Zurich American Insurance Company v. Nokia, Inc., No. 06-1030 (Tex., August 29, 2008) see Nokia Decision and Dissent.
In this, the second significant Texas Supreme Court insurance coverage decision issued just before Labor Day (there is one more - stay tuned), The High Court held that a number of class actions asserting that radiation emitted from cell phones caused or could cause "biological injury" triggered CGL insurers' duty to defend because the damages sought, i.e., the costs of cellphone headsets, were "damages because of bodily injury," covered under the policies. This was a long-awaited decision, not just for the parties in this particular dispute, but in the tort and insurance bar and insurance industry in general. The reason has less to do with interpreting insurance policies as much as defense coverage for very expensive class action litigation.
One of the key limitations of a standard general liability policy is the damages. As long as the insured's conduct was more or less accidental, any liability is potentially covered as long as the damages sought fall within four categories: "bodily injury," "property damage," "personal and advertising injury." The issue in Nokia is "bodily injury." Purchasers alleged that radio frequency radiation from use of cellphones could subtly affect neurological functions in the brain, such as calcium and ion distribution across cell membranes, DNA strand breaks and chromosome damage, skewed enzyme activities, and permeability of the blood brain barrier. The Court had no trouble recognizing that these were allegations of potential "bodily injury." But the problem is that none of the plaintiffs sought damages for health expenses, physical impairment, lost work due to sickness. As stated, the only damages sought were a few dollars per plaintiff for a headset that would prevent such damages. The insurers protested that this was no more than economic damages not covered by the policies.
So, had the plaintiffs complained of headaches, sleep problems, or other (allegedly) documented adverse health consequences, the insurers would not have disputed their duty to defend, at least for lack of covered damages. But surprisingly, not a single plaintiff in the class actions sought any remedy other than the cost of a headset. As the dissent, pointed out, however, this is no surprise due to the nature of class actions.
Class actions are a special type of litigation that allow large numbers of claimants with a common claim to join a single action. Often, the amount of each individual claim is so small that no one could ever get an attorney to spend the costs necessary even to file the lawsuit. In this case, the costs of a headset is tiny. But it is often in society's best interests to force an company or an industry to redress such a widespread problem through litigation. The class action is tailor-made for this purpose. But there are several things a class action can't do. The remedy sought can't vary from one class plaintiff to the next. 10 million people want a headset. Fine. But each plaintiff can't also assert a claim for this or that physical ailment. That would require individualized proof of damages, which would require years to resolve.
As the dissent pointed out, "bodily injury" is not and cannot be asserted in a class action. "No individual issues of injury exist," says the class plaintiffs in their pleadings, which they must say if they are to achieve class status and continue to pursue the case. The majority recognized this procedural reality but distinguished between the requirements of class-action procedure and an insurer's duty to defend. The majority observed, "[a]lleging that there are no individual issues of injury . . . is not the same thing as stating that no individuals have been injured."
The dissent pounced on this statement. "That is certainly true, but the insurers' duty to defend turns not on whether individuals have been injured, but whether they claim injury.
But the dissent lost the argument. And this is potentially huge for future class actions over physical injury or damage, where the actual claim is for some one-size-fits-all economic remedy that in itself is not covered. Courts are now instructed to consider the underlying physical damage that is not alleged in the class action to determine if the CGL insurer has a duty to defend. And it is no secret that defense costs in a class action is the tail that wags the dog.
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