Friday, September 27, 2013

On the Rhetoric of the Ridiculous.




Michael Sean Quinn, Ph.D, J.D., Etc.
2630 Exposition Blvd  #115
Austin, Texas 78703
(o) 512-296-2594
(c) 512-656-0503


Overdoing rhetoric in briefs, motions, pleadings, etc., is a poor, tasteless and below grade "C" lawyering. There has recently been direct and unequivocal explicit support for this obviously true proposition.  Perhaps the pronouncement of the 6th Circuit will encourage those who do not realize that stridency of semantics, as opposed to restrained assertion and calm clear argument, is almost never a good idea. Let the ideas produce the desired effect; if they don't do the job, try a different approach if possible. Never resort to the crude bluster, cliche-ridden, always overdone language of the pool-hall loudmouth. Grade C lawyers at this point might say that such a position is absurd.  Such lawyers still would not have learned the lesson.

An illustration of this point is to be found in a recent insurance case.  Barbara Bennett et al v. State Farm Mutual Automobile Insurance Company, No. 13-3047, 2013 WL 5312398 (6th Cir. September 24, 2013)

In this case, Ms. Bennett was struck by an automobile as she was walking her dog. As a result of this accident she ended up on the car--not next to in on the roadway, not standing next to the car, and not under the car.

She argued that she "occupied" the car under the State Farm policy.  The District Judge held that State Farm's defense was correct: she did not "occupy" the auto, since she was not in it.  State Farm called Bennett's position "ridiculous" and did it on the first page of their brief.

The court criticized this linguistic behavior for four reasons: first, where the language was in the brief, second, because it was worded as it was; third, because State Farm's argument was fairly obviously invalid; and fourth, because State Farm was wrong.

With regards to points #1 and #2 the court, quoting another opinion from which  it wrote its opinion: "There are good reasons not to call an opponent's argument 'ridiculous,' which is what State Farm calls Barbara Bennett's principal argument here. The reasons include "civility; the near-certainty that overstatement will only push the reader away (especially when, as here, the hyperbole begins on page one of the brief, and that even when  the record supports an extreme modified, 'the better practice is usually to say out the facts and let the court reach its own conclusion.' Big Dipper Entm't, L.L.C. v. City of Warren, 641 F.3d 715, 719 (6th Cir. 2011)."  Trying to, in some sense, compel opinions by the use of "battle-station" rhetoric is ill-advise.*

With regard to the third point,  the court criticized State Farm's argument.  It argued that coverage analyses proceeded on the basis of how whole types of policies are interpreted: auto policies for example, and the "occupy" language of those types of policies. The court informed State Farm that contracts of insurance are to be interpreted one at a time and not as whole classes. That a court has decided a similar-looking policy in the way the insurer wants it interpreted does not bind a court, even itself.  Nor is the "type of" versus "this language for this situation" valid reasoning.

State Farm also tried to argue that only someone who has an "intrinsic relationship" with a car can be said to "occupy" it, and hence the court ought to be examining whether Ms. Bennett has such a relationship with the car that struck her. Instead, the court observed, there was authority in Ohio, where this suit was brought, that the intrinsic relationship test was one of several that can be applied "'where a  gray area exists concerning whether a person' was an occupant of a vehicle and thus entitled to coverage. In this case, however, the policy marks out its zone of coverage in primary colors. The policy terms therefore control."

On this ground, the court reversed the district court and entered judgment in favor of Bennett. And it did this without remanding.

One can wonder about the decision. Oddly enough the court does not include a quote from the policy. That is unusual but not really interesting as to the court's reasoning. More interesting is the fact that the court does not give a specific argument--perhaps based on a hypothetical--supporting the proposition that being on a car entails the proposition that one is occupying the car.

It also clearly, though impliedly, rejects the idea that the term "on" in this situation is ambiguous. It seems to me that one can be on a car, e.g., on top of a car, without actually occupying the car. The man that washes, waxes and cleans out my car every Saturday, does not occupy my car all the way through its work. He stands next to the car while is washing it; he climbs up on it to wax the top and gets in it to clean out the interior in various ways. It is plausible to say that only for the third part of the operation does he occupy the car.

Although the following example--nor anything like it--should ever be found in a brief (or anything like it), except as taken from a transcript of testimony. One can easily imagine a couple denying that they occupied the car while having sex on the front hood of the car (or even the roof), but "admitting" that they occupied the car when they did so in, for example, the back seat.

Perhaps--just perhaps--the court is impliedly suggesting that Bennett was occupying the car because she did have an intrinsic relationship with it. After all, she suffered further injuries as a result of being placed on the car--injuries that she would not have received had she not been knocked up onto the car.  I suppose one could argue that if one has been put onto something it occupies it.  One can easily have subscribed to this argument if the word is "into," not "onto."

One might oneself not be convinced by the court's reasoning.  Consider the dog belonging to the 2012 candidate the Republican Party recently ran for president.  It did not occupy the family car when he was attached to the roof of the car as they all drove to Canada for a vacation.  The disclosure of this fact caused a furor. Obviously, part of the general population agreed: the dog did not occupy the car. In some respects, although certainly not in other very important respects, Bennett and the dog share properties.

*I tried "battle" rhetoric first long ago in the presentation of an argument to the 8th Circuit.  It was a covenant not to compete case with federal jurisdiction on grounds of diversity.  I had tried the case and lost. Anyway, I opened by informing the court that "This case is one of national significance."  The head of one of the judges almost jerked up, and he immediately and a bit disdainfully asked, "How? Why?"  My answer had to do with the lack of case authority on how to interpret a "Uniform" act that had been passed in the relevant state.  I actually thought that a specialized uniform act, used in various ways around the country but enacted only here and there, made the matter then at hand one of national significance.  My clients loved it, but. . . . 

 I suppose  I must confess that my address there was not the last time I did that, though all the (few others, I hope and believe) were somehow triggered by a mysterious outside source, and therefore have been instances of  unintended rhetorical idiocy, so that  I am not really responsible.




Tuesday, September 24, 2013

An Ironshore CyberPolicy--Part VII:Insuring Agreement I.F.

TechDefender

Tech E&O, Network Security, Internet Media and MPL Insurance Policy 

Insuring Agreement I.F: Regulatory Proceeding Coverage

Remember: This Blog is organized around insuring agreements, definitions and exclusions. Conditions, etc., may be remarked upon briefly, but they often resemble not only each other but those found in currently existing policies. It also ignores policy limits, retention matters, notice requirements, time intervals for coverage, etc., important as these are. As usual, the discussion of everything in this blog is tentative, partial, and perhaps mistaken here and there.  It is a new and relatively uncharted ocean.
*********************************************************************************

This insuring agreement is entitled Internet Media Liability Coverage.  It departs from the topics of privacy and network security and injury. 

The principal topics here are Electronic Publishing Wrongful Act and Damages.  The definition of Damages was covered in Part IV, so it will not be explicated again here, since it is lengthy, cumbersome, complex, an easily accessible.; there will be only a brief mention. 
The focus will be on the first of these two, Internet Publishing Wrongful Act.  It is complicated enough considered just by itself, partly because it hinges on another definition, Electronic Publishing, which--in turn--hangs in part on yet another definition, and it too. . . . down the pillar of definitions. Obviously, this discussion cannot complete the whole, dependent group of definitions.

The idea of a wrongful act is not itself defined in any general way, though it is sort of defined in terms of different key activities. Nevertheless, what it probably is, at least in part,  in different contexts is clear enough from the two words themselves, knowledge of the English language, and common sense.

The substance of the insuring agreement reads this way:
 The Insurer will pay on behalf of the Insured all Loss that the Insured is legally obligated to pay as Damages as a direct result of any covered Claim alleging an Electronic Publishing Wrongful Act (EPWA), provided. . . .
EPWA includes a number of actionable acts, some of which are also found in Coverage B of the Commercial General Liability policy, and there are more. The EPWAs are all linked to the Insured's Electronic Publishing.  Here is a list of some of them, which give the reader a general idea:
  • defamation, 
  • trade disparagement,
  • plagiarism,
  • false light,
  • false advertising,
  • violation of right of privacy,
  • seclusion of a right to publicity
  • copyright infringement,
  • many trade infringements, of various sorts,
  • unauthorized use of various things, formats, plots, etc.

Significantly, the so called "cyber-world" and "real-world" can overlap here.  Here is a crucially important example, copyright violations.  The object taken can originate in one of the worlds and the violation occur in the other. Of course, they can both happen in the "cyber-world," and this coverage apply.

Hacking is a highly publicized example of this sort of thing.  It starts in the "real world," passes into the "cyber world," and then impacts the real world.]

[Here is another, rather different, recent, distressing example. Someone got a hold of a copyrighted pornographic video, obtained the copyright for itself, and then posted them.  It found those who were then downloading it illegally (even once), sued many of them (using boilerplate pleadings), and quickly settled with those downloaders who were willing to settle for less than their costs of defense. Many people either didn't want to spend the money on defense or didn't have it.  Besides, who wants to know about your habits when it comes to porn.These scum bag lawyers and their minions made a good deal of money before getting caught and sanctioned by the court. The judge also sent information to disciplinary committees of various bar associations,  relevant information to other courts where they appeared, and saw to it that they were left open to civil suits. (Of course, criminal prosecutions may also turn up, since this was probably some sort of swindle using federal courts.)  Ingenuity 13 LLC v. John Doe, 2013 WL 1898633 (C.D. Cal., May 6, 2013).]

So an EPWA is a "WA" committed in relation to EP.  Now, how--more or less--is the phrase
Electronic Publishing defined.  It is "the reproduction, publication, dissemination, transmission or release of information, including Electronic Data and other various cyber-type things on a website or operated and owned by the Company or Computer System of the Company, provided [it is that of the Company by itself.]"  Notice that the definition of EP contains other definitions, of which--that of Electronic Data--is on the complicated side.

Several features of the insuring agreement as portrayed here are worth noting. 

First, as with some of the other insuring agreements, the insured has a very long list of propositions it has to prove in order to begin to qualify for coverage. (And this doesn't even address the exclusions, even those are for the insurer to prove, so long as they are not exceptions to the exclusion built into the exclusion.)  This is not an easily played game.

Second, the Insurer has a duty to "pay on behalf of the Insured all Loss[es]. . . ." that the "Insured is legally obligated to pay as Damages as the direct result of any. . . .   The phrase "pay on behalf of" is a crucial phrase here.  It means that the Insurer will not wait to pay the Insured until it has spend money on necessary activities; it will pay up front to whomever has a right  to be paid by the Insured

Third, the Insurer's duty to pay applies only to damages that are the "direct result" of an action.  As has already been pointed out in another Part, there is a slew of disputes arising out of  so called "real world" policies regarding the meaning of that phrase. Presumably it is a jury question, but it can be contested for a very long time.

Fourth, it is extremely important to remember that the term Loss includes not only Damages but Claim Expenses. The two ideas are obviously different. The latter includes the Insurer's duty to defend, and, so far as I can tell, not much else. 

Fifth, it is tempting to say this: the insuring agreement I.F is saying that the Insurer has the obligation to pay defense costs only if the Insured is legally obligated--and so have been found to be legally obligated--to pay Damages.  This idea is absurd from a temperate view, among others.  If I have read the language correctly, then the insurer would have no duty to make payments on behalf of the insured until after it was determined that the Insurer was legally obligated to. . . .  Hence this is not a really possible reading.

Sixth, another way to read this insuring agreement is this one: the agreement says that the Insurer will pay on behalf of the Insured all Loss "that the Insured is legally obligated to pay as damages."  But the term Loss contains two parts.  Only one of them pertains to Damages.  The Insurer has promised  to pay Damages only.  It has not promised to pay any other component of the definition of Loss.  If this is right, then the Insurer has no duty to pay for any part of the Insured's defense.  Insuring agreement I.A. does not restrict the Insurer's obligations to Damages only.  It covers all Loss, so it covers costs of defense as well.  (Now, I must confess that I have a feeling I've missed something.  Intuitively, it doesn't seem probable that a liability insurer selling a policy like this one, would not include a duty to defend. Nevertheless. . . .)

Seventh, this problem is one of appearance only.  There is a separate section in which the duty to defend liability cases is set forth.  This fact may be confusing even to the more experienced reader.  The reason is that the duty to defend it usually set forth in the insuring agreement section of a policy. Here the opposite is true.  That duty  gets its own section,  The insurer's duty to defend in this policy may be weaker than in many so-called real "world policy."  Most policies of the so-called "real world" require a liability insurer to defend its insured if the plaintiff's pleading states--or, probably in many jurisdictions, sketches  a covered claim; it does not require that the claim actually be covered.  The plaintiff (and possible victim) can be wrong about what is asserted in the pleading or even lying, and there still be a duty to defend. The liability sections of this policy don't appear to say that.  It at least appears that the claim must actually be covered.  I don't see how that can be true, but if I have understood the language, that is what is says.

With respect to exclusions, there a lot of them.  Almost all or all of them are subject to exceptions. Both of them are complicated. The list of exclusions, however is very similar to that found in so called "real world" policies. For example, there is no coverage for dishonest actions and actions performed for the purpose of profit.

One significant difference is that, like most cyber insurances but unlike many "real world policies," injuries to human bodies and tangible property are excluded. 

Another exclusion quite specially connected to I.F is an exclusion for most "unsolicited electronic disseminations, faxes, emails, of other communications by the Insured or any other third party," including those which violate statutes, with various exceptions.

Much more can be said and argued, but enough is enough.  Coverings of coverages can run on forever, and maybe this has already go on too long. So it's time to pass on.










Tuesday, September 17, 2013

"Cyber-[Somethings]"--A Readily Rejectable Revolutionary Nomenclature

No policy of insurance should ever be named "Cyberworld Insurance" or "Insurance for the Cyberworld" or anything of the like.  This blog explains why.

Discussions of  the Internet and its numerous "cousins" haft  to use language naming the group or set of "somethings."  Obviously, that language--those names--must be somehow conjoined to the word "cyber."  Here are some widely used locutions: "cyberworld," "cyber-world," "cyberspace," "cyber-space," "cyber-reality," "virtual-[all the preceding]," and more. 

Many are nervous, frustrated, irritated, upset, etc., by the fact that these new semantic constructions are MISLEADING, par excel lance. And rightly so.  Of course, history changes language.  "The phrase "fuck you" has a whole new--and now widely used--meaning.  The new active verb "to text" is grating to the ear; the noun "mouse" is an odd addition,, but what the hell.

The nouns "cyber-something]" are a wholly different matter.  They are terms with a kind of revolutionary (implied) meaning which--get this--dangerously transforms most acceptable metaphysical, ontological theories of (or overall views of)  the real world, of everything that exists.

Calling something a "cyberworld" or "cyber-world" implies that there are two separate worlds.  Any conception of any world involves the world consisting of some sort something, whether it is physical object, ideas in the mind of the Creator, ideas in the mind of each person, and so forth.  In every case, they are part of the same world.  There is no physically respectable view in which there are two separate worlds.  There is no such thing even possible as a "real world" and a "virtual world," both of which exist.  The whole idea of a "virtual world" suggests that such a world does not really exist but almost does.

Even if the mind and the body, something about which there has  been philosophical controversy for well more than 2500 years, are separate and "made out of distinct substances," one material and the other not, they are not part of the same world.  It is not the case that one exists, and does not but comes close.

Even those who believe in God or gods and make Him/Her/or/It the creator(s) of the universe, they are still part of the same world.  Neither of them is somehow "virtual reality."  This is a phrase for psychologists trying to deal with an atheist or agnostic possessed by a huge but befuddled imagination.  Not even those who believe in flying dragons--or, better yet--splendid and glorious angels, believe that they are not part of this world, if they exist.

Every term that is a name of an existing something, virtually on its face, that which is named is part of this world, if it exists. If mathematical concepts and/or equations exist independent of minds, they are part of this world--the one and only existing world.

There is no reality opposed to a cyber world.  Yet the opposite is exactly what the phrases being discussed suggest. The opposition suggests that there is real opposition between something which is real and something that is unreal.  There is no something that is not real. Even if the mind and the body are not, as it were, made of the same stuff--thus there is the "Mind-Body Problem"--they still inhabit the same world. The idea that there exists something that is not real also warps the imagination; it stands in the way of a grasping true reality--as if anything else could possibly exist, and it retards (and will retard) intellectual progress in the heads of both young and old.

The iniquitous phraseology, will--alas--lead to a whole new system of words. Here are some examples: "cyberworldology," "cyberworldification," cyberworldmystification."  Phrasings somewhat like this are not problematic; consider "cyber bullying"; however, most of them contain no suggestion of a separate reality.  That would pop into implied virtual being if the phrase was "cyberworld bullying."  Rest assured! Such bullying is fully and not just virtually real.  Now consider a genuinely puzzling case.  Is there such a thing as cyberworld bullshit?  What would this be?  Virtually existing manure from a type of cow? Of course, "cyber-shit" is a good usage; all that says is that there is metaphorical shit to be found "on" the Internet.  The idea of cyber mysticism seems to work as well, although there cannot be such a thing as mystical knowledge of the cyberworld, since the latter does not exist, even if the former does.

Alas, many will continue to use the phrases; I certainly will, even though it causes the very oddest of dreams.  Most of the true, unbelieving, anti-cyber-world advocates continue this dangerous course because no one can come up with an alternative usage--a usage that would actually work. 

Maybe we all are simply stuck.  There is a problem with that reality.  It is a misrepresentation to have an insurance policy named "Cyberworld Insurance."  But since there is no such thing as a cyberworld, is not the name of the policy suggesting that there is such a thing, and isn't that a misrepresentation?

Monday, September 16, 2013

An Ironshore Cyberpolicy--Part VI: Insuring Agreement I.E.

TechDefender

Tech E&O, Network Security, Internet Media and MPL Insurance Policy 

Insuring Agreement I.E: Regulatory Proceeding Coverage
Remember: This Blog is organized around insuring agreements, definitions and exclusions. Conditions, etc., may be remarked upon briefly, they often resemble not only each other but those found in currently existing policies.
The first specific thing to notice here in I.E. is that the Insurer agrees to reimburse the Insured.  Be mindful of the fact that this concept is quite different from "pay on behalf of" or "pay for."  "Reimburse," literately understood, means that the insured pays first. There is no reason to believe that a court will not take this language literally.

Second, and very important, this entire section is attached to two concepts: Privacy Incident
and Regulatory Proceeding.  The first of these concepts was discussed in Part V, and a concept related to the second one, Privacy Regulation, was also discussed there. Much of what was written there is reprinted in the next paragraph.

The phrase Privacy Incident briefly put includes (i) the disclosure, etc., of some information or another, that is secret, or close to it; and the disclosure is in the care, custody or control of the Insured or Service Provider.  (ii) That disclosure must result from a Privacy Regulation or a failure of the Company to comply with its own privacy policies. The concept of Privacy Regulation includes a slew of  named statues, both state and federal, plus regulations under those statutes, and "any similar state, federal or foreign identity theft or privacy protecting statute." 

[MSQ:  Does the reader realize how controversial the phrase "care, custody and control" can be in insurance disputes?  And here only immaterial entities are involved. Will that complicate matters? Does the reader recognize that there may be controversies generated by the word "similar"?  Or what about this what about the word "any"?  What about when they don't apply? Are Bolivian privacy administrative rules applicable to problems in Oklahoma?  (Perhaps not; but consider the twists and turns, "New York lawyers" might generate out of these two ideas.)  Remember: the phrase "care, custody and control" has caused lots of  insurer-insured disputes for many years.

Now for the second of the two crucial concepts, Regulatory Proceeding.  This topic has not been written about in this (group of) blog(s).  The idea is pretty clear from the language.  The phrase means (1) a governmental investigation of an Insured, e.g., perhaps leading up to a adjudicative governmental hearing concerning a Privacy Incident and/or (2) an adjudicative administrative hearing on either a Privacy Wrongful Act or a Network Wrongful Act including an appeal, either of them begun by the receipt of "a subpoena, a formal investigative demand, complaint or similar document."

It seems odd to me, at least appears, that one of the types of wrongful acts is covered for investigations and the other one is not. Indeed, this seems so unlikely that I think I must have missed something.

The Insured's right to be paid for its expenses in this arena is huge. This fact indicates that the insured should make sure that everyone in its organization involved knows well the terms of the policy, consults with risk management, stays in close contact with the IT and IS departments, and ask in-house or outside counsel for advice.  (Perhaps there will be an appropriately specializing attorney included within the in-house counsel department. This is not uncommon in really large law firms.) In addition, the Insured should monitor its work on these matters carefully, make sure that accurate records are kept, make sure that confessionary, personal, and other assorted messages are not entered into the cyber-systems.  It would be a good idea for the insured to institute a special, nearly unique kind of specialized "Product Management," as it is now called.

The Insured should also make sure that it has enough coverage. The problem here is that no one really knows what is adequate coverage.  The whole field is too new; there has not been enough time to develop helpful statistical data.

On to I.F.


Monday, September 9, 2013

An Ironshore Cyber Policy--Part IV--Ins Ag I.C


TechDefender

Tech E&O, Network Security, Internet Media and MPL Insurance Policy 

Insuring Agreement I.C--Privacy Liability Coverage
__________________________________________________
 
Remember: This Blog is organized around insuring agreements, definitions and exclusions. Conditions, etc., may be remarked upon briefly, but they often resemble not only each other but those found in currently existing policies.
 
This is Part IV of a series of blogs about the above named policy.  Part I was an introduction and a discussion of Insuring Agreement insofar as it closely resembled "physical-world" policies, as opposed to "cyber-world" policies.  The topic pertained to D & O insurance.  Part II was a discussion of the substantive content of the Insuring agreement Ins Ag I.B, again regarding a type of D & O liability insurance.  I.A. pertained to network security and privacy wrongful acts, both of which are extensively discussed in society.  Ins. Ag. I.B concerns the same range of problems and is a broader D & O liability policy.   As already set forth in Part I, what is written here is nothing more than a sketch and the observations are not guaranteed.

I.C. Privacy Liability Coverage
This Insuring Agreement sets forth liability insurance for Damages the Insured is legally obligated to pay for losses directly resulting from any covered claim alleging a Privacy Wrongful Act  against the Insured. (The last term includes not only the Company, plus directors and officers, but a variety of others, e.g.,  employees of various sorts, among others.)  [This passage is a bit confusing.  It  might apply to a duty to defend, or something like it, but it well not apply to actual damages suffered.  The idea in the claim is that if an insured has a legal obligation to pay something that is damages, the insurer will pay it on its behalf.
The substantive components of this Insuring Agreement are, first, the idea of Privacy Wrongful Act (PWA), second,  the idea of Privacy Incident, and third, the idea of  Damages (D).  

First we examine PWA, since the term "privacy" is not independently defined, so we start with PWA.
This is a blessed definition since it is short and direct.  PWA "means any actual or alleged act, unintentional error, omission, neglect or breach of duty by an Insured or a Service Provider that results in a" PI. 

PI--and now we arrive at the crucial part of the insuring agreement--is, roughly speaking (1) the unpermitted disclosures of Non-Public Personal Information or Confidential Corporate Information that "is in the care, custody, or control of any Insured or Service Provider, ad defined., or (2[a]) it is a violation of any Privacy Regulation or (2[b]) or is a "failure to comply with the  Company's own privacy policy."

Privacy Regulation is a concept of extraordinary significance.  It includes a number of named federal and state statutes "associated with the control and use of personally identifiable financial, medical, or other sensitive information," plus "any similar, state federal or foreign identity theft or privacy protection statute."


 
DEFINITIONS

Damages of course, is a crucial idea in all insurance policies.  The definition of Damages in this policy is a complex one, to say the least. There are 4 components of what the term means, and there are 9 lines setting forth what the terms does not mean, and the 9th line contains at least 13 different concepts which the term does not cover.

Here is that which the term applies.  It resembles traditional lists of damages in some "so-called" real world policy:
  • that for which the insured is legally obligated to pay as the result of a covered judgment, award or settlement
  • monies the  court victorious victim has been able to impose on the insured, e.g., attorney fees and so forth
  • pre- and post-judgment interest (with exceptions)
  • punitive, exemplary or multiple damages to the extent that an state law applies and to the extent more that one applies, the one which is most favorable to the insurer if insurable.
Defense costs are usually covered else where in the policy; they are usually not found in the definitions of damages.
An apparent complexity in the definition of Damages is to be found in a list of that to which the term does not refer.  The positive side of the definition is straight forward and relatively simple.  Most of its components resemble the definition or characterizations of Damages found in so-called "real-world" policies, except for defense costs.  That matter is usually set forth else where in at least most policies. The "Damages do not include" section explicitly sets forth a number of situations to which the term Damages does not apply. These matters are usually found in exclusionary sections.

There are several special components "added" on, as it were, to the definition of Damages, which are "not included" in the definition section or other sections of so called, "real-world" policies--as already stated, one would expect these to be in an exclusion section. The following are included among the not included:

#6. nearly 5 lines of activities which might have to be undertaken, including "Computer System of the Company, [its] security system and Electronic Publishing."  Significantly,  Electronic Publishing includes Electronic Data, and other things, objects, events and activities.  [MSQ:  Obviously this definition of what is not included in the a covered definition is enormously complex.] 

#7. "any discount, coupon, prize, award, redemption or other incentive;"

#8. "Bodily Injury or "Property Damage;"  [MSQ: It is easy to see why they are let's say excluded, by definition, they are two of the principal coverages under some significant "real world" insurance policies, e.g., the Commercial General Liability.

#9. Business Interruption Income Loss, Claim. . . . Regulatory Proceeding.  [In total, there are 13 separate categories included in this "not included in the definition of Damages" category.]

 And so forth. Significantly, all definitions found in the definition section are used throughout the policy.  In many "real world" policies, different sections may have at least some different definitions
EXCLUSIONS
 
The list of exclusions is a long, long one, so not many of them can be addressed.  Some are repetitions of what is in the definition or the "not included" definition of Damages and perhaps elsewhere to boot. Many of them resemble, or are analogues of exclusions found in so-called "real world" policies.
For example, there is an exclusion for Losses resulting from various causes, most of them contract based (or likely contract based).  It is more complex than the usual exclusion of that sort; it takes up 7 lengthy subsections. Perhaps what is happening here is that given the "new-ness" of this type of policy, the insurer is trying to make sure nothing is left out. Perhaps it believes that details cut exposure. Of course, this may be wrong. It may be that all they do is create new exposures.
Here are some other exclusions:
  • based on actions brought by some trade associations, particularly an international array of those from the IP sector
  • based on violations of various statutes
  • resulting from various kinds of discrimination
  • resulting from various types of unsolicited cyber misconduct
  • thefts of various sorts
  • IP misconducts of various sorts related to thefts  [Some of these pertain to the proposition that there is no insurance for many types of intentional acts and especially for those involving crimes.]
  • mechanical and electrical faults
  • gambling, etc. 
Thus, this insurance policy in general and perhaps this section in particular resemble "real world" insurance policies, but in vastly more important ways, they are a new species--one filled with new ideas, new definitions, and new coverages. Interestingly, most of the new coverages are, in one way or another, topics widely discussed in various media.
Now, for Insuring Agreement I.D Privacy Breach Expenses Coverage.  See Part V.






 

 

An Ironshore Cyber Policy--Part III



I should have mentioned this point before, but the policy is not typical of at least some other important cyber policies, or--more accurately--other groups of cyber policies. (There is just too much in this one to be typical of the simpler or narrower ones.  Several simple ones have been blogged earlier in this blog string.)

Remember: This Blog is organized around insuring agreements, definitions and exclusions. Conditions, etc., may be remarked upon briefly, but they often resemble not only each other but those found in currently existing policies.

__________________________________________________________________________________

TechDefender

Tech E&O, Network Security, Internet Media and MPL Insurance Policy 

 

Insuring Agreement: I.B Network Security Liability Coverage

_________________________________________________________________________________



This part will focus on the Insurance Agreement to be found in I.B.  It is entitled Network Security Liability Coverage.  The phrase Network Security and Network Security Wrongful Act have already been sketched in Part II.

The difference between I.A and I.B is that the word Insured plays a key role in the insurance agreement.  What is crucial in I.A is that it covers only Individual Director[s] or Officer[s] and not the Company.  I.B covers both the individuals and the Company and other Individual Insureds. The third category of insured includes:
  • certain past, present, or future employees acting within their scopes of employment and/or their "functional equivalents," [The idea of future employees having liability is entreating.]
  • an independent contractor working for the Company (on its behalf and for its "benefit") and committing a Wrongful Action while within the scope of his retention, which must be in writing.
Thus, this is not a "Side Excess" policy, and so individuals who are directors or officer (or both) do not have as much coverage.

As yourself whether the responsibilities of an Insurer to provide a defense for its Insured is the same as in I.A.

Keep in mind, there is a duty to defend. There is a separate section in which the duty to defend liability cases is set forth.  This fact may be confusing even to the more experienced reader.  The reason is that the duty to defend it usually set forth in the insuring agreement section of a policy. Here the opposite is true.  That duty  gets its own section,  The insurer's duty to defend in this policy may be weaker than in many so-called real "world policy."  Most policies of the so-called "real world" require a liability insurer to defend its insured if the plaintiff's pleading states--or, probably in many jurisdictions, sketches  a covered claim; it does not require that the claim actually be covered.  The plaintiff (and possible victim) can be wrong about what is asserted in the pleading or even lying, and there still be a duty to defend. The liability sections of this policy don't appear to say that.  It at least appears that the claim must actually be covered.  I don't see how that can be true, but if I have understood the language, that is what is says.



Almost certainly I.B can be removed by endorsement.

An Ironshore Cyber Policy--Part V: Privacy Breach Expenses Coverage

TechDefender

Tech E&O, Network Security, Internet Media and MPL Insurance Policy 

Roughly speaking, this insuring agreement, I.D., regards amounts of money the Insurer will reimburse the Company for certain expenses--its Privacy Breach Expenses--after the Company has inflicted--and perhaps has been held responsible for inflicting--cyber-injuries  on a third party, and that injury directly results from a Privacy Incident. In other words, this is first-party coverage that the Insured will have as a result of its mistake--perhaps "mistake" could be put this way: as a result of its tort or its injury causing statutory violation. Real-world general liability policies do not carry such first party rights for an insured, so far as I know.
Obviously the phrase Privacy Incident is crucial. Briefly it includes (i) the disclosure, etc., of some information of another, that is secret, or close to it; and the disclosure is in the care, custody or control of the Insured or Service Provider.  (ii) That disclosure must result from a Privacy Regulation or a failure of the Company to comply with its own privacy policies.  The concept of Privacy Regulation includes a slew of  named statues, both state and federal, plus regulations under those statutes, and "any similar state, federal or foreign identity theft or privacy protecting statute."  [MSQ: Does the reader recognize that there may be controversies generated by the word "similar"?  Or what about this what about the word "any"?  What about when they don't apply? Are Romanian privacy administrative rules applicable to problems in Oklahoma?  Perhaps not; but consider the twists and turns, "New York lawyers" might generate out of this.]
In any case, the definition of Privacy Breach Expenses is a complex check list. There are 7 paragraph-length, Yes-answers  (one of which has 3 separate parts) all following a short but "rich"  introduction.  In addition, there are then 9 shorter No-answers. [MSQ: Interestingly, many of the definitions have "This is included." versus "This is not included" lists.]
Here are brief sketches of some "Yeses"; of  course, nothing on the list is provided without the consent/endorsement of the Insurer, and that consent may not be unreasonably refused by the Insurer. [MSQ: Another probable area for insurer-insured controversy?] 

Remember: the following is just an incomplete sketch:
  • reasonable and necessary fee for obtaining lawyers, accountants, public relations firms, or others to
    • "get access to a 'privacy breach coach'" (through a particular source. . .) to
      • determine obligation to notify
      • examine Insurer's rights to indemnity from. . .
      • review Insureds compliance with any [and all] Privacy Regulation[s]. . .
    • "conduct computer analysis" to determine cause and effect
    • devise and implement public relations campaign
    • notify affected others. . .
    • procure call center and identify restoration. . .
    • procure credit freezes,
    • reimburse Insured for fines, etc., levied by private organizations with jurisdiction. [Remember: Reimbursement comes after money spent.
  • The list of the "Noes" is even longer.  Remember: this is a sketch, and they are always incomplete:
    • remuneration for wages, expenses, overhead, benefits and so forth,
    • expenses for fixing or improving a variety of computer related "stuff,"
    • same sort of thing for Software errors or vulnerabilities,
    • cost of researching and developing  Digital Assets,  including trade secrets [MSQ: The idea of Digital Asserts will be briefly and partially explained presently],
    • dealing with software defects, and the like,
    • economic or market value of Digital Assets,
    • loss out of liability to others [MSQ: The word here in the policy is not in bold and the first letter is not capitalized.  This means that the kind of loss involved here is not that which is suffered by the "injured" victim.  It is probably the loss to the Company created by its liability and its consequences, other than the amounts which have to be paid the victim.],
    • contractual penalties,
  • Plus there are a whole slew of causes of situations elsewhere defined in the policy that are not within this insuring agreement and are hence not covered there.
This sketch given the reader some sense about how the Privacy Breach Expenses Coverage insuring agreement works.  It is a forest of thickets that will generate coverage disputes for generations to come.  It is also extremely expensive.  The reader must keep in mind that all of these expenses eat away at policy limits.






Friday, September 6, 2013

An Ironshore Cyber Policy--Part II


  TechDefender

Tech E&O, Network Security, Internet Media and MPL Insurance Policy 

 First Insuring Agreement: #I.A

Individual Officer or Director Insurance

I have already explained in the Part One, the first several words.  Now I turn to the real unadulterated cyber content of the first Insuring Agreement.  Remember, this is very sketchy.  Only a few phrases will be quoted here; only a few definitions will be spelled out, and some sections will be skipped entirely or almost completely. The main focus is on the "Insuring Agreements," the Definitions, and the Exclusions.  Subtitles and Definitions will be in bold, since that is how they are in the text.

This section pertains to the first Insuring Agreement. It is a liability section, as opposed to a first-party section. Roughly speaking, it insures against Losses resulting from covered Claims against covered individual persons (see Part I) for wrongful acts (WA) falling in either of two categories, Privacy Wrongful Act (PWA) or a Network Security Wrongful Act (NSWA).
"WA" is a frequently used term combined with one or more other phrases to focus on a type of category within which there can be a WA.  In I.A there are two categories already mentioned.
WA involves the idea of negligence, but that is not all it includes. WA means "any actual or alleged act, unintentional error, omission, neglect, or breach of duty by. . . the coming  two WA types: Insured or a Service Provider that that results in a Privacy Incident. 

The idea of a Privacy Incident seems obvious enough, for now as is the idea of a non-owned company providing typical cyber services to the Insured.  [Remember: each of these definitions has other definitions built into them. Notice that it appears that at least some intentional acts are included within the definitions of WA.]  The idea of privacy pertains to data regarding matters people and/or companies don't want disclosed or made public, and a Privacy Incident is an event like that resulting from a PWA.  (More details about the concept of Privacy Incident will be set forth in Part IV.)
The idea of NSW is well known in in parts, but it is more complex. Under this definition the following are included, and the insuring agreement covers losses directly caused by WA's in one or more of the following:
  • thefts, corruption, or deletion of Electronic Data from the Company's Computer System, unless it comes from the outside and that is not the company's fault [e.g., hacking?];
  • Unauthorized Accessed or Unauthorized Use of the Company's Computer System;
  • denial of Authorized Use, unless unintended breakdown;
  • Company's Computer System in some sort of attack on another system;
  • transmission of Malicious Code to another system.  Further insured injuries may result [There has been some controversy about whether CGL policies cover injuries to software since it, is in part a physical object, i.e., something tangible that may suffer physical loss and loss of use.

Exclusions exceed 50 in number, counting the sub-parts, and 25 if the sub-parts are not counted.  Most of them are, to some degree or other, analogous to exclusions found in so-called "real world" policies.

Significantly there may or may not be  a duty to defend, provide a defense, pay for a defense, pay on behalf of a defense for an Insured.  Although the language is not completely clear, it seem likely that the duty to defend hinges, more or less, on the so-called "Eight Corners" Rule.  Then there is a duty to defend, the insurer "runs" the defense show and pays for it along the way. That is not always true in D & 0 policies, and it does not appear to be true in this policy on all occasions.  In any case, for this and other reasons,  the reader of this policy must be careful about several distinguishable phrases, "will pay," "will indemnity," and "will pay in behalf of."  The last one is particular tricky when it actually says "will pay on behalf of Insured all Loss . . . that the Insured is legally obligated to pay."  This language may not provide the same coverage across the board.  Why else would there be different phrases.

With regard to the duty to defend, there is a particularly puzzling phraseology. Here it is: more or less:  "The Insurer will pay on behalf of. . . all Loss. . . which the. . .becomes legally obligated as damages."  (The omissions are to leave room for different conceptions of who or what is an insured.  And the word Loss includes Damages.)  One problem in this coverage is that many insureds are not legally obligated to defend themselves; and, of two defendants, one may not only be not legally required to defend itself, but it may not be legally required to defend its codefendant(s).

This problem is one of appearance only.  There is a separate section in which the duty to defend liability cases is set forth.  This fact may be confusing even to the more experienced reader.  The reason is that the duty to defend it usually set forth in the insuring agreement section of a policy. Here the opposite is true.  That duty  gets its own section,  The insurer's duty to defend in this policy may be weaker than in many so-called real "world policy."  Most policies of the so-called "real world" require a liability insurer to defend its insured if the plaintiff's pleading states--or, probably in many jurisdictions, sketches  a covered claim; it does not require that the claim actually be covered.  The plaintiff (and possible victim) can be wrong about what is asserted in the pleading or even lying, and there still be a duty to defend. The liability sections of this policy don't appear to say that.  It at least appears that the claim must actually be covered.  I don't see how that can be true, but if I have understood the language, that is what is says.

Of course, with so many newly defined words, there will be controversy over what is meant.  However, there is at least one which is often in dispute here in the real world.  The policy often says that it covers "direct" losses, meaning that the loss must be "directly" covered by a covered cause.  The meaning of "directly" is subject to controversy.

What is direct as opposed to indirect?

Wednesday, September 4, 2013

Deposition Topic:"Prudent to have x?" "Prudent to do x?"



A Deposiion Topic: 

Insurance Policies and/or Certificates of Insuance



Michael Sean Quinn, Ph.D, J.D., Etc.
1300 West Lynn #208
Austin, Texas 78703
(o) 512-296-2594
(c) 512-656-0503


Consider the following dialogue at a deposition:  It concerns a situation in which a new business did not demand a copy of its insurance policy from its agent.

Q. It would have been prudent for them to ask for it, true?
A. Yes. Of course, it was not imprudent not to ask.

Q. Why do you say that?
A. Because at least 999 times out of 1000, and probably more, it is not needed.

Q. Isn't it uncommon not to have it?
A. Not really. People and businesses often don't have them.

Q. What about the Certificate of Insurance?
A. That is usually needed when a customer demands having it, and even then it is not actually needed in
      by far the vast majority of cases.

Q. Would  you agree with me that it is prudent to have a copy of the policy?
A. Certainly, but it is not imprudent not to have it.  The same often goes for the Certificates.

Q. Won't you agree that it is wise to ask for and get it?
A.  The insured shouldn't have to ask.

Q. But if it does have to ask, wouldn't it be wise to ask for it?
A. I don't really know, since, as it stands the question is muddled. 

Q. Why?
A.  The answer depends upon what the meaning of the word "wise" is.  And the applicability of it in the different sorts of situations. The word "wise" has lots of different levels and lots of different applications.

[At this place a dialog on the word "wise" or the concept of wisdom begins.]

The Insurance Appraisal Process Part IV

Some  New Ideas

Part IV

There is a set of persistent problems in dealing with Umps, namely their selection; the problem is buried in a series of steps for the "opposing" appraisers. (1) Each of the two appraisers are appointed by one of the sides. (2) They frequently see themselves as advocates not a cooperative committee of two. (3) Frequently, they don't know how to agree on an Ump, or they don't know the same people, or they are not paid enough to put much time into the matter, or one of them jumps the gun and goes to a judge and gets and Ump appointed before s/he is needed. (4) There is are no explicit standard governing both of the first two participants as to how to select an Ump.  If the opposing parties in the appraisal process together imposed standards of Ump selection on their appointees some of the problems arising out of Umps might be solved. 

(5) There are no rules on how to deal with the judges appointing the ump. There should be (i) Surely there should be notice of application by the side that wants an Up chosen to the other side.  (ii) Surely when there is a disagreement about who to appoint as ump there should be a hearing if possible. It need not be a long one. (ii) Surely both sides should present a list of candidates and their qualifications. Of course it would be best there was agreement about the names of the list. 

(6) Umps must understand that they do not work for anyone involved. They work only to establish justifiable truth.

(7) A candidate should not have a history that suggests bias. A person who has been a life long adjuster for the This-&-That Insurance Company, Inc., should not be appointed as an Ump.

To qualify to be on the list of the qualified, candidates should not only know about and be sympathetic to the subject of  reasonable adjustment and the logic of reasonable and rational argument, but must have  a drive to embrace these behaviors and ideals.  A musicologist should not be involved in adjusting a loss involving a giant bridge--and probably any other physical item other that a piano, etc.

(8) Perhaps there should be a type of agreement entitled "Selection of the Umpire Principles," or maybe "Criteria of Selection of  Umpire." It may be a short document, but expressly require everything of an Ump that is required of the appraisers, and at the same level of the bar, and above all require the Ump to sign, and maybe swear to his having specified qualifications and that he will determine the dispute if the original two cannot.

(9) The requirement and the "sheet" should be adopted as industry wide as possible.

(10) Umps should be required to have signed it, and maybe even swore to it. 


There is another special problem.  It focuses on Umps but it spreads out across all those involved in appraisal. Umps are not judges. Thinking of umps as judges distorts the process of appraisal The paradigms for Umps are to be found in sports. Consider baseball. The Ump there must know more about the game than the player and usually more than the coaches. The same is true in football. The competence of Umps is not to make reasoned decisions based on what others argue to them, as judges are conceived. Umps are in the field. It is not, for example, characteristic of judges to go out to a site and make realistic and informed empirical observations of alleged damages, yet this is exactly what is generally involved in being an Ump. Judges need not have expertise on the issues in dispute; Umps must.

Thus, as already stated, Umps are not judges. Umps must gather at least some of their own empirical data. Judges rarely do this. I have already discussed this fact, this problem; I have already suggested some solutions to it. Sometimes it is said that Umps are so much like judges that they should be thought of like that. Judges try cases about welding without themselves being welders, that is not exactly true about Umps. They have to know a good deal more than basic fundamentals. They themselves must find independent support for their decisions. They do not usually have witnesses, transcripts, depositions, or arguments. 

Similarly, just stepping up to the plate as an Ump does not make you suddenly and particularly knowledgeable about roofs and hail for most purposes. An Ump in a hail case, for instance, should not look merely to the estimates provided by the opposing appraisers. An Ump needs to have enough information, and enough background and experience, to review the claim and the damage before it and make a reasoned decision. 
 
Umps are not judges. The fact that the word "quasi-judicial" is sometimes used to describe appraisals does not make the Ump judge-like. The term is for the whole process. The whole process is designed to avoid litigation-type situations, and there is an underlying idea of cooperation designed to reach just results quickly. Granted, Umps are not mediators, but they also are not the messenger-servants of one side or the other. And they are required to be knowledgeable about the kind of damages at issue. It takes judges some time to learn topics about which they know nothing or little, at least usually speaking. Appraisals cannot work that way; otherwise speed is undermined, and that is one of the chief purposes of appraisal. 

Judges may not be satisfactory Umps. It is also worth pointing out that/although some are, many, many Umps are not and never have been judges. They may not even have a really good feel for what it is that judges really do. It is much more important that an Ump, like an appraiser, know more about the substantive issues of a case: about hail, about smoke, about arson, about interruptions of business income.  

Judges may not even be good appointers of Umps.  I have "seen" (or otherwise be acquainted with stories about) judges pick their long-time friends, associates, pals, and lawyers- in-need as Umps, and those selections have not always been successful.


Conclusion

The point of this blog--all four parts of it--is to set forth or vindicate the proposition that appraisal is intended to be a relatively rapid rational process. Such a process requires that all the members of the temporally changeable committee must be appropriately knowledgeable, reasonable, rational, dedicated, dedicated to getting to as much truth as possible. The appraisers must be able to reason with others; they must not be biased in favor of the side that appointed them and the side appointing them must be dedicated to the same idea. The Ump must recognize and accept the proposition that that he is not in control of the operation, that he is not the lone, ultimate decider. The Ump might consider the idea that he should try to create reasonable debate before he takes a side, in other words, the Ump might consider the idea of fostering (even more) cooperative discussions.

*Michael Sean Quinn
2630 Exposition Blvd  #115
Austin, Texas 78703

Monday, September 2, 2013

The Insurance Appraisal Process--Part III

 

 Insurance Adjustment and Appraisal

Michael Sean Quinn*

Part III

The question now becomes: How do Umps figure into all this?



What an ump should be like is the same as that of the appraisers, but it also involves additional dimensions. Some of these are not obvious from the Appraisal Clause. Some think that if an ump can more-or-less think through the work of the opposing appraisers, they are qualified to resolve the issues.  Under many--and probably most--situations, this view is false.This can be determined, in my opinion, simply by considering what the roof problem would look like if the ump was not knowledgeable about roofs.

Surely, umps must have at least the same competence that the two appraisers do. Imagine an Ump who could not evaluate the work of the other members of the panel. You might as well have an Ump who reads and speaks and understands only French and does not speak or understand English at all. In addition, there will be a discussion presently of this Ump's explicitly stated obligations to which he agreed and how they were not met in this case. Given the requirements for panel members internal to the appraisal, it is obvious that all members of the panel must have been honest and accurate in presenting themselves as potential members of the panel, e.g., in a nomination-selection process. Unquestionably, the same would apply even more stringently to a potential Ump. 

Here are some simple and obvious requirements. It is impossible for an Ump to be part of an appraisal panel if he does not know how to appraise. He cannot make sound decisions by himself, rising above a deadlocked panel. He cannot use best judgment and cannot genuinely pursue a just result, if he does not know the process involved. He is not deciding which side is making the better case, although he may look at those issues. He is deciding the appraisal himself. Imagine Cinderella deciding the cash value of the palace of the Wicked Queen, when the architect and the general contractor of the realm cannot agree.


Here are some "extra" requirements to be placed on Umps:

  1. Extensive knowledge as to how the physical factors that are the focus of the adjustment fit together, whether and how the damaged objects can be repaired replaced, and the costs involved.
  2. the proper computation of losses under the relevant insurance policy, e.g., the difference between repair, restoration, and replacement, plus what types of monetary amounts should be employed, e.g., local sums, national sums, amounts used from higher priced regions, amounts used from lower priced regions
  3. grasping and using sound techniques of examining the work of the appraisers
  4. the ability and willingness to defend his computation
  5. proper methods of calculation
  6. the willingness to resist simple but generally invalid methods of calculation, such as averaging the two different numbers the appraisers suggest.         

See Karl A. Schulz, "Accurate Outcomes in APPRAISAL: The Importance of the Ump's Subject Matter Expertise," Journal of Consumer Law (2012)

The Insurance Apppraisal Process--Part II

Insurance Adjustment and Appraisals

Michael Sean Quinn*

Part II

  The blog now turns now to an analysis of the listed propositions. 

 P#1 requires a written demand; without one, there has been no valid appraisal. One might wonder what counts as a written demand. Obvious letters qualify, and—of course—that was the traditional way in which to make such a demand. One would think that emails would now do the trick. The only question there is what if it is sent to Adjuster X, in the maritime office when it was Adjuster G, in Nashville, who was working on the case. One suspects that if it were an accident or simply a harmless act, the sending to X when it should have gone to G, then there would be not question about there being a satisfactory demand. What if it were in the language of Tibetan from a professor of such things? Written on the back of an envelope, signed, but without a claim number? And so forth. (I suspect that all of them would be demands, even if they were intended to make the insurer's "life" difficult. Obviously, there must be some limits.) 


P#4 requires that each of the appraisers must be competent. The interests of the insured requires that each appraiser know a fair amount about that which is being appraised and the economic and financial realities surrounding what has happened. In many jurisdictions, they also must have a good idea about how insured objects get injured. Thus, P#4 requires that the appraisers must know enough about that which has been injured and/or damaged, to work on valuing the loss. 

Here is a simple concrete example. Consider proof loss--roof damage--resulting, at least in part, from hail damage.  What do the members of the appraisal committee need to know?  They will need to know:


1. about roofs of the specific kind involved in the claim and therefore the appraisal, including different components of a given roof,
2. about hail (e.g., size, likely speed, solidity), wind, and so forth,
3. about locating hail damage to the type of roof involved,
4. about the look of hail damage to a particular type of roof,
5. about other relevant engineering matters pertaining to the building and the claim,
6. about distinguishing between hail damages caused by the storm out of which the claim arose and such damage caused by something else, (i.e., a previous storm, the use of a hammer, jumping up and down, and so forth),
7. about evaluating the monetary value of the loss, including distinct components of the loss,
8. about the proper computation of losses of a relevant insurance policy, e.g., the difference between repair, restoration, and replacement, plus what types of monetary amounts should be employed, e.g., local sums, national sums, amounts used from higher priced regions, amounts used from lower prices regions,
9. there is no reason to think that a former or retired judge is automatically competent to make a decisive decision, and
10. so forth.

Competence requires relevant skill and knowledge, at an appropriate level. Although the definitions of "competent" and "impartial" are commonly known, the idea of competence requires that all who are involved must be competent to do what the appraisers are doing.

Competence does not require agreement. Competent appraisers can disagree. Disagreement up to a point and over some time is rational. Debate is often rational. Recognition of this elementary fact is crucial. That is why there are Umps. Umps can disagree with the two named appraisers. Umps are not there to decide a controversy for one appraiser (party) or the other, although that may happen, and it is permitted to happen if the Ump's decision is reasonable and at least one of the appraisers agrees enough to concur on the award. Umps and related problems will be discussed later.

P#5. Each appraiser must be impartial. Someone is impartial if and only if they are objective and disinterested. Being disinterested is not restricted to having a material interest, creditor interest, or something of the sort, for example, physical property, or some other pecuniary interest on one side of the controversy. Having some sort of substantial attachment to or involvement with (e.g., friendship) one of the parties, an attachment that is unreasonable from the point of view of avoiding partiality—whether direct or indirect, is inconsistent with a hypothesis of impartiality. Impartiality entails fairness between the two parties and includes not seeing a positive result for one of the parties from soliciting favorable treatment from another person.  Objective evidence should be used in evaluating the retention of a given appraiser.


P#6. The idea that the two parties shall attempt to select an umpire, or try to do so implies that they will try to do so together. If there is no reasonable attempt to try and select an umpire, there is no actual appraisal. A failure to attempt to accomplish this purpose genuinely and reasonably is inconsistent with the language, the clause and the purpose of the appraisals.


P#7. If the two appraisers appointed by the insurer and the insured do not agree, either party may seek the appointment of an umpire from a judge. An umpire is impliedly someone who is competent and who will seek an objective and impartial decision, so this goal controls any appointment of an umpire. This idea suggests that both parties should be present for the formal presentation of any such request. Even if this is not required by the exact language of the clause, it is implied by the clause; it is probably inconsistent with the language of the clause to do otherwise; there is certainly no language to the contrary; there are no Texas cases to the contrary; there has never been serious controversy in any significant secondary literature; it violates principles of impartiality to fail to do so; and if it is done by the insured, it violates the requirement of cooperation to be found in the Conditions section, in so far as that concerns the context of settling claims.

It has already been stated that umpires must be competent in the same ways the appraisers must be competent. It is not the case that the umpire may simply be competent to make decisions. Umpires are not judges. The paradigms for umpires are to be found in sports. Consider baseball. The umpire must know more about the game than the player and usually more than the coaches. The same is true in football. Umpires are not just competent to make reasoned decisions based on what others tell them, as judges are conceived. It is not, for example, characteristic of judges to go out to a site and make realistic and informed empirical observations of alleged damages, yet this is exactly what is generally involved in being an umpire. Judges need not have expertise on the issues in dispute; umpires must. Thus, as already stated, umpires are not judges.
   
P#8. This proposition is an interesting requirement. It requires the appraisers to present evaluations of both the worth of the property and the amount of the damage. This explicit requirement in the policy makes something mandatory, which was not previously, in the clause, been asserted to be required in the work of the appraisers. P#8 also suggests how calculations of damages must be conducted. I shall pass over these requirements—explicit though they are—for the time being, at least.


P#10. In an appraisal, if two of the three agree, then that agreement becomes binding. Obviously, if there has been no appraisal or valid appraisal, then this mode of decision is not binding. In addition, the method of reasoning must be as set forth in the clause. Moreover, it is clear that not every agreement need cover the entire claim. It might cover some of it, but it is not the case that it must cover all. 

Finally, the agreement must least be in the range of reasonable. One of the central purposes of appraisals is to obtain a reasonable result more quickly and cheaply than litigation. In my experience, at least in a first party property policy, if an insured's demand for compensation under a policy is larger than the insurer's evaluation, the insured's demand is probably exaggerated. Of course, the fact that a decision in an appraisal is binding, does not make it reasonable.

Most of these principles are epistemological--how to maximize sound  beliefs and therefore satisfactory conclusions from the point of view of disputed truth. Most of them are also moral--how should a person in this situation act and act honorably. A good deal has been written on the epistemology of the adjusting process, but less has been written on its moral structure. There is a little bit, however.

The Code of Ethics for Umpires in Insurance Appraisals Windstorm Insurance Networks, Inc. (2007) (Windstorm). (This appears to be a non-profit corporation, a wing of which certifies umpires and perhaps trains them.) The other code is the Umpire and Appraiser Code of Conduct (2010). (Digitory Solutions Inc.) (This appears to be a for-profit that firm identifies itself as a tech firm rendering services to P.A.s. At one point the code is said to be an internal "regulation.") I shall discuss some of the rules found in these Codes later.


*Michael Sean Quinn

2630 Exposition Blvd.

Austin, Texas 78703

The Insurance Appraisal Process--Part I

Insurance Adjustment and Appraisals

Michael Sean Quinn*

Part I

There are two types of appraisals. Those performed by one person, e.g., that of art works, the value of real estate, etc.  The others are performed by perfectly stable committees as to size, e.g., those consisting of X number of persons all through the process, and usually their is an odd number.  Then there are less than stable committees as to size; those expand if the first membership cannot reach a decision. Insurance appraisals are of the last type. They start with two members, and then expand to three members if the two original members cannot reach a solution, or do not do so over a reasonable period of time.

One purpose of appraisal is to reach a solution as to the size of the insured's damages and the amount the insurance company shall pay.  It is designed and intended to shorten the length of time arguing over disputed amounts both with respect to probability and its amounts.  At least in theory, the language of the clause explicitly states that the amount of recovery is THE issue. Courts and litigant-participants don't always either realize.  Or maybe they know it, but just ignore it.  This is a fact I shall ignore in this set of blogs


In order to discuss appraisal in a meaningful way, it is necessary to have the contractual provision clearly in mind. It is a standard provision included in (at least virtually) all first-party property insurance policies, unless deleted.  It is currently found in the ISO "form" property policies, and it has been there for several generations, whether residential or commercial. 


 Appraisal clauses are to be found in insurance contracts all over the world and is not restricted to first party property insurance.  It generally applies to first party insurance of all types, including for intangible "objects" and/or "processes."  They are found in the "Conditions" section of the ISO policies.


 The ISO language, entitled "Appraisal [,]" is as follows:

If we and you disagree on . . . the amount of the loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:

            Pay its chosen appraiser; and

        Bear the other expenses of the appraisal and umpire equally.

        If there is an appraisal, we will still retain our right to deny               the claim.

Appraisal clauses are enforceable by legal process under a variety of circumstances, usually when an umpire ("Ump") has decided the issue. It is extremely difficult to avoid the enforcement of an appraisal by judicial process; it very rarely ever happens, although it should happen more often when a principle of sound adjustment appraisal has been violated by one or more of those doing the appraising. Almost always these violations are connected with Umps.  (I will return to this topic.)  Appraisal clauses are enforceable under a great many circumstances, and the finality that often goes with them is quite often enforced. Dividing up the clause and thinking about it step-by-step might be a good idea. The propositions shall be entitled "P," and numbered, e.g., "P#76", to create a fictional number for illustration. Some of the following are explicit requirements found right on the surface.  Others are just under the explicit wording:

P#1.    There must be a written demand for an appraisal of the loss.

P#2.    There must be evaluations of the amount of the loss by each of the appraisers.

P#3.    There is no reason why the appraisers may not try to reach an agreement on their own. The probability of reaching an agreement is increased by there being separate thinking and cooperative mutual discussions and dedication.  Appraisal is not intended to be adversarial advocacy.

P#4.    Each appraiser nominated by either side must be competent.

P#5.    Each appraiser nominated by either side must be impartial.

P#6.    Together the appraisers "will select" and appoint [or attempt to appoint] an umpire.

P#7.    If they cannot do so, either party may request that an umpire be appointed by a judge of a court of jurisdiction.

P#8.    Each of the appraisers shall, separately, state [presumably in writing] both the value of the property and [the] amount of loss.

P#9.    If their statements are not in agreement [or if they fail to agree otherwise], they will submit their differences to the umpire.

P#10.    If two of the three agree, than that agreement is the result and it is binding. I now turn to an analysis of the propositions, and express opinions. [For obvious reasons, the ump will be one of the two.]

The propositions, unamended and unsupplemented, are to be found in virtually all property policies. Of course, they can be changed by agreement, and they can even be eliminated, but both of these are very rare, and they never happen at all in smaller policies. There are some variations, and one will be discussed later.

Part II will be mostly concerned with analyses of the forgoing "Big Ten."



 *Michael Sean Quinn
2630 Exposition Blvd #115
Austin, TX 78703