Expert Witness Testimony Blog | MSQ - Insurance Law

Coffee Prices Spike

Pursing Retaliation

It seems perfectly obvious to me that the outrageous spike in coffee prices has several causes.

First, there is the attempt by Starbucks to monopolize the middle-class upward to lower-upper-class the national customer base. This includes students.

Second, there is a syndicate of tea companies trying to improve their economic positions by defeating the coffee industry.

Third, there is the fear of the tariffs the next president will impose on coffee growers, whether intranational or international. They are seeking to get as much done before he becomes president as possible. The by-then president will show no interest in taxing tea, no doubt because of His long-trumpeted allegiance to British industry. (Also, He has shown no interest in taxing Coke, Pepsi, Dr. Pepper, and bodily substances he believes are most especially suitable for the poor.)

Fourth, there is the war against the cut-throat competition amongst companies selling cleaning devices and liquids designed to “clear up” computers when creamed coffee is spilled on and into them.

Fifth, there is the conspiracy led by Marjorie Taylor Greene to destroy the spirit and energy to be found amongst “Progressives,” and other disfavored so-called “ethnikk” groups, such as tattooed biker criminal defense lawyers, who are sober and clear for 30 days or more.

Clearly, one of the first forms of retaliation for those under attack must be a “Tea+ Party,” though it should not be held in Boston. I recommend the area of the country where the most coffee is grown and drunk. This might be Texas. All dedicated coffee drinkers are invited, although compulsive coffee-iers who are stuck in certain – here nameless – addictions may wish to find a nearby McDonald’s since thermos containers of coffee will contain required consumption by all those in attendance.* The price will be $1.37 per cup, and there will be no free refills. The price of thermos “bottles” (not including coffee), all of which will be called recyclable, has as yet to be determined; of course, for sure, they will not be free, except for the ones that say something profoundly ugly about somebody objectively identifiable as hateful. (That last characteristic will be determined after the party by a Quinn with rewards to be sent by mail or email at some point later and to addresses to be specified, if at all, at the discretion of those doing whatever sending that may be done. “Text” addresses will not be used.)

Mike, The EmeritusFormerly of the Professoriate

TEXAS SUPREME COURT

INSURANCE DISPUTE

“TOTAL LOSS” (“SALVAGE”) PROBLEM,

APPROPRIATENESS OF CLASS ACTION? NO!

APPROPRIATENESS OF INDIVIDUAL’S ACTION FOR CONVERSION? YES!

USAA CASUALTY INSURANCE COMPANY (PETITIONER) v.

SUNNY LETOT (RESPONDENT) (22-0238) OPINION DELIVERED MAY 24, 2024

[UNANIMOUS OPINION]

TAGS: auto insurance – total loss – salvage – class action (insurance) and general – vintage auto third-party action

This case is likely to be publicly remembered, if at all, as “the Letot insurance class action case and less formally as “Sunny’s Case.” Underlying the “pizzaz” is the real, still-only, mere possible policyholder’s first-party type win against a giant highly respected insurance company in what’s known as “a salvage” case.

The facts of the case are simple. Sunny owned a vintage 1983 Mercedes-Benz sedan on which she had spent substantial funds. The car was rear-ended by a car driven by a USAA insured. Sunny made a claim under the driver’s USAA liability policy. It determined – or more accurately, estimated – that the cost of repairs on the car exceeded what the car was worth just before the accident (its “pre-collision value) and notified Sunny of its “determination.” Thus, USAA told her that the car was a “total loss” or simply a “salvage.” On this basis, USAA sent Sunny checks for what it said it thought was the car’s “pre-collision” value plus money for eight days of lost use, and interest. She did not sign or cash them.

Without determining whether Sunny would accept this offer, USAA notified the Department of Transportation that the car was “salvage.” It did this by filing a routine, standard “Owner Retained Report,” in which USAA stated that it had paid a claim on the vehicle. I have a “feeling” that USAA knew Sunny’s Mercedes was a 1983 product and was thus 17 years old. “Even M-Bs deteriorate, though not so fast as many other cars do,” it probably said to itself. “We don’t need to look into the matter further. Everybody accepts our valuations, anyway.”

Long after it classified the car as “salvage,” USAA admitted it had made a mistake and that the car was not salvage. Sunny and USAA could not resolve their dispute, so Sunny

In an amended Petition, she moved that the court certify a class action, and the members of the class were to be “anyone whose car USAA deemed salvage and about whom USAA filed a [routine] Report with the Texas Department of Transportation within three days of sending the claimant a check for the salvage vehicle.” (Notice that the filing was with the Department of Transportation and not the Department of Insurance.)

Remember: the word “salvage” in this insurance context does not mean “salvaged,” “has been salvaged,” or “will be salvaged.” It simply means “total loss” or something like “repair costs exceed sales value as is.” (I find the term “salvage” in this context, without a definition being provided, misleading or, at least ambiguous.

Sunny wanted the state to prevent USAA from doing this sort of thing. USAA had grabbed Sunny’s car, exercised dominion and control over it, and made a filing that led to the Transportation Department making it unlawful for Sunny to use that car on a public thoroughfare, within the law. This is what injunctions are for, after all. So, she sought an injunction.

The District Court certified the class requested, it looks like, and the Court of Appeals affirmed the decision of the lower court. Both those courts ruled that Sunny had a right to pursue a cause of action for USAA’s committing the intentional tort of conversion.

The Supreme Court reversed the lower two courts, as to their handling of the class action matter, and this is a topic of the Supreme Court’s opinion that is now, and will be, the ruling for which it will mostly be cited. That’s because it is a simple and readable outline of what is required for valid class action certification rulings and, hence, for proper motions and briefs seeking the certification of a class. Sunny’s suit against USAA for conversion stayed alive, and the Texas Supreme Court said so. (There is a twist in all this, to which I shall return presently.)

Here is some of the Supreme Court’s reasoning as to class certification:

“A putative class representation like Letot must have standing to pursue her own claims before she may seek to litigate those of a class. Indeed, a named plaintiff’s lack of individual standing at the time a class action suit is filed deprives the court of subject matter jurisdiction over . . . his claims on behalf of the class. Likewise, a “claim-by-claim analysis is necessary to ensure that a particular plaintiff has standing to bring each of his particular claims. . . We see no reason why the rule should be different whether one plaintiff or many file suit, or whether that suit is brought as an individual or class action.

Since Sunny’s suit sought both an injunction and damages for herself and the members of the class, the court must consider both of these dimensions of the case separately

It starts with injunctively relief, and the applicable law is this: “’A plaintiff has standing to seek prospective relief,’ including the equitable remedy of a writ of injunction, “’ only if he pleads facts establishing an injury that is ‘concrete and particularized, actual or imminent, not hypothetical.’ ‘To establish standing based on a perceived threat of injury that has not yet come to pass, the ‘threatened injury must be certainly pending to constitute injury in fact’ mere ‘[a]llegations of possible future injury’ are not sufficient.” [Citations omitted.] “Likewise insufficient, at least without more, are allegations of past injury*, which retrospective relief – typically damages – can remedy. Prospective relief, like an injunction, can prevent future injuries, but only if a plaintiff first establishes standing (and satisfies the equitable requirements for an injunction. More precisely, past injuries* can be relevant to standing to pursue an injunction – and to getting one on the merits – if the prior injury is sufficiently likely to recur and thus harm the plaintiff. Protective orders, for example, often rely on past conduct* to provide prospective relief when there is reason to believe that the danger remains present. There was no such evidence in this case, or string of evidence, regarding each component of a step-by-step process. Indeed, the court said or implied it is extremely unlikely that all harm-causing steps would occur in the future and that Sunny would likely be harmed.

[I have underlined and starred three words in the preceding paragraph. One is a plural; one is a singular; and one could be either and is therefore ambiguous.]

(The Court relied heavily on two U.S. Supreme cases to support its view as to the requirement that there exists a pattern supporting the idea that injunction is needed to protect a plaintiff from future injury Susan B. Anthony List v. Driehaus, 573 U.S. 149, 158 (2014) and City of Los Angeles v. Lyons, 461 U.S. 95 (1983). The cases also illustrate the proposition that if, there is to be an injunction, the future possible/probable injury must map onto the characteristics of the past injury, including such points as there being virtually identical steps. The point the court is making is, of course, that Sunny faces no or little repeat of USAA’s conduct. Given that fact alone – speculativeness – it is validly inferable that Sunny lacks standing to successfully seek an injunction and, hence, that “her” proposed class, for that reason, also lacks standing.

Now remember: Sunny was seeking the creation of a class, not simply to seek an injunction but also, and separately, seeking damages. The Court recognizes that its reasoning as to lack-of-standing for seeking an injunction is not relevant to the claim for damages. What does apply, however, is whether the proposed class and its representative meet the requirements of Rule 42 of the Texas Rules of Civil Procedure. The court says it did not.

One of the reasons the court gives is that Sunny’s claim was not “typical” with respect to those of the rest of the proposed class, so there was not a sufficiency of “commonality” between the situation of the class representative, Sunny, and other proposed members of the class. [MQ: This recognition probably does not apply to each and every member of the class but perhaps only to a smaller number of persons – or, at least, a smaller fraction of them, two numbers that may be the same.]

The court references cases of a proposed class representative that are “atypically flimsy and thereby undermine the claims of the other class members as the usual reason why commonality does not exist, and an “adequacy-of-representation requirement” cannot be met. In such cases, a class action is not likely to be certified.

Sunny’s case is the opposite. Typicality does not exist, but that is because Sunny’s case is atypically stronger, and also unique, so how could one try a class action that focused on Sunny’s situation and persuade a fair-minded jury (or a judge) to treat the cases of the members of the class in the same way it must treat hers – something thing the trier of fact must do? In addition, the court observes that trying “Sunny’s Class Action” would be unfair to USAA. It would be “boxed into” treating all the cases of class members as if they were virtually identical to Sunny’s case. They are not like that, if for no other reason than the fact that Sunny’s vehicle is a vintage one.

So, here is where the court ended up: “The judgment of the court of appeals – an intermediate court of appeals in Texas — upholding the class-certification is reversed. Letot’s claim for injunctive relief is dismissed for lack of jurisdiction. However, the case is remanded to the district court for further proceedings on Letot’s individual claim for damages.”

*********************

This is a complicated opinion on a complex case worth only a small amount of money. Much of the case has little to do directly with insurance, contracts of insurance, or insurance-type litigation. Nevertheless, it is a good “study case” for the fundamentals of “class action” law. (The opinion itself, formatted in a standard way, was 21 pp in length – longer than the usual Texas Supreme Court decision in an insurance case.)

However, it is instructive as to the law of “total loss” in auto insurance, and it is also a potential source of insurance adjustment practices in general and problems therewith. In my experience, lawyers seeking recovery from insurers seek discovery as to patterns of claim denials and evaluations as to values, which can, maybe, be gleaned from the insurer’s claims files in some manner. (The district court ordered something like that kind of disclosure in this actually unique case.) However, insurers frequently refuse to provide such information or supporting documents, even when the case is not really unique – sometimes not even close to it. They claim that each case is unique, so the party seeking the discovery is not entitled to such information. It’s not relevant to the dispute being contested, the company says. Now, some of the material discussed in this case might help a lawyer for a party suing an insurer get past the “This case really is unique[.]” argument given by the insurer. Then again, it might help the insurer sometimes in the context of discovery. Either way, there are facts and arguments to be found in “Sunny’s Case,” that are helpful to keep in mind.

An immense number of hours was put into litigating this case. Absent an award of punitive or exemplary damages – and they are the same – the plaintiff’s case was a waste of money. Of course, Sunny had a right to bring it, as did her lawyer, assuming she was accurately and realistically informed about what might happen in and as a result of the litigation. Naturally, she would have to be warned as to the expenditures that would be required, for example, to store the car over several years. There is no evidence in the court’s opinions that such information and/or estimates were provided to Sunny. I am not observing what may have happened. I am simply mentioning what some lawyers might believe.

Someone might wonder if the case might have been brought as a class action as a strategy for increasing possible settlement value.

TEXAS SUPREME COURT

INSURANCE APPRAISAL A SEMI-LEGAL PROCEEDING:

POLICYHOLDER RECOVERY OF ATTORNEY FEES CONTROLLED BY STATUTE

Rodriguez [HO] v. Safeco Insurance of Indiana [ “Ir”] (Tex. 2024)

For quite a long time, as long as 150 years, or so, in America, there have been clauses in property insurance policies permitting insurers to demand an appraisal process, as opposed to a lawsuit process, at least to determine the monetary value of the insured’s losses. Along the way, these clauses made the demand for appraisal a right of the insured and the insurer. Either contracting party For many, many years, the presence of symmetrical appraisal-demand clauses in the contracts of insurance has been standard practice in property insurance policies, especially as to the property (“first-party” homeowner’s (HO) policies) has been standard practice.

Coverage appraisal processes varied in accordance with the terms of the applicable insurance policy, but one arrangement was to use selected experts to determine the monetary value of physical objects, and their work was strictly restricted to that. The appraisers were not authorized to determine coverage or legal questions. Over many years, this restriction began to relax for a simple practical reason, namely, to be able to use the appraisal process to completely determine the controversy. Other restrictions also weakened, so that most such insurance loss appraisals were self-sufficient for resolving selected insurance claims controversies, if demanded.

Over many years, this process became embodied in statutes. In Texas, the most relevant statute is Insurance Code section 542 of the Insurance Code . The case under discussion here is about one often important component of one such demanded insurance appraisal, namely, whether and when attorneys representing the insurance are entitled to attorney fees from Ir.

In this case (hereinafter, Rodriguez (HO), abbreviating Home Owner), the Texas Supreme Court was responding to a question regarding Texas insurance law put to it by the Fifth Circuit Court of Appeals, the federal appellate court with jurisdiction over the federal district court where the question was first considered. See 74 F.5th 352 (October 3, 2022).

The case first arose when Rodriguez’s insured dwelling sustained damages resulting from a tornado on May 25, 2019. He filed a claim with his property insurance carrier, and it was processed. A satisfactory result was not obtained. HO filed a lawsuit. There was a court-ordered mediation. No settlement was reached.

Ir, Safeco, demanded an appraisal based on section 542 of the Texas Insurance Code and the language of the insurance policy. Once this was done, the controversy over HO’s compensable losses-and-damages was “moved” by law from the court to the statutorily structured appraisal process.

The appraisal proceeded and nearly concluded. The amount of the claim was determined and paid. Usually, that is the end of an appraisal process, unless one of the parties wants and seeks a court-entered order. This is often done. It is usually not an adversarial proceeding. There can be “leftovers,” however, not considered in the appraisal process, and that may involve litigation. Sometimes, allegations of insurer bad faith can be a “left-over,” and in this case the leftover issue was whether the insurer might be required to pay HO’s attorney fees.

Roughly speaking, in breach of contract case, controlled by Texas law, the breaching party may be liable for all or part of the legal fees charged to the contracting party, if the breach is material and causative of injury to the other contracting party. Of course, this rule applies to some insurance contracts, e.g., relevant parts of HO policies. (My abstract illustrative example is just that and no more.)

In this case, there was such a remaining issue, and it concerned Rodriguez’s right to have his attorney fees paid by Safeco. The federal district court had decided on that issue, so there was an appeal to the federal court of appeals. The district court and the appellate court noticed that there were several reported cases on this topic that were in conflict. Some said “Yes, attorney fees can be charged in this kind of case, but other courts took the opposite point of view. The appellate panel, therefore, referred a question to the Texas Supreme Court, its answer to which would provide an authoritative and precedential answer as to relevant Texas law.

The Texas Supreme Court has discretionary jurisdiction under Texas law to answer properly certified questions from the Fifth Circuit Court of Appeals, and other similar courts if it wishes to do so, though it has no duty to answer any certified question submitted to it. (Many states have laws of appellate procedure at least Texas Insurance Code.

In the “underlying” case that led up to this decision, an insured HO sustained a compensable loss when a tornado damaged his dwelling. HO filed a claim. The insurer, Safeco Insurance of Indiana (“Safeco” or “Ir”) paid $27,449.88, a relatively small sum, given the damages; HO accepted the payment as part of the sum which he alleged he had demanded. His attorney sought an additional $29,500.00, which sum included attorney fees. Ir refused to pay further, so HO sued Ir on June 18, 2020, in Texas state court on several theories, including breach of contract, i.e., of the insurance policy and statutory bad faith. His causes of action included attorney fees.

Ir removed the case to the federal district court, based on diversity of citizenship. The dispute could not be resolved by mediation, so Safeco demanded resolution by an “insurance appraisal.” As already indicated, Texas law contains such a quasi-mandatory procedure, as do many other states.

In the end, there was no disagreement as to coverage limits and as to whether Id. had paid policy limits. It had. Indeed, the parties agreed that Ir’s had paid an additional $9,458.40 to cover additional possible interest. So, the only issue left was HO’s right to have Ir pay his lawyer’s entitlement to attorney fees, and if so, how much. Or, to put the matter slightly differently, did Ir have a duty to pay HO’s legal fees?

Underlying all this is whether the insurer’s paying all of the amount determined by the appraisers ends the matter or whether there is still HO’s entitlement to attorney’s fees. Sometimes, issues regarding the insured’s legal fees arise after the appraisal process is concluded. Those cases are not the same as this one.

This matter – the award of attorney fees and the permitted amount is controlled by the language of the Texas Insurance Code, 542A.007. It is not as simple as reading a “Jack and Jill” children’s book, but it is genuinely difficult only for those who did not complete 4th-grade arithmetic class or who have never realized that a problem in arithmetic may involve two or more steps – such as the one here one being division and the other involving multiplication.

As applied here, and in most other cases, the relevant section of the statute specifies that the amount of attorneys that may be awarded to a claimant in a case governed by that statute – shall be the lesser of three choices as found in 542A(a)(1), (2) and (3), and now we come to the only complicated part. The amount that may be awarded is determined by 542A.007(a)(1), the usual way awarding amounts of attorney fees in litigation, where they can be awarded are determined in trials.

The proper amount 542.007 is determined by two arithmetical challenges, if they constitute the lesser amount the number found in the judgment after the work done, then decided by the finder of fact but divided by one number, 542.007(a)(3)(A), resulting from a division and then that number is multiplied by another. 542.007(a)(3)(B).

The parties disputed the calculation. Ir argued that having paid the appraised amount in formal appraisal and an additional sum to cover interest, discharged it from having to pay attorney’s fees. HO argued the contrary. He argued that an amount owed by an insurer is not limited by its payment of policy limits and an additional payment. Such a payment may not refute an insured’s right to attorney fees, since that amount is determined by an insured’s breach of contract, so payment of policy limits under the contract of insurance does not defeat an obligation of payment to an insured for the insurer’s breach of contract. HO’s position, in effect, was that Ir had breached the contract by failing to pay at least twice before it finally did pay.

Thus, the insured argued that there must be an amount of attorney fees to which the insured might be entitled for such a breach. That is often the case, both in ordinary breach-of-contract cases and in breach-of-insurance contract cases. However, if the amount or the possible award of attorney fees is controlled by a statute and if the statute is such that the amount of attorney fees that can be awarded is zero, then there is nothing to argue about. And that is what happened in this. The important thing to remember is that awards of attorney the insurer may be obligated to pay are limited by the statute.

Now, let’s look at the “fraction” that is prescribed/required by sub-subsection (3) of the statute’s subsection. It limits awards of attorney fees awardable as the result of a calculation. That computation must begin with answering a question that is not mathematical, namely, whether and/or to what extent the insured sustained losses or sustained damages (losses) covered property.

That answer to that question is usually answered in insurance appraisals by the decisions of the “appraisal panel” – two appraisers (two out of two) usually, and sometimes including the umpire (two out of three).

Quite often, this answer will bring the matter to a close. Once the appraisers have concluded their work, unless there is property damaged by the event bringing about the claim, once the appraisers have concluded results as to all covered damaged or lost damaged property, the appraisal is over, as is the case, except for obtaining a judgment from a court, if the appraisal process requires that.

Now, suppose the insured has paid the entire amount in controversy, that is, all the lost or damaged property at issue, and so no property value has been erroneously excluded from consideration or, at least, that has been left out of the prescribed calculation. (Of course, errors in computing the worth of the property in controversy are to be ignored, though corruption is not.*) In this case, HO is not arguing that there were errors in the appraisal process. (I will return to this point presently.)

So now we turn to arithmetic. It is to use visual fractions. Step #1 is to divide the amount to be awarded in the judgment for the claimant’s claim under the policy by the amount alleged to be owed on the claim.

Remember: HO did not contest the proposition that the appraisal process had entirely treated his claim and that the insurer had paid that amount, at least. In my opinion, there was nothing left to “argue about.” (There might have been if HO alleged an error in the appraisal process.

But let’s use the court’s methodology. It said divide the amount to be awarded by the court in its judgment by the amount alleged by HO to be unpaid in the appraisal – in other words, the amount the insurer still owes HO at the end of the appraisal process. Of course, this is a model for guidance only, but it’s good enough.

Of course, this number resulting from the division will be zero ($0), and for discussion here, forget about the $-sign. The insurer so far will owe nothing, so the insured will not be entitled to any recovery. The situation is very much like the situation in which the final judgment of a court says, “The plaintiff takes nothing.” Consequently, there can be no award of attorney fees.

At this point, there is a bit of wit built into the problem. The numerator in the visual fraction is to be multiplied by the amount HO is said to be unpaid in the appraisal. Of course, that number is zero ) ($0), as well. So what we have is zero being divided by zero (0/0). It is not hard to guess what the result is going to be.

At this point, there is a bit of wit built into the problem. The result in the visual fraction is to be multiplied by the amount HO is said to be unpaid in the appraisal. That number is zero ($0), as well. So what we have is zero being divided by zero (0/0). It is not hard to guess what the result is going to be.

The court seems to have taken the idea that “Plaintiff takes nothing” too seriously because the remainder of the court’s solution to its arithmetic problem is as if the statutorily prescribed division and multiplication simply uses the idea of “nothingness.” From the point of view of mathematics, this idea is nonsense, quite literally. (Of course, when we talk about a plaintiff taking nothing, we don’t usually say, “The plaintiff takes $0.” But that is exactly what is happening.

What the court seems to have forgotten is that arithmetic works by means of (or “in”) numbers. The same is true for most parts of mathematics, though not all. The controlling statute is arithmetic in nature; this means that it is, by its very essence, numeral in nature and, therefore, to be understood and applied by using numbers, and not utilizing ordinary judicial (or legalistic) English language usage. It must be done “by the numbers” in at least two senses.

(At one point it is describing step one, the division step, the court uses fractional language and simply says there is no numerator. That’s nonsense, of course.Footnote 5 in the court’s opinion illustrates the court’s unnecessary – impossible – mathematical nervousness.)

So here’s how the actual process works. The visual fraction for Step One consists of a numerator and a denominator. The numerator is zero; the denominator is zero, so the arithmetic result is zero. Now, let’s go on to the multiplication. It’s zero times zero, and that, of course, is zero. (The court does say quite this.

But, “QUED,” as the saying goes.

It seems to me that the court’s exposition of this case is mostly well done. It seems concerned some lawyers might try and wiggle out of precedential importance by bringing up a different kind of appraisal case where the process, including the arithmetic, might be quite different. Consider one in which there is a continuing controversy as to what is or may be included in the appraisal process. Or consider one in which there are two different insurance policies involved in the claim but, say, inadvertently not included in the appraisal process.

In conclusion, it is worth recognizing that this case arises out of a situation in which there are several cases that have said one thing and a smaller number of cases that have said the opposite. There is a much simpler way to deal with this matter than was deployed here. There is Texas precedent governing this case and any that fit into its pattern, that is Ortiz v State Farm Lloyds, 589 SW3d 127 (Tex. 2019) “holding that an insurer’s payment of the appraisal award discharges its obligations under the policy.” There was no breach of contract in that case, nor was there one in this case, given the way the statute is formulated. If there were a case other than Ortiz like this case, there would have to be a different pattern of facts, or it would be controlled by something other than section 542A of the Texas Insurance Code.

Such a different statute is quite possible. Suppose HO’s right to attorney fees to pay his lawyer if the lawyer has had to put in a lot of work on behalf of his client, e.g. because the insurer was obstructionist or not so bright and through a lot of work the lawyer persuaded the insurer to pay a larger sum than it originally offered.

This last observation is purely imaginative though sensible. The controlling Texas statute looks nothing like this imagined one, however, and statutes are interpreted as written, so the saying goes.

Expert Witness–Testing for Legal Sufficiency

EXPERT WITNESSES & JUDICIAL EPISTEMOLOGY

The Texas Supreme Court recently wrote a case which surely contains the most important discussion of thinking about expert witnesses it–or any other court anywhere, for that matter–has set forth for many years. Houston Unlimited, Inc. Metal Processing, [Defendant-Petitioner] v. Mel Acres Ranch [Plaintiff -Respondent], 57 Tex. Sup. Ct. J. 1223m 2014 WL 4116810 (August 22, 2014.)* It is not only a discourse on juridical epistemology; it is also a how-to manual for both judges and advocating lawyers. I will discuss details in another post (or other blogs). For now, here, I shall quote one of its most important observations:

“Experts who testify on behalf of parties to a lawsuit are subject to biases and potential abuses that are not always present outside the courtroom, and the courtroom itself may afford a veneer of credibility not present in other contexts. Legal sufficiency review requires courts to ensure that a jury that relies on an expert’s opinion has heard factual evidence that demonstrates that the opinion is not conclusory on its face.”Houston Unlimited, Inc. Metal Processing, [Defendant-Petitioner] v. Mel Acres Ranch

*This opinion can be found on the Court’s website. It is easily locatable.

**As shall be shown elsewhere, the wording is a bit misleading and could have been done more accurately from a semantic point of view.

BitTorrent

I am basically a tolerant, liberty-oriented, and liberal-minded person. I was delighted to see female priests in the Episcopal church; gay clergy is fine with me; and I have no objection to a Lesbian archbishop. I even now, under the improbably influence of Brent Cooper, a lawyer in Dallas (who-da thunk it), welcome the prospect of trying a case in front of a jury of “Millennials”–all including purple haired maidens, women with multiple tattoos in vivid color, and men wearing baseball caps on backward.

In addition, in opposition to all the Yellow Dogs I know–and that’s a lot–I think that most insurance companies, most of the time, are reasonable entities trying to reach a reasonable result that is more or less consistent with the applicable contract of insurance. Similarly, I think that most lawyers–more than 65%–try to obtain a semblance of justice, even in contested matters, even if many of them are far, far, less than perfect or even marvelously good, relatively speaking, in their non-lawyering lives.

It is therefore a personal deficiency of mine–granted one I nonetheless love, honor, and obey–to not just delight but take considerable joy in observing a truly wicked lawyer–an evil one!–washed over by a tide of condemnation. Hearing about a come a uppence is not nearly so pleasurable as “watching”–if only in the imagination–not only a fall from a high place but also a long, trudging trip on bare feet in the cold, cold rain on gravel roads on the way to the farthest away dumpy house of misery producing, sustaining, and worsening incarceration.

I have gone to confession on this point in which I take pride many times during and since my youth, yet (I do not really try to repent.) Following vengeance upon the profoundly and deserving unworthy is one of life’s pleasures, like warm cornbread, especially when you have no role in executing it. (In the current age of massive statin consumption, be careful not to eat too much of it.) Oddly enough, I would defend these wretches in court if s/he have the money* or were a close and beloved relative, like my brothers, my wife, and my children, even if broke. I’m sure my father would have done it for one or all of us. Even the worse get a defense in the civilized secular world; besides, we have not burned witches in several centuries.

(*The liberality and tolerance I have proclaimed for myself gives out here. I cannot see how the idea of pro bono applies since that phrase means “for the good,” and I see no good in this defense.)

Now I finally get to the point.

There is a syndicate of lawyers who are way down there, not far from the lowest of the low. Part of this is that they inflict suffering on large groups, and will go further if they can. What they do is to acquire copyrights “governing” poor pornography. They then utilize it to blackmail weak citizens who have downloaded some of their junk. They do this by finding out who these poor devils are by cyber investigations and then extort money from them, by use of our sacred courts, in exchange for silence. Usually these victimized ninnies pay what sounds like relative sums, $4500 plus-or-minus, to get out from under.

There have been at least dozens of these lawsuits around the country using boilerplate Complaints and then settling quickly. At last various people have represented the populace and triggered genuine court action.

When the courts realized what was going on, they reacted vigorously to some extent with money sanctions and orders requiring what is in effect restitution. In addition they have required recuperates to report to the courts all other courts where they have been trying to ruin the system and a sizable number of people. (How does one explain to his wife where the $4500 went when its disappearances cancels the to NYC to see, hear, and sit in the stands for this and then that?)

Thank you Lord, the knights of justice are on the move. In addition to the foregoing the judges are going to the relevant ethics committees of state bars, to U.S.Attorneys, to state attorney general, and to the FBI. Maybe they should also be going to the right groups that are influential so the “antiquated” provisions of the law of copyright can be discarded.

One of the leading cases is Ingenuity 13 LLC v. John Doe, 2013 WL 1898633 (C.D. Cal., May 6, 2013), Otis Wright, J., and its follower is AF Holdings, LLC v. John Does, 12-1445-9 (JNE/FLN)(D. Minn. Nov. 6, 2013), Franklin Noel, M.J. Judge’s Wright’s opinion contains marvelous charts, maps, and photographs of the “Punks of the Prenda,”–Prenda being the odious law firm of–the central filthy pigs–being led to the slaughters of disgrace, disbarment and imprisonment. The Minnesota case is far more brief and lacks the visuals. However, it dealt with five–REPEAT 5!–of these satanically sinful cases. My first hope regarding the Pythons of Prenda is that they not even have enough money to hire capable defense counsel, not even Harvard’s best.

On the Rhetoric of the Ridiculous

Overdoing rhetoric in briefs, motions, pleadings, etc., is poor, tasteless, and below-grade “C” lawyering. There has recently been direct and unequivocal explicit support for this obviously true proposition. Perhaps the pronouncement of the 6th Circuit will encourage those who do not realize that stridency of semantics, as opposed to restrained assertion and calm clear argument, is almost never a good idea. Let the ideas produce the desired effect; if they don’t do the job, try a different approach if possible.

Never resort to the crude bluster, cliche-ridden, the always overdone language of the pool-hall loudmouth. Grade C lawyers at this point might say that such a position is absurd. Such lawyers still would not have learned the lesson.—MSQ

An illustration of this point is to be found in a recent insurance case. Barbara Bennett et al v. State Farm Mutual Automobile Insurance Company, No. 13-3047, 2013 WL 5312398 (6th Cir. September 24, 2013)

In this case, Ms. Bennett was struck by an automobile as she was walking her dog. As a result of this accident she ended up in the car–not next to on the roadway, not standing next to the car, and not under the car.

She argued that she “occupied” the car under the State Farm policy. The District Judge held that State Farm’s defense was correct: she did not “occupy” the auto, since she was not in it. State Farm called Bennett’s position “ridiculous” and did it on the first page of their brief.

The court criticized this linguistic behavior for four reasons: first, where the language was in the brief, second because it was worded as it was; third because State Farm’s argument was fairly obviously invalid; and fourth because State Farm was wrong.

With regards to points #1 and #2 the court, quoting another opinion from which it wrote its opinion: “There are good reasons not to call an opponent’s argument ‘ridiculous,’ which is what State Farm calls Barbara Bennett’s principal argument here. The reasons include “civility; the near-certainty that overstatement will only push the reader away (especially when, as here, the hyperbole begins on page one of the brief, and that even when the record supports an extreme modified, ‘the better practice is usually to say out the facts and let the court reach its own conclusion.’ Big Dipper Entm’t, L.L.C. v. City of Warren, 641 F.3d 715, 719 (6th Cir. 2011).” Trying to, in some sense, compel opinions by the use of “battle-station” rhetoric is ill-advise.*

With regard to the third point, the court criticized State Farm’s argument. It argued that coverage analyses proceeded on the basis of how whole types of policies are interpreted: auto policies for example, and the “occupy” language of those types of policies. The court informed State Farm that contracts of insurance are to be interpreted one at a time and not as whole classes. That a court has decided a similar-looking policy in the way the insurer wants it interpreted does not bind a court, even itself. Nor is the “type of” versus “this language for this situation” valid reasoning.

State Farm also tried to argue that only someone who has an “intrinsic relationship” with a car can be said to “occupy” it, and hence the court ought to be examining whether Ms. Bennett has such a relationship with the car that struck her. Instead, the court observed, there was an authority in Ohio, where this suit was brought, that the intrinsic relationship test was one of several that can be applied “‘where a gray area exists concerning whether a person was an occupant of a vehicle and thus entitled to coverage. In this case, however, the policy marks out its zone of coverage in primary colors. The policy terms therefore control.”

On this ground, the court reversed the district court and entered judgment in favor of Bennett. And it did this without remanding.

One can wonder about the decision. Oddly enough the court does not include a quote from the policy. That is unusual but not really interesting as to the court’s reasoning. More interesting is the fact that the court does not give a specific argument–perhaps based on a hypothetical–supporting the proposition that being in a car entails the proposition that one is occupying the car.

It also clearly, though impliedly, rejects the idea that the term “on” in this situation is ambiguous. It seems to me that one can be on a car, e.g., on top of a car, without actually occupying the car. The man that washes, waxes, and cleans out my car every Saturday, does not occupy my car all the way through its work. He stands next to the car while is washing it; he climbs up on it to wax the top and gets in it to clean out the interior in various ways. It is plausible to say that only for the third part of the operation does he occupy the car.

Although the following example–nor anything like it–should ever be found in a brief (or anything like it), except as taken from a transcript of testimony. One can easily imagine a couple denying that they occupied the car while having sex on the front hood of the car (or even the roof), but “admitting” that they occupied the car when they did so in, for example, the back seat.

Perhaps–just perhaps–the court is impliedly suggesting that Bennett was occupying the car because she did have an intrinsic relationship with it. After all, she suffered further injuries as a result of being placed in the car–injuries that she would not have received had she not been knocked up onto the car. I suppose one could argue that if one has been put onto something it occupies it. One can easily have subscribed to this argument if the word is “into,” not “onto.”

One might oneself not be convinced by the court’s reasoning. Consider the dog belonging to the 2012 candidate the Republican Party recently ran for president. It did not occupy the family car when he was attached to the roof of the car as they all drove to Canada for a vacation. The disclosure of this fact caused a furor. Obviously, part of the general population agreed: the dog did not occupy the car. In some respects, although certainly not in other very important respects, Bennett and the dog share properties.

*I tried “battle” rhetoric first long ago in the presentation of an argument to the 8th Circuit. It was a covenant not to compete for the case with federal jurisdiction on grounds of diversity. I had tried the case and lost. Anyway, I opened by informing the court that “This case is one of national significance.” The head of one of the judges almost jerked up, and he immediately and a bit disdainfully asked, “How? Why?” My answer had to do with the lack of case authority on how to interpret a “Uniform” act that had been passed in the relevant state. I actually thought that a specialized uniform act, used in various ways around the country but enacted only here and there, made the matter then at hand one of national significance. My clients loved it, but. . . .

I suppose I must confess that my address there was not the last time I did that, though all the (few others, I hope and believe) were somehow triggered by a mysterious outside source, and therefore have been instances of unintended rhetorical idiocy so that I am not really responsible.

“Madam. Are you certain today?” [Sketch I]

There is a species of questions with respect to which witnesses (including expert witnesses) must be extra-careful. The category questions certainty. Often the question takes a simple and explicit form. The witness has said something clearly and straightforwardly, whereupon deposing counsel says to the witness:

Q. Are you certain of that?

Many answers are susceptible to this question. It’s one of those questions where examining counsel does not really care what answer is given. Look at two alternatives:

A#1: Yes. I’m certain of that.

This answer will make the witness look arrogant, and it will subject her to impeachment later on at trial. The impeachment will be presenting a whole group of situations that make the witness have to admit that she is not certain.

It was dark, wasn’t it, true?

You said the man you saw was about 5’6″, how tall is the woman sitting at the next table?

You didn’t have on your sunglasses, did you, even though it was noon in Austin on August 17th, true?

[And so on and on and on.]

Now look at A#2:

A#2. No, I am not certain.

Of course, then on direct examination at trial, or in settlement arguments, where the witness may not even be present, the side of the examining counsel will attack the witness for not really having trustworthy testimony.

How/z about this:

A#3. Yes, though not quite completely certain. No one could be.

Much better. Maybe best. What is examining counsel going to ask next? All the choices I can think of sound intrusive, too perfective, even absurd.

Quinn on Answering Another really good way to deal with this problem is to challenge the question. There are a number of ways to do this. I will call them QWs after “Questions by Witness.” Try QW#1: What do you mean by “certain”? Capable counsel might ask this question in response: Q#2 What do you mean by “certain”? Ways to deal with this second question is to say: A. The term “certain” can be used in a variety of different ways. And the discussion will go on for a while. The witness can look like she’s avoiding giving a reasonable answer. So consider trying these.

A#(i). I think so.A#(ii). It depends on what one means by “certain.”A#(iii). Well, it’s an empirical matter, not like mathematics, so no reasonable person can be absolutely certain. Given that caveat/limitation/caution, yes, I’m certain.A#(iv). Certainty is a psychological state. It has nothing to do with justified true belief. I have the latter three.

Personally, I like A#(iii). The witness looks reasonable and it is very difficult to challenge the idea that no one can be absolutely certain about purely empirical matters.

I like A#(iv) too but it’s complicated. Still, probably most people will agree with it.

I have heard “idiot” lawyers try this one:

Q. Are you certain?A. Yes. Q. Are you absolutely certain?

The lawyer has dug a deep hole for himself.

A. There is no such thing.A. Only a dogmatist fool would ever say something like that about this kind of matter.A. I don’t understand the difference between “certainty” and “absolute certainty,” althoughI’m certain you must think there is.

Quinn’s First Comment: This lawyer should get an award from “the local” of “Questionable Dumb Bell.”

A questioning lawyer may object on the grounds that the answer is not responsive, and try to get another answer. Protecting lawyers should argue against this. Here’s one way: “Yes it is. Move on.”Here’s another way. “Please explain your objection. Why isn’t what she said responsive?” Protecting counsel might consider trying “another” way first and then go to the first way second.

Quinn’s Second Comment: A witness should be prepared for this kind of question.

Quinn’s Third Comment: Try this. Without saying anything as a preference: “I am certain, though not completely certain.”

Quinn’s Fourth Comment: Try using responsive questions:

Q. What do you mean by ‘certain’?

This may generate a responsive question:

Q. What do you think the ‘word’ means?

A. There are so many meanings, Tell me what you are thinking.

And so forth.

Quinn’s Fifth Comment: Try to shift the discussion to the meaning of “sure.”

Q. Well, OK, you are not certain about X because you view if the world is that one can not really be certain about anything. Of course, lots of people would disagree with that. You know that don’t you?

A. I think so. And lots of people say that sort of thing.

Q. You not willing to say that you know that people disagree with you>

A. Knowledge and certainty are not the same things.

Q. OK. Let’s try it this way. Are you sure about what you have said?

Elaboration on Quinn’s Comment: Above all, the witness should say something like this, “I’m not sure what the difference is between being sure and being certain. I’m not sure how to talk about this, and I’m not certain how your question works. Please give your definitions.”

The Insurance Appraisal Process–Part I

Insurance Adjustment and Appraisals

Part I There are two types of appraisals. Those performed by one person, e.g., that of artworks, the value of the real estate, etc. The others are performed by perfectly stable committees as to size, e.g., those consisting of X number of persons all through the process, and usually there is an odd number. Then there are less than stable committees as to size; those expand if the first member cannot reach a decision. Insurance appraisals are of the last type. They start with two members and then expand to three members of the two original members who cannot reach a solution or do not do so over a reasonable period of time.

One purpose of the appraisal is to reach a solution as to the size of the insured’s damages and the amount the insurance company shall pay. It is designed and intended to shorten the length of time arguing over disputed amounts both with respect to probability and its amounts. At least, in theory, the language of the clause explicitly states that the amount of recovery is THE issue. Courts and litigant-participants don’t always either realize. Or maybe they know it, but just ignore it. This is a fact I shall ignore in this set of posts.

In order to discuss appraisal in a meaningful way, it is necessary to have the contractual provision clearly in mind. It is a standard provision included in (at least virtually) all first-party property insurance policies unless deleted. It is currently found in the ISO “form” property policies, and it has been there for several generations, whether residential or commercial.

Appraisal clauses are to be found in insurance contracts all over the world and are not restricted to first-party property insurance. It generally applies to first-party insurance of all types, including for intangible “objects” and/or “processes.” They are found in the “Conditions” section of the ISO policies.

The ISO language, entitled “Appraisal [,]” is as follows:

If we and you disagree on . . . the amount of the loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:

Pay its chosen appraiser; andBear the other expenses of the appraisal and umpire equally.If there is an appraisal, we will still retain our right to deny the claim.

Appraisal clauses are enforceable by legal process under a variety of circumstances, usually when an umpire (“Ump”) has decided the issue. It is extremely difficult to avoid the enforcement of an appraisal by judicial process; it very rarely ever happens, although it should happen more often when a principle of sound adjustment appraisal has been violated by one or more of those doing the appraising. Almost always these violations are connected with Umps. (I will return to this topic.) Appraisal clauses are enforceable under a great many circumstances, and the finality that often goes with them is quite often enforced. Dividing up the clause and thinking about it step-by-step might be a good idea. The propositions shall be entitled “P,” and numbered, e.g., “P#76”, to create a fictional number for illustration. Some of the following are explicit requirements found right on the surface. Others are just under the explicit wording:

P#1. There must be a written demand for an appraisal of the loss.P#2. There must be evaluations of the amount of the loss by each of the appraisers.P#3. There is no reason why the appraisers may not try to reach an agreement on their own. The probability of reaching an agreement is increased by there being separate thinking and cooperative mutual discussions and dedication. An appraisal is not intended to be adversarial advocacy. P#4. Each appraiser nominated by either side must be competent.P#5. Each appraiser nominated by either side must be impartial.P#6. Together with the appraisers “will select” and appoint [or attempt to appoint] an umpire.P#7. If they cannot do so, either party may request that an umpire be appointed by a judge of a court of jurisdiction.P#8. Each of the appraisers shall, separately, state [presumably in writing] both the value of the property and [the] amount of loss.P#9. If their statements are not in agreement [or if they fail to agree otherwise], they will submit their differences to the umpire.P#10. If two of the three agree then that agreement is the result and it is binding. I now turn to an analysis of the propositions and express opinions. [For obvious reasons, the ump will be one of the two.] The propositions, unamended and unsupplemented, are to be found in virtually all property policies. Of course, they can be changed by agreement, and they can even be eliminated, but both of these are very rare, and they never happen at all in smaller policies. There are some variations, and one will be discussed later.

Part II will be mostly concerned with analyses of the forgoing “Big Ten.”

Cyber-Insurance & “Established Insurance” Compared–PART #2

All insurance involves the transfer of risk(s). One party (or one group of parties) obtains value protection from losing–in some matter–something valuable. This loss can come about in a variety of ways: a ring is stolen, a key is permanently “misplaced,” a whole set goes now the sewer, a building burns down, a person sustains a bodily injury from a doctor who operated on the wrong wrist, a medical bill that has to be paid, a debtor hasn’t paid a bill, and so forth. Not all protections from risks are insurance; the use of a security interest, for example, in the loan transaction, illustrates this point. Not everyone who has some sort of transactional assurance of little to no loss has insurance. Interestingly in England, some of what are uniformly called “insurance policies” in America are sometimes called “assurance policies,” and what is called “insurance companies” in the United States can be called “assurance companies” or “assurance syndicates” in the U.K. Some might say that surety agreements are not insurance, but that would be a mistake.

The same will be true of cyber-insurance: if a bank makes a mistake; customers’ identities are stolen; the customers sustain actual damages then the bank may be liable and be obligated damages. Some cyber insurance policies may cover the loss. The bank’s customers may be insureds, or the bank may be the insured. If only the bank is the only insured, the policy is probably a liability policy or contains a relevant part. (Sometimes policies are “packages,” and so contain several different kinds of insurance.)

Many liability policies are “occurrence” policies, while others are “claims made” policies. Each one of these cyber-liabilities will have an enormous effect on what is covered and what is not.

Many policies include a duty incumbent on the insurer to defend the insured in case the insured is a defendant in litigation. Today, the cost of defense eats up the amount of coverage reduces the monetary size of the policy; and sometimes it does not.

It would be surprising if most cyber-liability insurance policies were not “claims made” type policies, and it is very likely that the policies will be designed so that defense costs eat up and thereby reduce the amount of insurance available to pay the actual loss inflicted on the person claiming a compensable loss.

(A key part of the insurance vocabulary for this distinction is “duty to defend” and “duty to indemnify. The second of the two duties isn’t exactly what it says it is, but the use of the phrase “duty to indemnity” is more than100 years old. It was right then but not now.)

A number of tort cases have been brought against different kinds of parties for permitting identity theft. At least usually, these cases are lost because the plaintiffs, those whose identity was stolen, have not sustained actual material losses Mental anguish without some “genuine injury” (usually physical but sometimes economic only) is not counted as actionable losses. See Stephen J. Rancourt, Hacking, Theft, and Corporate Negligence: Making the Case for Mandatory Encryption of Personal Information, 18 Tex. Wesleyan Law Rev. 183, Section II (2011) (helpful list of identity theft cases lost with none won). See Hammond v. The Bank of New York Mellon Corp., 210 WL 2643307 (S.D. N.Y. 2010). (containing a long list of influential cases where theft of identity cases dismissed since not actual damages).

Most insurance depends upon and requires fortuity. Most events, the occurrence are not fortuitous, from the point of view of the insured, are not insurable. Arson is not insurable if the policyholder starts a fire in his own building. If I throw my keys down into the sewer, the values of the keys are not insurable. If A deliberately burns down the building of B, A’s third-party liability carrier may not cover B’s loss, but B’s first-party insurance may. It might very well, however, pay A’s defense costs.

These points illustrate the difference between most third-party insurance, on the one hand, and first-party insurance on the other. A’s liability insurance is third-party insurance, whereas B’s insurance on his stuff, his cash under the bed, or health coverage on himself is first-party insurance.

Not all insurance requires fortuity. This coverage is very narrow, indeed tiny. Life insurance usually covers some types of suicide. The type in question is suicide which occurs sometime after the commencement of the policy. That period is usually two years. I cannot think of an analogy in cyber insurance[cm_simple_footnote id=”1″]. Of course, life insurance itself will be involved in cyber-insurance arrangements, but it will probably be the same there and then as it is here and now.

Most liability insurance is linked to torts; most cyber-liability insurance is already and/or will be like that. Some current policies are linked to breach of contract; creditors insurance is like that. Some policies that cover breaches of contract are included in “mostly-tort-based” liability policies, but not always. The opposite is also true; there are “mostly-contract-based” policies, and some of them include a few covered torts.

Also arising out of contracts, there are sometimes tort liabilities. Breaches of the duty of good faith and fair dealing found in all contracts are sometimes considered torts. If A breaches a contract with B and then breaches the contract, but by the breach physically injures B or injures C in some way or another, there may be a tort between A and C. There will probably be coverages like this, although cyber- liability insurers will exclude as much as they can of these configurations, or try to pass them off on other insurers, such as standard liability insurance available today.

Most of the torts existing now will, as is, or as adjusted, will be spread across the “cyber-field.” (I am ignoring damages caused to physical objects or the human body (a form of a physical object, since they are now covered). Here are at least some examples of tort theories that will be transposed across the “physical” or “real” world to the “cyber” or “virtual” world.

Negligence: This is the failure of an insured to do what a normal and prudent person would do under the circumstances or fail to conduct himself in accordance with the standard of care that is generally accepted given the situation (What counts as damages, what is compensable under insurance policies, and how the size of covered damages are calculated may all be different.)

Defamation Invasion of privacyInterference with contractInterference with the economic positionstrict liability (necessary adaptations replacing the requirement of there being liability only if a physical object–like a toaster–is at least part of the so-called proximate cause)nuisancefraudmisrepresentationerrors and omissions type torts (These are really a kind of negligence, at least usually. But they are specialized): lawyersaccountantsbrokers of various sortsthird party managers, administrators, and/or quasi-agents (Some insurance adjusters are like this.)designers of codes, etc.encryptions, etcfirewalls and similar devicessimilar safety measuressimplicity

intellectual-property torts: wrongful use, wrongful acquisition, wrongful imitation, etc. Imagine using computer hacking to obtain a patented plan for something, then destroying the owner’s plan, and then putting the plan to one’s own use and the list goes on for a long time.

No doubt the reader will have noticed that the concept of negligence is a complex and widespread type of concept across all of human behavior and covers an enormous range of possible damages. The reader may think of anything s/he can which causes damages to someone other than the “actor,” or some related parties, and negligence will exist in cyber-law and cyber-insurance law. Not all kinds of injuries and therefore not all kinds of damage will be. This is one place where there may be a whole variety of alterations needed and provided.

In terms of adjusting, altering, changing, and revising cyber-insurance, first-party coverage will be treated and work much the same way. It will still, almost certainly turn on the insured having a property interest–or something like it–in that which is insured.

Cyber-Insurance aka E-Commerce Insurance–Part #1

This is the first “chapter” in a string of blogs focusing on cyber insurance. This one will concern the look of “yesterday’s” policies–the ones used for a long, long time–and the look of a branch of “tomorrow’s, that is, the cyber policies. Actually, the two groups will look remarkably alike in the organization. When you think about it, “Really? How could it be otherwise?”

The next chapter will concern some aspects of substantive similarity. Other blogs will list and very briefly sketch some of the currently available policies. Somewhere along the way, there will be some definitions and some explorations or explanations of such. Most significantly, there will be chapters discussing the contents of a few actual cyber insurance policies.

There are not many meaningful, focused, or informative publications about cyber insurance. (That is the name-phrase that will be used here; it has mostly replaced the term “E-Commerce.”) Most available writings are really ads of some sort for somebody some are attorney firms publicizing themselves and conjecturing about the future, and there are some panel discussions which would probably interest almost no one really interested in the nature of the type of insurance. Another category of the prevailing literature is the pieces written at law firms. Much of this is a law firm advertising its services, though sometimes that is combined with guesswork or speculations about how cyber-insurance will develop. There are a few specimen policies issued by some of the best insurance companies, but they do not provide meaningful discussion. A book published on this topic, and it is the only one so far as I can see, is by George S. Sutcliffe entitled E-Commerce and Internet Risks, Laws, Loss Control, and Insurance (Standard Publishing Corporation, 2001). It has a helpful essay, which includes far too many diverse topics. The appendices, however, have a glossary, a summary of some policies, and some specimen policies. So far as I can tell, this is the sourcebook. No doubt, one of the reasons for the absence of a detailed study of the dimensions of cyber-insurance is that there are almost no–or even no–reported cases involving coverage disputes. (I, for example, have yet to find one such case on Westlaw; and law reviews have no informative discussions of the matter. This is not to say that there are no cyber cases–for example, cyber tort cases–that are without hints. Several large law firm members have told me that their firms each have a dozen or so cases, but they also say that none are in or close to litigation. There is also one (“Westlaw-‘reported'”) case involving identity theft in which a bank offered, among other things free identity theft insurance up to $25,000.00 to its customers as part of a remedy following an identity theft incident. Alas, the plaintiff class rejected the offer. Hammond v. Bank of N.Y. Mellon Corp., 2010 WL 2643307 (S.D.N.Y., June 25, 2010). (Of course, one can see why–if a plaintiff thought s/he might be at the door of big damages–would reject a $25k settlement.) So far as I can tell, in all court-decided cases (thus not including settlements, if any) involving identity theft, the plaintiffs have lost. For a survey and discussion of these cases, see Stephen J. Rancourt, Hacking, Theft, and Corporate Negligence: Making the Case for Mandatory Encryption of Personal Information, 18 Tex.Wesleyan Review 184, 187-199 (Winter, 2011). There is a very recent case in which the plaintiff had not yet experienced a loss, but for that reason only, could still proceed if their injuries were not entirely speculative and not off in the far distant further. This matter is called a matter of “Standing” under federal court jurisprudence. In re SONY GAMING NETWORKS AND CUSTOMER ATA SECURITY BREACH LITIGATION, _____ F.Supp. ____ (S.D.Cal. 2012)(2012 WL 4849054). Most of the case was dismissed on other grounds, but an actual already existing injury is not an iron-clad requirement for a right to proceed, at least under some circumstances. Now, before I turn to the analysis of policies and make conjectures, aka guesses, as to what their difficult sections might mean, I start with a few fundamentals for the insurance novice. These come from general insurance sources and therefore are not special when it comes to cyber insurance. At one basic level, insurance is insurance, and so are some other contracts e.g., bonds and ancient bottom try arrangements. So let’s begin. Virtually all primary insurance contracts have roughly the same form. Excess and umbrella policies do not necessarily, but they often incorporate significant, if not all, provisions found in the primary policy. Contracts of reinsurance, although they are contracts of insurance, do not follow the same formula. Here, in broad strokes, is a sketch of common sections. Often different principal sections are identified by the names I use here and by roman numerals. I. Declaration Page (or Sheet). This part includes the name(s) of the actual insurer and the name(s) of the policyholders. Often it sets forth the premium, the name of the intermediary, policy limits, etc. Sometimes they have charts or columns, and the policy includes that which is checked off. The deductible is specified or set up, as is co-insurance if any. Other named insureds may be named elsewhere. II. Insuring Agreement. This part sets forth what is insured, i.e., a particular vehicle, a particular building, physical objects, one or more banquets, particular weddings, works of art, and so forth.

These agreements are usually for liability (3rd party coverage) or for things, e.g., belonging to the insured (1st party coverage.) The agreements usually do not recite a fundamental principle of insurance and that is fortuity. This is an axiom. Deliberately caused injuries or damages are not covered; arson is not covered; physically smashing something up deliberately, e.g., a computer, fraud, and so forth. Intentional acts are covered, so long as the loss was not. There is insurance for those driving too fast, but not if they deliberately run over or smash into something. Sometimes insurance policies offer both liability and first-party insurance, often covering the physical property. Sometimes the first party insurance may cover abstract properties, and this is true in the area of cyber insurance, in addition to business loss and trade credit insurances. Bottomry was like this 3000+ years ago. III. Definitions. There is usually an indication that there are definitions to be found in the policy: quotation marks, bold lettering, italics, etc. Sometimes there are only a few definitions; sometimes, as in many cyber policies, the number is much larger than most current policies. Often, at least to the layperson, the definitions are obscure. (This is not necessarily a matter of great consequence, since definitions in engineering malpractice policies are also quite difficult for the layperson–so much so that expert witnesses often have to be used for the benefit of the jury.) IV, Exclusions, This sets forth what the insurance contract does not cover. Of course, there are exclusions quietly built into the Insurance Agreement, but this is generally not recognized. The list of exclusions can be relatively short, or it can be quite long, as it is in most cyber insurance policies, specially packaged policies. Policyholders have to prove that they meet the requirements of the relevant Insurance Agreements. Carriers have the burden of proof regarding exclusions; the burden shifts back to the insureds when there are exceptions to the exclusions. The content of many exclusions in cyber-insurance policies is likely to be substantially different since there will be few or no tangible objects or situations to exclude. (None like this: “We do not exclude the damages caused by your pets eating your bushes.”) V. Conditions. They have usually conditioned precedents and there are a few conditions subsequent. Among the best known of conditions are the insured’s duty to cooperate in the adjustment process and their duty of remediating losses, that is, using reasonable efforts to keep those losses from getting worse (e.g., things like storm-damaged buildings) from getting any worse. Some requirements, which are listed in the “Conditions” section, are no conditions at all but covenants, i.e., promises. Timely notice of covered events is often not really a condition but a covenant, i.e., promise. The requirement of cooperation may be like that. Remediation is perhaps not a condition or a promise irrespective of what the policy says, and so forth. It is not completely determined what contractual requirements are actually conditions and which are not. Nevertheless, some other common obligations usually classified as conditions are these: subrogation rights, some features of contract termination, some features of cancellation, assignment, the status of other insurance, and more. Arguments about what is a condition precedent (or subsequent) versus what is a “mere” promise, are not uncommon, and the truth is not determined by the name of the section. Just because something is found in a section entitled “Condition” does not mean that it is a condition. VII. Endorsements. There can be all sorts of endorsements: adding insuring agreements, cutting them, deleting or adding exclusions, adding or subtracting named insureds from the list, adding insured objects, things, or whatever, and much more. For standard policies, there are closets full of standardized endorsements. In large innovative industries, there will be negotiated policies, but not for long. Purely negotiated policies make profitable underwriting nearly impossible. VIII. Miscellaneous. A whole variety of things can fit here. This simple list gives one a beginning idea, at least, as to how insurance policies are divided up. The ordered list of entries is not intended to name the order of parts of the policy. Often, for example, the definitions section comes between the Insuring Agreement Section and the Exclusions Section. It also needs to be remembered that some policies are “package” policies, meaning that they provide several different types of insurance all at once, in the same contract. First and Third Party insurance often appear like this, e.g., in auto insurance, in homeowners insurance, and indifferent large policies. Usually, the differences are easy to recognize. There is no reason to think that cyber-insurance policies (that is, contracts) will be much different in form. Rough versions of similar forms run back hundreds of years.

The Prudent Expert Witness: Agreements and Performances, #1

I do some expert witness work, so this blog entry contains some experience-based remarks about retainer agreements and some aspects of expert witness performance.

I have not used formal retainer agreements much. Usually, they have been in the “back of the envelope” form, or they have been oral. Part of the reason for this is that a good deal of my work has come from, or through, people I know; lots of it comes from lawyers and clients (sometimes theirs and sometimes mine). From time to time, I dictate what I want and have them send me an email, and that seems to work well, but it leaves out important matters, I will set forth presently. A few times my informality has been a bad idea. As a result, I have repented (more or less). So, I will discuss here what belongs in a form agreement for expert services, as I see it. I will also discuss some of what I regard as, features of sound performance. Sometimes, at least, matters of sound performance can be included in the retainer agreement. The following are lessons based on issues I have had to learn the hard way.

Lesson One: Get a clear description of the scope of the assignment and then change the scope, both outwardly and inwardly, if and when it changes, appears to be changing, or someone relevant thinks it should change.

Lesson Two: Find out what experienced experts are charging in “your” area and start there. Warn of probable changes which should be expected over time. Often lawyers resist paying you more than they are billing. This is probably a reasonable idea with which to cooperate, at least most of the time, but only if their fees are reasonably high. Charitable expert witnessing is to be avoided, although one may have expert witness duties arising out of justice itself.

Lesson Three: Make sure the retainer is both reasonable and sufficient. Consider making the retainer amount stay ahead of the payment of bills. (My retainer is $X; it must stay at $X at all times.” This agreement is frequently not possible—or at least too difficult–to arrange.

Lesson Four: Insist that the bills be paid on time. A way to do this is: “If I have not received a check within 30 days of my billing you, I will perform no further work until paid In full up to that point.” Often, I cannot make this happen. Sometimes I try to get paid on a quicker temporal schedule. That seldom works.

Lesson Five: Try to get their client or the lawyers themselves to pay all out-of-town expenses. Sometimes one can get this and sometimes not.

Lesson Six: Try to get people to come and see you. They will want to do this anyway if your office is in an attractive city.Exception: You really want to go there. Sometimes the taking of a spouse is a good thing for mostly non-professional reasons.

Lesson Seven: Expect corporations to pay you faster than people and people faster than insurance companies.

Lesson Eight: Consult with the lawyers about the contents of your reports, etc. Do not let them assist you with prose, except with problems of prose: spelling, grammar, etc. Let the lawyer assist you by stating facts you have missed, not understood, and/or not appreciated. Don’t always believe them. Confirm everything yourself. Do not accept the lawyer’s intense use of colorful language even if you believe it. You are a reporter and a historian, not an advocate. This one has been very hard for me and I was kicked out of a case by the judge once for making this mistake.

Lesson Nine: Always remember that experts’ opinions take an “If-then” form. It should never take a “This is ‘It'” form. Undisputed facts are exceptions. Obvious and undeniable facts are another.

Lesson Ten: It is law-school-level truth that expert witnesses are not permitted to testify about the law. Don’t bet on it. For one thing, if you are testifying about some industry practices, you may have to refer to the law by talking about what is generally understood to be the law.

Virtually all of these “Lessons” have, not only practical implications but can—in various ways—be set forth, to some extent, in retainer letters. On this matter, tact and restraint are required.

Creations and Insertions into Existing Contracts Part II

In my last post on insurance law, I discussed the idea that it is not possible to create formerly non-existing clauses or coverages in an already existing policy, i.e., insurance contracts. I wrote on only what is all, or virtually all, the problem, namely, when the insured criticized for having tried to (or having blundered into) perform such a creation. Here in Part II, I turn to the insurer. The other day, in a deposition, I was asked whether I had ever heard of the axiom that “Insurers cannot create coverage in their policies.” I said that I had never heard of that axiom applied to insurers and that, in any case, the axiom would depend on what the word “creation” meant and what the invoked idea was. She, the taker of the deposition, looked at me with a combination of astonishment and contempt. In and of itself, that combination was not a matter of concern–of any consequence, really.

One cannot have real new or unrecognized ideas without the rigid-minded or the uninformed to hold you in contempt, and it does not matter when I am right or when I am wrong. Those who do not believe in the value of innovation are pretty much all like that, and this is especially true in the law. Besides, very few cases consider insurers and their “power” to create new provisions in their own contracts of insurance.—MSQ

Of course, an insurer may not create new coverage in an already existing policy if it is injurious to the insured. The paradigm is simple. Suppose an insurer provides coverage A, B, and C to its insured in a given contract. Now suppose that absent any dispute over coverage, the insurer decided for some reason that it “really” only offered coverage A and B. In other words, it deleted coverage C from the policy. This would actually be creating new coverage, namely: A & B & ~C. Of course, these combinations are groups–sets, as it were–but that makes no difference. There is such a thing as creation by elimination. In a painting, the deletion of a figure creates a new painting, and–in any case–it is a creation. Just as the real objection to creation-by-insurer is based on the fact that the insurer gets hurt, the objection to this anti-creationism is that the insured gets hurt. Now, consider the opposite. What if the insurer created coverage that was to the benefit of the insured? It is doubtful that the insured would object. Of course, an Anti-Creationist could still say that these things cannot be done according to the fundamental principles. Of course, this proposition is false. Parties can agree to changes in contracts, and the benefited party may be considered cooperating–and almost certainly would be–or that party might have waived any objection s/he might have. Now, why might an insurer do this? There are lots of reasons, some questionable and some not. I shall mention only one reason, and that one is not subtle and perfectly acceptable. Consider an insurer, that noticed another insurer using the same policy, was excluding something, and that insurer researched the case law on the subject and found that there were two cases supporting the actions of the other insurers. Suppose the insurer in question looked at the language of the contract and said to itself, we are not sure what to do here. We did not intend not to insure this; we intended to insure it. We “the underwriting department,” together with senior executives, do not care that this is a standard policy used elsewhere in the industry. Hence, straight forward we will consider it covered. We should go back and get the six (6) cases we “fouled up,” and make them conform to our view. It seems to me that this is a paradigm of policy coverage creation.

Lawyers, Election Law, Jurisprudence, and Proper Governance

ELECTION LAW, GOVERNANCE, AND DEMOCRACY

Factions and therefore political parties are something that acutely concerned many of the “Founding Persons,” of our republic e.g., both Washington and Madison, among many others.

Political parties are a paradox. At the same time, they are both required for large democracies and a threat to them.

In elections, the applicable law must be followed–something all reasonable lawyers and most other citizens know.

One wonders if parties and political figures alike have a moral obligation–all republics and all democracies include moral or ethical obligations as to political conduct as part of their constitutive structures–to conduct elections in accordance with other principles as well election laws. —MSQ

Suppose it is within the law for a candidate to actually or impliedly threaten opposing candidates and those who support them with jail (prison) terms simply for their opposing him/her. Most of us would agree that this is not an acceptable way conduct political campaigns in a republic or democracy. It seems to me that knowledge of this is especially true of lawyers.

Now, what about the following statement, whether clearly and explicitly made or clearly implied:

“If I do not win this election, I will refuse to leave office and simply take over. Votes cast be damned.” —MSQ

It might be within free political speech to say such things, but is it within the sound jurisprudence of election law?

Wouldn’t ethical principles forbid this kind of threat and negativity?

Does it not undermine fundamental principles of both democracy and the principles which make a country a republic?

Does it not disrespect the country and its essence as well as its constitution?

Does it not remind historically oriented lawyers of “Natural Law,” something which was guiding principles of the foundation of our republic?

PEOPLE OF THE STATE OF NEW YORK v. DONALD J. TRUMP (2024)

TESTIMONY OF A WOMAN NAMED “STORMY” — AN UNEXPLORED THEME: THE SIZE OF TRUMP’S PENIS MAY MATTER

Mr. Trump is charged in a criminal case of falsifying some business records of his company. This is a felony-level crimes charged in New York are, roughly speaking, this: one falsifies business records in furtherance of a criminal purpose, including covering it up. Mr. Trump is charged with having committed a crime by falsifying records in order to cover up sexual activities which occurred years earlier. The previous activity was at least one sexual encounter with a “queen” of pornographic presentation. This was not a crime. What was a crime was to try and win an election by covering it up, i.e., lying about the affair?

The prosecutor is presenting 30+ acts of falsification of records, some of them involving checks signed by Mr. Trump.

Now, Mr. Trump has denied that this sexual encounter (or sex acts) ever occurred. Stormy Daniels, the Porn Queen has asserted under oath that it did happen. She has testified to the occurrence of one such event in the trial that is occurring in the Spring of 2024. She did this several times during the week of May 5, 2024, including May 9th.

Ms. Daniels testified in considerable detail about her encounter with Mr. Trump. One interesting fact is that it was not a long encounter on the evening it happened – in and out, quickly, as one might say.

Ms. Daniels was paid a considerable sum of money to keep her quiet about the encounter during the runup to the 2016 election. The sum paid to her was well in excess of $100,000.00. In other words, Mr. Trump was buying her silence about an event which he has asserted never occurred. Mr. Trump utilized the services of Michael Cohen, who sometimes functioned as Mr. Trump’s lawyer, but who, says the prosecution, was not functioning as a lawyer in connection with the Stormy Daniels “affair.” Delivering a sack of money – no matter as to its form is not necessarily the function of a lawyer. Indeed, if it involves a criminal activity, it is likely not going to be a lawyer’s function precisely because it may be a crime. Lawyers try to avoid such activity, and they certainly do not send invoice regarding it.

Technically, the criminal event which generated this prosecution – Mr. Trump making and covering up hush money payments for having had sexual intercourse with Ms. Daniels – need not have actually happened in order for the jury to find Mr. Trump guilty of the felonious crime of falsifying business records, regarding – even indirectly – Mr. Trump’s having had sex with Ms. Daniels makes winning more likely.

Now, Ms. Daniels testified in considerable detail about the sexual encounter, including intimate details of what Mr. Trump was wearing when she came into the hotel room they used – his special pair of luxury pajamas – how he smelled, and so forth.

It is a well-established principle of trial jurisprudence and technique, and obvious wisdom that it is prudent and important for the plaintiff to have a witness testify truthfully and in detail as to the details of an event, if one wants the decider of facts (the jury) to believe an event took place and what it was like. The wisdom of practical reason dictates that it is imprudent to fail to do so. This is exactly what lawyers for the State of New York have done.

The defendant’s counsel eventually moved to exclude this testimony since they claimed it was not relevant to the criminal charge, and that it made their client “look bad,” and was overly prejudicial. In addition, they, and the defendant himself, complained to the public that Mr. Trump was being treated unfairly. Moreover, Mr. Trump and his defense team have whined about the power of the evidence, although they did not go further, except that the judge should not have admitted into the evidence before the jury. (Wait! Mr. Trump has asserted repeatedly outside the courthouse – or outside the court room anyway – that the event never happened, in other words, that Ms. Daniels is mistaken about what she is saying or that she is lying).

Mr. Trump’s view is erroneous: She says X; he says not-X, and her assertion “feels” more plausible if she testifies in detail and therefore less convincing if she restricts her testimony. He and his lawyers can squawk all they want to but that does not affect the legal soundness of what the plaintiff-prosecutors are pursuing. The State of New York bears the burden of proof. It seems to me that if Ms. Daniels can testify “helpfully” as to the size and shape of his penis on the basis of what she saw or what the defendant asserted to her it would probably be the prosecutor’s duty to submit her personal knowledge on this matter to the jury. Of course, Mr. Trump has the opportunity to impeach her by authoritative cross in testimony or physical evidence.

The defendant Mr. Trump has moved twice for a mistrial. Details about the scene of the sex appears to be the reason for the motions. The likelihood that these motions would be granted is zero, or close to it.

The defendant is claiming that the fact that Ms. Daniels has acted contrary to a non-disclosure agreement regarding her speaking out about the incident entitles Mr. Trump to a mistrial or to a dismissal of the prosecution’s case. This posture is false and the idea absurd. If Ms. Daniels has breached a contract requiring silence, Mr. Trump’s remedy is an action for breach of contract and not a jury and then court finding of not-guilty to a felony. Having breached a contract does not make the testimony of the breaching party false.

If it entitles the defendant to anything, it is a question in cross examination. “Isn’t a fact that you are trying to get more money out of Mr. Trump, when you have already been paid a substantial sum.” She might reply to this question as follows: “Since I signed that non-disclosure agreement, I have been insulted, harassed, ridiculed, and economically assaulted many times my Mr. Trump and his cronies, confederates, minions, and operatives since the nondisclosure document was signed. The contract covered only what happened before the contract was formed, and Mr. Trump has waived any right to complain he might have had. I am seeking money for having told the truth. In addition, I am here today based upon a demand (subpoena) from the State of New York.” And there is yet more to be said along these lines.

Quinn’s Comment: Perhaps the prosecutors are the ones who should be saying at least some of this.

Furthermore, there is another species of personal knowledge which would have been easy to introduce which is based on physical sight, if any. That evidence pertains to the size and shape of his penis. A capable prosecutor, if Ms. Daniels could testify reliably, would be inclined to introduce it. If she testified “Yes. I saw it. The lights were on well enough to notice it. Indeed, it was obvious he wanted me to notice it.” My next question would be, “What did you see?” She might say, “It was much smaller than I thought it would be given and the ‘Alpha Male’ way he presents himself”. “What, if anything did you recognize from your sense of touch?” She might say this, “Nothing. Very ordinary, and not really very hard. In addition, the whole thing, penetration to ejaculation went very quickly.”

This line of testimony vividly pictures the encounter Mr. Trump says never happened. Of course, in theory, the event need not have actually happened for Mr. Trump to authorize Ms. Daniel receiving well more than $100,000 to keep he silent 10 years or more the encounter took place.

Mr. Trump’s lawyers and commutators on broadcasts from “Fox News” are claiming that any such testimony is not relevant to the indictment. This is nonsense. Mr. Trump claims no such event ever took place and therefore contends that he could not have made misrepresentations in New York business records. Well, the fact is that if evidence can be provided that Mr. Trump was present at and participated in a short erotic “meeting” with Ms. Daniels, then his defense falls apart or is, at least, refuted in key ways.

So, what lay open to defense counsel to say about the encounter in cross examination? Of course, their client denies that it ever happened. Most every question about what actually happened would suggest or entail Mr. Trump’s physical presence, something he denies.

Undoubtedly, defense counsel considered developing the idea that Mr. Daniels was with to the wrong man. “Are you certain that the man you had sex with was actually the real Donald Trump. After all, you had never actually met him. Certainly, you wanted this person to be Mr. Trump. You claim you wanted him to give you a job on his TV show, true?” “Well, you are claiming that after 10 years you are certain it was Mr. Trump, correct? [Ms. Daniels must answer ‘Yes.”] “But in the intervening 10 years – not to mention years before that – you have had sex with many different men, true?”

There is a prima facie rule governing cross examination, “Never ask a question to which you do not know the answer.” But notice: this is only a prima facie rule. That tactical advice does not apply in this case. Examining counsel need not care how the question is answered. If she says, “No,” the chances are that she will not be believed, and her general credibility will be undermined. But if she says “Yes,” then the reliability of what she asserts (or implies), “It was definitely he. No doubt about it.” This answer too is damaging to Ms. Daniels’ credibility, especially since she is testifying under oath.

It was unproductive, I think, for defense counsel to try to prove that Ms. Daniels “hates” their client and is speaking solely from that perspective. The word “hate” is a very powerful word, but it’s meaning is often unclear and sometimes implausible. At the same time, other phrases may not work either. What about “dislikes,” or “is disgusted by,” or “is contemptuous of him.” See below.

There is one exception to this line of questioning, “So, Ms. Daniels, you admit that you have observed a large number of penises.” Her answer might be this, “Yes. I am an adult film actor – what used to be called an ‘actress.’ Many men acting in such movies must show themselves naked from at least the waste down, though complete nakedness is also common. These men often show themselves engaging in self-administered masturbation, something often called ‘jacking off.’ Of course, there are cooperative forms of this activity that also appears in many adult films. And various acts of having sex of various standard kinds are also often involved, just as one was between Mr. Trump and me.”

These questions might not be “askable,” by the defense on “cross,” given Ms. Daniels’ testimony of May 9, 2024. Under cross examination then she said that the sex act between them went quickly. This does not sound like genuine physical intimacy. An experienced observer might say to him or herself, “That’s awfully fast. What was going on? No wonder he says not such encounter happened.” Many women might be disturbed by the high speed of the physical encounter. Many men would feel a bit of shame for such a poor performance. Whether that speed was a typical incident of premature ejaculation is not something to which Ms. Daniels could testify since she has not had repeated sexual intercourse with Mr. Trump.

One might conjecture that it was the speed of the intercourse which led to Mr. Trump’s big-money desire to keep information about the encounter swept under the rug. Knowing this truth – if that’s what it is – might cost Mr. Trump more than a few votes among males, as well as females.

So how should the defendant’s cross examination have ended? The defense liked the “motivated from hate” question: “Isn’t it a fact, Ms. Daniels, that you passionately hate Donald here?” “You have called him some filthy, derogatory names, haven’t you?” “You would like to see him destroyed, true?” Or at least denied the presidency? “And sent to prison, right?” “So, you think the jury should believe you, even though you intensely want to make our client suffer, yes?”

The trouble for the defense approach is that strong negative emotions do not necessarily destroy objectivity, especially if there is something positive just as important, for example, the love of truth and an embracing of justice. No doubt the prosecutors explained this to Ms. Daniels several times. This is a fallacy that defense counsel makes too often, forgetting that real cross examination in both civil and criminal cases, is not the same one sees in movie or TV performances.

When should the last statement by defense counsel be “No further questions.” It’s hard to know. Context is important. Defense examination as to the encounter may not be over yet. If there is a redirect examination, the defense will have another opportunity to cross examine. And the defense has not started putting on its case yet, so Mr. Trump may testify himself. If he testifies himself, he will face cross examination. Many court watchers hope he will do so. “Won’t that be a hoot,” one said to me this very morning.

Not every aspect of every battle must be or even can be won. All good military generals know this. Napoleon learned it the hard way, as did Hitler. Mr. Trump hates to lose even an unneeded component of some pointless battles, even one’s he imprudently started.

Mr. Trump’s current fight may be his Stalingrad, and most of us know how that one came out, especially if he decides to testify himself.

Extraordinarily prideful people often see themselves as “All Powerful and Therefore Indestructible.” Of course, this idea makes one think he is a god, or is actually God Almighty. Mr. Trump might do well to remember that excessive pride causes very hard falls.

PART ONE: SPECIFICATION OF FRAMEWORK:

THERE IS A CONTRACT OF INSURANCE (“CI”), AND ANOTHER, SEPARATE CONTRACT (“SC”) ARGUABLY MADE PART OF (OR INCORPORATED INTO) CI IN WHOLE OR IN PART.

HOW DOES ONE DETERMINE (KNOW) WHETHER SC HAS BEEN MADE PART OF CI, AND IF IT HAS, HOW IS SC TO BE INTERPRETED AND THEREFORE HOW ARE CI AND SC TO BE INTERPRETED TOGETHER?

ExxonMobil Corp. v. National Union Insurance Company and Starr Indemnity and Liability Insurance Company, 21-0936 [672 S.W.3d 415] (Tex. April 14, 2023).

Executive Summary

This executive summary addresses the legal intricacies involved when external contracts are integrated into insurance policies, particularly highlighted by a case involving ExxonMobil. ExxonMobil was designated as an “additional insured” in several liability insurance policies due to a service agreement with Savage Refinery Services, which required Savage to secure liability insurance covering its employees and specifically named ExxonMobil as an additional insured. The dispute centered on whether the details of their service agreement were effectively incorporated into the insurance policies, a matter complicated by the policies not explicitly reflecting the terms of the agreement. The Texas Supreme Court’s decision in this case underscored the foundational principles of contract interpretation within the insurance sector: the policy’s text must be the starting point for interpretation, and external documents should only influence this interpretation when the policy explicitly permits this integration. This ruling is pivotal, affirming adherence to traditional contract interpretation methods while addressing complexities introduced by external agreements in modern insurance practices. The court emphasized that contract terms should be interpreted based on the “original” document into which there has been an insertion when there is a clear and intended incorporation of the external documents, a contra or something else. This case not only resolved the dispute regarding the scope of coverage under ExxonMobil’s policies but also – at least impliedly set a significant legal precedent on the integration of external contracts – or other documents into insurance policies, reinforcing the need for clear and explicit terms to guide both policyholders and insurers in understanding their rights and obligations under the law. Interestingly, the Court’s decision was based on a long string of Texas precedents also from the Supreme Court.

Preface

When can a contract, not part of a contract of insurance, or insurance policy, be correctly understood as part of – or inherent in – that policy and be correctly interpreted accordingly, though restrictively? (This sort of incorporation can be accomplished in whole or in part. I am assuming (1) that the “incorporation,” under discussion was accomplished intentionally by the parties to the CI, (2) that there was no objection made by anyone with an interest in the matter at the time of the incorporation,

This problem is most likely to arise in situations involving policies which huge policy limits and concern individual, specialized commercial insurance policies.

The insurance contracts in this case were liability policies – Comprehensive General Liability Insurance, and similar contracts or policies, to be more exact. (Keep in mind that the words “insurance policy” in this – and similar insurance contexts – mean, at least roughly speaking, one of two things: (1) It is virtually (almost) a synonym for the phrase “insurance contract,” or, that the phrases “contract of insurance” and “insurance policy” (IP) mean the same thing; or (2) the phrase insurance policy names a document which is used in the commercial context of selling and buying insurance. This second meaning might name a document which summarizes parts of the contract of insurance which are not provided the policyholder at least at first. Thus, an insurance policy might set forth the substance of the contract in simple, “non-legalese” terms, found in various ways in ordinary English discourse, whereas the contract itself is longer – sometimes – more difficult for non-lawyers or non-insurance professionals, e.g., underwriters, to understand. One can see how this kind of arrangement might work during the process of the policy holder’s purchasing the contract. Thus, a document titled or named “[Something]Policy” might provide the policyholder to-be with information which might help induce sale and purchase. Naturally, if the “policy”-version of the deal is false as a summary of the contract, there may well be breach of contract, fraud, violations of the Texas Deceptive Trade Practices Act, or similar other-state violations, and so forth, especially if the “lack of fit” between the “policy” and the “contract” cause injury to the policyholder. (Notice that the term “policyholder” is an often-used phrase in ordinary discourse which identifies the “holder” as a party to a contract of insurance). (Thus, probably, an additional insured (“AI”) designated by the partiers to the contract is usually not called a policyholder, even if that AI is a third-party beneficiary of the contract and have rights flowing from the existence of the contract and “its” status either “under” it or simply as a result its existence).

(Of course, the vocabulary could work just the reverse, so the insurance contract summarizes the policy (or parts of it). I do not think I have ever actually observed or even read about such an arrangement.)

(The reader should be aware that the ordinary language used in the business of insurance is not, for the most part, filled with rigorously defined and fixed terminology. It is often “language as used” in “everyday discourse” in the insurance industry. To repeat, that language is not a rigorous semantical system like that characteristic of mathematics, physics, some types of engineering, and some parts of even philosophy.) Then again, often contracts of insurance and/or insurance policies contain explicit definitions – sometimes long lists of them – and they are sometimes applied and enforced in legal proceedings. Those explicit definitions are often more applicable to policyholders (insureds). On many occasions, I have witnessed insurers try to and/or successfully seek to have courts declare that parties to contract, such as contracts of insurance, are expected to know and understand the contents of the contract.

The oddity of contract formation based upon a policy with the actual contract being supplied later is not under discussion in the case under review. I am not discussing incorporating the “policy” into the “contract.” In theory, that could be a problem in contract law or a problem as to good versus bad faith in contract formation, but that is an essay for a different context. What is true in this case is that ExxonMobil was an “additional insured” in the contracts in controversy.

The case under discussion in this essay, ExxonMobil, concerns the incorporation of a “Service Agreement” between two businesses into several insurance policies, but for the sake of simplicity the incorporations can be regarded as the same thing. This is a very rare situation, conceptually speaking and from an empirical point of view. (The personal injury damages were an unusually large recovery for an accidental injury case, though not unheard of recently.)

A Quinn Comment: This is as good a place as any herein to observe that the idea of incorporating one contract into another is not like placing a package of paper in a box – it’s not like stuffing a turkey in preparation for Thanksgiving dinner. It need not even be regarded as making the document with external origin part of the contract of insurance. It is more like giving that document a special legal status, namely its usability in interpreting the contract of insurance, not only in routine matters but in quite radical ones. Endowing an external document with that sort of status creates an important exception the usual and accepted rules of contract interpretation, in accordance with which the meanings of contracts “stand on their own two feet,” as it were, along with the rest of the contract terms and are thus interpreted by what is contained within the contract itself and nothing else. This is certainly the accepted rule for interpreting contracts of insurance, as the court in this case points out.

As rarified as the insurance-related facts in this case were, the reasoning of the unanimous Texas Supreme Court is orthodox, broad, and provides accepted legal observations and arguments as to the sound interpretation of insurance contracts, as well as – impliedly – others. Its discussion of contract interpretation will be used and cited for many years. Thus, this case is a valuable source for precedential (or precedent locating/identifying) purposes in connection with insurance contract interpretation. The court sees its conclusion, ruling, and opinion, in part, based upon a “string” of cases and decisions where each of them depends on the one (or ones) before it, thereby providing an attractive line of reasoning where law of the relatively “distant” past matters for sound and convincing legal reasoning in the present.

(It is worth noting for academic purposes, that the “Incorporation Into Contract Rule” may apply to many sorts of contracts and not just contracts of insurance.)

The opinion discussed here is probably the last in a series of Texas appellate court cases arising out of two severe – ghastly – personal burn injuries inflicted on two different workers. The injuries resulted from a single occurrence, a refinery fire that happened, in 2013, and the personal injury and worker compensation cases that arose out of it were resolved several years before the insurance cases were decided. (As is sometimes said, “The wheels of justice rotate most slowly when insurance litigation is involved.”)

ExxonMobil paid a huge sum, $24M, which was part of the damages owed the two injured workers about which there were insurance disputes of some sort. (Other people were injured but that fact and they are relevant to this case.) The insurers that are defendants in this case had denied coverage, so ExxonMobil paid, and then sued some of its insurers, NU and Star, for wrongfully denying coverage. The insurance cases dragged on for a decade.

The reader must keep in mind the fact that there are two separate insurance companies involved. First, National Union Fire Insurance Company of Pittsburgh Pennsylvania Company (‘NU’s), an AIG company was (1) the insurer providing a routine Comprehensive General Liability (CGL) primary policy, but it had also (2) issued an umbrella policy which was functioning as, at least, something like an excess policy. (NU is part of the AIG group.) Second, Starr Indemnity and Liability Insurance Company (“Starr”) had underwritten another umbrella policy. It had a rather odd title for a case of this kind and had some unusual usages in the commercial marketplace. The name and characteristics and different uses of the Starr policy made no difference in this case. Both liability policies under which coverage had been denied were functioning as umbrella policies, according to the court. (I probably would have called them excess policies, but that difference in language, kanguage, concept andandemaybe coverage mademakes no difference in this case.)

Starr had some doubts about the court’s opinion but its hesitancy about accepting the court’s opinion was not described or explored in the court’s unanimous opinion. Thus, the opinion itself suggested that there might have to be another trial of part of the case, but that problem was resolved by a settlement that the case of ExxonMobil v. National Union Insurance Company and Starr Indemnity and Liability Insurance Company, 21-093has come to an end. The case in which the final matter was decided was in the very intermediate appellate court that the Supreme Court reversed. After the settlement agreement was recorded, the appeal in that was dropped.

Part Two:

A Short Discussion of Part of the Case

ExxonMobil (Exxon), a large petroleum corporation, retained an independent contractor to render it services at Exxon’s Baytown, Texas refinery. The vendor’s name was Savage Refinery Services (“Savage”), an unfortunate name under the circumstances.

The service agreement contained roughly the following language, as set forth in the Court’s opinion:

“Savage promised to obtain at least a minimum stated amount of liability insurance for its employees and to name Exxon as an ‘additional insured.’” (Emphasis added.)

According to the opinion, Savage carried out its promises.

NU underwrote two of the policy at issue and a third policy was underwritten by Starr.

As already noted, the key event was two horrible workplace burn injuries of Savage employees caused by the same occurrence. NU’s primary CGL policy paid policy limits, but coverage under the other policies was denied. It appears that there was a Worker Compensation policy issued by another carrier. Its existence and the carrier’s performance were not relevant to this case.

Since NU and Starr denied coverage under their umbrella carriers, Exxon paid the liability which the insurers denied, since – both carriers said – the injuries were not with Exxon’s coverage. This amount was approximately $24 million, Exxon paid the damages itself and then sued the carriers to recover what it paid.

(There is a purely rhetorical point that might be mentioned here and a business point that must be raised. First, the court states that ExxonMobil paid the $24M “out of its own pocket.” That strikes me as an unfortunate and ontological misleading use of language. Individuals, and some animals, have pockets, but inanimate objects do not. Corporate, and similar entities do not. Second, a cynically-minded anti-insurer (and/or anti-capitalist) ideologue might assert that the insurers were simply averse to paying such a large sum for injuries to only two injuries. I do not hold such views, in general since I believe that most insurers most of the time try to pay claims in conformity with their contractual obligations, subject to their legal rights as business entities. I say this sincerely and with resolve, though I recognize that insurance companies in some way associated with AIG have – or have had – a widespread reputation for being at best compulsively frugal about paying claims or paying them anywhere near accurately. (This reputation is not restricted to insureds and intermediaries but includes – or has included – at least some other insurers.)

In this case, I am skeptical that the insurers conducted their claim handling in good faith. This is true even though it was liability policies that were at issue, and Texas does not apply the common law of insurer bad faith to the claims handling process for liability policies. For this reason, if the insurers failed to act in good faith, there is no common law cause of action against them, even though they were guilty of misconduct.)

Further Discussion of the Case Itself

ExxonMobil is a major player in the oil and gas industry. One of its facilities is now and has been for many years, a refinery in Baytown, Texas. Exxon had an independent contractor, by the name of Savage Refinery Services, to do work at this plant. As is customary, the two companies had a “Service Agreement.” Part of the agreement pertained to insurance matters. Much of what I say about the Exxon-Savage arrangement comes from the Supreme Court’s opinion.

Here is part of what it said, as set forth according to the Supreme Court opinion:

“Savage promised to obtain at least a minimum stated amount of liability insurance for its employees and to name Exxon as an additional insured.”

Obviously, Savage was seeking a way to obtain tort protection for its employees in case of a workplace disaster where, if it supplied insurance for employee injuries, it would be restricted to workers compensation insurance, whereas if Exxon provided liability insurance covering the employees, it would not be restricted to workers comp. (That involved a different insure as is not relevant to this decision,)

A Quinn Commentary: This is as good a place as any to discuss “umbrella policies.” Many terms in insurance markets are on the flexible and/or vague “side.” Many such elements of industry jargon have confusing categorizations. The word (or phrase) “umbrella policy” is like that. Usually, that term suggests that an umbrella policy sits on top of another policy (or policies), but the coverage(s) found in it are broader than those found in the lower-level policy. That’s why it’s called an “umbrella.” It is this broader reach that distinguishes an umbrella policy from being an excess policy. To say that one policy is excess of another is to say that its coverages are the same – or pretty much the same – as the coverages found in the policy or policies underneath it, and/or the primary policies. (Sometimes there is a stack of excess policies and the underwriter of the policy which is the 5th (or the X layer up, for example), will tie that policy to the immediately layer beneath it – e.g., the 4th layer excess policy – and that policy’s coverages are not identical to the primary policy). Arguably, an excess policy that does not have all the coverages that the primary policy has (or that has added on a few “extras” is not really an “excess policy,” though it may come close). Obviously, it is not an umbrella policy since it does not have coverages not found in the primary policy. Given the somewhat rough definitions I have laid out, if, what is usually called an “excess policy” contains at least one coverage not found a policy below it that policy would technically be an “umbrella policy.” I am inclined to think that what I have very briefly laid out is sufficiently rare, that this technologically correct name (and description) would simply be ignored in professional discourse. I do not think I have ever seen such a thing.

What I have seen, however, is an insurance policy referred to as an umbrella policy which is actually aprimary policy. Why would anyone with knowledge and experience create this confusion? Underwriter ignorance is one explanation. A desire to create the impression that the policy called an umbrella policy should not be treated as an ordinary, routine primary policy. An underwriter might think that such a policy might be interpreted in favor of the issuing insured. Now let us return to the particulars of the ExxonMobil v. NU & Starr case.

In 2013, there was a terrible industrial accident. At least two Savage employees suffered terrible burn injuries, and their damages were approximately $24M. The NU primary policy paid its policy limits, but both the umbrella policies denied coverage entirely. Exxon paid the unpaid millions and sought recovery from NU and Starr.

It was proceeding in part on the basis of the Service Agreement it had with Savage pursuant to which Exxon was an additional injured on Savage policies. The reason they denied coverage was that the coverage was specified in and only for the Service Agreement and not in all (and therefore not for) the other relevant insurance policies in this case, i.e., the ones in dispute in this case. The position of the carriers was that if the alleged coverage was not set forth in in each policy, it did not exist. The rest of the carriers’ argument was simple. The alleged coverage and other insurance matters were to be found in the Service Agreement, but it was not in the policy. It is easy to see what will happen next. (There were four injuries, but only two of them were relevant in this case.)

The Court’s short, unanimous, 11-page opinion made an abbreviated refutation of this sophistry. In essence, the Court pointed out that for more than a century, there has been a string of cases holding that if a contract other than the insurance policy clearly fits within the contract of insurance, the courts are obligated to recognize its presence and influence on the policy. The fit must be so manifest that its presence was intended by the parties. And then, how is the “inserted” contract to be interpreted? Its meaning must be clearly determined by the meaning of the terms of the contract insurance into which the insertion was made.

Justice Young, writing the court states this: The long line of cases cited herein, and others, “reflect three basic principles for interpreting the meaning of an insurance policy: (1) we begin with the text of the policy at issue; (2) we refer to extrinsic documents only if that policy clearly requires (or at least authorizing doing so); and (3) we refer to such extrinsic documents only to the extent of the incorporation and no further. Any venture beyond the four corners of an insurance policy must be carefully limited to the scope of that policy’s clearly authorize[s] reference.” (See pp. 5-6 of the Opinion).

Another Quinn Comment: Notice the presence and use of the word ‘incorporation’.

Justice Young also observes that the insurers and the court of appeals make a deadly error of their analysis of the concept, idea, word, and use of the word “coverage.” They seem to think that since the umbrella policy makes it clear that that it contained no coverage other than what was to be found in the primary policy, the insured could not have a right to payments under that policy above the policy limits of the primary policy. Their position is absurd, Justice Young implies, because there is a fundamental difference between “coverage,” a term that applies to the risk of injury, and “policy limits,” a term that refers to amounts for which the carrier may be libel, assuming that there is coverage. Justice Young points out graciously, that these are quite distinct concepts.

On this basis at least the Texas Supreme Court reversed the court beneath it.

Justice Young and the court are absolutely correct that the concept of “coverage” and the concept of “policy limits” are different concepts, and that the term “coverage” applies to what is at risk, e.g., what events, etc. However, one can see why an insurer might make the mistake made here by the carriers. In common industry parlance, players sometimes refer to risk exposures that are above policy limits as not being covered. Here is a locution that is used, “Jones policy has been used in full. Policy totals are gone. Therefore, there is no coverage.” Of course, given the correct, more rigorous use of the term “coverage” a player who says this is making a mistake. But as I have pointed out, the ordinary use of language in the marketplace is not rigorous. The use of language “sloshes” around a good deal. Still, the court’s observations are correct. What might be a better way to handle this situation? Maybe, eventhough the court’s mode of reasoning is sound. Why not assert that the term “coverage” when used in insurance commercial language is ambiguous. If it is – and it certainly is – then its meaning is to be interpreted in favor of the insured. (Technically the way the idea of ambiguity is concerned the reasoning is more complicated than I just laid out, but a simple version is all that is needed here.)

Quinn’s Final Comment on the ExxonMobil Case Itself

This is a splendid opinion – well-reasoned and correct. There might be one criticism. When Justice Young is discussing the incorporation of the ExxonMobil-Savage Service Agreement into the umbrella policies what he says sounds ambiguous. On the one hand, he makes it sound like the whole of the Service Agreement becomes part of the policy, but that only part of it can be used in deciding the case, namely the substance of it which the contract of insurance permits. On the other hand, he makes it sound like only part of the Service Agreement became part of the insurance contract, perhaps that part that was used in making the court’s decision. Justice Young makes it clear that thinking about how to use a document sucked into or incorporated into the insurance contract is a two-step process. (Notice that the idea of incorporation, as well as the word, is used in this discussion).

First, a determination must be made as to whether the contract of insurance clearly authorizes the incorporation of the candidate for insertion, in this case, the Service Agreement.

Second, there must be a determination as to (a) which parts of the incorporated contract are to be considered, (b) how this is to be done, and (c) to what end, i.e., to what result. All three of these inquiries are to be determined by the substance of the contract of insurance into which the outside, external document has been drawn or inserted.

A Last Quinn Comment: the idea of a three-dimensional inquiry is mine. Justice Young names only two. He does not refer to (c). Nevertheless, they are probably equivalent.

In this opinion, the court does not make it clear whether documents other than contracts may be the type of document that can be “incorporated.” Can they? Of course, the answer must be “Yes,” though this topic is not needed for the logic of the opinion to succeed. Nevertheless, if this important opinion were to have the kind of precedential value it deserves and which the economy may need for a variety of different reasons, an explicit line or two in the opinion would have been helpful.

Also, the principles outlined in this opinion and the other recent precedential opinions regarding the incorporation of one contract into another apply only to insurance policies. However, might the same principles (or variations on them) apply to any two (or more) types of contracts? (Or if not “any,” then “most,” “many,” or “some.”)?

Although it is not a matter of any consequence for the decision in this case, Justice Young is a person of very conservative judicial or as-a-matter-of-law orientation. That political fact made no difference in this decision in this case. This decision was substantially in favor of the insured, something which many liberal lawyers are inclined to think is the opposite of a conservative, judicial ideology. At the same time, this was an inter-business type of case. At the same time, conservative business organizations penned and published an opposite point of view. Liberal lawyers might point out that this opinion is not likely to have any (or much) impact on insurance case decisions where the insured is an individual person).

A Quinn Question, Though Not a Comment. To what extent does the logic of the Goddard decision that applies in this case, an insurance contract (policy) case make it true that its conclusion applied to contracts other than contracts of insurance, i.e, insurance policies? The cases referenced by the Court do not discuss this question, perhaps because it would be “mere dicta, and therefore not precedent.”

The Court’s Line of Authority

I shall discuss this line in chronological order, the order in which the Court listed them. Justice Young made it clear that the most recent cases were the most important to the Court’s reasoning. This line of authority is among the court’s arguments for its ultimate decision, so I shall follow straight through. One could tack on a couple of cases that are even earlier than where the Court begins sketching its line of authority and one from a court of appeals. (Someone with the suspicious nature of some business historians could review those cases and hypothesize that at least some insurance companies leaned on their insureds inappropriately. It would be difficult to deal with this hypothesis unless one knew (or could establish) the win-loss pattern in cases resembling Goddard.

The Goddard Case (1886)

The first case in the line of cases upon which the court relies is Goddard v. East Texas Fire Insurance Co, 1 S.W. 906 (Tex. 30 November 1886), is a very interesting case from a historical standpoint, namely the nature of then called “warranties” imposed on policyholders (and/or policyholders to-be) by insurers, as early as the Eighteenth Century. Their use was still alive, if not well, in 1886.

Goddard’s business sustained a fire loss. There was no suggestion the fire was set by Goddard or that Goddard had done anything amiss in presenting his claim, since there were sufficient records in Goddard’s control that were handed over to the insurer to get an accurate value of the insured property destroyed.

The problem in the case was that there was an endorsement added to the policy regarding a safety requirement, namely that equipment, etc. was to be stored in an iron box. Goddard has signed the added slip. The issue in the case was whether Goddard’s signature was a warranty or a misrepresentation. That terminology had been used for many years in insurance law. Basically, if the signature was a warranty Goddard’s not storing the listed types of objects in the iron box destroyed his right to coverage. If it was a mere misrepresentation, Goddard’s not storing the objects in question would not defeat his claim.

The court in Goddard court reasoned as follows. First, the language containing the put-it-in-the-iron-box clause was ambiguous as to what the meaning of the signature was, and so, a decision of law like this one was to be resolved in favor of the insured. In addition, it was clear that the slip of paper upon which the insurer’s requirement was set forth was not part of the policy, and so was independent of, though related to it. Since that was so, Goddard’s signature was not a warranty.

The court went further and gave three arguments in addition to its application of what is now called the “Ambiguity Rule.” First, said the court, the paper upon which the put-it-in-an-iron-box-at-night requirement was stated was not on paper at all like that used to print the actual policy. In addition, the physical location of the requirement was not in a physical position, which would suggest that it was part of the policy. For example, it was not written in the margin of the policy text itself. Third, the type of requirement contained on the slip in controversy was not central to the nature of the contract itself. In one maritime case decided by Lord Mansfield, the information pertained to the population required to be on board a ship that had not left on a voyage yet.

Hence, the Texas Supreme Court concluded that the contract was not worded in such a way as to authorize the legal conclusion that the policy by itself and the slip of paper upon which the “iron box requirement and then signed by Goddard was set forth could be seen as an integrated whole. Thus, the situations were different as between Goddard and ExxonMobil, but the logic of the court’s reasoning was the same.

A Quinn Comment. What happened in Goddard was an instance of disputes between policyholders and insurers over what has, for as long as two centuries, been called the “Contract Clause.” It appears to me that transactions involving policy purchasing were designed in such a way that terms were included in contract-related documents so that if a policyholder violated the requirement to any degree all claims would be subject to denial, even if the insurer suffered no injury of any kind – or any prejudice – resulting from the insured’s breach of any requirement. Policyholders needed protection from this kind of overly literalistic jurisprudence regarding insurance contracts and, over time, the law has provided it to them. Eventually, insurance law provided that minor unintentional errors in applying for insurance were not absolute conditions governing valid insurance policies. Another portion of this set of legal rules is the law governing policy errors in filling out and submitting Declarations in support of applications for contracts of insurance.

Today, the idea of warrantees at least usually play no explicit role in outlining what is required of policyholders or those who are filling out forms in order to become policyholders. The only role I have seen is that some courts have held that poor performance by insurers may constitute a breach of warrantee. In effect, insurance policies are being thought of as products. This is a possible substitute for accusations of common law insurer bad faith.

Implied warranties do or can play a small, and very different role in current policyholder versus carrier disputes. The more current role is whether the insurer has made an implied warranty regarding the policy it has issued. See C & J Fertilizer, Inc. v. Allied Mutual Insurance Co., 227 N.W.2d 169, 178-81 (Iowa 1975). See also Robert H. Jerry, II and Douglas R. Richmond, UNDERSTANDING INSURANCE LAW Section 25F 155 (5th Ed. 2012))(an excellent elementary treatise). Whether for good or for “ill,” the idea of an implied warranty by an insurer that its policy (i.e., policy) is not defective, will likely not develop.

The Case of Urrutia v. Decker (1999)

The next case on the Court’s list of its unbroken and governing authority was decided over a hundred years later, it involves an auto liability policy Urrutia v. Decker, 98-0554 (Tex. April 8, 1999). The person Emilio Urrutia (“Urrutia’) had leased a truck from Penske Truck Leasing Co (“Penske”). That leasing company had issued an insurance policy to Urrutia for $20K.

The injured person was Ferol Decker. A representation was made to him, perhaps by an adjuster, that there was only $20K available to Penske . Decker settled for that sum. He subsequently discovered that there was a vastly greater sum ostensibly available for coverage. Decker sued both Penske and Urrutia for fraud and/or mutual mistake.

It must be kept in mind that there were two policies at issue. One of them was a commercial business auto policy the Old Republic Insurance Company policy in which Penske was the named insured, but a second one which Penske has issued to Urrutia for $20K as part of their rental agreement. (The validity of the policy issued by Penske to Urrutia under the Texas Insurance Code was an issue, but that issue is irrelevant to the Supreme Court’s opinion in this case. Interestingly, at the time of the accident that caused Decker’s injury, $20K was the minimum permissible under Texas law for the relevant type of policy.)

The real issue pertains to whether Urrutia was an additional insured under the Old Republic liability policy. If it was, then there were substantial sums in excess of $20K available for settling with Decker; if it was not an additional insured, then there was only $20K available, and so Decker’s recovery would restricted to the amount for which he had already settled.

The Old Republic policy contains the following language, which was derived from a then-existing state statute: “Both lessees and rentees are covered as insureds, but only to the extent and for the limit of liability agreed to under the [explicit] contractual agreement [the rentee or leasee has] with the named insured.”

Thus, the Supreme Court reasoned that there could be additional coverage for Decker’s damages only if the insurance contract between Penske and Urrutia had become part of the Old Republic policy. Here is part of the Court’s language: “Texas law has long provided that a separate contract can be incorporated into an insurance policy by an explicit reference indicating the parties’ intention to include that contract as part of their agreement. Goddard v. East Texas Fire Ins. Co., 67 Tex. 69, 1 S.W. 906, 907 (1886).”

In any case, in a relevant way at least the representation made to Decker was true.

The Supreme Court briefly discusses other issues, but the one just sketched is the one that matters so far as ExxonMobil is concerned.

The Case of Evanston v. ATOFINA

Another case in the long string of precedents the court cited in ExxonMobil is Evanston Insurance Company v. ATOFINA Petrochemicals, Inc., No. 03-0647 (Tex., May 5, 2006).

In it, ATOFINA and Triple S Industrial Corporation, an independent contractor that performed maintenance and construction services for ATOFINA at its Texas refinery, had a contract in accordance with which Triple S was to provide indemnity to ATOFINA for personal injuries and additional insured rights in Evanston’s excess and umbrella liability policy.

The issue before the court was whether the language of the Evanston policy in which ATOFINA was so designated was broad enough to cover ATOFINA for its own sole negligence. Since the underlying personal injury case had already been settled, the issue was ATOFINA’s rights against Evanston with respect to the amount it paid in the personal injury case.

In the underlying case, Matthew Jones had fallen through a corroded roof into a storage tank of fuel oil and was killed. The amount of the settlement was $6.75M. The primary carrier paid its policy limits, and ATOFINA sought rights to $5.75M under the Evanston follow-form excess policy. (In this opinion that policy is sometimes called an umbrella policy. As the court recognizes, it is correctly referred to as an excess policy.)

The Supreme Court, unlike the Court of Appeals based its opinion on the Evanston policy, and not on the indemnity agreement Triple S provided ATOFINA. Unquestionably, ATOFINA was an additional insured under the policy, and what mattered was what the policy said and not what was found in the indemnity agreement. Significantly, ATOFINA’s rights were specified in the primary policy but the excess policy was a “follow form” policy based on the primary policy.

The Supreme Court was critical of the approach of both the appellate court and Evanston. They had both reasoned that the indemnity agreement determined the scope of ATOFINA’s rights. The Supreme Court agreed that the content of the indemnity agreement was relevant to determining what the parties to the indemnity agreement intended as to the scope of ATOFINA’s coverage rights, it was not determinate as to them. Under the circumstances of this case, at least, that matter was controlled by the language of the insuring agreement. For that purpose, “an insurance policy secured to ensure that obligation stands on its own. To the extent the insurance policy fails to satisfy the indemnity obligation, the obligor (Triple S) remains exposed.” (Although the wording of ATOFINA andExxonMobil differ on this point, the ideas and the conclusion are the same or nearly so.)

Ultimately, in this case, there were undecided fact issues at stake, so the case was sent back to the trial court to decide them. (Since nothing further has been heard from the Supreme Court about this case since the entry of this decision, it is probably safe to infer that those matters were resolved by settlement.)

For a follow-up case, see Pasadena System, Inc. v. McCraven (Tex. App. May 15, 2012).

The Deepwater Horizon Case

This case came to the Texas Supreme Court by way of a certified question posed by the Fifth Circuit. The case itself arose out of the disastrous collapse of the explosion and the sinking of a drilling rig in the Gulf of Mexico in 2010. Not many disasters have produced more litigation than this one, and so, of course, insurance litigation was a component in that slew of cases. This case was one of them.

BP was the developer of the oil field, and it sought coverage as an additional insured under an insurance policy that was part of the drilling contract, since it required that BP be named as an additional insured for “liabilities assumed” under the contract. On this basis, the Texas Supreme Court reasoned that BP’s coverage was limited to the items listed in the drilling contract.

This might strike those who followed the ATOFINA case as paradoxical. But this is not so. The ATOFINA case involved an external document which was a separate insurance policy, of sorts, and did not name specific restrictions on coverage. The policy at issue in Deepwater Horizon contained exactly that, a list of states of affairs for which BP did not have coverage.

The Subrogation Case

The Texas Supreme Court had treated a piece of the ExxonMobil case before it had to consider and decide that fundamental issue in the case, a decision that was based, the Court said, on over a hundred years of Texas precedent. (Indeed, the decision and the basis for it, at least seem to flow smoothly and without question from an established and unbroken line of precedents, it does not appear that the Court is making anything like a decision new in substance or depending on anything like an innovative argument. Perhaps, that is why this decision, which has enormous implications for interpreting at least contracts of insurance, is contained in a relatively few pages, some of which are spent in disdainfully criticizing the work of the court it is reversing.

(The concrete decision itself will likely affect very few cases directly – probably only large, sophisticated insurance disputes, where many documents are being argued about to advocate successfully the meaning of the insurance policy’s language. At the same time, the more abstract features of the decision’s emphatic review of principles of interpretation are likely to have a lasting effect, on (1) citing unifying, authoritative cases in coverage controversies, if nothing else, and (2) how groups of interrelated documents are drafted and arranged in complex insurance cases where a diversity of factors may be involved. (One must remember and embrace the proposition that certain language must be clear when one wants a document external to an insurance policy to become something like a part of that policy, if for nothing else than being a measuring rod for determining what the policy language means.)

The previous Texas Supreme Court’s treatment of the case made passing and uncontroversial reference to the principal rules for deciding when an external document could become something like a part of a contract of insurance. The subject of the earlier 2019 decision concerned subrogation rights under worker’s compensation policies and related waivers of those rights. The fact that the main focus of the 2023 opinion was the insurance policy itself and not the service contract between Savage and ExxonMobil, whereas the 2019 opinion focused on the service agreement and not the policy looks troublesome, it is not. Two different types of issues were being decided. The one in the 2023 decision was the impact of an external document on the meaning of the policy, while the 2019 opinion focused on matters outside the policy and to what the parties had agreed regarding subrogation rights and waiving them.

A Quinn Question. The discussion of the cases this blog post is considering are all insurance law cases. They are all about how external sources can be used authoritatively to explicate the meaning of contract language in contracts of insurance. How can such external documents be “incorporated” into – made something like part – of the contract itself? The way all this is laid out in cases and discussions of them makes it sound like what is being discussed are contracts of insurance alone. But is this 100% likely? Won’t many of the discussion points discussed in the various cases reviewed here also apply – at least to some extent – to many sorts of contracts and not just those of insurance?

Two Postscripts

Logic and abstract analysis suggest to me that the ideas brought into focus in ExxonMobil should probably apply to a variety of different contracts. But no one else seems to think so. Isn’t that odd, at least to some extent? Surely insurance contract law can’t be that unique.

The Supreme Court repeats several times that there is an unbroken line of cases standing for the rules it has outlined in ExxonMobil. Yet since the Goddard case (1886), a lot of time has passed in a society where industrial and commercial life proceed rapidly. This truth is captured nicely by the very different context in which the key decision was made in Goddard than the onefound in ExxonMobil. No situation like the one Goddard faced could develop today. Our system of commercial ideas has changed substantially. I cannot even imagine asserting what an applicant for insurance, providing the insurer with a warranty.

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