The Corban Conundrum: The elephant in the room (updated)

Plaintiff respectfully requests the Court to stay these proceedings pending
a ruling from the Mississippi Supreme Court in Corban v. United Services Automobile  Association, et al No. 2008-IA-00645-SCT.

The latest development in Politz v Nationwide is the Motion to Stay filed by Mrs. Politz and Nationwide’s Response in Opposition filed today before the  noon deadline set by Judge Senter who shortly thereafter issued an Order denying the Politz motion.

None the less, Corban has been the “elephant in the room” since the Mississippi Supreme Court agreed to hear the case.  At the end of this post is a linked list of background information, including the summary Overview and update on Corban v USAA.

How do you eat an elephant? One bite at a time! Start with this quote from the Appeal and dig in!

…the lower court concluded “the anticoncurrent causation clause will be applied herein as interpreted by the United States Fifth Circuit Court of Appeals, thereby barring coverage under the homeowner’s policy for any damage caused by water as defined in the policy or caused concurrently or sequentially by wind and water in combination”.

One has to wonder how the Fifth Circuit could come up with such a convoluted decision. InPlainly Ambiguous: Have Plain English Laws Made Insurance Policies Less Ambiguous?, David Rossmiller explains that such results are intended.

In a 1985 article about the drafting of State Farm’s anti-concurrent-cause provision, Michael E. Bragg, an in-house lawyer with the insurer, said drafters made attempts to reduce the clause to language the layperson could understand, but they failed.

When the drafters made the language understandable to the average person, they considered the language insufficiently precise to do what it was intended to do, which was (1) to contractually overturn the so-called “efficient proximate cause” analysis, a common law default rule that almost all jurisdictions use to analyze first-party property loss in the absence of a different, contractually mandated analysis; and (2) to stop the spread of new, judicially created causes of loss and confine covered causes of loss only to those that companies intended to insure.

This is important to remember because it is the key to the limits of Plain English laws. As the Bragg article shows, simplified language was unsuitably risky because it did not address the court precedents that insurers wanted to cancel out. It did not contain the terminology and phrases used by the courts, nor did it accurately state the jargon of insurance causation, where words like “concurrent” and “sequential” have meanings far different and more complicated than their meanings in common parlance.

Insurers, then, do not write for consumers, they write for courts.

Insurers win some, they lose some, but once a policy provision has been interpreted in one jurisdiction, it is precedent and acquires actuarial value as a known quantity. Even if the ruling was adverse, insurers can charge premiums accordingly.

Coming up with new language, in contrast, is risky because it wipes out previously calculated chances of loss. The court and the insurer, then, are like chess players at a tournament, moving their pieces across the board, trying to understand the meaning of each other’s
moves in the context of chess theory.

But in this scenario, the audience at the tournament—consumers—knows how to play checkers only. The consumers are neither part of the game nor does anyone really expect them to understand it or pay attention to it.

Pretty disgusting!  Exclusions, per se, are not; but, the  dishonesty of selling a product with no intention of providing what the consumer expects is a disgusting, and tragically, standard practice.

Michelle Bordman’s Contra Proferentem: The Allure of the Ambiguous Boilerplate is a more challenging read than Rossmiller’s plain English explanation.  However, her research leads to a similar conclusion – what she calls the private conversations between insurers and the courts that take place during litigation and produce a semi-private meaning of policy terms:

The industry seems to recognize the statutory nature of insurance clause interpretation:
Court interpretations of standard coverage forms further assure consistent treatment of claimants. Once a court determines the meaning of a word, phrase, or clause in a standard coverage form, that interpretation has far more meaning and scope than if every insurer’s policy form used different wording for the same idea.

What has escaped notice, and therefore scrutiny, is the fact that this additional meaning is semi-private—the result of an ongoing conversation between insurers and courts—of which policyholders may be unaware.

Of course, the meaning is public in that judicial opinions are public, but the public nature of Supreme Court opinions has not brought constitutional understanding to the streets.

Borgman’s position begs the question, Is it not the on-the-street understanding that the courts should adopt?

In West Virginia – a state with a population expected to have the same level of on-the-street understanding as ours – the Supreme Court established that level of understanding as the benchmark for deciding insurance cases with Justice Starcher concurring in a separate opinion. (Mitchell v Broadnax,2000)

I write separately to emphasize the impact that the majority’s opinion will have on the future handling of insurance claims in West Virginia. Surprising a policyholder, after a fire, death or accident, with an exclusion that no rational, honest person would expect to find in a comprehensive insurance policy is fundamentally unfair.

The majority’s opinion crafts a framework for how an insurance company bears the burden of eliminating that policyholder surprise by (1) telling the policyholder, up front, before they make a claim, that their policy contains exclusions and that “there is no coverage for this, this, and that;” and (2) telling the policyholder how much it has reduced their premiums because of the exclusions.

I write to fill in the framework built in the majority’s opinion.

In simple terms, the Court’s decision is based on the premise that consumers do not read (and even if they do read, cannot understand) the terms that insurance companies use in insurance policies.

Insurance companies give consumers the impression that they have full coverage under a comprehensive policy, and routinely fail to tell the consumer in plain English of the existence and the meaning of the legalistic exclusions that the insurance company has buried in a policy.

So, when an insurance company seeks to avoid liability on an automobile insurance policy through the use of an exclusion, courts should first determine whether the insurance company created a reasonable expectation of coverage in the consumer, and whether the insurance company eliminated that expectation by telling the policyholder (1) that their coverage has been reduced or eliminated by the exclusion, and (2) that their premiums have been reduced to reflect the exclusion.

Nothing could be further from the experience many had following Katrina when thousands of policyholders unexpectedly found the policies they purchased did not provide the expected  coverage.  Justice  Starcher continues by elaborating on what he called a fundamental precept of our insurance statues and our case law.

A fundamental precept of our insurance statutes and our case law is the recognized fact that insurance consumers do not, repeat, DO NOT, read insurance policies.

In the average, non-insurance contract case, courts will not excuse a party’s failure to read the contract. Nevertheless, insurance contracts are treated differently by courts, in part because they are not freely negotiated agreements between the insurance carrier and the policyholder.

Also, the policyholder’s decision to purchase insurance is often not entirely voluntary. For example, West Virginia law requires vehicle owners to purchase liability and uninsured motorist coverage, and banks require people who borrow money to buy property insurance to insure their new home or comprehensive and collision coverage to insure their new car.

Furthermore, a policyholder buys a policy as a completed “product,” a standardized “fill-inthe-blanks” contract form that is essential to our system of mass production and distribution. By using these standardized forms, an insurance company simplifies the insurance purchasing process, and thereby reduces the overall costs of insurance.

Consumers who buy a standard form insurance policy know that they cannot have the product changed or customized, and must take what they are given.  Hence, both the insurance agent and the policyholder know that it would be pointless for the policyholder to scrutinize the specific language and terms of the policy.

The drafters of the Restatement of Contracts (Second), in their discussions regarding contracts of adhesion like an insurance policy, recognized that:

A party who makes regular use of a standardized form of agreement  does not ordinarily expect his customers to understand or even to read the standard terms. One of the purposes of standardization is to eliminate bargaining over details of individual transactions…

Customers do not in fact ordinarily understand or even read the standard terms. They trust to the good faith of the party using the form and to the tacit representation that like terms are being accepted regularly by others similarly situated. But they understand that they are assenting to the terms not read or not understood, subject to such limitations as the law may impose.

In sum, how insurance companies sell insurance policies dictates how those policies will be interpreted by the courts.

“[O]nly by acknowledging that the conditions of an insurance contract are for the most part dictated by the insurance companies and that the insured cannot ‘bargain’ over anything more than the monetary amount of coverage purchased, does our analysis approach the realities of an insurance transaction.”

Records of the Mississippi Supreme Court indicate Corban has given rise to many of those secret conversations between insurers and the courts in the form of Amicus briefs filed by insurance companies supporting USAA.

Alone, the failure of these insurance companies to file briefs as a friend to the policyholders that support their companies should be all the evidence the Court needs to render a supremely reasoned opinion comparable to that of West Virginia.

We wait and hope.

The Absurdity of Judge Jones’ Reasoning Manifested – New Wind-Water Developments (Corrected)

The State Supreme Court Agrees to Hear Corban V USAA

With two states of ambiguity, whose side is Nationwide on?

Corban V USAA Makes the News

Fallout from Leonard and Tuepker Continues in an Unlikely Place

Overview and update on Corban v USAA

3 thoughts on “The Corban Conundrum: The elephant in the room (updated)”

  1. While its nice Mr Denham wants to wait for Corban to play out ACC does not apply to this case or any other case despite Edith Jones screwed up opinion in Leonard.

    I’ve done some checking on Earl Denham because I found his timid approach to this litigation most curious. He has two blockbuster bad faith cases but is acting as if he’s shined up some shit trying to pass it off as shinola.

    We need litigators on the Mississippi Gulf Coast and not the pretend type either.

    My condolences to Mrs Politz.

    sop

  2. I guess we will just have to disagree on this one as I’ve been impressed with Mrs. Politz’s representation in this case and don’t find it at all timid.

  3. That is only because you did not hear the conversation last Tuesday night Nowdy. The fact pattern in Politz isn’t “special” only the lawyering is.

    Earl Denham is so afraid of being reversed on appeal he’s become timid. Seems to me knowing when to strike and going for it balls deep is the hallmark of a great litigator. I’m not seeing it either here or in Kuehn.

    So while we have policyholders being made whole plus receiving bad faith penalties in Louisiana we’ve not seen a single major case advance on this side of the line save one.

    I had no idea the differences in lawyering would be so great between Mississippi and Louisiana going into this.

    sop

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