[Posted June 23, 2016] The Supreme Court of Virginia hands down two published opinions this morning, both from appeals argued in the April session. There’s one about coverage issues between two parallel insurance policies, and another about a possibility of reverter in a deed of gift.

Okay, stop. Do not click on a link to another website. You should be ashamed of yourself, trying to skip out on today’s opinions just because the topics aren’t exactly what you’d immediately describe as sexy. Justice Kelsey put a lot of work into these two unanimous opinions – witness the fact that they aggregate to about 28 pages and there are 31 footnotes – and you should pay attention.

Look, we’ll check in on some of our old pals like Blackstone and even Coke. It’ll be just like old times, back in law school. If it’ll help, I’ll do what I can to make the prose sparkle.

Real property

The case of Hamm v. Hazelwood involves a deed of gift in which a woman gave some property to her sister, reserving a life estate unto herself. The sister had six children, including a son named Reginald. The grantor evidently cared not for her nephew; although the record in the case doesn’t expressly say why, it’s clear that there was a strain between the two. She built into the deed a reversion clause:

The PROPERTY hereby conveyed shall AUTOMATICALLY REVERT to [the grantor] in the event Reginald Wayne Clarke, son of the [grantee], ever acquires any interest therein by grant, inheritance or otherwise or is otherwise permitted to occupy, even temporarily, any portion of said property.

Wow! The precise legal term for this level of antipathy is that she “hated his guts.”

Of course, I’m reading between the lines a bit, but I think I’m right. As you might imagine, the grantor died first, and six years later, her sister died. Guess who was one of the sister’s heirs?

The issue in this appeal is whether the clause set out above is a valid restraint on the sister’s right to alien the property. Virginia law doesn’t countenance universal restraints on alienation; that means that you can’t convey fee-simple title to John Johnson but bar him from selling it to anyone, forever. (Nor does American law permit the fee-tail estate, which features so prominently in Jane Austen’s writings.) But this was a far more limited prohibition; it only applied to Reginald.

Now, you’ve noticed how expansive the reverter clause is. All Reginald has to do is set foot on the property and the whole estate reverts to the grantor (as it turns out, to her son, who is Reginald’s cousin). But in this case, this most draconian part of the clause isn’t implicated; Reginald received an ownership interest by virtue of surviving his mother, who had survived her sister. That presents the question whether a deed like this can prevent a given person from acquiring an ownership interest in the future.

I’ll spoil all the glorious run-up and give you the answer: yes, it can. This isn’t anywhere near as broad as the expansive, hypothetical limitation I set out above for Mr. Johnson. This provision creates – and vests immediately in the grantor – a possibility of reverter, one of the hallmarks of a fee-simple determinable estate. Melba never got the estate we call fee-simple absolute, because of the existence of that possibility of reverter. No, it doesn’t violate the Rule Against Perpetuities, because the reversion would occur during the life of a then-existing person (poor Reginald).

Insurance law

When a pretrial detainee in a regional jail felt that he got inadequate medical attention, resulting in permanent disability, he sued everybody he could think of, alleging §1983 liability and medical malpractice. It eventually surfaced that there were two applicable insurance policies that might be liable for coverage and a defense. Today’s ruling in Division of Risk Management v. Virginia Association of Counties Group Self Insurance Risk Pool resolves the dispute between two insurers over which one was primary coverage and which one was secondary.

Actually, both policies claimed to be primary coverage. They said so, directly. But one of them had a provision in the event of another policy:

… if, at that time of loss, there is any other coverage or insurance available to a Covered Party which covers such loss or which could have covered such loss, VaRISK shall not have any liability for such loss.

That provision, if it governs here, means that the VaRISK policy is no policy at all, since the VaCo policy unquestionably applied. That policy, in contrast, said that when other coverage is available, a formula should be used to apportion liability among the two policies. The trial court looked at these provisions and ruled that while both policies were in force, the VaCo policy was primary, and the VaRISK policy provided only excess coverage beyond the VaCo policy’s limits.

Today, the justices disagree in part. They note that there are three possible kinds of other-coverage clauses. One of those is the one in the VaCo policy, providing for allocation of the costs among the two policies. A second makes one of the policies excess – pretty much what the trial judge had ordered. The third type is the harshest: it “seeks to absolve the insurer of any and all liability — co-primary or excess — in the event that the insured obtains duplicative coverage elsewhere.”

You can imagine what might happen if two policies each have clauses like the third one: they cancel each other out, leaving the insured defenseless. Happily, the court notes today, we don’t have that kind of situation here. (The subtext is that if we did, the Supreme Court of Virginia would find a way to avoid that result.) Both insurers readily acknowledged in the litigation that they weren’t arguing for this “escape-clause” ruling. The justices take them at their word.

But the VaRISK policy clearly says just that, in the stark language I quoted above. It’s an escape clause, not an excess clause. That leaves only one alternative: the apportionment approach.

And that’s what the justices direct. They find that both policies are primary: neither involves an escape clause, and there’s no provision to convert either into an excess policy. The Supreme Court thus remands the case to the trial court to determine, in the first instance, how to apportion equitably the costs of defense of the inmate’s claims.

Update June 24: I’ve heard from my pal John Rasmussen about this case. John is one of Virginia’s leading coverage gurus. He generously offered the following comments about how yesterday’s opinion will affect you:

This case shows the tools available to courts in applying coverage terms. This matters because policies and risk plans can be awkwardly drafted and thus hard to parse.

Here, the Supreme Court of Virginia relies on DRM’s assessment that its escape clause does not apply to eliminate coverage here, despite the DRM plan’s plan terms. Many courts would follow the proposition that the policy says what it says, the meaning of its terms is a question of law for the court to resolve, and an insurer’s statements about what the policy covers or does not cover would not matter. The SCV does not follow that approach in this opinion. Indeed, it adopts an interpretation, connected in part to DRM’s interpretation, that leaves the escape clause without any clear effect, given that it does not allow escape or function to make DRM coverage excess.

This approach by the Supreme Court supports an argument for deposing a carrier’s designee as to what effect the policy terms have and why.

Carriers frequently resist such deposition topics, arguing that a deponent cannot change the policy terms. Now, in Virginia, that may be a harder argument to win.

The Court here also uses some tools it has not relied on as heavily to determine coverage in the past — secondary sources like Couch, Appleman, and Windt. Rather than depend on such sources, Virginia courts have instead focused on prior Supreme Court of Virginia opinions and, to a lesser extent, federal district court and Fourth Circuit authority, as well as the actual cases from other jurisdictions.

One challenge to that earlier approach is that other states have addressed coverage issues in detail that Virginia has never addressed.

This opinion also looks at “other insurance” provisions, and escape clauses in particular. While it appears to disfavor applying escape clauses such that coverage evaporates, Virginia’s high court does not decide the issue given DRM’s position that the policy does provide excess coverage rather than no coverage.