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January 22, 2014 Articles

Interpreting Claims-Made Insurance in the Context of a Mass Tort

If insurance is to serve its purpose, it must be possible for a policyholder to transfer mass tort risks under a claims-made program as well as under an occurrence-based one

by Lon Berk [1]

Mediation in coverage disputes tends to arise in one of the following three contexts: a court orders mediation early in the case; the parties mediate pursuant to some prior agreement to mediate disputes before litigation; or the parties agree to mediate at some time after a dispute arises, and often after litigation is initiated. Generally, it is preferable for the parties to control the mediation process and to decide whether and when to mediate, and how to structure the mediation. When the parties are invested in the process, they are more likely to reach a negotiated settlement. The opportunity for a favorable settlement is enhanced if both the parties and the mediator are sufficiently prepared, if the mediator has the right expertise, and if the parties have the documents and discovery needed to value the case. Like any other weapon in the litigator’s arsenal, mediation can be an effective tool for obtaining the best possible result for a client if used properly and at the right time. Thus, counsel should consider when and whether to mediate throughout a dispute.

Certain trends in litigation and mediation are likely to affect the decisions that counsel make as to whether, when, and how to proceed with mediation. This article lays out some of these trends alongside certain principles to consider in approaching mediation. Ultimately, the advantage of mediation, so long as counsel considers the client’s best interests, is to resolve disputes efficiently and effectively—to minimize the cost of resolving a dispute and to do so in a way that allows the parties to set their own terms.

It is a truism that the purpose of insurance is to transfer risk. Mass torts generally involve actual or alleged injuries and multiple claims occurring at different times. It follows that, if it is to satisfy the purpose of insurance, when mass torts are involved, an insurance program needs to provide coverage for multiple claims over some period of time. Historically, this was accomplished with occurrence-based policies, so that policies responded based on the date of the event or injury leading to an individual claim. However, claims-made insurance is playing an increasingly important role in insurance programs and in the resolution of claims involving mass torts. Not only are directors’ and officers’ liability policies, as well as professional liability policies, generally written on a claims-made basis, but especially with respect to risks in the life sciences, products liability coverage is being written with increasing frequency on a claims-made basis as well. In fact, areas in which there is a significant risk of mass tort exposure are increasingly being insured on a claims-made basis. It follows that, if insurance is to serve its purpose, it must be possible for a policyholder to transfer mass tort risks under a claims-made program as well as under an occurrence-based one.

Unfortunately, claims-made programs often provide opportunities for mischief. On occasion, insurers have ignored the principle that they are part of a program to transfer risk and have put forward arguments concerning claims-made forms that undermine the purpose of claims-made programs. Too often, companies insured under claims-made programs are faced with a complex of insurers presenting a series of arguments that lead to results inconsistent with the possibility of a claims-made insurance program transferring mass tort risk. This is not to imply that such difficulties do not face insureds covered by occurrence-based programs; however, where claims-made programs are at issue, additional issues can undermine the possibility of risk transfer.

The Nature of Claims-Made Coverage

Historically, liability insurance was provided on an occurrence basis. Such insurance responds based on the timing of the accident (or occurrence) underlying the liability. Thus, for example, where a claim is made in 2005 against a company for injury resulting from the use of the company’s product in 1995, under an occurrence program, the insurance in effect at the time of the accident—1995—would apply even though the claim was not made until 10 years later— in 2005.[2] In contrast, in a claims-made program, the insurance that is in effect at the time of the claim is the one that responds.[3] So, in the prior example, the insurance in effect in 2005—when the claim was made—would generally respond, even though the accident happened 10 years earlier—in 1995.[4]

A claims-made program benefits insurers. Among other things,

[t]he obvious advantage to the underwriter issuing “claims made” policies is the ability to calculate risks and premiums with greater exactitude since the insurer’s exposure ends at a fixed point, usually the policy termination date. This may result in lower rates for the insured. A corollary benefit to the insured is that since coverage is purchased on a contemporary basis, it can afford protection in current dollars for liability that may be based on negligence that occurred years earlier.[5]

An insurer issuing a claims-made policy is able to close its books at the end of the policy year confident that it is aware of the potential exposure under its policy;[6] in contrast, an insurer issuing an occurrence-based policy must estimate at the end of each the number of claims that might come in the future as a result of accidents during its policy period. This uncertainty is one reason that in industries where there is a higher risk of mass torts, such as the life sciences, or for areas in which there is that higher risk, such as breaches of network privacy, occurrence-based insurance tends to be less common than claims-made programs. And, beginning in about the mid-1980s, insurers began to increase their use of claims-made programs to cover commercial risks, motivated in large part by a determination to avoid “long tail ” exposures such as asbestos and environmental claims.[7] Claims-made insurance has arguably become the “dominant form of liability insurance.”[8]

The typical clauses that are part of a claims-made policy, however, can lead to difficulties during mass tort settlements; insurers intent on minimizing their exposure have used these provisions to their advantage, whether or not their positions are consistent with the purpose of the coverage. Two provisions insurers sometimes use are provisions concerning the timing of a claim and provisions concerning the so-called “relation back” of occurrences. In the context of a mass tort, these provisions can be put forward to limit coverage and can be used by insurers to complicate the resolution of the claims against their insureds.

As noted, claims-made policies are triggered not by the date of injury, but by the date of claim. “[T]he ‘trigger’ . . . is the making of a claim in the policy year, rather than injury resulting during the policy year from an ‘occurrence’. . . .”[9] In addition, claims-made policies generally include a “retroactive date,” which is the date after which an occurrence (or in some cases, an injury) must occur in order for the policy to apply.[10] Thus, for example, the Insurance Services Office (ISO) 2001 Commercial General Liability claims-made form provided:

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. . . .

This insurance applies to “bodily injury” and “property damage” only if:

(1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”;

(2) The “bodily injury” or “property damage” did not occur before the Retroactive Date, if any, shown in the Declarations or after the end of the policy period; and

(3) A claim for damages because of the “bodily injury” or “property damage” is first made against any insured, in accordance with [specified conditions] during the policy period or any Extended Reporting Period we provide. . . .[11]

Under such a form, there are three triggers to coverage: First, bodily injury or property damage caused by an occurrence. Second, bodily injury or property damage that does not occur before the retroactive date. And third, a claim for damages because of bodily injury or property damage first made during the policy period.

In addition to these provisions, many policies also contain requirements that the claims arising out of certain factually related injuries should be deemed to “relate back” to earlier claims arising out of such related injuries. For example, one carrier’s claims-made policies included provisions defining “batch” occurrences so that there is only one occurrence for “all products which have the same known or suspected defect or deficiency. . . .”[12] Another insurer’s policy includes the following language:

All Claims based upon or arising out of the same Wrongful Act or Interrelated Wrongful Acts shall be considered a single Claim and each such single Claim shall be deemed to have been made on the earlier of the following:

A. when the earliest Claim arising out of such Wrongful Act or Interrelated Wrongful Acts was first made; or

B. when notice was provided to the Insurer . . . concerning a Wrongful Act giving rise to such Claim[,]

where Interrelated Wrongful Acts are defined to mean acts that are

1. similar, repeated or continuous; or

2. connected by reason of any common fact, circumstance, situation, transaction, casualty, event, decision or policy or one or more series of facts, circumstances, situations, transactions, casualties, events, decisions or policies.[13]

As we will see below, these provisions can frustrate the transfer of mass tort risks and complicate the resolution of mass tort claims.

Class Actions

Coverage for class actions should be easily resolved under claims-made policies. Assuming that the intent is to transfer the risk of such actions, one logical approach would be to treat the claims of all members of a class as being made at the time the class action is filed. This treatment accords with not only the language of most claims-made policies but also with their intent. A claim is generally defined as a demand for money and, as such, should be independent of the person making the demand. A claim on behalf of person X affects the insured in the same manner whether it is made by X or made on behalf of X by another person, Y. The underpinnings of a class action are that the class representative is making the claim on behalf of all members of the eventually certified class. Therefore, the claim of all members can be considered made upon the filing of the class action complaint, whether the claimant is specifically identified as a class representative or not. Moreover, this approach, assuming that sufficient limits were procured, would permit continuous insurance protection and hence the transfer of mass tort risk.

It can, however, run into difficulty where insurers take a restrictive view of their policy. Such a position was taken by an insurer in American Insurance Company v. St. Jude Medical Inc.[14] In that case, St. Jude had manufactured Silzone-coated artificial heart valves that were the subject of the Artificial Valve Edocarditis Reduction Trial (AVERT). On January 21, 2000, the AVERT review board recommended discontinuing the trial because the data indicated a “significantly higher incidence of explants due to paravalvular leakage . . . ,” and St. Jude sent a letter to physicians the same day announcing the recall of the product.[15] It notified its insurers three days later.

A series of lawsuits, including a class action, was eventually commenced against St. Jude, claiming bodily injury caused by complications from the Silzone-coated product. The primary insurer determined that “all claims arising out of the Silzone recall will constitute a single occurrence . . . [and] all claims arising from products that are the subject of the recall will be deemed to have been made during the [1999 to 2000] Policy Period,” thus falling within the policy’s coverage.[16] American Insurance Co. (AIC), an excess insurer, disagreed. It argued that its policy required that the bodily injury actually have occurred during the policy period and that the Batch Clause relied on by the underlying carrier could not alter this requirement. Thus, many of the claims made in a class action would not be covered by AIC’s policy because they arose from bodily injuries occurring after the date of bodily injury, even though under the batching clause the claim was deemed made during the policy period. On the other hand, insurers with policies in effect after AIC’s policy would naturally argue that such claims are deemed to have been made during the AIC policy period and therefore not covered by their policies either. The result would be a gap in coverage for mass torts, undermining the ability to transfer the risk.

The court, however, rejected AIC’s approach. The court noted that

[t]he Batch Clause amends the definition of the term “occurrence” and states that “[a]ll claims made . . . seeking damages because of ‘bodily injury’ arising out of one batch will be deemed to have been made at the time the first of those claims is made against [St. Jude]. . . . The interpretation advanced by AIC renders the Batch Clause meaningless by placing a claim in one policy period while assigning the bodily injury to another. If the Batch Clause changes the date that a “bodily injury” occurs under the policy, however, then section 1(b) and the Batch Clause are in harmony. Moreover, the bodily-injury provision limits liability, and the court must construe limitations against the insurer. Therefore, AIC’s argument fails.[17]

Thus, under AIC v. St. Jude, where the claims made in a class action all arise out of a single occurrence for purposes of an insurance policy, all claims are deemed to be made at the time the first of those claims is made, and the bodily injuries as well are deemed to be made during the policy period. Were the excess insurer’s approach accepted by the court, continuous coverage under a claims-made program would not have been possible.
Coverage for class actions under claims-made policies has also been addressed by the U.S. Court of Appeals for the Eighth Circuit.[18] That case concerned a rapid refund program H&R Block had developed under which it prepared and filed tax returns online for clients and provided refund anticipation loans. Between 1993 and 1996, it processed 15 million such loans.[19] In 1990, H&R Block was a defendant in a consumer class action. By May 1996, when it purchased claims-made liability insurance from AISLIC and Lexington, 11 class action lawsuits had been filed concerning the program. Although no class had been certified and some cases dismissed or settled, the bulk of the class action complaints were pending at the time H&R Block was seeking to procure insurance. The litigation was disclosed to AISLIC and Lexington at that time. Between May 1996, the time the insurance was purchased, and August 1998, 11 additional class actions were filed, all during the AISLIC and Lexington policy periods.[20]
Their policies had a prior act provision that provided coverage for claims arising out of wrongful acts before the policy period if H&R Block “had no knowledge of the prior wrongful act on the effective date of this Policy, nor any reasonable way to foresee that a claim might be brought.”[21] The court held that this provision precluded coverage for the class actions that were filed during the AISLIC and Lexington policy periods. It held that by virtue of the earlier class action complaints, H&R Block was on notice of the additional claims:

When a product or service has been sold nationwide . . . even if the prior class action was limited to clients in a particular jurisdiction, claims based on uniform aspects of the . . . program and on causes of action recognized in most or all jurisdictions . . . put [the insured] on reasonable notice that other contemporaneous clients will assert the same claims alleging that the same “wrongful acts” infected their individual transactions. Indeed, in this case, the nationwide class action . . . put [the insured] on notice that, if the class was certified, every . . . client who did not opt out had already asserted claims for the wrongful acts alleged.[22]

Thus, under the Eighth Circuit’s reasoning, the filing of a class action complaint is notice of a claim by any member of the proposed class. It followed that once the class action is filed, the insured was not entitled to prior acts coverage under its future claims-made policies and must look to the policy in effect at the time the complaint was filed for coverage.

In reaching this decision, the court distinguished circumstances involving a class action from those involving single claims. It noted that “the very purpose of insurance is to protect against the risk of unknown but not unexpected loss” so that “a claim that a Block agent negligently prepared a client’s tax return would qualify for Prior Acts coverage even though Block had been sued for the same type of negligence by other clients prior to the policy’s inception.”[23] The court found that analogizing a class action to individual claims by named plaintiffs “ignores the realities of the modern consumer class action” which requires the named plaintiffs to prove not only that he or she is a member of the class but also to “allege and undertake to prove that each class member was injured by the same wrongful act or acts.”[24] For that reason, the court found, the insured was on notice “that other contemporaneous clients will assert the same claims alleging that the same ‘wrongful acts’ infected their individual transactions” and, in particular, “that, if the class was certified, every . . . client who did not opt out had already asserted claims for the wrongful acts alleged.”[25]

The court’s decision is consistent with continuous claims-made coverage, and hence with the transfer of the risk of mass torts, provided that all claims by all members of the class are deemed made at the time the class action is filed. Under the court’s approach, claims-made policies in effect at the time the first class action was filed would be the ones triggered and would be responsible for all resulting covered loss. Although the court’s decision is silent on this issue, presumably its reasoning applies whether or not the class is certified—that is, that the policies in effect on the date the first class action is filed would be the ones to respond to all claimants, whether or not there are claims made by persons opting out of the class.

If a distinction between certified and uncertified classes were made for this purpose, continuous coverage under a claims-made program might not be available. Consider the following circumstance: A company is insured under a series of claims-made policies from 2000 to 2013. A class action complaint is filed against the company in 2005, and a series of individual claimants file lawsuits each year thereafter. Under the Eighth Circuit’s reasoning, because the class action was filed in 2005, the subsequently filed individual claims would not be covered because the insured had reason to expect them. Accordingly, if all claims, including the individually filed claims, were not deemed made in 2005, when the class action complaint was filed, there would be a coverage gap. This would become increasingly serious to the insured in the event that the class action were not certified or there were a large number of opt-outs. It follows that, assuming the Eighth Circuit’s reasoning is correct, either there can be no transfer of the risk of mass torts using a claims-made program or all claims must be deemed made at the time the class action is filed, whether or not it is certified and whether or not future individual claims are made by persons opting out of the class.

Claims-made insurers have, on occasion, attempted to avoid covering a class action by maintaining that until the class has been certified, there would be no claim by any class member other than the named party. Such a view of claims-made coverage would, given the Eighth Circuit’s reasoning, create a gap in coverage for class actions. The Eighth Circuit agreed that an insured should be able to acquire a seamless gap of claims-made coverage. As the court noted,

[l]iability policies are typically written for one-year periods, and the delay between the occurrence of a wrongful act and the assertion of a claim arising out of that act may be considerable. By offering Prior Acts and Reported Acts coverages, the claims made insurer enables the insured to maintain continuous liability coverage through a succession of one-year policies, even if it changes insurers. That benefit should be real not imaginary.[26]

The court concluded therefore that Block could have invoked the coverage provided under its earlier policy when the class action was filed to obtain coverage, rather than seeking coverage under the later policies.

Claims-made carriers might try to justify their position by contending that until the class is certified, the named plaintiff “cannot legally bind members of the proposed class”[27] or by citing the principle that “a non-named class member is n[ot] a party to the class-action litigation before the class is certified.”[28] But these principles, although undoubtedly true as a matter of federal procedure, should have no bearing on the interpretation of the insurance policy, if the Eighth Circuit was right. Under the court’s reasoning, it is upon the filing of the class action that the defendant has constructive knowledge of the claims by class members for purposes of the known-loss exclusion, and a position that treated class members as non-claimants before class certification would accordingly make it impossible for an insured to obtain continuous coverage under a claims-made program.

This argument was at issue in Hartford Accident & Indemnity Co. v. Beaver.[29] There the insurer was asked to defend its insured against a class action complaint under circumstances where the class had not yet been certified and where the only potentially covered claims were by putative class members that were not named in the complaint. The representative plaintiff’s claims were not covered. The district court held that because a class “must be certified before a claim may be maintained on its behalf[,]” until “certification, there is no class claim to defend against,” and for that reason, the insurer’s duty to defend was not triggered.[30]

The Eleventh Circuit disagreed and reversed. It noted that the duty to defend is triggered by the allegations of the complaint, and so, even though “the parties agree that [the insurer] faces potential liability only if a class is certified, [the court must] ask whether the Underlying Complaint alleges facts that fairly and potentially support class certification.”[31] It followed that, because the complaint included sufficient allegations to meet the standards for certification, there was a duty to defend the insured against class claims. The court expressly rejected the insurer’s argument that because absent class members are not part of the lawsuit until certification, there can be no duty to defend.[32]

A somewhat trickier issue is what would have been the result in H&R Block, in the event that the class action were not a national class—i.e., if a state class, rather than a national class were first filed. Although the Eighth Circuit seemed to believe the result should be the same, there is an argument that because the claims had not been made outside the state, there was not notice of out-of-state claims. Similarly, if a complaint is amended to expand a purported class, there should be coverage available under the policy in effect at the time the complaint was amended. In fact, the Southern District of New York was faced with just such a situation in CheckRite Ltd., Inc. v. Illinois National Insurance Co.[33]

In CheckRite, a class action was filed in 1993 seeking damages under the Fair Debt Collection Practices Act (the FDCPA). The class was certified as “persons who have written checks in California which have been dishonored and subsequently assigned to defendants and from whom defendants have demanded unlawful charges or to whom defendants made false representations within one year preceding the filing of this complaint.”[34] Then, in 1994, an amended complaint was filed seeking certification on the same terms as the original class but for injuries between the filing of the complaint and the amended complaint, January 27, 1993, to January 27, 1994.[35] On May 8, 1996, a second amended complaint was filed, seeking certification of a class of those injured since January 27, 1994. The claims made by the class in the original complaint and by the class in the first amended complaint were covered by CheckRite’s claims-made carriers that had policies in effect at the time the original and first amended complaints were filed, and, in February 2007, CheckRite sought coverage for the claims made by the class in the second amended complaint from Illinois Insurance, the carrier whose policy was in effect at the time the second amended complaint was filed.

The carrier contended that the second amended complaint was not a claim made during its policy period because it was part of a judicial proceeding that had been filed three years earlier. The Southern District of New York disagreed:

The [Original] Class Action and the Second Amended Complaint, respectively involved distinct classes of people who sought to hold CheckRite liable for damages resulting from unlawful conduct during distinct periods of time. The [Original] Class Action concerned persons who sought to hold CheckRite liable for FDCPA-violative conduct occurring between September 29, 1992 and January 27, 1994. The Second Amended Complaint concerned persons who sought to hold CheckRite liable for FDCPA-violative conduct occurring between January 27, 1994 and December 31, 1996.

Prior to the filing of the Second Amended Complaint, no one had made a demand against CheckRite for money damages for FDCPA-violative conduct between January 27, 1994 and December 31, 1996. There was no judicial proceeding against CheckRite in which it could have been subjected to damages to these persons. Nor could any such person have shared in a recovery pursuant to the [Original] Class Action. The Second Amended Complaint concerned a new and distinct group of claimants.[36]

It is important to note that CheckRite did not address an argument that the second amended complaint and the earlier complaint were all one claim under the earlier policy because they involved “Interrelated Wrongful Acts.” It is possible that courts would find amended complaints, or even separate lawsuits involving different claimants, all to be one claim falling under the earliest policy period if they involved “Interrelated Wrongful Acts.” In WFS Financial, Inc. v. Progressive Casualty Insurance Co.,[37] although two class action suits were filed by two different sets of plaintiffs in two different forums, under two different legal theories, the court held that they were to be considered one claim under the earlier policy period in which one of the suits was filed. The court explained that the common basis for the suits was the insured’s practice of permitting independent dealers to mark up loans to minority candidates, thus bringing both suits within the policy’s definition of “interrelated wrongful acts.”[38]

The timing of when claims in a class action are made for purposes of coverage under a claims-made policy can be critical to the question of whether mass tort risk can be transferred. That issue was just recently answered negatively by a federal court in Michigan. In Park West Galleries, Inc. v. Illinois National Insurance Co.,[39] the plaintiff was a defendant in a series of consumer class actions and individual claims,[40] some filed before the policy period and some filed during the policy period. Before purchasing the insurance, all existing litigation had been disclosed[BN2]   to the insurers. When the insured sought coverage for the actions filed during the policy period, the insurers denied coverage. They first contended that the claims were barred because the class representative only alleged a wrongful act that happened before the retroactive date (which coincided with the beginning of the policy period). The district court rejected this argument, reasoning that some of the putative class members, upon certification, could seek recovery for wrongful acts subsequent to the retroactive date and that, because the matter involved only the duty to defend, the complaint therefore was consistent with the possibility of coverage. However, the court found that the class actions made during the policy period where nonetheless barred pursuant to an exclusion barring a claim “first made . . . prior to, or pending as of, the first inception date, or relating to the essential facts, circumstances or situation underlying such claim.”[41] The court found that all claims arose out of “related . . . facts, circumstances or situation” and therefore were barred from coverage as the first claim had been made prior to the policy period. Under this reasoning, unless the earlier insurer is found obligated to cover all related claims, whenever made, there would be a gap in coverage and the risk of mass torts would not have been successfully transferred. Questions regarding prior insurers’ obligations were not addressed by (or at issue before) the court.

Multidistrict Litigation

A series of decisions by the U.S. Supreme Court has made the use of class actions very difficult in connection with mass torts.[42] The first decision, Phillips Petroleum Co. v. Shutts,[43] involved a nationwide class action brought in Kansas concerning natural gas royalty payments. The lower courts applied Kansas law to resolve the claims by the class. The United States Supreme Court held that the Kansas courts did have jurisdiction over a national class action, but the Court held that applying Kansas law to resolve the claims of each and every class member violated the Due Process Clause.

Kansas must have a “significant contact or significant aggregation of contacts” to the claims asserted by each member of the plaintiff class, contacts “creating state interests,” in order to ensure that the choice of Kansas law is not arbitrary or unfair. Given Kansas’ lack of “interest” in claims unrelated to that State, and the substantive conflict with jurisdictions such as Texas, we conclude that application of Kansas law to every claim in this case is sufficiently arbitrary and unfair as to exceed constitutional limits.[44]

Amchem Products, Inc. v. Windsor[45] involved a class certified to impose a settlement on a huge class of actual and potential litigants seeking compensation for asbestos-related injuries. The Supreme Court affirmed the Third Circuit’s reversal of the district court’s certification of the settlement class. Among the reasons was a holding that, even though the settlement was designed to address claims made or that would be made involving the “health consequences of asbestos exposure,” the requirement of “predominance” under Rule 23(b)(3) was not satisfied.[46] Quoting the Third Circuit’s holding, the Court found as follows:

Class member were exposed to different asbestos-containing products, for different amounts of time, in different ways, and over different periods. Some class members suffer no physical injury or have only asymptomatic pleural changes, while others suffer from lung cancer, disabling asbestosis, or from mesothelioma . . . . Each has a different history of cigarette smoking, a factor that complicates the causation inquire.

Differences in state law compound these disparities.[47]

The Court also found that there were conflicts of interest that precluded the named parties from acting on behalf of a single class, including among others, the interest of current claimants in immediate payments, while those without current claims, whose exposure had not resulted in manifested injuries, had an interest in an “ample, inflation protected fund for the future.”[48] And, more recently, the Court reemphasized the need for satisfaction of the predominance test for class certification in Wal-Mart Stores, Inc. v. Dukes.[49] Given these rulings, with some exceptions, mass torts will often not involve class actions.

Under Title 28,

[w]hen civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings. Such transfers shall be made by the judicial panel on multidistrict litigation authorized by this section upon its determination that transfers for such proceedings will be for the convenience of the parties and witnesses and will promote the just and efficient conduct of such actions.[50]

While a class action can address claims by all claimants (upon certification), actions consolidated in a multidistrict litigation (MDL) proceeding cannot. They can address only actions filed, although actions filed after the creation of an MDL can, of course, be transferred to the MDL while the MDL is pending. Further, only actions filed in federal courts can be consolidated in an MDL proceeding. It follows that the Eighth Circuit’s reasoning with respect to when a claim is made for purposes of a class action does not carry over to an MDL context. Future claimants need not be a part of the MDL and their claims, once certified, are not made in the MDL proceeding unless transferred or made in that proceeding.

This can present serious problems for a policyholder. The standard for instituting an MDL proceeding is that there be “civil actions involving one or more common questions of fact.”[51] If this standard is met, insurers have argued, the insured knew of the issue underlying each of the claims and, hence, was on notice that additional claims would be made, supporting a known-loss argument. Alternatively, the insurers may use a “relation back” argument similar to the one accepted by the Park West Galleries decision that was discussed at the end of the last section. Using such arguments, insurers with policies in effect after the MDL is instituted may contend that their policies do not cover claims made during their periods, while insurers with policies in effect before the MDL is instituted may take the position that certain claims were not deemed made during their period and thus are not covered either. Consequently, the insured will be faced with a significant coverage gap and there will be a failure to transfer the risk of a mass tort exposure.


Companies buy insurance to transfer risk. As claims-made insurance has become an increasingly dominant form of insurance, transfer of the risk relating to mass torts has become unnecessarily complex, with insurers able to put forward different interpretations of the timing of claims and the relationship of events based on their position in insurance programs. These issues are, of course, best addressed proactively at the time insurance is acquired, lest the cost of complicated coverage litigation undermine the value of insurance acquired. In any event, resolution of the legal question should turn on the underlying purpose of acquiring insurance in the first place. Claims-made insurance programs should be interpreted so that they operate to transfer risk, whether or not that risk appears in the form of a mass tort.

Keywords: litigation, insurance, coverage, claims made policy, occurrence based policy, mass tort, class action

Lon Berk is a partner with Hunton & Williams LLP.


[1] Lon Berk is a partner in the insurance recovery practice at Hunton & Williams LLP. Many thanks are due to Rita Davis, Patrick McDermott, and Matthew McLellan, attorneys at Hunton & Williams LLP. Mistakes in the article are the responsibility of Mr. Berk alone. Moreover, the article represents neither the opinions of Hunton & Williams LLP nor of the firm’s clients.
[2] See, e.g., Wittner, Poger, Rosenblum & Spewak, P.C. v. Bar Plan Mut. Ins. Co., 969 S.W.2d 749, 752 (Mo. 1998) (en banc) (“occurrence” policies “generally provide coverage for an event that occurs during the policy period, regardless of when a claim is asserted”).
[3] Generally, there are two sorts of claims-made policies. In one, so-called “pure claims-made policies,” the policy in effect when the claim is made against the insured is triggered. In another, so-called “claims-made-and-reported policies,” the policy in effect when the claim is made against the insured and reported to the carrier is triggered. Jeffrey P. Griffin, “The Inapplicability of the Notice-Prejudice Rule to Pure Claims-Made Insurance Policies,” 42 Conn. L. Rev. 235, 246–47 (2009). The distinction will not be pertinent in the following discussion.
[4] Zuckerman v. Nat’l Union Fire Ins., 495 A.2d 395, 396 (N.J. 1985) (claims-made coverage limited “to claims made against the insured and actually communicated to the company during the policy period”).
[5] Zuckerman, 495 A.2d at 400 (citations omitted).
[6] Bediako v. Am. Honda Fin. Corp., 850 F. Supp. 2d 574, 579 (D. Md. 2012).
[7] See generally James F. Hogg, “The Tale of a Tail,” 24 Wm. Mitchell L. Rev. 515 (1998).
[8] Griffin, supra note 3, at 235.
[9] Hogg, supra note 7, at 532.
[10] Hogg, supra note 7, at 532.
[11] ISO Form CG 00 02 10 01.
[12] Cf. Am. Ins. Co. v. St. Jude Med. Inc., No. 08-13, 2010 U.S. Dist. LEXIS 98415, at *3 (Sept. 20, 2010 D. Minn.).
[13] Brecek & Young Advisors, Inc. v. Lloyds of London Syndicate 2003, 715 F.3d 1231  (10th Cir. 2013).
[14] 2010 U.S. Dist.  LEXIS 98415 (D. Minn. 2010).
[15] AIC v. St. Jude, 2010 U.S. Dist. LEXIS 98415, at *5.
[16] AIC v. St. Jude, 2010 U.S. Dist. LEXIS 98415, *7.
[17] AIC v. St. Jude, 2010 U.S. Dist. LEXIS 98415. AIC also argued that there was no claim during its policy period. However, the court found that the provision of a phone log with a complaint about the Silizone-coated product, which was provided to the primary insurer, constituted a notice of all claims by virtue of the Batch Clause. Id.
[18] H&R Block, Inc. v. Am. Int’l Specialty Lines Ins. Co., 546 F.3d 937 (8th Cir. 2008).
[19] H&R Block, 546 F.3d at 938.
[20] H&R Block, 546 F.3d at 939–40.
[21] H&R Block, 546 F.3d at 940.
[22] H&R Block, 546 F.3d at 942.
[23] H&R Block, 546 F.3d at 942.
[24] H&R Block, 546 F.3d at 942.
[25] H&R Block, 546 F.3d at 942.
[26] H&R Block, 546 F.3d at 942–43.
[27] Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345 (2013).
[28] Standard Fire, 133 S. Ct. 1345; see also Smith v. Bayer Corp., 131 S. Ct. 2368, 2372 (2011) (finding that a member of the proposed class was not a party and that “[n]either a proposed class action nor a rejected class action may bind nonparties”).
[29] 466 F.3d 1289 (11th Cir. 2006).
[30] Beaver, 466 F.3dat 1290.
[31] Beaver, 466 F.3d at 1292.
[32] Beaver, 466 F.3dat 1293–94.
[33] 95 F. Supp. 2d 180 (S.D.N.Y. 2000).
[34] CheckRite, 95 F. Supp. 2d at 184.
[35] CheckRite, 95 F. Supp. 2d at 184.
[36] CheckRite, 95 F. Supp. 2d at 190 . Ultimately, CheckRite was unable to obtain insurance because its policy was a claims-made-and-reported policy, and CheckRite did not report the claim to its insurer until the subsequent policy year. Id. at 191. This does not diminish the force of the court’s reasoning regarding when the claim was made, though.
[37] 232 F. App’x 624 (9th Cir. 2007).
[38] WFS Financial, 232 F. App’x at 625.
[39] 2013 U.S. Dist. LEXIS 164898 (E.D. Mich. Nov. 20, 2013).
[40] These individual claims were consolidated in a multidistrict litigation proceeding. Such proceedings are discussed in the next section.
[41] Park West Galleries, slip op at 3.
[42] The one exception appears to be consumer class actions relating to breach of information privacy.
[43] 472 U.S. 797 (1985).
[44] Shutts, 472 U.S. at 821 (citations and footnote omitted).
[45] 521 U.S. 591 (1997).
[46] Amchem Products, 521 U.S. at 624.
[47] Amchem Products, 521 U.S. at 591.
[48] Amchem Products, 521 U.S. at 625.
[49] 131 S. Ct. 2541 (2011).
[50] 28 U.S.C. § 1407.
[51] 28 U.S.C. § 1407.

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