Life, Health & Disability News
Fourth Circuit Holds That ERISA Prohibits a Later-Added Reservation of Rights Clause to Terminate Previously Vested Retiree Life Insurance Coverage
By Scott M. TragerIn Bellon v. PPG Employee Life and Other Benefits Plan, - - - F.4th - - -, 2022 WL 2760764 (4th Cir. July 15, 2022), the United States Court of Appeals for the Fourth Circuit addressed whether the termination of retiree life insurance coverage contravened ERISA. The putative class action of approximately 1,000 retired PPG Industries, Inc. (“PPG”) employees and surviving spouses was initiated in the Northern District of West Virginia in July 2018 by eight plaintiffs – each a retiree or surviving spouse of a retiree of PPG – following the termination of the plaintiffs’ retiree life insurance coverage under the PPG Employee Life and Other Benefits Plan (the “Plan”). In its Memorandum Opinion and Order of June 2021, without ruling on the class certification issue, the district court awarded summary judgment to the PPG defendants on all claim which the plaintiffs challenged on appeal.
Under the Plan, life insurance coverage was provided to all of PPG’s former salaried, nonunion employees who retired from PPG with 15 or more years of service and received a PPG pension at the time of retirement. The 1981 summary plan description did not reserve any right on the part of PPG to modify, amend, or change retiree life insurance coverage; however, it provided that PPG explicitly reserved a right to modify, amend, or change other employee benefits provided by its Plan. In 1984, PPG inserted into the Plan a new reservation of rights clause that applied to retiree life insurance coverage. In January 2013, PPG merged its commodity chemicals business with an entity called Georgia Gulf Corporation to form a new business named Axiall. In that merger, PPG transferred to Axiall its obligations under the Plan to provide retiree life insurance coverage to eligible former employees of PPG. In December 2015, however, Axiall terminated the retiree life insurance coverage of the plaintiffs and members of the putative class. The plaintiffs contend that when PPG transferred its obligations under the Plan to Axiall in 2013, they (or their spouses) earned vested rights to retiree life insurance coverage under the Plan; therefore, the PPG defendants were required under ERISA to supply such coverage, regardless of whether Axiall provided coverage under a new benefits plan.
The parties each moved for summary judgment in the district court – the PPG defendants argued that PPG’s insertion of the 1984 reservation of rights clause into the Plan defeated the plaintiffs’ claims that their retiree life insurance benefits vested; the plaintiffs responded that the question of vesting was, at a minimum, a disputed question of material fact and an issue for trial. After the parties moved for summary judgment, however, newly discovered evidence revealed that, prior to 1969, the Plan contained a reservation of rights clause allowing PPG to modify, amend, or change the Plan as it saw fit. The plaintiffs maintained that this new evidence was material to their vesting claim, and that the PPG defendants’ delay in producing that evidence hindered the plaintiffs’ discovery efforts and rendered their summary judgment briefing incomplete, thereby entitling them to relief under Fed. R. Civ. P. 56(d). The PPG defendants countered that, regardless of whether that evidence amounted to “new facts,” the plaintiffs’ Rule 56(d) motion should be denied because plaintiffs could not base a vesting claim taken by PPG in 1969, years before ERISA became effective and set the vesting standards governing the vesting claim. The district court denied the plaintiffs’ Rule 56(d) motion and awarded summary judgment to the PPG defendants on all counts and dismissed the complaint with prejudice, holding that, consistent with ERISA, PPG could terminate retiree life insurance coverage for all present and future Plan participants, even if such coverage had previously been vested for participants like the plaintiffs (and their spouses) working between 1969 and 1984.
The plaintiffs appealed and contended the district court erred in awarding summary judgment to the PPG defendants on the vesting claim. The Fourth Circuit agreed with the plaintiffs that if their retiree life insurance coverage were ever a vested benefit, PPG could not rely on the later-added reservation of rights clause to terminate that coverage. The Fourth Circuit found the district court’s analysis of the vesting claim was premised on the fact that the Plan contained a reservation of rights clause as of 1984. However, if the retiree life insurance coverage constituted a vested benefit between 1969 and 1984, that benefit could not subsequently be taken away from the eligible Plan participants who worked during that 15-year period, relying on Wheeler v. Dynamic Eng’g, Inc., 62 F.3d 634, 638 (4th Cir. 1995) (observing that once benefits vest, “any amendment occurring thereafter [cannot] apply retroactively to deny coverage that [has] already vested”). The court further found that, under Gable v. Sweetheart Cup Co., 35 F.3d 851 (4th Cir. 1994), employers were not empowered under ERISA to terminate benefits that vested prior to its 1974 enactment. Therefore, the adoption of the 1984 reservation of rights clause could not allow PPG to thereafter terminate the plaintiffs’ previously vested retiree life insurance coverage. The court also noted that, to the extent the coverage was vested, Gable compelled the conclusion that PPG waived its statutory right to modify or terminate that benefit. The Fourth Circuit applied ordinary principles of contract law in finding that plaintiffs could potentially prevail on their claim that the retiree life insurance benefit vested and further found that the issue of vesting was a disputed issue of material fact. Accordingly, the district court’s judgment on the vesting claim was vacated and remanded for further proceedings.
Scott Trager is a Partner at Funk & Bolton PA. His practice covers a broad spectrum of general litigation matters in the state and federal courts of Maryland and the District of Columbia, as well as the Maryland Insurance Administration and Maryland Office of Administrative Hearings. He focuses his practice on the defense of life, health and disability insurance claims (ERISA and non-ERISA), as well as administrative claims before insurance regulators. He also has extensive experience with policy rescissions and interpleaders. He is Chair of DRI's Life, Health and Disability Committee, and previously served as Committee Vice-Chair (2018-2020) and Program Chair of the 2017 DRI Life, Health, Disability & ERISA Seminar.
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Insurance Law: Covered Events
Leadership Note from Transportation Law Subcommittee
By William Bulfer
Edited by J. Blake Hunter
These are exciting times for the Transportation Law Subcommittee! With help from active, “in-house” members, the group has been revitalized. Our small, but mighty, group of participants is each taking a different laboring oar to help address critical needs facing insurers in the transportation sector. Through regularly held meetings, membership has grown and strategy developed. As we round out 2022, the group is focused on the following: a podcast, hosted by vice-chair Phil Graham (set to debut in September); recruitment and expansion initiatives (look for the group’s t-shirts at ICPS in December); and increased thought leadership (an article in this month’s issue of The Brief Case by Jennifer Eubanks and Clark Monroe). Though excited about the progress we’ve made, our group is confident that it can do more both within and outside of the subcommittee. To that end, members Jeff Chen, Jonathan Schwartz, and others can be found writing articles, making presentations, and leading the way in their various fields of expertise.As the Transportation Law Subcommittee looks to 2023, we are hoping for greater participation by ILC members in private practice. We will continue to learn more about what insurers in the transportation sector need and to work with our “in-house” partners to develop programming and engage in thought leadership that addresses their concerns. We would like to partner with the Transportation Law Committee as a whole and help to address the insurance needs of that committee’s members. Most importantly, we look forward to creating, maintaining, and growing an accepting and engaging environment that provides a platform for members to learn, lead and find support as they progress in their respective careers.
William Bulfer is a Partner at Teague Campbell Dennis & Gorham LLP. He serves as the Transportation Law SLG Co-Chair.
ILC Leadership Note
By Kim Ramey, Esq.
Edited by J. Blake Hunter
The ILC’s Construction Law Subcommittee is home to a dynamic group that includes in-house and outside counsel and claims professionals. Our subcommittee provides a forum for its members to connect with friends and colleagues who handle construction defect claims, analyze construction defect coverage issues and defend construction litigation. Our members are also offered opportunities to get involved by speaking at DRI seminars, contributing articles to The Brief Case and other DRI publications, and presenting webinars. If construction is your niche, we invite you to make the most of your DRI membership by joining the ILC’s Construction Law Subcommittee! If you are interested in doing so, please contact email@example.com.
Kim Ramey is a Partner at Butler Weihmuller Katz Craig LLP. She serves as the Construction Law SLG Chair.
Leadership Note SIU Fraud
By W. Edward Carlton, Esq.
Edited by J. Blake Hunter
Each year at about this time, I have the opportunity to provide some insight on the ILC SIU/Fraud Subcommittee, and hopefully to brag on Tar Heel basketball. As to the latter, well I guess there is always next year! As to the ILC SIU/Fraud Subcommittee, I am honored to currently serve as the chair of this group, which seeks to provide opportunities for DRI insurance professionals and practicing attorneys to address recent trends and current information on emerging areas in insurance fraud and initiatives in the insurance industry to counter such activities. Twice a year, our subcommittee gets the opportunity to author SIU/Fraud articles for The Brief Case. Over the years, those have been extraordinarily informative, and some have led to opportunities for our members to speak at DRI Seminars. I am excited to read the article(s) for this year. Also, this past year, primarily through the efforts of fellow subcommittee member, Laurie Barbe (who has dragged me kicking and screaming into the 21st century), we held our first Zoom subcommittee meeting. It was a great opportunity to see each other while we discussed needs and opportunities within our subcommittee as well as the ILC. Hopefully, as we get younger, more computer savvy subcommittee members, we will have another soon. So, if your practice involves or you have an interest in SIU/Fraud, there is an opportunity through this subcommittee to get involved and to provide a valuable resource to the insurance industry. Join us by contacting Ed Carlton at firstname.lastname@example.org or Isaac Melton at Isaac.email@example.com.
W. Edward Carlton is a Shareholder at Quilling Selander Lownds Winslett & Moser PC. He serves as the Special Investigation/Fraud SLG Chair.
Insurance Fraud Litigation and the Pandemic: Where are the Cases?
By Andrew Willis
Edited by J. Blake Hunter
Nearly two and a half years into the pandemic, there can be no question that the nature of insurance fraud is changing to adapt to the new circumstances. State governments, industry associations, and the press have documented the changes. In the context of automobile insurance, the Utah Insurance Department warns of excessive fees submitted to insurers by car cleaning services citing the need to disinfect due to COVID-19. COVID-19 Car Insurance Scams, https://insurance.utah.gov/news/beware-of-covid-19-car-insurance-scams. The Maryland Association of Counties warns of scams offering fake COVID-19 insurance offering a lump sum payment upon a positive COVID-19 diagnosis. Maas, Victoria, Consumer Advisory: Beware of COVID-19 Insurance Scams and Fraud Schemes, https://conduitstreet.mdcounties.org/2022/05/03/consumer-advisory-beware-of-covid-19-insurance-scams-and-fraud-schemes/. Generally, insurance industry professionals estimate that incidences of fraud have increased during the pandemic as in person inspections by claims personnel have declined. See, e.g., Metz, Jason, Pandemic Fires Up Insurance Fraud, Here’s What to Watch For, https://www.forbes.com/advisor/car-insurance/pandemic-insurance-fraud/Practitioners have no doubt been affected by an increase in remote depositions and examinations under oath. However, from a defense practitioner’s perspective, one thing that remains notably absent during the pandemic are decisions from the state and federal courts involving fact patterns featuring COVID-19-related fraud. Generally, to the extent decisions published during the pandemic mention COVID-19 and insurance fraud in the same opinion, it is to note the effect of COVID-related emergency orders on the procedural posture of the case and then separately analyze a non-COVID-19-related fraud issue. See, e.g., Symetra Life Ins. Co. v. JJK 2016 Ins. Trust, Civil Action No. 18-12350 (MAS) (ZNQ), 2021 U.S. Dist. LEXIS 37256 (D. N.J. Feb. 28, 2021) and Allstate Indem. Co. v. Constantin Starchook, Court File No. 27-CV-19-9948, 2020 Minn. Dist. LEXIS 240, (Minn. Dist. Ct., Jun. 24, 2020). One recent decision by a Tennessee federal district court involving an insurer’s attempt to rescind a policy for material misrepresentations by the insured also involved allegations by the insured that the effects of the insurer’s denial of coverage were exacerbated by the pandemic. Joy v. Amguard Ins. Co., No. 1:20-cv-1131-STA-jay, 2022 U.S. Dist. LEXIS 28775 (W.D. Tn. Feb. 17, 2022). This stops well short of the kind of practical guidance a practitioner would hope for.
Counterintuitively, the one area where published decisions consistently discuss allegations of fraud in connection with COVID-19-related insurance claims is in suits by policyholders alleging fraud by insurers. In particular, there has already been a significant amount of litigation over business interruption coverage for businesses shuttered by government stay-at-home orders. A number of policyholders who have sued carriers for denying their claims have gone the additional step of adding a count of fraud. A representative case is Wellness Eatery La Jolla LLC v. Hanover Ins. Grp. 517 F. Supp. 3d 1096 (S.D. Ca. 2021). The gravamen of the dispute was whether the owners of the Parakeet Café in San Diego, whose business was significantly curtailed by a March 2020 order of the California Department of Public Health prohibiting indoor dining, had experienced “direct physical loss or damage to property” within the meaning of their insurance policy. Id. at 1099-1100. However, the policyholder/plaintiff also alleged the insurer/defendant had committed fraud by “affirmatively misrepresent[ing] that there was full coverage for business interruption whenever there was a business interruption caused by physical damage." Id. at 1108. The Court found that since the suit as pleaded failed to allege “physical damage” in the first instance, there was no basis to conclude the carrier had misrepresented the existence of coverage for physical damage. Id. at 1108. Other courts confronted with similar allegations have reached similar results. See, e.g., Ralph Lauren Corp. v. Factory Mut. Ins. Co., Civil Action No. 20-10167 (SDW) (LDW), 2021 U.S. Dist. LEXIS 90526 (D. N.J. May 12, 2021); M&E Bakery Holdings, LLC v. Westfield Nat’l Ins. Co., Case No. 20 C 5849, 2021 U.S. Dist. LEXIS 88111 (May 7, 2021); Ascent Hospitality Mgmt. Co. v. Emplrs Ins. Co., Case No. 2:20-cv-770-GMB, 2021 U.S. Dist. LEXIS 86116 (N.D. Al. May 5, 2021); Mohawk Gaming Enters., LLC v. Affiliated FM Ins. Co., 8:20-CV-701, 2021 U.S. Dist. LEXIS 72724 (N.D. N.Y. Apr. 15, 2021); Mhg Hotels v. Emcasco Ins. Co., No. 1:20-cv-01620-RLY-TAB, 2021 U.S. Dist. LEXIS 190867 (Mar. 8, 2020).
Some policyholders have tried other avenues. In Jada Rest. Grp., LLC v. Acadia Ins. Co., SA-20-CV-00807-XR, 2020 U.S. Dist. LEXIS 163296 (W.D. Tx. Sept. 8, 2020), an insured succeeded in having its business interruption coverage suit remanded to state court. At issue was whether the insured had improperly joined the insurance adjuster as a defendant, thereby destroying diversity jurisdiction. The insured had accused the adjuster, in his individual capacity, of violating Chapter 541 of the Texas Insurance Code by, among other things, misrepresenting the scope of available business interruption coverage. Id. at *8-9. The court agreed with the insured that an “adjuster may be a ‘person’ who is ‘engaged in the business of insurance’ for purposes of” the relevant statutory provision and that this provision was not limited in its application only to insurance companies. Id. at *9-10. Because the adjuster, a non-diverse defendant, had been properly joined, the court held it lacked subject matter jurisdiction and remanded the case. Id. at *11-12. Two subsequent decisions involving allegations that an adjuster, acting as an individual, violated Chapter 541 by conducting “outcome-oriented” investigations of an insured’s business interruption claims were remanded on similar grounds. See Preferred Dental Ctr. Pc v. Twin City Fire Ins. Co., No. 5:20-CV-837-JKP-HJB 2020 U.S. Dist. LEXIS 256022 (Sept. 11, 2020) and Home Run House, LLC v. Cincinnati Indem. Co., 1-20-CV-827-LY, 2020 U.S. Dist. LEXIS 249049 (W.D. Tx. Dec. 4, 2020).
Yet another approach taken by an insured in alleging fraud by a carrier can be found in OTG Mgmt. PHL LLC v. Emplrs Ins. Co. No. 2:21-cv-01240-WJM-MF, 2021 U.S. Dist. LEXIS 161666 (D. N.J. Aug. 26, 2021). There, the policyholder contended that regulatory estoppel prevented the carrier from applying a Contamination Exclusion to bar the policyholder’s COVID-19-related business interruption claim. In essence, the policyholder argued that the carrier was estopped from “advancing an interpretation of an exclusion to insurance coverage in litigation that is inconsistent with representations it made regarding the scope and meaning of that exclusion to state insurance regulators when initially seeking its approval” prior to the onset of COVID-19. Id. at *20. Unfortunately for the policyholder, the court concluded the carrier’s alleged statements to the relevant regulatory entity were consistent with its application of the Contamination Exclusion in the case at bar and, in any event, regulatory estoppel was unavailable when the exclusion at issue was “clear and unambiguous.” Id. at *21. Outside of the business interruption context, a policyholder in Jones v. GEICO Cas. Co., No. CV-20-01734-PHX-DJH, 2021 U.S. Dist. LEXIS 153244 at *2 (D. Az. Aug. 13, 2021), managed to survive a 12(b)(6) motion to dismiss with its argument that Geico’s advertisement that it was “passing on savings” to consumers violated the Arizona Consumer Fraud Act. At issue was a 15% credit Geico issued to policyholders in response to decreased driving during the early stages of the pandemic (and a corresponding increase in Geico’s profits). Id. Geico represented that it was “passing on savings” to its customers via the credit. Id. The court found such a representation was material to a consumer’s decision to buy insurance and, reading the complaint in the light most favorable to the insured, “implied that Geico was passing on all the savings accrued through the reduced driving,” which was untrue. Id. at *16-17.
A review of the existing cases shows that it is policyholders, and not insurers, whose allegations of COVID-19-related insurance fraud have resulted in published decisions. However, policyholders’ allegations appear to be afterthoughts in many cases and frequently fail for the reason that an insurer or its agent could not have misrepresented the existence of COVID-19-related business interruption coverage if the policy did not, in fact, provide such coverage. Thus, from a practical perspective, one simple takeaway from a defense perspective is to beware of offensive fraud allegations in the context of COVID-19-related claims. As to alleged fraud by policyholders, it seems certain that published decisions will begin to emerge, although it is unclear when. In the meantime, practitioners may do well to heed the warnings that already exist in the public domain. That is, practitioners can scrutinize claims where no in-person investigation occurred and can themselves err on the side of conducting their own investigations in person. Even with no end to the pandemic in sight, it seems certain that litigation over COVID-19-related insurance fraud will outlast COVID-19 itself.
Andrew Willis is a litigator at Hancock, Daniel & Johnson, P.C. in Richmond, Virginia. His practice focuses on insurance coverage. Andrew is a member of DRI’s Insurance Fraud SLG. Andrew is also an active member of the Federal Bar Association, CLM, the American Bar Association, and the Virginia Association of Defense Attorneys.
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Insurance Law: Covered Events (Cont.)
The Use Of Ridesharing Apps To Stage Car Accidents
“Fraud and deceit abound in these days more than in former times.” – Edward Coke
By Brian R. Biggie and Charles J. Englert, III
Edited by J. Blake Hunter
Insurance fraud is anything but a new concern for insurance companies and counsel. A simple online search reveals a litany of articles, investigations and reports of scams and schemes developed by would-be plaintiffs to secure damages based on accidents that were not accidental and injuries that were never sustained. In this context, insurers are often forced to expend time and resources sifting through evidence to determine whether a claim is legitimate or a product of fraud. This endeavor is complicated by the high evidentiary burden generally placed on defendants, and by extension, a defendant’s insurer, to establish the existence of fraud. Courts, in most circumstances, apply the clear and convincing evidentiary standard. This requires the evidence presented to be highly probable, requiring the fraud “not be assumed on doubtful evidence or circumstances of mere suspicion.” See Rojas v. Cigna Health & Life Ins. Co., 2018 U.S. Dist. Lexis 169726 (S.D.N.Y. 2018) citing Brayer v John Hancock Mut. Life Ins. Co., 179 F.2d 925, 928 (2nd Cir. 1950).
Against this backdrop we must acknowledge there are a few instances where modern technology has made identifying a fraudulent claim a bit easier. The case of Alexander Goldinsky is one such example. Mr. Goldinsky explained to medical personnel, as he was transported to the hospital, that he had fallen and injured himself. He claimed a variety of symptoms including headaches, stuttering speech and painful “frozen spasm sensations.” A surveillance video showed Mr. Goldinsky fill a cup with ice, throw the ice on the floor, and then lay on top of it. Mr. Goldinsky was subsequently sentenced to two years’ probation. State v. Goldinsky, 2021 N.J. Super. Unpub. Lexis 622 (App. Div. 2021)
Unfortunately, the “smoking gun” or the Goldinsky style surveillance video is all too rare an occurrence. More often, establishing the existence of fraud requires a prolonged investigation and resulting expense as insurers confront schemes that can run the gamut of the staged slip and fall to wide-ranging and multi-party conspiracies. The case of Anthony Rose is an example of the latter. In 2019, Mr. Rose and 26 other individuals were indicted on a years-long, multi-million-dollar no-fault scheme. It was alleged that Rose and his cohorts bribed 911 operators, medical personnel, and police officers for the confidential information of tens of thousands of individuals involved in motor vehicle accidents. Rose would then contact these individuals and lie to them in an effort to steer them to clinics and lawyers who would then pay kickbacks for the referrals. United States v. Rose, No. l:19-cr-00789-PGG (S.D.N.Y.); see also E. Krinick & M. Sirignano, Confluence of Corrupt Interests Can Lead to Massive No-Fault Frauds, New York Law Journal (Sept. 3, 2021). Prior to trial one defendant, Jelani Wray, pled guilty and was later sentenced to 7 years in prison and 3 years supervised release. The disposition of the case against the remaining defendants is unknown.
States like New Jersey and New York with no-fault statutes, which compel an insurer to provide first-party coverage regardless of liability, are prime targets for fraudulent accidents and claims. In fact, New York’s Department of Financial Services’ Frauds Bureau believed that no-fault insurance fraud accounted for 89% of all health care fraud reports the Bureau received in 2019. See Confluence of Corrupt Interests Can Lead to Massive No-Fault Frauds, supra. referencing, “Investigating and Combating Health Insurance Fraud” New York State Department Financial Services.
The staged car accident remains a go-to scenario for would-be plaintiffs and claimants to set up a fake claim for damages. The private car vs. private car accident is the typical set up one thinks of when considering a staged accident, however, staged accidents under these circumstances can be easier to detect. Investigating the parties can reveal connections that render the accident suspect and too coincidental to be considered legitimate. The other, more practical issue, is that the parties are limited to seeking insurance coverage from either their own insurer or their co-conspirator’s insurer, potentially impacting their ability to maintain or procure coverage in the future.
More sophisticated parties looking to set up a fraudulent accident bring in a third party by renting a vehicle or truck. By doing so, the perpetrators, arguably, add a layer of separation between each other, bolstering, at least, the appearance of legitimacy. Equally important, the conspirators create an independent line of recovery for insurance proceeds made available under the applicable rental agreement, the payment of which would not impact them personally. The renter can openly admit he or she negligently caused the accident, while the “victim” seeks immediate treatment to facilitate or leverage a quick settlement offer or tender of available coverage. While the Graves Amendment, a federal statute, abrogates any potential vicarious liability for companies like Ryder or Enterprise as the owner of the rented vehicle, the goal is not to secure direct payment from the owner but rather, simply pursue the coverage available to the permissive renter/driver of the rented vehicle. 49 U.S.C. § 30106
The vehicle owner/insurer is stuck trying to determine whether the accident is legitimate and if not, whether it can produce enough evidence to sustain a denial based on fraud. It is easy to imagine the financial impact a small group of co-conspirators could have by setting up a series of staged accidents, even if only on a limited scale. Presumably, some percentage of the accidents would be viewed as legitimate while others may not be, forcing the insurer to incur expenses to determine the validity of remaining accidents and claimed injuries – all time and resources lost to fraud.
Ridesharing apps and services are now an accepted means of travel or commuting. The raised hand and whistle have been replaced by countless riders staring at their phone as they watch their car drive to them in real time. The convenience of these apps and services, however, has created a further avenue for conspirators to stage an accident.
This scheme still requires at least two individuals or teams, the “renter” and the “rider.” The renter rents a truck or vehicle. The rider summons a car on a rideshare service like Uber or Lyft. Through tracking apps or simply text messages, the renter will follow the rider. Since the rideshare apps show the route the Uber or Lyft driver will take, the rider can share their expected route, along with key intersections and cross streets, with the renter. Eventually, the renter reaches the rider and comes into contact with the Uber or Lyft car.
The seemingly randomness of how Uber and Lyft drivers are assigned creates an element of plausible deniability on the part of the conspirators. In addition, instead of being limited to one avenue of recovery where a rented car hits a private car, now a plaintiff has two avenues of recovery by alleging that both the driver of the rented vehicle and the Uber or Lyft driver were negligent.
This scenario creates a series of issues for defendants and insurers who may owe coverage. Initially, this set up presents a stronger impression of legitimacy than the scenarios discussed above. In this instance, there is, at least, an appearance of complete randomness to the accident. The renter can claim he or she was simply traveling to his or her destination when the accident occurred, while the rider claims to be a pure victim. The Uber or Lyft driver may end up being an unwitting witness substantiating the existence of an “accident.”
We must acknowledge this scenario creates the potential to injure the individual who is, likely, the only innocent victim in these circumstances – the Uber or Lyft driver. From the conspirators’ view, there is no need to involve an Uber or Lyft driver in the scam. The more random the assignment of the driver appears, the more legitimate the accident looks. For the insurer, it must now evaluate coverage for legitimate injuries sustained by a driver unlucky enough to be caught in this staged accident.
Modern apps can not only facilitate these scams but can also make investigating whether an accident was staged exponentially harder. Apps such as WhatsApp and Signal allow users to send end-to-end encrypted texts, voice and video messages. Interestingly, WhatsApp is set to change its security features and allow users to delete messages sent nearly 2 days prior. This means the Uber/Lyft rider in our scenario can delete the messages sent to the individual driving the rented vehicle thereby removing the messages from not only their phone but also the renter’s phone. WhatsApp and Signal do not keep communication histories on its servers and will not be able to provide any data relating to their subscribers’ communications via a legal request. According to Kyle Cavalieri, President of Avalon Cyber, “the best chance for any investigative agency to obtain messages contained within these applications is to have physical access to the mobile device and their associated backups. Investigative agencies leveraging forensic tools can provide the greatest opportunity for success in collecting and reviewing message content.”
As with other cases involving fraud, preemptive and proactive actions on the part of a defendant or insurer are key. Video or dashboard cams on Uber or Lyft vehicles are extremely advantageous, however some jurisdictions require that riders receive notice that they are being recorded and a potential rider may simply cancel a car until they are assigned a driver without cameras set up.
Airbag Control Modules (ACM) can provide key information regarding an accident. Immediately downloading and preserving this information can be useful in assessing the veracity of a parties’ description of an accident. Insurers should pursue this data from all available vehicles especially where there is a possibility a vehicle could be deemed totaled and discarded. As valuable as this information may be, there are times where it is not available. An element unique to staged accidents is that the parties want the accident to occur, but without actually causing injury. There are instances where an impact could be so minimal that there is no recorded data demonstrating the impact. In such circumstances, it is the absence of data that may, ultimately, prove insightful.
Certainly, social media searches are a commonplace and an invaluable tool in these scenarios. Social media scrubs coupled with ISO claim searches can help an insurer find links between individuals involved in the accident. Again, to the extent it can be established that the parties involved have a family relationship or other established connection, it could render the occurrence of the accident so coincidental that it cannot be seen as legitimate.
Insurers should take the opportunity to conduct an examination under oath once notice of a claim is received. Conducting an examination under oath provides an opportunity to take a measure of an insured and question them about the circumstances underlying the accident. An examination under oath does not require surveillance video or “Perry Mason moment” to be beneficial. At times, the mere fact someone is subject to questioning under oath is enough to obtain contradictory statements, connections between the parties or evidence indicating that the accident is far from legitimate. There is value in seeing a witness struggle to answer straightforward questions about how an accident occurred, or who was in the car at the time, when the goal of the examination is to ascertain if an accident was, in fact, an accident.
Insurers or investigators should inspect, photograph and video the area where the accident occurred. Too often, the first independent party to view the scene is defense counsel years after the incident and, sometimes, on the eve of depositions. Obtaining pictures and video as close in time as possible places a defendant or insurer in a stronger position to compare the claimant’s version with the physical structure of the scene including where stop signs are located; whether there is a light controlling the turning lane; whether the turning arrow is on a delay; or whether there is any existing structure or landscaping impeding the view of an intersection.
In the event an insurer has a basis to conclude that the accident or the injuries are fraudulent, that insurer still faces an uphill battle in proving the existence of fraud. An insurer, in an effort to safeguard its position, can send litigation hold letters to claimants identifying information that must be preserved including their phones or other smart devices in their possession at the time of the accident. In the event a claimant fails to preserve this information, the insurer may be entitled to a spoliation instruction in the event the dispute is ever tried. However, these instructions are given infrequently as the intent to destroy discoverable evidence is required. See Cox v. Swift Transp. Co. of Ariz., LLC, 2019 U.S. Dist. Lexis 131061 (N.D. Okla. 2019).
Federal Rule of Civil Procedure 34 allows a party to demand production of electronically stored information (“ESI”), including text messages and other data that is stored on a cell phone. So long as a request is properly made courts will order the production of a party’s cell phone for inspection and copying by the requesting party. Many state courts also allow for such inspection. See RG Abrams Inc. v. Law Offices of C.R. Abrams, 2022 U.S. Dist. Lexis 140943 (Cal. Central. 2022). Further, a party’s failure to preserve the contents of his or her cell phone for inspection may lead to an adverse jury instruction at the time of trial. See Goins v. Advanced Disposal Servs. Gulf Cost, LLC, 33 So. 3d 644 (Ala. 2021) (where a plaintiff deleted the content of his cell phone prior to producing it for inspection the jury was instructed to infer the plaintiff’s contributory negligence).
Subpoenas can be served on companies that operate the apps discussed above, but doing so may produce limited information or even compliance. For example, while it has been published that WhatsApp will respond to subpoenas and produce a users’ address book, the actual content of the messages sent by the user is not disclosed.
A final consideration is filing a declaratory judgment action. As with any litigation, there is always a series of factors to consider prior to filing, including whether the claimants/defendants would be entitled to fees. For example, in New York, where an insurer affirmatively commences a declaratory judgment action and is unsuccessful, the insurer owes the insured’s fees incurred in the coverage action. That risk aside, a coverage action gives the insurer access to wide-ranging discovery, including information from a smart device, which may not be obtainable without the strictures of litigation.
A defendant in a coverage action will have the same opportunity to seek depositions and evidence. Preemptively filing a coverage action too soon may open the insurer up to the discovery of information it is not ready to disclose and undermine its ability to litigate coverage successfully, especially given the high evidentiary burden to prove fraud. These, and many other circumstances, must be considered on a case-by-case basis to determine the viability of a coverage action – with the resolution of this question undoubtedly impacted by the substantive evidence collected and pursued immediately after the accident.
In the end, the use of rideshare and communication apps are simply the most recent examples of individuals using modern technology to their advantage in nefarious schemes intended to procure damages and benefits to which they are not entitled. Potential defendants and their insurers must be equally inventive in their efforts to investigate and ferret out fraudulent claims.
Brian R. Biggie is a partner in the law firm of Gerber Ciano Kelly Brady LLP in Buffalo, New York and leads the firm’s insurance coverage trial team. Brian focuses his practice on complex insurance coverage disputes with significant emphasis on litigation. Brian also founded the Little Matchgirl Foundation, a non-profit organization that provides Christmas gifts and school supplies to local children in need.
Charles J. Englert, III is an associate in the law firm of Gerber Ciano Kelly Brady LLP in Buffalo, New York. He focuses his practice on insurance coverage litigation and opinions. He regularly represents clients in declaratory judgment actions and has significant experience with complex discovery and motion practice in both state and federal court. Charles also provides clients with coverage opinions and evaluations related to complex insurance coverage matters.
State Filings – the Intrastate Complement to the MCS-90
By Clark Monroe and Jennifer D. Eubanks
Edited by J. Blake Hunter
Does anyone remember Garanimals? It’s a line of toddler’s clothing famous for its ability to mix and match. You can take any top from the current line and pair it with any bottom and it would work. If you bought enough Garanimals, you could basically dress your child in the dark and the kid would still look put-together. What you cannot do, however, is wear a top as a bottom or a bottom as a top. Well, you could. But that leaves your kid exposed – and weird. The pieces are designed to work together and complement each other, but the bottoms and tops are not interchangeable with each other.This introduction is designed to lead you into one of the more obscure and arguably mind-numbingly boring aspects of transportation insurance – the state filing. What is the state filing? Exactly. Not too many folks are even aware of them, how they work or what they are intended to do.
The state filing has, however, a more glamorous older sister you may have heard of if you handle commercial auto insurance work or represent motor carriers – the MCS-90 Endorsement. Once upon a time, in 1980 to be exact, the federal government decided that federally licensed motor carriers needed to not only have evidence of financial responsibility in certain minimum limits, but if that financial responsibility was an insurance policy, the motoring public (read: people who might get hurt by trucks in an accident) needed a safety net in case the insurance company denied coverage. 49 U.S.C. § 31139. The MCS-90 endorsement acts as a surety bond if the motor carrier’s coverage is denied. See, Canal Ins. Co. v. Coleman, 625 F.3d 244, 247 (5th Cir. 2010). The insurer is obligated to pay up to a certain limit ($750,000 for non-hazardous cargo, more for other types of cargo and for public transportation) even if it has a righteous, ironclad reason to deny coverage. The insurer can then seek reimbursement from the motor carrier for the amount it has to pay under the MCS-90 endorsement. Good luck with that.
Here’s the trick. The MCS-90 endorsement, as a creation of the federal government, is only triggered where the federal government can exercise its authority under the Constitution. And that is only for interstate commerce – commerce that crosses state lines – or when the cargo is hazardous. 49 U.S.C. § 31139; see also, 49 C.F.R. § 387.3. So, if a motor carrier is hauling fuel from Rhode Island to Connecticut, the MCS-90 endorsement would apply if there were no insurance coverage. If a motor carrier is picking up shoes at the port in Los Angeles and delivering them to Anaheim, it does not cross state lines and, if there is no insurance coverage for an accident, that MCS-90 endorsement on the policy is not going to trigger.
Enter the state filing.
As a general rule, state filings are designed to trigger and provide protection for the motoring public where (1) there is no coverage under the motor carrier’s liability policy and (2) the motor carrier is engaged in intrastate, not interstate, commerce. Beyond this general rule, however, state filings can differ wildly, as they are creations of the 50 states, rather than the unified federal government.
State filings are usually issued by the motor carrier’s insurer on a Form E, and a complementary endorsement to the motor carrier’s liability policy on a Form F and filed with the proper state agency. Form E and Form F were created by the National Association of Regulatory Utilities Commissioners (“NARUC”). Form E states that the insurer has issued to the motor carrier a policy of insurance that is intended to provide bodily injury and property damage insurance imposed by the state and makes the motor carrier compliant with the state’s financial responsibility laws.
Form F adds additional information including the policy number, a signature line for the insurer’s representative, and a chart listing all fifty states and the insurer will place an “X” beside the state(s) in which the filing is made. Form F, in essence, is a promise by the insurer to provide liability insurance as mandated by the law of the state(s) in which a Form E is filed, regardless of whether coverage is available under the policy.
The Form E/Form F protocol is by no means universal. Many states, New Hampshire and Massachusetts for example, require a public liability insurance filing for motor carriers, but do not specify a particular form. On the other hand, some states, like California, have promulgated their own filing and/or endorsement forms. See Cal. Code Regs. tit. 13, § 220.06. Delaware has no filing requirement whatsoever. New Hampshire requires a certificate of insurance filing only for motor carriers of passengers, but does not specify that the certificate be a Form E. See NH RSA 376.13. And it goes on, state by state.
Ultimately, what everyone wants to know is how much insurance is there if the state filing applies? Well, it depends. Every state is different there too. Form E and F do not state on their face the limits of liability, unlike the MCS-90. Further, not every state follows the FMCSA minimum limit of $750,000 and may or may not change if that limit changes. The application to motor carriers and household goods carrier differs too.
In Florida, Michigan, Ohio, and Kentucky, for example, the limit of liability is governed by the Gross Vehicle Weight (“GVW”) of the motor vehicle. Fla. Stat. Ann. § 627.742; Mich. Admin. Code R 460.19101; Ohio Admin. Code § 4901:2-13-03; Ky. Rev. Stat. Ann. § 281.655. Other states, like Idaho and Arkansas, require different liability limits for different classes of cargo (such as hazardous materials, oil, liquefied petroleum, and household goods). Code Ark. R. 001.01.1-13.1; Idaho Admin. Code r. 39.02.80.020. Still others, Hawaii, Georgia, and Connecticut, for example, require either a single limit or split limits of liability for any non-exempt property carrier. Haw. Code R. 6-62-8; Ga. Comp. R. & Regs. 515-16-11-.03; Conn. Agencies Regs. 16-304-D5. Finally, some states like Illinois and Alaska specifically adopt the limits set forth by the FMCSA. Ill. Admin. Code tit. 92, § 1425.30; Alaska Admin. Code tit. 17, § 25.210.
In a more interesting twist, there are some states that set the FMCSA minimum limits as a ceiling. Mississippi and Texas both set this ceiling but Mississippi, while adopting part 387, allows for regulations that establish limits below the minimum federal limit. Texas sets varying limits below the federal minimum based on the GVW but cannot exceed the federal limits by statute. A comprehensive state-by-state listing may be found in a recent Motor Carrier Financial Responsibility Report to Congress by the FMCSA dated March 2018 (https://rosap.ntl.bts.gov/view/dot/49032) that provides a detailed Appendix providing state by state citations of authority.
The issue of the enforcement of lower limits of liability under state filings has not been litigated in most states. Georgia has some fairly well-developed case law on the enforceability of the state minimum limits when coverage is only afforded under Form F. In Kolencik v. Progressive Preferred Ins. Co., 2006 U.S. Dist. LEXIS 24855, at *26-27 (N.D. Ga. 2006), coverage under Form F was held to be limited to the state mandated minimum requirement of $100,000 per injury and $300,000 per incident, despite the claimants’ arguments that they were entitled to the policy limit of $1,000,000. See also Empire Fire & Marine Ins. Co. v. Driskell, 547 S.E.2d 360 (Ga.App. 2001), aff’d 585 S.E.2d 657 (Ga.App. 2003); Ross v. Stephens, 269 S.E.2d 705 (Ga. 1998); Kinard v. Nat’l Indem. Co., 483 S.E.2d 664 (Ga.App. 1997).
Indiana’s Supreme Court recently addressed Indiana’s motor carrier financial responsibility statutes. In Progressive Southeastern Insurance Company v. Brown, 182 N.E.3d 197 (Ind. 2022), the court rejected Indiana’s but-we’ve-always-done-it-this-way approach and held that an MCS-90 endorsement and a state filing are not interchangeable. In Brown, the Indiana-based motor carrier had a policy of liability insurance with Progressive that included an MCS-90 endorsement. It did not, however, have a separate state filing. While the motor carrier was on its way to pick up a load of cement in Logansport, Indiana, for delivery to South Bend, Indiana, it caused an accident that resulted in the death of the other motorist. Brown, 182 N.E.3d at 199. Neither the tractor nor trailer the motor carrier was using were scheduled on the Progressive policy, which afforded liability coverage only for scheduled vehicles, resulting in no coverage for the fatality claim under the policy. Ibid.
Progressive filed a declaratory judgment action seeking a judicial declaration that (1) there was no liability coverage under the policy because neither the tractor nor trailer were scheduled and (2) the MCS-90 endorsement was not triggered because the motor carrier was not involved in interstate commerce. Ibid. At trial, the court held that there was no coverage under the Progressive policy, but the MCS-90 endorsement applied. Ibid. Progressive appealed the issue of the applicability of the MCS-90 endorsement and the Indiana Court of Appeals affirmed. Ibid. The Indiana Supreme Court accepted the transfer and vacated the Court of Appeals opinion. Brown, 182 N.E.3d at 200.
The parties had already agreed that the motor carrier’s trip was purely intrastate in nature. The appellees, however, argued that the MCS-90 applied to motor carriers transporting non-hazardous loads on purely intrastate trips because Indiana law incorporated certain federal law, including 49 CFR § 387. Brown, 182 N.E.3d at 202; see Ind. Code § 8-2.1-24-18(a). Appellees argued that by incorporating federal law on the MCS-90, the MCS-90 applied to accidents that involved intrastate trips for Indiana motor carriers. Essentially, appellees argued that the MCS-90 filing covered both interstate and intrastate trips if the state adopted the federal regulations that required an MCS-90 filing for interstate trips.
The Indiana Supreme Court rejected that argument, and in doing so overturned a 2017 Indiana Court of Appeals opinion addressing incorporation of a different provision of the federal regulations. Brown, 182 N.E.3d at 203. It observed that although Indiana had incorporated 49 CFR § 387, it failed to define or modify the regulation for applicability to intrastate trips unless the cargo is hazardous. Thus, the appellees were trying to make the federal regulation do more than it was intended to do.
Although not addressed in the opinion, the Indiana Department of Revenue, the entity charged with ensuring that Indiana motor carriers comply with financial responsibility requirements, had for years taken the position that so long as an Indiana-based motor carrier carried an MCS-90 filing, no state filing was required. With the Brown decision, we will likely see Indiana require a Form E/F filing.
Like Garanimals, the federal MCS-90 and the state filings are designed to complement each other and work together. The MCS-90 provides a safety net for interstate trips. The state filing provides a safety net for intrastate trips. They are not, however, as the Brown Court held, interchangeable. Used properly, they provide protection for the motoring public whether the trip is interstate or intrastate.
Jennifer D. Eubanks is Director of Claims Legal at Canal Insurance Company, in Greenville, South Carolina. She assists the Claims organization with litigation management, litigation strategy, coverage issues and coverage training. She also manages appeals and coverage litigation involving Canal Insurance Company, including extra-contractual litigation, and is involved in Canal’s insurance product development. Prior to joining Canal, she was in private practice for 20 years, handling exclusively coverage matters, including extra-contractual litigation.
Clark Monroe is a Member of DunbarMonroe, PLLC in Jackson, Mississippi. He practices primarily in the area of transportation law and manages motor carrier casualty defense along with coverage and extra-contractual litigation, throughout Mississippi. In addition to his transportation practice, he acts as coverage counsel for commercial insurers along with handling other insurance defense claims in the areas of premises, construction, and E&O. He is a contributing author to the DRI Reservation of Rights Compendium and the DRI Duty to Defend Compendium and authored “The MCS-90 Endorsement Don’t Call it Insurance!” for DRI Covered Events, 2016 Issue 4.
Interested in joining the Insurance Law Committee? Click here for more information.
Professional Liability: Riding the E&O Line
The Verses of a Professional Liability Policy
By Meghan E. Lewis, Jared M. Cluck, and Katrina L. Smeltzer
Insurance policies covering professional liability risks commonly afford coverage with eroding limits - such that the insurer’s payment of legal fees and expenses reduces the policy limits available to pay a settlement or judgment - and require an insured’s consent to settle. These policies differ significantly from traditional, occurrence-based liability policies where fees and expenses incurred by the insurer in defense of the insured are outside of the limits of liability and claims can be settled by the insurer without the insured’s consent. See N. Am. Specialty Ins. Co. v. Royal Surplus Lines Ins. Co., 541 F.3d 552, 559 (5th Cir. 2008) (explaining eroding policies). Because “defense within limits” (hereinafter, “DWL”), (these policies are sometimes referred to as “burning”, “wasting”, “cannibalizing,” or “self-consuming” policies), professional liability policies are subject to diminishing limits of liability and the insured’s consent, unique considerations and risks arise when defending, evaluating, and settling third-party claims. An insured’s knowledge of these provisions, along with extensive communication and understanding of defense tactics and decisions, will encourage a constructive tripartite relationship. As Benjamin Franklin advised long ago, “[a]n ounce of prevention is worth a pound of cure.”
We Didn’t Start the Fire, It Was Always “Burning” Limits
Insurers typically underwrite policies for professional liability risks on a “claims made” basis with DWL provisions to better anticipate risks and control premium costs. See 3 John E. Heintz, et al., New Appleman Law of Liability Insurance, § 24.04 (2022) (“Claims-made professional liability policies ordinarily specify that an insurer’s duty to pay defense costs is ‘within limits,’ meaning that each dollar paid toward defense erodes the available coverage limits on the policy and leaves less for any eventual settlement or judgment.”); Ronald M. Sandgrund, et al., Colorado Construction Law § 14.12 (2013) (“Licensed professionals such as architects, engineers, and real estate brokers often carry errors and omissions coverage, usually written on a ‘claims made’ rather than ‘occurrence’ basis. …Some of these policies contain ‘self-depleting’ or eroding liability limits that decrease pro tanto as defense costs accrue.”). Though the enforceability of DWL provisions have been challenged on public policy grounds, courts generally uphold DWL terms when they are unambiguous. These policies are often written for sophisticated insureds facing substantial risk, but when the existence of negligence may not be immediately discoverable. Gregory S. Munroe, Defense Within Limits: The Conflicts of “Wasting” or “Cannibalizing” Insurance Policies, 62 Mont. L. Rev. 131, 169 (2001) (“It appears that DWL policies have their place in high-risk coverages such as large commercial insureds, professional liability, and environmental liability.”). Knowledge and communication of the nature of a DWL policy to the insured, defense counsel, and plaintiff’s counsel are critical to ensuring a successful defense of an insured, avoiding conflicts of interest, and preventing insurer bad faith.
When an insurer is defending an insured under a DWL policy, communication remains essential to protecting the insured’s interests. An insured - and defense counsel - should be immediately informed of the DWL provisions and their practical effect: the policy’s limits will begin to erode as soon as a claim is made and defense counsel is retained. When considering defense strategies and litigation decisions, both the insurer and defense counsel should err on the side of being overly communicative, particularly in the discovery phase. For example, extensive factual investigation, depositions of non-local witnesses, expert discovery, and motion practice can quickly erode limits. Both the insured and insurer should be informed of the practical and financial impact of pursuing or foregoing certain discovery or motions before reaching a decision to ensure they are in agreement with strategic defense decisions before defense counsel incurs significant fees and costs.
Providing evaluations, litigation plans, and itemized phased budgeting at an early stage and regular intervals - to both the insured and the insurer - increases the likelihood of informed and united decision-making. Failing to ensure all decisionmakers agree with the litigation strategy and attendant costs could lead to a conflict of interest. The insurer, for example, may prefer pursuit of an aggressive and expensive defense, whereas the insured may reject costly defense tactics to increase the limits available for settlement. As detailed below, consequential strategic decisions can become more complicated when the insured has the right to consent to any settlement.
Relatedly, as defense fees and expenses reduce limits, the insurer should be on guard of the potential for a verdict exceeding available policy limits. The insured should receive verdict ranges and estimated chances of a success at trial, especially when modified as a result of new information. When every dollar incurred in the insured’s defense directly reduces the amount of available protection for the insured, the insurer should regularly notify the insured of defense costs incurred to date and the remaining limits. It may also be prudent for the insurer to notify the insured of the option to retain personal counsel at the insured’s own expense, monitor the insured’s defense, and consult as to defense decisions and settlement potential.
The ramifications of a DWL policy may also warrant early disclosure to plaintiff’s counsel, particularly with an eye toward settlement discussions. When faced with a DWL policy, plaintiffs have an incentive to avoid lengthy litigation, and in turn, exhausting limited resources. See 12 Amy B Briggs and Susan P. White, New Appleman on Insurance Law Library Edition § 148.03 (2022) (“Strategically, a ‘wasting’ or ‘self-depleting’ policy may trigger an earlier settlement discussion in order to preserve payments for covered damages instead of allocating those funds to defense or other legal costs and reducing the amount available for damages.”). While many jurisdictions mandate disclosure of a liability policy’s terms to a plaintiff in litigation, strategic consideration should be given as to whether and when the full policy should be produced, particularly if the claim has potential for excess exposure to the insured. DWL policies may present a circumstance where it is in the best interest of the insured, the insurer, and the plaintiff to settle quickly.
If early resolution is not an option, defense counsel should be cautious while engaging in settlement discussions during the course of complex or contentious litigation when it can be difficult for both plaintiff’s counsel and defense counsel to determine the specific amount of remaining limits. Complications may also arise when defense counsel engages in settlement discussions with a sum certain, especially if opposing counsel relies on a representation of available limits to make a settlement demand which could be subject to change if not immediately accepted. Alternatively, defense counsel could consider offering the remaining limits, after accounting for all defense costs and fees, rather than making a representation on the exact amount available. Clarifying when and how the remaining limits will be calculated for settlement purposes is crucial to avoiding misrepresentations in negotiations or exposing the insured to a settlement above the available limits.
In sum, defense counsel should be aware of, carefully consider, and notify the insured of the impact a DWL policy has on all stages of case evaluation, litigation, and settlement.
Is It “Hammer” Time? The Insured’s Right to Consent to Settle
Professional liability policies typically afford the insured the right to consent to any settlement, with the insurer agreeing not to settle any claim or suit without the written consent of the insured. Like the DWL provisions of a policy, the insured’s right to consent to a settlement requires close attention. The consent provision takes into account an insured’s interest in its professional reputation and the impact settlement may have on it, as well as the professional’s ability to obtain affordable insurance.
If someone other than the named insured is being defended in a suit, take special note of who holds the right to consent. Often, the “named insured” - and not another insured, such as an employee or additional insured - retains an exclusive right to consent. Defense counsel should be attuned to any potential disagreement between the named insured and another insured regarding if and when to settle before a conflict arises. Notably, even if the named insured with the right to consent is not named in the suit, the named insured must nonetheless consent to any settlement unless the right to consent is delegable. To make an informed decision, the named insured should be kept apprised of material aspects of the case. Defense counsel, though, should exercise caution to ensure protection of the attorney-client privilege with the insured being defended. As a best practice, consent to settle should be memorialized in writing and specific to the settlement negotiations, as opposed to a blanket consent. Perhaps obvious, counsel should obtain consent from the insured before agreeing to a settlement.
An insured’s right to consent to settlement is not without qualification. Many professional liability policies include a so-called “hammer clause.” A typical consent to settlement provision with a hammer clause reads:
The insurer shall not settle any claim without the consent of the insured. If, however, the insured shall refuse to consent to any settlement recommended by the insurer and shall elect to contest the claim or continue any legal proceedings in connection with such claim, then the insurer’s liability for the claim shall not exceed the amount for which the claim could have been settled plus claims expenses incurred up to the date of such refusal.
Rawan v. Cont’l Cas. Co., 483 Mass. 654, 656 n.2, 136 N.E.3d 327 (2019). Application of the hammer clause imposes responsibility on the insured for all attorneys’ fees and indemnity payment in excess of the amount for which the matter could have been settled. A hammer clause effectively transfers the risk of a rejected but recommended settlement offer to the insured. The practical impact of the hammer clause is to apply pressure on the insured’s right to refuse consent to a settlement and increase an insurer’s chance of obtaining a settlement. See id.
To avoid delay in effectuating settlement or disagreement between the insurer and insured, an insured should be routinely informed of material developments in litigation and the risks (including economic consequences) of foregoing settlement. Communication and consultation with the insured in preparation for settlement discussions, thus, is essential to a defense under a professional liability policy.
The “Final Countdown”
Defense counsel, the insured, and the insurer should be aware of provisions common to professional liability insurance policies, such as “burning” limits and the “hammer” clause. These provisions require extra attention and consideration to ensure a successful resolution of the case.
Meghan Lewis is Shareholder and Managing Attorney of Sandberg Phoenix & von Gontard P.C.’s Kansas City office. Meghan has developed a practice focused on insurance coverage and bad faith defense, appellate advocacy, personal injury defense and legal malpractice defense. She received her J.D. from the University of Missouri School of Law and is a member of the Defense Research Institute, the Kansas and Missouri Bar Associations and the Missouri Organization of Defense Lawyers.
Jared Cluck is an attorney with Sandberg Phoenix & von Gontard P.C. He focuses his practice in the areas of professional liability, employment and civil rights, and commercial litigation matters. Jared received his J.D. from the University of Missouri-Kansas City School of Law and is a member of the Kansas City Metropolitan Bar Association, the Kansas and Missouri Bar Associations, and the Missouri Organization for Defense Lawyers.
Katrina Smeltzer is a Shareholder at Sandberg Phoenix & von Gontard P.C. representing insurance professionals, design and construction professionals, accountants, attorneys and real estate professionals. Katrina received her J.D. from Creighton University School of Law. She is a member of the Defense Research Institute, the Federal Bar Association, the Kansas and Missouri Bar Associations, the Missouri Organization for Defense Lawyers and the Trial Network’s WIN Society, Steering Committee.
Interested in joining the Professional Liability Committee? Click here for more information.
Diversity and Inclusion: Diversity Insider
The Rise of Hatred and Violence Against the AAPI Community
By Hema Patel Mehta, Esq.
Violence against people of Asian descent, Asian-American Pacific Islanders (“AAPI”), is at an all-time high, fueled recently by an extreme flood of misinformation about the pandemic and the origins of COVID-19. This combined with troubling inherent biases and forever foreign stereotypes, even though they are multi-generational, permeate every facet of our lives and every industry, and stoke the fires of anti-Asian violence even further. News and social media were quick to label the virus as the “China flu,” “China virus,” and “China plague.” These types of categorizations are rampant and surprisingly work to disband and prohibit unity among minority groups.
The Center for the Study of Hate and Extremism published hate crime data that revealed there was a 339 percent increase in anti-Asian hate crime in 2021 compared to 2020. This figure is likely even greater as many hate crimes go unreported due to various reasons, including language barriers, being an undocumented immigrant, fear of law enforcement or retaliation, or humiliation.
There has been a surge of attacks on elderly AAPI people, and there were mass shootings that killed six Asian American women in Atlanta and another that killed four Sikh Americans in Indianapolis. Then there is the Penn Law professor who stated during a podcast on “The Glenn Show” that Diversity Equity & Inclusion initiatives are “poisoning the scientific establishment and the medical establishment now” and described immigration of "Asian elites" into the U.S. as problematic; she later doubled down and wrote that the United States was “better off with fewer Asians and less Asian immigration.” And recently, the president of Orange County branch of the NAACP announced her resignation in light of anti-Asian racism within the organization. While there has been an unprecedented spike in violence specifically targeting Asian Americans, the number of assailants that have been prosecuted for hate crimes is dishearteningly low.
On April 23, 1990, Congress passed the Hate Crime Statistics Act, which required the Justice Department to collect data and keep track of crimes that were based on race, religion, sexual orientation or ethnicity. The term "hate" as it relates to hate crime law does not mean anger or rage. Rather, it relates to whether the crimes against the victim were victimized due to their actual or perceived race, color, gender, political affiliation, religion, disability, sexual orientation or ethnicity. Hate crime laws have evolved over the years and vary from state to state in what constitutes a hate crime, with a few states having no hate crime laws in place.
At the federal level, hate crime laws, also known as bias crimes, are based on the victim’s perceived or actual race, color, religion, national origin, sexual orientation, gender, gender identity, or disability. The most prominent and recognizable hate crime law is The Matthew Shepard and James Byrd Jr. Hate Crimes Prevention Act, which was conceived as a response to the murders of the two named victims in 1998. At both the federal and state level, hate crime laws include race.
On April 22, 2021, the U.S. Senate approved and on May 18, 2021, the House of Representatives approved, the COVID-19 Hate Crimes Act, which supports existing laws and expedites potential COVID-19 related hate crimes, especially as it relates to AAPIs. The Act also establishes public education campaigns addressing systemic biases against these groups, and is a step toward stopping the hatred and racism that has reached a crescendo.
However, even with the enactment of these laws, securing a conviction is challenging and problematic, particularly for hate crimes against AAPIs. Not every crime committed against the “protected class” constitutes a hate crime. In order to amount to a hate crime, there must be evidence, beyond a reasonable doubt, that the assailant committed the crime solely as a result of the victim's actual or perceived race. If a hate crime intersects with other biases such as sexism, lookism or classism, then racial motivations become more difficult to prove. For example, in the Atlanta mass shooting, the assailant claimed that his crime was not racially motivated but rather was a result of “sexual addiction.” The mainstream media was hesitant to label this as a hate crime, while the Korean media was the first to categorize it as a hate crime, particularly when eyewitnesses stated that the shooter yelled “I’m going to kill all Asians.”
Further, keep in mind that the First Amendment shields assailants merely for belonging to a hate group or making hateful statements; these are not, in and of themselves, crimes. Unless the assailant commits a crime and voices racial slurs during the assault, admits the crime was motivated by race, or there is some parol evidence, such as membership in hatred groups, writings/literature, tattoos, or the crime occurs on an Asian holiday, the likelihood of convincing a judge or jury that the incident was a hate crime is nil to non-existent.
Currently, there is a push for States to amend the existing hate crime laws to ease the burden of proof on prosecutors to shift the burden of proof to the accused when there is a crime perpetrated on a member of a group that is a minority to the accused’s ethnic group. But this proposal has received resistance as it raises potential violations of the due process and equal protection clauses. There is also a movement to infuse resources and provide more funding for investigation of purported hate crimes, lowering the bar for bringing charges, and imposing stricter penalties for violations. While these initiatives are commendable, bridging the gap in leadership, education, and teaching is imperative as is recognizing misinformation and political agendas, and stepping away from stereotypes which serve to de-unify. Encouraging the reporting of hate crimes will serve to reveal the true scope of the biases and hate in America.
Hema Patel Mehta is an Equity Partner at Chartwell Law Office LLC and is an accomplished insurance coverage and insurance defense attorney. She focuses her practice on representing clients in insurance coverage and bad faith litigation concerning general liability, property and casualty claims. Ms. Mehta’s insurance coverage practice emphasizes complex disputes concerning coverage for mass tort and products liability, opioid liability insurance coverage litigation, casualty, specialty policies, professional liability (E&O), and healthcare liability. She is also experienced in handling various insurance defense proceedings pertaining to bad faith, first party claims, construction and other casualty matters.
Interested in joining the Diversity and Inclusion Committee? Click here for more information.
Aviation Law: Skywritings
Aviation Law Committee Takes Off With WingTips
By Kristin Newman
Nowadays, you can find a podcast for just about anything. If you search any podcast platform for aviation or law shows, you will find a plethora of options. Rare, however, is there a podcast that combines aviation and law in one; DRI’s Aviation Law Committee does just that with its podcast WingTips. In this chatcast, Wingtips provides a deceptively simple structure: Each episode a host from DRI’s Aviation Law Committee brings on a different guest from the aerospace industry to discuss emerging topics impacting aviation and aviation law.
At the October 2019 DRI Annual Meeting in New Orleans, LA, the then-incoming Committee Chair Michael Jones presented an idea for the Aviation Law Committee to create a podcast that brings together people from all corners of the aviation law world. Michael Jones, of Martin Pringle Oliver Wallace & Bauer LLP in Wichita, KS, said the goal for WingTips “was to generate easy, informal conversations with interesting aviation people.” In March 2020, while the entire legal community was thrust into the 21st century at the height of the COVID-19 pandemic, the first episode was released. Now, Michael Jones’ pre-pandemic idea for Wingtips “to be brief but interesting for our busy listeners” has blossomed into DRI’s longest running podcast series.
In its 17 episodes (and counting), Wingtips has featured guests who broadly encompass aviation law, from NASA to Blue Origin, from the National Transportation Safety Board to insurance carriers and manufacturers, from attorneys to jury consultants, and even a Former Secretary of the U.S. Navy.
In one of the first episodes, Michael Jones interviewed Robert Lee “Hoot” Gibson, a former naval officer and aviator, test pilot, aeronautical engineer, and NASA astronaut. Hoot discussed how he draws on these experiences when he serves as an expert witness in litigation cases. Matthew Berard of Bowman and Brooke, LLP in Detroit, MI spoke with another NASA star when he interviewed Fiona Turett of NASA’s 2021 Class of Flight Directors for the International Space Station. Fiona described her ascent to becoming a flight director, how NASA has created a culture of diversity and inclusion, and the laws and rules governing the operation of the International Space Station.
In 2021, the aerospace limits expanded exponentially when the first privately-developed crewed missions to space launched. WingTips brought listeners two episodes where attorneys from Jeff Bezos’ Blue Origin delved into the complexities of making those missions happen. Denny Shupe of Schnader Harrison Segal & Lewis LLP in Philadelphia, PA interviewed Paul Weber, General Counsel of Blue Origin, about the evolving legal landscape in the commercial spaceflight industry, the successful first flight of humans on New Shepard, and exciting opportunities for those interested in becoming “space lawyers.” Denny also spoke with Sagi Kfir, Senior Legal Counsel of Blue Origin, about the regulatory challenges and structures for space operations, the Biden Administration’s Space Priorities Framework, William Shatner’s (Captain Kirk) flight on New Shepard, and the prospects for space travel for ordinary citizens within the next 5 to 10 years and beyond.
WingTips also brought listeners episodes featuring various viewpoints from within the National Transportation Safety Board (“NTSB”). Bruce Landsberg, Vice Chairman of the NTSB, provided an overview of NTSB investigations, the meaning of “party status,” and how drones and video doorbells are aiding the NTSB in its investigations. Ted Dunlap, an NTSB advisor, discussed how the NTSB promotes aviation safety and interacts with aviation litigation. Robert Sumwalt, former NTSB Chairman, shared pro tips on interacting with the NTSB and opportunities within the investigative party process.
Anyone who has practiced the very niche area of aviation law has undoubtedly come across aviation insurers or manufacturers’ counsel. WingTips serves those interests too. Tracy Morris of AIG Aerospace in Atlanta, GA spoke with Armando Carlo about his role as Director of Insurance Claims and Litigation at Boeing in Chicago, Illinois. Jared Goff shared insights to what his day-to-day looks like as the Associate General Counsel of Litigation with Garmin International, Inc. Insurance podcast episodes may not be at the top of your “to-listen-to” queue but they probably should—at least, the enlightening options brought to you by Wingtips. Sherry Ortiz of USAIG delves into her role as a Senior Vice President—Airline Claims Manager, recent trends in airline claims, what makes defense panel counsel stand out, and her background in aviation. Think you know the gist of manufacturers and products insurance? Think again. In his episode, Tamer Ahmed of Global Aerospace in Parsippany, New Jersey broadens your ideas of the far-reaching realm of what manufacturer/products insurance covers.
With aviation law comes litigation and attorneys (obviously). In one episode, Glenn Vallach of USAIG in New York, NY spoke with Jason Bloom, Founder of Bloom Strategic Consulting in Dallas, TX. Jason explains the intricacies of presenting a case—particularly an aviation case—to a jury. WingTips also provides different perspectives of attorneys practicing aviation law. Kristin Newman of Anderson & Riddle in Fort Worth, TX and Kamie Brown of Ray Quinney & Nebeker in Salt Lake City, UT discuss their experiences of being female attorneys practicing at the crossroads of two male-dominated industries, aviation and law. Then, Kamie Brown interviewed Denny Shupe about “Law, Life, and Lessons in Leadership.”
In the latest episode of WingTips, Kristin Newman spoke with Former Secretary of the Navy, Dr. John F. Lehman Jr., about the origins of Top Gun, the movie starring Tom Cruise, as well as the Navy Fighter Weapons School. Dr. Lehman shared his thoughts on the authenticity of the Top Gun movies, the legal and bureaucratic hurdles faced by movie-makers, and the future of innovation within aviation warfare.
As for the future of WingTips, the Aviation Law Committee is always working to gather new and interesting guests for future episodes. Michael Jones suggested, “It’d be great to get Captain Sullenberger or his copilot from the miracle on the Hudson. But the geek in me would like the FAA Administrator or a pioneer in new aviation technologies, like electronically powered flight.” The aviation and legal industries are always evolving so, at the risk of sounding cheesy, the sky is the limit.
Kristin Newman is an associate attorney at Anderson & Riddle, LLP in Fort Worth, Texas. She received her bachelor’s degree from Texas Christian University and her J.D. from the University of Oklahoma College of Law. Kristin focuses her practice on all manner of aviation and complex-corporate litigation, including corporate and small business clients in the areas of insurance defense, premises liability, products liability, and general contractual defense. She is the Treasurer of the Texas Bar Association’s Aviation Section and the Programs Vice Chair, Podcast for the DRI Aviation Law Section. Kristin can be contacted at firstname.lastname@example.org.
Interested in joining the Aviation Law Committee? Click here for more information.
Drug and Medical Device: Rx For The Defense
Practical Tips for Practicing Before the Judicial Panel on Multidistrict Litigation
By Steve Harkins
An ever-increasing number of federal civil cases pass through the Judicial Panel on Multidistrict Litigation (“JPML” or “the Panel”). Matters may be transferred to a multidistrict litigation (“MDL”) at formation as part of an application for the JPML to form an MDL, they may be tagged to an existing MDL and transferred through the JPML’s conditional transfer order process, or they may be directly filed in an MDL previously established by the Panel. Regardless of how cases arrive in an MDL, since 2020 statistical analysis by the American Bar Association has shown that over half of all federal civil cases currently reside in these consolidated proceedings. See Wittenberg, Daniel S., “Multidistrict Litigation: Dominating the Federal Docket,” American Bar Association, Feb. 19, 2020, available at https://www.americanbar.org/groups/litigation/publications/litigation-news/business-litigation/multidistrict-litigation-dominating-federal-docke
The trend toward consolidating federal litigation into MDLs shows no signs of reversing course. Once matters are transferred, the usual web of federal rules, local rules, and individual judges’ standing orders provide the framework for proceedings. However, many practitioners are likely less familiar with the specific rules of the JPML, which can impact not only proceedings before the Panel but impose ongoing obligations once an MDL has been formed. The following are a few examples of unique rules that even experienced attorneys may not be familiar with when practicing before the JPML.
Given the likelihood of cases from any and all jurisdictions making their way to the JPML, it makes sense that the right to appear before the panel is open to any attorney authorized to practice before any federal district court. However, the permissive appearance rules come with one important caveat that should not be overlooked – the attorney must maintain a CM/ECF account. JPML R. 2.1(c). Particularly given recent updates and conversions to the NextGen system, be sure that you have an updated account and credentials.
The JPML imposes a unique restriction on who may file a notice of appearance. In theory to limit the potentially enormous distribution required in connection with applications that may involve hundreds of individual cases, the JPML rules specify that each party “shall designate only one attorney” to receive service of all pleadings. JPML R. 4.1(c). Note that while only one attorney be designated for purposes of receiving regular service through the JPML, other counsel can sign up to receive notice of docket entries and pay for access to filings in order to stay apprised of the proceedings.
In light of the sheer number of actions that may be impacted by a JPML filing or decision, it should come as no surprise that all motions are required to include certain background information on each action. The JPML rules on “Form of Motions,” JPML R. 6.1(b)(i), (ii) & (v), mandate that in addition to your motion, brief, exhibits, and proof of service, filers must include a numbered schedule providing the full list of parties – with complete party names – for each action involved, including location, civil action number, and assigned judge, as well as a copy of the complaints and docket sheets for each action, id. 6.1(b)(ii) & (iv).
JPML Rule 7.1(a) places a somewhat unique burden on counsel – not just the represented party – who receive notice of a related proceeding. Counsel in an MDL have a continuing obligation to “promptly” notify the Clerk of the Panel of “any potential tag-along actions in which that party is also named or in which that counsel appears.” JPML R. 7.1(a)(emphasis added).
If you are seeking relief from the JPML that doesn’t fall neatly into one of the categories set out explicitly in the JPML Rules - motions to transfer (Rule 6.2), CTOs (Rule 7.1), show cause orders (Rule 8.1), conditional remand orders (Rule 10.2), and motions to remand (Rule 10.3) – consider whether to file a motion for miscellaneous relief. The important, and open-ended, language in this section is that motions for miscellaneous relief include “but are not limited to” various administrative requests like extensions of time. See JPML R. 6.3.
Anyone practicing before the JPML should make sure to consult the Panel’s rules, which do not necessarily mirror the corresponding federal rules of civil procedure. Due to the unique role of the JPML, as demonstrated by the above examples, some of the rules may not be intuitive for even the most experienced federal practitioners.
Steve Harkins is an Associate at Greenberg Traurig LLP. He practices products liability litigation, with a focus on pharmaceuticals and multidistrict litigation (MDL). Steve works on products liability matters in both state and federal courts ranging from single plaintiff claims to nationwide consumer class action cases. He is involved in defending manufacturers of pharmaceuticals, medical devices, industrial chemicals, and consumer products. Steve has taken and defended numerous depositions ranging from parties and fact witnesses to opposing experts.
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