The Brief Case: DRI Committee News

Insurance Law: Covered Events

Leadership Note: Canadian Law & Cross Border Issues Subcommittee

By Marcus B. Snowden and Christine A. Viney

Greetings from north of the 49^th – or from way east of the Big Island for those in Hawaii, or from east and south of the panhandle for those in Alaska! The Canadian Defence Lawyers association – CDL – represents the interests of business and the civil defense bar across Canada. The ILC’s Canadian/Cross-Border issues subcommittee was first formed well over a decade ago as a resource through which CDL’s local ILC could help make DRI ILC projects and programs as North American inclusive as possible on issues of common interest to Canadian and US as well as other international members with cross-border issues. This has historically included work on compendium state/country issue reviews, special projects such as tracking the TRIA legislation and other worthy endeavors. I’ve returned as this subcommittee’s chair and the request of and wish to thank David Mackenzie, our immediate past chair, for his service. Joining me as Vice-Chair this year is another CDL and DRI member, Christine Viney, who practices out west in Calgary, Alberta, Canada. We look forward to working with other ILC subgroup leaders on ILC projects and programming of mutual interest.

In this issue of The Brief Case, you’ll see our subcommittee’s contribution – Time-on-risk governs D2D allocation in opioid claims – reviews the background to an appellate decision addressing how to allocate defense cost funding in the context of ongoing long-tail opioid class actions. Thanks to Christine for making time, when not cheering chuck wagon racers at the Calgary Stampede or rationing her water (Calgary had a major watermain failure this summer), to author this article. Consider it a Canadian take on the targeted tender/ “all sums” v. time-on-risk debate. We hope it will be of interest to our readers and expect to share more of interest through our other CDL and DRI members.

If your insurance coverage practice involves cross-border issues (and this could be any international border so think broadly: Hello, Mexico, the UK, the EU, Asia), we encourage you to get your name up and look forward to hearing from you!

Marcus B. Snowden is the principal of Snowden Law Professional Counsel, practicing in Toronto, Ontario, Canada. He is both CDL’s Country Representative to DRI and incoming Chair of the Canadian Law & Cross Border Issues Subcommittee of the Insurance Law Committee. He can be reached at marcus@snowdenlaw.ca.

Christine A. Viney is a partner at Bennett Jones LLP, practicing in their Calgary, Alberta, Canada office. She is the incoming Vice-Chair of the ILC’s Canadian Law & Cross Border Issues Subcommittee and can be reached at vineyc@bennettjones.com.

Insurance Law: Time-on-Risk Governs D2D Allocation in Opioid Claims

By Christine A. Viney

In Loblaw Companies Limited v Royal & Sun Alliance Insurance Company of Canada, 2024 ONCA 145 (“Loblaw v RSA”) the Ontario Court of Appeal addressed what it called one of “the thorniest problems in insurance law”: how to allocate defense costs among multiple insurers responsible for defending long-tail claims. In finding that the appropriate approach in this context is time-on-risk, the Court focused on giving effect to policy language and ensuring that insurers and policyholders are held to the coverage that was a result of the bargain.

Background

In five class actions before the Canadian courts, individual and government plaintiffs alleged liability against manufacturer and distributor defendants for damages arising from their alleged part in the opioid crisis from 1996 to the present (the “Opioid Claims”). Together, the Opioid Claims sought damages in the billions of dollars. Shoppers Drug Mart Inc. (“Shoppers”), Sanis Health Inc. (“Sanis”) and Loblaw Companies Limited (“Loblaw” and, with Shoppers and Sanis, “SSL” or “Defendants”) were named Defendants in various of the Opioid Claims.

The “Primary Insurers” on risk were Royal & Sun Alliance Company of Canada, AIG Insurance Company of Canada (“AIG”), Aviva Insurance Company of Canada, Liberty Mutual Insurance Company and Zurich Insurance Company Ltd. From 1996 to 2020, the Primary Insurers issued successive commercial general liability policies covering the risk in each of the Opioid Claims to one or more of the Defendants.

In October 2020, SSL brought an application asking the Ontario Superior Court to confirm that they were each entitled to select one of the Primary Insurers to defend against the Opioid Claims.¹ SSL proposed that the selected insurer would provide a full defense, including for elements of the claim outside the selected insurer’s policy period, with any remedy of allocation to be determined solely between the Primary Insurers. In response, the Primary Insurers argued the Opioid Claims were long-tail exposures where the events at issue and alleged damage occurred over many years and policy periods. In this context, they argued the appropriate approach for defense cost funding between insurers is time-on-risk allocation and proposed a specific proportionate allocation for the Court’s consideration.

Duty to Defend - Canadian Legal Framework

Under Canadian law, a liability insurer’s duty to defend an action applies to ‘covered’ claims (on a “mere possibility” standard) but not to ‘uncovered’ claims. In a ‘mixed claim’ that involves both covered and uncovered elements, the scope of an insurer’s duty to defend turns on whether distinct pleaded facts and causes of action allow for feasible division of defense costs incurred in responding to the covered and uncovered claims. If feasible, separate defense costs are allocated between insurer and policyholder. In contrast, where pleadings are intertwined and defense costs further the defense of both covered and uncovered claims, an insurer is required to defend the whole action.

Allocation of defense costs in actions alleging a single ‘occurrence’ in one policy period under one insurance policy are straightforward: the insurer must defend both covered and mixed claims, while the policyholder defends any clearly separate uncovered claim. Similarly, in actions alleging a single ‘occurrence’ in one policy period engaging policies issued by multiple insurers, allocation of defense costs is also theoretically straightforward: such insurers have “concurrent” defense obligations and share the responsibility for defending covered and mixed claims, subject to apportionment between them based on fairness and equity. By contrast, the problem of allocating defense costs owed by multiple insurers over multiple policy periods for class action long-tail claims is complex. Before Loblaw v RSA, under Canadian common law the scope of an insurer’s obligations in this context was uncertain.

The “all-sums” approach, named for the familiar policy wording where an insurer promises it “will pay on behalf of the insured all sums which the insured shall be legally obligated to pay as damages …”, obliges such an insurer to provide a full defense, even if portions of the claim fall outside that insurer’s policy period. In insurance programs such as those covering the Defendants, where some years on risk might engage significantly more in self-insured retention or deductible amounts than others, a policyholder could benefit from selecting a policy with a favorable self-insured retention amount through a “targeted tender” approach.

The time-on-risk approach allocates defense costs between insurers (and the policyholder, to the extent there are self-insured amounts or uninsured periods) based on their pro-rated share of the total time on the risk. Where there are concurrent policies, Canadian trial courts generally, but not invariably, prefer a pro rata time-on-risk allocation over the targeted tender approach.

Superior Court Rejects Time-on-Risk Allocation

In January 2022, the Ontario Superior Court agreed that each of the SSL Defendants had a right to select one of the Primary Insurers to defend the entirety of the Opioid Claims. The Court also agreed with the Defendants that the selected insurer’s sole recourse was to seek equitable contribution from other Primary Insurers on risk to recover allocated shares of defense costs.

In reaching this conclusion, the Superior Court found that:

• The contractual duty to defend SSL owed by each Primary Insurer gave rise to concurrent defense obligations among the Primary Insurers.
• There was no feasible way to separate the Opioid Claims allegations into “covered” and “uncovered” and no way to allocate defense costs between SSL and the Primary Insurers.
• The Opioid Claims allegations did not allow for the temporal segregation necessary to justify a time-on-risk allocation, leading the Superior Court to treat them as temporally ‘mixed’ claims.
• This allocation of all defense costs to a selected insurer was not an example of an “all-sums” approach.

Ontario Court of Appeal Adopts Time-on-Risk Allocation

When asked to review this question, the Ontario Court of Appeal reversed, holding that defense costs should be apportioned to the insurers and SSL on a pro rata time-on-risk basis. In reaching this conclusion, the Court of Appeal focused on the wording of the policies in question, which referred to coverage for accidents or occurrences “during the policy period”. The Court reasoned that since the indemnity insurance provided by each policy was time-limited, any obligation to defend was similarly time-limited. While the Court of Appeal accepted that the duty to defend is broader than the duty to indemnify, such breadth does not extend the temporal parameters of the available coverage. The Court of Appeal also confirmed a strictly “equitable” approach to allocation between insurers was relevant only where there are truly “concurrent” insurers. While the lower court found the Primary Insurers to be “concurrent”, the Court of Appeal noted that they issued policies with different policy periods, and in some cases insured different parties and different risks.

In this context, the Court found SSL had contracted with the Primary Insurers for “consecutive”, rather than “concurrent”, coverage. Allocating defense costs based on time-on-risk reflected the bargain struck in the contracts between SSL and the Primary Insurers, which provided for contractually time-limited coverage. The Court of Appeal also noted the lower court’s ruling was in effect an “all sums” approach. The Court found that where there were consecutive policies, the “all-sums” approach would place a “disproportionate and unreasonable burden” on the selected insurer. As an example, the Court of Appeal noted that AIG, while a Primary Insurer, was on risk only for Loblaw and only for approximately 6% of the class period. The Court concluded that forcing AIG to defend Loblaw against all Opioid Claims, including alleged liability for conduct and damages long after policy expiry on May 1, 1997, was “ clearly disproportionate to AIG’s potential degree of liability.”

Finally, as further support for rejecting the “all-sums” approach, the Court of Appeal recognized an inherent conflict of interest that could arise if an insurer was forced to defend claims outside the scope of its own policy. In defending a claim, it would be to the insurer’s advantage for liability to be established on grounds not covered by the policy. If an insurer had to defend claims not covered by its own policy, the insurer would find itself defending claims that it would prefer to see succeed, creating an untenable and unlooked for conflict of interest with its policyholder.

For these reasons, the Court of Appeal rejected the all-sums approach, finding instead that pro rata time-on-risk allocation of defense costs is preferable in the context of long-tail claims. At the time of writing, the Defendants have applied for leave to appeal to the Supreme Court of Canada. If leave is granted, our highest Canadian court will have an opportunity to weigh in on this issue.

Christine A. Viney is a partner at Bennett Jones LLP, practicing in their Calgary, Alberta, Canada office. She is the incoming Vice-Chair of the ILC’s Canadian Law & Cross Border Issues Subcommittee and can be reached at vineyc@bennettjones.com.

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Life, Health, and Disability News

District Court Incorrectly Held Claim Determination Was Arbitrary and Capricious

By Randi F. Knepper

The Third Circuit Court of Appeals vacated a decision by The Western District of Pennsylvania holding that a claim determination terminating long term disability (LTD) benefits was arbitrary and capricious. Hawks v. PNC Financial Services Group, Inc., 2024 WL 3664599 (3d Cir. Aug. 6, 2024). In vacating the District Court’s decision, the Third Circuit held that it was neither arbitrary nor capricious that the claim administrator:

1. considered the participant’s “own occupation” as performed in the “national economy” as opposed to the demands of the participant’s “own occupation” based upon the plan’s definition of “own occupation;”
2. gave appropriate weight to the opinions of the participant’s treating physicians; and
3. relied upon paper reviews of the participant’s medical records and did not seek an independent medical examination.

The Third Circuit further held:

1. the Court should not replace its judgment for that of the claim administrator and “give lip service” to the standard of review;
2. the administrator could not err in not considering a medical report that was not before it at the time it rendered the final claim determination;
3. a medical report that was not part of the administrative record should not be considered by the Court; and
4. it was the participant’s burden to demonstrate that she remained disabled and not the claim administrator’s burden to disprove disability.

In what is arguably dicta in a non-precedential decision, the Third Circuit further held that while the administrator considered the Social Security Administration’s (SSA) finding of disability, where there was substantial evidence to support the claim determination, not addressing the SSA’s findings is neither arbitrary nor capricious. The Third Circuit’s decision resulted in the vacating of the District Court’s decision, including the award of attorney’s fees to the plaintiff.

Relevant Facts

• Lincoln Financial Group (Lincoln) was the claim administrator of the PNC Financial Services Group and Affiliates Long Term Disability Plan (Plan). The Plan was funded by PNC Financial Group, Inc. (PNC) general assets.
• The Plan conferred discretionary authority to its administrators.
• The Plan defined “own occupation,” as disability “makes” a participant “unable to perform the material or substantial duties of [her] own occupation as it is normally performed in the national economy.” Id. at 1.
• Hawks fell and fractured her ankle in April 2018, underwent four surgeries and extensive physical therapy.
• In November 2019 her treating surgeon completed a Restrictions Form and did not identify any specific limitations but noted that “Hawks had capacity to perform ‘activities as tolerated.’” There was no evidence that Hawks sought further treatment from the surgeon. Id. at *3.
• In November 2019 her treating internist submitted a Restrictions Form checking the box indicating that Hawks had the capacity for full-time sedentary work.
• Hawks received LTD benefits, which were terminated in January 2020, during the “own occupation” period, based upon Lincoln’s determination that she no longer met the Plan’s definition of disability as she “had the capacity to perform her own occupation as it is normally performed in the national economy.” Id. at *2.

The Third Circuit’s Decision

The Third Circuit held that the District Court incorrectly found that the administrator's failure to consider the demands of Hawks’ job was “arbitrary and capricious”. The Third Circuit reasoned that the District Court should not have “fault[ed the administrator] for not ruling based on how Hawks performed her own job and the level of physical effort that is required,” as the Plan defined “own occupation” as the inability to perform “the material or essential duties of [her] occupation as normally performed in the national economy.” The Third Circuit further held that Lincoln “did not act arbitrary and capriciously in looking to the DOT to conclude that the benchmark for receiving benefits was whether Hawks could perform sedentary work.” Id. at *4.

• Hawks was relying upon a vocational reviewer who opined that the demands of her job were sedentary to light.
• According to the DOT, Hawks occupation was sedentary.
• The Third Circuit reasoned that “the District Court disagree[ment] with Lincoln’s reading of the Plan language, essentially ignor[ed] the ‘in the national economy’ language,” and by doing so “translate[d] its disagreement into a finding that Lincoln’s reasoning was arbitrary and capricious” thereby giving “lip service” to the arbitrary and capricious standard of review. Id. at *5.

The Third Circuit held that the District Court incorrectly reasoned that Lincoln selectively reviewed the medical records submitted.

• The Third Circuit reasoned that it is the participant’s “burden to adduce evidence that demonstrated that she was unable to do sedentary work.”
• Lincoln could “not err” by not crediting a medical report that was not submitted to it and was first produced as an attachment to Hawks’ summary judgment motion. The report was referenced in a vocational review, but not submitted to Lincoln as part of Hawks’ administrative appeal.
• The Court was “barred” from considering the same report as “‘[u]nder the ERISA record rule, judicial review of an ERISA fiduciary discretionary adverse benefit decision is confined to the information contained in the administrative record.’” Id. at *5 (citing to Noga v. Fulton Fin. Corp. Emp. Benefit Plan, 19 F.4th 264, 271 (3d Cir. 2021)).

The Third Circuit further held that it was neither arbitrary nor capricious not to seek an independent medical examination and rely upon independent record reviews, reasoning again that it was “the burden of Hawks to establish she was disabled as defined by the Plan, and the Plan had no obligation to adduce evidence to disprove her disability.” Id. at *6.

The Third Circuit went beyond the District Court’s decision in reasoning that while Lincoln considered the SSA’s finding of disability, the argument that there was a “need to address the SSA determination… is baseless.” Id. at *6.

Randi F. Knepper is a shareholder at Stevens & Lee based in Elmwood Park, New Jersey.

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Young Lawyers: Raising the Bar

Young Lawyer’s Guide Webinar Series

By Ryan K. Blake

DRI Community,

In just over a month, on Sep 25, 2024, at 11:00 a.m. to 12:00 p.m. CDT, the “Young Lawyer’s Guide” webinar series continues with another informative installment – this time geared towards mid-level and senior associates – “Preparing Corporate Witnesses and Telling a ‘Company Story’”. (Available for sign-up here). As part of this exciting webinar, attendees will listen and participate in discussion on:

• Mock cross examinations
• Building a witness’s confidence
• Selecting a corporate witness
• How to build a company story through witness testimony
• How to address bad documents

After the lecture, attendees will have the opportunity to discuss corporate witness preparation in small breakout groups.

This will become a big part of many of your practices, and is a great way to begin developing a relationship of trust with your clients. Attendance is limited to 30 participants; sign up today!

Ryan K. Blake’s practice involves a wide range of commercial litigation matters, including complex pharmaceutical and medical device litigation, products liability litigation, False Claims Act litigation, bankruptcy matters, preemption matters, and contract disputes. Ryan was a key member of a trial team achieving a defense verdict in a pelvic mesh lawsuit.

Practical Tips for Mastering the 30(b)(6) Deposition

By Michele Hayes Dinterman

Rule 30(b)(6) of the Federal Rules of Civil Procedure requires an entity to prepare one or more witnesses to give answers on the entity’s behalf with respect to the noticed subjects. Most state court rules mirror the language in the federal rule with only slight deviations. When prepared well, a 30(b)(6) witness can be a powerful tool to tell a company’s story and theme. However, a 30(b)(6) witness deposition can be a devastating blow to your client’s case if preparation for it is not taken seriously.

Here are some practical tips to keep in mind when preparing for and defending a 30(b)(6) deposition:

1. Review & narrow the scope of the notice. Once the organization receives an opposing party’s notice to take a deposition under Rule 30(b)(6):

• Review the notice carefully to ensure that it is proper and identifies the deposition topics with reasonable particularity.
• Schedule a “meet and confer” (in person or virtually) with opposing counsel to push for as much clarity as possible on the deposition topics and, if necessary, serve written objections to opposing counsel prior to the meet and confer.
• If conferring with opposing counsel does not cure the notice, a protective order must be sought. Doing so should only be pursued after attempting in good faith to meet and confer with opposing counsel and such attempt has failed.
• A protective order must be obtained before the date of the deposition and a pending motion for protective order alone does not excuse the deponent from appearing at the deposition. Common grounds for a protective order include: the topics are not asserted with reasonable particularity; the notice imposes an unreasonable timeframe to prepare a designee to testify; or the topics seek privileged information or trade secrets.
• Do not wait until you are at the deposition to argue about the scope, or you may have to produce your witness twice. This could result in inconsistent testimony, an upset client, and even sanctions.

2. Identify the proper witness(es). A deposition under Rule 30(b)(6) is issued to the organization and permits the organization to pick who will represent it. In identifying the witness some considerations include:

• Pick the best witness, not necessarily the most knowledgeable one.
• Find a witness (or witnesses) that is (are) willing to learn about the designated topics since the witness must testify about information known to the organization.
• An intelligent and well-spoken witness is often a better choice than the witness who happens to have the most knowledge but is easily confused or unlikeable.
• Consider whether the witness can articulate their thoughts well, if they have experience testifying, and how well they can retain information about the case/company.
• Choose someone who will prepare adequately as the witness has a duty to review whatever information is reasonably at the disposal of the company.
• Utilize in-house attorneys and executives to give you information on how well the employee would do at the deposition.
• Try and give yourself enough time to be able to change witnesses, if necessary.

3. Prepare the deponent(s). Once the witness is identified, preparing the witness can build their confidence with the process and help them represent the organization well. Some considerations include:

• Give yourself plenty of time to prepare the witness. Preparation sessions several weeks in advance of the deposition allow the witness time to research and prepare before the next session. (Zoom is a great tool to set up several short preparation sessions with a busy witness.)
• Make sure that the witness is familiar with the notice and which topics they are designated to speak on.
• Prepare the witness for difficult lines of questioning and reduce potential surprises.
• Show the witness key documents and discuss other documents.
• Make sure the witness is aware of “bad” documents or facts so that they are not surprised when opposing counsel wants to discuss it in detail.
• Remind the witness that they do not have to adopt opposing counsel’s language in their response.
• Prepare the witness to speak to the corporation’s subjective beliefs and opinions.
• Work with the witness to prepare a set of talking points that relate to a theme of your defense of the case. The witness can be a powerful way for the corporation to tell its story.
• Make sure the witness understands that they are responding on behalf of the corporation and when the questioner says “you” they are referring to the corporation.
• Keep in mind your professional ethics and remember that witness preparation should never include witness “coaching”.

4. Defend the deposition. At the deposition, counsel for the organization (you) should make strategic objections to protect the company and the record. Some considerations include:

• Objections to form (such as asked and answered) are permissible.
• Object to questions that invade a privilege to ensure that the issue is preserved.
• Object to any questions attempting to characterize the witness as the “most knowledgeable witness.”
• Object to off-topic questions as outside the scope of the notice or as exceeding the scope of the corporate knowledge of the witness.
• If more than one witness is designated for the 30(b)(6) deposition, you can object on the grounds that the question exceeds the corporate knowledge possessed by that witness.
• If a question exceeds the noticed deposition topics, note on the record that it exceeds the deposition notice and that the witness has not been prepared to answer the question on behalf of the corporation but that they can answer based on their individual knowledge, however, the answer will not bind the corporation.
• Refrain from instructing the witness not to answer unless it is to preserve privilege or enforce a limitation on discovery imposed by the court.
• Have the witness clarify if they do not know something because the entity truly does not have access to the information.
• If a party objects to a topic and refuses to allow a witness to speak on it, a court could preclude that party from offering testimony on that topic during trial.
• Pay attention to the witness’s needs and, if a break is needed, request one.
• Keep in mind your professional ethics and remember that zealous advocacy/defense does not require an abandonment of civility.

Defending Rule 30(b)(6) depositions are an important part of your client’s case. With strong preparation, testimony obtained from a 30(b)(6) witness can be an asset to your case. If you have any questions, contact Michele H. Dinterman (mhdinterman@nilesbarton.com).

Michele Hayes Dinterman is a Partner at Niles, Barton & Wilmer, LLP.  Representing clients in state and federal trial and appellate courts, mediations and arbitrations across the country, Michele defends professional liability, construction defects and premises liability cases; litigates insurance coverage matters; and provides counsel in Representations & Warranty (W&I) claims and coverage disputes. Her clientele includes Lloyd’s syndicates; engineering, architecture, construction and insurance firms and professionals; and self-insured hospitality providers, including hotels and vacation rental companies.

Member Spotlight: Ryan Shannon

Ryan T. Shannon is an associate at Lewis Thomason’s Knoxville office. He focuses his practice in the areas of employment law, education law, insurance defense, and general civil litigation. He joined the firm as an associate attorney in 2021.

As a student at the University of Tennessee College of Law, Mr. Shannon served as president and secretary of Vols for Veterans, as well as serving on the Career Services Committee.

Mr. Shannon was born and raised in Tennessee and graduated from the University of Tennessee, summa cum laude, with a degree in political science. He is a member of Sevier Heights Baptist Church.

How and why did you first get involved with DRI?

A Shareholder at my firm encouraged me to get involved with an organization outside of the firm. Being a labor and employment attorney, I searched for seminars on labor and employment law and saw that DRI had a seminar in New Orleans. I had a great time at the seminar and enjoyed the programming. Soon after, I joined the Young Lawyers Steering Committee. I’ve enjoyed getting to know other members on the committee and attending DRI events!

What is the most important piece of advice you have been given related to practicing law?

Strangely enough, the piece of advice that sticks with me enough is that no one really knows what they’re doing. Everyone is still figuring out. Like many young lawyers, I often struggle with imposter syndrome, so this reminds me that’s OK to not know everything. Be curious, ask questions, and use all of your resources.

What is your favorite activity outside of the practice of law?

Pickleball! I have a group of friends who all play, and we have gotten pretty serious (arguably to a fault) about our pickleball. I’ve also gotten into playing chess, so you can see that I hop on all the trends.

What is the greatest sporting event you’ve ever been to?

For a double University of Tennessee alumnus, this one is easy. I attended the 2022 Tennessee vs. Alabama football game where Tennessee beat Alabama for the first time in nearly two decades. I will certainly never forget seeing fans storm the field and carry the goalposts out of the stadium. Honorable mention to seeing Lionel Messi play in Nashville in 2023 and attending a Stanley Cup Final game in 2017.

First Job?

I was in high school right in the middle of the self-serve frozen yogurt craze, so my first job was at a small frozen yogurt chain called Sweet Cece’s.

Ryan Shannon is a labor and employment attorney at Lewis Thomason, P.C., in Knoxville, Tennessee.

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