Business Law Prof Blog

DEIB and Business Law Program this Week

 

RWU Law looks forward to the next installment of the Integrating Doctrine & Diversity Speaker Series:

HOW DOES DIVERSITY, EQUITY, INCLUSION AND BELONGING PEDAGOGY FIT IN BUSINESS ISSUES AND FINANCIAL AFFAIRS CLASSES? LEADING WITH DEIB IN WILLS, TRUSTS, ESTATES, INSURANCE, CONTRACTS, AND TAXATION LAW CLASSES

Wednesday, October 4 | 2:00 – 3:00 PM EST

Zoom Webinar Registration here.

Details about the Featured Speakers & Program here.

Lytton on Using Insurance to Regulate Food Safety

Professor  Timothy D. Lytton, Associate Dean for Research and Faculty Development at Georgia State Univeristy, recently published his new article, Using Insurance to Regulate Food Safety: Field Notes from the Fresh Produce Sector, in the New Mexico Law Review. Here's the abstract:

Foodborne illness is a public health problem of pandemic proportions. In the United States alone, contaminated food sickens an estimated 48 million consumers annually, causing 128,000 hospitalizations and 3,000 deaths. Nowhere is this crisis more acute than in the fresh produce sector, where microbial contamination in growing fields and packing houses has been responsible for many of the nation’s largest and deadliest outbreaks. This Article examines emerging efforts by private insurance companies to regulate food safety on farms that grow fresh produce.

Previous studies of using insurance to regulate food safety rely on economic theories that yield competing conclusions. Optimists argue that insurance can promote efficient risk reduction. Skeptics counter that insufficient information regarding the root causes of contamination renders insurance impotent to reduce food safety risk. This Article adds a sociolegal perspective to this debate. Based on interviews with insurance professionals, the Article documents how, notwithstanding limited information, underwriters employ a variety of techniques to encourage compliance with government food safety regulations and conformity to industry standards. These techniques include premium discounts for clients who adopt state-of-the-art food safety practices, coverage exclusions for high-risk activities, and loss control advice about how to avoid contamination.

Insurance plays a growing and potentially transformative role in advancing food safety. Government food safety regulation has traditionally been hampered by inadequate inspection resources. This Article advocates expanding insurance to fill oversight gaps in the U.S. food safety system, and it offers specific recommendations for how to nurture emerging markets for food safety coverage.

The findings presented in this Article have implications for understanding how insurance regulates risk more generally. Economic analysis of many well-established types of insurance—for example, life, health, homeowners, and auto—emphasizes the role of actuarial data in pricing premiums, determining coverage limits, and informing loss control advice. However, the underwriting professionals in this Article who describe their efforts to improve food safety on farms tell a different story. They operate in an emerging market with a low volume of claims and a dearth of actuarial data. Three aspects of their work stand out. First, underwriting in this area is more impressionistic than economic analysis assumes. When assessing the risk of microbial contamination on farms, underwriters rely more on their intuitions about a farmer’s competence and on media coverage of high-profile foodborne illness outbreaks than on actuarial data. Second, the mindset of these underwriters is more administrative than economic. They think in terms of regulatory compliance and standards conformity rather than optimal risk reduction. Third, farm size determines the role of insurance in managing risk. High-premium coverage for larger farms provides more underwriting resources for risk management than low-premium policies priced for small farms. These findings suggest that although economics explains the logic of insurance as form of risk regulation, understanding how underwriters regulate risk in practice, especially in emerging markets, requires attention to professional judgment, bureaucratic thinking, and resource constraints.

Celebrating Independence without the Trappings: A Business Law Prof "Take"

Stefan's Independence Day post is far more erudite than mine.  Kudos and thanks to him for the substantive legal content.  This post covers more of a teaching point--one that I often think about in the background but want to being to the fore here.

I am focused in writing this on things like family reunions, local holiday festivities, grilling out, and fireworks.  It has been a rocky road to the Fourth in these and other aspects this year.  Overlapping causes can easily be identified.  As if the continuing COVID-19 nightmare were not enough . . . .

I will start with COVID-19, however.  I have heard of many who are missing family and other events this weekend because of positive COVID-19 diagnoses, test results, or exposures.  I was sad to learn, for example, that Martina Navratilova had to miss the historic Wimbledon centennial celebration, including the Parade of Champions, yesterday.  But there is more.

The air travel debacles have been well publicized.  Weather, labor shortages, and other issues contribute to the flight changes and cancellations airlines need to make on this very popular travel weekend--expected to set records.  And gas prices have stymied the trips of some by land (again, at a time during which travel was expected to be booming), although news of some price drops in advance of the weekend was certainly welcomed.  Even for those who are well and able to travel to spend holiday time with family, it has been a challenge.

The cost of your cookout this year also may be higher, should you choose to have one.  Supply chain turmoils and the effects of inflation and the war in Ukraine all are listed as contributing factors.  (The linked article does note that strawberries are a good buy, nevertheless, which is welcome news to me.)

And yes, fireworks displays also have been disrupted.  The causes include both concerns about weather (dry conditions and flammables do not mix well!) as well as the impact of labor shortages, inflation, and other factors influencing the supply of goods.  Of course, there also is a high demand for fireworks in the re-opened socio-economic environment.  All have been widely reported.  See here, here, here, and here.

These holiday weekend disappointments create personal strife.  But why should a business law prof care about all of this? 

I find that stepping back and looking at the state of business at given times can be instructive in reflecting on the ways in which business law policy, theory, and doctrine do and should operate in practice.  In an inflationary period with labor shortages, what profit-seeking business would not be looking at customers, clients, and employees as an important constituencies?  In an era of supply chain dislocations, what business managers would not be focused on strong, positive relationships with those who sell them goods and services significant to their business?  And, of course, with investment returns of direct and indirect import to the continued supply of funding to business ventures, firms need to pay heed to investor concerns.  Note how these observations allow for commentary on principles of/underlying contract law, contract drafting, securities regulation, fiduciary duty in (and other elements of) business associations law, insurance law, and more.

Looking at legal theory, policy, and doctrine in practical contexts can useful to a business law prof for teaching, scholarship, and service--depending on the nature of a person's appointment and the institution at which the prof teaches.  The current Fourth of July woes are but one example of how those connections can be made.  But I want to invite folks to make them, especially in their teaching--in current courses (if you are teaching over the summer) and in fall and spring course planning, which I know many folks are now doing.

In closing, I send sympathetic vibes to all who had plans foiled by (or who decided to have a "staycation" and avoid) some or all of the holiday weekend dislocations I highlight in this post.  I hope you found joy in your Independence Day weekend nonetheless.

COVID-19 and Business Interruption Insurance

As a teaser to a forthcoming article I coauthored with two of my students (who co-presented with me) for the Business Law Prof Blog symposium back in the fall, I offer a short excerpt on business interruption insurance litigation resulting from governmental actions forcing business closures as a result of the pandemic, focusing on a recently decided Tennessee case.

In general, business lawyers got inventive in bringing legal claims of many kinds. A federal district court case recently decided in Tennessee, Nashville Underground, LLC v. AMCO Insurance Company, No. 3:20-cv-00426 (M.D. Tennessee, March 4, 2021), offers a notable example involving the interpretations of a business interruption insurance policy. The plaintiff in the action, a Nashville bar, restaurant, and entertainment venue, claimed coverage under the food contamination endorsement in its business interruption insurance policy for the damages suffered when it was forced to close its doors by governmental orders issued in March 2020 in response to the COVID-19 pandemic. The insurer denied coverage. The court held for the defendant insurer on its motion to dismiss for failure to state a claim, finding the contract language unambiguous. The court’s conclusion in its opinion noted sympathy, in spite of the outcome.

Like many Americans, the undersigned can sympathize with Plaintiff and so many of our other small to medium-sized businesses that seem to have borne much of the brunt of the effects of the COVID-19 pandemic. One could understand if Plaintiff (or anyone else) lamented that it simply is not right that this should be the case. But it also is not right, or lawful, for a business's insurer to be on the hook for coverage it simply did not contractually commit to provide. Presumably like a myriad of other enterprises throughout this nation, Plaintiff in retrospect perhaps would have bargained for broader coverage but simply did not foresee such need before the unprecedented pandemic conditions arose in 2020. Accordingly, Plaintiff was unfortunately left without the coverage it now asks this Court to find in an insurance policy that simply does not provide it.

Nashville Underground, supra.  Sympathy notwithstanding, cases of this kind are decided on the basis of specific contract language. Although overall insurers tend to be winning in these contract interpretation battles, insureds are prevailing in some cases, at least in pretrial and summary judgment motion battles. See, e.g., Kenneth M. Gorenberg & Scott N. Godes, Update on Business Interruption Insurance Claims for COVID-19 Losses, NAT’L L. REV. (Oct. 29, 2020), https://www.natlawreview.com/article/update-business-interruption-insurance-claims-covid-19-losses; Richard D. Porotsky Jr., Recent Federal Cases in the N.D. Ohio Split on COVID-19 Business Interruption Insurance Coverage, NAT’L L. REV. (Jan. 26, 2021), https://www.natlawreview.com/article/recent-federal-cases-nd-ohio-split-covid-19-business-interruption-insurance-coverage; Jim Sams, Judge Rules in Favor of 3 Policyholders With COVID-19 Claims in Consolidated Case, CLAIMS J. (Feb. 21. 2021), https://www.claimsjournal.com/news/national/2021/02/24/302197.htm.

The opinions in these cases constitute an interesting emergent body of decisional law relevant to contract and insurance law and practice.  Along with litigation relating to, e.g., force majeure and material adverse change/effect, the legal actions interpreting language in business interruption insurance contracts are bound to offer important lessons and tips for legal counsel and their clients--a legacy likely to affect practice and litigation for many years to come.

The article from which the above quoted text (reformatted for posting here) comes, Business Law and Lawyering in the Wake of COVID-19, is scheduled for publication later this spring in Transactions: Tennessee Journal of Business Law.  I will promote the article here once the final version is available and has been posted to SSRN.  In the meantime, you have a a short preview of one part of the article in this post!

Insurance, Education, and Civil Rights

I recently received word from one of our former guest bloggers, Marcos Mendoza (whom I introduced here and who posted here, here, here, here, and here), that his most recent insurance article, The Limits of Insurance as Governance: Professional Liability Coverage for Civil Rights Claims Against Public School Districts, has been published in the Quinnipiac Law Review.  It is available on SSRN here.  The abstract follows.

Insurance intersects with people throughout their lives, sometimes with elements that are unobserved or misunderstood. That is often the case with “insurance as governance,” a form of private contractual regulation. This theory assumes that insurers, to minimize their financial losses, attempt to shape policyholder conduct by employing private regulatory measures, primarily through underwriting and contractual loss prevention methods. Insurance as governance is about risk reduction.

This article addresses a question regarding civil rights—do insurers influence the civil rights policies of public school districts? A broad legal arc encompasses civil rights litigation against schools, from freedom of speech complaints to sex-based claims involving students. School boards purchase professional liability insurance to defend their operational policies and actions. Previous research has not examined whether insurers attempt to shape school officials’ conduct to reduce these claims. This article finds that insurer influence is surprisingly minimal despite the financial and potential societal benefits.

Landmark scholarship (Rappaport, Harvard Law Review, 2017) established that insurers could positively influence police officer conduct, resulting in fewer civil rights claims against police entities. But this school environment research determines that insurers of public schools do not employ assertive loss prevention methods to limit civil rights claims. This lack of private regulation is because school boards want and exercise significant local control authority, and the administrators of interlocal risk pools—the leading type of insurer discussed within—have political concerns about membership stability, leading to regulatory hesitation.

This empirical study makes two main contributions. First, it involves a discussion of why insurer private regulation does not linearly increase when school district civil rights exposures rise. This contribution includes a review of the school districts’ mutual ownership of the predominant school insurer, the interlocal pool; an examination of the strong local control desires of school boards; and an analysis of the attendant political concerns of the interlocal pool administrators. Second, it reviews the policy adoption process of school boards, notes how school officials interact with and tend to resist insurers, and documents how this sociolegal setting creates insurers’ reluctance to attempt conduct-shaping with school districts regarding civil rights. This article will further private regulation scholarship regarding governmental entities and allow scholars to reassess the reach of insurance as governance.

Both this article and an earlier piece written by Marcos are cited in the new edition of Kenneth Abraham and Dan Schwarcz's Insurance Law and Regulation casebook.

I took a quick peak into the article, even though insurance is not my legal "thing."  (I come from a line of insurance brokers and underwriters, but I went a different way . . . .)  The article is well written and covers a lot of interesting ground.  It is a tale of private ordering and regulation--or, rather, the absence thereof.  On a macro level, the piece asks and answers the question: why, if insurance contracts incentivize policyholder behavior in some circumstances or with some insureds, do they not incentivize behavior in or with others?  Its focus is, as the article title suggests, on public school districts as policyholders and civil rights claims as insured risks. 

Although The University of Tennessee recently faced significant exposure for alleged Title IX violations (settled four years ago), I admit I hadn't thought much about the exposure of school districts to civil rights litigation.  Of course, that exposure includes more than Title IX litigation.  As the article notes, Section 1983 claims, Title VI claims, Title VII claims, and disability claims under the Individuals with Disabilities Education Act and Section 504 of the Rehabilitation Act of 1973 also represent potential liability threats.  Overall, the level of risk is reasonably high.

Yet, perhaps not high enough . . . .  In the introductory portion of the article, Marcos contrasts the regulation of public police through insurance policies (evidenced in prior literature) with the lack or failure of similar regulation of public school districts.  In the conclusion, he notes, among other things, that "it seems that assertive regulation happens with public actors only when the risk exposures become extreme, and not before."  He also observes that insurer, as well as insured, behaviors contribute to the creation of regulatory power through insurance arrangements.  All in all, the article is an instructive read with analogies to many other areas in which common types of contracts are entered into by repeat players in a commercial or other context.