Hi, welcome to today's webinar, Manuscript Policies, Legal Considerations, hosted by Inland Marine Underwriters Association. I'm Lillian Coulson, and I thank you for joining us today. Registration was incredibly robust with over 241 attendees registered, and we look forward to your participation today. I'd like to recognize IMUA's Legislative and Regulatory Affairs Committee for bringing this webinar topic to fruition. And thank you also to our presenters, whom I'll introduce shortly, as well as to Eileen and Ali Monreale for working closely with our presenters to coordinate the planning of this webinar. Just a few quick technical tips before we begin the webinar. You'll find your attendee control panel on your screen, and it may minimize by default. At any point, you can right-click the orange arrow icon to bring it back. Also, you can select view on the control panel and the uncheck auto-hide option. You may download a PDF of the presentation under the handout tab in your control panel. In the control panel is also where you will find the questions tab. Please share questions today throughout the session, and our presenters will take questions as time permits during the webinar, and then there will be a final Q&A at the end of the webinar. To encourage your questions today and to add a little competition, IMUA will email a $25 Amazon gift card to one attendee for the most engaged and or best question. So, let's get started. Please be aware of the IMUA policy statement. And it's my pleasure to introduce today's presenters. Joe Grasso is a partner in Wig and Dana's litigation department and co-chair of its insurance practice group. Joe has over 35 years of experience dealing with a wide variety of insurance matters and has represented IMUA and our close friends AIMU for the past 24 years. In addition to his practice representing underwriters, Joe is a NATO civil maritime expert in the field of insurance. He has spoken and written expansively on insurance topics and has co-edited two textbooks on insurance published by the American Bar Association. The Handbook of Additional Insureds and the Reference Handbook on the Commercial General Liability Policy. Leah Manti is an associate in the insurance practice group of Wig and Dana's litigation department. She has worked on a wide variety of insurance matters, practicing primarily in the area of maritime insurance, maritime law, and commercial insurance in the coverage and defense of complex claims. Leah has also contributed to a textbook recently published by the ABA, the Reference Handbook on the Commercial General Liability Policy, third edition. Both Leah and Joe are members of numerous industry organizations including the U.S. Maritime Law Association and the Association of Average Adjusters of the U.S. and Canada where Joe is the immediate past chair. Now let's give a warm virtual welcome to Joe and Leah. The floor is all yours. Thank you for that very kind introduction, Lillian, and I'd like to add my thanks to Leah for helping with this presentation. The topic arises, as Lillian said, it was the idea of the Legislative and Regulatory Affairs Committee, which Leah and I both do some work for. But the topic arises from a presentation I did on this topic back in 2002, hard to believe, October of 2002. So 21 years ago is the last time IMUA had this topic presented to its members. So we're happy to be here today and give you a 21-year update on the topic. It might be Lillian and I might be the only two who were actually there in 2002 for that presentation. And before we get started, and Leah, if you want to go to the agenda page, before we get started, I think some of you know I'm based in Philadelphia. So I have to say before we start, go Phillies, go Eagles. So today, if we can, if we're able to advance to the next slide today, just give you a brief summary of what we're going to cover. We're going to go through sort of an overview of standard form and manuscript policies, tell you what they are, how they're treated. We're going to talk about the regulatory implications of manuscript policy forms. And then the bulk of our time, I think, is going to be spent on policy interpretation issues. And you'll see the bullet points listed here. We're going to go through each one of these concepts and how they impact primarily court's interpretations of manuscript insurance policies. And then we'll move to a number of case studies. I think we have six fairly recent court decisions we're going to discuss with you involving manuscript policies. And finally, we will leave some time for Q&A at the end. As Lillian said, however, we're happy to take questions along the way, and we'll stop every now and then to see if anyone's got questions on what we've covered recently. So before we get into the meat of the presentation, I think Leah's going to have some polling questions so we can get to know you, our audience, a little better. Thanks, Jo. Yeah, so we just prepared a couple of polling questions. And I think Allie's going to help us with that. So if you want to go ahead and select what job title best describes what you do. Are you an underwriter? Are you in claims? Are you a broker? Are you a reinsurer? Or do you qualify as other? So Leah, since you're sharing your screen, I'm not sure if you're going to see the polls on the polling results. If you don't, I'm sure Jo can just respond to them, but maybe you'll see them. I'm not. Yeah, I'm not able to see them. Okay. I will jump in. I'm seeing them, and we've got a huge majority of underwriters. I think, not surprisingly, 74% of our audience are underwriters. Only 1% are claims people. So, well, we'll be talking about claims quite a bit, but that's as good for underwriters as for claims people. 4% brokers, 1% reinsurer, and 21% other, which we probably should have a breakdown of that, but I assume that is lawyers, surveyors, and other sort of ancillary jobs. So that's the breakdown. Okay, great. So question number two. How much experience do you have in the industry? Less than two years, two to five years, five to 10 years, 10 to 20 years, or even more than Kevin O'Brien? And chances are, if you don't know Kevin O'Brien, then you're not selecting number five. All right, we've got the results back quickly. Maybe we'll just give them 10 more seconds to vote, it looks like. We have a fairly experienced audience, so we've got our work cut out for us, Leah. We have only 2% newcomers, that is people that have been in the industry less than two years, 8% two to five years, 8% five to 10 years, 47% 10 to 20 years, and 34% even more than Kevin O'Brien. So maybe there are some others besides Lillian and me who were there in 2002. Okay, great. So last question for now, we'll just table them since we'll have many more polling questions to come. Have you ever been involved in a coverage dispute involving a manuscript policy? Yes, no, or what's a manuscript policy? That's why I'm here. All right we've got the answers answers in and we have 36% just over a third said yes they have been involved in the dispute involving a manuscript policy. 63% are about two-thirds said no they haven't and so they have some will have some information to give to them and 1% said what's a manuscript policy so it looks like most of the audience has a little bit of experience with this. Okay great I'm gonna turn it back to you Joe for the overview. Okay so I think probably most of us know what a manuscript policy is and how it varies from a foreign policy. Foreign policies are are what you might expect to see in your auto or homeowners policy those are pre-printed or standard wording I think we all know what those are and they generally maybe most importantly are not negotiable so obviously when you buy your homeowners insurance or your automobile coverage you generally don't get to negotiate the terms you're presented with a price and a policy form and that's that so that's a foreign policy not negotiable generally prepared by the insurer and on a pre-printed form. Manuscript policies on the other hand are custom-tailored or what the London market calls bespoke policies the same way they refer to their custom-made suits bespoke tailoring and that means that the policy itself is put together for specific risk it has specificity of terms and generally it's negotiable and you'll see these often and generally in the commercial PNC area we're going to be talking today about property coverage for the most part we're here obviously talking to the IMUA so we're going to focus on property coverages not liability coverages and these are the policies that courts sometimes struggle with interpreting and which raise as we're going to see in a minute some interesting regulatory issues and some other legal issues. I just we noted hybrid policies at the bottom because and actually most of the cases case law interpreting manuscript policies really involve hybrid policies and that is a combination of some pre-printed forms and some bespoke wording so we'll look a little bit later about how courts grapple with the issue of combined or hybrid policies. So let's move to the next slide Leia and here Leia and I broke our own rule by putting too much on a single PowerPoint slide apologize for that but we thought we would include I don't intend to read this but we thought we would include how the insurance law treatises describe manuscript policies and these are from Appleman on insurance which is one of the Bibles of insurance law that Leia and I use and other insurance lawyers use all the time and this is how Appleman describes manuscript policies and for the most part you know they're as you see here they say insurers issue policies based on standardized forms but as I said before manuscript policies really are one-off and have bespoke wording and this as you'll also see on the slide often appears where you have a large corporate insured or what was referred to later as a sophisticated insured who actually does have the ability to negotiate the terms of an insurance policy or who you know will assist on certain for example manuscript endorsements so there may be a standard form policy to which is appended you know specifically tailored endorsements or and perhaps other you know specifically tailored forms as well so that's Appleman. Leia if we can go to the next slide we have a little bit more information on how the insurance law treatises describe manuscript policies and here we see some examples of you know policies that are commonly manuscript forms and they often appear in excess and umbrella policies again that's liability policies we're not going to go into that too much DNO and E&L policies not surprisingly generally tend to be manuscript forms or bespoke wording I would also note that merger and acquisition reps and warranty policies not surprisingly are generally bespoke policies we see a lot of those and a lot of commercial property policies and some of the cases we'll talk about later involve commercial property those are manuscript policies too I guess I should point out that the manuscript can be prepared by either the underwriter or the insured and with big sophisticated insured sometimes they supply the wording or the boarding can even be supplied by the broker and we'll talk a little bit later about the role of brokers and agents in policy forms we did want to mention builders risk here obviously an inland marine line and generally builders risk policies or manuscript or at least hybrid policies because those tend to be you know insurance on large projects with sophisticated insureds there's a reference at the bottom here to one of our treaties on insurance law that's couch on insurance sort of the same standing as Appleman on insurance law so again this is from the well-known and well-respected insurance law treatises lady you want to take the next before we and before I get to that slide I just wanted to point out I believe these slides will be available afterwards so we wanted to include some of these wordier quotes just so for reference later on in case you want to refer back to these and so since we have an experienced audience no need to go into this heavily but we just thought this was a nice graphic since courts interpret insurance policies as contracts we just walked through the contract formation the advertisement by an insurance company is the invitation to make an offer the application by the potential insured or the quote produced by the insurance company is the offer and then the approval or acceptance of the quote by insured is the acceptance and then premiums paid or the promise by the insurance company to indemnify is the consideration which closes the loop and forms a contract does anyone have any questions at this stage before we get into the regulatory implications Lillian no questions at this time perfect either that's all been very clear everyone's already asleep so all right well let's move to some of the regulatory implications and again as Lillian said at the outset this this topic in this webinar was the idea of the Legislative and Regulatory Affairs Committee and so we want to give them a shout out and hopefully most of you are aware of this document which is on the IMUA website it's an underwriters guide to state rate rule and form filings for inland marine it's been fairly recently updated I know the date on the version on the website is 2021 to 2022 I I seem to recall that we updated even more recently than that but it's a great resource and I know it's used and relied on heavily by a lot of IMUA members so we just wanted to you know make you aware of it and I'm gonna cover a couple of slides that summarize the contents and and then Leo is going to take a couple of examples just to show you how manuscript policies are can be treated differently from standard foreign policies for regulatory purposes so this is the introduction that actually appears in the guide and I'm not going to read it but there is a disclaimer not surprisingly which I think we drafted at the bottom there and you know it the the committee has done a lot of work on this it involves a fair amount of research on each individual state plus DC Puerto Rico and the US Virgin Islands so you have 53 different legal regimes that have had to be researched and updated here and and the guide includes rate and form filing requirements for in inland marine forms for all 53 of those jurisdictions it relies on or I should say it covers statutes and regulations it doesn't cover individual letter rulings which may be an individual company may have obtained but it's a pretty comprehensive guide for rate and foreign filing requirements for inland marine so late if we can just go to the next slide this is also in the guide before we get into the states and again it's just some background information on generally on rate and form filing requirements and I would just draw your attention to the to the bottom part here and that is that this is you know the regulators do treat or can treat manuscript policies differently from standard foreign policies and so if there is a form filing requirement in a particular state as we'll see in a minute the regulators may exempt manuscript forms from the form filing requirement so that's just the sort of the general note and as I said Leah's gonna take take us through two examples states that are you know relatively important insurance centers yep so thanks Joe the this is just an excerpt from that guide that Joe was just talking about and as you'll see at the top we have the filing requirements under the statutes of New York any applicable exemptions which I'll talk about this highlighted portion in a second citations to the law so it's an easy reference and as we stated in the disclaimer this is reasonably up-to-date but it's always subject to change based on legislative changes and then additional any additional requirements so as you'll see in this form exemption piece policy forms for in the marine risks where the rates for such risks by general custom of the business are not written according to manual rates or rating plans are exempt so it doesn't necessarily matter whether the policy is manuscript or not in New York and we're going to contrast that with Virginia where it specifically exempts manuscript forms and endorsements as you'll see here and also provides a few additional bullets for the types of risks or endorsements that are exempt there's one other slide here but we just wanted to focus on that highlighted portion does anyone have any questions on the regulatory piece so you know questions in at this time but everyone is still wide awake and with you well we'll see if anyone does have any questions yeah if anyone does have any questions please pipe them in and and we'll submit them and we'll make sure that the presenters there's an Amazon gift card on the line everyone absolutely right okay well let's move to yes sorry Leah thank you we're going to move on to some issues of interpretation although these next few slides really do sort of overlap between regulatory impact and interpretation issues I'm just going to go over a couple of topics that the insurance regulations cover in general terms you know this whether it's a manuscript or a standardized policy there's certain regulations in most states that underwriters of course have to heed so one is readability requirements and not all states have this but many states insurance regulators have passed regulations that require that policies be readable to a certain extent whatever that means and so here's an example of what that can mean these are pretty general statements obviously and providing clear and logical organization eliminating where possible highly technical terms simplifying sentence structure and using simple words but those are some of the things that state regulators require in insurance policies you won't be surprised here that this applies in the consumer setting on the personal line setting more so than the commercial PNC but in you know some we ought to be aware that insurance is regulated on a 50 state basis so wherever you're doing business you should probably know the applicable regulations there so that's readability requirements in general lay if we want to go to the next slide we thought we had to mention the flesh system in many state regulators use this system to determine readability and it's the flesh system scores a sentence or or a series of sentences on a score between one and a hundred with a hundred being very readable and one being obtuse I guess is the way to put it and when the regulations apply at the flesh score they usually require that insurance policies exceed a certain flesh score usually between 40 and 50 which sounds like a pretty low score to me out of a hundred but that's that that's generally what's required in the states that apply the flesh score to readability commentators have doubted the validity of the flesh test and I think we'll see why in a minute and Leia is going to take us through that yes so we're gonna have another poll question in just a second I'm gonna read through these two examples and you can vote based on how many times I trip on the words no I'm just kidding but I'm gonna read through the examples and you can go ahead and vote in a minute so example one for readability theorem let s be a set let it be bounded let it be infinite then there is at least one point of accumulation of s proof s lies in a closed interval call it I 1 divide I 1 into two parts each point in s lies in one part part or the other therefore at least one of the parts contains an infinite number of points of s call this I 3 keep it up etc clearly not an insurance policy language but we'll use it anyways example 2 crackle crackle came interference over the citizens ban radio on Hernandez's 18-wheeler suddenly a sultry voice became audible and purred hello 18-wheeler jockeys this here's Cynthia at Leroy's trucker heaven and it's lonely tonight in Massachusetts how about some of you 18-wheeler jockeys pulling into Leroy's for some exotic relaxation not sure why this is the example either but here we are maybe because it involves motor truck cargo I wonder who was insuring and Hernando's 18-wheeler what do you think Joe I'm not gonna ask her to guess hopefully not a member of IMU a but so which is more readable go ahead and put up the polling question while we wait for the answers to pop up just a reminder that the first one was I think it's fair to say difficult to follow and the second one was about Hernando's 18-wheeler all right and we have the well I think most people got the right answer which is they thought that Hernando's 18-wheeler was more readable than the first one which I certainly couldn't understand oh but then 3% 3% of the people said what's the flesh system so they got to pay attention more closely and maybe paying attention doesn't really matter because actually bullet one got the flesh score of 93 which means highly readable whereas bullet two got the flesh score of 27 not readable so according to the flesh system the majority of you are incorrect which I think explains why commentators have criticized the flesh system but it is still in use in some states regulations so let's we're gonna move quickly to a couple of examples state examples of readability requirements and since we've just described it for you I'm not going to spend too much time on these slides and again this information is in here because as Leah said and as Lillian indicated the presentation will be available for you after the webinar is finished so if you need to know what the New York readability requirements are you can come back and refer to slide 23 but it's it basically follows what we what we talked about earlier in terms of the concepts under which a regulator will determine readability organized and labeled that has requirements for size of type not surprisingly and New York as I said it requires a 45 so as I said earlier between 40 and 50 on the flesh system so New York does use the flesh system uses common words clear and coherent not surprising stuff so if we want to move to the next example this is actually the NAIC example the this is the NIC property and casualty insurance policy simplification model act so as you all know NAIC promulgates model acts and regulations which can or cannot states can determine whether to adopt them states do in large part adopt NAIC model acts and regulations so here's the NAIC model for readability and again it's pretty straightforward and similar to New York and similar to what we talked about earlier simple sentence structure commonly understood words avoidance of technical legal terms meant which is too bad that's going to put lay on me out of business minimal references to other sections or provisions of the policy I think we all know what that's talking about organization and legibility so and finally here the NAIC model acts leave sole discretion concerning enforcement with the Commissioner of Insurance so there you have the NAIC model act on readability now we're going to move on to really move on to the meat of what we want to talk about which is interpretation of manuscript forms interpretation of policy and the first thing we have to talk about when we're talking about interpretation of a policy is to determine which law applies as I said earlier and as we all know insurance is governed on this on a 50 state basis so you know you may or may not know what states law is going to apply to if you have a coverage dispute under your policy you may or may not know what's law state law is going to apply that's a real problem because as we all know the law can be drastically different from one jurisdiction to another in the US with respect to insurance law just for example if you have a breach of warranty do you need causation to decline a claim or not and that varies from state to state so critically important to determine which law applies for most insurance policies you know I'm happy to say I don't think this was a case 20 years ago but nowadays most insurance policies do contain a choice of law provision so the one we see most frequently is New York not too surprisingly since New York is deemed to be a pretty favorable to have fair law favorable to underwriters so for the most part we see New York choice of law I just mentioned the Raiders retreat case here because it is while it's an ocean marine case it's the first marine insurance case that the US Supreme Court has taken since 1955 and I'm UA sister organization a IMU filed an amicus brief in that case and just very briefly it involved a yacht policy that had a choice of law provision in it that the insured sought to and it was a New York choice of law provision and the insured sought to have that invalidated because they the case was pending in Pennsylvania and they had some Pennsylvania state law bad faith claims which they wanted to pursue the trial court that's the federal district court in Philadelphia said nope we're going to enforce the choice of law provision so you can't pursue your Pennsylvania state law claims the Third Circuit Court of Appeals overturned that and said we're state a state has a strong public policy interest in having its law applied in spite of the choice of law of a different state we're not going to enforce it and lo and behold the Supreme Court agreed to hear the case the argument was held on October 10th just a couple weeks ago I was there in Washington DC to listen to it and what worries me is that most of the people in the room thought that the justices would be leaning toward enforcing the choice of law provision and I say that worries me because for some whatever reason sometimes and I talked to some other lawyers about this first of all it's impossible to tell how they're going to rule but sometimes when we think it it goes great it goes the opposite way but we will expect a decision on that case on enforceability of choice of law clauses in the spring. So that's enough about that. Let's just, we can move to the next slide. We'll just have a quick refresher on standard forms versus manuscript forms. We covered this earlier. Standard form policies are pre-printed forms. They are considered contracts of adhesion. What that means is essentially the insurer is presented with a form and there's no negotiating. It's got no bargaining power. And then for standard form policies, the concept of contra proferentum is generally applicable. And Leah's gonna talk about that in a minute, but then just, if we go to the next slide, a quick refresher on manuscript forms, manuscript policies. Again, it's bespoke wording, it's negotiable, and contra proferentum generally is not applicable. So Leah, do you wanna give us a quick few words about ambiguity and contra proferentum? Sure. Thanks, Joe. You had talked a lot, so take a sip of water. On this topic, ambiguity and contra proferentum, we wanted to just go into a couple of the general principles of policy interpretation as Joe spoke about what law applies and then looking at the policy language itself. And when the court interprets it and construes it, if there is any ambiguity that it can be reasonably construed by multiple parties for different interpretations in the language of the contract, it's likely that it will be interpreted against its drafter. And as we talked about in a standard form case, that is most likely the insurer. When there are sophisticated entities, which I will talk about in the next slide, and there's a manuscript policy where they negotiated the language or the endorsements, there's a possibility that the court may not interpret it in favor of the insured. However, when the contract is interpreted against the insurer, a lot of times, or the drafter in most cases, this is known as contra proferentum. So preferential treatment for that party that didn't have a negotiating power or bargaining power. So an exception to this general rule of contra proferentum is when there are sophisticated insureds. So for sophisticated insureds, a lot of times we've talked about them a few times in this class already. It's when you have usually large commercial entities and probably for a lot of you, that's who you're dealing with. These are the insureds who have usually a lot of money, a lot of bargaining power. Usually they're coming to the table and saying, hey, we already know what coverage we want. We know what endorsements we want. We know what we want our premium to look like and things like that. And in that case, sometimes courts construe the policy based on the meeting of the minds of the parties and what the parties who contracted intended. And so kind of the other side of that for in more of a consumer context, we have the reasonable expectations piece. So courts reason that people who purchase insurance rely on others, an agent or the insurer itself, and Joe's gonna talk about brokers in a second, to provide insurance that meets their needs. And like we said earlier in auto or home or other consumer based policies, courts will apply contra proferentum to say, what were the reasonable expectations of this insured party? And a lot of times though, courts will not recognize that doctrine if the policy is not already ambiguous to begin with. So if the policy language is clear on its face, the court is likely to apply the plain language of the policy. Joe, did you have anything to add to those? Just that, no, that's great. Just to that highlights the importance of clear policy wording. And we're gonna talk about that a lot in some of the case studies, but the clearer the wording, the better. Yes, go ahead on brokers. Yeah, so just the role of the broker. And I think I mentioned earlier that policy forms can be prepared by the insurer or by the insured or by the broker. And we've all seen a number of broker policy forms in a couple of the cases we're gonna talk about involve broker policy forms. And how do those get interpreted? Well, the broker is the agent of the insurer and there's almost no exception to that unless you have an agreement by the underwriter that the broker's occupying a dual role or for some reason is the acting as the agent of the underwriter. But in the normal course, unless you have one of those very rare exceptions, the broker is the agent of the insured. So not surprisingly, if it's a broker form, that should not be interpreted. If there's an ambiguity, that should not be interpreted in favor of the insured and against the insurer. And it's probably also a sign that you have a sophisticated insured where you have a broker using its bargaining power to use its form. So that's the role of the broker. And as I said, we'll see that at work in one of the case studies we're gonna look at in a few minutes. And let's go to a couple of other policy interpretation topics. And we're not gonna see, you don't see this very often, but policy interpretation can be affected by public policy. And that just means that a court may or a regulator may take the position that a policy or a term needs to be interpreted in a certain way because of public policy or cannot be in a certain way because it contravenes public policy. So for example, and this is not an insurance example because there aren't many, but for example, if a contract would require the commission of a crime or a tort, that contract's unenforceable. This is stuff we learned in law school. And again, we don't have an insurance example here, but public policy can come into play into the enforceability of a contract. So let's move to the next slide. And here again, some examples of why a contract may be contrary to public policy and therefore unenforceable. There's one example here, an older example from New Jersey court that involved an auto policy. And there was a provision in that policy that limited recovery for unauthorized drivers to the statutory minimum. The court held that that was contrary to the public policy of the state of New Jersey. And so it refused to enforce that exclusion. Okay, let's move to the next slide. And some of these concepts are tied together by the way. Unconscionability is in a way tied to whether insured is sophisticated and reasonable expectations. Some contracts may be so one-sided that the court might find it's unconscionable and therefore again, refuse to enforce the contract. A contract or a policy might be deemed to be unconscionable when it represents an absence of meaningful choice on the part of one of the parties. So in essence, this would be a contract that's forced, in essence, forced on a party. A court would find that to be unenforceable because it would be unconscionable to do so. Again, it involves the relative bargaining power of the parties. And it is an exception, rarely used exception, but sometimes use exception to enforcement of a contract. And obviously, therefore, used sparingly by the courts. And if you wanna go to the next slide, Leah, just two quick examples of unconscionability. I don't really need to read through these, but if you look at them, to me, they're plainly unconscionable. The first one involved a mortgage from a bank under the terms of which there was a $50,000 payment on execution and the balance was due on a specified date. And this agreement contract provided that if the plaintiff failed to make the second payment, the bank could retain the initial $50,000. Sounds draconian. Obviously, that's not a lot of, we didn't add a lot of specific facts here, but it sounds draconian. There was obviously not equal bargaining power between the consumer here on the one hand and the bank on the other hand. Example two is in several cases, courts have analyzed the insurance policies under the theory of unconscionability and found that unconscionability is applicable to this type of contract. There's not been many cases, however, finding that an insurance policy is unconscionable and you really gotta have overreaching, and this is demonstrated overreaching by the insurer and a complete and utter lack of bargaining power on the part of the insured to render the policy or the parts of the policy unenforceable. So maybe we can pause there and ask Lillian if we've got any questions from the audience before we move into our case studies, which we hope will demonstrate some of the stuff that we've been rambling on about. Yeah, we do. We have a question from Brenda and she's looking for some clarification on this. Does the state's inland marine exemption rule apply based on the jurisdiction or the state in which the insured is domiciled? Oh, that's an excellent question. Generally, the regulations of the state in which the insured is domiciled or headquartered would be applied. So if you're doing business, even if your insurance company is based in North Carolina and you're doing business and insuring a citizen in South Carolina, you'll be subject to the laws and regulations of South Carolina. So you better comply with the form and rate filing requirements wherever you're doing business. Any other questions, Lillian, before we move on to the case studies? That's it at this time, but I did just also want to mention, oh, actually, here is another question. Understanding requirements to meet standard fire policy requirements for property in some, many or all states, would you envision a manuscript policy excluding fire or wildfire more specifically? And that's from Debra. Yeah, okay. We gotta better make notes here, Leah, of who's asking these great questions. That's a great question. And I hate to say it depends, but it depends. Lawyers always say it depends. It depends on whether there are any specific regulations relating to fire policies in the state in question. But I will say that if you have a manuscript policy negotiated between a commercial insured and an insurer, that exclusion of fire as a risk insured should be enforceable. Just generally, it should be enforceable. And we'll see why as we go through some of the case studies and under the concepts we talked about earlier. Thank you. That's all the questions we have at this time. But I did also want to mention, for anyone who would like the handout for today's presentation, if you just go to the question tab, there is a handout section where you can get a PDF of the slides for today's presentation. Great. Thank you, Lillian. So we're going to move on to, we have six cases, fairly recent court decisions we want to talk about. Again, we hope they demonstrate some of what we've been discussing. We're going to go, we have limited time left. So we're going to go through these fairly quickly. And Lillian, if you want to move to the first one, this is the Port Authority of New York and New Jersey versus Affiliated FM. And this is the Third Circuit. So it's the Court of Appeals between the Federal District Courts and the U.S. Supreme Court. This case is from 2002. And while it involved the World Trade Center, it did not have anything to do with the tragic events of 9-11. I am, as a bonus, going to talk about that 9-11 case involving the World Trade Center just briefly after I finish this case. But this one involved the World Trade Center and Newark International Airport and a number of other buildings and structures owned by the Port Authority of New York and New Jersey. Many of you will be familiar with these properties, obviously. And beginning in the 1980s, the Port Authority began to abate asbestos that was contained in a number of buildings. And they said, well, this is going to cost a lot of money. Why don't we see if we can collect this from our insurers? Because, you know, we have to do this for our buildings. And it was a standard, it was a standard, it was not surprisingly a manuscript property policy. And obviously the Port Authority of New York and New Jersey is a big, sophisticated entity with its own huge internal risk management insurance and legal departments. So obviously not unequal bargaining power here. And the issue, in a nutshell, was whether this asbestos abatement constituted physical loss or damage such that it made the buildings in question uninhabitable or unusable. The court found that that was not the case. And I should say this was an appeal from the District of New Jersey. So that's the Federal Trial Court in New Jersey. And the Federal Trial Court found that the buildings had not been rendered uninhabitable or unusable. To the contrary, it found that the buildings had been inhabited and used throughout the period of time we're talking about from the mid 80s up till the time this case was decided. And that while, yes, the Port Authority had abated asbestos, there had been no property damage such that the buildings would be rendered unusable. Here again, you have a large, sophisticated insured. And one thing I would point out is that the court here did distinguish between first-party property damage and third-party liability coverages. And they did that because they found that third-party liability coverages might be interpreted, the coverage might be interpreted more broadly because the goal there with third-party liability coverages is to protect innocent injured third parties. Not the case with first-party property coverage, particularly for a sophisticated insured like the Port Authority that could actually negotiate the terms of the policy. So this was a big victory for the underwriters in this case. Now, I mentioned this is the World Trade Center and you should see this decision is after 9-11, but the date of loss, so to speak, was beginning in the mid 1980s and it took until 2002 to wind its way up through the Third Circuit. There was no Supreme Court appeal here, I should say. I don't know if the parties tried to ask for an appeal to the Supreme Court. If they did, the Supreme Court rejected the appeal. So I mentioned the World Trade Center properties and the tragic events of 9-11. There was, some of you may recall, there was not surprisingly coverage litigation in the aftermath of 9-11 between Silverstein Properties who had leased the World Trade Center for 99 years in the spring of 2001. And as a result of that lease, were required to place insurance on the properties. The insurance was placed in July of 2001, so just two months before 9-11, and through the insurance broker Willis, a binder was issued, but the policy had not been issued by the time of 9-11. The policy had a limit of $3.5 billion per occurrence and the World Trade Center, even back then, was valued at way north of 3.5 billion. And when 9-11 happened, Silverstein Properties made a claim for two occurrences under the policy. Again, this is a commercial property policy. Silverstein Properties, the owner of the world, the lease, the lessee of the World Trade Center, obviously a very sophisticated and large commercial insured. And so equal bargaining power with the underwriters at Lloyd's where the property was, where the insurance was placed. Actually, it was placed in multiple markets, but including in London. As you may know, the loss involved two airplane crashes, 16 minutes apart, and the issue here was number of occurrences. So as I said, the binder had been issued, the policy had not. One of the binders at issue specifically included the WillProp form, that's the broker, that's the Willis property form, which included a definition of occurrence under which the court said there's no question this was a single occurrence. One of the binders, however, referred to, didn't have a definition of, the binders didn't have a definition of occurrence. And one of the other insurers, the travelers, referred to its own form, which did not have, surprisingly to me, did not have a definition of occurrence. So the court found that was ambiguous. Long story short, it's kind of an odd result because the reason the WillProp form had this definition of occurrence under which this would be one occurrence was that it would be in the interest of the insured to minimize the number of occurrences for purposes of application of deductibles. No one ever dreamed that a total loss of the World Trade Center could ever occur. And the bottom line here is that the court found that under the WillProp form, this was a single loss, and under the travelers form, there was an ambiguity, so the court would have to go back and determine whether there was one or two occurrences. Again, just a final note on that case, the court also noted the difference between first-party property coverages and third-party liability coverages. Again, it's easier for the courts to construe coverage a little bit less broadly in first-party property coverages than in third-party liability coverages. So I think we have a quick poll question if anyone was listening to that description of this case. Did the fact that the- We're kicking it back to Port Authority. Sorry, go ahead, Joe. Yeah, thank you, Leah. I was gonna say the same thing. We're just, this poll question relates to the first case I talked about. That's the asbestos case. And did the fact that the Port Authority case involved a manuscript policy, did it impact the court's interpretation of the policy in that asbestos case? Yes, no, what's a manuscript policy? Or call Coverage Council for the answer. So vote now. Okay. All right, most of you were awake and listening, it looks like. 77% said yes, 19% said no. Happily, no one said what's a manuscript policy. And the four of you who said call Coverage Council, 4% of you who said call Coverage Council for the answer will be available after this webinar. All right, Leah, over to you for the next case. Thank you. So the next case we're gonna talk about is High Associates v. Zurich American Insurance Company. This is in the Eastern District of Pennsylvania, so the trial court in the federal district court. This was a hybrid form commercial inland marine policy that had a manuscript endorsement granting additional coverages specifically builder's risk, which we talked about much earlier. The background of this was that Planus owned a large shopping center in Pennsylvania, and there was a severe storm, heavy rainfall for 24 hours. There were stormwater basins built to collect stormwater underneath the parking lots. And the water that flowed through the ground under the stormwater basins caused a collapse of the parking lot. And sinkholes that formed near those basins. After the storm, Planus understandably had to stabilize and repair the basins, and they also absorbed the cost of filling in the sinkholes. They then sought coverage from their insurer for those losses incurred for the redesigning of the basins and for filling the sinkholes. The insurer denied the claim and said that its policy excluded coverage for those losses. So the court then, eventually because the Planus then brought a breach of contract claim, arguing that they were entitled to recover for both things, for redesigning the basins and for filling in the sinkholes. The court found partial coverage. It did evaluate the manuscript endorsement specifically holding that the references to land use ordinance and environmental regulations, so two terms that were present in the policy, were ambiguous and needed to be construed against the drafter. So even though this was a hybrid form with a manuscript endorsement, the court decided to construe this against the insurer for that portion, for the redesigning portion. So as far as the cost of redesigning the stormwater basins, the plaintiffs had argued that there was an environmental regulation that required them to redesign it in a more expensive way. And the court did find that because the policy was not very clear in its definition of excluding land use ordinance or environmental regulation, that that would be covered. However, for the claim loss of the cost of filling the sinkholes, the court held that the sinkhole fillage was expressly excluded from the policy. And if you want to read that case, there are actually a couple of exceptions. So there was an exclusion for earth movement, I believe. And then there was a reference to this does not include or this does not include filling sinkholes. And then sinkholes had another exception to the exclusion. So it was a bit of a tricky interpretation, but the court ultimately held that it was clear that filling sinkholes was not covered. So it awarded coverage for the redesigning of the basins and denied coverage for the filling of the sinkholes. So we do have another polling question for this one. It's somewhat related. When you evaluate a notice of loss to determine whether there could be coverage, what do you do first? And we realize that most of you are underwriters. This is a claims question, but do your best. You probably know the answer. Read the policy and claim documents. Grant coverage blindly and move to the next claim or call coverage council. Okay, we got the results back quickly here, Leah. We got 95% of the attendees said, read the policy and claim documents. And nobody said grant coverage blindly and move to the next claim. And to the 5% of you who said call coverage council, we're again, we're available after the webinar. Hmm. All right, so we're running a little low on time. So we've got four more cases to cover. I'm gonna go through this one pretty quickly. This is a case called RSUI Indemnity Company versus the Lynn Company. This is a case from the Supreme Court of Texas. So the highest court in Texas from 2015. This involved an apartment complex owner that had damage to 15 covered properties as a result of a hurricane. And they had coverage in place, a primary policy, a blanket policy for all of their properties, a $20 million primary policy. They then had a $480 million excess policy covering and they had 100 commercial properties. So obviously a big sophisticated landlord worth a billion dollars. The excess policy, as I said, was a $480 million excess, a $20 million policy. And it was almost a high, it's hard to tell exactly what it was, but it seemed to be a hybrid of a blanket limit. However, it had a schedule of properties attached to it. And it provided for three alternative methods to calculate damage in the event of losses to more than one property. So what happened here was the actual damage to the 15 properties amounted to $24.5 million. The insurer, however, looked at the three options for calculating the damage and said, hold on a minute, it's the lesser of these three, not the most. And they calculated the loss at 20,750,000. So really the issue here was how to treat this excess policy whether it was a blanket limit, in which case that would sort of support the underwriter's position or a scheduled property limit, in which case it would support the insured's interpretation. Oddly enough here, even though the insured obviously was a commercial entity, very sophisticated, owned 100 properties worth a billion dollars, the court said it must resolve uncertainty in favor of the assured and that there was unequal bargaining power. So it's hard to reconcile this with the concept of sophisticated insureds and manuscript policies. However, I think the court got out of that by saying that both interpretations, that is the one urged by the insurer on the one hand and the one urged by the insured on the other hand were reasonable and it had to break that impasse somehow so it found in favor of the insured. I will say there was a very strong dissent here. So the Texas Supreme Court has nine justices on it just like the US Supreme Court and there were four dissenting justices. So this was not by any means a unanimous decision. It is the law of the land in Texas, however. So I think, do we have a polling question for this one too? Leah, we do. Okay, so what doctrine did the court in RSUI, this last case we talked about, apply even though the parties were sophisticated entities? Public policy, reasonable expectations, contra proferentum. I'm not sure, let me call Coverage Council and ask or all of the above. Okay, we've got the results in. They're a little bit mixed but I think most of you have been listening and I think I agree with most of you. 8% said public policy. I didn't see that in the case but it's possible. 35% said reasonable expectations. Again, same thing, I didn't see that but definitely possible. 35% said contra proferentum, which I think they did, the court did apply. 16% said all of the above. That could be for sure. And again, the 6% of you said, not sure, let me call Coverage Council and ask. Leah and I are available at your convenience. Leah, you wanna take the next one? Yes. And apologies, I hope nobody is listening to the lawnmowers outside my window, a classic presentation time. So the next case is regarding the Union Pacific Railroad versus certain underwriters at Lloyds of London. This was a manuscript excess policy. The Union Railroad had purchased a policy in excess of 500,000. Between Union Pacific Railroad and the Continental Insurance Company, providing coverage for losses associated with Union Pacific's roundhouse repair facility for trains. So there was a spill and the Union Pacific Railroad had to undertake an environmental contamination cleanup. While it was doing that, it waited at least 18 months to notify excess carriers. So it was aware of the costs of the cleanup in I believe it was March, yeah, March, 1996. But it didn't notify the insurer until September, 1997. I'm not sure what took them so long, but either way, the court ultimately, so Continental denied coverage and Union Pacific sued for coverage. After a long investigation process and Continental Insurance also sought more information and Union Pacific did not reply. And that was several years later. So Union Pacific filed a declaratory judgment action seeking coverage and the court found there was no coverage. It held that even though an ambiguity existed in the policy, there was no time constraint in the notice of loss provision. It would still apply a reasonableness standard because the parties were sophisticated entities that negotiated the terms and drafted a manuscript policy for the risks. And the court ultimately held the insurer was prejudiced by Union Pacific's untimely notice in the form of not being able to negotiate the payment of the cleanup services and settling with other parties that were involved and for other reasons. And the court did take into account that it was a manuscript policy. So let's go to our poll question. Do you want to read that? Did the court in Union Pacific Railroad apply contra preferentum? Yes, no, or I don't know. All right, we got the answers back quickly here. Kind of split 45% yes, 53% no, 3% said they don't know. We haven't done a very good job for those 3%. So contra preferentum is providing preferential treatment to the insured and most times against the drafter. And just circling back, the court found no coverage. So it did not apply contra preferentum. Then we have case number five. I'm gonna take this one too. This is in the Supreme Court of Florida. This was a manuscript policy, property policy tailored to the specific risks of an insured's home. This home was insured for over $8 million in Florida. It was damaged after a large storm, surprise, probably hurricane, and ultimately needed to be demolished due to the amount of damage it sustained. It also came to light that there was some defective construction and faulty workmanship that went into the construction of the home. The insured had filed a claim and the insurer denied the claim except for $50,000 in mold damages. Ultimately, the court found that there was coverage. It went into a very detailed analysis about concurrent causation, which is the theory that even if one cause was an excluded peril, in this case, defective construction was excluded, the all-risk policy should still cover the loss because it was concurrently caused by the wind and rain. This is the highlighting case of why it's important to have a choice of law provision. I'm not sure that this makes sense to us who are looking at this from an insurer point of view. And Florida courts, they do what they do. So that is this case. And we will go to another polling question. What was the most important factor in the court's decision? Policy involved with some manuscript policy. The insured was an individual rather than a corporation. The loss was caused by both covered and excluded risks. Hey, it's Florida. The insured always wins. All right, we're just getting the results back in here, Leia. It was 7% said the policy was a manuscript policy. 7% said the insured was an individual rather than a corporation. 70% said the loss was caused by both covered and excluded risks, concurrent causes. And 16% have had experience in Florida and said, hey, it's Florida. The insured always wins. Great, the correct answer there was a combination of two and three. So that's, I guess, a trick question, but we appreciate the number four responders. I'll turn it back to you, Joe. All right, thanks, Leia. And we're running short on time and here's our last case study. So we will wrap up after I do this brief discussion of this case. The other Texas case, this is the Intermediate Appellate Court in Texas, not the Texas Supreme Court. And oddly enough, and you'll see why I say that, it was from a year before the other Texas case that I talked about, the RSUI case. This one involved damage to an MRI machine, so medical equipment, inland marine policy, that was damaged during a storm and water entered the building and damaged this machine. There was reading between the lines. There was an ugly coverage dispute between the insurer and the insured in this case. And because the insurer offered to settle the claim on the basis of the calculation of damages set forth in the policy, the insured refused that offer and went off and filed suit in Texas, probably thinking to themselves that Texas is almost as good a jurisdiction for insureds as Florida. And in fact, it probably is. So, however, the insured ignored a forum selection clause in the policy that said any suit on the policy must be brought in Utah. And so the insurer moved to dismiss the case in Texas because the insured was required to litigate any coverage issues in Utah. This case reminds me a little bit of the Raiders Retreat case I talked about earlier, except this case involves a forum selection clause rather than a choice of law clause, both equally important sometimes in coverage disputes. And forum selection clauses like choice of law clauses generally are enforceable too. And here the court agreed to dismiss the suit because there was a Utah forum selection clause. And while the court did not explicitly focus on the manuscript portions of the policy, and it was a manuscript policy, it also noted that the entity that owned the MRI machine was a sophisticated commercial entity. In fact, they owned a number of medical facilities around the country, and that the policy was negotiated at arm's length. So the insured had bargaining power, and thus the court refused to entertain the insured suit in Texas. Unclear if the insured ever went off and filed suit in Utah or not. They probably rolled over after their case in Texas was dismissed. So, let's see, do we have a polling question on this one, Leah? I think we do, yeah. Our last polling question, based on this last case, a forum selection clause, A, limits parties to litigate in a certain state or court, B, limits the type of law that is applied in litigation, C, allows the parties to the insurance contract to choose where the dispute will be resolved, none of the above, or can only be interpreted by coverage counsel. All right, perfect. Most of you are still awake. 82% said limits the parties to litigate in a certain state or court, which is the correct answer. 3% said can only be interpreted by coverage counsel. We like the way you think, but you should know that it was A. So, we are open for questions. I will say, Leah, if you wanna bring up that last slide, it's one of my favorite cartoons. It's called The Underwriter Who Missed the Total Loss. It's an ocean marine cartoon, but I thought it was a good one to end with. And I think what Leah and I would like to focus on here, we'll thank everyone for their time. We wanna thank Lillian and Eileen and the IMUA again for the opportunity to present. We'll be back in another 21 years with another update, but we're happy to take any questions in the meantime. Yes, and we do have some questions, and thank you so much, Joe and Leah. This has been excellent. The first question we have is from Melissa, and it's pertaining to the idea of contra preferentrum, and whether that concept applies to favor against the drafter. Is there a general threshold for size of an insured when this concept no longer applies? And does that threshold vary by state? For example, is the idea of a large entity with more bargaining power a higher threshold to obtain in a state like New York versus Iowa? Yeah, that's a great question. Leah, I'm happy to defer to you on that. I will say the case law does not, there is no bright line rule, I think is the way to put it. And what one court in a state like New York may well interpret large sophisticated commercial entity differently from how a court in Iowa interprets it. So unfortunately, there's no guidance. It's not revenues over 10 million or whatever the guideline is. Just I think it's probably has more to do with whether the insured actually negotiated parts of the policy. Leah, do you have anything to add to that? And if it's in Florida, all bets are off. I think that's the only thing to add. I think it really does depend on state interpretation. Thank you. I have a question from Arturo. Yes, can you briefly touch on the recent decision in the case of South Capital Bridge Builders versus Lexington Insurance Company where the leg three wording was declared ambiguous? I could if I was familiar with that case, Arturo, but I will tell you what we'll do. We will answer your question. If you wanna send an email to Lillian with that question, we'll answer it sometime after the conclusion of this and get your thoughts. Thank you. And then from Michelle, what does negotiated at arm's length mean? Yeah, that's really a legal term that just means that no one's putting pressure on anyone else. It really is freely negotiated. There's no undue influence being exerted on either party. Leah, did I get that right, roughly? Yeah, I agree with that definition. I think we just have time for one more question. This one's from Beth. Generally when manuscript policies or manuscripts are offered, the manuscript is reviewed by insured, broker and insurer, I'm sorry. So it's reviewed by insured, broker and insurer. There is usually negotiation and an agreement on language. How do the courts respond on this type of claim? Yeah, that's a very good question too. I think the courts treat those as freely negotiated. And so as a result, for the most part, would not apply contra profferentum to any ambiguities in the policy. Since both sides had a chance to provide input, if there is something that's unclear in the policy, I think that the court would not necessarily apply it in favor of the insured and against the insurer. Well, thank you so much. That's our time. For today, we really appreciate you taking time out of your schedule, Leah and Joe, to present this webinar on this important topic. And also thank you so much for the plug for the IMUA form filing guide, which is posted on the IMUA website. So anyone who is interested in taking a look at that guide, if you go to the all access section of the IMUA website and go to our reports and papers, you can take a look at the form filing guide, which is now being updated on an annual basis, thanks to the Legislative and Regulatory Affairs Committee. We have a link in the chat to the survey results. I mean, I'm sorry, to the survey to provide your feedback so that we'll have survey results that we can use to create future education for IMUA. Thank you. And now it's time to announce the most engaged attendee, the best question. Leah, do you have someone in mind for that? I am going to award it to one of our early courageous participants. Deborah, congratulations. You have won a gift card. Congratulations, Deborah. All right, thank you. Thanks to our attendees for your participation and your questions. We hope to see you at another IMUA event soon. This ends today's webinar. Have a great rest of the day.

Manuscript Policies

Legal Considerations

Insurance Policies

Policy Creation

Clear Policy Wording

Readability Requirements

Public Policy Considerations

Contra Profferentum

Insurance Disputes

Case Studies

Court Analysis