The U.S. Supreme Court ruled today that Travelers may remove a class action to federal court despite the named plaintiff's stipulation to limit damages to $5 million (the threshold for removal under the 2005 Class Action Fairness Act). See Standard Fire Insur. Co. v. Knowles.
Greg Knowles sustained hail damage on his house, and accused his homeowners carrier, Travelers Cos. Inc.'s Standard Fire Insurance Co., of refusing to pay for general contractors. Mr. Knowles brought this as a class action, but signed a stipulation to cap damages for the class members at $5 million. He argued that the stipulation prevented removal under the Class Action Fairness Act. He sought to maintain the case in Miller County, Ark., state court, generally thought to be plaintiff-friendly.
In a unanimous ruling written by Justice Stephen Breyer, the Court held that the stipulation was not binding on other class members.Before class certification, "Knowles lacked the authority to concede the amount-in-controversy issue for the absent class members."
Legislators friendly to the plaintiff's bar in New York are taking the opportunity presented by Hurricane Sandy to introduce legislation that would increase the costs and risks of litigation for insurance companies in New York.
We identify two key components of this new proposed legislation, Assembly Bill 5780. First, it would essentially create a new "bad faith" tort in New York, by permitting first party plaintiffs the opportunity to recover attorney's fees and punitive damages. However, these remedies would only be available when the governor declares a disaster.
While these new remedies will catch the most attention, a second component of the bill may have greater practical effect. It threatens expensive discovery against insurance companies by allowing plaintiffs to bring an injunctive claim about an insurance company's general claims practices, well beyond the plaintiff’s individual claim at issue. Akin to a class action, such a claim would give plaintiff’s attorneys a new tool to extort expensive settlements. Insurance companies sometimes have little choice but to settle these cases regardless of merit simply to avoid expensive discovery.
Unlike expensive insurance states like California, New York has not previously recognized the tort of "bad faith" in first-party insurance cases. This generally prevents first party claimants from recovering punitive damages and attorneys fees in New York. Rather, policyholders can sue only for a breach of contract, and recover the benefits to which a court or jury finds they were entitled in the first place. This was expanded in 2008 to include damages in excess of the coverage benefits upon a showing that the excess damages were a foreseeable consequence of improper claims handling. Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187, 886 N.E.2d 127 (2008).
This bill would, therefore, trigger a seismic shift in the landscape of first-party coverage litigation in New York, though only when the governor declares a natural disaster.
In John Crane, Inc. v. Admiral Ins. Co, No. 093240 (Ill. App. Ct., March 5, 2013) (First District), the Illinois Appellate Court held that under Illinois law: (1) an insured must horizontally exhaust all primary coverage before the excess coverage is implicated, (2) excess insurers have standing to challenge agreements between the policyholder and the primary insurers if the excess insurers’ rights are impacted; (3) insurers are jointly and severally liable for all policies triggered by the underlying asbestos claims; (4) the “triple trigger” theory requires a policyholder to establish the exposure, sickness or disease occurred during the policy period; and (5) “bodily injury” occurs at the time of exposure.
Some readers of this site may have seen my recent article on modern legal developments that tend to undermine the attorney client privilege.
That concern grows with this new decision from the Washington Supreme Court in Cedell v. Farmers Insurance finding a presumption against privilege for attorney communications and work product in a claim file: "To accomodate the special considerations of first party insurance bad faith claims, except for under insured motorist (UIM) claims, the insured is entitled to access to the claims file." The presumption can be overcome "upon a showing in camera that the attorney was providing counsel to the insurer and not engaged in a quasi-fiduciary function."
