Court watchers and insurance law experts said Judge Barrett's initial opinion in the obscure skirmish over a directors and officers liability insurance policy was certainly the product of a serious error. Several attorneys said that the quick withdrawal was either an encouraging display of willingness to correct a mistake or a meaningless one-off. Those more critical of Judge Barrett said that it showed she is not ready for a seat on the nation's highest court or that it exemplifies a myopic brand of textualism that should be cause for concern.
"I can imagine someone who is a supporter and advocate for her nomination to the Supreme Court would say it's actually a positive sign she shows a willingness to reconsider," said Kevin LaCroix, a veteran lawyer who runs the popular D&O Diary blog. "To which I would say, OK, you don't really have that option on the Supreme Court. Everything is heard en banc and there is no reconsideration."
The short-lived unanimous ruling, which held that a D&O liability policyholder could lose coverage by notifying multiple insurers about a claim, rattled some legal departments and led to a round of intense briefing but had little effect on the industry otherwise. Most attorneys who spoke with Law360 about the case said that the three-judge panel led by Judge Barrett ultimately reached the correct conclusion by backing the lower court, albeit by way of an unusual path.
Opinion withdrawals are uncommon at the Seventh Circuit, but the adoption of the lower court's ruling without explanation made the case even more anomalous, several veteran attorneys said.
"It is very unusual for a panel to say, in not so many words, 'Oops. We made a mistake. We're going to withdraw our entire opinion and just go with what the district court said,'" said Brian Paul, a partner at Faegre Drinker Biddle & Reath LLP and first vice president of the Seventh Circuit Bar Association. "I just can't remember ever seeing that happen. I'm sure it has, but it's very rare."
The case arrived at the Seventh Circuit after an Indiana federal judge ordered AIG unit Illinois National Insurance Co. to foot the bill for $4.1 million in legal defense costs of a shareholder suit against media conglomerate Emmis Communications Corp. Illinois National had argued that Emmis' claim fell under an exclusion barring coverage of claims involving circumstances "as reported" under its previous policy with Chubb Insurance Co.
The half-hour of oral arguments in May 2019 was unremarkable, according to attorneys on the case.
Judge Barrett led the questioning during the arguments, and so it was no surprise when the resulting opinion bore her name. But her questions seemed skeptical of Illinois National's argument that the claim would fail if any Emmis employee or agent reported it to Chubb first.
"So they lose coverage if any employee calls Chubb and reports it," Judge Barrett said. "You know, as the district court pointed out, that's pretty broad. If it's as you — if it's not backward looking claims that have already been reported to Chubb, essentially, anybody without authorization calls Chubb — just thinks it's this employee's responsibility to do it — even if it is in fact not, that has the effect of destroying coverage because someone reported it to Chubb?"
For Emmis and much of the D&O insurance industry, the opinion released July 2, 2019, was a shock: It summarily stated that the entire case hinged on the meaning of the words "as reported."
"On appeal, the parties briefed many legal issues arising from the Byzantine exclusion language," Judge Barrett wrote. "But we can resolve this case on a single issue: the meaning of 'as reported.' We disagree with the district court's opinion; Illinois National's proposed interpretation is correct."
Judge Barrett wrote that the phrase has "no discernable temporal limitations" and, because Emmis reported to Chubb, that claim was excluded. She reversed the lower court's ruling, said that summary judgment should have been entered in favor of Illinois National, and remanded the case.
Backlash followed.
Emmis attorney Richard Kempf, counsel at Taft Stettinius & Hollister LLP, said that the day he received the opinion was one of the strangest in his career. He and his co-counsel filed a motion for an en banc or panel rehearing on the matter.
He said he found himself in the position of writing a brief reminding the court that it must take state law into consideration, and that Indiana law is clear that insurance contracts and exclusions should be interpreted favoring policyholders.
"Her opinion, absolutely, 100 percent, ignored Indiana law with respect to how those things would be decided," he said. "It was the only time in my career where I had to file a brief that raised this point."
Consumer advocacy group United Policyholders joined two insurance agencies, Shepherd Insurance LLC and MJ Insurance, to submit an amici brief saying that the Emmis ruling's effects would be disastrous.
"Under Emmis, the precise verb structure in a policy can make any reporting the legal equivalent of cutting the wrong wire while defusing a bomb," the groups told the court.
The brief said policyholders would have to make a wager: They could risk triggering Emmis and losing coverage by notifying multiple insurers of a claim, or they could pick just one policy and hope they are correct.
On Aug. 21, 2019, the panel summarily withdrew its earlier opinion and adopted the district court's decision, mooting the request for an en banc rehearing.
Julia Blackwell Gelinas represented Illinois National in the Emmis case before retiring this year from Frost Brown Todd LLC. She said that she was disappointed by the panel's unexplained adoption of the lower court's opinion and refusal to address other points her team had raised.
"I think the issue here is that the parties were all somewhat surprised of how the case was ultimately resolved, that an original opinion would be vacated, and without an opinion explaining why," she said.
How, exactly, the initial opinion made it through the court remained unclear. The three-judge panel's revised opinion offered no explanation.
Law360 reached out to Judge Barrett through the White House. A White House spokesperson on Friday responded that the panel unanimously withdrew its decision after "a party highlighted a narrow issue of Indiana insurance law to the court."
"This case highlights that Judge Barrett will carefully consider parties' arguments at all stages of litigation," the official wrote in an email.
Several attorneys in the D&O insurance field said that they have grown accustomed to feeling misunderstood by appellate courts.
Brent Huber of Ice Miller LLP said that the Seventh Circuit is like many courts across the nation that struggle with insurance law. It's an area that is deceptively complicated and arcane, he said.
"Even judges and lawyers think they understand insurance coverage better than they probably do," he said. "And as a result, there are a lot of opinions that are probably not that well-reasoned, and might have effects or consequences after the decision is issued, that the court and judges involved didn't really anticipate or intend."
James Wing, who chairs an American Bar Association section subcommittee on D&O Liability Insurance, said that the initial Emmis opinion might not have been a fluke at all. Rather, it may reflect an overzealous commitment to textualism on Judge Barrett's part.
"To me, it looked like she adopted this textualist reading of an insurance policy, with all this complexity, and said, I don't care what the rest of the arguments are as a textualist," he said.
He said that she boiled the entire case down to two words — "as reported" — and her strict reading of those words in a vacuum, apart from other established law. But it's fundamental and well-known in insurance law that if a policy is ambiguous, it is interpreted in favor of the policyholder, he and other insurance attorneys said.
"I could very easily imagine a scenario where somebody would say, 'Is this textualist, hyper-literalist interpretation the way you decide cases?'" Wing said. "That's the broader emanation from this. And it's very disturbing."
A former Seventh Circuit clerk, whose time at the court preceded Judge Barrett, said that the opinion might have simply been the product of a clerk who was ignorant of insurance law. The former clerk, who asked not to be named because he was not authorized to speak about the court's inner workings, said it's conceivable that a seemingly simple opinion in a low-profile insurance case could slide past a three-judge panel.
"Who knows?" said LaCroix, the D&O Diary author. "I mean, you can speculate all you want. There's really no way to know."
"But you know, Judge Barrett put her name on it. She signed it," he added.
In addition to Judge Barrett, U.S. Circuit Judges Joel Flaum and Daniel Manion sat on the panel for the Seventh Circuit.
The case is Emmis Communications Corp. v. Illinois National Insurance Co., case number 18-3392, in the U.S. Court of Appeals for the Seventh Circuit.
--Additional reporting by Celeste Bott. Editing by Emily Kokoll and Jill Coffey.
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