Hurricane Katrina Catastrophe Cases
As national coverage counsel for several large insurance clients, including Allstate, Hanover, and Horace Mann, Sonnenschein recently played a key role in a series of critical judicial decisions arising from the Hurricane Katrina catastrophe.
Most notably, in In re Katrina Canal Breaches Litigation, 495 F.3d 191 (5th Cir. 2007), the Fifth Circuit Court of Appeals confirmed that the standard “flood” exclusion unambiguously bars coverage for the flood damage caused by the breaches in New Orleans’ levee system following Hurricane Katrina. One team of Sonnenschein lawyers played a major role in drafting the joint appellate briefs and preparing the argument on behalf of the insurers with ISO language, while another team briefed and argued the case for Allstate, which had different policy language. The Fifth Circuit’s decision reversed a prior, unfavorable ruling from the district court, which had held the post-Katrina flooding could fall outside the scope of the “flood” exclusion, if the levee breaches were caused by human negligence, as opposed to natural forces. Subsequently, the Louisiana Supreme Court followed the Fifth Circuit’s logic, finding that no coverage exists for flood damage caused by levee breaches. (Rick Fenton, Kevin Kamraczewski)
The Fifth Circuit’s decision in Chauvin v. State Farm Fire & Casualty Co., 495 F.3d 232 (5th Cir. 2007), involved a different, but equally important, coverage issue: namely, whether Louisiana’s Valued Policy Law requires insurers to pay their full policy limits whenever a structure is rendered a “total loss,” even if the loss was partially caused by uncovered flood damage. The Fifth Circuit affirmed that the Valued Policy Law only applies when the “total loss” was entirely brought about by covered risks – e.g., covered wind damage – as opposed to the combined force of covered and uncovered risks. (Rick Fenton, Kevin Kamraczewski)
In In re Katrina Canal Breaches Litigation, 2008 U.S. App. LEXIS 7933 (5th Cir. 2008), the Fifth Circuit determined that, under the federal Class Action Fairness Act (“CAFA”), Sonnenschein’s clients were entitled to remove to federal court a class action lawsuit that the Louisiana Attorney General filed in Louisiana state court to obtain reimbursement of funds paid to Louisiana citizens under the “Road Home” program. This decision was critically important not only in the case at issue, but also with respect to class action litigation generally, where the case law regarding CAFA jurisdiction is relatively nascent and still developing. (Rick Fenton, Kevin Kamraczewski)
World Trade Center Catastrophe Cases
Sonnenschein’s expertise and experience in catastrophe litigation is exemplified by its successful representation of Royal in connection with the property insurance claims arising from the September 11, 2001 terrorist attacks on the World Trade Center (“WTC”).
Most notably, in World Trade Center Properties, Ltd. v. Hartford Fire Insurance Co., 345 F.3d 154 (2nd Cir. 2003), Sonnenschein obtained summary judgment for Royal on significant aspects of its coverage obligations arising from the WTC disaster. In particular, Sonnenschein successfully proved that certain Royal entities were bound to the “WilProp” coverage form and that, under that form, the loss should be deemed one “occurrence” – even though it involved two separate towers that were brought down at different times by two separate airplane collisions. This victory, which Sonnenschein preserved on appeal, was of critical importance, as a finding of two “occurrences” could have exposed Royal to an additional $100 million in liability. (Michael Barr)
Sonnenschein helped Royal obtain another critical summary judgment victory regarding the scope of replacement-cost coverage for the WTC terrorist attacks. In SR International Bus. Ins. Co., Ltd. v. World Trade Center Props. LLC, 2006 WL 3073220 (S.D.N.Y. 2006), the policyholder argued that its replacement-cost coverage should encompass all the costs necessary to construct a hypothetical complex of buildings that would be functionally equivalent to the original WTC, given the present-day political and technological conditions. The court disagreed, finding that the policyholder could not recover more than the “amount it would cost to reproduce the [WTC] beam-for-beam, pane-for-pane, as it stood early on the [date of loss].” (Michael Barr)
In the context of business interruption coverage for the WTC disaster, Sonnenschein secured another important decision in SR International Bus Ins. Co., Ltd. v. World Trade Center Props. LLC, 2005 WL 827074 (S.D.N.Y. 2005). There, the court held that “period of restoration” was limited to the theoretical period of time required to replace the WTC as it existed on September 10, 2001, as opposed to how long it actually would take to rebuild the WTC site. (Michael Barr)
Insurance Class Action Litigation
Sonnenschein recently has scored a host of important victories for its insurance clients in a variety of high-risk class actions, as exemplified by the following matters.
In Avery v. State Farm Mutual Automobile Insurance Co., 835 N.E. 2d 801 (Ill. 2005), the court of appeal had affirmed a billion-dollar jury verdict against State Farm, based on its specification of after-market auto parts for use in its policyholders’ car repairs. On appeal to the Illinois Supreme Court, Sonnenschein represented Allstate, as an amicus curiae, and successfully advocated in favor of a reversal of the entire judgment. In particular, the Illinois Supreme Court agreed not only that the nationwide class had been improperly certified, but also that the specification of after-market parts did not breach the “like kind and quality” provision of the relevant auto policies. (Rick Fenton)
Sonnenschein obtained another reversal of a nationwide class certification order in Sandwich Chef of Texas, Inc. v. Reliance National Indemnity Insurance Co., 319 F.3d 205 (5th Cir. 2003). There, the district court had certified a nationwide class in a RICO action based on the allegedly fraudulent overcharging of workers’ compensation premiums. The Fifth Circuit Court of Appeals reversed the class certification order, agreeing with Sonnenschein that the individual issues of reliance and causation predominated over the supposedly common class issues. (Michael Barr)
In Allstate Insurance Co. v. Ware, 824 So. 2d 739 (Ala. 2002), the plaintiffs brought a putative class action suit against Allstate, based on allegations that Allstate had engaged in unfair business practices relating to the estimated replacement cost provisions in its homeowners policies. On appeal to the Alabama Supreme Court, Sonnenschein secured a reversal of the trial court’s class action certification order, which had created two statewide classes encompassing all individuals who had purchased Allstate homeowners policies in Alabama over the previous 20 years. (Jeff Lennard)
In In re Katrina Canal Breaches Litigation, 2008 U.S. App. LEXIS 7933 (5th Cir. 2008), the Fifth Circuit determined that, under the federal Class Action Fairness Act (“CAFA”), Sonnenschein’s clients were entitled to remove to federal court a class action lawsuit that the Louisiana Attorney General filed in Louisiana state court to obtain reimbursement of funds paid to Louisiana citizens for damages allegedly caused by Hurricane Katrina. This victory was particularly significant given the relatively nascent and still-developing case law on the procedural requirements for CAFA jurisdiction. (Rick Fenton, Kevin Kamraczewski)
Reinsurance Arbitrations
Sonnenschein’s vast expertise in reinsurance matters is illustrated by the successful results it recently obtained at the following reinsurance arbitrations. (Because the arbitrations were confidential, the clients’ identities have been omitted.)
In a arbitration tribunal taking place in London, Sonnenschein obtained a unanimous 3-0 decision in favor of the firm’s client, including an award of fees and costs. The arbitration was necessary to decide whether the client was responsible for indefinitely providing $250 million of annual insurance and reinsurance coverage on all of the defendant’s onshore and offshore energy covers worldwide. The tribunal agreed with Sonnenschein that the Long Term Agreement (LTA) the parties signed in 2000 had expired by its own terms, and that there was nothing to extend. Procedurally, the arbitration proved quite complicated because the LTA was a Bermuda form, the cedent was in the United States, and the reinsurer was in Germany, and the LTA specified that the arbitration would be conducted pursuant to the UK Arbitration Act in London, with the substantive law of New York controlling.
At the request of the client’s UK counsel, Sonnenschein provided advise and assistance on New York law as it pertained to a UK arbitration. The client, the reinsurer, eventually requested that Sonnenschein take over the entire representation. The arbitration arose out of the damage caused by Hurricane Frances in 2004 and involved the interpretation of specific clauses in the reinsurance treaties that dealt with the triggers of coverage in the pertinent reinsurance contracts. The matter involved two such contracts, with $50 million at issue under each. The matter was successfully concluded.
Sonnenschein successfully represented the reinsurer in a dispute arising from Hurricane Katrina. The issues in the arbitration were whether the insurance contracts provided a specific type of coverage and whether the cedent had made misrepresentations to induce the client to sign onto the contracts. The amount in dispute was $50 million.
Life Insurance and Annuity Cases
Sonnenschein continues to be a leader in the burgeoning field of litigation involving life insurance policies and annuities, including the recent victories described below.
Earlier this year, Sonnenschein secured a victory at trial for Allmerica in Emerald Investments Limited Partnership v. Allmerica Financial Life Insurance and Annuity Co., 2008 U.S. App. LEXIS 3513 (7th Cir. 2008). In that case, the plaintiff, Emerald, purchased two variable annuities from Allmerica and used them to engage in international trade-zone arbitrage, a form of market-timing trading. In response to pressure from long-term shareholders, Allmerica placed restrictions on Emerald’s trading, and Emerald sued for breach of contract, claiming it lost over $150 million in profits. With respect to liability, the district court granted summary judgment for Emerald, but Allmerica prevailed at the subsequent damages-only trial. In ruling for Allmerica, the trial court agreed with Sonnenschein that Emerald had provided insufficient evidence that the trading restrictions had proximately caused its alleged lost profit damages. (Alan Gilbert)
In Katz v. American Mayflower Life Insurance Co. of New York, 841 N.E. 2d 742 (N.Y. 2005), the policyholder claimed that American Mayflower breached its life insurance policy, and was unjustly enriched, because it collected premium payments for dates on which no coverage was provided. Specifically, the policyholder complained that, for the initial policy period, American Mayflower charged a full “annual” premium based on the policy’s issuance date, but the policy was not delivered until 22 days later, after which there was a 20-day “free look” period. Sonnenschein successfully moved to dismiss the complaint, and the New York Court of Appeals affirmed, finding there was nothing improper or ambiguous about the manner in which the client calculated or billed the policy premiums. (Sandra Hauser)
Similarly, in Watson v. Garamendi, 2008 U.S. App. LEXIS 148 (9th Cir. 2008), Sonnenschein obtained a dismissal of a suit filed against the National Organization of Life and Health Insurance Guaranty Association (“NOLHGA”). In their complaint, the plaintiffs alleged that NOLHGA had violated certain duties in connection with the distribution of assets from an insolvent life insurance company. The United States Court of Appeals for the Ninth Circuit affirmed the dismissal, finding that the plaintiffs lacked standing to sue NOLHGA because the responsibility for distributing the assets in question was exclusively vested with the California Insurance Commissioner. (John Finston)
Liability Coverage
Sonnenschein’s experience in liability coverage is demonstrated by its recent victories in this field, which stretch across a wide variety of factual contexts, including environmental contamination, professional liability claims, bankruptcy, and third-party auto claims.
Sonnenschein successfully litigated the scope of the pollution exclusion in Country Mutual Insurance Co. v. Inwood Dairy, Case No. 3-07-0052 (Ill. App. 2008). There, the policyholder was sued for alleged violations of the Illinois Environmental Protection Act arising from agricultural wastewater runoff from a large dairy operation. The court agreed with Sonnenschein that the manure and manure wastewater at issue constituted a “pollutant” within the meaning of the exclusion, regardless of whether it was intended to be used as a fertilizer. Additionally, on the facts presented, the court found that the “sudden and accidental” exception to the exclusion was inapplicable. (Bill Barker, Donna Vobornik)
Sonnenschein’s expertise in environmental coverage disputes also was on display in Aerojet-General Corp. v. American Excess Ins. Co., 97 Cal. App. 4th 387 (2002). There, the court found that Sonnenschein’s clients had no duty to defend or indemnify a groundwater contamination suit alleging that the plaintiffs suffered personal injuries from the policyholder’s improper use and disposal of TCE and other toxic chemicals. The court agreed with Sonnenschein that this conclusion was mandated by a prior declaratory judgment against the policyholder, notwithstanding the policyholder’s argument that the judgment encompassed certain matters (e.g., the particular chemical and site at issue) that were not actually litigated in the prior action. (Paul Glad)
In the context of professional liability coverage, Sonnenschein recently rescued a client from an adverse trial judgment in American Automobile Insurance Co. v. Valentine, 131 Fed. Appx. 406 (4th Cir. 2005). Before Sonnenschein became involved with the case, the district court found that a Fireman’s Fund subsidiary was obligated to defend and indemnify a series of class action lawsuits alleging the policyholder insurance agents had negligently placed their clients’ coverage with a fraudulent and now-defunct health plan. After being brought on to handle the appeal, Sonnenschein secured a complete reversal from the Fourth Circuit Court of Appeals, which agreed with Sonnenschein that the district court had erroneously applied “proximate cause” principles to the “Insolvency Exclusion” in the relevant E&O policies. This finding was of particular importance to the client, because it was facing similar lawsuits raising similar issues across the nation. (Sandra Hauser)
In Evanston Insurance Co. v. Ambis Corp., 2005 U.S. Dist. LEXIS 2414 (N.D. Cal. 2005), another case arising under a professional liability policy, Sonnenschein brought a complaint in federal court for rescission of the policy and reimbursement of all policy benefits paid, based on a misrepresentation in the policy application. The policyholders moved to stay the rescission action pending the resolution of a related state court action. The federal court agreed with Sonnenschein that the rescission action should be allowed to proceed, because the related state court action was not substantially similar. (Paul Glad)
Sonnenschein’s dual expertise in the fields of liability insurance and bankruptcy recently paid dividends in Wolkowitz v. Redland Insurance Co., 112 Cal. App. 4th 154 (2003). After Redland refused a demand for its $500,000 limit, and while Redland was defending, the insured went into bankruptcy, agreeing with the trustee to what amounted to a consent judgment, with an assignment of rights to the trustee. Retained at this point, Sonnenschein persuaded the California Court of Appeal that the consent judgment did not constitute damages to the insured that could support a bad faith action and did not bind Redland. (Kevin Kamraczewski)
In the context of third-party auto coverage, the California Court of Appeal recently affirmed Sonnenschein’s trial court victory for Allstate in Schmidt v. Allstate Indemnity Co., 2007 Cal. App. Unpub. LEXIS 3512 (2007). In Schmidt, prior to the suit in question, the policyholder had been sued for personal injuries caused in an auto accident. Allstate defended the auto accident suit and settled it by paying the policy limits. Later, the victim sued Allstate’s policyholder again, alleging that he had been defrauded into settling the auto accident suit for Allstate’s policy limits because the policyholder had made misrepresentations about his lack of personal assets. The Court of Appeal agreed that Allstate had no duty to defend the second fraud suit, even though the damages sought in that suit would be measured by reference to the personal injuries sustained in the auto accident. (Michael Barnes)
Drawing on principles of both liability insurance coverage and the ethical duties of defense counsel, Sonnenschein recently participated in securing a victory that should provide tremendous financial benefits for its clients operating in Texas. Specifically, in Unauthorized Practice of Law Committee v. American Home Assurance Co., Inc., 51 Tex Sup. J. 590 (Tex. 2008), the Texas Supreme Court determined that, where no conflict of interest exists, (1) a liability insurer may appoint its own staff counsel to defend a third-party suit against its policyholder, and (2) the insurer may contract with the lawyer it retains to be a co-client with the insured. (Bill Barker)
In Baldwin v. Badger Mining Corp., 663 N.W.2d 382 (Wisc. App. 2003), the plaintiff alleged that he contracted lung disease (silicosis) from inhaling silica dust. Sonnenschein represented a major domestic insurer, which provided CGL coverage to a defendant accused of manufacturing the sand that allegedly generated the silica dust. The trial court granted summary judgment, and the appellate court affirmed, on the ground that the plaintiff had learned of his silicosis 15 years before filing suit, and also knew of the identity of the manufacturer. As a result, his claims were time-barred. (Donna Vobornik)
Property Insurance
Consistent with its long-recognized expertise in property coverage, Sonnenschein recently helped secure a number important victories for its clients in this field.
In what is believed to be the last case arising from the 1989 Loma Prieta earthquake, Marselis v. Allstate Insurance Co., 121 Cal. App. 4th 122 (2004), Sonnenschein obtained a victory at trial for Allstate, as well as an affirmation of the judgment on appeal. In Marselis, the policyholder argued that the one-year suit limitation period in her homeowners policy had not expired – even though Allstate had settled her claim more than a year before she filed suit – because Allstate had failed to expressly confirm in writing that her claim was closed. The Court of Appeal agreed with Sonnenschein that Allstate’s settlement payment effectively denied the remainder of the policyholder’s claim, such that her suit was time-barred. Additionally, the court rejected the policyholder’s equitable estoppel argument, holding that any conduct by Allstate after the limitation period had run could not give rise to an estoppel. (Michael Barnes)
Similarly, in Vu v. Prudential Property & Casualty Insurance Co., 26 Cal. 4th 1142 (2001), a case arising from the 1994 Northridge earthquake, the California Supreme Court considered whether the one-year suit limitation clause in the plaintiff’s homeowners policy precluded a claim for newly discovered damage that was brought more than one year after the insurer settled and closed the original claim. On behalf of amicus curiae the Association of California Insurance Companies, Sonnenschein argued that the one-year limitation period began running once the insurer effectively denied the claim through its original settlement, and the California Supreme Court agreed. Additionally, the court clarified that, while dicta from previous cases described an insurer’s duties as “fiduciary” in nature, an insurer has no true fiduciary relationship with its policyholders. (Ron Kent)
In the context of first-party auto coverage, Sonnenschein helped secure a major victory in Avery v. State Farm Mutual Automobile Insurance Co., 835 N.E. 2d 801 (Ill. 2005). In Avery, the court of appeal had affirmed a billion-dollar jury verdict against State Farm, based on its specification of after-market auto parts for use in its policyholders’ car repairs. On appeal to the Illinois Supreme Court, Sonnenschein represented Allstate as an amicus curiae, and successfully advocated in favor of a reversal of the entire judgment. In particular, the Illinois Supreme Court agreed that the specification of after-market parts did not breach the “like kind and quality” provision of the relevant auto policies. (Rick Fenton)
Sonnenschein obtained yet another important ruling for its property insurer clients in Community Assisting Recovery, Inc., v. Aegis Security Insurance Co., 92 Cal. App. 4th 886 (2001). In that case, decided under California law, the court held that policyholders must submit to appraisal as a mandatory method for resolving first-party property claim valuation disputes. Additionally, the court found that the insurer committed no unfair business practice by using replacement cost minus depreciation as a method to calculate claim payments, as set forth in its policy. (Paul Glad)
In Allstate Indemnity Co. v. Forth, 204 S.W.3d 795 (Tex. 2006), a case involving first-party personal-injury-protection (PIP) coverage, the Texas Supreme Court affirmed the dismissal of a complaint alleging that Allstate had settled medical bills in unreasonable manner, because the policyholder had suffered no out-of-pocket damages. (Jeff Lennard)
Workers’ Compensation, ERISA, and Employment Issues
In Culligan v. State Compensation Insurance Fund, 81 Cal. App. 4th 429 (2000), Sonnenschein secured a critically important victory for State Fund, the largest worker’s compensation insurer in California. Specifically, in Culligan, the California Court of Appeal agreed with Sonnenschein that the “workers’ compensation” exclusion in State Fund’s employer’s liability policy barred coverage for any claims that potentially could fall within exclusive remedy of workers’ compensation – regardless of whether policyholder ever actually made a claim for workers’ compensation benefits. (Paul Glad)
In Sandwich Chef of Texas, Inc. v. Reliance National Indemnity Insurance Co., 319 F.3d 205 (5th Cir. 2003), the plaintiff brought a putative nationwide class action alleging the insurer defendants had fraudulently overcharged for workers’ compensation premiums. The Fifth Circuit Court of Appeals reversed the trial court’s class certification order, agreeing with Sonnenschein that the individual issues of reliance and causation predominated over the supposedly common class issues. (Michael Barr)
In a case involving ERISA, Sonnenschein successfully argued that its client, Allmerica, did not act as the plan administrator, and that the plaintiff therefore had no standing to sue Allmerica under the ERISA statutes. On appeal, the United States Court of Appeals for the Ninth Circuit affirmed the judgment for Allmerica. Everhart v. Allmerica Financial Life Insurance Co., 275 F.3d 751 (9th Cir. 2001). (Paul Glad)
Sonnenschein recently secured an important employment-related victory for its insurance clients in Roe-Midgett v. CC Services, Inc., 512 F.3d 865 (7th Cir. 2008). In that case, the plaintiffs were material damage appraisers employed by a third-party adjusting firm, which contracted to provide claims processing services for auto, home, commercial, and farm policies. The appraisers brought a class action against the TPA, claiming it had violated the Fair Labor Standards Act (“FLSA”) by failing to pay them overtime. Sonnenschein obtained summary judgment for the TPA, and the Seventh Circuit Court of Appeals affirmed, agreeing with Sonnenschein that the appraisers were administrative employees exempt from FLSA overtime requirements. (Roger Heidenreich)
