United States Supreme Court Justice Samuel Alito will participate in the University of Hawaii law school's Jurists-in-Residence Program the week of January 24, 2011. In honor Justice Alito's visit, we offer a sampling of insurance coverage decisions he has authored.
We did not locate any insurance coverage opinions Justice Alito has written while serving on the Supreme Court. He did write, however, several insurance coverage decisions will sitting on the Third Circuit Court of Appeals. The cases frequently tackled complex insurance coverage issues involving a variety of commercial and business transactions. From this sampling, Justice Alito's pro-policy holder and pro-insurer decisions are fairly evenly divided.
Cases Favorable to Insureds:
1) MBIA Ins. Corp. v. Royal Indemn. Co., 426 F.3d 204 (3d Cir. 2005)
The Student Finance Corporation ("SFC") made loans to vocational students. Wilmington Trust and Wells Fargo loaned money to SFC, and took a pool of student loans as security.
To encourage these loans, SFC obtained policies with Royal to insure the repayment of interest and principal on the student loans. The policies stated Royal's liability would be unaffected by fraud and expressly waived any defense it could otherwise raise to avoid payment. When it turned out SFC was running a ponzi scheme and unable to repay the loans, Wilmington and Wells Fargo sought indemnity from Royal.
Royal argued there was no coverage because SFC's fraudulent inducement entitled it to rescission. The district court found the policies unambiguously waived fraud in the inducement as a defense. It granted summary judgment to Wilmington and Wells Fargo. The court ordered Royal to pay $269 million to Wells Fargo and $12.9 million to Wilmington.
Judge Alito's decision on appeal upheld the district court, in part. On their face, the policies waived Royal's defense to payment based on fraud. The remainder of the decision was vacated, however. Triable issues remained regarding whether all of the claimed losses were covered under the policies and whether the Wilmington and Wells Fargo's claims had been properly documented.
2) Acands, Inc. v. Travelers Casualty and Sur. Co., 435 F.3d 252 (3d Cir. 2006)
This case involved a mix between bankruptcy law and insurance coverage issues under a complex formula for making payment of asbestos claims between Acands and Travelers.
Acands was insured between 1976 and 1979 by Travelers' predecessor, Aetna. Two types of coverage were offered. The products coverage was capped by a $1 million per occurrence limit and a $1 million aggregate limit. The operations coverage was limited by a $1 million per occurrence limit but had no aggregate copay, meaning Travelers' exposure to asbestos claims during the years 1976 to 1979 was potentially unlimited.
A letter agreement between Acands and Travelers was reached in 1988, allocating 55% of the claims to products and the remaining 45% to operations. Because of the aggregate limit on products coverage, Travelers remained liable for only the 45% of claims allocated to operations. The allocation in the letter agreement could be challenged by mediation, followed by binding arbitration.
Mediation was attempted in 2001, but failed. After the arbitration panel found in favor of Travelers, but before the award was issued, Acands settled many claims, totaling more that $2.6 billion, and then filed for bankruptcy. Acands filed a motion in district court to have the arbitration award vacated. The district court denied the motion and affirmed the arbitration award.
On appeal, Judge Alito's decision vacated the district court's order. Issuing the arbitration award violated the automatic bankruptcy stay. The arbitration award was also invalid because it diminished the property of the estate.
3) Lawson v. Fortis Ins. Co., 301 F.3d 159 (3d Cir. 2002)
Two days prior to the effective date of a health insurance policy, the insured's minor child went to the emergency room for treatment of what was initially diagnosed as a respiratory tract infection. One week later, and after the policy became effective, the condition was discovered to be leukemia. Fortis denied coverage on the ground that the leukemia was a pre-existing condition for which the minor child had received treatment prior to the effective date of the policy.
The parents filed suit and the district court granted summary judgment in their favor. Through Judge Alito's opinion, the Third Circuit affirmed. The leukemia was not pre-existing because one could not receive treatment for a condition without knowledge of what the condition was. The best reading of the policy was for coverage of leukemia treatment. Otherwise, the policy language was ambiguous, which was then construed in the minor's favor.
4) Fisher v. USAA Casualty Ins. Co., 973 F.2d 1103 (3d Cir. 1992)
USAA argued it was relieved of its obligations under an auto policy because the insured had failed to obtain its consent before settling with the tortfeasor. The insured's daughter was killed in 1986 when her truck collided with the automobile she was driving. Her father sued the driver's employer and offered to settle for $1 million dollars, the limit of the employer's insurance coverage. The insured then wrote to his auto insurer, USAA, in May 1987 regarding the proposed settlement. Thereafter, the insured settled with the employer for $1 million in December 1987.
The insured again wrote to USAA regarding the settlement and demanded $300,000 under the underinsured motorist provision of his auto policy. When USAA refused, the insured sued. The district court granted summary judgment to USAA because the insured had not complied with the consent provision of the policy before settling.
The Third Circuit reversed in an opinion by Judge Alito. Once presented with a request for consent, an insurer was not free to deny coverage under the policy terms and later deny coverage on the ground that the insured failed to obtain its consent to settle. Under Pennsylvania case law, it would be an unavailing effort for insured to seek the insurer's consent for the settlement when the insurer had already advised there was no coverage, and therefore no such consent was required.
Nor could an insurer, once presented with a demand for consent, unduly delay its decision regarding coverage. Instead, the insurer had to either: (a) deny coverage, allowing the insured to settle and then litigate the issue of policy coverage at a later date; (b) admit coverage and grant consent; or (c) admit coverage, deny consent, pay the insured's claim and pursue subrogation rights against the tortfeasor. Once the insurer was presented with a demand for consent, it had to exercise one of these options without undue delay.
Accordingly, USAA could not deny coverage on the ground that the insured had failed to obatin USAA's consent to settle with the tortfeasor.
Cases Favorable to Insurers:
1) Acceptance Ins. Co. v. Sloan, 263 F.3d 278 (3d Cir. 2001)
The Mon Valley Steel Co. had a general liability policy with Acceptance for mining operations at the Clyde Mine in Pennsylvania. The policy was effective from December 7, 1994 to January 24, 1996. When premiums were not paid, however, Acceptance cancelled the policy on July 15, 1995. The State Department of Environmental Protection ("DEP") was not notified of the cancellation. The policy, however, contained no provision requiring Acceptance to notify DEP before canceling the policy.
In March 1998, Mon Valley was sued by plainiffs for the death of their daughter after she was pushed through an open mine shaft. Acceptance filed suit for a declaratory judgment seeking a determination that there was no coverage because the policy had been cancelled. The district court granted summary judgment to Mon Valley because DEP had never been notified of the policy's cancellation.
Judge Alito's decision reversed. Acceptance had neither a statutory duty nor a duty under the policy to notify DEP of cancellation of the policy.
2) Ford v. Schering-Plough Corp., 145 F.3d 601 (3d Cir. 1998)
Plaintiff became disabled by virtue of a mental disorder and was unable to continue her employment. While employed, she had enrolled in the employee welfare benefits plan offered by the employer through Met Life. The plan provided that benefits for physical disabilities would continue until the disabled employee reached age sixty-five so long as the physical disability persisted. For mental disabilities, however, the plan mandated that benefits cease after two years if the disabled employee was not hospitalized.
Plaintiff filed a charge of discrimination with the EEOC and received a "right-to-sue" letter. She then sued her employer and MetLife, alleging discrimination in violation of the Americans with Disabilities Act ("ADA"). The district court granted the defendants' motion to dismiss for failure to state a claim.
On appeal, the Third Circuit, through Judge Alito, affirmed. The ADA did not require equal coverage for every type of disability. Moreover, the challenged disability benefits did not qualify as public accommodation for purposes of the ADA.
3) John Wyeth & Brother Ltd. v. CIGNA Int'l Corp., 119 F.3d 1070 (3d Cir. 1997)
This case involved an English pharmaceutical company's effort to keep its lawsuit located in the United States. Commencing in 1987, Wyeth was sued in more than 11,000 product liability cases in the United Kingdom and Ireland. The suits were mostly for the manufacture and sale of Ativan, a tranquilizer that allegedly caused dependency and a number of other side effects.
Wyeth was insured by different carriers for three different time periods. For claims from 1972 to 1977, Wyeth was insured by Guardian Royal Exchange Assurance, Limited ("GRE"). CIGNA's predecessor was Wyeth's insurer for the period from 1977 to 1980. And from 1980, Wyeth was self insured. As of July 1989, GRE and CIGNA refused to defend, however, because they had not yet determined which policies were triggered by the underlying claims.
Consequently, in 1990, the parites entered an agreement to allocate defense costs for the Ativan-related claims. The parties agreed that each would pay one-third of the defense costs, but reserved rights to argue for a different allocation at a later date. The agreement could be terminated by any party. Further, the agreement stated it would be governed by and construed in accordance with English law and the English courts "would have exclusive jurisdiction in relation to any dispute arising under . . . the agreement."
When a dispute arose over the allocation and unpaid defense costs, Wyeth sued CIGNA in the federal district court in Pennsylvania, seeking a declaratory judgment. CIGNA argued that the suit for unreimbursed expenses "related to" the 1990 Agreement and was therefore subject to the 1990 Agreement's forum selection clause. The district court agreed and granted summary judgment to CIGNA.
Judge Alito's opinion affirmed the district court. The dispute between Wyeth and CIGNA over payment of defense costs arose in relation to the 1990 Agreement. These sophisticated business entities had agreed that the English courts had exclusive jurisdiction over "any dispute arising in . . . relating to" the 1990 Agreement. Therefore, they were bound by this sweeping language.
4) Armotek Indus., Inc. v. Employers Ins. of Wausau, 952 F.2d 756 (3d CIr. 1991)
Armotek was insured by Wausau's general liability policies from 1979 to 1985. "Property damage" was defined in the policies to include "physical injury to property which occurs during the policy period." The policies contained a standard pollution exclusion clause that excluded coverage for property damage caused by pollution unless the "discharge, disbursal, release or escape" of pollution was "sudden and accidental."
In 1979, Armotek acquired Chambers-Storch Company, which operated a chrome-plating plant in Norwich, Connecticut. In 1985, the Connecticut Department of Environmental Protection ("DEP") ordered Armotek to remediate pollution at the plant. Armotek sought coverage under the Wausau policies, but Wausau declined.
When Armotek sued for the expenses of the remediation, the court granted summary judgment to Wausau. The court observed that Armotek was seeking coverage for expenses incurred as a result of a spill of chromic acid that occurred in 1977. Therefore, the policies in effect from 1979 to 1985 did not cover property damage caused by the 1977 spill. Further, Wausau did not breach its duty to defend because nothing in the DEP order suggested a "sudden and accidental" release of pollution.
Judge Alito's opinion affirmed the district court. Because the spill did not occur during the term of the policies, there was no coverage. Further, because the DEP order referred to past pollution, no sudden accident under the policy occurred and no duty to defend arose.
5) Gridley v. Cleveland Pneumatic Co., 924 F.2d 1310 (3d Cir. 1991)
This case involved a dispute between an employer and the widow of a former employee regarding an entitlement to increased life insurance benefits. The increase was provided by an amendment to the company's group life insurance policy after the widow's husband ceased working due to terminal cancer.
Joseph Gridley began working for Cleveland Pneumatic Company in 1985. He was given an overview brochure which described the company's benefit plans. The introduction to the overview brochure stated the employee could refer to the summary plan descriptions or official plan documents for more details.
Documents describing the life insurance plan were also given to Mr. Gridley. These documents specified that an employee became eligible for an increase in insurance benefits only if he was "actively" at work after the increase took effect. After Mr. Gridley ceased working, the life insurance benefits were increased to three times the employee's salary.
After her husband died, Mrs. Gridley submitted a claim for life insurance benefits. She received an amount based on benefits offered before the company's amendment to the group plan because her husband was not actively employed at the time of the coverage increase. When Mrs. Gridley sued, the district court ruled in her favor because the overview brochure given to Mr. Gridley was a summary plan description under ERISA that failed to explain the active work requirement.
The Third Circuit, through Judge Alito, reversed. Mrs. Gridley was not entitled to the increased benefits because the brochure was not a summary plan description under ERISA. Therefore, Mrs. Gridley was not entitled to recover under equitable estoppel on the grounds that the brochure violated the disclosure requirements of ERISA.