Munich Reinsurance America, Inc. (“Munich Re”) reinsured the E&O coverage provided by PRM’s Coverage Document from April 1, 2008 to April 1, 2009. Prior to this policy period, Certain Underwriters at Lloyds (“Underwriters”) provided reinsurance to PRM. Public Risk Management, 38 F.4th at 1301.
In 2006, Chester and Katherine Chmielewski, a couple residing in St. Pete, sued the city in state court to quiet title to their beach property after the city allowed the public to access their land and publicly took the position that the couple could not exclude the public from their property. The state court entered a Stipulated Final Judgment in the Chmielewskis’ favor and quieted title to the beach property. However, St. Pete continued to allow public access to their property and kept taking the position that the Chmielewskis had no right to keep the public off their beach parcel. So, in November 2009, the couple again sued St. Pete in state court, alleging inverse condemnation. PRM denied coverage to St. Pete for this suit because the Coverage Document excluded coverage for inverse condemnation claims. Id. at 1302.
In 2013, the Chmielewskis amended their complaint to assert a Section 1983 claim alleging violation of their Fourth Amendment rights and an inverse condemnation claim under the Florida Constitution. St. Pete removed the case to federal court. PRM covered the Section 1983 claim but would not cover the inverse condemnation claim. In December 2013, PRM gave Munich Re notice of the Section 1983 suit against St. Pete. Id.
In January 2014, Munich Re denied coverage for the Section 1983 claim because it arose from alleged wrongful acts that occurred prior to the Reinsurance Agreement’s coverage period of April 1, 2008, to April 1, 2009. Munich Re encouraged PRM to notify Underwriters of the claim, and PRM did advise Underwriters that it believed the wrongful acts underlying the claim occurred in their reinsurance policy period. Underwriters eventually denied coverage for the Section 1983 claim shortly before the October 2015 trial of the inverse condemnation/Section 1983 case. The Chmielewskis won a jury award of $725,000 for the Section 1983 claim and $1.5 million for inverse condemnation. Id.
PRM did not communicate with Munich Re from the time of its denial until after the verdict. Based on the evidence at trial, PRM contacted Munich Re, contending that the date of loss was November 28, 2008 – within the Reinsurance Agreement coverage period – and asked Munich Re to reconsider its position. Munich Re again denied coverage on the basis that the testimony relevant to the Section 1983 claim showed the damages for interference with property rights had gone on since at least 2005. PRM settled the Section 1983 claim for $750,000, and Munich Re refused to reimburse it. Id. at 1302-03.
PRM sued Munich Re in federal court in Florida for breach of contract, seeking $750,000 for the settlement and $200,000 in defense costs. It further sought a judgment declaring that Munich Re owed defense and indemnity under the Coverage Document and Reinsurance Agreement. The trial court granted summary judgment in favor of Munich Re. PRM appealed to the Eleventh Circuit. Id.
The Eleventh Circuit first considered whether the text of the Reinsurance Agreement and Coverage Document provided coverage for St. Pete. The Court held that the plain language of the Reinsurance Agreement required Munich Re to reimburse PRM for amounts PRM had paid to its insured, St. Pete, and to prove that the Reinsurance Agreement provided coverage for such payment. However, because the Reinsurance Agreement covered only “sums paid by PRM for which it is liable, under the Coverage Document reinsured hereunder,” the Court found that Munich Re was not obligated to reimburse PRM for the amounts PRM had paid but was not required to pay as defense or indemnity on St. Pete’s behalf. Id. at 1304-05. The Court thus found that the case turned on whether the Coverage Document (reinsured by Munich Re) required PRM to defend against the Section 1983 claim and indemnify St. Pete for the settlement of that claim. The Coverage Document was an “occurrence” policy, defining a series of wrongful acts as one occurrence, and fixing the date of that one occurrence as the date of the first wrongful act in the series. Because the evidence showed that the first wrongful act occurred as early as 2003, or in any case by 2005, i.e., prior to the time frame of the Coverage Document, the Court found no duty to defend or indemnify under the Coverage Document, and thus no duty by Munich Re to reimburse PRM. Id. at 1305-09.
The primary issue considered by the Eleventh Circuit, however, was whether Munich Re was required under the follow-the-fortunes doctrine to reimburse PRM for its decision to defend and indemnify St. Pete. Id. at 1310. The court noted that the doctrine provides that “reinsurers are generally bound by the reinsured’s decision to pay the claim and must refrain from second guessing a good faith decision to do so.” Id. (quoting Am. Bankers Ins. Co. of Fla. v. Nw. Nat’l Ins. Co., 198 F.3d 1332, 1335 (11th Cir. 1999)). The court explained that the doctrine is supported by several policy reasons: (1) reinsurers do not examine risks, receive notice of loss from the original insured, or investigate claims, so reinsurers generally rely on the exercise of the reinsured’s exercise of utmost good faith; and (2) to avoid placing insurers in “the untenable position of advancing defense costs in coverage contests that would be used against them by reinsurers seeking to deny coverage.” Id. (quoting N. River Ins. Co. v. CIGNA Reinsurance Co., 52 F.3d 1194, 1206 (3d Cir. 1995)).
PRM argued that the Reinsurance Agreement contained a follow-the-fortunes clause and that, even if it did not, the Court should infer such a clause. The Court determined that the Reinsurance Agreement was inconsistent with the follow-the-fortunes doctrine, because it expressly required PRM to submit to Munich Re proof not only that it had paid its insured but also proof that the Reinsurance Agreement provides coverage for such payment:
Payment by the Reinsurer of its portion of loss and expense, paid by or on behalf of PRM, will be made by the Reinsurer to PRM promptly after proof of payment by PRM and coverage hereunder is received by the Reinsurer.
Id. Further, the court noted that Munich Re had agreed only to indemnify PRM for occurrences during the Coverage Document:
The Reinsurer agrees to indemnify PRM, on an excess of loss basis, for Ultimate Net Loss paid by PRM as a result of Occurrences . . . during the term of this Agreement under PRM’s Coverage Document underwritten by PRM and covered by this Agreement.
Id. at 1311. Finally, the court noted that the Reinsurance Agreement defines “Ultimate Net Loss” as “the sum or sums paid by PRM for which it is liable, under the Coverage Document reinsured hereunder, i.e., the 2008/2009 Coverage Document.” Id. at 1311.
The court thus determined that these clauses were the opposite of a follow-the-fortunes clause, because, rather than providing that Munich Re would be bound by PRM’s good faith coverage decisions, they required that PRM provide proof to Munich Re that it had paid amounts to its insured and that the Reinsurance Agreement provided coverage for such payments. Id. at 1311.
Furthermore, the Court rejected PRM’s invitation to infer a follow-the-fortunes clause absent a specific finding that such a clause existed. Confident that the Supreme Court of Florida would not infer application of the follow-the-fortunes doctrine under Florida law based on these facts, the Eleventh Circuit declined to rewrite the Reinsurance Agreement to add meaning or reach conclusions contrary to the intent of the parties. Id.
The Court’s decision is similar to a 2019 opinion of the federal District Court for the Northern District of New York in Utica Mutual Insurance Company v. Munich Reinsurance America, Inc., 381 F. Supp. 3d 189 (N.D.N.Y. 2019) (Utica II). There, the District Court held that neither “follow the fortunes” nor “follow the settlements” was implicit in facultative certificates issued by Munich Re and that the ceding company had failed to sustain its burden to prove that it was “legally obligated” under its policies to pay the expenses it sought to recover from Munich for payment of asbestos claims. See generally id. The Second Circuit made an analogous finding in 2018, when it held that a follow-the-settlements obligation should not be implied into reinsurance certificates as a matter of law. See Utica Mut. Ins. Co. v. Clearwater Ins. Co., 906 F.3d 12, 17, 25 (2d Cir. 2018) (“We see no reason to read such a term into the contract by implication. Instead, we follow the New York Court of Appeals’ instruction: where a contract is ‘reasonably susceptible of only one meaning, a court is not free to alter the contract to reflect its own personal notions of fairness and equity.”).
The Eleventh Circuit in PRM expressly refused to address whether it might be appropriate to infer the follow-the-fortunes doctrine under other circumstances such as where the reinsurance agreement contained neither a follow-the-fortunes clause or language plainly inconsistent with the follow-the-fortunes doctrine. 38 F.4th at 1311. The Court noted that this is an issue over which courts are divided. See 2 Allan D. Windt, Insurance Claims & Disputes: Representation of Insurance Companies & Insureds § 7:10 (6th ed. Mar. 2022 Update) (stating that “courts in the majority of states” have held that a reinsurer does not have to follow the fortunes of the insurer if their contract does not contain an express follow-the-fortunes clause); Steven C. Schwartz, Reinsurance Law: An Analytic Approach § 9.02 (2021) (noting that “[c]ourts are split as to whether a follow-the-fortunes clause is required, or whether the doctrine is implicit in every reinsurance contract”).
As the few precedents on the subject make clear, cedents face an uphill battle convincing a court to imply following provisions into a reinsurance contract. Courts are understandably reluctant to imply a term into a contract between sophisticated parties. See Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475 (2004) (court was “extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include.”). In the absence of an express follow-the-fortunes clause, courts typically hold that a question of fact exists. In such cases, they look to extrinsic evidence such as industry custom and practice, presented through fact and expert witnesses.
The insured bears a heavy burden of proof in this regard. See, e.g., Utica Mut. Ins. Co. v. Munich Reins. Am. Inc., 2018 WL 1737632, at *21-22 (N.D.N.Y. Mar. 20, 2018) (Utica I). In Utica I, the court ruled on summary judgment that Utica had failed to prove that follow the fortunes was so “fixed and invariable in the facultative reinsurance industry as to warrant importing them into [the reinsurance contract]”). As a result, Utica was required to prove that the loss was caused by a risk specifically covered by the reinsurance contract. Utica II, 381 F. Supp. 3d at 208 (quoting Clearwater Ins. Co., 906 F.3d at 25). See also Hutner v. Greene, 734 F.2d 896, 900 (2d Cir. 1984) (“Under New York law ... custom and usage evidence must establish that the omitted term is ‘fixed and invariable’ in the industry in question.”). Notably, a case in which the court implies a following provision into a reinsurance agreement as a matter of fact will rarely serve as precedent in other cases, as factual determinations vary from case to case. See Tug Helen B. Moran, Inc. v. Moran Towing & Transp. Co., 607 F.2d 1029, 1031 (2d Cir. 1979).
Contract wording is crucial in cases seeking implication of a following provision. While the use of the word “follow” is not determinative of whether the clause is a following clause that binds the reinsurer, the Eleventh Circuit’s decision in PRM highlights the importance of including language in the reinsurance contract indicating that the reinsurer is bound by the reinsured’s claim determination. In such cases, the clause is likely to be viewed as a following clause. Without such express language, courts will likely reach a contrary view.
Sharon Stuart is a founding partner of Christian & Small LLP in Birmingham, Alabama and serves as President and Claims Counsel of Attorneys Insurance Mutual of the South, Inc. Sharon is a member of DRI’s Law Institute and is chair of the Reinsurance SLG of the Insurance Law Committee. She is a member of the IADC, the FDCC, and is a past President of the Alabama Defense Lawyers Association.
By Rebecca E. Strickland
Edited by Regen O'Malley
The Data Breach/Privacy Substantive Law Group monitors the interesting and always changing world of data breach and privacy issues. We are actively recruiting new members in an effort to increase our network and programming! I’ll be at the Complex Coverage Forum in November and would love to tell you more about our SLG. SLG’s offer an opportunity to meet other attorneys in other parts of the country who are interested in the same practice area. This translates into hearing about recent cases outside your jurisdiction sooner and building a network of potential referrals!
Our SLG’s article this month provides a survey of state data privacy which become effective next year. In each Brief Case newsletter, I look forward to learning a little more about a specific practice area. In addition, the opportunity to author a Brief Case article is a benefit of joining an SLG. Not only is it an opportunity to share your expertise on current issues, but it is also an opportunity to substantively consider how the law is developing throughout the country. If you have not yet considered joining an SLG, I strongly recommend it!
A Growing Patchwork of Data Privacy Regulation
By Rebecca E. Strickland
Edited by Regen O'Malley
Five states, including California, Colorado, Virginia, Utah, and Connecticut, have enacted data privacy laws, which become effective next year. Several other states, including Washington, New York, Florida, Oklahoma, Minnesota, and Utah are considering data privacy laws. National companies in particular are increasingly challenged by the need to comply with this growing patchwork of regulations.
This article contains an overview of the laws which will become effective next year, focusing on the effective date, applicability, and enforcement of privacy laws. This high-level overview is not a substitute for an in-depth analysis and does not necessarily address state-specific definitions of protected data or detailed information about exceptions (e.g., exceptions for companies regulated by federal law, such as the Gramm-Leach-Bliley Act or Securities Exchange Act; HIPAA information; or non-profits or for the type of data). Further, each state has specific notice requirements, requirements regarding responding to notices, and specific provisions related to controllers and producers of data. Thus, it is important to carefully analyze the specifics of the law of each state.
California Privacy Rights Act (CPRA)
The CPRA becomes effective on January 1, 2023, but there are existing data obligations which affect data collected since January 1, 2020. Sean Paisan, Don’t be Fooled by the CPRA Effective Date, Employers Have Current Obligations Under the CCPA, May 21, 2021, available at https://www.workplaceprivacyreport.com/2021/05/articles/california-consumer-privacy-act/dont-be-fooled-by-the-cpra-effective-date-employers-have-current-obligations-under-the-ccpa/.
The CPRA gives California consumers privacy rights, including the right to know about the personal information a business collects about them and how it is used and shared; the right to delete personal information collected from them (with some exceptions); the right to opt-out of the sale of their personal information; and the right to non-discrimination for exercising their CCPA rights. California Consumer Privacy Act (CCPA) fact sheet, available at https://oag.ca.gov/privacy/ccpa. The CPRA also affords California residents the right to opt out of having their personal data sold and a right to request what personal information has been collected about them. Companies subject to the CPRA must provide notice at the time of data collection of the categories of personal information businesses collect about consumers and the purposes for which each category of information. Further, California residents may request that their personal information be deleted, though exceptions exist, including for warranty/recall information, certain business security practices, compliance with legal obligations, and for internal use. Id.
The CPRA protects California residents. The personal information protected includes information that identifies, relates to, or could reasonably be linked with a California resident-consumer or their household. Publicly available information is not protected. Id.
In order to be subject to the CPRA, a company must do business in California and either have a gross revenue exceeding $25 million; buy, receive, or sell, the personal information of 50,000 or more California residents, households, or devices; or derive 50% or more of their annual revenue from selling California residents’ personal information. Id.
In general, the CPRA is enforced by the Attorney General. However, unlike other states, the CPRA provides a limited private right of action. In the event of a data breach, a consumer may be able to sue a company if nonencrypted and nonredacted personal information was stolen in a data breach as a result of the company’s failure to maintain reasonable security procedures and practices to protect it. Under the CPRA, the consumer may sue for monetary damages actually suffered from the breach or “statutory damages” of up to $750 per incident. In order to pursue statutory damages, the consumer must place the company on written notice of the CCPA sections it allegedly violated and give the company 30 days to respond with a written statement that it has cured the violations in the notice and that no further violations will occur. If the company cures the violations, then statutory damages are unavailable unless the company violates the CCPA and its statement. Id.
Virginia Consumer Data Privacy Act (VCDPA)
The VCDPA becomes effective on January 1, 2023. Va. Code Ann. § 59.1-575. This Act protects Virginia residents acting only in an individual or household context, not those acting in a commercial or employment context. Va. Code Ann. § 59.1-576. Personal data includes data that is linked or reasonably linkable to an identified or identifiable natural person but does not include de-identified data or publicly available information. Va. Code Ann. § 59.1-571.
The VCDPA applies to “persons that conduct business in the Commonwealth or produce products or services that are targeted to residents of the Commonwealth and that (i) during a calendar year, control or process personal data of at least 100,000 consumers or (ii) control or process personal data of at least 25,000 consumers and derive over 50 percent of gross revenue from the sale of personal data.” Va. Code Ann. § 59.1-576.
Under the VCDPA, consumers may confirm whether or not a controller is processing the consumer’s personal data, correct inaccuracies in the data, delete personal data, obtain a copy of the personal data, and opt out of the processing of the personal data for purposes of (i) targeted advertising, (ii) the sale of personal data, or (iii) profiling in furtherance of decisions that produce legal or similarly significant effects concerning the consumer. A controller is required to respond to certain consumer requests. Va. Code Ann. § 59.1-573.
Under the VCDPA, data controllers should limit the collection of personal data to what is adequate, relevant, and reasonably necessary in relation to the purposes for which such data is processed, as disclosed to the consumer; only process personal data for purposes that are reasonably necessary to or compatible with the disclosed purposes for which such personal data is processed; maintain reasonable data security practices; and process data in a way that is non-discriminatory. Va. Code Ann. § 59.1-574.
The VCDPA is enforced by the Attorney General and expressly prohibits any private right of action. Va. Code Ann. § 59.1-583-584.
Colorado Privacy Act (CPA)
The CPA becomes effective on July 1, 2023. Colorado Privacy Act (CPA) Rulemaking, available at https://coag.gov/resources/colorado-privacy-act/.
The CPA protects the personal data of Colorado residents when they act in an individual or household context but not in a commercial or employment context, such as a job applicant. Id. It applies to entities, including nonprofits, that conduct business in Colorado or deliver commercial products or services targeted to residents of Colorado; and either process the personal data of more than 100,000 individuals in any calendar year or derive revenue or receive discounts on goods or services in exchange for the sale of personal data of 25,000 or more individuals. The CPA also applies to service providers, contractors, and vendors that manage, maintain, or provide services relating to the data on behalf of these companies. Id.
The CPA focuses on requiring the companies identify how they collect, store, use, share and sell personal data, and clearly identify the purpose for which they do so; minimize the data collected; avoid using the data for reasons individuals were not originally aware of; use reasonable security practices to secure the data; respond to requests by individuals asserting the rights granted to them under the law; and conduct Data Protection Assessments before selling personal data, processing “sensitive data,” or processing personal data that could result in unfair, deceptive or disparate treatment of individuals; financial or physical injury to individuals; a physical or other intrusion on an individual’s privacy that would be offensive to reasonable people; or some other substantial injury. Under the CPA, data controllers may not collect, store, use, share or sell “sensitive data” without an individual’s consent or use personal data in any way that would result in unlawful discrimination. Id. A controller is required to respond to certain consumer requests.
The CPA is enforced by the Attorney General and does not afford a private right of action to consumers. Id.
Utah Consumer Privacy Act (UCPA)
The UCPA becomes effective on December 31, 2023. Utah SB0227, available at https://le.utah.gov/~2022/bills/static/SB0227.html. It protects the personal data of consumers who are residents of Utah acting in an individual or household context, not in an employment or commercial context. Id. Personal data does not include deidentified data, publicly available information, or “aggregated data,” which is defined as “information that relates to a group or category of consumers: (a) from which individual consumer identities have been removed; and (b) that is not linked or reasonably linkable to any consumer.” Id.
The UCPA applies to data controllers or processors who conducts business in Utah or produce a product or service that is targeted to consumers who are residents of Utah, have annual revenue of $25,000,000 or more; and either “(i) during a calendar year, controls or processes personal data of 100,000 or more consumers; or (ii) derives over 50% of the entity's gross revenue from the sale of personal data and controls or processes personal data of 25,000 or more consumers.”
Under the UCPA, consumers may confirm whether a controller is processing the consumer’s personal data and access their data. They have the right to delete their data and obtain a copy of their personal data. A consumer also “has the right to opt out of the processing of the consumer’s personal data for purposes of: (a) targeted advertising; or (b) the sale of personal data.” Id. Like the VCPA, under the UCPA, a controller is required to respond to certain consumer requests.
The UCPA is enforced by the Attorney General and does not afford a private right of action to consumers. Id.
Connecticut Data Privacy Act (CTDPA)
The CTDPA becomes effective on July 1, 2023. (S.B. 6, Gen. Assemb., Reg. Sess. (Conn. 2022)).
The CTDPA protects the personal data of Connecticut residents. Id.
The CTDPA applies to individuals who conduct business in Connecticut or “produce products or services that are targeted to residents of this state and that during the preceding calendar year: (1) Controlled or processed the personal data of not less than one hundred thousand consumers, excluding personal data controlled or processed solely for the purpose of completing a payment transaction; or (2) controlled or processed the personal data of not less than twenty-five thousand consumers and derived more than twenty-five per cent of their gross revenue from the sale of personal data.” Id.
The CTDPA gives consumers the right to confirm whether or not a controller is processing the consumer’s personal data and access such personal data, unless such confirmation or access would require the controller to reveal a trade secret; correct inaccuracies, delete personal data, obtain a copy of the consumer’s personal data, and “opt out of the processing of the personal data for purposes of (A) targeted advertising, (B) the sale of personal data, except as provided in subsection (b) of section 6 of this act, or (C) profiling in furtherance of solely automated decisions that produce legal or similarly significant effects concerning the consumer.” Id.
Data controllers should limit the collection of personal data to what is adequate, relevant, and reasonably necessary in relation to the purposes for which such data is processed, as disclosed to the consumer; only process personal data for purposes that are reasonably necessary to or compatible with the disclosed purposes for which such personal data is processed; maintain reasonable data security practices; and process data in a way that is non-discriminatory. Id.
Under the CTDPA, data controllers should limit the collection of personal data to what is adequate, relevant, and reasonably necessary in relation to the purposes for which such data is processed, as disclosed to the consumer; only process personal data for purposes that are reasonably necessary to or compatible with the disclosed purposes for which such personal data is processed; maintain reasonable data security practices; process data in a way that is non-discriminatory; comply with certain regulations when processing a minor’s data; provide a mechanism to revoke consent for use oof data; and not process personal information for targeted advertising or sell the consumer’s personal data without the consumer’s consent, under circumstances where a controller has actual knowledge. Id.
The CTDPA is enforced by the Attorney General and does not afford a private right of action to consumers. Id.
Above, state data privacy laws that have already been enacted are summarized. However, in 2022 alone, lawmakers in twenty-nine states introduced some type of data privacy legislation. With a renewed focus on data privacy, particularly in the aftermath of the Dobbs decision, further legislation is anticipated, either at the state level or, perhaps, more uniform federal legislation. See Dobbs v. Jackson Women’s Health Organization, 597 U. S. ____ (2022) (overturning Roe v. Wade).
Rebecca Strickland defends insurance carriers, as well as insured businesses and individuals, in coverage disputes, commercial litigation, premises liability and commercial transactions that involve nuances or special complexities. Her practice is focused on first-party property claims, third-party claims, and bad faith claims. She has represented insurance carriers through verdict both in the defense of claims and in pursuing the rights of the carrier against other parties. Prior to becoming an attorney, Rebecca was an IT consultant, assisting major corporations in implementing new financial and human resources software.
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Commercial Litigation: The Business Suit
The Ninth Circuit’s “Tuna Case” Lets Uninjured Class Members Off the Hook at Certification but May Reel in the Supreme Court
By Joe Hammond and Kyle Medin
Attorneys interested in class actions and antitrust law will read the Ninth Circuit’s recent opinion in the “tuna case”—Olean Wholesale Grocery Cooperative, Inc. v. Bumble Bee Foods LLC—with relish. 31 F.4th 651 (2022). The case contains important takeaways for class action and antitrust attorneys, and also—the focus of this post—highlights a deepening circuit split, one which the Supreme Court may be angling to resolve. These takeaways have ably been covered by other commentators. The takeaways include that 1) the preponderance-of-the-evidence standard applies to class certification motions; 2) all evidence in support of class certification motions must be admissible; and 3) as discussed more extensively in this post, rejecting a rule precluding class certification where the proposed class includes more than a de minimis number of uninjured members. See, e.g., https://www.gibsondunn.com/ninth-circuit-issues-important-en-banc-opinion-regarding-class-certification-issues/.
In the tuna case, the district court certified classes of direct and indirect purchasers of canned tuna based on an alleged conspiracy among major tuna suppliers to fix the price for canned tuna in violation of antitrust law. The conspiracy was not in doubt; indeed, the Department of Justice had already prosecuted four executives, three of whom pleaded guilty to their roles in the conspiracy, and one of whom was convicted by a jury. However, class certification was fiercely contested. The parties jousted over how many uninjured members the proposed class contained and whether such bycatch class members should be thrown back before class certification.
Ultimately, the Ninth Circuit, sitting en banc, affirmed certification of the class and subclasses under review. The majority highlighted that the class put forth an expert’s model that estimated that the conspiracy resulted in a 10.28% overcharge on tuna for the entire class. Accordingly, the majority determined that the defendants’ expert’s assertion that the model did not show a statistically-significant price difference for 28% of the class was not sufficient to threaten certification.
The majority and dissent interpreted the defense expert’s finding differently: the majority highlighted that the 28%—for whom no statistically-significant difference in price was shown—had that result because they did not make enough pre-collusion purchases to serve as control prices, and that therefore the 28% figure did not necessarily represent the amount of uninjured class members. The dissent found that explanation fishy, seeing the lack of a demonstrated price increase for 28% of the class as indication that up to 28% of the class was potentially uninjured. The majority appeared to agree that injury had not yet been demonstrated for these 28%, but nevertheless believed that the 10.28% classwide overcharge was enough to demonstrate that injury could be proven through common proof. The dissent, discussing cases from the First and D.C. Circuits, argued that the majority “needlessly create[d] a split with other circuits that have endorsed a de minimis rule.”
The circuit split highlighted by the dissent has two lines of fracture: first, whether the presence of any uninjured class members poses a barrier to class certification, and second, if some uninjured class members can pass certification, how many uninjured class members is too many? We know, from TransUnion v. Ramirez, that every class member must have standing—and therefore be injured—in order to recover individual damages in a class action. But TransUnion left unanswered whether every member of the class must also show standing and injury at class certification, as Best in Class pointed out last year.
Contrary to the dissent’s warning in the tuna case that the majority would “create” a circuit split, based on our research the circuit courts are already split on this question, though the tuna case majority certainly deepened it. Six circuits have held that all class members must be injured for a class to be certified, five have held that there is some de minimis number of uninjured class members that will not preclude certification, and two circuits (the 10th and Federal Circuits) have yet to weigh in.
In one corner, six federal Circuits have held, either expressly or by implication, that there is no “de minimis” number of uninjured class members that will be allowed to sail by at class certification. These are the Second, Third, Fifth, Sixth, Eighth, and D.C. Circuits. See Barrows v. Becerra, 24 F.4th 116, 128 (2d Cir. 2022) (“[N]o class may be certified that contains members lacking Article III standing.”) (citing Denney v. Deutsche Bank AG, 443 F.3d 253, 263–64 (2d Cir. 2006)); In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 311–12 (3d Cir. 2008), as amended (Jan. 16, 2009) (plaintiffs must prove that injury as to all members is able to be shown through common proof, or able to be presumed in certain circumstances); Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294, 302 (5th Cir. 2003) (“[W]here fact of damage cannot be established for every class member through proof common to the class, the need to establish antitrust liability for individual class members defeats Rule 23(b)(3) predominance.”); Rikos v. Procter & Gamble Co., 799 F.3d 497, 505 (6th Cir. 2015) (plaintiffs must be able to prove “that all members of the class have suffered the same injury” in order to satisfy Rule 23(a)(2)); Halvorson v. Auto-Owners Ins. Co., 718 F.3d 773, 779–80 (8th Cir. 2013) (“A district court may not certify a class ... if it contains members who lack standing.”); In re Rail Freight Fuel Surcharge Antitrust Litig. - MDL No. 1869, 934 F.3d 619, 624 (D.C. Cir. 2019) (“[T]he plaintiffs, to establish predominance, must ‘show that they can prove, through common evidence, that all class members were in fact injured by the alleged conspiracy.’”) (citing In re Rail Freight Fuel Surcharge Antitrust Litig.-MDL No. 1869, 725 F.3d 244, 252 (D.C. Cir. 2013)).
In the other corner, five circuits have held that where a proposed class contains some de minimis number of uninjured plaintiffs, this fact will not hold up the certification of the class at the initial stage, even though these members will need to be picked off before ever collecting damages. Among these five, the Ninth Circuit’s majority in the tuna case does seem to have ventured the furthest in allowing a potentially substantial number of uninjured class members to pass certification, allowing as many as 28% uninjured class members in the putative class without compromising certification. Olean, 31 F.4th at 669.
However, the Ninth Circuit is not entirely alone: in the other four Circuits to address the issue, each has held (or signaled) that some undefined de minimis number of uninjured plaintiffs can exist in a class without threatening certification; these are the First, Fourth, Seventh, and Eleventh Circuits. The Tenth Circuit would likely join this camp if given the opportunity. It has previously held similarly in class actions for injunctive relief, see Colorado Cross Disability Coal. v. Abercrombie & Fitch Co., 765 F.3d 1205, 1214 (10th Cir. 2014). Further, the District of Kansas recently “predict[ed] the Tenth Circuit would follow” the Seventh Circuit in allowing a de minimis number of uninjured class members to pass certification. In re EpiPen (Epinephrine Injection, USP) Mktg., Sales Pracs. & Antitrust Litig., No. 17-MD-2785-DDC-TJJ, 2020 WL 1873989, at *32 (D. Kan. Feb. 27, 2020) (unpub.). See In re Asacol Antitrust Litig., 907 F.3d 42, 58 (1st Cir. 2018) (Rule 23 does not “require that a plaintiff demonstrate prior to class certification that each class member is injured,” but at certification a district court must “offer a reasonable and workable plan for how” defendants will be able to challenge uninjured class members’ allegations); Krakauer v. Dish Network, L.L.C., 925 F.3d 643, 658–59 (4th Cir. 2019) (stating that it is not resolving this issue, but also rejecting argument that uninjured class members should preclude certification because “there is simply not a large number of uninjured persons included within the plaintiffs’ class.”) (emphasis added); Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 825 (7th Cir. 2012) (“[A] class should not be certified if it is apparent that it contains a great many persons who have suffered no injury at the hands of the defendant. There is no precise measure for ‘a great many.’”) (emphasis added) (internal citation omitted); Cordoba v. DIRECTV, LLC, 942 F.3d 1259, 1277 (11th Cir. 2019) (“[W]hen it appears that a large portion of the class does not have standing,” a district court “must consider under Rule 23(b)(3) before certification whether the individualized issue of standing will predominate over the common issues in the case”).
This split may yet be resolved, if the Ninth Circuit’s decision in the tuna case is appealed to the United States Supreme Court. The deadline for the defendants to file a petition for writ of certiorari has not elapsed, but it has been extended to August 8, signaling that the defendants intend to petition. This case would give the Court a chance to can the deepening split between the circuits, and to finally address the question left unanswered in TransUnion: what does the presence of uninjured class members mean for class certification? Class action attorneys will be watching to see whether the Court will take a bite, or whether the tuna case will be the one that got away.
Joseph D. Hammond is an attorney at Ellis & Winters. Before joining Ellis & Winters, Joe worked as an associate at Quinn Emanuel Urquhart & Sullivan LLP in New York City, where he practiced in the areas of commercial litigation, antitrust, and product liability. Throughout his career, he has represented plaintiffs and defendants in federal and state courts throughout the United States. Joe graduated from New York University School of Law, where he was a Robert McKay Scholar.
Kyle Medin is a litigation attorney who focuses his practice primarily on toxic torts, specifically asbestos cases, and general litigation. Prior to joining Ellis & Winters in 2020, Kyle worked as a Legal Fellow at the Duke University Office of Counsel where he investigated EEOC charges, assisted the University with meeting its renewable energy goals, and tackled land use issues. He received his J.D. from Duke University School of Law, and was awarded a Duke Law School Dean’s Scholarship.
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