Coronavirus, Contracts and the Constitution

By David B. Rivkin, Jr., and J. Michael Luttig

17 August 2020 in the Wall Street Journal

Plaintiff lawyers want insurance companies to absorb the cost to business of the Covid-19 pandemic—and they’ve had some early successes. A federal judge in Kansas City, Mo., last week allowed salon and restaurant owners to proceed with a lawsuit claiming that Covid shutdowns constituted “direct physical loss or damage” covered by business-interruption policies. California lawmakers introduced legislation in June that would establish a presumption that Covid-19 qualifies for such coverage.

Yet however sympathetic their clients, the lawyers’ efforts are unconstitutional and dangerous. They threaten to bankrupt the insurance industry, on which American businesses and consumers depend.

Most commercial policies include coverage for business interruption caused by physical damage to the business assets. If a car dealership suffers tornado damage to its roof, it can recover repair costs and losses incurred while the premises are closed. But disease isn’t “physical loss or damage,” as that phrase is ordinarily understood or typically intended in insurance contracts. Most such contracts expressly exclude such losses. That’s because losses associated with communicable diseases—like those from war or nuclear accident—aren’t insurable. The risks are unknowable, preventing the calculation of a premium sufficient to cover the losses if the event occurs.

As the Supreme Court observed in Los Angeles Department of Water and Power v. Manhart (1978), “drastic changes” in the legal rules governing insurance policies can “jeopardize the insurer’s solvency and, ultimately, the insureds’ benefits.” If the Kansas City lawsuit and hundreds like it succeed in redefining “direct physical loss” to include Covid-induced business closures, insurers would be forced to cover losses that were never underwritten. The industry has enough reserves to pay up to $800 billion for losses covered by home, auto and business policies. Uncovered Covid-19 losses are estimated in the trillions.

Fortunately, there are significant constitutional limits on the ability of either courts or legislatures to change private insurance contracts. The Constitution forbids the states to “impair the obligation of contracts.” As Chief Justice John Marshall observed in Ogden v. Saunders (1827), the power of contract impairment “had been used to such an excess by the state legislatures, as to break in upon the ordinary intercourse of society and destroy all confidence between man and man.” The effect was “not only to impair commercial intercourse and threaten the existence of credit, but to sap the morals of the people and destroy the sanctity of private faith.”

The Contracts Clause has been invoked less frequently since the ratification of the 14th Amendment, whose Due Process Clause has become the preferred vehicle for challenging state regulatory actions. But the justices made clear in Allied Structural Steel Co. v. Spannaus (1978) that it still “limits the power of a State to abridge existing contractual relationships.” In that case, Minnesota rewrote pensions, requiring an employer to pay $185,000 to nine employees who were terminated before their benefits vested under the company’s plan. The court struck down the law as a “severe” and “unreasonably conditioned” retroactive alteration of agreed-upon obligations. Sveen v. Melin (2018), another Minnesota case, upheld a state-mandated invalidation of life-insurance beneficiary designations on divorce—but only because the impairment of the parties’ contractual obligations was minimal. The policyholder could redesignate the former spouse and “reverse the effect of the . . . statute with the stroke of a pen.”

Even during the Depression, the high court was skeptical of state laws that impaired private contracts. Home Building & Loan Association v. Blaisdell (1934) upheld a state law that extended the time allowed for redeeming real property from foreclosure under existing mortgages, but only because the redemption extension was a reasonable temporary condition.

State legislatures that attempt to abridge commercial insurance contracts today may argue that they are meeting a Depression-caliber economic emergency. Yet although the court reaffirmed in Spannaus that states’ ability to impair contract obligations is greater during an emergency, it also held that such laws must be “tailored to the emergency that it is designed to meet” and impose only “reasonable” conditions. Legislative changes establishing liability for Covid-19 losses would completely abrogate existing contracts and impose immediate, permanently binding, ruinous contractual obligations that the parties specifically contracted not to cover. They would almost certainly be struck down under the Contracts Clause.

Federal efforts to impose new contracts on insurance companies would also be unlikely to survive a constitutional challenge. The Fifth Amendment’s Due Process Clause prohibits Congress from imposing retroactive liabilities that, as the court put it in Landgraf v. USI Film Productions (1994), “increase a party’s liability for past conduct, or impose new duties with respect to transactions already completed.” In Eastern Enterprises v. Apfel (1998), the court struck down a law imposing new pension liabilities on employers based on decades-old contracts. The justices couldn’t agree on a rationale for their ruling: A plurality saw it as an unconstitutional taking without just compensation. But in a concurring opinion, Justice Anthony Kennedy argued that it violated due process. He noted that political pressures tempt lawmakers “to use retroactive legislation as a means of retribution against unpopular groups or individuals.”

Businesses, especially small ones, have suffered terribly because of the Covid-19 virus. Many likely won’t survive. But shifting the burden to the insurance industry by either judicial rewriting or legislatively abrogating insurance contracts would be unconstitutional, especially since the losses have been largely caused by government decrees. Congress has already provided enormous financial assistance to American businesses—the appropriate means of compensating losses suffered from the government’s shutdown of the economy.

Because the litigation threat is existential, the insurance industry should do more than defend specific lawsuits. It should seek declaratory judgments now, establishing the limits of their potential liability. It also should work to convince federal and state lawmakers that they neither should nor constitutionally could abrogate and rewrite private insurance contracts.

Mr. Rivkin practices appellate and constitutional law in Washington. He served in the White House Counsel’s Office and Justice Department under Presidents Reagan and George H.W. Bush. Mr. Luttig was general counsel of the Boeing Co., 2006-20. He served as a judge on the Fourth U.S. Circuit Court of Appeals. 1991-2006.

Source: https://www.wsj.com/articles/coronavirus-contracts-and-the-constitution-11597705464

How the Warren Court Enabled Police Abuse

By David B. Rivkin Jr. and Andrew M. Grossman

June 17, 2020, in the Wall Street Journal

Senate Republicans have an opportunity to reverse one of Chief Justice Earl Warren’s most pernicious legacies—but they seem determined to blow it. Sen. Tim Scott, who is leading the majority’s police-reform effort, said Sunday that abolishing “qualified immunity,” which protects law-enforcement officers from lawsuits under a law known as Section 1983, is “off the table.” Police unions, Mr. Scott said, view it as a “poison pill.”

Section 1983 originated in the Civil Rights Act of 1871, which opened federal courts to lawsuits challenging civil-rights violations by defendants acting “under color” of state and local law. It provides that violators “shall be liable” to their victims. The idea was that freed slaves could go to court to enforce their newly won constitutional rights.

It didn’t work out that way, and much of the blame lies with the Supreme Court, which in the late 19th century defanged the 14th Amendment, relieving states of their obligation to honor all citizens’ federal rights. The court only began to correct that error in the mid-20th century, proceeding on a right-by-right basis under a doctrine known as incorporation.

What the court gave with one hand, it took away with the other. In Mapp v. Ohio (1961), the justices held that states were obligated to observe the Fourth Amendment right against unreasonable searches and seizures. But in Pierson v. Ray (1967), they relieved state officials from civil-rights liability unless their actions violated “clearly established law.” That’s “qualified immunity.”

The results can be infuriating. In one recent case, police officers escaped liability for siccing an attack dog on a suspect who was sitting with his hands up. A previous case had found a Fourth Amendment violation, but the court held the precedent didn’t apply because the suspect in the earlier case was lying on the ground. In another case, cops shot a fleeing driver who posed no threat. In another, police stole a collection of rare coins while executing a search warrant. Because such larceny by officers hadn’t arisen in a previous case, the court reasoned, the plaintiff’s right not to have his property stolen by police was not “clearly established.”

To call this a double standard would be an understatement. Civilians are subject to civil and criminal liability when they violate the law, even when their legal obligations aren’t perfectly clear. When state officials violate constitutional rights, qualified immunity often makes it impossible to hold them to account. It’s easy to understand why this disparity inspires cynicism about the rule of law.

Warren’s rationale for qualified immunity was that officials had historically enjoyed immunity for acts taken in “good faith.” He concluded that unless a court had already established that a particular act violated the law, it couldn’t be presumed that Congress intended to impose liability.

But Will Baude of the University of Chicago has demonstrated that there was no general “good-faith defense” for public officials and that qualified immunity can apply even to violations committed in bad faith. Further, Warren’s conclusion about Congress’s intent is at odds with the statute’s language; the words “shall be liable” brook no exception.

The Warren court established qualified immunity at a time when it was rewriting the Constitution by discovering new rights at an astonishing clip. It’s possible the justices worried that imposing liability for violations of the new rights would encourage resistance and stymie the rights revolution.

Yet as the Warren court relieved itself from the strictures of the Constitution, it did the same for state officials. Qualified immunity has made civil-rights litigation such a crapshoot that it does little to deter misconduct, particularly rights violations by police, which can be remedied only after the fact with money damages.

Some conservatives fear that correcting the error of qualified immunity could alter incentives for the worse, by putting police officers at risk of liability for doing their best to protect the public. That concern is misplaced. Other professionals face tort liability irrespective of whether the law on some point was “clearly established” by a prior court decision. No one argues that hinders the practice of law or engineering.

Besides, unlike most other professionals, police are almost always indemnified by their departments. Police departments take advantage of qualified immunity rather than make difficult choices like confronting or firing bad cops, standing up to police unions, or insisting on use-of-force rules that could deter abuses. In these ways, qualified immunity does a disservice to the overwhelming majority of police who take their duties to their communities seriously.

The Roberts court appears disinclined to correct its predecessor’s error, denying review this week in a score of cases asking it to reconsider the doctrine. That means it’s up to Congress. House Democrats are promoting legislation that would eliminate immunity for police officers. The only sound objection is that the Democratic plan stops short of ending the failed experiment of qualified immunity altogether.

Limited to police officers, it would leave the doctrine on the books for other state officials, making the Supreme Court less likely to correct its original error. And it would arbitrarily deny recourse to victims of, say religious discrimination by a mayor or racial discrimination by a licensing officer. All state officials, including the police, should be accountable for respecting constitutional rights.

Mr. Rivkin served at the Justice Department and the White House Counsel’s Office. Mr. Grossman is an adjunct scholar at the Cato Institute. Both practice appellate and constitutional law in Washington.

Source: https://www.wsj.com/articles/how-the-warren-court-enabled-police-abuse-11592410930

How to put citizenship back in the census

By David B. Rivkin Jr. and Gilson B. Gray

5 July 2019 in the Wall Street Journal

The Trump administration said Wednesday it will attempt to add a citizenship question on the 2020 census while complying with the Supreme Court’s ruling in Department of Commerce v. New York. Five justices held that the Census Act allows the question, but a separate five-justice majority found the rulemaking that added the question was procedurally deficient. There is a way forward. The Constitution itself requires the collection of citizenship information.

Section 2 of the 14th Amendment provides that if a state denies the franchise to anyone eligible to vote, its allotment of House seats shall be “reduced in the proportion which the number of such . . . citizens shall bear to the whole number of . . . citizens . . . in such state.” This language is absolute and mandatory. Compliance is impossible without counting how many citizens live in each state.

The 14th Amendment was adopted in 1868, and this provision meant to secure the voting rights of newly freed slaves. But it wasn’t limited to that purpose. An earlier version of Section 2, introduced in 1865, specifically referred to limits on suffrage based on “race or color,” but the Senate rejected that limitation. The amendment forbids state interference with the rights of all eligible voters (then limited to males over 21).

Section 2 also applies to every state, a point Rep. John Bingham, the amendment’s principal drafter, emphasized during the floor debate: “The second section . . . simply provides for the equalization of representation among all the States in the Union, North, South, East, and West. It makes no discrimination.”

Congress has dealt with suffrage-abridgement problems through other constitutional and statutory means, especially the Voting Rights Act. But that doesn’t change the constitutional obligation to obtain citizenship data. A future Congress could decide to rely on Section 2 to enforce voting rights, particularly as the VRA’s core provision, requiring Justice Department approval when certain states change voting procedures, becomes irrelevant because of changing attitudes and Supreme Court precedent.

Read more »

Ignore Trump — the issue of birthright citizenship has been settled

By DAVID RIVKIN, JOHN YOO, Sept. 6 2015 in the Los Angeles Times

Donald Trump’s call to end birthright citizenship has roiled the Republican presidential primary. Jeb Bush, John Kasich and Marco Rubio embrace the traditional view that the Constitution bestows citizenship on anyone born on U.S. territory. Ben Carson and Rand Paul agree with Trump that Congress could dismantle birthright citizenship by itself. Meanwhile, Ted Cruz acknowledges birthright citizenship but seeks a constitutional amendment to abolish it.

Conservatives should reject Trump’s nativist siren song and reaffirm the legal and policy vitality of one of the Republican Party’s greatest achievements: the 14th Amendment. Under its text, structure and history, anyone born on American territory, no matter their national origin, ethnicity or station in life, is a U.S. citizen.

Although the original Constitution required citizenship for federal office, it never defined it. The 14th Amendment, however, provides that “all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside.” Congress did not draft this language to alter the concept of citizenship but to affirm American practice dating from the origins of our republic.

With the exception of a few years before the Civil War, the United States followed the British rule of jus solis (citizenship defined by birthplace) rather than the rule of jus sanguinis (citizenship defined by that of parents), which still prevails in much of continental Europe. As the 18th century English jurist William Blackstone explained: “The children of aliens, born here in England, are generally speaking, natural-born subjects, and entitled to all the privileges of such.” Read more »

Default and the Constitution: David Rivkin debunks debt ceiling myths

David Rivkin was featured on “The Journal Editorial Report” with host Paul Gigot,  the Wall Street Journal’s editorial page editor.   The video debunks a number of  myths of the impending decisions on raising the debt ceiling.  Mr. Rivkin explains how the 14th Amendment ensures that defaulting on our debt is impossible. The Wall Street Journal’s “Journal Editorial Report” is Fox News Channel feature that runs at least twice during a weekend.