Every Insurance Pro’s Request to Santa

Everything Needed by the Insurance Claims Professional

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it for insurers and their claims staff to become insurance claims professionals.

“THE HOMEOWNERS INSURANCE POLICY”

HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book     Kindle Book

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

This series of books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today. Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law. A Comprehensive Review of insurance, insurance claims, the law of insurance policy interpretations, the practicalities of Property, Casualty and Liability Insurance Claims.

Zalma on Insurance Claims Volume 101 – Second Edition”

A Comprehensive Review of insurance, insurance claims, the law of insurance and policy interpretation Paperback

This volume covers

  1. WHAT IS INSURANCE?
  2. THE HISTORY OF INSURANCE,
  3. ACQUISITION OF THE POLICY,
  4. CLAIMS PERSONNEL,
  5. KINDS OF INSURANCE POLICIES,
  6. THE LIABILITY POLICY.

The author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.

Available as a paperback

Available as a Kindle Book

Zalma on Insurance Claims Part 102 – Second Edition”

This the second edition of the second volume in the latest addition to Barry Zalma’s insurance claims series of books and articles is part of the most thorough, up-to-date, expert-authored insurance claims guide available today. Zalma on Insurance Claims, part 102 provides in-depth explanations, analysis, examples, and detailed discussion of: •  Other Insurance Clauses; •   Trigger of Coverage; •    Underwriting; •    Conditions, Warranties and Exclusions

The author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.

Available as a Kindle book

Available as a paperback 

“Zalma on Insurance Claims Part 103 Second Edition”

A Comprehensive Review of the law and Practicalities of Property, Casualty and Liability Insurance Claims. Insured, Insurer, adjusting.

The Implied Covenant of Good Faith and Fair Dealing

The principle on which insurance has existed for the last three to four centuries is that insurance business is conducted with the utmost good faith (uberrima fides). The principle, called a covenant of good faith and fair dealing, must be followed religiously by both the insurer and the insured. This means, simply, that both parties to the insurance contract must treat each other in such a way that neither will deprive the other of the benefits of the contract.

This, the third part of Zalma on Insurance Claims and includes materials concerning:
This is part 103 of Zalma on Insurance Claims and will deal with:

•The Covenant of Good Faith and Fair Dealing
•Duties of the Insured and the Insurer
•Declaring a Policy Void
•Processing a Claim
When read with Part 101 and Part 102, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Available as a Kindle Book

Available as a paperback

Zalma on Insurance Claims Part 104″

This, the fourth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation of First Party Property Claims
  2. Rescission
  3. The Mortgage Clause
  4. Fortuity & Other Issues
  5. Determine the Amount of the Loss
  6. The Claim File

When read with Part 101, Part 102, and Part 103, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Available as a Kindle Book

Available as a paperback

Zalma on Insurance Claims Part 105″

This, the fifth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation – Liability
  2. Claims Made and Reported Policies
  3. The Notice Prejudice Rule.
  4. Types of Torts
  5. The Liability Claims File
  6. Discovery of the Insurance Claims File
  7. Tests for Determining Duty to Defend
  8. Appendices – forms for the claims person

When read with Insurance 101, Insurance 102, Insurance 103 and 104, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Available as a Kindle Book

Available as a paperback

“Zalma on Insurance Claims Part 106 Second Edition”

A Comprehensive Review of the law and Practicalities of Property, Casualty and Liability Insurance Claims Paperback 

This latest addition to Barry Zalma’s insurance claims series of books and articles is part of the most thorough, up-to-date, expert-authored insurance claims guide available today. Written by nationally-renowned insurance coverage expert Barry Zalma, an insurance coverage attorney, consultant, expert witness and blogger.

Thorough, yet practical, this book is the ideal guide for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from this multiple volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law.

The author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.

This is the sixth part of “Zalma on Insurance Claims” and will deal with:

  1. Property Insurance & the Tort of Bad FaithChapter
  2. Grounds for Finding Bad FaithChapter
  3. Avoiding Charges of Bad FaithChapter
  4. Punitive DamagesChapter
  5. Bad Faith & Liability Insurance.
  6. Defenses to the Tort of Bad Faith

The appendices also include full text of important insurance law cases and statutes

Available as a Kindle book

Available as a paperback 

Zalma on Insurance Claims Part 107 – Second Edition”

This is the seventh part of “Zalma on Insurance Claims” and will deal with:

1.Evaluation and Settlement – Property
2.Evaluation and Settlement – Liability
3.Subrogation
4.Salvage

When read with Part 101, Part 102, Part 103, Part 104, Part 105 and Part 106 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Available as a Kindle book

Available as a paperback 

Zalma on Insurance Claims Part 108 -Second Edition”

This, the eighth part of Zalma on Insurance Claims, includes materials concerning:

1.Preparing a case for trial
2.Interviewing Techniques
3.The art of the Interview
4.Interview General Principles
5.The Interviewer
6.Preparing for the Interview
7.Beginning the Interview
8.Control Of The Interview
9.Dealing with Witness Types
10.Approaches the Work
11.Dealing with the Nervous Person
12.Bluffs
13.The Mutability Of Memory
14.The Examination Under Oath

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106 and Part 107 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Available as a Kindle book

Available as a paperback

“Zalma on Insurance Claims Part 109 Second Edition”

This, the ninth part of Zalma on Insurance Claims, includes materials concerning:

•Identifying Insurance Fraud
•Professional Conspiracies
•Multiple Types of Insurance Fraud
•How to Join the Fraud Fight
•Case Studies of Successful Fraud Investigations
•Checklist 1 – Types of Insurance Fraud
•Checklist 2 – Training Adjusters
•Checklist 3 – Red Flags of Fraud – Property Insurance
•Checklist 4 – Red Flags of Fraud – Liability Insurance
•Appendix A – Commonly Used Medical Acronyms and Abbreviations
•Appendix B – Glossary of Medical Terms

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107 and Part 108 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Available as a Kindle book

Available as a paperback

Zalma on Insurance Claims Part 110 Second Edition”

This, the tenth part of Zalma on Insurance Claims, includes materials concerning:

•Responses to Fraud
•Grounds for Rescission.
•The Fight Against Fraud
•Checklist 1—Responses to Fraud
•Checklist 2 – The Fight Against Fraud

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107, Part 108 and Part 109 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Available as a Kindle book

Available as a paperback

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Insurers Have the Right to Restitution from Criminal Who Caused it to Pay a Claim

A Truly Effective Means to Subrogate

After a jury trial, the defendant was convicted of four counts of malicious destruction of property. After conviction, the Commonwealth sought restitution, and an evidentiary hearing was held before the trial judge. At the conclusion of the hearing, the judge made oral and written findings, and ordered the defendant to pay restitution to both the named victim of the offenses, Mueller Corporation, and the victim’s insurer, Chubb Group of Insurance Companies (Chubb) who was not wise enough to seek it.

In Commonwealth v. Mark Svizzero, 18-P-261, Commonwealth of Massachusetts Appeals Court (December 3, 2019) the criminal defendant sought to set aside orders of restitution to an Insurer, Chubb, who had paid to reimburse its insured Mueller Corporation for the vandalism damage caused by the defendant.

ANALYSIS

Failure to Present a Live Witness from Chubb

The defendant first claims that it was error for the judge to order that restitution be paid to Chubb where no representative from Chubb appeared to testify at the restitution hearing.

Ordering restitution rests within the sound discretion of the judge. The standard of proof for a restitution order is only that of a preponderance of the evidence.

The purpose of restitution is to compensate the injured party for losses incurred as a result of the defendant’s criminal conduct. Criminal restitution is treated with an expansive approach, and is designed to afford restitution to victims of crime to the greatest extent possible.

Contrary to the defendant’s argument, the failure to present live testimony from a potential recipient of restitution does not itself preclude an award of restitution after a hearing. In this case the Commonwealth presented ample evidence of Chubb’s losses through the live testimony of a representative of Mueller Corporation, and the written averments of both the Mueller Corporation and Chubb itself.

The Commonwealth also presented evidence through testimony and exhibits that the losses at issue were causally connected to the defendant’s vandalism. Importantly, a judge also may rely on evidence presented at trial in assessing restitution.

The defendant’s focus on the absence of evidence of Chubb’s internal process, and whether Chubb credited various claims made by Mueller Corporation, was misplaced. The purpose of restitution is not only to compensate the victim for his or her economic loss tied to the defendant’s conduct, but also to make the defendant pay for the damage he or she caused as a punitive and rehabilitative sanction.

The defendant may not challenge the apportionment of the losses found by the judge as between Mueller Corporation and Chubb, as he lacks standing to complain against the judge’s choice of Chubb as a beneficiary of restitution.

Hearsay

The defendant challenges the admission of various hearsay statements in evidence at the restitution hearing. These include a letter from Chubb to the East Bridgewater Police Department requesting restitution, Glen Mueller’s testimony about Chubb’s payment to Mueller Corporation, and a spreadsheet prepared by Mueller Corporation detailing its losses. The judge, therefore, did not abuse her discretion in admitting the challenged evidence.

A restitution hearing is not part of a criminal prosecution to which the full panoply of constitutional protections applicable at a criminal trial need be provided, but principles of due process govern. Reliable hearsay is admissible in restitution hearings. The evidence and procedures satisfied the due process standards for restitution hearings, where Glen Mueller testified regarding Mueller Corporation’s losses, ample documentary support was admitted without challenge from the defendant, and the defendant was provided an opportunity to cross-examine Glen Mueller and submit his own evidence.

Restitution for Losses Predating the Offense Dates

In ordering restitution, a judge is not confined to consideration of the four corners of the criminal complaint, but rather must instead make a holistic assessment of the facts surrounding the crime, not merely those facts establishing the elements of the crime.

The underlying facts of the charged offense, not the name of the crime of which the defendant was convicted or to which he pleaded guilty, controls. The Commonwealth presented evidence that the challenged costs were incurred relative to vandalism that took place in the days immediately subsequent to the defendant’s termination from Mueller Corporation, close in time to the charged offenses, and which involved an air chiller, as did the charged offenses.

The judge did not abuse her discretion in determining that the early incidents were sufficiently related to the charged incidents so as to establish causality sufficient to order restitution.

ZALMA OPINION

Insurers often ignore the right to restitution from a criminal causing damages to the property of the insured that resulted in a paid claim. Rather, their subrogation department will sue the criminal, with little chance of recovering money quickly, or at all. However, if the defendant is convicted, granted probation with restitution as a condition of probation, will be paid immediately to avoid jail time. Insurers should work with the prosecutor to obtain total and immediate restitution of the amounts paid and not rely on the wisdom of the trial judge.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

 

 

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Christmas & Chanukkah Gifts for Insurance Claims Pros

Everything Needed by the Insurance Claims Professional

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it for insurers and their claims staff to become insurance claims professionals.

New Books from Full Court Press

Full Court Press continues to publish expert secondary content. This time it’s a new collection of insurance law treatises from consultant, expert witness, arbitrator, and mediator Barry Zalma.

Barry Zalma practiced law in California for more than 44 years as an insurance coverage and claims-handling lawyer, and has spent more than 51 years in the insurance business. Full Court Press welcomes his deskbooks as the first published under our Full Court Press imprint. Four titles are available in ePub and MOBI format, as well as on the Fastcase legal research platform.

“Zalma on Property and Casualty Insurance”

The earnings of almost every civil lawyer in the United States are funded by the insurance industry. Insurance can best be described as the mother’s milk of the law profession. The civil defense lawyer is paid by an insurer for each hour he or she works. The civil plaintiffs’ lawyer is usually paid by taking a percentage of any judgment entered in favor of the plaintiff, which judgment is usually paid by the defendant’s insurer.

In almost every situation in which a civil lawyer practices law the funds for that work come, either directly or indirectly, from insurance. Consequently, lawyers must use their wits and energies to avoid or to pursue litigation to the benefit of the client. Both sides understand that an insurer will eventually pay one or both sides in the dispute. Insurance is important to every civil dispute and even some that fall within the criminal courts.

Every lawyer retained to prosecute or defend a civil suit should begin the representation with a serious effort to find insurance coverage for the benefit of the client or the defendant the client is suing. Without that knowledge, the lawyer will find he or she is litigating with duct tape firmly self-placed across his or her mouth.

“Insurance Law DeskbookZalma

Learn the insurance basics that are essential to every civil practitioner.

“California Insurance Law Deskbook”

California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Cal LawZalma.

“Insurance Bad Faith and Punitive Damages Deskbook”

Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers.

An annual subscription to secondary content on the Fastcase BadFaithplatform includes new editions and updates published by the author as they are rolled out, so you can rest assured that your research is up to date. Go to fastcase.com for more detail and how to use the material on-line as part of your legal or insurance research or as stand-alone e-books.

All available at fastcase.com.

Books from the American Bar Association

“The Commercial Property Insurance Policy Deskbook”

How to Acquire a Commercial Property Policy and Present and Collect a First-Party Property Insurance Claim

By Barry Zalma

The Commercial Property Insurance Policy Deskbook is a comprehensive resource on acquiring a commercial property policy and presenting and collecting first-party property insurance claims. The book looks at the fundamentals of insurance and a wealth of topics including rules of construction of a policy of commercial property insurance, the commercial first party property insurance policy, different types of property losses, conditions and limitations,specific and blanket coverages, mortgage clauses, the need for a prompt notice of claim, the commercial property claim, adjusting the commercial property loss, the sworn statement in proof of loss, the adjustment of the commercial property loss, subrogation and salvage, and common law bad faith.

Also included are five appendixes of forms, letters, and other documents.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

“The Insurance Fraud Deskbook”

Author: Barry Zalma

Sponsor(s):  Tort Trial and Insurance Practice Section, Publisher(s):   ABA Book Publishing

ISBN: 978-1-62722-676-9
Product Code: 5190506
2014, 638 pages, 7 x 10

Product DetailsThis book is written for individuals who are focused on the effort to reduce expensive and pervasive occurrences of insurance fraud. Lawyers who represent insurers, claims personnel, prosecutors and their investigators can all benefit from this exhaustive resource.

The Insurance Fraud Deskbook is a valuable resource for those who are engaged in the effort to reduce expensive and pervasive occurrences of insurance fraud. It explains the elements of the crime and the tort to claims personnel, and it provides information for lawyers who represent insurers, so they can adequately advise their clients. Prosecutors and their investigators can use this book to determine what is required to prove the crime and win their case.

The full text of decisions from courts of appeal and supreme courts across the country are provided so the reader can understand what happens after the investigation is completed and can apply that information to undertake their own thorough investigations. It allows claims personnel and their lawyers to understand what errors would cause a defeat or a not-guilty verdict.

The effort to reduce insurance fraud requires the assistance of both civil and criminal courts. The Insurance Fraud Deskbook can help the prudent fraud investigator, insurance adjuster, insurance attorney, insurance Special Investigation Unit, and insurance company management to attain the information needed to deal with state investigators and prosecutors.

Available from the American Bar Association at: http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or  orders@americanbar.org, or 800-285-2221.

“Diminution in Value Damages”

How to Determine the Proper Measure of Damage to Real and Personal Property

ISBN: 978-1-63425-295-8
Product Code: 5190524
2015, 235 pages, 7 x 10, Paperback

This book was written to provide sufficient information to those who became interested in the issue since the Georgia Supreme Court decided State Farm Mutual Automobile Insurance Co. v. Mabry, 274 Ga. 498, 556 S.E.2d 114 (Ga. 11/28/2001) and includes cases dealing with the use of diminution in value as a method of determining the amount of loss incurred by a plaintiff seeking indemnity for damage to real or personal property.

Because confusion has reigned across the United States concerning the proper measure of damages for property damage to property that has been repaired, Diminution In Value Damages assists the reader in answering the questions concerning the proper measure of damage in each of the fifty United States and federal United States jurisdictions

This edition has been totally rewritten and expanded, providing the most extensive and detailed coverage of the issue and a thorough explanation of how to apply diminution in value damages to losses to property.


Co-Author(s):Property Investigation Checklists: Uncovering Insurance Fraud, 12th Michael H Boyer  &  Barry Zalma

Property Investigation Checklists: Uncovering Insurance Fraud provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims:
• Recognizing suspicious claims
• Proper investigation procedures
• Analysis of laws concerning fraudulent personal and real property claims
• Evaluating and settling claims.
The book also examines recent developments in areas such as arson investigation procedures, bad faith, and extracontractual damages. The appendix includes the NAIC Insurance Information and Privacy Protection Model Act.

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RTFP – Read the Full Policy

Failure to Read the Full Policy Costs an HOA over $200,000

Pleasure Creek Townhomes Homeowner’s Association (the Association) appealed the district court’s grant of summary judgment to respondent American Family Insurance Company. The Association, the insured, argued that the district court erred by deciding that its all-risk businessowners policy does not cover the cost to replace undamaged, faded siding to match siding replaced due to hail damage. The Association argued that (1) the policy’s matching exclusion is void as a matter of law because it violates the minimum coverage required by the Minnesota Standard Fire Insurance Policy; (2) the matching exclusion does not apply to the facts of this case; (3) in the alternative, the matching exclusion is ambiguous and unenforceable; and (4) American Family’s construction of its policy violates the reasonable expectations of the policyholder.

In Pleasure Creek Townhomes Homeowners’ Association v. American Family Insurance Company, A19-0662, State of Minnesota in Court of Appeals (November 25, 2019) an exclusion added to the end of a policy defeated a claim for a full amount of the loss incurred by the Association, that was resolved by a summary judgment ruled by the trial court.

It is important, when presenting a claim, to make sure that the policy provides coverage for the claim being made. When presenting a claim it is important to carefully read and understand endorsements since they modify the standard language of the base policy.

FACTS

The Association purchased an insurance policy (the Policy) from American Family in October 2016. The Policy was an all-risk “Businessowners Policy” and covered the Association’s 14 townhome buildings. In June 2017, a hail storm damaged siding on all 14 of the covered buildings. The Association filed a claim for the loss under the Policy.

The parties disagreed about aspects of the price and scope of the repairs, which led to an appraisal. The appraisal panel issued findings including that the material available to replace the damaged siding did not “reasonably match” the existing, undamaged siding on the townhome buildings, as the existing vinyl siding had faded in a way that made it difficult to match. The panel included the cost to replace the undamaged, faded siding in its appraisal award.

American Family refused to pay this component—which was appraised at about $211,382—of the award, but complied in all other respects. American Family withheld this payment based on its view that the Policy explicitly excluded coverage for the replacement of undamaged, mismatched siding under what the parties refer to as the Policy’s “matching exclusion.”

The matching exclusion is included as an endorsement that modifies the Policy. The relevant portion conditions as follows: “We will not pay to repair or replace undamaged material due to mismatch between undamaged material and new material used to repair or replace damaged material. We do not cover the loss in value to any property due to mismatch between undamaged material and new material used to repair or replace damaged material.”

APPELLATE DECISION

The Minnesota Standard Fire Insurance Policy, Does not Apply 

The Association argued that coverage is required by the statute establishing and applying the Minnesota Standard Fire Insurance Policy. While an all-risk policy such as the one acquired by the Association fell within the purview of the Standard Policy, the Standard Policy applies only to losses due to fire and not to casualty losses. In sum, under the plain language of the statute and governing Minnesota case law, the Standard Fire Insurance Policy does not apply to the Association’s loss.

The Matching Exclusion Applies to the Facts of this Case

The Association also argued that the “damaged material” here is all of the siding, not just the siding struck by hail. By this reading, the matching exclusion only excludes coverage for matching between one type of damaged material with another type of undamaged material. The Association argued its claim involved only siding and all of the siding is damaged under the Association’s theory and, therefore, the exclusion should not apply.

The district court held that the exclusion’s language was unambiguous. Its interpretation of the exclusion for “undamaged material” was, according to the court of appeal, was appropriate and the natural interpretation of the exclusion.  The language of the matching exclusion is unambiguous. Under its ordinary meaning, the exclusion applies.

The Matching Exclusion Is Unambiguous and Enforceable

The courts’ objective in interpreting the terms of an insurance policy is to give effect to the intent of the parties. Where the language of an insurance policy is clear and unambiguous, courts effectuate the intent of the parties by interpreting the policy according to plain, ordinary sense. Insurance policies should not be construed in way that leads to an absurd result.

The natural reading of payment for “damage to buildings” is payment for the actual damage, which typically occurs only to parts of a building. The Association essentially argued for an interpretation that voids the matching exclusion. Courts will not adopt a construction of an insurance policy which entirely neutralizes one provision if the contract is susceptible of another construction which gives effect to all its provisions and is consistent with the general intent.

The Policy’s Endorsements and Exclusions Are Not Irreconcilable

The Association contends that the matching exclusion, labeled an “Exclusion Endorsement,” confusingly purports to modify the “Property Loss Conditions” section of the base Policy rather than the “Exclusions” section. The matching exclusion is included as an endorsement to the “Property Loss Conditions” section of the Policy, which includes the “comparable material and quality” language.

The matching exclusion may indeed, as the Association suggested, fit more neatly in the “Exclusions” section, but that fact does not create an ambiguity about its meaning. The effect of the endorsement on the coverage provided remains clear.

American Family’s Construction of the Policy Does Not Violate the Reasonable Expectations of the Policyholder

The doctrine of reasonable expectations can operate to protect the reasonable expectations of the policyholder even where a painstaking study of the policy provisions would have negated those expectations. The Association does not explain how the matching exclusion here was “hidden,” except to say that “the placement of this major exclusion in the ‘Property Loss Conditions’ section, rather than in ‘Exclusions’ where it belongs is obviously misleading.”

The reasonable expectations doctrine, though, does not absolve the policy holder of their duty to read the policy. The Association has not shown that this is one of the “extreme situations” that warrants correction of the policy.

ZALMA OPINION

The Court of Appeal did, what the Association did not, it read the full policy. The exclusion added by endorsement limited coverage to property damaged and specifically, clearly and unambiguously excluded coverage for non-damaged property that simply did not match the replaced damaged property. Had the Association read the full policy – with a warning to read it because it limited coverage, made in all capital letters and bold print – they could have asked to have the endorsement removed and pay the additional premium. Post loss “reasonable expectations” were, and should be, unconvincing.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

 

 

Posted in Zalma on Insurance | Leave a comment

Malicious Prosecution Only Happens When a Person Is Maliciously Prosecuted

Doctored Evidence Resulting in 80 Year Sentence Results in Malicious Prosecution Conviction of City

Police are usually seriously concerned, fair, detailed and reasonable when they arrest someone for the crime of murder. However, police are not perfect. Some do terrible and wrongful acts. For that reason cities, like the City of Chicago Heights, buy insurance to protect against claims of malicious prosecution.

In Rodell Sanders et al. v. Illinois Union Insurance Company et al., Docket No. 124565, 2019 IL 124565, Supreme Court of the State of Illinois (November 21, 2019) the Supreme Court of the State of Illinois, was called upon to determine when the offense of malicious prosecution occurred and, therefore, which insurers were required to defend and indemnify the city.

FACTS

In 1994, based on doctored evidence from the City of Chicago Heights Police Department, Rodell Sanders was charged with murder, attempted murder, and armed robbery. Sanders was wrongfully convicted and imprisoned for approximately 20 years before being exonerated in 2014. From November 2011 to November 2014, Chicago Heights obtained primary liability insurance from Illinois Union Insurance Company (Illinois Union) and excess liability insurance from Starr Indemnity & Liability Company (Starr). The primary insurance policy indemnified Chicago Heights for, among other things, damages arising out of the “offense” of “malicious prosecution.” At issue is whether the offense of malicious prosecution occurred during the policy period, thereby triggering the insurers’ obligation to provide coverage.

THE CRIME INVESTIGATION & CONVICTION

The survivor of a murderous attack later provided Chicago Heights police officers with a description of two of the assailants. Officers arrested Sanders in January 1994. Sanders did not match either physical description provided by the surviving victim, and he had an alibi that was confirmed by alibi witnesses. Nonetheless, the Supreme Court concluded that the officers manipulated the evidence to ensure his conviction.

THE CONVICTION IS OVERTURNED

Sanders filed a post-conviction petition, and in January 2011 the Cook County circuit court overturned the conviction and vacated his sentence. The appellate court affirmed its judgment in May 2012. Meanwhile, at some point in 2012, Chicago Heights provided Illinois Union and Starr with a notice of claim based on their policies from November 1, 2011, through November 1, 2014.

The prosecution retried Sanders twice, one resulting in a mistrial and a second time where the jury acquitted him.

THE CLAIM IS DENIED

Illinois Union responded to Chicago Heights’ notice of claim in December 2014. At that time, it notified the city that it was declining to provide coverage because no covered events occurred during the policy periods. One year later, Starr similarly sent a declination, claiming that the malicious prosecution did not fall within the policy periods.

The Policy

The “general liability coverage part” of the insurance policy provides: “The Insurer will indemnify the Insured for Damages and Claim Expenses in excess of the Retained Limit for which the Insured becomes legally obligated to pay because of a Claim first arising out of an Occurrence happening during the Policy Period in the Coverage Territory for Bodily Injury, Personal Injury, Advertising Injury, or Property Damage taking place during the Policy Period.”

“Personal injury” was defined as “one or more of the following offenses *** [f]alse arrest, false imprisonment, wrongful detention or malicious prosecution *** wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of the owner, landlord or lessor.” The policy provided that “[a]ll damages arising out of substantially the same Personal Injury regardless of frequency, repetition, the number or kind of offenses, or number of claimants, will be considered as arising out of one Occurrence.”

Circuit Court Proceedings

In February 2016, Chicago Heights filed a complaint for declaratory judgment against Illinois Union and Starr. The city sought a declaration that it was entitled to coverage under the insurance policy, thereby requiring the insurers to indemnify it for attorney fees and costs that were paid in excess of the retained limit.

A consent judgment was entered in Sanders’s favor in the federal civil rights action for $15 million. Chicago Heights agreed to contribute $2 million, and United National Insurance Company (Chicago Heights’ insurer from 1994) agreed to contribute $3 million toward the judgment. Additionally, Chicago Heights assigned its rights against Illinois Union and Starr to Sanders in exchange for his agreement not to seek the remaining $10 million from the city.

The insurers filed an amended motion to dismiss the complaint with prejudice. Illinois Union and Starr noted that Sanders “was maliciously prosecuted in 1994 resulting in his conviction and incarceration for a crime he did not commit.” In their view, his injury predated the effective dates of their policies. Illinois Union and Starr therefore argued that they were neither required to provide coverage for Chicago Heights nor obligated to contribute to its settlement with Sanders.

The circuit court granted the insurers’ amended motion to dismiss.  The court acknowledged that, to prevail on a tort claim of malicious prosecution, a plaintiff must establish, among other things, that the prior proceeding terminated in his favor. But it also noted that the vast majority of courts to consider the issue have ruled that the filing of the underlying malicious suit was the occurrence causing personal injury under an insurance policy.

The Appellate Court’s Decision

On appeal, a split panel reversed. The majority ruled that the plain and ordinary meaning of the term offense, as used in relation to the phrase malicious prosecution, referred to the completed cause of action.

ANALYSIS FROM SUPREME COURT

The question before the Supreme Court was whether the offense of malicious prosecution occurred during the policy period, such that Illinois Union and Starr were required to provide coverage to Chicago Heights.

When the terms of a policy are clear and unambiguous, the court must ascribe to them their plain and ordinary meaning. The policy in this case provides that the offense of malicious prosecution, must have happened during the policy period, and take place during the policy period. The Supreme Court concluded that the most straightforward reading of the term “offense” indicates that coverage depends upon whether the insured’s offensive conduct was committed during the policy period.

The Supreme Court reversed concluding that the word offense in the insurance policy refers to the wrongful conduct underlying the malicious prosecution. In so ruling both the meaning of the word “offense” and the contractual requirement that the offense must both happen and take place during the policy period.

“A malicious prosecution neither happens nor takes place upon exoneration.” (emphasis added)  The gist of the action for malicious prosecution is that the prosecutor acted without probable cause. Further, courts have found that the personal injury of malicious prosecution in the context of an insurance policy differs from the common-law elements of the tort of malicious prosecution. In the context of insurance, malicious prosecution occurs upon the institution of the underlying action.

A typical occurrence-based policy, containing multiple references to coverage for occurrences or offenses happening during the term of the policy, reflects the intent to insure only for the insured’s acts or omissions that happen during a policy period. If the court was to deem exoneration the trigger for coverage of a malicious prosecution insurance claim, liability could be shifted to a policy period in which none of the acts or omissions giving rise to the claim occurred. That would violate the intent of the parties to an occurrence-based policy.

Chicago Heights officers’ fabrication of evidence to support unfounded charges against Sanders was the single cause of all three trials and, thus, the single relevant occurrence under the policy.

Therefore, the Supreme Court concluded, insurance coverage for the underlying malicious prosecution claim was triggered when Sanders was maliciously prosecuted in 1994. Because the triggering event occurred more than a decade before Illinois Union and Starr issued their policies to Chicago Heights, the insurers were not required to indemnify the city for damages under the policies.

ZALMA OPINION

The City was wise enough to buy insurance against the offense of malicious prosecution. It bought an occurrence policy that responded with $3 million because it was in effect when Sanders was prosecuted. The City – and Sanders as its assignee – attempted to get coverage from a policy that was issued ten years after his prosecution because he was compelled to undergo two more attempts to convict him after he was exonerated and because his damages exceeded the available limits. It didn’t work because of the clear and unambiguous language of the occurrence policy that required the offense happen during the policy period. In hindsight, Sanders should have gone to trial, obtain a judgment and  execute against the available insurance and the assets of the City to get the full amount of the judgment if the jury awarded more than the available insurance.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

 

 

Posted in Zalma on Insurance | Leave a comment

Insurer Effectively Sues Doctors for Fraud

GEICO Seeks to Take the Profit Out of Insurance Fraud

A PROACTIVE ATTEMPT TO DETER AND DEFEAT INSURANCE FRAUD

Although almost every state and the federal government makes it a crime to attempt to defraud an insurance company the crimes are seldom prosecuted and the insurer victims of the crime are seldom reimbursed for their losses. Insurers, using qui tam (whistleblower) statutes allow insurers to take the profit out of the crime.

In Government Employees Insurance Co., GEICO Indemnity Co., GEICO General Insurance Company and GEICO Casualty Co. v. Ningning he, M.D., Advanced Pain Care, L.L.C., Sascha Qian, M.D., Rajivan Maniam, M.D., Young M. Ahn, L.ac., Apex Anesthesia Associates, L.C.C., John Li, M.D., Anthony Surace, M.D., ANI Kalfayan, M.D., Samuel Caruthers, M.d., Timothy Finley, M.D., Sanjay Tewari, M.D., and Louis Quartararo, M.D., Civ. No. 2:19-cv-09465-KM-JBC, United States District Court for the District of New Jersey (October 29, 2019) plaintiffs GEICO, automotive insurers, alleged that the physician defendants submitted or caused to be submitted hundreds of fraudulent claims for reimbursement of medical expenses. GEICO sued to recover $5,298,000.00 that it paid to defendants. GEICO asserts eleven counts, including violations of the New Jersey Insurance Fraud Prevention Act. Defendants moved to dismiss the complaint.

BACKGROUND

The movants, are all anesthesiologists licensed to practice medicine in New Jersey. They are alleged to have performed the relevant medical services while working at co-defendant Apex Anesthesia Associates, L.C.C. (“Apex”).

Under New Jersey law, automobile insurance policies provide benefits for personal injuries sustained in an accident involving the covered automobile, regardless of whether the driver was at fault for the accident. This coverage is called “personal injury protection,” or “PIP.” When Insureds receive treatment, they can assign their right to PIP benefits to their medical providers, who can then seek direct reimbursement from the insurance companies. Defendants are such medical providers, i.e., assignees of their patients’ PIP benefits.

GEICO alleges that defendant Doctors Li, Surace, and Finley submitted, and caused to be submitted, hundreds of fraudulent no-fault insurance charges for services that were unjustified, medically unnecessary, and designed only to enrich defendants. These services were claimed to have been provided to Insureds involved in automobile accidents who were eligible for coverage under no-fault insurance policies issued by GEICO.

GEICO alleges that its payments to defendants were fraudulently obtained for several reasons. Defendants allegedly billed for medically unnecessary treatments, or for treatments that did not occur at all. Treatments were allegedly provided to Insureds who had only minor accidents. In those cases, defendants followed predetermined protocols that invented diagnoses and billed for medically unnecessary treatments. In many cases the billing codes for services misrepresented and exaggerated the level of service provided.

DISCUSSION

Defendants argue that (A) GEICO’s fraud claims fail for lack of specificity pursuant to Rule 9(b); (B) GEICO failed to adequately plead a RICO claim; (C) GEICO failed to plead its unjust enrichment claims. Surace separately asserts that (D) GEICO did not properly serve him with the summons and complaint.

Common Law Fraud

GEICO alleges two main theories of common law fraud. First, GEICO alleges that defendants submitted false claims—i.e., billed for services that were not medically necessary, or that were not actually provided at all. Second, GEICO claims that defendants artificially inflated their bills by “unbundling” their billing, i.e., separately billing the subparts of a single procedure, in violation of New Jersey law and regulations. Under either of these theories, GEICO has adequately pled the five elements of common law fraud.

New Jersey Insurance Fraud Prevention Act

In Count 2, GEICO asserts a claim pursuant to the NJIFPA to recover PIP benefits paid to defendants. Count 2 alleges that defendants obtained the benefits through the fraudulent submission of false and misleading claim forms and treatment reports. Defendants move to dismiss, asserting that GEICO failed to plead with particularity any fraudulent claims for anesthesia and has not alleged that defendants were responsible for medical coding and/or billing.

A person or practitioner violates the NJIFPA if he or she: “(1) Presents or causes to be presented any written or oral statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy or the ‘Unsatisfied Claim and Judgment Fund Law,’ knowing that the statement contains any false or misleading information concerning any fact or thing material to the claim;…”

The NJIFPA states that an insurance company can bring a private right of action “in any court of competent jurisdiction” to seek compensation for such fraud, including recovery of attorneys’ fees. GEICO’s allegations of false claims and impermissibly unbundled claims are actionable under the NJIFPA. The NJIFPA sweeps more broadly than common law fraud; it prohibits the submission of insurance reimbursement claims when a party knows that the claim contains false or misleading information concerning any fact or thing material to the claim, and prohibits concealment or knowing failure to disclose an event that affects the eligibility for reimbursement or the amount of the reimbursement.

Unlike common law fraud, proof of fraud under the IFPA does not require proof of reliance on the false statement or resultant damages, nor proof of intent to deceive.

The court concluded, therefore, that GEICO’s complaint sufficiently alleges that defendants provided medically unnecessary treatment and that defendants routinely submitted claims for reimbursement that unbundled the injection of the anesthetics necessary for the anesthesia services allegedly provided.

Federal RICO

With respect to the pattern of racketeering activity, the statute “requires at least two acts of racketeering activity within a ten-year period,” which may include federal mail fraud under 18 U.S.C. § 1341. In addition, the plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation.

Defendants argue that GEICO failed to state a claim for RICO violations and that the RICO allegations are not sufficiently particularized. The attachment to the complaint, in particular, lists the specific PIP claims that allegedly constitute mail fraud, the predicate act alleged under RICO. And the frauds are alleged to have been both interrelated and continuous since at least 2014.

These allegations put defendants sufficiently on notice of the activities with which they are accused. Therefore, defendants’ motions to dismiss Counts 4 and 9, GEICO’s federal RICO claims, are denied.

Unjust enrichment

Defendants move to dismiss GEICO’s claims for unjust enrichment. Defendants argue that GEICO’s claims for unjust enrichment fail because GEICO has not identified whether it was paid for each claim referenced in the complaint and has failed to establish that defendants directly benefitted from the alleged scheme.

Regardless, the court concluded that GEICO’s unjust enrichment claims were sufficiently alleged at this stage. The complaint asserts that (1) GEICO paid approximately $5 million in fraudulent claims; (2) that were submitted by defendants; and (3) that the claims were paid to the defendants for services that were duplicative, medically unnecessary, or not performed at all.

ZALMA OPINION

In this case GEICO survived the first attempt to defeat their claims by adequately pleading the fraud the insurer claimed the doctors perpetrated to its detriment. As the suit proceeds to trial expect to prove that the actions of the doctors were fraudulent and obtain from them a judgment for the sums it paid for fraudulent claims. Under RICO, if proved, it can obtain a judgment for three times the amount paid or about $15 to $16 million. If successful the action will work to deter other physicians from attempting to defraud insurers.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

 

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Zalma’s Insurance Fraud Letter – December 1, 2019

  Zalma’s Insurance Fraud Letter, Volume 23, No. 23

 Some of the articles you can read in this issue of ZIFL follow: 

Guilty of Insurance Fraud for Submitting Altered Medical Report

 

Small Fraud is as Much a Crime as a Large Fraud

Insurance fraud convictions are rare. When a person is arrested, tried, convicted and sentenced for the crime of insurance fraud the perpetrator is – rightfully – surprised and immediately appeals the judgment even when there is no legal ground for the appeal.  In Commonwealth of Pennsylvania v. Alvianette A. Kennedy, J-S42030-19, No. 3612 EDA 2018, Superior Court of Pennsylvania (October 15, 2019) Alvianette A. Kennedy appealed from the judgment of sentence imposed following her conviction of insurance fraud and securing execution of documents by deception.

The Pennsylvania court refused to accept the defendant’s arguments because the evidence clearly established that the insurer was deceived by the presentation of a falsified doctor’s report. The fact that less than $6,000 was involved, the crime of insurance fraud was attempted and accomplished. Recognizing that no defendant will – responding to the fictional Perry Mason – confess to intent to deceive. The evidence was sufficient to allow the jury to conclude that Kennedy intentionally acted to deceive the insurer, took money she knew she was not entitled to receive, and was appropriately convicted of the crimes with which she was charged.

 Fraud in The Presentation of a Claim

 

Insurance fraud in the presentation ofa claim, by definition, voids insurance. In 1884 the U.S. Supreme Court considered the issue and decided that a fraud in the presentation of a claim, even if it was not intended to deceive the insurer and would have had little effect on the indemnity paid, still caused the policy to be void and the claim to be denied. As you read the opinion consider:

1.    Was the insurer lied to by a representative of the insured?
2.    Was the lie material to the claims investigation?
3.    Was the lie made with the intention to deceive?
4.    Was the insurer deceived?
5.    Why was the lie made?
6.    Would a lie that had no effect on a determination of the extent of the loss have any effect on the rights of the insurer?
7.    Would the intent of the liar to deceive someone other than the insurer allow for coverage?

A Lie to an Insurer is Fraud
 
False Statements at Examination Under Oath Defeats Claim

 

From the earliest days of insurance in the United States first party property insurance policies required that the insured appear for and testify at an examination under oath (EUO) before a person appointed by the insurer. A false statement at EUO will, by the terms of the policy, void coverage and deprive the insured of the ability to recover the benefits promised by the policy. Although the case described below is hoary with age, it is still the law of the United States andis relied upon, when dealing with false swearing at EUO by courts of the various states.

In Claflin and others v. Commonwealth Ins. Co. Of Boston, Massachusetts; Western Assurance Co. Of Toronto, Canada; Franklin Ins. Co. Of St. Louis, Missouri, 110 U.S. 81, 3 S.Ct. 507, 28 L.Ed. 76 (January 14, 1884) Mr. Claflin, as assignee of Mr. Murphy sued three insurers to recover the benefits promised by a fire insurance policy MATTHEWS, J., the author of the opinion of the Supreme Court, in 1884, established that the U.S. Supreme Court followed, and would enforce, the rule that with regard to a misrepresentation during an EUO would bar coverage and deprive the insured of the right to recover the benefits promised by the policy.

Storm Chaser Reforms Enacted in New York
 
New Law Provides Essential Consumer Protections Against Dishonest Home Contractors

Press Release: ALBANY, Nov. 23, 2019 – A new law gives homeowners much-needed

protections against storm-chasing contractors who exploit natural disasters in New York, says the Coalition Against Insurance Fraud.
Gov. Andrew Cuomo signed into law a bill today imposing key consumer protections in the Empire State:

*    Written contracts are required for repair work (roof, gutter, downspout and siding).
*    Contractors are forbidden to offer rebates or to pay policy deductibles.
*    Contractors must disclose their liability coverage and policy limits.

From the Coalition and NICB
New York’s Highest Court Upholds Anti-fraud Immunity Law Against Unwarranted Defamation Suits
Court precedent could protect fraud fighters against unwarranted actions around U.S.
 

ALBANY, N.Y., Nov. 21, 2019 – New York’s immunity law shields fraud fighters from defamation suits by medical providers who insurers report in good faith to the state medical board for suspected scams, New York’s highest court ruled this week in a major victory for fraud fighters.

The important precedent has national implications. The decision could help defend against similar defamation challenges to anti-fraud immunity laws in other states. In effect, the ruling could bolster protections of fraud fighters from unwarranted defamation suits around the U.S. when they report suspected scams in good faith.

New York’s highest court agreed with an amicus brief the Coalition and NICB jointly filed to defend the state’s immunity law.

Read the full article here.

Health Insurance Fraud Convictions
 
Head of New York Medical Clinics Found Guilty in Nearly $100 Million Money Health Care Scheme

Aleksandr Pikus, 44, of Brooklyn, was found guilty of one count of conspiracy to commit money laundering, two counts of money laundering, one count of conspiracy to receive and pay health care kickbacks and one count of conspiracy to defraud the United States by obstructing the IRS.  Sentencing has been set for April 8, 2020.

Pikus, the manager in control of multiple medical clinics in Brooklyn and Queens, New York, was found guilty November 15, 2019 for his role in a nearly $100 million health care kickback and money laundering scheme.

Other Insurance Fraud Convictions

Former San Francisco Sheriff’s Deputy Sentenced to 14 Months

April Myres, 55, of San Francisco, a former 20-year veteran of the Sheriff’s Department, was given the prison term by U.S. District Judge Richard Seeborg of San Francisco. Myres, a former San Francisco sheriff’s deputy was sentenced in federal court November 26, 2019 to one year and two months in prison for two charges of fraud in an insurance claim for a 2016 burglary at her home.

She was convicted by a jury in Seeborg’s court in June of wire and mail fraud for submitting an insurance claim for $67,000 for items stolen in a burglary on the night of March 24-25, 2016.

The jury acquitted her of a third charge of misprision of a felony in allegedly failing to tell authorities that a former jail inmate with whom she had had a romantic relationship, Antoine Fowler, had her Glock pistol.

 

Myres allowed Fowler to live with her for two months after his release from jail in January 2016 until the night of March 23-24, when the couple broke up after a fight, according to documents in the case. Myres contended that although she did not disclose her relationship to Fowler to police investigating the burglary, she did not know at the time that he was the burglar or that he had the gun. Fowler was arrested with the gun 10 months later.

 

Fowler pleaded guilty to one count of being an ex-felon in possession of a gun and is due to be sentenced by Seeborg on Jan. 7.

 

Prosecutors alleged that Myres’ insurance claim for $67,000 for 43 items was

fraudulent because it included claims for three items worth $3,185 that were found in her home and for $6,389 worth of items that had been issued to her by the Sheriff’s Department, including the gun.

Photos of some of the stolen items were found on Fowler’s cellphone. He was allegedly texting the photos to his sisters in an attempt to fence the items soon after the burglary, according to a defense sentencing memorandum. Myres contended she did not know Fowler was the burglar until the FBI showed her the photos and texts.

Prosecutors asked for a sentence of two years in prison, while defense attorneys, arguing that Myres was convicted only of a “small and unsuccessful insurance fraud,” asked for a sentence of probation with no prison time.

Myres is due to begin serving her sentence on Jan. 28.

The full newsletter with more health insurance and non-health insurance convictions is available and can be read here.

Consider a Christmas Gift Better than Chocolate Chip Cookies

How to Show Your Appreciation to Your Insurer Clients or Claims Employees?

Many insurers refuse to allow their employees to receive gifts from vendors. Many employers of claims people give a small bonus, a Turkey, or something that will be gone befo

re the new year.

If you wish to thank your insurance company clients for allowing you to represent their interest or if you wish to honor your claims personnel it is time to give them something that will be useful to them throughout the coming year and that will not offend insurer’s rules to avoid attempts to extort clients for business from insurer employees.

The Insurance Claims Library 

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it for insurers and their claims staff to become insurance claims professionals.

Consider the Insurance Claims Library where, for a small investment you can provide each claims office – rather than individual adjusters – a group of i

nsurance books that will help them throughout the year.

By providing clients, claims departments, or claims personnel with any one or more of the books offered by the Insurance Claims Library. By so doing you can add to the insurance claims professionalism of your clients, employees and claims personnel. With delivery handled by Amazon.com any one or more of the the following books, all available from amazon.com and http://zalma.com/blog/insurance-claims-library/, will gain the respect and gratitude from each recipient and their employers.

Read the full article here.

Zalma on Insurance

The Zalma on Insurance blog has posted over 2850 digests of insurance appellate decisions and other important insurance materials and articles published five days or more a week and are available at http://zalma.com/blog.
The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library

Read more at https://zalma.com/blog

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Insurance Claims Library – A Perfect Gift for Anyone Interested in Insurance

Needed by the Insurance Claims Professional

Fictionalized True Insurance Crime Books

Read about these books at https://zalma.com/blog.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it for insurers and their claims staff to become insurance claims professionals.

“HEADS I WIN, TAILS YOU LOSE”

Product DetailsA collection of columns originally published in the magazines “Insurance Journal,” “Insurance Week,” and “The John Cooke Insurance Fraud Report” insurance trade publications serving the insurance community in the United States that have been updated and revised.

The title, “Heads I Win, Tails You Lose” is meant to describe insurance fraud as it works in the Unites States. It means that whenever a person succeeds in perpetrating an insurance fraud everyone who buys insurance is the loser.

Available as a Kindle Book.

Available as a paperback.

“Candy and Abel: Murder for Insurance MoneyProduct Details

How a young lawyer and wise old investigator defeated an attempt at life insurance fraud.

Available as a Kindle Book.

Available as a paperback.

“Murder And Insurance Fraud Don’t Mix”

My name is Marion Orpheus Montague. My friends, and some enemies, call me “MOM.” It is not a designation of my ability to nurture my clients. I have never been, nor will I Product Detailsever be, maternal. I accept the play on my initials because it causes adversaries to underestimate me.

I am 66-years-old. My grayish blond hair is thin and my full beard is a bit scraggly. My face is round and often tinged with red. My nose is full, my eyes green and my cheeks bulge out to the sides trying to emulate the belly that precedes every other part of my body as I walk. People see me and do not believe that I am a private investigator. Seeing me they often think that I am on leave from my winter work as a Macy’s Santa Claus.

I like being underestimated. It makes my job as an investigator easier.

See how a fake robbery at a jewelry store led to murder and prison.

Available as a Kindle book.

Available as a paperback

“Murder & Old Lace: Solving Murders Performed for Insurance Money”

Product Details

When the women first met – 20 years ago at a Santa Monica health spa – Magogassasanian appeared taken with Gogolivesky. The women moved Alvarado into an apartment, then started applying for life insurance policies on him. They jointly took out four policies, each as 50% beneficiaries in addition to the individual policies they bought from my client. Gogolivesky also took out three more policies on her own while Magogassasanian only took out a single individual policy on Earnest. The two women pocketed nearly $6,000,000 in insurance benefits on Alvarado alone and $4,000,000 in insurance benefits on Earnest. They also recovered a total of $5,000,000 on the other six old men they killed.

Available as a Kindle book.

Available as a paperback.

“Arson for Profit: How an Attempt to use Arson & Fraud to Fund Terrorism Failed”

This story is based on a real case involving a member of Russian/Armenian organized crime, real insurers, investigators, lawyers, fire fighters, and insurance brokers. The names, descriptions, and identities of the people involved have been changed to protect both the guilty and the innocent. The report to the US Senate, after this case was decided by the California Courts, reveal that the threats made on MOM and lawyer Hazan were real and they are lucky that the threats were never fulfilled. The person identified in this story as Levonyan was described to the US Senate as the leader of a Russian/Armenian organized crime ring. It is important to take seriously threats from criminals. Insurance fraud and arson-for-profit are not victimless crimes. They are crimes of violence that cost everyone who lives in the U.S.]

Available as paperback.

Available as a Kindle Book.

“M.O.M. & The Taipei Fraud”

How an Experienced Adjuster Defeated a $7 Million Fake Burglary Claim

The problem is that each option the insurers have available have a down side and Feng is represented by a lawyer who has proved highly successful in suing insurers and collecting large compensatory and punitive damage awards. Since the claims exceed $6 million dollars, he can expect, applying the law set out by the U.S. Supreme Court in State Farm Mut. Automobile Ins. Co. v. Campbell and BMW of North America, Inc. v. Gore as much as $60 million in punitive damages. So I need to explain to the insurers that they face an exposure anywhere from their policy limits to ten times the policy limit. They need the courage of their convictions to reject this major claim.

Available as a paperback.

Available as a Kindle book.

“Arson-For-Profit Fire at the Cowboy Bar & Grill”

A true crime novel based on the experience of the author, Barry Zalma, who for more than 51 years has acted for insurers who were faced with arson-for-profit, one of the most dangerous insurance fraud schemes. The book explains how an insurance claims adjuster, working with a fire cause and origin expert, a forensic accountant and insurance coverage lawyer, were able to defeat an arson-for-profit scheme and obtain a judgment requiring the perpetrator to take nothing and repay the insurer all of its expenses in defeating the claim.

Available as a paperback.

Available as a Kindle book.

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Where there is a Total Recovery at Law Equity Will not Interfere

What May be old is Still New

Although I tend to only write about new insurance decisions, I thought it would be interesting to see if a decision by the first Chief Justice of the United States Supreme Court had to say about a request for reformation of an insurance policy. As you read you will see that his reasoning and conclusion is the same that would end up in a federal court if the case was heard today.

Chief Justice Marshall, in one of the first cases on an insurance issue, heard by the U.S. Supreme Court, resolved a request to reform an insurance policy based upon a claimed mistake. The Chief Justice concluded that under the circumstances of the case a court of equity cannot reform an insurance policy based on a claimed unilateral mistake and also because the remedy of the plaintiff, Graves, on the policy, to the extent of his interest, is complete at law, there can be no reformation.

The case of Graves and Barnewall v. The Boston Marine Insurance Company, 6 U.S. 419, 2 Cranch 419, 2 L.Ed. 324 (February Term, 1805) the plaintiffs sued an insurer seeking to charge the insurer for the benefits of a policy of insurance and to obtain relief against an alleged mistake by omitting to insert the name of Barnewall in the policy although the interest and property insured being that of Graves and Barnewall.

FACTS

Graves and Barnewall were equally and jointly interested in the ship Northern Liberties and her cargo. Graves and Barnewall had various insurances effected in different places upon the ship and cargo, from New York to Teneriffe, as well as from thence to La Vera Cruz, always for their joint and equal benefit.

Graves sought insurance through a broker, Elisha Sigourney and Sons of Boston who used an application that  stated, that “on the 20th of February last, the ship Northern Liberties sailed from this for Teneriffe;… she mounted sixteen six pounders, and had a crew of thirty in number…. Upon this vessel’s cargo we want insurance at and from Teneriffe to La Vera Cruz. The ship and cargo really and truly belong to American citizens.”

On the 15th of May 1800 insurance was ordered upon the cargo to the amount of $16,000, upon the best terms and within certain limits. Upon these orders they made insurance with the Boston Marine Insurance Company in the sum of $10,000 upon the cargo of the ship, for the voyage. The policy was made for and on account of John Boonen Graves, and for account of no other person whatsoever.

The first policy written by the company was dated the 3d of April 1799. There was full proof of a total loss of ship and cargo.

THE POLICY

The material words of the policy are: “By these presents, cause John Boonen Graves to be assured, lost or not lost, ten thousand dollars on property on board the ship Northern Liberties, as property may appear, at and from Teneriffe to Vera Cruz.”

Mr. Chief Justice MARSHALL delivered the opinion of the court.

The points made by the plaintiffs in this case, were:

  1. That the policy does really insure their joint property on board the ship Northern Liberties, so far as the same was at the time uncovered by prior assurances.
  2. That if the property be not insured at law, yet it was intended to be insured, and this court will relieve against the mistake in the agreement.

Chief Justice Marshall opined that the operation of the words themselves, taken in their ordinary sense, would certainly not extend beyond the interest held by Graves in the cargo. The words, ‘as property may appear,’ restrict the general terms of the policy to the interest of the person named in it.

The plaintiffs still argued that the interest of each partner in the whole partnership-stock, is an insurable interest; and as it was obviously the intention of Graves to insure for his partner as well as for himself, the policy ought to receive a construction which will effect this intent. The doubt in this case, is not whether Graves could have insured the interest of his partner, but whether he has insured it.

The interest of Barnewall, therefore, could not be considered as insured by this policy. Although one partner has the power to insure the share of his co-partner.  On the legal construction of this policy John Boonen Graves was insured to the extent of his own interest in the cargo only. The interest of his co-partner is not insured. Were it otherwise, the remedy would be complete at law. Therefore, the plaintiffs could not maintain their case in a court of equity.

It remains to inquire whether, under the circumstances of the case, a court of equity will relieve the plaintiffs against the mistake alleged to exist in the contract, and extend the insurance to the whole partnership interest. That Graves intended to insure the whole was proved satisfactorily. That the insurance company believed themselves to be insuring the property of Graves only is probable. There is no ground for imputing to the company a knowledge that the policy did not correspond with the intentions of the insured.

The evidence presented contained no information that any other than John Boonen Graves was interested in the particular policy. The application for insurance was only for a part of the cargo. If that application was made in the name of Graves only, it was no unreasonable supposition that the other parties concerned might be separately insured, and that the policy then required was designed to cover Graves only.

Justice Marshall concluded: “These grounds are too equivocal to warrant the court in varying a written contract in a case attended with the circumstances which appear in the present.” The policy was in the possession of the agent for the plaintiffs, and ought to have been understood by him before it was executed; he retained it in his possession for several months before a mistake was alleged.

Under such circumstances the information given to the insurance company ought to be very clear to justify a court of equity in conforming the policy to the intention of one of the parties, which was not communicated to the other till the loss had happened.

The remedy of the plaintiff, Graves, on the policy, to the extent of his interest, is complete at law, no other interest can be paid.

ZALMA OPINION

A unilateral mistake, only claimed months after the delivery of a policy to the insured, Graves, or his agent, could not be changed because he claimed he intended to also insure the interest of his partner. Since neither he, nor his representative, advised the insurer of the interest of the partner or the need of the insurer to be advised of the interests that needed to be insured. Equity requires fairness. It would be unfair to require an insurer to pay for the interests of a party not named on the policy nor for whom insurance – as far as the insurer was concerned – was not requested.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

 

 

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A Christmas Gift Better than Chocolate Chip Cookies

How to Show Your Appreciation to Your Insurer Clients or Claims Employees?

Many insurers refuse to allow their employees to receive gifts. Many employers of claims people give a small bonus, a Turkey, or something that will be gone before the new year.

If you wish to thank your insurance company clients for allowing you to represent their interest or if you wish to honor your claims personnel it is time to give them something that will be useful to them throughout the coming year and that will not offend insurer’s rules to avoid attempts to extort clients for business from insurer employees.

THE INSURANCE CLAIMS LIBRARY

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it for insurers and their claims staff to become insurance claims professionals.

Consider the Insurance Claims Library where, for a small investment you can provide each claims office – rather than individual adjusters – a group of insurance books that will help them throughout the year.

By providing clients, claims departments, or claims personnel with any one or more of the books offered by the Insurance Claims Library. By so doing you can add to the insurance claims professionalism of your clients, employees and claims personnel. With delivery handled by Amazon.com any one or more of the the following books, all ava

ilable from amazon.com and http://zalma.com/blog/insurance-claims-library/, will gain the respect and gratitude from each recipient and their employers.

BOOKS AVAILABLE FROM THE INSURANCE CLAIMS LIBRARY

The Homeowners Insurance Policy – How to Buy an Appropriate Homeowners Policy and Successfully Make a Claim to the Insurer; Zalma on Insurance ClaimsSecond Edition – Ten volumes providing a Comprehensive Review of insurance, insurance claims, the law of insurance and policy interpretation Paperback; Construction Defects and Insurance; Mold Claims; The Law of Unintended Consequences and the Tort of Bad Faith; Insurance Fraud – Volume I & Volume II; The Compact Book of Adjusting Property Insurance Claims – Second Edition; The Compact Book on Adjusting Liability Claims, Second Edition; California Fair Claims Settlement Practices Regulations; California SIU Regulations; Ethics for the Insurance Professional; Rescission of Insurance – 2nd Edition; The Insurance Examination Under Oath; and six Fictionalized True Insurance Crime Books.

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Breach a Warranty and Lose Coverage

Court Enforces Insurance Warranty to Avoid Acting as a Privateer

Although I usually report on new cases, this time I return to an early decision that goes back to before the U.S. Constitution that explains how important the covenant of good faith and fair dealing has been to American Jurisprudence from the beginning our the United States. The covenant is implied in every insurance contract and has done so for centuries. The Court of Common Pleas in 1786, ruled on an insurance claim in its first year of reporting on the decisions of American courts, and upheld an insurer’s warranty because the promise was made and needed to be kept.

In Ogden v. Ash, Court of Common Pleas, Philadelphia County, 1 U.S. 162 (Dall.) (March Term, 1786) an action upon a policy of insurance wherein the single question was, whether a warrant inserted in the policy, had been complied with on the part of the insured, or not.

FACTS

The policy in this case, is on the outward bound voyage, wherein it is warranted “that orders will be given that the Ship shall not cruise.” (In the terminology of the time, to cruise, is to act as an armed merchant ship, licensed by a letter of marque to cruise against enemy ships to her owners’ profit}. Since the ship in question mounted 16 guns, it could act as a privateer and the insurers did not want to take the risk it would be lost in combat.

The orders which were given consist of instructions which, in the former part, relate to the outward bound voyage, and, in the latter, to an intended cruise for two or three months, after the outward bound voyage, which was the sole object of the insurance, should be completed. The instructions with regard to the outward bound voyage, begin with an account of the cargo, to whom it is consigned, and give the usual directions in mercantile voyages, how it is to be disposed of, and how the proceeds shall be applied. The captain is expressly directed not to touch at any port to the southward of Philadelphia, lest the insurance should be endangered, but no mention is made of a cruise, except that the goods are to be sold for the purpose of fitting her out afterwards for a cruise.

ANALYSIS

If the warranty had been that no orders should be given to cruise, or that he should not be impowered (old spelling) by his orders to cruise, these instructions would certainly have been a compliance with the warranty; but the warranty is not negative, that he should not have orders to cruise, but positive that he should have orders not to cruise. And in which ever way the warranty had been expressed, if the captain had cruised, and the vessel by that means had been lost, he would have been answerable so that the responsibility of the captain, is not any rule to govern the construction of the policy, because if he had cruised without orders, he would have been equally liable, as if he had cruised contrary to express orders.

The underwriters have stipulated that more should be done, than would barely make the captain answerable for cruising.  It is well known, that there have been many captains who have not scrupled to break orders which were plain and express.

In the present case, the condition of the Vessel did not preclude the possibility of cruising. She mounted 16 guns, she had leave, by the terms of the policy, to call at Beaufort for men, she was intended to be a cruising vessel after the outward bound voyage was completed, and it might not be an unreasonable suspicion in the underwriters, that the captain, unless expressly restrained, might be tempted to cruise in the outward bound voyage.

Whatever their reasons were, the underwriters had certainly a right to make it a part of their contract; without it, they might have refused to insure at all, or they would perhaps, have demanded a higher premium; and therefore being stipulated, the owners should have complied with it.

These warranties in policies of insurance are required by law, and by the constant usage of merchants to be strictly complied with; they are generally expressed in a few words, but where they are plain and clear, it would be of dangerous consequence to this useful branch of mercantile business, to introduce a loose construction of them.

ZALMA OPINION

The court concluded that upon the case stated, and a view of the policy and orders, that the warranty has not been complied with, and that judgment should be given for the defendant.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

 

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Happy Thanksgiving from Barry Zalma, Barry Zalma, Inc. and our family

What I am Thankful For:

My family and I have much to be thankful for this year, not the least of which are my cardiologist and cardio surgeon who saved my life last year performed a major open heart by pass surgery and their continuing care that has allowed me to work eight hours a day doing what I love the most, writing about insurance and legal matters.
To me, I am thankful for you, my friends, clients and readers of “Zalma’s Insurance Fraud Letter,” my blog “Zalma on Insurance”, and my books and other writing.
As a first generation American I am honored to join with all Americans the ability to celebrate Thanksgiving that started when we were just a colony of Great Britain to give thanks for the good things in life at least once a year. It took Abraham Lincoln, our greatest President to make it an official holiday. The Thanksgiving holiday gives me and my family the opportunity to consider the blessings my family and I have received and to thank all who have made it possible.
Please allow me this opportunity to explain to you all the things I, and my family, can give thanks for:
1.   I have loved my wife of 52 years since we first met when she was nine and I was twelve.
2.   I am thankful that she still loves me and lets me make clear every day that I love her more now than I did when she ignored me when I was 12.
3.   My three adult children who are successes in their own right.
4.   That my three children, my almost three-year-old granddaughter live nearby, put up with my wife and I, and are healthy, successful, and mostly happy in what they do.
5.   That my grandson is now a college student at Puget Sound University in Washington state.
6.   My clients who, for the more than 52 years have allowed me to earn a living doing what I love: practicing law, acting as a consultant, testifying as an expert witness and writing materials to help others in the insurance profession.
7.   My publishers the American Bar Association, Full Court Press, Fastcase.com, Thomson Reuters and Amazon.com.
8.   My dearly departed parents and grandparents for having the good sense to leave the Mediterranean at the beginning of the 20th Century so we could avoid the Holocaust and I could be born American.
9.   My country for giving me a place to live and work in peace and complain about it without fear.
10.   The state of California, where I was born, and have lived for 77 years, for allowing me to have my home and grow my family, and the ability to pay the high taxes for the privilege.
11.   Those of you who read what I write and gain something from it.
12.   Seventy seven years of mostly good health, but for a small heart attack and clogged arteries, that gives me the ability to continue to work – albeit at a reduced rate.
13.   Allowing me the health and ambition to avoid my cardiologist by walking every day at least three to five miles each day.
14.   The hundreds of friends I have never met but with whom the Internet has allowed me to communicate in parts of the world I have never visited.
15.   The wonder of the Internet that allows me to publish E-books, ZIFL and my blog instantly on line.
16.   That my family can get together to express our thanks for each other and our happiness this year again without a need for anything but enjoying each other’s company.
17.   That most of you who I know only by my publications can also gather with your families to express your thanks.
When I left a required stint in the Military in 1967 I was able to study at night while I worked as a full-time insurance adjuster with the Fireman’s Fund American Insurance Companies, I was fortunate enough to work for a claims manager – Coleman T. Mobley — who did not require me to go out of state to adjust major storm claims if it interfered with my law school studies. Because of Mr. Mobley and the Fireman’s Fund I was able to complete my studies and pass the California Bar in 1971 and allowed me to be admitted to the California Bar on January 2, 1972.
When I started practicing law in 1972 new technology allowed a typewriter to erase errors from the keyboard, legal research was done in a large library and took days to find support for an issue, and I needed three professional legal secretaries to keep up with my dictation. Now, using modern technology, I can do the same legal research in 30 minutes on Fastcase.com, need no secretary, and can operate my consulting and publishing business with no employees.
I hope, on this Thanksgiving weekend, that you can join my family and me remembering that it is more important to think about our blessings and those things that we have to be thankful for than to get in line for “Black Friday” to buy an inexpensive flat screen t.v. or tablet.
Enjoy the holiday and your family as I will.
Feel free to contact me anytime you have any insurance claims, insurance coverage, or insurance fraud issues.
Sincerely,
Barry Zalma
Barry Zalma, Inc.
zalma@zalma.com
https://www.zalma.com
310-390-4455
Posted in Zalma on Insurance | Leave a comment

Removal of Roof to Repair not Covered Cause of Loss

Snow and Rain Entering Church Because Roof was Removed to be Replaced not Damage Caused by a Peril Insured Against

No insurance policy covers every risk of loss faced by the property of the person insured. To recover under a first party property policy for damage caused by entry of snow and rain through the roof of a building it is necessary to prove that the water entered because there was damage to the roof by a peril insured against, like wind.

In Christ Church of the Gospel Ministries d/b/a Evangel Churches v. Guideone Mutual Insurance Company, Case No. 2:19-11208, United States District Court Eastern District of Michigan Southern Division (November 19, 2019) the Christ Church of the Gospel d/b/a/ Evangel Christian Churches (“Evangel Churches”) filed a claim against their insurance provider, Guideone Mutual Insurance Company (“GMIC”), for breach of the commercial insurance policy insured by GMIC because it refused to pay for damage resulting from snow and rain entering building after the roof was removed during repair and replacement efforts.

BACKGROUND FACTS

GMIC provided insurance to Evangel Churches’ property located in Roseville, Michigan. The policy provided coverage “for direct physical loss of, or damage to, “Covered Property” caused by or resulting from a “Covered Cause of Loss.”

In early March 2017, a contractor hired by Evangel Churches began work on replacing the roof of the building, which had undergone extensive repair in years prior. During the replacement work, the contractor removed shingles from the roof, and utilized tarps to cover areas where the shingles had been removed and not yet replaced. During a storm, and perhaps at other times, the tarps blew off their position on the roof and/or were damaged. As a result, water leaked into the interior of the building. Evangel Churches says the interior of the building and the personal property inside suffered extensive water damage.

Evangel Churches alleged that the contractor began replacing the building’s prior roof. During the time of the alleged loss it rained and snowed about 18 times. As a result, water entered the building’s roof and four walls. As a result, water entered the building’s interior and damaged it, including the interior walls, drywall, carpet, tile, pews, contents and personal property, the chandeliers, and other light fixtures.

ANALYSIS

The policy expressly excludes coverage for interior water damage, unless the building first sustains damage by a “covered cause of loss.” The policy defines a “covered cause of loss” as a “risk of direct physical loss” unless the loss is excluded by the policy. In the definitions section, “specified causes of loss” include in relevant part a windstorm, hail, or water damage. Thus, the building would have to first sustain direct physical loss from a windstorm, hail, or water damage in order to be covered.

GMIC says the roof did not sustain damage by a “covered cause of loss.” Rather, exposed areas or openings in the roof created during replacement were insufficiently covered by tarps. Holes purposely created during a repair process does not fit the definition  of a “covered cause of loss.”

The Court declined to determine if the way in which the roof was covered by the tarps constituted a “roof” as defined under the policy. The Court determined that the creation of intentional holes do not constitute “damage” to the building as to be considered a “covered cause of loss” under the policy.

The record failed to support a finding that wind or rain storms caused damage to the roof, which allowed water to leak in. Rather, the repairs being done on the roof caused water to enter. The rain and snow storms were the source of the water that caused the interior damage to the building but were not a cause of “damage” to the roof.

GMIC’s motion for summary judgment was granted.

ZALMA OPINION

This case is another example of the failure of an insured to read the policy on which it was making a claim. The policy, in clear and unambiguous language, required that for there to be coverage for damage to the interior of the church by water and/or snow, there must first be damage to the roof by wind or some other peril insured against. Since the roofer’s action was not a peril insured against there was no coverage. The church is not, however, without a remedy. It can always sue the roofer for negligence in removing the roof and failing to protect the openings from rain or snow intrusion.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

 

Posted in Zalma on Insurance | Leave a comment

There is an Obligation for the Insured to Read an Insurance Policy

An Insurance Expert’s Response to a Professor’s and a Policyholders Lawyer’s Take on the Obligation to Read an Insurance Policy

© 2019, Barry Zalma

In its blog the Merlin Law Group cites a small portion of a lengthy Hastings Law Journal article written by Professor Chuck Knapp.[1] Dr. Knapp did not like the use, by appellate courts, of the concept that there is a duty to read (DTR) an insurance policy.

The blog post by the Merlin Law Group proposed that Dr. Knapp’s proposals would allow the court to rewrite the terms and conditions of the policy. Dr. Knapp did not do that but spent many pages explaining why the word “duty” should not be used and the exceptions available to the courts when interpreting an insurance contract as well as other contracts.

Chip Merlin published this article and said:

(NOTE: This guest post is by Barry Zalma, Esq., CFE.1 Barry Zalma is a prolific writer and scholar in the field of insurance. I have purchased numerous publications from Barry. I am currently reading a book on legal ethics he wrote, The Little Book on Ethics For The American Lawyer, which may be his finest work and that is saying a lot after reading his treatises on insurance law and adjustment. I encourage you to read this very thorough post and consider purchasing Zalma’s publications for your reference library. – Chip Merlin.)”

The Reality of Insurance Contract Acquisition

In my opinion, and that of a majority of the courts that have been called upon to interpret an insurance policy, that the person seeking insurance has an obligation to read the insurance contract or – at the very least – have, a lawyer or insurance professional read, understand and explain the policy to the person acquiring insurance.

For the last 52 years I have asked people making claims on an insurance policy whether they have read and understood their insurance policy. Most just laughed and claimed they never tried. Two, in my career, answered “yes.” After further questioning it became obvious that both lied since they knew nothing about the terms or conditions of the policy. These facts horrify me as an insurance coverage lawyer, a consultant and an expert witness testifying in courts across the United States.

My career required that I read, understand and apply insurance policies issued by my clients to individuals and businesses. I have written, edited or revised, policies of insurance on behalf of insurer clients. I even read insurance policies I acquire to protect my property and protect me against tort liability before I order the policy. I know I am unusual but I should not be. My practice should be the norm.

Many states have different definitions of the word “insurance” but each have the same essential elements:

  • It must be a written contract.
  • One party (the insurer) agrees with the other (the insured).
  • The insurer, for consideration (payment of a premium) agrees to indemnify the insured against a contingent or unknown event.
  • The promise to indemnify is limited to certain identified risks of loss arising from a fortuitous, contingent or unknown event.

Insurance is a contract like all other contracts. No one should enter into a contract ignorant. Most people would never sign a lease without reading it or agree to the terms of a mortgage without reading the contract. Insurance contracts, however, are almost never read by the person insured. Some are not read by the agent, broker or underwriter who sell the insurance.

There is no excuse for not reading an insurance policy. Modern insurance policies, as a result of state statutes, are required to be written in plain language or easy to read language sufficient for anyone with a fourth-grade education can understand. I describe the modern language of insurance policies is really “Sesame Street English.”

Why, then, do people fail to read their insurance policy?

Insurance policies have a bad reputation. People believe insurance policies are impossible to understand. Courts in the past have encouraged this belief.  Policies are believed by the common person as being confusing and complicated. Sections of the contract are frequently cross-referenced to other sections of the policy, often in a convoluted way.

Insurance companies strive to make their policies as clear as possible because when coverage is subject to a legal challenge, ambiguity in the language will always be interpreted in a way that favors the insured, not the insurer.

For example, in Insurance Company of North America v. Electronic Purification Company, 67 Cal. 2d 679, 689, 63 Cal. Rptr. 382, 433 (1967) the California Supreme Court noted:

[T]he insurance company gave the insured coverage in relatively simple language easily understood by the common man in the marketplace, but attempted to take away a portion of this same coverage in paragraphs and language which even a lawyer, be he from Philadelphia or Bungy, would find difficult to comprehend.

Courts, called upon to interpret or enforce a contract of insurance, will always conclude that if an insurance contract is neither ambiguous or difficult to comprehend, it will be enforced as written.  [“Sharbono v. Universal Underwriters Ins. Co., 139 Wash. App. 383, 394 (2007)]

Dr. Knapp’s Position

Dr. Knapp contends, in his Hastings Law Journal article, with regard to the interpretation of insurance contracts:

It is not surprising that the DTR principle figures prominently in disputes involving insurance coverage. In nearly every litigated dispute of this type, the loss of which the insured plaintiff is complaining has already occurred and there is no way for her to mitigate by purchasing better coverage, from the defendant insurer or anybody else. The only way for the plaintiff to be compensated for her loss is thus to show either that the insurer itself should be liable on the policy, or that an insurance agent acting for the plaintiff should be liable to her for failing to procure the disputed coverage. Except for the possibility of the plaintiff’s bringing a bad faith claim against the company, or in extreme cases a disciplinary action against the plaintiff’s attorney, neither side has much to lose by digging in its heels. And if the insurer or agent is relying on language in the policy that supports its claim of noncoverage, the plaintiff will have to confront the general principle of DTR.[2]

Dr. Knapp also reported that possible means of circumventing the DTR rule in insurance cases include ambiguity in the fine print of the policy, and the insurer’s failure to make the terms of the policy reasonably available. He concludes that judges should stop calling the need to read a contract a “duty.” He contends that no one reads contracts and people are discouraged from reading the contract. He concludes, with a total lack of faith in humans who enter into contracts: “Contract recitations that say, ‘I have read all of this contract’ are patently false, and are known to be false—to the party who presents a written contract for signature as well as to the party who signs it.”

In addition, professor Knapp wrote:

If twenty-first century judges want to make better sense of this area of law, they could start by understanding and admitting that:

          • Nobody reads everything she signs;
          • Nobody is able to read everything she signs;
          • Nobody wants her to read everything she signs.

What drafters do want is to be able to treat her as if she had read everything. They do not care if in fact she has not—and, indeed, in many cases would prefer that she did not.

So do not call it a ‘duty.’ This just adds insult to injury.

However, Dr. Knapp concludes in his lengthy Hastings Law Journal article with:

One who knowingly and voluntarily assents to a contract whose terms are contained in a given writing should be held legally responsible for her actions by being held to those terms, in the absence of fraud, mistake, or other excusing cause.

Basically, professor Knapp is arguing against the use of the word “duty” not the requirement that a person read any contract signed and must be held responsible to the terms of the contract, absent fraud or mistake.

He does not wish to change the law of contracts but, rather, he wishes to change how judges interpreting contracts write their reasons for enforcing the contract.

Whether Professor Knapp is correct in his conclusion that almost no one reads their insurance policies – and my experience seems to agree – that almost no one reads insurance contracts. That fact does not make them less effective contracts. An adhesion contract only means the person offering the contract gives the person to whom it is offered only two choices:

      • accept the contract or
      • reject the contract.

The Need for “Plain Language” Insurance Policies

The need for “plain language” in an insurance policy was first used in the United States in the early 1950s. The Federal Government’s most recent plain-language initiative began in 1998, when President Clinton issued a Memorandum on Plain Language in Government Writing to the heads of executive departments and agencies. He said:

We are determined to make the Government more responsive, accessible, and understandable in its communications with the public. By using plain language, we send a clear message about what the Government is doing, what it requires, and what services it offers. Plain language saves the Government and the private sector time, effort, and money. [President Clinton. Memorandum for the Heads of Executive Departments and Agencies on Plain Language in Government Writing. June 1, 1998. Available at www.plainlanguage.gov/whatisPL/govmandates/memo.cfm. Accessed July 5, 2005.]

There is no one generally accepted definition of plain language or plain English. But most people agree that a plain-language document is one in which people can:

        • Find what they need,
        • Understand what they find, and
        • Act appropriately on that understanding.

Key elements of plain language are to:

        • Organize information so the most important behavioral or action points come first;
        • Break complex information into understandable chunks;
        • Use simple language or define technical terms; and
        • Provide ample white space so pages look easy to read.

In addition to the key elements, there are dozens of plain-language guidelines and techniques such as using short sentences and active voice when possible. Document design principles highlight the importance of organization and format and enhance the impact of plain language.

Good document design required bringing together prose, graphics and typography for purposes of instruction, information, or persuasion. Plain language does not require the writer of an insurance policy to “dumb down” the policy.

Sometimes, insurance professionals are concerned that using plain language will oversimplify information to the point where it is inaccurate or worthless. Plain language is not anti-intellectual, unsophisticated, drab, or inadequate. Plain language has to do with clear and effective communication — nothing more or less.. It is the style of Abraham Lincoln, Mark Twain, and Winston Churchill.  Plain language is not just about vocabulary or grade level. Writing to a certain grade level does not necessarily ensure that the message is in plain language or understood by the intended audience. All materials, especially in an insurance policy, should be evaluated for understanding with the intended users, regardless of grade-level score.

States followed the direction set by the federal government and required insurers to modify their insurance policies to be written in plain language. In doing so, the plain language insurance policies took away the argument that the policy was too hard to understand and, for that reason, should not be enforced to the detriment of the insured.

So, why with the new, easy to read, plain language policies, do people fail to read the insurance policy? There is no logical answer. Perhaps it is the embedded prejudice that makes some people believe they could never understand a policy even if they tried to read it.

From my 52-years’ experience I can only say that those people who did not read their policy get very upset when their insurance agent or broker told them they acquired the best available policy and that it covers almost everything does not mean the policy covered every possible contingency. When an adjuster or lawyer points out that there is no available coverage for the claim, they are making they claim they were deceived. Had the insured read the policy before it was acquired, they would know that no insurance policy covers every possible risk of loss faced by a person or business. Some risks of loss are difficult, if not impossible, to insure. Consider the risk of loss by war, atomic attack, earthquake, flood, etc. can be insured but only for extremely high premium and deductibles or self-insured retentions so expensive to make such coverages unsaleable.

Most insurance policies, as a result, exclude – in clear and unambiguous language – coverage for those extreme risks. The person insured who does not read the policy will be upset when his property is destroyed by a flood or earthquake. Had he read the policy and wanted coverage for earthquake or flood would have been directed to a specialty policy – probably expensive – that provides that coverage.

Do Courts Impose on an Insured a Duty to Read the Policy?

Dr. Knapp agrees that many courts impose a duty to read insurance policies. My research agrees and resulted in findings of the duty in multiple jurisdictions. For example:

  • In Georgia, the insured has a duty to read and understand the policy. [Cotton States Mut. Ins. Co. v. Coleman, 530 S.E.2d 229, 231 (Ga. Ct. App. 2000)] An insured who can read is required to read the policy and is presumed to have understood its contents.
  • In Mississippi, a plaintiff is deemed as a matter of law to have read and understood the terms and conditions of his insurance contract. [Mladineo v. Schmidt, 52 So.3d 1154, 1167 (Miss. 2010)]. Under the “duty-to-read” and “imputed-knowledge” doctrines, an insured is deemed to have knowledge of his insurance policy. An insured may not neglect or purposefully omit acquainting himself with the terms and conditions of the insurance policy and then complain of his ignorance of them.
  • In Texas, misrepresentation claims accrue when the policy is issued because the insured has a duty to read the policy and is responsible for understanding the policy’s terms and conditions. [Khoei v. Stonebridge Life Insurance Co., No. H-13-2181, 2014 WL 585399, at *7 (S.D. Tex. Feb. 14, 2014).] Under Texas law, an insurance agent has no duty to explain policy terms, and the insured has a duty to read his [or her] insurance policy and is bound by its terms even if they were not fully explained. [Avila v. State Farm Fire & Cas. Co., 147 F. Supp. 2d 570, 581 (W.D. Tex. 1999); Dike v. Penn Ins. & Annuity Co., 295 F.Supp.3d 530 (E.D. Pa., 2018)]
  • In Alabama, the insured was under a duty to read his insurance policy. [Alfa Life Ins. Corp. v. Reese, 185 So. 3d 1091, 1102-04 (Ala. 2015)]
  • In West Virginia, a party to a contract has a duty to read the instrument. [Soliva v. Shand, Morahan & Co., Inc., 176 W. Va. 430, 345 S.E.2d 33 (1986)] Finding that an insured had a duty to read the coverage reduction provision, as directed by his insurer. [American States Ins. Co. v. Surbaugh, 231 W. Va. 288, 299, 745 S.E.2d 179, 190 (2013)] In so ruling, the West Virginia Supreme Court explained:

In simple terms, the Court’s decision is based on the premise that consumers do not read (and even if they do read, cannot understand) the terms that insurance companies use in insurance policies. Insurance companies give consumers the impression that they have full coverage under a comprehensive policy, and routinely fail to tell the consumer in plain English of the existence and the meaning of the legalistic exclusions that the insurance company has buried in a policy. So, when an insurance company seeks to avoid liability on an automobile insurance policy through the use of an exclusion, courts should first determine whether the insurance company created a reasonable expectation of coverage in the consumer, and whether the insurance company eliminated that expectation by telling the policyholder (1) that their coverage has been reduced or eliminated by the exclusion, and (2) that their premiums have been reduced to reflect the exclusion. [Mitchell v. Broadnax, 208 W.Va. 36, 537 S.E.2d 882 (W. Va., 2000)]

  • In Indiana, an insured has a duty to read and become familiar with the contents of an insurance policy. [National Mut. Ins. Co. v. Curtis, 867 N.E.2d 631, 635 (Ind.Ct.App.2007). However, a different scenario arises if an insured relies upon the representation of the insurer that a particular loss is covered, as reasonable reliance upon an agent’s representations as to what will be covered under a policy can override the insured’s duty to read the policy.[Filip v. Block, 879 N.E.2d 1076, 1084 (Ind.2008) (citing Village Furniture, Inc. v. Associated Ins. Managers, Inc., 541 N.E.2d 306, 308 (Ind.Ct.App.1989)]
  • In New Mexico, it is a fundamental tenet of contract law “that each party to a contract has a duty to read and familiarize himself with the contents of the contract, each party generally is presumed to know the terms of the agreement, and each is ordinarily bound thereby. Ballard v. Chavez, 1994-NMSC-007, ¶ 8, 868 P.2d 646, 648.]
  • In California, the general rule is that one who assents to a contract is bound by its provisions and cannot complain of unfamiliarity with the language of the instrument. [Madden v. Kaiser Found. Hosps., 17 Cal. 3d 699, 710 (1976).] An insured has a duty to read his policy. [Fields v. Blue Shield of Cal., 163 Cal.App.3d 570, 578 (1985).] If the language of an insurance contract is in fact clear and unequivocal, a party will be bound by its plain meaning, because ‘an insured has a duty to read his insurance policy. [“Hallowell v. State Farm Mut. Auto. Ins. Co., 443 A.2d 925]
  • Under Washington law, the insured has an affirmative duty to read her policy and be on notice of the terms and conditions of that policy.[ Dombrosky v. Farmers Ins. Co. of Washington, 54 Wash.App. 245, 257, 928 P.2d 1127 (1996); Int’l Marine Underwriters v. ABCD Marine, LLC, 313 P.3d 395, 402 n.14 (Wash. 2013]
  • In North Carolina, a person of mature years of sound mind who can read or write who signs or accepts a deed or formal contract affecting his pecuniary interest, it is his duty to read it, and knowledge of the contents will be imputed to him. Where an insured failed to use reasonable diligence by not reading the insurance policy he cannot complain. [Holmes v. Sheppard, 805 S.E.2d 371, 376 (N.C. App. 2017)]
  • In Delaware, the Delaware Supreme Court has made it clear that extrinsic evidence is not to be used to interpret contract language where that language is plain and clear on its face. [O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 289 (Del. 2001)]
  • Applying federal law, an Oregon District Court made clear that the insured had a duty to read the policy and acted unreasonably in relying on adjusters provided only as a “courtesy” by an insurer fulfilling a National Flood Insurance policy). [Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 385 (1947)); Surfsand Resort, LLC v. Nationwide Mut. Fire Ins. Co. (D. Or., 2018)] Given the special nature of the insurance relationship involved under the NFIP, courts have made it clear that an insured has a duty to read and understand the terms of its SFIP. [Richmond Printing LLC v. Dir. Fed. Emergency Mgmt. Agency, 72 F. App’x 92, 98 (5th Cir. 2003]
  • In Illinois, the court has specifically recognized an insured’s duty to read an insurance policy. [Perelman v. Fisher , 298 Ill. App. 3d 1007 1011, 233 Ill.Dec. 88, 700 N.E.2d 189 (1998)] When an insured sues his or her insurer after failing to note a discrepancy between the policy issued and received and the policy requested or expected, the insured will be bound by the contract terms because he or she is under a duty to read the policy. [First Mercury Ins. Co. v. Ciolino, 2018 IL App (1st) 171532, 107 N.E.3d 240 (Ill. App., 2018)]
  • In Michigan, an insurance policy is, like any other contract, an agreement between two parties. [Tenneco Inc v Amerisure Mut Ins Co, 281 Mich App 429, 444; 761 NW2d 846 (2008).] The goal in the interpretation of a contract is to honor the intent of the parties. [Klapp v United Ins Group Agency, Inc, 468 Mich 459, 473; 663 NW2d 447 (2003)], The primary source of a policy of insurance is the language of the contract itself. [City of Grosse Pointe Park, 473 Mich at 197-198. Thus, insurance policies are enforced according to their terms, and a court may not hold an insurer liable for a risk it did not assume.] [Liparoto Const, Inc v Gen Shale Brick, Inc, 284 Mich App 25, 35; 772 NW2d 801 (2009).]

When There is no Duty to Read Policy

In ordinary circumstances, the insured has no duty to read a renewal policy sent to him or her, and may assume that the renewed policy contains the same terms and conditions as the previous policy. [Annot., 91 A.L.R.2d at 558; Government Employees Ins. Co. v. United States, 400 F.2d 172, 175 (10th Cir. 1968); Whiteside v. New Castle Mut. Ins. Co., 595 F.Supp. 1096 (D. Del., 1984)]]

“Plaintiff had a right to rely on the superior expertise of its agent and had the right to assume that its agent performed its duty. Thus, contrary to the defendant’s contention, the plaintiff had no duty to read the policy.” [United Olympic Life Ins. Co. v. Gunther, 19 F.3d 1441, 1994 WL 96328 (9th Cir., 1994)]

In Pennsylvania, the Pennsylvania Supreme Court has stated that the idea that people do not read or are under no duty to read a written insurance policy is not novel [Rempel v. Nationwide Life Ins. Co., Inc., 471 Pa. 404, 370 A.2d 366, 368 (1977); Tran v. Metropolitan Life Ins. Co., 408 F.3d 130 (3rd Cir., 2005); (citing Dowling v. Merchs. Ins. Co., 168 Pa. 234, 31 A. 1087 (1895)]. The Rempel Court elaborated on this principle and held that “the policyholder had no duty to read the policy unless under the circumstances it is unreasonable not to read it” and held that the question of whether policyholders’ reliance on the agent’s allegedly fraudulent representations was justifiable should be presented to the jury. [Tran v. Metropolitan Life Ins. Co., 408 F.3d 130 (3rd Cir., 2005)] In Pennsylvania it was held that the policyholder has no duty to read the policy unless under the circumstances it is unreasonable not to read it. [Tonkovic v. State Farm Mut. Auto. Ins. Co., 513 Pa. 445, 521 A.2d 920 (Pa., 1987)]

In Kansas, the courts provide an insured an exception to the requirement that the insured read the policy. The Tenth Circuit found it clear that in Kansas the insured may assume that an insurance policy will conform to the application. The insured may rely on this assumption, and is under no duty to read the policy to see whether it does in fact conform. [Stamps v. Consolidated Underwriters, 205 Kan. 187, 468 P.2d 84; German American Ins. Co. v. Darrin, 80 Kan. 578, 103 P. 87. The purpose of allowing such relief is to make the insurance policy reflect the expectations of the insureds when they executed the application. [Rider v. State Farm Mut. Auto. Ins. Co., 514 F.2d 780 (10th Cir., 1975)]

When a court held that there may be no duty to read an insurance policy where misrepresentation and concealment are alleged under certain circumstances an insurer may be liable for misrepresentation or failure to deliver agreed-upon coverage where the agent misleads the insured as to the extent of coverage, even though the insured did not read the policy and discover the actual extent of the coverage. [Lin v. John Hancock Variable Life Insurance Company, B189108 (Cal. App. 4/30/2007) (Cal. App., 2007)]

It has long been the law in Oklahoma that an insured’s failure to promptly examine a policy and discover departure from an insurance agent’s assurances does not defeat reformation of the policy. [Commercial Casualty Insurance Co. v. Varner, 160 Okl. 141, 16 P.2d 118 (1932), followed by Warner v. Continental Casualty Co., 534 P.2d 695 (Okla.App.1975).] Under Oklahoma law, an insured has no duty to read his written policy and notice discrepancies between it and previous representations of a soliciting agent. [Business Interiors, Inc. v. Aetna Cas. and Sur. Co., 751 F.2d 361 (10th Cir., 1984)]

Conclusion

If the contract is accepted it should be binding upon both parties as long as it is clear and unambiguous and none of the exceptions to the requirement that the policy must be read by the insured it will be enforced as written. In that regard I agree with Dr Knapp. I don’t believe it is necessary to change the language used by a court interpreting an insurance contract. I only expect that the court interpret the contract as binding as long as it is clear and unambiguous and was not obtained as a result of mistake, misrepresentation of material fact, concealment of material fact or fraud.

Dr. Knapp is right, most people do not read their insurance policy, do not read the lease for their automobile, do not read the lease for their apartment, do not read mortgage contracts, do not read the contract issued by the parking garage or any other adhesion contract. Whether read or not all of those contracts are enforceable and no one should argue that the terms should be ignored because they were not read.

Courts, interpreting insurance policies, seeking to deal fairly and in good faith with both parties to the insurance contract, must:

  1. Recognize that all parties to the insurance contract are required to treat each other with the utmost good faith and do nothing to deprive the other of the benefits of the contract .
  2. Read every word in the insurance policy from:
    1. the cover sheet, to
    2. the declarations page, to
    3. the basic wording, to
    4. all endorsements, and every other word up to
    5. the signature by the insurer.
  3. Identify all parties to the contract.
  4. Determine whether the policy was acquired from an insurance agent representing the insurer or a broker representing the insured.
  5. Determine if the insured actually read the policy before ordering it.
  6. Determine if any specialist – lawyer, risk manager, insurance consultant, agent or broker – advised the insured about the contents of the policy.
  7. Determine if any mistakes were made in the production of the policy wording.
  8. Determine if either party:
    1. Misrepresented a material fact.
    2. Concealed a material fact.
    3. Deceived the other.
    4. Attempted fraud.
    5. Defrauded the other.
  9. Determine if the policy wording contains any ambiguity that would effect the rights and obligations of the parties.
  10. Find the best way for each of the parties to the contract obtain the benefits of the contract.
  11. Determine how each party has treated the other with the utmost good faith and fair dealing.
  12. Make a ruling that is fair, reasonable, and allows the parties to the contract to keep the promises made.

Barry Zalma

Barry Zalma, Esq., CFE is the founder of Barry Zalma, Inc., a California consulting firm whose practice emphasizes the consultation with, and testimony as an expert witness on insurance claims handling, insurance coverage, and insurance fraud for insurers, those in the business of insurance and policyholders. Barry Zalma, Inc.’s clients included major insurers such as Lloyd’s Underwriters and major law firms. Barry Zalma now limits his practice as a consultant and an expert witness for insurers, their lawyers, policyholders and their lawyers.

Mr. Zalma writes the twice monthly Zalma’s Insurance Fraud Letter which is available free of charge from ClaimSchool, Inc. and at www.zalma.com. He also publishes Zalma on Insurance, a five day a week blog summarizing new and important insurance law appellate cases and Zalma on Insurance 101, a video blog on insurance claims handling containing 1022 videos.

Mr. Zalma writes a regular column on insurance for the Underwriter Insider, and the Insurance Advocate Magazine. He was the host of the television series “Insurance Fraud,” broadcast by the Insurance Broadcast System and a contributor to WRIN.tv. In addition, he has written continuing educations courses for A.D. Banker Company, WEB.CE, Illumeo.com, experfy.com and simpliv.com that provide continuing education credits for insurance agents, insurance brokers, claims adjusters, public insurance adjusters, accounting professionals and Chief Financial Officer.

Mr. Zalma has testified as an expert witness in the California Superior Court, the United States District Court, the Superior Courts of Nebraska and Idaho. He is recognized as an expert on insurance claims handling, the Commercial General Liability policy, the Comprehensive General Liability policy, bad faith, insurance fraud, Jewelers’ Block Insurance and other inland marine coverages. Mr. Zalma has written, or rewritten, CGL, fire, auto, earthquake, Jewelers’ Block, and other insurance policies for insurer clients.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

[1]  Professor Chuck Knapp is a graduate of New York University School of Law, JD (1960), University of Sydney, Rotary Foundation Scholar (1957), and Denison University, B.A. (1956). He came to UC Hastings in 1998 from New York University Law School, where he had been a faculty member since 1964, and was the Max E. Greenberg Professor of Contract Law. Charles Knapp, warned in his article, Is There A Duty To Read, that lawyers and judges should not blindly write that there is a duty to read an insurance contract.

[2] https://www.propertyinsurancecoveragelaw.com/files/2019/11/Knapp-66.4.pdf

Comment from Chip Merlin

(NOTE: This post by Barry Zalma, Esq., CFE.1 Barry Zalma is a prolific writer and scholar in the field of insurance. I have purchased numerous publications from Barry. I am currently reading a book on legal ethics he wrote, The Little Book on Ethics For The American Lawyer, which may be his finest work and that is saying a lot after reading his treatises on insurance law and adjustment. I encourage you to read this very thorough post and consider purchasing Zalma’s publications for your reference library. – Chip Merlin.)

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Insurance Claims Library

Needed by the Insurance Claims Professional

Read about these books at https://zalma.com/blog.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it for insurers and their claims staff to become insurance claims professionals.

“Ethics for the Insurance Professional”

Methods for Insurers and their Personnel to Act with the Utmost Good FaithProduct Details

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior. Ethical behavior is required of both parties to a contract of insurance for the system to work. Ethics is the essence of insurance. Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail. Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.

Available as a paperback.

“Rescission of Insurance – 2nd Edition”

Newly updated and expanded, “Rescission of Insurance – 2nd Edition” provides the insurance coverage lawyer, policyholder lawyer and claims professionals with everything needed to understand and enforce the equitable remedy of rescission. Everyone involved in or with the business of insurance must understand that rescission is an equitable remedy as ancient as the common law of Britain. When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789.

The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair. The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Available as a paperback.

Available as a Kindle book.

“The Insurance Examination Under Oath”

The insurance Examination Under Oath (“EUO”) is a formal type of interview authorized by an insurance contract. It is taken under the authority provided by a condition of the insurance contract that compels the insured to appear and give sworn testimony on the demand of the insurer or find his, her or it claim rejected for breach of a condition. A notary and a certified shorthand reporter are always present to give the oath to the person interviewed and record the entire conversation.

Available as a Kindle book.

Available as a paperback.

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Evidence of Intent to Commit Life Insurance Fraud Appropriate to Prove Murder

Jail House Informant Provides Motive for Murder

Murder to collect on a life insurance policy is one of the most egregious forms of insurance fraud and destroys the claims of those who think insurance fraud is a non-violent crime. Murder is not the only violent form of insurance fraud, but it is probably the most serious. Like all insurance criminals, even a convicted murderer will refuse to accept his conviction, and will do everything possible to change the results of a jury trial.

In Mattei v. the State, S19A1332, Supreme Court of Georgia (November 4, 2019) following a jury trial, Paul Joseph Mattei was found guilty of malice murder, aggravated assault, and various other offenses in connection with the shooting death of Angela Williams. On appeal, Mattei contends that the evidence presented at trial was insufficient to support his convictions and that the trial court erred by admitting at trial character evidence in violation of Georgia statutes.

FACTS

Two months prior to the murder, Williams and Mattei had entered into a “marriage of convenience.” The two did not move in together and kept their marriage largely a secret. Williams told a family member that the purpose of the marriage was for her to assist Mattei with a drug trafficking scheme involving a trip to the Bahamas. The same day that they married, Mattei added Williams as his spouse to his insurance policy. Under the terms of Mattei’s family-rider policy, Mattei would collect $150,000 upon his spouse’s accidental death.

On the night of her murder, Williams was scheduled to meet with Mattei to discuss their travel plans. Video surveillance recordings from surrounding businesses showed Williams’s vehicle following Mattei’s truck in the direction of the parking lot where she was shot, just ten minutes before the shooting. The recordings also showed his truck driving away from the scene shortly before rescue vehicles arrived.

Police discovered that searches for how to obtain a death certificate had been made on Mattei’s computer hours after Williams’s shooting. The police also discovered that Mattei had made three inquiries between June 18, 2011 and July 4, 2011, checking on his life insurance policy. In a search of Mattei’s vehicle after his arrest, police found paperwork that could be used to file a life insurance claim along with information on how to obtain a death certificate. On August 12, 2011, after obtaining the death certificate from Williams’s daughter, Mattei notified the insurance company of Williams’s death.

At trial, Crystal Bridges, Mattei’s former roommate, testified that shortly after she moved in with Mattei in December of 2009, he approached her about an insurance fraud scheme involving him running her over with his truck so they could file an insurance claim. A jailhouse informant, Marlon Avila, testified that in July of 2013, he and Mattei were housed in the same unit. During that time, Mattei told Avila that he had shot his wife three times with a .380 handgun. An analysis of the shell casings recovered from Williams’s car showed she had been shot by a .380 handgun.

ANALYSIS

Viewed, as an appellate court must, in the light most favorable to the verdicts, the evidence showed that on the evening of June 30, 2011 Mattei shot Angela Williams twice in the chest and once in the arm, while Williams sat in her car in an isolated parking lot in Fairburn, Georgia. Mattei then left the scene in his yellow truck, and Williams managed to drive herself a little over one half of a mile to a gas station, where police found her barely conscious. Despite being rushed to the hospital, she was pronounced dead upon arrival. The Fulton County medical examiner concluded that Williams’s death was caused by a gunshot wound to the chest.

Mattei attacked Avila’s testimony regarding his confession as “uncorroborated and unreliable.” Based on the foregoing, the court concluded that the evidence was sufficient to enable a rational trier of fact to conclude beyond a reasonable doubt that Mattei was guilty of the crimes for which he was convicted.

Next, Mattei contended that the trial court erred by admitting into evidence Bridges’s testimony.

The insurance scheme was not admitted to show Mattei’s alleged propensity to commit the charged offense of murder or some other crime with which he was charged, but was relevant to his potential reason for killing his wife.

Relevant evidence is evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence. The State needed the extrinsic evidence to rebut Mattei’s contention that his act of insuring Williams and his possession of paperwork for filing an insurance claim were consistent with the normal activities of a newly married husband, rather than the actions of a person who was motivated to kill his wife in an effort to collect insurance proceeds.

Furthermore, the conversation with Bridges occurred just 18 months before Williams’s death, meaning it was not “so remote as to be lacking in evidentiary value.”

Any danger of unfair prejudice to Mattei was mitigated by a limiting instruction that the trial court gave to the jury. The Supreme Court concluded that the trial court did not abuse its discretion in admitting Bridges’s testimony at Mattei’s trial to show his potential motive to commit the murder at issue in this case.

ZALMA OPINION

Insurance policies should never pay the beneficiary who killed the insured as Mattei killed Williams, his wife. The fact of the insurance, the search for necessary documents to prove a life insurance claim, and the confession to a jail mate, were more than sufficient to establish a motive to kill Williams. Although motive is not necessary to prove the crime of murder, showing a motive makes it easier for a trier of fact to convict. May Mattei spend the rest of his life in prison.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

 

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Needed by Every Insurance Claims Professional

The Compact Books of Adjusting Insurance Claims

Read about these and other insurance books by Barry Zalma at https://zalma.com/blog and/or  https://zalma.com/blog/insurance-claims-library/ 

“The Compact Book of Adjusting Property Insurance Claims – Second Edition”

A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The obligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.

Insureds and insurers were not happy with that system. It made it too difficult for a lay person to successfully present a claim. The system, as written into the standard fire policy seemed to run counter to the covenant of good faith and fair dealing that had been the basis of the insurance contract for centuries. Most insurers understood that their insureds were mostly incapable of complying with the strict enforcement of the policy conditions. To fulfill the covenant of good faith and fair dealing insurers created the insurance adjuster to fulfill its obligation to deal fairly and in good faith with the insured.

The Second edition adds new material from 2018 and 2019, is easier to use and more compact than the original.

Available as a Kindle book.

Available as a paperback.

“The Compact Book on Adjusting Liability Claims, Second Edition”

A Handbook for the Liability Claims Adjuster

This Compact Book of Adjusting Liability Claims is designed to The Compact Book Of Adjusting Liability Claims Second Edition: A Handbook for the Liability Claims Adjusterprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

The liability claims adjuster quickly learns that there is little difficulty with a claimant (the person alleging bodily injury or property damage against a person insured) if the claim is paid as demanded. The insured may be unhappy if the claimant’s claim is paid as presented since most do not believe they did anything wrong or fear an increase in premiums charged for subsequent policies.

The adjuster must be prepared to salve the insured’s emotions, explain why in the law and the policy it was appropriate to pay the claimant and that the settlement is in the best interest of both the insured and the insurer the adjuster represents.
The adjuster knows, and must be prepared to explain to an insured, that if a claim is resisted or denied the claimant will be unhappy, will probably file suit. If not promptly settled the claimant’s lawyers will rake the insured over the coals to prove that the insured is liable for the claimant’s injuries. The litigation will take time, effort, and money to establish the extent of the injuries and who is responsible for the injuries. Failure to settle promptly can cost the insured his or her reputation and will certainly cost the insurer much more than the claim could have been resolved for had it been resolved before the claimant retained a lawyer.

Available as a Kindle book

Available as a paperback.

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Doctor’s Insurance Fraud & Malpractice Causes Revocation of License

Claiming No Point to Participate in Hearing Causes Doctor to Lose of License

Physicians, like all professionals, must be licensed by the state. Failure to fulfill the duties imposed on a physician by statute can result in a loss of the right to practice medicine. More importantly, acting criminally, misleading patients, or hurting patients will most often cause a doctor to lose his or her license.

In Kentucky Board of Medical Licensure v. Jon M. Strauss, M.D., NO. 2015-CA-001919-MR, Commonwealth of Kentucky Court of Appeals, (November 8, 2019) Dr. Strauss and his counsel did everything possible to delay the revocation proceedings rather than presenting a defense – perhaps because none existed. In part the delay actions kept him “practicing” medicine for about nine years until the Kentucky Supreme Court and the Kentucky Court of Appeals finally deprived him of the right to practice medicine.

FACTS

Following judicial review of an order entered by Kentucky Board of Medical Licensure (“KBML”) revoking the medical license of Jon M. Strauss, M.D., on December 10, 2015, the Jefferson Circuit Court, Division Nine, remanded the matter to KBML for further proceedings to include a review of the entire administrative record. KBML timely appealed, believing the Jefferson Circuit Court’s decision was contrary to plain statutory language and binding authority.

Challenges by Dr. Strauss to a 2010 KBML order placing him on probation went to the Supreme Court of Kentucky that rendered its Opinion in Kentucky Board of Medical Licensure v. Strauss, 558 S.W.3d 443 (Ky. 2018), reh’g denied (Nov. 1, 2018), cert. denied, 139 S.Ct. 1354, 203 L.Ed.2d 590 (2019) (“Strauss I”), which became final on November 1, 2018.

In August 2011, KBML received a grievance alleging Dr. Strauss demonstrated erratic behavior and engaged in a poor standard of care, failed to properly monitor his patients’ chronic conditions, engaged in questionable prescribing practices, committed insurance fraud, engaged in unethical and unprofessional behaviors, and abandoned patients. After a lengthy investigation, on June 20, 2013, a complaint was issued against Dr. Strauss’ medical license and an emergency order of restriction was entered contemporaneously which prohibited Dr. Strauss from prescribing, dispensing, or professionally utilizing controlled substances during the pendency of the complaint.

A hearing proceeded and Dr. Strauss identified no defense witnesses, exhibits, or evidence upon which he intended to rely. When the matter was called, counsel for Dr. Strauss indicated neither he nor Dr. Strauss would participate because “there is no point to it.” Counsel stated his belief the process was flawed, illegitimate, and a sham. After some discussion, both Dr. Strauss and his counsel left the hearing. The hearing officer subsequently issued a recommended order finding Dr. Strauss in default. KBML, through its hearing panel, issued an order of revocation.

Dr. Strauss sought judicial review and the trial court entered an order concluding the factual basis of the KBML order finding Dr. Strauss in default was supported by substantial evidence. However, the trial court remanded the matter upon finding KBML’s hearing panel abused its discretion when it reviewed only the complaint, recommended order, and exceptions, rather than the entire administrative record as required by KRS1 13B.120(1).

THE APPEAL

The sole issue before the court of appeal was whether state statutes required KBML to review the entire administrative record prior to rendering its final order. The Kentucky Supreme Court has provided clear and definitive authority on this precise question in Strauss I. There, after a lengthy discussion of the issue, the Supreme Court stated: “In sum, the Board is charged with considering the record including the recommended order and exceptions. The extent of the record consideration beyond the recommended order and exceptions is a matter committed to the Board’s sound discretion. Contrary to Strauss’s claim, KRS 13B.120 does not mandate an independent review of the entire record.”

On the strength of Strauss I, the court concluded the trial court erred in concluding KBML was required to review the entire administrative record and the failure to do so constituted an abuse of discretion.

The doctor’s right to practice in Kentucky was finally revoked after nine years of obfuscation.

ZALMA OPINION

A doctor who fails to deal reasonably with his patients and engages in insurance fraud is anathema to the medical profession. That he was able to fight the action of the state to revoke his license for ten years is a ridiculous abuse of the intent of the licensing law and establishes a need for improvement in the system and the actions of the courts. In this case, since there was evidence of criminal conduct – insurance fraud – the purpose of the statutory scheme could have been resolved by the arrest and conviction of the doctor. Counsel for the doctor was right – there was no point in defending the doctor.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

 

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Insurance Claims Library

“Insurance Fraud – Volume I & Volume II

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Read about these books and more insurance books by Barry Zalma at

Insurance Claims Library

In Two Volumes

 

Insurance fraud continually takes more money each year than it did the last from the insurance buying public. No one knows the actual amount with any certainty because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do

so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.

No one will ever be able to place an exact number on the amount lost to insurance fraud. Everyone who has looked at the issue knows – whether based on their heart, their gut or empirical fact determined from convictions for the crime of insurance fraud – that the number is enormous.

When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-government-based or funded insurers drops logarithmically. Since the appointment of Attorney General Sessions, the effort to stop insurance fraud against Medicare and Medicaid has increased.

This book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes.

It is available as both a legal research tool and a product to assist insurers, insurance company personnel, independent insurance adjusters, special investigation unit investigators, state fraud investigators and insurance lawyers to become effective persons involved in the attempt to defeat or reduce the effect of insurance fraud.

Volume One available as a Kindle book and a paperback.

Volume Two Available as a Kindle book and a paperback

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Small Fraud is Much a Crime as a Large Fraud

Insurance Fraud Conviction Affirmed Dispensing with Evidentiary Arguments

Insurance fraud convictions are rare. When a person is arrested, tried, convicted and sentenced for the crime of insurance fraud the perpetrator is – rightfully – surprised and immediately appeals the judgment even when there is no legal ground for the appeal. In Commonwealth of Pennsylvania v. Alvianette A. Kennedy, J-S42030-19, No. 3612 EDA 2018, Superior Court of Pennsylvania (October 15, 2019) Alvianette A. Kennedy was in just such a situation and appealed from the judgment of sentence imposed following her conviction of insurance fraud and securing execution of documents by deception.

FACTS

Kennedy was involved in a work-related car accident. Two months later Kennedy saw Anthony Salem, M.D., of Suburban Orthopedic Specialists. During the visit, Dr. Salem dictated notes regarding the appointment, which were later transcribed and placed in Kennedy’s patient file. The notes from the visit stated that Dr. Salem gave Kennedy a script which excused her from work due to her accident-related injuries.

Later, Kennedy made a claim to her insurance carrier, Esurance, for lost wages. In support of her claim, she faxed a packet of documents to Esurance. Included in the claim documents was a copy of the script from Dr. Salem. However, the script faxed to Esurance had been altered to include additional dates that Kennedy was purportedly excused from work. Based on the documentation submitted by Kennedy, Esurance issued her a check in the amount of $5,336.14 for lost wages.

After a dispute emerged between Esurance and Kennedy, Esurance conducted an internal investigation. Ultimately, the alteration of the script was discovered, and Kennedy was charged with insurance fraud. Following the trial, a jury found Kennedy guilty on both charges. The trial court imposed an aggregate sentence of five years of probation, and ordered Kennedy to pay restitution to Esurance in the amount of $5,336.14. Kennedy then filed an untimely post-sentence motion. On December 13, 2018, before the trial court ruled on the motion, Kennedy filed a notice of appeal.

ANALYSIS

The Commonwealth need not establish guilt to a mathematical certainty. The facts and circumstances established by the Commonwealth need not be absolutely incompatible with the defendant’s innocence. Any doubt about the defendant’s guilt is to be resolved by the fact finder unless the evidence is so weak and inconclusive that, as a matter of law, no probability of fact can be drawn from the combined circumstances.
The finder of fact is free to believe all, part, or none of the evidence presented, and determines the credibility of the witnesses.

A person commits the offense of insurance fraud by: “Knowingly and with the intent to defraud any insurer . . . presents or causes to be presented to any insurer . . . any statement forming a part of, or in support of, a claim that contains any false, incomplete or misleading information concerning any fact or thing material to the claim.” [18 Pa.C.S.A. § 4117(a)(2).]

A person acts “knowingly” when she is aware that it is practically certain that her conduct will cause such a result. Likewise, a person acts “intentionally” when it is her conscious object to engage in conduct of that nature or to cause such a result. Although the insurance fraud statute does not provide guidance on the meaning of the word “material,” the statute does not require an insured to cause actual injury to the insurer. There is no requirement that transference of insurer’s property must take place before crime occurs; rather, mere submission of any false statement done knowingly and with intent to defraud is sufficient to violate the statute.

A person commits the offense of securing execution of documents by deception if by deception he causes another to execute any instrument affecting or purporting to affect or likely to affect the pecuniary interest of any person.

Kennedy contends that the evidence was insufficient to prove that she sent Esurance an altered document with the intent to defraud, which was a requisite finding to both criminal charges. According to Kennedy, although the prosecution alleged that she submitted an altered doctor’s script which added dates excusing her from work, the Commonwealth did not establish that she altered the script, or sent the script to Esurance, or that the script induced Esurance to pay the claim. Kennedy acknowledges that the altered script was in Esurance’s possession, but points to her own testimony that she sent an unaltered script to Esurance. She also points out that no handwriting experts were introduced, and that neither her copy of the fax sent to Esurance, nor the Commonwealth’s copy contained a confirmation sheet listing the pages sent or received, or a date stamp documenting the transaction.

Although a conviction of insurance fraud requires an intent to defraud, and a conviction for documents by deception requires an intent to deceive, rare is the occasion when a party lays bare his or her subjective intent. Accordingly, the requisite intent to commit insurance fraud and documents by deception may be inferred from the surrounding circumstances. The evidence introduced at trial, when viewed in the light most favorable to the Commonwealth, established that Dr. Salem issued Kennedy a script excusing her from work for two days, as indicated by his office notes and the carbon copy of the original script that his office retained. The evidence also established that Kennedy faxed documents to Esurance in support of her wage loss claim, which included an altered version of the script to which several weeks of excused work days had been added.
Based on this evidence, the jury could properly infer that Kennedy, in an attempt to obtain insurance benefits that she was not entitled to receive, intentionally provided an altered script to Esurance seeking wage loss payments for days that she was not deemed unable to work, in an attempt to defraud and deceive it. The admission of evidence is solely within the discretion of the trial court, and a trial court’s evidentiary rulings will be reversed on appeal only upon an abuse of that discretion.

Kennedy contended that the altered script was improperly introduced as a business record through the testimony of James Cohn, one of Esurance’s Senior Special Investigators who was brought in to investigate her claim. Kennedy misapprehends the nature of the Uniform Business Records as Evidence Act. It is not essential to produce either the person who made the entries or the custodian of the record at the time the entries were made. Moreover, the law does not require that a witness qualifying business records even have a personal knowledge of the facts reported in the business record. As long as the authenticating witness can provide sufficient information relating to the preparation and maintenance of the records to justify a presumption of trustworthiness for the business records of a company, a sufficient basis is provided to offset the hearsay character of the evidence.

The court could discern no abuse of discretion in the trial court’s evidentiary ruling and the judgment of sentence was affirmed.

ZALMA OPINION

The Pennsylvania court refused to accept the defendant’s arguments because the evidence clearly established that the insurer was deceived by the presentation of a falsified doctor’s report. The fact that less than $6,000 was involved, the crime of insurance fraud was attempted and accomplished. Recognizing that no defendant will – responding to the fictional Perry Mason – confess to intent to deceive. The evidence was found to be sufficient to allow the jury to conclude that Kennedy intentionally acted to deceive the insurer, took money she knew she was not entitled to receive, and was appropriately convicted of the crimes with which she was charged.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

 

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Insurance Claims Library

Mold Claims & the Law of Unintended Consequences and the Tort of Bad Faith

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it for insurers and their claims staff to become insurance claims professionals.

Mold Claims”

This series of books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.Mold Claims Volume One: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Mold Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

•Mold;
•FungMold Claims Volume Two: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.i;
•Bacteria;

•Mold, fungi and bacteria claims; and
•Mold, Fungi, Bacteria litigation.

Thorough, yet practical, this series of books form the ideal gMold Claims Volume Three: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.uide for any professional who works in or frequently interacts with the insurance industry or is involved in litigation. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the mold volumes. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law as it relates to mold, fungi and bacterial infestations.

TMold Claims Volume Four: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.he author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.


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“The Law of Unintended Consequences and the Tort of Bad Faith”

The concept of unintended consequences is one of the building blocks of economics. Adam Smith’s “invisible hand,” the most famous metaphor in social science, is an example of a positive unintended consequence.

Most often, however, the law of unintended consequences illuminates the perverse unanticipated effects of legislation and regulation. In 1692 the English philosopher John Locke, a forerunner of modern economists, urged the defeat of a parliamentary bill desi

gned to cut the maximum permissible rate of interest from 6 percent to 4 percent. Insurance is controlled by the courts, through appellate decisions, and by governmental agencies, through statute and regulation. Compliance with the appellate decisions, statutes, and regulations—different in the various states—is exceedingly difficult and expensive.

The business of insurance is, unfortunately, subject to the law of unintended consequences as if it were on steroids.

Available as a paperback  

Available as a Kindle book

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Litigation Imposes Chilling Effect on Insurers Who Are Called upon to Obey the Fraud Reporting Statutes

Since Contractor Acted as an Unlicensed Public Adjuster She was Refused License

Lisa Loven, is a general contractor who applied for a public adjuster license with the Oklahoma Department of Insurance (the Department) although she had been acting as an unlicensed public adjuster at the time of the application. After she disclosed that a former client sued her for acting as an unlicensed adjuster, the Department opened an investigation regarding her application. Subsequently, the Department denied her application, and Loven appealed.

Lisa Gaye Loven v. Church Mutual Insurance Company and Jeffrey F. Hanes, Case Number: 116808, C/w 116954, 2019 OK 68, Supreme Court of the State of Oklahoma (October 22, 2019) during the appeal hearing while Loven sought a license as a public adjuster. Church Mutual Insurance and its adjuster Jeffrey Hanes provided information regarding their dealings with Loven as a general contractor when she contracted for storm repair work for two churches they insured. The appellate hearing officer affirmed the denial of her application as a public adjuster because she had illegally acted as an unlicensed public adjuster.

Loven sued Church Mutual and Hanes for intentional interference with a prospective economic business advantage. The trial court granted summary judgment to Church Mutual and Hanes because a state statute provides civil tort immunity to insurers who provide any information of fraudulent conduct to the Department. Loven appealed and the Court of Civil Appeals affirmed.

ISSUE

Whether a claim of the tort of intentional interference with a prospective economic business advantage requires a showing of bad faith, and whether the immunity protections provided by statute applied.

FACTS

On July 21, 2015, Loven submitted an online application with the Oklahoma Insurance Department (the Department) to become a licensed resident public adjuster. She disclosed, as required by her application, that she was currently being sued by a former client, Loc Nguyen, who alleged that Loven acted as a public adjuster without a license which is prohibited by the Oklahoma Insurance Adjusters Licensing Act. Due to this disclosure, the Anti-Fraud Unit of the Department opened an investigation. The Department denied Loven’s application.

An administrative appeal hearing was held. Church Mutual employees and Hanes testified at the administrative appeal hearing. The hearing examiner denied the application on the grounds that Loven negotiated client’s claim settlements and acted as an unlicensed adjuster and that she received inflated compensation through ownership of a construction business due to the claims she negotiated. The hearing examiner also determined that Loven had submitted a bogus invoice in the amount of $14,923.00 and added $2,984.59 for her overhead and profit on the bogus charge. The bogus charges related to the use of a crane when “lifts” were actually used instead of a crane on the CCBC repairs.

On March 30, 2016, the State of Oklahoma charged Loven and her subcontractor with felonies of filing a false claim for insurance and conspiracy to commit a felony, stemming from the crane invoice submitted to CCBC. The charges were eventually dismissed on June 9, 2016.

On October 13, 2016, Loven filed a lawsuit against Church Mutual and its adjuster Hanes in the District Court of Oklahoma County. She alleged that Church Mutual and Hanes intentionally interfered with her prospective business opportunity/economic advantage. She specifically asserted that they intentionally interfered with her attempts to get licensed as a public adjuster in retaliation for her actions which caused them to pay more in hail damage roof claims than they had offered to pay to ECC and CCBC.

On November 7 and November 10, 2016, Hanes and Church Mutual filed motions to dismiss, arguing that: they were obligated to follow the Oklahoma Insurance Code; they were subpoenaed by the Oklahoma Insurance Department as part of Loven’s investigation; and any information they gave was protected by immunity from Loven’s lawsuit pursuant an Oklahoma statute.

The trial court entered an order granting the defendants’ motion for summary judgment. It determined that the statute provided the defendants immunity from tort liability.

ANALYSIS

Loven argued that the statutory immunity only applies when an insurer reports suspected fraudulent activity and because Church Mutual or Hanes did not initiate a suspected fraud report against her with the Department, the statutory immunity is inapplicable to them. The Supreme Court of Oklahoma explained that the statute is plain and unambiguous and that when a statute is plain and unambiguous, there is no need to resort to statutory construction nor does any justification exist for the use of interpretive devices to fabricate a different meaning.

An insurance statute requires insurers such as Church Mutual to report suspected fraud. Subsection C of the statute provides civil or criminal immunity for the filing of reports or furnishing other information, either orally or in writing, concerning suspected, anticipated or completed fraudulent insurance acts to the Anti-Fraud Division of the Insurance Department.

The immunity expressly applies to either reports made or when an insurer furnishes information, either orally or in writing for an investigation or prosecution of suspected insurance fraud. The terms of the statute, insofar as to when immunity applies, are clear and unambiguous. If Church Mutual, or any other insurer, furnished information for an investigation or prosecution, as they did in this cause, they are protected from civil action for libel, slander or any other relevant tort or any criminal action.

The only exception for such immunity is if the insurer provides such information fraudulently, in bad faith, in reckless disregard for the truth, or with actual malice.

No evidence tends to show that either Church Mutual or Hanes acted with the intentional purpose to interfere or in bad faith in responding to the Department’s questions concerning their experiences in dealing with Loven. Nor is there any evidence that any interference was done with an improper, wrongful, or malicous motive.

The purpose of their interference was in response to the Department’s investigation, which was in response to Loven’s online application to be a public adjuster. Accordingly, Church Mutual and Hanes are entitled to immunity pursuant to 36 O.S. Supp. 2012 §363.22. Because no genuine issue of material facts exists, Church Mutual and Hanes are entitled to a judgment as a matter of law.

The Supreme Court, therefore, concluded that:

  1. The statute, 36 O.S. Supp. 2012 §363 provides immunity for those who report or provide information regarding suspected insurance fraud as long as they, themselves, do not act fraudulently, in bad faith, in reckless disregard for the truth, or with actual malice in providing the information; and
  2. the alleged tort of intentional interference with a prospective economic business advantage requires a showing of bad faith.

However, because no proffered evidence in this cause tends to show bad faith, the immunity provisions apply, and summary judgment was proper.

ZALMA OPINION

It has been said that no good deed goes unpunished. In this case, the good deed of Church Mutual in providing the information demanded of it by the state of Oklahoma Department of Insurance – as required by a clear and unambiguous statute – needed to invoke the immunity provisions of the same statute. By doing what it should Church Mutual had to expend funds to defend the suit, defend an appeal to an intermediate court and defend an appeal to the Supreme Court. There should be some way to recover costs incurred or this case will have a chilling effect on other insurers who are called upon to obey the fraud reporting statutes.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

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Everything Needed by the Insurance Claims Professional

Adjusting Property & Liability Claims

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it for insurers and their claims staff to become insurance claims professionals.

Read about these and other insurance books by Barry Zalma at https://zalma.com/blog/insurance-claims-library/

“The Compact Book of Adjusting Property Insurance Claims – Second Edition”

A Manual for the First Party Property Insurance Adjuster

The insurance adjuster is not mentioned in a policy of insurance. The obligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

The Compact Book of Adjusting Property Claims -- Second Edition: A Primer For The First Party Property Claims Adjuster.Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.

Insureds and insurers were not happy with that system. It made it too difficult for a lay person to successfully present a claim. The system, as written into the standard fire policy seemed to run counter to the covenant of good faith and fair dealing that had been the basis of the insurance contract for centuries. Most insurers understood that their insureds were mostly incapable of complying with the strict enforcement of the policy conditions. To fulfill the covenant of good faith and fair dealing insurers created the insurance adjuster to fulfill its obligation to deal fairly and in good faith with the insured.

The Second edition adds new material from 2018 and 2019, is easier to use and more compact than the original.

Available as a Kindle book.

Available as a paperback.

“The Compact Book on Adjusting Liability Claims, Second Edition”

A Handbook for the Liability Claims Adjuster

This Compact Book of Adjusting Liability Claims is designed to The Compact Book Of Adjusting Liability Claims Second Edition: A Handbook for the Liability Claims Adjusterprovide the new adjuster with a basic grounding in what is needed to become a competent and effective insurance adjuster. It is also available as a refresher for the experienced adjuster.

The liability claims adjuster quickly learns that there is little difficulty with a claimant (the person alleging bodily injury or property damage against a person insured) if the claim is paid as demanded. The insured may be unhappy if the claimant’s claim is paid as presented since most do not believe they did anything wrong or fear an increase in premiums charged for subsequent policies.

The adjuster must be prepared to salve the insured’s emotions, explain why in the law and the policy it was appropriate to pay the claimant and that the settlement is in the best interest of both the insured and the insurer the adjuster represents.
The adjuster knows, and must be prepared to explain to an insured, that if a claim is resisted or denied the claimant will be unhappy, will probably file suit. If not promptly settled the claimant’s lawyers will rake the insured over the coals to prove that the insured is liable for the claimant’s injuries. The litigation will take time, effort, and money to establish the extent of the injuries and who is responsible for the injuries. Failure to settle promptly can cost the insured his or her reputation and will certainly cost the insurer much more than the claim could have been resolved for had it been resolved before the claimant retained a lawyer.

Available as a Kindle book

Available as a paperback.

 

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Zalma’s Insurance Fraud Letter – November 15, 2019

 Zalma’s Insurance Fraud Letter 

Ethics & the Insurance Fraud Investigation

Uberrimae Fidei – Utmost Good Faith

Adapted from Barry Zalma’s book, in two volumes, “Insurance Fraud” now available from Amazon.com  with Volume One available as a Kindle book and a paperback and Volume Two Available as a Kindle book and a paperback. Other insurance books by Barry Zalma are available at https://zalma.com/blog/insurance-claims-library/

Insurance adjusters and fraud investigators, like everyone else, can become frustrated. Every adjuster and fraud investigator has had “gut feelings” about a case that are not supported by the evidence. Frustration faced by an adjuster was responsible for allowing the California Supreme Court the foundation for creating the tort of bad faith in first party insurance claims.
In 1973 an insurance adjuster, without sufficient evidence, caused his employer’s insured to be arrested for arson and fraud. The adjuster was frustrated by his failure to prove that a bar owner had destroyed his bar by arson a few years before and was convinced he had done so again. The adjuster told a police officer of his suspicions, past experience with the insured and his gut feeling that the insured caused the fire.
The insurer demanded that the insured appear for examination under oath in accordance with conditions of the policy. The insured refused to appear because of the arrest citing his First Amendment Right against self-incrimination, but offered to appear as soon as the criminal charges were resolved.
The California Supreme Court, in Gruenberg v Aetna Insurance Co., 9 Cal 3d 566, 108 Cal Rptr 480 (1973), concluded that unfounded actions by an investigator which caused an insured to be arrested for arson required the application of the new tort of bad faith to first-party insurance cases.
Coface North America Insurance Co. Settles Lawsuit with Alleged Fraudster Lawyer
An insurance company that sued an attorney over allegations he conspired with online fraudsters to steal more than half a million dollars meant for a policyholder has settled its claims with Villa Rica solo James “Jay” Davis III.
Coface North America Insurance Co. sued Davis in federal court in Atlanta in January, claiming unknown “John Doe” confederates used a bogus email account to hijack a $3.1 million settlement. The insurer discovered the ruse in time to recover most of the money from Davis’ trust account, but it said $552,766 was never accounted for.

In back-and-forth filings, Davis’ lawyers argued that Coface itself allowed the scam by ignoring clear signals of fraud, including grammatically garbled messages sent from a phony email account similar to the policyholder’s, except that its domain name ended in “.cf” rather than “.com.” The “.cf” internet domain is used for websites in the Central African Republic.Read the full article here.

 What Happens When an Insurance Lawyer act Unethically

Violation of the Rules of Professional Conduct

The practice of law demands more than knowledge of statutory and case law. It requires more than technical proficiency in the nuts and bolts of legal practice. A lawyer is an officer of the legal system whose conduct should conform to the requirements of the law, both in professional service to clients and in the lawyer’s business and personal affairs.
When a lawyer violates the Rules of Professional Conduct, whether committing or dealing with insurance fraud or some other misconduct, he or she can be disciplined by the local bar association and/or the state’s supreme court. Each state has its own disciplinary system managed by a group of investigators, lawyers and administrative law judges.
A lawyer who settled a case without client authorization, charged interest on money that he loaned to a client, converted client funds, failed to cooperate with state in an investigation, and provided false statements to the state is misconduct that amounts to a violation of the Rules of Professional Conduct in Louisiana. [Louisiana State Bar Ass’n v. Reis, 513 So. 2d 1173 (La. 1987).” In re Bell (La., 2019)]
In Georgia multiple, previous disciplinary cases addressing violations of various Rules of Professional Conduct have resulted in a reprimand. [In the Matter of Jordan, 305 Ga. 35 (823 SE2d 257) (2019); In the Matter of Smart, 303 Ga. 156 (810 SE2d 475) (2018).]
The violation of Rules of Professional Conduct is limited to the state Bar or the state Supreme Court. In Indiana, for example, there is no independent civil cause of action for a violation of the Indiana Rules of Professional Conduct, a breach of fiduciary duty claim against a lawyer is not viable. [Liggett v. Young, 877 N.E.2d 178, 183 (Ind. 2007)]
In Ohio, evidence established that a lawyer chose to ignore, rationalize, or act ignorant of the unambiguous limitations placed on him as a suspended attorney and because he has proven, time and time again that he cannot act as an ethical attorney, he must be permanently disbarred to protect the public. [Disciplinary Counsel v. Dougherty, 2019 OHIO 4418 (Ohio, 2019)]

Bad Faith Causes Bad Behavior 

In the 1950s, the California Supreme Court created a tort new to U.S. jurisprudence: the tort of bad faith.
A tort is a civil wrong from which one person can receive damages from another for multiple injuries. The tort of bad faith was created because an insurer failed to treat an insured fairly, and the court felt that the traditional contract damages were insufficient to properly compensate the insured. The court allowed the insured to receive, in addition to the contract damages that the insured was entitled to receive under the contract had the insurer treated the insured fairly, damages for emotional distress and punitive damages to punish the insurer for its wrongful acts.
Insureds, lawyers for insureds, regulators, and courts across the United States cheered the action of the California Supreme Court, for providing a fair remedy to abused insureds. Most of the states adopted the tort created by the California Supreme Court. Some enacted statutes allowing for litigation of the tort of bad faith. Many did so, like California, by judicial fiat.
After the creation of the tort of bad faith, if an insurer and insured disagreed on the application of the policy to the factual situation, damages were no longer limited to contract damages as in other commercial relationships. If the court found that the insurer was wrong, it could be required to pay the contract amount and damages for emotional distress, pain, suffering, punishment damages, attorney fees, and any other damages the insured and the court could conceive in order to deter other insurers from treating their insureds badly.
The courts and legislators adopting the tort of bad faith hoped that the tort of bad faith would have a salutary effect on the insurance industry and force insurers to treat their insureds fairly. However, even after claims for $40 wrongfully denied resulted in $5 million verdicts, the intended purpose of the bad faith cases and statutes were skewed. Juries, unaware of the reason for and operation of insurance, decided that insurers that did not pay claims were evil and that they wrote contracts so they never had to pay claims. The jurors were convinced it was appropriate to punish insurers severely even when the insurer’s conduct was correct and proper under the terms of its contract since no insurance policy can cover every possible eventuality.
The massive judgments were publicized, and many insurers decided fighting their insureds in court was too expensive regardless of how correct their position was on the contract. They found it less expensive to pay than to fight just as shop owners threatened by the Mafia decided it was better to pay protection to the Mob rather than fight.
Most of the massive verdicts were reversed or reduced on appeal. The bad actors raised their premiums and lost little business. Other insurers, faced with the massive verdicts, allowed fear to control reason, and paid claims that were improper or fraudulent.
The extra cost was passed on to all insurance consumers. The insurers who acted improperly were punished less than then honest insurers who were threatened with punitive damages. The insurers who treated their insureds badly, in fact, profited since they continued their wrongful acts and only were required to pay the few insureds that sued. Those insureds that did not sue added to the wrongdoers’ profit margins.
Honest insurers, fearful of being painted with the bad faith brush, paid frauds and claims they did not owe. As a result the insurers that paid claims they did not owe found they needed to raise premium charges to cover the extra expense. The increased premium paid by insureds to cover the extra expense was a clear example of the effect of the law of unintended consequences. The insurers and their insureds who paid rather than fight for fear of assessments of punitive damages, lost business and profits because they could not actuarially predict the cost of paying tribute to insureds and lawyers claiming the tort of bad faith.

Other Insurance Fraud Convictions

New Jersey Man Sentenced in Slip and Fall Insurance Scam 
Alexander Goldinsky, a New Jersey man is not going to prison for orchestrating a slip and fall insurance scam.
Under terms of a plea agreement, a judge on Monday instead sentenced 58-year-old Alexander Goldinsky to probation, community service and ordered him to pay $563.48 in restitution to an insurance company. Goldinsky had pleaded guilty to insurance fraud.
Middlesex County prosecutors say Goldinsky was an independent contractor working at a company in Woodbridge in 2018 when he threw ice on the floor in the cafeteria and laid down until he was discovered. He sought medical treatment claiming he had a head injury.

His prosecution was part of the state attorney general’s statewide insurance fraud crackdown.Defendants Make Admissions and Agree to Pay a Total of $5.99 Million

LIFE SPINE INC. (“LIFE SPINE”), MICHAEL BUTLER (“BUTLER”), the founder, president, and chief executive officer of LIFE SPINE, and RICHARD GREIBER (“GREIBER”), the vice president of business development of LIFE SPINE, have settled a civil healthcare fraud lawsuit with the United States that alleged that LIFE SPINE paid kickbacks in the form of millions of dollars of consulting fees, royalties, and intellectual property acquisition fees to surgeons to induce them to use LIFE SPINE’s spinal implants, devices, and equipment.
The surgeons who received these kickbacks accounted for approximately half of Life Spine’s domestic sales of spinal products from 2012 through 2018.  In the settlement, LIFE SPINE agreed to pay $5.5 million, BUTLER agreed to pay $375,000, and GREIBER agreed to pay $115,000.  Each defendant also made admissions and acknowledged and accepted responsibility for conduct alleged in the Government’s complaint as described further below.  The amounts paid by LIFE SPINE and GREIBER under the settlement are based on the Office’s assessment of their ability to pay based on the financial information they provided.

The Current Issue Contains the Following:

The Zalma on Insurance blog has posted over 2850 digests of insurance appellate decisions and other important insurance materials and articles published five days or more a week and are available at http://zalma.com/blog.

ZALMA ON INSURANCE

Zalma’s Insurance 101

Zalma’s Insurance 101 that consists of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.
If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.
The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library
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Everything Needed by the Insurance Claims Professional

“Insurance Fraud – Volume I & Volume II

Other insurance books by Barry Zalma available at https://zalma.com/blog/insurance-claims-library/

In Two Volumes

Insurance fraud continually takes more money each year than it did the last from the insurance buying public. No one knows the actual amount with any certainty because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do

so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.

No one will ever be able to place an exact number on the amount lost to insurance fraud. Everyone who has looked at the issue knows – whether based on their heart, their gut or empirical fact determined from convictions for the crime of insurance fraud – that the number is enormous.

When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-government-based or funded insurers drops logarithmically. Since the appointment of Attorney General Sessions, the effort to stop insurance fraud against Medicare and Medicaid has increased.

This book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes.

It is available as both a legal research tool and a product to assist insurers, insurance company personnel, independent insurance adjusters, special investigation unit investigators, state fraud investigators and insurance lawyers to become effective persons involved in the attempt to defeat or reduce the effect of insurance fraud.

Volume One available as a Kindle book and a paperback.

Volume Two Available as a Kindle book and a paperback

Other insurance books by Barry Zalma available at https://zalma.com/blog/insurance-claims-library/

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The Little Book on Ethics for the American Lawyer

The Ethical Practice of Law

Read the full article and more than 2900 posts at https://zalma.com/blog and For Mr. Zalma’s other insurance books go to https://zalma.com/blog/insurance-claims-library/.

This article is adapted from my new book The Little Book on Ethics for the American Lawyer now Available as a Kindle book here and Available as a paperback here. 

The Lawyer Must be Ethical

The practice of law demands more than knowledge of statutory and case law. It requires more than technical proficiency in the nuts and bolts of legal practice. A lawyer is an officer of the legal system whose conduct should conform to the requirements of the law, both in professional service to clients and in the lawyer’s business and personal affairs.

The practice of law requires that every lawyer treat each client, each adversary, and the court ethically and in good faith.

The practice of law is different from other professions because it requires that the lawyer act for his or her client, not him or herself, only if the actions for the client are ethical and in good faith.

What is Ethical Behavior?

The concept of ethical behavior refers to well-founded standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues, all of which are essential to the lawyer.

Ethics, for example, refers to those standards that impose the reasonable obligations to refrain from murder, rape, theft, assault, slander, and fraud.  Ethical standards also include those that imply virtues of honesty, compassion, and loyalty.

There are rights presumed to exist such as those described in the Declaration of Independence submitted to King George of England in 1776 that held: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of happiness.” The unalienable rights also include the right to life, the right to freedom from injury, and the right to liberty.  Such standards are adequate standards of ethics because they are supported by consistent and well-founded reasons.

Ethics also refers to the study and development of one’s standards of conduct. Feelings, laws, and social norms can deviate from what is ethical.  It is necessary, especially to people involved in the practice of law, to constantly examine one’s standards to ensure that they are reasonable and well-founded conduct that ethically treats a client, an adversary, and the court with the utmost good faith.

Ethics also requires the continuous effort of studying our own moral beliefs and our moral conduct. The ethical lawyer must strive to ensure that we, and the institutions we help to shape, live up to standards that are reasonable and solidly-based. To those in the practice of law – are compelled to deal ethically in everything the lawyer does in the practice of law. The practice of law, and every lawyer who practices law, is expected to develop a moral code of conduct that strives to ensure that every person involved in the practice of law, and the representation of the lawyer’s clients, will shape and live up to standards that are solidly based in the good faith handling of legal representation, whether as a litigator or a legal consultant.

There is no single answer to the question of what is ethical behavior by a lawyer. Ethical behavior is subjective and fact dependent. Philosophers over the centuries have created methods to act ethically.

The concepts defining ethical behavior are different and unlimited. Philosophers have struggled with the concept of ethics for more than three eons. Few agree on which to use. Some apply various concepts depending on the situation. Those in the practice of law must avoid situational ethics. It should not, and will not, apply in the practice of law whose only ethical mandate should be the need to treat clients, adversaries and the courts honestly, fairly and with good faith.

The Unethical Lawyer as a Criminal

When a lawyer acts criminally he or she acts unethically, violates criminal statutes and with moral turpitude that lawyer loses his or her right to practice law when they get out of jail. One example is Gottlieb v. Superior Court, 283 Cal.Rptr. 771, 232 Cal.App.3d 804 (Cal. App., 1991).

I knew Kenneth Gottlieb when I was a young adjuster and as a defense lawyer as a person who was suspected of acting as a serious fraud perpetrator. After many years defrauding insurers Gottlieb was eventually arrested.

Gotlieb, as the Court of Appeal noted, delayed trial after his arrest for multiple years. The prosecution and the court finally insisted he submit to trial. He then caused his lawyers to file a petition for a mandate stopping the trial. It was not successful and Gottlieb refiled his mandate petition. Gottlieb, a felony defendant asked the Court of Appeal to reconsider his challenge to the denial of his speedy trial motion.

Because the court viewed Gottlieb’s first petition to be totally without merit, and viewed the refiling of the petition with one additional exhibit to be unwarranted, it issued an order directing defendant’s appellate counsel, Trope and Trope, to show cause why monetary sanctions should not be imposed against it.

The premise of defendant’s claim of denial of a speedy trial is that a delay of 10 years from his indictment to commencement of trial (together with the attendant stigma and stress of long-pending charges) constitutes a denial of his speedy trial rights even though he caused or consented to all delay and never asserted objection to delay prior to filing his motion to dismiss.

The new petition was denied as frivolous and monetary sanctions were imposed against appellate counsel.

The facts that brought about this final attempt to stop an actual trial started in September 1981 when Gottlieb, an attorney, was indicted by a grand jury on 92 felony counts. The various counts alleged a conspiracy to commit numerous acts of insurance fraud, forgery, grand theft, and attempted grand theft against numerous insurance carriers and claimants.

On May 2, 1991, nearly 10 years after defendant was indicted and only 13 days before a May 15 trial date, defendant filed a motion to dismiss for denial of his state and federal speedy trial rights.

The delay was not claimed to have prejudiced the defense case. Defendant was at all times at liberty and, from my personal experience, probably continuing his work as counsel to, as well as a party to, insurance fraud.

The evidence presented by Gottlieb showed that all delay was either caused by defense motions for continuances, joint motions for continuances, vacated trial dates, defense motions to set aside the information (1985) and to recuse the District Attorney (1991), and the addition of a second private defense counsel, Trope and Trope (1991). None of Gottlieb’s exhibits suggested that the prosecution occasioned any delay, let alone delay without good cause. The court docket sheets showed that these continuances were upon stipulation by the parties.

Three days after denial of the first petition, defendant refiled.

The Court of Appeal concluded that there was no possible merit to the defense theory that the criminal justice system must engage in self-flagellation by dismissing serious prosecutions because a defendant who has claimed good cause for and stipulated to a long series of delays later claims the trial court and prosecution denied him a speedy trial by granting the delays he sought.

Defendant Gottlieb actively caused the 10-year delay and clearly did not want to go to trial. Here, there is more than the mere acquiescence of defendant in delay occasioned by the prosecution. Defendant Gottlieb was at all times represented by privately retained counsel and was promptly advised of his indictment. Defendant, an attorney, caused or consented to all the delays in his prosecution. He is charged with felony offenses involving moral turpitude. If convicted, his state bar license would certainly be revoked or suspended for a considerable time. During the pendency of the prosecution, he continues his ability to earn his livelihood practicing law.

That Gottlieb continued to make serious money while under indictment was confirmed by the fact that his moving papers included a declaration of attorney Alan M. Dershowitz, listed as “of Counsel” on the mandate petitions. This declaration states in the most general terms that defendant’s federal speedy trial contention is a legitimate argument because the state bears primary responsibility for bringing defendants to prompt trial. The declaration was, at most, a statement of conclusion and a most general treatment of the issue.

When Gottlieb’s counsel sought immediate and special attention from the court by filing a request for a stay two days prior to trial, the court expected counsel not to hinder its screening of the emergency petition by failing to provide apparently available exhibits or information. The court considered the total lack of merit of the first petition, defendant’s pattern of delay, and the fact the petitioner requested an immediate stay of an imminent May 15 trial.

We are mindful that criminal defense attorneys are charged with the duty of asserting, on behalf of their clients, all theories having possible merit. But this duty does not validate or excuse petitions for extraordinary writ review that are patently frivolous, ignore clearly controlling law, and are filed at such time and in such manner as to require the court to conclude that the petition was filed with the intent to delay and harass the courts and the prosecution.

The petition for writ of mandate filed May 15, 1991, was denied.

Gottlieb went to trial and was convicted shortly after the decision was made to deny his writ of mandate.

He served a short period of time in jail, voluntarily gave up his license to practice law, and shortly thereafter went into business as a “law clerk” and procurer of fraudulent auto accident and insurance claims business for other lawyers.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

For Mr. Zalma’s other insurance books go to https://zalma.com/blog/insurance-claims-library/

 

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Construction Defects, Mold and the Law of Unintended Consequences and Bad Faith

Books for the Insurance Professional or Buyer

Find these and other insurance books by Barry Zalma at https://zalma.com/blog/insurance-claims-library/

Construction Defects and Insurance”

Construction Defects and Insurance Volume One: The Structure, The Construction Contract, and Construction Defect InsuranceBarry Zalma has updated and re-edited his seminal work Construction Defects Coverage Guide into is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today eight Kindle or Paperback Volumes at reasonable prices.

Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry.

Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law.

The Eight volumes include:


Mold Claims”

This series of books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today.Mold Claims Volume One: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.

Written by nationally-renowned insurance coverage expert Barry Zalma, a semi-retired insurance coverage attorney, consultant, expert witness and blogger, Mold Claims provides in-depth explanations, analysis, examples, and detailed discussion of:

•Mold;
•FungMold Claims Volume Two: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.i;
•Bacteria;

•Mold, fungi and bacteria claims; and
•Mold, Fungi, Bacteria litigation.

Thorough, yet practical, this series of books form the ideal gMold Claims Volume Three: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.uide for any professional who works in or frequently interacts with the insurance industry or is involved in litigation. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the mold volumes. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law as it relates to mold, fungi and bacterial infestations.

TMold Claims Volume Four: Understanding insurance claims and litigation concerning mold, fungi, and bacteria infestations.he author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.


“The Law of Unintended Consequences and the Tort of Bad Faith”

The concept of unintended consequences is one of the building blocks of economics. Adam Smith’s “invisible hand,” the most famous metaphor in social science, is an example of a positive unintended consequence.

Most often, however, the law of unintended consequences illuminates the perverse unanticipated effects of legislation and regulation. In 1692 the English philosopher John Locke, a forerunner of modern economists, urged the defeat of a parliamentary bill designed to cut the maximum permissible rate of interest from 6 percent to 4 percent. Insurance is controlled by the courts, through appellate decisions, and by governmental agencies, through statute and regulation. Compliance with the appellate decisions, statutes, and regulations—different in the various states—is exceedingly difficult and expensive.

The business of insurance is, unfortunately, subject to the law of unintended consequences as if it were on steroids.

Available as a paperback  

Available as a Kindle book

 

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Disbarred from Practice of Law for Crime of Moral Turpitude

Sex with a 12-Year-Old is a Crime of Moral Turpitude Per Se

Lawyers are, by definition, required to be ethical in their dealings with clients, adversaries and in their life outside the law. The best and most effective way for a lawyer to be disbarred is to be convicted of a crime of moral turpitude.

In the Matter of: Justin Alan Torres, Respondent, A Suspended Member of the Bar of the District of Columbia Court of Appeals (Bar Registration No. 1003136), District of Columbia Court of Appeals Board on Professional Responsibility, D.C. App. No. 19-BG-276, Board Docket No. 19-BD-027, Disc. Docket No. 2019-D037 (July 31, 2019) the District of Columbia court spent a great deal of time explaining what a crime of moral turpitude is although it should have been obvious since Torres was convicted of sexual conduct with a child under the age of 13.

FACTS

Torres pleaded guilty, in the Court of Common Pleas of Cuyahoga County, Ohio, to multiple felony counts of gross sexual imposition.

Torres was admitted to the District of Columbia Bar on September 9, 2011. On November 29, 2018, he pleaded guilty to three counts of “gross sexual imposition” in violation Ohio Revised Code which provides that: “(A) No person shall have sexual contact with another, not the spouse of the offender; cause another, not the spouse of the offender, to have sexual contact with the offender; or cause two or more other persons to have sexual contact when any of the following applies: * * * (4) The other person, or one of the other persons, is less than thirteen years of age, whether or not the offender knows the age of that person.” (emphasis added)

On January 10, 2019, Respondent was sentenced to serve 36 months in prison on each count, to be served concurrently. On May 10, 2019, Disciplinary Counsel filed a statement with the Board recommending Respondent’s disbarment based on his conviction of a crime involving moral turpitude per se.

In response, Disciplinary Counsel argues that a sex crime involving children aged twelve and under inherently involves moral turpitude because it is not reasonable to confuse such a young child with a consenting adult.

ANALYSIS

D.C. Code § 11-2503(a) provides for the mandatory disbarment of a member of the District of Columbia Bar convicted of a crime of moral turpitude. Once the Court determines that a particular crime involves moral turpitude per se, disbarment is the mandated sanction. If the Board determines that the offense does not involve moral turpitude per se, it refers the matter to a Hearing Committee to determine whether the facts underlying the respondent’s crime involve moral turpitude.

A crime involves moral turpitude if the act denounced by the statute offends the generally accepted moral code of mankind, if it involves baseness, vileness or depravity in the private and social duties which a man owes to his fellow men or to society in general, contrary to the accepted and customary rule of right and duty between man and man, or if it is contrary to justice, honesty, modesty, or good morals.  The “idea of moral turpitude incorporates a revulsion of society toward conduct deeply offending the general moral sense of right and wrong.” In re McBride, 602 A.2d 626, 632-33 (D.C. 1992) (McBride II.)

Offenses that involve the touching, with lascivious intent, of the sexual organs of children under fifteen have been held to be crimes of moral turpitude per se when the offender knew the age of the victim, or was in a supervisory relationship with the victim such that knowledge of the victim’s age was presumed. The Ohio Statute, however, does not require the prosecution to prove that a defendant actually knew the victim’s age.

The court found that the answer here, as guided by the rule of reason, is clear. Torres was convicted of violating a statute that prohibits sexual misconduct with a child aged twelve or under. Thus, the Ohio Statute has an added requirement: a victim must be more than three years younger than the sixteen-year-old Ohio age of consent. That wide age gap ensures that an offender “should have known” that the molested child was incapable of consent. This is so, according to Ohio law, because the physical immaturity of a pre-puberty victim is not easily mistaken and engaging in sexual conduct with such a person indicates vicious behavior on the part of the offender.

A reasonable person would know that a child aged twelve or younger cannot consent to sexual contact. Although a twelve-year-old may look older than his or her chronological age, she will not think, talk or act like an adult. Victimizing such a child constitutes moral turpitude per se.

The Ohio Statute and the courts of that State have concluded that the touching of an erogenous zone of a child aged twelve or under for the purpose of sexually arousing or gratifying either person is criminal. Those who violate the Ohio Statute necessarily engage in behavior that constitutes moral turpitude per se.

The Board found that Respondent’s conviction involved moral turpitude per se.

Accordingly, the Board recommended that Respondent be disbarred.

ZALMA OPINION

Mr. Torres is lucky, he was only disbarred and sentenced to serve three years in prison for multiple acts of abuse of a per-pubescent minor. He may face danger in prison from the other prisoners but can use his legal knowledge and skill to protect himself. He should never be allowed in the future to represent a client or get near a child.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

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Adjusting the Commercial Property Loss

The Compact Book of Adjusting Property Claims Second Edition

A Primer For The First Party Property Claims Adjuster.

Adapted from Barry Zalma’s book, in two volumes, “The Compact Book of Adjusting Property Claims – Second Edition” now available from Amazon.com Available as a Kindle book and Available as a paperback. Other insurance books by Barry Zalma are available at https://zalma.com/blog/insurance-claims-library/

The insurance adjuster is not mentioned in a policy of insurance. The obligation to investigate and prove a claim falls on the insured. Standard first party property insurance policies, based upon the New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

The policy allows the insurer to then, and only then, respond to the insured’s proof of loss. The insurer can then either accept or reject the proof submitted by the insured.

The Compact Book of Adjusting Property Claims -- Second Edition: A Primer For The First Party Property Claims Adjuster.Technically, if the wording of the policy was followed literally the insurer could sit back, do nothing, and wait for the proof. If the insured was late in submitting the proof the insurer could reject the claim. If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss. If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Suit on the policy would be difficult because the policy contract limited the right to sue to times when the proof of loss condition had been met.

The adjustment of a commercial loss is performed in the same manner as any other property loss. The difference is one of tone rather than substance.

Adjusters who usually deal with a business entity, and its officers or employees, rather than an individual find claims handling is often, but not necessarily always, easier.

The experienced adjuster who deals with commercial claims usually has knowledge of the business and the people who operate the business. Some insurers even assign a single adjuster to a major commercial insured to handle all claims presented by the commercial insured. Familiarity and a good working relationship over a period of months or years benefits both the insured and the insurer.

A fire can be devastating for a business if the business is not rapidly put back to work after the fire is extinguished. The adjuster must recognize this fact and act quickly to complete a fair and thorough investigation.

To adjust the commercial property loss the adjuster must be familiar with the coverages and be ready to read and understand the policy using the efforts described above in Chapter 1.

An adjuster must always be absolutely certain which endorsements apply to the insured. The adjuster reviews the loss notice and re-reviews the coverages to ascertain which coverages apply to the type of loss reported. He or she makes immediate contact with the insured so that he or she may inspect the loss.

If there is a potential loss of earnings it is important to collect as much business documentation as possible so the history of the business can help the adjuster and his or her consultants to determine the amount of loss. Loss of earnings forms vary greatly. It is important that the terms and conditions are explained to the insured and why the adjuster should collect documents for analysis, possibly by a forensic accountant, including:

  • four years of corporate tax returns;
  • four years of profit and loss statements and balance sheets;
  • bank account statements and canceled checks;
  • one year of source documents on payroll, expenses, costs that continue, costs that do not continue, leases, contracts, and any other relevant business documents; and
  • if business information is kept on computers, the software used and a backup copy on a disk is necessary for the adjuster, or the retained forensic accountant, to work up the amount of loss.

The adjuster must always conduct a thorough investigation at the scene of the loss. He or she must establish the cause and origin of the loss, and obtain a general idea of the extent of the loss and what expert assistance will be required to complete the investigation and adjustment. If cause and origin of the loss are not obvious it is imperative that the adjuster retain the services of a cause and origin expert or engineer.

For example, if it is a fire loss, the adjuster must decide if a fire cause investigator is needed. If it is a theft or business interruption loss the adjuster must determine if the assistance of a forensic accountant is needed. If so, the adjuster should advise management that the loss requires the assistance of a company general adjuster who is more experienced and knowledgeable than the average adjuster.

If a general adjuster is not available the adjuster must determine whether the loss is too complex for his or her skill level or involves legal issues the adjuster will obtain authority to retain an insurance coverage lawyer experienced in major losses, commercial insurance coverage issues and/or potentially fraudulent claims. The attorney will provide advice and counsel to the adjuster who will assist, as a lawyer, the adjuster to make it possible to complete the adjustment of the complex commercial claim.

If, at any time in the investigation, it appears that the loss is suspicious, that there is a possibility that fraud is being attempted, that the co-insurance clause may come into effect, that there may be a penalty under the reporting form, or that a condition or warranty in the policy may have been violated by the insured, the adjuster must immediately ask the insured to sign a non-waiver agreement or issue a thorough reservation of rights letter.

The non-waiver agreement is a mutual agreement between the insured and the insurer that nothing done in the investigation of the claim will act to change the positions of the parties or waive any of the rights either party has under the contract. If the insured is unwilling to sign a non-waiver agreement because the insured does not understand it and wishes to seek the advice of counsel, the insured should be requested to seek that advice. However, since waiver could cause a problem the adjuster should not delay the investigation for more than the time necessary to issue and deliver a thorough and detailed reservation of rights letter to the insured.

The investigation continues pursuant to the reservation of rights. The non-waiver agreement and the reservation of rights letter are equally effective for maintaining the status quo while the investigation is being conducted; however, the non-waiver is preferred because it is a mutual agreement between the insured and the insurer while the reservation of rights is a unilateral statement of the insurer.

In Scottsdale Insurance Company v. MV Transportation, 115 P.3d 460, 36 Cal.4th 643, 31 Cal.Rptr.3d 147 (2005) the issue on appeal was whether an insurer that had properly reserved its rights could obtain reimbursement of its expenses of defending its insured against a third-party lawsuit where it was determined, as a matter of law, that the policy never afforded any potential for coverage and there was no duty to defend. The court held “yes.” In reaching its decision, the court discussed at length its prior holding in Buss v. Superior Court, 16 Cal. 4th 35 (1997).

A Colorado District Court found that the insurer properly asserted an exclusion from coverage. Moreover, Defendant’s reservation of rights sufficiently informed Plaintiffs of the potential grounds for denial of their claim, as the letter included Policy language describing several exclusions including wear and tear, deterioration, weather, and faulty construction, design, or maintenance—the same Policy language on which the insurer relied. [Gallegos v. Safeco Insurance Company of America, Not Reported in F.Supp.3d, 2015 WL 3526956 (D.Colo., 2015)

Though insurers sometimes send a reservation of rights letter, even when problems have not surfaced as a result of the initial investigation in first party cases, this function is merely to protect the insurer against claims of waiver and bad faith claims, Massachusetts Cas. Ins. Co. v. Rossen, 953 F.Supp. 311, 315 (C.D.Cal.1996. [Equitable Life Assur. Soc. of U.S. v. Schwartz, 291 Fed.Appx. 25, 2008 WL 3863428 (C.A.9 (Cal.) 2008)]

Some cases indicate that a reservation of rights letter somehow causes an insured to anticipate litigation, the Southern District of Florida did not find the case persuasive. [Gables Condo. and Club Ass’n, Inc. v. Empire Indem. Ins. Co. (S.D. Fla., 2019)]

Read about this and more than 2850 posts at https://zalma.com/blog.

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Ethics & the Insurance Fraud Investigation

Uberrimae Fidei – Utmost Good Faith

Adapted from Barry Zalma’s book, in two volumes, “Insurance Fraud” now available from Amazon.com  with Volume One available as a Kindle book and a paperback. and Volume Two Available as a Kindle book and a paperback. Other insurance books by Barry Zalma are available at https://zalma.com/blog/insurance-claims-library/

Insurance adjusters and fraud investigators, like everyone else, can become frustrated. Every adjuster and fraud investigator have had “gut feelings” about a case that are not supported by the evidence. Frustration faced by an adjuster was responsible for allowing the California Supreme Court the foundation for creating the tort of bad faith in first party insurance claims.

In 1973 an insurance adjuster, without sufficient evidence, caused his employer’s insured to be arrested for arson and fraud. The adjuster was frustrated by his failure to prove that a bar owner had destroyed his bar by arson a few years before and was convinced he had done so again. The adjuster told a police officer of his suspicions, past experience with the insured and his gut feeling that the insured caused the fire.

The insurer demanded that the insured appear for examination under oath in accordance with conditions of the policy. The insured refused to appear because of the arrest citing his First Amendment Right against self-incrimination, but offered to appear as soon as the criminal charges were resolved.

The California Supreme Court, in Gruenberg v Aetna Insurance Co., 9 Cal 3d 566, 108 Cal Rptr 480 (1973), concluded that unfounded actions by an investigator which caused an insured to be arrested for arson required the application of the new tort of bad faith to first-party insurance cases.

Gruenberg created, by his suit against his insurer, a tort of first party bad faith. The California Supreme Court ruling on a demurrer where the court is required to consider true everything alleged in the complaint, said:

We conclude that plaintiff has stated facts sufficient to constitute a cause of action in tort against defendant insurance companies for breach of their implied duty of good faith and fair dealing; that plaintiff’s failure to appear at the office of the insurers’ counsel in order to submit to an examination under oath and to produce certain documents, as appearing from the allegations of the complaint, is not fatal to the statement of such cause of action; and that plaintiff has stated facts sufficient for the recovery of damages for mental distress whether or not these facts constitute “extreme” or “outrageous” conduct.

The reason the Supreme Court found a need to allow tort damages was the improper and unethical actions of the adjuster that caused Gruenberg to be wrongly arrested.

ETHICS

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior. Ethical behavior is required of both parties to a contract of insurance for the system to work. Ethics is the essence of insurance. The concept of the utmost good faith is, by definition, a call for ethical behavior by the parties to a contract of insurance.

The insurance contract since modern insurance was first created was founded on the concept of Uberrimae Fidei. The phrase is used to express the principle that a contract must be made in perfect good faith, concealing nothing. In the case of insurance both the insured and the insurer must observe the most perfect good faith towards each other. Insurers and reinsurers are dependent on utmost good faith. It may be viewed as a legal rule but also as a tradition honored by insurers and reinsurers in their ongoing commercial relationships.

An ethical insurer with knowledge of the risks being taken equal to or better than that of the person insured, may not, in good faith, claim that material facts were concealed from him because utmost good faith required the underwriter to use his superior knowledge to favor the insured. An insurer can only exercise the discrimination required of it in selecting the risks it decides to take if it deals with an ethical insured who makes known to the insurer all of the facts relative to the risk the applicant is asking the insurer to assume. It certainly cannot, as it was alleged Mr. Busching did in the Gruenberg case, cause the police to arrest the insured by misrepresenting material facts to the police investigator.

Demonstrating high moral and ethical standards are vital to success in the insurance business. Insurers that have a clear vision based on ethical practices should be more successful over the long term than organizations suffering ethical lapses. Ethical insurers seldom face litigation for the tort of breach of the covenant of good faith and fair dealing. At most, if they dispute an obligation under a policy of insurance, they are compelled to pay the indemnity promised by the contract. Unethical insurers who breach the covenant are compelled to pay contract and tort damages.

Ethical values in an organization like an insurer are logically connected with success of the organization. Success follows ethical behavior because the insurer that stresses high ethical standards will also stress quality, fair, and thorough claims service. It is quality claims service that the contract of insurance promises. The insurer that provides consistent, ethical, high quality insurance claims service will usually be successful over a period of time because such service is what is promised by the policy. The insurer that does not provide consistent, ethical, high quality insurance claims service will usually fail over a period of time once the people they insure learn that the promises made by the policy will not be kept.

The claims professional may be the only contact a policyholder ever makes with the insurer. The quality of the service provided by the claims adjuster, the claims investigator and/or the Special Investigative Unit (SIU) investigator all of whom are supported by the high ethical values of the insurer, has a direct bearing on all future relationships and contact with the policyholder.

Reasonable people will always be willing to pay more for honest, professional, ethical service than for unethical, and fraudulent promises of service. The ethical insurer’s policies will be renewed even if a less ethical insurer offers the insured a lower premium.

An insurer can only exercise the wise discrimination required of it when it selects the risks it desires to insure when it acts toward those it insures ethically and requires that he who would be an insured deal with the insurer ethically and in good faith.

Demonstrating high moral and ethical standards are vital to success in the insurance business. Insurers that have a clear vision based on ethical practices should be more successful over the long term than organizations suffering ethical lapses. The profitability of an insurer is not based on one quarter’s earnings but its earnings over a quarter of a century.

Ethical insurers seldom face litigation for the tort of bad faith. At most, if they dispute an obligation under a policy of insurance they are compelled to pay the indemnity promised by the contract. Unethical insurers who breach the covenant of good faith and fair dealing are eventually compelled to pay contract, tort and often punitive damages.

Ethical values in an organization like an insurer are logically connected with success of the organization. Success follows ethical behavior because the insurer that stresses high ethical standards will also stress quality, and the fair, thorough and ethical claims service promised by the policy.

In the absence of a plain indication of dominant public policy through long governmental practice or statutory enactments, or of violations of obvious ethical or moral standards, a court will not assume to declare contracts contrary to public policy will usually await legislative action.

Ethical Behavior & Success

To understand the connection between ethics and quality service, it is important to understand the meaning of ethical values in the insurance context. The ethical insurer and its ethical claims and underwriting staff must treat the insureds and claimants with whom they come in contact honestly, fairly and with utmost good faith. The contact must reflect the highest integrity, respect and empathy for the people who need the service of the insurer. Finally, the insurer must reflect a high level of trustworthiness, fairness; honesty and personal accountability.

Vince Lombardi reportedly said:

The quality of a person’s life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor.

The statement applies equally to football – about which Lombardi was speaking – and insurance. Excellence in the organization depends on the high ethical values and excellence of its members. Without excellence in claims handling and underwriting coupled with ethical behavior and conduct, an insurer will almost certainly fail. The insurer that demands excellence in claims handling and underwriting within the confines of ethical conduct and values will invariably succeed.

ZALMA OPINION

The ethical representative of an insurer investigating the possibility that a claim is fraudulent will pursue all of the investigative conduct fairly, thoroughly and with the utmost good faith. It is important that an investigator catch those who would attempt to defraud an insurance and defeat that attempt but the actions of the investigator must be performed ethically, fairly and in good faith.

An insurance fraud investigator should be totally and thoroughly trained to recognize insurance fraud in all of its forms and to understand insurance and insurance policy interpretation. All of the training will be wasted if, however, the insurer falls into the trap that adjuster Busching fell into and resulted in the California Supreme Court decision in Gruenberg.

No insurer should allow, or even consider allowing a claims handler or underwriter to:

  1. Violate the rights of an insured;
  2. Falsely accuse someone of fraud, or
  3. Succumb to frustration and create evidence of fraud that is false.

Such conduct can be dangerous to the insurer’s bottom line. In addition the individual employee may find himself or herself a defendant of a civil or criminal action. The only protection against the overzealous investigator or claims person is to properly train and support the insurer’s claims and anti-fraud personnel. An ethical fraud investigator will do a thorough and complete investigation. He or she will never accuse an insured of fraud without first obtaining a preponderance of the evidence sufficient establish a defense of fraud and potentially sufficient for a prosecutor to bring a criminal case for insurance fraud. The ethical fraud investigator will never: Lie to a prosecutor or police officer; Lie to an insured; Lie to a claimant; Make promises that cannot be kept; Create false evidence; or Puff up weak evidence as if it is strong and reliable.

While a lawyer is expected to advocate his client’s case vigorously, parties are entitled to a fair trial on the merits of the case, uninfluenced by appeals to passion or prejudice. [Badalamenti v William Beaumont Hosp-Troy, 237 Mich App 278, 292; 602 NW2d 854 (1999)] As long as attorneys will resort to such methods, unjustifiable either in law or ethics, courts have no alternative but to set the verdicts aside. [Hunt v Freeman, 217 Mich App 92, 95; 550 NW2d 817 (1996); Silas v. Secura Ins. Cos. (Mich. App., 2017)]

The ethical fraud investigator protects the insurer, the insured and the claimant by conducting a full, thorough, complete and fair investigation.

 

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He Who Represents Himself has a Fool for a Client

Release of all Claims Defeats Bad Faith Suit

First party property insurers seldom use a release of all claims to resolve a fire claim. The only time a release is used is when there is a serious dispute between the insurer and the insured and threats of extra-contractual litigation. For example if an insurer believes the insured committed fraud or attempted an arson for profit but has insufficient evidence to prove the fraud without years of serious litigation, a settlement paying more than indemnity, but less than the cost of the litigation, will be reached with a release. Similarly, if the insured is litigious, threatens a bad faith suit on first contact, a release might be required to protect the insurer from unnecessary litigation.

In Perfection, LLC D/B/A Carl Krueger Construction, Inc., Liberty Mutual Group Inc., v. Edward Cole, A/k/a Carl Cole D/b/a North Shore Station, NNS, LLC D/B/A North Shore Station, Cecole Properties, LLC, Debtor, Appeal No. 2017AP242, State of Wisconsin in Court of Appeals District II (October 23, 2019) Edward Cole appealed, acting pro se (as his own lawyer), from a judgment which held him liable to Perfection, LLC and eliminated his case against his insurer.

FACTS

This case arises out of a fire loss that occurred at Cole’s laundromat business on January 12, 2013. Cole’s business had insurance coverage with Liberty Mutual. In furtherance of his insurance claim, Cole submitted expenses relating to his retention of a restoration contractor (Perfection).

After exchanging multiple emails, Cole and Liberty Mutual reached an agreement as to the final amount of the insurance claim. Liberty Mutual agreed to pay Cole a total of $298,232.99. In return, Cole signed a policy release in which he agreed to release all claims against Liberty Mutual, including any extra contractual claims.

On February 28, 2014, Perfection filed suit against Cole for breach of contract, alleging that he had withheld payment for some of its work. Cole filed counterclaims against Perfection, asserting breach of contract and breach of warranty. He also filed a cross-complaint against Liberty Mutual, alleging that it had acted in bad faith. In order to pursue this latter claim, Cole sought to rescind the policy release executed eight months earlier, claiming that he had signed it under duress.

Liberty Mutual sucessfuly moved for summary judgment, seeking dismissal of Cole’s cross-complaint.  The court refused to allow Cole to rescind the policy release because he did not, as a matter of law, show the elements necessary to establish duress.

As the new trial date approached, Cole’s new attorney also moved to withdraw, citing disagreement with Cole over strategy. Cole asked the court to reject the motion; however, he also began acting pro se, submitting numerous filings. Ultimately, the court denied counsel’s motion, noting that it had “gone through this before” and wanted to keep the case on track. Accordingly, it refused to consider Cole’s pro se filings.

The matter proceeded to trial where a jury found Cole liable to Perfection for breach of contract and punitive damages. The jury rejected Cole’s counterclaims against Perfection.

ANALYSIS

Perfection’s action was fully litigated in state court with the jury. Cole claimed that the circuit court erred when it dismissed his cross-complaint against Liberty Mutual. He accuses the court of failing to consider facts in support of his bad-faith claim.

Summary judgment is appropriate if there are no genuine issues of material fact and one party is entitled to judgment as a matter of law. The Court of Appeals was satisfied that the circuit court properly granted Liberty Mutual’s motion for summary judgment because, regardless of the merits of Cole’s bad-faith claim, the policy release barred him from bringing it.

ZALMA OPINION

Mr. Cole was not a very reasonable insured. He caused Liberty to enter into a negotiated settlement raising enough concern that it required – to effect the settlement for more than it believed it owed – required that Cole sign a release of all claims including extra contractual (bad faith) claims. Liberty was right about Cole. Cole’s lawyers begged to be relieved of the obligation to represent him. Even with the release Liberty was sued for bad faith and needed to make a summary judgment motion and defend that motion on appeal. The release protected Liberty but Cole still cost them a great deal of money defending against his frivolous suit and appeal.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

 

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Homeowners Policy & Insurance Claims Materials

Everything Needed by the Insurance Claims Professional

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance f raud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

“THE HOMEOWNERS INSURANCE POLICY”

 HOW TO BUY AN APPROPRIATE HOMEOWNERS POLICY AND SUCCESSFULLY MAKE A CLAIM TO THE INSURER

Insurance is a contract between a person seeking insurance and an insurer. It is obtained by making contact with the insurer as a prospective insured seeking insurance. The homeowners policy is a specialized policy of insurance that protects the homeowner from certain risks of loss to the real and personal property at the home, the exposure the insured faces for injury to a household employee, and the exposure the insured faces to liability for bodily injury or property damage caused to third parties. The book explains how to buy a homeowners policy and how to collect on any claim made to the homeowners insurer.

Paperback Book     Kindle Book

Ten Volumes Comprising A Comprehensive Group of Materials on Property & Casualty Insurance Claims

Insurance claims professional and expert witness Kevin Quinley said about the following ten volumes: “Zalma’s series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner.

Insurance Maven Bill Willson said: “Zalma On Insurance Claims” is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide belongs in the library of every insurance defense AND policyholder law firm. It should be a part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these parts should be part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers.”

This series of books is the latest addition to Barry Zalma’s insurance claims series of books and articles that will form the most thorough, up-to-date, expert-authored insurance claims guide available today. Thorough, yet practical, this series of books form the ideal guide for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from the ten volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law. A Comprehensive Review of insurance, insurance claims, the law of insurance policy interpretations, the practicalities of Property, Casualty and Liability Insurance Claims.

Zalma on Insurance Claims Volume 101 – Second Edition”

A Comprehensive Review of insurance, insurance claims, the law of insurance and policy interpretation Paperback – July 17, 2019

This volume covers

  1. WHAT IS INSURANCE?
  2. THE HISTORY OF INSURANCE,
  3. ACQUISITION OF THE POLICY,
  4. CLAIMS PERSONNEL,
  5. KINDS OF INSURANCE POLICIES,
  6. THE LIABILITY POLICY.

The author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.

Available as a paperback

Available as a Kindle Book

Zalma on Insurance Claims Part 102 – Second Edition”

This the second edition of the second volume in the latest addition to Barry Zalma’s insurance claims series of books and articles is part of the most thorough, up-to-date, expert-authored insurance claims guide available today. Zalma on Insurance Claims, part 102 provides in-depth explanations, analysis, examples, and detailed discussion of: •  Other Insurance Clauses; •   Trigger of Coverage; •    Underwriting; •    Conditions, Warranties and Exclusions

The author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.

Available as a Kindle book

Available as a paperback 

“Zalma on Insurance Claims Part 103 Second Edition”

A Comprehensive Review of the law and Practicalities of Property, Casualty and Liability Insurance Claims. Insured, Insurer, adjusting.

The Implied Covenant of Good Faith and Fair Dealing

The principle on which insurance has existed for the last three to four centuries is that insurance business is conducted with the utmost good faith (uberrima fides). The principle, called a covenant of good faith and fair dealing, must be followed religiously by both the insurer and the insured. This means, simply, that both parties to the insurance contract must treat each other in such a way that neither will deprive the other of the benefits of the contract.

This, the third part of Zalma on Insurance Claims and includes materials concerning:
This is part 103 of Zalma on Insurance Claims and will deal with:

•The Covenant of Good Faith and Fair Dealing
•Duties of the Insured and the Insurer
•Declaring a Policy Void
•Processing a Claim
When read with Part 101 and Part 102, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Available as a Kindle Book

Available as a paperback

Zalma on Insurance Claims Part 104″

This, the fourth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation of First Party Property Claims
  2. Rescission
  3. The Mortgage Clause
  4. Fortuity & Other Issues
  5. Determine the Amount of the Loss
  6. The Claim File

When read with Part 101, Part 102, and Part 103, this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 105″

This, the fifth volume of Zalma on Insurance Claims and includes materials concerning:

  1. Investigation – Liability
  2. Claims Made and Reported Policies
  3. The Notice Prejudice Rule.
  4. Types of Torts
  5. The Liability Claims File
  6. Discovery of the Insurance Claims File
  7. Tests for Determining Duty to Defend
  8. Appendices – forms for the claims person

When read with Insurance 101, Insurance 102, Insurance 103 and 104, this volume works to take the reader to a complete understanding of insurance and insurance claims.

“Zalma on Insurance Claims Part 106 Second Edition”

A Comprehensive Review of the law and Practicalities of Property, Casualty and Liability Insurance Claims Paperback 

This latest addition to Barry Zalma’s insurance claims series of books and articles is part of the most thorough, up-to-date, expert-authored insurance claims guide available today. Written by nationally-renowned insurance coverage expert Barry Zalma, an insurance coverage attorney, consultant, expert witness and blogger.

Thorough, yet practical, this book is the ideal guide for any professional who works in or frequently interacts with the insurance industry. Claims professionals, risk managers, producers, underwriters, attorneys (both plaintiff and defense), and business owners will benefit greatly from this multiple volume guide. It is also the perfect resource for insurance educators, trainers, and students whose role requires an understanding of insurance law.

The author has provided checklists, sample procedures, form letters, tables and information and references to model statutes, state statutes, administrative regulations, and requirements of insurance departments nationwide.

This is the sixth part of “Zalma on Insurance Claims” and will deal with:

  1. Property Insurance & the Tort of Bad FaithChapter
  2. Grounds for Finding Bad FaithChapter
  3. Avoiding Charges of Bad FaithChapter
  4. Punitive DamagesChapter
  5. Bad Faith & Liability Insurance.
  6. Defenses to the Tort of Bad Faith
  7. The appendices also include full text of important insurance law cases and statutes.

Zalma on Insurance Claims Part 107 – Second Edition”

This is the seventh part of “Zalma on Insurance Claims” and will deal with:

1.Evaluation and Settlement – Property
2.Evaluation and Settlement – Liability
3.Subrogation
4.Salvage

When read with Part 101, Part 102, Part 103, Part 104, Part 105 and Part 106 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 108 -Second Edition”

This, the eighth part of Zalma on Insurance Claims, includes materials concerning:

1.Preparing a case for trial
2.Interviewing Techniques
3.The art of the Interview
4.Interview General Principles
5.The Interviewer
6.Preparing for the Interview
7.Beginning the Interview
8.Control Of The Interview
9.Dealing with Witness Types
10.Approaches the Work
11.Dealing with the Nervous Person
12.Bluffs
13.The Mutability Of Memory
14.The Examination Under Oath

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106 and Part 107 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 109 Second Edition”

This, the ninth part of Zalma on Insurance Claims, includes materials concerning:

•Identifying Insurance Fraud
•Professional Conspiracies
•Multiple Types of Insurance Fraud
•How to Join the Fraud Fight
•Case Studies of Successful Fraud Investigations
•Checklist 1 – Types of Insurance Fraud
•Checklist 2 – Training Adjusters
•Checklist 3 – Red Flags of Fraud – Property Insurance
•Checklist 4 – Red Flags of Fraud – Liability Insurance
•Appendix A – Commonly Used Medical Acronyms and Abbreviations
•Appendix B – Glossary of Medical Terms

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107 and Part 108 this volume works to take the reader to a complete understanding of insurance and insurance claims.

Zalma on Insurance Claims Part 110 Second Edition”

This, the tenth part of Zalma on Insurance Claims, includes materials concerning:

•Responses to Fraud
•Grounds for Rescission.
•The Fight Against Fraud
•Checklist 1—Responses to Fraud
•Checklist 2 – The Fight Against Fraud

When read with Part 101, Part 102, Part 103, Part 104, Part 105, Part 106, Part 107, Part 108 and Part 109 this volume works to take the reader to a complete understanding of insurance and insurance claims.

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No Good Deed Goes Unpunished

Consent to Judgment – a Contract – not an Excess Judgment

Liability insurers are in business to pay claims. When liability is clear and the injuries incurred by the claimant are severe an insurer will usually offer up the limits of its liability to the claimant. People who wish to turn a liability claim into a bad faith suit will often seek a settlement with the defendants, obtain a consent to judgment for millions of dollars more than the policy limit. When the limits are paid and, as here, refused the good faith of the insurer is, by litigation, attempted to be changed to a bad faith case seeking the amount consented to and punitive damages.

In David Madison Cawthorn v. Auto-owners Insurance Company, No. 18-12067, United States Court of Appeals for the Eleventh Circuit (October 25, 2019) David Madison Cawthorn appealed the District Court’s grant of summary judgment in favor of Auto-Owners Insurance Company on a third-party bad faith insurance claim.

FACTS

David Madison Cawthorn and Bradley Ledford were traveling together from Florida to North Carolina on April 3, 2014. Ledford was driving a vehicle owned by his father’s business, Bob Ledford’s RV & Marine, Inc. (“Bob’s RV”). While his friend drove, Cawthorn slept in the passenger seat. Ledford fell asleep at the wheel and crashed into a concrete barrier. He sustained no injuries, but Cawthorn, whose feet were on the dashboard, sustained serious injuries resulting in paralysis from the waist down.

Serious injuries bring serious medical bills, so the parties had to think about liability and insurance coverage. At the time of the accident, Bob’s RV was insured through Auto-Owners Insurance Company (“Auto-Owners”). Bob’s RV was covered by two Auto-Owners policies: a $1 million Garage Liability Policy and a $2 million Commercial Umbrella Policy, for $3 million of total coverage. Ledford was a scheduled driver under the Garage Liability Policy.

A Florida adjuster, Pamela McLean, was assigned to handle the claim. McLean gathered information about the accident throughout April, such as the details of the accident and Cawthorn’s injuries, and determined that the insured, Ledford, was at fault. At the end of the month, McLean opened a reserve for $3 million, the policies’ combined limits.

Between April and June, McLean sought Cawthorn’s medical records, which she needed to process his claim. McLean explained to Cawthorn’s father the $3 million policy limits.

According to Cawthorn, he would have accepted $3 million before June 11. But because of the June 11 phone call, the Cawthorns distrusted Auto-Owners and decided they would no longer be willing to settle. So Cawthorn hired a lawyer, Joseph Kalbac.

Cawthorn sued Ledford and Bob’s RV for negligence in Florida state court., Auto-Owners hired attorneys to represent Ledford and Bob’s RV.

McLean tendered two checks to Kalbac, totaling $3 million. Auto-Owners still had not received Cawthorn’s medical records but had received a notice of a lien from Cawthorn’s health insurance company, which constituted enough to process the claim. Kalbac returned the checks, rejecting the tender.

McLean (on behalf of Auto-Owners) responded to the proposal: “[W]e continue to be willing to pay Mr. Cawthorn the full $3 million . . . while continuing to provide a defense to Mr. Ledford . . . . As for a future consent judgement [sic] against [Ledford], that will be solely up to [Cawthorn], you and [Ledford’s counsel].”

A settlement was reached. There was no signature line for Auto-Owners on the final agreement, and there is no evidence that Auto-Owners saw the agreement. Under the terms of the agreement, Auto-Owners would tender $3 million to Cawthorn for a full release of Bob’s RV. Ledford also agreed to a $30 million consent judgment against him, and Ledford assigned to Cawthorn his rights to sue Auto-Owners for its conduct during the insurance claim. Finally, Cawthorn agreed not to record the consent judgment against Ledford and to deliver to Ledford a full and complete satisfaction of the consent judgment, regardless of the outcome of the future bad faith claim.

Auto-Owners tendered $3 million to Cawthorn and Cawthorn accepted. Cawthorn then filed this bad faith suit in December 2016, under assignment of Ledford’s rights, seeking $30 million.

ANALYSIS

Bad faith claims arise when a party incurs liability that is covered by his insurance policy, but due to the alleged bad faith of his insurance company, the liability is higher than the policy limits. These claims are rooted in the same logic as negligence claims, although some states (like Florida) impose a heightened duty of care.

In a bad faith claim, a plaintiff must show that:

1. The insurer owed the insured a duty,
2. the insurer breached its duty, AND
3. the breach caused the insured to suffer an injury.

Duty is straightforward. Florida law imposes a duty of good faith. Insurance companies must settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so. The insurer must also defend its insured.

Causation is proved with an excess judgment, which is a judgment above the insurance policy limits. Causation is a prerequisite for the claim: for an insured to bring a bad faith claim, the injured party must first win an excess judgment. This is known as the “excess judgment rule.”

The excess judgment rule prevents courts from deciding cases without jurisdiction. There is not a case or controversy before there is an excess judgment. Until the insured is subjected to an excess judgment, any contention that he will be liable beyond policy limits rests upon contingent future events that may not occur as anticipated, or indeed may not occur at all.

As with all rules, this one has some exceptions. This case turns on causation, which means it turns on whether the Cawthorn-Ledford consent judgment constitutes an excess judgment or a functional equivalent. Cawthorn’s claim is not an agreement because Auto-Owners was not a party to the consent judgment. Cawthorn’s claim is not excused because Auto-Owners did not neglect its duty to defend.

A judgment is a final decision — a verdict — reached by a factfinder. A judgment is an excess judgment when the amount of the verdict recovered by the injured party is greater than all the available insurance coverage. A consent judgment, on the other hand, is akin to a private contract, one that it is simply acknowledged and recorded by a court.

Florida law protects insurance companies with the excess judgment rule. If consent judgments were enough to show causation, that protection would be eliminated. Insurers would not know whether an insured party and an injured party entered into a consent judgment as adversaries, at arm’s length and in good faith, or as friends, making a strategic decision to undermine the insurance company’s policy.

The District Court did not reach the issue of bad faith because there was no excess judgment or functional equivalent, meaning no case or controversy.

The District Court was correct to not reach the issue of bad faith. A third party must obtain a judgment against the insured in excess of the policy limits before prosecuting a bad-faith claim against the insured’s liability carrier. Cawthorn did not obtain a judgment in excess of the policy limits.

ZALMA OPINION

Auto owners, deprived by the claimant of  the medical records of the injured party accepted a lien as sufficient information to allow the insurer to offer to pay its $3 million limit. Turning down the limits, when offered without any unreasonable delay and without cooperating in the insurer’s investigation, was an obvious ploy that the trial court and the Eleventh Circuit would not accept. The good claims handling and the good faith offer of settlement for the full policy limit was met with a bad faith law suit proving that the insurer’s good deed was punished requiring it to deal with a trial court and the Eleventh Circuit.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

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Dealing with a Liability Claim

How to Negotiate a Settlement

Adapted from my book, “The Compact Book on Adjusting Liability Claims, Second Edition, available at https://www.amazon.com/Compact-Adjusting-Liability-Claims-Second-ebook/dp/B07QBWGNWV/ref=sr_1_fkmr0_1?keywords=Compact+Book+on+Adjusting+Liability+claims&qid=1554469919&s=gateway&sr=8-1-fkmr0 https://zalma.com/blog/insurance-claims-library/

After the adjuster determines that coverage exists, that the insured is probably liable for causing bodily injury or property damage to a third person, the adjuster must negotiate a settlement with the claimant or his or her attorney.

Just like the plaintiff’s attorney in a personal injury case, the insurance adjuster will investigate the claim – the facts of the accident and the plaintiff’s damages.

A very skillful and well-prepared insurance adjuster will often know more about the accident and about the plaintiff’s background than the plaintiff’s lawyer does.

The adjuster prepares for making an offer by first getting the insured’s story of the accident. This is obtained by completing a thorough recorded statement.

The adjuster will then investigate the plaintiff or claimant. The investigation can be as simple as reviewing claims databases compiled by the National Insurance Crime Bureau (NICB) or the Insurance Services Office (ISO) all claims data base that allow adjusters to determine whether the plaintiff has ever filed a personal injury claim before. The thorough adjuster will also search Google, Bing, Ask, Twitter, Facebook and LinkedIn to learn as much as possible about the plaintiff.

The adjuster must obtain from the plaintiff or the plaintiff’s lawyer to introduce him/herself and request that the plaintiff provide documentation relating to the plaintiff’s claim. The adjuster will review medical records, medical bills, proof of earnings, tax returns, and proof of property damage. If the initial medical records indicate that the plaintiff may have had prior injuries or complaints to the body part that was injured in the accident that led to the current claim, a competent adjuster will obtain all prior medical records for any treatment that the plaintiff or claimant has ever had for that condition.

If the plaintiff or claimant is self-employed and claims lost earnings, the adjuster will usually request that the plaintiff produce business records to document the lost income.

The documentation obtained will be reviewed carefully by a competent adjuster. The adjuster should read every page on the medical records and bills to see if anything is missing, if anything suggests that the plaintiff has had prior conditions or that the plaintiff is malingering, or if the plaintiff’s lost earnings claim seems to be unsupported.

The adjuster should never make a settlement offer or respond to a settlement demand until the adjuster has every document that he/she needs in order to value the case.

Determination of Settlement Value

Once the adjuster has all the claimant’s or plaintiff’s medical records and bills and all of the other information that he/she needs to value the case, he/she will, based on experience, knowledge of the local jurisdiction, and experience and knowledge of local jury verdicts for the same type of accident and injury.

In order to value the case, the adjuster has to think about:

  • what are the plaintiff’s chances of winning at trial?
  • how much might a jury award the plaintiff?
  • How amenable is the claimant and his or her counsel to negotiate a settlement?
  • How much experience does the claimant’s lawyer have in trial?

If, for example, the plaintiff has damages that approach a million-dollar judgment if the jury finds the adjuster’s insured liable but has little, if any, chance of winning at trial, then an adjuster should never offer much to settle. The obverse is also true, if there is a good chance of success at trial the adjuster and insurer should be prepared to offer a sum close to, but much less than the jury verdict value.

Once the adjuster has decided what the plaintiff’s chances of winning are, he/she will think about the plaintiff’s damage claim. Damages in personal injury cases are usually divided into two categories: damages capable of exact calculation (medical bills, lost earnings, cost to repair or replace damaged property), and damages not capable of exact calculation (pain, suffering, inconvenience). For medical bills and lost earnings, the adjuster simply adds them up if they are legitimate and presented by a legitimate organization like a hospital. The adjuster recognizes that hospital and physician billings are flexible. If the plaintiff is on Medicare or Medicaid the hospital or physician, by contract, charge much less than they charge a person without insurance or on a lien (where the physician agrees to only require payment when the lawsuit is settled or a judgment is issued in favor of the plaintiff).

Adjusters, with full knowledge of the different amounts charged by health care providers will be in a position to honorably discount medical bills if they appear to be “soft,” meaning that the vast majority of medical bills come from health care providers other than physicians and hospitals. If, for example, a plaintiff had $7,000 of medical bills, but $6,800 of the bills were chiropractic and physical therapy bills, the adjuster will consider it appropriate to cut the medical bill claim in half for valuation purposes.

The adjuster should also determine whether the medical bills presented by the insured were paid by a third party like a health insurer, Medicaid, or Medicare. These entities often pay much less than the amount billed as a result of contracts with health care providers. I once dealt with a case where medical bills were presented in excess of $3 million only to find that the health care providers accepted, as full payment, $200,000 from Medicare. The settlement negotiations changed exponentially when the true amount of medical billing was established.

“To be recoverable, a medical expense must be both incurred and reasonable.” (Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541, 555.) “[I]nitial medical bills are generally insufficient on their own as a basis for determining the reasonable value of medical services . . . cases have held that a plaintiff who relies solely on evidence of unpaid medical charges will not meet his burden of proving the reasonable value of medical damages with substantial evidence.” [Van Anz v. Ozawa (Cal. App., 2019)]

Determining the Value of a Pain and Suffering Claim

This is the real struggle, both for plaintiff’s attorneys and for insurance adjusters. Adjusters these days have the assistance of formulas and specialized software to assign a value to the subjective pain, suffering and inconvenience claims.

A key component of the bodily injury claim demand made by the claimant are the medical specials, which as the Howell case made clear, may be inflated, and at times, unrelated, to the claim. Just because the attorney says it is so, doesn’t make it so.

In many instances, there are varying degrees of subjectivity in findings. There are also numerous opportunities for billing errors, or even intentional billing fraud.

Claims adjusters should be aware that there is a high probability that medical bills contained in a bodily injury claim demand are upcoded or unbundled. It is also possible there are issues pertaining to causation, duration, and frequency of treatment.

It is the job of the adjuster to identify these issues and raise questions, often documented with the assistance of third-party medical billing review software, such as Mitchell International’s DecisionPoint, to identify potential fraud, billing errors or improper edits.

By further leveraging medical experts or those fluent in billing and coding, a tremendous amount of medical inflation can be avoided. By coupling this knowledge with proper liability assessment, the benefit to the insurers and the consumer can be significant.

When the bodily injury claim demand is received, the adjuster should review all contents to ensure that they include the necessary documentation to complete the injury evaluation. There should also be a notation of any time limit demand requirements with the appropriate action taken to ensure a timely response. Generally, this requirement is met by either tendering an offer (when warranted) or notifying the attorney, in writing, of additional documentation necessary to complete the injury evaluation.

The First Settlement Offer

Once the adjuster has calculated a settlement value, then he/she has to decide what to offer. The first offer is almost never the value calculated and the authority the adjuster obtained from management. The first offer is going to be a percentage of what the insurer thinks is the final value of the case.  An insurer’s software or the adjusters experience and investigation may dictate precisely what the first offer should be. For example, the insurer may require that the first offer to be 40% of the settlement value the adjuster has calculated. There is no industry-wide standard on this. Different insurers have different procedures. Different cases with different fact situations, different health care providers and different management will cause the initial offer to be different.

Adjusters, of course, have leeway to adjust the first offer depending on who he/she is dealing with. If the adjuster is dealing with an unrepresented plaintiff, the first offer will usually be lower than if the plaintiff has a lawyer. If the adjuster is dealing with a very competent, experienced lawyer who has tried to a jury verdict many bodily injury cases, the offer might be higher than average. If, conversely, the adjuster is dealing with an inexperience bodily injury lawyer or a lawyer who is known to never to go trial, the offer should be lower than average.

There is no perfect method of valuing and negotiating a personal injury claim or suit. Each must be dealt with individually and the adjuster must be flexible enough to obtain a settlement that is agreeable to the insured, the plaintiff or claimant, and the lawyer representing the plaintiff or claimant.

Negotiating a final settlement is a little like bargaining to buy something at an outdoor market where haggling is commonplace. The adjuster and the claimant, plaintiff or plaintiff’s attorney both know roughly how much the damages claim is worth. The adjuster knows the most he or she is willing to pay and the claimant, plaintiff or lawyer, know the least amount they are willing to take to settle.

Neither party to the settlement negotiations know how much the other side is willing to pay or receive. As a result, the adjuster and claimant, or his or her lawyer, go through a process of testing each other. The negotiations have been described as a dance of bluff and bluster that usually only last through two or three phone calls or in person meetings. The claimant or lawyer make demands that they believe are at least twice what they are willing to accept and the adjuster is starting with about half of what the insurer is willing to pay.

Here are a few typical steps in the settlement dance engaged in by lawyers and adjusters:

  • The plaintiff or claimant asks for a high amount in a written demand letter.
  • The insurance adjuster tells responds with details why he or she believes the claim can never survive a jury trial and that most of the negligence is on the plaintiff or claimant.
  • The adjuster will explain that the claimant’s or plaintiff’s lengthy physical therapy or chiropractic treatment was unnecessary or excessive.
  • Regardless of the claimant’s or plaintiff’s response the adjuster makes a low counteroffer to feel out whether there is an immediate need to take any settlement amount.
  • The claimant or plaintiff concedes some of the adjuster’s arguments and changes the demand slightly lower than the one in the original demand letter.
  • The insurance adjuster increases the company’s offer.
  • The plaintiff or claimant either accepts that amount or make another counter-demand.

It is usually as simple as that. The main facts determining how an accident settlement comes out are how well the adjuster has prepared all stages of the claim – investigation, supporting documents, demand letter, response, and counter offers and demands. How much the plaintiff or claimant is willing to settle for if it falls within the evaluation of the settlement value reached by the adjuster and the insurer will allow the parties to reach agreement.

Negotiations Begin as Soon as the Adjuster and Claimant Are Ready

Negotiations with the insurance claimant or counsel usually begin shortly after the adjuster receives the demand letter. Usually the adjuster will telephone the claimant or counsel within a week or two after receiving the demand. Fair Claims Settlement Practices Regulations usually require a response to the demand immediately but no more than 14 calendar days after the demand. The length of time between demand letter and response depends on how busy the adjuster is, and how much time the adjuster needs to go over your claim and seek authority to enter into settlement negotiations.

In a typical personal injury case, after all medical bills and other injury information are gathered, you will likely make a settlement offer in writing. A formal settlement offer is usually made in a demand letter sent to the person responsible for the injuries — or to his or her insurance company.

In this article, let’s assume that you are dealing with an insurance company. The insurance company may respond to your demand letter with an unreasonable (“low-ball”) settlement offer. Your response to this initial settlement offer will go a long way toward determining what kind of outcome you’ll get in your personal injury case.

Read this and more than 2850 posts at https://zalma.com/blog

 


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

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Wear and Tear and Inherent Vice

Everything Dies Eventually

(c) 2019 by Barry Zalma and adapted from my book Zalma on Insurance Claims Part 104 now available at https://www.amazon.com/Zalma-Insurance-Claims-Part-Practicalities/dp/1718186894/ref=sr_1_15?ie=UTF8&qid=1534861356&sr=8-15&keywords=%22zalma+on+insurance+claims%22 and http://zalma.com/blog/insurance-claims-library/

Wear and Tear

It is inevitable that objects deteriorate over time and wear out. Even the pyramids in Egypt show wear and tear after more than 4000 years being abused by sand and wind storms.

Recent decisions of the courts of appeal have gone through such changes that even an inherent vice of the insured property—a condition certain to result in loss—rarely falls within the parameters of a non-fortuitous loss.

The Restatement of Contracts 291, Comment a, holds that a loss is not fortuitous “if it results from an inherent defect in the object damaged, from ordinary wear and tear, or from the intentional misconduct of the insured.”

In a case dealing with a boat that was left completely uncovered in the Bahamas during the rainy season, ‘normal wear and tear’ resulted in the sinking of the boat. Rainwater entered the boat, forcing the bilge pump to operate continuously for several days. This drained the boat’s battery, causing the pump to stop functioning. Batteries do not last forever. While the battery may have had enough power to start the engine, it obviously did not have enough power to operate the bilge pump for two days. The deterioration of a battery constitutes normal wear and tear, is not fortuitous, and is not compensable under a policy of insurance.

Similarly:

The plain meaning of the exclusion was to relieve the defendant of liability for loss or damage to covered property caused by rust, corrosion, and deterioration. The defendant met its initial burden of establishing its entitlement to judgment as a matter of law by demonstrating that the exclusion applied to the loss in this case, and, in any event, that the plaintiffs failed to sustain their burden of proving that the loss occurred during the policy period…

The courts have adopted a subjective test of fortuity. If the insured was not aware of the defect or vice inherent in the insured property, the damage resulting from that defect was unanticipated or unforeseen. The loss is fortuitous from the standpoint of the insured and is within the coverage.

We think it inappropriate to cause the insured to suffer a forfeiture by concluding, with the aid of hindsight, that no fortuitous loss occurred, when at the time the insurance took effect only a risk was involved as far as the parties were aware. See Millers Mutual Fire Insurance Co. v. Murrell, 362 S.W. 2d 868, 870 (Tex. Civ. App. 1962). De Guinee v. Insurance Co., 724 F. 2d 369 (3rd Cir. 12/22/1983).

In determining that damage to the insured dwelling was fortuitous, the court in Millers Mutual stated:

It is true that all the expert witnesses, who, after the damage, examined the underlying structures of the earth, noted the capacity of the soil to absorb water and saw evidences of earth movement, said that damage similar to that which occurred was inevitable. We are not told who, at the time the insurance contract was executed, had certain knowledge that the damage was inevitable. (Emphasis added).

In Compagnie des Bauxites de Guinee v. Insurance Company of North America, 724 F. 2d. 369 (3d Cir. 1983), an insured brought suit against its all-risk insurer to recover business interruption losses arising from the structural failure, collapse, and deformation of a tippler building and crusherhouse used in the mining of bauxite ore. The trial court found no coverage because the damage resulted from the defective design of the building and was not fortuitous. The Court of Appeal predicted that Pennsylvania would adopt the definition of a fortuitous event contained in the Restatement of Contracts. Insurers cannot avoid liability for what appears to be inevitable losses by relying upon the fortuity requirement alone.

It seems that “wear and tear” should not be limited to “ordinary” wear and tear but also extraordinary wear. As one court indicated:

An excessive degree of abrasion does not necessarily preclude a finding of wear and tear. The magnitude of the abrasion found merely manifests the effect of a process—perhaps beginning as ‘ordinary’ abrasion—that intensified over time. The fact that the extent of abrasion was unusually severe does not demonstrate that the abrasion process itself was extraordinary. It might well have been the culmination of a process which commenced long before. Potomac Electric Power Company v. Arkwright-Boston Manufacturers Mutual Insurance Company, No. 85-1702 slip op. (D.D.C. January 23, 1987).

Where the excluded event is the only cause of the loss, the loss is not covered. In Peery v. Security Ins. Co., No. 83-185 II, 1984 Tenn. App. Lexis (Tenn. Ct. App. Apr. 6, 1984), the all-risks policy excluded coverage for damage due to wear and tear “unless any such loss or damage is the direct result of other physical damage covered by this policy.” The court held that the loss was not covered because there was no showing that the loss occurred from any reason other than wear and tear.

Latent Defect

Cases that provide coverage despite an exclusion for latent defects fall generally within two categories. The court determines either that:

  • the defect could have been discovered through appropriate testing and it is therefore not latent; or
  • the loss resulted from a contributory covered risk.

“A policy will define latent defect” as “a hidden flaw inherent in the material existing at the time of the original building of the yacht, which is not discoverable by ordinary observation or methods of testing.” “The word “inherent” requires that a latent defect be characteristic of or intrinsic to the material. The word “flaw” imposes the exact opposite requirement. It includes problems with a specific piece of material, but not problems characteristic of the material itself. In short, giving the terms their plain and reasonable meaning, there can be no such thing as an inherent flaw.” (Ardente v. Standard Fire Ins. Co., 744 F.3d 815 (1st Cir. 2014))

In Tzung v. State Farm Fire and Cas. Co., 873 F.2d 1338 (9th Cir.1989), the court first held that damage due in part to inadequate protection against soil expansion was excluded under a policy exclusion for “faulty materials or workmanship.” As an alternative basis for excluding the plaintiffs’ loss, the court then went on to consider briefly the “inherent or latent defects” exclusion. Contrasting Essex House v. St. Paul Fire & Marine Insurance Co., 404 F. Supp. 978 at p. 992 (where visual inspection of building and plans would have revealed construction defects) with Merz v. Allstate Ins. Co., 677 F. Supp. 388, 389 (W.D.Pa.1988) (where construction defects were all “unknowable, concealed by the ground”), the court held that the two cases, read together:

suggest a general principle that defects in construction may constitute inherent or latent defects if the problems thus created are not readily discoverable. Tzung, supra, at p. 1342.

Because the design and construction defects at issue in Tzung—described as “imbedded in the ground”—were discoverable only through expert examination of the apartment building “and the soils beneath it,” they were not “readily discoverable.”

In light of Tzung’s evident approval of Essex House, supra, it does not appear to stand for the general principle that defects discoverable only by expert examination are per se latent. As explained above, a standard that classes as latent or inherent all defects whose discovery requires expert examination or analysis sweeps too broadly. From the viewpoint of an insured who is not an expert at detecting such defects, the exclusion would become meaningless.

Refusing to apply a “latent defect” exclusion:

the district court held, and we agree, that as a matter of the literal language of this term, ‘latent defects’ are only those integral to the damaged property by reason of its design or manufacture or construction. U.S. West, Inc. v. Aetna Casualty & Surety Co., 117 F. 3d 1415 (4th Cir. 07/16/1997).

However, in St. Mary’s Area Water Authority v. St. Paul Fire & Marine Insurance Co., 472 F.Supp.2d 630 (M.D.Pa. 2007) the latent defect exclusion was applied since the plaintiff’s experts both traced the cause of a leak to a defect in a pipe.

In Winans v. State Farm Fire and Cas. Co., 968 F. 2d 884 (9th Cir.1992) at pages 886 – 887, the Ninth Circuit adopted the latency test that the defect be “not apparent upon reasonable inspection” and held that a defect is latent if it is discoverable only through an “intensive post-failure expert examination.” In Winans, after the plaintiffs had noticed cracks and separations in footings, slabs, walls, and ceilings in their home, State Farm hired subsurface exploration experts to investigate the cause of the damage. In rejecting the plaintiffs’ assertion, the experts had discovered the contractor’s negligence after their preliminary inspection, which consisted of a visual inspection and the digging of two shallow test holes, the court impliedly found that such a preliminary inspection would in fact meet the test it had established.

This test places an almost impossible burden on the insurer and does violence to the intent of the policy. In most cases, the studies required to establish an “inherent vice” exclusion would cost more than the loss itself. Contracts of insurance must be enforceable. The test proposed by the Winans court is too burdensome.

In Carty v. American States Ins. Co., 7 Cal. App. 4th 399 (1992), 9 Cal. Rptr. 2d 1 at pages 403 – 404, 9 Cal. Rptr. 2d 1, the court held that construction defects in the plaintiffs’ home, consisting of inadequate compaction of fill, inadequate reinforcement of the concrete slab, and lack of anchoring of the foundation to bedrock, were latent because they were discovered only by “expert examination, including soil testing” and, hence, were “neither readily observable nor apparent on reasonable inspection.”

I believe a “reasonable inspection” for purposes of the latent or inherent defect exclusion may, under some circumstances, include but not require appropriate expert assistance or analysis. This is the position taken by the California Court of Appeal in Chadwick v. Fire Ins. Exchange, 17 Cal. App. 4th 1112, 21 Cal. Rptr. 2d 871 (Cal. App. 1 Dist. 1993).

In Winston Square Homeowner’s Assn. v. Centex West, Inc., 213 Cal. App. 3d 282, 291, 261 Cal. Rptr. 605 (1989), the court found that drainage problems in a townhouse development were patent, not latent. The cause of the problem—the contours of the land and the slant of the pavement which did not allow for proper drainage—and the manifestations of the problem—ponding of water at various places throughout the development—were obvious.

Where defective construction, design, or fabrication of property results in the property’s failure or deterioration before its normal life, and the defect is not apparent upon reasonable inspection but only after a post-failure examination by an expert, then the resulting loss is caused by a “latent defect.”

A majority of courts hold that the ensuing loss exception is applicable when the loss is the result of an independent or superseding cause that is covered under the terms of the policy. Consider Arnold v. Cincinnati Ins. Co., 276 Wis.2d 762, 688 N.W.2d 708, 715–16 (App.2004) that concluded that “an ensuing loss must result from a cause in addition to the excluded cause”. (Peek v. American Integrity Ins. Co., 181 So.3d 508, 40 Fla.L. Weekly D2199 (2015))

Read about this and more than 2850 posts at http://zalma.com/blog.

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Insurance Fraud as a Federal Crime

Go to Jail and Stay in Jail

Fear of hard federal jail time should be rampant among fraud perpetrators in the United States who stage automobile accidents, fake trip-and-fall accidents, present or assist fraudulent workers’ compensation claims, or abuse health insurers because the U.S. Department of Justice (DOJ) is now awake to insurance fraud. Unlike most states, when convicted of a federal crime, the defendant will actually serve almost all of the time given at sentencing.

Staged accident perpetrators who, in the past, understood that if they were caught, they faced no more than an order of restitution and a few weeks in the county jail, now face hard time. When prosecuted in federal court the same people now face up to ten years in the federal penitentiary.

The reason for federal prosecution of insurance fraud was stated in United States v. Lucien, 347 F.3d 45 (2d Cir. 10/14/2003) where the 2nd Circuit Court of Appeal, in a case of first impression, upheld the convictions of people involved in staging automobile accidents, for violation of Federal Health Care Fraud statutes. The Second Circuit explained that because health care fraud drains billions of dollars from public and private payers annually, Congress has since 1992 sought a tool to combat the problem.[1]  “In 1996 Congress enacted the latest in a series of health care fraud statutes making any fraud perpetrated against a public or private payer a federal criminal offense.[2][3]

The U.S. Department of Justice has created a Health Care Fraud Prevention and Enforcement Action Team (HEAT) that includes senior officials from DOJ and HHS and aims to strengthen existing anti-fraud initiatives while also investing new resources and technology to prevent fraud, waste and abuse. Past efforts have included the expansion of joint DOJ-HHS Medicare Fraud Strike Force teams that have been successfully fighting fraud in South Florida and Los Angeles since 2007. The Medicare Fraud Strike Force team operating in South Florida has convicted 146 defendants and secured $186 million in criminal fines and civil recoveries as of May 2009. After the success of operations in South Florida, the Medicare Fraud Strike Force expanded in May 2008 to phase two in Los Angeles, where 37 defendants have been charged with criminal health care fraud offenses. To date in the Los Angeles cases, more than $55 million has been ordered in restitution to the Medicare program.

Strike Force teams currently operate in the following areas: Miami, Florida; Los Angeles, California; Detroit, Michigan; Houston, Texas; Brooklyn, New York; Baton Rouge and New Orleans, Louisiana; Tampa and Orlando, Florida; Chicago, Illinois; Dallas, Texas; Washington, D.C.; Newark, New Jersey/Philadelphia, Pennsylvania; and the Appalachian Region. Strike Force teams have shut down health care fraud schemes around the country, arrested more than a thousand criminals, and recovered millions of taxpayer dollars. For a listing of recent HEAT enforcement actions go to https://oig.hhs.gov/fraud/strike-force/.

Each Strike Force team brings the investigative and analytical resources of the FBI, HHS-OIG and other law enforcement agencies, as well as the prosecutorial resources of the Criminal Division’s Fraud Section and the local United States Attorney’s Offices (USAOs), to analyze data obtained from CMS and bring cases in federal district court.

Each Medicare Fraud Strike Force team brings the investigative and analytical resources of the FBI and HHS-OIG and the prosecutorial resources of the Criminal Division’s Fraud Section and the United States Attorney’s Office (USAO) to analyze data obtained from CMS and bring cases in federal district court. Strike Force accomplishments from cases prosecuted in all nine areas during FY 2014 include:

  • 165 indictments, informations, and complaints involving charges filed against 353 defendants alleged to have collectively billed the Medicare program more than $830 million;
  • 304 guilty pleas negotiated and 38 jury trials litigated, with guilty verdicts following trial against 41 defendants; and
  • Imprisonment for 248 defendants sentenced during the fiscal year, averaging more than 50 months of incarceration.

In the seven and a half years since its inception, Strike Force prosecutors filed more than 963 cases charging more than 2,097 defendants who collectively billed the Medicare program more than $6.5 billion; 1,443 defendants pleaded guilty and 191 others were convicted in jury trials; and 1,197 defendants were sentenced to imprisonment for an average term of approximately 47 months. These efforts, as you can see, have reduced Medicare payments in several arenas, as you can see in the chart below.

In addition, since Lucien, the Second Circuit, in United States v. Zakhary, 357 F.3d 186 (02/04/2004) concluded that the Mandatory Victims Restitution Act of 1996, as codified at 18 U.S.C. § 3663A and the post-1996 version of 18 U.S.C. § 3664, “requires a court to order full restitution to the identifiable victims of certain crimes, including fraud,” without regard to a defendant’s economic circumstances.  Similarly, in United States v. Gelin, 712 F.3d 612 (1st Cir., 2013) the First Circuit reported that throughout the United States judges, prosecutors, police officers and insurance professionals are seeing organized criminal groups, compromising doctors, chiropractors, attorneys, hospitals, and these groups establish store front clinics, diagnostic testing companies, as well as bogus law offices. “They stage phony car accidents. Fake patients visit the clinics where expensive medical procedures like MRIs and x-rays are billed to insurers, even though not provided to the persons posing as patients. In addition, unfilled prescriptions are billed, kickbacks are paid, and lawyers collect false personal injury claims.”

Therefore, in addition to serving definite time in jail for insurance fraud, the Federal Court can order the criminal to pay the insurer victim full restitution without regard for the defendant’s ability to pay. This does not guarantee payment but since restitution is a condition of probation the thought of spending time in jail becomes a great incentive to the criminal to pay the restitution if the money is available.

All three defendants in the Lucien case participated in staged automobile accidents and fabricated personal injury claims to take advantage of the operation of the New York Comprehensive Motor Vehicle Insurance Reparations Act. The government proved at trial that other conspirators recruited the Lucien defendants to participate in the health care fraud charged by the government.

The trial in the Lucien case was one of six trials arising from related indictments charging numerous individuals with participating in an overarching scheme of health care fraud based on a series of deliberately staged automobile accidents in several boroughs of New York City. Following the accidents, the recruited passengers were referred, in exchange for a fee, to various medical clinics in New York City. The recruited passengers assigned their no-fault insurance benefits to the health care clinics (medical providers), which billed the insurance companies directly. The recruited passengers subsequently pursued their own civil causes of action for their feigned injuries.

To receive no-fault reimbursements, the health care clinics generated fictitious treatment records for the passengers in the accidents. The accident participants used these fictitious medical records to support their claims of personal injury and to obtain settlements from insurance companies.

18 U.S.C. Section 1347 provides:

As used in this title, the term “‘health care benefit program’ means any public or private plan or contract, affecting commerce, under which any medical benefit, item, or service is provided to any individual, and includes any individual or entity who is providing a medical benefit, item, or service for which payment may be made under the plan or contract. (Italics added)

The statute, 18 U.S.C. § 1347, as the 2nd Circuit explained directs that whoever “knowingly and willfully executes, or attempts to execute, a scheme or artifice. . . to defraud any health care benefit program … shall be fined under this title or imprisoned not more than 10 years, or both.” The common meaning of the word “whoever” is “whatever person, any person at all, no matter who.”

Proving health care fraud is often difficult the Third Circuit in United States v. Jones, 471 F.3d 478 (3d Cir. 12/28/2006) reversed a conviction because the plain language of the statute clearly prohibits health care fraud “by knowingly or willfully using ‘false or fraudulent pretenses, representations, or promises’ to obtain the money or property of a health care benefit program in connection with the delivery of, or payment for, health care benefits, items, or services.” Fraud, is different from theft.[4] Under the common law and the Model Penal Code, theft is synonymous to larceny – the taking of another’s property by trespass with intent to deprive permanently the owner of the property.

The conviction was reversed because the Government established only that:

(1) from February 2000 to March 2004, the amount deposited into Progressive’s bank account was $451,000 less than the amount received from clients; (2) the discrepancies between the amount received and the amount deposited occurred on the majority of the days on which Jones worked alone and did not occur when Jones was absent from work; (3) Jones was one of the employees that made bank deposits; and (4) Jones had made cash deposits to her bank account and cash expenditures exceeding her wages. The Government has not established, nor did it seek to establish, any type of misrepresentation by Jones in connection with the delivery of, or payment for, health care benefits, items, or services.

Although Jones was a thief she was released because she was only charged with fraud and there was no evidence she committed a fraud.

On the other hand, in United States v. Davis, No. 06-5073 (6th Cir. 06/22/2007) the Sixth Circuit upheld a conviction where fraudulent medical reports, prescriptions and orders were used to defraud Medicare by obtaining payment for oxygen supplies neither needed nor provided. At the conclusion of the trial, the jury found Ms. Davis and Mr. Davis guilty on all twelve counts of violating 18 U.S.C. § 1347(1) and (2) as well as the single count of obstruction of justice in violation of 18 U.S.C. § 1518(a). Upon conviction for health care fraud and obstruction of justice, Ms. Davis was sentenced to a term of imprisonment for 60-months, and Mr. Davis received a sentence of 36-months’ imprisonment. Both received three years of supervised release, a special assessment of $100.00 on each count, and direction to make restitution in the amount of $171,933.00, imposed jointly and severally on Ms. Davis and Mr. Davis.

As indicated by the verdict, the jurors hearing this testimony unanimously agreed that Mr. Davis had knowingly aided and abetted Medicare fraud. We are loath to override their conclusion. The Supreme Court has made clear that “[t]he trier of fact, not the appellate court, holds ‘the responsibility . . . fairly to resolve conflicts in the testimony, to weigh the evidence, and to draw reasonable inferences from basic facts to ultimate facts.’” [Tibbs v. Florida, 457 U.S. 31, 45 n.21 (1982) (citing Jackson, 443 U.S. at 319.

[1]  See Comm. on Gov’t Reform and Oversight, Health Care Fraud All Public and Private Payers Need Federal Criminal Anti-Fraud Protections, H.R. Rep. No. 104-747 (1996)

[2] Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, § 242(a) (1), 110 Stat.

[3]  2016 (1996);” http://oversight.house.gov/images/stories/Reports/2009-08-13_Medicare_Fraud_Report.pdf

[4]   Nugent v. Ashcroft, 367 F.3d 162, 170 (3d Cir. 2004)

Adapted from Volume Two of my new two volume book, “Insurance Fraud” now available: Volume One available as a Kindle book and a paperback and Volume Two Available as a Kindle book and a paperback.

Read about these and more insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

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Zalma’s Insurance Fraud Letter – November 1, 2019

Fake Certificate Provided to Gain Right to Work Defrauded General

Fake Certificate Provided to Gain Right to Work Defrauded General
Forging a Certificate of Insurance is a Crime
 

Every construction contract requires that subcontractors provide certificates of insurance as a condition of working on the construction project. Many subcontractors do not have liability insurance that would fulfill the requirements of a general contractor and owner of a major construction project. To get the work some are tempted to provide fake evidence of insurance.

In Terrence Roberts v. The State of Texas, NO. 03-18-00224-CR, Texas Court of Appeals, Third District, at Austin (October 11, 2019) a jury convicted Terrence Roberts of the class A misdemeanor offense of forgery. The trial court sentenced him to 365 days’ confinement and a $3,000 fine but suspended imposition of sentence and placed him on community supervision for twelve months. Roberts appealed.
CLM Launches Universal Claims Certification
I am a fellow of CLM and pass on to my readers this annoucement from the organization important to anyone involved in claims handling.
The CLM, a member of The Institutes, has launched the Universal Claims Certification (UCC), allowing claims adjusters to more easily secure licenses in multiple states. Both currently licensed and unlicensed adjusters can acquire a UCC.
Currently licensed adjusters must simply register for the UCC, whereas unlicensed professionals must first complete a 40-hour course and exam to earn it. Once professionals acquire the UCC, they can quickly obtain a license in all states in which the UCC is approved.
 
“Insurance Fraud – Volume I & II”
How Lawyers & Claims People Defeat Insurance Fraud
“Insurance Fraud – Volume I and II” are updated, revised and easier to read and use change to “Insurance Fraud & Weapons to Defeat Fraud.”
Insurance fraud continually takes more money each year than it did the last from the insurance buying public. No one knows the actual amount with any certainty because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.
Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.
No one will ever be able to place an exact number on the amount lost to insurance fraud. Everyone who has looked at the issue knows – whether based on their heart, their gut or empirical fact determined from convictions for the crime of insurance fraud – that the number is enormous.
When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-government-based or funded insurers drops logarithmically. Since the appointment of Attorney General Sessions, the effort to stop insurance fraud against Medicare and Medicaid has increased.
This book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes.
It is available as both a legal research tool and a product to assist insurers, insurance company personnel, independent insurance adjusters, special investigation unit investigators, state fraud investigators and insurance lawyers to become effective persons involved in the attempt to defeat or reduce the effect of insurance fraud.
The New Volumes 1are available as a Kindle book and a paperback at https://amazon.com.
Measuring Fraud
Attempting to measure the extent of fraud it is necessary to develop concise definitions of fraud for the purposes of uniform measurement, and promote the understanding and use of the definitions with industry, government, academia and the media. To do so the agency performing the measurement should:
 *        Make clear the role of exaggerated or buildup claims as they relate to the definitions of fraud since they involve claims that are partially legitimate and partially fraudulent.

*    Investigate the feasibility of developing methods of conducting closed claims studies in non-auto lines, including homeowners, workers’ compensation, life, disability and health insurance.
*    Investigate securing the aggregate reporting data insurers file annually with state insurance departments, to determine whether data could be extrapolated for the purpose of measuring insurance fraud.
*    Develop methodologies for measuring the extent of fraud in the application process, especially in automobile and life insurance.
*    Major anti-fraud organizations should seek agreement on more-consistent estimates.
*    Major anti-fraud organizations should resist publishing estimates that are not based on some level of scientifically valid empirical studies.

The Current Issue Contains the Following:

Books

The Zalma on Insurance blog has posted over 2850 digests of insurance appellate decisions and other important insurance materials and articles published five days or more a week and are available at http://zalma.com/blog.

I have completed a video blog called

Zalma’s Insurance 101 

Zalma’s Insurance 101  consists of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.
If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.
The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library
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The Law of Unintended Consequences and Insurance Bad Faith

The Tort of Bad Faith was Created with Good Intentions Only to Obtain Opposite Results

This article was adapted from my book “The Law of Unintended Consequences and the Tort of Bad Faith” available at https://zalma.com/blog/insurance-claims-library/ and as a Available as a paperback  or Available as a Kindle book.

THE TORT OF BAD FAITH MAKES NO SENSE

The law of unintended consequences is not statutory. No state or federal government has enacted it into law. No executive has signed the law. It is, rather, an example of what happens when people interact with each other. Human nature, the normal actions of human beings, when they try to do something that the believe is fair and reasonable, often results in consequences not intended by – or even considered – by the actions of normal human beings. It is an adage or idiomatic warning that an intervention in a complex system always creates unanticipated and often undesirable outcomes.

Science and general observation allow the statement that actions of people, especially of governments, will always have effects that are unanticipated or unintended.

Economists and other social scientists have heeded its power for centuries. Regardless, for just as long, politicians, insurers and popular opinion have largely ignored it to their detriment.

https://i2.wp.com/images-na.ssl-images-amazon.com/images/I/41C-sDKmtQL._SX311_BO1,204,203,200_.jpg?resize=114%2C182&ssl=1

PHILOSOPHERS, ECONOMISTS AND POLITICIANS

The concept of unintended consequences is one of the building blocks of economics. Adam Smith’s “invisible hand,” the most famous metaphor in social science, is an example of a positive unintended consequence.

Smith maintained that each individual, seeking only his own gain, “is led by an invisible hand to promote an end which was no part of his intention,” that end being the public interest. “It is not from the benevolence of the butcher, or the baker, that we expect our dinner,” Smith wrote, “but from regard to their own self-interest.”

Most often, however, the law of unintended consequences illuminates the perverse unanticipated effects of legislation and regulation. In 1692 the English philosopher John Locke, a forerunner of modern economists, urged the defeat of a parliamentary bill designed to cut the maximum permissible rate of interest from 6 percent to 4 percent.

In the first half of the nineteenth century, the famous French economic journalist Frédéric Bastiat often distinguished in his writing between the “seen” and the “unseen.” The seen were the obvious visible consequences of an action or policy. The unseen were the less obvious, and often unintended, consequences. In his famous essay “What Is Seen and What Is Not Seen,” Bastiat wrote: “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

Bastiat applied his analysis to a wide range of issues, including trade barriers, taxes, and government spending.

A policy that protects one industry from foreign competition makes it harder for another industry to compete with foreign competition.

Similarly, Social Security has helped alleviate poverty among senior citizens and the disabled. Many economists argue, however, that it has carried a cost that goes beyond the payroll taxes levied on workers and employers. Martin Feldstein, and others, maintain that today’s workers save less for their old age because they know they will receive Social Security checks when they retire. If Feldstein and the others are correct, it means that less savings are available, less investment takes place, and the economy and wages grow more slowly than they would without Social Security. The fact that people live longer – due to advances in medical science – Social Security is not funded sufficiently for the longer life span and people who rely on Social Security find it is insufficient to support them after retirement.

The law of unintended consequences is at work always and everywhere. People outraged about high prices of plywood in areas devastated by hurricanes, for example, may advocate price controls to keep the prices closer to usual levels. An unintended consequence of such efforts is that suppliers of plywood from outside the region, who would have been willing to supply plywood quickly at the higher market price, are less willing to do so at the government-controlled price. Thus, the good intentions of the government-controlled price resulted in a shortage of a good that was badly needed.

Government licensing of electricians, to take another example, keeps the supply of electricians below what it would otherwise be, and thus keeps the price of electricians’ services higher than otherwise. One unintended consequence is that people sometimes do their own electrical work, and, occasionally, one of these amateurs is electrocuted or causes a fire that burns down the house.

Licensing of some trades and professions to protect the public has the opposite effect by reducing the available hair dressers, podiatrists, physicians, lawyers, plumbers, and carpenters. When each state has a different licensing law it makes it almost impossible for a licensed person to move to another state without obtaining a new license. Some national firms find their employees must be licensed in all 50 states.

Insurance is controlled by the courts, through appellate decisions, and by governmental agencies, through statute and regulation. Compliance with the appellate decisions, statutes, and regulations—different in the various states—is exceedingly difficult and expensive.

In the United States alone, people pay insurers more than $1.2 trillion in premiums, and insurers pay out in claims and expenses as much or more than they take in. Profit margins are small because competition is fierce, and a year’s profits can be lost to a single firestorm, hurricane, or flood.

The business of insurance is, like everything else subject to the law of unintended consequences. Unfortunately for insurers and the insurance buying public, the law of unintended consequences effects insurance as if it were on steroids.

INSURANCE AS A NECESSITY

Neither the courts nor the governmental agencies seem to be aware that in a modern, capitalistic society, insurance is a necessity. No prudent person would take the risk of starting a business, buying a home, or driving a car without insurance. The risk of losing everything would be too great. By using insurance to spread the risk, taking the risk to start a business, buy a home, or drive a car becomes possible.

Insurance has existed since a group of Sumerian farmers, more than 5,000 years ago, scratched an agreement on a clay tablet that if one of their number lost his crop to storms, the others would pay part of their earnings to the one damaged. Over the eons, insurance has become more sophisticated, but the deal is essentially the same. An insurer, whether an individual or a corporate entity, takes contributions (premiums) from many and holds the money to pay those few who lose their property from some calamity, like fire. The agreement, a written contract to pay indemnity to another in case a certain problem, calamity, or damage occurs by accident, is called insurance.

In a modern industrial society, almost everyone is involved in or with the business of insurance. They insure against the risk of becoming ill, losing a car in an accident, losing business due to fire, becoming disabled, losing their life, losing a home due to flood or earthquake, or being sued for accidentally causing injury to another. They are insurers, insureds, or people dependent on one another. Insurance allows an individual to transfer the risks of loss normal to modern life to an insurer.

THE TORT OF BAD FAITH

In 1958 the California Supreme Court, with the best of intentions, changed centuries of contract law in a case called Comunale v. Traders & General Insurance Company, 50 Cal. 2d 654, 328 P.2d 198 (Cal. 07/22/1958). By changing the law using judicial fiat, the California Supreme Court made an insurer’s breach of contract, under particular egregious circumstances, a tort. By doing so the Supreme Court allowed an insured to recover from an insurer damages more than those allowed under the contract of insurance as required by the common law.

After the creation of the tort of bad faith, if an insurer and insured disagreed on the application of the policy to the factual situation, damages were no longer limited to contract damages, as in other commercial relationships. If the court found that the insurer was wrong, it could be required to pay the contract amount and damages for emotional distress, pain, suffering, punishment damages, attorney’s fees, and any other damages the insured and the court considered appropriate. It was hoped that the tort of bad faith would have a salutary effect on the insurance industry and force insurers to treat their insureds fairly.

However, when insignificant claims deemed wrongfully denied resulted in $5 million verdicts, “fairness” found a new definition. Juries, unaware of the reason for and operation of insurance, decided that insurers that did not pay claims were evil and punished them, often feeling sorry for the insureds.

This happened even when the insurer’s conduct was correct and proper under the terms of its contract. The massive judgments were publicized, and many insurers decided fighting insureds in court was too risky and expensive.

The logarithmic growth of insurance fraud in the state of California, and other states that have allowed tort damages for bad faith breach of insurance contracts, may be directly traced, in part, to the judicial creation of the tort of bad faith. Before the tort of bad faith, insurers with a reasonable belief that an insured was presenting a fraudulent claim would refuse to pay it. Persons perpetrating the fraud did, in most cases, accept the refusal as a cost of doing business and went on to the next fraudulent claim. After the recognition of the tort of bad faith, those who perpetrated fraudulent insurance claims that were denied went to lawyers instead. Suits for bad faith popped up like wild flowers in the desert after a rainstorm.

Juries, angered by insurers accusing their insureds of fraud, punished the insurers with multi-million dollar judgments. After each judgment, hundreds of cases settled (even though no monies were owed) for fear of being victims of the same out of control juries. Fraud units that had been instituted in the 70’s were disbanded in the late 80’s because of fear of punitive damage judgments and only reinstated after states passed statutes requiring insurers to maintain insurance fraud investigation units.

Insurers now have professional claims departments. Insureds are almost universally treated with courtesy and respect. More than 90% of all claims are resolved without litigation or argument. Legitimate claims are paid with alacrity. It seems clear to me that the tort of bad faith has served its purpose. It should be killed. The courts of the United States should return to the common law of contracts where the insured is provided the benefits of the contract of insurance promised by the policy. I am, however, a practical person and understand that the possibility of a state legislature, a court, the federal government or the U.S. Supreme Court, will find the tort of bad faith to be improper and a violation of the common law or the U.S. Constitution, is miniscule.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

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Books for the Insurance Professional

Insurance Books Needed by Lawyers and Claims Personnel

“Rescission of Insurance – 2nd Edition”

Newly updated and expanded, “Rescission of Insurance – 2nd Edition” provides the insurance coverage lawyer, policyholder lawyer and claims professionals with everything needed to understand and enforce the equitable remedy of rescission. Everyone involved in or with the business of insurance must understand that rescission is an equitable remedy as ancient as the common law of Britain. When the United States was conceived in 1776 the founders were concerned with protecting their rights under British common law. They adopted it as the law of the new United States of America modified only by the limitations placed on the central government by the U.S. Constitution approved in 1789.

The viability and ability to enforce contracts was recognized as essential to commerce. Courts of law were charged with enforcing legitimate contracts. Courts of equity were charged with protecting contracting parties from mistake, fraud, misrepresentation and concealment since enforcing a contract based on mistake, fraud, misrepresentation or concealment would not be fair. The common law developed rules that courts could follow to refuse to enforce the terms of a contract that was entered into because of mutual mistake of material fact, a unilateral mistake of material fact, the breach of warranty (a presumptively material promise to do or not do something), a material concealment, or a material misrepresentation. The remedy – called rescission – created a method to apply fairness to the insurance contract and allow an insurer to void a contract and allowed courts to refuse to enforce such a contract entered into by misrepresentation or concealment of material facts.

Available as a paperback.

Available as a Kindle book.

Read about these and other insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

“California Fair Claims Settlement Practices Regulations”

A Guide to Insureds, Public Insurance Adjusters, and Lawyers to Properly Investigate and Adjust Insurance Claims

This book was designed to assist insurance personnel who do business in the state of California. It will assist all insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, public insurance adjusters, policyholders and counsel for policyholders working with insurers doing business in California. All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment is now questionable and limited because some courageous insurers fought the CDOI and succeeded before an administrative law judge who limited the right to punish. Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process — even if only tangentially — to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath. To avoid the annual training the claims person can submit a sworn document that avers that he or she has read and understood the Regulations. Reviewing this book and the Regulations set forth below should be sufficient to comply with the training requirements of the Regulations. It is necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations. Counsel for insurers and policyholders should also be familiar with the Regulations since they set a minimum standard for claims handling in the state.

Available as a Kindle book.

Available as a paperback.

California SIU Regulations”

The State of California Imposes Control on the Investigation of Insurance Fraud

California SIU Regulations: The State of California Imposes Control on the Investigation of Insurance FraudCalifornia SIU Regulations is designed to assist California insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, and all integral anti-fraud personnel working with California admitted insurers to comply with the requirements of California SIU Claims Regulations.

The state of California, by statute, requires all admitted insurers to maintain a Special Investigative Unit (an “SIU”) that complies with the requirements set forth in the Special Investigative Unit Regulations (the “SIU Regulations”) and train all integral anti-fraud personnel to recognize indicators of insurance fraud.

Available as a Kindle Book.

Available as a paperback.

“Ethics for the Insurance Professional”

Methods for Insurers and their Personnel to Act with the Utmost Good FaithProduct Details

Ethics is a process of systematically applying, using, defending and recommending concepts of right and wrong behavior. Ethical behavior is required of both parties to a contract of insurance for the system to work. Ethics is the essence of insurance. Ethical behavior is required of both parties to a contract of insurance for the system to work. If any party to the insurance contract acts unethically the ability of insurance to work effectively and profitably will fail. Ethics is the essence of insurance. Since insurance was first created it has been a business of utmost good faith. As a result, the insured and the insurer are expected to treat each other ethically.

Available as a paperback.

 

 

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Liability Policy Only Applies to Property Damage to Others

Clean-up of Vehicle  and Diesel Leak After Accident Not Covered Property Damage

National Wrecker, Inc., (“NWI”) appealed from an order entered granting Progressive Casualty Insurance Company’s (“Progressive”) motion for summary judgment, and denying NWI’s. Central to this appeal is the question of whether a judgment obtained by NWI against Fred Muluya d/b/a Anakiya Trucking (“Muluya”), Progressive’s insured, is covered by Muluya’s automobile insurance contract.

In National Wrecker, Inc. v. Progressive Casualty Insurance Company, 2019 ME 153, Docket: Yor-19-63, Maine Supreme Judicial Court, (October 24, 2019) the court was asked to find coverage for the judgment obtained by NWI.

BACKGROUND

A. The Accident

Muluya1 owned a large box truck insured by a Commercial Auto Insurance Policy through Progressive, the defendant. In the early morning of December 20, 2016, the Eliot Police Department contacted NWI to respond to an accident involving Muluya’s truck, which had gone off the road and crashed into a ditch on property owned by a third party. The truck had suffered substantial damage and diesel fuel was leaking from the punctured fuel tank.

In an effort to contain the leaked fuel and prevent further leakage, the NWI employees pumped the remaining diesel from the truck and laid absorbent pads over the spilled fuel. NWI also removed debris from the scene. Two NWI wreckers removed the truck from the third party’s property to the roadway and towed it to an NWI facility in Eliot. NWI sent Muluya an invoice detailing these services and requesting payment of $7,440 for the services.

Muluya did not pay so NWI filed a complaint against Muluya seeking “payment of its invoice for recovery and remediation services; assisting of [Muluya] in the clean-up of [the] accident; towing fees; and storage fees.” Shortly thereafter the Superior Court entered judgment in favor of NWI (the “underlying judgment”) and awarded NWI $26,540 in total damages for the services listed on the invoice and the subsequent storage fees for Muluya’s truck.

The Policy

Muluya carried a Commercial Auto Insurance Policy with Progressive at all times relevant to this case. The truck was listed on the “Auto Coverage Schedule” of the policy. The policy provides $5,000 in compulsory property damage liability coverage, and $100,000 in optional property damage coverage.

Liability coverage is provided in Part I of the policy, which contains the following language: “[I]f you pay the premium for liability coverage, we will pay damages . . . for bodily injury, property damage, and covered pollution cost or expense, for which an insured becomes legally responsible because of an accident arising out of the ownership, maintenance or use of an insured auto.”

Pursuant to Maine’s reach-and-apply statute NWI filed a claim against Progressive seeking recovery of the $26,540 judgment it obtained against Muluya.

DISCUSSION

Standard liability insurance policies provide that the insurer has a duty to indemnify the insured for those sums that the insured becomes legally obligated to pay as damages for a covered claim. The reach and apply statute enables a judgment creditor to have insurance money applied to the satisfaction of the judgment by bringing an action against the judgment debtor’s insurer if the judgment debtor was insured for the liability forming the basis of the judgment.

The parties do not dispute that the basis for the underlying judgment is Muluya’s liability for payment for the services rendered by NWI. Rather, the parties dispute whether there was property damage to the property owned by the third party that is inseparably linked to those services and Muluya’s liability.

Muluya’s policy with Progressive does cover property damage caused by Muluya’s truck to the third-party owner’s property resulting from the accident. However, Muluya has not been sued by the property owner, nor has Muluya’s responsibility for any property damage ever been otherwise established.

There is nothing to establish NWI’s services were a direct result of the unidentified third-party owner’s property damage that would be covered under Muluya’s policy. Progressive was entitled to judgment, as a matter of law, because NWI failed to satisfy its burden of showing that the allegations of the underlying judgment established liability for property damage covered by the policy.

Because NWI has not established that its final judgment against Muluya is for covered damage, it cannot prevail in a reach-and-apply action and Progressive was entitled to judgment as a matter of law.

ZALMA OPINION

Had the owner of the property where the truck crashed was damaged and sued Muluya for damages there would have been no problem collecting under the Progressive policy. However, that property owner did not sue, probably because he suffered no damage. NWI’s “damage” was not to property but for services incurred protecting itself from damages because it owned the truck and leased it to Muluya. That cost of doing business was not covered property damage.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

 

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