Insurance Developments

Tenth Circuit Upholds Skier Exculpatory Clause

 This week, the United States Court of Appeals for the Tenth Circuit, in Robinette v. Aspen Skiing Co., L.L.C.  2010 WL 258273 (10th Cir. Jan. 25, 2010), affirmed a district court's enforcement of an exculpatory clause, resulting in the dismissal of a  claim for personal injury arising out of a snowboarder's collision with a snowmobile operated by an Aspen employee.

The plaintiff had argued that the the exculpatory clause was "unenforceable because: (1) it purports to cover reckless conduct; (2) it violates public policy; and (3) its terms are unclear and ambiguous."  The Appeals Court rejected these arguments, and also found that because the plaintiff had not raised a claim of recklessness in the trial court, he cannot raise such a claim on appeal. 

A copy of the District Court's April 23, 2009 order, affirmed by the Tenth Circuit, can be viewed here.  The facts set forth in the District Court opinion are as follows:

On February 24, 2006, Mr. Robinette was snowboarding at Snowmass Ski Resort, a property owned and operated by Aspen. He approached a small incline on the trail, intending to perform a jump. Unbeknownst to Mr. Robinette, an Aspen employee, Eric Hill, was driving a snowmobile uphill on the other side of the incline. Mr. Robinette and Mr. Hill collided. Mr. Robinette sustained serious injuries as a result.

Robinette v. Aspen Skiing Co., L.L.C  2009 WL 1108093, 1 (D.Colo.,2009).

The Tenth Circuit, in affirming the enforceability of such an exculpatory clause, joins a recent Eighth Circuit decision which also enforced a skier's exculpatory clause.  You may read more about the Eighth Circuit decision here.

How Far Must An Insurer Go to Provide Long Term Disability Benefits?

In an interesting fact pattern, the court in Cochran v. Hartford Life and Acc. Ins. Co., 2010 WL 259047 (E.D.Mich. Jan. 20, 2010), complimented Hartford Life and Accident Insurance Company's handling of a claim for long term disability benefits, in which the court stated, "It is difficult to imagine what more Hartford could have done for Plaintiff, short of actually securing him employment, which Hartford clearly had no legal obligation to do."

In this matter, Plaintiff had fractured an ankle in a non-work related automobile accident, for which he was also cited for driving under the influence.  While receiving long term disability benefits from Hartford Life, plaintiff elected to become trained as a tattoo artist, and Hartford Life paid for the vocational training -- at a cost of $6,500.  Plaintiff remained on disability benefits for two years following his accident.

Notwithstanding plaintiff's excellent performance in his tattoo apprenticeship, and his personal election to request vocational training in that occupation, plaintiff later brought an ERISA claim based on Hartford Life's decision to terminate disability benefits under an "any occupation" standard.  

The United States District Court for the Eastern District of Michigan granted Hartford Life's Motion for Entry of Judgment, and concluded that the relief or assistance the plaintiff was seeking was not long term disability benefits, but more in the nature of unemployment benefits:

Hartford made a reasoned decision, based on the entire Administrative Record, that Plaintiff was capable of performing, based upon his functional limitations as described by his own treating physician, several jobs that it identified in the relevant geographic area that promised the potential earnings required under the Plan.  Given the nature of Plaintiff's injury and his capability, as defined by his own treating physician, of performing light to sedentary work, this likely fulfilled Hartford's obligation under the Plan.  However, Hartford went beyond this, conducted two separate vocational market studies and engaged Plaintiff in, and fully funded, an apprenticeship training program, so that Plaintiff would unquestionably be adequately trained and qualified in the occupation of his choice.  Plaintiff's ability to actually secure a job was beyond Hartford's responsibilities and likely beyond Hartford's control.  At some point, it became incumbent on Plaintiff to take responsibility for actually finding himself a job.  Hartford, after all, guaranteed disability benefits, not unemployment benefits.

Cochran v. Hartford Life and Acc. Ins. Co., 2010 WL 259047 (E.D.Mich. Jan. 20, 2010).

Stare Decisis, Law of the Case, and Public Policy Dictate that New York Law Apply to Liquidation Claims

Midland Insurance Company's liquidation proceedings have been pending since 1986.  New York's Superintendent of Insurance, Midland's statutory liquidator, makes recommendations to the court regarding distribution of the liquidation estate, and since 1994, objections to those recommendations are considered by a referee.  Following the Superintendent's recommendation to deny certain claims that were not maintainable under New York law, the issue of choice of law became critical to the viability of such claims.

This week, the New York Supreme Court, Appellate Division, in In Re: Liquidation of Midland Ins. Co., -- N.Y.S.2d --, 2010 WL 89525 (N.Y.A.D. 1 Dept. Jan. 12, 2010), reversed an order granting "the major policyholders' motion for partial summary judgment declaring that for each policyholder an individualized choice-of-law review must be undertaken following the 'grouping of contacts' approach and giving predominant weight to the policyholder's principal place of business."  The Appellate Division also granted the intervening reinsurers' cross motion seeking the continued application of New York substantive law to the liquidation claims.

The Appellate Division relied on the doctrine of stare decisis to follow Midland LAQ, 269 A.D. 2d 50, 709 N.Y.S. 2d 24 (N.Y.A.D. 2000), in which the court concluded that "[i]n order to assure that all Midland creditors are treated equally and in accordance with conflicts of law principles, it is necessary that the court apply New York law in ascertaining" which coverage is triggered.  Id. at 63.

The court in In Re: Liquidation of Midland Ins. Co. also concluded that under the doctrine of "law of the case", parties and their privies are precluded from relitigating an issue decided in an ongoing proceeding, finding that the interests of the major policy holders were represented in the earlier proceeding. 

Finally, consistent with the reasoning of Midland LAQ, the court concluded that there was a "paramount state interest" to apply New York substantive law so that all creditors in the liquidation proceeding were treating equally.

Court Remands MEWA-Related Claim Based on Evidence that Employer Did Not Contribute Portion of Employee's Premium

Earlier this week, the United States District Court for the Middle District of Florida, Arndt v. Concert Health Plan Ins. Co., No. 8:09-CV-1239-T-27TBM, 2010 WL 151966 (M.D.Fla. Jan. 18, 2010) remanded an action the claimant filed in state court seeking unpaid benefits. 

The court in Arndt v. Concert Health Plan concluded that the claimant's purchase of health insurance did not constitute the "establishment or maintenance of an employee benefit plan" within the meaning of ERISA because (1) the claimant submitted an affidavit that the employer did not contribute any portion to the claimant's premium;  and (2) Concert Health failed to show that the employer required the employee to participate.

For these reasons, the Court in Arndt v. Concert Health Plan granted claimant's motion for remand, and held that Concert Health Plan failed to satisfy its burden of establishing that the regulatory safe harbor of 29 C.F.R. 2510.3-1(j) does not apply.

The court, however, based its decision only on the issue of remand, and expressly did "not reach the merits of preemption as an affirmative defense" before the state court, which would be based on a fuller record.

New York Insurance Exchange, Revisited

New York Governor David Paterson has outlined a comprehensive economic plan for New York, to include the establishment of an infrastructure for a revived New York Insurance Exchange (NYIE).

Citing an increase in insurance transactions taking place outside of New York to jurisdictions such as Bermuda, Ireland and Switzerland, Governor Paterson proposes to "attract international investors by providing tax benefits and an efficient and secure regulatory environment."  You may view Governor Paterson's "fact sheet" describing the proposed NYIE here. 

According to Governor Paterson, although New York's attempt to establish an insurance exchange in the 1980s failed, the current insurance markets today, including a "contraction" in capital, have created a "demand for facilities that provide greater transparency, better regulation, and better risk management."  Governor Paterson also points out that an exchange may help eliminate "unnecessary links in financial services supply chains."

The NYIE would operate similar to Lloyd's of London.  As one expert on NYIE issues explained, the NYIE operated only for seven years, from 1980-1987, but the outcome resulted in greater flexibility among regulators to deal with financially troubled insurers and reinsurers:

In 1980 the New York Insurance Exchange opened to great
fanfare and expectations as a Lloyd's type market to help
stem the flow of capital and premiums out of the U.S. Seven
years later the Exchange ceased to operate, and many of its
underwriting syndicates were insolvent and facing
liquidation.

* * *

In February 1996 an order of liquidation was entered in
the New York Supreme Court for the Exchange entity itself.
Although its life was brief, the consequences of the Exchange
– both good and bad – continued to be felt in the industry
some seventeen years after it closed its doors. Some of these
consequences are obvious to any ceding company “stuck”
with an Insurance Exchange certificate participated on by
insolvent or untraceable syndicates. More importantly,
however, may be the developments arising from the ashes of
the insolvent syndicates and the contributions of those
syndicates to the development of better ways to address the
run-off or winding up of professional reinsurance entities,
and the increase in flexibility of the regulators in addressing
the problems of financially troubled insurers and reinsurers.

Peter H. Bickford, What Ever Happened to the New York Insurance Exchange (And Why Do We Care)?, November, 2004.

As another observer noted, since the time of the original NYIE, there is more global investment, as well as investment into risks that are uncorrelated to the financial market, conditions which may make a revived NYIE successful.  Meg Fletcher, Lloyd's-Like insurance exchange gets fresh scrutiny in N.Y., Business Insurance Industry Focus, February 2008.

District Courts Grapple With Discovery of ERISA Plan Conflicts of Interest

Although the United States Supreme Court held, in Metropolitan Life Ins. Co. v. Glenn, --- U.S. ---, 128 S.Ct. 2343, 2348 (2008), that a District Court must consider extrinsic evidence concerning the structural conflict itself as a factor in determining whether there has been an abuse of discretion, the Supreme Court discouraged District Courts from creating "special procedural or evidentiary rules, focused narrowly upon the evaluator/payor conflict."  Id. at 2351. Following the decision of Metropolitan LIfe Ins. Co. v. Glenn, District Courts continue to struggle to reach the right conclusion concerning the availability of discovery as to conflict of interest issues.

The Northern District of California District Court, in Conner v. Reliance Steel & Aluminum Co.' LTD Plan, No. C 09-02487 JSW, 2009 WL 55658 (N.D. Cal. Jan. 5, 2010), recently held that, based on a structural conflict of interest concerning an ERISA plan (whereby the administrator or fiduciary making the eligibility determinations was also the funding source), the plaintiff was permitted to seek discovery as to "the scope of the conflict, as well as discovery regarding the nature, extent, and effect of the conflict on the decision making process. . . ."

The court in Conner v. Reliance, in reaching this holding, relied on Ninth Circuit precedent of Abatie v. Alta Health & LIfe Ins. Co., 458 F.3d 955, 970 (9th Cir. 2006) (holding that a District Court may "consider evidence outside the administrative record to decide the nature, extent and effect on the decision making process of any conflict of interest. . . ."), as well as Welch v. Metropolitan Life Ins. Co., 480 F.3d 942, 949-50 (9th Cir. 2007), in which the Court of Appeals held that the "district court may, in its discretion, consider evidence outside the administrative record to decide the nature, extent and effect on the decision-making process of any conflict of interest;  the decision on the merits, though, must rest on the administrative record once on the conflict (if any) has been established by extrinsic evidence or otherwise.").

The court in Conner v. Reliance Steel also relied on Gullidge v. Hartford Life & Accident Ins. Co., 501 F.Supp.2d 1280, 1283 (C.D.Cal. 2007), in which District Court, relying on Welch v. Metropolitan Life Ins. Co., also permitted discovery as to the conflict of interest.  See also Kroll v. Kaiser Foundation Health Plan LTD Plan, No. C 09-01404 JSW, 2009 WL 3415678, *2 (N.D.Cal. Oct. 22, 2009) (granting plaintiff's motion to conduct discovery as to conflict of interest, and reminding plaintiff that such discovery may not be a fishing expedition.)

Other Circuits have approached the issue differently, and perhaps with "special procedural rules".  The Seventh Circuit, prior to Metropolitan Life Ins. Co. v. Glenn, an ERISA claimant who wanted to obtain discovery as to a conflict of interest had to (1) "identify a specific conflict of interest or misconduct" and (2) "make a prima facie showing that there is good cause to believe limited discovery will reveal a procedural defect in the plan administrator's determination."  Semien v. Life Ins. Co. of North America, 436 F.3d 805, 814 (7th Cir. 2006).  Following the Metropolitan Life Ins. Co. v. Glenn decision, several District Courts within the Seventh Circuit held that Glenn superseded the standard set forth in Semien v. Life Ins. Co. of North America.  See, e.g., Barker v. Life Ins. Co. of North America, -- F.R.D.--, 2009 WL 5191441 (S.D.Ind. Dec. 28, 2009);  Anderson v. Hartford Life and Accident Ins. Co., 2009 WL 3733343 (S.D. Ind. Mar. 19, 2009);  Gessling v. Group Long Term Disability Plan, 2008 WL 5070434 (S.D.Ind. Nov. 26, 2008). 

Chinese Drywall – Judicial Panel on MDL Rules that Coverage Matter Should Not Be Transferred to Chinese Drywall MDL Proceedings and 14 Insurers Sued Over Chinese Drywall Losses

In December 2009, the Judicial Panel on Multi-District Litigation (JPML) rejected efforts to transfer an insurance coverage action to the federal Chinese Drywall Multi-District Litigation (MDL), arising out of the use of Chinese manufactured drywall in construction of homes which emitted smelly, corrosive gases, pending in the Eastern District of Louisiana (In Re: Chinese-Manufactured Drywall Product Liability Litigation, MDL No. 2047).    In mid-2009. the JPML had conditionally transferred General Fidelity Ins. Co. v. Foster, et al., No. 09-80743 (S.D. Fla.) to the MDL.

Following the conditional transfer, General Fidelity argued that the case involved coverage determinations under Florida law and that insurance coverage actions should not be handled in the MDL proceedings.

In the order vacating the conditional transfer, the JPML found that the case seeks a determination of an insurer’s rights and obligations under a commercial general liability policy and thus “raises distinctly different factual and legal question from the core allegations at issue” in the MDL.  The JPML further wrote that, by contrast, “Plaintiffs in the majority of the [MDL] actions…are individuals who seek relief related to property damage or personal injuries arising from drywall manufactured in China and installed in their homes.”  

In addition, the WCI Chinese Drywall Trust, a trust formed to handle the Chinese drywall damage claims for over 700 homeowners, recently filed a federal lawsuit in the New Orleans District Court against 14 insurers seeking indemnification for their losses.

The suit, styled Pate v. American International Specialty Lines Ins. Co., et al., No. 2:09-cv-07791-EEF-JCW (E.D.La. Dec. 23, 2009) seeks “a declaratory judgment that the Insurance Companies and the Subcontractor Insurance Companies are obligated to indemnify the WCI Chinese Drywall Trust in connection with the Underlying Claims.”

The complaint in Pate v. American International states, “The Insurance Companies and the Subcontractor Insurance Companies have either denied coverage, reserved their rights, failed to reply to WCI’s notice letters, or otherwise failed to acknowledge coverage.” Complaint at par. 49.  A copy of the complaint may be viewed here.

WCI's lawsuit seeks from the insurers indemnification for "damages that include increased rates of corrosion of soft metal materials throughout the houses (such as air conditioning coils, refrigerator tubing, electrical wires, and television connections);  various health issues allegedly arising from the drywall;  and tarnishing of silver and soft metal within the homes." 

The insurance companies involved in Pate v. American International include:

American International Specialty Lines Insurance Company

American Guarantee and Liability Insurance Company

Amerisure Insurance Company Amerisure Mutual Insurance Company

Auto-Owners Insurance Company

FCCI Commercial Insurance Companyand FCCI Insurance Company

Hermitage Insurance Company Illinois Union Insurance Company

Landmark American Insurance Company Lexington Insurance Company

Mid-Continent Casualty Company

National Union Fire Insurance Company of Pittsburg, Pa.

Old Republic Insurance Company Scottsdale Insurance Company

Steadfast Insurance Company