Which Appeals to Pursue, and Which to Settle
For a litigant with institutional interests—such as an insurer or a large corporate policyholder that is often involved in coverage disputes—each appeal offers risks and rewards. Although bad cases usually make bad law, good cases have just as much potential to make good law. If a case has what a litigant sees as good facts, that litigant may have an interest in pursuing the appeal and rejecting settlement opportunities that would be reasonable if the case were viewed in isolation. Additionally, a party may have an incentive to take control over its destiny by creating precedent before some other party litigates an important issue on worse facts or with less persuasiveness.
Many appellate courts have mediation programs that offer parties a breather to decide whether they really do wish to go the distance. If a case has reached the appellate stage, the parties may have inflated ideas of whether their case really has good facts, and a mediator may be able to provide a neutral generalist’s perspective.
Teaching Insurance Coverage to Appellate Judges and Their Clerks
In the appellate courts, as in the trial courts, most judges and their law clerks lack insurance expertise. Insurance is undertaught in most law schools outside Connecticut. That problem can manifest differently at the trial and appellate levels.
By and large, trial judges want to know what the law is. For a busy trial judge faced with uncertain state law, it often can be quite persuasive for a party to find the closest on-point decision from the state or to present a comprehensive argument that the party’s position is the majority rule. The trial judge’s job is to decide the case as best they can within time constraints, and the resulting decision is neither the final word nor precedential.
Appellate judges are more likely to ask why courts have ruled for insurers or policyholders in the parties’ cited cases. They may feel freer to distinguish precedents if the rationale does not apply to the case before them, or to discount outside authority.
When drafting precedential decisions—or unpublished decisions that may be cited as persuasive—appellate courts want assurances that they are getting the law right for future litigants, not just the litigants before them. To that end, appellate courts want the parties to educate them generally about unfamiliar areas of the law, not just the particular facts or the most on-point case law. For example, if a case involves liability insurance, it can be helpful to describe, in plain English, what liability insurance is and how it differs from first-party insurance. Such a simple discussion can make that brief the go-to resource for learning about the law.
Situating the Appeal in State Law
Insurance is a quintessential matter of state law. In a diversity action, a federal court ordinarily will follow an intermediate appellate court decision from the state whose law controls, even when the state decision follows a minority rule or departs from prior federal decisions.
Thus, persuasive authority is only as persuasive as it fits with a state’s precedent. An outside decision, no matter how on point it may be, is unpersuasive if it conflicts with state precedents on insurance law or general contract law. A majority rule, no matter how lopsided the weight of authority, may not fit with a state’s precedents.
Risk of Overreliance on Nonbinding Opinions
The following anecdote demonstrates why the appellate brief should not rely too heavily on unpublished opinions. We were litigating a question of North Carolina law in the U.S. Court of Appeals for the Fourth Circuit, which had issued two unpublished opinions deciding the same issue. The district court had cited those unpublished opinions when ruling in our client’s favor. Our three-judge appellate panel included a judge who had authored one of those unpublished opinions. That judge wound up dissenting from a 2–1 unpublished decision against our client. The majority opinion did not even cite the prior unpublished decisions, on which we heavily relied. Instead, the majority dropped a footnote holding that it was unnecessary to review unpublished opinions because North Carolina state decisions on general duty to defend principles in other contexts were sufficient. A few years later, we won on the duty to indemnify in a subsequent appeal in the same case because an intervening North Carolina Court of Appeals case favored our position.
Some lawyers fall into the trap of relying on nonprecedential opinions as though they dictate a result. Nonprecedential opinions dictate nothing for other litigants. The more specialized the coverage, the greater the problem. An unpublished U.S. Court of Appeals for the Third Circuit case may be the case nationwide for lawyers handling a certain type of errors and omissions coverage. That citation may carry the day in a trial court, inside or outside the circuit. But then oral argument comes, and the three-judge panel asks pointed questions about why it should follow that opinion, which the prior court opted not to publish.
There is also great risk of overreliance on reported decisions from other jurisdictions, especially when the opinion goes into little detail. A New York intermediate appellate opinion was the first to address whether insurers had a duty to defend a spate of identical class actions against mobile phone companies. The insurers won, but the three-sentence decision, although published, failed to persuade other courts.
Federal trial court opinions, especially when unpublished, are risky to rely upon. Such an opinion, even from an outside state, may help a trial judge when the law is sparse. But appellate courts are in the business of spotting legally erroneous trial court decisions, and they will not hesitate to reject or disregard an unpersuasive trial court opinion.
Nonprecedential opinions and outside precedents play an important role in coverage appeals, but they are nothing more than persuasive authority. The more a brief understands such authorities’ limited role, using them to build a persuasive case in concert with the in-state precedents that govern the appeal, the more effective the brief will be. Moreover, unpublished opinions supporting an insurer’s position can be quite valuable in helping an insurer defeat a claim of bad faith.
Certification of Questions
Certification of questions of law can provide a valuable tool to resolve recurring insurance questions. Almost all states have statutes or rules in place permitting their highest courts to answer unresolved questions of controlling state law upon certification by another court.
A party seeking certification must do so in a timely manner. Although some states permit certification only by the U.S. Supreme Court or by a federal appellate court, others also permit certification by federal trial courts, bankruptcy courts, and other states’ appellate courts. Courts have declined certification when a party previously opposed certification, waited until after the federal court resolved the question, or first sought certification on appeal even though the applicable statute permitted the trial court to certify.
Interlocutory Appeals and Mandamus
In recent years, some federal appellate courts have held that a district court order requiring an insurer to prospectively defend an insured in pending litigation is in the nature of an appealable injunction under 28 U.S.C. § 1292(a)(1) when other claims, such as the duty to indemnify, remain unresolved in the coverage action. Nevertheless, the federal court may lose jurisdiction over such an interlocutory appeal if the underlying case resolves.
Although a federal district court’s discovery orders directed to a party are not appealable as of right until entry of a final judgment, federal appellate courts may exercise “safety valve” discretionary mandamus review. As a recent example, the Fourth Circuit, on a petition for writ of mandamus, stayed a district court’s order requiring disclosure of privileged materials from an insurer’s claim file and certified questions of law to the South Carolina Supreme Court.
Appeals from Orders Remanding from Federal to State Court
In general, a federal district court’s “order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise.” But if a federal district court remands a case on discretionary grounds, including abstention doctrines developed in coverage-related declaratory judgment actions, rather than a jurisdictional or procedural defect, the order is appealable.
Supersedeas Bonds
If an insurer is on the U.S. Treasury’s list of companies authorized to act as a surety on official bonds, federal district courts have held that the insurer’s authority extends to supersedeas bonds on judgments against its coverage actions. Because premiums on a supersedeas bond are taxable costs on appeal, a policyholder often may wish to forgo a supersedeas bond.
Conclusion
Appellate litigation requires a mindset different from trial court litigation. Effective advocacy involves an understanding of how appellate judges approach a case, not just the different rules governing appeals. In a close case, an appellate mindset can make the difference between victory and defeat—and can aid counsel in advising the client whether to settle or go the distance.
A version of this article was originally presented at the 2024 ABA TIPS Insurance Coverage Litigation Committee Conference.
