Insurance Appellate Expertise
Insurance practice is replete with controlling legal issues. Coverage issues are determined by construing insurance policies as a matter of law. Bad faith claims can frequently be defeated as a matter of law by showing the existence of a reasonable basis for the insurer’s actions. Regulatory matters often turn on the construction of statutes. Sonnenschein's insurance appellate practitioners know the ins and outs of these legal issues and regularly handle or assist in trial court matters to posture them so they can be won on appeal (hopefully after success in the trial court) and then litigate them to final appellate resolution. They are also regularly called upon to step into matters handled by others in the trial court, especially where an appeal is necessary to try to overturn a bad trial result. And clients in the insurance industry frequently call on Sonnenschein's appellate litigators to prepare amici curiae briefs on important legal issues presented on appeal in cases in which the clients are not parties.
Representative Insurance Appellate Matters
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 a group of insurers, while another Sonnenschein 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 that 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.
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.
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 had 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.
In World Trade Center Properties, Ltd. v. Hartford Fire Insurance Co., 345 F.3d 154 (2nd Cir. 2003), Sonnenschein obtained summary judgment for Royal Indemnity Company on significant aspects of its coverage obligations arising from the World Trade Center 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.
In Avery v. State Farm Mutual Automobile Insurance Co., 835 N.E. 2d 801 (Ill. 2005), the court of appeals 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.
Sonnenschein obtained a 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.
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.
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.
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.
In the context of professional liability coverage, Sonnenschein 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 had 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 U.S. Court of Appeals for the Fourth Circuit , 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.
Sonnenschein’s dual expertise in the fields of liability insurance and bankruptcy 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.
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.
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.
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.
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.
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 U.S. Court of Appeals for the Fifth Circuit 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.
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 U.S. 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).
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 ("TPA") 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 U.S. Court of Appeals for the Seventh Circuit affirmed, agreeing with Sonnenschein that the appraisers were administrative employees exempt from FLSA overtime requirements.
