Insurance and Warranties
Before reading this summary, please read the overview for context.
Emmis Communications Corp. v. Illinois National Insurance Co. (2019)
Emmis Communications Corp. was insured by Chubb Insurance from 2009 to 2010. In 2011, it purchased insurance from Illinois National Insurance. Emmis’ policy with Illinois National excluded “[a]ll notices of claim of circumstances as reported under policy 8181‐0068 issued to Emmis Corporation by Chubb Insurance Companies.” [1-2]
In 2012, Emmis was sued by shareholders. Emmis reported the suit to Chubb. Illinois National refused to cover the lawsuit on the grounds that the suit was covered by the exclusion. Emmis sued for breach of contract, arguing that the exclusion only covered events that had been reported to Chubb when its policy with Illinois National went into effect. 
Judge William Lawrence granted summary judgment for Emmis. The court of appeals disagreed. In a single paragraph, Judge Barrett explained that because the phrase “as reported” had no temporal limitations, a claim reported to Chubb at any time was excluded. 
Emmis subsequently petitioned for rehearing and rehearing en banc, arguing that the three-judge panel had not applied Indiana law as it was required to do. [Emmis Petition at 1] In particular, Emmis cited extensive Indiana law requiring that ambiguous insurance contracts be construed in favour of providing coverage if possible. [Emmis Petition at 11-13]
After considering Emmis’ petition, the panel withdrew and vacated this opinion, affirming the district court’s judgment “for the reasons stated in [that decision].” [Emmis Order]
Fiorentini v. Paul Revere Life Insurance Co. (2018)
Henry Fiorentini ran a small IT company that catered to other small businesses. His insurance policy with Paul Revere Life Insurance Co. provided for total disability coverage when “because of Injury or Sickness . . . [he is] unable to perform the important duties of [the occupation in which he is regularly engaged at the time he becomes Disabled].” 
In 2008, Mr. Fiorentini developed cancer, requiring amputation of his right ear followed by other surgeries and radiation therapy. This left him with several major side effects that completely prevented him from working. [2-3] Paul Revere paid him total disability benefits. By 2014, Fiorentini still had symptoms that interfered with his work, including tinnitus and fatigue. Nevertheless, he had resumed the discharge of most of his duties, albeit for fewer hours than before.  Paul Revere therefore informed him that he was no longer eligible for total disability coverage but encouraged him to apply for residual disability benefits.  Fiorentini did not apply, instead suing Paul Revere for (among others) breach of contract. Judge Charles Norgle granted summary judgment for Paul Revere. 
Fiorentini argued that he was totally disabled because he was not able to perform sales. Fiorentini argued that only he could bring new clients to his firm, that he could only do so by meeting prospective clients in person, and that his symptoms made doing so prohibitively difficult.  Judge Barrett disagreed: even if he were totally unable to make sales, Fiorentini was able to run his company, albeit with more difficulty and less success than before; under the terms of his policy, this did not constitute total disability, as demonstrated by the existence of residual disability benefits that may have covered him. [4-5] Additionally, Judge Barrett held that the evidence Fiorentini had introduced was not sufficient for a juror to consider him unable to make sales: Fiorentini was able to visit and speak with existing clients; he was able to conduct one-on-one meetings with other persons; Fiorentini could not explain why prospective clients would be any different; and Fiorentini had put significant time and effort into demanding (and often sociable) hobbies, namely flying and ice hockey. 
Therefore, Fiortenini could not recover further total disability benefits.
Mathews v. REV Recreation Group, Inc. (2019)
The Mathews family bought a recreational vehicle manufactured by REV Recreation Group. They were told the terms of warranty but not given a hard copy until a year later. [2, 4] All express and implied warranties were limited to a year. The Mathews had to notify REV or an authorised dealer within five days of discovering a defect. REV would repair or replace the defect and, if it was unable to do so after sufficient opportunity, would pay for a third party to repair the defect. 
The RV was thoroughly broken. The Mathews constantly uncovered new problems, many of which required the RV to be repaired. They informed REV about some but not all of these defects. [2-4] Finally, after REV refused to buy back the RV, the Mathews sued REV.
Judge William Lee granted summary judgment to REV, holding that the warranties were not unconscionable and REV had not breached them, because the Mathews had not given REV a reasonable opportunity to cure any defects. Judge Barrett came to the same conclusion. The Mathews’ claims that REV had breached its express warranty and the implied warranty of merchantability both failed because they had given REV only two opportunities to repair the RV. Under Indiana law, this was sufficient neither for an express warranty to fail its purpose nor to exhaust the opportunity to cure a lack of merchantability. [6-7] Barrett held that the Mathews had failed to properly argue that they had no obligation to permit cure. [Note 2 on page 7] Moreover, the Mathews had not tried to avail themselves of the back-up remedy that REV pay for others to perform repairs.  Mathews therefore needed to argue that the warranty was unconscionable but Barrett rejected this argument: the Mathews had used the warranty to obtain repairs before receiving a hard copy, so could not claim that the lack of hard copy was unconscionable; and the limited duration of a year was not enough on its own. 
Mathews had also sued under the Indiana Deceptive Consumer Sales Act and Magnuson-Moss Warranty Act.  Because they could not establish that REV breached the warranty or that the warranty was unconscionable, the court found these claims failed. 
Varlen Corp. v. Liberty Mutual Insurance Co. (2019)
Varlen Corp. was insured by Liberty Mutual Insurance Co. Its insurance policy did not cover property damage arising out of chemical leaks or discharges, unless the leaks were “sudden and accidental.” [2-3]
To spare you the unnecessary details, two of Varlen’s facilities that became contaminated by chemical leaks, costing it millions of dollars. Varlen sought reimbursement from Liberty Mutual, which denied it based on the exclusion of chemical leaks. Varlen sued.
Varlen hired Daniel Rogers, a geologist, to prove that the leaks were sudden and accidental. He opined that one leak was sudden and accidental because it was not intended and occurred in sudden spurts when the sump failed, which he knew from experience with sumps generally and those particular sumps specifically. He argued that the other site was contaminated suddenly and accidentally because part of it was too contaminated to have occurred by minor leakage and such a large discharge would have been too expensive to be intentional, and part of it was where the chemical was stored so the chemical must have leaked out all at once.  Judge Joan Gottschall struck this expert testimony as unreliable and speculative, then granted summary judgment for Liberty Mutual. 
According to Judge Barrett, Rogers’ testimony was Varlen’s only evidence that the release was sudden and accidental. [4 and note 1 on the same page] Judge Barrett held that the district court had not abused its discretion in excluding his testimony. For various reasons that are difficult to summarise, Judge Barrett stated that Rogers had failed to explain his methodology or adequately link his conclusions to his education and experience. [5-6] Without Rogers’ testimony, Varlen had no case, so the district court had been right to grant summary judgment.
Fessenden v. Reliance Standard Life Insurance Co. (2019)
Although this case does not technically address contract law, I include it here because it relates to insurance policies.
Donald Fessenden worked for Oracle in 2008. Fatigue and migraines forced him to stop working, so he sought – and received – short-term disability benefits from Oracle’s insurer, Reliance Standard.  Oracle then terminated Mr. Fessenden. Years later, Fessenden sought retroactive long-term disability benefits from Reliance Standard. [2-3] Regulations gave Reliance Standard 90 days to decide on Fessenden’s request. For various reasons, some of them arguably Fessenden’s fault, Reliance Standard was not able to meet this deadline. [3-4] After the deadline passed, Fessenden sued Reliance Standard in district court. Reliance Standard issued its decision eight days later, denying coverage. 
If Reliance Standard had issued a decision on time, Fessenden would not have been able to sue until he had exhausted internal procedures to challenge it. The court then would have been obligated to accept Reliance Standard’s decision unless it were arbitrary or capricious. If Reliance Standard had never issued a decision, the court could review Fessenden’s claims on its own terms. [4-5] Judge Phillip Simon decided that Reliance Standard had substantially complied with the deadlines and that its denial of benefits was neither arbitrary nor capricious. He therefore granted judgment as a matter of law to Reliance Standard. 
Fessenden argued that the exception for substantial compliance, which was developed by judges, had been eliminated by amendments to ERISA regulations in 2002. While the court did not full embrace this argument, it did conclude that missing a deadline precluded substantial compliance. Judge Barrett opined that to permit “substantial compliance” with a deadline was both inconsistent with the purpose of the 2002 amendments, which balanced the needs of insurers with the needs (including the need for haste) of plaintiffs, and precluded by the express requirement that “in no event” shall the delay exceed a certain period. [10-11] Barrett also concluded that to apply the substantial compliance doctrines to missing deadlines would be theoretically incoherent, because the deadline applied when an insurer’s failings nevertheless permitted “effective review” of its decisions, but a missed deadline meant that there was no decision to review. [10-13] Finally, permitting an insurer to reach a decision after litigation had begun would hinder that litigation and grant the insurer an unfair advantage over the plaintiff. [13-14]
Therefore, although many other circuits had reached a different conclusion, the court reversed the summary judgment. Fessenden will now be able to argue to the district court that he is entitled to long-term disability benefits.
Lexington Insurance Co. v. Hotai Insurance Co., Ltd. (2019)
I added this on 12th October, having initially classified it as tort rather than contract. Mea culpa.
Trek is a bicycle manufacturer in Wisconsin. It purchased parts from two Taiwanese companies and was listed as an additional insured on their insurance policies. Both policies were with compatriots of the sellers. The policies covered events “worldwide” and permitted, but did not require, the Taiwanese insurance companies to litigate or settle a covered claim. Both policies mandated that disputes be decided in Taiwan under Taiwanese law, in one case by arbitration and in the other by a Taiwanese court. [2-3] Trek also had comprehensive general liability and commercial umbrella insurance policies with Lexington Insurance Co. 
Trek was sued in Texas by a customer who had become paralysed when his bicycle collapsed.  Lexington defended Trek, attempted to notify the Taiwanese insurers, and paid the settlement. When the Taiwanese insurers refused to pay, Lexington sued them. Chief Judge James Peterson of the Western District of Wisconsin, Madison Division, dismissed the case for lack of personal jurisdiction. 
The question before the Court of Appeals was whether due process permitted the court to exercise personal jurisdiction over the Taiwanese companies on the grounds that the court had specific jurisdiction over disputes arising from the insurance agreements. [4-6] Citing Walden v. Fiore, Judge Barrett wrote for the Court that contacts with residents of the forum were not sufficient to satisfy due process. Rather, the defendant must have minimum contacts with the forum itself.  Judge Barrett held that these requirements were not met: the insurance contracts had been drafted and negotiated by Taiwanese companies in Taiwan; the contracts required disputes to be resolved in, and under the laws of, Taiwan; and the Taiwanese insurers had never visited Wisconsin or sought the business of any of its companies.  At most, the Taiwanese insurers had sent a certificate of insurance to Wisconsin. [7-8 and note 4 on the same pages] This did not show that the companies had incurred minimum contacts by purposefully availing themselves of the Wisconsin market. 
Lexington argued that the presence of Trek as an additional insured on the policy constituted purposeful availment. Judge Barrett held, citing Walden and Burger King v. Rudzewicz, that Supreme Court precedent foreclosed the argument that contact with a forum state resident was sufficient to incur personal jurisdiction. [8-9] Lexington also argued that the worldwide coverage provision conferred jurisdiction but Judge Barrett rejected that argument. Although the insurance companies profited from worldwide coverage by charging higher premiums, Judge Barrett held that profit was not equivalent to doing business within the forum, citing World-Wide Volkswagen Corp. v. Woodson. [9-12] Judge Barrett also cited World-Wide Volkswagen to reject the argument that global coverage rendered global lawsuits foreseeable; that was true but foreseeability was not sufficient to incur personal jurisdiction. [12-13]
Finally, Judge Barrett distinguished the numerous cases that Lexington cited in support of jurisdiction. She held that all those cases were inapposite, because the policies in those cases had committed the insurer to defending lawsuits elsewhere, which the Taiwanese contracts had enabled but not obligated the insurers to do. [13-14] Although Lexington cited one case that was factually analogous, TH Agriculture & Nutrition v. Ace European Group, Judge Barrett held that this case (which the plaintiffs had lost anyway) was undermined by more recent Supreme Court decisions. [14-17] In passing, Judge Barrett also mentioned that contacts with Wisconsin under the worldwide coverage clause (had it existed) would not necessarily have extended to covering the results of a Texas lawsuit. [Note 7 on page 17]
Therefore, the suit was dismissed. If Lexington wants to recover its costs, it will have to sue and arbitrate in Taiwan.
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