Liability insurers are sometimes faced with a difficult scenario: Their insured has been sued in a class action with potentially large stakes. The insurer believes they have no duty to defend and a denial of coverage is appropriate. But the result of declining to defend the insured is likely to be a “collusive” class action settlement in which the named plaintiffs, on behalf of the class, agree to a large judgment, with only a relatively small portion of it (if any) collectible against the insured, and the remainder collectible only against the insurer that has denied coverage. A likely scenario where this type of scenario may occur is where the insured has little assets in comparison to the potential liability. The insurer may be confident that its denial of coverage will be upheld. But it cannot be certain of that. And if a court rules that coverage exists, the insurer could be stuck with a very large class action settlement, unless it can challenge the appropriateness of that settlement.

One approach an insurer can take in this scenario is move to intervene in the underlying class action. That motion, however, may need to be filed early in the case, according to a recent Seventh Circuit decision. In CE Design Ltd. v. King Supply Co., No. 12-2930, 2015 U.S. App. LEXIS 11117 (7th Cir. June 29, 2015), the plaintiff filed a class action under the Telephone Consumer Protection Act (“TCPA”) against King Supply, which was insured under CGL and commercial umbrella policies. The insurers denied coverage based primarily on exclusions for TCPA claims. After class certification, King Supply agreed to a $20 million settlement (the policy limits), with only $200,000 (1% of the judgment) executable against King Supply. After the proposed settlement agreement was filed, but before it was approved, the insurers moved to intervene in the case. They also sought a declaratory judgment on coverage separately in a state trial court, and eventually prevailed.

The district court held that the insurers’ motion to intervene was untimely, and the Seventh Circuit affirmed. Judge Posner’s opinion for the Seventh Circuit concluded that the insurers “should have begun worrying when the suit was filed rather than almost three years later” because “[a]lmost all class actions are settled, and . . . a class action settlement may be the product of tacit collusion between class counsel and a defendant.” Id. at *7. Judge Posner wrote that “[a] prospective intervenor must move to intervene as soon as it ‘knows or has reason to know that [its] interests might be adversely affected by the outcome of the litigation.’” Id. at *9-10 (citation omitted).

Judge Posner’s opinion further noted that “even if the insurers had filed a timely motion to intervene, their interest might well have been deemed too contingent on uncertain events to justify granting their motion.” Id. at *11. Judge Posner suggested that insurers might be better off either defending the insured under a reservation of rights, or simply relying on their declaratory judgment action to vindicate their rights. Judge Hamilton wrote a concurring opinion concluding that the insurers lacked the type of interest that would justify intervention because their rights were contingent on whether their coverage decision was correct.

So what is an insurer faced with this quandary to do? Defend under a reservation of rights and incur substantial class action defense costs until the coverage issue is resolved in a declaratory judgment action (if the court will decide that before the underlying case is resolved)? Move to intervene early in the underlying action to protect against a collusive settlement? Or play the odds that the coverage decision will ultimately be upheld? Not an easy call to make. But intervening later in the case is unlikely to succeed, at least in the Seventh Circuit.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.