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

Podcast of panel discussion hosted by the National Review Institute, August 5th, 2020.

The “Trump Resistance” claims the President is guilty of many crimes, regularly abuses his power, and is a threat to democracy. To bolster their case and support their resistance, the President’s critics have invented a new body of “Trump Law,” rewriting legal norms, standards and definitions across the legal landscape – spanning impeachment, obstruction of justice, “collusion,” executive privilege, management of the executive branch, national injunctions, foreign relations, and more. David Rivkin joins John Yoo, Curt Levey, and Andrew McCarthy to analyze the many areas of law affected by this effort, highlighting the threat it poses to the rule of law and speculating on the long-term impact.

Since taking office, President Trump has been derided by the mainstream media and his critics as running roughshod over constitutional norms, fueling the conviction of liberals and some moderate conservatives that the 45th President poses an ongoing threat to the Constitution. In a Heritage Foundation podcast, David Rivkin joins constitutional scholar John Yoo (author of Defender in Chief), who argues that Trump’s adversaries have things exactly backwards. Far from considering Trump an inherent danger to our nation’s founding principles, Yoo contends that the Framers would have seen Trump as restoring their vision of presidential power. It is instead liberal opponents who would overthrow existing constitutional norms in order to unseat Trump, thereby inflicting permanent damage on the presidency.

By David B. Rivkin Jr. and John S. Baker Jr.

Aug. 2, 2020, in the Wall Street Journal

President Trump met wide derision last month when he issued an executive order excluding illegal aliens from the census numbers used for apportioning House seats. “Persons means persons,” Thomas Wolf of the Brennan Center for Justice told a reporter. “Everyone must be counted.” But counting is different from allocating political power, and Mr. Trump has the better constitutional argument.

Section 2 of the 14th Amendment provides: “Representatives shall be apportioned among the several States according to their respective numbers, counting the whole number of persons in each State, excluding Indians not taxed.” This revises a provision in Article I that uses similar language but also includes the infamous Three Fifths Clause.

When voting on the latter provision, the Constitutional Convention used the term “number of inhabitants.” The Committee on Style shortened that to “numbers,” but that linguistic change was of no import. As Chief Justice Earl Warren noted in Powell v. McCormack (1969), the committee wasn’t authorized to make substantive changes to previously voted provisions. In Wesberry v. Sanders (1964), Justice Hugo Black wrote for the court that “the debates at the Convention make at least one fact abundantly clear: that . . . in allocating Congressmen, the number assigned to each State should be determined solely by the number of the State’s inhabitants.”

The administration argues that illegal aliens don’t qualify as inhabitants, and it’s right. The definition of “inhabitant” at the time of the Founding had an important political and economic context because of the legal responsibility of localities to care for the destitute under the 1601 Act for the Relief of the Poor. An inhabitant was a person who rightfully resided in a jurisdiction, contributing to and qualifying for available benefits. Like illegal aliens today, those whose presence was unlawful were not considered inhabitants and were subject to removal.

According to the 2018 Yale study, there are at least 16.7 million, and more likely around 22.1 million, illegal aliens in the U.S. The apportionment following the 2010 census yielded congressional districts containing roughly 710,000 people each. That means the illegal-alien population is the equivalent of around 30 districts, more than any state except California (53) or Texas (36).

States inflating census numbers has been a ever-present danger to the proper functioning of America’s federalist system. In Federalist No. 54, James Madison addressed what he called states’ “interest in exaggerating their inhabitants” to bolster their representation in Congress: “It is of great importance that the States should feel as little bias as possible, to swell or to reduce the amount of their numbers.”

Millions of illegal aliens are distributed disproportionately throughout the U.S., more than enough to cause shifts in apportionment of congressional seats, which also affect the Electoral College. In an example of the kind of swelling Madison warned about, some states and localities entice illegal aliens with “sanctuary” laws promising to shield them from federal law enforcement and provide them free health care and other benefits. In the years ahead, that could make the illegal alien population become larger and more concentrated in these states.

Yet this is not simply a blue vs. red state conflict over political power. Sanctuary state California will lose representatives if illegal aliens are excluded from apportionment, but so will Texas and Florida. It is also a Sun Belt vs. Rust Belt conflict. States like Indiana, Michigan, Pennsylvania and Ohio are the ones that stand to gain (or at least not lose) in apportionment under the president’s plan.

Since only a few states lose representation after each decennial census, this gradual erosion of political power has rarely been challenged. The Supreme Court has never addressed the constitutionality of including illegal aliens in congressional apportionment and has only occasionally been asked to do so (including in a 2011 case in which we represented Louisiana). When the court rejected Mr. Trump’s proposed citizenship question on the census, it was on technical administrative procedure ground, not the merits.

That leaves it to the political branches to carry out the constitutional mandate of counting only inhabitants for reapportionment. Congress has done so, by enacting statutes giving the president wide discretion on reapportionment decisions. Mr. Trump is right to take the next step.

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. Baker is a visiting professor at Georgetown’s Center for the Constitution and a professor emeritus at Louisiana State University Law Center.

Source: https://www.wsj.com/articles/madison-warned-about-sanctuary-states-11596396761

By David B. Rivkin Jr. and Anastasia Lin

July 13, 2020, in the Wall Street Journal

Facebook, Google and Twitter announced this month that they will refuse to comply with customer-information requests from Hong Kong authorities until the companies review the implications of a new Chinese security law designed to suppress dissent in the territory. If the tech companies don’t cave in, it will be a rare instance of Western businesses standing firm against Beijing’s intimidation.

Corporations typically kowtow, fearful of losing access to China’s massive market. International airlines, including American, Delta and United, changed their websites so that Taipei isn’t listed as being in Taiwan. The general manager of the National Basketball Association’s Houston Rockets apologized for tweeting an image that read “Fight for Freedom. Stand with Hong Kong.” Mercedes-Benz apologized for an English-language Instagram post that included an innocuous quote from the Dalai Lama. The Big Four accounting firms issued statements criticizing Hong Kong protests after some of their employees took out an ad supporting them.

Using its economic power to pressure Western corporations is a key element of Chinese statecraft. The Communist Party keenly appreciates that Western entities are far more credible than Chinese government or media. China scrutinizes statements by Western companies, focuses on those that are even mildly critical of its behavior, and threatens them on social media with economic retaliation and blacklisting.

Such threats often appear to emanate from private Chinese citizens. But given the government’s heavy censorship of Chinese social-media platforms, they inevitably bear the party’s imprimatur. Moreover, the Chinese government almost always backs up the statements attributed to its citizens, waging a joint campaign, so that the language of these “private” complaints tracks Communist Party propaganda.

Beijing also attempts to suppress authentic Chinese voices critical of its human-rights abuses. One of us (Ms. Lin) represented Canada in the Miss World 2016 finals in Washington. The London-based Miss World Organization—most of whose sponsors are Chinese companies—isolated her from the media during the pageant and threatened to disqualify her after she was seen speaking informally to a Boston Globe columnist. The ban on her contact with journalists was ameliorated only after intense public pressure.

It’s too much to expect corporations, whose objective is to make money for shareholders, to take a lonely stand against a government that controls access to a major market. But U.S. lawmakers could stiffen corporate spines. In response to the Arab League boycott of Israel, Congress in 1977 made it illegal for U.S. companies to cooperate with any unsanctioned foreign boycott and imposed civil and criminal penalties against violators. That legislation and the implementing regulations “have the effect of preventing U.S. firms from being used to implement foreign policies of other nations which run counter to U.S. policy,” according to the Commerce Department.

Antiboycott regulations forbid U.S. companies to “agree” to eschew doing business in Israel or with a company already blacklisted by the Arab League, or to cooperate with the boycott’s enforcement by providing information about business relationships with Israel or blacklisted companies. All requests for such cooperation must be reported to the Commerce Department. The regulations presume that any action taken in response to boycott-related requests violates the law. It isn’t sufficient to claim that one’s boycott-related speech or activity is based on one’s own views.

These regulations survived legal challenges from companies that claimed violations of their First Amendment right to free speech. Federal courts upheld the rules as narrowly tailored restrictions on commercial speech driven by a compelling government interest. American companies eventually grasped that the rules protected them from foreign pressure. In time, antiboycott compliance became part of American corporate culture and didn’t require much enforcement.

Beijing’s efforts to force American companies to support and comply with its propaganda and deception campaigns and furnish information on Chinese dissidents are similarly inimical to vital American interests. Preventing Western companies from participating in Chinese propaganda campaigns would diminish China’s soft power and impair its ability to use economic blackmail as a tool of statecraft.

Congress should enact legislation prohibiting American companies, as well as foreign entities doing business in the U.S., from cooperating with any Chinese effort to enlist them for propaganda or furnish information on dissidents. In particular, they would be barred from changing their public statements and social-media presence in response to Chinese pressure or from taking other steps to placate Beijing, whether its demands are communicated directly or indirectly. Any such Chinese demands would have to be reported to the U.S. government.

With most Americans—91%, according to a March Pew Research Center report—agreeing that Beijing threatens American interests, such legislation should be able to win bipartisan support. It would also be constitutionally defensible as a narrowly tailored regulation of commercial speech supported by a compelling government interest—countering Beijing’s push for global dominance.

The goal would not be to prevent companies from speaking, or to compel their speech, on China-related issues. They could not, however, legally comply with Chinese government attempts to direct their speech. Like the antiboycott laws, such a statute would protect Western companies, enabling them to tell Beijing that they are unable to comply with its demands. The U.S. can’t stop Chinese state institutions from spreading propaganda, but it can use the law to shield Western companies from the Communist Party’s intimidation.

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. Ms. Lin, an actress, was Miss World Canada 2015 and 2016. She is the Macdonald-Laurier Institute’s ambassador for China policy and a senior fellow at the Raoul Wallenberg Centre for Human Rights. She is the wife of James Taranto, the Journal’s editorial features editor.

Source: https://www.wsj.com/articles/a-way-to-curb-chinese-intimidation-11594680594

War has long been the subject of vigorous debate. The United States Constitution gives Congress the power to declare war and appoints the president as commander-in-chief of the military. When it comes to war, who holds the power to ultimately decide the actions of the United States? Gene Healy, vice president at the Cato Institute; David B. Rivkin Jr., partner at BakerHostetler; and Margaret L. Taylor, governance studies fellow at the Brookings Institution will discuss in this episode: does the president have the power to start a war?

This podcast comes as part of Project Sphere, a collaboration between the Cato Institute and the Brookings Institution .