“While the Constitution addresses many weighty issues, the type of pork chops California merchants may sell is not on that list” may be the most memorable single quote of the U.S. Supreme Court’s most recent term (see National Pork Producers Council v. Ross). But, here, we look at other cases and analyze other quotes that will be of interest and consequence to claims professionals.
Reading the headlines, you would think that the Court, faced with only a 42% approval rating, suffers from an ideological split that would surely keep the factions from sitting in the same room, let alone on the same bench. However, nearly 80% of the cases decided this term that could impact the claims and insurance industry were unanimous decisions. These mostly unheralded cases should give our industry pause.
Statute of Limitations Parsed, Perhaps Diluted
Every adjuster’s best friend is the Statute of Limitations (SoL). It is the first thing an adjuster looks at when he meets a new claim. The SoL is what is technically known as a “subject matter jurisdictional” issue. Once the SoL runs, a court loses the right to hear the case. Or does it? In a series of decisions, the Court parsed (some may argue diluted) this concept.
As a starting point, subject matter jurisdiction is something that cannot be altered by the parties. Think of it as a workers’ compensation judge not being able to decide a matrimonial case, even if the parties agreed to let the judge do so. Likewise, the court’s jurisdiction cannot be extended even if the parties agree to it.
Most adjusters know of instances where the parties agreed to toll the SoL since they were in the process of negotiating and hoped to avoid additional litigation expenses. Therein lies the issue that the Court considered over a number of cases. The Court bucketed SoL cases into two categories: SoLs that were dispositive of the case—meaning a court loses its jurisdiction to hear the claim—and “nonjurisdictional prescriptions” designed to manage the court’s docket.
Justice Sotomayor, speaking for the Court in Wilkins v. U.S., acknowledged that “[c]ourts, including this Court, have more than occasionally misused the term ‘jurisdictional’ to refer to nonjurisdictional prescriptions,” and she concluded that “[t]he mere fact that this Court previously described something as jurisdictional is not dispositive.” The test delineated over a series of cases came down to interpreting the underlying statute.
In Wilkins, the petitioners owned property that was subject to an easement managed by the U.S. Forest Service. Over time the easement increased. When challenged by the property owners, the government responded that the homeowners’ rights were extinguished by the federal Quiet Title Act’s (QTA) SoL. The Court disagreed, holding that there was nothing in the QTA that clearly indicated that the SoL could not be tolled, and therefore was not jurisdictional.
In Arellano v. McDonough, the Court rejected a Navy veteran’s argument that his service-related mental illness should have equitably estopped the SoL. Congress delineated 16 specific grounds for tolling the SoL. The Court determined the veteran did not fall into any of the categories. The unanimous Court held that Congress delineating such a specific list precluded any other reason to toll the statute.
In MOAC Mall Holdings LLC v. Transform Holdco LLC, the Court found that the applicable statute allowing general exceptions was not meant to be jurisdictional in nature. Justice Jackson, speaking for the unanimous Court, pointed out that a jurisdictional SoL is “impervious to excuses like waiver or forfeiture,” and, since this statute was not impervious, it “exemplified why the distinction between non-jurisdictional and jurisdictional preconditions matter.”
Although the series of cases involved federal statutes, the arguments are valid, and arguably controlling, in the state courts.
The Court also spent a lot of its docket examining when the clock starts for the SoL. To understand the discussion, a quick look back to your sixth-grade civics class may be in order. There are three branches of government: The legislature writes the laws, the judiciary interprets the laws, and the executive enforces the laws. To enforce the laws, the legislature creates agencies such as the FDA, the EPA, and the FTC, for the executive’s use, and defines each agency’s powers. In most situations, a claimant is required to “exhaust” the administrative requirements before taking the case to the courts.
In a series of cases, the Court held that there are instances where litigants may bypass the process and go right to court. Justice Barrett, whose resume includes serving as a civil procedure professor at Notre Dame Law School, schooled the lower court in Dupree v. Younger on the steps necessary to decide if exhaustion had occurred, or even if it was necessary for purposes of proceeding to the federal court. In doing so, the unanimous Court allowed the litigants access to the federal court without exhausting the regulatory steps first.
In Luna Perez v. Sturgis Public Schools, the Court was presented with a deaf student who sued under the Americans with Disabilities Act (ADA). The school district asserted that the federal court’s jurisdiction does not arise until after Perez exhausts all remedies afforded by the Individuals with Disabilities Education Act (IDEA). The Court unanimously disagreed, handing Perez the keys to the federal courtroom by holding that the remedies he sought under the ADA did not exist under IDEA.
In Axon Enterprise, Inc. v. Federal Trade Commission, Axon sought to bypass the FTC by arguing that Congress’ method for appointing the commission’s judges unconstitutionally insulated the judges from presidential control. The Supreme Court agreed that the flaw was such that Axon could gain immediate access to the federal court.
Glacier Northwest, Inc. v. International Brotherhood of Teamsters arrived at the Supreme Court via a cement truck. In this case, after loading trucks with concrete, the drivers declared a strike and walked off the job, leaving the concrete to harden and therefore destroying the trucks. The company was forced to dump the concrete at a loss and sued the union in state court under a theory of tortious destruction. The union argued that the case had to be dismissed from the state court as the NLRB had original jurisdiction. The Court disagreed, stating that the action being pursued by the employer was a common law claim in tort. From an insurance perspective, if your company is a union shop, your business interruption coverage may be insufficient unless you specifically have “strike coverage.”
In Reed v. Goertz, the Court postponed the start of the SoL clock, holding that the time to appeal a case does not start until every opportunity for the lower court to address a wrong has expired.
From a claims and insurance perspective, if a court has ever tolled the SoL on a statute, and a carrier or adjuster is now looking to rely on that for locking the courthouse door, be prepared to find that the lock is broken.
Dipping a Toe Into Rare Waters
Intellectual property rights—the field of law that deals with patents, trademarks, and copyrights—is a niche area that the Court itself seems to try and avoid. For this reason, Court watchers were surprised by the number of intellectual property cases decided by the Court this term. Patents are often described as either a “specific” patent (e.g., a better mousetrap) or a “genius” patent, such as patenting a process for entire groups of antibodies.
This latter patent was rejected in Amgen Inc. v. Sanofi by the unanimous Court, which found that the patent was so broad as to lack sufficient detail “to enable any person skilled in the art…to make and use” the invention.
In the case of Jack Daniel’s Properties, Inc. v. VIP Products LLC, Justice Kagan explains, “This case is about dog toys and whiskey, two items seldom appearing in the same sentence.” The Court held that the manufacturer of a dog squeaky toy may have violated Jack Daniel’s’ trademark by parodying a bottle of Jack Daniel’s as a dog toy. Key to the decision was the Court’s view of how the dog toy “diluted” Jack Daniel’s’ trademark (and no one wants to dilute Jack Daniel’s, now, do they?).
And finally, in the case of Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, the Court held that the foundation’s permitting of a magazine to use Andy Warhol’s artwork violated the original photographer’s copyright.
The Court’s willingness to scale back the reaches of a genius patent along with reenforcing copyright and trademark rights may result in increased challenges to intellectual property. The Amgen decision will most certainly affect patent insurance due to its broad impact on genius patents. CGL “advertising injuries” coverage will also see increased pressure. These decisions should have insureds discussing the sufficiency of their coverage as well as whether purchasing an “offense policy,” a policy that covers the cost of enforcing your copyright or trademark, is appropriate.
In a fourth decision, Abitron Austria GmbH v. Hetronic International, Inc., the Court’s narrow interpretation against international infringement claims provides some relief to liability for international infringement where the exposures can be far greater than merely the domestic market.
A Decision on Fraud
In Bartenwerfer v. Buckley, Bartenwerfer and her then-boyfriend (who was later her husband) sold a property without disclosing known conditions. Buckley prevailed at trial and the couple sought to discharge the debt in bankruptcy court. The boyfriend was denied bankruptcy protection as he received his benefit through “actual fraud.”
Bartenwerfer asserted that she did not know of the actual fraud and that her debt should be discharged. In denying Bartenwerfer’s position, the Court unanimously held that the bankruptcy law’s fraud provision looks at the act, not the actor. Carriers should look to the Court’s language to defeat bankruptcy petitions against “innocent actors.”
The Internet and Anticipating Future Claims
The Court addressed the growing questions involving the influence of the internet. In Gonzalez v. Google LLC, it was asserted that Google allowed ISIS to post recruiting and radicalization videos on its service and monetized the videos, sharing the revenue with ISIS in violation of the Antiterrorism and Effective Death Penalty Act of 1966.
In Twitter, Inc. v. Taamneh, the allegation was that the internet provider’s failure to take more meaningful action to prevent ISIS’ use of the service violated the Justice Against Sponsors of Terrorism Act of 2016. In both cases, the action was brought by the surviving members of victims’ families.
Both arguments were unanimously rejected by the Court. Normally, the conclusion would be that internet providers are safe from attack based on antiterrorism allegations, but Justice Jackson wrote a concurring opinion stating that, in essence, the door is not locked to future attacks, it is just that these plaintiffs tried using the wrong key. From a claims perspective, the exposure continues to exist and so should your coverage.
On EPLI, the Court Giveth and Taketh Away
EPLI coverage saw a net increase in exposures involving employees seeking to have their Sabbath off. The employer has always had to demonstrate that an accommodation imposed an “undue hardship,” judicially interpreted as a burden that “would result in substantial increased costs in relation to the conduct of its particular business.” The employer’s burden of demonstrating “a substantial” increase was met by demonstrating more than a “de minimis” impact.
The Court, in Groff v. DeJoy, unanimously held that the “de minimis” standard was not the proper standard. The Court, however, did not establish what the proper standard is. Law, like nature, abhors a vacuum. It is anticipated that there will be increased EPLI litigation to establish a new standard.
Helix Energy Solutions Group, Inc. v. Hewitt involved an oil rig worker who was paid a daily rate of almost $1,000 /day. He worked 28 consecutive 12-hour days, resulting in 84-hour work weeks. If he did not work one of those days, he did not get paid for the day. He sued for overtime pay. Helix Energy asserted that, under the Fair Labor Standards Act, Hewitt was a “highly compensated employee,” and/or a “bona fide executive, administrative, or professional” employee, and, therefore, was exempt from overtime.
The Court disagreed, stating that the amount paid to the employee is not dispositive of his status. The fact that he was paid as a day laborer was the critical element. This case may open the door to increased EPLI exposure. While EPLI does not cover wage-theft claims, the policy may still be implicated to cover defense, depending on how the claim gets asserted in a complaint.
As we close the books on the 2022 term, the Court’s dance card is already filling up for the 2023 term, set to begin on the first Tuesday in October. Cases that the claims and insurance industry are already watching include the validity of a choice of law clause in a maritime contract, a whistleblower claim, and challenges to the validity of a number of statutes that allow damages that are insurable. As the Court begins announcing its 2023 docket, the only advice I can give to our industry is to make sure you have fastened your seatbelt—the road ahead is still under construction.