I hesitated to write this blog post, which is intended to be nonpolitical. We’re currently in the middle of an exceedingly nasty election season, and any topic that even remotely touches on politics is likely to lead to online mayhem. But I was intrigued by the confirmation hearings I watched yesterday for President Trump’s Supreme Court nominee, Amy Coney Barrett, especially given an insurance decision that she once wrote. She often says that when she criticizes a judicial decision, she isn’t personally criticizing the judge who wrote it. I am posting this brief article in the same spirit.

Whatever your political views, it’s fair to say that Judge Barrett is a very smart person. She is a law professor, and also (as I write this) a sitting judge on the Seventh Circuit. But the one time she dealt with insurance issues,  I feel that her logic was exceedingly wrongheaded. I guess she eventually agreed, since she withdrew the decision. The mistaken decision again shows us why insurance companies prefer litigating before conservative judges in federal courts, rather than in the state court system. Conservative judges tend to favor insurance companies. That’s not intended to be a political statement; it’s just an observation based on many years of experience. (And I respectfully decline to disclose any of my personal political views!)

The case, Emmis Communications v. Illinois National, dealt with the question of Directors’ and Officers’ liability coverage for litigation resulting from a complicated plan to take a company private. In 2010, seven separate shareholder lawsuits were filed against the policyholder, Emmis, after the go-private plan was abandoned. Emmis reported the lawsuits to its carrier, Chubb, which accepted coverage under a reservation of rights. The lawsuits were voluntarily dismissed, and no class was ever certified. Later, in 2011, a major shareholder filed a derivative action against Emmis’s Board of Directors, relating to an aspect of the collapsed deal. Chubb eventually accepted coverage for that suit as well.

Then, in 2012, five preferred shareholders brought suit against Emmis under federal securities laws, alleging some facts that were similar to those relied upon by plaintiffs in the prior cases. Chubb denied coverage on the ground that the 2012 securities case wasn’t related to the earlier cases, which contained different claims, so Chubb had no obligation to defend.

So, if the cases weren’t related, and the 2012 case was an entirely new and different matter, Illinois National (the carrier in 2012) was obligated to provide a defense, right? Right?

The beauty of insurance policies, from the carrier’s perspective, is that they’re like exploring a wonderful forest! So many arcane exclusions and limitations hiding in all the nooks and crannies!

Here, the Illinois National policy excluded claims “as reported under [the Chubb policy].” Too bad, so sad, said Illinois National. You reported the claim under the Chubb policy, so you’re out of luck. (Never mind that Chubb denied coverage. That’s a mere technicality.)

Emmis sued Illinois National to enforce coverage. In the District Court, Emmis argued that the language of the exclusion was ambiguous, and that it only applied to claims that already had been reported to Chubb at the time the Illinois National policy went into effect. The District Court took mercy on Emmis, writing as follows.

The Court disagrees with INIC that the relevant language is unambiguous. The term “as reported under [the Chubb Policy]” could be read to refer to any claim that is reported under the Chubb Policy at any time, as urged by INIC, but it also reasonably could be read to refer to any claims that had been reported under the Chubb Policy at the time the INIC Policy went into effect, October 1, 2011, as urged by Emmis.

Emmis Commc’ns Corp. v. Ill. Nat’l Ins. Co., 323 F. Supp. 3d 1012, 1023 (S.D. Ind. 2018).

Enter the Seventh Circuit, and Judge Barrett, who reversed the District Court, and, ignoring the rules of construction and the purpose of insurance (which is “to insure”), wrote:

On appeal, the parties briefed many legal issues arising from the Byzantine exclusion language. But we can resolve this case on a single issue: the meaning of “as reported.” We disagree with the district court’s opinion; Illinois National’s proposed interpretation is correct. The phrase has no discernable temporal limitations. Once Emmis or one of its agents reports a claim to Chubb, at any time, then that claim is “reported”—and so is excluded. The timing of the report is irrelevant. Emmis acknowledged in its brief that it did in fact report its claim to Chubb. That resolves our inquiry. The exclusion applies, so summary judgment should have been entered in favor of Illinois National.

Emmis Commc’ns Corp. v. Ill. Nat’l Ins. Co., No. 18-3392, at *3 (7th Cir. July 2, 2019).

One reason I find this decision interesting (apart from the general concept that a “Byzantine exclusion” is unambiguous) is that, when I listened to Judge Barrett testify, she talked about using secondary materials to discern the true intent of the framers of the Constitution. I’m not sure why interpreting a “Byzantine exclusion” should be any different. There is no reasonable way that a policyholder would buy a policy that allows for a disclaimer of coverage, leaving the policyholder to its own devices, simply because more than one carrier had been notified of the loss. If you’ve been involved in insurance coverage for a while, you know that the “as reported” language is designed to prevent coverage for “known losses” – namely, the “fortuity” argument that insurance companies often trot out. (The validity of the so-called “known loss” doctrine is a topic for another post.) The language is not designed to cause a forfeiture of coverage for a claim that’s different from a claim that was reported under a prior policy.

Emmis moved for reconsideration and, to their credit, Judge Barrett and the panel quietly reversed their prior decision and affirmed the grant of coverage, for the reasons stated in the District Court decision. The language was ambiguous, and had to be construed in the policyholder’s favor. Emmis Comm. Corp. v. Ill. Nat’l Ins. Co., 937 F.3d 836 (7th Cir. 2019).

Here are a few takeaways from this case.  First,  Emmis did the correct thing here. Do not notify carriers selectively. Notify every carrier that potentially could provide coverage. Force them to take a position. Second, if you have to litigate, be prepared to deal with judges who don’t fully understand insurance law. I’ve been practicing coverage law for 35 years, and I learn something new every day. Yet we expect judges to master every area of law, from Admiralty to Zoning, which is simply unrealistic. And finally, don’t give up too easily. As Emmis happily learned, if you refuse to take “no” for an answer, sometimes good things can happen.