In July, the Seventh Circuit issued a unanimous opinion in the case of Emmis Communications Corp. v. Illinois National Insurance Company, in which the court ruled that the policyholder’s provision of notice to the previous carrier precluded coverage for an underlying claim under the later of two D&O insurance policies. The court’s ruling was widely criticized (including also on this site). The policyholder, Emmis, filed a motion for panel rehearing or rehearing en banc. And then on August 21, 2019, the appeals court panel did something very unusual — the court withdrew its July opinion, in which it had reversed the district court, and substituted an order affirming the district court’s ruling. As discussed below, this odd and inexplicable sequence of events raises some serious questions. The Seventh Circuit panel’s August 21, 2019 order can be found here.
In 2012, in connection with an attempt by Emmis to go private, a number of lawsuits were filed against Emmis. Because there had been prior litigation against Emmis in 2010, Emmis noticed the new lawsuit to both the insurer whose D&O insurance policy was in force during the 2009-2010 policy period and to the insurer whose policy was in force during the 2011-2012 policy period. (The factual background regarding the earlier and the subsequent lawsuits is discussed at length in my blog post about the district court’s decision in this case, here).
The 2011-2012 insurer denied coverage for the new lawsuit, and Emmis filed a lawsuit against the insurer, alleging breach of contract and bad faith. The parties filed cross-motions for summary judgment. As discussed here, on March 21, 2018, Southern District of Indiana Judge William T. Lawrence, applying Indiana law, granted Emmis’s motion for summary judgment and denied the 2011-2012 insurer’s motion for summary judgment. The insurer appealed.
The 2011-2012 insurer’s policy contained a special events exclusion. In relevant part, the exclusion precluded coverage for “Event(s),” which included “[a]ll notices of claim or circumstances as reported under [the 2009-2010 policy].” The full text of the exclusion is set out in my blog post to which I linked above discussing the district court’s opinion.
The Seventh Circuit’s July 2, 2019 Opinion
As discussed here, on July 2, 2019, the Seventh Circuit issued a terse three-page opinion in which it reversed the district court and remanded the case to the district court.
The appellate court’s ruling depends on its interpretation of the 2011-2012 policy’s prior notice exclusion, an exclusion that the appellate court variously described as “complex” and “Byzantine.” The appellate court noted that the parties disagreed about the meaning of the term “as reported” in the prior notice exclusion. The 2011-2012 insurer argued that the exclusion precluded coverage for all notices provided to the 2009-2010 insurer at any time. Emmis contended that the exclusion applied only to notices that had been reported at the time the policy went into effect.
The district court had ruled that while both interpretations were reasonable, Emmis’s was the better, concluding that “as reported” must “refer to events that had already occurred at the time of drafting.” The district court was bolstered in its conclusion based on the rule of Indiana law favoring coverage when multiple reasonable reading of the insurance policy might apply.
The appellate court disagreed with the district court’s ruling, saying that the phrase “as reported” has “no discernable temporal limitations.” Once the 2009-2010 insurer had been provided with notice, “then that claim is ‘reported’ – and so it is excluded.” The timing of the report is “irrelevant.”
The Aftermath of the July Ruling
The Seventh Circuit’s July Ruling was widely criticized. As I noted in my post about the decision, the court’s ruling about the prior notice provision puts a policyholder who is unsure about when a claim was first made in an impossible position. (One commentator called said the court’s opinion requires policyholders to play “coverage roulette.”) Others criticized the ruling for overlooking basic Indiana law principles about policy interpretation.
In its petition for rehearing or rehearing en banc, Emmis argued that the panel’s ruling disregards basic principles under Indiana law concerning insurance contract interpretation. The court, Emmis argued, should have first determined whether “as reported” was ambiguous before interpreting the provision, and should have determined whether ordinary policyholders of average intelligence would find the company’s interpretation of the phrase to be reasonable.
Several parties also submitted an amicus brief in support of Emmis’s petition for rehearing or rehearing en banc. The amicus brief, submitted on behalf of United Policyholders (a non-profit policyholders’ advocacy group) and insurance brokers Shepherd Insurance and MJ Insurance, argued that the Seventh Circuit’s opinion “reshapes the claims-notice process in a way that is inefficient, places unwarranted burdens on brokers and policyholders, and unfairly increases liability exposure for agents and brokers.”
The August 21, 2019 Order
If the appellate panel’s July 2, 2019 opinion was terse, then its seven-line August 21, 2019 Order is downright curt. The order says that “after considering the plaintiff’s petition for panel rehearing and rehearing en banc,” the panel grants the petition for panel rehearing, vacates the judgment, and withdraws its July 2, 2019 opinion. Instead, the court said, the district court’s judgment is affirmed for the reasons stated in the district court’s March 21, 2019 opinion (which the appellate court attached to its August 21 order).
The panel also stated that in light of its disposition of Emmis’s petition for panel rehearing, Emmis’s petition for rehearing en banc is dismissed as moot.
I am almost at a loss about what to say regarding this sequence of events. The one word that comes to mind to describe the sequence is “weird.” First, the appellate panel in a short ill-considered opinion reversed the district court’s more measured opinion, and then, on the basis of what amounted to nothing more than another round of briefing, completely reversed itself in a brusque order that suggests nothing so much as that the reconsideration was a cursory as the court’s initial determination.
I have often been concerned that some appellate courts are insufficiently attentive to appeals in insurance coverage disputes. Among other things, some appellate court opinions in these kinds of cases often are short and presented on a “not for publication” basis. I have always been concerned that these appellate courts’ approach reflects a lack of concern on the courts’ part; all too often the courts’ actions seem to suggest that the courts just don’t think insurance coverage appeals are all that important or worth their time and attention. I have to say that in this case, both the appellate panel’s initial decision and its subsequent order reversing itself strongly suggest that the panel really didn’t want to have to bother with this insurance dispute.
What is really odd to me about the August 21 order is that the panel did not even bother to explain why it was reversing itself, notwithstanding the fact that in its July 2 opinion, the court had been short and sure about the meaning of the relevant exclusionary language and its application in this case.
As I explained in my blog post at the time, I was not happy about the Seventh Circuit’s initial opinion in this case. It was not only short on words and on analysis, but it was totally lacking of any appreciation for the real-world implications of what it was saying. But while I didn’t like the original opinion, I am not any happier with the August 21 order. If you are going to do something as unusual as completely reversing position, some kind of explanation really is required. The entire sequence of events hardly inspires confidence in the judicial process (at least as was applied here). Indeed, these events are the kind of thing that can provoke disrespect.
The outcome of this sequence does raise the question of where we are now in this case. The panel’s August 21, 2019 order affirmed the district court’s opinion, in which Southern District of Indiana Judge William T. Lawrence had granted Emmis’s motion for summary judgment on its claim against the insurer for breach of contract but denied the insurer’s motion for summary judgment on Emmis’s bad faith claim. As I read it, what that means is that Emmis is entitled to payment from the insurer for the costs Emmis incurred in defending the underlying lawsuit, but Emmis’s bad faith claim will remain pending when the case returns to the district court. In his summary judgment opinion, Judge Lawrence had directed the parties to file a joint notice within 28 days “setting forth how they wish to proceed to resolve this case.” That direction seems like the parties’ next order of business when they return to the district court.
One final note about this debacle. The author of the panel’s July 2 opinion was Amy Coney Barrett, a former Notre Dame Law School professor. Many readers may recall that Barrett’s name appeared on the list of potential Supreme Court nominees that then-candidate Donald Trump circulated prior to the 2017 Presidential election. Barrett’s name resurfaced during the subsequent Court vacancies that ultimately led to the Supreme Court nominations of Neil Gorsuch and Brett Kavanaugh. Should President Trump have another opportunity during his Presidential administration to make a Supreme Court nomination, Barrett’s name might well appear again on the short list.
Based on the above described sequence of events, you can put me down now on the list of people who would not favor Barrett’s nomination to Supreme Court.