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Navigating Insurance for NYC’s $708M Lawsuit Against 17 Bus Companies

GettyImages-1302089727-300x200In recent months, the United States-Mexico border has seen an unprecedented surge of migrants. With this wave, various state and local authorities across the nation have expressed a strain on their public resources and housing capacities. To relieve overwhelmed border towns, Texas Governor Abbott initiated a migrant relocation plan to bus migrants to certain “sanctuary cities” like New York, Washington, D.C., Chicago, Philadelphia, Denver and Los Angeles.

In response to Governor Abbott’s plan, New York City Mayor Adams issued a series of executive orders designed to prohibit transportation companies simply dropping off migrants within the City (e.g., EEO 224 and  538). Numerous executive orders extended EEO No. 224 in five-day increments from late October 2022 through December 2023 (e.g., EEO 230 and 536).

But the Executive Orders did not stop Governor Abbott or bus companies from bringing migrants to New York City as alleged in a recent lawsuit filed by New York City against 17 bus and transportation companies (Commissioner of NYC Dept. Soc. Servs. v. Buckeye et al., (N.Y. Sup. Ct. 2024) removed 1:24-cv-00326-VSB (S.D.N.Y. 2024) (the “Lawsuit”)). The Lawsuit alleges Governor Abbott “directed the Texas Division of Emergency Management to arrange for the [d]efendants to provide transportation out of Texas for individuals who ‘have been processed and released by the federal government into Texas communities.’” The defendant bus companies now face significant liability of potentially more than $708M.

The Lawsuit alleges that in “bad faith,” the defendants violated New York Social Services Law, Section 149 (“Section 149”), by transporting 33,600 migrants from Texas to New York. Section 149 reads, in pertinent part:

[a]ny person who knowingly brings, or causes to be brought a needy person from out of state into this state for the purpose of making him a public charge … shall be obligated to convey such person out of state or support him at his own expense.

To support bad faith, the Lawsuit asserts that the defendants knowingly implemented Governor Abbott’s publicly articulated plan to shift the costs of immigration to New York City and that defendants were paid more for their services per passenger than it costs to buy a one-way ticket from Texas to New York City on a regularly scheduled bus. The Lawsuit further claims that the defendants are “evading, or assisting others in evading” the requirements of Emergency Executive Order (No. 538) recently issued in late December 2023 by NYC Mayor Adams (which set parameters on where and when the migrants could be dropped off in Manhattan and required bus operators to give notice of incoming passenger drop-offs to the city) by dropping the passengers off outside of the City and providing them with a one-way fare into New York for shelter.

According to a press release issued by the Office of the Texas Governor, Texas alone has bused “[o]ver 12,500 migrants to Washington, D.C.,” “[o]ver 30,800 migrants to Chicago,” “[o]ver 3,400 migrants to Philadelphia,” “[o]ver 15,700 migrants to Denver,” and “[o]ver 1,500 migrants to Los Angeles.” Cities impacted by the Texas Governor’s plan—or otherwise—may follow New York’s lead under similar statutes and file suits against transportation companies who have aided in simply dropping migrants off in their communities.

Regardless of the merits of these allegations and the political storm that encircles them, a question arises whether the defendants might have insurance coverage to defend and indemnify them against the Lawsuits. Companies impacted by the Lawsuit should quickly review their insurance policies and determine whether coverage might exist and, if so, quickly notify the potentially relevant insurers. Affected companies should also assemble a claims team (including experienced coverage counsel and an insurance broker) because coverage may be available for defending against lawsuits like this and/or potentially a judgment or settlement that might be reached.

Errors & Omissions (E&O) and Directors & Officers (D&O) policies may respond to this Lawsuit.

The first inquiry under any insurance policy is always—is it a “Claim”? Relatedly, E&O and D&O policies will usually require the Claim arise from some “Wrongful Act.” This is because a standard version of those policies promises to pay:

“All Loss that any Insured becomes legally obligated to pay on account of any Claim made against it during the Policy Period for an alleged Wrongful Act.”

Thus, how the relevant policies define each term is crucial. Below is an analysis of the significant definitions and provisions that play a significant role in recovery.

Errors & Omissions Coverage
In general, E&O policies provide coverage for companies in situations where they are accused of making errors or oversights, professional negligence, or failure to meet standards of care in performing professional services.

Although E&O policies vary in how they define “Claim,” most definitions include: demands for monetary and non-monetary relief, including civil or criminal proceedings, lawsuits, administrative proceedings, and investigations. Given the bus companies are named as defendants in the Lawsuit and the Lawsuit asserts a claim for monetary and non-monetary relief, the complaint would likely fall under even the narrowest policy’s definition of “Claim.”

Next, E&O policies require that the “Claim” arise from a “Wrongful Act,” which is usually defined broadly to mean any actual or alleged act, error or omission in the course of performing “Professional Services.” The definition of “Professional Services” is often broad too—encompassing those services an insured performs for or on behalf of others for a fee or other considerationand so, the transportation of the asylum-seekers in exchange for payment from Texas could arguably satisfy the “Professional Services” definition.

An insurer may seek to preclude coverage for the Lawsuit on the basis that the party alleging harm in the complaint (the City) was not a recipient of the insured’s “Professional Services”—meaning, for the bus companies, that a Wrongful Act must only be alleged by its passengers to trigger coverage under their E&O policy. The merits of that argument are largely dependent on the policy’s terms and conditions. See e.g., Bank of Calif., N.A. v. Opie, 663 F.2d 977, 982 (9th Cir.1981) (recognizing that an E&O policy would not require, “as a condition of coverage, a professional-service relationship to exist between the insured and the party harmed by the insured’s act or omission” because no language of that kind existed in the policy; instead the court held that the policy made coverage dependent on “the insured’s conduct, not the status of the party harmed”); Cf. IberiaBank Corp. v. Illinois Union Ins. Co., 953 F.3d 339, 344 (5th Cir. 2020) (a narrow definition of “Professional Services” in an E&O policy expressly required the services be rendered to a “policyholder or client for consideration” and accordingly, the Fifth Circuit held the DOJ settlement claim was not a covered claim because the government was not the insured’s “client”).

Even if an E&O policy has such limitations, there is still potential for recovery. A policyholder might consider leveraging the in loco parentis doctrine to argue that New York brought the Lawsuit in place of the migrant passengers (the insured’s client and recipient of its services) because the City is responsible for these people and the City seeks its own damages for the costs of their care. A policyholder made a similar argument under its commercial general liability policy in the Seventh Circuit. See e.g., Cincinnati Ins. Co. v. H.D. Smith, L.L.C., 829 F.3d 771, 774 (7th Cir. 2016). There, the insured, a pharmaceutical distributor, was sued by the state of West Virginia for money the state spent caring for West Virginians who suffered drug-related injuries. The court and each of the parties acknowledged that if a mother of one of the West Virginian’s harmed filed suit claiming her own damages “(the money she spent to care for her son), not damages on behalf of her son (such as his pain and suffering or money he lost because he missed work)”, the claim would be covered. The court concluded that “[l]egally, the result is no different merely because the plaintiff is a state instead of a mother.” Id. at *774.

Directors & Officers Coverage
D&O policies generally cover companies and their directors or officers (and often employees) against claims alleging the company and/or their directors or officers committed a “Wrongful Act.”

D&O coverage can vary, particularly if the company is a publicly traded company—in which case the company usually only has coverage for claims involving securities of the company. Private company coverage is typically broader and can cover a variety of Wrongful Acts.

The definition of “Claim” in a D&O policy is similar to that in an E&O policy. Again, the Lawsuit would likely be considered a Claim because a civil lawsuit or proceeding is almost always within that definition. “Wrongful Act” under a D&O policy is usually defined as some variation of: any actual or alleged act, error, omission, misstatement, misleading statement, breach of duty, breach of trust or neglect—in other words—almost any corporate act or omission. As a result, a policyholder may argue that the alleged violation of Section 149 (the “bring[ing] or caus[ing] to be brought, a needy person from out of the state into this state for the purpose of making him a public charge”) is the “alleged act” that the Lawsuit arises from. And the accusation that bus operators have been “evading” Executive Order No. 538 could arguably be a type of “omission,” “breach of duty,” “breach of trust or neglect” that falls within the definition of a “Wrongful Act.”

Other Coverage Considerations
The defendant bus companies will likely incur substantial defense expenses, starting from as early as the date the Lawsuit was lodged against them. If there’s a Claim for a Wrongful Act sufficient to trigger either a D&O or E&O policy, the insurer will usually pay reasonable and necessary defense costs to defend the covered Claim (up to the policy limit in most scenarios as the defense costs are usually within the limits instead of in addition to them). Certain policies may have “allocation” provisions, in which they expressly exclude defense costs for uncovered portions of a Claim. In that instance, if a lawsuit involves both covered and uncovered claims, the parties will usually allocate costs for amounts generated in the defense of a covered claim. But because there is only one alleged cause of action for violation of Section 149 in the Lawsuit, if it is covered, the bus companies will have an argument that all defense costs should be covered.

Note, claims for bodily injury, property damage, or personal and advertising injury are usually excluded by a standard E&O or D&O policy, as that coverage is generally provided for by general liability (CGL) insurance. Similarly, a D&O policy usually excludes claims arising from Professional Services. Hence, if any lawsuits are filed by asylum seekers for any physical or emotional trauma, policyholders should be sure to consult their CGL policies.

Notify Insurers Right Away
Regardless of which policy/policies the bus companies seek to recover under, notifying the insurance provider of the Lawsuit is crucial.

Each policy and the relevant applicable state law will have notice requirements. It is essential that you understand when, under your D&O and E&O policies, notice of claim, or notice of circumstances giving rise to a claim, must be given. Similarly, it is important to understand your obligation to provide information to and cooperate with your insurer in defending an investigation or lawsuit. By involving coverage counsel early on—the advice will be protected by the attorney-client privilege, whereas conversations with a broker may not be.

Engage professionals experienced in your industry and the insurance recovery process to ensure you can maximize your recovery.

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