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Archive for March, 2021

A Fortuitous Result? Duke Energy Defeats Summary Judgment Motion in Coverage Dispute Alleging that Duke “Intentionally” Contaminated Groundwater

Posted on: March 31st, 2021

By: Isis Miranda

“If you take a rock and throw it through a window, then you don’t get coverage for [the] costs of fixing it.” An attorney representing one of the nearly 30 insurance companies being sued by Duke Energy in North Carolina reportedly made this statement in characterizing Duke’s attempt to seek reimbursement for cleanup costs incurred after it constructed unlined coal ash basins that allowed contaminants to seep into the nearby groundwater. (Duke Energy Carolinas, LLC v. AG Insurance SA/NV, et al., No. 17CVS5594 (N.C. Sup. Ct. 2017).)

Under pressure from regulators and environmental groups, Duke ultimately agreed to excavate approximately 124 million tons of coal ash and permanently close all of its coal ash basins, including 31 in North Carolina, at an estimated cost of over $5 billion.  In the current coverage action, Duke is attempting to recoup approximately $600 million for environmental damage at 15 of its plants that purportedly occurred from 1971 to 1986 before it became self-insured.

Despite at least 27 sessions with a mediator, according to court filings, the large coverage action does not appear to have settled. The parties continue to file summary judgment motions on a variety of issues and debate whether the trial, which is expected to last between two and eight months, should be broken up into several mini-trials.

In one of the summary judgment motions, some of the insurers argued that coverage is not afforded for the losses because Duke “intended” to contaminate the groundwater, thus triggering an exclusion in one of the policies excluding from coverage “property damage caused intentionally” by or at the direction of the insured. The insurers alleged that Duke’s predecessor company knew before it constructed the unlined ash ponds that they would cause water contamination, citing as evidence letters and reports from various agencies and consultants, including letters from the U.S. Environmental Protection Agency in 1978 and 1981, advising that the use of an unlined ash pond could be “expected” to result in groundwater contamination.

In response, Duke contended that it believed that any contaminants released would be “negligible” and would, therefore, not pose any health risks or, alternatively, would be sufficiently diluted by the groundwater, bringing them to acceptable levels. Duke also noted that North Carolina regulators allowed it to design its ash ponds without a liner and the most recent standards had not been enacted until 2014, after the ponds were constructed.

Judge Louis A. Bledsoe, III, in denying the insurers’ motion on June 5, 2020, noted that even if he agreed that the insurers’ evidence established that Duke expected that some amount of contamination of the groundwater would occur, this would be insufficient to win the motion for two reasons.

First, according to Judge Bledsoe, the insurers’ evidence indicating that Duke “expected,” “anticipated,” “planned,” or was “substantially certain” groundwater contamination would occur, aside from being disputed by Duke, was insufficient to trigger the policy exclusion, which was “singularly focused instead on Duke’s intent and whether Duke intentionally caused covered property damage.” Judge Bledsoe found that the cases cited by the insurers had “limited persuasive force” since they addressed whether a loss was “expected,” which he distinguished from “intended.”

Second, Judge Bledsoe determined that there was a dispute over the definition of “property damage” such that he was unable to determine whether Duke intended to cause it. According to Judge Bledsoe, the insurers contended that “any detectable amount of groundwater contamination constitutes property damage,” whereas Duke argued that property damage has been suffered only if groundwater contamination has occurred “in the form and to the degree for which it faces liability” under the law, or, alternatively, where either the groundwater standard or naturally occurring constituent levels in groundwater have been exceeded, whichever is higher. The relevant policies defined property damage as “physical injury to or destruction of tangible property . . . including the loss of use.” Judge Bledsoe explained, however, that the “evidence” was “insufficient” for him to conclude that Duke intended to cause property damage, as defined under the policies.

With many more summary judgment motions in the pipeline and a lengthy trial on the horizon, this case will no doubt continue to address coverage issues in interesting, unexpected ways.

For more information, please contact Isis Miranda at [email protected].

EEOC 2020 Data Shows Increased Cost of Resolving Workplace Claims

Posted on: March 30th, 2021

By: Brenton S. Bean

The Equal Opportunity Employment Commission has released its 2020 enforcement statistics.  These statistics are important because they show trends in the types of claims being brought by employees, as well as those which the EEOC chooses for enforcement action.  In summary, the statistics indicate that while claims are down, the amount spent by employers to resolve these claims is up considerably.

The data shows the number of charges declined in 2020 to 67,448 charges, down from 72,675 in 2019.   However, the amount of the average recovery to resolve each charge rose 11.4%.  Additionally, the amount of recovery in merit lawsuits brought by the EEOC rose considerably from $39.1 M to 106.1 M.    

As in 2019, claims of retaliation remain the most frequently asserted, accounting for nearly 56% of all charges submitted.  Second among the types of charges submitted were claims of disability discrimination at 36.1 %. 

Knowing that retaliation claims are the most frequently filed charge is important for employers in not only fashioning their workplace policies and procedures, but also in implementing training to avoid such claims.  Retaliation occurs, generally speaking, when the employee engages in some type of protected activity, after which the employer takes adverse employment action against the employee.  The employee has to show the adverse action would not have occurred but for the protected activity.  Employers’ procedures for investigating workplace claims of discrimination or harassment, along with their policies for documenting not only those investigations but also employee discipline, are keys to defending and defeating retaliation claims. 

If you have any questions about workplace training, handbooks and developing compliant policies and procedures, please contact Brent Bean at [email protected].

Does the Fourth Amendment Allow Community Caretaking?

Posted on: March 26th, 2021

By: Michelle Youngblood

A baby can be heard crying inside a residence for hours, and no one seems to be around.

An elderly lady does not show up for a planned dinner, the neighbors haven’t seen her all day, and she is never late.

A parent who speaks to their child in another state every Sunday night misses that call and cannot be reached.

At what point, in such situations, are police authorized to enter a dwelling to do a wellness check?  These are just a few of the hypotheticals posed by the Justices of the United States Supreme Court on Wednesday, as they heard oral argument in the case of Caniglia v. Strom (https://www.supremecourt.gov/oral_arguments/argument_transcripts/2020/20-157_5i36.pdf). 

The Fourth Amendment to the United States Constitution affirms “[t]he right of the people to be secure in their persons, houses, papers and effects, against unreasonable searches and seizures…”  That generally requires the government to obtain a warrant upon probable cause prior to entering a residence without consent.  The U.S. Supreme Court is considering what, if any, exceptions to this rule, are constitutionally permissible.

Historically, an exception has been recognized in exigent circumstances, such as hot pursuit of a suspect in a criminal case.  Police can conduct wellness checks if requested under the community caretaking exception.  But, if the plaintiff in this case has his way, the circumstances when such checks are permitted will become much more limited.

The plaintiff in Caniglia argued that the exigent circumstances exception applies only if there is objectively a “true emergency” requiring immediate intervention.  In that case, the plaintiff, Edward Caniglia, and his wife had a heated argument.  During the course of the argument, he pulled out a gun and told her to put him out of his misery.  Then he left the house.  His wife hid the gun and went to a motel for the night.  When she could not reach her husband the next morning, she contacted the police and asked them to escort her home, fearing that her husband may have harmed himself.  The police found Mr. Caniglia on the front porch of his house, sent him for a psychological evaluation, and confiscated the guns and ammunition in the house.  Mr. Caniglia sued, contending that the confiscation of the weapons and ammunition were an unreasonable search and seizure that violated his Fourth Amendment rights.  The First Circuit ruled that the police entry into the home was permitted under the “community caretaking” exception.  Now, the Supreme Court is considering the limits of this exception in the context of the reasonableness requirement of the Fourth Amendment.

Stay tuned for updates when the Supreme Court issues its decision.  If you have questions, please contact Michelle Youngblood at [email protected] or any member of our Government Section.

Kentucky Appeals Court Holds That Claims-Made Policies Require No Showing Of Prejudice For Late Notice, Following Restatement Principles

Posted on: March 26th, 2021

By: Barry Miller

Notice provisions in claims-made policies are not subject to the notice-prejudice rule, according to a Kentucky decision applying the Restatement of the Law of Liability Insurance (“Restatement”).

Kentucky State University tendered a claim under its professional liability policy after two former employees alleged improper termination. The insurer denied coverage because the University gave notice of it claim 93 days after the policy period ended—three days late under the policy.

Kentucky has required insurers to show prejudice from late notice under occurrence-based policies since 1991. The trial Court agreed with the University that the insurer had to show prejudice under its claims-made policy as well.

But the Court of Appeals of Kentucky reversed, citing federal cases predicting that Kentucky would not require a showing of prejudice for claims-made policies.

It also cited § 35(2) of the Restatement.

The Restatement has generated controversy since the American Law Institute (“ALI”) issued draft principles in 2010. After 29 drafts, and eight years of lobbying by insurers and policyholders, the ALI issued the final Restatement in 2018. Some states responded with bills prohibiting their courts from applying the Restatement’s provisions.

Kentucky’s house and senate passed one such bill, providing that no restatement sets the law or public policy of Kentucky. Governor Andy Beshear vetoed the bill, saying it violated separation of powers.

Randy Maniloff’s “Coverage Opinions” newsletter reported on March 8 that three federal courts relied on the Restatement in February decisions. He noted that courts who have cited the Restatement so far have not written decisions that should cause insurers to lose any sleep.

Nor should the Kentucky court’s holding trouble insurers. It used the Restatement to reinforce a rule that Kentucky federal courts have applied since 2003, that insurers need not show prejudice from late notice under claims-made policies. But Kentucky insurers may sleep less soundly as they wonder whether this uncontroversial opinion foretells a wider use of the Restatement in the Commonwealth’s courts.

For more information, please contact Barry Miller at [email protected].

Police Reform Bill Begins Moving Through Congress

Posted on: March 25th, 2021

By: Andy Treese

The House of Representatives has passed H.R. 1280, the “George Floyd Justice in Policing Act of 2021,” a police reform bill with potentially sweeping ramifications for federal, state, and local law enforcement agencies. If enacted in its current form, the bill would reach police tactics, training, policies, and accountability. Among other things, the Act proposes to:

  1. Abolish qualified immunity for local, state, and federal law enforcement officers as a defense to claims under 42 U.S.C. 1983;
  2. Create a use of force standard governing the conduct of federal law enforcement officers;
  3. Limit the circumstances in which federal law enforcement officers may assert that a use of force was justified, and require state and local governments to adopt a similar statute to remain eligible for Byrne grant funding;
  4. Prohibit federal law enforcement officers from applying chokeholds or carotid holds, and require state and local governments to adopt a legislative ban on such holds in order to remain eligible for COPS and Byrne grant funding;
  5. Ban the use of no-knock warrants at the federal level in drug cases, and require state and local governments to adopt a legislative ban on no-knock warrants in drug cases in order to remain eligible for COPS and Byrne grant funding;
  6. Require agencies receiving Byrne grants to spend a portion of their funding on purchasing body cameras and implementing policies related to the use of such cameras, and prohibit the use of grant funds to implement facial recognition technology;
  7. Create a National Police Misconduct Registry;
  8. Prohibit racial and religious profiling by law enforcement, and mandate training on racial, religious, and discriminatory profiling;
  9. Grant the Department of Justice the authority to subpoena records when pursuing investigations that law enforcement officers and agencies have engaged in a pattern and practice of violation civil rights, and creates a cause of action for state attorneys general to pursue such actions;
  10. Lower the mens rea element required for the criminal prosecution of defendants accused of violating the rights of another under color of law under 18 U.S.C. 242, making it easier for federal prosecutors to charge and convict law enforcement officers; and
  11. Limit the transfer of military grade equipment to state and local law enforcement agencies.

Though the same bill stalled in 2020, it has been the subject of renewed legislative and media attention since the start of the new Congressional session and seems unlikely to “drop off the radar” in the near future.  It has already been received by the Senate, where it has not yet been referred to committee but is expected to face opposition not only from police advocacy groups, but from state and local officials with an interest in understanding its reach into local government finance and operations.  Please contact Andy Treese if you have questions or would like further information about the bill.  Otherwise, FMG’s Government Practice Section will continue to monitor police reform legislation and to relay significant developments.